Sotherly Hotels REIT to be acquired by joint venture

WILLIAMSBURG, Virginia — Sotherly Hotels Inc. has entered into a definitive merger agreement with a joint venture led and sponsored by affiliates of Memphis, Tennessee-based Kemmons Wilson Hospitality Partners LP (KWHP) and Los Angeles-based Ascendant Capital Partners LP in an all-cash deal. The joint venture entity, KW Kingfisher LLC, will acquire all outstanding shares of Sotherly common stock for $2.25 per share in cash and take the assets private.

The merger consideration represents a 152.7% premium to the company’s closing share price on October 24, the last trading day before the announcement of the transaction, and a 126.4% premium to the volume-weighted average share price over the previous 30 days. Total deal valuation of $425 million (before transaction and other costs) represents 9.3x Hotel EBITDA (2025E) or ~10x based on the buyers' expected capitalization.

At its October 24 closing, Sotherly had a market cap of $18.24 million and a closing stock price of $0.89.

Affiliates of New York City-based Apollo and Ascendant provided debt financing commitments to the JV in connection with the transaction.

The REIT was formed in August 2004 and currently owns 10 full-service assets in the U.S., primarily upscale and upper-upscale hotels located in seven states with an aggregate of 2,786 hotel rooms, as well as interests in two condominium hotels and their associated rental programs.  

Sotherly has faced liquidity and leverage constraints in recent years; the company does not have a revolving credit facility and has been refinancing and extending mortgage loans (several of which are/were in default) with various lenders, wrote R.W. Baird analyst Michael Bellisario. Given these constraints, Kemmons Wilson is immediately providing Sotherly with a $25.0 million promissory note, which bears interest at Term SOFR+325 bps. 

The merger is expected to close in the first quarter of 2026, subject to approval by Sotherly stockholders and customary closing conditions. Andrew Sims, Sotherly’s board chairman and one of the company’s largest stockholders, has agreed to vote all of his shares in favor of the transaction.

This transaction provides our stockholders with a significant premium over Sotherly’s current share price and represents the highest premium paid for a public, exchange-traded REIT in the past five years.

Andrew Sims

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Hotels REITs have made several notable headlines in the past few months. In late August, Dallas-based Braemar Hotels & Resorts announced it was putting itself up for an immediate sale, which included nine resorts and five urban properties. A few weeks later, activist investor Tarsadia Capital called on Aliso Viejo, California-based Sunstone Hotel Investors to pursue a sale of the hotel company. In late September, Sunstone entered into a $1.35 billion Third Amended and Restated Credit Agreement to address all near-term maturities, extend the duration of the remaining in-place loans, and strengthen the company’s balance sheet.

Hotel REITs are suffering from a public-private disconnect in terms of their relative values. That disconnect especially puts pressure on REITs with luxury assets, like Braemar, which feels its portfolio’s value isn’t reflected in its stock price.

Bellisario opined that the deal is a boost to the challenged sector. "M&A likely to remain topical given Braemar’s ongoing sale process and Tarsadia Capital pushing for change at Sunstone," he said. "Valuation at ~10x Hotel EBITDA is appropriate and in-line with many financial buyers' required returns, in our view." 

Sotherly’s said that, as a result of the merger announcement, the company will not host a conference call to discuss its third-quarter financial results and will not issue an earnings release for the period.  

Holders of Sotherly’s 8% series B stock, 7.875% series C stock, and 8.25% series D stock, collectively known as the preferred stock, issued and outstanding immediately before the effective time, will be entitled to receive the merger consideration if the holder elects to convert.  

“This transaction provides our stockholders with a significant premium over Sotherly’s current share price and represents the highest premium paid for a public, exchange-traded REIT in the past five years,” Sims said. 

“This transaction is a testament to the high-quality portfolio that Sotherly has built over the past 20-plus years as a publicly traded company and we are confident this will pave a path towards future success for our hotels,” said Sotherly CEO David Folsom.

“Sotherly has developed a distinctive portfolio of hotels across the Southeast. KWHP has a long history in investing in hospitality, particularly in the Southeast, and will bring additional resources to Sotherly’s unique and compelling portfolio of high-quality hotels to position them for continued success over the long term,” said Webb Wilson, KWHP’s chief investment officer.  

“Ascendant brings significant hotel operating expertise and hybrid financing solutions to bear, and we’re excited to work closely with KWHP to invest in and support the operation of these irreplaceable assets across attractive southeastern sub-markets,” said Alex Halpern, chief investment officer of Ascendant.