ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
The information in this Report set forth under Items 2.01 and 2.03 is incorporated herein by reference into this Item 1.01.
ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
Amended & Restated Contribution Agreement – Courtyard El Paso Airport – El Paso, Texas
As previously disclosed in a Current Report on Form 8-K filed by Lodging Fund REIT III, Inc. (the “Company”) on October 26, 2021, the Company, through its operating partnership subsidiary Lodging Fund REIT III OP, LP (the “Operating Partnership”), entered into a Contribution Agreement with ELP MC Ventures, LLC (the “Contributor”), dated as of October 20, 2021 (“the Contribution Agreement”), pursuant to which the Contributor agreed to contribute the 90-room Courtyard El Paso Airport hotel in El Paso, Texas (the “Hotel Property”) to the Operating Partnership. The Contributor is not affiliated with the Company or Legendary Capital REIT III, LLC (the “Advisor”), the Company’s external advisor. On February 8, 2022, the Operating Partnership and the Contributor entered into an Amended & Restated Contribution Agreement (the “Amended & Restated Contribution Agreement”) which amended and restated the Contribution Agreement. The aggregate contractual consideration under the Amended & Restated Contribution Agreement is $15,210,000 plus closing costs, subject to adjustment as provided in the Amended & Restated Contribution Agreement. The consideration consists of a new loan by subsidiaries of the Operating Partnership with Legendary A-1 Bonds, LLC (the “Lender”) of $9,990,000 secured by the Hotel Property (described in Item 2.03 below), the issuance by the Operating Partnership of 460,000 Common Limited Units of the Operating Partnership, and the payment by the Operating Partnership of $620,000 in cash. A portion of the Common Limited Units was placed in trust, and the distributions payable with respect to such trust units are dependent upon the satisfaction of certain performance metrics by the Hotel Property.
Acquisition of Courtyard El Paso Airport
On February 8, 2022, the Contributor contributed the Hotel Property to the Operating Partnership for the contribution consideration described above. The Company funded the acquisition of the Hotel Property with proceeds from the Company’s ongoing private offering, Common Limited Units issued to the Contributor as described above, and an assumed loan secured by the Hotel Property (described above and discussed in more detail in Item 2.03 below).
Management of Courtyard El Paso Airport
On February 8, 2022, the Company, through its subsidiary LF3 El Paso Airport TRS, LLC (the “TRS Subsidiary”) entered into a management agreement with Aimbridge Hospitality, LLC (“Aimbridge”) (the “Aimbridge Management Agreement”), to provide property management and hotel operations management services for the Hotel Property. The Aimbridge Management Agreement has an initial term of five years after its effective date, which automatically renews for successive one-year periods, unless terminated in accordance with its terms. Pursuant to the Aimbridge Management Agreement, the TRS Subsidiary agrees to pay to Aimbridge a management fee equal to 3.0% of total revenues, an accounting fee of $3,000 for accounting services, payable monthly, which amount will increase annually by 3% on January 1 of each fiscal year beginning on January 1, 2023. Aimbridge will also receive additional fees of $2,550 per month for customized accounting services, revenue management and digital marketing, which amount will increase annually by 3% on January 1 of each fiscal year beginning on January 1, 2023. Aimbridge may also receive incentive management fees if certain performance metrics are achieved. The TRS Subsidiary also reimburses Aimbridge for certain costs of operating the property incurred on behalf of the Company. All reimbursements are paid to Aimbridge at cost. The Aimbridge Management Agreement may be terminated upon the occurrence of an Event of Default (as defined in the Aimbridge Management Agreement), subject in certain cases to applicable notice and cure periods as described in the Aimbridge Management Agreement. The TRS Subsidiary may terminate the Aimbridge Management Agreement in connection with the sale of the Hotel Property upon at least ninety days’ written notice to Aimbridge and the payment of a termination fee, the amount of which varies depending on the timing of such termination.
