1. Organization and Description of Business

Sotherly Hotels Inc. (the “Company”) is a lodging real estate investment trust (“REIT”) that was incorporated in Maryland on August 20, 2004. The Company historically has focused on the acquisition, renovation, up-branding and repositioning of upscale to upper-upscale full-service hotels in the southern United States. The Company’s portfolio, as of December 31, 2025, consisted of investments in ten hotel properties, comprising 2,786 rooms and two hotel commercial condominium units and their associated rental programs. Seven of our hotels operated under the DoubleTree by Hilton, Tapestry Collection by Hilton, and Hyatt Centric brands, and three are independent hotels.

The Company commenced operations on December 21, 2004 when it completed its initial public offering (“IPO”) and thereafter consummated the acquisition of six hotel 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”), the Company, as general partner, is not entitled to compensation for its services to the Operating Partnership. The Company, as general partner, conducts substantially all of its operations through the Operating Partnership and the Company’s administrative expenses are the obligations of the Operating Partnership. Additionally, the Company is entitled to reimbursement for any expenditure incurred by it on the Operating Partnership’s behalf.

For the Company to qualify as a REIT, it cannot operate hotels. Therefore, the Operating Partnership, which, at December 31, 2025, was over 99.9% owned by the Company, and its subsidiaries, lease its hotels to direct and indirect subsidiaries of MHI Hospitality TRS Holding, Inc., MHI Hospitality TRS, LLC and certain of its subsidiaries, (collectively, “MHI TRS Entities”), each of which is a wholly-owned subsidiary of the Operating Partnership. For the years ended December 31, 2025, 2024, and 2023, the MHI TRS Entities engaged an eligible independent contractor, Our Town Hospitality, LLC (“Our Town”), to operate the hotels under individual hotel management contracts. MHI Hospitality TRS Holding, Inc. is treated as a taxable REIT subsidiary (“TRS”) for federal income tax purposes. As of December 31, 2025, Our Town was the manager of each of our ten wholly-owned hotels and our two condominium hotel rental programs.

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

Significant Transactions

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

Between April 16 and May 6, 2020, the Company received proceeds of three separate PPP Loans administered by the U.S. Small Business Administration pursuant to the CARES Act totaling approximately $10.7 million. Each PPP Loan had an initial term of two years with the ability to extend the loan to five years, if not completely forgiven and carries an interest rate of 1.00%. Equal payments of principal and interest were required to begin no later than 10 months following origination of the loan and were to be 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. On December 9, 2022, the Company was notified it had received forgiveness for one of its PPP Loans in the principal amount of approximately $4.6 million. On February 3, 2023, the Company was notified it had received forgiveness for another PPP Loan in the principal amount of approximately $0.3 million.

On February 26, 2023, the Company entered into amended loan documents to modify the mortgage loan on The Whitehall hotel located in Houston, TX with the lender, International Bank of Commerce. The amendment (i) extends the maturity date to February 26, 2028; (ii) maintains a floating interest rate of New York Prime Rate plus 1.25%; and (iii) subjects the interest rate to a floor rate of 7.50%. The mortgage loan continues to be guaranteed by the Operating Partnership. The amendment also required us to establish a real estate tax reserve as well as a debt service reserve that approximates the aggregate amount of one year's debt service, which was initially established at approximately $1.5 million.

On March 14, 2023, the Company entered into amended loan documents to modify the mortgage loan on the DoubleTree by Hilton Philadelphia Airport with the lender, TD Bank, N.A. The amendment provided a waiver for non-compliance with financial covenants for the periods ended September 30 and December 31, 2022, modified the reference rate replacing 1-month LIBOR with SOFR and required us to establish a debt service coverage reserve of $0.3 million.

On May 4, 2023, the Company secured a $10.0 million mortgage loan on the DoubleTree by Hilton Laurel hotel located in Laurel, MD with Citi Real Estate Funding Inc. Pursuant to the loan documents, the mortgage loan: (i) has a principal balance of $10.0 million; (ii) has a maturity date of May 6, 2028; (iii) carries a fixed interest rate of 7.35%; (iv) requires payments of interest only; (v) cannot be prepaid until the last 4 months of the loan term; and (vi) contains customary representations, warranties, covenants and events of default for a mortgage loan.

On February 7, 2024, the Company secured a $35.0 million mortgage loan on the Hotel Alba Tampa located in Tampa, Florida with Citi Real Estate Funding Inc. The Company received approximately $10.2 million in net proceeds. Pursuant to the loan documents, the mortgage loan: (i) has a principal balance of $35.0 million; (ii) has a 5 year term maturing on March 6, 2029; (iii) carries a fixed interest rate of 8.49%; (iv) requires payments of interest only; (v) is guaranteed by the Operating Partnership only for traditional “bad boy” acts; (vi) cannot be prepaid until the last four months of the term; and (vii) contains customary representations, warranties, covenants and events of default for a mortgage loan.

On April 29, 2024, the Company entered into a loan amendment to amend the existing mortgage on the DoubleTree by Hilton Philadelphia Airport hotel with the existing lender, TD Bank, N.A. Pursuant to the amended loan documents, the mortgage loan: (i) has a principal balance of approximately $35.9 million; (ii) extends the maturity by two years to April 29, 2026; (iii) continues to carry a floating interest rate of SOFR plus 3.50%; (iv) requires payments of interest only; (v) continues to be guaranteed by the Operating Partnership; and (vi) contains customary representations, warranties, covenants and events of default for a mortgage loan. Concurrent with the execution of the loan amendment, the Company (i) made a principal payment of $3.0 million; (ii) funded $0.3 million to the interest reserve escrow, bringing the balance in the interest reserve escrow account to $1.3 million; (iii) funded $5.0 million into a product improvement plan ("PIP") reserve account; and (iv) provided $1.7 million in additional cash collateral, of which $1.2 million can be released into the PIP reserve account as early as June 30, 2025 assuming compliance with the financial covenants. On May 3, 2024, an affiliate of the Company entered into an interest rate cap with a notional amount of $26.0 million with Webster Bank, N.A. The cap has a strike rate of 3.0%, is indexed to SOFR, and expires on May 1, 2026.

On July 8, 2024, the Company secured an approximately $26.3 million mortgage loan on the DoubleTree by Hilton Jacksonville Riverfront hotel located in Jacksonville, Florida with Fifth Third Bank, N.A. The loan provides for an additional approximately $9.5 million available to fund a product improvement plan at the hotel; matures on July 8, 2029; and requires monthly payments of interest at a floating interest rate of SOFR plus 3.00% plus principal of $38,700.

On August 14, 2024, the Company secured a $5.0 million second mortgage loan on The DeSoto hotel located in Savannah, Georgia with MONY Life Insurance Company. The loan had a maturity date of July 1, 2026, and required level payments of principal and interest at a fixed interest rate of 7.50% and amortized on a 25-year schedule. Proceeds of the loan were used for working capital.

On September 12, 2025, the Company secured a $42.0 million mortgage loan on The DeSoto hotel located in Savannah, Georgia with Citi Real Estate Funding Inc. The Company received approximately $5.78 million in net proceeds, after funding of the required lender reserves and repaying the existing indebtedness. Pursuant to the loan documents, the mortgage loan: (i) has a principal balance of $42.0 million; (ii) matures on October 6, 2030; (iii) carries a fixed interest rate of 7.13%; (iv) requires payments of interest only; (v) is guaranteed by the Operating Partnership only for traditional “bad boy” acts; (vi) can be prepaid with defeasance following a lockout period ending on the earlier of (a) three years after closing, or (b) two years after the date of securitization, if any, and can be prepaid without defeasance during the last six months of the term; and (vii) contains customary representations, warranties, covenants and events of default for a mortgage loan.

On October 24, 2025, the Company, KW Kingfisher LLC, a Delaware limited liability company (“Parent”), and Sparrows Nest LLC, a Maryland limited liability company (“Merger Sub,” together with the Parent, “Parent Parties”), entered into an Agreement and Plan of Merger (the “Merger Agreement”).

Agreement and Plan of Merger – Pursuant to the Merger Agreement, the Merger Sub merged with and into the Company, with the Company continuing as the surviving entity in such merger (the “Merger,” and such surviving entity, the “Surviving Company”). Upon completion of the Merger, the Surviving Company survived as a wholly owned subsidiary of Parent, the separate existence of the Merger Sub ceased, and the Operating Partnership became an indirect subsidiary of Parent.

At the effective time of the Merger (the “Effective Time”), (A) each share of common stock, par value $0.01 per share, of the Company (the “Company Common Stock”) issued and outstanding immediately before the Effective Time (other than Cancelled Shares) automatically converted into the right to receive an amount in cash equal to $2.25 per share, without interest

(the “Per Company Share Merger Consideration,” and in the aggregate, the “Merger Consideration”); (B) each share of the Company’s 8.0% Series B Cumulative Redeemable Perpetual Preferred Stock, 7.875% Series C Cumulative Redeemable Perpetual Preferred Stock, and 8.25% Series D Cumulative Redeemable Perpetual Preferred Stock (collectively, the “Company Preferred Stock”) issued and outstanding immediately before the Effective Time was entitled to receive the Merger Consideration if the holder thereof elects to convert, subject to the terms and conditions contained in the Company’s charter (including any articles supplementary) (the “Charter”), including the share cap as defined therein, their respective shares of Company Preferred Stock into Company Common Stock after the closing of the Merger, and (C) the Company offered to purchase the Limited Partnership Interests held by the limited partners (other than the Company) for the same per share Merger Consideration that each share of Company Common Stock received pursuant to the Merger Agreement, simultaneously with the Closing of the Merger (the “Limited Partner Compensation”) in accordance with the Operating Partnership’s Partnership Agreement.

Notwithstanding the foregoing, each issued and outstanding share of Company Common Stock held by Parent or the Company or any of their respective direct or indirect wholly owned subsidiaries immediately before the Effective Time, if any, was automatically cancelled and retired and ceased to exist, and no consideration was delivered in exchange therefor. If not converted, each share of the Company Preferred Stock was unaffected by the Merger and remains outstanding in accordance with their respective terms.

With respect to each series of the Company Preferred Stock, pursuant to the Charter, on February 27, 2026, the Company provided notice to the holders thereof that the closing of the Merger occurred (the “Preferred Notice”). The Preferred Notice included certain details with respect to the Merger and specified that the holders of the Company Preferred Stock could elect to exercise a right to convert some or all of the Company Preferred Stock held by such holder into the right to convert, subject to the terms and conditions contained in the Charter, including the share cap as defined therein, into Company Common Stock and receive the Per Company Share Merger Consideration by March 20, 2026.

The consummation of the Merger occurred on February 12, 2026 and was subject to certain customary closing conditions, including, among others, the approval of the Merger by the affirmative vote of the holders of a majority of the outstanding shares of Company Common Stock entitled to vote on the Merger and the other transactions contemplated by the Merger Agreement (the “Company Stockholder Approval”).

Revolving Line of Credit – In connection with the Merger Agreement, on October 24, 2025, the Operating Partnership entered into a Promissory Note (the “Note”) with Kemmons Wilson Hospitality Partners II, LP (“KWHP”) providing for a revolving line of credit in the principal amount of up to $25.0 million (the “Revolving Commitment”). The Note allows the Operating Partnership to borrow, prepay, and re-borrow amounts on a revolving basis during the Revolving Commitment Period, which terminates on the earliest of (i) 18 months after execution, (ii) consummation of the merger described in the Merger Agreement, (iii) sale of the Wilmington Asset (as defined in the Note), (iv) refinancing of indebtedness secured by a lien on the Wilmington Asset, or (v) acceleration following an Event of Default (as defined in the Note). Interest accrues on the Note at a floating rate equal to Term SOFR plus an applicable margin, initially 3.25% for nine months, then 7.50%, with a 3.35% SOFR floor. Interest is payable monthly and at maturity. Mandatory prepayments are required from asset sale or refinancing proceeds, and certain asset sales are restricted unless minimum proceeds are received. Each such prepayment permanently reduces the amount of the Revolving Commitment.

On December 16, 2025, the Company entered into a Forbearance Agreement with Wilmington Trust, National Association, as Trustee, with regard to the mortgage loan for the Company’s Georgian Terrace hotel located in Atlanta, GA. Pursuant to the Forbearance Agreement: (i) the lender agrees not seek a judgment against the Company, nor to foreclose on the property prior to June 1, 2026; (ii) the Company repaid a portion of the principal balance of the mortgage loan of approximately $3.8 million; (iii) the Company agreed to continue to pay lender approximately $236,000 per month in principal and interest as well as funding reserve accounts in accordance with the terms of the mortgage loan; (iv) default interest will continue to accrue and will be payable upon a Termination Event (as defined in the Forbearance Agreement); and (v) the property will remain in cash management.

On December 31, 2025, the Company entered into a settlement agreement with 4111 South Ocean Drive Condominium Association, Inc. to convey its interest in the hotel commercial condominium unit at the Lyfe Resort & Residences and assign its interest in the hotel condominium unit rental program, subject to certain terms and conditions. The Company assigned its interest in the rental program effective February 1, 2026 and anticipates conveyance of the condominium unit to occur before May 1, 2026.