Sotherly Hotels ($SOHO) Preferreds: Urban Recovery Play or Yield Trap?
Sotherly Hotels ($SOHO) Preferreds: Urban Recovery Play or Yield Trap?
Reviewing the REIT's Busted Preferred Securities Yielding ~11%
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Situation Overview:
Founded in 1957 and headquartered in Williamsburg, Virginia, Sotherly Hotels Inc. (“SOHO”) is a self-managed, small-cap lodging REIT focused on upscale and upper-upscale full-service hotels in the Southern United States. The company owns 12 hotels with 3,156 rooms across 8 states, operating under various Hilton, Hyatt, and Marriott brands as well as independent flags. SOHO’s portfolio is concentrated in urban and resort markets, with key assets in Atlanta, Tampa, Houston, and Savannah.
Post-Pandemic Recovery
Like most of its lodging REIT peers, SOHO was severely impacted by the COVID-19 pandemic, which caused a dramatic drop in travel demand and hotel occupancy in 2020. The company suspended its common and preferred dividends, obtained debt forbearance agreements, and took aggressive cost-cutting measures to preserve liquidity during the crisis. As travel demand rebounded, particularly for leisure destinations, SOHO’s operational performance has steadily improved. The company’s RevPAR reached 107.5% of 2019 levels by 2Q’24, driven by ADR growth of 11.7% compared to 2019, though occupancy still lags by 3.8%.
Uneven Recovery Across Markets
SOHO’s portfolio recovery has been uneven, with leisure-oriented and drive-to markets like Tampa, Savannah, and Wilmington outperforming urban business travel destinations. The company’s South Florida properties, which benefited from “revenge travel” demand in 2022, have seen softening in 2023 as international travel patterns normalized. Meanwhile, urban markets like Philadelphia, Houston, and Atlanta continue to lag 2019 performance levels, though they are showing signs of improvement as group and corporate demand gradually returns.