10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2014

SOTHERLY HOTELS INC.

(Exact name of registrant as specified in its charter)

MARYLAND	001-32379	20-1531029
(State or Other Jurisdiction of Incorporation or Organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

SOTHERLY HOTELS LP

(Exact name of registrant as specified in its charter)

DELAWARE	001-36091	20-1965427
(State or Other Jurisdiction of Incorporation or Organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

410 West Francis Street

Williamsburg, Virginia 23185

(757) 229-5648

(Address and Telephone Number of Principal Executive Offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Sotherly Hotels Inc.    Yes  x    No  ¨ Sotherly Hotels LP    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)

Sotherly Hotels Inc.    Yes  x    No  ¨ Sotherly Hotels LP    Yes  x    No  ¨

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

Sotherly Hotels Inc.

Large Accelerated Filer	¨	Accelerated Filer	¨
Non-accelerated Filer	¨	Smaller Reporting Company	x

Sotherly Hotels LP

Large Accelerated Filer	¨	Accelerated Filer	¨
Non-accelerated Filer	x	Smaller Reporting Company	¨

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

Sotherly Hotels Inc.    Yes  ¨    No  x Sotherly Hotels LP    Yes  ¨    No  x

As of May 14, 2014, there were 10,353,677 shares of Sotherly Hotels Inc.’s common stock issued and outstanding.

EXPLANATORY NOTE

We refer to Sotherly Hotels Inc. as the “Company,” Sotherly Hotels LP as the “Operating Partnership,” the Company’s common stock as “Common Stock,” the Company’s preferred stock as “Preferred Stock,” and the Operating Partnership’s preferred interest as the “Preferred Interest.” References to “we” and “our” mean the Company, its Operating Partnership and its subsidiaries and predecessors, collectively, unless the context otherwise requires or where otherwise indicated.

The Company conducts virtually all of its activities through the Operating Partnership and is its sole general partner. The partnership agreement provides that the Operating Partnership will assume and pay when due, or reimburse the Company for payment of, all costs and expenses relating to the ownership and operations of, or for the benefit of, the Operating Partnership. The partnership agreement further provides that all expenses of the Company are deemed to be incurred for the benefit of the Operating Partnership.

This report combines the Quarterly Reports on Form 10-Q for the period ended March 31, 2014 of the Company and the Operating Partnership. We believe combining the quarterly reports into this single report results in the following benefits:

• combined reports better reflect how management and investors view the business as a single operating unit;

• combined reports enhance investors’ understanding of the Company and the Operating Partnership by enabling them to view the business as a whole and in the same manner as management;

• combined reports are more efficient for the Company and the Operating Partnership and result in savings in time, effort and expense; and

• combined reports are more efficient for investors by reducing duplicative disclosure and providing a single document for their review.

To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:

• Consolidated Financial Statements;

• the following Notes to Consolidated Financial Statements:

• Note 8 – Equity; and

• Note 14 – Income (Loss) Per Share and Per Unit;

• Item 4 - Controls and Procedures; and

• Item 6 - Certifications of CEO and CFO Pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act.

2

SOTHERLY HOTELS INC.

SOTHERLY HOTELS LP

INDEX

		Page
	PART I
Item 1.	Financial Statements		4
	Sotherly Hotels Inc.		4
	Consolidated Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013		4
	Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2014 and 2013		5
	Consolidated Statement of Changes in Equity (unaudited) for the Three Months Ended March 31, 2014		6
	Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2014 and 2013		7
	Sotherly Hotels LP		8
	Consolidated Balance Sheets as of March 31, 2014 (unaudited) and December 31, 2013		8
	Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31, 2014 and 2013		9
	Consolidated Statement of Changes in Partners’ Capital (unaudited) for the Three Months Ended March 31, 2014		10
	Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2014 and 2013		11
	Notes to Consolidated Financial Statements		12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		38
Item 4	Controls and Procedures		39
	PART II
Item 1.	Legal Proceedings		40
Item 1A.	Risk Factors		40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		40
Item 3.	Defaults Upon Senior Securities		40
Item 4.	Mine Safety Disclosures		40
Item 5.	Other Information		40
Item 6.	Exhibits		40

3

PART I

Item 1. Financial Statements

SOTHERLY HOTELS INC.

CONSOLIDATED BALANCE SHEETS

	March 31, 2014			December 31, 2013
	(unaudited)
ASSETS
Investment in hotel properties, net	$	262,204,677		$	202,645,633
Investment in joint venture		2,083,590			2,446,039
Cash and cash equivalents		13,008,035			9,376,628
Restricted cash		5,439,820			3,796,141
Accounts receivable, net		3,367,565			1,982,091
Accounts receivable-affiliate		77,692			101,439
Prepaid expenses, inventory and other assets		3,459,365			2,444,975
Shell Island sublease, net		180,147			240,196
Deferred income taxes		1,921,441			1,186,122
Deferred financing costs, net		5,066,625			3,820,838
TOTAL ASSETS	$	296,808,957		$	228,040,102
LIABILITIES
Mortgage loans	$	206,554,064		$	160,363,549
Bridge loan		19,000,000			—
Unsecured notes		27,600,000			27,600,000
Accounts payable and accrued liabilities		9,677,240			7,650,219
Advance deposits		1,573,335			666,758
Dividends and distributions payable		589,851			588,197
TOTAL LIABILITIES		264,994,490			196,868,723
Commitments and contingencies (see Note 6)
EQUITY
Sotherly Hotels Inc. stockholders’ equity
Preferred stock, par value $0.01, 1,000,000 shares authorized, 0 shares issued and outstanding		—			—
Common stock, par value $0.01, 49,000,000 shares authorized, 10,243,677 shares and 10,206,927 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively		102,437			102,069
Additional paid in capital		57,764,370			57,534,113
Distributions in excess of retained earnings		(31,888,880	)		(32,210,917	)
Total Sotherly Hotels Inc. stockholders’ equity		25,977,927			25,425,265
Noncontrolling interest		5,836,540			5,746,114
TOTAL EQUITY		31,814,467			31,171,379
TOTAL LIABILITIES AND EQUITY	$	296,808,957		$	228,040,102

The accompanying notes are an integral part of these financial statements.

4

SOTHERLY HOTELS INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three months ended March 31, 2014			Three months ended March 31, 2013
REVENUE
Rooms department	$	17,453,189		$	14,249,959
Food and beverage department		6,251,683			4,851,571
Other operating departments		1,305,517			1,088,282
Total revenue		25,010,389			20,189,812
EXPENSES
Hotel operating expenses
Rooms department		4,751,526			4,013,733
Food and beverage department		4,070,370			3,224,480
Other operating departments		201,507			106,674
Indirect		9,483,873			7,815,061
Total hotel operating expenses		18,507,276			15,159,948
Depreciation and amortization		2,434,328			2,052,821
Corporate general and administrative		1,307,790			1,093,787
Total operating expenses		22,249,394			18,306,556
NET OPERATING INCOME		2,760,995			1,883,256
Other income (expense)
Interest expense		(2,883,439	)		(2,680,547	)
Interest income		1,889			3,906
Equity income in joint venture		387,550			469,739
Unrealized loss on warrant derivative		—			(2,769,065	)
Net income (loss) before income taxes		266,995			(3,092,711	)
Income tax benefit (provision)		735,319			(263,055	)
Net income (loss)		1,002,314			(3,355,766	)
Add: Net (income)loss attributable to the noncontrolling interest		(219,312	)		760,850
Net income (loss) attributable to the Company	$	783,002		$	(2,594,916	)
Net income (loss) per share attributable to the Company
Basic and diluted	$	0.08		$	(0.26	)
Weighted average number of shares outstanding
Basic and diluted		10,225,710			10,080,375

The accompanying notes are an integral part of these financial statements.

5

SOTHERLY HOTELS INC.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(unaudited)

	Common Stock				Additional Paid- In Capital		Distributions in Excess of Retained Earnings			Noncontrolling Interest			Total
	Shares		Par Value
Balances at December 31, 2013		10,206,927	$	102,069	$	57,534,113	$	(32,210,917	)	$	5,746,114		$	31,171,379
Issuance of unrestricted common stock awards		24,750		248		147,112		—			—			147,360
Issuance of restricted common stock awards		12,000		120		78,165		—			—			78,285
Amortization of restricted stock award		—		—		4,980		—			—			4,980
Dividends and distributions declared		—		—		—		(460,965	)		(128,886	)		(589,851	)
Net income		—		—		—		783,002			219,312			1,002,314
Balances at March 31, 2014		10,243,677	$	102,437	$	57,764,370	$	(31,888,880	)	$	5,836,540		$	31,814,467

The accompanying notes are an integral part of these financial statements.

6

SOTHERLY HOTELS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Three months ended March 31, 2014			Three months ended March 31, 2013
Cash flows from operating activities:
Net income (loss)	$	1,002,314		$	(3,355,766	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		2,434,328			2.052,821
Equity income in joint venture		(387,550	)		(469,739	)
Unrealized loss on warrant derivative		—			2,769,065
Amortization of deferred financing costs		217,815			262,099
Paid-in-kind interest		—			69,641
Charges related to equity-based compensation		230,625			161,500
Changes in assets and liabilities:
Restricted cash		(325,124	)		(242,182	)
Accounts receivable		(920,187	)		(825,869	)
Prepaid expenses, inventory and other assets		(791,190	)		(721,497	)
Deferred income taxes		(735,319	)		261,696
Accounts payable and other accrued liabilities		2,422,817			1,801,480
Advance deposits		441,704			314,709
Accounts receivable - affiliate		23,748			1,552
Net cash provided by operating activities		3,613,981			2,079,510
Cash flows from investing activities:
Acquisition of hotel properties		(61,106,085	)		—
Improvements and additions to hotel properties		(1,322,677	)		(1,101,117	)
Distributions from joint venture		750,000			—
Funding of restricted cash reserves		(656,396	)		(338,538	)
Proceeds of restricted cash reserves		962,499			541,711
Net cash used in investing activities		(61,372,659	)		(897,944	)
Cash flows from financing activities:
Proceeds of mortgage debt		45,600,000			2,225,613
Proceeds of loans		19,000,000			—
Redemption of redeemable preferred stock		—			(1,901,547	)
Dividends and distributions paid		(588,197	)		(389,179	)
Payment of deferred financing costs		(1,712,233	)		(81,501	)
Payments on mortgage debt and loans		(909,485	)		(976,615	)
Net cash provided by (used in) financing activities		61,390,085			(1,123,229	)
Net increase in cash and cash equivalents		3,631,407			58,337
Cash and cash equivalents at the beginning of the period		9,376,628			7,175,716
Cash and cash equivalents at the end of the period	$	13,008,035		$	7,234,053
Supplemental disclosures:
Cash paid during the period for interest	$	2,476,016		$	2,408,593
Cash paid during the period for income taxes	$	23,000		$	33,914
Non-cash investing and financing activities:
Proceeds of mortgage debt contributed to restricted cash reserves	$	1,500,000		$	—

The accompanying notes are an integral part of these financial statements.

7

SOTHERLY HOTELS LP

CONSOLIDATED BALANCE SHEETS

	March 31, 2014		December 31, 2013
	(unaudited)
ASSETS
Investment in hotel properties, net	$	262,204,677	$	202,645,633
Investment in joint venture		2,083,590		2,446,039
Cash and cash equivalents		13,008,035		9,376,628
Restricted cash		5,439,820		3,796,141
Accounts receivable, net		3,367,565		1,982,091
Accounts receivable-affiliate		77,692		101,439
Prepaid expenses, inventory and other assets		3,459,365		2,444,975
Shell Island sublease, net		180,147		240,196
Deferred income taxes		1,921,441		1,186,122
Deferred financing costs, net		5,066,625		3,820,838
TOTAL ASSETS	$	296,808,957	$	228,040,102
LIABILITIES
Mortgage loans	$	206,554,064	$	160,363,549
Bridge loan		19,000,000		—
Unsecured notes		27,600,000		27,600,000
Accounts payable and other accrued liabilities		9,677,240		7,650,219
Advance deposits		1,573,335		666,758
Dividends and distributions payable		589,851		588,197
TOTAL LIABILITIES		264,994,490		196,868,723
Commitments and contingencies (see Note 6)
PARTNERS’ CAPITAL
General Partner: 131,079 and 130,711 units issued and outstanding as of March 31, 2014 and December 31, 2013, respectively		565,202		557,479
Limited Partners: 12,976,725 and 12,940,343 units issued and outstanding as of March 31, 2014 and December 31, 2013, respectively		31,249,265		30,613,900
TOTAL PARTNERS’ CAPITAL		31,814,467		31,171,379
TOTAL LIABILITIES AND PARTNERS’ CAPITAL	$	296,808,957	$	228,040,102

The accompanying notes are an integral part of these financial statements.

8

SOTHERLY HOTELS LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three months ended March 31, 2014			Three months ended March 31, 2013
REVENUE
Rooms department	$	17,453,189		$	14,249,959
Food and beverage department		6,251,683			4,851,571
Other operating departments		1,305,517			1,088,282
Total revenue		25,010,389			20,189,812
EXPENSES
Hotel operating expenses
Rooms department		4,751,526			4,013,733
Food and beverage department		4,070,370			3,224,480
Other operating departments		201,507			106,674
Indirect		9,483,873			7,815,061
Total hotel operating expenses		18,507,276			15,159,948
Depreciation and amortization		2,434,328			2,052,821
Corporate general and administrative		1,307,790			1,093,787
Total operating expenses		22,249,394			18,306,556
NET OPERATING INCOME		2,760,995			1,883,256
Other income (expense)
Interest expense		(2,883,439	)		(2,680,547	)
Interest income		1,889			3,906
Equity income in joint venture		387,550			469,739
Unrealized loss on warrant derivative		—			(2,769,065	)
Net income (loss) before income taxes		266,995			(3,092,711	)
Income tax benefit (provision)		735,319			(263,055	)
Net income (loss)	$	1,002,314		$	(3,355,766	)
Net income (loss) per unit
Basic and diluted	$	0.08		$	(0.26	)
Weighted average number of units outstanding
Basic and diluted		13,089,837			13,035,992

The accompanying notes are an integral part of these financial statements.

9

SOTHERLY HOTELS LP

CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS’ CAPITAL

(unaudited)

	General Partner					Limited Partners					Total
	Units		Amount			Units		Amount
Balances at December 31, 2013		130,711	$	557,479			12,940,343	$	30,613,900		$	31,171,379
Issuance of partnership units		368		2,260			36,382		223,385			225,645
Amortization of restricted units award		—		50			—		4,930			4,980
Distributions declared		—		(4,610	)		—		(585,241	)		(589,851	)
Net income		—		10,023			—		992,291			1,002,314
Balances at March 31, 2014		131,079	$	565,202			12,976,725	$	31,249,265		$	31,814,467

The accompanying notes are an integral part of these financial statements.

10

SOTHERLY HOTELS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Three months ended March 31, 2014			Three months ended March 31, 2013
Cash flows from operating activities:
Net loss	$	1,002,314		$	(3,355,766	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		2,434,328			2.052,821
Equity income in joint venture		(387,550	)		(469,739	)
Unrealized loss on warrant derivative		—			2,769,065
Amortization of deferred financing costs		217,815			262,099
Paid-in-kind interest		—			69,641
Charges related to equity-based compensation		230,625			161,500
Changes in assets and liabilities:
Restricted cash		(325,124	)		(242,182	)
Accounts receivable		(920,187	)		(825,869	)
Prepaid expenses, inventory and other assets		(791,190	)		(721,497	)
Deferred income taxes		(735,319	)		261,696
Accounts payable and other accrued liabilities		2,422,817			1,801,480
Advance deposits		441,704			314,709
Accounts receivable - affiliate		23,748			1,552
Net cash provided by operating activities		3,613,981			2,079,510
Cash flows from investing activities:
Acquisition of hotel properties		(61,106,085	)		—
Improvements and additions to hotel properties		(1,322,677	)		(1,101,117	)
Distributions from joint venture		750,000			—
Funding of restricted cash reserves		(656,396	)		(338,538	)
Proceeds of restricted cash reserves		962,499			541,711
Net cash used in investing activities		(61,372,659	)		(897,944	)
Cash flows from financing activities:
Proceeds of mortgage debt		45,600,000			2,225,613
Proceeds of loans		19,000,000			—
Redemption of Series A Preferred Interest		—			(1,901,547	)
Distributions paid		(588,197	)		(389,179	)
Payment of deferred financing costs		(1,712,233	)		(81,501	)
Payments on mortgage debt and loans		(909,485	)		(976,615	)
Net cash provided by (used in) financing activities		61,390,085			(1,123,229	)
Net increase in cash and cash equivalents		3,631,407			58,337
Cash and cash equivalents at the beginning of the period		9,376,628			7,175,716
Cash and cash equivalents at the end of the period	$	13,008,035		$	7,234,053
Supplemental disclosures:
Cash paid during the period for interest	$	2,476,016		$	2,408,593
Cash paid during the period for income taxes	$	23,000		$	33,914
Non-cash investing and financing activities:
Proceeds of mortgage debt contributed to restricted cash reserves	$	1,500,000		$	—

The accompanying notes are an integral part of these financial statements.

11

SOTHERLY HOTELS INC.

SOTHERLY HOTELS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Organization and Description of Business

Sotherly Hotels Inc., formerly MHI Hospitality Corporation (the “Company”), is a self-managed and self-administered lodging real estate investment trust (“REIT”) that was incorporated in Maryland on August 20, 2004 to own full-service, primarily upscale and upper-upscale hotels located in primary and secondary markets in the Mid-Atlantic and Southern United States. Many of the hotels operate under well-known national hotel brands such as Hilton, Crowne Plaza, Sheraton and Holiday Inn.

The Company commenced operations on December 21, 2004 when it completed its initial public offering and thereafter consummated the acquisition of six hotel properties (the “initial properties”). Substantially all of the Company’s assets are held by, and all of its operations are conducted through, Sotherly Hotels LP, formerly MHI Hospitality, L.P. (the “Operating Partnership”). The Company and the Operating Partnership also own a 25.0% noncontrolling interest in the Crowne Plaza Hollywood Beach Resort through a joint venture with CRP/MHI Holdings, LLC, an affiliate of both Carlyle Realty Partners V, L.P. and The Carlyle Group (“Carlyle”).

Pursuant to the terms of the Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”) of the Operating Partnership, the Company, as general partner, is not entitled to compensation for its services to the Operating Partnership. The Company, as general partner, conducts substantially all of its operations through the Operating Partnership and the Company’s administrative expenses are the obligations of the Operating Partnership. Additionally, the Company is entitled to reimbursement for any expenditure incurred by it on the Operating Partnership’s behalf.

For the Company to qualify as a REIT, it cannot operate hotels. Therefore, the Operating Partnership, which, at March 31, 2014, was approximately 78.1% owned by the Company, and its subsidiaries, lease the hotels to a subsidiary of MHI Hospitality TRS Holding Inc., MHI Hospitality TRS, LLC, (collectively, “MHI TRS”), a wholly-owned subsidiary of the Operating Partnership. MHI TRS then engages an eligible independent hotel management company, MHI Hotels Services, LLC (“MHI Hotels Services”), to operate the hotels under a management contract. MHI TRS is treated as a taxable REIT subsidiary for federal income tax purposes.

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

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

On March 22, 2013, we entered into a First Amendment to the Loan Agreement and other amendments to secure additional proceeds on the original $8.0 million mortgage on the DoubleTree by Hilton Brownstone-University hotel property with our existing lender, Premier Bank, Inc. Pursuant to the amended loan documents, the mortgage loan’s principal amount was increased to $10.0 million, the prepayment penalty was removed and the interest rate was fixed at 5.25%; if the mortgage loan is extended, it will adjust to a rate of 3.00% plus the current 5-year U.S. Treasury bill rate of interest, with an interest rate floor of 5.25%. The remaining original terms of the agreement remained the same.

On March 26, 2013, we used the net proceeds of the mortgage on the DoubleTree by Hilton Brownstone-University to make a special distribution by the Operating Partnership to the Company to redeem 1,902 shares of the Company’s Series A Cumulative Redeemable Preferred Stock (the “Preferred Stock”) for an aggregate redemption price of approximately $2.1 million plus the payment of accrued and unpaid cash and stock dividends.

On June 28, 2013, we entered into an agreement with TowneBank to extend the maturity of the mortgage on the Crowne Plaza Hampton Marina in Hampton, Virginia, until June 30, 2014. Under the terms of the extension, we made a principal payment of approximately $1.1 million to reduce the principal balance on the loan to approximately $6.0 million and are required to continue to make monthly principal payments of $16,000. Interest payable monthly pursuant to the mortgage will remain at a rate of LIBOR plus additional interest of 4.55% and a minimum total rate of interest of 5.00% per annum. Pursuant to certain terms and conditions, we may extend the maturity date of the loan to June 30, 2015.

On August 1, 2013, we obtained a $15.6 million mortgage with CIBC, Inc. on the DoubleTree by Hilton Raleigh Brownstone – University in Raleigh, North Carolina. The mortgage bears interest at a rate of 4.78% and provides for level payments of principal and interest on a monthly basis under a 30-year amortization schedule. The maturity date is August 1, 2018. Approximately $0.7 million of the loan proceeds were placed into a restricted reserve which can be disbursed to us upon satisfaction of certain financial

12

performance criteria. The remaining proceeds of the mortgage were used to repay the existing indebtedness, to pay closing costs, to make a special distribution by the Operating Partnership to the Company to redeem 2,460 shares of Preferred Stock for an aggregate redemption price of approximately $2.7 million plus the payment of accrued and unpaid cash and stock dividends and for working capital. The redemption resulted in a prepayment fee of approximately $0.2 million.

On September 30, 2013, the Operating Partnership issued 8.0% senior unsecured notes (the “Notes”) in the aggregate amount of $27.6 million. The indenture requires quarterly payments of interest and matures on September 30, 2018. The proceeds were used to make a special distribution to the Company to redeem the remaining outstanding shares of Preferred Stock for an aggregate redemption price of approximately $10.7 million plus the payment of accrued and unpaid cash and stock dividends. The redemption resulted in a prepayment fee of approximately $0.7 million.

On October 23, 2013, the Company redeemed a portion of a warrant to purchase 1,900,000 shares of the Company’s common stock (the “Essex Warrant”) from Essex Illiquid, LLC and Richmond Hill Capital Partners, LP (collectively, the “Investors” or “Initial Holders”) corresponding to an aggregate of 900,000 Issuable Warrant Shares (the “First Tranche of Redeemed Warrant Shares”) for an aggregate cash redemption price of $3.2 million. The First Tranche of Redeemed Warrant Shares are no longer Issuable Warrant Shares under the Essex Warrant, and all exercise and other rights of the Initial Holders in respect of the Redeemed Warrant Shares under the Essex Warrant are terminated and extinguished.

Concurrently with the redemption of the 900,000 Issuable Warrant Shares, the Operating Partnership redeemed a portion of a warrant to purchase 1,900,000 units of the Operating Partnership (the “Operating Partnership Warrant”) corresponding to an aggregate of 900,000 Issuable Warrant Units, as defined in the Operating Partnership Warrant, for an aggregate cash redemption price of $3.2 million.

On November 13, 2013, we acquired 100% of the partnership interests of Houston Hotel Associates Limited Partnership, L.L.P., a Virginia limited liability partnership (“HHA”), for aggregate consideration of approximately $30.9 million in cash, the issuance to MHI Hotels, L.L.C., a Virginia limited liability company (“MHI Hotels”), of 32,929 units of limited partnership interests in the Operating Partnership, plus an additional amount for HHA’s working capital as of the closing date. HHA is the sole owner of the entity that indirectly owns the Crowne Plaza Houston Downtown.

On December 23, 2013, the Company redeemed the remaining portion of the Essex Warrant corresponding to an aggregate of 1,000,000 Issuable Warrant Shares (the “Final Tranche of Redeemed Warrant Shares”) for an aggregate cash redemption price of approximately $4.0 million. The Final Tranche of Redeemed Warrant Shares are no longer Issuable Warrant Shares under the Essex Warrant, and all exercise and other rights of the Initial Holders in respect of the Redeemed Warrant Shares under the Essex Warrant are terminated and extinguished.

Concurrently with the redemption of the 1,000,000 Issuable Warrant Shares, the Operating Partnership redeemed a portion of the Operating Partnership Warrant corresponding to an aggregate of 1,000,000 Issuable Warrant Units from the Company for an aggregate cash redemption price of approximately $4.0 million.

On December 27, 2013, through our joint venture with Carlyle, we entered into a credit and security agreement and other loan documents to secure a $57.0 million non-recourse mortgage on the Crowne Plaza Hollywood Beach Resort in Hollywood, Florida with Bank of America, N.A. The proceeds from the loan were used to repay the existing first mortgage, to pay closing costs, and to make a distribution to the joint venture partners. We used approximately $3.5 million of its distribution proceeds to repay its existing loan with Carlyle, and the remainder for general corporate purposes.

On March 26, 2014, we entered into a Note Agreement, Guaranty, and Pledge Agreement to secure a $19.0 million secured loan (the “Bridge Loan”) with Richmond Hill Capital Partners, LP (“Richmond Hill”) and Essex Equity Joint Investment Vehicle, LLC (collectively with Richmond Hill, the “Bridge Lenders”). The Bridge Loan bears interest at the rate of 10.0% per annum and matures on March 26, 2015. The loan also requires mandatory prepayment upon certain events, is subject to a prepayment premium if the loan is prepaid in full or in part prior to maturity and contains limited financial covenants. The loan is secured by a lien on our interest in our subsidiary that owns the Hilton Philadelphia Airport.

On March 27, 2014, we acquired the Georgian Terrace, a 326-room hotel in Atlanta, Georgia for the aggregate purchase price of approximately $61.1 million. Also included in the acquisition was a 698 space parking structure; all personal property and equipment located in or at the hotel; and a separate 0.6 acre development parcel with related development rights and improvements located thereon. In conjunction with the acquisition, we obtained a $41.5 million first mortgage from Bank of the Ozarks, of which $1.5 million of the proceeds was placed in a restricted cash reserve. The mortgage bears a floating rate of interest equal to LIBOR plus 3.75%, with a 4.00% floor and requires monthly payments of principal and interest on a 25-year amortization schedule following a 12-month interest-only period. The mortgage matures on March 27, 2017, but may be extended for two additional 1-year period subject to certain terms and conditions.

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On March 31, 2014, we entered into a First Amendment and other amended loan documents to extend the maturity date and secure additional proceeds of approximately $5.6 million on the original $30.0 million mortgage on the Hilton Philadelphia Airport hotel with its existing lender, TD Bank, N.A. Pursuant to the First Amendment and other amended loan documents, the mortgage continues to bear interest at a rate of LIBOR plus 3.0% with a 3.50% floor, requires monthly payments of principal and interest on an amortization schedule over the remainder of the 25-year period that began with the commencement of the loan in March 2012, and extends the maturity date to April 1, 2019.

As a condition to obtaining the First Amendment to the mortgage on the Hilton Philadelphia Airport hotel, we were required to enter into a license agreement with a national hotel franchise through at least the term of the amended mortgage loan. As such, we entered into a 10-year franchise agreement with Hilton Worldwide and plan to rebrand the Hilton Philadelphia Airport hotel as a DoubleTree by Hilton in November 2014, subject to the completion of certain product improvement requirements.

2. Summary of Significant Accounting Policies

Basis of Presentation – The consolidated financial statements of the Company presented herein include all of the accounts of Sotherly Hotels Inc., the Operating Partnership, MHI TRS and subsidiaries. All significant inter-company balances and transactions have been eliminated. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The consolidated financial statements of the Operating Partnership presented herein include all of the accounts of Sotherly Hotels LP, MHI TRS and subsidiaries. All significant inter-company balances and transactions have been eliminated. Additionally, all administrative expenses of the Company and those expenditures made by the Company on behalf of the Operating Partnership are reflected as the administrative expenses, expenditures and obligations thereto of the Operating Partnership, pursuant to the terms of the Partnership Agreement.

Investment in Hotel Properties – Investments in hotel properties include investments in operating properties which are recorded at acquisition cost and allocated to land, property and equipment and identifiable intangible assets. Replacements and improvements are capitalized, while repairs and maintenance are expensed as incurred. Upon the sale or retirement of a fixed asset, the cost and related accumulated depreciation are removed from our accounts and any resulting gain or loss is included in the statements of operations. Expenditures under a renovation project, which constitute additions or improvements that extend the life of the property, are capitalized.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 7 to 39 years for buildings and building improvements and 3 to 10 years for furniture, fixtures and equipment. Leasehold improvements are amortized over the shorter of the lease term or the useful lives of the related assets.

We review our investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are not limited to, adverse changes in the demand for lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, management performs an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel property exceed its carrying value. If the estimated undiscounted future cash flows are found to be less than the carrying amount of the asset, an adjustment to reduce the carrying amount to the related hotel property’s estimated fair market value would be recorded and an impairment loss recognized.

Investment in Joint Venture – Investment in joint venture represents our noncontrolling indirect 25.0% equity interest in (i) the entity that owns the Crowne Plaza Hollywood Beach Resort and (ii) the entity that leases the hotel and has engaged MHI Hotels Services to operate the hotel under a management contract. Carlyle owns a 75.0% controlling indirect interest in these entities. We account for our investment in the joint venture under the equity method of accounting and are entitled to receive our pro rata share of operating cash flow. We also have the opportunity to earn an incentive participation in the net sale proceeds based upon the achievement of certain overall investment returns, in addition to our pro rata share of net sale proceeds.

Cash and Cash Equivalents – We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Concentration of Credit Risk – We hold cash accounts at several institutions in excess of the Federal Deposit Insurance Corporation (the “FDIC”) protection limits of $250,000. Our exposure to credit loss in the event of the failure of these institutions is represented by the difference between the FDIC protection limit and the total amounts on deposit. Management monitors, on a regular basis, the financial condition of the financial institutions along with the balances there on deposit to minimize our potential risk.

Restricted Cash – Restricted cash includes real estate tax escrows, insurance escrows and reserves for replacements of furniture, fixtures and equipment pursuant to certain requirements in our various mortgage agreements.

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Accounts Receivable – Accounts receivable consists primarily of hotel guest and banqueting receivables. Ongoing evaluations of collectability are performed and an allowance for potential credit losses is provided against the portion of accounts receivable that is estimated to be uncollectible.

Inventories – Inventories, consisting primarily of food and beverages, are stated at the lower of cost or market, with cost determined on a method that approximates first-in, first-out basis.

Franchise License Fees – Fees expended to obtain or renew a franchise license are amortized over the life of the license or renewal. The un-amortized franchise fees as of March 31, 2014 and December 31, 2013 were $261,114 and $196,989, respectively. Amortization expense for the three month period ended March 31, 2014 and 2013, each totaled $10,875, respectively.

Deferred Financing Costs – Deferred financing costs are recorded at cost and consist of loan fees and other costs incurred in issuing debt. Amortization of deferred financing costs is computed using a method that approximates the effective interest method over the term of the related debt and is included in interest expense in the consolidated statements of operations.

Derivative Instruments – Our derivative instruments are reflected as assets or liabilities on the balance sheet and measured at fair value. Derivative instruments used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as an interest rate risk, are considered fair value hedges. Derivative instruments used to hedge exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. For a derivative instrument designated as a cash flow hedge, the change in fair value each period is reported in accumulated other comprehensive income in stockholders’ equity and partners’ capital to the extent the hedge is effective. For a derivative instrument designated as a fair value hedge, the change in fair value each period is reported in earnings along with the change in fair value of the hedged item attributable to the risk being hedged. For a derivative instrument that does not qualify for hedge accounting or is not designated as a hedge, the change in fair value each period is reported in earnings.

We use derivative instruments to add stability to interest expense and to manage our exposure to interest-rate movements. To accomplish this objective, we primarily used an interest-rate swap, which was required under the then-existing credit agreement and acted as a cash flow hedge involving the receipts of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments without exchange of the underlying principal amount. We valued the interest-rate swap at fair value, which we define as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We also use derivative instruments in the Company’s stock to obtain more favorable terms on our financing. We do not enter into contracts to purchase or sell derivative instruments for speculative trading purposes.

Fair Value Measurements –

We classify the inputs used to measure fair value into the following hierarchy:

Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

Level 3 Unobservable inputs for the asset or liability.

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table represents our debt instruments measured at fair value and the basis for that measurement:

	Level 1			Level 2		Level 3
December 31, 2013
Unsecured notes(1)	$	(28,770,240	)	$	—	$	—
March 31, 2014
Unsecured notes(1)	$	(28,814,400	)	$	—	$	—

(1) Unsecured notes are recorded at historical cost on our Consolidated Balance Sheet as of March 31, 2014 and December 31, 2013.

Noncontrolling Interest in Operating Partnership – Certain hotel properties have been acquired, in part, by the Operating Partnership through the issuance of limited partnership units of the Operating Partnership. The noncontrolling interest in the Operating Partnership is: (i) increased or decreased by the limited partners’ pro-rata share of the Operating Partnership’s net income or net loss,

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respectively; (ii) decreased by distributions; (iii) decreased by redemption of partnership units for the Company’s common stock; and (iv) adjusted to equal the net equity of the Operating Partnership multiplied by the limited partners’ ownership percentage immediately after each issuance of units of the Operating Partnership and/or the Company’s common stock through an adjustment to additional paid-in capital. Net income or net loss is allocated to the noncontrolling interest in the Operating Partnership based on the weighted average percentage ownership throughout the period.

Revenue Recognition – Revenues from operations of the hotels are recognized when the services are provided. Revenues consist of room sales, food and beverage sales, and other hotel department revenues, such as telephone, parking, gift shop sales and rentals from restaurant tenants, rooftop leases and gift shop operators. Revenues are reported net of occupancy and other taxes collected from customers and remitted to governmental authorities.

Income Taxes – The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. As a REIT, the Company generally will not be subject to federal income tax. MHI TRS, our wholly owned taxable REIT subsidiary which leases our hotels from subsidiaries of the Operating Partnership, is subject to federal and state income taxes.

We account for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. As of March 31, 2014, 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 March 31, 2014, the tax years that remain subject to examination by the major tax jurisdictions to which the Company is subject generally include the calendar years 2010 through 2013. In addition, as of March 31, 2014, the tax years that remain subject to examination by the major tax jurisdictions to which MHI TRS is subject generally include the calendar years 2004 through 2009.

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.

Stock-based Compensation – The Company’s 2004 Long Term Incentive Plan (the “2004 Plan”) and its 2013 Long-Term Incentive Plan (the “2013 Plan”), which the Company’s stockholders approved in April 2013, permit the grant of stock options, restricted stock and performance share compensation awards to its employees for up to 350,000 and 750,000 shares of common stock, respectively. The Company believes that such awards better align the interests of its employees with those of its stockholders.

Under the 2004 Plan, the Company has made restricted stock and deferred stock awards totaling 337,438 shares including 255,938 shares issued to certain executives and employees and 81,500 restricted shares issued to its independent directors. Of the 255,938 shares issued to certain of our executives and employees, all have vested except for 24,000 shares which were issued to the Chief Financial Officer upon execution of his employment contract. These shares are to vest pro rata on each of the next four anniversaries of the effective date of his employment agreement. All of the 81,500 restricted shares issued to the Company’s independent directors have vested.

Under the 2013 Plan, the Company has made issuances totaling 36,750 shares, consisting of 24,000 non-restricted shares issued to certain executives and 12,000 restricted shares and 750 non-restricted shares issued to its independent directors. All of the restricted shares will vest at the end of 2014.

The value of the awards is charged to compensation expense on a straight-line basis over the vesting or service period based on the Company’s stock price on the date of grant or issuance. Previously, under the 2004 Plan, and currently, under the 2013 Plan, the Company may issue a variety of performance-based stock awards, including nonqualified stock options. As of March 31, 2014, no performance-based stock awards have been granted. Consequently, stock-based compensation as determined under the fair-value method would be the same under the intrinsic-value method. Total compensation cost recognized under the 2004 Plan and 2013 Plan for the three months ended March 31, 2014 and 2013 was $19,571 and $21,958, respectively.

Comprehensive Income (Loss) – Comprehensive income (loss) includes all changes in equity (net assets) during a period from non-owner sources. We do not have any items of comprehensive income (loss) other than net income (loss).

Segment Information – We have determined that our business is conducted in one reportable segment: hotel ownership.

Use of Estimates – The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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Reclassifications – Certain reclassifications have been made to the prior period balances to conform to the current period presentation.

New Accounting Pronouncements – There are no recent accounting pronouncements which we believe will have a material impact on our consolidated financial statements.

3. Acquisition of Hotel Properties

Georgian Terrace Acquisition. On March 27, 2014, we acquired the 326-room Georgian Terrace in Atlanta, Georgia, for approximately $61.1 million. The preliminary allocation of the purchase price based on fair values is as follows:

	Georgian Terrace
Land and land improvements	$	10,127,687
Buildings and improvements		45,385,939
Furniture, fixtures and equipment		5,163,135
Investment in hotel properties		60,676,761
Restricted cash		124,658
Accounts receivable		465,287
Prepaid expenses, inventory and other assets		430,997
Accounts payable and accrued liabilities		(591,618	)
Net cash	$	61,106,085

The results of operations of the hotel are included in our consolidated financial statements from the date of acquisition. The total revenue and net loss related to the acquisition for the period March 27, 2014 to March 31, 2014 are approximately $333,000 and $172,000, respectively. The following pro forma financial information presents the results of operations of the Company and the Operating Partnership for the three months ended March 31, 2014 and 2013 as if the acquisitions of the Georgian Terrace and the Crown Plaza Houston Downtown had taken place on January 1, 2013. The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually occurred had the transaction taken place on January 1, 2013, or of future results of operations:

	Three months ended
	March 31, 2014		March 31, 2013
	(unaudited)		(unaudited)
Pro forma revenues	$	29,781,052	$	28,456,030
Pro forma operating expenses		26,644,824		26,150,225
Pro forma operating income		3,136,228		2,305,805
Pro forma net income (loss)		268,146		(3,302,747	)
Pro forma earnings (loss) per basic and diluted share and unit		0.03		(0.33	)
Pro forma basic and diluted common shares		10,225,710		10,080,375

4. Investment in Hotel Properties

Investment in hotel properties as of March 31, 2014 and December 31, 2013 consisted of the following:

	March 31, 2014			December 31, 2013
	(unaudited)
Land and land improvements	$	37,083,998		$	26,956,311
Buildings and improvements		252,101,033			206,101,663
Furniture, fixtures and equipment		35,321,580			29,829,908
		324,506,611			262,887,882
Less: accumulated depreciation and impairment		(62,301,934	)		(60,242,249	)
	$	262,204,677		$	202,645,633

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5. Debt

Mortgage Debt. As of March 31, 2014 and December 31, 2013, we had approximately $206.6 million and approximately $160.4 million of outstanding mortgage debt, respectively. The following table sets forth our mortgage debt obligations on our hotels.

	Balance Outstanding as of				Prepayment Penalties	Maturity Date			Amortization Provisions			Interest Rate
Property	March 31, 2014		December 31, 2013
Crowne Plaza Hampton Marina	$	5,855,500	$	5,903,500	None		06/30/2014	(1)	$	16,000	(2)		LIBOR plus 4.55	%(3)
Crowne Plaza Houston Downtown		21,308,666		21,428,258	Yes(4)		04/12/2016	(5)		25 years			4.50	%
Crowne Plaza Jacksonville Riverfront		13,656,527		13,756,209	None		07/10/2015	(6)		25 years			LIBOR plus 3.00	%
Crowne Plaza Tampa Westshore		13,530,331		13,602,701	None		06/18/2017			25 years			5.60	%
DoubleTree by Hilton Brownstone – University		15,465,974		15,525,626	(7)		08/01/2018			30 years			4.78	%
Georgian Terrace		41,500,000		—	Yes(8)		03/27/2017	(14)		25 years			LIBOR plus 3.75	%(13)
Hilton Philadelphia Airport		34,130,509		28,731,151	None		04/01/2019			25 years			LIBOR plus 3.00	%(9)
Hilton Savannah DeSoto		21,465,771		21,546,423	Yes(10)		08/01/2017			25 years			6.06	%
Hilton Wilmington Riverside		20,789,664		20,919,030	Yes(10)		04/01/2017			25 years			6.21	%
Holiday Inn Laurel West		7,099,558		7,141,845	Yes(11)		08/05/2021			25 years			5.25	%(12)
Sheraton Louisville Riverside		11,751,564		11,808,806	(7)		01/06/2017			25 years			6.24	%
Total	$	206,554,064	$	160,363,549

(1) The note provides that the mortgage can be extended until June 2015 if certain conditions have been satisfied.

(2) The Operating Partnership is required to make monthly principal payments of $16,000.

(3) The note bears a minimum interest rate of 5.00%.

(4) The note may not be prepaid during the first two years of the term.

(5) The note provides that the mortgage can be extended until November 2018 if certain conditions have been satisfied.

(6) The note provides that the mortgage can be extended until July 2016 if certain conditions have been satisfied.

(7) With limited exception, the note may not be prepaid until two months before maturity.

(8) The note is subject to a prepayment penalty if the loan is prepaid in full or in part prior to March 26, 2015.

(9) The note bears a minimum interest rate of 3.50%.

(10) The notes may not be prepaid during the first six years of the terms. Prepayment can be made with penalty thereafter until 90 days before maturity.

(11) Pre-payment can be made with penalty until 180 days before the fifth anniversary of the commencement date of the loan or from such date until 180 days before the maturity.

(12) The note provides that after five years, the rate of interest will adjust to a rate of 3.00% per annum plus the then-current five-year U.S. Treasury rate of interest, with a floor of 5.25%.

(13) The note bears a minimum interest rate of 4.00%.

(14) The note provides that the mortgage can be extended through the fourth and fifth anniversary of the commencement date of the loan, or March 27, 2018 and March 27, 2019, respectively, subject to certain conditions.

We were in compliance with all debt covenants, current on all loan payments and not otherwise in default under any of our mortgage loans, as of March 31, 2014.

Total future mortgage debt maturities, without respect to any extension of loan maturity, as of March 31, 2014 were as follows:

The remaining nine month period ending December 31, 2014	$	8,671,252
December 31, 2015		17,441,142
December 31, 2016		24,401,632
December 31, 2017		104,801,938
December 31, 2018		15,850,414
December 31, 2019 and thereafter		35,387,686
Total future maturities	$	206,554,064

Unsecured Notes. On September 30, 2013, the Operating Partnership issued 8.0% senior unsecured notes in the aggregate amount of $27.6 million. The indenture requires quarterly payments of interest and matures on September 30, 2018. The Notes are callable after September 30, 2016 at 101% of face value.

Bridge Financing. On March 26, 2014, we entered into a Note Agreement, Guaranty, and Pledge Agreement to secure a $19.0 million secured Bridge Loan with the Bridge Lenders. The Bridge Loan has a maturity date of March 26, 2015; carries a fixed interest rate of 10.0% per annum; is subject to a prepayment premium if the loan is prepaid in full or in part prior to March 26, 2015; requires mandatory prepayment upon certain events; contains limited financial covenants; and is secured by a lien on 100% of the limited partnership interests in the subsidiary that owns the Hilton Philadelphia Airport hotel. The outstanding balance on the Bridge Loan at March 31, 2014 and December 31, 2013 was $19.0 million and $0.0 million, respectively.

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6. Preferred Stock, Preferred Interest and Warrants

Preferred Stock and Preferred Interest. On April 18, 2011, the Company completed a private placement to the Investors pursuant to the Securities Purchase Agreement for gross proceeds of $25.0 million. The Company issued 25,000 shares of Preferred Stock and the Essex Warrant to purchase 1,900,000 shares of the Company’s common stock, par value $0.01 per share.

The Company designated a class of preferred stock, the Preferred Stock, consisting of 27,650 shares with $0.01 par value per share, having a liquidation preference of $1,000.00 per share pursuant to Articles Supplementary (the “Articles Supplementary”), which sets forth the preferences, rights and restrictions for the Preferred Stock. The Preferred Stock is non-voting and non-convertible. The holders of the Preferred Stock had a right to payment of a cumulative dividend payable quarterly (i) in cash at an annual rate of 10.0% of the liquidation preference per share and (ii) in additional shares of Preferred Stock at an annual rate of 2.0% of the liquidation preference per share. As set forth in the Articles Supplementary, the holder(s) of the Company’s Preferred Stock had the exclusive right, voting separately as a single class, to elect one (1) member of the Company’s board of directors. In addition, under certain circumstances as set forth in the Articles Supplementary, the holder(s) of the Company’s Preferred Stock were entitled to appoint a majority of the members of the Company’s board of directors. The holder(s) of the Company’s Preferred Stock were entitled to require that the Company redeem the Preferred Stock under certain circumstances, but no later than April 18, 2016, and on such terms and at such price as is set forth in the Articles Supplementary.

Concurrently with the issuance of the Preferred Stock, the Operating Partnership issued the Preferred Interest to the Company in an amount equivalent to the proceeds of the Preferred Stock received by the general partner pursuant to the terms of the Partnership Agreement. The Partnership Agreement also authorizes the general partner to make special distributions to the Company related to its Preferred Interest for the sole purpose of fulfilling the Company’s obligations with respect to the Preferred Stock. In addition, the Operating Partnership issued the Operating Partnership Warrant to purchase 1,900,000 partnership units at an amount equal to the consideration received by the Company upon exercise of the Essex Warrant, as amended.

On March 26, 2013, we used the net proceeds of an expansion of the mortgage on the DoubleTree by Hilton Brownstone-University to make a special distribution by the Operating Partnership to the Company to redeem 1,902 shares of Preferred Stock for an aggregate redemption price of approximately $2.1 million plus the payment of related accrued and unpaid cash and stock dividends. The redemption resulted in a prepayment fee of approximately $0.2 million. In addition, approximately $0.1 million in unamortized issuance costs related to the redeemed shares were written off.

On August 1, 2013, we used the net proceeds of a new mortgage on the DoubleTree by Hilton Brownstone-University to make a special distribution by the Operating Partnership to the Company to redeem 2,460 shares of Preferred Stock for an aggregate redemption price of approximately $2.7 million plus the payment of related accrued and unpaid cash and stock dividends. The redemption resulted in a prepayment fee of approximately $0.2 million. In addition, approximately $0.1 million in unamortized issuance costs related to the redeemed shares were written off.

On September 30, 2013, we used a portion of the proceeds of the Notes offering to make a special distribution by the Operating Partnership to the Company to redeem the remaining outstanding shares of Preferred Stock for an aggregate redemption price of approximately $10.7 million plus the payment of related accrued and unpaid cash and stock dividends. The redemption resulted in a prepayment fee of approximately $0.7 million. In addition, approximately $0.4 million in unamortized issuance costs related to the redeemed shares were written off.

As of March 31, 2014 and December 31, 2013, there were no shares of the Preferred Stock issued and outstanding.

As of March 31, 2014 and December 31, 2013, there was no redemption value in the Preferred Interest.

Warrants. The Essex Warrant, as modified, entitled the holder(s) to purchase up to 1,900,000 shares of the Company’s common stock at an exercise price of $2.25 per share. Pursuant to an amendment to the Essex Warrant, the exercise price per share of common stock covered by the Essex Warrant could have adjusted from time to time in the event of payment of cash dividends to holders of common stock by deducting from such exercise price the per-share amount of such cash dividends. Such adjustment could not take into account dividends declared prior to January 1, 2012.

Concurrently with the issuance of the Essex Warrant, the Operating Partnership issued the Operating Partnership Warrant to the Company. Under the terms of the Operating Partnership Warrant, the Company was obligated to exercise the Operating Partnership Warrant immediately and concurrently if at any time the Essex Warrant was exercised by its holders. In that event, the Operating Partnership would have issued an equivalent number of partnership units and would have been entitled to receive the proceeds received by the Company upon exercise of the Essex Warrant.

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On October 23, 2013, the Company redeemed the First Tranche of Redeemed Warrant Shares for an aggregate cash redemption price of $3.2 million. The First Tranche of Redeemed Warrant Shares are no longer Issuable Warrant Shares under the Essex Warrant, and all exercise and other rights of the Initial Holders in respect of the Redeemed Warrant Shares under the Essex Warrant are terminated and extinguished.

Concurrently with the redemption of the 900,000 Issuable Warrant Shares, the Operating Partnership redeemed 900,000 Issuable Warrant Units, as defined in the Operating Partnership Warrant, for an aggregate cash redemption price of $3.2 million.

On December 23, 2013, the Company redeemed the Final Tranche of Redeemed Warrant Shares for an aggregate cash redemption price of approximately $4.0 million. The Final Tranche of Redeemed Warrant Shares are no longer Issuable Warrant Shares under the Essex Warrant, and all exercise and other rights of the Initial Holders in respect of the Redeemed Warrant Shares under the Essex Warrant are terminated and extinguished.

Concurrently with the redemption of the 1,000,000 Issuable Warrant Shares, the Operating Partnership redeemed 1,000,000 Issuable Warrant Units, as defined in the Operating Partnership Warrant, for an aggregate cash redemption price of approximately $4.0 million. The redeemed warrant units are no longer Issuable Warrant Units under the Operating Partnership Warrant, and all rights under the Operating Partnership Warrant are terminated and extinguished.

On the date of issuance, we determined the fair market value of the Essex Warrant was approximately $1.6 million using the Black-Scholes option pricing model assuming an exercise price of $2.25 per share of common stock, a risk-free interest rate of 2.26%, a dividend yield of 5.00%, expected volatility of 60.0%, and an expected term of 5.5 years. The fair market value is included in deferred financing costs. The deferred cost was amortized to interest expense in the accompanying consolidated statement of operations over the period of issuance to the mandatory redemption date of the Preferred Stock.

7. Commitments and Contingencies

Ground, Building and Submerged Land Leases – We lease 2,086 square feet of commercial space next to the Savannah hotel property for use as an office, retail or conference space, or for any related or ancillary purposes for the hotel and/or atrium space. In December 2007, we signed an amendment to the lease to include rights to the outdoor esplanade adjacent to the leased commercial space. The areas are leased under a six-year operating lease, which expired October 31, 2006 and has been renewed for the second of three optional five-year renewal periods expiring October 31, 2011, October 31, 2016 and October 31, 2021, respectively. Rent expense for this operating lease for the three months ended March 31, 2014 and 2013 was $15,866 and $16,756, respectively.

We lease, as landlord, the entire fourteenth floor of the Hilton Savannah DeSoto to The Chatham Club, Inc. under a ninety-nine year lease expiring July 31, 2086. This lease was assumed upon the purchase of the building under the terms and conditions agreed to by the previous owner of the property. No rental income is recognized under the terms of this lease as the original lump sum rent payment of $990 was received by the previous owner and not prorated over the life of the lease.

We lease a parking lot adjacent to the DoubleTree by Hilton Brownstone-University in Raleigh, North Carolina. The land is leased under a second amendment, dated April 28, 1998, to a ground lease originally dated May 25, 1966. The original lease is a 50-year operating lease, which expires August 31, 2016. We exercised a renewal option for the first of three additional ten-year periods expiring August 31, 2026, August 31, 2036, and August 31, 2046, respectively. We hold an exclusive and irrevocable option to purchase the leased land at fair market value at the end of the original lease term, subject to the payment of an annual fee of $9,000, and other conditions. Rent expense for the three months ended March 31, 2014 and 2013, each totaled $23,871.

We lease land adjacent to the Crowne Plaza Tampa Westshore for use as parking under a five-year agreement with the Florida Department of Transportation that commenced in July 2009 and expires in July 2014. The agreement requires annual payments of $2,432, plus tax, and may be renewed for an additional five years. Rent expense for the three months ended March 31, 2014 and 2013, each totaled $651.

We lease certain submerged land in the Saint Johns River in front of the Crowne Plaza Jacksonville Riverfront from the Board of Trustees of the Internal Improvement Trust Fund of the State of Florida. The submerged land was leased under a five-year operating lease requiring annual payments of $4,961, which expired September 18, 2012. A new operating lease was executed requiring annual payments of $6,020 and expires September 18, 2017. Rent expense for the three months ended March 31, 2014 and 2013, each totaled $1,505.

We lease 4,836 square feet of commercial office space in Williamsburg, Virginia under an agreement, as amended, that commenced September 1, 2009 and expires August 31, 2018. Rent expense totaled $17,015 and $13,750 for the three month period ended March 31, 2014 and 2013, respectively.

We lease 1,632 square feet of commercial office space in Rockville, Maryland under an agreement that commenced December 14, 2009 and expires February 28, 2017. The agreement requires monthly payments at an annual rate of $22,848 for the first year of

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the lease term and monthly payments at an annual rate of $45,696 for the second year of the lease term, increasing 2.75% per year for the remainder of the lease term. Rent expense totaled $12,253 and $11,108 for the three months ended March 31, 2014 and 2013, respectively.

We also lease certain furniture and equipment under financing arrangements expiring between February 2014 and March 2017.

A schedule of minimum future lease payments for the following twelve-month periods is as follows:

The remaining nine month period ending December 31, 2014	$	312,155
December 31, 2015		361,081
December 31, 2016		324,723
December 31, 2017		196,436
December 31, 2018		158,721
December 31, 2019 and thereafter		732,092
Total	$	2,085,208

Management Agreements – At March 31, 2014, each of our wholly-owned operating hotels, except for the Crowne Plaza Tampa Westshore, the Crowne Plaza Houston Downtown and the Georgian Terrace, are operated under a master management agreement with MHI Hotels Services that expires between December 2014 and April 2018. We entered into separate management agreements with MHI Hotels Services for the management of the Crowne Plaza Tampa Westshore that expires in March 2019 and for management of the Georgian Terrace that expires in March 2024. We also assumed the existing agreement for management of the Crowne Plaza Houston Downtown upon purchase of the hotel in November 2013, which expires in April 2016 (see Note 9).

Franchise Agreements – As of March 31, 2014, many of our hotels operate under franchise licenses from national hotel companies. Under the franchise agreements, we are required to pay a franchise fee generally between 2.5% and 5.0% of room revenues, plus additional fees for marketing, central reservation systems, and other franchisor programs and services that amount to between 2.5% and 6.0% of room revenues from the hotels. The franchise agreements currently expire between October 2014 and April 2023.

Restricted Cash Reserves – Each month, we are required to escrow with the lenders on the Hilton Wilmington Riverside, the Hilton Savannah DeSoto, the DoubleTree by Hilton Brownstone-University, the Sheraton Louisville Riverside and the Georgian Terrace an amount equal to ¹/₁₂ of the annual real estate taxes due for the properties. We are also required by several of our lenders to establish individual property improvement funds to cover the cost of replacing capital assets at our properties. Each month, those contributions equal 4.0% of gross revenues for the Hilton Savannah DeSoto, the Hilton Wilmington Riverside, the Sheraton Louisville Riverside, DoubleTree by Hilton Raleigh Brownstone–University, Crowne Plaza Houston Downtown, the Crowne Plaza Hampton Marina and the Georgian Terrace and equal 4.0% of room revenues for the Hilton Philadelphia Airport.

Litigation – We are not involved in any material litigation, nor, to our knowledge, is any material litigation threatened against us. We are involved in routine litigation arising out of the ordinary course of business, all of which we expect to be covered by insurance and none of which is expected to have a material impact on our financial condition or results of operations.

8. Equity

Preferred Stock – The Company has authorized 1,000,000 shares of preferred stock, of which 27,650 shares were issued as Series A Cumulative Redeemable Preferred Stock, as described above, and subsequently redeemed in 2013. None of the remaining authorized shares have been issued.

Common Stock – The Company is authorized to issue up to 49,000,000 shares of common stock, $0.01 par value per share. Each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of stockholders. Holders of the Company’s common stock are entitled to receive distributions when authorized by the Company’s board of directors out of assets legally available for the payment of distributions.

The following is a schedule of issuances, since January 1, 2013, of the Company’s common stock:

On February 14, 2014, the Company was issued 36,750 units in the Operating Partnership and awarded an aggregate of 24,000 shares of unrestricted stock to certain executives as well as 12,000 shares of restricted stock and 750 share of unrestricted stock to certain of its independent directors.

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On August 14, 2013, one holder of units in the Operating Partnership redeemed 50,000 units for an equivalent number of shares of the Company’s common stock.

On April 1, 2013, one holder of units in the Operating Partnership redeemed 31,641 units for an equivalent number of shares of the Company’s common stock.

On March 1, 2013, one holder of units in the Operating Partnership redeemed 50,000 units for an equivalent number of shares of the Company’s common stock.

On January 25, 2013, the Company was issued 45,500 units in the Operating Partnership and awarded an aggregate of 30,500 shares of unrestricted stock to certain executives and employees as well as 15,000 shares of restricted stock to certain of its independent directors.

On January 1, 2013, the Company was issued 30,000 units in the Operating Partnership and granted 30,000 restricted shares to its Chief Financial Officer in accordance with the terms of his employment contract.

As of March 31, 2014 and December 31, 2013, the Company had 10,243,677 and 10,206,927 shares of common stock outstanding, respectively.

Operating Partnership Units – Holders of Operating Partnership units, other than the Company as general partner, have certain redemption rights, which enable them to cause the Operating Partnership to redeem their units in exchange for shares of the Company’s common stock on a one-for-one basis or, at the option of the Company, cash per unit equal to the average of the market price of the Company’s common stock for the 10 trading days immediately preceding the notice date of such redemption. The number of shares issuable upon exercise of the redemption rights will be adjusted upon the occurrence of stock splits, mergers, consolidations or similar pro-rata share transactions, which otherwise would have the effect of diluting the ownership interests of the limited partners or the stockholders of the Company.

The following is a schedule of issuances and redemptions, since January 1, 2013, of units in the Operating Partnership in addition to the issuances of units in the Operating Partnership to the Company described above:

On November 13, 2013, the Operating Partnership issued 32,929 limited partnership units in conjunction with the purchase of the partnership interests in HHA, which is the sole owner of the Crowne Plaza Houston Downtown.

On April 1, 2013, the Company redeemed 10,000 units in the Operating Partnership held by a trust controlled by two members of the Company’s board of directors for a total of $32,900 pursuant to the terms of the partnership agreement.

As of March 31, 2014 and December 31, 2013, the total number of Operating Partnership units outstanding was 13,107,804 and 13,071,054, respectively.

As of each March 31, 2014 and December 31, 2013, the total number of outstanding Operating Partnership units not owned by the Company was 2,864,127, with a fair market value of approximately $18.2 million and approximately $17.0 million, respectively, based on the price per share of the common stock on such respective dates.

9. Related Party Transactions

MHI Hotels Services. As of March 31, 2014, the members of MHI Hotels Services (a company that is majority-owned and controlled by the Company’s chief executive officer, its former chief financial officer as well as a current member of its board of directors and a former member of its board of directors) owned approximately 10.7% of the Company’s outstanding common stock and 1,752,958 Operating Partnership units. The following is a summary of the transactions with MHI Hotels Services:

Accounts Receivable – We were due $77,692 and $101,439 from MHI Hotels Services at March 31, 2014 and December 31, 2013, respectively.

Shell Island Sublease – We have a sublease arrangement with MHI Hotels Services on its expired leasehold interests in the Shell Island Resort in Wrightsville Beach, North Carolina. Leasehold revenue was $87,500 for each of the three month periods ended March 31, 2014 and 2013. The underlying leases at Shell Island expired on December 31, 2011.

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Strategic Alliance Agreement – On December 21, 2004, we entered into a ten-year strategic alliance agreement with MHI Hotels Services that provides in part for the referral of acquisition opportunities to us and the management of our hotels by MHI Hotels Services.

Management Agreements – Each of the operating hotels that we wholly-owned at March 31, 2014 and December 31, 2013, except for the Crowne Plaza Tampa Westshore, the Crowne Plaza Houston Downtown and the Georgian Terrace, are operated by MHI Hotels Services under a master management agreement that expires between December 2014 and April 2018. We entered into separate management agreements with MHI Hotels Services for the management of the Crowne Plaza Tampa Westshore that expires in March 2019 and for the management of the Georgian Terrace that expires in March 2024. We assumed an existing management agreement for the Crowne Plaza Houston Downtown when we acquired the property in November 2013, which expires in April 2016. Pursuant to the sale of the Holiday Inn Downtown in Williamsburg, Virginia, one of the hotels initially contributed to the Company and the Operating Partnership upon their formation, MHI Hotels Services has agreed that the property in Jeffersonville, Indiana shall be substituted for the Williamsburg property under the master management agreement.

Under the master management agreement as well as the management agreement for the Crowne Plaza Tampa Westshore, MHI Hotels Services receives a base management fee. The base management fee for any hotel is 2.0% of gross revenues for the first full fiscal year and partial fiscal year from the commencement date through December 31 of that year, 2.5% of gross revenues the second full fiscal year, and 3.0% of gross revenues for every year thereafter. Under the management agreements for the Crowne Plaza Houston and the Georgian Terrace, MHI Hotels Services receives a base management fee of 2.0% of gross revenues.

The incentive management fee under the master management agreement is due annually in arrears within 90 days of the end of the fiscal year and will be equal to 10.0% of the amount by which the gross operating profit of the hotels, on an aggregate basis, for a given year exceeds the gross operating profit for the same hotels, on an aggregate basis, for the prior year. The incentive management fee may not exceed 0.25% of gross revenues of all of the hotels included in the incentive fee calculation. The management agreements for the Crowne Plaza Tampa Westshore and the Georgian Terrace include a similar provision for the payment of an incentive management fee on a stand-alone basis.

The management agreement for the Georgian Terrace also provides for an administrative fee of $30,000 per year for as long as the adjacent parking garage is managed by a third party.

Base management and administrative fees earned by MHI Hotels Services totaled $687,562 and $600,615 for the three months ended March 31, 2014 and 2013, respectively. In addition, estimated incentive management fees of $7,272 and $34,594 were accrued for the three months ended March 31, 2014 and 2013, respectively.

Employee Medical Benefits – We purchase employee medical benefits through Maryland Hospitality, Inc. (d/b/a MHI Health), an affiliate of MHI Hotels Services, for our employees, as well as those employees that are employed by MHI Hotels Services that work exclusively for our hotel properties. Gross premiums for employee medical benefits paid by the Company (before offset of employee co-payments) were $814,801 and $650,999 for the three months ended March 31, 2014 and 2013, respectively.

Redemption of Units in Operating Partnership. During 2013, 2012 and 2011, the Company redeemed a total of 24,600 units in the Operating Partnership held by a trust controlled by two current members and one former member of the Company’s board of directors for a total of $76,230 pursuant to the terms of the Partnership Agreement.

Issuance of Units in Operating Partnership. In connection with the acquisition of the Crowne Plaza Houston Downtown Hotel in November 2013, we purchased from MHI Hotels its 1.0% limited partnership interest in HHA, the entity that owns the property, in exchange for 32,929 units of limited partnership interests in the Company’s operating partnership valued at $153,636 pursuant to an exchange agreement entered into between the Operating Partnership and MHI Hotels. The indirect equity owners of MHI Hotels include the Company’s chief executive officer, Andrew M. Sims, and a member of the Company’s board of directors, Kim E. Sims.

Holders of the Preferred Stock and Essex Warrant. As set forth in the Articles Supplementary, the holders of Preferred Stock, Essex Illiquid, LLC and Richmond Hill Capital Partners, LLC, were entitled to elect one (1) member of the Company’s board of directors. The member of the board of directors elected by the holders of Preferred Stock holds executive positions in Essex Equity Capital Management, LLC, an affiliate of Essex Illiquid, LLC, as well as Richmond Hill Capital Partners, LLC.

On March 26, 2013, we used the net proceeds of an expansion of the mortgage on the DoubleTree by Hilton Brownstone-University to make a special distribution by the Operating Partnership to the Company to redeem 1,902 shares of Preferred Stock for an aggregate redemption price of approximately $2.1 million plus the payment of related accrued and unpaid cash and stock dividends. The redemption resulted in a prepayment fee of approximately $0.2 million.

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On August 1, 2013, we used the net proceeds of a new mortgage on the DoubleTree by Hilton Brownstone-University to make a special distribution by the Operating Partnership to the Company to redeem 2,460 shares of Preferred Stock for an aggregate redemption price of approximately $2.7 million plus the payment of related accrued and unpaid cash and stock dividends. The redemption resulted in a prepayment fee of approximately $0.2 million.

On September 30, 2013, we used a portion of the proceeds of the Notes offering to make a special distribution by the Operating Partnership to the Company to redeem the remaining outstanding shares of Preferred Stock for an aggregate redemption price of approximately $10.7 million plus the payment of related accrued and unpaid cash and stock dividends. The redemption resulted in a prepayment fee of approximately $0.7 million.

Essex Warrant Redemptions. On October 23, 2013, the Company entered into an agreement to redeem the First Tranche of Redeemed Warrant Shares for an aggregate cash redemption price of $3.2 million. The First Tranche of Redeemed Warrant Shares are no longer Issuable Warrant Shares under the Essex Warrant, and all exercise and other rights of the Initial Holders in respect of the Redeemed Warrant Shares under the Essex Warrant were terminated and extinguished.

On December 23, 2013, the Company entered into an agreement to redeem the Final Tranche of Redeemed Warrant Shares for an aggregate cash redemption price of approximately $4.0 million. The Final Tranche of Redeemed Warrant Shares are no longer Issuable Warrant Shares under the Essex Warrant, and all exercise and other rights of the Initial Holders in respect of the Redeemed Warrant Shares under the Essex Warrant were terminated and extinguished.

Bridge Lenders. A former member of the Company’s board of directors holds executive positions in Essex Equity Capital Management, LLC, an affiliate of Essex Equity joint Investment Vehicle, LLC as well as Richmond Hill Capital Partners, LP. On March 26, 2014, we entered into a Note Agreement, Guaranty, and Pledge Agreement to secure a $19.0 million secured Bridge Loan with the Richmond Hill Capital Partners, LP and Essex Equity Joint Investment Vehicle, LLC. The Bridge Loan has a maturity date of March 26, 2015; carries a fixed interest rate of 10.0% per annum; is subject to a prepayment premium if the loan is prepaid in full or in part prior to March 26, 2015; requires mandatory prepayment upon certain events; contains limited financial covenants; and is secured by a lien on 100% of the limited partnership interests in the subsidiary that owns the Hilton Philadelphia Airport hotel.

Others. In June 2013, we hired Ashley S. Kirkland, the daughter of our Chief Executive Officer as a legal analyst and Robert E. Kirkland IV, her husband, as our compliance officer. Compensation for the three months ended March 31, 2014 totaled $32,330 for both individuals.

10. Retirement Plan

We maintain a 401(k) plan for qualified employees which is subject to “safe harbor” provisions and which requires that we match 100.0% of the first 3.0% of employee contributions and 50.0% of the next 2.0% of employee contributions. All employer matching funds vest immediately in accordance with the “safe harbor” provision. Contributions to the plan totaled $10,087 and $13,593 for the three months ended March 31, 2014 and 2013, respectively.

11. Unconsolidated Joint Venture

We own a 25.0% indirect interest in (i) the entity that owns the Crowne Plaza Hollywood Beach Resort and (ii) the entity that leases the hotel and has engaged MHI Hotels Services to operate the hotel under a management contract. Carlyle owns a 75.0% indirect controlling interest in all these entities. The joint venture purchased the property on August 8, 2007 and began operations on September 18, 2007. Summarized financial information for this investment, which is accounted for under the equity method, is as follows:

	March 31, 2014		December 31, 2013
ASSETS
Investment in hotel property, net	$	63,905,234	$	64,449,892
Cash and cash equivalents		2,047,195		2,896,841
Restricted cash		475,839		—
Accounts receivable, net		250,811		251,587
Prepaid expenses, inventory and other assets		1,590,675		1,335,472
TOTAL ASSETS	$	68,269,754	$	68,933,792
LIABILITIES
Mortgage loan, net	$	57,000,000	$	57,000,000
Accounts payable and other accrued liabilities		2,222,134		1,869,476
Advance deposits		713,441		280,339
TOTAL LIABILITIES		59,935,575		59,149,815
TOTAL MEMBERS’ EQUITY		8,334,179		9,783,977
TOTAL LIABILITIES AND MEMBERS’ EQUITY	$	68,269,754	$	68,933,792

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	Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
Revenue
Rooms department	$	5,207,846		$	5,135,187
Food and beverage department		878,212			751,772
Other operating departments		343,246			401,224
Total revenue		6,429,304			6,288,183
Expenses
Hotel operating expenses
Rooms department		867,823			866,163
Food and beverage department		632,017			538,076
Other operating departments		162,567			140,745
Indirect		1,879,085			1,963,395
Total hotel operating expenses		3,541,492			3,508,379
Depreciation and amortization		554,736			540,405
General and administrative		136,711			37,461
Total operating expenses		4,232,939			4,086,245
Operating income		2,196,365			2,201,938
Interest expense		(646,163	)		(432,274	)
Unrealized gain on hedging activities		—			109,294
Net income	$	1,550,202		$	1,878,958

12. Indirect Hotel Operating Expenses

Indirect hotel operating expenses consists of the following expenses incurred by the hotels:

	Three months ended March 31, 2014		Three months ended March 31, 2013
	(unaudited)		(unaudited)
General and administrative	$	2,020,998	$	1,655,194
Sales and marketing		2,091,222		1,737,032
Repairs and maintenance		1,328,515		1,091,909
Utilities		1,201,014		988,034
Franchise fees		884,305		693,405
Management fees, including incentive		694,834		635,208
Insurance		469,190		361,301
Property taxes		741,345		597,329
Other		52,450		55,649
Total indirect hotel operating expenses	$	9,483,873	$	7,815,061

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13. Income Taxes

The components of the income tax provision for the three months ended March 31, 2014 and 2013 are as follows:

	Three months ended March 31, 2014			Three months ended March 31, 2013
	(unaudited)			(unaudited)
Current:
Federal	$	—		$	33,101
State		23,000			813
		23,000			33,914
Deferred:
Federal		(732,189	)		125,786
State		(26,130	)		103,355
		(758,319	)		229,141
	$	(735,319	)	$	263,055

A reconciliation of the statutory federal income tax (benefit) provision to the Company’s income tax provision is as follows:

	Three months ended March 31, 2014			Three months ended March 31, 2013
	(unaudited)			(unaudited)
Statutory federal income tax expense (benefit)	$	90,778		$	(1,051,522	)
Effect of non-taxable REIT (income) loss		(822,967	)		1,210,409
State income tax (benefit) provision		(3,130	)		104,168
	$	(735,319	)	$	263,055

As of March 31, 2014 and December 31, 2013, we had a net deferred tax asset of approximately $1.9 million and $1.2 million, respectively, of which, approximately $1.4 million and $0.7 million, respectively, are due to accumulated net operating losses. These loss carryforwards will begin to expire in 2028 if not utilized by such time. As of each March 31, 2014 and December 31, 2013, approximately $0.3 million of the net deferred tax asset is attributable to our share of start-up expenses related to the Crowne Plaza Hollywood Beach Resort, start-up expenses related to the opening of the Sheraton Louisville Riverside and the Crowne Plaza Tampa Westshore that were not deductible in the year incurred, but are being amortized over 15 years. The remainder of the net deferred tax asset is attributable to year-to-year timing differences including accrued, but not deductible, employee performance awards, vacation and sick pay, bad debt allowance and depreciation. We believe that it is more likely than not that the deferred tax asset will be realized and that no valuation allowance is required.

14. Income (Loss) Per Share and Per Unit

Income (Loss) per Share. The limited partners’ outstanding limited partnership units in the Operating Partnership (which may be redeemed for common stock upon notice from the limited partners and following our election to redeem the units for stock rather than cash) have been excluded from the diluted earnings per share calculation as there would be no effect on the amounts since the limited partners’ share of income would also be added back to net income (loss). The computation of basic and diluted earnings per share is presented below.

	Three months ended March 31, 2014		Three months ended March 31, 2013
	(unaudited)		(unaudited)
Numerator
Net income (loss) attributable to the Company for basic and dilutive computation	$	783,002	$	(2,594,916	)
Denominator
Weighted average number of common shares outstanding		10,225,710		10,080,375
Basic and diluted net income (loss) per share	$	0.08	$	(0.26	)

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Income (Loss) Per Unit – The computation of basic and diluted loss per unit is presented below.

	Three months ended March 31, 2014		Three months ended March 31, 2013
	(unaudited)		(unaudited)
Numerator
Net income (loss)	$	1,002,314	$	(3,355,766	)
Denominator
Weighted average number of units outstanding		13,089,837		13,035,992
Basic and diluted net income (loss) per unit	$	0.08	$	(0.26	)

15. Subsequent Events

On April 1, 2014, two holders of units in the Operating Partnership redeemed a total of 110,000 units for an equivalent number of shares of the Company’s common stock.

On April 11, 2014, we paid a quarterly dividend (distribution) of $0.045 per common share (and unit) to those stockholders (and unitholders of the Operating Partnership) of record on March 14, 2014.

On April 21, 2014, we authorized payment of a quarterly dividend (distribution) of $0.050 per common share (and unit) to the stockholders (and unitholders of the Operating Partnership) of record as of June 13, 2014. The dividend (distribution) is to be paid on July 11, 2014.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Sotherly Hotels Inc. is a self-managed and self-administered lodging REIT incorporated in Maryland in August 2004 to pursue opportunities in the full-service, primarily upscale and upper-upscale segments of the hotel industry located in primary and secondary markets in the Mid-Atlantic and Southern United States. Substantially all of the assets of Sotherly Hotels Inc. are held by, and all of its operations are conducted through, Sotherly Hotels LP, formerly MHI Hospitality, L.P. We commenced operations in December 2004 when we completed our initial public offering and thereafter consummated the acquisition of the initial properties.

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Our hotel portfolio currently consists of twelve full-service, primarily upscale and upper-upscale hotels, with 3,009 rooms which primarily operate under well-known brands such as Hilton, Crowne Plaza, Sheraton and Holiday Inn. Eleven of these hotels, totaling 2,698 rooms, are 100% owned by subsidiaries of the Operating Partnership. We also own a 25.0% indirect noncontrolling interest in the Crowne Plaza Hollywood Beach Resort through a joint venture with Carlyle. As of March 31, 2014, we owned the following hotel properties:

Property	Number of Rooms		Location	Date of Acquisition	Chain Designation
Wholly-owned
Crowne Plaza Hampton Marina		173	Hampton, VA	April 24, 2008	Upscale
Crowne Plaza Houston Downtown		259	Houston, TX	November 13, 2013	Upscale
Crowne Plaza Jacksonville Riverfront		292	Jacksonville, FL	July 22, 2005	Upscale
Crowne Plaza Tampa Westshore		222	Tampa, FL	October 29, 2007	Upscale
DoubleTree by Hilton Brownstone-University		190	Raleigh, NC	December 21, 2004	Upscale
Georgian Terrace		326	Atlanta, GA	March 27, 2014	Independent
Hilton Philadelphia Airport		331	Philadelphia, PA	December 21, 2004	Upper Upscale
Hilton Savannah DeSoto		246	Savannah, GA	December 21, 2004	Upper Upscale
Hilton Wilmington Riverside		272	Wilmington, NC	December 21, 2004	Upper Upscale
Holiday Inn Laurel West		207	Laurel, MD	December 21, 2004	Upper Mid-Scale
Sheraton Louisville Riverside		180	Jeffersonville, IN	September 20, 2006	Upper Upscale
		2,698
Joint Venture Property
Crowne Plaza Hollywood Beach Resort(1)		311	Hollywood, FL	August 9, 2007	Upscale
Total		3,009

(1) We own this hotel through a joint venture in which we have a 25.0% interest.

We conduct substantially all our business through our Operating Partnership. We are the sole general partner of our Operating Partnership, and we own an approximate 79.0% interest in our Operating Partnership, with the remaining interest being held by limited partners who were the contributors of our initial properties and related assets.

To qualify as a REIT, we cannot operate hotels. Therefore, our wholly-owned hotel properties are leased to MHI Hospitality TRS, LLC (our “TRS Lessee”), which then engages an eligible independent hotel management company to operate the hotels under a management contract. Our TRS Lessee has engaged MHI Hotels Services to manage our wholly-owned hotels. Our TRS Lessee, and its parent, MHI Hospitality TRS Holding, Inc., are consolidated into our financial statements for accounting purposes. The earnings of MHI Hospitality TRS Holding, Inc. are subject to taxation similar to other C corporations.

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. There are three key performance indicators used in the hotel industry to measure room revenues:

• Occupancy, or the number of rooms sold, usually expressed as a percentage of total rooms available;

• Average daily rate, or ADR, which is total room revenue divided by the number of rooms sold; and

• Revenue per available room, or RevPAR, which is total room revenue divided by the total number of available rooms.

RevPAR changes that are primarily driven by changes in occupancy have different implications for overall revenues and profitability than changes that are driven primarily by changes in ADR. For example, an increase in occupancy at a hotel would lead to additional variable operating costs (such as housekeeping services, laundry, utilities and room supplies), but could also result in increased non-room revenue from the hotel’s restaurant, banquet or parking facilities. Changes in RevPAR that are primarily driven by changes in ADR typically have a greater impact on operating margins and profitability as they do not generate all of the additional variable operating costs associated with higher occupancy.

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Results of Operations

The following tables illustrate the key operating metrics for each of the three months ended March 31, 2014 and 2013 for our wholly-owned properties during each respective reporting period (“actual” properties) as well as the key operating metrics for the nine wholly-owned properties that were under our control during all of 2013 and the three months ended March 31, 2014 (“same-store” properties). Accordingly, the same-store data does not reflect the performance of the Crowne Plaza Houston Downtown, which was acquired in November 2013, or the Georgian Terrace, which was acquired in March 2014. Each table excludes performance data for the Crowne Plaza Hollywood Beach Resort, which was acquired through a joint venture and in which we have a 25.0% indirect interest.

	Three months ended March 31, 2014			Three months ended March 31, 2013
Actual Portfolio Metrics
Occupancy %		67.3	%		65.6	%
ADR	$	120.60		$	114.19
RevPAR	$	81.14		$	74.93
Same-Store Portfolio Metrics
Occupancy %		65.7	%		65.6	%
ADR	$	116.93		$	114.19
RevPAR	$	76.81		$	74.93

Comparison of the Three Months Ended March 31, 2014 to the Three Months Ended March 31, 2013

Revenue. Total revenue for the three months ended March 31, 2014 increased approximately $4.8 million, or 23.9%, to approximately $25.0 million compared to total revenue of approximately $20.2 million for the three months ended March 31, 2013. Increases in revenue at our properties in Savannah, Georgia; Raleigh, North Carolina; Philadelphia, Pennsylvania; Jacksonville, Florida; Jeffersonville, Indiana; Tampa, Florida, Hampton, Virginia; plus the newly acquired properties in Houston, Texas and Atlanta, Georgia, were offset by decreases in revenue at the two remaining properties.

Room revenue increased approximately $3.3 million, or 22.5%, to approximately $17.5 million for the three months ended March 31, 2014 compared to room revenue of approximately $14.2 million for the three months ended March 31, 2013. The increase in room revenue for the three months ended March 31, 2014 resulted mainly from the acquired properties in Houston, Texas and Atlanta, Georgia, accounting for an increase of approximately $2.8 million for the period. In addition, favorable results from our same-store properties reflected a 0.1% increase in occupancy, a 2.4% increase in ADR and a 2.5% increase in RevPAR, as compared to the same period in 2013. Our property in Raleigh, North Carolina continues to experience a significant increase as a result of the rebranding to a DoubleTree by Hilton. Our properties in Savannah, Georgia; Philadelphia, Pennsylvania; Jacksonville, Florida; and Tampa, Florida also experienced a significant increase in room revenue, offset by decreases at our properties in Wilmington, North Carolina and Laurel, Maryland.

Food and beverage revenues increased approximately $1.4 million, or 28.9%, to approximately $6.3 million for the three months ended March 31, 2014 compared to food and beverage revenues of approximately $4.9 million for the three months ended March 31, 2013. The increase in food and beverage revenues for the three months ended March 31, 2014 resulted principally from our recently acquired properties in Houston, Texas and Atlanta, Georgia, accounting for an increase of approximately $1.2 million for the period. Additional increases in food and beverage revenue at our properties in; Savannah, Georgia; Philadelphia, Pennsylvania; Laurel, Maryland; Tampa, Florida; Hampton, Virginia and Jacksonville, Florida were offset by decreases in banqueting revenue at our other properties.

Revenue from other operating departments increased approximately $0.2 million, or 20.0%, to approximately $1.3 million for the three months ended March 31, 2014 compared to revenue from other operating departments of approximately $1.1 million for the three months ended March 31, 2013.

Hotel Operating Expenses. Hotel operating expenses, which consist of room expenses, food and beverage expenses, other direct expenses, indirect expenses and management fees, were approximately $18.5 million for the three months ended March 31, 2014, an increase of approximately $3.3 million, or 22.1%, compared to total hotel operating expenses of approximately $15.2 million for the three months ended March 31, 2013. The increase in hotel operating expenses for the three months ended March 31, 2014 was substantially related to our recently acquired properties in Houston, Texas and Atlanta, Georgia, accounting for an increase of approximately $3.7 million in expenses for the three months ended March 31, 2014, offset by a decrease in hotel operating expenses at our same-store properties of approximately $0.4 million compared to the three months ended March 31, 2013.

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Rooms expense for the three months ended March 31, 2014 increased approximately $0.8 million, or 18.4%, to approximately $4.8 million compared to rooms expense for the three months ended March 31, 2013 of approximately $4.0 million. The increase in rooms expense for the three months ended March 31, 2014 was substantially related to our recently acquired properties in Houston, Texas and Atlanta, Georgia, accounting for approximately $0.7 million of the increase.

Food and beverage expenses for the three months ended March 31, 2014 increased approximately $0.8 million, or 26.2%, to approximately $4.1 million compared to food and beverage expenses of approximately $3.2 million for the three months ended March 31, 2013. The increase in food and beverage expenses for the three months ended March 31, 2014 was substantially related to our recently acquired properties in Houston, Texas and Atlanta, Georgia, which accounted for approximately $0.7 million of the increase.

Indirect expenses at our wholly-owned properties for the three months ended March 31, 2014 increased approximately $1.7 million, or 21.4%, to approximately $9.5 million compared to indirect expenses of approximately $7.8 million for the three months ended March 31, 2013. The increase in indirect expenses for the three months ended March 31, 2014 was substantially related to our recently acquired properties in Houston, Texas and Atlanta, Georgia, accounting for an increase of approximately $2.2 million in indirect expenses for the three months ended March 31, 2014, offset by a decrease in indirect expenses at our same-store properties of approximately $0.5 million compared to the three months ended March 31, 2013.

Depreciation and Amortization. Depreciation and amortization expense for the three months ended March 31, 2014 increased approximately $0.4 million, or 18.6%, to $2.4 million compared to depreciation and amortization of approximately $2.0 million for the three months ended March 31, 2013. The increase was mostly attributable to depreciation and amortization related to our property in Houston, Texas, which we acquired in November 2013.

Corporate General and Administrative. Corporate general and administrative expenses for the three months ended March 31, 2014 increased approximately $0.2 million, or 19.6%, to approximately $1.3 million compared to general and administrative expenses of approximately $1.1 million for the three months ended March 31, 2013. Except for the costs associated with the acquisition of the Georgian Terrace, corporate general and administrative expenses would have increased approximately $0.1 million, or 5.4%, to approximately $1.2 million.

Interest Expense. Interest expense for the three months ended March 31, 2014 increased approximately $0.2 million, or 7.6%, to approximately $2.9 million compared to interest expense of approximately $2.7 million for the three months ended March 31, 2013. The increase in interest expense for the three months ended March 31, 2014 was substantially related to our recently acquired properties in Houston, Texas, accounting for approximately $0.2 million of the increase.

Equity Income in Joint Venture. Equity income in joint venture for the three months ended March 31, 2014 represents our 25.0% share of the net income of the Crowne Plaza Hollywood Beach Resort. For the three months ended March 31, 2014, we realized net income of approximately $0.4 million related to our 25.0% interest compared to net income of approximately $0.5 million for the three months ended March 31, 2013. For the three months ended March 31, 2014, the hotel reported occupancy of 89.6%, ADR of $207.62 and RevPAR of $186.06. This compares with results reported by the hotel for the three months ended March 31, 2013 of occupancy of 88.6%, ADR of $207.01 and RevPAR of $183.47.

Unrealized Loss on Warrant Derivative. There was no warrant derivative for the three months ended March 31, 2014 compared to an unrealized loss of approximately $2.8 million for the three months ended March 31, 2013.

Income Taxes. We had an income tax benefit of approximately $0.7 million for the three months ended March 31, 2014 compared to an income tax provision of approximately $0.3 million for the three months ended March 31, 2013. The income tax benefit (provision) is primarily derived from the operations of our TRS Lessee. Our TRS Lessee realized greater operating loss for the three months ended March 31, 2014 compared to the three months ended March 31, 2013.

Net Income (Loss). We realized net income for the three months ended March 31, 2014 of approximately $1.0 million compared to total a net loss of approximately $3.4 million for the three months ended March 31, 2013 as a result of the operating results discussed above.

Non-GAAP Financial Measures

We consider FFO, Adjusted FFO and Hotel EBITDA, all of which are non-GAAP financial measures, to be key supplemental measures of our performance and could be considered along with, not alternatives to, net income (loss) as a measure of our performance. These measures do not represent cash generated from operating activities determined by generally accepted accounting principles (“GAAP”) or amounts available for our discretionary use and should not be considered alternative measures of net income, cash flows from operations or any other operating performance measure prescribed by GAAP.

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

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

We further adjust FFO for certain additional items that are not in NAREIT’s definition of FFO, including any unrealized gain (loss) on its hedging instruments or warrant derivative, loan impairment losses, losses on early extinguishment of debt, aborted offering costs, costs associated with the departure of executive officers and acquisition transaction costs. We exclude these items as we believe it allows for meaningful comparisons between periods and among other REITs and is more indicative of the on-going performance of our business and assets. Our calculation of Adjusted FFO may be different from similar measures calculated by other REITs.

The following is a reconciliation of net loss to FFO and Adjusted FFO for the three months ended March 31, 2014 and 2013:

	Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
Net income (loss)	$	1,002,314		$	(3,355,766	)
Depreciation and amortization		2,434,328			2,052,821
Equity in depreciation and amortization of joint venture		138,684			135,101
FFO	$	3,575,326		$	(1,167,844	)
Unrealized gain on hedging activities(1)		—			(27,323	)
Unrealized loss on warrant derivative		—			2,769,065
(Increase)/decrease in deferred income taxes		(735,319	)		261,696
Acquisition costs		155,187			—
Loss on early extinguishment of debt(2)		—			337,136
Adjusted FFO	$	2,995,194		$	2,172,730

(1) Includes equity in unrealized loss on hedging activities of joint venture.

(2) Reflected in interest expense for the periods presented above.

Hotel EBITDA. We define Hotel EBITDA as net income or loss excluding: (1) interest expense, (2) interest income, (3) equity in the income or loss of equity investees, (4) unrealized gains and losses on derivative instruments not included in other comprehensive income, (5) gains and losses on disposal of assets, (6) realized gains and losses on investments, (7) impairment of long-lived assets or investments, (8) corporate general and administrative expense; (9) depreciation and amortization; and (10) other operating revenue not related to our wholly-owned portfolio. We believe this provides a more complete understanding of the operating results over which our wholly-owned hotels and its operators have direct control. We believe Hotel EBITDA provides investors with supplemental information on the on-going operational performance of our hotels and the effectiveness of third-party management companies operating our business on a property-level basis.

Our calculation of Hotel EBITDA may be different from similar measures calculated by other REITs.

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The following is a reconciliation of net loss to Hotel EBITDA for the three months ended March 31, 2014 and 2013:

	Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
Net income (loss)	$	1,002,314		$	(3,355,766	)
Interest expense		2,883,439			2,680,547
Interest income		(1,889	)		(3,906	)
Income tax (benefit) provision		(735,319	)		263,055
Depreciation and amortization		2,434,328			2,052,821
Equity in earnings of joint venture		(387,550	)		(469,739	)
Unrealized loss on warrant derivative		—			2,769,065
Corporate general and administrative		1,307,790			1,093,787
Net lease rental income		(87,500	)		(87,500	)
Other fee income		(96,440	)		(94,323	)
Hotel EBITDA	$	6,319,173		$	4,848,041

Sources and Uses of Cash

Operating Activities. Our principal source of cash to meet our operating requirements, including distributions to unitholders and stockholders as well as debt service (excluding debt maturities), is the operations of our hotels. Cash flow provided by operating activities for the three months ended March 31, 2014 was approximately $3.6 million. We expect that cash on hand and the net cash provided by operations will be adequate to fund our continuing operations, monthly and quarterly scheduled payments of principal and interest (excluding any balloon payments due upon maturity of a debt) and the payment of dividends (distributions) to the Company’s stockholders (and unitholders of the Operating Partnership) in accordance with federal income tax laws which require us to make annual distributions to the Company’s stockholders of at least 90% of its REIT taxable income (determined without regard to the dividends-paid deduction and by excluding its net capital gains, and reduced by certain non-cash items).

Investing Activities. In March 2014, we spent approximately $61.1 million to acquire the Georgian Terrace. We also spent approximately $1.3 million during the three months ended March 31, 2014 on capital expenditures, of which, approximately $0.7 million related to the routine replacement of furniture, fixtures and equipment and $0.6 million related to renovation of our properties in Philadelphia, Pennsylvania and Jacksonville, Florida. We also contributed approximately $0.7 million during the three months ended March 31, 2014 into reserves required by the lenders for seven of our hotels according to the provisions of their respective loan agreements. During the three months ended March 31, 2014, we received reimbursements from those reserves of approximately $1.0 million for capital expenditures related to those properties for periods ending on or before December 31, 2013.

Financing Activities. On March 26, 2014, we borrowed $19.0 million from Richmond Hill Capital Partners, LP and Essex Equity Joint Investment Vehicle, LLC and used the net proceeds to fund a portion of the acquisition of the Georgian Terrace.

On March 27, 2014, we borrowed $41.5 million in conjunction with the purchase of the Georgian Terrace, of which $1.5 million was contributed to a restricted reserve.

On March 31, 2014, we entered into a First Amendment and other amended loan documents to secure additional proceeds in conjunction with a $5.6 million expansion of the existing mortgage on the Hilton Philadelphia Airport.

Capital Expenditures

We anticipate that our need for recurring capital expenditures for the replacement and refurbishment of furniture, fixtures and equipment over the next 12 to 24 months will be at or lower than historical norms for our properties and the industry. 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. We expect capital expenditures of $2.5 million for 2014 related to the anticipated relicensing in October 2014 of the Hilton Philadelphia Airport as a DoubleTree by Hilton as well as an anticipated relicensing of the Crowne Plaza Jacksonville no later than April 2016. We also anticipate capital expenditures of approximately $1.0 million at our property in Houston, Texas other than for the recurring replacement of furniture, fixtures and equipment. Lastly, we also anticipate capital expenditures of approximately $1.5 million for our property in Atlanta, Georgia, other than for the recurring replacement of furniture, fixtures and equipment, the funds for which were contributed into a restricted reserve out of the proceeds of the mortgage.

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Given our desire to proceed with the renovation activities at our properties in Philadelphia, Pennsylvania; Jacksonville, Florida; Houston, Texas and Atlanta, Georgia, we aim to restrict all other capital expenditures to the replacement of broken or damaged furniture and equipment and the acquisition of items mandated by our licensors that are necessary to maintain our brand affiliations. We anticipate that capital expenditures for the replacement and refurbishment of furniture, fixtures and equipment that are not related to these renovation activities to total 2.50% to 3.00% of gross revenues in 2014.

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. Reserve accounts are escrowed accounts with funds deposited monthly and reserved for capital improvements or expenditures with respect to all of our hotels. We currently deposit an amount equal to 4.0% of gross revenue for the Hilton Savannah DeSoto, the Hilton Wilmington Riverside, the Crowne Plaza Hampton Marina, the DoubleTree by Hilton Raleigh Brownstone-University, the Sheraton Louisville Riverside, the Crowne Plaza Houston Downtown and the Georgian Terrace as well as 4.0% of room revenues for the Hilton Philadelphia Airport on a monthly basis.

Liquidity and Capital Resources

As of March 31, 2014, we had total cash of approximately $18.4 million, of which approximately $13.0 million was in cash and cash equivalents and approximately $5.4 million was restricted for real estate taxes, insurance, capital improvement and certain other expenses, or otherwise restricted. We expect that our cash on hand combined with our cash flow from the operations of our hotels should be adequate to fund continuing operations, recurring capital expenditures for the refurbishment and replacement of furniture, fixtures and equipment, and monthly and quarterly scheduled payments of principal and interest (excluding any balloon payments due upon maturity of a debt).

On March 31, 2014, the Company entered into a First Amendment and other amended loan documents to extend the maturity date and secure additional proceeds on the original $30.0 million mortgage on the Hilton Philadelphia Airport with its existing lender, TD Bank, N.A. Pursuant to the First Amendment and other amended loan documents, the principal balance of the mortgage was increased by $5.6 million to approximately $34.1 million and the maturity extended to April 1, 2019, with no prepayment penalty.

In June 2014, the mortgage on the Crowne Plaza Hampton Marina matures. We intend to extend the maturity to June 2015 pursuant to the terms and conditions of the mortgage. Pursuant to those terms, we anticipate that we may be required to reduce the mortgage balance by an amount up to $1.0 million. We intend to draw upon working capital to secure the extension.

We will need to, and plan to, renew, replace or extend our long-term indebtedness prior to their respective maturity dates. We are uncertain whether we will be able to refinance these obligations or if refinancing terms will be favorable. If we are unable to obtain alternative or additional financing arrangements in the future, or if we cannot obtain financing on acceptable terms, we may be forced to dispose of hotel properties on disadvantageous terms. To the extent we cannot repay our outstanding debt, we risk losing some or all of these properties to foreclosure and we could be required to invoke insolvency proceedings including, but not limited to, commencing a voluntary case under the U.S. Bankruptcy Code.

We believe there will be more opportunities to acquire properties in the future that meet our strategic goals and provide attractive long term returns. Given the potential for attractive acquisitions emerging from the recent economic downturn, we intend to pursue the acquisition of wholly-owned properties, additional and permissible joint venture investments as well as equity or debt financing in the future to enable us to take advantage of such opportunities. However, should additional and permissible joint venture transactions and equity or debt financing not be available on acceptable terms, we may not be able to take advantage of such opportunities.

Beyond the funding of any required principal reduction on our existing indebtedness or acquisitions, our medium and long-term needs will generally include the repayment of the Notes and the retirement of maturing mortgage debt. In addition, we will be required to repay the Bridge Financing which matures in March 2015. We remain committed to a flexible capital structure. Accordingly, we expect to meet these needs through a combination of some or all of the following:

• The issuance of additional shares of preferred stock;

• The issuance of additional shares of our common stock;

• The issuance of senior, unsecured debt;

• The issuance of additional units in the Operating Partnership;

• The incurrence by the subsidiaries of the Operating Partnership of mortgage indebtedness in connection with the acquisition or refinancing of hotel properties;

• The selective disposition of core or non-core assets;

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• The sale or contribution of some of our wholly-owned properties, development projects or development land to strategic joint ventures to be formed with unrelated investors, which would have the net effect of generating additional capital through such sale or contribution; or

• The issuance by the Operating Partnership and/or subsidiary entities of secured and unsecured debt securities.

Financial Covenants

Mortgage Loans

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.

If we violate the financial covenants contained in these agreements, we may attempt to negotiate waivers of the violations or amend the terms of the applicable mortgage loan agreement with the lender; however, we can make no assurance that we would be successful in any such negotiation or that, if successful in obtaining waivers or amendments, such waivers or amendments would be on attractive terms. Some mortgage loan agreements provide alternate cure provisions which may allow us to otherwise comply with the financial covenants by obtaining an appraisal of the hotel, prepaying a portion of the outstanding indebtedness or by providing cash collateral until such time as the financial covenants are met by the collateralized property without consideration of the cash collateral. Alternate cure provisions which include prepaying a portion of the outstanding indebtedness or providing cash collateral may have a material impact on our liquidity.

If we are unable to negotiate a waiver or amendment or satisfy alternate cure provisions, if any, or unable to meet any alternate cure requirements and a default were to occur, we would possibly have to refinance the debt through additional debt financing, private or public offerings of debt securities, or additional equity financing.

Under the terms of our non-recourse secured mortgage loan agreements, failure to comply with the financial covenants in the loan agreement triggers cash flows from the property to be directed to the lender, which may limit our overall liquidity as that cash flow would not be available to us.

As of March 31, 2014, we were in compliance with all debt covenants, current on all loan payments and not otherwise in default under any of our mortgage loans.

Unsecured Notes

The indenture for the Notes contains certain covenants and restrictions that require us to meet certain financial ratios. We are not permitted to incur any Debt (other than intercompany Debt), as defined in the indenture, if, immediately after giving effect to the incurrence of such Debt and to the application of the proceeds thereof, the ratio of the aggregate principal amount of all outstanding Debt to Adjusted Total Asset Value, as defined in the indenture, would be greater than 0.65 to 1.0. In addition, we are not permitted to incur any Debt if the ratio of Stabilized Consolidated Income Available for Debt Service to Stabilized Consolidated Interest Expense, both as defined in the indenture, on the date on which such additional Debt is to be incurred, on a pro-forma basis, after giving effect to the incurrence of such Debt and to the application of the proceeds thereof, would be less than 1.50 to 1.0.

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These financial measures are not calculated in accordance with GAAP and are presented below for the sole purpose of evaluating our compliance with the key financial covenants as they were applicable at March 31, 2014 and December 31, 2013, respectively.

	March 31, 2014			December 31, 2013
Ratio of Stabilized Consolidated Income Available for Debt Service to Stabilized Consolidated Interest Expense
Net income (loss)(1)	$	(77,105	)	$	(4,435,185	)
Interest expense(1)		11,850,033			11,647,141
Provision for taxes(1)		522,808			1,521,182
Equity in (income) loss of joint venture(1)		(371,512	)		(453,700	)
Realized and unrealized (gain) loss on warrant derivative(1)		(563,817	)		2,205,248
Impairment of investment in hotel properties, net(1)		611,000			611,000
Depreciation and amortization(1)		8,848,736			8,467,228
Corporate general and administrative expenses(1)		4,574,584			4,360,583
Consolidated Income Available for Debt Service(1)	$	25,394,727		$	23,923,497
Less: Income of Non-Stabilized Assets (1)(2)		(1,446,187	)		(223,541	)
Stabilized Consolidated Income Available for Debt Service (1)	$	23,948,540		$	23,699,956
Interest expense(1)		11,850,033			11,647,141
Distributions on Preferred Interest(1)(3)		(1,570,385	)		(2,230,806	)
Amortization of issuance costs(1)(3)		(1,474,273	)		(1,518,556	)
Consolidated Interest Expense(1)	$	8,805,375		$	7,897,779
Less: Interest expense of Non-Stabilized Assets(1)(2)		(269,090	)		(131,410	)
Stabilized Consolidated Interest Expense(1)	$	8,536,285		$	7,766,369
Ratio of Stabilized Consolidated Income Available for Debt Service to Stabilized Consolidated Interest Expense		2.81			3.05
Ratio of Debt to Adjusted Total Asset Value:
Mortgage loans	$	206,554,064		$	160,363,549
Loans payable		19,000,000			—
Unsecured notes		27,600,000			27,600,000
Total debt	$	253,154,064			187,963,549
Stabilized Consolidated Income Available for Debt Service(1)(2)	$	23,948,540		$	23,699,956
Capitalization Rate		7.5	%		7.5	%
		319,313,867			315,999,415
Non-Stabilized Assets		100,040,000			35,000,000
Total cash		18,447,855			13,172,769
Adjusted Total Asset Value	$	437,801,722		$	364,172,184
Ratio of Debt to Adjusted Total Asset Value		0.58			0.52

(1) Represents the four preceding calendar quarters.

(2) As permitted by the indenture, the Crowne Plaza Houston Downtown and the Georgian Terrace are considered non-stabilized assets for purposes of the financial covenants.

(3) Includes prepayment fee and write-off of unamortized issuance costs associated with the redemptions of Preferred Stock and Preferred Interest during the period.

Dividend Policy

In December 2008, in the interest of capital preservation and based on the expectation that the U.S. economy, and in particular the lodging industry, would continue to face declining operating trends through 2010, we amended our dividend policy and reduced the level of our cash dividend payments. Reducing and suspending our dividend during 2009 and 2010 did not jeopardize our REIT status as our 2009 distributions exceeded the minimum annual distribution requirement and operating losses in 2010 eliminated any distribution requirement for 2010. In July 2011, in part due to improving operating trends, we reevaluated our quarterly dividend policy and reinstated our quarterly common stock dividend (distribution).

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In April 2014, we increased the quarterly dividend (distribution) to $0.05 per common share (and unit).

The amount of future common stock (and Operating Partnership unit) distributions will be based upon quarterly operating results, general economic conditions, requirements for capital improvements, the availability of debt and equity capital, the Internal Revenue Code’s annual distribution requirements and other factors, which the Company’s board of directors deems relevant. 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.

Off-Balance Sheet Arrangements

Through a joint venture with Carlyle, we own a 25.0% indirect, noncontrolling interest in an entity (the “JV Owner”) that acquired the 311-room Crowne Plaza Hollywood Beach Resort in Hollywood, Florida. We have the right to receive a pro rata share of operating surpluses and we have an obligation to fund our pro rata share of operating shortfalls. We also have the opportunity to earn an incentive participation in the net proceeds realized from the sale of the hotel based upon the achievement of certain overall investment returns, in addition to our pro rata share of net sale proceeds. The Crowne Plaza Hollywood Beach Resort is leased to another entity (the “Joint Venture Lessee”) in which we also own a 25.0% indirect, noncontrolling interest.

The property is currently encumbered by a $57.0 million mortgage which matures in December 2016, requires monthly payments of interest at a rate of LIBOR plus additional interest of 3.95%. The Crowne Plaza Hollywood Beach Resort secures the mortgage.

Carlyle owns a 75.0% controlling interest in the JV Owner and the Joint Venture Lessee. Carlyle may elect to dispose of the Crowne Plaza Hollywood Beach Resort without our consent. We account for our noncontrolling 25.0% interest in all of these entities under the equity method of accounting.

Inflation

We generate revenues primarily from lease payments from our TRS Lessee and net income from the operations of our TRS Lessee. 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. 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. These expenses are expected to grow with the general rate of inflation, except for energy, liability insurance, property and casualty insurance, property tax rates, employee benefits, and some wages, which are expected to increase at rates higher than inflation.

Geographic Concentration and Seasonality

Our hotels are located in Florida, Georgia, Indiana, Maryland, North Carolina, Pennsylvania, Texas and Virginia. As a result, we are particularly susceptible to adverse market conditions in these geographic areas, including industry downturns, relocation of businesses and any oversupply of hotel rooms or a reduction in lodging demand. Adverse economic developments in the markets in which we have a concentration of hotels, or in any of the other markets in which we operate, or any increase in hotel supply or decrease in lodging demand resulting from the local, regional or national business climate, could materially and adversely affect us.

The operations of our hotel properties have historically been seasonal. The months of April and May are traditionally strong, as is October. The periods from mid-November through mid-February are traditionally slow with the exception of hotels located in markets, namely Florida and Texas, that experience significant room demand during this period.

Critical Accounting Policies

The critical accounting policies are described below. We consider these policies critical because they involve difficult management judgments and assumptions, are subject to material change from external factors or are pervasive, and are significant to fully understand and evaluate our reported financial results.

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Investment in Hotel Properties. Hotel properties are stated at cost, net of any impairment charges, and are depreciated using the straight-line method over an estimated useful life of 7-39 years for buildings and improvements and 3-10 years for furniture and equipment. 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 acquired from third parties, which were contributed to us in connection with the Company’s initial public offering, are recorded at historical cost basis. Noncontrolling interests in those entities that comprise our accounting predecessor and the interests in hotels, other than those held by the controlling members of our accounting predecessor, acquired from third parties are recorded at fair value at the time of acquisition.

We review our hotel properties for impairment whenever events or changes in circumstances indicate the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause us to perform our review include, but are not limited to, adverse changes in the demand for lodging at our properties due to declining national or local economic conditions and/or new hotel construction in markets where our hotels are located. When such conditions exist, management performs a recoverability analysis to determine if the estimated undiscounted future cash flows from operating activities and the proceeds from the ultimate disposition of a hotel property exceed its carrying value. If the estimated undiscounted future cash flows are found to be less than the carrying amount of a hotel property, an adjustment to reduce the carrying value to the related hotel property’s estimated fair market value would be recorded and an impairment loss is recognized.

There were no charges for impairment of hotel properties recorded for the three months ended March 31, 2014.

In performing the recoverability analysis, we project future operating cash flows based upon significant assumptions regarding growth rates, occupancy, room rates, economic trends, property-specific operating costs and future capital expenditures required to maintain the hotel in its current operating condition. We also project cash flows from the eventual disposition of the hotel based upon various factors including property-specific capitalization rates, ratio of selling price to gross hotel revenues and the selling price per room.

Revenue Recognition. Hotel Revenues, including room, food, beverage and other revenues, are recognized as the related services are delivered. We generally expect to collect all receivables from customers to whom we have extended credit. If we determine that amounts due on certain accounts are uncollectible, such amounts are written off in the period such determination is made.

Income Taxes. We record a valuation allowance to reduce deferred tax assets to an amount that we believe is more likely than not to be realized. Because of expected future taxable income of our TRS Lessee, we have not recorded a valuation allowance to reduce our net deferred tax asset as of March 31, 2014. Should our estimate of future taxable income be less than expected, we would record an adjustment to the net deferred tax asset in the period such determination was made.

Recent Accounting Pronouncements

For a summary of recently adopted and newly issued accounting pronouncements, please refer to the Recent Accounting Pronouncements section of Note 2, Summary of Significant Accounting Policies, in the Notes to Consolidated Financial Statements.

Forward Looking Statements

Information included and incorporated by reference in this Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and as such may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our current strategies, expectations, and future plans are generally identified by our use of words, such as “intend,” “plan,” “may,” “should,” “will,” “project,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity,” and similar expressions, whether in the negative or affirmative, but the absence of these words does not necessarily mean that a statement is not forward-looking. All statements regarding our expected financial position, business and financing plans are forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:

• national and local economic and business conditions that affect occupancy rates and revenues at our hotels and the demand for hotel products and services;

• risks associated with the hotel industry, including competition, increases in wages and other labor costs, energy costs and other operating costs;

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• the magnitude and sustainability of the economic recovery in the hospitality industry and in the markets in which we operate;

• the availability and terms of financing and capital and the general volatility of the securities markets;

• risks associated with the level of our indebtedness and our ability to meet covenants in our debt agreements and, if necessary, to refinance or seek an extension of the maturity of such indebtedness or modify such debt agreements;

• management and performance of our hotels;

• risks associated with the conflicts of interest of the Company’s officers and directors;

• risks associated with redevelopment and repositioning projects, including delays and cost overruns;

• supply and demand for hotel rooms in our current and proposed market areas;

• our ability to acquire additional properties and the risk that potential acquisitions may not perform in accordance with expectations;

• our ability to successfully expand into new markets;

• legislative/regulatory changes, including changes to laws governing taxation of REITs;

• the Company’s ability to maintain its qualification as a REIT; and

• our ability to maintain adequate insurance coverage.

Additional factors that could cause actual results to vary from our forward-looking statements are set forth under the section titled “Risk Factors” in our Annual Report on Form 10-K and subsequent reports filed with the Securities and Exchange Commission.

These risks and uncertainties should be considered in evaluating any forward-looking statement contained in this report or incorporated by reference herein. All forward-looking statements speak only as of the date of this report or, in the case of any document incorporated by reference, the date of that document. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are qualified by the cautionary statements in this section. We undertake no obligation to update or publicly release any revisions to forward-looking statements to reflect events, circumstances or changes in expectations after the date of this report, except as required by law. In addition, our past results are not necessarily indicative of our future results.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The effects of potential changes in interest rates are discussed below. Our market risk discussion includes “forward-looking statements” and represents an estimate of possible changes in fair value or future earnings that could occur assuming hypothetical future movements in interest rates. 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.

To meet in part our long-term liquidity requirements, we will borrow funds at a combination of fixed and variable rates. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. From time to time we may enter into interest rate hedge contracts such as collars and treasury lock agreements in order to mitigate our interest rate risk with respect to various debt instruments. We do not intend to hold or issue derivative contracts for trading or speculative purposes.

As of March 31, 2014, we had approximately $158.0 million of fixed-rate debt and approximately $95.2 million of variable-rate debt. The weighted-average interest rate on the fixed-rate debt was 6.49%. 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. Our variable-rate debt is exposed to changes in interest rates, specifically the changes in 1-month and 3-month LIBOR. However, to the extent that 1-month LIBOR does not exceed the 1-month LIBOR floors on the mortgages on the Crowne Plaza Hampton Marina and the Hilton Philadelphia Airport of 0.45% and 0.50%, respectively, and to the extent that 3-month LIBOR does not exceed the 3-month LIBOR floor on the mortgage on the Georgian Terrace of 0.25%, a portion of our variable-rate debt would not be exposed to changes in interest rates. Assuming that the aggregate amount outstanding on the mortgage on the Crowne Plaza Hampton Marina, the mortgage on the Hilton Philadelphia Airport, the mortgage on the Crowne Plaza Jacksonville Riverfront and the mortgage on the Georgian Terrace remains at approximately $95.2 million, the balance at March 31, 2014, the impact on our annual interest incurred and cash flows of a one percent increase in 1-month LIBOR and 3-month LIBOR would be approximately $815,000.

As of December 31, 2013, we had approximately $139.6 million of fixed-rate debt and approximately $48.4 million of variable-rate debt. The weighted-average interest rate on the fixed-rate debt was 6.01%. 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. Our variable-rate debt is

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exposed to changes in interest rates, specifically the change in 1-month LIBOR. However, to the extent that 1-month LIBOR does not exceed the 1-month LIBOR floors on the mortgages on the Crowne Plaza Hampton Marina and the Hilton Philadelphia Airport of 0.45% and 0.50%, respectively, a portion of our variable-rate debt would not be exposed to changes in interest rates. Assuming that the aggregate amount outstanding on the mortgage on the Crowne Plaza Hampton Marina, the mortgage on the Hilton Philadelphia Airport and the mortgage on the Crowne Plaza Jacksonville Riverfront remains at approximately $48.4 million, the balance at December 31, 2013, the impact on our annual interest incurred and cash flows of a one percent increase in 1-monthy LIBOR would be approximately $372,000.

Item 4. Controls and Procedures

Sotherly Hotels Inc.

The Chief Executive Officer and Chief Financial Officer of Sotherly Hotels Inc. have evaluated the effectiveness of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, and have concluded that as of the end of the period covered by this report, the disclosure controls and procedures of the Company were effective.

As of March 31, 2014, there was no change in either the internal control over financial reporting of Sotherly Hotels Inc. identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act during Sotherly Hotel Inc.’s last fiscal quarter that materially affected, or is reasonably likely to materially affect, Sotherly Hotels Inc.’s internal control over financial reporting.

Sotherly Hotels LP

The Chief Executive Officer and Chief Financial Officer of Sotherly Hotels Inc., as general partner of Sotherly Hotels LP, have evaluated the effectiveness of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as required by paragraph (b) of Rules 13a-15 and 15d-15 under the Exchange Act, and have concluded that as of the end of the period covered by this report, the disclosure controls and procedures of the Operating Partnership were effective.

As of March 31, 2014, there was no change in either the internal control over financial reporting of Sotherly Hotels LP identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act during Sotherly Hotel LP’s last fiscal quarter that materially affected, or is reasonably likely to materially affect, Sotherly Hotels LP’s internal control over financial reporting.

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PART II

Item 1. Legal Proceedings

We are not involved in any legal proceedings other than routine legal proceedings occurring in the ordinary course of business. We believe that these routine legal proceedings, in the aggregate, are not material to our financial condition and results of operations.

Item 1A. Risk Factors

There have been no material changes in our risk factors from those disclosed in our annual report on Form 10-K for the year ended December 31, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

From time to time, the Operating Partnership issues limited partnership units to the Company, as required by the Partnership Agreement, to mirror the capital structure of the Company to reflect additional issuances by the Company and to preserve equitable ownership ratios.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

The following exhibits are filed as part of this Form 10-Q:

Exhibit Number	Description of Exhibit
3.1	Articles of Amendment and Restatement of the Company.(1)
3.3	Amended and Restated Agreement of Limited Partnership of Sotherly Hotels LP. (2)
3.4	Articles Supplementary of the Company.(3)
3.6	Amendment No. 1 to the Amended and Restated Agreement of Limited Partnership of Sotherly Hotels LP. (3)
3.7	Articles of Amendment to the Articles of Amendment and Restatement of the Company, effective as of April 16, 2013.(4)
3.8	Second Amended and Restated Bylaws of the Company, effective as of April 16, 2013.(4)
3.9	Amendment No. 2 to the Amended and Restated Agreement of Limited Partnership of Sotherly Hotels LP. (5)
4.6	Senior Unsecured Note issued by Sotherly Hotels LP. (6)
4.7	Indenture by and among Sotherly Hotels LP and Wilmington Trust, National Association, as trustee. (6)
10.47	Purchase Agreement between Sotherly Hotels Inc. and CSC Georgian Terrace Limited Partnership dated January 13, 2014. (7)
10.48	Note Agreement by and between Sotherly Hotels LP, Richmond Hill Capital Partners, LP and Essex Equity Joint Investment Vehicle, LLC dated March 26, 2014.

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Exhibit Number	Description of Exhibit
10.49	Guaranty by Sotherly Hotels Inc. dated March 26, 2014.
10.50	Pledge Agreement by Sotherly Hotels LP and MHI GP LLC, acknowledged by Philadelphia Hotel Associates LP, dated March 26, 2014.
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rules Rule 13(a)-14 and 15(d)-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Company.
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rules Rule 13(a)-14 and 15(d)-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Company.
31.3	Certification of Chief Executive Officer pursuant to Exchange Act Rules Rule 13(a)-14 and 15(d)-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Operating Partnership.
31.4	Certification of Chief Financial Officer pursuant to Exchange Act Rules Rule 13(a)-14 and 15(d)-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Operating Partnership.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Company.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Company.
32.3	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Operating Partnership.
32.4	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Operating Partnership.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

(1) Incorporated by reference to the document previously filed as an exhibit to Sotherly’s Pre-Effective Amendment No. 1 to its Registration Statement on Form S-11 filed with the Securities and Exchange Commission on October 20, 2004. (333-118873).

(2) Incorporated by reference to the document previously filed as an exhibit to Sotherly’s Pre-Effective Amendment No. 5 to its Registration Statement on Form S-11 filed with the Securities and Exchange Commission on December 13, 2004. (333-118873)

(3) Incorporated by reference to the document previously filed as an exhibit to Sotherly’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 18, 2011.

(4) Incorporated by reference to the document previously filed as an exhibit to the Sotherly’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 16, 2013.

(5) Incorporated by reference to the document previously filed as an exhibit to the Operating Partnership’s Pre-Effective Amendment No. 1 to its Registration Statement on Form S-11 filed with the Securities and Exchange Commission on August 9, 2013. (333-189821).

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(6) Incorporated by reference to the document previously filed as an exhibit to our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 7, 2013.

(7) Incorporated by reference to the document previously filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2014.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SOTHERLY HOTELS INC.
Date: May 14, 2014	By:	/s/ Andrew M. Sims
		Andrew M. Sims
		Chief Executive Officer
	By:	/s/ Anthony E. Domalski
		Anthony E. Domalski
		Chief Financial Officer

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SOTHERLY HOTELS LP
	By:	SOTHERLY HOTELS INC. Its General Partner
Date: May 14, 2014	By:	/s/ Andrew M. Sims
		Andrew M. Sims
		Chief Executive Officer
	By:	/s/ Anthony E. Domalski
		Anthony E. Domalski
		Chief Financial Officer

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EXHIBIT INDEX

Exhibit Number	Description of Exhibit
3.1	Articles of Amendment and Restatement of the Company.(1)
3.3	Amended and Restated Agreement of Limited Partnership of Sotherly Hotels LP. (2)
3.4	Articles Supplementary of the Company.(3)
3.6	Amendment No. 1 to the Amended and Restated Agreement of Limited Partnership of Sotherly Hotels LP. (3)
3.7	Articles of Amendment to the Articles of Amendment and Restatement of the Company, effective as of April 16, 2013.(4)
3.8	Second Amended and Restated Bylaws of the Company, effective as of April 16, 2013.(4)
3.9	Amendment No. 2 to the Amended and Restated Agreement of Limited Partnership of Sotherly Hotels LP. (5)
4.6	Senior Unsecured Note issued by Sotherly Hotels LP. (6)
4.7	Indenture by and among Sotherly Hotels LP and Wilmington Trust, National Association, as trustee. (6)
10.47	Purchase Agreement between Sotherly Hotels Inc. and CSC Georgian Terrace Limited Partnership dated January 13, 2014. (7)
10.48	Note Agreement by and between Sotherly Hotels LP, Richmond Hill Capital Partners, LP and Essex Equity Joint Investment Vehicle, LLC dated March 26, 2014.
10.49	Guaranty by Sotherly Hotels Inc. dated March 26, 2014.
10.50	Pledge Agreement by Sotherly Hotels LP and MHI GP LLC, acknowledged by Philadelphia Hotel Associates LP, dated March 26, 2014.
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rules Rule 13(a)-14 and 15(d)-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Company.
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rules Rule 13(a)-14 and 15(d)-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Company.
31.3	Certification of Chief Executive Officer pursuant to Exchange Act Rules Rule 13(a)-14 and 15(d)-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Operating Partnership.
31.4	Certification of Chief Financial Officer pursuant to Exchange Act Rules Rule 13(a)-14 and 15(d)-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for the Operating Partnership.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Company.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Company.
32.3	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Operating Partnership.
32.4	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for the Operating Partnership.

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Exhibit Number	Description of Exhibit
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

(1) Incorporated by reference to the document previously filed as an exhibit to Sotherly’s Pre-Effective Amendment No. 1 to its Registration Statement on Form S-11 filed with the Securities and Exchange Commission on October 20, 2004. (333-118873).

(2) Incorporated by reference to the document previously filed as an exhibit to Sotherly’s Pre-Effective Amendment No. 5 to its Registration Statement on Form S-11 filed with the Securities and Exchange Commission on December 13, 2004. (333-118873)

(3) Incorporated by reference to the document previously filed as an exhibit to Sotherly’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 18, 2011.

(4) Incorporated by reference to the document previously filed as an exhibit to the Sotherly’s Current Report on Form 8-K filed with the Securities and Exchange Commission on April 16, 2013.

(5) Incorporated by reference to the document previously filed as an exhibit to the Operating Partnership’s Pre-Effective Amendment No. 1 to its Registration Statement on Form S-11 filed with the Securities and Exchange Commission on August 9, 2013. (333-189821).

(6) Incorporated by reference to the document previously filed as an exhibit to our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 7, 2013.

(7) Incorporated by reference to the document previously filed as an exhibit to our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2014.

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EX-10.48

Exhibit 10.48

NOTE AGREEMENT

NOTE AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time, this “Note”), dated as of March 26, 2014, by and between Sotherly Hotels LP, a Delaware limited partnership (the “Borrower”), and each lender a party hereto from time to time (together with their successors and assigns, each a “Lender”; and collectively, the “Lenders”) and Richmond Hill Capital Partners, LP, as agent for the Lenders (the “Agent”).

RECITALS

WHEREAS, the Borrower has requested a secured term loan facility and the Lenders have agreed to provide a secured term loan facility but only to the extent and on the conditions set forth herein.

WHEREAS, the Borrower will use the proceeds of the Loan (a) to cause its Subsidiary to acquire the Real Property (as defined in Paragraph 1) and (b) to pay its transaction fees and expenses in respect of this Note and the transactions contemplated hereby.

NOW THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows:

AGREEMENT

1. Definitions. The following terms have the meanings set forth below:

“Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act of 2001).

“Agent” has the meaning set forth in the preamble hereto.

“Aggregate Amounts Due” has the meaning set forth in Paragraph 6(b).

“Approved SOHO Philly Asset Sale” means either an Asset Sale by the Borrower of its ownership interests in SOHO Philly or an Asset Sale by SOHO Philly of the hotel real property owned by it, in each case where the Net Asset Sale Proceeds thereof are at least $53,000,000 and the Borrower permanently prepays the Loan in the aggregate amount of such Net Asset Sale Proceeds no later than the second Business Day following the receipt by the Borrower or SOHO Philly of such Net Asset Sale Proceeds.

“Asset Sale” means a sale, lease or sublease (as lessor or sublessor), sale and leaseback, assignment, conveyance, transfer or other disposition to, or any exchange of property with, any Person (other than the Parent or any Subsidiary of the Parent), in one transaction or a series of transactions, of all or any part of the businesses of the Parent or any Subsidiary of the Parent, assets or properties of any kind (including without limitation ownership interests in another Person), whether real, personal, or mixed and whether tangible or intangible other than inventory, or other assets sold, leased, subleased, assigned, conveyed, transferred or disposed of in the ordinary course of business.

“Assignee” has the meaning set forth in Paragraph 19.

“Assignment” has the meaning set forth in Paragraph 19.

“Atlanta LLC” means Atlanta Hotel Associates LLC, a Delaware limited liability company.

“Bankruptcy Code” means title 11 of the United States Code entitled “Bankruptcy” as now or hereafter in effect or any successive statutes.

“Borrower” has the meaning set forth in the Preamble hereto.

“Business Day” means a day other than Saturday or Sunday or other day on which commercial banks in New York City, New York are authorized or required by law or other governmental action to close.

“Capital Lease” means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person.

“Capital Stock” means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, partnership interests and membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing.

“Cash” means cash, money, currency or a credit balance in any Deposit Account (as defined in the UCC).

“Change of Control” means, at any time on or after the date hereof, (a) any Person or “group” (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act) (i) shall have acquired beneficial ownership of 50% or more on a fully diluted basis of the voting and/or economic interest in the Capital Stock of the Parent or the Borrower or (ii) shall have obtained the power (whether or not exercised) to elect a majority of the members of the board of directors (or similar governing body) of the Parent or the Borrower; (b) the majority of the seats (other than vacant seats) on the board of directors (or similar governing body) of the Parent or the Borrower cease to be occupied by Persons who either (i) were members of the board of directors of the Parent or the Borrower, as applicable, on the Closing Date, or (ii) were nominated for election by the board of directors of the Parent or the Borrower, as applicable, a majority of whom were directors on the Closing Date or whose election or nomination for election was previously approved by a majority of such directors; or (c) any event, transaction or occurrence as a result of which Andrew M. Sims shall for any reason cease to be actively engaged in the day-to-day management of the Parent or Borrower in the role such Person serves on the Closing Date.

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“Closing Date” has the meaning set forth in Paragraph 9.

“Collateral” has the meaning set forth in Paragraph 8.

“Collateral Documents” means any security agreements and any other documents entered into from time to time (including, without limitation, the Pledge Agreement and the Guaranty) in form and substance reasonably satisfactory to the Agent, in order to grant to the Agent, for its benefit and the benefit of the Lenders, a first priority security interest in the Collateral.

“Commission” has the meaning set forth in Paragraph 12(n).

“Commitment Fee” has the meaning set forth in Paragraph 5(b).

“Debt Service Coverage Ratio” means the Income Available for Debt Service divided by the Interest Expense.

“Default” means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto.

“Event of Default” has the meaning set forth in Paragraph 10.

“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute.

“Filings” has the meaning set forth in Paragraph 12(n).

“Funding Notice” shall have the meaning set forth in Paragraph 3(a)(ii).

“GAAP” means generally accepted accounting principles in the United States as in effect from time to time, consistently applied throughout the period to which reference is made.

“Governmental Body” means any agency, bureau, commission, court, department, official, political subdivision, tribunal or other instrumentality of any administrative, judicial, legislative, executive, regulatory, police or taxing authority of any government, whether supranational, national, federal, state, regional, provincial, local, domestic or foreign.

“Guaranty” means the Guaranty in the form of Exhibit A.

“Income Available for Debt Service” means, for the four complete calendar quarters preceding the date of determination, Net Income of an entity plus amounts that have been deducted for but minus amounts that have been added for (a) Interest Expense and prepayment penalties included in GAAP interest expense, (b) provision for taxes

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based on income, (c) depreciation and amortization and all other non-cash items deducted for purposes of calculating Net Income, (d) provision for gains and losses on sales or other dispositions of properties and other investments, (e) extraordinary items, (f) non-recurring or other unusual items, as determined by such entity in good faith and (g) corporate, general and administrative expenses.

“Indebtedness” means, with respect to any Person, without duplication, the following: (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services other than accounts payable and accrued liabilities that would be classified as current liabilities under GAAP (as in effect on the Closing Date) which payables and expenses are incurred in respect of property or services purchased in the ordinary course of business, (c) all obligations of such Person evidenced by notes, bonds, debentures or similar borrowing or securities instruments, (d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, (e) all obligations of such Person as lessee under Capital Leases, (f) all obligations of such Person in respect of banker’s acceptances and letters of credit, (g) all obligations of such Person secured by Liens on the assets and property of such Person, (h) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Capital Stock or other ownership or profit interest in such Person or any other Person or any warrants, rights or options to acquire such Capital Stock, (i) all obligations of such Person in respect of any guaranty by such Person of any obligation of another Person of the type described in clauses (i) through (h) of this definition, and (j) all obligations of another Person of the type described in clauses (a) through (i) secured by a Lien on the property or assets of such Person (whether or not such Person is otherwise liable for such obligations of such other Person).

“Interest Expense” means for the four complete calendar quarters preceding the date of determination, the aggregate amount of interest expense for a Person for such period determined in accordance with GAAP, excluding any interest that is (a) payable in respect of Capital Stock, (b) capitalized or (c) payable in a form other than cash.

“Interest Period” means consecutive calendar quarterly periods, beginning on the date hereof and ending on the Maturity Date; provided that: (a) the initial Interest Period shall begin on the date hereof and shall end on March 31, 2014 and each subsequent Interest Period will begin on the day following the last day of the preceding Interest Period (with such last day of such preceding Interest Period determined with reference to clauses (b) through (d) below); (b) any Interest Period that would otherwise end on a day that is not a Business Day shall, subject to the provisions of clause (d) below, be extended to the next succeeding Business Day unless such Business Day falls in the next calendar month, in which case such Interest Period shall end on the immediately preceding Business Day; (c) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (d) below, end on the last Business Day of a calendar month; and (d) any Interest Period that would otherwise end after the Maturity Date shall end on the Maturity Date.

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“Interest Rate” has the meaning set forth in Paragraph 5(a).

“Lenders” has the meaning set forth in the Preamble hereto.

“Lender Indemnified Persons” has the meaning set forth in Paragraph l7(b).

“Lien” means any encumbrance, mortgage, pledge, hypothecation, charge, assignment, lien, restriction or other security interest of any kind securing any obligation of any Person.

“Loan” has the meaning set forth in Paragraph 2.

“Loan Documents” means any of this Note, the Collateral Documents, and all other documents, instruments or agreements executed and delivered by the Borrower for the benefit of each Lender in connection herewith.

“Make Whole Amount” means, on the date of determination, an amount of interest and fees Agent and the Lenders would have received had the entire principal amount of the Loan ($19,000,000) remained outstanding through the first anniversary of the Closing Date less the amount, if any, of interest and fees actually received by the Lenders.

“Margin Stock” shall have the meaning set forth in Regulation U of the Board of Governors of the Federal Reserve system, as in effect from time to time.

“Material Adverse Effect” means a material adverse effect on (a) the business, operations, properties, assets or condition (financial or otherwise) of the Borrower and all of its Subsidiaries taken as a whole, (b) the ability of the Borrower to perform its obligations hereunder or under of any of the other Loan Documents, or (c) to the extent applicable, the Collateral.

“Maturity Date” means the earliest of (a) the first anniversary of the date of this Note and (b) the date the Loan shall become due and payable in full hereunder, whether by acceleration or otherwise.

“MHI” means MHI GP LLC, a Delaware limited liability company.

“Net Asset Sale Proceeds” means, with respect to any Asset Sale, an amount equal to: (a) cash payments received by the Parent and any of its Subsidiaries from such Asset Sale, minus (b) any bona fide direct costs incurred in connection with such Asset Sale to the extent paid or payable to non-affiliates, including without limitation (i) income or gains taxes payable by the seller as a result of any gain recognized in connection with such Asset Sale during the tax period the sale occurs, (ii) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loan) that is secured by a Lien on the stock or assets in

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question and that is required to be repaid under the terms thereof as a result of such Asset Sale, (iii) a reasonable reserve for any indemnification payments (fixed or contingent) attributable to seller’s indemnities and representations and warranties to purchaser in respect of such Asset Sale undertaken by the Parent or any of its Subsidiaries in connection with such Asset Sale; provided that upon releases of such reserve, the amount released shall be considered Net Asset Sale Proceeds, and (iv) transaction costs of the Parent and its Subsidiaries.

“Net Income” means the amount of net income (or loss) of a Person, determined in accordance with GAAP.

“Net Loan Proceeds” shall have the meaning set forth in Paragraph 3(a)(iv).

“Parent” means Sotherly Hotels Inc., a Maryland corporation.

“Permitted Indebtedness” means the Indebtedness permitted pursuant to Paragraph 14

“Permitted Liens” means the Liens permitted pursuant to Paragraph 14.

“Person” means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, other legal entities and governmental bodies.

“Pledge Agreement” means the Pledge Agreement and Irrevocable Proxy in the form of Exhibit B.

“Real Property” means the real property described in Exhibit C (including land, building, improvements, equipment and all related personal property used or useful in connection with the operations of the hotel located thereon).

“Remaining Commitment Fee” has the meaning set forth in Paragraph 5(b).

“Required Lenders” means, at any time, one or more Lenders having or holding a Loan and/or Term Loan Commitment, and representing more than 50% of the sum of the Loan and/or Term Loan Commitments of all Lenders.

“SOHO Philly” means Philadelphia Hotel Associates LP, a Pennsylvania limited partnership.

“Solvent” means, with respect to any Person, that as of the date of determination both (a)(i) the sum of such Person’s debt (including contingent liabilities) does not exceed all of its property, at a fair valuation, (ii) the present fair saleable value of the property of such Person is not less than the amount that will be required to pay the probable liabilities on such Person’s then existing debts as they become absolute and matured, (iii) such Person’s capital is not unreasonably small in relation to its business or

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any contemplated or undertaken transaction, and (iv) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due, and (b) such Person is “solvent” within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No. 5).

“Subsidiary” of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the shares of Capital Stock having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity.

“Term Loan Commitment” has the meaning set forth in Paragraph 2.

“Term Loan Commitment Period” means the period commencing on the Closing Date and ending on the earlier of (i) April 15, 2014 and (ii) the date of the closing of the purchase of the Real Property.

“UCC” means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect from time to time in the State of New York or, when the context implies, the Uniform Commercial Code as in effect from time to time in any other applicable jurisdiction. All references in this Note to the provisions of the UCC shall include all successor provisions under any subsequent version or amendment to any Article of the UCC.

2. Loan.

(a) Subject to the terms and conditions set forth herein, each Lender agrees during the Term Loan Commitment Period to make a single term loan (the “Loan”) in its respective aggregate amount set forth on Schedule I hereto (the “Term Loan Commitment”) to the Borrower. Any principal amount of the Loan subsequently repaid or prepaid may not be reborrowed. Each Lender’s Term Loan Commitment shall terminate immediately and without further action upon expiration of the Term Loan Commitment Period. The aggregate principal amount of the Loan shall not exceed $19,000,000.00.

(b) Each Lender represents, warrants and covenants to the Borrower that it has and will maintain during the Term Loan Commitment Period sufficient capital to fund its pro rata share of the Term Loan Commitment.

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3. Borrowing Mechanics; Conditions to each Loan and Manner of Payment.

(a) Borrowing Mechanics.

(i) The Loan shall be made in a single aggregate amount of $19,000,000.

(ii) When the Borrower desires the Lenders to make the Loan, the Borrower shall deliver to each Lender a written notice setting forth a request for the Loan (such notice, a “Funding Notice”) no later than 11:00 a.m. (New York City time) at least two (2) Business Days in advance of the proposed borrowing date, which borrowing date shall be a Business Day.

(iii) Notice of receipt of each Funding Notice in respect of the Loan, together with the amount of each Lender’s pro rata share thereof, shall be provided by the Borrower to each Lender.

(iv) Each Lender shall make the amount of its Loan available to the Borrower no later than 4:00 p.m. (New York City time) on the applicable borrowing date by wire transfer of same day funds in U.S. dollars; it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender’s obligation to make a Loan requested hereunder nor shall any Term Commitment of any Lender be increased or decreased as a result of a default by any other Lender in such other Lender’s obligation to make the Loan requested hereunder. For the avoidance of doubt, the Loan proceeds to be made available to the Borrower shall be a net amount equal to (A) $19,000,000 minus (B) (1) the Remaining Commitment Fee and (2) the fees and expenses payable pursuant to Paragraph 9(i) (such net amount, the “Net Loan Proceeds”).

(b) Conditions Precedent to the Loan. The obligation of each Lender to make the Loan, on any date, including the Closing Date, is subject to the satisfaction, or waiver of the following conditions precedent:

(i) each Lender shall have received a fully executed and delivered Funding Notice;

(ii) as of such date, the representations and warranties contained herein and in the other Loan Documents shall be true and correct in all material respects on and as of such date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date; and

(iii) as of such date, no event shall have occurred and be continuing or would result from the borrowing of the applicable Loan that constitutes an Event of Default or a Default.

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(c) Condition Subsequent to the Loan.

(i) No later than the third Business Day following the date of receipt by the Borrower of the Loan proceeds in accordance with the provisions of Paragraph 3(a) above, Atlanta LLC shall close the transaction whereby it acquires the Real Property.

(ii) In the event that the foregoing condition subsequent in Paragraph 3(c)(i) is not satisfied or waived, the Borrower shall promptly return to each Lender the full amount of the Net Loan Proceeds received from such Lender, together with accrued and unpaid interest thereon pursuant to Paragraph 5.

(iii) In the event the Borrower returns the full amount of the Net Loan Proceeds to each Lender pursuant to Paragraph 3(c)(ii), the Remaining Commitment Fee shall be deemed not to have been earned and the Borrower shall not be required to pay the Remaining Commitment Fee unless the Borrower redraws the Loan pursuant to Paragraph 3(c)(iv).

(iv) Notwithstanding anything to the contrary in the Loan Documents, the Borrower shall be entitled to redraw the Loan prior to the expiration of the Term Loan Commitment Period, upon two (2) Business Days’ prior written notice to the Agent, in the manner provided in Paragraph 3(a) and subject once again to each of the conditions of Paragraphs 3(b) and 3(c), as though the Loan had not previously been advanced.

4. Payment of Principal.

(a) Maturity Date. Unless due earlier due to the occurrence of an Event of Default or pursuant to the provisions of Paragraphs 4(b) and 4(c) below, the outstanding principal amount of the Loan shall be payable in full on the Maturity Date.

(b) Optional Prepayment. The Borrower may, upon at least one (1) Business Day’s notice to the Lenders, prepay the Loan in part or in full at any time and from time to time without penalty.

(c) Mandatory Prepayment.

(i) Asset Sales. No later than the second Business Day following the date of receipt by the Parent or any of its Subsidiaries of any Net Asset Sale Proceeds, the Borrower shall permanently prepay the Loan in an aggregate amount equal to such Net Asset Sale Proceeds.

(ii) Issuance of Equity Securities. No later than the second Business Day following the date of receipt by the Parent or any of its Subsidiaries of any cash proceeds from a capital contribution to, or the issuance or sale of Capital Stock of the Parent or any of its Subsidiaries (other than Capital Stock issued pursuant to any employee stock or stock option

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compensation plan) the Borrower shall permanently prepay the Loan in an aggregate amount equal to 100% of such proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses.

(iii) Issuance of Debt. No later than the second Business Day following the date of receipt by the Parent or any of its Subsidiaries of any cash proceeds from the incurrence of any Indebtedness of the Parent or any of its Subsidiaries (other than with respect to any Indebtedness permitted to be incurred pursuant to Paragraph 14), the Borrower shall permanently prepay the Loan in an aggregate amount equal to 100% of such proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses, and if such incurrence of Indebtedness is in connection with a refinancing, net of any existing Indebtedness so refinanced. Except for the Approved SOHO Philly Asset Sale, the provisions of this paragraph (iii) shall not be deemed to be implied consent to any such incurrence otherwise prohibited by the terms and conditions of this Note.

(d) Manner of Payment. All payments of amounts due under this Note shall be made to each Lender not later than 1:00 p.m. New York City time on the day when due by wire transfer of immediately available funds in accordance with the wire transfer instructions for the Lenders delivered in writing to the Borrower. Whenever any payment hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

5. Payment of Interest and Fees.

(a) Interest. The interest rate shall be 10.00% per annum (the “Interest Rate”). Each Loan shall bear interest on the full committed principal amount thereof from the date any such Loan is made through the date of repayment or return of such Loan (whether at maturity, by acceleration or otherwise) at a rate per annum equal to the Interest Rate. Interest on the full committed principal amount of this Note shall be due and payable in arrears from and after the date of such Loan on (i) the last day of each Interest Period, (ii) the date of termination of the Loan pursuant to Paragraphs 4(b) or 4(c), (iii) the Maturity Date and (iv) the date of return of the Loan pursuant to Paragraph 3(c). Interest hereunder shall be calculated on the basis of a 360-day year and the actual number of days elapsed.Upon the occurrence and during the continuance of an Event of Default described in Paragraph 10, the principal amount of the Loan and, to the extent permitted by applicable law, any interest payments on the Loan or any fees or other amounts owed hereunder not paid when due, in each case whether at stated maturity, by notice of prepayment, by acceleration or otherwise, shall thereafter bear interest (including, without limitation, interest, as provided in this Note, accruing after the filing of a petition initiating any insolvency proceedings, whether or not such interest accrues or is recoverable against the Borrower after the filing of such

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petition for purposes of the Bankruptcy Code or is an allowed claim in such proceeding) payable on demand at a rate that is 2.0% per annum in excess of the interest rate otherwise payable hereunder with respect to the Loan. Payment or acceptance of the increased rates of interest provided for in this Paragraph 5(a) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of any Lender.

(b) Commitment Fee. The Borrower agrees to pay to the Lenders an unused commitment fee (the “Commitment Fee”) equal to 2.0% of the full committed principal amount of the Loan, or $380,000. The Lenders acknowledge that the Borrower has paid the first installment of the Commitment Fee in the amount of $190,000, which amount is fully earned and non-refundable. The Borrower shall pay the second installment of the Commitment Fee in the amount of $190,000 (the “Remaining Commitment Fee”) upon the closing of the acquisition of the Real Property. Notwithstanding the foregoing, but subject to Paragraph 5(c) below, in the event the Borrower does not draw down the Loan or returns the Loan pursuant to Paragraph 3(c), the Borrower shall not be required to pay the Remaining Commitment Fee.

(c) Break-Up Fee. In the event the Borrower does not draw down on the Loan or returns the Loan pursuant to Paragraph 3(c), but the Parent or any of its Subsidiaries or affiliates closes on the acquisition of the Real Property on or prior to October 1, 2014, then the Borrower shall pay, within five (5) Business Days of such closing, to the Lenders a break-up fee in the amount of $190,000.

(d) Prepayment Premium. If the Borrower prepays or repays all or any part of the principal balance of the Loan on or prior to the first anniversary of the Closing Date, whether voluntarily or following an Event of Default (including a bankruptcy Event of Default) and an acceleration of the original maturity date, then the Borrower shall pay to the Lenders a prepayment premium on the amount so prepaid or repaid in an amount equal to the Make Whole Amount.

(e) Application of Payments.

(i) Absent a Default or an Event of Default, any prepayment of the Loan pursuant to Paragraphs 4(b) or (c) shall be applied as follows: (A) to prepay the accrued but unpaid interest on a pro rata basis to the Lenders; and (B) second, to prepay the Loan on a pro rata basis to the Lenders.

(ii) Following the occurrence and during the continuance of an Event of Default, all prepayments and repayments shall be applied as follows: (A) first, to prepay any costs and fees owed to the Agent and/or the Lenders; (B) second, to prepay the accrued but unpaid interest on a pro rata basis to the Lenders, including any Make Whole Amount; and (C) third, to prepay the Loan on a pro rata basis to the Lenders.

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(f) For the avoidance of doubt, (i) all references to and the use of the terms “prepay”, “prepaid”, or “prepayment” shall mean payment of the Loan prior to the first anniversary of the Closing Date and shall not mean payment of the Loan prior to any accelerated Maturity Date and (ii) any prepayment premium or prepayment fee required to be paid under this Note shall also be paid upon or after acceleration of the Loan.

6. Evidence of Debt; Notes; Ratable Share.

(a) Lenders’ Evidence of Debt. Each Lender shall maintain on its internal records an account or accounts evidencing the Indebtedness of the Borrower to such Lender, including the amounts of the Loan owed to it and each repayment and prepayment in respect thereof. Any such recordation shall be conclusive and binding on the Borrower, absent manifest error; provided, failure to make any such recordation, or any error in such recordation, shall not affect the Borrower’s obligations in respect of the Loan.

(b) Ratable Share. Each Lender hereby agrees among themselves that if any of them shall, whether by voluntary prepayment, through the exercise of any right of setoff or banker’s lien, by counterclaim or cross-action or by the enforcement of any right under the Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, fees and other amounts then due and owing to such Lender hereunder or under the other Loan Documents (collectively, the “Aggregate Amounts Due” to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (a) notify each other Lender of the receipt of such payment and (b) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided, if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of the Borrower or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. The Borrower expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker’s lien, setoff or counterclaim with respect to any and all monies owing by the Borrower to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder.

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7. Use of Proceeds. The Borrower shall use the proceeds of the Loan (a) to cause Atlanta LLC to purchase and acquire the Real Property and to pay its transaction fees and expenses in respect thereof and (b) to pay the Borrower’s, the Parent’s and MHI’s transaction fees and expenses in respect of the Loan Documents. Without prejudice to the generality of clause (a) in the preceding sentence, it is contemplated that the Borrower may, directly or through one or more intermediaries, fund Atlanta LLC’s acquisition of the Real Property by means of one or more loans and/or contributions of the Loan proceeds or any portion thereof.

8. Secured Obligations and Guaranty.

(a) To secure the repayment of the Loan and all obligations, together with all modifications, extensions and renewals thereof, Borrower hereby grants a security interest in and pledges to the Agent for itself and for the benefit of the Lenders, and shall cause its wholly owned Subsidiary, MHI, to grant a security interest in and pledge to the Agent for itself and for the benefit of the Lenders, (i) all (but not less than all) of the Capital Stock of SOHO Philly, (ii) any and all additions, substitutions, dividends, distributions (in the form of cash, property, stock or other securities) and other rights related or in addition to the foregoing, and (iii) any and all proceeds therefrom (collectively, the “Collateral”), and shall execute and deliver, and shall cause MHI to execute and deliver, to the Agent the Pledge Agreement.

(b) To ensure the repayment of the Loan and all obligations together with all modifications, extensions and renewals thereof, the Parent shall execute and deliver to the Agent the Guaranty.

(c) The Borrower shall take all such actions with respect to the Collateral at the cost and expense of the Borrower, including, without limitation, delivery of the Collateral Documents and any certificated Capital Stock to the Agent, the filing of any necessary UCC financing statements and any legal opinions of counsel to the Borrower with respect to the creation and perfection of such Liens in form reasonably satisfactory to the Agent.

9. Closing Conditions. The agreement of the Lenders to make the Loan is subject to the satisfaction prior or concurrently with the making of such Loan of the conditions precedent set forth in this Paragraph 9 (the date that all such conditions have been satisfied hereinafter referred to as the “Closing Date”):

The Lender shall have received:

(a) Note. This Note, executed and delivered by a duly authorized officer of each of the parties hereto;

(b) Secretary’s Certificate. The Lenders shall have received certificates of the general partner, secretary or assistant secretary, or manager or member, as applicable, of the Borrower, the Parent and MHI with respect to (i) the certificate of formation of such entity as amended or amended and restated to date, (ii) as

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applicable, the partnership agreement, by-laws, or limited liability company agreement of such entity, each as amended or amended and restated to date, (iii) the resolutions of the general partner, board of directors, or managers or members, as applicable, of such entity, approving each Loan Document to be delivered by such entity under the Loan Documents and the performance of the obligations of such entity thereunder, and (iv) the names and true signatures of the officers of, the officers of the general partner of, or such other persons, as applicable, that is authorized to sign each Loan Document to which the Borrower, the Parent or MHI is a party and the other documents to be delivered by each of them under the Loan Documents.

(c) Good Standing Certificates. The Lenders shall have received a good standing certificate for each of the Borrower, SOHO Philly, MHI and Parent from the applicable Governmental Body of such entity’s jurisdiction of incorporation, organization or formation and in each jurisdiction in which it is qualified as a foreign corporation or other entity to do business, each dated a recent date prior to the Closing Date.

(d) Opinion of Counsel. The Lenders shall have received an originally executed copy of the favorable written opinions of Baker & McKenzie LLP, counsel for the Borrower, in the form of Exhibit D as to such other matters as the Lenders may reasonably request, dated as of the Closing Date, and otherwise in form and substance satisfactory to the Lenders.

(e) No Litigation. There shall not exist any action, suit, investigation, litigation or proceeding or other legal or regulatory developments, pending or threatened in any court or before any arbitrator or Governmental Body that, in the reasonable opinion of the Lenders, singly or in the aggregate, materially impairs any of the transactions contemplated by the Loan Documents, or that could have a Material Adverse Effect.

(f) No Material Adverse Effect. No Material Adverse Effect shall have occurred after giving effect to the Loan made on the Closing Date.

(g) Pledge Agreement. The Agent shall have received the Pledge Agreement, executed and delivered by a duly authorized officer of each of the parties thereto, from the Borrower and MHI.

(h) Guaranty. The Agent shall have received the Guaranty, executed and delivered by a duly authorized officer of Parent.

(i) Fees and Expenses. The Borrower shall have paid all fees and expenses (including attorneys’ fees) and out of pocket costs of the Lenders and Agent (not to exceed $75,000) incurred in connection with this Note and the other Loan Documents.

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10. Event of Default. In the event:

(a) that the Borrower fails to pay the principal of or interest on this Note when due under this Note;

(b) that any representation, warranty or certification made by the Borrower in this Note, any other Loan Document, or in any document executed or delivered from time to time relating to this Note or any other Loan Document is materially untrue, misleading or incomplete in its recital of any facts at the time as of which representation, warranty or certification, as the case may be, is made;

(c) that the Borrower shall fail to comply with any other covenant contained in this Note or any other Loan Document and such failure continues uncured for a period of thirty (30) days;

(d) there is a breach of any representations, warranties, covenants or agreements in or under any of the Collateral Documents;

(e) (i) of the failure of the Borrower or any of its Subsidiaries to pay when due any principal of or interest on or any other amount payable in respect of one or more items of Indebtedness in an individual principal amount of $6,000,000 or more or with an aggregate principal amount of $10,000,000 or more, in each case beyond the grace period, if any, provided therefor, or (ii) of the breach or default by the Borrower or any of its Subsidiaries with respect to any other material term of (A) one or more items of Indebtedness in the individual or aggregate principal amounts referred to in clause (e)(i) above or (B) any loan agreement, mortgage, indenture or other agreement relating to such item of Indebtedness, in each case (x) not waived by the applicable holder or holders of such Indebtedness and (y) beyond the grace period, if any, provided therefor, if as a result of such breach or default, (1) the holder or holders of such Indebtedness (or a trustee on behalf of such holder or holders), declares an “event of default” with respect to such Indebtedness or agreement, (2) such “event of default” continues to exist, and (3) such Indebtedness becomes due and payable (or redeemable) prior to its stated maturity;

(f) (i) either this Note or any other Loan Document shall cease to be in full force and effect or shall be declared null and void, (ii) only to the extent applicable, the Agent for itself and on behalf of the Lenders shall not have or shall cease to have a valid and perfected lien, pledge, security interest or claim on any collateral purported to be covered by any of the Collateral Documents with the priority required by the Collateral Documents, (iii) the Borrower, any of its Subsidiaries or Parent shall contest the validity or enforceability of any of this Note or any other Loan Document, or (iv) the Borrower, any of its Subsidiaries or Parent shall repudiate its obligations under this Note or any other Loan Document;

(g) that any money judgment, writ or warrant of attachment or similar process involving (i) in any individual case an amount in excess of $6,000,000 or (ii) in

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the aggregate at any time an amount in excess of $10,000,000 (in either case to the extent not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed against the Borrower or any or its Subsidiaries or Parent or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of 30 days (or in any event later than 5 days prior to the date of any proposed sale thereunder);

(h) that there is a Change of Control; or

(i) of the voluntary or (unless stayed or dismissed within sixty (60) days following commencement) involuntary bankruptcy, receivership, liquidation, insolvency, reorganization, arrangement, assignment for the benefit of creditors or similar proceedings (or upon filing of a petition or notice therefor) involving or affecting the Parent or any of its Subsidiaries, including but not limited to the Borrower and SOHO Philly.

(any such event set forth in clauses (a), (b), (c), (d), (e), (f), (g), (h) or (i) above being, an “Event of Default”), then the Agent may, and at the request of the Required Lenders shall, at its option:

(i) with respect to clauses (a) through (h), accelerate the maturity of this Note and declare this Note to be due and payable in full, whereupon the entire balance of this Note, including the Make Whole Amount and accrued and unpaid interest hereon (including any interest fees and expenses that, but for the provisions of the Bankruptcy Code, would have accrued, whether or not a claim is allowed for such interest, fees or expenses in any bankruptcy proceeding), shall forthwith mature and become due and payable and the Term Loan Commitments shall terminate; provided, however, that upon the occurrence of any event in clause (i) above, this Note shall automatically, and without any notice, be accelerated and the entire principal hereof and all other amounts hereunder, including the Make Whole Amount and accrued and unpaid interest hereon (including any interest fees and expenses that, but for the provisions of the Bankruptcy Code, would have accrued, whether or not a claim is allowed for such interest, fees or expenses in any bankruptcy proceeding) shall become immediately due and payable and the Term Loan Commitments shall automatically terminate;

(ii) to the extent available, exercise all rights and remedies in respect of the Collateral available to a secured party under the UCC (whether or not the UCC applies to the affected Collateral), by law or otherwise;

(iii) initiate legal proceedings to compel the Borrower to cause or cause the judicial enforcement of the exercise of commercially reasonable efforts to pursue a negotiated, arm’s-length sale of the Real Property; and

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(iv) exercise any and all other rights and remedies it may have under other agreements and under applicable law.

11. Additional Terms. The Borrower hereby (a) agrees to pay all costs of collection, including without limitation, reasonable attorneys’ fees, if the principal of or interest on this Note is not paid in full upon demand, (b) waives presentment for payment, protest and demand, notice of non-payment, notice of protest, demand, dishonor, non-payment, default, acceleration, intent to accelerate, diligence in collecting this Note and all other presentments, notices, demands and acts that otherwise might condition or restrict a right to immediate payment of this Note upon demand, (c) shall make all payments hereunder immediately upon demand without any set-off, counterclaim, defenses, withholding (for taxes or otherwise), or reduction of any kind, and (d) agrees that each Lender, at its sole option, may apply any amounts otherwise due to the Borrower by the Lenders to the payment of this Note in a manner consistent with Paragraph 5(e).

12. Representations and Warranties of the Borrower. The Borrower hereby represents and warrants to the Lenders as follows:

(a) Existence and Power. Each of the Borrower and its Subsidiaries (i) is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization and (ii) has all necessary power and authority to execute and deliver this Note and the other Loan Documents and to consummate the transactions contemplated hereby and thereby.

(b) Authorization; Binding Effect. The execution and delivery by the Borrower of this Note and the other Loan Documents, the performance by the Borrower of its obligations under this Note and the other Loan Documents and the consummation of the transactions contemplated hereby and thereby has been duly authorized by all necessary action on the part of the Borrower. This Note and the other Loan Documents are the legal, valid and binding obligation of the Borrower enforceable against it in accordance with its terms, except that such enforcement (i) may be limited by bankruptcy, insolvency, moratorium or similar laws affecting creditors’ rights generally and (ii) is subject to the availability of equitable remedies, as determined in the discretion of the court before which such a proceeding may be brought.

(c) Contravention. Neither the execution, delivery and performance of this Note and the other Loan Documents by the Borrower nor the consummation of the transactions contemplated hereby by the Borrower will (with or without notice or lapse of time or both) (i) violate or breach any provision of any Borrower’s organizational or governing documents, (ii) violate or breach any statute, law, rule, regulation or order by which the Borrower or any of its assets or properties, may be bound or affected, or (iii) breach or result in a default under, result in the acceleration of, or give rise to a right of termination, cancellation, modification or acceleration or require any notice under, any material contract or agreement to which the Borrower is a party or by which the Borrower or any of its assets or properties may be bound or affected.

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(d) Consents. All approvals, consents, authorizations or orders of, notices to or registrations or filings with, or any other action by, any governmental authority or other person or entity have been obtained which are required in connection with (i) the due execution and delivery by the Borrower of this Note and the other Loan Documents and the performance of the Borrower’s obligations hereunder and thereunder, (ii) the consummation of the transactions contemplated hereby by the Borrower, and (iii) the exercise by the Lenders of their rights and remedies under this Note and the other Loan Documents.

(e) Laws and Taxes. The Borrower and its Subsidiaries are in material compliance with all laws, regulations, rulings, orders, injunctions, decrees, conditions or other requirements applicable to or imposed upon the Borrower, its Subsidiaries and Parent by any law or by any Governmental Body. The Borrower, its Subsidiaries and Parent have filed all required tax returns and reports that are now required to be filed by them in connection with any federal, state and local tax, duty or charge levied, assessed or imposed upon the Borrower, its Subsidiaries or their respective assets, including unemployment, social security, and real estate taxes. The Borrower, its Subsidiaries and Parent have paid all taxes which are now due and payable, or, with respect to those taxes which are being contested in good faith, the Borrower, its Subsidiaries and Parent have made an appropriate reserve on their respective financial statements for the same. No taxing authority has asserted or assessed any additional tax liabilities against the Borrower, its Subsidiaries and Parent which are outstanding on this date, and the Borrower, its Subsidiaries and Parent have filed for any extension of time for the payment of any tax or the filing of any tax return or report.

(f) Title. Each of the Borrower, SOHO Philly, MHI and Parent has good and marketable title to their respective assets reflected on the most recent consolidated balance sheet submitted to the Lenders, free and clear from all Liens, except for Permitted Liens.

(g) Defaults. The Borrower, its Subsidiaries and Parent are in compliance with all material agreements applicable to them and there does not now exist any default or violation by the Borrower, its Subsidiaries and Parent of or under any of the terms, conditions or obligations of (a) its articles of incorporation, or by-laws or (b) any other material contract, agreement or instrument to which the Borrower, its Subsidiaries and Parent are a party or by which they are bound.

(h) Solvency. The Borrower, each Subsidiary and Parent are Solvent.

(i) Absence of Material Adverse Effect. There has been no act, condition or event which has had or is reasonably likely to have a Material Adverse Effect since December 31, 2013.

(j) Litigation. There are no legal or other proceedings or investigations pending or threatened against the Borrower or any of its Subsidiaries or Parent before anycourt, tribunal or regulatory authority which would, if adversely determined, alone or together, have a Material Adverse Effect.

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(k) Absence of Events of Default. No event has occurred and is continuing and no condition exists which constitutes an Event of Default.

(l) Absence of Other Defaults. The Borrower, its Subsidiaries and Parent are not in default under any agreement, ordinance, resolution, decree, bond, note, indenture, order or judgment to which any of them is a party (by successor in interest or otherwise) or by which it is bound, or any other agreement or other instrument by which any of their properties or assets owned by them or used in the conduct of their business is affected, which individually or in the aggregate would have a Material Adverse Effect.

(m) Margin Regulations. The Borrower, its Subsidiaries and Parent are not engaged in the business of extending credit to others for the purpose of buying or carrying Margin Stock. Neither the making of the Loan nor any use of proceeds of any such Loan will violate or conflict with the provisions of Regulations T, U or X of the Board of Governors of the Federal Reserve System, as amended from time to time.

(n) Exchange Act Filings, etc. The Borrower and Parent have filed or furnished in a timely manner all reports and other information required to be filed (“Filings”) with the Securities and Exchange Commission (the “Commission”) pursuant to the Exchange Act. On their respective dates of filing or furnishing, the Filings complied in all material respects with the requirements of the Exchange Act, and the published rules and regulations of the Commission promulgated thereunder. On their respective dates of filing or furnishing, the Filings did not include any untrue statement of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, and all financial statements contained in the Filings fairly present the financial position of the Parent, Borrower and its Subsidiaries on and as of the dates referenced in such statements and the results of operations for the periods covered thereby in accordance with GAAP consistently applied throughout the periods involved and prior periods, except as otherwise indicated in the notes to such financial statements. None of the representations or warranties of the Borrower contained in the Loan Documents are untrue or incorrect in any material respect when made and on the Closing Date.

13. Affirmative Covenants. The Borrower covenants and agrees that until payment in full of all obligations under this Note, the Borrower shall perform all the following covenants:

(a) Financial Reporting. The Borrower shall furnish to the Lenders: (i) as soon as available but in any event, within ninety (90) days after the close of each fiscal year of the Borrower, the audited consolidated financials of the Borrower and its Subsidiaries for such fiscal year, certified by its accountants; (ii) within one Business Day of filing any Filing with the Commission, a copy of such Filing;

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(iii) as soon as available but in any event within forty-five (45) days after the end of each fiscal quarter of the Borrower, the unaudited consolidated financials of the Borrower and its Subsidiaries for such quarter, certified by their chief financial officer pursuant to a financial officer certification; (iv) as soon as available but in any event within thirty (30) days after the end of each fiscal month, the unaudited consolidated financials of the Borrower and its Subsidiaries for such month, certified by their chief financial officer pursuant to a financial officer certification; (v) together with the quarterly unaudited and annual audited consolidated financials, a certificate of the Borrower’s chief financial officer certifying that no Default or Event of Default has occurred, or if a Default or an Event of Default has occurred, the actions taken by the Borrower with respect thereto; (vi) as soon as available but in any event within 45 days after the end of each calendar quarter, a quarterly financial compliance report with supporting detailed calculations attached, certified by the Borrower’s chief financial officer, regarding compliance with the Debt Service Coverage Ratio in Paragraph 15; and (vii) any other information or reports supplied to any of the Borrower’s other lenders, including but not limited to the quarterly financial covenant compliance report with supporting detailed calculations attached.

(b) Books and Records. The Borrower shall keep true and accurate books of account in accordance with GAAP and shall permit the Lenders and/or any of their designated representatives, upon reasonable notice and at the expense of the Borrower, to visit and inspect the premises of the Borrower and its Subsidiaries to examine the books of account of the Borrower (and to make copies and/or extracts therefrom) and to discuss the affairs, finances and accounts of such persons with, and to be advised as to the same by, the officers of such persons and to be advised as to such or other business records upon the request of the Lenders.

(c) Legal Existence. The Borrower shall maintain its corporate/legal existence and business, maintain its assets in good operating conditions and repair (subject to ordinary wear and tear), keep its business and assets adequately insured, maintain its chief executive office in the United States, continue to engage in the same lines of business, and comply in all material respects with all legal regulations, including, without limitation, ERISA and environmental laws.

(d) Notice of Defaults. The Borrower shall notify the Lenders promptly in writing (i) of the occurrence of any Default or Event of Default, (ii) of its obtaining knowledge of any noncompliance with ERISA or any environmental law or proceeding in respect thereof which could have a material adverse effect on such person, (iii) of any change of address of the Borrower, (iv) of the Borrower’s obtaining knowledge of any threatened or pending litigation or similar proceeding affecting it involving claims in excess of $100,000 in the aggregate or any material change in any such litigation or proceeding previously reported, (v) of the Borrower’s obtaining knowledge of claims in excess of $100,000 in the aggregate against any of its assets or properties and (vi) of any new or change,

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amendment, modification or supplement in any management contract relating to the hotel owned by SOHO Philly or any successors or assigns along with a copy of such new, changed, amended, modified or supplemented management agreement.

(e) Use of Proceeds. The Borrower shall use the proceeds of the Loan only as permitted by Paragraph 7 hereof.

(f) Cooperation. The Borrower shall cooperate with the Lenders, take such action, execute such documents, and provide such information as the Lenders may from time to time reasonably request in order further to effect the transactions contemplated by and the purposes of the Loan Documents.

(g) Taxes. The Borrower shall pay when due (including any extension thereof) all taxes, assessments and other governmental charges imposed upon it or its assets, franchises, business, income or profits before any penalty or interest accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which by law might be a Lien upon any of its assets, provided that (unless any material item or property would be lost, forfeited or materially damaged as a result thereof) no such charge or claim need be paid if it is being diligently contested in good faith, if the Lenders are notified in advance of such contest and if the Borrower establishes an adequate reserve or other appropriate provision required by GAAP.

(h) Compliance with Laws. The Borrower shall comply with all federal, state and local laws, regulations and orders applicable to the Borrower and its Subsidiaries or their assets in all respects material to the Borrower’s and its Subsidiaries’ business or assets and shall immediately notify the Lender of any violation of any rule, regulation, statute, ordinance, order or law relating to the public health or the environment and of any complaint or notifications received by the Borrower and any of its Subsidiaries regarding to any environmental or safety and health rule, regulation, statute, ordinance or law. The Borrower shall obtain and maintain any and all licenses, permits, franchises, governmental authorizations, patents, trademarks, copyrights or other rights necessary for the ownership of its properties and the conduct of its business and as may be required from time to time by applicable law.

(i) Further Assurances. The Borrower shall promptly, upon request by the Lenders, correct any defect or error that may be discovered in any Loan Document or in the execution, acknowledgment or recordation of the Loan Document. Promptly upon request by the Lenders, the Borrower shall execute, acknowledge, deliver, record, file and register, any and all such further acts, deeds, conveyances, documents, continuations, notices of assignment, transfers, certificates, assurances and other instruments as the Lenders may require from time to time in order to carry out more effectively the purposes of each Loan Document.

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14. Certain Negative Covenants. Until payment in full of all obligations under this Note, the Borrower shall not, and shall cause SOHO Philly to not:

(a) Indebtedness. incur or create any Indebtedness other than as set forth on Schedule 14(a) (“Permitted Indebtedness”);

(b) Liens. mortgage, assign, pledge, transfer or otherwise permit any Lien other than as set forth on Schedule 14(b) (“Permitted Liens”).

(c) Merger; Disposition or Acquisition of Assets. (i) merge or consolidate with any entity; (ii) amend or change its articles of incorporation, articles of organization or code of regulations/bylaws, in each case, in a manner that has a material adverse effect on the Borrower’s ability to perform its obligations under any Loan Document; (iii) except with respect to the disposition of real property with the prior written consent of the Lenders or an Approved SOHO Philly Asset Sale, sell, lease, transfer or otherwise dispose of, or grant any Person an option to acquire, or sell and leaseback, all or any substantial portion of its assets, whether now owned or hereafter acquired (in each case other than in the ordinary course of business); provided that no later than the second Business Day following the date of receipt by SOHO Philly or the Borrower of any Net Asset Sale Proceeds from the disposition of real property, the Borrower shall permanently prepay the Loan in an aggregate amount equal to such Net Asset Sale Proceeds; or (iv) acquire, purchase or otherwise obtain assets or property, including shares of Capital Stock, other than in the ordinary course of business and in any event in amount in excess of $2,000,000.

(d) Subsidiaries. form, or cause to be formed, any Subsidiary.

15. Financial Covenant. The Borrower covenants and agrees that until payment in full of all obligations under this Note, the Borrower shall cause SOHO Philly to perform and be in compliance with the following:

(a) The Debt Service Coverage Ratio for SOHO Philly for each calendar quarter shall not be greater than 1.25 to 1.0. The first calendar quarter for calculation of the Debt Service Coverage Ratio shall be the quarter ending June 30, 2014.

(b) In the event of a breach of the covenant in Paragraph 15(a), the Borrower may make principal payments on the Indebtedness of SOHO Philly in an amount necessary to cure such default and to bring the applicable ratio into compliance.

16. Taxes: Withholding, etc.

(a) Payments to Be Free and Clear. All sums payable by the Borrower under this Note shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any tax imposed, levied, collected, withheld or assessed by or within any governmental authority.

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(b) Withholding of Taxes. If the Borrower is required by law to make any deduction or withholding on account of any tax from any sum paid or payable by the Borrower to the Lenders under this Note, (i) the Borrower shall notify the Lenders of any such requirement or any change in any such requirement as soon as such Borrower becomes aware of it, (ii) the Borrower shall pay any such tax before the date on which penalties attach thereto, such payment to be made for its own account, and (iii) the sum payable by the Lenders in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, the Lenders receive on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made.

17. Expenses; Indemnification.

(a) Expenses. The Borrower agrees to promptly pay (i) all the actual and reasonable costs and expenses of the administration of this Note, the Loan Documents and all other documents, instruments or agreements executed and delivered by Borrower for the benefit of any Lender in connection herewith, and any amendments, consents, waivers or other modifications to this Note, the Loan Documents and such other documents, instruments or agreements executed and delivered by the Borrower for the benefit of any Lender in connection herewith, including, without limitation, the reasonable fees, expenses and disbursements of counsel to the Lenders, and (ii) after the occurrence of a Default, all costs and expenses, including attorneys’ fees and costs of settlement, incurred by the Lenders in enforcing any obligations under this Note or in collecting any payments due from the Borrower under this Note by reason of such Default or in connection with any refinancing or restructuring of this Note provided hereunder in the nature of a ‘‘work-out” or pursuant to any insolvency or bankruptcy cases or proceedings.

(b) Indemnification. The Borrower shall indemnify the Lenders and their respective affiliates, shareholders, partners, managers, members, directors, officers, employees, agents and affiliates (collectively, the “Lender Indemnified Persons”) against and hold each Lender Indemnified Person harmless from any and all liabilities, losses, damages, costs, expenses (including reasonable attorneys’ fees and expenses) that the Lender Indemnified Persons may suffer or become subject to arising out of or in connection with this Note, the use of proceeds hereof or any claim, litigation, investigation or proceeding relating to any of the foregoing, regardless of whether any Lender Indemnified Person is a party thereto. No Lender Indemnified Person shall be liable for any indirect or consequential damages in connection with its obligations hereunder or its activities related to this Note.

18. Successors and Assigns. This Note will be binding upon and inure to the benefit of and is enforceable by the respective successors and permitted assigns of the parties hereto.

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This Note may not be assigned by the Borrower hereto without the prior written consent of the Lenders. Any assignment or attempted assignment in contravention of Paragraph 19 will be void ab initio and will not relieve the assigning party of any obligation under this Note.

19. Assignments and Participations. Each Lender may assign (each, an “Assignment”) to one or more Persons (each, an “Assignee”) all or a portion of its rights and obligations under this Note (including all or a portion of such Lender’s Loan). Each Assignment shall be subject to the following:

(a) Consent. Assignments shall be subject to the prior written consent of the Borrower, provided that no consent of the Borrower shall be required for an assignment to a Lender or an affiliate of a Lender or, if an Event of Default has occurred and is continuing; or

(b) Minimum Transfer. Except in the case of an Assignment to a Lender or an affiliate of a Lender the amount of the Loan of the assigning Lender subject to each such Assignment (determined as of the date of the Assignment) shall not be less than $1,000,000 or an assignment of the entire remaining amount of the assigning Lender’s Loan (if less than $1,000,000) unless the Borrower otherwise consents, provided that no such consent of the Borrower shall be required if an Event of Default has occurred and is continuing;

(c) Participations. Each Lender may sell participations to one or more Persons (other than to the Borrower or any of its affiliates) in all or a portion of such Lender’s rights and obligations under this Note (including all or a portion of such Lender’s Loan); provided that (i) such Lender’s obligations under this Note shall remain unchanged, (ii) such Lender shall remain solely responsible to the Borrower for the performance of such obligations, and (iii) the Borrower shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Note. Any agreement or instrument pursuant to which such Lender sells a participation shall provide that such Lender shall retain the sole right to enforce the Loan Documents and to approve any amendment, modification or waiver of any provision of the Loan Documents; provided that such agreement or instrument may provide that such Lender will not, without the consent of the participant, agree to any amendment, modification or waiver to (i) extend the final scheduled maturity of any Loan in which such participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant’s participation over the amount thereof then in effect, (ii) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Note or (iii) when applicable, release all or substantially all of the Collateral supporting the Loan hereunder.

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20. Miscellaneous.

(a) Notices. Except as otherwise expressly provided herein, all notices and other communications made or required to be given pursuant to this Note shall be made in writing and delivered personally, by overnight courier or by registered mail to the parties at the following address or sent by facsimile, with confirmation received, to the facsimile number specified below (or at such other address or facsimile number as will be specified by a party by like notice given at least five calendar days prior thereto). All notices, requests, demands and other communications will be deemed delivered when actually received.

If to the Borrower, at:

Sotherly Hotels LP

410 W. Francis Street

Williamsburg, Virginia 23185

Attn: David R. Folsom

Telephone: (757) 229-5648

Facsimile: (757) 564-8801

With a copy to:

Baker & McKenzie LLP

815 Connecticut Avenue, NW

Washington, D.C. 20006-4078

Attn: Thomas J. Egan, Jr., Esq.

Telephone: +1 202 452 7050

Facsimile: +1 202 416 6955

If to the Lenders, at:

Richmond Hill Investment Co., L.P.

375 Hudson Street, 12^th Floor

New York, New York 10014

Attn: Ryan Taylor

Telephone: (646) 833-3258

Facsimile: (866) 758-8541

With a copy to:

Chapman and Cutler LLP

1270 Avenue of the Americas

New York, New York 10020

Attn: Larry G. Halperin, Esq.

Telephone: (212) 655-2517

Facsimile: (212) 655-2518

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(b) Counterparts. This Note may be executed simultaneously in one or more counterparts, and by different parties hereto in separate counterparts, each of which when executed will be deemed an original, but all of which taken together will constitute one and the same instrument.

(c) Amendments. This Note may not be amended, modified or waived except by an instrument in writing signed on behalf of each of the parties hereto.

(d) Governing Law. This Note will be governed by, and construed in accordance with, the laws of the state of New York applicable to contracts executed in and to be performed entirely within such jurisdiction, without reference to conflicts of laws provisions.

(e) Entire Agreement. This Note and the Loan Documents contain and constitute the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior negotiations, agreements and understandings, whether written or oral, of the parties hereto.

(f) Severability. If any term or other provision of this Note is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Note will nevertheless remain in full force and effect.

(g) No Third-Party Rights. This Note is not intended, and will not be construed, to create any rights in any parties other than the Borrower and the Lenders, and no person or entity may assert any rights as third-party beneficiary hereunder.

(h) Submission to Jurisdiction. Each of the Borrower and the Lenders hereby (i) agrees that any action, suit or proceeding with respect to this Note may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, (ii) accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of such courts, (iii) irrevocably waives any objection, including, without limitation, any objection to the laying of venue or based on the grounds of forum non conveniens, which it may now or hereafter have to the bringing of any action, suit or proceeding in those jurisdictions, and (iv) irrevocably consents to the service of process of any of the courts referred to above in any action, suit or proceeding by the mailing of copies of the process to the parties hereto as provided in Paragraph 20(a) above.

(i) Waiver of Jury Trial. EACH OF THE BORROWER AND THE LENDERS HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHT UNDER THIS NOTE OR ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR TO BE DELIVERED IN CONNECTION WITH THIS NOTE AND AGREES THAT ANY ACTION, SUIT OR PROCEEDING WILL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

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(j) Ambiguities. This Note was negotiated between legal counsel for the parties and any ambiguity in this Note will not be construed against the party who drafted this Note.

(k) No Waiver; Remedies. No failure or delay by any party in exercising any right, power or privilege under this Note will operate as a waiver of the right, power or privilege. A single or partial exercise of any right, power or privilege will not preclude any other or further exercise of the right, power or privilege or the exercise of any other right, power or privilege.

(l) Patriot Act. The Lenders hereby notify the Borrower that pursuant to the requirements of the Act, they may be required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow the Lenders to identify Borrower in accordance with the Act.

(m) Right of Setoff. If an Event of Default shall have occurred and be continuing, the Lenders and each of their respective affiliates are hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by the Lender or any such affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Note or any other Loan Document to the Lender, irrespective of whether or not the Lender shall have made any demand under this Note or any other Loan Document and although such obligations of the Borrower may be contingent or unmatured or are owed to a branch or office of the Lender different from the branch or office holding such deposit or obligated on such Indebtedness. The rights of the Lender and its affiliates under this Paragraph are in addition to other rights and remedies (including other rights of setoff) that the Lenders or their respective affiliates may have. The Lenders agree to notify the Borrower promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.

[signature page follows on next page]

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BORROWER:	SOTHERLY HOTELS LP
	By:	Sotherly Hotels Inc., its General Partner
	By:	/s/ David R. Folsom
		Name: David R. Folsom
		Title:    President and Chief Operating Officer

SIGNATURE PAGE TO NOTE AGREEMENT

LENDER AND AGENT:	RICHMOND HILL CAPITAL PARTNERS, LP
	By:	Richmond Hill Investment Co., L.P., its
	Investment Manager
	By:	/s/ Ryan P. Taylor
		Name: Ryan P. Taylor
		Title: Authorized Signatory
LENDER:	ESSEX EQUITY JOINT INVESTMENT
	VEHICLE, LLC
	By:	Richmond Hill Investments, LLC, its
	Investment Manager
	By:	/s/ Ryan P. Taylor
		Name: Ryan P. Taylor
		Title: Authorized Signatory

SIGNATURE PAGE TO NOTE AGREEMENT

SCHEDULE I

Lender Commitments

Lender	Term Loan Commitment
Richmond Hill Capital Partners, LP	$	5,130,000
Essex Equity Joint Investment Vehicle, LLC	$	13,870,000
TOTAL	$	19,000,000

SCHEDULE 14(a)

Permitted Indebtedness

Any and all Indebtedness from time to time of SOHO Philly in respect of any mortgage in a principal amount up to $34,000,000 on real property owned by SOHO Philly.

SCHEDULE 14(b)

Permitted Liens

1. Liens existing on the date hereof and granted by SOHO Philly in favor of TD Bank, N.A. to secure the mortgage on the Hilton Philadelphia Airport hotel property.

2. Liens upon any property or asset securing loans to any Subsidiary from a third party lender the proceeds of which were used to acquire such property or refinance the debt which funded the acquisition of such property or asset, and which loan has recourse for payment contractually limited to the property or assets so financed or refinanced.

3. Liens incurred in the extension, renewal or refinancing of the indebtedness secured by liens described in (1) or (2) above, provided that any extension, renewal or replacement lien is limited to the property encumbered by the existing lien and the principal amount of such indebtedness is not increased.

4. Liens for taxes, assessments or similar charges, incurred in the ordinary course of business that are not yet due and payable or that are being contested in good faith and with due diligence by appropriate proceedings.

5. Pledges or deposits made in the ordinary course of business to secure payment of workers’ compensation, or to participate in any fund in connection with workers’ compensation, unemployment insurance, old-age pensions or other social security programs.

6. Liens of mechanics, materialmen, warehousemen, carriers or other like Liens, securing obligations incurred in the ordinary course of business that: (a) are not yet due and payable or (b) are being contested diligently in good faith pursuant to appropriate proceedings.

7. Liens arising by reason of any judgment, decree or order of any court, arbitral tribunal or similar entity so long as any appropriate legal proceedings that may have been initiated for the review of such judgment, decree or order have not been finally terminated or the period within which such proceedings may be initiated has not expired.

8. Good faith pledges of cash or deposits of cash made in the ordinary course of business to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, or good faith pledges of cash or deposits of cash made in the ordinary course of business to secure statutory obligations, or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business.

9. Encumbrances consisting of zoning restrictions, easements or other restrictions on the use of real property, none of which materially impairs the use of such property by the holder thereof in the operation of its business, and none of which is violated in any material respect by existing or proposed restrictions on land use.

10. Liens in favor of the Agent and the Lenders or otherwise created or arising under the Collateral Documents.

EXHIBIT A

Guaranty

GUARANTY

FOR VALUE RECEIVED, and in consideration of any loan or other financial accommodation heretofore or hereafter at any time made or granted to SOTHERLY HOTELS LP, a partnership organized under the laws of the State of Delaware (“Borrower”) by the Lenders (as hereinafter defined) and by RICHMOND HILL CAPITAL PARTNERS, LP, as Agent for Lenders (in such capacity, together with its successors and assigns in such capacity, the “Agent”), the undersigned (“Guarantor”) hereby agrees, as of March 26, 2014, as follows:

RECITALS

A. Pursuant to the Note Agreement, dated as of March 26, 2014 (as the same may be amended, restated, extend, joined, supplemented and/or otherwise modified from time to time, the “Note Agreement”; capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Note Agreement), the Agent and the entities from time to time party thereto (individually, each a “Lender” and collectively, the “Lenders”) extended a commitment of $19,000,000 to Borrower.

B. As a condition to entering into the Note Agreement, the Agent and the Lenders require the execution and delivery of this Guaranty by Guarantor.

C. Guarantor hereby agrees that it will derive substantial benefit from the commitment and the making of the Loan under the Note Agreement.

ACCORDINGLY, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1. Guaranty of Obligations. Guarantor unconditionally, absolutely, irrevocably, guarantees the full and prompt payment and performance when due, whether by acceleration or otherwise, and at all times thereafter, of all obligations of Borrower to the Lenders and Agent, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or now or hereafter existing or due or to become due, including, without limitation, all obligations under or in connection with the Note Agreement and each of the documents, instruments and agreements executed and delivered in connection therewith, as each may be modified, increased, amended, supplemented or replaced from time to time (all such obligations are herein referred to, collectively, as the “Liabilities”, and all documents evidencing or securing any of the Liabilities, including without limitation, the Note Agreement and Collateral Documents, are herein referred to, collectively, as the “Loan Documents”). This Guaranty (this “Guaranty”) is a guaranty of payment and performance when due and not of collection. Notwithstanding the foregoing, Guarantor shall not be liable for any expenses under this paragraph if no payment by Guarantor is or was due in respect of the Liabilities.

In the event of any default by Borrower in making payment of, or default by Borrower in performance of any of the Liabilities, including but not limited to an Event of Default under the

Note Agreement (as defined therein), Guarantor agrees on demand by Agent to pay and perform all of the Liabilities as are then or thereafter become due and owing or are to be performed under the terms of the Loan Documents. Guarantor further agrees to pay all expenses (including, without limitation, reasonable attorneys’ fees and expenses) paid or incurred by Agent in endeavoring to collect the Liabilities, or any part thereof, and in enforcing this Guaranty.

2. Continuing Nature of Guaranty and Liabilities. Except pursuant to the conditions of Paragraph 4 below, this Guaranty shall be continuing and shall not be discharged, impaired or affected by:

a. the insolvency of Guarantor or the payment in full of all of the Liabilities at any time or from time to time prior to termination of the Note Agreement and all other Loan Documents and the full and final release and discharge of all obligations of all parties thereunder;

b. the power or authority or lack thereof of Borrower to incur the Liabilities;

c. the validity or invalidity of any of the Loan Documents or the documents securing the same;

d. the existence or non-existence of any Borrower as a legal entity;

e. any transfer by Borrower or its Subsidiaries of all or any part of any collateral in which Agent has been granted a lien or security interest pursuant to the Loan Documents;

f. any statute of limitations affecting the liability of Guarantor under this Guaranty or the Loan Documents or the ability of Agent to enforce this Guaranty or any provision of the Loan Documents or any of the Collateral Documents (as defined in the Note Agreement); or

g. any right of offset, counterclaim or defense of Guarantor whatsoever (other than payment in part or in full and performance in full of all of the Liabilities after the termination of the Note Agreement in accordance with the terms of the Loan Documents), including, without limitation, those which have been waived by Guarantor pursuant to Paragraphs 6 and 8 hereof.

3. Insolvency of Borrower or Guarantor. Without limiting the generality of any other provision hereof, Guarantor agrees that, in the event of the dissolution or insolvency of Borrower or the inability of Borrower to pay its debts as they mature, or an assignment by Borrower for the benefit of creditors, or the institution of any proceeding by or against Borrower alleging that Borrower is insolvent or unable to pay its debts as they mature and in the case of any proceeding against Borrower, such proceeding is not stayed or dismissed within sixty (60) days, Guarantor will pay to Agent forthwith the full amount which would be payable hereunder by Guarantor if all of the Liabilities were then due and payable, whether or not such event occurs at a time when any of the Liabilities are otherwise due and payable.

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4. Payment of the Liabilities. Any amounts received by Agent from whatever source on account of the Liabilities may be applied by Agent toward the payment of such of the Liabilities, and in such order of application, as provided in the Note Agreement, and notwithstanding any payments made by or for the account of Guarantor pursuant to this Guaranty.

Guarantor agrees that, if at any time all or any part of any payment theretofor applied by Agent to any of the Liabilities is or must be rescinded or returned by Agent for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of Borrower), such Liabilities shall, for the purposes of this Guaranty and to the extent that such payment is or must be rescinded or returned, be deemed to have continued in existence notwithstanding such application by Agent, and this Guaranty shall continue to be effective or be reinstated, as the case may be, as to such Liabilities, all as though such application by Agent had not been made.

5. Permitted Actions of Agent. Agent may from time to time, in its sole discretion and without notice to Guarantor, take any or all of the following actions:

a. retain or obtain a security interest in any assets of Borrower or any third party to secure any of the Liabilities or any obligations of Guarantor hereunder;

b. retain or obtain the primary or secondary obligation of any obligor or obligors, in addition to Guarantor, with respect to any of the Liabilities;

c. extend or renew for one or more periods (whether or not longer than the original period), alter, exchange or increase any of the Liabilities;

d. waive, ignore or forbear from taking action or otherwise exercising any of its default rights or remedies with respect to any default by Borrower under the Loan Documents;

e. release, waive or compromise any obligation of Guarantor hereunder or any obligation of any nature of any other obligor primarily or secondarily obligated with respect to any of the Liabilities, without notice to any other obligor or any other guarantor;

f. release its security interest in, or surrender, release or permit any substitution or exchange for, all or any part of any collateral now or hereafter securing any of the Liabilities or any obligation hereunder, or extend or renew for one or more periods (whether or not longer than the original period) or release, waive, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property; and

g. demand payment or performance of any of the Liabilities which are due and owing from Guarantor at any time or from time to time, whether or not Agent shall have exercised any of its rights or remedies with respect to any property securing any of the Liabilities or any obligation hereunder, or proceeded against any other obligor primarily or secondarily liable for payment or performance of any of the Liabilities.

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6. Specific Waivers. Without limiting the generality of any other provision of this Guaranty, Guarantor hereby expressly waives:

a. notice of the acceptance by Agent of this Guaranty;

b. notice of the existence, creation, payment, nonpayment, performance or nonperformance of all or any of the Liabilities;

c. presentment, demand, notice of dishonor, protest, notice of protest, notice of intent to accelerate, notice of acceleration, and all other notices whatsoever with respect to the payment or performance of the Liabilities or the amount thereof or any payment or performance by Guarantor hereunder;

d. all diligence in collection or protection of or realization upon the Liabilities or any thereof, any obligation hereunder or any security for or guaranty of any of the foregoing;

e. any right to direct or affect the manner or timing of Agent’s lawful enforcement of its rights or remedies;

f. any defense, right of set-off or other claim whatsoever (other than payment in full and performance in full of all of the Liabilities after any termination of the Note Agreement in accordance with the terms of the Loan Documents) that Borrower or any third party may or might have to the payment or performance of the Liabilities;

g. any and all defenses which would otherwise arise upon the occurrence of any event or contingency described in Paragraph 1 hereof or upon the taking of any action by Agent permitted hereunder;

h. any defense, right of set-off, claim or counterclaim whatsoever (other than payment and performance in full or part of all of the Liabilities after any termination of the Note Agreement in accordance with the terms of the Loan Documents), and any and all other rights, benefits, protections and other defenses which Guarantor may have, now or at any time hereafter, to full payment or performance of the Liabilities pursuant to the terms of this Guaranty; and

i. all other principles or provisions of law, if any, that conflict with the terms of this Guaranty, including, without limitation, the effect of any circumstances that may or might constitute a legal or equitable discharge of a guarantor or surety.

7. Irrevocability. Guarantor hereby further waives all rights to revoke this Guaranty at any time, and all rights to revoke any agreement executed by Guarantor at any time to secure the payment and performance of Guarantor’s obligations under this Guaranty, including, without limitation, the Loan Documents.

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8. Waiver of Subrogation and Certain Other Rights. Prior to the satisfaction in full of all Liabilities, Guarantor hereby waives and shall have no right of subrogation, reimbursement, exoneration, contribution or indemnity against Borrower or any other guarantor for any reason, including but not limited to, by reason of any payments made or acts performed by Guarantor in compliance with the obligations of Guarantor hereunder or any actions taken by Agent pursuant to this Guaranty or pursuant to the Loan Documents.

Guarantor agrees that nothing contained in this Guaranty shall prevent Agent from suing to collect on the Liabilities or from exercising concurrently or successively any rights available to it at law and/or in equity or under any of the Loan Documents, and that the exercise of any of the aforesaid rights shall not constitute a legal or equitable discharge of Guarantor. Guarantor hereby authorizes and empowers Agent to exercise, in its sole discretion, any rights and remedies, or any combination thereof, which may then be available, since it is the intent and purpose of Guarantor that the obligations hereunder shall be absolute, independent and unconditional under any and all circumstances.

Notwithstanding any foreclosure of the lien of any Collateral Document with respect to any or all of any real or personal property secured thereby, whether by the exercise of the power of sale contained therein, by an action for judicial foreclosure, or by the acceptance of a deed or possession of any other collateral in lieu of foreclosure, Guarantor shall remain bound under this Guaranty. Without limiting the generality of the foregoing, Guarantor specifically agrees that upon an Event of Default under and as defined in the Note Agreement, Agent may elect to nonjudicially or judicially foreclose against any real or personal property, including but not limited to its rights under any Pledge Agreement executed by Guarantor in favor of Agent.

9. Certain Covenants. Guarantor covenants and agrees that it shall take all reasonable action necessary to permit or enable Borrower to comply with Borrower’s obligations under the Note Agreement. Except as permitted under the Note Agreement and the Loan Documents, Guarantor shall not, until indefeasible payment and satisfaction in full in cash of the obligations and termination of the Note Agreement, accept any payment or other transfer of assets or funds from Borrower, including without limitation, the payment of any management, consulting or similar fees; provided, however, that except at any time when an Event of Default under and as defined in the Note Agreement exists and is continuing, the foregoing limitation shall not apply to Guarantor’s acceptance of any payment or transfer effected in the ordinary course of business or to dividends or other distributions regularly and lawfully declared and paid by the Borrower.

10. Limitation on Incurrence of Debt. Guarantor covenants and agrees that until all obligations are performed in full and indefeasibly paid in full in cash and the Loan Documents are terminated, Guarantor will not, and will not permit any Subsidiary to:

a. incur any Indebtedness if, immediately after giving effect to the incurrence of such Indebtedness and the application of the proceeds thereof, the ratio of the aggregate principal amount of all outstanding Indebtedness to Adjusted Total Asset Value would be greater than 0.65 to 1.0.

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b. incur any Indebtedness if the ratio of Stabilized Consolidated Income Available for Debt Service to Stabilized Consolidated Interest Expense on the date on which such additional Indebtedness is to be incurred, on a pro forma basis, after giving effect to the incurrence of such Indebtedness and the application of the proceeds thereof, would be less than 1.5 to 1.0.

For purposes of Paragraph 10, the following terms shall have the meanings set forth below:

“Adjusted Total Asset Value” as of any date means the sum of (i) Stabilized Asset Value, (ii) Non-Stabilized Asset Value and (iii) total cash and cash equivalents of Guarantor and its Subsidiaries on a consolidated basis determined in accordance with GAAP.

“Asset Under Renovation” means as of any date any hotel asset directly or indirectly owned by Guarantor, any Subsidiary or any Unconsolidated Entity, that is designated by Guarantor in its discretion as the recipient or beneficiary of capital expenditures in an amount greater than 4% of such hotel asset’s total revenues for the preceding 12 months.

“Capitalization Rate” means 7.5%.

“Consolidated Income Available for Debt Service” means, for the four complete calendar quarters preceding the date of determination, Consolidated Net Income of Guarantor and its Subsidiaries plus amounts that have been deducted for but minus amounts that have been added for (a) Consolidated Interest Expense plus dividends on mandatorily redeemable or mandatorily convertible preferred stock and prepayment penalties included in GAAP interest expense, (b) provision for taxes of Guarantor and its Subsidiaries based on income, (c) depreciation and amortization and all other non-cash items deducted for purposes of calculating Consolidated Net Income, (d) provision for gains and losses on sales or other dispositions of properties and other investments, (e) extraordinary items, (f) non-recurring or other unusual items, as determined by Guarantor in good faith and (g) corporate, general and administrative expenses.

“Consolidated Interest Expense” means, for the four complete calendar quarters preceding the date of determination, the aggregate amount of interest expense for Guarantor and its Subsidiaries for such period determined in accordance with GAAP, excluding any interest that is (i) payable in respect of Capital Stock, (ii) capitalized or (iii) payable in a form other than cash.

“Consolidated Net Income” means, for the four complete calendar quarters preceding the date of determination, the amount of net income (or loss) of Guarantor and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP.

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“Non-Stabilized Asset” means, as of any date, any hotel asset owned by Guarantor, any Subsidiary or any Unconsolidated Entity that (i) is, or within the preceding 24 months has been, an Asset Under Renovation, or (ii) has, within the preceding 24 months, (A) completed a brand change, (B) been subject to an event, or a series of events, giving rise to a material casualty or (C) is in, or has completed, condemnation proceedings in respect of all or any part of such hotel asset.

“Non-Stabilized Asset Value” as of any date means the total “as-stabilized” value of all Non-Stabilized Assets as determined by an appraisal for each Non-Stabilized Asset which will be commissioned by Guarantor from a certified MAI appraiser in December of each year during which the Note Agreement and the other Loan Documents remain outstanding.

“Stabilized Asset” means, as of any date, any hotel asset owned by Guarantor, any Subsidiary or any Unconsolidated Entity that does not constitute a Non-Stabilized Asset.

“Stabilized Asset Value” as of any date means the total value of all Stabilized Assets determined by dividing (i) Stabilized Consolidated Income Available for Debt Service by (ii) the Capitalization Rate.

“Stabilized Consolidated Income Available for Debt Service” as of any date means Consolidated Income Available for Debt Service of Guarantor and its Subsidiaries, excluding any portion of Consolidated Income Available for Debt Service attributable to a Non-Stabilized Asset.

“Stabilized Consolidated Interest Expense” as of any date means Consolidated Interest Expense of Guarantor and its Subsidiaries, excluding any portion of Consolidated Interest Expense relating to Indebtedness that is secured by a Non-Stabilized Asset.

“Unconsolidated Entity” means a Person, other than a Subsidiary, in which Guarantor holds a direct or indirect ownership interest that is accounted for under the equity method of accounting or the cost method of accounting.

11. Subordination. Guarantor hereby subordinates any and all indebtedness of Borrower to Guarantor to the full and prompt payment and performance of all of the Liabilities. Guarantor agrees that Agent shall be entitled to receive payment of all Liabilities prior to Guarantor’s receipt of payment of any amount of any indebtedness of Borrower to Guarantor. Any payments on such indebtedness to Guarantor, if Agent so requests, shall be collected, enforced and received by Guarantor, in trust, as trustee for Agent and shall be paid over to Agent on account of the Liabilities, but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty. Agent is authorized and empowered, but not obligated, in its discretion, (a) in the name of Guarantor, to collect and enforce, and to submit claims in respect of, indebtedness of Borrower to Guarantor and to apply any amounts received thereon to the Liabilities, and (b) to require Guarantor (i) to collect and enforce, and to submit claims in respect of, any indebtedness of Borrower to Guarantor, and (ii) to pay any amounts received on such indebtedness to Agent for application to the Liabilities.

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12. Assignment of Agent’s Rights. Agent may, from time to time, without notice to Guarantor, assign or transfer any or all of the Liabilities or any interest therein and, notwithstanding any such assignment or transfer of the Liabilities or any subsequent assignment or transfer thereof, the Liabilities shall be and remain the Liabilities for the purpose of this Guaranty. Each and every immediate and successive assignee or transferee of any of the Liabilities or of any interest therein shall, to the extent of such party’s interest in the Liabilities, be entitled to the benefits of this Guaranty to the same extent as if such assignee or transferee were Agent; provided, however, that unless Agent shall otherwise consent in writing, Agent shall have an unimpaired right, prior and superior to that of any such assignee or transferee, to enforce this Guaranty for its own benefit as to those of the Liabilities which Agent has not assigned or transferred.

13. Indulgences Not Waivers. No delay in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by Agent of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy; nor shall any modification or waiver of any of the provisions of this Guaranty be binding upon Agent, except as expressly set forth in a writing duly signed and delivered by Agent. Except for the signature and delivery of such a writing, no action of Agent permitted hereunder shall in any way affect or impair the rights of Agent or the obligations of Guarantor under this Guaranty.

14. Financial Condition of the Borrower. Guarantor represents and warrants that it is fully aware of the financial condition of Borrower, and Guarantor delivers this Guaranty based solely upon its own independent investigation of Borrower’s financial condition and in no part upon any representation or statement of Agent with respect thereto. Guarantor further represents and warrants that it is in a position to and hereby does assume full responsibility for obtaining such additional information concerning Borrower’s financial condition as Guarantor may deem material to its obligations hereunder, and Guarantor is not relying upon, nor expecting Agent to furnish it any information in Agent’s possession concerning Borrower’s financial condition or concerning any circumstances bearing on the existence or creation, or the risk of nonpayment or nonperformance of the Liabilities.

Guarantor hereby waives any duty on the part of Agent to disclose to Guarantor any facts it may now or hereafter know about Borrower, regardless of whether Agent has reason to believe that any such facts materially increase the risk beyond that which Guarantor intends to assume, or has reason to believe that such facts are unknown to Guarantor.

Guarantor hereby knowingly accepts the possibility that Borrower will contract for additional indebtedness for which Guarantor may be liable hereunder after Borrower’s financial condition or ability to pay its lawful debts when they fall due has deteriorated.

15. Representations and Warranties. Guarantor represents and warrants to Agent that each of the following statements is accurate and complete as of the date of this Guaranty:

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a. Guarantor is an entity duly organized, validly, existing and in good standing under the laws of the jurisdiction of its organization and is duly qualified and in good standing in each jurisdiction where the nature of its business or properties requires such qualification, except where the failure to qualify could not have a Material Adverse Effect. A “Material Adverse Effect” shall mean a material adverse effect on (a) the financial condition, results of operations, assets, business or properties of Guarantor, (b) Guarantor’s ability to duly and punctually pay or perform the Liabilities in accordance with the terms thereof, (c) to the extent applicable, the value of the Collateral or Agent’s Liens on the Collateral or (d) the practical realization of the benefits of Agent’s and each Lender’s rights and remedies under this Guaranty and the Loan Documents.

b. the execution, delivery and performance by Guarantor of this Guaranty are within the power of Guarantor and have been duly authorized by all necessary actions on the part of Guarantor;

c. this Guaranty has been duly executed and delivered by Guarantor and constitutes a legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally;

d. the execution, delivery and performance of this Guaranty do not (i) violate any provisions of any material law or any order of any court or other agency of government to the extent such violation could reasonably result in a Material Adverse Effect, (ii) contravene any provision of Guarantor’s organizational documents or any material contract or agreement to which Guarantor is a party or by which Guarantor or Guarantor’s assets are bound other than any violation the consequences of which could not have or could not reasonably be expected to have a Material Adverse Effect, or (iii) result in the creation or imposition of any lien, charge or encumbrance of any nature upon any property, asset or revenue of Guarantor except pursuant to or as set forth in the Loan Documents;

e. all consents, approvals, orders and authorizations of, and registrations, declarations and filings with, any governmental agency or authority or other person or entity (including, without limitation, the shareholders or partners of any entity), if any, which are required to be obtained in connection with the execution and delivery of this Guaranty or the performance of Guarantor’s obligations hereunder have been obtained, and each is in full force and effect, except for such consents, approvals, orders, authorizations, registrations, declarations or filings, the failure of which to obtain would not reasonably be expected to have a Material Adverse Effect;

f. Guarantor has paid all taxes and other charges imposed by any governmental agency or authority due and payable by Guarantor other than those which are being challenged in good faith by appropriate proceedings and for which adequate reserves have been established;

g. Guarantor is neither an investment company (as defined in the Investment Company Act of 1940) nor is controlled by an investment company;

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h. no litigation, investigation or proceeding of any governmental authority or agency is pending or, to the knowledge of Guarantor, threatened against Guarantor which, if adversely determined, could have or could reasonably be expected to have a Material Adverse Effect; and

i. Guarantor hereby confirms, adopts and makes, as to itself, as if set out in full herein, all of the other representations and warranties not expressly included in this Agreement that are set forth in the Note Agreement and that relate or apply to Guarantor, and shall be deemed to have made all such representations and warranties as to itself in this Agreement as if set out in full herein.

16. Guarantor Financial Information. Guarantor will provide Agent in writing such financial and other information with respect to its assets and liabilities as Agent shall reasonably request from time to time, in form and substance satisfactory to Agent.

17. Binding Upon Successors. This Guaranty shall be binding upon Guarantor and its successors and assigns and shall inure to the benefit of Agent and its successors and assigns. All references herein to “Borrower” shall be deemed to include its successors and assigns, and all references herein to “Guarantor” shall be deemed to include Guarantor and Guarantor’s successors and assigns.

In addition and notwithstanding anything to the contrary contained in this Guaranty or in any other document, instrument or agreement between or among any of Agent, Borrower, Guarantor or any third party, the obligations of Guarantor with respect to the Liabilities shall be joint and several with any other person or entity that now or hereafter executes a guaranty of any of the Liabilities separate from this Guaranty.

18. Notices. All notices required or permitted to be given hereunder shall be in writing and shall be either personally delivered, faxed to the fax numbers provided herein or sent by United States certified or registered mail, return receipt requested, addressed to Guarantor or Agent at their respective addresses stated below or at such other address as either party hereafter notices the other party as herein provided. Notices shall be effective at the times and in the manner set forth in Paragraph 20 of the Note Agreement.

Address for Notices:

If to Agent:	Richmond Hill Partners, LP
	375 Hudson Street, 12th floor
	New York, NY 10014
	Attention:	Ryan Taylor and Jordan Jones
	Telephone:	(212)989-2700
	Facsimile:	(866)758-8541

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With an additional copy to:

Chapman and Cutler LLP

1270 Avenue of the Americas, 30th Floor

New York, NY 10020

Attention:     Larry G. Halperin

Telephone:   (212) 665-2517

Facsimile:    (212) 697-2518

19. GOVERNING LAW; ADDITIONAL WAIVERS. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLIED TO CONTRACTS TO BE PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, AS AMENDED). ANY JUDICIAL PROCEEDING BROUGHT BY OR AGAINST GUARANTOR WITH RESPECT TO ANY OF THE LIABILITIES, THIS GUARANTY, OR ANY RELATED AGREEMENT MAY BE BROUGHT IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR ANY STATE COURT IN NEW YORK COUNTY, NEW YORK, UNITED STATES OF AMERICA, AND, BY EXECUTION AND DELIVERY OF THIS GUARANTY, GUARANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS GUARANTY. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF AGENT TO BRING PROCEEDINGS AGAINST GUARANTOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. GUARANTOR WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREUNDER AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS. GUARANTOR WAIVES THE RIGHT TO REMOVE ANY JUDICIAL PROCEEDING BROUGHT AGAINST GUARANTOR IN ANY STATE COURT TO ANY FEDERAL COURT. ANY JUDICIAL PROCEEDING BY GUARANTOR AGAINST AGENT INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS GUARANTY OR ANY RELATED AGREEMENT, SHALL BE BROUGHT ONLY IN A FEDERAL OR STATE COURT LOCATED IN THE CITY AND COUNTY OF NEW YORK, STATE OF NEW YORK.

GUARANTOR ACKNOWLEDGES THAT IT HAS EITHER OBTAINED THE ADVICE OF COUNSEL OR HAS HAD THE OPPORTUNITY TO OBTAIN SUCH ADVICE IN CONNECTION WITH THE TERMS AND PROVISIONS OF THIS GUARANTY AND THE LOAN DOCUMENTS. GUARANTOR FURTHER ACKNOWLEDGES THAT BY EXECUTING THIS GUARANTY, IT IS WAIVING CERTAIN RIGHTS AS OTHERWISE SET FORTH HEREIN TO WHICH GUARANTOR MAY OTHERWISE BE ENTITLED BY LAW.

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THIS GUARANTY CONTAINS THE COMPLETE UNDERSTANDING OF THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREIN. GUARANTOR ACKNOWLEDGES THAT IT IS NOT RELYING UPON ANY STATEMENTS OR REPRESENTATIONS OF AGENT OR LENDERS NOT CONTAINED IN THIS GUARANTY AND THAT SUCH STATEMENTS OR REPRESENTATIONS, IF ANY, ARE OF NO FORCE OR EFFECT AND ARE FULLY SUPERSEDED BY THIS GUARANTY.

This Agreement supersedes all prior agreements and understandings, if any, relating to the subject matter hereof. Any promises, representations, warranties or guarantees not herein contained and hereinafter made shall have no force and effect in writing, signed by Guarantor’s officers. Neither this Agreement nor any portion or provisions hereof may be changed, modified, amended, waived, supplemented, discharged, cancelled or terminated orally or by any course of dealing, or in any manner other than by an agreement in writing, signed by the party to be charged.

20. Severability; Captions; Counterparts; Facsimile Signature. If any provision of this Guaranty is adjudicated to be invalid under applicable laws or regulations, such provision shall be inapplicable to the extent of such invalidity without affecting the validity or enforceability of the remainder of this Guaranty which shall be given effect so far as possible. The captions in this Guaranty are intended for convenience and reference only and shall not affect the meaning or interpretation of this Guaranty. This Guaranty may be executed in one or more counterparts (which taken together, as applicable, shall constitute one and the same instrument) and by facsimile transmission or other electronic means, which signatures shall be considered original executed counterparts.

21. WAIVER OF JURY TRIAL. EACH PARTY TO THIS GUARANTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION ARISING HEREUNDER OR IN ANY WAY CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT HERETO OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE. EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS GUARANTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY.

22. Survival. It is the express intention and agreement of the parties hereto that all covenants, representations, warranties, and waivers and indemnities made by Guarantor herein shall survive the execution, delivery, and termination of this Guaranty until all obligations are performed in full and indefeasibly paid in full in cash and the Loan Documents are terminated.

[REMAINDER OF PAGE BLANK; SIGNATURE FOLLOWS]

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IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed as of the date first written above.

Guarantor:
SOTHERLY HOTELS INC.
By:
Name:	David R. Folsom
Title:	President and Chief Operating Officer
Guarantor’s Address for Notices:
410 W. Francis Street
Williamsburg, Virginia 23185
Telephone: (757) 229-5648
Facsimile: (757) 564-8801

[SIGNATURE PAGE TO GUARANTY]

EXHIBIT B

Pledge Agreement

PLEDGE AGREEMENT

This PLEDGE AGREEMENT dated as of March 26, 2014 (as amended, restated, supplemented or modified from time to time, the “Pledge Agreement”) is executed by (i) Sotherly Hotels LP (“Borrower”) and (ii) MHI GP LLC (“GP” and together with Borrower, each a “Pledgor” and together the “Pledgors”), to and for the benefit of Richmond Hill Capital Partners, LP, as agent for the Lenders (as defined hereinafter) (“Agent”).

RECITALS:

WHEREAS, GP is a wholly-owned subsidiary of Borrower;

WHEREAS, Borrower is a party to that certain Note Agreement dated as of March 26, 2014 (as further amended, restated, supplemented or otherwise modified from time to time, the “Note Agreement”), pursuant to which Richmond Hill Capital Partners LP and Essex Equity Joint Investment Vehicle, LLC (each a “Lender” and collectively “Lenders”) have provided a commitment to lend $19,000,000 to the Borrower;

WHEREAS, Pledgors will receive substantial direct and indirect benefits from the commitment to make the Loan (as defined in the Note Agreement) and the granting of the other financial accommodations to Borrower under the Note Agreement;

WHEREAS, pursuant to the Note Agreement, Pledgors are required to execute and deliver this Pledge Agreement in order to secure the obligations and performance of Borrower under the Note Agreement and of Parent under the Guaranty;

NOW, THEREFORE, for and in consideration of the foregoing premises, which are hereby incorporated herein as true, and the mutual promises and agreements contained herein, Pledgors and Agent hereby agree as follows:

AGREEMENTS:

1. Defined Terms. Capitalized terms used but not defined herein shall have the meanings set forth in the Note Agreement. Other capitalized terms used herein shall have the following meanings:

“Charter Documents” shall mean (i) with respect to any Issuer which is a partnership, the partnership agreement and other organizational documents of such Issuer, as the same may be amended, restated, supplemented or otherwise modified from time to time; (ii) with respect to any Issuer which is a limited liability company, the limited liability company agreement, operating agreement and other organizational documents of such Issuer, as the same may be amended, restated, supplemented or otherwise modified from time to time and (iii) with respect to any Issuer which is a corporation, the certificate or articles of incorporation, bylaws, stockholders agreement and other organizational documents of such Issuer, as the same may be amended, restated, supplemented or otherwise modified from time to time.

“Issuer” shall mean any Person listed on Schedule I that has issued any Pledged Equity Interests.

“Obligations” shall mean any and all obligations and liabilities owed to the Agent and the Lenders under the Note Agreement and the Collateral Documents, including all principal, interest, fees and expense reimbursement obligations owed on the Loan.

“Proceeds” shall mean “proceeds”, as such term is defined in the UCC and, in any event, shall include, but not be limited to, (i) any and all payments (in any form whatsoever) made or due and payable to any Pledgor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the “Pledged Collateral” (as hereinafter defined) by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority), (ii) any and all amounts paid or payable to any Pledgor for or in connection with any sale or other disposition of such Pledgor’s interests in Issuer and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Pledged Collateral.

2. Grant of Security Interest. As security for the prompt and complete payment and performance when due of the Obligations of Borrower, each Pledgor hereby irrevocably grants a security interest in and pledges to the Agent, for itself and for the benefit of the Lenders, all of the following (all of which being herein collectively called the “Pledged Collateral”):

(a) all of such Pledgor’s right, title and interest in and to the equity interests of each Issuer set forth opposite such Pledgor’s name on Schedule I (the “Pledged Equity Interests”), including without limitation, all of such Pledgor’s right to receive dividends or distributions at any time or from time to time received, receivable or otherwise distributed, of cash and other property, real, personal or mixed, from the Issuer of such Pledged Equity Interests, upon complete or partial liquidation or otherwise;

(b) subject to Section 5, all of such Pledgor’s right, title and interest, if any, to participate in the management of each Issuer of Pledged Equity Interests owned by such Pledgor and the voting thereof;

(c) all of such Pledgor’s right, title and interest in and to:

(i) all rights, privileges, authority and power of such Pledgor as owner and holder of the items specified in (a) and (b) above, including but not limited to, all rights in, under or arising from or pursuant to the Charter Documents of each Issuer and all contract rights related thereto;

(ii) all options and other agreements for the purchase or acquisition of any interests in each Issuer;

(iii) all documents or certificates representing or evidencing such Pledgor’s rights and interests in each Issuer; and

(iv) to the extent not otherwise included, all Proceeds and products of any of the foregoing.

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3. Representations and Warranties. Each Pledgor hereby represents and warrants that:

(a) Such Pledgor is the sole owner of its Pledged Collateral, free and clear of any and all liens and claims whatsoever except for the security interest granted to Agent pursuant to this Pledge Agreement.

(b) Such Pledgor’s interests in each Issuer of its Pledged Equity Interests are set forth on Schedule I.

(c) Such Pledgor has all power, statutory and otherwise, to execute and deliver this Pledge Agreement, to perform such Pledgor’s obligations hereunder and to subject the Pledged Collateral to the security interest created hereby, all of which has been duly authorized by all necessary action. Such Pledgor had and has the power and legal capacity to execute and carry out the provisions of all Charter Documents to which it is a party. Such Pledgor has substantially performed all of its obligations to date under such Charter Documents, and has not received notice of the failure of any other party thereto to perform its obligations thereunder.

(d) With respect to the Charter Documents of each Issuer: (i) no amendments or supplements have been made thereto since a copy thereof was delivered to Agent, (ii) such Charter Documents remain in full force and effect and (iii) no party to such Charter Documents is presently in default thereunder.

(e) No authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (i) for such Pledgor’s granting of a security interest in such Pledgor’s Pledged Collateral pursuant to this Pledge Agreement for the execution, delivery or performance of this Pledge Agreement by such Pledgor or (ii) for the exercise by Agent of the rights provided for in this Pledge Agreement or the remedies in respect of the Pledged Collateral pursuant to this Pledge Agreement (except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally).

(f) None of the Pledged Equity Interests which are limited liability company interests or partnership interests are “securities” governed by Article 8 of the UCC.

(g) Each Pledgor is Solvent.

4. Covenants. Each Pledgor hereby covenants and agrees that from and after the date of this Pledge Agreement and until the Obligations are fully satisfied:

(a) Further Documentation; Pledge of Instruments. At any time and from time to time, upon the written request of Agent, and at the sole expense of Pledgors, each Pledgor will promptly and duly execute and deliver any and all such further instruments and documents and take such further actions as Agent may reasonably deem desirable to obtain the full benefits of this Pledge Agreement and of the rights and powers herein granted, including, without limitation, the authorization and filing of any financing or continuation statements under the UCC in effect in any jurisdiction with respect to the security interest granted hereby and, if otherwise required hereunder, transferring the Pledged Collateral to

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the possession of Agent (if a security interest in such Pledged Collateral can be perfected by possession) or, following the occurrence of an Event of Default, causing the Issuer to agree (in writing) that it will only comply with instructions originated by Agent without further consent by any Pledgor. Such Pledgor also hereby authorizes Agent to file any such financing or continuation statement without the signature of such Pledgor to the extent otherwise permitted by applicable law. If any amount payable under or in connection with any of the Pledged Collateral shall be or become evidenced by any promissory note or other instrument (other than an instrument which constitutes chattel paper under the UCC), such note or instrument shall be immediately pledged hereunder and a security interest therein hereby granted to Agent and shall be duly endorsed without recourse or warranty in a manner satisfactory to Agent and delivered to Agent.

(b) Continuous Perfection. Such Pledgor shall not, without ten (10) Business Days’ prior written notice to Agent, change its name, change its state of incorporation, formation or organization, change its organizational identification number or reorganize in another jurisdiction and shall have taken all action (or made arrangements to take such action substantially simultaneously with such change if it is impossible to take such action in advance) necessary or reasonably requested by Agent to amend such financing statement or continuation statement so that it is not seriously misleading. Such Pledgor shall not authorize any financing statement naming Pledgor as debtor covering all or any portion of the Pledged Collateral, except financing statements naming Agent as secured party.

(c) Transfer of Assets. Except as otherwise permitted under the Note Agreement or this Pledge Agreement, such Pledgor will not directly or indirectly sell, pledge, mortgage, assign, transfer, or otherwise dispose of or create or suffer to be created any lien, security interest, charging order, or encumbrance on any of the Pledged Collateral or the assets of the Issuer thereof.

(d) Priority of Liens. Such Pledgor will defend the right, title and interest hereunder of Agent, as a first priority security interest in the Pledged Collateral, against the claims and demands of all persons whomsoever.

(e) Performance of Obligations. Such Pledgor will perform all of such Pledgor’s obligations under any Charter Documents governing its Pledged Equity Interests prior to the time that any interest or penalty would attach against such Pledgor or any of the Pledged Collateral as a result of such Pledgor’s failure to perform any of such obligations, and such Pledgor will do all things necessary to maintain such Issuer as a limited liability company, corporation or partnership, as applicable, under the laws of the jurisdiction of its organization and to maintain such Pledgor’s interest as a member in such Issuer in full force and effect without diminution.

(f) Charter Documents. Such Pledgor shall not (i) suffer or permit any amendment or modification of any Charter Documents of the Issuer of its Pledged Equity Interests in any manner materially adverse to Agent or the Lenders or (ii) waive, release, or compromise any rights or claims such Pledgor may have against any other party which arise under such Charter Documents in any manner materially adverse to Agent or the Lenders. Such Pledgor shall not vote under any Charter Documents to cause the Issuer thereunder to dissolve,

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liquidate, merge or consolidate with any other entity or take any other action under any such Charter Documents that would materially adversely affect the security interest granted to Agent hereunder, including, without limitation, the value or priority thereof; except that, so long as no Default has occurred or is continuing or would result therefrom, Borrower may merge with any Person, provided that Borrower shall be the continuing or surviving Person. Such Pledgor shall not permit, suffer or otherwise consent to the issuance of any new or additional equity interests or options or other agreements granting any right to receive equity interests in the Issuer of its Pledged Equity Interests.

(g) Securities. Such Pledgor shall, or shall permit Agent to, promptly take all action necessary or appropriate to cause Agent to have sole and exclusive “control” over the Pledged Collateral, as such term is defined in Article 9 of the UCC. At all times such Pledgor shall take, or shall permit Agent to take, all action necessary or appropriate to create, perfect and maintain a first priority perfected security interest in the Pledged Collateral in favor of Agent. Without limiting the foregoing, such Pledgor shall deliver any and all certificates that evidence the Pledged Collateral together with assignments separate from certificate executed in blank relating thereto.

5. Pledgors’ Powers.

(a) So long as an “Event of Default” (as defined in the Note Agreement) shall not then exist, each Pledgor shall be the sole party entitled (1) to exercise for any purpose any and all (i) voting rights and (ii) powers, and (2) to receive any and all dividends or distributions, in each case arising from or relating to the Pledged Collateral owned by such Pledgor (whereupon such dividends or distributions shall be released from the security interest created hereby); provided, however, that no Pledgor shall exercise such rights or powers, or consent to any action of Issuer that would be in contravention of the provisions of, or constitute an Event of Default under, this Pledge Agreement or the Note Agreement.

(b) Upon the occurrence of an Event of Default, unless Agent designates in writing to Borrower to the contrary, all rights of Pledgors provided in Section 5(a) hereof shall cease, and all voting rights and powers and rights to distributions included in the Pledged Collateral or otherwise described in such Section 5(a) shall thereupon become vested in Agent, and Agent shall thereafter have the sole and exclusive right and authority to exercise such voting rights and powers. Each Pledgor shall execute such documents and instruments, including but not limited to, statements that such Pledgor no longer has the right to act as a member or otherwise relating to such change as Agent may request. Each Pledgor agrees that any Issuer may rely conclusively upon any notice from Agent that Agent has the right and authority to exercise all rights and powers of such Pledgor as a holder of the equity interests of such Issuer under such Issuer’s Charter Documents. Each Pledgor irrevocably waives any claim or cause of action against any Issuer who deals directly with Agent following receipt of such notice from Agent.

6. Agent’s Appointment as Attorney-in-Fact.

(a) Each Pledgor hereby irrevocably constitutes and appoints Agent and each officer or agent of Agent with full power of substitution, as such Pledgor’s true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such

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Pledgor and in the name of such Pledger or in such attorney-in-fact’s own name, from time to time in the discretion of each such attorney-in-fact, following the occurrence of an Event of Default, for the purpose of carrying out the terms of this Pledge Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Pledge Agreement and, without limiting the generality of the foregoing, hereby gives each such attorney-in-fact the power and right, from and after an Event of Default, on behalf of such Pledger, without notice to or assent by such Pledgor, to do the following:

(i) to collect and otherwise take possession of and title to any and all distributions of cash or other property due or distributable at any time after the date hereof to such Pledgor as a partner from any Issuer, whether in complete or partial liquidation or otherwise, and to prosecute or defend any action or proceeding in any court of law or equity or otherwise deemed appropriate by such attorney-in-fact for the purpose hereof;

(ii) to ask, demand, collect, receive and give acceptances and receipts for any and all moneys due and to become due under any Pledged Collateral and, in the name of such Pledgor or such attorney-in-fact’s own name or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Pledged Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by such attorney-in-fact for the purpose of collecting any and all such moneys due under any Pledged Collateral whenever payable;

(iii) to pay or discharge taxes, liens, security interests or other encumbrances levied or placed on or threatened against the Pledged Collateral, to effect any repairs or any insurance called for with respect to any of the Pledged Collateral by the terms of this Pledge Agreement and to pay all or any part of the premiums therefor and the costs thereof; and

(iv) (A) to direct any party liable for any payment under any of the Pledged Collateral to make payment of any and all moneys due and to become due thereunder directly to Agent or as such attorney-in-fact shall direct; (B) to receive payment of and receipt for any and all moneys, claims and other amounts due and to become due at any time in respect of or arising out of any Pledged Collateral; (C) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Pledged Collateral or any portion thereof and to enforce any other right in respect of any Pledged Collateral; (D) to defend any suit, action or proceeding brought against such Pledgor with respect to any Pledged Collateral; (E) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as such attorney-in-fact may deem appropriate; and (F) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Pledged Collateral as fully and completely as though such attorney-in fact were the absolute owner thereof for all purposes, and to do, at the option of such attorney-in-fact at Pledgors’ expense, at any time, or from time to time, all acts and things which such attorney-in-fact reasonably deems necessary to protect, preserve or realize upon the Pledged Collateral and the security interest of Agent therein, in order to effect the intent of this Pledge Agreement, all as fully and effectively as such Pledgor might do.

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Each Pledgor hereby ratifies, to the extent permitted by law, all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable.

(b) The powers conferred on each attorney-in-fact hereunder are solely to protect the interest in the Pledged Collateral of Agent and shall not impose any duty upon any such attorney-in-fact to exercise any such powers. Each such attorney-in-fact shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and neither it nor any of its officers, directors, managers, employees or agents shall be responsible to any Pledgor for any act or failure to act unless such action or failure to act constitutes gross negligence.

(c) Each Pledgor also authorizes Agent and each officer or agent of Agent at any time and from time to time, upon the occurrence of any Event of Default, to execute, in connection with the sale provided for in Section 9 of this Pledge Agreement, any endorsements, assignments or other instruments of conveyance or transfer with respect to any of the Pledged Collateral.

7. Distributions. In the event any Pledgor receives any distributions in respect of the Pledged Collateral that are made in violation of the Note Agreement, such Pledgor will hold the same in trust for Agent and promptly transfer the property that was so distributed in the form that it was received.

8. Performance by Agent of Pledgor’s Obligations. If any Pledgor fails to perform or comply with any of such Pledgor’s agreements contained herein, and Agent as provided for by the terms of this Pledge Agreement shall itself perform or comply, or otherwise cause performance or compliance, with such agreement, the expenses of Agent incurred in connection with such performance or compliance, together with interest thereon at the rate following a default specified in the Note Agreement in effect from time to time shall be payable by such Pledger to Agent on demand and shall constitute Obligations secured hereby

9. Remedies, Rights Upon Default.

(a) Upon the occurrence of any Event of Default, Agent or Agent’s designee may, at Agent’s option, elect to become the substituted partner in any Issuer with respect to the Pledged Collateral and Pledgors shall execute or cause to be executed all documents necessary to evidence Agent so becoming substituted partner. If any Event of Default shall occur, Agent or Agent’s designee may exercise in addition to all other rights and remedies granted to them in this Pledge Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the UCC. Without limiting the generality of the foregoing, each Pledgor expressly agrees that in any such event Agent, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon any Pledgor or any other person (all and each of which demands, advertisements

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and/or notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Pledged Collateral, or any part thereof, and/or may forthwith sell, assign, give option or options to purchase, or sell or otherwise dispose of and deliver said Pledged Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange or broker’s board or at any of Agent’s offices or elsewhere at such prices as it may deem best, for cash or on credit or for future delivery without the assumption of any credit risk. Each Pledgor expressly acknowledges that private sales may be less favorable to a seller than public sales but that private sales shall nevertheless be deemed commercially reasonable and otherwise permitted hereunder. In view of the fact that federal and state securities laws and/or other applicable laws may impose certain restrictions on the method by which a sale of the Pledged Collateral may be effected, each Pledgor agrees that upon the occurrence of an Event of Default, Agent may, from time to time, attempt to sell all or any part of the Pledged Collateral by means of a private placement, restricting the prospective purchasers to those who will represent and agree that they are purchasing for investment only and not for distribution. In so doing, Agent may solicit offers to buy the Pledged Collateral, or any part thereof, for cash, from a limited number of investors deemed by Agent in its judgment, to be financially responsible parties who might be interested in purchasing the Pledged Collateral, and if Agent solicits such offers, then the acceptance by Agent of the highest offer obtained therefrom shall be deemed to be a commercially reasonable method of disposing of the Pledged Collateral.

Agent or Agent’s designee shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of said Pledged Collateral so sold, free of any right or equity of redemption, which equity of redemption each Pledgor hereby releases. Each Pledgor further agrees, at the request of Agent, to assemble the Pledged Collateral and make it available to Agent at places which Agent shall reasonably select, whether at such Pledgor’s premises or elsewhere. Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale as provided in Section 10(d) of this Pledge Agreement. Only after so paying over such net proceeds and after the payment by Agent of any other amount required by any provision of law, including Section 9-608(a)(1)(C) of the UCC, need Agent account for the surplus, if any, to any Pledgor. To the extent permitted by applicable law, each Pledgor waives all claims, damages, and demands against Agent arising out of the repossession, retention or sale of the Pledged Collateral except in each case such as arise out of the gross negligence or willful misconduct of Agent. Any notification of intended disposition of any of the Pledged Collateral required by law will be deemed to be a reasonable authenticated notification of disposition if given at least ten (10) days prior to such disposition and such notice shall (i) describe Agent and the applicable Pledgor, (ii) describe the Pledged Collateral that is the subject of the intended disposition, (iii) state the method of the intended disposition, (iv) state that the applicable Pledgor is entitled to an accounting of the Obligations and state the charge, if any, for an accounting and (v) state the time and place of any public disposition or the time after which any private sale is to be made. Agent may disclaim any warranties that might arise in connection with the sale, lease or other disposition of the Pledged Collateral and has no obligation to provide any warranties at such time.

(b) Each Pledgor also agrees to pay all costs of Agent, including reasonable attorneys’ fees and expenses, incurred with respect to the enforcement of any of Agent’s rights hereunder.

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(c) Each Pledgor hereby waives presentment, demand, or protest (to the extent permitted by applicable law) of any kind in connection with this Pledge Agreement or any Pledged Collateral. Except for notices provided for herein, each Pledgor hereby waives notice (to the extent permitted by applicable law) of any kind in connection with this Pledge Agreement.

(d) The proceeds of any sale, disposition or other realization upon all or any part of the Pledged Collateral shall be distributed by Agent in the following order of priorities:

first, to Agent in an amount sufficient to pay in full the expenses of Agent in connection with Agent exercising its rights and remedies under the Note Agreement and the Collateral Documents, including but not limited to any sale, disposition or other realization, including all expenses, liabilities and advances incurred or made by Agent in connection therewith, including reasonable attorneys’ fees and expenses;

second, to Agent to the payment of the Obligations in accordance with Paragraph 5(e) of the Note Agreement; and

finally, upon payment in full of all of the Obligations, to the Pledgor of such Pledged Collateral, or its representative or as a court of competent jurisdiction or as such Pledgor may direct.

Each Pledgor agrees to indemnify and hold harmless Agent and each Lender, their directors, managers, officers, employees, agents and parent, and subsidiary corporations, and each of them, from and against any and all liabilities, obligations, claims, damages, or expenses incurred by any of them arising out of or by reason of entering into this Pledge Agreement or the consummation of the transactions contemplated by this Pledge Agreement, except claims, losses or liabilities resulting from Agent’s gross negligence, willful misconduct or unlawful acts, and to pay or reimburse Agent for the fees and disbursements of counsel incurred in connection with any investigation, litigation or other proceedings (whether or not Agent is a party thereto) arising out of or by reason of any of the aforesaid. Agent will promptly give Borrower written notice of the assertion of any claim which it believes is subject to the indemnity set forth in this Section 9 and will upon the request of Borrower promptly furnish Borrower with all material in its possession relating to such claim or the defense thereof to the extent that Agent may do so without breach of duty to others. Any amounts properly due under this Section 9 shall be payable to Agent immediately upon demand.

10. Limitation on Agent’s Duty in Respect of the Pledged Collateral. Except as expressly provided in the UCC, Agent shall have no duty as to any Pledged Collateral in its possession or control or in the possession or control of any agent or nominee of Agent or as to any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto.

11. Notices. All notices and other communications shall be in writing and hand delivered with written receipt, telecopied, sent by facsimile, sent by a nationally recognized overnight courier, or sent by certified mail, return receipt requested as specified under Paragraph 20 of the Note Agreement. Each party may change its notice address by written notification to the other parties. All such notices and communications shall be effective when delivered.

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12. Severability. Any provision of this Pledge Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

13. No Waiver; Cumulative Remedies. Agent shall not, by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder. No waiver hereunder shall be valid except to the extent therein set forth. A waiver of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Agent would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Agent any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. Except to the extent that Agent has specifically and expressly waived such remedies in this Pledge Agreement or otherwise, the rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. Agent may resort to and realize on the Pledged Collateral simultaneously with any acts or proceedings initiated by Agent in its sole and conclusive discretion to resort to or realize upon any other sources of repayment of the Obligations, including, but not limited to, collateral granted by other security agreements and the personal liability of any Pledgor and any person or corporation which has guaranteed repayment of the Obligations. None of the terms or provisions of this Pledge Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by each Pledgor and Agent.

14. Successors and Assigns. This Pledge Agreement and all obligations of Pledgors hereunder shall be binding upon the successors and assigns of each Pledgor, except that no Pledgor shall have the right to assign its rights hereunder or any interest herein without the prior written consent of Agent and shall, together with the rights and remedies of Agent hereunder, inure to the benefit of Agent and its respective successors and assigns. Neither this Pledge Agreement nor anything set forth herein is intended to, nor shall it, confer any rights on any person or entity other than the parties hereto and all third party rights are expressly negated.

15. Termination. This Pledge Agreement, and the assignments, pledges and security interests created or granted hereby, shall automatically terminate when the Obligations shall have been fully paid and satisfied, at which time Agent shall release and reassign (without recourse upon, or any warranty whatsoever by, Agent, other than the representation that all of the Pledged Collateral being delivered to Pledgors by Agent is free and clear of any Lien created by Agent), and deliver to Pledgors all Pledged Collateral and related documents then in the custody or possession of Agent, including termination statements under the UCC, all without recourse upon, or warranty whatsoever, by Agent and at the cost and expense of Pledgors.

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16. Injunctive Relief. Each Pledgor recognizes that in the event any Pledgor fails to perform, observe or discharge any of such Pledgor’s obligations hereunder, no remedy of law will provide adequate relief to Agent, and agrees that Agent shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages.

17. Waiver of Subrogation. No Pledgor shall have any rights of subrogation as to any of the Pledged Collateral until full and complete performance and payment of the Obligations.

18. Governing Law. THIS PLEDGE AGREEMENT SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AS TO INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, AND SHALL BE BINDING UPON EACH PLEDGOR AND EACH PLEDGOR’S HEIRS, LEGAL REPRESENTATIVES, SUCCESSORS AND ASSIGNS (AND EACH OF THEM, IF MORE THAN ONE). Wherever possible, each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Pledge Agreement shall be prohibited by or be invalid under such law, such provision shall be severable, and be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this Pledge Agreement.

19. Counterparts; Facsimile Signatures. This Pledge Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement. Receipt of an executed signature page to this Pledge Agreement by facsimile or other electronic transmission shall constitute effective delivery thereof.

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20. Forum; Waiver of Trial By Jury. Each Pledgor hereby (i) irrevocably agrees that any suit or proceeding arising in respect of this Pledge Agreement, or any of the matters contemplated hereby or thereby will be tried exclusively in the U.S. District Court for the Southern District of New York as or, if such court does not have subject matter jurisdiction, in any state court located in the City of New York, New York, and agrees to submit to the exclusive jurisdiction of, and venue in, such court and (ii) waives any objection based on forum non-conveniens. IN ADDITION, EACH PLEDGOR HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS PLEDGE AGREEMENT, THE ADVANCES, ANY ALLEGED TORTIOUS CONDUCT BY ANY PLEDGOR OR AGENT OR WHICH IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN ANY PLEDGOR AND AGENT.

THIS PLEDGE AGREEMENT AND THE OTHER CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, each Pledgor has executed this Pledge Agreement or has caused the same to be executed by such Pledgor’s duly authorized representative(s) as of the date first above written.

SOTHERLY HOTELS LP
By:	Sotherly Hotels Inc.,
	its General Partner
By:
	Name: David R. Folsom
	Title:   President and Chief Operating Officer

MHI GP LLC
By:	Sotherly Hotels LP,
	its Sole Member
By:	Sotherly Hotels Inc.,
	its General Partner
By:
	Name: David R. Folsom
	Title:   President and Chief Operating Officer

Pledge Agreement

ACKNOWLEDGEMENT

The undersigned hereby (a) acknowledges receipt of a copy of the foregoing Pledge Agreement, (b) waives any rights or requirement at any time hereafter to receive a copy of such Pledge Agreement in connection with the registration of any Pledged Collateral (as defined therein) in the name of Richmond Hill Partners, LP as Agent (“Agent”) or its nominee or the exercise of voting rights by Agent, and (c) agrees promptly to note on its books and records the transfer of the security interest in the membership interests or stock, as applicable, of the undersigned as provided in such Pledge Agreement, including the following legend:

PURSUANT TO THAT CERTAIN PLEDGE AGREEMENT DATED AS OF MARCH     , 2014 (AS FROM TIME TO TIME AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED), EACH PLEDGOR HAS UNDER THE CIRCUMSTANCES SPECIFIED IN SUCH PLEDGE AGREEMENT EMPOWERED RICHMOND HILL PARTNERS LP TO VOTE THE PARTNERSHIP INTERESTS AND EXERCISE ANY OTHER RIGHTS WITH RESPECT TO THE PARTNERSHIP INTERESTS OWNED BY PLEDGOR PURSUANT TO SUCH PLEDGE AGREEMENT WITHOUT FURTHER CONSENT BY PLEDGOR.

Dated: March     , 2014	PHILADELPHIA HOTEL ASSOCIATES LP
	By:	MHI GP LLC,
		its General Partner
	By:	Sotherly Hotels LP,
		its Sole Member
	By:	Sotherly Hotels Inc.
		its General Partner
	By:
	Name:	David R. Folsom
	Title:	President and Chief Operating Officer

Acknowledgement re.Pledge Agreement

SCHEDULE I

PLEDGED EQUITY INTERESTS

Pledgor	Issuer (Jurisdiction of Organization)	Type of Equity Interest Pledged	% of the Equity Interest in Issuer	Certificate No.
Sotherly Hotels LP	Philadelphia Hotel	Limited	99.00%	N/A
	Associates LP	Partnership
	(Pennsylvania)	Interest
MHI GP LLC	Philadelphia Hotel	Limited	1.00%	N/A
	Associates LP	Partnership
	(Pennsylvania)	Interest

EXHIBIT C

Real Property

EXHIBIT A

LEGAL DESCRIPTION OF THE PROPERTY

(HOTEL PARCEL)

ALL THAT TRACT OR PARCEL OF LAND LYING AND BEING IN LAND LOT 49 OF THE 14TH DISTRICT, FULTON COUNTY, GEORGIA, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

TO LOCATE THE POINT OF BEGINNING COMMENCE AT THE POINT OF INTERSECTION OF THE NORTHERLY RIGHT-OF-WAY LINE OF PONCE DE LEON AVENUE (RIGHT-OF-WAY VARIES) WITH THE EASTERLY RIGHT-OF-WAY LINE OF PEACHTREE STREET, AS SUCH RIGHTS-OF-WAY LINES ARE EXTENDED TO FORM AN ANGLE INSTEAD OF A CURVE; RUNNING THENCE, ALONG SAID EASTERLY RIGHT-OF-WAY LINE OF PEACHTREE STREET, 22.52 FEET TO A POINT, SAID POINT BEING THE TRUE POINT OF BEGINNING; FROM THE POINT OF BEGINNING, AS THUS ESTABLISHED, RUNNING ALONG SAID EASTERLY RIGHT-OF-WAY LINE OF PEACHTREE STREET, NORTH 00 DEGREES 17 MINUTES 34 SECONDS EAST A DISTANCE OF 252.92 FEET TO A ONE INCH HOLLOW PIPE FOUND; RUN THENCE LEAVING THE RIGHT-OF-WAY LINE OF PEACHTREE STREET, NORTH 85 DEGREES 57 MINUTES 42 SECONDS EAST A DISTANCE OF 150.03 FEET TO A POINT; RUN THENCE SOUTH 00 DEGREES 20 MINUTES 56 SECONDS WEST 11.48 FEET TO A POINT; RUN THENCE SOUTH 29 DEGREES 47 MINUTES 07 SECONDS EAST A DISTANCE OF 121.30 FEET TO A POINT; RUN THENCE SOUTH 00 DEGREES 42 MINUTES 29 SECONDS WEST 172.26 FEET TO A THREE FOURTHS INCH HOLLOW PIPE FOUND ON THE NORTHERLY RIGHT-OF-WAY LINE OF PONCE DE LEON AVENUE; RUN THENCE, ALONG THE NORTHERLY RIGHT-OF-WAY LINE OF PONCE DE LEON AVENUE, THE FOLLOWING COURSES AND DISTANCES: SOUTH 82 DEGREES 49 MINUTES 17 SECONDS WEST A DISTANCE OF 15.86 FEET TO A POINT: SOUTH 79 DEGREES 59 MINUTES 41 SECONDS WEST A DISTANCE OF 34.49 FEET TO A POINT; SOUTH 76 DEGREES 05 MINUTES 44 SECONDS WEST A DISTANCE OF 34.49 FEET TO A POINT; SOUTH 76 DEGREES 05 MINUTES 44 SECONDS WEST A DISTANCE OF 20.66 FEET TO A POINT; SOUTH 71 DEGREES 44 MINUTES 59 SECONDS WEST A DISTANCE OF 33.03 FEET TO A POINT; SOUTH 67 DEGREES 35 MINUTES 42 SECONDS WEST 130.96 FEET TO A POINT; SOUTH 22 DEGREES 23 MINUTES 59 SECONDS EAST A DISTANCE OF 8.00 FEET TO A POINT; SOUTH 67 DEGREES 36 MINUTES 01 SECONDS WEST 33.18 FEET TO A POINT; RUNNING THENCE, ALONG THE ARC OF 15 FOOT RADIUS TO THE RIGHT, SAID CURVE SUBTENDED BY A CHORD WITH BEARING NORTH 56 DEGREES 03 MINUTES 12 SECONDS WEST AND DISTANCE OF 24.96 FEET, AN ARC OF DISTANCE OF 29.41 FEET TO A POINT, SAID POINT BEING THE TRUE POINT OF BEGINNING.

TOGETHER WITH RIGHTS IN AND TO THAT CERTAIN 10 FOOT ALLBY ADJACENT TO THE NORTHERLY PORTION OF THE SUBJECT PROPERTY.

TOGETHER WITH THE RIGHTS OF THE GRANTOR AS CONTAINED IN THAT CERTAIN RECIPROCAL EASEMENT AGREEMENT BETWEEN DIVERSIFIED PEACHTREE, LTD. AND GEORGIAN TERRACE L.P., DATED AUGUST 22, 1990, AND RECORDED IN DEED BOOK 13655, PAGE 183, PULTON COUNTY, GEORGIA RECORDS.

EXHIBIT A

LEGAL DESCRIPTION OF THE PROPERTY

(GARAGE PARCEL)

ALL THAT TRACT OR PARCEL OF LAND LYING AND BEING IN LAND LOT 49 OF THE 14TH DISTRICT, FULTON COUNTY, GEORGIA, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

TO LOCATE THE POINT OF BEGINNING COMMENCE AT THE POINT OF INTERSECTION OF THE NORTHERLY RIGHT-OF-WAY LINE OF PONCE DE LEON AVENUE (RIGHT-OF-WAY VARIES) WITH THE EASTERLY RIGHT-OF-WAY LINE OF PEACHTREE STREET, AS SUCH RIGHTS-OF-WAY LINES ARE EXTENDED TO FORM AN ANGLE INSTEAD OF A CURVE; RUNNING THENCE, ALONG SAID EASTERLY RIGHT-OF-WAY LINE OF PEACHTREE STREET, 22.52 FEET TO A POINT ON THE EASTERLY RIGHT-OF-WAY LINE OF PEACHTREE STREET; RUN ALONG SAID EASTERLY RIGHT-OF-WAY PEACHTREE STREET, NORTH 00 DEGREES 17 MINUTES 34 SECONDS EAST A DISTANCE OF 252.92 FEET TO A ONE INCH HOLLOW PIPE FOUND; RUN THENCE, LEAVING THE RIGHT-OF WAY LINE OF PEACHTREE STREET, NORTH 85 DEGREES 57 MINUTES 42 SECONDS EAST A DISTANCE OF 150.03 FEET TO A POINT, SAID POINT BEING THE TRUE POINT OF BEGINNING; FROM THE POINT OF BEGINNING, AS THUS ESTABLISHED; RUN THENCE NORTH 00 DEGREES 20 MINUTES 56 SECONDS EAST 200.26 FEET TO A POINT ON THE SOUTHERLY RIGHT-OF-WAY LINE OF THIRD STREET; RUN THENCE, ALONG SAID RIGHT-OF-WAY LINE OF THIRD STREET, SOUTH 89 DEGREES 49 MINUTES 16 SECONDS EAST 129.10 FEET TO A POINT; RUN THENCE, LEAVING SAID RIGHT-OF-WAY LINE, SOUTH 00 DEGREES 03 MINUTES 19 SECOND WEST 190.89 FEET TO A POINT; RUN THENCE SOUTH 86 DEGREES 07 MINUTES 37 SECONDS WEST A DISTANCE OF 8.17 FEET TO A POINT; RUN THENCE SOUTH 00 DEGREES 42 MINUTES 29 SECONDS WEST 20.35 FEET TO A POINT; RUN THENCE NORTH 89 DEGREES 47 MINUTES 07 SECONDS WEST 121.80 FEET TO A POINT; RUN THENCE NORTH 00 DEGREES 20 MINUTES 56 SECONDS EAST 11.48 FEET TO A POINT, SAID POINT BEING THE POINT OF BEGINNING.

TOGETHER WITH RIGHTS IN AND TO THAT CERTAIN 10 FOOT ALLEY ADJACENT TO THE WESTERLY PROPERTY LINE OF THE SUBJECT PROPERTY.

TOGETHER WITH THE RIGHTS OF THE GRANTOR AS CONTAINED IN THAT CERTAIN RECIPROCAL EASEMENT AGREEMENT BETWEEN DIVERSIFIED PEACHTREE, LTD. AND GEORGIAN TERRANCE, L.P., DATED AUGUST 22, 1990, AND RECORDED IN DEED BOOK 13655, PAGE 183, FULTON COUNTY, GEORGIA RECORDS.

EX-10.49

Exhibit 10.49

GUARANTY

FOR VALUE RECEIVED, and in consideration of any loan or other financial accommodation heretofore or hereafter at any time made or granted to SOTHERLY HOTELS LP, a partnership organized under the laws of the State of Delaware (“Borrower”) by the Lenders (as hereinafter defined) and by RICHMOND HILL CAPITAL PARTNERS, LP, as Agent for Lenders (in such capacity, together with its successors and assigns in such capacity, the “Agent”), the undersigned (“Guarantor”) hereby agrees, as of March 26, 2014, as follows:

RECITALS

A. Pursuant to the Note Agreement, dated as of March 26, 2014 (as the same may be amended, restated, extend, joined, supplemented and/or otherwise modified from time to time, the “Note Agreement”; capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed to such terms in the Note Agreement), the Agent and the entities from time to time party thereto (individually, each a “Lender” and collectively, the “Lenders”) extended a commitment of $19,000,000 to Borrower.

B. As a condition to entering into the Note Agreement, the Agent and the Lenders require the execution and delivery of this Guaranty by Guarantor.

C. Guarantor hereby agrees that it will derive substantial benefit from the commitment and the making of the Loan under the Note Agreement.

ACCORDINGLY, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1. Guaranty of Obligations. Guarantor unconditionally, absolutely, irrevocably, guarantees the full and prompt payment and performance when due, whether by acceleration or otherwise, and at all times thereafter, of all obligations of Borrower to the Lenders and Agent, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, or now or hereafter existing or due or to become due, including, without limitation, all obligations under or in connection with the Note Agreement and each of the documents, instruments and agreements executed and delivered in connection therewith, as each may be modified, increased, amended, supplemented or replaced from time to time (all such obligations are herein referred to, collectively, as the “Liabilities”, and all documents evidencing or securing any of the Liabilities, including without limitation, the Note Agreement and Collateral Documents, are herein referred to, collectively, as the “Loan Documents”). This Guaranty (this “Guaranty”) is a guaranty of payment and performance when due and not of collection. Notwithstanding the foregoing, Guarantor shall not be liable for any expenses under this paragraph if no payment by Guarantor is or was due in respect of the Liabilities.

In the event of any default by Borrower in making payment of, or default by Borrower in performance of any of the Liabilities, including but not limited to an Event of Default under the

Note Agreement (as defined therein), Guarantor agrees on demand by Agent to pay and perform all of the Liabilities as are then or thereafter become due and owing or are to be performed under the terms of the Loan Documents. Guarantor further agrees to pay all expenses (including, without limitation, reasonable attorneys’ fees and expenses) paid or incurred by Agent in endeavoring to collect the Liabilities, or any part thereof, and in enforcing this Guaranty.

2. Continuing Nature of Guaranty and Liabilities. Except pursuant to the conditions of Paragraph 4 below, this Guaranty shall be continuing and shall not be discharged, impaired or affected by:

a. the insolvency of Guarantor or the payment in full of all of the Liabilities at any time or from time to time prior to termination of the Note Agreement and all other Loan Documents and the full and final release and discharge of all obligations of all parties thereunder;

b. the power or authority or lack thereof of Borrower to incur the Liabilities;

c. the validity or invalidity of any of the Loan Documents or the documents securing the same;

d. the existence or non-existence of any Borrower as a legal entity;

e. any transfer by Borrower or its Subsidiaries of all or any part of any collateral in which Agent has been granted a lien or security interest pursuant to the Loan Documents;

f. any statute of limitations affecting the liability of Guarantor under this Guaranty or the Loan Documents or the ability of Agent to enforce this Guaranty or any provision of the Loan Documents or any of the Collateral Documents (as defined in the Note Agreement); or

g. any right of offset, counterclaim or defense of Guarantor whatsoever (other than payment in part or in full and performance in full of all of the Liabilities after the termination of the Note Agreement in accordance with the terms of the Loan Documents), including, without limitation, those which have been waived by Guarantor pursuant to Paragraphs 6 and 8 hereof.

3. Insolvency of Borrower or Guarantor. Without limiting the generality of any other provision hereof, Guarantor agrees that, in the event of the dissolution or insolvency of Borrower or the inability of Borrower to pay its debts as they mature, or an assignment by Borrower for the benefit of creditors, or the institution of any proceeding by or against Borrower alleging that Borrower is insolvent or unable to pay its debts as they mature and in the case of any proceeding against Borrower, such proceeding is not stayed or dismissed within sixty (60) days, Guarantor will pay to Agent forthwith the full amount which would be payable hereunder by Guarantor if all of the Liabilities were then due and payable, whether or not such event occurs at a time when any of the Liabilities are otherwise due and payable.

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4. Payment of the Liabilities. Any amounts received by Agent from whatever source on account of the Liabilities may be applied by Agent toward the payment of such of the Liabilities, and in such order of application, as provided in the Note Agreement, and notwithstanding any payments made by or for the account of Guarantor pursuant to this Guaranty.

Guarantor agrees that, if at any time all or any part of any payment theretofor applied by Agent to any of the Liabilities is or must be rescinded or returned by Agent for any reason whatsoever (including, without limitation, the insolvency, bankruptcy or reorganization of Borrower), such Liabilities shall, for the purposes of this Guaranty and to the extent that such payment is or must be rescinded or returned, be deemed to have continued in existence notwithstanding such application by Agent, and this Guaranty shall continue to be effective or be reinstated, as the case may be, as to such Liabilities, all as though such application by Agent had not been made.

5. Permitted Actions of Agent. Agent may from time to time, in its sole discretion and without notice to Guarantor, take any or all of the following actions:

a. retain or obtain a security interest in any assets of Borrower or any third party to secure any of the Liabilities or any obligations of Guarantor hereunder;

b. retain or obtain the primary or secondary obligation of any obligor or obligors, in addition to Guarantor, with respect to any of the Liabilities;

c. extend or renew for one or more periods (whether or not longer than the original period), alter, exchange or increase any of the Liabilities;

d. waive, ignore or forbear from taking action or otherwise exercising any of its default rights or remedies with respect to any default by Borrower under the Loan Documents;

e. release, waive or compromise any obligation of Guarantor hereunder or any obligation of any nature of any other obligor primarily or secondarily obligated with respect to any of the Liabilities, without notice to any other obligor or any other guarantor;

f. release its security interest in, or surrender, release or permit any substitution or exchange for, all or any part of any collateral now or hereafter securing any of the Liabilities or any obligation hereunder, or extend or renew for one or more periods (whether or not longer than the original period) or release, waive, compromise, alter or exchange any obligations of any nature of any obligor with respect to any such property; and

g. demand payment or performance of any of the Liabilities which are due and owing from Guarantor at any time or from time to time, whether or not Agent shall have exercised any of its rights or remedies with respect to any property securing any of the Liabilities or any obligation hereunder, or proceeded against any other obligor primarily or secondarily liable for payment or performance of any of the Liabilities.

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6. Specific Waivers. Without limiting the generality of any other provision of this Guaranty, Guarantor hereby expressly waives:

a. notice of the acceptance by Agent of this Guaranty;

b. notice of the existence, creation, payment, nonpayment, performance or nonperformance of all or any of the Liabilities;

c. presentment, demand, notice of dishonor, protest, notice of protest, notice of intent to accelerate, notice of acceleration, and all other notices whatsoever with respect to the payment or performance of the Liabilities or the amount thereof or any payment or performance by Guarantor hereunder;

d. all diligence in collection or protection of or realization upon the Liabilities or any thereof, any obligation hereunder or any security for or guaranty of any of the foregoing;

e. any right to direct or affect the manner or timing of Agent’s lawful enforcement of its rights or remedies;

f. any defense, right of set-off or other claim whatsoever (other than payment in full and performance in full of all of the Liabilities after any termination of the Note Agreement in accordance with the terms of the Loan Documents) that Borrower or any third party may or might have to the payment or performance of the Liabilities;

g. any and all defenses which would otherwise arise upon the occurrence of any event or contingency described in Paragraph 1 hereof or upon the taking of any action by Agent permitted hereunder;

h. any defense, right of set-off, claim or counterclaim whatsoever (other than payment and performance in full or part of all of the Liabilities after any termination of the Note Agreement in accordance with the terms of the Loan Documents), and any and all other rights, benefits, protections and other defenses which Guarantor may have, now or at any time hereafter, to full payment or performance of the Liabilities pursuant to the terms of this Guaranty; and

i. all other principles or provisions of law, if any, that conflict with the terms of this Guaranty, including, without limitation, the effect of any circumstances that may or might constitute a legal or equitable discharge of a guarantor or surety.

7. Irrevocability. Guarantor hereby further waives all rights to revoke this Guaranty at any time, and all rights to revoke any agreement executed by Guarantor at any time to secure the payment and performance of Guarantor’s obligations under this Guaranty, including, without limitation, the Loan Documents.

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8. Waiver of Subrogation and Certain Other Rights. Prior to the satisfaction in full of all Liabilities, Guarantor hereby waives and shall have no right of subrogation, reimbursement, exoneration, contribution or indemnity against Borrower or any other guarantor for any reason, including but not limited to, by reason of any payments made or acts performed by Guarantor in compliance with the obligations of Guarantor hereunder or any actions taken by Agent pursuant to this Guaranty or pursuant to the Loan Documents.

Guarantor agrees that nothing contained in this Guaranty shall prevent Agent from suing to collect on the Liabilities or from exercising concurrently or successively any rights available to it at law and/or in equity or under any of the Loan Documents, and that the exercise of any of the aforesaid rights shall not constitute a legal or equitable discharge of Guarantor. Guarantor hereby authorizes and empowers Agent to exercise, in its sole discretion, any rights and remedies, or any combination thereof, which may then be available, since it is the intent and purpose of Guarantor that the obligations hereunder shall be absolute, independent and unconditional under any and all circumstances.

Notwithstanding any foreclosure of the lien of any Collateral Document with respect to any or all of any real or personal property secured thereby, whether by the exercise of the power of sale contained therein, by an action for judicial foreclosure, or by the acceptance of a deed or possession of any other collateral in lieu of foreclosure, Guarantor shall remain bound under this Guaranty. Without limiting the generality of the foregoing, Guarantor specifically agrees that upon an Event of Default under and as defined in the Note Agreement, Agent may elect to nonjudicially or judicially foreclose against any real or personal property, including but not limited to its rights under any Pledge Agreement executed by Guarantor in favor of Agent.

9. Certain Covenants. Guarantor covenants and agrees that it shall take all reasonable action necessary to permit or enable Borrower to comply with Borrower’s obligations under the Note Agreement. Except as permitted under the Note Agreement and the Loan Documents, Guarantor shall not, until indefeasible payment and satisfaction in full in cash of the obligations and termination of the Note Agreement, accept any payment or other transfer of assets or funds from Borrower, including without limitation, the payment of any management, consulting or similar fees; provided, however, that except at any time when an Event of Default under and as defined in the Note Agreement exists and is continuing, the foregoing limitation shall not apply to Guarantor’s acceptance of any payment or transfer effected in the ordinary course of business or to dividends or other distributions regularly and lawfully declared and paid by the Borrower.

10. Limitation on Incurrence of Debt. Guarantor covenants and agrees that until all obligations are performed in full and indefeasibly paid in full in cash and the Loan Documents are terminated, Guarantor will not, and will not permit any Subsidiary to:

a. incur any Indebtedness if, immediately after giving effect to the incurrence of such Indebtedness and the application of the proceeds thereof, the ratio of the aggregate principal amount of all outstanding Indebtedness to Adjusted Total Asset Value would be greater than 0.65 to 1.0.

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b. incur any Indebtedness if the ratio of Stabilized Consolidated Income Available for Debt Service to Stabilized Consolidated Interest Expense on the date on which such additional Indebtedness is to be incurred, on a pro forma basis, after giving effect to the incurrence of such Indebtedness and the application of the proceeds thereof, would be less than 1.5 to 1.0.

For purposes of Paragraph 10, the following terms shall have the meanings set forth below:

“Adjusted Total Asset Value” as of any date means the sum of (i) Stabilized Asset Value, (ii) Non-Stabilized Asset Value and (iii) total cash and cash equivalents of Guarantor and its Subsidiaries on a consolidated basis determined in accordance with GAAP.

“Asset Under Renovation” means as of any date any hotel asset directly or indirectly owned by Guarantor, any Subsidiary or any Unconsolidated Entity, that is designated by Guarantor in its discretion as the recipient or beneficiary of capital expenditures in an amount greater than 4% of such hotel asset’s total revenues for the preceding 12 months.

“Capitalization Rate” means 7.5%.

“Consolidated Income Available for Debt Service” means, for the four complete calendar quarters preceding the date of determination, Consolidated Net Income of Guarantor and its Subsidiaries plus amounts that have been deducted for but minus amounts that have been added for (a) Consolidated Interest Expense plus dividends on mandatorily redeemable or mandatorily convertible preferred stock and prepayment penalties included in GAAP interest expense, (b) provision for taxes of Guarantor and its Subsidiaries based on income, (c) depreciation and amortization and all other non-cash items deducted for purposes of calculating Consolidated Net Income, (d) provision for gains and losses on sales or other dispositions of properties and other investments, (e) extraordinary items, (f) non-recurring or other unusual items, as determined by Guarantor in good faith and (g) corporate, general and administrative expenses.

“Consolidated Interest Expense” means, for the four complete calendar quarters preceding the date of determination, the aggregate amount of interest expense for Guarantor and its Subsidiaries for such period determined in accordance with GAAP, excluding any interest that is (i) payable in respect of Capital Stock, (ii) capitalized or (iii) payable in a form other than cash.

“Consolidated Net Income” means, for the four complete calendar quarters preceding the date of determination, the amount of net income (or loss) of Guarantor and its Subsidiaries for such period determined on a consolidated basis in accordance with GAAP.

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“Non-Stabilized Asset” means, as of any date, any hotel asset owned by Guarantor, any Subsidiary or any Unconsolidated Entity that (i) is, or within the preceding 24 months has been, an Asset Under Renovation, or (ii) has, within the preceding 24 months, (A) completed a brand change, (B) been subject to an event, or a series of events, giving rise to a material casualty or (C) is in, or has completed, condemnation proceedings in respect of all or any part of such hotel asset.

“Non-Stabilized Asset Value” as of any date means the total “as-stabilized” value of all Non-Stabilized Assets as determined by an appraisal for each Non-Stabilized Asset which will be commissioned by Guarantor from a certified MAI appraiser in December of each year during which the Note Agreement and the other Loan Documents remain outstanding.

“Stabilized Asset” means, as of any date, any hotel asset owned by Guarantor, any Subsidiary or any Unconsolidated Entity that does not constitute a Non-Stabilized Asset.

“Stabilized Asset Value” as of any date means the total value of all Stabilized Assets determined by dividing (i) Stabilized Consolidated Income Available for Debt Service by (ii) the Capitalization Rate.

“Stabilized Consolidated Income Available for Debt Service” as of any date means Consolidated Income Available for Debt Service of Guarantor and its Subsidiaries, excluding any portion of Consolidated Income Available for Debt Service attributable to a Non-Stabilized Asset.

“Stabilized Consolidated Interest Expense” as of any date means Consolidated Interest Expense of Guarantor and its Subsidiaries, excluding any portion of Consolidated Interest Expense relating to Indebtedness that is secured by a Non-Stabilized Asset.

“Unconsolidated Entity” means a Person, other than a Subsidiary, in which Guarantor holds a direct or indirect ownership interest that is accounted for under the equity method of accounting or the cost method of accounting.

11. Subordination. Guarantor hereby subordinates any and all indebtedness of Borrower to Guarantor to the full and prompt payment and performance of all of the Liabilities. Guarantor agrees that Agent shall be entitled to receive payment of all Liabilities prior to Guarantor’s receipt of payment of any amount of any indebtedness of Borrower to Guarantor. Any payments on such indebtedness to Guarantor, if Agent so requests, shall be collected, enforced and received by Guarantor, in trust, as trustee for Agent and shall be paid over to Agent on account of the Liabilities, but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty. Agent is authorized and empowered, but not obligated, in its discretion, (a) in the name of Guarantor, to collect and enforce, and to submit claims in respect of, indebtedness of Borrower to Guarantor and to apply any amounts received thereon to the Liabilities, and (b) to require Guarantor (i) to collect and enforce, and to submit claims in respect of, any indebtedness of Borrower to Guarantor, and (ii) to pay any amounts received on such indebtedness to Agent for application to the Liabilities.

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12. Assignment of Agent’s Rights. Agent may, from time to time, without notice to Guarantor, assign or transfer any or all of the Liabilities or any interest therein and, notwithstanding any such assignment or transfer of the Liabilities or any subsequent assignment or transfer thereof, the Liabilities shall be and remain the Liabilities for the purpose of this Guaranty. Each and every immediate and successive assignee or transferee of any of the Liabilities or of any interest therein shall, to the extent of such party’s interest in the Liabilities, be entitled to the benefits of this Guaranty to the same extent as if such assignee or transferee were Agent; provided, however, that unless Agent shall otherwise consent in writing, Agent shall have an unimpaired right, prior and superior to that of any such assignee or transferee, to enforce this Guaranty for its own benefit as to those of the Liabilities which Agent has not assigned or transferred.

13. Indulgences Not Waivers. No delay in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by Agent of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy; nor shall any modification or waiver of any of the provisions of this Guaranty be binding upon Agent, except as expressly set forth in a writing duly signed and delivered by Agent. Except for the signature and delivery of such a writing, no action of Agent permitted hereunder shall in any way affect or impair the rights of Agent or the obligations of Guarantor under this Guaranty.

14. Financial Condition of the Borrower. Guarantor represents and warrants that it is fully aware of the financial condition of Borrower, and Guarantor delivers this Guaranty based solely upon its own independent investigation of Borrower’s financial condition and in no part upon any representation or statement of Agent with respect thereto. Guarantor further represents and warrants that it is in a position to and hereby does assume full responsibility for obtaining such additional information concerning Borrower’s financial condition as Guarantor may deem material to its obligations hereunder, and Guarantor is not relying upon, nor expecting Agent to furnish it any information in Agent’s possession concerning Borrower’s financial condition or concerning any circumstances bearing on the existence or creation, or the risk of nonpayment or nonperformance of the Liabilities.

Guarantor hereby waives any duty on the part of Agent to disclose to Guarantor any facts it may now or hereafter know about Borrower, regardless of whether Agent has reason to believe that any such facts materially increase the risk beyond that which Guarantor intends to assume, or has reason to believe that such facts are unknown to Guarantor.

Guarantor hereby knowingly accepts the possibility that Borrower will contract for additional indebtedness for which Guarantor may be liable hereunder after Borrower’s financial condition or ability to pay its lawful debts when they fall due has deteriorated.

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15. Representations and Warranties. Guarantor represents and warrants to Agent that each of the following statements is accurate and complete as of the date of this Guaranty:

a. Guarantor is an entity duly organized, validly, existing and in good standing under the laws of the jurisdiction of its organization and is duly qualified and in good standing in each jurisdiction where the nature of its business or properties requires such qualification, except where the failure to qualify could not have a Material Adverse Effect. A “Material Adverse Effect” shall mean a material adverse effect on (a) the financial condition, results of operations, assets, business or properties of Guarantor, (b) Guarantor’s ability to duly and punctually pay or perform the Liabilities in accordance with the terms thereof, (c) to the extent applicable, the value of the Collateral or Agent’s Liens on the Collateral or (d) the practical realization of the benefits of Agent’s and each Lender’s rights and remedies under this Guaranty and the Loan Documents.

b. the execution, delivery and performance by Guarantor of this Guaranty are within the power of Guarantor and have been duly authorized by all necessary actions on the part of Guarantor;

c. this Guaranty has been duly executed and delivered by Guarantor and constitutes a legal, valid and binding obligation of Guarantor, enforceable against Guarantor in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally;

d. the execution, delivery and performance of this Guaranty do not (i) violate any provisions of any material law or any order of any court or other agency of government to the extent such violation could reasonably result in a Material Adverse Effect, (ii) contravene any provision of Guarantor’s organizational documents or any material contract or agreement to which Guarantor is a party or by which Guarantor or Guarantor’s assets are bound other than any violation the consequences of which could not have or could not reasonably be expected to have a Material Adverse Effect, or (iii) result in the creation or imposition of any lien, charge or encumbrance of any nature upon any property, asset or revenue of Guarantor except pursuant to or as set forth in the Loan Documents;

e. all consents, approvals, orders and authorizations of, and registrations, declarations and filings with, any governmental agency or authority or other person or entity (including, without limitation, the shareholders or partners of any entity), if any, which are required to be obtained in connection with the execution and delivery of this Guaranty or the performance of Guarantor’s obligations hereunder have been obtained, and each is in full force and effect, except for such consents, approvals, orders, authorizations, registrations, declarations or filings, the failure of which to obtain would not reasonably be expected to have a Material Adverse Effect;

f. Guarantor has paid all taxes and other charges imposed by any governmental agency or authority due and payable by Guarantor other than those which are being challenged in good faith by appropriate proceedings and for which adequate reserves have been established;

g. Guarantor is neither an investment company (as defined in the Investment Company Act of 1940) nor is controlled by an investment company;

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h. no litigation, investigation or proceeding of any governmental authority or agency is pending or, to the knowledge of Guarantor, threatened against Guarantor which, if adversely determined, could have or could reasonably be expected to have a Material Adverse Effect; and

i. Guarantor hereby confirms, adopts and makes, as to itself, as if set out in full herein, all of the other representations and warranties not expressly included in this Agreement that are set forth in the Note Agreement and that relate or apply to Guarantor, and shall be deemed to have made all such representations and warranties as to itself in this Agreement as if set out in full herein.

16. Guarantor Financial Information. Guarantor will provide Agent in writing such financial and other information with respect to its assets and liabilities as Agent shall reasonably request from time to time, in form and substance satisfactory to Agent.

17. Binding Upon Successors. This Guaranty shall be binding upon Guarantor and its successors and assigns and shall inure to the benefit of Agent and its successors and assigns. All references herein to “Borrower” shall be deemed to include its successors and assigns, and all references herein to “Guarantor” shall be deemed to include Guarantor and Guarantor’s successors and assigns.

In addition and notwithstanding anything to the contrary contained in this Guaranty or in any other document, instrument or agreement between or among any of Agent, Borrower, Guarantor or any third party, the obligations of Guarantor with respect to the Liabilities shall be joint and several with any other person or entity that now or hereafter executes a guaranty of any of the Liabilities separate from this Guaranty.

18. Notices. All notices required or permitted to be given hereunder shall be in writing and shall be either personally delivered, faxed to the fax numbers provided herein or sent by United States certified or registered mail, return receipt requested, addressed to Guarantor or Agent at their respective addresses stated below or at such other address as either party hereafter notices the other party as herein provided. Notices shall be effective at the times and in the manner set forth in Paragraph 20 of the Note Agreement.

Address for Notices:

If to Agent:	Richmond Hill Partners, LP
	375 Hudson Street, 12th floor
	New York, NY 10014
	Attention:	Ryan Taylor and Jordan Jones
	Telephone:	(212) 989-2700
	Facsimile:	(866) 758-8541

With an additional copy to:

Chapman and Cutler LLP 1270 Avenue of the Americas, 30th Floor New York, NY 10020
Attention:	Larry G. Halperin
Telephone:	(212) 665-2517
Facsimile:	(212) 697-2518

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19. GOVERNING LAW; ADDITIONAL WAIVERS. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLIED TO CONTRACTS TO BE PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, AS AMENDED). ANY JUDICIAL PROCEEDING BROUGHT BY OR AGAINST GUARANTOR WITH RESPECT TO ANY OF THE LIABILITIES, THIS GUARANTY, OR ANY RELATED AGREEMENT MAY BE BROUGHT IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK OR ANY STATE COURT IN NEW YORK COUNTY, NEW YORK, UNITED STATES OF AMERICA, AND, BY EXECUTION AND DELIVERY OF THIS GUARANTY, GUARANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS GUARANTY. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF AGENT TO BRING PROCEEDINGS AGAINST GUARANTOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION. GUARANTOR WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREUNDER AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS. GUARANTOR WAIVES THE RIGHT TO REMOVE ANY JUDICIAL PROCEEDING BROUGHT AGAINST GUARANTOR IN ANY STATE COURT TO ANY FEDERAL COURT. ANY JUDICIAL PROCEEDING BY GUARANTOR AGAINST AGENT INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS GUARANTY OR ANY RELATED AGREEMENT, SHALL BE BROUGHT ONLY IN A FEDERAL OR STATE COURT LOCATED IN THE CITY AND COUNTY OF NEW YORK, STATE OF NEW YORK.

GUARANTOR ACKNOWLEDGES THAT IT HAS EITHER OBTAINED THE ADVICE OF COUNSEL OR HAS HAD THE OPPORTUNITY TO OBTAIN SUCH ADVICE IN CONNECTION WITH THE TERMS AND PROVISIONS OF THIS GUARANTY AND THE LOAN DOCUMENTS. GUARANTOR FURTHER ACKNOWLEDGES THAT BY EXECUTING THIS GUARANTY, IT IS WAIVING CERTAIN RIGHTS AS OTHERWISE SET FORTH HEREIN TO WHICH GUARANTOR MAY OTHERWISE BE ENTITLED BY LAW.

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THIS GUARANTY CONTAINS THE COMPLETE UNDERSTANDING OF THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREIN. GUARANTOR ACKNOWLEDGES THAT IT IS NOT RELYING UPON ANY STATEMENTS OR REPRESENTATIONS OF AGENT OR LENDERS NOT CONTAINED IN THIS GUARANTY AND THAT SUCH STATEMENTS OR REPRESENTATIONS, IF ANY, ARE OF NO FORCE OR EFFECT AND ARE FULLY SUPERSEDED BY THIS GUARANTY.

This Agreement supersedes all prior agreements and understandings, if any, relating to the subject matter hereof. Any promises, representations, warranties or guarantees not herein contained and hereinafter made shall have no force and effect in writing, signed by Guarantor’s officers. Neither this Agreement nor any portion or provisions hereof may be changed, modified, amended, waived, supplemented, discharged, cancelled or terminated orally or by any course of dealing, or in any manner other than by an agreement in writing, signed by the party to be charged.

20. Severability; Captions; Counterparts; Facsimile Signature. If any provision of this Guaranty is adjudicated to be invalid under applicable laws or regulations, such provision shall be inapplicable to the extent of such invalidity without affecting the validity or enforceability of the remainder of this Guaranty which shall be given effect so far as possible. The captions in this Guaranty are intended for convenience and reference only and shall not affect the meaning or interpretation of this Guaranty. This Guaranty may be executed in one or more counterparts (which taken together, as applicable, shall constitute one and the same instrument) and by facsimile transmission or other electronic means, which signatures shall be considered original executed counterparts.

21. WAIVER OF JURY TRIAL. EACH PARTY TO THIS GUARANTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION ARISING HEREUNDER OR IN ANY WAY CONNECTED WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT HERETO OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE. EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS GUARANTY MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES TO THE WAIVER OF THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY.

22. Survival. It is the express intention and agreement of the parties hereto that all covenants, representations, warranties, and waivers and indemnities made by Guarantor herein shall survive the execution, delivery, and termination of this Guaranty until all obligations are performed in full and indefeasibly paid in full in cash and the Loan Documents are terminated.

[REMAINDER OF PAGE BLANK; SIGNATURE FOLLOWS]

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IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed as of the date first written above.

Guarantor:
SOTHERLY HOTELS INC.
By:	/s/ David R. Folsom
Name:	David R. Folsom
Title:	President and Chief Operating Officer
Guarantor’s Address for Notices:
410 W. Francis Street Williamsburg, Virginia 23185 Telephone: (757) 229-5648 Facsimile: (757) 564-8801

[SIGNATURE PAGE TO GUARANTY]

EX-10.50

Exhibit 10.50

PLEDGE AGREEMENT

This PLEDGE AGREEMENT dated as of March 26, 2014 (as amended, restated, supplemented or modified from time to time, the “Pledge Agreement”) is executed by (i) Sotherly Hotels LP (“Borrower”) and (ii) MHI GP LLC (“GP” and together with Borrower, each a “Pledgor” and together the “Pledgors”), to and for the benefit of Richmond Hill Capital Partners, LP, as agent for the Lenders (as defined hereinafter) (“Agent”).

RECITALS:

WHEREAS, GP is a wholly-owned subsidiary of Borrower;

WHEREAS, Borrower is a party to that certain Note Agreement dated as of March 26, 2014 (as further amended, restated, supplemented or otherwise modified from time to time, the “Note Agreement”), pursuant to which Richmond Hill Capital Partners LP and Essex Equity Joint Investment Vehicle, LLC (each a “Lender” and collectively “Lenders”) have provided a commitment to lend $19,000,000 to the Borrower;

WHEREAS, Pledgors will receive substantial direct and indirect benefits from the commitment to make the Loan (as defined in the Note Agreement) and the granting of the other financial accommodations to Borrower under the Note Agreement;

WHEREAS, pursuant to the Note Agreement, Pledgors are required to execute and deliver this Pledge Agreement in order to secure the obligations and performance of Borrower under the Note Agreement and of Parent under the Guaranty;

NOW, THEREFORE, for and in consideration of the foregoing premises, which are hereby incorporated herein as true, and the mutual promises and agreements contained herein, Pledgors and Agent hereby agree as follows:

AGREEMENTS:

1. Defined Terms. Capitalized terms used but not defined herein shall have the meanings set forth in the Note Agreement. Other capitalized terms used herein shall have the following meanings:

“Charter Documents” shall mean (i) with respect to any Issuer which is a partnership, the partnership agreement and other organizational documents of such Issuer, as the same may be amended, restated, supplemented or otherwise modified from time to time; (ii) with respect to any Issuer which is a limited liability company, the limited liability company agreement, operating agreement and other organizational documents of such Issuer, as the same may be amended, restated, supplemented or otherwise modified from time to time and (iii) with respect to any Issuer which is a corporation, the certificate or articles of incorporation, bylaws, stockholders agreement and other organizational documents of such Issuer, as the same may be amended, restated, supplemented or otherwise modified from time to time.

“Issuer” shall mean any Person listed on Schedule I that has issued any Pledged Equity Interests.

“Obligations” shall mean any and all obligations and liabilities owed to the Agent and the Lenders under the Note Agreement and the Collateral Documents, including all principal, interest, fees and expense reimbursement obligations owed on the Loan.

“Proceeds” shall mean “proceeds”, as such term is defined in the UCC and, in any event, shall include, but not be limited to, (i) any and all payments (in any form whatsoever) made or due and payable to any Pledgor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the “Pledged Collateral” (as hereinafter defined) by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority), (ii) any and all amounts paid or payable to any Pledgor for or in connection with any sale or other disposition of such Pledgor’s interests in Issuer and (iii) any and all other amounts from time to time paid or payable under or in connection with any of the Pledged Collateral.

2. Grant of Security Interest. As security for the prompt and complete payment and performance when due of the Obligations of Borrower, each Pledgor hereby irrevocably grants a security interest in and pledges to the Agent, for itself and for the benefit of the Lenders, all of the following (all of which being herein collectively called the “Pledged Collateral”):

(a) all of such Pledgor’s right, title and interest in and to the equity interests of each Issuer set forth opposite such Pledgor’s name on Schedule I (the “Pledged Equity Interests”), including without limitation, all of such Pledgor’s right to receive dividends or distributions at any time or from time to time received, receivable or otherwise distributed, of cash and other property, real, personal or mixed, from the Issuer of such Pledged Equity Interests, upon complete or partial liquidation or otherwise;

(b) subject to Section 5, all of such Pledgor’s right, title and interest, if any, to participate in the management of each Issuer of Pledged Equity Interests owned by such Pledgor and the voting thereof;

(c) all of such Pledgor’s right, title and interest in and to:

(i) all rights, privileges, authority and power of such Pledgor as owner and holder of the items specified in (a) and (b) above, including but not limited to, all rights in, under or arising from or pursuant to the Charter Documents of each Issuer and all contract rights related thereto;

(ii) all options and other agreements for the purchase or acquisition of any interests in each Issuer;

(iii) all documents or certificates representing or evidencing such Pledgor’s rights and interests in each Issuer; and

(iv) to the extent not otherwise included, all Proceeds and products of any of the foregoing.

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3. Representations and Warranties. Each Pledgor hereby represents and warrants that:

(a) Such Pledgor is the sole owner of its Pledged Collateral, free and clear of any and all liens and claims whatsoever except for the security interest granted to Agent pursuant to this Pledge Agreement.

(b) Such Pledgor’s interests in each Issuer of its Pledged Equity Interests are set forth on Schedule I.

(c) Such Pledgor has all power, statutory and otherwise, to execute and deliver this Pledge Agreement, to perform such Pledgor’s obligations hereunder and to subject the Pledged Collateral to the security interest created hereby, all of which has been duly authorized by all necessary action. Such Pledgor had and has the power and legal capacity to execute and carry out the provisions of all Charter Documents to which it is a party. Such Pledgor has substantially performed all of its obligations to date under such Charter Documents, and has not received notice of the failure of any other party thereto to perform its obligations thereunder.

(d) With respect to the Charter Documents of each Issuer: (i) no amendments or supplements have been made thereto since a copy thereof was delivered to Agent, (ii) such Charter Documents remain in full force and effect and (iii) no party to such Charter Documents is presently in default thereunder.

(e) No authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (i) for such Pledgor’s granting of a security interest in such Pledgor’s Pledged Collateral pursuant to this Pledge Agreement for the execution, delivery or performance of this Pledge Agreement by such Pledgor or (ii) for the exercise by Agent of the rights provided for in this Pledge Agreement or the remedies in respect of the Pledged Collateral pursuant to this Pledge Agreement (except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally).

(f) None of the Pledged Equity Interests which are limited liability company interests or partnership interests are “securities” governed by Article 8 of the UCC.

(g) Each Pledgor is Solvent.

4. Covenants. Each Pledgor hereby covenants and agrees that from and after the date of this Pledge Agreement and until the Obligations are fully satisfied:

(a) Further Documentation; Pledge of Instruments. At any time and from time to time, upon the written request of Agent, and at the sole expense of Pledgors, each Pledgor will promptly and duly execute and deliver any and all such further instruments and documents and take such further actions as Agent may reasonably deem desirable to obtain the full benefits of this Pledge Agreement and of the rights and powers herein granted, including, without limitation, the authorization and filing of any financing or continuation statements under the UCC in effect in any jurisdiction with respect to the security interest granted hereby and, if otherwise required hereunder, transferring the Pledged Collateral to

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the possession of Agent (if a security interest in such Pledged Collateral can be perfected by possession) or, following the occurrence of an Event of Default, causing the Issuer to agree (in writing) that it will only comply with instructions originated by Agent without further consent by any Pledgor. Such Pledgor also hereby authorizes Agent to file any such financing or continuation statement without the signature of such Pledgor to the extent otherwise permitted by applicable law. If any amount payable under or in connection with any of the Pledged Collateral shall be or become evidenced by any promissory note or other instrument (other than an instrument which constitutes chattel paper under the UCC), such note or instrument shall be immediately pledged hereunder and a security interest therein hereby granted to Agent and shall be duly endorsed without recourse or warranty in a manner satisfactory to Agent and delivered to Agent.

(b) Continuous Perfection. Such Pledgor shall not, without ten (10) Business Days’ prior written notice to Agent, change its name, change its state of incorporation, formation or organization, change its organizational identification number or reorganize in another jurisdiction and shall have taken all action (or made arrangements to take such action substantially simultaneously with such change if it is impossible to take such action in advance) necessary or reasonably requested by Agent to amend such financing statement or continuation statement so that it is not seriously misleading. Such Pledgor shall not authorize any financing statement naming Pledgor as debtor covering all or any portion of the Pledged Collateral, except financing statements naming Agent as secured party.

(c) Transfer of Assets. Except as otherwise permitted under the Note Agreement or this Pledge Agreement, such Pledgor will not directly or indirectly sell, pledge, mortgage, assign, transfer, or otherwise dispose of or create or suffer to be created any lien, security interest, charging order, or encumbrance on any of the Pledged Collateral or the assets of the Issuer thereof.

(d) Priority of Liens. Such Pledgor will defend the right, title and interest hereunder of Agent, as a first priority security interest in the Pledged Collateral, against the claims and demands of all persons whomsoever.

(e) Performance of Obligations. Such Pledgor will perform all of such Pledgor’s obligations under any Charter Documents governing its Pledged Equity Interests prior to the time that any interest or penalty would attach against such Pledgor or any of the Pledged Collateral as a result of such Pledgor’s failure to perform any of such obligations, and such Pledgor will do all things necessary to maintain such Issuer as a limited liability company, corporation or partnership, as applicable, under the laws of the jurisdiction of its organization and to maintain such Pledgor’s interest as a member in such Issuer in full force and effect without diminution.

(f) Charter Documents. Such Pledgor shall not (i) suffer or permit any amendment or modification of any Charter Documents of the Issuer of its Pledged Equity Interests in any manner materially adverse to Agent or the Lenders or (ii) waive, release, or compromise any rights or claims such Pledgor may have against any other party which arise under such Charter Documents in any manner materially adverse to Agent or the Lenders. Such Pledgor shall not vote under any Charter Documents to cause the Issuer thereunder to dissolve,

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liquidate, merge or consolidate with any other entity or take any other action under any such Charter Documents that would materially adversely affect the security interest granted to Agent hereunder, including, without limitation, the value or priority thereof; except that, so long as no Default has occurred or is continuing or would result therefrom, Borrower may merge with any Person, provided that Borrower shall be the continuing or surviving Person. Such Pledgor shall not permit, suffer or otherwise consent to the issuance of any new or additional equity interests or options or other agreements granting any right to receive equity interests in the Issuer of its Pledged Equity Interests.

(g) Securities. Such Pledgor shall, or shall permit Agent to, promptly take all action necessary or appropriate to cause Agent to have sole and exclusive “control” over the Pledged Collateral, as such term is defined in Article 9 of the UCC. At all times such Pledgor shall take, or shall permit Agent to take, all action necessary or appropriate to create, perfect and maintain a first priority perfected security interest in the Pledged Collateral in favor of Agent. Without limiting the foregoing, such Pledgor shall deliver any and all certificates that evidence the Pledged Collateral together with assignments separate from certificate executed in blank relating thereto.

5. Pledgors’ Powers.

(a) So long as an “Event of Default” (as defined in the Note Agreement) shall not then exist, each Pledgor shall be the sole party entitled (1) to exercise for any purpose any and all (i) voting rights and (ii) powers, and (2) to receive any and all dividends or distributions, in each case arising from or relating to the Pledged Collateral owned by such Pledgor (whereupon such dividends or distributions shall be released from the security interest created hereby); provided, however, that no Pledgor shall exercise such rights or powers, or consent to any action of Issuer that would be in contravention of the provisions of, or constitute an Event of Default under, this Pledge Agreement or the Note Agreement.

(b) Upon the occurrence of an Event of Default, unless Agent designates in writing to Borrower to the contrary, all rights of Pledgors provided in Section 5(a) hereof shall cease, and all voting rights and powers and rights to distributions included in the Pledged Collateral or otherwise described in such Section 5(a) shall thereupon become vested in Agent, and Agent shall thereafter have the sole and exclusive right and authority to exercise such voting rights and powers. Each Pledgor shall execute such documents and instruments, including but not limited to, statements that such Pledgor no longer has the right to act as a member or otherwise relating to such change as Agent may request. Each Pledgor agrees that any Issuer may rely conclusively upon any notice from Agent that Agent has the right and authority to exercise all rights and powers of such Pledgor as a holder of the equity interests of such Issuer under such Issuer’s Charter Documents. Each Pledgor irrevocably waives any claim or cause of action against any Issuer who deals directly with Agent following receipt of such notice from Agent.

6. Agent’s Appointment as Attorney-in-Fact.

(a) Each Pledgor hereby irrevocably constitutes and appoints Agent and each officer or agent of Agent with full power of substitution, as such Pledgor’s true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such

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Pledgor and in the name of such Pledger or in such attorney-in-fact’s own name, from time to time in the discretion of each such attorney-in-fact, following the occurrence of an Event of Default, for the purpose of carrying out the terms of this Pledge Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Pledge Agreement and, without limiting the generality of the foregoing, hereby gives each such attorney-in-fact the power and right, from and after an Event of Default, on behalf of such Pledger, without notice to or assent by such Pledgor, to do the following:

(i) to collect and otherwise take possession of and title to any and all distributions of cash or other property due or distributable at any time after the date hereof to such Pledgor as a partner from any Issuer, whether in complete or partial liquidation or otherwise, and to prosecute or defend any action or proceeding in any court of law or equity or otherwise deemed appropriate by such attorney-in-fact for the purpose hereof;

(ii) to ask, demand, collect, receive and give acceptances and receipts for any and all moneys due and to become due under any Pledged Collateral and, in the name of such Pledgor or such attorney-in-fact’s own name or otherwise, to take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Pledged Collateral and to file any claim or to take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by such attorney-in-fact for the purpose of collecting any and all such moneys due under any Pledged Collateral whenever payable;

(iii) to pay or discharge taxes, liens, security interests or other encumbrances levied or placed on or threatened against the Pledged Collateral, to effect any repairs or any insurance called for with respect to any of the Pledged Collateral by the terms of this Pledge Agreement and to pay all or any part of the premiums therefor and the costs thereof; and

(iv) (A) to direct any party liable for any payment under any of the Pledged Collateral to make payment of any and all moneys due and to become due thereunder directly to Agent or as such attorney-in-fact shall direct; (B) to receive payment of and receipt for any and all moneys, claims and other amounts due and to become due at any time in respect of or arising out of any Pledged Collateral; (C) to commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Pledged Collateral or any portion thereof and to enforce any other right in respect of any Pledged Collateral; (D) to defend any suit, action or proceeding brought against such Pledgor with respect to any Pledged Collateral; (E) to settle, compromise or adjust any suit, action or proceeding described above and, in connection therewith, to give such discharges or releases as such attorney-in-fact may deem appropriate; and (F) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Pledged Collateral as fully and completely as though such attorney-in fact were the absolute owner thereof for all purposes, and to do, at the option of such attorney-in-fact at Pledgors’ expense, at any time, or from time to time, all acts and things which such attorney-in-fact reasonably deems necessary to protect, preserve or realize upon the Pledged Collateral and the security interest of Agent therein, in order to effect the intent of this Pledge Agreement, all as fully and effectively as such Pledgor might do.

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Each Pledgor hereby ratifies, to the extent permitted by law, all that said attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable.

(b) The powers conferred on each attorney-in-fact hereunder are solely to protect the interest in the Pledged Collateral of Agent and shall not impose any duty upon any such attorney-in-fact to exercise any such powers. Each such attorney-in-fact shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and neither it nor any of its officers, directors, managers, employees or agents shall be responsible to any Pledgor for any act or failure to act unless such action or failure to act constitutes gross negligence.

(c) Each Pledgor also authorizes Agent and each officer or agent of Agent at any time and from time to time, upon the occurrence of any Event of Default, to execute, in connection with the sale provided for in Section 9 of this Pledge Agreement, any endorsements, assignments or other instruments of conveyance or transfer with respect to any of the Pledged Collateral.

7. Distributions. In the event any Pledgor receives any distributions in respect of the Pledged Collateral that are made in violation of the Note Agreement, such Pledgor will hold the same in trust for Agent and promptly transfer the property that was so distributed in the form that it was received.

8. Performance by Agent of Pledgor’s Obligations. If any Pledgor fails to perform or comply with any of such Pledgor’s agreements contained herein, and Agent as provided for by the terms of this Pledge Agreement shall itself perform or comply, or otherwise cause performance or compliance, with such agreement, the expenses of Agent incurred in connection with such performance or compliance, together with interest thereon at the rate following a default specified in the Note Agreement in effect from time to time shall be payable by such Pledger to Agent on demand and shall constitute Obligations secured hereby

9. Remedies, Rights Upon Default.

(a) Upon the occurrence of any Event of Default, Agent or Agent’s designee may, at Agent’s option, elect to become the substituted partner in any Issuer with respect to the Pledged Collateral and Pledgors shall execute or cause to be executed all documents necessary to evidence Agent so becoming substituted partner. If any Event of Default shall occur, Agent or Agent’s designee may exercise in addition to all other rights and remedies granted to them in this Pledge Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the UCC. Without limiting the generality of the foregoing, each Pledgor expressly agrees that in any such event Agent, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon any Pledgor or any other person (all and each of which demands, advertisements

7

and/or notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Pledged Collateral, or any part thereof, and/or may forthwith sell, assign, give option or options to purchase, or sell or otherwise dispose of and deliver said Pledged Collateral (or contract to do so), or any part thereof, in one or more parcels at public or private sale or sales, at any exchange or broker’s board or at any of Agent’s offices or elsewhere at such prices as it may deem best, for cash or on credit or for future delivery without the assumption of any credit risk. Each Pledgor expressly acknowledges that private sales may be less favorable to a seller than public sales but that private sales shall nevertheless be deemed commercially reasonable and otherwise permitted hereunder. In view of the fact that federal and state securities laws and/or other applicable laws may impose certain restrictions on the method by which a sale of the Pledged Collateral may be effected, each Pledgor agrees that upon the occurrence of an Event of Default, Agent may, from time to time, attempt to sell all or any part of the Pledged Collateral by means of a private placement, restricting the prospective purchasers to those who will represent and agree that they are purchasing for investment only and not for distribution. In so doing, Agent may solicit offers to buy the Pledged Collateral, or any part thereof, for cash, from a limited number of investors deemed by Agent in its judgment, to be financially responsible parties who might be interested in purchasing the Pledged Collateral, and if Agent solicits such offers, then the acceptance by Agent of the highest offer obtained therefrom shall be deemed to be a commercially reasonable method of disposing of the Pledged Collateral.

Agent or Agent’s designee shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of said Pledged Collateral so sold, free of any right or equity of redemption, which equity of redemption each Pledgor hereby releases. Each Pledgor further agrees, at the request of Agent, to assemble the Pledged Collateral and make it available to Agent at places which Agent shall reasonably select, whether at such Pledgor’s premises or elsewhere. Agent shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale as provided in Section 10(d) of this Pledge Agreement. Only after so paying over such net proceeds and after the payment by Agent of any other amount required by any provision of law, including Section 9-608(a)(1)(C) of the UCC, need Agent account for the surplus, if any, to any Pledgor. To the extent permitted by applicable law, each Pledgor waives all claims, damages, and demands against Agent arising out of the repossession, retention or sale of the Pledged Collateral except in each case such as arise out of the gross negligence or willful misconduct of Agent. Any notification of intended disposition of any of the Pledged Collateral required by law will be deemed to be a reasonable authenticated notification of disposition if given at least ten (10) days prior to such disposition and such notice shall (i) describe Agent and the applicable Pledgor, (ii) describe the Pledged Collateral that is the subject of the intended disposition, (iii) state the method of the intended disposition, (iv) state that the applicable Pledgor is entitled to an accounting of the Obligations and state the charge, if any, for an accounting and (v) state the time and place of any public disposition or the time after which any private sale is to be made. Agent may disclaim any warranties that might arise in connection with the sale, lease or other disposition of the Pledged Collateral and has no obligation to provide any warranties at such time.

(b) Each Pledgor also agrees to pay all costs of Agent, including reasonable attorneys’ fees and expenses, incurred with respect to the enforcement of any of Agent’s rights hereunder.

8

(c) Each Pledgor hereby waives presentment, demand, or protest (to the extent permitted by applicable law) of any kind in connection with this Pledge Agreement or any Pledged Collateral. Except for notices provided for herein, each Pledgor hereby waives notice (to the extent permitted by applicable law) of any kind in connection with this Pledge Agreement.

(d) The proceeds of any sale, disposition or other realization upon all or any part of the Pledged Collateral shall be distributed by Agent in the following order of priorities:

first, to Agent in an amount sufficient to pay in full the expenses of Agent in connection with Agent exercising its rights and remedies under the Note Agreement and the Collateral Documents, including but not limited to any sale, disposition or other realization, including all expenses, liabilities and advances incurred or made by Agent in connection therewith, including reasonable attorneys’ fees and expenses;

second, to Agent to the payment of the Obligations in accordance with Paragraph 5(e) of the Note Agreement; and

finally, upon payment in full of all of the Obligations, to the Pledgor of such Pledged Collateral, or its representative or as a court of competent jurisdiction or as such Pledgor may direct.

Each Pledgor agrees to indemnify and hold harmless Agent and each Lender, their directors, managers, officers, employees, agents and parent, and subsidiary corporations, and each of them, from and against any and all liabilities, obligations, claims, damages, or expenses incurred by any of them arising out of or by reason of entering into this Pledge Agreement or the consummation of the transactions contemplated by this Pledge Agreement, except claims, losses or liabilities resulting from Agent’s gross negligence, willful misconduct or unlawful acts, and to pay or reimburse Agent for the fees and disbursements of counsel incurred in connection with any investigation, litigation or other proceedings (whether or not Agent is a party thereto) arising out of or by reason of any of the aforesaid. Agent will promptly give Borrower written notice of the assertion of any claim which it believes is subject to the indemnity set forth in this Section 9 and will upon the request of Borrower promptly furnish Borrower with all material in its possession relating to such claim or the defense thereof to the extent that Agent may do so without breach of duty to others. Any amounts properly due under this Section 9 shall be payable to Agent immediately upon demand.

10. Limitation on Agent’s Duty in Respect of the Pledged Collateral. Except as expressly provided in the UCC, Agent shall have no duty as to any Pledged Collateral in its possession or control or in the possession or control of any agent or nominee of Agent or as to any income thereon or as to the preservation of rights against prior parties or any other rights pertaining thereto.

11. Notices. All notices and other communications shall be in writing and hand delivered with written receipt, telecopied, sent by facsimile, sent by a nationally recognized overnight courier, or sent by certified mail, return receipt requested as specified under Paragraph 20 of the Note Agreement. Each party may change its notice address by written notification to the other parties. All such notices and communications shall be effective when delivered.

9

12. Severability. Any provision of this Pledge Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

13. No Waiver; Cumulative Remedies. Agent shall not, by any act, delay, omission or otherwise, be deemed to have waived any of its rights or remedies hereunder. No waiver hereunder shall be valid except to the extent therein set forth. A waiver of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which Agent would otherwise have had on any future occasion. No failure to exercise nor any delay in exercising on the part of Agent any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or future exercise thereof or the exercise of any other right, power or privilege. Except to the extent that Agent has specifically and expressly waived such remedies in this Pledge Agreement or otherwise, the rights and remedies hereunder provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights and remedies provided by law. Agent may resort to and realize on the Pledged Collateral simultaneously with any acts or proceedings initiated by Agent in its sole and conclusive discretion to resort to or realize upon any other sources of repayment of the Obligations, including, but not limited to, collateral granted by other security agreements and the personal liability of any Pledgor and any person or corporation which has guaranteed repayment of the Obligations. None of the terms or provisions of this Pledge Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by each Pledgor and Agent.

14. Successors and Assigns. This Pledge Agreement and all obligations of Pledgors hereunder shall be binding upon the successors and assigns of each Pledgor, except that no Pledgor shall have the right to assign its rights hereunder or any interest herein without the prior written consent of Agent and shall, together with the rights and remedies of Agent hereunder, inure to the benefit of Agent and its respective successors and assigns. Neither this Pledge Agreement nor anything set forth herein is intended to, nor shall it, confer any rights on any person or entity other than the parties hereto and all third party rights are expressly negated.

15. Termination. This Pledge Agreement, and the assignments, pledges and security interests created or granted hereby, shall automatically terminate when the Obligations shall have been fully paid and satisfied, at which time Agent shall release and reassign (without recourse upon, or any warranty whatsoever by, Agent, other than the representation that all of the Pledged Collateral being delivered to Pledgors by Agent is free and clear of any Lien created by Agent), and deliver to Pledgors all Pledged Collateral and related documents then in the custody or possession of Agent, including termination statements under the UCC, all without recourse upon, or warranty whatsoever, by Agent and at the cost and expense of Pledgors.

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16. Injunctive Relief. Each Pledgor recognizes that in the event any Pledgor fails to perform, observe or discharge any of such Pledgor’s obligations hereunder, no remedy of law will provide adequate relief to Agent, and agrees that Agent shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages.

17. Waiver of Subrogation. No Pledgor shall have any rights of subrogation as to any of the Pledged Collateral until full and complete performance and payment of the Obligations.

18. Governing Law. THIS PLEDGE AGREEMENT SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AS TO INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, AND SHALL BE BINDING UPON EACH PLEDGOR AND EACH PLEDGOR’S HEIRS, LEGAL REPRESENTATIVES, SUCCESSORS AND ASSIGNS (AND EACH OF THEM, IF MORE THAN ONE). Wherever possible, each provision of this Pledge Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Pledge Agreement shall be prohibited by or be invalid under such law, such provision shall be severable, and be ineffective to the extent of such prohibition or invalidity, without invalidating the remaining provisions of this Pledge Agreement.

19. Counterparts; Facsimile Signatures. This Pledge Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement. Receipt of an executed signature page to this Pledge Agreement by facsimile or other electronic transmission shall constitute effective delivery thereof.

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20. Forum; Waiver of Trial By Jury. Each Pledgor hereby (i) irrevocably agrees that any suit or proceeding arising in respect of this Pledge Agreement, or any of the matters contemplated hereby or thereby will be tried exclusively in the U.S. District Court for the Southern District of New York as or, if such court does not have subject matter jurisdiction, in any state court located in the City of New York, New York, and agrees to submit to the exclusive jurisdiction of, and venue in, such court and (ii) waives any objection based on forum non-conveniens. IN ADDITION, EACH PLEDGOR HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS PLEDGE AGREEMENT, THE ADVANCES, ANY ALLEGED TORTIOUS CONDUCT BY ANY PLEDGOR OR AGENT OR WHICH IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN ANY PLEDGOR AND AGENT.

THIS PLEDGE AGREEMENT AND THE OTHER CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, each Pledgor has executed this Pledge Agreement or has caused the same to be executed by such Pledgor’s duly authorized representative(s) as of the date first above written.

SOTHERLY HOTELS LP
By:	Sotherly Hotels Inc.,
	its General Partner
By:	/s/ David R. Folsom
	Name:	David R. Folsom
	Title:	President and Chief Operating Officer

MHI GP LLC
By:	Sotherly Hotels LP,
	its Sole Member
By:	Sotherly Hotels Inc.,
	its General Partner

By:	/s/ David R. Folsom
	Name:	David R. Folsom
	Title:	President and Chief Operating Officer

Pledge Agreement

ACKNOWLEDGEMENT

The undersigned hereby (a) acknowledges receipt of a copy of the foregoing Pledge Agreement, (b) waives any rights or requirement at any time hereafter to receive a copy of such Pledge Agreement in connection with the registration of any Pledged Collateral (as defined therein) in the name of Richmond Hill Partners, LP as Agent (“Agent”) or its nominee or the exercise of voting rights by Agent, and (c) agrees promptly to note on its books and records the transfer of the security interest in the membership interests or stock, as applicable, of the undersigned as provided in such Pledge Agreement, including the following legend:

PURSUANT TO THAT CERTAIN PLEDGE AGREEMENT DATED AS OF MARCH 26, 2014 (AS FROM TIME TO TIME AMENDED, RESTATED, SUPPLEMENTED OR OTHERWISE MODIFIED), EACH PLEDGOR HAS UNDER THE CIRCUMSTANCES SPECIFIED IN SUCH PLEDGE AGREEMENT EMPOWERED RICHMOND HILL PARTNERS LP TO VOTE THE PARTNERSHIP INTERESTS AND EXERCISE ANY OTHER RIGHTS WITH RESPECT TO THE PARTNERSHIP INTERESTS OWNED BY PLEDGOR PURSUANT TO SUCH PLEDGE AGREEMENT WITHOUT FURTHER CONSENT BY PLEDGOR.

Dated: March 26, 2014	PHILADELPHIA HOTEL ASSOCIATES LP
	By:	MHI GP LLC,
		its General Partner
	By:	Sotherly Hotels LP
		its Sole Member
	By:	Sotherly Hotels Inc.
		its General Partner
	By:	/s/ David R. Folsom
	Name:	David R. Folsom
	Title:	Chief Operating Officer

Acknowledgement re.Pledge Agreement

SCHEDULE I

PLEDGED EQUITY INTERESTS

Pledgor	Issuer (Jurisdiction of Organization)	Type of Equity Interest Pledged	% of the Equity Interest in Issuer			Certificate No.
Sotherly Hotels LP	Philadelphia Hotel Associates LP (Pennsylvania)	Limited Partnership Interest		99.00	%	N/A
MHI GP LLC	Philadelphia Hotel Associates LP (Pennsylvania)	Limited Partnership Interest		1.00	%	N/A

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

FOR THE CHIEF EXECUTIVE OFFICER

I, Andrew M. Sims, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sotherly Hotels Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2014

By:	/s/ Andrew M. Sims
Name:	Andrew M. Sims
Title:	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

FOR THE CHIEF FINANCIAL OFFICER

I, Anthony E. Domalski, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sotherly Hotels Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2014

By:	/s/ Anthony E. Domalski
Name:	Anthony E. Domalski
Title:	Chief Financial Officer

EX-31.3

Exhibit 31.3

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

FOR THE CHIEF EXECUTIVE OFFICER

I, Andrew M. Sims, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sotherly Hotels LP;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2014

By:	/s/ Andrew M. Sims
Name:	Andrew M. Sims
Title:	Chief Executive Officer
	Sotherly Hotels, Inc., sole general partner of Sotherly Hotels LP

EX-31.4

Exhibit 31.4

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

FOR THE CHIEF FINANCIAL OFFICER

I, Anthony E. Domalski, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Sotherly Hotels LP;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 14, 2014

By:	/s/ Anthony E. Domalski
Name:	Anthony E. Domalski
Title:	Chief Financial Officer
	Sotherly Hotels, Inc., sole general partner of Sotherly Hotels LP

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Sotherly Hotels Inc. (the “Corporation”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrew M. Sims, Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

Date: May 14, 2014

By:	/s/ Andrew M. Sims
Name:	Andrew M. Sims
Title:	Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Sotherly Hotels Inc. (the “Corporation”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anthony E. Domalski, Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

Date: May 14, 2014

By:	/s/ Anthony E. Domalski
Name:	Anthony E. Domalski
Title:	Chief Financial Officer

EX-32.3

Exhibit 32.3

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Sotherly Hotels LP (the “Operating Partnership”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Andrew M. Sims, Chief Executive Officer of the Sotherly Hotels Inc., sole general partner of the Operating Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership.

Date: May 14, 2014

By:	/s/ Andrew M. Sims
Name:	Andrew M. Sims
Title:	Chief Executive Officer
	Sotherly Hotels Inc., sole general partner of Sotherly Hotels LP

EX-32.4

Exhibit 32.4

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Sotherly Hotels LP (the “Operating Partnership”) on Form 10-Q for the period ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anthony E. Domalski, Chief Financial Officer of Sotherly Hotels Inc., sole general partner of the Operating Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership.

Date: May 14, 2014

By:	/s/ Anthony E. Domalski
Name:	Anthony E. Domalski
Title:	Chief Financial Officer
	Sotherly Hotels, Inc., sole general partner of Sotherly Hotels LP

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Investment in Hotel Properties - Schedule of Hotel Properties (Detail) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Property, Plant and Equipment [Line Items]
Total Gross	$ 324,506,611	$ 262,887,882
Less: accumulated depreciation and impairment	(62,301,934)	(60,242,249)
Total Net	262,204,677	202,645,633
Land and Land Improvements [Member]
Property, Plant and Equipment [Line Items]
Total Gross	37,083,998	26,956,311
Buildings and Improvements [Member]
Property, Plant and Equipment [Line Items]
Total Gross	252,101,033	206,101,663
Furniture, Fixtures and Equipment [Member]
Property, Plant and Equipment [Line Items]
Total Gross	$ 35,321,580	$ 29,829,908

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Income Taxes - Reconciliation of Statutory Federal Income Tax Provision (Benefit) (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Income Tax Expense Benefit Continuing Operations Income Tax Reconciliation [Abstract]
Statutory federal income tax expense (benefit)	$ 90,778	$ (1,051,522)
Effect of non-taxable REIT (income) loss	(822,967)	1,210,409
State income tax (benefit) provision	(3,130)	104,168
Income tax (benefit) provision	$ (735,319)	$ 263,055

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Related Party Transactions - Additional Information (Detail) (USD $)	0 Months Ended			3 Months Ended					3 Months Ended					0 Months Ended	3 Months Ended	0 Months Ended		12 Months Ended			3 Months Ended	0 Months Ended	1 Months Ended	3 Months Ended
	Dec. 23, 2013	Oct. 23, 2013	Apr. 02, 2013	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013	Aug. 01, 2013	Mar. 26, 2013	Mar. 31, 2014 Bridge Loan [Member]	Mar. 26, 2014 Bridge Loan [Member]	Mar. 31, 2014 Sotherly Hotels LP [Member]	Dec. 31, 2013 Sotherly Hotels LP [Member]	Sep. 30, 2013 Sotherly Hotels LP [Member]	Oct. 23, 2013 Essex Warrant [Member]	Mar. 31, 2014 Essex Warrant [Member]	Dec. 23, 2013 Essex Warrant [Member] Sotherly Hotels LP [Member]	Oct. 23, 2013 Essex Warrant [Member] Sotherly Hotels LP [Member]	Dec. 31, 2013 Board of Directors [Member] Members	Dec. 31, 2012 Board of Directors [Member]	Dec. 31, 2011 Board of Directors [Member]	Mar. 31, 2014 Crowne Plaza Houston Downtown [Member]	Dec. 21, 2004 MHI Hotels Services [Member]	Nov. 30, 2013 MHI Hotels Services [Member]	Mar. 31, 2014 MHI Hotels Services [Member]	Dec. 31, 2013 MHI Hotels Services [Member]	Mar. 31, 2013 MHI Hotels Services [Member]	Mar. 31, 2014 MHI Hotels Services [Member] Crowne Plaza Tampa Westshore [Member]	Mar. 31, 2014 MHI Hotels Services [Member] Crowne Plaza Houston Downtown [Member]	Mar. 31, 2014 MHI Hotels Services [Member] Georgian Terrace [Member]
Related Party Transaction [Line Items]
Company's outstanding common stock owned by members of MHI Hotels Services																								10.70%
Operating Partnership units owned by members of MHI Hotels Services																								1,752,958
Due from MHI Hotels Services				$ 77,692	$ 101,439						$ 77,692	$ 101,439												$ 77,692	$ 101,439
Leasehold revenue																								87,500	87,500
Expiry date of leasehold interests																								Dec. 31, 2011
Strategic alliance agreement term																						10 years
Expiry date of master management agreement																								Between December 2014 and April 2018	Between December 2014 and April 2018
Additional agreement, expiry date																					April 2016						March 2019	April 2016
Acquisition date of property																													Nov. 30, 2013
Expiry date of management agreement																													March 2024
Management fee of gross revenues for first full fiscal year																								2.00%
Management fee of gross revenues for second full fiscal year																								2.50%
Management fee of gross revenues for every year thereafter																								3.00%
Management fee of gross revenues																								2.00%
Period of incentive management fee due within end of the fiscal year																								90 days
Incentive management of increase in gross operating profit																								10.00%
Maximum incentive management fee of gross revenues																								0.25%
Administrative fee per year				30,000
Base management fees earned by related party																								687,562		600,615
Incentive management fees earned by related party																								7,272		34,594
Employee medical benefits paid																								814,801		650,999
Redemption of units in Operating Partnership	1,000,000	900,000	10,000	0										900,000				24,600	24,600	24,600
Number of members controlled by related party																		2
Number of former members controlled by related party																		1
Operating Partnership stock redemption value			32,900															76,230
Limited partnership interest purchased																							1.00%
Limited partnership interest purchased, unit																							32,929
Operating Partnership valued																							153,636
Preference stock, shares agreed for redemption							2,460	1,902								1,000,000	900,000
Preference share, aggregate redemption price						10,700,000	2,700,000	2,100,000					10,700,000			4,000,000	3,200,000
Prepayment fee pursuant to the provisions of the articles supplementary						700,000	200,000	200,000
Aggregate cash redemption price														3,200,000
Aggregate cash redemption price	4,000,000			0											0	4,000,000
Secured Bridge Loan										19,000,000
Maturity date of secured Bridge Loan									Mar. 26, 2015
Interest rate of secured Bridge Loan									10.00%
Limited partnership interests in the subsidiary									100.00%
Total compensation for related parties				$ 32,330

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Income Taxes - Additional Information (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Income Tax Disclosure [Abstract]
Deferred tax asset	$ 1,921,441	$ 1,186,122
Accumulated net operating losses	1,400,000	700,000
Start up expense related to company	300,000	300,000
Amortized period	15 years
Loss carryforwards, expired	2028
Valuation allowances	$ 0

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Commitments and Contingencies - Schedule of Minimum Future Lease Payments (Detail) (USD $)	Mar. 31, 2014
Operating Leases Future Minimum Payments Due [Abstract]
The remaining nine month period ending December 31, 2014	$ 312,155
December 31, 2015	361,081
December 31, 2016	324,723
December 31, 2017	196,436
December 31, 2018	158,721
December 31, 2019 and thereafter	732,092
Total	$ 2,085,208

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Organization and Description of Business - Additional Information (Detail) (USD $)	0 Months Ended							3 Months Ended					0 Months Ended	3 Months Ended				3 Months Ended			0 Months Ended				0 Months Ended		3 Months Ended		0 Months Ended			0 Months Ended		3 Months Ended		3 Months Ended		0 Months Ended	3 Months Ended
	Dec. 27, 2013	Dec. 23, 2013	Oct. 23, 2013	Sep. 30, 2013	Aug. 01, 2013	Apr. 02, 2013	Mar. 26, 2013	Mar. 31, 2014 Hotel	Dec. 31, 2013	Nov. 13, 2013	Mar. 31, 2014 Crowne Plaza Hollywood [Member]	Mar. 31, 2014 Operating Partnership [Member]	Oct. 23, 2013 Essex Warrant [Member]	Mar. 31, 2014 Essex Warrant [Member]	Apr. 18, 2011 Essex Warrant [Member]	Mar. 31, 2014 Mortgage [Member]	Dec. 31, 2013 Mortgage [Member]	Mar. 31, 2014 Senior Unsecured Notes [Member]	Sep. 30, 2013 Senior Unsecured Notes [Member]	Nov. 13, 2013 Crowne Plaza Houston [Member]	Mar. 27, 2014 Georgian Terrace [Member] ParkingSpaces acre Room	Sep. 30, 2013 Sotherly Hotels LP [Member]	Mar. 31, 2014 Sotherly Hotels LP [Member]	Dec. 31, 2013 Sotherly Hotels LP [Member]	Dec. 23, 2013 Sotherly Hotels LP [Member] Essex Warrant [Member]	Oct. 23, 2013 Sotherly Hotels LP [Member] Essex Warrant [Member]	Mar. 31, 2014 Sotherly Hotels LP [Member] Senior Unsecured Notes [Member]	Sep. 30, 2013 Sotherly Hotels LP [Member] Senior Unsecured Notes [Member]	Mar. 22, 2013 Hilton Brownstone-University Hotel [Member]	Mar. 26, 2013 Hilton Brownstone-University Hotel [Member]	Mar. 22, 2013 Hilton Brownstone-University Hotel [Member] Mortgage [Member]	Jun. 28, 2013 Towne Bank [Member]	Aug. 01, 2013 CIBC [Member]	Mar. 31, 2014 CIBC [Member]	Aug. 01, 2013 CIBC [Member] Series A Cumulative Redeemable Preferred Stock [Member]	Mar. 31, 2014 Richmond Hill Capital Partners Lp [Member] Bridge Loan [Member]	Mar. 26, 2014 Richmond Hill Capital Partners Lp [Member] Bridge Loan [Member]	Mar. 27, 2014 Bank Of Ozarks [Member] First Mortgage Loans [Member]	Mar. 31, 2014 TD Bank [Member] Hilton Philadelphia Airport Hotel [Member]
Organization Consolidation and Presentation of Financial Statements [Line Items]
Date of incorporation								Aug. 20, 2004
Date of commencement of business								Dec. 21, 2004
Number of hotels acquired before commencement of business								6
Percentage of noncontrolling interest holding in Crowne Plaza Hollywood Beach Resort											25.00%
Percentage owned by the Company of the Operating Partnership												78.10%
Amount of mortgage loan																			$ 27,600,000										$ 10,000,000		$ 8,000,000		$ 15,600,000						$ 30,000,000
Interest rate if mortgage loan is extended																													5.25%
Interest floor rate																													5.25%										3.50%
Mortgage bears interest rate after 5 years																													3.00%
Extension in loan agreement																													5 years
Preference stock, shares agreed for redemption					2,460		1,902																		1,000,000	900,000				1,902
Preference share, aggregate redemption price				10,700,000	2,700,000		2,100,000															10,700,000			4,000,000	3,200,000				2,100,000					2,700,000
Principal payment of loan under extension agreement																																1,100,000
Reduced principal balance of loan under extension agreement																																6,000,000
Principal payment on extended maturity agreement - monthly																																16,000
Additional interest rate																																4.55%						3.75%	3.00%
Minimum rate of interest																																5.00%
Extended maturity date of mortgage loan								Jun. 30, 2015
Extended maturity date of mortgage loan								Jun. 30, 2014
Interest rate on amount borrowed																			8.00%									8.00%					4.78%
Amortization schedule for level payments of principal and interest on a monthly basis																																	30 years
Debt instrument maturity date																		Sep. 30, 2018									Sep. 30, 2018							Aug. 01, 2018		Mar. 26, 2015		Mar. 27, 2017	Apr. 01, 2019
Loan proceeds were placed into a restricted reserve																																	700,000
Proceeds of the mortgage used to redeem Preferred Stock																																			2,460
Prepayment fee				700,000	200,000		200,000															700,000											200,000
Operating Partnership aggregate amount of unsecured senior notes																						27,600,000
Number of issuable warrant shares redeemed		1,000,000	900,000										900,000
Number of shares to be sold under warrant													1,900,000		1,900,000
Aggregate cash redemption price													3,200,000
Number of issuable warrant unit redeemed		1,000,000	900,000			10,000		0					900,000
Percentage ownership by the Operating Partnership in the acquisition										100.00%
Acquired property value																				30,900,000	61,100,000
Number of units						0.0				32,929
Number of remaining issuable warrant shares redeemed		1,000,000
Aggregate purchase price for remaining portion		4,000,000						0						0											4,000,000
Non recourse mortgage	57,000,000
Amount of distribution proceeds to pay existing loans	3,500,000
Agreement taken to secured loan								206,554,064	160,363,549							206,554,064	160,363,549						206,554,064	160,363,549													19,000,000
Interest on loan																																					10.00%
Rooms in hotel																					326
Purchase price																					61,100,000
Parking space																					698
Development parcel																					0.6
Mortgage from Bank of the Ozarks																																						41,500,000
Restricted cash reserve																																						1,500,000
Floating rate of interest rate																																						4.00%
Amortization schedule																																						25 years	25 years
Period subject to certain terms and conditions																																						1 year
Additional mortgage loan																																							$ 5,600,000
Duration of franchise agreement								10 years
Agreement date								2014-11

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Income (Loss) Per Share and Per Unit - Computation of Basic and Diluted Earnings Per Unit (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Earnings Per Share [Abstract]
Net income (loss)	$ 1,002,314	$ (3,355,766)
Denominator
Weighted average number of units outstanding	13,089,837	13,035,992
Basic and diluted net income (loss) per unit	$ 0.08	$ (0.26)

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Acquisition of Hotel Properties (Tables)

3 Months Ended

Mar. 31, 2014

Business Combinations [Abstract]

Allocation of Purchase Price Based on Fair Values

The preliminary allocation of the purchase price based on fair values is as follows:

	Georgian Terrace
Land and land improvements	$	10,127,687
Buildings and improvements		45,385,939
Furniture, fixtures and equipment		5,163,135
Investment in hotel properties		60,676,761
Restricted cash		124,658
Accounts receivable		465,287
Prepaid expenses, inventory and other assets		430,997
Accounts payable and accrued liabilities		(591,618	)
Net cash	$	61,106,085

Pro Forma Results Prepared for Comparative Purposes

The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually occurred had the transaction taken place on January 1, 2013, or of future results of operations:

	Three months ended
	March 31, 2014		March 31, 2013
	(unaudited)		(unaudited)
Pro forma revenues	$	29,781,052	$	28,456,030
Pro forma operating expenses		26,644,824		26,150,225
Pro forma operating income		3,136,228		2,305,805
Pro forma net income (loss)		268,146		(3,302,747	)
Pro forma earnings (loss) per basic and diluted share and unit		0.03		(0.33	)
Pro forma basic and diluted common shares		10,225,710		10,080,375

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Unconsolidated Joint Venture - Additional Information (Detail)	Mar. 31, 2014 acre
Schedule of Equity Method Investments [Line Items]
Option of purchase of land	3
Carlyle [Member]
Schedule of Equity Method Investments [Line Items]
Percentage of indirect controlling interest owned by Carlyle	75.00%
Crowne Plaza Hollywood [Member]
Schedule of Equity Method Investments [Line Items]
Percentage of Operating Partnership owned	25.00%

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Debt - Schedule of Mortgage Debt Obligations on Hotels (Parenthetical) (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014 Crowne Plaza Hampton Marina [Member]	Mar. 31, 2014 Crowne Plaza Houston Downtown [Member]	Mar. 31, 2020 Crowne Plaza Jacksonville Riverfront [Member]	Mar. 31, 2014 Double Tree by Hilton Brownstone University [Member]	Mar. 31, 2014 Sheraton Louisville Riverside [Member]	Mar. 31, 2014 Hilton Philadelphia Airport [Member]	Mar. 31, 2014 Hilton Savannah DeSoto [Member]	Mar. 31, 2014 Hilton Wilmington Riverside [Member]	Mar. 31, 2014 Holiday Inn Laurel West [Member]	Mar. 31, 2014 Georgian Terrace [Member]
Debt Instrument [Line Items]
Extended maturity date	Jun. 30, 2015	Nov. 30, 2018	Jul. 31, 2016
Debt instrument periodic payment	$ 16,000
Interest rate	5.00%					3.50%				4.00%
Period in which prepayment not allowed		2 years					6 years	6 years
Number of months for prepayment before maturity				2 months	2 months
Duration of loan prepaid										Mar. 26, 2015
Penalty Prepayment					90 days				90 days
Number of days before maturity date that loan can be prepaid with penalty									180 days
Number of days for penalty before original maturity									180 days
Interest rate									3.00%
Treasury floor rate of interest									5.25%

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Acquisition of Hotel Properties - Allocation of Purchase Price Based on Fair Values (Detail) (Georgian Terrace [Member], USD $)	3 Months Ended
	Mar. 31, 2014
Georgian Terrace [Member]
Schedule Of Summary Of Acquisitions Of Properties [Line Items]
Land and land improvements	$ 10,127,687
Buildings and improvements	45,385,939
Furniture, fixtures and equipment	5,163,135
Investment in hotel properties	60,676,761
Restricted cash	124,658
Accounts receivable	465,287
Prepaid expenses, inventory and other assets	430,997
Accounts payable and accrued liabilities	(591,618)
Net cash	$ 61,106,085

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Indirect Hotel Operating Expenses - Summary of Indirect Hotel Operating Expenses (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Component Of Operating Cost And Expense [Line Items]
Total indirect hotel operating expenses	$ 9,483,873	$ 7,815,061
General and Administrative [Member]
Component Of Operating Cost And Expense [Line Items]
Total indirect hotel operating expenses	2,020,998	1,655,194
Sales and Marketing [Member]
Component Of Operating Cost And Expense [Line Items]
Total indirect hotel operating expenses	2,091,222	1,737,032
Repairs and Maintenance [Member]
Component Of Operating Cost And Expense [Line Items]
Total indirect hotel operating expenses	1,328,515	1,091,909
Utilities [Member]
Component Of Operating Cost And Expense [Line Items]
Total indirect hotel operating expenses	1,201,014	988,034
Franchise Fees [Member]
Component Of Operating Cost And Expense [Line Items]
Total indirect hotel operating expenses	884,305	693,405
Management Fees, Including Incentive [Member]
Component Of Operating Cost And Expense [Line Items]
Total indirect hotel operating expenses	694,834	635,208
Insurance [Member]
Component Of Operating Cost And Expense [Line Items]
Total indirect hotel operating expenses	469,190	361,301
Property Taxes [Member]
Component Of Operating Cost And Expense [Line Items]
Total indirect hotel operating expenses	741,345	597,329
Other [Member]
Component Of Operating Cost And Expense [Line Items]
Total indirect hotel operating expenses	$ 52,450	$ 55,649

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Equity - Additional Information (Detail) (USD $)	0 Months Ended			3 Months Ended				0 Months Ended			0 Months Ended							0 Months Ended
	Dec. 23, 2013	Oct. 23, 2013	Apr. 02, 2013	Mar. 31, 2014	Dec. 31, 2013	Nov. 13, 2013	Mar. 31, 2014 Series A Cumulative Redeemable Preferred Stock [Member]	Jan. 02, 2013 Sotherly Hotels LP [Member]	Mar. 31, 2014 Sotherly Hotels LP [Member]	Dec. 31, 2013 Sotherly Hotels LP [Member]	Jan. 02, 2013 Chief Financial Officer [Member] Sotherly Hotels LP [Member]	Aug. 14, 2014 Common Stock [Member]	Apr. 02, 2013 Common Stock [Member]	Mar. 02, 2013 Common Stock [Member]	Feb. 14, 2014 Common Stock [Member] Sotherly Hotels LP [Member]	Jan. 25, 2013 Common Stock [Member] Sotherly Hotels LP [Member]	Jan. 25, 2013 Common Stock [Member] Executives and Employee [Member]	Feb. 14, 2014 Common Stock [Member] Director [Member]	Jan. 25, 2013 Common Stock [Member] Director [Member]	Feb. 14, 2014 Common Stock [Member] Executive Officer [Member]
Class of Stock [Line Items]
Preferred stock, shares authorized				1,000,000			27,650
Common stock, shares authorized				49,000,000	49,000,000
Common stock, par value				$ 0.01	$ 0.01
Voting right				Each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of stockholders.
Number of issued unit in Operating Partnership								30,000							36,750	45,500
Non-restricted shares issued																	30,500	750		24,000
Restricted shares issued											30,000							12,000	15,000
Conversion of units in Operating Partnership to shares of common stock, shares												50,000	31,641	50,000
Common stock, shares outstanding				10,243,677	10,206,927
Common stock exchange ratio				1
Number of units			0.0			32,929
Redemption of units in Operating Partnership	1,000,000	900,000	10,000	0
Number of board of director			2
Operating Partnership stock redemption value			$ 32,900
Operating Partnership units outstanding									13,107,804	13,071,054
Operating Partnership units not owned				2,864,127	2,864,127
Fair market value									$ 18,200,000	$ 17,000,000

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2014

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation – The consolidated financial statements of the Company presented herein include all of the accounts of Sotherly Hotels Inc., the Operating Partnership, MHI TRS and subsidiaries. All significant inter-company balances and transactions have been eliminated. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The consolidated financial statements of the Operating Partnership presented herein include all of the accounts of Sotherly Hotels LP, MHI TRS and subsidiaries. All significant inter-company balances and transactions have been eliminated. Additionally, all administrative expenses of the Company and those expenditures made by the Company on behalf of the Operating Partnership are reflected as the administrative expenses, expenditures and obligations thereto of the Operating Partnership, pursuant to the terms of the Partnership Agreement.

Investment in Hotel Properties – Investments in hotel properties include investments in operating properties which are recorded at acquisition cost and allocated to land, property and equipment and identifiable intangible assets. Replacements and improvements are capitalized, while repairs and maintenance are expensed as incurred. Upon the sale or retirement of a fixed asset, the cost and related accumulated depreciation are removed from our accounts and any resulting gain or loss is included in the statements of operations. Expenditures under a renovation project, which constitute additions or improvements that extend the life of the property, are capitalized.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 7 to 39 years for buildings and building improvements and 3 to 10 years for furniture, fixtures and equipment. Leasehold improvements are amortized over the shorter of the lease term or the useful lives of the related assets.

We review our investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are not limited to, adverse changes in the demand for lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, management performs an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel property exceed its carrying value. If the estimated undiscounted future cash flows are found to be less than the carrying amount of the asset, an adjustment to reduce the carrying amount to the related hotel property’s estimated fair market value would be recorded and an impairment loss recognized.

Investment in Joint Venture – Investment in joint venture represents our noncontrolling indirect 25.0% equity interest in (i) the entity that owns the Crowne Plaza Hollywood Beach Resort and (ii) the entity that leases the hotel and has engaged MHI Hotels Services to operate the hotel under a management contract. Carlyle owns a 75.0% controlling indirect interest in these entities. We account for our investment in the joint venture under the equity method of accounting and are entitled to receive our pro rata share of operating cash flow. We also have the opportunity to earn an incentive participation in the net sale proceeds based upon the achievement of certain overall investment returns, in addition to our pro rata share of net sale proceeds.

Cash and Cash Equivalents – We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Concentration of Credit Risk – We hold cash accounts at several institutions in excess of the Federal Deposit Insurance Corporation (the “FDIC”) protection limits of $250,000. Our exposure to credit loss in the event of the failure of these institutions is represented by the difference between the FDIC protection limit and the total amounts on deposit. Management monitors, on a regular basis, the financial condition of the financial institutions along with the balances there on deposit to minimize our potential risk.

Restricted Cash – Restricted cash includes real estate tax escrows, insurance escrows and reserves for replacements of furniture, fixtures and equipment pursuant to certain requirements in our various mortgage agreements.

Accounts Receivable – Accounts receivable consists primarily of hotel guest and banqueting receivables. Ongoing evaluations of collectability are performed and an allowance for potential credit losses is provided against the portion of accounts receivable that is estimated to be uncollectible.

Inventories – Inventories, consisting primarily of food and beverages, are stated at the lower of cost or market, with cost determined on a method that approximates first-in, first-out basis.

Franchise License Fees – Fees expended to obtain or renew a franchise license are amortized over the life of the license or renewal. The un-amortized franchise fees as of March 31, 2014 and December 31, 2013 were $261,114 and $196,989, respectively. Amortization expense for the three month period ended March 31, 2014 and 2013, each totaled $10,875, respectively.

Deferred Financing Costs – Deferred financing costs are recorded at cost and consist of loan fees and other costs incurred in issuing debt. Amortization of deferred financing costs is computed using a method that approximates the effective interest method over the term of the related debt and is included in interest expense in the consolidated statements of operations.

Derivative Instruments – Our derivative instruments are reflected as assets or liabilities on the balance sheet and measured at fair value. Derivative instruments used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as an interest rate risk, are considered fair value hedges. Derivative instruments used to hedge exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. For a derivative instrument designated as a cash flow hedge, the change in fair value each period is reported in accumulated other comprehensive income in stockholders’ equity and partners’ capital to the extent the hedge is effective. For a derivative instrument designated as a fair value hedge, the change in fair value each period is reported in earnings along with the change in fair value of the hedged item attributable to the risk being hedged. For a derivative instrument that does not qualify for hedge accounting or is not designated as a hedge, the change in fair value each period is reported in earnings.

We use derivative instruments to add stability to interest expense and to manage our exposure to interest-rate movements. To accomplish this objective, we primarily used an interest-rate swap, which was required under the then-existing credit agreement and acted as a cash flow hedge involving the receipts of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments without exchange of the underlying principal amount. We valued the interest-rate swap at fair value, which we define as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We also use derivative instruments in the Company’s stock to obtain more favorable terms on our financing. We do not enter into contracts to purchase or sell derivative instruments for speculative trading purposes.

Fair Value Measurements –

We classify the inputs used to measure fair value into the following hierarchy:

Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

Level 3 Unobservable inputs for the asset or liability.

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table represents our debt instruments measured at fair value and the basis for that measurement:

	Level 1			Level 2		Level 3
December 31, 2013
Unsecured notes(1)	$	(28,770,240	)	$	—	$	—
March 31, 2014
Unsecured notes(1)	$	(28,814,400	)	$	—	$	—

(1) Unsecured notes are recorded at historical cost on our Consolidated Balance Sheet as of March 31, 2014 and December 31, 2013.

Noncontrolling Interest in Operating Partnership – Certain hotel properties have been acquired, in part, by the Operating Partnership through the issuance of limited partnership units of the Operating Partnership. The noncontrolling interest in the Operating Partnership is: (i) increased or decreased by the limited partners’ pro-rata share of the Operating Partnership’s net income or net loss, respectively; (ii) decreased by distributions; (iii) decreased by redemption of partnership units for the Company’s common stock; and (iv) adjusted to equal the net equity of the Operating Partnership multiplied by the limited partners’ ownership percentage immediately after each issuance of units of the Operating Partnership and/or the Company’s common stock through an adjustment to additional paid-in capital. Net income or net loss is allocated to the noncontrolling interest in the Operating Partnership based on the weighted average percentage ownership throughout the period.

Revenue Recognition – Revenues from operations of the hotels are recognized when the services are provided. Revenues consist of room sales, food and beverage sales, and other hotel department revenues, such as telephone, parking, gift shop sales and rentals from restaurant tenants, rooftop leases and gift shop operators. Revenues are reported net of occupancy and other taxes collected from customers and remitted to governmental authorities.

Income Taxes – The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. As a REIT, the Company generally will not be subject to federal income tax. MHI TRS, our wholly owned taxable REIT subsidiary which leases our hotels from subsidiaries of the Operating Partnership, is subject to federal and state income taxes.

We account for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. As of March 31, 2014, 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 March 31, 2014, the tax years that remain subject to examination by the major tax jurisdictions to which the Company is subject generally include the calendar years 2010 through 2013. In addition, as of March 31, 2014, the tax years that remain subject to examination by the major tax jurisdictions to which MHI TRS is subject generally include the calendar years 2004 through 2009.

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.

Stock-based Compensation – The Company’s 2004 Long Term Incentive Plan (the “2004 Plan”) and its 2013 Long-Term Incentive Plan (the “2013 Plan”), which the Company’s stockholders approved in April 2013, permit the grant of stock options, restricted stock and performance share compensation awards to its employees for up to 350,000 and 750,000 shares of common stock, respectively. The Company believes that such awards better align the interests of its employees with those of its stockholders.

Under the 2004 Plan, the Company has made restricted stock and deferred stock awards totaling 337,438 shares including 255,938 shares issued to certain executives and employees and 81,500 restricted shares issued to its independent directors. Of the 255,938 shares issued to certain of our executives and employees, all have vested except for 24,000 shares which were issued to the Chief Financial Officer upon execution of his employment contract. These shares are to vest pro rata on each of the next four anniversaries of the effective date of his employment agreement. All of the 81,500 restricted shares issued to the Company’s independent directors have vested.

Under the 2013 Plan, the Company has made issuances totaling 36,750 shares, consisting of 24,000 non-restricted shares issued to certain executives and 12,000 restricted shares and 750 non-restricted shares issued to its independent directors. All of the restricted shares will vest at the end of 2014.

The value of the awards is charged to compensation expense on a straight-line basis over the vesting or service period based on the Company’s stock price on the date of grant or issuance. Previously, under the 2004 Plan, and currently, under the 2013 Plan, the Company may issue a variety of performance-based stock awards, including nonqualified stock options. As of March 31, 2014, no performance-based stock awards have been granted. Consequently, stock-based compensation as determined under the fair-value method would be the same under the intrinsic-value method. Total compensation cost recognized under the 2004 Plan and 2013 Plan for the three months ended March 31, 2014 and 2013 was $19,571 and $21,958, respectively.

Comprehensive Income (Loss) – Comprehensive income (loss) includes all changes in equity (net assets) during a period from non-owner sources. We do not have any items of comprehensive income (loss) other than net income (loss).

Segment Information – We have determined that our business is conducted in one reportable segment: hotel ownership.

Use of Estimates – The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications – Certain reclassifications have been made to the prior period balances to conform to the current period presentation.

New Accounting Pronouncements – There are no recent accounting pronouncements which we believe will have a material impact on our consolidated financial statements.

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Debt - Schedule of Future Mortgage Debt Maturities (Detail) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Debt Disclosure [Abstract]
The remaining nine month period ending December 31, 2014	$ 8,671,252
December 31, 2015	17,441,142
December 31, 2016	24,401,632
December 31, 2017	104,801,938
December 31, 2018	15,850,414
December 31, 2019 and thereafter	35,387,686
Total future maturities	$ 206,554,064	$ 160,363,549

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Unconsolidated Joint Venture (Tables)

3 Months Ended

Mar. 31, 2014

Equity Method Investments And Joint Ventures [Abstract]

Summarized Financial Information of Investment

Summarized financial information for this investment, which is accounted for under the equity method, is as follows:

	March 31, 2014		December 31, 2013
ASSETS
Investment in hotel property, net	$	63,905,234	$	64,449,892
Cash and cash equivalents		2,047,195		2,896,841
Restricted cash		475,839		—
Accounts receivable, net		250,811		251,587
Prepaid expenses, inventory and other assets		1,590,675		1,335,472
TOTAL ASSETS	$	68,269,754	$	68,933,792
LIABILITIES
Mortgage loan, net	$	57,000,000	$	57,000,000
Accounts payable and other accrued liabilities		2,222,134		1,869,476
Advance deposits		713,441		280,339
TOTAL LIABILITIES		59,935,575		59,149,815
TOTAL MEMBERS’ EQUITY		8,334,179		9,783,977
TOTAL LIABILITIES AND MEMBERS’ EQUITY	$	68,269,754	$	68,933,792

	Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
Revenue
Rooms department	$	5,207,846		$	5,135,187
Food and beverage department		878,212			751,772
Other operating departments		343,246			401,224
Total revenue		6,429,304			6,288,183
Expenses
Hotel operating expenses
Rooms department		867,823			866,163
Food and beverage department		632,017			538,076
Other operating departments		162,567			140,745
Indirect		1,879,085			1,963,395
Total hotel operating expenses		3,541,492			3,508,379
Depreciation and amortization		554,736			540,405
General and administrative		136,711			37,461
Total operating expenses		4,232,939			4,086,245
Operating income		2,196,365			2,201,938
Interest expense		(646,163	)		(432,274	)
Unrealized gain on hedging activities		—			109,294
Net income	$	1,550,202		$	1,878,958

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Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2014

Commitments And Contingencies Disclosure [Abstract]

Schedule of Minimum Future Lease Payments

A schedule of minimum future lease payments for the following twelve-month periods is as follows:

The remaining nine month period ending December 31, 2014	$	312,155
December 31, 2015		361,081
December 31, 2016		324,723
December 31, 2017		196,436
December 31, 2018		158,721
December 31, 2019 and thereafter		732,092
Total	$	2,085,208

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Income (Loss) Per Share and Per Unit - Computation of Basic and Diluted Earnings Per Share (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Numerator
Net income (loss) attributable to the Company for basic and dilutive computation	$ 783,002	$ (2,594,916)
Denominator
Weighted average number of common shares outstanding	10,225,710	10,080,375
Basic and diluted net income (loss) per share	$ 0.08	$ (0.26)

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Preferred Stock, Preferred Interest and Warrants - Additional Information (Detail) (USD $)	0 Months Ended							3 Months Ended		0 Months Ended						0 Months Ended	3 Months Ended	12 Months Ended			0 Months Ended
	Dec. 23, 2013	Oct. 23, 2013	Sep. 30, 2013	Aug. 01, 2013	Apr. 02, 2013	Mar. 26, 2013	Apr. 18, 2011	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013 Sotherly Hotels LP [Member]	Mar. 31, 2014 Sotherly Hotels LP [Member]	Dec. 31, 2013 Sotherly Hotels LP [Member]	Mar. 31, 2014 Series A Cumulative Redeemable Preferred Stock [Member]	Dec. 31, 2013 Series A Cumulative Redeemable Preferred Stock [Member]	Apr. 18, 2011 Series A Cumulative Redeemable Preferred Stock [Member]	Oct. 23, 2013 Essex Warrant [Member]	Mar. 31, 2014 Essex Warrant [Member]	Dec. 31, 2013 Essex Warrant [Member]	Apr. 18, 2011 Essex Warrant [Member]	Mar. 31, 2014 Essex Warrant [Member] Maximum [Member]	Dec. 23, 2013 Essex Warrant [Member] Sotherly Hotels LP [Member]	Oct. 23, 2013 Essex Warrant [Member] Sotherly Hotels LP [Member]	Apr. 18, 2011 Warrants [Member] Sotherly Hotels LP [Member]
Preferred Units [Line Items]
Gross proceeds from securities purchase agreement							$ 25,000,000
Preferred stock, shares issued							25,000	0	0				0	0
Warrant purchase common stock																1,900,000			1,900,000	1,900,000			1,900,000
Preferred stock, par value							$ 0.01	$ 0.01	$ 0.01						$ 0.01
Preferred stock pursuant to Articles Supplementary															27,650
Preferred Stock liquidation preference pursuant to Articles Supplementary															$ 1,000.00
Preferred Stock cash dividend of liquidation preference															10.00%
Preferred Stock dividend of liquidation preference on additional shares															2.00%
Preference stock, shares agreed for redemption				2,460		1,902															1,000,000	900,000
Preference share, aggregate redemption price			10,700,000	2,700,000		2,100,000				10,700,000											4,000,000	3,200,000
Prepayment fee			700,000	200,000		200,000				700,000
Amortization of issuance costs			400,000	100,000		100,000				400,000
Preferred stock, shares outstanding								0	0				0	0
Redemption value of the preferred interest											0	0
Common stock exercise price																	2.25	2.25
Aggregate cash redemption price																3,200,000
Number of issuable warrant unit redeemed	1,000,000	900,000			10,000			0								900,000
Number of issuable warrant shares redeemed	1,000,000	900,000														900,000
Aggregate cash redemption price	4,000,000							0									0				4,000,000
Fair value of Warrant																		$ 1,600,000
Risk-free interest rate, fair value assumptions																		2.26%
Dividend yield, fair value assumptions																		5.00%
Expected volatility, fair value assumptions																		60.00%
Expected term, fair value assumptions																		5 years 6 months

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Indirect Hotel Operating Expenses (Tables)

3 Months Ended

Mar. 31, 2014

Other Income And Expenses [Abstract]

Summary of Indirect Hotel Operating Expenses

Indirect hotel operating expenses consists of the following expenses incurred by the hotels:

	Three months ended March 31, 2014		Three months ended March 31, 2013
	(unaudited)		(unaudited)
General and administrative	$	2,020,998	$	1,655,194
Sales and marketing		2,091,222		1,737,032
Repairs and maintenance		1,328,515		1,091,909
Utilities		1,201,014		988,034
Franchise fees		884,305		693,405
Management fees, including incentive		694,834		635,208
Insurance		469,190		361,301
Property taxes		741,345		597,329
Other		52,450		55,649
Total indirect hotel operating expenses	$	9,483,873	$	7,815,061

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Income Taxes (Tables)

3 Months Ended

Mar. 31, 2014

Income Tax Disclosure [Abstract]

Income Taxes Provision

The components of the income tax provision for the three months ended March 31, 2014 and 2013 are as follows:

	Three months ended March 31, 2014			Three months ended March 31, 2013
	(unaudited)			(unaudited)
Current:
Federal	$	—		$	33,101
State		23,000			813
		23,000			33,914
Deferred:
Federal		(732,189	)		125,786
State		(26,130	)		103,355
		(758,319	)		229,141
	$	(735,319	)	$	263,055

Reconciliation of Statutory Federal Income Tax Provision (Benefit)

A reconciliation of the statutory federal income tax (benefit) provision to the Company’s income tax provision is as follows:

	Three months ended March 31, 2014			Three months ended March 31, 2013
	(unaudited)			(unaudited)
Statutory federal income tax expense (benefit)	$	90,778		$	(1,051,522	)
Effect of non-taxable REIT (income) loss		(822,967	)		1,210,409
State income tax (benefit) provision		(3,130	)		104,168
	$	(735,319	)	$	263,055

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Organization and Description of Business

3 Months Ended

Mar. 31, 2014

Accounting Policies [Abstract]

Organization and Description of Business

1. Organization and Description of Business

Sotherly Hotels Inc., formerly MHI Hospitality Corporation (the “Company”), is a self-managed and self-administered lodging real estate investment trust (“REIT”) that was incorporated in Maryland on August 20, 2004 to own full-service, primarily upscale and upper-upscale hotels located in primary and secondary markets in the Mid-Atlantic and Southern United States. Many of the hotels operate under well-known national hotel brands such as Hilton, Crowne Plaza, Sheraton and Holiday Inn.

The Company commenced operations on December 21, 2004 when it completed its initial public offering and thereafter consummated the acquisition of six hotel properties (the “initial properties”). Substantially all of the Company’s assets are held by, and all of its operations are conducted through, Sotherly Hotels LP, formerly MHI Hospitality, L.P. (the “Operating Partnership”). The Company and the Operating Partnership also own a 25.0% noncontrolling interest in the Crowne Plaza Hollywood Beach Resort through a joint venture with CRP/MHI Holdings, LLC, an affiliate of both Carlyle Realty Partners V, L.P. and The Carlyle Group (“Carlyle”).

Pursuant to the terms of the Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”) of the Operating Partnership, the Company, as general partner, is not entitled to compensation for its services to the Operating Partnership. The Company, as general partner, conducts substantially all of its operations through the Operating Partnership and the Company’s administrative expenses are the obligations of the Operating Partnership. Additionally, the Company is entitled to reimbursement for any expenditure incurred by it on the Operating Partnership’s behalf.

For the Company to qualify as a REIT, it cannot operate hotels. Therefore, the Operating Partnership, which, at March 31, 2014, was approximately 78.1% owned by the Company, and its subsidiaries, lease the hotels to a subsidiary of MHI Hospitality TRS Holding Inc., MHI Hospitality TRS, LLC, (collectively, “MHI TRS”), a wholly-owned subsidiary of the Operating Partnership. MHI TRS then engages an eligible independent hotel management company, MHI Hotels Services, LLC (“MHI Hotels Services”), to operate the hotels under a management contract. MHI TRS is treated as a taxable REIT subsidiary for federal income tax purposes.

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

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

On March 22, 2013, we entered into a First Amendment to the Loan Agreement and other amendments to secure additional proceeds on the original $8.0 million mortgage on the DoubleTree by Hilton Brownstone-University hotel property with our existing lender, Premier Bank, Inc. Pursuant to the amended loan documents, the mortgage loan’s principal amount was increased to $10.0 million, the prepayment penalty was removed and the interest rate was fixed at 5.25%; if the mortgage loan is extended, it will adjust to a rate of 3.00% plus the current 5-year U.S. Treasury bill rate of interest, with an interest rate floor of 5.25%. The remaining original terms of the agreement remained the same.

On March 26, 2013, we used the net proceeds of the mortgage on the DoubleTree by Hilton Brownstone-University to make a special distribution by the Operating Partnership to the Company to redeem 1,902 shares of the Company’s Series A Cumulative Redeemable Preferred Stock (the “Preferred Stock”) for an aggregate redemption price of approximately $2.1 million plus the payment of accrued and unpaid cash and stock dividends.

On June 28, 2013, we entered into an agreement with TowneBank to extend the maturity of the mortgage on the Crowne Plaza Hampton Marina in Hampton, Virginia, until June 30, 2014. Under the terms of the extension, we made a principal payment of approximately $1.1 million to reduce the principal balance on the loan to approximately $6.0 million and are required to continue to make monthly principal payments of $16,000. Interest payable monthly pursuant to the mortgage will remain at a rate of LIBOR plus additional interest of 4.55% and a minimum total rate of interest of 5.00% per annum. Pursuant to certain terms and conditions, we may extend the maturity date of the loan to June 30, 2015.

On August 1, 2013, we obtained a $15.6 million mortgage with CIBC, Inc. on the DoubleTree by Hilton Raleigh Brownstone – University in Raleigh, North Carolina. The mortgage bears interest at a rate of 4.78% and provides for level payments of principal and interest on a monthly basis under a 30-year amortization schedule. The maturity date is August 1, 2018. Approximately $0.7 million of the loan proceeds were placed into a restricted reserve which can be disbursed to us upon satisfaction of certain financial performance criteria. The remaining proceeds of the mortgage were used to repay the existing indebtedness, to pay closing costs, to make a special distribution by the Operating Partnership to the Company to redeem 2,460 shares of Preferred Stock for an aggregate redemption price of approximately $2.7 million plus the payment of accrued and unpaid cash and stock dividends and for working capital. The redemption resulted in a prepayment fee of approximately $0.2 million.

On September 30, 2013, the Operating Partnership issued 8.0% senior unsecured notes (the “Notes”) in the aggregate amount of $27.6 million. The indenture requires quarterly payments of interest and matures on September 30, 2018. The proceeds were used to make a special distribution to the Company to redeem the remaining outstanding shares of Preferred Stock for an aggregate redemption price of approximately $10.7 million plus the payment of accrued and unpaid cash and stock dividends. The redemption resulted in a prepayment fee of approximately $0.7 million.

On October 23, 2013, the Company redeemed a portion of a warrant to purchase 1,900,000 shares of the Company’s common stock (the “Essex Warrant”) from Essex Illiquid, LLC and Richmond Hill Capital Partners, LP (collectively, the “Investors” or “Initial Holders”) corresponding to an aggregate of 900,000 Issuable Warrant Shares (the “First Tranche of Redeemed Warrant Shares”) for an aggregate cash redemption price of $3.2 million. The First Tranche of Redeemed Warrant Shares are no longer Issuable Warrant Shares under the Essex Warrant, and all exercise and other rights of the Initial Holders in respect of the Redeemed Warrant Shares under the Essex Warrant are terminated and extinguished.

Concurrently with the redemption of the 900,000 Issuable Warrant Shares, the Operating Partnership redeemed a portion of a warrant to purchase 1,900,000 units of the Operating Partnership (the “Operating Partnership Warrant”) corresponding to an aggregate of 900,000 Issuable Warrant Units, as defined in the Operating Partnership Warrant, for an aggregate cash redemption price of $3.2 million.

On November 13, 2013, we acquired 100% of the partnership interests of Houston Hotel Associates Limited Partnership, L.L.P., a Virginia limited liability partnership (“HHA”), for aggregate consideration of approximately $30.9 million in cash, the issuance to MHI Hotels, L.L.C., a Virginia limited liability company (“MHI Hotels”), of 32,929 units of limited partnership interests in the Operating Partnership, plus an additional amount for HHA’s working capital as of the closing date. HHA is the sole owner of the entity that indirectly owns the Crowne Plaza Houston Downtown.

On December 23, 2013, the Company redeemed the remaining portion of the Essex Warrant corresponding to an aggregate of 1,000,000 Issuable Warrant Shares (the “Final Tranche of Redeemed Warrant Shares”) for an aggregate cash redemption price of approximately $4.0 million. The Final Tranche of Redeemed Warrant Shares are no longer Issuable Warrant Shares under the Essex Warrant, and all exercise and other rights of the Initial Holders in respect of the Redeemed Warrant Shares under the Essex Warrant are terminated and extinguished.

Concurrently with the redemption of the 1,000,000 Issuable Warrant Shares, the Operating Partnership redeemed a portion of the Operating Partnership Warrant corresponding to an aggregate of 1,000,000 Issuable Warrant Units from the Company for an aggregate cash redemption price of approximately $4.0 million.

On December 27, 2013, through our joint venture with Carlyle, we entered into a credit and security agreement and other loan documents to secure a $57.0 million non-recourse mortgage on the Crowne Plaza Hollywood Beach Resort in Hollywood, Florida with Bank of America, N.A. The proceeds from the loan were used to repay the existing first mortgage, to pay closing costs, and to make a distribution to the joint venture partners. We used approximately $3.5 million of its distribution proceeds to repay its existing loan with Carlyle, and the remainder for general corporate purposes.

On March 26, 2014, we entered into a Note Agreement, Guaranty, and Pledge Agreement to secure a $19.0 million secured loan (the “Bridge Loan”) with Richmond Hill Capital Partners, LP (“Richmond Hill”) and Essex Equity Joint Investment Vehicle, LLC (collectively with Richmond Hill, the “Bridge Lenders”). The Bridge Loan bears interest at the rate of 10.0% per annum and matures on March 26, 2015. The loan also requires mandatory prepayment upon certain events, is subject to a prepayment premium if the loan is prepaid in full or in part prior to maturity and contains limited financial covenants. The loan is secured by a lien on our interest in our subsidiary that owns the Hilton Philadelphia Airport.

On March 27, 2014, we acquired the Georgian Terrace, a 326-room hotel in Atlanta, Georgia for the aggregate purchase price of approximately $61.1 million. Also included in the acquisition was a 698 space parking structure; all personal property and equipment located in or at the hotel; and a separate 0.6 acre development parcel with related development rights and improvements located thereon. In conjunction with the acquisition, we obtained a $41.5 million first mortgage from Bank of the Ozarks, of which $1.5 million of the proceeds was placed in a restricted cash reserve. The mortgage bears a floating rate of interest equal to LIBOR plus 3.75%, with a 4.00% floor and requires monthly payments of principal and interest on a 25-year amortization schedule following a 12-month interest-only period. The mortgage matures on March 27, 2017, but may be extended for two additional 1-year period subject to certain terms and conditions.

On March 31, 2014, we entered into a First Amendment and other amended loan documents to extend the maturity date and secure additional proceeds of approximately $5.6 million on the original $30.0 million mortgage on the Hilton Philadelphia Airport hotel with its existing lender, TD Bank, N.A. Pursuant to the First Amendment and other amended loan documents, the mortgage continues to bear interest at a rate of LIBOR plus 3.0% with a 3.50% floor, requires monthly payments of principal and interest on an amortization schedule over the remainder of the 25-year period that began with the commencement of the loan in March 2012, and extends the maturity date to April 1, 2019.

As a condition to obtaining the First Amendment to the mortgage on the Hilton Philadelphia Airport hotel, we were required to enter into a license agreement with a national hotel franchise through at least the term of the amended mortgage loan. As such, we entered into a 10-year franchise agreement with Hilton Worldwide and plan to rebrand the Hilton Philadelphia Airport hotel as a DoubleTree by Hilton in November 2014, subject to the completion of certain product improvement requirements.

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Income (Loss) Per Share and Per Unit (Tables)

3 Months Ended

Mar. 31, 2014

Earnings Per Share [Abstract]

Computation of Basic and Diluted Earnings Per Share

The computation of basic and diluted earnings per share is presented below.

	Three months ended March 31, 2014		Three months ended March 31, 2013
	(unaudited)		(unaudited)
Numerator
Net income (loss) attributable to the Company for basic and dilutive computation	$	783,002	$	(2,594,916	)
Denominator
Weighted average number of common shares outstanding		10,225,710		10,080,375
Basic and diluted net income (loss) per share	$	0.08	$	(0.26	)

Computation of Basic and Diluted Earnings Per Unit

The computation of basic and diluted loss per unit is presented below.

	Three months ended March 31, 2014		Three months ended March 31, 2013
	(unaudited)		(unaudited)
Numerator
Net income (loss)	$	1,002,314	$	(3,355,766	)
Denominator
Weighted average number of units outstanding		13,089,837		13,035,992
Basic and diluted net income (loss) per unit	$	0.08	$	(0.26	)

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Debt - Additional Information (Detail) (USD $) In Millions, unless otherwise specified			0 Months Ended	3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013	Sep. 30, 2013 Senior Unsecured Notes [Member]	Mar. 31, 2014 Senior Unsecured Notes [Member]	Mar. 31, 2014 Bridge Financing [Member]	Mar. 26, 2014 Bridge Financing [Member]	Dec. 31, 2013 Bridge Financing [Member]
Debt Instrument [Line Items]
Mortgage loan outstanding balance	$ 206.6	$ 160.4
Company issued senior unsecured notes			8.00%
Borrowed amount			27.6
Debt instrument maturity date				Sep. 30, 2018	Mar. 26, 2015
Notes face value			101.00%
Secured Bridge Loan						19.0
Interest rate on loan					10.00%
Limited partnership interests in the subsidiary					100.00%
Outstanding balance on the Bridge Financing					$ 19.0		$ 0

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Income Taxes - Income Taxes Provision (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Current:
Federal		$ 33,101
State	23,000	813
Total	23,000	33,914
Deferred:
Federal	(732,189)	125,786
State	(26,130)	103,355
Total	(758,319)	229,141
Income tax (benefit) provision	$ (735,319)	$ 263,055

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Consolidated Balance Sheets (USD $)	Mar. 31, 2014	Dec. 31, 2013
ASSETS
Investment in hotel properties, net	$ 262,204,677	$ 202,645,633
Investment in joint venture	2,083,590	2,446,039
Cash and cash equivalents	13,008,035	9,376,628
Restricted cash	5,439,820	3,796,141
Accounts receivable, net	3,367,565	1,982,091
Accounts receivable - affiliate	77,692	101,439
Prepaid expenses, inventory and other assets	3,459,365	2,444,975
Shell Island sublease, net	180,147	240,196
Deferred income taxes	1,921,441	1,186,122
Deferred financing costs, net	5,066,625	3,820,838
TOTAL ASSETS	296,808,957	228,040,102
LIABILITIES
Mortgage loans	206,554,064	160,363,549
Bridge loan	19,000,000
Unsecured notes	27,600,000	27,600,000
Accounts payable and accrued liabilities	9,677,240	7,650,219
Advance deposits	1,573,335	666,758
Dividends and distributions payable	589,851	588,197
TOTAL LIABILITIES	264,994,490	196,868,723
Commitments and contingencies (see Note 6)
Sotherly Hotels Inc. stockholders' equity
Preferred stock, par value $0.01, 1,000,000 shares authorized, 0 shares issued and outstanding
Common stock, par value $0.01, 49,000,000 shares authorized, 10,243,677 shares and 10,206,927 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively	102,437	102,069
Additional paid in capital	57,764,370	57,534,113
Distributions in excess of retained earnings	(31,888,880)	(32,210,917)
Total Sotherly Hotels Inc. stockholders' equity	25,977,927	25,425,265
Noncontrolling interest	5,836,540	5,746,114
TOTAL EQUITY	31,814,467	31,171,379
PARTNERS' CAPITAL
TOTAL LIABILITIES AND EQUITY	296,808,957	228,040,102
Sotherly Hotels LP [Member]
ASSETS
Investment in hotel properties, net	262,204,677	202,645,633
Investment in joint venture	2,083,590	2,446,039
Cash and cash equivalents	13,008,035	9,376,628
Restricted cash	5,439,820	3,796,141
Accounts receivable, net	3,367,565	1,982,091
Accounts receivable - affiliate	77,692	101,439
Prepaid expenses, inventory and other assets	3,459,365	2,444,975
Shell Island sublease, net	180,147	240,196
Deferred income taxes	1,921,441	1,186,122
Deferred financing costs, net	5,066,625	3,820,838
TOTAL ASSETS	296,808,957	228,040,102
LIABILITIES
Mortgage loans	206,554,064	160,363,549
Bridge loan	19,000,000
Unsecured notes	27,600,000	27,600,000
Accounts payable and accrued liabilities	9,677,240	7,650,219
Advance deposits	1,573,335	666,758
Dividends and distributions payable	589,851	588,197
TOTAL LIABILITIES	264,994,490	196,868,723
Commitments and contingencies (see Note 6)
PARTNERS' CAPITAL
General Partner: 131,079 and 130,711 units issued and outstanding as of March 31, 2014 and December 31, 2013, respectively	565,202	557,479
Limited Partners: 12,976,725 and 12,940,343 units issued and outstanding as of March 31, 2014 and December 31, 2013, respectively	31,249,265	30,613,900
TOTAL PARTNERS' CAPITAL	31,814,467	31,171,379
TOTAL LIABILITIES AND EQUITY	$ 296,808,957	$ 228,040,102

XML

Commitments and Contingencies - Additional Information (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014 sqft	Mar. 31, 2013
Operating Leased Assets [Line Items]
Original lump sum rent payment received	$ 990
Rental income recognized under lease term	0
Annual payment for second year	361,081
Minimum [Member]
Operating Leased Assets [Line Items]
Operating lease, expiring date	Dec. 31, 2014
Franchise fees of room revenues	2.50%
Additional fees of room revenues	2.50%
Franchise agreement expiry date	October 2014
Maximum [Member]
Operating Leased Assets [Line Items]
Operating lease, expiring date	Apr. 30, 2018
Franchise fees of room revenues	5.00%
Additional fees of room revenues	6.00%
Franchise agreement expiry date	April 2023
Maryland [Member]
Operating Leased Assets [Line Items]
Area of commercial space leased	1,632
Operating lease, expiring date	Feb. 28, 2017
Rent expense	12,253	11,108
Annual payment for first year	22,848
Annual payment for second year	45,696
Percentage increment	2.75%
Expiry date of additional agreement	March 2019
Williamsburg Virginia [Member]
Operating Leased Assets [Line Items]
Area of commercial space leased	4,836
Rent expense	17,015	13,750
Lease renewable expiration date	Aug. 31, 2018
Furniture and Equipment [Member] | Minimum [Member]
Operating Leased Assets [Line Items]
Financing arrangement expiration date	Feb. 28, 2014
Furniture and Equipment [Member] | Maximum [Member]
Operating Leased Assets [Line Items]
Financing arrangement expiration date	Mar. 31, 2017
Crowne Plaza Houston Downtown [Member]
Operating Leased Assets [Line Items]
Expiry date of additional agreement	April 2016
Monthly contribution of room revenues	4.00%
Georgian Terrace [Member]
Operating Leased Assets [Line Items]
Expiry date of additional agreement	March 2024
Hilton Wilmington Riverside and Hilton Savannah Desoto [Member]
Operating Leased Assets [Line Items]
Restricted cash reserve	Amount equal to 1/12 of the annual real estate taxes due for the properties
Hilton Savannah DeSoto [Member]
Operating Leased Assets [Line Items]
Monthly contribution of room revenues	4.00%
Annual insurance premium	0.0833
Hilton Wilmington Riverside [Member]
Operating Leased Assets [Line Items]
Monthly contribution of room revenues	4.00%
Annual insurance premium	0.0833
Hilton Philadelphia Airport [Member]
Operating Leased Assets [Line Items]
Monthly contribution of room revenues	4.00%
Sheraton Louisville Riverside [Member]
Operating Leased Assets [Line Items]
Monthly contribution of room revenues	4.00%
Double Tree by Hilton Brownstone University [Member]
Operating Leased Assets [Line Items]
Duration of operating lease term	50 years
Operating lease, expiring date	Aug. 31, 2016
Duration period under renewal option second	10 years
Expiration date one under renewal option second	Aug. 31, 2026
Expiration date two under renewal option second	Aug. 31, 2036
Expiration date three under renewal option second	Aug. 31, 2046
Rent expense	23,871	23,871
Land leased under second amendment dated	Apr. 28, 1998
Land lease originally dated	May 25, 1966
Purchase of leased land at fair market value subject to annual fee payment	9,000
Monthly contribution of room revenues	4.00%
Crowne Plaza Hampton Marina [Member]
Operating Leased Assets [Line Items]
Monthly contribution of room revenues	4.00%
Crowne Plaza Tampa Westshore [Member]
Operating Leased Assets [Line Items]
Operating lease, expiring date	Jul. 31, 2014
Rent expense	651	651
Lease agreement	5 years
Commencement date of agreement	Jul. 31, 2009
Annual payment	2,432
Additional renewal of agreement	5 years
Crowne Plaza Jacksonville Riverfront [Member]
Operating Leased Assets [Line Items]
Operating lease, expiring date	Sep. 18, 2012
Rent expense	1,505	1,505
Lease agreement	5 years
Annual payment	4,961
New operating lease annual payment	6,020
Lease renewable expiration date	Sep. 18, 2017
Savannah Hotel Property [Member]
Operating Leased Assets [Line Items]
Area of commercial space leased	2,086
Operating lease, expiring date	Oct. 31, 2006
Duration period under renewal option second	5 years
Expiration date one under renewal option second	Oct. 31, 2011
Expiration date two under renewal option second	Oct. 31, 2016
Expiration date three under renewal option second	Oct. 31, 2021
Rent expense	$ 15,866	$ 16,756
Savannah Hotel Property [Member] | Ninety Nine Year Operating Lease Property [Member]
Operating Leased Assets [Line Items]
Duration of operating lease term	99 years
Operating lease, expiring date	Jul. 31, 2086
Savannah Hotel Property [Member] | Six Year Operating Lease Property [Member]
Operating Leased Assets [Line Items]
Duration of operating lease term	6 years

XML

Consolidated Statements of Cash Flows (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Cash flows from operating activities:
Net income (loss)	$ 1,002,314	$ (3,355,766)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	2,434,328	2,052,821
Equity income in joint venture	(387,550)	(469,739)
Unrealized loss on warrant derivative		2,769,065
Amortization of deferred financing costs	217,815	262,099
Paid-in-kind interest		69,641
Charges related to equity-based compensation	230,625	161,500
Changes in assets and liabilities:
Restricted cash	(325,124)	(242,182)
Accounts receivable	(920,187)	(825,869)
Prepaid expenses, inventory and other assets	(791,190)	(721,497)
Deferred income taxes	(735,319)	261,696
Accounts payable and other accrued liabilities	2,422,817	1,801,480
Advance deposits	441,704	314,709
Accounts receivable - affiliate	23,748	1,552
Net cash provided by operating activities	3,613,981	2,079,510
Cash flows from investing activities:
Acquisition of hotel properties	(61,106,085)
Improvements and additions to hotel properties	(1,322,677)	(1,101,117)
Distributions from joint venture	750,000
Funding of restricted cash reserves	(656,396)	(338,538)
Proceeds of restricted cash reserves	962,499	541,711
Net cash used in investing activities	(61,372,659)	(897,944)
Cash flows from financing activities:
Proceeds of mortgage debt	45,600,000	2,225,613
Proceeds of loans	19,000,000
Redemption of redeemable preferred stock		(1,901,547)
Dividends and distributions paid	(588,197)	(389,179)
Payment of deferred financing costs	(1,712,233)	(81,501)
Payments on mortgage debt and loans	(909,485)	(976,615)
Net cash provided by (used in) financing activities	61,390,085	(1,123,229)
Net increase in cash and cash equivalents	3,631,407	58,337
Cash and cash equivalents at the beginning of the period	9,376,628	7,175,716
Cash and cash equivalents at the end of the period	13,008,035	7,234,053
Supplemental disclosures:
Cash paid during the period for interest	2,476,016	2,408,593
Cash paid during the period for income taxes	23,000	33,914
Non-cash investing and financing activities:
Proceeds of mortgage debt contributed to restricted cash reserves	1,500,000
Sotherly Hotels LP [Member]
Cash flows from operating activities:
Net income (loss)	1,002,314	(3,355,766)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	2,434,328	2,052,821
Equity income in joint venture	(387,550)	(469,739)
Unrealized loss on warrant derivative		2,769,065
Amortization of deferred financing costs	217,815	262,099
Paid-in-kind interest		69,641
Charges related to equity-based compensation	230,625	161,500
Changes in assets and liabilities:
Restricted cash	(325,124)	(242,182)
Accounts receivable	(920,187)	(825,869)
Prepaid expenses, inventory and other assets	(791,190)	(721,497)
Deferred income taxes	(735,319)	261,696
Accounts payable and other accrued liabilities	2,422,817	1,801,480
Advance deposits	441,704	314,709
Accounts receivable - affiliate	23,748	1,552
Net cash provided by operating activities	3,613,981	2,079,510
Cash flows from investing activities:
Acquisition of hotel properties	(61,106,085)
Improvements and additions to hotel properties	(1,322,677)	(1,101,117)
Distributions from joint venture	750,000
Funding of restricted cash reserves	(656,396)	(338,538)
Proceeds of restricted cash reserves	962,499	541,711
Net cash used in investing activities	(61,372,659)	(897,944)
Cash flows from financing activities:
Proceeds of mortgage debt	45,600,000	2,225,613
Proceeds of loans	19,000,000
Redemption of redeemable preferred stock		(1,901,547)
Dividends and distributions paid	(588,197)	(389,179)
Payment of deferred financing costs	(1,712,233)	(81,501)
Payments on mortgage debt and loans	(909,485)	(976,615)
Net cash provided by (used in) financing activities	61,390,085	(1,123,229)
Net increase in cash and cash equivalents	3,631,407	58,337
Cash and cash equivalents at the beginning of the period	9,376,628	7,175,716
Cash and cash equivalents at the end of the period	13,008,035	7,234,053
Supplemental disclosures:
Cash paid during the period for interest	2,476,016	2,408,593
Cash paid during the period for income taxes	23,000	33,914
Non-cash investing and financing activities:
Proceeds of mortgage debt contributed to restricted cash reserves	$ 1,500,000

XML

Summary of Significant Accounting Policies - Derivative Instruments Measured at Fair Value (Detail) (USD $)	Mar. 31, 2014 Level 1 [Member] Warrants [Member]	Dec. 31, 2013 Level 1 [Member] Unsecured Notes [Member]	Mar. 31, 2014 Level 2 [Member] Warrants [Member]	Dec. 31, 2013 Level 2 [Member] Unsecured Notes [Member]	Mar. 31, 2014 Level 3 [Member] Warrants [Member]	Dec. 31, 2013 Level 3 [Member] Unsecured Notes [Member]
Derivatives, Fair Value [Line Items]
Derivative instruments measured at fair value	$ (28,814,400)	$ (28,770,240)

XML

Subsequent Events

3 Months Ended

Mar. 31, 2014

Subsequent Events [Abstract]

Subsequent Events

15. Subsequent Events

On April 1, 2014, two holders of units in the Operating Partnership redeemed a total of 110,000 units for an equivalent number of shares of the Company’s common stock.

On April 11, 2014, we paid a quarterly dividend (distribution) of $0.045 per common share (and unit) to those stockholders (and unitholders of the Operating Partnership) of record on March 14, 2014.

On April 21, 2014, we authorized payment of a quarterly dividend (distribution) of $0.050 per common share (and unit) to the stockholders (and unitholders of the Operating Partnership) of record as of June 13, 2014. The dividend (distribution) is to be paid on July 11, 2014.

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Acquisition of Hotel Properties - Additional Information (Detail) (USD $)	0 Months Ended
	Mar. 31, 2014	Mar. 27, 2014 Georgian Terrace [Member]
Schedule Of Summary Of Acquisitions Of Properties [Line Items]
Acquired property value		$ 61,100,000
Total revenue from acquisitions	333,000
Net loss from acquisitions	$ 172,000

XML

Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2014

Accounting Policies [Abstract]

Derivative Instruments Measured at Fair Value

The following table represents our debt instruments measured at fair value and the basis for that measurement:

	Level 1			Level 2		Level 3
December 31, 2013
Unsecured notes(1)	$	(28,770,240	)	$	—	$	—
March 31, 2014
Unsecured notes(1)	$	(28,814,400	)	$	—	$	—

(1) Unsecured notes are recorded at historical cost on our Consolidated Balance Sheet as of March 31, 2014 and December 31, 2013.

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Consolidated Statement of Changes in Partners' Capital (USD $)	Total	Sotherly Hotels LP [Member]	Sotherly Hotels LP [Member] General Partner [Member]	Sotherly Hotels LP [Member] Limited Partners [Member]
Balances, beginning at Dec. 31, 2013		$ 31,171,379	$ 557,479	$ 30,613,900
Balances, units, beginning at Dec. 31, 2013			130,711	12,940,343
Issuance of partnership units		225,645	2,260	223,385
Issuance of partnership units, number of units			368	36,382
Amortization of restricted units award	4,980	4,980	50	4,930
Distributions declared		(589,851)	(4,610)	(585,241)
Net income	1,002,314	1,002,314	10,023	992,291
Balances, ending at Mar. 31, 2014		$ 31,814,467	$ 565,202	$ 31,249,265
Balances, units, ending at Mar. 31, 2014			131,079	12,976,725

XML

Consolidated Balance Sheets (Parenthetical) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	49,000,000	49,000,000
Common stock, shares issued	10,243,677	10,206,927
Common stock, shares outstanding	10,243,677	10,206,927
Sotherly Hotels LP [Member]
General Partner, units issued	131,079	130,711
General Partner, units outstanding	131,079	130,711
Limited Partner, units issued	12,976,725	12,940,343
Limited Partner, units outstanding	12,976,725	12,940,343

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Retirement Plan

3 Months Ended

Mar. 31, 2014

Compensation And Retirement Disclosure [Abstract]

Retirement Plan

10. Retirement Plan

We maintain a 401(k) plan for qualified employees which is subject to “safe harbor” provisions and which requires that we match 100.0% of the first 3.0% of employee contributions and 50.0% of the next 2.0% of employee contributions. All employer matching funds vest immediately in accordance with the “safe harbor” provision. Contributions to the plan totaled $10,087 and $13,593 for the three months ended March 31, 2014 and 2013, respectively.

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2014	May 14, 2014
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1
Entity Registrant Name	Sotherly Hotels Inc.
Entity Central Index Key	0001301236
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		10,353,677
Sotherly Hotels LP [Member]
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1
Entity Registrant Name	SOTHERLY HOTELS LP
Entity Central Index Key	0001313536
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer

XML

Unconsolidated Joint Venture

3 Months Ended

Mar. 31, 2014

Equity Method Investments And Joint Ventures [Abstract]

Unconsolidated Joint Venture

11. Unconsolidated Joint Venture

We own a 25.0% indirect interest in (i) the entity that owns the Crowne Plaza Hollywood Beach Resort and (ii) the entity that leases the hotel and has engaged MHI Hotels Services to operate the hotel under a management contract. Carlyle owns a 75.0% indirect controlling interest in all these entities. The joint venture purchased the property on August 8, 2007 and began operations on September 18, 2007. Summarized financial information for this investment, which is accounted for under the equity method, is as follows:

	March 31, 2014		December 31, 2013
ASSETS
Investment in hotel property, net	$	63,905,234	$	64,449,892
Cash and cash equivalents		2,047,195		2,896,841
Restricted cash		475,839		—
Accounts receivable, net		250,811		251,587
Prepaid expenses, inventory and other assets		1,590,675		1,335,472
TOTAL ASSETS	$	68,269,754	$	68,933,792
LIABILITIES
Mortgage loan, net	$	57,000,000	$	57,000,000
Accounts payable and other accrued liabilities		2,222,134		1,869,476
Advance deposits		713,441		280,339
TOTAL LIABILITIES		59,935,575		59,149,815
TOTAL MEMBERS’ EQUITY		8,334,179		9,783,977
TOTAL LIABILITIES AND MEMBERS’ EQUITY	$	68,269,754	$	68,933,792

	Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
Revenue
Rooms department	$	5,207,846		$	5,135,187
Food and beverage department		878,212			751,772
Other operating departments		343,246			401,224
Total revenue		6,429,304			6,288,183
Expenses
Hotel operating expenses
Rooms department		867,823			866,163
Food and beverage department		632,017			538,076
Other operating departments		162,567			140,745
Indirect		1,879,085			1,963,395
Total hotel operating expenses		3,541,492			3,508,379
Depreciation and amortization		554,736			540,405
General and administrative		136,711			37,461
Total operating expenses		4,232,939			4,086,245
Operating income		2,196,365			2,201,938
Interest expense		(646,163	)		(432,274	)
Unrealized gain on hedging activities		—			109,294
Net income	$	1,550,202		$	1,878,958

XML

Consolidated Statements of Operations (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
REVENUE
Rooms department	$ 17,453,189	$ 14,249,959
Food and beverage department	6,251,683	4,851,571
Other operating departments	1,305,517	1,088,282
Total revenue	25,010,389	20,189,812
Hotel operating expenses
Rooms department	4,751,526	4,013,733
Food and beverage department	4,070,370	3,224,480
Other operating departments	201,507	106,674
Indirect	9,483,873	7,815,061
Total hotel operating expenses	18,507,276	15,159,948
Depreciation and amortization	2,434,328	2,052,821
Corporate general and administrative	1,307,790	1,093,787
Total operating expenses	22,249,394	18,306,556
NET OPERATING INCOME	2,760,995	1,883,256
Other income (expense)
Interest expense	(2,883,439)	(2,680,547)
Interest income	1,889	3,906
Equity income in joint venture	387,550	469,739
Unrealized loss on warrant derivative		(2,769,065)
Net income (loss) before income taxes	266,995	(3,092,711)
Income tax benefit (provision)	735,319	(263,055)
Net income (loss)	1,002,314	(3,355,766)
Add: Net (income) loss attributable to the noncontrolling interest	(219,312)	760,850
Net income (loss) attributable to the Company	783,002	(2,594,916)
Net income (loss) per share attributable to the Company
Basic and diluted	$ 0.08	$ (0.26)
Weighted average number of shares outstanding
Basic and diluted	10,225,710	10,080,375
Sotherly Hotels LP [Member]
REVENUE
Rooms department	17,453,189	14,249,959
Food and beverage department	6,251,683	4,851,571
Other operating departments	1,305,517	1,088,282
Total revenue	25,010,389	20,189,812
Hotel operating expenses
Rooms department	4,751,526	4,013,733
Food and beverage department	4,070,370	3,224,480
Other operating departments	201,507	106,674
Indirect	9,483,873	7,815,061
Total hotel operating expenses	18,507,276	15,159,948
Depreciation and amortization	2,434,328	2,052,821
Corporate general and administrative	1,307,790	1,093,787
Total operating expenses	22,249,394	18,306,556
NET OPERATING INCOME	2,760,995	1,883,256
Other income (expense)
Interest expense	(2,883,439)	(2,680,547)
Interest income	1,889	3,906
Equity income in joint venture	387,550	469,739
Unrealized loss on warrant derivative		(2,769,065)
Net income (loss) before income taxes	266,995	(3,092,711)
Income tax benefit (provision)	735,319	(263,055)
Net income (loss)	$ 1,002,314	$ (3,355,766)
Net income (loss) per share attributable to the Company
Basic and diluted	$ 0.08	$ (0.26)
Weighted average number of shares outstanding
Basic and diluted	13,089,837	13,035,992

XML

Debt

3 Months Ended

Mar. 31, 2014

Debt Disclosure [Abstract]

Debt

5. Debt

Mortgage Debt. As of March 31, 2014 and December 31, 2013, we had approximately $206.6 million and approximately $160.4 million of outstanding mortgage debt, respectively. The following table sets forth our mortgage debt obligations on our hotels.

	Balance Outstanding as of				Prepayment Penalties	Maturity Date			Amortization Provisions			Interest Rate
Property	March 31, 2014		December 31, 2013
Crowne Plaza Hampton Marina	$	5,855,500	$	5,903,500	None		06/30/2014	(1)	$	16,000	(2)		LIBOR plus 4.55	%(3)
Crowne Plaza Houston Downtown		21,308,666		21,428,258	Yes(4)		04/12/2016	(5)		25 years			4.50	%
Crowne Plaza Jacksonville Riverfront		13,656,527		13,756,209	None		07/10/2015	(6)		25 years			LIBOR plus 3.00	%
Crowne Plaza Tampa Westshore		13,530,331		13,602,701	None		06/18/2017			25 years			5.60	%
DoubleTree by Hilton Brownstone – University		15,465,974		15,525,626	(7)		08/01/2018			30 years			4.78	%
Georgian Terrace		41,500,000		—	Yes(8)		03/27/2017	(14)		25 years			LIBOR plus 3.75	%(13)
Hilton Philadelphia Airport		34,130,509		28,731,151	None		04/01/2019			25 years			LIBOR plus 3.00	%(9)
Hilton Savannah DeSoto		21,465,771		21,546,423	Yes(10)		08/01/2017			25 years			6.06	%
Hilton Wilmington Riverside		20,789,664		20,919,030	Yes(10)		04/01/2017			25 years			6.21	%
Holiday Inn Laurel West		7,099,558		7,141,845	Yes(11)		08/05/2021			25 years			5.25	%(12)
Sheraton Louisville Riverside		11,751,564		11,808,806	(7)		01/06/2017			25 years			6.24	%
Total	$	206,554,064	$	160,363,549

(1) The note provides that the mortgage can be extended until June 2015 if certain conditions have been satisfied.

(2) The Operating Partnership is required to make monthly principal payments of $16,000.

(3) The note bears a minimum interest rate of 5.00%.

(4) The note may not be prepaid during the first two years of the term.

(5) The note provides that the mortgage can be extended until November 2018 if certain conditions have been satisfied.

(6) The note provides that the mortgage can be extended until July 2016 if certain conditions have been satisfied.

(7) With limited exception, the note may not be prepaid until two months before maturity.

(8) The note is subject to a prepayment penalty if the loan is prepaid in full or in part prior to March 26, 2015.

(9) The note bears a minimum interest rate of 3.50%.

(10) The notes may not be prepaid during the first six years of the terms. Prepayment can be made with penalty thereafter until 90 days before maturity.

(11) Pre-payment can be made with penalty until 180 days before the fifth anniversary of the commencement date of the loan or from such date until 180 days before the maturity.

(12) The note provides that after five years, the rate of interest will adjust to a rate of 3.00% per annum plus the then-current five-year U.S. Treasury rate of interest, with a floor of 5.25%.

(13) The note bears a minimum interest rate of 4.00%.

(14) The note provides that the mortgage can be extended through the fourth and fifth anniversary of the commencement date of the loan, or March 27, 2018 and March 27, 2019, respectively, subject to certain conditions.

We were in compliance with all debt covenants, current on all loan payments and not otherwise in default under any of our mortgage loans, as of March 31, 2014.

Total future mortgage debt maturities, without respect to any extension of loan maturity, as of March 31, 2014 were as follows:

The remaining nine month period ending December 31, 2014	$	8,671,252
December 31, 2015		17,441,142
December 31, 2016		24,401,632
December 31, 2017		104,801,938
December 31, 2018		15,850,414
December 31, 2019 and thereafter		35,387,686
Total future maturities	$	206,554,064

Unsecured Notes. On September 30, 2013, the Operating Partnership issued 8.0% senior unsecured notes in the aggregate amount of $27.6 million. The indenture requires quarterly payments of interest and matures on September 30, 2018. The Notes are callable after September 30, 2016 at 101% of face value.

Bridge Financing. On March 26, 2014, we entered into a Note Agreement, Guaranty, and Pledge Agreement to secure a $19.0 million secured Bridge Loan with the Bridge Lenders. The Bridge Loan has a maturity date of March 26, 2015; carries a fixed interest rate of 10.0% per annum; is subject to a prepayment premium if the loan is prepaid in full or in part prior to March 26, 2015; requires mandatory prepayment upon certain events; contains limited financial covenants; and is secured by a lien on 100% of the limited partnership interests in the subsidiary that owns the Hilton Philadelphia Airport hotel. The outstanding balance on the Bridge Loan at March 31, 2014 and December 31, 2013 was $19.0 million and $0.0 million, respectively.

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Investment in Hotel Properties

3 Months Ended

Mar. 31, 2014

Real Estate [Abstract]

Investment in Hotel Properties

4. Investment in Hotel Properties

Investment in hotel properties as of March 31, 2014 and December 31, 2013 consisted of the following:

	March 31, 2014			December 31, 2013
	(unaudited)
Land and land improvements	$	37,083,998		$	26,956,311
Buildings and improvements		252,101,033			206,101,663
Furniture, fixtures and equipment		35,321,580			29,829,908
		324,506,611			262,887,882
Less: accumulated depreciation and impairment		(62,301,934	)		(60,242,249	)
	$	262,204,677		$	202,645,633

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2014

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation – The consolidated financial statements of the Company presented herein include all of the accounts of Sotherly Hotels Inc., the Operating Partnership, MHI TRS and subsidiaries. All significant inter-company balances and transactions have been eliminated. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The consolidated financial statements of the Operating Partnership presented herein include all of the accounts of Sotherly Hotels LP, MHI TRS and subsidiaries. All significant inter-company balances and transactions have been eliminated. Additionally, all administrative expenses of the Company and those expenditures made by the Company on behalf of the Operating Partnership are reflected as the administrative expenses, expenditures and obligations thereto of the Operating Partnership, pursuant to the terms of the Partnership Agreement.

Investment in Hotel Properties

Investment in Hotel Properties – Investments in hotel properties include investments in operating properties which are recorded at acquisition cost and allocated to land, property and equipment and identifiable intangible assets. Replacements and improvements are capitalized, while repairs and maintenance are expensed as incurred. Upon the sale or retirement of a fixed asset, the cost and related accumulated depreciation are removed from our accounts and any resulting gain or loss is included in the statements of operations. Expenditures under a renovation project, which constitute additions or improvements that extend the life of the property, are capitalized.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally 7 to 39 years for buildings and building improvements and 3 to 10 years for furniture, fixtures and equipment. Leasehold improvements are amortized over the shorter of the lease term or the useful lives of the related assets.

We review our investments in hotel properties for impairment whenever events or changes in circumstances indicate that the carrying value of the hotel properties may not be recoverable. Events or circumstances that may cause a review include, but are not limited to, adverse changes in the demand for lodging at the properties due to declining national or local economic conditions and/or new hotel construction in markets where the hotels are located. When such conditions exist, management performs an analysis to determine if the estimated undiscounted future cash flows from operations and the proceeds from the ultimate disposition of a hotel property exceed its carrying value. If the estimated undiscounted future cash flows are found to be less than the carrying amount of the asset, an adjustment to reduce the carrying amount to the related hotel property’s estimated fair market value would be recorded and an impairment loss recognized.

Investment in Joint Venture

Investment in Joint Venture – Investment in joint venture represents our noncontrolling indirect 25.0% equity interest in (i) the entity that owns the Crowne Plaza Hollywood Beach Resort and (ii) the entity that leases the hotel and has engaged MHI Hotels Services to operate the hotel under a management contract. Carlyle owns a 75.0% controlling indirect interest in these entities. We account for our investment in the joint venture under the equity method of accounting and are entitled to receive our pro rata share of operating cash flow. We also have the opportunity to earn an incentive participation in the net sale proceeds based upon the achievement of certain overall investment returns, in addition to our pro rata share of net sale proceeds.

Cash and Cash Equivalents

Cash and Cash Equivalents – We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Concentration of Credit Risk

Concentration of Credit Risk – We hold cash accounts at several institutions in excess of the Federal Deposit Insurance Corporation (the “FDIC”) protection limits of $250,000. Our exposure to credit loss in the event of the failure of these institutions is represented by the difference between the FDIC protection limit and the total amounts on deposit. Management monitors, on a regular basis, the financial condition of the financial institutions along with the balances there on deposit to minimize our potential risk.

Restricted Cash

Restricted Cash – Restricted cash includes real estate tax escrows, insurance escrows and reserves for replacements of furniture, fixtures and equipment pursuant to certain requirements in our various mortgage agreements.

Accounts Receivable

Accounts Receivable – Accounts receivable consists primarily of hotel guest and banqueting receivables. Ongoing evaluations of collectability are performed and an allowance for potential credit losses is provided against the portion of accounts receivable that is estimated to be uncollectible.

Inventories

Inventories – Inventories, consisting primarily of food and beverages, are stated at the lower of cost or market, with cost determined on a method that approximates first-in, first-out basis.

Franchise License Fees

Franchise License Fees – Fees expended to obtain or renew a franchise license are amortized over the life of the license or renewal. The un-amortized franchise fees as of March 31, 2014 and December 31, 2013 were $261,114 and $196,989, respectively. Amortization expense for the three month period ended March 31, 2014 and 2013, each totaled $10,875, respectively.

Deferred Financing Costs

Deferred Financing Costs – Deferred financing costs are recorded at cost and consist of loan fees and other costs incurred in issuing debt. Amortization of deferred financing costs is computed using a method that approximates the effective interest method over the term of the related debt and is included in interest expense in the consolidated statements of operations.

Derivative Instruments

Derivative Instruments – Our derivative instruments are reflected as assets or liabilities on the balance sheet and measured at fair value. Derivative instruments used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as an interest rate risk, are considered fair value hedges. Derivative instruments used to hedge exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. For a derivative instrument designated as a cash flow hedge, the change in fair value each period is reported in accumulated other comprehensive income in stockholders’ equity and partners’ capital to the extent the hedge is effective. For a derivative instrument designated as a fair value hedge, the change in fair value each period is reported in earnings along with the change in fair value of the hedged item attributable to the risk being hedged. For a derivative instrument that does not qualify for hedge accounting or is not designated as a hedge, the change in fair value each period is reported in earnings.

We use derivative instruments to add stability to interest expense and to manage our exposure to interest-rate movements. To accomplish this objective, we primarily used an interest-rate swap, which was required under the then-existing credit agreement and acted as a cash flow hedge involving the receipts of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments without exchange of the underlying principal amount. We valued the interest-rate swap at fair value, which we define as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We also use derivative instruments in the Company’s stock to obtain more favorable terms on our financing. We do not enter into contracts to purchase or sell derivative instruments for speculative trading purposes.

Fair Value Measurements

Fair Value Measurements –

We classify the inputs used to measure fair value into the following hierarchy:

Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 Unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

Level 3 Unobservable inputs for the asset or liability.

We endeavor to utilize the best available information in measuring fair value. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following table represents our debt instruments measured at fair value and the basis for that measurement:

	Level 1			Level 2		Level 3
December 31, 2013
Unsecured notes(1)	$	(28,770,240	)	$	—	$	—
March 31, 2014
Unsecured notes(1)	$	(28,814,400	)	$	—	$	—

(1) Unsecured notes are recorded at historical cost on our Consolidated Balance Sheet as of March 31, 2014 and December 31, 2013.

Noncontrolling Interest in Operating Partnership

Noncontrolling Interest in Operating Partnership – Certain hotel properties have been acquired, in part, by the Operating Partnership through the issuance of limited partnership units of the Operating Partnership. The noncontrolling interest in the Operating Partnership is: (i) increased or decreased by the limited partners’ pro-rata share of the Operating Partnership’s net income or net loss, respectively; (ii) decreased by distributions; (iii) decreased by redemption of partnership units for the Company’s common stock; and (iv) adjusted to equal the net equity of the Operating Partnership multiplied by the limited partners’ ownership percentage immediately after each issuance of units of the Operating Partnership and/or the Company’s common stock through an adjustment to additional paid-in capital. Net income or net loss is allocated to the noncontrolling interest in the Operating Partnership based on the weighted average percentage ownership throughout the period.

Revenue Recognition

Revenue Recognition – Revenues from operations of the hotels are recognized when the services are provided. Revenues consist of room sales, food and beverage sales, and other hotel department revenues, such as telephone, parking, gift shop sales and rentals from restaurant tenants, rooftop leases and gift shop operators. Revenues are reported net of occupancy and other taxes collected from customers and remitted to governmental authorities.

Income Taxes

Income Taxes – The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. As a REIT, the Company generally will not be subject to federal income tax. MHI TRS, our wholly owned taxable REIT subsidiary which leases our hotels from subsidiaries of the Operating Partnership, is subject to federal and state income taxes.

We account for income taxes using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. As of March 31, 2014, 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 March 31, 2014, the tax years that remain subject to examination by the major tax jurisdictions to which the Company is subject generally include the calendar years 2010 through 2013. In addition, as of March 31, 2014, the tax years that remain subject to examination by the major tax jurisdictions to which MHI TRS is subject generally include the calendar years 2004 through 2009.

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.

Stock-Based Compensation

Stock-based Compensation – The Company’s 2004 Long Term Incentive Plan (the “2004 Plan”) and its 2013 Long-Term Incentive Plan (the “2013 Plan”), which the Company’s stockholders approved in April 2013, permit the grant of stock options, restricted stock and performance share compensation awards to its employees for up to 350,000 and 750,000 shares of common stock, respectively. The Company believes that such awards better align the interests of its employees with those of its stockholders.

Under the 2004 Plan, the Company has made restricted stock and deferred stock awards totaling 337,438 shares including 255,938 shares issued to certain executives and employees and 81,500 restricted shares issued to its independent directors. Of the 255,938 shares issued to certain of our executives and employees, all have vested except for 24,000 shares which were issued to the Chief Financial Officer upon execution of his employment contract. These shares are to vest pro rata on each of the next four anniversaries of the effective date of his employment agreement. All of the 81,500 restricted shares issued to the Company’s independent directors have vested.

Under the 2013 Plan, the Company has made issuances totaling 36,750 shares, consisting of 24,000 non-restricted shares issued to certain executives and 12,000 restricted shares and 750 non-restricted shares issued to its independent directors. All of the restricted shares will vest at the end of 2014.

The value of the awards is charged to compensation expense on a straight-line basis over the vesting or service period based on the Company’s stock price on the date of grant or issuance. Previously, under the 2004 Plan, and currently, under the 2013 Plan, the Company may issue a variety of performance-based stock awards, including nonqualified stock options. As of March 31, 2014, no performance-based stock awards have been granted. Consequently, stock-based compensation as determined under the fair-value method would be the same under the intrinsic-value method. Total compensation cost recognized under the 2004 Plan and 2013 Plan for the three months ended March 31, 2014 and 2013 was $19,571 and $21,958, respectively.

Comprehensive Income (Loss)

Comprehensive Income (Loss) – Comprehensive income (loss) includes all changes in equity (net assets) during a period from non-owner sources. We do not have any items of comprehensive income (loss) other than net income (loss).

Segment Information

Segment Information – We have determined that our business is conducted in one reportable segment: hotel ownership.

Use of Estimates

Use of Estimates – The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassifications

Reclassifications – Certain reclassifications have been made to the prior period balances to conform to the current period presentation.

New Accounting Pronouncements

New Accounting Pronouncements – There are no recent accounting pronouncements which we believe will have a material impact on our consolidated financial statements.

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Indirect Hotel Operating Expenses

3 Months Ended

Mar. 31, 2014

Other Income And Expenses [Abstract]

Indirect Hotel Operating Expenses

12. Indirect Hotel Operating Expenses

Indirect hotel operating expenses consists of the following expenses incurred by the hotels:

	Three months ended March 31, 2014		Three months ended March 31, 2013
	(unaudited)		(unaudited)
General and administrative	$	2,020,998	$	1,655,194
Sales and marketing		2,091,222		1,737,032
Repairs and maintenance		1,328,515		1,091,909
Utilities		1,201,014		988,034
Franchise fees		884,305		693,405
Management fees, including incentive		694,834		635,208
Insurance		469,190		361,301
Property taxes		741,345		597,329
Other		52,450		55,649
Total indirect hotel operating expenses	$	9,483,873	$	7,815,061

 

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Equity

3 Months Ended

Mar. 31, 2014

Equity [Abstract]

Equity

8. Equity

Preferred Stock – The Company has authorized 1,000,000 shares of preferred stock, of which 27,650 shares were issued as Series A Cumulative Redeemable Preferred Stock, as described above, and subsequently redeemed in 2013. None of the remaining authorized shares have been issued.

Common Stock – The Company is authorized to issue up to 49,000,000 shares of common stock, $0.01 par value per share. Each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of stockholders. Holders of the Company’s common stock are entitled to receive distributions when authorized by the Company’s board of directors out of assets legally available for the payment of distributions.

The following is a schedule of issuances, since January 1, 2013, of the Company’s common stock:

On February 14, 2014, the Company was issued 36,750 units in the Operating Partnership and awarded an aggregate of 24,000 shares of unrestricted stock to certain executives as well as 12,000 shares of restricted stock and 750 share of unrestricted stock to certain of its independent directors.

On August 14, 2013, one holder of units in the Operating Partnership redeemed 50,000 units for an equivalent number of shares of the Company’s common stock.

On April 1, 2013, one holder of units in the Operating Partnership redeemed 31,641 units for an equivalent number of shares of the Company’s common stock.

On March 1, 2013, one holder of units in the Operating Partnership redeemed 50,000 units for an equivalent number of shares of the Company’s common stock.

On January 25, 2013, the Company was issued 45,500 units in the Operating Partnership and awarded an aggregate of 30,500 shares of unrestricted stock to certain executives and employees as well as 15,000 shares of restricted stock to certain of its independent directors.

On January 1, 2013, the Company was issued 30,000 units in the Operating Partnership and granted 30,000 restricted shares to its Chief Financial Officer in accordance with the terms of his employment contract.

As of March 31, 2014 and December 31, 2013, the Company had 10,243,677 and 10,206,927 shares of common stock outstanding, respectively.

Operating Partnership Units – Holders of Operating Partnership units, other than the Company as general partner, have certain redemption rights, which enable them to cause the Operating Partnership to redeem their units in exchange for shares of the Company’s common stock on a one-for-one basis or, at the option of the Company, cash per unit equal to the average of the market price of the Company’s common stock for the 10 trading days immediately preceding the notice date of such redemption. The number of shares issuable upon exercise of the redemption rights will be adjusted upon the occurrence of stock splits, mergers, consolidations or similar pro-rata share transactions, which otherwise would have the effect of diluting the ownership interests of the limited partners or the stockholders of the Company.

The following is a schedule of issuances and redemptions, since January 1, 2013, of units in the Operating Partnership in addition to the issuances of units in the Operating Partnership to the Company described above:

On November 13, 2013, the Operating Partnership issued 32,929 limited partnership units in conjunction with the purchase of the partnership interests in HHA, which is the sole owner of the Crowne Plaza Houston Downtown.

On April 1, 2013, the Company redeemed 10,000 units in the Operating Partnership held by a trust controlled by two members of the Company’s board of directors for a total of $32,900 pursuant to the terms of the partnership agreement.

As of March 31, 2014 and December 31, 2013, the total number of Operating Partnership units outstanding was 13,107,804 and 13,071,054, respectively.

As of each March 31, 2014 and December 31, 2013, the total number of outstanding Operating Partnership units not owned by the Company was 2,864,127, with a fair market value of approximately $18.2 million and approximately $17.0 million, respectively, based on the price per share of the common stock on such respective dates.

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Preferred Stock, Preferred Interest and Warrants

3 Months Ended

Mar. 31, 2014

Text Block [Abstract]

Preferred Stock, Preferred Interest and Warrants

6. Preferred Stock, Preferred Interest and Warrants

Preferred Stock and Preferred Interest. On April 18, 2011, the Company completed a private placement to the Investors pursuant to the Securities Purchase Agreement for gross proceeds of $25.0 million. The Company issued 25,000 shares of Preferred Stock and the Essex Warrant to purchase 1,900,000 shares of the Company’s common stock, par value $0.01 per share.

The Company designated a class of preferred stock, the Preferred Stock, consisting of 27,650 shares with $0.01 par value per share, having a liquidation preference of $1,000.00 per share pursuant to Articles Supplementary (the “Articles Supplementary”), which sets forth the preferences, rights and restrictions for the Preferred Stock. The Preferred Stock is non-voting and non-convertible. The holders of the Preferred Stock had a right to payment of a cumulative dividend payable quarterly (i) in cash at an annual rate of 10.0% of the liquidation preference per share and (ii) in additional shares of Preferred Stock at an annual rate of 2.0% of the liquidation preference per share. As set forth in the Articles Supplementary, the holder(s) of the Company’s Preferred Stock had the exclusive right, voting separately as a single class, to elect one (1) member of the Company’s board of directors. In addition, under certain circumstances as set forth in the Articles Supplementary, the holder(s) of the Company’s Preferred Stock were entitled to appoint a majority of the members of the Company’s board of directors. The holder(s) of the Company’s Preferred Stock were entitled to require that the Company redeem the Preferred Stock under certain circumstances, but no later than April 18, 2016, and on such terms and at such price as is set forth in the Articles Supplementary.

Concurrently with the issuance of the Preferred Stock, the Operating Partnership issued the Preferred Interest to the Company in an amount equivalent to the proceeds of the Preferred Stock received by the general partner pursuant to the terms of the Partnership Agreement. The Partnership Agreement also authorizes the general partner to make special distributions to the Company related to its Preferred Interest for the sole purpose of fulfilling the Company’s obligations with respect to the Preferred Stock. In addition, the Operating Partnership issued the Operating Partnership Warrant to purchase 1,900,000 partnership units at an amount equal to the consideration received by the Company upon exercise of the Essex Warrant, as amended.

On March 26, 2013, we used the net proceeds of an expansion of the mortgage on the DoubleTree by Hilton Brownstone-University to make a special distribution by the Operating Partnership to the Company to redeem 1,902 shares of Preferred Stock for an aggregate redemption price of approximately $2.1 million plus the payment of related accrued and unpaid cash and stock dividends. The redemption resulted in a prepayment fee of approximately $0.2 million. In addition, approximately $0.1 million in unamortized issuance costs related to the redeemed shares were written off.

On August 1, 2013, we used the net proceeds of a new mortgage on the DoubleTree by Hilton Brownstone-University to make a special distribution by the Operating Partnership to the Company to redeem 2,460 shares of Preferred Stock for an aggregate redemption price of approximately $2.7 million plus the payment of related accrued and unpaid cash and stock dividends. The redemption resulted in a prepayment fee of approximately $0.2 million. In addition, approximately $0.1 million in unamortized issuance costs related to the redeemed shares were written off.

On September 30, 2013, we used a portion of the proceeds of the Notes offering to make a special distribution by the Operating Partnership to the Company to redeem the remaining outstanding shares of Preferred Stock for an aggregate redemption price of approximately $10.7 million plus the payment of related accrued and unpaid cash and stock dividends. The redemption resulted in a prepayment fee of approximately $0.7 million. In addition, approximately $0.4 million in unamortized issuance costs related to the redeemed shares were written off.

As of March 31, 2014 and December 31, 2013, there were no shares of the Preferred Stock issued and outstanding.

As of March 31, 2014 and December 31, 2013, there was no redemption value in the Preferred Interest.

Warrants. The Essex Warrant, as modified, entitled the holder(s) to purchase up to 1,900,000 shares of the Company’s common stock at an exercise price of $2.25 per share. Pursuant to an amendment to the Essex Warrant, the exercise price per share of common stock covered by the Essex Warrant could have adjusted from time to time in the event of payment of cash dividends to holders of common stock by deducting from such exercise price the per-share amount of such cash dividends. Such adjustment could not take into account dividends declared prior to January 1, 2012.

Concurrently with the issuance of the Essex Warrant, the Operating Partnership issued the Operating Partnership Warrant to the Company. Under the terms of the Operating Partnership Warrant, the Company was obligated to exercise the Operating Partnership Warrant immediately and concurrently if at any time the Essex Warrant was exercised by its holders. In that event, the Operating Partnership would have issued an equivalent number of partnership units and would have been entitled to receive the proceeds received by the Company upon exercise of the Essex Warrant.

On October 23, 2013, the Company redeemed the First Tranche of Redeemed Warrant Shares for an aggregate cash redemption price of $3.2 million. The First Tranche of Redeemed Warrant Shares are no longer Issuable Warrant Shares under the Essex Warrant, and all exercise and other rights of the Initial Holders in respect of the Redeemed Warrant Shares under the Essex Warrant are terminated and extinguished.

Concurrently with the redemption of the 900,000 Issuable Warrant Shares, the Operating Partnership redeemed 900,000 Issuable Warrant Units, as defined in the Operating Partnership Warrant, for an aggregate cash redemption price of $3.2 million.

On December 23, 2013, the Company redeemed the Final Tranche of Redeemed Warrant Shares for an aggregate cash redemption price of approximately $4.0 million. The Final Tranche of Redeemed Warrant Shares are no longer Issuable Warrant Shares under the Essex Warrant, and all exercise and other rights of the Initial Holders in respect of the Redeemed Warrant Shares under the Essex Warrant are terminated and extinguished.

Concurrently with the redemption of the 1,000,000 Issuable Warrant Shares, the Operating Partnership redeemed 1,000,000 Issuable Warrant Units, as defined in the Operating Partnership Warrant, for an aggregate cash redemption price of approximately $4.0 million. The redeemed warrant units are no longer Issuable Warrant Units under the Operating Partnership Warrant, and all rights under the Operating Partnership Warrant are terminated and extinguished.

On the date of issuance, we determined the fair market value of the Essex Warrant was approximately $1.6 million using the Black-Scholes option pricing model assuming an exercise price of $2.25 per share of common stock, a risk-free interest rate of 2.26%, a dividend yield of 5.00%, expected volatility of 60.0%, and an expected term of 5.5 years. The fair market value is included in deferred financing costs. The deferred cost was amortized to interest expense in the accompanying consolidated statement of operations over the period of issuance to the mandatory redemption date of the Preferred Stock.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2014

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

7. Commitments and Contingencies

Ground, Building and Submerged Land Leases – We lease 2,086 square feet of commercial space next to the Savannah hotel property for use as an office, retail or conference space, or for any related or ancillary purposes for the hotel and/or atrium space. In December 2007, we signed an amendment to the lease to include rights to the outdoor esplanade adjacent to the leased commercial space. The areas are leased under a six-year operating lease, which expired October 31, 2006 and has been renewed for the second of three optional five-year renewal periods expiring October 31, 2011, October 31, 2016 and October 31, 2021, respectively. Rent expense for this operating lease for the three months ended March 31, 2014 and 2013 was $15,866 and $16,756, respectively.

We lease, as landlord, the entire fourteenth floor of the Hilton Savannah DeSoto to The Chatham Club, Inc. under a ninety-nine year lease expiring July 31, 2086. This lease was assumed upon the purchase of the building under the terms and conditions agreed to by the previous owner of the property. No rental income is recognized under the terms of this lease as the original lump sum rent payment of $990 was received by the previous owner and not prorated over the life of the lease.

We lease a parking lot adjacent to the DoubleTree by Hilton Brownstone-University in Raleigh, North Carolina. The land is leased under a second amendment, dated April 28, 1998, to a ground lease originally dated May 25, 1966. The original lease is a 50-year operating lease, which expires August 31, 2016. We exercised a renewal option for the first of three additional ten-year periods expiring August 31, 2026, August 31, 2036, and August 31, 2046, respectively. We hold an exclusive and irrevocable option to purchase the leased land at fair market value at the end of the original lease term, subject to the payment of an annual fee of $9,000, and other conditions. Rent expense for the three months ended March 31, 2014 and 2013, each totaled $23,871.

We lease land adjacent to the Crowne Plaza Tampa Westshore for use as parking under a five-year agreement with the Florida Department of Transportation that commenced in July 2009 and expires in July 2014. The agreement requires annual payments of $2,432, plus tax, and may be renewed for an additional five years. Rent expense for the three months ended March 31, 2014 and 2013, each totaled $651.

We lease certain submerged land in the Saint Johns River in front of the Crowne Plaza Jacksonville Riverfront from the Board of Trustees of the Internal Improvement Trust Fund of the State of Florida. The submerged land was leased under a five-year operating lease requiring annual payments of $4,961, which expired September 18, 2012. A new operating lease was executed requiring annual payments of $6,020 and expires September 18, 2017. Rent expense for the three months ended March 31, 2014 and 2013, each totaled $1,505.

We lease 4,836 square feet of commercial office space in Williamsburg, Virginia under an agreement, as amended, that commenced September 1, 2009 and expires August 31, 2018. Rent expense totaled $17,015 and $13,750 for the three month period ended March 31, 2014 and 2013, respectively.

We lease 1,632 square feet of commercial office space in Rockville, Maryland under an agreement that commenced December 14, 2009 and expires February 28, 2017. The agreement requires monthly payments at an annual rate of $22,848 for the first year of the lease term and monthly payments at an annual rate of $45,696 for the second year of the lease term, increasing 2.75% per year for the remainder of the lease term. Rent expense totaled $12,253 and $11,108 for the three months ended March 31, 2014 and 2013, respectively.

We also lease certain furniture and equipment under financing arrangements expiring between February 2014 and March 2017.

A schedule of minimum future lease payments for the following twelve-month periods is as follows:

The remaining nine month period ending December 31, 2014	$	312,155
December 31, 2015		361,081
December 31, 2016		324,723
December 31, 2017		196,436
December 31, 2018		158,721
December 31, 2019 and thereafter		732,092
Total	$	2,085,208

Management Agreements – At March 31, 2014, each of our wholly-owned operating hotels, except for the Crowne Plaza Tampa Westshore, the Crowne Plaza Houston Downtown and the Georgian Terrace, are operated under a master management agreement with MHI Hotels Services that expires between December 2014 and April 2018. We entered into separate management agreements with MHI Hotels Services for the management of the Crowne Plaza Tampa Westshore that expires in March 2019 and for management of the Georgian Terrace that expires in March 2024. We also assumed the existing agreement for management of the Crowne Plaza Houston Downtown upon purchase of the hotel in November 2013, which expires in April 2016 (see Note 9).

Franchise Agreements – As of March 31, 2014, many of our hotels operate under franchise licenses from national hotel companies. Under the franchise agreements, we are required to pay a franchise fee generally between 2.5% and 5.0% of room revenues, plus additional fees for marketing, central reservation systems, and other franchisor programs and services that amount to between 2.5% and 6.0% of room revenues from the hotels. The franchise agreements currently expire between October 2014 and April 2023.

Restricted Cash Reserves – Each month, we are required to escrow with the lenders on the Hilton Wilmington Riverside, the Hilton Savannah DeSoto, the DoubleTree by Hilton Brownstone-University, the Sheraton Louisville Riverside and the Georgian Terrace an amount equal to ¹/₁₂ of the annual real estate taxes due for the properties. We are also required by several of our lenders to establish individual property improvement funds to cover the cost of replacing capital assets at our properties. Each month, those contributions equal 4.0% of gross revenues for the Hilton Savannah DeSoto, the Hilton Wilmington Riverside, the Sheraton Louisville Riverside, DoubleTree by Hilton Raleigh Brownstone-University, Crowne Plaza Houston Downtown, the Crowne Plaza Hampton Marina and the Georgian Terrace and equal 4.0% of room revenues for the Hilton Philadelphia Airport.

Litigation – We are not involved in any material litigation, nor, to our knowledge, is any material litigation threatened against us. We are involved in routine litigation arising out of the ordinary course of business, all of which we expect to be covered by insurance and none of which is expected to have a material impact on our financial condition or results of operations.

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Related Party Transactions

3 Months Ended

Mar. 31, 2014

Related Party Transactions [Abstract]

Related Party Transactions

9. Related Party Transactions

MHI Hotels Services. As of March 31, 2014, the members of MHI Hotels Services (a company that is majority-owned and controlled by the Company’s chief executive officer, its former chief financial officer as well as a current member of its board of directors and a former member of its board of directors) owned approximately 10.7% of the Company’s outstanding common stock and 1,752,958 Operating Partnership units. The following is a summary of the transactions with MHI Hotels Services:

Accounts Receivable – We were due $77,692 and $101,439 from MHI Hotels Services at March 31, 2014 and December 31, 2013, respectively.

Shell Island Sublease – We have a sublease arrangement with MHI Hotels Services on its expired leasehold interests in the Shell Island Resort in Wrightsville Beach, North Carolina. Leasehold revenue was $87,500 for each of the three month periods ended March 31, 2014 and 2013. The underlying leases at Shell Island expired on December 31, 2011.

Strategic Alliance Agreement – On December 21, 2004, we entered into a ten-year strategic alliance agreement with MHI Hotels Services that provides in part for the referral of acquisition opportunities to us and the management of our hotels by MHI Hotels Services.

Management Agreements – Each of the operating hotels that we wholly-owned at March 31, 2014 and December 31, 2013, except for the Crowne Plaza Tampa Westshore, the Crowne Plaza Houston Downtown and the Georgian Terrace, are operated by MHI Hotels Services under a master management agreement that expires between December 2014 and April 2018. We entered into separate management agreements with MHI Hotels Services for the management of the Crowne Plaza Tampa Westshore that expires in March 2019 and for the management of the Georgian Terrace that expires in March 2024. We assumed an existing management agreement for the Crowne Plaza Houston Downtown when we acquired the property in November 2013, which expires in April 2016. Pursuant to the sale of the Holiday Inn Downtown in Williamsburg, Virginia, one of the hotels initially contributed to the Company and the Operating Partnership upon their formation, MHI Hotels Services has agreed that the property in Jeffersonville, Indiana shall be substituted for the Williamsburg property under the master management agreement.

Under the master management agreement as well as the management agreement for the Crowne Plaza Tampa Westshore, MHI Hotels Services receives a base management fee. The base management fee for any hotel is 2.0% of gross revenues for the first full fiscal year and partial fiscal year from the commencement date through December 31 of that year, 2.5% of gross revenues the second full fiscal year, and 3.0% of gross revenues for every year thereafter. Under the management agreements for the Crowne Plaza Houston and the Georgian Terrace, MHI Hotels Services receives a base management fee of 2.0% of gross revenues.

The incentive management fee under the master management agreement is due annually in arrears within 90 days of the end of the fiscal year and will be equal to 10.0% of the amount by which the gross operating profit of the hotels, on an aggregate basis, for a given year exceeds the gross operating profit for the same hotels, on an aggregate basis, for the prior year. The incentive management fee may not exceed 0.25% of gross revenues of all of the hotels included in the incentive fee calculation. The management agreements for the Crowne Plaza Tampa Westshore and the Georgian Terrace include a similar provision for the payment of an incentive management fee on a stand-alone basis.

The management agreement for the Georgian Terrace also provides for an administrative fee of $30,000 per year for as long as the adjacent parking garage is managed by a third party.

Base management and administrative fees earned by MHI Hotels Services totaled $687,562 and $600,615 for the three months ended March 31, 2014 and 2013, respectively. In addition, estimated incentive management fees of $7,272 and $34,594 were accrued for the three months ended March 31, 2014 and 2013, respectively.

Employee Medical Benefits – We purchase employee medical benefits through Maryland Hospitality, Inc. (d/b/a MHI Health), an affiliate of MHI Hotels Services, for our employees, as well as those employees that are employed by MHI Hotels Services that work exclusively for our hotel properties. Gross premiums for employee medical benefits paid by the Company (before offset of employee co-payments) were $814,801 and $650,999 for the three months ended March 31, 2014 and 2013, respectively.

Redemption of Units in Operating Partnership. During 2013, 2012 and 2011, the Company redeemed a total of 24,600 units in the Operating Partnership held by a trust controlled by two current members and one former member of the Company’s board of directors for a total of $76,230 pursuant to the terms of the Partnership Agreement.

Issuance of Units in Operating Partnership. In connection with the acquisition of the Crowne Plaza Houston Downtown Hotel in November 2013, we purchased from MHI Hotels its 1.0% limited partnership interest in HHA, the entity that owns the property, in exchange for 32,929 units of limited partnership interests in the Company’s operating partnership valued at $153,636 pursuant to an exchange agreement entered into between the Operating Partnership and MHI Hotels. The indirect equity owners of MHI Hotels include the Company’s chief executive officer, Andrew M. Sims, and a member of the Company’s board of directors, Kim E. Sims.

Holders of the Preferred Stock and Essex Warrant. As set forth in the Articles Supplementary, the holders of Preferred Stock, Essex Illiquid, LLC and Richmond Hill Capital Partners, LLC, were entitled to elect one (1) member of the Company’s board of directors. The member of the board of directors elected by the holders of Preferred Stock holds executive positions in Essex Equity Capital Management, LLC, an affiliate of Essex Illiquid, LLC, as well as Richmond Hill Capital Partners, LLC.

On March 26, 2013, we used the net proceeds of an expansion of the mortgage on the DoubleTree by Hilton Brownstone-University to make a special distribution by the Operating Partnership to the Company to redeem 1,902 shares of Preferred Stock for an aggregate redemption price of approximately $2.1 million plus the payment of related accrued and unpaid cash and stock dividends. The redemption resulted in a prepayment fee of approximately $0.2 million.

On August 1, 2013, we used the net proceeds of a new mortgage on the DoubleTree by Hilton Brownstone-University to make a special distribution by the Operating Partnership to the Company to redeem 2,460 shares of Preferred Stock for an aggregate redemption price of approximately $2.7 million plus the payment of related accrued and unpaid cash and stock dividends. The redemption resulted in a prepayment fee of approximately $0.2 million.

On September 30, 2013, we used a portion of the proceeds of the Notes offering to make a special distribution by the Operating Partnership to the Company to redeem the remaining outstanding shares of Preferred Stock for an aggregate redemption price of approximately $10.7 million plus the payment of related accrued and unpaid cash and stock dividends. The redemption resulted in a prepayment fee of approximately $0.7 million.

Essex Warrant Redemptions. On October 23, 2013, the Company entered into an agreement to redeem the First Tranche of Redeemed Warrant Shares for an aggregate cash redemption price of $3.2 million. The First Tranche of Redeemed Warrant Shares are no longer Issuable Warrant Shares under the Essex Warrant, and all exercise and other rights of the Initial Holders in respect of the Redeemed Warrant Shares under the Essex Warrant were terminated and extinguished.

On December 23, 2013, the Company entered into an agreement to redeem the Final Tranche of Redeemed Warrant Shares for an aggregate cash redemption price of approximately $4.0 million. The Final Tranche of Redeemed Warrant Shares are no longer Issuable Warrant Shares under the Essex Warrant, and all exercise and other rights of the Initial Holders in respect of the Redeemed Warrant Shares under the Essex Warrant were terminated and extinguished.

Bridge Lenders. A former member of the Company’s board of directors holds executive positions in Essex Equity Capital Management, LLC, an affiliate of Essex Equity joint Investment Vehicle, LLC as well as Richmond Hill Capital Partners, LP. On March 26, 2014, we entered into a Note Agreement, Guaranty, and Pledge Agreement to secure a $19.0 million secured Bridge Loan with the Richmond Hill Capital Partners, LP and Essex Equity Joint Investment Vehicle, LLC. The Bridge Loan has a maturity date of March 26, 2015; carries a fixed interest rate of 10.0% per annum; is subject to a prepayment premium if the loan is prepaid in full or in part prior to March 26, 2015; requires mandatory prepayment upon certain events; contains limited financial covenants; and is secured by a lien on 100% of the limited partnership interests in the subsidiary that owns the Hilton Philadelphia Airport hotel.

Others. In June 2013, we hired Ashley S. Kirkland, the daughter of our Chief Executive Officer as a legal analyst and Robert E. Kirkland IV, her husband, as our compliance officer. Compensation for the three months ended March 31, 2014 totaled $32,330 for both individuals.

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Summary of Significant Accounting Policies - Additional Information (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014 Segment	Mar. 31, 2013	Dec. 31, 2013
Summary Of Significant Accounting Policies [Line Items]
Federal Deposit Insurance Corporation protection limits	$ 250,000
Un-amortized franchise fees	261,114		196,989
Amortization expense	10,875	10,875
Shares issued under plan	337,438
Compensation cost recognized	230,625	161,500
Number of reportable segment	1
Director [Member]
Summary Of Significant Accounting Policies [Line Items]
Shares issued under plan	81,500
Executives and Employee [Member]
Summary Of Significant Accounting Policies [Line Items]
Shares issued under plan	255,938
Vesting period of employment contract	4 years
Chief Financial Officer [Member]
Summary Of Significant Accounting Policies [Line Items]
Shares issued to the Vice President and General Counsel	24,000
2004 Plan [Member]
Summary Of Significant Accounting Policies [Line Items]
Performance-based stock awards granted	0
Compensation cost recognized	19,571	21,958
2013 Plan [Member]
Summary Of Significant Accounting Policies [Line Items]
Shares issued under plan	36,750
Performance-based stock awards granted	0
Compensation cost recognized	$ 19,571	$ 21,958
2013 Plan [Member] | Executive Officer [Member]
Summary Of Significant Accounting Policies [Line Items]
Shares issued under plan	24,000
2013 Plan [Member] | Independent Director [Member]
Summary Of Significant Accounting Policies [Line Items]
Shares issued under plan	750
2013 Plan [Member] | Restricted Stock [Member] | Independent Director [Member]
Summary Of Significant Accounting Policies [Line Items]
Shares issued under plan	12,000
Crowne Plaza Hollywood [Member]
Summary Of Significant Accounting Policies [Line Items]
Percentage of Operating Partnership owned	25.00%
Carlyle [Member]
Summary Of Significant Accounting Policies [Line Items]
Percentage of indirect controlling interest owned by Carlyle	75.00%
Minimum [Member] | Buildings and Improvements [Member]
Summary Of Significant Accounting Policies [Line Items]
Estimated useful lives of the assets	7 years
Minimum [Member] | Furniture, Fixtures and Equipment [Member]
Summary Of Significant Accounting Policies [Line Items]
Estimated useful lives of the assets	3 years
Maximum [Member] | 2004 Plan [Member]
Summary Of Significant Accounting Policies [Line Items]
Restricted and performance stock awards permitted to grant to employees	350,000
Maximum [Member] | 2013 Plan [Member]
Summary Of Significant Accounting Policies [Line Items]
Restricted and performance stock awards permitted to grant to employees	750,000
Maximum [Member] | Buildings and Improvements [Member]
Summary Of Significant Accounting Policies [Line Items]
Estimated useful lives of the assets	39 years
Maximum [Member] | Furniture, Fixtures and Equipment [Member]
Summary Of Significant Accounting Policies [Line Items]
Estimated useful lives of the assets	10 years

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Unconsolidated Joint Venture - Summarized Financial Information of Investment (Detail) (Equity Method Investments [Member], USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Equity Method Investments [Member]
ASSETS
Investment in hotel property, net	$ 63,905,234	$ 64,449,892
Cash and cash equivalents	2,047,195	2,896,841
Restricted cash	475,839
Accounts receivable, net	250,811	251,587
Prepaid expenses, inventory and other assets	1,590,675	1,335,472
TOTAL ASSETS	68,269,754	68,933,792
LIABILITIES
Mortgage loan, net	57,000,000	57,000,000
Accounts payable and other accrued liabilities	2,222,134	1,869,476
Advance deposits	713,441	280,339
TOTAL LIABILITIES	59,935,575	59,149,815
TOTAL MEMBERS' EQUITY	8,334,179	9,783,977
TOTAL LIABILITIES AND MEMBERS' EQUITY	68,269,754	68,933,792
Revenue
Rooms department	5,207,846	5,135,187
Food and beverage department	878,212	751,772
Other operating departments	343,246	401,224
Total revenue	6,429,304	6,288,183
Hotel operating expenses
Rooms department	867,823	866,163
Food and beverage department	632,017	538,076
Other operating departments	162,567	140,745
Indirect	1,879,085	1,963,395
Total hotel operating expenses	3,541,492	3,508,379
Depreciation and amortization	554,736	540,405
General and administrative	136,711	37,461
Total operating expenses	4,232,939	4,086,245
Operating income	2,196,365	2,201,938
Interest expense	(646,163)	(432,274)
Unrealized gain on hedging activities		109,294
Net income	$ 1,550,202	$ 1,878,958

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Income (Loss) Per Share and Per Unit

3 Months Ended

Mar. 31, 2014

Earnings Per Share [Abstract]

Income (Loss) Per Share and Per Unit

14. Income (Loss) Per Share and Per Unit

Income (Loss) per Share. The limited partners’ outstanding limited partnership units in the Operating Partnership (which may be redeemed for common stock upon notice from the limited partners and following our election to redeem the units for stock rather than cash) have been excluded from the diluted earnings per share calculation as there would be no effect on the amounts since the limited partners’ share of income would also be added back to net income (loss). The computation of basic and diluted earnings per share is presented below.

	Three months ended March 31, 2014		Three months ended March 31, 2013
	(unaudited)		(unaudited)
Numerator
Net income (loss) attributable to the Company for basic and dilutive computation	$	783,002	$	(2,594,916	)
Denominator
Weighted average number of common shares outstanding		10,225,710		10,080,375
Basic and diluted net income (loss) per share	$	0.08	$	(0.26	)

Income (Loss) Per Unit – The computation of basic and diluted loss per unit is presented below.

	Three months ended March 31, 2014		Three months ended March 31, 2013
	(unaudited)		(unaudited)
Numerator
Net income (loss)	$	1,002,314	$	(3,355,766	)
Denominator
Weighted average number of units outstanding		13,089,837		13,035,992
Basic and diluted net income (loss) per unit	$	0.08	$	(0.26	)

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Investment in Hotel Properties (Tables)

3 Months Ended

Mar. 31, 2014

Real Estate [Abstract]

Schedule of Hotel Properties

Investment in hotel properties as of March 31, 2014 and December 31, 2013 consisted of the following:

	March 31, 2014			December 31, 2013
	(unaudited)
Land and land improvements	$	37,083,998		$	26,956,311
Buildings and improvements		252,101,033			206,101,663
Furniture, fixtures and equipment		35,321,580			29,829,908
		324,506,611			262,887,882
Less: accumulated depreciation and impairment		(62,301,934	)		(60,242,249	)
	$	262,204,677		$	202,645,633

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Retirement Plan - Additional Information (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Compensation And Retirement Disclosure [Abstract]
Employer contribution for first 3% of employee contributions	100.00%
Employer contribution for next 2% of employee contributions	50.00%
Percentage of first specified employee contributions	3.00%
Percentage of next specified employee contributions	2.00%
Contribution for retirement plan	$ 10,087	$ 13,593

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Debt - Schedule of Mortgage Debt Obligations on Hotels (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Debt Instrument [Line Items]
Mortgage loans	$ 206,554,064	$ 160,363,549
Mortgage [Member]
Debt Instrument [Line Items]
Mortgage loans	206,554,064	160,363,549
Crowne Plaza Hampton Marina [Member]
Debt Instrument [Line Items]
Amortization Provisions	16,000
Crowne Plaza Hampton Marina [Member] | Mortgage [Member]
Debt Instrument [Line Items]
Mortgage loans	5,855,500	5,903,500
Prepayment Penalties	None
Maturity Date	Jun. 30, 2014
Amortization Provisions	16,000
Excess Interest rate over LIBOR on mortgage debt	4.55%
Crowne Plaza Houston Downtown [Member] | Mortgage [Member]
Debt Instrument [Line Items]
Mortgage loans	21,308,666	21,428,258
Prepayment Penalties	Yes
Maturity Date	Apr. 12, 2016
Amortization schedule for level payments of principal and interest	25 years
Interest rate applicable to the mortgage loan	4.50%
Crowne Plaza Jacksonville Riverfront [Member] | Mortgage [Member]
Debt Instrument [Line Items]
Mortgage loans	13,656,527	13,756,209
Prepayment Penalties	None
Maturity Date	Jul. 10, 2015
Amortization schedule for level payments of principal and interest	25 years
Excess Interest rate over LIBOR on mortgage debt	3.00%
Double Tree by Hilton Brownstone University [Member] | Mortgage [Member]
Debt Instrument [Line Items]
Mortgage loans	15,465,974	15,525,626
Maturity Date	Aug. 01, 2018
Amortization schedule for level payments of principal and interest	30 years
Interest rate applicable to the mortgage loan	4.78%
Sheraton Louisville Riverside [Member] | Mortgage [Member]
Debt Instrument [Line Items]
Mortgage loans	11,751,564	11,808,806
Maturity Date	Jan. 06, 2017
Amortization schedule for level payments of principal and interest	25 years
Interest rate applicable to the mortgage loan	6.24%
Hilton Philadelphia Airport [Member] | Mortgage [Member]
Debt Instrument [Line Items]
Mortgage loans	34,130,509	28,731,151
Prepayment Penalties	None
Maturity Date	Apr. 01, 2019
Amortization schedule for level payments of principal and interest	25 years
Excess Interest rate over LIBOR on mortgage debt	3.00%
Hilton Savannah DeSoto [Member] | Mortgage [Member]
Debt Instrument [Line Items]
Mortgage loans	21,465,771	21,546,423
Prepayment Penalties	Yes
Maturity Date	Aug. 01, 2017
Amortization schedule for level payments of principal and interest	25 years
Interest rate applicable to the mortgage loan	6.06%
Hilton Wilmington Riverside [Member] | Mortgage [Member]
Debt Instrument [Line Items]
Mortgage loans	20,789,664	20,919,030
Prepayment Penalties	Yes
Maturity Date	Apr. 01, 2017
Amortization schedule for level payments of principal and interest	25 years
Interest rate applicable to the mortgage loan	6.21%
Holiday Inn Laurel West [Member] | Mortgage [Member]
Debt Instrument [Line Items]
Mortgage loans	7,099,558	7,141,845
Prepayment Penalties	Yes
Maturity Date	Aug. 05, 2021
Amortization schedule for level payments of principal and interest	25 years
Interest rate applicable to the mortgage loan	5.25%
Georgian Terrace [Member] | Mortgage [Member]
Debt Instrument [Line Items]
Mortgage loans	41,500,000
Prepayment Penalties	Yes
Maturity Date	Mar. 27, 2017
Amortization schedule for level payments of principal and interest	25 years
Excess Interest rate over LIBOR on mortgage debt	3.75%
Crowne Plaza Tampa Westshore [Member] | Mortgage [Member]
Debt Instrument [Line Items]
Mortgage loans	$ 13,530,331	$ 13,602,701
Prepayment Penalties	None
Maturity Date	Jun. 18, 2017
Amortization schedule for level payments of principal and interest	25 years
Interest rate applicable to the mortgage loan	5.60%

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Consolidated Statements of Changes in Equity (USD $)	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Distributions in Excess of Retained Earnings [Member]	Noncontrolling Interest [Member]
Balances, beginning at Dec. 31, 2013	$ 31,171,379	$ 102,069	$ 57,534,113	$ (32,210,917)	$ 5,746,114
Balances, shares, beginning at Dec. 31, 2013		10,206,927
Issuance of unrestricted common stock awards	147,360	248	147,112
Issuance of unrestricted common stock awards, shares		24,750
Issuance of restricted common stock awards	78,285	120	78,165
Issuance of restricted common stock awards, shares		12,000
Amortization of restricted stock award	4,980		4,980
Dividends and distributions declared	(589,851)			(460,965)	(128,886)
Net income	1,002,314			783,002	219,312
Balances, ending at Mar. 31, 2014	$ 31,814,467	$ 102,437	$ 57,764,370	$ (31,888,880)	$ 5,836,540
Balances, shares, ending at Mar. 31, 2014		10,243,677

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Acquisition of Hotel Properties

3 Months Ended

Mar. 31, 2014

Business Combinations [Abstract]

Acquisition of Hotel Properties

3. Acquisition of Hotel Properties

Georgian Terrace Acquisition. On March 27, 2014, we acquired the 326-room Georgian Terrace in Atlanta, Georgia, for approximately $61.1 million. The preliminary allocation of the purchase price based on fair values is as follows:

	Georgian Terrace
Land and land improvements	$	10,127,687
Buildings and improvements		45,385,939
Furniture, fixtures and equipment		5,163,135
Investment in hotel properties		60,676,761
Restricted cash		124,658
Accounts receivable		465,287
Prepaid expenses, inventory and other assets		430,997
Accounts payable and accrued liabilities		(591,618	)
Net cash	$	61,106,085

The results of operations of the hotel are included in our consolidated financial statements from the date of acquisition. The total revenue and net loss related to the acquisition for the period March 27, 2014 to March 31, 2014 are approximately $333,000 and $172,000, respectively. The following pro forma financial information presents the results of operations of the Company and the Operating Partnership for the three months ended March 31, 2014 and 2013 as if the acquisitions of the Georgian Terrace and the Crown Plaza Houston Downtown had taken place on January 1, 2013. The pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which would have actually occurred had the transaction taken place on January 1, 2013, or of future results of operations:

	Three months ended
	March 31, 2014		March 31, 2013
	(unaudited)		(unaudited)
Pro forma revenues	$	29,781,052	$	28,456,030
Pro forma operating expenses		26,644,824		26,150,225
Pro forma operating income		3,136,228		2,305,805
Pro forma net income (loss)		268,146		(3,302,747	)
Pro forma earnings (loss) per basic and diluted share and unit		0.03		(0.33	)
Pro forma basic and diluted common shares		10,225,710		10,080,375

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Subsequent Events - Additional Information (Detail) (USD $)	0 Months Ended			3 Months Ended	0 Months Ended
	Dec. 23, 2013	Oct. 23, 2013	Apr. 02, 2013	Mar. 31, 2014	Apr. 21, 2014 Subsequent Event [Member]	Apr. 11, 2014 Subsequent Event [Member]	Apr. 01, 2014 Subsequent Event [Member] Holder
Subsequent Event [Line Items]
Operating Partnership units redeemed	1,000,000	900,000	10,000	0			110,000
Number of unit holders in Operating Partnership							2
Dividend paid						$ 0.045
Dividend record date					Jun. 13, 2014	Mar. 14, 2014
Dividend distributed					$ 0.050
Dividend payment date					Jul. 11, 2014

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Debt (Tables)

3 Months Ended

Mar. 31, 2014

Debt Disclosure [Abstract]

Schedule of Mortgage Debt Obligations on Hotels

The following table sets forth our mortgage debt obligations on our hotels.

	Balance Outstanding as of				Prepayment Penalties	Maturity Date			Amortization Provisions			Interest Rate
Property	March 31, 2014		December 31, 2013
Crowne Plaza Hampton Marina	$	5,855,500	$	5,903,500	None		06/30/2014	(1)	$	16,000	(2)		LIBOR plus 4.55	%(3)
Crowne Plaza Houston Downtown		21,308,666		21,428,258	Yes(4)		04/12/2016	(5)		25 years			4.50	%
Crowne Plaza Jacksonville Riverfront		13,656,527		13,756,209	None		07/10/2015	(6)		25 years			LIBOR plus 3.00	%
Crowne Plaza Tampa Westshore		13,530,331		13,602,701	None		06/18/2017			25 years			5.60	%
DoubleTree by Hilton Brownstone – University		15,465,974		15,525,626	(7)		08/01/2018			30 years			4.78	%
Georgian Terrace		41,500,000		—	Yes(8)		03/27/2017	(14)		25 years			LIBOR plus 3.75	%(13)
Hilton Philadelphia Airport		34,130,509		28,731,151	None		04/01/2019			25 years			LIBOR plus 3.00	%(9)
Hilton Savannah DeSoto		21,465,771		21,546,423	Yes(10)		08/01/2017			25 years			6.06	%
Hilton Wilmington Riverside		20,789,664		20,919,030	Yes(10)		04/01/2017			25 years			6.21	%
Holiday Inn Laurel West		7,099,558		7,141,845	Yes(11)		08/05/2021			25 years			5.25	%(12)
Sheraton Louisville Riverside		11,751,564		11,808,806	(7)		01/06/2017			25 years			6.24	%
Total	$	206,554,064	$	160,363,549

(1) The note provides that the mortgage can be extended until June 2015 if certain conditions have been satisfied.

(2) The Operating Partnership is required to make monthly principal payments of $16,000.

(3) The note bears a minimum interest rate of 5.00%.

(4) The note may not be prepaid during the first two years of the term.

(5) The note provides that the mortgage can be extended until November 2018 if certain conditions have been satisfied.

(6) The note provides that the mortgage can be extended until July 2016 if certain conditions have been satisfied.

(7) With limited exception, the note may not be prepaid until two months before maturity.

(8) The note is subject to a prepayment penalty if the loan is prepaid in full or in part prior to March 26, 2015.

(9) The note bears a minimum interest rate of 3.50%.

(10) The notes may not be prepaid during the first six years of the terms. Prepayment can be made with penalty thereafter until 90 days before maturity.

(11) Pre-payment can be made with penalty until 180 days before the fifth anniversary of the commencement date of the loan or from such date until 180 days before the maturity.

(12) The note provides that after five years, the rate of interest will adjust to a rate of 3.00% per annum plus the then-current five-year U.S. Treasury rate of interest, with a floor of 5.25%.

(13) The note bears a minimum interest rate of 4.00%.

(14) The note provides that the mortgage can be extended through the fourth and fifth anniversary of the commencement date of the loan, or March 27, 2018 and March 27, 2019, respectively, subject to certain conditions.

Schedule of Future Mortgage Debt Maturities

Total future mortgage debt maturities, without respect to any extension of loan maturity, as of March 31, 2014 were as follows:

The remaining nine month period ending December 31, 2014	$	8,671,252
December 31, 2015		17,441,142
December 31, 2016		24,401,632
December 31, 2017		104,801,938
December 31, 2018		15,850,414
December 31, 2019 and thereafter		35,387,686
Total future maturities	$	206,554,064

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Acquisition of Hotel Properties - Pro Forma Results Prepared for Comparative Purposes (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Business Combinations [Abstract]
Pro forma revenues	$ 29,781,052	$ 28,456,030
Pro forma operating expenses	26,644,824	26,150,225
Pro forma operating income	3,136,228	2,305,805
Pro forma net income (loss)	$ 268,146	$ (3,302,747)
Pro forma earnings (loss) per basic and diluted share and unit	$ 0.03	$ (0.33)
Pro forma basic and diluted common shares	10,225,710	10,080,375

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Income Taxes

3 Months Ended

Mar. 31, 2014

Income Tax Disclosure [Abstract]

Income Taxes

13. Income Taxes

The components of the income tax provision for the three months ended March 31, 2014 and 2013 are as follows:

	Three months ended March 31, 2014			Three months ended March 31, 2013
	(unaudited)			(unaudited)
Current:
Federal	$	—		$	33,101
State		23,000			813
		23,000			33,914
Deferred:
Federal		(732,189	)		125,786
State		(26,130	)		103,355
		(758,319	)		229,141
	$	(735,319	)	$	263,055

A reconciliation of the statutory federal income tax (benefit) provision to the Company’s income tax provision is as follows:

	Three months ended March 31, 2014			Three months ended March 31, 2013
	(unaudited)			(unaudited)
Statutory federal income tax expense (benefit)	$	90,778		$	(1,051,522	)
Effect of non-taxable REIT (income) loss		(822,967	)		1,210,409
State income tax (benefit) provision		(3,130	)		104,168
	$	(735,319	)	$	263,055

As of March 31, 2014 and December 31, 2013, we had a net deferred tax asset of approximately $1.9 million and $1.2 million, respectively, of which, approximately $1.4 million and $0.7 million, respectively, are due to accumulated net operating losses. These loss carryforwards will begin to expire in 2028 if not utilized by such time. As of each March 31, 2014 and December 31, 2013, approximately $0.3 million of the net deferred tax asset is attributable to our share of start-up expenses related to the Crowne Plaza Hollywood Beach Resort, start-up expenses related to the opening of the Sheraton Louisville Riverside and the Crowne Plaza Tampa Westshore that were not deductible in the year incurred, but are being amortized over 15 years. The remainder of the net deferred tax asset is attributable to year-to-year timing differences including accrued, but not deductible, employee performance awards, vacation and sick pay, bad debt allowance and depreciation. We believe that it is more likely than not that the deferred tax asset will be realized and that no valuation allowance is required.