Sotherly Hotels soars on deal to be acquired by Kemmons Wilson–led JV for $2.25 per share in cash
Sotherly Hotels (NASDAQ: SOHO) has agreed to be acquired by a joint venture led by Kemmons Wilson Hospitality Partners and Ascendant Capital Partners for $2.25 per share in cash, the companies said on Monday, sparking a rally in premarket activity.
The merger consideration represents a premium of 152.7% to the company's closing share price on October 24.
Affiliates of Apollo ( APO) and Ascendant provided debt financing commitments to the joint venture in connection with the transaction.
The merger is expected to close in the first quarter of 2026.
Sotherly Hotels (NASDAQ: SOHO) up 135% premarket.
Not good news for the preferreds
This news has a specific, and potentially beneficial, impact on the holders of Sotherly Hotels' preferred stock, including the SOHOB (8.0% Series B Cumulative Redeemable Perpetual Preferred Stock).
Based on the announcement, the key points regarding the preferred stock are:
- SOHOB will NOT be automatically paid off/redeemed in the merger.
- The merger agreement states that the Sotherly preferred stock series (SOHOB, SOHOO, SOHON) will be "unaffected by the Merger and will remain outstanding in accordance with their respective terms as set forth in the Company's Charter."
- This means the preferred stock is expected to remain preferred stock in the surviving private company, KW Kingfisher LLC's subsidiary.
- Conversion Option:
- Holders of the preferred stock will have the option to convert their shares into common stock and receive the $2.25 per share cash merger consideration that common stockholders are receiving.
- This conversion option is subject to the terms and limitations outlined in the company's charter and will be available after the closing within a specific window and share cap.
- Impact on Cumulative Dividends:
- Since SOHOB is "Cumulative Redeemable Perpetual Preferred Stock," if the shares remain outstanding and are not converted, the cumulative nature of the dividend is preserved.
- The news suggests that the preferred shares will remain outstanding in accordance with their current terms. This means any accrued and unpaid dividends ("in arrears") should remain a liability of the company and must be paid before any dividends can be paid on the common stock of the new private entity.
- The cumulative nature means that any dividend in arrears would still need to be made current (paid) before any dividends are paid on the surviving entity's common equity. However, the specific timing or mechanism for payment of any potential arrears post-closing will be governed by the preferred stock's certificate of designation and the new private entity's capital structure and future financial decisions.
In summary:
- Paid Off? No, not automatically. They are not paid off for the $2.25 per share like the common stock, unless you choose to exercise a conversion right (if available and within limits) and then receive the common stock price.
- Dividends Made Current? They are cumulative, meaning any unpaid dividends accumulate as a liability. This liability remains with the preferred stock if they are not converted. You would need to check Sotherly's recent dividend announcements to determine if there were any existing dividends in arrears when the deal was announced. Assuming the preferred stock is not converted, the dividend rights, including the cumulative nature, remain in force, though the company will now be private
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