Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis ofFinancial Condition and Results of Operations

Cautionary Statement Regarding 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, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our current strategies, expectations, and future plans, are generally identified by our use of words, such as "intend," "plan," "may," "should," "will," "project," "estimate," "anticipate," "believe," "expect," "continue," "potential," "opportunity," and similar expressions, whether in the negative or affirmative, but the absence of these words does not necessarily mean that a statement is not forward-looking. All statements regarding our expected financial position, business and financing plans are forward-looking statements.

Factors which could have a material adverse effect on the Company's future operations, results, performance and prospects include, but are not limited to:

Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore there can be no assurance that such statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the results or conditions described in such statements or the objectives and plans of the Company will be achieved.

Additional factors that could cause actual results to vary from our forward-looking statements are set forth under the section titled "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2024.

These risks and uncertainties should be considered in evaluating any forward-looking statement contained in this report or incorporated by reference herein. These factors should not be construed as exhaustive and should be read in conjunction with the other forward-looking statements. 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.

Overview

Sotherly Hotels Inc. is a self-managed and self-administered lodging REIT incorporated in Maryland in August 2004 and focused on the acquisition, renovation, up-branding and repositioning of upscale to upper-upscale full-service hotels in the southern United States. Sotherly may also opportunistically acquire hotels throughout the 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. We commenced operations in December 2004 when we completed our initial public offering and thereafter consummated the acquisition of the Initial Properties.

Our hotel portfolio currently consists of ten full-service, primarily upscale and upper-upscale hotels, comprising 2,786 rooms, as well as interests in two condominium hotels and their associated rental programs. The Company owns hotels that operate under well-known brands such as DoubleTree by Hilton, Tapestry Collection by Hilton, and Hyatt Centric, as well as independent hotels. We sometimes refer to our independent and soft-branded properties as our collection of boutique hotels. As of September 30, 2025, our portfolio consisted of the following hotel properties:

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 99.9% interest in our Operating Partnership, as of the date of this report, with the remaining interest currently held by one other limited partner.

To qualify as a REIT, neither the Company nor the Operating Partnership can operate our hotels. Therefore, our wholly-owned hotel properties are leased to our MHI TRS Entities, which are indirect wholly-owned subsidiaries of the Operating Partnership. Our MHI TRS Entities then engage an eligible independent hotel management company to operate the hotels under a management agreement. Our MHI TRS Entities have engaged Our Town to manage our hotels. Our MHI TRS Entities, and their parent, MHI Hospitality TRS Holding, Inc., are consolidated into each of our financial statements for accounting purposes. The earnings of MHI Hospitality TRS Holding, Inc. are subject to taxation similar to other C corporations.

Outlook

The current state of the U.S. lodging market, including the outlook for both the remainder of 2025 and 2026, includes the potential for continued near-term deceleration of demand for hotel rooms, which could impact the profitability of the Company's hotels.

Agreement and Plan of Merger

On October 24, 2025, the Company, KW Kingfisher LLC, a Delaware limited liability company ("Parent"), and Sparrows Nest LLC, a Maryland limited liability company ("Merger Sub," together with the Parent, "Parent Parties"), entered into an Agreement and Plan of Merger (the "Merger Agreement"). The Merger Agreement provides that Merger Sub will be merged with and into the Company, with the Company continuing as the surviving entity in such merger (the "Merger," and such surviving entity, the "Surviving Company"). Upon completion of the Merger, the Surviving Company will survive as a wholly owned subsidiary of Parent, the separate existence of the Merger Sub will cease, and the Operating Partnership will become an indirect subsidiary of Parent. Defined terms used herein but not defined shall have the meaning set forth in the Merger Agreement.

Merger Consideration.At the effective time of the Merger (the "Effective Time"), (A) each share of common stock, par value $0.01 per share, of the Company (the "Company Common Stock") issued and outstanding immediately before the Effective Time (other than Cancelled Shares) will be automatically converted into the right to receive an amount in cash equal to $2.25 per share, without interest (the "Per Company Share Merger Consideration," and in the aggregate, the "Merger Consideration"); (B) each share of the Company's 8.0% Series B Cumulative Redeemable Perpetual Preferred Stock, 7.875% Series C Cumulative Redeemable Perpetual Preferred Stock, and 8.25% Series D Cumulative Redeemable Perpetual Preferred Stock (collectively, the "Company Preferred Stock") issued and outstanding immediately before the Effective Time shall be entitled to receive the Merger Consideration if the holder thereof elects to convert, subject to the terms and conditions contained in the Company's charter (including any articles supplementary) (the "Charter"), including the share cap as defined therein, their respective shares of Company Preferred Stock into Company Common Stock after the closing of the Merger, and (C) the Company shall offer to purchase the Limited Partnership Interests held by the limited partners (other than the Company) for the same per share Merger Consideration that each share of Company Common Stock receives pursuant to the Merger Agreement, simultaneously with the Closing of the Merger (the "Limited Partner Compensation") in accordance with the Operating Partnership's Partnership Agreement.

Notwithstanding the foregoing, each issued and outstanding share of Company Common Stock held by Parent or the Company or any of their respective direct or indirect wholly owned subsidiaries immediately before the Effective Time, if any, will automatically be cancelled and retired and will cease to exist, and no consideration will be delivered in exchange therefor. If not converted, each share of the Company Preferred Stock shall be unaffected by the Merger and will remain outstanding in accordance with their respective terms.

Restrictions Pursuant to the Merger Agreement. Pursuant to the terms of the Merger Agreement, the Company agreed to certain capital restrictions as we conduct our business until the closing of the Merger Agreement, which include, but are not limited to:

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:

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, room supplies, franchise fees, management fees, credit card commissions and reservations expense), 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.

When calculating composite portfolio metrics, we include available rooms at the Lyfe Resort & Residences and the Hyde Beach House Resort & Residences that participate in our rental programs and are not reserved for owner-occupancy.

We also use FFO, Adjusted FFO and Hotel EBITDA as measures of our operating performance. See "Non-GAAP Financial Measures."

Results of Operations

The following tables illustrate the key operating metrics for the three and nine months ended September 30, 2025 and 2024, respectively, for the Company's wholly-owned properties ("actual" portfolio metrics). Accordingly, the actual data does not include the participating condominium hotel rooms of the Lyfe Resort & Residences and the Hyde Beach House Resort & Residences. The composite portfolio metrics represent the Company's wholly-owned properties and the participating condominium hotel rooms at the Lyfe Resort & Residences and the Hyde Beach House Resort & Residences, during the three and nine months ended September 30, 2025 and 2024.

Comparison of the Three Months Ended September 30, 2025, to the Three Months Ended September 30, 2024

Revenue. Total revenue for the three months ended September 30, 2025, decreased by approximately $2.7 million, or 6.6%, to approximately $38.0 million compared to total revenue of approximately $40.7 million for the three months ended September 30, 2024. Total revenue decreased at each of our wholly-owned properties with the exception of the DoubleTree by Hilton Laurel.

Rooms revenue decreased approximately $2.0 million, or 7.3%, to approximately $25.2 million for the three months ended September 30, 2025, compared to rooms revenue of approximately $27.2 million for the three months ended September 30, 2024. RevPAR decreased 7.3% from $105.98 for the three month period in 2024, to $98.23 for the three month period in 2025, driven by a 5.9% decrease in occupancy and a 1.5% decrease in ADR. Rooms revenue decreased at each of our wholly-owned properties with the exception of the DoubleTree by Hilton Laurel and the Georgian Terrace.

Food and beverage revenues decreased approximately $0.5 million, or 6.7%, to approximately $7.2 million for the three months ended September 30, 2025 compared to food and beverage revenues of approximately $7.8 million for the three months ended September 30, 2024. Food and beverage revenue decreased at each of our wholly-owned properties with the exception of the DoubleTree by Hilton Laurel and The DeSoto.

Revenue from other operating departments decreased approximately $0.2 million, or 3.2%, to approximately $5.6 million for the three months ended September 30, 2025 compared to revenue from other operating departments of approximately $5.8 million for the three months ended September 30, 2024. Decreases in fees earned from management of the condominium unit rental programs at the Lyfe Resort and Hyde Beach House properties as well as lower parking revenue accounted for most of the decrease.

Hotel Operating Expenses. Hotel operating expenses, which consist of room expenses, food and beverage expenses, other direct expenses, indirect expenses and management fees, decreased approximately $1.4 million, or 4.3%, to approximately $31.2 million for the three months ended September 30, 2025, compared to total hotel operating expenses of approximately $32.6 million for the three months ended September 30, 2024. The decrease in hotel operating expenses for the three months ended September 30, 2025 was directly related to the decrease in room revenues and food and beverage revenues at most of our hotels and lower indirect expenses as described below.

Rooms expense for the three months ended September 30, 2025 decreased by approximately $0.1 million, or 1.2%, to approximately $6.5 million, compared to rooms expense for the three months ended September 30, 2024 of approximately $6.6 million. The decrease was directly related to the decrease in room revenue.

Food and beverage expenses for the three months ended September 30, 2025 decreased approximately $0.1 million, or 2.1%, to approximately $5.7 million, compared to food and beverage expenses of approximately $5.8 million, for the three months ended September 30, 2024. The decrease was directly related to the decrease in food and beverage revenue.

Expenses from other operating departments for the three months ended September 30, 2025 decreased approximately $0.2 million, or 9.2%, to approximately $2.1 million, compared to expenses from other operating departments of approximately $2.3 million for the three months ended September 30, 2024.

Indirect expenses at our wholly-owned properties for the three months ended September 30, 2025 decreased approximately $1.0 million, or 5.4%, to approximately $16.9 million, compared to indirect expenses of approximately $17.9 million for the three months ended September 30, 2024. Increases of approximately $0.2 million in energy & utilities and property taxes were offset by decreases in insurance, repairs and maintenance, management fees, franchise fees and general and administrative expenses of approximately $1.2 million.

Corporate General and Administrative.Corporate general and administrative expenses for the three months ended September 30, 2025, decreased approximately $0.1 million, or 5.8%, to approximately $1.4 million compared to corporate general and administrative expenses of approximately $1.5 million, for the three months ended September 30, 2024. The decrease was primarily attributable to lower personnel costs and professional fees during the period.

Interest Expense. Interest expense for the three months ended September 30, 2025, increased approximately $0.3 million, or 4.3%, to approximately $5.6 million, as compared to interest expense of approximately $5.3 million, for the three months ended September 30, 2024. The increase in interest expense for the three months ended September 30, 2025, was primarily related to an increase of approximately $0.3 million in interest expense from the Hyatt Centric Arlington property's ground lease which we began accounting for as a finance lease effective September 1, 2024.

Net Loss. We realized net loss for the three months ended September 30, 2025, of approximately $5.6 million, compared to a net loss of approximately $3.7 million, for the three months ended September 30, 2024, because of the operating results discussed above.

Comparison of the Nine Months Ended September 30, 2025, to the Nine Months Ended September 30, 2024

Revenue. Total revenue for the nine months ended September 30, 2025, decreased by approximately $2.8 million, or 2.0%, to approximately $135.1 million compared to total revenue of approximately $137.9 million for the nine months ended September 30, 2024. Increases of approximately $1.2 million in total revenue at four of our properties were offset by a decrease of $4.0 million at our remaining properties.

Rooms revenue decreased approximately $2.5 million, or 2.7%, to approximately $89.0 million for the nine months ended September 30, 2025, compared to rooms revenue of approximately $91.5 million for the nine months ended September 30, 2024. RevPAR for the nine month period decreased 2.3% from $119.84 in 2024, to $117.04 in 2025, driven by a 1.4% decrease in occupancy and a 1.0% decrease in ADR. Increases in room revenue at three of our wholly-owned properties were driven by increases in small group

and corporate business travel demand and offset room revenue decreases at the remaining seven wholly-owned properties.

Food and beverage revenues decreased approximately $0.4 million, or 1.5%, to approximately $27.0 million for the nine months ended September 30, 2025, compared to food and beverage revenue of approximately $27.4 million for the nine months ended September 30, 2024. Increases in banqueting and catering for small groups and meetings at four of our wholly-owned properties were offset by decreases at the remaining six wholly-owned properties.

Revenue from other operating departments increased by approximately $0.1 million, or 0.3%, to approximately $19.1 million for the nine months ended September 30, 2025 compared to revenue from other operating departments of approximately $19.0 million for the nine months ended September 30, 2024. An increase of approximately $0.7 million related to proceeds of business interruption insurance related to the ongoing effects from the casualty experienced at the Hotel Alba in Tampa, Florida from Hurricane Helene in September 2024 was offset by decreases in parking revenue and fees earned from management of the condominium unit rental programs at the Lyfe Resort and Hyde Beach House properties.

Hotel Operating Expenses. Hotel operating expenses, which consist of room expenses, food and beverage expenses, other direct expenses, indirect expenses and management fees, decreased approximately $0.3 million, or 0.3%, to approximately $101.5 million for the nine months ended September 30, 2025, compared to total hotel operating expenses of approximately $101.8 million for the nine months ended September 30, 2024. The decrease in hotel operating expenses for the nine months ended September 30, 2025, was directly related to the decreases in operating revenues.

Rooms expense for the nine months ended September 30, 2025 decreased by approximately $0.2 million, or 1.0%, to approximately $20.4 million, compared to rooms expense for the nine months ended September 30, 2024 of approximately $20.6 million. The decrease was directly related to the decrease in room revenue.

Food and beverage expenses for the nine months ended September 30, 2025 increased approximately $0.4 million, or 2.1%, to approximately $19.2 million, compared to food and beverage expenses of approximately $18.8 million, for the nine months ended September 30, 2024. The net increase in food and beverage expenses was primarily due to increases in fixed kitchen and restaurant costs.

Expenses from other operating departments for the nine months ended September 30, 2025 decreased approximately $0.3 million or 4.6%, to approximately $7.2 million, compared to other operating departments expense for the nine months ended September 30, 2024, of approximately $7.5 million. The decrease was directly related to the decrease in other departments revenue, excluding the proceeds of business interruption insurance.

Indirect expenses at our wholly-owned properties for the nine months ended September 30, 2025 decreased approximately $0.1 million, or 0.2%, to approximately $54.8 million, compared to indirect expenses of approximately $54.9 million for the nine months ended September 30, 2024. Increases of approximately $0.9 million in energy & utilities, property taxes and sales and marketing expenses were offset by decreases in insurance, repairs and maintenance, management fees, franchise fees and general and administrative expenses of approximately $1.0 million.

Corporate General and Administrative.Corporate general and administrative expenses for the nine months ended September 30, 2025 increased approximately $0.6 million, or 12.2%, to approximately $5.6 million compared to corporate general and administrative expenses of approximately $5.0 million, for the nine months ended September 30, 2024. The increase was primarily attributable to increased legal fees during the period.

Interest Expense. Interest expense for the nine months ended September 30, 2025 increased approximately $1.3 million, or 8.4%, to approximately $16.5 million, as compared to interest expense of approximately $15.2 million, for the nine months ended September 30, 2024. The increase in interest expense for the nine months ended September 30, 2025 was substantially related to an increase of approximately $1.2 million in interest expense from the Hyatt Centric Arlington property's ground lease which we began accounting for as a finance lease effective September 1, 2024.

Realized Gain on Hedging Activities. The realized gain on hedging activities of approximately $1.0 million during the nine months ended September 30, 2024 related to termination of an interest rate swap tied to the mortgage on the Hotel Alba in Tampa, Florida.

Gain on Involuntary Conversion of Assets.Gain on involuntary conversion of assets of approximately $3.9 million for the nine months ended September 30, 2025 primarily relates to the proceeds received for the casualty experienced at the Hotel Alba in Tampa, Florida from Hurricane Helene in September 2024. Gain on involuntary conversion of assets for the nine months ended September 30, 2024 primarily relates to small casualties in 2023 at the DoubleTree Resort by Hilton Hollywood Beach.

Net Income. We realized net income for the nine months ended September 30, 2025 of approximately $0.7 million, compared to net income of approximately $2.3 million, for the nine months ended September 30, 2024, because of the operating results discussed above.

Non-GAAP Financial Measures

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

FFO and Adjusted FFO. Industry analysts and investors use Funds from Operations ("FFO"), as a supplemental operating performance measure of an equity REIT. FFO is calculated in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"). FFO, as defined by NAREIT, represents net income or loss determined in accordance with GAAP, excluding extraordinary items as defined under GAAP and gains or losses from sales of previously depreciated operating real estate assets, gains or losses from involuntary conversions of assets, plus certain non-cash items such as real estate asset depreciation and amortization or impairment, stock compensation costs and after adjustment for any noncontrolling interest from unconsolidated partnerships and joint ventures. 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 Attributable to Common Stockholders and Unitholders for certain additional items that are not in NAREIT's definition of FFO, including changes in deferred income taxes, any unrealized gain (loss) on hedging instruments, losses on early extinguishment of debt, gains on extinguishment of preferred stock, aborted offering costs, loan modification fees, franchise termination costs, costs associated with the departure of executive officers, litigation settlement, management contract termination costs, operating asset depreciation and amortization, gain or loss on a change in control, ESOP and stock compensation expenses and negative lease amortization on our finance ground lease obligation. We exclude these items as we believe it allows for meaningful comparisons between

periods and among other REITs and is more indicative than FFO 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 income to FFO and Adjusted FFO, for the three and nine months ended September 30, 2025 and 2024:

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

Hotel EBITDA and Hotel EBITDA Margin. We define Hotel EBITDA as net income or loss excluding: (1) interest expense, (2) interest income, (3) income tax provision or benefit, (4) depreciation and amortization, (5) impairment of long-lived assets or investments,

(6) gains and losses on disposal and/or sale of assets, (7) gains and losses on involuntary conversions of assets, (8) realized and unrealized gains and losses on derivative instruments not included in other comprehensive income, (9) other income at the properties, (10) loss on early extinguishment of debt, (11) Paycheck Protection Program (PPP) debt forgiveness, (12) gain on exercise of development right, (13) corporate general and administrative expense, and (14) other income. We believe this provides a more complete understanding of the operating results over which our wholly-owned hotels and our 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. Hotel EBITDA Margin is calculated by dividing Hotel EBITDA by Total Revenues.

The following is a reconciliation of net income to EBITDA and Hotel EBITDA for the three and nine months ended September 30, 2025 and 2024:

Sources and Uses of Cash

Our principal sources of cash are cash from hotel operations, proceeds from the sale of common and preferred stock, proceeds from the sale of secured and unsecured notes, proceeds of mortgage and other debt and sales of hotel properties or portions thereof. Our principal uses of cash are acquisitions of hotel properties, capital expenditures, debt service and balloon maturities, operating costs, corporate expenses and dividends. As of September 30, 2025, we had approximately $9.4 million of unrestricted cash and $20.2 million of restricted cash.

Operating Activities. Our net cash flow provided by operating activities for the nine months ended September 30, 2025, was approximately $9.8 million, generally consisting of net cash flow provided by hotel operations. Cash used in or provided by operating activities generally consists of the cash flow from hotel operations, offset by the interest portion of our debt service, corporate expenses and positive or negative changes in working capital.

Investing Activities.Our cash used in investing activities for the nine months ended September 30, 2025, was approximately $7.5 million. Of this amount approximately $11.5 million was related to capital expenditures for improvements and additions to hotel properties. We also received insurance proceeds of approximately $4.0 million related to damage sustained by the Hotel Alba in Tampa, Florida by Hurricane Helene in September 2024.

Financing Activities. During the nine months ended September 30, 2025, the Company and Operating Partnership received gross proceeds of $42.0 million related to the refinance of the mortgage on The DeSoto in Savannah, Georgia and made principal payments on our mortgages of approximately $38.0 million including satisfaction of the indebtedness on The DeSoto at the time of refinance. We also made payments on our unsecured notes of approximately $0.6 million and paid preferred dividends of approximately $4.0 million.

Capital Expenditures

We intend to maintain all our hotels, including any hotel we acquire in the future, in good repair and condition, in conformity with applicable laws and regulations and, when applicable, with franchisor's standards. Routine capital improvements are determined through the annual budget process over which we maintain approval rights, and which are implemented or administered by our management company.

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. For 2025, we expect total capital expenditures for the routine replacement and refurbishment of furniture, fixtures and equipment to be approximately $7.3 million.

We expect a substantial portion of our capital expenditures for the routine 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 deposit an amount equal to 4.0% of gross revenue for The DeSoto, the Hotel Ballast Wilmington, Tapestry Collection by Hilton, the Hotel Alba Tampa, Tapestry Collection by Hilton, the DoubleTree Resort by Hilton Hollywood Beach, the DoubleTree by Hilton Laurel, The Whitehall and the Georgian Terrace as well as 4.0% of room revenues for the DoubleTree by Hilton Philadelphia Airport and the Hyatt Centric Arlington on a monthly basis.

From time to time, certain of our hotel properties may undergo renovations as a result of our decision to upgrade portions of the hotel, such as guestrooms, meeting space and restaurants, in order to better compete with other hotels in our markets. In addition, we may be required by one or more of our franchisors to complete a PIP in order to bring the hotel up to the franchisor's standards. Generally, we expect to fund renovations and improvements out of working capital, including replacement reserve accounts, proceeds of mortgage debt or equity offerings.

During fiscal years 2025 and 2026, we expect total capital expenditures related to the renovation of our property in Philadelphia, Pennsylvania of approximately $11.5 million as a condition to the renewal of our franchise license. On April 29, 2024, coincident with the extension of the mortgage loan, we placed $5.0 million into a reserve account to partially fund the renovation. In addition, provided we meet certain financial covenants, we expect the release of $1.2 million of other reserves in additional funding. We expect to fund the remainder of the capital expenditures out of working capital. As of September 30, 2025, we had incurred costs totaling approximately $4.7 million.

During fiscal years 2025 and 2026, we expect total capital expenditures related to the renovation of our property in Jacksonville, Florida of approximately $14.6 million, as a condition to the renewal of our franchise license. On July 8, 2024, in conjunction with the refinance of the mortgage with Fifth Third Bank, N.A., we secured additional funding of $9.49 million to partially fund the product improvement plan. We expect to fund the remainder of the capital expenditures out of working capital. As of September 30, 2025, we had incurred costs totaling approximately $2.1 million.

Liquidity and Capital Resources

As of September 30, 2025, we had total cash and cash equivalents of approximately $9.4 million and restricted cash of approximately $20.2 million. We expect that our cash on hand combined with our cash flow from our hotels should be adequate to fund continuing operations, routine capital expenditures for the refurbishment and replacement of furniture, fixtures and equipment, and monthly scheduled payments of principal and interest (excluding any balloon payments due upon maturity of our mortgage debt). As described in Note 2 to the Notes to Consolidated Financial Statements and set forth elsewhere in this report, we have mortgages maturing during 2025 with balances at maturity totaling approximately $87.3 million and mortgages maturing in 2026 with balances at maturity totaling approximately $68.4 million which we will be unable to repay out of working capital. Our plans with respect to some of the maturing indebtedness are described below.

On February 7, 2024, we secured a $35.0 million mortgage on the Hotel Alba located in Tampa, Florida with Citi Real Estate Funding, Inc. The loan has a maturity date of March 6, 2029; carries a fixed rate of interest of 8.49%, requires monthly payments of interest only; and cannot be prepaid without penalty until the last four months of the loan term. We used a portion of the proceeds to repay the existing first mortgage on the hotel. The remainder of the proceeds were used for working capital.

On April 29, 2024, we amended the mortgage loan agreement on the DoubleTree by Hilton Philadelphia Airport with the existing lender, TD Bank, N.A. The amendment extends the loan's maturity to April 29, 2026; requires payments of interest only at existing terms of interest at a floating rate based on SOFR plus 3.50%; and required a principal reduction of $3.0 million. Existing reserves were

increased by $2.0 million and a separate reserve of $5.0 million was established for the anticipated renovation of the property in conjunction with the renewal of the franchise license.

On July 8, 2024, we secured a $26.25 million mortgage loan on the DoubleTree by Hilton Jacksonville Riverfront hotel located in Jacksonville, Florida with Fifth Third Bank, N.A. The loan provides for an additional $9.49 million available to fund a product improvement plan at the hotel; matures on July 8, 2029; and requires monthly payments of interest at a floating interest rate of SOFR plus 3.00% plus principal of $38,700. Proceeds of the loan were used to repay the existing mortgage.

On August 14, 2024, we secured a $5.0 million second mortgage loan on The DeSoto hotel located in Savannah, Georgia with MONY Life Insurance Company. The loan has a maturity date of July 1, 2026 and requires level payments of principal and interest at a fixed interest rate of 7.50% and amortizing on a 25-year schedule. Proceeds of the loan were used for working capital.

On September 12, 2025, we secured a $42.0 million mortgage loan on The DeSoto hotel located in Savannah, Georgia with Citi Real Estate Funding Inc. The loan has a maturity date of October 6, 2030, carries a fixed rate of interest of 7.13% and requires monthly payments of interest only; and cannot be prepaid without penalty until the last four months of the loan term. We used a portion of the proceeds to repay the existing first and second mortgages on the hotel. The remainder of the proceeds were used for working capital.

As of the date of this report, we were current on all mortgage and other loan payments per the terms of our agreements, as amended, with the exception of a payment at maturity default on the mortgage on The Georgian Terrace in Atlanta, Georgia which matured on June 1, 2025 as well as the DoubleTree Resort by Hilton Hollywood Beach in Hollywood, Florida which matured on October 1, 2025. We have requested a 1-year extension from the special servicer for the mortgage on The Georgian Terrace. We have requested an extension from the special servicer for the mortgage on the DoubleTree Resort by Hilton Hollywood Beach as well.

As of the date of this report, we were in compliance with all debt covenants with the exception of the financial covenant on the mortgage on the DoubleTree by Hilton Jacksonville Riverfront. We have requested a waiver from the mortgage lender.

Additionally, the mortgage on the DoubleTree by Hilton Philadelphia Airport matures on April 29, 2026 and the mortgage on the Hotel Ballast in Wilmington, North Carolina matures on January 1, 2027.

On October 24, 2025, we entered into a Merger Agreement with a joint venture entity sponsored by affiliates of Kemmons Wilson Hospitality Partners, LP and Ascendant Capital Partners LP. Concurrent with the closing of the Merger, we anticipate that the debt financing commitments obtained by the joint venture will be adequate to extinguish the mortgages on The Georgian Terrace, DoubleTree Resort by Hilton Hollywood Beach, the DoubleTree by Hilton Jacksonville Riverfront, the DoubleTree by Hilton Philadelphia Airport and the Hotel Ballast.

We intend to continue to invest in hotel properties as suitable opportunities arise. The success of our acquisition strategy depends, in part, on our ability to access additional capital through other sources, which we expect to be limited due to the demands of upcoming maturities and franchise-mandated product improvement plans on our liquidity in the near term. There can be no assurance that we will continue to make investments in properties that meet our investment criteria or have access to capital during this period. Additionally, we may choose to dispose of certain hotels as a means to provide liquidity.

Over the long term, we expect to meet our liquidity requirements for hotel property acquisitions, property redevelopment, investments in new joint ventures and debt maturities, and the retirement of maturing mortgage debt, through net proceeds from additional issuances of common shares, additional issuances of preferred shares, issuances of units of limited partnership interest in our Operating Partnership, secured and unsecured borrowings, the selective disposition of non-core assets, and cash on hand. We remain committed to a flexible capital structure and strive to maintain prudent debt leverage.

Financial Covenants

Mortgage Loans

Our mortgage loan agreements contain various financial covenants directly related to the financial performance of the collateralized properties. Failure to comply with these financial covenants could result from, among other things, changes in the local competitive environment, disruption caused by renovation activity, major weather disturbances as well as general economic conditions.

As described in "Liquidity and Capital Resources," as of September 30, 2025, we were in compliance with all debt covenants, current on all loan payments and not otherwise in default under any of our mortgage loans, with the exception of (i) a payment at maturity default on the mortgage on the Georgian Terrace; (ii) an imminent payment at maturity default on the mortgage on the DoubleTree Resort

by Hilton Hollywood Beach that occurred on October 1, 2025; and (iii) a covenant default on the DoubleTree by Hilton Jacksonville Riverfront.

Certain of our loan agreements contain "cash trap" provisions that may be triggered if the performance of our hotels declines below a certain threshold. Beginning with the quarter ended September 30, 2023, we met the provisions under the mortgage secured by the DoubleTree Resort by Hilton Hollywood Beach, which require substantially all the revenue generated by the hotel to be deposited directly into a lockbox account and swept into a cash management account for the benefit of the lender. Although we met the criteria in the loan agreement for exiting the "cash trap" effective with the quarter ended June 30, 2025, we remain in the "cash trap" due to the payment at maturity default. We also entered a "cash trap" with respect to The Georgian Terrace in August 2025 due to the payment at maturity default.

Dividend Policy

We may not make distributions with respect to any shares of our common stock, unless and until full cumulative distributions on the outstanding preferred stock for all past unpaid periods are paid or declared and a sum sufficient for the payment thereof in cash is set aside.

On January 30, 2024, we announced the declaration of a quarterly distribution to holders of our preferred stock with a record date of February 29, 2024 and a payment date of March 15, 2024.

On April 30, 2024, we announced the declaration of a quarterly distribution to holders of our preferred stock with a record date of May 31, 2024 and a payment date of June 17, 2024.

On July 30, 2024, we announced the declaration of a quarterly distribution to holders of our preferred stock with a record date of August 30, 2024 and a payment date of September 16, 2024.

On October 29, 2024, we announced the declaration of a quarterly distribution to holders of our preferred stock with a record date of November 29, 2024 and a payment date of December 16, 2024.

On January 28, 2025, we announced the declaration of a quarterly distribution to holders of our preferred stock with a record date of February 28, 2025 and a payment date of March 14, 2025.

On April 29, 2025, we announced the declaration of a quarterly distribution to holders of our preferred stock with a record date of May 30, 2025 and a payment date of June 16, 2025.

On July 24, 2025, we announced the declaration of a quarterly distribution to holders of our preferred stock with a record date of October 31, 2025 and a payment date of November 20, 2025. On October 27, 2025, we approved the deferral of payment of this previously announced distribution to holders of our preferred stock. In connection with that payment deferral, the October 31, 2025 record date for each of those series of preferred stock has been cancelled. The Company is also suspending future preferred stock dividends.

As of September 30, 2025, the amount of cumulative unpaid dividends on our outstanding preferred shares is approximately $21.9 million. We expect that any reduction in the level of cumulative unpaid distributions will be made in the form of a series of "catch up" distributions. The amount, timing and frequency of distributions, including additional "catch-up" distributions, will be authorized by our board of directors and based upon a variety of factors deemed relevant by the directors. No assurance can be given that the distribution policy will not change in the future.

Off-Balance Sheet Arrangements

None.

Inflation

We generate revenues primarily from lease payments from our MHI TRS Entities and net income from the operations of our MHI TRS Entities. 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 that differ from the general rate of inflation.

Geographic Concentration and Seasonality

Our hotels are located in Florida, Georgia, 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, local stay-at-home and business closure orders, adverse weather conditions 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 certain markets, namely Florida and Texas, which typically experience significant room demand during this period.

Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenue and expenses during the reporting period. It is possible that the actual amounts may differ significantly from these estimates and assumptions. We evaluate our estimates, assumptions and judgment on an ongoing basis, based on information that is available to us, our business and industry experience, and various other matters that we believe are reasonable and appropriate for consideration under the circumstances. All of our significant accounting policies, including certain critical accounting policies, are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024. There have been no material changes in these critical accounting policies or the methods or assumptions we apply.

Recent Accounting Pronouncements

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