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What changed in Sotherly Hotels Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Sotherly Hotels Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+278 added−248 removedSource: 10-K (2024-03-22) vs 10-K (2023-03-21)

Top changes in Sotherly Hotels Inc.'s 2023 10-K

278 paragraphs added · 248 removed · 208 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

33 edited+1 added−1 removed68 unchanged
Biggest changeSims Jr., our Vice President - Operations & Investor Relations, beneficially owned approximately 63.0%, 7.0%, and 15.0%, respectively, of the total outstanding ownership interests in Our Town. Mr. Sims, Mr. Folsom, and Mr. Sims Jr. serve as directors of Our Town.
Biggest changeAs of March 14, 2023, 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 71.0%, 7.0%, and 15.0%, respectively, of the total outstanding ownership interests in Our Town. Mr. Sims, Mr.
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: Hotel Name Commencement Date Expiration Date Percentage Fee Hotel Ballast Wilmington, Tapestry Collection by Hilton January 1, 2020 March 31, 2035 2.50% The DeSoto January 1, 2020 March 31, 2035 2.50% DoubleTree by Hilton Philadelphia Airport January 1, 2020 March 31, 2035 2.50% Hotel Alba Tampa, Tapestry Collection by Hilton January 1, 2020 March 31, 2035 2.50% DoubleTree by Hilton Jacksonville Riverfront January 1, 2020 March 31, 2035 2.50% DoubleTree by Hilton Laurel January 1, 2020 March 31, 2035 2.50% Georgian Terrace January 1, 2020 March 31, 2035 2.50% The Whitehall January 1, 2020 March 31, 2035 2.50% Hotel Name Commencement Date Expiration Date Year 1 Year 2 Year 3 Years 4-5 & Renewals DoubleTree Resort by Hilton Hollywood Beach April 1, 2020 March 31, 2035 2.00% 2.25% 2.50% 2.50% Hyde Resort & Residences April 1, 2020 March 31, 2035 2.00% 2.25% 2.50% 2.50% Hyde Beach House Resort & Residences April 1, 2020 March 31, 2035 2.00% 2.25% 2.50% 2.50% Hyatt Centric Arlington November 15, 2020 March 31, 2035 2.00% 2.25% 2.50% 2.50% Agreements with Our Town .
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: 8 Hotel Name Commencement Date Expiration Date Percentage Fee Hotel Ballast Wilmington, Tapestry Collection by Hilton January 1, 2020 March 31, 2035 2.50% The DeSoto January 1, 2020 March 31, 2035 2.50% DoubleTree by Hilton Philadelphia Airport January 1, 2020 March 31, 2035 2.50% Hotel Alba Tampa, Tapestry Collection by Hilton January 1, 2020 March 31, 2035 2.50% DoubleTree by Hilton Jacksonville Riverfront January 1, 2020 March 31, 2035 2.50% DoubleTree by Hilton Laurel January 1, 2020 March 31, 2035 2.50% Georgian Terrace January 1, 2020 March 31, 2035 2.50% The Whitehall January 1, 2020 March 31, 2035 2.50% Hotel Name Commencement Date Expiration Date Year 1 Year 2 Year 3 Years 4-5 & Renewals DoubleTree Resort by Hilton Hollywood Beach April 1, 2020 March 31, 2035 2.00% 2.25% 2.50% 2.50% Hyde Resort & Residences April 1, 2020 March 31, 2035 2.00% 2.25% 2.50% 2.50% Hyde Beach House Resort & Residences April 1, 2020 March 31, 2035 2.00% 2.25% 2.50% 2.50% Hyatt Centric Arlington November 15, 2020 March 31, 2035 2.00% 2.25% 2.50% 2.50% Agreements with Our Town .
Where possible, we will 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. 8 Our Principal Agreements Management Agreements Our hotels are managed on a day-to-day basis by Our Town, an eligible independent management company.
Where possible, we will 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 Our hotels are managed on a day-to-day basis by Our Town, an eligible independent management company.
We do not have a policy limiting our ability to invest in loans secured by properties or to make loans to other persons. We may consider offering purchase money financing in connection with the sale of properties where the provision of that financing will increase the value to be received by us for the property sold.
We do not have a policy limiting our ability to invest in loans secured by properties or to make loans to other persons. We may consider offering purchase money financing in connection with the sale of properties where the provision of that financing will increase the value to be 7 received by us for the property sold.
In these projects, we may choose to structure such acquisitions as a joint venture, or mezzanine lending program, in order to avoid severe short-term dilution and loss of current income commonly referred to as the “negative carry” associated with such extensive renovation 7 programs.
In these projects, we may choose to structure such acquisitions as a joint venture, or mezzanine lending program, in order to avoid severe short-term dilution and loss of current income commonly referred to as the “negative carry” associated with such extensive renovation programs.
In connection with the acquisition of the Hyde Beach House Resort & Residences hotel commercial condominium unit, we entered into a 20-year parking and cabana management agreement for the parking garage and poolside cabanas associated with the resort.
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.
Branding opportunities typically include physical upgrades and enhanced efficiencies brought about by changes in operations. • Shallow-Turn Opportunity: The acquisition of an underperforming but structurally sound hotel that requires moderate renovation to re-establish the hotel in its market. • Deep-Turn Opportunity: The acquisition of a hotel that is closed or functionally obsolete and requires a restructuring of both the business components of the operations as well as the physical plant of the hotel, including extensive renovation of the building, furniture, fixtures and equipment.
Branding opportunities typically include physical upgrades and enhanced efficiencies brought about by changes in operations. • Shallow-Turn Opportunity: The acquisition of an underperforming but structurally sound hotel that requires moderate renovation to re-establish the hotel's appeal in its market. • Deep-Turn Opportunity: The acquisition of a hotel that is closed or functionally obsolete and requires a restructuring of both the business components of the operations as well as the physical plant of the hotel, including extensive renovation of the building, furniture, fixtures and equipment.
The labor force in our hotels is predominately non-unionized, with only one property, the DoubleTree by Hilton Jacksonville Riverfront, having approximately 86 employees electing to participate under a collective bargaining arrangement. Further, the employees at our hotels that are managed by Our Town are eligible to receive health and other insurance coverage through Our Town, which self-insures.
The labor force in our hotels is predominately non-unionized, with only one property, the DoubleTree by Hilton Jacksonville Riverfront, having approximately 67 employees electing to participate under a collective bargaining arrangement. Further, the employees at our hotels that are managed by Our Town are eligible to receive health and other insurance coverage through Our Town, which self-insures.
The OTH Master Agreement shall be extended beyond 2035 for such additional periods as an OTH Hotel Management Agreement remains in effect; • requires Our Town to provide dedicated executive level support for our managed hotels pursuant to certain criteria; • sets an incentive management fee for each of the hotels managed by Our Town equal to 10% of the amount by which gross operating profit, as defined in the OTH Hotel Management Agreements, for a given year exceeds the budgeted gross operating profit for such year; provided, however, that the incentive management fee payable in respect of any such year shall not exceed 0.25% of the gross revenues of the hotel included in such calculation; • provides for an adjustment to the fees payable by us under the OTH Hotel Management Agreements in the event the net operating income of Our Town falls below $250,000 for any calendar year beginning on or after January 1, 2021; • provides a mechanism and establishes conditions on which the Company will offer Our Town the opportunity to manage hotels acquired by the Company in the future, pursuant to a negotiated form of single facility management agreement, with the caveat that the Company is not required to offer the management of future hotels to Our Town; and 9 • sets a base management fee for future hotels of 2.00% for the first year of the term, 2.25% for the second year of the term, and 2.50% for the third and any additional years of the term.
The OTH Master Agreement shall be extended beyond 2035 for such additional periods as an OTH Hotel Management Agreement remains in effect; • requires Our Town to provide dedicated executive level support for our managed hotels pursuant to certain criteria; • sets an incentive management fee for each of the hotels managed by Our Town equal to 10% of the amount by which gross operating profit, as defined in the OTH Hotel Management Agreements, for a given year exceeds the budgeted gross operating profit for such year; provided, however, that the incentive management fee payable in respect of any such year shall not exceed 0.25% of the gross revenues of the hotel included in such calculation; • provides for an adjustment to the fees payable by us under the OTH Hotel Management Agreements in the event the net operating income of Our Town falls below $250,000 for any calendar year beginning on or after January 1, 2021; • provides a mechanism and establishes conditions on which the Company will offer Our Town the opportunity to manage hotels acquired by the Company in the future, pursuant to a negotiated form of single facility management agreement, with the caveat that the Company is not required to offer the management of future hotels to Our Town; and • sets a base management fee for future hotels of 2.00% for the first year of the term, 2.25% for the second year of the term, and 2.50% for the third and any additional years of the term. 9 Each of the OTH Hotel Management Agreements has an initial term ending March 31, 2035.
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 managers’ ability to produce high quality revenues that translate to higher profit margins.
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.
The following table sets forth certain information for the franchise licenses of our wholly-owned hotel properties as of December 31, 2022: 10 Franchise/Royalty Expiration Fee (1) Date Hotel Alba Tampa, Tapestry Collection by Hilton (2) 5.0 % June 2029 DoubleTree by Hilton Jacksonville Riverfront 5.0 % September 2025 DoubleTree by Hilton Laurel 5.0 % October 2030 DoubleTree by Hilton Philadelphia – Airport 5.0 % October 2024 DoubleTree Resort by Hilton Hollywood Beach 5.0 % October 2027 Hotel Ballast Wilmington, Tapestry Collection by Hilton (2) 5.0 % April 2028 Hyatt Centric Arlington 5.0 % March 2038 (1) Percentage of room revenues payable to the franchisor.
The following table sets forth certain information for the franchise licenses of our wholly-owned hotel properties as of December 31, 2023: 10 Franchise/Royalty Expiration Fee (1) Date Hotel Alba Tampa, Tapestry Collection by Hilton 5.0 % June 2029 DoubleTree by Hilton Jacksonville Riverfront 5.0 % September 2025 DoubleTree by Hilton Laurel (2) 4.0 % October 2030 DoubleTree by Hilton Philadelphia – Airport 5.0 % October 2024 DoubleTree Resort by Hilton Hollywood Beach 5.0 % October 2027 Hotel Ballast Wilmington, Tapestry Collection by Hilton 5.0 % April 2028 Hyatt Centric Arlington 5.0 % March 2038 (1) Percentage of room revenues payable to the franchisor.
Employees and Human Capital As of December 31, 2022, we employed nine full-time persons, all of whom work at our corporate office in Williamsburg, Virginia. We believe relations with our employees are positive. Our human capital resources objectives include attracting and retaining talented and well-qualified employees.
Employees and Human Capital As of December 31, 2023, we employed nine full-time persons, all of whom work at our corporate office in Williamsburg, Virginia. We believe relations with our employees are positive. Our human capital resources objectives include attracting and retaining talented and well-qualified employees.
As of December 31, 2022, 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.
As of December 31, 2023, 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.
Our Properties As of December 31, 2022, 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.
Our Properties As of December 31, 2023, 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.
(2) The Franchise/Royalty Fee is 3.0% for operating year 1, 4.0% for operating year 2, and 5.0% thereafter. Lease Agreements TRS Leases In order for the Company to maintain qualification as a REIT, neither the Company nor the Operating Partnership or its subsidiaries can operate our hotels directly.
(2) The Franchise/Royalty Fee is 4.0% for 2024 and 2025, and 5.0% thereafter. Lease Agreements TRS Leases In order for the Company to maintain qualification as a REIT, neither the Company nor the Operating Partnership or its subsidiaries can operate our hotels directly.
Our wholly-owned hotels are leased to our TRS Lessees, which have engaged a third-party management company to manage the hotels. Each lease has a non-cancelable term ranging from four to thirty years, subject to earlier termination upon the occurrence of certain contingencies described in the lease.
Our wholly-owned hotels are leased to our TRS Lessees, which have engaged Our Town to manage the hotels. Each lease has a non-cancelable term ranging from four to thirty years, subject to earlier termination upon the occurrence of certain contingencies described in the lease.
Our portfolio management strategy includes efforts to optimize labor costs. Our third-party 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 and make recommendations regarding the operation of our 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.
MHI Holding is subject to federal, state and local income taxes. MHI Holding has operated at a cumulative taxable loss, through December 31, 2022, of approximately $41.7 million and deferred timing differences of approximately $1.7 million attributable to accrued, but not deductible, vacation and sick pay amounts, business interest, depreciation and other timing differences.
MHI Holding is subject to federal, state and local income taxes. MHI Holding has operated at a cumulative taxable loss, through December 31, 2023, of approximately $48.6 million and deferred timing differences of approximately $2.2 million attributable to accrued, but not deductible, vacation and sick pay amounts, business interest, depreciation and other timing differences.
As of the filing date, the Company owns approximately 95.8% of the general and limited partnership units in the Operating Partnership. Limited partners own the remaining Operating Partnership units.
As of the filing date, the Company owns approximately 98.2% of the general and limited partnership units in the Operating Partnership. Limited partners own the remaining 1.8% limited partnership units in the Operating Partnership.
We believe that full-service hotels, in the upscale to upper-upscale categories, will outperform the broader U.S. hotel industry, and thus offer the highest returns on invested capital.
We do not own limited service or extended-stay hotels. We believe that full-service hotels, in the upscale to upper-upscale categories, will outperform the broader U.S. hotel industry, and thus offer the highest returns on invested capital.
Our full-service hotels fall primarily under the upscale to upper-upscale categories and include such brands as Hilton, Doubletree by Hilton, and Hyatt, as well as independent hotels. We may also acquire commercial unit(s) within upscale to upper-upscale condominium hotel projects, allowing us to establish and operate unit rental programs. We do not own limited service or extended-stay hotels.
Our full-service hotels fall primarily under the upscale to upper-upscale categories and include such brands as Doubletree by Hilton, Tapestry 6 Collection by Hilton, and Hyatt Centric, as well as independent hotels. We may also acquire commercial unit(s) within upscale to upper-upscale condominium hotel projects, allowing us to establish and operate unit rental programs.
We are not subject to limitations on the amount or percentage of our total assets that may be invested in any one property. Additionally, no limits have been set on the concentration of investments in any one location or facility type.
We are not subject to limitations on the amount or percentage of our total assets that may be invested in any one property. Additionally, no limits have been set on the concentration of investments in any one location or facility type. Our policy is to acquire assets primarily for income and long-term appreciation.
Each of the OTH Hotel Management Agreements has an initial term ending March 31, 2035. Each of the OTH Hotel Management Agreements may be extended for up to two additional periods of five years subject to the approval of both parties with respect to any such extension.
Each of the OTH Hotel Management Agreements may be extended for up to two additional periods of five years subject to the approval of both parties with respect to any such extension.
Our policy is to acquire assets primarily for income and long-term appreciation. 6 Our investment criteria are further detailed below: • Geographic Growth Markets: Our growth strategy focuses on the major markets in the Southern region of the United States. Our management team remains confident in the long-term growth potential associated with this part of the United States.
Our investment criteria are further detailed below: • Geographic Growth Markets: Our growth strategy focuses on the major markets in the Southern region of the United States. Our management team remains confident in the long-term growth potential associated with this part of the United States.
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.
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. Effective January 1, 2024, the landlord agreed to a reduction in rent of 1/3rd.
Sotherly may also opportunistically acquire hotels throughout other regions of the United States. We intend to grow our portfolio through disciplined acquisitions of hotel properties and 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.
We intend to grow our portfolio through disciplined acquisitions of hotel properties and 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.
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. Our hotel manager must operate each of our hotels they manage in accordance with and pursuant to the terms of the franchise agreement for the 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.
Franchise Agreements As of December 31, 2022, 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 with the existing franchisor, re-brand and license with a new franchisor, or re-brand as an independent hotel.
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.
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 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.
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 Our strategy is to grow through acquisitions of full-service, upscale and upper-upscale hotel properties located in the primary markets of the southern United States.
Our Strategy and Investment Criteria Our strategy is to grow through acquisitions of full-service, upscale and upper-upscale hotel properties located in the primary markets of the southern United States. Sotherly may also opportunistically acquire hotels throughout other regions of the United States.
Our Town is the management company for each of our twelve wholly-owned hotels, as well as the manager for our two condominium rental programs. As of March 15, 2022, an affiliate of Andrew M. Sims, our Chairman, an affiliate of David R. Folsom, our President and Chief Executive Officer, and Andrew M.
Our Town is the management company for each of our ten wholly-owned hotels, as well as the manager for our two condominium rental programs.
The Company has not incurred federal income taxes since its formation. During the first quarter of 2020, we reduced our deferred tax assets through the establishment of a 100% valuation allowance of approximately $5.4 million.
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, 2023, we have a valuation allowance of approximately $13.0 million.
We also own the hotel commercial condominium units of the Hyde Resort & Residences and Hyde Beach House Resort & Residences condominium hotels. We closed the sale of the Sheraton Louisville Riverside on February 10, 2022 and the sale of the DoubleTree by Hilton Raleigh Brownstone-University on June 10, 2022.
We also own the hotel commercial condominium units of the Hyde 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.
Removed
During the year ended December 31, 2020, we increased the valuation allowance to approximately $14.7 million and increased it again during the year ended December 31, 2021 to approximately $14.9 million and in 2022 we reduced the valuation allowance by approximately $3.7 million to approximately $11.2 million.
Added
Folsom, and Mr. Sims Jr. serve as directors of Our Town. Franchise Agreements As of December 31, 2023, all but three of our wholly-owned hotels operate under franchise licenses from national hotel companies.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

72 edited+24 added−11 removed272 unchanged
Biggest changeA 30 “prohibited transaction” would be a sale of property, other than a foreclosure property, held primarily for sale to customers in the ordinary course of business; • MHI Holding is a fully taxable corporation and is required to pay federal and state taxes on its taxable income; and • it may experience increases in its state and/or local income tax burdens as states and localities continue to look to modify their tax laws in order to raise revenues, including by (among other things) changing from a net taxable income-based regime to a gross receipts-based regime, suspending and/or limiting the use of net operating losses, increasing tax rates and fees, imposing surcharges and subjecting partnerships to an entity-level tax, and limiting or disallowing certain U.S. federal deductions such as the dividends-paid deduction.
Biggest changeA “prohibited transaction” would be a sale of property, other than a foreclosure property, held primarily for sale to customers in the ordinary course of business; • it may, in certain circumstances, be required to pay an excise or penalty tax (which could be significant in amount) in order to utilize one or more relief provisions under the Code to maintain its qualification as a REIT; • MHI Holding is a fully taxable corporation and is required to pay federal and state taxes on its taxable income; and • it may experience increases in its state and/or local income tax burdens as states and localities continue to look to modify their tax laws in order to raise revenues, including by (among other things) changing from a net taxable income-based regime to a gross receipts-based regime, suspending and/or limiting the use of net operating losses ("NOL"), increasing tax rates and fees, imposing surcharges and subjecting partnerships to an entity-level tax, and limiting or disallowing certain U.S. federal deductions such as the dividends-paid deduction. 31 Complying with REIT requirements may cause the Company to forgo attractive opportunities that could otherwise generate strong risk-adjusted returns and instead pursue less attractive opportunities, or none at all.
Operating Risks Our hotel properties are subject to various operating risks common to the lodging industry, many of which are beyond our control, including the following: • competition from other hotel properties in our markets; • over-building of hotels in our markets, which adversely affects occupancy and revenues at our hotels; • dependence on business and commercial travelers and tourism; • increases in energy costs and other expenses affecting travel, which may affect travel patterns and reduce the number of business and commercial travelers and tourists; • increases in operating costs due to inflation and other factors, including increases in labor costs, that may not be offset by increased room rates; • changes in interest rates and in the availability, cost and terms of debt financing; • changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances; • adverse effects of international, national, regional and local economic and market conditions; 18 • adverse effects of a downturn in the lodging industry; and • risks generally associated with the ownership of hotel properties and real estate, as we discuss in detail below.
Operating Risks Our hotel properties are subject to various operating risks common to the lodging industry, many of which are beyond our control, including the following: • competition from other hotel properties in our markets; • over-building of hotels in our markets, which adversely affects occupancy and revenues at our hotels; • dependence on business and commercial travelers and tourism; 18 • increases in energy costs and other expenses affecting travel, which may affect travel patterns and reduce the number of business and commercial travelers and tourists; • increases in operating costs due to inflation and other factors, including increases in labor costs, that may not be offset by increased room rates; • changes in interest rates and in the availability, cost and terms of debt financing; • changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances; • adverse effects of international, national, regional and local economic and market conditions; • adverse effects of a downturn in the lodging industry; and • risks generally associated with the ownership of hotel properties and real estate, as we discuss in detail below.
Failure by us, our TRS Lessees or a management company to maintain these standards or other terms and conditions could result in a franchise license being canceled.
Failure by us, our TRS Lessees or our management company to maintain these standards or other terms and conditions could result in a franchise license being canceled.
Sims to the Company’s board of directors or his involuntary removal from the Company’s board of directors, unless for cause or by vote of the stockholders), or if there is a change of control, each of these executives is entitled to the following: • any accrued but unpaid salary and bonuses; • vesting of any previously issued stock options and restricted stock; • payment of the executive’s life, health and disability insurance coverage for a period of five years following termination; • any unreimbursed expenses; and • a severance payment equal to three times for each executive’s respective combined salary and actual bonus compensation for the preceding fiscal year.
Sims to the Company’s board of directors 26 or his involuntary removal from the Company’s board of directors, unless for cause or by vote of the stockholders), or if there is a change of control, each of these executives is entitled to the following: • any accrued but unpaid salary and bonuses; • vesting of any previously issued stock options and restricted stock; • payment of the executive’s life, health and disability insurance coverage for a period of five years following termination; • any unreimbursed expenses; and • a severance payment equal to three times for each executive’s respective combined salary and actual bonus compensation for the preceding fiscal year.
Incurring debt could subject us to many risks, including the risks that: • our cash flows from operations may be insufficient to make required payments of principal and interest; • our debt may increase our vulnerability to adverse economic and industry conditions; • we may be required to dedicate a substantial portion of our cash flows from operations to payments on our debt, thereby reducing cash available for funds available for operations and capital expenditures, future business opportunities or other purposes; and • the terms of any refinancing may not be in the same amount or on terms as favorable as the terms of the existing debt being refinanced.
Incurring debt could subject us to many risks, including the risks that: • our cash flows from operations may be insufficient to make required payments of principal and interest; • our debt may increase our vulnerability to adverse economic and industry conditions; 28 • we may be required to dedicate a substantial portion of our cash flows from operations to payments on our debt, thereby reducing cash available for funds available for operations and capital expenditures, future business opportunities or other purposes; and • the terms of any refinancing may not be in the same amount or on terms as favorable as the terms of the existing debt being refinanced.
Contingent or unknown liabilities with respect to entities or properties acquired might include: • liabilities for environmental conditions; • losses in excess of our insured coverage; • accrued but unpaid liabilities incurred in the ordinary course of business; • tax, legal and regulatory liabilities; • claims of customers, vendors or other persons dealing with the Company’s predecessors prior to our acquisition transactions that had not been asserted or were unknown prior to the Company’s acquisition transactions; and • claims for indemnification by the general partners, officers and directors and others indemnified by the former owners of our properties.
Contingent or unknown liabilities with respect to entities or properties acquired might include: • liabilities for environmental conditions; • losses in excess of our insured coverage; • accrued but unpaid liabilities incurred in the ordinary course of business; 21 • tax, legal and regulatory liabilities; • claims of customers, vendors or other persons dealing with the Company’s predecessors prior to our acquisition transactions that had not been asserted or were unknown prior to the Company’s acquisition transactions; and • claims for indemnification by the general partners, officers and directors and others indemnified by the former owners of our properties.
In 27 addition, those features of our Preferred Stock may have the effect of inhibiting or discouraging a third party from making an acquisition proposal for our Company or of delaying, deferring or preventing a change in control of our Company under circumstances that otherwise could provide the holders of shares of our common stock and shares of our Preferred Stock with the opportunity to realize a premium over the then current market price or that stockholders may otherwise believe is in their best interests.
In addition, those features of our Preferred Stock may have the effect of inhibiting or discouraging a third party from making an acquisition proposal for our Company or of delaying, deferring or preventing a change in control of our Company under circumstances that otherwise could provide the holders of shares of our common stock and shares of our Preferred Stock with the opportunity to realize a premium over the then current market price or that stockholders may otherwise believe is in their best interests.
If anyone transfers shares in a way that would violate the aggregate share ownership limit or the common share ownership limit, or prevent the Company from continuing to qualify as a REIT under the federal income tax laws, those shares instead will be transferred to a trust for the benefit of a charitable beneficiary and will be either redeemed by us or sold to a person whose ownership 26 of the shares will not violate the aggregate share ownership limit or the common share ownership limit.
If anyone transfers shares in a way that would violate the aggregate share ownership limit or the common share ownership limit, or prevent the Company from continuing to qualify as a REIT under the federal income tax laws, those shares instead will be transferred to a trust for the benefit of a charitable beneficiary and will be either redeemed by us or sold to a person whose ownership of the shares will not violate the aggregate share ownership limit or the common share ownership limit.
FIRPTA does not apply, however, to the disposition of stock in a REIT if the REIT is “domestically controlled” (i.e., less than 50.0% of the REIT’s capital stock, by value, has been owned directly or indirectly by persons who are not qualifying U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT’s existence).
FIRPTA does not apply, however, to the disposition of stock in a REIT if the REIT is “domestically controlled” (i.e., less than 50.0% of the REIT’s capital stock, by value, has been owned directly or indirectly by 33 persons who are not qualifying U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT’s existence).
In addition, the Company must pay dividends, as “qualifying distributions,” to its stockholders aggregating annually at least 90.0% of its REIT taxable income (determined without regard to the dividends-paid deduction and by excluding capital gains and also reduced by certain noncash items) and must satisfy specified asset tests on a quarterly basis.
In addition, the Company must pay dividends, as “qualifying distributions,” to 32 its stockholders aggregating annually at least 90.0% of its REIT taxable income (determined without regard to the dividends-paid deduction and by excluding capital gains and also reduced by certain noncash items) and must satisfy specified asset tests on a quarterly basis.
The Company and its stockholders could be adversely affected by any such change in, or any new, federal income tax law, regulation or administrative interpretation. We are not aware, however, of any pending tax legislation that would adversely affect the Company’s ability to qualify as a REIT. 29 Failure to make distributions could subject the Company to tax.
The Company and its stockholders could be adversely affected by any such change in, or any new, federal income tax law, regulation or administrative interpretation. We are not aware, however, of any pending tax legislation that would adversely affect the Company’s ability to qualify as a REIT. Failure to make distributions could subject the Company to tax.
As a condition of continuing a franchise license, a franchisor may require us to make capital expenditures, even if we do not believe the capital improvements are necessary or desirable or will result in an acceptable return on our investment. Nonetheless, we may risk losing a franchise license if we do not make franchisor-required capital expenditures.
As a 19 condition of continuing a franchise license, a franchisor may require us to make capital expenditures, even if we do not believe the capital improvements are necessary or desirable or will result in an acceptable return on our investment. Nonetheless, we may risk losing a franchise license if we do not make franchisor-required capital expenditures.
This cash redemption right may make it more unlikely or difficult for a third party to propose or consummate a change of control transaction, even if such transaction were in the best interests of the Company’s stockholders. Provisions of the Company’s charter may limit the ability of a third party to acquire control of the Company.
This cash redemption right may make it more unlikely or difficult for a third party to propose or consummate a change of control transaction, even if such transaction were in the best interests of the Company’s stockholders. 25 Provisions of the Company’s charter may limit the ability of a third party to acquire control of the Company.
The Company’s board of directors has discretion to waive that ownership limit if, including other considerations, the board receives evidence that ownership in excess of the limit will not jeopardize the Company’s REIT status. Holders of our outstanding preferred shares have dividend, liquidation and other rights that are senior to the rights of the holders of our common shares.
The Company’s board of directors has discretion to waive that ownership limit if, including other considerations, the board receives evidence that ownership in excess of the limit will not jeopardize the Company’s REIT status. 27 Holders of our outstanding preferred shares have dividend, liquidation and other rights that are senior to the rights of the holders of our common shares.
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. All of our hotels are managed by Our Town.
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. All of our hotels currently are managed by Our Town.
This would substantially reduce the Company’s earnings, cash available to pay distributions, and the value of common stock. Failure to qualify as a REIT may cause the Company to reduce or eliminate distributions to its stockholders, and the Company may face increased difficulty in raising capital or obtaining financing.
This would substantially reduce the Company’s earnings, cash available to pay distributions, and the value of common stock. 30 Failure to qualify as a REIT may cause the Company to reduce or eliminate distributions to its stockholders, and the Company may face increased difficulty in raising capital or obtaining financing.
Moreover, there is no assurance that we will always distribute ordinary income dividends, or that Congress will not repeal such legislation. Investors may be subject to a 3.8% Medicare tax in connection with an investment in the Company’s stock.
Moreover, there is no assurance that we will always distribute ordinary income dividends, or that Congress will not repeal such legislation. 34 Investors may be subject to a 3.8% Medicare tax in connection with an investment in the Company’s stock.
However, we cannot assure you that we will be able to obtain additional equity or debt financing or that we will be able to obtain such financing on favorable terms. Uninsured and underinsured losses could adversely affect our operating results and our ability to make distributions to the Company’s stockholders.
However, we cannot assure you that we will be able to obtain additional equity or debt financing or that we will be able to obtain such financing on favorable terms. 20 Uninsured and underinsured losses could adversely affect our operating results and our ability to make distributions to the Company’s stockholders.
If property taxes increase, our financial condition, results of operations and our ability to make distributions to the Company’s stockholders could be materially and adversely affected and the market price of the Company’s shares could decline. Risks Related to Our Debt We have substantial financial leverage.
If property taxes increase, our financial condition, results of operations and our ability to make distributions to the Company’s stockholders could be materially and adversely affected and the market price of the Company’s shares could decline. 23 Risks Related to Our Debt We have substantial financial leverage.
Because REITs generally do not pay corporate-level taxes as a result of the dividends-paid deduction to which they are entitled, 33 dividends from REITs generally are not treated as qualified dividends and thus do not qualify for a reduced tax rate.
Because REITs generally do not pay corporate-level taxes as a result of the dividends-paid deduction to which they are entitled, dividends from REITs generally are not treated as qualified dividends and thus do not qualify for a reduced tax rate.
As a result, there is no guarantee that we will recover any amounts 21 with respect to losses due to breaches by the sellers of their representations and warranties.
As a result, there is no guarantee that we will recover any amounts with respect to losses due to breaches by the sellers of their representations and warranties.
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.
Security 17 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.
The incentive management fees are based on each hotel exceeding budgeted revenue targets. We purchase employee medical benefits through Our Town (or its affiliate) for those employees employed by Our Town who work exclusively for our properties. Mr. Sims and Mr. Folsom participate in the budget approval process confirming employee insurance rates paid to Our Town.
The incentive management fees are based on each hotel exceeding budgeted profitability targets. We purchase employee medical benefits through Our Town (or its affiliate) for those employees employed by Our Town who work exclusively for our properties. Mr. Sims and Mr. Folsom participate in the budget approval process confirming employee insurance rates paid to Our Town.
Sims and Mr. Folsom approve the budgets upon which the incentive management fee payable to Our Town is based. As owners of Our Town, which would receive any incentive management fees payable by us under the management agreements, Mr. Sims or Mr. Folsom may influence the budget process, including the revenue targets set for each hotel.
Sims and Mr. Folsom approve the budgets upon which the incentive management fee payable to Our Town is based. As owners of Our Town, which would receive any incentive management fees payable by us under the management agreements, Mr. 29 Sims or Mr. Folsom may influence the budget process, including the revenue and profitability targets set for each hotel.
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.
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.
An economic downturn, such as the once caused by COVID-19, may result in losses or reduce our income in the future. A weakening of the economy may adversely and materially affect our industry, business and results of operations and we cannot predict the likelihood, severity or duration of any such downturn.
An economic downturn, such as the one caused by COVID-19, may result in losses or reduce our income in the future. A weakening of the economy may adversely and materially affect our industry, business and results of operations and we cannot predict the likelihood, severity or duration of any such downturn.
Our mortgage loan agreements contain various financial covenants. Failure to comply with these financial covenants could result from, among other things, changes in the local competitive environment, general economic conditions and disruption caused by renovation activity or major weather disturbances.
We must comply with financial covenants in our mortgage loan agreements. Our mortgage loan agreements contain various financial covenants. Failure to comply with these financial covenants could result from, among other things, changes in the local competitive environment, general economic conditions and disruption caused by renovation activity or major weather disturbances.
As of March 1, 2023, 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.
As of March 1, 2024, 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.
Many operating standards and other terms can be modified or expanded at the sole discretion of the franchisor. Our franchisors periodically inspect our hotels to ensure that we, our TRS Lessees, and the management companies follow their standards.
Many operating standards and other terms can be modified or expanded at the sole discretion of the franchisor. Our franchisors periodically inspect our hotels to ensure that we, our TRS Lessees, and our management company follow their standards.
Our financial leverage could negatively affect our business and financial results, including the following: • require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, working capital, capital expenditures, future business opportunities, paying dividends or other purposes; • limit our ability to obtain additional financing for working capital, renovation, redevelopment and rebranding plans, acquisitions, debt service requirements and other purposes; • adversely affect our ability to satisfy our financial obligations, including those related to our loan covenants; • limit our ability to refinance existing debt; • require us to agree to additional restrictions and limitations on our business operations and capital structure to obtain financing or to modify the terms of existing obligations; • force us to dispose of one or more of our properties, possibly on unfavorable terms; • increase our vulnerability to adverse economic and industry conditions, and to interest rate fluctuations; • force us to issue additional equity, possibly on terms unfavorable to existing stockholders; • limit our flexibility to make, or react to, changes in our business and our industry; and • place us at a competitive disadvantage, compared to our competitors that have less debt. 23 We must comply with financial covenants in our mortgage loan agreements.
Our financial leverage could negatively affect our business and financial results, including the following: • require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, working capital, capital expenditures, future business opportunities, paying dividends or other purposes; • limit our ability to obtain additional financing for working capital, renovation, redevelopment and rebranding plans, acquisitions, debt service requirements and other purposes; • adversely affect our ability to satisfy our financial obligations, including those related to our loan covenants; • limit our ability to refinance existing debt; • require us to agree to additional restrictions and limitations on our business operations and capital structure to obtain financing or to modify the terms of existing obligations; • force us to dispose of one or more of our properties, possibly on unfavorable terms; • increase our vulnerability to adverse economic and industry conditions, and to interest rate fluctuations; • force us to issue additional equity, possibly on terms unfavorable to existing stockholders; • limit our flexibility to make, or react to, changes in our business and our industry; and • place us at a competitive disadvantage, compared to our competitors that have less debt.
As of December 31, 2022, our portfolio consisted of ten wholly-owned hotels with a total of 2,786 rooms and the hotel commercial condominium units of the Hyde Resort & Residences and the Hyde Beach House Resort & Residences condominium hotels.
As of December 31, 2023, our portfolio consisted of ten wholly-owned hotels with a total of 2,786 rooms and the hotel commercial condominium units of the Hyde Resort & Residences and the Hyde Beach House Resort & Residences condominium hotels.
In our portfolio, the majority of the hotels that we owned as of December 31, 2022, utilize brands owned by Hilton. As a result, our success is dependent in part on the continued success of Hilton and their respective brands.
In our portfolio, the majority of the hotels that we owned as of December 31, 2023, utilize brands owned by Hilton. As a result, our success is dependent in part on the continued success of Hilton and their respective brands.
Risks Related to Our Organization and Structure • Risks related to change of control. • Risks related to our executive employment agreements. • Risks related to ownership limitations on our common stock and preferred stock. • Risks related to our preferred stock. • Risks related to future indebtedness. • Risks related to our REIT status. • Risks related to our major corporate policies. • Risks related to key personnel.
Risks Related to Our Organization and Structure • Risks related to changes of control. • Risks related to our executive employment agreements. • Risks related to ownership limitations on our common stock and preferred stock. • Risks related to our preferred stock. • Risks related to future indebtedness. • Risks related to our REIT status. • Risks related to our major corporate policies. • Risks related to key personnel.
In addition, several of our mortgage lenders require that we set aside amounts for capital improvements to the secured properties on a monthly basis. For the years ended December 31, 2022 and 2021, we spent approximately $8.0 million and approximately $3.2 million, respectively, on capital improvements to our hotels.
In addition, several of our mortgage lenders require that we set aside amounts for capital improvements to the secured properties on a monthly basis. For the years ended December 31, 2023 and 2022, we spent approximately $8.2 million and approximately $8.0 million, respectively, on capital improvements to our hotels.
Certain provisions of the Maryland General Corporation Law ("MGCL") may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the holders of shares of the Company’s common stock with the opportunity to realize a premium over the then-prevailing market price of such shares, including: • “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10.0% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes special appraisal rights and special stockholder voting requirements on these combinations; and • “control share” provisions that provide that “control shares” of the Company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by the Company’s stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares. 25 The Company has opted out of these provisions of the MGCL, in the case of the business combination provisions of the MGCL by resolution of the Company’s board of directors, and in the case of the control share provisions of the MGCL pursuant to a provision in the Company’s bylaws.
Certain provisions of the Maryland General Corporation Law ("MGCL") may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the holders of shares of the Company’s common stock with the opportunity to realize a premium over the then-prevailing market price of such shares, including: • “business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested stockholder” (defined generally as any person who beneficially owns 10.0% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes special appraisal rights and special stockholder voting requirements on these combinations; and • “control share” provisions that provide that “control shares” of the Company (defined as shares which, when aggregated with other shares controlled by the stockholder, entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares”) have no voting rights except to the extent approved by the Company’s stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
Sims Jr., our Vice President - Operations & Investor Relations, together own an interest of approximately 85.0%, as of March 15, 2023, in Our Town. Mr. Sims, Mr. Folsom, and Mr. Sims Jr. serve as directors of Our Town. 28 Our management agreements with Our Town establish the terms of Our Town’s management of our hotels covered by those agreements.
Sims Jr., our Vice President - Operations & Investor Relations, together own an interest of approximately 93.0%, as of March 15, 2023, in Our Town. Mr. Sims, Mr. Folsom, and Mr. Sims Jr. serve as directors of Our Town. Our management agreements with Our Town establish the terms of Our Town’s management of our hotels covered by those agreements.
As of December 31, 2022, 1,464,100 shares of our Series B Preferred Stock were issued and outstanding, 1,346,110 shares of our Series C Preferred Stock were issued and outstanding, and 1,163,100 shares of our Series D Preferred Stock were issued and outstanding.
As of December 31, 2023, 1,464,100 shares of our Series B Preferred Stock were issued and outstanding, 1,346,110 shares of our Series C Preferred Stock were issued and outstanding, and 1,163,100 shares of our Series D Preferred Stock were issued and outstanding.
Our hotel 17 manager carries cyber insurance policies to protect and offset a portion of potential costs incurred from a security breach. Additionally, we currently have cyber insurance policies to provide supplemental coverage above the coverage carried by our third-party manager.
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.
SUMMARY Risks Related to Our Business and Properties • Risks related to the limited number of hotels that we own. • Risks related to increased hotel operating expenses and decreased hotel revenues. • Risks related to our investment strategy, and the acquisition, renovation, or repositioning of hotels. • Risks related to our management company. • Risks related to our ability to make distributions. • Risks related to the geographic concentration of our hotels. • Risks related to the concentration of our hotel franchise agreements. • Risks related to our ground lease for the Hyatt Centric Arlington. • Risks related to hedging against interest rate exposure. • Risks related to investment opportunities and growth prospects. • Risks related to internal controls. • Risks related to information technology. • Risks related to natural disasters and the physical effects of climate change.
SUMMARY Risks Related to Our Business and Properties • Risks related to the limited number of hotels that we own. • Risks related to increased hotel operating expenses and decreased hotel revenues. • Risks related to our investment strategy, and the acquisition, renovation, or repositioning of hotels. • Risks related to our management company. • Risks related to our ability to make distributions. • Risks related to the geographic concentration of our hotels. • Risks related to the concentration of our hotel franchise agreements. • Risks related to our ground lease for the Hyatt Centric Arlington. • Risks related to hedging against interest rate exposure. • Risks related to investment opportunities and growth prospects. • Risks related to internal controls. • Risks related to information technology. • Risks related to natural disasters and the physical effects of climate change. • Risks related to restrictions on our investments and business activities by the applicable REIT laws.
Specifically, and as relevant to the Company and its subsidiaries, the TCJA reduced the maximum corporate tax rate from 35% to 21%, allows for full expensing of certain property, revised the net operating loss (“NOL”) provisions, set limitations on certain types of interest deductions, and expanded limitations on deductions for executive compensation.
Specifically, and as relevant to the Company and its subsidiaries, the TCJA reduced the maximum corporate tax rate from 35% to 21%, allows for full expensing of certain property, revised the NOL provisions, set limitations on certain types of interest deductions, and expanded limitations on deductions for executive compensation.
Additionally, in the event that we need to replace a hotel management company in the future, 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. 15 Our ability to make distributions to the Company’s stockholders is subject to fluctuations in our financial performance, operating results and capital improvement requirements.
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. 15 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 of December 31, 2022, distributions on our Preferred Stock are in arrears for the last twelve quarterly payments.
As of December 31, 2023, distributions on our Preferred Stock are in arrears for the last eleven quarterly payments.
Also, the failure of the Operating Partnership to qualify as a partnership would cause the Operating Partnership to become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners, including the Company. 31 The Company’s failure to qualify as a REIT would have serious adverse consequences to its stockholders.
Also, the failure of the Operating Partnership to qualify as a partnership would cause the Operating Partnership to become subject to federal and state corporate income tax, which would reduce significantly the amount of cash available for debt service and for distribution to its partners, including the Company.
Some molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing, as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions.
Concern about indoor exposure to mold has been increasing, as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions.
The mortgage on The Whitehall, in Houston, Texas bears interest at a rate tied to the New York Prime Rate. Each mortgage provides for a substitute rate and minimum rates of interest.
The mortgage on the DoubleTree by Hilton Philadelphia Airport bears interest at a rate tied to SOFR. The mortgage on The Whitehall, in Houston, Texas bears interest at a rate tied to the New York Prime Rate. Each mortgage provides for a substitute rate and minimum rates of interest.
Furthermore, capital gain dividends are subject to an additional 30.0% “branch profits tax” (which may be reduced by an applicable income tax treaty) in the hands of a foreign investor who is subject to tax under FIRPTA if such foreign investor is treated as a corporation for U.S. federal income tax purposes. 34 U.S. tax reform and related regulatory action could adversely affect you and the Company.
Furthermore, capital gain dividends are subject to an additional 30.0% “branch profits tax” (which may be reduced by an applicable income tax treaty) in the hands of a foreign investor who is subject to tax under FIRPTA if such foreign investor is treated as a corporation for U.S. federal income tax purposes.
As of December 31, 2022, the principal balance of our mortgages, unsecured and secured debt was approximately $324.4 million, not accounting for reductions of unamortized premiums or deferred financing costs as shown on our balance sheet. Historically, we have incurred debt for acquisitions and to fund our renovation, redevelopment and rebranding programs.
As of December 31, 2023, the aggregate principal balances of our mortgages and unsecured debt amounted to approximately $318.9 million, not accounting for reductions of unamortized premiums or deferred financing costs as shown on our balance sheet. Historically, we have incurred debt for acquisitions and to fund our renovation, redevelopment and rebranding programs.
There can be no assurance that we will be able to obtain future financings on acceptable terms, if at all. In May 2023, the mortgage on our DoubleTree by Hilton Laurel matures. In October 2023, the mortgage on the DoubleTree by Hilton Philadelphia Airport matures. In July 2024 the mortgage on the DoubleTree by Hilton Jacksonville Riverfront matures.
There can be no assurance that we will be able to obtain future financings on acceptable terms, if at all. In April 2024, the mortgage on the DoubleTree by Hilton Philadelphia Airport matures. In July 2024 the mortgage on the DoubleTree by Hilton Jacksonville Riverfront matures. In June 2025, the mortgage on the Georgian Terrace matures.
The Company elected to be taxed as a REIT under Sections 856 through 860 of the Code, commencing with its taxable year ended December 31, 2004.
The Company’s failure to qualify as a REIT would have serious adverse consequences to its stockholders. The Company elected to be taxed as a REIT under Sections 856 through 860 of the Code, commencing with its taxable year ended December 31, 2004.
If the Company is treated as owning securities of one or more TRSs with an aggregate value that is in excess of the thresholds outlined above, the Company could lose its status as a REIT or become subject to penalties. Even if the Company remains qualified as a REIT, it may face other tax liabilities that reduce its cash flow.
If the Company is treated as owning securities of one or more TRSs with an aggregate value that is in excess of the thresholds outlined above, the Company could lose its status as a REIT or become subject to penalties.
We have three mortgage debt obligations maturing in 2023 and 2024 and if we are not successful in extending the terms of this indebtedness or in refinancing this debt on acceptable economic terms or at all, our overall financial condition could be materially and adversely affected.
We are uncertain whether we will be able to refinance these obligations or if refinancing terms will be favorable. 24 We have four mortgage debt obligations maturing in 2024 and 2025 and if we are not successful in extending the terms of this indebtedness or in refinancing this debt on acceptable economic terms or at all, our overall financial condition could be materially and adversely affected.
We are not aware of any cyber incidents that we believe to be material or that could have a material adverse effect on our business, financial condition and results of operations. We also rely on the reservation systems of our brand partners and those systems may be hacked or subject to denial of service attacks.
We are not aware of any cyber incidents that we believe to be material or that could have a material adverse effect on our business, financial condition and results of operations. We also rely on the reservation systems of our brand partners and others to transmit and manage customer and payment information.
These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties could have a material adverse effect on our operating results and financial condition, as well as our ability to comply with the terms of the indenture and to pay distributions to stockholders. 22 Future acquisitions may not yield the returns expected, may result in disruptions to our business, may strain management resources and may result in stockholder dilution.
These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties could have a material adverse effect on our operating results and financial condition, as well as our ability to comply with the terms of the indenture and to pay distributions to stockholders.
We also have additional significant obligations maturing in subsequent years. The total aggregate amount of our debt obligation scheduled to mature in 2023, inclusive of monthly principal and interest amortization of all our indebtedness, not including lease obligations, is approximately $70.1 million, which represents approximately 18.9% of our total debt obligation outstanding as of December 31, 2022.
The total aggregate amount of our debt obligations scheduled to mature in 2024, inclusive of monthly principal and interest amortization of all our indebtedness, not including lease obligations, is approximately $71.9 million, which represents approximately 19.1% of our total debt obligations outstanding as of December 31, 2023.
The total aggregate amount of our debt obligation scheduled to mature in 2024, inclusive of monthly principal amortization of all our mortgage indebtedness, is approximately $51.5 million, which represents approximately 13.9% of our total debt obligation outstanding as of December 31, 2022.
The total aggregate amount of our debt obligations scheduled to mature in 2026, inclusive of monthly principal amortization of all our mortgage indebtedness, is approximately $58.6 million, which represents approximately 15.5% of our total debt obligations outstanding as of December 31, 2023.
The total aggregate amount of our debt obligation scheduled to mature in 2025, inclusive of monthly principal amortization of all our mortgage indebtedness, is approximately $125.0 million, which represents approximately 33.8% of our total debt obligation outstanding as of December 31, 2022.
The total aggregate amount of our debt obligations scheduled to mature in 2025, inclusive of monthly principal amortization of all our mortgage indebtedness, is approximately $91.4 million, which represents approximately 24.2% of our total debt obligations outstanding as of December 31, 2023.
If we are not able to 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. 16 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.
If we are not able to come 16 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.
There can be no assurance that climate change will not have a material adverse effect on our hotels, operations or business.
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.
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.
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.
Although the Company intends to monitor future acquisitions and improvements of hotels, the REIT provisions of the Code provide only limited guidance for making determinations under the requirements for qualified lodging facilities, and there can be no assurance that these requirements will be satisfied in all cases. 32 Foreign investors may be subject to U.S. tax on the disposition of the Company’s stock if the Company does not qualify as a “domestically controlled” REIT.
Although the Company intends to monitor future acquisitions and improvements of hotels, the REIT provisions of the Code provide only limited guidance for making determinations under the requirements for qualified lodging facilities, and there can be no assurance that these requirements will be satisfied in all cases.
Because our operations are governed to a significant extent by the federal tax laws, new legislative or regulatory action could adversely affect investors in Company stock. The TCJA and the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) made significant changes to the U.S. federal tax system.
U.S. tax reform and related regulatory action could adversely affect you and the Company. Because our operations are governed to a significant extent by the federal tax laws, new legislative or regulatory action could adversely affect investors in Company stock.
There can be no assurance that provisions in our bylaws will always be successful in mitigating conflicts of interest. Under our bylaws, a committee consisting of only independent directors must approve any transaction between us and Our Town, or any interested director.
Under our bylaws, a committee consisting of only independent directors must approve any transaction between us and Our Town, or any interested director. However, there can be no assurance that these policies always will be successful in mitigating such conflicts, and decisions could be made that might not fully reflect the interests of all of the Company’s stockholders.
Currently, our insurers provide terrorism coverage in conjunction with the Terrorism Risk Insurance Program sponsored by the federal government through which insurers are able to receive compensation for insured losses resulting from acts of terrorism. 20 In the event of a substantial loss, our insurance coverage may not be sufficient to cover the full current market value or replacement cost of our lost investment.
Currently, our insurers provide terrorism coverage in conjunction with the Terrorism Risk Insurance Program sponsored by the federal government through which insurers are able to receive compensation for insured losses resulting from acts of terrorism.
We and our stockholders could be adversely affected by any such change in, or any new, federal income tax law, regulation or administrative interpretation. Item 1B. Unresolve d Staff Comments Not applicable. 35
We cannot predict whether any of these proposed changes will become law, or the long-term effect of any future law changes on the Company and its stockholders. We and our stockholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation. Item 1B. Unresolve d Staff Comments Not applicable.
We did not pay any dividend distributions following the payment of dividends in March 2020 through the end of 2022. 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.
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.
The TCJA also temporarily reduced individual federal income tax rates on ordinary income (the highest individual federal income tax rate has been reduced from 39.6% to 37% for taxable years beginning after December 31, 2017 and before January 1, 2026). At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended.
The TCJA also temporarily reduced individual federal income tax rates on ordinary income (the highest individual federal income tax rate has been reduced from 39.6% to 37% for taxable years beginning after December 31, 2017 and before January 1, 2026). The IRS, the U.S. Treasury Department and Congress frequently review U.S. federal income tax legislation, regulations and other guidance.
When we give a guarantee on behalf of an entity that owns one of our hotels, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. 24 Our borrowing costs are sensitive to fluctuations in interest rates. Higher interest rates could increase our debt service requirements and interest expense.
In addition, we have given full or partial guarantees to lenders of mortgage debt on behalf of the entities that own our hotels. When we give a guarantee on behalf of an entity that owns one of our hotels, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity.
Our business strategy may not ultimately be successful and may not provide positive returns on our investments. Acquisitions may cause disruptions in our operations and divert management’s attention away from day-to-day operations. The issuance of equity securities in connection with any acquisition could be substantially dilutive to the Company’s stockholders.
Future acquisitions may not yield the returns expected, may result in disruptions to our business, may strain management resources and may result in stockholder dilution. Our business strategy may not ultimately be successful and may not provide positive returns on our investments. Acquisitions may cause disruptions in our operations and divert management’s attention away from day-to-day operations.
Our hotels may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediating the problem. When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants.
This loss of revenues could, therefore, also adversely affect our financial condition and results of operations, our ability to comply with the terms of the loan covenants and reduce our cash available for distribution to stockholders. 19 Restrictive covenants in certain of our franchise agreements contain provisions that may operate to limit our ability to sell or refinance our hotels, which could have a material adverse effect on us.
This loss of revenues could, therefore, also adversely affect our financial condition and results of operations, our ability to comply with the terms of the loan covenants and reduce our cash available for distribution to stockholders.
Currently, our floating rate debt is limited to the mortgages on the DoubleTree by Hilton Philadelphia Airport, the Hotel Alba Tampa, Tapestry Collection by Hilton and The Whitehall, in Houston, Texas. The mortgages on the DoubleTree by Hilton Philadelphia Airport and the Hotel Alba Tampa, Tapestry Collection by Hilton bear interest at rates tied to SOFR.
Our borrowing costs are sensitive to fluctuations in interest rates. Higher interest rates could increase our debt service requirements and interest expense. Currently, our floating rate debt is limited to the mortgages on the DoubleTree by Hilton Philadelphia Airport and The Whitehall, in Houston, Texas.
General Risks Related to the Real Estate Industry Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.
The Company could be subjected to negative responses of governmental actors (such as anti-ESG legislation or retaliatory legislative treatment), hotel brands, hotel management companies and hotel guests, that could have a material adverse effect on the Company’s reputation, financial condition and results of operations. 22 General Risks Related to the Real Estate Industry Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.
Removed
We are uncertain whether we will be able to refinance these obligations or if refinancing terms will be favorable.
Added
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 shareholders of record on March 13, 2020.
Removed
In addition, we have given full or partial guarantees to lenders of mortgage debt on behalf of the entities that own our hotels.
Added
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.
Removed
Our Town's policy is to rebate 70% of any annual surplus in its self-insured health plan back to the Company and retain the remaining 30%. As owners of Our Town, which would receive 30% of any such surplus, Mr. Sims or Mr. Folsom may influence the budget process.
Added
As a REIT, the Company is subject to various restrictions on the types of revenues it can earn, assets it can own and activities in which it can engage.
Removed
However, there can be no assurance that these policies always will be successful in mitigating such conflicts, and decisions could be made that might not fully reflect the interests of all of the Company’s stockholders.
Added
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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeManagement’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics, for definitions of Occupancy, ADR, and RevPAR in Part II of this Annual Report on Form 10-K ): Number of Occupancy ADR RevPAR Occupancy ADR RevPAR Occupancy ADR RevPAR Wholly-Owned Properties Rooms 2022 2022 2022 2021 2021 2021 2020 2020 2020 The DeSoto, Savannah, Georgia 246 65.7 % $ 211.49 $ 139.00 59.3 % $ 185.06 $ 109.76 29.3 % $ 150.24 $ 44.03 DoubleTree by Hilton Jacksonville Riverfront, Jacksonville, Florida 293 68.8 % $ 146.53 $ 100.79 65.7 % $ 135.34 $ 88.96 38.3 % $ 135.19 $ 51.77 DoubleTree by Hilton Laurel, Laurel, Maryland 208 59.7 % $ 117.20 $ 69.98 48.0 % $ 100.75 $ 48.41 31.9 % $ 89.92 $ 28.69 DoubleTree by Hilton Philadelphia Airport, Philadelphia, Pennsylvania 331 64.6 % $ 140.94 $ 91.01 58.9 % $ 123.41 $ 72.71 36.4 % $ 110.37 $ 40.22 DoubleTree Resort by Hilton Hollywood Beach, Hollywood, Florida 311 60.6 % $ 206.18 $ 124.93 52.2 % $ 186.73 $ 97.45 35.3 % $ 162.97 $ 57.45 Georgian Terrace, Atlanta, Georgia 326 51.8 % $ 198.90 $ 103.09 48.7 % $ 183.53 $ 89.35 25.1 % $ 186.04 $ 46.73 Hotel Alba Tampa, Tapestry Collection by Hilton, Tampa, Florida 222 76.3 % $ 165.11 $ 125.92 72.8 % $ 143.09 $ 104.15 34.8 % $ 137.75 $ 47.98 Hotel Ballast Wilmington, Tapestry Collection by Hilton, Wilmington, North Carolina 272 62.2 % $ 183.90 $ 114.45 54.3 % $ 171.60 $ 93.18 33.1 % $ 148.48 $ 49.19 Hyatt Centric Arlington, Arlington, Virginia 318 64.3 % $ 187.12 $ 120.33 43.7 % $ 125.47 $ 54.83 26.1 % $ 133.75 $ 34.91 The Whitehall, Houston, Texas 259 40.0 % $ 150.17 $ 60.11 29.5 % $ 128.31 $ 37.91 21.8 % $ 132.01 $ 28.81 Wholly-Owned Properties Total 2,786 Condominium Hotels Hyde Resort & Residences 80 (1) 52.8 % $ 420.53 $ 222.08 54.2 % $ 415.38 $ 225.21 24.1 % $ 332.86 $ 80.10 Hyde Beach House Resort & Residences 86 (1) 42.4 % $ 381.07 $ 161.42 40.1 % $ 408.40 $ 163.93 11.7 % $ 330.14 $ 38.67 Total Hotel & Participating Condominium Hotel Rooms 2,952 (1) We own the hotel commercial unit and operate a rental program.
Biggest changeManagement’s Discussion and Analysis of Financial Condition and Results of Operations—Key Operating Metrics, for definitions of Occupancy, ADR, and RevPAR in Part II of this Annual Report on Form 10-K ): Number of Occupancy ADR RevPAR Occupancy ADR RevPAR Occupancy ADR RevPAR Wholly-Owned Properties Rooms 2023 2023 2023 2022 2022 2022 2021 2021 2021 The DeSoto, Savannah, Georgia 246 69.2% $ 211.26 $ 146.23 65.7% $ 211.49 $ 139.00 59.3% $ 185.06 $ 109.76 DoubleTree by Hilton Jacksonville Riverfront, Jacksonville, Florida 293 70.0% $ 148.42 $ 103.90 68.8% $ 146.53 $ 100.79 65.7% $ 135.34 $ 88.96 DoubleTree by Hilton Laurel, Laurel, Maryland 208 57.8% $ 127.29 $ 73.55 59.7% $ 117.20 $ 69.98 48.0% $ 100.75 $ 48.41 DoubleTree by Hilton Philadelphia Airport, Philadelphia, Pennsylvania 331 61.7% $ 141.15 $ 87.13 64.6% $ 140.94 $ 91.01 58.9% $ 123.41 $ 72.71 DoubleTree Resort by Hilton Hollywood Beach, Hollywood, Florida 311 59.9% $ 201.48 $ 120.70 60.6% $ 206.18 $ 124.93 52.2% $ 186.73 $ 97.45 Georgian Terrace, Atlanta, Georgia 326 52.2% $ 194.12 $ 101.33 51.8% $ 198.90 $ 103.09 48.7% $ 183.53 $ 89.35 Hotel Alba Tampa, Tapestry Collection by Hilton, Tampa, Florida 222 77.8% $ 177.00 $ 137.75 76.3% $ 165.11 $ 125.92 72.8% $ 143.09 $ 104.15 Hotel Ballast Wilmington, Tapestry Collection by Hilton, Wilmington, North Carolina 272 69.2% $ 186.91 $ 129.39 62.2% $ 183.90 $ 114.45 54.3% $ 171.60 $ 93.18 Hyatt Centric Arlington, Arlington, Virginia 318 74.5% $ 207.98 $ 154.99 64.3% $ 187.12 $ 120.33 43.7% $ 125.47 $ 54.83 The Whitehall, Houston, Texas 259 44.1% $ 159.13 $ 70.25 40.0% $ 150.17 $ 60.11 29.5% $ 128.31 $ 37.91 Wholly-Owned Properties Total 2,786 Condominium Hotels Hyde Resort & Residences 65 (1) 51.9% $ 345.39 $ 179.23 52.8% $ 420.53 $ 222.08 54.2% $ 415.38 $ 225.21 Hyde Beach House Resort & Residences 75 (1) 46.4% $ 305.56 $ 141.93 42.4% $ 381.07 $ 161.42 40.1% $ 408.40 $ 163.93 Total Hotel & Participating Condominium Hotel Rooms 2,926 (1) We own the hotel commercial unit and operate a rental program.
Reflects only those condominium units that were participating in the rental program as of December 31, 2022. At any given time, some portion of the units participating in our rental program may be occupied by the unit owners and unavailable for rent to hotel guests. We sometimes refer to each participating condominium unit as a “room.”
Reflects only those condominium units that were participating in the rental program as of December 31, 2023. At any given time, some portion of the units participating in our rental program may be occupied by the unit owners and unavailable for rent to hotel guests. We sometimes refer to each participating condominium unit as a “room.”
Item 2. P roperties As of December 31, 2022, our portfolio consisted of the following properties ( see Item 7.
Item 2. P roperties As of December 31, 2023, our portfolio consisted of the following properties ( see Item 7.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are involved in routine litigation arising out of the ordinary course of business, most of which is expected to be covered by insurance, and none of which is expected to have a material impact on our financial condition or results of operations. Item 4. Mine Sa fety Disclosure Not applicable. 36 PART II
Biggest changeWe are involved in routine litigation arising out of the ordinary course of business, most of which is expected to be covered by insurance, and none of which is expected to have a material impact on our financial condition or results of operations. Item 4. Mine Sa fety Disclosure Not applicable. 37 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

12 edited+1 added−2 removed6 unchanged
Biggest changeThe amount of future common stock distributions will be based upon quarterly operating results, general economic conditions, requirements for capital improvements, the availability of debt and equity capital, the Code’s annual distribution requirements, and other factors, which the Company’s board of directors deems relevant.
Biggest changeThe same table sets forth the Operating Partnership’s distributions per preferred partnership units for fiscal year 2023: Dividend (Distribution) Payments - Series B Preferred Stock Date Declared For the Quarter Ended Date Paid Amount per Share and Unit Ordinary Income Return of Capital January 2020 March 31, 2020 March 15, 2023 $ 0.500000 $ 0.500000 $ 0.000000 April 2023 June 30, 2020 June 15, 2023 $ 0.500000 $ 0.500000 $ 0.000000 May 2023 September 30, 2020 July 14, 2023 $ 0.500000 $ 0.500000 $ 0.000000 July 2023 December 31, 2020 September 15, 2023 $ 0.500000 $ 0.500000 $ 0.000000 October 2023 March 31, 2021 December 15, 2023 $ 0.500000 $ 0.500000 $ 0.000000 Dividend (Distribution) Payments - Series C Preferred Stock Date Declared For the Quarter Ended Date Paid Amount per Share and Unit Ordinary Income Return of Capital January 2020 March 31, 2020 March 15, 2023 $ 0.492188 $ 0.492188 $ 0.000000 April 2023 June 30, 2020 June 15, 2023 $ 0.492188 $ 0.492188 $ 0.000000 May 2023 September 30, 2020 July 14, 2023 $ 0.492188 $ 0.492188 $ 0.000000 July 2023 December 31, 2020 September 15, 2023 $ 0.492188 $ 0.492188 $ 0.000000 October 2023 March 31, 2021 December 15, 2023 $ 0.492188 $ 0.492188 $ 0.000000 Dividend (Distribution) Payments - Series D Preferred Stock Date Declared For the Quarter Ended Date Paid Amount per Share and Unit Ordinary Income Return of Capital January 2020 March 31, 2020 March 15, 2023 $ 0.515625 $ 0.515625 $ 0.000000 April 2023 June 30, 2020 June 15, 2023 $ 0.515625 $ 0.515625 $ 0.000000 May 2023 September 30, 2020 July 14, 2023 $ 0.515625 $ 0.515625 $ 0.000000 July 2023 December 31, 2020 September 15, 2023 $ 0.515625 $ 0.515625 $ 0.000000 October 2023 March 31, 2021 December 15, 2023 $ 0.515625 $ 0.515625 $ 0.000000 The amount of future common stock distributions will be based upon quarterly operating results, general economic conditions, requirements for capital improvements, the availability of debt and equity capital, the Code’s annual distribution requirements, and other factors, which the Company’s board of directors deems relevant.
Our ability to pay distributions to the Company’s stockholders will depend, in part, upon our receipt of distributions from our Operating Partnership which may depend upon receipt of lease payments with respect to our properties from 37 our TRS Lessees, and in turn, upon the management of our properties by our hotel manager.
Our ability to pay distributions to the Company’s stockholders will depend, in part, upon our receipt of distributions from our Operating Partnership which may depend upon receipt of lease payments with respect to our properties from our TRS Lessees, and in turn, upon the management of our properties by our hotel manager.
The amount, timing and frequency of distributions will be authorized by the Company’s board of directors and declared by us based upon a variety of factors deemed relevant by our directors, and no assurance can be given that our distribution policy will not change in the future. Item 6. [Reserved] 38
The amount, timing and frequency of distributions will be authorized by the Company’s board of directors and declared by us based upon a variety of factors deemed relevant by our directors, and no assurance can be given that our distribution policy will not change in the future. Item 6. [Reserved] 40
There were no sales of unregistered securities in the Operating Partnership during 2022. Sotherly Hotels Inc. and Sotherly Hotels LP Dividend and Distribution Information The Company elected to be taxed as a REIT commencing with our taxable year ending December 31, 2004.
There were no sales of unregistered securities in the Operating Partnership during 2023. 38 Sotherly Hotels Inc. and Sotherly Hotels LP Dividend and Distribution Information The Company elected to be taxed as a REIT commencing with our taxable year ending December 31, 2004.
Item 5. Market for Registrant’s Common Equity, Related Sto ckholder Matters and Issuer Purchases of Equity Securities Sotherly Hotels Inc. Market Information The Company’s common stock trades on the NASDAQ ® Global Market under the symbol “SOHO”. The closing price of the Company’s common stock on the NASDAQ ® Global Market on March 1, 2023 was $2.21 per share.
Item 5. Market for Registrant’s Common Equity, Related Sto ckholder Matters and Issuer Purchases of Equity Securities Sotherly Hotels Inc. Market Information The Company’s common stock trades on the NASDAQ ® Global Market under the symbol “SOHO”. The closing price of the Company’s common stock on the NASDAQ ® Global Market on March 1, 2024 was $1.37 per share.
In order to maintain our qualification as a REIT, we must make distributions to our stockholders each year in an amount equal to at least: • 90% of our REIT taxable income determined without regard to the dividends paid deduction and excluding net capital gains; plus • 90% of the excess of our net income from foreclosure property over the tax imposed on such income by the Code; minus • Any excess noncash income (as defined in the Code).
In order to maintain our qualification as a REIT, we must make distributions to our stockholders each year in an amount equal to at least: • 90% of our REIT taxable income determined without regard to the dividends paid deduction and excluding net capital gains; plus • 90% of the excess of our net income from foreclosure property over the tax imposed on such income by the Code; minus • Any excess noncash income (as defined in the Code). 39 The Company did not pay any common stock dividends in 2022 or 2023.
Recent Sales of Unregistered Securities On May 19, 2022, a holder of units in the Operating Partnership redeemed 50,000 units for an equivalent number of shares of the Company's common stock. The shares of common stock were issued to the unitholder pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.
Recent Sales of Unregistered Securities On April 28, 2023, a holder of units in the Operating Partnership redeemed 75,000 units for an equivalent number of shares of the Company's common stock. The shares of common stock were issued to the unitholder pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.
On July 1, 2022, a holder of units in the Operating Partnership redeemed 40,687 units for an equivalent number of shares of the Company's common stock. The shares of common stock were issued to the unitholder pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.
On August 18, 2023, a holder of units in the Operating Partnership redeemed 252,903 units for an equivalent number of shares of the Company's common stock. The shares of common stock were issued to the unitholder pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.
On November 1, 2022, a holder of units in the Operating Partnership redeemed 217,845 units for an equivalent number of shares of the Company's common stock. The shares of common stock were issued to the unitholder pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.
On August 30, 2023, a holder of units in the Operating Partnership redeemed 133,099 units for an equivalent number of shares of the Company's common stock. The shares of common stock were issued to the unitholder pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.
No dividends may be paid on our common stock until such time as the preferred stock distributions are made current. We did not pay any common dividends in 2021 or 2022.
Distributions on our preferred stock are in arrears for the last eleven quarterly payments. On January 24, 2023, the Company resumed quarterly distributions to holders of its preferred stock. No dividends may be paid on our common stock until such time as the preferred stock distributions are made current. We did not pay any common dividends in 2022 or 2023.
Partnership Unitholder Information As of March 1, 2023, there were 7 holders of the Operating Partnership’s partnership units, including Sotherly Hotels Inc.
Partnership Unitholder Information As of March 1, 2024, there were 5 holders of the Operating Partnership’s partnership units, including Sotherly Hotels Inc., which owned approximately 98.2% of the outstanding general and limited partnership units as well as 100% of the preferred partnership units.
Stockholder Information As of March 1, 2023, there were approximately 79 holders of record of the Company’s common stock.
Stockholder Information As of March 1, 2024, there were approximately 85 holders of record of the Company’s common stock. Because many of the Company's common shares are held by brokers and other institutions on behalf of shareholders, the Company believe there are substantially more beneficial holders of its common shares than record holders.
Removed
Distributions on our preferred stock are in arrears for the last twelve quarterly payments. On January 24, 2023, the Company announced it will resume quarterly distributions to holders of its preferred stock and set a record date of February 28, 2023 and a payment date of March 15, 2023, for the preferred distributions declared in January 2020.
Added
The Company did not pay any preferred stock dividends in 2022. The following tables set forth information regarding the declaration, payment and income tax characterization of distributions by the Company on its preferred shares to the Company’s preferred stockholders for fiscal year 2023.
Removed
During the years ended December 31, 2022 and 2021, we did not pay any common or preferred stock or unit distributions.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

80 edited+44 added−26 removed83 unchanged
Biggest changeYear Ended Year Ended Year Ended December 31, December 31, December 31, 2022 2021 2020 Net income (loss) $ 33,959,848 $ (28,539,640 ) $ (53,682,905 ) Depreciation and amortization - real estate 18,593,359 19,838,017 19,825,382 Impairment of investment in hotel properties, net — 12,201,461 — Loss (gain) on disposal of assets 636,198 (158,286 ) 136,063 Gain on sale of hotel properties (30,053,977 ) — — Distributions to preferred stockholders (7,634,219 ) (7,541,891 ) (8,755,642 ) Gain on involuntary conversion of asset (1,763,320 ) (588,586 ) (179,856 ) FFO available to common stockholders and unitholders $ 13,737,889 $ (4,788,925 ) $ (42,656,958 ) Decrease (increase) in deferred income taxes — — 5,412,084 Amortization 56,977 71,209 71,390 ESOP and stock - based compensation 998,424 689,547 754,111 Aborted offering costs — 631,952 — Termination (refund) fee — — (19,709 ) Unrealized (gain) loss on hedging activities (2,918,207 ) (1,493,841 ) 986,200 Loss on early debt extinguishment 5,944,881 — — Adjusted FFO available to common stockholders and unitholders $ 17,819,964 $ (4,890,058 ) $ (35,452,882 ) 50 Hotel EBITDA .
Biggest changeThe following is a reconciliation of net income (loss) to FFO and Adjusted FFO for the years ended December 31, 2023, 2022, and 2021. 53 Year Ended Year Ended Year Ended December 31, December 31, December 31, 2023 2022 2021 Net income (loss) $ 3,809,711 $ 33,959,848 $ (28,539,640 ) Depreciation and amortization - real estate 18,735,804 18,593,359 19,838,017 Impairment of investment in hotel properties, net — — 12,201,461 Loss (gain) on disposal of assets (4,700 ) 636,198 (158,286 ) Gain on sale of hotel properties — (30,053,977 ) — Distributions to preferred stockholders (7,977,250 ) (7,634,219 ) (7,541,891 ) Gain on involuntary conversion of asset (1,371,041 ) (1,763,320 ) (588,586 ) FFO available to common stockholders and unitholders $ 13,192,524 $ 13,737,889 $ (4,788,925 ) Amortization 52,944 56,977 71,209 ESOP and stock - based compensation 559,220 998,424 689,547 Aborted offering costs — — 631,952 Unrealized (gain) loss on hedging activities 737,682 (2,918,207 ) (1,493,841 ) Loss on early debt extinguishment — 5,944,881 — Adjusted FFO available to common stockholders and unitholders $ 14,542,370 $ 17,819,964 $ (4,890,058 ) Hotel EBITDA .
We believe that of our significant accounting policies, which are described in Note 2, Summary of Significant Accounting Policies , in the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K, the following accounting policies are critical because they require difficult, subjective and complex judgments and include estimates about matters that are inherently uncertain, involve various assumptions, require management judgment, and because they are important for understanding and evaluating our financial position, results of operations and related disclosures.
We believe that of our significant accounting policies, which are described in Note 2, Summary of 51 Significant Accounting Policies , in the audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K, the following accounting policies are critical because they require difficult, subjective and complex judgments and include estimates about matters that are inherently uncertain, involve various assumptions, require management judgment, and because they are important for understanding and evaluating our financial position, results of operations and related disclosures.
There was an aggregate increase in total revenue of approximately $45.0 million from 10 of our properties, offset by a decrease of approximately $1.0 million, at the Hyde Beach House Resort & Residences, Hollywood and a decrease of approximately $5.5 million as a result of the sales of the Sheraton Louisville Riverside in Jeffersonville, Indiana, in February 2022 and the DoubleTree by Hilton Raleigh Brownstone University in Raleigh, North Carolina, in June 2022.
There was an aggregate increase in total revenue of approximately $45.0 million from 10 of our properties, offset by a decrease of approximately $1.0 million, at the Hyde Beach House Resort & Residences, Hollywood and a decrease of approximately $5.5 million as a result of the sales of the Sheraton Louisville Riverside in Jeffersonville, Indiana, in February 2022 and the DoubleTree by Hilton Raleigh 44 Brownstone University in Raleigh, North Carolina, in June 2022.
In accordance with generally accepted accounting principles, the controlling interests in hotels comprising our accounting predecessor, MHI Hotels Services Group, and noncontrolling interests held by the controlling holders of our accounting predecessor in 48 hotels, which were acquired from third parties contributed to us in connection with the Company’s initial public offering, are recorded at historical cost basis.
In accordance with generally accepted accounting principles, the controlling interests in hotels comprising our accounting predecessor, MHI Hotels Services Group, and noncontrolling interests held by the controlling holders of our accounting predecessor in hotels, which were acquired from third parties contributed to us in connection with the Company’s initial public offering, are recorded at historical cost basis.
Gain on involuntary conversion of assets increased approximately $1.2 million, from approximately $0.6 million for the year ended December 31, 2021 to approximately $1.8 million, for the year ended December 31, 2022. The gains were related to casualties at our properties in Savannah, Georgia, Houston, Texas and Atlanta, Georgia. Income Tax Provision .
Gain on involuntary conversion of assets increased approximately $1.2 million, from approximately $0.6 million for the year ended December 31, 2021 to approximately $1.8 million, for the year ended December 31, 2022. The gains were related to casualties at our properties in Savannah, Georgia, Houston, Texas and Atlanta, Georgia. Income Tax (Provision) Benefit .
Liquidity and Capital Resources The COVID-19 pandemic had a significant negative impact on our operations and financial results during 2020, 2021 and 2022. During 2020 and into 2021, we entered into forbearance agreements with all our mortgage lenders and negotiated extended payment terms with a few key vendors in order to preserve liquidity.
Liquidity and Capital Resources The COVID-19 pandemic had a significant negative impact on our operations and financial results during 2021 and 2022. During 2021, we entered into forbearance agreements with all our mortgage lenders and negotiated extended payment terms with a few key vendors in order to preserve liquidity.
Non-GAAP Financial Measures We consider the non-GAAP financial measures of FFO available to common stockholders and unitholders (including FFO per common share and unit), Adjusted FFO available to common stockholders and unitholders, EBITDA and Hotel EBITDA to be key 49 supplemental measures of the Company’s performance and could be considered along with, not alternatives to, net income (loss) as a measure of the Company’s performance.
Non-GAAP Financial Measures We consider the non-GAAP financial measures of FFO available to common stockholders and unitholders (including FFO per common share and unit), Adjusted FFO available to common stockholders and unitholders, EBITDA and Hotel EBITDA to be key supplemental measures of the Company’s performance and could be considered along with, not alternatives to, net income (loss) as a measure of the Company’s performance.
We further adjust FFO Available to Common Stockholders and Unitholders for certain additional items that are not in NAREIT’s definition of FFO, including changes in deferred income taxes, any unrealized gain (loss) on hedging instruments or warrant derivative, loan impairment losses, losses on early extinguishment of debt, gains on extinguishment of preferred stock, aborted offering costs, loan modification fees, franchise termination costs, costs associated with the departure of executive officers, litigation settlement, over-assessed real estate taxes on appeal, management contract termination costs, operating asset depreciation and amortization, change in control gains or losses, ESOP and stock compensation expenses and acquisition transaction costs.
We further adjust FFO Available to Common Stockholders and Unitholders for certain additional items that are not in NAREIT’s definition of FFO, including changes in deferred income taxes, any unrealized gain (loss) on hedging instruments or warrant derivatives, loan impairment losses, losses on early extinguishment of debt, gains on extinguishment of preferred stock, aborted offering costs, loan modification fees, franchise termination costs, costs associated with the departure of executive officers, stock compensation costs, litigation settlement, over-assessed real estate taxes on appeal, management contract termination costs, operating asset depreciation and amortization, change in control gains or losses, ESOP and stock compensation expenses and acquisition transaction costs.
Additionally, we realized refunds of prior year real estate property taxes at our properties in Savannah, Georgia, and the DoubleTree by Hilton Hollywood Beach in Hollywood, Florida, totaling approximately $0.8 million. Depreciation and Amortization .
Additionally, we realized refunds of prior year real estate property taxes at our properties in Savannah, Georgia, and the DoubleTree by Hilton Hollywood Beach in Hollywood, Florida, totaling approximately $0.8 million. 45 Depreciation and Amortization.
The decrease in corporate general and administrative expenses was mainly due to an employee retention credit of approximately $0.2 million and a reduction of loan fees and other expenses in the aggregate compared to the prior year of approximately $0.2 million. 41 Interest Expense .
The decrease in corporate general and administrative expenses was mainly due to an employee retention credit of approximately $0.2 million and a reduction of loan fees and other expenses in the aggregate compared to the prior year of approximately $0.2 million. Interest Expense .
In addition, the Company extinguished debt on its Secured Notes of $20.0 million, paid approximately $0.4 million in deferred financing costs. We also paid approximately $0.5 million to reduce the principal balance outstanding of unsecured notes.
In addition, the Company extinguished debt on its Secured Notes of $20.0 million and paid approximately $0.4 million in deferred financing costs. We also paid approximately $0.5 million to reduce the principal balance outstanding of unsecured notes.
Cash used in financial activities for the year ended December 31, 2021, was approximately $9.7 million, which included approximately $6.5 million in scheduled payments of principal on our mortgage loans and approximately $3.1 million in payments on our unsecured notes. 44 Capital Expenditures We intend to maintain all our hotels, including any hotel we acquire in the future, in good repair and condition, in conformity with applicable laws and regulations and, when applicable, with franchisor’s standards.
Cash used in financial activities for the year ended December 31, 2021, was approximately $9.7 million, which included approximately $6.5 million in scheduled payments of principal on our mortgage loans and approximately $3.1 million in payments of principal on our unsecured notes. 47 Capital Expenditures We intend to maintain all our hotels, including any hotel we acquire in the future, in good repair and condition, in conformity with applicable laws and regulations and, when applicable, with franchisor’s standards.
The earnings of MHI Holding are taxable as regular C corporations and are subject to federal, state, local, and, if applicable, foreign taxation on its taxable income. 39 Key Operating Metrics In the hotel industry, room revenue is considered the most important category of revenue and drives other revenue categories such as food, beverage, catering, parking and telephone.
The earnings of MHI Holding are taxable as regular C corporations and are subject to federal, state, local, and, if applicable, foreign taxation on its taxable income. 41 Key Operating Metrics In the hotel industry, room revenue is considered the most important category of revenue and drives other revenue categories such as food, beverage, catering, parking and telephone.
(2) We own the hotel commercial unit and operate a rental program. Reflects only those condominium units that were participating in the rental program as of December 31, 2022. At any given time, some portion of the units participating in our rental program may be occupied by the unit owner(s) and unavailable for rental to hotel guests.
(2) We own the hotel commercial unit and operate a rental program. Reflects only those condominium units that were participating in the rental program as of December 31, 2023. At any given time, some portion of the units participating in our rental program may be occupied by the unit owner(s) and unavailable for rental to hotel guests.
Since January 1, 2020, we have completed the following acquisitions and dispositions: • On February 10, 2022, we sold the Sheraton Louisville Riverside hotel located in Jeffersonville, Indiana. • On June 10, 2022, we sold the DoubleTree by Hilton Raleigh-Brownstone University hotel located in Raleigh, North Carolina As of December 31, 2022, our hotel portfolio consisted of ten full-service, primarily upscale and upper-upscale hotels with an aggregate total of 2,786 rooms, as well as interests in two condominium hotels and their associated rental programs.
Since January 1, 2021, we have completed the following acquisitions and dispositions: • On February 10, 2022, we sold the Sheraton Louisville Riverside hotel located in Jeffersonville, Indiana. • On June 10, 2022, we sold the DoubleTree by Hilton Raleigh-Brownstone University hotel located in Raleigh, North Carolina As of December 31, 2023, our hotel portfolio consisted of ten full-service, primarily upscale and upper-upscale hotels with an aggregate total of 2,786 rooms, as well as interests in two condominium hotels and their associated rental programs.
As of December 31, 2022, we have determined that it is more-likely-than-not that we will not be able to fully utilize our deferred tax assets for future tax consequences, therefore a 100% valuation allowance is required. As of December 31, 2022 and 2021, deferred tax assets each totaled $0, respectively.
As of December 31, 2023, we have determined that it is more-likely-than-not that we will not be able to fully utilize our deferred tax assets for future tax consequences, therefore a 100% valuation allowance is required. As of December 31, 2023 and 2022, deferred tax assets each totaled $0, respectively.
Over the long term, we expect to meet our liquidity requirements for hotel property acquisitions, property redevelopment, investments in new joint ventures and debt maturities, and the retirement of maturing mortgage debt, through net proceeds from additional issuances of common shares, additional issuances of preferred shares, issuances of units of limited partnership interest in our Operating Partnership, secured and unsecured borrowings, the selective disposition of non-core assets, and cash on hand.
Over the long term, we expect to meet our liquidity requirements for hotel property acquisitions, property redevelopment, investments in new joint ventures and debt maturities, and the retirement of maturing mortgage debt, through net proceeds from additional issuances of common shares, additional issuances of preferred shares, issuances of units of limited partnership interest in our Operating Partnership, secured and unsecured borrowings, the selective disposition of non-core assets, continued suspension of our common dividend, suspension of our preferred dividend, and cash on hand.
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, gains or losses from involuntary conversion of assets, plus certain non-cash items such as real estate asset depreciation and amortization or impairment, stock compensation costs and after adjustment for any noncontrolling interest from unconsolidated partnerships and joint ventures.
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, gains or losses from involuntary conversion of assets, plus certain non-cash items such as real estate asset depreciation and amortization or impairment and after adjustment for any noncontrolling interest from unconsolidated partnerships and joint ventures.
The positive cash flow from operations during the year was due to the increase in occupancy at our hotels as a result of increases in transient consumers, group business, and other business travel due to the lifting of restrictions on travel, social gatherings and business operations.
The positive cash flow from operations during the year was due to the increase in occupancy at our hotels as a result of increases in transient consumers, group business, and other business travel due to the lifting of restrictions on travel, social gatherings and business operations. Operating Activities .
Our calculation of Hotel EBITDA may be different from similar measures calculated by other REITs. The following is a reconciliation of net loss to Hotel EBITDA for the years ended December 31, 2022, 2021, and 2020.
Our calculation of Hotel EBITDA may be different from similar measures calculated by other REITs. The following is a reconciliation of net loss to Hotel EBITDA for the years ended December 31, 2023, 2022, and 2021.
Repayment of deferred amounts of interest, mortgage principal and amounts due certain vendors, which began in 2021, was completed at the end of 2022, with the exception of certain amounts that were deferred until the maturity of the applicable loan.
Repayment of deferred amounts of interest, mortgage principal and amounts due certain vendors, which began in 2021, was completed at the end of 2022, with the exception of certain amounts that were deferred until the maturity of the applicable loans.
As of December 31, 2022, our portfolio consisted of the following hotel properties: Number Property of Rooms Location Date of Acquisition Chain/Class Designation Wholly-owned Hotels The DeSoto 246 Savannah, GA December 21, 2004 Upper Upscale (1) DoubleTree by Hilton Jacksonville Riverfront 293 Jacksonville, FL July 22, 2005 Upscale DoubleTree by Hilton Laurel 208 Laurel, MD December 21, 2004 Upscale DoubleTree by Hilton Philadelphia Airport 331 Philadelphia, PA December 21, 2004 Upscale DoubleTree Resort by Hilton Hollywood Beach 311 Hollywood, FL August 9, 2007 Upscale Georgian Terrace 326 Atlanta, GA March 27, 2014 Upper Upscale (1) Hotel Alba Tampa, Tapestry Collection by Hilton 222 Tampa, FL October 29, 2007 Upscale Hotel Ballast Wilmington, Tapestry Collection by Hilton 272 Wilmington, NC December 21, 2004 Upscale Hyatt Centric Arlington 318 Arlington, VA March 1, 2018 Upper Upscale The Whitehall 259 Houston, TX November 13, 2013 Upper Upscale (1) Hotel Rooms Subtotal 2,786 Condominium Hotels Hyde Resort & Residences 80 (2) Hollywood, FL January 30, 2017 Luxury (1) Hyde Beach House Resort & Residences 86 (2) Hollywood, FL September 27, 2019 Luxury (1) Total Hotel & Participating Condominium Hotel Rooms 2,952 (1) Operated as an independent hotel.
As of December 31, 2023, our portfolio consisted of the following hotel properties: Number Property of Rooms Location Date of Acquisition Chain/Class Designation Wholly-owned Hotels The DeSoto 246 Savannah, GA December 21, 2004 Upper Upscale (1) DoubleTree by Hilton Jacksonville Riverfront 293 Jacksonville, FL July 22, 2005 Upscale DoubleTree by Hilton Laurel 208 Laurel, MD December 21, 2004 Upscale DoubleTree by Hilton Philadelphia Airport 331 Philadelphia, PA December 21, 2004 Upscale DoubleTree Resort by Hilton Hollywood Beach 311 Hollywood, FL August 9, 2007 Upscale Georgian Terrace 326 Atlanta, GA March 27, 2014 Upper Upscale (1) Hotel Alba Tampa, Tapestry Collection by Hilton 222 Tampa, FL October 29, 2007 Upscale Hotel Ballast Wilmington, Tapestry Collection by Hilton 272 Wilmington, NC December 21, 2004 Upscale Hyatt Centric Arlington 318 Arlington, VA March 1, 2018 Upper Upscale The Whitehall 259 Houston, TX November 13, 2013 Upper Upscale (1) Hotel Rooms Subtotal 2,786 Condominium Hotels Hyde Resort & Residences 65 (2) Hollywood, FL January 30, 2017 Luxury (1) Hyde Beach House Resort & Residences 75 (2) Hollywood, FL September 27, 2019 Luxury (1) Total Hotel & Participating Condominium Hotel Rooms 2,926 (1) Operated as an independent hotel.
Contractual Obligations The following table outlines our contractual obligations as of December 31, 2022, and the effect such obligations are expected to have on our liquidity and cash flow in future periods (in thousands).
Contractual Obligations The following table outlines our contractual obligations as of December 31, 2023, and the effect such obligations are expected to have on our liquidity and cash flow in future periods (in thousands).
On February 26, 2023, we amended the mortgage loan agreement on The Whitehall hotel located in Houston, TX with the existing lender, International Bank of Commerce.
On February 26, 2023, we amended the mortgage loan agreement on The Whitehall hotel located in Houston, Texas with the existing lender, International Bank of Commerce.
The Company is the sole general partner of the Operating Partnership and currently owns an approximate 95.8% interest in the Operating Partnership, with the remaining interest being held by limited partners who were contributors of our initial hotel properties and related assets. To qualify as a REIT, neither the Company nor the Operating Partnership can operate our hotels.
The Company is the sole general partner of the Operating Partnership and currently owns an approximate 98.2% interest in the Operating Partnership, with the remaining interest being held by limited partners who were contributors of our initial hotel properties and related assets. To qualify as a REIT, neither the Company nor the Operating Partnership can operate our hotels.
Comparison of Year Ended December 31, 2021 to Year Ended December 31, 2020 The following table illustrates the key operating metrics for the years ended December 31, 2021 and 2020, for our wholly-owned hotels and the condominium hotel units, during each respective reporting period (“composite portfolio” properties), as well as the key operating metrics for the twelve wholly-owned hotel properties that were under our control during all of 2021 and 2020 (“actual” properties).
Comparison of Year Ended December 31, 2022 to Year Ended December 31, 2021 The following table illustrates the key operating metrics for the years ended December 31, 2022 and 2021 for our wholly-owned hotels and the condominium hotel units, during each respective reporting period (“composite portfolio” properties), as well as the key operating metrics for the ten wholly-owned hotel properties that were under our control during all of 2022 (“actual” properties).
Loss on Early Extinguishment of Debt. The loss relates to the repayment and cancellation of the Secured Notes in June 2022 resulting in a loss on early extinguishment consisting of the unamortized exit fee as well as the unamortized origination costs, which totaled approximately $5.9 million for the twelve months ended December 31, 2022. Unrealized Gain (Loss) on Hedging Activities.
Loss on Early Extinguishment of Debt . The loss relates to the repayment and cancellation of the Secured Notes in June 2022 resulting in a loss on early extinguishment consisting of the unamortized exit fee as well as the unamortized origination costs, which totaled approximately $5.9 million for the twelve months ended December 31, 2022.
We define Hotel EBITDA as net income or loss excluding: (1) interest expense, (2) interest income, (3) income tax provision or benefit, (4) depreciation and amortization, (5) impairment of long-lived assets or investments, (6) gains and losses on disposal and/or sale of assets, (7) gains and losses on involuntary conversions of assets, (8) unrealized gains and losses on derivative instruments not included in other comprehensive income, (9) loss on early debt extinguishment, (10) Paycheck Protection Program (PPP) debt forgiveness, (11) gain on exercise of development right, (12) corporate general and administrative expense, and (13) other operating revenue not related to our portfolio.
We define Hotel EBITDA as net income or loss excluding: (1) interest expense, (2) interest income, (3) income tax provision or benefit, (4) depreciation and amortization, (5) impairment of long-lived assets or investments, (6) gains and losses on disposal and/or sale of assets, (7) gains and losses on involuntary conversions of assets, (8) unrealized gains and losses on derivative instruments not included in other comprehensive income, (9) other income at the properties, (10) loss on early debt extinguishment, (11) Paycheck Protection Program (PPP) debt forgiveness, (12) gain on exercise of development right, (13) corporate general and administrative expense, and (14) other income not related to our wholly-owned portfolio.
Results of Operations Comparison of Year Ended December 31, 2022 to Year Ended December 31, 2021 The following table illustrates the key operating metrics for the years ended December 31, 2022 and 2021 for our wholly-owned hotels and the condominium hotel units, during each respective reporting period (“composite portfolio” properties), as well as the key operating metrics for the twelve wholly-owned hotel properties that were under our control during all of 2020 (“actual” properties).
Results of Operations Comparison of Year Ended December 31, 2023 to Year Ended December 31, 2022 The following table illustrates the key operating metrics for the years ended December 31, 2023 and 2022 for our wholly-owned hotels and the condominium hotel units, during each respective reporting period (“composite portfolio” properties), as well as the key operating metrics for the ten wholly-owned hotel properties that were under our control during all of 2023 (“actual” properties).
The Company may not make distributions with respect to any shares of its common stock, unless and until full cumulative distributions on the outstanding preferred stock for all past unpaid periods are paid or declared and a sum sufficient for the payment thereof in cash is set aside.
Distributions to Stockholders and Holders of Units in the Operating Partnership The Company may not make distributions with respect to any shares of its common stock, unless and until full cumulative distributions on the outstanding preferred stock for all past unpaid periods are paid or declared and a sum sufficient for the payment thereof in cash is set aside.
As of December 31, 2022, the amount of cumulative unpaid dividends on our outstanding preferred shares was approximately $23.9 million and the aggregate liquidation preference with respect to our outstanding preferred shares was approximately $121.3 million.
As of December 31, 2023, the amount of cumulative unpaid dividends on our outstanding preferred shares was approximately $21.9 million and the aggregate liquidation preference with respect to our outstanding preferred shares was approximately $121.3 million.
The Company recognized an impairment loss of approximately $12.2 million during the period ended December 31, 2021. The impairment loss was determined using level 2 inputs under authoritative guidance for fair value measurements. No impairment loss was recognized for the year ended December 31, 2022. Income Taxes.
The Company recognized an impairment loss of approximately $12.2 million during the period ended December 31, 2021. The impairment loss was determined using level 2 inputs under authoritative guidance for fair value measurements. No impairment loss was recognized for the years ended December 31, 2023 and December 31, 2022, respectively. Income Taxes.
Our cash provided by operating activities for the year ended December 31, 2021 was approximately $2.3 million. Cash used in or provided by operating activities generally consists of the cash flow from hotel operations, offset by the interest portion of our debt service, corporate expenses and positive or negative changes in working capital. Investing Activities.
Cash used in or provided by operating activities generally consists of the cash flow from hotel operations, offset by the interest portion of our debt service, corporate expenses and positive or negative changes in working capital. Investing Activities. Our cash used in investing activities for the year ended December 31, 2023 was approximately $6.7 million.
As of December 31, 2022, we had no uncertain tax positions. Our policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2022, the tax years that remain subject to examination by the major tax jurisdictions to which the Company is subject generally include 2016 through 2020.
As of December 31, 2023, we had no uncertain tax positions. Our policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2023, the tax years that remain subject to examination by the major tax jurisdictions to which the Company is subject generally include 2015 through 2021.
We remain committed to a flexible capital structure and strive to maintain prudent debt leverage. Mortgage Debt As of December 31, 2022, we had a principal mortgage debt balance of approximately $321.9 million. The following table sets forth our mortgage debt obligations on our hotels.
We remain committed to a flexible capital structure and strive to maintain prudent debt leverage. Mortgage Debt As of December 31, 2023, we had a principal mortgage debt balance of approximately $317.4 million. The following table sets forth our mortgage debt obligations on our hotels.
We expect capital expenditures for the recurring replacement or refurbishment of furniture, fixtures and equipment at our properties will be funded by our replacement reserve accounts, other than costs that we incur to make capital improvements required by our franchisors.
We expect total capital expenditures for 2024 to be approximately $7.0 million. We generally expect capital expenditures for the recurring replacement or refurbishment of furniture, fixtures and equipment at our properties will be funded by our replacement reserve accounts, other than costs that we incur to make capital improvements required by our franchisors.
During the year ended December 31, 2022, we accounted for undeclared distributions to preferred stockholders of approximately $7.6 million, compared to declared and undeclared distributions to preferred stockholders of approximately $7.5 million for the year ended December 31, 2021.
During the year ended December 31, 2023, we accounted for undeclared distributions to preferred stockholders of approximately $8.0 million, compared to declared and undeclared distributions to preferred stockholders of approximately $7.6 million for the year ended December 31, 2022.
Operators of hotels, in general, possess the ability to adjust room rates daily to keep pace with inflation. However, competitive pressures at some or all of our hotels may limit the ability of the management company to raise room rates. Our expenses, including hotel operating expenses, administrative expenses, real estate taxes, and property and casualty insurance are subject to inflation.
However, competitive pressures at some or all of our hotels may limit the ability of the management company to raise room rates. Our expenses, including hotel operating expenses, administrative expenses, real estate taxes, and property and casualty insurance are subject to inflation.
Our principal uses of cash are acquisitions of hotel properties, capital expenditures, debt service and balloon maturities, operating costs, corporate expenses and dividends. As of December 31, 2022, we had unrestricted cash of approximately $21.9 million and restricted cash of approximately $5.4 million. Operating Activities .
Our principal uses of cash are acquisitions of hotel properties, capital expenditures, debt service and balloon maturities, operating costs, corporate expenses and dividends. As of December 31, 2023, we had unrestricted cash of approximately $17.1 million and restricted cash of approximately $9.1 million.
Cash used for investing activities for the year ended December 31, 2021 was approximately $2.4 million which mostly consisted of capital expenditures of approximately $3.2 million offset by insurance proceeds related to involuntary conversion of approximately $0.6 million. Financing Activities . Our cash used in financing activities for the year ended December 31, 2022, was approximately $51.6 million.
Cash used for investing activities for the year ended December 31, 2021, was approximately $2.4 million which mostly consisted of capital expenditures of approximately $3.2 million offset by insurance proceeds of approximately $0.6 million. Financing Activities . Our cash used in financing activities for the year ended December 31, 2023, was approximately $15.8 million.
Except as temporarily reduced during the pandemic through loan modifications and forbearance agreements, we deposit an amount equal to 4.0% of gross revenue for The DeSoto, the Hotel Ballast Wilmington, the DoubleTree Resort by Hilton Hollywood Beach, The DoubleTree by Hilton Jacksonville Riverfront, The Whitehall and the Georgian Terrace as well as 4.0% of room revenues for the DoubleTree by Hilton Philadelphia Airport and the Hyatt Centric Arlington on a monthly basis.
We deposit an amount equal to 4.0% of gross revenue for The DeSoto, the Hotel Ballast Wilmington, the DoubleTree by Hilton Laurel, the DoubleTree Resort by Hilton Hollywood Beach, The DoubleTree by Hilton Jacksonville Riverfront, The Whitehall, Hotel Alba, and the Georgian Terrace, as well as 4.0% of room revenues for the DoubleTree by Hilton Philadelphia Airport and the Hyatt Centric Arlington on a monthly basis.
Seven of our hotels operate under well-known brands such as DoubleTree and Hyatt, and three are independent hotels.
Seven of our hotels operate under well-known brands such as DoubleTree by Hilton, Tapestry Collection by Hilton, and Hyatt Centric, and three are independent hotels.
Corporate general and administrative expenses for the year ended December 31, 2021 increased approximately $0.5 million, or 7.8%, to approximately $7.0 million compared to corporate general and administrative expenses of approximately $6.5 million for the year ended December 31, 2020.
Corporate general and administrative expenses for the year ended December 31, 2023 increased approximately $0.5 million, or 6.9%, to approximately $7.1 million compared to corporate general and administrative expenses of approximately $6.6 million for the year ended December 31, 2022.
As of December 31, 2022, we had cash, cash equivalents and restricted cash of approximately $27.3 million, of which approximately $5.4 million was in restricted reserve accounts for cash collateral, capital improvements, real estate tax and insurance escrows.
As of December 31, 2023, we had cash, cash equivalents and restricted cash of approximately $26.2 million, of which approximately $9.1 million was in restricted reserve accounts for cash collateral, capital improvements, real estate tax and insurance escrows.
During the year ended December 31, 2022, the Company and Operating Partnership received proceeds of $7.8 million from the refinance of the Hotel Alba mortgage loan, made principal payments on its mortgages of approximately $38.5 million, including the extinguishment of debt related to the sale of the Sheraton Louisville Riverside and the DoubleTree by Hilton Raleigh Brownstone University.
During the year ended December 31, 2022, the Company and Operating Partnership received proceeds of $7.8 million from the refinance of the mortgage loan on the Hotel Alba, made scheduled principal payments on its mortgages of approximately $9.3 million including the repayment of principal payments deferred during the COVID-19 pandemic, as well as approximately $29.2 million in principal payments related to the sale of the Sheraton Louisville Riverside and the DoubleTree by Hilton Raleigh Brownstone University.
Hotel operating expenses, which consist of room expenses, food and beverage expenses, other direct expenses, indirect expenses, and management fees, increased approximately $22.0 million, or 29.4%, for the year ended December 31, 2021 to approximately $96.7 million, compared to hotel operating expenses for the year ended December 31, 2020 of approximately $74.7 million.
Hotel operating expenses, which consist of room expenses, food and beverage expenses, other direct expenses, indirect expenses, and management fees, increased approximately $9.4 million, or 7.9%, for the year ended December 31, 2023 to approximately $129.0 million compared to hotel operating expenses for the year ended December 31, 2022 of approximately $119.6 million.
Year Ended Year Ended Year Ended December 31, December 31, December 31, 2022 2021 2020 Net (loss) income $ 33,959,848 $ (28,539,640 ) $ (53,682,905 ) Interest expense 19,772,802 22,686,694 18,056,874 Interest income (189,291 ) (147,025 ) (210,426 ) Income tax provision 522,355 27,392 5,280,443 Depreciation and amortization 18,650,336 19,909,226 19,896,772 Impairment of investment in hotel properties, net — 12,201,461 — Unrealized (gain) loss on hedging activities (2,918,207 ) (1,493,841 ) 986,200 Loss on early debt extinguishment 5,944,881 — — Gain on sale of hotel properties (30,053,977 ) — — Loss (gain) on disposal of assets 636,198 (158,286 ) 136,063 PPP loan forgiveness (4,720,278 ) — — Gain on involuntary conversion of asset (1,763,320 ) (588,586 ) (179,856 ) Corporate general and administrative expenses 6,621,221 6,997,166 6,492,526 Hotel EBITDA $ 46,462,568 $ 30,894,561 $ (3,224,309 )
Year Ended Year Ended Year Ended December 31, December 31, December 31, 2023 2022 2021 Net (loss) income $ 3,809,711 $ 33,959,848 $ (28,539,640 ) Interest expense 17,588,091 19,772,802 22,686,694 Interest income (802,183 ) (189,291 ) (147,025 ) Income tax provision (304,947 ) 522,355 27,392 Depreciation and amortization 18,788,748 18,650,336 19,909,226 Impairment of investment in hotel properties, net — — 12,201,461 Unrealized (gain) loss on hedging activities 737,682 (2,918,207 ) (1,493,841 ) Loss on early debt extinguishment — 5,944,881 — Gain on sale of hotel properties — (30,053,977 ) — Loss (gain) on disposal of assets (4,700 ) 636,198 (158,286 ) PPP loan forgiveness (275,494 ) (4,720,278 ) — Other income (456,388 ) — — Gain on involuntary conversion of asset (1,371,041 ) (1,763,320 ) (588,586 ) Corporate general and administrative expenses 7,078,222 6,621,221 6,997,166 Hotel EBITDA $ 44,787,701 $ 46,462,568 $ 30,894,561
Unrealized gain (loss) on hedging activities primarily relates to the change in variance between the unamortized cost of the interest-rate swap related to our mortgage on the DoubleTree by Hilton Philadelphia 43 Airport and the fair value of that interest-rate swap which is affected by both the decreasing number of payment periods in the swap period and the changes in anticipated LIBOR rates over the remaining period.
Unrealized gain (loss) on hedging activities primarily relates to the change in variance between the unamortized cost of the interest-rate swaps related to our mortgages on the DoubleTree by Hilton Philadelphia Airport, which matured at the end of July 2023, and the Hotel Alba Tampa, Tapestry Collection by Hilton and the fair value of interest-rate swaps which are affected by both the decreasing number of payment periods in the swap periods and the changes in anticipated SOFR rates over the remaining period.
(9) Following a 5-year lockout, the note can be prepaid with penalty in years 6-10 and without penalty during the final 4 months of the term.
(9) Following a 5-year lockout, the note can be prepaid with penalty in years 6-10 and without penalty during the final 4 months of the term. (10) The note bears a floating interest rate of New York Prime Rate plus 1.25%, with a floor of 7.50%.
Food and beverage expenses at our properties for the year ended December 31, 2021 increased approximately $1.8 million, or 20.7%, to approximately $10.3 million, compared to food and beverage expense of approximately $8.5 million for the year ended December 31, 2020.
Food and beverage expenses at our properties for the year ended December 31, 2023 increased approximately $4.5 million, or 22.7%, to approximately $24.2 million compared to food and beverage expense of approximately $19.7 million for the year ended December 31, 2022.
December 31, Prepayment Maturity Amortization Property 2022 Penalties Date Provisions Interest Rate The DeSoto (1) $ 31,219,022 Yes 7/1/2026 25 years 4.25% DoubleTree by Hilton Jacksonville Riverfront (2) 32,416,570 Yes 7/11/2024 30 years 4.88% DoubleTree by Hilton Laurel (3) 7,412,107 None 5/5/2023 25 years 5.25% DoubleTree by Hilton Philadelphia Airport (4) 39,413,672 None 10/31/2023 30 years LIBOR plus 2.27% DoubleTree Resort by Hilton Hollywood Beach (5) 52,724,475 (5) 10/1/2025 30 years 4.91% Georgian Terrace (6) 40,492,622 (6) 6/1/2025 30 years 4.42% Hotel Alba Tampa, Tapestry Collection by Hilton (7) 24,756,400 None 6/30/2025 (7) SOFR plus 2.75% Hotel Ballast Wilmington, Tapestry Collection by Hilton (8) 31,699,775 Yes 1/1/2027 25 years 4.25% Hyatt Centric Arlington (9) 47,534,606 Yes 10/1/2028 30 years 5.25% The Whitehall (10) 14,226,067 None 2/26/2028 25 years PRIME plus 1.25% Total Mortgage Principal Balance 321,895,316 Deferred financing costs, net (1,480,779 ) Unamortized premium on loan 67,566 Total Mortgage Loans, Net $ 320,482,103 (1) The note amortizes on a 25-year schedule after an initial interest-only period of one year and is subject to a pre-payment penalty except for any pre-payments made within 120 days of the maturity date.
December 31, Prepayment Maturity Amortization Property 2023 Penalties Date Provisions Interest Rate The DeSoto (1) $ 30,248,929 Yes 7/1/2026 25 years 4.25% DoubleTree by Hilton Jacksonville Riverfront (2) 31,749,695 Yes 7/11/2024 30 years 4.88% DoubleTree by Hilton Laurel (3) 10,000,000 (3) 5/6/2028 (3) 7.35% DoubleTree by Hilton Philadelphia Airport (4) 38,915,488 None 2/29/2024 30 years SOFR plus 2.27% DoubleTree Resort by Hilton Hollywood Beach (5) 51,495,662 (5) 10/1/2025 30 years 4.91% Georgian Terrace (6) 39,455,095 (6) 6/1/2025 30 years 4.42% Hotel Alba Tampa, Tapestry Collection by Hilton (7) 24,269,200 None 6/30/2025 (7) SOFR plus 2.75% Hotel Ballast Wilmington, Tapestry Collection by Hilton (8) 30,755,374 Yes 1/1/2027 25 years 4.25% Hyatt Centric Arlington (9) 46,454,972 Yes 10/1/2028 30 years 5.25% The Whitehall (10) 14,009,874 None 2/26/2028 25 years PRIME plus 1.25% Total Mortgage Principal Balance 317,354,289 Deferred financing costs, net (1,407,979 ) Unamortized premium on loan 42,884 Total Mortgage Loans, Net $ 315,989,194 (1) The note amortizes on a 25-year schedule after an initial interest-only period of one year and is subject to a pre-payment penalty except for any pre-payments made within 120 days of the maturity date.
(5) With limited exception, the note may not be prepaid prior to June 2025. (6) With limited exception, the note may not be prepaid prior to February 2025.
Subsequent loan amendments have extended the maturity date to April 29, 2024. (5) With limited exception, the note may not be prepaid prior to June 2025. (6) With limited exception, the note may not be prepaid prior to February 2025.
Our net cash provided by operating activities for the year ended December 31, 2022 was approximately $6.7 million, generally consisting of net cash flow provided by hotel operations.
Our net decrease in cash for the year ended December 31, 2023 was approximately $1.1 million, generally consisting of net cash flow used in hotel operations.
Food and beverage revenues at our properties for the year ended December 31, 2021 increased approximately $5.1 million, or 48.3%, to approximately $15.8 million, compared to food and beverage revenues of approximately $10.7 million for the year ended December 31, 2020, with most of our properties experiencing increased demand for food and beverage services as a result of increased occupancy.
Food and beverage revenues at our properties for the year ended December 31, 2023 increased approximately $5.7 million, or 19.2%, to approximately $35.2 million compared to food and beverage revenues of approximately $29.5 million for the year ended December 31, 2022, with most of our properties experiencing increased demand for food and beverage services as a result of increased occupancy as well as an increase in meetings, banqueting and catering.
Net loss for the year ended December 31, 2021 decreased approximately $25.1 million, or 46.8%, to approximately $28.5 million compared to a net loss of approximately $53.7 million for the year ended December 31, 2020, as a result of the operating results discussed above. Distributions to Preferred Stockholders .
Net income for the year ended December 31, 2023 decreased approximately $30.2 million, or 88.8%, to approximately $3.8 million, compared to a net loss of approximately $34.0 million for the year ended December 31, 2022, as a result of the operating results discussed above. Distributions to Preferred Stockholders .
Expenses from other operating departments increased approximately $3.5 million, or 67.4%, to approximately $8.6 million for the year ended December 31, 2021, compared to expenses from other operating departments of approximately $5.1 million for the year ended December 31, 2020.
Expenses from other operating departments decreased approximately $0.3 million, or 2.8%, to approximately $9.0 million for the year ended December 31, 2023, compared to expenses from other operating departments of approximately $9.3 million for the year ended December 31, 2022.
Rooms expense at our properties for the year ended December 31, 2021 increased approximately $7.1 million, or 45.8%, to approximately $22.7 million, compared to rooms expense of approximately $15.6 million for the year ended December 31, 2020.
Rooms expense at our properties for the year ended December 31, 2023 increased approximately $0.4 million, or 1.5%, to approximately $26.2 million compared to rooms expense of approximately $25.8 million for the year ended December 31, 2022.
Certain of our loan agreements also include financial covenants that trigger a “cash trap”, requiring substantially all the revenue generated by the hotel to be deposited directly into a lockbox account and swept into a cash management account for the benefit of the lender until the property meets the criteria in the loan agreement for exiting the “cash trap”.
At December 31, 2023, we failed to meet the financial covenants under the mortgages secured by the DoubleTree Resort by Hilton Hollywood Beach as well as the Georgian Terrace, which trigger “cash traps” under the loan documents, requiring substantially all the revenue generated by the hotel to be deposited directly into a lockbox account and swept into a cash management account for the benefit of the lender until the property meets the criteria in the loan agreement for exiting the “cash trap”.
In addition, as of December 31, 2022, the tax years that remain subject to examination by the major tax jurisdictions to which the MHI TRS Entities are subject, because of open NOL carryforwards, generally include 2014 through 2021.
In addition, as of December 31, 2023, the tax years that remain subject to examination by the major tax jurisdictions to which the MHI TRS Entities are subject, because of open NOL carryforwards, generally include 2017 and 2019 through 2022. 52 The Operating Partnership is generally not subject to federal and state income taxes as the unit holders of the Partnership are subject to tax on their respective shares of the Partnership’s taxable income.
Sources and Uses of Cash Our principal sources of cash are cash from hotel operations, proceeds from the sale of common and preferred stock, proceeds from the sale of secured and unsecured notes, proceeds of mortgage or other debt and hotel property sales.
During the year ended December 31, 2022, we accounted for undeclared distributions to preferred stockholders of approximately $7.6 million, compared to declared and undeclared distributions to preferred stockholders of approximately $7.5 million for the year ended December 31, 2021. 46 Sources and Uses of Cash Our principal sources of cash are cash from hotel operations, proceeds from the sale of common and preferred stock, proceeds from the sale of secured and unsecured notes, proceeds of mortgage or other debt and hotel property sales.
Those factors contributed to an unrealized gain of approximately $1.5 million for the year ended December 31, 2021, compared to an unrealized loss of approximately $1.0 million for the year ended December 31, 2020. Income Tax (Provision) Benefit .
We had an income tax benefit of approximately $0.3 million for the year ended December 31, 2023, compared to an income tax provision of approximately $0.5 million, for the year ended 2022. MHI TRS realized an operating loss for the year ended December 31, 2023 and an operating gain for the year ended December 31, 2022. Net Income.
Inflation We generate revenues primarily from lease payments from our TRS Lessees and net income from the operations of our TRS Lessees. Therefore, we rely primarily on the performance of the individual properties and the ability of the management company to increase revenues and to keep pace with inflation.
Therefore, we rely primarily on the performance of the individual properties and the ability of the management company to increase revenues and to keep pace with inflation. Operators of hotels, in general, possess the ability to adjust room rates daily to keep pace with inflation.
Total revenue for the year ended December 31, 2021 was approximately $127.6 million, an increase of approximately $56.1 million, or 78.4%, from total revenue for the year ended December 31, 2020 of approximately $71.5 million.
Total revenue for the year ended December 31, 2023 was approximately $173.8 million, an increase of approximately $7.8 million, or 4.7%, from total revenue for the year ended December 31, 2022 of approximately $166.0 million.
To the extent not inconsistent with maintaining the Company’s REIT status, our TRS Lessees may retain any after-tax earnings. Distributions to Preferred Stockholders and Holder of Preferred Partnership Units in the Operating Partnership. The Company is obligated to pay distributions to its holders of Preferred Stock and the Operating Partnership is obligated to pay its preferred unit holder, the Company.
To the extent not inconsistent with maintaining the Company’s REIT status, our TRS Lessees may retain any after-tax earnings.
Our cash provided by investing activities for the year ended December 31, 2022 was approximately $46.7 million. Of this amount approximately $10.9 million came from the sale of Sheraton Louisville Riverside property and approximately $41.5 million came from the sale of the DoubleTree by Hilton Raleigh Brownstone University property.
Of this amount approximately $10.9 million came from the sale of Sheraton Louisville Riverside property and approximately $41.5 million came from the sale of the DoubleTree by Hilton Raleigh Brownstone University property and we used approximately $8.0 million on capital expenditures, which was offset by insurance proceeds of approximately $2.2 million.
In addition, we may be required by one or more of our franchisors to complete a property improvement program (“PIP”) in order to bring the hotel up to the franchisor’s standards. Generally, we expect to fund renovations and improvements out of working capital, including restricted cash, proceeds of mortgage debt or equity offerings.
In addition, we may be required by one or more of our franchisors to complete a property improvement program (“PIP”) in order to bring the hotel up to the franchisor’s standards. In October 2024, the DoubleTree by Hilton franchise license on our property in Philadelphia, Pennsylvania expires.
Depreciation and Amortization . Depreciation and amortization for the year ended December 31, 2021 slightly increased by 0.1%, to approximately $19.9 million, compared to depreciation and amortization expense of approximately $19.9 million for the year ended December 31, 2020. Impairment of Investment in Hotel Properties, Net .
Depreciation and Amortization . Depreciation and amortization for the year ended December 31, 2023 increased by approximately $0.1 million or 0.7%, to approximately $18.8 million, compared to depreciation and amortization expense of approximately $18.7 million for the year ended December 31, 2022. Corporate General and Administrative .
(10) The note bears a floating interest rate of New York Prime Rate plus 1.25%, with a floor of 7.50%. 46 Financial Covenants Mortgage Loans Our mortgage loan agreements contain various financial covenants directly related to the financial performance of the collateralized properties.
Financial Covenants Mortgage Loans Our mortgage loan agreements contain various financial covenants directly related to the financial performance of the collateralized properties.
Historically, we have aimed to maintain overall capital expenditures, except for those required by our franchisors as a condition to a franchise license or license renewal, at 4.0% of gross revenue. In early 2020, we postponed all major non-essential capital expenditures in response to the COVID-19 pandemic.
Generally, we expect to fund such renovations and improvements out of working capital, including reserve accounts established by our lenders, and proceeds of mortgage debt or equity offerings. Historically, we have aimed to maintain overall capital expenditures, except for those required by our franchisors as a condition to a franchise license or license renewal, at 4.0% of gross revenue.
On July 11, 2022, we entered into a swap agreement to fix the rate at 5.576%. The swap agreement reflects notional amounts approximate to the declining balance of the loan and we are responsible for any potential termination fees associated with early termination of the swap agreement.
(7) The note bore a floating interest rate of SOFR plus 2.75% subject to a floor rate of 2.75% with monthly principal payments of $40,600. On July 11, 2022, we entered into a swap agreement to fix the rate at 5.576% with notional amounts that approximate to the declining balance of the loan.
As of the date of this report, we were current on all loan payments on all other mortgages per the terms of our mortgage agreements, as amended. We were in compliance with all loan covenants except the Debt Service Coverage Requirement (“DSCR”) covenant under the mortgage secured by The Whitehall and the DoubleTree by Hilton Philadelphia Airport.
We were in compliance with all loan covenants except the Debt Service Coverage Requirement (“DSCR”) covenant under the mortgage secured by the DoubleTree by Hilton Philadelphia Airport. The mortgage was set to mature on October 31, 2023, but was extended to April 29, 2024 pursuant to a series of amendments to the loan agreement.
The preferred stock is not redeemable by the holders, has no maturity date and is not convertible into any other security of the Company or its affiliates, except in the event of a change of control. 47 On January 24, 2023, the Company announced it will resume quarterly distributions to holders of its preferred stock and set a record date of February 28, 2023 and a payment date of March 15, 2023 for the preferred distributions declared in January 2020.
The preferred stock is not redeemable by the holders, has no maturity date and is not convertible into any other security of the Company or its affiliates, except in the event of a change of control. Inflation We generate revenues primarily from lease payments from our TRS Lessees and net income from the operations of our TRS Lessees.
(2) The note is subject to a pre-payment penalty until March 2024. Prepayment can be made without penalty thereafter. (3) The note is subject to an exit fee of 0.75% if prepaid on or after February 5, 2023.
(2) The note is subject to a pre-payment penalty until March 2024. Prepayment can be made without penalty thereafter. (3) The note requires payments of interest only and cannot be prepaid until the last 4 months of the loan term. (4) The note bore a floating interest rate of SOFR plus 2.27%.
The increase in corporate general and administrative expenses was mainly due to fees related to an abandoned debt offering as well as fees to the special servicer of our mortgage on the DoubleTree Resort by Hilton Hollywood Beach. Interest Expense .
The increase in corporate general and administrative expenses was mainly due to an increase in professional fees and compensation expenses offset by reductions in legal and other expenses. Interest Expense .
The increase in hotel operating expenses for the twelve months ended December 31, 2021, is directly related to the significant increase in hotel occupancy and gross revenue at all of our properties.
The aggregate increase of approximately $12.9 million in hotel operating expenses for the twelve months ended December 31, 2023, is directly related to the increase in hotel occupancy and gross revenue at ten of our properties, which was partially offset by approximately $2.4 million, with the sale of the Sheraton Louisville Riverside in February 2022 and the DoubleTree by Hilton Raleigh Brownstone University, in June 2022; and reductions in hotel operating expenses at two properties of approximately $1.1 million.
(4) The note bears a floating interest rate of 1-month LIBOR plus 2.27%, but we entered into a swap agreement to fix the rate at 5.237% through July 31, 2023. Under the swap agreement, notional amounts approximate the declining balance of the loan and we are responsible for any potential termination fees associated with early termination of the swap agreement.
On August 13, 2018, we entered into a swap agreement to fix the rate at 5.237% through July 31, 2023. Notional amounts under the swap agreement approximated the declining balance of the loan. Effective October 29, 2023, the loan agreement was amended to increase the interest rate to SOFR plus 3.50%.
Our properties in Laurel, Maryland, Houston, Texas and Hollywood Beach, Florida experienced decreases in food and beverage revenues collectively totaling approximately $0.5 million. Other operating revenues for the year ended December 31, 2021 increased approximately $11.5 million, or 98.8%, to approximately $23.1 million, compared to other operating revenues for the year ended December 31, 2020 of approximately $11.6 million.
Other operating revenues for the year ended December 31, 2023 decreased approximately $3.1 million, or 11.5%, to approximately $23.9 million compared to other operating revenues for the year ended December 31, 2022 of approximately $27.0 million.
Interest expense for the year ended December 31, 2021 increased approximately $4.6 million, or 25.6%, to approximately $22.7 million compared to approximately $18.1 million of interest expense for the year ended December 31, 2020. Approximately $4.0 million of the increase is related to the Secured Notes issued in December 2020. Unrealized Gain (Loss) on Hedging Activities.
Interest Income. Interest income for the year ended December 31, 2023, increased approximately $0.6 million, or 323.8%, to approximately $0.8 million compared to approximately $0.2 million of interest income for the year ended December 31, 2022.
Indirect expenses at our properties for the year ended December 31, 2021 increased approximately $9.6 million, or 21.1%, to approximately $55.1 million, compared to indirect expenses of approximately $45.5 million for the year ended December 31, 2020. The increase in indirect expenses for the twelve months ended December 31, 2021, related to an expansion of operations to accommodate increased occupancy.
The increase in indirect expenses for the twelve months ended December 31, 2023, resulted from an aggregate increase in total indirect expenses of approximately $6.9 million from ten of our properties, offset by decreases of approximately $1.5 million as a result of the sale of our properties in Jeffersonville, Indiana and Raleigh, North Carolina and two properties with a decrease of approximately $0.6 million.
During the year ended December 31, 2021, we accounted for undeclared distributions to preferred stockholders of approximately $7.5 million, compared to declared and undeclared distributions to preferred stockholders of approximately $8.8 million for the year ended December 31, 2020.
We also paid distributions to preferred stockholders in the amount of approximately $10.0 million. Our cash used in financing activities for the year ended December 31, 2022, was approximately $51.6 million.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs of December 31, 2021, we had approximately $330.0 million of fixed-rate debt, including the mortgage on our DoubleTree by Hilton Philadelphia Airport hotel, which is fixed by an interest rate swap to 5.237%, Secured Notes of $20.0 million with a fixed rate of 6.0%, the PPP Loan of $7.6 million, with a fixed rate of 1.0% and approximately $50.2 million of variable-rate debt.
Biggest changeAs of December 31, 2023, we had approximately $266.0 million of fixed-rate debt, including the mortgage on our Hotel Alba Tampa, Tapestry Collection by Hilton, which is fixed by an interest rate swap to 5.576% and the PPP Loans of $1.5 million, with a fixed rate of 1.0% and approximately $52.9 million of variable-rate debt.
These disclosures are not precise indicators of expected future losses, but only indicators of reasonably possible losses. As a result, actual future results may differ materially from those presented. The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates.
These disclosures are not precise indicators of expected future losses, but only indicators of 54 reasonably possible losses. As a result, actual future results may differ materially from those presented. The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates.
Item 8. Financial Statemen ts and Supplementary Data See Index to Financial Statements and Financial Statement Schedules on page F-1. Item 9. Changes in and Disagreements with Acco untants on Accounting and Financial Disclosure None.
Financial Statemen ts and Supplementary Data See Index to Financial Statements and Financial Statement Schedules on page F-1. Item 9. Changes in and Disagreements with Acco untants on Accounting and Financial Disclosure None.
Assuming that the aggregate amount outstanding on the mortgage on The Whitehall remains at approximately $14.2 million, the balance at December 31, 2022, the impact on our annual interest incurred and cash flows of a one percent increase in 1-month LIBOR, SOFR, and in Prime Rate, would be approximately $0.1 million.
Assuming that the aggregate amount outstanding on the mortgage on The Whitehall remains at approximately $14.2 million, the balance at December 31, 2022, the impact on our annual interest incurred and cash flows of a one percent increase in 1-month LIBOR, SOFR, and in Prime Rate, would be approximately $0.1 million. Item 8.
Our variable-rate debt is exposed to changes in interest rates, specifically the changes in 1-month LIBOR and in Prime Rate.
Our variable-rate debt is exposed to changes in interest rates, specifically the changes in 1-month LIBOR, SOFR, and in Prime Rate.
The 51 weighted-average interest rate on the fixed-rate debt was 4.77%. A change in market interest rates on the fixed portion of our debt would impact the fair value of the debt but have no impact on interest incurred or cash flows.
The weighted-average interest rate on the fixed-rate debt was 4.87%. A change in market interest rates on the fixed portion of our debt would impact the fair value of the debt but have no impact on interest incurred or cash flows.
Assuming that the aggregate amount outstanding on the mortgages on the Hotel Alba, The Whitehall and the DoubleTree by Hilton Raleigh Brownstone-University remains at approximately $50.2 million, the balance at December 31, 2021, the impact on our annual interest incurred and cash flows of a one percent increase in 1-month LIBOR and in Prime Rate, would be approximately $0.2 million.
Assuming that the aggregate amounts outstanding on the mortgage on The Whitehall remains at approximately $14.0 million and the mortgage on the DoubleTree by Hilton Philadelphia Airport remains at approximately $38.9 million, the balance at December 31, 2023, the impact on our annual interest incurred and cash flows of a one percent increase in 1-month SOFR and in Prime Rate, would be approximately $0.4 million.

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