ANNUAL MEETING OF STOCKHOLDERS April 28, 2016 9:00 AM Kimball Theatre Williamsburg, Virginia
Forward-Looking Statements This presentation includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. Although the Company believes that the expectations and assumptions reflected in the forward-looking statements are reasonable, these statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond the Company s control. Therefore, actual outcomes and results may differ materially from what is expressed, forecasted or implied in such forward-looking statements. Economic conditions generally and the real estate market specifically, management and performance of the Company s hotels, plans for hotel renovations, financing plans, supply and demand for hotel rooms in the Company s current and proposed market areas, the Company s ability to acquire additional properties and the risk that potential acquisitions may not perform in accordance with expectations, legislative/regulatory changes, including changes to laws governing taxation of real estate investment trust and competitions, and other factors may affect the Company s future results, performance and achievements. These risks and uncertainties are described in greater detail under Risk Factors in the Company s Annual Report on Form 10-K and subsequent reports filed with the Securities and Exchange Commission. The Company undertakes no obligation and does not intend to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Although we believe our current expectations to be based upon reasonable assumptions, we can give no assurance that our expectations will be attained or that actual results will not differ materially. Sheraton Louisville Riverside Crowne Plaza Hollywood Beach 2
Non-GAAP Financial Measures This presentation included disclosure of non-gaap measures, including funds from operations ( FFO ), adjusted FFO ( AFFO ), earnings before interest, taxes, depreciation and amortization ( EBITDA ), adjusted EBITDA and hotel EDITDA. The Company considers FFO, AFFO, EBITDA, adjusted EBITDA and hotel EBITDA to be key supplemental measures of the Company s performance, and they should be considered along with, but not as alternatives to, net income as a measure of the Company s operating performance. None of FFO, AFFO, EBITDA, adjusted EBITDA and hotel EBITDA represent cash generated from operating activities determined by GAAP and should not be considered as alternatives to net income, cash flow from operations or any other operating performance measure prescribed by GAAP. None of FFO, AFFO, EBITDA, adjusted EBITDA and hotel EBITDA are measures of the Company s liquidity, nor are FFO, AFFO, EBITDA, adjusted EBITDA and hotel EBITDA indicative of funds available to fund the Company s cash needs, including its ability to make cash distributions. Please refer to the Company s filings with the SEC and its earnings releases, which are available at www.sotherlyhotels.com, for disclosure of the Company s net income, for reconciliations of FFO, AFFO, EBITDA, adjusted EBITDA and hotel EBITDA to net income and for additional detail on the Company s use of non- GAAP measures. Hilton Wilmington Riverside DoubleTree By Hilton Jacksonville Riverfront 3
Management Team Drew Sims Chairman & CEO Chairman & CEO So THERLY Hotels Inc. Served as Chairman & CEO since IPO in 2004 President of MHI Hotel Services from 1995 2004 VP of Finance and Development for MHI Hotel Services from 1988 1995 Father, Edgar Sims Jr., founded company as Maryland Hospitality in 1957 Bachelors of Science in Commerce from Washington & Lee University Dave Folsom President & Chief Operating Officer President, COO & Director So THERLY Hotels Inc. Vice President of Paragon Real Estate (2005) Investment Banker, BB&T Capital Markets (2001 2005); lead underwriter on REIT s IPO in 2004 Commissioned officer in the U.S. Marine Corps Bachelors of Science from U.S. Naval Academy M.B.A. Georgetown University Tony Domalski Chief Financial Officer CFO & Vice President So THERLY Hotels Inc. CFO of SwissFone, Inc. (2001 2005) Spent several years in public accounting firm 30 years as a Certified Public Accountant Bachelors of Science in Finance and Accounting from the University of Maryland 4
Independent Board of Directors Gen. Anthony Zinni Director Former Commanding General, First Marine Expeditionary Force with the U.S. Marine Corps from 1994-1996; 39 year career Commander in Chief, U.S. Central Command from 1997 2000 Former Chairman, BAE Systems Consultant in areas of defense, military, national security and foreign policy Herschel J. Walker Director Founder & CEO of H. Walker Enterprises, a manufacturer and distributer of meat products Owner of Herschel s Chicken and Ribs Kitchen Former NFL player/college standout and competed on 1992 Winter Olympic bobsled team David J. Beatty Audit Committee Chair Founder of Guest Quarters Former head of marketing operations for George Kaufman real estate development group Founder of Essex Commercial Mortgage in 1987 Bachelors in Economics from Georgetown University and Master s Degree in Finance and Marketing from the University of Virginia Edward S. Stein Lead Independent Director Director and Chairman of the Nominating, Corporate Governance and Comp. Committee Founding Partner of Weinberg & Stein Harvard College (A.B. 1968) and the University of Virginia School of Law (J.D. 1974) 5
Portfolio Overview DoubleTree By Hilton Raleigh Brownstone Crowne Plaza Hampton Marina (Norfolk, VA MSA) DoubleTree by Hilton Laurel (Washington, DC MSA) DoubleTree by Hilton Philadelphia Airport Hilton Wilmington Riverside Hilton Savannah DeSoto Sheraton Louisville Riverside DoubleTree by Hilton Jacksonville Riverfront The Georgian Terrace Atlanta, Georgia Crowne Plaza Tampa Westshore The Whitehall Houston, Texas Crowne Plaza Hollywood Beach (Miami, FL MSA) 6
Portfolio Overview Property Breakdown Key Operating Metrics (Year-end 2015) Properties Number of Rooms Location Date of Acquisition Chain Designation The Georgian Terrace by Sotherly Hotels 326 Atlanta, GA 3/27/2014 Independent (1) The Whitehall by Sotherly Hotels 259 Houston, TX 11/13/2013 Independent (1) Hilton Wilmington Riverside 272 Wilmington, NC 12/21/2004 Upper Upscale Hilton Savannah DeSoto 246 Savannah, GA 12/21/2004 Upper Upscale Sheraton Louisville Riverside 180 Jeffersonville, IN 9/20/2006 Upper Upscale DoubleTree by Hilton Philadelphia Airport 331 Philadelphia, PA 12/21/2004 Upscale DoubleTree by Hilton Laurel West 208 Laurel, MD 12/21/2004 Upscale DoubleTree by Hilton Brownstone-University 190 Raleigh, NC 12/21/2004 Upscale DoubleTree by Hilton Jacksonville Riverfront 293 Jacksonville, FL 7/22/2005 Upscale Crowne Plaza Tampa Westshore 222 Tampa, FL 10/29/2007 Upscale Crowne Plaza Hampton Marina 173 Hampton, VA 4/24/2008 Upscale Crowne Plaza Hollywood Beach Resort 311 Hollywood, FL 7/31/2015 Upscale Total Rooms in Portfolio 3,011 1. SOTHERLY believes that the Georgian Terrace and the Whitehall would carry a chain scale designation of upper upscale i were branded hotels. Breakdown of Portfolio Brands (1) Breakdown of Portfolio Mix (1)(2) Average Properties Occupancy (1) ADR (2) RevPAR (3) Crowne Plaza Hollywood Beach Resort 83.1% 174.35 144.86 Hilton Savannah DeSoto 76.9% 154.52 118.89 Sheraton Louisville Riverside 69.5% 161.03 111.87 The Georgian Terrace by Sotherly Hotels 69.9% 155.56 108.70 DoubleTree by Hilton Philadelphia Airport 79.3% 136.32 108.13 The Whitehall by Sotherly Hotels 70.9% 142.05 100.66 Hilton Wilmington Riverside 71.6% 138.36 99.07 DoubleTree by Hilton Raleigh Brownstone - University 71.5% 131.61 94.16 Crowne Plaza Tampa Westshore 72.5% 111.08 80.53 DoubleTree by Hilton Jacksonville Riverfront 67.4% 109.20 73.60 Crowne Plaza Hampton Marina 55.2% 93.59 51.64 DoubleTree by Hilton Laurel 48.2% 95.19 45.86 Totals / Weighted Average in Portfolio 70.8% 138.18 97.81 1. Average Occupancy is calculated by dividing the number of rooms sold by the total number of rooms available. 2. ADR is calculated by dividing the total daily room revenue by total daily rooms sold. 3. RevPAR is calculated by multiplying ADR and average daily occupancy. 23.4% 19.4% 6.0% 51.1% Independent Hilton Starwood IHG 42.6% 57.4% Upper Upscale Upscale 1. Calculated as % of total rooms Source: Filings of Sotherly Hotels Inc. 1. Calculated as % of total rooms 2. The Georgian Terrace and The Whitehall are included in Upper Upscale segment 7
Yearly Operating Performance RevPAR 6.1% growth in 2015 $110.00 $103.00 $100.00 $93.80 $90.00 $80.16 $88.42 $80.00 $78.65 $70.00 $68.93 $72.94 $60.00 $50.00 ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL GUIDANCE 2010 2011 2012 2013 2014 2015 2016 *2016 Guidance at midpoint of range Source: Filings of Sotherly Hotels Inc. 8
Yearly Operating Performance Total Revenue 12.7% growth in 2015 160,000,000 152,958,000 140,000,000 138,533,476 120,000,000 122,939,919 100,000,000 80,000,000 81,172,504 87,343,220 89,374,527 60,000,000 40,000,000 20,000,000 - ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL GUIDANCE 2011 2012 2013 2014 2015 2016 *2016 Guidance at midpoint of range Source: Filings of Sotherly Hotels Inc. 9
Yearly Operating Performance Hotel EBITDA $50,000 13.5% growth in 2015 $45,000 $45,203.50 $40,000 $36,447.00 $35,000 $32,113.00 $30,000 $25,000 $22,439.77 $23,279.81 $20,000 $18,708.02 $15,000 $10,000 $5,000 $0 ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL GUIDANCE 2011 2012 2013 2014 2015 2016 *2016 Guidance at midpoint of range Source: Filings of Sotherly Hotels Inc. 10
Yearly Operating Performance Hotel EBITDA Margin 20 bps growth in 2015 30.0% 29.6% 28.0% 26.0% 25.7% 26.0% 26.1% 26.3% 24.0% 23.0% 22.0% 20.0% ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL GUIDANCE 2011 2012 2013 2014 2015 2016 *2016 Guidance at midpoint of range Source: Filings of Sotherly Hotels Inc. 11
Yearly Operating Performance Adjusted FFO/Share (AFFO/Share) $1.25 $1.20 $1.00 $0.84 $1.09 $1.00 $0.80 $0.73 $0.60 $0.40 $0.43 $0.20 $0.00 ACTUAL ACTUAL ACTUAL ACTUAL ACTUAL GUIDANCE 2011 2012 2013 2014 2015 2016 *2016 Guidance at midpoint of range Source: Filings of Sotherly Hotels Inc. 12
SOHO Strategy: Focused Investment Criteria So THERLY s business model includes strategic growth through acquisitions of full-service, upscale and upper-upscale hotel properties located in the primary markets in the Southern United States, specifically focused on the following: Geographic Growth Markets Focuses on the top 25 markets of the Southern United States Management believes its target markets have been characterized by population growth, economic expansion, growth in new businesses and growth in the resort, recreation and leisure segments Full-Service Hotels Focus on full-service hotels in the upscale to upper-upscale category Management believes that full-service hotels in the upscale and upperupscale segments will outperform the broader U.S. hotel industry Significant Barriers to Entry Acquire properties in prime locations with significant barriers to entry Geographic exclusivity enhances and preserves hotel value Proximity to Demand Generators Seek to acquire properties located in central business district markets near multiple demand generators for both leisure and business travelers the A location in each market These generators include large universities, convention centers, corporate headquarters, sports and entertainment venues and office space 13
SOHO Strategy: Southern US Demographics Domestic migration indicates the Southern U.S. is experiencing the largest increase in demographic trends over the last ten years. Our target markets are the beneficiary of those trends Plan for continued growth within these markets Positive net migration brings many benefits to the local economy: Larger skilled workforce Diversification of skill sets Institutional and government spending Focus on markets with strong employment drivers that demonstrate the following characteristics: Recent corporate relocation Newly built production plants/facilities Established Fortune 500 companies Non-service dependent markets Growing demand for lodging Current Markets Target Markets 14
Strategic Initiatives - 2015 Focused Asset Management Upbranding of Jacksonville, Laurel, Atlanta and Houston in 2015 ADR growth and margin expansion Enhanced guest experience Prudent capital allocation for improvements Capital Recycling Dispose of non-core assets if and when market conditions permit Proceeds provide liquidity for additional acquisitions via tax-free exchange Balance Sheet Management Access the capital markets in prudent fashion when conditions permit Lock-in favorable interest rates 2015 financing activity: Atlanta, Jacksonville, Hollywood and Laurel DoubleTree By Hilton Raleigh Brownstone Grow Portfolio Through Acquisitions Target markets include: Charleston (SC), New Orleans, Nashville, Charlotte, Washington, D.C., among others Attempt to source off-market deals when possible such as Hollywood Dividend Growth Steady growth consistent with portfolio performance and balance sheet improvement Hilton Savannah DeSoto 15
Strategic Initiatives - 2015 Focused Asset Management - Organic Value Creation Continued repositioning plans in Houston and Atlanta Strategic initiative to enhance each hotel brand to capture significant RevPAR premiums Crowne Plaza Houston Downtown Crowne Plaza Jacksonville Riverfront The Georgian Terrace Holiday Inn Laurel West 16
Strategic Initiatives - 2015 Capital Recycling Sale of Atlanta Outparcel Purchase Price - $1.0 million in March 2014 Sold for $2.6 million in September 2015 Real Property - $2.2 million Development Rights - $0.4 million The Whitehall The Georgian Terrace 17
Strategic Initiatives - 2015 Balance Sheet Management Capital Markets Access Secondary Offering June 2015 ATM Hotel Financings Atlanta Jacksonville Hollywood Laurel The Whitehall As of year-end 2015, 84% of Company s debt carried a fixed rate of interest The Georgian Terrace 18
Strategic Initiatives - 2015 Portfolio Growth Hollywood Acquisition Date Acquired: July 31, 2015 Purchase Price: $88.0 million blended basis (1) Keys: 311 Price per Key: $282,958 Strategic Rationale and Current Results Uniquely positioned to effectively underwrite and acquire the asset at favorable pricing 7.5% cap rate on 2015 estimates Hotel s T-12 RevPAR represents a nearly 50% premium to total portfolio RevPAR High quality asset in strong market: 2007 complete rebuild with minimal capital expenditures forecasted in near term Strong stable in-place cash flow: RevPAR and total revenue increases of 8.9% and 8.7% from 2010-2014 (compounded annual growth rate) Favorable outlook on Fort Lauderdale/Hollywood, FL hotel market with 10.7% RevPAR growth last year in 2015. 1. Blended Basis includes SOHO s 25% equity interest in the hotel at $74.0 million from the 2007 JV purchase and remaining 75% interest from the Carlyle Group at an imputed hotel value of $92.5 million. 19
Dividends - 2015 Steady Dividend Growth Increased 10 out of past 15 quarters 80% increase in past 24 months Current Yield over 7% 0.090 0.085 0.080.080 0.075 0.070 0.065 0.065 0.050 0.0450.045 0.040 0.0350.035 0.030.030 0.020 0.00 1.54 Dividend Yield (%) as of 4/25/2015 3.09 3.68 4.25 5.43 5.22 5.59 5.59 6.36 6.12 6.67 6.58 7.26 7.06 7.58 8.78 0.00 2.00 4.00 6.00 8.00 10.00 Source: Filings of Sotherly Hotels Inc. 20
Stock Performance - 2015 Total Return All Lodging REITs 2015 2013-2015 2011-2015 APLE INN AHP SOHO SHO HT CHSP -28.8-13.5-14.3-16.0-18.9-0.4 15.7 SOHO FCH INN CHSP SHO PEB RLJ 60.2 43.1 37.9 34.7 31.5 26.0 106.5 SOHO CHSP PEB INN RLJ AHT 69.3 56.6 51.9 44.4 43.0 240.7 AHT -31.2 HT 23.8 SHO 39.7 XHR -31.2 AHT 19.8 LHO 13.5 FCH RLJ DRH HST LHO PEB -31.4-32.2-32.3-32.5-34.3-36.5 DRH APLE LHO HST AHP XHR -29.1-31.2 19.4 15.7 12.8 8.7 FCH HT HST DRH AHP -1.9-4.3-29.1 6.3 3.2 CDOR -45.9 CDOR-84.7 CDOR -90.1-60 -40-20 0 20-100 -50 0 50 100 150-200 -100 0 100 200 300 Source: SNL Financial as of March 20, 2015 21
Peer Comparisons Deep Relative Discount Compared to Lodging REIT Peers 14.0 Price/EBITDA (SNL Financial) 14.0 Price/AFFO Estimate (FactSet) 12.0 11.7x 12.0 12.1x 12.7x 12.7x 10.0 8.7x 9.5x 10.0 9.5x 9.7x 9.9x 10.0x 10.2x 10.4x 8.0 7.4x 7.4x 7.6x 8.0 7.8x 8.1x 6.0 5.4x 6.0x 6.2x 6.0 6.2x 6.6x 4.0 2.0 1.8x 2.3x 2.3x 2.5x 2.8x 3.9x 4.0 2.0 3.4x 4.1x 0.0 0.0 *Source: SNL Financial *Source: SNL Financial 22
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