Sotherly Hotels(SOHO) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q3 2020, total revenue was approximately $14.4 million, a decrease of approximately $28.1 million or 66.1% compared to the same quarter a year ago [18] - Year-to-date total revenue was approximately $56.9 million, representing a decrease of $84.6 million or 59.8% over the prior period [18] - Hotel EBITDA for the quarter was a deficit of approximately $1.2 million, a decrease of approximately $10.1 million or 113% over the same quarter a year ago [19] - Adjusted FFO for the quarter was a deficit of approximately $8.6 million, a decrease of approximately $12.8 million or 301% over the same quarter a year ago [20] Business Line Data and Key Metrics Changes - RevPAR for the composite portfolio decreased 63.3% year-over-year, reflecting a 59.8% decrease in occupancy and an 8.9% decrease in ADR [6] - Year-to-date portfolio RevPAR decreased 60.4% over the prior year, with a 57.6% decrease in occupancy and a 6.5% decrease in ADR [7] - Six of the company's 14 hotels achieved better than breakeven EBITDA during the quarter [21] Market Data and Key Metrics Changes - The performance of the lodging industry was significantly influenced by COVID-19, with varying restrictions across states impacting travel demand [8][9] - Incremental improvements in hotel demand were observed throughout the quarter, with RevPAR showing a gradual increase from $36.27 in July to $44.28 in September [12] Company Strategy and Development Direction - The company is focusing on capturing transient leisure business, which has become the most valuable market segment due to the decline in group and business travel [36] - Management has implemented stringent cost reduction initiatives, reducing hotel operating expenses by approximately 61% from the same quarter a year ago [24][38] - The company is transitioning management of its properties to Our Town Hospitality to improve workflow and efficiency [16] Management's Comments on Operating Environment and Future Outlook - The revenue recovery trajectory for the US lodging industry has been slower than originally projected, with uncertainty surrounding stimulus bills and vaccine development impacting consumer confidence [33][42] - The company expects 2021 to show vast improvement over 2020, with a material increase in demand anticipated [43] - The timeline for a full return to 2019 demand levels remains unclear, but management is dedicated to preserving liquidity and making sound operational decisions [44][45] Other Important Information - The company had total cash of approximately $23.2 million at the end of the quarter, with an estimated average monthly cash burn rate for Q4 ranging from a small amount of cash generation in October to no more than $0.45 million in November and December [21][22] - The company suspended dividends and deferred payments to conserve cash reserves, eliminating a draw of approximately $4.25 million per quarter [28] Q&A Session Summary Question: Thoughts on the recovery of the business and which segments may return first? - Management believes there is significant pent-up leisure demand and expects group and corporate business to return with the rollout of a vaccine program [48][49] Question: Insights on revenue management initiatives? - The company focuses on preserving rate integrity rather than engaging in a race to the bottom on pricing, which positions them well for recovery [50][51] Question: Occupancy trends moving into October? - Incremental increases in occupancy have been observed since April, with expectations for continued gradual increases due to local jurisdiction decisions [55][56] Question: Clarification on cash balance and loan payments? - The company is current on mortgage loans and has negotiated various forbearance agreements with lenders, ensuring compliance with modified terms [60][66] Question: Split of CMBS versus individual hotel loans? - The company has three CMBS loans among its 12 mortgages, with no cross-collateralization [69][70] Question: Performance of breakeven hotels and economic improvement? - Leisure destinations have driven improvements in occupancy, particularly in areas with minimal restrictions, while urban core locations have faced challenges [74][75]