Related Party Transactions	3 Months Ended
Mar. 31, 2021
Related Party Transactions [Abstract]
Related Party Transactions	8. Related Party Transactions Our Town Hospitality. Our Town is currently the management company for each of our twelve wholly owned hotels, as well as the manager of our rental programs at the Hyde Resort & Residences and the Hyde Beach House Resort & Residences. Our Town is a majority-owned subsidiary of Newport Hospitality Group, Inc. (“Newport”). As of March 31, 2021, Andrew M. Sims, our Chairman, and David R. Folsom, our President and Chief Executive Officer, beneficially owned approximately 19.5% and 2.5%, respectively, of the total outstanding ownership interests in Our Town. Both Mr. Sims and Mr. Folsom serve as directors of Our Town and have certain governance rights. The following is a summary of the transactions with Our Town: Accounts Receivable – At March 31, 2021 and 2020, we were due approximately $0.7 million and $0.8 million, respectively, from Our Town. Management Agreements – On September 6, 2019, we entered into a master agreement with Newport and Our Town related to the management of ten of our hotels. On December 13, 2019, we entered into an amendment to the master agreement (as amended, the “OTH Master Agreement”), as well as a series of individual hotel management agreements for the management of ten of our hotels. On April 1, 2020, we engaged Our Town to manage one additional wholly-owned hotel and two condominium resort rental programs. On November 15, 2020, Our Town became the manager of our Hyatt Centric Arlington hotel. The hotel management agreements for each of our 12 wholly-owned hotels and the two rental programs are referred to as, individually an “OTH Hotel Management Agreement” and, together the “OTH Hotel Management Agreements”. We agreed to provide Our Town with initial working capital of up to $1.0 million as an advance on the management fees that we will owe to Our Town under the OTH Hotel Management Agreements. The advanced funds were to be offset against future management fees otherwise payable to Our Town by means of a 25% reduction in such fees each month during 2020. Any management fee advances not recouped in such fashion were to be deemed satisfied at the end of 2020. With the onset of the COVID-19 pandemic, unreimbursed management fees totaled approximately $0.5 million. The Company expects to recoup the remaining unreimbursed advance. As of March 31, 2021, and December 31, 2020, Sotherly had advanced approximately $0.6 million and $0.6 million, respectively, to Our Town as initial working capital. In addition, the OTH Master Agreement provides for an adjustment to the fees payable by us under the OTH Hotel Management Agreements in the event the net operating income of Our Town falls below $250,000 for any calendar year beginning on or after January 1, 2021. The OTH Master Agreement expires on March 31, 2025 but shall be extended beyond 2025 for such additional periods as an OTH Hotel Management Agreement remains in effect. The base management fees for each hotel under management with Our Town is 2.50%. For any new individual hotel management agreements, Our Town will receive a base management fee of 2.00% of gross revenues for the first full year from the commencement date through the anniversary date, 2.25% of gross revenues the second full year, and 2.50% of gross revenues for every year thereafter. Each OTH Hotel Management Agreement sets an incentive management fee equal to 10.0% of the amount by which gross operating profit, as defined in the management agreement, for a given year exceeds the budgeted gross operating profit for such year; provided, however, that the incentive management fee payable in respect of any such year shall not exceed 0.25% of the gross revenues of the hotel included in such calculation. Incentive management fees earned for the three-month period ending March 31, 2021 and 2020, were $250,166 and $0, respectively. Base management and administrative fees earned by Our Town for our properties was approximately $0.6 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively. Sublease – On December 13, 2019, we entered into a sublease agreement with Our Town pursuant to which Our Town subleases 2,245 square feet of office space from Sotherly for a period of 5 years, with a 5 year renewal subject to approval by Sotherly, on terms and conditions similar to the terms of the prime lease entered into by Sotherly and the third-party owner of the property. Lease payments due to the Company were $151,800 and $40,295 as of March 31, 2021 and 2020, respectively. Credit Agreement – On December 13, 2019, we entered into a credit agreement with Our Town effective January 1, 2020, pursuant to which Sotherly agreed to provide Our Town with a working capital line of credit. The agreement, as amended, allows Our Town to borrow up to $850,000. Our Town was allowed to draw against the line of credit from time to time prior to January 1, 2021 when the facility became payable in full. Interest accrues on the outstanding balance at 3.5% per annum and is payable quarterly in arrears. In the event of a default under the credit agreement, we have the right to offset any outstanding unpaid balance against amounts we owe to Our Town under the OTH Hotel Management Agreements. We are currently negotiating an extension to the credit agreement. As of March 31, 2021 and 2020, the outstanding credit balance under the credit agreement was each approximately $0.6 million, respectively. Employee Medical Benefits – We purchase employee medical coverage for eligible employees that are employed by Our Town that work exclusively for our properties and elect to participate in Our Town’s self-insured plan. Gross premiums for employee medical benefits paid by the Company (before offset of employee co-payments) were approximately $0.7 million and $1.4 million for the three months ended March 31, 2021 and 2020, respectively. Loan Receivable – Affiliate. As of March 31, 2021 and December 31, 2020, approximately $3.7 million and $3.7 million, respectively, was due to the Operating Partnership for advances to the Company under a loan agreement dated December 29, 2016. The Company used the proceeds to make advances to the ESOP to purchase shares of the Company’s common stock. Others. We employ Ashley S. Kirkland, the daughter of our Chairman, as Corporate Counsel and Compliance Officer and Robert E. Kirkland IV, her husband, as our General Counsel. We also employ Andrew M. Sims Jr., the son of our Chairman, as Vice President – Operations & Investor Relations. Total compensation, including salary and benefits, for the three months ended March 31, 2021 and 2020 totaled $105,869 and $121,956, respectively.

Related Party Transactions

3 Months Ended

Mar. 31, 2021

8. Related Party Transactions

Our Town Hospitality. Our Town is currently the management company for each of our twelve wholly owned hotels, as well as the manager of our rental programs at the Hyde Resort & Residences and the Hyde Beach House Resort & Residences. Our Town is a majority-owned subsidiary of Newport Hospitality Group, Inc. (“Newport”). As of March 31, 2021, Andrew M. Sims, our Chairman, and David R. Folsom, our President and Chief Executive Officer, beneficially owned approximately 19.5% and 2.5%, respectively, of the total outstanding ownership interests in Our Town. Both Mr. Sims and Mr. Folsom serve as directors of Our Town and have certain governance rights. The following is a summary of the transactions with Our Town:

Accounts Receivable – At March 31, 2021 and 2020, we were due approximately $0.7 million and $0.8 million, respectively, from Our Town.

Management Agreements – On September 6, 2019, we entered into a master agreement with Newport and Our Town related to the management of ten of our hotels. On December 13, 2019, we entered into an amendment to the master agreement (as amended, the “OTH Master Agreement”), as well as a series of individual hotel management agreements for the management of ten of our hotels. On April 1, 2020, we engaged Our Town to manage one additional wholly-owned hotel and two condominium resort rental programs. On November 15, 2020, Our Town became the manager of our Hyatt Centric Arlington hotel. The hotel management agreements for each of our 12 wholly-owned hotels and the two rental programs are referred to as, individually an “OTH Hotel Management Agreement” and, together the “OTH Hotel Management Agreements”.

We agreed to provide Our Town with initial working capital of up to $1.0 million as an advance on the management fees that we will owe to Our Town under the OTH Hotel Management Agreements. The advanced funds were to be offset against future management fees otherwise payable to Our Town by means of a 25% reduction in such fees each month during 2020. Any management fee advances not recouped in such fashion were to be deemed satisfied at the end of 2020. With the onset of the COVID-19 pandemic, unreimbursed management fees totaled approximately $0.5 million. The Company expects to recoup the remaining unreimbursed advance.

As of March 31, 2021, and December 31, 2020, Sotherly had advanced approximately $0.6 million and $0.6 million, respectively, to Our Town as initial working capital. In addition, the OTH Master Agreement provides for an adjustment to the fees payable by us under the OTH Hotel Management Agreements in the event the net operating income of Our Town falls below $250,000 for any calendar year beginning on or after January 1, 2021. The OTH Master Agreement expires on March 31, 2025 but shall be extended beyond 2025 for such additional periods as an OTH Hotel Management Agreement remains in effect. The base management fees for each hotel under management with Our Town is 2.50%. For any new individual hotel management agreements, Our Town will receive a base management fee of 2.00% of gross revenues for the first full year from the commencement date through the anniversary date, 2.25% of gross revenues the second full year, and 2.50% of gross revenues for every year thereafter.

Each OTH Hotel Management Agreement sets an incentive management fee equal to 10.0% of the amount by which gross operating profit, as defined in the management agreement, for a given year exceeds the budgeted gross operating profit for such year; provided, however, that the incentive management fee payable in respect of any such year shall not exceed 0.25% of the gross revenues of the hotel included in such calculation. Incentive management fees earned for the three-month period ending March 31, 2021 and 2020, were $250,166 and $0, respectively.

Base management and administrative fees earned by Our Town for our properties was approximately $0.6 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively.

Sublease – On December 13, 2019, we entered into a sublease agreement with Our Town pursuant to which Our Town subleases 2,245 square feet of office space from Sotherly for a period of 5 years, with a 5 year renewal subject to approval by Sotherly, on terms and conditions similar to the terms of the prime lease entered into by Sotherly and the third-party owner of the property. Lease payments due to the Company were $151,800 and $40,295 as of March 31, 2021 and 2020, respectively.

Credit Agreement – On December 13, 2019, we entered into a credit agreement with Our Town effective January 1, 2020, pursuant to which Sotherly agreed to provide Our Town with a working capital line of credit. The agreement, as amended, allows Our Town to borrow up to $850,000. Our Town was allowed to draw against the line of credit from time to time prior to January 1, 2021 when the facility became payable in full. Interest accrues on the outstanding balance at 3.5% per annum and is payable quarterly in arrears. In the event of a default under the credit agreement, we have the right to offset any outstanding unpaid balance against amounts we owe to Our Town under the OTH Hotel Management Agreements. We are currently negotiating an extension to the credit agreement. As of March 31, 2021 and 2020, the outstanding credit balance under the credit agreement was each approximately $0.6 million, respectively.

Employee Medical Benefits – We purchase employee medical coverage for eligible employees that are employed by Our Town that work exclusively for our properties and elect to participate in Our Town’s self-insured plan. Gross premiums for employee medical benefits paid by the Company (before offset of employee co-payments) were approximately $0.7 million and $1.4 million for the three months ended March 31, 2021 and 2020, respectively.

Loan Receivable – Affiliate. As of March 31, 2021 and December 31, 2020, approximately $3.7 million and $3.7 million, respectively, was due to the Operating Partnership for advances to the Company under a loan agreement dated December 29, 2016. The Company used the proceeds to make advances to the ESOP to purchase shares of the Company’s common stock.

Others. We employ Ashley S. Kirkland, the daughter of our Chairman, as Corporate Counsel and Compliance Officer and Robert E. Kirkland IV, her husband, as our General Counsel. We also employ Andrew M. Sims Jr., the son of our Chairman, as Vice President – Operations & Investor Relations. Total compensation, including salary and benefits, for the three months ended March 31, 2021 and 2020 totaled $105,869 and $121,956, respectively.