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 30, ~~2021~~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 ~~13, 2021,~~11, 2022, there were ~~8,147,235~~9,286,897 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 30, ~~2021~~2022 and December 31, ~~2020~~2021	2
		Consolidated Statements of Operations for the Three and Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	3
		Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	4
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	5
		Notes to the Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2935
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4756
	Item 4.	Controls and Procedures	4757

PART II.	OTHER INFORMATION		4858
	Item 1.	Legal Proceedings	4858
	Item 1A.	Risk Factors	4858
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4858
	Item 3.	Defaults upon Senior Securities	5162
	Item 4.	Mine Safety Disclosures	5162
	Item 5.	Other Information	5162
	Item 6.	Exhibits	5165

SIGNATURES			5868

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LODGING FUND REIT III, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

June 30,

December 31,

2021

2020
Assets




Investment in hotel properties, net of accumulated depreciation of $6,866,310 and $4,712,578

$
133,709,634

$
100,744,186
Cash and cash equivalents

6,572,353

7,960,159
Restricted cash

7,092,968

4,568,908
Accounts receivable, net

662,342

114,282
Franchise fees, net

1,178,252

955,238
Prepaid expenses and other assets

2,674,267

2,071,708
Total Assets

$
151,889,816

$
116,414,481

Liabilities and Equity




Debt, net

$
86,015,708

$
63,924,719
PPP Loans

119,500

763,100
Accounts payable

1,454,560

670,548
Accrued expenses

1,856,380

1,560,931
Distributions payable

1,391,786

1,327,912
Due to related parties

3,140,298

1,904,051
Other liabilities

1,159,394

653,292
Total liabilities

95,137,626

70,804,553

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; 7,963,220 and 7,611,653 shares issued and outstanding

79,631

76,116
Additional paid-in capital

77,973,779

74,610,627
Accumulated deficit

(37,209,546)

(31,855,995)
Total stockholders' equity

40,843,864

42,830,748
Non-controlling interest - Series B LP Units

(1,262,988)

(1,005,785)
Non-controlling interest - Series GO LP Units

8,382,679

3,784,965
Non-controlling interest - Series T LP Units

8,788,635

—
Total equity

56,752,190

45,609,928
Total Liabilities and Equity

$
151,889,816

$
116,414,481


	June 30,		December 31,
	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
Cash and cash equivalents		7,085,493		7,866,401
Restricted cash		6,774,233		6,469,999
Accounts receivable, net		767,712		748,364
Franchise fees, net		1,871,864		1,459,641
Prepaid expenses and other assets		5,248,366		4,360,555
Total Assets	$	239,174,110	$	190,329,735

Liabilities and Equity
Debt, net	$	131,974,319	$	103,126,884
Finance lease liability		8,071,071		—
Accounts payable		2,780,221		1,549,380
Accrued expenses		2,952,841		2,621,520
Distributions payable		597,972		495,657
Due to related parties		3,782,289		2,580,326
Other liabilities		1,127,378		7,499,568
Total liabilities		151,286,091		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
Additional paid-in capital		88,934,679		81,655,994
Accumulated deficit		(53,232,218)		(43,586,952)
Total stockholders' equity		35,793,516		38,152,523
Non-controlling interest – Series B LP Units		(2,055,453)		(1,563,489)
Non-controlling interest – Series GO LP Units		17,161,824		12,498,527
Non-controlling interest – Series T LP Units		31,661,048		21,931,757
Non-controlling interest – Common LP Units		5,327,084		1,437,082
Total equity		87,888,019		72,456,400
Total Liabilities and Equity	$	239,174,110	$	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,				For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Revenues
Room revenue	$	6,174,243	$	2,610,711	$	9,895,034	$	6,388,441	$	11,762,267	$	6,174,243	$	20,576,362	$	9,895,034
Other revenue		164,269		49,843		228,639		104,619		569,157		164,269		1,050,865		228,639
Total revenue		6,338,512		2,660,554		10,123,673		6,493,060		12,331,424		6,338,512		21,627,227		10,123,673

Expenses
Property operations		2,561,807		1,043,394		4,304,055		2,693,707		5,842,004		2,561,807		10,622,477		4,304,055
General and administrative		1,692,370		1,113,408		3,038,212		2,501,692		2,395,956		1,692,370		4,620,423		3,038,212
Sales and marketing		522,307		226,532		827,761		597,602		815,144		522,307		1,395,510		827,761
Franchise fees		503,718		210,856		800,070		530,757		1,081,528		503,718		1,898,724		800,070
Management fees		559,065		346,029		997,155		741,233		933,692		559,065		1,728,788		997,155
Acquisition expense		20,977		264,999		48,443		337,994		(6,213)		20,977		7,304		48,443
Depreciation		1,151,739		872,733		2,154,791		1,691,134
Depreciation and amortization										1,695,354		1,151,739		3,319,594		2,154,791
Total expenses		7,011,983		4,077,951		12,170,487		9,094,119		12,757,465		7,011,983		23,592,820		12,170,487

Other Income (Expense)
Other income (expense), net		704,792		389,568		1,383,667		317,044		(258,656)		(97,008)		(458,049)		(181,233)
PPP loan forgiveness										—		801,800		—		1,564,900
Interest expense		(1,014,443)		(827,483)		(1,961,516)		(1,563,249)		(2,232,972)		(1,014,443)		(4,646,064)		(1,961,516)
Total other income (expense)		(309,651)		(437,915)		(577,849)		(1,246,205)		(2,491,628)		(309,651)		(5,104,113)		(577,849)

Net Loss Before Income Taxes		(983,122)		(1,855,312)		(2,624,663)		(3,847,264)		(2,917,669)		(983,122)		(7,069,706)		(2,624,663)

Income tax benefit (expense)		391,346		(351,870)		366,346		256,046
Income tax (expense) benefit										(224,582)		391,346		427,020		366,346

Net Loss		(591,776)		(2,207,182)		(2,258,317)		(3,591,218)		(3,142,251)		(591,776)		(6,642,686)		(2,258,317)

Net loss attributable to non-controlling interest - Series B LP Units		(29,462)		(110,111)		(112,440)		(179,267)		(156,779)		(29,462)		(331,785)		(112,440)
Net loss attributable to non-controlling interest - Series GO LP Units		(80,826)		—		(240,762)		—		(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	$	(481,488)	$	(2,097,071)	$	(1,905,115)	$	(3,411,951)	$	(2,327,895)	$	(481,488)	$	(4,850,592)	$	(1,905,115)

Basic and Diluted Net Loss Per Share of Common Stock	$	(0.06)	$	(0.29)	$	(0.24)	$	(0.50)	$	(0.26)	$	(0.06)	$	(0.56)	$	(0.24)
Weighted-average Shares of Common Stock Outstanding, Basic and Diluted		7,940,665		7,109,431		7,846,869		6,824,211		8,881,540		7,940,665		8,684,253		7,846,869

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

Additional

Total

Non-controlling

Non-controlling

Non-controlling

Par

Paid-In

Accumulated

Stockholders'

Interest -

Interest

Interest

Total


Shares

Value

Capital

Deficit

Equity

Series B LP Units

Series GO LP Units

Series T LP Units

Equity
Balance at December 31, 2019

6,005,743

$
60,057

$
58,961,101

$
(18,396,163)

$
40,624,995

$
(439,985)

$
—

—

$
40,185,010
Issuance of common stock

956,897

9,569

9,371,964

—

9,381,533

—

—

—

9,381,533
Offering costs

—

—

—

(1,520,647)

(1,520,647)

—

—

—

(1,520,647)
Distributions declared ($0.175 per share)

—

—

—

(1,144,602)

(1,144,602)

(60,308)

—

—

(1,204,910)
Distributions reinvested

44,030

440

417,846

—

418,286

—

—

—

418,286
Redemptions

(10,000)

(100)

(91,900)

—

(92,000)

—

—

—

(92,000)
Net loss

—

—

—

(1,314,880)

(1,314,880)

(69,156)

—

—

(1,384,036)
Balance at March 31, 2020

6,996,670

69,966

68,659,011

(22,376,292)

46,352,685

(569,449)

—

—

45,783,236
Issuance of common stock

197,824

1,978

1,931,108

—

1,933,086

—

—

—

1,933,086
Offering costs

—

—

—

(602,779)

(602,779)

—

—

—

(602,779)
Distributions declared ($0.175 per share)

—

—

—

(1,247,245)

(1,247,245)

(65,941)

—

—

(1,313,186)
Net loss

—

—

—

(2,097,071)

(2,097,071)

(110,111)

—

—

(2,207,182)
Balance at June 30, 2020

7,194,494

71,944

70,590,119

(26,323,387)

44,338,676

(745,501)

—

—

43,593,175

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


	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

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,


2021

2020
Cash Flows from Operating Activities:




Net loss

$
(2,258,317)

$
(3,591,218)
Adjustments to reconcile net loss to cash used in operating activities:

Depreciation

2,154,791

1,691,134
Amortization

174,301

131,022
Gain on PPP loan forgiveness

(1,564,900)

—
Deferred tax assets, net

(391,487)

(256,046)
Change in operating assets and liabilities:

Accounts receivable

(548,060)

(210,792)
Franchise fees

(262,500)

(300,000)
Prepaid expenses and other assets

(211,072)

759,643
Accounts payable

723,865

362,169
Accrued expenses

303,449

591,148
Due to related parties

936,613

(490,133)
Other liabilities

504,457

(178,229)
Net cash used in operating activities

(438,860)

(1,491,302)
Cash Flows from Investing Activities:




Acquisitions of hotel properties

(2,221,365)

(27,190,749)
Improvements and additions to hotel properties

(1,210,239)

(648,403)
Net cash used in investing activities

(3,431,604)

(27,839,152)
Cash Flows from Financing Activities:




Proceeds from mortgage debt

—

14,017,730
Proceeds from lines of credit

1,000,000

6,200,000
Proceeds from PPP loans

921,300

763,100
Principal payments on mortgage debt

(466,943)

(316,933)
Principal payments on lines of credit

(1,000,000)

(5,009,363)
Payments of deferred financing costs

(475,238)

(633,572)
Proceeds from issuance of common stock

1,578,050

11,314,922
Proceeds from issuance of GO Units

5,530,300

—
Payments of offering costs

(1,182,751)

(2,107,543)
Payments for shares redeemed

(400,291)

(92,000)
Distributions paid

(497,709)

(665,234)
Net cash provided by financing activities

5,006,718

23,471,107
Net change in cash, cash equivalents, and restricted cash

1,136,254

(5,859,347)
Beginning Cash, Cash Equivalents, and Restricted Cash

12,529,067

16,174,371
Ending Cash, Cash Equivalents, and Restricted Cash

$
13,665,321

$
10,315,024


	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

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,

2021

2020
Supplemental Disclosure of Cash Flow Information:






Interest paid, net of amounts capitalized

$
1,951,174

$
1,278,813
Income taxes paid

$
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

$
—
Debt issued for acquisition of Aurora property

$
15,000,000

$
—
Debt issued for acquisition of El Paso property

$
7,900,000

$
—
Debt assumed in connection with hotel property acquisition

$
—

$
9,998,437
Offering costs included in accounts payable

$
60,147

$
148,396
Offering costs included in due to related parties

$
154,871

$
(108,931)
Offering costs included in accrued expenses

$
(8,000)

$
(23,582)
Distributions included in due to related parties

$
144,763

$
126,249
Reinvested distributions

$
2,188,908

$
417,983

Reconciliation of Cash, Cash Equivalents, and Restricted Cash:

Cash and cash equivalents, beginning of period

$
7,960,159

$
10,898,556
Restricted cash, beginning of period

4,568,908

5,275,815
Cash, cash equivalents, and restricted cash, beginning of period

$
12,529,067

$
16,174,371

Cash and cash equivalents, end of period

$
6,572,353

$
5,903,527
Restricted cash, end of period

7,092,968

4,411,497
Cash, cash equivalents, and restricted cash, end of period

$
13,665,321

$
10,315,024


	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

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 1 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 3 voting classes of partnership units, Common General Partnership Units (“GP Units”), Interval Units and Common Limited Partnership Units (“Common LP Units”), and 3 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 30, ~~2021~~2022 and December 31, ~~2020.~~2021. As of June 30, ~~2021 and December 31, 2020,~~2022, there were 0612,100 outstanding Common LP Units, or0 outstanding Interval Units, ~~and~~ there were 1,000 outstanding Series B LP Units, all of which were owned by the Advisor. As of June 30, 2021 and December 30, 2020, there were 1,253,758 and 0 Series T LP Units outstanding, respectively. As of June 30, 2021 and December 30, 2020, there were 1,451,900 and 654,868Advisor, 3,125,041 Series GO LP Units ~~outstanding, respectively.~~and 3,542,699 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 30, ~~2021,~~2022, the Company had issued and sold ~~8,069,405~~9,379,886 shares of common stock, including ~~623,223~~925,174 shares attributable to the DRIP, and received aggregate proceeds of ~~$78.0~~$91.7 million. ~~For the year ended December 31, 2020,~~As of June 30, 2022, the Company had repurchased ~~64,190~~274,199 shares, which represents an original investment of ~~$641,898, including $16,898 of DRIP shares,~~$2,741,988 for $590,547 under the Company’s Share Repurchase Plan. During the six months ended June 30, 2021, the Company repurchased 41,996 shares, which represents an original investment of $379,380, including $31,603 of DRIP shares, for $400,291$2,661,203 under the Company’s Share Repurchase Plan. As of June 30, ~~2021, $400,291~~2022, $575,879 of the redemption proceeds had not yet been paid and ~~was~~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 iswas a maximum offering of $30,000,000, which ~~may~~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. AsThe Company’s board of ~~June 30, 2021,~~directors allowed the Interval Share Offering to expire on March 31, 2022. The Company ~~had~~did not ~~issued~~issue or ~~sold~~sell any shares of Interval Common ~~Stock.~~

Stock in the Offering.

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~~1933,~~Company’s board of directors terminated the GO Unit Offering as ~~amended.~~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 30, ~~2021,~~2022, the ~~Company~~Operating Partnership had issued and sold ~~1,451,900~~3,125,041 Series GO LP Units and received aggregate proceeds of ~~$10.0~~$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 36 months 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 30, 2022, the Company had recorded an aggregate value of $31.7 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 30, 2022, the Operating Partnership had issued and sold 612,100 Common LP Units in connection with property contributions.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation—The accompanying ~~unaudited~~ 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 ~~interim~~annual financial information. Accordingly, the unaudited financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. The financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, and which, in the opinion of management, are necessary for a fair and consistent presentation of the results for such periods. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

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 the Company represent a ~~noncontrolling~~non-controlling interest, which is 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, ~~there was a~~the global outbreak of ~~a novel coronavirus, or~~ COVID-19 ~~which~~was identified and has since spread to ~~over 200 countries~~nearly every country and ~~territories,~~territory, including ~~the United States, and has spread to~~ every state in the United States. ~~In 2020, the World Health Organization designated~~The COVID-19 ~~as a~~ pandemic and ~~numerous countries, including~~ the ~~United States, declared national emergencies with respect~~related governmental restrictions instituted to ~~COVID-19. The impact~~slow the spread of the ~~outbreak on the U.S. and world economies~~virus continues to evolve, and since the outbreak, there have been international mandates, and mandates in the United States from federal, state and local authorities, instituting quarantines and stay-at-home orders, closing schools, and instituting restrictions on travel and/or limiting operations of non-essential offices and retail centers. Such actions adversely impacted and continue to adversely impact many industries, with the travel and hospitality industries being particularly adversely affected. Although ~~the Company’s~~our hotel properties have remained open through the ~~onset of the~~ pandemic, ~~and despite an improvement in the second quarter of 2021, the Company’s~~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, ~~2021,~~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, ~~2021~~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

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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, ~~15 years for building improvements,~~ 40 years for buildings and building improvements and three to seven 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 ~~$426,669~~$608,779 and ~~$264,876~~$426,669 for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and is included in sales and marketing in the consolidated ~~statement~~statements of operations.

Non-controlling ~~Interests~~Interest—Non-controlling interests represent the portion of equity ~~related to shares with limited voting interest.~~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

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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 ~~federally~~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. ~~As of June 30, 2021 and December 31, 2020, restricted cash on the accompanying consolidated balance sheet included $1.7 million and $1.9 million, respectively, of earnest money deposits.~~

Accounts ~~Receivable—~~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 ~~offering~~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. ~~For the six months ended June 30, 2021 and 2020, asset management fees were charged only on the value of investments in hotel properties.~~

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.

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 ~~property improvement plan (“PIP”)~~PIP costs. For transactions determined to be asset acquisitions, these costs are capitalized as part of the overall cost of the project. For transactions

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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 and $0 for the six months ended June 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.

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

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and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement.

~~Recent~~ Accounting ~~Pronouncements~~Standards Recently Adopted—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 ~~FASB~~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 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. ~~ASU No. 2016-02 is~~The Company adopted this standard effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. We plan to adopt ASU 2016-02 for the fiscal year ending December 31, 2022, and for interim periods beginning on January 1, ~~2022. We do not anticipate any reclassifications or significant impacts on our consolidated financial statements~~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 ~~result~~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 ~~this adoption.~~

~~3. INVESTMENT IN HOTEL PROPERTIES~~

~~Investment~~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 ~~hotel properties as of June 30, 2021 and December 31, 2020 consisted~~higher expense recognition during the earlier years of the ~~following:~~

June 30,

December 31,

2021

2020
Land and land improvements

$
16,478,142

$
10,324,772
Building and building improvements

111,166,117

85,213,846
Furniture, fixtures, and equipment

12,874,246

8,927,694
Construction in progress

57,439

990,452
Investment in hotel properties, at cost

140,575,944

105,456,764
Less: accumulated depreciation

(6,866,310)

(4,712,578)
Investment in hotel properties, net

$
133,709,634

$
100,744,186

Aslease and lower expense during the later years of ~~June 30, 2021,~~the lease. In addition to recording operating and financing right-of-use assets and lease liabilities, the Company ~~owned 9 hotel properties with an aggregate of 1,022 rooms located in 7 states.~~

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 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 23 properties during the six months ended June 30, ~~2021~~2022 and 24 properties during the year ended December 31, ~~2020.~~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 months ended June 30, ~~2021.~~2022.


2021 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
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	%
Hampton Inn & Suites (the “Fargo Property”)															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	%
Fairfield Inn & Suites (the "Lakewood Property")															Limited-Service	Lakewood, CO	March 29, 2022	142		18,800,000	(3)		390,753		19,190,753	100	%
				316	$	33,910,000		$	819,148	$	34,729,148							322	$	45,360,000		$	1,026,209	$	46,386,209

(1)

~~(1)~~

Includes the issuance of ~~1,103,758~~$4,091,291 in Series T LP Units of the Operating ~~Partnership~~Partnership.

(2)

~~(2)~~

Includes the issuance of ~~150,000~~$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~~Partnership.

The table below outlines the details of the properties acquired during the year ended December 31, ~~2020.~~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.

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2020 Acquisitions








Number








Date

of Guest

Purchase

Transaction

%

Hotel

Property Type

Location

Acquired

Rooms

Price

Costs

Total

Interest

Fairfield Inn & Suites
(the "Lubbock Fairfield Inn Property")

Limited Service

Lubbock, TX

January 8, 2020

101

$
15,150,000

$
496,431

$
15,646,431

100
%
Homewood Suites
(the "Southaven Property")

Extended Stay

Southaven, MS

February 21, 2020

99

20,500,000

445,090

20,945,090

100
%

200

$
35,650,000

$
941,521

$
36,591,521

AsNaN of the hotel properties owned by the Company as of June 30, ~~2021, each of the Company’s hotel properties, except the Southaven Property and the El Paso Property, was~~2022 are subject to a ~~property~~ management agreement with NHS, LLC dba National Hospitality Services (“NHS”) with an initial term expiring on December ~~31st~~31 of the fifth full calendar year following the effective date of the agreement, which will automatically renew for successive ~~5-year~~five-year periods unless terminated earlier in accordance with its terms. The Southaven Property is ~~currently being managed on~~subject to a ~~day-to-day basis by~~management agreement with Vista Host Inc. ~~pursuant to a property management agreement~~(“Vista”) with an initial term expiring on February 21 ~~2025, which~~of the fifth full calendar year following the effective date of the agreement. This agreement will automatically renew for ~~two~~2 (2) successive ~~5-year~~five-year periods unless terminated earlier in accordance with its terms. ~~As of June 30, 2021, the~~The Houston Property and El Paso Airport Property ~~was being managed on a day-to-day basis by Elevation Hotel Management, LLC pursuant~~are subject to a property management agreement which requires payment of a management fee equal to 3.0% of total revenues plus an accounting fee of $1,800 per month for accounting services. The Company has entered into a management agreement with ~~NHS whereby NHS~~Interstate Management Company, LLC (“Aimbridge”) with 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 agreement will ~~begin managing and operating the El Paso Property beginning August 16, 2021. The~~automatically renew for additional successive terms of ~~such~~one year each unless terminated earlier in accordance with its terms. The Fargo Property is subject to a management agreement ~~are consistent~~ with ~~those described above~~KAJ Hospitality Inc. (“KAJ”) with an initial term of five years after its effective date, which automatically renews for ~~other NHS~~successive one-year periods, unless terminated in accordance with its terms.

Q2 2022 Year-to-Date Property Acquisitions

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

On January 18, 2022, the Operating Partnership acquired a Hampton Inn & Suites hotel property ~~management agreements.~~

~~The seller~~in Fargo, North Dakota (the “Fargo Property”) pursuant to an Amended and Restated Contribution Agreement (the “Fargo Amended Contribution Agreement”), dated as of the ~~Pineville Property,~~same date. The aggregate 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 ~~Beacon, may be entitled to additional cash consideration if~~ the ~~property exceeds certain performance criteria based on increases~~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 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 a one-time election to receive the additional consideration. The variable amount of ~~the additional consideration, if any, is based on the excess of the property’s actual NOI over a base NOI for the applicable 12-month calculation period divided~~$7.2 million secured by the ~~stated cap rate for such calculation period. As of June 30, 2021, 0 amounts were owed or paid to the seller of the Pineville~~Fargo Property, ~~and 0 election to receive the additional consideration had been made.~~

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~~The Aurora Property was acquired on February 4, 2021 for contractual consideration comprising of $15.0 million in debt, $1.9 million in cash paid at closing and~~ the issuance by the Operating Partnership of ~~1,103,758~~approximately $4.1 million in Series T LP Units of the Operating ~~Partnership” (the “Series T Units”).~~Partnership, and the payment by the Operating Partnership of $150,000 in cash. The Series T LP Units will convert into Common Limited Units of the Operating Partnership beginning 36 months, or at the option of the Company, 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 “Contribution Agreement”). The number of Common Limited Units to be issued to the Company based on such conversion may be higher or lower than the initial valuation of the Series T 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.

On May 12, 2021, the Operating Partnership acquired the Holiday Inn El Paso West Sunland Park hotel property located in El Paso, Texas (the “Holiday Inn El Paso”) for contractual consideration comprising $7.9 million in debt, $300,000 in cash paid at closing and the issuance of 150,000 Series T Limited Units of the Operating Partnership. The Series T Limited Units will convert into Common LimitedLP 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,~~January 18, 2022, at which point the value will be calculated pursuant to the terms of an Amended and Restated Contribution Agreement, dated ~~May 12, 2021 (the “El Paso Contribution Agreement”).~~January 18, 2022. The number of Common ~~Limited~~LP Units to be issued to the ~~Company~~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~~$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 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 amount of $10.0 million secured by the El Paso Airport Property, 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.

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 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 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.

The new 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, ~~2021~~2022 and the year ended December 31, ~~2020~~2021 were allocated as follows:

June 30,

December 31,

2021

2020
Land and land improvements

$
6,147,650

$
2,576,166
Building and building improvements

25,059,356

31,605,174
Furniture, fixtures, and equipment

3,522,142

3,007,846
Total assets acquired

34,729,148

37,189,186

Premium on assumed debt

—

(597,665)
Total liabilities assumed

—

(597,665)
Total purchase price⁽¹⁾

34,729,148

36,591,521

Assumed mortgage debt

—

9,400,772

Net purchase price

$
34,729,148

$
27,190,749


	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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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 16 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. As of June 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 asset of $2,478,696, which included the derecognition of the above-market ground lease liability. For the six months ended June 30, 2022, the Company recognized interest expense of $310,605 and right-of-use amortization expense of $26,942 related to the finance lease.

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 30, 2022.


2022	$	220,647
2023		449,017
2024		462,487
2025		476,362
2026		490,653
Thereafter		39,754,268
Total finance lease payments		41,853,434
Interest		(33,782,363)
Present value of finance lease liabilities	$	8,071,071

4. DEBT

~~Lines~~Revolving Line of Credit

On February 10, 2020, the Company entered into a $5.0 million revolving line of credit. The revolving line of 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 of credit was amended to extend the maturity date to May 10, 2021. The revolving line of credit had a variable interest rate equal to the U.S. Prime Rate, plus 0.50%, resulting in an effective rate

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of 3.75% per annum as of ~~March 31,~~June 30, 2021. On May 6, 2021, the revolving line of 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 ~~that date,~~May 6, 2021, the interest rate was ~~also~~ amended to incorporate an interest rate floor equal to 4.00%. On May 5, 2022, the interest rate changed to 4.50% per annum and on June 15, 2022, the interest rate changed to 5.25% per annum. The interest rate as of June 30, 2022 was 5.25% per annum. The revolving line of credit is 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 of 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 of credit, including all cross-collateralized debt, is guaranteed by Corey ~~Maple, the Company’s Chief Executive Officer.~~Maple. As of June 30, ~~2021,~~2022, there was 0 outstanding balance on the ~~line of credit.~~

~~On August 22, 2018, the Company entered into a $3.0 million~~ revolving line of credit, collateralized by 300,000 partnership units of Lodging Fund REIT III OP, LP. The line of credit had a variable interest rate equal to the U.S. Prime Rate, plus 1.00%, with a minimum rate of 5.00%. The line of credit required monthly payments of interest only, with all principal due at maturity. The line of credit included a partial guarantee by each of Corey Maple and Norman Leslie, as the members of the Advisor, each in the ~~amount~~ ~~of $1.2 million. The line of credit expired on November 22, 2020 and was not renewed.~~credit. See Note 11.

Mortgage Debt

As of June 30, ~~2021,~~2022, the Company had ~~$86.9~~$133.6 million in outstanding mortgage debt secured by 9each of its 14 properties, with maturity dates ranging from ~~May~~March 2023 to April 2029. NaN of the loans have fixed interest rates ranging from 3.70% to ~~5.33%, and a weighted-average interest rate of 4.59%~~7.00%. NaN ~~of the loans~~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%7.12% as of June 30, ~~2021.~~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% as of June 30, 2022. Collectively, the weighted-average interest rate is 5.17%. 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 1218 months following origination, and generally require a balloon payment due at maturity. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~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 described below, the Company was either in compliance with all debt covenants or received a waiver of testing of its debt covenants as of June 30, ~~2021~~2022 and December 31, ~~2020.~~

2021.

As of June 30, ~~2021,~~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. ~~At the onset of a trigger period, the Pineville Loan will enter into a cash management period.~~ The Company has requested and received a waiver of the financial covenants ~~as of June 30, 2021 and~~for period ending December 31, 2020, but as of the date of this filing it had not been received. If the Company is unable to obtain a waiver, the loan will go into cash management, however the other terms of the Pineville Loan will not change, including the timing or amounts of payments, or the expiration date. The lender for the Company’s loan secured by the Lubbock Fairfield Property (the “Lubbock Fairfield Loan”) waived the required financial covenants under the terms of the Lubbock Fairfield Loan through June 30, 2021. Other than2022. Except as described above for the Pineville Loan, the Company was ~~either~~ in compliance with ~~its debt covenants or received a waiver of testing of its~~all debt covenants as of June 30, ~~2021 and December 31, 2020 as noted below.~~

~~Forbearance Agreements and Loan Amendments~~

On April 17, 2020, the Company entered into a Change In Terms Agreement (the “Cedar Rapids Amendment”), amending the terms of the its original Promissory Note (the “Cedar Rapids Note”), dated March 5, 2019 in the original principal amount of $5.9 million. Pursuant to the Cedar Rapids Amendment, the maturity date of the Cedar Rapids Note was extended from March 1, 2024, to September 1, 2024, the requirement to make any replacement reserve deposits was waived until March 1, 2021, and the requirement to make any payments of principal and interest was deferred until October 1, 2020. In addition to the Cedar Rapids Amendment, the lender has also waived the required financial covenants under the terms of the Cedar Rapids Note through December 31, 2020.

On April 17, 2020, the Company entered into a Change In Terms Agreement (the “Eagan Amendment”), amending the terms of the its original Promissory Note (the “Eagan Note”), dated June 19, 2019 in the original principal amount of $9.4 million. Pursuant to the Eagan Amendment, the maturity date of the Eagan Note was extended from July 1,

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2024, to January 1, 2025, the requirement to make any replacement reserve deposits was waived until June 1, 2021, and the requirement to make any payments of principal and interest was deferred until October 1, 2020. In addition to the Eagan Amendment, the lender has also waived the required financial covenants under the terms of the Eagan Note through December 31, 2020.

On April 22, 2020, the Company entered into a Forbearance Agreement (the “Prattville Forbearance Agreement”), effective May 1, 2020, amending the terms of its original loan agreement (the “Prattville Loan”), dated July 11, 2019, in the original principal amount of $9.6 million. Pursuant to the Prattville Forbearance Agreement, the Company did not make interest payments that were due and payable during the Prattville Forbearance Period (as defined below) which constituted events of default under the terms of the Prattville Loan (collectively, the “Prattville Projected Events of Default”). However, during the Prattville Forbearance Period, the lender agreed to forbear from exercising any available rights and remedies under the Prattville Loan and other Loan Documents (as defined in the Prattville Loan) to the extent such rights and remedies arise as a result of the Prattville Projected Events of Default. The lender further agreed to defer the interest accrued during the Prattville Forbearance Period such that the accrued interest of $100,878 was paid-in-kind and added to the outstanding principal balance of the loan. The forbearance period (the “Prattville Forbearance Period”) was the period from May 1, 2020 through July 31, 2020.

On August 14, 2020, the Prattville Loan was amended (the “Prattville Amendment”) to waive the Prattville Projected Events of Default and to adjust other terms of the Prattville Loan. The Prattville Amendment, among other things, extended the required PIP completion date to align with the extension provided by the franchise agreement, adjusted certain financial covenants, put into place certain liquidity requirements and added restrictions on capital expenditures, related party payments, including management fees payable to NHS and loan guarantee fees, and cash distributions until certain financial covenants are achieved. Pursuant to the Prattville Forbearance Agreement and Prattville Amendment, until certain financial covenants are achieved, the borrower may not make any payments for capital expenditures or any distributions and must maintain a minimum cash balance of $155,000 in its hotel operating account. The restriction on distributions precludes the borrower subsidiary entities from making distributions of cash to the Operating Partnership, and as of December 31, 2020, the borrower subsidiary entities had cash balances in the amount of $831,379, which is included in cash and cash equivalents on the accompanying consolidated balance sheets. The Company was in compliance with the required financial covenants under the terms of the Prattville Amendment through June 30, 2021.

On April 22, 2020, the Company entered into a Forbearance Agreement (the “Southaven Forbearance Agreement”), effective May 1, 2020, amending the terms of its original loan agreement (the “Southaven Loan”), dated February 21, 2020, in the original principal amount of $13.5 million. Pursuant to the Southaven Forbearance Agreement, the Company did not make interest payments that were due and payable during the Southaven Forbearance Period (as defined below) which constituted events of default under the terms of the Southaven Loan (collectively, the “Southaven Projected Events of Default”). However, during the Southaven Forbearance Period, the lender agreed to forbear from exercising any available rights and remedies under the Southaven Loan and other Loan Documents (as defined in the Southaven Loan) to the extent such rights and remedies arise as a result of the Southaven Projected Events of Default. The lender further agreed to defer the interest accrued during the Southaven Forbearance Period such that the accrued interest of $126,110 was paid-in-kind and added to the outstanding principal balance of the loan. The forbearance period (the “Southaven Forbearance Period”) was the period from May 1, 2020 through July 31, 2020.

On August 14, 2020, the Southaven Loan was amended (the “Southaven Amendment”) to waive the Southaven Projected Events of Default and to adjust other terms of the Southaven Loan. The Southaven Amendment, among other things, extended the required PIP completion date to align with the extension provided by the franchise agreement, adjusted certain financial covenants, put into place certain liquidity requirements and added restrictions on capital expenditures, related party payments, including loan guarantee fees, and cash distributions until certain financial covenants are achieved. Pursuant to the Southaven Forbearance Agreement and Southaven Amendment, until certain financial covenants are achieved, the borrower may not make any payments for capital expenditures or any distributions and must maintain a minimum cash balance of $225,000 in its hotel operating account. The restriction on distributions precludes the borrower subsidiary entities from making distributions of cash to the Operating Partnership, and as of December 31, 2020, the borrower subsidiary entities had cash balances in the amount

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of $1,498,889, which is included in cash and cash equivalents on the accompanying consolidated balance sheets. The Company did not have any required financial covenants under the terms of the Southaven loan in effect as of December 31, 2020. The Company was in compliance with the required financial covenants under the terms of the Southaven Amendment as of June 30, 2021.

2022.

Paycheck Protection Program (“PPP”) Loans

In April 2020, the Company entered into 6 unsecured promissory notes under the Paycheck Protection Program (the “PPP”), totaling ~~$763,100.~~$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 2two years, which could be extended to 5five years at the Company’s election. The interest rate on each PPP loan was 1.0% per annum, which ~~shall be~~was deferred for a period of time. After the initial deferral period, each loan required monthly payments of principal and interest until maturity with respect to any portion of such PPP loan which is not forgiven as described below. The initial deferral period ends at either i) the date the SBA remits the borrower’s loan forgiveness amount, or ii) if the Company has not applied for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. The Company’s covered period ended September 25, 2020, for 2 of its PPP loans and ended October 2, 2020, for 4 of its PPP loans. The Company is permitted to prepay each PPP loan at any time with 0 prepayment penalties. Under the terms of the CARES Act, PPP loan recipients can apply for, and be granted, forgiveness for all or a portion of loans granted under the PPP. 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 and the maintenance of employee and compensation levels. As of December 31, 2020, the outstanding balance of the PPP Loans was $763,100. In February 2021, we applied for and received one hundred percent (100%) forgiveness of all 6 PPP Loans.

In January 2021, the Company entered into 6 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 iswas five years. The interest rate on each Second Draw PPP loan iswas 1.0% per annum, which ~~shall be~~was deferred for the first sixteen months of the term of the loan. After the initial sixteen-month deferral period, each loan requires monthly payments of principal and interest until maturity with respect to any portion of such Second Draw PPP loan which is not forgiven as described below. The Company is permitted to prepay each Second Draw PPP loan at any time with 0 prepayment penalties.

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 iswas $85,400. The term of the PPP loan iswas five years. The interest rate on the PPP loan iswas 1.0% per annum, which ~~shall be~~was deferred for the first sixteen months of the term of the loan. After the initial sixteen-month deferral period, the loan requires monthly payments of principal and interest until maturity with respect to any portion of the PPP loan which is not forgiven as described below. The Company is permitted to prepay the PPP loan at any time with 0 prepayment penalties.

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 iswas five years. The amount of the Southaven TRS Second Draw PPP loan iswas $119,500. The interest rate on the Southaven TRS Second Draw PPP loan iswas 1.0% per annum, which ~~shall be~~was deferred for the first sixteen months of the term of the loan. After the initial sixteen-month deferral period, the loan requires monthly payments of principal and interest until maturity with respect to any portion of the loan which is not forgiven as described below. The Company is permitted to prepay the Southaven TRS Second Draw PPP loan at any time with no prepayment penalties.

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 6 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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~~PPP and Southaven TRS PPP loans. The remaining $119,500 relates to the Southaven TRS PPP Second Draw and forgiveness will be applied for.~~

The following table sets forth the hotel properties securing the Company’s hotel mortgage debt ~~lines~~and revolving line of credit ~~and PPP loans~~ as of June 30, ~~2021~~2022 and December 31, ~~2020.~~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,		June 30,	Maturity	June 30,		December 31,
	2021	Date	2021		2020		2022	Date	2022		2021
Holiday Inn Express - Cedar Rapids⁽¹⁾	5.33%	09/01/2024	$	5,858,134	$	5,858,134	5.33%	9/1/2024	$	5,847,994	$	5,858,134
Hampton Inn & Suites - Pineville	5.13%	06/06/2024		8,878,638		8,973,775	5.13%	6/6/2024		8,682,124		8,782,284
Hampton Inn - Eagan	4.60%	01/01/2025		9,317,589		9,317,589	4.60%	1/1/2025		9,171,018		9,277,193
Home2 Suites - Prattville⁽¹⁾	4.13%	08/01/2024		9,536,714		9,647,085	4.13%	8/1/2024		9,310,022		9,425,085
Home2 Suites - Lubbock	4.69%	10/06/2026		7,683,896		7,792,602	4.69%	10/6/2026		7,459,647		7,573,597
Fairfield Inn & Suites - Lubbock	4.93%	04/06/2029		9,199,675		9,272,870	4.93%	4/6/2029		9,049,012		9,125,908
Homewood Suites - Southaven⁽¹⁾	3.70%	03/03/2025		13,506,574		13,586,110	3.70%	3/3/2025		13,176,677		13,343,841
Courtyard by Marriott - Aurora(3)	7.00%	02/05/2024		15,000,000		—	7.12%	2/5/2024		15,000,000		15,000,000
Holiday Inn - El Paso(3)	5.00%	05/15/2023		7,900,000		—	5.00%	5/15/2023		7,900,000		7,900,000
Hilton Garden Inn - Houston⁽⁴⁾							3.85%	9/2/2026		13,947,218		13,947,218
Sheraton - Northbrook⁽³⁾⁽⁵⁾							7.06%	12/5/2024		3,700,000		3,700,000
Hampton Inn - Fargo							4.00%	3/1/2027		7,362,481		—
Courtyard by Marriott - El Paso⁽⁶⁾							6.01%	5/13/2027		9,990,000		—
Fairfield Inn & Suites - Lakewood⁽³⁾							7.00%	3/29/2023		13,009,914		—
Total Mortgage Debt				86,881,222		64,448,165				133,606,107		103,933,260
Premium on assumed debt, net				788,916		854,928				656,894		722,905
Deferred financing costs, net				(1,654,430)		(1,378,374)				(2,288,682)		(2,129,281)
Net Mortgage				86,015,708		63,924,719				131,974,319		102,526,884

$3.0 million line of credit⁽²⁾	-	11/22/2020		—		—
$5.0 million line of credit	3.75%⁽³⁾	5/10/2022		—		—
Total Lines of Credit				—		—

PPP Loan	1.00%	4/8/2026		119,500		763,100
$5.0 million revolving line of credit⁽⁷⁾							5.25%	12/15/2022		—		600,000

Debt, net			$	86,135,208	$	64,687,819			$	131,974,319	$	103,126,884

(1)	~~Per the original loan terms, the loan~~Loan was interest-only ~~for the first 12 months after origination, then monthly principal~~through April 30, 2022 and ~~interest payments, with~~is at a ~~balloon payment at maturity.~~fixed rate of interest.

(2)	Variable interest rate equal to ~~U.S. Prime Rate~~30-day LIBOR plus ~~1.00%~~6.00%, ~~with a minimum rate of 5.00%. The line of credit was~~provided that LIBOR shall not ~~renewed.~~be less than 1.00%.

(3)	Loan is interest-only until maturity.

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

(5)	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%.

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

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

Future Minimum Payments

As of June 30, ~~2021,~~2022, the future minimum principal payments on the Company’s debt were as follows:

2021

$
602,813
2022

1,428,636
2023

9,449,695
2024

39,052,270
2025

21,377,234
Thereafter

15,090,074

87,000,722

Premium on assumed debt, net

788,916
Deferred financing costs, net

(1,654,430)

$
86,135,208


2022	$	820,510
2023		22,726,642
2024		43,467,556
2025		22,137,806
2026		20,237,332
Thereafter		24,216,261
		133,606,107

Premium on assumed debt, net		656,894
Deferred financing costs, net		(2,288,682)

	$	131,974,319

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The $22.7 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 of $13.0 million and $7.9 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, as long as certain conditions contained in the loan agreement are satisfied. The Company has the intention and anticipates having the ability to extend the maturity dates on both of these loans.

5. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 consisted of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, lines of credit, ~~PPP loans,~~ 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 30, 2022 and December 31, 2021. 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 30, 2022, the estimated fair value of the Company’s mortgage debt was $131.6 million, compared to the gross carrying value $133.6 million. As of December 31, 2021, the estimated fair value of the Company’s mortgage debt was ~~$91.5~~$103.7 million, compared to the gross carrying value ~~$86.9 million. As of December 31, 2020, the estimated fair value of the Company’s mortgage debt was $67.5 million, compared to the gross carrying value $64.4~~$103.9 million.

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 0t pay any federal and state income taxes for the ~~periods~~period ended June 30, ~~2021 and 2020.~~2021. The Company did 0t have any uncertain tax positions as of June 30, ~~2021~~2022 or December 31, ~~2020.~~2021.

The Company’s TRS generated a net operating loss (“NOL”) for the six months ended June 30, ~~2021~~2022 and the year ended December 31, ~~2020,~~2021, which can be carried forward to offset future taxable income. As of June 30, ~~2020,~~2022 and December 31, 2021, the Company had recorded ~~a partial valuation allowance against its~~net deferred tax assets of ~~$1.1 million, primarily related to the uncertainty of effects of the ongoing COVID-19 pandemic on hospitality~~$2,887,183 and ~~travel industries. During the remainder of 2020~~, the Company experienced some level of recovery, from the unprecedented lows in April and May 2020, at all of the Company’s hotel properties. As a result, the Company revised the partial valuation allowance against deferred tax assets to $600,901 as of September 30, 2020 and $0 as of December 31, 2020. ~~As of June 30, 2021 and December 31, 2020, the Company had a recorded net deferred tax asset of $1.9 million and $1.5 million~~$2,464,768, respectively, primarily attributable to its NOLs generated in the current year and prior periods, net of temporary differences primarily related to ~~depreciation.~~deprecation. The Company’s NOLs will expire in ~~2038-2039~~2038 through 2042 for state tax purposes and will not expire for federal tax purposes. As of June 30, 2022 and December 31, 2021, the Company had deferred tax assets attributable to NOL carryforwards for federal income tax purposes of $5.1 million and $4.2 million, respectively, and NOL carryforwards for state income tax purposes of $684,785 and $588,661, respectively. As of June 30, 2022, the tax years ~~2019~~2018 through ~~2020~~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.~~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

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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, ~~paid~~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.

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.

2022

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Fees and reimbursements earned and payable to the Advisor and its affiliates, for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, were as follows:


	Incurred				Incurred
	For the Six Months Ended June 30,				For the Six Months Ended June 30,
	2021		2020		2022		2021
Fees:
Acquisition fees	$	474,740	$	501,949	$	681,317	$	474,740
Financing fees		474,740		501,949		916,346		474,740
Asset management fees		531,290		404,300		857,036		531,290
Performance fees		—		—
	$	1,480,770	$	1,408,198	$	2,454,699	$	1,480,770

Reimbursements:
Offering costs	$	592,522	$	787,692	$	1,239,977	$	592,522
General and administrative		1,304,469		1,376,301		1,689,242		1,304,469
Sales and marketing		90,904		108,286		149,905		90,904
Acquisition costs		70,326		69,124		31,240		70,326
Other (income) expense, net		—		282
	$	2,058,221	$	2,341,685	$	3,110,364	$	2,058,221

For three and six months ended June 30, 2022, the Operating Partnership recorded distributions payable to the Advisor in the amount of $81,949 and $160,180, respectively, in connection with the Advisor’s ownership of Series B LP Units. For the three and six months ended June 30, 2021, the Operating Partnership recorded distributions payable to the Advisor in the amount of $73,252 and $144,763, respectively, in connection with the Advisor’s ownership of Series B LP Units. For the three and six months ended June 30, 2020, the Operating Partnership recorded distributions payable to the Advisor in the amount of $65,941 and $126,249, respectively. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had distributions payable to the Advisor in the amount of ~~$472,660~~$325,109 and ~~$327,897,~~$296,164, respectively. For the six months ended June 30, 2022 and 2021, ~~and 2020,~~ the Company paiddistributions in the amount of ~~$19,788~~$20,061 and ~~$18,818,~~$19,788, 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. ~~Mr.~~Corey Maple, ~~our Chief Executive Officer and Chairman of the Board,~~ is a guarantor of the Company’s loans secured by the hotel properties located in Prattville, Alabama, ~~and~~ Southaven, Mississippi, and Fargo, North Dakota, which had original loan amounts of $9.6 million, $13.5 million, and ~~$7.9~~$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.~~Norman Leslie ~~our President, Chief Investment Officer and Director,~~ 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. ~~Mr. Maple and Mr. Leslie were also guarantors of the Company’s $3.0 million line of credit, each in the amount of $1.2 million. That line of credit was closed in November 2020.~~ For the six months ended June 30, 2022 and for the year ended December 31, 2021, the Company accrued guarantee fees in the amount of ~~$80,159~~$78,315 and $159,414 respectively to each ~~each~~Mr. Maple and Mr. ~~Maple and Mr. Leslie.~~Leslie. The total amount accrued of ~~$471,895~~$787,036 remained unpaid ~~as of~~at June 30, ~~2021~~2022 and is included in ~~due~~Due to related parties on the accompanying consolidated balance sheet. ~~Guarantee fees of $150,074 were assessed for six months ended June 30, 2020.~~

See Note 11 “Subsequent Events” for a description of a loan to a subsidiary of the Company by Legendary A-1 Bonds, LLC, which 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, in the amount of $13.0 million secured by the Houston Hilton Garden Inn Property.

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Company had amounts due and payable to the Advisor and its affiliates of ~~$2,468,295~~$2,974,514 and ~~$1,720,605,~~$2,035,708, respectively, which is included in ~~due~~Due to related parties on the accompanying consolidated balance sheets.

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NHS, LLC dba National Hospitality Services (“NHS”)—NHS ~~which~~ 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 ~~several of~~ 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 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.

Fees and reimbursements ~~incurred~~earned by NHS for the six months ended June 30, 2022 and 2021, and fees and reimbursements payable to NHS for the ~~three and~~ six months ended June 30, ~~2021~~2022 and ~~2020, and amounts outstanding and payable as of June 30, 2021 and~~year ended December 31, ~~2020,~~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 Six Months Ended June 30,				June 30,		December 31
	2021		2020		2021		2020		2022		2021		2022		2021
Fees:
Management fees	$	287,179	$	182,154	$	72,437	$	36,509	$	478,234	$	287,179	$	97,992	$	66,407
Administrative fees		60,506		30,687		11,442		5,648		74,850		60,506		16,155		9,461
Accounting fees		44,919		40,895		12,446		10,701		84,286		44,919		15,162		12,726
	$	392,604	$	253,736	$	96,325	$	52,858	$	637,370	$	392,604	$	129,309	$	88,594

Reimbursements	$	205,648	$	136,499	$	59,700	$	5,530	$	494,959	$	205,648	$	109,733	$	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 ~~2021~~2022 and ~~2020~~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% 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 months ended June 30, ~~2021~~2022 and the year ended December 31, ~~2020,~~2021, the Company incurred ~~$41,925~~$66,642 and ~~$176,669~~$61,739 of construction management fees payable to One Rep, respectively. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the amounts outstanding and due to One Rep were ~~$3,995~~$34,540 and ~~$34,988,~~$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. During the six months ended June 30, 2022, A-1 Bonds made a loan in the amount of $13.1 million to a subsidiary of the Company secured by the Lakewood Property. The loan has a fixed interest rate of 7.0% per annum. In addition, on January 18, 2022, A-1 Bonds made a loan in the amount of $7.2 million to a subsidiary of the Company secured by the Fargo Property. The loan secured by the Fargo Property was repaid in full on February 23, 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 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 4%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.

2224

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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 1 vote per share ~~for~~ 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.

On April 29, 2020, the Company filed with the Maryland State Department of Assessments and Taxation articles supplementary (the “Articles Supplementary”) to the Company’s charter, to classify and designate 7,000,000 shares of authorized but unissued common stock, $0.01 par value per share, of the Company, as non-voting shares of Interval Common Stock and to set the terms of the Interval Common Stock.

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”).

Distributions

Distributions for the three months ended June 30, 2021 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 April 1, 2020 through June 30, 2020 were payable to each stockholder 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 July 1, 2020 through September 30, 2020, October 1, 2020 through December 31, 2020, and January 1, 2021 through March 31, 2021 were payable to each stockholder as 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 period from April 1, 2021 through June 30, 2021 were payable to each stockholder as 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. Going forward, the Company expects the board of directors of the Company to authorize and declare distributions, if at all, based on daily record dates and to pay these distributions on a monthly basis. ~~Distributions will be~~are determined by the board of directors based on the Company’s financial condition and other ~~factors as the board~~relevant factors.


			Distribution								Net Cash
	Distributions		Declared Per		Distributions Paid ⁽³⁾						Flows Provided By
Period	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)
Second Quarter 2022		1,540,200		0.175		1,203,791		526,159		1,729,950		20,841
	$	3,096,508	$	0.350	$	2,137,255	$	1,093,399	$	3,230,654	$	(3,272,340)

			Distribution								Net Cash
	Distributions		Declared Per		Distributions Paid ⁽³⁾						Flows Provided By
Period	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)
Second Quarter 2021		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
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)

(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 30, 2022 were payable to each stockholder as 100% in cash on a monthly basis of common stock valued at $10.00 per share.

(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.

Table of directors deems relevant, and may be paid in cash or in shares pursuant to the DRIP. The Company has not established a minimum distribution level, and the charter does not require that the Company make distributions to its stockholders.Contents

Share Repurchase Plan

The board of directors has adopted a ~~Share Repurchase Plan~~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.

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There are several limitations on the Company’s ability to repurchase shares under the ~~Share Repurchase Plan,~~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. ~~During the year ended December 31, 2020, the~~The Company repurchased ~~64,190~~121,921 shares, pursuant to repurchase requests received during the six months ended June 30, 2022, which represents an original investment of ~~$641,898, including $16,898~~$1,219,207 for $1,214,053. The Company repurchased 88,088 shares, pursuant to repurchase requests received during the year ended December 31, 2021, which represents an original investment of ~~DRIP shares,~~$880,883 for ~~$590,547.~~$856,605. As of ~~December 31, 2020, $24,032~~June 30, 2022, $575,879 of the redemption proceeds had not yet been paid and was included in other liabilities on the accompanying consolidated balance sheets. ~~During the six months ended June 30, 2021, the Company repurchased 41,996 shares, which represents an original investment of $379,380, including $31,603 of DRIP, for $400,291.~~ As of June 30, ~~2021, $400,291 of the redemption proceeds had not yet been paid and was included in other liabilities on the accompanying consolidated balance sheet. See Note 11. As of June 30, 2021,~~2022, the Company had ~~$3,295,189~~$1,856,279 available for eligible repurchases ~~under~~for the ~~Company’s Share Repurchase Plan.~~remainder of 2022 after accounting for the outstanding redemption proceeds not yet paid on June 30, 2022.

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.

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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 ~~is offering~~offered 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. AsThe Company’s board of directors allowed the Interval Share Offering to expire on March 31, 2022, and as of June 30, ~~2021,~~2022, the Company had not issued or sold any shares of Interval Common Stock.

Non-Controlling Interests

The Operating Partnership currently has 4 classes of Limited Partner Units which include the Common ~~Limited~~LP Units, the Series B LP Units, the Series T LP Units and the GO Limited Units. The Series B LP Units are 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 ~~Series T LP Units issued may have different allocations and~~future distributions ~~than other Series T LP Units.~~are dependent on the financial performance of the contributed real estate based on a mathematical formula. The Series T LP Units ~~will be converted~~are eligible for conversion into Common ~~Limited~~LP Units beginning 36 months after their issuance and will automatically convert into Common ~~Limited~~LP Units upon ~~a Termination Event.~~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 30, ~~2021,~~2022, the Company had ~~issued 1,253,758~~recorded an aggregate value of $31.7 million to the Series T LP ~~Units.~~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. 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

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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 ~~OP,~~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 that date. As of June 30, ~~2021,~~2022, the ~~Company~~Operating Partnership had issued and sold ~~1,451,900~~3,125,041 Series GO LP Units and received aggregate proceeds of ~~$10.0~~$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 ~~received~~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 30, ~~2021,~~2022, the Operating Partnership has issued 1,000 Series B LP Units to the Advisor.

Non-Controlling Interest – Common LP Units

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, ~~2021,~~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 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.

The ~~Company~~SEC is ~~cooperating with~~conducting an ~~inquiry conducted by the SEC seeking information~~investigation related to 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 ~~received notice of~~is cooperating with the ~~SEC’s inquiry in December 2020. The Company~~SEC and has produced ~~responsive materials~~documents and other ~~forms of relevant~~ information requested by the SEC. The Advisor has retained independent counsel and is also cooperating with the SEC inquiry. The Company remains committed to ~~voluntary cooperation~~maintaining the highest standards for compliance with ~~the SEC's inquiry~~securities regulations and will continue to work with the SEC to address and resolve any questions or concerns that the SEC may raise. At this time, the Company is unable to estimate the cost of complying with the inquiry or its outcome.

Property Acquisitions—

The seller of the Pineville Property may be 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 a one-time election to

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receive the additional consideration. The variable amount of the additional consideration, if any, is 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 30, ~~2021, 0~~2022, no additional consideration had been paid to the seller of the Pineville Property, and no election to receive the additional consideration had been made.

In November 2019, the Company entered into a purchase agreement, to acquire 3 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 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 be determined at this time. As a result, 0 amount was recorded related to this matter as of June 30, ~~2021,~~2022, the Earnest Money remained in escrow and is included in restricted cash on the accompanying consolidated balance sheets.

Contribution Agreements Entered into During the Six Months Ended June 30, 2022

~~Termination of~~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

On~~June 11, 2021,~~ (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 ~~was deemed to have exercised its right to terminate~~or Legendary Capital REIT III, LLC, the ~~contribution agreement~~Company’s external advisor. The aggregate consideration for the ~~purchase~~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 ~~Fairfield Inn & Suites Corpus Christi Aransas Pass hotel upon the expiration~~consideration consists of the ~~inspection period.~~assumption or refinancing by the Operating Partnership of existing debt secured by the Fort Collins RI Hotel Property. The ~~$50,000~~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 ~~deposit contributed~~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 ~~Company was returned~~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 ~~whole~~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 ~~Company.~~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 9, 2021, the Company paid distributions totaling $1.4 million, consisting of $0.5 million in cash distributions and $0.9 million of distributions paid in shares of common stock issued through the DRIP, for daily record dates in the period from April 1, 2021 through June 30, 2021.

~~On August 4, 2021,~~7, 2022, the Company declared cash distributions totaling ~~$293,409 and~~$358,880, DRIP distributions totaling ~~$177,588,~~$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, ~~2021~~2022 to holders of record on each calendar day of such period. The distribution declared for July ~~2021~~2022 was paid on August 10, ~~2021.~~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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~~Recent Property Acquisitions~~

On August 3, 2021, the Operating Partnership acquired the Hilton Garden Inn Houston Bush Intercontinental Airport hotel in Houston, Texas (the “Houston Hilton Garden Inn Property”) pursuant to the Second Amended and Restated Contribution Agreement (the “Second Amended Contribution Agreement”), dated the same date. The aggregate contractual consideration under the Second Amended Contribution Agreement ~~was $19,516,112~~is $17,700,000 plus closing costs, subject to adjustment as provided in the ~~Second~~Fort Collins RI Amended Contribution Agreement. The consideration consists of the refinancing of the Contributor’s existing loan with a new loan ~~entered into~~(the “Fort Collins RI Loan”) by subsidiaries of the Operating Partnership with Legendary A-1 Bonds, LLC (the ~~“Lender”~~“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 ~~$13 million~~$11,500,000 secured by the ~~Houston Hilton Garden Inn~~Fort Collins RI Property, ~~(the “Houston Loan”). The remaining consideration consists of~~ the issuance by the Operating Partnership of ~~651,611.62~~560,369 Series T Limited Units of the Operating ~~Partnership. for~~Partnership, and the ~~contribution~~payment of ~~the 182-room property to the Operating Partnership. Pursuant to the Second Amended Contribution Agreement,~~$596,310.09 by the Operating Partnership in cash at Closing for delinquent taxes, which amount is ~~responsible for~~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 ~~$485,000~~48 months, after the closing, or upon the sale of ~~certain closing costs~~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 ~~agreed upon by~~issued to the ~~parties.~~contributor based on such conversion may be higher or lower than the initial valuation of the Series T LP Units. The ~~Houston~~Fort Collins RI Loan ~~is evidenced by a promissory note and~~ has a fixed interest rate of 7.0% per ~~annum.~~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 ~~Houston~~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 on August 2, ~~2022,~~2023, which may be extended by the ~~Borrower~~Company for an additional one-year term upon satisfaction of certain conditions contained in the ~~Loan Agreement,~~loan agreement, including no then-existing event of ~~default. The Houston~~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 Company has the right to prepay the ~~Houston~~Fort Collins RI Loan in full ~~without~~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 ~~fee subject~~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 ~~certain conditions~~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.~~ documents, as further described in the OP Guaranty.

In connection with the acquisition, wethe Company entered into a management agreement with ~~Interstate Management~~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 ~~“Aimbridge~~“El Paso HGI Aimbridge Management Agreement”), to provide property management and hotel operations management services for the ~~Houston Hilton Garden Inn.~~El Paso HGI Hotel Property. The El Paso HGI Aimbridge Management Agreement has an initial term of 35 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, ~~the TRS Subsidiary~~HDI agrees to pay to Aimbridge a management fee equal to ~~2.5%~~3% of total revenues plus an accounting fee of ~~$2,548~~$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, ~~2022.~~2023. Aimbridge will also receive an additional accounting fee of ~~$2,900~~$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 ~~funded~~or Legendary Capital REIT III, LLC, the ~~acquisition~~Company’s external 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 ~~Houston Hilton Garden Inn with proceeds from~~consideration consists of the ~~Company’s ongoing private offering, Series T units issued to~~assumption or refinancing by the ~~Contributor as described above, and a new loan~~Operating Partnership of existing debt secured by the ~~Houston Hilton Garden Inn~~Wichita HIEX Hotel Property. The ~~Houston Hilton Garden Inn~~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 is still conducting its diligence review with respect to this property. This pending acquisition is subject to its completion of satisfactory due diligence and other closing conditions. There can be no assurance the Company will complete this pending property contribution on the contemplated terms, or at all.

New Revolving Line of Credit

On August 9, 2022, the Operating Partnership entered into a ~~182-room property.~~$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 11, 2022, $3.3 million has been advanced by the A-1 Lender under the A-1 Line of Credit.

Share Repurchases

On July 21, ~~2021,~~2022, the Company paid the outstanding redemption proceeds related to the June ~~2021~~2022 redemption of ~~41,996~~57,614 shares of common stock for ~~$400,291,~~$575,879 per the terms of the Share Repurchase Plan.

Status of the ~~GO Unit~~ Offering

As of August ~~13, 2021,~~11, 2022, the Company’s ~~GO Unit Offering~~private offering remained open for new investment, and since the inception of the offering the Company had issued and sold ~~1,538,152 Series GO LP Units, resulting in the receipt of gross GO Unit Offering proceeds of $10.6 million.~~

~~Status of the Offering~~

~~As of August 13, 2021, the Company’s private offering of common stock remained open for new investment, and since the inception of the offering the Company had issued and sold 8,253,421~~9,561,096 shares of common stock, including ~~733,138~~957,091 shares issued pursuant to the DRIP, resulting in the receipt of gross offering proceeds of ~~$79.8~~$90.8 million.

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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.

~~The following are some~~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 ~~although~~but does not address all of the risks ~~and uncertainties,~~ that we face which could cause our actual results to differ materially from those presented in our forward-looking ~~statements:~~statements. You should interpret many of the risks identified in this summary and in our Annual Report on Form 10-K 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

●

The COVID-19 pandemic ~~and the measures taken by government authorities to contain the COVID-19 outbreak or to treat its impact, including restrictions on travel and imposition of quarantines, have~~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~~our results of operations, ~~returns~~ returnsand ~~profitability,~~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, ~~such as the Delta variant, which strains may be more contagious or more vaccine-resistant,~~ 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, may cause an increase in renovation, construction and ~~containment measures, among others.~~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;~~COVID-19.

●

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;~~stockholders.

●

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 ~~(the “Sponsor”)~~ 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;~~stockholders.

●

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

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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;~~fees.

●

We have paid distributions from proceeds from our ongoing private offering described below (the “Offering”)~~. To~~ and, to the extent ~~the Board~~our board of directors declares future distributions, we may continue to fund ~~such~~ 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;~~capital.

●

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;~~revenue.

●

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;~~stockholders.

●

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;~~stockholders.

●

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

●

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.

Risks Related to the Lodging Industry and Real Estate Industry

●

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;~~stockholders.

●

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.

●

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 ~~limit~~limited our ability to pay distributions to our ~~stockholders;~~stockholders.

●

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.

●

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.

●

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

●

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 ~~pay our~~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;~~stockholders.

●

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, ~~if any of the~~we have loans ~~we obtain have~~with variable interest rates, ~~volatility~~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; and~~all.

Federal Income Tax Risks

●

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, ~~2020,~~2021, as filed with the Securities and Exchange Commission (the “SEC”).

Overview

~~We were~~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~~“America’s Heartland,” which we define as the geographic area from North Dakota to Texas and the Appalachian Mountains to the Rocky Mountains. On an infrequent and opportunistic basis, we may also originate or acquire high-yield loans secured directly or indirectly by real estate-related assets, which loans will be made to certain qualified third-party borrowers and/or affiliates of our advisor (the “Loans”). We have elected to be taxed as a real estate investment trust, or REIT, beginning with the taxable year ~~ending~~ended December 31, ~~2018.~~ 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 of 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 pursuant to an advisory agreement, ~~(the “Advisory Agreement”)~~as amended, under which the Advisor performs advisory services regarding acquisition, financing and disposition of the Projects and origination of ~~the Loans,~~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.

We have engaged NHS ~~LLC dba National Hospitality Services (‘‘NHS’’)~~ to manage ~~most~~the majority of the Projects acquired to ~~date. We~~date; however, we can ~~and may~~ engage third party property management companies and have done so in connection with several of our Projects acquired to manage the Projects and did so with respect to the Southaven Property in January 2020 and the Houston Hilton Garden Inn Property in August 2021. The Pineville Property is currently being managed on a day-to-day basis by Beacon, an affiliate of the seller of the Pineville Property, pursuant to a sub-management agreement.date. 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 ~~the Sponsor,~~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 30, ~~2021,~~2022, we owned ~~nine~~14 hotel properties ~~including~~with an aggregate of 1,686 rooms located in nine states.

We have raised capital through several private offerings conducted by the ~~Holiday Inn El Paso, acquired in May 2021.~~Company and the Operating Partnership described below.

Initial Offering

~~On June 1, 2018, we commenced~~We are currently conducting an offering (the “Offering”) ~~of up to $100,000,000~~ 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.~~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, ~~2022,~~2023, 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 (“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 30, ~~2021,~~2022, we ~~had~~have issued and sold ~~8,069,405~~9,379,886 shares of common stock, including ~~623,223~~925,174 shares attributable to the DRIP, and received aggregate proceeds of ~~$78.0~~$91.7 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 ~~$64.5~~$79.9 million. The net offering proceeds have been used principally to fund property acquisitions. For the year ended December 31, 2020, we repurchased 64,190 shares, which represented an original investment of $641,898, including $16,898 of DRIP shares, repurchased for $590,547 under our Share Repurchase Plan. During the six months ended June 30, 2021, we repurchased 41,996 shares, which represented an original investment of $379,380, including $31,603 of DRIP shares, repurchased for $400,291 under our Share Repurchase Plan.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 30, 2022, we have repurchased 274,199 shares, which represents an original investment of $2,741,988 for $2,661,203. As of June 30, 2022, $575,879 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 is 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. AsOur board of directors allowed the Interval Share Offering to expire on March 31, 2022, and as of June 30, ~~2021, we~~2022, the Company had not issued or sold any shares of Interval Common Stock.

GO Unit Offering

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as amended. The Series GO LP Units ~~are~~were being offered until the earlier of (i) the sale of $20,000,000 in Series GO LP Units (which ~~may~~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 30, ~~2021,~~2022, the Operating Partnership had issued and sold ~~1,451,900~~3,125,041 Series GO LP Units and received aggregate proceeds of ~~$10.0~~$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 ~~$8.8~~$19.4 million.

Series T LP Units

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 36 months 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 conversion. As of June 30, 2022, we had recorded an aggregate value of $31.7 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 and June 30, 2022, we issued 500 shares of our common stock to each of our three independent directors and, for the six months ended June 30, 2022, recognized stock-based compensation expense of $30,000. 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 Months Ended June 30, 2022

During the six months ended June 30, 2022, we acquired three hotel properties with an aggregate of 322 rooms located in three states. Each of these hotel properties was acquired pursuant to a contribution agreement. The aggregate purchase price for these contribution agreements was $45.4 million, consisting of the issuance of Series T LP Units, Common LP Units, assumption or repayment of loans securities 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.

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

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 have a material adverse impact on the hospitality industry. As the virus spread and governments implemented restrictions to contain it, occupancy and RevPAR fell sharply. COVID-19 continues to have a material impact on our business and industry. However, the recovery of demand in our hotels accelerated in the second quarter of 2021, led primarily by robust leisure demand. Business transient and group demand remains well below pre-pandemic levels in most markets, but such demand could pick up in the fall of 2021 if workers return to offices and corporate travel increases. On the other hand, theThe continued emergence of new strains of COVID-19, such as the Delta ~~variant,~~and Omicron variants, could slow the pace of recovery in some or all regions and ~~in some markets has resulted~~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. ~~We expect~~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 ~~the new or increased state restrictions and the reduction in hotel demand as a result of the spread of COVID-19 and its variants~~interest rates will continue to ~~keep~~rise throughout the remainder of 2022. Such interest rate increases have increased our ~~occupancy levels,~~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 ~~RevPAR below 2019 levels~~occupancy also increased by 16% and 6% from 2021 to 2022. However, the potential for ~~at least~~an economic slowdown or a recession during the second half of ~~2021, which will negatively impact cash flows from operations.~~2022 may disrupt the positive demand momentum across our portfolio and our industry.

~~Each~~Table of our hotel properties have remained open from the onset of the pandemic. We saw significant improvements in demand at our hotel properties during the first half of 2021. RevPAR improved 77.0% in the 2021 second quarter compared to the 2020 second quarter, when COVID-19 had the most significant impact on our quarterly results. In the 2021 first half, RevPAR improved 26.5 percent compared to the 2020 first half.Contents

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 ~~variant,~~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. 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 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 and the GO Unit~~ 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, ~~2022,~~2023, which may be extended by our board of directors in its sole discretion, or (iii) a decision by the Company to terminate the Offering. ~~The GO Unit Offering will continue until~~We had also used the ~~earlier of (i) the sale of $20,000,000 in Series GO LP Units (which~~

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~~may be increased to $30,000,000 in the Company’s sole discretion), (ii) June 14, 2022 or (iii) the Operating Partnership terminates~~net proceeds from the GO Unit Offering ~~at an earlier date~~to conduct our operations. Our board of directors terminated the GO Unit Offering as of February 14, 2022. They Company’s board of directors approved and ratified additional sales after February 14, 2022 in ~~its sole discretion.~~ 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 30, ~~2021,~~2022, we had raised approximately ~~$78.0~~$89.0 million in gross offering proceeds from the sale of shares of our common stock in the Offering and approximately ~~$10.0~~$21.5 million in gross offering proceeds from the sale ~~of shares~~ of the Series GO LP Units in our GO Unit Offering. The pace of capital raised in our Offering has ~~slowed over~~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 ~~past several months compared to historical amounts since~~ inception of the ~~Offering. However, the decrease in capital raise in our Offering has been partially offset by capital raised through our GO Unit Offering, which commenced in June 2020.~~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 substantial funds in the ~~Offering and GO Unit~~ 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 30, ~~2021,~~2022, we owned ~~nine~~fourteen hotel properties. We acquired these investments with the proceeds from the sale of our common stock ~~and GO Units~~ in the Offering, proceeds from the GO Unit Offering and debt ~~financing. Our acquisition~~financing and, for each of the ~~El Paso Property on May 12, 2021 included~~properties acquired in 2022, the issuance of ~~150,000~~either Series T LP Units or Common LP Units to the contributor as part of the consideration. Operating cash needs during the ~~three months~~year ended June 30, ~~2021~~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 ~~the~~our aggregate loan-to-value ratio ~~for the Company~~ 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 30, ~~2021,~~2022, our aggregate loan-to-value ratio, based on the aggregate purchase price of the Projects, was approximately ~~62%~~58%.

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, ~~and~~ a disposition fee equal

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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 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 ~~the Company,~~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 ~~equal~~for which it serves as the property manager, in an amount up to 4% of gross revenue. NHS may also earn ana 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. ~~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.~~ 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 ~~earns~~Host Inc., Interstate Management Company, LLC, Aimbridge Hospitality, LLC and KAJ Hospitality Inc. These management companies earn a ~~monthly~~ base management fee ~~for property management services provided with respect to the Southaven Property, including overseeing the day-to-day operations of the hotel property~~ in ~~the~~an amount ~~of 3%~~between 2.5% and 3.0% of gross ~~revenue. Vista also earns an~~revenue, plus monthly accounting fees and in some cases a monthly fee ~~of $1,000 per month~~ for customized accounting services, ~~payable monthly. Vista~~revenue management and digital marketing. They also may ~~also~~ earn an incentive management fee inif certain performance metrics are achieved. We also reimburse the amount, if any, equal to twenty percent (20%) of the hotel’s profit in excess of the prior fiscal year hotel profits, payable within fifteen (15) days of receipt of the final year-end financial statements. We reimburse Vistamanagement companies for certain costs of operating the ~~Southaven Property incurred~~hotel properties on our behalf. All reimbursements are paid to ~~Vista~~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% 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 30, 2022, we have set aside $3.6 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. 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~~Revolving Line of Credit

On February 10, 2020, we entered into a $5.0 million revolving line of credit. The revolving line of 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 of credit was amended to extend the maturity date to May 10, 2021. The revolving line of 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

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March 31, 2021. On May 6, 2021, the revolving line of 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 ~~that date,~~May 6, 2021, the interest rate was also amended to incorporate an interest rate floor equal to 4.00%. On May 5, 2022, the interest rate was 4.5% per annum and on June 15, 2022, the interest rate was 5.25% per annum. The interest rate as of June 30, 2022 was 5.25% per annum. The 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 of 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 of credit, including all cross-collateralized debt, is guaranteed by Corey Maple, the Company’s Chief Executive Officer. As of June 30, ~~2021,~~2022, there was no balance outstanding ~~balance~~ on the ~~line of credit.~~

~~On August 22, 2018, we entered into a $3.0 million~~ revolving line of credit, collateralized by 300,000 partnership units of Lodging Fund REIT III OP, LP. The line of credit had a variable interest rate equal to the U.S. Prime Rate, plus 1.00%, with a minimum rate of 5.00%. The line of credit required monthly payments of interest only, with all principal due at maturity on November 22, 2020. The line of credit was partially guaranteed by each of Corey Maple and Norman Leslie, as executive officers of the Company and members of the Advisor, each in the amount of $1.2 million. ~~The line of credit expired on November 22, 2020 and was not renewed.~~credit.

Mortgage Debt

As of June 30, ~~2021,~~2022, we had ~~$86.9~~$133.6 million in outstanding mortgage debt secured by ~~nine~~each of our fourteen hotel properties, with maturity dates ranging from ~~May~~March 2023 to April 2029. ~~Eight~~Twelve of the loans have fixed interest rates ranging from 3.70% to ~~5.33%, and a weighted-average interest rate of 4.59%~~7.00%. One ~~of the loans~~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%7.12% as of June 30, ~~2021.~~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% as of June 30, 2022. Collectively, the weighted-average interest rate is 5.17%. 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 1218 months following origination, and generally require a balloon payment due at maturity. As of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, certain mortgage debt was guaranteed by the members of the Advisor. ~~Except~~See Note 7 “Related Party Transactions” of the notes to the consolidated financial statements included as ~~described below, we were either in compliance with all~~part of this Quarterly Report on Form 10-Q for additional information regarding debt ~~covenants or received a waiver~~that was guaranteed by members of ~~testing of its debt covenants as of June 30, 2021 and December 31, 2020.~~

the Advisor.

As of June 30, ~~2021,~~2022, we were not in compliance with the required financial covenants under the terms of ~~its~~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. ~~At the onset of a trigger period, the Pineville Loan will enter into a cash management period.~~ We have requested and received a waiver of the financial covenants ~~as of~~for the period ending December 31, 2020, but as of the date of this filing it had not been received. If we are unable to obtain a waiver, the loan will go into cash management, however the other terms of the Pineville Loan will not change, including the timing or amounts of payments, or the expiration date. The lender for our loan secured by the Lubbock Fairfield Property (the “Lubbock Fairfield Loan”) waived the required financial covenants under the terms of the Lubbock Fairfield Loan through June 30, 2021. Other than2022. Except as described above for the Pineville Loan, we were ~~either~~ in compliance with ~~our debt covenants or received a waiver of testing of our~~all debt covenants as of June 30, ~~2021 and December 31, 2020 as noted below.~~2022.

~~Forbearance Agreements and Loan Amendments~~

~~On April 17, 2020, we entered into a Change In Terms Agreement (the “Cedar Rapids Amendment”), amending~~See Note 4 “Debt” of the ~~terms of our original Promissory Note (the “Cedar Rapids Note”), dated March 5, 2019 in the original principal amount of $5.9 million. Pursuant~~notes to the ~~Cedar Rapids Amendment, the maturity date~~consolidated financial statements included as part of ~~the Cedar Rapids Note was extended from March 1, 2024, to September 1, 2024, the requirement to make any replacement reserve deposits was waived until March 1, 2021,~~this Quarterly Report on Form 10-Q for additional information regarding our mortgage debt and ~~the requirement to make any~~information regarding future minimum principal payments of principal and interest was deferred until October 1, 2020. In addition to the Cedar Rapids Amendment, the lender has also waived the required financial covenants under the terms of the Cedar Rapids Note through December 31, 2020.

~~On April 17, 2020, we entered into a Change In Terms Agreement (the “Eagan Amendment”) amending the terms of~~on our original Promissory Note (the “Eagan Note”), dated June 19, 2019 in the original principal amount of $9.4 million. Pursuant to the Eagan Amendment, the maturity date of the Eagan Note was extended from July 1, 2024, to January 1, 2025, the requirement to make any replacement reserve deposits was waived until June 1, 2021, and the requirement to

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make any payments of principal and interest was deferred until October 1, 2020. In addition to the Eagan Amendment, the lender has also waived the required financial covenants under the terms of the Eagan Note through December 31, 2020.

On April 22, 2020, we entered into a Forbearance Agreement (the “Prattville Forbearance Agreement”), effective May 1, 2020, amending the terms of its original loan agreement (the “Prattville Loan”), dated July 11, 2019, in the original principal amount of $9.6 million. Pursuant to the Prattville Forbearance Agreement, we did not make interest payments that were due and payable during the Prattville Forbearance Period (as defined below) which constituted events of default under the terms of the Prattville Loan (collectively, the “Prattville Projected Events of Default”). However, ~~during~~ ~~the Prattville~~ ~~Forbearance Period~~, the lender agreed to forbear from exercising any available rights and remedies under the Prattville Loan and other Loan Documents (as defined in the Prattville Loan) to the extent such rights and remedies arise as a result of the Prattville Projected Events of Default. The lender further agreed to defer the interest accrued during the Prattville Forbearance Period such that the accrued interest of $100,878 was paid-in-kind and added to the outstanding principal balance of the loan. The forbearance period (the “Prattville Forbearance Period”) was the period from May 1, 2020 through July 31, 2020.

On August 14, 2020, the Prattville Loan was amended (the “Prattville Amendment”) to waive the Prattville Projected Events of Default and to adjust other terms of the Prattville Loan. The Prattville Amendment, among other things, extended the required PIP completion date to align with the extension provided by the franchise agreement, adjusted certain financial covenants, put into place certain liquidity requirements and added restrictions on capital expenditures, related party payments, including management fees payable to NHS and loan guarantee fees, and cash distributions until certain financial covenants are achieved. Pursuant to the Prattville Forbearance Agreement and Prattville Amendment, until certain financial covenants are achieved, the borrower may not make any payments for capital expenditures or any distributions and must maintain a minimum cash balance of $155,000 in its hotel operating account. The restriction on distributions precludes the borrower subsidiary entities from making distributions of cash to the Operating Partnership, and as of December 31, 2020, the borrower subsidiary entities had cash balances in the amount of $831,379, which is included in cash and cash equivalents on the accompanying consolidated balance sheets. We were in compliance with the required financial covenants under the terms of the Prattville Amendment through June 30, 2021.

On April 22, 2020, we entered into a Forbearance Agreement (the “Southaven Forbearance Agreement”), effective May 1, 2020, amending the terms of our original loan agreement (the “Southaven Loan”), dated February 21, 2020, in the original principal amount of $13.5 million. Pursuant to the Southaven Forbearance Agreement, we did not make interest payments that were due and payable during the Southaven Forbearance Period (as defined below) which constituted events of default under the terms of the Southaven Loan (collectively, the “Southaven Projected Events of Default”). However, ~~during~~ ~~the Southaven~~ ~~Forbearance Period~~, the lender agreed to forbear from exercising any available rights and remedies under the Southaven Loan and other Loan Documents (as defined in the Southaven Loan) to the extent such rights and remedies arise as a result of the Southaven Projected Events of Default. The lender further agreed to defer the interest accrued during the Southaven Forbearance Period such that the accrued interest of $126,110 was paid-in-kind and added to the outstanding principal balance of the loan. The forbearance period (the “Southaven Forbearance Period”) was the period from May 1, 2020 through July 31, 2020.

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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.~~$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 2two years, which could be extended to 5five 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. After the initial deferral period, each loan required monthly payments of principal and interest until maturity with respect to any portion of such PPP loan which is not forgiven as described below. The initial deferral period ends at either i) the date the SBA remits the borrower’s loan forgiveness amount, or ii) if we have not applied for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. Our covered period ended September 25, 2020, for two of its PPP loans and ended October 2, 2020, for four of its PPP loans. We were permitted to prepay each PPP loan at any time with no prepayment penalties. Under the terms of the CARES Act, PPP loan recipients can apply for, and be granted, forgiveness for all or a portion of loans granted under the PPP. 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 and the maintenance of employee and compensation levels. As of December 31, 2020, the outstanding balance of the PPP Loans was $763,100. 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 iswas five years. The interest rate on each Second Draw PPP loan iswas 1.0% per annum, which ~~shall be~~was deferred for the first sixteen months of the term of the loan. After the initial sixteen-month deferral period, each loan requires monthly payments of principal and interest until maturity with respect to any portion of such Second Draw PPP loan which is not forgiven as described below. We are permitted to prepay each Second Draw PPP loan at any time with no prepayment penalties.

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 iswas five years. The interest rate on the PPP loan iswas 1.0% per annum, which ~~shall be~~was deferred for the first sixteen months of the term of the loan. After the initial sixteen-month deferral period, the loan requires monthly payments of principal and interest until maturity with respect to any portion of the PPP loan which is not forgiven as described below. We are permitted to prepay the PPP loan at any time with no prepayment penalties.

In April 2021, ~~the Company,~~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 iswas five years. The amount of the Southaven TRS Second Draw PPP loan iswas $119,500. The interest rate on the Southaven TRS Second Draw PPP loan iswas 1.0% per annum, which ~~shall be~~was deferred for the first sixteen months of the term of the loan. After the initial sixteen-month deferral period, the loan requires monthly payments of principal and interest until maturity with respect to any portion of the loan which is not forgiven as described below. The Company is permitted to prepay the Southaven TRS Second Draw PPP loan at any time with no prepayment penalties.

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. ~~The remaining $119,500 relates to~~In August 2021, we received forgiveness on the full balance of the Southaven TRS ~~PPP~~ Second Draw ~~and forgiveness will be applied for.~~PPP loan.

Employee Retention Credit (“ERC”)

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~~Termination of Contribution Agreement~~

~~On June 11, 2021, we were deemed to have exercised our right to terminate~~Under the ~~contribution agreement for the purchase~~provisions of the ~~Fairfield Inn & Suites Corpus Christi Aransas Pass hotel upon~~CARES Act, and the ~~expiration~~subsequent extension of the ~~inspection period. The $50,000 earnest money deposit contributed by~~CARES Act, the ~~Operating Partnership~~Company was ~~returned~~eligible for a refundable Employee Retention Credit (“ERC”) subject to certain criteria. During 2021, the Company applied for and received a $0.4 million employee retention credit that is included in ~~whole~~other income (expense) in the consolidated statements of operations. During the six months ended June 30, 2022, the Company received an employee retention credit applied for in 2021 in the amount 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.

Properties Under Contract

As of the date of this filing, we have six 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 ~~Operating Partnership.~~

~~Outlook~~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.

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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 Six Months Ended June 30,
	2021		2020		2022		2021
Net cash used in operating activities	$	(438,860)	$	(1,491,302)	$	(3,272,340)	$	(438,860)
Net cash used in investing activities		(3,431,604)		(27,839,152)		(4,257,530)		(3,431,604)
Net cash provided by financing activities		5,006,718		23,471,107		7,053,196		5,006,718
Net (decrease) increase in cash, cash equivalents and restricted cash	$	1,136,254	$	(5,859,347)	$	(476,674)	$	1,136,254

Cash Flows ~~Used In~~From Operating Activities

As of June 30, ~~2021,~~2022, we owned ~~nine~~fourteen hotel properties. During the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, net cash used in operating activities was ~~$0.4~~$3.3 million and ~~$1.5~~$0.4 million, respectively. Our cash flows used in operating activities generally consist of the net cash generated by ~~or used in~~ our hotel operations, partially offset by the cash paid for corporate expenses and other working capital changes. See ~~“Market~~“— 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 months ended June 30, ~~2021~~2022 and ~~2020.~~2021.

Cash Flows ~~Used In~~From Investing Activities

Net cash used in investing activities was $4.3 million for the six months ended June 30, 2022 and primarily consisted of $3.3 million for the improvements and additions to hotel properties. Net cash used in investing activities was $3.4 million for the six months ended June 30, 2021 and primarily consisted of $2.2 million ~~used for the acquisition of two hotel properties. Net cash used in investing activities was $27.8 million for the six months ended June 30, 2020 and primarily consisted of $27.2 million used~~ for the acquisition of two hotel properties.

Cash Flows ~~Provided By~~From Financing Activities

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

●

$11.4 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 $2.2 million;

●

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

●

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

●

$0.1 million of increase in finance lease liability; and

●

$0.6 million paid for share redemptions.

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

●

$5.9 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 million;

●

$~~0.0~~0.9 million of net cash ~~provided~~used by debt financing as a result of proceeds from debt financing of ~~$1.9~~$1.0 million, offset by principal payments on debt of ~~$1.4~~$1.5 million and payments of financing costs of $0.5 million;

●

$0.9 million of net cash provided from PPP loans;

●

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

●

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

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~~During the six months ended June 30, 2020, net cash provided by financing activities was $23.5 million and consisted primarily of the following:~~

●

$~~9.2 million of net cash provided by offering proceeds related to our Offering, net of payments of commissions and other offering costs of $2.1 million;~~

●

$15.1 million of net cash provided by debt financing as a result of proceeds from debt financing of $21.0 million, partially offset by principal payments on debt of $5.3 million and payments of financing costs of $0.6 million;

●

~~$0.7 million of net cash distributions, after giving effect to distributions reinvested by stockholders of $0.4 million;~~

●

~~and $0.1~~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 quarters of ~~2021~~2022 and during each quarter of ~~2020:~~2021:


															Distribution								Net Cash
													Distributions		Declared Per		Distributions Paid ⁽³⁾						Flows Provided By
Period													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)
Second Quarter 2022														1,540,200		0.175		1,203,791		526,159		1,729,950		20,841
													$	3,096,508	$	0.350	$	2,137,255	$	1,093,399	$	3,230,654	$	(3,272,340)

			Distribution								Net Cash				Distribution								Net Cash
	Distributions		Declared Per		Distributions Paid ⁽³⁾⁽⁴⁾						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
Fourth Quarter 2021														1,527,992		0.175		1,340,091		551,391		1,891,482		(732,378)
	$	2,895,254	$	0.350	$	497,709	$	2,188,908	$	2,686,617	$	(438,860)	$	5,923,269	$	0.700	$	2,952,751	$	3,964,040	$	6,916,791	$	(1,048,398)

			Distribution								Net Cash
	Distributions		Declared Per		Distributions Paid ⁽³⁾						Flows Used in
Period	Declared ⁽¹⁾		Share ^(1) (2)		Cash		Reinvested		Total		Operations
First Quarter 2020	$	1,204,910	$	0.175	$	691,604	$	418,286	$	1,109,890	$	(1,141,973)
Second Quarter 2020		1,313,186		0.175		—		—		—		(349,329)
Third Quarter 2020		1,368,309		0.175		213,784		1,410,688		1,624,472		892,326
Fourth Quarter 2020		1,397,802		0.175		245,789		1,054,379		1,300,168		(202,710)
	$	5,284,207	$	0.700	$	1,151,177	$	2,883,353	$	4,034,530	$	(801,686)

(1)

Distributions for the periods from January 1, ~~2020~~2021 through ~~March 31, 2021~~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 ~~April~~January 1, ~~2020~~2021 through ~~June 30, 2020~~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 July 1, 2020 through September 30, 2020, October 1, 2020 through December 31, 2020 and January 1, 2021 through March 31, 2021 were payable to each stockholder 30% in cash (or through the DRP 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 period from April 1, 2021 through June 30, 2021 were payable to each stockholder 60% in cash ~~)or~~(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 30, 2022 were payable to each stockholder as 100% in cash on a monthly basis of common stock valued at $10.00 per share.

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

(3)

~~Distributions for the period from January 1, 2020 through February 29, 2020 were paid on a monthly basis, generally on or about the tenth day of the month following the record date of a given month.~~Beginning the second quarter of 2020 through the second quarter of 2021, distributions ~~if any,~~ were ~~declared and~~ paid on a quarterly ~~basis~~basis. Beginning ~~July~~in the third quarter of 2021, distributions ~~if any, will be declared and~~were paid on a monthly basis. In general, distributions for all record dates of a given ~~quarter~~month are paid on or about the tenth day of the ~~first month~~ following ~~the end of a quarter.~~month.

~~(4)~~

~~Distributions for the period from March 1, 2020 through March 31, 2020, and April 1, 2020 through June 30, 2020 were paid in July 2020.~~

For the six months ended June 30, ~~2021,~~2022, we paid aggregate distributions of ~~$2.7~~$3.2 million, including ~~$0.5~~$2.1 million of distributions paid in cash and ~~$2.2~~$1.1 million of distributions reinvested through our ~~dividend~~distribution reinvestment plan. Our net loss for the six months ended June 30, ~~2021~~2022 was ~~$2.3~~$6.6 million. Net cash flow used in operations for the six months ended June 30, ~~2021~~2022 was ~~$0.4~~$3.3 million.

~~Table~~ We funded 100% of ~~Contents~~our distributions paid, which includes cash distributions and distributions reinvested by stockholders, with proceeds from the Offering.

For the year ended December 31, ~~2020,~~2021, we paid aggregate distributions of ~~$4.0~~$6.9 million, including ~~$1.1~~$3.0 million of distributions paid in cash and ~~$2.9~~$4.0 million of distributions reinvested through our dividend reinvestment plan. Our net loss for the year ended December 31, ~~2020~~2021 was ~~$6.1~~$5.3 million. Net cash flows used in operations for the year ended December 31, ~~2020~~2021 was ~~$0.8~~$1.0 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.

~~Our~~Going forward we expect our board of directors ~~has determined that, due~~ to ~~the accelerated demand~~continue to authorize and ~~performance during the second quarter of 2021 and the beginning of the third quarter of 2021, it would transition from considering, declaring and paying~~declare distributions, ~~to stockholders,~~ if at all, based on ~~a quarterly basis~~daily record dates and to ~~doing so~~pay these distributions on a monthly ~~basis, beginning in July 2021. Cash and stock distributions~~basis. 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.~~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. 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

Our results of operations for the ~~three and~~ six months ended June 30, ~~2021~~2022 and ~~2020~~June 30, 2021 are not indicative of those expected in future periods, as we were actively raising capital through our ~~securities offerings and~~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, ~~2021~~2022 and ~~2020.~~June 30, 2021. As of June 30, 2022 and 2021, we ~~had~~ owned nine and seven ~~of our nine~~ properties, respectively, for a full ~~12 month~~12-month operating cycle. After receiving all necessary third-party approvals, the Lakewood Property, acquired March 29, 2022, will open for operation.

In evaluating financial condition and operating performance, we believe Revenue per Available Room (“RevPAR”), which we calculate by dividing total gross room ~~sales~~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. ~~RevPAR is equal to the total gross room revenue divided by the total number of available rooms for the period.~~

Comparison of the three months ended June 30, 2022 versus the three months ended June 30, 2021 ~~versus~~ ~~the three months ended June 30, 2020~~

Revenue

Room revenues totaled ~~$6.2~~$11.8 million and ~~$2.6~~$6.2 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Other revenue, which consists primarily of hotel food and beverage revenues as well as revenues from other hotel services, was ~~$164,269~~$0.6 million and ~~$49,843~~$0.2 million for the three months ended June 30, 2022 and 2021, respectively. Hotel occupancy, ADR, and ~~2020, respectively.~~RevPAR were 71.05%, $117.82, and $83.71, respectively, for the three months ended June 30, 2022. Hotel occupancy, ADR, and RevPAR were 69.05%, $104.17, and $71.93, respectively, for the three months ended June 30, 2021. ~~Hotel~~We define our comparable hotel properties as our properties that were open throughout the periods we are comparing. For the eight comparable hotel properties, hotel occupancy, ADR, and RevPAR were ~~44.04%~~76.31%, ~~$92.27,~~$121.76, and ~~$40.64,~~$92.92, respectively, for the three months ended June 30, ~~2020.~~2022. For the same eight properties, hotel occupancy, ADR, and RevPAR were 72.03%, $104.66, and $75.39, respectively, for the three months ended June 30, 2021. The increases in hotel occupancy rates, ADR and ~~RevPar was~~RevPAR were primarily due to the ongoing recovery in lodging demand from the impacts of COVID-19 during ~~the first half of 2021.~~2022. Hotel properties acquired during ~~the six months ended June 30, 2021~~2022 contributed ~~$0.9~~$1.5 million to the increase in room revenues and $0.1 million to the increase in other revenue for the three months ended June 30, ~~2021.~~2022. See ~~“Market~~“— Market Outlook” for a discussion of the current and expected impact of the COVID-19 pandemic and inflationary pressures on our business.

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Property Operations Expenses

Property operations expenses were ~~$2.6~~$5.8 million and ~~$1.0~~$2.6 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~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 ~~$1.5~~$3.3 million increase in property operations expenses was primarily due to ~~increased hotel occupancy rates at our existing seven hotel properties and $0.7 million of property operations expenses resulting from~~ the acquisitions of the ~~Aurora~~Fargo, El Paso Airport, and ~~El Paso~~Lakewood hotel properties in January, February, and ~~May 2021,~~March 2022, respectively.

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General and Administrative Expenses

General and administrative expenses were ~~$1.7~~$2.4 million and ~~$1.1~~$1.7 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. General and administrative expenses consist primarily of administrative personnel costs, rent, professional fees and the cost of office supplies and equipment. The ~~$0.6~~$0.7 million increase in general and administrative expenses was primarily due to ~~a $0.2 million increase in professional fees and $0.1 million of expenses resulting from~~ the ~~addition~~acquisitions of the ~~Aurora and~~Fargo, El Paso Airport, and Lakewood hotel ~~properties.~~properties during the first quarter of 2022.

Sales and Marketing Expenses

Sales and marketing expenses were ~~$0.5~~$0.8 million and ~~$0.2~~$0.5 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~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 million increase in sales and marketing expenses was primarily due to ~~a $0.2 million increase in advertising~~the Fargo, El Paso Airport, and ~~other marketing costs at our existing seven hotel properties and $0.1 million of expenses resulting from the addition of the Aurora and El Paso~~Lakewood hotel properties.

Franchise Fees

Franchise fees were ~~$0.5~~$1.1 million and ~~$0.2~~$0.5 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~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 ~~$0.3~~$0.6 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 of the ~~Aurora~~Fargo, El Paso Airport, and ~~El Paso~~Lakewood hotel properties.

Management Fees

Management fees were ~~$0.6~~$0.9 million and ~~$0.3~~$0.6 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~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~~Advisor increased by ~~$0.1~~$0.2 million. We experienced increased management fees across ~~all of~~ our ~~properties~~portfolio primarily due to higher ~~RevPar~~RevPAR resulting from the ongoing recovery in lodging demand from the impacts of COVID-19.

Acquisition Expenses

Acquisition expenses were ~~$20,977~~($6,213) and ~~$264,999~~$20,977 for the three months ended June 30, ~~2021~~2022 and ~~2020,~~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. The decrease in acquisition expenses is primarily related to acquisition-related and due diligence costs incurred in ~~2020~~2021 for properties that were not acquired.

Depreciation

Depreciation expense was $1.7 million and $1.2 million for the three months ended June 30, 2022 and 2021, respectively. The $0.5 million increase in depreciation expense was primarily due to the acquisitions of the Fargo, El Paso Airport, and Lakewood hotel properties.

Other Income (Expense), net

Other income (expense), net was ($258,656) and ($97,008) for the three months ended June 30, 2022 and 2021, respectively. The change was primarily due to increases in transition expenses at newly acquired properties.

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~~Depreciation~~PPP Loan Forgiveness

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

Interest Expense

Interest expense was ~~$1.2~~$2.2 million and ~~$0.9~~$1.0 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~$0.3 million increase in depreciation expense was primarily due to the addition of the Aurora and El Paso hotel properties.~~

~~Other Income~~

~~Other income was $0.7 million and $0.4 million for the three months ended June 30, 2021 and 2020, respectively. The increase in other income was primarily due to the forgiveness of PPP loans.~~

~~Interest Expense~~

~~Interest expense was $1.0 million and $0.8 million for the three months ended June 30, 2021 and 2020, respectively. The $0.2~~$1.2 million increase in interest expense was primarily due to the increase in ~~hotel~~ mortgage debt ~~used to acquire~~from the ~~Aurora and~~acquisitions of the Fargo, El Paso ~~Properties.~~Airport, and Lakewood hotel properties in January, February, and March 2022, respectively. 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 months ended June 30, 2022 versus the six months ended June 30, 2021 ~~versus~~ ~~the six months ended June 30, 2020~~

Revenue

Room revenues totaled ~~$9.9~~$20.6 million and ~~$6.4~~$9.9 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Other revenue, which consists primarily of hotel food and beverage revenues as well as revenues from other hotel services, was ~~$0.2~~$1.1 million and ~~$0.1~~$0.2 million for the six months ended June 30, 2022 and 2021, respectively. Hotel occupancy, ADR, and ~~2020, respectively.~~RevPAR were 66.51%, $112.74, and $74.98, respectively, for the six months ended June 30, 2022. Hotel occupancy, ADR, and RevPAR were 65.78%, $100.12, and $65.86, respectively, for the six months ended June 30, 2021. ~~Hotel~~For the seven comparable hotel properties, hotel occupancy, ADR, and RevPAR were ~~51.73%~~73.26%, ~~$100.63,~~$116.04, and ~~$52.05,~~$85.01, respectively, for the six months ended June 30, ~~2020.~~2022. For the same seven properties, hotel occupancy, ADR, and RevPAR were 70.57%, $99.44, and $70.18, respectively, for the six months ended June 30, 2021. The increases in hotel occupancy rates, ADR and ~~RevPar was~~RevPAR were primarily due to the ongoing recovery in lodging demand from the impacts of COVID-19 during ~~the first half of 2021.~~2022. Hotel properties acquired during ~~the six months ended June 30, 2021~~2022 contributed ~~$0.9~~$2.4 million to the increase in room revenues and $0.1 million to the increase in other revenue for the six months ended June 30, ~~2021.~~2022. See ~~“Market~~“— 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 ~~$4.3~~$10.6 million and ~~$2.7~~$4.3 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~$1.6~~$6.3 million increase in property operations expenses was primarily due to increased ~~RevPar~~RevPAR at our existing ~~seven~~eleven hotel properties, and ~~$0.8~~$1.3 million of additional property operations expenses resulting from the acquisitions of the ~~Aurora~~Fargo, El Paso Airport, and ~~El Paso~~Lakewood hotel properties in January, February, and ~~May 2021,~~March 2022, respectively.

General and Administrative Expenses

General and administrative expenses were ~~$3.0~~$4.6 million and ~~$2.5~~$3.0 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~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 ~~a $0.4 million increase in professional fees and $0.1 million of expenses resulting from~~ the acquisitions of the ~~Aurora and~~Fargo, El Paso Airport, and Lakewood hotel ~~properties.~~properties during the first quarter of 2022.

Sales and Marketing Expenses

Sales and marketing expenses were ~~$0.8~~$1.4 million and ~~$0.6~~$0.8 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~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 ~~$0.2~~$0.6 million increase in sales and marketing expenses was primarily due to the acquisitions of the Fargo, El Paso Airport, and Lakewood hotel properties.

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primarily due to a $0.1 million increase in advertising and other marketing costs at our existing seven hotel properties and $0.1 million of expenses resulting from the addition of the Aurora and El Paso hotel properties.

Franchise Fees

Franchise fees were ~~$0.8~~$1.9 million and ~~$0.5~~$0.8 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~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 ~~$0.3~~$1.1 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 of the ~~Aurora~~Fargo, El Paso Airport, and ~~El Paso~~Lakewood hotel properties.

Management Fees

Management fees were ~~$1.0~~$1.7 million and ~~$0.7~~$1.0 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~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~~Advisor increased by ~~$0.1~~$0.3 million. We experienced increased management fees, paid to the franchisor, across ~~all of~~ our properties primarily due to higher ~~RevPar~~RevPAR resulting from the ongoing recovery in lodging demand from the impacts of COVID-19.

Acquisition Expenses

Acquisition expenses were ~~$48,443~~$7,304 and ~~$337,994~~$48,443 for the six months ended June 30, ~~2021~~2022 and ~~2020,~~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. The decrease in acquisition expenses is primarily related to acquisition-related and due diligence costs incurred in ~~2020~~2021 for properties that were not acquired.

Depreciation

Depreciation expense was ~~$2.2~~$3.3 million and ~~$1.7~~$2.2 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~$0.5~~$1.2 million increase in depreciation expense was primarily due to the ~~addition~~acquisitions of the ~~Aurora~~Fargo, El Paso Airport, and ~~El Paso~~Lakewood hotel properties.

Other Income (Expense), net

Other income (expense), net was ~~$1.4 million~~($458,049) and ~~$0.3 million~~($181,233) for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The ~~increase in other income~~change was primarily due to the acquisitions of the Fargo, El Paso Airport, and Lakewood hotel properties.

PPP Loan Forgiveness

PPP loan forgiveness ~~of PPP loans.~~

~~Interest Expense~~

~~Interest expense~~income was ~~$2.0 million~~$0 and $1.6 million for the six months ended June 30, 2022 and 2021, respectively. During the six months ended June 30, 2021, we received forgiveness on the Original, Second Draw, and ~~2020,~~Southaven TRS PPP loans. See “Paycheck Protection Program (“PPP”) Loans” for a detailed discussion on PPP loans and forgiveness.

Interest Expense

Interest expense was $4.6 million and $2.0 million for the six months ended June 30, 2022 and 2021, respectively. The ~~$0.4~~$2.7 million increase in interest expense was primarily due to the increase in ~~hotel~~ mortgage debt ~~used to acquire~~from the ~~Aurora and~~acquisitions of the Fargo, El Paso ~~Properties.~~Airport, and Lakewood hotel properties. 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~~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 ~~Policies~~Estimates

Below is a discussion of the accounting ~~policies~~estimates that management believes are or will be critical to our operations. We consider these ~~policies~~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

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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 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 ~~will be~~are capitalized and transaction costs associated with business combinations ~~will~~would 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 ~~their respective~~a relative fair ~~values~~value basis at the date of acquisition. For transactions determined to be business ~~combination, we record~~combinations, 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, ~~15 years for building improvements,~~ 40 years for buildings and building improvements and three to seven 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 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.

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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~~measurement.

Off-Balance Sheet Arrangements

As of June 30, ~~2021~~2022 and December 31, ~~2020,~~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.

Subsequent Events

Distributions Declared or Paid

On July ~~9, 2021,~~7, 2022, we ~~paid~~declared cash distributions totaling ~~$1.4 million, consisting of $0.5 million in~~$358,880, DRIP distributions totaling $168,460, cash distributions totaling $35,706 for Common Limited Units of the Operating Partnership and ~~$0.9 million~~cash distributions totaling $34,925 for Series GO LP Units of ~~distributions paid~~the Operating Partnership, at a daily rate of $0.00191781 per share of Common Stock in ~~shares~~the Company, equivalent to an annualized rate of ~~common stock issued through~~seven percent (7.00%) per share based on the ~~DRIP,~~Company’s current share net asset value of $10.00, for daily record dates ~~in the period from April~~June 1 ~~2021~~ through June 30, ~~2021.~~

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 ~~4, 2021, the Company~~2, 2022, we declared cash distributions totaling ~~$293,409 and~~$401,125, DRIP distributions totaling ~~$177,588,~~$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, ~~2021~~2022 to holders of record on each calendar day of such period. The distribution declared for July ~~2021~~2022 was paid on August 10, ~~2021.~~2022.

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Recent Property Acquisitions

Residence Inn by Marriott Fort Collins – Fort Collins, Colorado

On August 3, ~~2021,~~2022, the Operating Partnership acquired ~~the Hilton Garden~~a Residence Inn ~~Houston Bush Intercontinental Airport~~by Marriott hotel property in ~~Houston, Texas~~Fort Collins, Colorado (the ~~“Houston Hilton Garden Inn~~“Fort Collins RI Property”) pursuant to ~~the Second Amended and Restated~~a Contribution Agreement dated as of February 1, 2022, as amended (the ~~“Second~~“Fort Collins RI Amended Contribution Agreement”)~~, dated the same date.~~. The aggregate ~~contractual~~ consideration under the ~~Second~~Fort Collins RI Amended Contribution Agreement ~~was $19,516,112~~is $17,700,000 plus closing costs, subject to adjustment as provided in the ~~Second~~Fort Collins RI Amended Contribution Agreement. The consideration consists of the refinancing of RLC V RIFC, LLC’s (the “Contributor”) existing loan with a new loan ~~entered~~

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~~into~~(the “Fort Collins RI Loan”) by subsidiaries of the Operating Partnership with Legendary A-1 Bonds, LLC (the ~~“Lender”~~“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 ~~$13 million~~$11,500,000 secured by the ~~Houston Hilton Garden Inn~~Fort Collins RI Property, ~~(the “Houston Loan”). The remaining consideration consists of~~ the issuance by the Operating Partnership of ~~651,611.162~~560,369 Series T Limited Units of the Operating Partnership, ~~for~~and the ~~contribution~~payment of ~~the 182-room property to the Operating Partnership. Pursuant to the Second Amended Contribution Agreement,~~$596,310.09 by the Operating Partnership in cash at Closing for delinquent taxes, which amount is ~~responsible for~~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 ~~$485,000~~48 months, after the closing, or upon the sale of ~~certain closing costs~~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 ~~agreed upon by~~issued to the ~~parties.~~contributor based on such conversion may be higher or lower than the initial valuation of the Series T LP Units. The ~~Houston~~Fort Collins RI Loan ~~is evidenced by a promissory note and~~ has a fixed interest rate of 7.0% per ~~annum.~~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 ~~Houston~~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 on August 2, ~~2022,~~2023, which may be extended by ~~the Borrower~~us for an additional one-year term upon satisfaction of certain conditions contained in the ~~Loan Agreement,~~loan agreement, including no then-existing event of ~~default. The Houston~~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 ~~Houston~~Fort Collins RI Loan in full ~~without~~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 ~~fee subject~~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 ~~certain conditions~~August 2, 2028, then the unpaid principal on Tranche 3 will be forgiven by the Fort Collins RI Lender.

In connection with the acquisition, we entered into a management agreement with ~~Interstate Management~~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

~~We funded~~ HDI also reimburses Aimbridge for certain costs of operating the ~~acquisition~~property incurred on behalf of the ~~Houston Hilton Garden~~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.

Property 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 ~~with proceeds from our ongoing private offering, Series T units issued~~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 us or Legendary Capital REIT III, LLC, our external 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 ~~described above, and a new loan~~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 ~~Houston Hilton Garden Inn~~Wichita HIEX Hotel Property. The ~~Houston Hilton Garden Inn~~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.

We are still conducting our diligence review with respect to this property. This pending acquisition is subject 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, the Operating Partnership entered into a ~~182-room property.~~$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 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, ~~2021,~~2022, we paid the outstanding redemption proceeds related to the June ~~2021~~2022 redemption of ~~41,996~~57,614 shares of common stock for ~~$400,291,~~$575,879 per the terms of ~~our~~the Share Repurchase Plan.

Status of the ~~GO Unit~~ Offering

As of August ~~13, 2021,~~11, 2022, our ~~GO Unit Offering~~private offering remained open for new investment, and since the inception of the offering we ~~had~~have issued and sold ~~1,538,152 Series GO LP Units, resulting in the receipt of gross GO Unit Offering proceeds of $10.6 million.~~

~~Status of the Offering~~

~~As of August 13, 2021, our private offering of common stock remained open for new investment, and since the inception of the offering we had issued and sold 8,253,421~~9,561,096 shares of common stock, including ~~733,138~~957,091 shares issued pursuant to the DRIP, resulting in the receipt of gross offering proceeds of ~~$79.8~~$90.8 million.

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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.~~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 effective.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended June 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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 are no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2020,~~2021, filed with the SEC on March 31, ~~2021.~~ 2022.

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

Unregistered Sales of Equity Securities

Initial Offering

On June 1, 2018, we commenced ~~a private placement~~an offering (the “Offering”) of up to $100,000,000 in shares of our common ~~stock.~~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(2)~~4(a)(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, 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 30, ~~2021,~~2022, we sold ~~197,271~~542,710 shares of common stock in the private offering, resulting in gross offering proceeds of approximately ~~$1.9~~$5.3 million, including ~~116,535~~55,385 shares issued pursuant to our dividend reinvestment plan. During the three months ended June 30, ~~2021,~~2022, aggregate selling commissions of ~~$45,167~~$0.3 million and marketing and diligence allowances and other wholesale selling costs and expenses of ~~$268,287~~$0.4 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 ~~may~~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 iswas 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~~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

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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 30, ~~2021, the Company has~~2022, we sold and issued ~~and sold 193,083~~20,061 Series GO LP Units ~~and received aggregate~~in the GO Unit Offering,resulting in gross proceeds of ~~$1.3~~$0.1 million. During the three months ended June 30, ~~2021,~~2022, aggregate selling commissions of ~~$93,920~~$9,373 and marketing and diligence allowances and other wholesale selling costs and expenses of ~~$42,747~~$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 30, 2022, the Operating Partnership did not issue any Series T LP. 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, weAugust 3, 2021 and December 3, 2021. These securities were issued 150,000 Series T Limited Units to the Contributor of the Holiday Inn El Paso Property in connection with the closing of the contribution of that property. The Operating Partnership issued 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 offered and sold only to purchasers who are “accredited investors,” as defined in Rule 501 of Regulation D of the Securities ~~Act, and without~~Act. Subject to the ~~use~~terms of ~~general solicitation, as that concept is embodied in Regulation D. The~~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 ~~will convert~~be eligible for conversion into Common LP Units beginning 36 months 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 ~~beginning 36 months, or at~~and the ~~option of~~formula set forth in the ~~Contributor, up to 48 months, after~~contribution agreement between the ~~closing.~~Operating Partnership and the Series T Limited Partner. The number of Common LP Units to be issued to the ~~Contributor upon~~contributor based on such conversion will be based upon a capitalization rate applied to the then-current trailing 12-month NOI of the Holiday Inn El Paso Property less amounts incurred or accrued by the Operating Partnership for (i) $100,000 contribution towards closing costs, (ii) the loan balance outstanding as of the closing date as assumed by Operating Partnership, (iii) loan assumption fees and related expenses, (iv) if applicable, costs of defeasance and related expenses, (v) property improvement plan (“PIP”) and capital expenditures, (vi) operating cash infused by the Operating Partnership, (vii) any shortfall of a 10% minimum cumulative yield on the Company’s invested capital, and (viii) any other unrealized or unreimbursed costs of operating the Holiday Inn El Paso, calculated pursuant to the terms of the contribution agreement, which may be higher or lower than the initial ~~valuation.~~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.~~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 months ended June 30, 2022, the Operating Partnership did not issue any Common LP Units.

Share Repurchase Plan

The board of directors has adopted a ~~Share Repurchase Plan~~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.~~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:~~share repurchase plan:

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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~~share repurchase plan upon 10 business days’ notice to our stockholders.

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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~~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~~share repurchase plan or because of a suspension of our ~~Share Repurchase Plan,~~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~~share repurchase plan and (ii) increase or decrease the funding available for the repurchase of shares pursuant to our ~~Share Repurchase Plan.~~share repurchase plan.

Shares Repurchased

Pursuant to the terms of our Share Repurchase Plan, we will repurchase shares within 21 days following the end of a calendar quarter. During the six months ended June 30, 2022, we repurchased shares of our common stock in the amounts below. In addition to these amounts, in June ~~2021,~~2022, we received a request to repurchase ~~41,996~~57,614 shares. The repurchase proceeds of ~~$400,291~~$575,879 were paid on July 21, ~~2021~~2022 in accordance with the terms of our Share Repurchase ~~Plan.~~Plan with an average price paid per share of $10.00. The ~~$400,291~~$575,879 is included in other liabilities on the accompanying consolidated balance sheets as of June 30, ~~2021~~2022 included as part of this Quarterly Report on Form 10-Q.

We ~~limit~~fulfilled all repurchase

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requests received during the ~~dollar value of shares that may be redeemed~~six months ended June 30, 2022, During the six months ended June 30, 2022, we funded repurchases under ~~the~~our share repurchase 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 redemption~~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
January 2022		30,383	$	9.85		(1)
February 2022		—	$	—		(1)
March 2022		—	$	—		(1)
Total		30,383
April 2022		64,306	$	9.92		(1)
May 2022		—	$	—		(1)
June 2022		—	$	—		(1)
Total		64,306
Six Months Ended June 30, 2022		94,689

(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 shares pursuant to repurchase requests received during the six months ended June 30, 2022, which represents an original investment of $1,219,207 for $1,214,053. As of June 30, 2022, $575,879 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 30, ~~2021, there was $3,295,189~~2022 we have $1,856,279 available for eligible repurchases for the remainder of ~~2021.~~

2022 after accounting for the outstanding redemption proceeds not yet paid on June 30, 2022.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None.~~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

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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

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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.

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.

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Item 6. Exhibits


~~Ex.~~
~~3.1~~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 ~~the~~ 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)

~~3.4~~4.1		~~First Amendment to the Amended and Restated Limited Partnership Agreement~~Dividend Reinvestment Plan of the ~~Operating Partnership, effective as of February 4, 2021 (incorporated by reference to Exhibit 3.7 to the Company’s Annual Report on Form 10-K filed March 31, 2021)~~Registrant

~~Table of Contents~~


~~Ex.~~
~~3.5~~	*	~~Second Amendment to the Amended and Restated Limited Partnership Agreement of the Operating Partnership, effective as of May 12, 2021~~
~~3.6~~	*	~~Third Amendment to the Amended and Restated Limited Partnership Agreement of the Operating Partnership, effective as of August 3, 2021~~
~~4.1~~		~~Dividend Reinvestment Plan~~ (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)

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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

~~10.1~~10.217*	~~Amended and Restated~~Fifth Amendment to Contribution Agreement ~~dated as of January 29, 2021,~~ by and between the Operating Partnership and ~~LN Hospitality Denver,~~RLC-IV CYFC, LLC for the ~~Aurora Property (incorporated~~Courtyard by ~~reference to Exhibit 10.84 to the Company’s Annual Report on Form 10-K filed March 31, 2021)~~Marriott Fort Collins, dated as of August 3, 2022

~~10.2.1~~10.219*	Loan Agreement by and among LF3 ~~Aurora,~~RIFC, LLC, LF3 ~~Aurora~~RIFC TRS, LLC, and ~~Access Point Financial,~~Legendary A-1 Bonds, LLC ~~relating~~related to the ~~Aurora~~Residence Inn Fort Collins Property, dated as of ~~February 4, 2021 (incorporated by reference to Exhibit 10.85.1 to the Company’s Annual Report on Form 10-K filed March 31, 2021)~~August 3, 2022

~~10.2.2~~10.220*	Tranche 1 Promissory Note ~~issued~~ by LF3 ~~Aurora,~~RIFC, LLC, LF3 RIFC TRS, LLC, and ~~LF3 Aurora TRS,~~Legendary A-1 Bonds, LLC ~~to Access Point Financial, LLC, relating~~related to the ~~Aurora~~Residence Inn Fort Collins Property, dated as of ~~February 4, 2021 (incorporated by reference to Exhibit 10.85.2 to the Company’s Annual Report on Form 10-K filed March 31, 2021)~~August 3, 2022

~~10.2.3~~10.221*	~~Fee and Leasehold Deed of Trust and Security Agreement~~Tranche 2 Promissory Note by ~~and among~~ LF3 ~~Aurora,~~RIFC, LLC, LF3 ~~Aurora~~RIFC TRS, LLC, and ~~Access Point Financial,~~Legendary A-1 Bonds, LLC ~~relating~~related to the ~~Aurora~~Residence Inn Fort Collins Property, dated as of ~~February 4, 2021 (incorporated by reference to Exhibit 10.85.3 to the Company’s Annual Report on Form 10-K filed March 31, 2021)~~August 3, 2022

~~10.2.4~~10.222*	~~Guaranty Agreement,~~Tranche 3 Promissory Note by ~~and among Access Point Financial,~~LF3 RIFC, LLC, LF3 ~~Aurora, LLC, LF3 Aurora~~RIFC TRS, LLC, and ~~the Company, relating~~Legendary A-1 Bonds, LLC related to the ~~Aurora~~Residence Inn Fort Collins Property, dated as of ~~February 4, 2021 (incorporated by reference to Exhibit 10.85.4 to the Company’s Annual Report on Form 10-K filed March 31, 2021)~~August 3, 2022

~~10.2.5~~10.223*	~~Environmental Indemnity~~Guaranty Agreement by ~~and among LF3 Aurora, LLC, LF3 Aurora TRS, LLC, and~~ the ~~Company, to Access Point Financial, LLC, relating~~Operating Partnership in favor of Legendary A-1 Bonds related to the ~~Aurora Property,~~Residence Inn Fort Collins Loan, dated as of ~~February 4, 2021 (incorporated by reference to Exhibit 10.85.5 to the Company’s Annual Report on Form 10-K filed March 31, 2021)~~

~~10.2.6~~		Assignment of Leases and Rents by and among LF3 Aurora, LLC, LF3 Aurora TRS, LLC and Access Point Financial, LLC, relating to the Aurora Property, dated as of February 4, 2021 (incorporated by reference to Exhibit 10.85.6 to the Company’s Annual Report on Form 10-K filed March 31, 2021)

~~10.2.7~~		Agreement for Subordination of Payments to Related Parties by and among LF3 Aurora, LLC, LF3 Aurora TRS, LLC and Access Point Financial, LLC, relating to the Aurora Property, dated as of February 4, 2021 (incorporated by reference to Exhibit 10.85.7 to the Company’s Annual Report on Form 10-K filed March 31, 2021)August 3, 2022

5266

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~~Ex.~~
~~10.2.8~~10.224*	~~Pledge~~Environmental Indemnity Agreement by and between ~~Lodging Fund REIT III OP, LP~~LF3 RIFC, LLC, LF3 RIFC TRS, LLC, the Operating Partnership and ~~Access Point Financial,~~Legendary A-1 Bonds, LLC ~~relating~~related to ~~LF3 Aurora, LLC and~~ the ~~Aurora~~Residence Inn Fort Collins Property, dated as of ~~February 4, 2021 (incorporated by reference to Exhibit 10.85.8 to the Company’s Annual Report on Form 10-K filed March 31, 2021)~~August 3, 2022

~~10.2.9~~10.225*	~~Pledge Agreement~~Assignment of Leases and Rents by and between ~~Lodging Fund REIT III TRS, Inc. and Access Point Financial,~~LF3 RIFC, LLC, ~~relating to~~ LF3 ~~Aurora~~RIFC TRS, LLC, and Legendary A-1 Bonds, LLC related to the ~~Aurora~~Residence Inn Fort Collins Property, dated as of ~~February 4, 2021 (incorporated by reference to Exhibit 10.85.9 to the Company’s Annual Report on Form 10-K filed March 31, 2021)~~
~~10.2.10~~		~~Acknowledgement of CoPACE Assessment by and between LN Hospitality Denver, LLC and LF3 Aurora, LLC to Twain Funding I, LLC, relating to the Aurora Property, dated as of February~~August 3, ~~2021 (incorporated by reference to Exhibit 10.85.10 to the Company’s Annual Report on Form 10-K filed March 31, 2021)~~2022

~~10.3~~10.226*	~~Contribution~~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 January 8, 2021, by and between the Operating Partnership and HD Sunland Park Property LLC for the El Paso Property (incorporated by reference to Exhibit 10.86 to the Company’s Annual Report on Form 10-K filed March 31, 2021)

~~10.4~~		Change in Terms Agreement for Revolving Line of Credit with Western State Bank, dated as of January 19, 2021 (incorporated by reference to Exhibit 10.87 to the Company’s Annual Report on Form 10-K filed March 31, 2021)August 3, 2022

~~10.5~~10.227*	~~Promissory Note issued to Western State Bank relating to~~Contribution Agreement by and between the ~~Cedar Rapids Property,~~Operating Partnership and Wichita Airport Hospitality, LLC for the Holiday Inn Express & Suites Wichita Airport, dated ~~January 29, 2021 (incorporated~~as of August 5, 2022

10.228*	Loan Agreement for Revolving Line of Credit by ~~reference to Exhibit 10.88 to the Company’s Annual Report on Form 10-K filed March 31, 2021)~~and among Lodging Fund REIT III OP, LP and Legendary A-1 Bonds, LLC, dated August 9, 2022

~~10.6~~10.229*	Promissory Note ~~issued to Western State Bank relating to the Pineville Property,~~by Lodging Fund REIT III OP, LP and Legendary A-1 Bonds, LLC, dated ~~January 29, 2021 (incorporated by reference to Exhibit 10.89 to the Company’s Annual Report on Form 10-K filed March 31, 2021)~~August 9, 2022

~~10.7~~31.1*	Promissory Note issued to Western State Bank relating to the Eagan Property, dated January 29, 2021 (incorporated by reference to Exhibit 10.90 to the Company’s Annual Report on Form 10-K filed March 31, 2021)

~~10.8~~		Promissory Note issued to Western State Bank relating to the Prattville Property, dated January 29, 2021 (incorporated by reference to Exhibit 10.91 to the Company’s Annual Report on Form 10-K filed March 31, 2021)

~~10.9~~		Promissory Note issued to Western State Bank relating to the Lubbock Fairfield Property, dated January 29, 2021 (incorporated by reference to Exhibit 10.92 to the Company’s Annual Report on Form 10-K filed March 31, 2021)

~~10.10~~		Promissory Note issued to Western State Bank relating to the Lubbock Home2 Property, dated January 29, 2021 (incorporated by reference to Exhibit 10.93 to the Company’s Annual Report on Form 10-K filed March 31, 2021)

~~10.11~~		Promissory Note issued to Western State Bank relating to the Southaven Property, dated February 16, 2021 (incorporated by reference to Exhibit 10.94 to the Company’s Annual Report on Form 10-K filed March 31, 2021)

~~Table of Contents~~


~~Ex.~~
~~10.12~~				Contribution Agreement, dated as of February 17, 2021, by and between the Operating Partnership and Houston-Hotel Partners, LLC and Houston Land Partners, LLC for the Houston Hilton Garden Inn Property (incorporated by reference to Exhibit 10.95 to the Company’s Annual Report on Form 10-K filed March 31, 2021)

~~10.13~~				~~Form of Services Agreement with NHS dba National Hospitality Services (incorporated by reference to Exhibit 10.96 to the Company’s Annual Report on Form 10-K filed March 31, 2021)~~

~~10.14~~				Letter Agreement between Midland Loan Services, LF3 Lubbock Expo, LLC and LF3 Lubbock Expo TRS, LLC regarding the Lubbock Fairfield Inn loan, dated as of March 2, 2021 (incorporated by reference to Exhibit 10.97 to the Company’s Annual Report on Form 10-K filed March 31, 2021)

~~10.15~~				Contribution Agreement, dated as of March 8, 2021, by and between the Operating Partnership and HCNA Enterprises, Inc. for the Corpus Christi Fairfield Inn Property (incorporated by reference to Exhibit 10.98 to the Company’s Annual Report on Form 10-K filed March 31, 2021)

~~10.16~~				Limited Consent and Waiver Agreement, dated February 16, 2021 between Wells Fargo Bank, National Association, LF3 Prattville, LLC, LF Prattville TRS, LLC and Corey R. Maple regarding the Prattville Property loan (incorporated by reference to Exhibit 10.99 to the Company’s Annual Report on Form 10-K filed March 31, 2021)

~~10.17~~				Limited Consent and Waiver Agreement, dated February 16, 2021 between Wells Fargo Bank, National Association, LF3 Southaven, LLC, LF3 Southaven TRS, LLC, and Corey R. Maple regarding the Southaven Property loan (incorporated by reference to Exhibit 10.100 to the Company’s Annual Report on Form 10-K filed March 31, 2021)

~~10.18~~				Consent to PPP Loan Agreement, dated March 5, 2021 between Wells Fargo Bank, National Association, LF3 Lubbock Expo, LLC, Lodging Fund REIT III, Inc., and Lodging Fund REIT III OP, LP regarding to the Lubbock Fairfield Inn loan (incorporated by reference to Exhibit 10.101 to the Company’s Annual Report on Form 10-K filed March 31, 2021)

~~10.19~~				Side Letter Agreement, dated May 18, 2020 between Wells Fargo Bank, National Association, LF Pineville, LLC, LF3 Pineville TRS, LLC, and Norman H. Leslie regarding the Pineville Property loan. (incorporated by reference to Exhibit 10.102 to the Company’s Annual Report on Form 10-K filed March 31, 2021)

~~10.20~~				Amended and Restated Contribution Agreement, dated as of April 1, 2021, by and between the Operating Partnership and Houston-Hotel Partners, LLC and Houston Land Partners, LLC for the Houston Hilton Garden Inn Property (incorporated by reference to Exhibit 10.20 to the Company’s Quarterly Report on Form 10-Q filed May 17, 2021)
~~10.21~~				First Amendment to Contribution Agreement dated as of April 28, 2021, by and between the Operating Partnership and HD Sunland Park Property LLC for the El Paso Property (incorporated by reference to Exhibit 10.21 to the Company’s Quarterly Report on Form 10-Q filed May 17, 2021)

~~10.22~~				Change in Terms Agreement for Revolving Line of Credit with Western State Bank, dated as of May 6, 2021 (incorporated by reference to Exhibit 10.22 to the Company’s Quarterly Report on Form 10-Q filed May 17, 2021)

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~~Ex.~~
~~10.23~~		Amended and Restated Contribution Agreement, dated as of May 12, 2021, by and between the Operating Partnership and HD Sunland Park Property LLC for the El Paso Property (incorporated by reference to Exhibit 10.23 to the Company’s Quarterly Report on Form 10-Q filed May 17, 2021)
~~10.24~~		Loan Agreement between LF3 El Paso, LLC, LF3 El Paso TRS, LLC, and EPH Development Fund LLC, relating to the El Paso Property, dated as of May 12, 2021 (incorporated by reference to Exhibit 10.24 to the Company’s Quarterly Report on Form 10-Q filed May 17, 2021)
~~10.25~~		Special Warranty Deed between HD Sunland Park Property LLC and LF3 El Paso, LLC, relating to the EL Paso Property, dated as of May 12, 2021 (incorporated by reference to Exhibit 10.25 to the Company’s Quarterly Report on Form 10-Q filed May 17, 2021)
~~10.26~~		Continuing Guaranty by Lodging Fund REIT III OP, LP in favor of EPH Development Fund LLC, relating to the El Paso Property, dated as of May 12, 2021 (incorporated by reference to Exhibit 10.26 to the Company’s Quarterly Report on Form 10-Q filed May 17, 2021)
~~10.27~~		Assignment, Consent and Subordination of Management Agreement by and among LF3 El Paso, LLC, LF3 El Paso TRS, LLC, Elevation Hotel Management, LLC and EPH Development Fund LLC, relating to the El Paso Property, dated as of May 12, 2021 (incorporated by reference to Exhibit 10.27 to the Company’s Quarterly Report on Form 10-Q filed May 17, 2021)
~~10.28~~		Assignment and Assumption of Management Agreement, by and between HD Sunland Park Property, LLC and LF3 El Paso TRS, LLC, and LF3 El Paso, LLC, relating to the El Paso Property, dated as of May 12, 2021 (incorporated by reference to Exhibit 10.28 to the Company’s Quarterly Report on Form 10-Q filed May 17, 2021)
~~10.29~~		Environmental Indemnity Agreement by LF3 El Paso, LLC and LF3 El Paso TRS, LLC in favor of EPH Development Fund LLC, relating to the El Paso Property, dated as of May 12, 2021 (incorporated by reference to Exhibit 10.29 to the Company’s Quarterly Report on Form 10-Q filed May 17, 2021)
~~10.30~~		Loan Assumption Agreement by and among HD Sunland Park Property, L.L.C., LF3 El Paso, LLC, LF3 El Paso TRS, LLC, and EPH Development Fund LLC, relating to the El Paso Property, dated as of May 12, 2021 (incorporated by reference to Exhibit 10.30 to the Company’s Quarterly Report on Form 10-Q filed May 17, 2021)
~~10.31~~	*	~~Carve Out Guaranty by Corey R. Maple in favor of EPH Development Fund LLC, relating to the El Paso Property, dated as of May 12, 2021~~
~~10.32~~	*	~~Deposit Account Control Agreement by and among LF3 El Paso TRS, LLC, EPH Development Fund LLC and Wells Fargo Bank, National Association, relating to the El Paso Property, dated as of May 12, 2021~~
~~10.33~~	*	~~Continuing Guaranty by Lodging Fund REIT III OP, LP in favor of EPH Development Fund LLC, relating to the El Paso Property, dated as of May 12, 2021 (as amended)~~

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~~Ex.~~
~~10.34~~	*	Second Amendment to the Contribution Agreement dated as of June 18, 2021, by and between the Operating Partnership and Houston-Hotel Partners, LLC and Houston Land Partners, LLC for the Houston Hilton Garden Inn Property
~~10.35~~	*	~~Hotel Management Agreement between HD Sunland Park Property, L.L.C. and Elevation Hotel Management, L.L.C., relating to the El Paso Property, dated as of November 29, 2018~~
~~10.36~~	*	~~First Amendment to the Hotel Management Agreement between HD Sunland Park Property, L.L.C. and Elevation Hotel Management, L.L.C., relating to the El Paso Property, dated as of December 19, 2020~~
~~10.37~~	*	~~First Amendment to the Contribution Agreement dated as of May 28, 2021, by and between the Operating Partnership and HCNA Enterprises, Inc. for the Corpus Christi Fairfield Inn Property~~
~~10.38~~	*	First Amendment to the Contribution Agreement dated as of May 18, 2021, by and between the Operating Partnership and Houston-Hotel Partners, LLC and Houston Land Partners, LLC for the Houston Hilton Garden Inn Property
~~10.39~~	*	Second Amended and Restated Contribution Agreement, dated as of August 3, 2021, by and between the Operating Partnership and Houston-Hotel Partners, LLC and Houston Land Partners, LLC for the Houston Hilton Garden Inn Property
~~10.40~~	*	~~Loan Agreement between LF3 Houston, LLC, LF3 Houston TRS, LLC, and Legendary A-1 Bonds, LLC relating to the Houston Hilton Garden Inn Property, dated as of August 3, 2021~~
~~10.41~~	*	~~Continuing Guaranty by Lodging Fund REIT III, OP, LP in favor of Legendary A-1 Bonds, LLC, relating to the Houston Hilton Garden Inn, dated as of August 3, 2021~~
~~10.42~~	*	~~Assignment of Leases and Rents by LF3 Houston, LLC and LF3 Houston TRS, LLC in favor of Legendary A-1 Bonds, LLC, relating to the Houston Hilton Garden Inn, dated as of August 3, 2021~~
~~10.43~~	*	Deed of Trust, Security Agreement and Financing Statement by LF3 Houston, LLC and LF3 Houston TRS, LLC in favor of Legendary A-1 Bonds, LLC, relating to the Houston Hilton Garden Inn, dated as of August 3, 2021
~~10.44~~	*	~~Environmental Indemnity Agreement by LF3 Houston, LLC and LF3 Houston TRS, LLC in favor of Legendary A-1 Bonds, LLC, relating to the Houston Hilton Garden Inn, dated as of August 3, 2021~~
~~10.45~~	*	~~Management Agreement by and between LF3 Houston TRS, LLC and Interstate Management Company, LLC, relating to the Houston Hilton Garden Inn, dated as of August 3, 2021~~
~~10.46~~	*	Third Amendment to the Contribution Agreement dated as of July 2, 2021, by and between the Operating Partnership and Houston-Hotel Partners, LLC and Houston Land Partners, LLC for the Houston Hilton Garden Inn Property
~~10.47~~	*	~~Promissory Note issued by LF3 Houston, LLC and LF3 Houston TRS, LLC in favor of Legendary A-1 Bonds, LLC relating to the Houston Hilton Garden Inn Property, dated as of August 3, 2021~~

~~Table of Contents~~


~~Ex.~~
~~10.39~~			*	Second Amended and Restated Contribution Agreement, dated as of August 3, 2021, by and between the Operating Partnership and Houston-Hotel Partners, LLC and Houston Land Partners, LLC for the Houston Hilton Garden Inn Property
~~10.40~~			*	~~Loan Agreement between LF3 Houston, LLC, LF3 Houston TRS, LLC, and Legendary A-1 Bonds, LLC relating to the Houston Hilton Garden Inn Property, dated as of August 3, 2021~~
~~10.41~~			*	~~Continuing Guaranty by Lodging Fund REIT III, OP, LP in favor of Legendary A-1 Bonds, LLC, relating to the Houston Hilton Garden Inn, dated as of August 3, 2021~~
~~10.42~~			*	~~Assignment of Leases and Rents by LF3 Houston, LLC and LF3 Houston TRS, LLC in favor of Legendary A-1 Bonds, LLC, relating to the Houston Hilton Garden Inn, dated as of August 3, 2021~~
~~10.43~~			*	Deed of Trust, Security Agreement and Financing Statement by LF3 Houston, LLC and LF3 Houston TRS, LLC in favor of Legendary A-1 Bonds, LLC, relating to the Houston Hilton Garden Inn, dated as of August 3, 2021
~~10.44~~			*	~~Environmental Indemnity Agreement by LF3 Houston, LLC and LF3 Houston TRS, LLC in favor of Legendary A-1 Bonds, LLC, relating to the Houston Hilton Garden Inn, dated as of August 3, 2021~~
~~10.45~~			*	~~Management Agreement by and between LF3 Houston TRS, LLC and Interstate Management Company, LLC, relating to the Houston Hilton Garden Inn, dated as of August 3, 2021~~
~~10.46~~			*	Third Amendment to the Contribution Agreement dated as of July 2, 2021, by and between the Operating Partnership and Houston-Hotel Partners, LLC and Houston Land Partners, LLC for the Houston Hilton Garden Inn Property
~~10.47~~			*	~~Promissory Note issued by LF3 Houston, LLC and LF3 Houston TRS, LLC in favor of Legendary A-1 Bonds, LLC relating to the Houston Hilton Garden Inn Property, dated as of August 3, 2021~~
~~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~~		~~XBRL Instance Document – the instance document does not appear in the Interactive Date File because its XBRL tags are embedded within the Inline XBRL Document~~


~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document~~


~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document~~


~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document~~


~~101.LAB~~		~~XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~

~~XBRL Taxonomy Extension Presentation Linkbase Document~~

~~104~~

~~Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document~~

5767

Table of Contents

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 ~~13, 2021~~11, 2022	By:	/s/ Corey R. Maple
			Corey R. Maple
			Chairman of the Board, Chief Executive Officer and Secretary
			(principal executive officer)

Date:	August ~~13, 2021~~11, 2022	By:	/s/ Samuel C. Montgomery
			Samuel C. Montgomery
			Chief Financial Officer
			(principal financial officer)

5868


2020 Acquisitions

				Number
			Date	of Guest	Purchase		Transaction				%
Hotel	Property Type	Location	Acquired	Rooms	Price		Costs		Total		Interest
Fairfield Inn & Suites (the "Lubbock Fairfield Inn Property")	Limited Service	Lubbock, TX	January 8, 2020	101	$	15,150,000	$	496,431	$	15,646,431	100	%
Homewood Suites (the "Southaven Property")	Extended Stay	Southaven, MS	February 21, 2020	99		20,500,000		445,090		20,945,090	100	%
				200	$	35,650,000	$	941,521	$	36,591,521


2021	$	602,813
2022		1,428,636
2023		9,449,695
2024		39,052,270
2025		21,377,234
Thereafter		15,090,074
		87,000,722

Premium on assumed debt, net		788,916
Deferred financing costs, net		(1,654,430)

	$	86,135,208