Sotherly Hotels(US:SOHO)2023-05-12 19:54Part I - Financial Information Consolidated Financial Statements This section presents the unaudited consolidated financial statements for Sotherly Hotels Inc. and Sotherly Hotels LP for the three months ended March 31, 2023, and 2022, including balance sheets, statements of operations, and cash flows, with detailed notes on accounting policies, debt, and equity Sotherly Hotels Inc. Financial Statements For Q1 2023, Sotherly Hotels Inc. reported total revenues of $43.5 million, shifting from a net loss of $0.8 million in Q1 2022 to a net income of $1.4 million, with total assets at $407.2 million and net cash from operations at $10.0 million Sotherly Hotels Inc. Consolidated Balance Sheet Summary (As of March 31, 2023) | Metric | Amount (USD) | | :--- | :--- | | Total Assets | $407,218,526 | | Total Liabilities | $354,049,825 | | Total Equity | $53,168,701 | Sotherly Hotels Inc. Consolidated Statement of Operations Summary (Three Months Ended March 31) | Metric | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Total Revenue | $43,491,277 | $38,352,603 | | Net Operating Income | $5,520,122 | $3,925,204 | | Net Income (Loss) | $1,387,514 | $(810,944) | | Net Loss Attributable to Common Stockholders | $(581,838) | $(2,507,765) | | Basic Net Loss Per Share | $(0.03) | $(0.15) | - Net cash provided by operating activities increased to approximately $10.0 million for the three months ended March 31, 2023, up from $7.5 million in the same period of 202228 Notes to Consolidated Financial Statements The notes detail the company's portfolio of ten hotels, significant transactions, $318.6 million in mortgage debt, and $23.9 million in undeclared cumulative preferred dividends as of March 31, 2023, with subsequent events including a mortgage refinancing - As of March 31, 2023, the company's portfolio consisted of ten hotel properties with 2,786 rooms, two hotel commercial condominium units, and their associated rental programs45 - As of March 31, 2023, the company had approximately $318.6 million of outstanding mortgage debt99 - As of March 31, 2023, total undeclared and unpaid cumulative cash dividends on Series B, C, and D preferred stock were approximately $23.9 million126128 - Subsequent to the quarter end, on May 4, 2023, the company refinanced the mortgage on the DoubleTree by Hilton Laurel hotel with a new $10.0 million loan maturing in 2028 at a fixed rate of 7.35%171102 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a 13.4% increase in total revenue for Q1 2023, a shift to $1.4 million net income, adequate liquidity with $32.0 million cash, and a persistent $23.9 million preferred dividend arrearage Results of Operations For Q1 2023, total revenue increased by 13.4% to $43.5 million year-over-year, driven by a recovery in leisure, small group, and corporate travel, leading to a 14.3% growth in room revenue and improved operational efficiency Key Portfolio Operating Metrics (Composite) | Metric | Q1 2023 | Q1 2022 | Q1 2019 | | :--- | :--- | :--- | :--- | | Occupancy % | 60.4% | 53.9% | 69.9% | | ADR | $197.07 | $187.23 | $174.24 | | RevPAR | $119.06 | $100.89 | $121.86 | - Total revenue for Q1 2023 increased by approximately $5.1 million, or 13.4%, to $43.5 million compared to Q1 2022, primarily due to increased demand from leisure, small group, and corporate business travel186 - Food and beverage revenues saw a substantial increase of 55.7% to $8.7 million in Q1 2023 from $5.6 million in Q1 2022188 - Interest expense decreased by 28.0% to $4.1 million in Q1 2023, down from $5.7 million in Q1 2022, mainly due to debt reduction following asset sales and the extinguishment of Secured Notes197 Non-GAAP Financial Measures The company's key non-GAAP performance metrics showed significant improvement in Q1 2023, with FFO attributable to common stockholders and unitholders more than doubling to $3.9 million, and Hotel EBITDA growing to $12.1 million FFO and Adjusted FFO Reconciliation (Three Months Ended March 31) | Metric (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Net income (loss) | $1.4 | $(0.8) | | FFO attributable to common stockholders and unitholders | $3.9 | $1.8 | | Adjusted FFO attributable to common stockholders and unitholders | $4.7 | $1.2 | | FFO per common share and unit | $0.20 | $0.10 | | Adjusted FFO per common share and unit | $0.24 | $0.07 | Hotel EBITDA Reconciliation (Three Months Ended March 31) | Metric (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Net income (loss) | $1.4 | $(0.8) | | EBITDA | $9.9 | $9.5 | | Hotel EBITDA | $12.1 | $10.0 | Liquidity and Capital Resources As of March 31, 2023, the company had approximately $32.0 million in total cash, with $7.3 million in planned capital expenditures for 2023, and is seeking a waiver for non-compliance with a DSCR covenant on a mortgage maturing in October 2023 - As of March 31, 2023, the company had approximately $23.4 million of unrestricted cash and $8.6 million of restricted cash208 - Total capital expenditures for 2023 are expected to be approximately $7.3 million214 - The company was not in compliance with the Debt Service Coverage Requirement (DSCR) covenant for the mortgage on the DoubleTree by Hilton Philadelphia Airport and anticipates receiving a waiver, with this mortgage maturing in October 2023219220224 Dividend Policy The company resumed quarterly distributions to preferred stockholders in January 2023, but a significant arrearage of approximately $23.9 million in cumulative unpaid dividends on outstanding preferred shares remains as of March 31, 2023 - The company resumed quarterly distributions to preferred stockholders in January 2023 after deferring them since March 2020 due to the COVID-19 pandemic226227 - As of March 31, 2023, the cumulative unpaid dividends on the company's outstanding preferred shares amounted to approximately $23.9 million228 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk associated with its variable-rate debt, where a one percent increase in the Prime Rate would result in an approximate $0.1 million increase in annual interest expense Debt Structure as of March 31, 2023 | Debt Type | Amount (USD) | | :--- | :--- | | Fixed-Rate Debt | ~$307.9 million | | Variable-Rate Debt | ~$14.2 million | - A one percent increase in the Prime Rate would increase annual interest incurred and cash flows by approximately $0.1 million, based on the variable-rate debt balance at March 31, 2023238 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting identified during the last fiscal quarter - The CEO and CFO concluded that as of March 31, 2023, the disclosure controls and procedures for both Sotherly Hotels Inc. and Sotherly Hotels LP were effective240243 - There were no changes in internal control over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting242245 Part II - Other Information Legal Proceedings The company is not involved in any material legal proceedings and expects routine litigation arising from ordinary business to be covered by insurance without material impact - The company is not involved in any material legal proceedings and does not expect routine litigation to have a material impact on its financial condition or results of operations247 Risk Factors There have been no material changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes in risk factors have occurred since the filing of the 2022 Form 10-K248 Defaults Upon Senior Securities The company is in arrears on its preferred stock dividends for nine quarterly periods, totaling approximately $23.9 million as of May 12, 2023, which entitles preferred stockholders to elect two additional directors and prohibits common stock dividends - The company's distributions on Series B, C, and D Preferred Stock are in arrears for nine quarterly periods250 - Due to the dividend arrears, preferred stockholders are entitled to vote for the election of two additional company directors250 - As of May 12, 2023, the total undeclared and unpaid cash dividends were $8,784,600 for Series B, $7,950,470 for Series C, and $7,196,681 for Series D Preferred Stock251 Exhibits This section lists the exhibits filed as part of the Form 10-Q, including amendments to employment agreements and various certifications by the CEO and CFO as required by the Sarbanes-Oxley Act of 2002