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.

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.)

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. ~~(Check one):~~

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).

As of ~~May 3, 2019,~~June 22, 2020, there were ~~14,222,378~~14,823,580 shares of Sotherly Hotels Inc.’s common stock issued and outstanding.

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 ~~interest.~~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.

As previously disclosed in our Current Report on Form 8-K filed by the Company with the U.S. Securities and Exchange Commission (the “SEC”) on May 8, 2020, the Company relied on the SEC order (Release No. 34-88318), as modified and superseded by a new SEC order (Release No. 34-88465) (the “SEC Order”), issued under Section 36 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) in filing this Form 10-Q for the quarter ended March 31, 2020 (the “Quarterly Report”). The SEC Order provides conditional relief to public companies that are unable to timely comply with certain filing obligations as a result of the ongoing novel coronavirus (“COVID-19”). The SEC Order provides that a registrant subject to the reporting requirements of Exchange Act Section 13(a) or 15(d), and any person required to make any filings with respect to such registrant, is exempt from any requirement to file or furnish materials with the SEC under Exchange Act Sections 13(a), 13(f), 13(g), 14(a), 14(c), 14(f), 15(d) and Regulations 13A, Regulation 13D-G (except for those provisions mandating the filing of Schedule 13D or amendments to Schedule 13D), 14A, 14C and 15D, and Exchange Act Rules 13f-1, and 14f-1, as applicable, if certain conditions are satisfied.

The Company and the Operating Partnership relied on the SEC Order to delay the filing of our Quarterly Report due to the significant impacts and disruptions of the COVID-19 pandemic. The effects of the ongoing COVID-19 pandemic and the resultant state orders, including in Virginia, where the Company’s headquarters is located, have limited access to our facilities and impacted normal working patterns as they required the majority of our staff to stay at home and transition to a remote working environment on very short notice. At the same time, the Company’s attention and resources have been focused on addressing the severe impacts of the COVID-19 pandemic on our business and operations as described in further detail below. These factors delayed our ability to complete and file our Quarterly Report by May 11, 2020.

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 March 31, ~~2019~~2020 of the Company and the Operating Partnership. We believe combining the quarterly reports into this single report results in the following benefits:

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:

March 31, 2019

December 31, 2018

(unaudited)

ASSETS

Investment in hotel properties, net

$
441,261,072

$
435,725,814

Cash and cash equivalents

29,004,070

33,792,773

Restricted cash

4,407,557

4,075,508

Accounts receivable, net

10,346,796

6,766,696

Accounts receivable - affiliate

237,710

262,572

Prepaid expenses, inventory and other assets

5,688,031

5,262,884

Favorable lease assets, net

—

2,465,421

Deferred income taxes

4,846,500

5,131,179

TOTAL ASSETS

$
495,791,736

$
493,482,847

LIABILITIES

Mortgage loans, net

$
363,636,230

$
364,828,845

Unsecured notes, net

24,025,056

23,894,658

Accounts payable and accrued liabilities

23,714,256

16,268,096

Advance deposits

2,351,972

2,815,283

Dividends and distributions payable

3,414,285

3,409,593

TOTAL LIABILITIES

$
417,141,799

$
411,216,475

Commitments and contingencies  (See Note 6)

—

—

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,
   liquidation preference $25 per share, 1,610,000 shares issued
   and outstanding at March 31, 2019 and December 31, 2018, respectively

16,100

16,100

7.875% Series C cumulative redeemable perpetual preferred stock,
   liquidation preference $25 per share, 1,352,141 shares issued
   and outstanding at March 31, 2019 and December 31, 2018, respectively

13,521

13,521

Common stock, par value $0.01, 49,000,000 shares authorized, 14,222,378
   shares and 14,209,378 shares issued and outstanding at March 31, 2019
   and December 31, 2018, respectively

142,223

142,093

Additional paid-in capital

147,184,199

147,085,112

Unearned ESOP shares

(4,312,508
)

(4,379,742
)
Distributions in excess of retained earnings

(64,406,087
)

(61,052,418
)
Total Sotherly Hotels Inc. stockholders’ equity

78,637,448

81,824,666

Noncontrolling interest

12,489

441,706

TOTAL EQUITY

78,649,937

82,266,372

TOTAL LIABILITIES AND EQUITY

$
495,791,736

$
493,482,847

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

Three Months Ended

Three Months Ended

March 31, 2019

March 31, 2018

��
(unaudited)

(unaudited)

REVENUE

Rooms department

$
32,951,871

$
28,285,445

Food and beverage department

9,723,124

8,351,983

Other operating departments

4,715,309

5,098,128

Total revenue

47,390,304

41,735,556

EXPENSES

Hotel operating expenses

Rooms department

7,781,439

6,700,381

Food and beverage department

7,136,833

6,395,076

Other operating departments

1,910,135

1,528,327

Indirect

17,389,680

15,233,256

Total hotel operating expenses

34,218,087

29,857,040

Depreciation and amortization

6,028,735

5,634,190

(Gain) loss on disposal of assets

(4,008
)

3,739

Corporate general and administrative

1,684,444

1,546,300

Total operating expenses

41,927,258

37,041,269

NET OPERATING INCOME

5,463,046

4,694,287

Other income (expense)

Interest expense

(5,305,114
)

(4,177,019
)
Interest income

99,296

81,704

Unrealized (loss) gain on hedging activities

(490,611
)

12,730

Gain on involuntary conversion of assets

161,334

870,741

Net (loss) income before income taxes

(72,049
)

1,482,443

Income tax provision

(318,156
)

(305,955
)
Net (loss) income

(390,205
)

1,176,488

Less: Net loss attributable to noncontrolling interest

206,949

30,013

Net (loss) income attributable to the Company

(183,256
)

1,206,501

Distributions to preferred stockholders

(1,470,507
)

(1,444,844
)
Net loss available to common stockholders

$
(1,653,763
)

$
(238,343
)
Net loss per share available to common stockholders

Basic

$
(0.12
)

$
(0.02
)
Weighted average number of common shares outstanding

Basic

13,610,750

13,472,444

	March 31, 2020			December 31, 2019

ASSETS
Investment in hotel properties, net	$	440,610,440		$	443,267,448
Cash and cash equivalents		14,736,207			23,738,066
Restricted cash		7,339,713			4,246,170
Accounts receivable, net		4,248,338			4,812,479
Accounts receivable - affiliate		265,401			101,771
Prepaid expenses, inventory and other assets		7,562,732			5,648,772
Deferred income taxes		—			5,412,084
TOTAL ASSETS	$	474,762,831		$	487,226,790
LIABILITIES
Mortgage loans, net	$	357,314,587		$	358,633,884
Accounts payable and accrued liabilities		27,098,417			20,189,903
Advance deposits		2,070,309			2,785,338
Dividends and distributions payable		4,217,385			4,210,494
TOTAL LIABILITIES	$	390,700,698		$	385,819,619
Commitments and contingencies (See Note 6)		—			—
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, liquidation preference $25 per share, 1,610,000 shares each issued and outstanding at March 31, 2020 and December 31, 2019, respectively.		16,100			16,100
7.875% Series C cumulative redeemable perpetual preferred stock, liquidation preference $25 per share, 1,554,610 shares each issued and outstanding at March 31, 2020 and December 31, 2019, respectively.		15,546			15,546
8.25% Series D cumulative redeemable perpetual preferred stock, liquidation preference $25 per share, 1,200,000 shares each issued and outstanding at March 31, 2020 and December 31, 2019, respectively.		12,000			12,000
Common stock, par value $0.01, 69,000,000 shares authorized, 14,823,580 shares issued and outstanding at March 31, 2020 and 14,272,378 shares issued and outstanding at December 31, 2019.		148,235			142,723
Additional paid-in capital		180,258,406			180,515,861
Unearned ESOP shares		(4,036,308	)		(4,105,637	)
Distributions in excess of retained earnings		(90,134,337	)		(73,990,690	)
Total Sotherly Hotels Inc. stockholders’ equity		86,279,642			102,605,903
Noncontrolling interest		(2,217,509	)		(1,198,732	)
TOTAL EQUITY		84,062,133			101,407,171
TOTAL LIABILITIES AND EQUITY	$	474,762,831		$	487,226,790

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

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,
   2017

2,910,000

$
29,100

14,078,831

$
140,788

$
146,249,339

$
(4,633,112
)

$
(48,765,860
)

$
1,154,775

$
94,175,030

Net income

—

—

—

—

—

—

1,206,501

(30,013
)

1,176,488

Issuance of unrestricted
   common stock awards

—

—

2,250

23

13,454

—

—

—

13,477

Issuance of restricted
   common stock awards

—

—

40,000

400

89,450

—

—

—

89,850

Amortization of ESOP
   shares

—

—

—

—

—

60,170

—

—

60,170

Amortization of restricted
   stock award

—

—

—

—

8,025

—

—

—

8,025

Preferred stock dividends
   declared

—

—

—

—

—

—

(1,444,844
)

—

(1,444,844
)
Common stockholders'
   dividends and
   distributions declared

—

—

—

—

—

—

(1,553,864
)

(204,486
)

(1,758,350
)
Balances at March 31,
   2018 (unaudited)

2,910,000

$
29,100

14,121,081

$
141,211

$
146,360,268

$
(4,572,942
)

$
(50,558,067
)

$
920,276

$
92,319,846

Balances at December 31, 2018

2,962,141

$
29,621

14,209,378

$
142,093

$
147,085,112

$
(4,379,742
)

$
(61,052,418
)

$
441,706

$
82,266,372

Net loss

—

—

—

—

—

—

(183,256
)

(206,949
)

(390,205
)
Issuance of restricted
   common stock awards

—

—

13,000

130

92,203

—

—

—

92,333

Amortization of ESOP
   shares

—

—

—

—

(1,141
)

67,234

—

—

66,093

Amortization of restricted
   stock award

—

—

—

—

8,025

—

—

—

8,025

Preferred stock dividends
   declared

—

—

—

—

—

—

(1,470,507
)

—

(1,470,507
)
Common stockholders'
   dividends and
   distributions declared

—

—

—

—

—

—

(1,699,906
)

(222,268
)

(1,922,174
)
Balances at March 31, 2019 (unaudited)

2,962,141

$
29,621

14,222,378

$
142,223

$
147,184,199

$
(4,312,508
)

$
(64,406,087
)

$
12,489

$
78,649,937

	Three Months Ended			Three Months Ended
	March 31, 2020			March 31, 2019
	(unaudited)			(unaudited)
REVENUE
Rooms department	$	24,744,923		$	32,951,871
Food and beverage department		8,143,974			9,723,124
Other operating departments		4,319,568			4,715,309
Total revenue		37,208,465			47,390,304
EXPENSES
Hotel operating expenses
Rooms department		7,083,191			7,781,439
Food and beverage department		6,612,306			7,136,833
Other operating departments		2,271,629			1,910,135
Indirect		16,181,841			17,389,680
Total hotel operating expenses		32,148,967			34,218,087
Depreciation and amortization		4,982,876			6,028,735
Gain on disposal of assets		—			(4,008	)
Corporate general and administrative		1,880,125			1,684,444
Total operating expenses		39,011,968			41,927,258
NET OPERATING (LOSS) INCOME		(1,803,503	)		5,463,046
Other income (expense)
Interest expense		(4,561,840	)		(5,305,114	)
Interest income		60,365			99,296
Unrealized loss on hedging activities		(1,585,632	)		(490,611	)
Gain on involuntary conversion of assets		12,439			161,334
Net loss before income taxes		(7,878,171	)		(72,049	)
Income tax provision		(5,454,034	)		(318,156	)
Net loss		(13,332,205	)		(390,205	)
Less: Net loss attributable to noncontrolling interest		1,197,416			206,949
Net loss attributable to the Company		(12,134,789	)		(183,256	)
Distributions to preferred stockholders		(2,188,910	)		(1,470,507	)
Net loss available to common stockholders	$	(14,323,699	)	$	(1,653,763	)
Net loss per share available to common stockholders
Basic	$	(1.01	)	$	(0.12	)
Weighted average number of common shares outstanding
Basic		14,246,216			13,610,750

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

Three Months Ended

Three Months Ended

March 31, 2019

March 31, 2018

(unaudited)

(unaudited)

Cash flows from operating activities:

Net (loss) income
$
(390,205
)

$
1,176,488

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization

6,028,735

5,634,190

Amortization of deferred financing costs

276,561

186,694

Amortization of mortgage premium

(6,170
)

(6,170
)
Gain on involuntary conversion of assets

(161,334
)

(870,741
)
Unrealized loss (gain) on derivative instrument

490,611

(12,730
)
(Gain) loss on disposal of assets

(4,008
)

3,739

ESOP and stock - based compensation

166,451

171,523

Changes in assets and liabilities:

Accounts receivable

(3,580,100
)

(3,837,620
)
Prepaid expenses, inventory and other assets

(933,647
)

1,075,655

Deferred income taxes

284,679

260,262

Accounts payable and other accrued liabilities

3,817,060

2,441,901

Advance deposits

(463,311
)

998,247

Accounts receivable - affiliate

24,862

86,675

Net cash provided by operating activities

5,550,184

7,308,113

Cash flows from investing activities:

Acquisitions of hotel properties

—

(80,479,137
)
Improvements and additions to hotel properties

(5,453,080
)

(5,851,104
)
Proceeds from involuntary conversion

161,334

870,741

Proceeds from the disposal of assets

4,362

—

Net cash used in investing activities

(5,287,384
)

(85,459,500
)
Cash flows from financing activities:

Proceeds of mortgage debt

—

62,000,000

Proceeds of unsecured debt

—

25,000,000

Payments on mortgage loans

(1,332,608
)

(1,649,012
)
Payments of deferred financing costs

—

(2,006,021
)
Dividends and distributions paid

(1,916,339
)

(1,602,830
)
Preferred dividends paid

(1,470,507
)

(1,444,844
)
Net cash (used in) provided by financing activities

(4,719,454
)

80,297,293

Net (decrease) increase in cash, cash equivalents and restricted cash

(4,456,654
)

2,145,906

Cash, cash equivalents and restricted cash at the beginning of the period

37,868,281

33,429,042

Cash, cash equivalents and restricted cash at the end of the period
$
33,411,627

$
35,574,948

Supplemental disclosures:

Cash paid during the period for interest
$
4,252,662

$
3,831,409

Cash paid during the period for income taxes
$
61,303

$
13,437

Non-cash investing and financing activities:

Change in amount of improvements to hotel property in accounts payable and accrued liabilities
$
179,050

$
94,122

									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, 2019		4,364,610	$	43,646		14,272,378	$	142,723	$	180,515,861		$	(4,105,637	)	$	(73,990,690	)	$	(1,198,732	)	$	101,407,171
Net loss		—		—		—		—		—			—			(12,134,789	)		(1,197,416	)		(13,332,205	)
Issuance of common stock		—		—		2,250		22		14,153			—			—			—			14,175
Issuance of restricted common stock awards		—		—		60,000		600		93,900			—			—			—			94,500
Conversion of units in Operating Partnership to shares of common stock		—		—		488,952		4,890		(370,890	)		—			26,266			339,734			—
Amortization of ESOP shares		—		—		—		—		(12,813	)		69,329			—			—			56,516
Amortization of restricted stock award		—		—		—		—		18,195			—			—			—			18,195
Preferred stock dividends declared:
Series B Preferred Stock, $0.50/share		—		—		—		—		—			—			(805,000	)		—			(805,000	)
Series C Preferred Stock, $0.492188/share		—		—		—		—		—			—			(765,160	)		—			(765,160	)
Series D Preferred Stock, $0.515625/share		—		—		—		—		—			—			(618,750	)		—			(618,750	)
Common stock, $0.13/share dividends and distributions declared		—		—		—		—		—			—			(1,846,214	)		(161,095	)		(2,007,309	)
Balances at March 31, 2020 (unaudited)		4,364,610	$	43,646		14,823,580	$	148,235	$	180,258,406		$	(4,036,308	)	$	(90,134,337	)	$	(2,217,509	)	$	84,062,133

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

March 31, 2019

December 31, 2018

(unaudited)

ASSETS

Investment in hotel properties, net

$
441,261,072

$
435,725,814

Cash and cash equivalents

29,004,070

33,792,773

Restricted cash

4,407,557

4,075,508

Accounts receivable, net

10,346,796

6,766,696

Accounts receivable - affiliate

237,710

262,572

Loan receivable - affiliate

4,390,122

4,446,410

Prepaid expenses, inventory and other assets

5,688,031

5,262,884

Favorable lease assets, net

—

2,465,421

Deferred income taxes

4,846,500

5,131,179

TOTAL ASSETS

$
500,181,858

$
497,929,257

LIABILITIES

Mortgage loans, net

$
363,636,230

$
364,828,845

Unsecured notes, net

24,025,056

23,894,658

Accounts payable and other accrued liabilities

23,714,256

16,268,100

Advance deposits

2,351,972

2,815,283

Dividends and distributions payable

3,470,572

3,466,136

TOTAL LIABILITIES

$
417,198,086

$
411,273,022

Commitments and contingencies (see Note 6)

—

—

PARTNERS’ CAPITAL

Preferred units, $0.01 par value, 11,000,000 units authorized;

8.0% Series B cumulative redeemable perpetual preferred units, liquidation
   preference $25 per unit, 1,610,000 units issued and outstanding at March
   31, 2019 and December 31, 2018, respectively

37,766,531

37,766,531

7.875% Series C cumulative redeemable perpetual preferred units, liquidation
   preference $25 per unit, 1,352,141 units issued and outstanding at March 31, 2019 and December 31, 2018, respectively

31,493,723

31,493,723

General Partner: 160,006 units and 159,876 units issued and outstanding as of
March 31, 2019 and December 31, 2018, respectively

417,663

452,165

Limited Partners: 15,840,512 units and 15,827,642 units issued and outstanding as
   of March 31, 2019 and December 31, 2018, respectively

13,305,855

16,943,816

TOTAL PARTNERS’ CAPITAL

82,983,772

86,656,235

TOTAL LIABILITIES AND PARTNERS’ CAPITAL

$
500,181,858

$
497,929,257

									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, 2018		2,962,141	$	29,621		14,209,378	$	142,093	$	147,085,112		$	(4,379,742	)	$	(61,052,418	)	$	441,706		$	82,266,372
Net loss		—		—		—		—		—			—			(183,256	)		(206,949	)		(390,205	)
Issuance of restricted common stock awards		—		—		13,000		130		92,203			—			—			—			92,333
Amortization of ESOP shares		—		—		—		—		(1,141	)		67,234			—			—			66,093
Amortization of restricted stock award		—		—		—		—		8,025			—			—			—			8,025
Preferred stock dividends declared:
Series B Preferred Stock, $0.50/share		—		—		—		—		—			—			(805,000	)		—			(805,000	)
Series C Preferred Stock, $0.492188/share		—		—		—		—		—			—			(665,507	)		—			(665,507	)
Common stock, $0.125/share dividends and distributions declared		—		—		—		—		—			—			(1,699,906	)		(222,268	)		(1,922,174	)
Balances at March 31, 2019 (unaudited)		2,962,141	$	29,621		14,222,378	$	142,223	$	147,184,199		$	(4,312,508	)	$	(64,406,087	)	$	12,489		$	78,649,937

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

Three Months Ended

Three Months Ended

March 31, 2019

March 31, 2018

(unaudited)

(unaudited)

REVENUE

Rooms department

$
32,951,871

$
28,285,445

Food and beverage department

9,723,124

8,351,983

Other operating departments

4,715,309

5,098,128

Total revenue

47,390,304

41,735,556

EXPENSES

Hotel operating expenses

Rooms department

7,781,439

6,700,381

Food and beverage department

7,136,833

6,395,076

Other operating departments

1,910,135

1,528,327

Indirect

17,389,680

15,233,256

Total hotel operating expenses

34,218,087

29,857,040

Depreciation and amortization

6,028,735

5,634,190

(Gain) loss on disposal of assets

(4,008
)

3,739

Corporate general and administrative

1,684,444

1,546,300

Total operating expenses

41,927,258

37,041,269

NET OPERATING INCOME

5,463,046

4,694,287

Other income (expense)

Interest expense

(5,305,114
)

(4,177,019
)
Interest income

99,296

81,704

Unrealized (loss) gain on hedging activities

(490,611
)

12,730

Gain on involuntary conversion of assets

161,334

870,741

Net (loss) income before income taxes

(72,049
)

1,482,443

Income tax provision

(318,156
)

(305,955
)
Net (loss) income

(390,205
)

1,176,488

Distributions to preferred unit holder

(1,470,507
)

(1,444,844
)
Net loss available to operating partnership unit holders

$
(1,860,712
)

$
(268,356
)
Net loss attributable per operating partner unit

Basic and diluted

$
(0.12
)

$
(0.02
)
Weighted average number of operating partner units outstanding

Basic and diluted

15,994,565

15,892,513

	Three Months Ended			Three Months Ended
	March 31, 2020			March 31, 2019
	(unaudited)			(unaudited)
Cash flows from operating activities:
Net loss	$	(13,332,205	)	$	(390,205	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		4,982,876			6,028,735
Amortization of deferred financing costs		141,391			276,561
Amortization of mortgage premium		(6,170	)		(6,170	)
Gain on involuntary conversion of assets		(12,439	)		(161,334	)
Unrealized loss on hedging activities		1,585,632			490,611
Loss on disposal of assets		—			(4,008	)
ESOP and stock - based compensation		183,386			166,451
Changes in assets and liabilities:
Accounts receivable		564,141			(3,580,100	)
Prepaid expenses, inventory and other assets		(1,943,351	)		(933,647	)
Deferred income taxes		5,412,084			284,679
Accounts payable and other accrued liabilities		4,823,067			3,817,060
Advance deposits		(715,029	)		(463,311	)
Accounts receivable - affiliate		(163,630	)		24,862
Net cash provided by operating activities		1,519,753			5,550,184
Cash flows from investing activities:
Improvements and additions to hotel properties		(1,796,662	)		(5,453,080	)
Proceeds from involuntary conversion		12,439			161,334
Proceeds from the disposal of assets		-			4,362
Net cash used in investing activities		(1,784,223	)		(5,287,384	)
Cash flows from financing activities:
Payments on mortgage loans		(1,370,018	)		(1,332,608	)
Payments of deferred financing costs		(84,500	)		—
Dividends on common stock and distributions paid		(2,000,418	)		(1,916,339	)
Preferred dividends paid		(2,188,910	)		(1,470,507	)
Net cash used in financing activities		(5,643,846	)		(4,719,454	)
Net decrease in cash, cash equivalents and restricted cash		(5,908,316	)		(4,456,654	)
Cash, cash equivalents and restricted cash at the beginning of the period		27,984,236			37,868,281
Cash, cash equivalents and restricted cash at the end of the period	$	22,075,920		$	33,411,627
Supplemental disclosures:
Cash paid during the period for interest	$	3,681,239		$	4,252,662
Cash paid (received) during the period for income taxes	$	3,845		$	61,303
Non-cash investing and financing activities:
Change in amount of improvements to hotel property in accounts payable and accrued liabilities	$	518,733		$	179,050
Initial recognition of non-cash operating lease right of use assets and lease liability	$	-		$	3,896,872

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

Preferred Units

General Partner

Limited Partner

Units

Series B Amounts

Series C Amounts

Units

Amounts

Units

Amounts

Total

Balances at December
   31, 2017

2,910,000

$
37,766,531

$
30,488,660

158,570

$
586,725

15,698,401

$
29,938,539

$
98,780,455

Issuance of common
   partnership units

—

—

—

423

1,034

41,827

102,294

103,328

Amortization of restricted
   units award

—

—

—

—

—

—

8,025

8,025

Unit based compensation

—

—

—

—

—

—

87,267

87,267

Preferred units distributions
   declared

—

(1,444,844
)

—

—

—

—

—

(1,444,844
)
Partnership units
   distributions declared

—

-

—

—

(18,285
)

—

(1,810,125
)

(1,828,410
)
Net income

—

1,444,844

—

—

11,765

—

(280,121
)

1,176,488

Balances at March 31, 2018
   (unaudited)

2,910,000

$
37,766,531

$
30,488,660

158,993

$
581,239

15,740,228

$
28,045,879

$
96,882,309

Balances at December 31, 2018

2,962,141

$
37,766,531

$
31,493,723

159,876

$
452,165

15,827,642

$
16,943,816

$
86,656,235

Issuance of common
   partnership units

—

—

—

130

923

12,870

91,410

92,333

Amortization of restricted
   units award

—

—

—

—

80

—

7,945

8,025

Unit based compensation

—

—

—

—

908

—

89,860

90,768

Preferred units distributions
   declared

—

(805,000
)

(665,507
)

—

—

—

—

(1,470,507
)
Partnership units
   distributions declared

—

—

—

—

(17,806
)

—

(1,985,071
)

(2,002,877
)
Net loss

—

805,000

665,507

—

(18,607
)

—

(1,842,105
)

(390,205
)
Balances at March 31, 2019 (unaudited)

2,962,141

$
37,766,531

$
31,493,723

160,006

$
417,663

15,840,512

$
13,305,855

$
82,983,772

	March 31, 2020			December 31, 2019

ASSETS
Investment in hotel properties, net	$	440,610,440		$	443,267,448
Cash and cash equivalents		14,736,207			23,738,066
Restricted cash		7,339,713			4,246,170
Accounts receivable, net		4,248,338			4,812,479
Accounts receivable - affiliate		265,401			101,771
Loan receivable - affiliate		4,149,946			4,209,630
Prepaid expenses, inventory and other assets		7,562,732			5,648,772
Deferred income taxes		—			5,412,084
TOTAL ASSETS	$	478,912,777		$	491,436,420
LIABILITIES
Mortgage loans, net	$	357,314,587		$	358,633,884
Accounts payable and other accrued liabilities		27,098,417			20,189,903
Advance deposits		2,070,309			2,785,338
Dividends and distributions payable		4,277,070			4,268,978
TOTAL LIABILITIES	$	390,760,383		$	385,878,103

Commitments and contingencies (see Note 6)		—			—

PARTNERS’ CAPITAL
Preferred units, 11,000,000 units authorized;
8.0% Series B cumulative redeemable perpetual preferred units, liquidation preference $25 per unit, 1,610,000 units each issued and outstanding at March 31, 2020 and December 31, 2019, respectively.		37,766,531			37,766,531
7.875% Series C cumulative redeemable perpetual preferred units, liquidation preference $25 per unit, 1,554,610 units each issued and outstanding at March 31, 2020 and December 31, 2019, respectively.		36,461,955			36,461,955
8.25% Series D cumulative redeemable perpetual preferred units, liquidation preference $25 per unit, 1,200,000 units each issued and outstanding at March 31, 2020 and December 31, 2019, respectively.		28,377,509			28,377,509
General Partner:160,629 units and 160,006 units issued and outstanding as of March 31, 2020 and December 31, 2019, respectively.		143,369			315,959
Limited Partners: 15,902,140 units and 15,840,512 units issued and outstanding as of March 31, 2020 and December 31, 2019, respectively.		(14,596,970	)		2,636,363
TOTAL PARTNERS’ CAPITAL		88,152,394			105,558,317
TOTAL LIABILITIES AND PARTNERS’ CAPITAL	$	478,912,777		$	491,436,420

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

Three Months Ended

Three Months Ended

March 31, 2019

March 31, 2018

(unaudited)

(unaudited)

Cash flows from operating activities:

Net (loss) income
$
(390,205
)

$
1,176,488

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization

6,028,735

5,634,190

Amortization of deferred financing costs

276,561

186,694

Amortization of mortgage premium

(6,170
)

(6,170
)
Gain on involuntary conversion of assets

(161,334
)

(870,741
)
Unrealized loss (gain) on derivative instrument

490,611

(12,730
)
(Gain) loss on disposal of assets

(4,008
)

3,739

ESOP and unit - based compensation

191,125

198,619

Changes in assets and liabilities:

Accounts receivable

(3,580,100
)

(3,837,620
)
Prepaid expenses, inventory and other assets

(933,647
)

1,075,655

Deferred income taxes

284,679

260,262

Accounts payable and other accrued liabilities

3,817,060

2,441,901

Advance deposits

(463,311
)

998,247

Accounts receivable - affiliate

24,862

86,675

Net cash provided by operating activities

5,574,858

7,335,209

Cash flows from investing activities:

Acquisitions of hotel properties

—

(80,479,137
)
Improvements and additions to hotel properties

(5,453,080
)

(5,851,104
)
ESOP loan payments received

56,287

44,256

Proceeds from involuntary conversion

161,334

870,741

Proceeds from the disposal of assets

4,362

—

Net cash used in investing activities

(5,231,097
)

(85,415,244
)
Cash flows from financing activities:

Proceeds of mortgage debt

—

62,000,000

Proceeds of unsecured debt

—

25,000,000

Payments on mortgage loans

(1,332,608
)

(1,649,012
)
Payments of deferred financing costs

—

(2,006,021
)
Distributions and dividends paid

(1,997,300
)

(1,674,182
)
Preferred dividends paid

(1,470,507
)

(1,444,844
)
Net cash(used in) provided by financing activities

(4,800,415
)

80,225,941

Net (decrease) increase in cash, cash equivalents and restricted cash

(4,456,654
)

2,145,906

Cash, cash equivalents and restricted cash at the beginning of the period

37,868,281

33,429,042

Cash, cash equivalents and restricted cash at the end of the period
$
33,411,627

$
35,574,948

Supplemental disclosures:

Cash paid during the period for interest
$
4,251,925

$
3,831,409

Cash paid during the period for income taxes
$
61,303

$
13,437

Non-cash investing and financing activities:

Change in amount of improvements to hotel property in accounts payable and accrued liabilities
$
179,050

$
94,122

	Three Months Ended			Three Months Ended
	March 31, 2020			March 31, 2019
	(unaudited)			(unaudited)
REVENUE
Rooms department	$	24,744,923		$	32,951,871
Food and beverage department		8,143,974			9,723,124
Other operating departments		4,319,568			4,715,309
Total revenue		37,208,465			47,390,304
EXPENSES
Hotel operating expenses
Rooms department		7,083,191			7,781,439
Food and beverage department		6,612,306			7,136,833
Other operating departments		2,271,629			1,910,135
Indirect		16,181,841			17,389,680
Total hotel operating expenses		32,148,967			34,218,087
Depreciation and amortization		4,982,876			6,028,735
Gain on disposal of assets		-			(4,008	)
Corporate general and administrative		1,880,125			1,684,444
Total operating expenses		39,011,968			41,927,258
NET OPERATING (LOSS) INCOME		(1,803,503	)		5,463,046
Other income (expense)
Interest expense		(4,561,840	)		(5,305,114	)
Interest income		60,365			99,296
Unrealized loss on hedging activities		(1,585,632	)		(490,611	)
Gain on involuntary conversion of assets		12,439			161,334
Net loss before income taxes		(7,878,171	)		(72,049	)
Income tax provision		(5,454,034	)		(318,156	)
Net loss		(13,332,205	)		(390,205	)
Distributions to preferred unit holder		(2,188,910	)		(1,470,507	)
Net loss available to general and limited partnership unit holders	$	(15,521,115	)	$	(1,860,712	)
Net loss attributable per general and limited partner unit
Basic	$	(0.97	)	$	(0.12	)
Weighted average number of general and limited partner units outstanding
Basic		16,052,721			15,994,565

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

	Preferred Units											General Partner					Limited Partner
	Units		Series B Amounts			Series C Amounts			Series D Amounts			Units		Amounts			Units		Amounts			Total
Balances at December 31, 2019		4,364,610	$	37,766,531		$	36,461,955		$	28,377,509			160,006	$	315,959			15,840,512	$	2,636,363		$	105,558,317
Issuance of partnership units		—		—			—			—			623		945			61,628		107,730			108,675
Amortization of restricted unit awards		—		—			—			—			—		182			—		18,013			18,195
Unit based compensation		—		—			—			—			—		765			—		75,716			76,481
Preferred unit distributions declared:
Series B Preferred Units, $0.50/unit		—		(805,000	)		—			—			—		—			—		—			(805,000	)
Series C Preferred Units, $0.492188/unit		—		—			(765,160	)		—			—		—			—		—			(765,160	)
Series D Preferred Units, $0.515625/unit		—		—			—			(618,750	)		—		—			—		—			(618,750	)
Partnership units, $0.13/unit distributions declared		—		—			—			—			—		(19,271	)		—		(2,068,888	)		(2,088,159	)
Net loss		—		805,000			765,160			618,750			—		(155,211	)		—		(15,365,904	)		(13,332,205	)
Balances at March 31, 2020 (unaudited)		4,364,610	$	37,766,531		$	36,461,955		$	28,377,509			160,629	$	143,369			15,902,140	$	(14,596,970	)	$	88,152,394

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

	Preferred Units										General Partner					Limited Partner
	Units		Series B Amounts			Series C Amounts			Series D Amounts		Units		Amounts			Units		Amounts			Total
Balances at December 31, 2018		2,962,141	$	37,766,531		$	31,493,723		$	—		159,876	$	452,165			15,827,642	$	16,943,816		$	86,656,235
Issuance of general and limited partnership units		—		—			—			—		130		923			12,870		91,410			92,333
Amortization of restricted units award		—		—			—			—		—		80			—		7,945			8,025
Unit based compensation		—		—			—			—		—		908			—		89,860			90,768
Preferred unit distributions declared:
Series B Preferred Units, $0.50/unit		—		(805,000	)		—			—		—		—			—		—			(805,000	)
Series C Preferred Units, $0.492188/unit		—		—			(665,507	)		—		—		—			—		—			(665,507	)
Partnership units, $0.125/unit distributions declared		—		—			—			—		—		(17,806	)		—		(1,985,071	)		(2,002,877	)
Net loss		—		805,000			665,507			—		—		(18,607	)		—		(1,842,105	)		(390,205	)
Balances at March 31, 2019 (unaudited)		2,962,141	$	37,766,531		$	31,493,723		$	—		160,006	$	417,663			15,840,512	$	13,305,855		$	82,983,772

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

	Three Months Ended			Three Months Ended
	March 31, 2020			March 31, 2019
	(unaudited)			(unaudited)
Cash flows from operating activities:
Net loss	$	(13,332,205	)	$	(390,205	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		4,982,876			6,028,735
Amortization of deferred financing costs		141,391			276,561
Amortization of mortgage premium		(6,170	)		(6,170	)
Gain on involuntary conversion of assets		(12,439	)		(161,334	)
Unrealized loss on hedging activities		1,585,632			490,611
Loss on disposal of assets		—			(4,008	)
ESOP and unit - based compensation		203,351			191,125
Changes in assets and liabilities:
Accounts receivable		564,141			(3,580,100	)
Prepaid expenses, inventory and other assets		(1,943,351	)		(933,647	)
Deferred income taxes		5,412,084			284,679
Accounts payable and other accrued liabilities		4,823,067			3,817,060
Advance deposits		(715,029	)		(463,311	)
Accounts receivable - affiliate		(163,630	)		24,862
Net cash provided by operating activities		1,539,718			5,574,858
Cash flows from investing activities:
Improvements and additions to hotel properties		(1,796,662	)		(5,453,080	)
ESOP loan payments received		59,685			56,287
Proceeds from involuntary conversion		12,439			161,334
Proceeds from the disposal of assets		—			4,362
Net cash used in investing activities		(1,724,538	)		(5,231,097	)
Cash flows from financing activities:
Payments on mortgage loans		(1,370,018	)		(1,332,608	)
Payments of deferred financing costs		(84,500	)		—
Distributions on general and limited partnership interests		(2,080,068	)		(1,997,300	)
Distributions on preferred partnership interests		(2,188,910	)		(1,470,507	)
Net cash used in financing activities		(5,723,496	)		(4,800,415	)
Net decrease in cash, cash equivalents and restricted cash		(5,908,316	)		(4,456,654	)
Cash, cash equivalents and restricted cash at the beginning of the period		27,984,236			37,868,281
Cash, cash equivalents and restricted cash at the end of the period	$	22,075,920		$	33,411,627
Supplemental disclosures:
Cash paid during the period for interest	$	3,681,239		$	4,251,925
Cash paid (received) during the period for income taxes	$	3,845		$	61,303
Non-cash investing and financing activities:
Change in amount of improvements to hotel property in accounts payable and accrued liabilities	$	518,733		$	179,050
Initial recognition of non-cash operating lease right of use assets and lease obligations	$	-		$	3,896,872

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

Sotherly Hotels Inc. (the “Company”) is a self-managed and self-administered lodging real estate investment trust (“REIT”) that was incorporated in Maryland on August 20, 2004 to own full-service, primarily upscale and upper-upscale hotels located in primary and secondary markets in the mid-Atlantic and southern United States. Currently, the Company is focused on the acquisition, renovation, upbranding and repositioning of upscale to upper-upscale full-service hotels in the southern United States. The Company’s portfolio consists of investments in twelve hotel properties comprising 3,156 rooms, as well as interests in two condominium hotels and ~~the hotel commercial condominium unit of the Hyde Resort & Residences condominium hotel. All of the Company’s~~their associated rental programs. The Company owns hotels ~~except for The DeSoto, the Georgian Terrace, The Whitehall and the Hyde Resort & Residences,~~that operate under the Hilton ~~Crowne Plaza,~~Worldwide, Marriott International, Inc., and Hyatt ~~and Sheraton brands.~~Hotels Corporation brands, as well as independent hotels.

The Company commenced operations on December 21, 2004 when it completed its initial public offering and thereafter consummated the acquisition of six hotel properties (the “Initial Properties”). Substantially all of the Company’s assets are held by, and all of its operations are conducted through, Sotherly Hotels LP (the “Operating Partnership”)~~, which at March 31, 2019, was approximately 88.9% owned by the Company.~~ .

Pursuant to the terms of the Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”) of the Operating Partnership, the Company, as general partner, is not entitled to compensation for its services to the Operating Partnership. The Company, as general partner, conducts substantially all of its operations through the Operating Partnership and the Company’s administrative expenses are the obligations of the Operating Partnership. Additionally, the Company is entitled to reimbursement for any expenditure incurred by it on the Operating Partnership’s behalf.

For the Company to qualify as a REIT, it cannot operate hotels. Therefore, the Operating Partnership, which at March 31, 2020 was approximately 92.3% owned by the Company, through its subsidiaries leases the hotels to direct and indirect subsidiaries of MHI Hospitality TRS Holding, Inc., MHI Hospitality TRS, LLC and certain of its subsidiaries, (collectively, “MHI ~~TRS”~~TRS Entities”), each of which is a wholly-owned subsidiary of the Operating Partnership. As of March 31, 2020, the MHI TRS ~~then engages~~Entities engaged eligible independent hotel management companies, including MHI Hotels Services, LLC, which does business as Chesapeake Hospitality (“Chesapeake Hospitality”) ~~and~~, Highgate Hotels, L.P. (“Highgate Hotels”), and Our Town Hospitality, LLC (“Our Town”) to operate the hotels under management contracts. MHI Hospitality TRS Holding, Inc. is treated as a taxable REIT subsidiary (“MHI TRS”) for federal income tax purposes. As of April 1, 2020, Chesapeake Hospitality no longer manages any of the Company’s hotels.

All references in ~~this report~~these “Notes to Consolidated Financial Statements” to “we”, “us” and “our” refer to the Company, its Operating Partnership and its subsidiaries and predecessors, collectively, unless the context otherwise requires or where otherwise indicated.

In March 2020, the World Health Organization declared the novel coronavirus (“COVID-19”) to be a global pandemic and the virus has continued to spread throughout the United States and the world. As a result of this pandemic and subsequent government mandates and health official recommendations, hotel demand has been significantly reduced. Following the government mandates and health official recommendations, we significantly reduced operations at all of our hotels, temporarily suspended operations of our hotel condominium rental programs and dramatically reduced staffing and expenses. All of our hotels other than the rental programs at our condominium hotels have remained open on a limited basis in order to serve the needs of the community. The Company expects that maintaining the current limited operations will allow us to increase capacity at individual hotels as demand returns and the Centers for Disease Control (“CDC”) and state guidelines allow for an easing of travel and other business restrictions, provided we can be confident that occupancy levels and reduced social distancing will not unduly jeopardize the health and safety of guests, employees and communities.

COVID-19 has had a significant negative impact on the Company’s operations and financial results both during the first quarter and in the period following, including a substantial decline in our revenues, profitability and cash flows from operations. While the full impact of the reduction in hotel demand caused by the pandemic, the contraction of operations at our hotels and other effects are highly uncertain and cannot be reasonably estimated at this time, we expect significant negative impacts on our operations and financial results to continue until travel and business restrictions are eased, stay-at-home directives are lifted, consumer confidence is restored and an economic recovery commences. At a minimum, Company expects that the COVID-19 pandemic to have a significant negative impact on our results of operations, financial position and cash flow through 2020. In response to those negative impacts, we took a number of actions to reduce costs and preserve liquidity. The Company’s board of directors suspended quarterly cash dividends on shares of the Company’s common stock and deferred payment of dividends on its 8.0% Series B Cumulative Redeemable Perpetual Preferred Stock (the “Series B Preferred Stock”), 7.875% Series C Cumulative Redeemable Perpetual Preferred

Stock (the “Series C Preferred Stock”), and 8.25% Series D Cumulative Redeemable Perpetual Preferred Stock (the “Series D Preferred Stock”). We also suspended most planned capital expenditure projects, reduced the compensation of our executive officers, board of directors and employees. Working closely with our hotel managers, we significantly reduced our hotels’ operating expenses.

The COVID-19 pandemic has also significantly increased economic uncertainty and led to disruption and volatility in the global capital markets, which could increase our cost of, and limit accessibility to, capital. As a result of the negative impacts of the pandemic and the ongoing market uncertainty, in April and May, three of our wholly-owned subsidiaries sought and received funding under the federal Paycheck Protection Program (the “PPP”) provided in Section 7(a) of the Small Business Act of 1953, as amended by the Coronavirus Aid, Relief and Economic Security Act, as amended (the “CARES Act”). Pursuant to the terms of the loan agreements and promissory notes entered into with lenders under the PPP, we borrowed an aggregate amount of approximately $10.7 million (the “PPP Loans”).

We also sought and obtained forbearance and loan modification agreements with lenders under the mortgages for certain of our hotel properties. Despite those arrangements, we were not in compliance with the financial covenants on two of our mortgages as of March 31, 2020. Neither of those non-compliance events constituted an automatic “Event of Default” under the terms of the applicable mortgage loan agreement and we subsequently entered into a loan modification agreement of the mortgage on Hotel Alba Tampa addressing the noncompliance, subject to certain conditions described in Note 5 below. However, following March 31, 2020 we failed to make principal or interest payments under the mortgages secured by our DoubleTree Resort by Hilton Hollywood Beach and Hyatt Centric Arlington hotels, each of which constituted an Event of Default, which pursuant to the terms of each mortgage loan agreement, may cause an increase in the interest rate on the outstanding loan balance for the period such Event of Default persists. Following an Event of Default, our lenders can generally elect to accelerate all principal and accrued interest payments that remain outstanding under the applicable mortgage loan and foreclose on the applicable hotel properties that are security for such loans and the lenders under our Hilton Hollywood Beach and Hyatt Centric Arlington mortgages have that right. If either lender were to accelerate the payment of principal and interest on the applicable mortgage, we would likely not have sufficient funds to pay that mortgage debt. We are actively negotiating terms of proposed forbearance agreements and waivers with those lenders similar to those we have obtained from lenders secured by our other hotel properties.

The duration of the disruption on global, national and local economies cannot be reasonably estimated at this time. However, as long as the effects of the COVID-19 pandemic continue, our future business operations, including the results of operations, cash flows and financial position will be significantly affected. We believe it is probable that over the course of the next four quarters we will fail to satisfy additional financial covenants in several of our mortgage loan agreements, some of which are already the subject of waivers, forbearance agreements or loan modification arrangements with our lenders. If we fail to obtain additional waivers, forbearance arrangements or loan modifications, our lenders could declare us in default and require repayment of the outstanding balance on the mortgage loan. If that were to occur, we may not have sufficient funds to pay that mortgage debt. We believe we will be successful in obtaining waivers, forbearance arrangements or loan modifications but cannot provide assurance we will be able to do so on acceptable terms or at all.

Because any forbearance agreements, waivers or loan modifications would be granted at the sole discretion of the lenders, we have determined that there is substantial doubt about our ability to continue as a going concern for one year after the date the financial statements are issued. U.S. generally accepted accounting principles (“U.S. GAAP”) requires that in making this determination, we cannot consider future fundraising activities, whether through equity or debt offerings or dispositions of hotel properties, or the likelihood of obtaining forbearance agreements, covenant waivers or loan modifications, all of which are outside of the Company's control. Management believes that obtaining forbearance agreements, waivers or loan modifications from our lenders would remove the reason for the determination of substantial doubt. However, any such arrangement may lead to increased costs, increased interest rates, additional restrictive covenants and other possible lender protections. In addition to or in lieu of obtaining concessions from lenders as described above, we believe we could raise additional funds, if needed, through a combination of hotel dispositions or debt or equity financings.

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.

Significant transactions occurring during the current and prior fiscal year include the following:

On ~~February 1, 2018, we received proceeds of $5.0 million on the Hotel Ballast mortgage loan after meeting certain requirements, per the mortgage documents.~~

~~On February 12, 2018,~~April 18, 2019, the Company ~~and the Operating Partnership~~ closed on a sale and issuance of 1,080,000 shares of its 8.25% Series D cumulative redeemable perpetual preferred stock, for gross proceeds of $27.0 million before underwriting discounts and commissions and expenses payable by the ~~Operating Partnership~~Company. On May 1, 2019, the Company closed a sale and issuance of an ~~aggregate $25.0~~additional 120,000 shares of its Series D Preferred Stock, for gross proceeds of $3.0 million ~~of the 7.25% senior unsecured notes due 2021 (the “7.25% Notes”), unconditionally guaranteed~~before underwriting discounts and commissions and expenses payable by the Company, ~~for~~in connection with the partial exercise of the underwriters’ option to purchase additional shares of the Series D Preferred Stock. Total net proceeds after all estimated expenses ofwere approximately ~~$23.3 million. The~~$28.4 million, which the Company contributed to its Operating Partnership for an equivalent number of Series D preferred units. We used the net proceeds ~~from this offering, together with existing cash on hand and $57.0 million of asset-level mortgage indebtedness,~~ to ~~finance~~redeem in full the ~~acquisition of the Hyatt Centric Arlington~~Operating Partnership’s 7.25% Notes and for working capital.

On ~~February~~April 24, 2019, the Hyde Resort & Residences condominium association, 4111 South Ocean Drive Condominium Association, Inc., unilaterally terminated both (i) the existing Lease Agreement for the 400-space parking garage and meeting rooms associated with the condominium hotel and (ii) the Association Management Agreement relating to the operation and management of the hotel condominium association. We continue to operate our rental program at the Hyde Resort & Residences.

On April 26, ~~2018,~~2019, we entered into ~~a First Amendment~~amended loan documents to ~~Loan Agreement, Amended and Restated Promissory Note, and other related documents with International Bank of Commerce to amend~~modify the ~~terms of the~~existing mortgage loan on ~~The Whitehall hotel located in Houston, TX. Pursuant to~~ the ~~amended loan documents, payments of principal and interest on a 25-year amortization schedule have begun and the maturity date was extended until February 26, 2023.~~

On March 1, 2018, we acquired the 318-room Hyatt Centric Arlington located in Arlington, Virginia at an aggregate purchase price of approximately $79.7 million, including seller credits (the “Arlington Acquisition”). ConcurrentlyHotel Alba with the closing, we entered into a franchise agreement with an affiliate of Hyatt Hotels Corporation for the hotel to continue operating as the Hyatt Centric Arlington, and a management agreement with Highgate Hotels for the management of the hotel. The management agreement: (i) has an initial term of three years commencing March 1, 2018; (ii) provides for a base management fee equal to 2.50% of gross revenues; and (iii) provides for an incentive management fee equal to 10% of the amount by which gross operating profit, as defined in the management agreement, for a given year exceeds the budgeted gross operating profit for such year; provided, however, that the incentive management fee payable in respect of any year shall not exceed 0.5% of the gross revenues of the hotel. The Hyatt Centric Arlington is subject to a long-term ground lease agreement that covers all of the land underlying the hotel. The ground lease requires

usto make rental payments of $50,000 per year in base rent and percentage rent equal to 3.5% of gross rooms revenues in excess of certain thresholds, as defined in the agreements. The initial term of the ground lease expires in 2025 and may be extended by us for five additional renewal periods of 10 years each.

~~On March 1, 2018, we entered into a loan agreement, a first and second promissory note (“Note A” and “Note B”, respectively),~~ ~~and~~ ~~other loan documents, including a guarantee by the Operating Partnership, to secure an aggregate $57.0 million mortgage (the “Mortgage Loan”) on the Hyatt Centric Arlington with~~existing lender, Fifth Third Bank. Pursuant to the ~~Mortgage Loan documents, Note A had an original~~modification, the mortgage loan principal balance inremained at approximately $18.2 million; the ~~amount~~maturity date was extended to June 30, 2022, and may be extended for two additional periods of ~~$50.0 million; had a term of 3 years, with two 1-year extension options,~~one year each, ~~of which was~~ subject to certain ~~criteria; bore~~conditions; the mortgage loan continues to bear a floating interest rate of ~~one-month~~1-month LIBOR plus ~~3.00%~~3.75% subject to a floor rate of 3.75%, ~~payable monthly;~~with a new provision to reduce the floating interest rate to 1-month LIBOR plus 3.00% upon the successful achievement of certain performance hurdles; the mortgage loan amortizes on a 25-year schedule; and ~~required monthly~~the mortgage loan continues to be guaranteed by the Operating Partnership.

On May 20, 2019, the Operating Partnership redeemed the entire $25.0 million aggregate principal ~~payments~~amount of ~~$78,650. Pursuant~~its 7.25% Notes, at a redemption price equal to 101% of the principal amount of the 7.25% Notes, plus any accrued and unpaid interest to, but not including, the redemption date.

On September 6, 2019, we entered into a master agreement with Newport Hospitality Group, Inc., a Virginia corporation, and Our Town relating to the ~~Mortgage Loan documents, Note B had~~management of ten of our hotels. On December 13, 2019, we entered into an ~~original principal balance~~amendment to the master agreement, as well as a series of individual hotel management agreements for the management of those ten hotels. On January 1, 2020 ten of our individual hotel management agreements with Chesapeake Hospitality expired and management of those hotels was transitioned to Our Town. Also on December 13, 2019, we entered into a sublease agreement with Our Town pursuant to which Our Town subleases 2,245 square feet of office space from us, and a credit agreement with Our Town pursuant to which the Company has agreed to make a working capital line of credit of up to $850,000 available to Our Town.

On September 26, 2019, we closed on the purchase of a commercial condominium unit of the Hyde Beach House Resort & Residences, a newly constructed 342-unit condominium hotel located in Hollywood, Florida (“Hyde Beach House”), from 4000 South Ocean Property Owner, LLLP. In connection with the closing, we (i) acquired commercial unit 2 of the Hyde Beach House, along with rights to certain limited common elements appurtenant to the commercial unit, for an adjusted purchase price of approximately $5.4 million; (ii) purchased inventories and equipment for additional consideration in the amount of ~~$7.0~~approximately $0.7 million; ~~had~~(iii) entered into a ~~term of 1-year,~~second addendum to the purchase agreement; (iv) entered into a 20-year parking and cabana management agreement for the parking garage and poolside cabanas associated with ~~two 1-year extension options, each of which was subject~~the Hyde Beach House; (v) entered into a 20-year management agreement relating to ~~certain criteria; bore a floating interest rate of three-month LIBOR plus 5.00%, payable monthly;~~the operation and required monthly principal payments of $100,000 during the initial 1-year term, $150,000 during the first 1-year extended term, and $250,000 during the second 1-year extended term, with interest payments due monthly on the outstanding principal amount during all three terms. The full amountmanagement of the ~~loan proceeds, together~~Hyde Beach House condominium association; and (vi) received a pre-opening services fee of $1.0 million. We began operating a condominium unit rental program for residential units in the facility in November 2019. Also, in connection with ~~proceeds~~the closing, our DoubleTree Resort by Hilton Hollywood Beach acquired a commercial condominium unit consisting of ~~the 7.25% Notes offering~~a 3,000 square foot ballroom and ~~cash on hand, were used to finance the Arlington Acquisition.~~

~~On July 2, 2018, we purchased a portion of~~adjacent pre-function space, as well as 200 dedicated parking spaces within the parking ~~lot, previously leased,~~garage adjacent to the ~~DoubleTree by Hilton Raleigh Brownstone-University for an aggregate purchase price of $3.5 million.~~ hotel.

On ~~July 27, 2018,~~March 24, 2020, we entered into a ~~loan~~commercial agreement for deferral of principal and ~~other documents, including a promissory note, to secure a mortgage on~~interest payments with the DoubleTree by Hilton Raleigh Brownstone-University with MetLife Commercial Mortgage Originator, LLC. The mortgage has an initial principal balance of $18.3 million, with an additional $5.2 million available uponlender for the satisfaction of certain conditions. The mortgage has an initial term of 4 years with a 1-year extension and bears a floating rate of interest equal to the 1-month LIBOR rate plus 4.00%. The mortgage requires monthly interest-only payments and, following a 12-month lockout, can be prepaid with a penalty during its second year and without penalty thereafter. We entered into an interest-rate cap agreement to limit our exposure through August 1, 2022 to increases in LIBOR exceeding 3.25% on a notional amount of $23,500,000. We used a portion of the proceeds to repay the existing first mortgage on the DoubleTree by Hilton Raleigh Brownstone-University and to pay closing costs, and intend to use the balance of the proceeds for general corporate purposes.

On July 31, 2018, we entered into a second amendment to the loan and security agreement; an amended, restated and consolidated mortgage loan note; and other related documents with our existing lender, TD Bank, N.A., to amend the terms of our mortgage loan on the DoubleTree by Hilton ~~Philadelphia Airport. Concurrent with the loan modification, we also entered into a 5-year swap agreement with The Toronto-Dominion Bank.~~Laurel. Pursuant to the amended loan documents: (i) the principal balance of the loan was increased from approximately $30.0 million to $42.2 million; (ii) the loan’s maturity date was extended to July 31, 2023; (iii) the loan bears a floating interest rate equal to the 1-month LIBOR rate plus 2.27% (the “Loan Rate”); (iv) the loan amortizes on a 30-year schedule with paymentsagreement payment of principal and interest ~~beginning immediately; (v)~~was deferred for payments due in April, May and June 2020; the ~~loan can be prepaid without penalty;~~deferred principal and ~~(vi)~~interest is due and payable at maturity; and the loan will no longer be fully guaranteed by the Operating Partnership, but the Operating Partnership has guaranteed certain standard “bad boy” carveouts. Pursuant to the swap agreement: (i) the Loan Rate has been swapped for a fixed interest rate of 5.237%; notional amounts of the swap approximate the declining balance of the loan; and (iii) we are responsible for any potential termination fees associated with early termination of the swap agreement. We used a portion of the proceeds to repay in full the existing Note B to the mortgage loan on our Hyatt Centric Arlington and to pay closing costs associated with the amendment and will use the balance of the proceeds for general corporate purposes.

On August 31, 2018, we entered into a Sales Agency Agreement, with Sandler O’Neill & Partners, L.P. (“Sandler O’Neill”), under which the Company may sell from time to time through Sandler O’Neill, as sales agent, shares of the Company’s common stock, par value $0.01 per share, having an aggregate gross sales price of up to $5,000,000 and up to 400,000 shares of the Company’s 7.875% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share. Through March 31, 2019, the Company sold 88,297 shares of common stock and 52,141 shares of Series C Preferred Stock, for an aggregate total of approximately $1.8 million in gross proceeds before recognition of offering costs.

On September 18, 2018, we entered into a loan agreement and other documents, including a promissory note, to secure a mortgage on the Hyatt Centric Arlington with MetLife Real Estate Lending LLC. Pursuant to the loan documents, the Mortgage Loan has an initial principal balance of $50.0 million; has a term of 10 years; bears a fixed interest rate of 5.25%; amortizes on a 30-year schedule; and following a 5-year lockout, can be prepaid with penalty in years 6-10 and without penalty during the final 4 months of the term. The Company used the proceeds to repay the existing first mortgage on the Hyatt Centric Arlington, to pay closing costs, and for general corporate purposes.maturity date was not changed.

Basis of Presentation – The consolidated financial statements of the Company presented herein include all of the accounts of Sotherly Hotels Inc., the Operating Partnership, MHI TRS and subsidiaries. All significant inter-company balances and transactions

have been eliminated. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The consolidated financial statements of the Operating Partnership presented herein include all of the accounts of Sotherly Hotels LP, MHI TRS and subsidiaries. All significant inter-company balances and transactions have been eliminated. Additionally, all administrative expenses of the Company and those expenditures made by the Company on behalf of the Operating Partnership are reflected as the administrative expenses, expenditures and obligations thereto of the Operating Partnership, pursuant to the terms of the Partnership Agreement.

Investment in Hotel Properties – Investments in hotel properties include investments in operating properties which are recorded at fair value on acquisition date and allocated to land, property and equipment and identifiable intangible assets. Replacements and improvements are capitalized, while repairs and maintenance are expensed as incurred. Upon the sale or retirement of a fixed asset, the cost and related accumulated depreciation are removed from our accounts and any resulting gain or loss is included in the statements of operations. Expenditures ~~under a renovation project,~~ which constitute additions or improvements that extend the life of the property, are capitalized.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 7 to 39 years for buildings and building improvements and 53 to 10 years for furniture, fixtures and equipment. Leasehold improvements are amortized over the shorter of the lease term or the useful lives of the related assets.

We review our investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are not limited to, adverse permanent changes in the demand for lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, management performs an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel property exceeds its carrying value. If the estimated undiscounted future cash flows are found to be less than the carrying amount of the asset, an adjustment to reduce the carrying amount to the related hotel property’s estimated fair market value would be recorded and an impairment loss recognized.

Cash and Cash Equivalents – We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Concentration of Credit Risk – We hold cash accounts at several institutions in excess of the Federal Deposit Insurance Corporation (the “FDIC”) protection limits of $250,000. Our exposure to credit loss in the event of the failure of these institutions is represented by the difference between the FDIC protection limit and the total amounts on deposit. Management monitors, on a regular basis, the financial condition of the financial institutions along with the balances there on deposit to minimize our potential risk.

Restricted Cash – Restricted cash includes real estate tax escrows, insurance escrows and reserves for replacements of furniture, fixtures and equipment pursuant to certain requirements in our various mortgage agreements.

Accounts Receivable – Accounts receivable consists primarily of hotel guest and banqueting receivables. Ongoing evaluations of collectability are performed and an allowance for potential credit losses is provided against the portion of accounts receivable that is estimated to be uncollectible.

Inventories – Inventories, consisting primarily of food and beverages, are stated at the lower of cost or net realizable value, with cost determined on a method that approximates first-in, first-out basis.

Franchise License Fees – Fees expended to obtain or renew a franchise license are amortized over the life of the license or renewal. The unamortized franchise fees as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 were ~~$457,128~~$398,473 and $~~471,996~~,$413,354, respectively. Amortization expense for the three-month periods ended March 31, 2020 and 2019, totaled $14,880 and ~~2018, totaled~~ $14,869, ~~and $17,032~~, respectively.

Right-of-Use Assets and Lease Obligations – In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over

A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, to clarify how to apply certain aspects of the new lease standard. In July 2018, the FASB also issued ASU 2018-11, Leases (Topic 842):

Targeted Improvements, to give companies another option for transition and to provide lessors with a practical expedient to reduce the cost and complexity of implementing the new standard. The transition option allows companies to not apply the new lease standard in the comparative periods they present in their financial statements in the year of adoption.

We adopted this standard on January 1, 2019. We elected the practical expedients allowed under the guidance and retained the original lease classification and historical accounting for initial direct costs for leases existing prior to the adoption date. We also elected not to restate prior periods for the impact of the adoption of the new standard. The adoption of this standard has resulted in the recognition of right-of-use assets and related liabilities to account for our future obligations under the acquired operating ground lease, equipment, office space, parking and land leases for which we are the lessee. See Notes 4 and 6 to the accompanying financial statements for additional disclosures on the adoption of this standard. As of March 31, ~~2019,~~2020, we had right of use assets, net of approximately ~~$6.2~~$7.2 million, and lease obligations of approximately ~~$3.8~~$4.4 million. The right-of-use assets are included in investments in hotel properties, net or in prepaid expenses, inventory and other assets and the lease obligations are included in accounts payable and accrued liabilities on the consolidated balance sheets.

Deferred Financing and Offering Costs – Deferred financing costs are recorded at cost and consist of loan fees and other costs incurred in issuing debt and are reflected in mortgage loans, net and unsecured notes, net on the consolidated balance sheets. Deferred offering costs are recorded at cost and consist of offering fees and other costs incurred in advance of issuing equity and are reflected in prepaid expenses, inventory and other assets on the consolidated balance sheets. Amortization of deferred financing costs is computed using a method that approximates the effective interest method over the term of the related debt and is included in interest expense in the consolidated statements of operations.

Deferred offering costs are netted against our equity offerings when the offering is complete, whereby the costs are offset against the equity funds raised in the future and included in additional paid-in capital on the consolidated balance sheets, or if the offering expires and the offering costs exceed the funds raised in the offering then the excess will be included in corporate general and administrative expenses in the consolidated statements of operations.

Derivative Instruments – Our derivative instruments are reflected as assets or liabilities on the consolidated balance ~~sheets~~sheet and measured at fair value. Derivative instruments used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as an interest rate risk, are considered fair value hedges. Derivative instruments used to hedge exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. For a derivative instrument designated as a cash flow hedge, the change in fair value each period is reported in accumulated other comprehensive income in stockholders’ equity and partners’ capital to the extent the hedge is effective. For a derivative instrument designated as a fair value hedge, the change in fair value each period is reported in earnings along with the change in fair value of the hedged item attributable to the risk being hedged. For a derivative instrument that does not qualify for hedge accounting or is not designated as a hedge, the change in fair value each period is reported in earnings.

We use derivative instruments to add stability to interest expense and to manage our exposure to interest-rate movements. To accomplish this objective, we currently use interest rate caps and an interest rate swap which act as cash flow hedges and are not designated as hedges. We value our interest-rate caps and interest rate swap at fair value, which we define as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We ~~also have used derivative instruments in the Company’s stock to obtain more favorable terms on our financing. We~~ do not enter into contracts to purchase or sell derivative instruments for speculative trading ~~purposes.~~purposes.

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table represents our assets and liabilities measured at fair value and the basis for that measurement (our interest rate caps and interest rate ~~SWAP~~swap are the only assets or liabilities measured at fair value on a recurring basis, ~~and~~ there were no non-recurring ~~asset and liability~~assets or liabilities for fair value measurements as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively):

Noncontrolling Interest in Operating Partnership – Certain hotel properties were acquired, in part, by the Operating Partnership through the issuance of limited partnership units of the Operating Partnership. The noncontrolling interest in the Operating Partnership is: (i) increased or decreased by the limited partners’ pro-rata share of the Operating Partnership’s net income or net loss, respectively; (ii) decreased by distributions; (iii) decreased by redemption of partnership units for the Company’s common stock; and (iv) adjusted to equal the net equity of the Operating Partnership multiplied by the limited partners’ ownership percentage immediately after each issuance of units of the Operating Partnership and/or the Company’s common stock through an adjustment to additional paid-in capital. Net income or net loss is allocated to the noncontrolling interest in the Operating Partnership based on the weighted average percentage ownership throughout the period.

Revenue Recognition – Revenue consists of amounts derived from hotel operations, including the sales of rooms, food and beverage, and other ancillary services. Room revenue is recognized over a customer's hotel stay. Revenue from food and beverage and other ancillary services is generated when a customer chooses to purchase goods or services separately from a hotel room and revenue is recognized on these distinct goods and services at the point in time or over the time period that goods or services are provided to the customer. Certain ancillary services are provided by third parties and the Company assesses whether it is the principal or agent in these arrangements. If the Company is the agent, revenue is recognized based upon the commission earned from the third party. If the Company is the principal, the Company recognizes revenue based upon the gross sales price. Some contracts for rooms or food and beverage services require an upfront deposit which is recorded as advanced deposits (or contract liabilities) and recognized once the performance obligations are satisfied and shown on our consolidated balance sheets.

Certain of the Company's hotels have retail spaces, restaurants or other spaces which the Company leases to third parties. Lease revenue is recognized on a straight-line basis over the life of the lease and included in other operating revenues in the Company's consolidated statements of operations.

The Company collects sales, use, occupancy and similar taxes at its hotels which are presented on a net basis on the consolidated statements of operations. Accounts receivable primarily represents receivables from hotel guests who occupy hotel rooms and utilize hotel services. The Company maintains an allowance for doubtful accounts sufficient to cover estimated potential credit losses.

Lease Revenue – Several of our properties generate revenue from leasing commercial space adjacent to the hotel, the restaurant space within the hotel, apartment units and space on the roofs of our hotels for antennas and satellite dishes. We account for the lease income as revenue from other operating departments within the consolidated statements of operations pursuant to the terms of each lease. Lease revenue was approximately $0.4 million and ~~$0.5~~$0.4 million, for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively.

A schedule of minimum future lease payments receivable for the remaining nine and twelve-month periods is as follows:

Variable Interest Entities – The Operating Partnership is a variable interest entity. The Company’s only significant asset is its investment in the Operating Partnership, and consequently, substantially all of the Company’s assets and liabilities represent those assets and liabilities of the Operating Partnership and its subsidiaries. All of the Company’s debt is an obligation of the Operating Partnership and its subsidiaries.

Income Taxes – The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. As a REIT, the Company generally will not be subject to federal income tax. MHI TRS, our wholly owned taxable REIT subsidiary which leases our hotels from subsidiaries of the Operating Partnership, is subject to federal and state income taxes.

We account for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, deferred tax assets totaled ~~approximately $4.8 million~~$0 and ~~$5.1~~$5.4 million, respectively, of which ~~approximately $4.2 million~~$0 and ~~$4.4~~$5.0 million relate to net operating losses of our MHI TRS ~~Lessee.~~Entities. A valuation allowance is required for deferred tax assets if, based on all available evidence, it is “more-likely-than-not” that all or a portion of the deferred tax asset will or will not be realized due to the inability to generate sufficient taxable income in certain financial statement periods. The “more-likely-than-not” analysis means the likelihood of realization is greater than 50%, that we will or will not be able to fully utilize the deferred tax assets against future taxable income. The net amount of deferred tax assets that are recorded on the financial statements must reflect the tax benefits that are expected to be realized using these criteria. We perform this analysis by evaluating future hotel revenues and expenses accounting for certain non-recurring costs and expenses during the current and prior two fiscal years as well as anticipated changes in the lease rental payments from the TRS Lessee to subsidiariesAs of ~~the Operating Partnership. We~~March 31, 2020, we have determined that it is more-likely-than-not that we will not be able to fully utilize our deferred tax assets for future tax consequences, therefore noa 100% valuation allowance is required.

As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, we had no uncertain tax positions. Our policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. As of March 31, 2019, the tax years that remain subject to examination by the major tax jurisdictions to which the Company is subject generally include 2015 through 2017. In addition, as of March 31, 2019, the tax years that remain subject to examination, because of NOL carryforwards, by the major tax jurisdictions to which MHI TRS is subject include the years 2009 and 2014 through 2017.

The Operating Partnership is generally not subject to federal and state income taxes as the unit holders of the Partnership are subject to tax on their respective shares of the Partnership’s taxable income.

Stock-based Compensation – The Company’s 2013 Long-Term Incentive Plan (the “2013 Plan”), which the Company’s stockholders approved in April 2013, permit the grant of stock options, restricted stock, unrestricted stock and performance share compensation awards to its employees and directors for up to 350,000 and 750,000 shares of common stock, respectively. The Company believes that such awards better align the interests of its employees with those of its stockholders.

Under the 2013 Plan, the Company has made stock awards totaling ~~176,350~~238,600 shares, including ~~143,350~~156,350 non-restricted shares and ~~33,000~~82,250 restricted shares issued to certain executives and employees and to its independent directors. All awards have vested except for 20,000 shares issued to one employee, which will vest over 4 years, 30,000 shares issued to one employee, which will vest over 10 years and ~~13,000~~15,000 shares issued to one employee, which will vest over 5 years and 17,250 shares issued to the Company’s independent directors in February ~~2019,~~2020, which will vest by December 31, ~~2019~~2020.

Under the 2013 Plan, the Company may issue a variety of performance-based stock awards, including nonqualified stock options. The value of the awards is charged to compensation expense on a straight-line basis over the vesting or service period based on the value of the award as determined by the Company’s stock price on the date of grant or issuance. As of March 31, ~~2019,~~2020, no performance-based stock awards have been granted. Total compensation cost recognized under the 2013 Plan for the three months ended March 31, 2020 and 2019 was $126,870 and ~~2018 was~~ $100,358 ~~and $111,352~~, respectively.

Additionally, the Company sponsors and maintains an Employee Stock Ownership Plan (“ESOP”) and related trust for the benefit of its eligible employees. We reflect unearned ESOP shares as a reduction of stockholders’ equity. Dividends on unearned ESOP shares, when paid, are considered compensation expense. The Company recognizes compensation expense equal to the fair value of the Company’s ESOP shares during the periods in which they are committed to be released. For the three months ended

March 31, ~~2019~~2020 and ~~2018,~~2019, the ESOP compensation cost was ~~$66,093~~$56,516 and ~~$60,170,~~$66,093, respectively. To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, the differential is recognized as additional paid in capital. Because the ESOP is internally leveraged through a loan from the Company to the ESOP, the loan receivable by the Company from the ESOP is not reported as an asset nor is the debt of the ESOP shown as a liability in the consolidated financial statements.

Advertising – Advertising costs were ~~$97,668~~$94,291 and $~~98,313~~97,668 for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. Advertising costs are expensed as incurred.

Involuntary Conversion of Assets – We record gains or losses on involuntary conversions of assets due to recovered insurance proceeds to the extent the undepreciated cost of a nonmonetary asset differs from the amount of monetary proceeds received. During ~~each of~~ the three-month periods ending March 31, ~~2019~~2020 and ~~2018,~~2019, we recognized approximately ~~$0.2~~$0.01 million and ~~$0.9 million,~~$0.2, respectively, in gain on involuntary conversion of assets, which is reflected in the consolidated statements of operations.

Comprehensive Income – Comprehensive income as defined, includes all changes in equity during a period from non-owner sources. We do not have any items of comprehensive income other than net income.

Segment Information – We have determined that our business is conducted in one reportable segment: hotel ownership.

Use of Estimates – The preparation of the financial statements in conformity with ~~accounting principles generally accepted in the United States of America (“GAAP”)~~U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements – In ~~July 2018,~~March 2020, the FASB issued ASU No. ~~2018-11, Leases (Topic 842): Targeted Improvements, The FASB decided to provide another transition method~~2020-04, Reference Rate Reform – Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and ~~practical expedients in addition~~exceptions to the existing guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition ~~method (a modified retrospective approach~~from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). The update provides guidance in accounting for ~~leases that exist or are~~changes in contracts, hedging relationships, and other transactions as a result of this reference rate reform. The option expedients and exceptions contained within this update, in general, only apply to contract amendments and modifications entered into ~~after~~prior to January 1, 2023. The provisions of this update will most likely affect our financial reporting process relate to modifications of contracts with lenders and the ~~beginning~~related hedging contracts associated with each respective modified borrowing contract. In general, the provision of the ~~earliest comparative period in the financial statements)~~update would benefit us by allowing entities to initially apply the new leases standard at the adoption date (such as January 1, 2019, for calendar year-end public business entities) and recognize a cumulative-effect adjustment to the opening balancemodifications of ~~retained earnings in the period of adoption. We adopted the practical expedients allowed~~debt contracts with lenders that fall under the guidance of ASC Topic 740 to be accounted for as a non-substantial modification and ~~retained~~not be considered debt extinguishment. As of March 31, 2020, we have not entered into any contract modification as it directly relates to reference rate reform, but we anticipate having to undertake such modifications in the ~~original lease classification and historical accounting for initial direct costs for leases existing prior to the adoption date on January 1, 2019. We also elected not to restate prior periods for~~future. While we anticipate the impact of ~~the adoption of the new standard and instead recognized a cumulative-effect adjustment~~this update to ~~beginning retained earnings as of the adoption date. These standards resulted in the recognition of right-to-use assets and related liabilities~~be to ~~account for~~ our ~~future obligations under the ground lease arrangements for which~~benefit, we are still evaluating the ~~lessee. The right of use assets and corresponding liabilities were recorded in the amount of approximately $6.3 million and $3.8 million, respectively as of January 1, 2019.~~overall impact.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~. The FASB issued this ASU to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified as operating leases under current GAAP and disclosing key information about leasing arrangements. The amendments in this ASU were effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early application of this ASU was permitted for all entities. We created an inventory of our leases and have recorded current ground lease, office lease, other right-of-use assets and lease liabilities. The standard required a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. This standard has been updated as noted above in ASU No. 2018-11. We adopted this ASU as of January 1, 2019. The adoption of this ASU did not have a material impact on our consolidated balance sheets, statements of operations or cash flows.

~~Hyatt Centric Arlington~~Hyde Beach House Resort & Residences. On ~~March 1, 2018,~~September 26, 2019, we acquired a commercial condominium unit ofthe ~~Hyatt Centric Arlington~~Hyde Beach House condominium hotel, for a total fair value of consideration transferred including inventory and other assets of approximately $79.7 million (after amendment of the initial purchase price of $81.0 million). We considered this acquisition to be an asset acquisition as opposed to a business combination, applying the screen test, as discussed in the Accounting Standards Update 2017-01 – Business Combinations – Clarifying the Definition of a Business (Topic 805).$6.3 million.

The results of operations of the ~~hotels~~ hotel commercial condominium unit are included in our consolidated financial statements from the date of ~~acquisition. The total revenue and net income related to~~ the ~~Hyatt Centric Arlington acquisition for the period March 1, 2018 to March 31, 2018 were~~

~~approximately $2.1 million and $0.5 million, respectively.~~acquisition. The total revenue and net loss related to the ~~Hyatt Centric Arlington~~ acquisition for the period January 1, ~~2019~~2020 to March 31, ~~2019 were~~2020 are approximately ~~$4.5~~$0.6 million and $0.6 million, respectively.

There is no pro forma financial information since this is a new operation without prior historical information.

The ~~allocations~~allocation of the respective purchase price ~~are~~is based on ~~their~~ fair value as follows:

Investment in hotel properties, net as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 consisted of the following:

~~On January 1, 2019, we adopted ASU 842,~~ ~~Leases~~ ~~and applied it prospectively. At adoption, we also elected~~ Our review of possible impairment during the practical expedients which permitted us to not reassess our prior conclusions about lease identification, classification, and initial direct costs. Consequently, on January 1, 2019, we recognized right-of-use assets and related liabilities related to its acquired operating ground lease, equipment, parking, office space and land leases, all of which are operating leases. Since most of our leases do not provide an implicit rate, we used incremental borrowing rates, which averaged to 8.0%. All of these leases have terms ranging from less than one year to 50 years and we included the exercise of options to extend when it is reasonably certain we will exercise such option. See Note 6 for additional information about the acquired operating ground lease, parking, office space and land leases. The right-of-use assets and liabilities are amortized to rent expense and depreciation expense over the term of the underlying lease agreements. As ofthree-month period ended March 31, 2020 and the year ended December 31, 2019, ~~our right-of-use assets, net of approximately $6.2 million, are included~~resulted in ~~the~~no impairment on our investment in hotel properties, net and its related lease liabilities of approximately $3.8 million are presented in accounts payable and accrued expenses in our consolidated balance sheets. The adoption of this standard had minimal impact on our statements of operations.respectively.

Mortgage Loans, Net. As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, we had approximately ~~$363.6~~$357.3 million and approximately $~~364.8~~358.6 million of outstanding mortgage debt, respectively. The following table sets forth our mortgage debt obligations on our hotels.

Balance Outstanding as of

March 31,

December 31,

Prepayment

Maturity
Amortization
Interest

Property
2019

2018

Penalties

Date
Provisions
Rate

(unaudited)

Crowne Plaza Tampa Westshore  ⁽¹⁾
$
18,260,800

$
18,307,000

None

6/30/2019
(1)
LIBOR plus 3.75 %

The DeSoto ⁽²⁾

33,683,999

33,824,350

Yes
7/1/2026
25 years
4.25%

DoubleTree by Hilton Jacksonville
   Riverfront ⁽³⁾

34,633,359

34,773,546

Yes
7/11/2024
30 years
4.88%

DoubleTree by Hilton Laurel ⁽⁴⁾

8,767,655

8,845,299

Yes
8/5/2021
25 years
5.25%

DoubleTree by Hilton Philadelphia Airport⁽⁵⁾

41,859,945

42,026,986

None

7/31/2023
30 years
LIBOR plus 2.27 %

DoubleTree by Hilton Raleigh-
   Brownstone University ⁽⁶⁾

18,300,000

18,300,000

Yes
7/27/2022
(6)
LIBOR plus 4.00 %

DoubleTree Resort by Hilton Hollywood
   Beach ⁽⁷⁾

56,886,185

57,064,824

n/a
10/1/2025
30 years
4.913%

Georgian Terrace ⁽⁸⁾

44,051,160

44,202,968

n/a
6/1/2025
30 years
4.42%

Hotel Ballast Wilmington, Tapestry Collection by Hilton⁽⁹⁾

34,099,471

34,236,104

Yes
1/1/2027
25 years
4.25%

Hyatt Centric Arlington ⁽¹⁰⁾

49,710,721

49,885,045

Yes
9/18/2028
30 years
5.25%

Sheraton Louisville Riverside⁽¹¹⁾

11,365,158

11,414,300

Yes
12/1/2026
25 years
4.27%

The Whitehall ⁽¹²⁾

14,662,819

14,733,458

Yes
2/26/2023
25 years
LIBOR plus 3.50 %

Total Mortgage Principal Balance
$
366,281,273

$
367,613,880

Deferred financing costs, net

(2,805,164
)

(2,951,327
)

Unamortized premium on loan

160,121

166,292

Total Mortgage Loans, Net
$
363,636,230

$
364,828,845

	Balance Outstanding as of
	March 31,			December 31,			Prepayment	Maturity	Amortization	Interest
Property	2020			2019			Penalties	Date	Provisions	Rate

The DeSoto ⁽¹⁾	$	32,820,733		$	32,967,166		Yes	7/1/2026	25 years	4.25%
DoubleTree by Hilton Jacksonville Riverfront⁽²⁾		34,083,704			34,225,971		Yes	7/11/2024	30 years	4.88%
DoubleTree by Hilton Laurel ⁽³⁾		8,454,389			8,534,892		Yes	8/5/2021	25 years	5.25%
DoubleTree by Hilton Philadelphia Airport⁽⁴⁾		41,262,889			41,419,590		None	7/31/2023	30 years	LIBOR plus 2.27 %
DoubleTree by Hilton Raleigh- Brownstone University ⁽⁵⁾		18,300,000			18,300,000		Yes	7/27/2022	(5)	LIBOR plus 4.00 %
DoubleTree Resort by Hilton Hollywood Beach ⁽⁶⁾		55,878,089			56,057,218		(6)	10/1/2025	30 years	4.913%
Georgian Terrace ⁽⁷⁾		43,182,499			43,335,291		(7)	6/1/2025	30 years	4.42%
Hotel Alba Tampa, Tapestry Collection by Hilton ⁽⁸⁾		17,946,480			18,000,104		None	6/30/2022	(8)	LIBOR plus 3.75 %
Hotel Ballast Wilmington, Tapestry Collection by Hilton ⁽⁹⁾		33,259,067			33,401,622		Yes	1/1/2027	25 years	4.25%
Hyatt Centric Arlington ⁽¹⁰⁾		48,990,136			49,173,836		Yes	9/18/2028	30 years	5.25%
Sheraton Louisville Riverside⁽¹¹⁾		11,062,863			11,114,145		Yes	12/1/2026	25 years	4.27%
The Whitehall ⁽¹²⁾		14,369,390			14,450,420		Yes	2/26/2023	25 years	LIBOR plus 3.50 %
Total Mortgage Principal Balance	$	359,610,238		$	360,980,255
Deferred financing costs, net		(2,431,091	)		(2,487,982	)
Unamortized premium on loan		135,440			141,611
Total Mortgage Loans, Net	$	357,314,587		$	358,633,884

As of March 31, ~~2019,~~ 2020, we ~~were in compliance~~failed to meet the financial covenants under the mortgages secured by the Hotel Alba Tampa and the DoubleTree Resort by Hilton Hollywood Beach. We subsequently received a waiver of the financial covenant under the Hotel Alba Tampa mortgage through December 31, 2020, provided that we maintain the cash collateral on deposit with the lender. Cash collateral on deposit with the Hotel Alba Tampa lender was approximately $2.85 million at March 31, 2020, subject to certain withdrawal privileges. However, subsequent to March 31, 2020 we failed to make the required payments of principal and interest to our lenders under the mortgages secured by the DoubleTree Resort by Hilton Hollywood Beach and the Hyatt Centric Arlington, each of which constituted an “Event of Default” under the applicable loan agreement. Under the terms of each such loan agreement, the lender may elect to accelerate all ~~debt covenants, current~~principal and accrued interest payments that remain outstanding under the mortgage loan and foreclose on ~~all loan payments~~the hotel secured by the mortgage. We are actively negotiating the terms of proposed forbearance agreements and ~~not otherwise in default under any of our mortgage loans, as amended or modified.~~waivers with those lenders similar to waivers we have obtained from lenders secured by other hotel properties.

Total future mortgage debt maturities for the remaining nine and ~~twelve month~~twelve-month periods, without respect to any extension of loan maturity or loan modification after March 31, 2020, were as follows:

~~7.25% Unsecured Notes.~~ On February 12, 2018, the Operating Partnership issued its 7.25% Notes in the aggregate amount of $25.0 million, unconditionally guaranteed by the Company. The indenture requires quarterly payments of interest and matures on February 15, 2021. The 7.25% Notes are callable after February 15, 2019 at 101% of face value. See Note 14 for more information about redemption of the 7.25% Notes.

Ground, Building, Parking and Land Leases – We lease 2,086 square feet of commercial space next to The DeSoto for use as an office, retail or conference space, or for any related or ancillary purposes for the hotel and/or atrium space. In December 2007, we signed an amendment to the lease to include rights to the outdoor esplanade adjacent to the leased commercial space. The areas are leased under a six-year operating lease, which expired October 31, 2006 and has been renewed for the third of ~~three~~five optional five-year renewal periods expiring October 31, ~~2011, October 31, 2016 and October 31, 2021, respectively.~~2021. Rent expense for this operating lease for each of the three months ended March 31, 2020 and 2019 ~~and 2018~~ totaled ~~$18,246.~~$18,246, respectively.

We lease, as landlord, the entire fourteenth floor of The DeSoto hotel property to The Chatham Club, Inc. under a ninety-nine year lease expiring July 31, 2086. This lease was assumed upon the purchase of the building under the terms and conditions agreed to by the previous owner of the property. No rental income is recognized under the terms of this lease as the original lump sum rent payment of $990 was received by the previous owner and not prorated over the life of the lease.

We lease land adjacent to the ~~Crowne Plaza Tampa Westshore~~Hotel Alba for use as parking under a five-year renewable agreement with the Florida Department of Transportation that commenced in July 2009. In May 2014, we extended the agreement for an additional five years. The agreement expires in July ~~2019. The agreement~~2024, requires annual payments of $2,432, plus tax, and may be renewed for an additional five years. Rent expense for ~~each of~~ the three months ended March 31, 2020 and 2019, totaled $608 and ~~2018, totaled $651.~~$651, respectively.

We ~~lease~~leased 5,216 square feet of commercial office space in Williamsburg, Virginia under an agreement, as amended, that commenced September 1, 2009 and ~~was extended to August~~expired on December 31, 2019. Rent expense for the ~~three months~~three-month period ended March 31, 2019 ~~and 2018~~ totaled ~~$26,984 and $22,552, respectively.~~

We$26,984. Under a new lease starting January 1, 2020, we lease approximately 8,500 square feet of commercial office space in Williamsburg, Virginia under an agreement with a ten-year term beginning January 1, 2020. The initial annual rent under the ~~parking garage adjacent~~agreement is $218,875, with the rent for each successive annual period increasing by 3.0% over the prior annual period’s rent. The annual rent will be offset by a tenant improvement allowance of $200,000, to be applied against one-half of each monthly rent payment until such time as the ~~Hyde Resort & Residences in Hollywood Beach, Florida, along with meeting and office spaces. The 20-year operating lease requires monthly payments of $20,000, which expires in February 2037.~~tenant improvement allowance is exhausted. Rent expense for ~~each of~~ the ~~three months~~three-month period ended March 31, ~~2019 and 2018,~~2020 totaled ~~$60,000.~~$55,761.

We lease the land underlying all of the Hyatt Centric Arlington hotel pursuant to a ground lease. The ground lease requires us to make rental payments of $50,000 per year in base rent and percentage rent equal to 3.5% of gross room revenue in excess of certain thresholds, as defined in the ground lease agreement. The initial term of the ground lease expires in 2025 and may be extended for five additional renewal periods of 10 years each. Rent expense for the three months ended March 31, 2020 and 2019, was $96,575 and ~~2018~~$131,088, respectively.

We lease parking garage and poolside cabanas associated with the Hyde Beach House. The parking and cabana lease requires us to make rental payments of $270,100 per year in base and has an initial term that expires in 2034 and which may be extended for four additional renewal periods of 5 years each. Rent expense for the three months ended March 31, 2020 and 2019, was ~~$131,088~~$133,750 and ~~$64,595,~~$0, respectively.

We also lease certain parking ~~space,~~facilities, storage facilities, furniture and equipment under ~~financing arrangements~~agreements expiring between ~~April 2019~~October 2021 and ~~February 2037.~~June 2025.

A schedule of minimum future lease payments for the following nine and twelve-month periods is as follows:

Employment Agreements - The Company has entered into various employment contracts with employees that could result in obligations to the Company in the event of a change in control or termination without cause.

Management Agreements – As of March 31, ~~2019,~~2020, the Hyatt Centric Arlington hotel operated under a management agreement with Highgate Hotels L.P. The management agreement has an initial term of three years expiring March 1, 2021.

As of March 31, ~~2019, the eleven remaining~~2020, ten of our wholly-owned hotels ~~and the rental program and condominium association of the Hyde Resort & Residences~~ operated under a management ~~agreement~~agreements with ~~Chesapeake Hospitality~~Our Town (see Note 9). The management agreements expire ~~between January 1, 2020 and January 30, 2022,~~on March 31, 2025, and may be extended for up to two additional periods of five years each, subject to the approval of both parties. Each of the individual hotel management agreements may be terminated earlier than the stated term upon the sale of the hotel covered by the respective management agreement, in which case we may incur early termination fees.

As of March 31, 2020, the DoubleTree Resort by Hilton Hollywood Beach and the rental program and condominium association of the Hyde Resort & Residences and the Hyde Beach House Resort & Residences operated under management agreements with Chesapeake Hospitality. Effective April 1, 2020, Chesapeake Hospitality no longer serves as manager for any of our properties and management of the remaining properties that had been managed by Chesapeake Hospitality were transitioned to Our Town.

Franchise Agreements – As of March 31, ~~2019, nine~~2020, most of our hotels ~~operated~~operate under franchise licenses from national hotel companies. Under the franchise agreements, we are required to pay a franchise fee generally between 3.0% and 5.0% of room revenues, plus additional fees for marketing, central reservation systems, and other franchisor programs and services that amount to between ~~2.5%~~3.0% and ~~6.0%~~4.0% of ~~room~~gross revenues from the hotels. The franchise agreements currently expire between ~~June 2019~~November 2021 and ~~March 2038.~~October 2030. On April 12, 2016, we allowed the franchise agreement on the Crowne Plaza Houston Downtown to expire. The property has been rebranded as The Whitehall. On July 31, 2017, we allowed the franchise agreement on the Hilton Savannah DeSoto to expire. The property has been rebranded as The DeSoto and operates as an independent hotel. Each of our franchise agreements provides for early termination fees in the event the agreement is terminated before the stated term.

Restricted Cash Reserves – Each month, we are required to escrow with the lenders on the Hotel Ballast, The DeSoto, the DoubleTree by Hilton Raleigh Brownstone-University, the DoubleTree by Hilton Jacksonville Riverside, the DoubleTree Resort by Hilton Hollywood Beach, and the Georgian Terrace an amount equal to one-twelfth (1/12) of the annual real estate taxes due for the properties. We are also required by several of our lenders to establish individual property improvement funds to cover the cost of replacing capital assets at our properties. Each month, those contributions equal 4.0% of gross revenues for the Hotel Ballast, The DeSoto, the DoubleTree by Hilton Raleigh Brownstone–University, the DoubleTree by Hilton Jacksonville Riverside, the DoubleTree Resort by Hilton Hollywood Beach, The Whitehall and the Georgian Terrace and equal 4.0% of room revenues for the DoubleTree by Hilton Philadelphia Airport and the Hyatt Centric Arlington.

ESOP Loan Commitment – The Company’s board of directors approved the ESOP on November 29, 2016, which was adopted by the Company in December 2016 and effective January 1, 2016. The ESOP is a non-contributory defined contribution plan covering all employees of the Company. The ESOP is a leveraged ESOP, meaning the contributed funds are loaned to the ESOP from the Company. The Company entered into a loan agreement with the ESOP on December 29, 2016, pursuant to which the ESOP may borrow up to $5.0 million to purchase shares of the Company’s common stock on the open market. Under the loan agreement, the aggregate principal amount outstanding at any time may not exceed $5.0 million and the ESOP may borrow additional funds up to that limit in the future, until December 29, 2036.

~~Notice to Redeem 7.25% Unsecured Notes~~ ~~– See Note 14 for more information about redemption~~ Between January 3, 2017 and February 28, 2017, the Company’s ESOP purchased 682,500 shares of the ~~7.25% Notes.~~

~~Hyde Beach House – Purchase Commitment -~~ ~~On June 1, 2017, we entered into a Commercial Unit Purchase Agreement and a related addendum (collectively, the “Agreement”) to purchase the commercial unit~~Company’s common stock of ~~the planned Hyde Beach House Resort & Residences (the “Planned Hotel”), a condominium hotel under development in Hollywood, Florida, for a price~~an aggregate cost of $5.10 million from 4000 South Ocean Property Owner, LLLP (the “Seller”). In connection with the Agreement, we also entered into a Pre-Opening Services Agreement whereby the Seller has agreed to pay us $0.75 million in connection with certain pre-opening activities, prior to the closing under the Agreement. In connection with the closing under the Agreement, we have agreed to purchase inventories consistent with the management and operation of the Planned Hotel and the related condominium association for an additional amount; to enter into a lease agreement for the parking garage and poolside cabanas associated with the Planned Hotel; and to enter into a management agreement relating to the operation and management of the Planned Hotel condominium association. We anticipate that the closing of the transaction under the Agreement and the execution of related agreements will take place in the third$4.9 million.

~~quarter of 2019, once construction of the Planned Hotel has been substantially completed. The closing of the transaction is subject to various closing conditions as described in the Agreement.~~

Litigation –We are involved in routine litigation arising out of the ordinary course of business, all of which we expect to be covered by insurance and we believe it is not reasonably possible such matters will have a material adverse impact on our financial condition or results of operations or cash flows.

Preferred Stock - The Company is authorized to issue up to 11,000,000 shares of preferred stock. ~~As of March 31, 2019 and December 31, 2018, there were each~~ ~~1,610,000~~ ~~shares, respectively, of the Series B~~The following table sets forth our Cumulative Redeemable Perpetual Preferred Stock ~~(the “Series~~by series:

The Company is required to pay cumulative cash distributions on the preferred stock at rates in the above table per annum of the $25.00 liquidation preference per share. Holders of the Company’s preferred stock are entitled to receive distributions when authorized by the Company’s board of directors out of assets legally available for the payment of distributions. The preferred stock is not redeemable by the holders, has no maturity date and is not convertible into any other security of the Company or its affiliates. When distributions on any shares of the Company’s Series B Preferred ~~Stock”) issued and outstanding. As of March 31, 2019 and December 31, 2018, there were each 1,352,141 shares, respectively, of the~~Stock, Series C Preferred Stock ~~issued~~ and ~~outstanding~~.

~~On August 31, 2018, we entered into~~Series D Preferred Stock (collectively, the “Preferred Stock”) are in arrears for six or more quarterly periods, whether or not consecutive, the holders of the Company’s Preferred Stock shall be entitled to vote for the election of a ~~Sales Agency Agreement, with Sandler O’Neill, under which~~total of two additional directors of the Company, at a special meeting or at the next annual meeting of stockholders and at each subsequent annual meeting of the stockholders until full cumulative distributions for all past unpaid periods are paid or declared and a sum sufficient for the payment thereof in cash is set aside. In addition, the Company may ~~sell from time~~not make distributions with respect to ~~time through Sandler O’Neill, as sales agent, up to 400,000~~any shares of its common stock, unless and until full cumulative distributions on the ~~Company’s 7.875% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share. Through the twelve months ended December 31, 2018, the Company sold 52,141 shares of Series C~~ Preferred Stock for ~~net proceeds of approximately $1.0 million. For~~all past unpaid periods are paid or declared and a sum sufficient for the ~~three months ended March 31, 2019, there were no shares sold.~~payment thereof in cash is set aside.

In October 2017, the Company issued 1,300,000 shares of Series C Preferred Stock, for net proceeds after all estimated expenses of approximately $30.5 million. The Company contributed the net proceeds from the offering to its Operating Partnership for an equivalent number of Series C Preferred Units. Holders of the Company’s Series C Preferred Stock are entitled to receive distributions when authorized by the Company’s board of directors out of assets legally available for the payment of distributions. The Company pays cumulative cash distributions on the Series C Preferred Stock at a rate of 7.875% per annum of the $25.00 liquidation preference per share. The Series C Preferred Stock is not redeemable by the holders, has no maturity date and is not convertible into any other security of the Company or its affiliates.

On August ~~23, 2016,~~31, 2018, we entered into a Sales Agency Agreement, with Sandler O’Neill, under which the Company may sell from time to time through Sandler O’Neill, as sales agent, up to 400,000 shares of the Company’s 7.875% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share. Through the period ended December 31, 2018, the Company sold 52,141 shares of Series C Preferred Stock, for net proceeds of approximately $1.0 million. During September 2019, the Company issued ~~1,610,000~~and sold 202,469 shares of ~~its~~ Series BC Preferred Stock, for net proceeds after all estimated expenses of approximately ~~$37.8~~$4.9 million, ~~which it~~pursuant to the Sales Agency Agreement. The Company contributed the net proceeds from the offering to ~~the~~its Operating Partnership for an equivalent number of ~~preferred partnership units. Holders~~Series C Preferred Units.

In April and May 2019, the Company issued 1,200,000 shares of ~~the Company’s~~ Series BD Preferred Stock, ~~are entitled to receive distributions when authorized by the Company’s board~~for net proceeds after all estimated expenses of ~~directors out of assets legally available for the payment of distributions.~~approximately $28.4 million. The Company ~~pays cumulative cash distributions on~~contributed the net proceeds from the offering to its Operating Partnership for an equivalent number of Series BD Preferred ~~Stock~~ ~~at a rate of 8.00% per annum of the $25.00 liquidation preference per share. The~~ ~~Series B Preferred Stock~~ ~~is not redeemable by the holders, has no maturity date and is not convertible into any other security of the Company or its affiliates.~~Units.

Preferred Units - The Company is the holder of the Operating Partnership’s preferred partnership units and is entitled to receive distributions when authorized by the general partner of the Operating Partnership out of assets legally available for the payment of distributions. The following table sets forth our Cumulative Redeemable Perpetual Preferred Units by series:

The Company pays cumulative cash distributions on the preferred units at rates in the above table per annum of the $25.00 liquidation preference per unit. Holders of the Operating Partnership’s preferred units are entitled to receive distributions when authorized by the Operating Partnership’s general partner out of assets legally available for the payment of distributions. The preferred units are not redeemable by the holders, has no maturity date and is not convertible into any other security of the Operating Partnership or its affiliates.

In April and May 2019, the Operating Partnership issued 1,200,000 shares of 8.25% Series D Preferred Units, for net proceeds after all estimated expenses of approximately $28.4 million.

In September and December 2018, the Operating Partnership issued ~~a total of~~ 52,141 units of 7.875% Series C Preferred Units, for net proceeds after all estimated expenses of approximately $1.0 million.

In October 2017, the Operating Partnership issued 1,300,000 units of 7.875% Series C Preferred Units, for net proceeds after all estimated expenses of approximately $30.5 million. The Operating Partnership used the net proceeds to redeem in full the Operating Partnership’s ~~7.0% Senior Unsecured~~7% Notes ~~due 2019~~ and for working capital.

On August 23, 2016, the Operating Partnership issued 1,610,000 units, $0.01 par value per unit, of its 8% Series B Cumulative Redeemable Perpetual Preferred Units (the “Series B Preferred Units”) for net proceeds after all expenses of approximately $37.8 million. The Operating Partnership used the net proceeds to redeem in full the Operating Partnership’s 8.0% senior unsecured notes and for working capital.

The Operating Partnership pays cumulative cash dividends on the preferred partnership units at a rate of 8.00% per annum of the $25.00 liquidation preference per unit for the Series B Preferred Units and pays cumulative cash dividends on the preferred partnership units at a rate of 7.875% per annum of the $25.00 liquidation preference per unit for the Series C Preferred Units.

~~For each of the quarters ended March 31, 2019 and 2018, the Operating Partnership has declared and has paid $0.50 per preferred unit~~ ~~for the Series B Preferred Units, respectively, and for each of the quarters ended March 31, 2019 and 2018, the Operating Partnership has declared and has paid approximately $0.4922 per preferred unit~~ ~~for the Series C Preferred Units~~.

Common Stock – As of March 31, ~~2019,~~2020, the Company was authorized to issue up to ~~49,000,000~~69,000,000 shares of common stock, $0.01 par value per share. Each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of stockholders. Holders of the Company’s common stock are entitled to receive distributions when authorized by the Company’s board of directors out of assets legally available for the payment of distributions.

On December 2, 2016, the Company’s board of directors authorized a stock repurchase program under which the Company may purchase up to $10.0 million of its outstanding common stock, par value $0.01 per share, at prevailing prices on the open market or in privately negotiated transactions, at the discretion of management. ~~The Company has and expects to continue to use available working capital to fund purchases under the stock repurchase program and intends to complete the repurchase program prior to~~Through December 31, 2019 ~~unless extended by the board of directors. Through December 31, 2018~~ the Company repurchased 882,820 shares of common stock for approximately $5.9 million and the repurchased shares have been returned to the status of authorized but unissued shares of common stock. ~~The Company did not repurchase any shares under the stock repurchase program during the three months ended March 31, 2019.~~

During 2017,, the ESOP purchased 682,500 shares of the Company’s common stock for approximately $4.9 million. There have been no more purchases of shares of common stock made by the ESOP in 2018, 2019 or ~~2019.~~during the three months ended March 31, 2020.

The following is a schedule of issuances, since January 1, ~~2018,~~2019, of the Company’s common stock and related units of the Operating Partnership:

~~On January 1, 2018, the Company was issued 25,000 units in the Operating Partnership and awarded 25,000 shares of restricted stock to one of its employees.~~

On February ~~5, 2018,~~3, 2020, the Company was issued 17,250 units in the Operating Partnership and awarded ~~15,000~~ shares of restricted ~~stock and 2,250 shares of unrestricted~~ stock to its independent directors.

On ~~August 31, 2018, we entered into a Sales Agency Agreement, with Sandler O’Neill, under which~~January 1, 2020, the Company ~~may sell from time~~was issued 45,000 units in the Operating Partnership and awarded shares of restricted stock to ~~time through Sandler O’Neill, as sales agent,~~two employees.

On January 1, 2020, two holders of units in the Operating Partnership redeemed 488,952 units for an equivalent number of shares in the Company’s common stock.

On October 1, 2019, one holder of units in the Operating Partnership redeemed 50,000 units for an equivalent number of shares of the Company’s common stock, par value $0.01 per share, having an aggregate gross sales price of up to $5,000,000. Through December 31, 2018, the Company sold 88,297 shares of common stock, for net proceeds of approximately $0.6 million and none have been sold during the three months ended March 31, 2019.stock.

On February 11, 2019, the Company was issued 12,750 units in the Operating Partnership and awarded shares of restricted stock to its independent directors.

On February 22, 2019, the Company was issued 250 units in the Operating Partnership and awarded shares of restricted stock to an independent director.

As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company had ~~14,222,378~~14,823,580 and ~~14, 209,378~~14,272,378 shares of common stock outstanding, respectively.

Operating Partnership Units – Holders of Operating Partnership units, other than the Company as general partner, have certain redemption rights, which enable them to cause the Operating Partnership to redeem their units in exchange for shares of the Company’s common stock on a one-for-one basis or, at the option of the Company, cash per unit equal to the average of the market price of the Company’s common stock for the 10 trading days immediately preceding the notice date of such redemption. The number of shares issuable upon exercise of the redemption rights will be adjusted upon the occurrence of stock splits, mergers, consolidations or similar pro-rata share transactions, which otherwise would have the effect of diluting the ownership interests of the limited partners or the stockholders of the Company.

Since January 1, ~~2018,~~2019, there have been no issuances or redemptions, of units in the Operating Partnership other than the issuances of units in the Operating Partnership to the Company described above.

As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the total number of Operating Partnership units outstanding was ~~16,000,518~~16,062,768 and ~~15,987,518,~~16,000,518, respectively.

As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, the total number of outstanding Operating Partnership units not owned by the Company was ~~1,778,140~~1,239,188 and ~~1,778,140,~~1,728,140, respectively, with a fair market value of approximately ~~$12.1~~$2.0 million and ~~$10.0~~$11.7 million, respectively, based on the price per share of the common stock on such respective dates.

Chesapeake Hospitality. Chesapeake Hospitality is owned and controlled by individuals including ~~Andrew M. Sims, our chairman and chief executive officer, and~~ Kim E. Sims and Christopher L. Sims, each a former director of Sotherly and ~~immediate family member~~a sibling of our ~~chairman and chief executive officer.~~Chairman. As of March 31, ~~2019, Andrew M. Sims,~~2020, Kim E. Sims and Christopher L. Sims, beneficially owned, directly or indirectly, approximately ~~19.3375%, 20.0%,~~24.8% and ~~20.0%~~24.8%, respectively, of the total outstanding ownership interests of Chesapeake Hospitality. ~~Kim E.~~Prior to November 2019, Andrew M. Sims, ~~and Christopher L. Sims are currently officers and employees~~our Chairman, owned approximately 19.3% of the total outstanding ownership interests of Chesapeake ~~Hospitality.~~Hospitality, all of which have since been sold. The following is a summary of the transactions between Chesapeake Hospitality and us:

Accounts Receivable – At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, we were due ~~$117,414~~$136,658 and $~~91,987~~81,223, respectively, from Chesapeake Hospitality.

Management Agreements – As of March 31, ~~2019, all~~2020, Chesapeake Hospitality was the management company for our DoubleTree Resort by Hilton Hollywood Beach hotel, the Hyde Resort & Residences, and the Hyde Beach House Resort & Residences. Prior to January 1, 2020, Chesapeake Hospitality was the manager for each of our hotels that we wholly-owned, ~~hotels (with~~with the exception of the Hyatt Centric Arlington, ~~hotel)~~under various hotel management agreements. On January 1, 2020, the management agreements for ten of our wholly-owned hotels expired. Those hotels are now managed by Our Town as described below. Effective April 1, 2020, Chesapeake Hospitality no longer serves as manager for any of our properties and management of the ~~Hyde Resort & Residences operated under various~~remaining properties that had been managed by Chesapeake Hospitality were transitioned to Our Town. Upon the termination of the last remaining individual hotel management agreements with Chesapeake ~~Hospitality.~~ ~~On December 15, 2014, we entered into a~~Hospitality, the master agreement ~~and a series~~with Chesapeake Hospitality automatically terminated in accordance with its terms. In connection with the termination of the individual hotel management agreements ~~that became effective~~with Chesapeake Hospitality, we paid Chesapeake Hospitality approximately $0.1 million in aggregate termination fees. The Hyatt Centric Arlington which we acquired on ~~January~~March 1, ~~2015.~~ 2018 is managed by an independent management company.

The master agreement ~~has a five-year~~with Chesapeake Hospitality had an initial term of five-years, but ~~may be~~was automatically extended for ~~such additional periods as~~so long as an individual management agreement ~~remains~~remained in effect. The base management fee for the Whitehall and the Georgian Terrace remained at 2.00% through 2015, increased to 2.25% in 2016 and increased to 2.50% thereafter. The base management fees for the remaining properties ~~in the current portfolio~~managed by Chesapeake Hospitality was 2.65% through 2017 and decreased to 2.50% thereafter. For new individual hotel management agreements, Chesapeake Hospitality will receive a base management fee of 2.00% of gross revenues for the first full year from the commencement date through the anniversary date, 2.25% of gross revenues the second full year, and 2.50% of gross revenues for every year thereafter.

The Company and Chesapeake Hospitality agreed to substitute the Hyde Resort & Residences for the Crowne Plaza Hampton Marina and there was no termination fee associated with the termination of the Crowne Plaza Hampton Marina management agreement. 30

Each management agreement ~~sets~~set an incentive management fee equal to 10.0% of the amount by which gross operating profit, as defined in the management agreement, for a given year exceeds the budgeted gross operating profit for such year; provided, however, that the incentive management fee payable in respect of any such year shall not exceed 0.25% of the gross revenues of the hotel included in such calculation.

Base management and administrative fees earned by Chesapeake Hospitality for our properties ~~totaled $1,245,701~~was approximately $0.2 million and $~~1,097,722~~1.2 million for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. In addition, estimated incentive management fees of ~~$151,989~~$(40,375) and $~~22,397~~$151,989 were accrued for the three months ended March 31, 2020 and 2019, ~~and 2018, respectively~~.respectively. On July 15, 2019 we notified Chesapeake Hospitality of our intent not to renew or extend the management agreements for ten of our wholly-owned hotels when they expire on January 1, 2020.

Employee Medical Benefits – ~~We purchase~~Prior to March 31, 2020, we purchased employee medical benefits through Maryland Hospitality, Inc. (d/b/a MHI Health), an affiliate of Chesapeake Hospitality for those employees that are employed by Chesapeake Hospitality that ~~work~~worked exclusively for our hotel ~~properties.~~properties that were managed by Chesapeake Hospitality. Gross premiums for employee medical benefits paid by the Company (before offset of employee co-payments) were ~~$1,467,286~~each approximately $0.2 million and $~~1,503,825~~$1.5 million for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively.

Workers’ Compensation Insurance – ~~Pursuant~~Prior to December 31. 2019, pursuant to our management agreements with Chesapeake Hospitality, we ~~pay~~paid the premiums for workers’ compensation insurance under a self-insured policy owned by Chesapeake Hospitality or its affiliates, and which covers those employees of Chesapeake Hospitality that ~~work~~worked exclusively for the properties managed by Chesapeake Hospitality. For the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, we paid approximately ~~0.3~~$0.1 million and ~~$ 0.1~~$0.3 million, respectively, in premiums for the portion of the plan covering those employees that work exclusively for our properties under our management agreements with Chesapeake Hospitality.

Our Town Hospitality. Our Town is currently the management company for eleven of our twelve wholly owned hotels. Our Town is a majority-owned subsidiary of Newport Hospitality Group, Inc (“Newport”). As of March 31, 2020, Andrew M. Sims, our Chairman, and David R. Folsom, our President and Chief Executive Officer, beneficially owned approximately 19.5% and 2.5%, respectively, of the total outstanding ownership interests of Our Town. Both Mr. Sims and Mr. Folsom serve as directors of Our Town and have certain governance rights. The following is a summary of the transactions between Our Town and us:

Management Agreements – On September 6, 2019, we entered into a master agreement with Newport and Our Town related to the management of ten of our hotels. On December 13, 2019, we entered into an amendment to the master agreement (as amended, the “OTH Master Agreement”), as well as a series of individual hotel management agreements (each an “OTH Hotel Management Agreement” and, together, the “OTH Hotel Management Agreements”) for the management of ten of our hotels. On April 1, 2020, we engaged Our Town to manage one additional wholly-owned hotel and two condominium resort rental programs. Sotherly agreed to provide Our Town with initial working capital of up to $1.0 million as an advance on the management fees that we will owe to Our Town under the OTH Hotel Management Agreements. The advanced funds will be offset against future management fees otherwise payable to Our Town by means of a 25% reduction in such fees each month during 2020. Any management fee advances not recouped in such fashion will be deemed satisfied at the end of 2020. As of December 31, 2019, Sotherly had advanced approximately $0.6 million to Our Town as initial working capital. In addition, the OTH Master Agreement provides for an adjustment to the fees payable by us under the OTH Hotel Management Agreements in the event the net operating income of Our Town falls below $250,000 for any calendar year beginning on or after January 1, 2021. The OTH Master Agreement expires on March 31, 2025 but shall be extended beyond 2025 for such additional periods as an OTH Hotel Management Agreement remains in effect. The base management fees for each hotel under management with Our Town is 2.50%. For any new individual hotel management agreements, Our Town will receive a base management fee of 2.00% of gross revenues for the first full year from the commencement date through the anniversary date, 2.25% of gross revenues the second full year, and 2.50% of gross revenues for every year thereafter.

Each OTH Hotel Management Agreement sets an incentive management fee equal to 10.0% of the amount by which gross operating profit, as defined in the management agreement, for a given year exceeds the budgeted gross operating profit for such year; provided, however, that the incentive management fee payable in respect of any such year shall not exceed 0.25% of the gross revenues of the hotel included in such calculation.

Base management and administrative fees earned by Our Town for our properties was approximately $0.7 million and $0 for the three months ended March 31, 2020 and 2019, respectively.

Sublease – On December 13, 2019, we entered into a sublease agreement with Our Town pursuant to which Our Town subleases 2,245 square feet of office space from Sotherly for a period of 5 years, with a 5 year renewal subject to approval by Sotherly, on terms and conditions similar to the terms of the prime lease entered into by Sotherly and the third party owner of the property. Lease payments due to the Company were approximately $40,295 and $0 for the three months ended March 31, 2020 and 2019, respectively.

Credit Agreement – On December 13, 2019, we entered into a credit agreement with Our Town effective January 1, 2020, pursuant to which Sotherly agreed to provide Our Town with a working capital line of credit, the agreement, as amended, allows Our Town to borrow up to $850,000. Our Town may draw against the line of credit from time to time prior to January 1, 2021 when the facility becomes payable in full. Interest will accrue on the outstanding balance at 3.5% per annum and is payable quarterly in arrears. In the event of a default under the credit agreement, we have the right to offset any outstanding unpaid balance against amounts we owe to Our Town under the OTH Hotel Management Agreements. As of March 31, 2020, the outstanding credit balance under the credit agreement was approximately $0.6 million.

Employee Medical Benefits – We will purchase employee medical benefits through Our Town (or its affiliate) for those employees that are employed by Our Town that work exclusively for our properties, starting January 1, 2020. Gross premiums for employee medical benefits paid by the Company (before offset of employee co-payments) were approximately $1.4 million and $0 for the three months ended March 31, 2020 and 2019, respectively.

Loan Receivable -– Affiliate –. As of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, approximately ~~$4.4~~$4.1 million and ~~$4.4~~$4.2 million, respectively, was due to the Operating Partnership for advances to the Company under a loan agreement dated December 29, 2016. The Company used the proceeds to make advances to the ESOP to purchase shares of the Company’s common stock.

~~Others.~~Others. We employ Ashley S. Kirkland, the daughter of our ~~Chief Executive~~Chairman, as Corporate Counsel and Compliance Officer ~~as a legal analyst~~ and Robert E. Kirkland IV, her husband, as our ~~compliance officer.~~General Counsel. We also employ Andrew M. Sims Jr., the son of our ~~Chief Executive Officer,~~Chairman, as ~~a manager. Compensation~~Vice President – Operations & Investor Relations. Total compensation, including salary and benefits, for the three months ended March 31, 2020 and 2019 ~~and 2018~~ totaled ~~$100,550~~$121,956 and $~~97,260~~100,550, respectively for all three individuals.

During the three-month period ending March 31, ~~2019~~2020 and ~~2018,~~2019, the Company reimbursed ~~$33,698~~$0 and $~~24,052~~33,698, respectively to a partnership controlled by ~~the Chief Executive Officer~~our Chairman for business-related air travel pursuant to the Company’s travel reimbursement policy.

401(k) Plan - We maintain a 401(k) plan for qualified employees which is subject to “safe harbor” provisions and which requires that we match 100.0% of the first 3.0% of employee contributions and 50.0% of the next 2.0% of employee contributions. All employer matching funds vest immediately in accordance with the “safe harbor” provision. Contributions to the plan totaled ~~$27,861~~$32,853 and $~~26,898~~27,861 for the three months ended March 31, 2020 and 2019, ~~and 2018,~~ r~~respectively~~espectively.

Employee Stock Ownership Plan - The Company adopted an Employee Stock Ownership Plan in December 2016, effective January 1, 2016. The ESOP is a non-contributory defined contribution plan covering all employees of the Company. The Company sponsors and maintains the ESOP and related trust for the benefit of its eligible employees. The ESOP is a leveraged ESOP, meaning funds are loaned to the ESOP from the Company. The Company entered into a loan agreement with the ESOP on December 29, 2016, pursuant to which the ESOP may borrow up to $5.0 million to purchase shares of the Company’s common stock on the open market, which serve as collateral for the loan. Between January 3, 2017 and February 28, 2017, the Company’s ESOP purchased 682,500 shares of the Company’s common stock of an aggregate cost of $4.9 million.

Shares purchased by the ESOP are held in a suspense account for allocation among participants as contributions are made to the ESOP by the Company. The share allocations will be accounted for at fair value at the date of allocation. As of March 31, ~~2019,~~2020, the ESOP had purchased 682,500 shares of the Company’s common stock in the open market for approximately $4.9 million, which the ESOP borrowed from the Company pursuant to the loan agreement. A total of ~~9,399~~114,377 and ~~6,531~~78,719 shares with a fair value of ~~$64,007~~$183,002 and ~~$41,208 were~~$536,076 remained allocated or committed to be released from the suspense account as of March 31, 2020 and 2019, respectively. We recognized as compensation cost $56,516 and $66,093 during the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively. The remaining ~~603,781~~565,111 unallocated shares have an approximate fair value of ~~$4.1~~$0.9 million, as of March 31, ~~2019.~~2020. At March 31, ~~2019,~~2020, the ESOP held a total of ~~69,320~~104,625 allocated shares, ~~9,399~~9,752 committed-to-be-released shares and ~~603,781~~565,111 suspense shares. Dividends on allocated and unallocated shares are used to pay down the ESOP loan from the Operating Partnership. The share allocations are accounted for at fair value on the date of allocation as follows:

Indirect hotel operating expenses consists of the following expenses incurred by the hotels:

The components of the income tax (benefit) provision for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 are as follows:

~~A reconciliation of the statutory federal income tax provision to the Company’s income tax provision is as follows:~~

As of March 31, 2019 and December 31, 2018, we had a net deferred tax asset of approximately $4.8 million and $5.1 million, respectively, of which, approximately $4.2 million and $4.4 million, respectively, are due to accumulated net operating losses of our TRS Lessee. These loss carryforwards will begin to expire in 2028 if not utilized by such time. As of March 31, 2019 and December 31, 2018, the remainder of the deferred tax asset is attributable to year-to-year timing differences of approximately $0.7 million and $0.7 million, respectively, for accrued, but not deductible, employee performance awards, vacation and sick pay, bad debt allowance and depreciation.

We record a valuation allowance to reduce deferred tax assets to an amount that we believe is more likely than not to be realized. Because of expected future taxable income of our TRS Lessee, we have not recorded a valuation allowance to reduce our net deferred tax asset as of March 31, 2019 and December 31, 2018, respectively. We regularly evaluate the likelihood that our TRS Lessee will be able to realize its deferred tax assets and the continuing need for a valuation allowance. At March 31, 2019 and December 31, 2018, we determined, based on all available positive and negative evidence, that it is more-likely-than-not that future taxable income will be available during the carryforward periods to absorb all of the consolidated federal and state net operating loss carryforward of our TRS Lessee. A number of factors played a critical role in this determination, including:

~~Income (Loss)~~Loss per Share. The limited partners’ outstanding limited partnership units in the Operating Partnership (which may be redeemed for common stock upon notice from the limited partner and following our election to redeem the units for stock rather than cash) have been excluded from the diluted earnings per share calculation as there would be no effect on the amounts since the limited

partners’ share of ~~income~~loss would also be added back to net ~~income (loss).~~loss. The shares of the Series B Preferred Stock and Series C Preferred Stock and Series D Preferred Stock are not convertible into or exchangeable for any other property or securities of the Company, except upon the occurrence of a change of control and have been excluded from the diluted earnings per share calculation as there would be no impact on the current controlling stockholders. The non-committed, unearned ESOP shares are treated as reducing the number of issued and outstanding common shares and similarly reducing the weighted average number of common shares outstanding. The allocated and committed to be released shares have been included in the weighted average diluted earnings per share calculation ~~and~~since there would be an antidilutive effect from the dilution by these shares, although the amount of compensation for allocated shares is reflected in net ~~income.~~loss available to common stockholder for basic computation. There are no ESOP units, therefore there is no dilution on the calculation of earnings per unit. The computation of basic and diluted net ~~income~~loss per share is presented below.

Income Per Unit – The computation of basic and diluted net ~~income~~loss per unit is presented below.

~~On April 11, 2019, we paid a quarterly dividend (distribution) of $0.125 per common share (and unit) to those stockholders (and unitholders of the Operating Partnership) of record on March 15, 2019.~~

On April ~~15, 2019,~~1, 2020, we ~~paid~~entered into a ~~quarterly distribution~~modification to promissory note and loan documents with the lender for the mortgage loan secured by The DeSoto. Pursuant to the modification: scheduled payments of ~~$0.50 per share (and unit)~~interest are deferred from April 1, 2020 through September 1, 2020; scheduled payments of ~~Series B Preferred Stock (and Series B Preferred Units)~~principal are deferred from April 1, 2020 through March 1, 2021; deferred principal and interest is due and payable at maturity; FF&E reserves are available to ~~holders~~fund operations through September 1, 2020; the maturity date was not changed; and payment of up to 5.0% of the ~~Series B Preferred Stock (and Series B Preferred Units) of record as of April 1, 2019.~~indebtedness under the loan is guaranteed by the Operating Partnership.

On April ~~15, 2019,~~1, 2020, we ~~paid~~entered into a ~~quarterly distribution~~modification to promissory note and loan documents with the lender for the mortgage loan on Hotel Ballast Wilmington. Pursuant to the modification: payment of ~~$0.4921875 per share (and unit)~~interest is deferred from April 1, 2020 through September 1, 2020; payment of ~~Series C Preferred Stock (and Series C Preferred Units)~~principal is deferred from April 1, 2020 through March 1, 2021; deferred principal and interest is due and payable at maturity; FF&E reserves are available to ~~holders~~fund operations through September 1, 2020; the maturity date was not changed; and payment of to 5.0% of the ~~Series C Preferred Stock (and Series C Preferred Units)~~indebtedness under the loan is guaranteed by the Operating Partnership.

On April 8, 2020, we entered into a COVID-19 relief agreement with the lender for the mortgage loan on the DoubleTree by Hilton Philadelphia Airport. Pursuant to the agreement: payment of ~~record~~principal and interest under the note as ofwell as the interest-rate swap was deferred for payments due between April 1, ~~2019.~~2020 and June 30, 2020; deferred interest to be paid in 3 monthly installments beginning July 1, 2020; deferred principal is due and payable at maturity; certain escrow payments are deferred for 3 months; and the maturity date was extended by 3 months.

On April 16, 2020, we entered into a forbearance agreement with the lender for the mortgage loan on The Whitehall. Pursuant to the agreement: payment of principal and interest due between April 1, 2020 and October 12, 2020 is deferred and the deferred payments will be added to the principal balance of the loan and subsequent payments will be calculated based on the remainder of the

amortization period; certain escrow payments are deferred through December 31, 2020 and reserves are released to fund operations; the interest rate is changed from LIBOR plus 3.50% to New York Prime Rate plus 1.25%; the prepayment penalty is changed to: (i) 3.0% if prepaid on or before April 12, 2021; (ii) 2.0% if prepaid after April 12, 2021 but on or before April 12, 2022; (iii) 1.0% if prepaid after April 12, 2022 but on or before November 26, 2022; and (iv) no prepayment fee if prepaid after November 26, 2022; and the maturity date was not changed.

The Operating Partnership and certain of its subsidiaries have received PPP Loans pursuant to the PPP, which was established under the CARES Act and is administered by the U.S. Small Business Administration. Each PPP Loan has a term of five years and carries an interest rate of 1.00%. Equal payments of principal and interest begin no later than 10 months following origination of the loan and are amortized over the remaining term of the loan. Pursuant to the terms of the CARES Act, the proceeds of each PPP Loan may be used for payroll costs, mortgage interest, rent or utility costs. The promissory note for each PPP Loan contains customary events of default relating to, among other things, payment defaults and breach of representations and warranties or of provisions of the relevant promissory note. Under the terms of the CARES Act, each borrower can apply for and be granted forgiveness for all or a portion of the PPP Loan. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds in accordance with the terms of the CARES Act. No assurance is provided that any borrower will obtain forgiveness under any relevant PPP Loan in whole or in part.

On April 16, 2020, our Operating Partnership entered into a promissory note with Village Bank and received proceeds of $333,500.

On April 21, 2020, we entered into a letter agreement with the lender for the mortgage loan on DoubleTree by Hilton Jacksonville Riverfront. Pursuant to the agreement: the April, May, and June 2020 principal and interest payments were paid out of FF&E reserves; FF&E deposits were deferred for the April, May, and June 2020 payment dates; released FF&E and the deferred FF&E to be repaid in 6 monthly installments beginning with the July 2020 payment; and the maturity date was not changed.

On April 28, 2020, we entered into a promissory note and received proceeds of $9,432,900 under a PPP Loan from Fifth Third Bank, National Association.

On April 29, ~~2019,~~2020, we ~~authorized~~entered into an amendment to real estate note with the lender for the mortgage loan on Sheraton Louisville Riverside. Pursuant to the amendment: payment of interest is deferred from May 1, 2020 through July 1, 2020; payment of principal is deferred from May 1, 2020 through April 1, 2021; normal payments resume on May 1, 2021 and will be applied first to current and deferred interest and then to principal; any deferred principal is due and payable at maturity; and the maturity date was not changed.

On May 4, 2020, we entered into a ~~quarterly dividend (distribution) of $0.13 per common share (and unit)~~forbearance agreement with the lender for the mortgage loan on the DoubleTree by Hilton Raleigh Brownstone. Pursuant to the ~~stockholders (and unitholders~~agreement, scheduled payments of ~~the Operating Partnership) of record as of June 14, 2019. The dividend (distribution) is~~interest due between April 1, 2020 and July 31, 2020 are deferred and are to be ~~paid on July 11, 2019.~~repaid no later than August 1, 2021 as operating cash flow from the property allows.

On April 29, 2019, we authorized payment of a quarterly distribution of $0.50 per share (and unit) of Series B Preferred Stock (and Series B Preferred Units) to holders of the Series B Preferred Stock (and Series B Preferred Units) of record as of July 1, 2019, to be paid on July 15, 2019.

On April 29, 2019, we authorized payment of a quarterly distribution of $0.4921875 per share (and unit) of Series C Preferred Stock (and Series C Preferred Units) to holders of the Series C Preferred Stock (and Series C Preferred Units) of record as of July 1, 2019, to be paid on July 15, 2019.

On April 29, 2019, we authorized payment of a quarterly distribution of $0.41823 per share (and unit) of Series D Preferred Stock (and Series D Preferred Units) to holders of the Series D Preferred Stock (and Series D Preferred Units) of record as of July 1, 2019, to be paid on July 15, 2019.

On April 18, 2019, the Company closed a sale and issuance of 1,080,000 shares of its newly authorized 8.25% Series D cumulative redeemable perpetual preferred stock (the “Series D Preferred Stock”), for gross proceeds of $27.0 million before underwriting discounts and commissions and expenses payable by the Company. On May 1, ~~2019,~~2020, one holder of units in the Company closed a sale and issuance of an additional 120,000 shares of its Series D Preferred Stock, for gross proceeds of $3.0 million before underwriting discounts and commissions and expenses payable by the Company, in connection with the partial exercise of the underwriters’ option to purchase additional shares of the Series D Preferred Stock. ~~The Company contributed the net proceeds from the offering to its~~ Operating Partnership redeemed 57,687 units for an equivalent number of ~~Series D preferred units. We intend~~shares of the Company’s common stock.

On May 6, 2020, we entered into a second promissory note with Fifth Third Bank, National Association and received proceeds of $952,700 under a PPP Loan.

On May 14, 2020, we entered into a COVID-19 financial hardship omnibus loan document modification agreement with the lender for the mortgage loan on Hotel Alba Tampa. Pursuant to ~~use~~ the ~~net proceeds to redeem in full~~agreement, scheduled payments of principal due between April 1, 2020 and September 30, 2020 are deferred. Scheduled payments of interest can be paid from the ~~Operating Partnership’s 7.25% Notes and to use any remaining net proceeds for general corporate purposes, including potential future acquisitions of hotel properties.~~cash collateral on deposit with the lender.

On April 18, 2019, we notified Wilmington Trust, National Association, as Trustee, of the Operating Partnership’s intent to redeem the entire $25.0 million aggregate principal amount of its 7.25% Notes, pursuant to the terms of the indenture. The 7.25% Notes redemption date is set for May 15, 2019 at a redemption price equal to 101% of the principal amount of the 7.25% Notes, plus any accrued and unpaid interest to, but not including, the redemption date.

~~On April 26, 2019,~~June 16, 2020, we entered into ~~amended loan documents to modify~~a deferral agreement with the ~~existing~~lender for the mortgage loan on the ~~Crowne Plaza Tampa Westshore with the existing lender, Fifth Third Bank.~~DoubleTree by Hilton, Laurel. Pursuant to the ~~modification, the mortgage loan~~agreement: scheduled payments of principal ~~balance remain~~and interest due between July 1, 2020 and September 30, 2020 are deferred; any deferred principal is now due and payable at ~~approximately $18.2 million;~~maturity; and the maturity date has been extended to June 30, 2022, and may be extended for two additional periods of one year each, subject to certain conditions; the mortgage loan continues to bear a floating interest rate of 1-month LIBOR plus 3.75%, with a new provision to reduce the floating interest rate to 1-month LIBOR plus 3.00% upon the successful achievement of certain performance hurdles; the mortgage loan amortizes on a 25-year schedule; and the mortgage loan continues to be guaranteed by Sotherly Hotels LP.was not changed.

Information included and incorporated by reference in this Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act, and as such may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our current strategies, expectations, and future plans are generally identified by our use of words, such as “intend,” “plan,” “may,” “should,” “will,” “project,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity,” and similar expressions, whether in the negative or affirmative, but the absence of these words does not necessarily mean that a statement is not forward-looking. All statements regarding our expected financial position, business and financing plans are forward-looking statements.

Currently, one of the most significant factors that could cause actual outcomes to differ materially from the Company’s forward-looking statements is the potential increased adverse effect of COVID-19 on the Company’s business, financial performance and condition, operating results and cash flows, the real estate market and the hospitality industry specifically, and the global economy and financial markets. The significance, extent and duration of the impacts caused by the COVID-19 outbreak on the Company will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, including the scope, severity and duration of the pandemic, the extent and effectiveness of the actions taken to contain the pandemic or mitigate its impact, the Company’s ability to negotiate forbearance and/or modifications agreements with its lenders on acceptable terms, or at all, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, investors are cautioned to interpret many of the risks identified under the section titled “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19. Such additional factors include, but are not limited to, the ability of the Company to effectively acquire and dispose of properties; the ability of the Company to implement its operating strategy; changes in general political, economic and competitive conditions and specific market conditions; reduced business and leisure travel due to travel-related health concerns, including the widespread outbreak of COVID-19 or any other infectious or contagious diseases in the U.S. or abroad; adverse changes in the real estate and real estate capital markets; financing risks; litigation risks; regulatory proceedings or inquiries; and changes in laws or regulations or interpretations of current laws and regulations that impact the Company’s business, assets or classification as a REIT. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved. Additional factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:

Additional factors that could cause actual results to vary from our forward-looking statements are set forth under the section titled “Risk Factors” in our Annual Report on Form 10-K, in this report and subsequent reports filed with the Securities and Exchange Commission.

These risks and uncertainties should be considered in evaluating any forward-looking statement contained in this report or incorporated by reference herein. All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are qualified by the cautionary statements in this section. We undertake no obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the date of this report, except as required by law. In addition, our past results are not necessarily indicative of our future results.

Sotherly Hotels Inc. is a self-managed and self-administered lodging REIT incorporated in Maryland in August 2004 to pursue opportunities in the full-service, primarily upscale and upper-upscale segments of the hotel industry located in primary and secondary markets in the mid-Atlantic and southern United States. Substantially all of the assets of Sotherly Hotels Inc. are held by, and all of its operations are conducted through, Sotherly Hotels LP. We commenced operations in December 2004 when we completed our initial public offering and thereafter consummated the acquisition of the Initial Properties.

Our hotel portfolio currently consists of twelve full-service, primarily upscale and upper-upscale hotels, comprising 3,156 rooms, as well as interests in two condominium hotels and ~~the hotel commercial condominium unit of the Hyde Resort & Residences.~~their associated rental programs. The Company owns hotels that operate under well-known brands such as DoubleTree by Hilton, Tapestry Collection by Hilton, ~~Crowne Plaza,~~ Sheraton and Hyatt Centric, as well as independent hotels. We sometimes refer to our independent and soft-branded properties as our collection of boutique hotels. As of March 31, ~~2019,~~2020, our portfolio consisted of the following hotel properties:

	Number
Property	of Rooms			Location	Date of Acquisition	Chain/Class Designation
Wholly-owned Hotels
~~Crowne Plaza Tampa Westshore~~		~~222~~		~~Tampa, FL~~	~~October 29, 2007~~	~~Upscale~~
The DeSoto		246		Savannah, GA	December 21, 2004	Upper Upscale⁽¹⁾
DoubleTree by Hilton Jacksonville Riverfront		293		Jacksonville, FL	July 22, 2005	Upscale
DoubleTree by Hilton Laurel		208		Laurel, MD	December 21, 2004	Upscale
DoubleTree by Hilton Philadelphia Airport		331		Philadelphia, PA	December 21, 2004	Upscale
DoubleTree by Hilton Raleigh Brownstone-University		190		Raleigh, NC	December 21, 2004	Upscale
DoubleTree Resort by Hilton Hollywood Beach		311		Hollywood, FL	August 9, 2007	Upscale
Georgian Terrace		326		Atlanta, GA	March 27, 2014	Upper Upscale⁽¹⁾
Hotel Alba Tampa, Tapestry Collection by Hilton		222		Tampa, FL	October 29, 2007	Upscale
Hotel Ballast Wilmington, Tapestry Collection by Hilton		272		Wilmington, NC	December 21, 2004	Upscale
Hyatt Centric Arlington		318		Arlington, VA	March 1, 2018	Upper Upscale
Sheraton Louisville Riverside		180		Jeffersonville, IN	September 20, 2006	Upper Upscale
The Whitehall		259		Houston, TX	November 13, 2013	Upper Upscale⁽¹⁾
Hotel Rooms Subtotal		3,156

Condominium Hotel
Hyde Resort & Residences		~~215~~186	⁽²⁾⁽²⁾	Hollywood, FL	January 30, 2017	Luxury⁽¹⁾
Hyde Beach House Resort & Residences		151	⁽²⁾	Hollywood, FL	September 26, 2019	Luxury⁽¹⁾
Total Hotel & Participating Condominium Hotel Rooms		~~3,371~~3,493

We conduct substantially all our business through our Operating Partnership. We are the sole general partner of our Operating Partnership, and we own an approximate ~~88.9%~~92.3% interest in our Operating Partnership, as of the date of this filing, with the remaining interest being held by limited partners who were the contributors of our Initial Properties and related assets.

To qualify as a REIT, neither the Company nor the Operating Partnership can operate our hotels. Therefore, our wholly-owned hotel properties are leased to our MHI TRS ~~Lessees,~~Entities, which are indirect wholly owned subsidiaries of the Operating Partnership. Our MHI TRS ~~Lessees~~Entities then engage eligible independent hotel management companies to operate the hotels under a management agreement. Our MHI TRS ~~Lessees~~Entities have engaged ~~Chesapeake Hospitality~~Our Town and Highgate Hotels to manage our hotels. Our MHI TRS ~~Lessees,~~Entities, and their parent, MHI Hospitality TRS Holding, Inc., are consolidated into each of our financial statements for accounting purposes. The earnings of MHI Hospitality TRS Holding, Inc. are subject to taxation similar to other C corporations.

In March 2020, the World Health Organization declared COVID-19 to be a global pandemic and the virus has continued to spread throughout the United States and the world. As a result of this pandemic and subsequent government mandates and health official recommendations, hotel demand has been significantly reduced. Following the government mandates and health official recommendations, we significantly reduced operations at all of our hotels, temporarily suspended operations of our hotel condominium rental programs and dramatically reduced staffing and expenses. All of our hotels other than the rental programs at our condominium hotels have remained open on a limited basis in order to serve the needs of the community. The Company expects that maintaining the current limited operations will allow us to increase capacity at individual hotels as demand returns and the CDC and state guidelines allow for an easing of travel and other business restrictions, provided we can be confident that occupancy levels and reduced social distancing will not unduly jeopardize the health and safety of guests, employees and communities.

COVID-19 has had a significant negative impact on the Company’s operations and financial results both during the first quarter and in the period following, including a substantial decline in our revenues, profitability and cash flows from operations. While the full impact of the reduction in hotel demand caused by the pandemic, the contraction of operations at our hotels and other effects are highly uncertain and cannot be reasonably estimated at this time, we expect significant negative impacts on our operations and financial results to continue until travel and business restrictions are eased, stay-at-home directives are lifted, consumer confidence is restored and an economic recovery commences. At a minimum, Company expects that the COVID-19 pandemic to have a significant negative impact on our results of operations, financial position and cash flow through 2020. In response to the impact of COVID-19 on the Company’s operations, we have taken the following health and safety and cost-reduction measures at the property and corporate levels:

The COVID-19 pandemic has also significantly increased economic uncertainty and led to disruption and volatility in the global capital markets, which could increase our cost of, and limit accessibility to, capital. Despite the cost reduction initiatives discussed above, we do not expect to be able to fully, or even materially, offset revenue losses from the COVID-19 pandemic. As a result of the negative impacts of the pandemic and the ongoing market uncertainty, we applied for and received aggregate proceeds of approximately $10.7 million under the federal Paycheck Protection Program provided in Section 7(a) of the Small Business Act of 1953, as amended by the CARES Act.

Tampa addressing the noncompliance, subject to certain conditions described in Note 5 to the financial statements accompanying this Quarterly Report. However, following March 31, 2020, we failed to make principal or interest payments under the mortgages secured by our DoubleTree Resort by Hilton Hollywood Beach and Hyatt Centric Arlington hotels, each of which constituted an Event of Default and resulted in an automatic increase in the interest rate on the outstanding loan balance for the period such Event of Default persists. Following an Event of Default, our lenders can generally elect to accelerate all principal and accrued interest payments that remain outstanding under the applicable mortgage loan and foreclose on the applicable hotel properties that are security for such loans and the lenders under our Hilton Hollywood Beach and Hyatt Centric Arlington mortgages have that right. If either lender were to accelerate the payment of principal and interest on the applicable mortgage, we would likely not have sufficient funds to pay that mortgage debt. We are actively negotiating terms of proposed forbearance agreements and waivers with those lenders similar to those we have obtained from lenders secured by our other hotel properties.

The duration of the disruption on global, national and local economies cannot be reasonably estimated at this time. However, as long as the effects of the COVID-19 pandemic continue, our future business operations, including the results of operations, cash flows and financial position will be significantly affected. We believe it is probable that over the course of the next four quarters we will fail to satisfy additional financial covenants in several of our mortgage loan agreements, some of which are already the subject of waivers, forbearance agreements or loan modification arrangements with our lenders. If we fail to obtain additional waivers, forbearance arrangements, or loan modifications, our lenders could declare us in default and require repayment of the outstanding balance on the mortgage loan. If that were to occur, we may not have sufficient funds to pay that mortgage debt. We believe we will be successful in obtaining waivers, forbearance arrangements or loan modifications but cannot provide assurance we will be able to do so on acceptable terms or at all.

Because any forbearance agreements, loan modifications or waivers would be granted at the sole discretion of the lenders, we have determined that there is substantial doubt about our ability to continue as a going concern for one year after the date the financial statements are issued. U.S. GAAP requires that in making this determination, we cannot consider future fundraising activities, whether through equity or debt offerings or dispositions of hotel properties, or the likelihood of obtaining forbearance agreements or covenant waivers, all of which are outside of the Company's control. Management believes that prospectively obtaining forbearance agreements, loan modifications and waivers from our lenders may remove the reason for the determination of substantial doubt. However, any such concession may lead to increased costs, increased interest rates, additional restrictive covenants and other possible lender protections. In addition to or in lieu of obtaining waivers as described above, we believe we could raise additional funds, if needed, through a combination of hotel dispositions or debt or equity financings.

In the hotel industry, room revenue is considered the most important category of revenue and drives other revenue categories such as food, beverage, catering, parking, and telephone. There are three key performance indicators used in the hotel industry to measure room revenues:

RevPAR changes that are primarily driven by changes in occupancy have different implications for overall revenues and profitability than changes that are driven primarily by changes in ADR. For example, an increase in occupancy at a hotel would lead to additional variable operating costs (such as housekeeping services, laundry, utilities, room supplies, franchise fees, management fees, credit card commissions and reservations expense), but could also result in increased non-room revenue from the hotel’s restaurant, banquet or parking facilities. Changes in RevPAR that are primarily driven by changes in ADR typically have a greater impact on operating margins and profitability as they do not generate all of the additional variable operating costs associated with higher occupancy.

When calculating composite portfolio metrics, we include available rooms at the Hyde Resort & Residences that participate in our rental program and are not reserved for owner-occupancy.

We also use FFO, Adjusted FFO and Hotel EBITDA as measures of our operating performance. See “Non-GAAP Financial Measures.”

The following tables illustrate the key operating metrics for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, respectively, for the Company’s wholly-owned properties (“actual” portfolio metrics), as well as ~~ten~~eleven wholly-owned properties in the portfolio that were under the Company’s control during the three months ended March 31, ~~2019~~2020 and the corresponding period in ~~2018~~2019 (“same-store”

portfolio metrics). Accordingly, the actual data does not include the participating condominium hotel rooms at the Hyde Resort & Residences or the Hyde Beach House, and the same-store data does not reflect the performance of ~~the Hyatt Centric Arlington which was acquired on March 1, 2018, or~~ our ~~interest~~interests in the Hyde Resort & ~~Residences.~~Residences and the Hyde Beach House. The composite portfolio metrics represent all of the Company’s wholly-owned properties and the participating condominium hotel rooms at the Hyde Resort & Residences during the three months ended March 31, ~~2019~~2020 and the corresponding ~~period~~periods in ~~2018.~~2019. As of March 31, 2019, there were no participating condominium hotel rooms at the Hyde Beach House.

Comparison of the Three Months Ended March 31, ~~2019~~2020 to the Three Months Ended March 31, ~~2018~~2019

Revenue. Total revenue for the three months ended March 31, ~~2019 increased~~2020 decreased approximately ~~$5.7~~$10.2 million, or ~~13.5%~~21.5%, to approximately ~~$47.4~~$37.2 million compared to total revenue of approximately ~~$41.7~~$47.4 million for the three months ended March 31, ~~2018.~~2019. The ~~increase~~decrease in revenue for the three months ended March 31, ~~2019~~2020, resulted mainly from ~~the acquisition~~eleven of our ~~Hyatt Centric Arlington property, on March 1, 2018, which reflects increased revenues~~hotel properties affected by ~~approximately $2.4 million for~~ the ~~quarter. Additionally, our property~~COVID-19 pandemic and resulting reduction of travel by group business, event holders and conferences, transient consumers, along with the reduction of foreign travelers due to the closing of U.S. borders and closing of local businesses. These factors contributed to a reduction in ~~Atlanta, Georgia reported an increase~~revenue of approximately ~~$2.2~~$11.1 million, ~~due~~compared to ~~increased demand relating to a sporting event,~~the same period ending March 31, 2019. Our Tampa, Florida hotel and ~~there~~recently acquired Hyde Beach House Resort & Residences in Hollywood, Florida were ~~aggregate~~the only properties with increases ~~at our other fully renovated and rebranded properties~~ in ~~Wilmington, North Carolina and Savannah, Georgia~~revenues of approximately ~~$1.5~~$0.9 million, ~~which were offset by a net decrease of approximately $0.4 million at~~compared to the ~~remaining properties.~~same period ending March 31, 2019.

Room revenue ~~increased~~decreased approximately ~~$4.7~~$8.2 million, or ~~16.5%~~24.9%, to approximately ~~$33.0~~$24.7 million for the three months ended March 31, ~~2019~~2020 compared to room revenue of approximately ~~$28.3~~$32.9 million for the three months ended March 31, ~~2018.~~2019. The ~~increase~~decrease in room revenue for the three months ended March 31, ~~2019~~2020 resulted mainly from ~~the acquisition~~all of our ~~Hyatt Centric Arlington property, on March 1, 2018, which increased room revenues~~properties being affected by ~~approximately $1.9 million for~~ the ~~quarter. Additionally, our property in Atlanta, Georgia reported an increase~~COVID-19 pandemic and resulting reduction of approximately $1.9 million due to increased demand relating to a sporting event, and there were aggregate increases at our other fully renovated and rebranded properties in Wilmington, North Carolina and Savannah, Georgia of approximately $0.8 million, as well as a net increase of approximately $0.1 million at the remaining properties.hotel occupancy.

Food and beverage revenues ~~increased~~decreased approximately ~~$1.4~~$1.6 million, or ~~16.4%~~16.2%, to approximately $8.1 million for the three months ended March 31, 2020 compared to food and beverage revenues of approximately $9.7 million for the three months ended March 31, ~~2019 compared to food and beverage revenues of approximately $8.4 million for the three months ended March 31, 2018.~~2019. The ~~increase~~decrease in food and beverage revenues for the three months ended March 31, ~~2019~~2020 resulted mainly from ~~the acquisition~~ten of our ~~Hyatt Centric Arlington property on~~properties which were affected by the COVID-19 pandemic and resulting reduction of hotel occupancy, with a corresponding reduction in food and beverage revenue of approximately $2.0 million, compared to the same period ending March ~~1, 2018, which increased~~31, 2019. Our Tampa, Florida and Houston, Texas hotels were the only properties with increases in food and beverage revenues ~~by approximately $0.3 million. Additionally, our property in Atlanta, Georgia reported an increase~~ of approximately ~~$0.3~~$0.4 million, ~~due~~compared to increased demand relating to a sporting event, and there were aggregate increases at our other fully renovated and rebranded properties in Wilmington, North Carolina and Savannah, Georgia of approximately $0.7 million, as well as a net increase of approximately $0.1 million at the ~~remaining properties.~~same period ending March 31, 2019.

Revenue from other operating departments decreased approximately $0.4 million, or ~~7.5%~~8.4%, to approximately $4.3 million for the three months ended March 31, 2020 compared to revenue from other operating departments of approximately $4.7 million for the three months ended March 31, ~~2019 compared to revenue from~~2019. The decrease in other operating departments ~~of approximately $5.1 million~~revenue for the three months ended March 31, ~~2018. The decrease~~2020 resulted mainly from nine of our hotel properties affected by the COVID-19 pandemic and resulting reduction of hotel occupancy, with a corresponding reduction in ~~revenue from~~ other operating departments ~~for~~revenue of approximately $1.1 million, compared to the ~~three months ended~~same period ending March 31, ~~2019 resulted mainly from a decrease~~2019. Our Wilmington, North Carolina, Tampa, Florida and Hollywood, Florida hotels and the recently acquired Hyde Beach House Resort & Residences in Hollywood, Florida were the only properties with increases in other operating departments revenue of approximately ~~$0.5~~$0.7 million, ~~at our Hollywood, Florida property, due~~compared to ~~higher revenues received in~~ the ~~three months ended~~same period ending March 31, ~~2018 that were driven by a one-time event that did not occur this year. Our remaining properties reported a net decrease of approximately $0.1 million.~~2019.

Hotel Operating Expenses. Hotel operating expenses, which consist of room expenses, food and beverage expenses, other direct expenses, indirect expenses and management fees, ~~were~~decreased approximately $2.1 million, or 6.1%, to approximately $32.1 million for the three months ended March 31, 2020, an decrease of approximately $2.1 million, or 6.0%, compared to total hotel operating expenses of approximately $34.2 million for the three months ended March 31, ~~2019, an increase of approximately $4.3 million, or 14.6%, compared to total hotel operating expenses of approximately $29.9 million for the three months ended March 31, 2018.~~2019. The ~~increase~~decrease in hotel operating expenses for the three months ended March 31, ~~2019~~2020 resulted mainly from ~~the acquisition~~eleven of our ~~Hyatt Centric Arlington property, on March 1, 2018, which increased~~properties affected by the COVID-19 pandemic and resulting

reduction of hotel occupancy, with a reduction in hotel operating expenses by approximately ~~$2.1 million. Additionally, our property~~$3.9 million, compared to the same period ending March 31, 2019. Our Hollywood, Florida, Tampa, Florida and Louisville, Kentucky hotels and the recently acquired Hyde Beach House Resort & Residences in ~~Atlanta, Georgia reported an increase~~Hollywood, Florida were the only properties with increases in hotel operating expenses of approximately ~~$0.6~~$1.8 million, ~~due~~compared to a sporting event, and there were aggregate increases at our fully renovated and rebranded properties in Wilmington, North Carolina and Savannah, Georgia of approximately $0.8 million, as well as a net decrease of approximately $0.8 million at the ~~remaining properties.~~same period ending March 31, 2019.

Rooms expense for the three months ended March 31, ~~2019 increased~~2020 decreased approximately ~~$1.1~~$0.7 million, or ~~16.1%~~9.0%, to approximately ~~$7.8~~$7.1 million compared to rooms expense for the three months ended March 31, ~~2018~~2019 of approximately ~~$6.7~~$7.8 million. The ~~net increase~~decrease in rooms expense for the three months ended March 31, ~~2019~~2020 resulted mainly from ~~the acquisition~~ten of our ~~Hyatt Centric Arlington property, on March 1, 2018, which increased room expenses~~properties affected by ~~approximately $0.5 million. There was also an aggregate increase~~the COVID-19 pandemic and resulting reduction of hotel occupancy, with a reduction in rooms expense by approximately $0.8 million, compared to the same period ending March 31, 2019. Our Tampa, Florida and Louisville, Kentucky hotels were the only properties with increases in rooms expense of approximately $~~0.6~~$0.1 million, ~~at our remaining~~ ~~properties.~~compared to the same period ending March 31, 2019.

Food and beverage expenses for the three months ended March 31, ~~2019 increased~~2020 decreased approximately ~~$0.7~~$0.5 million, or ~~11.6%~~7.3%, to approximately ~~$7.1~~$6.6 million compared to food and beverage expenses of approximately ~~$6.4~~$7.1 million for the three months ended March 31, ~~2018.~~2019. The net ~~increase~~decrease in food and beverage expenses for the three months ended March 31, ~~2019~~2020 resulted mainly from ~~the acquisition~~seven of our ~~Hyatt Centric Arlington property, on March 1, 2018, which increased~~properties affected by the COVID-19 pandemic and resulting reduction of hotel occupancy, with a reduction in food and beverage ~~expenses~~expense by approximately ~~$0.4 million. There was also an aggregate increase~~$0.9 million, compared to the same period ending March 31, 2019. Five of our hotel properties had increases in food and beverage expenses of approximately $~~0.3~~ $0.4 million, ~~at our remaining~~ ~~properties.~~compared to the same period ending March 31, 2019.

Expenses from other operating departments increased approximately $0.4 million, or ~~25.0%~~18.9%, to approximately ~~$1.9~~$2.3 million for the three months ended March 31, ~~2019~~2020 compared to expenses from other operating departments of approximately ~~$1.5~~$1.9 million for the three months ended March 31, ~~2018.~~2019. The increase in ~~expense~~expenses from other operating departments for the three months ended March 31, ~~2019~~ 2020 resulted mainly from our ~~interest in~~Tampa, Florida and Arlington, Virginia hotels and the recently acquired Hyde Beach House Resort & Residences ~~condominium hotel, which started operations on January 30, 2017 and has continued to ramp up and accounted for~~in Hollywood, Florida, with an increase of ~~approximately $0.2 million for the period and from the acquisition of our Hyatt Centric Arlington property, on March 1, 2018, which increased~~ other operating departments ~~expenses~~expense by approximately ~~$0.1 million. There was also an aggregate increase~~$0.6 million, compared to the same period ending March 31, 2019. Offsetting decreases resulted mainly from eleven of our properties affected by the COVID-19 pandemic and resulting reduction of hotel occupancy, with decreases in other operating departments expenses of approximately ~~$0.1~~$0.2 million, ~~from~~compared to the ~~remaining~~same period ending March 31, 2019. ~~properties.~~

Indirect expenses at our wholly-owned properties for the three months ended March 31, ~~2019 increased~~2020 decreased approximately ~~$2.2~~$1.2 million, or ~~14.2%~~6.9%, to approximately ~~$17.4~~$16.2 million compared to indirect expenses of approximately ~~$15.2~~$17.4 million for the three months ended March 31, ~~2018.~~2019. The ~~increase~~decrease in indirect expenses for the three months ended March 31, ~~2019~~2020 resulted mainly from ~~the~~

~~acquisition~~eleven properties with decreases in management fees, sales and marketing, franchise fees, repairs and maintenance, energy and utilities, information and communications and other indirect of ~~our Hyatt Centric Arlington property, on March 1, 2018, which increased indirect costs by~~ approximately ~~$1.2~~$2.3 million. There was also an aggregate increase in indirect expenses of approximately $1.1 ~~1.0~~million from our Hollywood, Florida, Louisville, Kentucky hotels and the ~~remaining~~recently acquired Hyde Beach House Resort & Residences in Hollywood, Florida ~~properties.~~property.

Depreciation and Amortization. Depreciation and amortization expense for the three months ended March 31, ~~2019 increased~~2020 decreased approximately ~~$0.4~~$1.0 million, or ~~7.0%~~17.3%, to approximately ~~$6.0~~$5.0 million compared to depreciation and amortization of approximately ~~$5.6~~$6.0 million for the three months ended March 31, ~~2018.~~2019. The ~~increase~~decrease in depreciation was ~~mostly attributable to increases in the depreciation~~mainly related to our ~~property being renovated~~properties in Philadelphia, Tampa, Florida ~~that accounted for increases~~and Atlanta Georgia from prior year changes in estimated useful lives and disposals, with a decrease of approximately ~~$0.9 million for the period and from the acquisition of our Hyatt Centric Arlington property, on March 1, 2018, which increased depreciation by approximately $0.5~~$1.2 million. ~~In addition, there~~There was ~~a net~~also an aggregate ~~decrease~~increase in depreciation and amortization of approximately ~~$1.0~~ $0.2 million atfrom our remaining properties.

Corporate General and Administrative. Corporate general and administrative expenses for the three months ended March 31, ~~2019~~2020 increased approximately $0.2 million, or ~~13.0%~~11.6%, to approximately ~~$1.7~~$1.9 million compared to corporate general and administrative expenses of approximately ~~$1.5~~$1.7 million for the three months ended March 31, ~~2018.~~2019. The increase in corporate general and administrative expenses was mainly due to increased ~~audit~~legal and professional fees ~~from Sarbanes Oxley testing~~ by approximately ~~$0.1 million and increases in salaries by approximately $0.1~~$0.2 million.

Interest Expense. Interest expense for the three months ended March 31, ~~2019 increased~~ 2020 decreasedapproximately ~~$1.1~~$0.7 million, or ~~27.2%~~14.0%, to approximately ~~$5.3~~$4.6 million,as compared to interest expense of approximately ~~$4.2~~$5.3 million for the three months ended March 31, ~~2018.~~2019. The ~~increase~~decrease in interest expense for the three months ended March 31, ~~2019,~~2020, was substantially related to the ~~new mortgage on our Hyatt Centric Arlington property and deferred financing costs associated with that mortgage, that~~reduction of the 7.25% unsecured notes, which accounted for ~~an increase~~a decrease of approximately ~~$0.4~~$0.5 million compared to the three-month period ending March 31, ~~2018. In addition, there was also a net aggregate increase of approximately $0.7 million for interest expenses on mortgages at our remaining properties.~~2019.

Interest Income. Interest income for the three months ended March 31, ~~2019 increased $17,592,~~2020 decreased by $38,931, or ~~21.5%~~39.2%, to ~~$99,296~~$60,365 compared to interest income of ~~$81,704~~$99,296 for the three months ended March 31, ~~2018.~~2019. The ~~increase~~decrease is due to ~~higher interest rates on the~~lower amounts of interest-bearing cash and cash equivalents held during the three-month period ending March 31, ~~2019~~2020 compared to the three-month period ending March 31, ~~2018.~~2019.

Unrealized Gain (Loss) on Hedging Activities. As of March 31, ~~2019,~~2020, the fair market value of our interest rate caps is ~~$22,110~~$1,761 and the fair market value of our interest rate ~~SWAP~~swap liability is approximately ~~$1.4~~$3.6 million. The unrealized ~~gain~~loss on hedging activities during the three months ended March 31, ~~2019,~~2020, was approximately ~~$0.5~~$1.6 million and during the three months ended March 31, ~~2018,~~2019, the unrealized gain on hedging activities was ~~$12,730.~~approximately $0.5 million.

Gain on Involuntary Conversion of Assets. Gain on involuntary conversion of assets for the three months ended March 31, 2020 decreased approximately $0.1 million to $12,439 compared to $161,334 gain on involuntary conversion of assets for the three months ended March 31, 2019. During September 2019, we had mechanical failure and flooding damage from failure of the sewer system resulting in damage to the boiler at The DeSoto property with a one-time involuntary conversion in the amount of approximately $0.1 million during the current period.

Income Taxes. We had an income tax provision of approximately ~~$0.3~~$5.5 million for the three months ended March 31, ~~2019~~2020 compared to an income tax provision of approximately $0.3 million for the three months ended March 31, ~~2018.~~2019. The income tax provision iswas primarily derived from ~~the operations~~a reduction of our deferred tax assets and through the establishment of a valuation allowance of approximately $5.4 million. Our MHI TRS ~~Lessees. Our TRS Lessees~~Entities realized operating ~~income~~losses for each of the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.

Net Loss. We realized a net loss for the three months ended March 31, ~~2019~~2020 of approximately ~~$0.4~~$13.3 million compared to a net ~~income~~loss of approximately ~~$1.2~~$0.4 million for the three months ended March 31, ~~2018,~~2019, because of the operating results discussed above.

We consider FFO, Adjusted FFO, EBITDA and Hotel EBITDA, all of which are non-GAAP financial measures, to be key supplemental measures of our performance and could be considered along with, not alternatives to, net income (loss) as a measure of our performance. These measures do not represent cash generated from operating activities determined by U.S. GAAP or amounts available for our discretionary use and should not be considered alternative measures of net income, cash flows from operations or any other operating performance measure prescribed by U.S. GAAP.

FFO and Adjusted FFO. Industry analysts and investors use FFO as a supplemental operating performance measure of an equity REIT. FFO is calculated in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”). FFO, as defined by NAREIT, represents net income or loss determined in accordance with U.S. GAAP, excluding extraordinary items as defined under U.S. GAAP and gains or losses from sales of previously depreciated operating real estate assets, plus certain non-cash items such as real estate asset depreciation and amortization, and after adjustment for any noncontrolling interest from unconsolidated partnerships and joint ventures. Historical cost accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, many investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by itself.

We consider FFO to be a useful measure of adjusted net income (loss) for reviewing comparative operating and financial performance because we believe FFO is most directly comparable to net income (loss), which remains the primary measure of performance, because by excluding gains or losses related to sales of previously depreciated operating real estate assets and excluding real estate asset depreciation and amortization, FFO assists in comparing the operating performance of a company’s real estate between periods or as compared to different companies. Although FFO is intended to be a REIT industry standard, other companies may not calculate FFO in the same manner as we do, and investors should not assume that FFO as reported by us is comparable to FFO as reported by other REITs.

We further adjust FFO for certain additional items that are not in NAREIT’s definition of FFO, including changes in deferred income taxes, any unrealized gain (loss) on hedging instruments or warrant derivative, loan impairment losses, losses on early extinguishment of debt, aborted offering costs, loan modification fees, franchise termination costs, costs associated with the departure of executive officers, litigation settlement, over-assessed real estate taxes on appeal, operating asset depreciation and amortization, change in control gains or losses and acquisition transaction costs. We exclude these items as we believe it allows for meaningful comparisons between periods and among other REITs and is more indicative than FFO of the on-going performance of our business and assets. Our calculation of Adjusted FFO may be different from similar measures calculated by other REITs.

The following is a reconciliation of net income (loss) to FFO and Adjusted FFO for the three months ended March 31, ~~2019~~2020 and ~~2018:~~2019:

	Three Months Ended			Three Months Ended			Three Months Ended			Three Months Ended
	March 31, 2019			March 31, 2018			March 31, 2020			March 31, 2019
Net loss available to common stockholders	$	(2,067,661	)	$	(238,343	)	$	(14,323,699	)	$	(1,653,763	)
Add: Net loss attributable to noncontrolling interest		206,949			(30,013	)		(1,197,416	)		(206,949	)
Depreciation and amortization - real estate		6,013,866			5,617,574			4,967,449			6,013,866
Gain on involuntary conversion of assets		(161,334	)		(870,741	)		(12,439	)		(161,334	)
(Gain) loss on disposal of assets		(4,008	)		3,739
Gain on disposal of assets								—			(4,008	)
FFO available to common stockholders and unitholders	$	3,987,812		$	4,482,216		$	(10,566,105	)	$	3,987,812
Decrease in deferred income taxes		284,679			260,262			5,412,084			284,679
Amortization		14,869			16,616			15,427			14,869
Unrealized (gain) loss on hedging activities		490,611			(12,730	)
Termination fee								(72,960	)		—
Unrealized loss on hedging activities								1,585,632			490,611
Adjusted FFO available to common stockholders and unitholders	$	4,777,971		$	4,746,364		$	(3,625,922	)	$	4,777,971

Weighted average number of shares outstanding, basic		13,610,750			13,472,444			14,246,216			13,610,750

Weighted average number of non-controlling units		1,778,140			1,778,140			1,239,188			1,778,140

Weighted average number of shares and units outstanding, basic		15,388,890			15,250,584			15,485,404			15,388,890

FFO per common share and unit	$	0.26		$	0.29		$	(0.68	)	$	0.26

Adjusted FFO per common share and unit	$	0.31		$	0.31		$	(0.23	)	$	0.31

EBITDA. We believe that excluding the effect of non-operating expenses and non-cash charges, and the portion of those items related to unconsolidated entities, all of which are also based on historical cost accounting and may be of limited significance in evaluating current performance, can help eliminate the accounting effects of depreciation and financing decisions and facilitate comparisons of core operating profitability between periods and between REITs, even though EBITDA also does not represent an amount that accrued directly to shareholders.

Hotel EBITDA. We define Hotel EBITDA as net income or loss excluding: (1) interest expense, (2) interest income, (3) income tax provision or benefit, (4) equity in the income or loss of equity investees, (5) unrealized gains and losses on derivative instruments not included in other comprehensive income, (6) gains and losses on disposal of assets, (7) realized gains and losses on investments, (8) impairment of long-lived assets or investments, (9) loss on early debt extinguishment, (10) gains or losses on change in control, (11) gain on exercise of development right, (12) corporate general and administrative expense, ~~(12)~~(13) depreciation and amortization, ~~(13)~~(14) gains and losses on involuntary conversions of assets, ~~(14)~~(15) distributions to preferred stockholders and ~~(15)~~(16) other operating revenue not related to our wholly-owned portfolio. We believe this provides a more complete understanding of the operating results over which our wholly-owned hotels and its operators have direct control. We believe Hotel EBITDA provides investors with supplemental information on the on-going operational performance of our hotels and the effectiveness of third-party management companies operating our business on a property-level basis.

Our calculation of Hotel EBITDA may be different from similar measures calculated by other REITs.

The following is a reconciliation of net income (loss) to Hotel EBITDA for the three ~~and three~~ months ended March 31, ~~2019~~2020 and ~~2018:~~2019:

Our principal sources of cash are net cash flow from hotel operations, sale of common and preferred stock, debt financing and proceeds from hotel dispositions. Our principal uses of cash are acquisition of hotel properties, improvements to hotel properties, debt service, share repurchases operating costs, corporate expenses and distributions to holders of common and preferred shares (and units). As of March 31, 2020, we had approximately $14.7 million of unrestricted cash and $7.3 million of restricted cash.

Operating Activities. Our principal source of cash to meet our operating requirements, including distributions to unitholders of the Operating Partnership and stockholders of our preferred and common stock, as well as debt service (excluding debt maturities), is through the operations of our hotels. Cash flow provided by operating activities for the three months ended March 31, ~~2019~~2020 was approximately ~~$5.6 million. We had a net decrease in cash provided by operating activities for the three months ended March 31, 2019of approximately $1.8~~$1.5 million ~~compared to the three months ended March 31, 2018. We expect that cash on hand and the~~generally consisting of net cash ~~provided~~flow from hotel operations, offset by ~~operations will be adequate to fund our continuing operations, monthly~~cash paid for corporate expenses and quarterly scheduled payments of principal and interest (excluding any balloon payments due upon maturity of a debt) and the payment of dividends (distributions) to the Company’s stockholders (and unitholders of the Operating Partnership)changes in accordance with federal income tax laws which require us to make annual distributions, as “qualifying distributions,” to the Company’s stockholders of at least 90% of its REIT taxable income (determined without regard to the dividends-paid deduction and by excluding its net capital gains, and reduced by certain non-cash items).working capital.

Investing Activities. During the three months ended March 31, ~~2019,~~2020, we used approximately ~~$5.5~~$1.8 million on capital expenditures of which ~~approximately $1.9 million~~ related to the routine replacement of furniture, fixtures and ~~equipment, approximately $3.4 million related mainly to renovation of our hotels in Arlington, Virginia, Hollywood and Tampa, Florida.~~equipment. The Operating Partnership received a payment on its loan to the Company in the amount of approximately $0.1 million. ~~We also received approximately $0.2 million for proceeds from insurance for involuntary conversions.~~

Financing Activities. During the three months ended March 31, ~~2019, we~~2020, the Company paid ~~dividend~~dividends to holders of its common and ~~distribution~~preferred shares of approximately $4.2 million. The Operating Partnership made distributions to holders of its common and preferred units of approximately $4.3 million. The Company and Operating Partnership also made payments of deferred financing costs of approximately ~~$3.4~~$0.1 million ~~for the Company and approximately $3.5 million for the Operating Partnership~~ and made principal payments on its mortgages of approximately ~~$1.3~~$1.4 million.

We ~~anticipate that~~intend to maintain all of our ~~need for recurring~~hotels, including any hotel we acquire in the future, in good repair and condition, in conformity with applicable laws and regulations and, when applicable, with franchisor’s standards. Routine capital ~~expenditures for~~improvements are determined through the ~~replacement~~annual budget process over which we maintain approval rights, and ~~refurbishment~~which are implemented or administered by our management companies.

From time to time, certain of ~~furniture, fixtures~~our hotel properties may undergo renovations as a result of our decision to upgrade portions of the hotel, such as guestrooms, meeting space and ~~equipment over~~restaurants, in order to better compete with other hotels in our markets. In addition, we may be required by a franchisor to complete a property improvement program (“PIP”) in order to bring the ~~next 12~~hotel up to ~~24 months will be at historical norms for our properties~~the franchisor’s standards. Generally, we expect to fund renovations and ~~the industry.~~ improvements out of working capital, including restricted cash, proceeds of mortgage debt or equity offerings.

Historically, we have aimed to maintain overall capital expenditures, except for those required by our franchisors as a condition to a franchise license or license renewal, at 4.0% of gross revenue. In ~~addition:~~

We expect capital expenditures for the recurring replacement or refurbishment of furniture, fixtures and equipment at certain of our properties will be funded by our replacement reserve ~~accounts, other than costs that we incur to make capital improvements required by our franchisors.~~accounts. Reserve accounts are escrowed accounts with funds deposited

expenditures with respect to all of our hotels. We ~~currently~~are required by our loan agreements to deposit an amount equal to 4.0% of gross revenue for The DeSoto, the Hotel Ballast, ~~Wilmington, Tapestry Collection by Hilton,~~ the DoubleTree by Hilton Raleigh Brownstone-University, The Whitehall, the DoubleTree by Hilton Jacksonville Riverfront, the DoubleTree Resort by Hilton Hollywood Beach and the Georgian Terrace, as well as 4.0% of room revenues for the DoubleTree by Hilton Philadelphia Airport and Hyatt Centric Arlington on a monthly ~~basis.~~basis, except as provided in the forbearance agreements agreed to by our lenders.

The COVID-19 pandemic has had a significant negative impact on the Company's operations and financial results both during the first quarter and in the period following, including a substantial decline in our revenues, profitability and cash flows from operations. While the full financial impact of the reduction in hotel demand caused by the pandemic, contraction of operations at our hotels and other effects are highly uncertain and cannot be reasonably estimated at this time, we expect significant negative impacts on our operations and financial results to continue until travel and business restrictions are eased, stay-at-home directives are lifted, consumer confidence is restored and an economic recovery commences. At a minimum, the Company expects that the COVID-19 pandemic to have a significant impact on our results of operations, financial position and cash flow through 2020. In response to these negative impacts, we took a number of actions to reduce costs and preserve liquidity as described in this Quarterly Report and the accompanying notes to financial statements. The COVID-19 pandemic has also significantly increased economic uncertainty and led to disruption and volatility in the global capital markets, which could increase our cost of, and limit accessibility to, capital.

As of March 31, ~~2019,~~2020, we had total cash of approximately ~~$33.4~~$22.1 million. As described in “-- Effects of COVID-19 Pandemic on our Business” above, we borrowed an aggregate amount of approximately $10.7 million ~~of which approximately $29.0 million was~~ in ~~cash~~PPP Loans and ~~cash equivalents~~have sought forbearances and ~~approximately $4.4 million was restricted for real estate taxes, insurance, capital improvement and certain other expenses, or otherwise restricted. We expect that~~loan modifications with the lenders under the loan agreements secured by our ~~cash on hand combined with our cash flow from the operations~~hotels. Two of our ~~hotels should be adequate to fund continuing operations, recurring capital expenditures for~~property-level loan agreements are currently operating under an Event of Default and the ~~refurbishment and replacement of furniture, fixtures and equipment, and monthly and quarterly scheduled payments~~lenders under those loans could accelerate the payment of principal and interest ~~(excluding any balloon payments due upon maturity~~on those mortgages. We are actively negotiating terms of proposed forbearance agreements, waivers loan modifications for those mortgages as well as other loan agreements under which we are likely to trigger a default in over the next four quarters if the effects of the ~~indentures~~COVID-19 pandemic on our business continue. If we fail to obtain additional waivers, forbearance arrangements or loan modifications, our lenders could declare us in default and require repayment of the outstanding balance on the mortgage ~~debt).~~loan. If that were to occur, we may not have sufficient funds to pay that mortgage debt. We believe we will be successful in obtaining necessary waivers, forbearance arrangements and loan modifications from our mortgage lenders but cannot provide assurance we will be able to do so on acceptable terms or at all.

In addition, certain of our loan agreements also contain cash trap provisions that we expect will be triggered as the performance of our hotel properties secured by those agreements decline. As those provisions are triggered, substantially all of the cash flow generated by those hotel properties is deposited into a lock box account and swept into cash management accounts for the benefit of the respective lenders. This could affect our liquidity until such time the cash trap is no longer in effect.

We intend to meet our liquidity requirements resulting from the COVID-19 pandemic, for hotel property acquisitions, property redevelopment, investments in new joint ventures, the retirement of maturing mortgage debt, and other debt maturities, through:

Other than monthly mortgage loan principal payments, we do not have any upcoming mortgage debt obligations that are scheduled to mature in 2020. We have approximately $8.1 million in mortgage loan principal obligations maturing in August 2021, which relates to the mortgage on the DoubleTree by Hilton Laurel, after accounting anticipated reductions in future monthly principal payments. If the effects of the COVID-19 pandemic continue through the second quarter of 2021, we expect that additional capital will be required in order to repay that mortgage when it comes due.

Subject to availability of capital, we intend to continue to invest in hotel properties as suitable opportunities arise. The success of our acquisition strategy depends, in part, on our ability to access additional capital through other sources. There can be no assurance that we will continue to make investments in properties that meet our investment criteria. Additionally, we may choose to dispose of certain hotels as a means to provide liquidity.

We expect to meet our liquidity requirements for hotel property acquisitions, property redevelopment, investments in new joint ventures, the retirement of maturing mortgage debt, and other debt maturities, which includes the repayment of the 7.25% Notes, through net proceeds from additional issuances of common shares, additional issuances of preferred shares, issuances of units of limited partnership interest in our Operating Partnership, secured and unsecured borrowings, the selective disposition of non-core assets, and cash on hand. From time to time and subject to market conditions, we may also seek to refinance mortgage debt prior to maturity where appropriate. We remain committed to a flexible capital structure and strive to maintain prudent debt leverage.

Other than monthly mortgage loan principal payments, we do not have any upcoming mortgage debt obligations maturing in 2019 or 2020. On April 26, 2019, we modified the approximate $18.3 million existing mortgage on our Crowne Plaza Tampa Westshore with the existing lender to extend the maturity to 2022. We have approximately $8.2 million in debt obligations maturing in 2021, which reflects the mortgage on the DoubleTree by Hilton Laurel, accounting for reductions for future monthly principal payments. On April 18, 2019, we notified Wilmington Trust, National Association (the “Trustee”) of the Operating Partnership’s intent to redeem the entire $25.0 million aggregate principal amount of the 7.25% Notes, pursuant to the terms of the indenture. The 7.25% Notes redemption date is set for May 19, 2019 at a redemption price equal to 101% of the principal amount of the 7.25% Notes, plus any accrued and unpaid interest to, but not including, the redemption date, for an aggregate redemption payment of approximately $25.3 million.

Our mortgage loan agreements contain various financial covenants. Failure to comply with these financial covenants could result from, among other things, changes in the local competitive environment, general economic conditions and disruption caused by renovation activity or major weather disturbances.

If we violate the financial covenants contained in these agreements, we may attempt to negotiate waivers of the violations or amend the terms of the applicable mortgage loan agreement with the lender; however, we can make no assurance that we would be successful in any such negotiation or that, if successful in obtaining waivers or amendments, such waivers or amendments would be on attractive terms. Some mortgage loan agreements provide alternate cure provisions which may allow us to otherwise comply with the financial covenants by obtaining an appraisal of the hotel, prepaying a portion of the outstanding indebtedness or by providing cash collateral until such time as the financial covenants are met by the collateralized property without consideration of the cash collateral. Alternate cure provisions which include prepaying a portion of the outstanding indebtedness or providing cash collateral may have a material impact on our liquidity.

If we are unable to negotiate a waiver or amendment or satisfy alternate cure provisions, if any, or unable to meet any alternate cure requirements and a default were to occur, we would possibly have to refinance the debt through additional debt financing, private or public offerings of debt securities, or additional equity financing.

~~Under the terms~~As described in “-- Effects of COVID-19 Pandemic on our Business” and “--Liquidity and Capital Resources” above, two of our ~~non-recourse secured mortgage~~property-level loan agreements ~~failure~~are currently operating under an Event of Default and the lenders under those mortgage loans could accelerate the payment of principal and interest on those mortgages. In addition, certain of our loan agreements operate under cash trap provisions, which could negatively impact our ability to ~~comply with the financial covenants in the loan agreement triggers~~access future cash flows from ~~the property to be directed to the lender, which may limit our overall liquidity~~those properties as ~~that cash flow would not be available to us.~~

~~As of March 31, 2019, we were~~described in ~~compliance with all debt covenants, current on all loan payments~~“--Liquidity and ~~not otherwise in default under any of our mortgage loans, as amended or modified.~~

~~The indenture for the 7.25% Notes, issued on February 12, 2018, contains certain covenants~~Capital Resources” above. Note 5 and restrictions that require us to meet certain financial ratios. We are not permitted to incur any Debt (other than Intercompany Debt), as defined in the indenture, if, immediately after giving effect to the incurrence of such Debt and to the application of the proceeds thereof, the ratio of the aggregate principal amount of all outstanding Debt to Adjusted Total Asset Value, as defined in the indenture, would be greater than 0.65 to 1.0. In addition, we are not permitted to incur any Debt if the ratio of Stabilized Consolidated Income Available for Debt Service to Stabilized Consolidated Interest Expense, each as defined in the indenture, on the date on which such additional Debt is to be incurred, on a pro-forma basis, after giving effect to the incurrence of such Debt and to the application of the proceeds thereof, would be less than 1.50 to 1.0. On April 18, 2019, we notified the trustee for the 7.25% Notes of the Operating Partnership’s intent to redeem the entire $25.0 million aggregate principal amount of the 7.25% Notes. See Note 14 to the ~~Financial Statements for more information.~~

~~These~~ financial ~~measures are not calculated in accordance~~statements accompanying this Quarterly Report describe forbearances, waivers and loan modification arrangements we have negotiated with ~~GAAP~~our mortgage lenders to address the existing and ~~are presented below for the sole purpose of evaluating~~expected failure to meet certain covenants under our ~~compliance with the key financial covenants of our 7.25% Notes as they were applicable at March 31, 2019.~~

March 31,

December 31,

2019

2018

Ratio of Stabilized Consolidated Income Available
   for Debt Service to Stabilized Consolidated
   Interest Expense

Net (Loss) Income ⁽¹⁾

$
(2,174,850
)

$
(608,157
)
Interest expense⁽¹⁾

21,081,841

19,953,746

Loss on early debt extinguishment

753,133

753,133

Unrealized (gain)loss on hedging activities

1,312,299

808,958

Gain on involuntary conversion

(208,360
)

(917,767
)
Loss (gain) on sale of assets

-

-

Income tax benefit⁽¹⁾

481,550

469,349

Loss on disposal of assets

504,002

511,749

Depreciation and amortization⁽¹⁾

21,279,188

20,884,643

Corporate general and administrative expenses⁽¹⁾

6,319,106

6,180,962

Consolidated income available for debt service⁽¹⁾

49,347,909

48,036,616

Less: income of non-stabilized assets⁽¹⁾

(21,551,074
)

(20,946,112
)
Stabilized Consolidated Income Available for
   Debt Service⁽¹⁾

$
27,796,835

$
27,090,504

Interest expense^{(1) (2)}

$
21,081,841

$
19,953,746

Amortization of issuance costs⁽¹⁾

(962,562
)

(872,696
)
Consolidated interest expense⁽¹⁾

20,119,279

19,081,050

Less: interest expense of non-stabilized assets⁽¹⁾

(8,535,434
)

(8,138,649
)
Stabilized Consolidated Interest Expense⁽¹⁾

$
11,583,845

$
10,942,401

Ratio of Stabilized Consolidated Income Available
   for Debt Service to Stabilized Consolidated
   Interest Expense

2.40

2.48

Threshold Ratio Minimum

1.50

1.50

Ratio of Debt to Adjusted Total Asset Value:

Mortgage loans

$
366,281,273

$
367,613,880

Unsecured notes

25,000,000

25,000,000

Total debt

$
391,281,273

$
392,613,880

Stabilized Consolidated Income Available for
   Debt Service⁽¹⁾

$
27,796,835

$
27,090,504

Capitalization rate

7.5
%

7.5
%

370,624,467

361,206,720

Non-stabilized assets

257,000,000

287,500,000

Total cash

33,411,627

37,868,281

Adjusted Total Asset Value

$
661,036,094

$
686,575,001

Ratio of Debt to Adjusted Total Asset Value

0.59

0.57

Threshold Ratio Maximum

0.65

0.65

mortgage loans. We intend to continue to ~~declare~~seek waiver, forbearances and loan modifications from the lenders under our mortgage loans for so long as the effects of the COVID-19 continue to impact our business.

As approved by its board of directors and announced on March 17, 2020, the Company has suspended its regular quarterly ~~distributions~~cash common stock dividends in order to ~~our stockholders.~~preserve liquidity as a result of the impact from the COVID-19 pandemic. The amount of future common stock (and Operating Partnership unit) distributions will be based upon quarterly operating results, general economic conditions, requirements for capital improvements, the availability of debt and equity capital, the Internal Revenue Code’s annual distribution requirements and other factors, which the Company’s board of directors deems relevant. The amount, timing and frequency of distributions will be authorized by the Company’s board of directors and declared by us based upon a variety of factors deemed relevant by our directors, and no assurance can be given that our distribution policy will not change in the future. As previously announced, the record date for the dividends on the Company’s Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock that were to be paid April 15, 2020 to shareholders of record as of March 31, 2020 have each been cancelled and the payment of dividends on all classes of the Company’s preferred stock has been deferred. The Company may not make distributions with respect to any shares of its common stock, unless and until full cumulative distributions on the outstanding preferred stock for all past unpaid periods are paid or declared and a sum sufficient for the payment thereof in cash is set aside.

In January 2019, we authorized a quarterly dividend (distribution) of $0.125 per common share (and unit).

In April 2019, we increased the quarterly dividend (distribution) to $0.13 per common share (and unit).

In July 2019, we authorized a quarterly dividend (distribution) of $0.13 per common share (and unit).

In October 2019, we authorized a quarterly dividend (distribution) of $0.13 per common share (and unit).

We generate revenues primarily from lease payments from our MHI TRS ~~Lessees~~Entities and net income from the operations of our MHI TRS ~~Lessees.~~Entities. Therefore, we rely primarily on the performance of the individual properties and the ability of the management

company to increase revenues and to keep pace with inflation. Operators of hotels, in general, possess the ability to adjust room rates daily to keep pace with inflation. However, competitive pressures at some or all of our hotels may limit the ability of the management company to raise room rates.

Our expenses, including hotel operating expenses, administrative expenses, real estate taxes and property and casualty insurance are subject to inflation. These expenses are expected to grow with the general rate of inflation, except for energy, liability insurance, property and casualty insurance, property tax rates, employee benefits, and some wages, which are expected to increase at rates higher than inflation.

Our hotels are located in Florida, Georgia, Indiana, Maryland, North Carolina, Pennsylvania, Texas and Virginia. As a result, we are particularly susceptible to adverse market conditions in these geographic areas, including industry downturns, relocation of businesses, local stay-at-home and business closure orders, and any oversupply of hotel rooms or a reduction in lodging demand. Adverse economic developments in the markets in which we have a concentration of hotels, or in any of the other markets in which we operate, or any increase in hotel supply or decrease in lodging demand resulting from the local, regional or national business climate, could materially and adversely affect us.

The operations of our hotel properties have historically been seasonal. The months of April and May are traditionally strong, as is October. The periods from mid-November through mid-February are traditionally slow with the exception of hotels located in certain markets, namely Florida and Texas, which typically experience significant room demand during this period. These patterns have been disrupted by the impacts of the COVID-19 pandemic and we expect that disruption to continue throughout 2020 at a minimum.

The critical accounting policies are described below. We consider these policies critical because they involve difficult management judgments and assumptions, are subject to material change from external factors or are pervasive and are significant to fully understand and evaluate our reported financial results.

Investment in Hotel Properties. Hotel properties are stated at cost, net of any impairment charges, and are depreciated using the straight-line method over an estimated useful life of 7-39 years for buildings and improvements and 3-10 years for furniture and equipment. In accordance with generally accepted accounting principles, the controlling interests in hotels comprising our accounting predecessor, MHI Hotels Services Group, and noncontrolling interests held by the controlling holders of our accounting predecessor in hotels, which were acquired from third parties, contributed to us in connection with the Company’s initial public offering, are recorded at historical cost basis. Noncontrolling interests in those entities that comprise our accounting predecessor and the interests in hotels, other than those held by the controlling members of our accounting predecessor, acquired from third parties are recorded at fair value at the time of acquisition.

We review our hotel properties for impairment whenever events or changes in circumstances indicate the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause us to perform our review include, but are not limited to, adverse permanent changes in the demand for lodging at our properties due to declining national or local economic conditions and/or new hotel construction in markets where our hotels are located. When such conditions exist, management performs a

recoverability analysis to determine if the estimated undiscounted future cash flows from operating activities and the estimated proceeds from the ultimate disposition of a hotel property exceed its carrying value. If the estimated undiscounted future cash flows are found to be less than the carrying amount of the hotel property, an adjustment to reduce the carrying value to the related hotel property’s estimated fair market value would be recorded and an impairment loss is recognized.

There were no charges for impairment of hotel properties recorded for the three months ended March 31, ~~2019.~~2020.

In performing the recoverability analysis, we project future operating cash flows based upon significant assumptions regarding growth rates, occupancy, room rates, economic trends, property-specific operating costs and future capital expenditures required to maintain the hotel in its current operating condition. We also project cash flows from the eventual disposition of the hotel based upon various factors including property-specific capitalization rates, ratio of selling price to gross hotel revenues and the selling price per room.

Revenue Recognition. Hotel revenues, including room, food, beverage and other hotel revenues, are recognized as the related services are delivered. We generally consider accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If we determine that amounts are uncollectible, which would generally be the result of a customer’s bankruptcy or other economic downturn, such amounts will be charged against operations when that determination is made. Revenues are

reported net of occupancy and other taxes collected from customers and remitted to governmental authorities. Receivables for amounts earned under various contracts are subject to audit.

Income Taxes. We record a valuation allowance to reduce deferred tax assets to an amount that we believe is more likely than not to be realized. Because of expected future taxable income of our MHI TRS ~~Lessee,~~Entities, we have ~~not~~ recorded a valuation allowance to reduce our net deferred tax asset as of March 31, ~~2019 and December 31, 2018, respectively.~~2020 to $0. We regularly evaluate the likelihood that our MHI TRS ~~Lessee~~Entities will be able to realize its deferred tax assets and the continuing need for a valuation allowance. ~~At each~~As of March 31, ~~2019 and December 31, 2018,~~2020, we determined, based on all available positive and negative evidence, that it is more-likely-than-not that future taxable income will not be available during the carryforward periods to absorb all of the consolidated federal and state net operating loss carryforward. ~~A number of factors played a critical role in this determination, including:~~

~~Should unanticipated adverse financial trends occur, or other negative evidence develop, a valuation allowance may be necessary in the future against some or all of our deferred tax assets.~~

For a summary of recently adopted and newly issued accounting pronouncements, please refer to the New Accounting Pronouncements section of Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements.

Information included and incorporated by reference in this Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our current strategies, expectations, and future plans are generally identified by our use of words, such as “intend,” “plan,” “may,” “should,” “will,” “project,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity,” and similar expressions, whether in the negative or affirmative, but the absence of these words does not necessarily mean that a statement is not forward-looking. All statements regarding our expected financial position, business and financing plans are forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:

Additional factors that could cause actual results to vary from our forward-looking statements are set forth under the section titled “Risk Factors” in our Annual Report on Form 10-K and subsequent reports filed with the Securities and Exchange Commission.

The effects of potential changes in interest rates are discussed below. Our market risk discussion includes “forward-looking statements” and represents an estimate of possible changes in fair value or future earnings that could occur assuming hypothetical future movements in interest rates. These disclosures are not precise indicators of expected future losses, but only indicators of reasonably possible losses. As a result, actual future results may differ materially from those presented. The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates.

To meet in part our long-term liquidity requirements, we will borrow funds at a combination of fixed and variable rates. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. From time to time we may enter into interest rate hedge contracts such as collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We do not intend to hold or issue derivative contracts for trading or speculative purposes.

As of March 31, ~~2019,~~2020, we had approximately ~~$340.1~~$309.0 million of fixed-rate debt, including the mortgage on our Philadelphia, Pennsylvania hotel, which is fixed by an interest rate swap to 5.237% and approximately ~~$51.2~~$50.7 million of variable-rate debt. The weighted-average interest rate on the fixed-rate debt was ~~4.96%~~4.78%. A change in market interest rates on the fixed portion of our debt would impact the fair value of the debt but have no impact on interest incurred or cash flows. Our variable-rate debt is exposed to changes in interest rates, specifically the changes in 1-month LIBOR. Assuming that the aggregate amount outstanding on the mortgages on the ~~Crowne Plaza Tampa Westshore,~~Hotel Alba, DoubleTree by Hilton Raleigh Brownstone-University and The Whitehall remains at approximately ~~$51.2~~$50.7 million, the balance at March 31, ~~2019,~~2020, the impact on our annual interest incurred and cash flows of a one percent increase in 1-month LIBOR would be approximately $0.5 million.

As of December 31, ~~2018,~~2019, we had approximately ~~$341.3~~$310.2 million of fixed-rate debt, including the mortgage on our Philadelphia, Pennsylvania hotel, which is fixed by an interest rate swap to 5.237% and approximately ~~$51.3~~$50.8 million of variable-rate debt. The weighted-average interest rate on the fixed-rate debt was ~~4.96%~~4.78%. A change in market interest rates on the fixed portion of our debt would impact the fair value of the debt but have no impact on interest incurred or cash flows. Our variable-rate debt is exposed to changes in interest rates, specifically the changes in 1-month LIBOR. Assuming that the aggregate amount outstanding on the mortgages on the ~~Crowne Plaza Tampa Westshore,~~Hotel Alba, DoubleTree by Hilton Raleigh Brownstone and the mortgage on The Whitehall

remained at approximately ~~$51.3~~$50.8 million, the balance at December 31, ~~2018,~~2019, the impact on our annual interest incurred and cash flows of a one percent increase in 1-month LIBOR would be approximately $0.5 million.

The Company’s management, under the supervision and participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the ~~Securities~~ Exchange Act, ~~of 1934, as amended (the “Exchange Act”),~~ as required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act), as of March 31, ~~2019.~~2020. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, ~~2019,~~2020, its disclosure controls and procedures were effective and designed to ensure that (i) information required to be disclosed in its reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and instructions, and (ii) information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

The Company’s management, including its Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or its internal controls will prevent all errors and all fraud. A control system, no matter

how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of the controls can provide absolute assurance that all control issues and instances of fraud, if any, within Sotherly Hotels Inc. have been detected.

There was no change in Sotherly Hotels Inc.’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act during Sotherly Hotels Inc.’s last fiscal quarter that materially affected, or is reasonably likely to materially affect, Sotherly Hotels Inc.’s internal control over financial reporting.

The Operating Partnership’s management, under the supervision and participation of the Chief Executive Officer and Chief Financial Officer of Sotherly Hotels Inc., as general partner, has evaluated the effectiveness of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act), as of March 31, ~~2019.~~2020. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, ~~2019,~~2020, the disclosure controls and procedures were effective and designed to ensure that (i) information required to be disclosed in the reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and instructions, and (ii) information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

The Operating Partnership’s management, including the Chief Executive Officer and Chief Financial Officer of Sotherly Hotels Inc., as general partner, does not expect that the disclosure controls and procedures or the internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of the controls can provide absolute assurance that all control issues and instances of fraud, if any, within Sotherly Hotels LP have been detected.

There was no change in Sotherly Hotels LP’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act during Sotherly Hotels LP’s last fiscal quarter that materially affected, or is reasonably likely to materially affect, Sotherly Hotels LP’s internal control over financial reporting.

We are not involved in any material legal proceedings, ~~other than~~nor to our knowledge, is any material litigation threatened against us. We are involved in routine legal proceedings ~~occurring in~~arising out of the ordinary course of ~~business. We believe that these routine legal proceedings, in the aggregate, are not~~business most of which is expected to be covered by insurance, and none of which is expected to have a material toimpact on our financial condition ~~and~~or results of operations.

Except as set forth below, there have been no material changes in our risk factors from those disclosed in our annual report on Form 10-K for the year ended December 31, ~~2018.~~2019.

~~Our ownership limitations may restrict or prevent our stockholders from engaging in certain transfers~~The effects of the ~~Company’s common stock or preferred stock.~~COVID-19 pandemic on our operations and financial performance could be long-lasting and severe.

~~In order to maintain~~The recent outbreak of COVID-19 throughout the ~~Company’s REIT qualification, it cannot be closely held (i.e., more than 50.0% in value of our outstanding stock cannot be owned, directly or indirectly,~~world, classified by ~~five or fewer individuals during~~ the last half of any taxable year). To preserve the Company’s REIT qualification, the Company’s charter contains a 9.9% aggregate share ownership limit and a 9.9% common share ownership limit. Generally, any shares of the Company’s stock owned by affiliated persons will be added together for purposes of the aggregate share ownership limit, and any shares of common stock owned by affiliated owners will be added together for purposes of the common share ownership limit.

~~If anyone transfers shares in a way that would violate the aggregate share ownership limit or the common share ownership limit, or prevent the Company from continuing to qualify~~World Health Organization as a ~~REIT under~~pandemic, is a rapidly evolving situation, has disrupted global travel and supply chains, and has adversely impacted global commercial activity across many industries. Due to travel restrictions in the ~~federal income tax laws, those shares instead will be transferred~~U.S. and around world, the travel and hospitality industries are particularly facing tremendous drains on resources. The COVID-19 pandemic has had, and is expected to a trust for the benefit of a charitable beneficiary and will be either redeemed by us or sold to a person whose ownership of the shares will not violate the aggregate share ownership limit or the common share ownership limit. If this transfer to a trust fails to prevent such a violation or fails to preserve the Company’s continued qualification as a REIT, then the Company will consider the initial intended transfer to be null and void from the outset. The intended transferee of those shares will be deemed nevercontinue to have, ~~owned the shares. Anyone who acquires shares in violation of the aggregate share ownership limit, the common share ownership limit or the other restrictions~~significant adverse impacts on ~~transfer in the Company’s charter bears the risk of suffering a financial loss when the shares are redeemed or sold if the market price of the Company’s stock falls between the date of purchase~~economic and ~~the date of redemption or sale.~~

The Company’s articles supplementary establishing and fixing the rights and preferences of each of our Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock provide that no person may directly or indirectly own more than 9.9% of the aggregate number of outstanding shares of Series B Preferred Stock, Series C Preferred Stock, or Series D Preferred Stock, respectively, excluding any outstanding shares of Series B Preferred Stock, Series C Preferred Stock, or Series D Preferred Stock not treated as outstanding for federal income tax purposes. The Company’s board of directors has discretion to waive that ownership limit if, including other considerations, the board receives evidence that ownership in excess of the limit will not jeopardize the Company’s REIT status.

~~Holders of our outstanding preferred shares have dividend, liquidation and other rights that are senior to the rights of the holders of our common shares.~~

Our board of directors has the authority to designate and issue preferred shares with liquidation, dividend and other rights that are senior to those of our common shares. As of May 7, 2019, 1,610,000 shares of our Series B Preferred Stock were issued and outstanding, 1,352,141 shares of our Series C Preferred Stock were issued and outstanding, and 1,200,000 shares of our Series D Preferred Stock were issued and outstanding. The aggregate liquidation preference with respect to the outstanding shares of Series B Preferred Stock is approximately $40.3 million, and annual dividends on our outstanding shares of Series B Preferred Stock are approximately $3.2 million. The aggregate liquidation preference with respect to the outstanding shares of Series C Preferred Stock is approximately $33.8 million, and annual dividends on our outstanding shares of Series C Preferred Stock are approximately $2.7 million. The aggregate liquidation preference with respect to the outstanding shares of Series D Preferred Stock is approximately $30.0 million, and annual dividends on our outstanding shares of Series D Preferred Stock are approximately $2.5 million. Holders of each of our Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock are entitled to cumulative dividends before any dividends may be declared or set aside on our common shares. Upon our voluntary or involuntary liquidation, dissolution or winding up, before any payment is made to holders of our common shares, holders of these preferred shares are entitled to receive a liquidation preference of $25.00 per share plus any accrued and unpaid distributions. This will reduce the remaining amount of our assets, if any, available to distribute to holders of our common shares. In addition, holders of the Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock, voting together as a separate class, have the right to elect two additional directors to our board of directors whenever dividends on the preferred shares are in arrears in an aggregate amount equivalent to six or more quarterly dividends (whether or not consecutive). Because our decision to issue securities will depend on market conditions and global economic contraction. The rapid development and fluidity of pandemic situations precludes any prediction as to the scale and scope of the ultimate adverse impact and longevity of the COVID-19 pandemic or any future pandemic outbreak. There also can be no guarantee that the demand for lodging, and consumer confidence in travel generally, will recover as quickly as other ~~factors~~industries.

~~beyond our control,~~The effects of the COVID-19 pandemic on the hotel industry are unprecedented with global demand for lodging drastically reduced and occupancy levels reaching historic lows. Due to the effects of the COVID-19 pandemic, we have experienced a severe decline in occupancy and, in turn, revenue. Due to the speed with which the situation is developing we cannot predict ~~or estimate~~ the ~~amount, timing or nature~~full extent and duration of ~~any future preferred offerings. Thus,~~the effects of the COVID-19 pandemic on our ~~stockholders bear~~operations, although the ~~risk~~longer and more severe the pandemic, the greater the material adverse effect on our financial condition, our results of ~~our future securities issuances reducing~~operations, the market price of our common shares, our ability to make distributions to our shareholders, our access to credit markets and ~~diluting their interest.~~

~~The change of control conversion and redemption features of the Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock may make it more difficult for a party~~our ability to ~~take over~~service our ~~Company or discourage a party from taking over our Company.~~

Upon a change of control (as defined in our charter), holders of each of our Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock will have the right (unless, as provided in our charter, we have provided or provide notice of our election to exercise our special optional redemption right before the relevant date) to convert some or all of their shares of preferred stock into shares of our common stock (or equivalent value of alternative consideration). Upon such a conversion, holders will be limited to a maximum number of shares equal to the share cap, subject to adjustments. If the common stock price is less than $3.015, subject to adjustment, holders will receive a maximum of 8.29187 shares of our common stock per share of Series B Preferred Stock, which may result in a holder receiving value that is less than the liquidation preference of the Series B Preferred Stock. If the common stock price is less than $2.94, subject to adjustment, holders will receive a maximum of 8.50340 shares of our common stock per share of Series C Preferred Stock, which may result in a holder receiving value that is less than the liquidation preference of the Series C Preferred Stock. If the common stock price is less than $3.38, subject to adjustment, holders will receive a maximum of 7.39645 shares of our common stock per share of Series D Preferred Stock, which may result in a holder receiving value that is less than the liquidation preference of the Series D Preferred Stock. In addition, those features of our Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock may have the effect of inhibiting or discouraging a third party from making an acquisition proposal for our Company or of delaying, deferring or preventing a change in control of our Company under circumstances that otherwise could provide the holders of shares of our common stock and shares of our Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock with the opportunity to realize a premium over the then current market price or that stockholders may otherwise believe is in their best interests.

From time to time, the Operating Partnership issues limited partnership units to the Company, as required by the Partnership Agreement, to mirror the capital structure of the Company to reflect additional issuances by the Company and to preserve equitable ownership ratios.

The Company’s distribution on the shares of the Series B Preferred Shares, Series C Preferred Shares, and Series D Preferred Shares are in arrears for two quarterly periods. When distributions on any shares of the Company’s Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are in arrears for six or more quarterly periods, whether or not consecutive, the holders of the Company’s preferred stock shall be entitled to vote for the election of a total of two additional directors of the Company, at a special meeting or at the next annual meeting of stockholders and at each subsequent annual meeting of the stockholders until full cumulative distributions for all past unpaid periods are paid or declared and a sum sufficient for the payment thereof in cash is set aside. In addition, the Company may not make distributions with respect to any shares of its common stock, unless and until full cumulative distributions on the preferred stock for all past unpaid periods are paid or declared and a sum sufficient for the payment thereof in cash is set aside.

The Company announced that it was deferring payment of Sotherly’s previously announced dividends for the Company’s Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock for the period ending March 31, 2020 and payment of Sotherly’s dividends for the Company’s Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock for the period ending June 30, 2020. The relevant distributions were as follows:

The total arrearage of unpaid cash dividend due on each of the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock through June 23, 2020 is $805,000, $765,160 and $618,750, respectively.

As of the date of filing, we failed to make principal or interest payments under the mortgages secured by our DoubleTree Resort by Hilton Hollywood Beach (the “Hollywood Mortgage”) and Hyatt Centric Arlington hotels (the “Arlington Mortgage”), each of which constituted an Event of Default. Pursuant to the terms of each of the Hollywood Mortgage and Arlington Mortgage loan agreements, such Event of Default may cause an increase in the interest rate on the outstanding loan balance for the period such Event of Default persists. Following an Event of Default, our lenders under each of the Hollywood Mortgage and the Arlington Mortgage can elect to accelerate all principal and accrued interest payments that remain outstanding under the applicable mortgage loan and foreclose on the applicable hotel properties that are security for such loans. If either lender were to accelerate the payment of principal and interest on the applicable mortgage, we would likely not have sufficient funds to pay that mortgage debt. We are actively negotiating terms of proposed forbearance agreements and waivers with those lenders similar to those we have obtained from lenders secured by our other hotel properties.

The principal amount on the Hollywood Mortgage is $55,878,089. The arrearage of unpaid scheduled principal and interest due on this loan through June 23, 2020 is $956,731.

The principal amount on the Arlington Mortgage is $48,990,136. The arrearage of unpaid scheduled principal and interest due on this loan through June 23, 2020 is $828,306.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Large Accelerated Filer	☐	Accelerated Filer	☒

Non-accelerated Filer	☐	Smaller Reporting Company	☒

Emerging Growth Company	☐

Large Accelerated Filer	☐	Accelerated Filer	☐

Non-accelerated Filer	☒	Smaller Reporting Company	☐

Emerging growth company	☐


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
~~7.25% Senior Unsecured Notes due 2021~~	~~SOHOK~~	~~The NASDAQ Stock Market LLC~~

		Page

PART I
Item 1.	Consolidated Financial Statements	56

	Sotherly Hotels Inc.	5
	Consolidated Balance Sheets as of March 31, ~~2019~~2020 (unaudited) and December 31, ~~2018~~2019	56
	Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	67
	Consolidated Statements of Changes in Equity (unaudited) for the Three Months Ended March 31, ~~2019~~ 2020and ~~2018~~ 2019	78
	Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	810

	Sotherly Hotels LP	9
	Consolidated Balance Sheets as of March 31, ~~2019~~2020 (unaudited) and December 31, ~~2018~~2019	911
	Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	1012
	Consolidated ~~Statements~~Statements of Changes in Partners’ Capital (unaudited) for the Three Months Ended March 31, ~~2019~~ 2020and ~~2018~~2019	1113
	Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	1215
	Notes to Consolidated Financial Statements	1316
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3136
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4248
Item 4	Controls and Procedures	4348

PART II
Item 1.	Legal Proceedings	4450
Item 1A.	Risk Factors	4450
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4550
Item 3.	Defaults Upon Senior Securities	4550
Item 4.	Mine Safety Disclosures	4551
Item 5.	Other Information	4551
Item 6.	Exhibits	4652

For the remaining nine months ending December 31, 2019	$	1,153,709
December 31, 2020		1,483,574
For the nine months ending December 31, 2020			$	1,100,739
December 31, 2021		1,426,049		1,414,461
December 31, 2022		1,253,067		1,342,828
December 31, 2023		660,847		1,343,005
December 31, 2024 and thereafter		3,339,242
December 31, 2024				1,348,838
December 31, 2025 and thereafter				7,459,463
Total	$	9,316,488	$	14,009,334

	March 31, 2019			December 31, 2018
	(unaudited)
ASSETS
Investment in hotel properties, net	$	441,261,072		$	435,725,814
Cash and cash equivalents		29,004,070			33,792,773
Restricted cash		4,407,557			4,075,508
Accounts receivable, net		10,346,796			6,766,696
Accounts receivable - affiliate		237,710			262,572
Prepaid expenses, inventory and other assets		5,688,031			5,262,884
Favorable lease assets, net		—			2,465,421
Deferred income taxes		4,846,500			5,131,179
TOTAL ASSETS	$	495,791,736		$	493,482,847
LIABILITIES
Mortgage loans, net	$	363,636,230		$	364,828,845
Unsecured notes, net		24,025,056			23,894,658
Accounts payable and accrued liabilities		23,714,256			16,268,096
Advance deposits		2,351,972			2,815,283
Dividends and distributions payable		3,414,285			3,409,593
TOTAL LIABILITIES	$	417,141,799		$	411,216,475
Commitments and contingencies (See Note 6)		—			—
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, liquidation preference $25 per share, 1,610,000 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively		16,100			16,100
7.875% Series C cumulative redeemable perpetual preferred stock, liquidation preference $25 per share, 1,352,141 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively		13,521			13,521
Common stock, par value $0.01, 49,000,000 shares authorized, 14,222,378 shares and 14,209,378 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively		142,223			142,093
Additional paid-in capital		147,184,199			147,085,112
Unearned ESOP shares		(4,312,508	)		(4,379,742	)
Distributions in excess of retained earnings		(64,406,087	)		(61,052,418	)
Total Sotherly Hotels Inc. stockholders’ equity		78,637,448			81,824,666
Noncontrolling interest		12,489			441,706
TOTAL EQUITY		78,649,937			82,266,372
TOTAL LIABILITIES AND EQUITY	$	495,791,736		$	493,482,847

	Level 1			Level 2			Level 3		Level 1		Level 2			Level 3
December 31, 2018
December 31, 2019
Interest Rate Caps ⁽¹⁾	$	—		$	94,697		$	—	$	—	$	4,504		$	—
Interest Rate Swap ⁽²⁾	$	—		$	(984,677	)	$	—	$	—	$	(2,064,709	)	$	—
Mortgage loans ⁽³⁾	$	—		$	(357,279,949	)	$	—	$	—	$	(363,229,617	)	$	—
Unsecured notes ⁽⁴⁾	$	(25,390,000	)	$	—		$	—
March 31, 2019
Interest Rate Caps ⁽¹⁾	$	—		$	22,110		$	—
March 31, 2020
Interest Rate Cap ⁽¹⁾									$	—	$	1,761		$	—
Interest Rate Swap ⁽²⁾	$	—		$	(1,400,789	)	$	—	$	—	$	(3,645,686	)	$	—
Mortgage loans ⁽³⁾	$	—		$	(360,347,278	)	$	—	$	—	$	(361,764,538	)	$	—
Unsecured notes ⁽⁴⁾	$	(25,744,000	)	$	—		$	—

	Hyatt Centric Arlington			Hyde Beach House
Land and land improvements	$	190,916		$	500
Buildings and improvements		70,369,046			5,564,219
Furniture, fixtures and equipment		6,229,888			347,621
Favorable lease and other intangible assets		3,054,812			—
Investment in hotel properties		79,844,662			5,912,340
Accrued liabilities and other costs		(111,946	)		—
Prepaid expenses, inventory and other assets		—			434,038
Net cash	$	79,732,716		$	6,346,378

(1)	The note bears a floating interest rate of 1-month LIBOR plus 3.75% subject to a floor rate of 3.75%; with monthly principal payments of $23,100; the note provides that the mortgage can be extended for two additional periods of one year each, subject to certain conditions. On April 26, 2019, we entered into amended loan documents to modify the mortgage loan on the Crowne Plaza Tampa Westshore. See Note 14 to the Financial Statements for additional information.
~~(2)~~	~~The note~~ amortizes on a 25-year schedule ~~after an initial 1-year interest-only period (which expired in August 2017),~~ and is subject to a pre-payment penalty except for any pre-payments made within 120 days of the maturity date. After March 31, 2020, the lender agreed to the following loan modifications: (a) deferral of scheduled principal payments due between April 1, 2020 and March 1, 2021; (b) deferral of scheduled interest payments due between April 1, 2020 and September 1, 2020; (c) deferred principal and interest are due and payable at maturity; and (d) payment of up to 5.0% of the indebtedness under the loan is guaranteed by the Operating Partnership. The maturity date under the loan modifications remains unchanged.
~~(3)~~(2)	The note ~~may not be prepaid until August 2019, after which it~~ is subject to a pre-payment penalty until March 2024. Prepayment can be made without penalty thereafter. After March 31, 2020, the lender agreed to the following loan modifications: (a) the April, May, and June 2020 principal and interest payments were paid out of FF&E reserves; (b) FF&E deposits were deferred for the April, May, and June 2020 payment dates; and (c) released FF&E and the deferred FF&E to be repaid in 6 monthly installments beginning with the July 2020 payment. The maturity date under the loan modifications remains unchanged.
~~(4)~~(3)	The note is subject to a pre-payment penalty until April 2021. Prepayment can be made without penalty thereafter. On March 24, 2020 the lender agreed to defer scheduled payments of principal and interest due between April 1, 2020 and June 30, 2020. Under that deferral arrangement, subsequent payments are required to be applied first toward current and deferred interest and then toward principal. After March 31, 2020, the following modifications to the loan were agreed to by the lender: (a) deferral of scheduled principal and interest payments due between July 1, 2020 and September 30, 2020; and (b) any deferred principal is due and payable at maturity. The maturity date under the loan modifications remains unchanged.
~~(5)~~(4)	The note bears a floating interest rate of 1-month LIBOR plus 2.27%, but we entered into a swap agreement to fix to the rate at 5.237%. Under the swap agreement, notional amounts approximate the declining balance of the loan and we are responsible for any potential termination fees associated with early termination of the swap agreement. After March 31, 2020, the lender agreed to the following loan modifications: (a) deferral of scheduled principal and interest under the note as well as the interest-rate swap due between April 1, 2020 and June 30, 2020; (b) deferred interest is to be repaid in three monthly installments beginning July 1, 2020; (c) deferred principal is due and payable at maturity; and (d) the maturity date was extended by 3 months.
~~(6)~~(5)	The note provides initial proceeds of $18.3 million, with an additional $5.2 million available upon the satisfaction of certain conditions; has an initial term of 4 years with a 1-year extension; bears a floating interest rate of 1-month LIBOR plus 4.00%; requires interest only monthly payments; and following a 12-month lockout, can be prepaid with penalty in year 2 and without penalty thereafter. We entered into an interest-rate cap agreement to limit our exposure through August 1, 2022 to increases in LIBOR exceeding 3.25% on a notional amount of $23,500,000. After March 31, 2020, the lender agreed to modify the loan to allow for the deferral of scheduled interest due between April 1, 2020 and July 31, 2020 to be repaid as operating cash flow from the property allows no later than August 1, 2021.
(6)	With limited exception, the note may not be prepaid until June 2025.
(7)	With limited exception, the note may not be prepaid until ~~June~~February 2025.
(8)	~~With limited exception,~~The note bears a floating interest rate of 1-month LIBOR plus 3.75% subject to a floor rate of 3.75%; with monthly principal payments of $26,812; the note ~~may not~~provides that the mortgage can be ~~prepaid until February 2025.~~extended for two additional periods of one year each, subject to certain conditions. After March 31, the lender agreed to defer scheduled payments of principal due between April 1 and September 1, 2020.
(9)	The note amortizes on a 25-year schedule ~~after an initial 1-year interest-only period,~~ and is subject to a pre-payment penalty except for any pre-payments made within 120 days of the maturity date. After March 31, 2020, the lender agreed to the following loan modifications: (a) deferral of scheduled principal payments due between April 1, 2020 and March 1, 2021; (b) deferral of scheduled payments of interest between April 1, 2020 and September 1, 2020; (c) deferred principal and interest will be due and payable at maturity; and (d) payment of up to 5.0% of the indebtedness under the loan is guaranteed by the Operating Partnership. The maturity date under the loan modifications remains unchanged.
(10)	Following a 5-year lockout, the note can be prepaid with penalty in years 6-10 and without penalty during the final 4 months of the term.

For the remaining nine months ending December 31, 2019	$	4,707,357
December 31, 2020		6,438,982
For the nine months ending December 31, 2020			$	4,755,367
December 31, 2021		14,639,727		15,010,659
December 31, 2022		42,251,232		42,273,861
December 31, 2023		60,424,428		59,841,013
December 31, 2024 and thereafter		237,819,547
December 31, 2024				37,643,946
December 31, 2025 and thereafter				200,085,392
Total future maturities	$	366,281,273	$	359,610,238

For the remaining nine months ending December 31, 2019	$	367,710
December 31, 2020		386,032
For the nine months ending December 31, 2020			$	366,603
December 31, 2021		379,181		469,811
December 31, 2022		356,998		425,735
December 31, 2023		355,682		386,682
December 31, 2024 and thereafter		8,959,248
December 31, 2024				386,682
December 31, 2025 and thereafter				12,045,965
Total	$	10,804,851	$	14,081,478

	Per				Number of Shares				Quarterly
	Annum			Liquidation	Issued and Outstanding as of				Distributions
Preferred Stock – Series (1)	Rate			Preference	March 31, 2020		December 31, 2019		Per Share
Series B Preferred Stock		8.000	%	$25.00		1,610,000		1,610,000	$	0.500000
Series C Preferred Stock		7.875	%	$25.00		1,554,610		1,554,610	$	0.492188
Series D Preferred Stock		8.250	%	$25.00		1,200,000		1,200,000	$	0.515625

	Per				Number of Units				Quarterly
	Annum			Liquidation	Issued and Outstanding as of				Distributions
Preferred Units – Series (1)	Rate			Preference	March 31, 2020		December 31, 2019		Per Unit
Series B Preferred Units		8.000	%	$25.00		1,610,000		1,610,000	$	0.500000
Series C Preferred Units		7.875	%	$25.00		1,554,610		1,554,610	$	0.492188
Series D Preferred Units		8.250	%	$25.00		1,200,000		1,200,000	$	0.515625

Exhibit
Number		Description of Exhibit


~~3.1~~10.12		~~Articles~~Executive Employment Agreement between Sotherly Hotels Inc. and Andrew M. Sims, dated as of ~~Amendment and Restatement of the Company~~January 1, 2020 (incorporated by reference to the document previously filed as Exhibit ~~3.1 to the Company’s Pre-Effective Amendment No. 1 to its Registration Statement on Form S-11 filed with the Securities and Exchange Commission on October 20, 2004 (File No. 333-118873)).~~

~~3.1A~~		Articles of Amendment to the Articles of Amendment and Restatement of the Company, effective as of April 16, 2013 (incorporated by reference to the document previously filed as Exhibit 3.7 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 16, 2013).

~~3.1B~~		~~Articles of Amendment to the Articles of Amendment and Restatement of the Company, effective as of August 12, 2016 (incorporated by reference to the document previously filed as Exhibit 3.1~~10.24 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on ~~August 15, 2016)~~January 6, 2020).

~~3.1C~~ 10.13		~~Articles of Amendment to the Articles of Amendment~~Executive Employment Agreement between Sotherly Hotels Inc. and ~~Restatement of the Company, effective~~David R. Folsom, dated as of ~~April 12, 2019~~January 1, 2020 (incorporated by reference to the document previously filed as Exhibit ~~3.1~~10.25 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on ~~April 16, 2019)~~January 6, 2020).

~~3.2~~ 10.14		~~Amended and Restated~~Executive Employment Agreement ~~of Limited Partnership of~~between Sotherly Hotels LPInc. and Scott M. Kucinski, dated as of January 1, 2020 (incorporated by reference to the document previously filed as Exhibit ~~3.3 to the Company’s Pre-Effective Amendment No. 5 to its Registration Statement on Form S-11 filed with the Securities and Exchange Commission on December 13, 2004 (File No. 333-118873)).~~

~~3.2A~~		Amendment No. 1 to the Amended and Restated Agreement of Limited Partnership of Sotherly Hotels LP (incorporated by reference to the document previously filed as Exhibit 3.6 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 18, 2011).

~~3.2B~~		Amendment No. 2 to the Amended and Restated Agreement of Limited Partnership of Sotherly Hotels LP (incorporated by reference to the document previously filed as Exhibit 3.3 to the Operating Partnership’s Pre-Effective Amendment No. 1 to its Registration Statement on Form S-11 filed with the Securities and Exchange Commission on August 9, 2013 (File No. 333-189821)).

~~3.2C~~		~~Amendment No. 3 to the Amended and Restated Agreement of Limited Partnership of Sotherly Hotels LP (incorporated by reference to the document previously filed as Exhibit 3.1~~10.26 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on ~~August 23, 2016)~~January 6, 2020).

~~3.2D~~ 10.15		~~Amendment No. 4 to the Amended and Restated~~Executive Employment Agreement ~~of Limited Partnership of~~between Sotherly Hotels LPInc. and Robert E. Kirkland IV, dated as of January 1, 2020 (incorporated by reference to the document previously filed as Exhibit ~~3.1~~10.27 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on ~~October 11, 2017).~~

~~3.2E~~		Amendment No. 5 to the Amended and Restated Agreement of Limited Partnership of Sotherly Hotels LP (incorporated by reference to the document previously filed as Exhibit 3.2E to our current report on Form 8-K filed with the Securities and Exchange Commission on August 31, 2018).

~~3.2F~~		~~Amendment No.~~January 6, to the Amended and Restated Agreement of Limited Partnership of Sotherly Hotels LP (incorporated by reference to the document previously filed as Exhibit 3.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 18, 2019).

~~3.3~~		Articles Supplementary of Sotherly Hotels Inc. (incorporated by reference to the document previously filed as Exhibit 3.4 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 18, 2011).

~~3.4~~		Articles Supplementary designating the Series B Preferred Stock of the Company, effective as of August 19, 2016 (incorporated by reference to the document previously filed as Exhibit 3.5 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on August 22, 2016).

~~3.5~~		Articles Supplementary designating the Series C Preferred Stock of the Company, effective as of October 5, 2017 (incorporated by reference to the document previously filed as Exhibit 3.5 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on October 10, 2017).

~~3.6~~		Articles Supplementary dated August 30, 2018 (incorporated by reference to the document previously filed as Exhibit 3.7 to our current report on Form 8-K filed with the Securities and Exchange Commission on August 31, 2018).

~~3.7~~		Articles Supplementary designating the Series D Preferred Stock of the Company, effective as of April 15, 2019 (incorporated by reference to the document previously filed as Exhibit 3.6 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on April 16, 2019)2020).

~~4.1~~10.16		~~Form~~Promissory Note between Sotherly Hotels LP and Village Bank dated as of Specimen Certificate of Series D Preferred Stock of the Company (incorporated by reference to the document previously filed as Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed with the Securities and Exchange Commission on April 16, ~~2019).~~2020.

10.17		Promissory Note between MHI Hospitality TRS, LLC and Fifth Third Bank, National Association, dated as of April 28, 2020.

10.18		Promissory Note between SOHO Arlington TRS LLC and Fifth Third Bank, National Association, dated as of May 6, 2020.

31.1		Certification of Chief Executive Officer pursuant to Exchange Act Rules 13(a)-14 and 15(d)-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Company.

31.2		Certification of Chief Financial Officer pursuant to Exchange Act Rules 13(a)-14 and 15(d)-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Company.

31.3		Certification of Chief Executive Officer pursuant to Exchange Act Rules 13(a)-14 and 15(d)-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Operating Partnership.

31.4		Certification of Chief Financial Officer pursuant to Exchange Act Rules 13(a)-14 and 15(d)-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Operating Partnership.

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Company.

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Company.

32.3		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Operating Partnership.

32.4		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Operating Partnership.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

	SOTHERLY HOTELS INC.

Date: ~~May 8, 2019~~June 24, 2020	By:	/s/ ~~Andrew M. Sims~~David R. Folsom
		~~Andrew M. Sims~~David R. Folsom
		President and Chief Executive Officer

	By:	/s/ Anthony E. Domalski
		Anthony E. Domalski
		Chief Financial Officer

	SOTHERLY HOTELS LP

	By:	SOTHERLY HOTELS INC.
		Its General Partner

Date: ~~May 8, 2019~~June 24, 2020	By:	/s/ ~~Andrew M. Sims~~David R. Folsom
		~~Andrew M. Sims~~David R. Folsom
		President and Chief Executive Officer

	By:	/s/ Anthony E. Domalski
		Anthony E. Domalski
		Chief Financial Officer