Sotherly Hotels Inc. Reports Financial Results for the First Quarter 2013

  Sotherly Hotels Inc. Reports Financial Results forthe First Quarter 2013

Business Wire

WILLIAMSBURG, Va. -- May 07, 2013

Sotherly Hotels Inc. (NASDAQ: SOHO), formerly MHI Hospitality Corporation
(NASDAQ: MDH) (“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 first quarter ended March 31, 2013.
The Company’s results include the following^*:

                                                          
                                        Three Months ended
                                        March 31, 2013          March 31, 2012
                                        ($ in thousands except per share data)
                                                                            
Total Revenue                           $     20,190            $   20,025
Net loss attributable to the                  (2,595   )            (2,294  )
Company
                                                                            
EBITDA                                       1,880                 2,836
Adjusted EBITDA                              4,622                 4,014
Hotel EBITDA                                 4,848                 4,448
                                                                            
FFO                                          (1,168   )            (663    )
Adjusted FFO                                 2,173                 1,206
                                                                            
Net loss per diluted share              $     (0.24    )        $   (0.23   )
attributable to the Company
FFO per share and unit                       (0.09    )            (0.05   )
Adjusted FFO per share and unit              0.17                  0.09
                                                                            

^(*) 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:

  *RevPAR. Room revenue per available room (“RevPAR”) for the Company’s
    wholly-owned properties increased 3.3 percent over the first quarter 2012
    to $74.93 driven by a 4.1 percent increase in average daily rate (“ADR”).
  *Hotel EBITDA. The Company generated hotel EBITDA of approximately $4.8
    million during the first quarter 2013, an increase of 9.0% or
    approximately $0.4 million over the first quarter 2012.
  *Adjusted EBITDA. The Company generated adjusted EBITDA of approximately
    $4.6 million during the first quarter 2013, an increase of 15.1% or
    approximately $0.6 million over the first quarter 2012.
  *Adjusted FFO. The Company generated adjusted FFO of approximately $2.2
    million during the first quarter 2013, an increase of 80.2% or
    approximately $1.0 million over the first quarter 2012.
  *Common Dividends. As previously reported on April 25, 2013, the Company
    announced a quarterly dividend (distribution) on its common stock of
    $0.035 per share (and unit), payable on July 11, 2013 to stockholders (and
    unitholders) of record as of June 14, 2013.

Andrew M. Sims, Chairman and Chief Executive Officer of Sotherly Hotels Inc.,
commented, “Although we experienced slower than expected top line growth, our
management team continued to increase average daily rate, leading to improved
margins and resulting in solid first quarter results. During the first quarter
2013, adjusted FFO increased 80.2% and adjusted EBITDA increased 15.1% over
the first quarter 2012.”

Financing Transactions

On March 22, 2013, the Company amended the original $8.0 million mortgage
secured by its Doubletree by Hilton Brownstone-University hotel with its
existing lender, Premier Bank, Inc. With the amendment, the loan’s principal
amount was increased to $10.0 million. The mortgage’s interest rate will
remain at 5.25% and the loan was amended to remove any prepayment penalty.
Proceeds of the mortgage amendment were used to redeem approximately 1,902
shares of the Company’s Series A Cumulative Redeemable Preferred Stock for an
aggregate redemption price of approximately $2.1 million plus the payment of
related accrued and unpaid cash and stock dividends.

Balance Sheet/Liquidity

At March 31, 2013, the Company had approximately $10.3 million of available
cash and cash equivalents, of which approximately $3.1 million was reserved
for real estate taxes, insurance, capital improvements and certain other
expenses or otherwise restricted. The Company had approximately $153.3 million
in outstanding debt at a weighted average interest rate of approximately
5.55%. At March 31, 2013, the Company also had $7.0 million of availability
under its existing Note Agreement with Essex Equity High Income Joint
Investment Vehicle, LLC.

2013 Outlook

The Company reiterates its previous guidance for 2013 which is predicated on
continued strengthening of the economy and expected improvements in hotel
lodging industry fundamentals. These projections are based on estimates of
occupancy and average daily rates that are consistent with calendar year 2013
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 2013:

                                                         
                                        Low Range             High Range
                                        Y/E Dec 31, 2013      Y/E Dec 31, 2013
                                        ($ in thousands except per share data)
Total Revenue                           $    87,425           $      91,170
Net income (loss)                            (2,131   )              90
                                                                     
EBITDA                                       18,165                  20,485
Adjusted EBITDA                              20,065                  22,285
Hotel EBITDA                                 22,465                  24,435
                                                                     
FFO                                          7,164                   9,384
Adjusted FFO                                 10,164                  12,384
                                                                     
Net income (loss) per share             $    (0.16    )       $      0.01
attributable to the Company
FFO per share and unit                       0.55                    0.72
Adjusted FFO per share and unit              0.78                    0.95
                                                                     

Earnings Call/Webcast

The Company will conduct its first quarter 2013 conference call for investors
and other interested parties at 10:00 a.m. Eastern Time on Tuesday, May 7,
2013. The conference call will be accessible by telephone and through the
Internet. Interested individuals are invited to listen to the call by
telephone at 888-317-6016 (United States) or 855-669-9657 (Canada) or +1
412-317-6016 (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 May 7, 2013 through March 31, 2014. To access the rebroadcast, dial
877-344-7529 and enter conference number 10027519. A replay of the call also
will be available on the Internet at www.sotherlyhotels.com until March 31,
2014.

About Sotherly Hotels Inc.

Sotherly Hotels Inc., formerly MHI Hospitality Corporation, 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 Mid-Atlantic and Southern United States. Currently, the Company’s
portfolio consists of investments in ten hotel properties, nine of which are
wholly-owned and comprise 2,113 rooms. The Company also has a 25.0 percent
interest in the Crowne Plaza Hollywood Beach Resort. All of the Company’s
properties operate under the Hilton Worldwide, InterContinental Hotels Group
and Starwood Hotels and Resorts 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 21E of the Securities Exchange Act of 1934 and Section 27A of the
Securities Act of 1933. 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,
including recessionary economic conditions existing over the last several
years, that affect occupancy rates at the Company’s hotels and the demand for
hotel products and services; risks associated with the hotel industry,
including competition, increases in wages, energy costs and other operating
costs; the magnitude, sustainability and timing 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.


SOTHERLY HOTELS INC.
CONSOLIDATED BALANCE SHEETS


                                       March 31, 2013    December 31, 2012
                                         (unaudited)         (audited)
ASSETS
Investment in hotel properties, net      $ 175,453,822       $  176,427,904
Investment in joint venture                9,108,706            8,638,967
Cash and cash equivalents                  7,234,053            7,175,716
Restricted cash                            3,118,903            3,079,894
Accounts receivable, net                   2,304,793            1,478,923
Accounts receivable-affiliate              7,105                8,657
Prepaid expenses, inventory and            2,389,409            1,684,951
other assets
Shell Island sublease, net                 420,343              480,392
Deferred income taxes                      2,387,586            2,649,282
Deferred financing costs, net             2,225,584          2,406,183    
                                                                             
TOTAL ASSETS                             $ 204,650,304      $  204,030,869  
                                                                             
LIABILITIES
Mortgage debt                            $ 136,923,431       $  135,674,432
Loans payable                              4,025,220            4,025,220
Series A Cumulative Redeemable
Preferred Stock, par value $0.01,
27,650 shares authorized, 12,396 and       12,395,744           14,227,650
14,228 shares issued and outstanding
at March 31, 2013 and December 31,
2012, respectively
Accounts payable and accrued               8,488,698            6,786,684
liabilities
Advance deposits                           940,531              625,822
Dividends and distributions payable        456,684              389,179
Warrant derivative liability              7,738,817          4,969,752    
                                                                             
TOTAL LIABILITIES                         170,969,125        166,698,739  
                                                                             
Commitments and contingencies
                                                                             
EQUITY
Sotherly Hotels Inc. stockholders’
equity
Preferred stock, par value $0.01;
972,350 shares authorized, 0 shares
issued and outstanding at March 31,        —                    —
2013 and December 31, 2012,
respectively
Common stock, par value $0.01;
49,000,000 shares authorized;
10,125,286 shares and 9,999,786            101,253              99,998
shares issued and outstanding at
March 31, 2013 and December 31,
2012, respectively
Additional paid in capital                 57,303,413           57,020,979
Distributions in excess of retained       (30,128,693 )       (27,179,392  )
earnings
Total Sotherly Hotels Inc.                 27,275,973           29,941,585
stockholders’ equity
Noncontrolling interest                   6,405,206          7,390,545    
TOTAL EQUITY                              33,681,179         37,332,130   
                                                                             
TOTAL LIABILITIES AND EQUITY             $ 204,650,304      $  204,030,869  
                                                                             


SOTHERLY HOTELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)


                                           Quarter ended    Quarter ended
                                             March 31, 2013     March 31, 2012
REVENUE
Rooms department                             $ 14,249,959       $ 13,943,706
Food and beverage department                   4,851,571          4,994,465
Other operating departments                   1,088,282        1,086,975  
                                                                             
Total revenue                                 20,189,812       20,025,146 
                                                                             
EXPENSES
Hotel operating expenses
Rooms department                               4,013,733          3,950,486
Food and beverage department                   3,224,480          3,397,386
Other operating departments                    106,674            123,493
Indirect                                      7,815,061        7,936,089  
                                                                             
Total hotel operating expenses                 15,159,948         15,407,454
                                                                             
Depreciation and amortization                  2,052,821          2,179,963
Corporate general and administrative          1,093,787        1,131,587  
                                                                             
Total operating expenses                       18,306,556         18,719,004
                                                                        
NET OPERATING INCOME                           1,883,256          1,306,142
                                                                             
Other income (expense)
Interest expense                               (2,680,547 )       (3,288,630 )
Interest income                                3,906              4,683
Equity income in joint venture                 469,739            265,794
Unrealized loss on warrant derivative         (2,769,065 )      (1,163,758 )
                                                                             
Net loss before taxes                          (3,092,711 )       (2,875,769 )
Income tax provision                          (263,055   )      (104,575   )
                                                                             
Net loss                                       (3,355,766 )       (2,980,344 )
Add: Net loss attributable to the             760,850          685,989    
noncontrolling interest
                                                                             
Net loss attributable to the Company         $ (2,594,916 )     $ (2,294,355 )
                                                                             
                                                                             
Basic                                        $ (0.26      )     $ (0.23      )
Diluted                                      $ (0.24      )     $ (0.23      )
Weighted average number of shares
outstanding
Basic                                          10,080,375         9,983,105
Diluted                                        10,887,599         10,188,737
                                                                             


SOTHERLY HOTELS INC.
KEY OPERATING METRICS
(unaudited)

The following table illustrates the key operating metrics for the three months
ended March 31, 2013 and 2012, respectively, for the Company’s wholly-owned
properties during each respective reporting period (“consolidated”
properties). The table excludes performance data for the Crowne Plaza
Hollywood Beach Resort hotel property, 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 March 31,
                            2013            2012           Variance
Occupancy                      65.6    %        66.1   %     -0.7  %
ADR                         $  114.19         $ 109.71       4.1   %
RevPAR                      $  74.93          $ 72.52        3.3   %
                                                                   


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


                                           Three months ended March 31,
                                             2013             2012
                                                                             
Net loss attributable to the Company         $ (2,594,916 )     $ (2,294,355 )
Noncontrolling interest                        (760,850   )       (685,989   )
Depreciation and amortization                  2,052,821          2,179,963
Equity in depreciation and amortization       135,101          137,815    
of joint venture
                                                                             
FFO                                            (1,167,844 )       (662,566   )
Unrealized (gain)/loss on hedging              (27,323    )       14,681
activities^(1)
Unrealized loss on warrant derivative          2,769,065          1,163,758
(Increase) decrease in deferred income         261,696            218,274
taxes
Loss on early extinguishment of debt^(2)      337,136          471,396    
                                                                             
Adjusted FFO                                 $ 2,172,730       $ 1,205,543  
                                                                             
Weighted average shares outstanding            10,080,375         9,983,105
Weighted average units outstanding            2,955,617        2,984,839  
                                                                             
Weighted average shares and units             13,035,992       12,967,944 
                                                                             
FFO per share and unit                       $ (0.09      )     $ (0.05      )
                                                                             
Adjusted FFO per share and unit              $ 0.17            $ 0.09       
                                                                             
                                                                             
                                             Three months ended March 31,
                                             2013               2012
                                                                             
Net loss attributable to the Company         $ (2,594,916 )     $ (2,294,355 )
Noncontrolling interest                        (760,850   )       (685,989   )
Interest expense                               2,680,547          3,288,630
Interest income                                (3,906     )       (4,683     )
Income tax provision                           263,055            104,575
Depreciation and amortization                  2,052,821          2,179,963
Equity in interest expense and
depreciation and amortization of joint        243,170          247,515    
venture
                                                                             
EBITDA                                         1,879,921          2,835,656
Unrealized (gain)/loss on hedging              (27,323    )       14,681
activities^(1)
Unrealized loss on warrant derivative         2,769,065        1,163,758  
                                                                             
Adjusted EBITDA                                4,621,663          4,014,095
Corporate general and administrative^(3)       1,093,787          1,131,587
Equity in Adjusted EBITDA of joint             (685,586   )       (527,990   )
venture
Net lease rental income                        (87,500    )       (87,500    )
Other fee income                              (94,323    )      (82,616    )
                                                                             
Hotel EBITDA                                 $ 4,848,041       $ 4,447,576  
                                                                             

     
^(1)   Includes equity in unrealized (gain)/loss on hedging activities of
       joint venture.
^(2)   Reflected in interest expense for the periods presented above.
^(3)   Excludes aborted offering costs.
       

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 should 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 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 believes that excluding the effect of corporate-level expenses and
non-cash items, and the portion of these items that relate to unconsolidated
entities, provides a more complete understanding of the operating results over
which individual hotels and operators have direct control. We believe
property-level results provide investors with supplemental information on the
on-going operational performance of our hotels and the effectiveness of
third-party management companies operating our business on a property-level
basis. The Company previously reported hotel EBITDA as Adjusted Operating
Income.

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:

Sotherly Hotels Inc.
Scott Kucinski, 757-229-5648
Director - Investor Relations