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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

For the quarterly period ended June 30, 2023

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to .

 

SOTHERLY HOTELS INC.

(Exact name of registrant as specified in its charter)

 

Maryland

001-32379

20-1531029

(State or Other Jurisdiction of

Incorporation or Organization)

(Commission

File Number)

(I.R.S. Employer

Identification No.)

 

SOTHERLY HOTELS LP

(Exact name of registrant as specified in its charter)

 

Delaware

001-36091

20-1965427

(State or Other Jurisdiction of

Incorporation or Organization)

(Commission

File Number)

(I.R.S. Employer

Identification No.)

306 South Henry Street, Suite 100

Williamsburg, Virginia 23185

(757) 229-5648

(Address and Telephone Number of Principal Executive Offices)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Sotherly Hotels Inc. Yes No Sotherly Hotels LP Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)

Sotherly Hotels Inc. Yes No Sotherly Hotels LP Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act.

Sotherly Hotels Inc.

Large Accelerated Filer

 

 

Accelerated Filer

 

 

 

 

 

 

Non-accelerated Filer

 

 

Smaller Reporting Company

 

 

 

 

 

 

Emerging Growth Company

 

 

 

 

Sotherly Hotels LP

Large Accelerated Filer

 

 

Accelerated Filer

 

 

 

 

 

 

 


 

Non-accelerated Filer

 

 

Smaller Reporting Company

 

 

 

 

 

 

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Sotherly Hotels Inc. Yes No Sotherly Hotels LP Yes No

 

As of August 10, 2023, there were 19,310,803 shares of Sotherly Hotels Inc.’s common stock issued and outstanding.

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

SOHO

The NASDAQ Stock Market LLC

8.0% Series B Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value

SOHOB

The NASDAQ Stock Market LLC

7.875% Series C Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value

SOHOO

The NASDAQ Stock Market LLC

8.25% Series D Cumulative Redeemable Perpetual Preferred Stock, $0.01 par value

SOHON

The NASDAQ Stock Market LLC

 

 

 


 

EXPLANATORY NOTE

We refer to Sotherly Hotels Inc. as the “Company,” Sotherly Hotels LP as the “Operating Partnership,” the Company’s common stock as “common stock,” the Company’s preferred stock as “preferred stock,” and the Operating Partnership’s common partnership interest as “partnership units,” and the Operating Partnership’s preferred interest as the “preferred units.” References to “we” and “our” mean the Company, its Operating Partnership and its subsidiaries and predecessors, collectively, unless the context otherwise requires or where otherwise indicated.

The Company conducts virtually all of its activities through the Operating Partnership and is its sole general partner. The partnership agreement provides that the Operating Partnership will assume and pay when due, or reimburse the Company for payment of, all costs and expenses relating to the ownership and operations of, or for the benefit of, the Operating Partnership. The partnership agreement further provides that all expenses of the Company are deemed to be incurred for the benefit of the Operating Partnership.

This report combines the Quarterly Reports on Form 10-Q for the period ended June 30, 2023 of the Company and the Operating Partnership. We believe combining the quarterly reports into this single report results in the following benefits:

combined reports better reflect how management and investors view the business as a single operating unit;
combined reports enhance investors’ understanding of the Company and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management;
combined reports are more efficient for the Company and the Operating Partnership and result in savings of time, effort and expense; and
combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.

To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:

Consolidated Financial Statements;
the following Notes to Consolidated Financial Statements:
Note 6 – Preferred Stock and Units;
Note 7 – Common Stock and Units;
Note 12 – Income (Loss) Per Share and Per Unit; and
Part I, Item 4 - Controls and Procedures; and
Part II, Item 6 - Certifications of CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act.

 

3


 

SOTHERLY HOTELS INC.

SOTHERLY HOTELS LP

INDEX

 

 

Page

 

 

 

 

 

PART I

Item 1.

 

Consolidated Financial Statements

 

5

 

 

 

 

 

 

Sotherly Hotels Inc.

 

 

 

Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022

 

5

 

Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2023 and 2022

 

6

 

Consolidated Statements of Changes in Equity (unaudited) for the Three Months Ended March 31, June 30, 2023 and 2022

 

7

 

Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2023 and 2022

 

9

 

 

 

 

 

 

Sotherly Hotels LP

 

 

 

Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022

 

10

 

Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2023 and 2022

 

11

 

Consolidated Statements of Changes in Partners’ Capital (unaudited) for the Three Months Ended March 31, June 30, 2023 and 2022

 

12

 

Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2023 and 2022

 

14

 

Notes to Consolidated Financial Statements

 

15

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

34

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

45

Item 4

 

Controls and Procedures

 

46

 

 

 

PART II

Item 1.

 

Legal Proceedings

 

47

Item 1A.

 

Risk Factors

 

47

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

47

Item 3.

 

Defaults Upon Senior Securities

 

47

Item 4.

 

Mine Safety Disclosures

 

47

Item 5.

 

Other Information

 

47

Item 6.

 

Exhibits

 

48

 

4


 

PART I

 

 

Item 1. Consolidated Financial Statements

SOTHERLY HOTELS INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

June 30, 2023

 

 

December 31, 2022

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Investment in hotel properties, net

 

$

360,056,196

 

 

$

365,070,725

 

Cash and cash equivalents

 

 

24,226,602

 

 

 

21,918,680

 

Restricted cash

 

 

7,962,807

 

 

 

5,422,950

 

Accounts receivable, net

 

 

5,247,324

 

 

 

5,844,904

 

Prepaid expenses, inventory and other assets

 

 

10,520,047

 

 

 

8,311,862

 

TOTAL ASSETS

 

$

408,012,976

 

 

$

406,569,121

 

LIABILITIES

 

 

 

 

 

 

Mortgage loans, net

 

$

319,289,449

 

 

$

320,482,103

 

Unsecured notes

 

 

1,929,073

 

 

 

2,545,975

 

Accounts payable and accrued liabilities

 

 

25,516,483

 

 

 

25,704,835

 

Advance deposits

 

 

2,703,265

 

 

 

2,233,013

 

Dividends and distributions payable

 

 

4,082,472

 

 

 

4,082,472

 

TOTAL LIABILITIES

 

$

353,520,742

 

 

$

355,048,398

 

Commitments and contingencies (See Note 5)

 

 

 

 

 

 

EQUITY

 

 

 

 

 

 

Sotherly Hotels Inc. stockholders’ equity

 

 

 

 

 

 

Preferred stock, $0.01 par value, 11,000,000 shares authorized:

 

 

 

 

 

 

8.0% Series B cumulative redeemable perpetual preferred stock,
   
1,464,100 and 1,464,100 shares issued and outstanding; aggregate liquidation
    preference each $
44,655,050, at June 30, 2023 and
    December 31, 2022, respectively.

 

 

14,641

 

 

 

14,641

 

7.875% Series C cumulative redeemable perpetual preferred stock,
    
1,346,110 and 1,346,110 shares issued and outstanding; aggregate liquidation
    preference each $
40,940,681, at June 30, 2023 and
    December 31, 2022, respectively.

 

 

13,461

 

 

 

13,461

 

8.25% Series D cumulative redeemable perpetual preferred stock,
   
1,163,100 and 1,163,100 shares issued and outstanding; aggregate liquidation
   preference each $
35,674,458, at June 30, 2023 and
   December 31, 2022, respectively.

 

 

11,631

 

 

 

11,631

 

Common stock, par value $0.01, 69,000,000 shares authorized, 19,310,803
   shares issued and outstanding at June 30, 2023 and
18,951,525 
   shares issued and outstanding at December 31, 2022.

 

 

193,108

 

 

 

189,515

 

Additional paid-in capital

 

 

176,258,261

 

 

 

175,611,370

 

Unearned ESOP shares

 

 

(2,509,867

)

 

 

(2,601,134

)

Distributions in excess of retained earnings

 

 

(118,434,462

)

 

 

(120,985,183

)

Total Sotherly Hotels Inc. stockholders’ equity

 

 

55,546,773

 

 

 

52,254,301

 

Noncontrolling interest

 

 

(1,054,539

)

 

 

(733,578

)

TOTAL EQUITY

 

 

54,492,234

 

 

 

51,520,723

 

TOTAL LIABILITIES AND EQUITY

 

$

408,012,976

 

 

$

406,569,121

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

5


 

SOTHERLY HOTELS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

Three Months Ended

 

 

Three Months Ended

 

 

Six Months Ended

 

 

Six Months Ended

 

 

 

June 30, 2023

 

 

June 30, 2022

 

 

June 30, 2023

 

 

June 30, 2022

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

Rooms department

 

$

33,253,523

 

 

$

32,545,588

 

 

$

61,655,211

 

 

$

57,398,973

 

Food and beverage department

 

 

9,500,974

 

 

 

7,712,310

 

 

 

18,249,700

 

 

 

13,330,046

 

Other operating departments

 

 

6,262,836

 

 

 

6,912,361

 

 

 

12,603,699

 

 

 

14,793,842

 

Total revenue

 

 

49,017,333

 

 

 

47,170,259

 

 

 

92,508,610

 

 

 

85,522,861

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Hotel operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Rooms department

 

 

7,016,339

 

 

 

7,205,585

 

 

 

13,429,434

 

 

 

13,155,343

 

Food and beverage department

 

 

6,390,867

 

 

 

5,256,164

 

 

 

12,326,427

 

 

 

9,136,781

 

Other operating departments

 

 

2,305,755

 

 

 

2,599,372

 

 

 

4,621,603

 

 

 

5,083,479

 

Indirect

 

 

18,462,336

 

 

 

17,337,585

 

 

 

35,209,913

 

 

 

33,400,946

 

Total hotel operating expenses

 

 

34,175,297

 

 

 

32,398,706

 

 

 

65,587,377

 

 

 

60,776,549

 

Depreciation and amortization

 

 

4,763,193

 

 

 

4,619,743

 

 

 

9,341,504

 

 

 

9,184,815

 

Loss on disposal of assets

 

 

 

 

 

520,156

 

 

 

 

 

 

490,613

 

Corporate general and administrative

 

 

1,789,041

 

 

 

1,432,366

 

 

 

3,769,805

 

 

 

2,946,393

 

Total operating expenses

 

 

40,727,531

 

 

 

38,970,971

 

 

 

78,698,686

 

 

 

73,398,370

 

NET OPERATING INCOME

 

 

8,289,802

 

 

 

8,199,288

 

 

 

13,809,924

 

 

 

12,124,491

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(4,288,367

)

 

 

(5,342,940

)

 

 

(8,401,964

)

 

 

(11,056,144

)

Interest income

 

 

222,772

 

 

 

27,486

 

 

 

369,437

 

 

 

51,934

 

Loss on early extinguishment of debt

 

 

 

 

 

(5,944,881

)

 

 

 

 

 

(5,944,881

)

Unrealized gain (loss) on hedging activities

 

 

286,831

 

 

 

572,497

 

 

 

(155,632

)

 

 

1,534,760

 

PPP loan forgiveness

 

 

 

 

 

 

 

 

275,494

 

 

 

 

Gain on sale of hotel properties

 

 

 

 

 

30,053,977

 

 

 

 

 

 

30,053,977

 

Gain on involuntary conversion of assets

 

 

763,169

 

 

 

51,547

 

 

 

779,645

 

 

 

51,547

 

Net income before income taxes

 

 

5,274,207

 

 

 

27,616,974

 

 

 

6,676,904

 

 

 

26,815,684

 

Income tax provision

 

 

(16,537

)

 

 

(11,615

)

 

 

(31,719

)

 

 

(21,269

)

Net income

 

 

5,257,670

 

 

 

27,605,359

 

 

 

6,645,185

 

 

 

26,794,415

 

Add: Net income attributable to noncontrolling interest

 

 

(130,798

)

 

 

(1,529,940

)

 

 

(105,838

)

 

 

(1,368,319

)

Net income attributable to the Company

 

 

5,126,872

 

 

 

26,075,419

 

 

 

6,539,347

 

 

 

25,426,096

 

Undeclared distributions to preferred stockholders

 

 

(1,994,313

)

 

 

(1,889,470

)

 

 

(3,988,625

)

 

 

(3,826,086

)

Gain on extinguishment of preferred stock

 

 

 

 

 

83,500

 

 

 

 

 

 

161,675

 

Net income attributable to common stockholders

 

$

3,132,559

 

 

$

24,269,449

 

 

$

2,550,722

 

 

$

21,761,685

 

Net income per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.16

 

 

$

1.36

 

 

$

0.13

 

 

$

1.24

 

Diluted

 

$

0.16

 

 

$

1.32

 

 

$

0.13

 

 

$

1.20

 

Weighted average number of common shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

18,712,452

 

 

 

17,762,513

 

 

 

18,658,538

 

 

 

17,436,975

 

Diluted

 

 

18,715,098

 

 

 

18,304,508

 

 

 

18,658,538

 

 

 

18,031,381

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

6


 

SOTHERLY HOTELS INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Unearned

 

 

Distributions

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-

 

 

ESOP

 

 

in Excess of

 

 

Noncontrolling

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Shares

 

 

Par Value

 

 

In Capital

 

 

Shares

 

 

Retained Earnings

 

 

Interest

 

 

Total

 

Balances at December 31, 2022

 

 

3,973,310

 

 

$

39,733

 

 

 

18,951,525

 

 

$

189,515

 

 

$

175,611,370

 

 

$

(2,601,134

)

 

$

(120,985,183

)

 

$

(733,578

)

 

$

51,520,723

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,412,474

 

 

 

(24,960

)

 

 

1,387,514

 

Issuance of common stock

 

 

 

 

 

 

 

 

64,278

 

 

 

643

 

 

 

120,842

 

 

 

 

 

 

 

 

 

 

 

 

121,485

 

Issuance of restricted
   common stock awards

 

 

 

 

 

 

 

 

220,000

 

 

 

2,200

 

 

 

101,701

 

 

 

 

 

 

 

 

 

 

 

 

103,901

 

Amortization of ESOP shares