Sotherly Hotels Inc. Reports Financial Results For The Fourth Quarter And Year Ended December 31, 2019

WILLIAMSBURG, Va., Feb. 27, 2020 (GLOBE NEWSWIRE) -- Sotherly Hotels Inc. (NASDAQ: SOHO), (“Sotherly” or the “Company”), a self-managed and self-administered lodging real estate investment trust (a “REIT”), today reported its consolidated results for the fourth quarter and year ended December 31, 2019. The Company’s results include the following*:

	Three Months Ended								Year Ended
	December 31, 2019				December 31, 2018				December 31, 2019				December 31, 2018
	($ in thousands except per share data)								($ in thousands except per share data)
Total Revenue	$	44,305			$	43,466			$	185,788			$	178,173
Net (loss) income available to common stockholders		(3,600	)			(3,768	)			(6,093	)			(5,720	)
EBITDA		7,745				7,185				41,887				40,347
Hotel EBITDA		9,280				10,247				46,938				47,684
FFO available to common stockholders and unitholders		1,754				1,260				14,763				13,706
Adjusted FFO available to common stockholders and unitholders		951				1,877				17,164				15,923
Net (loss) income per common share	$	(0.27	)		$	(0.28	)		$	(0.45	)		$	(0.42	)
FFO per common share and unit	$	0.11			$	0.08			$	0.96			$	0.90
Adjusted FFO per common share and unit	$	0.06			$	0.12			$	1.11			$	1.04

(*)    Earnings before interest, taxes, depreciation and amortization (“EBITDA”), hotel EBITDA, funds from operations (“FFO”) available to common stockholders and unitholders, adjusted FFO available to common stockholders and unitholders, FFO per common share and unit and adjusted FFO per common share and unit are non-GAAP financial measures. See further discussion of these non-GAAP measures, including definitions related thereto, and reconciliations to net income (loss) later in this press release. The Company is the sole general partner of Sotherly Hotels LP, a Delaware limited partnership (the “Operating Partnership”), and all references in this release to the “Company”, “Sotherly”, “we”, “us” and “our” refer to Sotherly Hotels Inc., its Operating Partnership and its subsidiaries and predecessors, unless the context otherwise requires or it is otherwise indicated.

HIGHLIGHTS:

• RevPAR.  Room revenue per available room (“RevPAR”) for the Company’s composite portfolio, which includes the Hyatt Centric Arlington and the rooms participating in our rental programs at the Hyde Resort & Residences and the Hyde Beach House Resort and Residences, during the three-month period ending December 31, 2019, increased 2.2% over the three months ended December 31, 2018, to $102.27 reflecting a 1.6% increase in occupancy and a 0.6% increase in average daily rate (“ADR”). For the twelve-month period ending December 31, 2019, RevPAR increased 3.4% over the twelve months ended December 31, 2018, to $112.94 driven by a 1.4% increase in occupancy and a 2.0% increase in ADR.
   
• Revenue.  For the three-month period ending December 31, 2019, total revenue increased 1.9% over the three-month period ending December 31, 2018.  For the twelve-month period ending December 31, 2019, total revenue increased 4.3% or by approximately $7.6 million to approximately $185.8 million, as compared to approximately $178.2 million for the twelve-month period ending December 31, 2018.
  
  
• Common Dividends. On January 28, 2020, the Company announced a quarterly dividend (distribution) on its common stock (and units) of $0.13 per share (and unit) to stockholders (and unitholders) of record as of March 13, 2020, payable on April 9, 2020.
  
  
• Hotel EBITDA. The Company generated hotel EBITDA of approximately $9.3 million during the three-month period ending December 31, 2019.  Hotel EBITDA decreased 9.4%, or approximately $1.0 million, over the three months ended December 31, 2018.  For the twelve-month period ending December 31, 2019, hotel EBITDA decreased 1.6%, or approximately $0.7 million, over the twelve months ended December 31, 2018.  As discussed below, included in Hotel EBITDA is a charge associated with the termination of ten hotel management contracts with MHI Hotels Services, which does business as Chesapeake Hospitality.
  
  
• Adjusted FFO available to common stockholders and unitholders. For the three-month period ending December 31, 2019, adjusted FFO available to common stockholders and unitholders decreased 49.4% from the three months ended December 31, 2018.  For the twelve-month period ending December 31, 2019, adjusted FFO available to common stockholders and unitholders increased 7.8% or approximately $1.2 million over the twelve months ended December 31, 2018.

Andrew M. Sims, Chairman of the board of directors of Sotherly Hotels Inc., commented, “The fourth quarter of 2019 was one of the most active and memorable quarters in the company’s long history.  We executed on our plan to replace our management partner for the core portfolio with Our Town Hospitality.  We also completed a Succession Plan that saw the promotion of Dave Folsom to Chief Executive Officer and included two additional in-house promotions to our senior management team.  We believe this team is well-positioned to lead the Company moving forward.  We opened and commenced our rental program at the new Hyde Beach House Resort & Residences, a condominium hotel located in Hollywood, Florida, and we took possession of a new ballroom and structured parking at our DoubleTree Resort in Hollywood.  The completion of the renovations at our newly converted Hotel Alba Tampa represents the culmination of five years of significant capital improvements across our portfolio.  We believe all these events bode well for the future success of the company.”

Balance Sheet/Liquidity

At December 31, 2019, the Company had approximately $28.0 million of available cash and cash equivalents, of which approximately $4.2 million was reserved for real estate taxes, insurance, capital improvements and certain other expenses or otherwise restricted. The Company had principal balances of approximately $361.0 million in outstanding debt at a weighted average interest rate of approximately 4.89%.

Other Developments

On December 13, 2019, we entered into a series of agreements with Our Town Hospitality LLC, a Virginia limited liability company ("Our Town") relating to the retention of Our Town as the manager of ten of our hotels.  Our Town began managing these hotels on January 1, 2020.  Please reference our Current Report on Form 8-K filed with the Securities and Exchange Commission on December 16, 2019 for additional details.

On January 1, 2020, ten of our hotel management agreements with Chesapeake Hospitality expired.  In connection with the termination of those ten agreements, we are required to pay Chesapeake a termination fee of approximately $0.3 million.  The termination fee must be paid by March 30, 2020.

On February 14, 2020, we entered into a hotel purchase and sale agreement to sell the Sheraton Louisville Riverside hotel located in Jeffersonville, Indiana (the “Hotel”) to 808 Indiana LLC for a purchase price of $13.5 million.  Certain representations and warranties of the Seller under the purchase and sale agreement are unconditionally guaranteed by the Operating Partnership up to a maximum of $750,000.  The Company intends to use proceeds from the sale of the Hotel to repay the existing mortgage on the Hotel and for general corporate purposes.  The closing of the sale is subject to various customary closing conditions, including the satisfactory completion of a diligence review of the Hotel, the accuracy of representations and warranties through closing, conditions related to the operation and maintenance of the Hotel, and conditions related to franchise approval.

2020 Outlook

Set forth below is the Company’s guidance for 2020.  The guidance is predicated on estimates of occupancy and ADR that are consistent with the most recent 2020 calendar year forecasts by Smith Travel Research for the market segments in which the Company operates. 

The table below reflects the Company’s projections, within a range, of various financial measures for 2020, in thousands of dollars, except per share and RevPAR data:

	2020 Guidance
	Low Range				High Range
Total revenue	$	184,107			$	188,211
Net income		3,049				3,905
Net loss available to common stockholders and unitholders		(5,781	)			(4,925	)
EBITDA		42,224				43,170
Hotel EBITDA		49,074				50,170
FFO available to common stockholders and unitholders		15,219				16,075
Adjusted FFO available to common stockholders and unitholders		15,444				16,375
Net loss per share available to common stockholders	$	(0.38	)		$	(0.32	)
FFO per common share and unit	$	0.98			$	1.03
Adjusted FFO per common share and unit	$	1.00			$	1.06
Rev PAR	$	111.46			$	113.95
Hotel EBITDA margin		26.7	%			26.7	%

Earnings Call/Webcast

The Company will conduct its fourth quarter 2019 conference call for investors and other interested parties at 10:00 a.m. Eastern Time on Thursday, February 27, 2020. The conference call will be accessible by telephone and through the Internet. Interested individuals are invited to listen to the call by telephone at 888-339-0107 (United States) or 855-669-9657 (Canada) or [phone] (International). To participate on the webcast, log on to www.sotherlyhotels.com at least 15 minutes before the call to download the necessary software. For those unable to listen to the call live, a taped rebroadcast will be available beginning one hour after completion of the live call on February 27 through February 27, 2021. To access the rebroadcast, dial 877-344-7529 and enter conference number 10138174.  A replay of the call also will be available on the Internet at www.sotherlyhotels.com until February 27, 2021.

About Sotherly Hotels Inc.

Sotherly Hotels Inc. is a self-managed and self-administered lodging REIT focused on the acquisition, renovation, upbranding and repositioning of upscale to upper-upscale full-service hotels in the Southern United States. Currently, the Company’s portfolio consists of investments in twelve hotel properties, comprising 3,156 rooms, as well as interests in two condominium hotels and their associated rental programs. The Company owns hotels that operate under the Hilton Worldwide, Hyatt Hotels Corporation, and Marriott International, Inc. brands, as well as independent hotels. Sotherly Hotels Inc. was organized in 2004 and is headquartered in Williamsburg, Virginia. For more information, please visit www.sotherlyhotels.com.

Contact at the Company:

Mack Sims
Vice President – Operations & Investor Relations
Sotherly Hotels Inc.
306 South Henry Street, Suite 100
Williamsburg, Virginia 23185
757.229.5648

Forward-Looking Statements

This news release includes “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. Although the Company believes that the expectations and assumptions reflected in the forward-looking statements are reasonable, these statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict and many of which are beyond the Company’s control. Therefore, actual outcomes and results may differ materially from what is expressed, forecasted or implied in such forward-looking statements. Factors which could have a material adverse effect on the Company’s future results, performance and achievements, include, but are not limited to: national and local economic and business conditions that affect occupancy rates and revenues at the Company’s hotels and the demand for hotel products and services; risks associated with the hotel industry, including competition and new supply of hotel rooms, increases in wages, energy costs and other operating costs; risks associated with adverse weather conditions, including hurricanes; the availability and terms of financing and capital and the general volatility of the securities markets; the Company’s intent to repurchase shares from time to time; risks associated with the level of the Company’s indebtedness and its ability to meet covenants in its debt agreements and, if necessary, to refinance or seek an extension of the maturity of such indebtedness or modify such debt agreements; management and performance of the Company’s hotels; risks associated with maintaining our system of internal controls; risks associated with the conflicts of interest of the Company’s officers and directors; risks associated with redevelopment and repositioning projects, including delays and cost overruns; supply and demand for hotel rooms in the Company’s current and proposed market areas; risks associated with our ability to maintain our franchise agreements with our third party franchisors; the Company’s ability to acquire additional properties and the risk that potential acquisitions may not perform in accordance with expectations; the Company’s ability to successfully expand into new markets; legislative/regulatory changes, including changes to laws governing taxation of REITs; the Company’s ability to maintain its qualification as a REIT; and the Company’s ability to maintain adequate insurance coverage. These risks and uncertainties are described in greater detail under “Risk Factors” in the Company’s Annual Report on Form 10-K and subsequent reports filed with the Securities and Exchange Commission. The Company undertakes no obligation to and does not intend to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Although the Company believes its current expectations to be based upon reasonable assumptions, it can give no assurance that its expectations will be attained or that actual results will not differ materially.

Financial Tables Follow…

SOTHERLY HOTELS INC.
CONSOLIDATED BALANCE SHEETS

		December 31, 2019				December 31, 2018
ASSETS
Investment in hotel properties, net		$	443,267,448			$	435,725,814
Cash and cash equivalents			23,738,066				33,792,773
Restricted cash			4,246,170				4,075,508
Accounts receivable, net			4,812,479				6,766,696
Accounts receivable - affiliate			101,771				262,572
Prepaid expenses, inventory and other assets			5,648,772				5,262,884
Favorable lease assets, net			—				2,465,421
Deferred income taxes			5,412,084				5,131,179
TOTAL ASSETS		$	487,226,790			$	493,482,847
LIABILITIES
Mortgage loans, net		$	358,633,884			$	364,828,845
Unsecured notes, net			—				23,894,658
Accounts payable and accrued liabilities			20,189,903				16,268,096
Advance deposits			2,785,338				2,815,283
Dividends and distributions payable			4,210,494				3,409,593
TOTAL LIABILITIES		$	385,819,619			$	411,216,475
Commitments and contingencies			—				—
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 December 31, 2019 and 2018, respectively.			16,100				16,100
7.875% Series C cumulative redeemable perpetual preferred stock,   liquidation preference $25 per share, 1,554,610 and 1,352,141 shares issued   and outstanding at December 31, 2019 and 2018, respectively.			15,546				13,521
8.25% Series D cumulative redeemable perpetual preferred stock,   liquidation preference $25 per share, 1,200,000 shares and none, issued   and outstanding at December 31, 2019 and 2018, respectively.			12,000				—
Common stock, par value $0.01, 69,000,000 shares authorized, 14,272,378   shares and 14,209,378 shares issued and outstanding at   December 31, 2019 and 2018, respectively.			142,723				142,093
Additional paid-in capital			180,515,861				147,085,112
Unearned ESOP shares			(4,105,637	)			(4,379,742	)
Distributions in excess of retained earnings			(74,172,159	)			(61,052,418	)
Total Sotherly Hotels Inc. stockholders’ equity			102,424,434				81,824,666
Noncontrolling interest			(1,017,263	)			441,706
TOTAL EQUITY			101,407,171				82,266,372
TOTAL LIABILITIES AND EQUITY		$	487,226,790			$	493,482,847

SOTHERLY HOTELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)

		Three Months Ended				Three Months Ended				Twelve Months Ended				Twelve Months Ended
		December 31, 2019				December 31, 2018				December 31, 2019				December 31, 2018
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
REVENUE
Rooms department		$	29,501,291			$	28,751,075			$	128,062,932			$	120,993,460
Food and beverage department			10,682,535				10,284,968				40,267,240				38,134,813
Other operating departments			4,121,127				4,429,933				17,457,961				19,044,848
Total revenue			44,304,953				43,465,976				185,788,133				178,173,121
EXPENSES
Hotel operating expenses
Rooms department			7,877,548				7,583,927				32,142,171				30,334,309
Food and beverage department			7,560,029				7,341,457				29,355,080				28,090,145
Other operating departments			1,949,674				1,549,465				6,957,325				6,419,502
Indirect			17,638,106				16,744,463				70,395,633				65,645,500
Total hotel operating expenses			35,025,357				33,219,312				138,850,209				130,489,456
Depreciation and amortization			5,520,038				5,101,469				21,637,316				20,884,643
Loss on disposal of assets			91,650				515,565				123,739				511,749
Corporate general and administrative			1,822,063				1,614,705				6,830,354				6,180,962
Total hotel operating expenses			42,459,108				40,451,051				167,441,618				158,066,810
NET OPERATING INCOME			1,845,845				3,014,925				18,346,515				20,106,311
Other income (expense)
Interest expense			(4,652,502	)			(5,382,604	)			(19,768,193	)			(19,953,746	)
Interest income			86,883				116,258				444,459				352,951
Loss on early extinguishment of debt			—				—				(1,152,356	)			(753,133	)
Unrealized (loss) gain on hedging activities			377,053				(950,928	)			(1,177,871	)			(808,958	)
Gain on exercise of development right			—				—				3,940,000				—
Gain on involuntary conversion of assets			1,630				19,202				293,534				917,767
Net income (loss) before income taxes			(2,341,091	)			(3,183,147	)			926,088				(138,808	)
Income tax benefit (provision)			688,803				412,696				249,480				(469,349	)
Net income (loss)			(1,652,288	)			(2,770,451	)			1,175,568				(608,157	)
Less: Net loss attributable to noncontrolling interest			240,766				472,794				552,407				718,093
Net (loss) income attributable to the Company			(1,411,522	)			(2,297,657	)			1,727,975				109,936
Distributions to preferred stockholders			(2,188,897	)			(1,470,507	)			(7,820,695	)			(5,829,914	)
Net loss available to common stockholders		$	(3,600,419	)		$	(3,768,164	)		$	(6,092,720	)		$	(5,719,978	)
Net loss per share available to common stockholders
Basic		$	(0.27	)		$	(0.28	)		$	(0.45	)		$	(0.42	)
Weighted average number of common shares outstanding
Basic			13,695,964				13,594,651				13,642,573				13,517,488

SOTHERLY HOTELS INC.
KEY OPERATING METRICS
(unaudited)

The following tables illustrate the key operating metrics for the three and twelve months ended December 31, 2019 and 2018, respectively, for the Company’s twelve wholly-owned properties (“actual” portfolio metrics), as well as the eleven wholly-owned properties in the portfolio that were under the Company’s control during the three and twelve months ended December 31, 2019 and the corresponding periods in 2018 (“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 Resort & Residences, and the same-store data does not include the performance of the Hyatt Centric Arlington which we acquired in March 2018 or the participating condominium hotel rooms at the Hyde Resort & Residences or the Hyde Beach House Resort & Residences.  The composite portfolio metrics represent the Company’s twelve wholly-owned properties and the participating condominium hotel rooms at the Hyde Resort & Residences and the Hyde Beach House Resort & Residences during the three and twelve months ended December 31, 2019 and the corresponding period in 2018. 

		Three Months Ended					Three Months Ended						Year Ended					Year Ended
		December 31, 2019					December 31, 2018						December 31, 2019					December 31, 2018
Actual Portfolio Metrics
Occupancy %			67.5	%				66.3	%					71.3	%				70.3	%
ADR		$	150.50				$	149.38					$	155.92				$	151.93
RevPAR		$	101.61				$	99.02					$	111.17				$	106.77
Same-Store Portfolio Metrics
Occupancy %			66.7	%				65.3	%					70.4	%				69.0	%
ADR		$	147.20				$	146.69					$	151.87				$	148.57
RevPAR		$	98.17				$	95.84					$	106.96				$	102.52
Composite Portfolio Metrics
Occupancy %			65.7	%				64.7	%					70.1	%				69.1	%
ADR		$	155.57				$	154.60					$	161.17				$	158.02
RevPAR		$	102.27				$	100.10					$	112.94				$	109.20

SOTHERLY HOTELS INC.
SUPPLEMENTAL DATA
(unaudited)

The following tables illustrate the key operating metrics for the three and twelve months ended December 31, 2019, 2018 and 2017, respectively, for each of the Company’s wholly-owned properties during each respective reporting period, irrespective of ownership percentage during any period.

Occupancy

	Q4 2019				Q4 2018				Q4 2017
	YTD				YTD				YTD
The DeSoto Savannah, Georgia		62.9	%			56.5	%			61.6	%
		65.4	%			61.6	%			66.6	%
DoubleTree by Hilton Jacksonville Riverfront Jacksonville, Florida		75.4	%			78.2	%			78.0	%
		78.5	%			81.6	%			79.9	%
DoubleTree by Hilton Laurel Laurel, Maryland		65.2	%			66.4	%			57.8	%
		69.9	%			66.8	%			64.9	%
DoubleTree by Hilton Philadelphia Airport Philadelphia, Pennsylvania		73.9	%			74.0	%			72.2	%
		76.6	%			78.2	%			75.5	%
DoubleTree by Hilton Raleigh Brownstone – University Raleigh, North Carolina		72.5	%			71.0	%			69.9	%
		76.3	%			74.8	%			74.2	%
DoubleTree Resort by Hilton Hollywood Beach Hollywood, Florida		69.5	%			62.6	%			61.0	%
		70.5	%			69.2	%			72.1	%
Georgian Terrace Atlanta, Georgia		67.5	%			63.9	%			67.0	%
		70.0	%			67.9	%			70.6	%
Hotel Alba Tampa, Tapestry Collection by Hilton Tampa, Florida		61.8	%			64.7	%			78.7	%
		66.2	%			71.9	%			79.1	%
Hotel Ballast Wilmington, Tapestry Collection by Hilton Wilmington, North Carolina		60.3	%			64.2	%			61.8	%
		68.5	%			63.9	%			68.3	%
Hyatt Centric Arlington (1) Arlington, Virginia		74.8	%			74.8	%			76.0	%
		79.1	%			83.8	%			84.0	%
Sheraton Louisville Riverside Jeffersonville, Indiana		65.0	%			58.5	%			48.6	%
		67.9	%			60.6	%			63.8	%
The Whitehall Houston, Texas		56.0	%			54.6	%			41.2	%
		62.2	%			57.5	%			58.1	%
Hyde Resort & Residences (2) Hollywood Beach, Florida		44.6	%			39.3	%			38.4	%
		50.5	%			49.8	%			37.9	%
Hyde Beach House Resort & Residences (2) Hollywood Beach, Florida		15.0	%		-				-
		15.0	%		-				-
All properties weighted average (1)		65.7	%			64.7	%			58.4	%
		70.1	%			69.1	%			68.8	%

(1	)	Includes operating results under previous ownership.  Results for periods prior to the Company’s ownership were provided by prior owners of the hotel and have not been audited or confirmed by the Company.
(2	)	Reflects only those condominium units participating in our rental program for the period those units participated in our rental program.

ADR

	Q4 2019				Q4 2018				Q4 2017
	YTD				YTD				YTD
The DeSoto Savannah, Georgia	$	169.52			$	173.37			$	157.93
	$	174.75			$	177.19			$	159.50
DoubleTree by Hilton Jacksonville Riverfront Jacksonville, Florida	$	137.96			$	134.76			$	140.34
	$	139.53			$	139.84			$	132.19
DoubleTree by Hilton Laurel Laurel, Maryland	$	103.73			$	104.12			$	104.74
	$	107.34			$	107.98			$	107.77
DoubleTree by Hilton Philadelphia Airport Philadelphia, Pennsylvania	$	145.10			$	139.61			$	138.64
	$	143.95			$	139.25			$	135.54
DoubleTree by Hilton Raleigh Brownstone – University Raleigh, North Carolina	$	140.45			$	134.17			$	131.29
	$	139.73			$	134.26			$	133.24
DoubleTree Resort by Hilton Hollywood Beach Hollywood, Florida	$	159.34			$	168.37			$	167.71
	$	173.25			$	175.18			$	170.76
Georgian Terrace Atlanta, Georgia	$	193.56			$	193.65			$	186.21
	$	204.60			$	186.28			$	175.06
Hotel Alba Tampa, Tapestry Collection by Hilton Tampa, Florida	$	124.16			$	116.92			$	116.39
	$	129.91			$	124.72			$	119.85
Hotel Ballast Wilmington, Tapestry Collection by Hilton Wilmington, North Carolina	$	157.48			$	158.77			$	143.62
	$	161.50			$	153.04			$	148.69
Hyatt Centric Arlington (1) Arlington, Virginia	$	176.80			$	170.31			$	173.07
	$	188.15			$	181.38			$	176.31
Sheraton Louisville Riverside Jeffersonville, Indiana	$	106.39			$	112.16			$	138.65
	$	114.92			$	122.62			$	133.86
The Whitehall Houston, Texas	$	142.79			$	147.60			$	154.94
	$	143.33			$	146.01			$	147.66
Hyde Resort & Residences (2) Hollywood Beach, Florida	$	284.03			$	299.46			$	289.66
	$	295.49			$	299.30			$	282.20
Hyde Beach House Resort & Residences (2) Hollywood Beach, Florida	$	341.58			$	-			$	-
	$	341.58			$	-			$	-
All properties weighted average (1)	$	155.57			$	154.60			$	153.03
	$	161.17			$	158.02			$	147.77

(1	)	Includes operating results under previous ownership.  Results for periods prior to the Company’s ownership were provided by prior owners of the hotel and have not been audited or confirmed by the Company.
(2	)	Reflects only those condominium units participating in our rental program for the period those units participated in our rental program.

RevPAR

	Q4 2019				Q4 2018				Q4 2017
	YTD				YTD				YTD
The DeSoto Savannah, Georgia	$	106.56			$	97.91			$	97.22
	$	114.34			$	109.21			$	106.15
DoubleTree by Hilton Jacksonville Riverfront Jacksonville, Florida	$	104.03			$	105.33			$	109.41
	$	109.53			$	114.06			$	105.56
DoubleTree by Hilton Laurel Laurel, Maryland	$	67.67			$	69.16			$	60.57
	$	75.06			$	72.09			$	69.91
DoubleTree by Hilton Philadelphia Airport Philadelphia, Pennsylvania	$	107.16			$	103.34			$	100.09
	$	110.20			$	108.88			$	102.32
DoubleTree by Hilton Raleigh Brownstone – University Raleigh, North Carolina	$	101.80			$	95.29			$	91.83
	$	106.63			$	100.36			$	98.91
DoubleTree Resort by Hilton Hollywood Beach Hollywood, Florida	$	110.76			$	105.47			$	102.34
	$	122.22			$	121.19			$	123.12
Georgian Terrace Atlanta, Georgia	$	130.56			$	123.79			$	124.75
	$	143.15			$	126.56			$	123.66
Hotel Alba Tampa, Tapestry Collection by Hilton Tampa, Florida	$	76.79			$	75.68			$	91.57
	$	85.97			$	89.73			$	94.81
Hotel Ballast Wilmington, Tapestry Collection by Hilton Wilmington, North Carolina	$	94.93			$	101.94			$	88.75
	$	110.58			$	97.75			$	101.62
Hyatt Centric Arlington (1) Arlington, Virginia	$	132.25			$	127.39			$	131.46
	$	148.77			$	152.04			$	148.13
Sheraton Louisville Riverside Jeffersonville, Indiana	$	69.13			$	65.60			$	67.38
	$	78.02			$	74.25			$	85.45
The Whitehall Houston, Texas	$	79.96			$	80.55			$	63.90
	$	89.18			$	83.95			$	85.78
Hyde Resort & Residences (2) Hollywood Beach, Florida	$	126.79			$	117.83			$	111.27
	$	149.36			$	149.15			$	106.84
Hyde Beach House Resort & Residences (2) Hollywood Beach, Florida	$	51.36			$	-			$	-
	$	51.36			$	-			$	-
All properties weighted average (1)	$	102.27			$	100.10			$	89.44
	$	112.94			$	109.20			$	101.70

(1	)	Includes operating results under previous ownership.  Results for periods prior to the Company’s ownership were provided by prior owners of the hotel and have not been audited or confirmed by the Company.
(2	)	Reflects only those condominium units participating in our rental program for the period those units participated in our rental program.

SOTHERLY HOTELS INC.
RECONCILIATION OF NET LOSS TO
FFO, Adjusted FFO, EBITDA and Hotel EBITDA
(unaudited)

		Three Months Ended				Three Months Ended				Year Ended				Year Ended
		December 31, 2019				December 31, 2018				December 31, 2019				December 31, 2018
Net loss available to common stockholders		$	(3,600,419	)		$	(3,768,164	)		$	(6,092,720	)		$	(5,719,978	)
Add: Net loss attributable to noncontrolling interest			(240,766	)			(472,794	)			(552,407	)			(718,093	)
Depreciation and amortization - real estate			5,504,805				5,004,607			$	21,578,309				20,549,695
Gain on involuntary conversion of assets			(1,630	)			(19,202	)			(293,534	)			(917,767	)
(Gain) loss on disposal of assets			91,650				515,565			$	123,739				511,749
FFO available to common stockholders and unitholders		$	1,753,640			$	1,260,012			$	14,763,387			$	13,705,606
(Increase) decrease in deferred income taxes			(733,074	)			(430,800	)			(280,905	)			319,939
Amortization			15,233				96,862				59,007				334,948
Termination fee			291,841				—				291,841				—
Loss on early extinguishment of debt			—				—				1,152,356				753,133
Unrealized (gain) loss on hedging activities			(377,053	)			950,928				1,177,871				808,958
Adjusted FFO available to common stockholders and unitholders		$	950,587			$	1,877,002			$	17,163,557			$	15,922,584
Weighted average number of shares outstanding, basic			13,695,964				13,594,651				13,642,573				13,517,488
Weighted average number of non-controlling units			1,728,140				1,778,140				1,765,537				1,778,140
Weighted average number of shares and units outstanding, basic			15,424,104				15,372,791				15,408,110				15,295,628
FFO per common share and unit		$	0.11			$	0.08			$	0.96			$	0.90
Adjusted FFO per common share and unit		$	0.06			$	0.12			$	1.11			$	1.04

		Three Months Ended				Three Months Ended				Year Ended				Year Ended
		December 31, 2019				December 31, 2018				December 31, 2019				December 31, 2018
Net loss available to common stockholders		$	(3,600,419	)		$	(3,768,164	)		$	(6,092,720	)		$	(5,719,978	)
Add: Net loss attributable to noncontrolling interest			(240,766	)			(472,794	)			(552,407	)			(718,093	)
Interest expense			4,652,502				5,382,604				19,768,193				19,953,746
Interest income			(86,883	)			(116,258	)			(444,459	)			(352,951	)
Income tax provision (benefit)			(688,803	)			(412,696	)			(249,480	)			469,349
Depreciation and amortization			5,520,038				5,101,469				21,637,316				20,884,643
Distributions to preferred stockholders			2,188,897				1,470,507				7,820,695				5,829,914
EBITDA			7,744,566				7,184,668				41,887,138				40,346,630
(Gain) loss on disposal of assets			91,650				515,565				123,739				511,749
Loss on early extinguishment of debt			—				—				1,152,356				753,133
Gain on exercise of development right			—				—				(3,940,000	)			—
Gain on involuntary conversion of assets			(1,630	)			(19,202	)			(293,534	)			(917,767	)
Subtotal			7,834,586				7,681,031				38,929,699				40,693,745
Corporate general and administrative			1,822,063				1,614,705				6,830,354				6,180,962
Unrealized (gain) loss on hedging activities			(377,053	)			950,928				1,177,871				808,958
Hotel EBITDA		$	9,279,596			$	10,246,664			$	46,937,924			$	47,683,665

Reconciliation of Outlook of Net Income to EBITDA and Hotel EBITDA
	2020 Guidance
	Low Range				High Range
Net income	$	3,049			$	3,905
Interest expense		18,325				18,325
Interest income		(250	)			(260	)
Income tax provision		100				200
Depreciation and amortization		21,000				21,000
EBITDA		42,224				43,170
Loss on early extinguishment of debt		150				150
(Gain) loss on disposal of assets		-				-
Unrealized loss on hedging activities		-				-
Gain on exercise of development right		-				-
Gain on involuntary conversion of assets		-				-
Corporate general and administrative		6,700				6,850
Hotel EBITDA	$	49,074			$	50,170
Reconciliation of Outlook of Net Income to FFO and Adjusted FFO
	2020 Guidance
	Low Range				High Range
Net income	$	3,049			$	3,905
Depreciation and amortization		21,000				21,000
(Gain) loss on disposal of assets		-				-
Gain on involuntary conversion of assets		-				-
FFO		24,049				24,905
Distributions to preferred stockholders		(8,830	)			(8,830	)
FFO available to common stockholders and unitholders		15,219				16,075
Decrease in deferred income taxes		75				150
Unrealized loss on hedging activities		-				-
Loss on early extinguishment of debt		150				150
Adjusted FFO available to common stockholders and unitholders	$	15,444			$	16,375

Non-GAAP Financial Measures

The Company considers the non-GAAP measures of FFO (including FFO per share), EBITDA and hotel EBITDA to be key supplemental measures of the Company’s performance and could be considered along with, not alternatives to, net income (loss) as a measure of the Company’s performance. These measures do not represent cash generated from operating activities determined by generally accepted accounting principles (“GAAP”) or amounts available for the Company’s discretionary use and should not be considered alternative measures of net income, cash flows from operations or any other operating performance measure prescribed by GAAP. 

FFO

Industry analysts and investors use Funds from Operations (“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 GAAP, excluding extraordinary items as defined under 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 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.

The Company considers 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.

Adjusted FFO

The Company presents adjusted FFO, including adjusted FFO per share and unit, which adjusts for certain additional items 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, management contract termination costs and change in control gains or losses. 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.

EBITDA

The Company believes 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

The Company defines 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, (13) depreciation and amortization, (14) gains and losses on involuntary conversions of assets, (15) distributions to preferred stockholders and (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. The Company’s calculation of hotel EBITDA may be different from similar measures calculated by other REITs.