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Sotherly Hotels Inc. Reports Financial Results for the Second Quarter 2014

Sotherly Hotels Inc. logo

WILLIAMSBURG, Va., Aug. 5, 2014 (GLOBE NEWSWIRE) -- Sotherly Hotels Inc. (Nasdaq:SOHO), ("Sotherly", "SoTHERLY", or the "Company"), a self-managed and self-administered lodging real estate investment trust (a "REIT"), today reported its consolidated results for the second quarter ended June 30, 2014. The Company's results include the following*:

Three months ended Six months ended
June 30, 2014 June 30, 2013 June 30, 2014 June 30, 2013
($ in thousands except per share data)
Total Revenue $36,340 $25,251 $61,350 $45,440
Net income (loss) attributable to the Company 2,167 1,311 2,950 (1,284)
EBITDA 10,527 7,415 16,410 9,295
Adjusted EBITDA 10,527 7,308 16,565 11,930
Hotel EBITDA 11,443 7,967 17,762 12,815
FFO 5,880 3,865 9,456 2,698
Adjusted FFO 6,308 4,814 9,304 6,987
Net income (loss) per diluted share attributable to the Company $0.21 $0.12 $0.29 $(0.13)
FFO per share and unit 0.45 0.30 0.72 0.21
Adjusted FFO per share and unit 0.48 0.37 0.71 0.54
(*) Earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted EBITDA, hotel EBITDA, funds from operations ("FFO"), adjusted FFO, FFO per share and unit and adjusted FFO per share and unit are non‑GAAP financial measures. See further discussion of these non-GAAP measures, including definitions related thereto, and reconciliations to net income (loss) later in this press release. All references in this release to the "Company", "Sotherly", "SoTHERLY", "we", "us" and "our" refer to Sotherly Hotels Inc., its operating partnership and its subsidiaries and predecessors, unless the context otherwise requires or where otherwise indicated.

HIGHLIGHTS:

  • Adjusted FFO. The Company generated adjusted FFO of approximately $6.3 million during the second quarter 2014, an increase of 31.0% or approximately $1.5 million over the second quarter 2013.
  • Common Dividends. On April 21, 2014, the Company announced a quarterly dividend (distribution) on its common stock (and units) of $0.050 per share (and unit), which was paid on July 11, 2014 to stockholders (and unitholders) of record as of June 13, 2014. On July 22, 2014, the Company announced a 30.0% increase in its quarterly dividend (distribution) on its common stock (and units) to $0.065 per share (and unit), payable on October 15, 2014 to stockholders (and unitholders) of record as of October 2, 2014.
  • RevPAR. Room revenue per available room ("RevPAR") for the Company's wholly-owned properties during the second quarter 2014 increased 9.7% over the second quarter 2013 to $103.52 driven by a 4.6% increase in occupancy and a 4.9% increase in average daily rate ("ADR").
  • Hotel EBITDA. The Company generated hotel EBITDA of approximately $11.4 million during the second quarter 2014, an increase of 43.6% or approximately $3.5 million over the second quarter 2013.
  • Adjusted EBITDA. The Company generated adjusted EBITDA of approximately $10.5 million during the second quarter 2014, an increase of 44.0% or approximately $3.2 million over the second quarter 2013.

Andrew M. Sims, Chairman and Chief Executive Officer of Sotherly Hotels Inc., commented, "We experienced an exceptional quarter that represents the Company's best operating results in its long 57-year history, including its predecessor entities. Results were driven by strong fundamentals that flowed through all operating metrics. Occupancy, RevPAR, Total Revenue, EBITDA, FFO and AFFO showed significant year over year improvement. We shared this good fortune with our shareholders by increasing the quarterly dividend by 30%, as previously announced. We continue to be optimistic regarding the prospects for the balance of the year."

Financing Transactions

On June 27, 2014, the Company entered into an agreement with TowneBank to extend the maturity of the mortgage on the Crowne Plaza Hampton Marina in Hampton, Virginia, until June 30, 2016. Under the terms of the extension, the Company made a principal payment of $0.8 million and is required to make monthly principal payments of $83,000 and interest payments at a rate of 5.0% per annum.

Balance Sheet/Liquidity

At June 30, 2014, the Company had total cash of approximately $24.3 million, consisting of available cash and cash equivalents of approximately $17.9 million, and restricted cash of approximately $6.4 million reserved for real estate taxes, insurance, capital improvements and certain other expenses or otherwise restricted. The Company had approximately $251.4 million in outstanding debt at a weighted average interest rate of approximately 5.46%.

2014 Outlook

The Company is updating its prior guidance for 2014, accounting for current and expected performance within its portfolio. The guidance is predicated on estimates of occupancy and ADR that are consistent with the most recent 2014 calendar year forecasts by Smith Travel Research for the market segments in which the Company operates.

The table below reflects the Company's projections, within a range, of various financial measures for 2014, as compared to its previously updated guidance for 2014 (in $000s, except per share data):

Prior 2014 Guidance Revised 2014 Guidance
Low Range High Range Low Range High Range
Total revenue $118,020 $121,524 $120,441 $122,997
Net income 3,458 4,776 4,110 5,425
EBITDA 28,775 30,128 29,058 30,403
Hotel EBITDA 30,854 32,393 31,500 32,730
FFO 13,108 14,426 13,760 15,075
Adjusted FFO 13,759 15,077 14,411 15,726
Net income per share attributable to the Company $0.26 $0.36 $0.31 $0.41
FFO per share and unit 1.00 1.10 1.05 1.15
Adjusted FFO per share and unit 1.05 1.15 1.10 1.20

Earnings Call/Webcast

The Company will conduct its second quarter 2014 conference call for investors and other interested parties at 10:00 a.m. Eastern Time on Tuesday, August 5, 2014. The conference call will be accessible by telephone and through the Internet. Interested individuals are invited to listen to the call by telephone at 888-339-0107 (United States) or 855-669-9657 (Canada) or +1 412-902-4188 (International). To participate on the webcast, log on to www.sotherlyhotels.com at least 15 minutes before the call to download the necessary software. For those unable to listen to the call live, a taped rebroadcast will be available beginning one hour after completion of the live call on August 5, 2014 through June 30, 2015. To access the rebroadcast, dial 877-344-7529 and enter conference number 10049464. A replay of the call also will be available on the Internet at www.sotherlyhotels.com until June 30, 2015.

About Sotherly Hotels Inc.

Sotherly Hotels Inc. is a self-managed and self-administered lodging REIT focused on the acquisition, renovation, upbranding and repositioning of upscale to upper-upscale full-service hotels in the Southern United States. Currently, the Company's portfolio consists of investments in twelve hotel properties, eleven of which are wholly-owned and comprise 2,698 rooms. The Company also has a 25.0% interest in the Crowne Plaza Hollywood Beach Resort. Many of the Company's properties operate under the Hilton, Crowne Plaza, DoubleTree, Sheraton and Holiday Inn brands. Sotherly Hotels Inc. was organized in 2004 and is headquartered in Williamsburg, Virginia. For more information please visit www.sotherlyhotels.com.

Forward-Looking Statements

This news release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although the Company believes that the expectations and assumptions reflected in the forward-looking statements are reasonable, these statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict and many of which are beyond the Company's control. Therefore, actual outcomes and results may differ materially from what is expressed, forecasted or implied in such forward-looking statements. Factors which could have a material adverse effect on the Company's future results, performance and achievements, include, but are not limited to: national and local economic and business conditions that affect occupancy rates and revenues at the Company's hotels and the demand for hotel products and services; risks associated with the hotel industry, including competition, increases in wages and other labor costs, energy costs and other operating costs; the magnitude and sustainability of the economic recovery in the hospitality industry and in the markets in which the Company operates; the availability and terms of financing and capital and the general volatility of the securities markets; risks associated with the level of the Company's indebtedness and its ability to meet covenants in its debt agreements and, if necessary, to refinance or seek an extension of the maturity of such indebtedness or modify such debt agreements; management and performance of the Company's hotels; risks associated with the conflicts of interest of the Company's officers and directors; risks associated with redevelopment and repositioning projects, including delays and cost overruns; supply and demand for hotel rooms in the Company's current and proposed market areas; the Company's ability to acquire additional properties and the risk that potential acquisitions may not perform in accordance with expectations; the Company's ability to successfully expand into new markets; legislative/regulatory changes, including changes to laws governing taxation of REITs; the Company's ability to maintain its qualification as a REIT; and the Company's ability to maintain adequate insurance coverage. These risks and uncertainties are described in greater detail under "Risk Factors" in the Company's Annual Report on Form 10-K and subsequent reports filed with the Securities and Exchange Commission. The Company undertakes no obligation to and does not intend to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Although the Company believes its current expectations to be based upon reasonable assumptions, it can give no assurance that its expectations will be attained or that actual results will not differ materially.

Financial Tables Follow…

SOTHERLY HOTELS INC.
CONSOLIDATED BALANCE SHEETS
June 30, 2014 December 31, 2013
(unaudited) (audited)
ASSETS
Investment in hotel properties, net $261,179,261 $202,645,633
Investment in joint venture 2,101,007 2,446,039
Cash and cash equivalents 17,925,684 9,376,628
Restricted cash 6,363,382 3,796,141
Accounts receivable, net 4,221,989 1,982,091
Accounts receivable-affiliate 87,868 101,439
Prepaid expenses, inventory and other assets 3,258,668 2,444,975
Shell Island sublease, net 120,098 240,196
Deferred income taxes 1,493,367 1,186,122
Deferred financing costs, net 4,645,543 3,820,838
TOTAL ASSETS $301,397,167 $228,040,102
LIABILITIES
Mortgage debt $204,751,451 $160,363,549
Loans payable 19,000,000
Unsecured notes 27,600,000 27,600,000
Accounts payable and accrued liabilities 13,903,321 7,650,219
Advance deposits 1,570,393 666,758
Dividends and distributions payable 655,390 588,197
TOTAL LIABILITIES 267,480,555 196,868,723
Commitments and contingencies
EQUITY
Sotherly Hotels Inc. stockholders' equity
Preferred stock, par value $0.01; 1,000,000 shares authorized, 0 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively
Common stock, par value $0.01; 49,000,000 shares authorized; 10,353,677 shares and 10,206,927 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively 103,537 102,069
Additional paid in capital 58,025,483 57,534,113
Distributions in excess of retained earnings (30,239,875) (32,210,917)
Total Sotherly Hotels Inc. stockholders' equity 27,889,145 25,425,265
Noncontrolling interest 6,027,467 5,746,114
TOTAL EQUITY 33,916,612 31,171,379
TOTAL LIABILITIES AND EQUITY $301,397,167 $228,040,102
SOTHERLY HOTELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended June 30, Six months ended June 30,
2014 2013 2014 2013
REVENUE
Rooms department $25,416,248 $18,152,020 $42,869,437 $32,401,979
Food and beverage department 9,020,055 5,974,795 15,271,738 10,826,366
Other operating departments 1,903,398 1,123,828 3,208,915 2,212,109
Total revenue 36,339,701 25,250,643 61,350,090 45,440,454
EXPENSES
Hotel operating expenses
Rooms department 6,278,583 4,563,463 11,030,109 8,577,196
Food and beverage department 5,936,451 3,690,911 10,006,821 6,915,391
Other operating departments 335,502 119,350 537,008 226,025
Indirect 12,189,910 8,756,559 21,673,784 16,571,618
Total hotel operating expenses 24,740,446 17,130,283 43,247,722 32,290,230
Depreciation and amortization 2,988,968 2,031,050 5,423,296 4,083,871
Corporate general and administrative 1,391,206 1,123,684 2,698,997 2,217,471
Total operating expenses 29,120,620 20,285,017 51,370,015 38,591,572
NET OPERATING INCOME 7,219,081 4,965,626 9,980,075 6,848,882
Other income (expense)
Interest expense (3,925,428) (2,332,644) (6,808,867) (5,013,191)
Interest income 5,267 3,654 7,156 7,559
Equity income (loss) in joint venture 17,417 87,377 404,968 557,116
Unrealized gain (loss) on warrant derivative 88,855 (2,680,210)
Net income (loss) before taxes 3,316,337 2,812,868 3,583,332 (279,844)
Income tax benefit (provision) (563,782) (1,111,818) 171,537 (1,374,873)
Net income (loss) 2,752,555 1,701,050 3,754,869 (1,654,717)
Add: Net (income) loss attributable to the noncontrolling interest (585,866) (390,458) (805,178) 370,392
Net income (loss) attributable to the Company $2,166,689 $1,310,592 $2,949,691 $(1,284,325)
Net income (loss) per share attributable to the Company
Basic $0.21 $0.13 $0.29 $(0.13)
Diluted $0.21 $0.12 $0.29 $(0.13)
Weighted average number of shares outstanding
Basic 10,353,677 10,156,927 10,290,047 10,118,862
Diluted 10,353,677 11,132,542 10,290,047 10,118,862

SOTHERLY HOTELS INC.
KEY OPERATING METRICS
(unaudited)

The following tables illustrate the key operating metrics for the three and six months ended June 30, 2014 and 2013, respectively, for the Company's wholly-owned properties during each respective reporting period ("consolidated" properties) as well as the nine wholly-owned properties in the portfolio that were under the Company's control during both the three and six months ended June 30, 2014 and the corresponding periods in 2013 ("same-store" properties). Accordingly, the same-store data does not reflect the performance of the Crowne Plaza Houston Downtown, which was acquired in November 2013, or the Georgian Terrace, which was acquired in March 2014. Each table excludes performance data for the Crowne Plaza Hollywood Beach Resort, which was acquired through a joint venture in August 2007 and in which the Company has a 25.0% indirect interest.

Consolidated Properties Three Months Ended June 30,
2014 2013 Variance
Occupancy 77.1% 73.7% 4.6%
ADR $134.24 $128.02 4.9%
RevPAR $103.52 $94.40 9.7%
Consolidated Properties Six Months Ended June 30,
2014 2013 Variance
Occupancy 72.5% 69.7% 4.0%
ADR $128.33 $121.54 5.6%
RevPAR $93.07 $84.72 9.9%
Same-Store Properties (9 Hotels) Three Months Ended June 30,
2014 2013 Variance
Occupancy 76.1% 73.7% 3.2%
ADR $133.37 $128.02 4.2%
RevPAR $101.47 $94.40 7.5%
Same-Store Properties (9 Hotels) Six Months Ended June 30,
2014 2013 Variance
Occupancy 70.9% 69.7% 1.7%
ADR $125.80 $121.54 3.5%
RevPAR $89.21 $84.72 5.3%

SOTHERLY HOTELS INC.
SUPPLEMENTAL DATA
(unaudited)

The following tables illustrate the key operating metrics for the three and six months ended June 30, 2014, 2013 and 2012, respectively, for each of the Company's wholly-owned properties during each respective reporting period as well as the Company's joint venture property, Crowne Plaza Hollywood Beach Resort, in which it owns a 25.0% interest.

Occupancy
Q2 2014 Q2 2013 Q2 2012
6 mos 2014 6 mos 2013 6 mos 2012
Crowne Plaza Hampton Marina 55.7% 59.6% 64.7%
Hampton, Virginia 47.9% 49.3% 55.1%
Crowne Plaza Hollywood Beach 83.1% 85.8% 80.5%
Hollywood, Florida 86.3% 87.2% 84.0%
Crowne Plaza Houston Downtown* 79.1%
Houston, Texas 79.3%
Crowne Plaza Jacksonville Riverfront 72.9% 62.6% 65.7%
Jacksonville, Florida 69.4% 62.6% 69.1%
Crowne Plaza Tampa Westshore 71.4% 66.0% 75.6%
Tampa, Florida 78.4% 73.7% 79.7%
DoubleTree by Hilton Raleigh Brownstone – University 77.3% 76.3% 71.8%
Raleigh, North Carolina 75.2% 73.0% 66.6%
The Georgian Terrace* 82.3%
Atlanta, Georgia 82.0%
Hilton Philadelphia Airport 82.3% 84.5% 83.1%
Philadelphia, Pennsylvania 80.8% 79.5% 76.4%
Hilton Savannah DeSoto 83.8% 77.0% 81.5%
Savannah, Georgia 77.0% 72.5% 77.5%
Hilton Wilmington Riverside 82.8% 80.6% 84.5%
Wilmington, North Carolina 69.2% 72.6% 73.9%
Holiday Inn Laurel West 74.7% 79.9% 82.9%
Laurel, Maryland 62.7% 69.3% 69.7%
Sheraton Louisville Riverside 74.8% 70.6% 71.9%
Jeffersonville, Indiana 67.3% 66.9% 64.4%
* Data is provided for only those periods in which the Company owned the property.
ADR
Q2 2014 Q2 2013 Q2 2012
6 mos 2014 6 mos 2013 6 mos 2012
Crowne Plaza Hampton Marina $105.38 $104.05 $99.57
Hampton, Virginia $95.50 $95.53 $90.26
Crowne Plaza Hollywood Beach $149.90 $138.54 $133.47
Hollywood, Florida $179.69 $173.14 $156.94
Crowne Plaza Houston Downtown* $144.03
Houston, Texas $143.43
Crowne Plaza Jacksonville Riverfront $98.96 $97.53 $92.80
Jacksonville, Florida $98.26 $96.73 $93.53
Crowne Plaza Tampa Westshore $107.04 $97.12 $94.88
Tampa, Florida $111.09 $102.34 $99.89
DoubleTree by Hilton Raleigh Brownstone – University $124.23 $113.74 $103.10
Raleigh, North Carolina $122.03 $111.44 $101.35
The Georgian Terrace* $132.01
Atlanta, Georgia $133.24
Hilton Philadelphia Airport $141.84 $149.05 $145.50
Philadelphia, Pennsylvania $134.01 $139.43 $136.88
Hilton Savannah DeSoto $158.87 $148.59 $142.20
Savannah, Georgia $151.16 $144.29 $136.77
Hilton Wilmington Riverside $150.98 $148.09 $137.94
Wilmington, North Carolina $140.78 $137.67 $129.97
Holiday Inn Laurel West $94.96 $93.14 $92.79
Laurel, Maryland $92.27 $92.40 $91.93
Sheraton Louisville Riverside $207.21 $177.09 $155.03
Jeffersonville, Indiana $173.08 $150.79 $138.98
* Data is provided for only those periods in which the Company owned the property.
RevPAR
Q2 2014 Q2 2013 Q2 2012
6 mos 2014 6 mos 2013 6 mos 2012
Crowne Plaza Hampton Marina $58.74 $61.99 $64.46
Hampton, Virginia $45.74 $47.08 $49.78
Crowne Plaza Hollywood Beach $124.53 $118.83 $107.45
Hollywood, Florida $155.13 $150.97 $131.85
Crowne Plaza Houston Downtown* $113.87
Houston, Texas $113.75
Crowne Plaza Jacksonville Riverfront $72.10 $61.03 $60.94
Jacksonville, Florida $68.22 $60.50 $64.62
Crowne Plaza Tampa Westshore $76.44 $64.13 $71.73
Tampa, Florida $87.14 $75.40 $79.57
DoubleTree by Hilton Raleigh Brownstone – University $96.05 $86.82 $74.03
Raleigh, North Carolina $91.74 $81.32 $67.54
The Georgian Terrace* $108.58
Atlanta, Georgia $109.23
Hilton Philadelphia Airport $116.81 $125.89 $120.85
Philadelphia, Pennsylvania $108.23 $110.88 $104.62
Hilton Savannah DeSoto $133.07 $114.41 $115.93
Savannah, Georgia $116.34 $104.65 $106.02
Hilton Wilmington Riverside $124.98 $119.41 $116.52
Wilmington, North Carolina $97.39 $99.91 $95.98
Holiday Inn Laurel West $70.89 $74.44 $76.89
Laurel, Maryland $57.87 $64.01 $64.09
Sheraton Louisville Riverside $155.05 $124.95 $111.47
Jeffersonville, Indiana $116.55 $100.82 $89.54
* Data is provided for only those periods in which the Company owned the property.
SOTHERLY HOTELS INC.
RECONCILIATION OF NET INCOME (LOSS) TO
FFO, Adjusted FFO, EBITDA, Adjusted EBITDA and Hotel EBITDA
(unaudited)
Three months ended June 30, Six months ended June 30,
2014 2013 2014 2013
Net income (loss) attributable to the Company $2,166,689 $1,310,592 $2,949,691 $(1,284,325)
Noncontrolling interest 585,866 390,458 805,178 (370,392)
Depreciation and amortization 2,988,968 2,031,050 5,423,296 4,083,871
Equity in depreciation and amortization of joint venture 138,818 133,387 277,502 268,489
FFO 5,880,341 3,865,487 9,455,667 2,697,643
Unrealized gain on hedging activities(1) (18,252) (45,575)
Unrealized (gain) loss on warrant derivative (88,855) 2,680,210
(Increase) decrease in deferred income taxes 428,074 1,056,056 (307,245) 1,317,752
Acquisition costs 155,187
Loss on early extinguishment of debt(2) 337,136
Adjusted FFO $6,308,415 $4,814,436 $9,303,609 $6,987,166
Weighted average shares outstanding 10,353,677 10,156,927 10,290,047 10,118,862
Weighted average units outstanding 2,754,127 2,881,198 2,808,823 2,918,202
Weighted average shares and units 13,107,804 13,038,125 13,098,870 13,037,064
FFO per share and unit $0.45 $0.30 $0.72 $0.21
Adjusted FFO per share and unit $0.48 $0.37 $0.71 $0.54
Three months ended June 30, Six months ended June 30,
2014 2013 2014 2013
Net income (loss) attributable to the Company $2,166,689 $1,310,592 $2,949,691 $(1,284,325)
Noncontrolling interest 585,866 390,458 805,178 (370,392)
Interest expense 3,925,428 2,332,644 6,808,867 5,013,191
Interest income (5,267) (3,654) (7,156) (7,559)
Income tax (benefit) provision 563,782 1,111,818 (171,537) 1,374,873
Depreciation and amortization 2,988,968 2,031,050 5,423,296 4,083,871
Equity in interest expense and depreciation and amortization of joint venture 301,240 242,250 601,465 485,419
EBITDA 10,526,706 7,415,158 16,409,804 9,295,078
Unrealized (gain) loss on hedging activities(1) (18,252) (45,575)
Unrealized (gain) loss on warrant derivative (88,855) 2,680,210
Acquisition costs 155,187
Adjusted EBITDA 10,526,706 7,308,051 16,564,991 11,929,713
Corporate general and administrative 1,391,206 1,123,684 2,543,810 2,217,471
Equity in adjusted EBITDA of joint venture (318,657) (311,375) (1,006,433) (996,960)
Net lease rental income (87,500) (87,500) (175,000) (175,000)
Other fee income (69,129) (65,835) (165,569) (160,159)
Hotel EBITDA $11,442,626 $7,967,025 $17,761,799 $12,815,065
(1) Includes equity in unrealized gain on hedging activities of joint venture.
(2) Reflected in interest expense for the periods presented above.

Non-GAAP Financial Measures

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

FFO

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

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

EBITDA

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

Hotel EBITDA

The Company defines hotel EBITDA as net income or loss excluding: (1) interest expense, (2) interest income, (3) equity in the income or loss of equity investees, (4) unrealized gains and losses on derivative instruments not included in other comprehensive income, (5) gains and losses on disposal of assets, (6) realized gains and losses on investments, (7) impairment of long-lived assets or investments, (8) corporate general and administrative expense; (9) depreciation and amortization; and (10) other operating revenue not related to the Company's wholly-owned portfolio. We believe this provides a more complete understanding of the operating results over which the Company's 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 the Company's hotels and the effectiveness of third-party management companies operating the Company's business on a property-level basis. The Company's calculation of hotel EBITDA may be different from similar measures calculated by other REITs.

Adjusted FFO and Adjusted EBITDA

The Company presents adjusted FFO, including adjusted FFO per share and unit, and adjusted EBITDA, which adjusts for certain additional items including any unrealized gain (loss) on its hedging instruments or warrant derivative, loan impairment losses, losses on early extinguishment of debt, aborted offering costs, costs associated with the departure of executive officers and acquisition transaction costs. The Company excludes these items as it believes it allows for meaningful comparisons between periods and among other REITs and is more indicative of the on-going performance of its business and assets. The Company's calculation of adjusted FFO and adjusted EBITDA may be different from similar measures calculated by other REITs.

CONTACT: Contact at the Company: Scott Kucinski Vice President - Operations & Investor Relations Sotherly Hotels Inc. 410 West Francis Street Williamsburg, Virginia 23185 757.229.5648

Source:Sotherly Hotels Inc.