Sotherly Hotels - 10-K annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-K

(Mark One)

☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2025

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

SOTHERLY HOTELS INC.

(Exact name of registrant as specified in its charter)

SOTHERLY HOTELS LP

(Exact name of registrant as specified in its charter)

20 Huling Avenue

Memphis, Tennessee 38103

(Address of Principal Executive Officers) (Zip Code)

901-346-8800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.

Sotherly Hotels Inc. Yes ☐ No ☒ Sotherly Hotels LP Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Sotherly Hotels Inc. Yes ☐ No ☒ Sotherly Hotels LP Yes ☐ No ☒

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.

Sotherly Hotels Inc. Yes ☒ No ☐ Sotherly Hotels LP Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Sotherly Hotels Inc. Yes ☒ No ☐ Sotherly Hotels LP Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. (See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934).

Sotherly Hotels Inc.

Sotherly Hotels LP

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 has filed a report on and attestation to its management’s assessment of the effectiveness of internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

Sotherly Hotels Inc. Yes ☐ No ☒ Sotherly Hotels LP Yes ☐ No ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Sotherly Hotels Inc. Yes ☐ No ☒ Sotherly Hotels LP Yes ☐ No ☒

The aggregate market value of common stock held by non-affiliates of Sotherly Hotels Inc. as of June 30, 2025, the last business day of Sotherly Hotels Inc.’s most recently completed second fiscal quarter, was approximately $15,881,126 based on the closing price quoted on the NASDAQ ® Stock Market.

As of April 1, 2026, there were 100 shares of Sotherly Hotels Inc.’s common stock issued and outstanding.

SOTHERLY HOTELS INC.

SOTHERLY HOTELS LP

INDEX

EXPLANATORY NOTE

We refer to Sotherly Hotels Inc. as the “Company” or "Sotherly", Sotherly Hotels LP as the “Operating Partnership,” the Company’s common stock as “common stock,” the Company’s preferred stock as “preferred stock,” the Operating Partnership’s partnership interests as “partnership units,” and the Operating Partnership’s preferred interests as the “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 is a real estate investment trust, or a "REIT." It conducts virtually all of its activities through the Operating Partnership and is its sole general partner. The Operating Partnership holds substantially all of the Company's assets. 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 of the Operating Partnership further provides that all expenses of the Company are deemed to be incurred for the benefit of the Operating Partnership. The Company does not conduct business itself, other than (a) acting as the sole general partner of the Operating Partnership, (b) issuing public equity from time to time, and (c) guaranteeing certain unsecured debt of the Operating Partnership and certain of its subsidiaries and affiliates. The Operating Partnership holds substantially all of the assets of the business, directly or indirectly. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from equity issuances made by the Company, which are generally contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required by the business through the Operating Partnership's operations, incurrence of indebtedness, and issuance of partnership units to third parties.

This report combines the Annual Reports on Form 10-K for the period ended December 31, 2025 of the Company and the Operating Partnership. We believe combining the annual 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:

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Information included and incorporated by reference in this Form 10-K 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 the Company’s future operations, results, performance and prospects include, but are not limited to:

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 that could cause actual results to vary from our forward-looking statements are set forth under the Section titled “Risk Factors” in Item 1A of this annual report.

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.

PART I

Item 1. Business

Organization

Sotherly Hotels Inc. (the “Company”) is a lodging real estate investment trust, or REIT, that was formed in August 2004 to own, acquire, renovate and reposition full-service, primarily upscale and upper-upscale hotel properties located in primary markets in the mid-Atlantic and southern United States. On December 21, 2004, the Company successfully completed its initial public offering and elected to be treated as a self-advised REIT for federal income tax purposes.

On February 12, 2026, the Company, KW Kingfisher LLC, a Delaware limited liability company (“Parent”), and Sparrows Nest LLC, a Maryland limited liability company (“Merger Sub”), completed the transactions (the “Merger”) contemplated by the Agreement and Plan of Merger (the “Merger Agreement”), dated as of October 24, 2025, by and among the Company, Parent and Merger Sub. Defined terms used herein but not defined shall have the meaning set forth in the Merger Agreement. Pursuant to the Merger Agreement, at the closing, Merger Sub merged with and into the Company. Upon completion of the Merger, the Company survived as a wholly owned subsidiary of Parent (and the surviving entity, the “Surviving Company”), the separate existence of the Merger Sub ceased and Sotherly Hotels LP, a Delaware limited partnership (the “Operating Partnership”), became an indirect subsidiary of Parent.

As contemplated by the Merger Agreement, the Articles of Merger were filed with the State Department of Assessments and Taxation of Maryland, and the Merger was effective at 8:45 am Eastern time on February 12, 2026 (the “Effective Time”).

As a result of the Merger, in accordance with the terms and conditions of the Merger Agreement, at the Effective Time, 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) was 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 shall be 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 Limited Partnership Interests held by the limited partners (other than the Company) were purchased by an affiliate of Parent for the same per share Merger Consideration that each share of Company Common Stock receives pursuant to the Merger Agreement.

In connection with the Merger, the Company’s common stock ceased trading on the NASDAQ ® Global Market (“Nasdaq”) Nasdaq on February 12, 2026, and Nasdaq filed a Form 25 on February 13, 2026, to affect the delisting and deregistration of the Company’s common stock under Section 12(b) of the Exchange Act. Due to the Company Preferred Stock, the Company will continue reporting with the SEC under the Exchange Act.

Prior to the Merger, the Company was self-managed and administered. Following the Merger, the Company is externally managed and administered. The Company conducts its business through Sotherly Hotels LP, its operating partnership (the “Operating Partnership”), of which the Company is the general partner. As of the filing date, the Company owns more than 99.9% of the general and limited partnership units in the Operating Partnership. Another individual owns the remaining limited partnership units in the Operating Partnership.

As of December 31, 2025, our portfolio consisted of ten full-service, primarily upscale and upper-upscale hotels located in seven states with an aggregate of 2,786 hotel rooms, and interests in two condominium hotels and their associated rental programs. All of our hotels are wholly-owned by subsidiaries of the Operating Partnership and are managed on a day-to-day basis by Schulte Hospitality Group, Inc. (“Schulte”) as of February 12, 2026 pursuant to hotel management agreements entered into in connection with the Merger (the “Schulte Management Agreements”). Our portfolio is concentrated in markets that we believe possess multiple demand generators and have significant barriers to entry for new product delivery, which are important factors for us in identifying hotel properties that we expect will be capable of providing strong risk-adjusted returns.

In order for the Company to qualify as a REIT, it cannot directly manage or operate our hotels. Therefore, we lease our wholly-owned hotel properties to entities that we refer to as our “TRS Lessees”, which are wholly-owned subsidiaries of MHI Hospitality TRS Holding, Inc. (“MHI Holding”, and collectively with the TRS Lessees, the “MHI TRS Entities”). The MHI TRS Entities, in turn, have engaged Schulte, which is an eligible independent contractor, to manage the day-to-day operations at our hotels. MHI Holding is a taxable REIT subsidiary (“TRS”) for federal income tax purposes.

Our corporate office is located at 20 Huling Avenue, Memphis, Tennessee 38103. Our telephone number is (901) 346-8800.

Our Properties

As of December 31, 2025, our hotels were located in Florida, Georgia, Maryland, Virginia, North Carolina, Pennsylvania and Texas. Seven of these hotels operate under franchise agreements with major hotel brands, and three are independent hotels. We also own the hotel commercial condominium units of the Lyfe Resort & Residences and Hyde Beach House Resort & Residences condominium hotels. See Item 2 in Part I and Item 7 in Part II of this Form 10-K for additional detail on our properties.

Our Strategy and Investment Criteria

Following the Merger, our strategy is focused on maximizing the performance of our existing portfolio of full-service, primarily upscale and upper-upscale hotels through disciplined operations, targeted capital investment and active balance sheet management. We believe our portfolio benefits from scale and diversification across Southeastern and Mid-Atlantic markets, and we intend to leverage these attributes to generate durable cash flow and improve long-term asset value.

We have transitioned day-to-day hotel management to Schulte, a scaled national hotel operator, to work towards advancing operational discipline and enhancing property-level execution. We expect this transition to support improved cost controls and operating efficiencies through initiatives such as disciplined expense management, centralized systems and procurement strategies, including insurance procurement. We also believe that our post-Merger ownership and governance structure enables greater organizational efficiency and a more agile decision-making framework. Through these efforts, we hope to reduce overhead and redirect cash flow toward property-level initiatives and balance sheet priorities.

A central component of our strategy is implementing a guest-facing capital reinvestment program designed to improve competitive positioning, address deferred maintenance and generate attractive returns on invested capital. We expect this program to include ROI-driven improvements across the portfolio, including renovations of guestrooms and public spaces and other projects intended to improve guest experience and support revenue growth. We also continually evaluate the Company with the objective of optimizing long-term performance and stockholder value. Where appropriate, we may seek to divest non-core or lower-contributing assets and redeploy proceeds to reduce leverage and fund value-enhancing reinvestment initiatives. Our reinvestment decisions are guided by a focus on return-driven capital allocation and disciplined underwriting, including (i) projects expected to enhance revenue, margins and asset value, (ii) maintenance of brand and franchise standards where applicable, (iii) initiatives that improve operational efficiency and (iv) maintaining appropriate liquidity and financial flexibility under our debt agreements.

We may grow through acquisitions of full-service, upscale and upper-upscale hotel properties located in the primary markets of the southern United States. The Company may also opportunistically acquire hotels throughout other regions of the United States. In the event of growth, we expect our portfolio will expand through disciplined acquisitions of hotel properties, and we believe that we will be able to source significant external growth opportunities through our management team’s extensive network of industry, corporate and institutional relationships. Current market conditions and the terms of our loan agreements limit our ability to pursue a growth strategy, but as economic conditions improve and demand and consumer confidence increase, we intend to position the Company to execute on our growth strategy. We are not subject to limitations on the concentration of investments in any one location or facility type. Our investment criteria are further detailed below:

Our investment criteria are further detailed below:

We generally have a bias to acquiring underperforming hotels, which we typically define as those that are poorly managed, suffer from significant deferred maintenance and capital investment and that are not properly positioned in their respective markets. In pursuing these opportunities, we hope to improve revenue and cash flow and increase the long-term value of the underperforming hotels we acquire. Our ultimate goal is to achieve a total investment that is substantially less than replacement cost of a hotel or the acquisition cost of a market performing hotel. In analyzing a potential investment in an underperforming hotel property, we typically characterize the investment opportunity as one of the following:

In our experience, a deep-turn opportunity typically takes a total of approximately four years from the initial acquisition of a property until it achieves full post-renovation stabilization. Therefore, when evaluating future opportunities in underperforming hotels, we intend to focus on up-branding and shallow-turn opportunities, and to pursue deep-turn opportunities on a more limited basis, preferably within the structure of joint venture or partnership.

Investment Vehicles. In pursuit of our investment strategy, we may employ various traditional and non-traditional investment vehicles:

Portfolio and Asset Management Strategy

We intend to ensure that the management of our hotel properties maximizes market share, as evidenced by revenue per available room (“RevPAR”) penetration indices, and that our market share yields the optimum level of revenues for our hotels in their respective markets. Our strategy is designed to actively monitor our hotels’ operating expenses in an effort to maximize hotel earnings before interest, taxes, depreciation and amortization (“Hotel EBITDA”).

Over our long history in the lodging industry, we have refined many portfolio and asset management techniques that we believe provide for exceptional cash returns at our hotels. We undertake extensive budgeting due diligence wherein we examine market trends, one-time or exceptional revenue opportunities, and/or changes in the regulatory climate that may impact costs. We review daily revenue results and revenue management strategies at the hotels, and we focus on our manager's ability to produce high quality revenues that translate to higher profit margins. We look for ancillary forms of revenue, such as leasing roof-top space for cellular towers and other communication devices and also look to lease space to third parties in our hotels, which may include, but are not limited to, gift shops or restaurants. We have and will continue to engage parking management companies to maximize parking revenue. Our efforts further include periodic review of property insurance costs and coverage, and the cost of real and personal property taxes. We generally appeal tax increases in an effort to secure lower tax payments and routinely pursue strategies that allow for lower overall insurance costs, such as purchasing re-insurance.

We also require detailed and refined reporting data from our hotel manager, which includes detailed accounts of revenues, revenue segments, expenses and forecasts based on current and historic booking patterns. We also believe we optimize and successfully manage capital costs at our hotels while ensuring that adequate product standards are maintained to provide positive guest experiences.

As of December 31, 2025, none of our hotels were managed by a major national or global hotel franchise company. Effective as of February 12, 2026, Schulte became the manager of the Hyde Beach House Resort & Residences and, pursuant to the Schulte Management Agreements, was engaged to manage the Company’s wholly-owned hotels. Our portfolio management strategy includes efforts to optimize labor costs. Our hotel manager is responsible for hiring and maintaining the labor force at each of our hotels. Although we do not directly employ or manage employees at our hotels, we monitor our hotel manager's human resource strategy and make recommendations regarding the operation of our hotels, if appropriate. The labor force in our hotels is predominately non-unionized, with only one property, the DoubleTree by Hilton Jacksonville Riverfront, having approximately 94 employees electing to participate under a collective bargaining arrangement.

Asset Disposition Strategy. When a property no longer fits with our investment objectives, we plan to pursue a direct sale of the property for cash so that our investment capital can be redeployed according to the investment strategies outlined above. Where possible, we may seek to subsequently purchase a hotel in connection with the requirements of a tax-free exchange. Such a strategy may be deployed in order to mitigate the tax consequence that a direct sale may cause.

Our Principal Agreements

Management Agreements

As of December 31, 2025, our hotels were managed on a day-to-day basis by Our Town, an eligible independent contractor. The base management fee for each of our hotels was a percentage of the gross revenues of the hotel and is due monthly. The applicable percentages of gross revenue for the base management fee for each of our wholly-owned hotels and our condominium hotel rental programs are shown below:

Agreements with Our Town. Our Town was the management company for each of our ten wholly-owned hotels, as well as the manager for our two condominium rental programs as of December 31, 2025 and through February 11, 2026.

On September 6, 2019, we entered into a master agreement with Our Town and the former majority owner of Our Town related to the management of certain of our hotels, as amended and restated on November 6, 2024 (as amended, the “OTH Master Agreement”). On December 13, 2019, and subsequent dates we entered into a series of individual hotel management agreements for the management of our hotels. Those hotel management agreements for our ten wholly-owned hotels and the two rental programs are each referred to as an “OTH Hotel Management Agreement” and, together, the “OTH Hotel Management Agreements”.

As of December 31, 2025, the OTH Master Agreement:

Each of the OTH Hotel Management Agreements had an initial term ending March 31, 2035. Each of the OTH Hotel Management Agreements could be extended for up to two additional periods of five years subject to the approval of both parties with respect to any such extension. The agreements provided that Our Town would be the sole and exclusive manager of the hotels as the agent of the respective TRS Lessee, at the sole cost and expense of the TRS Lessee, and subject to certain operating standards. Each OTH Hotel Management Agreement could be terminated in connection with a sale of the related hotel. In connection with a termination upon the sale of the hotel, Our Town would be entitled to receive a termination fee equal to the lesser of the management fee paid with respect to the prior twelve months or the management fees paid for that number of months prior to the closing date of the hotel sale equal to the number of months remaining on the current term of the OTH Hotel Management Agreement. Upon the sale of a hotel, no termination fee would be due in the event the Company elected to provide Our Town with the opportunity to manage another comparable hotel and Our Town was not precluded from accepting such opportunity. Our Town was required to qualify as an eligible independent contractor in order to permit the Company to continue to operate as a real estate investment trust.

Pursuant to the management agreements for the Lyfe Resort & Residences and the Hyde Beach House Resort & Residences, Our Town managed the rental of individually owned condominium units pursuant to rental agreements entered into with individual condominium unit owners. We also entered into an Association Sub Management and Assignment Agreement with Our Town for the management and operation of the condominium association responsible for the operation of the Hyde Beach House Resort & Residences, and a Rental Sales Management Agreement pursuant to which Our Town agreed to manage the marketing and negotiation of rental agreements with individual condominium unit owners.

As of December 31, 2025, an affiliate of Andrew M. Sims, our Chairman, an affiliate of David R. Folsom, our President and Chief Executive Officer, and Andrew M. Sims Jr., our Vice President - Operations & Investor Relations, beneficially owned approximately 58.5%, 6.5%, and 15.0%, respectively, of the total outstanding ownership interests in Our Town. Mr. Sims, Mr. Folsom, and Mr. Sims Jr. served as directors of Our Town.

In connection with the Merger, the Company terminated the OTH Master Agreement with Our Town and Our Town ceased acting as the Company’s property management company effective February 12, 2026.

On February 12, 2026, the TRS lessee subsidiaries for the Company’s hotels entered into hotel management agreements with Schulte and certain of its affiliates. Under each Schulte Management Agreement, Schulte is appointed as the sole and exclusive operator and manager of the applicable hotel and is responsible for the supervision, direction, control, management and operation of the hotel, subject to certain third-party operations.

Agreements with Schulte. Under each Schulte Management Agreement, Schulte is entitled to (i) a base management fee equal to 2.75% of total revenues (paid monthly in arrears), (ii) an overhead fee of $4,500 per month, and (iii) an incentive fee ranging from 0% to 10% of gross operating profits based on specified performance thresholds. The Schulte Management Agreements have an initial term of ten (10) years and automatically renew for one successive five (5)-year period unless earlier terminated in accordance with their terms.

Pursuant to its management agreements for the Hyde Beach House Resort & Residences, Schulte manages the rental of individually owned condominium units pursuant to rental agreements entered into with individual condominium unit owners. We have also entered into an Association Sub Management and Assignment Agreement with Schulte for the management and operation of the condominium association responsible for the operation of the Hyde Beach House Resort & Residences, and a Rental Sales Management Agreement pursuant to which Schulte agreed to manage the marketing and negotiation of rental agreements with individual condominium unit owners.

Accordingly, the table below is updated to reflect Schulte as manager and the updated base fee structure:

(1) with automatic renewal through February 11, 2041 unless terminated.

In addition to the base fee above, each Schulte Management Agreement includes an overhead fee of $4,500 per month and an incentive fee based on gross operating profits.

Franchise Agreements

As of December 31, 2025, all but three of our wholly-owned hotels operate under franchise licenses from national hotel companies. As our franchise agreements expire, we will continue to evaluate each hotel on a case-by-case basis and decide whether to re-license or re-brand with the existing franchisor, re-brand and license with a new franchisor, or re-brand as an independent hotel. We also periodically review our independent hotels to determine whether they would be better served by operating under a franchise license.

Our TRS Lessees hold the franchise licenses for our wholly-owned hotels. Under the terms of each hotel management agreement, our hotel manager must operate each of our hotels in accordance with and pursuant to the terms of the franchise agreement for the hotel.

The franchise licenses generally specify certain management, operational, record keeping, accounting, reporting and marketing standards and procedures with which the franchisee must comply. Under the franchise licenses, the franchisee must comply with the franchisors’ standards and requirements with respect to:

As the franchisee, our TRS Lessees are required to pay franchise/royalty fees, as well as certain other fees for marketing and reservations services in amounts that range from approximately 3.0% to 4.0% of gross revenues. The following table sets forth certain information for the franchise licenses of our wholly-owned hotel properties as of December 31, 2025:

(1) Percentage of room revenues payable to the franchisor.

(2) The Franchise/Royalty Fee was temporarily reduced to 4.0% from December 2023 through November 2025.

Lease Agreements

TRS Leases

In order for the Company to maintain qualification as a REIT, neither the Company nor the Operating Partnership nor its subsidiaries can operate our hotels directly. Our wholly-owned hotels are leased to our TRS Lessees, which have engaged Schulte to manage the hotels. As of December 31, 2025, each lease had a non-cancelable term ranging from four to thirty years. Pursuant to an amendment effective as of February 12, 2026, each lease has a non-cancelable term extended for five years from the previous expiration date, subject to earlier termination upon the occurrence of certain contingencies described in the lease.

During the term of each lease, our TRS Lessees are obligated to pay a fixed annual base rent plus a percentage rent and certain other additional charges. Base rent accrues and is paid monthly. Percentage rent is calculated by multiplying fixed percentages by gross room revenues, in excess of certain threshold amounts and is paid monthly or quarterly, according to the terms of the agreement.

Other Leases

We lease the land underlying the Hyatt Centric Arlington hotel pursuant to a ground lease. The initial term of the ground lease required 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 ground lease allowed for five additional rental periods of 10 years each. Upon commencement of each renewal period, we will be required to make lease payments each year equal to 8.0% of the appraised value of the land. We exercised the renewal option for the first renewal period expiring July 1, 2035, during which total annual lease payments will be $1,792,000. In order to sell the Hyatt Centric Arlington hotel and assign our leasehold interest in the ground lease, we are required to obtain the consent of the third-party lessor.

In connection with the acquisition of the Hyde Beach House Resort & Residences hotel commercial condominium unit in 2019, we entered into a 20-year parking and cabana management agreement for the parking garage and poolside cabanas associated with the resort. In exchange for rights to the parking and cabana revenue, we paid the condominium association an annual payment of $271,000 for the initial five years of the term, which increases 5.0% every five years through the duration of the term.

We lease approximately 8,500 square feet of commercial office space in Williamsburg, Virginia for our corporate offices, 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 was offset by a tenant improvement allowance of $200,000, applied against one-half of each monthly rent payment until the tenant improvement allowance was exhausted in 2021. In December 2023, we received a rent concession of $257,731 against accrued and unpaid rents, and effective January 1, 2024, the landlord agreed to a one-third reduction in future rents.

Capital Structure / Material Agreements

Apollo Loan. On February 12, 2026, in connection with the Merger and pursuant to that certain Loan Agreement dated as of such date (the “Apollo Loan Agreement”) with various affiliates of Apollo Global Management, Inc., collectively, as lender, and Laurel Hotel Associates LLC, Philadelphia Hotel Associates LP, MHI Jacksonville LLC, SOHO Atlanta LLC, Houston Hotel Owner, LLC, SOHO Wilmington LLC, Hollywood Hotel Associates LLC, SOHO Arlington LLC, subsidiaries of the Company, as borrower and respective owners of the DoubleTree by Hilton Laurel, DoubleTree by Hilton Philadelphia Airport, DoubleTree by Hilton Jacksonville Riverfront, The Georgian Terrace, Houston/Whitehall, Hotel Ballast, DoubleTree Resort by Hilton Hollywood Beach, and Hyatt Centric Arlington (the “Subject Hotels”), the existing indebtedness on such hotels was refinanced. The Apollo Loan Agreement provides for a loan amount of $308.0 million, with an initial maturity date of February 12, 2029, with two (2) extension options of one (1) year each, subject to the satisfaction of certain extension conditions and provided initial

proceeds of approximately $243.0 million.

On March 24, 2026, we accessed $15.0 million in additional proceeds to redeem a portion of the preferred stock. On April 8, 2026, we accessed approximately $35.0 million in additional proceeds when Tampa Hotel Associates LLC became an additional borrower as owner of the Hotel Alba, which became one of the Subject Hotels. The proceeds were used to repay the existing indebtedness on the Hotel Alba. The loan also has availability fund a portion of certain property improvement plans.

The Apollo Loan Agreement contains customary affirmative covenants for a transaction of this nature, including, among other things, covenants relating to (i) maintenance of adequate financial and accounting books and records, (ii) delivery of financial statements and other information, (iii) preservation of existence of each borrower and subsidiaries, (iv) payment of taxes and claims, (v) compliance with laws, (vi) maintenance of insurance, (vii) use of proceeds, (viii) maintenance of properties, and (xi) conduct of business.

The Apollo Loan Agreement also contains customary negative covenants for a transaction of this nature, including, among other things, covenants relating to (i) debt, (ii) liens, (iii) restriction on fundamental changes, (iv) transfer or pledges of assets, (v) transactions with affiliates, and (vi) entrance into or modifications of material agreements. The Apollo Loan Agreement also contains various customary events of default (subject to certain grace periods, to the extent applicable).

Mezzanine Loan. On February 12, 2026, in connection with the Merger and pursuant to that certain Mezzanine Loan Agreement dated as of such date (the “Mezzanine Loan Agreement”) with ACF II SOHO Mezz Lender LLC, an affiliate of Ascendant Capital Partners LP, as lender, and Sotherly Hotels Mezz LLC, a subsidiary of the Company, as borrower, and indirect owner of the Subject Hotels, the existing indebtedness on such Subject Hotels was refinanced. The Mezzanine Loan Agreement provides for a loan amount of up to $45.0 million, with an initial maturity date of February 12, 2030, with one (1) extension option of (1) year, subject to the satisfaction of certain extension conditions and provided initial proceeds of approximately $26.7 million.

On March 24, 2026, we accessed approximately $13.3 million in additional proceeds to redeem a portion of the preferred stock. The loan also has availability fund a portion of certain property improvement plans.

The Mezzanine Loan Agreement also contains customary affirmative and negative covenants for a transaction of this nature, and also contains various customary events of default (subject to certain grace periods, to the extent applicable).

Other Agreements

Asset Management Agreement. On March 24, 2026, the Operating Partnership entered into a consulting agreement effective February 12, 2026 (the “Consulting Agreement”) with KWC Management, LLC, a Delaware limited liability company and an affiliate of the Operating Partnership (“KWC”). Pursuant to the Consulting Agreement, KWC is responsible for providing consultation and management services to the Operating Partnership, as more particularly described in the Consulting Agreement (the “Services”), for the assets listed on Exhibit A thereto (the “Assets”).

The Consulting Agreement has an initial term of twelve (12) months until February 11, 2027 (the “Initial Term”), following which it shall renew for successive one-year terms unless terminated by either party upon thirty (30) days written notice to the non-cancelling party. Notwithstanding the foregoing, in the event of a sale of the Assets, the Consulting Agreement shall terminate immediately upon the closing of such sale; provided the Operating Partnership shall use commercially reasonable efforts to provide written notice of the proposed sale at least thirty (30) days prior to the anticipated closing date of such sale.

Pursuant to the Consulting Agreement, the Operating Partnership will pay an annual asset management fee (the “Asset Management Fee”) in the amount approved by the Operating Partnership as part of its annual budget approval process. For the Initial Term, the Asset Management Fee shall be at the annualized rate of Six Hundred Fifty Thousand Dollars ($650,000) per year, payable in equal monthly installments in advance on the first day of each calendar month. The fee for any partial month at the commencement or expiration of the current term shall be prorated on a per diem basis based on a 365-day year. The Operating Partnership will also pay reasonable out-of-pocket expenses incurred in connection with KWC’s the performance of the Services within thirty (30) days after receipt of an invoice detailing such amounts and accompanied by reasonable supporting documentation.

Competition

The hotel industry is highly competitive with various participants competing on the basis of price, level of service and geographic location. Each of our hotels is located in a developed area that includes other hotel properties. The number of competitive hotel properties in a particular geographic area could have a material adverse effect on occupancy, ADR and RevPAR of our hotels or at hotel properties we acquire in the future. We believe that brand recognition, location, the quality of the hotel, consistency of services provided, and price are the principal competitive factors affecting our hotels.

Our hotels currently compete primarily in the full-service upscale and upper-upscale segments of the market. Positive competitive factors affecting our position include geographic location, markets with growth potential and strong franchise partners, while certain disadvantages to our position include limited geographic diversity and smaller size in relation to larger competitors.

Seasonality

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.

Tax Status

The Company elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 2004. In order to maintain its qualification as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute, as “qualifying distributions,” at least 90.0% of its taxable income (determined without regard to the deduction for dividends paid and by excluding its net capital gains and reduced by certain non-cash items) to its stockholders. The Company has adhered to these requirements each taxable year since its formation in 2004 and intends to continue to adhere to these requirements and maintain its qualification for taxation as a REIT. As a REIT, the Company generally will not be subject to federal corporate income tax on that portion of its taxable income (including its net capital gain) that is distributed to its stockholders. If the Company fails to qualify for taxation as a REIT in any taxable year, and no relief provision applies, it will be subject to federal income taxes at regular corporate rates and it would be disqualified from re-electing treatment as a REIT until the fifth taxable year after the year in which it failed to qualify as a REIT. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income. In addition, taxable income from non-REIT activities managed through taxable REIT subsidiaries, or TRSs, is subject to federal, state and local income taxes.

While the Operating Partnership is generally not subject to federal and state income taxes, the unit holders of the Operating Partnership, including the Company, are subject to tax on their respective allocable shares of the Operating Partnership’s taxable income.

The Company has one TRS, MHI Holding, in which it owns an interest through the Operating Partnership. MHI Holding is subject to federal, state and local income taxes. MHI Holding has operated at a cumulative taxable loss, through December 31, 2025, of approximately $57.0 million and deferred timing differences of approximately $3.7 million attributable to accrued, but not currently deductible, vacation and sick pay amounts, business interest, depreciation and other miscellaneous differences. Neither the Company nor MHI Holding has incurred federal income taxes since its formation. With the onset of the COVID-19 pandemic and the anticipation of significant losses to MHI Holding, we reduced our deferred tax asset through the establishment of a 100% valuation allowance. As of December 31, 2025, we have a valuation allowance of approximately $14.5 million.

Environmental Matters

In connection with the ownership and operation of the hotels, we are subject to various federal, state and local laws, ordinances and regulations relating to environmental protection. Under these laws, a current or previous owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on, under, or in such property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances. In addition, the presence of contamination from hazardous or toxic substances, or the failure to remediate such contaminated property properly, may adversely affect the owner’s ability to borrow using such property as collateral. Furthermore, a person who arranges for the disposal or treatment of a hazardous or toxic substance at a property owned by another, or who transports such substance to or from such property, may be liable for the costs of removal or remediation of such substance released into the environment at the disposal or treatment facility. The costs of remediation or removal of such substances may be substantial, and the presence of such substances may adversely affect the owner’s ability to sell such real estate or to borrow using such real estate as collateral. In connection with the ownership and operation of the hotels, we may be potentially liable for such costs.

We believe that our hotels are in compliance, in all material respects, with all federal, state and local environmental ordinances and regulations regarding hazardous or toxic substances and other environmental matters, the violation of which would have a material adverse effect on us. We have not received written notice from any governmental authority of any material noncompliance, liability or claim relating to hazardous or toxic substances or other environmental matters in connection with any of our present hotel properties.

Employees and Human Capital

As of December 31, 2025, we employed seven full-time individuals, all of whom work at our corporate office in Williamsburg, Virginia. Following the Merger, we have three full-time employees in the Williamsburg office. We believe relations with our employees are positive. Our human capital resources objectives include attracting and retaining talented and well-qualified employees. Our compensation program, including competitive salaries and other benefits, are designed to attract, hire, retain and motivate highly qualified employees and executives. We are committed to enhancing our culture through efforts to promote and preserve inclusion and by providing and maintaining a safe work environment. All persons employed in the day-to-day operations of each of our hotels are employees of our third-party hotel manager engaged by our TRS Lessees to operate such hotels.

Available Information

We maintain an Internet site, http://www.sotherlyhotels.com, which contains additional information concerning Sotherly Hotels Inc. We make available free of charge through our Internet site all our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, definitive proxy statements and other reports filed with the Securities and Exchange Commission as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. We have also posted on this website the Company’s Code of Business Conduct. We intend to disclose on our website any changes to, or waivers from, the Company’s Code of Business Conduct. Information on the Company’s internet site is neither part of nor incorporated into this Form 10-K.

Item 1A. Risk Factors

The following are the material risks that may affect us. Any of the risks discussed herein can materially adversely affect our business, liquidity, operations, industry or financial position or our future financial performance.

SUMMARY

Risks Related to Our Business and Properties

Risks Related to the Lodging Industry

General Risks Related to the Real Estate Industry

Risks Related to Our Debt and Financing

Risks Related to Our Organization and Structure

Risks Related to Conflicts of Interest of Our Officers and Directors

Federal Income Tax Risks Related to the Company’s Status as a REIT.

DETAIL

Risks Related to Our Business and Properties

The completion of the merger with KW Kingfisher LLC has materially changed our ownership structure and capital profile, and the anticipated benefits of the transaction may not be realized.

On February 12, 2026, we completed our merger with KW Kingfisher LLC (the “Merger”). As a result of the Merger, affiliates of KW Kingfisher became the controlling stockholders of the Company, and our ownership structure, governance profile and capital structure were materially altered.

The Merger presents a number of risks and uncertainties, including:

Following the Merger, affiliates of KW Kingfisher beneficially own a controlling interest in our outstanding common stock and have the ability to influence or control matters requiring stockholder approval, including the election of directors, amendments to our charter documents, approval of mergers or other strategic transactions and other significant corporate actions. This concentration of ownership may delay, deter or prevent a change in control that other stockholders may view as beneficial, or otherwise limit the ability of minority stockholders to influence corporate matters.

In addition, as a result of the Merger and related financings, we have a significantly increased level of indebtedness and ongoing debt service obligations. The combination of a concentrated ownership structure and increased leverage may limit our financial flexibility and could adversely affect our ability to respond to competitive pressures, economic downturns or changes in the hospitality industry.

If the anticipated benefits of the Merger are not realized, or if we experience difficulties operating under our new ownership and capital structure, our business, financial condition and results of operations could be materially and adversely affected.

Our substantial indebtedness under the Apollo senior loan and Ascendant mezzanine loan increases our financial risk and may adversely affect our liquidity, results of operations and ability to refinance.

In connection with the closing of our merger on February 12, 2026, we entered into a new senior secured loan agreement with affiliates of Apollo Global Management, Inc. providing up to $308.0 million of indebtedness (the “Senior Loan”), and a mezzanine loan agreement with an affiliate of Ascendant Capital Partners LP providing for up to $45.0 million of mezzanine indebtedness (the “Mezzanine Loan”). These financings materially increased our consolidated indebtedness and significantly changed our capital structure.

The Senior Loan is secured by, among other things, mortgages on eight of our hotel properties and includes customary affirmative and negative covenants, financial and operational restrictions and events of default. The Mezzanine Loan is secured by equity interests in certain property-owning subsidiaries and is structurally subordinate to the Senior Loan and other property-level indebtedness. Both loans have initial maturities in 2029 and 2030, respectively, subject to extension options that are conditioned on satisfaction of specified requirements.

Our substantial indebtedness could have important consequences, including:

In addition, the mezzanine structure of the Mezzanine Loan may increase enforcement risk in a default scenario, as the mezzanine lender could foreclose on the pledged equity interests in certain subsidiaries, potentially resulting in a change of control of those entities without a foreclosure on the underlying real estate. Defaults under either the Senior Loan or the Mezzanine Loan could result in the acceleration of indebtedness, the imposition of default interest, the exercise of remedies against collateral, and, in certain circumstances, cross-defaults under other agreements.

The maturity dates of these loans will require us to refinance, extend or repay a substantial amount of indebtedness within a relatively concentrated timeframe. Our ability to do so will depend on prevailing market conditions, the performance and value of the underlying hotel properties, lender underwriting standards and other factors beyond our control. If we are unable to refinance or extend these loans on acceptable terms, we may be required to seek alternative capital, sell assets, or pursue other strategic transactions, any of which could materially and adversely affect our financial condition and results of operations.

We own a limited number of hotels and significant adverse changes at one hotel could have a material adverse effect on our financial performance and may limit our ability to make distributions to stockholders.

As of December 31, 2025, our portfolio consisted of ten wholly-owned hotels with a total of 2,786 rooms and the hotel commercial condominium units of the Lyfe Resort & Residences and the Hyde Beach House Resort & Residences condominium hotels. Significant adverse changes in the operations of any one hotel could have a material adverse effect on our financial performance and, accordingly, on our ability to make distributions to stockholders.

We are subject to risks of increased hotel operating expenses and decreased hotel revenues.

Our leases with our TRS Lessees provide for the payment of rent based in part on gross revenues from our hotels. Our TRS Lessees are subject to hotel operating risks including decreased hotel revenues and increased hotel operating expenses, including but not limited to the following:

Any increases in these operating expenses can have a significant adverse impact on our TRS Lessees’ ability to pay rent and other operating expenses and, consequently, our earnings and cash flow.

In keeping with our investment strategy, we may acquire, renovate and/or re-brand hotels in new or existing geographic markets as part of our repositioning strategy. Unanticipated expenses and insufficient demand for newly repositioned hotels could adversely affect our financial performance and our ability to comply with loan covenants and to make distributions to the Company’s stockholders.

We have in the past, and may in the future, develop or acquire hotels in geographic areas in which our management may have little or no operating experience. Additionally, those properties may also be renovated and re-branded as part of a repositioning strategy. Potential customers may not be familiar with our newly renovated hotel or be aware of the brand change. As a result, we may have to incur costs relating to the opening, operation and promotion of those new hotel properties that are substantially greater than those incurred in other geographic areas. These hotels may attract fewer customers than expected and we may choose to increase spending on advertising and marketing to promote the hotel and increase customer demand. Unanticipated expenses and insufficient demand at new hotel properties, therefore, could adversely affect our financial performance and our ability to comply with loan covenants and to make distributions to the Company’s stockholders.

We do not have the authority to require any hotel to be operated in a particular manner or to govern any particular aspect of the daily operations of any hotel and as a result, our returns are dependent on the management of our hotels by our hotel management company.

Since federal income tax laws restrict REITs and their subsidiaries from operating or managing hotels, we do not operate or manage our hotels. Instead, we lease all of our hotels to our TRS Lessees, and our TRS Lessees retain managers to operate our hotels pursuant to management agreements. As of December 31, 2025, all of our hotels currently were managed by Our Town. On February 12, 2026, in connection with the Merger pursuant to which we became a wholly owned subsidiary of KW Kingfisher LLC, we terminated our prior management agreements with Our Town and entered into hotel management agreements with Schulte to manage all of our hotels.

Under the terms of our management agreements with our hotel manager and the REIT qualification rules, our ability to participate in operating decisions regarding the hotels is limited. We will depend on our hotel manager to operate our hotels as provided in the management agreements. We do not have the authority to require any hotel to be operated in a particular manner or to govern any particular aspect of the daily operations of any hotel. Thus, even if we believe our hotels are being operated inefficiently or in a manner that does not result in satisfactory occupancy rates, RevPAR, and average daily rates (“ADR”), we may not be able to force a hotel management company to change its method of operating our hotels. Additionally, in the event that we need to replace the manager of one or more of our hotels, we may be required by the terms of the applicable management agreement to pay substantial termination fees and may experience significant disruptions at the affected hotels.

Our ability to make distributions to the Company’s stockholders is subject to fluctuations in our financial performance, operating results and capital improvement requirements.

As a REIT, the Company is required to distribute, as “qualifying distributions,” at least 90.0% of its REIT taxable income (determined without regard to the dividends-paid deduction and by excluding its net capital gains, and reduced by certain noncash items), each year to the Company’s stockholders. However, several factors may make us unable to declare or pay distributions to the Company’s stockholders, including poor operating results and financial performance or unanticipated capital improvements to our hotels, including capital improvements that may be required by our franchisors.

We lease all of our hotels to our TRS Lessees. Our TRS Lessees are subject to hotel operating risks, including risks of sustaining operating losses after payment of hotel operating expenses, including management fees. Among the factors which could cause our TRS Lessees to fail to make required rent payments are reduced net operating profits or operating losses, increased debt service requirements and capital expenditures at our hotels, including capital expenditures required by the franchisors of our hotels. Among the factors that could reduce the net operating profits of our TRS Lessees are decreases in hotel revenues and increases in hotel operating expenses. Hotel revenue can decrease for a number of reasons, including increased competition from a new supply of hotel rooms and decreased demand for hotel rooms. These factors can reduce both occupancy and room rates at our hotels and limit the volume of food and beverage revenue and other operating revenue such as parking revenue.

The declaration of distributions to holders of our securities is subject to the sole discretion of the Company’s board of directors, which will consider, among other factors, our financial performance, debt service obligations, debt covenants and capital expenditure requirements. We cannot assure you that we will generate sufficient cash to fund distributions. We have not paid any common stock dividend distributions following the payment of dividends in January 2020. Once the payment of all preferred dividends in arrears has been made, the Company may make the common stock dividend distribution that was declared in January 2020 to stockholders of record on March 13, 2020.

Geographic concentration of our hotels makes our business vulnerable to economic downturns in the mid-Atlantic and southern United States.

Our hotels are located in the mid-Atlantic and southern United States. As a result, economic conditions in the mid-Atlantic and southern United States significantly affect our revenues and the value of our hotels to a greater extent than if we had a more geographically diversified portfolio. Business layoffs or downsizing, industry slowdowns, changing demographics and other similar factors that may adversely affect the economic climate in these areas could have a significant adverse impact on our business. Any resulting oversupply or reduced demand for hotels in the mid-Atlantic and southern United States and in our markets in particular would therefore have a disproportionate negative impact on our revenues and limit our ability to make distributions to stockholders.

A substantial number of our hotels operate under brands owned by Hilton Worldwide Holdings, Inc.("Hilton"); therefore, we are subject to risks associated with concentrating our portfolio in one brand. We also own a hotel operated under the brand owned by Hyatt Hotels Corporation ("Hyatt").

In our portfolio, the majority of the hotels that we owned as of December 31, 2025, utilize brands owned by Hilton. As a result, our success is dependent in part on the continued success of Hilton and their respective brands. If market recognition or the positive perception of Hilton is reduced or compromised, the goodwill associated with the Hilton-branded hotels in our portfolio may be adversely affected, which may have a material adverse effect on our business, financial condition, results of operations and our ability to make distributions to our stockholders. As of April 1, 2026, we owned one property that utilizes a brand owned by Hyatt. Our success is also dependent in part on the continued success, market recognition, and positive perception of these brands.

Our ground lease for the Hyatt Centric Arlington may constrain us from acting in the best interest of stockholders or require us to make certain payments.

The Hyatt Centric Arlington is subject to a ground lease with a third-party lessor which requires us to obtain the consent of the relevant third-party lessor in order to sell the Hyatt Centric Arlington hotel or to assign our leasehold interest in the ground lease. Accordingly, we may be prevented from completing such a transaction if we are unable to obtain the required consent from the lessor, even if we determine that the sale of this hotel or the assignment of our leasehold interest in the ground lease is in the best interest of the Company or our stockholders. In addition, at any given time, potential purchasers may be less interested in buying a hotel subject to a ground lease and may demand a lower price for the hotel than for a comparable property without such a restriction, or they may not purchase the hotel at any price. For these reasons, we may have a difficult time selling the hotel or may receive lower proceeds from any such sale. The ground lease is subject to four additional renewal periods of 10 years each, following the first renewal period which expires in 2035. At the beginning of each renewal period, certain provisions of the lease may be adjusted by the lessor, which could impact payments we are required to make to the lessor. The ground lease contains a rent reset provision that re-set the rent in June 2025 and will be re-set each successive 10-year period, to a fixed amount per annum equal to 8.0% of the land value, subject to an appraisal process. The appraisal process was completed in 2024 and, beginning in July 2025, the rent adjusted to $149,333 per month. If we cannot come to reasonable terms with the lessor at the end of the term or if we are found to have breached certain obligations under the ground lease, the hotel may suffer a substantial decline in value and we may be forced to dispose of the hotel at a substantial loss.

Hedging against interest rate exposure may adversely affect us and our hedges may fail to protect us from the losses that the hedges were designed to offset.

Subject to maintaining the Company’s qualification as a REIT, we may elect to manage our exposure to interest rate volatility by using interest rate hedging arrangements, such as cap agreements and swap agreements. These agreements involve the risks that these arrangements may fail to protect or adversely affect us because, among other things:

As a result of any of the foregoing, our hedging transactions, which are intended to limit losses, may fail to protect us from the losses that the hedges were designed to offset and could have a material adverse effect on us.

Our investment opportunities and growth prospects may be affected by competition for acquisitions.

We compete for investment opportunities with other entities, some of which have substantially greater financial resources than we do. This competition may generally limit the number of suitable investment opportunities offered to us, which may limit our ability to grow. This competition may also increase the bargaining power of property owners seeking to sell to us, making it more difficult for us to acquire new properties on attractive terms, or at all.

If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, the Company’s stockholders could lose confidence in our financial results, which could harm our business and the value of the Company’s shares.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate and report on our internal controls over financial reporting. Our internal controls and financial reporting are not subject to attestation by our independent registered public accounting firm pursuant to the Sarbanes-Oxley Act of 2002. While we have undertaken substantial work to maintain effective internal controls, we cannot be certain that we will be successful in maintaining adequate internal controls over our financial reporting and financial processes in the future. In the future, we may discover areas of our internal controls that need improvement. Furthermore, as we grow our business, our internal controls will become more complex, and we will require significantly more resources to ensure our internal controls remain effective. If we or our independent auditors discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market value of the Company’s shares and make it more difficult for the Company to raise capital. Additionally, the existence of any material weakness or significant deficiency would require management to devote significant time and incur significant expense to remediate any such material weaknesses or significant deficiencies and management may not be able to remediate any such material weaknesses or significant deficiencies in a timely manner.

We and our hotel manager rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.

We and our hotel manager rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, reservations, billing and operating data. We and our hotel manager purchase some of our information technology from vendors, on whom our systems depend. We and our hotel manager rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential operator and other customer information, such as individually identifiable information, including information relating to financial accounts. Although we and our hotel manager have taken steps we believe are necessary to protect the security of our information systems and the data maintained in those systems, it is possible that the safety and security measures taken will not be able to prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. Any failure to maintain proper functionality, security and availability of our information systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations. Our hotel manager carries cyber insurance policies to protect and offset a portion of potential costs incurred from a security breach. Additionally, we currently have cyber risk coverage to provide supplemental coverage above the coverage carried by our hotel manager. Despite various precautionary steps to protect our hotels from losses resulting from cyber-attacks, any cyber-attack occurrence could still result in losses at our properties, which could affect our results of operations. As of December 31, 2025, no risk from cybersecurity threats, including as a result of any previous cybersecurity incidents, has materially affected or is reasonably likely to materially affect the Company, including our business strategy, results of operations or financial condition. We also rely on the reservation systems of our brand partners and others to transmit and manage customer and payment information. Those systems may be hacked or subject to denial-of-service attacks which in turn may result in losses at our properties.

We face possible risks associated with natural disasters and the physical effects of climate change.

We are subject to the risks associated with natural disasters and the physical effects of climate change, which can include more frequent or severe storms, droughts, hurricanes and flooding, any of which could have a material adverse effect on our hotels, operations and business. Over time, our coastal markets are expected to experience increases in storm intensity and rising sea-levels causing damage to our properties. As a result, we could become subject to significant losses and/or repair costs that may or may not be fully covered by insurance. Other markets may experience prolonged variations in temperature or precipitation that may limit access to the water needed to operate our hotels or significantly increase energy costs, which may subject those hotels to additional regulatory burdens, such as limitations on water usage or stricter energy efficiency standards. Climate change also may affect our business by increasing the cost of (or making unavailable) property insurance on terms we find acceptable in areas most vulnerable to such events, increasing operating costs at our hotels, such as the cost of water or energy, and requiring us to expend funds as we seek to repair and protect our hotels against such risks. There can be no assurance that climate change will not have a material adverse effect on our hotels, operations or business.

Our investments and business activities are restricted by the applicable REIT laws.

As a REIT, the Company is subject to various restrictions on the types of revenue it can earn, assets it can own and activities in which it can engage. Business activities that could be restricted by applicable REIT laws include, but are not limited to, developing

alternative uses of real estate and the ownership of hotels that are not leased to a TRS, including the development and/or sale of timeshare or condominium units or the related land parcels. Due to these restrictions, we anticipate that we will continue to conduct certain business activities through MHI Holding. MHI Holding is taxable as a C corporation and is subject to federal, state, local, and, if applicable, foreign taxation on its taxable income.

Risks Related to the Lodging Industry