Sotherly Hotels Inc. Receives Notification of Deficiency From Nasdaq Related to Delayed Filing of Quarterly Report on Form 10-Q

Rhea-AI Summary

Sotherly Hotels Inc. (NASDAQ: SOHO) has received a notice from Nasdaq due to its failure to file the Q2 2024 Quarterly Report (Form 10-Q) on time. This puts the company in non-compliance with Nasdaq's continued listing requirements. The delay is due to ongoing evaluations of financial presentations and accounting items. Nasdaq previously granted SOHO an exception until November 18, 2024, to file its Q1 2024 Form 10-Q. The company has until September 4, 2024, to submit an updated compliance plan to Nasdaq. While working to complete the Form 10-Q, SOHO's stock remains listed on the Nasdaq Global Market, but there's no guarantee of maintaining compliance with listing requirements.

Positive

• None.

Negative

• Failure to file Q2 2024 Form 10-Q on time
• Non-compliance with Nasdaq's continued listing requirements
• Risk of potential delisting from Nasdaq Global Market
• Ongoing financial reporting and accounting issues

Insights

Financial Analyst

Sotherly Hotels' delay in filing its Q2 2024 10-Q raises significant concerns about the company's financial reporting processes and internal controls. The ongoing evaluation of preferred units' classification and other accounting items suggests potential material weaknesses in financial reporting. This situation could lead to increased scrutiny from auditors and regulators, potentially resulting in higher compliance costs. The extended deadline until November 18, 2024, provides some breathing room, but failure to meet this deadline could result in delisting from Nasdaq, severely impacting investor confidence and stock liquidity. While the immediate trading status remains unchanged, this uncertainty may negatively affect stock price and make it challenging for the company to raise capital if needed.

Legal Expert

The notification from Nasdaq puts Sotherly Hotels in a precarious legal position. Non-compliance with listing rules can expose the company to potential shareholder lawsuits, especially if the stock price declines due to this news. The company must tread carefully in its communications, balancing transparency with the need to avoid any statements that could be construed as misleading. The ongoing evaluation of accounting practices could potentially lead to restatements of previous financial reports, which would further complicate the legal landscape. Management should prioritize resolving these issues quickly to minimize legal risks and maintain investor trust. The September 4 deadline for submitting an updated compliance plan is important and failure to meet it could accelerate negative consequences.

Market Research Analyst

This filing delay and Nasdaq notification could have ripple effects across the hospitality REIT sector. Investors may scrutinize other companies more closely for similar issues, potentially leading to sector-wide valuation pressures. Sotherly Hotels' situation highlights the complexities of REIT accounting, particularly regarding the classification of preferred units and partnership structures. This event may prompt other REITs to review their own accounting practices proactively. From a market perspective, the uncertainty surrounding Sotherly's financial statements could lead to increased volatility in its stock price and potentially affect its ability to access capital markets. Competitors might seize this opportunity to highlight their own financial reporting strength, potentially gaining a competitive advantage in attracting investors and partners.

WILLIAMSBURG, Va., Aug. 23, 2024 (GLOBE NEWSWIRE) -- Sotherly Hotels Inc. (NASDAQ: SOHO) (the “Company”) today announced that it has received a notice (“Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market (“Nasdaq”) as a result of its failure to file its Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 (the "Form 10-Q") in a timely fashion. The Notice advised the Company that it was not in compliance with Nasdaq’s continued listing requirements under the timely filing criteria established in Nasdaq Listing Rule 5250(c)(1).

As reported by the Company in its Form 12b-25 filed with the Securities and Exchange Commission (the “SEC”) on August 12, 2024, the Company’s Form 10-Q cannot be filed within the prescribed time period without unreasonable effort or expense as a result of ongoing evaluation of the presentation of the preferred units on the balance sheet of its operating partnership as permanent equity, rather than as temporary equity (mezzanine), as well as ongoing evaluation of the accounting for other items.

Previously, Nasdaq granted the Company an exception until November 18, 2024 to file its delinquent Form 10-Q for the period ended March 31, 2024 (the "Initial Delinquent Filing").  As a result, any additional Nasdaq exception will be limited to a maximum of 180 calendar days from the due date of the Initial Delinquent Filing, or until November 18, 2024.  In accordance with Nasdaq’s listing rules, the Company has until September 4, 2024 to submit to Nasdaq an update to its original plan to regain compliance with Nasdaq's listing rules.

As noted above, the Company is working diligently to complete its Form 10-Q. The Company intends to file the Form 10-Q as soon as practicable to regain compliance with the Nasdaq Listing Rules.

No assurance can be given that the Company will be able to regain compliance with the aforementioned listing requirement or maintain compliance with the other continued listing requirements set forth in the Nasdaq Listing Rules.

The Notice has no immediate effect on the listing of the Company’s common stock or preferred stock on the Nasdaq Global Market. 

Forward-Looking Statements 

This news release includes “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: 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 and new supply of hotel rooms, increases in wages, energy costs and other operating costs; risks associated with the level of our indebtedness and our ability to meet covenants in our debt agreements, including loan modifications and, as necessary, to refinance or seek an extension of the maturity of such indebtedness or further modification of such debt agreements; risks associated with adverse weather conditions, including hurricanes; impacts on the travel industry from pandemic diseases, including COVID-19; the availability and terms of financing and capital and the general volatility of the securities markets; management and performance of our hotels; risks associated with maintaining our system of internal controls; 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; risks associated with our ability to maintain our franchise agreements with our third party franchisors; 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 real estate investment trusts (“REITs”); the Company’s ability to maintain its qualification as a REIT; and our ability to maintain adequate insurance coverage.  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, in this press release and subsequent reports filed with the Securities and Exchange Commission.  Except as required by law, the Company undertakes no obligation to and does not intend to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.  Although the Company believes its current expectations to be based upon reasonable assumptions, it can give no assurance that its expectations will be attained or that actual results will not differ materially. 

About Sotherly Hotels Inc.

Sotherly Hotels Inc. is a self-managed and self-administered lodging REIT focused on the acquisition, renovation, upbranding 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. Currently, the Company’s portfolio consists of investments in ten hotel properties, comprising 2,786 rooms, as well as interests in two condominium hotels and their associated rental programs. The Company owns hotels that operate under the Hilton Worldwide and Hyatt Hotels Corporation brands, as well as independent hotels. Sotherly Hotels Inc. was organized in 2004 and is headquartered in Williamsburg, Virginia. For more information, please visit www.sotherlyhotels.com.

FAQ

Why did Sotherly Hotels (SOHO) receive a notification from Nasdaq?

Sotherly Hotels (SOHO) received a notification from Nasdaq due to its failure to file its Q2 2024 Quarterly Report (Form 10-Q) in a timely manner, violating Nasdaq's continued listing requirements.

What is the deadline for Sotherly Hotels (SOHO) to submit an updated compliance plan to Nasdaq?

Sotherly Hotels (SOHO) has until September 4, 2024, to submit an updated plan to Nasdaq to regain compliance with the listing rules.

Will Sotherly Hotels (SOHO) be immediately delisted from Nasdaq due to this notification?

No, the notification has no immediate effect on SOHO's listing on the Nasdaq Global Market. However, the company must work to regain compliance to maintain its listing status.

What is causing the delay in Sotherly Hotels (SOHO) filing its Q2 2024 Form 10-Q?

The delay is due to ongoing evaluations of the presentation of preferred units on the balance sheet and the accounting for other items, which require additional time and effort to resolve.