UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-56082

LODGING FUND REIT III, INC.

(Exact Name of Registrant as Specified in Its Charter)


Maryland		83-0556111
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1635 43rd Street South, Suite 205 Fargo, North Dakota		58103
(Address of Principal Executive Offices)		(Zip Code)

(701) 630-6500

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐	Non-accelerated filer	☒

Smaller reporting company	☒	Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~August 11, 2022,~~March 27, 2024, there were ~~9,286,897~~9,966,585 outstanding shares of common stock of Lodging Fund REIT III, Inc.

Table of Contents

LODGING FUND REIT III, INC.

Table of Contents


			Page
PART I.	FINANCIAL INFORMATION		2
	Item 1.	Financial Statements (Unaudited)	2
		Consolidated Balance Sheets as of ~~June~~September 30, 2022 and December 31, 2021	2
		Consolidated Statements of Operations for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021	3
		Consolidated Statements of Changes in Equity for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021	4
		Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021	5
		Notes to the Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3540
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	5666
	Item 4.	Controls and Procedures	5766

PART II.	OTHER INFORMATION		5868
	Item 1.	Legal Proceedings	5868
	Item 1A.	Risk Factors	5868
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5868
	Item 3.	Defaults upon Senior Securities	6273
	Item 4.	Mine Safety Disclosures	6273
	Item 5.	Other Information	6273
	Item 6.	Exhibits	6574

SIGNATURES			6878

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LODGING FUND REIT III, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30,		December 31,		September 30,		December 31,
	2022		2021		2022		2021
Assets
Investment in hotel properties, net of accumulated depreciation of $12,770,510 and $9,487,728	$	217,426,442	$	169,424,775
Investment in hotel properties, net of accumulated depreciation of $14,960,196 and $9,487,728					$	283,700,523	$	169,424,775
Cash and cash equivalents		7,085,493		7,866,401		7,610,165		7,866,401
Restricted cash		6,774,233		6,469,999		9,863,124		6,469,999
Accounts receivable, net		767,712		748,364		1,312,842		748,364
Franchise fees, net		1,871,864		1,459,641		2,330,544		1,459,641
Prepaid expenses and other assets		5,248,366		4,360,555		1,637,008		4,360,555
Total Assets	$	239,174,110	$	190,329,735
Total Assets (variable interest entities - $25,546,062 and $0)					$	306,454,206	$	190,329,735

Liabilities and Equity
Debt, net	$	131,974,319	$	103,126,884	$	179,808,843	$	103,126,884
Finance lease liability		8,071,071		—
Finance lease liabilities						12,979,594		—
Accounts payable		2,780,221		1,549,380		3,388,961		1,549,380
Accrued expenses		2,952,841		2,621,520		4,646,402		2,621,520
Distributions payable		597,972		495,657		656,322		495,657
Due to related parties		3,782,289		2,580,326		4,670,872		2,580,326
Other liabilities		1,127,378		7,499,568		5,380,372		7,499,568
Total liabilities		151,286,091		117,873,335
Total liabilities (variable interest entities - $18,706,521 and $0)						211,531,366		117,873,335

Commitments and contingencies (See Note 10)

Equity
Preferred stock, $0.01 par value, 100,000,000 shares authorized; 0 shares issued and outstanding		—		—
Common stock, $0.01 par value, 900,000,000 shares authorized; 9,105,687 and 8,348,310 shares issued and outstanding		91,055		83,481
Preferred stock, $0.01 par value, 100,000,000 shares authorized; no shares issued and outstanding						—		—
Common stock, $0.01 par value, 900,000,000 shares authorized; 9,502,987 and 8,348,310 shares issued and outstanding						95,029		83,481
Additional paid-in capital		88,934,679		81,655,994		92,795,972		81,655,994
Accumulated deficit		(53,232,218)		(43,586,952)		(60,930,284)		(43,586,952)
Total stockholders' equity		35,793,516		38,152,523		31,960,717		38,152,523
Non-controlling interest – Series B LP Units		(2,055,453)		(1,563,489)		(2,478,937)		(1,563,489)
Non-controlling interest – Series GO LP Units		17,161,824		12,498,527		15,809,603		12,498,527
Non-controlling interest – Series T LP Units		31,661,048		21,931,757		44,521,495		21,931,757
Non-controlling interest – Common LP Units		5,327,084		1,437,082		5,109,962		1,437,082
Total equity		87,888,019		72,456,400		94,922,840		72,456,400
Total Liabilities and Equity	$	239,174,110	$	190,329,735	$	306,454,206	$	190,329,735

See accompanying notes to consolidated financial statements.

Table of Contents

LODGING FUND REIT III, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

For the Three Months Ended June 30,

For the Six Months Ended June 30,


2022

2021

2022

2021
Revenues








Room revenue

$
11,762,267

$
6,174,243

$
20,576,362

$
9,895,034
Other revenue

569,157

164,269

1,050,865

228,639
Total revenue

12,331,424

6,338,512

21,627,227

10,123,673

Expenses








Property operations

5,842,004

2,561,807

10,622,477

4,304,055
General and administrative

2,395,956

1,692,370

4,620,423

3,038,212
Sales and marketing

815,144

522,307

1,395,510

827,761
Franchise fees

1,081,528

503,718

1,898,724

800,070
Management fees

933,692

559,065

1,728,788

997,155
Acquisition expense

(6,213)

20,977

7,304

48,443
Depreciation and amortization

1,695,354

1,151,739

3,319,594

2,154,791
Total expenses

12,757,465

7,011,983

23,592,820

12,170,487

Other Income (Expense)








Other income (expense), net

(258,656)

(97,008)

(458,049)

(181,233)
PPP loan forgiveness

—

801,800

—

1,564,900
Interest expense

(2,232,972)

(1,014,443)

(4,646,064)

(1,961,516)
Total other income (expense)

(2,491,628)

(309,651)

(5,104,113)

(577,849)

Net Loss Before Income Taxes

(2,917,669)

(983,122)

(7,069,706)

(2,624,663)

Income tax (expense) benefit

(224,582)

391,346

427,020

366,346

Net Loss

(3,142,251)

(591,776)

(6,642,686)

(2,258,317)

Net loss attributable to non-controlling interest - Series B LP Units

(156,779)

(29,462)

(331,785)

(112,440)
Net loss attributable to non-controlling interest - Series GO LP Units

(512,858)

(80,826)

(1,136,951)

(240,762)
Net loss attributable to non-controlling interest - Common LP Units

(144,719)

—

(323,358)

—

Net Loss Attributable to Common Stockholders

$
(2,327,895)

$
(481,488)

$
(4,850,592)

$
(1,905,115)

Basic and Diluted Net Loss Per Share of Common Stock

$
(0.26)

$
(0.06)

$
(0.56)

$
(0.24)
Weighted-average Shares of Common Stock Outstanding, Basic and Diluted

8,881,540

7,940,665

8,684,253

7,846,869


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues
Room revenue	$	15,153,864	$	8,308,091	$	35,730,226	$	18,203,125
Other revenue		780,086		314,200		1,830,951		542,839
Total revenue		15,933,950		8,622,291		37,561,177		18,745,964

Expenses
Property operations		7,450,413		3,781,862		18,072,890		8,085,917
General and administrative		3,055,244		1,705,948		7,675,667		4,744,160
Sales and marketing		965,647		596,558		2,361,157		1,424,319
Franchise fees		1,360,965		640,113		3,259,689		1,440,183
Management fees		1,126,514		796,245		2,855,302		1,793,400
Acquisition expense		707,639		13,317		714,943		61,760
Depreciation and amortization		2,238,046		1,294,304		5,557,640		3,449,095
Total expenses		16,904,468		8,828,347		40,497,288		20,998,834

Other Income (Expense)
Other income (expense), net		3,429,368		(21,320)		2,971,319		(212,125)
PPP loan forgiveness		—		119,500		—		1,684,400
Interest expense		(2,998,008)		(1,300,298)		(7,644,072)		(3,252,242)
Total other income (expense)		431,360		(1,202,118)		(4,672,753)		(1,779,967)

Net Loss Before Income Taxes		(539,158)		(1,408,174)		(7,608,864)		(4,032,837)

Income tax (expense) benefit		(6,215,577)		105,743		(5,788,557)		472,089

Net Loss		(6,754,735)		(1,302,431)		(13,397,421)		(3,560,748)

Net loss attributable to non-controlling interest - Series B LP Units		(337,366)		(64,879)		(669,151)		(177,319)
Net loss attributable to non-controlling interest - Series GO LP Units		(1,081,735)		(167,923)		(2,218,686)		(408,685)
Net loss attributable to non-controlling interest - Common LP Units		(307,653)		—		(631,011)		—

Net Loss Attributable to Common Stockholders	$	(5,027,981)	$	(1,069,629)	$	(9,878,573)	$	(2,974,744)

Basic and Diluted Net Loss Per Share of Common Stock	$	(0.54)	$	(0.13)	$	(1.11)	$	(0.37)
Weighted-average Shares of Common Stock Outstanding, Basic and Diluted		9,340,058		8,138,726		8,905,257		7,945,203

See accompanying notes to consolidated financial statements.

Table of Contents

LODGING FUND REIT III, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

Common Stock

Non-Controlling Interest

Additional

Total

Par

Paid-In

Accumulated

Stockholders'

Series B

Series GO

Series T

Common

Total


Shares

Value

Capital

Deficit

Equity

LP Units

LP Units

LP Units

LP Units

Equity
Balance at December 31, 2020

7,611,653

$
76,116

$
74,610,627

$
(31,855,995)

$
42,830,748

$
(1,005,785)

$
3,784,965

$
—

$
—

$
45,609,928
Issuance of common stock

82,414

824

793,756

—

794,580

—

—

—

—

794,580
Issuance of GO Units

—

—

—

—

—

—

4,201,300

—

—

4,201,300
Issuance of T Units

—

—

—

—

—

—

—

6,747,577

—

6,747,577
Offering costs

—

—

—

(287,745)

(287,745)

—

(534,354)

—

—

(822,099)
Distributions declared ($0.175 per share)

—

—

—

(1,358,705)

(1,358,705)

(71,511)

—

—

—

(1,430,216)
Distributions reinvested

113,877

1,139

1,080,689

—

1,081,828

—

—

—

—

1,081,828
Redemptions

—

—

—

—

—

—

—

—

—

—
Net loss

—

—

—

(1,423,627)

(1,423,627)

(82,978)

(159,936)

—

—

(1,666,541)
Balance at March 31, 2021

7,807,944

$
78,079

$
76,485,072

$
(34,926,072)

$
41,637,079

$
(1,160,274)

$
7,291,975

$
6,747,577

$
—

$
54,516,357
Issuance of common stock

80,737

807

782,663

—

783,470

—

—

—

—

783,470
Issuance of GO Units

—

—

—

—

—

—

1,329,000

—

—

1,329,000
Issuance of T Units

—

—

—

—

—

—

—

2,041,058

—

2,041,058
Offering costs

—

—

—

(410,200)

(410,200)

—

(157,470)

—

—

(567,670)
Distributions declared ($0.175 per share)

—

—

—

(1,391,786)

(1,391,786)

(73,252)

—

—

—

(1,465,038)
Distributions reinvested

116,535

1,165

1,105,915

—

1,107,080

—

—

—

—

1,107,080
Redemptions

(41,996)

(420)

(399,871)

—

(400,291)

—

—

—

—

(400,291)
Net loss

—

—

—

(481,488)

(481,488)

(29,462)

(80,826)

—

—

(591,776)
Balance at June 30, 2021

7,963,220

$
79,631

$
77,973,779

$
(37,209,546)

$
40,843,864

$
(1,262,988)

$
8,382,679

$
8,788,635

$
—

$
56,752,190

Balance at December 31, 2021

8,348,310

$
83,481

$
81,655,994

$
(43,586,952)

$
38,152,523

$
(1,563,489)

$
12,498,527

$
21,931,757

$
1,437,082

$
72,456,400
Issuance of common stock

276,878

2,769

2,672,085

—

2,674,854

—

—

—

—

2,674,854
Issuance of GO Units

—

—

—

—

—

—

6,138,291

—

—

6,138,291
Issuance of T Units

—

—

—

—

—

—

—

9,729,291

—

9,729,291
Issuance of Common LP Units

—

—

—

—

—

—

—

—

4,600,000

4,600,000
Offering costs

—

—

—

(730,836)

(730,836)

—

(463,548)

—

—

(1,194,384)
Distributions declared ($0.175 per share)

—

—

—

(1,478,078)

(1,478,078)

(78,230)

—

—

(98,783)

(1,655,091)
Distributions reinvested

59,709

597

566,643

—

567,240

—

—

—

—

567,240
Redemptions

(64,306)

(643)

(637,531)

—

(638,174)

—

—

—

—

(638,174)
Net loss

—

—

—

(2,522,697)

(2,522,697)

(175,006)

(624,093)

—

(178,639)

(3,500,435)
Balance at March 31, 2022

8,620,591

$
86,204

$
84,257,191

$
(48,318,563)

$
36,024,832

$
(1,816,725)

$
17,549,177

$
31,661,048

$
5,759,660

$
89,177,992
Issuance of common stock

487,325

4,873

4,727,186

—

4,732,059

—

—

—

—

4,732,059
Issuance of GO Units

—

—

—

—

—

—

137,600

—

—

137,600
Offering costs

—

—

—

(1,127,509)

(1,127,509)

—

(12,095)

—

—

(1,139,604)
Distributions declared ($0.175 per share)

—

—

—

(1,458,251)

(1,458,251)

(81,949)

—

—

(287,857)

(1,828,057)
Distributions reinvested

55,386

554

525,605

—

526,159

—

—

—

—

526,159
Redemptions

(57,615)

(576)

(575,303)

—

(575,879)

—

—

—

—

(575,879)
Net loss

—

—

—

(2,327,895)

(2,327,895)

(156,779)

(512,858)

—

(144,719)

(3,142,251)
Balance at June 30, 2022

9,105,687

$
91,055

$
88,934,679

$
(53,232,218)

$
35,793,516

$
(2,055,453)

$
17,161,824

$
31,661,048

$
5,327,084

$
87,888,019


	Common Stock									Non-Controlling Interest
				Additional				Total
		Par		Paid-In		Accumulated		Stockholders'		Series B		Series GO		Series T		Common		Total
	Shares	Value		Capital		Deficit		Equity		LP Units		LP Units		LP Units		LP Units		Equity
Balance at December 31, 2020	7,611,653	$	76,116	$	74,610,627	$	(31,855,995)	$	42,830,748	$	(1,005,785)	$	3,784,965	$	—	$	—	$	45,609,928
Issuance of common stock	82,414		824		793,756		—		794,580		—		—		—		—		794,580
Issuance of GO Units	—		—		—		—		—		—		4,201,300		—		—		4,201,300
Issuance of T Units	—		—		—		—		—		—		—		6,747,577		—		6,747,577
Offering costs	—		—		—		(287,745)		(287,745)		—		(534,354)		—		—		(822,099)
Distributions declared ($0.175 per share)	—		—		—		(1,358,705)		(1,358,705)		(71,511)		—		—		—		(1,430,216)
Distributions reinvested	113,877		1,139		1,080,689		—		1,081,828		—		—		—		—		1,081,828
Net loss	—		—		—		(1,423,627)		(1,423,627)		(82,978)		(159,936)		—		—		(1,666,541)
Balance at March 31, 2021	7,807,944	$	78,079	$	76,485,072	$	(34,926,072)	$	41,637,079	$	(1,160,274)	$	7,291,975	$	6,747,577	$	—	$	54,516,357
Issuance of common stock	80,737		807		782,663		—		783,470		—		—		—		—		783,470
Issuance of GO Units	—		—		—		—		—		—		1,329,000		—		—		1,329,000
Issuance of T Units	—		—		—		—		—		—		—		2,041,058		—		2,041,058
Offering costs	—		—		—		(410,200)		(410,200)		—		(157,470)		—		—		(567,670)
Distributions declared ($0.175 per share)	—		—		—		(1,391,786)		(1,391,786)		(73,252)		—		—		—		(1,465,038)
Distributions reinvested	116,535		1,165		1,105,915		—		1,107,080		—		—		—		—		1,107,080
Redemptions	(41,996)		(420)		(399,871)		—		(400,291)		—		—		—		—		(400,291)
Net loss	—		—		—		(481,488)		(481,488)		(29,462)		(80,826)		—		—		(591,776)
Balance at June 30, 2021	7,963,220	$	79,631	$	77,973,779	$	(37,209,546)	$	40,843,864	$	(1,262,988)	$	8,382,679	$	8,788,635	$	—	$	56,752,190
Issuance of common stock	119,730		1,197		1,146,050		—		1,147,247		—		—		—		—		1,147,247
Issuance of GO Units	—		—		—		—		—		—		1,200,000		—		—		1,200,000
Issuance of T Units	—		—		—		—		—		—		—		6,964,122		—		6,964,122
Offering costs	—		—		—		(538,789)		(538,789)		—		(185,976)		—		—		(724,765)
Distributions declared ($0.175 per share)	—		—		—		(1,425,022)		(1,425,022)		(75,001)		—		—		—		(1,500,023)
Distributions reinvested	128,815		1,288		1,222,453		—		1,223,741		—		—		—		—		1,223,741
Redemptions	(15,709)		(157)		(156,871)		—		(157,028)		—		—		—		—		(157,028)
Net loss	—		—		—		(1,069,629)		(1,069,629)		(64,879)		(167,923)		—		—		(1,302,431)
Balance at September 30, 2021	8,196,056	$	81,959	$	80,185,411	$	(40,242,986)	$	40,024,384	$	(1,402,868)	$	9,228,780	$	15,752,757	$	—	$	63,603,053

Balance at December 31, 2021	8,348,310	$	83,481	$	81,655,994	$	(43,586,952)	$	38,152,523	$	(1,563,489)	$	12,498,527	$	21,931,757	$	1,437,082	$	72,456,400
Issuance of common stock	275,378		2,754		2,657,100		—		2,659,854		—		—		—		—		2,659,854
Issuance of stock-based compensation	1,500		15		14,985		—		15,000		—		—		—		—		15,000
Issuance of GO Units	—		—		—		—		—		—		6,138,291		—		—		6,138,291
Issuance of T Units	—		—		—		—		—		—		—		9,729,291		—		9,729,291
Issuance of Common LP Units	—		—		—		—		—		—		—		—		4,600,000		4,600,000
Offering costs	—		—		—		(730,836)		(730,836)		—		(463,548)		—		—		(1,194,384)
Distributions declared ($0.175 per share)	—		—		—		(1,478,078)		(1,478,078)		(78,230)		—		—		(98,783)		(1,655,091)
Distributions reinvested	59,709		597		566,643		—		567,240		—		—		—		—		567,240
Redemptions	(64,306)		(643)		(637,531)		—		(638,174)		—		—		—		—		(638,174)
Net loss	—		—		—		(2,522,697)		(2,522,697)		(175,006)		(624,093)		—		(178,639)		(3,500,435)
Balance at March 31, 2022	8,620,591	$	86,204	$	84,257,191	$	(48,318,563)	$	36,024,832	$	(1,816,725)	$	17,549,177	$	31,661,048	$	5,759,660	$	89,177,992
Issuance of common stock	485,825		4,858		4,712,201		—		4,717,059		—		—		—		—		4,717,059
Issuance of stock-based compensation	1,500		15		14,985		—		15,000		—		—		—		—		15,000
Issuance of GO Units	—		—		—		—		—		—		137,600		—		—		137,600
Offering costs	—		—		—		(1,127,509)		(1,127,509)		—		(12,095)		—		—		(1,139,604)
Distributions declared ($0.175 per share)	—		—		—		(1,458,251)		(1,458,251)		(81,949)		—		—		(287,857)		(1,828,057)
Distributions reinvested	55,386		554		525,605		—		526,159		—		—		—		—		526,159
Redemptions	(57,615)		(576)		(575,303)		—		(575,879)		—		—		—		—		(575,879)
Net loss	—		—		—		(2,327,895)		(2,327,895)		(156,779)		(512,858)		—		(144,719)		(3,142,251)
Balance at June 30, 2022	9,105,687	$	91,055	$	88,934,679	$	(53,232,218)	$	35,793,516	$	(2,055,453)	$	17,161,824	$	31,661,048	$	5,327,084	$	87,888,019
Issuance of common stock	361,451		3,615		3,526,995		—		3,530,610		—		—		—		—		3,530,610
Issuance of stock-based compensation	1,500		15		14,985		—		15,000										15,000
Issuance of T Units	—		—		—		—		—		—		—		12,860,447		—		12,860,447
Offering costs	—		—		—		(934,374)		(934,374)		—		(1,000)		—		—		(935,374)
Distributions declared ($0.175 per share)	—		—		—		(1,735,711)		(1,735,711)		(86,118)		(269,486)		—		90,531		(2,000,784)
Distributions reinvested	47,676		477		452,446		—		452,923		—		—		—		—		452,923
Redemptions	(13,327)		(133)		(133,133)		—		(133,266)		—		—		—		—		(133,266)
Net loss	—		—		—		(5,027,981)		(5,027,981)		(337,366)		(1,081,735)		—		(307,653)		(6,754,735)
Balance at September 30, 2022	9,502,987	$	95,029	$	92,795,972	$	(60,930,284)	$	31,960,717	$	(2,478,937)	$	15,809,603	$	44,521,495	$	5,109,962	$	94,922,840

See accompanying notes to consolidated financial statements.

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LODGING FUND REIT III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

For the Six Months Ended June 30,


2022

2021
Cash Flows from Operating Activities:




Net loss

$
(6,642,686)

$
(2,258,317)
Adjustments to reconcile net loss to cash used in operating activities:

Depreciation

3,319,594

2,154,791
Stock-based compensation expense

30,000

—
Amortization

371,932

174,301
Gain on PPP loan forgiveness

—

(1,564,900)
Loss on disposal of fixed assets

(12,612)

—
Deferred tax assets, net

(422,415)

(391,487)
Change in operating assets and liabilities:

Accounts receivable

(19,348)

(548,060)
Franchise fees

(475,000)

(262,500)
Prepaid expenses and other assets

(465,397)

(211,072)
Accounts payable

1,055,769

723,865
Accrued expenses

331,321

303,449
Due to related parties

1,107,510

936,613
Other liabilities

(1,451,008)

504,457
Net cash used in operating activities

(3,272,340)

(438,860)
Cash Flows from Investing Activities:




Acquisitions of hotel properties

(940,636)

(2,221,365)
Improvements and additions to hotel properties

(3,316,894)

(1,210,239)
Net cash used in investing activities

(4,257,530)

(3,431,604)
Cash Flows from Financing Activities:




Proceeds from mortgage debt

17,392,288

—
Proceeds from lines of credit

1,750,000

1,000,000
Proceeds from PPP loans

—

921,300
Principal payments on mortgage debt

(17,989,514)

(466,943)
Principal payments on lines of credit

(2,350,000)

(1,000,000)
Payments of deferred financing costs

(507,625)

(475,238)
Increase in finance lease liability

95,314

—
Proceeds from issuance of common stock

7,376,913

1,578,050
Proceeds from issuance of GO Units

6,275,891

5,530,300
Payments of offering costs

(2,214,642)

(1,182,751)
Payments for shares redeemed

(638,174)

(400,291)
Distributions paid

(2,137,255)

(497,709)
Net cash provided by financing activities

7,053,196

5,006,718
Net change in cash, cash equivalents, and restricted cash

(476,674)

1,136,254
Beginning Cash, Cash Equivalents, and Restricted Cash

14,336,400

12,529,067
Ending Cash, Cash Equivalents, and Restricted Cash

$
13,859,726

$
13,665,321


	For the Nine Months Ended September 30,
	2022		2021
Cash Flows from Operating Activities:
Net loss	$	(13,397,421)	$	(3,560,748)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation		5,426,165		3,449,095
Stock-based compensation expense		45,000		—
Amortization		996,391		318,417
Gain on PPP loan forgiveness		—		(1,684,400)
Loss on disposal of fixed assets		28,466		7,678
Gain on acquisition of VIE		(3,810,081)		—
Deferred tax assets, net		5,792,126		(500,619)
Change in operating assets and liabilities:
Accounts receivable		(395,504)		(433,554)
Franchise fees		(975,000)		(437,500)
Prepaid expenses and other assets		366,070		(386,428)
Increase in finance lease liability		141,665		—
Accounts payable		1,415,532		477,355
Accrued expenses		1,716,272		844,720
Due to related parties		2,149,057		768,987
Other liabilities		(502,096)		820,977
Net cash used in operating activities		(1,003,358)		(316,020)
Cash Flows from Investing Activities:
Acquisitions of hotel properties		(44,448,672)		(2,167,243)
Cash and restricted cash acquired in consolidation of VIE		1,342,428		—
Improvements and additions to hotel properties		(4,518,129)		(2,189,846)
Net cash used in investing activities		(47,624,374)		(4,357,089)
Cash Flows from Financing Activities:
Proceeds from mortgage debt		57,853,103		13,947,218
Proceeds from lines of credit		10,957,303		1,600,000
Proceeds from PPP loans		—		921,300
Principal payments on mortgage debt		(20,563,995)		(13,739,827)
Principal payments on lines of credit		(3,250,000)		(1,000,000)
Payments of deferred financing costs		(2,282,746)		(921,801)
Proceeds from issuance of common stock		10,907,523		2,725,297
Proceeds from issuance of GO Units		6,275,891		6,730,300
Payments of offering costs		(3,223,478)		(2,063,974)
Payments for shares redeemed		(1,214,053)		(557,319)
Distributions paid		(3,694,927)		(1,612,660)
Net cash provided by financing activities		51,764,621		6,028,534
Net change in cash, cash equivalents, and restricted cash		3,136,889		1,355,425
Beginning Cash, Cash Equivalents, and Restricted Cash		14,336,400		12,529,067
Ending Cash, Cash Equivalents, and Restricted Cash	$	17,473,289	$	13,884,492

See accompanying notes to consolidated financial statements.

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LODGING FUND REIT III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

For the Six Months Ended June 30,

2022

2021
Supplemental Disclosure of Cash Flow Information:






Interest paid, net of amounts capitalized

$
3,096,351

$
1,951,174
Income taxes paid

$
26,000

$
1,963

Supplemental Disclosure of Non-Cash Investing and Financing Activities:




Issuance of T Units for Aurora property

$
—

$
6,688,635
Issuance of T Units for El Paso property

$
—

$
2,100,000
Issuance of T Units for Fargo property

$
4,091,291

$
—
Issuance of T Units for Lakewood property

$
5,638,000

$
—
Issuance of Common LP Units for El Paso Airport property

$
4,600,000

$

Debt issued for acquisition of Aurora property

$
—

$
15,000,000
Debt issued for acquisition of El Paso property

$
—

$
7,900,000
Debt assumed for acquisition of Fargo property

$
7,198,709

$
—
Debt issued for acquisition of El Paso Airport property

$
9,990,000

$
—
Debt issued for acquisition of Lakewood property

$
13,081,364

$
—
Offering costs included in accounts payable

$
175,072

$
60,147
Offering costs included in due to related parties

$
(55,727)

$
154,871
Offering costs included in accrued expenses

$
—

$
(8,000)
Distributions included in due to related parties

$
150,179

$
144,763
Redemptions included in other liabilities

$
575,879

$
—
Reinvested distributions

$
1,093,399

$
2,188,908
Initial ASC 842 adoption of right-of-use asset

$
2,478,696

$
—

Reconciliation of Cash, Cash Equivalents, and Restricted Cash:

Cash and cash equivalents, beginning of period

$
7,866,401

$
7,960,159
Restricted cash, beginning of period

6,469,999

4,568,908
Cash, cash equivalents, and restricted cash, beginning of period

$
14,336,400

$
12,529,067

Cash and cash equivalents, end of period

$
7,085,493

$
6,572,353
Restricted cash, end of period

6,774,233

7,092,968
Cash, cash equivalents, and restricted cash, end of period

$
13,859,726

$
13,665,321


	For the Nine Months Ended September 30,
	2022		2021
Supplemental Disclosure of Cash Flow Information:
Interest paid	$	5,188,936	$	3,130,003
Income taxes paid	$	42,158	$	—

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Issuance of T Units for Aurora Property	$	—	$	6,742,757
Issuance of T Units for El Paso Property	$	—	$	2,100,000
Issuance of T Units for Houston Property	$	—	$	6,910,000
Issuance of T Units for Fargo Property	$	4,091,291	$	—
Issuance of T Units for Lakewood Property	$	5,638,000	$	—
Issuance of Common LP Units for El Paso Airport Property	$	4,600,000	$	—
Issuance of T Units for Fort Collins Property	$	3,703,690	$	—
Issuance of T Units for Pineville HGI Property	$	2,729,211	$	—
Issuance of T Units for Charlotte Property	$	6,427,546	$	—
Debt issued for acquisition of Aurora Property	$	—	$	15,000,000
Debt issued for acquisition of El Paso Property	$	—	$	7,900,000
Debt issued for acquisition of Houston Property	$	—	$	13,000,000
Debt assumed for acquisition of Fargo Property	$	7,198,709	$	—
Debt issued for acquisition of Fort Collins Property	$	11,500,000	$	—
Offering costs included in accounts payable	$	186,413	$	19,416
Offering costs included in due to related parties	$	(140,529)	$	39,144
Offering costs included in accrued expenses	$	—	$	(8,000)
Distributions included in due to related parties	$	82,018	$	219,764
Redemptions included in other liabilities	$	133,266	$	—
Reinvested distributions	$	1,546,322	$	3,412,649
Initial ASC 842 adoption of right-of-use asset	$	2,478,696	$	—

Reconciliation of Cash, Cash Equivalents, and Restricted Cash:
Cash and cash equivalents, beginning of period	$	7,866,401	$	7,960,159
Restricted cash, beginning of period		6,469,999		4,568,908
Cash, cash equivalents, and restricted cash, beginning of period	$	14,336,400	$	12,529,067

Cash and cash equivalents, end of period	$	7,610,165	$	7,631,257
Restricted cash, end of period		9,863,124		6,253,235
Cash, cash equivalents, and restricted cash, end of period	$	17,473,289	$	13,884,492

See accompanying notes to consolidated financial statements.

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LODGING FUND REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION

Lodging Fund REIT III, Inc. (“LF REIT III”), was formed on April 9, 2018 as a Maryland corporation. LF REIT III, together with its subsidiaries (the “Company”), was formed for the principal purpose of acquiring, through purchase or contribution, direct or indirect ownership interests in a diverse portfolio of limited-service, select-service, full-service and extended stay hotel properties located primarily in “America’s Heartland,” which the Company defines as the geographic area from North Dakota to Texas and the Appalachian Mountains to the Rocky Mountains. LF REIT III has elected to be treated as a real estate investment trust, or REIT, for federal income tax purposes beginning with the taxable year ended December 31, 2018. The Company’s business activities are directed and managed by Legendary Capital REIT III, LLC (the “Advisor”) and its affiliates, which are related parties through common management, pursuant to the Amended and Restated Advisory Agreement (the “Advisory Agreement”), dated June 1, 2018. The Company has no foreign operations or assets, and its operating structure includes only 1one operating and reportable segment.

Substantially all of the Company’s assets and liabilities are held by, and substantially all of its operations are conducted through, Lodging Fund REIT III OP, LP (the “Operating Partnership,” or “OP”), a subsidiary of LF REIT III. The OP has 3three voting classes of partnership units, Common General Partnership Units (“GP Units”), Interval Units and Common Limited Partnership Units (“Common LP Units”), and 3three classes of non-voting partnership units, Series B Limited Partnership Units (“Series B LP Units”), Series Growth & Opportunity (“GO”) Limited Partnership Units (“Series GO LP Units”) and Series T Limited Partnership Units (“Series T LP Units”). LF REIT III was the sole general partner of the OP, as of ~~June~~September 30, 2022 and December 31, 2021. As of ~~June~~September 30, 2022, there were 612,100 outstanding Common LP Units, 0no outstanding Interval Units, ~~there were~~ 1,000 outstanding Series B LP Units, all of which were owned by the Advisor, ~~3,125,041~~3,124,503 Series GO LP Units and ~~3,542,699~~4,951,744 Series T LP Units.

On June 1, 2018, the Company commenced a private offering of shares of common stock, $0.01 par value per share, with a maximum offering of $100,000,000, which was increased to $150,000,000 in shares of the Company’s common stock in December 2021 (the “Offering”). The Offering is to accredited investors only, pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended. In addition to sales of common shares for cash, the Company has adopted a dividend reinvestment plan (“DRIP”), which permits stockholders to reinvest their distributions back into the Company. As of ~~June~~September 30, 2022, the Company had issued and sold ~~9,379,886~~9,790,511 shares of common stock, including ~~925,174~~972,850 shares attributable to the DRIP, and received aggregate proceeds of ~~$91.7~~$95.7 million. As of ~~June~~September 30, 2022, the Company had repurchased ~~274,199~~287,525 shares, which represents an original investment of ~~$2,741,988~~$2,858,355 for ~~$2,661,203~~$2,794,469 under the Company’s Share Repurchase Plan. As of ~~June~~September 30, 2022, ~~$575,879~~$133,266 of the redemption proceeds had not yet been paid and is included in other liabilities on the accompanying consolidated balance sheet. See Note 11.

On April 29, 2020, the Company classified and designated 7,000,000 shares of authorized but unissued common stock, $0.01 par value per share, as shares of “Interval Common Stock,” to be part of the Offering. The offering of the Interval Common Stock was a maximum offering of $30,000,000, which could be increased to $60,000,000 in the sole discretion of the Company’s board of directors, (the “Interval Share Offering”) to accredited investors only, pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended. The Company’s board of directors allowed the Interval Share Offering to expire on March 31, 2022. The Company did not issue or sell any shares of Interval Common Stock in the Offering.

On June 15, 2020, the Operating Partnership commenced a private offering of limited partnership units in the OP, designated as Series GO LP Units, with a maximum offering of $20,000,000, which could be increased to $30,000,000 in the sole discretion of LF REIT III as the General Partner of the Operating Partnership, (the “GO Unit Offering”) to accredited investors only, pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended. The Series GO LP Units were being offered until the earlier of (i) the sale of $20,000,000 in Series GO LP Units (which could be increased to $30,000,000 in the Company’s sole discretion), (ii) June 14, 2022 or (iii) the Operating Partnership terminates the GO Unit Offering at an earlier date in its sole discretion. The

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Company’s board of directors terminated the GO Unit Offering as of February 14, 2022. The Company’s board of directors approved and ratified additional sales after February 14, 2022 in the GO Unit Offering for sales which were pending as of that date. As of ~~June~~September 30, 2022, the Operating Partnership had issued and sold ~~3,125,041~~3,124,503 Series GO LP Units and received gross aggregate proceeds of $21.5 million.

The Operating Partnership may issue Series T LP Units from time to time to persons who contribute direct or indirect interests in real estate to the Operating Partnership. The Series T LP Units will have allocations and distributions that are dictated by the Partnership Agreement of the Operating Partnership and the applicable contribution agreement for the real estate. Certain Series T LP Units may have different allocations and distributions than other Series T LP Units. The amount of the allocations and distributions will be determined by the General Partner in its sole discretion at the time of issuance of the Series T LP Units and any future distributions are dependent on the financial performance of the contributed real estate based on a mathematical formula. The Series T LP Units are eligible for conversion into Common LP Units beginning either 24 or 36 months, or longer in some instances, after their issuance and will automatically convert into Common LP Units upon other events as described in the Partnership Agreement of the Operating Partnership. The conversion of Series T LP Units into Common LP Units may vary with each issuance and is generally based on a formula that applies an applicable capitalization rate to the then-current trailing twelve months net operating income of the hotel property less the loan balance outstanding as of the contribution date as assumed by the Operating Partnership, and less other amounts incurred by the Operating Partnership including but not limited to certain closing costs, loan assumption fees and defeasance costs, property improvement plan (“PIP”) and capital expenditures, operating cash infused by the Operating Partnership, and any shortfall of certain minimum cumulative investment yield. There is no guarantee that the future financial performance of the contributed hotel property will be sufficient to result in the issuance of Common LP Units resulting from the application of the conversion formula applicable to the issuance of Series T LP Units at the time of the conversion. As of ~~June~~September 30, 2022, the Company had recorded an aggregate value of ~~$31.7~~$44.5 million to the Series T LP Units in connection with such property contributions.

On December 3, 2021, the Operating Partnership commenced a private placement offering of its Common LP Units. As of ~~June~~September 30, 2022, the Operating Partnership had issued and sold 612,100 Common LP Units, with a value of $10.00 per unit, in connection with property contributions.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation—The accompanying consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the SEC applicable to annual financial information. The consolidated financial statements include the accounts of LF REIT III, the OP, ~~and~~ its wholly-owned ~~subsidiaries. For the controlled~~ subsidiaries ~~that are not wholly-owned, the interests owned by an entity other than~~and entities in which the Company has a controlling financial interest, including variable interest entities (“VIEs”) where the Company is the primary beneficiary. The determination of a controlling financial interest is based upon the terms of the governing agreements of the respective entities, including the evaluation of the rights held by other interests. If the entity is considered to be a VIE, the Company determines whether the Company is the primary beneficiary, and then consolidates those VIEs for which the Company has determined that the Company is the primary beneficiary. If the entity in which the Company holds an interest does not meet the definition of a VIE, the Company evaluates whether the Company has a controlling financial interest through the Company’s voting interest in the entity. The Company consolidates entities when the Company owns more than 50 percent of the voting shares of a company or otherwise has a controlling financial interest. References in these financial statements to the net (loss) income attributable to stockholders do not include non-controlling interests, which represent ~~a non-controlling interest, which is~~the outside ownership interests of the Company’s consolidated, non-wholly owned entities and are presented separately in the consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates—The preparation of the Company’s consolidated financial statements and the accompanying notes in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and the amounts of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

During the first quarter of 2020, the global outbreak of COVID-19 was identified and has since spread to nearly every country and territory, including every state in the United States. The COVID-19 pandemic and the related governmental restrictions instituted to slow the spread of the virus continues to adversely impact many industries, with the travel and hospitality industries being particularly adversely affected. Although our hotel properties have remained open through the pandemic, our occupancy levels have been lower than historical levels. The outbreak could have a continued adverse impact on economic and market conditions and could trigger a continued slowdown in leisure and business travel, which is adversely impacting the travel and hospitality industries. Further, increasing labor costs and shortages, supply chain disruptions and related commodity and other price inflation resulting from the COVID-19 pandemic may cause an increase in renovation, construction and operating costs, may limit our access to critical operating supplies, and may continue to adversely affect our hotel operations and financial results. The fluidity of this situation precludes any prediction as to the

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ultimate adverse impact of COVID-19 on economic and market conditions. The Company believes the estimates and assumptions underlying the Company’s consolidated financial statements are reasonable and supportable based on the information available as of June 30, 2022, however uncertainty over the ultimate impact COVID-19, including the continued emergence of new strains of COVID-19, such as the Delta and Omicron variant, will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of June 30, 2022 inherently less certain than they would be absent the current and potential impacts of COVID-19.

The Company has taken significant measures to mitigate the negative financial and operational impacts of COVID-19 on the Company. The Company has made changes to our business and investment strategies that are expected to enhance the Company’s liquidity and reduce costs, including payment of distributions in stock, in part or in whole, pursuant to the DRIP, deferring most non-essential capital projects, obtaining waivers under and amendments to the Company’s credit agreements.

Revenue Recognition—Revenues consist of amounts derived from hotel operations, including room sales and other hotel revenues, and are presented on a disaggregated basis in the Company’s consolidated statements of operations. These revenues are recorded net of any sales and occupancy taxes collected from the hotel guests. All revenues are recorded on an accrual basis as they are earned. Any cash received prior to a guest’s arrival is recorded as an advance deposit from the guest and recognized as revenue at the time of the guest’s occupancy at the hotel property.

Investment in Hotel Properties—The Company evaluates whether each hotel property acquisition should be accounted for as an asset acquisition or a business combination. If substantially all of the fair value of the gross assets acquired is concentrated in a single asset or a group of similar identifiable assets, then the transaction is considered to be an asset acquisition. All of the Company’s acquisitions since inception have been determined to be asset acquisitions. Transaction costs associated with asset acquisitions are capitalized and transaction costs associated with business combinations would be expensed as incurred.

The Company’s acquisitions generally consist of land, land improvements, buildings, building improvements, and furniture, fixtures and equipment (“FF&E”). The Company may also acquire intangible assets or liabilities related to in-place leases, management agreements, debt, and advanced bookings. For transactions determined to be asset acquisitions, the Company allocates the purchase price among the assets acquired and the liabilities assumed on a relative fair value basis at the date of acquisition. The Company determines the fair value of assets acquired and liabilities assumed with the assistance of third-party valuation specialists, using cash flow analysis as well as available market and cost data. The determination of fair value includes making numerous estimates and assumptions.

The difference between the fair value and the face value of debt assumed in connection with an acquisition is recorded as a premium or discount and amortized to interest expense over the remaining term of the debt assumed. The valuation of assumed debt liabilities is based on our estimate of the current market rates for similar liabilities in effect at the acquisition date.

The Company’s investments in hotel properties are carried at cost and are depreciated using the straight-line method over the estimated useful lives of 15 years for land improvements, 40 years for buildings and building improvements and ~~three~~3 to ~~seven~~7 years for FF&E. Maintenance and repair costs are expensed in the period incurred and major renewals or improvements to the hotel properties are capitalized.

The Company assesses the carrying value of its hotel properties whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The recoverability is measured by comparing the carrying amount of the property to the estimated future undiscounted cash flows of the property, which take into account current market conditions, ~~including the impact of COVID-19,~~ and the Company’s intent with respect to holding or disposing of the hotel properties. If the Company’s analysis indicates that the carrying value is not recoverable on an undiscounted cash flow basis, the Company will recognize an impairment loss for the amount by which the carrying value exceeds the fair value. The fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions or third-party appraisals.

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The use of projected future cash flows is based on assumptions that are consistent with a market participant’s future expectations for the industry and the economy in general and the Company’s expected use of the underlying hotel properties. The assumptions and estimates related to the future cash flows and the capitalization rates are complex and subjective in nature. Changes in economic and operating conditions ~~including those occurring as a result of the impact of the COVID-19 pandemic,~~ that occur subsequent to a current impairment analysis and the Company’s ultimate use of the hotel property could impact the assumptions and result in future impairment losses to the hotel properties.

Advertising Costs—The Company expenses advertising costs as incurred. These costs represent the expense for franchise advertising and reservation systems under the terms of the hotel management and franchise agreements and expenses that are directly attributable to advertising and promotion. Advertising expense was ~~$608,779~~$1,127,524 and ~~$426,669~~$757,112 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively, and is included in sales and marketing in the consolidated statements of operations.

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Non-controlling Interest—Non-controlling interests represent the portion of equity in a subsidiary held by owners other than the Company. Non-controlling interests are reported in the consolidated balance sheets within equity, separate from stockholders’ equity. Revenue and expenses attributable to both the Company and the non-controlling interests are reported in the consolidated statements of operations, with net income or loss attributable to non-controlling interests reported separately from net income or loss attributable to the Company.

Cash and Cash Equivalents—Cash and cash equivalents include cash in bank accounts as well as highly liquid investments with an original maturity of three months or less. The Company deposits cash with several high-quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to an insurance limit of $250,000. At times, the Company’s cash and cash equivalents may exceed FDIC insured levels.

Restricted Cash—Restricted cash primarily consists of earnest money deposits related to hotel property acquisitions, as well as certain funds maintained in escrow accounts to fund future payments for insurance, property tax obligations, and reserves for future capital expenditures, as required by our debt agreements.

Accounts Receivable—Accounts receivable consist primarily of receivables due from hotel guests for room stays and meeting and banquet room rentals, which are uncollateralized customer obligations. Management determines the likelihood of collectability of receivables on an individual customer basis, based on the amount of time the balance has been outstanding, likelihood of collecting, and the customer’s current economic status. The carrying amount of the accounts receivables is reduced by a valuation allowance that reflects management’s best estimate of the amounts that will not be collected.

Deferred Financing Costs—Deferred financing costs represent origination fees, legal fees, and other costs associated with obtaining financing. Deferred financing costs are presented on the consolidated balance sheets as a direct deduction from the carrying amount of the related debt liability. These costs are amortized to interest expense over the terms of the respective financing agreements using the straight-line method, which approximates the effective interest method. The Company expenses unamortized deferred financing costs when the associated financing agreement is refinanced or repaid before maturity unless certain criteria are met that would allow for the carryover of such costs to the refinanced agreement. Costs incurred in connection with potential financial transactions that are not completed are expensed in the period in which it is determined the financing will not be completed.

Offering Costs—The Company has incurred certain costs related directly to the Company’s private offerings consisting of, among other costs, commissions, legal, due diligence costs, printing, marketing, filing fees, postage, data processing fees, and other offering related costs. These costs are capitalized and recorded as a reduction of equity proceeds on the accompanying consolidated balance sheets.

Property Operations Expenses—Property operations expenses consist of expenses related to room rental, food and beverage sales, telephone usage, and other miscellaneous service costs, as well as all costs of operating the Company’s hotel properties such as building repairs, maintenance, property taxes, utilities, and other related costs.

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Property Management Fees—Property management fees include expenses incurred for management services provided for the day-to-day operations of our hotel properties, which are generally charged at a rate of 4% of gross revenues. Property management fees also include asset management fees, which may be charged at an annual rate of up to 0.75% of gross assets and are paid to the Advisor.

Franchise Fees—The Company pays initial fees related to hotel franchise rights prior to acquiring a hotel property. The fees are included in prepaid expenses and other assets until the time the related hotel property is acquired. Initial franchise fees related to hotel properties that are acquired are amortized on a straight-line basis over the life of the agreement. Initial franchise fees related to hotel properties that are not acquired are refunded to the Company, net of any associated fees, and any fees are expensed as incurred. Franchise fees on the accompanying consolidated statements of operations include the amortization of initial franchise fees, as well as monthly fees paid to franchisors for royalty, marketing, and reservation fees and other related costs.

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Acquisition Costs—The Company incurs costs during the review of potential hotel property acquisitions including legal fees, environmental reviews, market studies, financial advisory services, and other professional service fees. If the Company does complete a property acquisition, an acquisition fee of up to 1.4% is charged by the Advisor, based on the purchase price of the property plus any estimated PIP costs. For transactions determined to be asset acquisitions, these costs are capitalized as part of the overall cost of the project. For transactions determined to be business combinations, these costs would be expensed in the period incurred. Acquisition-related and acquisition due diligence costs that relate to a property that is not acquired, are expensed and included in acquisition costs on the accompanying consolidated statements of operations. Prior to the ultimate determination of whether a property will be acquired or not, acquisition-related and acquisition due diligence costs are recorded as, and included in, prepaid expenses and other assets on the accompanying consolidated balance sheets.

Stock-Based Compensation—During 2022, the Company began compensating its independent directors with stock-based compensation as approved by and administered under the supervision of our Board of Directors. The awards are fully vested at issuance and the Company recognizes stock-based compensation expense based on the award’s fair value at the grant date. Compensation expense related to stock awards is determined on the grant date based on the offering price of our common stock and is charged to earnings when issued. Stock-based compensation expense was ~~$30,000~~$45,000 and $0 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively, and is included in general and administrative expense in the consolidated statements of operations.

Net Loss Per Share of Common Stock—Basic net loss per common share is computed based upon the weighted average number of shares outstanding during the period. Diluted net loss per common share is calculated after giving effect to all potential common shares that were dilutive and outstanding for the period. Basic and diluted net loss per common share were the same for the periods presented.

Income Taxes—The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it distribute at least 90% of its REIT taxable income, subject to certain adjustments and excluding any net capital gain, to stockholders. The Company’s intention is to adhere to the REIT qualification requirements and to maintain its qualification for taxation as a REIT.

As a REIT, the Company is generally not subject to U.S. federal corporate income tax on the portion of taxable income that is distributed to stockholders. If the Company fails to qualify for taxation as a REIT in any taxable year, the Company will be subject to U.S. federal income taxes at regular corporate rates and it may not be able to qualify as a REIT for four subsequent taxable years. As a REIT, the Company may be subject to certain state and local taxes on its income and property, and to U.S. federal income and excise taxes on undistributed taxable income. Taxable income from non-REIT activities managed through the Company’s taxable REIT subsidiary (“TRS”) is subject to U.S. federal, state, and local income taxes at the applicable rates.

The TRS accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax basis, and for net operating

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loss, capital loss and tax credit carryforwards. The deferred tax assets and liabilities are measured using the enacted income tax rates in effect for the year in which those temporary differences are expected to be realized or settled. The effect on the deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company performs periodic reviews for any uncertain tax positions and, if necessary, will record the expected future tax consequences of uncertain tax positions in the consolidated financial statements.

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Fair Value Measurement—The Company establishes fair value measures based on the fair value definition and hierarchy levels established by GAAP. These fair values are based on a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1—Observable inputs such as quoted prices in active markets.

Level 2—Directly or indirectly observable inputs, other than quoted prices in active markets.

Level 3—Unobservable inputs in which there is little or no market data, which require a reporting entity to develop its own assumptions.

The Company’s estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. The Company classifies assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement.

Recent Accounting ~~Standards Recently Adopted~~Pronouncements—The Company, as an emerging growth company, has elected to use the extended transition period which allows us to defer the adoption of new or revised accounting standards. This allows the Company to adopt new or revised accounting standards as of the effective date for non-public business entities.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, “Leases” (“ASU No. 2016-02”) (Topic 842), which replaces Leases (Topic 840), and sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU No. 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a ~~right of use~~right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance under Leases (Topic 840), for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. The Company adopted this standard effective January 1, 2022, electing to recognize and measure its leases prospectively at the beginning of the period of adoption, without restating the presentation of periods prior to the effective date, which continue to be reported in accordance with the Company’s historical accounting policy.

At adoption of the new standard, the Company recorded a right-of-use asset and lease liability for its Sheraton Northbrook, Illinois hotel property (the "Northbrook Property") ground lease measured at the estimated present value of the remaining minimum lease payments under the lease. The Company’s ground lease is classified as a financing lease under Topic 842. For this finance lease, effective January 1, 2022, the Company began recognizing depreciation and amortization expense and interest expense in the Company’s consolidated statements of operations instead of ground lease rent expense. While the total expense recognized over the life of a lease is unchanged, the timing of expense recognition for finance leases results in higher expense recognition during the earlier years of the lease and lower expense during the later years of the lease. In addition to recording operating and financing right-of-use assets and lease liabilities, the Company also reclassified at adoption its intangible liability for its above market ground lease to the beginning right-of-use asset. See Note 3 for more information regarding the Company’s lease assets and liabilities.

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3. INVESTMENT IN HOTEL PROPERTIES

Investment in hotel properties as of September 30, 2022 and December 31, 2021 consisted of the following:


	September 30,		December 31,
	2022		2021
Land and land improvements	$	32,017,963	$	20,034,309
Building and building improvements		234,670,996		144,883,150
Furniture, fixtures, and equipment		21,044,890		13,986,611
Right-of-use asset - ground lease		7,275,131		—
Construction in progress		3,651,739		8,433
Investment in hotel properties, at cost		298,660,719		178,912,503
Less: accumulated depreciation		(14,960,196)		(9,487,728)
Investment in hotel properties, net	$	283,700,523	$	169,424,775

As of September 30, 2022, the Company consolidated eighteen hotel properties, consisting of seventeen hotel properties owned by the Company and an equity and profits interest in the parent of the entity which holds a leasehold interest in one hotel property, with an aggregate of 2,177 rooms located in nine states.

On August 10, 2022, the Company consolidates a variable interest entity (“VIE”) that owns one hotel in El Paso, Texas (the “El Paso University Property”). The Company is the primary beneficiary of this VIE as the Company has the power to direct the activities that most significantly affect its economic performance. Additionally, the Company has the obligation to absorb its losses and the right to receive benefits that could be significant to it. Accordingly, the Company initially recognized the VIE’s assets, liabilities, and noncontrolling interest at fair value. The Company’s condensed consolidated balance sheet includes the following assets and liabilities of this entity:


	September 30,		December 31,
	2022		2021
Assets
Investment in hotel properties, net of accumulated depreciation of $188,306 and $0	$	22,248,542	$	—
Cash and cash equivalents		890,293		—
Restricted cash		2,061,135		—
Accounts receivable, net		226,787		—
Prepaid expenses and other assets		119,305		—
Total Assets	$	25,546,062	$	—

Liabilities
Debt, net	$	12,592,057	$	—
Finance lease liability		4,862,172		—
Accounts payable		563,891		—
Accrued expenses		351,374		—
Other liabilities		337,027		—
Total liabilities	$	18,706,521	$	—

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~~3. INVESTMENT IN HOTEL PROPERTIES~~

~~Investment in hotel properties as of June 30, 2022 and December 31, 2021 consisted of the following:~~

June 30,

December 31,

2022

2021
Land and land improvements

$
26,023,472

$
20,034,309
Building and building improvements

182,503,766

144,883,150
Furniture, fixtures, and equipment

17,680,982

13,986,611
Finance ground lease assets

2,451,754

—
Construction in progress

1,536,978

8,433
Investment in hotel properties, at cost

230,196,952

178,912,503
Less: accumulated depreciation

(12,770,510)

(9,487,728)
Investment in hotel properties, net

$
217,426,442

$
169,424,775

~~As of June 30, 2022, the Company owned 14 hotel properties with an aggregate of 1,686 rooms located in 9 states.~~

Acquisitions of Hotel Properties

The Company acquired 3six properties and an equity and profits interest in the parent of the entity which holds a leasehold interest in one hotel property during the ~~six~~nine months ended ~~June~~September 30, ~~2022 and 4~~2022. The Company acquired four properties during the year ended December 31, 2021. Each of the Company’s hotel acquisitions to date have been determined to be asset acquisitions. The table below outlines the details of the properties acquired during the ~~six~~nine months ended ~~June~~September 30, 2022.


2022 Acquisitions	2022 Acquisitions														2022 Acquisitions

					Number														Number
				Date	of Guest	Purchase			Transaction				%					Date	of Guest	Purchase			Transaction				%
Hotel		Property Type	Location	Acquired	Rooms	Price			Costs		Total		Interest			Property Type	Location	Acquired	Rooms	Price			Costs		Total		Interest
Hampton Inn & Suites (the “Fargo Property”)		Limited-Service	Fargo, ND	January 18, 2022	90	$	11,440,000	(1)	$	302,222	$	11,742,222	100	%		Limited-Service	Fargo, ND	January 18, 2022	90	$	11,440,000	(1)	$	302,222	$	11,742,222	100	%
Courtyard by Marriott (the "El Paso Airport Property")		Select-Service	El Paso, TX	February 8, 2022	90		15,120,000	(2)		333,234		15,453,234	100	%		Select-Service	El Paso, TX	February 8, 2022	90		15,120,000	(2)		333,234		15,453,234	100	%
Fairfield Inn & Suites (the "Lakewood Property")		Limited-Service	Lakewood, CO	March 29, 2022	142		18,800,000	(3)		390,753		19,190,753	100	%		Limited-Service	Lakewood, CO	March 29, 2022	142		18,800,000	(3)		862,117		19,662,117	100	%
Residence Inn (the "Fort Collins Property")																Extended-Stay	Fort Collins, CO	August 3, 2022	113		15,800,000	(4)		546,009		16,346,009	100	%
Hilton Garden Inn (the "Pineville HGI Property")																Select-Service	Pineville, NC	August 25, 2022	113		10,930,000	(5)		347,149		11,277,149	100	%
Hilton Garden Inn (the "Charlotte Property")																Select-Service	Charlotte, NC	August 25, 2022	112		15,440,000	(6)		416,387		15,856,387	100	%
					322	$	45,360,000		$	1,026,209	$	46,386,209							660	$	87,530,000		$	2,807,118	$	90,337,118

(1)	Includes the issuance of $4,091,291 in Series T LP Units of the Operating Partnership.

(2)	Includes the issuance of $4,600,000 in Common Limited Partnership Units of the Operating Partnership.

(3)	Includes the issuance of $5,638,000 in Series T LP Units of the Operating Partnership.

(4)	Includes the issuance of $3,703,690 in Series T LP Units of the Operating Partnership.

(5)	Includes the issuance of $2,729,211 in Series T LP Units of the Operating Partnership.

(6)	Includes the issuance of $6,427,546 in Series T LP Units of the Operating Partnership.

The table below outlines the details of the properties acquired during the year ended December 31, 2021.


2021 Acquisitions

				Number
			Date	of Guest	Purchase			Transaction				%
Hotel	Property Type	Location	Acquired	Rooms	Price			Costs		Total		Interest
Courtyard by Marriott (the "Aurora Property")	Select-Service	Aurora, CO	February 4, 2021	141	$	23,610,000	(1)	$	458,129	$	24,068,129	100	%
Holiday Inn (the "El Paso Property")	Select-Service	El Paso, TX	May 12, 2021	175		10,300,000	(2)		361,019		10,661,019	100	%
Hilton Garden Inn (the "Houston Property")	Select-Service	Houston, TX	August 3, 2021	182		19,910,000	(3)		918,353		20,828,353	100	%
Sheraton Hotel (the "Northbrook Property")	Full-Service	Northbrook, IL	December 3, 2021	160		11,400,000	(4)		340,005		11,740,005	100	%
				658	$	65,220,000		$	2,077,506	$	67,297,506

(1)	Includes the issuance of $6,742,757 in Series T LP Units of the Operating Partnership.

(2)	Includes the issuance of $2,100,000 in Series T LP Units of the Operating Partnership.

(3)	Includes the issuance of $6,910,000 in Series T LP Units of the Operating Partnership.

(4)	Includes the issuance of $6,179,000 in Series T LP Units and $1,521,000 in Common Limited Partnership Units of the Operating Partnership.

In addition, on August 10, 2022, the Company acquired a 24.9% equity and profits interest in High Desert Garden Holdings, LLC, which is the parent of the entity which holds a leasehold interest in the Hilton Garden Inn, located in El Paso, Texas (the “El Paso University Property”) in exchange for a capital contribution of $3.2 million. The El Paso University Property is a select-service hotel with 153 guest rooms. See “—2022 Business Combinations” below for additional information regarding this transaction.

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~~NaN~~The allocation of the aggregate purchase price in accordance with GAAP guidance prescribed in ASC Topic 805, Business Combinations, of the assets and liabilities acquired at their relative fair values of their acquisition dates, is as follows:


	For the Nine Months Ended September 30,		For the Year Ended December 31,
	2022		2021
Land and land improvements	$	11,905,779	$	9,694,077
Building and building improvements		73,094,990		58,503,137
Furniture, fixtures, and equipment		5,336,349		4,597,353
Total assets acquired		90,337,118		72,794,567

Above market ground lease⁽¹⁾		—		(5,497,061)
Total liabilities assumed		—		(5,497,061)
Total purchase price⁽²⁾	$	90,337,118	$	67,297,506

Assumed mortgage debt		7,198,709		—

Net purchase price	$	83,138,409	$	67,297,506

(1)	The above market ground lease is recognized on the consolidated balance sheet within Other Liabilities as of December 31, 2021. See Northbrook Property Above Market Ground Lease discussion below.

(2)	Total purchase price includes purchase price plus all transaction costs.

All acquisitions completed during the nine months ended September 30, 2022 and the year ended December 31, 2021 were considered asset acquisitions under ASC 805.

Eleven of the hotel properties owned by the Company as of ~~June~~September 30, 2022 are subject to a management ~~agreement~~agreements with NHS, LLC dba National Hospitality Services (“NHS”) with an initial term expiring on December 31 of the fifth full calendar year following the effective date of the agreement, which will automatically renew for successive five-year periods unless terminated earlier in accordance with its terms. NHS is wholly-owned by Norman Leslie, a director and executive officer of the Company and a principal of the Advisor. The Pineville Property was being managed on a day-to-day basis by Beacon IMG, Inc. (“Beacon”), an affiliate of the seller of the Pineville Property, pursuant to a sub-management agreement. On February 1, 2023, day-to-day management was transferred to HP Hotel Management, Inc. The Southaven Property is subject to a management agreement with Vista Host Inc. (“Vista”) with an initial term expiring on February 21 of the fifth full calendar year following the effective date of the agreement. ~~This~~The agreement will automatically renew for 2two (2) successive five-year periods unless terminated earlier in accordance with its terms. The Houston Property, El Paso Airport Property and El Paso ~~Airport~~University Property are subject to a management agreement with Interstate Management Company, LLC (“Aimbridge”) ~~with~~. The Aimbridge agreement for the Houston Property has an initial term expiring on August 3 ~~and February 8, respectively,~~ of the third full calendar year following the effective date of the agreement. ~~This~~The agreement will automatically renew for additional successive terms of one year each unless terminated earlier in accordance with its terms. The Aimbridge agreement for the El Paso Airport Property and the El Paso University Property each has an initial five (5) year term and will automatically renew for one (1) year periods unless terminated earlier in accordance with its terms. The Charlotte Property and the Pineville HGI Property are each subject to a management agreement with HP Hotel Management, Inc. (“HP”). Each HP agreement has an initial term expiring three years after its effective date, which automatically renews for successive three-year periods, unless terminated in accordance with its terms. The Fargo Property is subject to a management agreement with KAJ Hospitality Inc. ~~(“KAJ”) with~~The KAJ agreement has an initial term of five years after its effective date, which automatically renews for successive one-year periods, unless terminated in accordance with its terms.

Q2The seller of the Pineville Property, an affiliate of Beacon, was entitled to additional cash consideration if the property exceeds certain performance criteria based on increases in the property’s net operating income (“NOI”) for a selected 12-month period of time. At any time during the period beginning April 1, 2021 through the date of the final NOI determination (on or about April 30, 2023), the seller of the property could have made a one-time election to receive the additional consideration. The variable amount of the additional consideration, if any, was based on the excess of the

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property’s actual NOI over a base NOI for the applicable 12-month calculation period divided by the stated cap rate for such calculation period. As of September 30, 2022, ~~Year-to-Date~~no amounts were owed or paid to the seller of the Pineville Property, and no election to receive the additional consideration had been made. As of the date of this filing, the period to elect to receive additional consideration has passed with no election being made.

2022 Acquisitions through September 30, 2022

Hampton Inn & Suites Fargo Medical Center – Fargo, North Dakota

On January 18, 2022, the Operating Partnership acquired a Hampton Inn & Suites hotel property in Fargo, North Dakota (the “Fargo Property”) ~~pursuant to an Amended and Restated Contribution Agreement (the “Fargo Amended Contribution Agreement”), dated as of the same date. The aggregate~~for contractual consideration under the Fargo Amended Contribution Agreement was $11.4 million plus closing costs of approximately $0.3 million, subject to adjustment as provided in the Fargo Amended Contribution Agreement. The consideration consists of a loan (the “Original Hampton Fargo Loan”) assumed by subsidiaries of the Operating Partnership with Legendary A-1 Bonds, LLC (the “Lender”), which is an affiliate of the Advisor which is owned by Norman Leslie and Corey Maple, each a director and executive officer of the Company and principal of the Advisor, in the amountcomprised of $7.2 million ~~secured by the Fargo Property,~~in debt, $150,000 in cash and the issuance ~~by the Operating Partnership~~ of ~~approximately~~ $4.1 million in Series T LP Units of the Operating ~~Partnership, and the payment by the Operating Partnership of $150,000 in cash.~~Partnership. The Series T LP Units will convert into Common LP Units of the Operating Partnership beginning 36 months, or in the event the Operating Partnership is then in the process of transacting a sale of the Operating Partnership’s assets or another significant capital event necessitating a conversion is then in process, after January 18, 2022, at which point the value will be calculated pursuant to the terms of an Amended and Restated Contribution Agreement, dated January 18, 2022. The number of Common LP Units to be issued to the contributor based on such conversion may be higher or lower than the initial valuation of the Series T LP Units. Accordingly, the aggregate purchase price used for the acquisition accounting noted in the tables above and below of $11.4 million, was determined to be the value assigned by a third-party appraisal, as the appraisal value was more reliably measurable.

The assumed loan had a fixed interest rate of 7.0% per annum and matures on October 3, 2022, which could be extended by the Company for an additional one-year term upon satisfaction of certain conditions contained in the assumed loan agreement, including no then-existing event of default. On February 23, 2022, pursuant to the Business Loan Agreement, dated as of February 23, 2022 (the “New Loan Agreement”), the Company entered into a new $7.4 million loan with Western State Bank (the “New Lender”), which is secured by the Hampton Fargo (the “New Hampton Fargo Loan”). The New Lender is not affiliated with the Company or the Advisor. The New Hampton Fargo Loan is evidenced by a promissory note and has a fixed interest rate of 4.00% per annum. The New Hampton Fargo Loan matures five years after the effective date. The New Hampton Fargo Loan requires monthly payments of principal and interest, with the outstanding principal and interest due at maturity. The New Hampton Fargo Loan will move to monthly interest-only payments for 12 months once the PIP funds are placed on deposit with the New Lender and work on the PIP begins. The Company has the right to prepay all or a portion of the New Hampton Fargo Loan at any time without penalty. The Company used the proceeds of the New Hampton Fargo Loan to repay in full the Original Hampton Fargo Loan described above.

The New Loan Agreement requires the maintenance of covenants concerning an annual debt service coverage ratio beginning for each fiscal year beginning December 31, 2023, the maintenance of a replacement reserve account beginning 30 days after loan origination and the monthly escrow for property taxes as further described in the New Loan Agreement. The New Loan Agreement contains customary events of default, including payment defaults, as further described therein. If an event of default occurs under the New Loan Agreement, the New Lender may accelerate the repayment of amounts

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~~outstanding under the New Loan Agreement and exercise other remedies subject, in certain instances, to the expiration of applicable cure periods.~~

Pursuant to the New Loan Agreement, the Operating Partnership entered into a Guaranty (the “OP Guaranty”) with the New Lender to guarantee payment when due of the loan amount and the performance of the agreements of Borrower contained in the loan documents, as further described in the OP Guaranty. Further, Corey Maple, a director and executive officer of the Company, entered into a Guaranty (the “Maple Guaranty”) with the New Lender to guarantee payment, when due, of the loan amount and any additional amounts due by the Borrower under the loan documents at that time, as further described in the Maple Guaranty.

In connection with the acquisition, the Company entered into a Management Agreement with KAJ Hospitality Inc. (“KAJ”) (the “KAJ Management Agreement”) to provide property management and hotel operations management services for the Fargo Property. The KAJ Management Agreement has an initial term of five years after its effective date, which automatically renews for successive one-year periods, unless terminated in accordance with its terms. Pursuant to the KAJ Management Agreement, the Company agrees to pay to KAJ a management fee equal to 3.0% of total revenues plus an accounting fee of $14.00 per room for accounting services, payable monthly. KAJ may also receive incentive management fees if certain performance metrics are achieved. The Company also reimburses KAJ for certain costs of operating the property incurred on behalf of the Company. All reimbursements are paid to KAJ at cost. The KAJ Management Agreement may be terminated upon the occurrence of an Event of Default (as defined in the KAJ Management Agreement), subject in certain cases to applicable notice and cure periods as described in the KAJ Management Agreement. The Company may terminate the KAJ Management Agreement if certain performance metrics are not met by KAJ.

The Company funded the acquisition of the Fargo Property with proceeds from its ongoing private offerings, Series T LP Units issued to the Contributor as described above, and an assumed loan secured by the Fargo Property. The Fargo Property is a 90-room property.

Courtyard El Paso Airport – El Paso, Texas

On February 8, 2022, the Operating Partnership acquired a Courtyard by Marriott hotel property in El Paso, Texas (the “El Paso Airport Property”) ~~pursuant to an Amended and Restated Contribution Agreement (the “El Paso Airport Amended Contribution Agreement”), dated as of the same date. The aggregate~~for contractual consideration under the El Paso Airport Amended Contribution Agreement was $15.1 million plus closing costs of approximately $0.3 million, subject to adjustment as provided in the El Paso Airport Amended Contribution Agreement. The consideration consisted of a new loan entered into by subsidiaries of the Operating Partnership with Legendary A-1 Bonds, LLC (the “Lender”), which is an affiliate of the Advisor which is owned by Norman Leslie and Corey Maple, each a director and executive officer of the Company and principal of the Advisor (the “Original El Paso Airport Loan”), in the amountcomprised of $10.0 million ~~secured by the El Paso Airport Property,~~in debt, $620,000 in cash and the issuance ~~by the Operating Partnership~~ of ~~approximately~~ $4.6 million in Common Limited Units of the Operating Partnership, and the payment by the Operating Partnership of $620,000 in cash. The Original El Paso Airport Loan had a fixed interest rate of 7.0% per annum and matured on February 7, 2023, which could be extended by the Company for an additional one-year term upon satisfaction of certain conditions contained in the Original El Paso Airport Loan agreement, including no then-existing event of default. The Original El Paso Airport Loan requires monthly payments of interest-only throughout the term, with the outstanding principal and interest due at maturity. The Company had the right to prepay the Original El Paso Airport Loan in full at any time without a fee. The Original El Paso Airport Loan required Borrower to fund an insurance and tax reserve account at closing. On May 13, 2022, the proceeds of the New El Paso Airport Loan described below were used to refinance the Original El Paso Airport Loan, and all outstanding obligations under the Original El Paso Airport Loan were repaid in full without any fee or penalty and all commitments and guaranties in connection therewith have been terminated or released.

On May 13, 2022, pursuant to the Business Loan Agreement, dated as of May 13, 2022 (the “New El Paso Airport Loan Agreement”), subsidiaries of the Operating Partnership entered into a new $10.0 million loan with Western Alliance Bank (the “New El Paso Airport Lender”), which is secured by the El Paso Airport Property (the “New El Paso Airport Loan”). The New El Paso Airport Lender is not affiliated with the Company or the Advisor. The New El Paso Airport Loan is evidenced by a promissory note and has a fixed interest rate of 6.01% per annum. The New El Paso Airport Loan matures five years after the effective date. The New El Paso Airport Loan requires 18 monthly interest-only payments followed by

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monthly payments of principal and interest, with the outstanding principal and interest due at maturity. The borrower has the right to prepay the entire New El Paso Airport Loan on certain permitted prepayment dates with a ~~30-day~~ notice. Such a prepayment would include a prepayment fee equal to 1% of the prepaid principal. If the New El Paso Airport Loan is prepaid concurrently with the sale of the El Paso Airport Property to an unaffiliated third party, the prepayment fee will be 0%.

The New El Paso Airport Loan Agreement requires the maintenance of covenants concerning a quarterly debt service coverage ratio and a quarterly debt yield beginning for each fiscal quarter beginning June 30, 2023 through March 31, 2025. The New El Paso Airport Loan Agreement contains customary events of default, including payment defaults, as further described therein. If an event of default occurs under the New El Paso Airport Loan Agreement, the New El Paso Airport Lender may accelerate the repayment of amounts outstanding under the New El Paso Airport Loan Agreement and exercise other remedies subject, in certain instances, to the expiration of applicable cure periods.

Pursuant to the New Loan Agreement, the Operating Partnership entered into a Guaranty (the “OP Guaranty”) with the New El Paso Airport Lender to guarantee payment when due of the loan amount and the performance of the agreements of borrower contained in the loan documents, as further described in the OP Guaranty.

In connection with the acquisition, the Company entered into a Management Agreement with Aimbridge Hospitality, LLC (“Aimbridge”) (the “Aimbridge Management Agreement”) to provide property management and hotel operations management services for the El Paso Airport Property. The Aimbridge Management Agreement has an initial term of five years after its effective date, which automatically renews for successive one-year periods, unless terminated in accordance with its terms. Pursuant to the Aimbridge Management Agreement, the Company agrees to pay to Aimbridge a management fee equal to 3% of total revenues, an accounting fee of $3,000 for accounting services, payable monthly, which amount will increase annually by 3% on January 1 of each fiscal year beginning on January 1, 2023. Aimbridge will also receive additional fees of $2,550 per month for customized accounting services, revenue management and digital marketing, which amount will increase annually by 3% on January 1 of each fiscal year beginning on January 1, 2023. Aimbridge may also receive incentive management fees if certain performance metrics are achieved. The Company also reimburses Aimbridge for certain costs of operating the property incurred on behalf of the Company. All reimbursements are paid to Aimbridge at cost. The Aimbridge Management Agreement may be terminated upon the occurrence of an Event of Default (as defined in the Aimbridge Management Agreement), subject in certain cases to applicable notice and cure periods as described in the Aimbridge Management Agreement. The Company may terminate the Aimbridge Management Agreement in connection with the sale of the El Paso Airport Property upon at least ninety days’ written notice to Aimbridge and the payment of a termination fee, the amount of which varies depending on the timing of such termination.

The Company funded the acquisition of the El Paso Airport Property with proceeds from its ongoing private offerings, Common Limited Units issued to the Contributor as described above, and the Original El Paso Airport Loan secured by the El Paso Airport Property, which was subsequently replaced with the New El Paso Airport Loan described above. The El Paso Airport Property is a 90-room property.LP Units.

Fairfield Inn & Suites Denver Southwest Lakewood – Lakewood, Colorado

On March 29, 2022, the Operating Partnership acquired a Fairfield Inn & Suites hotel property in Lakewood, Colorado (the “Lakewood Property”) ~~pursuant to an Amended Contribution Agreement (the “Lakewood Amended Contribution Agreement”), dated as of March 22, 2022. The aggregate~~for contractual consideration under the Lakewood Amended Contribution Agreement was $19.4 million plus closing costs of approximately $0.4 million, subject to adjustment as provided in the Lakewood Amended Contribution Agreement. The consideration consists of a new loan (the “New Lakewood Loan Agreement”) entered into by subsidiaries of the Operating Partnership with Legendary A-1 Bonds, LLC (the “Lender”), which is an affiliate of the Advisor which is owned by Norman Leslie and Corey Maple, each a director and executive officer of the Company and principal of the Advisor, in the amount of $12.6 million ~~secured by the Lakewood Property, the issuance by the Operating Partnership of~~in debt, $552,000 in cash and approximately $6.2 million in Series T LP Units ~~of the Operating Partnership, and the payment by the Operating Partnership of $552,000 in cash, the use and disbursement of, which is subject to the review and discretion~~ of the Operating Partnership. The Series T LP Units will convert into Common LP Units of the Operating Partnership beginning 36 months, or in the event the Operating Partnership is then in the process of transacting a sale of the Operating Partnership’s assets or another significant capital event necessitating a conversion is then in process,

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up to 48 months, after March 29, 2022, at which point the value will be calculated pursuant to the terms of an Amended and Restated Contribution Agreement, dated March 29, 2022. The number of Common LP Units to be issued to the contributor based on such conversion may be higher or lower than the initial valuation of the Series T LP Units. Accordingly, the aggregate purchase price used for the acquisition accounting noted in the tables above and below of $18.8 million, was determined to be the value assigned by a third-party appraisal, as the appraisal value was more reliably measurable.

Residence Inn by Marriott Fort Collins – Fort Collins, Colorado

On August 3, 2022, the Operating Partnership acquired a Residence Inn by Marriott hotel property in Fort Collins, Colorado (the “Fort Collins Property”) for contractual consideration comprised of $11.5 million in debt, the issuance of 560,369 Series T LP Units of the Operating Partnership, and approximately $600,000 in cash at closing. The Series T Limited Units will convert into Common Limited Units of the Operating Partnership beginning 36 months, or at the option of the contributor, up to 48 months, after the closing, or upon the sale of the Fort Collins RI property or substantially all of the Operating Partnership’s assets, at which point the value will be calculated pursuant to the terms of the Fort Collins RI Amended Contribution Agreement. The number of Common LP Units to be issued to the contributor based on such conversion may be higher or lower than the initial valuation of the Series T LP Units. Accordingly, the aggregate purchase price used for the acquisition accounting noted in the tables above and below of $15.8 million, was determined to be the value assigned by a third-party appraisal, as the appraisal value was more reliably measurable.

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Hilton Garden Charlotte North – Charlotte, North Carolina

On August 25, 2022, the Operating Partnership acquired a Hilton Garden Inn hotel property in Charlotte, North Carolina (the “Charlotte Property”) for contractual consideration comprised of the payoff of the existing loan secured by the Charlotte Property in the amount of $8.7 million, refinanced with a new term loan by subsidiaries of the Operating Partnership with Western Alliance Bank (the “Charlotte HGI Lender”) in the original principal amount of $9.8 million secured by the Charlotte Property (the “Charlotte HGI Loan Agreement”), the issuance by the Operating Partnership of 598,755 Series T Limited Units of the Operating Partnership, and the payment by the Operating Partnership of $0.4 million in cash. The Series T LP Units will convert into Common Limited Units of the Operating Partnership beginning 24 months after the closing. The number of Common Limited Units to be issued to the Contributor upon conversion will be calculated pursuant to the terms of the Charlotte HGI Contribution Agreement, which may be higher or lower than the initial valuation of the Series T LP Units. Accordingly, the aggregate purchase price used for the acquisition accounting noted in the tables above and below of $15.4 million, was determined to be the value assigned by a third-party appraisal, as the appraisal value was more reliably measurable.

Hilton Garden Pineville – Pineville, North Carolina

On August 25, 2022, the Operating Partnership acquired a Hilton Garden Inn hotel property in Pineville, North Carolina (the “Pineville HGI Property”) for contractual consideration comprised of the payoff of the existing loan secured by the Pineville HGI in the amount of $7.8 million, refinanced with a new $7.0 million loan by subsidiaries of the Operating Partnership with Western Alliance Bank (the “Pineville HGI Lender”) secured by the Pineville HGI (the “Pineville HGI Loan Agreement”), the issuance by the Operating Partnership of 249,921 Series T Limited Units of the Operating Partnership, and the payment by the Operating Partnership of $0.4 million in cash. The Series T Limited Units will convert into Common Limited Units of the Operating Partnership beginning 24 months after the closing. The number of Common Limited Units to be issued to the Contributor upon conversion will be calculated pursuant to the terms of the Pineville HGI Contribution Agreement, which may be higher or lower than the initial valuation of the Series T LP Units. Accordingly, the aggregate purchase price used for the acquisition accounting noted in the tables above and below of $10.9 million, was determined to be the value assigned by a third-party appraisal, as the appraisal value was more reliably measurable.

2022 Business Combinations

Hilton Garden Inn El Paso University – El Paso, Texas

Pursuant to the El Paso University Amended Agreements, the Operating Partnership acquired a 24.9% membership interest in HDGH in exchange for a capital contribution of $3.2 million. The Operating Partnership has the unconditional right, at any time prior to December 31, 2027 and at its discretion, to acquire all membership interest in HDGH on the terms and conditions as provided in the El Paso University Amended Agreements. After paying any member loans, the Operating Partnership will receive 100% of distributions from operations, subject to annual cash distributions for members that existed before the El Paso University Amended Agreements (the “Prior Members”), which are entitled to up to 6.0% of the value of the Prior Member’s ownership percentage, depending upon the net operating income (“NOI”) of the El Paso University Hotel Property during each such applicable year. The Operating Partnership will fund any capital requirements for HDGH and has the option to fund such requirements by making a loan to HDGH at a 12% per annum interest rate. HDI is the borrower (“Borrower”) under a loan in the original principal amount of $14.4 million which is secured by HDI’s leasehold interest in the El Paso University Property and the real estate on which it is located. The loan has a fixed interest rate of 7.0% per annum and matures on March 28, 2023, which may be extended by us for an additional one-year term upon satisfaction of certain conditions contained in the New Lakewood Loan Agreement, including no then-existing event of default. The new loan requires monthly payments of interest-only throughout the term, with the outstanding principal and interest due at maturity. The Company has the right to prepay the new loan in full at any time without a fee. The new loan requires Borrower to fund an insurance and tax reserve account at closing.

In addition to the $12.6 million loan, there is a $1.2 million loan guaranteed by RLC-VI Lakewood, LLC and Rockies Lodging Capital, LLC with a fixed interest rate of 7.0% per annum and matures on May 28, 2022 with the ability to extend to June 28, 2022. The amount not repaid as of June 28, 2022 (1) will offset the conversion value at a rate of 1.75:1 at the time of the conversion event, and (2) will be repaid in Common Limited Units at the conversion event in an amount as defined in the New Lakewood Loan Agreement, the conversion event as defined in the Lakewood Amended Contribution Agreement, and the Conversion Cap Rate, as defined in the Lakewood Amended Contribution Agreement, has increased from 8.25% to 8.75%. As of June 30, 2022, there was a $399,914 balance outstanding on this loan.

In connection with the acquisition, the Company entered into a Management Agreement with NHS, LLC dba National Hospitality Services (“NHS”), an affiliate of the Advisor which is wholly-owned by Norman Leslie, a director and executive officer of the Company and a principal of the Advisor, to provide property management and hotel operations management services for the Lakewood Property. The agreement has an initial term expiring on December 31, 2027, which automatically renews for a period of five years on each successive five-year period, unless terminated in accordance with its terms. NHS earns a monthly base management fee for property management services equal to 3% of gross revenue, an accounting fee of $14.00 per room for accounting services, payable monthly, and an administrative fee equal to 0.60% of gross revenues for administrative and other services. The Company will also reimburse NHS for certain costs of operating the property incurred on behalf of the Company. All reimbursements are paid to NHS at cost, and the agreement can be terminated at any time without liquidated damages.

The Company funded the acquisition of the Lakewood Property with proceeds from its ongoing private offerings, Series T LP Units issued to the Contributor as described above, and a new loan secured by the Lakewood Property. The Lakewood Property is a 142-room property and after receiving all necessary third-party approvals, the Lakewood Property will open for operation.

~~The aggregate purchase price for the hotel properties acquired during the six months ended June 30, 2022 and the year ended December 31, 2021 were allocated as follows:~~

June 30,

December 31,

2022

2021
Land and land improvements

$
5,939,033

$
9,694,077
Building and building improvements

37,254,411

58,503,137
Furniture, fixtures, and equipment

3,192,765

4,597,353
Total assets acquired

46,386,209

72,794,567

Above market ground lease⁽¹⁾

—

(5,497,061)
Total liabilities assumed

—

(5,497,061)
Total purchase price⁽²⁾

$
46,386,209

$
67,297,506

~~(1)~~

~~The above market ground lease is recognized on the consolidated balance sheet within Other Liabilities as of December 31, 2021. See Above Market Ground Lease discussion below.~~

~~(2)~~

~~Total purchase price includes purchase price plus all transaction costs.~~

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rate of 4.939% per annum and matures on August 6, 2025. In connection with the transactions effected through the El Paso University Amended Agreements, Corey Maple, a director and executive officer of the Company, entered into a guaranty with the lender to guarantee payment, when due, of the loan amount and the performance of agreements by Borrower contained in the loan documents, as further described in the guaranty.

The Company accounted for this transaction as a business combination in accordance with GAAP guidance prescribed in ASC Topic 805, Business Combination. As such, the Company recognized a gain for the difference between the sum of the fair value of any consideration paid, the fair value of the noncontrolling interest, and the net fair value of identifiable assets and liabilities of the VIE. The assets of the Company’s VIE are only available to settle the obligation of this entity. The Company has expensed all transaction costs as an acquisition expense on the Company’s Consolidated Statement of Operations amounting to $571,198. The fair value of the investment in the hotel was determined by an independent appraisal and debt was determined by calculating the present value of the principal and interest payments, using discount rates that best reflect current market interest rates for financings with similar characteristics and credit quality, and assuming the loan is outstanding through its maturity. The fair values were based on estimated cash flow projections that utilize appropriate discount rates and available market information. Such inputs were categorized as Level 3, as defined in the GAAP fair value hierarchy. Level 3 valuations incorporate subjective judgements and consider assumptions that are not observable in the market.

In connection with this transaction, the Company allocated the purchase price of HDGH based on the estimated fair value of assets acquired and liabilities assumed as follows:


	August 10,
	2022
Assets
Building	$	16,700,000
Furniture, fixtures & equipment		900,000
Right-of-use asset - ground lease		4,862,172
Cash and cash equivalents		36,790
Restricted cash		1,305,636
Accounts receivable, net		168,974
Prepaid expenses and other assets		107,291
Total Assets	$	24,080,863

Liabilities
Debt	$	12,781,084
Finance lease liability		4,862,172
Accounts payable		237,636
Accrued expenses		1,970,554
Other liabilities		419,336
Total liabilities	$	20,270,782

Assets in excess of liabilities (gain on acquisition of VIE)	$	3,810,081

2021 Acquisitions

The Courtyard by Marriott in Aurora, Colorado (the “Aurora Property”) was acquired on February 4, 2021 for contractual consideration comprised of $15.0 million in debt, $1.9 million in cash paid at closing and the issuance of $6.7 million in Series T LP Units of the Operating Partnership. The Series T LP Units will convert into Common LP Units of the Operating Partnership beginning 36 months, or at the option of the contributor, up to 48 months, after February 4, 2021, at which point the value will be calculated pursuant to the terms of a Contribution Agreement, dated as of September 1, 2020, as amended on February 4, 2021. The number of Common LP Units to be issued to the contributor based on such conversion may be higher or lower than the initial valuation of the Series T LP Units. Accordingly, the aggregate purchase price used for the acquisition accounting noted in the tables above and below of $23.6 million, was determined to be the value assigned by a third-party appraisal, as the appraisal value was more reliably measurable.

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On May 12, 2021, the Operating Partnership acquired the Holiday Inn El Paso West Sunland Park hotel property in El Paso, Texas (the “El Paso HI Property”) for contractual consideration comprised of $7.9 million in debt, $300,000 in cash paid at closing and the issuance of $2.1 million in Series T LP Units of the Operating Partnership. The Series T LP Units will convert into Common LP Units of the Operating Partnership beginning 36 months, or in the event the Operating Partnership is then in the process of transacting a sale of the Operating Partnership’s assets or another significant capital event necessitating a conversion is then in process, up to 48 months, after May 12, 2021, at which point the value will be calculated pursuant to the terms of an Amended and Restated Contribution Agreement, dated May 12, 2021. The number of Common LP Units to be issued to the contributor based on such conversion may be higher or lower than the initial valuation of the Series T LP Units. Accordingly, the aggregate purchase price used for the acquisition accounting noted in the tables above and below of $10.3 million, was determined to be the value assigned by a third-party appraisal, as the appraisal value was more reliably measurable.

On August 3, 2021, the Operating Partnership acquired the Hilton Garden Inn Houston Bush Intercontinental Airport hotel property in Houston, Texas (the “Houston Property”) for contractual consideration comprised of $13.0 million in debt, $719,000 in cash paid at closing and the issuance of $6.9 million Series T LP Units of the Operating Partnership. The Series T LP Units will convert into Common LP Units of the Operating Partnership beginning 36 months, or in the event the Operating Partnership is then in the process of transacting a sale of the Operating Partnership’s assets or another significant capital event necessitating a conversion is then in process, up to 48 months, after August 3, 2021, at which point the value will be calculated pursuant to the terms of the Second Amended and Restated Contribution Agreement, dated August 3, 2021. The number of Common LP Units to be issued to the contributor based on such conversion may be higher or lower than the initial valuation of the Series T LP Units. Accordingly, the aggregate purchase price used for the acquisition accounting noted in the tables above and below of $19.9 million, was determined to be the value assigned by a third-party appraisal, as the appraisal value was more reliably measurable.

On December 3, 2021, the Operating Partnership acquired the Sheraton Hotel Chicago Northbrook hotel property located in Northbrook, Illinois (the “Northbrook Property”) for contractual consideration comprised of $3.7 million in debt, the issuance by the Operating Partnership of $6.2 million Series T Limited Units of the Operating Partnership and $1.5 million in Common Limited Partnership Units of the Operating Partnership. The Series T LP Units will convert into Common LP Units of the Operating Partnership beginning 36 months, or at the option of the contributor, up to 48 months, after December 3, 2021, at which point the value will be calculated pursuant to the terms of an Amended & Restated Contribution Agreement dated December 3, 2021. The number of Common LP Units to be issued to the contributor based on such conversion may be higher or lower than the initial valuation of the Series T LP Units. Accordingly, the aggregate purchase price used for the acquisition accounting noted in the tables above and below of $11.4 million, was determined to be the value assigned by a third-party appraisal, as the appraisal value was more reliably measurable.

Northbrook Property Above Market Ground Lease

On December 3, 2021, in connection with the purchase of the Northbrook Property, the Company recognized an above market ground lease liability of $5,497,061, which was recognized on the consolidated balance sheet within Other Liabilities. The Company assumed the ground lease 1615 years into a 61-year lease maturing in 2067. The yearly base rent, paid monthly, increases ~~annually by~~ 3% ~~on June 1 of each year.~~every year through maturity. As of ~~June~~September 30, 2022, the Company’s finance lease had a discount rate of 7.75%.

Upon adoption of ASU No. 2016-02 on January 1, 2022, the Company derecognized the above market ground lease liability by reclassifying it as a partial offset to the beginning right-of-use asset related to this financing lease. At adoption of the new standard, the Company recognized a lease liability of $7,975,757 and a ~~right of use~~right-of-use asset of $2,478,696, which included the derecognition of the above-market ground lease liability. For the ~~six~~nine months ended ~~June~~September 30, 2022, the Company recognized interest expense of ~~$310,605~~$467,280 and right-of-use amortization expense of ~~$26,942~~$40,414 related to the finance lease.

El Paso University Property Ground Lease

On August 10, 2022, in connection with the El Paso University Property, the Company recognized a finance lease liability of $4,862,172 and a right-of-use asset of $4,862,172 related to a ground lease assumed. The Company assumed the ground

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lease with a remaining term of 32 years, maturing in 2054. Annual rentals are comprised of a base rent due at the beginning of the year plus, if applicable, a percent of revenue in excess of the base rent. The annual base rent is adjusted every five years by an average of a percent of the annual revenue in preceding years. If revenue remains below the previous five-year base rent, then there is no change to base rent. As of September 30, 2022, the finance lease had a discount rate of 9.00%.

The following table reconciles the undiscounted cash flows for each of the next five years and total of the remaining years to the finance lease liability included in the Company’s consolidated balance sheet as of ~~June~~September 30, 2022.


2022	$	220,647	$	110,324
2023		449,017		596,767
2024		462,487		610,237
2025		476,362		624,112
2026		490,653		645,791
Thereafter		39,754,268		44,677,307
Total finance lease payments		41,853,434		47,264,538
Interest		(33,782,363)		(34,284,944)
Present value of finance lease liabilities	$	8,071,071	$	12,979,594

4. DEBT

Lines of Credit

Revolving Line of Credit - Western State Bank

On February 10, 2020, the Company entered into a $5.0 million revolving line of ~~credit.~~credit with Western State Bank (the “Western Revolving Line of Credit”). The ~~revolving line~~Western Revolving Line of ~~credit~~Credit requires monthly payments of interest only, with all outstanding principal amounts being due and payable at maturity on February 10, 2021. On January 19, 2021, the ~~revolving line~~Western Revolving Line of ~~credit~~Credit was amended to extend the maturity date to May 10, 2021. The ~~revolving line~~Western Revolving Line of ~~credit~~Credit had a variable interest rate equal to the U.S. Prime Rate, plus 0.50%~~, resulting in an effective rate of 3.75% per annum as of June 30, 2021.~~. On May 6, 2021, the ~~revolving line~~Western Revolving Line of ~~credit~~Credit was amended to extend the maturity date to May 10, ~~2022 and on May 5, 2022, the revolving line of credit was amended to extend the maturity date to December 15,~~ 2022. On ~~May 6, 2021,~~that date, the interest rate was also amended to incorporate an interest rate floor equal to 4.00%. On May 5, 2022, the ~~interest rate changed~~Western Revolving Line of Credit was amended to ~~4.50% per annum and on June~~extend the maturity date to December 15, ~~2022, the interest rate changed to 5.25% per annum.~~ 2022.

The interest rate as of ~~June~~September 30, 2022 was ~~5.25%~~6.75% per annum. ~~The revolving line~~As of ~~credit is~~September 30, 2022, the Western Revolving Line of Credit was secured by the Company’s Cedar Rapids Property and Eagan Property, which are also subject to term loans with the same lender, and 100,000 Common LP Units of the Operating Partnership. The ~~revolving line~~Western Revolving Line of ~~credit~~Credit includes cross-collateralization and cross-default provisions such that the existing mortgage loan agreements with respect to the Cedar Rapids Property and the Eagan Property, as well as future loan agreements that the Company may enter into with this lender, are cross-defaulted and cross-collateralized with each other. The ~~revolving line~~Western Revolving Line of ~~credit,~~Credit, including all cross-collateralized debt, is guaranteed by Corey Maple. As of ~~June~~September 30, 2022, there was 0a $3,550,000 balance outstanding ~~balance~~ on the Western Revolving Line of Credit. See Note 11 “Subsequent Events” of the notes to the consolidated financial statements included as part of this Quarterly Report on Form 10-Q for a description of amendments to the Western Line of Credit subsequent to September 30, 2022.

Revolving Line of Credit – Legendary A-1 Bonds, LLC

On August 10, 2022, the Operating Partnership entered into a $5.0 million revolving line of ~~credit.~~credit loan agreement (the “A-1 Line of Credit”) with Legendary A-1 Bonds, LLC (“A-1 Bonds”), which is an affiliate of the Advisor which is owned by Norman Leslie, a director and officer of the Company and principal of the Advisor and Corey Maple, a director of the Company and principal of the Advisor. The A-1 Revolving Line of Credit requires monthly payments of interest only beginning September 1, 2022, with all outstanding principal and interest amounts being due and payable at maturity on December 31, 2022. The A-1 Revolving Line of Credit has a fixed interest rate of 7.00% per annum. Outstanding amounts under the A-1 Revolving Line of Credit may be prepaid in whole or in part without penalty. The A-1 Revolving Line of

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Credit is secured by 500,000 unissued Common LP Units of the Operating Partnership. As of September 30, 2022, there was a $4,757,303 balance outstanding on the A-1 Revolving Line of Credit. See Note ~~11.~~11 “Subsequent Events” of the notes to the consolidated financial statements included as part of this Quarterly Report on Form 10-Q for a description of amendments to the A-1 Line of Credit subsequent to September 30, 2022.

Mortgage Debt

As of ~~June~~September 30, 2022, the Company had ~~$133.6~~$174.8 million in outstanding mortgage debt secured by each of its 14eighteen consolidated properties, with maturity dates ranging from March 2023 to April 2029. ~~NaN~~Sixteen of the loans have fixed interest rates ranging from 3.70% to 7.00%. ~~NaN~~One loan is a variable interest loan at a rate of LIBOR plus 6.0% per annum, provided that

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LIBOR shall not be less than 1.0%, resulting in an effective rate of ~~7.12%~~8.56% as of ~~June~~September 30, 2022. Another loan is a variable interest loan at a rate of LIBOR or an equivalent rate plus 6.25%, provided that the variable rate shall not be less than 0.75%, resulting in an effective rate of ~~7.06%~~8.81% as of ~~June~~September 30, 2022. Collectively, the weighted-average interest rate is ~~5.17%~~5.54%. The loans generally require monthly payments of principal and interest on an amortized basis, with certain loans allowing for an interest-only period ~~up to 18 months~~ following origination, and generally require a balloon payment due at maturity. As of ~~June~~September 30, 2022 and December 31, 2021, certain mortgage debt was guaranteed by the members of the Advisor. See Note 9 “Related Party Transactions” of the notes to the consolidated financial statements included as part of this Quarterly Report on Form 10-Q for additional information regarding debt that was guaranteed by members of the Advisor. ~~Except~~As part of the consolidated outstanding mortgage debt above, the owner of the leasehold interest in the El Paso University Property is the borrower under a $14.4 million loan secured by the lease hold interest in the El Paso University Property, Corey Maple entered into a guaranty and environmental indemnity in connection with the loan. The loan has a fixed interest rate of 4.94% per annum and matures on August 6, 2025. There were no mortgage loan amendments during the nine months ended September 30, 2022. See Note 11 “Subsequent Events” of the notes to the consolidated financial statements included as ~~described below, the Company was either in compliance with all~~part of this Quarterly Report on Form 10-Q for a description of changes to mortgage debt ~~covenants or received a waiver of testing of its debt covenants as of June~~occurring subsequent to September 30, ~~2022 and December 31, 2021.~~2022.

As of ~~June~~September 30, 2022, the Company was not in compliance with the required financial covenants under the terms of its promissory note secured by the Pineville Property and related loan documents (the “Pineville Loan”), which constitutes an event that puts the Company into a trigger period pursuant to the loan documents. The Company has requested and received a waiver of the financial covenants for ~~period ending~~all measurement periods through December 31, 2022. Except as described above for the Pineville Loan, the Company was in compliance with all debt covenants as of ~~June~~September 30, 2022.

Paycheck Protection Program (“PPP”) Loans

In April 2020, the Company entered into 6six unsecured promissory notes under the Paycheck Protection Program (the “PPP”), totaling $763,100 (the “Original PPP Loans”). The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was passed in March 2020, and is administered by the U.S. Small Business Administration (the “SBA”). The term of each Original PPP loan was two years, which could be extended to five years at the Company’s election. The interest rate on each PPP loan was 1.0% per annum, which was deferred for a period of time.

In January 2021, the Company entered into 6six new unsecured promissory notes totaling $716,400, under the Second Draw Paycheck Protection Program (the “Second Draw PPP”) created by the Consolidated Appropriations Act, 2021 (the “CAA Act”), through Western State Bank. The term of each Second Draw PPP loan was five years. The interest rate on each Second Draw PPP loan was 1.0% per annum, which was deferred for the first sixteen months of the term of the loan.

In February 2021, the Company, through its subsidiary LF3 Southaven TRS, LLC (“Southaven TRS”), entered into an unsecured promissory note under the PPP through Western State Bank. The amount of the PPP loan for Southaven TRS was $85,400. The term of the PPP loan was five years. The interest rate on the PPP loan was 1.0% per annum, which was deferred for the first sixteen months of the term of the loan.

In April 2021, the Company, through its subsidiary Southaven TRS, entered into an unsecured promissory note under the Second Draw PPP created by the CAA Act, through Western State Bank (the “Southaven TRS Second Draw PPP”). The term of the Southaven Second Draw PPP loan was five years. The amount of the Southaven TRS Second Draw PPP loan

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was $119,500. The interest rate on the Southaven TRS Second Draw PPP loan was 1.0% per annum, which was deferred for the first sixteen months of the term of the loan.

Under the terms of the CARES Act and the CAA Act, as applicable, PPP loan recipients and Second Draw PPP loan recipients can apply for, and be granted, forgiveness for all or a portion of such loans. Such forgiveness will be determined, subject to limitations and ongoing rulemaking by the SBA, based on the use of loan proceeds for payroll costs and mortgage interest, rent or utility costs, the maintenance of employee and compensation levels and certain other approved expenses. In February 2021, the Company applied for and received 100% forgiveness of all 6six Original PPP Loans. In June 2021, the Company received forgiveness on the full balance of the Second Draw PPP and Southaven TRS PPP loans. In August 2021, the Company received forgiveness on the full balance of the Southaven TRS Second Draw PPP loan.

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The following table sets forth the hotel properties securing the Company’s hotel mortgage debt and revolving ~~line~~lines of credit as of ~~June~~September 30, 2022 and December 31, 2021.


	Interest		Outstanding		Outstanding		Interest		Outstanding		Outstanding
	Rate as of		Balance as of		Balance as of		Rate as of		Balance as of		Balance as of
	June 30,	Maturity	June 30,		December 31,		September 30,	Maturity	September 30,		December 31,
	2022	Date	2022		2021		2022	Date	2022		2021
Holiday Inn Express - Cedar Rapids⁽¹⁾	5.33%	9/1/2024	$	5,847,994	$	5,858,134	5.33%	9/1/2024	$	5,824,489	$	5,858,134
Hampton Inn & Suites - Pineville	5.13%	6/6/2024		8,682,124		8,782,284	5.13%	6/6/2024		8,632,296		8,782,284
Hampton Inn - Eagan	4.60%	1/1/2025		9,171,018		9,277,193	4.60%	1/1/2025		9,118,163		9,277,193
Home2 Suites - Prattville	4.13%	8/1/2024		9,310,022		9,425,085	4.13%	8/1/2024		9,252,629		9,425,085
Home2 Suites - Lubbock	4.69%	10/6/2026		7,459,647		7,573,597	4.69%	10/6/2026		7,402,620		7,573,597
Fairfield Inn & Suites - Lubbock	4.93%	4/6/2029		9,049,012		9,125,908	4.93%	4/6/2029		9,011,076		9,125,908
Homewood Suites - Southaven	3.70%	3/3/2025		13,176,677		13,343,841	3.70%	3/3/2025		13,093,243		13,343,841
Courtyard by Marriott - Aurora⁽²⁾⁽³⁾	7.12%	2/5/2024		15,000,000		15,000,000	8.56%	2/5/2024⁽⁴⁾		15,000,000		15,000,000
Holiday Inn - El Paso⁽³⁾	5.00%	5/15/2023		7,900,000		7,900,000	5.00%	5/15/2023⁽⁵⁾		7,900,000		7,900,000
Hilton Garden Inn - Houston⁽⁴⁾⁽⁶⁾	3.85%	9/2/2026		13,947,218		13,947,218	3.85%	9/2/2026		13,947,218		13,947,218
Sheraton - Northbrook⁽⁵⁾⁽⁷⁾	7.06%	12/5/2024		3,700,000		3,700,000	8.81%	12/5/2024		3,700,000		3,700,000
Hampton Inn - Fargo(8)	4.00%	3/1/2027		7,362,481		—	4.00%	3/1/2027		7,319,603		—
Courtyard by Marriott - El Paso⁽⁶⁾	6.01%	5/13/2027		9,990,000		—
Courtyard by Marriott - El Paso^(9)(10)							6.01%	5/13/2027		9,990,000		—
Fairfield Inn & Suites - Lakewood⁽³⁾	7.00%	3/29/2023		13,009,914		—	7.00%	3/28/2023⁽¹¹⁾		13,574,367		—
Residence Inn - Fort Collins^(12)(13)							7.00%	8/3/2023		11,500,000		—
Hilton Garden Inn - El Paso							4.94%	8/6/2025		12,684,363		—
Hilton Garden Inn - Pineville⁽¹⁴⁾							6.20%	8/25/2027		7,020,000		—
Hilton Garden Inn - Charlotte⁽¹⁴⁾							6.20%	8/25/2027		9,805,000		—
Total Mortgage Debt				133,606,107		103,933,260				174,775,067		103,933,260
Premium on assumed debt, net				656,894		722,905				221,582		722,905
Deferred financing costs, net				(2,288,682)		(2,129,281)				(3,495,109)		(2,129,281)
Net Mortgage				131,974,319		102,526,884				171,501,540		102,526,884

$5.0 million revolving line of credit⁽⁷⁾	5.25%	12/15/2022		—		600,000
$5.0 million revolving line of credit - Western⁽¹⁵⁾							6.75%	12/15/2022⁽¹⁷⁾		3,550,000		600,000
$5.0 million revolving line of credit - A-1 Bonds⁽¹⁶⁾							7.00%	12/31/2023		4,757,303		—
Total Lines of Credit										8,307,303		600,000

Debt, net			$	131,974,319	$	103,126,884			$	179,808,843	$	103,126,884

(1)	Loan was interest-only through April 30, 2022 and is at a fixed rate of interest.

(2)	Variable interest rate equal to 30-day LIBOR plus 6.00%, provided that LIBOR shall not be less than 1.00%.

(3)	Loan is interest-only until maturity.

(4)	The Company has notified the lender of its intention to exercise the option under the loan agreement to extend the maturity date to February 5, 2025. The parties are working to finalize the extension documents as of the date of this filing.

(5)	Maturity date extended to May 15, 2024. See Note 11 “Subsequent Events.”

(6)	Loan is interest-only for the first 24 months after origination.

~~(5)~~(7)

Variable interest rate equal to 30-day LIBOR or equivalent rate plus 6.25%, provided that LIBOR or equivalent rate shall not be less than 0.75%.

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~~(6)~~(8)

Proceeds of this loan were used to repay in full the original loan secured by the Fargo Property entered into on January 24, 2022 with A-1 Bonds.

(9)	Loan is interest-only for the first 18 months after origination.

~~(7)~~(10)

Proceeds of this loan were used to repay in full the original loan secured by the El Paso Airport Property entered into on February 14, 2022 with A-1 Bonds.

(11)	Maturity date extended to March 28, 2024 per terms of loan agreement. See Note 11 “Subsequent Events.”

(12)	Tranche 3’s maturity date is August 2, 2028. Tranche 1 is interest-only until maturity, beginning six months after the issuance of the loan. Tranche 3’s payments are deferred until a certain appraised value is attained in accordance with the terms of the loan.

(13)	On April 18, 2023, this loan was repaid in full and refinanced with a new loan secured by the Fort Collins Property. See Note 11 “Subsequent Events.”

(14)	Loan is interest-only through February 25, 2024.

(15)	Variable interest rate equal to U.S. Prime ~~Rate~~ plus 0.50%.

(16)	See note 7, - Legendary A-1 Bonds, LLC (“A-1 Bonds”)

(17)	Maturity date extended to April 30, 2024. See Note 11 “Subsequent Events.”

Future Minimum Payments

As of ~~June~~September 30, 2022, the future minimum principal payments on the Company’s debt were as follows:


2022	$	820,510	$	8,807,534
2023		22,726,642		35,088,169
2024		43,467,556		44,029,119
2025		22,137,806		34,422,121
2026		20,237,332		20,548,387
Thereafter		24,216,261		40,187,040
		133,606,107		183,082,370

Premium on assumed debt, net		656,894		221,582
Deferred financing costs, net		(2,288,682)		(3,495,109)
			$	179,808,843
	$	131,974,319

~~Table~~The $8.8 million of ~~Contents~~future minimum principal payments due in 2022 includes the maturities of the Western Revolving Line of Credit and the A-1 Revolving Line of Credit. The Company is currently negotiating with the lender on each Revolving Line of Credit to extend the maturity date of each Revolving Line of Credit, but neither lender has any obligation to extend.

The ~~$22.7~~$35.1 million of future minimum principal payments due in 2023 includes the maturities of the mortgage debt secured individually by the Lakewood Property, ~~and~~ El Paso Property, and Fort Collins Property of $13.0 million, $7.9 million and ~~$7.9~~$11.5 million, respectively. The Company has the option to extend the maturity date for the $13.0 million mortgage loan related to the Lakewood Property to March 29, 2024, ~~as long as certain conditions contained in the loan agreement are satisfied. The Company also has the option to extend the maturity date for~~ the $7.9 million loan related to the Holiday Inn El Paso Property to May 15, 2024 and the $11.5 million loan related to the Fort Collins Property to August 3, 2024, as long as certain conditions contained in ~~the~~each loan agreement are satisfied. The Company has the intention and anticipates having the ability to extend the maturity dates on ~~both~~all of these loans.

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments as of ~~June~~September 30, 2022 and December 31, 2021 consisted of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, lines of credit, and mortgage debt. With the exception of the Company’s mortgage debt, the carrying amounts of the financial instruments presented in the consolidated financial statements approximate their fair value as of ~~June~~September 30, ~~2022 and December 31, 2021.~~2022. The fair value of the Company’s mortgage debt was estimated by discounting each loan’s future cash flows over the remaining term of the mortgage using current borrowing rates for debt instruments with similar terms and maturities, which are Level 3 inputs in the fair value hierarchy. As of ~~June~~September 30, 2022, the estimated fair value of the Company’s mortgage debt was ~~$131.6~~$173.9 million, compared to the gross carrying value ~~$133.6~~$174.8 million. As of December 31, 2021, the estimated fair value of the Company’s mortgage debt was $103.7 million, compared to the gross carrying value $103.9 million.

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6. INCOME TAXES

The Company’s earnings (losses), other than those generated by the Company’s TRS, are not generally subject to federal corporate and state income taxes due to the Company’s REIT election. The Company ~~paid $26,000 in federal and state income taxes for the period ended June 30, 2022 and~~ did 0tnot pay any federal and state income taxes for the period ended ~~June~~September 30, 2022 and did not pay any federal and state income taxes for the period ended September 30, 2021. The Company did 0tnot have any uncertain tax positions as of ~~June~~September 30, 2022 or December 31, 2021.

The Company’s TRS generated a net operating loss (“NOL”) for the ~~six~~nine months ended ~~June~~September 30, 2022 and the year ended December 31, 2021, which can be carried forward to offset future taxable income. As of ~~June~~September 30, 2022, the Company expects its TRS to generate additional NOL during the year ended December 31, 2022, and as a result, the Company has recognized a full valuation allowance against its deferred tax assets of $6.1 million, resulting in a net deferred tax liability of $3.3 million. As of December 31, 2021, the Company had recorded a net deferred tax ~~assets~~asset of ~~$2,887,183 and $2,464,768, respectively,~~$2.5 million, primarily attributable to its NOLs generated in the current year and prior periods, net of temporary differences primarily related to deprecation. The Company’s NOLs will expire in 2038 through 2042 for state tax purposes and will not expire for federal tax purposes. As of ~~June~~September 30, 2022, and December 31, 2021, the Company had deferred tax assets attributable to NOL carryforwards for federal income tax purposes of ~~$5.1~~$5.2 million and $4.2 million, respectively, and NOL carryforwards for state income tax purposes of ~~$684,785~~$0.9 million and ~~$588,661,~~$0.6 million, respectively. As of ~~June~~September 30, 2022, the tax years 2018 through 2021 remain subject to examination by the U.S. Internal Revenue Service (“IRS”) and various state tax jurisdictions.

The CARES Act contains numerous income tax provisions, such as temporarily relaxing limitations on the deductibility of interest expense, accelerating depreciable lives of certain qualified building improvements, and allowing for NOL’s arising in tax years beginning after December 31, 2017 and before January 1, 2021 to be carried back to each of the preceding 5-year periods. In addition, for tax years beginning prior to 2021, the CARES Act removed the 80% absorption limitation previously enacted under the Tax Cuts and Jobs Act of 2017. The income tax aspects of the CARES Act are not expected to have a material impact on the Company’s financial statements.

7. RELATED PARTY TRANSACTIONS

Legendary Capital REIT III, LLC— Substantially all of the Company’s business is managed by the Advisor and its affiliates, pursuant to the Advisory Agreement. The Advisor is owned by Corey R. Maple and Norman H. Leslie. The Company has no direct employees. The employees of Legendary Capital, LLC (the “Sponsor”), an affiliate of the Advisor, provide services to the Company related to the negotiations of property acquisitions and financing, asset management, accounting, legal, investor relations, and all other administrative services. The Company reimburses the Advisor and its affiliates, at cost, for certain expenses incurred on behalf of the Company, as described in more detail below. The Advisory Agreement has a term of 10 years, ending in December 2028.

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The Advisor earns a one-time acquisition fee of up to 1.4% of the hotel purchase price including funds allocated for any PIP at the time of each hotel property acquisition, a financing fee of up to 1.4% of the hotel purchase price including funds allocated for any PIP at the time of closing the initial financing, and an annual asset management fee of up to 0.75% of the gross assets of the Company, which is payable on a monthly basis. The Advisor will also be paid a refinancing fee of up to 0.75% of the principal amount of any refinancing at the time of closing the refinancing, and a disposition fee equal to between 0.0% and 4.0% of the hotel sales price, payable at the closing of the disposition, and real estate commissions of up to 3.0% of the hotel purchase price in connection with the sale of a hotel property in which the Advisor or its affiliates provided substantial services, but in no event greater than one-half of the total commissions paid with respect to such property if a commission is paid to a third-party as well as the Advisor, and in no event will total commissions exceed 5.0% of the hotel sales price. Certain affiliates of the Advisor may receive an annual guarantee fee equal to 1.0% of the guaranty amount, payable on a monthly basis, for debt obligations of the hotel properties personally guaranteed by such affiliates. The Advisor may earn an annual subordinated performance fee equal to 20% of the distributions after the common stockholders and Operating Partnership limited partners (other than the Series B Limited Partnership Unit (“Series B LP Unit”) holders) have received a 6% cumulative, but not compounded, return per annum.

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Per the terms of the Operating Partnership’s operating agreement, the Advisor receives distributions from the Operating Partnership in connection with their ownership of non-voting Series B LP Units. The Advisor’s ownership of Series B LP Units is presented as non-controlling interest on the accompanying consolidated financial statements. In years other than the year of liquidation, after the Company’s common stockholders have received a 6% cumulative but not compounded return on their original capital contributions, the Advisor receives distributions equal to 5% of the total distributions made. In the year of liquidation, termination, merger or other cessation of the general partner, or the liquidation of the Operating Partnership, holders of the Series B LP Units shall be distributed an amount equal to 5% of the limited partners’ capital contributions after the common stockholders and the limited partners have received a return of their original capital contributions plus a 6% cumulative but not compounded return. In the year of liquidation, termination, merger or other cessation of the general partner, or the liquidation of the Operating Partnership holders of the Series B LP Units shall also be distributed an amount equal to 20% of the net proceeds from the sale of the properties, after the common stockholders and the limited partners have received a return of their original capital contributions plus a 6% cumulative but not compounded return from all distributions.

The Advisor and its affiliates may be reimbursed by the Company for certain organization and offering expenses in connection with the Company’s securities offerings, including legal, printing, marketing and other offering related costs and expenses. Following the termination of the Offering, the Advisor will reimburse the Company for any such amounts incurred by the Company in excess of 15% of the gross proceeds of the Offering. In addition, the Company may pay directly or reimburse the Advisor and its affiliates for certain costs incurred in connection with its provision of services to the Company, including certain acquisition costs, financing costs, and sales and marketing costs, as well as an allocable share of general and administrative overhead costs. All reimbursements are paid to the Advisor and its affiliates at cost.

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Fees and reimbursements earned and payable to the Advisor and its affiliates, for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, were as follows:


	Incurred				Incurred
	For the Six Months Ended June 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Fees:
Acquisition fees	$	681,317	$	474,740	$	1,484,822	$	753,480
Financing fees		916,346		474,740		1,719,851		753,480
Asset management fees		857,036		531,290		1,368,584		848,237
	$	2,454,699	$	1,480,770	$	4,573,257	$	2,355,197

Reimbursements:
Offering costs	$	1,239,977	$	592,522	$	1,831,075	$	1,006,775
General and administrative		1,689,242		1,304,469		2,753,552		2,095,545
Sales and marketing		149,905		90,904		224,011		146,164
Acquisition costs		31,240		70,326		44,318		81,651
	$	3,110,364	$	2,058,221	$	4,852,956	$	3,330,135

For three and ~~six~~nine months ended ~~June~~September 30, 2022, the Operating Partnership recorded distributions payable to the Advisor in the amount of ~~$81,949~~$86,118 and ~~$160,180,~~$246,297, respectively, in connection with the Advisor’s ownership of Series B LP Units. For the three and ~~six~~nine months ended ~~June~~September 30, 2021, the Operating Partnership recorded distributions payable to the Advisor in the amount of ~~$73,252~~$75,001 and ~~$144,763,~~$219,764, respectively. As of ~~June~~September 30, 2022 and December 31, 2021, the Company had distributions payable to the Advisor in the amount of ~~$325,109~~$256,948 and $296,164, respectively. For the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, the Company paid distributions in the amount of ~~$20,061~~$30,092 and ~~$19,788,~~$29,812, respectively, to Corey Maple and Norman Leslie in connection with their ownership of 57,319 shares each, of the Company’s common stock.

The members of the Advisor personally guaranty certain loans of the Company and may receive a guarantee fee of up to 1.0% per annum of the guaranty amount. As of September 30, 2022, Corey Maple, is a guarantor of the Company’s loans secured by the hotel properties located in Prattville, Alabama, Southaven, Mississippi, and Fargo, North Dakota, which

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had original loan amounts of $9.6 million, $13.5 million, and $7.4 million, respectively, is a guarantor of 50% of the loan secured by the Houston Property, which had an original loan amount of $13.9 million, and is a guarantor of the Company’s $5.0 million line of credit which is secured by the hotel properties located in Cedar Rapids, Iowa and Eagan, Minnesota, and 100,000 Common LP Units of Lodging Fund REIT III OP, LP. Mr. Maple is also a guarantor of the loan secured by the El Paso University Property, which had an original principal loan amount of $14.4 million. Norman Leslie is a guarantor of the Company’s loan secured by the Company’s hotel property in Pineville, North Carolina, which had an original loan amount of $9.3 million. For the ~~six~~nine months ended ~~June~~September 30, 2022 and for the year ended December 31, 2021, the Company accrued guarantee fees in the amount of ~~$78,315~~$117,115 and $159,414 respectively to each Mr. Maple and Mr. Leslie. The total amount accrued of ~~$787,036~~$864,636 remained unpaid at ~~June~~September 30, 2022 and is included in Due to related parties on the accompanying consolidated balance sheet. See Note 11, “Subsequent Events,” for a description of additional guarantees entered into subsequent to September 30, 2022.

As of ~~June~~September 30, 2022 and December 31, 2021, the Company had amounts due and payable to the Advisor and its affiliates of ~~$2,974,514~~$4,112,213 and $2,035,708, respectively, which is included in Due to related parties on the accompanying consolidated balance sheets.

NHS, LLC dba National Hospitality Services ~~(“NHS”)~~ — NHS is wholly-owned by Norman Leslie, a director and executive officer of the Company and a principal of the Advisor. NHS provides property management and hotel operations management services for the Company’s hotel properties, pursuant to individual management agreements. The agreements have an initial term expiring on December 31st of the fifth full calendar year following the effective date of the agreement, which automatically renews for a period of five years on each successive five-year period, unless terminated in accordance with its terms.

NHS earns a monthly base management fee for property management services, including overseeing the day-to-day operations of the hotel properties, equal to up to 4% of gross revenue. NHS may also earn an accounting fee of $14.00 per room

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for accounting services, payable monthly, and an administrative fee equal to 0.60% of gross revenues for administrative and other services. The Company reimburses NHS for certain costs of operating the properties incurred on behalf of the Company. All reimbursements are paid to NHS at cost.

NHS also earns a flat fee of $5,000 per hotel property for due diligence services, including analyzing, evaluating, and reporting on documentation and information received by sellers or contributors during the period of due diligence. Such fee is waived if, upon acquisition by us, NHS is selected as the management company for the hotel property. NHS is also reimbursed for actual out-of-pocket costs incurred in providing the due diligence services. See Note 11 “Subsequent Events” for an additional transaction with NHS occurring subsequent to September 30, 2022.

Fees and reimbursements earned by NHS for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, and fees and reimbursements payable to NHS for the ~~six~~nine months ended ~~June~~September 30, 2022 and year ended December 31, 2021, were as follows:


	Incurred				Payable as of				Incurred				Payable as of
	For the Six Months Ended June 30,				June 30,		December 31		For the Nine Months Ended September 30,				September 30,		December 31,
	2022		2021		2022		2021		2022		2021		2022		2021
Fees:
Management fees	$	478,234	$	287,179	$	97,992	$	66,407	$	803,022	$	489,107	$	147,007	$	66,407
Administrative fees		74,850		60,506		16,155		9,461		140,495		91,922		32,953		9,461
Accounting fees		84,286		44,919		15,162		12,726		138,900		78,418		26,740		12,726
	$	637,370	$	392,604	$	129,309	$	88,594	$	1,082,417	$	659,447	$	206,700	$	88,594

Reimbursements	$	494,959	$	205,648	$	109,733	$	119,638	$	914,189	$	341,150	$	120,298	$	119,638

One Rep Construction, LLC (“One Rep”) — One Rep is a related party through common management and ownership, as Corey Maple, Norman Leslie, and David Ekman, each hold a 33.33% ownership interest in One Rep. One Rep is a construction management company which provided construction management services to the Company during 2022 and

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2021 related to the renovation construction activities at certain hotel properties. For the services provided, One Rep is paid a construction management fee equal to 6% or 7% of the total project costs. The Company reimburses One Rep for certain costs incurred on behalf of the Company, and all reimbursements are paid to One Rep at cost. For the ~~six~~nine months ended ~~June~~ September 30, 2022 and the year ended December 31, 2021, the Company incurred ~~$66,642~~$159,177 and $61,739 of construction management fees payable to One Rep, respectively. As of ~~June~~ September 30, 2022 and December 31, 2021, the amounts outstanding and due to One Rep were ~~$34,540~~$36,126 and $8,138, respectively, which is included in due to related parties on the accompanying consolidated balance sheets.

Legendary A-1 Bonds, LLC (“A-1 Bonds”) — A-1 Bonds is an affiliate of the Advisor which is owned by Mr. Leslie ~~and Mr. Maple, each~~ a director and executive officer of the Company and principal of the Advisor and Mr. Maple a director of the Company and principal of the Advisor. During the ~~six~~nine months ended ~~June~~September 30, 2022, A-1 Bonds made ~~a loan in the~~loans with an aggregate principal amount of ~~$13.1~~$42.5 million to ~~a subsidiary~~subsidiaries of the Company secured by 4 hotel properties, of which $28.2 million was subsequently paid off prior to the ~~Lakewood Property.~~date of this filing. On August 9, 2022, the Company entered into a $5.0 million revolving line of credit with A-1 Bonds, LLC (the “A-1 Revolving Line of Credit”). The ~~loan~~A-1 Revolving Line of Credit requires monthly payments of interest only beginning September 1, 2022, with all outstanding principal and interest amounts being due and payable at maturity on December 31, 2022. The A-1 Revolving Line of Credit has a fixed interest rate of ~~7.0%~~7.00% per annum. ~~In addition, on January 18,~~Outstanding amounts under the A-1 Revolving Line of Credit may be prepaid in whole or in part without penalty. As of September 30, 2022, the A-1 ~~Bonds made a loan in the amount~~Revolving Line of ~~$7.2 million to a subsidiary~~Credit was secured by 500,000 unissued Common LP Units of the ~~Company secured by~~Operating Partnership. As of September 30, 2022, there was a $4,757,303 balance outstanding on the ~~Fargo Property. The loan secured by~~A-1 Revolving Line of Credit. See Note 4, “Debt- Lines of Credit”. See Note 11, “Subsequent Events,” for a description of amendments to the ~~Fargo Property was repaid in full on February 23,~~A-1 Revolving Line of Credit occurring subsequent to September 30, 2022. On February 8, 2022, A-1 Bonds made a loan in the amount of $10.0 million to a subsidiary of the Company secured by the El Paso Airport Property. The loan secured by the El Paso Airport Property was repaid in full on May 13, 2022.

8. FRANCHISE AGREEMENTS

As of ~~June~~September 30, 2022 and December 31, 2021, all of the Company’s hotel properties were operated under franchise agreements with initial terms of 10 to 18 years. Franchise agreements allow the hotel properties to operate under the respective brands. Pursuant to the franchise agreements, the Company pays a royalty fee of 5% to 6% of room revenue, plus additional fees for marketing, central reservation systems and other franchisor costs. Certain hotels are also charged a program fee of generally between 3% and 4% of room revenue. The Company paid an initial fee of $50,000 to $175,000 at the time of entering into each franchise agreement which is being amortized over the term of each agreement.

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9. STOCKHOLDERS’ EQUITY

The Company is authorized to issue 900,000,000 shares of common stock and 100,000,000 shares of preferred stock. Each share of common stock entitles the holder to 1one vote per share on all matters upon which stockholders are entitled to vote and to receive distributions as authorized by the Company’s board of directors. The Interval Common Stock described below do not have voting rights. The rights of the holders of shares of preferred stock may be defined at such time any series of preferred shares are issued.

Common Stock

Initial Offering

On June 1, 2018, the Company commenced a private offering of shares of common stock, $0.01 par value per share, at a price of $10.00 per share, with a maximum offering of $100,000,000, which was increased to $150,000,000 in December 2021, to accredited investors only pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended.

Dividend Reinvestment Plan

The Company has adopted a dividend reinvestment plan (“DRIP”), which permits stockholders to reinvest their distributions back into the Company, purchasing shares of common stock at 95% of the then-current share net asset value (“NAV”).

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Distributions

Distributions are determined by the board of directors based on the Company’s financial condition and other relevant factors.


			Distribution								Net Cash				Distribution								Net Cash
	Distributions		Declared Per		Distributions Paid ⁽³⁾						Flows Provided By		Distributions		Declared Per		Distributions Paid ⁽³⁾						Flows Provided By
Period	Declared ⁽¹⁾		Share ^(1) (2)		Cash		Reinvested		Total		(Used In) Operations		Declared ⁽¹⁾		Share ^(1) (2)		Cash		Reinvested		Total		(Used In) Operations
First Quarter 2022	$	1,556,308	$	0.175	$	933,464	$	567,240	$	1,500,704	$	(3,293,181)	$	1,556,308	$	0.175	$	933,464	$	567,240	$	1,500,704	$	(3,293,181)
Second Quarter 2022		1,540,200		0.175		1,203,791		526,159		1,729,950		20,841		1,540,200		0.175		1,203,791		526,159		1,729,950		20,841
Third Quarter 2022														1,821,829		0.175		1,094,353		452,923		1,547,276		2,268,982
	$	3,096,508	$	0.350	$	2,137,255	$	1,093,399	$	3,230,654	$	(3,272,340)	$	4,918,337	$	0.525	$	3,231,608	$	1,546,322	$	4,777,930	$	(1,003,358)

			Distribution								Net Cash				Distribution								Net Cash
	Distributions		Declared Per		Distributions Paid ⁽³⁾						Flows Provided By		Distributions		Declared Per		Distributions Paid ⁽³⁾						Flows Provided By
Period	Declared ⁽¹⁾		Share ^(1) (2)		Cash		Reinvested		Total		(Used In) Operations		Declared ⁽¹⁾		Share ^(1) (2)		Cash		Reinvested		Total		(Used In) Operations
First Quarter 2021	$	1,430,216	$	0.175	$	246,084	$	1,081,828	$	1,327,912	$	(1,292,235)	$	1,430,216	$	0.175	$	246,084	$	1,081,828	$	1,327,912	$	(1,292,235)
Second Quarter 2021		1,465,038		0.175		251,625		1,107,080		1,358,705		853,375		1,465,038		0.175		251,625		1,107,080		1,358,705		853,375
Third Quarter 2021		1,500,023		0.175		1,114,951		1,223,741		2,338,692		122,840		1,500,023		0.175		1,114,951		1,223,741		2,338,692		122,840
Fourth Quarter 2021		1,527,992		0.175		1,340,091		551,391		1,891,482		(732,378)
	$	5,923,269	$	0.700	$	2,952,751	$	3,964,040	$	6,916,791	$	(1,048,398)	$	4,395,277	$	0.525	$	1,612,660	$	3,412,649	$	5,025,309	$	(316,020)

(1)

Distributions for the periods from January 1, 2021 through June 30, 2022 were based on daily record dates and were calculated based on stockholders of record each day during this period at a rate of $0.00191781 per share per day.Distributions for the periods from January 1, 2021 through March 31, 2021 were payable to each stockholder 30% in cash (or through the DRIP if then currently enrolled in the DRIP) and 70% in shares of common stock issued through the DRIP, or at the election of the stockholder, in shares of common stock valued at $10.00 per share. Distributions for the periods from April 1, 2021 through June 30, 2021 were payable to each stockholder 60% in cash (or through the DRIP if then currently enrolled in the DRIP) and 40% in shares of common stock issued through the DRIP, or at the election of the stockholder, in shares of common stock valued at $10.00 per share. Distributions for the period from July 1, 2021 through ~~June~~September 30, 2022 were payable to each stockholder as 100% in cash on a monthly ~~basis of common stock valued at $10.00 per share.~~basis.

(2)

Assumes share was issued and outstanding each day that was a record date for distributions during the period presented.

(3)

Beginning the second quarter of 2020 through the second quarter of 2021, distributions were paid on a quarterly basis. Beginning in the third quarter of 2021, distributions were paid on a monthly basis. In general, distributions for all record dates of a given month are paid on or about the tenth day of the following month.

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Share Repurchase Plan

The board of directors has adopted a share repurchase plan that may enable its stockholders to have their shares repurchased in limited circumstances. In its sole discretion, the board of directors could choose to terminate or suspend the plan or to amend its provisions without stockholder approval. The repurchase plan may be reviewed and modified by the board of directors as it deems necessary in its sole discretion. The price at which the Company will repurchase shares is dependent on the amount of time the holder has owned the shares, and the then current value of the shares. There are several limitations on the Company’s ability to repurchase shares under the share repurchase plan, including, but not limited to, a limitation that during any calendar year, the maximum number of shares potentially eligible for repurchase can only be the number of shares that the Company could purchase with the amount of net proceeds from the sale of shares under the Company’s dividend reinvestment plan during the prior calendar year. The board of directors may, in its sole discretion, reject any request for repurchase and may, at any time and without stockholder approval, upon 10 business days’ written notice to the stockholders (i) amend, suspend or terminate its Share Repurchase Plan and (ii) increase or decrease the funding available for the repurchase of shares pursuant to our Share Repurchase Plan. The Company repurchased ~~121,921~~135,248 shares, pursuant to repurchase requests received during the ~~six~~nine months ended ~~June~~September 30, 2022, which represents an original investment of ~~$1,219,207~~$1,352,472 for ~~$1,214,053.~~$1,347,319. The Company repurchased 88,088 shares, pursuant to repurchase requests received during the year ended December 31, 2021, which represents an original investment of $880,883 for $856,605. As of ~~June~~September 30, 2022, ~~$575,879~~$133,266 of the redemption proceeds had not yet been paid and was included in other liabilities on the accompanying consolidated balance sheets. As of ~~June~~September 30, 2022, the Company had ~~$1,856,279~~$1,723,013 available for eligible repurchases for the remainder of 2022 after accounting for the outstanding redemption proceeds not yet paid on ~~June~~September 30, 2022.

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Interval Common Stock

Distributions

Holders of shares of Interval Common Stock will be entitled to receive, when and as authorized by the board of directors of the Company and declared by the Company, distributions at a rate equal to 86% of the distribution rate for the Company’s common stock as authorized by the board of directors and declared by the Company. Distributions on the Interval Shares may be paid in cash, capital stock of the Company or a combination of cash and capital stock of the Company as determined by the board of directors and will be paid at such times as distributions are paid to the holders of common stock.

Repurchase Plan

The board of directors has adopted a repurchase plan for the Interval Common Stock (the “Repurchase Plan”). The Repurchase Plan is generally available to holders of Interval Common Stock who have held their shares of Interval Common Stock (“Interval Shares”) for at least 1 year. The Repurchase Plan provides that so long as the Repurchase Reserve (defined below) exists, the Company will repurchase up to the lesser of (i) 5% of the aggregate value of the Interval Shares (“Interval Shares Value”) on the last day of the same calendar quarter of the preceding year and (ii) 5% of the Interval Shares Value on the last day of the preceding calendar quarter. After the Repurchase Reserve has been exhausted, the Company will limit repurchases of Interval Shares to repurchases that can be made with the net proceeds from the dividend reinvestment plan for the Interval Shares received in the prior calendar year up to the lesser of (i) 1.25% per calendar quarter and (ii) 5% per calendar year of the Interval Shares Value. The limitations described in this paragraph are referred to as the “Repurchase Limitations.”

The Company will establish a reserve (the “Repurchase Reserve”) of liquid assets in an amount equal to 20% of the aggregate gross proceeds from the Company’s private offering of Interval Shares, which will be comprised of cash and cash-like instruments, government securities, publicly traded REIT shares and other publicly traded securities (the “Reserve Assets”), but which is expected to primarily include publicly traded REIT shares. The Repurchase Reserve will be used solely to repurchase the Interval Shares. The board of directors may, but has no obligation to, increase the amount of the Repurchase Reserve at any time. The Company will have no obligation to restore any amounts resulting from a decline in value of the Reserve Assets. After the Repurchase Reserve has been exhausted, subject to the Repurchase Limitations, the Company will use only the net proceeds from the dividend reinvestment plan received in the prior calendar

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year to repurchase the Interval Shares. Subject to the Repurchase Limitations, on the applicable repurchase date, the Company will repurchase the Interval Shares timely submitted for repurchase for a price equal to the NAV per share of the Company’s common stock on such repurchase date as determined by the board of directors.

The board of directors may, upon 10 days’ written notice to the holders of Interval Shares, amend, suspend or terminate the Repurchase Plan at any time, and such amendment, suspension or termination may be implemented immediately. Notwithstanding the foregoing, the Repurchase Plan may not be terminated prior to the date the Repurchase Reserve is exhausted.

Interval Share Offering

The Company ~~offered~~was offering up to 3,000,000 shares of Interval Common Stock in the Company’s ongoing private offering, which amount may be increased to up to 6,000,000 Interval Shares in the sole discretion of the board of directors. Except as otherwise provided in the offering memorandum, the initial purchase price for the Interval Shares is $10.00 per Interval Share, with Interval Shares purchased in the Company’s dividend reinvestment plan at an initial price of $9.50 per Interval Share. The Company’s board of directors allowed the Interval Share Offering to expire on March 31, ~~2022, and as of June 30, 2022, the~~2022. The Company ~~had~~did not ~~issued~~issue or ~~sold~~sell any shares of Interval Common ~~Stock.~~Stock

Non-Controlling Interests

~~The~~As of September 30, 2022, the Operating Partnership ~~currently has 4~~had four classes of Limited Partner Units which ~~include~~included the Common LP Units, the Series B LP Units, the Series T LP Units and the GO Limited Units. The Series B LP Units are

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issued to the Advisor and entitle the Advisor to receive annual distributions and an incentive distribution based on the net proceeds received from the sale of the Projects (as defined below).

Non-Controlling Interest – Series T LP Units

The Series T LP Units are expected to be issued to persons who contribute their property interests in certain Projects to the Partnership in exchange for Series T LP Units. The Series T LP Units will have allocations and distributions as determined by the General Partner in its sole discretion at the time of issuance of the Series T LP Units, and any future distributions are dependent on the financial performance of the contributed real estate based on a mathematical formula. The Series T LP Units are eligible for conversion into Common LP Units beginning 24 or 36 months, or longer in some instances, after their issuance and will automatically convert into Common LP Units upon other events. There is no guarantee that the future financial performance of the contributed hotel property will be sufficient to result in the issuance of Common LP Units resulting from the application of the conversion formula applicable to the issuance of the Series T LP Units at the time of conversion. As of ~~June~~September 30, 2022, the Company had recorded an aggregate value of ~~$31.7~~$44.5 million to the Series T LP Units in connection with such property contributions.

Non-Controlling Interest – Series GO LP Units

Distributions

The holders of Series GO LP Units will not receive any distributions from the Operating Partnership until after they have held their Series GO LP Units for a period of 18 ~~months.~~months. Thereafter, the Series GO Limited Partners will receive the same distributions payable to the holders of the Common LP Units and GP Units (together with the Series GO LP Units and Interval Units, the “Participating Partnership Units”), other than with respect to proceeds received upon the sale or exchange of a property which are not reinvested in additional properties.

Upon the sale of all or substantially all of the GP Units held by LF REIT III or any sale, exchange or merger of LF REIT III or the Operating Partnership (each, a “Termination Event”), or with respect to proceeds received upon the sale or exchange of a property which are not reinvested in additional properties, distributions will be made between the Series GO LP Units and the other Participating Partnership Units as follows: (i) first, to the Participating Partnership Units in proportion to their Partnership Units until the GP Units (the Common LP Units and the Interval Units) have received 70% of their original capital contributions (determined on a grossed-up basis) reduced by any prior distributions received

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in connection with the sale of a property in which the sale proceeds are not reinvested in additional properties; (ii) second, to the Participating Partnership Units in proportion to their Partnership Units until each Participating Partnership Unit has received a Participating Amount ($1.00 for any period after December 31, 2020, $2.00 for any period after December 31, 2021 and $3.00 for any period after December 31, 2022, determined as a singular determination and not a cumulative determination); (iii) third, to the Participating Partnership Units (other than the Series GO LP Units) in proportion to their Partnership Units until the GP Units have received any remaining unreturned original capital contributions; (iv) fourth, to the Series GO Limited Partners in proportion to their Series GO LP Units until the amount distributed to the Series GO Limited Partners per Series GO LP Unit is equal to the amount distributed to the Participating Partnership Units per Participating Partnership Unit (other than the Series GO Limited Partners) pursuant to (iii); and (v) thereafter, to the Participating Partnership Units in proportion to their Participating Partnership Units.

GO Unit Offering

On June 15, 2020, the Operating Partnership commenced a private offering of limited partnership units in the OP, designated as Series GO LP Units, with a maximum offering of $20,000,000, which may be increased to $30,000,000 in the sole discretion of LF REIT III as the General Partner of the Operating Partnership (the “GO Unit Offering”) to accredited investors only, pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended. The Series GO LP Units were being offered until the earlier of (i) the sale of $20,000,000 in Series GO LP Units (which could be increased to $30,000,000 in the Company’s sole discretion), (ii) June 14, 2022 or (iii) the Operating Partnership terminates the GO Unit Offering at an earlier date in its sole discretion. The Company’s board of directors terminated the GO Unit Offering as of February 14, 2022. The Company’s board of directors approved and ratified additional sales after February 14, 2022 in the GO Units Offering for sales which were pending as f

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of that date. As of ~~June~~September 30, 2022, the Operating Partnership had issued and sold ~~3,125,041~~3,124,503 Series GO LP Units and received aggregate proceeds of $21.5 million.

Non-Controlling Interest – Series B LP Units

Distributions

Under the Operating Partnership Agreement, the Advisor, as the Series B Limited Partner, will receive from the Operating Partnership, distributions as follows: (a) for all years, an amount equal to 5.0% of the total of (i) the total distributions made to the Partners (other than the Series B Limited Partner) and (ii) the total distributions made to the Series B Limited Partner, after the Partners (other than the Series B Limited Partner) have received a 6.0% cumulative, but not compounded, return on their original capital contributions, and (b) for the year of liquidation or other cessation of the General Partner or the Partnership, an amount equal to 5.0% of the original capital contributions made by the Partners, after the Partners (other than the Series B Limited Partner) have received a return of their capital contributions plus a six percent (6%) cumulative, but not compounded return from all distributions.

Series B LP Unit Offering

As of ~~June~~September 30, 2022, the Operating Partnership has issued 1,000 Series B LP Units to the Advisor.

Non-Controlling Interest – Common LP Units

On December 3, 2021, the Operating Partnership commenced a private placement offering of its Common LP Units. As of ~~June~~ September 30, 2022, the Operating Partnership had issued and sold 612,100 Common LP Units,with a value of $10.00 per unit, in connection with the Northbrook Property and the El Paso Airport Property acquisitions.

10. COMMITMENTS AND CONTINGENCIES

~~Impact of COVID-19 —~~ As further discussed in Note 2, the full extent of the impact of COVID-19 on the U.S. and world economies generally, and the Company’s business in particular, is uncertain. As of June 30, 2022, no contingencies have been recorded on the Company’s consolidated balance sheet as a result of COVID-19, however as the global pandemic

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~~continues, it may have long-term impacts on the Company’s financial condition, results of operations, and cash flows. Refer to Note 2 for further discussion of COVID-19.~~

Legal Matters —From time to time, the Company may become party to legal proceedings that arise in the ordinary course of its business. ~~Management~~After consulting with legal counsel, management is not aware of any legal proceedings of which the outcome is probable or reasonably possible to have a material adverse effect on the Company’s results of operations, cash flows or financial condition, which would require accrual or disclosure of the contingency and possible range of ~~loss.~~loss, other than the matter described below.

~~The~~On September 12, 2022, the Advisor and Corey R. Maple received a “Wells notice” from the SEC ~~is conducting~~stating that the SEC staff had made a preliminary determination to recommend to the SEC that it bring an enforcement action against the Advisor and Mr. Maple alleging violations of securities laws in connection with the SEC’s investigation ~~related to~~of the Company’s reimbursement of and financial accounting for certain expenses incurred by the Advisor as well as the adequacy of its disclosures related to those policies and practices. The Company is cooperating with the SEC and has produced documents and other information requested by the SEC. The Advisor has retained independent counsel and is also cooperating with the SEC inquiry. The Company remains committed to maintaining the highest standards for compliance with securities regulations and will continue to work with the SEC to address and resolve any questions or concernsWells notice was neither a formal charge of wrongdoing nor a final determination that the ~~SEC may raise. At this time,~~Advisor or Mr. Maple has violated any law.

As of September 30, 2022, the Company iswas unable to estimate the cost of complying with the ~~inquiry~~Wells notice or its outcome. The Advisor and Corey R. Maple agreed to a settlement with the SEC in connection with the action described above on August 28, 2023. See Note 11, “Subsequent Events.”

Property Acquisitions

The seller of the Pineville Property ~~may be~~was entitled to additional cash consideration if the property exceeds certain performance criteria based on increases in the property’s net operating income (“NOI”) for a selected 12-month period of time. At any time during the period beginning April 1, 2021 through the date of the final NOI determination (on or about April 30, 2023), the seller of the property ~~may make~~could have made a one-time election to receive the additional consideration. The variable amount of the additional consideration, if any, iswas based on the excess of the property’s actual NOI over a base NOI for the applicable 12-month calculation period divided by the stated ~~Cap Rate~~cap rate for such calculation period. As of ~~June~~September 30, 2022, no additional consideration had ~~been~~ paid to the seller of the Pineville Property, and no election to receive

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the additional consideration had been made. As of the date of this filing, the period to elect to receive additional consideration has passed with no election being made.

In November 2019, the Company entered into a purchase agreement, to acquire 3three hotel properties in Pennsylvania, from a third party group of sellers (collectively, the “PA Sellers”), for $46.9 million plus closing costs, subject to adjustment as provided in the purchase agreement. The Company has deposited a total of $1.5 million into escrow as earnest money (the “Earnest Money”) pending the closing or termination of the purchase agreement. In July 2020, the Company and the PA Sellers exchanged written notices of default with one another in accordance with the terms of the purchase agreement. The notice from each party was based on allegations that the other party failed to perform its obligations under the purchase agreement. On October 27, 2020, the PA Sellers filed a lawsuit against Lodging Fund REIT III OP, LP in the Supreme Court of Pennsylvania alleging breach of the purchase agreement. The PA Sellers ~~seek~~sought the full amount of the Earnest Money and recovery of fees and expenses incurred in bringing the lawsuit. The ~~lawsuit is in an early stage and the~~ likelihood of any material loss in connection with the case ~~cannot~~could not be determined ~~at this time.~~as of September 30, 2022. As a result, 0no amount was recorded related to this matter as of ~~June~~September 30, 2022, the Earnest Money remained in escrow and is included in restricted cash on the accompanying consolidated balance sheets. This litigation was resolved subsequent to September 30, 2022. See Note 11 “Subsequent Events.”

Contribution Agreements Entered into During the ~~Six~~Nine Months Ended ~~June~~and Outstanding as of September 30, 2022

On February 1, 2022, the Operating Partnership and RLC V RIFC, LLC (the “RI Contributor”) entered into a Legendary Equity Preservation UPREIT (Pat. Pend.) Contribution Agreement (the “RI Contribution Agreement”), pursuant to which the RI Contributor agreed to contribute the 113-room Residence Inn by Marriott Fort Collins hotel in Fort Collins, Colorado (the “Fort Collins RI Property”) to the Operating Partnership. The RI Contributor is not affiliated with the Company or Legendary Capital REIT III, LLC, the Company’s external advisor. The aggregate consideration for the Fort Collins RI Hotel Property under the RI Contribution Agreement is $17,700,000 plus closing costs, subject to adjustment as provided in the RI Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the Fort Collins RI Hotel Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T LP Units of the Operating Partnership. As required by the RI Contribution Agreement, the Operating Partnership deposited $100,000 into escrow as earnest money pending the closing or termination of the RI Contribution Agreement. Except in certain circumstances described in the RI Contribution

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~~Agreement, if the Operating Partnership fails to perform its obligations under the RI Contribution Agreement, it will forfeit the earnest money.~~

On February 1, 2022, the Operating Partnership and RLC-IV CYFC, LLC (the “CY Contributor”) entered into a Legendary Equity Preservation UPREIT (Pat. Pend.) Contribution Agreement (the “CY Contribution Agreement”), pursuant to which the CY Contributor agreed to contribute the 112-room Courtyard by Marriott Fort Collins hotel in Fort Collins, Colorado (the “CY Hotel Property”) to the Operating Partnership. The CY Contributor is not affiliated with the Company or Legendary Capital REIT III, LLC, the Company’s external advisor. The aggregate consideration for the CY Hotel Property under the CY Contribution Agreement is $15,000,000 plus closing costs, subject to adjustment as provided in the CY Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the CY Hotel Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T LP Units of the Operating Partnership. As required by the CY Contribution Agreement, the Operating Partnership deposited $100,000 into escrow as earnest money pending the closing or termination of the CY Contribution Agreement. Except in certain circumstances described in the CY Contribution Agreement, if the Operating Partnership fails to perform its obligations under the CY Contribution Agreement, it will forfeit the earnest money.

On March 21, 2022, the Operating Partnership and Smith/Curry Hotel Group HH-Harris, LLC (the “Charlotte HGI Contributor”) entered into a Legendary Equity Preservation UPREIT (Pat. Pend.) Contribution Agreement (the “Charlotte HGI Contribution Agreement”), pursuant to which the Charlotte HGI Contributor agreed to contribute the 112-room Hilton Garden Charlotte North hotel in Charlotte, North Carolina (the “Charlotte HGI Hotel Property”) to the Operating Partnership. The Charlotte HGI Contributor is not affiliated with the Company or Legendary Capital REIT III, LLC, the Company’s external advisor. The aggregate consideration for the Charlotte HGI Hotel Property under the Charlotte HGI Contribution Agreement is $15,000,000 plus closing costs, subject to adjustment as provided in the Charlotte HGI Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the Charlotte HGI Hotel Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T LP Units of the Operating Partnership and cash at closing. As required by the Charlotte HGI Contribution Agreement, the Operating Partnership deposited $100,000 into escrow as earnest money pending the closing or termination of the Charlotte HGI Contribution Agreement. Except in certain circumstances described in the Charlotte HGI Contribution Agreement, if the Operating Partnership fails to perform its obligations under the Charlotte HGI Contribution Agreement, it will forfeit the earnest money.

On March 21, 2022, the Operating Partnership and Smith/Curry Hotel Group Pineville II, LLC (the “Pineville HGI Contributor”) entered into a Legendary Equity Preservation UPREIT (Pat. Pend.) Contribution Agreement (the “Pineville HGI Contribution Agreement”), pursuant to which the Pineville HGI Contributor agreed to contribute the 113-room Hilton Garden Pineville hotel in Pineville, North Carolina (the “Pineville HGI Hotel Property”) to the Operating Partnership. The Pineville HGI Contributor is not affiliated with the Company or Legendary Capital REIT III, LLC, the Company’s external advisor. The aggregate consideration for the Pineville HGI Hotel Property under the Pineville HGI Contribution Agreement is $10,700,000 plus closing costs, subject to adjustment as provided in the Pineville HGI Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the Pineville HGI Hotel Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T LP Units of the Operating Partnership and cash at close. As required by the Pineville HGI Contribution Agreement, the Operating Partnership deposited $100,000 into escrow as earnest money pending the closing or termination of the Pineville HGI Contribution Agreement. Except in certain circumstances described in the Pineville HGI Contribution Agreement, if the Operating Partnership fails to perform its obligations under the Pineville HGI Contribution Agreement, it will forfeit the earnest money.

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$8,400,000 plus closing costs, subject to adjustment as provided in the Manhattan FP Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the Manhattan FP Hotel Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T Limited Units of the Operating Partnership and cash at closing. As required by the Manhattan FP Contribution Agreement, the Operating Partnership will deposit $50,000 into escrow as earnest money pending the closing or termination of the Manhattan FP Contribution Agreement. Except in certain circumstances described in the Manhattan FP Contribution Agreement, if the Operating Partnership fails to perform its obligations under the Manhattan FP Contribution Agreement, it will forfeit the earnest money.

On May 9, 2022, Lodging Fund REIT III OP, LP (the “Operating Partnership”), the operating partnership subsidiary of Lodging Fund REIT III, Inc. (the “Company”) and W&K Hotels, LLC (the “Lawrence DT Contributor”) entered into a Legendary Equity Preservation UPREIT (Pat. Pend.) Contribution Agreement (the “Lawrence DT Contribution Agreement”), pursuant to which the Lawrence DT Contributor agreed to contribute the 192-room DoubleTree Hotel Lawrence hotel in Lawrence, Kansas (the “Lawrence DT Hotel Property”) to the Operating Partnership. The Lawrence DT Contributor is not affiliated with the Company or Legendary Capital REIT III, LLC, the Company’s external advisor. The aggregate consideration for the Lawrence DT Hotel Property under the Lawrence DT Contribution Agreement is $13,100,000 plus closing costs, subject to adjustment as provided in the Lawrence DT Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the Lawrence DT Hotel Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T Limited Units of the Operating Partnership and cash at close. As required by the Lawrence DT Contribution Agreement, the Operating Partnership will deposit $50,000 into escrow as earnest money pending the closing or termination of the Lawrence DT Contribution Agreement. Except in certain circumstances described in the Lawrence DT Contribution Agreement, if the Operating Partnership fails to perform its obligations under the Lawrence DT Contribution Agreement, it will forfeit the earnest money.

The Company is still conducting its diligence review with respect to each of these properties. These pending acquisitions are subject to its completion of satisfactory due diligence and other closing conditions. There can be no assurance the Company will complete any or all of these pending property contributions on the contemplated terms, or at all.

~~11. SUBSEQUENT EVENTS~~

~~Distributions Declared or Paid~~

On July 7, 2022, the Company declared cash distributions totaling $358,880, DRIP distributions totaling $168,460, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $34,925 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s current share net asset value of $10.00, for daily record dates June 1 through June 30, 2022 to holders of record on each calendar day of such period. The distribution declared for June 2022 was paid on July 11, 2022.

On August 2, 2022, the Company declared cash distributions totaling $401,125, DRIP distributions totaling $136,106, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $44,624 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s current share net asset value of $10.00, for daily record dates July 1 through July 31, 2022 to holders of record on each calendar day of such period. The distribution declared for July 2022 was paid on August 10, 2022.

~~Recent Property Acquisitions~~

~~Residence Inn by Marriott Fort Collins – Fort Collins, Colorado~~

On August 3, 2022, the Operating Partnership acquired a Residence Inn by Marriott hotel property in Fort Collins, Colorado (the “Fort Collins RI Property”) pursuant to a Contribution Agreement dated as of February 1, 2022, as amended (the “Fort Collins RI Amended Contribution Agreement”). The aggregate consideration under the Fort Collins RI

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Amended Contribution Agreement is $17,700,000 plus closing costs, subject to adjustment as provided in the Fort Collins RI Amended Contribution Agreement. The consideration consists of the refinancing of the Contributor’s existing loan with a new loan (the “Fort Collins RI Loan”) by subsidiaries of the Operating Partnership with Legendary A-1 Bonds, LLC (the “Fort Collins RI Lender”), which is an affiliate of the Advisor which is owned by Norman Leslie and Corey Maple, each a director and executive officer of the Company and principal of the Advisor, in the amount of $11,500,000 secured by the Fort Collins RI Property, the issuance by the Operating Partnership of 560,369 Series T Limited Units of the Operating Partnership, and the payment of $596,310.09 by the Operating Partnership in cash at Closing for delinquent taxes, which amount is subject to 1.5 multiplier at time of conversion of the Series T Limited Units. The Series T Limited Units will convert into Common Limited Units of the Operating Partnership beginning 36 months, or at the option of the contributor, up to 48 months, after the closing, or upon the sale of the Fort Collins RI property or substantially all of the Operating Partnership’s assets, at which point the value will be calculated pursuant to the terms of the Fort Collins RI Amended Contribution Agreement. The number of Common LP Units to be issued to the contributor based on such conversion may be higher or lower than the initial valuation of the Series T LP Units. The Fort Collins RI Loan has a fixed interest rate of 7.0% per annum and is evidenced by three promissory notes in the amounts of $10,298,535 (“Tranche 1”), $700,000 (“Tranche 2”) and $501,465 (“Tranche 3”). The Fort Collins RI Lender was entitled to an origination fee of 1.75% of the Tranche 1 loan amount payable pursuant to the terms of the Fort Collins RI Amended Contribution Agreement. Each of Tranche 1 and Tranche 2 of the Fort Collins RI Loan matures August 2, 2023, which may be extended by the Company for an additional one-year term upon satisfaction of certain conditions contained in the loan agreement, including no then-existing event of default and, for Tranche 1 only, the payment of an extension fee of 1% of the full amount due under Tranche 1. Tranche 3 of the Fort Collins RI Loan matures August 2, 2028 with no extension option. Tranche 1 of the Fort Collins RI Loan requires monthly payments of interest-only throughout the term, with the outstanding principal and interest due at maturity. The Company has the right to prepay the Fort Collins RI Loan in full at any time upon prior notice to the Fort Collins RI Lender. Upon repayment of Tranche 1 at the maturity date, prepayment or otherwise, the Fort Collins RI Lender is entitled to an exit fee of 1.75% of the full amount due under Tranche 1 at the time of repayment. Tranche 2 of the Fort Collins RI Loan requires monthly payments of interest-only beginning six months after the date of the loan throughout the remaining term, with the outstanding principal and interest due at maturity. Any unpaid principal under Tranche 2 may be forgiven based on criteria to be negotiated between the borrower and the Fort Collins RI Lender. All monthly interest and principal payments on Tranche 3 of the Fort Collins RI Loan are deferred until a certain appraised value of the Fort Collins RI Property is reached, at which time all interest payments previously deferred shall be due and payable. If the required appraisal value is not attained prior to August 2, 2028, then the unpaid principal on Tranche 3 will be forgiven by the Fort Collins RI Lender.

~~Pursuant to the Fort Collins RI Loan Agreement, the Operating Partnership entered into a Guaranty (the “OP Guaranty~~”) with the Fort Collins RI Lender to guarantee payment when due of the loan amount and the performance of the agreements of borrower contained in the loan documents, as further described in the OP Guaranty.

In connection with the acquisition, the Company entered into a management agreement with NHS, LLC dba National Hospitality Services (“NHS”), an affiliate of the Advisor which is wholly-owned by Norman Leslie, a director and executive officer of the Company and a principal of the Advisor, to provide property management and hotel operations management services for the Fort Collins RI Property. The agreement has an initial term expiring on December 31, 2027, which automatically renews for a period of five years on each successive five-year period, unless terminated in accordance with its terms. NHS earns a monthly base management fee for property management services equal to 2% of gross revenue, an accounting fee of $14.00 per room for accounting services, payable monthly, and an administrative fee equal to 0.60% of gross revenues for administrative and other services. The Company also reimburses NHS for certain costs of operating the property incurred on behalf of the Company. All reimbursements are paid to NHS at cost, and the agreement can be terminated at any time without liquidated damages.

The Company funded the acquisition of the Fort Collins RI Property with proceeds from its ongoing private offering, Series T LP Units issued to the contributor as described above, and a new loan secured by the Fort Collins RI Property as described above. The Fort Collins RI Property is a 113-room property.

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~~Hilton Garden Inn El Paso University – El Paso, Texas~~

On August 10, 2022, the Operating Partnership acquired an equity and profits interest in High Desert Garden Holdings, LLC, a Delaware limited liability company (“HDGH”), the parent of the entity which holds a leasehold interest in a Hilton Garden Inn located in El Paso, Texas (the “El Paso HGI Hotel Property”) pursuant to a Reorganization and Membership Interest Purchase Agreement dated as of August 10, 2022 by and among the Operating Partnership, Roma Commercial, Inc., ASI Capital, LLC, and VB Hotel Group A, LLC and pursuant toa First Amendment to the Fourth Amended and Restated Operating Agreement of High Desert Garden Holdings, LLC (collectively and as amended (the “El Paso HGI Amended Agreements”)). High Desert Investors, LP, a Delaware limited partnership (“HDI”), a wholly-owned subsidiary of HDGH, holds a leasehold interest in real estate and the El Paso HGI Hotel Property located on such real estate. Pursuant to the El Paso HGI Amended Agreements, the Operating Partnership acquired a 24.9% membership interest in HDGH in exchange for a capital contribution of $3.2 million. The Operating Partnership has the unconditional right, at any time prior to December 31, 2027 and at its discretion, to acquire all membership interest in HDGH on the terms and conditions as provided in the El Paso HGI Amended Agreements. After paying any member loans, the Operating Partnership will receive 100% of distributions from operations, subject to annual cash distributions for members that existed before the El Paso HGI Amended Agreements (the “Prior Members”), which are entitled to up to 6.0% of the value of the Prior Member’s ownership percentage, depending upon the net operating income (“NOI”) of the El Paso HGI Hotel Property during each such applicable year. The Operating Partnership will fund any capital requirements for HDGH and has the option to fund such requirements by making a loan to HDGH at a 12% per annum interest rate. HDI is the borrower (“Borrower”) under a loan in the original principal amount of $14.4 million which is secured by HDI’s leasehold interest in the El Paso HGI Hotel Property and the real estate on which it is located. The loan has a fixed interest rate of 4.939% per annum and matures on August 6, 2025. In connection with the transactions effected through the El Paso HGI Amended Agreements, Corey Maple, a director and executive officer of the Company, entered into a guaranty with the lender to guarantee payment, when due, of the loan amount and the performance of agreements by Borrower contained in the loan documents, as further described in the guaranty, which is (i) a full recourse guarantee to the lender in certain circumstances, including the occurrence of certain events, including, without limitation, certain bankruptcy or insolvency proceedings involving the Borrower, and (ii) recourse guarantee limited to the payment of all losses, damages, costs, litigation, demands, suits, or other expenses actually incurred by the lender as a result of certain “bad boy” events, including fraud, intentional misrepresentation, willful misconduct or gross negligence in connection with the loan documents or the El Paso HGI Hotel Property, breach of representations, warranties, covenants or indemnities in the loan documents concerning environmental matters, material physical waste of the El Paso HGI Hotel Property, all as further described in the Guaranty. The Operating Partnership also entered into a completion guaranty with the lender regarding new property improvement plan obligations.

In connection with the acquisition, HDI entered into a management agreement with Aimbridge Hospitality, LLC (“Aimbridge”) (the “El Paso HGI Aimbridge Management Agreement”), to provide property management and hotel operations management services for the El Paso HGI Hotel Property. The El Paso HGI Aimbridge Management Agreement has an initial term of 5 years after its effective date, which automatically renews for successive one-year periods, unless terminated in accordance with its terms. Pursuant to the El Paso HGI Aimbridge Management Agreement, HDI agrees to pay to Aimbridge a management fee equal to 3% of total revenues plus an accounting fee of $3,000 per month for accounting services, which amount will increase annually by 3% on January 1 of each fiscal year beginning on January 1, 2023. Aimbridge will also receive an additional accounting fee of $3,495 per month for customized accounting services, revenue management and digital marketing, which amount will increase annually by 3% on January 1 of each fiscal year beginning on January 1, 2022. Aimbridge may also receive incentive management fees if certain performance metrics are achieved. HDI also reimburses Aimbridge for certain costs of operating the property incurred on behalf of the Company. All reimbursements are paid to Aimbridge at cost. The ~~El Paso HGI~~ ~~Aimbridge Management Agreement may be terminated upon the occurrence of an Event of Default (as defined in the~~ ~~El Paso HGI~~ ~~Aimbridge Management Agreement), subject in certain cases to applicable notice and cure periods as described in the~~ ~~El Paso HGI~~ ~~Aimbridge Management Agreement. HDI may terminate the~~ ~~El Paso HGI~~ Aimbridge Management Agreement in connection with the sale of the El Paso HGI Hotel Property upon at least ninety days’ written notice to Aimbridge and the payment of a termination fee, the amount of which varies depending on the timing of such termination.

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~~Properties Under Contract~~

On August 5, 2022, the Operating Partnership and Wichita Airport Hospitality, LLC (the “Wichita HIEX Contributor”) entered into a Legendary Equity Preservation UPREIT (Pat. Pend.) Contribution Agreement (the “Wichita HIEX Contribution Agreement”), pursuant to which the Wichita HIEX Contributor agreed to contribute the 84-room Holiday Inn Express & Suites Wichita Airport hotel in Wichita, Kansas (the “Wichita HIEX Hotel Property”) to the Operating Partnership. The Wichita HIEX Contributor is not affiliated with the Company or ~~Legendary Capital REIT III, LLC,~~ the ~~Company’s external advisor.~~Advisor. The aggregate consideration for the Wichita HIEX Hotel Property under the Wichita HIEX Contribution Agreement is $7,400,000 plus closing costs, subject to adjustment as provided in the Wichita HIEX Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the Wichita HIEX Hotel Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T LP Units of the Operating Partnership. As required by the Wichita HIEX Contribution Agreement, the Operating Partnership deposited $50,000 into escrow as earnest money pending the closing or termination of the Wichita HIEX Contribution Agreement. Except in certain circumstances described in the Wichita HIEX Contribution Agreement, if the Operating Partnership fails to perform its obligations under the Wichita HIEX Contribution Agreement, it will forfeit the earnest money. The Company acquired the Wichita HIEX Hotel Property subsequent to September 30, 2022. See Note 11, “Subsequent Events.”

On August 16, 2022, the Operating Partnership and Terrapin ABQ Airport, LLC (the “Sheraton Albuquerque Airport Contributor”) entered into a Legendary Equity Preservation UPREIT (Pat. Pend.) Contribution Agreement (the “Sheraton Albuquerque Airport Contribution Agreement”), pursuant to which the Sheraton Albuquerque Airport Contributor agreed to contribute the 276-room Sheraton Hotel Albuquerque Airport in Albuquerque, New Mexico (the “Sheraton Albuquerque Airport Property”) to the Operating Partnership. The Sheraton Albuquerque Airport Contributor is not affiliated with the Company or the Advisor. The aggregate consideration for the Sheraton Albuquerque Airport Property under the Sheraton Albuquerque Airport Agreement is $13,500,000 plus closing costs, subject to adjustment as provided in the Albuquerque Sheraton Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the Sheraton Albuquerque Airport Hotel Property. The remaining consideration consists of the issuance by the Operating Partnership of Common Limited Partnership Units of the Operating Partnership and cash at closing. As required by the Sheraton Albuquerque Airport Contribution Agreement, the Operating Partnership deposited $250,000 into escrow as earnest money pending the closing or termination of the Sheraton Albuquerque Airport Contribution Agreement. Except in certain circumstances described in the Sheraton Albuquerque Airport Contribution Agreement, if the Operating Partnership fails to perform its obligations under the Sheraton Albuquerque Airport Contribution Agreement, it will forfeit the earnest money. The Sheraton Albuquerque Airport Contribution Agreement was terminated subsequent to September 30, 2022. See Note 11, “Subsequent Events.”

The Operating Partnership entered into contribution agreements for the contribution of hotel properties in Fort Collins, Colorado, Manhattan, Kansas, and Lawrence Kansas, during 2022. Each of these agreements was terminated by the

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Operating Partnership on August 30, 2022, and the earnest money deposit with respect to each such property was fully refunded to the Operating Partnership on August 30, 2022.

11. SUBSEQUENT EVENTS

Update to Offering Price and Share NAV

The Company’s board of directors approved a revised net asset value (“NAV”) of the Company’s assets as of December 31, 2022. As a result, the price per share of the Company’s common stock, $0.01 par value per share (each, a “Share”), in the Offering and the Share NAV were adjusted from $10.00 to $10.57 effective January 6, 2023. The issue price of the Common LP Unit and the Series T LP Unit of the Operating Partnership also increased to $10.57. The Offering price was determined by the board of directors taking into account appraisals of the Company’s real estate properties and other factors deemed relevant by the board of directors. The Company makes no representations, whether express or implied, as to the value of the Shares offered in the Offering. In the event the Offering price per Share is increased or decreased, the number of Shares subject to the Offering will be adjusted to reflect such change and the maximum offering amount will remain unchanged.

A-1 Line of Credit Amendments

On January 12, 2023, the Operating Partnership, the Company and A-1 Bonds entered into a Change in Terms Amendment in connection with the A-1 Line of Credit. This Amendment increased the A-1 Line of Credit to $10.0 million and increased the number of Common LP Units of the Operating Partnership securing the A-1 Line of Credit to 1,000,000 Common LP Units.

On April 18, 2023, the Operating Partnership, the Company and A-1 Bonds entered into a Change in Terms Amendment in connection with the A-1 Line of Credit. This Amendment increased the A-1 Line of Credit to $13.3 million and increased the number of Common LP Units of the Operating Partnership securing the A-1 Line of Credit to 1,330,000 Common LP Units.

The Company ~~is still conducting its diligence review with respect~~and A-1 Bonds are working to finalize an extension of the A-1 Line of Credit as of the date of this ~~property. This pending acquisition is subject to its completion of satisfactory due diligence and other closing conditions. There~~filing, however there can be no assurance ~~the Company~~that an extension will ~~complete this pending property contribution on the contemplated terms, or at all.~~be granted.

~~New Revolving~~Western Line of Credit Amendments

On ~~August 9,~~December 15, 2022, the Operating Partnership, the Company and Corey Maple entered into a ~~$5.0~~Change in Terms Amendment in connection with the Western Line of Credit, which extended the maturity date of the Western Line of Credit from December 15, 2022 to April 15, 2023. Additionally, through the amendment on December 15, 2022, the Loan added the Company’s Hampton Inn hotel property in Fargo, North Dakota as security for the loan, so that the Western Line of Credit is now secured by the Company’s Hampton Inn hotel property in Eagan, Minnesota, the Company’s Holiday Inn Express hotel property in Cedar Rapids, Iowa, the Company’s Hampton Inn hotel property in Fargo, North Dakota, and limited partnership units of the Operating Partnership.

On April 15, 2023, the Operating Partnership, the Company and Corey Maple entered into a Change in Terms Amendment in connection with the Western Line of Credit, which extended the maturity date of the Western Line of Credit from April 15, 2023 to June 15, 2023.

On July 31, 2023, the Operating Partnership, the Company, Corey Maple, LF3 Fargo Med, LLC, LF3 Eagan, LLC, and LF3 Cedar Rapids, LLC entered into a Change in Terms Agreement in connection with the Western Line of Credit, which extended the maturity date of the Western Line of Credit from June 15, 2023 to September 15, 2023. This amendment also added an additional 200,000 limited partnership units of the Operating Partnership as collateral for the loan, for a total of

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300,000 limited partnership units.

On October 9, 2023, the Operating Partnership, the Company, Corey Maple, LF3 Fargo Med, LLC, LF3 Eagan, LLC, and LF3 Cedar Rapids, LLC entered into a Change in Terms Agreement, effective as of October 4, 2023 in connection with the Western Line of Credit, which extended the maturity date of the Western Line of Credit from September 15, 2023 to November 15, 2023. This amendment also reduced the maximum credit to $4.67 million ~~revolving line~~and required the Operating Partnership to pay Western State Bank a principal curtailment of ~~credit~~$0.3 million.

On December 27, 2023, the Operating Partnership, the Company, Corey Maple, LF3 Fargo Med, LLC, LF3 Eagan, LLC, and LF3 Cedar Rapids, LLC entered into a Change in Terms Agreement in connection with the Western Line of Credit, which extended the maturity date of the Western Line of Credit from November 15, 2023 to April 30, 2024.

NHS Loan

On March 6, 2023, the Company entered into a $600,000 loan agreement (the ~~“A-1 Line of Credit”~~“NHS Loan”) with ~~Legendary A-1 Bonds, LLC (the “A-1 Lender”), which is an affiliate~~NHS. The NHS Loan requires the payment of ~~the Advisor which is owned by Norman Leslie and Corey Maple, each a director and executive officer of the Company and principal of the Advisor. The A-1 Line of Credit requires~~ monthly ~~payments of~~ interest ~~only~~ beginning ~~September 1, 2022,~~on April 6, 2023, with all outstanding principal and interest amounts being due and payable at maturity on ~~December 31, 2022.~~July 6, 2023. The ~~A-1 Line of Credit~~NHS Loan has a fixed interest rate of 7.0% per annum. Outstanding amounts under the ~~A-1 Line of Credit~~NHS Loan may be prepaid in whole or in part without penalty. The ~~A-1 Line of Credit~~NHS Loan is secured by ~~500,000 unissued~~60,000 partnership units of the Operating Partnership.

On December 28, 2023, the Company entered into a Change in Terms Agreement with the Operating Partnership and NHS in connection with the NHS Loan to extend the maturity date of the NHS Loan to January 31, 2024. This amendment also provided that in lieu of monthly interest payments, all accrued interest shall be due and payable on the maturity date with the full principal balance.

The Company and NHS are working to finalize an extension of the NHS loan as of the date of this filing, however there can be no assurance that an extension will be granted.

Fort Collins Loan Refinancing

On April 18, 2023, pursuant to the Loan Agreement, dated as of April 18, 2023 (the “New Fort Collins Loan Agreement”), LF3 RIFC, LLC and LF3 RIFC TRS LLC (collectively, the “Fort Collins Borrower”), subsidiaries of the Operating Partnership entered into a new $11.2 million loan with Access Point Financial, LLC (“Access Point”), which is secured by the Fort Collins Property (the “New Fort Collins Loan”). Access Point is not affiliated with the Company or the Advisor. The New Fort Collins Loan is evidenced by a promissory note and has a variable interest rate per annum equal to 30-day secured overnight financing rate plus 6.25%. The New Fort Collins Loan matures May 4, 2025, with the option for up to three one-year extensions if requirements are met, including certain required debt service coverage ratios and the payment of an extension fee. The New Fort Collins Loan requires monthly interest-only payments through May 4, 2025, followed by monthly payments of principal and interest through any extensions, with the outstanding principal and interest due at maturity. The Fort Collins Borrower has the right to prepay up to 10% of the outstanding principal amount of the New Fort Collins Loan on certain permitted prepayment dates with a 10-day notice. If prepaid during the first 25 months of the initial term, such a prepayment would include a prepayment fee equal to the sum of 24 months of interest payments that, but for the prepayment, would have been due and payable on the prepaid principal amount had a prepayment not occurred. When the Fort Collins Borrower pays the entire remaining principal balance, whether prepaid or on maturity, the Fort Collins Borrower will incur an exit fee of $112,000. The New Fort Collins Loan includes cross-default provisions such that a default under certain other agreements of the Fort Collins Borrower, the Guarantors described below and the property manager of the Fort Collins Property constitute a default under the New Fort Collins Loan. The Fort Collins Borrower used the proceeds of the New Fort Collins Loan to repay the original $11.5 million loan with A-1 Bonds which was secured by the Fort Collins Property, pursuant to a Loan Agreement, dated as of August 3, 2022. The original loan was evidenced by three promissory notes in the amounts of $10,298,535 (“Tranche 1”), $700,000 (“Tranche 2”) and $501,465 (“Tranche 3”) and had a fixed interest rate of 7.0% per annum. On April 18, 2023, the proceeds of the New Fort Collins Loan were used to refinance the original loan, and the outstanding obligations under Tranche 1 were repaid in full and under Tranche 2 were forgiven. A 1.75% exit fee was paid on Tranche 1, and no penalty was incurred on Tranche 1 or Tranche 2. Tranche 3 remains an ongoing obligation, no longer secured by the Fort Collins Property, under the terms of the original loan and Tranche 3 promissory note. All guaranties in connection and collateral with respect to the original loan and Tranche 1,

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Tranche 2 and Tranche 3 promissory notes have been terminated or released, and all commitments with respect to the original loan and Tranche 1 and Tranche 2 promissory notes have been terminated or released.

Pursuant to the New Fort Collins Loan Agreement, Corey Maple and Norman Leslie entered into a Guaranty with Access Point to guarantee payment when due of the principal amount of indebtedness outstanding, including accrued interest and collection costs and expenses, and the performance of the agreements of the Fort Collins Borrower contained in the loan documents.

El Paso HI Loan Modification

LF3 El Paso, LLC and LF3 El Paso TRS LLC (collectively, the “El Paso HI Borrower”), subsidiaries of the Operating Partnership, entered into a $7.9 million loan (the “Holiday Inn El Paso Loan”) with EPH Development Fund LLC (“EPH”), secured by the El Paso HI Property, pursuant to a loan agreement, dated as of May 12, 2021. The Holiday Inn El Paso Loan had a maturity date of May 15, 2023.

On May 15, 2023, the El Paso HI Borrower, the Operating Partnership and Corey R. Maple entered into a first loan modification agreement with EPH, which extended the maturity date to May 15, 2024. As a condition to the extension, the El Paso HI Borrower agreed to pay down $300,000 of the Holiday Inn El Paso Loan, modifying the principal outstanding balance to be $7.6 million. In addition, as a condition to the extension, the El Paso HI Borrower agreed to deposit $819,674 into an FF&E Reserve account held by EPH.

As an additional condition to the extension, the Operating Partnership and HD Sunland Park Property LLC (the “El Paso HI Contributor”) agreed to amend the Amended and Restated Contribution Agreement, dated as of May 12, 2021, to allow the Operating Partnership to offer the El Paso HI Contributor of the El Paso HI Property an adjustment in the conversion of Series T Limited Units to Common Limited Units or other financial adjustments if the Operating Partnership determines that the El Paso HI Contributor’s extension of the determination of the Series T value to 48 months after issuance to the El Paso HI Contributor may result in actual or possible financial or other loss or litigation.

Lakewood Loan Extended

As previously disclosed, the subsidiaries of the Operating Partnership and A-1 Bonds entered into a loan agreement in the amount of $12.6 million secured by the Lakewood Property. Per the terms of the agreement, the subsidiaries of the Operating Partnership executed the option to extend the maturity date of the loan to March 28, 2024.

SEC Settlement

As mentioned in Note 12 “Commitments and Contingencies”, on August 28, 2023, the Advisor and Corey R. Maple agreed to a settlement with the SEC, in which the Advisor agreed to pay disgorgement of $463,900 to the Company.

Creation of Series GO II LP Units

April 7, 2023, the Operating Partnership established the terms of a new series of limited partner units designated as Series Growth & Opportunity II Limited Partner Units (“Series GO II LP Units”) to be issued from time to time. The Operating Partnership commenced a separate offering for the purchase of the Series GO II LP Units at a purchase price equal to 75% of the Share NAV. The purchase price based on the current Share NAV is $7.93 per Series Go II LP Unit. The Series GO II LP Units will be specially allocated all Net Income (including book-up income) in proportion to the 25% issue price shortfall, until the positive Capital Account balance of each Series GO II LP Unit is equal to the Share NAV. As a result, the issuance of Series GO II LP Units will be dilutive to the General Partner Units and therefore, to the shares of common stock of the Company. See “—GO II Unit Offering” below for status of the offering.

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Resolution of Litigation with PA Sellers

Effective November 20, 2023, the Operating Partnership and Central PA Equities 17, LLC, Central PA Equities 19, LLC, and Springwood – FHP LP (collectively, the “PA Seller”) enter into a settlement agreement and general release of all claims (the “Settlement Agreement”) regarding the asset purchase agreement dated November 22, 2019 (as amended, the “Purchase Agreement”). Pursuant to the Purchase Agreement, the Operating Partnership agreed to acquire the 108-room Fairfield Inn & Suites by Marriott hotel in Hershey, Pennsylvania, the 107-room Home2 Suites by Hilton hotel in York, Pennsylvania, and the 100-room Hampton Inn & Suites by Hilton hotel in York, Pennsylvania (collectively, the “Hotel Properties”) from the PA Seller for $46.9 million plus closing costs, subject to adjustment as provided in the Purchase Agreement. As required by the Purchase Agreement, the Operating Partnership deposited a total of $1.5 million into escrow as earnest money pending the closing or termination of the Purchase Agreement (the “Earnest Money Deposit”).

Pursuant to the Settlement Agreement, the PA Seller received $700,000 of the Earnest Money Deposit, and the Operating Partnership received $800,000 of the Earnest Money Deposit. Accrued interest on the Deposit was split between the parties with 7/15 of the total amount being paid to the PA Seller and 8/15 of the total amount being paid to the Operating Partnership. Incurred fees of the Escrow Agent were paid by the Operating Partnership in accordance with the Settlement Agreement. The Operating Partnership and all related entities are released and forever discharged from all claims related to or arising from the Purchase Agreement.

Distributions Paid

On October 4, 2022, the Company declared cash distributions totaling $396,328, DRIP distributions totaling $157,718, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $66,570 for Series GO LP Units of the Operating ~~Partnership. As~~Partnership, at a daily rate of ~~August 11,~~$0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s current share net asset value of $10.00, for daily record dates September 1 through September 30, 2022 ~~$3.3 million has been advanced by~~to holders of record on each calendar day of such period. The distribution declared for September 2022 was paid on October 10, 2022.

On November 3, 2022, the ~~A-1 Lender under~~Company declared cash distributions totaling $418,146, DRIP distributions totaling $138,014, cash distributions totaling $35,706 for Common Limited Units of the ~~A-1 Line~~Operating Partnership and cash distributions totaling $75,430 for Series GO LP Units of ~~Credit.~~the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s current share net asset value of $10.00, for daily record dates October 1 through October 31, 2022 to holders of record on each calendar day of such period. The distribution declared for October 2022 was paid on November 10, 2022.

~~Share Repurchases~~On December 8, 2022, the Company declared cash distributions totaling $420,494, DRIP distributions totaling $137,567, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $79,424 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s current share net asset value of $10.00, for daily record dates November 1 through November 30, 2022 to holders of record on each calendar day of such period. The distribution declared for November 2022 was paid on December 9, 2022.

On January 4, 2023, the Company declared cash distributions totaling $420,543 and DRIP distributions totaling $139,519, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $83,099 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s initial offering price of $10.00, for daily record dates December 1 through December 31, 2022 to holders of record on each calendar day of such period. The distribution declared for December 2022 was paid on January 10, 2023.

On February 7, 2023, the Company declared cash distributions totaling $434,653 and DRIP distributions totaling $126,842, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $86,988 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s initial offering price of $10.00, for daily record dates January 1 through January 31, 2023 to holders of record on each calendar day of such period. The distribution declared for January 2023 was paid on February 10, 2023.

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On March 7, 2023, the Company declared cash distributions totaling $434,351 and DRIP distributions totaling $129,458, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $90,200 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s initial offering price of $10.00, for daily record dates February 1 through February 28, 2023 to holders of record on each calendar day of such period. The distribution declared for February 2023 was paid on March 10, 2023.

On April 4, 2023, the Company declared cash distributions totaling $432,563 and DRIP distributions totaling $132,987, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $93,696 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s initial offering price of $10.00, for daily record dates March 1 through March 31, 2023 to holders of record on each calendar day of such period. The distribution declared for March 2023 was paid on April 10, 2023.

On May 9, 2023, the Company declared cash distributions totaling $441,332 and DRIP distributions totaling $125,684, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $102,500 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s initial offering price of $10.00, for daily record dates April 1 through April 30, 2023 to holders of record on each calendar day of such period. The distribution declared for April 2023 was paid on May 10, 2023.

On June 12, 2023, the Company declared cash distributions totaling $441,771 and DRIP distributions totaling $126,101, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $113,949 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s initial offering price of $10.00, for daily record dates May 1 through May 31, 2023 to holders of record on each calendar day of such period. The distribution declared for May 2023 was paid on June 15, 2023.

On July ~~21,~~10, 2023, the Company declared cash distributions totaling $442,403 and DRIP distributions totaling $127,081, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $125,067 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s initial offering price of $10.00, for daily record dates June 1 through June 30, 2023 to holders of record on each calendar day of such period. The distribution declared for June 2023 was paid on July 14, 2023.

On August 8, 2023, the Company declared cash distributions totaling $443,331 and DRIP distributions totaling $130,236, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $138,225 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s initial offering price of $10.00, for daily record dates July 1 through July 31, 2023 to holders of record on each calendar day of such period. The distribution declared for July 2023 was paid on August 11, 2023.

On September 11, 2023, the Company declared cash distributions totaling $451,509 and DRIP distributions totaling $123,716, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $160,212 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s initial offering price of $10.00, for daily record dates August 1 through August 31, 2023 to holders of record on each calendar day of such period. The distribution declared for August 2023 was paid on September 15, 2023.

On October 24, 2023, the Company declared cash distributions totaling $451,660 and DRIP distributions totaling $124,848, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $175,525 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the

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Company’s initial offering price of $10.00, for daily record dates September 1 through September 30, 2023 to holders of record on each calendar day of such period. The distribution declared for September 2023 was paid on October 27, 2023.

On November 7, 2023, the Company declared cash distributions totaling $473,526 and DRIP distributions totaling $103,722, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $181,841 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s initial offering price of $10.00, for daily record dates October 1 through October 31, 2023 to holders of record on each calendar day of such period. The distribution declared for October 2023 was paid on November 20, 2023.

On December 6, 2023, the Company declared cash distributions totaling $471,485 and DRIP distributions totaling $106,956, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $182,164 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s initial offering price of $10.00, for daily record dates November 1 through November 30, 2023 to holders of record on each calendar day of such period. The distribution declared for November 2023 was paid on December 29, 2023.

On January 16, 2024, the Company declared cash distributions totaling $471,271 and DRIP distributions totaling $108,117 cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $182,262 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s initial offering price of $10.00, for daily record dates December 1 through December 31, 2023 to holders of record on each calendar day of such period. The distribution declared for December 2023 remained unpaid at the time of this filing.

Property Acquisitions

On December 22, 2022, the ~~Company paid~~Operating Partnership acquired a Holiday Inn Express & Suites hotel property in Wichita, Kansas (the “Wichita Property”) for contractual consideration comprised of the ~~outstanding redemption~~origination of a new loan by subsidiaries of the Operating Partnership with Choice Financial Group (the “Wichita HIEX Lender”) for $5.6 million, secured by the Wichita Property the issuance by the Operating Partnership of 121,762 Series T Limited Units of the Operating Partnership, and the payment by the Operating Partnership of $0.5 million in cash, a portion of which was used to pay off the portion of the Wichita Contributor’s existing loan not covered by the proceeds ~~related~~of the new loan with the Wichita HIEX Lender. The Series T Limited Units will convert into Common Limited Units of the Operating Partnership 36 months after the closing. The number of Common Limited Units to be issued to the ~~June 2022 redemption of 57,614 shares of common stock for $575,879 per~~Wichita Contributor upon conversion will be calculated pursuant to the terms of the ~~Share Repurchase Plan.~~Wichita Contribution Agreement, which may be higher or lower than the initial valuation of the Series T LP Units. In connection with the loan described above, Corey Maple entered into a Wichita HIEX Guaranty (the “Wichita HIEX Maple Guaranty”) with the Wichita HIEX Lender to guarantee payment when due of 50% of the principal amount of indebtedness outstanding, including accrued interest and collection costs and expenses, and the performance of the agreements of borrower contained in the loan documents, as further described in the Wichita HIEX Maple Guaranty.

Properties Under Contract

On January 31, 2023, the Operating Partnership and CS Real Estate Holding LLC (the “College Station Voco Contributor”) entered into a Legendary Equity Preservation UPREIT (Pat. Pend.) Contribution Agreement (the “College Station Voco Contribution Agreement”), pursuant to which the College Station Voco Contributor agreed to contribute the 166-room Aggieland Boutique Hotel in College Station, Texas, which the Operating Partnership intends to convert into a Voco by IHG (the “College Station Voco Hotel Property”) to the Operating Partnership. The College Station Voco Contributor is not affiliated with the Company or Legendary Capital REIT III, LLC, the Company’s external advisor. The aggregate consideration for the College Station Voco Hotel Property under the College Station Voco Contribution Agreement is $18,500,000 plus closing costs, subject to adjustment as provided in the College Station Voco Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the College Station Voco Hotel Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T Limited Units of the Operating Partnership and cash at closing. As required by the College Station

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Voco Contribution Agreement, the Operating Partnership will deposit $50,000 into escrow as earnest money pending the closing or termination of the College Station Voco Contribution Agreement. Except in certain circumstances described in the College Station Voco Contribution Agreement, if the Operating Partnership fails to perform its obligations under the College Station Voco Contribution Agreement, it will forfeit the earnest money. The Company terminated the College Station Voco Contribution Agreement on June 13, 2023.The earnest money deposit was fully refunded to the Operating Partnership.

On April 23, 2023, the Operating Partnership terminated the Legendary Equity Preservation UPREIT (Pat. Pend.) Contribution Agreement entered into on August 16, 2022 in connection with the contribution of the 276-room Sheraton Hotel Albuquerque Airport in Albuquerque, New Mexico. Subsequent to December 31, 2022 and prior to termination, the Operating Partnership deposited an additional $150,000 into escrow as earnest money pending the closing or termination of the Sheraton Albuquerque Airport Contribution Agreement. Upon termination, $300,000 of the total earnest money deposit was returned to the Operating Partnership.

Status of the Offering

Our board of directors extended the term of the Offering to May 31, 2024. As of ~~August 11, 2022,~~the date of this filing, the Company’s private offering remained open for new investment, and since the inception of the offering the Company had issued and sold ~~9,561,096~~10,254,100 shares of common stock, including ~~957,091~~1,178,323 shares issued pursuant to the DRIP, resulting in the receipt of gross offering proceeds of ~~$90.8~~$100.2 million.

Series T LP Units

The Operating Partnership did not issue any Series T LP Units during the year ended December 31, 2023 to the date of this filing.

Common LP Units

The Operating Partnership did not issue any Common LP Units during the year ended December 31, 2023 to the date of this filing.

GO II Unit Offering

On April 7, 2023, the Operating Partnership commenced an offering of Series GO II LP Units. The Operating Partnership has issued and sold 197,606 Series Go II LP Units, resulting in the receipt of gross offering proceeds of $1.5 million as of the date of this filing.

Share Repurchases

On October 21, 2022, the Company paid the outstanding redemption proceeds related to the September 2022 redemption of 13,327 shares of common stock for $133,266 per the terms of the Share Repurchase Plan.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used herein, the terms “we,” “our,” “us” and “the Company” refer to Lodging Fund REIT III, Inc., a Maryland corporation, Lodging Fund REIT III OP, LP a Delaware limited partnership, which we refer to as the “Operating Partnership,” Lodging Fund REIT III TRS, Inc., a Delaware corporation, which we refer to as the “Master TRS” and their subsidiaries, except where the context otherwise requires. The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of the Company and the notes thereto.

Forward-Looking Statements

Certain statements included in this Quarterly Report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of the Company and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “should,” “expect,” “could,” “intend,” “anticipate,” “plan,” “estimate,” “believe,” “potential,” “continue,” “seek” or similar expressions. These statements include our plans and objectives for future operations, including plans and objectives relating to future growth and availability of funds, and are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to these statements involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to accurately predict and many of which are beyond our control. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.

Summary Risk Factors

Our business faces significant risks and uncertainties. Set forth below is a summary list of the principal risk factors as of the date of the filing of this Quarterly Report on Form 10-Q that could materially and adversely affect our business, financial condition, results of operations and cash flows. This summary highlights certain of the risks and uncertainties but does not address all of the risks that we face which could cause our actual results to differ materially from those presented in our forward-looking statements. You should interpret many of the risks identified in this summary and in our Annual Report on Form 10-K and in Part II, Item 1A herein, as being heightened as a result of the ongoing and numerous adverse impacts of the novel coronavirus (“COVID-19”) pandemic.

Risks Related to Our Business

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The COVID-19 pandemic has had a negative impact on the U.S. and world economies and business activities. The extent to which the COVID-19 pandemic adversely affects our results of operations, returns and profitability, as well as our ability to pay distributions to our stockholders or to realize appreciation in the value of our properties, will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the severity and duration of the pandemic, the distribution and efficacy of vaccines, continued emergence of new strains of COVID-19, actions taken to contain the COVID-19 outbreak or to mitigate its impact and the direct and indirect economic effects of the COVID pandemic. These trends, together with increasing labor costs and shortages, supply chain disruptions and related commodity and other price inflation resulting from the COVID-19 pandemic or other causes, may cause an increase in renovation, construction and operating costs, may limit our access to critical operating supplies and may continue to adversely affect our hotel operations and financial results. In addition, if in the future there is an outbreak of another highly infectious or contagious disease or other health concern, our company and our properties may be subject to similar risks as posed by COVID-19.

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We have a limited operating history and may not be successful at operating a real estate investment trust, or REIT, which may adversely affect our ability to make distributions to our stockholders.

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Our advisor, Legendary Capital REIT III, LLC (the “Advisor”), its executive officers and other key personnel, the employees of Legendary Capital, LLC (the “Sponsor”), an affiliate of the Advisor as well as

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certain of our officers and directors, whose services are essential to the Company, may be involved in other business ventures, and will face a conflict in allocating their time and other resources between us and the other activities in which they are or may become involved. Failure of the Advisor, its executive officers and key personnel, the employees of the Sponsor, and our officers and directors to devote sufficient time or resources to our operations could result in reduced returns to our stockholders.

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We will pay certain prescribed fees and expenses to the Advisor and its affiliates regardless of the quality of services provided. These fees were not negotiated at arm’s length and therefore may be higher than fees payable to unaffiliated third parties for the same or similar services. Such fees may result in conflicts of interest between the Advisor and our stockholders due to the nature of the incentive fees and management fees.

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We have paid distributions from proceeds from our ongoing private offering described below (the “Offering”) and, to the extent our board of directors declares future distributions, we may continue to fund distributions with Offering proceeds. We have not established a limit on the amount of proceeds from our Offering that we may use to fund distributions. To the extent we fund distributions from sources other than our cash flow from operations, we will have less funds available for investment and the overall return to our stockholders may be reduced. We may fund distributions from other sources such as borrowings, which may constitute a return of capital.

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If we are unable to raise substantial funds in our securities offerings, we may not be able to acquire a large portfolio of assets, which may cause the value of an investment in us to vary more widely with the performance of certain investments and cause our general and administrative expenses to constitute a greater percentage of our revenue.

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We may be unable to identify properties that meet our investment criteria in a timely manner or on acceptable terms, and may be unable to consummate investment opportunities that we identify, which could result in reduced returns or reduce the amount available for distributions to our stockholders.

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We intend to acquire only hotel properties. As a result, we will only have limited diversification as to the type of property we own. In the event of an economic recession affecting the economies of the areas in which the properties are located or a decline in values in general, our financial performance could be materially and adversely affected, which may limit our ability to pay distributions to our stockholders.

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~~We face risks related to the timing and outcome of an ongoing regulatory inquiry.~~

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We and our hotel managers rely on information technology networks and systems, including the internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personally identifiable information, reservations, billing and operating data. It is possible that our safety and security measures will not be able to prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information, which may subject us to liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations.

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We have been delinquent in our SEC reporting obligations for over 12 months, and continue to be delinquent with respect to several Quarterly Reports on Form 10-Q. We cannot provide assurance that our business will not be materially adversely affected by our previous and potential future failures to file required periodic reports on a timely basis. Despite the filing of this quarterly report on Form 10-Q, we face a continuing risk that the SEC will initiate an administrative proceeding to suspend or revoke the registration of our common stock under the Exchange Act due to our previous failure to timely file our annual report on Form 10-K and our continuing delinquent quarterly reports on Form 10-Q. There may be continued concern on the part of investors and employees about our financial condition and extended filing delay status, which may result in the loss of business opportunities, limitations on our ability to raise capital, and general reputational harm. Any of the foregoing could materially adversely affect our business, results of operations and financial condition.

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Risks Related to the Lodging Industry and Real Estate Industry

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Demand for our properties may be affected by various factors, including an over-supply or over-building of hotel properties in our properties’ markets and general economic conditions. If demand does not increase or if demand weakens, our occupancy or revenues per available room may decline, making it more difficult for us to implement our business strategy and to meet any debt service obligations we have incurred and limiting our ability to pay distributions to our stockholders.

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We may be unable to dispose of our properties on advantageous terms or at all due to various factors, including weakness in our properties’ markets, unavailability of financing, changes in the financial condition

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of prospective purchasers or changes in general economic conditions, which could reduce our cash flow and limit our ability to make distributions to our stockholders.

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Adverse economic, business or real estate developments in our markets, as well as low consumer confidence, declines in corporate budgets, high rates of inflation, and decreases in personal discretionary spending levels, may adversely affect our financial performance and the value of our properties and may limited our ability to pay distributions to our stockholders.

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The hospitality industry is seasonal in nature. In addition, the hospitality industry is cyclical and demand generally follows the general economy on a lagged basis. The seasonality and cyclicality of our industry may contribute to fluctuations in our results of operations and financial condition.

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We rely on management companies to operate our hotel properties, giving us less control than if we were managing the hotels ourselves. Further, NHS, LLC dba National Hospitality Services (“NHS”), the management company currently directly or indirectly managing nine of our existing hotel properties on a day-to-day basis, is an affiliate of Norman H. Leslie, a director and officer of the Company and a principal of the Advisor. This relationship may cause conflicts of interest between the Advisor and our stockholders.

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Our success depends in part upon our management companies’ ability to attract, motivate and retain a sufficient number of qualified employees. Qualified individuals needed to fill these positions are in increasingly short supply in some areas. The inability to recruit and retain these individuals may adversely impact hotel operations and guest satisfaction, which could harm our business.

Risks Related to Debt Financing

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We have incurred significant debt in connection with our property acquisitions. Our use of leverage increases the risk of an investment in us. Our mortgage loans are collateralized by our hotel properties, which will put those investments at risk of forfeiture if we are unable to repay such debts. Principal and interest payments on these loans reduce the amount of money that would otherwise be available for distribution to our stockholders.

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Our ability to acquire, rehabilitate, renovate and manage our properties may be limited if we cannot obtain satisfactory financing, refinance or extend existing financing, which will depend on debt and capital markets conditions. In addition, we have loans with variable interest rates, and may incur additional variable rate debt in the future. Volatility in these markets could negatively impact such loans. Interest rates have risen recently and may continue to rise, though the timing and amount of any such future interest rate increases are uncertain. There can be no assurance that we will be able to obtain financing or refinance or extend existing financing on favorable terms, or at all.

Federal Income Tax Risks

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Failure to qualify as a REIT would reduce our net earnings available for investment or distribution to our stockholders.

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All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (the “SEC”)., and in Part II, Item 1A herein.

Overview

Lodging Fund REIT III, Inc. was formed on April 9, 2018, as a Maryland corporation for the primary purpose of acquiring a diversified portfolio of limited-service, select-service, full-service and extended-stay hotel properties (the “Projects”) located primarily in “America’s Heartland,” which we define as the geographic area from North Dakota to Texas and the Appalachian Mountains to the Rocky Mountains. We have elected to be taxed as a real estate investment trust, or REIT, beginning with the taxable year ended December 31, 2018, and we intend to continue to operate in such a manner. Where applicable in this Form 10-Q, “we,” “our,” “us,” and “the Company” refers to Lodging Fund REIT III, Inc., Lodging Fund

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REIT III OP, LP, a Delaware limited partnership and our operating partnership (the “Operating Partnership”), and its subsidiaries except where the context otherwise requires.

We conduct substantially all our business and own substantially all real estate investments through the Operating Partnership. We are the sole general partner (the “General Partner”) of the Operating Partnership. We and the Operating Partnership are advised by ~~the Advisor~~Legendary Capital REIT III, LLC, a Delaware limited liability company (the “Advisor”) pursuant to an advisory agreement, as amended, under which the Advisor performs advisory services regarding acquisition, financing and disposition of the Projects and origination of any loans, and is responsible for managing, operating and maintaining the Projects and day-to-day management of the Company. The Advisor may, in its sole discretion, perform these duties through one or more affiliates. The Operating Partnership has issued 1,000 Series B Limited Partnership Units (“Series B LP Units”) to the Advisor as part of its compensation. See Part II Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Overview” for further details of the compensation to the Advisor.

Our Advisor is wholly-owned by Corey Maple and Norman Leslie. To facilitate our REIT structure, the Operating Partnership formed Lodging Fund REIT III TRS, Inc., a Delaware corporation (“Master TRS”), to act as the “master” taxable REIT subsidiary (“TRS”) entity. When we acquire a Project, the Master TRS forms a separate wholly-owned TRS to act as lessee of the Project (a “TRS Lessee”). That TRS Lessee will enter into a lease agreement with a wholly-owned subsidiary of the Operating Partnership to operate the Project. We have engaged ~~NHS~~National Hospitality Services (“NHS”) to manage ~~the majority~~eleven of the Projects acquired to date; however, we can engage and have engaged third party property management ~~companies and have done so in connection with several of our Projects acquired to date.~~companies. NHS is wholly-owned by Norman Leslie, a director and executive officer of the Company and a principal of the Advisor. The Advisor has no direct employees. The employees of Legendary Capital, LLC (the “Sponsor”), an affiliate of the Advisor, provide services to the Company related to the negotiations of property acquisitions and financing, asset management, accounting, legal, investor relations, and all other administrative services.

We have invested and continue to invest primarily in 80 to 200 room limited-service, select-service, full-service and extended-stay hotel properties with strong mid-market brands in America’s Heartland. As of ~~June~~September 30, 2022, we owned 1417 hotel properties and owned an equity and profits interest in the parent of an entity which holds a leasehold interest in one additional hotel property with an aggregate of ~~1,686~~2,177 rooms located in nine states.

We have raised capital through several private offerings conducted by the Company and the Operating Partnership described below.

Initial Offering

We are currently conducting an offering (the “Offering”) in shares of our common stock under a private placement to qualified purchasers who meet the definition of “accredited investors,” as provided in Regulation D of the Securities Act of 1933, as amended (the “Securities Act”). The Offering commenced on June 1, 2018 in an amount of up to $100,000,000 in shares of our common stock, which amount was increased to $150,000,000 in shares of our common stock in December 2021. The Offering will continue until the earlier of (i) the date when the maximum offering amount is sold, (ii) May 31, ~~2023,~~2024, which may be extended by our board of directors in its sole discretion, or (iii) a decision by the Company to terminate the Offering. In addition to sales of common stock for cash, the Company has adopted a dividend reinvestment plan

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(“DRIP”), which permits stockholders to reinvest their distributions back into the Company. Except as otherwise provided in the offering memorandum for Offering, the shares offered in the Offering for cash are being offered at an initial price of $10.00 per share, with the shares issued pursuant to the DRIP being purchased at an initial price of $9.50 per share. As of ~~June~~September 30, 2022, we have issued and sold ~~9,379,886~~9,790,511 shares of common stock, including ~~925,174~~972,850 shares attributable to the DRIP, and received aggregate proceeds of ~~$91.7~~$95.7 million. After deductions for payments of selling commissions, marketing and diligence allowances, other wholesale selling costs and expenses, we received net offering proceeds of approximately ~~$79.9~~$83.3 million. The net offering proceeds have been used principally to fund property acquisitions and pay distributions and debt service obligations. No public market exists for the shares of our common stock and none is expected to develop.

We have adopted a share repurchase plan that may enable our stockholders to have their shares repurchased in limited circumstances. In its sole discretion, the board of directors could choose to terminate or suspend the plan or to amend its provisions without stockholder approval. The repurchase plan may be reviewed and modified by the board of directors as it deems necessary in its sole discretion. As of ~~June~~September 30, 2022, we have repurchased ~~274,199~~287,525 shares, which represents an original investment of ~~$2,741,988~~$2,858,355 for ~~$2,661,203.~~$2,794,469. As of ~~June~~September 30, 2022, ~~$575,879~~$133,266 of the redemption proceeds had not yet been paid and was included in other liabilities on the accompanying consolidated balance sheets included as part of this Quarterly Report on Form 10-Q.

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Interval Share Offering

On April 29, 2020, we classified and designated 7,000,000 shares of authorized but unissued common stock, $0.01 par value per share, as shares of “Interval Common Stock,” to be part of the Offering. The offering of the Interval Common Stock iswas a maximum offering of $30,000,000, which may be increased to $60,000,000 in the sole discretion of our board of directors, (the “Interval Share Offering”) to accredited investors only, pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended. The Interval Share Offering will continue until the earlier of (i) the date when $30,000,000 (or $60,000,000 if approved by our board of directors) is sold, (ii) March 31, 2022, or (iii) a decision by the Company to terminate the Interval Share Offering. Our board of directors allowed the Interval Share Offering to expire on March 31, ~~2022, and as of June 30, 2022, the Company had~~2022. We did not ~~issued~~issue or ~~sold~~sell any shares of Interval Common ~~Stock.~~Stock in the Offering.

GO Unit Offering

On June 15, 2020, the Operating Partnership commenced a private offering of limited partnership units in the OP, designated as Series Growth & Opportunity Limited Partner Units (“Series GO LP ~~Units,~~Units”), with a maximum offering of $20,000,000, which could be increased to $30,000,000 in our sole discretion as the General Partner of the Operating Partnership (the “GO Unit Offering”) to accredited investors only, pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended. The Series GO LP Units were being offered until the earlier of (i) the sale of $20,000,000 in Series GO LP Units (which could be increased to $30,000,000 in the Company’s sole discretion), (ii) June 14, 2022 or (iii) the Operating Partnership terminates the GO Unit Offering at an earlier date in its sole discretion. Our board of directors terminated the GO Unit Offering as of February 14, 2022. Our board of directors approved and ratified additional sales after February 14, 2022 in the GO Unit Offering for sales which were pending as of that date. As of ~~June~~September 30, 2022, the Operating Partnership had issued and sold ~~3,125,041~~3,124,503 Series GO LP Units and received aggregate proceeds of $21.5 million. After deductions for payments of selling commissions, marketing and diligence allowances, other wholesale selling costs and expenses, and other offering expenses, we received net offering proceeds of approximately $19.4 million.

Series T LP Units

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LP Units upon other events as described in the Partnership Agreement of the Operating Partnership. The conversion of Series T LP Units into Common LP Units may vary with each issuance and is generally based on a formula that applies an applicable capitalization rate to the then-current trailing twelve months net operating income of the hotel property less the loan balance outstanding as of the contribution date as assumed by the Operating Partnership, and less other amounts incurred by the Operating Partnership including but not limited to certain closing costs, loan assumption fees and defeasance costs, property improvement plan (“PIP”) and capital expenditures, operating cash infused by the Operating Partnership, and any shortfall of certain minimum cumulative investment yield. There is no guarantee that the future financial performance of the contributed hotel property will be sufficient to result in the issuance of Common LP Units resulting from the application of the conversion formula applicable to the issuance of Series T LP Units at the time of conversion. As of ~~June~~September 30, 2022, we had recorded an aggregate value of ~~$31.7~~$44.5 million to the Series T LP Units in connection with such property contributions.

Common LP Units

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Independent Director Compensation

During 2022, we began compensating our independent directors with stock-based compensation as approved by and administered under the supervision of our Board of Directors. The awards are fully vested at issuance and we recognize stock-based compensation expense based on the award’s fair value at the grant date. On March 31, 2022, June 30, 2022 and ~~June~~September 30, 2022, we issued 500 shares of our common stock to each of our three independent directors and, for the ~~six~~nine months ended ~~June~~September 30, 2022, recognized stock-based compensation expense of ~~$30,000.~~$45,000. These grants were made in reliance upon an exemption from the registration requirements provided by Section 4(a)(2) of the Securities Act as the grants did not involve any public offering.

Key Transactions During ~~Six~~Nine Months Ended ~~June~~September 30, 2022

During the ~~six~~nine months ended ~~June~~September 30, 2022, we acquired ~~three~~six hotel properties and an equity and profits interest in the parent of the entity which holds a leasehold interest in one hotel property with an aggregate of ~~322~~813 rooms located in ~~three~~four states. Each of these six acquired hotel properties ~~was~~were acquired pursuant to a contribution agreement. The aggregate purchase price for these contribution agreements was ~~$45.4~~$87.5 million, consisting of the issuance of Series T LP Units, Common LP Units, assumption or repayment of loans ~~securities~~secured by the properties and payment of cash. The number of Common LP Units to be issued to each contributor based on the conversion of Series T LP Units may be higher or lower than the initial valuation of the Series T LP Units. Accordingly, the aggregate purchase price was determined to be the value assigned by a third party appraisal rather than the contractual purchase price, as the appraisal value was more reliably measured. The property in which we acquired an equity and profits interest in the parent of the entity which holds a leasehold interest has a property purchase price of $12.9 million.

Key Indicators of Operating Performance

In evaluating financial condition and operating performance, important indicators on which we focus are revenue measurements, such as occupancy, ADR and RevPAR, and expenses, such as property operations expenses, general and administrative expenses and other expenses described below. Occupancy is the total number of rooms occupied for the period divided by the total number of available rooms for the period. ADR is equal to the total gross room revenue divided by the total number of rooms rented for the period. RevPAR is equal to the total gross room revenue divided by the total number of available rooms for the period.

Market Outlook

The hospitality industry has been significantly impacted by the COVID-19 pandemic, which began in early 2020. The pandemic caused a sharp decline in occupancy and RevPAR in 2020 and early 2021. However, the recovery of demand in

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our hotels accelerated in the second, third and fourth quarters of 2021, led primarily by robust leisure demand. Demand continued to recover in 2022. For the nine hotel properties acquired prior to July 1, 2021, RevPAR in 2022 as compared to 2021 increased by 12% to $88.44 from $79.30. ADR and occupancy also increased by 8% and 3% from 2021 to 2022. Business transient and group demand remains well below pre-pandemic levels in most markets, but such demand could increase if corporate travel increases. During the ~~first quarter of 2020, the global outbreak of COVID-19 was identified and has since spread to nearly every country and territory, including every state~~nine months ended September 30, 2022, inflation in the United ~~States. The COVID-19 pandemic~~States accelerated and is expected to continue at an elevated level in the ~~related governmental restrictions instituted~~near-term. Beginning in 2022, in an effort to ~~slow~~combat inflation and restore price stability, the ~~spread of~~Federal Reserve significantly raised its benchmark federal funds rate, which led to increases in interest rates in the ~~virus continues to~~credit markets. Higher interest rates could have ~~a material~~an adverse impact on ~~the hospitality industry. As the virus spread~~our financing costs as well as general and ~~governments implemented restrictions to contain it, occupancy~~administrative expenses and RevPAR fell sharply. COVID-19 continues to have a material impact on our business and industry. The continued emergence of new strains of COVID-19, such as the Delta and Omicron variants, could slow the pace of recovery in some or all regions and may result in new or increased restrictions on business operations. If the spread of new strains of COVID-19 continues, it may negatively affect our occupancy levels and RevPAR and could materially and adversely affect the financial performance and value of our hotels.property operating expenses. Further, increasing labor costs and shortages, supply chain disruptions and related commodity and other price inflation ~~resulting from the COVID-19 pandemic~~ may cause an increase in renovation, construction and operating costs, may limit our access to critical operating supplies, and may continue to adversely affect our hotel operations and financial results. The Federal Reserve has started to raise interest rates in 2022 to combat inflation and restore price stability, and it is expected that interest rates will continue to rise throughout the remainder of 2022. Such interest rate increases have increased our interest expense on our variable rate debt and will result in increased borrowing costs on new debt incurred by us in the future.

Demand continued to recover in the second quarter of 2022 as compared to the same quarter in 2021 despite inflationary pressures in the marketplace. For the eight hotel properties acquired prior to April 1, 2021, RevPAR in 2022 as compared to 2021 increased by 23% to $92.92 from $75.39. ADR and occupancy also increased by 16% and 6% from 2021 to 2022. However, the potential for an economic slowdown or a recession during the second half of 2022 may disrupt the positive demand momentum across our portfolio and our industry.

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The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions, and, as a result, present material uncertainty and risk with respect to us and the performance of our investments. The full extent of the impact and effects of COVID-19 will depend on future developments which are highly uncertain and cannot be predicted with confidence, including, among other factors, the duration, severity and spread of the outbreak and potential for its recurrence, continued emergence of new strains of COVID-19, such as the Delta and Omicron variants, which strains may be more contagious or more vaccine-resistant, the distribution and efficacy of vaccines, along with related travel advisories, quarantines and restrictions, the recovery time of the disrupted industries, the impact of labor market interruptions, the impact of government interventions, and uncertainty with respect to the duration of the slowdown in leisure and business travel. Even after travel advisories and restrictions are modified or lifted, demand for hotels may remain weak for a significant length of time, which may be a function of continued concerns over safety, unwillingness to travel, and decreased consumer spending due to economic conditions, including job losses. We cannot predict if and when the demand for our hotel properties will return to pre-outbreak levels of occupancy and pricing. Continued improvement in operating results will be dependent on continued strength in leisure travel and a recovery of business travel, as well as moderating inflation. In addition, if in the future there is a pandemic, epidemic or outbreak of another highly infectious or contagious disease or other health concern affecting states or regions in which we operate, we and our properties may be subject to similar risks and uncertainties as posed by COVID-19. ~~We are closely monitoring the impact of the COVID-19 pandemic on our business and continue to assess the situation at our properties and operations on a daily basis.~~

Liquidity and Capital Resources

Overview

Our short-term liquidity requirements consist primarily of funds necessary to pay our scheduled debt service, operating expenses, including payments to our Advisor and property managers, capital expenditures directly associated with our hotels ~~distributions~~ and ~~redemptions~~distributions to our stockholders. Our earliest mortgage loan maturity dates are March and May 2023. Based on information currently available and our current projected operating cash flow needs and interest and debt repayments, we believe we have adequate cash for at least the next twelve months to fund our business operations, meet all of our financial commitments and other obligations. However, we cannot predict whether future developments related to the COVID-19 pandemic will adversely affect our liquidity position.

Our long-term liquidity requirements consist primarily of funds necessary to pay for the costs of acquiring additional hotels, renovations, and other capital expenditures that need to be made periodically to our hotels, scheduled debt payments, debt maturities, operating expenses, including payments to our Advisor and property managers, and making distributions to our stockholders. We expect to meet our long-term liquidity requirements through various sources of capital, including cash provided by operations, borrowings, issuances of additional equity, including OP units, and proceeds from property dispositions. Our ability to incur additional debt is dependent upon a number of factors, including the state of the credit markets, our degree of leverage, the value of our unencumbered assets and borrowing restrictions imposed by existing lenders. Our ability to raise capital through the issuance of additional equity is also dependent on a number of factors including the current state of the capital markets, investor sentiment and intended use of proceeds. We may need to raise additional capital if we identify acquisition opportunities that meet our investment objectives and require liquidity in excess of existing cash balances. Our ability to raise funds through the issuance of equity securities depends on, among other things, general market conditions for hotel companies and REITs and market perceptions about us.

We are dependent upon the net proceeds from our Offering to conduct our proposed operations. The Offering will continue until the earlier of (i) the date when the maximum offering amount is sold, (ii) May 31, ~~2023,~~2024, which may be extended by our board of directors in its sole discretion, or (iii) a decision by the Company to terminate the Offering. We had also used the net proceeds from the GO Unit Offering to conduct our operations. Our board of directors terminated the GO Unit Offering as of February 14, 2022. ~~They Company’s~~Our board of directors approved and ratified additional sales after February 14, 2022 in the GO Unit Offering for sales which were pending as of that date. We intend to obtain the capital required to make real estate and real estate-related investments and conduct our operations from the proceeds of our Offering and unused proceeds from the GO Unit Offering, from secured or unsecured financings from banks and other lenders and from any undistributed funds from our operations. As of ~~June~~September 30, 2022, we had raised approximately ~~$89.0~~$92.9 million in gross offering proceeds from the sale of shares of our common stock in the Offering and approximately $21.5 million in gross offering proceeds from the sale of the Series GO LP Units in our GO Unit Offering. ~~The pace of capital raised in our Offering has increased every quarter since this time last year. Despite our year-over-year improvements, our monthly raise~~

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~~is still below our historical monthly raise since the inception of the offering.~~ If we are unable to raise substantial funds in the Offering, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments we make and the value of an investment in us will fluctuate more significantly with the performance of the specific assets we acquire. There may be a delay between the sale of shares of our common stock and units and our purchase of assets, which could result in a delay in the benefits to our stockholders, if any, of returns generated from our investment operations. Further, we will have certain fixed operating expenses regardless of whether we are able to raise

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substantial funds in the Offering. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income and cash flow and limiting our ability to make distributions to our stockholders.

As of ~~June~~September 30, 2022, we consolidated eighteen hotel properties, consisting of seventeen hotel properties owned ~~fourteen~~by us and an equity and profits interest in the parent of the entity which holds a leasehold interest in one hotel ~~properties.~~property. We acquired these investments with the proceeds from the sale of our common stock in the Offering, proceeds from the GO Unit Offering and debt financing and, for ~~each~~all but one of the properties acquired in 2022 and the equity and profits interest acquired in 2022, the issuance of ~~either~~ Series T ~~LP Units or Common~~ LP Units to the contributor as part of the ~~consideration.~~consideration, and for one of the properties acquired in 2021, the issuance of Common LP Units Operating cash needs during the year ended ~~June~~September 30, 2022 were met through cash flow generated by these real estate investments and with proceeds from our Offering and the GO Unit Offering.

Our investments in real estate generate cash flow in the form of hotel room rentals and guest expenditures, which are reduced by operating expenditures, debt service payments and corporate general and administrative expenses. Each of our current properties is owned and future properties will be owned by a direct special purpose entity subsidiary of the Operating Partnership, which leases the properties to direct special purpose entity subsidiaries of the Master TRS, referred to as “TRS Lessees.” The TRS Lessees are or will be required to make rent payments to the owners of the properties pursuant to the lease agreements relating to each property. Such TRS Lessees’ ability to make rent payments to the owner subsidiaries and our liquidity, including our ability to make distributions to our stockholders, are dependent upon the TRS Lessees ability to generate cash flow from the operations of the hotel properties. The TRS Lessees are dependent upon the management companies with whom they have entered or will enter into management agreements with to operate the hotel properties.

Cash flow from operations from real estate investments will be primarily dependent upon the occupancy level and average daily rate, or “ADR”, of our portfolio, and how well we manage our expenditures.

We anticipate that our aggregate loan-to-value ratio will be between 35% and 65%. We will target a loan-to-value ratio for the Projects of between 35% and 70%, based on the purchase price of the Projects, however, we may obtain financing that is less than or higher than such loan-to-value ratio for an individual Project at the discretion of the board of directors. Though this is our estimated leverage, our charter does not limit us from incurring debt in excess of this amount. As of ~~June~~September 30, 2022, our aggregate loan-to-value ratio, based on the aggregate purchase price of the Projects, was approximately ~~58%~~60%.

In addition to making investments in accordance with our investment objectives, we expect to use capital resources to make certain payments to the Advisor and its affiliates and NHS. These payments include the various fees and expenses to be paid to the Advisor and its affiliates in connection with the selection, acquisition and management of Projects, as well as reimbursement of certain organization and other offering expenses described below. The Advisor earns a one-time acquisition fee of up to 1.4% of the hotel purchase price including funds allocated for any property improvement plan (“PIP”) at the time of each hotel property acquisition, a financing fee of up to 1.4% of the hotel purchase price including funds allocated for any PIP at the time of closing the initial financing, and an annual asset management fee of up to 0.75% of the gross assets of the Company, which is payable on a monthly basis. The Advisor may also be paid a refinancing fee of up to 0.75% of the principal amount of any refinancing at the time of closing the refinancing, a disposition fee equal to between 0.0% and 4.0% of the hotel sales price, payable at the closing of the disposition, and real estate commissions of up to 3.0% of the hotel purchase price in connection with the sale of a hotel property in which the Advisor or its affiliates provided substantial services, but in no event greater than one-half of the total commissions paid with respect to such property if a commission is paid to a third-party as well as the Advisor, and in no event will total commissions exceed 5.0% of the hotel sales price. Certain affiliates of the Advisor may receive an annual guarantee fee equal to 1.0% of the guaranty amount, paid on a monthly basis, for debt obligations of the hotel properties personally guaranteed by such affiliates. The Advisor may earn an annual subordinated performance fee equal to 20% of the distributions after the common stockholders and Operating Partnership limited partners (other than the Series B LP Unit holders) have received

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a 6% cumulative, but not compounded, return per annum. Per the terms of the Operating Partnership’s operating agreement, the Advisor receives distributions from the Operating Partnership in connection with their ownership of non-voting Series B LP Units. The Advisor’s ownership of Series B LP Units is presented as non-controlling interest on the

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accompanying consolidated financial statements.

The Advisor and its affiliates may be reimbursed by us for certain organization and offering expenses in connection with the Offering and the GO Unit Offering, including legal, printing, marketing and other offering-related costs and expenses. Following the termination of the Offering, the Advisor will reimburse us for any such amounts incurred by us in excess of 15% of the gross proceeds of the Offering. In addition, we may pay directly or reimburse the Advisor and its affiliates for certain costs incurred in connection with its provision of services to us, including certain acquisition costs, financing costs, and sales and marketing costs, as well as an allocable share of general and administrative overhead costs. All reimbursements are paid to the Advisor and its affiliates at cost.

NHS earns a monthly base management fee for property management services, including overseeing the day-to-day operations of the hotel properties for which it serves as the property manager, in an amount up to 4% of gross revenue. NHS may also earn a monthly accounting fee of $14.00 per room for accounting services, payable monthly, and an administrative fee equal to 0.60% of gross revenues for administrative and other services. We reimburse NHS for certain costs of operating the hotel properties incurred on our behalf. All reimbursements are paid to NHS at cost. NHS also earns a flat fee of $5,000 per hotel property for due diligence services, including analyzing, evaluating, and reporting on documentation and information received from sellers or contributors during the period of due diligence. Such fee is waived if, upon acquisition by us, NHS is selected as the management company for the hotel property. NHS is also reimbursed for actual out-of-pocket costs incurred in providing the due diligence services. The majority of our current hotel properties are managed by NHS.

Our other hotel properties are managed by Vista Host Inc., Interstate Management Company, LLC ~~Aimbridge~~(“Aimbridge”), KAJ Hospitality ~~LLC~~Inc. and ~~KAJ Hospitality~~HP Hotel Management Inc. These management companies earn a base management fee in an amount between ~~2.5%~~2.0% and 3.0% of gross revenue, plus monthly accounting fees and in some cases a monthly fee for customized accounting services, revenue management and digital marketing. They also may earn an incentive management fee if certain performance metrics are achieved. We also reimburse the management companies for certain costs of operating the hotel properties on our behalf. All reimbursements are paid to such management companies at cost.

One Rep, a related party, provides construction oversight, project management, and other related services to the Company. For the services provided, One Rep is paid a construction management fee equal to 6% or 7% of the total project costs. The Company also reimburses One Rep for certain costs incurred on behalf of the Company, and all reimbursements are paid to One Rep at cost.

The franchise agreements for certain of our hotels require we provide property improvement plans to cover, among other things, replacing and repairing furniture, fixtures and equipment at our hotels and other routine capital expenditures. As of ~~June~~September 30, 2022, we have set aside ~~$3.6~~$3.4 million for capital projects in property improvement funds, which are included in restricted cash.

We spent approximately $2.9 million on capital improvements at our operating hotels during the year ended December 31, ~~2021.~~2021 and approximately $4.5 million on capital improvements at our operating hotels during the nine months ended September 30, 2022. Due to the COVID-19 pandemic, we canceled or deferred a significant portion of the planned capital improvements at our hotels. ~~In 2022, we expect to spend approximately $6.0 million on necessary capital improvements.~~

The United States is experiencing both supply chain disruptions and significant price increases for certain construction materials. The supply chain disruptions are the result of, in part, substantial backlogs of container ships seeking to unload cargo at major ports, with delays caused or exacerbated by port and trucking labor shortages, railway logistics issues and a shortage of warehouse space in close proximity to the affected ports. We have not been significantly impacted by these backlogs to date; however, if not resolved, these backlogs and related logistics issues could result in material delays and increased costs for our planned capital improvements.

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Debt

Lines of Credit

Revolving Line of Credit - Western State Bank

On February 10, 2020, we entered into a $5.0 million revolving line of ~~credit.~~credit with Western State Bank (the “Western Revolving Line of Credit”). The ~~revolving line~~Western Revolving Line of ~~credit~~Credit requires monthly payments of interest only, with all outstanding principal amounts being due and payable at maturity on February 10, 2021. On January 19, 2021, the ~~revolving line~~Western Revolving Line of ~~credit~~Credit was amended to extend the maturity date to May 10, 2021. The ~~revolving line~~Western Revolving Line of ~~credit~~Credit had a variable interest rate equal to the U.S. Prime Rate, plus 0.50%, resulting in an effective rate of 3.75% per

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annum as of ~~March 31,~~June 30, 2021. On May 6, 2021, the ~~revolving line~~Western Revolving Line of ~~credit~~Credit was amended to extend the maturity date to May 10, ~~2022 and on May 5, 2022, the revolving line of credit was amended to extend the maturity date to December 15,~~ 2022. On ~~May 6, 2021,~~that date, the interest rate was also amended to incorporate an interest rate floor equal to 4.00%. On May 5, 2022, the ~~interest rate~~Western Revolving Line of Credit was ~~4.5% per annum and on June~~amended to extend the maturity date to December 15, ~~2022, the interest rate was 5.25% per annum.~~ 2022.

The interest rate as of ~~June~~September 30, 2022 was ~~5.25%~~6.75% per annum. ~~The revolving line~~As of ~~credit~~September 30, 2022, the Western Revolving Line of Credit is secured by our Cedar Rapids Property and Eagan Property, which are also subject to term loans with the same lender, and 100,000 Common LP Units of the Operating Partnership. The ~~revolving line~~Western Revolving Line of ~~credit~~Credit includes cross-collateralization and cross-default provisions such that the existing mortgage loan agreements with respect to the Cedar Rapids Property and the Eagan Property, as well as future loan agreements that we may enter into with this lender, are cross-defaulted and cross-collateralized with each other. The ~~revolving line~~Western Revolving Line of ~~credit,~~Credit, including all cross-collateralized debt, is guaranteed by Corey ~~Maple, the Company’s Chief Executive Officer.~~Maple. As of ~~June~~September 30, 2022, there was noa $3,550,000 balance outstanding on the Western Revolving Line of Credit. See “- Subsequent Events” below for a description of amendments to the Western Line of Credit subsequent to September 30, 2022.

Revolving Line of Credit – Legendary A-1 Bonds, LLC

On August 10, 2022, the Operating Partnership entered into a $5.0 million revolving line of ~~credit.~~credit loan agreement (the “A-1 Line of Credit”) with Legendary A-1 Bonds, LLC (“A-1 Bonds”), which is an affiliate of the Advisor which is owned by Norman Leslie, a director and officer of our company and principal of the Advisor and Corey Maple, a director of our company and principal of the Advisor. The A-1 Revolving Line of Credit requires monthly payments of interest only beginning September 1, 2022, with all outstanding principal and interest amounts being due and payable at maturity on December 31, 2022. The A-1 Revolving Line of Credit has a fixed interest rate of 7.00% per annum. Outstanding amounts under the A-1 Revolving Line of Credit may be prepaid in whole or in part without penalty. As of September 30, 2022, the A-1 Revolving Line of Credit was secured by 500,000 unissued Common LP Units of the Operating Partnership. As of September 30, 2022, there was a $4,757,303 balance outstanding on the A-1 Revolving Line of Credit. See “- Subsequent Events” below for a description of amendments to the A-1 Line of Credit subsequent to September 30, 2022.

Mortgage Debt

As of ~~June~~September 30, 2022, we had ~~$133.6~~$174.8 million in outstanding mortgage debt secured by each of our ~~fourteen~~eighteen hotel properties, with maturity dates ranging from March 2023 to April 2029. ~~Twelve~~Sixteen of the loans have fixed interest rates ranging from 3.70% to 7.00%. One loan is a variable interest loan at a rate of LIBOR plus 6.0% per annum, provided that LIBOR shall not be less than 1.0%, resulting in an effective rate of ~~7.12%~~8.56% as of ~~June~~September 30, 2022. Another loan is a variable interest loan at a rate of LIBOR or an equivalent rate plus 6.25%, provided that the variable rate shall not be less than 0.75%, resulting in an effective rate of ~~7.06%~~8.81% as of ~~June~~September 30, 2022. Collectively, the weighted-average interest rate is ~~5.17%~~5.54%. The loans generally require monthly payments of principal and interest on an amortized basis, with certain loans allowing for an interest-only period up to 18 months following origination, and generally require a balloon payment due at maturity. As of ~~June~~September 30, 2022 and December 31, 2021, certain mortgage debt was guaranteed by the members of the Advisor. See Note 7 “Related Party Transactions” of the notes to the consolidated financial statements included as part of this Quarterly Report on Form 10-Q for additional information regarding debt that was guaranteed by members of the Advisor. See “—Subsequent Events” below for a description of changes to mortgage debt occurring subsequent to September 30, 2022.

As of ~~June~~September 30, 2022, we were not in compliance with the required financial covenants under the terms of the promissory note secured by the Pineville Property and related loan documents (the “Pineville Loan”), which constitutes an event that puts us into a trigger period pursuant to the loan documents. We have requested and received a waiver of the financial covenants for ~~the period ending~~all measurement periods through December 31, 2022. Except as described above for the Pineville Loan, we were in compliance with all debt covenants as of ~~June~~September 30, 2022.

See Note 4 “Debt” of the notes to the consolidated financial statements included as part of this Quarterly Report on Form 10-Q for additional information regarding our mortgage debt and information regarding future minimum principal payments on our debt as of ~~June~~September 30, 2022.

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Paycheck Protection Program (“PPP”) Loans

In April 2020, we entered into six unsecured promissory notes under the Paycheck Protection Program (the “PPP”), totaling $763,100 (the “Original PPP Loans”). The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was passed in March 2020, and is administered by the U.S. Small Business Administration (the “SBA”). The term of each Original PPP loan was two years, which could be extended to five years at our election. The interest rate on each Original PPP loan was 1.0% per annum, which shall be deferred for a period of time. In February 2021, we applied for and received one hundred percent (100%) forgiveness of all six PPP Loans.

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In January 2021, we entered into six new unsecured promissory notes totaling $716,400, under the Second Draw Paycheck Protection Program (the “Second Draw PPP”) created by the Consolidated Appropriations Act, 2021 (the “CAA Act”), through Western State Bank. The term of each Second Draw PPP loan was five years. The interest rate on each Second Draw PPP loan was 1.0% per annum, which was deferred for the first sixteen months of the term of the loan.

In February 2021, we, through our subsidiary LF3 Southaven TRS, LLC (“Southaven TRS”), entered into an unsecured promissory note under the PPP through Western State Bank. The amount of the PPP loan for Southaven TRS is $85,400. The term of the PPP loan was five years. The interest rate on the PPP loan was 1.0% per annum, which was deferred for the first sixteen months of the term of the loan.

In April 2021, we, through Southaven TRS, entered into an unsecured promissory note under the Second Draw PPP created by the CAA Act, through Western State Bank (the “Southaven TRS Second Draw PPP”). The term of the Southaven Second Draw PPP loan was five years. The amount of the Southaven TRS Second Draw PPP loan was $119,500. The interest rate on the Southaven TRS Second Draw PPP loan was 1.0% per annum, which was deferred for the first sixteen months of the term of the loan.

Under the terms of the CARES Act and the CAA Act, as applicable, PPP loan recipients and Second Draw PPP loan recipients can apply for, and be granted, forgiveness for all or a portion of such loans. Such forgiveness will be determined, subject to limitations and ongoing rulemaking by the SBA, based on the use of loan proceeds for payroll costs and mortgage interest, rent or utility costs, the maintenance of employee and compensation levels and certain other approved expenses. In February 2021, we applied for and received one hundred percent (100%) forgiveness of all six Original PPP Loans. In June 2021, we received forgiveness on the full balance of the Second Draw PPP and Southaven TRS PPP loans. In August 2021, we received forgiveness on the full balance of the Southaven TRS Second Draw PPP loan.

Employee Retention Credit (“ERC”)

Under the provisions of the CARES Act, and the subsequent extension of the CARES Act, the Company was eligible for a refundable Employee Retention Credit (“ERC”) subject to certain criteria. During 2021, the Company applied for and received a ~~$0.4~~$0.8 million employee retention credit that is included in other income (expense) in the consolidated statements of operations. ~~During the six months ended June 30, 2022, the~~The Company received ~~an employee retention credit applied for~~the funds from the ERC in ~~2021 in the amount~~April of $14,645. During the six months ended June 30, 2022, the Company has filed for additional refunds of the employee retention credits, and as of the date of this Quarterly Report on Form 10-Q cannot reasonably estimate when it will receive any or all of the remaining refunds.2023.

Properties Under Contract

As of the date of this filing, we ~~have six~~had no hotel properties under contract for an aggregate contract purchase price of approximately $69.8 million. We are still conducting our diligence review with respect to each property. Each of these pending acquisitions is subject to our completion of satisfactory due diligence and other closing conditions. There can be no assurance that we will complete any of these pending acquisitions on the contemplated terms, or at all.

Based on information currently available and our current projected operating cash flow needs and interest and debt repayments, we believe we have adequate cash for at least the next twelve months to fund our business operations, meet all of our financial commitments, and other obligations. However, we cannot predict whether future developments related to the COVID-19 pandemic will adversely affect our liquidity position.contract.

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Cash Flows

The following table provides a breakdown of the net change in our cash, cash equivalents, and restricted cash:


	For the Six Months Ended June 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Net cash used in operating activities	$	(3,272,340)	$	(438,860)	$	(1,003,358)	$	(316,020)
Net cash used in investing activities		(4,257,530)		(3,431,604)		(47,624,374)		(4,357,089)
Net cash provided by financing activities		7,053,196		5,006,718		51,764,621		6,028,534
Net (decrease) increase in cash, cash equivalents and restricted cash	$	(476,674)	$	1,136,254
Net increase in cash, cash equivalents and restricted cash					$	3,136,889	$	1,355,425

Cash Flows From Operating Activities

As of ~~June~~September 30, 2022, we owned ~~fourteen~~seventeen hotel ~~properties.~~properties and an equity and profits interest in the parent of the entity which holds a leasehold interest in one hotel property. During the ~~six~~nine months ended ~~June~~September 30, 2022 net cash used in operating activities was $1.0 million and during the nine months ended September 30, 2021, net cash used in operating activities was ~~$3.3 million and $0.4 million, respectively.~~$0.3 million. Our cash flows ~~used in~~provided by operating activities generally consist of the net cash generated by our hotel operations, partially offset by the cash paid for corporate expenses and other working capital changes. See ~~“— Market Outlook” for a discussion of the current and expected impact of the outbreak of COVID-19 on our business. See~~ "— Results of Operations" for further discussion of our operating results for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021.

Cash Flows From Investing Activities

Net cash used in investing activities was ~~$4.3~~$47.6 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and primarily consisted of ~~$3.3~~$44.4 million used for the acquisitions of hotel properties, $4.5 million used for the improvements and additions to hotel ~~properties.~~properties and $1.3 million provided from the acquisition of the VIE. Net cash used in investing activities was ~~$3.4~~$4.4 million for the ~~six~~nine months ended ~~June~~September 30, 2021 and primarily consisted of $2.2 million used for improvements and additions to hotel properties and $2.2 million used for the acquisition of ~~two~~three hotel properties.

Cash Flows From Financing Activities

During the ~~six~~nine months ended ~~June~~September 30, 2022, net cash provided by financing activities was ~~$7.1~~$51.8 million and consisted primarily of the following:

●

$~~11.4~~14.0 million of net cash provided by offering proceeds related to our Offering and GO Unit Offering, net of payments of commissions and other offering costs of ~~$2.2~~$3.2 million;

●

$~~1.7~~42.7 million of net cash used by debt financing as a result of proceeds from mortgage debt of ~~$17.4~~$57.9 million and proceeds from lines of credit of ~~$1.8~~$11.0 million, partially offset by principal payments on debt of ~~$18.0~~$20.6 million, principal payments on lines of credit of ~~$2.4~~$3.3 million and payments of financing costs of ~~$0.5~~$2.3 million;

●

$~~2.1~~3.7 million of net cash distributions, after giving effect to distributions reinvested by stockholders of ~~$1.1~~$1.5 million;

●

~~$0.1 million of increase in finance lease liability;~~ and

●

$~~0.6~~1.2 million paid for share redemptions.

During the ~~six~~nine months ended ~~June~~September 30, 2021, net cash provided by financing activities was ~~$5.0~~$6.0 million and consisted primarily of the following:

●

$~~5.9~~7.4 million of net cash provided by offering proceeds, ~~related to our Offering and GO Unit Offering,~~ net of payments of commissions and other offering costs of ~~$1.2~~$2.1 million;

●

$~~0.9~~0.8 million of net cash ~~used~~provided by debt financing as a result of proceeds from debt financing of ~~$1.0~~$16.5 million, offset by principal payments on debt of ~~$1.5~~$14.7 million and payments of financing costs of ~~$0.5~~$0.9 million;

●

$~~0.9 million of net cash provided from PPP loans;~~

●

~~$0.5~~1.6 million of net cash distributions, after giving effect to distributions reinvested by stockholders of ~~$2.2~~$3.4 million; and

●

$0.6 million paid for share redemptions.

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●

~~$0.4 million paid for share redemptions.~~

Distributions

During our Offering, when we may raise capital more quickly than we acquire income-producing assets, and from time to time after the Offering, we may not pay distributions solely from our cash flow from operating activities, in which case distributions may be paid in whole or in part from proceeds from the Offering or debt financing. Distributions declared, distributions paid, and net cash flow used in operations were as follows for the first ~~two~~three quarters of 2022 and during each quarter of 2021:


			Distribution								Net Cash				Distribution								Net Cash
	Distributions		Declared Per		Distributions Paid ⁽³⁾						Flows Provided By		Distributions		Declared Per		Distributions Paid ⁽³⁾						Flows Provided By
Period	Declared ⁽¹⁾		Share ^(1) (2)		Cash		Reinvested		Total		(Used In) Operations		Declared ⁽¹⁾		Share ^(1) (2)		Cash		Reinvested		Total		(Used In) Operations
First Quarter 2022	$	1,556,308	$	0.175	$	933,464	$	567,240	$	1,500,704	$	(3,293,181)	$	1,556,308	$	0.175	$	933,464	$	567,240	$	1,500,704	$	(3,293,181)
Second Quarter 2022		1,540,200		0.175		1,203,791		526,159		1,729,950		20,841		1,540,200		0.175		1,203,791		526,159		1,729,950		20,841
Third Quarter 2022														1,821,829		0.175		1,094,353		452,923		1,547,276		2,268,982
	$	3,096,508	$	0.350	$	2,137,255	$	1,093,399	$	3,230,654	$	(3,272,340)	$	4,918,337	$	0.525	$	3,231,608	$	1,546,322	$	4,777,930	$	(1,003,358)

			Distribution								Net Cash				Distribution								Net Cash
	Distributions		Declared Per		Distributions Paid ⁽³⁾						Flows Provided By		Distributions		Declared Per		Distributions Paid ⁽³⁾						Flows Provided By
Period	Declared ⁽¹⁾		Share ^(1) (2)		Cash		Reinvested		Total		(Used In) Operations		Declared ⁽¹⁾		Share ^(1) (2)		Cash		Reinvested		Total		(Used In) Operations
First Quarter 2021	$	1,430,216	$	0.175	$	246,084	$	1,081,828	$	1,327,912	$	(1,292,235)	$	1,430,216	$	0.175	$	246,084	$	1,081,828	$	1,327,912	$	(1,292,235)
Second Quarter 2021		1,465,038		0.175		251,625		1,107,080		1,358,705		853,375		1,465,038		0.175		251,625		1,107,080		1,358,705		853,375
Third Quarter 2021		1,500,023		0.175		1,114,951		1,223,741		2,338,692		122,840		1,500,023		0.175		1,114,951		1,223,741		2,338,692		122,840
Fourth Quarter 2021		1,527,992		0.175		1,340,091		551,391		1,891,482		(732,378)
	$	5,923,269	$	0.700	$	2,952,751	$	3,964,040	$	6,916,791	$	(1,048,398)	$	4,395,277	$	0.525	$	1,612,660	$	3,412,649	$	5,025,309	$	(316,020)

(1)

(2)	Assumes share was issued and outstanding each day that was a record date for distributions during the period presented.

(3)

For the ~~six~~nine months ended ~~June~~September 30, 2022, we paid aggregate distributions of ~~$3.2~~$4.8 million, including ~~$2.1~~$3.2 million of distributions paid in cash and ~~$1.1~~$1.5 million of distributions reinvested through our distribution reinvestment plan. Our net loss for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~$6.6~~$13.4 million. Net cash flow used in operations for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~$3.3~~$1.0 million. We funded 100% of our distributions paid, which includes cash distributions and distributions reinvested by stockholders, with proceeds from the Offering.

For the ~~year~~nine months ended ~~December 31,~~September 30, 2021, we paid aggregate distributions of ~~$6.9~~$5.0 million, including ~~$3.0~~$1.6 million of distributions paid in cash and ~~$4.0~~$3.4 million of distributions reinvested through our dividend reinvestment plan. Our net loss for the ~~year~~nine months ended ~~December 31,~~September 30, 2021 was ~~$5.3~~$3.6 million. Net cash flows used in operations for the ~~year~~nine months ended ~~December 31,~~September 30, 2021 was ~~$1.0~~$0.3 million. We funded 100% of our distributions paid, which includes cash distributions and distributions reinvested by stockholders, with proceeds from the Offering.

To the extent that we pay distributions from sources other than our cash flow from operating activities, we will have less funds available for the acquisition of real estate investments, the overall return to our stockholders may be reduced and subsequent investors will experience dilution.

Going forward we expect our board of directors to continue to authorize and declare distributions, if at all, based on daily record ~~dates and to pay these distributions on a monthly basis.~~dates. Distributions will be determined by our board of directors

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based on our financial condition and such other factors as our board of directors deems relevant, and may be paid in cash or in shares pursuant to the DRIP. Our board of directors has not pre-established a percentage rate of return for cash distributions or stock distributions to stockholders.

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We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders.

Results of Operations

Outlook

We expect that revenue, operating expenses, maintenance costs, real estate taxes and insurance, interest expense and management fees will each increase in future periods as a result of owning our current hotel properties for a full annual operating cycle, as well as anticipated future acquisitions of real estate investments. We also expect that revenue and operating expenses will increase in future periods as the industry recovers from the effects of COVID-19. However, future operating results could be impacted by changing market and industry factors, see “ – Market Outlook” above.

Our results of operations for the ~~six~~nine months ended ~~June~~September 30, 2022 and ~~June~~September 30, 2021 are not indicative of those expected in future periods, as we were actively raising capital through our Offering along with acquiring hotel properties during both of these ~~periods. The COVID-19 pandemic has had a significant impact on our operating results for the six months ended June 30, 2022 and June 30, 2021.~~periods As of ~~June~~September 30, 2022 and 2021, we owned ~~nine~~ten and seven properties, respectively, for a full 12-month operating cycle. After receiving all necessary third-party approvals, the Lakewood Property, acquired March 29, 2022, ~~will open~~opened for ~~operation.~~business on August 16, 2022.

In evaluating financial condition and operating performance, we believe Revenue per Available Room (“RevPAR”), which we calculate by dividing total gross room revenue by the total number of available rooms for the period, is a meaningful indicator of our performance because it measures the period-over-period change in room revenues for properties. We also believe occupancy and average daily rate (“ADR”), which are components of calculating RevPAR, are meaningful indicators of our performance. Occupancy, which we calculate by dividing occupied rooms by total rooms available, measures the utilization of a property’s available capacity. ADR which we calculate by dividing total gross room revenue by the total number of rooms rented for the period, measures average room price and is useful in assessing pricing levels.

Comparison of the three months ended ~~June~~September 30, 2022 versus the three months ended ~~June~~September 30, 2021

Revenue

Room revenues totaled ~~$11.8~~$15.2 million and ~~$6.2~~$8.3 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively. Other revenue, which consists primarily of hotel food and beverage revenues as well as revenues from other hotel services, was ~~$0.6~~$0.8 million and ~~$0.2~~$0.3 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively. Hotel occupancy, ADR, and RevPAR were ~~71.05%~~70.90%, ~~$117.82,~~$124.73, and ~~$83.71,~~$88.44, respectively, for the three months ended ~~June~~September 30, 2022. Hotel occupancy, ADR, and RevPAR were ~~69.05%~~68.90%, ~~$104.17,~~$115.08, and ~~$71.93,~~$79.30, respectively, for the three months ended ~~June~~September 30, 2021. We define our comparable hotel properties as our properties that were open throughout the periods we are comparing. For the ~~eight~~nine comparable hotel properties, hotel occupancy, ADR, and RevPAR were ~~76.31%~~71.91%, ~~$121.76,~~$125.22, and ~~$92.92,~~$90.05, respectively, for the three months ended ~~June~~September 30, 2022. For the same ~~eight~~nine properties, hotel occupancy, ADR, and RevPAR were ~~72.03%~~68.73%, ~~$104.66,~~$117.30, and ~~$75.39,~~$80.62, respectively, for the three months ended ~~June~~September 30, 2021. The increases in hotel occupancy rates, ADR and RevPAR were primarily due to the ongoing recovery in lodging demand from the impacts of COVID-19 during 2022. Hotel properties acquired during 2022 contributed ~~$1.5~~$4.2 million to the increase in room revenues and ~~$0.1~~$0.3 million to the increase in other revenue for the three months ended ~~June~~September 30, 2022. See “— Market Outlook” for a discussion of the current and expected impact of the COVID-19 pandemic and inflationary pressures on our business.

Property Operations Expenses

Property operations expenses were ~~$5.8~~$7.5 million and ~~$2.6~~$3.8 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively. Property operations expenses consist primarily of hotel personnel costs, property taxes, insurance, repair and maintenance, and other costs of operating our hotel properties. The ~~$3.3~~$3.7 million increase in property operations expenses was primarily due to the acquisitions of ~~the Fargo, El Paso Airport, and Lakewood~~three hotel properties in ~~January, February,~~the first quarter of 2022 and ~~March 2022, respectively.~~the acquisition of three properties and the acquisition of an equity and profits interest in the parent of an entity holding a leasehold interest in one property in the third quarter of 2022.

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General and Administrative Expenses

General and administrative expenses were ~~$2.4~~$3.1 million and $1.7 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively. General and administrative expenses consist primarily of administrative personnel costs, rent, professional fees and the cost of office supplies and equipment. The ~~$0.7~~$1.4 million increase in general and administrative expenses was primarily due to the acquisitions of ~~the Fargo, El Paso Airport, and Lakewood~~three hotel properties ~~during~~in the first quarter of 2022 and the acquisition of three properties and the acquisition of an equity and profits interest in the parent of an entity holding a leasehold interest in one property in the third quarter of 2022.

Sales and Marketing Expenses

Sales and marketing expenses were ~~$0.8~~$1.0 million and ~~$0.5~~$0.6 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively. Sales and marketing expenses consist primarily of sales and marketing personnel costs, hotel brand loyalty program costs, advertising and other marketing costs. The ~~$0.3~~$0.4 million increase in sales and marketing expenses was primarily due to the ~~Fargo, El Paso Airport,~~acquisitions of three hotel properties in the first quarter of 2022 and ~~Lakewood hotel properties.~~the acquisition of three properties and the acquisition of an equity and profits interest in the parent of an entity holding a leasehold interest in one property in the third quarter of 2022.

Franchise Fees

Franchise fees were ~~$1.1~~$1.4 million and ~~$0.5~~$0.6 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively. Franchise fees include the amortization of initial franchise fees, as well as monthly fees paid to franchisors for royalty, marketing, reservation fees and other related costs. The ~~$0.6~~$0.8 million increase in franchise fees was primarily due to higher RevPAR due to the ongoing recovery in lodging demand from the impacts of COVID-19 and the ~~addition~~acquisitions of three hotel properties in the ~~Fargo, El Paso Airport,~~first quarter of 2022 and ~~Lakewood hotel properties.~~the acquisition of three properties and the acquisition of an equity and profits interest in the parent of an entity holding a leasehold interest in one property in the third quarter of 2022.

Management Fees

Management fees were ~~$0.9~~$1.1 million and ~~$0.6~~$0.8 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively. Management fees include asset management fees paid to the Advisor and management fees paid to property management service providers who manage the day-to-day operations of our hotel properties. Asset management fees paid to the Advisor increased by ~~$0.2~~$0.3 million. We experienced increased management fees across our portfolio primarily due to higher RevPAR resulting from the ongoing recovery in lodging demand from the impacts of COVID-19.

Acquisition Expenses

Acquisition expenses were ~~($6,213)~~$707,639 and ~~$20,977~~$13,317 for the three months ended ~~June~~September 30, 2022 and 2021, respectively. Acquisition expenses include acquisition-related and due diligence costs that relate to a property that is not acquired, as well as costs related to hotel property acquisition activities that are not attributable to specific property ~~acquisitions.~~acquisitions, along with any acquisition costs associated with the acquisition of a VIE. The ~~decrease~~increase in acquisition expenses is primarily related to ~~acquisition-related and due diligence costs incurred in 2021 for properties~~the acquisition of the VIE that ~~were not acquired.~~holds the El Paso University Property

Depreciation

Depreciation ~~expense was $1.7~~expenses were $2.2 million and ~~$1.2~~$1.3 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively. The ~~$0.5~~$0.9 million increase in depreciation expense was primarily due to the acquisitions of three hotel properties in the ~~Fargo, El Paso Airport,~~first quarter of 2022 and ~~Lakewood hotel properties.~~the acquisition of three properties and the acquisition of an equity and profits interest in the parent of an entity holding a leasehold interest in one property in the third quarter of 2022.

Other Income (Expense), net

Other income (expense), net was ~~($258,656)~~$3.4 million and ($~~97,008)~~21,320) for the three months ended ~~June~~September 30, 2022 and 2021, respectively. The change was primarily due to ~~increases in transition expenses at newly acquired properties.~~a gain recorded upon acquisition of the VIE.

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PPP Loan Forgiveness

PPP loan forgiveness income was $0 and ~~$801,800~~$119,500 for the three months ended ~~June~~September 30, 2022 and 2021, respectively. In ~~June~~August 2021, we received forgiveness on the Southaven TRS Second Draw PPP ~~loans.~~loan. See “Paycheck Protection Program (“PPP”) Loans” for a detailed discussion on PPP loans and forgiveness.

Interest Expense

Interest expense was ~~$2.2~~$3.0 million and ~~$1.0~~$1.3 million for the three months ended ~~June~~September 30, 2022 and 2021, respectively. The ~~$1.2~~$1.7 million increase in interest expense was primarily due to the increase in mortgage debt from the acquisitions of ~~the Fargo, El Paso Airport, and Lakewood~~three hotel properties in ~~January, February,~~the first quarter of 2022 and ~~March 2022, respectively.~~the acquisition of three properties and the acquisition of an equity and profits interest in the parent of an entity holding a leasehold interest in one property in the third quarter of 2022. We expect that in future periods our interest expense will vary based on the amount of our borrowings, which will depend on the cost of borrowings, the amount of proceeds we raise in our Offering and our ability to identify and acquire real estate and real estate-related assets that meet our investment objectives.

Comparison of the ~~six~~nine months ended ~~June~~September 30, 2022 versus the ~~six~~nine months ended ~~June~~September 30, 2021

Revenue

Room revenues totaled ~~$20.6~~$35.7 million and ~~$9.9~~$18.2 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. Other revenue, which consists primarily of hotel food and beverage revenues as well as revenues from other hotel services, was ~~$1.1~~$1.8 million and ~~$0.2~~$0.5 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. Hotel occupancy, ADR, and RevPAR were ~~66.51%~~68.20%, ~~$112.74,~~$117.53, and ~~$74.98,~~$80.15, respectively, for the ~~six~~nine months ended ~~June~~September 30, 2022. Hotel occupancy, ADR, and RevPAR were ~~65.78%~~67.06%, ~~$100.12,~~$106.44, and ~~$65.86,~~$71.38, respectively, for ~~the six~~seven months ended ~~June~~September 30, 2021. For the ~~seven~~nine comparable hotel properties, hotel occupancy, ADR, and RevPAR were ~~73.26%~~74.33%, ~~$116.04,~~$119.17, and ~~$85.01,~~$88.57, respectively, for the ~~six~~nine months ended ~~June~~September 30, 2022. For the same ~~seven~~nine properties, hotel occupancy, ADR, and RevPAR were ~~70.57%~~72.36%, ~~$99.44,~~$105.84, and ~~$70.18,~~$76.59, respectively, for the ~~six~~nine months ended ~~June~~September 30, 2021. The increases in hotel occupancy rates, ADR and RevPAR were primarily due to the ongoing recovery in lodging demand from the impacts of COVID-19 during 2022. Hotel properties acquired during 2022 contributed ~~$2.4~~$6.6 million to the increase in room revenues and ~~$0.1~~$0.5 million to the increase in other revenue for the ~~six~~nine months ended ~~June~~September 30, 2022. See “— Market Outlook” for a discussion of the current and expected impact of the COVID-19 pandemic and inflationary pressures on our business.

Property Operations Expenses

Property operations expenses were ~~$10.6~~$18.1 million and ~~$4.3~~$8.1 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. The ~~$6.3~~$10.0 million increase in property operations expenses was primarily due to increased RevPAR at our existing eleven hotel properties and ~~$1.3 million of~~ additional property operations expenses resulting from the acquisitions of ~~the Fargo, El Paso Airport, and Lakewood~~three hotel properties in ~~January, February,~~the first quarter of 2022 and ~~March 2022, respectively.~~the acquisition of three properties and the acquisition of an equity and profits interest in the parent of an entity holding a leasehold interest in one property in the third quarter of 2022.

General and Administrative Expenses

General and administrative expenses were ~~$4.6~~$7.7 million and ~~$3.0~~$4.7 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. General and administrative expenses consist primarily of administrative personnel costs, rent, professional fees and the cost of office supplies and equipment. The increase in general and administrative expenses was primarily due to the acquisitions of ~~the Fargo, El Paso Airport, and Lakewood~~three hotel properties ~~during~~in the first quarter of 2022 and the acquisition of three properties and the acquisition of an equity and profits interest in the parent of an entity holding a leasehold interest in one property in the third quarter of 2022.

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Sales and Marketing Expenses

Sales and marketing expenses were ~~$1.4~~$2.4 million and ~~$0.8~~$1.4 million for the ~~six~~nine months ended ~~June 30,~~September, 2022 and 2021, respectively. Sales and marketing expenses consist primarily of sales and marketing personnel costs, hotel brand loyalty program costs, advertising and other marketing costs. The ~~$0.6~~$1.0 million increase in sales and marketing expenses was primarily due to the acquisitions of three hotel properties in the ~~Fargo, El Paso Airport,~~first quarter of 2022 and ~~Lakewood hotel properties.~~

~~Table~~the acquisition of ~~Contents~~three properties and the acquisition of an equity and profits interest in the parent of an entity holding a leasehold interest in one property in the third quarter of 2022.

Franchise Fees

Franchise fees were ~~$1.9~~$3.3 million and ~~$0.8~~$1.4 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. Franchise fees include the amortization of initial franchise fees, as well as monthly fees paid to franchisors for royalty, marketing, reservation fees and other related costs. The ~~$1.1~~$1.9 million increase in franchise fees was primarily due to higher RevPAR due to the ongoing recovery in lodging demand from the impacts of COVID-19 and the ~~addition~~acquisitions of three hotel properties in the ~~Fargo, El Paso Airport,~~first quarter of 2022 and ~~Lakewood hotel properties.~~the acquisition of three properties and the acquisition of an equity and profits interest in the parent of an entity holding a leasehold interest in one property in the third quarter of 2022.

Management Fees

Management fees were ~~$1.7~~$2.9 million and ~~$1.0~~$1.8 million for the ~~six~~nine months ended ~~June 30,~~September, 2022 and 2021, respectively. Management fees include asset management fees paid to the Advisor and management fees paid to property management service providers who manage the day-to-day operations of our hotel properties. Asset management fees paid to the Advisor increased by ~~$0.3~~$0.5 million. We experienced increased management fees, paid to the franchisor, across our properties primarily due to higher RevPAR resulting from the ongoing recovery in lodging demand from the impacts of COVID-19.

Acquisition Expenses

Acquisition expenses were ~~$7,304~~$714,943 and ~~$48,443~~$61,760 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. Acquisition expenses include acquisition-related and due diligence costs that relate to a property that is not acquired, as well as costs related to hotel property acquisition activities that are not attributable to specific property ~~acquisitions.~~acquisitions, along with any acquisition costs associated with the acquisition of a VIE. The ~~decrease~~increase in acquisition expenses is primarily related to ~~acquisition-related and due diligence costs incurred in 2021 for properties~~the acquisition of the VIE that ~~were not acquired.~~holds the El Paso University Property

Depreciation

Depreciation expense was ~~$3.3~~$5.6 million and ~~$2.2~~$3.4 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. The ~~$1.2~~$2.2 million increase in depreciation expense was primarily due to the acquisitions of three hotel properties in the ~~Fargo, El Paso Airport,~~first quarter of 2022 and ~~Lakewood hotel properties.~~the acquisition of three properties and the acquisition of an equity and profits interest in the parent of an entity holding a leasehold interest in one property in the third quarter of 2022.

Other Income (Expense), net

Other income (expense), net was ~~($458,049)~~$2.9 million and ($~~181,233)~~0.2 million) for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. The change was primarily due to ~~the acquisitions~~a gain recorded upon acquisition of the ~~Fargo, El Paso Airport, and Lakewood hotel properties.~~VIE.

PPP Loan Forgiveness

PPP loan forgiveness income was $0 and ~~$1.6~~$1.7 million for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. During the ~~six~~nine months ended ~~June~~September 30, 2021, we received forgiveness on the Original, Second Draw, and Southaven TRS PPP loans. See “Paycheck Protection Program (“PPP”) Loans” for a detailed discussion on PPP loans and forgiveness.

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Interest Expense

Interest expense was ~~$4.6~~$7.6 million and ~~$2.0~~$3.3 million for ~~the six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. The ~~$2.7~~$4.3 million increase in interest expense was primarily due to the increase in mortgage debt from the acquisitions of three hotel properties in the ~~Fargo, El Paso Airport,~~first quarter of 2022 and ~~Lakewood hotel properties.~~the acquisition of three properties and the acquisition of an equity and profits interest in the parent of an entity holding a leasehold interest in one property in the third quarter of 2022. We expect that in future periods our interest expense will vary based on the amount of our borrowings, which will depend on the cost of borrowings, the amount of proceeds we raise in our securities offerings and our ability to identify and acquire real estate and real estate-related assets that meet our investment objectives.

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Critical Accounting Estimates

Below is a discussion of the accounting estimates that management believes are or will be critical to our operations. We consider these estimates critical in that they involve significant management judgments and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses.

The Company, as an emerging growth company, has elected to use the extended transition period which allows us to defer compliance with new or revised accounting standards. This allows ~~the Company~~us to adopt new or revised accounting standards as of the effective date for non-public business entities.

Investment in Hotel Properties

We evaluate whether each hotel property acquisition should be accounted for as an asset acquisition or a business combination. If substantially all of the fair value of the gross assets acquired is concentrated in a single asset or a group of similar identifiable assets, then the transaction is considered to be an asset acquisition. All of our acquisitions since inception have been determined to be asset acquisitions. Transaction costs associated with asset acquisitions ~~are~~will be capitalized and transaction costs associated with business combinations ~~would~~will be expensed as incurred.

Our acquisitions generally consist of land, land improvements, buildings, building improvements, and furniture, fixtures and equipment (“FF&E”). We may also acquire intangible assets or liabilities related to in-place leases, management agreements, debt, and advanced bookings. For transactions determined to be asset acquisitions, we allocate the purchase price among the assets acquired and the liabilities assumed based on ~~a relative~~their respective fair ~~value basis~~values at the date of acquisition. For transactions determined to be business ~~combinations,~~combination, we record the assets acquired and the liabilities assumed ~~are recognized~~ at their respective fair values at the date of acquisition. We determine the fair value by using market data and independent appraisals available to us and making numerous estimates and assumptions.

The difference between the relative fair value and the face value of debt assumed in connection with an acquisition is recorded as a premium or discount and amortized to interest expense over the remaining term of the debt assumed. The valuation of assumed ~~debt~~ liabilities is based on our estimate of the current market rates for similar liabilities in effect at the acquisition date.

Our investments in hotel properties are carried at cost and are depreciated using the straight-line method over the estimated useful lives of 15 years for land improvements, 40 years for buildings and building improvements and ~~three~~3 to ~~seven~~7 years for FF&E. Maintenance and repairs are expensed and major renewals or improvements to the hotel properties are capitalized.

We assess the carrying value of our hotel properties whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The recoverability is measured by comparing the carrying amount ~~of the property~~ to the estimated future undiscounted cash flows which take into account current market conditions ~~including the impact of COVID-19,~~ and our intent with respect to holding or disposing of the hotel properties. If our analysis indicates that the carrying value is not recoverable on an undiscounted

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cash flow basis, we will recognize an impairment loss for the amount by which the carrying value exceeds the fair value. The fair value is determined through various valuation techniques, including internally developed discounted cash flow models, comparable market transactions or third-party appraisals.

The use of projected future cash flows is based on assumptions that are consistent with a market participant’s future expectations for the travel industry and the economy in general and our expected use of the underlying hotel properties. The assumptions and estimates related to the future cash flows and the capitalization rates are complex and subjective in nature. Changes in economic and operating conditions ~~including those occurring as a result of the impact of the COVID-19~~

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~~pandemic,~~ that occur subsequent to a current impairment analysis and our ultimate use of the hotel property could impact the assumptions and result in future impairment losses to the hotel properties.

Consolidations

We use judgment when evaluating whether we have a controlling financial interest in an entity, including the assessment of the importance of rights and privileges of the partners based on voting rights, as well as financial interests in an entity that are not controllable through voting interests. If the entity is considered to be a variable interest entity (“VIE”), we use judgment in determining whether we are the primary beneficiary, and then consolidate those VIEs for which we have determined we are the primary beneficiary. If the entity in which we hold an interest does not meet the definition of a VIE, we evaluate whether we have a controlling financial interest through our voting interest in the entity. Changes to judgments used in evaluating our partnerships and other investments could materially affect our consolidated financial statements.

Fair Value Measurement

We establish fair value measures based on the fair value definition and hierarchy levels established by GAAP. These fair values are based on a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1 Observable inputs such as quoted prices in active markets.

Level 2 Directly or indirectly observable inputs, other than quoted prices in active markets.

Level 3 Unobservable inputs in which there is little or no market data, which require a reporting entity to develop its own assumptions.

Our estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. We classify assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement.

Off-Balance Sheet Arrangements

As of ~~June~~September 30, 2022 and December 31, 2021, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Seasonality

Depending on a hotel’s location and market, operations for the hotel may be seasonal in nature. This seasonality can be expected to cause fluctuations in our quarterly operating performance. Based on historic trends, for hotels located in non-resort markets, demand is generally lower in the winter months due to decreased travel and higher in the spring and summer months during the peak travel season. Accordingly, excluding any impact from the COVID-19 pandemic, we generally would expect to have lower revenue, operating income and cash flow in the first and fourth quarters and higher revenue, operating income and cash flow in the second and third quarters.

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Subsequent Events

~~Distributions Declared or Paid~~Update to Offering Price and Share NAV

~~On July 7, 2022, we declared cash distributions totaling $358,880, DRIP distributions totaling $168,460, cash distributions totaling $35,706 for~~Our board of directors approved a revised net asset value (“NAV”) of our assets as of December 31, 2022. As a result, the price per share of our common stock, $0.01 par value per share (each, a “Share”), in the Offering and the Share NAV were adjusted from $10.00 to $10.57 effective January 6, 2023. The issue price of the Common ~~Limited Units~~LP Unit and the Series T LP Unit of the Operating Partnership also increased to $10.57. The Offering price was determined by the board of directors taking into account appraisals of our real estate properties and ~~cash distributions totaling $34,925 for Series GO~~other factors deemed relevant by the board of directors. We make no representations, whether express or implied, as to the value of the Shares offered in the Offering. In the event the Offering price per Share is increased or decreased, the number of Shares subject to the Offering will be adjusted to reflect such change and the maximum offering amount will remain unchanged.

A-1 Line of Credit Amendments

On December 22, 2022, the Operating Partnership, the Company and A-1 Bonds entered into a Change in Terms Amendment in connection with the A-1 Line of Credit. This Amendment increased the A-1 Line of Credit to $7.5 million and increased the number of Common LP Units of the Operating Partnership ~~at a daily rate~~securing the A-1 Line of ~~$0.00191781 per share of~~Credit to 750,000 Common Stock in the Company, equivalent to an annualized rate of seven percent (7.00%) per share based on the Company’s current share net asset value of $10.00, for daily record dates June 1 through June 30, 2022 to holders of record on each calendar day of such period. The distribution declared for June 2022 was paid on July 11, 2022.LP Units.

On ~~August 2, 2022, we declared cash distributions totaling $401,125, DRIP distributions totaling $136,106, cash distributions totaling $35,706 for Common Limited Units of~~January 12, 2023, the Operating Partnership, the Company and ~~cash distributions totaling $44,624 for Series GO~~A-1 Bonds entered into a Change in Terms Amendment in connection with the A-1 Line of Credit. This Amendment increased the A-1 Line of Credit to $10.0 million and increased the number of Common LP Units of the Operating Partnership atsecuring the A-1 Line of Credit to 1,000,000 Common LP Units.

On April 18, 2023, the Operating Partnership, the Company and A-1 Bonds entered into a ~~daily rate~~Change in Terms Amendment in connection with the A-1 Line of ~~$0.00191781 per share~~Credit. This Amendment increased the A-1 Line of Credit to $13.3 million and increased the number of Common ~~Stock in~~LP Units of the Operating Partnership securing the A-1 Line of Credit to 1,330,000 Common LP Units.

As of March 27, 2024, $13.1 million is outstanding under the A-1 Line of Credit.

The Company and A-1 Bonds are working to finalize an extension of the A-1 Line of Credit as of the date of this filing, however there can be no assurance that an extension will be granted.

Western Line of Credit Amendments

On December 15, 2022, the Operating Partnership, the Company ~~equivalent~~and Corey Maple entered into a Change in Terms Amendment in connection with the Western Line of Credit, which extended the maturity date of the Western Line of Credit from December 15, 2022 to ~~an annualized rate~~April 15, 2023. Additionally, through the amendment on December 15, 2022, the Loan added our Hampton Inn hotel property in Fargo, North Dakota as security for the loan, so that the Western Line of ~~seven percent (7.00%) per share based on~~Credit is now secured by the Company’s ~~current share net asset value~~Hampton Inn hotel property in Eagan, Minnesota, the Company’s Holiday Inn Express hotel property in Cedar Rapids, Iowa, the Company’s Hampton Inn hotel property in Fargo, North Dakota, and limited partnership units of ~~$10.00, for daily record dates July 1 through~~the Operating Partnership.

On July 31, ~~2022~~2023, the Operating Partnership, the Company, Corey Maple, LF3 Fargo Med, LLC, LF3 Eagan, LLC, and LF3 Cedar Rapids, LLC entered into a Change in Terms Agreement in connection with the Western Line of Credit, which extended the maturity date of the Western Line of Credit from June 15, 2023 to ~~holders~~September 15, 2023. This amendment also added an additional 200,000 limited partnership units of ~~record on each calendar day~~the Operating Partnership as collateral for the loan, for a total of ~~such period. The distribution declared for July 2022 was paid on August 10, 2022.~~300,000 limited partnership units.

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~~Recent Property Acquisitions~~

~~Residence Inn by Marriott Fort Collins – Fort Collins, Colorado~~

On ~~August 3, 2022,~~October 9, 2023, the Operating Partnership, ~~acquired~~the Company, Corey Maple, LF3 Fargo Med, LLC, LF3 Eagan, LLC, and LF3 Cedar Rapids, LLC entered into a ~~Residence Inn by Marriott hotel property~~Change in ~~Fort Collins, Colorado (the “Fort Collins RI Property”) pursuant to a Contribution~~Terms Agreement, ~~dated~~effective as of ~~February 1, 2022, as amended (the “Fort Collins RI Amended Contribution Agreement”). The aggregate consideration under~~October 4, 2023 in connection with the ~~Fort Collins RI Amended Contribution Agreement is $17,700,000 plus closing costs, subject to adjustment as provided in~~Western Line of Credit, which extended the ~~Fort Collins RI Amended Contribution Agreement. The consideration consists~~maturity date of the ~~refinancing~~Western Line of ~~RLC V RIFC, LLC’s (the “Contributor”) existing loan with a new loan (the “Fort Collins RI Loan”) by subsidiaries of~~Credit from September 15, 2023 to November 15, 2023. This amendment also reduced the maximum credit to $4.67 million and required the Operating Partnership ~~with Legendary A-1 Bonds, LLC (the “Fort Collins RI Lender”), which is an affiliate~~to pay Western State Bank a principal curtailment of the Advisor which is owned by Norman Leslie and Corey Maple, each a director and executive officer of the Company and principal of the Advisor, in the amount of $11,500,000 secured by the Fort Collins RI Property, the issuance by$0.3 million.

On December 27, 2023, the Operating Partnership, the Company, Corey Maple, LF3 Fargo Med, LLC, LF3 Eagan, LLC, and LF3 Cedar Rapids, LLC entered into a Change in Terms Agreement in connection with the Western Line of ~~560,369 Series T Limited Units~~Credit, which extended the maturity date of the ~~Operating Partnership, and~~Western Line of Credit from November 15, 2023 to April 30, 2024.

As of March 27, 2024, $4.7 million is outstanding under the Western Line of Credit.

NHS Loan

On March 6, 2023, the Company entered into a $600,000 loan agreement (the “NHS Loan”) with NHS. The NHS Loan requires the payment of ~~$596,310.09 by the Operating Partnership in cash~~monthly interest beginning on April 6, 2023, with all outstanding principal and interest amounts being due and payable at ~~Closing for delinquent taxes, which amount is subject to 1.5 multiplier at time of conversion of the Series T Limited Units.~~maturity on July 6, 2023. The Series T Limited Units will convert into Common Limited Units of the Operating Partnership beginning 36 months, or at the option of the contributor, up to 48 months, after the closing, or upon the sale of the Fort Collins RI property or substantially all of the Operating Partnership’s assets, at which point the value will be calculated pursuant to the terms of the Fort Collins RI Amended Contribution Agreement. The number of Common LP Units to be issued to the contributor based on such conversion may be higher or lower than the initial valuation of the Series T LP Units~~. The Fort Collins RI~~NHS Loan has a fixed interest rate of 7.0% per annum. Outstanding amounts under the NHS Loan may be prepaid in whole or in part without penalty. The NHS Loan is secured by 60,000 partnership units of the Operating Partnership.

We and NHS are working to finalize an extension of the NHS loan as of the date of this filing, however there can be no assurance that an extension will be granted.

Fort Collins Loan Refinancing

On April 18, 2023, pursuant to the Loan Agreement, dated as of April 18, 2023 (the “New Fort Collins Loan Agreement”), LF3 RIFC, LLC and LF3 RIFC TRS LLC (collectively, the “Fort Collins Borrower”), subsidiaries of the Operating Partnership entered into a new $11.2 million loan with Access Point Financial, LLC (“Access Point”), which is secured by the Fort Collins Property (the “New Fort Collins Loan”). Access Point is not affiliated with the Company or the Advisor. The New Fort Collins Loan is evidenced by a promissory note and has a variable interest rate per annum equal to 30-day secured overnight financing rate plus 6.25%. The New Fort Collins Loan matures May 4, 2025, with the option for up to three one-year extensions if requirements are met, including certain required debt service coverage ratios and isthe payment of an extension fee. The New Fort Collins Loan requires monthly interest-only payments through May 4, 2025, followed by monthly payments of principal and interest through any extensions, with the outstanding principal and interest due at maturity. The Fort Collins Borrower has the right to prepay up to 10% of the outstanding principal amount of the New Fort Collins Loan on certain permitted prepayment dates with a 10-day notice. If prepaid during the first 25 months of the initial term, such a prepayment would include a prepayment fee equal to the sum of 24 months of interest payments that, but for the prepayment, would have been due and payable on the prepaid principal amount had a prepayment not occurred. When the Fort Collins Borrower pays the entire remaining principal balance, whether prepaid or on maturity, the Fort Collins Borrower will incur an exit fee of $112,000. The New Fort Collins Loan includes cross-default provisions such that a default under certain other agreements of the Fort Collins Borrower, the Guarantors described below and the property manager of the Fort Collins Property constitute a default under the New Fort Collins Loan. The Fort Collins Borrower used the proceeds of the New Fort Collins Loan to repay the original $11.5 million loan with A-1 Bonds which was secured by the Fort Collins Property, pursuant to a Loan Agreement, dated as of August 3, 2022. The original loan was evidenced by three promissory notes in the amounts of $10,298,535 (“Tranche 1”), $700,000 (“Tranche 2”) and $501,465 (“Tranche 3”)~~. The~~ and had a fixed interest rate of 7.0% per annum. On April 18, 2023, the proceeds of the New Fort Collins ~~RI Lender~~Loan were used to refinance the original loan, and the outstanding obligations under Tranche 1 were repaid in full and under Tranche 2 were forgiven. A 1.75% exit fee was ~~entitled~~paid on Tranche 1, and no penalty was incurred on Tranche 1 or Tranche 2. Tranche 3 remains an ongoing obligation, no longer secured by the Fort Collins Property, under the terms of the original loan and Tranche 3 promissory note. All guaranties in connection and collateral with respect to the original loan and Tranche 1,

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El Paso HI Loan Modification

Lakewood Loan Extended

SEC Settlement

As previously disclosed, the Advisor and Corey R. Maple received a “Wells notice” from the SEC stating that the SEC staff had made a preliminary determination to recommend to the SEC that it bring an enforcement action against the Advisor and Mr. Maple alleging violations of securities laws in connection with the SEC’s investigation of the Company’s reimbursement of and financial accounting for certain expenses incurred by the Advisor as well as the adequacy of its disclosures related to those policies and practices. The Wells notice was neither a formal charge of wrongdoing nor a final determination that the Advisor or Mr. Maple has violated any law.

On August 28, 2023, the Advisor and Mr. Maple, without admitting or denying the findings, agreed to an ~~origination fee of 1.75%~~administrative cease-and-desist order relating to Sections 17(a)(2) and 17(a)(3) of the ~~Tranche~~Securities Act of 1933, as amended. A copy of the order can be found on the SEC’s website at https://www.sec.gov/files/litigation/admin/2023/33-11227.pdf. As part of the settlement, the Advisor agreed to pay disgorgement of $463,900, prejudgment interest of $85,431.50 and a civil monetary penalty of $225,000 and Mr. Maple agreed to pay a civil monetary penalty of $100,000. Additionally, the Advisor has undertaken to (a) retain a qualified independent consultant acceptable to the SEC, at the Advisor’s expense, within 60 days of the date of entry of the order to review the Advisor’s policies, procedures and controls regarding the proper allocation of expenses between the Advisor and the Company as provided in the order, (b) require the consultant to submit a report to the Advisor and the SEC staff within 120 days of the entry of the order with its findings and any recommendations for changes or improvements, and (c) adopt, implement and maintain all policies, procedures and practices recommended by

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the consultant’s report within 120 days of receiving the report from the consultant.

Creation of Series GO II LP Units

On April 7, 2023, the Operating Partnership established the terms of a new series of limited partner units designated as Series Growth & Opportunity II Limited Partner Units (“Series GO II LP Units”) to be issued from time to time. The Operating Partnership commenced a separate offering for the purchase of the Series GO II LP Units at a purchase price equal to 75% of the Share NAV. The purchase price based on the current Share NAV is $7.93 per Series Go II LP Unit. The Series GO II LP Units will be specially allocated all Net Income (including book-up income) in proportion to the 25% issue price shortfall, until the positive Capital Account balance of each Series GO II LP Unit is equal to the Share NAV. As a result, the issuance of Series GO II LP Units will be dilutive to the General Partner Units and therefore, to the shares of common stock of the Company. See “—GO II Unit Offering” below for status of the offering.

Resolution of Litigation with PA Sellers

Changes in Officers and Directors

Effective February 28, 2023, Brian Hagen retired from the board of directors of the Company. His decision to retire was not a result of a disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

On May 19, 2023, Mr. Corey R. Maple tendered his resignation, effective May 19, 2023, as Chief Executive Officer and Secretary of the Company, but continues to serve as the Chairman of the Board of Directors. On May 19, 2023, the Company’s Board of Directors appointed Mr. Norman H. Leslie as the Company’s Chief Executive Officer and Secretary, effective May 19, 2023.

Change in Registered Public Accounting Firm

On October 24, 2023, based on the approval of the Audit Committee of the Board of Directors of the Company, the Company dismissed Deloitte & Touche LLP as the Company’s independent registered public accounting firm, and engaged Marcum LLP as the Company’s new independent registered public accounting firm, effective October 24, 2023.

Distributions Declared or Paid

On October 4, 2022, we declared cash distributions totaling $396,328, DRIP distributions totaling $157,718, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $66,570 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in our company, equivalent to an annualized rate of seven percent (7.00%) per share based on our current share net asset value of $10.00, for daily record dates September 1 through September 30, 2022 to holders of record on each calendar day of such period. The distribution declared for September 2022 was paid on October 10, 2022.

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On November 3, 2022, we declared cash distributions totaling $418,146, DRIP distributions totaling $138,014, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $75,430 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in our company, equivalent to an annualized rate of seven percent (7.00%) per share based on our current share net asset value of $10.00, for daily record dates October 1 through October 31, 2022 to holders of record on each calendar day of such period. The distribution declared for November 2022 was paid on November 10, 2022.

On December 8, 2022, we declared cash distributions totaling $420,494, DRIP distributions totaling $137,567, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $79,424 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in our company, equivalent to an annualized rate of seven percent (7.00%) per share based on our current share net asset value of $10.00, for daily record dates November 1 through November 30, 2022 to holders of record on each calendar day of such period. The distribution declared for November 2022 was paid on December 9, 2022.

On January 10, 2023, we paid cash distributions totaling $420,543 and DRIP distributions totaling $139,519, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $83,099 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in our company, equivalent to an annualized rate of seven percent (7.00%) per share based on our initial offering price of $10.00, for daily record dates December 1 through December 31, 2022 to holders of record on each calendar day of such period.

On February 7, 2023, we declared cash distributions totaling $434,653 and DRIP distributions totaling $126,842, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $86,988 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in our company, equivalent to an annualized rate of seven percent (7.00%) per share based on our initial offering price of $10.00, for daily record dates January 1 through January 31, 2023 to holders of record on each calendar day of such period. The distribution declared for January 2023 was paid on February 10, 2023.

On March 7, 2023, we declared cash distributions totaling $434,351 and DRIP distributions totaling $129,458, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $90,200 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in our company, equivalent to an annualized rate of seven percent (7.00%) per share based on our initial offering price of $10.00, for daily record dates February 1 through February 28, 2023 to holders of record on each calendar day of such period. The distribution declared for February 2023 was paid on March 10, 2023.

On April 4, 2023, we declared cash distributions totaling $432,563 and DRIP distributions totaling $132,987, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $93,696 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in our company, equivalent to an annualized rate of seven percent (7.00%) per share based on our initial offering price of $10.00, for daily record dates March 1 through March 31, 2023 to holders of record on each calendar day of such period. The distribution declared for March 2023 was paid on April 10, 2023.

On May 9, 2023, we declared cash distributions totaling $441,332 and DRIP distributions totaling $125,684, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $102,500 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in our company, equivalent to an annualized rate of seven percent (7.00%) per share based on our initial offering price of $10.00, for daily record dates April 1 through April 30, 2023 to holders of record on each calendar day of such period. The distribution declared for April 2023 was paid on May 10, 2023.

On June 12, 2023, we declared cash distributions totaling $441,771 and DRIP distributions totaling $126,101, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $113,949 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in our company, equivalent to an annualized rate of seven percent (7.00%) per share based on our initial offering price of $10.00, for daily record dates May 1 through May 31, 2023 to holders of record on each calendar day of such period. The

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distribution declared for May 2023 was paid on June 15, 2023.

On July 10, 2023, we declared cash distributions totaling $442,403 and DRIP distributions totaling $127,081, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $125,067 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in our company, equivalent to an annualized rate of seven percent (7.00%) per share based on our initial offering price of $10.00, for daily record dates June 1 through June 30, 2023 to holders of record on each calendar day of such period. The distribution declared for June 2023 was paid on July 14, 2023.

On August 8, 2023, we declared cash distributions totaling $443,331 and DRIP distributions totaling $130,236, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $138,225 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in our company, equivalent to an annualized rate of seven percent (7.00%) per share based on our initial offering price of $10.00, for daily record dates July 1 through July 31, 2023 to holders of record on each calendar day of such period. The distribution declared for July 2023 was paid on August 11, 2023.

On September 11, 2023, we declared cash distributions totaling $451,509 and DRIP distributions totaling $123,716, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $160,212 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in our company, equivalent to an annualized rate of seven percent (7.00%) per share based on our initial offering price of $10.00, for daily record dates August 1 through August 31, 2023 to holders of record on each calendar day of such period. The distribution declared for August 2023 was paid on September 15, 2023.

On October 24, 2023, we declared cash distributions totaling $451,660 and DRIP distributions totaling $124,848, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $175,525 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in our company, equivalent to an annualized rate of seven percent (7.00%) per share based on our initial offering price of $10.00, for daily record dates September 1 through September 30, 2023 to holders of record on each calendar day of such period. The distribution declared for September 2023 was paid on October 27, 2023.

On November 7, 2023, we declared cash distributions totaling $473,526 and DRIP distributions totaling $103,722, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $181,841 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in our company, equivalent to an annualized rate of seven percent (7.00%) per share based on our initial offering price of $10.00, for daily record dates October 1 through October 31, 2023 to holders of record on each calendar day of such period. The distribution declared for October 2023 was paid on November 20, 2023.

On December 6, 2023, we declared cash distributions totaling $471,485 and DRIP distributions totaling $106,956, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $182,164 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in our company, equivalent to an annualized rate of seven percent (7.00%) per share based on our initial offering price of $10.00, for daily record dates November 1 through November 30, 2023 to holders of record on each calendar day of such period. The distribution declared for November 2023 was paid on December 29, 2023.

On January 16, 2024, we declared cash distributions totaling $471,271 and DRIP distributions totaling $108,117 cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and cash distributions totaling $182,262 for Series GO LP Units of the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in our company, equivalent to an annualized rate of seven percent (7.00%) per share based on our initial offering price of $10.00, for daily record dates December 1 through December 31, 2023 to holders of record on each calendar day of such period. The distribution declared for December 2023 remained unpaid at the time of this filing.

Property Acquisitions

On December 22, 2022, the Operating Partnership acquired a Holiday Inn Express & Suites hotel property in Wichita,

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Kansas (the “Wichita Property”) for contractual consideration comprised of the origination of a new loan ~~amount payable~~by subsidiaries of the Operating Partnership with Choice Financial Group (the “Wichita HIEX Lender”) for $5.6 million, secured by the Wichita Property the issuance by the Operating Partnership of 121,762 Series T Limited Units of the Operating Partnership, and the payment by the Operating Partnership of $0.5 million in cash, a portion of which was used to pay off the portion of the Wichita Contributor’s existing loan not covered by the proceeds of the new loan with the Wichita HIEX Lender. The Series T Limited Units will convert into Common Limited Units of the Operating Partnership 36 months after the closing. The number of Common Limited Units to be issued to the Wichita Contributor upon conversion will be calculated pursuant to the terms of the ~~Fort Collins RI Amended~~Wichita Contribution ~~Agreement. Each of Tranche 1 and Tranche 2 of the Fort Collins RI Loan matures August 2, 2023,~~Agreement, which may be ~~extended by us for an additional one-year term upon satisfaction~~higher or lower than the initial valuation of ~~certain conditions contained in~~the Series T LP Units. In connection with the loan agreement, including no then-existing event of default and, for Tranche 1 only, the payment of an extension fee of 1% of the full amount due under Tranche 1. Tranche 3 of the Fort Collins RI Loan matures August 2, 2028 with no extension option. Tranche 1 of the Fort Collins RI Loan requires monthly payments of interest-only throughout the term, with the outstanding principal and interest due at maturity. We have the right to prepay the Fort Collins RI Loan in full at any time upon prior notice to the Fort Collins RI Lender. Upon repayment of Tranche 1 at the maturity date, prepayment or otherwise, the Fort Collins RI Lender is entitled to an exit fee of 1.75% of the full amount due under Tranche 1 at the time of repayment. Tranche 2 of the Fort Collins RI Loan requires monthly payments of interest-only beginning six months after the date of the loan throughout the remaining term, with the outstanding principal and interest due at maturity. Any unpaid principal under Tranche 2 may be forgiven based on criteria to be negotiated between the borrower and the Fort Collins RI Lender. All monthly interest and principal payments on Tranche 3 of the Fort Collins RI Loan are deferred until a certain appraised value of the Fort Collins RI Property is reached, at which time all interest payments previously deferred shall be due and payable. If the required appraisal value is not attained prior to August 2, 2028, then the unpaid principal on Tranche 3 will be forgiven by the Fort Collins RI Lender.

~~Pursuant to the Fort Collins RI Loan Agreement, the Operating Partnership~~described above, Corey Maple entered into a Wichita HIEX Guaranty (the ~~“OP Guaranty~~”“Wichita HIEX Maple Guaranty”) with the ~~Fort Collins RI~~Wichita HIEX Lender to guarantee payment when due of 50% of the ~~loan~~principal amount of indebtedness outstanding, including accrued interest and collection costs and expenses, and the performance of the agreements of borrower contained in the loan documents, as further described in the OPWichita HIEX Maple Guaranty.

In connection with the acquisition, we entered into a management agreement with NHS, LLC dba National Hospitality Services (“NHS”), an affiliate of the Advisor which is wholly-owned by Norman Leslie, a director and executive officer of the Company and a principal of the Advisor, to provide property management and hotel operations management services for the Fort Collins RI Property. The agreement has an initial term expiring on December 31, 2027, which automatically renews for a period of five years on each successive five-year period, unless terminated in accordance with its terms. NHS earns a monthly base management fee for property management services equal to 2% of gross revenue, an accounting fee of $14.00 per room for accounting services, payable monthly, and an administrative fee equal to 0.60% of gross revenues for administrative and other services. We also reimburse NHS for certain costs of operating the property incurred on our behalf. All reimbursements are paid to NHS at cost, and the agreement can be terminated at any time without liquidated damages.

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We funded the acquisition of the Fort Collins RI Property with proceeds from its ongoing private offering, Series T LP Units issued to the contributor as described above, and a new loan secured by the Fort Collins RI Property as described above. The Fort Collins RI Property is a 113-room property.

~~Hilton Garden Inn El Paso University – El Paso, Texas~~

In connection with the acquisition, HDI entered into a management agreement with Aimbridge Hospitality, LLC (“Aimbridge”) (the “El Paso HGI Aimbridge Management Agreement”), to provide property management and hotel operations management services for the El Paso HGI Hotel Property. The El Paso HGI Aimbridge Management Agreement has an initial term of 5 years after its effective date, which automatically renews for successive one-year periods, unless terminated in accordance with its terms. Pursuant to the El Paso HGI Aimbridge Management Agreement, HDI agrees to pay to Aimbridge a management fee equal to 3% of total revenues plus an accounting fee of $3,000 per month for accounting services, which amount will increase annually by 3% on January 1 of each fiscal year beginning on January 1, 2023. Aimbridge will also receive an additional accounting fee of $3,495 per month for customized accounting services, revenue management and digital marketing, which amount will increase annually by 3% on January 1 of each fiscal year beginning on January 1, 2022. Aimbridge may also receive incentive management fees if certain performance metrics are achieved. HDI also reimburses Aimbridge for certain costs of operating the property incurred on behalf of the Company. All reimbursements are paid to Aimbridge at cost. The ~~El Paso HGI~~ ~~Aimbridge Management Agreement may be terminated upon the occurrence of an Event of Default (as defined in the~~ ~~El Paso HGI~~ ~~Aimbridge Management Agreement), subject in certain cases to applicable notice and cure periods as described in the~~ ~~El Paso HGI~~ ~~Aimbridge Management Agreement. HDI may terminate the~~ ~~El Paso HGI~~ ~~Aimbridge Management Agreement in connection with~~

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the sale of the El Paso HGI Hotel Property upon at least ninety days’ written notice to Aimbridge and the payment of a termination fee, the amount of which varies depending on the timing of such termination.Properties Under Contract

~~Property Under Contract~~

On ~~August 5, 2022,~~January 31, 2023, the Operating Partnership and ~~Wichita Airport Hospitality,~~CS Real Estate Holding LLC (the ~~“Wichita HIEX~~“College Station Voco Contributor”) entered into a Legendary Equity Preservation UPREIT (Pat. Pend.) Contribution Agreement (the ~~“Wichita HIEX~~“College Station Voco Contribution Agreement”), pursuant to which the ~~Wichita HIEX~~College Station Voco Contributor agreed to contribute the ~~84-room Holiday Inn Express & Suites Wichita Airport hotel~~166-room Aggieland Boutique Hotel in ~~Wichita, Kansas~~College Station, Texas, which the Operating Partnership intended to convert into a Voco by IHG (the ~~“Wichita HIEX~~“College Station Voco Hotel Property”) to the Operating Partnership. The ~~Wichita HIEX~~College Station Voco Contributor is not affiliated with usthe Company or Legendary Capital REIT III, LLC, ~~our~~the Company’s external advisor. The aggregate consideration for the ~~Wichita HIEX~~College Station Voco Hotel Property under the ~~Wichita HIEX~~College Station Voco Contribution Agreement is ~~$7,400,000~~$18,500,000 plus closing costs, subject to adjustment as provided in the ~~Wichita HIEX~~College Station Voco Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the ~~Wichita HIEX~~College Station Voco Hotel Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T LPLimited Units of the Operating ~~Partnership.~~Partnership and cash at closing. As required by the ~~Wichita HIEX~~College Station Voco Contribution Agreement, the Operating Partnership ~~deposited~~will deposit $50,000 into escrow as earnest money pending the closing or termination of the ~~Wichita HIEX~~College Station Voco Contribution Agreement. ~~Except in certain circumstances described in~~The Company terminated the ~~Wichita HIEX~~College Station Voco Contribution Agreement ifon June 13, 2023.The earnest money deposit was fully refunded to the Operating Partnership.

On April 23, 2023, the Operating Partnership ~~fails to perform its obligations under~~terminated the ~~Wichita HIEX~~Legendary Equity Preservation UPREIT (Pat. Pend.) Contribution Agreement ~~it will forfeit~~entered into on August 16, 2022 in connection with the ~~earnest money.~~

~~We are still conducting our diligence review with respect~~contribution of the 276-room Sheraton Hotel Albuquerque Airport in Albuquerque, New Mexico. Subsequent to ~~this property. This pending acquisition is subject~~December 31, 2022 and prior to ~~our completion of satisfactory due diligence and other closing conditions. There can be no assurance we will complete this pending property contribution on the contemplated terms, or at all.~~

~~New Revolving Line of Credit~~

~~On August 9, 2022,~~termination, the Operating Partnership ~~entered~~deposited an additional $150,000 into ~~a $5.0 million revolving line of credit loan agreement (the “A-1 Line of Credit”) with Legendary A-1 Bonds, LLC (the “A-1 Lender”), which is an affiliate~~escrow as earnest money pending the closing or termination of the ~~Advisor which is owned by Norman Leslie and Corey Maple, each a director and executive officer~~Sheraton Albuquerque Airport Contribution Agreement. Upon termination, $300,000 of the Company and principal of the Advisor. The A-1 Line of Credit requires monthly payments of interest only beginning September 1, 2022, with all outstanding principal and interest amounts being due and payable at maturity on December 31, 2022. The A-1 Line of Credit has a fixed interest rate of 7.0% per annum. Outstanding amounts under the A-1 Line of Credit may be prepaid in whole or in part without penalty. The A-1 Line of Credit is secured by 500,000 unissued Common LP Units oftotal earnest money deposit was returned to the Operating Partnership. ~~As of August 9, 2022, $3.3 million has been advanced by the A-1 Lender under the A-1 Line of Credit.~~

~~Share Repurchases~~

~~On July 21, 2022, we paid the outstanding redemption proceeds related to the June 2022 redemption of 57,614 shares of common stock for $575,879 per the terms of the Share Repurchase Plan.~~

Status of the Offering

Our board of directors extended the term of the Offering to May 31, 2024. As of ~~August 11, 2022, our~~the date of this filing, the Company’s private offering remained open for new investment, and since the inception of the offering ~~we have~~the Company had issued and sold ~~9,561,096~~10,254,100 shares of common stock, including ~~957,091~~1,178,323 shares issued pursuant to the DRIP, resulting in the receipt of gross offering proceeds of ~~$90.8~~$100.3 million.

Series T LP Units

The Operating Partnership did not issue any Series T LP Units during the year ended December 31, 2023 to the date of this filing.

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Common LP Units

The Operating Partnership did not issue any Common LP Units during the year ended December 31, 2023 to the date of this filing.

GO II Unit Offering

Share Repurchases

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Quantitative and qualitative disclosures about market risks have been omitted as permitted under rules applicable to smaller reporting companies.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on the evaluation of our disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) required by Securities Exchange Act of 1934 Rules 13a-15(b) or 15d-15(b), our Chief Executive Officer and our Chief Financial Officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were not effective.

Material Weakness in Internal Control over Financial Reporting

In connection with the review of the Company’s consolidated financial statements for the quarter ended September 30, 2022, we identified a material weakness in our control environment related to the accounting treatment of an acquisition in August of 2022 of a controlling interest in an entity which holds the leasehold interest in a hotel property. We believe that this material weakness was a result of the misapplication of the GAAP accounting guidance. The material weakness did not result in any misstatements, material or otherwise, to the financial statements issued for the year ended December 31, 2021, or the quarters ended March 31, 2022 or 2021, June 30, 2022 or 2021 or September 30, 2021. Soley due to this weakness, our management concluded that at September 30, 2022, the Company’s internal control over financial reporting was not effective.

Subsequent to September 30, 2022, management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include consultation with external GAAP accounting experts on non-recurring, significant, or unusual transactions. We believe that these actions will remediate the material weakness. The weakness will not be considered remediated, however, until the application controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed prior to the end of 2024.

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Changes in Internal Control Over Financial Reporting

~~There have been~~During the quarter ended September 30, 2022, except for the material weakness noted above, no changes in our internal control over financial reporting ~~that~~ occurred ~~during the quarter ended June 30, 2022~~ that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The remediation plan described above was implemented subsequent toSeptember 30, 2022.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. See Note 10 “Commitments and Contingencies” of the notes to the consolidated financial statements included as part of this Quarterly Report on Form 10-Q for a discussion of ongoing legal proceedings and governmental authority inquiries. Other than such proceedings, management is not aware of any current or pending legal proceedings to which we or any of our subsidiaries are a party or to which any of our property is subject, the outcome of which would, in management’s judgment based on information currently available, have a material adverse effect on our results of operations or financial condition, nor is management aware of any such legal proceedings contemplated by governmental authorities.

Item 1A. Risk Factors

~~There~~Except as otherwise described herein, there are no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31, 2022.

We face risks related to an ongoing regulatory investigation.

The SEC is conducting an investigation related to our reimbursement of and financial accounting for certain expenses incurred by the Advisor, as well as the adequacy of our disclosures related to those policies and practices. We and the Advisor continue to cooperate with the SEC staff and have produced documents and other information requested by the SEC staff.

On September 12, 2022, in connection with their investigation, the SEC staff issued a “Wells notice” advising that they have made a preliminary determination to recommend to the SEC that it bring an enforcement action against the Advisor for possible violations of the securities laws. Corey R. Maple also received a Wells notice as part of the same investigation. The Wells notice is neither a formal allegation nor a finding of wrongdoing by the SEC against the Advisor or Mr. Maple. It allows the Advisor and Mr. Maple the opportunity to provide its perspective and to address the issues raised by the SEC staff before any decision is made by the SEC on whether to authorize the commencement of an enforcement proceeding.

We cannot predict whether the SEC will follow the preliminary recommendations of the staff and file an enforcement action. If an enforcement action is instituted by the SEC, the Advisor and Mr. Maple intend to vigorously defend their positions. The results of the Wells notice process, any corresponding enforcement action and the costs and timing of responding and complying therewith are unknown at this time. We can provide no assurances as to the outcome of the Wells notice process. However, the Wells notice process could result in considerable legal expenses, divert management’s attention from other business concerns and harm our business. If the SEC were to ultimately prevail in any enforcement proceeding (whether civil or administrative), the Advisor and Mr. Maple could be required to pay civil penalties and disgorgement, in addition to other remedies and conditions that maybe imposed as part of any resolution. Further, should the SEC bring an enforcement action against the Advisor or Mr. Maple, it could materially and adversely affect: (a) our financial condition; (b) the continuity of our business operations; (c) the availability and cost of financing; and (d) our management. Therefore, an action filed by the SEC against the Advisor or Mr. Maple may impose significant liability on us.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

Initial Offering

On June 1, 2018, we commenced an offering (the “Offering”) of up to $100,000,000 in shares of our common stock, which amount was increased to $150,000,000 in shares of our common stock in December 2021. We are offering these securities in reliance upon exemptions from the registration requirements provided by Section 4(a)(2) of the Securities Act and

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Regulation D under the Securities Act relating to sales not involving any public offering. The securities are being offered and sold only to purchasers who are “accredited investors,” as defined in Rule 501 of Regulation D of the Securities Act, and without the use of general solicitation, as that concept is embodied in Regulation D. In addition to sales of common stock for cash, we have adopted a dividend reinvestment plan, which permits stockholders to reinvest their distributions back into the Company. Except as otherwise provided in the offering memorandum, we are offering the shares in the private offering at an initial price of $10.00 per share, with shares purchased in our dividend reinvestment plan at an initial price of $9.50 per share. During the three months ended ~~June~~September 30, 2022, we sold ~~542,710~~410,627 shares of common stock in the private offering, resulting in gross offering proceeds of approximately ~~$5.3~~$4.0 million, including ~~55,385~~47,676 shares issued pursuant to our dividend reinvestment plan. During the three months ended ~~June~~September 30, 2022, aggregate selling commissions of ~~$0.3~~$0.6 million and marketing and diligence allowances and other wholesale selling costs and expenses of ~~$0.4~~$1.2 million were paid in connection with the private offering.

Go Unit Offering

On June 15, 2020, we commenced a private placement offering of limited partnership units in our Operating Partnership, designated as Series GO LP Units, with a maximum offering of $20,000,000, which could be increased to $30,000,000 in the sole discretion of the Company, as the General Partner of the Operating Partnership, (the “GO Unit Offering”). The Series GO LP Units were being offered until the earlier of (i) the sale of $20,000,000 in Series GO LP Units (which could be increased to $30,000,000 in the Company’s sole discretion), (ii) June 14, 2022 or (iii) the Operating Partnership terminates the GO Unit Offering at an earlier date in its sole discretion. Our board of directors terminated the GO Unit Offering as of February 14, 2022. Our board of directors approved and ratified additional sales after February 14, 2022 in the GO Unit Offering for sales which were pending as of that date. The Operating Partnership was offering these securities in reliance upon exemptions from the registration requirements provided by Section 4(2) of the Securities Act and Regulation D under the Securities Act relating to sales not involving any public offering. The securities were being offered and sold only to purchasers who are “accredited investors,” as defined in Rule 501 of Regulation D of the Securities Act, and without the use of general solicitation, as that concept is embodied in Regulation D. Subject to restrictions on ownership in order to comply with rules governing real estate investment trusts and the terms of the partnership agreement of the Operating Partnership, each holder of Series GO LP Units (a “Series GO Limited Partner”) will have the right to

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exchange its Series GO LP Units for, at the option of the Operating Partnership, an equivalent number of shares of common stock of the Company (“Common Shares”), or cash equal to the fair market value of the Common Shares (the “Cash Amount”) which would have otherwise been received pursuant to such exchange. The exchange right is not available until all of the following have occurred (the “Exchange Date”): (i) the Common Shares are listed on a national securities exchange, the sale of all or substantially all of the GP Units and Interval Units held by the Company or any sale, exchange or merger of the Company or the Operating Partnership or, as determined in the sole discretion of the Company, the occurrence of a similar event; (ii) the Series GO Limited Partner has held its Series GO LP Units for at least one year; (iii) the Common Shares to be issued pursuant to the redemption have been registered with the SEC and the registration statement has been declared effective, or an exemption from registration is available; and (iv) the exchange does not result in a violation of the shareholder ownership limitations set forth in the Company’s articles of incorporation. Notwithstanding the above, the Company may waive any of the requirements above in its sole discretion other than (ii) or (iv). During the three months ended ~~June~~September 30, 2022, we sold and issued ~~20,061~~no Series GO LP Units in the GO Unit Offering, resulting in no gross ~~proceeds of $0.1 million.~~proceeds. During the three months ended ~~June~~September 30, 2022, there was no aggregate selling commissions ~~of $9,373~~ and marketing and diligence allowances and other wholesale selling costs and expenses ~~of $1,376 were~~ paid in connection with the offering.

Series T LP Units

On June 15, 2020, the Operating Partnership established the Series T LP Units as a new series of limited partnership units in the Operating Partnership. The Operating Partnership may issue the Series T LP Units from time to time to persons who contribute direct or indirect interests in real estate to the Operating Partnership. During the three months ended ~~June~~September 30, 2022, the Operating Partnership ~~did not issue any~~issued 1,409,045 Series T ~~LP.~~ LP Units in connection with contributions of hotel properties on August 3, 2022 and August 25, 2022.During the year ended December 31, 2021, the Operating Partnership issued an aggregate of 2,513,769 Series T LP Units in connection with contributions of hotel ~~properties on February 4, 2021, May 12, 2021, August 3, 2021 and December 3, 2021.~~properties. These securities were issued in reliance upon exemptions from the registration requirements provided by Section 4(2) of the Securities Act and Regulation D under the Securities Act relating to sales not involving any public offering. The securities were offered and

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sold only to purchasers who are “accredited investors,” as defined in Rule 501 of Regulation D of the Securities Act. Subject to the terms of the partnership agreement of the Operating Partnership, each holder of Series T LP Units (a “Series T Limited Partner”) will have its Series T LP Units be eligible for conversion into Common LP Units beginning 24 or 36 months, or longer in some instances, after the issuance of the Series T LP Units, at which point the value will be calculated pursuant to the terms of the partnership agreement of the Operating Partnership and the formula set forth in the contribution agreement between the Operating Partnership and the Series T Limited Partner. The number of Common LP Units to be issued to the contributor based on such conversion may be higher or lower than the initial valuation of the Series T LP Units. The Series T LP Units will also automatically convert into Common LP Units upon other events as described in the partnership agreement of the Operating Partnership at a rate based on a mathematical formula. Subject to restrictions on ownership in order to comply with rules governing real estate investment trusts and the terms of the partnership agreement of the Operating Partnership, each holder of Common LP Units will have the right to exchange its Common LP Units for, at the option of the Operating Partnership, an equivalent number of Common Shares or the Cash Amount which would have otherwise been received pursuant to such exchange. The exchange right is not available until the Exchange Date (as defined in the previous paragraph). Notwithstanding the above, the Company may waive any of the requirements of the Exchange Date described in the paragraph above in its sole discretion other than (ii) or (iv).

Common LP Units

On December 3, 2021, the Operating Partnership commenced a private placement offering of its Common LP Units. The Operating Partnership is offering these securities in reliance upon exemptions from the registration requirements provided by Section 4(2) of the Securities Act and Regulation D under the Securities Act relating to sales not involving any public offering. The securities are being offered and sold only to purchasers who are “accredited investors,” as defined in Rule 501 of Regulation D of the Securities Act. Subject to restrictions on ownership in order to comply with rules governing real estate investment trusts and the terms of the partnership agreement of the Operating Partnership, each holder of Common LP Units will have the right to exchange its Common LP Units for, at the option of the Operating Partnership, an equivalent number of Common Shares or the Cash Amount which would have otherwise been received pursuant to such exchange. The exchange right is not available until the Exchange Date (as defined above). Notwithstanding the above, the Company may waive any of the requirements described above in its sole discretion other than (ii) or (iv). On December 3, 2021, the

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Operating Partnership issued 152,100 Common LP Units to a contributor of real estate to the Operating Partnership. During the ~~three~~nine months ended ~~June~~ September30, 2022, the Operating Partnership ~~did not issue any~~issued 460,000 Common LP Units.

Share Repurchase Plan

The board of directors has adopted a share repurchase plan that may enable our stockholders to have their shares repurchased in limited circumstances. In its sole discretion, the board of directors could choose to terminate or suspend the plan or to amend its provisions without stockholder approval. The repurchase plan may be reviewed and modified by the board of directors as it deems necessary in its sole discretion. The following discussion summarizes the principal terms of our share repurchase plan.

Repurchase Price

Under certain circumstances and subject to the death repurchase described below, the prices at which we will repurchase shares under our repurchase plan are as follows:

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For those shares held by the stockholder for at least one year, 92% of the current share NAV;

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For those shares held by the stockholder for at least two years, 96% of the current share NAV; and

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For those shares held by the stockholder for at least three years, 100% of the current share NAV.

For purposes of determining the time period a stockholder has held each share, the time period begins as of the date the stockholder acquired the share, provided that shares purchased by the stockholder pursuant to our dividend reinvestment plan will be deemed to have been acquired on the same date as the initial shares to which the dividend reinvestment plan shares relate. The board of directors may, in its sole discretion, reject any request for repurchase and may, upon notice to the stockholders, amend, suspend or terminate the repurchase program at any time.

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Limitations on Repurchase

There are several limitations on our ability to repurchase shares under our share repurchase plan:

●

Unless the shares are being repurchased in connection with a stockholder’s death, we may not repurchase shares unless the stockholder has held the shares for at least one year.

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During any calendar year, we will repurchase only the number of shares that we could purchase with the amount of net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year. However, we may increase or decrease the funding available for the repurchase of shares pursuant to our share repurchase plan upon 10 business days’ notice to our stockholders.

●

During any calendar year, we will limit the total shares repurchased to no more than 5.0% of the weighted-average number of shares outstanding as of December 31 of the prior calendar year.

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We have no obligation to repurchase shares if the repurchase would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency.

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We will not repurchase shares if the board of directors determines, in its sole discretion, that the repurchase price determined in accordance with the terms of our share repurchase plan exceeds the then current fair market value of the shares to be repurchased.

Procedures for Repurchase

We will repurchase shares within 21 days following the end of a calendar quarter. We must receive a written request for repurchase at least two business days before the end of the calendar quarter in order for us to repurchase a stockholder’s shares on the repurchase date. If we cannot repurchase all shares presented for repurchase in any quarter, we will attempt to honor repurchase requests on a pro rata basis. The board of directors may, in its sole discretion, reject any request for repurchase.

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If we did not completely satisfy a stockholder’s repurchase request on a repurchase date because we did not receive the request in time, because of the limitations on repurchases set forth in our share repurchase plan or because of a suspension of our share repurchase plan, we would treat the unsatisfied portion of the repurchase request as a request for repurchase at the next repurchase date at which funds are available for repurchase unless the stockholder withdraws its request. Any stockholder may withdraw a repurchase request upon written notice to the program administrator if such notice is received at least two business days before the repurchase date.

All shares to be repurchased must be (i) fully transferable and not be subject to any liens or other encumbrances and (ii) free from any restrictions on transfer. If we determine that a lien or other encumbrance or restriction exists against the shares, we will not repurchase any such shares.

Neither we nor the board of directors will have any liability to any stockholder for any damages resulting from or related to the stockholder’s presentment of its shares. Further, stockholders will have complete responsibility for payment of all taxes, assessments and other applicable obligations and third-party costs resulting from or relating to our repurchase of shares. All repurchased shares shall be repurchased as treasury shares and may be made available for purchase to new or existing stockholders.

Special Repurchases—Death Repurchase

In the event of the death of a stockholder, the Company will, upon request and within six months from the date of the request, repurchase such stockholder’s shares regardless of the period the deceased stockholder has owned such shares at the following prices:

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92% of the current share NAV if death occurs less than six months of the purchase;

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96% of the current share NAV if death occurs from six months to one year of purchase; and

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100% of the current share NAV if death occurs after one year of purchase.

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We will not be obligated to repurchase a deceased stockholder’s shares if more than two years have elapsed from the date of death.

Amendment, Suspension or Termination of Program and Notice

The board of directors may, at any time and without stockholder approval, upon 10 business days’ written notice to the stockholders (i) amend, suspend or terminate our share repurchase plan and (ii) increase or decrease the funding available for the repurchase of shares pursuant to our share repurchase plan.

Shares Repurchased

Pursuant to the terms of our Share Repurchase Plan and the discretion provided therein, we will repurchase shares within 21 days following the end of a calendar quarter. During the ~~six~~nine months ended ~~June~~September 30, 2022, we repurchased shares of our common stock in the amounts below. In addition to these amounts, in ~~June~~the third quarter of 2022, we received a request to repurchase ~~57,614~~55,410 shares. ~~The~~Of those third quarter requests, repurchase proceeds of ~~$575,879~~$133,266 representing 13,327 shares were paid on ~~July~~October 21, 2022 in accordance with the terms of our Share Repurchase Plan with an average price paid per share of $10.00. The ~~$575,879~~$133,266 is included in other liabilities on the accompanying consolidated balance sheets as of ~~June~~September 30, 2022 included as part of this Quarterly Report on Form 10-Q. ~~We fulfilled all~~The additional 42,083 shares in repurchase

~~Table~~ requests made in the third quarter of ~~Contents~~

~~requests received during~~2022 were rejected by our Board of Directors and will be reconsidered for repurchase with the ~~six~~fourth quarter 2022 redemption requests. During the nine months ended ~~June 30, 2022, During the six months ended June~~September 30, 2022, we funded repurchases under our share repurchase plan with the net proceeds from our dividend reinvestment plan.


Month	Total Number of Shares Repurchased		Average Price Paid Per Share		Approximate Dollar Value of Shares Available That May Yet Be Repurchased Under the Program		Total Number of Shares Repurchased		Average Price Paid Per Share		Approximate Dollar Value of Shares Available That May Yet Be Repurchased Under the Program
January 2022		30,383	$	9.85		(1)		30,383	$	9.85		(1)
February 2022		—	$	—		(1)		—	$	—		(1)
March 2022		—	$	—		(1)		—	$	—		(1)
Total		30,383						30,383
April 2022		64,306	$	9.92		(1)		64,306	$	9.92		(1)
May 2022		—	$	—		(1)		—	$	—		(1)
June 2022		—	$	—		(1)		—	$	—		(1)
Total		64,306						64,306
Six Months Ended June 30, 2022		94,689
July 2022								57,614	$	10.00		(1)
August 2022								—	$	—		(1)
September 2022								—	$	—		(1)
Total								57,614
Nine Months Ended September 30, 2022								152,303

(1)

We limit the dollar value of shares that may be repurchased under the plan as described above. One of these limitations is that during each calendar year, our share repurchase plan limits the number of shares we may repurchase to those that we could purchase with the amount of the net proceeds from the sale of shares under our dividend reinvestment plan during the prior calendar year. However, we may increase or decrease the funding available for the repurchase of shares upon ten business days’ notice to our stockholders.

The above table is on a cash basis, but we record our shares repurchased, as described below, on an accrual basis. We repurchased ~~121,921~~135,248 shares pursuant to repurchase requests received during the ~~six~~nine months ended ~~June~~September 30, 2022, which represents an original investment of ~~$1,219,207~~$1,352,472 for ~~$1,214,053.~~$1,347,319. As of ~~June~~September 30, 2022, ~~$575,879~~$133,266 of the redemption proceeds had not yet been paid and was included in other liabilities on the accompanying consolidated balance sheets included as part of this Quarterly Report on Form 10-Q. During the year ended December 31, 2021 we repurchased 88,088 shares, which represents an original investment of $880,883 for $856,605. Based on the repurchase limits described above, as of ~~June~~September 30, 2022 we have ~~$1,856,279~~$1,723,013 available for eligible repurchases for the remainder of 2022 after accounting for the outstanding redemption proceeds not yet paid on ~~June~~September 30, 2022.

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Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Because this Quarterly Report on Form 10-Q is being filed within four business days after the applicable reporting event, the information below is being disclosed under Item 5 instead of under Item 1.01 (Entry into a Material Definitive Agreement) and Item 2.03 (Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant) of Form 8-K.

~~Holiday Inn Express & Suites Wichita Airport – Wichita, Kansas~~

~~Table of Contents~~

Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the Wichita HIEX Hotel Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T LP Units of the Operating Partnership. As required by the Wichita HIEX Contribution Agreement, the Operating Partnership deposited $50,000 into escrow as earnest money pending the closing or termination of the Wichita HIEX Contribution Agreement. Except in certain circumstances described in the Wichita HIEX Contribution Agreement, if the Operating Partnership fails to perform its obligations under the Wichita HIEX Contribution Agreement, it will forfeit the earnest money.

Upon closing, the parties will enter into an amendment to the amended and restated limited partnership agreement of the Operating Partnership to evidence the issuance of the Series T Limited Units to the Wichita HIEX Contributor. Such Series T Limited Units will be entitled to annual cash distributions of up to 3.0% of the value of the Series T Limited Units for the three years after closing, depending upon the net operating income (“NOI”) of the Wichita HIEX Hotel Property during each such applicable year. The Series T Limited Units will convert into Common Limited Units of the Operating Partnership 36 months after the closing. The number of Common Limited Units to be issued to the Wichita HIEX Contributor upon conversion will be based upon a capitalization rate applied to the then-current trailing 12-month NOI of the Wichita HIEX Hotel Property, less amounts incurred or accrued by the Operating Partnership for (i) any funds advanced as cash at closing, (ii) the Original Loan Balance, (iii) loan assumption or origination fees and related expenses, (iv) if applicable, costs of prepayment or defeasance and related expenses, (v) PIP and capital expenditures, (vi) operating cash infused by the General Partner and/or Partnership, (vii) any shortfall of the 10% minimum cumulative yield on General Partner’s invested capital, and (viii) any other unrealized or unreimbursed costs of operating the Contributed Asset.

The Wichita HIEX Contribution Agreement contains various covenants, representations and warranties from the respective parties. The acquisition of the Wichita HIEX Hotel Property by the Operating Partnership is subject to certain closing conditions, including the Operating Partnership’s assumption or refinancing of the existing debt secured by the Wichita HIEX Hotel Property. There can be no assurance that the Operating Partnership will complete the acquisition of the Wichita HIEX Hotel Property.

~~Hilton Garden Inn El Paso University – El Paso, Texas~~

~~Table of Contents~~

involving the Borrower, and (ii) recourse guarantee limited to the payment of all losses, damages, costs, litigation, demands, suits, or other expenses actually incurred by the lender as a result of certain “bad boy” events, including fraud, intentional misrepresentation, willful misconduct or gross negligence in connection with the loan documents or the El Paso HGI Hotel Property, breach of representations, warranties, covenants or indemnities in the loan documents concerning environmental matters, material physical waste of the El Paso HGI Hotel Property, all as further described in the Guaranty. The Operating Partnership also entered into a completion guaranty with the lender regarding new property improvement plan obligations.

~~On August 10, 2022, in connection with the acquisition and pursuant to the Loan Modification Agreement~~

~~Revolving Line of Credit – Legendary A-1 Bonds, LLC~~

On August 10, 2022, the Operating Partnership entered into a $5.0 million revolving line of credit loan agreement (the “A-1 Line of Credit”) with Legendary A-1 Bonds, LLC (the “A-1 Lender”), which is an affiliate of the Advisor which is owned by Norman Leslie and Corey Maple, each a director and executive officer of the Company and principal of the Advisor. The A-1 Line of Credit requires monthly payments of interest only beginning September 1, 2022, with all outstanding principal and interest amounts being due and payable at maturity on December 31, 2022. The A-1 Line of Credit has a fixed interest rate of 7.0% per annum. Outstanding amounts under the A-1 Line of Credit may be prepaid in whole or in part without penalty. The A-1 Line of Credit is secured by 500,000 unissued Common LP Units of the Operating Partnership. As of August 10, 2022, no amounts have been advanced by the A-1 Lender under the A-1 Line of Credit.None.

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Item 6. Exhibits


Exhibit No.		Description
3.1		Articles of Amendment and Restatement, dated as of June 1, 2018 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed May 14, 2020)

3.2			Articles Supplementary for Interval Common Stock (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed May 14, 2020)

3.3			Bylaws, dated of as April 9, 2018, as amended by Amendment No. 1 dated as of November 12, 2019 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed November 12, 2019)
3.13	*		Seventh Amendment to the Amended and Restated Limited Partnership Agreement of the Operating Partnership, effective as of March 29, 2022

3.14	*		Eighth Amendment to the Amended and Restated Limited Partnership Agreement of the Operating Partnership, effective as of August 3, 2022

3.15	*		Ninth Amendment to the Amended and Restated Limited Partnership Agreement of the Operating Partnership, effective as of August 25, 2022
3.16	*		Tenth Amendment to the Amended and Restated Limited Partnership Agreement of the Operating Partnership, effective as of August 25, 2022

4.1			Dividend Reinvestment Plan of the Registrant (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 10 filed August 8, 2019)

~~10.193~~		~~Change in Terms by and between the Operating Partnership and Western State Bank related to the revolving line of credit loan agreement, dated as of May 5, 2022~~ ~~(incorporated by reference to Exhibit 10.193 to the Company’s Quarterly Report on Form 10-Q filed May 16, 2022)~~

~~10.194~~		~~Contribution Agreement by and between the Operating Partnership and W&K Hotels, LLC for the Manhattan Four Points, dated as of May 9, 2022~~ ~~(incorporated by reference to Exhibit 10.194 to the Company’s Quarterly Report on Form 10-Q filed May 16, 2022)~~

~~10.195~~		~~Contribution Agreement by and between the Operating Partnership and W&K Hotels, LLC for the Lawrence DoubleTree, dated as of May 9, 2022~~ ~~(incorporated by reference to Exhibit 10.195 to the Company’s Quarterly Report on Form 10-Q filed May 16, 2022)~~

~~10.202~~		~~Loan Agreement by and between LF3 El Paso Airport, LLC, LF3 El Paso Airport TRS, LLC and Western Alliance Bank related to the El Paso Airport Property, dated as of May 13, 2022~~ ~~(incorporated by reference to Exhibit 10.202 to the Company’s Quarterly Report on Form 10-Q filed May 16, 2022)~~

~~10.203~~		~~Guaranty by the Operating Partnership for the benefit of Western Alliance Bank related to the El Paso Airport Property, dated as of May 13, 2022~~ ~~(incorporated by reference to Exhibit 10.203 to the Company’s Quarterly Report on Form 10-Q filed May 16, 2022)~~

~~10.204~~		Operating Lease Subordination Agreement by and between LF3 El Paso Airport, LLC, LF3 El Paso Airport TRS, LLC and Western Alliance Bank related to the El Paso Airport Property, dated as of May 13, 2022 ~~(incorporated by reference to Exhibit 10.204 to the Company’s Quarterly Report on Form 10-Q filed May 16, 2022)~~

~~10.205~~		~~Deed of Trust by and between LF3 El Paso Airport, LLC and Western Alliance Bank related to the El Paso Airport Property, dated as of May 13, 2022~~ ~~(incorporated by reference to Exhibit 10.205 to the Company’s Quarterly Report on Form 10-Q filed May 16, 2022)~~

~~10.206~~		~~Security Agreement by and between LF3 El Paso Airport, LLC, LF3 El Paso Airport TRS, LLC and Western Alliance Bank related to the El Paso Airport Property, dated as of May 13, 2022~~ ~~(incorporated by reference to Exhibit 10.206 to the Company’s Quarterly Report on Form 10-Q filed May 16, 2022)~~

~~Table of Contents~~

~~10.207~~	~~Term Loan Note by and between LF3 El Paso Airport, LLC, LF3 El Paso Airport TRS, LLC and Western Alliance Bank related to the El Paso Airport Property, dated as of May 13, 2022~~ ~~(incorporated by reference to Exhibit 10.207 to the Company’s Quarterly Report on Form 10-Q filed May 16, 2022)~~

~~10.208~~	~~Assignment of Management Agreement by and between LF3 El Paso Airport TRS, LLC, Aimbridge Hospitality, LLC and Western Alliance Bank related to the El Paso Airport Property, dated as of May 13, 2022~~ ~~(incorporated by reference to Exhibit 10.208 to the Company’s Quarterly Report on Form 10-Q filed May 16, 2022)~~

~~10.209~~	~~Environmental Indemnity Agreement by and between LF3 El Paso Airport, LLC, LF3 El Paso Airport TRS, LLC and Western Alliance Bank related to the El Paso Airport Property, dated as of May 13, 2022~~ ~~(incorporated by reference to Exhibit 10.209 to the Company’s Quarterly Report on Form 10-Q filed May 16, 2022)~~

~~10.211~~	~~Second Amendment to Contribution Agreement by and between the Operating Partnership and RLC V RIFC, LLC for the Residence Inn by Marriott Fort Collins, dated as of April 29, 2022~~ ~~(incorporated by reference to Exhibit 10.211 to the Company’s Quarterly Report on Form 10-Q filed May 16, 2022)~~

~~10.212~~	~~Third Amendment to Contribution Agreement by and between the Operating Partnership and RLC V RIFC, LLC for the Residence Inn by Marriott Fort Collins, dated as of May 10, 2022~~ ~~(incorporated by reference to Exhibit 10.212 to the Company’s Quarterly Report on Form 10-Q filed May 16, 2022)~~

~~10.214~~	~~Second Amendment to Contribution Agreement by and between the Operating Partnership and RLC-IV CYFC, LLC for the Courtyard by Marriott Fort Collins, dated as of April 29, 2022~~ ~~(incorporated by reference to Exhibit 10.214 to the Company’s Quarterly Report on Form 10-Q filed May 16, 2022)~~

~~10.215~~	~~Third Amendment to Contribution Agreement by and between the Operating Partnership and RLC-IV CYFC, LLC for the Courtyard by Marriott Fort Collins, dated as of May 10, 2022~~ ~~(incorporated by reference to Exhibit 10.215 to the Company’s Quarterly Report on Form 10-Q filed May 16, 2022)~~

10.216*	~~Fourth Amendment to Contribution Agreement by and between the Operating Partnership and RLC-IV CYFC, LLC for the Courtyard by Marriott Fort Collins, dated as of June 8, 2022~~

10.217*10.217		Fifth Amendment to Contribution Agreement by and between the Operating Partnership and RLC-IV CYFC, LLC for the Courtyard by Marriott Fort Collins, dated as of August 3, 2022 (incorporated by reference to Exhibit 10.217 to the Company’s Quarterly Report on Form 10-Q filed August 11, 2022)

10.219*10.219		Loan Agreement by and among LF3 RIFC, LLC, LF3 RIFC TRS, LLC, and Legendary A-1 Bonds, LLC related to the Residence Inn Fort Collins Property, dated as of August 3, 2022 (incorporated by reference to Exhibit 10.219 to the Company’s Quarterly Report on Form 10-Q filed August 11, 2022)

10.220*10.220		Tranche 1 Promissory Note by LF3 RIFC, LLC, LF3 RIFC TRS, LLC, and Legendary A-1 Bonds, LLC related to the Residence Inn Fort Collins Property, dated as of August 3, 2022 (incorporated by reference to Exhibit 10.220 to the Company’s Quarterly Report on Form 10-Q filed August 11, 2022)

10.221*10.221		Tranche 2 Promissory Note by LF3 RIFC, LLC, LF3 RIFC TRS, LLC, and Legendary A-1 Bonds, LLC related to the Residence Inn Fort Collins Property, dated as of August 3, 2022 (incorporated by reference to Exhibit 10.221 to the Company’s Quarterly Report on Form 10-Q filed August 11, 2022)

10.222*10.222		Tranche 3 Promissory Note by LF3 RIFC, LLC, LF3 RIFC TRS, LLC, and Legendary A-1 Bonds, LLC related to the Residence Inn Fort Collins Property, dated as of August 3, 2022 (incorporated by reference to Exhibit 10.222 to the Company’s Quarterly Report on Form 10-Q filed August 11, 2022)

10.223*10.223		Guaranty Agreement by the Operating Partnership in favor of Legendary A-1 Bonds related to the Residence Inn Fort Collins Loan, dated as of August 3, 2022 (incorporated by reference to Exhibit 10.223 to the Company’s Quarterly Report on Form 10-Q filed August 11, 2022)

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10.224*10.224		Environmental Indemnity Agreement by and between LF3 RIFC, LLC, LF3 RIFC TRS, LLC, the Operating Partnership and Legendary A-1 Bonds, LLC related to the Residence Inn Fort Collins Property, dated as of August 3, 2022 (incorporated by reference to Exhibit 10.224 to the Company’s Quarterly Report on Form 10-Q filed August 11, 2022)

10.225*10.225		Assignment of Leases and Rents by and between LF3 RIFC, LLC, LF3 RIFC TRS, LLC, and Legendary A-1 Bonds, LLC related to the Residence Inn Fort Collins Property, dated as of August 3, 2022 (incorporated by reference to Exhibit 10.225 to the Company’s Quarterly Report on Form 10-Q filed August 11, 2022)

10.226* 10.226		Deed of Trust, Security Agreement – Financing Statement by LF3 RIFC, LLC and LF3 RIFC TRS, LLC for the benefit of Legendary A-1 Bonds, LLC related to the Residence Inn Fort Collins Property, dated as of August 3, 2022 (incorporated by reference to Exhibit 10.226 to the Company’s Quarterly Report on Form 10-Q filed August 11, 2022)

10.227*10.227		Contribution Agreement by and between the Operating Partnership and Wichita Airport Hospitality, LLC for the Holiday Inn Express & Suites Wichita Airport, dated as of August 5, 2022 (incorporated by reference to Exhibit 10.227 to the Company’s Quarterly Report on Form 10-Q filed August 11, 2022)

10.228*10.228		Loan Agreement for Revolving Line of Credit by and among Lodging Fund REIT III OP, LP and Legendary A-1 Bonds, LLC, dated August 9, 2022 (incorporated by reference to Exhibit 10.228 to the Company’s Quarterly Report on Form 10-Q filed August 11, 2022)

10.229*10.229		Promissory Note by Lodging Fund REIT III OP, LP and Legendary A-1 Bonds, LLC, dated August 9, 2022 (incorporated by reference to Exhibit 10.229 to the Company’s Quarterly Report on Form 10-Q filed August 11, 2022)

31.1*10.230	*	First Amendment to Contribution Agreement by and between the Operating Partnership and Smith/Curry Hotel Group HH-Harris, LLC, for the Charlotte HGI Hotel Property, dated as of June 8, 2022.

10.231	*	First Amendment to Contribution Agreement by and between the Operating Partnership and Smith/Curry Hotel Group Pineville II, LLC, for the Pineville HGI Hotel Property, dated as of June 8, 2022.

10.232	*	Loan Agreement by and among Western Alliance Bank and LF3 Charlotte, LLC and LF3 Charlotte TRS, LLC related to the Charlotte HGI Hotel Property, dated as of August 25, 2022

10.233	*	Term Loan Note made by LF3 Charlotte, LLC and LF3 Charlotte TRS, LLC for the benefit of Western Alliance Bank, related to the Charlotte HGI Hotel Property, dated as of August 25, 2022

10.234	*	DLOC Note made by LF3 Charlotte, LLC and LF3 Charlotte TRS, LLC for the benefit of Western Alliance Bank, related to the Charlotte HGI Hotel Property, dated as of August 25, 2022

10.235	*	Guaranty by the Operating Partnership for the benefit of Western Alliance Bank, related to the Charlotte HGI Hotel Property, dated as of August 25, 2022

10.236	*	Guaranty by LF3 Pineville 2, LLC and LF3 Pineville 2 TRS, LLC for the benefit of Western Alliance Bank, related to the Charlotte HGI Hotel Property, dated as of August 25, 2022

10.237	*	Loan Agreement by and among Western Alliance Bank and LF3 Pineville 2, LLC and LF3 Pineville 2 TRS, LLC related to the Pineville HGI Hotel Property, dated as of August 25, 2022

Table of Contents

10.238	*	Term Loan Note made by LF3 Pineville 2, LLC and LF3 Pineville 2 TRS, LLC for the benefit of Western Alliance Bank, related to the Pineville HGI Hotel Property, dated as of August 25, 2022

10.239	*	DLOC Note made by LF3 Pineville 2, LLC and LF3 Pineville 2 TRS, LLC for the benefit of Western Alliance Bank, related to the Pineville HGI Hotel Property, dated as of August 25, 2022

10.240	*	Guaranty by the Operating Partnership for the benefit of Western Alliance Bank, related to the Pineville HGI Hotel Property, dated as of August 25, 2022

10.241	*	Guaranty by LF3 Charlotte, LLC and LF3 Charlotte TRS, LLC for the benefit of Western Alliance Bank, related to the Pineville HGI Hotel Property, dated as of August 25, 2022

10.242	*	Deed of Trust made by LF3 Charlotte, LLC and LF3 Charlotte TRS, LLC for the benefit of Western Alliance Bank, related to the Charlotte HGI Hotel Property, dated as of August 25, 2022

10.243	*	Deed of Trust made by LF3 Pineville 2, LLC and LF3 Pineville 2 TRS, LLC for the benefit of Western Alliance Bank, related to the Pineville HGI Hotel Property, dated as of August 25, 2022
10.244	*	Environmental Indemnity Agreement between Western Alliance Bank and LF3 Charlotte, LLC and LF3 Charlotte TRS, LLC related to the Charlotte HGI Hotel Property, dated as of August 25, 2022

10.245	*	Environmental Indemnity Agreement between Western Alliance Bank and LF3 Pineville 2, LLC and LF3 Pineville 2 TRS, LLC related to the Pineville HGI Hotel Property, dated as of August 25, 2022
10.246	*	Management Agreement between LF3 Charlotte TRS, LLC and HP Hotel Management, Inc. related to the Charlotte HGI Hotel Property, dated as of August 25, 2022

10.247	*	Management Agreement between LF3 Pineville 2 TRS, LLC and HP Hotel Management, Inc. related to the Pineville HGI Hotel Property, dated as of August 25, 2022

10.248	*	Loan Modification and Reinstatement Agreement among Wilmington Trust, National Association, as Trustee, High Desert Investors, LP, the Operating Partnership, the original indemnitors, and Corey R. Maple, related to the El Paso HGI Hotel Property, dated as of August 10, 2022

10.249	*	Reorganization and Membership Interest Purchase Agreement between Lodging Fund REIT III OP, LP and High Desert Investors, LP, dated as of August 10, 2022
10.250	*	Amended and Restated Guaranty of Recourse Obligations by Corey R. Maple for the benefit of Wilmington Trust, National Association, as Trustee, related to the El Paso HGI Hotel Property, dated as of August 10, 2022

10.251	*	Amended and Restated Environmental Indemnity Agreement by Corey R. Maple and High Desert Investors, LP in favor of Wilmington Trust, National Association, as Trustee, related to the El Paso HGI Hotel Property, dated as of August 10, 2022
10.252	*	First Amendment to Fourth Amended and Restated Limited Liability Company Operating Agreement of High Desert Garden Holdings, LLC, between ASI Capital, LLC, High Desert Hospitality, LP, High Desert Hospitality, LLC, Roma Commercial, Inc., VB Hotel Group A, LLC, and the Operating Partnership, related to the El Paso HGI Hotel Property, dated as of August 10, 2022

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10.253	*	Membership Interest Transfer Agreement between Roma Commercial, Inc., ASI Capital, LLC, VB Hotel Group A, LLC, and the Operating Partnership, related to the El Paso HGI Hotel Property, dated as of August 10, 2022

10.254	*	Completion Guaranty Agreement by the Operating Partnership for the benefit of Wilmington Trust, N.A., related to the El Paso HGI Hotel Property, dated as of August 10, 2022

10.255	*	Security Agreement made by LF3 Charlotte, LLC and LF3 Charlotte TRS, LLC for the benefit of Western Alliance Bank, related to the Charlotte HGI Hotel Property, dated as of August 25, 2022

10.256	*	Security Agreement made by LF3 Pineville 2, LLC and LF3 Pineville 2 TRS, LLC for the benefit of Western Alliance Bank, related to the Pineville HGI Hotel Property, dated as of August 25, 2022
10.257	*	Assignment, Consent and Subordination Regarding Management Agreement, among LF3 Charlotte TRS, LLC, Western Alliance Bank, and HP Hotel Management, Inc., related to the Charlotte HGI Hotel Property, dated as of August 25, 2022
10.258	*	Assignment, Consent and Subordination Regarding Management Agreement, among LF3 Pineville 2 TRS, LLC, Western Alliance Bank, and HP Hotel Management, Inc., related to the Pineville HGI Hotel Property, dated as of August 25, 2022

31.1	*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*31.2	*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1**32.1	**	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002

99.1		Share Repurchase Plan of the Registrant (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form 10 filed August 8, 2019)

* Filed herewith.

** Furnished herewith.



101.INS		Inline XBRL Instance Document

101.SCH		Inline XBRL Taxonomy Extension Schema

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		LODGING FUND REIT III, INC.

Date:	~~August 11, 2022~~March 27, 2024	By:	/s/ ~~Corey R. Maple~~Norman H. Leslie
			~~Corey R. Maple~~Norman H. Leslie
			~~Chairman of the Board,~~ President, Chief Executive Officer, Secretary, Chief Investment Officer, Treasurer and ~~Secretary~~Director
			(principal executive officer)

Date:	~~August 11, 2022~~March 27, 2024	By:	/s/ Samuel C. Montgomery
			Samuel C. Montgomery
			Chief Financial Officer
			(principal financial officer)

6878


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Revenues
Room revenue	$	11,762,267	$	6,174,243	$	20,576,362	$	9,895,034
Other revenue		569,157		164,269		1,050,865		228,639
Total revenue		12,331,424		6,338,512		21,627,227		10,123,673

Expenses
Property operations		5,842,004		2,561,807		10,622,477		4,304,055
General and administrative		2,395,956		1,692,370		4,620,423		3,038,212
Sales and marketing		815,144		522,307		1,395,510		827,761
Franchise fees		1,081,528		503,718		1,898,724		800,070
Management fees		933,692		559,065		1,728,788		997,155
Acquisition expense		(6,213)		20,977		7,304		48,443
Depreciation and amortization		1,695,354		1,151,739		3,319,594		2,154,791
Total expenses		12,757,465		7,011,983		23,592,820		12,170,487

Other Income (Expense)
Other income (expense), net		(258,656)		(97,008)		(458,049)		(181,233)
PPP loan forgiveness		—		801,800		—		1,564,900
Interest expense		(2,232,972)		(1,014,443)		(4,646,064)		(1,961,516)
Total other income (expense)		(2,491,628)		(309,651)		(5,104,113)		(577,849)

Net Loss Before Income Taxes		(2,917,669)		(983,122)		(7,069,706)		(2,624,663)

Income tax (expense) benefit		(224,582)		391,346		427,020		366,346

Net Loss		(3,142,251)		(591,776)		(6,642,686)		(2,258,317)

Net loss attributable to non-controlling interest - Series B LP Units		(156,779)		(29,462)		(331,785)		(112,440)
Net loss attributable to non-controlling interest - Series GO LP Units		(512,858)		(80,826)		(1,136,951)		(240,762)
Net loss attributable to non-controlling interest - Common LP Units		(144,719)		—		(323,358)		—

Net Loss Attributable to Common Stockholders	$	(2,327,895)	$	(481,488)	$	(4,850,592)	$	(1,905,115)

Basic and Diluted Net Loss Per Share of Common Stock	$	(0.26)	$	(0.06)	$	(0.56)	$	(0.24)
Weighted-average Shares of Common Stock Outstanding, Basic and Diluted		8,881,540		7,940,665		8,684,253		7,846,869