8-K: Sotherly Hotels Delists Preferred Stock, Engages Affiliate for Asset Management

Sotherly Hotels Inc. announced the voluntary delisting of its preferred stock from Nasdaq following a change of control and the engagement of an affiliate for asset management services.

Summary

• Sotherly Hotels LP entered into a consulting agreement with KWC Management, LLC, an affiliate, effective February 12, 2026, for asset management services for 10 hotel properties.
• The initial annual asset management fee for KWC Management, LLC is $650,000, payable monthly, with the agreement renewing annually unless terminated.
• Sotherly Hotels Inc. will voluntarily delist its 8.0% Series B, 7.875% Series C, and 8.25% Series D Cumulative Redeemable Perpetual Preferred Stock from Nasdaq.
• A Form 25 for delisting and deregistration is expected to be filed around April 7, 2026, with the last trading day on Nasdaq anticipated around April 17, 2026.
• The delisting follows a change of control merger on February 27, 2026, where common stock was acquired by KW Kingfisher LLC.
• As a result of the change of control, holders of 1,188,042 Series B, 1,202,415 Series C, and 820,066 Series D Preferred Stock exercised their conversion rights.
• On March 25, 2026, the company cancelled these shares in exchange for payments totaling $22,164,952 for Series B, $23,005,385 for Series C, and $13,647,549 for Series D, amounting to a total of $58,817,886.
• Sotherly intends to list its Preferred Stock on an OTC Market Platform and will continue SEC reporting and its REIT status.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a neutral-to-slightly negative development for preferred stockholders due to reduced liquidity, but an expected and potentially beneficial restructuring for the company post-merger, consolidating management and resolving preferred equity obligations.

Positives

• The company maintains its REIT status, which is beneficial for U.S. federal income tax purposes.
• The engagement of KWC Management, an affiliate, for asset management services could streamline operations and align interests post-merger.
• The conversion of a significant portion of preferred stock to cash resolves a substantial preferred equity obligation, simplifying the capital structure.

Negatives

• The voluntary delisting of preferred stock from Nasdaq may reduce liquidity and visibility for remaining preferred stockholders.
• Transitioning to an OTC market platform typically involves less stringent listing requirements and potentially lower trading volumes and wider bid-ask spreads.
• The significant cash outflow of $58,817,886 for preferred stock conversions could impact the company's liquidity or capital allocation for other initiatives.

Risks

• Reduced liquidity and market visibility for preferred stockholders due to delisting from Nasdaq and transition to an OTC market.
• Potential for lower trading volumes and wider bid-ask spreads on an OTC market platform, which could affect the ability of preferred stockholders to sell their shares.
• The consulting agreement with an affiliate (KWC Management, LLC) could raise questions about potential conflicts of interest, despite the stated independent contractor relationship.
• Forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause actual results, performance, or achievements to be materially different from future results, performance, or achievements expressed or implied.

Future Outlook

Sotherly Hotels Inc. expects to file a Form 25 with the SEC around April 7, 2026, for the delisting of its Preferred Stock from Nasdaq, with the last trading day anticipated around April 17, 2026. The company intends to list its Preferred Stock on an OTC Market Platform and will continue its SEC reporting obligations and maintain its status as a real estate investment trust (REIT).

Management Comments

• The Company believes that this transition is in the best interests of the Company and its stockholders in light of the closing on February 12, 2026, of the transactions contemplated by the Agreement and Plan of Merger.

Industry Context

StockSavvy.ai notes that the voluntary delisting of preferred stock from a major exchange like Nasdaq, while not uncommon for companies undergoing significant corporate restructuring or seeking to reduce listing costs, typically results in reduced liquidity and market visibility. The move to an OTC market platform, combined with the engagement of an affiliate for asset management, suggests a strategic shift towards a more private or closely managed operational model post-merger, potentially prioritizing cost efficiency and internal control over broad public market access for this class of securities. This contrasts with broader industry trends where companies often seek to maintain or enhance exchange listings for greater capital access and investor confidence.

Comparison to Industry Standards

• NA

Related Party Transactions

• Sotherly Hotels LP entered into a consulting agreement with KWC Management, LLC, which is an affiliate of the Operating Partnership. The agreement involves an annual asset management fee of $650,000 for the initial term and reimbursement for reasonable out-of-pocket expenses.

Stakeholder Impact

• Preferred Shareholders: Will experience reduced liquidity and market visibility due to the delisting from Nasdaq and transition to an OTC market. Those who exercised their conversion rights received significant cash payments.
• Common Shareholders: The merger resulted in all common stock being acquired by KW Kingfisher LLC, effectively privatizing the common equity.
• Company Operations: The consulting agreement with KWC Management, LLC aims to provide business and financial advice and management services for the company's hotel assets, potentially streamlining operations.

Next Steps

• Sotherly Hotels Inc. expects to file a Form 25 with the SEC on or about April 7, 2026, for the delisting and deregistration of its Preferred Stock.
• The last day of trading for the Preferred Stock on Nasdaq is expected to be on or about April 17, 2026.
• The company intends to list its Preferred Stock on an OTC Market Platform.
• The Consulting Agreement will automatically renew for successive one-year terms after February 11, 2027, unless terminated by either party upon thirty days' written notice.

Key Dates

Recommendation

The delisting of preferred stock from Nasdaq and the subsequent move to an OTC market platform will likely reduce liquidity and market access for preferred shareholders, making it less attractive for new investment. However, the company has already undergone a significant change of control and resolved a substantial portion of its preferred equity obligations through cash conversions. For existing preferred shareholders who did not convert, holding may be the most practical option given the anticipated lower liquidity, while new investors should exercise caution due to the reduced market transparency. The company's continued REIT status and SEC reporting provide some level of ongoing oversight.

Keywords

Sotherly Hotels, SOHO, Preferred Stock, Delisting, Nasdaq, OTC Market, REIT, Consulting Agreement, Asset Management, Change of Control, Merger, Capital Structure, Hotel Real Estate