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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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 ~~November 4, 2017,~~May 5, 2021, there were ~~13,823,459~~15,175,231 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,~~“common stock,” the Company’s preferred stock as ~~“Preferred Stock,~~“preferred stock,” and the Operating Partnership’s common partnership interest as “partnership units,” and the Operating Partnership’s preferred interest as the ~~“Preferred Interest.~~“preferred units.” References to “we” and “our” mean the Company, its Operating Partnership and its subsidiaries and predecessors, collectively, unless the context otherwise requires or where otherwise indicated.

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

This report combines the Quarterly Reports on Form 10-Q for the period ended ~~September 30, 2017~~March 31, 2021 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:

	September 30, 2017			December 31, 2016			March 31, 2021			December 31, 2020
	(Unaudited)
ASSETS
Investment in hotel properties, net	$	357,645,087		$	348,593,912		$	423,680,858		$	427,824,585
Investment in hotel properties held for sale, net		-			5,333,000
Cash and cash equivalents		32,651,893			31,766,775			21,087,141			25,297,771
Restricted cash		6,115,997			4,596,145			11,893,733			10,002,775
Accounts receivable, net		5,580,895			4,127,748			3,494,017			1,779,776
Accounts receivable - affiliate		493,895			4,175			193,096			401,924
Prepaid expenses, inventory and other assets		6,228,659			4,648,469			8,283,930			7,726,980
Deferred income taxes		7,729,111			6,949,340
TOTAL ASSETS	$	416,445,537		$	406,019,564		$	468,632,775		$	473,033,811
LIABILITIES
Mortgage loans, net	$	298,429,955		$	282,708,289		$	356,536,623		$	357,545,977
Secured notes, net								18,801,454			18,694,355
Unsecured notes, net		24,560,735			24,308,713			10,719,100			10,719,100
Accounts payable and accrued liabilities		16,110,521			12,970,960			39,769,291			35,631,931
Advance deposits		2,317,658			2,315,787			1,418,509	��		1,964,073
Dividends and distributions payable		2,520,249			2,376,527			4,277,070			4,277,070
TOTAL LIABILITIES	$	343,939,118		$	324,680,276		$	431,522,047		$	428,832,506
Commitments and contingencies (See Note 6)		—			—
Commitments and contingencies (See Note 5)								—			—
EQUITY
Sotherly Hotels Inc. stockholders’ equity
8% Series B cumulative redeemable perpetual preferred stock, par value $0.01, 11,000,000 shares authorized, liquidation preference $25 per share, 1,610,000 shares issued and outstanding at September 30, 2017 and December 31, 2016		16,100			16,100
Common stock, par value $0.01, 49,000,000 shares authorized, 13,823,459 shares and 14,468,551 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		138,234			144,685
Preferred stock, $0.01 par value, 11,000,000 shares authorized:
8.0% Series B cumulative redeemable perpetual preferred stock, 1,610,000 shares issued and outstanding; aggregate liquidation preference $44,275,000 and $42,655,000, at March 31, 2021 and December 31, 2020, respectively.								16,100			16,100
7.875% Series C cumulative redeemable perpetual preferred stock, 1,554,610 shares issued and outstanding; aggregate liquidation preference $42,691,052 and $41,160,731, at March 31, 2021 and December 31, 2020, respectively.								15,546			15,546
8.25% Series D cumulative redeemable perpetual preferred stock, 1,200,000 shares issued and outstanding; aggregate liquidation preference $33,093,750 and $31,856,250, each at March 31, 2021 and December 31, 2020, respectively.								12,000			12,000
Common stock, par value $0.01, 69,000,000 shares authorized, 15,175,231 shares issued and outstanding at March 31, 2021 and 15,023,850 shares issued and outstanding at December 31, 2020.								151,752			150,238
Additional paid-in capital		118,502,294			118,395,082			180,616,728			180,189,699
Unearned ESOP shares		(4,693,282	)		—			(3,580,087	)		(3,636,026	)
Distributions in excess of retained earnings		(43,293,677	)		(39,545,754	)		(134,073,574	)		(127,197,489	)
Total Sotherly Hotels Inc. stockholders’ equity		70,669,669			79,010,113			43,158,465			49,550,068
Noncontrolling interest		1,836,750			2,329,175			(6,047,737	)		(5,348,763	)
TOTAL EQUITY		72,506,419			81,339,288			37,110,728			44,201,305
TOTAL LIABILITIES AND EQUITY	$	416,445,537		$	406,019,564		$	468,632,775		$	473,033,811

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

	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended			Three Months Ended			Three Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			March 31, 2021			March 31, 2020
													(unaudited)			(unaudited)
REVENUE
Rooms department	$	25,093,226		$	26,665,132		$	81,366,731		$	83,896,833		$	15,493,604		$	24,744,923
Food and beverage department		7,997,818			8,412,842			24,904,934			26,240,932			1,543,240			8,143,974
Other operating departments		3,678,427			2,197,338			9,835,322			6,772,647			5,598,688			4,319,568
Total revenue		36,769,471			37,275,312			116,106,987			116,910,412			22,635,532			37,208,465
EXPENSES
Hotel operating expenses
Rooms department		6,826,822			7,126,673			20,252,889			21,330,914			3,996,617			7,083,191
Food and beverage department		6,039,174			5,820,000			17,919,142			18,250,542			910,264			6,612,306
Other operating departments		705,111			642,219			1,928,662			1,880,618			1,938,877			2,271,629
Indirect		15,209,249			14,603,034			45,019,742			43,827,294			11,589,077			16,181,841
Total hotel operating expenses		28,780,356			28,191,926			85,120,435			85,289,368			18,434,835			32,148,967
Depreciation and amortization		4,427,738			3,790,872			12,708,548			11,260,987			4,982,015			4,982,876
Loss on disposal of assets		-			189,267			51,569			329,461
Corporate general and administrative		1,335,192			1,367,848			4,882,541			4,331,896			1,300,958			1,880,125
Total operating expenses		34,543,286			33,539,913			102,763,093			101,211,712			24,717,808			39,011,968
NET OPERATING INCOME		2,226,185			3,735,399			13,343,894			15,698,700
NET OPERATING LOSS														(2,082,276	)		(1,803,503	)
Other income (expense)
Interest expense		(4,139,267	)		(4,626,333	)		(11,827,061	)		(13,872,129	)		(5,919,523	)		(4,561,840	)
Interest income		53,314			44,485			126,241			63,523			38,599			60,365
Loss on early debt extinguishment		—			(1,087,395	)		(228,087	)		(1,157,688	)
Unrealized loss on hedging activities		(3,542	)		(492	)		(30,748	)		(66,567	)
Gain (loss) on sale of assets		(23,000	)		—			77,807			—
Unrealized gain (loss) on hedging activities														390,185			(1,585,632	)
Gain on involuntary conversion of assets		—			—			1,041,815			—			—			12,439
Net income (loss) before income taxes		(1,886,310	)		(1,934,336	)		2,503,861			665,839
Income tax benefit		950,310			385,145			581,890			308,398
Net income (loss)		(936,000	)		(1,549,191	)		3,085,751			974,237
Less: Net loss (income) attributable to noncontrolling interest		190,445			172,846			(73,366	)		(106,377	)
Net income (loss) attributable to the Company		(745,555	)		(1,376,345	)		3,012,385			867,860
Distributions to preferred stockholders		(805,000	)		(339,889	)		(2,415,000	)		(339,889	)
Net income (loss) available to common stockholders	$	(1,550,555	)	$	(1,716,234	)	$	597,385		$	527,971
Net income (loss) per share available to common stockholders
Net loss before income taxes														(7,573,015	)		(7,878,171	)
Income tax provision														(2,609	)		(5,454,034	)
Net loss														(7,575,624	)		(13,332,205	)
Less: Net loss attributable to noncontrolling interest														699,539			1,197,416
Net loss attributable to the Company														(6,876,085	)		(12,134,789	)
Declared and undeclared distributions to preferred stockholders														(2,188,910	)		(2,188,910	)
Net loss attributable to common stockholders													$	(9,064,995	)	$	(14,323,699	)
Net loss per share attributable to common stockholders
Basic	$	(0.11	)	$	(0.11	)	$	0.04		$	0.04		$	(0.62	)	$	(1.01	)
Diluted	$	(0.11	)	$	(0.11	)	$	0.04		$	0.04
Weighted average number of common shares outstanding
Basic		13,822,543			14,949,651			13,873,175			14,897,595			14,615,720			14,246,216
Diluted		13,822,543			14,949,651			13,885,290			14,897,595

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

Additional

Distributions

Preferred Stock

Common Stock

Paid-

Unearned ESOP

in Excess of

Noncontrolling

Shares

Par Value

Shares

Par Value

In Capital

Shares

Retained Earnings

Interest

Total

Balances at December 31, 2016

1,610,000

$
16,100

14,468,551

$
144,685

$
118,395,082

$
-

$
(39,545,754
)

$
2,329,175

$
81,339,288

Net income

—

—

—

—

—

—

3,012,385

73,366

3,085,751

Issuance of restricted
   common stock awards

—

—

12,000

120

89,040

—

—

—

89,160

Purchase of shares by ESOP

—

—

(682,500
)

(6,825
)

6,825

(4,874,758
)

—

—

(4,874,758
)
Amortization of ESOP shares

—

—

25,408

254

(3,593
)

181,476

—

—

178,137

Amortization of restricted
   stock award

—

—

—

—

14,940

—

—

—

14,940

Preferred stock dividends
   declared

—

—

—

—

—

—

(2,415,000
)

—

(2,415,000
)
Common stockholders'
   dividends and
   distributions declared

—

—

—

—

—

—

(4,345,308
)

(565,791
)

(4,911,099
)
Balances at September 30, 2017 (Unaudited)

1,610,000

$
16,100

13,823,459

$
138,234

$
118,502,294

$
(4,693,282
)

$
(43,293,677
)

$
1,836,750

$
72,506,419

									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, 2020		4,364,610	$	43,646		15,023,850	$	150,238	$	180,189,699		$	(3,636,026	)	$	(127,197,489	)	$	(5,348,763	)	$	44,201,305
Net loss		—		—		—		—		—			—			(6,876,085	)		(699,539	)		(7,575,624	)
Issuance of common stock		—		—		136,281		1,363		399,303			—			—			—			400,666
Issuance of restricted common stock awards		—		—		15,000		150		43,950			—			—			—			44,100
Conversion of units in Operating Partnership to shares of common stock		—		—		100		1		(566	)		—			—			565			—
Amortization of ESOP shares		—		—		—		—		(33,853	)		55,939			—			—			22,086
Amortization of restricted stock awards		—		—		—		—		18,195			—			—			—			18,195
Balances at March 31, 2021 (unaudited)		4,364,610	$	43,646		15,175,231	$	151,752	$	180,616,728		$	(3,580,087	)	$	(134,073,574	)	$	(6,047,737	)	$	37,110,728

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

Nine Months Ended

Nine Months Ended

September 30, 2017

September 30, 2016

Cash flows from operating activities:

Net income

$
3,085,751

$
974,237

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

12,708,548

11,260,987

Amortization of deferred financing costs

616,390

939,122

Amortization of mortgage premium

(18,511
)

(18,511
)
Gain on involuntary conversion of assets

(1,041,815
)

—

Unrealized loss on derivative instrument

30,748

66,567

Loss on disposal of assets

51,569

329,461

Gain on sale of assets

(77,807
)

—

Loss on early extinguishment of debt

228,087

1,157,688

Share - based compensation

282,237

206,702

Changes in assets and liabilities:

Restricted cash

(2,401,869
)

(2,409,252
)
Accounts receivable

(1,453,147
)

(481,741
)
Prepaid expenses, inventory and other assets

(1,699,380
)

(617,601
)
Deferred income taxes

(779,771
)

(456,188
)
Accounts payable and other accrued liabilities

3,962,544

3,535,914

Advance deposits

1,871

787,257

Accounts receivable - affiliate

(489,720
)

35,819

Net cash provided by operating activities

13,005,725

15,310,461

Cash flows from investing activities:

Acquisitions of hotel properties

(3,986,849
)

—

Improvements and additions to hotel properties

(17,483,257
)

(11,223,268
)
Funding of restricted cash reserves

(3,501,192
)

(3,970,657
)
Proceeds of restricted cash reserves

4,383,209

6,307,518

Proceeds from the sale of hotel property

5,434,856

—

Proceeds from insurance conversion

1,041,815

—

Proceeds from the sale of assets

3,355

211,400

Net cash used in investing activities

(14,108,063
)

(8,675,007
)
Cash flows from financing activities:

Proceeds of mortgage debt

40,500,000

45,700,000

Proceeds from mortgage loan receivable

—

2,600,711

Proceeds from the sale of preferred stock

—

37,774,229

Settlement of repurchase of common stock

(1,103,130
)

—

Payments on mortgage loans

(24,767,275
)

(44,453,440
)
Redemption of unsecured notes

—

(27,600,000
)
Payments of deferred financing costs

(585,004
)

(1,455,645
)
Funding of ESOP stock purchase

(4,874,758
)

—

Dividends and distributions paid

(7,182,377
)

(4,262,691
)
Net cash provided by financing activities

1,987,456

8,303,164

Net increase in cash and cash equivalents

885,118

14,938,618

Cash and cash equivalents at the beginning of the period

31,766,775

11,493,914

Cash and cash equivalents at the end of the period

$
32,651,893

$
26,432,532

Supplemental disclosures:

Cash paid during the period for interest

$
11,227,980

$
12,948,885

Cash paid during the period for income taxes

$
155,077

$
29,925

Non-cash investing and financing activities:

Change in amount of hotel property improvements in accounts payable and
accrued liabilities

$
77,843

$
307,098

									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		(344,624	)		—			—			339,734			—
Amortization of ESOP shares		—		—		—		—		(6,694	)		69,329			—			—			62,635
Amortization of restricted stock awards		—		—		—		—		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		—		—		—		—		—			—			(1,852,333	)		(161,095	)		(2,013,428	)
Balances at March 31, 2020 (unaudited)		4,364,610	$	43,646		14,823,580	$	148,235	$	180,290,791		$	(4,036,308	)	$	(90,166,722	)	$	(2,217,509	)	$	84,062,133

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

September 30, 2017

December 31, 2016

(Unaudited)

ASSETS

Investment in hotel properties, net
$
357,645,087

$
348,593,912

Investment in hotel property held for sale, net

—

5,333,000

Cash and cash equivalents

32,651,893

31,766,775

Restricted cash

6,115,997

4,596,145

Accounts receivable, net

5,580,895

4,127,748

Accounts receivable - affiliate

493,895

4,175

Loan receivable - affiliate

4,697,508

—

Prepaid expenses, inventory and other assets

6,228,659

4,648,469

Deferred income taxes

7,729,111

6,949,340

TOTAL ASSETS
$
421,143,045

$
406,019,564

LIABILITIES

Mortgage loans, net
$
298,429,955

$
282,708,289

Unsecured notes, net

24,560,735

24,308,713

Accounts payable and other accrued liabilities

16,110,521

12,970,960

Advance deposits

2,317,658

2,315,787

Dividends and distributions payable

2,593,456

2,376,527

TOTAL LIABILITIES
$
344,012,325

$
324,680,276

Commitments and contingencies (see Note 6)

—

—

PARTNERS’ CAPITAL

8% Series B cumulative redeemable perpetual preferred units, liquidation preference
$25 per unit, 1,610,000 units issued and outstanding at September 30, 2017 and December 31, 2016

37,766,531

37,766,531

General Partner: 162,587 units and 162,467 units issued and outstanding as of
September 30, 2017 and December 31, 2016, respectively

662,073

681,389

Limited Partners: 16,096,104 units and 16,084,224 units issued and outstanding as
of September 30, 2017 and December 31, 2016, respectively

38,702,116

42,891,368

TOTAL PARTNERS’ CAPITAL

77,130,720

81,339,288

TOTAL LIABILITIES AND PARTNERS’ CAPITAL
$
421,143,045

$
406,019,564

	Three Months Ended			Three Months Ended
	March 31, 2021			March 31, 2020
	(unaudited)			(unaudited)
Cash flows from operating activities:
Net loss	$	(7,575,624	)	$	(13,332,205	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		4,982,015			4,982,876
Amortization of deferred financing costs		260,135			141,391
Amortization of mortgage premium		(6,170	)		(6,170	)
Gain on involuntary conversion of assets		—			(12,439	)
Unrealized loss on hedging activities		(390,185	)		1,585,632
ESOP and stock - based compensation		485,047			183,386
Changes in assets and liabilities:
Accounts receivable		(1,714,241	)		564,141
Prepaid expenses, inventory and other assets		(585,106	)		(1,943,351	)
Deferred income taxes		—			5,412,084
Accounts payable and other accrued liabilities		4,093,143			4,823,067
Advance deposits		(545,564	)		(715,029	)
Accounts receivable - affiliate		208,828			(163,630	)
Net cash (used in) provided by operating activities		(787,722	)		1,519,753
Cash flows from investing activities:
Improvements and additions to hotel properties		(972,958	)		(1,796,662	)
Proceeds from involuntary conversion		—			12,439
Net cash used in investing activities		(972,958	)		(1,784,223	)
Cash flows from financing activities:
Payments on mortgage loans		(530,497	)		(1,370,018	)
Payments of deferred financing costs		(28,495	)		(84,500	)
Dividends on common stock and distributions paid		—			(2,000,418	)
Preferred dividends paid		—			(2,188,910	)
Net cash used in financing activities		(558,992	)		(5,643,846	)
Net decrease in cash, cash equivalents and restricted cash		(2,319,672	)		(5,908,316	)
Cash, cash equivalents and restricted cash at the beginning of the period		35,300,546			27,984,236
Cash, cash equivalents and restricted cash at the end of the period	$	32,980,874		$	22,075,920
Supplemental disclosures:
Cash paid during the period for interest	$	2,943,722		$	3,681,239
Cash paid (received) during the period for income taxes	$	-		$	3,845
Non-cash investing and financing activities:
Change in amount of improvements to hotel property in accounts payable and accrued liabilities	$	320,004		$	518,733

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

Three Months Ended

Three Months Ended

Nine Months Ended

Nine Months Ended

September 30, 2017

September 30, 2016

September 30, 2017

September 30, 2016

REVENUE

Rooms department

$
25,093,226

$
26,665,132

$
81,366,731

$
83,896,833

Food and beverage department

7,997,818

8,412,842

24,904,934

26,240,932

Other operating departments

3,678,427

2,197,338

9,835,322

6,772,647

Total revenue

36,769,471

37,275,312

116,106,987

116,910,412

EXPENSES

Hotel operating expenses

Rooms department

6,826,822

7,126,673

20,252,889

21,330,914

Food and beverage department

6,039,174

5,820,000

17,919,142

18,250,542

Other operating departments

705,111

642,219

1,928,662

1,880,618

Indirect

15,209,249

14,603,034

45,019,742

43,827,294

Total hotel operating expenses

28,780,356

28,191,926

85,120,435

85,289,368

Depreciation and amortization

4,427,738

3,790,872

12,708,548

11,260,987

Loss on disposal of assets

-

189,267

51,569

329,461

Corporate general and administrative

1,335,192

1,367,848

4,882,541

4,331,896

Total operating expenses

34,543,286

33,539,913

102,763,093

101,211,712

NET OPERATING INCOME

2,226,185

3,735,399

13,343,894

15,698,700

Other income (expense)

Interest expense

(4,139,267
)

(4,626,333
)

(11,827,061
)

(13,872,129
)
Interest income

53,314

44,485

126,241

63,523

Loss on early debt extinguishment

—

(1,087,395
)

(228,087
)

(1,157,688
)
Unrealized loss on hedging activities

(3,542
)

(492
)

(30,748
)

(66,567
)
Gain (loss) on sale of assets

(23,000
)

—

77,807

—

Gain on involuntary conversion of assets

—

—

1,041,815

—

Net income (loss) before income taxes

(1,886,310
)

(1,934,336
)

2,503,861

665,839

Income tax benefit

950,310

385,145

581,890

308,398

Net income (loss)

(936,000
)

(1,549,191
)

3,085,751

974,237

Distributions to preferred unit holder

(805,000
)

(339,889
)

(2,415,000
)

(339,889
)
Net income (loss) available to operating partnership unit holders

$
(1,741,000
)

$
(1,889,080
)

$
670,751

$
634,348

Net income (loss) attributable per operating partner unit

Basic and diluted

$
(0.11
)

$
(0.11
)

$
0.04

$
0.04

Weighted average number of operating partner units outstanding

Basic and diluted

16,258,691

16,727,791

16,256,713

16,723,557

	March 31, 2021			December 31, 2020

ASSETS
Investment in hotel properties, net	$	423,680,858		$	427,824,585
Cash and cash equivalents		21,087,141			25,297,771
Restricted cash		11,893,733			10,002,775
Accounts receivable, net		3,494,017			1,779,776
Accounts receivable - affiliate		193,096			401,924
Loan receivable - affiliate		3,680,023			3,746,254
Prepaid expenses, inventory and other assets		8,283,930			7,726,980
TOTAL ASSETS	$	472,312,798		$	476,780,065
LIABILITIES
Mortgage loans, net	$	356,536,623		$	357,545,977
Secured loan, net		18,801,454			18,694,355
Unsecured notes, net		10,719,100			10,719,100
Accounts payable and other accrued liabilities		39,769,291			35,631,931
Advance deposits		1,418,509			1,964,073
Dividends and distributions payable		4,277,070			4,277,070
TOTAL LIABILITIES	$	431,522,047		$	428,832,506

Commitments and contingencies (see Note 5)		—			—

PARTNERS’ CAPITAL
Preferred units, 11,000,000 units authorized;
8.0% Series B cumulative redeemable perpetual preferred unit; 1,610,000 units issued and outstanding; aggregate liquidation preference $44,275,000 and $42,665,000, at March 31, 2021 and December 31, 2020, respectively.		37,766,531			37,766,531
7.875% Series C cumulative redeemable perpetual preferred units, 1,554,610 units issued and outstanding; aggregate liquidation preference $42,691,052 and $41,160,731, each at March 31, 2021 and December 31, 2020, respectively.		36,461,955			36,461,955
8.25% Series D cumulative redeemable perpetual preferred units, 1,200,000 units issued and outstanding; aggregate liquidation preference $33,093,750 and $31,856,250, each at March 31, 2021 and December 31, 2020, respectively.		28,377,509			28,377,509
General Partner: 163,417 units and 161,904 units issued and outstanding as of March 31, 2021 and December 31, 2010, respectively.		(330,106	)		(258,538	)
Limited Partners: 16,178,215 units and 16,028,447 units issued and outstanding as of March 31, 2021 and December 31, 2020, respectively.		(61,485,138	)		(54,399,898	)
TOTAL PARTNERS’ CAPITAL		40,790,751			47,947,559
TOTAL LIABILITIES AND PARTNERS’ CAPITAL	$	472,312,798		$	476,780,065

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

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF ~~CHANGES IN PARTNERS’ CAPITAL~~OPERATIONS

Preferred Units

General Partner

Limited Partner

Units

Amount

Units

Amount

Units

Amounts

Total

Balances at December 31, 2016

1,610,000

$
37,766,531

162,467

$
681,389

16,084,224

$
42,891,368

$
81,339,288

Issuance of common
   partnership units

—

—

120

892

11,880

88,268

89,160

Amortization of restricted
   units award

—

—

—

149

—

103,059

103,208

Amortization of ESOP units

—

—

—

—

—

52,626

52,626

Preferred units distributions
   declared

—

(2,415,000
)

—

—

—

—

(2,415,000
)
Partnership units
   distributions declared

—

—

—

(51,214
)

—

(5,073,099
)

(5,124,313
)
Net income

—

2,415,000

—

30,857

—

639,894

3,085,751

Balances at September 30, 2017 (Unaudited)

1,610,000

$
37,766,531

162,587

$
662,073

16,096,104

$
38,702,116

$
77,130,720

	Three Months Ended			Three Months Ended
	March 31, 2021			March 31, 2020
	(unaudited)			(unaudited)
REVENUE
Rooms department	$	15,493,604		$	24,744,923
Food and beverage department		1,543,240			8,143,974
Other operating departments		5,598,688			4,319,568
Total revenue		22,635,532			37,208,465
EXPENSES
Hotel operating expenses
Rooms department		3,996,617			7,083,191
Food and beverage department		910,264			6,612,306
Other operating departments		1,938,877			2,271,629
Indirect		11,589,077			16,181,841
Total hotel operating expenses		18,434,835			32,148,967
Depreciation and amortization		4,982,015			4,982,876
Corporate general and administrative		1,300,958			1,880,125
Total operating expenses		24,717,808			39,011,968
NET OPERATING LOSS		(2,082,276	)		(1,803,503	)
Other income (expense)
Interest expense		(5,919,523	)		(4,561,840	)
Interest income		38,599			60,365
Unrealized gain (loss) on hedging activities		390,185			(1,585,632	)
Gain on involuntary conversion of assets		—			12,439
Net loss before income taxes		(7,573,015	)		(7,878,171	)
Income tax provision		(2,609	)		(5,454,034	)
Net loss		(7,575,624	)		(13,332,205	)
Declared and undeclared distributions to preferred unit holders		(2,188,910	)		(2,188,910	)
Net loss attributable to general and limited partnership unit holders	$	(9,764,534	)	$	(15,521,115	)
Net loss attributable per general and limited partner unit
Basic	$	(0.60	)	$	(0.97	)
Weighted average number of general and limited partner units outstanding
Basic		16,284,481			16,052,721

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

Nine Months Ended

Nine Months Ended

September 30, 2017

September 30, 2016

Cash flows from operating activities:

Net income

$
3,085,751

$
974,237

Adjustments to reconcile net income to net cash provided by operating
activities:

Depreciation and amortization

12,708,548

11,260,987

Amortization of deferred financing costs

616,390

939,122

Amortization of mortgage premium

(18,511
)

(18,511
)
Gain on involuntary conversion of assets

(1,041,815
)

—

Unrealized loss on derivative instrument

30,748

66,567

Loss on disposal of assets

51,569

329,461

Gain on sale of assets

(77,807
)

—

Loss on early extinguishment of debt

228,087

1,157,688

Unit - based compensation

244,994

206,702

Changes in assets and liabilities:

Restricted cash

(2,401,869
)

(2,409,252
)
Accounts receivable

(1,453,147
)

(481,741
)
Prepaid expenses, inventory and other assets

(1,699,380
)

(617,601
)
Deferred income taxes

(779,771
)

(456,188
)
Accounts payable and other accrued liabilities

3,962,544

3,535,914

Advance deposits
��

1,871

787,257

Accounts receivable - affiliate

(489,720
)

35,819

Net cash provided by operating activities

12,968,482

15,310,461

Cash flows from investing activities:

Acquisitions of hotel properties

(3,986,849
)

—

Improvements and additions to hotel properties

(17,483,257
)

(11,223,268
)
Proceeds from the sale of hotel property

5,434,856

—

ESOP loan advances

(4,874,758
)

—

ESOP loan payments

177,250

—

Funding of restricted cash reserves

(3,501,192
)

(3,970,657
)
Proceeds of restricted cash reserves

4,383,209

6,307,518

Proceeds from insurance conversion

1,041,815

—

Proceeds from the sale of assets

3,355

211,400

Net cash used in investing activities

(18,805,571
)

(8,675,007
)
Cash flows from financing activities:

Proceeds of mortgage debt

40,500,000

45,700,000

Proceeds from mortgage loan receivable

—

2,600,711

Proceeds from the sale of preferred units

—

37,774,229

Settlement of repurchased common units

(1,103,130
)

—

Payments on mortgage loans

(24,767,275
)

(44,453,440
)
Redemption of unsecured notes

—

(27,600,000
)
Payments of deferred financing costs

(585,004
)

(1,455,645
)
Distributions and dividends paid

(7,322,384
)

(4,262,691
)
Net cash provided by financing activities

6,722,207

8,303,164

Net increase in cash and cash equivalents

885,118

14,938,618

Cash and cash equivalents at the beginning of the period

31,766,775

11,493,914

Cash and cash equivalents at the end of the period

$
32,651,893

$
26,432,532

Supplemental disclosures:

Cash paid during the period for interest

$
11,227,980

$
12,948,885

Cash paid during the period for income taxes

$
155,077

$
29,925

Non-cash investing and financing activities:

Change in amount of hotel property improvements in accounts payable and
accrued liabilities

$
77,843

$
307,098

	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, 2020		4,364,610	$	37,766,531	$	36,461,955	$	28,377,509		161,904	$	(258,538	)		16,028,447	$	(54,399,898	)	$	47,947,559
Amortization of restricted unit awards		—		—		—		—		—		182			—		18,013			18,195
Unit based compensation		—		—		—		—		—		(441	)		—		(43,704	)		(44,145	)
Issuance of partnership units		—		—		—		—		1,513		4,448			149,768		440,318			444,766
Net loss		—		—		—		—		—		(75,757	)		—		(7,499,867	)		(7,575,624	)
Balances at March 31, 2021 (unaudited)		4,364,610	$	37,766,531	$	36,461,955	$	28,377,509		163,417	$	(330,106	)		16,178,215	$	(61,485,138	)	$	40,790,751

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.

	Three Months Ended			Three Months Ended
	March 31, 2021			March 31, 2020

Cash flows from operating activities:
Net loss	$	(7,575,624	)	$	(13,332,205	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		4,982,015			4,982,876
Amortization of deferred financing costs		260,135			141,391
Amortization of mortgage premium		(6,170	)		(6,170	)
Gain on involuntary conversion of assets		—			(12,439	)
Unrealized loss on hedging activities		(390,185	)		1,585,632
ESOP and unit - based compensation		418,816			203,351
Changes in assets and liabilities:
Accounts receivable		(1,714,241	)		564,141
Prepaid expenses, inventory and other assets		(585,106	)		(1,943,351	)
Deferred income taxes		—			5,412,084
Accounts payable and other accrued liabilities		4,093,143			4,823,067
Advance deposits		(545,564	)		(715,029	)
Accounts receivable - affiliate		208,828			(163,630	)
Net cash (used in) provided by operating activities		(853,953	)		1,539,718
Cash flows from investing activities:
Improvements and additions to hotel properties		(972,958	)		(1,796,662	)
ESOP loan payments received		66,231			59,685
Proceeds from involuntary conversion		—			12,439
Net cash used in investing activities		(906,727	)		(1,724,538	)
Cash flows from financing activities:
Payments on mortgage loans		(530,497	)		(1,370,018	)
Payments of deferred financing costs		(28,495	)		(84,500	)
Distributions on general and limited partnership interests		—			(2,080,068	)
Distributions on preferred partnership interests		—			(2,188,910	)
Net cash used in financing activities		(558,992	)		(5,723,496	)
Net decrease in cash, cash equivalents and restricted cash		(2,319,672	)		(5,908,316	)
Cash, cash equivalents and restricted cash at the beginning of the period		35,300,546			27,984,236
Cash, cash equivalents and restricted cash at the end of the period	$	32,980,874		$	22,075,920
Supplemental disclosures:
Cash paid during the period for interest	$	2,812,214		$	3,681,239
Cash paid (received) during the period for income taxes	$	-		$	3,845
Non-cash investing and financing activities:
Deficiency of fair value of interest rate swap to cost
Change in amount of improvements to hotel property in accounts payable and accrued liabilities	$	320,004		$	518,733

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 ~~eleven~~12 hotel properties comprising ~~2,838~~3,156 rooms, as well as interests in 2 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, DoubleTree,~~Worldwide, Marriott International, Inc., and ~~Sheraton brands.~~Hyatt 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~~6 hotel properties (the ~~“initial properties”~~“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”).

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~~expenditures 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 ~~September 30, 2017,~~March 31, 2021 was approximately ~~89.1%~~92.8% owned by the Company, ~~and~~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, 2021, the MHI TRS ~~then engages~~Entities engaged Our Town Hospitality, LLC (“Our Town”), an eligible independent ~~hotel~~ management company, ~~MHI Hotels Services, LLC, which does business as Chesapeake Hospitality (“Chesapeake Hospitality”),~~ to operate the hotels under a management ~~contract.~~contracts. MHI Hospitality TRS Holding, Inc. (“MHI TRS”) is treated as a taxable REIT subsidiary for federal income tax purposes.

All references in ~~this report~~these “Notes to Consolidated Financial Statements” to “we”, “us”, “our” and ~~“our”~~“Sotherly” 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 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, which were temporarily closed during April and May of 2020, remained open on a limited basis in order to serve the needs of the community. We believe that maintaining limited operations allows us to increase capacity at individual hotels as demand returns and the Centers for Disease Control (“CDC”) and state guidelines allow for an easing and eventual elimination 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 our guests, employees and communities. Our hotels are gradually re-introducing guest amenities relative to the return of business while focusing on profit generators and margin control.

COVID-19 has had a significant negative impact on our operations and financial results both during the first quarter and the period following, including a substantial decline in our revenues, profitability and cash flows from operations compared to similar pre-pandemic periods. While the duration and full extent 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, travel orders are lifted, consumer confidence is restored and business travel approaches pre-pandemic levels. At a minimum, the Company expects the COVID-19 pandemic to continue to have a significant negative impact on our results of operations, financial position and cash flow through 2021.

In response to those negative impacts, we immediately 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 immediately suspended most planned capital expenditure projects, and reduced the compensation of our executive officers, board of directors and employees. Working closely with our hotel managers, we significantly curtailed our hotels’ operating expenses. We also sought and obtained forbearance and loan modification agreements with lenders under the mortgages for all our hotel properties.

As of March 31, 2021, we failed to meet the financial covenants under the mortgages secured by each of the DoubleTree by Hilton Philadelphia Airport and The Whitehall. We have received waivers of the financial covenants under the applicable mortgages from (i) the lender on the DoubleTree by Hilton Philadelphia Airport through September 30, 2021; and (ii) the lender on The Whitehall mortgage through June 30, 2022. See the discussion of forbearance, modifications, and waivers in Note 4.

As of March 31, 2021, we failed to meet the financial covenants under the mortgage secured by the DoubleTree by Hilton Jacksonville Riverfront, the DoubleTree Resort by Hilton Hollywood Beach and the Georgian Terrace, which triggered a “cash trap” under the loan documents relating to each of these properties requiring substantially all the revenue generated by those hotels to be deposited directly into lockbox accounts and swept into cash management accounts for the benefit of the respective lenders until each property meets the criteria in the relevant loan agreement for exiting the “cash trap”. Provided we continue to meet certain terms and conditions, the lender has waived the “cash trap” with respect to the DoubleTree Resort by Hilton Hollywood Beach and we are in negotiations with the lender on the DoubleTree by Hilton Jacksonville Riverfront for a waiver of the “cash trap”. Additionally, in order to receive forbearance from the lenders on the DoubleTree by Hilton Raleigh Brownstone – University and the Hyatt Centric Arlington, we agreed to “cash traps”, which will continue until the properties meet the criteria in the forbearance agreements for exiting the “cash traps”.

As of March 31, 2021, the Company had approximately $21.1 million in unrestricted cash and approximately $11.9 million in restricted cash. In addition, we have the option to obtain $10.0 million in additional proceeds from the sale of additional Secured Notes to the Investors described below.

On April 30, 2021, we entered into a loan modification and reinstatement agreement with the mortgage lender for the DoubleTree Resort by Hilton Hollywood Beach pursuant to which we agreed with the lender to amend and reinstate the promissory note and loan agreement on revised terms. Under the amended loan agreement and promissory note the Company paid to the lender contemporaneously with the closing of the amendment and reinstatement an aggregate amount of approximately $4 million made up of (i) tax and insurance reserves required to be funded in certain reserve accounts in the aggregate amount of approximately $2.5 million; (ii) a lump sum payment of approximately $1.3 million in respect of amounts owed by us relating to payments for the period from January through March 2021; (iii) certain FF&E reserve amounts required to be deposited with the lender; and (iv) certain other fees and expenses. In addition, we agreed to (a) begin regular monthly payments on May 1, 2021; (b) pay the aggregate amount owed by the Company relating to deferred monthly payments for the period from April through December 2020 in 24 equal monthly installments of $119,591.36 beginning on January 1, 2021 and continuing through December 2022; and (c) certain other amended terms, including to restrict the borrower under the promissory note from making any distributions until all such deferred payments have been made. In consideration for the payments made at closing and the other amended terms the loan agreement, promissory note and other loan documents thereunder were amended and reinstated in accordance with their respective terms and conditions and the lender agreed to certain accommodations, including the waiver of the cash sweep period trigger for a period of time and to forbear in collection of default interest and late payment charges accrued and unpaid under the loan agreement and promissory note, provided that in the event of a future default those amounts will become due immediately and the waivers will no longer be effective. See “Note 13 – Subsequent Events” for additional information.

The duration and extent of the reduction in hotel demand caused by the pandemic and the return to normalized operations creates corresponding uncertainty regarding our future cash flows. Accordingly, the Company is unable to accurately forecast its cash flows and available liquidity to meet its obligations for operating expenses, planned capital expenditures and scheduled payments of principal and interest – including scheduled repayments of deferred principal and interest. Uncertainty in the timing and extent of the return to normalized operations may also result in non-compliance with financial covenants for which the Company has not already received a waiver over the next four to six quarters. U.S. generally accepted accounting principles (“U.S. GAAP”) requires that, when preparing financial statements for each annual and interim reporting period, management evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt regarding the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Due to the uncertainties described above related to future cash flows and resulting compliance with the financial covenants under our mortgage loans, the Company determined that there is substantial doubt about its ability to continue as a going concern. 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:

The Operating Partnership and certain of its subsidiaries have received PPP Loans administered by the U.S. Small Business Administration pursuant to the CARES Act. 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 ~~March 21, 2016, we~~April 16, 2020, our Operating Partnership entered into ~~an agreement~~a promissory note with ~~the then existing lender to extend the maturity of the mortgage on The Whitehall until November 13, 2017, which was subsequently refinanced~~Village Bank in connection with a ~~new lender on October 12, 2016.~~

PPP Loan and received proceeds of $333,500. On ~~June 27, 2016,~~April 28, 2020, we entered into a promissory note and ~~other loan documents to secure~~received proceeds of $9,432,900 under a $35.0 million mortgage on The DeSoto with MONY Life Insurance Company. The mortgage term is ten years maturing July 1, 2026, subject to certain criteria. The mortgage bears a fixed interest rate of 4.25%. The mortgage amortizes on a 25-year schedule after a 1-year interest-only period. The Company used the proceeds to repay the existing first mortgage on The DeSoto, to pay closing costs, to fund ongoing renovations at the hotel and for general corporate purposes.PPP Loan from Fifth Third Bank, National Association. On September 2, 2017, we drew down the final $5.0 million of loan proceeds available under the loan documents, after finalizing renovations on The DeSoto and meeting other criteria under the loan documents.

~~On June 30, 2016,~~May 6, 2020, we entered into a ~~loan agreement~~second promissory note with Fifth Third Bank, National Association and ~~other loan documents, including~~received proceeds of $952,700 under a ~~guaranty of payment by~~PPP Loan.

On December 31, 2020, we closed a transaction with KWHP SOHO, LLC, a Delaware limited liability company (“KW”), as collateral agent and an investor, and MIG SOHO, LLC, a Delaware limited liability company (“MIG”, and together with KW, the “Investors”), as an investor, whereby the Investors purchased $20.0 million in Secured Notes from the Operating Partnership with an option to ~~secure~~require the Investors to purchase an additional $10.0 million in Secured Notes. We entered into the following agreements: (i) a ~~$19.0~~Note Purchase Agreement; (ii) a Secured Note with KW in the amount of $10.0 million ~~mortgage on~~and a Secured Note with MIG in the ~~Crowne Plaza Tampa Westshore with Fifth Third Bank.~~amount of $10.0 million; (iii) a Pledge and Security Agreement; (iv) a Board Observer Agreement; and (v) other related ancillary agreements. The ~~mortgage term has an initial term of three~~Secured Notes mature in 3 years and ~~may~~will be ~~extended for two additional periods~~payable on or before the maturity date at the rate of ~~one year each, subject to certain conditions.~~1.47x the principal amount borrowed during the initial 3-year term, with a 1-year extension at Company’s option. The ~~mortgage bears~~Secured Notes also carry a ~~floating~~6.0% current interest rate, ofpayable quarterly during the ~~30-day LIBOR plus 3.75%, subject to a floor rate~~initial 3-year term. Certain subsidiaries of 3.75%. The mortgage amortizes on a 25-year schedule. The Company used the proceeds to repay the existing first mortgage on the Crowne Plaza Tampa Westshore, to pay closing costs and for general corporate purposes.

On August 23, 2016, the Company sold 1,610,000 shares of its 8% Series B cumulative redeemable perpetual preferred stock (the “Series B Preferred Stock”), for net proceeds after all expenses of approximately $37.8 million, ~~which it contributed to~~ the Operating Partnership ~~for an equivalent number of preferred units.~~

~~On September 30, 2016, the Operating Partnership redeemed the entire $27.6 million aggregate principal amount of its outstanding 8% senior unsecured notes.~~

~~On October 12, 2016, we~~ entered into the Pledge Agreement with KW, pursuant to which we agreed to pledge and grant to KW a ~~loan agreement~~first priority security interest in the equity interests, including certain voting rights, of our affiliates that own The DeSoto hotel, Hotel Ballast Wilmington, and the DoubleTree by Hilton Philadelphia Airport hotel (collectively, the “Pledged Collateral”). Upon an uncured monetary event of default under the Secured Notes, KW, as collateral agent, has a right to ~~secure a $20.5 million mortgage on The Whitehall with~~sell, lease or otherwise dispose of or realize upon the ~~International Bank of Commerce.~~Pledged Collateral in order to satisfy any amounts outstanding under the Secured Notes. Pursuant to the ~~loan documents,~~Board Observer Agreement, the ~~loan provides initial proceeds~~Company granted KW the option and the right, while the Secured Notes remain outstanding, to appoint a single representative to attend meetings of $15.0 million, with an additional $5.5 million available upon the satisfaction of certain conditions, has a term of five years, bears a floating interest rate of the one month LIBOR plus 3.50%, subject to a floor rate of 4.00%, amortizes on an 18-year schedule after a 2-year interest only period, is subject to prepayment fees, and is guaranteed by Sotherly Hotels LP. The Company used the proceeds to repay the existing first mortgage on The Whitehall, to pay closing costs and for general corporate purposes.

On November 3, 2016, we entered into a loan agreement to refinance the mortgage on the Sheraton Louisville Riverside with Symetra Life Insurance Company. Pursuant to the loan documents, the loan provides proceeds of $12.0 million, has a maturity date of December 1, 2026, bears a fixed interest rate of 4.27% for the first 5 years of the loan with an option for the lender to reset that rate after 5 years, amortizes on a 25-year schedule, is subject to prepayment fees, and is guaranteed by Sotherly Hotels LP up to 50% of the unpaid principal balance, interest, and other amounts owed. The Company used the proceeds to repay the existing first mortgage on the Sheraton Louisville Riverside, to pay closing costs and for general corporate purposes.

On November 3, 2016, we entered into a loan agreement to modify and extend the mortgage on the Crowne Plaza Hampton Marina with TowneBank. Pursuant to the amended loan documents, the loan continues to bear a fixed interest rate of 5.00%, has a maturity date of November 1, 2019, and beginning on December 1, 2016 requires monthly principal payments of $15,367 plus interest.

On December 1, 2016, we entered into a promissory note and other loan documents to secure a $35.0 million mortgage on the Hilton Wilmington Riverside with MONY Life Insurance Company. Pursuant to the loan documents, the loan provides initial proceeds of $30.0 million, with an additional $5.0 million available upon the satisfaction of certain conditions. The mortgage term is ten years maturing November 30, 2026, subject to certain criteria. The mortgage bears a fixed interest rate of 4.25%. The mortgage amortizes on a 25-year schedule after a 1-year interest-only period. The Company used the proceeds to repay the existing first mortgage on the Hilton Wilmington Riverside and to pay closing costs, and will use the balance of the proceeds to fund ongoing renovations at the hotel and for general corporate purposes.

~~On December 2, 2016,~~ the Company’s board of directors ~~authorized~~and its committees in 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. Through December 31, 2016 the Company repurchased 481,100 shares of common stock for approximately $3.2 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 and nine months ended September 30, 2017, respectively. The Company used available working capital to fund purchases under the stock repurchase program and intends to complete the repurchase program prior to December 31, 2017, unless extended by the board of directors.

The Company adopted an Employee Stock Ownership Plan (“ESOP”) in December 2016, effective as of January 1, 2016. The Company sponsors and maintains the ESOP and related trust for the benefit of its eligible employees. The ESOP is funded by a loan from the Company, pursuant to which the ESOP may borrow up to $5.0 million to purchase shares of the Company’s common stock. From January 3, 2017 to February 28, 2017 the ESOP purchased 682,500 shares of common stock at an aggregate cost of approximately $4.9 million.

Coincident with the execution of the loan from the Company to the ESOP, the Operating Partnership committed to fund a loan to the Company to allow the Company to loan funds to the ESOP, for the purpose as stated above.

~~On January 30, 2017, we closed on the~~ purchase of the commercial condominium unit of the Hyde Resort & Residences, a 400-unit condominium hotel located in the Hollywood, Florida market, for an aggregated price of approximately $4.8 million from 4111 South Ocean Drive, LLC. In connection with the closing of the transaction, the Company entered into a lease agreement for the 400-space parking garage and meeting rooms associated with the condominium hotel, agreements relating to the operation and management of the hotel condominium association and a condominium unit rental program, and a pre-opening services agreement whereby the seller paid the Company a fee of approximately $0.8 million for certain pre-opening related preparations.

~~On February 7, 2017, we closed on the sale of the Crowne Plaza Hampton Marina to Marina Hotels, LLC for a price of $5.6 million.~~

On June 1, 2017, we entered into an agreement to purchase the commercial unit of the planned Hyde Beach House Resort & Residences, a condominium hotel under development in Hollywood, Florida, for a price of $5.1 million from 4000 South Ocean Property Owner, LLLP. In connection with the agreement, we also entered into a pre-opening services agreement whereby the seller has agreed to pay the Company approximately $0.8 million in connection with certain pre-opening activities to be undertaken prior to the closing. The Company has agreed to purchase inventories at closing consistent with the management and operation of the hotel

and the related condominium association for an additional amount and has further agreed to enter into a lease agreement for the parking garage and poolside cabanas associated with the hotel; and to enter into a management agreement relating to the operation and management of the hotel’s condominium association. The Company anticipates that the closing of the transaction and the execution of related agreements will take place in the second quarter of 2019, once construction of the hotel has been substantially completed. The closing of the transaction is subject to various closing conditions as described in the purchase agreement.

On June 29, 2017, we entered into a promissory note and other loan documents to secure a $35.5 million mortgage on the DoubleTree by Hilton Jacksonville Riverfront with Wells Fargo Bank, N.A. Pursuant to the loan documents, the loan has a maturity date of July 11, 2024, bears a fixed interest rate of 4.88%, amortizes on a 30-year schedule, and is subject to a prepayment premium following a prepayment lockout period. The Company used a portion of the proceeds to repay the existing first mortgage on the DoubleTree by Hilton Jacksonville Riverfront, to pay closing costs and for general corporate purposes.non-voting, observer capacity only.

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.

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.

Investment in Hotel Properties – Investments in hotel properties include investments in operating properties which are recorded at fair value on acquisition ~~cost~~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 3 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~~The Company assesses the carrying values of its 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 ~~exceed~~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.

The COVID-19 pandemic has had, and is expected to continue to have, an adverse impact on the lodging and hospitality industries, which the Company considered to be a triggering event for each of its hotels during its impairment testing for the three months ended March 31, 2021. The Company assessed the recoverability of each of its hotel properties which included a projection of future operating cash flows based upon significant assumptions regarding growth rates, occupancy, room rates, economic trends, property-specific operating costs, an allowance for the replacement of furniture, fixtures and equipment and projected cash flows from the eventual disposition of the hotel. The Company also projects cash flows from the eventual disposition of the hotel based upon property-specific capitalization rates. The Company determined that there were 0 impairments as of March 31, 2021.

Assets Held For Sale – ~~We record~~ The Company records assets as held for sale when management has committed to a plan to sell the assets, actively seeks a buyer for the assets, and the consummation of the sale is considered probable and is expected within one ~~year.~~year.

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 ~~market,~~net realizable value, with cost determined on a method that approximates first-in, first-out ~~basis.~~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 ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020 were ~~$342,980~~$339,001 and ~~$386,612,~~$353,872, respectively. Amortization expense for the three-month periods ended ~~September 30, 2017~~March 31, 2021 and 2020, totaled $14,871 and $14,880, respectively.

Right-of-Use Assets and Lease Obligations – In February 2016, ~~totaled $11,217 and $15,331, respectively, and~~the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases, which sets out the principles for the ~~nine-month~~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 the term of the lease, respectively.

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 ~~ended September 30, 2017~~they present in their financial statements in the year of adoption.

As of March 31, 2021, we had right of use assets of approximately $8.2 million, net and ~~2016 totaled $35,299~~lease obligations of approximately $6.5 million. The right-of-use assets are included in investments in hotel properties, net and ~~$45,593, respectively.~~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. During the three and nine months ended September 30, 2017 the Company wrote off approximately $0 and $0.5 million of deferred offering costs, respectively.

Derivative Instruments – Our derivative instruments are reflected as assets or liabilities on the consolidated balance ~~sheet~~sheets 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 ~~cap~~swap which ~~acts~~act as a cash flow ~~hedge~~hedges and isare not designated as ~~a hedge.~~hedges. We value our interest-rate ~~cap~~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 ~~interest rate cap, mortgage loans~~assets and ~~unsecured notes~~liabilities measured at fair value and the basis for that ~~measurement:~~measurement (our interest rate caps and interest rate swap are the only assets or liabilities measured at fair value on a recurring basis, there were no non-recurring assets or liabilities for fair value measurements as of March 31, 2021 and December 31, 2020, respectively):

Level 1

Level 2

Level 3

December 31, 2016

Interest Rate Cap ⁽¹⁾

$
—

$
33,597

$
—

Mortgage loans ⁽²⁾

$
—

$
(281,840,780
)

$
—

Unsecured notes ⁽³⁾

$
(26,241,160
)

$
—

$
—

September 30, 2017

Interest Rate Cap ⁽¹⁾

$
—

$
2,849

$
—

Mortgage loans ⁽²⁾

$
—

$
(294,869,206
)

$
—

Unsecured notes ⁽³⁾

$
(25,836,360
)

$
—

$
—

	Level 1		Level 2			Level 3
December 31, 2020
Interest Rate Caps ⁽¹⁾	$	—	$	208		$	—
Interest Rate Swap ⁽²⁾	$	—	$	(3,038,967	)	$	—
Mortgage loans ⁽³⁾	$	—	$	(364,112,622	)	$	—
March 31, 2021
Interest Rate Cap ⁽¹⁾	$	—	$	300		$	—
Interest Rate Swap ⁽²⁾	$	—	$	(2,646,962	)	$	—
Mortgage loans ⁽³⁾	$	—	$	(362,668,529	)	$	—

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 – ~~Revenues~~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 gross 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) shown on our consolidated balance sheets and recognized once the performance obligations are satisfied.

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 ~~condominium hotel are recognized when~~included in other operating revenues in the ~~services are provided. Other hotel department revenues include cancellation charges, charges for TV, internet and telephone~~Company's consolidated statements of operations.

The Company collects sales, use, parking, gift shop sales and rentals from restaurant tenants, rooftop leases and gift shop operators. Management fees earned under the condominium rental program at the Hyde Resort & Residences are also reflected as other hotel operating revenue. Revenues are reported net of occupancy and ~~other~~similar taxes ~~collected from customers and remitted to governmental authorities.~~at its hotels which are presented on a net basis on the consolidated statements of operations.

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 ~~statement~~consolidated statements of operations pursuant to the terms of each lease. Lease revenue was approximately $0.4 million and $0.4 million, for ~~the each of~~ the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016, respectively~~ ~~and approximately $1.3 million, for each of the nine months ended September 30, 2017 and 2016, respectively~~.2020, respectively.

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

Lessee Accounting – On January 1, 2019, the Company adopted ASU No. 2016-02, Leases, which relates to the accounting for lease arrangements. The Company’s operating lease agreements are primarily the ground lease on the Hyatt Centric Arlington, the parking garage lease in Hollywood, Florida at the Hyde Beach House, and the corporate office lease. The assets are classified as “right of use assets”, which represent our right to use an underlying asset and the operating lease liability, which represent our obligation to make lease payments arising from the lease, is classified within “accounts payable and other accrued liabilities”. Right of use assets and operating lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Variable lease payments are excluded from the right of use assets and operating lease liabilities are recognized in the period in which the obligation for those payments is incurred. As our leases do not provide an implicit rate, we use our incremental borrowing cost based on information available at the commencement date using our actual borrowing rates commensurate with the lease terms and fully levered borrowing. Extension options on our leases are included in our minimum lease terms when they are reasonably certain to be exercised.

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 September 30, 2017, and December 31, 2016, deferred tax assets totaled approximately~~

~~$7.7 million and $6.9 million, respectively, of which approximately $6.8 million and $6.0 million relate to net operating losses of our TRS Lessee.~~ 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 either 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, 2021, 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 ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, deferred tax assets each totaled $0, respectively.

As of March 31, 2021 and December 31, 2020, we had no0 uncertain tax positions. Our policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. As of ~~September 30, 2017,~~December 31, 2020, the tax years that remain subject to examination by the major tax jurisdictions to which the Company is subject generally include ~~2010~~2016 through ~~2016.~~2019. In addition, as of ~~September 30, 2017,~~March 31, 2021, the tax years that remain subject to examination by the major tax jurisdictions to which the MHI TRS isEntities are subject, because of open NOL carryforwards, generally include ~~2004~~2014 through ~~2016.~~2019.

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 ~~2004 Long Term Incentive Plan (the “2004 Plan”) and its~~ 2013 Long-Term Incentive Plan (the “2013 Plan”), which the Company’s stockholders approved in April 2013, ~~permit~~permits 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.~~stock. The Company believes that such awards better align the interests of its employees with those of its stockholders.

~~Under~~As of March 31, 2021, under the ~~2004~~2013 Plan, the Company has made cumulative stock awards totaling ~~337,438~~517,464 shares, including ~~255,938~~327,381 unrestricted shares and 190,083 restricted shares issued to certain executives and employees and ~~81,500 restricted shares issued~~ to its independent directors. ~~Of the 255,938~~All awards have vested except for: 133,115 shares issued to ~~certain of our executives and~~ employees, ~~all have vested except 6,000 shares issued to the Chief Financial Officer upon execution of his employment contract~~ which will vest ~~pro rata on~~over the next ~~anniversary of the effective date of his employment agreement. All of the 81,500 restricted~~nine years and 56,968 shares issued to the Company’s independent directors, ~~have vested. The 2004 Plan was terminated in 2013.~~

Under the 2013 Plan, the Company has made stock awards totaling 121,100 shares, including 74,600 non-restricted shares to certain executives and employees and 46,500 restricted shares issued to its independent directors. All awards have vested except for 12,000 shares issued to the Company’s independent directors in February 2017, which will vest onby December 31, ~~2017.~~2021.

~~Previously, under the 2004 Plan, and currently, under~~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 ~~September 30, 2017, no~~March 31, 2021, 0 performance-based stock awards have been granted. Total compensation cost recognized under the ~~2004 Plan and the~~ 2013 Plan for ~~each of~~ the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 was ~~$4,980,~~$462,961 and ~~for the~~ ~~nine months ended September 30, 2017 and 2016 was $104,100 and $206,703,~~$126,870, respectively.

Additionally, the Company sponsors and maintains an ~~ESOP~~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, 2021 and 2020, the ESOP compensation cost was $22,086 and $56,516, 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, including internet advertising, were ~~$101,788~~$320,766 and ~~$138,017~~$500,296 for the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, respectively~~and were $251,892~~ ~~and $333,076~~ ~~for the nine months ended September 30, 2017 and 2016, 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 and nine month~~three-month periods ending ~~September 30, 2017,~~March 31, 2021 and 2020, we recognized ~~approximately~~ $0 and ~~$1.0 million~~$12,439, respectively, in gain on involuntary conversion of assets, ~~respectively,~~ 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~~1 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.

~~Reclassifications~~ – Certain reclassifications in the amount of approximately $0.1 million and approximately $0.6 million for the three and nine month periods ending September 30, 2016, respectively, from rooms expense to indirect expense balances have been made to conform to the current period presentation. 21

~~Recent~~New Accounting Pronouncements – In ~~February 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-05,~~ ~~Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20).~~ The FASB issued this update to clarify the scope of Subtopic 610-20, Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets, and to add guidance for partial sales of nonfinancial assets. Subtopic 610-20, which was issued in May 2014 as a part of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), provides guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with noncustomers. The amendments in this update also simplify GAAP by eliminating several accounting differences between transactions involving assets and transactions involving businesses in many transactions related to: a partial sale of real estate; a transfer of a nonfinancial asset within the scope of FASB ASC Topic 845, ~~Nonmonetary Transactions~~; a contribution of a nonfinancial asset to form a joint venture; and a transfer of a nonfinancial asset to an equity method investee. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. We will adopt this ASU as of January 1, 2018. We do not expect this ASU to have a material impact on the Company’s current consolidated financial position, results of operations or cash flows, however this ASU may have a significant impact on future transactions.

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~Business Combinations – Clarifying the Definition of a Business (Topic 805).~~ This ASU clarifies the definition of a business and adds further guidance in evaluating whether a transaction should be accounted for as an acquisition of an asset or a business. This standard will be effective for the first annual period beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted. The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~. This ASU addresses the diversity within entities that have restricted cash or restricted cash equivalents and are required to present a statement of cash flows under Topic 230. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early application of this ASU is permitted for all entities. We will adopt this ASU as of January 1, 2018. We do not expect this ASU to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~. Current GAAP either is unclear or does not include specific guidance on the eight cash flow classification issues included in the amendments in this update. The amendments are an improvement to GAAP because they provide guidance for each of the eight issues, thereby reducing the current and potential future diversity in practice. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early application of this ASU is permitted for all entities. We will adopt this ASU as of January 1, 2018. We do not expect this ASU to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

~~In May 2016,~~March 2020, the FASB issued ASU No. ~~2016-12,~~ ~~Revenue from Contracts with Customers~~2020-04, Reference Rate Reform – ~~Narrow-Scope Improvements~~Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and ~~Practical Expedients (Topic 606). The amendments in this ASU provide clarification~~exceptions to ~~certain core recognition principles related to ASU No. 2014-09 including collectability, sales tax presentation, noncash consideration,~~the existing guidance on contract modifications and ~~completed contracts at transition and disclosures no longer required if~~hedge accounting to ease the ~~full retrospective transition method is adopted. The amendments do not change the core principle~~financial reporting burdens of the ~~guidance. We are continuing~~expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to ~~evaluate all of our revenue related to contracts with customers to determine how to transition these requirements into our consolidated financial statements. We will adopt this ASU~~alternative reference rates, such as ~~of January 1, 2018.~~

~~In April 2016,~~ the ~~FASB issued ASU No. 2016-10, Revenue from Contracts with Customers – Identifying Performance Obligations and Licensing (Topic 606)~~. This update clarifies guidance related to identifying performance obligations and licensing implementation contained in ASU No. 2014-09. The amendments do not change the core principle of the guidance. We have analyzed all of our revenue related to contracts with customers and have determined how to transition these requirements into our consolidated

financial statements. We will adopt this ASU as of January 1, 2018. We do not expect this ASU to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~Secured Overnight Financing Rate (“SOFR”). The ~~FASB issued this ASU to increase transparency~~update provides guidance in accounting for changes in contracts, hedging relationships, and ~~comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet by lessees for those leases classified~~other transactions as operating leases under current GAAP and disclosing key information about leasing arrangements. The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018. Early applicationa result of this ~~ASU is permitted for all entities.~~reference rate reform. The ~~Company is creating an inventory of its leases~~option expedients and ~~is analyzing its current ground lease, office lease, other right-of-use assets~~exceptions contained within this update, in general, only apply to contract amendments and ~~lease liabilities, and parking garage lease obligations that exist. The standard requires a modified retrospective approach for leases that exist or are~~modifications entered into ~~after the beginning of the earliest comparative period in the financial statements. We will adopt this ASU as of January 1, 2019.~~

~~In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)~~, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in the U.S. GAAP when it becomes effective. The standard permits the use of either the retrospective or cumulative effect transition methods. In July 2015, the FASB voted to defer the effective dateprior to January 1, ~~2018~~2023. The provisions of this update will most likely affect our financial reporting process relating to modifications of contracts with ~~early adoption beginning January 1, 2017.~~lenders and the hedging contracts associated with each respective modified borrowing contract. In general, the provision of the update would benefit us by allowing modifications of debt contracts with lenders that fall under the guidance of ASC Topic 740 to be accounted for as a non-substantial modification and not be considered debt extinguishment. As of March 31, 2021, 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 future. The Company ~~is finalizing its evaluation of each of its revenue streams under~~anticipates having to undertake more modifications in the ~~new model and because of the short-term, day-to-day nature of the Company’s hotel revenues, the pattern of revenue recognition is not expected to change significantly. Additionally,~~future. While the Company ~~has historically disposed of hotel properties for cash sales with no contingencies and no future involvement in~~anticipates the ~~hotel operations, and therefore, ASU 2014-09 will not~~ impact ~~the recognition of hotel sales. The Company expects to use the cumulative effect transition method for adoption. The Company has substantially completed its analysis and does not expect adoption~~ of this ~~standard will have a material impact on~~update may be to its ~~consolidated financial statements and related disclosures.~~

~~Hyde Resort & Residences.~~ On January 30, 2017, we acquired the hotel commercial condominium unit of the Hyde Resort & Residences condominium hotel, for an aggregate price including inventory and other assets of approximately $4.8 million. The allocation of the estimated purchase price based on fair values is as follows:

The results of operations of the hotel are included in our consolidated financial statements from the date of acquisition. The total revenue and net loss related to the acquisition for the period January 30, 2017 to September 30, 2017 are approximately $2.8 million and $0.6 million, respectively. There is no pro forma financial information, since this is a new operation without prior historical information.

4. Investment in Hotel Properties, ~~Net and Investment in Hotel Properties Held for Sale,~~ Net

Investment in hotel properties, net as of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016~~2020 consisted of the following:

~~Investment~~Our review of possible impairment as of March 31, 2021 and December 31, 2020, resulted in 0 impairment on our investment in hotel properties, ~~held for sale, net as of September 30, 2017 and December 31, 2016 consisted of the following:~~respectively.

Investment in hotel properties held for sale, net represents the Crowne Plaza Hampton Marina property, which was sold on February 7, 2017 for approximately $5.6 million. After selling costs, mortgage loan payoff and associated fees we realized an approximate gain on the sale of assets of $0.1 million, as reflected in the consolidated statements of operations.

Mortgage Loans, Net. As of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, we had approximately ~~$298.4~~$356.5 million and approximately ~~$282.7~~$357.5 million of outstanding mortgage debt, respectively. The following table sets forth our mortgage debt obligations on our hotels.

Balance Outstanding as of

September 30,

December 31,

Prepayment

Maturity
Amortization
Interest

Property

2017

2016

Penalties

Date
Provisions
Rate

Crowne Plaza Hampton Marina ⁽¹⁾

$
-

$
2,584,633

None

11/1/2019
3 years

5.00%

Crowne Plaza Tampa Westshore  ⁽²⁾

15,353,500

15,561,400

None
6/30/2019
25 years
LIBOR plus 3.75 %

The DeSoto ⁽³⁾

34,845,934

30,000,000

Yes

7/1/2026
25 years

4.25%

DoubleTree by Hilton Jacksonville
   Riverfront ⁽⁴⁾

35,422,241

19,291,716

Yes
7/11/2024
30 years

4.88%

DoubleTree by Hilton Laurel ⁽⁵⁾

9,182,987

9,329,005

Yes
8/5/2021
25 years

5.25%

DoubleTree by Hilton Philadelphia Airport⁽⁶⁾

30,646,946

31,261,991

None

4/1/2019
25 years
LIBOR plus 3.00 %

DoubleTree by Hilton Raleigh
   Brownstone University ⁽⁷⁾

14,571,181

14,773,885

n/a
8/1/2018
30 years

4.78%

DoubleTree Resort by Hilton Hollywood
   Beach ⁽⁸⁾

58,249,890

58,935,818

n/a
10/1/2025
30 years

4.913%

Georgian Terrace ⁽⁹⁾

45,230,148

45,826,038

n/a
6/1/2025
30 years

4.42%

Hilton Wilmington Riverside ⁽¹⁰⁾

30,000,000

30,000,000

Yes
1/1/2027
25 years

4.25%

Sheraton Louisville Riverside⁽¹¹⁾

11,771,942

11,977,557

Yes
12/1/2026
25 years

4.27%

The Whitehall ⁽¹²⁾

15,000,000

15,000,000

Yes
10/12/2021
18 years
LIBOR plus 3.50 %

Total Mortgage Principal Balance

$
300,274,769

$
284,542,043

Deferred financing costs, net

(2,041,958
)

(2,049,409
)

Unamortized premium on loan

197,144

215,655

Total Mortgage Loans, Net

$
298,429,955

$
282,708,289

	Balance Outstanding as of
	March 31,			December 31,			Prepayment	Maturity	Amortization	Interest
Property	2021			2020			Penalties	Date	Provisions	Rate
The DeSoto ⁽¹⁾	$	32,820,733		$	32,820,733		Yes	7/1/2026	25 years	4.25%
DoubleTree by Hilton Jacksonville Riverfront⁽²⁾		33,501,600			33,655,483		Yes	7/11/2024	30 years	4.88%
DoubleTree by Hilton Laurel ⁽³⁾		8,654,754			8,654,754		Yes	8/5/2021	25 years	5.25%
DoubleTree by Hilton Philadelphia Airport⁽⁴⁾		41,069,612			41,804,700		None	10/31/2023	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			55,878,089		(6)	10/1/2025	30 years	4.913%
Georgian Terrace ⁽⁷⁾		42,268,756			42,507,512		(7)	6/1/2025	30 years	4.42%
Hotel Alba Tampa, Tapestry Collection by Hilton ⁽⁸⁾		17,946,480			17,946,480		None	6/30/2022	(8)	LIBOR plus 3.75%
Hotel Ballast Wilmington, Tapestry Collection by Hilton ⁽⁹⁾		33,259,067			33,259,067		Yes	1/1/2027	25 years	4.25%
Hyatt Centric Arlington ⁽¹⁰⁾		48,990,136			48,990,136		Yes	9/18/2028	30 years	5.25%
Sheraton Louisville Riverside⁽¹¹⁾		11,037,086			11,037,086		Yes	12/1/2026	25 years	4.27%
The Whitehall ⁽¹²⁾		14,697,831			14,697,830		Yes	2/26/2023	25 years	PRIME plus 1.25%
Total Mortgage Principal Balance	$	358,424,144		$	359,551,870
Deferred financing costs, net		(1,998,280	)		(2,122,822	)
Unamortized premium on loan		110,759			116,929
Total Mortgage Loans, Net	$	356,536,623		$	357,545,977

Since the onset of the COVID-19 pandemic, we have completed mortgage forbearance agreements and/or loan modification agreements for 11 of our 12 mortgage loans secured by our hotels. The terms of the amendments varied by lender, and included items such as the deferral of monthly interest and/or principal payments for three to twelve months, temporary elimination of requirements to make contributions to the furniture, fixtures and equipment replacement reserve, the ability to temporarily utilize furniture, fixtures and equipment replacement reserve funds for operating expenses or to fund principal and interest and required deposits to real estate tax escrows, subject to certain restrictions and conditions, including requirements to replenish such funds used; waivers for existing quarterly financial covenants for one to six quarters; and adjustments to some covenant calculations following the waiver period. Below is a summary of those agreements for each hotel.

The lender has agreed to the following: (a) deferral of scheduled principal payments due from April 1, 2020 to February 1, 2021; (b) a payment of interest only on March 1, 2021; (c) waiver of FF&E requirement until March 1, 2021; (d) deferred principal and interest are due and payable at maturity; and (e) payment of up to 5.0% of the indebtedness under the loan is guaranteed by the Operating Partnership. The maturity date under the loan modification remains unchanged.

The lender has agreed to the following: (a) deferral of scheduled payments of principal and interest due from April 5, 2020 to September 5, 2020; (b) subsequent payments are required to be applied first toward current and deferred interest and then toward principal; (c) any deferred principal is due and payable at maturity; and (d) deferral of principal payments through March 5, 2021. The maturity date under the loan modification remains unchanged.

The lender has agreed to the following: (a) deferral of scheduled principal through June 1, 2021; (b) payment of regular principal and interest on June 2, 2021; (c) remaining deferred interest is to be paid in 12 equal installments beginning June 2, 2021; and (d) deferred principal is due and payable at maturity. The maturity date was extended by 3 months, or until October 31, 2023.

The lender has agreed to the following: (a) deferral of scheduled interest payments due from April 1, 2020 to July 31, 2021; (b) a one-time fee of $236,375 to be applied to deferred interest; and (c) remainder of deferred interest, along with additional accrued interest on interest, is due and payable by August 1, 2021.

Subsequent to the quarter end, on April 30, 2021, we entered into a loan modification and reinstatement agreement with the mortgage lender for the DoubleTree Resort by Hilton Hollywood Beach pursuant to which we agreed with the lender to amend and reinstate the promissory note and loan agreement on revised terms. Under the amended loan agreement and promissory note the Company (i) paid to the lender contemporaneously with the closing of the amendment and reinstatement an aggregate amount of approximately $4 million made up of (i) tax and insurance reserves required to be funded in certain reserve accounts in the aggregate amount of approximately $2.5 million; (ii) a lump sum payment of approximately $1.3 million in respect of amounts owed by us relating to payments for the period from January through March 2021; (iii) certain FF&E reserve amounts required to be deposited with the lender; and (iv) certain other fees and expenses. In addition, we agreed to (a) begin regular monthly payments on May 1, 2021; (b) pay the aggregate amount owed by the Company relating to deferred monthly payments for the period from April through December 2020 in 24 equal monthly installments of $119,591.36 beginning on January 1, 2021 and continuing through December 2022; and (c) certain other amended terms, including to restrict the borrower under the promissory note from making any distributions until all such deferred payments have been made. In consideration for the payments made at closing and the other amended terms the loan agreement, promissory note and other loan documents thereunder were amended and reinstated in accordance with their respective terms and conditions and the lender agreed to certain accommodations, including the waiver of the cash sweep period trigger for a period of time and to forbear in collection of default interest and late payment charges accrued and unpaid under the loan agreement and promissory note, provided that in the event of a future default those amounts will become due immediately and the waivers will no longer be effective.

On October 8, 2020, the lender agreed to the release of approximately $1.1 million from the FF&E reserve to fund up to 50% of shortfall between gross revenues and scheduled payments of debt service, deposits to the real estate tax escrow and operating expenses for the period April through August 2020. The FF&E reserve must be replenished no later than December 31, 2021.

The lender agreed to the deferral of scheduled payments of principal due from April 1, 2020 to June 1, 2021.

The lender has agreed to the following: (a) deferral of scheduled principal payments due from April 1, 2020 to March 1, 2021; (b) deferral of scheduled payments of interest from April 1, 2020 to September 1, 2020; (c) waiver of FF&E requirement until March 1, 2021; (d) deferred principal and interest will be due and payable at maturity; and (e) payment of up to 5.0% of the indebtedness under the loan is guaranteed by the Operating Partnership. The maturity date under the loan modification remains unchanged.

The lender has agreed to the following: (a) deferral of scheduled payments of principal and interest due from April 1, 2020 to March 31, 2021; (b) deferral of scheduled payments of principal due from April 1, 2021 to December 31, 2021; (c) a one-time fee of $100,000; (d) loan balance to be re-amortized as of January 1, 2022; and (e) deferred principal and interest, along with additional accrued interest on interest, is due and payable by July 1, 2022.

The lender has agreed to the following: (a) deferral of scheduled payments of interest due from May 1, 2020 to July 1, 2020; (b) deferral of scheduled payments of principal due from May 1, 2020 to April 1, 2021; (c) subsequent payments are required to be applied first toward current and deferred interest and then toward principal; and (d) any deferred principal is due and payable at maturity. The maturity date under the loan modification remains unchanged.

The lender has agreed to the following: (a) deferral of scheduled payments of principal due from April 1, 2020 to July 13, 2021; (b) deferral of scheduled payments of interest from April 1, 2020 to October 12, 2020; (c) 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; (d) on July 14, 2021 principal and interest payments will resume based upon the original amortization; (e) the interest rate is changed from LIBOR plus 3.50% to New York Prime Rate plus 1.25%; (f) a loan modification fee of $25,000; and (g) the prepayment penalty is changed to: (i) 2.0% if prepaid after April 12, 2021 but on or before April 12, 2022; (ii) 1.0% if prepaid after April 12, 2022 but on or before November 26, 2022; and (iii) 0 prepayment fee if prepaid after November 26, 2022. The maturity date under the loan modification remains unchanged.

As of March 31, 2021, we had failed to make twelve consecutive monthly payments of principal and interest under the mortgage secured by our DoubleTree Resort by Hilton Hollywood Beach hotel, which constituted an Event of Default. On April 30, 2021, we entered into a loan modification agreement curing the above mentioned Event of Default. See the disclosure above related to the forbearance agreement for the DoubleTree Resort by Hilton Hollywood Beach and “Note 13 – Subsequent Events” for additional information.

As of March 31, 2021, we failed to meet the financial covenants under the mortgages secured by the DoubleTree by Hilton Philadelphia Airport and The Whitehall. We have received waivers of the financial covenants from the lender on the DoubleTree by Hilton Philadelphia Airport through September 30, 2021 and from the lender on The Whitehall mortgage through June 30, 2022. As of March 31, 2021, we were in compliance with ~~all debt covenants, current~~the modified financial covenant under the mortgage secured by the Hotel Alba, provided that we maintain the cash collateral on ~~all loan payments~~deposit with the lender. Cash collateral on deposit with the Hotel Alba lender, is included in restricted cash on our consolidated balance sheets and ~~not otherwise in default under any of our mortgage loans,~~was approximately $1.9 million as of ~~September 30, 2017.~~March 31, 2021, subject to certain withdrawal privileges.

As of March 31, 2021, we failed to meet the financial covenants under the mortgage secured by the DoubleTree by Hilton Jacksonville Riverfront, the DoubleTree Resort by Hilton Hollywood Beach and the Georgian Terrace, which triggered a “cash trap” under the loan documents relating to each of these properties requiring substantially all the revenue generated by those hotels to be deposited directly into lockbox accounts and swept into cash management accounts for the benefit of the respective lenders until each property meets the criteria in the relevant loan agreement for exiting the “cash trap”. Provided we continue to meet certain terms and conditions, the lender has waived the “cash trap” with respect to the DoubleTree Resort by Hilton Hollywood Beach and we are in negotiations with the lender on the DoubleTree by Hilton Jacksonville Riverfront for a waiver of the “cash trap” as well. Additionally, in order to receive forbearance from the lenders on the DoubleTree by Hilton Raleigh Brownstone – University and the Hyatt Centric Arlington, we agreed to “cash traps” which will continue until the properties meet the criteria in the forbearance agreements for exiting the “cash traps”.

Total future mortgage debt maturities for the remaining nine and twelve-month periods, without respect to any extension of loan maturity ~~as of September 30, 2017~~or loan modification after March 31, 2021, were as follows:

~~7.0% Unsecured~~PPP Loans. The Operating Partnership and certain of its subsidiaries have received PPP Loans administered by the U.S. Small Business Administration pursuant to the CARES Act. 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 in connection with a PPP Loan and received proceeds of $333,500.

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 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.

Secured Notes Financing. On December 31, 2020, we entered into the following agreements with KW, as collateral agent and an investor, and MIG, as an investor: (i) a Note Purchase Agreement with KW and MIG; (ii) a Secured Note with KW in the amount of $10.0 million and a Secured Note with MIG in the amount of $10.0 million; (iii) a Pledge and Security Agreement with KW; (iv) a Board Observer Agreement with KW; and (v) other ancillary agreements. These agreements constitute a transaction whereby the Investors purchased $20.0 million in Secured Notes from the Operating Partnership with an option to require the Investors to purchase an additional $10.0 million in Secured Notes on the terms and subject to the conditions described below.

On December 31, 2020, the Operating Partnership and the Company entered into the Note Purchase Agreement with KW and MIG, pursuant to which: (i) we agreed to issue and sell, and the Investors agreed to purchase, the Secured Notes with an aggregate face amount of US $20 million and on the terms described below; (ii) KW and MIG granted us an option, subject to certain conditions and exercisable by us on or before the first anniversary of the first closing date, pursuant to which we may issue and sell a second note to each of the Investors with an aggregate face amount of $10.0 million on substantially the same terms as the initial Secured Notes; (iii) the Company agreed to fully and unconditionally guaranty the obligations of the Operating Partnership; (iv) we entered into the Pledge Agreement and Board Observer Agreement; (v) we agreed to provide certain representations and warranties to the Investors; and (vi) we agreed to use the net proceeds to support the continued operation of the business conducted by the Operating Partnership. We were required to pay a 1% origination fee on the amount of the initial Secured Notes in connection with the first closing and a 1% commitment fee on the committed amount of the Second Secured Notes.

On ~~November 21, 2014,~~December 31, 2020, the Operating Partnership issued ~~7.0% senior unsecured notes~~and sold initial Secured Notes to the Investors in the ~~aggregate~~ amount of ~~$25.3 million (the “7% Notes”).~~$20.0 million. The ~~indenture requires~~Secured Notes: (i) have a maturity date of December 30, 2023, with a one-year extension option, subject to a fee in the amount of 1% of the outstanding principal amount under the Secured Notes as of such maturity date; (ii) accrue interest at a rate of 6.00% during the initial term and then at a rate of 10% following any extension; (ii) require quarterly interest payments, which shall initially be in the amount of $0.30 million; (iii) require principal repayment equal to 1.47 times the face amount of the Secured Notes if repaid on or prior to December 30, 2023 and 1.65 times the face amount of the Secured Notes if repaid after December 30, 2023; (iv) may be prepaid without penalty, but subject to make-whole amounts for interest and ~~matures~~the repayment multiplier; and (v) rank pari passu with other notes issued under the Note Purchase Agreement and senior to all other indebtedness of the Operating Partnership.

Upon an event of default or liquidity event described in the Secured Notes, the holders of the Secured Notes have the right to require and approve our selection of one or more of our hotel properties for disposition or refinancing in order to cure an event of default or liquidity event based on a process set forth in the Secured Notes. In addition, the Secured Notes are ~~callable after November 15, 2017 at 101%~~redeemable by the holder in full upon an event of ~~face value.~~default or a change of control transaction.

On December 31, 2020, certain subsidiaries of the Operating Partnership entered into the Pledge Agreement with KW, pursuant to which we agreed to pledge and grant to KW a first priority security interest in the equity interests, including certain voting rights, of our affiliates that own The DeSoto hotel, Hotel Ballast Wilmington, and the DoubleTree by Hilton Philadelphia Airport hotel. Upon an uncured monetary event of default under the Secured Notes, KW, as collateral agent, has a right to sell, lease or otherwise dispose of or realize upon the Pledged Collateral in order to satisfy any amounts outstanding under the Secured Notes.

Ground, Building, Parking and ~~Submerged~~ 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 ~~September 30, 2017~~March 31, 2021and 2020, totaled $20,983 and ~~2016 totaled $18,245~~ ~~and for each of the nine months ended September 30, 2017 and 2016, totaled $54,738~~.$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. NoNaN 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 a parking lot adjacent to the DoubleTree by Hilton Raleigh Brownstone-University in Raleigh, North Carolina. The land is leased under a second amendment, dated April 28, 1998, to a ground lease originally dated May 25, 1966. The original lease is a 50-year operating lease, which expired August 31, 2016. We exercised a renewal option for the first of three additional ten-year periods expiring August 31, 2026, August 31, 2036, and August 31, 2046, respectively. We hold an exclusive and irrevocable option to purchase the leased land at fair market value at August 1, 2018, or at the end of any 10-year renewal period, subject to the payment of an annual fee of $9,000, and other conditions. Rent expense for the three months ended September 30, 2017 and 2016, totaled $41,184 and $23,871, respectively, and for the nine months ended September 30, 2017 and 2016, totaled $88,925 and $71,612, respectively.

~~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. We signed a new agreement in April 2019, which commenced in July 2019, goes for five years and can be renewed for an additional five years. The new 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 ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016, each~~2020, totaled ~~$651~~$641 and ~~$1,952,~~$608, respectively.

We lease ~~5,216~~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 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 ~~amended, that commenced September 1, 2009~~the tenant improvement allowance is exhausted. Rent expense for the three-month periods ended March 31, 2021 and 2020 totaled $55,902 and $55,761, respectively.

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 ~~August 31, 2018.~~ in 2025 and may be extended for 5 additional renewal periods of 10 years each. Rent expense for the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016 totaled~~2020, was $42,507 and ~~$22,224 and $22,552, respectively, and~~ ~~for the nine months ended September 30, 2017 and 2016 totaled $67,327 and $68,451, respectively~~.$96,575, respectively.

We lease ~~the~~ parking garage ~~adjacent to~~and poolside cabanas associated with the Hyde ~~Resort & Residences in Hollywood~~ Beach ~~Florida.~~House. The parking ~~garage is leased under a 20-year operating~~and cabana lease ~~requiring monthly~~requires us to make rental payments of ~~$20,000, which~~$270,100 per year in base and has an initial term that expires in ~~February, 2037.~~ 2034 and which may be extended for 4 additional renewal periods of 5 years each. Rent expense for the three ~~and nine~~ months ended ~~September 30, 2017 totaled $60,000~~March 31, 2021 and ~~$140,000,~~2020, was $67,750 and $133,750, respectively.

We also lease certain storage facilities, furniture and equipment under ~~financing arrangements~~agreements expiring between ~~August 2017~~October 2021 and ~~March 2019.~~June 2025.

A schedule of minimum future lease payments for the following ~~three~~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 ~~September 30, 2017, each of~~March 31, 2021, our 12 wholly-owned hotels, and ~~the~~our two condo-hotel rental ~~program and condominium association of the Hyde Resort & Residences~~programs, operated under a management ~~agreement~~agreements with ~~Chesapeake Hospitality~~Our Town (see Note 9)8). 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.

Franchise Agreements – As of ~~September 30, 2017,~~March 31, 2021, 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 ~~2.5%~~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 in force expire between ~~July 2017~~November 2021 and ~~October 2030.~~March 2038. Each of our franchise agreements provides for early termination fees in the event the agreement is terminated before the stated term. 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.

Restricted Cash Reserves – Each month, we are required to escrow with the lenders on the ~~Hilton Wilmington Riverside,~~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 ~~Hilton Wilmington Riverside,~~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.~~Airport and the Hyatt Centric Arlington.

ESOP Loan ~~and Purchase~~ 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.

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 September 30, Between January 3, 2017 and February 28, 2017, the Company’s ESOP ~~had~~ purchased 682,500 shares of the Company’s common stock ~~in the open market for approximately~~of an aggregate cost of $4.9 million, which the ESOP borrowed from the Company pursuant to the loan agreement. A total of 8,424 and 25,408 shares with a fair value of $60,075 and $178,137 were allocated or committed to be released from the suspense account and recognized as compensation cost during the three and nine months ended September 30, 2017, respectively. The remaining 657,092 unallocated shares have an approximate fair value of $3.9 million, as of September 30, 2017. At September 30, 2017, the ESOP held a total of 9,473 allocated shares, 15,935 committed-to-be-released shares and 657,092 suspense shares. Dividends on allocated shares are paid to the participants of the ESOP, while dividends on unallocated shares are used to pay down the ESOP loan from the Operating Partnership.million.

Litigation ~~–To our knowledge, no material litigation has been threatened against us. We~~ –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 September 30, 2017, and December 31, 2016, there were 1,610,000 shares,~~The following table sets forth our Cumulative Redeemable Perpetual Preferred Stock by series:

The Company pays cumulative cash distributions on the preferred stock at rates in the above table per annum of the ~~Preferred Stock issued and outstanding.~~

~~On August 23, 2016, the Company issued 1,610,000 shares, $0.01 par value~~$25.00 liquidation preference per share, of its 8% Series B Preferred Stock for net proceeds after all expenses of approximately $37.8 million, which it contributed to the Operating Partnership for an equivalent number of preferred partnership units.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 Company pays cumulative cash distributions on the preferred stock at a rate of 8.00% per annum of the $25.00 liquidation preference per share.~~ 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.As previously announced, the record dates 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 declared and the record date and the payment of dividends on all classes of the Company’s preferred stock has been deferred.

On March 17, 2020, the Company announced that it was deferring payment of Sotherly’s previously announced declared distributions for the Company’s Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock for the period ending March 31, 2020. No distributions have been declared for the Company’s Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock for the period ending March 31, 2021.

The total declared and undeclared, but unpaid cash dividends due on the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock through March 31, 2021 is $4,025,000, $3,825,802 and $3,093,750, respectively. Undeclared preferred cumulative dividends are reported on the statements of operations but are not considered payable until declared. As of March 31, 2021, the undeclared cumulative preferred dividends were approximately $8.8 million and the declared unpaid preferred dividends were approximately $2.2 million.

Preferred Units ~~-The Company is the holder of the preferred partnership units issued by the Operating Partnership~~. ~~As of September 30, 2017, and December 31, 2016, there were 1,610,000 preferred partnership units issued and outstanding, respectively.~~

- 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 ~~Operating Partnership~~following table sets forth our Cumulative Redeemable Perpetual Preferred Units by series:

The Company pays cumulative cash ~~dividends~~distributions on the preferred ~~partnership~~ units at ~~a rate of 8.00%~~rates in the above table per annum of the $25.00 liquidation preference per unit. ~~For each~~The Company, which is the holder of the ~~quarters ended March 31, 2017, June 30, 2017~~Operating Partnership’s preferred units is 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 holder, have no maturity date and ~~September 30, 2017,~~are not convertible into any other security of the Operating Partnership ~~has~~or its affiliates. As previously announced, the record dates for the dividends on the Operating Partnership’s Series B Preferred Units, Series C Preferred Units, and Series D Preferred Units that were to be paid April 15, 2020 to unitholders of record as of March 31, 2020 have each been declared and the record date and the payment of dividends on all classes of the Operating Partnership’s preferred units has ~~paid $0.50 per~~been deferred.

The total declared and undeclared, but unpaid cash dividends due on the Series B Preferred Units, Series C Preferred Units and Series D Preferred Units through March 31, 2021 is $4,025,000, $3,825,802 and $3,093,750, respectively. Undeclared preferred ~~unit, respectively,~~cumulative dividends are reported on the statements of operations but are not considered payable until declared. As of March 31, 2021, the undeclared cumulative preferred dividends were approximately $8.8 million and ~~$0.211 per~~the declared unpaid preferred ~~unit for the quarter ended September 30, 2016 and $0.50 per preferred unit for the quarter ended December 31, 2016.~~dividends were approximately $2.2 million.

Common Stock – ~~The~~As of March 31, 2021, the Company iswas 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 December 31, 2017, unless extended by the board of directors. Through December 31, 2016 the Company repurchased 481,100 shares of common stock ~~for approximately $3.2 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 September 30, 2017. Between January 3, 2017 and February 28, 2017, the ESOP purchased 682,500 shares of the Company’s common stock for approximately $4.9 million. Of the 682,500 ESOP shares purchased, 657,092 of these shares are considered unearned ESOP shares at September 30, 2017 and are excluded from the Company’s outstanding common stock on the consolidated balance sheets and the earnings per share calculations on the consolidated statements of operations.

The following is a schedule of issuances, since January 1, ~~2016,~~2020, of the Company’s common stock and related units of the Operating Partnership:

On ~~February 15, 2017,~~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 January 1, 2020, the Company was issued ~~12,000~~45,000 units in the Operating Partnership and awarded ~~12,000~~shares of restricted stock to two employees.

On February 3, 2020, the Company was issued 17,250 units in the Operating Partnership and awarded shares of restricted stock to its independent directors.

23On May 1, 2020, one holder of units in the Operating Partnership redeemed 57,687 units for an equivalent number of shares in the Company’s common stock.

On ~~February 2, 2016,~~December 1, 2020, one holder of units in the Operating Partnership redeemed 15,000 units for an equivalent number of shares in the Company’s common stock.

On December 17, 2020, the Company was issued ~~36,250~~127,583 units in the Operating Partnership and awarded ~~an aggregate of 22,000 shares of unrestricted stock to certain executives and employees as well as 12,000~~ shares of restricted stock ~~and 2,250 shares of unrestricted stock~~ to ~~certain of~~ its independent ~~directors.~~directors and employees.

On February ~~1, 2016, two holders~~4, 2021, one holder of units in the Operating Partnership redeemed ~~422,687~~100 units for an equivalent number of shares ofin the Company’s common stock.

On February 4, 2021, the Company was issued 136,281 units in the Operating Partnership and awarded shares of unrestricted stock to its employees.

On February 4, 2021, the Company was issued 15,000 units in the Operating Partnership and awarded shares of restricted stock to its independent directors.

As of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, the Company had ~~13,823,459~~15,175,231 and ~~14,468,551~~15,023,850 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~~1-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.

~~There~~Since January 1, 2020, there have been no0 issuances or redemptions, ~~since January 1, 2016,~~ of units in the Operating Partnership other than the ~~redemptions and~~ issuances of units in the Operating Partnership to the Company described above.

As of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, the total number of Operating Partnership units outstanding was ~~16,258,691~~16,341,632 and ~~16,246,691,~~16,190,351, respectively.

As of ~~September 30, 2017~~March 31, 2021 and December 31, ~~2016,~~2020, the total number of outstanding Operating Partnership units not owned by the Company was ~~1,778,140~~1,166,401 and ~~1,778,140,~~1,166,501, respectively, with a fair market value of approximately ~~$10.5~~$4.1 million and ~~$12.1~~$2.9 million, respectively, based on the price per share of the common stock on such respective dates.

As of March 31, 2021, there were unpaid common dividends and distributions to holders of record as of March 13, 2020 in the amount of $2,088,161.

~~Chesapeake~~Our Town Hospitality. Our Town is currently the management company for each of our 12 wholly owned hotels, as well as the manager of our rental programs at the Hyde Resort & Residences and the Hyde Beach House Resort & Residences. Our Town is a majority-owned subsidiary of Newport Hospitality Group, Inc. (“Newport”). As of ~~September 30, 2017, the members of Chesapeake Hospitality (a company that is majority-owned~~March 31, 2021, Andrew M. Sims, our Chairman, and ~~controlled by the Company’s chairman~~David R. Folsom, our President and ~~chief executive officer,~~Chief Executive Officer, beneficially owned approximately 19.5% and ~~two former members~~2.5%, respectively, of the ~~Company’s board~~total outstanding ownership interests in Our Town. Both Mr. Sims and Mr. Folsom serve as directors of ~~directors) owned 1,686,442 shares, approximately 12.2%, of the Company’s outstanding common stock as well as 652,326 Operating Partnership units.~~Our Town and have certain governance rights. The following is a summary of the transactions ~~between Chesapeake Hospitality and us:~~with Our Town:

Accounts Receivable – At ~~September 30, 2017~~March 31, 2021 and ~~December 31, 2016,~~2020, we were due ~~$94,425~~approximately $0.7 million and ~~$0,~~$0.8 million, respectively, from ~~Chesapeake Hospitality.~~Our Town.

Management Agreements – As On September 6, 2019, we entered into a master agreement with Newport and Our Town related to the management of ~~September 30, 2017,~~10 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 for the management of 10 of our hotels. On April 1, 2020, we engaged Our Town to manage 1 additional wholly-owned hotel and 2 condominium resort rental programs. On November 15, 2020, Our Town became the manager of our Hyatt Centric Arlington hotel. The hotel management agreements for each of our 12 wholly-owned hotels and the ~~Hyde Resort & Residences operated~~2 rental programs are referred to as, individually an “OTH Hotel Management Agreement” and, together the “OTH Hotel Management Agreements”.

We 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 ~~various~~the OTH Hotel Management Agreements. The advanced funds were to be offset against future management ~~agreements with Chesapeake Hospitality.~~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 were to be deemed satisfied at the end of 2020. With the onset of the COVID-19 pandemic, unreimbursed management fees totaled approximately $0.5 million. The ~~management agreements each provide~~Company expects to recoup the remaining unreimbursed advance.

As of March 31, 2021, and December 31, 2020, Sotherly had advanced approximately $0.6 million and $0.6 million, respectively, to Our Town as initial working capital. In addition, the OTH Master Agreement provides for an ~~initial term~~adjustment to the fees payable by us under the OTH Hotel Management Agreements in the event the net operating income of ~~5 years and expire between~~Our Town falls below $250,000 for any calendar year beginning on or after January 1, ~~2020 and January 30, 2022, and may~~2021. The OTH Master Agreement expires on March 31, 2025 but shall 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. We also have a master agreement with Chesapeake Hospitality that has a five-year term, but may be extendedbeyond 2025 for such additional periods as ~~long as~~ an ~~individual management agreement~~OTH Hotel Management Agreement remains in effect.

The base management fees for ~~The Whitehall and the Georgian Terrace were 2.00% through 2015, increased to 2.25% in 2016, and increased to~~each hotel under management with Our Town is 2.50% in 2017 and for each year thereafter. The base management fee for the DoubleTree Resort by Hilton Hollywood Beach was 2.00% from July 2015 through July 2016, increased to 2.25% in July 2016, and increases to 2.50% in July 2017 and each year thereafter. The base management fee for the Hyde Resort & Residences is 2.00% from January 2017 through January 2018, increases to 2.25% in January 2018, and increases to 2.50% in January 2019 and for each year thereafter. The base management fees for the remaining properties in the current portfolio are 2.65% through 2017 and decreases to 2.50% thereafter.. For any new individual hotel management agreements, ~~Chesapeake Hospitality~~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. 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.

Each ~~management agreement~~OTH Hotel Management Agreement sets an incentive management fee equal to ~~10%~~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. Incentive management fees earned for the three-month period ending March 31, 2021 and 2020, were $250,166 and $0, respectively.

Base management and administrative fees earned by ~~Chesapeake Hospitality~~Our Town for our properties ~~totaled $976,232~~was approximately $0.6 million and ~~$944,939~~$0.7 million for the three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016, respectively~~2020, 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 ~~$3,042,840~~conditions similar to the terms of the prime lease entered into by Sotherly and ~~$2,927,333 for~~ the ~~nine months ended September 30, 2017~~third-party owner of the property. Lease payments due to the Company were $151,800 and ~~2016, respectively~~.$40,295 as of March 31, 2021 and 2020, 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 was allowed to draw against the line of credit from time to time prior to January 1, 2021 when the facility became payable in full. Interest accrues on the outstanding balance at 3.5% per annum and is payable quarterly in arrears. In ~~addition, estimated incentive management fees~~the event of ~~$23,634~~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. We are currently negotiating an extension to the credit agreement. As of March 31, 2021 and ~~$13,634 were accrued for~~2020, the ~~three months ended September 30, 2017 and 2016, respectively and~~ ~~$51,751 and $60,636 were accrued for~~outstanding credit balance under the ~~nine months ended September 30, 2017 and 2016, respectively~~. credit agreement was each approximately $0.6 million, respectively.

Employee Medical Benefits – We purchase employee medical ~~benefits through Maryland Hospitality, Inc. (d/b/a MHI Health), an affiliate of Chesapeake Hospitality~~coverage for ~~our employees as well as those~~eligible employees that are employed by ~~Chesapeake Hospitality~~Our Town that work exclusively for our ~~hotel properties.~~properties and elect to participate in Our Town’s self-insured plan. Gross premiums for employee medical benefits paid by the Company (before offset of employee co-payments) were ~~$1,292,287~~approximately $0.7 million and ~~$3,962,161~~$1.4 million for the three ~~and nine~~ months ended ~~September 30, 2017, respectively~~March 31, 2021 and ~~were approximately $1,267,721 and $3,813,333 for the three and nine months ended September 30, 2016,~~ 2020, respectively.

Loan Receivable – ~~During 2015, the Company loaned $180,000 to the Sotherly Foundation, a non-profit organization to benefit wounded American veterans living in communities near our hotels.~~Affiliate. As of ~~September 30, 2017,~~March 31, 2021 and December 31, ~~2016, the balance of the loan~~2020, approximately $3.7 million and $3.7 million, respectively, was ~~$80,000, respectively.~~

~~Loan Receivable - Affiliate –~~ ~~As of September 30, 2017, approximately $4.7 million 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 ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 totaled ~~$87,915~~$105,869 and ~~$79,453, respectively,~~ ~~and for the nine months ended September 30, 2017 and 2016 totaled approximately $267,557 and $246,084, respectively~~$121,956, ~~for all three individuals.~~

On February 1, 2016, one current member of the Company’s board of directors redeemed 322,687 units for an equivalent number of shares of the Company’s common stock, and one previous member of the board of directors redeemed 100,000 units for an equivalent number of shares of the Company’s common stock, pursuant to the terms of the partnership agreement.

~~During the three-month period ending September 30, 2017 and 2016, the Company reimbursed $26,233 and $31,803, respectively~~ ~~and during the nine-month period ending September 30, 2017 and 2016, the Company reimbursed $132,239 and $101,571, respectively, to a partnership controlled by the Chief Executive Officer for business-related air travel pursuant to the Company’s travel reimbursement policy.~~respectively.

~~401(K)~~401(k) Plan - We maintain a ~~401(K)~~401(k) plan for qualified employees which is subject to “safe harbor” provisions. Those provisions ~~and which requires that we match~~include a matching employer contribution to consist of 100.0% of the first 3.0% of employee contributions and 50.0% of the next 2.0% of employee contributions. ~~All~~In addition, all employer matching funds vest ~~immediately in accordance with the “safe harbor” provision.~~immediately. We ceased making matching employer contributions effective May 16, 2020. Contributions to the plan totaled ~~$11,659~~$0 and ~~$57,516~~$32,853 for the three ~~and nine~~ months ended ~~September 30, 2017, respectively~~March 31, 2021 and ~~$10,177 and $56,122 for the three and nine months ended September 30, 2016, respectively~~2020, respectively.

Employee Stock Ownership Plan - The Company adopted an Employee Stock Ownership Plan ~~(“ESOP”)~~ 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.~~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, 2021, the ESOP had purchased 682,500 shares of the Company’s common stock in the open market at a cost of approximately $4.9 million, which the ESOP borrowed from the Company pursuant to the loan agreement. A total of 178,251 shares with a fair value of $620,313 remained allocated or committed to be released from the suspense account as of March 31, 2021. We recognized as compensation cost $22,086 and $56,516 during the three months ended March 31, 2021 and 2020, respectively. The remaining 501,237 unallocated shares have an approximate fair value of $1,744,305, as of March 31, 2021. As of March 31, 2021, the ESOP held a total of 170,419 allocated shares, 7,832 committed-to-be-released shares and 501,237 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:

	Three Months Ended		Three Months Ended		Nine Months Ended		Nine Months Ended		Three Months Ended		Three Months Ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016		March 31, 2021		March 31, 2020
	(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Sales and marketing									$	2,133,804	$	3,785,132
General and administrative	$	3,194,007	$	2,962,097	$	9,788,564	$	9,092,373		2,094,376		3,934,015
Sales and marketing		3,397,811		3,348,577		10,547,138		10,312,982
Repairs and maintenance		1,805,103		1,825,829		5,174,066		5,527,727		1,407,678		1,866,682
Utilities										1,137,216		1,415,402
Property taxes		1,539,066		1,675,917		4,518,267		4,501,154		1,795,129		1,809,357
Utilities		1,568,324		1,751,562		4,394,631		4,799,329
Management fees, including incentive										877,763		870,990
Franchise fees		888,460		968,801		3,061,535		3,177,780		583,422		985,025
Management fees, including incentive		999,866		958,572		3,090,515		2,987,969
Insurance		620,244		618,599		1,845,702		1,984,269		822,072		790,495
Information and telecommunications		412,714		409,631		1,243,847		1,246,670		626,135		588,557
Other		783,654		83,449		1,355,477		197,041		111,482		136,186
Total indirect hotel operating expenses	$	15,209,249	$	14,603,034	$	45,019,742	$	43,827,294	$	11,589,077	$	16,181,841

The components of the income tax (benefit) provision for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 are as follows:

	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended			Three Months Ended			Three Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			March 31, 2021			March 31, 2020
	(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)			(unaudited)
Current:
Federal	$	(10,184	)	$	—		$	—		$	—		$	—		$	—
State		97,641			63,429			197,881			147,791			2,609			41,950
		87,457			63,429			197,881			147,791			2,609			41,950
Deferred:
Federal		(879,206	)		(437,390	)		(661,787	)		(429,257	)		(1,609,051	)		(1,396,079	)
State		(158,561	)		(11,184	)		(117,984	)		(26,932	)		(320,081	)		(233,328	)
Subtotals														(1,929,132	)		(1,629,407	)
Change in deferred tax valuation allowance														1,929,132			7,041,491
		(1,037,767	)		(448,574	)		(779,771	)		(456,189	)		-			5,412,084
	$	(950,310	)	$	(385,145	)	$	(581,890	)	$	(308,398	)	$	2,609		$	5,454,034

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

As of September 30, 2017 and December 31, 2016, we had a net deferred tax asset of approximately $7.7 million and $6.9 million, respectively, of which, approximately $6.8 million and $6.0 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 both September 30, 2017 and December 31, 2016, approximately $0.2 million of the net deferred tax asset is attributable to our share of start-up expenses related to the DoubleTree Resort by Hilton Hollywood Beach, start-up expenses related to the opening of the Sheraton Louisville Riverside and the Crowne Plaza Tampa Westshore that were not deductible in the year incurred, but are being amortized over 15 years. The remainder of the net deferred tax asset is attributable to year-to-year timing differences including 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 September 30, 2017 and December 31, 2016, 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 September 30, 2017 and December 31, 2016, 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 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 ~~partners~~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. The shares of the Series B Preferred Stock, 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 ~~657,092~~ non-committed, unearned ESOP shares ~~reduce~~are treated as reducing the number of issued and outstanding common shares and similarly ~~reduce~~reducing the weighted averagenumber 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 attributable to common stockholder for basic computation. There are no0 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.

Three Months Ended

Three Months Ended

Nine Months Ended

Nine Months Ended

September 30, 2017

September 30, 2016

September 30, 2017

September 30, 2016

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Numerator

Net income (loss) available to common
   stockholders for basic computation

$
(1,550,555
)

$
(1,716,234
)

$
597,385

$
527,971

Denominator

Weighted average number of common shares
   outstanding for basic computation

13,822,543

14,949,651

13,873,175

14,897,595

Basic net income (loss) per share

$
(0.11
)

$
(0.11
)

$
0.04

$
0.04

Weighted average number of common shares
   outstanding for diluted computation

13,822,543

14,949,651

13,885,290

14,897,595

Diluted net income (loss) per share

$
(0.11
)

$
(0.11
)

$
0.04

$
0.04

	Three Months Ended			Three Months Ended
	March 31, 2021			March 31, 2020
	(unaudited)			(unaudited)
Numerator
Net loss attributable to common stockholders for basic computation	$	(9,064,995	)	$	(14,323,699	)
Denominator
Weighted average number of common shares outstanding		15,118,044			14,813,533
Weighted average number of Unearned ESOP Shares		(502,324	)		(567,317	)
Total weighted average number of common shares outstanding for basic computation		14,615,720			14,246,216
Basic net loss per share	$	(0.62	)	$	(1.01	)

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

On ~~October 11, 2017,~~April 23, 2021, we entered into a fifth amendment to loan and security agreement with the ~~Company closed a sale and issuance of 1,200,000 shares of its newly authorized 7.875% Series C cumulative redeemable perpetual preferred stock (the “Series C Preferred Stock”),~~mortgage lender for ~~net proceeds after all estimated expenses of approximately $28.0 million. On October 17, 2017,~~ the ~~Company closed a sale and issuance of an additional 100,000 shares of its Series C Preferred Stock, for net proceeds of approximately $2.4 million, pursuant~~DoubleTree by Hilton Philadelphia Airport whereby the lender agreed to the ~~underwriters’ partial exercise~~following: (a) deferral of ~~an option granted by the Company to purchase additional shares.~~The Company contributed the net proceeds from the offering to its Operating Partnership for an equivalent number of Series C preferred units. We intend to use the net proceeds to redeem in full the Operating Partnership’s 7.0% Senior Unsecured Notes due 2019 and for general corporate purposes, including potential future acquisitions of hotel properties.

On October 11, 2017, we paid a quarterly dividend (distribution) of $0.11 per common share (and unit) to those stockholders (and unitholders of the Operating Partnership) of record on September 15, 2017.

~~On October 12, 2017, the Operating Partnership notified Wilmington Trust, National Association of the Operating Partnership’s intent to redeem the entire $25.3 million aggregate~~scheduled principal amount of its 7.0% Notes due 2019, pursuant to the terms of the indenture. The 7% Notes will be redeemed on November 15, 2017 at a redemption price equal to 101% of the principal amount of the 7% Notes, plus any accrued and unpaid interest to, but not including, the redemption date.

~~On October 16, 2017,~~ ~~we paid a~~ ~~quarterly dividend of $0.50 per preferred share (and unit) to the preferred stockholders (and preferred unitholders of the Operating Partnership) of record as of September 29, 2017.~~

~~On October 23, 2017, we authorized~~through June 1, 2021; (b) payment of a quarterly dividend (distribution) of $0.11 per common share (and unit) to the stockholders (and unitholders of the Operating Partnership) of record as of December 15, 2017. The dividend (distribution)regular principal and interest on June 2, 2021; (c) remaining deferred interest is to be paid ~~on January 11, 2018.~~

Onin 12 equal installments beginning June 2, 2021; and (d) deferred principal is due and payable at maturity. The maturity date was extended by 3 months, or until October 23, 2017, we authorized payment of a quarterly dividend of $0.50 per preferred share (and unit) to the Series B Preferred Stock holders (and preferred unitholders of the Operating Partnership) of record as of December 29, 2017. The dividend is to be paid on January 16, 2018.

On October 23, 2017, we authorized payment of a quarterly dividend of $0.43203 per preferred share (and unit) to the Series C Preferred Stock holders (and preferred unitholders of the Operating Partnership) of record as of December 29, 2017. The dividend is to be paid on January 16, 2018.31, 2023.

On April 26, 2021, the Board authorized the deferral of payment of the quarterly distribution for the period ending June 30, 2021 for each of the Company’s Series B, Series C, and Series D Preferred Stock (and Preferred Units).

On April 30, 2021, we entered into a loan modification and reinstatement agreement with the mortgage lender for the DoubleTree Resort by Hilton Hollywood Beach pursuant to which we agreed with the lender to amend and reinstate the promissory note and loan agreement on revised terms. Under the amended loan agreement and promissory note the Company (i) paid to the lender contemporaneously with the closing of the amendment and reinstatement an aggregate amount of approximately $4 million made up of (i) tax and insurance reserves required to be funded in certain reserve accounts in the aggregate amount of approximately $2.5 million; (ii) a lump sum payment of approximately $1.3 million in respect of amounts owed by us relating to payments for the period from January through March 2021; (iii) certain FF&E reserve amounts required to be deposited with the lender; and (iv) certain other fees and expenses. In addition, we agreed to (a) begin regular monthly payments on May 1, 2021; (b) pay the aggregate amount owed by the Company relating to deferred monthly payments for the period from April through December 2020 in 24 equal monthly installments of $119,591.36 beginning on January 1, 2021 and continuing through December 2022; and (c) certain other amended terms, including to restrict the borrower under the promissory note from making any distributions until all such deferred payments have been made. In consideration for the payments made at closing and the other amended terms the loan agreement, promissory note and other loan documents thereunder were amended and reinstated in accordance with their respective terms and conditions and the lender agreed to certain accommodations, including the waiver of the cash sweep period trigger for a period of time and to forbear in collection of default interest and late payment charges accrued and unpaid under the loan agreement and promissory note, provided that in the event of a future default those amounts will become due immediately and the waivers will no longer be effective.

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 mandated and 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, 2020 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, formerly MHI Hospitality, L.P.~~LP. We commenced operations in December 2004 when we completed our initial public offering and thereafter consummated the acquisition of the ~~initial properties.~~Initial Properties.

Our hotel portfolio currently consists of ~~eleven~~twelve full-service, primarily upscale and upper-upscale hotels, comprising ~~2,838~~3,156 rooms, as well as interests in two condominium hotels and ~~the hotel commercial condominium unit of the Hyde Resort & Residences. All of our properties, except for~~their associated rental programs. The ~~DeSoto, the Georgian Terrace, The Whitehall and the Hyde Resort & Residences~~Company owns hotels that operate under well-known brands such as DoubleTree by Hilton, ~~Crowne Plaza, DoubleTree~~Tapestry Collection by Hilton, Sheraton and ~~Sheraton.~~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 ~~September 30, 2017, we owned~~March 31, 2021, our portfolio consisted of the following hotel properties:

	Number
Property	of Rooms			Location	Date of Acquisition	Chain/ClassDesignation
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⁽²⁾		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, ~~Riverside~~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		~~2,838~~3,156

Condominium Hotel
Hyde Resort & Residences		~~200~~119	⁽³⁾⁽²⁾	Hollywood, FL	January 30, 2017	Luxury⁽¹⁾
Hyde Beach House Resort & Residences		134	⁽²⁾	Hollywood, FL	September 26, 2019	Luxury⁽¹⁾
Total Hotel & Participating Condominium Hotel Rooms		~~3,038~~3,409

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 ~~89.1%~~92.8% 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~~Initial Properties and related assets.

To qualify as a REIT, ~~we cannot~~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~~wholly-owned subsidiaries of the Operating Partnership. Our MHI TRS ~~Lessees~~Entities then engage an eligible independent hotel management ~~company~~companies to operate the hotels under a management agreement. Our MHI TRS ~~Lessees~~Entities have engaged ~~Chesapeake Hospitality~~Our Town to manage our ~~wholly-owned~~ 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 our hotels, temporarily suspended operations of our hotel condominium rental programs and dramatically reduced staffing and expenses. All of our hotels have remained open on a limited basis in order to serve the needs of the community – with the exception of the rental programs at our condominium hotels, which were temporarily closed for April and May of 2020. We believe that maintaining limited operations allows us to increase capacity at individual hotels as demand returns and the CDC and state guidelines allow for an easing and eventual elimination 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 our guests, employees and communities. Our hotels are gradually re-introducing guest amenities relative to the return of business while focusing on profit generators and margin control.

COVID-19 has had a significant negative impact on our operations and financial results both during the second quarter of 2020 and in the period following, including a substantial decline in our revenues, profitability and cash flows from operations compared to similar pre-pandemic periods. While the duration and full extent 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, travel orders are lifted, consumer confidence is restored and business travel approaches pre-pandemic levels. At a minimum, we expect the COVID-19 pandemic to continue to have a significant negative impact on our results of operations, financial position and cash flow through 2021. In response to the impact of COVID-19 on our 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 has limited our access to capital and could increase our cost of capital. We have sought and obtained forbearance and loan modification agreements with lenders under the mortgages for certain of our hotel properties as described above. As of March 31, 2021, we failed to make twelve consecutive monthly payments of principal and interest under the mortgage secured by our DoubleTree Resort by Hilton Hollywood Beach hotel, which constituted an Event of Default. In addition, we failed to meet the financial covenants under the mortgage agreement which triggered a “cash trap” requiring substantially all the profit generated by our hotel to be deposited directly into a lockbox account and swept into cash management accounts for the benefit of the lender. On April 30, 2021, we entered into a loan modification agreement curing the above mentioned Event of Default. See “Note 13 – Subsequent Events” for additional information.

As of March 31, 2021, we failed to meet the financial covenants under the mortgage secured by the DoubleTree by Hilton Jacksonville Riverfront, the DoubleTree Resort by Hilton Hollywood Beach and the Georgian Terrace, which triggered a “cash trap” under the loan documents relating to each of these properties requiring substantially all the revenue generated by those hotels to be deposited directly into lockbox accounts and swept into cash management accounts for the benefit of the respective lenders until each property meets the criteria in the relevant loan agreement for exiting the “cash trap”. Provided we continue to meet certain terms and conditions, the lender has waived the “cash trap” with respect to the DoubleTree Resort by Hilton Hollywood Beach and we are in negotiations with the lender on the DoubleTree by Hilton Jacksonville Riverfront for a waiver of the “cash trap”. Additionally, in order to receive forbearance from the lenders on the DoubleTree by Hilton Raleigh Brownstone – University and the Hyatt Centric Arlington, we agreed to “cash traps” which will continue until the properties meet the criteria in the forbearance agreements for exiting the “cash traps”.

The duration and extent of the reduction in hotel demand caused by the pandemic and the return to normalized operations creates corresponding uncertainty regarding our future cash flows. Accordingly, the Company is unable to accurately forecast its cash flows and available liquidity to meet its obligations for operating expenses, planned capital expenditures and scheduled payments of principal and interest – including scheduled repayments of deferred principal and interest. Uncertainty in the timing and extent of the return to normalized operations may also result in non-compliance with financial covenants for which the Company has not already received a waiver over the next four to six quarters. U.S. generally accepted accounting principles (“U.S. GAAP”) requires, that when preparing financial statements for each annual and interim reporting period, management evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt regarding the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Due to the uncertainties described above related to future cash flows and resulting compliance with the financial covenants under our mortgage loans, the Company determined that there is substantial doubt about its ability to continue as a going concern. 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.

On December 31, 2020, we closed a transaction with KW, as collateral agent and an investor, and MIG, as an investor, whereby the Investors purchased $20.0 million in Secured Notes from the Operating Partnership with an option to require the Investors to purchase an additional $10.0 million in Secured Notes. We entered into the following agreements: (i) a Note Purchase Agreement; (ii) a Secured Note with KW in the amount of $10.0 million and a Secured Note with MIG in the amount of $10.0 million; (iii) a Pledge and Security Agreement; (iv) a Board Observer Agreement; and (v) other related ancillary agreements. The Secured Notes mature in 3 years and will be payable on or before the maturity date at the rate of 1.47x the principal amount borrowed during the initial 3-year term, with a 1-year extension at Company’s option. The Secured Notes also carry a 6.0% current interest rate, payable quarterly during the initial 3-year term. Certain subsidiaries of the Operating Partnership entered into the Pledge Agreement with KW, pursuant to which we agreed to pledge and grant to KW a first priority security interest in the equity interests, including certain voting rights, of our affiliates that own The DeSoto hotel, Hotel Ballast Wilmington, and the DoubleTree by Hilton Philadelphia Airport hotel. Upon an uncured monetary event of default under the Secured Notes, KW, as collateral agent, has a right to sell, lease or otherwise dispose of or realize upon the Pledged Collateral in order to satisfy any amounts outstanding under the Secured Notes. Pursuant to the Board Observer Agreement, the Company granted KW the option and the right, while the Secured Notes remain outstanding, to appoint a single representative to attend meetings of the Company’s board of directors and its committees in a non-voting, observer capacity only. We are prohibited from making any equity distributions as long as the Secured Notes are outstanding.

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 ~~reservation expenses)~~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 and the Hyde Beach House Resort & Residences that participate in our rental ~~program~~programs and are not reserved for owner-occupancy.

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

The following tables illustrate the key operating metrics for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016,~~2020, 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 nine months ended September 30, 2017 and the corresponding period in 2016 (“same-store” portfolio metrics). Accordingly, the ~~same-store~~actual data does not ~~reflect~~include the ~~performance of the Crowne Plaza Hampton Marina which was sold in February 2017, or our interest in~~participating condominium hotel rooms at the Hyde Resort & Residences ~~which was acquired on January 30, 2017.~~or the Hyde Beach House Resort & Residences. The composite portfolio metrics represent all of the Company’s 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 nine~~ months ended ~~September 30, 2017~~March 31, 2021 and the corresponding ~~period~~periods in ~~2016.~~2020.

	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended			Three Months Ended			Three Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			March 31, 2021			March 31, 2020
Actual Portfolio Metrics
Occupancy %		71.1	%		71.5	%		72.6	%		72.0	%
ADR	$	135.09		$	134.55		$	143.53		$	141.16
RevPAR	$	96.11		$	96.26		$	104.16		$	101.69
Same-Store Portfolio Metrics
Occupancy %		71.1	%		71.8	%		72.9	%		72.8	%		41.1	%		54.4	%
ADR	$	135.09		$	136.42		$	143.77		$	143.31		$	132.78		$	158.44
RevPAR	$	96.11		$	97.90		$	104.77		$	104.27		$	54.55		$	86.16
Composite Portfolio Metrics
Occupancy %		69.6	%		71.5	%		71.1	%		72.0	%		41.8	%		53.0	%
ADR	$	140.24		$	134.55		$	146.73		$	141.16		$	158.40		$	168.63
RevPAR	$	97.56		$	96.26		$	104.29		$	101.69		$	66.14		$	89.35

Comparison of the Three Months Ended ~~September 30, 2017~~March 31, 2021 to the Three Months Ended ~~September 30, 2016~~March 31, 2020

Revenue. Total revenue for the three months ended ~~September 30, 2017~~March 31, 2021 decreased approximately ~~$0.5~~$14.6 million, or ~~1.4%~~39.2%, to approximately ~~$36.8~~$22.6 million compared to total revenue of approximately ~~$37.3~~ $37.2 million for the three months ended ~~September 30, 2016.~~March 31, 2020. There was an aggregate increase in total revenue of approximately $3.3 million from our properties in Atlanta, Georgia, Arlington, Virginia, and the Hyde Beach House in Hollywood, Florida. The remaining properties had an aggregate decrease of approximately $17.9 million in total revenue, for the three months ended ~~September 30, 2017~~March 31, 2021, which resulted ~~mainly~~ from our hotel properties being affected by the ~~sale of our property~~COVID-19 pandemic and the resulting reduction in ~~Hampton, Virginia which reduced revenues~~travel by ~~approximately $1.6 million. In addition, our properties impacted by renovation~~

~~activities in Wilmington, North Carolina, Savannah, Georgia~~group business, event holders and ~~Hollywood Beach, Florida had reduced revenues of approximately $0.5 million.~~ ~~Revenue decreases were also realized by our property in Philadelphia, Pennsylvania. These reductions were offset by our interest~~conferences, transient consumers, along with the reduction in the ~~Hyde Resort & Residences condominium hotel, acquired on January 30, 2017, accounting for an increase~~number of ~~approximately $1.2 million for~~foreign travelers due to the ~~period~~closing of U.S. borders and ~~by a net increase in revenues~~closing of approximately $0.4 million for the period for our properties in Raleigh, North Carolina; Laurel, Maryland; Jacksonville, Florida; Jeffersonville, Indiana; Tampa, Florida; Houston, Texas and Atlanta, Georgia.local businesses.

Room revenue decreased approximately ~~$1.6~~$9.2 million, or ~~5.9%~~37.4%, to approximately ~~$25.1~~$15.5 million for the three months ended ~~September 30, 2017~~March 31, 2021 compared to room revenue of approximately ~~$26.7~~$24.7 million for the three months ended ~~September 30, 2016.~~March 31, 2020. The decrease in room revenue for the three months ended ~~September 30, 2017~~March 31, 2021 resulted ~~mainly~~ from ~~the sale~~all of our properties being affected by the COVID-19 pandemic and the resulting reduction in hotel occupancy, with the exception of our Tampa, Florida property, ~~in Hampton, Virginia~~ which reduced revenues by approximately $1.1 million and in addition our properties impacted by renovation activities in Wilmington, North Carolina, Savannah, Georgia and Hollywood Beach, Florida had reduced revenues of approximately $0.9 million, which reflected a 4.6% decrease in occupancy, as compared to the same period in 2016. Room revenue decreases of approximately $1.0 million were also realized by our property in Philadelphia, Pennsylvania. These decreasesexperienced an increase in room revenue ~~for the three months ended September 30, 2017 were offset by a net increase~~ of approximately ~~$0.4 million~~a $0.03 resulting from ~~increases at our properties in Raleigh, North Carolina; Laurel, Maryland; Jacksonville, Florida; Jeffersonville, Indiana; Tampa, Florida; Houston, Texas~~Superbowl demand and ~~Atlanta, Georgia of approximately $1.4 million.~~increased leisure travel.

Food and beverage revenues decreased approximately ~~$0.4~~$6.6 million, or ~~4.9%~~81.1%, to approximately ~~$8.0~~$1.5 million for the three months ended ~~September 30, 2017~~March 31, 2021 compared to food and beverage revenues of approximately ~~$8.4~~ $8.1 million for the three months ended ~~September 30, 2016.~~March 31, 2020. The decrease in food and beverage revenues for the three months ended ~~September 30, 2017~~March 31, 2021 resulted ~~mainly~~ from ~~the sale~~all of our ~~property~~properties being affected by the COVID-19 pandemic, the resulting reduction in ~~Hampton, Virginia which reduced revenues by approximately $0.4 million. In addition, our property in Wilmington, North Carolina impacted by renovation activities saw a decrease in food~~hotel occupancy and beverage revenues by $0.1 million. Our properties in Raleigh, North Carolina; Philadelphia, Pennsylvania; Tampa, Florida; Houston, Texas and Atlanta, Georgia also realized decreases in food and beverage revenue. These decreases for the three month period were offset by increases in food and beverage revenues at our properties in Savannah, Georgia; Laurel, Maryland; Jacksonville, Florida; Hollywood Beach, Florida and Jeffersonville, Indianacancellation of ~~approximately $1.0 million.~~scheduled events.

Revenue from other operating departments increased approximately ~~$1.5~~$1.3 million, or ~~67.4%~~29.6%, to approximately ~~$3.7~~$5.6 million for the three months ended ~~September 30, 2017~~March 31, 2021 compared to revenue from other operating departments of approximately ~~$2.2~~$4.3 million for the three months ended ~~September 30, 2016.~~March 31, 2020. The increase in ~~revenue from~~ other operating departments revenue for the three months ended ~~September 30, 2017~~March 31, 2021 resulted mainly from ~~the new operations at the~~our hotel properties Savannah, Georgia, Philadelphia, Pennsylvania, Laurel, Maryland, Hollywood, Florida, Jeffersonville, Indiana, Atlanta, Georgia, Hyde Resort ~~& Residences, accounting for an increase~~and Hyde Beach House in Florida and the hotel property in Arlington, Virginia, by approximately $1.4 million, which was offset by the remaining properties having a slight aggregate decrease in other operating departments revenue of approximately ~~$1.2 million for the period~~$0.01 million. The increase at those properties was mainly from pent up demand with opening of some states and ~~$0.3 million received by the Hollywood Beach, Florida property for construction interruption payments relating to the construction of a new building next to the property.~~mainly from travel and leisure sectors.

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 ~~$28.8~~$13.7 million, or 42.7%, to approximately $18.4 million for the three months ended ~~September 30, 2017, an increase of approximately $0.6 million, or 2.1%,~~March 31, 2021, compared to total hotel operating expenses of approximately ~~$28.2~~$32.1 million for the three months ended ~~September 30, 2016.~~March 31, 2020. The ~~increase~~decrease in hotel operating expenses for the three months ended ~~September 30, 2017 was substantially related to a decrease in expenses of approximately $1.4 million after the sale~~March 31, 2021 resulted from all of our ~~property in Hampton, Virginia. This decrease~~properties being affected by the COVID-19 pandemic and the resulting reduction in hotel ~~operating expenses was offset by a net increase in hotel operating expenses~~occupancy, with the exception of approximately $0.8 million that resulted from increases in expenses at our properties in Raleigh, North Carolina; Laurel, Maryland; Jacksonville, Florida; Tampa, Florida and Houston, Texas and an increase in expenses from the start of operations at the Hyde Beach House Resort & Residences in Florida which ~~accounted for~~experienced an increase in hotel operating expenses resulting from an increase in the number of ~~approximately $1.5 million for the period, that were~~units participating in ~~turn offset by decreases in hotel operating expenses of approximately $0.7 million at~~ our properties impacted by renovation activities in Wilmington, North Carolina and Hollywood Beach, Florida and decreases in expenses at our properties in Philadelphia, Pennsylvania: Jeffersonville, Indiana and Atlanta, Georgia.rental program.

Rooms expense for the three months ended ~~September 30, 2017~~March 31, 2021 decreased approximately ~~$0.3~~$3.1 million, or ~~4.2%~~43.6%, to approximately ~~$6.8~~$4.0 million compared to rooms expense for the three months ended ~~September 30, 2016~~March 31, 2020 of approximately $7.1 ~~million, after reclassifications of information and telecommunications in the prior year to indirect expenses.~~million. The ~~net~~ decrease in rooms expense for the three months ended ~~September 30, 2017 partially~~March 31, 2021 resulted from ~~a decrease in expenses of approximately $0.4 million after the sale~~all of our ~~property~~properties being affected by the COVID-19 pandemic and the resulting reduction in Hampton, Virginia. Additionally, increases in rooms expenses of approximately $0.3 million at our properties in Savannah, Georgia; Raleigh, North Carolina; Laurel, Maryland; Jacksonville, Florida; Hollywood Beach, Florida; Jeffersonville, Indiana and Atlanta, Georgia, were offset by approximately $0.3 million of decreases in rooms expenses at our properties in Wilmington, North Carolina; Philadelphia, Pennsylvania and Tampa, Florida. hotel occupancy.

Food and beverage expenses for the three months ended ~~September 30, 2017 increased~~March 31, 2021 decreased approximately ~~$0.2~~$5.7 million, or ~~3.8%~~86.2%, to approximately ~~$6.0~~$0.9 million compared to food and beverage expenses of approximately ~~$5.8~~$6.6 million for the three months ended ~~September 30, 2016.~~ March 31, 2020. The ~~increase~~net decrease in food and beverage expenses for the three months ended ~~September 30, 2017~~ March 31, 2021 resulted from

~~increases~~ all of ~~approximately $0.7 million at~~ our properties being affected by the COVID-19 pandemic and the resulting reduction in ~~Savannah, Georgia; Laurel, Maryland; Jacksonville, Florida and Hollywood Beach, Florida, offset by decreases in~~ ~~food and beverage expenses of approximately $0.5 million~~ ~~at our properties in~~ ~~Wilmington, North Carolina; Raleigh, North Carolina;~~ ~~Philadelphia, Pennsylvania;~~ ~~Jeffersonville, Indiana; Houston, Texas and Atlanta, Georgia.~~hotel occupancy.

Expenses from other operating departments ~~increased~~decreased approximately ~~$0.1~~$0.4 million, or ~~9.8%~~14.6%, to approximately ~~$0.7~~ $1.9 million for the three months ended ~~September 30, 2017~~March 31, 2021 compared to expenses from other operating departments of approximately ~~$0.6~~$2.3 million for the three months ended ~~September 30, 2016.~~March 31, 2020. The ~~increase~~decrease in ~~expense~~expenses from other operating departments for the three months ended ~~September 30, 2017~~ March 31, 2021 resulted ~~mainly~~ from most of our properties being affected by the ~~acquired interest~~COVID-19 pandemic and ~~new operations~~the resulting reduction in hotel occupancy. The exceptions were our properties in Philadelphia, Pennsylvania, Hollywood, Florida, Jeffersonville, Indiana and the Hyde Beach House Resort & Residences, Florida ~~accounting for~~with an aggregate increase in other operating departments expenses of approximately ~~$0.2 million for the period, offset by a net decrease of approximately $0.1 million at our other properties.~~$0.4 million.

Indirect expenses at our wholly-owned properties for the three months ended ~~September 30, 2017 increased~~March 31, 2021 decreased approximately ~~$0.6~~$4.6 million, or ~~4.2%~~28.4%, to approximately ~~$15.2~~$11.6 million compared to indirect expenses of approximately ~~$14.6~~$16.2 million for the three months ended ~~September 30, 2016, after reclassifications of information and telecommunications in the prior year to indirect expenses from rooms expense.~~March 31, 2020. The ~~increase~~decrease in indirect expenses for the three months ended ~~September 30, 2017~~March 31, 2021 resulted from all properties, with the ~~new operations at~~exception of the ~~Hyde Resort & Residences, accounting for~~property in Arlington, Virginia, with an increase ~~in indirect expenses~~ of approximately ~~$1.1~~$0.8 million for the period, that was offset by a decrease in expenses of approximately $0.7 million after the sale of our property in Hampton, Virginia. The remaining net increase in indirect expenses of approximately $0.2 million resulted from increases in general and administrative expenses and other expenses at most of the other hotel properties.

~~Depreciation and Amortization~~. Depreciation and amortization expense for the three months ended September 30, 2017 increased approximately $0.6 million, or 16.8%, to $4.4 million compared to depreciation and amortization of approximately $3.8 million for the three months ended September 30, 2016. The increase was mostly attributable to increases in the depreciation related to our properties being renovated in Wilmington, North Carolina; Savannah, Georgia and Hollywood Beach, Florida, that accounted for increases of approximately $0.6 million for the period.

Corporate General and Administrative. Corporate general and administrative expenses for the three months ended ~~September 30, 2017~~March 31, 2021 decreased approximately ~~$0.1~~$0.6 million, or ~~2.4%~~30.8%, to approximately $1.3 million compared to corporate general and administrative expenses of approximately ~~$1.4~~$1.9 million for the three months ended ~~September 30, 2016.~~March 31, 2020. The decrease in corporate general and administrative expenses was mainly due to ~~a one-time write down of deferred offering costs of approximately $0.5 million offset by increased~~decreased salaries, legal, audit, travel and professional fees ~~for Sarbanes Oxley standards and legal costs associated with Hyde Resort & Residences.~~by approximately $0.6 million.

Interest Expense. Interest expense for the three months ended ~~September 30, 2017 decreased~~March 31, 2021 increased approximately ~~$0.5~~$1.3 million, or ~~10.5%~~29.8%, to approximately ~~$4.1~~$5.9 million, as compared to interest expense of approximately $4.6 million for the three months ended ~~September 30, 2016.~~March 31, 2020. The ~~decrease~~increase in interest expense for the three months ended ~~September 30, 2017,~~March 31, 2021, was substantially related to the ~~redemption of~~Secured Loan and the ~~8% unsecured notes in August 2016, that~~Arlington Mortgage loan, which accounted for ~~a decrease~~an increase of approximately ~~$0.4~~$1.4 million compared to the three-month period ending ~~September 30, 2016.~~ March 31, 2020.

~~Loss on Early Debt Extinguishment.~~ During the nine months ended September 30, 2017 we refinanced a variable rate mortgage loan, we had with Bank of the Ozarks on the DoubleTree by Hilton Jacksonville Riverfront, with a new fixed rate loan from Wells Fargo Bank, NA. The amount of accumulated un-amortized loan costs written off duringInterest Income. Interest income for the three months ended ~~September 30, 2017~~March 31, 2021 decreased by $21,766, or 36.1%, to $38,599 compared to interest income of $60,365 for the three months ended March 31, 2020. The decrease is due to lower amounts of interest-bearing cash and ~~2016 was $0 and approximately $1.0 million, respectively.~~ cash equivalents held during the three-month period ending March 31, 2021 compared to the three-month period ending March 31, 2020.

Unrealized ~~Loss~~Gain (Loss) on Hedging Activities. As of ~~September 30, 2017,~~March 31, 2021, the fair market value of ~~the~~our interest rate cap is ~~$2,849.~~$300, and the fair market value of our interest rate swap liability is approximately $2.6 million. The unrealized ~~loss~~gain on hedging activities during the three months ended ~~September 30, 2017~~March 31, 2021, was approximately $0.4 million and ~~2016, was $3,542 and $492, respectively.~~

~~Income Taxes.~~ ~~We had an income tax benefit of approximately $1.0 million for~~during the three months ended ~~September 30, 2017 compared to an income tax benefit of approximately $0.4 million for~~March 31, 2020, the three months ended September 30, 2016. The income tax provision is primarily derived from the operations of our TRS Lessees. Our TRS Lessees realized operating loss for the three months ended September 30, 2017 and an operating loss for the three months ended September 30, 2016.

~~Net Income~~. We realized net loss for the three months ended September 30, 2017 of approximately $0.9 million compared to net loss of approximately $1.5 million for the three months ended September 30, 2016 as a result of the operating results discussed above.

~~Comparison of the Nine Months Ended September 30, 2017 to the Nine Months Ended September 30, 2016~~

~~Revenue~~. Total revenue for the nine months ended September 30, 2017 decreased approximately $0.8 million, or 0.7%, to approximately $116.1 million compared to total revenue of approximately $116.9 million for the nine months ended September 30,

2016. The decrease in revenue for the nine months ended September 30, 2017 resulted mainly from the sale of our property in Hampton, Virginia which reduced revenues by approximately $3.8 million. In addition, our properties impacted by renovation activities in Wilmington, North Carolina; Savannah, Georgia and Hollywood Beach, Florida had reduced revenues of approximately $1.8 million. Revenue decreases were also realized by our properties in Philadelphia, Pennsylvania and Jeffersonville, Indiana. These reductions were offset by our interest in the Hyde Resort & Residences condominium hotel, acquired on January 30, 2017, accounting for an increase of approximately $2.8 million for the period and by a net increase in revenues of approximately $2.0 million for the period at our properties in Raleigh, North Carolina; Laurel, Maryland; Jacksonville, Florida; Tampa, Florida; Houston, Texas and Atlanta, Georgia.

Room revenue decreased approximately $2.5 million, or 3.0%, to approximately $81.4 million for the nine months ended September 30, 2017 compared to room revenue of approximately $83.9 million for the nine months ended September 30, 2016. The decrease in room revenue for the nine months ended September 30, 2017 resulted mainly from the sale of our property in Hampton, Virginia which reduced revenues by approximately $2.6 million. In addition, our properties impacted by renovation activities in Wilmington, North Carolina; Savannah, Georgia and Hollywood Beach, Florida had reduced revenues of approximately $1.9 million, which reflected a 1.9% decrease in occupancy, as compared to the same period in 2016. Room revenue decreases of approximately $1.5 million were also realized by our properties in Philadelphia, Pennsylvania and Jeffersonville, Indiana. These decreases in room revenue for the nine months ended September 30, 2017 were offset by a net increase of approximately $2.0 million resulting from increases at our properties in Raleigh, North Carolina; Laurel, Maryland; Jacksonville, Florida; Tampa, Florida; Houston, Texas and Atlanta, Georgia of approximately $3.5 million.

Food and beverage revenues decreased approximately $1.3 million, or 5.1%, to approximately $24.9 million for the nine months ended September 30, 2017 compared to food and beverage revenues of approximately $26.2 million for the nine months ended September 30, 2016. The decrease in food and beverage expenses for the nine months ended September 30, 2017, resulted mainly from a decrease in expenses of approximately $1.1 million after the sale of our property in Hampton, Virginia and from our properties impacted by renovation activities in Wilmington, North Carolina, Savannah, Georgia and Hollywood Beach, Florida that had reduced food and beverage revenues of approximately $0.3 million. Our properties in Raleigh, North Carolina; Jeffersonville, Indiana; Tampa, Florida; and Atlanta, Georgia also realized food and beverage revenue decreases. These decreases were offset by a net increase in food and beverage revenues of approximately $0.1 million from increases at our properties in Philadelphia, Pennsylvania; Laurel, Maryland; Jacksonville, Florida and Houston, Texas.

Revenue from other operating departments increased approximately $3.1 million, or 45.2%, to approximately $9.8 million for the nine months ended September 30, 2017 compared to revenue from other operating departments of approximately $6.8 million for the nine months ended September 30, 2016. The increase in revenue from other operating departments for the nine months ended September 30, 2017 resulted mainly from the start of operations at the Hyde Resort & Residences, accounting for an increase of approximately $2.8 million for the period and $0.3 million received by the Hollywood Beach, Florida property for construction interruption payments relating to the construction of a new building next to the property.

~~Hotel Operating Expenses~~. Hotel operating expenses, which consist of room expenses, food and beverage expenses, other direct expenses, indirect expenses and management fees, were approximately $85.1 million for the nine months ended September 30, 2017, a decrease of approximately $0.2 million, or 0.2%, compared to total hotel operating expenses of approximately $85.3 million for the nine months ended September 30, 2016. The decrease in hotel operating expenses for the nine months ended September 30, 2017 was substantially related to a decrease in expenses of approximately $3.5 million after the sale of our property in Hampton, Virginia. This decrease was offset by a net increase in hotel operating expenses of approximately $3.3 million resulting from increases in hotel operating expenses of approximately $5.5 million for the period at our properties in Savannah, Georgia; Raleigh, North Carolina; Laurel, Maryland; Jacksonville, Florida; Tampa, Florida; Houston, Texas and the Hyde Resort & Residences condominium hotel, that were in turn offset by decreases in hotel operating expenses of approximately $2.2 million at our properties in Philadelphia, Pennsylvania; Jeffersonville, Indiana; Atlanta, Georgia and at our properties impacted by renovation activities in Wilmington, North Carolina and Hollywood Beach, Florida.

Rooms expense for the nine months ended September 30, 2017 decreased approximately $1.1 million, or 5.1%, to approximately $20.3 million compared to rooms expense for the nine months ended September 30, 2016 of approximately $21.3 million. The net decrease in rooms expense for the nine months ended September 30, 2017 resulted from a decrease in expenses of approximately $0.9 million after the sale of our property in Hampton, Virginia. The remaining net decrease in rooms expenses of approximately $0.2 million resulted from increases in rooms expenses at our properties in Laurel, Maryland; Jacksonville, Florida; Houston, Texas and Atlanta, Georgia, that were offset by decreases in rooms expenses at our properties impacted by renovation activities in Wilmington, North Carolina; Savannah, Georgia and Hollywood Beach, Florida and other rooms expense decreases at properties in Raleigh, North Carolina; Tampa, Florida; Philadelphia, Pennsylvania and Jeffersonville, Indiana.

Food and beverage expenses for the nine months ended September 30, 2017 decreased approximately $0.3 million, or 1.8%, to approximately $17.9 million compared to food and beverage expenses of approximately $18.3 million for the nine months ended

September 30, 2016. The decrease in food and beverage expenses for the nine months ended September 30, 2017, resulted mainly from a decrease in expenses of approximately $0.9 million after the sale of our property in Hampton, Virginia. The remaining net increase in rooms expenses of approximately $0.6 million resulted from an increases in rooms expenses at our properties in Philadelphia, Pennsylvania; Laurel, Maryland; Jacksonville, Florida and Houston, Texas, that were offset by decreases in rooms expenses at our properties impacted by renovation activities in Wilmington, North Carolina; Savannah, Georgia and Hollywood Beach, Florida and other rooms expense decreases at properties in Raleigh, North Carolina; Tampa, Florida; Jeffersonville, Indiana and Atlanta, Georgia.

Indirect expenses at our wholly-owned properties for the nine months ended September 30, 2017 increased approximately $1.2 million, or 2.7%, to approximately $45.0 million compared to indirect expenses of approximately $43.8 million for the nine months ended September 30, 2016. The increase in indirect expenses for the nine months ended September 30, 2017 resulted mainly from the new operations at the Hyde Resort & Residences, accounting for an increase in indirect expenses of approximately $1.4 million for the period. The net decrease in this amount of approximately $0.8 million that was substantially related to a decrease in indirect expenses of approximately $1.1 million after the sale of our property in Hampton, Virginia, which was in turn offset by increases in hotel operating expenses of approximately $0.03 million resulting mainly from a reclassification of information and technology costs out of rooms expense and into indirect expenses.

~~Depreciation and Amortization~~. Depreciation and amortization expense for the nine months ended September 30, 2017 increased approximately $1.4 million, or 12.9%, to $12.7 million compared to depreciation and amortization of approximately $11.3 million for the nine months ended September 30, 2016. The increase was mostly attributable to approximately $1.7 million in the depreciation related to our properties being renovated in Wilmington, North Carolina; Savannah, Georgia and Hollywood Beach, Florida and the new operations at the Hyde Resort & Residences, offset by the reduction from a decrease in depreciation expenses of approximately $0.3 million after the sale of our property in Hampton, Virginia.

~~Corporate General and Administrative.~~ Corporate general and administrative expenses for the nine months ended September 30, 2017 increased approximately $0.6 million, or 12.7% to approximately $4.9 million compared to corporate general and administrative expenses of approximately $4.3 million for the nine months ended September 30, 2016. The increase in corporate general and administrative expenses was mainly due to a one-time write down of deferred offering costs of approximately $0.5 million.

~~Interest Expense~~. Interest expense for the nine months ended September 30, 2017 decreased approximately $2.0 million, or 14.7%, to approximately $11.8 million compared to interest expense of approximately $13.9 million for the nine months ended September 30, 2016. The decrease in interest expense for the nine months ended September 30, 2017, was substantially related to the redemption of the 8% unsecured notes in August 2016 that accounted for a decrease of approximately $1.5 million, compared to the nine-month period ending September 30, 2016. We also reduced our Hampton, Virginia and Houston, Texas loans by approximately $9.0 million resulting in a reduction of interest by approximately $0.4 million.

~~Unrealized Loss on Hedging Activities.~~ ~~As of September 30, 2017, the fair market value of the interest rate cap is $2,849. The~~ unrealized loss on hedging activities ~~during the nine months ended September 30, 2017 and 2016,~~ was ~~$30,748 and $66,567, respectively.~~approximately $1.6 million.

Gain on Involuntary Conversion of ~~Asset~~s.Assets. Gain on involuntary conversion of assets for the ~~nine~~three months ended ~~September 30, 2017 increased approximately $1.0 million~~March 31, 2021 decreased to ~~approximately $1.0 million~~$0 compared to a $12,439 gain on involuntary conversion of assets ~~of $0~~ for the ~~nine~~three months ended September 30, 2016. During October 2016, hurricane Matthew damaged real and personal property at our Crowne Plaza Hampton Marina and The DeSoto properties and we had a one-time involuntary conversion in the amount of approximately $1.0 million.March 31, 2020.

Income Taxes. We had an income tax ~~benefit~~provision of ~~approximately $0.6 million~~$2,609 for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 compared to an income tax ~~benefit~~provision of approximately ~~$0.3~~$5.5 million for the ~~nine~~three months ended ~~September 30, 2016. The income~~March 31, 2020. Our MHI TRS Entities realized operating losses for each of the three months ended March 31, 2021 and 2020. During the first quarter of 2020, we reduced our deferred tax ~~provision is primarily derived from~~assets through the ~~operations~~establishment of ~~our TRS Lessees. Our TRS Lessees~~a 100% valuation allowance of approximately $5.4 million, during the three-month period ending March 31, 2021, we increased the valuation allowance by approximately $1.9 million to approximately $16.6 million, as of March 31, 2021.

Net Loss. We realized ~~an operating~~a net loss for the ~~nine~~three months ended ~~September 30, 2017, compared to an operating loss for the nine-month period ending September 30, 2016.~~

~~Net Income. We realized net income for the nine months ended September 30, 2017~~March 31, 2021 of approximately ~~$3.1~~$7.6 million compared to a net ~~income~~loss of approximately ~~$1.0~~$13.3 million for the ~~nine~~three months ended ~~September 30, 2016 as a result~~March 31, 2020, because of the operating results discussed above.

We consider FFO Available to Common Stockholders and Unitholders, Adjusted FFO Available to Common Stockholders and Unitholders, 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 ~~generally accepted accounting principles (“GAAP”)~~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~~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 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 Available to Common Stockholders and Unitholders in the same manner as we do, and investors should not assume that FFO Available to Common Stockholders and Unitholders as reported by us is comparable to FFO as reported by other REITs.

We further adjust FFO Available to Common Stockholders and Unitholders 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, management contract termination costs, and change in control gains or ~~losses and acquisition transaction costs.~~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 Available to Common Stockholders and Unitholders 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 ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016:~~2020:

Three Months Ended

Three Months Ended

Nine Months Ended

Nine Months Ended

September 30, 2017

September 30, 2016

September 30, 2017

September 30, 2016

Net (loss) income available to common stockholders

$
(1,550,555
)

$
(1,716,234
)

$
597,385

$
527,971

Add: Net (loss) income attributable to noncontrolling interest

(190,445
)

(172,846
)

73,366

106,377

Depreciation and amortization

4,427,738

3,790,872

12,708,548

11,260,987

Gain on involuntary conversion of assets

—

—

(1,041,815
)

—

Loss (gain) on disposal of assets

23,000

189,267

(26,238
)

329,461

FFO

$
2,709,738

$
2,091,059

$
12,311,246

$
12,224,796

Increase in deferred income taxes

(1,037,767
)

(448,574
)

(779,771
)

(456,188
)
Loss on early debt extinguishment

—

1,087,395

228,087

1,157,688

Loss on aborted offering costs

—

—

541,129

—

Loan modification fees

—

—

—

30,057

Unrealized loss on hedging activities

3,542

492

30,748

66,567

Adjusted FFO available to common stockholders

$
1,675,513

$
2,730,372

$
12,331,439

$
13,022,920

Weighted average number of shares outstanding, basic

13,822,543

14,949,651

13,873,153

14,897,595

Weighted average number of non-controlling units

1,778,140

1,778,140

1,778,140

1,825,962

Weighted average number of shares and units outstanding, basic

15,600,683

16,727,791

15,651,293

16,723,557

FFO per share and unit

$
0.17

$
0.13

$
0.79

$
0.73

Adjusted FFO per share and unit

$
0.11

$
0.16

$
0.79

$
0.78

	Three Months Ended			Three Months Ended
	March 31, 2021			March 31, 2020
Net loss attributable to common stockholders	$	(9,064,995	)	$	(14,323,699	)
Add: Net loss attributable to noncontrolling interest		(699,539	)		(1,197,416	)
Depreciation and amortization - real estate		4,964,515			4,967,449
Gain on involuntary conversion of assets		—			(12,439	)
FFO attributable to common stockholders and unitholders	$	(4,800,019	)	$	(10,566,105	)
Decrease in deferred income taxes		—			5,412,084
Amortization		17,500			15,427
Contract termination fee refund		—			(72,960	)
Unrealized loss (gain) on hedging activities		(390,185	)		1,585,632
Adjusted FFO attributable to common stockholders and unitholders	$	(5,172,704	)	$	(3,625,922	)

Weighted average number of shares outstanding, basic		14,615,720			14,246,216

Weighted average number of non-controlling units		1,166,440			1,239,188

Weighted average number of shares and units outstanding, basic		15,782,160			15,485,404

FFO per common share and unit	$	(0.30	)	$	(0.68	)

Adjusted FFO per common share and unit	$	(0.33	)	$	(0.23	)

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, (15) distributions to preferred stockholders and ~~(14)~~(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 ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016:~~2020:

	Three Months Ended			Three Months Ended			Nine Months Ended			Nine Months Ended			Three Months Ended			Three Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			March 31, 2021			March 31, 2020
Net (loss) income available to common stockholders	$	(1,550,555	)	$	(1,716,234	)	$	597,385		$	527,971
Add: Net (loss) income attributable to noncontrolling interest		(190,445	)		(172,846	)		73,366			106,377
Net loss attributable to common stockholders													$	(9,064,995	)	$	(14,323,699	)
Add: Net loss attributable to noncontrolling interest														(699,539	)		(1,197,416	)
Interest expense		4,139,267			4,626,333			11,827,061			13,872,129			5,919,523			4,561,840
Interest income		(53,314	)		(44,485	)		(126,241	)		(63,523	)		(38,599	)		(60,365	)
Income tax benefit		(950,310	)		(385,145	)		(581,890	)		(308,398	)
Income tax provision														2,609			5,454,034
Depreciation and amortization		4,427,738			3,790,872			12,708,548			11,260,987			4,982,015			4,982,876
Loss on early debt extinguishment		—			1,087,395			228,087			1,157,688
Loss (gain) on disposal of assets		23,000			189,267			(26,238	)		329,461
Gain on involuntary conversion of assets		—			—			(1,041,815	)		—
Distributions to preferred stockholders		805,000			339,889			2,415,000			339,889			2,188,910			2,188,910
EBITDA		6,650,381			7,715,046			26,073,263			27,222,581			3,289,924			1,606,180
Gain on involuntary conversion of Assets														—			(12,439	)
Subtotal														3,289,924			1,593,741
Corporate general and administrative		1,335,192			1,367,848			4,882,541			4,331,896			1,300,958			1,880,125
Unrealized loss on hedging activities		3,542			492			30,748			66,567
Unrealized loss (gain) on hedging Activities														(390,185	)		1,585,632
Hotel EBITDA	$	7,989,115		$	9,083,386		$	30,986,552		$	31,621,044		$	4,200,697		$	5,059,498

Our principal sources of cash are cash from hotel operations, proceeds from the sale of common and preferred stock, proceeds from the sale of secured and unsecured note, proceeds of mortgage and other debt and hotel property sales. Our principal uses of cash are acquisitions of hotel properties, capital expenditures, debt services and maturities, operating costs, corporate expenses and dividends. As of March 31, 2021, we had approximately $21.1 million of unrestricted cash and $11.9 million of restricted cash, and also had the option to require the Investors of our Secured Notes to purchase an additional $10.0 million in additional Secured Notes.

Operating Activities. Our ~~principal source~~net cash flow used in operating activities for the three months ended March 31, 2021was approximately $0.8 million generally consisting of net cash flow used in hotel operations. The negative cash flow from operations during the quarter and decline from the prior year was due to ~~meet~~the reduced operations at our ~~operating requirements, including distributions to unitholders and stockholders~~hotels as ~~well as debt service (excluding debt maturities), is the operations~~a result of ~~our hotels.~~COVID-19. Cash ~~flow~~used in or provided by operating activities ~~for~~generally consists of the ~~nine months ended September 30, 2017 was approximately $13.0 million. We had a net decrease~~cash flow from hotel operations, offset by the interest portion of our debt service, corporate expenses and changes in working capital.

Investing Activities. Our cash ~~provided by operating~~used in investing activities for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021, was approximately $1.0 million, all of ~~approximately $2.3 million, compared~~which related to the nine months ended September 30, 2016. The decrease is mainly attributable to a net decrease of adjustments to reconcile cash and changes in assets and liabilities of approximately $4.4 million, that was offset by an increase in net income of approximately $2.1 million. We expect that cash on hand and the net cash provided by operations will be adequate to fund our continuing operations, monthly 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) 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).

~~Investing Activities.~~ ~~During the nine months ended September 30, 2017, we used approximately $4.0 million to acquire our interest in the Hyde Resort and Residences, $17.4 million on~~ capital expenditures ~~of which, approximately $3.3 million related to~~for the routine replacement of furniture, fixtures and equipment and $14.1 million related to renovation of our hotels in Wilmington, North Carolina, Savannah, Georgia and Hollywood Beach, Florida. We also contributed approximately $3.5 million during the nine months ended September 30, 2017 into reserves required by the lenders for ten of our hotels according to the provisions of their respective loan agreements. During the nine months ended September 30, 2017, we received reimbursements from those reserves of approximately $4.4 million for capital expenditures related to those properties.equipment. The Operating ~~Partnership’s~~Partnership received a payment on its loan to the Company ~~had a net balance after principle payments of~~relating to the ESOP totaling approximately ~~$4.7~~$0.1 million. ~~We also received approximately $5.4 million for the sale of the Crowne Plaza Hampton Riverside and proceeds from insurance conversions of approximately $1.0 million.~~

Financing Activities. During the ~~nine~~three months ended ~~September 30, 2017, we received approximately $15.7 million for net mortgage proceeds, dividend and distribution payments of $7.2 million for~~March 31, 2021, the Company and ~~$7.3 million for the~~ Operating Partnership ~~and the repurchase~~made payments of ~~common stock of the Company for approximately $1.1 million pursuant to the stock repurchase program and payments for~~ deferred financing costs of approximately ~~$0.6~~$0.03 million and made principal payments on its mortgages of approximately $0.5 million. ~~Additionally,~~

From time to time, certain of our hotel properties may undergo renovations as a result of our decision to upgrade portions of the hotel, such as guestrooms, meeting space and restaurants, in order to better compete with other hotels in our markets. In addition, we may be required by one or more of our franchisors to complete a property improvement program (“PIP”) in order to bring the hotel up to the ~~ESOP pursuant~~franchisor’s standards. Generally, we expect to ~~the terms~~fund renovations and improvements out of ~~its loan agreement with the ESOP.~~working capital, including restricted cash, proceeds of mortgage debt or equity offerings.

We anticipate that our need for recurring capital expenditures for the replacement and refurbishment of furniture, fixtures and equipment over the next 12 to 24 months will be at historical norms for our properties and the industry. 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. ~~Below is a description~~In response to the COVID-19 pandemic, we postponed all major non-essential capital expenditures. If travel demand, occupancy, and RevPAR increase as expected through the remainder of 2021, we expect total capital expenditures ~~by property:~~

Given our plan to complete the renovation activities at our property in Wilmington, North Carolina, and our anticipated renovation activity at our property in Tampa, Florida prior to a franchise re-licensing in March 2019, we aim to restrict all other capital expenditures at these hotels during the renovation period to the replacement of broken or damaged furniture and equipment and the acquisition of items mandated by our licensor that are necessary to maintain our brand affiliation. We anticipate that capital expenditures for ~~the replacement and refurbishment of furniture, fixtures and equipment that are not related to these renovation activities to total 2.50% to 3.00% of gross revenues in 2017.~~2021.

We expect ~~a substantial portion of our~~ capital expenditures for the recurring replacement or refurbishment of furniture, fixtures and equipment at our properties will be funded by our replacement reserve accounts, other than costs that we incur to make capital improvements required by our franchisors. Reserve accounts are escrowed accounts with funds deposited monthly and reserved for capital improvements or expenditures with respect to all of our hotels. ~~We currently~~Except as temporarily provided through loan modifications and forbearance agreements, we deposit an amount equal to 4.0% of gross revenue for The DeSoto, the Hotel Ballast Wilmington, Tapestry Collection by Hilton, ~~Wilmington~~the DoubleTree Resort by Hilton Hollywood Beach, The DoubleTree by Hilton Jacksonville Riverside, 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 on a monthly basis.

The COVID-19 pandemic had a significant negative impact on our operations and financial results during 2020 and is expected to continue until at least the end of 2021. The impact includes a substantial decline in our revenues, profitability and cash flows from operations. While the duration and full financial impact of the reduction in hotel demand caused by the pandemic, contraction of operations at our hotels and other effects are 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, travel orders are lifted, consumer confidence is restored and an economic recovery is sustained. In response to these negative impacts, we took a number of immediate actions to reduce costs and preserve liquidity including the suspension of dividends on our common and preferred stock, suspension of planned capital expenditures and reduction in compensation of our executive officers, board of directors, and corporate employees. The COVID-19 pandemic and the related economic uncertainties have led to disruption and volatility in the global capital markets, which limited our ability to access capital.

In April and May 2020, we borrowed an aggregate amount of approximately $10.7 million in PPP Loans and have sought forbearances and loan modifications with the lenders under the loan agreements secured by our hotels.

On December 31, 2020, we issued two Secured Notes for aggregate proceeds of $20.0 million with an option to sell two additional Secured Notes before December 31, 2021 for aggregate proceeds of $10.0 million. The terms and subject to the conditions as described more fully in the Section titled “Secured Note Financing” above.

As of ~~September 30, 2017,~~March 31, 2021, we had total cash of approximately ~~$38.8 million, of which approximately $32.7 million was in~~$33.0 million. During the three months ended March 31, 2021, we utilized cash, cash and ~~cash~~ equivalents and restricted cash of approximately ~~$6.1 million was restricted for real estate taxes, insurance, capital improvement and certain other expenses, or otherwise restricted.~~$2.3 million. We expect that our cash on hand combined with our cash flow from ~~the operations of~~ our hotels should be adequate to fund continuing operations, recurring capital expenditures for the refurbishment and replacement of furniture, fixtures and equipment, and monthly ~~and quarterly~~ scheduled payments of principal and interest (excluding any balloon payments due upon maturity of ~~the indentures~~our mortgage debt or ~~mortgage debt)~~secured notes).

Other than monthly mortgage loan principal and interest payments, ~~we do not have any~~our only mortgage debt ~~obligations maturing until August 2018. In August 2018,~~obligation with a scheduled maturity date in 2021 is the mortgage on ~~our~~the DoubleTree by Hilton ~~Raleigh Brownstone University matures at the amortized mortgage~~Laurel requiring us to repay or refinance a balance of approximately ~~$14.4~~$8.5 million. WeIn 2022, we have approximately ~~$69.2~~$36.0 million in ~~debt obligations maturing in 2019, including approximately $43.9 million in mortgage debt maturities~~balloon payments due upon maturity related to the mortgages on the Hotel Alba Tampa and ~~$25.3 million~~the DoubleTree by Hilton Raleigh-Brownstone University. We intend to refinance these mortgages at the level of their existing indebtedness or request extensions at existing terms.

As of the ~~Operating Partnership’s 7% Notes which~~date of filing, we ~~intend to repay in November 2017. We have notified~~were current on all loan payments on all other mortgages per the ~~trustee for the 7% Notes~~terms of our ~~intent~~mortgage agreements, as amended. We were in compliance with all loan covenants except those that contained Debt Service Coverage Ratio (“DSCR”)

requirements. Except where the DSCR requirement triggered a cash management period, we were able to ~~repay, on November 15, 2017, the entire $25.3 million aggregate principal amount~~obtain waivers from each of ~~the outstanding 7% Notes, using proceeds from the Series C Preferred Stock offering.~~

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.~~capital through other sources, which we expect to be limited as a result of the COVID-19 outbreak. There can be no assurance that we will continue to make investments in properties that meet our investment ~~criteria.~~criteria or have access to capital during this period. Additionally, we may choose to dispose of certain hotels as a means to provide liquidity.

WeOver the long term, we expect to meet our liquidity requirements for hotel property acquisitions, property redevelopment, investments in new joint ventures and debt maturities, ~~which include the repayment of the 7% Notes (which have been called for repayment on November 15, 2017)~~ and the retirement of maturing mortgage debt, 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.

Our mortgage loan agreements contain various financial ~~covenants.~~covenants directly related to the financial performance of the collateralized properties. 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.~~disturbances, general economic conditions as well as the effects of the ongoing global pandemic.

If As described in “-- Effects of COVID-19 Pandemic on our Business”, as of March 31, 2021, we ~~violate~~failed to meet the financial covenants ~~contained in these agreements, we may attempt to negotiate~~under the mortgages secured by each of the DoubleTree by Hilton Philadelphia Airport and The Whitehall. We have received waivers of the ~~violations or amend the terms of~~financial covenants under the applicable mortgages from (i) the lender on the DoubleTree by Hilton Philadelphia Airport through March 31, 2021; and (ii) the lender on The Whitehall mortgage ~~loan agreement~~through December 31, 2021. Cash collateral on deposit 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 mortgageHotel Alba lender was approximately $1.9 million as of March 31, 2021.

Certain of our loan agreements ~~provide alternate cure provisions which may allow us~~also include financial covenants that trigger a “cash trap”. As of March 31, 2021, we had failed to ~~otherwise comply with~~meet the financial covenants under the mortgage secured by ~~obtaining an appraisal~~the DoubleTree by Hilton Jacksonville Riverfront and the Georgian Terrace, which triggered a “cash trap” under the loan documents relating to each of these properties requiring substantially all the profit generated by those hotels to be deposited directly into lockbox accounts and swept into cash management accounts for the benefit of the ~~hotel, prepaying~~respective lenders until each property meets the criteria in the relevant loan agreement for exiting the “cash trap”. In addition, in order to receive forbearance from the lender on the DoubleTree by Hilton Raleigh Brownstone – University and the Hyatt Centric Arlington, we agreed to “cash traps” until the properties meet the criteria in the forbearance agreement for exiting the “cash traps”. Similar provisions may be a ~~portion~~condition of additional or further lender forbearance. We are currently in negotiations with the ~~outstanding indebtedness or~~lender and special servicer with respect to the DoubleTree by ~~providing cash collateral until such~~Hilton Jacksonville Riverfront “cash trap”.

Our Secured Notes provide that aggregate accounts payable shall not exceed $5.0 million at any time beginning December 31, 2021 for as long as the ~~financial covenants~~Secured Notes 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 of our non-recourse secured mortgage loan agreements, failure~~outstanding. Failure to comply with the ~~financial covenants in~~covenant at December 31, 2021 shall cause the ~~loan agreement triggers~~Company to Issue additional Secured Notes for aggregate proceeds of $10.0 million which shall be used to reduce the aggregate accounts payable of the Company. The Company expects cash, on hand combined with cash flows from ~~the property~~our hotels should be adequate to ~~be directed to the lender, which may limit our overall liquidity as~~reduce accounts payable so that ~~cash flow would~~it does not ~~be available to us.~~

~~As of September 30, 2017, we were in compliance with all debt covenants, current on all loan payments and not otherwise in default under any of our mortgage loans.~~

~~The indenture for the 7% Notes contains certain covenants and restrictions that require us to meet certain financial ratios.~~ exceed $5.0 million by December 31, 2021. 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~~prohibited from making distributions on shares of the ~~proceeds thereof, the ratio~~Company’s common stock or on shares of the ~~aggregate principal amount of all outstanding Debt to Adjusted Total Asset Value,~~Company’s preferred stock as ~~defined in~~long as the ~~indenture, would be greater than 0.65 to 1.0. In addition, we~~Secured Notes are not permitted to incur any Debt if the ratio of Stabilized Consolidated Income Available for Debt Service to Stabilized Consolidated Interest Expense, both 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.outstanding.

These financial measures are not calculated in accordance with GAAP and are presented below for the sole purpose of evaluating our compliance with the key financial covenants as they were applicable at September 30, 2017 and December 31, 2016, respectively.

September 30,

December 31,

2017

2016

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

Net income⁽¹⁾

$
3,011,668

$
900,149

Interest expense⁽¹⁾

15,690,035

17,735,107

Loss on early debt extinguishment

488,304

1,417,905

Unrealized loss on hedging activities

1,566

37,384

Gain on involuntary conversion

(1,041,815
)

—

Loss (gain) on sale of assets

(41,948
)

365,319

Income tax benefit⁽¹⁾

(1,641,126
)

(1,367,634
)
Loss on disposal of assts

51,569

—

Depreciation and amortization⁽¹⁾

16,466,631

15,019,071

Corporate general and administrative expenses⁽¹⁾

6,571,710

6,021,065

Consolidated income available for debt service⁽¹⁾

39,556,594

40,128,366

Less: income of non-stabilized assets⁽¹⁾

(10,338,671
)

(10,203,893
)
Stabilized Consolidated Income Available for
   Debt Service⁽¹⁾

$
29,217,923

$
29,924,473

Interest expense^{(1) (2)}

$
15,690,035

$
18,011,107

Amortization of issuance costs⁽¹⁾

(825,132
)

(1,147,864
)
Consolidated interest expense⁽¹⁾

14,864,903

16,863,243

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

(3,533,313
)

(3,417,412
)
Stabilized Consolidated Interest Expense⁽¹⁾

$
11,331,590

$
13,445,831

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

2.58

2.23

Threshold Ratio Minimum

1.50

1.50

Ratio of Debt to Adjusted Total Asset Value:

Mortgage loans

$
300,274,769

$
284,542,043

Unsecured notes

25,300,000

25,300,000

Total debt

$
325,574,769

$
309,842,043

Stabilized Consolidated Income Available for
   Debt Service⁽¹⁾

$
29,217,923

$
29,924,473

Capitalization rate

7.5
%

7.5
%

389,572,307

398,992,973

Non-stabilized assets

154,100,000

145,400,000

Total cash

38,767,890

36,362,920

Adjusted Total Asset Value

$
582,440,197

$
580,755,893

Ratio of Debt to Adjusted Total Asset Value

0.56

0.53

Threshold Ratio Maximum

0.65

0.65

~~We intend~~As approved by its board of directors and announced on March 17, 2020, the Company has suspended its regular quarterly cash common stock dividends in order to ~~continue to declare quarterly distributions 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 declared 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. Distributions on shares of the Series B Preferred Shares, Series C Preferred Shares, and Series D Preferred Shares are in arrears for the last five quarterly periods. Pursuant to our Secured Notes, we ~~increased~~are prohibited from making distributions on shares of the ~~quarterly dividend (distribution) to $0.10 per~~Company’s common ~~share (and unit).~~

~~In April 2017, we increased~~stock or on shares of the ~~quarterly dividend (distribution) to $0.105 per common share (and unit).~~

~~In July 2017, we increased~~Company’s preferred stock as long as the ~~quarterly dividend (distribution) to $0.11 per common share (and unit).~~Secured Notes are outstanding.

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 ~~Texas.~~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 2021 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, ~~which were~~ 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 athe 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 ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2021.

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 ~~September 30, 2017 and December~~March 31, ~~2016, respectively.~~2021 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 ~~September 30, 2017 and December~~March 31, ~~2016,~~2021, 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 ~~Recent~~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 ~~September 30, 2017,~~March 31, 2021, we had approximately ~~$264.6~~$338.2 million of fixed-rate debt, including the mortgage on our Philadelphia, Pennsylvania hotel, which is fixed by an interest rate swap to 5.237%, the Secured Notes of $20.0 million, with a fixed rate of 6.0% and the PPP Loan of $10.7 Million, with a fixed rate of 1.0% and approximately ~~$61.0~~$50.9 million of variable-rate debt. The weighted-average interest rate on the fixed-rate debt was ~~4.84%~~4.74%. 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. However, to the extent that 1-month~~ LIBOR ~~does not exceed the 1-month LIBOR floor on the mortgage on the DoubleTree by Hilton Philadelphia Airport of 0.50%, a portion of our variable-rate debt would not be exposed to changes~~and in ~~interest rates.~~Prime Rate. Assuming that the aggregate amount outstanding on the mortgages on the ~~Crowne Plaza Tampa Westshore,~~Hotel Alba, The Whitehall and the DoubleTree by Hilton ~~Philadelphia Airport and the mortgage on The Whitehall~~Raleigh Brownstone-University remains at approximately ~~$61.0~~$50.9 million, the balance at ~~September 30, 2017,~~March 31, 2021, the impact on our annual interest incurred and cash flows of a one percent increase in 1-month LIBOR and in Prime Rate, would be approximately ~~$0.6~~$0.2 million.

As of December 31, ~~2016,~~2020, we had approximately ~~$228.7~~$339.4 million of fixed-rate debt, including the mortgage on our DoubleTree by Hilton Philadelphia Airport hotel, which is fixed by an interest rate swap to 5.237%, secured notes of $20.0 million with a fixed rate of 6.0% and including the PPP Loan of $10.7 Million, with a fixed rate of 1.0% and approximately ~~$81.1~~$50.9 million of variable-rate debt. The weighted-average interest rate on the fixed-rate debt was ~~4.84%~~4.74%. 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. However, to the extent that 1-month~~ LIBOR ~~does not exceed the 1-month LIBOR floor on the mortgage on the DoubleTree by Hilton Philadelphia Airport of 0.50%, a portion of our variable-rate debt would not be exposed to changes~~and in ~~interest rates.~~Prime Rate. Assuming that the aggregate amount outstanding on the mortgages on the ~~Crowne Plaza Tampa Westshore,~~Hotel Alba, The Whitehall and the DoubleTree by Hilton ~~Philadelphia Airport, DoubleTree by Hilton Jacksonville Riverfront and the mortgage on The Whitehall~~Raleigh Brownstone-University remains at approximately ~~$81.1~~$50.9 million, the balance at December 31, ~~2016,~~2020, the impact on our annual interest incurred and cash flows of a one percent increase in 1-month LIBOR and in Prime Rate, would be approximately ~~$0.8~~$0.2 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 ~~September 30, 2017.~~March 31, 2021. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~September 30, 2017,~~March 31, 2021, 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 ~~September 30, 2017.~~March 31, 2021. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of ~~September 30, 2017,~~March 31, 2021, 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~~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, ~~2016.~~

~~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 November 7, 2017, 1,610,000 shares of our Series B Preferred Stock were issued and outstanding, and 1,300,000 shares of our Series C Preferred Stock were issued and outstanding. The aggregate liquidation preference with respect to the outstanding Series B preferred shares is approximately $40.3 million, and annual dividends on our outstanding Series B preferred shares are approximately $3.2 million. The aggregate liquidation preference with respect to the outstanding Series C preferred shares is approximately $32.5 million, and annual dividends on our outstanding Series C preferred shares are approximately $2.6 million. Holders of both our Series B and Series C 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 and Series C 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 other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future preferred offerings. Thus, our stockholders bear the risk of our future securities issuances reducing the market price of our common shares and diluting their interest.

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

Upon a change of control (as defined in our charter), holders of both our Series B and Series C 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. In addition, those features of our Series B and Series C 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 and Series C 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 five 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 deferring payment of dividends for the Company’s Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock for the periods ending June 30, 2020, September 30, 2020, December 31, 2020, March 31, 2021, and June 30, 2021. The relevant distributions were as follows:

The total arrearage of unpaid cash dividends declared and undeclared on each of the Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock through May 13, 2021 is $4,025,000, $3,825,802, and $3,093,750, respectively.

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

		Page

PART I
Item 1.	Consolidated Financial Statements	45

	Sotherly Hotels ~~Inc~~Inc..	4
	Consolidated Balance Sheets as of ~~September 30, 2017 (unaudited)~~March 31, 2021(unaudited) and December 31, ~~2016~~20	4
	~~Consolidated Statements of Operations (unaudited) for the Three and Nine Months Ended September 30, 2017 and 2016~~20	5
	Consolidated ~~Statement~~Statements of ~~Changes in Equity~~Operations (unaudited) for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2021 and 2020	6
	Consolidated Statements of ~~Cash Flows~~Changes in Equity (unaudited) for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020	7
	~~Sotherly Hotels LP~~	8
	~~Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016~~	8
	Consolidated Statements of ~~Operations~~Cash Flows (unaudited) for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020	9

	Sotherly Hotels LP
	Consolidated ~~Statement~~Balance Sheets as of ~~Changes in Partners’ Capital~~March 31, 2021 (unaudited) ~~for the Nine Months Ended September 30, 2017~~and December 31, 2020	10
	Consolidated Statements of ~~Cash Flows~~Operations (unaudited) for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020	11
	~~Notes to~~ Consolidated ~~Financial~~ Statements of Changes in Partners’ Capital (unaudited) for the Three Months Ended March 31, 2021 and 2020	12
	Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2021 and 2020	14
	Notes to Consolidated Financial Statements	15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3035
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4448
Item 4	Controls and Procedures	4549

PART II
Item 1.	Legal Proceedings	4750
Item 1A.	Risk Factors	4750
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4750
Item 3.	Defaults Upon Senior Securities	4750
Item 4.	Mine Safety Disclosures	4850
Item 5.	Other Information	4850
Item 6.	Exhibits	4951

For the remaining three months ending: December 31, 2017	$	425,322
December 31, 2018		1,112,282
December 31, 2019		868,289
December 31, 2020		832,695
December 31, 2021		725,244
December 31, 2022 and thereafter		3,085,873
Total	$	7,049,705

For the nine months ending December 31, 2021	$	842,900
December 31, 2022		1,039,282
December 31, 2023		1,042,517
December 31, 2024		1,050,255
December 31, 2025		1,058,563
December 31, 2026 and thereafter		7,133,042
Total	$	12,166,559

	Hyde Resort & Residences
Land and land improvements	$	500
Buildings and improvements		4,309,500
Furniture, fixtures and equipment		72,616
Investment in hotel properties		4,382,616
Accrued liabilities and other costs		(866,142	)
Prepaid expenses, inventory and other assets		470,375
Net cash	$	3,986,849

	Balance Outstanding as of
	September 30,			December 31,			Prepayment	Maturity	Amortization	Interest
Property	2017			2016			Penalties	Date	Provisions	Rate
Crowne Plaza Hampton Marina ⁽¹⁾	$	-		$	2,584,633		None	11/1/2019	3 years		5.00%
Crowne Plaza Tampa Westshore ⁽²⁾		15,353,500			15,561,400		None	6/30/2019	25 years	LIBOR plus 3.75 %
The DeSoto ⁽³⁾		34,845,934			30,000,000		Yes	7/1/2026	25 years		4.25%
DoubleTree by Hilton Jacksonville Riverfront ⁽⁴⁾		35,422,241			19,291,716		Yes	7/11/2024	30 years		4.88%
DoubleTree by Hilton Laurel ⁽⁵⁾		9,182,987			9,329,005		Yes	8/5/2021	25 years		5.25%
DoubleTree by Hilton Philadelphia Airport⁽⁶⁾		30,646,946			31,261,991		None	4/1/2019	25 years	LIBOR plus 3.00 %
DoubleTree by Hilton Raleigh Brownstone University ⁽⁷⁾		14,571,181			14,773,885		n/a	8/1/2018	30 years		4.78%
DoubleTree Resort by Hilton Hollywood Beach ⁽⁸⁾		58,249,890			58,935,818		n/a	10/1/2025	30 years		4.913%
Georgian Terrace ⁽⁹⁾		45,230,148			45,826,038		n/a	6/1/2025	30 years		4.42%
Hilton Wilmington Riverside ⁽¹⁰⁾		30,000,000			30,000,000		Yes	1/1/2027	25 years		4.25%
Sheraton Louisville Riverside⁽¹¹⁾		11,771,942			11,977,557		Yes	12/1/2026	25 years		4.27%
The Whitehall ⁽¹²⁾		15,000,000			15,000,000		Yes	10/12/2021	18 years	LIBOR plus 3.50 %
Total Mortgage Principal Balance	$	300,274,769		$	284,542,043
Deferred financing costs, net		(2,041,958	)		(2,049,409	)
Unamortized premium on loan		197,144			215,655
Total Mortgage Loans, Net	$	298,429,955		$	282,708,289

(1)	~~As of February 7, 2017, the~~The note amortizes on a 25-year schedule after an initial 1 year interest only period (which expired in August 2017) and is ~~no longer outstanding due~~subject to ~~the sale~~a pre-payment penalty except for any pre-payments made within 120 days of the ~~property.~~maturity date.
(2)	The note is subject to a pre-payment penalty until March 2024. Prepayment can be made without penalty thereafter.
(3)	Prepayment can be made on this note without penalty.
(4)	The note bears a floating interest rate of 1-month LIBOR plus 2.27%, but we entered into a swap agreement to fix 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.
(5)	The note provides initial proceeds of ~~$15.7~~$18.3 million, with an additional ~~$3.3~~$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.
(6)	With limited exception, the note may not be prepaid prior to June 2025.
(7)	With limited exception, the note may not be prepaid prior to February 2025.
(8)	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 provides that the mortgage can be extended for two additional periods of one year each, subject to certain conditions.
~~(3)~~(9)	The note ~~provides initial proceeds of $30.0 million, with an additional $5.0 million available upon the satisfaction of certain conditions, namely, the completion of a renovation project;~~ amortizes on a 25-year schedule after ~~a 1-year interest-only period;~~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.
~~(4)~~	~~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.~~
~~(5)~~	The note is subject to a pre-payment penalty except for any pre-payments made either between April 2017 and August 2017, or from April 2021 through maturity of the note. The note provides that on January 5, 2018, the rate of interest will adjust to a rate of 3.00% per annum plus the then-current five-year U.S. Treasury rate of interest, with a floor of 5.25%.
~~(6)~~	~~The note bears a minimum interest rate of 3.50%.~~
~~(7)~~	~~With limited exception, the note may not be prepaid until two months before maturity.~~

~~(8)~~	~~With limited exception, the note may not be prepaid until June 2025.~~
~~(9)~~	~~With limited exception, the note may not be prepaid until February 2025.~~
(10)	~~The~~Following a 5-year lockout, the note ~~provides initial proceeds of $30.0 million,~~can be prepaid with ~~an additional $5.0 million available upon~~penalty in years 6-10 and without penalty during the satisfaction of certain conditions namely, the completion of a renovation project; amortizes on a 25-year schedule after a 1-year interest-only period; and is subject to a pre-payment penalty except for any pre-payments made within 120 daysfinal 4 months of the ~~maturity date.~~term.
(11)	The note bears a fixed interest rate of 4.27% for the first 5 years of the loan, with an option for the lender to reset the interest rate after 5 years.
(12)	The note ~~was refinanced in October 2016, provides initial proceeds of $15.0 million, with an additional $5.5 million available upon the satisfaction of certain conditions;~~ bears a floating interest rate of ~~the 1-month LIBOR~~New York Prime Rate plus ~~3.5%, subject to a floor rate of 4.0%~~1.25% and is subject to prepayment ~~penalties subject to a declining scale from 3.0%~~ penalty of 2.0% if prepaid after April 12, 2021 and 1.0% if prepaid after April 12, 2022 but on or before ~~the first anniversary date, a 2.0% penalty during the second anniversary year and a 1.0% penalty after the third anniversary date.~~November 26, 2022.

For the remaining three months ending: December 31, 2017	$	1,682,647
December 31, 2018		23,696,155
December 31, 2019		52,902,464
December 31, 2020		9,012,007
December 31, 2021		30,769,803
December 31, 2022 and thereafter		182,211,693
Total future maturities	$	300,274,769

For the nine months ending December 31, 2021		13,511,647
December 31, 2022		42,087,366
December 31, 2023		60,575,964
December 31, 2024		37,218,158
December 31, 2025		93,250,734
December 31, 2026 and thereafter		111,780,275
Total future maturities	$	358,424,144

For the remaining three months ending: December 31, 2017	$	156,035
December 31, 2018		573,451
December 31, 2019		391,266
December 31, 2020		351,464
December 31, 2021		351,464
December 31, 2022 and thereafter		4,271,629
Total	$	6,095,309

For the nine months ending December 31, 2021	$	454,803
December 31, 2022		683,693
December 31, 2023		671,883
December 31, 2024		663,585
December 31, 2025		668,651
December 31, 2026 and thereafter		14,758,987
Total	$	17,901,602

	Per					Number of Shares				Quarterly
	Annum			Liquidation		Issued and Outstanding as of				Distributions
Preferred Stock - Series	Rate			Preference		March 31, 2021		December 31, 2020		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	Rate			Preference		March 31, 2021		December 31, 2020		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


~~September 30, 2017~~		~~December 31, 2016~~
~~Number of Shares~~	~~Fair Value~~	~~Number of Shares~~	~~Fair Value~~


Allocated shares	9,473	$ 64,321	-	$ —
Committed-to-be released shares	15,935	113,816	-	—
Total allocated and committed-to-be-released	25,408	$ 178,137	-	$ —

Unallocated shares	657,092	3,870,272	-	—

Total ESOP shares	682,500	$ 4,048,409	-	$ —

Exhibit
Number		Description of Exhibit

~~3.1~~		Articles of Amendment and Restatement of the Company (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 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 15, 2016).

~~3.2~~		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 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 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on August 23, 2016).

~~3.2D~~		Amendment No. 4 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 October 11, 2017).

~~3.3~~		Articles Supplementary of the Company (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~~		Second Amended and Restated Bylaws of the Company, effective as of April 16, 2013 (incorporated by reference to the document previously filed as Exhibit 3.8 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 16, 2013).

~~3.5~~		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).

~~3.6~~		Articles Supplementary designating the Series C Preferred Stock of the Company, effective as of October 6, 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).

~~4.0~~		Form of Common Stock Certificate (incorporated by reference to the document previously filed as Exhibit 4.0 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the Securities and Exchange Commission on March 22, 2017).

~~4.1~~		Senior Unsecured Note issued by Sotherly Hotels LP (incorporated by reference to the document previously filed as Exhibit 4.6 to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013, filed with the Securities and Exchange Commission on November 7, 2013).

~~Exhibit~~
~~Number~~		~~Description of Exhibit~~

~~4.2~~		Indenture between Sotherly Hotels LP and Wilmington Trust, National Association, as trustee (incorporated by reference to the document previously filed as Exhibit 4.7 to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2013, filed with the Securities and Exchange Commission on November 7, 2013).

~~4.3~~		Indenture by and among Sotherly Hotels Inc., Sotherly Hotels LP and Wilmington Trust, National Association, as trustee, dated November 21, 2014 (incorporated by reference to the document previously filed as Exhibit 4.8 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on November 21, 2014).

~~4.4~~		First Supplemental Indenture by and among Sotherly Hotels Inc., Sotherly Hotels LP and Wilmington Trust, National Association, as trustee, dated November 21, 2014 (incorporated by reference to the document previously filed as Exhibit 4.9 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on November 21, 2014).
~~4.5~~		7.00% Senior Unsecured Note due 2019, issued by Sotherly Hotels LP (incorporated by reference to the document previously filed as Exhibit 4.10 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the Securities and Exchange Commission on April 14, 2015).

~~4.6~~		Form of Specimen Certificate of Series B 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 August 22, 2016).

~~4.7~~		Form of Specimen Certificate of Series C 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 October 10, 2017).

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		Inline XBRL Instance Document– the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

	SOTHERLY HOTELS INC.

Date: ~~November 8, 2017~~May 17, 2021	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: ~~November 8, 2017~~May 17, 2021	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