Procaccianti Hotel Reit 10-Q 2023 Q3 Quarterly report

S

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 quarter ended September 30, 2023

OR

◻      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 000-56272

PROCACCIANTI HOTEL REIT, INC.

(Exact name of registrant as specified in its charter)

Maryland	81-3661609
(State or Other jurisdiction of incorporation or organization)	(I.R.S Employer Identification Number)
1140 Reservoir Avenue, Cranston, RI	02920-6320
(Address of Principal Executive Offices)	(Zip Code)

(401) 946-4600

(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:
NA	NA	NA

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 November 13, 2023, there were 3,912,601 shares of the Registrant’s Class K common stock issued and outstanding, 1,367,487 shares of the Registrant’s Class K-I common stock issued and outstanding, 14,116 shares of the Registrant’s Class K-T common stock issued and outstanding, 581,410 shares of the Registrant’s Class A common stock issued and outstanding and 125,000 shares of the Registrant’s Class B common stock issued and outstanding.

PROCACCIANTI HOTEL REIT, INC.

INDEX

PART I - FINANCIAL INFORMATION		Page
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022	4
	Condensed Consolidated Statements of Stockholders' Equity and Noncontrolling Interest for the Three and Nine Months Ended September 30, 2023 and 2022	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2023 and 2022	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	49
PART II - OTHER INFORMATION		51
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	51
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	55
Item 5.	Other Information	55
Item 6.	Exhibits	55
	Signatures	57

2

PROCACCIANTI HOTEL REIT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

	September 30, 2023		December 31, 2022
ASSETS
Property and equipment, net	$	98,705,928	$	100,985,680
Cash		8,528,761		8,011,506
Restricted cash		3,712,392		3,176,682
Accounts receivable, net		472,319		413,800
Due from related parties		26,092		262,148
Prepaid expenses and other assets, net		1,367,501		996,804
Total Assets	$	112,812,993	$	113,846,620
LIABILITIES AND EQUITY
Liabilities
Mortgage notes payable, net	$	64,554,369	$	64,969,299
Accounts payable, accrued expenses and other, net		3,109,594		2,587,008
Due to related parties		2,016,988		2,010,073
Total Liabilities		69,680,951		69,566,380
Commitments and Contingencies
Noncontrolling interest of the Operating Partnership		1,402,962		1,319,912
Stockholders’ Equity
Class K common stock, $0.01 par value per share; 55,500,000 shares authorized, 3,902,017 and 3,932,526 shares issued and outstanding, respectively		39,020		39,325
Class K-I common stock, $0.01 par value per share; 55,500,000 shares authorized, 1,360,226 and 1,345,518 shares issued and outstanding, respectively		13,602		13,455
Class K-T common stock, $0.01 par value per share; 116,000,000 shares authorized, 13,946 and 29,306 shares issued and outstanding, respectively		140		293
Class A common stock, $0.01 par value per share; 21,000,000 shares authorized, 581,410 shares issued and outstanding		5,814		5,814
Class B common stock, $0.01 par value per share; 125,000 shares authorized, issued and outstanding		1,250		1,250
Additional paid-in capital		47,357,124		47,700,045
Cumulative income		3,130,552		892,306
Cumulative distributions		(14,078,262)		(11,238,663)
Total Stockholders’ Equity		36,469,240		37,413,825
Noncontrolling interest		5,259,840		5,546,503
Total Equity		41,729,080		42,960,328
Total Liabilities and Stockholders’ Equity	$	112,812,993	$	113,846,620

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

PROCACCIANTI HOTEL REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues
Rooms	$	9,577,029	$	9,652,212	$	21,492,976	$	20,916,938
Food and beverage		1,061,479		1,038,870		2,095,574		2,036,163
Other operating		347,705		268,757		830,139		1,443,399
Total revenues		10,986,213		10,959,839		24,418,689		24,396,500
Expenses
Rooms		1,710,208		1,684,324		4,453,127		3,190,483
Food and beverage		550,315		589,796		1,248,390		1,250,703
Other property expenses		3,040,061		2,906,890		8,019,694		7,641,134
Property management fees to affiliates		329,697		328,867		732,936		706,587
Corporate general and administrative		320,940		348,781		1,026,274		1,052,282
Other fees to affiliates		209,558		262,628		644,041		702,442
Depreciation and amortization		1,031,180		990,626		3,060,341		2,852,336
Total expenses		7,191,959		7,111,912		19,184,803		17,395,967
Operating income		3,794,254		3,847,927		5,233,886		7,000,533
Gain on loan extinguishment		—		—		—		942,605
Loss on disposal of fixed assets		—		(10,535)		—		(10,535)
Interest expense, net		(744,035)		(716,108)		(2,159,796)		(2,026,484)
Gain (loss) on interest rate swap/cap		(42,035)		62,109		(146,890)		147,218
Net income before income taxes		3,008,184		3,183,393		2,927,200		6,053,337
Income tax expense		(193,881)		(200,498)		(8,117)		(243,473)
Net income		2,814,303		2,982,895		2,919,083		5,809,864
Net income attributable to noncontrolling interest		184,066		214,792		646,469		1,033,968
Net income attributable to common stockholders	$	2,630,237	$	2,768,103	$	2,272,614	$	4,775,896
Net income attributable to Class K common stockholders – basic and diluted	$	1,731,429	$	1,815,882	$	1,528,347	$	3,157,834
Net income per Class K common share – basic and diluted	$	0.44	$	0.46	$	0.39	$	0.80
Weighted average number of Class K common shares outstanding – basic and diluted		3,906,944		3,915,774		3,917,945		3,930,059
Net income attributable to Class K-I common stockholders – basic and diluted	$	601,656	$	618,844	$	528,069	$	1,065,864
Net income per Class K-I common share – basic and diluted	$	0.44	$	0.46	$	0.39	$	0.80
Weighted average number of Class K-I common shares outstanding – basic and diluted		1,357,628		1,334,480		1,353,707		1,326,513
Net income attributable to Class K-T common stockholders – basic and diluted	$	6,149	$	27,845	$	6,079	$	50,037
Net income per Class K-T common share – basic and diluted	$	0.44	$	0.46	$	0.39	$	0.80
Weighted average number of Class K-T common shares outstanding – basic and diluted		13,876		60,046		15,566		62,274
Net income attributable to Class A common stockholders – basic and diluted	$	257,662	$	269,620	$	226,803	$	467,168
Net income per Class A common share – basic and diluted	$	0.44	$	0.46	$	0.39	$	0.80
Weighted average number of Class A common shares outstanding – basic and diluted		581,410		581,410		581,410		581,410
Net income (loss) attributable to Class B common stockholders – basic and diluted	$	33,341	$	35,912	$	(16,684)	$	34,993
Net income (loss) per Class B common share – basic and diluted	$	0.27	$	0.29	$	(0.13)	$	0.28
Weighted average number of Class B common shares outstanding – basic and diluted		125,000		125,000		125,000		125,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

PROCACCIANTI HOTEL REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND NONCONTROLLING INTEREST

(unaudited)

	Common Stock															Additional						Total Procaccianti
	Class K			Class K-I			Class K-T			Class A			Class B			Paid-in		Cumulative		Cumulative		Hotel REIT, Inc.		Noncontrolling		Total
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Capital		Income (Loss)		Distributions		Stockholders' Equity		Interest		Equity
BALANCE, December 31, 2022	3,932,526	$	39,325	1,345,518	$	13,455	29,306	$	293	581,410	$	5,814	125,000	$	1,250	$	47,700,045	$	892,306	$	(11,238,663)	$	37,413,825	$	5,546,503	$	42,960,328
Conversion of common stock	15,899		159	—		—	(15,899)		(159)	—		—	—		—		—		—		—		—		—		—
Issuance of common stock pursuant to distribution reinvestment plan	11,896		119	8,419		84	187		2	—		—	—		—		200,319		—		—		200,524		—		200,524
Stockholder servicing fees	—		—	—		—	—		—	—		—	—		—		(447)		—		—		(447)		—		(447)
Repurchase of common stock	(20,900)		(209)	—		—	—		—	—		—	—		—		(211,308)		—		—		(211,517)		—		(211,517)
Net income (loss)	—		—	—		—	—		—	—		—	—		—		—		(1,031,938)		—		(1,031,938)		248,515		(783,423)
Distributions paid	—		—	—		—	—		—	—		—	—		—		—		—		(958,261)		(958,261)		(232,750)		(1,191,011)
BALANCE, March 31, 2023	3,939,421		39,394	1,353,937		13,539	13,594		136	581,410		5,814	125,000		1,250		47,688,609		(139,632)		(12,196,924)		35,412,186		5,562,268		40,974,454
Issuance of common stock pursuant to distribution reinvestment plan	11,594		116	8,367		84	187		2	—		—	—		—		196,845		—		—		197,047		—		197,047
Stockholder servicing fees	—		—	—		—	—		—	—		—	—		—		(322)		—		—		(322)		—		(322)
Repurchase of common stock	(43,151)		(431)	(8,602)		(86)	—		—	—		—	—		—		(528,108)		—		—		(528,625)		—		(528,625)
Noncontrolling interest valuation adjustment	—		—	—		—	—		—	—		—	—		—		—		(90,635)		—		(90,635)		—		(90,635)
Net income	—		—	—		—	—		—	—		—	—		—		—		674,315		—		674,315		221,473		895,788
Distributions paid	—		—	—		—	—		—	—		—	—		—		—		—		(937,017)		(937,017)		(343,000)		(1,280,017)
BALANCE, June 30, 2023	3,907,864		39,079	1,353,702		13,537	13,781		138	581,410		5,814	125,000		1,250		47,357,024		444,048		(13,133,941)		34,726,949		5,440,741		40,167,690
Issuance of common stock pursuant to distribution reinvestment plan	10,242		102	7,625		76	165		2	—		—	—		—		197,351		—		—		197,531		—		197,531
Stockholder servicing fees	—		—	—		—	—		—	—		—	—		—		(376)		—		—		(376)		—		(376)
Repurchase of common stock	(16,089)		(161)	(1,101)		(11)	—		—	—		—	—		—		(196,875)		—		—		(197,047)		—		(197,047)
Noncontrolling interest valuation adjustment	—		—	—		—	—		—	—		—	—		—		—		56,267		—		56,267		—		56,267
Net Income	—		—	—		—	—		—	—		—	—		—		—		2,630,237		—		2,630,237		127,799		2,758,036
Distributions paid	—		—	—		—	—		—	—		—	—		—		—		—		(944,321)		(944,321)		(308,700)		(1,253,021)
BALANCE, September 30, 2023	3,902,017	$	39,020	1,360,226	$	13,602	13,946	$	140	581,410	$	5,814	125,000	$	1,250	$	47,357,124	$	3,130,552	$	(14,078,262)	$	36,469,240	$	5,259,840	$	41,729,080

5

PROCACCIANTI HOTEL REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND NONCONTROLLING INTEREST

(unaudited)

	Common Stock															Additional						Total Procaccianti
	Class K			Class K-I			Class K-T			Class A			Class B			Paid-in		Cumulative		Cumulative		Hotel REIT, Inc.		Noncontrolling		Total
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Capital		Income (Loss)		Distributions		Stockholders' Equity		Interest		Equity
BALANCE, December 31, 2021	3,947,642	$	39,477	1,315,534	$	13,155	62,946	$	629	581,410	$	5,814	125,000	$	1,250	$	47,930,212	$	(3,500,228)	$	(7,428,718)	$	37,061,591	$	5,702,961	$	42,764,552
Conversion of common stock	500		5	—		—	(500)		(5)	—		—	—		—		—		—		—		—		—		—
Issuance of common stock pursuant to distribution reinvestment plan	12,344		123	7,993		80	753		8	—		—	—		—		197,195		—		—		197,406		—		197,406
Stockholder servicing fees	—		—	—		—	—		—	—		—	—		—		(1,429)		—		—		(1,429)		—		(1,429)
Repurchase of common stock	(7,500)		(75)	(1,613)		(16)	—		—	—		—	—		—		(84,617)		—		—		(84,708)		—		(84,708)
Net income (loss)	—		—	—		—	—		—	—		—	—		—		—		(316,458)		—		(316,458)		314,391		(2,067)
Distributions paid	—		—	—		—	—		—	—		—	—		—		—		—		(958,121)		(958,121)		(122,500)		(1,080,621)
BALANCE March 31, 2022	3,952,986		39,530	1,321,914		13,219	63,199		632	581,410		5,814	125,000		1,250		48,041,361		(3,816,686)		(8,386,839)		35,898,281		5,894,852		41,793,133
Issuance of common stock pursuant to distribution reinvestment plan	12,261		122	8,053		81	762		8	—		—	—		—		197,069		—		—		197,280		—		197,280
Stockholder servicing fees	—		—	—		—	—		—	—		—	—		—		(1,440)		—		—		(1,440)		—		(1,440)
Repurchase of common stock	(37,500)		(375)														(369,000)						(369,375)				(369,375)
Net Income	—		—	—		—	—		—	—		—	—		—		—		2,324,251		—		2,324,251		462,063		2,786,314
Distributions paid	—		—	—		—	—		—	—		—	—		—		—		—		(941,800)		(941,800)		(355,250)		(1,297,050)
BALANCE June 30, 2022	3,927,747		39,277	1,329,967		13,300	63,961		640	581,410		5,814	125,000		1,250		47,867,990		(1,492,435)		(9,328,639)		37,107,197		6,001,665		43,108,862
Conversion of common stock	6,775		68	—		—	(6,775)		(68)	—		—	—		—		—		—		—		—		—		—
Issuance of common stock pursuant to distribution reinvestment plan	11,924		119	7,940		79	733		7	—		—	—		—		201,212		—		—		201,417		—		201,417
Stockholder servicing fees	—		—	—		—	—		—	—		—	—		—		(1,409)		—		—		(1,409)		—		(1,409)
Repurchase of common stock	(37,302)		(373)	(657)		(7)	(1,000)		(10)	—		—	—		—		(396,526)		—		—		(396,916)		—		(396,916)
Other offering costs to affiliates	—		—	—		—	—		—	—		—	—		—		—		—		—		—		—		—
Net Income	—		—	—		—	—		—	—		—	—		—		—		2,768,103		—		2,768,103		155,922		2,924,025
Distributions paid	—		—	—		—	—		—	—		—	—		—		—		—		(950,478)		(950,478)		(355,250)		(1,305,728)
BALANCE September 30, 2022	3,909,144	$	39,091	1,337,250	$	13,372	56,919	$	569	581,410	$	5,814	125,000	$	1,250	$	47,671,267	$	1,275,668	$	(10,279,117)	$	38,727,914	$	5,802,337	$	44,530,251

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

PROCACCIANTI HOTEL REIT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine Months Ended September 30,
	2023		2022
Cash Flows from Operating Activities:
Net income	$	2,919,083	$	5,809,864
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,060,341		2,852,336
Amortization of deferred financing costs and debt discount as interest		(545)		(20,875)
Amortization of key money loans		(39,125)		(40,125)
Gain on loan extinguishment		—		(942,605)
Loss (gain) on interest rate swap/cap		146,890		(147,218)
Loss on disposal of fixed assets		—		10,535
Changes in operating assets and liabilities:
Accounts receivable		(58,519)		49,023
Due from related parties		236,056		(165,026)
Prepaid expenses and other assets		(382,303)		(382,270)
Accounts payable, accrued expenses and other		414,822		844,129
Due to related parties		6,915		200,730
Net cash provided by operating activities		6,303,615		8,068,498
Cash Flow from Investing Activities:
Capital improvements		(768,983)		(2,300,075)
Cash used in investing activities		(768,983)		(2,300,075)
Cash Flows from Financing Activities:
Payment of stockholder servicing fees		(1,145)		(4,278)
Proceeds from mortgage note		135,495		1,270,226
Payments of mortgage notes principal		(511,347)		(275,915)
Payment of deferred financing costs		(38,534)		(41,234)
Distributions to stockholders		(2,244,497)		(2,254,296)
Distributions to noncontrolling interest		(884,450)		(833,000)
Repurchase of common stock		(937,189)		(850,999)
Net cash used in financing activities		(4,481,667)		(2,989,496)
Increase in cash and cash equivalents and restricted cash		1,052,965		2,778,927
Cash and cash equivalents and restricted cash, beginning of period		11,188,188		9,838,402
Cash and cash equivalents and restricted cash, end of period	$	12,241,153	$	12,617,329

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

Supplemental Disclosure of Cash Flow Information

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the amount shown in the condensed consolidated statements of cash flows:

	Nine Months Ended September 30,
	2023		2022
Cash	$	8,528,761	$	9,212,533
Restricted cash		3,712,392		3,404,796
Total cash and restricted cash shown on the condensed consolidated statements of cash flows	$	12,241,153	$	12,617,329

The Company paid the following amounts for interest and income taxes:

	Nine Months Ended September 30,
	2023		2022
Cash paid for interest	$	2,252,157	$	1,888,748
Cash paid for income taxes	$	84,537	$	49,760

Supplemental Disclosure of Noncash Transactions

	Nine Months Ended September 30,
	2023		2022
Common stock issued pursuant to distribution reinvestment plan	$	595,102	$	596,103

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

Note 1 - Organization and Description of Business

Procaccianti Hotel REIT, Inc. (the “Company”) was incorporated under the general corporation laws of the State of Maryland on August 24, 2016. The Company used the proceeds from its Private Offering (defined below) and its Public Offering (defined below), which terminated on August 13, 2021, to acquire a diverse portfolio of hospitality properties consisting primarily of select-service, extended-stay, and compact full-service hotel properties throughout the United States (the “U.S.”). The Company elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2018. Substantially all of the Company’s business is conducted through Procaccianti Hotel REIT, L.P., a Delaware limited partnership (the “Operating Partnership”). The Company is the sole general partner of the Operating Partnership. The Company is externally managed by Procaccianti Hotel Advisors, LLC (“PHA”) pursuant to an Advisory Agreement by and among the Company, its Operating Partnership and PHA. PHA is an affiliate of Procaccianti Companies, Inc., the Company’s sponsor (the “Sponsor”).

As of September 30, 2023, the Company owned interests in five select-service hotels located in four states with a total of 559 rooms. For more information on the Company’s real estate portfolio, see Note 3 – “Investments in Hotels.”

The Company raised the equity capital for its real estate investments through a private offering (the “Private Offering”) and a public offering (the “Public Offering”, together with the Private Offering, the “Offerings”) from September 2016 through August 2021, and has offered shares through its distribution reinvestment plan (“DRIP”) pursuant to a Registration Statement on Form S-3 (the “DRIP Offering”) since August 2021.

The Company terminated the Private Offering prior to the commencement of the Public Offering, and, as of such termination, received approximately $15,582,755 in gross proceeds from the sale of shares of Class K common stock (“K Shares”) and Class A common stock (“A Shares”), including Units (which were comprised of one K Share and one A Share), in the Private Offering. Of the $15,582,755 in gross proceeds received, $2,954,095 was from the sale of A Shares to TPG Hotel REIT Investor, LLC (“THR”), an affiliate of PHA, to fund organization and offering expenses associated with the K Shares and Units.

Since the commencement of the Public Offering and through September 30, 2023, the Company received approximately $41,077,420 in gross proceeds from the sale of K Shares, shares of Class K-I common stock (“K-I Shares”) and shares of Class K-T common shares (“K-T Shares”) in the Public Offering, inclusive of proceeds from the sale of $1,336,956 of K Shares, $870,709 of K-I Shares and $69,593 of K-T Shares pursuant to the DRIP. Additionally, on October 26, 2018, June 10, 2019 and January 19, 2021, the Company received $1,500,000, $690,000 and $440,000, respectively, from the sale of A Shares to THR in private placements, the proceeds of which were used to pay the selling commissions, dealer manager fees, stockholder servicing fees, and other organizational and offering expenses related to the K Shares, K-I Shares and K-T Shares sold in the primary offering portion of the Public Offering. In addition, the Company allocated proceeds from the sale of A Shares in amounts that represent the difference between (i) the applicable estimated net asset value (“NAV”) per K-I Share and the applicable offering price of K-I Shares sold in the primary offering and (ii) any discount to the applicable offering price of K Shares, K-I Shares and K-T Shares arising from reduced or waived selling commissions (other than reduced selling commissions for volume discounts) or dealer manager fees.

On February 27, 2020, through a separate private placement and as partial consideration for the Company’s acquisition of the Hilton Garden Inn hotel property located in Providence, Rhode Island (“Hilton Garden Inn Providence”), the Operating Partnership issued 128,124 Class K units of limited partnership interests in the Operating Partnership (“Class K OP Units”) at $10.00 per Class K OP Unit.

Note 2 - Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. The accompanying condensed consolidated financial statements of the Company are unaudited. Certain information and disclosures required by U.S.

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generally accepted accounting principles (“GAAP”) for complete financial statements have been condensed or omitted. The Company believes the disclosures made are adequate to make the information presented not misleading. However, the accompanying condensed consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. In the opinion of management, all adjustments, which include only normal recurring adjustments considered necessary for a fair and consistent presentation, have been included in these condensed consolidated financial statements. Operating results for the interim period are not necessarily indicative of the results that may be expected for the full year.

Certain reclassifications have been made to the prior year’s financial statements to conform to the current year’s presentation.

The Company consolidates variable interest entities (“VIEs”) as defined under the Consolidation Topic (“Topic 810”) of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) when it has the power to direct the activities that most significantly impact the VIE’s performance and the obligation to absorb losses or the right to receive benefits from the VIE that could be significant. At September 30, 2023, the assets of the Company’s VIEs were $63,934,314, and consisted primarily of land, building, furniture, fixtures, and equipment and were available to satisfy our VIEs’ obligations. At September 30, 2023, the liabilities of the Company’s VIEs were $42,618,155, and consisted primarily of long-term debt. The Company has guaranteed certain obligations of its VIEs.

The Company has no foreign operations or assets, and its operating structure includes only one segment.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assumptions and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Under GAAP, the Company is required to disclose the fair value of certain financial instruments on a recurring basis. The accompanying condensed consolidated balance sheets include the following financial instruments: cash, restricted cash, accounts receivable, accounts payable and mortgage notes payable.

The Company considers the carrying value of cash, restricted cash, accounts receivable and accounts payable to approximate the fair value of these financial instruments based on the short duration between origination of the instruments and their expected realization.

A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability in an orderly transaction. The hierarchy for inputs used in measuring fair value is as follows:

● Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

● Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

● Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable.

As of September 30, 2023, the estimated fair value of the mortgage notes payable was $60,544,439 compared to the carrying value of $64,701,272. These financial instruments are valued using Level 3 inputs through a discounted cash flow analysis of the contractual cash flows of the notes payable discounted at a market rate.

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Revenue Recognition

Revenue is generally recognized as services are performed. Revenue primarily represents room rental fees, food and beverage sales, and other fees. The Company collects sales tax from all nonexempt customers and remits the entire amount to the appropriate states upon collection from the customer. The Company’s accounting policy is to exclude the tax collected and remitted to the state from revenue and expenses. Included in other operating revenues for the three and nine months ended September 30, 2022, is $0 and $846,828, respectively, of business recovery grants awarded to the Springhill Suites Wilmington, Hotel Indigo Traverse City and the Hilton Garden Inn Providence hotels.

Cash and Cash Equivalents

Cash and cash equivalents represent cash on hand or held in banks and highly liquid investments with original maturities of three months or less.

Restricted Cash

The Company maintains reserves for property taxes, capital improvements and insurance as required by its debt agreements. At September 30, 2023 and 2022, reserves for property taxes were $497,542 and $477,530, respectively, reserves for capital improvements were $3,070,065 and $2,741,033, respectively, and reserves for insurance were $63,285 and $42,249, respectively. The Company also included $81,500 and $143,984 of guest advance deposits as restricted cash at September 30, 2023 and 2022, respectively.

Income Taxes

The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), and has operated as a REIT, commencing with the taxable year ended December 31, 2018. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income to its stockholders (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to U.S. federal income tax to the extent it distributes qualifying dividends to its stockholders. If the Company fails to qualify as a REIT in any taxable year following the year it initially elects to be taxed as a REIT, it will be subject to U.S. federal income tax on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to its stockholders.

Because the Company is prohibited from operating hotel properties pursuant to certain tax laws relating to its qualification as a REIT, the entities through which the Company owns hotel properties will lease the hotel properties to one or more taxable REIT subsidiaries (“TRSs”). A TRS is a corporate subsidiary of a REIT that jointly elects, with the REIT, to be treated as a TRS of the REIT, and that pays U.S. federal income tax at regular corporate rates on its taxable income.

The Company accounts for income taxes of its TRSs using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period prior to when the new rates become effective. The Company records a valuation allowance for net deferred tax assets that are not expected to be realized.

The Company has reviewed tax positions under GAAP guidance that clarify the relevant criteria and approach for the recognition and measurement of uncertain tax positions. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken, or expected to be taken, in a tax

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return. A tax position may only be recognized in the financial statements if it is more likely than not that the tax position will be sustained upon examination. At September 30, 2023, the Company had no material uncertain tax positions.

The preparation of the Company’s various tax returns requires the use of estimates for federal and state income tax purposes. These estimates may be subjected to review by the respective taxing authorities. A revision to an estimate may result in an assessment of additional taxes, penalties and interest. At this time, a range in which the Company’s estimates may change is not expected to be material. The Company will account for interest and penalties relating to uncertain tax positions in the current period results of operations, if necessary. The Company has tax years 2019 through 2022 remaining subject to examination by federal and various state tax jurisdictions.

Noncontrolling Interest

Noncontrolling interest represents the portion of equity of Procaccianti Convertible Fund, LLC (“PCF”) held by owners other than the Company. Noncontrolling interest is reported in the condensed consolidated balance sheets within equity, separately from stockholders’ equity. Revenue, expenses, and net income attributable to both the Company and the noncontrolling interest are reported in the condensed consolidated statement of operations.

Noncontrolling Interest of the Operating Partnership

Noncontrolling interest of the Operating Partnership represents the value of the 128,124 Class K OP Units that were issued to a group of sellers in connection with the acquisition of the Hilton Garden Inn Providence. Noncontrolling interest of the Operating Partnership is reported in the mezzanine section of the condensed consolidated balance sheet, as the units are redeemable at the request of the holder for cash equal to the fair market value of a K Share as defined in the Amended and Restated Agreement of Limited Partnership of Procaccianti Hotel REIT, L.P. (the “Amended and Restated Operating Partnership Agreement��). The Company may elect to acquire any such unit presented for redemption for K Shares or cash. The carrying amount of the noncontrolling interest of the Operating Partnership is equal to the greater of the initial carrying amount, increased, or decreased for the Class K OP Units’ share of net income or loss and the redemption value. As of September 30, 2023, the carrying amount of the noncontrolling interest of the Operating Partnership includes a $34,368 adjustment to reflect its redemption value. Revenue, expenses, and net income attributable to both the Company and the noncontrolling interest of the Operating Partnership are reported in the condensed consolidated statement of operations.

Per Share Data

The Company calculates its basic and diluted earnings per common share (“EPS”) utilizing the two-class method. Under the two-class method, both basic and diluted EPS are calculated for each class of common stock considering distributions declared and accumulated and the rights of common shares and participating securities in any undistributed earnings. Undistributed earnings are allocated to all outstanding common shares based on the relative percentage of each class of shares to the total number of outstanding shares. As of September 30, 2023, 4,500 restricted K Shares held by the Company’s independent directors are included in the calculation of basic EPS because such shares have been issued and participate in distributions.

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The Company’s calculated earnings per share for the three and nine months ended September 30, 2023 and 2022, were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income attributable to common stockholders	$	2,630,237	$	2,768,103	$	2,272,614	$	4,775,896
Less: Class K Common Stock dividends declared and accumulated		689,335		690,893		2,051,277		2,057,627
Less: Class K-I Common Stock dividends declared and accumulated		239,538		235,453		708,749		694,511
Less: Class K-T Common Stock dividends declared and accumulated		2,448		10,594		8,157		32,604
Less: Class A Common Stock dividends declared and accumulated		102,583		102,583		304,404		304,404
Undistributed net income (loss)	$	1,596,333	$	1,728,580	$	(799,973)	$	1,686,750
Class K Common Stock:
Undistributed net income (loss)	$	1,042,094	$	1,124,989	$	(522,930)	$	1,100,207
Class K Common Stock dividends declared and accumulated		689,335		690,893		2,051,277		2,057,627
Net income	$	1,731,429	$	1,815,882	$	1,528,347	$	3,157,834
Net income per common share, basic and diluted	$	0.44	$	0.46	$	0.39	$	0.80
Weighted average number of common shares outstanding, basic and diluted		3,906,944		3,915,774		3,917,945		3,930,059
Class K-I Common Stock:
Undistributed net income (loss)	$	362,118	$	383,391	$	(180,680)	$	371,353
Class K-I Common Stock dividends declared and accumulated		239,538		235,453		708,749		694,511
Net income	$	601,656	$	618,844	$	528,069	$	1,065,864
Net income per common share, basic and diluted	$	0.44	$	0.46	$	0.39	$	0.80
Weighted average number of common shares outstanding, basic and diluted		1,357,628		1,334,480		1,353,707		1,326,513
Class K-T Common Stock:
Undistributed net income (loss)	$	3,701	$	17,251	$	(2,078)	$	17,433
Class K-T Common Stock dividends declared and accumulated		2,448		10,594		8,157		32,604
Net income	$	6,149	$	27,845	$	6,079	$	50,037
Net income per common share, basic and diluted	$	0.44	$	0.46	$	0.39	$	0.80
Weighted average number of common shares outstanding, basic and diluted		13,876		60,046		15,566		62,274
Class A Common Stock:
Undistributed net income (loss)	$	155,079	$	167,037	$	(77,601)	$	162,764
Class A Common Stock dividends declared and accumulated		102,583		102,583		304,404		304,404
Net income	$	257,662	$	269,620	$	226,803	$	467,168
Net income per common share, basic and diluted	$	0.44	$	0.46	$	0.39	$	0.80
Weighted average number of common shares outstanding, basic and diluted		581,410		581,410		581,410		581,410
Class B Common Stock:
Undistributed net income (loss)	$	33,341	$	35,912	$	(16,684)	$	34,993
Net income (loss) per common share, basic and diluted	$	0.27	$	0.29	$	(0.13)	$	0.28
Weighted average number of common shares outstanding, basic and diluted		125,000		125,000		125,000		125,000

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Note 3 – Investments in Hotels

The following table sets forth summary information regarding the Company’s investments in hotel properties as of September 30, 2023:

					Contract			Mortgage
				Ownership	Purchase			Debt
Property Name	Date Acquired		Location	Interest	Price(1)(2)		Rooms	Outstanding
Springhill Suites Wilmington	05/24/2017	(1)	Wilmington, NC	51%	$	18,000,000	120	$	10,670,083
Staybridge Suites St. Petersburg	06/29/2017	(1)	St. Petersburg, FL	51%	$	20,500,000	119	$	12,619,168
Hotel Indigo Traverse City	08/15/2018		Traverse City, MI	100%	$	26,050,000	107	$	15,092,000
Hilton Garden Inn Providence	02/27/2020		Providence, RI	100%	$	28,500,000	137	$	16,749,123
Cherry Tree Inn	07/30/2021		Traverse City, MI	100%	$	15,000,000	76	$	9,404,235

1) Represents the date and contract purchase price of PCF’s acquisition of the Springhill Suites Wilmington (the “Springhill Suites Wilmington”) and the Staybridge Suites St. Petersburg (the “Staybridge Suites St. Petersburg”). The Company exercised its option under an option agreement to purchase a 51% membership interest in PCF on March 29, 2018.

2) Contract purchase price excludes acquisition fees and costs.

Investments in hotel properties consisted of the following as of September 30, 2023 and December 31, 2022:

	September 30,		December 31,
	2023		2022
Land	$	14,450,538	$	14,450,538
Building and improvements		89,188,548		89,048,018
Furniture, fixtures, and equipment		11,758,384		11,179,909
Total cost		115,397,470		114,678,465
Accumulated depreciation		(16,691,542)		(13,692,785)
Property and equipment, net	$	98,705,928	$	100,985,680

Depreciation expense for the three months ended September 30, 2023 and 2022 was $1,027,311 and $986,607, respectively. Depreciation expense for the nine months ended September 30, 2023 and 2022 was $3,048,735 and $2,840,579, respectively.

Note 4 – Mortgage Notes Payable

Included in mortgage notes payable at September 30, 2023, is a $12,619,168 mortgage payable secured by the Staybridge Suites St. Petersburg (the “St. Petersburg Note”), a $10,670,083 mortgage payable secured by the Springhill Suites Wilmington (the “Wilmington Note”), a $15,092,000 mortgage payable secured by the Hotel Indigo Traverse City (the “TCI Note”), a $16,749,123 mortgage payable secured by the Hilton Garden Inn Providence (the “HGI Note”) and a $9,404,235 mortgage payable (the “CTI Note”) secured by the Cherry Tree Inn (the “Cherry Tree Inn”). The mortgage notes payable each contain customary affirmative covenants, negative covenants and events of default.

The St. Petersburg Note required monthly interest payments at 4.34% through August 1, 2020, and subsequent to August 1, 2020, requires monthly principal and interest payments of $66,255 through July 1, 2024, the maturity date. The St. Petersburg Note is collateralized by the Staybridge Suites St. Petersburg, including equipment, and has been guaranteed by TH Investment Holdings II, LLC, an affiliate of the Sponsor. As of September 30, 2023, we believe the Operating Partnership and its subsidiary for the Staybridge Suites St. Petersburg were in compliance with their loan obligations, including applicable covenants, and all required payments have been made as agreed.

The Wilmington Note required monthly interest payments at 4.49% through June 1, 2020, and subsequent to June 1, 2020, requires monthly principal and interest payments of $57,026 through June 1, 2024, the maturity date. The Wilmington Note is collateralized by the Springhill Suites Wilmington, including equipment, and has been guaranteed by TH Investment Holdings II, LLC, an affiliate of the Sponsor. As of September 30, 2023, we believe the Operating

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Partnership and its subsidiary for the Springhill Suites Wilmington was in compliance with its loan obligations, including applicable covenants, and all required payments were made as agreed.

The TCI Note bears interest at the Secured Overnight Financing Rate (“SOFR”) plus a SOFR rate margin of 2.50% at September 30, 2023. The TCI Note provides for interest only monthly payments until maturity. The principal amount will be due on the maturity date, August 15, 2024. The TCI Note is collateralized by the Hotel Indigo Traverse City, including equipment, and has been guaranteed by TH Investment Holdings II, LLC, an affiliate of the Sponsor. As of September 30, 2023, we believe the Operating Partnership and its subsidiary for the Hotel Indigo Traverse City were in compliance with their loan obligations, including applicable covenants, and all required payments were made as agreed.

The HGI Note required monthly interest payments at a fixed rate of 4.25% through February 15, 2023, and monthly principal and interest payments based on a 30-year amortization schedule thereafter to maturity on May 15, 2025. The HGI Note is collateralized by the Hilton Garden Inn Providence, including equipment, and has been guaranteed by the Company. As of September 30, 2023, we believe the Operating Partnership and its subsidiary for the Hilton Garden Inn Providence were in compliance with their loan obligations, including applicable covenants, and all required payments were made as agreed.

The CTI Note requires monthly interest payments at a fixed rate of 3.91% through November 23, 2023, and subsequent to November 23, 2023, monthly principal and interest payments of $52,601 through November 23, 2026, the maturity date. The CTI Note is collateralized by the Cherry Tree Inn, including equipment. As of September 30, 2023, we believe the Operating Partnership and its subsidiary for the Cherry Tree Inn were in compliance with their loan obligations, including applicable covenants and all required payments have been made as agreed. No further borrowings on the CTI Note are anticipated.

The Company’s operations have been and are expected to continue to be impacted by economic and market conditions. Persistent market and economic challenges, such as increases in interest rates, labor shortages, supply chain disruptions and inflation, could, among other things, affect (i) the value and performance of the Company’s investments, (ii) the Company’s ability to pay future distributions, (iii) the availability or terms of financings, (iv) the Company’s ability to make scheduled principal and interest payments, and (v) the Company’s ability to refinance any outstanding debt when contractually due.

Interest expense on mortgage notes payable for the three months ended September 30, 2023 and 2022 was $795,325 and $729,776, respectively. Interest expense on mortgage notes payable for the nine months ended September 30, 2023 and 2022 was $2,257,582 and $2,013,631, respectively.

Also included in mortgage notes payable as of September 30, 2023 is $209,052 of net deferred financing costs and debt discounts and premiums. For the three months ended September 30, 2023 and 2022, the Company amortized $2,663 and $2,438, respectively, of net deferred financing costs and debt discounts and premiums as interest expense. For the nine months ended September 30, 2023 and 2022, the Company amortized $545 and $20,875, respectively, of net deferred financing costs and debt discounts and premiums as interest expense.

Note 5 – Interest Rate Swap

The Company is exposed to certain risks relating to its ongoing business operations, including the effect of changes in interest rates. The Company has an interest rate swap agreement to manage interest rate risk exposure on $15,092,000 of the TCI Note.

The value of interest rate swaps is primarily impacted by interest rates, market expectations about interest rates, and the remaining life of the instrument. In general, increases in interest rates, or anticipated increases in interest rates, will increase the value of the fixed rate payer position and decrease the value of the variable rate payer position. As the remaining life of the interest rate swap decreases, the value of both positions will generally move towards zero.

The following table summarizes the terms of the Company's outstanding interest rate swap agreement:

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		Notional						Fair Value of
		Amount as of						Liability as of
		September 30,		Interest		Effective	Maturity	September 30,
	Balance Sheet Location	2023		Rate(1)		Date	Date	2023(2)
Interest rate swap	Accounts payable, accrued expenses and other, net	$	15,092,000	5.13	%	8/15/2023	8/15/2024	$	29,243

1) The interest rate consists of the underlying index swapped to a fixed rate rather than floating rate SOFR, plus a premium.

2) Changes in fair value are recorded as unrealized gain (loss) in the condensed consolidated statements of operations as the Company did not designate this interest rate swap as a hedge. The Company valued the interest rate swap using Level 2 inputs.
​

Note 6 – Other Debt

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was adopted by the Federal Government, which, among other things, provided emergency assistance to qualifying businesses and individuals as a result of the COVID-19 pandemic. The CARES Act also included the establishment of the Paycheck Protection Program (“PPP”), a U.S. Small Business Administration (the “SBA”) loan to businesses with fewer than 500 employees that may be fully or partially forgivable. The loans’ principal and accrued interest are forgivable to the extent that the proceeds are used for eligible purposes, subject to limitations and ongoing rulemaking by the SBA, and that the Company maintains its payroll levels over a twenty-four week period following the loan date. During 2020 and 2021, the Company received PPP loans in the aggregate amount of $2,445,589, of which, $1,502,984 and $942,605 was forgiven during the years ended December 31, 2021 and 2022, respectively. During the three and nine months ended September 30, 2022, the Company received forgiveness for $0 and $942,605, respectively of its PPP loans and recognized a gain on extinguishment in the condensed consolidated statement of operations for the same amount.

Note 7 – Related Party Transactions

On August 2, 2018, the Company entered into the Amended and Restated Advisory Agreement with PHA and the Operating Partnership (as amended and renewed, the “Advisory Agreement”). The Advisory Agreement has a one-year term, subject to renewals upon mutual consent of PHA and the Company’s independent directors for an unlimited number of successive one-year periods. On November 22, 2019, the Company, the Operating Partnership and PHA entered into the Second Amendment to the Advisory Agreement (the “Advisory Agreement Amendment”) in order to revise certain terms regarding the accrual of interest on deferred acquisition, disposition and asset management fees, as well as the deferral of asset management fees paid to PHA. On June 27, 2023, the board of directors of the Company, including all independent directors of the Company, after review of PHA’s performance during the last year, authorized the Company to execute a mutual consent to renew the Advisory Agreement, by and among the Company, the Operating Partnership and PHA for an additional one-year term effective on August 2, 2023.

Pursuant to the Advisory Agreement, PHA oversees the Company’s day-to-day operations, including the provision of general ledger accounting, fund accounting, legal services, investor relations, and other administrative services. PHA also performs, or oversees the performance of, the Company’s corporate operations and required administrative services, which include maintaining required financial records and preparing reports to stockholders and filings with the SEC. In addition, PHA assists an independent valuation firm and the Company’s board of directors in calculating and determining the Company’s NAV, and assists the Company in overseeing the preparation and filing of tax returns, payment of expenses and for the performance of administrative and professional services rendered to the Company by others. The Company reimburses PHA for certain expenses and pays PHA certain fees pertaining to services provided.

Administrative Expenses

PHA is required to allocate the cost of administrative services to the Company based on objective factors such as total assets, revenues and/or time allocations. At least annually, the Company’s board of directors will review the amount of administrative services expense reimbursable to PHA to determine whether such amounts are reasonable in

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relation to the services provided. During the three months ended September 30, 2023 and 2022, the Sponsor requested reimbursement for $29,734 and $35,120, respectively, of such administrative service expenses. During the nine months ended September 30, 2023 and 2022, the Sponsor requested reimbursement for $106,201 and $122,813, respectively, of such administrative service expenses. These amounts are included in other fees to affiliates on the condensed consolidated statement of operations.

Acquisition Fee

The Company will pay PHA acquisition fees as described below:

Acquisition Fee: Fee for providing services including selecting, evaluating and acquiring potential investments (the “acquisition fee”). The total acquisition fee payable to PHA shall equal 1.5% of the Gross Contract Purchase Price of an investment, which as defined in the Advisory Agreement, represents the amount actually paid or allocated in respect of the purchase of an investment, inclusive of acquisition expenses and any indebtedness assumed or incurred. Payment of such fee will be deferred until the occurrence of a (i) liquidation event (i.e., any voluntary or involuntary liquidation or dissolution of the Company, including as a result of the sale of all or substantially all of the Company’s assets for cash or other consideration), (ii) the Company’s sale or merger in a transaction that provides stockholders with cash, securities or a combination of cash and securities, (iii) the listing of the Company’s shares of common stock on a national securities exchange, or (iv) the termination of the Advisory Agreement, other than for cause, or the non-renewal of the Advisory Agreement. The preceding clauses (ii) and (iii) are defined as an “Other Liquidity Event”. Under the Advisory Agreement Amendment, deferred acquisition fees will accrue interest at a cumulative, non-compounded rate of 6.0% per annum until the day immediately following the Fifth Anniversary (as defined herein), at which time such interest will cease to further accrue.

No acquisition fees were incurred during the three and nine months ended September 30, 2023 and 2022. As of September 30, 2023 and 2022, there was $1,244,139 of deferred acquisition fees included in due to related parties on the condensed consolidated balance sheets. Interest expense on outstanding acquisition fees was $18,816 and $18,816, respectively, for the three months ended September 30, 2023 and 2022 and $55,483 and $55,833, respectively, for the nine months ended September 30, 2023 and 2022. These are included in interest expense on the condensed consolidated statement of operations and in due to related parties on the condensed consolidated balance sheets.

Asset Management Fee

The Company will pay PHA asset management fees as described below:

Asset Management Fee: Quarterly fee equal to one-fourth of 0.75% of the adjusted cost of the Company’s assets and the amounts actually paid or allocated in respect of the acquisition of loans, before reduction for depreciation, amortization, impairment charges, and cumulative acquisition costs charged to expense in accordance with GAAP (the “asset management fee”). The adjusted cost will include the purchase price, acquisition expenses, capital expenditures, and other customary capitalized costs. The Advisory Agreement Amendment clarified the duration of the asset management fee and accrual of interest on deferred asset management fees. The asset management fee will be payable to PHA quarterly in arrears, based on the adjusted cost on the last date of the prior quarter, adjusted for appropriate closing dates for individual investments. Payment of the asset management fee will be deferred on a quarterly basis if at any time all accumulated, accrued, and unpaid 7% distributions have not been paid in full to the holders of the K Shares, K-I Shares, K-T Shares and any parity security. Any such deferred asset management fees will accrue interest at a cumulative, non-compounded rate of 6.0% per annum. If the Company has not completed a liquidation event by the fifth anniversary of the date the Company terminates the Public Offering (including any follow-on offering) (the “Fifth Anniversary”), on the day immediately following the Fifth Anniversary, (i) the asset management fees payable pursuant to the Advisory Agreement will cease to accrue and (ii) interest that accrued at a non-compounded rate of 6.0% per annum on the deferred asset management fees will cease to accrue. For the avoidance of doubt, all accrued and unpaid principal and interest amounts in connection with the asset management fee at the Fifth Anniversary will remain outstanding.

For the three months ended September 30, 2023 and 2022, the Company incurred $179,824 and $177,812, respectively, in asset management fees. For the nine months ended September 30, 2023 and 2022, the Company incurred $537,840 and $529,933, respectively, in asset management fees. Asset management fees are included in other fees to

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affiliates on the condensed consolidated statements of operations. Interest expense on the outstanding asset management fees was $2,719 and $2,689 for the three months ended September 30, 2023 and 2022, respectively, $16,028 and $15,710 for the nine months ended September 30, 2023 and 2022, respectively, and are included in interest expense on the condensed consolidated statements of operations. At September 30, 2023 and 2022, asset management fees and interest payable of $182,544 and $180,501, respectively, are included in due to related parties on the condensed consolidated balance sheets.

Disposition Fee

The Company will pay PHA disposition fees as described below:

Disposition Fee: Fee for providing a substantial amount of services in connection with the sale of a property or real estate-related assets, as determined by a majority of the Company’s independent directors (the “disposition fee”). The disposition fee will equal one-half of the brokerage commissions paid on the sale of an investment. In no event will the disposition fee exceed 1.5% of the sales price of each investment. Payment of the disposition fee to PHA will be deferred until the occurrence of (i) a liquidation event, (ii) an Other Liquidity Event, or (iii) the termination of the Advisory Agreement, other than for cause, or the non-renewal of the Advisory Agreement. Under the Advisory Agreement Amendment, deferred disposition fees will accrue interest at a cumulative, non-compounded rate of 6.0% per annum until the day immediately following the Fifth Anniversary, at which time such interest will cease to further accrue.

There were no disposition fees incurred for the three and nine months ended September 30, 2023 and 2022.

Acquisition Expenses

The Company will reimburse PHA for acquisition expenses actually incurred (excluding personnel costs) related to selecting, evaluating, and making investments on the Company’s behalf. All acquisition expenses as of September 30, 2023 and 2022 were paid directly by the Company and there have been no reimbursements to PHA.

Organization and Offering Costs

Organization and offering costs (“O&O Costs”) include selling commissions, dealer manager fees, stockholder servicing fees and any other elements of underwriting compensation, as well as legal, accounting, printing, mailing and filing fees and expenses, due diligence expenses of participating broker-dealers supported by detailed and itemized invoices, costs in connection with preparing sales materials, design and website expenses, fees and expenses of the Company’s transfer agent, fees to attend retail seminars sponsored by participating broker-dealers and reimbursements for customary travel, lodging, and meals. For more information regarding selling commissions, dealer manager fees, stockholder servicing fees and any other elements of underwriting compensation, see Note 8 – “Stockholders’ Equity”.

Certain O&O Costs have been incurred by PHA on behalf of the Company. At the termination of the Public Offering on August 13, 2021, the total amount of O&O Costs, exclusive of selling commissions, dealer manager fees and stockholder servicing fees, incurred by PHA and its affiliates related to the Private Offering and the Public Offering was $8,752,997, of which $1,026,564 has been reimbursed through the issuance of A Shares to an affiliate of PHA and through cash payments to PHA of $3,312,833.

The Company recorded O&O Costs as charges against additional paid in capital on the condensed consolidated balance sheets as the Company raised proceeds in its continuous Public Offering for amounts incurred up to 15% of the gross offering proceeds of the Public Offering, the maximum amount allowed in accordance with the rules and regulations established by the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the Company’s charter. The Company recognized no O&O Costs for the three months ended September 30, 2023 and 2022, respectively. As of September 30, 2023 and 2022, the Company had no balances due to or from PHA for the reimbursement of O&O Costs.

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Property Management Fee and Reimbursement

Wholly owned subsidiaries of PCF and the Operating Partnership entered into hotel management agreements with affiliates of the Company for the management of each of the Company's hotels. Under the terms of the management agreements, the manager operates and manages each hotel, including making all human resource decisions. The employees of the hotels are employed by the managers, however, pursuant to the management agreements, all compensation of hotel personnel is recorded as a direct operating expense of the hotel. The manager of each hotel is paid a base management fee equal to 3% of the respective hotel’s gross revenues and is also reimbursed for certain expenses and centralized service costs.

The terms of the in-place management agreements for the Staybridge Suites St. Petersburg and the Springhill Suites Wilmington expire March 28, 2024, with three additional automatic one-year extensions. The term of the in-place management agreement for the Hotel Indigo Traverse City expires August 14, 2024, with three additional automatic one-year extensions. The terms of the in-place management agreements expire February 26, 2025 and June 3, 2031, respectively, for the Hilton Garden Inn Providence and the Cherry Tree Inn.

Aggregate property management fees incurred were $329,697 and $328,867 for the three months ended September 30, 2023 and 2022, respectively, $732,936 and $706,587 for the nine months ended September 30, 2023 and 2022, respectively, and are included in property management fees to affiliates on the condensed consolidated statements of operations. As of September 30, 2023, $97,932 of accrued property management fees payable were included in due to related parties on the condensed consolidated balance sheet. Aggregate net reimbursements for certain expenses were $211,683 and $161,372 for the three months ended September 30, 2023 and 2022, respectively, and $553,710 and $414,134 for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, $66,918 of expense reimbursements were included in due to related parties on the condensed consolidated balance sheet. During the three months ended September 30, 2023 and 2022, the Company paid $0 and $334,404, respectively, to TPG Risk Services, LLC, an affiliate of the Sponsor (“TPG”), for the reimbursement of prepaid insurance at the hotel properties. During the nine months ended September 30, 2023 and 2022, the Company paid $594,143 and $335,358, respectively, to TPG for the reimbursement of prepaid insurance at the hotel properties. As of September 30, 2023, the Company had a balance of $5,015 due to TPG, which is included in due to related parties on the condensed consolidated balance sheets.

The CARES Act provided an employee retention tax credit, which was a refundable tax credit against certain employment taxes of up to $5,000 per employee for eligible employers and equal to 50% of qualified wages paid per quarter through December 31, 2020 and up to $10,000 per employee and equal to 70% of qualified wages paid per quarter through September 30, 2021. An affiliate of the Company’s hotel property managers qualified for the employee retention tax credit. During the three and nine months ended September 30, 2022, the Company received from its affiliate $817,773 of the $859,899 related to payroll expenses reimbursed by the Company pursuant to its property management agreements and had a $42,126 receivable balance included in Due from related parties in the Company’s condensed consolidated balance sheet as of September 30, 2022. The affiliate partially offset these amounts by $49,696 for expenses incurred by the affiliate related to the reimbursements.

Construction Management Fee

The Company pays its property managers or third parties selected by PHA, after requesting bids from such parties, a construction management fee (which may include expense reimbursements) based on market rates for such services in the markets in which the hotel properties are located and will take into account the nature of the services to be performed, which generally will constitute the supervision or coordination of any construction, improvements, refurbishments, renovations, or restorations of the Company’s hotel properties. If PHA selects the property manager or another affiliate of the Sponsor to perform such services, any resulting agreement must be approved by a majority of the Company’s board of directors, including a majority of its independent directors. The Company reimbursed TPG Construction, LLC, an affiliate of the Sponsor (“TPG Construction”), $59,304 and $431,635 during the three months ended September 30, 2023 and 2022, respectively, and $61,256 and $1,685,754 during the nine months ended September 30, 2023 and 2022, respectively, for capital expenditure costs incurred at the hotel properties. As of September 30, 2023 and 2022, $0 and $59,227, respectively, of construction reimbursements were included in the due to related parties balance. Included in the due from related parties balance at September 30, 2023 and 2022, was $26,092

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and $250,000, respectively, in receivables from TPG Construction relating to working capital requests to provide funding for vendors and contractor deposits at the Cherry Tree Inn and the Hilton Garden Inn Providence.

Additional Service Fees

If the Company requests that PHA or its affiliates perform other services, including but not limited to, renovation evaluations, the compensation terms for those services must be approved by a majority of the Company’s board of directors, including a majority of the independent directors. No such fees for additional services were incurred during the three and nine months ended September 30, 2023 and 2022.

Payment Upon Listing of Shares

If the Company lists any of its shares of capital stock on a national securities exchange (which automatically results in a termination of the Advisory Agreement), the Company will be obligated to pay PHA the amount PHA would be entitled to receive on account of deferred asset management fees, acquisition fees, and disposition fees (and any accrued interest thereon) as if the Company liquidated and received liquidation proceeds equal to the market value of the Company, which is limited to the excess of market value over the liquidation preference on K Shares, K-I Shares and K-T Shares.

Payment Upon a Merger or Acquisition Transaction

If the Company terminates the Advisory Agreement in connection with or in contemplation of a transaction involving a merger or acquisition, the Company would be obligated to pay PHA the amount PHA would be entitled to receive as if the Company liquidated and received net liquidation proceeds equal to the consideration paid to the stockholders in such transaction.

Payment Upon Other Advisory Agreement Termination

The Company may elect not to renew the Advisory Agreement. The Company has the right to terminate the Advisory Agreement without cause, or other than in connection with a listing of the Company’s shares or a transaction involving a merger or acquisition or other than for cause (“Non-cause Advisory Agreement Termination”). If a Non-cause Advisory Agreement Termination were to occur, the Company would be obligated to make a cash payment to PHA in the amount of any deferred asset management fees, plus any interest accrued thereon, the full acquisition fees previously earned, plus interest accrued thereon, and the full disposition fees previously earned, plus any interest accrued thereon, regardless of the value of the Company’s assets or net assets. The Company would be obligated to repurchase its A Shares for an amount equal to the greater of: (1) any accrued common ordinary distributions on the A Shares plus the stated value of the outstanding A Shares ($10.00 per A Share) or (2) the amount the holders of A Shares would be entitled to receive if the Company liquidated and received net liquidation proceeds equal to the fair market value (determined by appraisals as of the termination date) of the Company’s investments less any loans secured by such investments, limited in the case of non-recourse loans to the value of investments securing such loans. Any shares of Class B common stock, with a par value of $0.01 per share (“B Shares”), then outstanding would remain outstanding. The amounts payable on account of the repurchase of A Shares may be paid, in the discretion of a majority of the Company’s board of directors, including a majority of the Company’s independent directors, in the form of promissory notes bearing interest at the then-current rate, as determined in good faith by a majority of the Company’s independent directors.

Payment Upon Advisory Agreement Termination for Cause

If the Company terminates the Advisory Agreement for cause, the Company would not have a current obligation to make any payments to PHA or to S2K Servicing LLC, an affiliate of S2K Financial LLC (the “Dealer Manager”). However, any A Shares and B Shares held by them or their affiliates would remain outstanding. In addition, any deferred asset management fees, plus any interest accrued thereon, the full acquisition fees previously earned, plus any interest accrued thereon, and the full disposition fees previously earned, plus any interest accrued thereon, would

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remain outstanding obligations, and the deferred fees would continue to accrue interest at a non-compounded annual rate of 6.0%. Such deferred fees and interest thereon would be payable upon a liquidation event.

Amended and Restated Operating Partnership Agreement

In connection with the Hilton Garden Inn Providence acquisition, effective February 27, 2020, the Company, as general partner of the Operating Partnership, Procaccianti Hotel REIT, LP, LLC and certain principals and affiliates of the Sponsor were issued Class K OP Units and entered into an Amended and Restated Operating Partnership Agreement.

Loans from Affiliates

The Company has combined subordinated promissory notes of $94,194 from PHA that bear interest at the current blended long term applicable federal rate (“AFR”). The blended long term AFR was 3.87% and 2.50% for the three months ended September 30, 2023 and 2022, respectively, and 3.88% and 2.34% for the nine months ended September 30, 2023 and 2022, respectively. The maturity date of the notes is the date after all outstanding K Shares have received all accumulated, accrued and unpaid distributions due and owing under the terms of the Company’s organization documents and the liquidation preference on the K Shares pursuant to the Company’s organization documents has been paid in full, as well as upon any event of default. These amounts are included in due to related parties on the condensed consolidated balance sheets at September 30, 2023 and December 31, 2022. Interest expense was $919 and $594 for the three months ended September 30, 2023 and 2022, respectively, $2,731 and $1,651 for the nine months ended September 30, 2023 and 2022, respectively, and is included in interest expense on the condensed consolidated statements of operations and in due to related parties on the condensed consolidated balance sheets.

Note 8 - Stockholders’ Equity

Under the Company’s charter, the total number of shares of capital stock authorized for issuance is 248,125,000, consisting of 55,500,000 K Shares, 55,500,000 K-I Shares, 116,000,000 K-T Shares, 21,000,000 A Shares, and 125,000 B Shares.

The Company’s K Shares, K-I Shares and K-T Shares entitle the holders to one vote per share on all matters upon which stockholders are entitled to vote and to receive distributions as authorized by the Company’s board of directors. Holders of K Shares, K-I Shares and K-T Shares will be entitled to receive cumulative cash distributions on each share at the rate of 7.0% per annum of each share's distribution base. Prior to March 31, 2020, distributions accrued at the rate of 6.0% per annum of each share’s distribution base. The distribution base will initially be $10.00 per K Share, $10.00 per K-I Share and $10.00 per K-T Share and will be reduced for distributions that the board of directors declares and pays out of net sales proceeds from the sale or disposition of assets to the extent such distributions are not used to pay accumulated, accrued, and unpaid dividends on such K Shares, K-I Shares, and K-T Shares.

K Shares, K-I Shares and K-T Shares will rank, on a pro rata basis, senior to all other classes of stock with respect to distribution rights and rights upon the Company’s liquidation. In certain situations (other than upon liquidation), the Company may have excess cash available for distribution and the board of directors may authorize special distributions in which case the holders of K Shares, K-I Shares and K-T Shares would receive 50% of any such excess cash. Holders of K Shares, K-I Shares and K-T Shares would also generally be entitled to receive 50% of any remaining liquidation cash pro rata based on the number of K Shares, K-I Shares and K-T Shares outstanding.

A Shares entitle the holders to one vote per share on all matters upon which stockholders are entitled to vote and to receive distributions and other distributions of excess cash as authorized by the Company’s board of directors. Following the payment of all accumulated, accrued and unpaid distributions on K Shares, K-I Shares and K-T Shares and payment of any accrued asset management fees (and any interest thereon), each A Share will be entitled to receive distributions at a rate not to exceed 7.0% of the stated value of $10.00 per share from income and cash flow from ordinary operations on a cumulative basis. In certain situations (other than upon liquidation), the Company may have excess cash available for distribution and the board of directors may authorize special distributions in which case the holders of A Shares will receive 37.5% of any such excess cash on a pro rata basis. A Shares would also generally be entitled to receive 37.5% of any remaining liquidation cash pro rata based on the number of A Shares outstanding.

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B Shares will have no voting rights, other than the right to vote on and approve any further issuances of or an increase in the authorized number of B Shares. In addition, if the Company were to list any shares of its common stock on a national securities exchange, the Company will repurchase its B Shares in accordance with its charter. Holders of B Shares are not entitled to distributions; however, in certain situations (other than upon liquidation) the Company may have excess cash available for distribution and the board of directors may authorize special distributions in which case the holders of B Shares would receive 12.5% of any such excess cash on a pro rata basis. Holders of B Shares would also generally be entitled to receive 12.5% of any remaining liquidation cash pro rata based on the number of B Shares outstanding. On September 29, 2016, the Company issued 125,000 B Shares to S2K Servicing LLC.

At the termination of the Private Offering on August 13, 2021, the Company had issued 1,253,618 K Shares and 23,000 A Shares to unaffiliated investors, resulting in receipt of gross proceeds of $12,398,660 from K Share issuances and $230,000 from A Share issuances. A Shares sold to unaffiliated investors were issued as part of a Unit in the Private Offering. As of the termination of the Public Offering, the Company had issued 2,787,944 K Shares, 1,287,644 K-I Shares, and 60,008 K-T Shares to unaffiliated investors, resulting in receipt of gross proceeds of $26,939,836 from K Share issuances, $11,274,927 from K-I Share issuances, and $585,400 from K-T Share issuances. As of September 30, 2023, the Company had issued 140,147 K Shares, 90,877 K-I Shares and 7,415 K-T Shares pursuant to the DRIP, resulting in gross proceeds pursuant to the DRIP of $1,336,956, $870,709 and $69,593, respectively. As of September 30, 2023, the Company had issued 1,500 restricted K Shares to each of the Company’s three independent directors for a total of 4,500 restricted K Shares in connection with the Company’s long-term incentive plan, as described below.

On February 27, 2020, as partial consideration for the Company’s acquisition of the Hilton Garden Inn Providence, the Operating Partnership issued 128,124 Class K OP Units valued at $10.00 per Class K OP Unit. Such issuance represents a total investment of $1,281,244 in Class K OP Units of the Operating Partnership. Individuals with direct or indirect interests in the sellers of the Hilton Garden Inn Providence who are direct or indirect owners of the Sponsor and PHA received only Class K OP Units and no cash as consideration.

As of September 30, 2023, the Company had issued 428,410 A Shares to THR, an affiliate of PHA, for aggregate proceeds of $4,284,095, or $10.00 per share. In addition, the Company issued 130,000 additional A Shares to THR in exchange for notes receivable, payable to the Company upon demand. The note receivable from THR was reduced for amounts reimbursed to PHA by the Company for certain costs incurred on the Company’s behalf, with no remaining balance as of September 30, 2023. As of September 30, 2023, the Company sold 10 K-I Shares for aggregate proceeds of $100, or $10.00 per K-I Share and sold 10 K-T Shares for aggregate proceeds of $100, or $10.00 per K-T Share, to an affiliate of the Company.

During the nine months ended September 30, 2023, pursuant to Section 5.2.7 of the Company’s charter, 15,899 K-T shares converted to 15,899 K Shares. As of September 30, 2023, pursuant to Section 5.2.7 of the Company’s charter, 51,486 K-T Shares converted to 51,486 K Shares.

PHA was obligated to purchase sufficient A Shares to fund payment of O&O Costs associated with the Private Offering and was obligated to purchase sufficient A Shares to fund payment of O&O Costs related to the Public Offering and also to account for the difference between the applicable NAV per K-I Share and the applicable offering price per K-I Share and any amount equal to any discount to the applicable offering price of K Shares, K-I Shares and K-T Shares (excluding volume discounts). PHA’s obligation can be fulfilled by its affiliates, including the Sponsor or entities affiliated with the Sponsor.

The Company paid the Dealer Manager, as dealer manager of the Private Offering, selling commissions of up to 7% of the gross offering proceeds from the sale of K Shares and Units in the Private Offering. The Dealer Manager re-allowed all selling commissions to participating broker-dealers. The Company also paid the Dealer Manager, through the termination of the Public Offering, a dealer manager fee of up to 3% of the gross offering proceeds from the sale of K Shares, K-I Shares and K-T Shares. The Dealer Manager could re-allow a portion of its dealer manager fees to participating broker-dealers. Selling commissions and dealer manager fees were paid with proceeds from the sale of A Shares to PHA or its affiliates. There were no selling commissions or dealer manager fees payable on account of shares of any class purchased by PHA, S2K Servicing LLC, or their affiliates. The Company recognized $1,058,501 of selling

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commissions and dealer manager fees in connection with the Private Offering. There have been no additional selling commissions and dealer managers fees in connection with the Public Offering since 2021.

The Company paid the Dealer Manager selling commissions of up to 7% of the gross offering proceeds from the sale of K Shares and selling commissions of up to 3% of the gross offering proceeds from the sale of K-T Shares in the primary portion of the Public Offering. No selling commissions were payable in connection with the sale of K-I Shares. The Dealer Manager was able to re-allow all selling commissions to participating broker-dealers. The Company also paid the Dealer Manager a dealer manager fee of up to 3% of the gross offering proceeds from the sale of K Shares, K-I Shares and K-T Shares sold in the primary portion of the Public Offering. The Dealer Manager allowed a portion of its dealer manager fees to participating broker-dealers. Selling commission and dealer manager fees were generally paid with proceeds from the sale of A Shares to PHA or its affiliates. There were no selling commissions or dealer manager fees payable on account of shares of any class purchased by PHA, S2K Servicing LLC, or any K Shares, K-I Shares and K-T Shares sold pursuant to the DRIP. The selling commissions and dealer manager fees may have been reduced or waived in connection with certain categories of sales. As of September 30, 2023, the Company recognized $2,986,465 of selling commissions and dealer manager fees in connection with the Public Offering. There have been no additional selling commissions and dealer managers fees in connection with the Public Offering since 2021.

The Company also pays the Dealer Manager with respect to each K-T Share sold in the primary portion of the Public Offering, a stockholder servicing fee equal to 1%, annualized, of the amount of the Company’s estimated NAV per K-T Share for each K-T Share purchased in the primary portion of the Public Offering, for providing services to a holder of K-T Shares. The stockholder servicing fee accrues daily and is payable monthly in arrears. The Dealer Manager will reallow all or a portion of the stockholder servicing fee to participating broker-dealers and servicing broker-dealers. The Company will cease paying the stockholder servicing fee with respect to K-T Shares sold in the primary portion of the Public Offering in accordance with the terms set forth in the prospectus portion of the Registration Statement. As of September 30, 2023, the Company recognized $17,230 of stockholder servicing fees in connection with the Public Offering.

If the Company’s board of directors determines, in any year, that the Company has excess cash, the Company’s board of directors will declare a special distribution entitling (a) the holders of K Shares, K-I Shares, K-T Shares to share, pro rata in accordance with the number of K Shares, K-I Shares and K-T Shares, 50% of such excess cash (or 87.5% of such excess cash if the A Shares have been repurchased in connection with a Non-cause Advisory Agreement Termination); (b) the holders of B Shares to share, pro rata in accordance with the number of B Shares, 12.5% of excess cash; and (c) the holders of A Shares (including PHA or its affiliates) to share, pro rata in accordance with the number of A Shares, 37.5% of such excess cash (unless all such A Shares previously have been repurchased in connection with a Non-cause Advisory Agreement Termination, in which case the excess cash otherwise apportioned to the A Shares would be distributed to the holders of the K Shares, K-I Shares and K-T Shares as noted above).

Upon a liquidation event, any remaining liquidation cash will be paid as a special distribution (a) to the holders of K Shares, K-I Shares and K-T Shares, pro rata in accordance with the number of K Shares, K-I Shares and K-T Shares, 50% of such excess cash (or 87.5% of such excess cash if the A Shares have been repurchased in connection with a Non-cause Advisory Agreement Termination); (b) to the holders of B Shares, pro rata in accordance with the number of B Shares, 12.5% of excess cash; and (c) to the holders of A Shares (including PHA or its affiliates), pro rata in accordance with the number of A Shares, 37.5% of such excess cash (unless all such A Shares previously have been repurchased in connection with a Non-cause Advisory Agreement Termination, in which case the excess cash otherwise apportioned to the A Shares would be distributed to the holders of the K Shares, K-I Shares and K-T Shares as noted above).

The Company established a long-term incentive plan pursuant to which the Company’s board of directors (including independent directors), officers and employees, PHA and its affiliates and their respective employees, employees of entities that provide services to the Company, managers of the Company’s advisor or directors or managers of entities that provide services to the Company and their respective employees, certain of the Company’s consultants and certain consultants to PHA and its affiliates or entities that provide services to the Company and their respective employees may be granted incentive awards in the form of restricted stock, options, and other equity-based awards.

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In accordance with the Company’s long-term incentive plan, each new independent director that joins the Company’s board of directors is awarded 250 restricted K Shares in connection to his or her initial election to the board of directors. In addition, in connection with an independent director’s re-election to the Company’s board of directors at each annual meeting of stockholders, he or she will receive an additional 250 restricted K Shares. Restricted K Shares issued to independent directors will vest in equal amounts annually over a four-year period on and following the first anniversary of the date of grant in increments of 25% per annum; provided, however, that the restricted K Shares will become fully vested on the earlier to occur of (1) the termination of the independent director’s service as a director due to his or her death or disability, or (2) a change in control of the Company. On February 11, 2019, the Company issued 500 restricted K Shares to each of the Company’s three independent directors for a total of 1,500 restricted K Shares. These awards were in relation to their initial election to the board of directors and their re-election. An additional 250 restricted K Shares were awarded to each independent director upon his or her re-election at the Company’s annual meetings of stockholders on July 11, 2019, November 17, 2020, November 10, 2021 and December 22, 2022, respectively.

Share Repurchase Program and Redeemable Common Stock

The Company’s share repurchase program may provide eligible stockholders with limited, interim liquidity by enabling them to sell shares back to the Company, subject to restrictions and applicable law. The Company is not required to repurchase shares. The share repurchase program is only intended to provide interim liquidity to stockholders until a liquidity event occurs, such as the commencement of execution on a plan of liquidation, the listing of the K Shares, K-I Shares or K-T Shares (or successor security) on a national securities exchange, or the Company’s merger with a listed company. The Company cannot guarantee that a liquidity event will occur.

On October 26, 2018, the Company’s board of directors approved and adopted the Amended and Restated Share Repurchase Program (the “A&R SRP”). The A&R SRP provides that the Company will not repurchase in excess of 5.0% of the weighted average number of K Shares, K-I Shares and K-T Shares outstanding during the trailing 12 months prior to the end of the fiscal quarter for which repurchases are being paid (provided, however, that while shares subject to a repurchase requested upon the death of a stockholder will be included in calculating the maximum number of shares that may be repurchased, shares subject to a repurchase requested upon the death of a stockholder will not be subject to the percentage cap). The A&R SRP also provides that the Company will limit repurchases to the net proceeds received pursuant to the DRIP. Additionally, in the event that any stockholder fails to maintain a minimum balance of $2,000 of K Shares, K-I Shares or K-T Shares, the Company may repurchase all of the shares held by that stockholder at the per share repurchase price in effect on the date the Company determines that the stockholder has failed to meet the minimum balance, less any applicable repurchase discount. Minimum account repurchases will apply even in the event that the failure to meet the minimum balance is caused solely by a decline in the Company’s estimated NAV per share.

In addition, the Company’s repurchase of any shares will be limited to the extent that the Company does not have, as determined in the Company’s board of directors’ discretion, sufficient funds available to fund any such repurchase. Most of the Company’s assets will consist of properties which cannot be readily liquidated without affecting the Company’s ability to realize full value upon their disposition. Therefore, the Company may not have sufficient liquid resources to satisfy all repurchase requests. In addition, the Company’s board of directors may amend, suspend (in whole or in part) or terminate the A&R SRP at any time upon 30 days’ notice to stockholders. Further, the Company’s board of directors reserves the right, in its sole discretion, to reject any requests for repurchases.

In the event the Company cannot repurchase all shares presented for repurchase in any fiscal quarter, based upon insufficient cash available and/or the limit on the number of shares it may repurchase, the Company would give first priority to the repurchase of deceased stockholders’ shares. The Company would next give priority to (i) requests of stockholders with “qualifying disabilities” (as defined in the A&R SRP), and in the discretion of the Company’s board of directors, stockholders with another involuntary exigent circumstance, such as bankruptcy, and (ii) next, to requests for full repurchases of accounts with a balance of 100 or less shares at the time the Company receives the request, in order to reduce the expense of maintaining small accounts. Thereafter, the Company will honor the remaining quarterly repurchase requests on a pro-rata basis. Unfulfilled requests will be carried over automatically to subsequent repurchase periods unless a stockholder withdraws a request pursuant to the terms of the A&R SRP.

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Repurchases of K Shares, K-I Shares and K-T Shares will be made quarterly upon written request to the Company at least 15 days prior to the end of the applicable quarter. Valid repurchase requests will be honored approximately 30 days following the end of the applicable quarter (the “Repurchase Date”). Stockholders may withdraw their repurchase request at any time up to five business days prior to the Repurchase Date.

No shares can be repurchased under the Company’s A&R SRP until after the first anniversary of the date of purchase of such shares; provided, however, that this holding period shall not apply to repurchases requested within two years after the death or disability of a stockholder. Additionally, any shares purchased pursuant to the Company’s DRIP will be excluded from the one-year holding requirement. For stockholders that have made more than one purchase of K Shares, K-I Shares or K-T Shares in the Public Offering and/or Private Offering, the one-year holding period will be calculated separately with respect to each such purchase. Repurchases of K Shares, K-I Shares and K-T Shares, when requested, are at the Company’s sole discretion and generally will be made quarterly. Shares repurchased under the A&R SRP program will become unissued shares and will not be resold unless such sales are made pursuant to transactions that are registered or exempt from registration under applicable securities laws. The Company will not pay its Sponsor, board of directors, PHA or their affiliates any fees to complete transactions under the A&R SRP.

The per share repurchase price will depend on the length of time the stockholder has held such shares as follows:

Share Purchase Anniversary	Repurchase Price on Repurchase Date
Less than 1 year	No Repurchase Allowed
1 year	92.5% of most recent Estimated Per Share NAV
2 years	95.0% of most recent Estimated Per Share NAV
3 years	97.5% of most recent Estimated Per Share NAV
4 years	100.0% of most recent Estimated Per Share NAV
In the event of a stockholder’s death or disability	100.0% of most recent Estimated Per Share NAV

Notwithstanding the foregoing, pursuant to securities laws and regulations, at any time the Company is engaged in an offering, the repurchase amount shall never be more than the current offering price of such shares. Shares repurchased in connection with a stockholder’s bankruptcy or other exigent circumstance, in the sole discretion of the Company’s board of directors, within one year from the purchase date will be repurchased at a price per share equal to the price per share the Company would pay had the stockholder held the shares for one year from the purchase date.

The purchase price for repurchased shares will be adjusted for any stock dividends, combinations, splits, recapitalizations, or similar corporate actions with respect to the Company’s common stock. If the Company has sold any properties and have made one or more special distributions to stockholders of all or a portion of the net proceeds from such sales, the per share repurchase price will be reduced by the net sale proceeds per share distributed to stockholders prior to the Repurchase Date to the extent such distributions are not used to pay accumulated, accrued and unpaid distributions on such K Shares, K-I Shares and K-T Shares. The Company’s board of directors will, in its sole discretion, determine which distributions, if any, constitute a special distribution. While the Company’s board of directors does not have specific criteria for determining a special distribution, the Company expects that a special distribution will occur only upon the sale of a property and the subsequent distribution of net sale proceeds.

The Company generally repurchases shares approximately 30 days following the end of the applicable quarter in which requests were received.

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The following table reflects repurchase activity for the nine months ended September 30, 2023.

Share Class	Requests Received During 3 Months Ended	Date Repurchased	Number of Share Repurchases Requested	Shares Repurchased		$ Amount of Shares Repurchased		Amount per share		Requests Withdrawn	Repurchase Requests Outstanding
K	12/31/2022	1/12/2023	20,900	20,900		$	211,517	$	10.12	-	-
K	3/31/2023	4/27/2023	43,151	43,151		$	440,108	$	10.20	-	-
K	6/30/2023	8/23/2023	59,587	16,090	(1)	$	184,422	$	11.46	-	43,497
K	9/30/2023	TBD	10,274	-			-		-	-	10,274
Total K Share repurchase requests outstanding at September 30, 2023											53,771
K-I	3/31/2023	4/27/2023	8,602	8,602		$	88,516	$	10.29	-	-
K-I	6/30/2023	8/23/2023	5,591	1,101	(1)	$	12,625	$	11.46	1,036	3,454
Total K-I Share repurchase requests outstanding at September 30, 2023											3,454

(1) On August 18, 2023, the Company’s board of directors determined that the funding limitation under the A&R SRP was reached with respect to share repurchase requests for the quarter ended June 30, 2023, as there were insufficient net proceeds from the DRIP to fund all share repurchase requests.

Distributions

During the nine months ended September 30, 2023, the Company’s board of directors authorized the payment of distributions as follows:

	Shares			Amount
Date	Outstanding	Date	Record	Per Share	Distributions
Paid	Date	Authorized	Date	Per Day	K Share		K-I Share		K-T Share		OP Unit		Total
2/9/2023	12/31/2022	2/6/2023	2/8/2023	$0.001917808	$	694,914	$	236,910	$	3,831	$	22,606	$	958,261
5/4/2023	3/31/2023	4/26/2023	5/3/2023	$0.001917808		678,982		233,064		2,856		22,115	$	937,017
8/9/2023	6/30/2023	8/4/2023	8/8/2023	$0.001917808		683,412		236,148		2,401		22,360	$	944,321
					$	2,057,309	$	706,122	$	9,087	$	67,081	$	2,839,599

During the nine months ended September 30, 2022, the Company’s board of directors authorized the payment of distributions as follows:

	Shares			Amount
Date	Outstanding	Date	Record	Per Share	Distributions
Paid	Date	Authorized	Date	Per Day	K Share		K-I Share		K-T Share		OP Unit		Total
2/16/2022	12/31/2021	2/11/2022	2/14/22	$0.001917808	$	694,066	$	230,522	$	10,927	$	22,606	$	958,121
5/6/2022	3/31/2022	4/29/2022	5/2/2022	$0.001917808		681,294		227,492		10,899		—	$	919,685
5/11/2022	3/31/2022	4/29/2022	5/2/2022	$0.001917808		-		—		—		22,115	$	22,115
8/5/2022	6/30/2022	8/1/2022	8/3/2022	$0.001917808	-	685,440		231,566		11,112		22,360	$	950,478
					$	2,060,800	$	689,580	$	32,938	$	67,081	$	2,850,399

The Company's board of directors will make determinations as to the payment of future distributions on a quarter-by-quarter basis; however, distributions will continue to accumulate pursuant to the Company's charter.

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On October 30, 2023, the Company’s board of directors authorized the payment of distributions, with respect to the K Shares, K-I Shares and K-T Shares outstanding as of September 30, 2023, to the holders of record of K Shares, K-I Shares and K-T shares as of the close of business on November 1, 2023. With respect to the K Shares, K-I Shares and K-T Shares outstanding as of September 30, 2023, the cumulative amount of distributions that had accumulated on a daily basis with respect to the K Shares, K-I Shares and K-T Shares since June 30, 2023 was $689,334, or $0.001917808 per K Share per day, $239,538, or $0.001917808 per K-I Share per day, and $2,448, or $0.001917808 per K-T Share per day, respectively. Such distributions were paid to stockholders in cash or in additional shares pursuant to the DRIP on November 2, 2023.

On October 30, 2023, the Company’s board of directors authorized the payment of distributions with respect to the Class K OP Units outstanding as of September 30, 2023, to the holders of record of Class K OP Units as of the close of business on November 1, 2023. With respect to the Class K OP Units outstanding as of September 30, 2023, the cumulative amount of distributions that had accumulated on a daily basis with respect to the Class K OP Units since June 30, 2023 was $22,606, or $0.001917808 per Class K OP Unit. Such distributions were paid to stockholders in cash or in additional shares pursuant to the DRIP on November 9, 2023.

Note 9 - Income Taxes

The Company recognized a consolidated income tax expense of $193,881 and $200,498 for the three months ended September 30, 2023 and 2022, respectively. The Company recognized a consolidated income tax expense of $8,117 and $243,473 for the nine months ended September 30, 2023 and 2022, respectively. These amounts relate to the operations of the Company’s TRSs.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide the reader with information that will assist in understanding our financial statements and the reasons for changes in certain key components of our financial statements from period to period. The MD&A also provides the reader with our perspective on our financial position and liquidity, as well as certain other factors that may affect our future results.

As used herein, the terms “we,” “our” and “us” refer to Procaccianti Hotel REIT, Inc., a Maryland corporation and, as required by context, Procaccianti Hotel REIT, L.P., a Delaware limited partnership, which we refer to as our “Operating Partnership,” and to their respective subsidiaries.

The following discussions and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q (“Quarterly Report”). The following discussion should also be read in conjunction with our audited consolidated financial statements, the notes thereto, and the MD&A included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the U.S. Securities and Exchange Commission (“SEC”) on March 24, 2023 (“Annual Report”).

Forward-Looking Statements

Certain statements included in this Quarterly Report that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in any forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.

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The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing 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 predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements.

Factors that could have a material adverse effect on our operations and future prospectus include, but are not limited to:

● the impact of supply chain disruptions on our ability to comply with brand standards and guest expectations and the ability of our third-party managers to source supplies and other items required for operations;

● our ability to successfully negotiate amendments and covenant waivers under our secured and unsecured indebtedness;

● our ability to comply with contractual covenants;

● business, financial and operating risks inherent to real estate investments and the hospitality industry;

● seasonal and cyclical volatility relating to the hospitality industry;

● adverse changes in specialized industries, such as the energy, technology and/or tourism industries, that result in a sustained downturn of related business and corporate spending that may negatively impact our revenues and results of operations;

● macroeconomic and other factors beyond our control that can adversely affect and reduce demand for hotel rooms;

● domestic and global political risks and uncertainties, including the war in Ukraine, tensions between China and the United States, other economic disruptions and U.S. and global recession concerns, on our financial condition and results of operations;

● inflation which increases labor and other costs of providing services to guests and meeting hotel brand standards, as well as costs related to construction and other capital expenditures, property and other taxes, and insurance, which could result in reduced operating profit margins;

● events beyond our control, such as war, terrorist or cyber-attacks, mass casualty events, government shutdowns and closures, travel-related health concerns and natural disasters;

● cyber incidents and information technology failures, including unauthorized access to our computer systems and/or our vendor’s computer systems, and our third-party management companies’ or franchisors’ computer systems and/or their vendors’ computer systems;

● changes in economic conditions generally and the real estate and debt markets specifically;

● our ability to obtain financing on acceptable terms;

● our levels of debt and the terms and limitations imposed on us by our debt agreements;

● our ability to successfully identify and acquire properties on terms that are favorable to us;

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● risks inherent in the real estate business, including potential liability relating to environmental matters and the lack of liquidity of real estate investments;

● changes in demand for rooms at our hotel properties;

● the fact that we pay fees and expenses to our advisor and its affiliates that were not negotiated on an arm’s-length basis and the fact that the payment of these fees and expenses increases the risk that our stockholders will not earn a profit on their investment in us;

● our ability to retain our executive officers and other key personnel of our advisor, our property manager and other affiliates of our advisor;

● legislative or regulatory changes (including changes to the laws governing the taxation of REITs (as defined below));

● the availability of capital;

● changes in interest rates; and

● changes to U.S. generally accepted accounting principles (“GAAP”).

Other risks include those described under the section entitled Item 1A. “Risk Factors” of Part I our Annual Report and subsequent quarterly reports. Any of the assumptions underlying forward-looking statements could be inaccurate. You are cautioned not to place undue reliance on any forward-looking statements included in this Quarterly Report. All forward-looking statements are made as of the date of this Quarterly Report and the risk that actual results will differ materially from the expectations expressed in this Quarterly Report will increase with the passage of time. These risks and uncertainties may be amplified by the conflict between Russia and Ukraine, Hamas’ attack of Israel and the ensuing war, rising levels of inflation and interest rates and the COVID-19 pandemic, which have caused significant economic uncertainty. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this Quarterly Report, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this Quarterly Report, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Quarterly Report will be achieved.

Overview

Procaccianti Hotel REIT, Inc. was formed on August 24, 2016, under the laws of Maryland to acquire and own a diverse portfolio of hospitality properties consisting primarily of select-service, extended-stay and compact full-service hotel properties throughout the United States. As of September 30, 2023, we owned an interest in five select-service hotel properties. We elected to be taxed as, and currently operate as, a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ended December 31, 2018.

Substantially all of our business is conducted through the Operating Partnership. We are the sole general partner of the Operating Partnership. We are externally managed by our advisor, Procaccianti Hotel Advisors, LLC (“PHA”) pursuant to an advisory agreement by and among us, our Operating Partnership and PHA, dated August 2, 2018 (as amended, the “Advisory Agreement”). PHA is an affiliate of our sponsor, Procaccianti Companies, Inc. (“Sponsor”).

Subscription proceeds from Class K common stock (“K Shares”), Class K-I common stock (“K-I Shares”) and Class K-T common stock (“K-T Shares”) in our Private Offering and our Public Offering, which terminated in August 2021, as discussed below, have been applied to investments in hotel properties or real estate-related investments relating to hotel properties.

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We intend to make reserve allocations as necessary to aid our objective of preserving capital for investors by supporting the maintenance and viability of properties we acquire in the future. If reserves and any other available income become insufficient to cover our operating expenses and liabilities, it may be necessary to obtain additional funds by borrowing, refinancing properties or liquidating our investment in one or more properties. There is no assurance that such funds will be available or, if available, that the terms will be acceptable to us.

We raised the equity capital for our real estate investments through a private offering (the “Private Offering”) and a public offering (the “Public Offering”, together with the Private Offering, the “Offerings”) from September 2016 through August 2021, and we have offered shares through our distribution reinvestment plan (“DRIP”) pursuant to a Registration Statement on Form S-3 (the “DRIP Offering”) since August 2021.

We terminated our Private Offering prior to the commencement of the Public Offering, and, as of such termination, received approximately $15,582,755 in gross proceeds from the sale of shares of Class K common stock (“K Shares”) and Class A common stock (“A Shares”, including Units (which were comprised of one K Share and one A Share), in the Private Offering. Of the $15,582,755 in gross proceeds received, $2,954,095 was from the sale of A Shares to TPG Hotel REIT Investor, LLC (“THR”), an affiliate of PHA, to fund organization and offering expenses associated with the K Shares and Units.

Since the commencement of the Public Offering and through September 30, 2023, we received approximately $41,077,420 in gross proceeds from the sale of K Shares, K-I Shares and K-T Shares in the Public Offering, inclusive of proceeds from the sale of $1,336,956 of K Shares, $870,709 of K-I Shares and $69,593 of K-T Shares pursuant to the DRIP. Additionally, on October 26, 2018, June 10, 2019 and January 19, 2021, we received $1,500,000, $690,000 and $440,000, respectively, from the sale of A Shares to THR in private placements, the proceeds of which were used to pay the selling commissions, dealer manager fees, stockholder servicing fees, and other organizational and offering expenses related to the K Shares, K-I Shares and K-T Shares sold in the primary offering portion of our Public Offering. In addition, we allocated proceeds from the sale of A Shares in amounts that represent the difference between (i) the applicable estimated net asset value (“NAV”) per K-I Share and the applicable offering price of K-I Shares sold in our primary offering and (ii) any discount to the applicable offering price of K Shares, K-I Shares and K-T Shares arising from reduced or waived selling commissions (other than reduced selling commissions for volume discounts) or dealer manager fees.

On February 27, 2020, through a separate private placement and as partial consideration for our acquisition of the Hilton Garden Inn hotel property located in Providence, Rhode Island (“Hilton Garden Inn Providence”), the Operating Partnership issued 128,124 Class K units of limited partnership interests in the Operating Partnership ("Class K OP Units") at $10.00 per Class K OP Unit.

We intend to establish an estimated per share net asset value (“Estimated Per Share NAV”) on at least an annual basis. Each Estimated Per Share NAV is determined by our board of directors after consultation with our advisor and an independent third-party valuation firm. The Estimated Per Share NAV is not subject to audit by our independent registered public accounting firm. The following table outlines the established Estimated Per Share NAV as determined by our board of directors for the last five years as of each valuation date presented below (which were the Estimated Per Shares NAVs for the K Shares, K-I Shares and K-T Shares, unless otherwise indicated):

Valuation Date	Effective Date	Estimated Per Share NAV
March 31, 2023	June 27, 2023	$11.53	(1)  ​
March 31, 2022	June 27, 2022	$10.29	(2)  ​
March 31, 2021	June 9, 2021	$9.85	(3)  ​
March 31, 2020	June 10, 2020	$8.56	(4)  ​
March 31, 2019	May 23, 2019	$10.00	(5)  ​

(1) The Estimated Per Share NAV per K-T Share was $11.96, the Estimated Per Share NAV per A Share was $22.76 and the Estimated Per Share NAV per share of Class B capital stock (“B Share”) was $14.77.

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(2) The Estimated Per Share NAV per A Share was $13.34 and the Estimated Per Share NAV per B Share was $1.25.

(3) The Estimated Per Share NAV per K-I Share was $9.77, the Estimated Per Share NAV per A Share was $0.00 and the Estimated Per Share NAV per B Share was $0.00.

(4) The Estimated Per Share NAV per K-I Share was $8.55, the Estimated Per Share NAV per A Share was $0.00 and the Estimated Per Share NAV per B Share was $0.00.

(5) The Estimated Per Share NAV per A Share was $3.97 and the Estimated Per Share NAV per B Share was $0.00.

Components of NAV	3/31/2023
Real Estate	$	143,980,000
Mortgage Notes Payable		(62,556,309)
Other Assets		11,470,351
Other Liabilities		(4,115,825)
Noncontrolling Interest		(11,021,078)
Net Asset Value	$	77,757,139

Components of NAV by Share Class	Class K		Class K-I		Class K-T		Class A		Class B		Total
Accrued Unpaid Distributions	$	700,664	$	235,746	$	8,118	$	1,880,058	$	-	$	2,824,586
Liquidation Preference		40,675,457		13,539,366		135,940		5,814,095		-	$	60,164,858
Remaining Distribution Allocation		5,525,982		1,839,397		18,468		5,537,886		1,845,962	$	14,767,695
Net Asset Value	$	46,902,103	$	15,614,509	$	162,526	$	13,232,039	$	1,845,962	$	77,757,139
Shares Outstanding		4,067,546		1,353,937		13,594		581,410		125,000
Estimated Per Share NAV		$11.53		$11.53		$11.96		$22.76		$14.77

The Estimated Per Share NAV of each of our classes of capital stock is calculated in accordance with our charter, as amended. Our NAV is, in accordance with our charter, allocated (i) first, to the liquidation preference on each of the K-I Shares, K Shares and K-T Shares equal to $10.00, plus all accumulated, accrued, and unpaid distributions on the K-I Shares, K Shares and K-T Shares, respectively, (ii) second, to the payment of any deferred and unpaid asset management fees, acquisition fees and disposition fees (including interest accrued on all such fees at a non-compounded rate of 6.0% per annum) to our advisor, (iii) third, to the liquidation preference on the A Shares equal to $10.00, plus all accumulated, accrued and unpaid distributions on the A Shares, and (iv) fourth, following the distribution and payment in full of all of the preceding obligations, (a) 50.0% of the remaining NAV is allocated to the holders of the K-I Shares, K Shares and K-T Shares (pro rata based on the number of K-I Shares, K Shares, and K-T Shares outstanding), (b) 12.5% of the remaining NAV is allocated to B Shares, and (c) 37.5% of remaining NAV is allocated to the A Shares.

S2K Financial LLC was the dealer manager for our Public Offering and was responsible for the distribution of our common stock in our Public Offering. PHA is our advisor and is an affiliate of our Sponsor. Subject to certain restrictions and limitations, PHA manages our day-to-day operations and our portfolio of properties and real estate-related assets. PHA sources and presents investment opportunities to our board of directors and provides investment management, marketing, investor relations and other administrative services on our behalf. We have no paid employees and rely on PHA to provide substantially all of our services. Pursuant to our Advisory Agreement with PHA, we will reimburse PHA for costs incurred in providing these administrative services. PHA will be required to allocate the cost of such services to us based on objective factors such as total assets, revenues and/or time allocations. At least annually, our board of directors will review the amount of administrative services expense reimbursable to PHA to determine whether such amounts are reasonable in relation to the services provided. During the three months ended September 30, 2023 and

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2022, the Sponsor requested reimbursement for $29,734 and $35,120, respectively, of such administrative service expenses. During the nine months ended September 30, 2023 and 2022, the Sponsor requested reimbursement for $106,201 and $122,813, respectively, of such administrative service expenses. Of these amounts, $14,719 is included in due to related parties on the condensed consolidated balance sheet as of September 30, 2023.

In addition, pursuant to provisions contained in our charter and in the Advisory Agreement, our board of directors has the ongoing responsibility of limiting our total operating expenses (as defined in our charter) for the trailing four consecutive quarters to amounts that do not exceed the greater of 2% of our average invested assets (as defined in our charter) or 25% of our net income (as defined in our charter), calculated in the manner set forth in our charter, unless a majority of the directors (including a majority of the independent directors) has made a finding that, based on unusual and non-recurring factors that they deem sufficient, a higher level of expenses is justified. In the event that a majority of the directors (including a majority of the independent directors) does not determine that such excess expenses are justified, PHA must reimburse to us the amount of the excess expenses paid or incurred (the “Excess Amount”).

We incurred operating expenses of approximately $1,382,162 during the twelve months ended September 30, 2023, which was within the 2% of average invested assets and 25% of net income limitations (as defined in our charter).

Because we are prohibited from operating hotel properties pursuant to certain tax laws relating to our qualification as a REIT, the entities through which we own hotel properties will lease the hotel properties to one or more taxable REIT subsidiaries (“TRSs”). A TRS is a corporate subsidiary of a REIT that jointly elects, with the REIT, to be treated as a TRS of the REIT, and that pays federal income tax at regular corporate rates on its taxable income. The TRSs will enter into any franchise agreements to brand our hotels and will generally enter into property management agreements with one or more affiliated property management companies. These may include TPG Hotels & Resorts, Inc., an affiliate of our Sponsor and PHA, or TPG Hotels & Resorts, Inc.’s wholly owned subsidiaries, which we collectively refer to as TPG, or other affiliates or designees of TPG. We expect our property manager will operate and manage all or substantially all of our hotel properties.

We anticipate that we will acquire properties with property management agreements that can be terminated with little or no cost. In such cases, our TRSs will enter into property management agreements with one or more property management companies affiliated with our Sponsor. We expect our property manager will operate and manage all or substantially all of our hotel properties. We collectively refer to TPG and other property management companies affiliated with our Sponsor as our property manager.

PHA and affiliated property managers will be entitled to receive fees during the acquisition and operational stages of the Company, and PHA may be eligible to receive fees during the liquidation stage of the Company. S2K Financial LLC will receive fees for distribution and servicing of the DRIP Offering.

We elected to be taxed as, and currently qualify as, a REIT under the Code commencing with our taxable year ended December 31, 2018. As a REIT, we generally will not be subject to U.S. federal income tax to the extent that we distribute qualifying dividends to our stockholders. If we fail to qualify as a REIT in any taxable year following the year we initially elect to be taxed as a REIT, we will be subject to U.S. federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for four years following the year in which qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Failing to qualify as a REIT could materially and adversely affect our net income and results of operations.

Recent Developments

Our operations have been and are expected to continue to be impacted by economic and market conditions. Persisting market and economic challenges, such as increases in interest rates, labor shortages, supply chain disruptions and high inflation, could affect (i) the value and performance of our investments, (ii) our ability to pay future distributions, (iii) the availability or terms of financings, (iv) our ability to make scheduled principal and interest payments, and (v) our ability to refinance any outstanding debt when contractually due.

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Market Outlook

Lingering impacts of the COVID-19 pandemic on the global and U.S. economy, and the travel industry in particular, continue to hinder a full recovery to pre-pandemic performance levels in certain property segments. While destination and leisure travel have rebounded and remain strong, business travel has been slower to recover. Newer headwinds triggered by the pandemic including historic rises in interest rates, inflation, supply chain issues and labor costs present additional challenges which we believe will continue to temper a recovery of business travel throughout 2023 and 2024.

The U.S. lodging industry has historically exhibited a strong correlation to U.S. GDP. GDP increased 2.1% in 2022, compared to an increase of 5.9% in 2021. However, CBRE (U.S. Hotels State of the Union Feb 2023) forecasts below average GDP increases throughout 2023 (.2%) and 2024 (1.3%). The increase in GDP in 2022 primarily reflected increases in consumer spending, exports, private inventory investment, and nonresidential fixed investment that were partly offset by decreases in residential fixed investment and federal government spending. The increase in GDP during the year ended December 31, 2021, reflected increases in all major subcomponents, led by personal consumption expenditures (“PCE”), nonresidential fixed investment, exports, residential fixed investment and private inventory investment.

Inflation remains elevated after reaching a 40-year high during 2022 and its impact on the U.S. economy and the impact of any measures that may be taken by government officials to curb inflation remain uncertain. Inflation may adversely affect financial condition and results of operations. An increase in inflation could have an adverse impact on floating rate mortgages, credit facilities, property operating expenses, and general and administrative expenses, as these costs could increase at a rate higher than revenue. Inflation could also have an adverse effect on consumer spending, which could impact our revenues.

The hospitality sector entered 2023 on comparably stronger footing, however the horizon is not free of challenges. Travel costs have been on the rise, led by generally higher airfares, fuel costs and hotel rates. While pent-up demand has somewhat compensated for high inflation, the potential for a recession-driven pullback in consumer spending remains a credible risk to industry momentum. Scenic destinations that have outperformed in recent years may begin to revert to traditional demand levels. Businesses have suggested they may boost business travel this year, which, combined with additional international visitation and a larger convention slate, is poised to drive recovery in many of the nation’s larger hospitality markets.

Our Sponsor’s principals and senior executives, and our highly experienced property level management teams employed by TPG Hotels & Resorts, our hospitality and property management affiliate, have over three decades of experience in the hospitality industry, and have weathered many market swings, including experience dealing with the impacts of previous disruptive events such as 9/11 and the significant recession of 2008.

Critical Accounting Policies

Our accounting policies have been established to conform with GAAP. The preparation of our financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. A discussion of the accounting policies that management considers critical in that they involve significant management judgments, assumptions and estimates was included in our Annual Report.

Income Taxes

We elected to be taxed as, and currently qualify as, a REIT under the Code and have operated as such commencing with our taxable year ended December 31, 2018. To qualify as a REIT for tax purposes, we must meet

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certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to our stockholders (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). We must also meet certain asset and income tests, as well as other requirements. As a REIT, we will not be subject to U.S. federal income tax to the extent we make distributions to our stockholders equal to or in excess of our taxable income. We will monitor the business and transactions that may potentially impact our REIT status. If we fail to qualify as a REIT in any taxable year following 2018, we would be subject to U.S. federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate income tax rates and generally would not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to our stockholders. However, we are, and intend to continue to be, organized and operated in such a manner as to qualify for treatment as a REIT.

We lease our hotel properties to our wholly owned TRSs that are subject to federal, state and local income taxes.

We account for income taxes of our TRSs using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We record a valuation allowance for net deferred tax assets that are not expected to be realized.

We have reviewed tax positions under GAAP guidance that clarify the relevant criteria and approach for the recognition and measurement of uncertain tax positions. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken, or expected to be taken, in a tax return. A tax position may only be recognized in the financial statements if it is more likely than not that the tax position will be sustained upon examination. We had no material uncertain tax positions at September 30, 2023.

The preparation of our various tax returns requires the use of estimates for federal and state income tax purposes. These estimates may be subjected to review by the respective taxing authorities. A revision to an estimate may result in an assessment of additional taxes, penalties and interest. At this time, a range in which our estimates may change is not expected to be material. We will account for interest and penalties relating to uncertain tax provisions in the current period’s results of operations, if necessary. We have not been assessed interest or penalties by any major tax jurisdictions. We have tax years 2019 through 2022 remaining subject to examination by various federal and state tax jurisdictions.

Distributions

Our board of directors may authorize distributions in excess of those required for us to maintain REIT status as it deems appropriate. Through the first quarter of 2020, we paid regular quarterly distributions to our stockholders. As a result of the impact of the COVID-19 pandemic on our business, our board of directors may reconsider our current distribution policy and may take further action with respect to distributions for our common stock, and could consider eliminating, suspending, or significantly reducing distributions in the future. The timing and amount of distributions will be determined by our board of directors, in its sole discretion, and may vary from time to time. Our board of directors’ discretion will be influenced in substantial part by its obligation to cause us to comply with the REIT requirements of the Code. We can provide no assurance that we will be able to pay distributions on our K Shares, K-I Shares or K-T Shares. However, distributions will continue to accumulate pursuant to our charter.

Our board of directors has adopted a policy to refrain from funding distributions with offering proceeds; instead, we plan to fund distributions from cash flows from operations and capital transactions (other than the Public Offering or other securities offerings but which may include the sale of one or more assets). However, our charter does not restrict us from paying distributions from any particular source, including proceeds from securities offerings, and our board of directors has the ability to change our policy regarding the source of distributions. However, in accordance with Maryland law, we may not make distributions that would: (1) cause us to be unable to pay our debts as they become due

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in the usual course of business; or (2) cause our total assets to be less than the sum of our total liabilities plus, unless our charter provides otherwise, senior liquidation preferences. Our charter currently provides that amounts that would be needed, if we were to dissolve at the time of such distributions, to satisfy the preferential rights upon dissolution of holders of K Shares, K-I Shares and K-T Shares shall not be added to our total liabilities for these purposes. Subject to the preceding, our board of directors will determine the amount of distributions we will pay to our stockholders. We have not established a minimum distribution level.

For information on distributions paid during the three months ended September 30, 2023, refer to Note 8 – “Stockholders’ Equity” to our unaudited interim condensed consolidated financial statements included in this Quarterly Report.

We have funded distributions with operating cash flows from our hotel properties and from the issuance of common stock pursuant to the DRIP. To the extent we do not have sufficient earnings and profits, distributions paid will be considered a return of capital to stockholders.

The following table shows distributions paid during the nine months ended September 30, 2023 and 2022:

	Nine Months Ended September 30,
	2023				2022
Distributions paid in cash	$	2,244,497			$	2,254,296
Distributions reinvested		595,102				596,103
Total distributions	$	2,839,599			$	2,850,399
Source of distributions:
Cash flows provided by operations	$	2,244,497	79	%	$	2,254,296	79	%
Offering proceeds from issuance of common stock pursuant to the DRIP		595,102	21	%		596,103	21	%
Total sources	$	2,839,599	100	%	$	2,850,399	100	%

Although a portion of the tax composition of such distributions may be a return of capital, distributions for the three months ended September 30, 2023 and 2022 were paid for with gross cash flow from operations. To the extent we do not have taxable income, distributions paid will be considered a return of capital to stockholders.

On March 3, 2020, our stockholders approved to amend our charter (1) to increase the rate at which cash distributions on K Shares, K-I Shares and K-T Shares automatically accumulate under our charter from 6% to 7% per annum of the K Share Distribution Base of such K Share, K-I Share Distribution Base of such K-I Share and K-T Share Distribution Base of such K-T Share, respectively, and (2) to increase the maximum rate at which distributions on A Shares may be authorized by our board of directors and declared by us from 6% to 7% of the stated value of an A Share ($10.00) from income and cash flow from ordinary operations on a cumulative basis. The changes pursuant to the Articles of Amendment to our charter became effective beginning with distributions that accumulated on March 31, 2020.

We paid quarterly distributions with respect to all four quarters of 2022 and the first three quarters of 2023, funded from the operations of our hotel properties and proceeds received pursuant to the DRIP, consistent with prior distributions. Unpaid distributions will continue to accumulate pursuant to our charter. Our board of directors will make determinations as to the payment of future distributions on a quarter by quarter basis; however, distributions will continue to accumulate pursuant to our charter.

Results of Operations

The discussion that follows is based on our consolidated results of operations for the three and nine months ended September 30, 2023 and 2022.

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Factors That May Influence Results of Operations

We are not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally and those risks listed in Part I, Item 1A “Risk Factors” of our Annual Report and in Part II, Item 1A. “Risk Factors” of this Quarterly Report, including but not limited to the COVID-19 pandemic, as discussed below, that may be reasonably expected to have a `material impact, favorable or unfavorable, on revenues or income from the acquisition, management and operation of our properties.

Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Rooms revenues

We expect the majority of our revenues to be derived from the operation of our hotel properties. Rooms revenues are the product of the number of rooms sold and the average daily room rate. Rooms revenues decreased to $9,577,029 for the three months ended September 30, 2023 from $9,652,212 for the three months ended September 30, 2022. The net decrease of $75,183, or 0.8%, was largely due to a decrease in ADR.

The following presents the hotel operating results for the three months ended September 30, 2023:

	Total Portfolio
	July			August			September
Number of hotels		5			5			5
Number of rooms		559			559			559
Average Occupancy Percentage		81.14	%		78.66	%		73.05	%
Average Daily Rate (“ADR”)	$	257.24		$	233.60		$	208.58
Revenue Per Available Room (“RevPAR”)	$	213.77		$	188.85		$	155.10

The following presents the hotel operating results for the three months ended September 30, 2022:

	Total Portfolio
	July			August			September
Number of hotels		5			5			5
Number of rooms		559			559			559
Average Occupancy Percentage		82.10	%		78.22	%		72.52	%
ADR	$	260.25		$	239.07		$	207.07
RevPAR	$	215.66		$	195.04		$	151.18

A comparison of hotel rooms revenues for the three months ended September 30, 2023 and 2022 is as follows:

	Three Months Ended September 30,				Increase		Increase
	2023		2022		(Decrease)		(Decrease) %
Springhill Suites Wilmington	$	1,327,051	$	1,446,236	$	(119,185)		(8.24)	%
Staybridge Suites St. Petersburg		1,271,885		1,177,680		94,205		8.00	%
Hotel Indigo Traverse City		3,212,117		3,234,225		(22,108)		(0.68)	%
Hilton Garden Inn Providence		1,884,012		1,850,985		33,027		1.78	%
Cherry Tree Inn		1,881,964		1,943,086		(61,122)		(3.15)	%
	$	9,577,029	$	9,652,212	$	(75,183)		(0.78)	%

The decrease in rooms revenues of $119,185 or 8.24%, at the Springhill Suites Wilmington is driven by decreases in both ADR and occupancy. Occupancy at the Springhill Suites Wilmington decreased from 79.23% for the

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three months ended September 30, 2022, to 74.94% for the three months ended September 30, 2023. The ADR at the Springhill Suites Wilmington decreased from $164.16 for the three months ended September 30, 2022, to $159.37 for the three months ended September 30, 2023, a decrease of 2.9%.

The increase in rooms revenues of $94,205, or 8.00%, at the Staybridge Suites St. Petersburg is primarily driven by an increase in ADR. Occupancy at the Staybridge Suites St. Petersburg increased from 75.37% for the three months ended September 30, 2022, to 75.62% for the three months ended September 30, 2023. The ADR at the Staybridge Suites St. Petersburg increased from $142.55 for the three months ended September 30, 2022, to $153.26 for the three months ended September 30, 2023, an increase of 7.51%.

The decrease in rooms revenues of $22,108 or 0.68%, at the Hotel Indigo Traverse City is primarily driven by a decrease in ADR. Occupancy at the Hotel Indigo Traverse City increased from 90.37% for the three months ended September 30, 2022 to 90.89% for the three months ended September 30, 2023. The ADR at the Hotel Indigo Traverse City decreased from $360.86 for the three months ended September 30, 2022 to $356.86 for the three months ended September 30, 2023, a decrease of 1.1%.

The increase in rooms revenues of $33,027, or 1.78%, at the Hilton Garden Inn Providence is primarily driven by an increase in occupancy offset by a decrease in ADR compared to the prior year. Occupancy at the Hilton Garden Inn Providence increased from 68.39% for the three months ended September 30, 2022 to 71.90% for the three months ended September 30, 2023. The ADR at the Hilton Garden Inn Providence decreased from $214.30 for the three months ended September 30, 2022 to $207.88 for the three months ended September 30, 2023, a decrease of 3.0%.

The decrease in rooms revenues of $62,122, or 3.15%, at the Cherry Tree Inn is primarily driven by decreases in both occupancy and ADR compared to the prior year. Occupancy at the Cherry Tree Inn decreased from 77.24% for the three months ended September 30, 2022 to 76.55% for the three months ended September 30, 2023. The ADR at the Cherry Tree Inn decreased from $355.11 for the three months ended September 30, 2022 to $346.05 for the three months ended September 30, 2023, an decrease of 2.6%.

Food and beverage revenues

Food and beverage revenues increased to $1,061,479 for the three months ended September 30, 2023 from $1,038,870 for the three months ended September 30, 2022. These amounts are comprised of revenues realized in hotel food and beverage outlets as well as catering events. The $22,609 increase from the prior year period primarily driven by an increase in catering revenue during the three months ended September 30, 2023.

Other operating revenues

Other operating revenues increased to $347,705 for the three months ended September 30, 2023, from $268,757 for the three months ended September 30, 2022. These amounts include ancillary hotel revenues and other items primarily driven by occupancy such as telephone/internet, parking, gift shops, and other guest services. The $78,948 increase from the prior year period is primarily due to an increase in resort fees.

Rooms expenses

Rooms expenses increased to $1,710,208 for the three months ended September 30, 2023 from $1,684,324 for the three months ended September 30, 2022. The $25,884 net increase in rooms expenses is primarily due to increased housekeeping expenses. Rooms expenses are typically primarily driven by the corresponding revenue account and occupancy. Rooms expenses of $1,710,208 and $1,684,324 represent 17.9% and 17.5% of rooms revenues for the three-month period ended September 30, 2023 and 2022, respectively.

Food and beverage expenses

Food and beverage expenses were $550,315 and $589,796 for the three months ended September 30, 2023 and 2022, respectively. The $39,481 decrease in food and beverage expenses is primarily due to a decrease in food costs.

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Food and beverage expenses are historically primarily driven by the corresponding revenue account and occupancy. Food and beverage expenses represent 51.8% and 56.8% of food and beverage revenues for the three-month period ended September 30, 2023 and 2022, respectively.

Other property expenses

Other property expenses were $3,041,061 and $2,906,890, for the three months ended September 30, 2023 and 2022, respectively. These amounts include maintenance, utilities, sales and marketing, and general and administrative expenses of the hotel properties, as well as net franchise fees, property taxes and other taxes. The $133,171 increase in other property expenses is primarily driven by an increase in credit card commissions, sales and marketing expenses, and utility costs.

Property management fees to affiliates

Property management fees to affiliates were $329,697 and $328,867 for the three months ended September 30, 2023 and 2022, respectively. Property management fees are property level expenses equal to 3% of the hotel properties’ gross revenues and we expect them to fluctuate accordingly.

Corporate general and administrative

Corporate general and administrative expenses were $320,940 and $348,781 for the three months ended September 30, 2023 and 2022, respectively. Corporate general and administrative expenses consist primarily of transfer agent fees, fees paid to the board of directors, audit and tax fees, and other professional services fees.

Other fees to affiliates

Other fees to affiliates were $209,558 and $262,628 for the three months ended September 30, 2023 and 2022, respectively. Other fees to affiliates include asset management fees due to PHA that are paid quarterly in arrears equal to one-fourth of 0.75% of the adjusted cost of our assets. Other fees to affiliates also includes certain administrative fees charged to us by our Sponsor. Such administrative fees were $29,734 and $35,120 during the three months ended September 30, 2023 and 2022, respectively. Other fees to affiliates for the three months ended September 30,2022, included $49,696 of expenses incurred by an affiliate of our Sponsor related to the application for the Employee Retention Tax Credit (“ERTC”).

Depreciation and amortization

Depreciation and amortization expenses were $1,031,180 and $990,626 for the three months ended September 30, 2023 and 2022, respectively. These amounts include depreciation on our hotel buildings, improvements, furniture, fixtures and equipment, along with amortization of our franchise fees and certain intangibles.

Loss on the disposal of fixed assets

Loss on disposal of fixed assets was $10,535 for the three months ended September 30, 2022, and related to the replacement of certain room furnishings at the Staybridge Suites St. Petersburg.

Interest expense, net

Interest expense, net, was $744,035 and $716,108 for the three months ended September 30, 2023 and 2022, respectively. Interest expense includes monthly fixed rate payments on the outstanding mortgage notes payable balance, accrued interest on the outstanding asset management fees, acquisition fees and promissory notes from PHA and our Sponsor, and the amortization of deferred financing costs and debt discounts or premiums. For the three months ended September 30, 2023, we incurred ($33,079) of interest expense relating to the amortization of the fair value of debt premium, offset by $30,417 relating to the amortization of deferred financing costs and debt discounts.

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Interest income on interest-bearing cash accounts was $72,328 and $228 for three months ended September 30, 2023 and 2022, respectively. Interest income is presented as a reduction of the total interest expense on the consolidated income statement.

Gain (Loss) on interest rate swap/cap

Loss on our interest rate swap/cap was $42,035 for the three months ended September 30, 2023. Gain on our interest rate swap/cap was $62,109 for the three months ended September 30, 2022. They related to the note secured by the Hotel Indigo Traverse City (the “TCI Note”) interest rate swap which expires on August 15, 2024 and interest rate cap that expired on August 15, 2023.

Income tax expense

Income tax expense was $193,881 and $200,498 for the three months ended September 30, 2023 and 2022, respectively. They related to taxable income at the TRSs.

Net income

For the three months ended September 30, 2023 and 2022, we had net income of $2,814,303 and $2,982,895, respectively. The decrease in net income of $168,592 is the result of the revenue and expense changes discussed above.

Net income attributable to noncontrolling interests

Net income relating to noncontrolling interests was $184,066 and $214,792 for the three months ended September 30, 2023 and 2022, respectively. This amount includes net income or losses attributable to a third-party’s 49% ownership interest in PCF and will fluctuate accordingly with any increases or decreases to net income of PCF. This amount also includes net income or losses attributable to the noncontrolling Operating Partnership Class K OP Units issued as part of the Hilton Garden Inn Providence acquisition. The noncontrolling Class K OP Units are allocated net income or loss attributable to the Operating Partnership based on the total outstanding Class K OP Units as a percentage of all our outstanding common stock.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Rooms revenues

We expect the majority of our revenues to be derived from the operation of our hotel properties. Rooms revenues are the product of the number of rooms sold and the average daily room rate. Rooms revenues increased to $21,492,976 for the nine months ended September 30, 2023 from $20,916,938 for the nine months ended September 30, 2022. The net increase of $576,038, or 2.8%, was largely due to increases in occupancy somewhat offset by decreases in ADR.

The following presents the hotel operating results for the three months ended September 30, 2023:

		First			Second			Third
		Quarter			Quarter			Quarter
		2023			2023			2023
Number of hotels		5			5			5
Number of rooms		559			559			559
Average Occupancy Percentage		61.13	%		73.03	%		77.61	%
ADR	$	149.96		$	192.03		$	233.14
RevPAR	$	94.60		$	140.87		$	185.91

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The following presents the hotel operating results for the two quarters ended September 30, 2022:

		First			Second			Third
		Quarter			Quarter			Quarter
		2022			2022			2022
Number of hotels		5			5			5
Number of rooms		559			559			559
Average Occupancy Percentage		57.54	%		68.47	%		77.61	%
ADR	$	150.88		$	193.54		$	235.46
RevPAR	$	89.17		$	133.58		$	187.29

A comparison of hotel rooms revenues for the nine months ended September 30, 2023 and 2022 is as follows:

	Nine Months Ended September 30,				Increase		Increase
	2023		2022		(Decrease)		(Decrease) %
Springhill Suites Wilmington	$	3,419,963	$	3,590,026	$	(170,063)		(4.74)	%
Staybridge Suites St. Petersburg		4,567,748		4,248,619		319,129		7.51	%
Hotel Indigo Traverse City		5,777,782		5,769,364		8,418		0.15	%
Hilton Garden Inn Providence		4,439,943		4,144,058		295,885		7.14	%
Cherry Tree Inn		3,287,540		3,164,871		122,669		3.88	%
	$	21,492,976	$	20,916,938	$	576,038		2.75	%

The decrease in rooms revenues of $170,063 or 4.74%, at the Springhill Suites Wilmington is driven by decreases in both ccupancy and ADR. Occupancy at the Springhill Suites Wilmington decreased from 73.28% for the nine months ended September 30, 2022, to 70.74% for the nine months ended September 30, 2023. The ADR at the Springhill Suites Wilmington decreased from $149.55 for the nine months ended September 30, 2022, to $147.58 for the three months ended September 30, 2023, a decrease of 1.3%.

The increase in rooms revenues of $319,129, or 7.51%, at the Staybridge Suites St. Petersburg is primarily driven by increases in both occupancy and ADR. Occupancy at the Staybridge Suites St. Petersburg increased from 76.37% for the nine months ended September 30, 2022, to 79.41% for the nine months ended September 30, 2023. The ADR at the Staybridge Suites St. Petersburg increased from $171.24 for the nine months ended September 30, 2022, to $177.05 for the nine months ended September 30, 2023, an increase of 3.4%.

The increase in rooms revenues of $8,418 or 0.15%, at the Hotel Indigo Traverse City is primarily driven by an increase in occupancy offset by a decrease in ADR. Occupancy at the Hotel Indigo Traverse City increased from 75.31% for the nine months ended September 30, 2022 to 78.49% for the nine months ended September 30, 2023. The ADR at the Hotel Indigo Traverse City decreased from $262.26 for the nine months ended September 30, 2022 to $251.99 for the nine months ended September 30, 2023, a decrease of 3.9%.

The increase in rooms revenues of $295,885, or 7.14%, at the Hilton Garden Inn Providence is primarily driven by an increase in occupancy offset by a decrease in ADR compared to the prior year. Occupancy at the Hilton Garden Inn Providence increased from 54.85% for the nine months ended September 30, 2022 to 60.71% for the nine months ended September 30, 2023. The ADR at the Hilton Garden Inn Providence decreased from $202.00 for the nine months ended September 30, 2022 to $195.54 for the nine months ended September 30, 2023, a decrease of 3.2%.

The decrease in rooms revenues of $122,669, or 3.88%, at the Cherry Tree Inn is primarily driven by decreases in ADR offset by an increase in occupancy. Occupancy at the Cherry Tree Inn increased from 63.54% for the nine months ended September 30, 2022 to 63.54% for the nine months ended September 30, 2023. The ADR at the Cherry

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Tree Inn decreased from $255.38 for the nine months ended September 30, 2022 to $249.36 for the nine months ended September 30, 2023, a decrease of 2.4%.

Food and beverage revenues

Food and beverage revenues increased to $2,095,574 for the nine months ended September 30, 2023 from $2,036,163 for the nine months ended September 30, 2022. These amounts are comprised of revenues realized in hotel food and beverage outlets as well as catering events. The $59,411 increase from the prior year period is in line with the increase in rooms revenues.

Other operating revenues

Other operating revenues decreased to $830,139 for the nine months ended September 30, 2023, from $1,443,399 for the nine months ended September 30, 2022. These amounts include ancillary hotel revenues and other items primarily driven by occupancy such as telephone/internet, parking, gift shops, and other guest services. The $613,260 decrease from the prior year period is primarily due to the receipt of a $215,660 Business Recovery Grant from the state of North Carolina by the Springhill Suites Wilmington, a $381,168 Growing Michigan Business grant awarded to the Hotel Indigo Traverse City and a $250,000 grant received from the Rhode Island Rebounds program by the Hilton Garden Inn Providence in the nine months ended September 30, 2022. The decrease from the prior year period was offset by increases in resort fees and parking.

Rooms expenses

Rooms expenses increased to $4,453,127 for the nine months ended September 30, 2023 from $3,190,483 for the nine months ended September 30, 2022. The $1,262,644 net increase in rooms expenses is primarily due to a $860,899 reduction in payroll costs in the nine months ended September 30, 2022 due to a decrease in reimbursable payroll costs to an affiliate of the Company’s hotel managers who qualified for tax credits related to wages reimbursed by the Company, as well as increased staffing and wages. Rooms expenses are typically primarily driven by the corresponding revenue account and occupancy. Excluding the impact of the tax credits, rooms expenses of $4,453,127 and $4,051,382 represent 20.7% and 19.4% of rooms revenues for the nine months ended September 30, 2023 and 2022, respectively. The percentage increase is primarily due to the increase in housekeeping costs.

Food and beverage expenses

Food and beverage expenses were $1,248,390 and $1,250,703 for the nine months ended September 30, 2023 and 2022, respectively resulting in a minimal decrease of $2,313. Food and beverage expenses are historically primarily driven by the corresponding revenue account and occupancy. Food and beverage expenses represent 59.6% and 61.4% of food and beverage revenues for the nine-month period ended September 30, 2023 and 2022, respectively. The percentage increase is primarily due to decrease in the cost of food.

Other property expenses

Other property expenses were $8,019,694 and $7,641,134, for the nine months ended September 30, 2023 and 2022, respectively. The $378,560 increase in other property expenses is primarily driven by an increase in credit card commissions, sales and marketing expenses, utilities and franchise fees. These amounts also include maintenance, utilities, sales and marketing, and general and administrative expenses of the hotel properties, as well as net franchise fees, property taxes and other taxes.

Property management fees to affiliates

Property management fees to affiliates were $732,936 and $706,587 for the nine months ended September 30, 2023 and 2022, respectively. Property management fees are property level expenses equal to 3% of the hotel properties’ gross revenues and we expect them to fluctuate accordingly.

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Corporate general and administrative

Corporate general and administrative expenses were $1,026,274 and $1,052,282 for the nine months ended September 30, 2023 and 2022, respectively. Corporate general and administrative expenses consist primarily of transfer agent fees, fees paid to the board of directors, audit and tax fees, and other professional services fees.

Other fees to affiliates

Other fees to affiliates were $644,041 and $702,442 for the nine months ended September 30, 2023 and 2022, respectively. Other fees to affiliates include asset management fees due to PHA that are paid quarterly in arrears equal to one-fourth of 0.75% of the adjusted cost of our assets. Asset management fees increased to $537,840 for the nine months ended September 30, 2023 from $529,933 for the nine months ended September 30, 2022. Other fees to affiliates also includes certain administrative fees charged to us by our Sponsor. Such administrative fees were $106,201 and $122,813 in the nine months ended September 30, 2023 and 2022, respectively. Other fees to affiliates for the nine months ended September 30, 2022, included $49,696 of expenses incurred by an affiliate of our Sponsor related to the application for the ERTC.

Depreciation and amortization

Depreciation and amortization expenses were $3,060,341 and $2,852,336 for the nine months ended September 30, 2023 and 2022, respectively. These amounts include depreciation on our hotel buildings, improvements, furniture, fixtures and equipment, along with amortization of our franchise fees and certain intangibles.

Gain on loan extinguishment

Gain on loan extinguishment was $942,605 for the nine months ended September 30, 2022, and related to forgiveness of PPP loans by the Small Business Administration (“SBA”).

Loss on the disposal of fixed assets

Loss on disposal of fixed assets was $10,535 for the nine months ended September 30, 2022, and related to the replacement of certain room furnishings at the Staybridge Suites St. Petersburg.

Interest expense, net

Interest expense, net, was $2,159,796 and $2,026,484 for the nine months ended September 30, 2023 and 2022, respectively. Interest expense includes monthly fixed rate payments on the outstanding mortgage notes payable balance, accrued interest on the outstanding asset management fees, acquisition fees and promissory notes from PHA and our Sponsor, and the amortization of deferred financing costs and debt discounts or premiums. For the nine months ended September 30, 2023, we incurred ($99,237) of interest expense relating to the amortization of the fair value of debt premium, offset by $98,692 relating to the amortization of deferred financing costs and debt discounts.

Interest income on interest-bearing cash accounts was $176,338 and $8,110 for nine months ended September 30, 2023 and 2022, respectively. Interest income is presented as a reduction of the total interest expense on the consolidated income statement.

Gain (Loss) on interest rate swap/cap

Loss on our interest rate swap/cap was $146,890 for the nine months ended September 30, 2023. Gain on our interest rate swap/cap was $147,218 for the nine months ended September 30, 2022. They related to the note secured by the TCI Note interest rate swap which expires on August 15, 2024 and interest rate cap that expired on August 15, 2023.

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Income tax expense

Income tax expense was $8,117 and $243,473 for the nine months ended September 30, 2023 and 2022, respectively. They related to taxable income at the TRSs.

Net income

For the nine months ended September 30, 2023 and 2022, we had net income of $2,919,083 and $5,809,864 respectively. The decrease in net income of $2,890,781 is the result of the revenue and expense changes discussed above.

Net income attributable to noncontrolling interests

Net income relating to noncontrolling interests was $646,469 and $1,033,968 for the nine months ended September 30, 2023 and 2022, respectively. This amount includes net income or losses attributable to a third-party’s 49% ownership interest in PCF and will fluctuate accordingly with any increases or decreases to net income of PCF. This amount also includes net income or losses attributable to the noncontrolling Operating Partnership Class K OP Units issued as part of the Hilton Garden Inn Providence acquisition. The noncontrolling Class K OP Units are allocated net income or loss attributable to the Operating Partnership based on the total outstanding Class K OP Units as a percentage of all our outstanding common stock.

Liquidity and Capital Resources

The negative impact on room demand within our portfolio stemming from the COVID-19 pandemic was significant. We experienced an initial decline in hotel revenue that began in March 2020. However, with the increased spread of the COVID-19 pandemic across the globe, the impact accelerated rapidly, and we saw a much greater effect on occupancy and hotel revenue per available room throughout our hotel portfolio.

We utilized provisions from the Coronavirus Aid Relief, and Economic Security Act to provide additional liquidity from federally supported loan programs. As of December 31, 2020, we received $1,018,917 in first round PPP loans related to four hotel properties. As of December 31, 2022, we received $1,426,672 of second round PPP loans. As of December 31, 2022, the Company received formal written approval of forgiveness applications from the SBA for loans in the amount of $2,445,589. For more information, refer to Note 6 – “Other Debt” to our unaudited interim condensed consolidated financial statements.

We paid quarterly distributions with respect to the quarters ended March 31, 2022, June 30, 2022, September 30, 2022, December 31, 2022, March 31, 2023 and June 30, 2023, with operating cash flow, consistent with prior distributions. Our board of directors will make determinations as to the payment of future distributions on a quarter-by-quarter basis; however, distributions will continue to accumulate pursuant to our charter.

Our sources of funds are primarily funds equal to amounts reinvested in the DRIP, operating cash flows and borrowings. Our principal demands for funds will be for improvement costs, the payment of our operating and administrative expenses, continuing debt service obligations and distributions to and repurchases from our stockholders. Should we acquire additional assets, we intend to use cash and mortgage or other debt. PHA and its affiliates have agreed to purchase A Shares in a private placement in order to provide us with funds sufficient to pay the selling commissions, dealer manager fees, stockholder servicing fees, and other organizational and offering expenses related to the K Shares, K-I Shares and K-T Shares sold in the primary offering portion of our Public Offering. In addition, we will allocate proceeds from the sale of A Shares in amounts that represent the difference between (i) the applicable Estimated Per Share NAV per K-I Share and the applicable offering price of K-I Shares sold in our primary offering and (ii) any discount to the applicable offering price of K Shares, K-I Shares and K-T Shares arising from reduced or waived selling commissions (other than reduced selling commissions for volume discounts) or dealer manager fees.

In addition, in a normal operating environment, we expect to use debt financing as a source of capital. Our charter provides that the maximum amount of our total indebtedness shall not exceed 300% of our total “net assets” (as

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defined in accordance with Statement of Policy Regarding Real Estate Investment Trusts revised and adopted by the North American Securities Administrators Association on May 7, 2007) as of the date of any borrowing, which is generally expected to be approximately 75% of the cost of our investments; however, we may exceed that limit if approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report following such borrowing along with justification for exceeding such limit. This charter limitation, however, does not apply to individual real estate assets or investments. In addition, it is currently our intention to limit our aggregate borrowings to 50% of the aggregate fair market value of our assets, unless borrowing a greater amount is approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report following such borrowing along with justification for borrowing such a greater amount. This limitation, however, will not apply to individual real estate assets or investments. At the date of acquisition of each asset, we anticipate that the cost of investment for such asset will be substantially similar to its fair market value. However, subsequent events, including changes in the fair market value of our assets, could result in our exceeding these limits.

Potential future sources of capital include secured or unsecured financings from banks or other lenders, establishing additional lines of credit and undistributed cash flow. Note that, currently, we have not identified any additional sources of financing and there is no assurance that such sources of financings will be available on favorable terms or at all.

We believe that cash and restricted cash on hand, cash from operations and borrowings from other sources, including advances from PHA and our Sponsor, if necessary, will be sufficient to fund our operating and administrative expenses and continuing debt service obligations over the next twelve months.

Sources and Uses of Cash

Proceeds from the sale of common stock in the Private Offering and Public Offering were partially used to fund our investments in hotel properties and the related costs associated with the transactions. The remaining proceeds are held in liquid cash accounts. Cash balances from our investments in hotel properties were consolidated during the nine months ended September 30, 2023 and 2022.

Cash Flows Provided by Operating Activities

As of September 30, 2023, we owned an interest in five hotel properties. During the nine months ended September 30, 2023, net cash provided by operating activities was $6,303,615 compared to the net cash provided by operating activities of $8,068,498 for the nine months ended September 30, 2022. Our operating cash flows during the nine months ended September 30, 2023, were the result of our net income, offset by adjustments for non-cash expenses, including depreciation and amortization, the change in fair value of the interest rate cap and swap agreements and by adjustments for receivables, other assets, amounts due to and from related parties, and accounts payable and accrued liabilities. Our operating cash flows during the nine months ended September 30, 2022, was the result of our net income offset by adjustments for non-cash expenses, including depreciation and amortization, the change in fair value of the interest rate cap and swap agreements, gain on loan extinguishment, loss on disposal of fixed assets and by adjustments for receivables, other assets, amounts due to and from related parties, and accounts payable and accrued liabilities.

Cash Flows Used in Investing Activities

Cash used in investing activities will vary based on the funds raised by the issuance of shares of common stock pursuant to the DRIP and how quickly we invest those funds towards acquisitions of real estate and real-estate related investments. During the nine months ended September 30, 2023, net cash used in investing activities was $768,983 and was the result of capital improvements at our hotel properties. During the nine months ended September 30, 2022, net cash used in investing activities was $2,300,075 and was the result of capital improvements at our hotel properties.

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Cash Flows Used in Financing Activities

During the nine months ended September 30, 2023, net cash used in financing activities was $4,481,667. We paid stockholder servicing fees totaling $1,145. We received $135,495 of mortgage note proceeds related to capital improvements at the Cherry Tree Inn. We made principal payments on the note secured by the Springhill Suites Wilmington (the “Wilmington Note”), the note secured by the Staybridge Suites St. Petersburg (the “St. Petersburg Note”) and the note secured by the Hilton Garden Inn Providence (the “HGI Note”) totaling $511,347. During the nine months ended September 30, 2023, we paid deferred financing costs of $38,534 related to extending the note secured by the Hotel Indigo Traverse City (the “ TCI Note”). During the nine months ended September 30, 203, we paid cash distributions of $2,244,497 to stockholders with proceeds from operations. Cash flow from financing activities for the nine months ended September 30, 2023, also includes $884,450 of distributions to noncontrolling interests. Additionally, during the nine months ended September 30, 2023, we repurchased $937,189 of outstanding shares of common stock.

During the nine months ended September 30, 2022, net cash used in financing activities was $2,989,496. We paid stockholder servicing fees totaling $4,278. We received $1,270,226 of mortgage note proceeds related to capital improvements at the Cherry Tree Inn. We made principal payments on the Wilmington Note and the St. Petersburg Note totaling $275,915. During the nine months ended September 30, 2022, we paid cash distributions of $2,254,296 to stockholders with proceeds from operations. Cash flow from financing activities for the nine months ended September 30, 2022, also includes $833,000 of distributions to noncontrolling interests. Additionally, during the nine months ended September 30, 2022, we repurchased $850,999 of outstanding shares of common stock. We paid $41,234 in deferred financing cost.

Debt

We intend to maintain amounts outstanding under long-term debt arrangements or lines of credit so that we will have more funds available for investment in properties. However, the percentage of debt financing we utilize at any given time will be dependent upon various factors to be considered in the sole discretion of our board of directors, including, but not limited to, our ability to pay distributions, the availability of properties meeting our investment criteria, the availability of debt financing, and changes in the cost of debt financing. To help finance our initial acquisitions, we may utilize short-term borrowings. However, after our initial property acquisitions, as a general principle, we anticipate that the term of any debt financing we utilize will correspond to the anticipated holding period for the respective property.

We may repay borrowings under any future credit facility or under any future long-term mortgage debt with proceeds from the sale of properties, operating cash flow, long-term mortgage debt, proceeds from the Public Offering, proceeds from any future offerings, or proceeds from any other future securities offerings.

The TCI Note provides for interest only monthly payments until maturity. Efforts to secure a new note for Hotel Indigo Traverse City will begin in 2024. The Company is confident that the note will be refinanced in a timely manner. As of September 30, 2023, we believe the Operating Partnership and its subsidiary were compliant with their loan obligations, including applicable covenants, and all required payments have been made as agreed. The interest rate cap on the TCI Note, which expired on August 15, 2023, was replaced with an interest rate swap that effectively locks the interest rate on the $15,092,000 mortgage note at a fixed rate of 5.13% from its August 15, 2023 effective date through August 15, 2024.

The HGI Note requires monthly interest payments at a fixed rate of 4.25%. The HGI Note provides for interest only monthly payments for 36 months, with payments based on a 30-year amortization schedule thereafter. As of September 30, 2023, we believe the Operating Partnership and its subsidiary for the Hilton Garden Inn Providence were in compliance with their loan requirements, including applicable covenants, and all required payments have been made as agreed.

The St. Petersburg Note requires monthly interest and principal payments. Efforts to secure a new note for Staybridge Suites St. Petersburg will begin in 2024. The Company is confident that the note will be refinanced in a timely manner. As of September 30, 2023, we believe the Operating Partnership and its subsidiary for the Staybridge

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Suites St. Petersburg were in compliance with their loan requirements, including applicable covenants, and all required payments have been made as agreed.

The Wilmington Note requires monthly interest and principal payments. Efforts to secure a new note for Springhill Suites, Wilmington will begin in 2024. The Company is confident that the note will be refinanced in a timely manner. As of September 30, 2023, we believe the Operating Partnership and its subsidiary for the Springhill Suites Wilmington were in compliance with their loan requirements, including applicable covenants, and all required payments have been made as agreed.

The note secured by the Cherry Tree Inn requires monthly interest payments at a fixed rate of 3.91% through November 23, 2023 and subsequent to November 23, 2023, monthly principal and interest payments of $52,601 through November 23, 2026, the maturity date. As of September 30, 2023, we believe the Operating Partnership and its subsidiary for the Cherry Tree Inn were in compliance with their loan requirements, including applicable covenants, and all required payments have been made as agreed.

Contractual Obligations

We enter into contracts that contain a variety of indemnification provisions. Our maximum exposure under these arrangements is unknown; however, we have not had prior claims or losses pursuant to these contracts. Our management has reviewed our existing contracts and expects the risk of loss to us to be remote.

Our contractual obligations as of September 30, 2023 are as follows:

	2023		2024-2025		2026-2027		Thereafter		Total
Outstanding debt obligations	$	194,392	$	55,506,956	$	8,833,261	$	—	$	64,534,609
Interest payments on outstanding debt obligations		822,282		3,101,261		312,288		—		4,235,831
Total	$	1,016,674	$	58,608,217	$	9,145,549	$	—	$	68,770,440

Funds from Operations and Modified Funds from Operations

One of our objectives is to provide cash distributions to our stockholders from cash generated by our operations. The purchase of real estate assets and real estate-related investments and the corresponding expenses associated with that process are operational features of our business plan in order to generate cash from operations. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts (“Nareit”), an industry trade group, has promulgated a measure known as funds from operations (“FFO”), which we believe is an appropriate supplemental measure to reflect the operating performance of a REIT. FFO is not equivalent to our net income (loss) as determined under GAAP.

We define FFO, consistent with Nareit’s definition, as net income (loss) (computed in accordance with GAAP), excluding gains (or losses) from sales of property and asset impairment write-downs, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis.

We, along with others in the real estate industry, consider FFO to be an appropriate supplemental measure of a REIT’s operating performance because it is based on a net income (loss) analysis of property portfolio performance that excludes non-cash items such as depreciation and amortization and asset impairment write-downs, which we believe provides a more complete understanding of our performance to investors and to our management, and when compared year over year, reflects the impact on our operations from trends in occupancy.

Historical accounting convention (in accordance with GAAP) for real estate assets requires companies to report its investment in real estate at its carrying value, which consists of capitalizing the cost of acquisitions, development, construction, improvements and significant replacements, less depreciation and amortization and asset impairment write-downs, if any, which is not necessarily equivalent to the fair market value of its investment in real estate assets.

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The historical accounting convention requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time, which could be the case if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that, since fair value of real estate assets historically rises and falls with market conditions including, but not limited to, inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation could be less informative.

In addition, we believe it is appropriate to disregard asset impairment write-downs as they are a non-cash adjustment to recognize losses on prospective sales of real estate assets. Since losses from sales of real estate assets are excluded from FFO, we believe it is appropriate that asset impairment write-downs in advancement of realization of losses should be excluded. Impairment write-downs are based on negative market fluctuations and underlying assessments of general market conditions. When indicators of potential impairment suggest that the carrying value of real estate and related assets may not be recoverable, we assess the recoverability by estimating whether we will recover the carrying value of the asset through undiscounted future cash flows and eventual disposition (including, but not limited to, net rooms revenues, net proceeds on the sale of property and any other ancillary cash flows at a property or group level under GAAP). If based on this analysis, we do not believe that we will be able to recover the carrying value of the real estate asset, we will record an impairment write-down to the extent that the carrying value exceeds the estimated fair value of the real estate asset. Testing for indicators of impairment is a continuous process and is analyzed on a quarterly basis. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rooms revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and that we intend to have a relatively limited term of our operations, it could be difficult to recover any impairment charges through the eventual sale of the property. No impairment losses have been recorded to date.

Publicly registered, non-listed REITs, such as us, typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operations. While other start up entities may also experience significant acquisition activity during their initial years, we believe that publicly registered, non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. We used the proceeds from our offerings to acquire real estate assets and real estate-related investments, and we intend to begin the process of achieving a liquidity event (i.e., listing of our shares of common stock on a national securities exchange, a merger or sale, the sale of all or substantially all of our assets, or another similar transaction) within five to seven years after the completion of our offering stage, which is generally comparable to other publicly registered, non-listed REITs. Thus, we do not intend to continuously purchase real estate assets and intend to have a limited life. Due to these factors and other unique features of publicly registered, non-listed REITs, the Institute for Portfolio Alternatives (“IPA”), an industry trade group, has standardized a measure known as modified FFO (“MFFO”), which we believe to be another appropriate supplemental measure to reflect the operating performance of a publicly registered, non-listed REIT. MFFO is a metric used by management to evaluate sustainable performance and distribution policy. MFFO is not equivalent to our net income (loss) as determined under GAAP.

We define MFFO, a non-GAAP measure, consistent with the IPA’s Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations (“Practice Guideline”), issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items included in the determination of GAAP net income (loss): acquisition fees and expenses; amounts related to straight-line rental income and amortization of above and below intangible lease assets and liabilities; accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income (loss); nonrecurring gains or losses included in net income (loss) from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan; unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting; adjustments related to contingent purchase price obligations where such adjustments have been included in the derivation of GAAP net income (loss); and after adjustments for a consolidated and unconsolidated partnership and

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joint ventures, with such adjustments calculated to reflect MFFO on the same basis. Our MFFO calculation complies with the IPA’s Practice Guideline, described above. In calculating MFFO, we exclude paid and accrued acquisition fees and expenses that are reported in our condensed consolidated statements of operations. Since MFFO excludes acquisition fees and expenses, it should not be construed as a historic performance measure. Acquisition fees and expenses are paid in cash by us. Acquisition fees and expenses include payments to PHA or its affiliates and third parties. Such fees and expenses will not be reimbursed by PHA or its affiliates and third parties, and therefore if there are no further proceeds from the sale of shares of our common stock to fund future acquisition fees and expenses, such fees and expenses will need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties, or from ancillary cash flows. As a result, the amount of proceeds available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds. Nevertheless, PHA or its affiliates will not accrue any claim on our assets if acquisition fees and expenses are not paid from the proceeds of our offerings. Under GAAP, acquisition fees and expenses related to the acquisition of properties determined to be business combinations are expensed as incurred, including investment transactions that are no longer under consideration, and are included in acquisition related expenses in the accompanying condensed consolidated statements of operations, and acquisition expenses associated with transactions determined to be an asset purchase are capitalized.

All paid and accrued acquisition fees and expenses have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties are generated to cover the purchase price of the real estate asset, these fees and expenses and other costs related to such property. In addition, MFFO may not be an indicator of our operating performance, especially during periods in which properties are being acquired.

In addition, certain contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income (loss) in determining cash flows from operations in accordance with GAAP.

We use MFFO and the adjustments used to calculate it in order to evaluate our performance against other publicly registered, non-listed REITs, which intend to have limited lives with short and defined acquisition periods and targeted exit strategies shortly thereafter. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate it allow us to present our performance in a manner that reflects certain characteristics that are unique to publicly registered, non-listed REITs, such as their limited life, limited and defined acquisition period and targeted exit strategy, and hence the use of such measures may be useful to investors. For example, acquisition fees and expenses are intended to be funded from the proceeds of our offering and other financing sources and not from operations. By excluding acquisition fees and expenses, the use of MFFO provides information consistent with management’s analysis of the operating performance of its real estate assets. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as the ADR and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such charges that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information.

Presentation of this information is intended to assist management and investors in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO and MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) as an indication of our performance, as an indication of our liquidity, or indicative of funds available for our cash needs, including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with other measurements as an indication of our performance. MFFO may be useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and NAV is disclosed. MFFO is not a useful measure in evaluating NAV since impairment write-downs are taken into account in determining NAV but not in determining MFFO.

FFO and MFFO, as described above, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating our operational performance.

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The method used to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operation performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO. MFFO has not been scrutinized to the level of other similar non-GAAP performance measures by the SEC or any other regulatory body.

Our calculation of FFO and MFFO is presented in the following table for the three months ended September 30, 2023 and 2022:

	For the Three Months Ended Setember 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Reconciliation of net income to MFFO:
Net income	$	2,814,303	$	2,982,895	$	2,919,083	$	5,809,864
Depreciation and amortization		1,031,180		990,626		3,060,341		2,852,336
FFO		3,845,483		3,973,521		5,979,424		8,662,200
Less noncontrolling interest:
Net income attributable to noncontrolling interests		(184,066)		(214,792)		(646,469)		(1,033,968)
Depreciation and amortization attributable to noncontrolling interest		(178,167)		(174,378)		(527,686)		(519,789)
FFO attributable to common stockholders		3,483,250		3,584,351		4,805,269		7,108,443
Amortization of deferred financing costs and debt discounts and premiums as interest		(2,663)		(2,438)		(545)		(20,875)
Gain on loan extinguishment		—		—		—		(942,605)
Unrealized loss (gain) on interest rate cap		42,035		(62,109)		146,890		(147,218)
MFFO attributable to common stockholders	$	3,522,622	$	3,519,804	$	4,951,614	$	5,997,745

Related-Party Transactions and Agreements

We have entered into agreements with PHA and its affiliates whereby we pay or paid certain fees to, or reimburse certain expenses of, PHA or its affiliates for acquisition fees and expenses, asset management fees, disposition fees, property management fees, O&O Costs and reimbursement of certain operating costs. Refer to Note 7 – “Related Party Transactions” to our unaudited interim condensed consolidated financial statements included in this Quarterly Report for a discussion of the various related-party transactions, agreements and fees.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a smaller reporting company, we are not required to provide the information required by this Item.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports pursuant to the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, we conducted an evaluation as of September 30, 2023, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules

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13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures, as of September 30, 2023, were effective at a reasonable assurance level.

(b) Changes in internal control over financial reporting. There have been no changes in our internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the three months ended September 30, 2023, 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

We are not currently subject to any material legal proceedings and, to our knowledge, no material legal proceedings are threatened against the Company. From time to time, we may be party to certain legal proceedings in the ordinary course of business. While the outcome of any legal proceedings cannot be predicted with certainty, we do not expect that any such proceedings as of the time of this Quarterly Report will have a material effect upon our financial condition or results of operations.

Item 1A. Risk Factors

Other than the revised risk factor below, there have been no material changes from the risk factors set forth in our Annual Report. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company.

The following risk factor replaces in its entirety the risk factor titled “We face risks related to changes in the domestic and global political and economic environment, including capital and credit markets.” in our Annual Report.

We face risks related to changes in the domestic and global political and economic environment, including capital and credit markets.

Our business may be impacted by domestic and global economic conditions. Political crises in the U.S. and other countries or regions, including the escalating conflict between Russia and Ukraine, sovereign risk related to a deterioration in the creditworthiness or defaults by local governments, may negatively affect global economic conditions or our business. Further, political, economic and military conditions in Israel may directly affect our business. Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries, and between Israel and the Hamas and Hezbollah extremist groups. In addition, several countries, principally in the Middle East, restrict doing business with Israel, and additional countries may impose restrictions on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise.

If the U.S. or a global economy experiences volatility or significant disruptions, such disruptions or volatility could hurt the U.S. economy and our business could be negatively impacted by reduced demand for business and leisure travel related to a slowdown in the general economy, by disruptions resulting from credit markets, higher operating costs and by liquidity issues resulting from an inability to access credit markets to obtain cash to support operations.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities

Use of Proceeds

On August 14, 2018, our Registration Statement on Form S-11 (File No. 333-217579), covering a public offering of up to $550,000,000 in shares of our common stock, was declared effective by the SEC under the Securities Act. We offered up to $550,000,000 in shares of our common stock, including $500,000,000 in shares of our common stock pursuant to our primary offering, consisting of the following three share classes: K Shares at an initial offering price of  $10.00 per share (up to $125,000,000 in shares), K-I Shares at an offering price of  $9.30 per share (up to $125,000,000 in shares), and K-T Shares at an initial offering price of  $10.00 per share (up to $250,000,000 in shares), which reflect the Estimated Per Share NAV of each of the K Shares, K-I Shares, and K-T Shares as of February 28, 2018, and $50,000,000 in shares of our common stock pursuant to the DRIP at $9.50 per K Share (up to $12,500,000 in shares), $9.50 per K-I Share (up to $12,500,000 in shares) and $9.50 per K-T Share (up to $25,000,000 in shares).

On May 23, 2019, our board of directors determined an Estimated Per Share NAV of all classes of our capital stock, each calculated as of March 31, 2019, as follows: (i) $10.00 per K Share; (ii) $10.00 per K-I Share; (iii) $10.00 per K-T Share; (iv) $3.97 per A Share; and (v) $0.00 per B Share. On March 22, 2018, our board of directors determined

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an Estimated Per Share NAV of all classes of our capital stock, each calculated as of February 28, 2018, as follows: (i) $10.00 per K Share; (ii) $10.00 per K-I Share; (iii) $10.00 per K-T Share; (iv) $0.00 per A Share; and (v) $0.00 per B Share. On April 7, 2020, in response to the COVID-19 pandemic, our board of directors unanimously approved the temporary suspension of (i) the sale of K Shares, K-I Shares and K-T Shares in the Public Offering, effective as of April 7, 2020 and (ii) the operation of the DRIP, effective as of April 17, 2020. On June 10, 2020, our board of directors determined an Estimated Per Share NAV of all classes of our capital stock, each calculated as of March 31, 2020, as follows: (i) $8.56 per K-Share; (ii) $8.55 per K-I Share; (iii) $8.56 per K-T Share; (iv) $0.00 per A Share; and (v) $0.00 per B Share. On June 9, 2021, our board of directors determined an Estimated Per Share NAV of all classes of our capital stock, each calculated as of March 31, 2021, as follows: (i) $9.85 per K Share, (ii) $9.77 per K-I Share, (iii) $9.85 per K-T Share, (iv) $0.00 per A Share, and (v) $0.00 per B Share and revised the public offering share prices. On June 27, 2022, our board of directors determined an Estimated Per Share NAV of all classes of our capital stock, each calculated as of March 31, 2022, as follows: (i) $10.29 per K Share, (ii) $10.29 per K-I Share, (iii) $10.29 per K-T Share, (iv) $13.34 per A Share, and (v) $1.25 per B Share and revised the DRIP share prices. On June 27, 2023, our board of directors determined an Estimated Per Share NAV of all classes of our capital stock, each calculated as of March 31, 2023, as follows: (i) $11.53 per K Share, (ii) $11.53 per K-I Share, (iii) $11.96 per K-T Share, (iv) $22.76 per A Share, and (v) $14.77 per B Share and revised the DRIP share prices.

From the commencement of the Public Offering through its termination, we sold 2,787,944 K Shares at a weighted average price of $9.66 per share for gross proceeds of $26,939,836, 1,287,644 K-I Shares at a weighted average price of $8.76 per share for gross proceeds of $11,274,927, 60,008 K-T Shares at a weighted average price of $9.76 per share for gross proceeds of $585,400, for total gross proceeds of $38,800,163 in the Public Offering. From the commencement of the Public Offering through September 30, 2023, pursuant to the DRIP, we issued 140,147 K Shares to investors at a weighted average of $9.54 per K Share for gross proceeds of $1,336,956, 90,877 K-I Shares at a weighted average of $9.58 per K-I Share for gross proceeds of $870,709, and 7,415 K-T Shares at a weighted average of $9.39 per K-T Share for gross proceeds of $69,593, for total gross DRIP proceeds of $2,277,257. Additionally, we received $2,630,000 from the sale of A Shares to THR from a private placement.

On June 24, 2021, we filed a Registration Statement on Form S-3 to register approximately $4,273,505 K Shares, K-I Shares or K-T Shares under the DRIP for a proposed maximum offering price of $40,000,000 in shares of common stock. We expect to continue to issue shares of common stock under the DRIP Offering until such time as we sell all of the shares registered for sale under the DRIP Offering, unless we file a new registration statement with the SEC, or the DRIP Offering is terminated by our board of directors.

From commencement of the Public Offering through the termination of the Public Offering, we had incurred $2,995,776 of selling commissions, dealer manager fees and stockholder servicing fees in connection with the Public Offering, which were paid with proceeds from the issuance of A Shares to THR.

From inception through September 30, 2023, we recognized selling commissions, dealer manager fees, and organization and other offering costs in the Private Offering as follows:

Type of Expense Amount	Amount		Estimated/Actual
Selling commissions and dealer manager fees	$	1,058,501	Actual
Other organization and offering costs		1,083,912	Actual
Total	$	2,142,413

The amounts above were charged against additional paid in capital on the condensed consolidated balance sheet to the extent that the total organization and offering costs recognized would not exceed 15% of gross proceeds from the Private Offering.

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From inception through September 30, 2023, we recognized selling commissions, dealer manager fees, stockholder servicing fees, and organization and other offering costs in the Public Offering as follows:

Type of Expense Amount	Amount		Estimated/Actual
Selling commissions, stockholder servicing fees and dealer manager fees	$	3,003,695	Actual
Other organization and offering costs		3,255,484	Actual
Total	$	6,259,179

The amounts above were charged against additional paid in capital on the condensed consolidated balance sheet to the extent that the total organization and offering costs recognized would not exceed 15% of gross proceeds from the Public Offering.

As of September 30, 2023, the net offering proceeds to us from our Private Offering and our Public Offering, after deducting the total expenses incurred as described above, were approximately $50,896,702.

Subsequent to September 30, 2023 and through November 1, 2023, pursuant to the DRIP Offering, we sold approximately 10,584 K Shares at a weighted average price of $10.95 per share for gross proceeds of $115,897, approximately 7,261 K-I Shares at a weighted average price of $10.95 per share for gross proceeds of $79,507 and approximately 170 K-T Shares at a weighted average price of $11.36 per share for gross proceeds of $1,931, for total gross proceeds of $197,335 in the DRIP Offering.

We have used the net proceeds from our Public Offering, Private Offering and DRIP Offering to acquire a diverse portfolio of hospitality properties consisting primarily of select-service, extended-stay, and compact full-service hotel properties throughout the United States. As of September 30, 2023, we had an ownership interest in five hotel properties with an aggregate initial purchase price of $78,403,938, inclusive of acquisition and closing costs. These hotel property acquisitions were funded from net proceeds from our Private Offering, Public Offering, and borrowings. A portion of the net proceeds from our Public Offering, Private Offering and DRIP Offering was also used to fund capital expenditures at the hotel properties and operating expenses.

Share Repurchase Program

On October 26, 2018, our board of directors approved and adopted the Amended and Restated Share Repurchase Program (the “A&R SRP”) that may provide an opportunity for stockholders to have their shares of common stock repurchased by us, subject to certain restrictions and limitations. On March 20, 2020, our board of directors decided to temporarily suspend repurchases under the A&R SRP effective with repurchase requests that would have been processed in April 2020 due to the negative impact of the COVID-19 pandemic on our portfolio at the time; provided, however, we continued to process repurchases due to death in accordance with the terms of our share repurchase program. On June 10, 2020, the board of directors determined to fully reopen the A&R SRP to all repurchase requests commencing in July 2020. Shares will be repurchased subject to and upon the terms and conditions of the A&R SRP and repurchase prices will be based upon the Estimated Per Share NAVs in accordance with the terms of the A&R SRP. Any unprocessed requests will automatically roll over to be considered for repurchase unless a stockholder withdraws the request for repurchase five business days prior to the next repurchase date. Refer to Note 8 – “Stockholders’ Equity” to our unaudited interim condensed consolidated financial statements included in this Quarterly Report for a discussion of the details of the A&R SRP.

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During the three months ended September 30, 2023, we fulfilled repurchase requests and repurchased K-Shares pursuant to the A&R SRP as follows:

		Total Numbers of			Approximate Dollar
		Shares Purchased as			Value of Shares
	Total Number of	Part of Publicly			Available that may yet
	Shares Requested to	Announced Plans and	Average Price		be Repurchased under
Period	be Repurchased (1)	Programs	Paid per Share		the Program
July 2023	5,774	—	$	—	(2)​
August 2023	2,000	17,191	$	11.46	(2)​
September 2023	2,500	—	$	—	(2)​
	10,274	17,191

(1) We generally repurchase shares within the six weeks following the end of each fiscal quarter in which repurchase requests are received. The shares repurchased in April 2023 related to repurchase requests received during the prior quarter. As of September 30, 2023, there were thirteen outstanding and unfulfilled repurchase requests for 59,587 K Shares and 5,591 K-I Shares.

(2) The number of shares that may be redeemed pursuant to the A&R SRP during any calendar year is limited to 5.0% of the weighted average number of K Shares, K-I Shares, and K-T Shares outstanding during the trailing 12 months prior to the end of the fiscal quarter for which repurchases are being paid (provided, however, that while shares subject to a repurchase requested upon the death of a stockholder will be included in calculating the maximum number of shares that may be repurchased, shares subject to a repurchase requested upon the death of a stockholder will not be subject to the percentage cap). We will also limit repurchases to the net proceeds received pursuant to the DRIP.

Our board of directors approved four outstanding repurchase requests received during the three months ended December 31, 2022, and on January 12, 2023, we repurchased 20,900 K Shares for $211,517, or $10.12 per K Share. Our board of directors approved eight outstanding repurchase requests received during the three months ended March 31, 2023, and on April 27, 2023, we repurchased 43,151 K Shares for $440,108, or $10.20 per K Share, and 8,602 K-I Shares for $88,516, or $10.29 per K-I Share. On August 18, 2023, in accordance with the A&R SRP, we limited the repurchase of shares requested during the three months ended June 30, 2023 to the net proceeds received during the same period pursuant to the DRIP. As provided in the A&R SRP, the request received relating to a deceased stockholders’ shares were fulfilled. The remaining quarterly repurchase requests were honored on a pro-rata basis. We received requests to repurchase 59,587 K Shares, 5,421 due to death, and 5,591 K-I Shares during the three months ended June 30, 2023, and on August 23, 2023, we repurchased 16,090 K Shares for $184,422, or $11.46 per K Share, and 1,101 K-I Shares for $12,625, or $11.46 per K-I Share. Outstanding repurchase requests for 1,036 K-I Shares were subsequently withdrawn. Repurchase requests received during the three months ended June 30, 2023 for 43,497 K Shares and 3,454 K-I shares are outstanding as of the date of this filing. We received four requests to repurchase 10,274 K Shares during the three months ended September 30, 2023, which are outstanding as of the date of this filing.

Our board of directors approved three outstanding repurchase requests received during the three months ended December 31, 2021, and, on January 11, 2022, we repurchased 7,500 K Shares for $68,950, or $9.19 per K Share, and 1,613 K-I Shares for $15,758, or $9.77 per K-I Share. Our board of directors approved three outstanding repurchase requests that were received during the three months ended March 31, 2022, and, on April 12, 2022, we repurchased 37,500 K Shares for $369,375, or $9.85 per K Share. Our board of directors approved seven outstanding repurchase requests that were received during the three months ended June 30, 2022, and, on August 5, 2022, we repurchased 37,302 K Shares for $380,036 or $10.19 per K Share, 657 K-I Shares for $6,590 or $10.03 per K-I Share and 1,000 K-T Shares for $10,290 or $10.29 per K-T Share. Our board of directors approved three outstanding repurchase requests received during the three months ended September 30, 2022, and, on October 18, 2022, we repurchased 16,879 K Shares for $167,356 or $9.92 per K Share.

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Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

During the three months ended September 30, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K of the Securities Act).

Item 6. Exhibits

The following exhibits are filed as a part of this report or incorporated by reference.

Exhibit No.	Description
3.1	Second Articles of Amendment and Restatement of Procaccianti Hotel REIT, Inc. (included as Exhibit 3.1 to the Company’s Registration Statement on Form S-11 (File No. 333-217578) filed May 1, 2017 and incorporated herein by reference).
3.2	Bylaws of Procaccianti Hotel REIT, Inc. (included as Exhibit 3.2 to the Company’s Registration Statement on Form S-11 (File No. 333-217578) filed May 1, 2017 and incorporated herein by reference).
3.3	Articles of Amendment of Procaccianti Hotel REIT, Inc., effective as of March 31, 2020 (included as Exhibit 3.3 to the Company’s Quarterly Report on Form 10-Q filed May 14, 2021 and incorporated herein by reference).
3.4	Third Articles of Amendment and Restatement of Procaccianti Hotel REIT, Inc. (included as Exhibit 3.3 to Post-effective Amendment No. 1 to the Company’s Registration Statement on Form S-11 (File No. 333-217578) filed August 14, 2018 and incorporated herein by reference).
4.1	Subscription Agreement and Subscription Agreement Signature Page (included as Appendix C to the Company’s Prospectus filed pursuant to Rule 424(b)(3) (File No. 333-217578) filed August 15, 2018, as supplemented, and incorporated herein by reference).
4.2	Distribution Reinvestment Plan (included as Appendix B to the Company’s Prospectus filed pursuant to Rule 424(b)(3) (File No. 333-217578) filed August 15, 2018, as supplemented, and incorporated herein by reference).
4.3	Description of Securities Registered pursuant to Section 12(g) of the Securities Exchange Act of 1934 (filed as Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K (File No. 333-217578) filed on March 30, 2020, and incorporated by reference herein).
10.1	Confirmation of Renewal Period Rent, by and between PHR STPFL, LLC and PHR STPFL OPCO SUB, LLC, dated May 4, 2023 (included as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 333-217578) filed May 5, 2023 and incorporated herein by reference).
10.2	Confirmation of Renewal Period Rent, by and between PHR WNC, LLC and PHR WNC OPCO SUB, LLC, dated May 4, 2023 (included as Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 333-217578) filed May 5, 2023 and incorporated herein by reference).

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10.3	Modification to Swap Derivative Contract, by and between Procaccianti Hotel REIT, L.P. and Citizens Bank, National Association, dated June 12, 2023 (included as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 333-217578) filed June 16, 2023 and incorporated herein by reference).
31.1*	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certifications 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.
99.2	Consent of Robert A. Stanger & Co., Inc. (filed as Exhibit 99.2 to the Registrant’s Current Report on Form 8-K (File No. 000-56272), on June 28, 2023, and incorporated by reference herein).
101.INS*	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*	Inline XBRL Schema Document.
101.CAL*	Inline XBRL Calculation Linkbase Document.
101.DEF*	Inline XBRL Definition Linkbase Document.
101.LAB*	Inline XBRL Label Linkbase Document.
101.PRE*	Inline XBRL Presentation Linkbase Document.
104*	Cover Page Interactive Data File (embedded within the Inline XBRL document).

*Filed herewith.

**Furnished herewith. In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

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Signatures

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

	PROCACCIANTI HOTEL REIT, INC.
Date: November 13, 2023	By:	/s/ James A. Procaccianti
		James A. Procaccianti
		Chief Executive Officer, President and
		Chairman of the Board of Directors
		(Principal Executive Officer)
Date: November 13, 2023	By:	/s/ Gregory Vickowski
		Gregory Vickowski
		Chief Financial Officer, Treasurer
		and Director
		(Principal Accounting Officer and
		Principal Financial Officer)

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