10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2021

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 000-56082

LODGING FUND REIT III, INC.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	83-0556111
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
1635 43rd Street South, Suite 205 Fargo, North Dakota	58103
(Address of Principal Executive Offices)	(Zip Code)

(701) 630-6500

(Registrant’s Telephone Number, Including Area Code)

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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 May 17, 2021, there were 7,942,025 outstanding shares of common stock of Lodging Fund REIT III, Inc.

LODGING FUND REIT III, INC.

Table of Contents

			Page
PART I.	FINANCIAL INFORMATION		2
	Item 1.	Financial Statements (Unaudited)	2
		Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	2
		Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020	3
		Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2021 and 2020	4
		Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020	5
		Notes to the Consolidated Financial Statements	7
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	46
	Item 4.	Controls and Procedures	46
PART II.	OTHER INFORMATION		47
	Item 1.	Legal Proceedings	47
	Item 1A.	Risk Factors	47
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
	Item 3.	Defaults upon Senior Securities	50
	Item 4.	Mine Safety Disclosures	50
	Item 5.	Other Information	50
	Item 6.	Exhibits	50
SIGNATURES			54

i

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

LODGING FUND REIT III, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,		December 31,
	2021		2020
Assets
Investment in hotel properties, net of accumulated depreciation of $5,715,332 and $4,712,578	$	124,085,114	$	100,744,186
Cash and cash equivalents		7,547,457		7,960,159
Restricted cash		5,414,955		4,568,908
Accounts receivable, net		224,016		114,282
Franchise fees, net		1,111,468		955,238
Prepaid expenses and other assets		1,996,728		2,071,708
Total Assets	$	140,379,738	$	116,414,481
Liabilities and Equity
Debt, net	$	78,458,927	$	63,924,719
PPP Loans		801,800		763,100
Accounts payable		1,020,862		670,548
Accrued expenses		1,350,332		1,560,931
Distributions payable		1,358,705		1,327,912
Due to related parties		2,432,640		1,904,051
Other liabilities		440,115		653,292
Total liabilities		85,863,381		70,804,553
Commitments and contingencies (See Note 10)
Equity
Preferred stock, $0.01 par value, 100,000,000 shares authorized; no shares issued and outstanding		—		—
Common stock, $0.01 par value, 900,000,000 shares authorized; 7,807,944 and 7,611,653 shares issued and outstanding		78,079		76,116
Additional paid-in capital		76,485,072		74,610,627
Accumulated deficit		(34,926,072)		(31,855,995)
Total stockholders' equity		41,637,079		42,830,748
Non-controlling interest - Series B LP Units		(1,160,274)		(1,005,785)
Non-controlling interest - Series GO LP Units		7,291,975		3,784,965
Non-controlling interest - Series T LP Units		6,747,577		—
Total equity		54,516,357		45,609,928
Total Liabilities and Equity	$	140,379,738	$	116,414,481

See accompanying notes to consolidated financial statements.

2

LODGING FUND REIT III, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended March 31,
	2021		2020
Revenues
Room revenue	$	3,720,791	$	3,777,730
Other revenue		64,370		54,776
Total revenue		3,785,161		3,832,506
Expenses
Property operations		1,742,248		1,650,313
General and administrative		1,345,842		1,388,284
Sales and marketing		305,454		371,070
Franchise fees		296,352		319,901
Management fees		438,090		395,204
Acquisition expense		27,466		72,995
Depreciation		1,003,052		818,401
Total expenses		5,158,504		5,016,168
Other Income (Expense)
Other income (expense), net		678,875		(72,524)
Interest expense		(947,073)		(735,766)
Total other income (expense)		(268,198)		(808,290)
Net Loss Before Income Taxes		(1,641,541)		(1,991,952)
Income tax benefit (expense)		(25,000)		607,916
Net Loss		(1,666,541)		(1,384,036)
Net loss attributable to non-controlling interest - Series B LP Units		(82,978)		(69,156)
Net loss attributable to non-controlling interest - Series GO LP Units		(159,936)		—
Net Loss Attributable to Common Stockholders	$	(1,423,627)	$	(1,314,880)
Basic and Diluted Net Loss Per Share of Common Stock	$	(0.18)	$	(0.20)
Weighted-average Shares of Common Stock Outstanding, Basic and Diluted		7,751,978		6,539,024

See accompanying notes to consolidated financial statements.

3

LODGING FUND REIT III, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

	Common Stock
				Additional				Total		Non-controlling		Non-controlling		Non-controlling
		Par		Paid-In		Accumulated		Stockholders'		Interest -		Interest		Interest		Total
	Shares	Value		Capital		Deficit		Equity		Series B LP Units		Series GO LP Units		Series T LP Units		Equity
Balance at December 31, 2019	6,005,743	$	60,057	$	58,961,101	$	(18,396,163)	$	40,624,995	$	(439,985)	$	—		—	$	40,185,010
Issuance of common stock	956,897		9,569		9,371,964		—		9,381,533		—		—		—		9,381,533
Offering costs	—		—		—		(1,520,647)		(1,520,647)		—		—		—		(1,520,647)
Distributions declared ($0.175 per share)	—		—		—		(1,144,602)		(1,144,602)		(60,308)		—		—		(1,204,910)
Distributions reinvested	44,030		440		417,846		—		418,286		—		—		—		418,286
Redemptions	(10,000)		(100)		(91,900)		—		(92,000)		—		—		—		(92,000)
Net loss	—		—		—		(1,314,880)		(1,314,880)		(69,156)		—		—		(1,384,036)
Balance at March 31, 2020	6,996,670		69,966		68,659,011		(22,376,292)		46,352,685		(569,449)		—		—		45,783,236
Balance at December 31, 2020	7,611,653	$	76,116	$	74,610,627	$	(31,855,995)	$	42,830,748	$	(1,005,785)	$	3,784,965		—	$	45,609,928
Issuance of common stock	82,414		824		793,756		—		794,580		—		—		—		794,580
Issuance of GO Units	—		—		—		—		—		—		4,201,300		—		4,201,300
Issuance of T Units	—		—		—		—		—		—		—		6,747,577		6,747,577
Offering costs	—		—		—		(287,745)		(287,745)		—		(534,354)		—		(822,099)
Distributions declared ($0.175 per share)	—		—		—		(1,358,705)		(1,358,705)		(71,511)		—		—		(1,430,216)
Distributions reinvested	113,877		1,139		1,080,689		—		1,081,828		—		—		—		1,081,828
Redemptions	—		—		—		—		—		—		—		—		—
Net loss	—		—		—		(1,423,627)		(1,423,627)		(82,978)		(159,936)		—		(1,666,541)
Balance at March 31, 2021	7,807,944	$	78,079	$	76,485,072	$	(34,926,072)	$	41,637,079	$	(1,160,274)	$	7,291,975		6,747,577	$	54,516,357

See accompanying notes to consolidated financial statements.

4

LODGING FUND REIT III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Three Months Ended March 31,
	2021		2020
Cash Flows from Operating Activities:
Net loss	$	(1,666,541)	$	(1,384,036)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation		1,003,052		818,401
Amortization		81,780		58,352
Gain on PPP 1oan forgiveness		(763,100)		—
Deferred tax assets, net		—		(186,573)
Change in operating assets and liabilities:
Accounts receivable		(109,734)		11,467
Franchise fees		(175,000)		(300,000)
Prepaid expenses and other assets		74,980		(50,364)
Accounts payable		297,381		147,028
Accrued expenses		(202,599)		496,689
Due to related parties		381,586		(623,882)
Other liabilities		(214,040)		(129,055)
Net cash used in operating activities		(1,292,235)		(1,141,973)
Cash Flows from Investing Activities:
Acquisitions of hotel properties		(1,862,423)		(27,190,749)
Improvements and additions to hotel properties		(733,980)		(196,753)
Net cash used in investing activities		(2,596,403)		(27,387,502)
Cash Flows from Financing Activities:
Proceeds from mortgage debt		—		13,597,819
Proceeds from lines of credit		1,000,000		6,200,000
Proceeds from PPP loans		801,800		—
Principal payments on mortgage debt		(197,147)		(170,941)
Principal payments on lines of credit		(1,000,000)		(1,000,000)
Payments of deferred financing costs		(330,792)		(633,572)
Proceeds from issuance of common stock		794,580		9,381,533
Proceeds from issuance of GO Units		4,201,300		—
Payments of offering costs		(701,674)		(1,612,371)
Payments for shares redeemed		—		(92,000)
Distributions paid		(246,084)		(691,604)
Net cash provided by financing activities		4,321,983		24,978,864
Net change in cash, cash equivalents, and restricted cash		433,345		(3,550,611)
Beginning Cash, Cash Equivalents, and Restricted Cash		12,529,067		16,174,371
Ending Cash, Cash Equivalents, and Restricted Cash	$	12,962,412	$	12,623,760

See accompanying notes to consolidated financial statements.

5

LODGING FUND REIT III, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

	For the Three Months Ended March 31,
	2021		2020
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of amounts capitalized	$	889,861	$	577,708
Income taxes paid	$	1,963	$	—
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Issuance of T Units for Aurora property	$	6,747,577	$	—
Debt issued for acquisition of Aurora property	$	15,000,000	$	—
Debt assumed in connection with hotel property acquisition	$	—	$	9,998,437
Costs to acquire hotel properties included in due to related parties	$	—	$	—
Debt issuance costs included in due to related parties	$	—	$	—
Paid-in-kind interest	$	—	$	—
Offering costs included in accounts payable	$	52,933	$	(7,020)
Offering costs included in due to related parties	$	75,492	$	(63,922)
Offering costs included in accrued expenses	$	(8,000)	$	(20,782)
Distributions included in accrued expenses	$	—	$	34,712
Distributions included in due to related parties	$	71,511	$	60,308
Reinvested distributions	$	1,081,828	$	418,286
Reconciliation of Cash, Cash Equivalents, and Restricted Cash:
Cash and cash equivalents, beginning of period	$	7,960,159	$	10,898,556
Restricted cash, beginning of period		4,568,908		5,275,815
Cash, cash equivalents, and restricted cash, beginning of period	$	12,529,067	$	16,174,371
Cash and cash equivalents, end of period	$	7,547,457	$	7,934,605
Restricted cash, end of period		5,414,955		4,689,155
Cash, cash equivalents, and restricted cash, end of period	$	12,962,412	$	12,623,760

See accompanying notes to consolidated financial statements.

6

LODGING FUND REIT III, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.    ORGANIZATION

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

Substantially all of the Company’s assets and liabilities are held by, and substantially all of its operations are conducted through, Lodging Fund REIT III OP, LP (the “Operating Partnership,” or “OP”), a subsidiary of LF REIT III. The OP has three voting classes of partnership units, Common General Partnership Units (“GP Units”), Interval Units and Common Limited Partnership Units (“Common LP Units”), and three classes of non-voting partnership units, Series B Limited Partnership Units (“Series B LP Units”), Series Growth & Opportunity (“GO”) Limited Partnership Units (“Series GO LP Units”) and Series T Limited Partnership Units (“Series T LP Units”).  LF REIT III was the sole general partner of the OP, as of March 31, 2021 and December 31, 2020. As of March 31, 2021 and December 31, 2020, there were no outstanding Common LP Units or Interval Units, and there were 1,000 outstanding Series B LP Units, all of which were owned by the Advisor.  As of March 31, 2021 and December 30, 2020, there were 1,103,758 and 0 Series T LP Units outstanding, respectively. As of March 31, 2021 and December 30, 2020, there were 1,258,817 and 654,868 Series GO LP Units outstanding, respectively.

On June 1, 2018, the Company commenced a private offering of shares of common stock, $0.01 par value per share, with a maximum offering of $100,000,000 (the “Offering”) to accredited investors only, pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended. In addition to sales of common shares for cash, the Company has adopted a dividend reinvestment plan (“DRIP”), which permits stockholders to reinvest their distributions back into the Company. As of March 31, 2021, the Company had issued and sold 7,872,134 shares of common stock, including 506,688 shares attributable to the DRIP, and received aggregate proceeds of $76.6 million.  As of December 31, 2020, the Company had repurchased 64,190 shares, which represents an original investment of $641,898, including $16,898 of DRIP, for $590,547 under the Company’s Share Repurchase Plan.  As of March 31, 2021, there were no outstanding redemption proceeds needing to be paid.

On April 29, 2020, the Company classified and designated 7,000,000 shares of authorized but unissued common stock, $0.01 par value per share, as shares of “Interval Common Stock,” to be part of the Offering. The offering of the Interval Common Stock, is a maximum offering of $30,000,000, which may be increased to $60,000,000 in the sole discretion of the Company’s board of directors, (the “Interval Share Offering”) to accredited investors only, pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended. As of March 31, 2021, the Company had not issued or sold any shares of Interval Common Stock.

On June 15, 2020, the Operating Partnership commenced a private offering of limited partnership units in the OP, designated as Series GO LP Units, with a maximum offering of $20,000,000, which may be increased to $30,000,000 in the sole discretion of  LF REIT III as the General Partner of the OP, (the “GO Unit Offering”) to accredited investors only, pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended. As of March 31, 2021, the Company had issued and sold 1,258,817 Series GO LP Units and received aggregate proceeds of $8.7 million.

7

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation—The accompanying unaudited consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the SEC applicable to interim financial information. Accordingly, the unaudited financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. The financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, and which, in the opinion of management, are necessary for a fair and consistent presentation of the results for such periods. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The consolidated financial statements include the accounts of LF REIT III, the OP and its wholly-owned subsidiaries. For the controlled subsidiaries that are not wholly-owned, the interests owned by an entity other than the Company represent a noncontrolling interest, which is presented separately in the consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation.

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

During the first quarter of 2020, there was a global outbreak of a novel coronavirus, or COVID-19, which has spread to over 200 countries and territories, including the United States, and has spread to every state in the United States. The World Health Organization has designated COVID-19 as a pandemic, and numerous countries, including the United States, have declared national emergencies with respect to COVID-19. The impact of the outbreak on the U.S. and world economies has been evolving, and as cases of COVID-19 have continued to be identified in additional countries, there have been international mandates, and mandates in the United States from federal, state and local authorities, instituting quarantines and stay-at-home orders, closing schools, and instituting restrictions on travel and/or limiting operations of non-essential offices and retail centers. Such actions are adversely impacting many industries, with the travel and hospitality industries being particularly adversely affected. Although the Company’s hotel properties have remained open through the pandemic in 2020 and 2021, the Company’s occupancy levels have been lower than historic levels. The outbreak could have a continued adverse impact on economic and market conditions and could trigger a continued slowdown in leisure and business travel, which is adversely impacting the travel and hospitality industries. The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions. The Company believes the estimates and assumptions underlying the Company’s consolidated financial statements are reasonable and supportable based on the information available as of March 31, 2021, however uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of March 31, 2021 inherently less certain than they would be absent the current and potential impacts of COVID-19.

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

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

8

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

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

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

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

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

Advertising Costs – The Company expenses advertising costs as incurred.  These costs represent the expense for franchise advertising and reservation systems under the terms of the hotel management and franchise agreements and expenses that are directly attributable to advertising and promotion. Advertising expense was $136,995 and $169,959 for the three months ended March 31, 2021 and 2020, respectively, and is included in sales and marketing in the consolidated statement of operations.

Non-controlling Interest—Non-controlling interests represent the portion of equity related to shares with limited voting interest. Non-controlling interests are reported in the consolidated balance sheets within equity, separate from stockholders’ equity. Revenue and expenses attributable to both the Company and the non-controlling interests are reported in the consolidated statements of operations, with net income or loss attributable to non-controlling interests reported separately from net income or loss attributable to the Company.

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

Restricted Cash—Restricted cash consists of earnest money deposits related to hotel property acquisitions, as well as certain funds maintained in escrow accounts to fund future payments for insurance, property tax obligations, and

9

reserves for future capital expenditures, as required by our debt agreements.  As of March 31, 2021 and December 31, 2020, restricted cash on the accompanying consolidated balance sheets included $1.8 million and $1.85 million, respective, of earnest money deposits.

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

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

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

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

Property Management Fees—Property management fees include expenses incurred for management services provided for the day-to-day operations of our hotel properties, which are generally charged at a rate of 4% of gross revenues. Property management fees also include asset management fees, which may be charged at an annual rate of up to 0.75% of gross assets and are paid to the Advisor.  For the three months ended March 31, 2021 and 2020, asset management fees were charged only on the value of investments in hotel properties.

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

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

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

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

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

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

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

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

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

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

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

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

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In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for fiscal years beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company adopted ASU 2014-09 as of January 1, 2019 and has applied it on a modified retrospective basis. Based on the Company’s completed assessment of this updated accounting guidance, it does not materially affect the amount or timing of revenue recognition for the Company and the Company did not recognize any cumulative-effect adjustment as a result of adoption.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (“ASU No. 2016-02”) (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU No. 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right of use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. We plan to adopt ASU 2016-02 for the fiscal year ending December 31, 2022, and for interim periods beginning on January 1, 2022. We do not anticipate any reclassifications or significant impacts on our consolidated financial statements as a result of this adoption.

3.    INVESTMENT IN HOTEL PROPERTIES

Investment in hotel properties as of March 31, 2021 and December 31, 2020 consisted of the following:

	March 31,		December 31,
	2021		2020
Land and land improvements	$	14,730,590	$	10,324,772
Building and building improvements		103,262,396		85,213,846
Furniture, fixtures, and equipment		10,721,289		8,927,694
Construction in progress		1,086,171		990,452
Investment in hotel properties, at cost		129,800,446		105,456,764
Less: accumulated depreciation		(5,715,332)		(4,712,578)
Investment in hotel properties, net	$	124,085,114	$	100,744,186

As of March 31, 2021, the Company owned eight hotel properties with an aggregate of 847 rooms located in seven states.

Acquisitions of Hotel Properties

The Company acquired one property during the three months ended March 31, 2021 and two properties during the year ended December 31, 2020.  Each of the Company’s hotel acquisitions to date have been determined to be asset acquisitions.  The table below outlines the details of the property acquired during the three months ended March 31, 2021.

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2021 Acquisitions
				Number
			Date	of Guest	Purchase			Transaction				%
Hotel	Property Type	Location	Acquired	Rooms	Price			Costs		Total		Interest
Courtyard by Marriott (the "Aurora Property")	Select Service	Aurora, CO	February 4, 2021	141	$	23,610,000	(1)	$	458,129	$	24,068,129	100	%
				141	$	23,610,000		$	458,129	$	24,068,129

(1) Includes the issuance of 1,103,758 Series T LP Units of the Operating Partnership

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

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

Each of the Company’s hotel properties, except the Southaven Property, is subject to a property management agreement with NHS, LLC dba National Hospitality Services (“NHS”) with an initial term expiring on December 31st of the fifth full calendar year following the effective date of the agreement, which will automatically renew for successive 5-year periods unless terminated earlier in accordance with its terms. The Southaven Property is currently being managed on a day-to-day basis by Vista Host, Inc. pursuant to a property management agreement with an initial term expiring on February 21, 2025, which will automatically renew for two successive 5-year periods unless terminated earlier in accordance with its terms.

The seller of the Pineville Property, an affiliate of Beacon, may be entitled to additional cash consideration if the property exceeds certain performance criteria based on increases in the property’s net operating income (“NOI”) for a selected 12-month period of time. At any time during the period beginning April 1, 2021 through the date of the final NOI determination (on or about April 30, 2023), the seller of the property may make a one-time election to receive the additional consideration. The variable amount of the additional consideration, if any, is based on the excess of the property’s actual NOI over a base NOI for the applicable 12-month calculation period divided by the stated cap rate for such calculation period. As of March 31, 2021, no amounts were owed or paid to the seller of the Pineville Property, and no election to receive the additional consideration had been made.

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The Aurora Property was acquired on February 4, 2021 for contractual consideration comprising of $15.0 million in debt, $1.9 million in cash paid at closing and the issuance of 1,103,758 Series T LP Units of the Operating Partnership” (the “Series T Units”).  The Series T Units will convert into Common Limited Units of the Operating Partnership beginning 36 months, or at the option of the Company, up to 48 months, after February 4, 2021, at which point the value will be calculated pursuant to the terms of a Contribution Agreement, dated as of September 1, 2020, as amended on February 4, 2021 (the “Contribution Agreement”).  The number of Common Limited Units to be issued to the Company based on such conversion may be higher or lower than the initial valuation of the Series T Units.  Accordingly, the aggregate purchase price used for the acquisition accounting noted in the tables above and below of $23.6 million, was determined to be the value assigned by a third-party appraisal, as the appraisal value was more reliably measurable. The aggregate purchase price for the hotel properties acquired during the three months ended March 31, 2021 and the year ended December 31, 2020 were allocated as follows:

	March 31,		December 31,
	2021		2020
Land and land improvements	$	4,400,098	$	2,576,166
Building and building improvements		18,048,551		31,605,174
Furniture, fixtures, and equipment		1,619,480		3,007,846
Total assets acquired		24,068,129		37,189,186
Premium on assumed debt		—		(597,665)
Total liabilities assumed		—		(597,665)
Total purchase price(1)		24,068,129		36,591,521
Assumed mortgage debt		—		9,400,772
Net purchase price	$	24,068,129	$	27,190,749

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

4.    DEBT

Lines of Credit

On February 10, 2020, the Company entered into a $5.0 million revolving line of credit.  The line of credit requires monthly payments of interest only, with all outstanding principal amounts being due and payable at maturity on February 10, 2021. On January 19, 2021, the line of credit was amended to extend the maturity date to May 10, 2021. The line of credit had a variable interest rate equal to the U.S. Prime Rate, plus 0.50%, resulting in an effective rate of 3.75% per annum as of March 31, 2021.  On May 6, 2021, the line of credit was amended to extend the maturity date to May 10, 2022.  On that date, the interest rate was also amended to incorporate an interest rate floor equal to 4.00%.  The line of credit is secured by the Company’s Cedar Rapids Property and Eagan Property, which are also subject to term loans with the same lender, and 100,000 Common LP Units of the Operating Partnership.  The line of credit includes cross-collateralization and cross-default provisions such that the existing mortgage loan agreements with respect to the Cedar Rapids Property and the Eagan Property, as well as future loan agreements that the Company may enter into with this lender, are cross-defaulted and cross-collateralized with each other.  The line of credit, including all cross-collateralized debt, is guaranteed by Corey Maple, the Company’s Chief Executive Officer.  As of March 31, 2021, there was no outstanding balance on the line of credit.

On August 22, 2018, the Company entered into a $3.0 million revolving line of credit, collateralized by 300,000 partnership units of Lodging Fund REIT III OP, LP. The line of credit had a variable interest rate equal to the U.S. Prime Rate, plus 1.00%, with a minimum rate of 5.00%. The line of credit required monthly payments of interest only, with all principal due at maturity. The line of credit to include a partial guarantee by each of Corey Maple and Norman

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Leslie, as the members of the Advisor, each in the amount of $1.2 million. The line of credit was not renewed on November 22, 2020 and the loan was closed.

Mortgage Debt

As of March 31, 2021, the Company had $79.3 million in outstanding mortgage debt secured by eight properties, with maturity dates ranging from February 2024 to April 2029. Seven of the loans have fixed interest rates ranging from 3.70% to 5.33%, and a weighted-average interest rate of 4.54%. One of the loans is a variable interest loan at a rate of LIBOR plus 6.0% per annum, provided that LIBOR shall not be less than 1.0%, resulting in an effective rate of 7% as of March 31, 2021. The loans generally require monthly payments of principal and interest on an amortized basis, with certain loans allowing for an interest-only period up to 12 months following origination, and generally require a balloon payment due at maturity. As of March 31, 2021 and December 31, 2020, certain mortgage debt was guaranteed by the members of the Advisor.  Except as described below, the Company was either in compliance with all debt covenants or received a waiver of testing of its debt covenants as of March 31, 2021 and December 31, 2020.

As of March 31, 2021, the Company was not in compliance with the required financial covenants under the terms of its promissory note secured by the Pineville Property and related loan documents (the “Pineville Loan”), which constitutes an event that puts the Company into a trigger period pursuant to the loan documents. At the onset of a trigger period, the Pineville Loan will enter into a cash management period. The Company has requested a waiver of the financial covenants as of March 31, 2021 and December 31, 2020, but as of the date of this filing it had not been received. If the Company is unable to obtain a waiver, the loan will go into cash management, however the other terms of the Pineville Loan will not change, including the timing or amounts of payments, or the expiration date. The lender for the Company’s loan secured by the Lubbock Fairfield Property (the “Lubbock Fairfield Loan”) waived the required financial covenants under the terms of the Lubbock Fairfield Loan through March 31, 2021. The promissory note and related loan documents regarding the Lubbock Home2 Property did not have any required financial covenants as of March 31, 2021 and December 31, 2020. Other than as described above for the Pineville Loan, the Company was either in compliance with its debt covenants or received a waiver of testing of its debt covenants as of March 31, 2021 and December 31, 2020 as noted below.

Forbearance Agreements and Loan Amendments

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

On April 17, 2020, the Company entered into a Change In Terms Agreement (the “Eagan Amendment”), amending the terms of the its original Promissory Note (the “Eagan Note”), dated June 19, 2019 in the original principal amount of $9.4 million. Pursuant to the Eagan Amendment, the maturity date of the Eagan Note was extended from July 1, 2024, to January 1, 2025, the requirement to make any replacement reserve deposits was waived until June 1, 2021, and the requirement to make any payments of principal and interest was deferred until October 1, 2020. In addition to the Eagan Amendment, the lender has also waived the required financial covenants under the terms of the Eagan Note through December 31, 2020.

On April 22, 2020, the Company entered into a Forbearance Agreement (the “Prattville Forbearance Agreement”),  effective May 1, 2020, amending the terms of its original loan agreement (the “Prattville Loan”), dated July 11, 2019, in the original principal amount of $9.6 million. Pursuant to the Prattville Forbearance Agreement, the Company did not make interest payments that were due and payable during the Prattville Forbearance Period (as defined below) which constituted events of default under the terms of the Prattville Loan (collectively, the “Prattville Projected Events of Default”).  However, during the Prattville Forbearance Period, the lender agreed to forbear from exercising any available rights and remedies under the Prattville Loan and other Loan Documents (as defined in the

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Prattville Loan) to the extent such rights and remedies arise as a result of the Prattville Projected Events of Default. The lender further agreed to defer the interest accrued during the Prattville Forbearance Period such that the accrued interest of $100,878 was paid-in-kind and added to the outstanding principal balance of the loan. The forbearance period (the “Prattville Forbearance Period”) was the period from May 1, 2020 through July 31, 2020.

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

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

On August 14, 2020, the Southaven Loan was amended (the “Southaven Amendment”) to waive the Southaven Projected Events of Default and to adjust other terms of the Southaven Loan.  The Southaven Amendment, among other things, extended the required PIP completion date to align with the extension provided by the franchise agreement, adjusted certain financial covenants, put into place certain liquidity requirements and added restrictions on capital expenditures, related party payments, including loan guarantee fees, and cash distributions until certain financial covenants are achieved. Pursuant to the Southaven Forbearance Agreement and Southaven Amendment, until certain financial covenants are achieved, the borrower may not make any payments for capital expenditures or any distributions and must maintain a minimum cash balance of $225,000 in its hotel operating account.  The restriction on distributions precludes the borrower subsidiary entities from making distributions of cash to the Operating Partnership, and as of December 31, 2020, the borrower subsidiary entities had cash balances in the amount of $1,498,889, which is included in cash and cash equivalents on the accompanying consolidated balance sheets. The Company did not have any required financial covenants under the terms of the Southaven loan in effect as of December 31, 2020. The Company was in compliance with the required financial covenants under the terms of the Southaven Amendment as of March 31, 2021.

Paycheck Protection Program (“PPP”) Loans

In April 2020, the Company entered into six unsecured promissory notes under the Paycheck Protection Program (the “PPP”), totaling $763,100. The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was passed in March 2020, and is administered by the U.S. Small Business Administration (the “SBA”). The term of each PPP loan is 2 years, which may be extended to 5 years at the Company’s election. The interest rate on each PPP loan is 1.0% per annum, which shall be deferred for a period of time. After the initial deferral

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period, each loan requires monthly payments of principal and interest until maturity with respect to any portion of such PPP loan which is not forgiven as described below.  The initial deferral period ends at either i) the date the SBA remits the borrower’s loan forgiveness amount, or ii) if the Company has not applied for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. The Company’s covered period ended September 25, 2020, for two of its PPP loans and ended October 2, 2020, for four of its PPP loans. The Company is permitted to prepay each PPP loan at any time with no prepayment penalties.   Under the terms of the CARES Act, PPP loan recipients can apply for, and be granted, forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined, subject to limitations and ongoing rulemaking by the SBA, based on the use of loan proceeds for payroll costs and mortgage interest, rent or utility costs and the maintenance of employee and compensation levels. As of December 31, 2020, the outstanding balance of the PPP Loans was $763,100. In February 2021, we applied for and received one hundred percent (100%) forgiveness of all six PPP Loans.  

In January 2021, the Company entered into six new unsecured promissory notes totaling $716,400, under the Second Draw Paycheck Protection Program (the “Second Draw PPP”) created by the Consolidated Appropriations Act, 2021 (the “CAA Act”), through Western State Bank. The term of each Second Draw PPP loan is five years. The interest rate on each Second Draw PPP loan is 1.0% per annum, which shall be deferred for the first sixteen months of the term of the loan. After the initial sixteen-month deferral period, each loan requires monthly payments of principal and interest until maturity with respect to any portion of such Second Draw PPP loan which is not forgiven as described below.  The Company is permitted to prepay each Second Draw PPP loan at any time with no prepayment penalties.

In February 2021, the Company, through its subsidiary LF3 Southaven TRS, LLC (“Southaven TRS”), entered into an unsecured promissory note under the PPP through Western State Bank.  The amount of the PPP loan for Southaven TRS is $85,400.  The term of each PPP loan is five years. The interest rate on the PPP loan is 1.0% per annum, which shall be deferred for the first sixteen months of the term of the loan. After the initial sixteen-month deferral period, the loan requires monthly payments of principal and interest until maturity with respect to any portion of the PPP loan which is not forgiven as described below.  The Company is permitted to prepay the PPP loan at any time with no prepayment penalties.

Under the terms of the CARES Act and the CAA Act, as applicable, PPP loan recipients and Second Draw PPP loan recipients can apply for, and be granted, forgiveness for all or a portion of such loans. Such forgiveness will be determined, subject to limitations and ongoing rulemaking by the SBA, based on the use of loan proceeds for payroll costs and mortgage interest, rent or utility costs, the maintenance of employee and compensation levels and certain other approved expenses. No assurance is provided that the Company will obtain forgiveness of any or all of the Second Draw PPP loans or the PPP loan for Southaven TRS in whole or in part.

The following table sets forth the hotel properties securing each loan, the interest rate, maturity date, and the outstanding balance as of March 31, 2021 and December 31, 2020 for each of the Company’s mortgage debt obligations, respectively.

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	Interest		Outstanding		Outstanding
	Rate as of		Balance as of		Balance as of
	March 31,	Maturity	March 31,		December 31,
Hotel Property	2021	Date	2021		2020
Holiday Inn Express - Cedar Rapids(1)	5.33%	09/01/2024	$	5,858,134	$	5,858,134
Hampton Inn & Suites - Pineville	5.13%	06/06/2024		8,925,255		8,973,775
Hampton Inn - Eagan	4.60%	01/01/2025		9,317,589		9,317,589
Home2 Suites - Prattville(1)	4.13%	08/01/2024		9,591,110		9,647,085
Home2 Suites - Lubbock	4.69%	10/06/2026		7,737,573		7,792,602
Fairfield Inn & Suites - Lubbock	4.93%	04/06/2029		9,235,247		9,272,870
Homewood Suites - Southaven(1)	3.70%	03/03/2025		13,586,110		13,586,110
Courtyard by Marriott - Aurora	7.00%	02/05/2024		15,000,000		—
Total Mortgage Debt				79,251,018		64,448,165
Premium on assumed debt, net				821,922		854,928
Deferred financing costs, net				(1,614,013)		(1,378,374)
Net Mortgage				78,458,927		63,924,719
$3.0 million line of credit(2)	—	11/22/2020		—		—
$5.0 million line of credit	3.75%(3)	5/10/2022		—		—
Total Lines of Credit				—		—
PPP Loans	1.00%	Various(4)		801,800		763,100
Debt, net			$	79,260,727	$	64,687,819

(1) Loan is interest-only for the first 12 months after origination, then monthly principal and interest payments, with a balloon payment at maturity.

(2) Loan was not renewed at maturity.

(3) Variable interest rate equal to U.S. Prime Rate plus 0.50%. One May 6, 2021, the loan was amended to incorporate an interest rate floor of 4.0%

(4) Each of the currently outstanding PPP loans has a five year term. All six PPP loans which were outstanding as of December 31, 2020 were forgiven in February 2021.

Future Minimum Payments

As of March 31, 2021, the future minimum principal payments on the Company’s debt were as follows:

2021	$	861,353
2022		1,544,938
2023		1,737,149
2024		39,242,552
2025		21,579,995
Thereafter		15,086,831
		80,052,818
Premium on assumed debt, net		821,922
Deferred financing costs, net		(1,614,013)
	$	79,260,727

5.    FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments as of March 31, 2021 and December 31, 2020 consisted of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, lines of credit, and mortgage debt. With the

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exception of the Company’s mortgage debt, the carrying amounts of the financial instruments presented in the consolidated financial statements approximate their fair value as of March 31, 2021. The fair value of the Company’s mortgage debt was estimated by discounting each loan’s future cash flows over the remaining term of the mortgage using current borrowing rates for debt instruments with similar terms and maturities, which are Level 3 inputs in the fair value hierarchy.  As of March 31, 2021, the estimated fair value of the Company’s mortgage debt was $83.4 million, compared to the gross carrying value $79.3 million. As of December 31, 2020, the estimated fair value of the Company’s mortgage debt was $67.5 million, compared to the gross carrying value $64.4 million.

6.    INCOME TAXES

The Company’s earnings (losses), other than those generated by the Company’s TRS, are not generally subject to federal corporate and state income taxes due to the Company’s REIT election. The Company did not pay any federal and state income taxes for the periods ended March 31, 2021 and 2020. The Company did not have any uncertain tax positions as of March 31, 2021 or December 31, 2020.

The Company’s TRS generated a net operating loss (“NOL”) for the three months ended March 31, 2021 and the year ended December 31, 2020, which can be carried forward to offset future taxable income.  As of June 30, 2020, the Company recorded a partial valuation allowance against its deferred tax assets of $1.1 million, primarily related to the uncertainty of effects of the ongoing COVID-19 pandemic on hospitality and travel industries.  During the three months ended September 30, 2020, the Company experienced some level of recovery, from the unprecedented lows in April and May 2020, at all of our hotel properties. As a result, the Company revised the partial valuation allowance against deferred tax assets to $600,901 as of September 30, 2020. Based on the Company’s actual results through March 31, 2021, and general industry projections that the hotel industry will return to 2019 levels of activity and RevPAR sometime during 2024 or 2025, the Company expects to fully utilize our NOL to offset future taxable income prior to expiration. As such, the Company has not recorded a valuation allowance against its deferred tax assets as of March 31, 2021. As of December 31, 2020, the Company had a recorded net deferred tax asset of $1,466,942, primarily attributable to its NOLs generated in the prior periods, net of temporary differences primarily related to depreciation. The Company’s NOLs will expire in 2038-2039 for state tax purposes and will not expire for federal tax purposes. As of March 31, 2021, the tax years 2019 through 2020 remain subject to examination by the U.S. Internal Revenue Service (“IRS”) and various state tax jurisdictions.

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

7.    RELATED PARTY TRANSACTIONS

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

The Advisor earns a one-time acquisition fee of up to 1.4% of the hotel purchase price including funds allocated for any PIP at the time of each hotel property acquisition, a financing fee of up to 1.4% of the hotel purchase price including funds allocated for any PIP at the time of closing the initial financing, and an annual asset management fee of up to 0.75% of the gross assets of the Company, which is payable on a monthly basis. The Advisor will also be paid a refinancing fee of up to 0.75% of the principal amount of any refinancing at the time of closing the refinancing,

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

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

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

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Fees and reimbursements earned and payable to the Advisor and its affiliates, for the three months ended March 31, 2021 and 2020, and amounts outstanding and payable as of March 31, 2021 and December 31, 2020, were as follows:

	Incurred
	For the Three Months Ended March 31,
	2021		2020
Fees:
Acquisition fees	$	330,540	$	501,949
Financing fees		330,540		501,949
Asset management fees		248,708		197,165
Performance fees		—		—
	$	909,788	$	1,201,063
Reimbursements:
Offering costs	$	338,187	$	583,926
General and administrative		760,158		813,575
Sales and marketing		44,454		76,153
Acquisition costs		37,931		64,847
Other (income) expense, net		—		282
	$	1,180,730	$	1,538,783

For the three months ended March 31, 2021 and 2020, the Operating Partnership recognized distributions payable to the Advisor in the amount of $71,511 and $60,308, respectively, in connection with the Advisor’s ownership of Series B LP Units.  As of March 31, 2021 and December 31, 2020, the Company had distributions payable to the Advisor $399,408 and $399,270, respectively.  For the three months ended March 31, 2021 and 2020, the Company paid distributions in the amount of $9,831 and $9,409, respectively, to Corey Maple and Norman Leslie in connection with their ownership of 56,899 shares each, of the Company’s common stock.

The members of the Advisor personally guaranty certain loans of the Company and may receive a guarantee fee of up to 1.0% per annum of the guaranty amount. Mr. Maple, our Chief Executive Officer and Chairman of the Board, is a guarantor of the Company’s loans secured by the hotel properties located in Prattville, Alabama and Southaven, Mississippi, which had original loan amounts of $9.6 million and $13.5 million, respectively, and is a guarantor of the Company’s $5.0 million line of credit which is secured by the hotel properties located in Cedar Rapids, Iowa and Eagan, Minnesota, and 100,000 Common LP Units of Lodging Fund REIT III OP, LP. Mr. Leslie, our President, Chief Investment Officer and Director, is a guarantor of the Company’s loan secured by the Company’s hotel property in Pineville, North Carolina, which had an original loan amount of $9.3 million.  Mr. Maple and Mr. Leslie were also guarantors of the Company’s $3.0 million line of credit, each in the amount of $1.2 million.  That line of credit was closed in November 2020. For the three months ended March 31, 2021, the Company accrued guarantee fees in the amount of $40,189 to each Mr. Maple and Mr. Leslie. The total amount accrued of $391,955 remained unpaid as of March 31, 2021 and is included in due to related parties on the accompanying consolidated balance sheet.  Guarantee fees of $69,334 were assessed for three months ended March 31, 2020.

As of March 31, 2021 and December 31, 2020, the Company had amounts due and payable to the Advisor and its affiliates of $2,127,634 and $1,720,605, respectively, which is included in due to related parties on the accompanying consolidated balance sheets.

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

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NHS earns a monthly base management fee for property management services, including overseeing the day-to-day operations of the hotel properties equal to 4% of gross revenue. NHS may also earn an accounting fee of $14.00 per room for accounting services, payable monthly, and an administrative fee equal to 0.60% of gross revenues for administrative and other services. The Company reimburses NHS for certain costs of operating the properties incurred on behalf of the Company. All reimbursements are paid to NHS at cost.

NHS also earns a flat fee of $5,000 per hotel property for due diligence services, including analyzing, evaluating, and reporting on documentation and information received by sellers or contributors during the period of due diligence.  Such fee is waived if, upon acquisition by us, NHS is selected as the management company for the hotel property.  NHS is also reimbursed for actual out-of-pocket costs incurred in providing the due diligence services.

Fees and reimbursements earned and payable to, NHS for the three months ended March 31, 2021 and 2020, and amounts outstanding and payable as of March 31, 2021 and December 31, 2020, were as follows:

	Incurred				Payable as of
	For the Three Months Ended March 31,				March 31,		December 31,
	2021		2020		2021		2020
Fees:
Management fees	$	110,055	$	116,089	$	53,008	$	36,509
Administrative fees		29,090		17,863		19,819		5,648
Accounting fees		16,546		20,820		13,648		10,701
	$	155,691	$	154,772	$	86,475	$	52,858
Reimbursements	$	75,924	$	80,576	$	44,735	$	5,530

One Rep Construction, LLC (“One Rep”)—One Rep is a related party through common management and ownership, as Corey Maple, Norman Leslie, and David Ekman, each hold a 33.33% ownership interest in One Rep. One Rep is a construction management company which provided construction management services to the Company during 2021 and 2020 related to the renovation construction activities at certain hotel properties. For the services provided, One Rep is paid a construction management fee equal to 6% of the total project costs. The Company reimburses One Rep for certain costs incurred on behalf of the Company, and all reimbursements are paid to One Rep at cost. For the three months ended March 31, 2021 and the year ended December 31, 2020, the Company incurred $37,034 and $176,669 of construction management fees payable to One Rep, respectively. As of March 31, 2021 and December 31, 2020, the amounts outstanding and due to One Rep were $69,994 and $34,988, respectively, which is included in due to related parties on the accompanying consolidated balance sheets. 

8.    FRANCHISE AGREEMENTS

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

9.    STOCKHOLDERS’ EQUITY

The Company is authorized to issue 900,000,000 shares of common stock and 100,000,000 shares of preferred stock. Each share of common stock entitles the holder to one vote per share for on all matters upon which stockholders are entitled to vote and to receive distributions as authorized by the Company’s board of directors. The Interval Common

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Stock described below do not have voting rights. The rights of the holders of shares of preferred stock may be defined at such time any series of preferred shares are issued.

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

Common Stock

Initial Offering

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

Dividend Reinvestment Plan

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

Distributions

Distributions for the three months ended March 31, 2021 were based on daily record dates and were calculated based on stockholders of record each day during this period at a rate of $0.00191781 per share per day. Distributions for the periods from April 1, 2020 through June 30, 2020 were payable to each stockholder in shares of common stock issued through the DRIP, or at the election of the stockholder, in shares of common stock valued at $10.00 per share.  Distributions for the periods from July 1, 2020 through September 30, 2020, October 1, 2020 through December 31, 2020, and January 1, 2021 through March 31, 2021 were payable to each stockholder 30% in cash (or through the DRIP if then currently enrolled in the DRIP) and 70% in shares of common stock issued through the DRIP, or at the election of the stockholder, in shares of common stock valued at $10.00 per share.  Going forward, the Company expects the board of directors of the Company to authorize and declare distributions, if at all, based on daily record dates and to pay these distributions on a quarterly basis. Distributions will be determined by the board of directors based on the Company’s financial condition and other factors as the board of directors deems relevant, and may be paid in cash or in shares pursuant to the DRIP. The Company has not established a minimum distribution level, and the charter does not require that the Company make distributions to its stockholders.

Share Repurchase Plan

The board of directors has adopted a share repurchase plan that may enable its stockholders to have their shares repurchased in limited circumstances. In its sole discretion, the board of directors could choose to terminate or suspend the plan or to amend its provisions without stockholder approval. The repurchase plan may be reviewed and modified by the board of directors as it deems necessary in its sole discretion.  The price at which the Company will repurchase shares is dependent on the amount of time the holder has owned the shares, and the then current value of the shares.  There are several limitations on the Company’s ability to repurchase shares under the share repurchase plan, including, but not limited to, a limitation that during any calendar year, the maximum number of shares potentially eligible for repurchase can only be the number of shares that the Company could purchase with the amount of net proceeds from the sale of shares under the Company’s dividend reinvestment plan during the prior calendar year. The board of directors may, in its sole discretion, reject any request for repurchase and may, at any time and without stockholder approval, upon 10 business days’ written notice to the stockholders (i) amend, suspend or terminate its share repurchase plan and (ii) increase or decrease the funding available for the repurchase of shares pursuant to our share repurchase plan. There were no repurchases during the three months ended March 31, 2021. During the year ended

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December 31, 2020, the Company repurchased 64,190 shares, which represents an original investment of $641,898, including $16,898 of DRIP shares, for $590,547.  As of December 31, 2020, $24,032 of the redemption proceeds had not yet been paid and was included in other liabilities on the accompanying consolidated balance sheets.  At March 31, 2021 and December 31, 2020, the Company had $3,695,479 and $208,586, respectively, available for eligible repurchases.

Interval Common Stock

Distributions

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

Repurchase Plan

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

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

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

Interval Share Offering

The Company is offering up to 3,000,000 shares of Interval Common Stock in the Company’s ongoing private offering, which amount may be increased to up to 6,000,000 Interval Shares in the sole discretion of the board of directors. Except as otherwise provided in the offering memorandum, the initial purchase price for the Interval Shares is $10.00 per Interval Share, with Interval Shares purchased in the Company’s dividend reinvestment plan at an initial

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price of $9.50 per Interval Share.  As of March 31, 2021, the Company had not issued or sold any shares of Interval Common Stock.  

Non-Controlling Interests

The Operating Partnership currently has 4 classes of Limited Partner Units which include the Common Limited Units, the Series B LP Units, the Series T LP Units and the GO Limited Units.  The Series B LP Units are issued to the Advisor and entitle the Advisor to receive annual distributions and an incentive distribution based on the net proceeds received from the sale of the Projects (as defined below).

Non-Controlling Interest – Series T LP Units

The Series T LP Units are expected to be issued to persons who contribute their property interests in certain Projects to the Partnership in exchange for Series T LP Units. The Series T LP Units will have allocations and distributions as determined by the General Partner in its sole discretion at the time of issuance of the Series T LP Units, and any Series T LP Units issued may have different allocations and distributions than other Series T LP Units.  The Series T LP Units will be converted into Common Limited Units beginning 36 months after their issuance, and will automatically convert into Common Limited Units upon a Termination Event. As of March 31, 2021, the Company had issued 1,103,758 Series T LP Units.

Non-Controlling Interest – Series GO LP Units

Distributions

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

Upon the sale of all or substantially all of the GP Units held by LF REIT III or any sale, exchange or merger of LF REIT III or the Operating Partnership (each, a “Termination Event”), or with respect to proceeds received upon the sale or exchange of a property which are not reinvested in additional properties, distributions will be made between the Series GO LP Units and the other Participating Partnership Units as follows: (i) first, to the Participating Partnership Units in proportion to their Partnership Units until the GP Units (the Common LP Units and the Interval Units) have received 70% of their original capital contributions (determined on a grossed-up basis) reduced by any prior distributions received in connection with the sale of a property in which the sale proceeds are not reinvested in additional properties; (ii) second, to the Participating Partnership Units in proportion to their Partnership Units until each Participating Partnership Unit has received a Participating Amount ($1.00 for any period after December 31, 2020, $2.00 for any period after December 31, 2021 and $3.00 for any period after December 31, 2022, determined as a singular determination and not a cumulative determination); (iii) third, to the Participating Partnership Units (other than the Series GO LP Units) in proportion to their Partnership Units until the GP Units have received any remaining unreturned original capital contributions; (iv) fourth, to the Series GO Limited Partners in proportion to their Series GO LP Units until the amount distributed to the Series GO Limited Partners per Series GO LP Unit is equal to the amount distributed to the Participating Partnership Units per Participating Partnership Unit (other than the Series GO Limited Partners) pursuant to (iii); and (v) thereafter, to the Participating Partnership Units in proportion to their Participating Partnership Units.

GO Unit Offering

On June 15, 2020, the Operating Partnership commenced a private offering of limited partnership units in the OP, designated as Series GO LP Units, with a maximum offering of $20,000,000, which may be increased to $30,000,000 in the sole discretion of LF REIT III as the General Partner of the OP, to accredited investors only, pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended.

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As of March 31, 2021, the Company had issued and sold 1,258,817 Series GO LP Units and received aggregate proceeds of $8.7 million.

Non-Controlling Interest – Series B LP Units

Distributions

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

Series B LP Unit Offering

As of March 31, 2021, the Operating Partnership has issued 1,000 Series B LP Units to the Advisor.

10.  COMMITMENTS AND CONTINGENCIES

Impact of COVID-19 — As further discussed in Note 2, the full extent of the impact of COVID-19 on the U.S. and world economies generally, and the Company’s business in particular, is uncertain. As of March 31, 2021, no contingencies have been recorded on the Company’s consolidated balance sheet as a result of COVID-19, however as the global pandemic continues and the economic implications worsen, it may have long-term impacts on the Company’s financial condition, results of operations, and cash flows. Refer to Note 2 for further discussion of COVID-19.

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

In December 2020, the Company received notice that the SEC is conducting an inquiry into the Company’s reimbursement of certain expenses to the Advisor and the Company’s disclosure of the reimbursement policies and procedures.  The Company has been and intends to continue cooperating with the inquiry.  At this time, the Company is unable to estimate the cost of complying with the inquiry or its outcome.

Property Acquisitions

The seller of the Pineville Property, may be entitled to additional cash consideration if the property exceeds certain performance criteria based on increases in the property’s net operating income (“NOI”) for a selected 12-month period of time. At any time during the period beginning April 1, 2021 through the date of the final NOI determination (on or about April 30, 2023), the seller of the property may make a one-time election to receive the additional consideration. The variable amount of the additional consideration, if any, is based on the excess of the property’s actual NOI over a base NOI for the applicable 12-month calculation period divided by the stated cap rate for such calculation period. As of March 31, 2021, no additional consideration had paid to the seller of the Pineville Property, and no election to receive the additional consideration had been made.

In November 2019, the Company entered into a purchase agreement, to acquire 3 hotel properties in Pennsylvania, from a third party group of sellers (collectively, the “PA Sellers”), for $46.9 million plus closing costs, subject to adjustment as provided in the purchase agreement.  The Company has deposited a total of $1.5 million into escrow as earnest money (the “Earnest Money”) pending the closing or termination of the purchase agreement. In July 2020, the Company and the PA Sellers exchanged written notices of default with one another in accordance with the terms of

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the purchase agreement. The notice from each party was based on allegations that the other party failed to perform its obligations under the purchase agreement. On October 27, 2020, the PA Sellers filed a lawsuit against Lodging Fund REIT III OP, LP in the Supreme Court of Pennsylvania alleging breach of the purchase agreement. The PA Sellers seek the full amount of the Earnest Money and recovery of fees and expenses incurred in bringing the lawsuit. The lawsuit is in an early stage and the likelihood of any material loss in connection with the case cannot be determined at this time. As a result, no amount was recorded related to this matter as of March 31, 2021, the Earnest Money remained in escrow and is included in restricted cash on the accompanying consolidated balance sheets.

Properties Under Contract

On February 17, 2021, the Operating Partnership entered into a Contribution Agreement (the “Houston Contribution Agreement”), pursuant to which the Contributors agreed to contribute the 182-room Hilton Garden Inn Houston Bush Intercontinental Airport hotel in Houston, Texas (the “Houston Property”) to the Operating Partnership. The aggregate contractual consideration for the Houston Property is approximately $20,000,000 plus closing costs, subject to adjustment as provided in the Houston Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the Houston Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T LP Units of the Operating Partnership and the payment by the Operating Partnership of cash. As required by the Houston Contribution Agreement, the Operating Partnership has deposited $50,000 into escrow as earnest money pending the closing or termination of the Houston Contribution Agreement. Except in certain circumstances described in the Houston Contribution Agreement, if the Operating Partnership fails to perform its obligations under the Houston Contribution Agreement, it will forfeit the earnest money. See “-Subsequent Events” below for additional information regarding this agreement.

On March 8, 2021, the Operating Partnership entered into a Contribution Agreement (the “Corpus Christi Contribution Agreement”), for the contribution of the 88-room Fairfield Inn & Suites Corpus Christi Aransas Pass hotel in Aransas Pass, Texas (the “Corpus Christi Property”) to the Operating Partnership. The aggregate contractual consideration for the Corpus Christi Property is approximately $9,800,000 plus closing costs, subject to adjustment as provided in the Corpus Christi Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the Corpus Christi Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T LP Units of the Operating Partnership and the payment by the Operating Partnership of cash. As required by the Corpus Christi Contribution Agreement, the Operating Partnership has deposited $50,000 into escrow as earnest money pending the closing or termination of the Corpus Christi Contribution Agreement. Except in certain circumstances described in the Corpus Christi Contribution Agreement, if the Operating Partnership fails to perform its obligations under the Corpus Christi Contribution Agreement, it will forfeit the earnest money.

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

11. SUBSEQUENT EVENTS

Distributions Declared or Paid

On April 9, 2021, the Company paid distributions totaling $1.4 million, consisting of $0.3 million in cash

distributions and $1.1 million of distributions paid in shares of common stock issued through the DRIP, for daily

record dates in the period from January 1, 2021 through March 31, 2021.

Recent Property Acquisitions

On May 12, 2021, the Operating Partnership acquired the Holiday Inn El Paso West Sunland Park hotel property located in El Paso, Texas (the “Holiday Inn El Paso”) pursuant to an Amended and Restated Contribution Agreement (the “El Paso Amended Contribution Agreement”), dated as of the same date. The aggregate contractual consideration

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under the El Paso Amended Contribution Agreement was approximately $9.7 million plus closing costs, subject to adjustment as provided in the Amended Contribution Agreement. The consideration consists of a new loan entered into by subsidiaries of the Operating Partnership with EPH Development Fund LLC, which is the lender under the existing loan secured by the Holiday Inn El Paso (the “Lender”) of $7.9 million secured by the Holiday Inn El Paso (the “El Paso Loan”), the issuance by the Operating Partnership of 150,000 Series T Limited Units of the Operating Partnership, and the payment by the Operating Partnership of $300,000 in cash. The El Paso Loan is evidenced by a promissory note and has a fixed interest rate of 5.0% per annum.  The El Paso Loan matures on May 15, 2023, which may be extended by us until May 15, 2024 upon satisfaction of certain conditions contained in the El Paso Loan, including no then-existing event of default and satisfaction of certain financial covenants. The El Paso Loan requires monthly payments of interest-only throughout the term, with the outstanding principal and interest due at maturity. We have the right to prepay the El Paso Loan in full subject to certain fees, costs and conditions contained in the loan documents. In connection with the acquisition, we assumed the existing management agreement with Elevation Hotel Management, LLC (“EHM”) (as amended, the “EHM Management Agreement”), to provide property management and hotel operations management services for the Holiday Inn El Paso.  The EHM Management Agreement has an initial term of 90 days after its effective date. Pursuant to the EHM Management Agreement, we agree to pay to EHM a management fee equal to 3% of total revenues plus an accounting fee of $1,800 per month for accounting services.  As a condition to the El Paso Loan, we must enter into a management agreement with NHS, LLC dba National Hospitality Services (“NHS”), an affiliate of the Advisor which is wholly-owned by Norman Leslie, a director and executive officer of the Company and a principal of the Advisor, to act as co-manager of the Holiday Inn El Paso, and amend the EHM Management Agreement such that EHM will act as co-manager of the Holiday Inn El Paso.

The Company funded the acquisition of the Holiday Inn El Paso with proceeds from the Company’s ongoing private offering, Series T units issued to the Contributor as described above, and a new loan secured by the Holiday Inn El Paso.  The Holiday Inn El Paso is a 175-room hotel property. 

Properties Under Contract

On April 1, 2021, the Operating Partnership entered into an Amended and Restated Contribution Agreement (the “Amended Contribution Agreement”), for the contribution of the 182-room Hilton Garden Inn Houston Bush Intercontinental Airport hotel in Houston, Texas (the “Houston Hilton Garden Inn Property”) to the Operating Partnership. The Amended Contribution Agreement amends and restates that certain Contribution Agreement entered into among the Operating Partnership and the contributors, dated as of February 17, 2021. The aggregate consideration for the Houston Hilton Garden Inn Property under the Amended Contribution Agreement is approximately $19,700,000 plus closing costs, subject to adjustment as provided in the Amended Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the Houston Hilton Garden Inn Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T Limited Units of the Operating Partnership. Pursuant to the Amended Contribution Agreement, the Operating Partnership is responsible for up to $300,000 of certain closing costs to be agreed upon by the parties. As required by the Amended Contribution Agreement, the Operating Partnership has deposited $50,000 into escrow as earnest money pending the closing or termination of the Amended Contribution Agreement. Except in certain circumstances described in the Amended Contribution Agreement, if the Operating Partnership fails to perform its obligations under the Amended Contribution Agreement, it will forfeit the earnest money.

This pending acquisition is subject to the Company’s completion of satisfactory due diligence and other closing conditions, including the Operating Partnership’s assumption or refinancing of the existing debt secured by the Houston Hilton Garden Inn Property. There can be no assurance that the Operating Partnership will complete the acquisition of the Houston Hilton Garden Inn Property.

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Amendment of $5.0 million Line of Credit

On May 6, 2021, the Company amended its $5.0 million revolving line of credit to extend the maturity date to May 10, 2022 and to incorporate an interest rate floor of 4.0%.

Status of the Offering

As of May 17, 2021, the Company’s private offering remained open for new investment, and since the inception of the offering the Company had issued and sold 8,006,215 shares of common stock, including 622,904 shares issued pursuant to the DRIP, resulting in the receipt of gross offering proceeds of $77.8 million.

Status of the GO Unit Offering

As of May 17, 2021, the Company’s GO Unit Offering remained open for new investment, and since the inception of the offering the Company had issued and sold 1,390,615 Series GO LP Units, resulting in the receipt of gross GO Unit Offering proceeds of $9.6 million.

******

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

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

Forward-Looking Statements

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

The following are some of the risks and uncertainties, although not all of the risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:

● The COVID-19 pandemic and the measures taken by government authorities to contain the COVID-19 outbreak or to treat its impact, including restrictions on travel and imposition of quarantines, have had a negative impact on the U.S. and world economies and business activities.  The extent to which the COVID-19 pandemic adversely affects our results of operations, returns and profitability, as well as our ability to pay distributions to our stockholders or to realize appreciation in the value of our properties, will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the severity and duration of the pandemic, the distribution and efficacy of vaccines, continued emergence of new strains of COVID-19, actions taken to contain the COVID-19 outbreak or to mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others. In addition, if in the future there is an outbreak of another highly infectious or contagious disease or other health concern, our company and our properties may be subject to similar risks as posed by COVID-19;

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

● Our advisor, Legendary Capital REIT III, LLC (the “Advisor”), its executive officers and other key personnel, the employees of Legendary Capital, LLC, an affiliate of the Advisor (the “Sponsor”) as well as certain of our officers and directors, whose services are essential to the Company, may be involved in other business ventures, and will face a conflict in allocating their time and other resources between us and the other activities in which they are or may become involved. Failure of the Advisor, its executive officers and key personnel, the employees of the Sponsor, and our officers and directors to devote sufficient time or resources to our operations could result in reduced returns to our stockholders;

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

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

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

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

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

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

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

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

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

● Our ability to acquire, rehabilitate, renovate and manage our properties may be limited if we cannot obtain satisfactory financing, which will depend on debt and capital markets conditions. In addition, if any of the loans we obtain have variable interest rates, volatility in these markets could negatively impact such loans. There can be no assurance that we will be able to obtain financing on favorable terms, or at all; and

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

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All forward-looking statements should be read in light of the risks identified in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (the “SEC”).

Overview

We were formed on April 9, 2018 as a Maryland corporation for the primary purpose of acquiring a diversified portfolio of hotel properties (the “Projects”) located primarily in America’s Heartland, which we define as the geographic area from North Dakota to Texas and the Appalachian Mountains to the Rocky Mountains. On an infrequent and opportunistic basis, we may also originate or acquire high-yield loans secured directly or indirectly by real estate-related assets, which loans will be made to certain qualified third-party borrowers and/or affiliates of our advisor (the “Loans”). We have elected to be taxed as a real estate investment trust, or REIT, beginning with the taxable year ending December 31, 2018.  We conduct substantially all of our business and own substantially all real estate investments through the Operating Partnership. We are the sole general partner of the Operating Partnership. We and the Operating Partnership are advised by the Advisor pursuant to an agreement (the “Advisory Agreement”) under which the Advisor performs advisory services regarding acquisition, financing and disposition of the Projects and origination of the Loans, is responsible for managing, operating and maintaining the Projects and day-to-day management of the Company. The Advisor may, in its sole discretion, perform these duties through one or more affiliates. We have engaged NHS, LLC dba National Hospitality Services (‘‘NHS’’) to manage most of the Projects acquired to date. We can and may engage third party property management companies to manage the Projects and did so with respect to the Southaven Property in January 2020. The Pineville Property is currently being managed on a day-to-day basis by Beacon, an affiliate of the seller of the Pineville Property, pursuant to a sub-management agreement.  NHS is wholly-owned by Norman Leslie, a director and executive officer of the Company and a principal of the Advisor. The Advisor has no direct employees. The employees of the Sponsor, an affiliate of the Advisor, provide services to the Company related to the negotiations of property acquisitions and financing, asset management, accounting, investor relations, and all other administrative services.

On June 1, 2018, we commenced an offering (the “Offering”) of up to $100,000,000 in shares of our common stock under a private placement to qualified purchasers who meet the definition of “accredited investors,” as provided in Regulation D of the Securities Act. The Offering will continue until the earlier of (i) the date when the maximum offering amount is sold, (ii) May 31, 2022, which may be extended by our board of directors in its sole discretion, or (iii) a decision by the Company to terminate the Offering. As of March 31, 2021, we had issued and sold 7,872,134 shares of common stock, including 506,668 shares attributable to the DRIP, and received aggregate proceeds of $76.6 million. After deductions for payments of selling commissions, marketing and diligence allowances, other wholesale selling costs and expenses, and other offering expenses, we received net offering proceeds of approximately $64.0 million. The net offering proceeds have been used to fund property acquisitions. As of December 31, 2020, we repurchased 64,190 shares, which represents an original investment of $641,898, including $16,898 of DRIP shares, for $590,547. As of March 31, 2021, there were no redemption proceeds that had yet to be paid that were included in other liabilities on the accompanying consolidated balance sheets included as part of the Quarterly Report on Form 10-Q. No public market exists for the shares of our common stock and none is expected to develop.

On April 29, 2020, we classified and designated 7,000,000 shares of authorized but unissued common stock, $0.01 par value per share, as shares of “Interval Common Stock,” to be part of the Offering.  The offering of the Interval Common Stock, is a maximum offering of $30,000,000, which may be increased to $60,000,000 in the sole discretion of our board of directors, (the “Interval Share Offering”) to accredited investors only, pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended. The Interval Share Offering will continue until the earlier of (i) the date when $30,000,000 (or $60,000,000 if approved by our board of directors) is sold, (ii) March 31, 2022, or (iii) a decision by the Company to terminate the Interval Share Offering. As of March 31, 2021, we had not issued or sold any shares of Interval Common Stock.

On June 15, 2020, the Operating Partnership commenced a private offering of limited partnership units in the OP, designated as Series GO LP Units, with a maximum offering of $20,000,000, which may be increased to $30,000,000 in our sole discretion as the General Partner of the Operating Partnership (the “GO Unit Offering”) to accredited investors only, pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended. The Series GO LP Units are being offered until the earlier of (i) the sale of $20,000,000 in Series GO LP

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Units (which may be increased to $30,000,000 in the Company’s sole discretion), (ii) June 14, 2022 or (iii) the Operating Partnership terminates the GO Unit Offering at an earlier date in its sole discretion. As of March 31, 2021, the Operating Partnership had issued and sold 1,258,817 Series GO LP Units, and received aggregate proceeds of $8.7 million. After deductions for payments of selling commissions, marketing and diligence allowances, other wholesale selling costs and expenses, and other offering expenses, we received net offering proceeds of approximately $7.6 million.

Market Outlook

During the first quarter of 2020, the global outbreak of COVID-19 was identified and has since spread to nearly every country and territory, including every state in the United States. The COVID-19 pandemic and the related governmental restrictions instituted to slow the spread of the virus continues to have a material adverse impact on the hospitality industry. As the virus spread and governments implemented restrictions to contain it, occupancy and RevPAR fell sharply. By the end of 2020, we saw some improvements to RevPAR in the United States and in our portfolio compared to the extremely low levels in April 2020, but the pace of recovery generally slowed in most regions in the fourth quarter of 2020 and into January 2021 due to sharp rises in COVID-19 cases, which brought new or increased restrictions on business operations. As a result, we have experienced a significant reduction in bookings for hotel rooms during 2020, which has negatively affected our occupancy levels and RevPAR and could materially and adversely affect the financial performance and value of our hotels. We expect that the slow pace state governments are lifting restrictions and the reduction in hotel demand as a result of the COVID-19 pandemic will continue to keep our occupancy levels, ADR and RevPAR below 2019 levels for at least the first half of 2021, which will negatively impact cash flows from operations.

Each of our hotel properties have remained open from the onset of the pandemic. According to our hotel property STR reports, in April 2020, year-over-year change in RevPAR for our portfolio declined to a low of negative seventy-five percent (75%), ranging from negative fifty-four percent (54%) to negative ninety-four percent (94.0%) per property. We saw improving demand at most of our hotel properties through 2020, however, recovery has been uneven across the portfolio and a number of the markets in which our hotel properties are located continue to be subject to some level of restrictions on business operations. In December 2020, the year-over-year change in RevPAR for our portfolio had improved to negative twenty-two percent (22%), ranging from negative one percent (1)% to negative sixty-eight percent (68)% per property.

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

Liquidity and Capital Resources

Overview

We are dependent upon the net proceeds from our Offering and the GO Unit Offering to conduct our proposed operations. The Offering will continue until the earlier of (i) the date when the maximum offering amount is sold, (ii) May 31, 2022, which may be extended by our board of directors in its sole discretion, or (iii) a decision by the Company to terminate the Offering. The GO Unit Offering will continue until the earlier of (i) the sale of $20,000,000 in Series GO LP Units (which

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may be increased to $30,000,000 in the Company’s sole discretion), (ii) June 14, 2022 or (iii) the Operating Partnership terminates the GO Unit Offering at an earlier date in its sole discretion. We intend to obtain the capital required to make real estate and real estate-related investments and conduct our operations from the proceeds of our Offering and the GO Unit Offering, from secured or unsecured financings from banks and other lenders and from any undistributed funds from our operations. As of March 31, 2021, we had raised approximately $76.6 million in gross offering proceeds from the sale of shares of our common stock in the Offering and approximately [$4.5] million in gross offering proceeds from the sale of shares of the Series GO LP Units in our GO Unit Offering. The pace of capital raised in our Offering has slowed over the past several months compared to historical amounts since inception of the Offering. However, the decrease in capital raise in our Offering has been partially offset by capital raised through our GO Unit Offering, which commenced in June 2020. If we are unable to raise substantial funds in the Offering, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments we make and the value of an investment in us will fluctuate more significantly with the performance of the specific assets we acquire. There may be a delay between the sale of shares of our common stock and units and our purchase of assets, which could result in a delay in the benefits to our stockholders, if any, of returns generated from our investment operations. Further, we will have certain fixed operating expenses regardless of whether we are able to raise substantial funds in the Offering and GO Unit Offering. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income and cash flow and limiting our ability to make distributions to our stockholders.

As of March 31, 2021, we owned eight properties. We acquired these investments with the proceeds from the sale of our common stock in the Offering and debt financing. Our acquisition of the Aurora Property on February 4, 2021 and included the issuance of 1,103,758 Series T LP Units to the contributor as part of the consideration. Operating cash needs during the three months ended March 31, 2021 were met through cash flow generated by these real estate investments and with proceeds from our Offering.

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

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

We anticipate that the aggregate loan-to-value ratio for the Company will be between 35% and 65%. We will target a loan-to-value ratio for the Projects of between 35% and 70%, based on the purchase price of the Projects, however, we may obtain financing that is less than or higher than such loan-to-value ratio for an individual Project at the discretion of the board of directors. Though this is our estimated leverage, our charter does not limit us from incurring debt in excess of this amount. As of March 31, 2021, our aggregate loan-to-value ratio, based on the aggregate purchase price of the Projects, was approximately 61%.

In addition to making investments in accordance with our investment objectives, we expect to use capital resources to make certain payments to the Advisor and its affiliates and NHS. These payments include the various fees and expenses to be paid to the Advisor and its affiliates in connection with the selection, acquisition and management of Projects, as well as reimbursement of certain organization and other offering expenses described below. The Advisor earns a one-time acquisition fee of up to 1.4% of the hotel purchase price including funds allocated for any property improvement plan (“PIP”) at the time of each hotel property acquisition, a financing fee of up to 1.4% of the hotel purchase price including funds allocated for any PIP at the time of closing the initial financing, and an annual asset management fee of up to 0.75% of the gross assets of the Company, which is payable on a monthly basis. The Advisor may also be paid a refinancing fee of up to 0.75% of the principal amount of any refinancing at the time of closing the refinancing, and a disposition fee equal

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to between 0.0% and 4.0% of the hotel sales price, payable at the closing of the disposition, and real estate commissions of up to 3.0% of the hotel purchase price in connection with the sale of a hotel property in which the Advisor or its affiliates provided substantial services, but in no event greater than one-half of the total commissions paid with respect to such property if a commission is paid to a third-party as well as the Advisor, and in no event will total commissions exceed 5.0% of the hotel sales price. Certain affiliates of the Advisor may receive an annual guarantee fee equal to 1.0% of the guaranty amount, paid on a monthly basis, for debt obligations of the hotel properties personally guaranteed by such affiliates. The Advisor may earn an annual subordinated performance fee equal to 20% of the distributions after the common stockholders and Operating Partnership limited partners (other than the Series B LP Unit holders) have received a 6% cumulative, but not compounded, return per annum. Per the terms of the Operating Partnership’s operating agreement, the Advisor receives distributions from the Operating Partnership in connection with their ownership of non-voting Series B LP Units. The Advisor’s ownership of Series B LP Units is presented as non-controlling interest on the accompanying consolidated financial statements.

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

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

Vista earns a monthly base management fee for property management services provided with respect to the Southaven Property, including overseeing the day-to-day operations of the hotel property in the amount of 3% of gross revenue. Vista also earns an accounting fee of $1,000 per month for accounting services, payable monthly. Vista may also earn an incentive management fee in the amount, if any, equal to twenty percent (20%) of the hotel’s profit in excess of the prior fiscal year hotel profits, payable within fifteen (15) days of receipt of the final year-end financial statements. We reimburse Vista for certain costs of operating the Southaven Property incurred on our behalf. All reimbursements are paid to Vista at cost.

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

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Debt

Lines of Credit

On February 10, 2020, we entered into a $5.0 million revolving line of credit.  The line of credit requires monthly payments of interest only, with all outstanding principal amounts being due and payable at maturity on February 10, 2021. On January 19, 2021, the line of credit was amended to extend the maturity date to May 10, 2021. The line of credit had a variable interest rate equal to the U.S. Prime Rate, plus 0.50%, resulting in an effective rate of 3.75% per annum as of March 31, 2021.  On May 6, 2021, the line of credit was amended to extend the maturity date to May 10, 2022.  On that date, the interest rate was also amended to incorporate an interest rate floor equal to 4.00%.  The line of credit is secured by our Cedar Rapids Property and Eagan Property, which are also subject to term loans with the same lender, and 100,000 Common LP Units of the Operating Partnership.  The line of credit includes cross-collateralization and cross-default provisions such that the existing mortgage loan agreements with respect to the Cedar Rapids Property and the Eagan Property, as well as future loan agreements that we may enter into with this lender, are cross-defaulted and cross-collateralized with each other.  The line of credit, including all cross-collateralized debt, is guaranteed by Corey Maple, the Company’s Chief Executive Officer.  As of March 31, 2021, there was no outstanding balance on the line of credit.

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

Mortgage Debt

As of March 31, 2021, we had $79.3 million in outstanding mortgage debt secured by eight properties, with maturity dates ranging from February 2024 to April 2029. Seven of the loans have fixed interest rates ranging from 3.70% to 5.33%, and a weighted-average interest rate of 4.54%. One of the loans is a variable interest loan at a rate of LIBOR plus 6.0% per annum, provided that LIBOR shall not be less than 1.0%, resulting in an effective rate of 7% as of March 31, 2021. The loans generally require monthly payments of principal and interest on an amortized basis, with certain loans allowing for an interest-only period up to 12 months following origination, and generally require a balloon payment due at maturity. As of March 31, 2021 and December 31, 2020, certain mortgage debt was guaranteed by the members of the Advisor.  Except as described below, we were either in compliance with all debt covenants or received a waiver of testing of its debt covenants as of March 31, 2021 and December 31, 2020.

As of March 31, 2021, we were not in compliance with the required financial covenants under the terms of its promissory note secured by the Pineville Property and related loan documents (the “Pineville Loan”), which constitutes an event that puts us into a trigger period pursuant to the loan documents. At the onset of a trigger period, the Pineville Loan will enter into a cash management period. We have requested a waiver of the financial covenants as of December 31, 2020, but as of the date of this filing it had not been received. If we are unable to obtain a waiver, the loan will go into cash management, however the other terms of the Pineville Loan will not change, including the timing or amounts of payments, or the expiration date. The lender for our loan secured by the Lubbock Fairfield Property (the “Lubbock Fairfield Loan”) waived the required financial covenants under the terms of the Lubbock Fairfield Loan through June 30, 2021. The promissory note and related loan documents regarding the Lubbock Home2 Property did not have any required financial covenants as of December 31, 2020. Other than as described above for the Pineville Loan, we were either in compliance with its debt covenants or received a waiver of testing of our debt covenants as of March 31, 2021 and December 31, 2020 as noted below.

Forbearance Agreements and Loan Amendments

On April 17, 2020, we entered into a Change In Terms Agreement (the “Cedar Rapids Amendment”), amending the terms of our original Promissory Note (the “Cedar Rapids Note”), dated March 5, 2019 in the original principal amount of $5.9 million. Pursuant to the Cedar Rapids Amendment, the maturity date of the Cedar Rapids Note was extended from March

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

On April 17, 2020, we entered into a Change In Terms Agreement (the “Eagan Amendment”)amending the terms of our original Promissory Note (the “Eagan Note”), dated June 19, 2019 in the original principal amount of $9.4 million. Pursuant to the Eagan Amendment, the maturity date of the Eagan Note was extended from July 1, 2024, to January 1, 2025, the requirement to make any replacement reserve deposits was waived until June 1, 2021, and the requirement to make any payments of principal and interest was deferred until October 1, 2020. In addition to the Eagan Amendment, the lender has also waived the required financial covenants under the terms of the Eagan Note through December 31, 2020.

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

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

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

On August 14, 2020, the Southaven Loan was amended (the “Southaven Amendment”) to waive the Southaven Projected Events of Default and to adjust other terms of the Southaven Loan.  The Southaven Amendment, among other things, extended the required PIP completion date to align with the extension provided by the franchise agreement, adjusted certain financial covenants, put into place certain liquidity requirements and added restrictions on capital expenditures, related

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party payments, including loan guarantee fees, and cash distributions until certain financial covenants are achieved. Pursuant to the Southaven Forbearance Agreement and Southaven Amendment, until certain financial covenants are achieved, the borrower may not make any payments for capital expenditures or any distributions and must maintain a minimum cash balance of $225,000 in its hotel operating account.  The restriction on distributions precludes the borrower subsidiary entities from making distributions of cash to the Operating Partnership, and as of December 31, 2020, the borrower subsidiary entities had cash balances in the amount of $1,498,889, which is included in cash and cash equivalents on the accompanying consolidated balance sheets. We did not have any required financial covenants under the terms of the Southaven loan in effect as of December 31, 2020. We were in compliance with the required financial covenants under the terms of the Southaven Amendment as of March 31, 2021.

Paycheck Protection Program (“PPP”) Loans

In April 2020, we entered into six unsecured promissory notes under the Paycheck Protection Program (the “PPP”), totaling $763,100. The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was passed in March 2020, and is administered by the U.S. Small Business Administration (the “SBA”). The term of each PPP loan is 2 years, which may be extended to 5 years at our election. The interest rate on each PPP loan is 1.0% per annum, which shall be deferred for a period of time. After the initial deferral period, each loan requires monthly payments of principal and interest until maturity with respect to any portion of such PPP loan which is not forgiven as described below.  The initial deferral period ends at either i) the date the SBA remits the borrower’s loan forgiveness amount, or ii) if we have not applied for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. Our covered period ended September 25, 2020, for two of its PPP loans and ended October 2, 2020, for four of its PPP loans. We are permitted to prepay each PPP loan at any time with no prepayment penalties.   Under the terms of the CARES Act, PPP loan recipients can apply for, and be granted, forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined, subject to limitations and ongoing rulemaking by the SBA, based on the use of loan proceeds for payroll costs and mortgage interest, rent or utility costs and the maintenance of employee and compensation levels. As of December 31, 2020, the outstanding balance of the PPP Loans was $763,100. In February 2021, we applied for and received one hundred percent (100%) forgiveness of all six PPP Loans.  

In January 2021, we entered into six new unsecured promissory notes totaling $716,400, under the Second Draw Paycheck Protection Program (the “Second Draw PPP”) created by the Consolidated Appropriations Act, 2021 (the “CAA Act”), through Western State Bank. The term of each Second Draw PPP loan is five years. The interest rate on each Second Draw PPP loan is 1.0% per annum, which shall be deferred for the first sixteen months of the term of the loan. After the initial sixteen-month deferral period, each loan requires monthly payments of principal and interest until maturity with respect to any portion of such Second Draw PPP loan which is not forgiven as described below.  We are permitted to prepay each Second Draw PPP loan at any time with no prepayment penalties.

In February 2021, we, through our subsidiary LF3 Southaven TRS, LLC (“Southaven TRS”), entered into an unsecured promissory note under the PPP through Western State Bank.  The amount of the PPP loan for Southaven TRS is $85,400.  The term of each PPP loan is five years. The interest rate on the PPP loan is 1.0% per annum, which shall be deferred for the first sixteen months of the term of the loan. After the initial sixteen-month deferral period, the loan requires monthly payments of principal and interest until maturity with respect to any portion of the PPP loan which is not forgiven as described below.  We are permitted to prepay the PPP loan at any time with no prepayment penalties.

Under the terms of the CARES Act and the CAA Act, as applicable, PPP loan recipients and Second Draw PPP loan recipients can apply for, and be granted, forgiveness for all or a portion of such loans. Such forgiveness will be determined, subject to limitations and ongoing rulemaking by the SBA, based on the use of loan proceeds for payroll costs and mortgage interest, rent or utility costs, the maintenance of employee and compensation levels and certain other approved expenses. No assurance is provided that we will obtain forgiveness of any or all of the Second Draw PPP loans or the PPP loan for Southaven TRS in whole or in part.

Properties Under Contract

As of the date of this filing, we had two hotel properties under contract for an aggregate contract purchase price of approximately $29.8 million. We are still conducting our diligence review with respect to each property. Each of these

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pending acquisitions is subject to our completion of satisfactory due diligence and other closing conditions. There can be no assurance that we will complete any of these pending acquisitions on the contemplated terms, or at all.

To maintain cash reserves, we determined that it is in the best interests of the Company to declare distributions quarterly, if at all, beginning in the second quarter of 2020. Further, the distributions declared from the second quarter of 2020 through first quarter of 2021 were declared and paid in stock, in part or in whole, pursuant to the DRIP.

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

Cash Flows

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

	For the Three Months Ended March 31,
	2021		2020
Net cash used in operating activities	$	(1,292,235)	$	(1,141,973)
Net cash used in investing activities		(2,596,403)		(27,387,502)
Net cash provided by financing activities		4,321,983		24,978,864
Net (decrease) increase in cash, cash equivalents and restricted cash	$	433,345	$	(3,550,611)

Cash Flows From Operating Activities

As of March 31, 2021, we owned eight hotel properties. During the three months ended March 31, 2021 and 2020, net cash used in operating activities was $1.3 million and $1.1 million, respectively. Our cash flows used in operating activities generally consist of the net cash generated by our hotel operations, partially offset by the cash paid for corporate expenses and other working capital changes. See “— Market Outlook” for a discussion of the current and expected impact of the outbreak of COVID-19 on our business. See "- Results of Operations" for further discussion of our operating results for the three months ended March 31, 2021 and 2020.

Cash Flows From Investing Activities

Net cash used in investing activities was $2.6 million for the three months ended March 31, 2021 and primarily consisted of $1.9 million for the acquisition of one hotel property. Net cash used in investing activities was $27.4 million for the three months ended March 31, 2021 and primarily consisted of $27.2 million for the acquisition of two hotel properties.

Cash Flows From Financing Activities

During the three months ended March 31, 2021, net cash provided by financing activities was $4.3 million and consisted primarily of the following:

● $4.3 million of net cash provided by offering proceeds related to our Offering and GO Unit Offering, net of payments of commissions and other offering costs of $0.7 million;

● $0.3 million of net cash provided by debt financing as a result of proceeds from debt financing of $1.0 million and from from PPP loans totaling $0.8 million, partially offset by principal payments on debt of $1.2 million and payments of financing costs of $0.3 million;

● $0.3 million of net cash distributions, after giving effect to distributions reinvested by stockholders of $1.1 million;

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During the three months ended March 31, 2021, net cash provided by financing activities was $25.0 million and consisted primarily of the following:

● $7.8 million of net cash provided by offering proceeds related to our Offering, net of payments of commissions and other offering costs of $1.6 million;

● $18.0 million of net cash provided by debt financing as a result of proceeds from debt financing of $19.8 million, partially offset by principal payments on debt of $1.2 million and payments of financing costs of $0.6 million;

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

● and $0.1 million paid for share redemptions.

Distributions

During our Offering, when we may raise capital more quickly than we acquire income-producing assets, and from time to time after the Offering, we may not pay distributions solely from our cash flow from operating activities, in which case distributions may be paid in whole or in part from proceeds from the Offering or debt financing. Distributions declared, distributions paid, and net cash flow used in operations were as follows for the first quarter of 2021 and during each quarter of 2020:

			Distribution								Net Cash
	Distributions		Declared Per		Distributions Paid (3)(4)						Flows Provided By
Period	Declared (1)		Share (1) (2)		Cash		Reinvested		Total		(Used In) Operations
First Quarter 2021	$	1,430,216	$	0.175	$	246,084	$	1,081,828	$	1,327,912	$	(1,292,235)
	$	1,430,216	$	0.175	$	246,084	$	1,081,828	$	1,327,912	$	(1,292,235)
			Distribution								Net Cash
	Distributions		Declared Per		Distributions Paid (3)						Flows Used in
Period	Declared (1)		Share (1) (2)		Cash		Reinvested		Total		Operations
First Quarter 2020	$	1,204,910	$	0.175	$	691,604	$	418,286	$	1,109,890	$	(1,141,973)
Second Quarter 2020		1,313,186		0.175		—		—		—		(349,329)
Third Quarter 2020		1,368,309		0.175		213,784		1,410,688		1,624,472		892,326
Fourth Quarter 2020		1,397,802		0.175		245,789		1,054,379		1,300,168		(202,710)
	$	5,284,207	$	0.700	$	1,151,177	$	2,883,353	$	4,034,530	$	(801,686)

(1) Distributions for the periods from January 1, 2020 through March 31, 2021 were based on daily record dates and were calculated based on stockholders of record each day during this period at a rate of $0.00191781 per share per day. Distributions for the periods from April 1, 2020 through June 30, 2020 were payable to each stockholder in shares of common stock issued through the DRIP, or at the election of the stockholder, in shares of common stock valued at $10.00 per share.  Distributions for the periods from July 1, 2020 through September 30, 2020, October 1, 2020 through December 31, 2020 and January 1, 2021 through March 31, 2021 were payable to each stockholder 30% in cash (or through the DRP if then currently enrolled in the DRIP) and 70% in shares of common stock issued through the DRIP, or at the election of the stockholder, in shares of common stock valued at $10.00 per share.

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

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

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

For the three months ended March 31, 2021, we paid aggregate distributions of $1.3 million, including $0.2 million of distributions paid in cash and $1.1 million of distributions reinvested through our distribution reinvestment plan. Our net loss for the three months ended March 31, 2021 was $1.7 million. Net cash flow used in operations for the three months ended March 31, 2021 was $1.4 million. We funded 100% of our distributions paid, which includes cash distributions and distributions reinvested by stockholders, with proceeds from the Offering.

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For the year ended December 31, 2020, we paid aggregate distributions of $4.0 million, including $1.1 million of distributions paid in cash and $2.9 million of distributions reinvested through our dividend reinvestment plan. Our net loss for the year ended December 31, 2020 was $6.1 million. Net cash flows used in operations for the year ended December 31, 2020 was $0.8 million. We funded 100% of our distributions paid, which includes cash distributions and distributions reinvested by stockholders, with proceeds from the Offering.

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

Our board of directors has determined that, due to the effects of the COVID-19 pandemic, it is in the best interests of the Company to transition from declaring and paying distributions to stockholders on a monthly basis to doing so, if at all, on a quarterly basis, beginning in the second quarter of 2020. Cash and stock distributions will be determined by our board of directors based on our financial condition and such other factors as our board of directors deems relevant. Our board of directors has not pre-established a percentage rate of return for cash distributions to stockholders. We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders.

Results of Operations

Outlook

Our results of operations for the three months ended March 31, 2021 and 2020 are not indicative of those expected in future periods, as we were actively raising capital through our Offering and the Go Unit Offering and acquiring hotel properties during both of these periods. Further, the COVID-19 pandemic had a significant impact on our operating results for the three months ended March 31, 2021 and 2020.  While we have seen improving demand at all our properties through March 31, 2021, we expect any recovery to occur unevenly across our portfolio. As of March 31, 2021, we had owned seven properties for a full 12 month operating cycle.

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

Comparison of the three months ended March 31, 2021 versus the three months ended March 31, 2020

Revenue

Room revenues totaled $3.7 million and $3.8 million for the three months ended March 31, 2021 and 2020, respectively. Other revenue, which consists of revenues from other hotel services, was $64,370 and $54,776 for the three months ended March 31, 2021 and 2020, respectively. Hotel occupancy, ADR, and RevPAR were 61.99%, $94.11, and $58.34, respectively, for the three months ended March 31, 2021.  Hotel occupancy, ADR, and RevPAR were 60.17%, $107.35, and $64.59, respectively, for the three months ended March 31, 2021. We expect that room revenue, other revenue and total revenue will each increase in future periods as states and cities across the United States loosen restrictions and as a greater proportion of the population becomes vaccinated; however, these increases could be offset by the emergence of vaccine-resistant variants of COVID-19 or a lower than expected percentage of the population becoming fully vaccinated. We also expect increases as a result of owning our current hotel properties for a full operating period, as well as anticipated future acquisitions of real estate assets.

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General and Administrative Expenses

General and administrative expenses were $1.4 million and $1.4 million for the three months ended March 31, 2021 and 2020, respectively. These general and administrative expenses consisted primarily of administrative personnel costs, professional fees and an allocable portion of certain administrative overhead costs. General and administrative expenses remained relatively flat due to an increase in expenses for hotel properties purchased in 2020, which were offset by a decrease in spending due to COVID-19. We expect general and administrative expenses will increase in future periods as a result of owning our current hotel properties for a full operating period, as well as anticipated future acquisitions of real estate assets, but to decrease as a percentage of total revenue.  

Sales and Marketing Expenses

Sales and marketing expenses were $0.3 million and $0.4 million for the three months ended March 31, 2021 and 2020, respectively. These sales and marketing expenses consisted primarily of sales and marketing personnel costs, hotel brand loyalty program costs, advertising, and other marketing costs.  Sales and marketing expenses remained relatively flat due to an increase in expenses for hotel properties purchased in 2020, which were offset by a decrease in spending due to COVID-19. We expect sales and marketing expenses will increase in future periods as a result of owning our current hotel properties for a full operating period, as well as anticipated future acquisitions of real estate assets, but to decrease as a percentage of total revenue.

Property Operations Expenses

Property operations expenses were $1.7 million and $1.7 million for the three months ended March 31, 2021 and 2020, respectively. These property operations expenses consisted primarily of operational personnel costs, agent commissions, utility costs, property taxes, insurance, repair and maintenance costs, and other costs of operating our hotel properties. Property operations expenses increased primarily due to the addition of the Aurora Property in February 2021 but remained relatively consistent as a percentage of revenue. We expect property operating expenses will increase in future periods as a result of owning our current hotel properties for a full operating period, as well as anticipated future acquisitions of real estate assets.

Franchise Fees

Franchise fees were $0.3 million and $0.3 million for the three months ended March 31, 2021 and 2020, respectively. Franchise fees include the amortization of initial franchise fees, as well as monthly fees paid to franchisors for royalty, marketing, reservation fees and other related costs. We expect franchise fees will increase in future periods as a result of owning our current hotel properties for a full operating period, as well as anticipated future acquisitions of real estate assets.

Property Management Fees

Property management fees were $0.4 million and $0.4 million for the three months ended March 31, 2021 and 2020, respectively. Property management fees include the asset management fees paid to the Advisor and management fees paid to property management service providers, including NHS and Vista, who manage the day-to-day operations of our hotel properties. We expect franchise fees will increase in future periods as a result of owning our current hotel properties for a full operating period, as well as anticipated future acquisitions of real estate assets.

Acquisition Expenses

Acquisition expenses were $27,466 and $72,995 for the three months ended March 31, 2021 and 2020, respectively. Acquisition expenses include acquisition-related and due diligence costs that relate to a property that is not acquired, as well as costs related to hotel property acquisitions that are not attributable to a single property. We expect acquisition expenses will increase in future periods to the extent the Offering remains open to new investment and we continue to

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acquire properties, but to decrease as a percentage of revenue, and to cease once the Offering is closed to new investment and we are no longer acquiring new properties.

Depreciation

Depreciation expense was $1.0 million and $0.8 million for the three months ended March 31, 2021 and 2020, respectively. We expect depreciation expense will increase in future periods as a result of owning our current hotel properties for a full operating period, as well as anticipated future acquisitions of real estate assets.

Interest Expense

Interest expense was $0.9 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively. Interest expense increased primarily due to a new mortgage related to the purchase of our Aurora Property in February 2021. Furthermore, we expect that in future periods our interest expense will vary based on the amount of our borrowings, which will depend on the cost of borrowings, the amount of proceeds we raise in our Offering and our ability to identify and acquire real estate and real estate-related assets that meet our investment objectives.

Critical Accounting Policies

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

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

Investment in Hotel Properties

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

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

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

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

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

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

Fair Value Measurement

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

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

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

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

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

Off-Balance Sheet Arrangements

As of March 31, 2021 and December 31, 2020, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Seasonality

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

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Subsequent Events

Distributions Declared or Paid

On April 9, 2021, the Company paid distributions totaling $1.4 million, consisting of $0.3 million in cash distributions and $1.1 million of distributions paid in shares of common stock issued through the DRIP, for daily record dates in the period from January 1, 2021 through March 31, 2021.

Recent Property Acquisitions

On May 12, 2021, the Operating Partnership acquired the Holiday Inn El Paso West Sunland Park hotel property located in El Paso, Texas (the “Holiday Inn El Paso”) pursuant to an Amended and Restated Contribution Agreement (the “El Paso Amended Contribution Agreement”), dated as of the same date. The aggregate contractual consideration under the El Paso Amended Contribution Agreement was $9.7 million plus closing costs, subject to adjustment as provided in the Amended Contribution Agreement. The consideration consists of a new loan entered into by subsidiaries of the Operating Partnership with EPH Development Fund LLC, which is the lender under the existing loan secured by the Holiday Inn El Paso (the “Lender”) of $7.9 million secured by the Holiday Inn El Paso (the “El Paso Loan”), the issuance by the Operating Partnership of 150,000 Series T Limited Units of the Operating Partnership, and the payment by the Operating Partnership of $300,000 in cash. The El Paso Loan is evidenced by a promissory note and has a fixed interest rate of 5.0% per annum.  The El Paso Loan matures on May 15, 2023, which may be extended by us until May 15, 2024 upon satisfaction of certain conditions contained in the El Paso Loan, including no then-existing event of default and satisfaction of certain financial covenants. The El Paso Loan requires monthly payments of interest-only throughout the term, with the outstanding principal and interest due at maturity. We have the right to prepay the El Paso Loan in full subject to certain fees, costs and conditions contained in the loan documents. In connection with the acquisition, we assumed the existing management agreement with Elevation Hotel Management, LLC (“EHM”) (as amended, the “EHM Management Agreement”), to provide property management and hotel operations management services for the Holiday Inn El Paso.  The EHM Management Agreement has an initial term of 90 days after its effective date. Pursuant to the EHM Management Agreement, we agree to pay to EHM a management fee equal to 3% of total revenues plus an accounting fee of $1,800 per month for accounting services.  As a condition to the El Paso Loan, we must enter into a management agreement with NHS, LLC dba National Hospitality Services (“NHS”), an affiliate of the Advisor which is wholly-owned by Norman Leslie, a director and executive officer of the Company and a principal of the Advisor, to act as co-manager of the Holiday Inn El Paso, and amend the EHM Management Agreement such that EHM will act as co-manager of the Holiday Inn El Paso.

The Company funded the acquisition of the Holiday Inn El Paso with proceeds from the Company’s ongoing private offering, Series T units issued to the Contributor as described above, and a new loan secured by the Holiday Inn El Paso.  The Holiday Inn El Paso is a 175-room hotel property.

Properties Under Contract

On April 1, 2021, the Operating Partnership entered into an Amended and Restated Contribution Agreement (the “Amended Contribution Agreement”), for the contribution of the 182-room Hilton Garden Inn Houston Bush Intercontinental Airport hotel in Houston, Texas (the “Houston Hilton Garden Inn Property”) to the Operating Partnership. The Amended Contribution Agreement amends and restates that certain Contribution Agreement entered into among the Operating Partnership and the contributors, dated as of February 17, 2021. The aggregate consideration for the Houston Hilton Garden Inn Property under the Amended Contribution Agreement is $19,700,000 plus closing costs, subject to adjustment as provided in the Amended Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the Houston Hilton Garden Inn Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T Limited Units of the Operating Partnership. Pursuant to the Amended Contribution Agreement, the Operating Partnership is responsible for up to $300,000 of certain closing costs to be agreed upon by the parties. As required by the Amended Contribution Agreement, the Operating Partnership has deposited $50,000 into escrow as earnest money pending the closing or

45

termination of the Amended Contribution Agreement. Except in certain circumstances described in the Amended Contribution Agreement, if the Operating Partnership fails to perform its obligations under the Amended Contribution Agreement, it will forfeit the earnest money.

This pending acquisition is subject to our completion of satisfactory due diligence and other closing conditions, including the Operating Partnership’s assumption or refinancing of the existing debt secured by the Houston Hilton Garden Inn Property. There can be no assurance that the Operating Partnership will complete the acquisition of the Houston Hilton Garden Inn Property.

On March 8, 2021, the Operating Partnership entered into a Contribution Agreement (the “Corpus Christi Contribution Agreement”), for the contribution of the 88-room Fairfield Inn & Suites Corpus Christi Aransas Pass hotel in Aransas Pass, Texas (the “Corpus Christi Property”) to the Operating Partnership. The aggregate consideration for the Corpus Christi Property is $9,800,000 plus closing costs, subject to adjustment as provided in the Corpus Christi Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the Corpus Christi Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T LP Units of the Operating Partnership and the payment by the Operating Partnership of cash. As required by the Corpus Christi Contribution Agreement, the Operating Partnership has deposited $50,000 into escrow as earnest money pending the closing or termination of the Corpus Christi Contribution Agreement. Except in certain circumstances described in the Corpus Christi Contribution Agreement, if the Operating Partnership fails to perform its obligations under the Corpus Christi Contribution Agreement, it will forfeit the earnest money.

Amendment of $5.0 million Line of Credit

On May 6, 2021, the Company amended its $5.0 million revolving line of credit to extend the maturity date to May 10, 2022 and to incorporate an interest rate floor of 4.0%.

Status of the Offering

As of May 17, 2021, our private offering remained open for new investment, and since the inception of the offering the we had issued and sold 8,006,215 shares of common stock, including 622,904 shares issued pursuant to the DRIP, resulting in the receipt of gross offering proceeds of $77.8 million.

Status of the GO Unit Offering

As of May 17, 2021, our GO Unit Offering remained open for new investment, and since the inception of the offering we had issued and sold 1,390,615 Series GO LP Units, resulting in the receipt of gross GO Unit Offering proceeds of $9.6 million.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

Based on the evaluation of our disclosure controls and procedures (as defined in Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) required by Securities Exchange Act Rules 13a-15(b) or 15d-15(b), our Chief Executive Officer and our Chief Financial Officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective.

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Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

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

Unregistered Sales of Equity Securities

On June 1, 2018, we commenced a private placement offering of up to $100,000,000 in shares of our common stock. We are offering these securities in reliance upon exemptions from the registration requirements provided by Section 4(2) of the Securities Act and Regulation D under the Securities Act relating to sales not involving any public offering. The securities are being offered and sold only to purchasers who are “accredited investors,” as defined in Rule 501 of Regulation D of the Securities Act, and without the use of general solicitation, as that concept is embodied in Regulation D. In addition to sales of common stock for cash, we have adopted a dividend reinvestment plan, which permits stockholders to reinvest their distributions back into the Company.  Except as otherwise provided in the offering memorandum, we are offering the shares in the private offering at an initial price of $10.00 per share, with shares purchased in our dividend reinvestment plan at an initial price of $9.50 per share. During the three months ended March 31, 2021, we sold 1,000,927 shares of common stock in the private offering, resulting in gross offering proceeds of approximately $9.8 million, including 44,030 shares issued pursuant to our dividend reinvestment plan. During the three months ended March 31, 2021, aggregate selling commissions of $36,520 and marketing and diligence allowances and other wholesale selling costs and expenses of $139,717 were paid in connection with the private offering.

On June 15, 2020, we commenced a private placement offering of limited partnership units in our Operating Partnership, designated as Series GO LP Units, with a maximum offering of $20,000,000, which may be increased to $30,000,000 in the sole discretion of the Company, as the General Partner of the Operating Partnership, (the “GO Unit Offering”). The Operating Partnership is offering these securities in reliance upon exemptions from the registration requirements provided by Section 4(2) of the Securities Act and Regulation D under the Securities Act relating to sales not involving any public offering. The securities are being offered and sold only to purchasers who are “accredited investors,” as defined in Rule 501 of Regulation D of the Securities Act, and without the use of general solicitation, as that concept is embodied in Regulation D. Subject to restrictions on ownership in order to comply with rules governing real estate investment trusts and the terms of the partnership agreement of the Operating Partnership, each holder of Series GO LP Units (a “Series GO Limited Partner”) will have the right to exchange its Series GO LP Units for, at the option of the Operating Partnership, an equivalent number of shares of common stock of the Company (“Common Shares”), or cash equal to the fair market value of the Common Shares (the “Cash Amount”) which would have otherwise been received pursuant to such exchange. The exchange right is not available until all of the following have occurred (the “Exchange Date”): (i) the Common Shares

47

are listed on a national securities exchange, the sale of all or substantially all of the GP Units and Interval Units held by the Company or any sale, exchange or merger of the Company or the Operating Partnership or, as determined in the sole discretion of the Company, the occurrence of a similar event; (ii) the Series GO Limited Partner has held its Series GO LP Units for at least one year; (iii) the Common Shares to be issued pursuant to the redemption have been registered with the SEC and the registration statement has been declared effective, or an exemption from registration is available; and (iv) the exchange does not result in a violation of the shareholder ownership limitations set forth in the Company’s articles of incorporation. Notwithstanding the above, the Company may waive any of the requirements above in its sole discretion other than (ii) or (iv). As of March 31, 2021, the Company has issued and sold 1,258,817 Series GO LP Units and received aggregate proceeds of $8.7 million. During the three months ended September 30, 2020, aggregate selling commissions of $343,397 and marketing and diligence allowances and other wholesale selling costs and expenses of $171,749 were paid in connection with the offering.

Share Repurchase Plan

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

Repurchase Price

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

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

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

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

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

Limitations on Repurchase

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

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

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

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

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

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

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Procedures for Repurchase

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

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

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

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

Special Repurchases—Death Repurchase

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

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

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

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

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

Amendment, Suspension or Termination of Program and Notice

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

Shares Repurchased

During the three months ended March 31, 2021, we did not repurchase any shares pursuant to our share repurchase plan because no shares were submitted for repurchase.  Based on the repurchase limits described above, as of March 31, 2021, there is $3,695,479 available for eligible purchasers for the remainder of 2021.

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Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

HIDDEN_ROW
3.1	Articles of Amendment and Restatement, dated as of June 1, 2018 (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed May 14, 2020)
3.2	Articles Supplementary for the Interval Common Stock (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed May 14, 2020)
3.3	Bylaws, dated of as April 9, 2018, as amended by Amendment No. 1 dated as of November 12, 2019 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed November 12, 2019)
3.4	First Amendment to the Amended and Restated Limited Partnership Agreement of the Operating Partnership, effective as of February 4, 2021 (incorporated by reference to Exhibit 3.7 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
4.1	Dividend Reinvestment Plan (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 10 filed August 8, 2019)
10.1	Amended and Restated Contribution Agreement, dated as of January 29, 2021, by and between the Operating Partnership and LN Hospitality Denver, LLC for the Aurora Property (incorporated by reference to Exhibit 10.84 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.2.1	Loan Agreement by and among LF3 Aurora, LLC, LF3 Aurora TRS, LLC and Access Point Financial, LLC, relating to the Aurora Property, dated as of February 4, 2021 (incorporated by reference to Exhibit 10.85.1 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.2.2	Promissory Note issued by LF3 Aurora, LLC and LF3 Aurora TRS, LLC to Access Point Financial, LLC, relating to the Aurora Property, dated as of February 4, 2021 (incorporated by reference to Exhibit 10.85.2 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.2.3	Fee and Leasehold Deed of Trust and Security Agreement by and among LF3 Aurora, LLC, LF3 Aurora TRS, LLC and Access Point Financial, LLC, relating to the Aurora Property, dated as of February 4, 2021 (incorporated by reference to Exhibit 10.85.3 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.2.4	Guaranty Agreement, by and among Access Point Financial, LLC, LF3 Aurora, LLC, LF3 Aurora TRS, LLC and the Company, relating to the Aurora Property, dated as of February 4, 2021 (incorporated by reference to Exhibit 10.85.4 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.2.5	Environmental Indemnity Agreement, by and among LF3 Aurora, LLC, LF3 Aurora TRS, LLC, and the

50

	Company, to Access Point Financial, LLC, relating to the Aurora Property, dated as of February 4, 2021 (incorporated by reference to Exhibit 10.85.5 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.2.6	Assignment of Leases and Rents by and among LF3 Aurora, LLC, LF3 Aurora TRS, LLC and Access Point Financial, LLC, relating to the Aurora Property, dated as of February 4, 2021 (incorporated by reference to Exhibit 10.85.6 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.2.7	Agreement for Subordination of Payments to Related Parties by and among LF3 Aurora, LLC, LF3 Aurora TRS, LLC and Access Point Financial, LLC, relating to the Aurora Property, dated as of February 4, 2021 (incorporated by reference to Exhibit 10.85.7 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.2.8	Pledge Agreement by and between Lodging Fund REIT III OP, LP and Access Point Financial, LLC relating to LF3 Aurora, LLC and the Aurora Property, dated as of February 4, 2021 (incorporated by reference to Exhibit 10.85.8 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.2.9	Pledge Agreement by and between Lodging Fund REIT III TRS, Inc. and Access Point Financial, LLC relating to LF3 Aurora TRS, LLC and the Aurora Property, dated as of February 4, 2021 (incorporated by reference to Exhibit 10.85.9 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.2.10	Acknowledgement of CoPACE Assessment by and between LN Hospitality Denver, LLC and LF3 Aurora, LLC to Twain Funding I, LLC, relating to the Aurora Property, dated as of February 3, 2021 (incorporated by reference to Exhibit 10.85.10 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.3	Contribution Agreement, dated as of January 8, 2021, by and between the Operating Partnership and HD Sunland Park Property LLC for the El Paso Property (incorporated by reference to Exhibit 10.86 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.4	Change in Terms Agreement for Revolving Line of Credit with Western State Bank, dated as of January 19, 2021 (incorporated by reference to Exhibit 10.87 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.5	Promissory Note issued to Western State Bank relating to the Cedar Rapids Property, dated January 29, 2021 (incorporated by reference to Exhibit 10.88 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.6	Promissory Note issued to Western State Bank relating to the Pineville Property, dated January 29, 2021 (incorporated by reference to Exhibit 10.89 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.7	Promissory Note issued to Western State Bank relating to the Eagan Property, dated January 29, 2021 (incorporated by reference to Exhibit 10.90 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.8	Promissory Note issued to Western State Bank relating to the Prattville Property, dated January 29, 2021 (incorporated by reference to Exhibit 10.91 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.9	Promissory Note issued to Western State Bank relating to the Lubbock Fairfield Property, dated January 29, 2021 (incorporated by reference to Exhibit 10.92 to the Company’s Annual Report on Form 10-K filed March 31, 2021)

51

10.10		Promissory Note issued to Western State Bank relating to the Lubbock Home2 Property, dated January 29, 2021 (incorporated by reference to Exhibit 10.93 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.11		Promissory Note issued to Western State Bank relating to the Southaven Property, dated February 16, 2021 (incorporated by reference to Exhibit 10.94 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.12		Contribution Agreement, dated as of February 17, 2021, by and between the Operating Partnership and Houston-Hotel Partners, LLC and Houston Land Partners, LLC for the Houston Hilton Garden Inn Property (incorporated by reference to Exhibit 10.95 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.13		Form of Services Agreement with NHS dba National Hospitality Services (incorporated by reference to Exhibit 10.96 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.14		Letter Agreement between Midland Loan Services, LF3 Lubbock Expo, LLC and LF3 Lubbock Expo TRS, LLC regarding the Lubbock Fairfield Inn loan, dated as of March 2, 2021  (incorporated by reference to Exhibit 10.97 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.15		Contribution Agreement, dated as of March 8, 2021, by and between the Operating Partnership and HCNA Enterprises, Inc. for the Corpus Christi Fairfield Inn Property (incorporated by reference to Exhibit 10.98 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.16		Limited Consent and Waiver Agreement, dated February 16, 2021 between Wells Fargo Bank, National Association, LF3 Prattville, LLC, LF Prattville TRS, LLC and Corey R. Maple regarding the Prattville Property loan (incorporated by reference to Exhibit 10.99 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.17		Limited Consent and Waiver Agreement, dated February 16, 2021 between Wells Fargo Bank, National Association, LF3 Southaven, LLC, LF3 Southaven TRS, LLC, and Corey R. Maple regarding the Southaven Property loan (incorporated by reference to Exhibit 10.100 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.18		Consent to PPP Loan Agreement, dated March 5, 2021 between Wells Fargo Bank, National Association, LF3 Lubbock Expo, LLC, Lodging Fund REIT III, Inc., and Lodging Fund REIT III OP, LP regarding to the Lubbock Fairfield Inn loan (incorporated by reference to Exhibit 10.101 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.19		Side Letter Agreement, dated May 18, 2020 between Wells Fargo Bank, National Association, LF Pineville, LLC, LF3 Pineville TRS, LLC, and Norman H. Leslie regarding the Pineville Property loan. (incorporated by reference to Exhibit 10.102 to the Company’s Annual Report on Form 10-K filed March 31, 2021)
10.20	*	Amended and Restated Contribution Agreement, dated as of April 1, 2021, by and between the Operating Partnership and Houston-Hotel Partners, LLC and Houston Land Partners, LLC for the Houston Hilton Garden Inn Property
10.21	*	First Amendment to Contribution Agreement dated as of April 28, 2021, by and between the Operating Partnership and HD Sunland Park Property LLC for the El Paso Property
10.22	*	Change in Terms Agreement for Revolving Line of Credit with Western State Bank, dated as of May 6, 2021

52

10.23	*	Amended and Restated Contribution Agreement, dated as of May 12, 2021, by and between the Operating Partnership and HD Sunland Park Property LLC for the El Paso Property
10.24	*	Loan Agreement between LF3 El Paso, LLC, LF3 El Paso TRS, LLC, and EPH Development Fund LLC, relating to the El Paso Property, dated as of May 12, 2021
10.25	*	Special Warranty Deed between  HD Sunland Park Property LLC and LF3 El Paso, LLC, relating to the EL Paso Property, dated as of May 12, 2021
10.26	*	Continuing Guaranty by Lodging Fund REIT III OP, LP in favor of EPH Development Fund LLC, relating to the El Paso Property, dated as of May 12, 2021
10.27	*	Assignment, Consent and Subordination of Management Agreement by and among LF3 El Paso, LLC, LF3 El Paso TRS, LLC, Elevation Hotel Management, LLC and EPH Development Fund LLC, relating to the El Paso Property, dated as of May 12, 2021
10.28	*	Assignment and Assumption of Management Agreement, by and between HD Sunland Park Property, LLC and LF3 El Paso TRS, LLC, and LF3 El Paso, LLC, relating to the El Paso Property, dated as of May 12, 2021
10.29	*	Environmental Indemnity Agreement by LF3 El Paso, LLC and LF3 El Paso TRS, LLC in favor of EPH Development Fund LLC, relating to the El Paso Property, dated as of May 12, 2021
10.30	*	Loan Assumption Agreement by and among HD Sunland Park Property, L.L.C., LF3 El Paso, LLC, LF3 El Paso TRS, LLC, and EPH Development Fund LLC, relating to the El Paso Property, dated as of May 12, 2021
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	**	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
99.1		Share Repurchase Plan (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form 10 filed August 8, 2019)
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

*  Filed herewith.

** Furnished herewith.

53

SIGNATURES

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

		LODGING FUND REIT III, INC.
Date:	May 17, 2021	By:	s/ Corey R. Maple
			Corey R. Maple
			Chairman of the Board, Chief Executive Officer and Secretary
			(principal executive officer)
Date:	May 17, 2021	By:	/s/ Samuel C. Montgomery
			Samuel C. Montgomery
			Chief Financial Officer
			(principal financial officer)

54

EX-10.20

Exhibit 10.20

AMENDED AND RESTATED

CONTRIBUTION AGREEMENT

by and between

Houston-Hotel Partners, LLC and Houston Land Partners, LLC, each a California limited liability company

and

Lodging Fund REIT III OP, LP

a Delaware limited partnership

Dated as of April 1, 2021

TABLE OF CONTENTS

			Page
1.	Defined Terms		1
2.	Contribution; Total Consideration; Inspection and Title		6
	2.1	Contribution of Property	6
	2.2	Contribution of Assets	6
	2.3	Inventory	6
	2.4	Excluded Assets	6
	2.5	Assumed Liabilities	6
	2.6	Excluded Liabilities	6
	2.7	Existing Loans and Creditors	7
	2.8	Consideration and Exchange of Series T Limited Units	7
	2.9	Treatment as Contribution	8
	2.10	Allocation of Total Consideration	8
	2.11	Terms of Series T Limited Units	8
	2.12	PIP	8
	2.13	Term of Agreement	8
	2.14	Management Company	8
	2.15	Risk of Loss	8
	2.16	Escrow	9
	2.17	Title	9
	2.18	Due Diligence Period	9
3.	Closing		10
	3.1	Conditions Precedent	10
	3.2	Time and Place	12
	3.3	Closing Deliveries	12
	3.4	Closing Costs	13
4.	Representations and Warranties and Indemnities		13
	4.1	Representations and Warranties of the Operating Partnership	13
	4.2	Representations and Warranties of the Contributor	14
5.	Indemnification		21
	5.1	Survival of Representations and Warranties; Remedy for Breach	21
	5.2	General Indemnification	21
	5.3	Notice and Defense of Claims	22
	5.4	Limitations on Indemnification Under Section 5.2.1	22
	5.5	Indemnification	22
	5.6	Matters Excluded from Indemnification	22
	5.7	Offset	22
6.	Covenants		23
	6.1	Covenants of the Contributor	23
	6.2	Prorations	24
	6.3	Tax Covenants	26
	6.4	Capital Contribution	26
7.	Termination		26
	7.1	Termination	26
	7.2	Default by the Operating Partnership	26
	7.3	Default by the Contributor	27
8.	Miscellaneous		27
	8.1	Further Assurances	27
	8.2	Counterparts	27

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TABLE OF CONTENTS

(continued)

		Page
8.3	Governing Law	27
8.4	Amendment; Waiver	27
8.5	Entire Agreement	27
8.6	Assignability	27
8.7	Titles	27
8.8	Third Party Beneficiary	27
8.9	Severability	27
8.10	Reliance	28
8.11	Survival	28
8.12	Days	28
8.13	Calculating Time Periods	28
8.14	Incorporation of Exhibits	28
8.15	Notice	28
8.16	Force Majeure	28
8.17	Impracticability	29
8.18	Equitable Remedies	29

EXHIBITS

ALegal Description of the Properties

BContribution and Assumption Agreement

CAssignment of Warranties

DTotal Consideration

ENon-Competition Agreement and Non-Solicitation Agreement

FConfidentiality and Non-Disclosure Agreement

GTax Information

SCHEDULES

2.2List of Contributed Assets, Assumed Agreements and Leases

2.4List of Excluded Assets

2.5List of Assumed Liabilities; Permitted Liens

2.6List of Excluded Liabilities

2.10Allocation of Total Consideration

3.1.83-05 Audit

APPENDICES

ADisclosure Schedule

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AMENDED AND RESTATED CONTRIBUTION AGREEMENT

This Amended and Restated Contribution Agreement (this “Agreement”) is made and entered into as of April 1, 2021 (the “Effective Date”) by and between Lodging Fund REIT III OP, LP, a Delaware limited partnership (the “Operating Partnership”), and Houston-Hotel Partners, LLC, a California limited liability company, and Houston Land Partners, LLC, a California limited liability company  (collectively the “Contributor”).

RECITALS

A.The Contributor and the Operating Partnership entered into a contribution agreement on February 17, 2021(the “Original Agreement”) on terms similar to the terms found herein, which said Original Agreement is hereby Terminated.  This Agreement hereby supersedes any and all other agreements.

B.The Contributor currently owns a certain 182-room hotel business known as the Hilton Garden Inn Houston Bush Intercontinental Airport and is located at 15400 John F Kennedy Blvd, Houston, TX 77032 (the “Property”), as the Property is more fully described in Exhibit A.

C.The Operating Partnership desires to acquire the Property, along with the Contributed Assets whereby the Operating Partnership will acquire a direct fee simple interest and ownership in the Property.

NOW, THEREFORE, in consideration of the foregoing premises, and the mutual undertakings set forth below, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree and restate as follows:

1.Defined Terms.

The following terms have the meanings set forth below:

“Act” shall have the meaning as set forth in Section 4.2.9.

“Actions” mean all actions, litigations, complaints, charges, accusations, investigations, petitions, suits, arbitrations, mediations or other proceedings, whether civil or criminal, at law or in equity, or before any arbitrator or Governmental Entity.

“Adverse Change” shall have the meaning as set forth in Section 2.16.1.

“Adverse Change Review Period” shall have the meaning as set forth in Section 2.16.1.

“Agreement” shall have the meaning as set forth in the Preamble.

“Amendment” shall have the meaning as set forth in Section 2.8.

“Assumed Agreements” shall have the meaning as set forth in Section 2.2.

“Assumed Liabilities” shall have the meaning as set forth in Section 2.5.

“Basket” shall have the meaning as set forth in Section 5.4.

“Closing” shall have the meaning as set forth in Section 3.2.

“Closing Agent” shall have the meaning as set forth in Section 2.14.

“Closing Date” shall have the meaning as set forth in Section 3.2.

“Closing Documents” shall have the meaning as set forth in Section 3.3.

“Code” shall mean the Internal Revenue Code of 1986, as amended.

“Common Limited Units” shall have the meaning set forth in the OP Agreement.

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“Company” shall mean Lodging Fund REIT III, Inc., a Maryland corporation.

“Contributed Assets” shall have the meaning as set forth in Section 2.2.

“Contributor” shall have the meaning as set forth in the Preamble.

“Contributor Point of Contact” shall have the meaning as set forth in Section 2.16.3(d).

“Contributor’s Breakage Fee” shall have the meaning as set forth in Section 7.3.

“Contributor’s Cure Period” shall have the meaning as set forth in Section 2.15.

“Deed”  shall have the meaning as set forth in Section 3.3.2.

“Disclosure Schedule” means that disclosure schedule attached as Appendix A.

“Due Diligence Documents” shall have the meaning as set forth in Section 2.16.1.

“Due Diligence Period” shall have the meaning as set forth in Section 2.16.1.

“Due Diligence Review” shall have the meaning as set forth in Section 2.16.3.

“Earnest Money” shall have the meaning as set forth in Section 2.14.

“Environmental Law” means all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders, demands, approvals, authorizations and similar items of any Governmental Entity and all applicable judicial, administrative and regulatory decrees, judgments and orders relating to the protection of human health or the environment as in effect on the Closing Date, including but not limited to those pertaining to reporting, licensing, permitting, investigation, removal and remediation of Hazardous Materials, including without limitation (i) the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251), the Safe Drinking Water Act (42 U.S.C. 300f et seq.), the Toxic Substances Control Act (15 U.S.C. 2601 et seq.), the Endangered Species Act (16 U.S.C. 1531 et seq.), the Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C. 11001 et seq.), and (ii) applicable state and local statutory and regulatory laws, statutes and regulations pertaining to Hazardous Materials.

“Environmental Permits” means any and all licenses, certificates, permits, directives, requirements, registrations, government approvals, agreements, authorizations, and consents that are required under or are issued pursuant to any Environmental Laws.

“Effective Date” shall have the meaning as set forth in the Preamble.

“Excluded Assets” shall have the meaning as set forth in Section 2.4.

“Excluded Liabilities” shall have the meaning as set forth in Section 2.6.

“Existing Loan” shall have the meaning as set forth in Section 2.7.1.

“Existing Loan Documents” shall have the meaning as set forth in Section 2.7.1.

“Fixtures and Personal Property” shall mean all fixtures, furniture, furnishings, apparatus and fittings, equipment, machinery, appliances, building supplies, business supplies, software, tools, linens (in no event less than 3 par), inventories of standard supplies, services and amenities including without limitation paper goods, brochures, office supplies, unopened food and beverage inventory, chinaware, glassware, flatware, soap, gasoline, fuel oil, inventory held for sale, engineering, pool, maintenance and housekeeping supplies, TV, phone, and internet services, software and hardware, and other operation and guest supplies (each of which shall be maintained and transferred in accordance with brand standards), merchandise, goods, electronics, customer lists and records (including but not limited to customer, supplier, advertising, promotional material, sales, services, delivery and/or operations lists and

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records), goodwill, intellectual and/or proprietary information and property and applications therefor or licenses thereof and other items of personal property used in connection with the ownership, operation or maintenance of the Property, including all assets located off site from the Property but owned and used by the Contributor in connection with operation of the Property; excluding, however, all fixtures, furniture, furnishings, apparatus and fittings, equipment, machinery, appliances, building supplies, business supplies, software, tools, linens, merchandise, goods, electronics and other items of personal property owned by tenants, subtenants, guests, invitees, employees, easement holders, service contractors and other Persons who own any such property located on the Property.

“Franchise Agreement” shall have the meaning as set forth in Section 3.1.12.

“Governmental Entity” means any governmental agency or quasi-governmental agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign.

“Hazardous Material” means any substance:

(a)the presence of which requires investigation or remediation under any Environmental Law action or policy, administrative request or civil complaint under the foregoing or under common law; or

(b)which is controlled, regulated or prohibited under any Environmental Law as in effect as of the Closing Date, including the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) and the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.); or

(c)which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and as of the Closing Date is regulated by any Governmental Entity; or

(d)the presence of which on, under or about, the Property poses a hazard to the health or safety of persons on or about the Property; or

(e)which contains gasoline, diesel fuel or other petroleum hydrocarbons, polychlorinated biphenyls (PCBs) or asbestos or asbestos-containing materials or urea formaldehyde foam insulation; or

(f)radon gas.

“Indemnified Contributor Party” shall have the meaning as set forth in Section 5.5.

“Indemnified OP Party”  shall have the meaning as set forth in Section 5.5.

“Indemnified Party” shall have the meaning as set forth in Section 5.2.1.

“Independent Consideration” shall have the meaning as set forth in Section 2.14.

“Intangible Personal Property” shall mean all, right, title and interest relating to the Property in and to all intangible personal property now or hereafter used in connection with the operation, ownership, maintenance, management, or occupancy of the Property, including without limitation: all trade names and trademarks associated with the ownership of the Property; the plans and specifications for the Improvements; warranties; guaranties; indemnities; claims against third parties; claims against tenants for tenant improvement reimbursements; all contract rights related to the construction, operation, ownership or management of the Property; certificates of occupancy; applications, permits, approvals and licenses; insurance proceeds and condemnation awards or claims thereto to be assigned to the Operating Partnership hereunder; all books and records relating to the Property; any existing computer software or programs; any franchise agreements which shall not be terminated at the Closing and are to be assigned to the Operating Partnership, if any; any records, files, lists, and other tangible assets that pertain to the Property, including lists and records pertaining to any one or more of the following: the Contributor’s customers, suppliers, advertising, promotional material, sales, services, delivery, and/or operations, except those items, if any, required to be retained by law, including accounting records and returns.

“Inventory Period” shall have the meaning as set forth in Section 2.3.1.

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“Key Personnel” shall have the meaning as set forth in Section 2.16.3(d).

“Knowledge” means with respect to any representation or warranty so indicated, the knowledge, of the Contributor.

“Leases” shall have the meaning as set forth in Section 4.2.21.

“Lender” shall have the meaning as set forth in Section 2.7.1.

“Liens” means with respect to any real and personal property, all mortgages, pledges, liens, options, charges, security interests, mortgage deed, restrictions, prior assignments, encumbrances, covenants, encroachments, assessments, purchase rights, rights of others, licenses, easements, voting agreements, liabilities or claims of any kind or nature whatsoever, direct or indirect, including, without limitation, interests in or claims to revenues generated by such property.

“Losses” shall have the meaning as set forth in Section 5.2.1.

“Material Adverse Effect” shall have the meaning as set forth in Section 4.2.3.

“Maximum Per Property Total Consideration Adjustment” shall have the meaning as set forth in Section 2.14.

“Merchandise” shall have the meaning as set forth in Section 2.3.1.

“Name” shall have the meaning as set forth in Section 4.2.19(c).

“NDA” shall have the meaning as set forth in Section 6.1.8.

“Non-Competition Agreement and Non-Solicitation Agreement” shall have the meaning as set forth in Section 6.1.7.

“Objections” shall have the meaning as set forth in Section 2.15.

“OFAC” shall have the meaning as set forth in Section 4.2.32.

“Offering Documents” shall have the meaning as set forth in Section 2.16.2.

“Offering Review Period” shall have the meaning as set forth in Section 2.16.2.

“OP Agreement” shall mean the Amended and Restated Limited Partnership Agreement of Lodging Fund REIT III OP, LP, a Delaware limited partnership, as may be amended.

“Operating Partnership” shall have the meaning as set forth in the Preamble.

“Original Agreement” shall have the meaning as set forth in the Recitals.

“Other Taxes” means Taxes other than income Taxes.

“Permitted Liens” means:

(a)Liens securing taxes, the payment of which is not now due and payable or the payment of which is actively being contested in good faith by appropriate proceedings diligently pursued;

(b)Zoning laws and ordinances applicable to the Property which are not violated by the existing structures or present uses thereof or the transfer of the Property;

(c)non-exclusive easements for public utilities and other operational purposes that do not materially interfere with the current use of the Property; and

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(d)all Liens listed in Schedule 2.5 of the Disclosure Schedule and any similar liens incurred in any refinancing of the related obligations.

“Person” means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or governmental entity.

“PIP” shall have the meaning as set forth in Section 4.2.31.

“Preliminary Title Report” means the preliminary commitment for title insurance committing to insure marketable fee simple title as of the date of the Closing, subject only to the Permitted Liens.

“Property” shall have the meaning as set forth in the Recitals.

“Property Deposits” shall have the meaning as set forth in Section 6.2.1(b)(i).

“Property Reports” means the property condition assessment reports, appraisals, zoning reports and other similar reports prepared for the Property.

“Proprietary Rights” shall have the meaning as set forth in Section 4.2.19(a).

“REIT Shares” shall have the meaning set forth in the OP Agreement.

“Release” shall have the same meaning as the definition of “release” in the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) at 42 U.S.C. Section 9601(22), but not including the exclusions identified in that definition, at subparts (A) through (D).

“Satisfaction Notice” shall have the meaning as set forth in Section 2.16.1.

“Series T Limited Units” shall have the meaning set forth in the OP Agreement.

“Service Contracts” shall have the meaning as set forth in Section 4.2.23.

“Subscription Agreement” shall mean the Subscription Agreement to be entered into by Contributor with respect to the acquisition of the Series T Units.

“Tax” or “Taxes” means any federal, state, provincial, local or foreign income, gross receipts, license, payroll, employment-related, excise, goods and services, harmonized sales, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.

“Tax Return” means any return, declaration, report, claim for refund, or information return or statement related to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“Tenants”  shall have the meaning as set forth in Section 4.2.21.

“Terminated” shall mean that as of the Effective Date, the Original Agreement has no force or effect and is replaced herein by this Agreement.

“Title Company” shall have the meaning as set forth in Section 2.15.

“Title Policy” shall have the meaning as set forth in Section 3.1.6.

“Total Consideration” shall have the meaning as set forth in Section 2.8.

“Transfer”  shall have the meaning as set forth in Section 4.2.9(a).

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2.Contribution; Total Consideration; Inspection and Title.

2.1Contribution of Property.  At the Closing and subject to the terms and conditions contained in this Agreement, the Contributor shall contribute, transfer, assign, convey and deliver to the Operating Partnership, absolutely and unconditionally, and free and clear of all Liens (other than Permitted Liens), all of its right, title and interest to the Property.  The contribution of the Property shall be evidenced by a Deed executed by Contributor and recorded at the Closing in the County and State in which the Property is located.  The parties shall take such additional actions and execute such additional documentation as may be required by the Contributor’s entity documents and the OP Agreement, or as reasonably requested by the Operating Partnership and approved by Contributor, which approval shall not be unreasonably withheld, in order to effect the transactions contemplated hereby.

2.2Contribution of Assets.  At the Closing and subject to the terms and conditions contained in this Agreement, the Contributor shall contribute, transfer, assign convey and deliver to the Operating Partnership, and the Operating Partnership shall acquire and accept, all of the Contributor’s right, title and interest in and to (i) (a) those assets listed on Schedule 2.2, (b) all Fixtures and Personal Property related to the Property, and (c) all Intangible Personal Property now or hereafter used in connection with the operation, ownership, maintenance, management or occupancy of the Property (collectively, the “Contributed Assets”), and (ii) (a) those certain agreements listed on Schedule 2.2, which reflect all agreements and arrangements related to the Property to which Contributor (or its affiliates or predecessors) is a party and (b) Service Contracts (collectively, the “Assumed Agreements”), and in each case, free and clear of any and all Liens, subject only to the Permitted Liens listed on Schedule 2.4.  The contribution of the Contributed Assets and the Assumed Agreements and the assumption of all obligations thereunder shall be evidenced by a Contribution and Assumption Agreement in substantially the form of Exhibit B.

2.3Inventory.  In addition to the purchase and sale of the Contributed Assets, Contributor shall sell and the Operating Partnership will buy the inventory of saleable merchandise of Contributor in the Property, subject to the following:

2.3.1Purchase and Sale of Merchandise Inventory.  An inventory of all merchandise will be conducted not earlier than 15 days prior to Closing but not later than 1 day prior to Closing (the “Inventory Period”), and Contributor shall sell, transfer, and deliver to the Operating Partnership all of the merchandise and other inventory used in connection with the Property.  As used in this Agreement, the “Merchandise” will include only unopened merchandise and merchandise that (i) is not obsolete and (ii) has an expiration of 30 days or more after Closing Date.

2.3.2Method of Taking Inventory.  The Contributor and the Operating Partnership mutually agree to a method of inventory during the Inventory Period, and only if the Parties do not agree, then the Operating Partnership, at its  expense, will use an inventory auditing service to conduct the counting of inventory.

2.3.3Inventory Purchase Price.  The Merchandise shall be purchased at the Contributor’s then-current wholesale cost.  The Contributor shall provide written evidence of the Contributor’s then-current wholesale cost, which will include the cost of the delivery of the Merchandise, if any.  If no wholesale price is agreed to, then the inventory purchase price will be added to and considered a part of the Total Consideration.

2.4Excluded Assets.  Notwithstanding the foregoing, the parties expressly acknowledge and agree that all assets and properties of the Contributor set forth on Schedule 2.4, shall be deemed “Excluded Assets” and not contributed, transferred, assigned, conveyed or delivered to the Operating Partnership pursuant to this Agreement, and the Operating Partnership shall not have any rights or obligations with respect thereto.  Unless otherwise agreed in writing, the Contributor, at the Contributor’s expense, shall remove the Excluded Assets from the Property as soon as possible after the Closing Date but in no event later than 7 days after the Closing Date.  If the Contributor fails to comply with the foregoing provisions, the Operating Partnership may dispose of such items at the Contributor’s expense or make such other arrangements as the Operating Partnership may determine appropriate.

2.5Assumed Liabilities.  On the terms and subject to the conditions set forth in this Agreement, at the Closing, the Operating Partnership shall assume from the Contributor and thereafter pay, perform or discharge in accordance with their terms all of the liabilities of the Contributors listed on Schedule 2.5 (the “Assumed Liabilities”).

2.6Excluded Liabilities.  Notwithstanding the foregoing, the parties expressly acknowledge and agree that the Operating Partnership shall not assume or agree to pay, perform or otherwise discharge any liabilities,

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obligations or other expenses of either the Contributor (or acquire the Property subject thereto) other than those assumed pursuant to the Contribution and Assumption Agreement and the Assumed Liabilities (the “Excluded Liabilities”), and such Excluded Liabilities shall not be contributed, transferred, assigned, conveyed or delivered to the Operating Partnership pursuant to this Agreement or any other means, and the Operating Partnership shall not have any obligations with respect thereto.

2.7Existing Loans and Creditors.

2.7.1The Contributor has obtained certain financing encumbering the Property which is serviced by Wells Fargo Commercial Mortgage Servicing at an original loan balance of $14,500,000 (the “Original Loan Balance”), (the “Existing Loan”).  Such notes, deed of trusts and all other documents or instruments evidencing or securing such Existing Loan, including any financing statements, and any amendments, modifications and assignments of the foregoing, shall be referred to, collectively, as the “Existing Loan Documents.”  The Existing Loan shall be considered a Permitted Lien for purposes of this Agreement.  The Operating Partnership at its election shall either (i) assume the applicable Existing Loan at the Closing (subject to obtaining any necessary consents from the holder of the mortgage or deed of trust related to the Existing Loan (the “Lender”) prior to the Closing), (ii) take title to the Property subject to the lien of the Existing Loan Documents or (iii) cause the Existing Loan to be refinanced or repaid in connection with the Closing. The Operating Partnership shall have the right to discuss with Wells Fargo Commercial Mortgage Servicing any of the options described in this Section 2.7.1 concurrently with the Contributor discussing the transaction contemplated by this Agreement with such entities.

2.7.2Nothing contained in this Agreement shall preclude the Operating Partnership from reducing  the indebtedness secured by the Property above the amount outstanding on the Existing Loan in connection with any refinancing which may occur concurrently with or after the Closing.  The Contributor shall use commercially reasonable efforts along with the Operating Partnership in seeking to process approval of the assumption of the Existing Loan or in beginning the process for any refinancing or a payoff.

2.7.3Before the Closing, the Contributor shall furnish to the Operating Partnership a true and complete list of all known existing creditors.  This list shall set forth the names and addresses of all of the Contributor’s known creditors and shall contain information regarding the nature and extent of the claim or claims of each creditor.  The Contributor shall afford to the Operating Partnership access to the Contributor’s books and records related to each claim and shall furnish the Operating Partnership with such financial and operating data and other information regarding each such claim as the Operating Partnership may from time to time reasonably request.

2.7.4On or before Closing, the Contributor will pay all amounts owed to any known creditors (excluding Lender) or persons and entities that otherwise possess any type of right or interest in the Contributed Assets arising from the ownership or operation of the Property by the Contributor prior to the Closing, excluding the Assumed Liabilities.  If the creditor holds or obtains a lien on the Contributed Assets, then the following shall apply:

(a)The Contributor, on written notice given by the Operating Partnership to the Contributor, shall pay such monies arising from the ownership or operation of the Property by the Contributor prior to the Closing required to obtain the release of any lien on the property.

(b)In the event of default by the Contributor as to the foregoing, the Operating Partnership, on written notice given by the Operating Partnership to the Contributor, shall have the right to pay for the same and/or obtain the release of lien, if any, and receive a dollar for dollar credit for the amounts paid toward the Total Consideration at Closing.

2.8Consideration and Exchange of Series T Limited Units.  Subject to this Section, the Operating Partnership shall, in exchange for the Property, the Contributed Assets, the Assumed Liabilities and the Assumed Agreements, transfer to the Contributor consideration equal to the Contributor’s “Total Consideration” as indicated on Exhibit D.  The transfer of the Series T Limited Units to the Contributor shall be evidenced by an amendment (the “Amendment”) to the OP Agreement as determined by the Operating Partnership in accordance with Exhibit D and the other provisions of this Agreement.  The parties shall take such additional actions and execute such additional documentation as may be required by such party’s operating agreement and the OP Agreement in order to effect the transactions contemplated hereby.

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2.9Treatment as Contribution.  The transfer, assignment and exchange effectuated pursuant to this Agreement shall constitute a “capital contribution” to the Operating Partnership and is intended to be governed by Section 721(a) of the Code, and the Contributor hereby consents to such treatment.

2.10Allocation of Total Consideration.  The Total Consideration shall be allocated as set forth in Schedule 2.10 and Exhibit D.  The Operating Partnership and the Contributor agree to (i) be bound by the allocation, (ii) act in accordance with the allocation in the preparation of financial statements and filing of all tax returns and in the course of any tax audit, tax review or tax litigation relating thereto and (iii) take no position and cause their affiliates that they control to take no position inconsistent with the allocation for income tax purposes.

2.11Terms of Series T Limited Units.  The Series T Limited Units shall be entitled to cash distributions according to Exhibit D and may be converted to Common Limited Units pursuant to the OP Agreement and on terms set forth therein and in Exhibit D.  The Contributor acknowledges that the Series T Limited Units will be converted into Common Limited Units pursuant to the terms in the OP Agreement beginning 36 months, or at the option of the Contributor up to 48 months, after issuance to the Contributor and will be valued as set forth on Exhibit D. The Contributor acknowledges that the assigned value upon conversion may be higher or lower than the initial valuation depending on the information imputed into the formula set forth on Exhibit D.

2.12PIP.  The Contributor has notified the Operating Partnership of the franchise’s PIP requirements for the Property, the timing of which will be decided by the franchise.  The Operating Partnership’s loan reserve funds that are available at the time the PIP work is completed, if any, will be used towards the PIP.  Any remaining PIP costs not covered by such loan reserve funds will be offset against the Series T Units by reducing the contribution or conversion values of the Series T Units.

2.13Term of Agreement.  If the Closing does not occur by the Closing Date, as may be extended by the parties, this Agreement shall be deemed terminated and shall be of no further force and effect and neither the Operating Partnership nor the Contributor shall have any further obligations hereunder except as specifically set forth herein.

2.14Management Company.  The Operating Partnership and the Contributor shall perform due diligence on possible management companies, including the current management company Aimbridge Hospitality (“Aimbridge”), and shall jointly select a management company to manage the Property following the Closing. In the event that Aimbridge agrees the Operating Partnership can assume, with substantially similar terms, its current management agreement with the Contributor, the Operating Partnership and the Contributor shall select Aimbridge as the management company to manage the Property. Neither the Operating Partnership nor the selected management company shall be liable to the Contributor for, and the Contributor hereby waives, any claims, damages or losses incurred under any theory of liability as a result of, arising out of, in connection with, or related to the management company’s management and operation of the Property or the Property’s performance after the Closing Date.  Following the Closing, Charles J. Rotkin (“Rotkin”) will remain as a Consultant and advisor to the selected management company, who will share with Rotkin true, correct and complete copies of all reports concerning the Property upon receipt. Rotkin will not receive any compensation nor have any decision making authority with the Operating Partnership but will act only as an advisor to the selected management company through the 36 month transition period.

2.15Risk of Loss.  The risk of loss relating to the Contributor’s Property prior to Closing shall be borne by the Contributor.  If, prior to the Closing, the Property is partially or totally destroyed or damaged by fire or other casualty, or is taken by eminent domain or through condemnation proceedings, then the Operating Partnership may, at its option (so long as the cost of repairing such destruction or damage is in the reasonable judgment of the Operating Partnership in excess of Fifty Thousand and 00/100 Dollars ($50,000) (the “Maximum Per Property Total Consideration Adjustment”), determine not to acquire the Property if it has been partially or totally destroyed, damaged or taken (with an adjustment to the Contributor’s Total Consideration as indicated on Exhibit D).  After the occurrence of any such casualty or condemnation affecting the Property, the Operating Partnership may also, at its option within 30 days after the Operating Partnership is notified of any such casualty or condemnation, elect to (a) acquire the Property and (b) direct the Contributor to pay or cause to be paid to the Operating Partnership upon or following the Closing sums collected by the Contributor, if any, under any policies of insurance, if any, or award proceeds relating to such casualty or condemnation (to the extent that the Contributor has not applied such sums or proceeds to the restoration of the Property or otherwise to address the impacts of such casualty or condemnation) and otherwise assign to the Operating Partnership upon or following the Closing all rights of the Contributor to collect

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such sums as may then be uncollected, and/or to the extent available to the Contributor, adjust or settle any insurance claim or condemnation proceeding, which the Contributor has not adjusted or settled prior to the Closing.  Under such circumstances, the Contributor’s Total Consideration shall be reduced by the amount of (i) any deductibles under the applicable insurance policies or award with respect to the Property contributed by Operating Partnership at Closing and (ii) any uninsured casualty with respect to the Property contributed at Closing.  Insurance on the transferred Property shall be cancelled as of 12:01 a.m. EST after the Closing Date, and thereafter the Operating Partnership shall be solely responsible for all risk of loss relating to the Property.  In the event that this Agreement is terminated by the Operating Partnership as provided above, the Earnest Money shall be returned in full to the Operating Partnership and neither party shall have any further duties or obligations to the other, except for any obligations expressly surviving the termination of this Agreement.

2.16Escrow.  Escrow is open with First American Title Company (the “Closing Agent”) and on the Effective Date shall inure to the terms of this Agreement.  The Closing Agent shall ratify the terms of this Section 2.16 contemporaneous with execution of this Agreement. The Operating Partnership will apply the current deposit of earnest money in the amount of $50,000 in immediately available US funds (the “Earnest Money”) payable as cash toward this Agreement, and such Earnest Money shall be credited to the Operating Partnership at the Closing.  A copy of this fully-executed Agreement will be delivered to the Closing Agent by the Operating Partnership and will serve as escrow instructions together with any additional instructions required by the Contributor and/or the Operating Partnership or their respective counsels.  The Contributor and the Operating Partnership agree to cooperate with the Closing Agent and sign any additional instructions reasonably required by the Closing Agent to close escrow.  If there is any conflict between any other instructions and this Agreement, this Agreement shall control.  Notwithstanding anything else herein, in all events, the sum of $100.00 (the “Independent Consideration”), which sum has been bargained for and agreed to as consideration for Contributor’s execution and delivery of this Agreement, will be payable to the Contributor out of the Earnest Money, even if this Agreement is terminated under its express provisions.  The Independent Consideration is independent of all other consideration provided in this Agreement, and is nonrefundable in all events.  The Operating Partnership and Contributor stipulate that the Independent Consideration is sufficient consideration to support this Agreement notwithstanding the Operating Partnership’s rights to terminate this Agreement as set forth herein.

2.17Title.  The Contributor at its sole expense, ordered the Preliminary Title Report from First American Title Insurance Company (the “Title Company”).  Copies of all documents referred to in Schedule B of the Preliminary Title Report must be attached to the Preliminary Title Report or otherwise delivered to the Operating Partnership.  The Operating Partnership shall have until 11:59 pm EST on the later of (i) 10 days prior to the expiration of the Due Diligence Period and (ii) 5 days after the date which the Operating Partnership receives the Preliminary Title Report to examine title and make any objections thereto and making of requests for specific endorsements, said objections or requests (“Objections”) to be made in writing or deemed waived.  If any Objections are so made, the Contributor shall within 5 days after receipt of the Operating Partnership’s Objections (the “Contributor’s Cure Period”) respond to the Operating Partnership in writing whether the Contributor shall cure such Objections prior to or through the Closing, or decline to cure any Objection.  If the Contributor shall decide to make no efforts or shall be unwilling to cure, remove, or obtain insurable title over the Operating Partnership’s Objections, the Operating Partnership may, by the later of the end of the Due Diligence Period or within 5 days after the expiration of the Contributor’s Cure Period, by notice to the Contributor, either (a) waive its Objections and proceed to Closing, (b) terminate this Agreement by notice to the Contributor and receive a full return of the Earnest Money or (c) if approved by Contributor, to cure the defect at Contributor’s expense and the reasonable out-of-pocket cost to cure the defect would be credited at Closing to the Total Consideration.

2.18Due Diligence Period.

2.18.1The Operating Partnership.  Within 3 business days after the Effective Date, the Contributor shall (i) deliver to the Operating Partnership due diligence documents as requested by the Operating Partnership in writing prior to the Effective Date (the “Due Diligence Documents”).  The Operating Partnership shall have until 11:59 pm EST on the date which is 30 days following the later of (i) the Effective Date or (ii) the date which the Operating Partnership receives all Due Diligence Documents (the “Due Diligence Period”) to review the Due Diligence Documents.  During the Due Diligence Period, the Operating Partnership may cancel this Agreement for any reason or no reason by delivering a cancellation notice to the Contributor and Closing Agent on or before the expiration of the Due Diligence Period and the Earnest Money shall be immediately returned in full to the Operating

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Partnership and neither party shall have any further duties or obligations to the other hereunder (except for any obligation expressly surviving the termination of this Agreement).  If the Operating Partnership does not notify the Contributor and Closing Agent in writing, signed only by Norman H. Leslie or David R. Durell, on or before the expiration of the Due Diligence Period that the Operating Partnership is satisfied with the Due Diligence Documents  (the “Satisfaction Notice”), the Operating Partnership will be deemed to have exercised its right of termination and this Agreement will terminate and the Earnest Money shall be immediately returned in full to the Operating Partnership and neither party shall have any further duties or obligations hereunder (except for any obligation expressly surviving the termination of this Agreement).  Notwithstanding anything herein to the contrary, if, after the end of the Due Diligence Period, any new matters arise which were not disclosed in the Due Diligence Documents and such matters materially or adversely affect the Property or render incomplete or inaccurate any of the Due Diligence Documents or if any new matters appear on updates to the Preliminary Title Report (an “Adverse Change”), the Operating Partnership shall have 5 business days from notice of the Adverse Change (the “Adverse Change Review Period”) to review and to accept or reject the Adverse Change.  The Operating Partnership may cancel this Agreement during the Adverse Change Review Period if any Adverse Change is not acceptable to the Operating Partnership.  If this Agreement is so terminated, the Earnest Money shall be returned immediately returned in full to the Operating Partnership and neither party shall have any further duties or obligations to the other hereunder (except for any obligation expressly surviving the termination of this Agreement).

2.18.2The Contributor.  As of the Effective Date, the Contributor has reviewed and approved the Confidential Private Placement Memorandum and all related documents (collectively, the “Offering Documents”) of the Operating Partnership.

2.18.3Access by the Operating Partnership.  The Contributor will permit the Operating Partnership and its representatives to make a full business, financial, accounting, and legal review of the Property and the Contributor’s tax returns to the extent the Operating Partnership deems necessary (the “Due Diligence Review”).

(a)Such right will include the right to monitor the sales and operations of the Property from and after the Effective Date.

(b)The Contributor will take all reasonable steps necessary to cooperate with the Operating Partnership in undertaking the Due Diligence Review.

(c)During the Due Diligence Period, the primary Contributor point of contact will be [Charles J. Rotkin] (the “Contributor Point of Contact”).  Furthermore, during the Due Diligence Period, the Operating Partnership will be given direct access, and ability to communicate to the Property’s General Manager, Assistant General Manager, Head Housekeeper, Chief Engineer, and Director of Sales (collectively, “Key Personnel”).

(d)The Contributor’s obligation to provide information to the Operating Partnership will continue through the Closing even if the Due Diligence Period has ended.

3.Closing.

3.1Conditions Precedent.  The obligations of the Operating Partnership to effect the transactions contemplated hereby shall be subject to the following conditions precedent:

3.1.1The representations and warranties of the Contributor contained in this Agreement shall have been true and correct in all respects on the date such representations and warranties were made and on the Closing Date;

3.1.2The obligations of the Contributor contained in this Agreement to be performed by Contributor shall have been duly performed on or before the Closing Date, including without limitation, the Contributor’s obligations to deliver the Closing Documents set forth in Section 3.3, and the Contributor shall not have breached any of its covenants contained herein in any material respect which remain uncured;

3.1.3Concurrently with the Closing, the Contributor shall have executed and delivered to the Operating Partnership the documents required to be delivered pursuant to Section 3.3;

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3.1.4The Contributor shall have obtained and delivered to the Operating Partnership any consents or approvals of any Governmental Entity or third parties (including, without limitation, any lenders) required to consummate the transactions contemplated hereby;

3.1.5No order, statute, rule, regulation, executive order, injunction, stay, decree or restraining order shall have been enacted, entered, promulgated or enforced by any court of competent jurisdiction or Governmental Entity that prohibits the consummation of the transactions contemplated hereby, and no litigation or governmental proceeding seeking such an order shall be pending, threatened or reasonably foreseeable;

3.1.6The Title Company shall be irrevocably committed to issue an ALTA extended coverage owner’s policy of title insurance (in current form), with such endorsements thereto as the Operating Partnership may reasonably request (including, without limitation, non-imputation endorsements and deletion of creditors’ rights), with coverage for the Property acceptable to the Operating Partnership in its sole but reasonable discretion, insuring fee simple to all real property and improvements comprising the Property in the name of the Operating Partnership (or a subsidiary thereof, as the Operating Partnership may designate with notice to Contributor), subject only to the Permitted Liens (the “Title Policy”).

3.1.7There shall not have occurred between the Effective Date and the Closing Date any material adverse change in any of the assets, business, financial condition, results or prospects of operation of the Property, taken as a whole.

3.1.8If necessary, the Contributor shall make all reasonable and good faith efforts to cooperate with and provide assistance to the Operating Partnership and its third party auditor in complying with the Company’s reporting requirements to the Securities and Exchange Commission, including without limitation, any Rule 3-05 or Rule 3-14 of Regulation S-X Audit as described on Schedule 3.1.8.

3.1.9The Operating Partnership shall have received environmental reports or assessments on the Property and operations requested by the Operating Partnership which show the Property in an environmental condition reasonably satisfactory to the Operating Partnership, in its sole discretion.  If the Operating Partnership does not request the foregoing, this condition will be waived without further action by the Parties.

3.1.10If any of the Property or Contributed Assets are materially damaged at any time before the Closing, and the damages cannot reasonably be repaired on payment of the sums available by insurance settlement or from any sums to be paid by the Operating Partnership to the Contributor at the Closing, the Operating Partnership, at its option and notwithstanding anything herein to the contrary, shall have the right to terminate this Agreement and, on giving notice of such election to the Contributor, the Operating Partnership will immediately receive a refund of the Earnest Money in full termination of this Agreement.  This paragraph will not apply if the damages are caused by the Operating Partnership’s negligence, gross negligence or willful misconduct.

3.1.11This Agreement is conditioned on the Operating Partnership assuming or replacing the Contributor’s current mortgage loan.  If the Operating Partnership is unable to assume or replace such loan under terms acceptable to the Operating Partnership and Contributor, each in its sole discretion, at any point prior to the Closing Date, the Operating Partnership will give notice of such inability to the Contributor and notwithstanding anything herein to the contrary, the Operating Partnership shall have the right to terminate this Agreement and, on giving notice of such election to the Contributor, the Operating Partnership will immediately receive a refund of the Earnest Money in full termination of the Agreement.

3.1.12The Operating Partnership shall have assumed the existing franchise agreement for the Property from the Contributor or have entered into a new franchise agreement for the Property under term of years acceptable to the Operating Partnership, in the Operating Partnership’s sole and absolute discretion (the “Franchise Agreement”).

3.1.13  Notification.  Between the Effective Date and the Closing, Contributor shall promptly notify the Operating Partnership in writing if the Contributor has Knowledge of any fact or condition that causes or constitutes a breach of any of the representations and warranties made by it in this Agreement on the date hereof, or if Contributor has Knowledge of the occurrence after the Effective Date of any fact or condition that would (except as expressly contemplated by this Agreement) cause or constitute a breach of any such

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representation or warranty had such representation or warranty been made as of the time of occurrence or discovery of such fact or condition.  Should any such fact or condition require any change in any part of the Disclosure Schedules, the Contributor shall promptly deliver to the Operating Partnership a supplement to its disclosures specifying said change.  During the same period, Contributor shall promptly notify the Operating Partnership of the occurrence of any breach of any covenant of the Contributor in this Agreement or of the occurrence of any event that may make the satisfaction of the conditions in herein impossible or unlikely.

Any or all of the foregoing conditions may be waived by the Operating Partnership in its sole and absolute discretion.

3.2Time and Place.  The closing date on the Operating Partnership’s acquisition of the Property shall be on the 30^th day following (i) the expiration of the Due Diligence Period (the “Closing” or the “Closing Date” as the context may require) or (ii) the expiration of the Contributor’s Cure Period, unless extended in accordance with the Adverse Change Review Period pursuant to Section 2.18.1.  However, the Closing Date may be earlier upon the mutual agreement of the parties.  The Closing Date may be extended at the election of the Operating Partnership or Contributor for two 30-day periods at no cost.

3.3Closing Deliveries.  At the Closing, the parties shall make, execute, acknowledge and deliver, or cause to be made, executed, acknowledged and delivered, the legal documents and other items (collectively the “Closing Documents”) necessary to carry out the intention of this Agreement and the other transactions contemplated to take place in connection therewith, which Closing Documents and other items shall include, without limitation, the following:

3.3.1The Contribution and Assumption Agreement in the form attached hereto as Exhibit B;

3.3.2A duly executed and notarized special warranty deed (the “Deed”), in the form provided for under the law of the State of Texas and otherwise in conformity with the custom in the jurisdiction where the Property is located and in form and substance satisfactory to the Operating Partnership and Contributor, conveying good, indefeasible and marketable fee simple title to the Property, subject only to the Permitted Liens;

3.3.3The OP Agreement;

3.3.4The Amendment evidencing the transfer of Series T Limited Units to the Contributor under Exhibit D;

3.3.5The Contributor shall deliver all books and records, title insurance policies, leases, lease files, contracts, original promissory notes, and other indicia of ownership or interest with respect to the Property which are in the Contributor’s possession or which can be obtained through Contributor’s reasonable efforts along with appropriate evidence of the Contributor’s assignment thereof;

3.3.6An affidavit from the Contributor, stating under penalty of perjury, the Contributor’s United States Taxpayer Identification Number and that the Contributor is not a foreign person pursuant to Section 1445(b)(2) of the Code and a comparable affidavit satisfying any applicable federal and state law and Section 4.2.7 and any other withholding requirements;

3.3.7The Contributor shall deliver a beneficiary’s statement or other evidence satisfactory to the Operating Partnership in its sole discretion confirming the outstanding principal balance and term of the Existing Loan to be assumed by the Operating Partnership;

3.3.8The Contributor shall deliver any other documents reasonably requested by the Operating Partnership or reasonably necessary or desirable to assign, transfer, convey, contribute and deliver the Contributor’s Property (subject to the Permitted Liens) and effectuate the transactions contemplated hereby, including, without limitation, and only to the extent applicable, quitclaim deeds and/or grant deeds, assignments of ground leases, air space leases and space leases, bills of sale, assignments, and all state and local transfer tax returns and any filings with any applicable governmental jurisdiction in which the Operating Partnership is required to file its partnership documentation or the recording of the Contribution and Assumption Agreement or Deed or other Property transfer documents as required;

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3.3.9If requested by the Operating Partnership, a certified copy of all appropriate corporate resolutions or partnership actions authorizing the execution, delivery and performance by the Contributor of this Agreement, any related documents and the documents listed in this Section 3.3;

3.3.10The Contributor shall deliver to the Operating Partnership possession of the Property;

3.3.11The Operating Partnership, on the one hand, and the Contributor, on the other hand, shall provide to the other a certification regarding the accuracy of each of their respective representations and warranties herein and in this Agreement as of such date.  The Contributor shall provide a certification that it has performed the respective covenants required to be performed by them prior to Closing;

3.3.12The Contributor shall deliver an affidavit as may be required by the Title Company to delete from the Title Policy the standard exceptions and to issue any title endorsements as may be reasonably required by the Operating Partnership;

3.3.13Closing Statements detailing all prorations and adjustments;

3.3.14A duly executed Non-Competition and Non-Solicitation Agreement;

3.3.15The Contributor shall deliver an Assignment of Warranties, in the form as attached hereto and incorporated herein as Exhibit C.

3.4Closing Costs.  Subject to Section 2.13, the Operating Partnership shall be responsible for (i) reassessments, (ii) escrow charges, (iii) the cost of any endorsements to the Owner’s Title Policy and/or extended coverage which the Operating Partnership shall require along with any required survey of the Property required for issuance of extended coverage, (iv) all costs associated with any new Property Reports obtained by the Operating Partnership (v) certain outstanding vendor invoices to be agreed upon by the Operating Partnership and the Contributor, including (a) the cost of the Owner’s Title Policy (without extended coverage) obtained by the Operating Partnership, (b) any documentary or other transfer taxes, (c) any recording taxes or fees, (d) the cost of scheduling, ordering and providing the Operating Partnership an approved change of ownership PIP, and (e) any withholding taxes required to be paid and/or withheld in respect of the Contributor at Closing as a result of the Contributor’s tax status, which shall not cumulatively exceed $300,000, and (vi) all costs relating to the issuance of the Franchise Agreement.  The Contributor shall be responsible for (i) the cost of the Owner’s Title Policy (without extended coverage) obtained by the Operating Partnership, (ii) any documentary or other transfer taxes, (iii) any recording taxes or fees, (iv) the cost of scheduling, ordering and providing the Operating Partnership an approved change of ownership PIP, and (v) any withholding taxes required to be paid and/or withheld in respect of the Contributor at Closing as a result of the Contributor’s tax status to the extent they exceed the $300,000 cap provided above.  The Operating Partnership shall pay its own attorney’s fees and costs incurred in this transaction.

4.Representations and Warranties and Indemnities.

4.1Representations and Warranties of the Operating Partnership.  The Operating Partnership hereby represents and warrants to the Contributor that:

4.1.1Organization; Authority.  The Operating Partnership has been duly formed and is validly existing under the laws of the jurisdiction of its formation and is and at the Closing shall be treated as a “partnership” for federal income tax purposes, and has all requisite power and authority to enter this Agreement, each agreement contemplated hereby and to carry out the transactions contemplated hereby and thereby, and own, lease or operate its property and to carry on its business as described in the OP Agreement, as amended and, to the extent required under applicable law, is qualified to do business and is in good standing in each jurisdiction in which the nature of its business or the character of its property make such qualification necessary.

4.1.2Due Authorization.  The execution, delivery and performance of this Agreement by the Operating Partnership has been duly and validly authorized by all necessary action of the Operating Partnership.  This Agreement and each agreement, document and instrument executed and delivered by or on behalf of the Operating Partnership pursuant to this Agreement constitutes, or when executed and delivered will constitute, the legal, valid

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and binding obligation of the Operating Partnership, each enforceable against the Operating Partnership in accordance with its terms, as such enforceability may be limited by bankruptcy or the application of equitable principles.

4.1.3Consents and Approvals.  Assuming the accuracy of the representations and warranties of the Contributor and the accuracy of the representations and warranties contained in the Subscription Agreement and this Agreement, no consent, waiver, approval or authorization of any third party or governmental authority or agency is required to be obtained by the Operating Partnership in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby, except any of the foregoing that shall have been satisfied prior to the Closing Date and except for those consents, waivers and approvals or authorizations, the failure of which to obtain would not have a material adverse effect on the Operating Partnership.

4.1.4Partnership Matters.  The Series T Limited Units which will be part of the Total Consideration, when issued and delivered in accordance with the terms of this Agreement for the consideration described herein, will be duly and validly issued, and free of any Liens other than any Liens arising through the Contributor.

4.1.5Non-Contravention.  Assuming the accuracy of the representations and warranties of the Contributor made hereunder, along with the approval of the Lender of the Operating Partnership’s assumption of the Existing Loan (or the replacement of the Existing Loan at the Closing) none of the execution, delivery or performance of this Agreement, any agreement contemplated hereby and the consummation of the contribution transactions contemplated hereby and thereby will (a) result in a default (or an event that, with notice or lapse of time or both would become a default) or give to any third party any right of termination, cancellation, amendment or acceleration under, or result in any loss of any material benefit, pursuant to any material agreement, document or instrument to which the Operating Partnership or any of its properties or assets may be bound, or (b) violate or conflict with any judgment, order, decree or law applicable to the Operating Partnership or any of its properties or assets; provided in the case of (a) and (b), unless any such default, violation or conflict would not have a material adverse effect on the Operating Partnership.

4.2Representations and Warranties of the Contributor.  The Contributor represents and warrants to the Operating Partnership, which representations and warranties are true and correct as of the Effective Date and will be true and correct as of the date of Closing:

4.2.1Organization; Authority; Qualification.  The Contributor is duly formed, validly existing and in good standing under the laws of the jurisdiction of its formation.  The Contributor has all requisite power and authority to enter into this Agreement, each agreement contemplated hereby and to carry out the transactions contemplated hereby and thereby, and to own, lease or operate its property and to carry on its business as presently conducted and, to the extent required under applicable law, is qualified to do business and is in good standing in each jurisdiction in which the nature of its business or the character of its property make such qualification necessary.

4.2.2Due Authorization.  The execution, delivery and performance of the Agreement by the Contributor has been duly and validly authorized by all necessary action of the Contributor.  The Agreement and each agreement, document and instrument executed and delivered by or on behalf of the Contributor pursuant to the Agreement constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of the Contributor, each enforceable against the Contributor in accordance with its terms, as such enforceability may be limited by bankruptcy or the application of equitable principles.

4.2.3Consents and Approvals.  Except as shall have been satisfied prior to the Closing Date, and the approval of the Lender of the Operating Partnerships assumption of the Existing Loan, if applicable, no consent, waiver, approval or authorization of any third party or governmental authority or agency is required to be obtained by the Contributor in connection with the execution, delivery and performance of the Agreement and the transactions contemplated hereby, except for those consents, waivers, approvals or authorizations, the failure of which to obtain would not have a material adverse effect on the assets, business, financial condition and results of operation of the Property, taken as a whole (a “Material Adverse Effect”).

4.2.4Full Disclosure.  This Agreement and any other information furnished to the Operating Partnership in connection with the transactions contemplated by this Agreement neither contains any untrue statement

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of material fact nor to Contributor’s Knowledge, omits to state any material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading.

4.2.5Ownership of the Property; Contributed Assets.

(a)The Contributor is the sole owner of the Property, beneficially and of record, free and clear of any Liens of any nature (other than the Permitted Liens) and has full power and authority to convey the Property, free and clear of any Liens (other than the Permitted Liens and the Existing Loan Documents), and, upon delivery of consideration for the Property as herein provided, the Operating Partnership will acquire good and marketable title thereto, free and clear of any Liens (other than the Permitted Liens and the Existing Loan Documents, and any liens arising through the Operating Partnership).

(b)The Contributor is the sole owner of the Contributed Assets, beneficially and of record, free and clear of any Liens of any nature (other than Permitted Liens) and has full power and authority to convey the Contributed Assets, free and clear of any Liens (other than the Permitted Liens), and, upon delivery of consideration for such Contributed Assets as provided herein, the Operating Partnership will acquire good and marketable title thereto, free and clear of any Liens (other than Permitted Liens and any liens arising through the Operating Partnership).

(c)The Contributor has not been served with any notice of intent to claim a mechanic’s Lien on the Property and states that all parties who have furnished labor or materials on or at the Property within the last 90 days whether for repair, improvement, or otherwise have been fully compensated.  Further, the Contributor has not contracted for nor is liable for obligations related to repairs, services, and other items for the Property that will not be paid in full at Closing, however, the Contributor will provide the Title Company with such documents requested by Title Company for the issuance of without the standard exception for liens.

4.2.6No Violation.  None of the execution, delivery or performance of the Agreement, any agreement contemplated thereby and the transactions contemplated hereby and thereby does or will, with or without the giving of notice, lapse of time, or both, violate, conflict with, result in a breach of, or constitute a default under or give to others any right of termination, acceleration, cancellation or other right adverse to the Contributor or the Operating Partnership of (a) the organizational documents, including the operating agreement, if any, of the Contributor, (b) any agreement, document or instrument to which the Contributor is a party or by which the Contributor, Property, or the Contributed Assets are bound or (c) any term or provision of any judgment, order, writ, injunction, or decree, or require any approval, consent or waiver of, or make any filing with, any person or governmental or regulatory authority or foreign, federal, state, local or other law binding on the Contributor or by which the Contributor, or any of its assets or properties (including the Contributed Assets) are bound or subject; provided in the case of (b) and (c) above, unless any such violation, conflict, breach or default would not have a Material Adverse Effect.

4.2.7Non-Foreign Status.  The Contributor is a United States person (as defined in Section 7701(a)(30) of the Code) and is not a “foreign person” (within the meaning of Section 1445 of the Code), and is, therefore, not subject to the provisions of the Code relating to the withholding of sales proceeds to foreign persons, and is not subject to any state withholding requirements.  The Contributor will provide affidavits at the Closing to this effect as provided for in this Section 4.2.7.

4.2.8Withholding.  The Contributor shall execute at Closing such certificates or affidavits reasonably necessary to document the inapplicability of any United States federal or state withholding provisions, including without limitation those referred to in Section 4.2.7.

4.2.9Investment Purposes.  The Contributor acknowledges its understanding that the offering and issuance of the Series T Limited Units to be acquired pursuant to the Agreement are intended to be exempt from registration under the Securities Act of 1933, as amended and the rules and regulations in effect thereunder (the “Act”) and that the Operating Partnership’s reliance on such exemption is predicated in part on the accuracy and completeness of the representations and warranties of the Contributor contained herein.  In furtherance thereof, the Contributor represents and warrants to the Operating Partnership as follows:

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(a)Investment.  The Contributor is acquiring the Series T Limited Units solely for its own account for the purpose of investment and not as a nominee or agent for any other person and not with a view to, or for offer or sale in connection with, any distribution of any thereof.  The Contributor agrees and acknowledges that it will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (hereinafter, “Transfer”) any of the Series T Limited Units, except as set forth in the OP Agreement, unless (i) the Transfer is pursuant to an effective registration statement under the Act and qualification or other compliance under applicable blue sky or state securities laws, or (ii) counsel for the Contributor  shall have furnished the Operating Partnership with an opinion, reasonably satisfactory in form and substance to the Operating Partnership, to the effect that no such registration is required because of the availability of an exemption from registration under the Act and qualification or other compliance under applicable blue sky or state securities laws, and (iii) the Transfer is permitted pursuant to the OP Agreement.  The term “Transfer” shall not include any redemption of the Series T Limited Units or exchange of the Series T Limited Units for REIT Shares pursuant to Section 9.4 of the OP Agreement.  Notwithstanding the foregoing, no Transfer shall be made unless it is permitted under the OP Agreement.

(b)Knowledge.  The Contributor is knowledgeable, sophisticated and experienced in business and financial matters and fully understands the limitations on transfer imposed by the Federal securities laws and as described in the Agreement.  The Contributor is able to bear the economic risk of holding the Series T Limited Units for an indefinite period and is able to afford the complete loss of its investment in the Series T Limited Units; the Contributor has received and reviewed all information and documents about or pertaining to the Operating Partnership, the business and prospects of the Operating Partnership and the issuance of the Series T Limited Units as the Contributor deems necessary or desirable, has had cash flow and operations data for the Property made available by the Operating Partnership upon request and has been given the opportunity to obtain any additional information or documents and to ask questions and receive answers about such information and documents, the Operating Partnership, the business and prospects of the Operating Partnership and the Series T Limited Units which the Contributor deems necessary or desirable to evaluate the merits and risks related to its investment in the Series T Limited Units.

(c)Holding Period.  The Contributor acknowledges that it has been advised that (i) the Series T Limited Units must be held for 12 months and may have to be held indefinitely thereafter, and the Contributor must continue to bear the economic risk of the investment in the Series T Limited Units (and any Common Limited Units that might be exchanged therefor), unless they are subsequently registered under the Act or an exemption from such registration is available (it being understood that the Operating Partnership has no intention of so registering the Series T Limited Units) and (ii) a notation shall be made in the appropriate records of the Operating Partnership indicating that the Series T Limited Units are subject to restrictions on transfer.

(d)Accredited Investor.  The Contributor is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Act).  The Contributor has previously provided the Operating Partnership with a duly executed Accredited Investor Questionnaire.  No event or circumstance has occurred since delivery of such questionnaire to make the statements contained therein false or misleading.

4.2.10No Brokers.  Neither the Contributor nor any of the Contributor’s respective officers, directors or employees, to the extent applicable, has employed or made any agreement with any broker, finder or similar agent or any person or firm which will result in the obligation of the Operating Partnership or any of its affiliates to pay any finder’s fee, brokerage fees or commissions or similar payment in connection with the transactions contemplated by the Agreement.  The Contributor shall indemnify, defend and hold the Operating Partnership harmless from and against any other broker’s commission or finder’s fee and other claims asserted by any person claiming a broker’s commission or finder’s fee concerning this Agreement or the purchase and sale of the Property.  The terms and conditions of this Section 4.2.10 shall survive Closing.

4.2.11Solvency.  The Contributor will be solvent immediately following the transfer of the Property and the Contributed Assets to the Operating Partnership, and the assumption of the Existing Loan by the Operating Partnership or the replacement of the Existing Loan.

4.2.12Taxes.  No tax lien or other charge exists or will exist upon consummation of the transactions contemplated hereby with respect to the Property, except such tax liens for which the tax is not delinquent and has been properly reserved for payment under the Existing Loan or which are paid by Contributor prior to, or concurrently with, the Closing.  The copies of the real property tax bills for the Property for the current tax year which

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have been furnished or made available to the Operating Partnership are true and correct copies of all of the tax bills for such tax year actually received by the Contributor or the Contributor’s agents for the Property.  For federal income tax purposes, the Contributor is, and at all times during its existence has been either (i) a partnership or limited liability company taxable as a partnership (rather than an association or a publicly traded partnership taxable as a corporation) or (ii) a disregarded entity.  The Contributor has timely and properly filed all Tax Returns relating to Other Taxes required to be filed by it and has timely paid all Other Taxes required to be paid by it.  To Contributor’s Knowledge, None of the Tax Returns relating to Other Taxes filed by the Contributor is the subject of a pending or ongoing audit, and no federal, state, local or foreign taxing authority has asserted any tax deficiency or other assessment against the Property.

4.2.13Litigation or Insolvency Proceedings.  Except for the pending default by Contributor under the Existing Loan, There is no Action, litigation, claim or other proceeding, either judicial or administrative (including, without limitation, any governmental action or proceeding), pending or, to the Contributor’s Knowledge, threatened or reasonably anticipated in the last 12 months, against the Property, the Contributor, or the Contributed Assets or that would reasonably be expected to adversely affect the Contributor’s ability to consummate the transactions contemplated hereby.  The Contributor is not bound by any outstanding order, writ, injunction or decree of any court, Governmental Entity or arbitration against or affecting all or any portion of its Property or the Contributed Assets, which in any such case would impair the Contributor ability to enter into and perform all of its obligations under the Agreement or would have a Material Adverse Effect.  The Contributor is not involved in any proceeding by or against the Contributor in any court under the Bankruptcy Code or any other insolvency or debtor’s relief act, whether state or federal, or for the appointment of a trustee, receiver, liquidator, assignee, or other similar official of the Contributor or the Contributor’s property.

4.2.14Compliance With Laws.  To the Contributor’s Knowledge, the Property has been maintained or operated and on the Effective Date are, and as of the Closing Date will be, in substantial compliance in all material respects with all applicable laws, ordinances, rules, regulations, codes, orders and statutes (including, without limitation, those currently relating to fire safety, conservation, parking, the Occupational Safety and Health Act, the Americans with Disabilities Act, zoning and building laws) whether federal, state or local, foreign.  The Contributor presently possesses and will continue to possess at the Closing Date all governmental licenses, permits, certificates of inspection, other authorizations, filings, and registrations which are necessary for the existing  hotel to be operated at the Property.  The Contributor has not received written notice of any violation of any laws, ordinances or regulations from any governmental or regulatory authority with respect to the Property that has not been corrected.

4.2.15Eminent Domain.  There is no existing or, to the Contributor’s Knowledge, proposed or threatened condemnation, eminent domain or similar proceeding, or private purchase in lieu of such a proceeding, in respect of all or any material portion of the Property.

4.2.16Licenses and Permits.  To the Contributor’s Knowledge, all notices, licenses, permits, certificates (including certificates of occupancy), rights, privileges, franchises and authority required in connection with the construction, use, occupancy, management, leasing and operation of the Property has been obtained and are in full force and effect, are in good standing, except for those licenses, permits and certificates, the failure of which to obtain or maintain in good standing, would not have a Material Adverse Effect on the Property.

4.2.17Real Property.

(a)Except for the pending default by Contributor under the Existing Loan, neither the Contributor nor any other party to any material agreement affecting the Property, has given to the Contributor or, to the Contributor’s Knowledge, received any notice of any uncured default with respect to any material agreement affecting the Property which would have a material adverse effect on the Property, and, no event has occurred or, to the Contributor’s Knowledge, is threatened, which through the passage of time or the giving of notice, or both, would constitute a default thereunder which would have a material adverse effect on the Property or would cause the acceleration of any material obligation of any party thereto or the creation of a Lien upon any Property, except for Permitted Liens.  To the Contributor’s Knowledge, such agreements are valid and binding and in full force and effect, have not been amended, modified or supplemented since such time as such agreements were made available to the Operating Partnership, except for such amendments, modifications and supplements delivered or made available to the Operating Partnership.

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(b)To the Contributor’s Knowledge, the Contributor owns fee title to the Property as described in the Preliminary Title Report and has insurable fee simple title to the Property.

4.2.18Environmental Compliance.  To the Contributor’s Knowledge, the Property is currently in compliance with all Environmental Laws and Environmental Permits.  The Contributor has not received any notice from the United States Environmental Protection Agency or any other federal, state, county or municipal entity or agency that regulates Hazardous Materials or public health risks or other environmental matters or any other private party or Person claiming any violation of, or requiring compliance with, any Environmental Laws or Environmental Permits or demanding payment or contribution for any Release or other environmental damage in, on, under, or upon the Property.  No investigation or litigation with respect to Hazardous Materials located in, on, under or upon the Property is pending or, to the Contributor’s Knowledge, has been threatened in the last 12 months by any Governmental Entity or any third party.  To the Contributor’s Knowledge, no environmental conditions exist at, on, under, upon or affecting the Property or any portion thereof that would reasonably be likely to result in any material claim, liability or obligation under any Environmental Laws or Environmental Permit or any material claim by any third party.

4.2.19Trademarks and Tradenames; Proprietary Rights.

(a)There are no actions or other judicial or administrative proceedings against the Contributor, or the Property pending or, to the Contributor’s Knowledge, threatened or reasonably anticipated in the last 12 months, that concern any copyrights, copyright application, trademarks, trademark registrations, trade names, service marks, service mark registrations, trade names and trade name registrations or any trade secrets being transferred to the Operating Partnership hereunder (the “Proprietary Rights”) and that, if adversely determined, would have a Material Adverse Effect.  There are no patents or patent applications relating to the operations of the Property as conducted prior to the Closing.

(b)To the Contributor’s Knowledge, the current use of the Proprietary Rights does not conflict with, infringe upon or violate any copyright, trade secret, trademark or registration of any other person.

(c)The Contributor agrees that from and after the Closing Date, the Operating Partnership shall have all of the Contributor’s right to use in or in connection with the conduct of any business (i) Hilton Garden Inn Houston Bush Intercontinental Airport (the “Name”) or (ii) any part or portion of the Name, either alone or in combination with one or more other words.  After the Closing Date, the Contributor agrees that it will not use the Name directly or indirectly, either alone or in combination with one or more other words, in or in connection with any business, activities, or operations that the Contributor directly or indirectly may carry on or conduct.

4.2.20Condition of Property.

(a)To the Contributor’s Knowledge, there is no material defect in the structural condition of the Property, the roof thereon, the improvements thereon, the structural elements thereof and the mechanical systems thereon (including, without limitation, all HVAC, plumbing, electrical, elevator, security, utility, sprinkler and safety systems), nor any material damage from casualty or other cause, nor any soil condition of the Property that will not support all of the improvements thereon without the need for unusual or new subsurface excavations, fill, footings, caissons or other installations, except for any such defect, damage or condition that has been corrected or will be corrected in the ordinary course of the business of the Property as disclosed as part of its scheduled annual maintenance and improvement program.  There are no known outstanding citations issued by any health, building, or other governmental agency, under the Occupational Safety and Health Act and/or under the Americans with Disabilities Act having jurisdiction over the operation of the Fixtures and Personal Property.  To the Contributor’s Knowledge, there have been no alterations to the exteriors of any of the buildings or other improvements on the Property that would render any surveys or plans provided to the Operating Partnership materially inaccurate or otherwise reflect a material deficiency in title to such improvements.

(b)To the Contributor’s Knowledge, the Fixtures and Personal Property is presently operating and has been regularly maintained and will be in the same working condition in all material respects as of the Closing Date and there are no known defects that have not been disclosed to the Operating Partnership.

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4.2.21Leases.  As used herein, the term “Leases” shall include all leases, licenses, tenancies, possession agreements and occupancy agreements related to the Property, and all references to “tenants” and “Tenants” hereunder shall include all tenants, licensees or parties in possession under any such documents.  Schedule 2.2 contains a complete and accurate list of all Leases, if any.  The Contributor owns fee title to the Property and holds the lessor’s interest under such Leases; a true and complete copy of all such Leases have been made available to the Operating Partnership; the Contributor, as lessor under such Leases, has not received any notice that it is in default of any of its obligations under such Leases beyond any applicable grace period which has not been cured.  To the Contributor’s Knowledge, all material obligations of the lessor under the Leases that have accrued to the Effective Date have been performed or satisfied.  To the Contributor’s Knowledge, no tenants under any of the Leases is presently the subject of any voluntary or involuntary bankruptcy or insolvency proceedings.

4.2.22Tangible Personal Property.  The Contributor owns or leases all of the tangible personal property constituting Fixtures and Personal Property which is used in and necessary to the operation of the Property.  To the Contributor’s Knowledge, such Fixtures and Personal Property are free and clear of all Liens, other than Liens pursuant to the agreements pursuant to which such Fixtures and Personal Property are leased and Permitted Liens.

4.2.23Service Contracts.  There are no service or maintenance contracts affecting the Property [which are not cancelable upon 30 days’ notice or less]; true and correct copies of the service, equipment, franchise, operating, management, parking, supply, utility and maintenance agreements relating to the Property (the “Service Contracts”) have been made available to the Operating Partnership and the same are in full force and effect and have not been modified or amended except in the ordinary course of the applicable Contributor’s business.  To the Contributor’s Knowledge, no material event of default exists (which remains uncured) under any of the Service Contracts.  All prepaid Service Contracts being assigned have been fully paid by Contributor.

4.2.24Employees.  The Contributor has no employee benefit plans now in effect which are subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended.  No individuals are employed by the Property and transactions contemplated by the Agreement will not result in any liability with respect to labor and employment matters but agrees to cause the following:

(a)Notification and Termination of Employees.  At a mutually agreed upon time after this Agreement is executed that is not more than 3 days prior to the Closing Date, the Contributor and the Operating Partnership shall jointly announce the Agreement to the Contributor’s employees, and shall cooperate so that the Contributor’s notices of termination and any offers of employment by the Operating Partnership are delivered simultaneously so that appropriate management representatives may explain the termination and any offers of employment to the employees.  As of the Closing Date, the Contributor will terminate all employees and will pay to all employees all earned wages, salaries, commissions, bonuses, benefit plan contributions, and other compensation through the date of termination.  The Operating Partnership may, in its discretion, re-employ some or all of such employees on the day after the Closing Date. If the Operating Partnership retains Ambridge as the management company for the Property, it shall retain and rehire all existing employees of the Property.

(b)Exclusion of Employee Benefits.  The Contributor acknowledges that (i) the Operating Partnership does not assume any employee benefits of the Contributor whatsoever, unless such employee benefits are specifically assumed as Assumed Liabilities and (ii) the Operating Partnership will have no obligation following the Closing to provide employee benefits other than such benefits as the Operating Partnership will agree to provide to its employees in the exercise of the Operating Partnership’s sole discretion.

(c)Collective Bargaining Agreements.  There are no collective bargaining agreements currently in effect between the Contributor and labor unions or organizations representing any of the Contributor’s employees; and there does not now exist and to Contributor’s Knowledge, there has been no formal or informal request to the Contributor for collective bargaining or for an employee election from any union or from the National Labor Relations Board.

(d)Employee Verification.  The Contributor represents that to Contributor’s Knowledge, the Property’s employees are legally able to work within the United States, and employment status has been verified through E-Verify.

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(e)Employment Regulations Compliance.  To the Contributor’s Knowledge, (i) there are no unfair labor practice complaints against the Contributor pending before the National Labor Relations Board, and no such complaints have been threatened, (ii) there is no labor strike, dispute slowdown, or stoppage actually in progress or threatened against the Contributor, (iii) no grievance or arbitration proceedings are pending and no such claim has been asserted and (iv) the Operating Partnership shall not incur any liability or obligation of any kind arising out of the Contributor’s employment of or termination of the Contributor’s employees nor for any other claim by any of the Contributor’s employees arising out of any employment relationship with the Contributor.  In the event that the WARN Act or portions thereof apply to the Agreement, the Contributor is responsible for compliance with the duties and obligations of the employer under the act.

4.2.25Existing Loans.  Schedule 2.5 to the Disclosure Schedule and/or the Preliminary Title Report lists all secured loans presently encumbering the Property, and any unsecured loans to be assumed by the Operating Partnership or any subsidiary of the Operating Partnership at Closing and the respective balance of such loans as of the date the Agreement.  To the Contributor’s Knowledge, the Existing Loan Documents are in full force and effect as of the Effective Date, subject to the pending default by Contributor under the Existing Loan.  True and correct copies of the existing Loan Documents have been made available to the Operating Partnership.

4.2.26Real Property Taxes; Zoning.  Neither the Contributor (nor its affiliates) has received any notification of any material new or increased general or special tax assessments for the Property except as may be disclosed in the Preliminary Title Report, as of the Effective Date, or as may be disclosed in the Title Policy as of the Closing.  The Property is assessed for real property tax through one tax bill and the Property is comprised of one or more independent tax lots.  The Contributor has not received any written notice (which remains uncured) from any governmental authority stating that the Property is currently violating any zoning, land use or other similar rules or ordinances in any material respect.

4.2.27Insurance.  The Contributor currently has in place public liability, casualty and other insurance coverage with reputable insurance companies with respect to the Property, as the case may be, in customary amounts for projects similar to the Property in the markets in which the Property is located but in an amount of no less than full replacement cost of the improvements and general liability insurance in a per occurrence amount of no less than $1,000,000 and aggregate claims amount of no less than $3,000,000 for each policy and shall maintain such coverage in full force and effect until the Closing, and in all cases substantially in compliance with the existing financing arrangements.  To the Contributor’s Knowledge, each of such policies is in full force and effect, and all premiums due and payable thereunder have been fully paid when due.  No written notice of cancellation, default or non-renewal has been received or to the Contributor’s Knowledge threatened with respect thereto.  There are no outstanding claims on the Contributor’s insurance policies relating to the Property or any portion thereof.

4.2.28Utilities.  All public utilities, including telephone, gas, electric power, sanitary and storm sewer and water, are available for connection at the boundaries of the Property; such utilities are adequate for the current use of the Property; and the means of ingress and egress, parking, access to public streets and drainage facilities are adequate for the current use of the Property.

4.2.29Competition.  Neither the Contributor nor any individual owner, officer, director, shareholder, or member has any direct or indirect interest in any person or entity engaged or involved in any business which is competitive with the Property in the Bush International airport trade area.  The directors, managers, officers, and other owners, will not compete directly or indirectly with Property following the Closing Date; and, the names of directors, managers, officers, and the resident agent of the Contributor, together with each individual owner, are set forth on attached Exhibit E.

4.2.30Full Disclosure.  This Agreement neither contains any untrue statement of material fact nor to Contributor’s Knowledge, omits to state any material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading.

4.2.31Brand Standards.  The Contributor represents that to its Knowledge that the hotel operated at the Property is within brand standards, and that any future Property Improvement Plan (“PIP”) items that have been negotiated for delayed implementation have been disclosed to the Operating Partnership.

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4.2.32OFAC.  The Contributor is not, nor will the Contributor become, a person or entity with whom United States persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury (including those named on OFAC’s Specially Designated and Blocked Persons List) or under any statute, executive order (including, without limitation, the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action, and is not and will not engage in any dealings or transactions or be otherwise with such person or entities.

4.2.33No Representations.  The Contributor acknowledges that no representation or warranty has been made by the Company or the Operating Partnership with respect to the legal and tax consequences of the transfer of the Property, the Contributed Assets, the Assumed Liabilities and the Assumed Agreements to the Operating Partnership and the receipt of Series T Limited Units and the Total Consideration, as consideration therefor.  The Contributor further represents and warrants that it has not relied on the Operating Partnership or its affiliates, representatives, counsel or other advisors and its respective representatives for legal or tax advice and the Contributor acknowledges that it has not relied upon any other such representation or warranty with respect to legal and tax matters.

4.2.34Offset.  To the extent the Contributor fails to comply with the terms of this Section 4.2, the Operating Partnership may be entitled to offset such obligations against the Series T Units by reducing the contribution or conversion values of the Series T Units as provided in Exhibit D and the OP Agreement.

5.Indemnification.

5.1Survival of Representations and Warranties; Remedy for Breach.  All representations and warranties contained in Section 4.1 and 4.2 (as qualified by the Disclosure Schedule) or in any Schedule or certificate delivered pursuant hereto shall survive the Closing for a period of 48 months following the Closing Date.

5.2General Indemnification.

5.2.1The Contributor shall indemnify and hold harmless the Operating Partnership and its respective directors, officers, employees, agents, representatives and affiliates (other than the Contributor) (each of which is an “Indemnified Party”) from and against any and all actions, claims, losses, damages, liabilities and expenses, including, without limitation, amounts paid in settlement, reasonable attorneys’ fees, costs of investigation, costs of investigative, judicial or administrative proceedings or appeals therefrom, and costs of attachment or similar bonds (collectively, “Losses”), asserted against, imposed upon or incurred by the Indemnified Party in connection with or as a result of any breach of a representation, warranty or covenant of the Contributor contained in this Agreement from and after the Closing Date. Losses shall not include punitive or consequential damages including, without limitation, lost profits.

5.2.2The Contributor shall also indemnify and hold harmless the Indemnified Parties from and against any and all Losses asserted against, imposed upon or incurred by the Indemnified Parties in connection with the  fees and expenses of the Contributor incurred with third-parties prior to the Closing in connection with the transactions contemplated by this Agreement, except as provided in Section 3.4.

5.2.3With respect to any claim of an Indemnified Party pursuant to this Section 5.2, to the extent available, the Operating Partnership agrees to use diligent good faith efforts to pursue and collect any and all available proceeds under any insurance policy which covers the matter which is the subject of the indemnification prior to seeking indemnification from the Contributor until all proceeds, if any, to which the Operating Partnership or the Indemnified Party is entitled pursuant to such insurance policy have been exhausted; provided, however, that the Operating Partnership may make a claim under this Section 5.2 even if an insurance coverage dispute is pending, in which case, if the Indemnified Party later receives insurance proceeds with respect to any Losses paid by the Contributor for the benefit of any Indemnified Party, then the Indemnified Party shall reimburse the Contributor in an amount equivalent to such proceeds in excess of any deductible amount pursuant to Section 5.4 up to the amount actually paid by the Contributor to the Indemnified Party in connection with such indemnification (it being understood that all costs and expenses incurred by the Contributor with respect to insurance coverage disputes shall constitute Losses paid by the Contributor for purposes of this Section 5.2.3).

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5.3Notice and Defense of Claims.  As soon as reasonably practicable after receipt by the Indemnified Party of notice of any liability or claim incurred by or asserted against the Indemnified Party that is subject to indemnification under this Section 5, the Indemnified Party shall give notice thereof to the Contributor, including liabilities or claims to be applied against the indemnification deductible established pursuant to Section 5.4; provided that failure to give notice to the Contributor will not relieve it from any liability which it may have to any Indemnified Party, unless Contributor did not learn of such claim and such failure results in the forfeiture by the Contributor of substantial rights and defenses.  The Indemnified Party may at its option demand indemnity under this Section 5 as soon as a claim has been threatened by a third party, regardless of whether an actual Loss has been suffered, so long as the Indemnified Party shall in good faith determine that such claim is not frivolous and that the Indemnified Party may be liable for, or otherwise incur, a Loss as a result thereof and shall give notice of such determination to the Contributor.  The Indemnified Party shall permit the Contributor, at the Contributor’s option and expense, to assume the defense of any such claim by counsel selected by the Contributor and reasonably satisfactory to the Indemnified Party, and to settle or otherwise dispose of the same; provided, however, that the Indemnified Party may at all times participate in such defense at its expense; and provided further, however, that the Contributor shall not, in defense of any such claim, except with the prior written consent of the Indemnified Party in its sole and absolute discretion, consent to the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff in question to all Indemnified Parties a release of all liabilities in respect of such claims, or that does not result only in the payment of money damages which are paid in full by the Contributor.  If the Contributor shall fail to undertake such defense within 30 days after such notice, or within such shorter time as may be reasonable under the circumstances or as required by applicable law, then the Indemnified Party shall have the right upon ten (10) days prior written notice to Contributor, to undertake the defense, compromise or settlement of such liability or claim on behalf of and for the account of the Contributor at the Contributor’s sole cost and expense.

5.4Limitations on Indemnification Under Section 5.2.1.  The Contributor shall not be liable under Section 5.2.1 unless and until the total amount recoverable by the Indemnified Parties from the Contributor under Section 5.2.1 exceeds $20,000, in the aggregate (the “Basket”); provided, however, that claims for Losses exceeding the Basket shall be recoverable from the first dollar of Losses.  Notwithstanding anything herein to the contrary, any Losses arising out of a breach of representations or warranties contained in Sections 4.2.1, 4.2.2, 4.2.7, 4.2.8 and 4.2.10 shall not be subject to the Basket and shall be recoverable from the first dollar of Losses.

5.5Indemnification.  From and after the Closing Date, the Operating Partnership shall indemnify and hold harmless the Contributor and the Contributor’s directors, officers, managers, members, employees, agents and representatives, as well as its affiliates (each of which is an “Indemnified Contributor Party”) from and against any Losses asserted against, imposed upon or incurred by the Indemnified Contributor Party in connection with or as a result of (i) all fees, costs and expenses of the Operating Partnership in connection with the transactions contemplated by this Agreement, (ii) the failure of the Operating Partnership after the Closing Date to perform any obligation required to be performed pursuant to any contract or obligation assigned to and assumed by the Operating Partnership (including the Assumed Agreements and the Existing Loan [where assumed by the Operating Partnership]), and (iii) the Assumed Liabilities, and (iv) the operation of the Property following the Closing Date.

5.6Matters Excluded from Indemnification.  Notwithstanding anything in this Agreement to the contrary, the neither party shall have any obligation under this Agreement to indemnify or hold harmless the other from any Losses arising as a direct result of the other party’s breach of this Agreement, willful misconduct or negligence.

5.7Offset.  To the extent the Contributor fails to comply with the terms of this Section 5, the Operating Partnership may be entitled to offset such obligations against the Series T Units by reducing the contribution or conversion values of the Series T Units as provided in Exhibit D and the OP Agreement.

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6.Covenants.

6.1Covenants of the Contributor.

6.1.1From the Effective Date through the Closing, the Contributor shall not, without the prior written consent of the Operating Partnership:

(a)Sell, transfer (or agree to sell or transfer), assign or otherwise dispose of, or cause the sale, transfer, assignment or disposition of (or agree to do any of the foregoing) all or any portion of its interest in the Contributed Assets or Assumed Agreements or all or any portion of its interest in the Property; or

(b)Except as otherwise disclosed in the Disclosure Schedule, mortgage, pledge or encumber all or any portion of its Property or Contributed Assets.

6.1.2From the Effective Date through the Closing, the Contributor shall conduct its business with respect to the Property in the ordinary course of business consistent with past practices, and shall to the extent within its control, not, without the prior written consent of the Operating Partnership:

(a)Enter into any material transaction not in the ordinary course of business with respect to the Property;

(b)Except as otherwise disclosed in the Disclosure Schedule, mortgage, pledge or encumber (other than by Permitted Liens) the Property or any assets related to the Property or the Contributed Assets, except (i) liens for taxes not delinquent or being disputed by the Contributor in good faith and by appropriate proceeding in the ordinary course of the Contributor’s business, and (ii) mechanics’ liens being disputed by the Contributor in good faith and by appropriate proceeding in the ordinary course of the Contributor’s business;

(c)Cause or permit a change to the existing use of the Property other than as a result of entering into new Leases in compliance with this Agreement;

(d)Cause or take any action that would render any of the representations or warranties regarding the Property as set forth in this Agreement untrue in any material respect (other than as a result of entering into new Leases in compliance with this Agreement); or

(e)Enter into any new Leases related to the Property without Contributor’s prior written approval, which approval shall not be unreasonably withheld.  The Operating Partnership shall approve or disapprove in writing any such action by the Contributor within 5 business days after receiving a written request (providing all information reasonably relevant to the Operating Partnership’s consideration) for such approval from the Contributor, which approval shall be in the Operating Partnership’s sole and absolute discretion.

6.1.3From the Effective Date, the Contributor agrees to provide the Operating Partnership with such tax information relating to the Property as reasonably requested by the Operating Partnership and to cooperate with the Operating Partnership with respect to its filing of tax returns;

6.1.4From the Effective Date, the Contributor shall promptly provide notice to the Operating Partnership upon any discovery that may lead to the Contributor’s representations and warranties contained in this Agreement being incomplete, inaccurate or in any manner not completely true and correct as of the Closing Date, including without limitation, any matter which if uncured prior to the Closing Date would have such effect, even if the Contributor intends to cure, correct or remedy such matter prior to the Closing and is implementing such cure, correction or remedy.  If the disclosed item(s) represents a breach by the Contributor and the Operating Partnership determines in good faith that the disclosed item(s) contained in any such notice represents an impairment in the value of the Property in excess of the Maximum Per Property Total Consideration Adjustment, then the Operating Partnership may elect, in its sole discretion, to terminate this Agreement and, if such election is made, shall receive a full return of the Earnest Money.  In the alternative, in the event that such impairment in value is below the Maximum Per Property Total Consideration Adjustment or the Operating Partnership otherwise elects to proceed with the acquisition of the Property, then the Operating Partnership may deduct from the Contributor’s Total Consideration an

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amount representing the reduction in value to the Property that the Operating Partnership reasonably determines has resulted or is likely to result from such disclosed item(s) but only as approved in writing by Contributor.

6.1.5If the liquor license has not been transferred to the Operating Partnership effective as of the Closing Date, and to the extent allowable under the State of Texas, parties will execute a mutually agreeable temporary liquor management agreement to oversee and control the food and beverage operations of the Property.  The Contributor and the Operating Partnership will cooperate with information as reasonably required to facilitate the transfer of the existing liquor permit.  The Contributor shall reasonably cooperate with the Operating Partnership in connection with the transfer of the liquor license to the Operating Partnership or its affiliated designee on or after the Closing Date, provided the liquor license may not be separated from the Property or utilized in any property other than the Property.  The Operating Partnership shall pay all application and transfer fees in connection with the transfer of the liquor license.

6.1.6From the Effective Date, the Contributor agrees to provide the Operating Partnership with all information relating to the franchise at the Property as reasonably requested by the Operating Partnership and to cooperate with the Operating Partnership with respect to entering into or assuming the Franchise Agreement.

6.1.7Neither the Contributor nor any owner, subsidiary or affiliate of the Contributor shall establish, engage in, or become interested in, directly or indirectly, as an owner, partner, agent, employee, independent contractor, consultant, or otherwise, within a radius of 25 miles from the Property in the operation of a limited service business hotel for a period 36 months.  At the Closing, the Contributor shall execute the Non-Competition and Non-Solicitation Agreement set forth as Exhibit E (the “Non-Competition Agreement and Non-Solicitation Agreement”).

6.1.8The Contributor shall enter into the Confidentiality and Non-Disclosure Agreement (the “NDA”), set forth as Exhibit F, with the Operating Partnership.

6.2Prorations.

6.2.1Prorations.  All income and expenses of the Property shall be apportioned as of 12:01 a.m. EST on the Closing Date, with the Operating Partnership being deemed to be the owner of the Property during the entire day on which the Closing Date occurs and being entitled to receive all revenue of the Property, and being obligated to pay all expenses of the Property, with respect to such day.

(a)Such prorated items shall include the following:

(i)any other income with respect to the Property received by the Closing Date, if any, and for the current month not yet delinquent.  Such proration shall be based on an operating statement updated and mutually approved not less than 1 day prior to the Closing Date;

(ii)taxes and assessments (including personal property taxes on the Fixtures and Personal Property) levied against the Property to the extent not paid by Lender under the Existing Loan;

(iii)utility charges for which the Contributor is liable, if any, such charges to be apportioned at the Closing on the basis of the most recent meter reading occurring prior to the Closing (dated not more than 15 days prior to the Closing) or, if unmetered, on the basis of a current bill for each such utility;

(iv)all amounts payable with respect to Assumed Liabilities in effect as of the Closing;

(v)credit shall be given to the Contributor for interest accounts, impound accounts, escrow accounts and other reserves included within the Existing Loan, which shall be transferred to the Operating Partnership at the Closing and shall be added to the Series T Limited Units of the Total Consideration under Exhibit D;

(vi)room charges for the night before the Closing Date and ending on the morning of the Closing Date shall be split between the Contributor and the Operating Partnership on a fifty/fifty (50/50) basis and

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(vii)any other operating expenses or other items pertaining to the Property which are customarily prorated between a transferor and transferee of real estate in the county in which the Property is located.

(b)Notwithstanding anything contained in this Section 6.2.1, the following shall apply:

(i)The Contributor’s Total Consideration shall be increased by the total sum of all deposits with respect to the Assumed Liabilities (not including interest accounts, impound accounts, escrow accounts and other reserves included within the Existing Loans, which shall be addressed in accordance with Section 6.2.1(a)(v) above) (the “Property Deposits”) to the extent or assigned to the Operating Partnership, and the Operating Partnership shall assume at the Closing the obligation under the Assumed Liabilities with respect to all Property Deposits credited or paid over to the Operating Partnership;

(ii)Except as provided in the following sentence, all delinquent real estate taxes and assessments shall be paid by the Contributor at or before the Closing, together with any interest, penalties or other fees related to any delinquent taxes.  In determining prorations relating to non-delinquent taxes, the Operating Partnership shall be credited with an amount equal to the real estate taxes and assessments applicable to the period prior to the Closing Date, to the extent such amount has not been actually paid by the Contributor (which amount Operating Partnership shall be obligation to pay to the applicable taxing authority).  In the event that the Contributor has paid prior to the Closing any real estate taxes or assessments related to the Property applicable to the period after the Closing Date, the Contributor shall be entitled to a credit for such amount as an increase to Contributor’s Total Consideration.  In connection with the re-proration of real estate taxes and assessments for which a credit was given or a proration was made at the Closing, the Parties shall adjust the differences between them promptly upon demand being made therefor by either the Contributor or the Operating Partnership.  If, after the Closing, any additional real estate taxes or assessments applicable to the period prior to the Closing Date are levied for any reason, including back assessments or escape assessments, then the Operating Partnership shall pay all such additional amounts, including any additional fees and interest, if any.  If, after the Closing, the Contributor or the Operating Partnership receive any property tax refunds regarding any Property relating to a period prior to the Closing, then that portion of the refunds related to a period prior to the Closing shall be delivered to or retained by, the Contributor.  The Operating Partnership shall pay all supplemental taxes resulting from the change in ownership and reassessment occurring as the result of the Closing pursuant to this Agreement;

(iii)The Operating Partnership shall take all steps necessary to effectuate the transfer of all utilities to the name of the Operating Partnership as of Closing, where necessary, post deposits with the utility companies, and provide the Contributor with written evidence of the transfer at or prior to Closing.  The Contributor shall be entitled to recover any and all deposits held by any utility company as of the Closing Date;

(iv)Except where otherwise specifically provided to the contrary in this Agreement, The net proration credit to or charge against the Contributor on account of the prorations adjustments to be made upon the Closing shall be reflected through an adjustment to the cash portion of the Contributor’s Total Consideration to be delivered pursuant to this Agreement.  Any other proration adjustments made following the Closing shall be made in cash; and

(v)If any prorations hereunder cannot be calculated accurately on the Closing Date, then they shall be calculated as soon after the Closing Date as feasible.  Either party owing the other party a sum of money based on such subsequent proration(s) shall promptly pay said sum to the other party, with interest per annum at the prime rate of interest as set forth in The Wall Street Journal, plus 2% from the Closing Date to the date of payment if payment is not made within 10 business days after delivery of a bill therefor.  Once all revenue and expense amounts have been finally and completely ascertained, the Operating Partnership shall prepare a final proration statement which shall be subject to the Contributor’s reasonable approval.  Upon the Contributor’s acceptance and approval of any final proration statement submitted by the Operating Partnership, such statement shall be conclusively deemed to be accurate and final.  To the extent any reconciliation is required, the Operating Partnership shall be permitted to offset any amounts by adjusting the Series T Limited Units transferred to the Contributor as provided in Exhibit D and the OP Agreement.

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6.3Tax Covenants.  The Contributor shall provide to the Operating Partnership with such cooperation and information relating to any of the Property as the parties reasonably may request in (i) filing any tax return, amended tax return or claim for tax refund, (ii) determining any liability for taxes or a right to a tax refund, (iii) conducting or defending any proceeding in respect of taxes, or (iv) performing tax diligence, including with respect to the impact of this transaction on the Company’s tax status as a REIT.  The Contributor shall promptly notify the Operating Partnership in writing upon receipt by the Contributor or any of their respective affiliates of notice of any pending or threatened federal, state, local or foreign tax audits or assessments relating to the income, properties or operations of the Contributor.  The Operating Partnership may participate at its own expense in the prosecution of any claim or audit with respect to taxes on the Property attributable to any taxable period ending on or before the Closing Date.  The Contributor shall retain all tax returns, schedules and work papers, and all material records and other documents relating thereto, until the expiration of the statute of limitations (and, to the extent notified by any party, any extensions thereof) of the taxable years to which such tax returns and other documents relate and until the final determination of any tax in respect of such years.

6.4Capital Contribution.  The Contributor and the Operating Partnership (i) agree that the contribution transaction pursuant to this Agreement shall constitute a “capital contribution” to the Operating Partnership and is intended to be governed by Section 721(a) of the Code (subject to the limitations and qualifications of Subchapter K of the Code), (ii) intend that no gain or loss shall be recognized by the Contributor for income tax purposes as a result of such transaction, provided the Contributor provides information to the Operating Partnership reasonably demonstrating that the “disguised sale” rules in Section 707 of the Code are not applicable, (iii) shall report such transaction in a manner consistent with such intent, except to the extent that a final determination within the meaning of Section 1313(a) of the Code requires otherwise and (iv) agree that it will not take any action that could jeopardize such tax treatment.

7.Termination.

7.1Termination.  Provided that the Operating Partnership is not in default, this Agreement may be terminated prior to the Closing Date at the Operating Partnership’s option following any applicable cure period (and the Earnest Money immediately returned to the Operating Partnership in full) in the event of any of the following occurrences:

7.1.1The Contributor fails to comply with any of the Contributor’s obligations hereunder;

7.1.2A default exists in any material financial obligation of the Contributor other than the Existing Loan;

7.1.3Any material representation made or contained in any submission from the Contributor proves to be untrue, substantially false or misleading at any time prior to the Closing Date;

7.1.4There shall be a material action, suit or proceeding pending or threatened against the Contributor related to the Property;

7.1.5The Title Company shall refuse to provide written confirmation it will issue an owner’s title insurance policy reflecting only Permitted Liens, endorsements or affirmative insurance requested by the Operating Partnership during the Due Diligence Period; and

7.1.6Notice of termination given by the Operating Partnership pursuant to any express right to do so under this Agreement.

7.2Default by the Operating Partnership.  If the Operating Partnership fails to perform any of the Operating Partnership’s obligations hereunder, then the Contributor, at the Contributor’s option, if such failure continues for 15 days after written notice of such default from the Contributor and as the Contributor’s sole and exclusive remedy, the Contributor shall have the right to terminate this Agreement by giving written notice to the Operating Partnership, in which event the Contributor shall be entitled to the full Earnest Money Deposit as liquidated damages, and neither the Operating Partnership nor the Contributor shall have any further rights or obligations under this Agreement except matters that survive termination.  Notwithstanding the foregoing, this provision is not intended to limit the Operating Partnership’s obligations to indemnify the Contributor for certain matters as expressly provided

26

in this Agreement nor is it intended to limit the Operating Partnership’s ability to terminate this Agreement as provided herein.

7.3Default by the Contributor.  If the Contributor fails to perform any of the Contributor’s closing obligations, then the Contributor will have 15 days to cure after receipt of written notice from the Operating Partnership; if any of the Contributor’s representations or warranties set forth herein are determined to be materially inaccurate or untrue when made and such failure continues for 15 days after written notice thereof from the Operating Partnership (or such longer period as reasonably required by the Contributor to effect such cure, but in no event more than 60 days) or the Closing Date, which ever occurs earlier, then the Operating Partnership, at the Operating Partnership’s option and as the Operating Partnership’s sole and exclusive remedies, shall have the right to (i) terminate this Agreement by giving written notice to the Contributor, whereupon the Earnest Money shall be immediately delivered to the Operating Partnership by the Title Company upon receipt of written notice from the Operating Partnership of such termination and thereafter, neither the Operating Partnership nor the Contributor shall have any further rights or obligations hereunder except matters which survive termination, or (iii) enforce specific performance of the obligations of the Contributor under this Agreement.  Any suit for specific performance must be filed within 180 days after the Closing Date or shall thereafter be barred.  Notwithstanding the foregoing, this provision is not intended to limit the Contributor’s obligations to indemnify the Operating Partnership for certain matters as expressly provided in this Agreement.

8.Miscellaneous.

8.1Further Assurances.  The Contributor and the Operating Partnership shall take such other actions and execute such additional documents following the Closing as the other may reasonably request in order to effect the transactions contemplated hereby.

8.2Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

8.3Governing Law.  This Agreement shall be governed by and construed in accordance with the internal laws of the state in which the Property is located, without regard to the choice of laws provisions thereof.

8.4Amendment; Waiver.  Any amendment hereto shall be in writing and signed by all parties hereto.  No waiver of any provisions of this Agreement shall be valid unless in writing and signed by the party against whom enforcement is sought.

8.5Entire Agreement.  This Agreement, the exhibits and schedules hereto constitutes the entire agreement and supersede conflicting provisions set forth in all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and thereof, as the case may be.

8.6Assignability.  This Agreement shall be binding upon, and shall be enforceable by and inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and assigns; provided, however, that this Agreement may not be assigned (except by operation of law) by any party without the prior written consent of the other party, and any attempted assignment without such consent shall be void and of no effect except that the Operating Partnership may assign this Agreement to an Affiliate provided no such assignment shall release the Operating Partnership from its obligations under this Agreement.

8.7Titles.  The titles and captions of the Articles, Sections and paragraphs of this Agreement are included for convenience of reference only and shall have no effect on the construction or meaning of this Agreement.

8.8Third Party Beneficiary.  Except as may be expressly provided or incorporated by reference herein, including, without limitation, the indemnification provisions hereof, no provision of this Agreement is intended, nor shall it be interpreted, to provide or create any third party beneficiary rights or any other rights of any kind in any customer, affiliate, stockholder, partner, member, director, officer or employee of any party hereto or any other person or entity.

8.9Severability.  If any provision of this Agreement, or the application thereof, is for any reason held to any extent to be invalid or unenforceable, the remainder of this Agreement and application of such provision to

27

other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto.  The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provision and to execute any amendment, consent or agreement deemed necessary or desirable by the Operating Partnership to effect such replacement.

8.10Reliance.  Each party to this Agreement acknowledges and agrees that it is not relying on tax advice or other advice from the other party to this Agreement, and that it has or will consult with its own advisors.

8.11Survival.  It is the express intention and agreement of the parties hereto that the representations, warranties and covenants of the Contributor and the Operating Partnership set forth in this Agreement shall survive the consummation of the transactions contemplated hereby.  The provisions of this Agreement that contemplate performance after the Closing and the obligations of the parties not fully performed at the Closing shall survive the Closing and shall not be deemed to be merged into or waived by the instruments of Closing.

8.12Days.  All references to days in this Agreement will be construed as calendar days unless otherwise specified and a day will begin at 12:00 a.m. Eastern Standard Time and end at 11:59 p.m. Eastern Standard Time.

8.13Calculating Time Periods.  In calculating any time period prescribed or allowed by this Agreement, the day of the act or event from which the time period begins to run is not included and the last day of the time period is included.

8.14Incorporation of Exhibits.  All exhibits attached and referred to in this Agreement are hereby incorporated and will be deemed to be a part of this Agreement.

8.15Notice.  Any notice to be given hereunder by any party to the other shall be given in writing by either (i) personal delivery, (ii) registered or certified mail, postage prepaid, return receipt requested, or (iii) facsimile transmission (provided such facsimile is followed by an original of such notice by mail or personal delivery as provided herein), and any such notice shall be deemed communicated as of the date of delivery (including delivery by overnight courier, certified mail or facsimile).  Mailed notices shall be addressed as set forth below, but any party may change the address set forth below by written notice to other parties in accordance with this paragraph.

To the Contributor:

Houston Hotel Partners, LLC and

Houston Land Partners, LLC

Attn: Charles J. Rotkin

3419 Via Lido #406

Newport Beach, CA 92663

With a copy to:

Buckner, Robinson & Mirkovich

3146 Red Hill Avenue, Suite 200

Costa Mesa, CA 92626

Attention: William D. Buckner, Esq. and Andrew J. Prochnow, Esq.

To the Operating Partnership:

Lodging Fund REIT III OP, LP

c/o Dave Durell

644 Lovett S.E., Suite B

Grand Rapids, MI 49506

8.16Force Majeure.  A party is not liable for failure to perform the party’s obligations if such failure is as a result of acts of God (including fire, flood, earthquake, storm, hurricane or other natural disaster), pandemic, war, invasion, act of foreign enemies, hostilities (regardless of whether war is declared), civil war, rebellion, revolution,

28

insurrection, military or usurped power or confiscation, terrorist activities, nationalization, decrees of a court, tribunal or governmental authority, government sanction, blockage, embargo, labor dispute, strike, or lockout.  If a party asserts any force majeure as an excuse for failure to perform, such non-performing party must prove that it took reasonable steps to minimize delay or damages caused by foreseeable events and that the other Party was timely notified of the likelihood or actual occurrence of a force majeure event.  In the event of non-performance and/or termination pursuant to this Section 8.16, notwithstanding any other provision of this Agreement, the Earnest Money shall be returned to the Operating Partnership in full. The foregoing notwithstanding, lack of financing or financial inability to perform shall not be considered an event of force majeure.

8.17Impracticability.  Prior to the Closing, the Operating Partnership shall not be required to perform its obligations under this Agreement to the extent the performance (i) becomes impracticable, in any material respect, as a result of a cause or causes outside the reasonable non-financial control of the Operating Partnership, (ii) would require the Operating Partnership to violate any applicable laws, rules, or regulations, or (iii) would result in the breach of any agreement or other applicable contract existing on the Execution Date.  In the event of non-performance and/or termination pursuant to this Section 8.17, notwithstanding any other provision of this Agreement, the Earnest Money shall be returned to the Operating Partnership in full.

8.18Equitable Remedies.  The Contributor agrees that irreparable damage would occur to the Operating Partnership in the event that any of the provisions of this Agreement were not performed in accordance with the specific terms hereof or were otherwise breached.  It is accordingly agreed that the Operating Partnership shall be entitled to an injunction or injunctions to prevent breaches of this Agreement by the Contributor and to enforce specifically the terms and provisions hereof in any federal or state court located in the state in which the Property is located (as to which the parties agree to submit to jurisdiction for the purpose of such action), this being in addition to any other remedy to which the Operating Partnership is entitled under this Agreement.

8.19Attorney’s Fees.  In the event either party shall bring legal action to enforce or interpret the terms of this  Agreement, the prevailing party shall be entitled to recover reasonable attorney’s fees and litigation expenses as part of its judgment.

[signature page follows]

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IN WITNESS WHEREOF, the parties have executed this Contribution Agreement as of the date first written above.

OPERATING PARTNERSHIP: Lodging Fund REIT III OP, LP a Delaware limited partnership By: Lodging Fund REIT III, Inc., a Delaware corporation, its General Partner
By:		/s/ David R. Durell
Name: David R. Durell
Title: Chief Investment Officer
CONTRIBUTOR: Houston-Hotel Partners, LLC, and Houston Land Partners, LLC, each a California limited liability company BY:  Houston Hospitality Partners, Inc.,          a California corporation          Managing Member
By:	/s/ Charles J. Rotkin
Name:	Charles J. Rotkin
Title:	President

30

EXHIBIT A

TO

AMENDED AND RESTATED CONTRIBUTION AGREEMENT

LEGAL DESCRIPTION OF THE PROPERTIES

Exhibit A

1

EXHIBIT B

TO

AMENDED AND RESTATED CONTRIBUTION AGREEMENT

CONTRIBUTION AND ASSUMPTION AGREEMENT

FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged, the undersigned hereby assigns, transfers and conveys to Lodging Fund REIT III OP, LP, a Delaware limited partnership (the “Operating Partnership”), its entire legal and beneficial right, title and interest (other than any Excluded Assets) in, to all of the Contributed Assets and the Assumed Agreements, including but not limited to those listed on Schedule 2.2 of the Agreement, together with all amendments, waivers, supplements and other modifications of and to such agreements, contracts, licenses and other instruments through the date hereof, in each case to the fullest extent assignment thereof is permitted by applicable law,

TO HAVE AND TO HOLD the same unto the Operating Partnership, its successors and assigns, forever.

Upon the execution and delivery hereof, the Operating Partnership absolutely and unconditionally accepts the foregoing assignment of each Contributed Asset and Assumed Agreement and assumes all Assumed Liabilities in respect of the Assumed Agreements, and agrees to be bound by the terms, conditions and covenants thereof, and to perform all duties and obligations of the Contributor thereunder from and after the date hereof.

The Contributor for itself, its successors and assigns hereby covenants and agrees that, at any time and from time to time after the date hereof upon the written request of the Operating Partnership, the Contributor will, without further consideration, do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, each and all of such further acts, deeds, assignments, transfers, conveyances and assurances as may reasonably be required by the Operating Partnership in order to assign, transfer, set over, convey, assure and confirm unto and vest in the Operating Partnership, its successors and assigns, title to the Assumed Agreements (other than the Excluded Assets) granted, transferred, conveyed and delivered by this Agreement.

Capitalized terms used herein, but not defined have the meanings ascribed to them in the Amended and Restated Contribution Agreement, dated as of April 1, 2021, between the Operating Partnership and the Contributor.

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered the Agreement as of the date first above written.

CONTRIBUTOR:

Houston-Hotel Partners, LLC

a California limited liability company

BY:  Houston Hospitality Partners, Inc.

a California corporation

Managing Member

By:

Name: Charles J. Rotkin

Title: President

Houston Land Partners, LLC

a California limited liability company

By:  Houston Hospitality Partners, Inc.

a California corporation

Managing Member

By:

Name: Charles J. Rotkin

Title: President

Exhibit B

1

ACKNOWLEDGEMENT

STATE OF                             )

                                                ) ss.:

COUNTY OF                         )

On ______________________, before me, the undersigned, a Notary Public in and for said State, personally appeared, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and executed before me the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

Notary Public (SEAL)

Exhibit B

2

EXHIBIT C

TO

AMENDED AND RESTATED CONTRIBUTION AGREEMENT

ASSIGNMENT OF WARRANTIES

Exhibit C

1

EXHIBIT D

TO

AMENDED AND RESTATED CONTRIBUTION AGREEMENT

TOTAL CONSIDERATION

Total Consideration pursuant to Section 2.8 of the Agreement shall be $19,700,000 , consisting of:

$13,000,000 via assumption or pay off of Contributor’s discounted current financing as of the Effective Date

$6,700,000 in Series T Limited Units, equivalent to 670,000  Series T Limited Units

Distributions pursuant to Section 2.11 of the Agreement shall be:

Base Year NOI (12/31/2019 normalized) = $1,447,132

Year 1 Distribution Schedule Payable as a single cash distribution 14 months post-closing
Distribution Amount	Condition
0.30%	If NOI is equal to or greater than 70% but less than 80% of Base Year NOI
0.60%	If NOI is equal to or greater than 80% but less than 90% of Base Year NOI
0.90%	If NOI is equal to or greater than 90% but less than 100% of Base Year NOI
1.20%	If NOI is equal to or greater than 100% but less than 110% of Base Year NOI
1.50%	If NOI is equal to or greater than 110% but less than 120% of Base Year NOI
1.80%	If NOI is equal to or greater than 120% of Base Year NOI

Year 2 Distribution Schedule Payable as a single cash distribution 26 months post-closing
Distribution Amount	Condition
0.30%	If NOI is equal to or greater than 70% but less than 80% of Base Year NOI
0.60%	If NOI is equal to or greater than 80% but less than 90% of Base Year NOI
0.90%	If NOI is equal to or greater than 90% but less than 100% of Base Year NOI
1.20%	If NOI is equal to or greater than 100% but less than 110% of Base Year NOI
1.50%	If NOI is equal to or greater than 110% but less than 120% of Base Year NOI
1.80%	If NOI is equal to or greater than 120% of Base Year NOI

Year 3 Distribution Schedule Payable as a single cash distribution 38 months post-closing
Distribution Amount	Condition
0.30%	If NOI is equal to or greater than 70% but less than 77.5% of Base Year NOI
0.60%	If NOI is equal to or greater than 77.5% but less than 85% of Base Year NOI
0.90%	If NOI is equal to or greater than 85% but less than 92.5% of Base Year NOI
1.20%	If NOI is equal to or greater than 92.5% but less than 100% of Base Year NOI
1.50%	If NOI is equal to or greater than 100% but less than 107.5% of Base Year NOI
1.80%	If NOI is equal to or greater than 107.5% but less than 115% of Base Year NOI

Year 4 Distribution Schedule (if extended): No distributions

Exhibit D

1

The number of Common Limited Units in the Operating Partnership shall be determined based on the formula below, which shall constitute the Series T Value.  The Series T Value shall be determined upon (i) 36 months, or, at the option of the Contributor, up to 48 months after the Closing Date or (ii) the sale of (a) the Property or (b) substantially all of the Operating Partnership’s assets.

The Applicable Cap Rate when applied to the then current trailing 12 month net operating income of the Contributed Asset, less amounts incurred or accrued by the Partnership for (i) $100,000 contribution towards closing costs, (ii) loan assumption fees and related expenses, (iii) the Original Loan Balance less $300,000, (iv) if applicable, costs of defeasance and related expenses, (v) PIP and capital expenditures, (vi) operating cash infused by the Operating Partnership, (vii) any shortfall of the 10% minimum cumulative yield on Operating Partnership’s invested capital, and (viii) any other unrealized or unreimbursed costs of operating the Contributed Asset.

Applicable Cap Rate shall mean:

9.5 %

Exhibit D

2

EXHIBIT E

TO

AMENDED AND RESTATED CONTRIBUTION AGREEMENT

NON-COMPETITION AGREEMENT AND NON-SOLICITATION AGREEMENT

This NON-COMPETITION AND NON-SOLICITATION AGREEMENT (this “Agreement”) is dated as of _____________, 2021 (the “Effective Date”), between Lodging Fund REIT III OP, LP a Delaware limited partnership with an address of 1635 43rd Street South, Suite 205, Fargo, North Dakota 58103 (“Operating Partnership”), Houston Hotel Partners, LLC, and Houston Land Partners, LLC, each a California limited liability company,  with an address of 3419 Via Lido  #406, Newport Beach,  CA  92663  (“Contributor”), and Houston Hospitality Partners, Inc., a California corporation, its managing members (Charles J. Rotkin, President) (the “Interested Parties”).  The Contributor and Interested Parties are collectively referred to herein as the “Restricted Parties.”

R E C I T A L S:

A.The Operating Partnership and Contributor have entered into an Amended and Restated Contribution Agreement, dated as of April 1, 2021, (the “Contribution Agreement”), pursuant to which the Contributor has agreed to contribute property to the Operating Partnership, such property located at 15400 John F Kennedy Blvd, Houston, TX 77032 (the “Hotel”).

B.The agreement of the Restricted Parties to deliver this Agreement was a material inducement to Operating Partnership in entering into the Purchase Agreement.

C.The Operating Partnership, as the owner of the Hotel from and after the date of closing of the Contribution Agreement, desires to preclude the Restricted Parties from competing against it during the term of this Agreement.

A G R E E M E N T

For valuable consideration, the parties agree to the following covenants and agreements set forth in this Agreement and in the Contribution Agreement:

1.1Non-Competition.  The Restricted Parties covenant and agree that, for a period of 3 years beginning on the closing date of the Purchase Agreement (the “Closing Date”), neither the Restricted Parties, nor any entity controlled by the Restricted Parties (an “Affiliate”) will, without the prior written consent of the Operating Partnership, directly or indirectly, own, manage, operate, join, control, or engage or participate in the ownership, management, operation, or control of, or be connected as a shareholder, director, officer, agent, partner, joint venturer, lender, employee, consultant or advisor with, any business or organization any part of which engages in the business of hotel or motel ownership or management or is in competition with any of the business activities of the Operating Partnership, or any affiliate of the Operating Partnership within the Non-Competition Area.

1.2Geographic Restriction. The term “Non-Competition Area” in this Agreement means the area within a 25-mile radius of the Hotel.  This provision will not apply to any business which was in operation prior to the Effective Date of the Contribution Agreement, and will not restrict the Interested Parties, individually or as owners or employees of an entity from managing or consulting regarding one or more hotel(s) or motel(s) under management agreement for owner(s) or lender(s) which either or both Interested Parties: (a) do business with prior to the Effective Date, (b) are part of a multi-property management relationship with owner(s); or a lender(s); or (c) is a property in receivership or foreclosure controlled by a lender.

1.3Confidential Information.

(a)On and after the Closing Date, the Restricted Parties will not use or disclose to anybody, and will cause all of their respective Affiliates to refrain from disclosing, any Confidential Information except:  (a) where necessary to comply with any legal obligation, such as a court order or subpoena, provided the Restricted Parties will first promptly notify the Operating Partnership prior to any such disclosure and permit Operating Partnership to intervene to block such disclosure; (b) where necessary, to the Restricted Parties’ attorneys and accountants, provided

Exhibit E

1

that they will have first been apprised of the limitations of this Agreement and will have agreed to be comply with and be bound by such limitations; or (c) where the Restricted Parties have obtained the express, prior written consent from the Operating Partnership.

(b)The term “Confidential Information” includes but is not limited to information specific to the Hotel, including but not limited to: customer lists, contact information, needs, preferences and history of service; business operations and methods; training materials; marketing plans; customer relations information; service and operations forms; practices, procedures, policies and guidelines; sales information; supplier/vendor agreements and information; and all other information, lists, records and data relating to or dealing with the business operations or activities of the Hotel, the disclosure of which may provide valuable benefits to any other person or entity or which would embarrass or damage the Hotel, Operating Partnership or their affiliates, monetarily or otherwise.  Furthermore, the term “Confidential Information” is intended to be construed broadly, including information in all forms, written or oral, on paper or stored electronically or in any other medium, and includes all originals, summaries, portions and copies of any such information.  Confidential Information does not include information that: (i) was widely known in the industry at the time of disclosure to the Restricted Party, or (ii) becomes widely known or readily available other than by a breach of this Agreement.

1.4Non-Solicitation; Non-Interference.  Except with the prior written approval of the Operating Partnership, for a period of 3 years after the Closing Date, neither the Restricted Parties nor their respective Affiliates will (a) employ or offer to employ any person who was principally employed at the Hotel on the Closing Date, (b) solicit, recruit, or encourage any employee or independent contractor of the Hotel or Operating Partnership to leave his or her employment, (c) hire, employ or cause to be hired, or establish a business with, any person who was employed at the Hotel, within the 12-month period preceding the Closing Date, (d) solicit any business clients of the Hotel or encourage them to terminate any contracts, and (e) interfere with or encourage any adjustments to long term negotiated rate clientele.  In addition, any attempt by any Restricted Party to induce others to terminate any contracts, employment, or independent contractor relationship with Operating Partnership or the Hotel, or any effort by any Restricted Party to interfere with any of the relationships between each of the Operating Partnership and the Hotel and any of their business clients, employees, or independent contractors, would be harmful and damaging to the Operating Partnership. For purposes of this Section 1.3, an “employee” will include any person who is a common law employee or who is an independent contractor providing personal services.

1.5Non-Disparagement.  The Restricted Parties will not: (a) make any disparaging or defamatory statements about Operating Partnership, the Hotel or their affiliates, or (b) authorize, encourage or participate with anyone to make such statements.

1.6Reasonableness; Independent Covenants.  The Restricted Parties acknowledge that the restrictions set forth in this Agreement are reasonable and necessary to prevent the use and disclosure of the Hotel’s and the Operating Partnership’s Confidential Information, to protect the goodwill and business relationships of the Hotel, and to otherwise protect the legitimate business interests of Operating Partnership and the Hotel from and after the Closing Date.  The Restricted Parties further acknowledge that all restrictions in this Agreement are reasonable in all respects, including duration, territory and scope of activity restricted.

1.7Remedies.

(a)The Restricted Parties agree that if they or any of their Affiliates engage or threaten to engage in any activity that constitutes a violation of any of the provisions of this Agreement, Operating Partnership will have the right and remedy to have the provisions of this Agreement specifically enforced by law or by any court having jurisdiction.

(b)The Restricted Parties agree a breach of this Agreement would cause immediate irreparable injury to Operating Partnership and/or the Hotel and that money damages would not provide an adequate remedy at law for any breach. Further, without limiting any other legal or equitable remedies available to it, Operating Partnership will be entitled to obtain equitable relief by temporary restraining order, preliminary and permanent injunction or otherwise from any court of competent jurisdiction (without the requirement of posting a bond or other security), including, without limitation, injunctive relief to prevent the Restricted Parties’ failure to comply with the terms and conditions of Section 1 of this Agreement.  Such right and remedy will be in addition to, and not in lieu of,

Exhibit E

2

any other rights and remedies available to Operating Partnership at law or in equity, including the right to seek monetary damages.

(c)The applicable 3-year period of the covenants contained in Section 1.4 above will be extended on a day for day basis for each day during which a Restricted Party is in violation of the covenant, so that each Restricted Party is restricted from engaging in the activities prohibited by the covenant for the full 3-year time period.

(e)The Restricted Parties agree that the existence of any claim or cause of action by a Restricted Party against Operating Partnership, whether predicated on this Agreement or otherwise, will not constitute a defense to the enforcement by Operating Partnership of the covenants and restrictions in this Agreement.

1.8Construction.  The parties acknowledge that the parties and their counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party will not be employed in the interpretation of this Agreement or any exhibits or amendments hereto.

1.9Severability.  If any provision of this Agreement will, for any reason, be adjudged by any court of competent jurisdiction to be invalid or unenforceable, such judgment will not affect, impair or invalidate the remainder of this Agreement but will be confined in its operation to the provision or provisions hereof directly involved in the controversy in which such judgment will have been rendered, and this Agreement will be construed as if such provision had never existed, unless such construction would operate as an undue hardship on Contributor or Operating Partnership or would constitute a substantial deviation from the general intent of the parties as reflected in this Agreement.

1.10Notices.  All notices, requests, demands, and other communications under this Agreement will be in writing and will be sent by hand messenger, electronic facsimile transmission, electronic mail (e-mail), reputable overnight courier, or certified mail, postage prepaid, return receipt requested.  Notices and other communications will be deemed to have been duly given, as applicable (i) if by hand delivery, on the date of delivery, if such date is a business day (or if such date is not a business day, then on the first business day following such date), (ii) if by electronic facsimile transmission, the date of transmission as evidenced by automated date and time confirmation from sender’s machine, (iii) if given by e-mail, the communication is instantaneous and the day of receipt can be designated to be the same day as sending and a written copy must also be sent via certified mail, (iv) if given by overnight courier, 1 business day after deposit with the overnight courier, or (v) if given by certified mail, 1 business day after deposit with the United States Post Office.  Notices will be addressed as set forth below, or to any other address that the parties will designate in writing:

If to the Restricted Parties:

Houston Hotel Partners, LLC

Houston Land Partners, LLC

Attn: Charles J. Rotkin

3419 Via Lido #406

Newport Beach, CA 92663

Fax:

Email: rotkin@crotkin.com

With copy to:

Buckner, Robinson & Mirkovich

3146 Red Hill Avenue, Suite 200

Costa Mesa, CA 92626

Attention:  William D. Buckner and Andrew Prochnow

Exhibit E

3

If to Operating Partnership:

Lodging Fund REIT III OP, LP

Attn: Linzey Erickson

1635 43rd Street S, Suite 205

Fargo, ND 58103

Fax: (701) 532-3369

Email: lerickson@lodgingfund.com

With copy to:

Legendary Capital

Attn: David Durell

644 Lovett SE, Suite B

Grand Rapids, MI 49506

Fax: (701) 532-3369

Email:  ddurell@lodgingfund.com

1.11Other Legal Obligations.  Nothing in this Agreement shall be construed to limit or otherwise waive any other legal obligations of the Restricted Parties in favor of the Operating Partnership.

1.12Benefit and Binding Effect.  The Restricted Parties may not assign this Agreement without the prior written consent of Operating Partnership.  The Operating Partnership may assign to an entity of which the Operating Partnership or one of its affiliates is a constituent.  This Agreement will be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns.

1.13Further Assurances.  The parties will execute upon request any other documents that may be necessary and helpful for the effectiveness and enforceability desirable to the implementation and consummation of this Agreement.

1.14Governing Law.  This Agreement will be governed by the laws of the State of Texas, without giving effect to the conflict of laws provisions thereof.

1.15Entire Agreement.  This Agreement constitutes the entire agreement and understanding between the parties hereto concerning the subject matter hereof.

1.16Headings.  The headings herein are included for ease of reference only and will not control or affect the meaning or construction of the provisions of this Agreement.

1.17Amendments/Waivers.  This Agreement cannot be amended except by an agreement in writing that makes specific reference to this Agreement and which is signed by the party against which enforcement of any such amendment is sought.  Any waiver of any provision of this Agreement must be in writing and signed by the party granting the waiver.

1.18Counterparts.  This Agreement may be signed in counterparts with the same effect as if the signature on each counterpart were upon the same instrument.

[signature page follows]

Exhibit E

4

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

OPERATING PARTNERSHIP: Lodging Fund REIT III OP, LP a Delaware limited partnership By:    Lodging Fund REIT III, Inc., a Delaware corporation, its General Partner
By:
Name:
Title:
CONTRIBUTOR: Houston Hotel Partners, LLC Houston Land Partners, LLC, each a California limited liability company BY:   Houston Hospitality Partners, Inc., a California corporation Managing Member
By:
Name:	Charles J. Rotkin
Title:	President
RESTRICTED PARTIES: Houston Hospitality Partners, Inc., a California corporation
BY
Charles J. Rotkin, President

Exhibit E

5

EXHIBIT F

TO

AMENDED AND RESTATED CONTRIBUTION AGREEMENT

CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT

THIS AGREEMENT is made and entered into as of April 1, 2021  by and between Lodging Fund REIT III OP, LP (individually and collectively with its subsidiaries, owners and affiliates, the “Partnership”) and Houston Hotel Partners, LLC and Houston Land Partners, LLC, each a California limited liability company (collectively “Contributor”) (the Partnership and Contributor individually, a “Party” and collectively, the “Parties”).

The Parties intend to exchange Confidential Information to one another in connection with the possibility of engaging in the transaction described in the Amended and Restated Contribution Agreement (the “Transaction”).

In consideration of the promises exchanged herein, the Parties hereto agree that the following terms and conditions shall apply when one Party discloses "Confidential Information" to the other Party:

1. DEFINITION OF “CONFIDENTIAL INFORMATION”.  As used in this Agreement, the term “Confidential Information” means all information relating to or used in the Partnership’s business, regardless of whether it is marked “confidential” or otherwise. Confidential Information includes, but is not limited to, all business processes and procedures, systems, methods of doing business, data, reports, specifications, formulae, proposals, strategies, business plans and analyses, financial information and projections, investment strategy, marketing, advertising, promotions, market research, plans, information about past, present or potential investors, information about past, present or potential vendors, information about existing or future technology, and proprietary software or models.  Without limiting the foregoing, the term “Confidential Information” expressly includes: the Partnership’s investment strategies, including without limitation the possibility of entering into an umbrella real estate investment trust (“UPREIT”) transaction; and potential details related to the Transaction, including without limitation potential Transaction terms, provisions, and pricing.  The foregoing notwithstanding, the term “Confidential Information” does not include information that:

a) Is or becomes known to the public through no fault of the receiving Party;

b) The receiving Party already rightfully possessed before the disclosing Party disclosed it to the receiving Party;

c) Is subsequently disclosed to the receiving Party by a third-party who is not under obligation of confidentiality to the disclosing Party; or

d) The receiving Party develops independently without using Confidential Information.

2. NON-DISCLOSURE OBLIGATIONS.  Neither Party shall not disclose Confidential Information of the other Party to third-party without the disclosing Party’s written consent, except that (a) the receiving Party may disclose such information to its officers, directors, employees, contractors, and agents whose duties justify their need to know such Confidential Information, and who have been clearly informed of their obligation to maintain the confidential status of such Confidential Information, and in the case of contractors or agents, who have signed a written document acknowledging the obligation to maintain the confidential status of Confidential Information, and shall cause them to comply fully with these obligations; and (b) the receiving Party may disclose Confidential Information to the extent required by applicable federal, state or local law, regulation, court order, or other legal process, provided such Party has given the disclosing Party prior written notice of such required disclosure and, to the extent reasonably possible, has given the disclosing Party an opportunity to contest such required disclosure at the disclosing Party’s expense.

3. PROTECTION OF CONFIDENTIAL INFORMATION.  The receiving Party shall use the same care to prevent the unauthorized use or disclosure of the Confidential Information as such Party uses with respect to its own confidential information of a similar nature, which shall not in any case be less than the care a reasonable business person would use under similar circumstances.  Without limiting the foregoing, the

Exhibit F

1

receiving Party shall take reasonable action by instruction, agreement or otherwise with respect to such Party’s employees or other persons permitted access to Confidential Information to cause them to comply fully with the receiving Party’s obligations hereunder.

4. PERMITTED USE OF CONFIDENTIAL INFORMATION.  The receiving Party may not use the Confidential Information directly or indirectly for any purpose other than the purpose for which it was originally disclosed, or for any purposes which could be deemed to be adverse to or competitive with the disclosing Party’s business.  Notwithstanding the foregoing and anything to the contrary in this Agreement, nothing contained herein shall impair Buyer’s right (or the right of any permitted assignee or Lodging Fund REIT III, Inc. (“Parent”)) to disclose information relating to this Agreement, the Contribution Agreement, or the Property (a) to any due diligence representatives and/or consultants that are engaged by, work for or are acting on behalf of, any securities dealers, investment advisors and/or broker-dealers evaluating Buyer, its permitted assignees or Parent, (b) in connection with any filings with governmental agencies (including the Securities and Exchange Commission) by Parent, (c) to any broker-dealers or investment advisors in Parent’s selling group and any of Parent’s investors, including pursuant to the confidential offering memorandum used in connection with Parent’s ongoing private offering, and (d) to the public as long as such information does not specifically disclose the identity of the Contributor or the Property if such disclosure occurs before the end of the Due Diligence Period.

5. DESTRUCTION OF CONFIDENTIAL INFORMATION.  Upon the written request of the disclosing Party, the receiving Party shall cease using and arrange for the destruction of all copies of any Confidential Information then in the receiving Party’s possession or under such Party’s control. The receiving Party agrees to dispose of the Confidential Information in such a manner that the information cannot be read or reconstructed after destruction.  Upon the written request of the disclosing Party, the receiving Party shall certify in writing that it has complied with the obligations set forth in this paragraph.

6. INFORMATION SECURITY.  (a) The receiving Party shall take appropriate measures designed to protect the security, confidentiality, and integrity of Confidential Information; (b) the receiving Party shall restrict access to Confidential Information to those officers, directors, employees, contractors, agents or other third parties whose access the disclosing Party deems appropriate; (c) Confidential Information shall continue to be subject to the terms of this Agreement indefinitely; and (d) the disclosing Party shall have the right to review the receiving Party’s operations and procedures to ensure compliance with the foregoing requirements.  The receiving Party agrees to indemnify the disclosing Party for all reasonable fees, costs, charges, and expenses resulting from any unauthorized access to Confidential Information.

7. OWNERSHIP OF CONFIDENTIAL INFORMATION.  The disclosing Party shall retain all right, title and interest in and to its own Confidential Information.  Neither this Agreement nor any disclosure of Confidential Information shall be deemed to grant the receiving Party any license or other intellectual property right.

8. DISCLAIMERS.  The receiving Party acknowledges and agrees that the disclosing Party provides Confidential Information disclosed hereunder on an “AS IS” basis, without warranties of any kind, except as specified in Section 7 above.  Without limiting the foregoing, the disclosing Party does not represent or warrant that Confidential Information is accurate, complete or current.  The disclosure of Confidential Information containing business plans is for planning purposes only.  The disclosing Party may change or cancel its plans at any time at such Party's sole discretion. The receiving Party further acknowledges and understands that disclosure of Confidential Information is not a representation that the parties will enter into any type of business relationship.

9. INJUNCTIVE RELIEF.  The receiving Party acknowledges that the unauthorized use or disclosure by such Party of Confidential Information would cause immediate and irreparable damage that could not be fully remedied by monetary damages.  The receiving Party therefore agrees that the disclosing Party may specifically enforce this Agreement and shall be entitled to injunctive or other equitable relief to prevent unauthorized use or disclosure without the necessity of proving actual damage.

Exhibit F

2

10. TERMINATION.  This Agreement shall remain in full force and effect until the earlier of (i) the Parties’ execution of a binding agreement superseding this Agreement, or (ii) a date two years after the conclusion of business discussions between the Parties.

11. SEVERABILITY.  If any provision of this Agreement is held invalid, illegal or unenforceable the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.

12. GENERAL.  This Agreement supplements the LOI, and to the extent inconsistent, supersedes any other non-disclosure or confidentiality agreement between the Parties.  The Parties may not amend this Agreement except in a writing that each party signs.  The terms of such an amendment shall apply as of the effective date of the amendment, unless the amendment specifies otherwise.  This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns. The laws of the State of Texas shall govern this Agreement.  No provision of this Agreement may be waived, except pursuant to a writing executed by the party against whom the waiver is sought to be enforced.  No failure or delay in exercising any right or remedy or requiring the satisfaction of any condition under this Agreement operates as a waiver or estoppel of any right, remedy or condition.  All remedies provided for in this Agreement shall be cumulative and in addition to and not in lieu of any other remedies available at law, in equity or otherwise.

LODGING FUND REIT III OP, LP on behalf of itself and its subsidiaries, owners and affiliates	HOUSTON HOTEL PARTNERS, LLC, and HOUSTON LAND PARTNERS, LLC, each a California limited liability company BY:   Houston Hospitality Partners, Inc., a California corporation Managing Member
By:	By:
Name:  David R. Durell	Name: Charles J. Rotkin
Title:  Chief Investment Officer	Title: President

Exhibit F

3

EXHIBIT G

TO

AMENDED AND RESTATED CONTRIBUTION AGREEMENT

TAX INFORMATION

Exhibit G

1

Schedule 2.2

List of Contributed Assets, Assumed Agreements and Leases

Schedule 2.4

1

Schedule 2.4

List of Excluded Assets

1. Contributor’s cash, cash equivalents and investments not relating to the operation of the Property.

2. Any Fixtures and Personal Property that contains hazardous materials that the Operating Partnership requires to be removed.

Schedule 2.4

2

Schedule 2.5

List of Assumed Liabilities; Permitted Liens

Schedule 2.5

1

Schedule 2.6

List of Excluded Liabilities

Schedule 2.6

1

Schedule 2.10

Allocation of Total Consideration

Schedule 2.10

1

Schedule 3.1.8

3-05 Audit

Contributor acknowledges that under either Rule 3-05 or Rule 3-14 of Regulation S-X, the Operating Partnership is required to provide certain information in connection with reports the Company is required to file with the Securities and Exchange Commission.

Accordingly, Contributor agrees to:

(a)allow the Operating Partnership and its representatives which includes third party auditors, at the Operating Partnership’s sole cost and expense, to perform an audit of the Property, the Contributed Assets and business operations of and at the Property to the extent required under either Rule 3-05 or Rule 3-14 of Regulation S-X (hereinafter a “Rule 3-05 or 3-14 Audit”); and

(b)make available to the Operating Partnership and its representatives for inspection and audit following the Closing, at the Contributor’s offices the Contributor’s books and records relating solely to the Contributor’s operations that are reasonably requested by the Operating Partnership (but specifically excluding Contributor’s tax returns) for any full or partial years reasonably necessary to complete the Rule 3-05 or 3-14 Audit; and

(c)sign the management representation letter to be provided by the Operating Partnership’s independent auditors.

In connection with the foregoing, the Operating Partnership will give the Contributor no less than 10 business days’ prior written notice of the Operating Partnership’s plans to inspect and audit such books and records, and the Contributor’s obligation to perform herein shall extend beyond the Closing.

Notwithstanding the foregoing, the Contributor will not be required to (a) prepare or compile any materials, (b) incur any third-party costs or expenses in connection with the Rule 3-05 or 3-14 Audit, (c) provide any books, records or materials that could reasonably be expected to be books, records or materials in the possession or control of the tenant parties, (d) provide any books, records or materials that are not within the possession or control of the Contributor, or (e) make any representations or warranties with respect to such information beyond a customary management representation letter signed by the Contributor reasonably requested by any accounting firm engaged by the Operating Partnership to deliver its auditors report with respect to the Rule 3-05 or Rule 3-14 Audit.  The Operating Partnership acknowledges and agrees that the foregoing accounting and financial materials to be provided by the Contributor does not include any information or materials related to the period prior to the date the Contributor acquired the Property and the Contributed Assets and is to be limited solely to information regarding the Property and the Contributed Assets after they were placed into operation by the Contributor.  The Contributor acknowledges that the Rule 3-05 or Rule 3-14 Audit may require the Operating Partnership to perform a Rule 3-05 or 3-14 Audit both after the Effective Date and after the Closing Date and the Contributor agrees that the Contributor’s obligations under this Schedule 3.1.8 are material terms of this Agreement, and breach of this Schedule 3.1.8 will constitute a default under the terms of this Agreement.  The Contributor further agrees, that the Operating Partnership’s sole and absolute remedy in the event of default is that of specific performance.

Schedule 3.1.8

1

EX-10.21

Exhibit 10.21

FIRST AMENDMENT TO CONTRIBUTION AGREEMENT

This FIRST AMENDMENT TO CONTRIBUTION AGREEMENT (this “First Amendment”) is made as of the 28th day of April 2021 (the “Amendment Date”) by and among HD Sunland Park Property, LLC, a Texas limited liability company (“Seller”), and Lodging Fund REIT III OP, LP, a Delaware limited partnership (the “Buyer”).

WHEREAS, Buyer and Seller entered into that certain Contribution Agreement dated January 8, 2021 (the “Agreement”) for the contribution of a 175-room hotel business known as the Holiday Inn Express El Paso West Sunland Park located at 900 Sunland Park Dr., El Paso, Texas 79922 (the “Property”);

WHEREAS, during the course of Buyer’s due diligence studies, Buyer has realized that Buyer will need an extension to the Due Diligence Period namely to accommodate the franchise timing for approval;

NOW THEREFORE, for valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:

1.Capitalization. All capitalized terms used herein will have the meanings ascribed to those terms in the Agreement, unless otherwise specified herein.

2.Due Diligence Period. Section 2.17.1 shall in full force and effect except that the Due Diligence Period shall extend until seven (7) days after Buyer’s receipt of the franchise license agreement.

3.Conflict; Counterparts.  In the event of any conflict between the terms of this Amendment and the Agreement, this Amendment shall control. This Amendment may be executed in multiple counterparts via facsimile or email in .PDF format, each of which shall be deemed to be an original, but such counterparts when taken together shall constitute but one Amendment.

4.Successors and Assigns.  This Amendment shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors, administrators, and assigns.

5.Ratification.  Except as set forth above, the terms of the Agreement are hereby ratified and confirmed in their entirety.

[Signature Page to Follow]

IN WITNESS WHEREOF, this First Amendment has been duly executed by the parties hereto as of the day and year first above written.

SELLER:
HD Sunland Park Property, LLC a Texas limited liability company
By:	/s/ Albert Ken Okamoto
Name:	Albert Ken Okamoto
Title:	Authorized Signatory

[BUYER’S SIGNATURE PAGE TO FOLLOW]

BUYER:
LODGING FUND REIT III OP, LP A Delaware limited partnership
By: Lodging Fund REIT III, Inc. Its: General Partner
By:	/s/ David R. Durell
Name:	David R. Durell
Title:	Chief Acquisition Officer

EX-10.22

Exhibit 10.22

CHANGE IN TERMS AGREEMENT

Principal		Loan Date	Maturity	Loan No	Call/ Coll	Account	Officer	Initials
$5,000,000.00		02-10-2020	05-10-2021		8100		403
References in the boxes above are for Lender's use only and do not limit the applicability of this document to any particular loan or item. Any item above containing "***" has been omitted due to text length limitations.
Borrower:	Lodging Fund REIT Ill OP, LP 1635 43rd Street South, Suite 205 Fargo, ND 58103					Lender:	Western State Bank West Fargo P.O. Box 617 755 13th Ave E West Fargo, ND 58078

Principal Amount: $5,000,000.00 Date of Agreement: May 6, 2021

DESCRIPTION  OF EXISTING INDEBTEDNESS.   Promissory  Note number xxxxxxx dated February  10,  2020 in the original amount of

$5,000,000.00 (Revolving Line of Credit) with a current principal balance of $0.00.

DESCRIPTION OF CHANGE IN TERMS.

1.. CHANGE OF MATURITY  DATE. Extend the maturity date of  the above  listed Promissory  Note from May 10,  2021 to May 10,  2022,  at which time all outstanding principal plus all accrued unpaid interest will be due.

2.PAYMENT SCHEDULE. Borrower will continue to pay regular monthly payments of all accrued unpaid interest due as of each payment date, beginning June 10, 2021, with all subsequent interest payments to be due on the same day of each month after that.

3. ADD INTEREST FLOOR RATE. An interest floor rate of 4.00% will be added effective the date of this agreement.

4 , CONDITIONS  PRECEDENT. As  a Condition Precedent  to  the effectiveness of  this Change in  Terms Agreement,  Borrower agrees to  pay lender a processing fee of $150 .00, modification recording fee of $66.00 and lien search fee of $30.30 .

CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of the original obligation or obligations, including all agreements evidenced or securing the obligation(s), remain unchanged and in  full force and effect.  Consent by  Lender to  this Agreement  does not waive Lender's right to strict performance of the obligation(s) as changed, nor obligate Lender to make any future change in terms.  Nothing in this Agreement  will constitute  a satisfaction  of  the obligation(s).   It is the intention of  Lender to  retain as liable parties all makers and endorsers of the original obligation(s), including accommodation parties, unless a party is expressly released by Lender in writing. Any maker or endorser, including accommodation  makers,  will not be released by virtue of  this Agreement.  If  any person who signed the original obligation does not sign this Agreement below, then all persons signing below acknowledge that this Agreement is given conditionally, based on the representation to Lender that the non-signing party consents to the changes and provisions of this Agreement or otherwise will not be released by it. This waiver applies not only to any initial extension, modification or release, but also to all such subsequent actions.

PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNO RSTOOO ALL THE PROVISIONS OF THIS AGREEMENT. BORROWER AGREES TO THE TERMS OF THE AGREEMENT.

CHANGE IN TERMS SIGNERS:

LODGING FUND REIT III OP, LP

LODGING FUND REIT III INC., General partner of lodging fund REIT III OP, LP

By:	/s/ Corey R. Maple
	Corey R. Maple, Chief Executive Officer of Lodging Fund REIT III, Inc.
x	/s/ Corey R. Maple
	Corey R. Maple
LODGING FUND REIT III INC
By:	/s/ Corey R. Maple
	Corey R. Maple, Chief Executive Officer of Lodging Fund REIT III, Inc.

	CHANGE IN TERMS AGREEMENT
Loan	(Continued)	Page 2

LENDER:

WESTERN STATE BANK

X	/s/ Ryan Rued
	Ryan Rued, VP/Business Banking Officer

LaserPro, Ver. 211 0 222 Copr. Fineslre USA CorpoiaUon 1997, 2021. All Righls Reserved - ND C:\lASERPRO\CFI\LPL\020C FC TR-4841 PR-8

EX-10.23

Exhibit 10.23

AMENDED AND RESTATED CONTRIBUTION AGREEMENT

by and between

HD Sunland Park Property LLC

a Delaware limited liability company

and

Lodging Fund REIT III OP, LP

a Delaware limited partnership

Dated as of May 12, 2021

TABLE OF CONTENTS

			Page
1.	Defined Terms		1
2.	Contribution; Total Consideration; Inspection and Title		7
	2.1	Contribution of Property	7
	2.2	Contribution of Assets	7
	2.3	Inventory	7
	2.4	Excluded Assets	8
	2.5	Assumed Liabilities	8
	2.6	Excluded Liabilities	8
	2.7	Existing Loans and Creditors	8
	2.8	Consideration and Exchange of Series T Limited Units	10
	2.9	Treatment as Contribution	10
	2.10	Allocation of Total Consideration	10
	2.11	Terms of Series T Limited Units	11
	2.12	Term of Agreement	11
	2.13	Management Company	11
	2.14	Risk of Loss	11
	2.15	Escrow	12
	2.16	Title	12
	2.17	Due Diligence Period.	12
3.	Closing		13
	3.1	Conditions Precedent- Operating Partnership	13
	3.2	Conditions Precedent - Contributor	15
	3.3	Time and Place	16
	3.4	Closing Deliveries	16
	3.5	Closing Costs	17
4.	Representations and Warranties and Indemnities.		18
	4.1	Representations and Warranties of the Operating Partnership	18
	4.2	Representations and Warranties of the Contributor	20
5.	Indemnification		29
	5.1	Survival of Representations and Warranties; Remedy for Breach	29
	5.2	General Indemnification	30
	5.3	Notice and Defense of Claims	30
	5.4	Limitations on Indemnification Under Section 5.2.1	31
	5.5	Matters Excluded from Indemnification	31
	5.6	Offset	31
6.	Covenants		31
	6.1	Covenants of the Contributor.	31
	6.2	Prorations	33
	6.3	Tax Covenants	35
	6.4	Capital Contribution	35
7.	Termination		36
	7.1	Termination	36

-i-

TABLE OF CONTENTS

(continued)

			Page
	7.2	Default by the Operating Partnership	36
	7.3	Default by the Contributor	36
8.	Miscellaneous		37
	8.1	Further Assurances	37
	8.2	Counterparts	37
	8.3	Governing Law	37
	8.4	Amendment; Waiver	37
	8.5	Entire Agreement	37
	8.6	Assignability	37
	8.7	Titles	38
	8.8	Third Party Beneficiary	38
	8.9	Severability	38
	8.10	Reliance	38
	8.11	Survival	38
	8.12	Days	38
	8.13	Calculating Time Periods	38
	8.14	Incorporation of Exhibits	38
	8.15	Notice	38
	8.16	Force Majeure	39
	8.17	Impracticability	40
	8.18	Equitable Remedies	40

EXHIBITS

ALegal Description of the Properties

BContribution and Assumption Agreement

CAssignment of Warranties

DTotal Consideration

ENon-Competition Agreement and Non-Solicitation Agreement

FConfidentiality and Non-Disclosure Agreement

GTax Information

SCHEDULES

2.2List of Contributed Assets, Assumed Agreements and Leases

2.4List of Excluded Assets

2.5List of Assumed Liabilities; Permitted Liens

2.6List of Excluded Liabilities

2.10Allocation of Total Consideration

3.1.83-05 Audit

APPENDICES

ADisclosure Schedule

-ii-

AMENDED AND RESTATED CONTRIBUTION AGREEMENT

This Amended and Restated Contribution Agreement (this “Agreement”) is made and entered into as of  May 12, 2021 (the “Effective Date”) by and between Lodging Fund REIT III OP, LP, a Delaware limited partnership (the “Operating Partnership”), and HD Sunland Park Property LLC, Delaware limited liability company (the “Contributor”).

RECITALS

A.The Contributor and Operating Partnership entered into a contribution agreement (the “Original Agreement”) on January 8, 2021 on terms similar to the terms found herein, the Original Agreement was amended by the First Amendment on  April 27, 2021, which said Original Agreement is hereby Terminated. This Agreement hereby supersedes any and all other agreements.

B.The Contributor currently owns a certain 175-room hotel business known as the Holiday Inn El Paso West Sunland Park located at 900 Sunland Park Dr., El Paso, TX 79922 (the “Property”), as the Property is more fully described in Exhibit A.

C.The Operating Partnership desires to acquire the Property, along with the Contributed Assets whereby the Operating Partnership will acquire a direct fee simple interest and ownership in the Property.

NOW, THEREFORE, in consideration of the foregoing premises, and the mutual undertakings set forth below, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1.Defined Terms.

The following terms have the meanings set forth below:

“Act” shall have the meaning as set forth in Section 4.2.9.

“Actions” mean all actions, litigations, complaints, charges, accusations, investigations, petitions, suits, arbitrations, mediations or other proceedings, whether civil or criminal, at law or in equity, or before any arbitrator or Governmental Entity.

“Adverse Change” shall have the meaning as set forth in Section 2.16.1.

“Adverse Change Review Period” shall have the meaning as set forth in Section 2.16.1.

“Agreement” shall have the meaning as set forth in the Preamble.

“Amendment” shall have the meaning as set forth in Section 2.8.

“Assumed Agreements” shall have the meaning as set forth in Section 2.2.

“Assumed Liabilities” shall have the meaning as set forth in Section 2.5.

“Basket” shall have the meaning as set forth in Section 5.4.

“Closing” shall have the meaning as set forth in Section 3.2.

1

“Closing Agent” shall have the meaning as set forth in Section 2.14.

“Closing Date” shall have the meaning as set forth in Section 3.2.

“Closing Documents” shall have the meaning as set forth in Section 3.3.

“Code” shall mean the Internal Revenue Code of 1986, as amended.

“Common Limited Units” shall have the meaning set forth in the OP Agreement.

“Company” shall mean Lodging Fund REIT III, Inc., a Maryland corporation.

“Contributed Assets” shall have the meaning as set forth in Section 2.2.

“Contributor” shall have the meaning as set forth in the Preamble.

“Contributor Point of Contact” shall have the meaning as set forth in Section 2.16.3(d).

“Contributor’s Breakage Fee” shall have the meaning as set forth in Section 7.3.

“Contributor’s Cure Period” shall have the meaning as set forth in Section 2.15.

“Deed”  shall have the meaning as set forth in Section 3.3.2.

“Disclosure Schedule” means that disclosure schedule attached as Appendix A.

“Due Diligence Documents” shall have the meaning as set forth in Section 2.16.1.

“Due Diligence Period” shall have the meaning as set forth in Section 2.16.1.

“Due Diligence Review” shall have the meaning as set forth in Section 2.16.3.

“Earnest Money” shall have the meaning as set forth in Section 2.14.

“Environmental Law” means all applicable statutes, regulations, rules, ordinances, codes, licenses, permits, orders, demands, approvals, authorizations and similar items of any Governmental Entity and all applicable judicial, administrative and regulatory decrees, judgments and orders relating to the protection of human health or the environment as in effect on the Closing Date, including but not limited to those pertaining to reporting, licensing, permitting, investigation, removal and remediation of Hazardous Materials, including without limitation (i) the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Air Act (42 U.S.C. Section 7401 et seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251), the Safe Drinking Water Act (42 U.S.C. 300f et seq.), the Toxic Substances Control Act (15 U.S.C. 2601 et seq.), the Endangered Species Act (16 U.S.C. 1531 et seq.), the Emergency Planning and Community Right-to-Know Act of 1986 (42 U.S.C. 11001 et seq.), and (ii) applicable state and local statutory and regulatory laws, statutes and regulations pertaining to Hazardous Materials.

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“Environmental Permits” means any and all licenses, certificates, permits, directives, requirements, registrations, government approvals, agreements, authorizations, and consents that are required under or are issued pursuant to any Environmental Laws.

“Effective Date” shall have the meaning as set forth in the Preamble.

“Excluded Assets” shall have the meaning as set forth in Section 2.4.

“Excluded Liabilities” shall have the meaning as set forth in Section 2.6.

“Existing Loan” shall have the meaning as set forth in Section 2.7.1.

“Existing Loan Documents” shall have the meaning as set forth in Section 2.7.1.

“Fixtures and Personal Property” shall mean all fixtures, furniture, furnishings, apparatus and fittings, equipment, machinery, appliances, building supplies, business supplies, software, tools, linens (in no event less than 3 par), inventories of standard supplies, services and amenities including without limitation paper goods, brochures, office supplies, unopened food and beverage inventory, chinaware, glassware, flatware, soap, gasoline, fuel oil, inventory held for sale, engineering, pool, maintenance and housekeeping supplies, TV, phone, and internet services, software and hardware, and other operation and guest supplies (each of which shall be maintained and transferred in accordance with brand standards), merchandise, goods, electronics, customer lists and records (including but not limited to customer, supplier, advertising, promotional material, sales, services, delivery and/or operations lists and records), goodwill, intellectual and/or proprietary information and property and applications therefor or licenses thereof and other items of personal property used in connection with the ownership, operation or maintenance of the Property, including all assets located off site from the Property but owned and used by the Contributor in connection with operation of the Property; excluding, however, all fixtures, furniture, furnishings, apparatus and fittings, equipment, machinery, appliances, building supplies, business supplies, software, tools, linens, merchandise, goods, electronics and other items of personal property owned by tenants, subtenants, guests, invitees, employees, easement holders, service contractors and other Persons who own any such property located on the Property.

“Franchise Agreement” shall have the meaning as set forth in Section 3.1.12.

“Governmental Entity” means any governmental agency or quasi-governmental agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, whether federal, state or local, domestic or foreign.

“Hazardous Material” means any substance:

(a)the presence of which requires investigation or remediation under any Environmental Law action or policy, administrative request or civil complaint under the foregoing or under common law; or

(b)which is controlled, regulated or prohibited under any Environmental Law as in effect as of the Closing Date, including the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. Section 9601 et seq.) and the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.); or

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(c)which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and as of the Closing Date is regulated by any Governmental Entity; or

(d)the presence of which on, under or about, the Property poses a hazard to the health or safety of persons on or about the Property; or

(e)which contains gasoline, diesel fuel or other petroleum hydrocarbons, polychlorinated biphenyls (PCBs) or asbestos or asbestos-containing materials or urea formaldehyde foam insulation; or

(f)radon gas.

“Indemnified Contributor Party” shall have the meaning as set forth in Section 5.5.

“Indemnified OP Party”  shall have the meaning as set forth in Section 5.5.

“Indemnified Party” shall have the meaning as set forth in Section 5.2.1.

“Independent Consideration” shall have the meaning as set forth in Section 2.14.

“Intangible Personal Property” shall mean all, right, title and interest relating to the Property in and to all intangible personal property now or hereafter used in connection with the operation, ownership, maintenance, management, or occupancy of the Property, including without limitation: all trade names and trademarks associated with the ownership of the Property; the plans and specifications for the Improvements; warranties; guaranties; indemnities; claims against third parties; claims against tenants for tenant improvement reimbursements; all contract rights related to the construction, operation, ownership or management of the Property; certificates of occupancy; applications, permits, approvals and licenses; insurance proceeds and condemnation awards or claims thereto to be assigned to the Operating Partnership hereunder; all books and records relating to the Property; any existing computer software or programs; any franchise agreements which shall not be terminated at the Closing and are to be assigned to the Operating Partnership, if any; any records, files, lists, and other tangible assets that pertain to the Property, including lists and records pertaining to any one or more of the following: the Contributor’s customers, suppliers, advertising, promotional material, sales, services, delivery, and/or operations, except those items, if any, required to be retained by law, including accounting records and returns.

“Inventory Period” shall have the meaning as set forth in Section 2.3.1.

“Key Personnel” shall have the meaning as set forth in Section 2.16.3(d).

“Knowledge” means with respect to any representation or warranty so indicated, the actual awareness of facts of other information, of Sean Hawkins and Ken Okamoto, collectively, in the case of the Contributor, or David Durell in the case of the Operating Partnership.  The term “Knowledge” expressly includes the knowledge of the foregoing individuals would be reasonably expected to have if, as a result of the position such individual holds, such person made a reasonable inquiry in light of the circumstances.

“Leases” shall have the meaning as set forth in Section 4.2.21.

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“Lender” shall have the meaning as set forth in Section 2.7.1.

“Liens” means with respect to any real and personal property, all mortgages, pledges, liens, options, charges, security interests, mortgage deed, restrictions, prior assignments, encumbrances, covenants, encroachments, assessments, purchase rights, rights of others, licenses, easements, voting agreements, liabilities or claims of any kind or nature whatsoever, direct or indirect, including, without limitation, interests in or claims to revenues generated by such property.

“Losses” shall have the meaning as set forth in Section 5.2.1.

“Material Adverse Effect” shall have the meaning as set forth in Section 4.2.3.

“Maximum Per Property Total Consideration Adjustment” shall have the meaning as set forth in Section 2.13.

“Merchandise” shall have the meaning as set forth in Section 2.3.1.

“Name” shall have the meaning as set forth in Section 4.2.19(c).

“NDA” shall have the meaning as set forth in Section 6.1.8.

“Non-Competition Agreement and Non-Solicitation Agreement” shall have the meaning as set forth in Section 6.1.7.

“Objections” shall have the meaning as set forth in Section 2.15.

“OFAC” shall have the meaning as set forth in Section 4.2.32.

“Offering Documents” shall have the meaning as set forth in Section 2.16.2.

“Offering Review Period” shall have the meaning as set forth in Section 2.16.2.

“OP Agreement” shall mean the Amended and Restated Limited Partnership Agreement of Lodging Fund REIT III OP, LP, a Delaware limited partnership, as may be amended.

“Operating Partnership” shall have the meaning as set forth in the Preamble.

“Original Agreement” shall mean a certain Contribution Agreement and First Amendment between Operating Partnership and Contributor.

“Other Taxes” means Taxes other than income Taxes.

“Permitted Liens” means:

(a)Liens securing taxes, the payment of which is not now due and payable or the payment of which is actively being contested in good faith by appropriate proceedings diligently pursued;

(b)Zoning laws and ordinances applicable to the Property which are not violated by the existing structures or present uses thereof or the transfer of the Property;

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(c)non-exclusive easements for public utilities and other operational purposes that do not materially interfere with the current use of the Property;

(d)all Liens listed in Schedule 2.5 of the Disclosure Schedule and any similar liens incurred in any refinancing of the related obligations; and

(e)all matters either not objected to or deemed accepted by the Operating Partnership under Section 2.16.

“Person” means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or governmental entity.

“PIP” shall have the meaning as set forth in Section 4.2.31.

“Preliminary Title Report” means the preliminary commitment for title insurance committing to insure marketable fee simple title as of the date of the Closing, subject only to the Permitted Liens.

“Property” shall have the meaning as set forth in the Recitals.

“Property Deposits” shall have the meaning as set forth in Section 6.2.1(b)(i).

“Property Reports” means the property condition assessment reports, appraisals, zoning reports and other similar reports prepared for the Property.

“Proprietary Rights” shall have the meaning as set forth in Section 4.2.19(a).

“REIT Shares” shall have the meaning set forth in the OP Agreement.

“Release” shall have the same meaning as the definition of “release” in the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) at 42 U.S.C. Section 9601(22), but not including the exclusions identified in that definition, at subparts (A) through (D).

“Satisfaction Notice” shall have the meaning as set forth in Section 2.16.1.

“Series T Limited Units” shall have the meaning set forth in the OP Agreement.

“Service Contracts” shall have the meaning as set forth in Section 4.2.23.

“Subscription Agreement” shall mean the Subscription Agreement to be entered into by Contributor with respect to the acquisition of the Series T Units.

“Tax” or “Taxes” means any federal, state, provincial, local or foreign income, gross receipts, license, payroll, employment-related, excise, goods and services, harmonized sales, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not.

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“Tax Return” means any return, declaration, report, claim for refund, or information return or statement related to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

“Tenants”  shall have the meaning as set forth in Section 4.2.21.

“Terminated” shall mean that as of the Effective Date the Original Agreement has no force or effect and is replaced herein by this Agreement.

“Title Company” shall have the meaning as set forth in Section 2.15.

“Title Policy” shall have the meaning as set forth in Section 3.1.6.

“Total Consideration” shall have the meaning as set forth in Section 2.8.

“Transfer”  shall have the meaning as set forth in Section 4.2.9(a).

2.Contribution; Total Consideration; Inspection and Title.

2.1Contribution of Property.  At the Closing and subject to the terms and conditions contained in this Agreement, the Contributor shall contribute, transfer, assign, convey and deliver to the Operating Partnership, absolutely and unconditionally, and free and clear of all Liens (other than Permitted Liens), all of its right, title and interest to the Property.  The contribution of the Property shall be evidenced by a Deed.  The parties shall take such additional actions and execute such additional documentation as may be required by the Contributor’s entity documents and the OP Agreement, or as reasonably requested by the Operating Partnership in order to effect the transactions contemplated hereby.

2.2Contribution of Assets.  At the Closing and subject to the terms and conditions contained in this Agreement, the Contributor shall contribute, transfer, assign convey and deliver to the Operating Partnership, and the Operating Partnership shall acquire, assume and accept, all of the Contributor’s right, title and interest in and to (i) (a) those assets listed on Schedule 2.2, (b) all Fixtures and Personal Property related to the Property, and (c) all Intangible Personal Property now or hereafter used in connection with the operation, ownership, maintenance, management or occupancy of the Property (collectively, the “Contributed Assets”), and (ii) (a) those certain agreements listed on Schedule 2.2, which reflect all agreements and arrangements related to the Property to which Contributor (or its affiliates or predecessors) is a party and (b) Service Contracts (collectively, the “Assumed Agreements”), and in each case, free and clear of any and all Liens, subject only to the Permitted Liens.  The contribution of the Contributed Assets and the Assumed Agreements and the assumption of all obligations thereunder shall be evidenced by a Contribution and Assumption Agreement in substantially the form of Exhibit B.

2.3Inventory.  In addition to the purchase and sale of the Contributed Assets, Contributor shall sell and the Operating Partnership will buy the inventory of saleable merchandise of Contributor, subject to the following:

2.3.1Purchase and Sale of Merchandise Inventory.  An inventory of all merchandise will be conducted not earlier than 15 days prior to Closing but not later than 1 day prior to Closing (the “Inventory Period”), and Contributor shall sell, transfer, and deliver to the

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Operating Partnership all of the merchandise and other inventory used in connection with the Property.  As used in this Agreement, the “Merchandise” will include only unopened merchandise and merchandise that (i) is not obsolete and (ii) has an expiration of 30 days or more after Closing Date.

2.3.2Method of Taking Inventory.  The Contributor and the Operating Partnership mutually agree to a method of inventory during the Inventory Period, and only if the Parties do not agree, then the Operating Partnership, at the Contributor’s expense, will use an inventory auditing service to conduct the counting of inventory.

2.3.3Inventory Purchase Price.  The Merchandise shall be purchased at the Contributor’s actual cost.  The Contributor shall, upon written request therefor by the Operating Partnership, provide written evidence of the Contributor’s actual cost, which will include the cost of the delivery of the Merchandise, if any.

2.4Excluded Assets.  Notwithstanding the foregoing, the parties expressly acknowledge and agree that all assets and properties of the Contributor set forth on Schedule 2.4, shall be deemed “Excluded Assets” and not contributed, transferred, assigned, conveyed or delivered to the Operating Partnership pursuant to this Agreement, and the Operating Partnership shall not have any rights or obligations with respect thereto.  Unless otherwise agreed in writing, the Contributor, at the Contributor’s expense, shall remove the Excluded Assets from the Property as soon as possible after the Closing Date but in no event later than 30 days after the Closing Date.  If the Contributor fails to comply with the foregoing provisions, the Operating Partnership may dispose of such items at the Contributor’s expense or make such other arrangements as the Operating Partnership may determine appropriate.

2.5Assumed Liabilities.  On the terms and subject to the conditions set forth in this Agreement, at the Closing, the Operating Partnership shall assume from the Contributor and thereafter pay, perform or discharge in accordance with their terms all of the liabilities of the Contributor listed on Schedule 2.5 (the “Assumed Liabilities”).

2.6Excluded Liabilities.  Notwithstanding the foregoing, the parties expressly acknowledge and agree that the Operating Partnership shall not assume or agree to pay, perform or otherwise discharge any liabilities, obligations or other expenses of either the Contributor (or acquire the Property subject thereto) other than those assumed pursuant to the Contribution and Assumption Agreement and the Assumed Liabilities (the “Excluded Liabilities”), and such Excluded Liabilities shall not be contributed, transferred, assigned, conveyed or delivered to the Operating Partnership pursuant to this Agreement or any other means, and the Operating Partnership shall not have any obligations with respect thereto.

2.7Existing Loans and Creditors.

2.7.1The Contributor has obtained certain financing encumbering the Property through EPH Development Fund LLC at an original loan balance of $8,400,000 (the “Existing Loan”).  Such notes, deed of trusts and all other documents or instruments evidencing or securing such Existing Loan, including any financing statements, and any amendments, modifications and assignments of the foregoing, shall be referred to, collectively, as the “Existing Loan Documents.”  The Existing Loan shall be considered a Permitted Lien for purposes of this Agreement.  The

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Operating Partnership at its election shall either (i) assume the applicable Existing Loan at the Closing pursuant to the terms and conditions set forth in the Letter of Intent, dated November 18, 2020, between Contributor and the Operating Partnership (the “LOI”)  (subject to obtaining any necessary consents from EPH Development Company LLC, the holder of the mortgage or deed of trust related to the Existing Loan (the “Lender”) prior to the Closing), or (ii) cause the Existing Loan to be refinanced or repaid in connection with the Closing. The Operating Partnership shall have the right to discuss with the Lender any of the options described in this Section 2.7.1 immediately upon the Contributor discussing the transaction contemplated by this Agreement with such entities.

2.7.2The Contributor shall use commercially reasonable efforts along with the Operating Partnership in seeking to process approval of the assumption of the Existing Loan or in beginning the process for any refinancing or a payoff.

2.7.3In addition to the Existing Loan, Contributor applied for, and was awarded the loans described in (a) and (b) below (the “Loans”) under the Paycheck Protection Program (“PPP”). Such loans have been promulgated under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and the Consolidated Appropriations Act, 2021 (the “CAA Act”), respectively, each of which is backed by the Small Business Association (“SBA”).

(a)The first PPP loan, Loan No. 70711018, was issued by WestStar Bank in El Paso, Texas (“WestStar”) for the original loan balance of $257,500 (“PPP Loan 1”). The Contributor sought partial forgiveness of PPP Loan 1 pursuant to the forgiveness qualification and application pursuant to the CARES Act on or about October 13, 2020, facilitated by WestStar Bank.  Such forgiveness has not yet been granted by the SBA.

(b)The second PPP loan, Loan No. 68911985-02, was issued by WestStar on March 3, 2021, for the original loan amount of $360,538.50 (“PPP Loan 2”). PPP Loan 2 has not as of the date of this Agreement met the forgiveness criteria to due constraints under the CARES Act, the CAA Act and guidance by the SBA, which include the timing of the forgiveness and use of funds.

(c)Operating Partnership consents to the Loans as additional existing loans and hereby assumes all obligations and liabilities under such loans, subject to the terms of this subsection (c). Contributor has notified or within three days after the date hereof will notify WestStar in writing of this Agreement and of the nature of the present transaction and of the assumption of the Loans. Contributor will promptly open an interest-bearing escrow account as directed by WestStar with funds equal to the outstanding balance of the Loans, which escrow funds will be disbursed to Contributor in accordance with guidance expounded by the SBA.  The escrowed funds and the benefits of the Loans being forgiven (in whole are in part) are not being transferred by Contributor, and shall continue to be owned by Contributor. Notwithstanding the foregoing, if as a condition to the right to receive forgiveness of the Loans, the escrow described above must be opened and funded before the Loans are assigned by Contributor, then the parties intend that the assignment in this paragraph will not be a present assignment, but rather will be effective immediately following the opening and funding of such escrow.

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(d)Operating Partnership shall cooperate with Contributor in (i) amending the application for the first PPP Loan to maximize forgiveness and (ii) making the application to the SBA for forgiveness on the second PPP loan, and each agrees to use best efforts to obtain the maximum legal forgiveness as soon as practicable.

2.7.4Before the Closing, the Contributor shall furnish to the Operating Partnership a true and complete list of all existing creditors.  This list shall set forth the names and addresses of all of the Contributor’s creditors and shall contain information regarding the nature and extent of the claim or claims of each creditor.  The Contributor shall afford to the Operating Partnership access to the Contributor’s books and records related to each claim and shall furnish the Operating Partnership with such financial and operating data and other information regarding each such claim as the Operating Partnership may from time to time reasonably request.

2.7.5On or before Closing, with the exception of Permitted Liens, the Contributor will pay all amounts owed to any creditors or persons and entities that otherwise possess any type of right or interest in the Contributed Assets arising from the ownership or operation of the Property by the Contributor prior to the Closing.  If the creditor holds or obtains a lien on the Contributed Assets, then the following shall apply:

(a)The Contributor, on written notice given by the Operating Partnership to the Contributor, shall pay such monies arising from the ownership or operation of the Property by the Contributor prior to the Closing required to obtain the release of any lien on the property.

(b)In the event of default by the Contributor as to the foregoing, the Operating Partnership, on written notice given by the Operating Partnership to the Contributor, shall have the right to pay for the same and/or obtain the release of lien, if any, and receive a credit toward the Total Consideration at Closing.

2.8Consideration and Exchange of Series T Limited Units.  Subject to this Section, the Operating Partnership shall, in exchange for the Property, the Contributed Assets, the Assumed Liabilities and the Assumed Agreements, transfer to the Contributor consideration equal to the Contributor’s “Total Consideration” as indicated on Exhibit D.  The transfer of the Series T Limited Units to the Contributor shall be evidenced by an amendment (the “Amendment”) to the OP Agreement as determined by the Operating Partnership.  The parties shall take such additional actions and execute such additional documentation as may be required by such party’s operating agreement and the OP Agreement in order to effect the transactions contemplated hereby.

2.9Treatment as Contribution.  The transfer, assignment and exchange effectuated pursuant to this Agreement shall constitute a “capital contribution” to the Operating Partnership and is intended to be governed by Section 721(a) of the Code, and the Contributor hereby consents to such treatment.

2.10Allocation of Total Consideration.  The Total Consideration shall be allocated as set forth in Schedule 2.10.  The Operating Partnership and the Contributor agree to (i) be bound by the allocation, (ii) act in accordance with the allocation in the preparation of financial statements and filing of all tax returns and in the course of any tax audit, tax review or tax litigation relating

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thereto and (iii) take no position and cause their affiliates that they control to take no position inconsistent with the allocation for income tax purposes.

2.11Terms of Series T Limited Units.  The Series T Limited Units shall be entitled to cash distributions according to Exhibit D and may be converted to Common Limited Units pursuant to the OP Agreement and on terms set forth therein and in Exhibit D.  The Contributor acknowledges that the Series T Limited Units will be converted into Common Limited Units pursuant to the terms in the OP Agreement beginning 36 months, or in the event the Operating Partnership is then in the process of transacting a sale of the Operating Partnership’s assets or another significant capital event necessitating a conversion is then in process, up to 48 months, after issuance to the Contributor and will be valued as set forth on Exhibit D. The Contributor acknowledges that the assigned value upon conversion may be higher or lower than the initial valuation depending on the information imputed into the formula set forth on Exhibit D.

2.12Term of Agreement.  If the Closing does not occur by the Closing Date, this Agreement shall, except as specifically set forth herein, be deemed terminated and shall be of no further force and effect and neither the Operating Partnership nor the Contributor shall have any further obligations hereunder.

2.13Management Company.  The Operating Partnership and the Contributor shall jointly select a management company to manage the Property. Neither the Operating Partnership nor the selected management company shall be liable to the Contributor for, and the Contributor hereby waives, any claims, damages or losses incurred under any theory of liability as a result of, arising out of, in connection with, or related to the management company’s management and operation of the Property or the Property’s performance after the Closing Date.

2.14Risk of Loss.  The risk of loss relating to the Contributor’s Property prior to Closing shall be borne by the Contributor.  If, prior to the Closing, the Property is partially or totally destroyed or damaged by fire or other casualty, or is taken by eminent domain or through condemnation proceedings, then the Operating Partnership may, at its option (so long as the cost of repairing such destruction or damage is in the reasonable judgment of the Operating Partnership in excess of $15,000 (the “Maximum Per Property Total Consideration Adjustment”), determine not to acquire the Property if it has been partially or totally destroyed, damaged or taken (with an adjustment to the Contributor’s Total Consideration as indicated on Exhibit D).  After the occurrence of any such casualty or condemnation affecting the Property, the Operating Partnership may also, at its option within 30 days after the Operating Partnership is notified of any such casualty or condemnation, elect to (a) acquire the Property and (b) direct the Contributor to pay or cause to be paid to the Operating Partnership upon or following the Closing any sums collected by the Contributor, if any, under any policies of insurance, if any, or award proceeds relating to such casualty or condemnation (to the extent that the Contributor has not applied such sums or proceeds to the restoration of the Property or otherwise to address the impacts of such casualty or condemnation) and otherwise assign to the Operating Partnership upon or following the Closing all rights of the Contributor to collect such sums as may then be uncollected, and/or to the extent available to the Contributor, adjust or settle any insurance claim or condemnation proceeding, which the Contributor has not adjusted or settled prior to the Closing.  Under such circumstances, the Contributor’s Total Consideration shall be reduced by the amount of (i) any deductibles under the applicable insurance policies or award with respect to the Property contributed at Closing and (ii) any uninsured casualty or loss with respect to the Property contributed at Closing.  Insurance

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on the transferred Property shall be cancelled as of 12:01 a.m. local El Paso, Texas time after the Closing Date, and thereafter the Operating Partnership shall be solely responsible for all risk of loss relating to the Property.  In the event that this Agreement is terminated by the Operating Partnership as provided above, the Earnest Money shall be returned in full to the Operating Partnership and neither party shall have any further duties or obligations to the other, except for any obligations expressly surviving the termination of this Agreement.

2.15Escrow.  Escrow shall remain open with First American Title Company (the “Closing Agent”) and upon execution of this Agreement by both parties the escrow account shall inure to the benefit of this Agreement. The Escrow Agent shall ratify the terms of this Section 2.15 contemporaneous with execution of this Agreement. The current escrow account consists of $100,000 as an earnest money deposit (the “Earnest Money”) which shall be applied to the cash payable by the Operating Partnership at the Closing.  A copy of this fully-executed Agreement will be delivered to the Closing Agent by the Operating Partnership and will serve as escrow instructions together with any additional instructions required by the Contributor and/or the Operating Partnership or their respective counsels.  The Contributor and the Operating Partnership agree to cooperate with the Closing Agent and sign any additional instructions reasonably required by the Closing Agent to close escrow.  If there is any conflict between any other instructions and this Agreement, this Agreement shall control.  Notwithstanding anything else herein, in all events, the sum of $1,000.00 (the “Independent Consideration”), which sum has been bargained for and agreed to as consideration for Contributor’s execution and delivery of this Agreement, will be payable to the Contributor out of the Earnest Money, even if this Agreement is terminated under its express provisions.  The Independent Consideration is independent of all other consideration provided in this Agreement, and is nonrefundable in all events.  The Operating Partnership and Contributor stipulate that the Independent Consideration is sufficient consideration to support this Agreement notwithstanding the Operating Partnership’s rights to terminate this Agreement as set forth herein.

2.16Title.  Operating Partnership received the title commitment issued by First American Title Insurance Company (the “Title Company”) effective as of the date of recording with a policy number of NCS-1046641-CO, which reflects the status of title acceptable to the Operating Partnership.

2.17Due Diligence Period.

2.17.1The Operating Partnership.  As of May 7, 2021 the Operating Partnership satisfactorily completed its Due Diligence Review concluding the Due Diligence Review Period.

2.17.2The Contributor.  As of the Effective Date, the Contributor has reviewed and approved of the Confidential Private Placement Memorandum and all related documents (collectively, the “Offering Documents”) of the Operating Partnership.

2.17.3Representation and Warranties of Due Diligence.  The Operating Partnership’s conclusion regarding the Due Diligence Review is based on a full business, financial, accounting, (the “Due Diligence Review”), which shall remain true and accurate until Closing, including:

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(a)Continuous right to monitor the sales and operations of the Property from and after the Effective Date.

(b)The Contributor will take all reasonable steps necessary to cooperate with the Operating Partnership in undertaking the Due Diligence Review.

(c)Except as set forth in this Agreement or as agreed by the Contributor and Operating Partnership, the Due Diligence Review by the Operating Partnership or its representatives will not affect the representations and warranties of the Contributor or the Operating Partnership’s reliance on them.

(d)Until Closing, the primary Contributor point of contact will be Michelle Kaip (the “Contributor Point of Contact”), with copies of any written correspondence being sent via email to Ken Okamoto and Sean Hawkins.  Furthermore, during the Due Diligence Period, the Operating Partnership will be given direct access, and ability to communicate to the General Manager, Assistant General Manager, Head Housekeeper, Chief Engineer, and Director of Sales (collectively, “Key Personnel”).

(e)The Contributor’s obligation to provide information to the Operating Partnership will continue through the Closing even if the Due Diligence Period has ended.

3.Closing.

3.1Conditions Precedent- Operating Partnership.  The obligations of the Operating Partnership to effect the transactions contemplated hereby shall be subject to the following conditions precedent:

3.1.1The representations and warranties of the Contributor contained in this Agreement shall have been true and correct in all respects on the date such representations and warranties were made and on the Closing Date as if made at and as of such date;

3.1.2The obligations of the Contributor contained in this Agreement to be performed by Contributor shall have been duly performed on or before the Closing Date, including without limitation, the Contributor’s obligations to deliver the Closing deliveries set forth in Section 3.4, and the Contributor shall not have breached any of its covenants contained herein in any material respect;

3.1.3Concurrently with the Closing, the Contributor shall have executed and delivered to the Operating Partnership the documents required to be delivered pursuant to Section 3.4;

3.1.4The Contributor shall have obtained and delivered to the Operating Partnership any consents or approvals of any Governmental Entity or third parties (including, without limitation, any lenders and lessors) required to consummate the transactions contemplated hereby;

3.1.5No order, statute, rule, regulation, executive order, injunction, stay, decree or restraining order shall have been enacted, entered, promulgated or enforced by any court of

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competent jurisdiction or Governmental Entity that prohibits the consummation of the transactions contemplated hereby, and no litigation or governmental proceeding seeking such an order shall be pending, threatened or reasonably foreseeable;

3.1.6The Title Company shall be irrevocably committed to issue an Owner’s Title Insurance Policy (on standard T-1 form), with such endorsements thereto as the Operating Partnership may reasonably request (including, without limitation, non-imputation endorsements and deletion of creditors’ rights to the extent permitted under Texas law), all at the sole cost and expense of the Operating Partnership, with coverage for the Property acceptable to the Operating Partnership in its sole and absolute discretion, and levels of reinsurance for the Property as reasonably acceptable to the Operating Partnership, insuring fee simple to all real property and improvements comprising the Property in the name of the Operating Partnership (or a subsidiary thereof, as the Operating Partnership may designate), subject only to the Permitted Liens (the “Title Policy”).

3.1.7There shall not have occurred between the Effective Date and the Closing Date any material adverse change in any of the assets, business, financial condition, results or prospects of operation of the Property, taken as a whole.

3.1.8If necessary, the Contributor shall make all reasonable and good faith efforts to cooperate with and provide assistance to the Operating Partnership and its third party auditor in complying with the Company’s reporting requirements to the Securities and Exchange Commission, including without limitation, any Rule 3-05 or Rule 3-14 of Regulation S-X Audit as described on Schedule 3.1.8.

3.1.9The Operating Partnership shall have received environmental reports or assessments on the Property and operations requested by the Operating Partnership which show the Property in an environmental condition reasonably satisfactory to the Operating Partnership, in its sole discretion.  If the Operating Partnership does not request the foregoing, this condition will be waived without further action by the Parties.

3.1.10If any of the Property or Contributed Assets are materially damaged at any time before the Closing, and the damages cannot reasonably be repaired on payment of the sums available by insurance settlement or from any sums to be paid by the Operating Partnership to the Contributor at the Closing, the Operating Partnership, at its option and notwithstanding anything herein to the contrary, shall have the right to terminate this Agreement and, on giving notice of such election to the Contributor, the Operating Partnership will immediately receive a refund of the Earnest Money in full termination of this Agreement.  This paragraph will not apply if the damages are caused by the Operating Partnership’s negligence.

3.1.11This Agreement is conditioned on the Operating Partnership assuming or replacing the Contributor’s current mortgage loan.  If the Operating Partnership is unable to assume or replace such loan under terms acceptable to the Operating Partnership, in the Operating Partnership’s sole discretion, at any point prior to the Closing Date, the Operating Partnership will give notice of such inability to the Contributor and notwithstanding anything herein to the contrary, the Operating Partnership shall have the right to terminate this Agreement and, on giving notice of such election to the Contributor, the Operating Partnership will immediately receive a refund of the Earnest Money in full termination of the Agreement.  Notwithstanding anything to the contrary

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set forth herein, loan terms substantially in compliance with the terms thereof set forth in the LOI shall be deemed “terms acceptable to the Operating Partnership” as utilized in this paragraph.

3.1.12The Operating Partnership shall have assumed the existing franchise agreement from the Contributor or have entered into a new franchise agreement under term of years acceptable to the Operating Partnership, in the Operating Partnership’s sole and absolute discretion (the “Franchise Agreement”).

Any or all of the foregoing conditions may be waived by the Operating Partnership in its sole and absolute discretion.

3.2Conditions Precedent - Contributor.  The obligations of the Operating Partnership to effect the transactions contemplated hereby shall be subject to the following conditions precedent:

3.2.1The Operating Partnership shall have agreed to assume the Existing Loan by Lender pursuant to the terms set forth in the LOI.

3.2.2The Operating Partnership shall have furnished to Contributor such documentation to show adequate capitalization and intent to remain adequately capitalized for the party designated by the Operating Partnership to be the guarantor for the Existing Loan.  There shall not have occurred between the Effective Date and the Closing Date any material adverse change in any of the assets, business, financial condition, results or prospects of operation of the Operating Partnership.

3.2.3The representations and warranties of the Operating Partnership contained in this Agreement shall have been true and correct in all respects on the date such representations and warranties were made and on the Closing Date as if made at and as of such date;

3.2.4The obligations of the Operating Partnership contained in this Agreement to be performed by Operating Partnership shall have been duly performed on or before the Closing Date, including without limitation, the Operating Partnership’s obligations to deliver the Closing deliveries set forth in Section 3.4, and the Operating Partnership shall not have breached any of its covenants contained herein in any material respect;

3.2.5Concurrently with the Closing, the Operating Partnership shall have executed and delivered to the Contributor the documents and other deliveries required to be delivered pursuant to Section 3.4;

3.2.6The Operating Partnership shall have obtained and delivered to the Contributor any consents or approvals of any Governmental Entity or third parties (including, without limitation, any lenders and lessors) required to consummate the transactions contemplated hereby;

3.2.7No order, statute, rule, regulation, executive order, injunction, stay, decree or restraining order shall have been enacted, entered, promulgated or enforced by any court of competent jurisdiction or Governmental Entity that prohibits the consummation of the transactions contemplated hereby, and no litigation or governmental proceeding seeking such an order shall be pending, threatened or reasonably foreseeable;

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3.3Time and Place.  The closing date on the Operating Partnership’s acquisition of the Property shall be upon the 30^th day following the expiration of the Due Diligence Period (the “Closing” or the “Closing Date” as the context may require). However, the Closing Date may be earlier upon the mutual agreement of the parties.

3.4Closing Deliveries.  At the Closing, the parties shall make, execute, acknowledge and deliver, or cause to be made, executed, acknowledged and delivered, the legal documents and other items (collectively the “Closing Documents”) necessary to carry out the intention of this Agreement and the other transactions contemplated to take place in connection therewith, which Closing Documents and other items shall include, without limitation, the following:

3.4.1The Contribution and Assumption Agreement in the form attached hereto as Exhibit B;

3.4.2A duly executed and notarized special warranty deed (the “Deed”), in the form provided for under the law of the State of Texas and otherwise in conformity with the custom in the jurisdiction where the Property is located and in form and substance satisfactory to the Operating Partnership, conveying good, indefeasible and marketable fee simple title to the Property, subject only to the Permitted Liens;

3.4.3The OP Agreement;

3.4.4The Amendment evidencing the transfer of Series T Limited Units to the Contributor;

3.4.5The Contributor shall deliver all books and records, title insurance policies, leases, lease files, contracts, stock certificates, original promissory notes, and other indicia of ownership or interest with respect to the Property which are in the Contributor’s possession or which can be obtained through the Contributor’s reasonable efforts along with appropriate evidence of the Contributor’s assignment thereof;

3.4.6An affidavit from the Contributor, stating under penalty of perjury, the Contributor’s United States Taxpayer Identification Number and that the Contributor is not a foreign person pursuant to Section 1445(b)(2) of the Code and a comparable affidavit satisfying any applicable federal and state law and Section 4.2.7 and any other withholding requirements;

3.4.7The Contributor shall deliver a beneficiary’s statement or other evidence satisfactory to the Operating Partnership in its sole discretion confirming the outstanding principal balance and term of the Existing Loan to be assumed by the Operating Partnership;

3.4.8The Contributor shall deliver any other documents reasonably requested by the Operating Partnership or reasonably necessary or desirable to assign, transfer, convey, contribute and deliver the Contributor’s Property (subject to the Permitted Liens) and effectuate the transactions contemplated hereby, including, without limitation, and only to the extent applicable, quitclaim deeds and/or grant deeds, assignments of ground leases, air space leases and space leases, bills of sale, assignments, and all state and local transfer tax returns and any filings with any applicable governmental jurisdiction in which the Operating Partnership is required to file its partnership documentation or the recording of the Contribution and Assumption Agreement or Deed or other Property transfer documents as required;

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3.4.9If requested by the Operating Partnership, a certified copy of all appropriate corporate resolutions or partnership actions authorizing the execution, delivery and performance by the Contributor of this Agreement, any related documents and the documents listed in this Section 3.3;

3.4.10The Contributor shall deliver to the Operating Partnership possession of the Property;

3.4.11The Operating Partnership, on the one hand, and the Contributor, on the other hand, shall provide to the other a certification regarding the accuracy of each of their respective representations and warranties herein and in this Agreement as of such date.  The Contributor shall provide a certification that it has performed the respective covenants required to be performed by them prior to Closing;

3.4.12The Contributor shall deliver an affidavit as may be required by the Title Company to delete from the Title Policy the standard exceptions and to issue any title endorsements as may be required by the Operating Partnership;

3.4.13Closing Statements detailing all prorations and adjustments;

3.4.14A duly executed Non-Competition and Non-Solicitation Agreement;

3.4.15The Contributor shall deliver UCC searches in form and content satisfactory to the Operating Partnership;

3.4.16The Contributor shall deliver evidence that any existing Leases shall be terminated as of the Closing Date;

3.4.17The Contributor shall deliver an Assignment of Warranties, in the form as attached hereto and incorporated herein as Exhibit C;

3.4.18The Operating Partnership shall deliver duly executed loan documents, a comfort letter from IHG , Lender’s Policy of Title Insurance and endorsements thereto and a legal opinion, in each case in form and substance acceptable to Contributor’s legal counsel;

3.4.19The Operating Partnership shall have delivered to Contributor the funds and any other documentation required under the terms of this Agreement;

3.5Closing Costs.  Subject to Section 2.14, the Operating Partnership shall be responsible for (i) reassessments, (ii) escrow charges, (iii) the cost of the Owner’s and Lender’s Title Policy and any endorsements to such Title Policies which the Operating Partnership shall require, respectively, (iv) all costs associated with any new Property Reports obtained by the Operating Partnership,  (v) all costs relating to the issuance of the Franchise Agreement, and (vi) the legal fees, costs and expenses and any charges attributable to new loan documents, recording the warranty deed and other closing documents and (vii) any documentary or other transfer taxes.  The Contributor shall be responsible for (i)  the cost of scheduling, ordering and providing the Operating Partnership an approved change of ownership PIP (which shall not include the funding thereof) and (ii) any withholding taxes required to be paid and/or withheld in respect of the

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Contributor at Closing as a result of the Contributor’s tax status.  Except as set forth above, each party will pay its own attorneys’ fees for this transaction.

4.Representations and Warranties and Indemnities.

4.1Representations and Warranties of the Operating Partnership.  The Operating Partnership hereby represents and warrants to the Contributor that:

4.1.1Organization; Authority.  The Operating Partnership has been duly formed and is validly existing under the laws of the jurisdiction of its formation and is and at the Closing shall be treated as a “partnership” for federal income tax purposes, and has all requisite power and authority to enter this Agreement, each agreement contemplated hereby and to carry out the transactions contemplated hereby and thereby, and own, lease or operate its property and to carry on its business as described in the Memorandum and, to the extent required under applicable law, is qualified to do business and is in good standing in each jurisdiction in which the nature of its business or the character of its property make such qualification necessary.

4.1.2Due Authorization.  The execution, delivery and performance of this Agreement by the Operating Partnership has been duly and validly authorized by all necessary action of the Operating Partnership.  This Agreement and each agreement, document and instrument executed and delivered by or on behalf of the Operating Partnership pursuant to this Agreement constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of the Operating Partnership, each enforceable against the Operating Partnership in accordance with its terms, as such enforceability may be limited by bankruptcy or the application of equitable principles.

4.1.3Consents and Approvals.  Assuming the accuracy of the representations and warranties of the Contributor and the accuracy of the representations and warranties contained in the Subscription Agreement and this Agreement, no consent, waiver, approval or authorization of any third party or governmental authority or agency is required to be obtained by the Operating Partnership in connection with the execution, delivery and performance of this Agreement and the transactions contemplated hereby, except any of the foregoing that shall have been satisfied prior to the Closing Date and except for those consents, waivers and approvals or authorizations, the failure of which to obtain would not have a Material Adverse Effect on the Operating Partnership.

4.1.4Partnership Matters.  The Series T Limited Units which will be part of the Total Consideration, when issued and delivered in accordance with the terms of this Agreement for the consideration described herein, will be duly and validly issued, and free of any Liens other than any Liens arising through the Contributor.

4.1.5Non-Contravention.  Assuming the accuracy of the representations and warranties of the Contributor made hereunder, none of the execution, delivery or performance of this Agreement, any agreement contemplated hereby and the consummation of the contribution transactions contemplated hereby and thereby will (a) result in a default (or an event that, with notice or lapse of time or both would become a default) or give to any third party any right of termination, cancellation, amendment or acceleration under, or result in any loss of any material benefit, pursuant to any material agreement, document or instrument to which the Operating Partnership or any of its properties or assets may be bound, or (b) violate or conflict with any

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judgment, order, decree or law applicable to the Operating Partnership or any of its properties or assets; provided in the case of (a) and (b), unless any such default, violation or conflict would not have a Material Adverse Effect on the Operating Partnership.

4.1.6Offering Documents. The information and financials in the Operating Partnership’s Offering Documents referred to in Section 2.17.2 (1) are true, correct and complete as of the applicable dates specified therein, (2) do not omit any material information necessary to make them not misleading in any material respect, (3) fully and accurately present the financial condition of the Operating Partnership as of such dates and (4) no event has occurred or circumstance has changed that would make the Offering Documents misleading in any material respect or have a material, adverse effect on the Operating Partnership’s financial condition, results of operations or assets.

4.1.7Full Disclosure.  This Agreement and any other information furnished to the Contributor in connection with the transactions contemplated by this Agreement, including, without limitation, the information contained in all filings with the SEC or other governmental agencies, neither contains any untrue statement of material fact nor omits to state any material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading.

4.1.8No Brokers.  Neither the Operating Partnership nor any of its or its affiliates’ respective officers, directors or employees, to the extent applicable, has employed or made any agreement with any broker, finder or similar agent or any person or firm which will result in the obligation of the Contributor, Operating Partnership or any of their affiliates to pay any finder’s fee, brokerage fees or commissions or similar payment in connection with the transactions contemplated by the Agreement.  The Operating Partnership shall indemnify, defend and hold the Contributor harmless from and against any broker’s commission or finder’s fee and other claims asserted by any person claiming a broker’s commission or finder’s fee concerning this Agreement or the purchase and sale of the Property.  The terms and conditions of this Section 4.1.8 shall survive Closing.

4.1.9Litigation or Insolvency Proceedings.  There is no Action, litigation, claim or other proceeding, either judicial or administrative (including, without limitation, any governmental action or proceeding), pending or, to the Operating Partnership’s Knowledge, threatened or reasonably anticipated in the last 12 months, against the Operating Partnership, or its assets or that would reasonably be expected to adversely affect the Operating Partnership’s ability to consummate the transactions contemplated hereby.  The Operating Partnership is not bound by any outstanding order, writ, injunction or decree of any court, Governmental Entity or arbitration against or affecting all or any portion of its assets, which in any such case would impair the Operating Partnership’s ability to enter into and perform all of its obligations under the Agreement or would have a Material Adverse Effect on the Operating Partnership.  The Operating Partnership is not involved in any proceeding by or against the Operating Partnership in any court under the Bankruptcy Code or any other insolvency or debtor’s relief act, whether state or federal, or for the appointment of a trustee, receiver, liquidator, assignee, or other similar official of the Operating Partnership or the Operating Partnership’s assets.

4.1.10Compliance With Laws.  To the Operating Partnership’s Knowledge, the Operating Partnership has been operated and on the Effective Date are, and as of the Closing Date

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will be, in compliance in all material respects with all applicable laws, ordinances, rules, regulations, codes, orders and statutes, whether federal, state or local, foreign.  The Operating Partnership presently possesses and will continue to possess at the Closing Date all governmental licenses, permits, certificates of inspection, other authorizations, filings, and registrations which are necessary for a privately held real estate investment trust and or umbrella partnership real estate investment trust.  The Operating Partnership has not received written notice of any violation of any laws, ordinances or regulations from any governmental or regulatory authority with respect to itself or any of its assets that has not been corrected.

4.1.10AS-IS CONDITION OF THE CONTRIBUTED ASSETS.  THE OPERATING PARTNERSHP ACKNOWLEDGES TO CONTRIBUTOR AND THE OPERATING PARTNERSHP UNDERSTANDS THAT EXCEPT TO THE EXTENT OTHERWISE EXPRESSLY STATED IN THIS AGREEMENT, THE CONTRIBUTED ASSETS ARE TO BE CONVEYED AS IS, AND WITH ALL FAULTS, AND WITHOUT ANY REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, OR WRITTEN OR ORAL, EXCEPT THE WARRANTIES AND REPRESNTATIONS MADE BY CONTRIBUTOR IN THIS AGREEMENT AND THE WARRANTY OF TITLE THAT WILL BE SET FORTH IN THE CONVEYANCE INSTRUMENTS.

4.2Representations and Warranties of the Contributor.  The Contributor represents and warrants to the Operating Partnership, which representations and warranties are true and correct as of the Effective Date and will be true and correct as of the date of Closing:

4.2.1Organization; Authority; Qualification.  The Contributor is duly formed, validly existing and in good standing under the laws of the jurisdiction of its formation.  The Contributor has all requisite power and authority to enter into this Agreement, each agreement contemplated hereby and to carry out the transactions contemplated hereby and thereby, and to own, lease or operate its property and to carry on its business as presently conducted and, to the extent required under applicable law, is qualified to do business and is in good standing in each jurisdiction in which the nature of its business or the character of its property make such qualification necessary.

4.2.2Due Authorization.  The execution, delivery and performance of the Agreement by the Contributor has been duly and validly authorized by all necessary action of the Contributor.  The Agreement and each agreement, document and instrument executed and delivered by or on behalf of the Contributor pursuant to the Agreement constitutes, or when executed and delivered will constitute, the legal, valid and binding obligation of the Contributor, each enforceable against the Contributor in accordance with its terms, as such enforceability may be limited by bankruptcy or the application of equitable principles.

4.2.3Consents and Approvals.  Except as shall have been satisfied prior to the Closing Date, no consent, waiver, approval or authorization of any third party or governmental authority or agency is required to be obtained by the Contributor in connection with the execution, delivery and performance of the Agreement and the transactions contemplated hereby, except for those consents, waivers, approvals or authorizations, the failure of which to obtain would not have a material adverse effect on the assets, business, financial condition and results of operation of the Property, taken as a whole (a “Material Adverse Effect”).

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4.2.4Full Disclosure.  This Agreement and any other information furnished to the Operating Partnership in connection with the transactions contemplated by this Agreement neither contains any untrue statement of material fact nor omits to state any material fact necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading.

4.2.5Ownership of the Property; Contributed Assets.

(a)The Contributor is the sole owner of the Property, beneficially and of record, free and clear of any Liens of any nature (other than the Permitted Liens) and has full power and authority to convey the Property, free and clear of any Liens (other than the Permitted Liens), and, upon delivery of consideration for the Property as herein provided, the Operating Partnership will acquire good and marketable title thereto, free and clear of any Liens (other than the Permitted Liens and any liens arising through the Operating Partnership).

(b)The Contributor is the sole owner of the Contributed Assets, beneficially and of record, free and clear of any Liens of any nature (other than Permitted Liens) and has full power and authority to convey the Contributed Assets, free and clear of any Liens (other than the Permitted Liens), and, upon delivery of consideration for such Contributed Assets as provided herein, the Operating Partnership will acquire good and marketable title thereto, free and clear of any Liens (other than Permitted Liens and any liens arising through the Operating Partnership).  The Property, Contributed Assets and Assumed Agreements constitute all assets, rights, interests, and property interests owned or held by the Contributor related to the Property.

(c)The Contributor has not been served with any notice of intent to claim a mechanic’s Lien on the Property and states that all parties who have furnished labor or materials on or at the Property within the last 90 days whether for repair, improvement, or otherwise have been fully compensated.  Further, the Contributor has not contracted for nor is liable for obligations related to repairs, services, and other items that will not be paid in full at Closing, however, the Contributor will provide the Title Company with such documents requested by Title Company for the issuance of without the standard exception for liens.

4.2.6No Violation.  None of the execution, delivery or performance of the Agreement, any agreement contemplated thereby and the transactions contemplated hereby and thereby does or will, with or without the giving of notice, lapse of time, or both, violate, conflict with, result in a breach of, or constitute a default under or give to others any right of termination, acceleration, cancellation or other right adverse to the Contributor or the Operating Partnership of (a) the organizational documents, including the operating agreement, if any, of the Contributor, (b) any agreement, document or instrument to which the Contributor is a party or by which the Contributor, Property, or the Contributed Assets are bound or (c) any term or provision of any judgment, order, writ, injunction, or decree, or require any approval, consent or waiver of, or make any filing with, any person or governmental or regulatory authority or foreign, federal, state, local or other law binding on the Contributor or by which the Contributor, or any of its assets or properties (including the Contributed Assets) are bound or subject; provided in the case of (b) and (c) above, unless any such violation, conflict, breach or default would not have a Material Adverse Effect.

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4.2.7Non-Foreign Status.  The Contributor is a United States person (as defined in Section 7701(a)(30) of the Code) and is not a “foreign person” (within the meaning of Section 1445 of the Code), and is, therefore, not subject to the provisions of the Code relating to the withholding of sales proceeds to foreign persons, and is not subject to any state withholding requirements.  The Contributor will provide affidavits at the Closing to this effect as provided for in this Section 4.2.7.

4.2.8Withholding.  The Contributor shall execute at Closing such certificates or affidavits reasonably necessary to document the inapplicability of any United States federal or state withholding provisions, including without limitation those referred to in Section 4.2.7.  If the Contributor fails to provide such certificates or affidavits, the Operating Partnership may withhold a portion of any payments otherwise to be made to the Contributor as required by the Code or applicable state law.

4.2.9Investment Purposes.  The Contributor acknowledges its understanding that the offering and issuance of the Series T Limited Units to be acquired pursuant to the Agreement are intended to be exempt from registration under the Securities Act of 1933, as amended and the rules and regulations in effect thereunder (the “Act”) and that the Operating Partnership’s reliance on such exemption is predicated in part on the accuracy and completeness of the representations and warranties of the Contributor contained herein.  In furtherance thereof, the Contributor represents and warrants to the Operating Partnership as follows:

(a)Investment.  The Contributor is acquiring the Series T Limited Units solely for its own account for the purpose of investment and not as a nominee or agent for any other person and not with a view to, or for offer or sale in connection with, any distribution of any thereof.  The Contributor agrees and acknowledges that it will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of (hereinafter, “Transfer”) any of the Series T Limited Units, except as set forth in the OP Agreement, unless (i) the Transfer is pursuant to an effective registration statement under the Act and qualification or other compliance under applicable blue sky or state securities laws, or (ii) counsel for the Contributor (which counsel shall be reasonably acceptable to the Operating Partnership) shall have furnished the Operating Partnership with an opinion, reasonably satisfactory in form and substance to the Operating Partnership, to the effect that no such registration is required because of the availability of an exemption from registration under the Act and qualification or other compliance under applicable blue sky or state securities laws, and (iii) the Transfer is permitted pursuant to the OP Agreement.  The term “Transfer” shall not include any redemption of the Series T Limited Units or exchange of the Series T Limited Units for REIT Shares pursuant to Section 9.4 of the OP Agreement.  Notwithstanding the foregoing, no Transfer shall be made unless it is permitted under the OP Agreement.

(b)Knowledge.  The Contributor is knowledgeable, sophisticated and experienced in business and financial matters and fully understands the limitations on transfer imposed by the Federal securities laws and as described in the Agreement.  The Contributor is able to bear the economic risk of holding the Series T Limited Units for an indefinite period and is able to afford the complete loss of its investment in the Series T Limited Units; the Contributor has received and reviewed all information and documents about or pertaining to the Company, the Operating Partnership, the business and prospects of the Operating Partnership and the issuance of the Series T Limited Units as the Contributor deems necessary or desirable, has had cash flow and

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operations data for the Property made available by the Operating Partnership upon request and has been given the opportunity to obtain any additional information or documents and to ask questions and receive answers about such information and documents, the Operating Partnership, the Property, the business and prospects of the Operating Partnership and the Series T Limited Units which the Contributor deems necessary or desirable to evaluate the merits and risks related to its investment in the Series T Limited Units and to conduct its own independent valuation of the Property.

(c)Holding Period.  The Contributor acknowledges that it has been advised that (i) the Series T Limited Units must be held for 12 months and may have to be held indefinitely thereafter, and the Contributor must continue to bear the economic risk of the investment in the Series T Limited Units (and any Common Stock that might be exchanged therefor), unless they are subsequently registered under the Act or an exemption from such registration is available (it being understood that the Operating Partnership has no intention of so registering the Series T Limited Units) and (ii) a notation shall be made in the appropriate records of the Operating Partnership indicating that the Series T Limited Units are subject to restrictions on transfer.

(d)Accredited Investor.  The Contributor is an “accredited investor” (as such term is defined in Rule 501(a) of Regulation D under the Act).  The Contributor has previously provided the Operating Partnership with a duly executed Accredited Investor Questionnaire.  No event or circumstance has occurred since delivery of such questionnaire to make the statements contained therein false or misleading.

4.2.10No Brokers.  Neither the Contributor nor any of the Contributor’s respective officers, directors or employees, to the extent applicable, has employed or made any agreement with any broker, finder or similar agent or any person or firm which will result in the obligation of the Operating Partnership or any of its affiliates to pay any finder’s fee, brokerage fees or commissions or similar payment in connection with the transactions contemplated by the Agreement.  The Contributor shall indemnify, defend and hold the Operating Partnership harmless from and against any other broker’s commission or finder’s fee and other claims asserted by any person claiming a broker’s commission or finder’s fee concerning this Agreement or the purchase and sale of the Property.  The terms and conditions of this Section 4.2.10 shall survive Closing.

4.2.11Solvency.  The Contributor will be solvent immediately following the transfer of the Property and the Contributed Assets to the Operating Partnership.

4.2.12Taxes.  No tax lien or other charge exists or will exist upon consummation of the transactions contemplated hereby with respect to the Property, except such tax liens for which the tax is not delinquent and has been properly reserved for payment by the Contributor.  Contributor has instructed the Title Company to send to the Operating Partnership true and correct copies of the real property tax bills for the Property for the current tax year.  For federal income tax purposes, the Contributor is, and at all times during its existence has been either (i) a partnership or limited liability company taxable as a partnership (rather than an association or a publicly traded partnership taxable as a corporation) or (ii) a disregarded entity.  The Contributor has timely and properly filed all tax returns required to be filed by it and has timely paid all Other Taxes required to be paid by it.  The Contributor has not requested any extension of time or agreed to any extension of the applicable statute of limitations within which to file any pending Tax Return

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relating to Other Taxes.  None of the tax returns relating to Other Taxes filed by the Contributor is the subject of a pending or ongoing audit, and no federal, state, local or foreign taxing authority has asserted any tax deficiency or other assessment against the Property.

4.2.13Litigation or Insolvency Proceedings.  There is no Action, litigation, claim or other proceeding, either judicial or administrative (including, without limitation, any governmental action or proceeding), pending or, to the Contributor’s Knowledge, threatened or reasonably anticipated in the last 12 months, against the Property, the Contributor, or the Contributed Assets or that would reasonably be expected to adversely affect the Contributor’s ability to consummate the transactions contemplated hereby.  The Contributor is not bound by any outstanding order, writ, injunction or decree of any court, Governmental Entity or arbitration against or affecting all or any portion of its Property or the Contributed Assets, which in any such case would impair the Contributor ability to enter into and perform all of its obligations under the Agreement or would have a Material Adverse Effect.  The Contributor is not involved in any proceeding by or against the Contributor in any court under the Bankruptcy Code or any other insolvency or debtor’s relief act, whether state or federal, or for the appointment of a trustee, receiver, liquidator, assignee, or other similar official of the Contributor or the Contributor’s property.

4.2.14Compliance With Laws.  To the Contributor’s Knowledge, the Property has been maintained or operated and on the Effective Date are, and as of the Closing Date will be, in compliance in all material respects with all applicable laws, ordinances, rules, regulations, codes, orders and statutes (including, without limitation, those currently relating to fire safety, conservation, parking, the Occupational Safety and Health Act, the Americans with Disabilities Act, zoning and building laws) whether federal, state or local, foreign.  The Contributor presently possesses and will continue to possess at the Closing Date all governmental licenses, permits, certificates of inspection, other authorizations, filings, and registrations which are necessary for a hotel to be operated at the Property.  The Contributor has not received written notice of any violation of any laws, ordinances or regulations from any governmental or regulatory authority with respect to the Property that has not been corrected.

4.2.15Eminent Domain.  There is no existing or, to the Contributor’s Knowledge, proposed or threatened condemnation, eminent domain or similar proceeding, or private purchase in lieu of such a proceeding, in respect of all or any material portion of the Property.

4.2.16Licenses and Permits.  To the Contributor’s Knowledge, all notices, licenses, permits, certificates (including certificates of occupancy), rights, privileges, franchises and authority required in connection with the construction, use, occupancy, management, leasing and operation of the Property has been obtained and are in full force and effect, are in good standing, except for those licenses, permits and certificates, the failure of which to obtain or maintain in good standing, would not have a Material Adverse Effect on the Property.

4.2.17Real Property.

(a)Neither the Contributor nor any other party to any material agreement affecting the Property, has given to the Contributor or, to the Contributor’s Knowledge, received any written notice of any uncured default with respect to any material agreement affecting the Property which would have a material adverse effect on the Property, and, no event has

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occurred or, to the Contributor’s Knowledge, is threatened by a third party in writing, which through the passage of time or the giving of notice, or both, would constitute a default thereunder which would have a material adverse effect on the Property or would cause the acceleration of any material obligation of any party thereto or the creation of a Lien upon any Property, except for Permitted Liens.  To the Contributor’s Knowledge, such agreements are valid and binding and in full force and effect, have not been amended, modified or supplemented since such time as such agreements were made available to the Operating Partnership, except for such amendments, modifications and supplements delivered or made available to the Operating Partnership.

(b)To the Contributor’s Knowledge, the Contributor owns fee title to the Property as described in the Preliminary Title Report and has insurable fee simple title to the Property.

4.2.18Environmental Compliance.  To the Contributor’s Knowledge, the Property is currently in compliance with all Environmental Laws and Environmental Permits.  The Contributor has not received any notice from the United States Environmental Protection Agency or any other federal, state, county or municipal entity or agency that regulates Hazardous Materials or public health risks or other environmental matters or any other private party or Person claiming any violation of, or requiring compliance with, any Environmental Laws or Environmental Permits or demanding payment or contribution for any Release or other environmental damage in, on, under, or upon the Property.  No investigation or litigation with respect to Hazardous Materials located in, on, under or upon the Property is pending or, to the Contributor’s Knowledge, has been threatened in the last 12 months by any Governmental Entity or any third party.  To the Contributor’s Knowledge, no environmental conditions exist at, on, under, upon or affecting the Property or any portion thereof that would reasonably be likely to result in any material claim, liability or obligation under any Environmental Laws or Environmental Permit or any material claim by any third party.

4.2.19Trademarks and Tradenames; Proprietary Rights.

(a)There are no actions or other judicial or administrative proceedings against the Contributor, or the Property pending or, to the Contributor’s Knowledge, threatened or reasonably anticipated in the last 12 months, that concern any copyrights, copyright application, trademarks, trademark registrations, trade names, service marks, service mark registrations, trade names and trade name registrations or any trade secrets being transferred to the Operating Partnership hereunder (the “Proprietary Rights”) and that, if adversely determined, would have a Material Adverse Effect.  There are no patents or patent applications relating to the operations of the Property as conducted prior to the Closing.

(b)To the Contributor’s Knowledge, the current use of the Proprietary Rights does not conflict with, infringe upon or violate any copyright, trade secret, trademark or registration of any other person.

(c)The Contributor agrees that from and after the Closing Date, the Operating Partnership shall have all of the Contributor’s right to use in or in connection with the conduct of any business (i) Holiday Inn El Paso West Sunland Park (the “Name”) or (ii) any part or portion of the Name, either alone or in combination with one or more other words.  After the Closing Date, the Contributor agrees that it will not use the Name directly or indirectly, either

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alone or in combination with one or more other words, in or in connection with any business, activities, or operations that the Contributor directly or indirectly may carry on or conduct.

4.2.20Condition of Property.

(a)To the Contributor’s Knowledge, with the exception of (i) the HVAC unit serving the back office area, (ii) certain machinery in the laundry service area and (iii) portions of the stove and restaurant equipment needing service or replacement as may be further quantified in an on-site inspection, or as otherwise disclosed in writing to the Operating Partnership by Contributor, there is no material defect in the structural condition of the Property, the roof thereon, the improvements thereon, the structural elements thereof and the mechanical systems thereon (including, without limitation, all HVAC, plumbing, electrical, elevator, security, utility, sprinkler and safety systems), nor any material damage from casualty or other cause, nor any soil condition of the Property that will not support all of the improvements thereon without the need for unusual or new subsurface excavations, fill, footings, caissons or other installations, except for any such defect, damage or condition that has been corrected or will be corrected in the ordinary course of the business of the Property as disclosed as part of its scheduled annual maintenance and improvement program.  There are no outstanding citations issued by any health, building, or other governmental agency, under the Occupational Safety and Health Act and/or under the Americans with Disabilities Act having jurisdiction over the operation of the Fixtures and Personal Property.  To the Contributor’s Knowledge, there have been no alterations to the exteriors of any of the buildings or other improvements on the Property that would render any surveys or plans provided to the Operating Partnership materially inaccurate or otherwise reflect a material deficiency in title to such improvements.

(b)To the Contributor’s Knowledge, the Fixtures and Personal Property is presently operating and has been regularly maintained and will be in the same working condition in all material respects as of the Closing Date and there are no known defects that have not been disclosed to the Operating Partnership.

4.2.21Leases.  As used herein, the term “Leases” shall include all leases, licenses, tenancies, possession agreements and occupancy agreements related to the Property, and all references to “tenants” and “Tenants” hereunder shall include all tenants, licensees or parties in possession under any such documents.  Schedule 2.2 contains a complete and accurate list of all Leases.  The Contributor owns fee title to the Property and holds the lessor’s interest under such Leases; a true and complete copy of all such Leases have been made available to the Operating Partnership; the Contributor, as lessor under such Leases, has not received any notice that it is in default of any of its obligations under such Leases beyond any applicable grace period which has not been cured.  To the Contributor’s Knowledge, all material obligations of the lessor under the Leases that have accrued to the Effective Date have been performed or satisfied.  To the Contributor’s Knowledge, no tenants under any of the Leases is presently the subject of any voluntary or involuntary bankruptcy or insolvency proceedings.  The Contributor shall terminate all Leases prior to the Closing.

4.2.22Tangible Personal Property.  The Contributor owns or leases all of the tangible personal property constituting Fixtures and Personal Property which is used in and necessary to the operation of the Property.  To the Contributor’s Knowledge, such Fixtures and

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Personal Property are free and clear of all Liens, other than Liens pursuant to the agreements pursuant to which such Fixtures and Personal Property are leased and Permitted Liens.

4.2.23Service Contracts.  There are no service or maintenance contracts affecting the Property which are not cancelable upon 30 days’ notice or less; true and correct copies of the service, equipment, franchise, operating, management, parking, supply, utility and maintenance agreements relating to the Property (the “Service Contracts”) have been made available to the Operating Partnership and the same are in full force and effect and have not been modified or amended except in the ordinary course of the applicable Contributor’s business.  To the Contributor’s Knowledge, no material event of default exists (which remains uncured) under any of the Service Contracts.  All prepaid Service Contracts being assigned have been fully paid by Contributor.

4.2.24Employees.  The Contributor has no employee benefit plans now in effect which are subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA), as amended.  No individuals are employed by any of the Property and transactions contemplated by the Agreement will not result in any liability with respect to labor and employment matters but agrees to cause the following:

(a)Notification and Termination of Employees.  At a mutually agreed upon time after this Agreement is executed that is not more than 3 days prior to the Closing Date, the Contributor and the Operating Partnership shall jointly announce the Agreement to the Contributor’s employees, and shall cooperate so that the Contributor’s notices of termination and any offers of employment by the Operating Partnership are delivered simultaneously so that appropriate management representatives may explain the termination and any offers of employment to the employees.  As of the Closing Date, the Contributor will terminate all employees and will pay to all employees all wages, salaries, commissions, bonuses, benefit plan contributions, and other compensation.  The Operating Partnership may, in its discretion, re-employ some or all of such employees on the day after the Closing Date.

(b)Exclusion of Employee Benefits.  The Contributor acknowledges that (i) the Operating Partnership does not assume any employee benefits of the Contributor whatsoever, unless such employee benefits are specifically assumed as Assumed Liabilities and (ii) the Operating Partnership will have no obligation to provide employee benefits other than such benefits as the Operating Partnership will agree to provide to its employees in the exercise of the Operating Partnership’s sole discretion.

(c)Collective Bargaining Agreements.  There are no collective bargaining agreements currently in effect between the Contributor and labor unions or organizations representing any of the Contributor’s employees; and there does not now exist and there has been no formal or informal request to the Contributor for collective bargaining or for an employee election from any union or from the National Labor Relations Board.

(d)Employee Verification.  The Contributor represents that the Property’s employees are legally able to work within the United States, and employment status has been verified through E-Verify.

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(e)Employment Regulations Compliance.  To the Contributor’s Knowledge, (i) there are no unfair labor practice complaints against the Contributor pending before the National Labor Relations Board, and no such complaints have been threatened, (ii) there is no labor strike, dispute slowdown, or stoppage actually in progress or threatened against the Contributor, (iii) no grievance or arbitration proceedings are pending and no such claim has been asserted and (iv) the Operating Partnership shall not incur any liability or obligation of any kind arising out of the Contributor’s employment of or termination of the Contributor’s employees nor for any other claim by any of the Contributor’s employees arising out of any employment relationship with the Contributor.  In the event that the WARN Act or portions thereof apply to the Agreement, the Contributor is responsible for compliance with the duties and obligations of the employer under the act.

4.2.25Existing Loans.  Schedule 2.5 to the Disclosure Schedule and/or the Preliminary Title Report lists all secured loans presently encumbering the Property, and any unsecured loans to be assumed by the Operating Partnership or any subsidiary of the Operating Partnership at Closing and the respective balance of such loans as of the date the Agreement.  To the Contributor’s Knowledge, the Existing Loan Documents are in full force and effect as of the Effective Date.  To the Contributor’s Knowledge, no event of default or event that with the passage of time or giving of notice or both would constitute a material event of default has occurred as of the Effective Date under any of the Existing Loan Documents.  True and correct copies of the Existing Loan Documents have been made available to the Operating Partnership.

4.2.26Real Property Taxes; Zoning.  Neither the Contributor (nor its affiliates) has received any notification of any material new or increased general or special tax assessments for the Property except as may be disclosed in the Preliminary Title Report, as of the Effective Date, or as may be disclosed in the Title Policy as of the Closing.  The Property is assessed for real property tax through one tax bill and the Property is comprised of one or more independent tax lots.  The Contributor has not received any written notice (which remains uncured) from any governmental authority stating that the Property is currently violating any zoning, land use or other similar rules or ordinances in any material respect.

4.2.27Insurance.  The Contributor currently has in place public liability, casualty and other insurance coverage with reputable insurance companies with respect to the Property, as the case may be, in customary amounts for projects similar to the Property in the markets in which the Property is located but in an amount of no less than full replacement cost of the improvements and general liability insurance in a per occurrence amount of no less than $1,000,000 and aggregate claims amount of no less than $3,000,000 for each policy and shall maintain such coverage in full force and effect until the Closing, and in all cases substantially in compliance with the existing financing arrangements.  To the Contributor’s Knowledge, each of such policies is in full force and effect, and all premiums due and payable thereunder have been fully paid when due.  No written notice of cancellation, default or non-renewal has been received or to the Contributor’s Knowledge threatened with respect thereto.  There are no outstanding claims on the Contributor’s insurance policies relating to the Property or any portion thereof.

4.2.28Utilities.  All public utilities, including telephone, gas, electric power, sanitary and storm sewer and water, are available for connection at the boundaries of the Property; such utilities are adequate for the current use of the Property; and the means of ingress and egress,

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parking, access to public streets and drainage facilities are adequate for the current use of the Property.

4.2.29Competition.  Neither the Contributor nor any individual owner, officer, director, shareholder, or member has any direct or indirect interest in any person or entity engaged or involved in any business which is competitive with the Property.  Notwithstanding anything to the contrary set forth herein, Operating Partnership consents to the ownership and management of the Courtyard by Marriott – El Paso Airport and Hilton Garden Inn – University (UTEP) by Contributor’s Affiliates and/or Interested Parties, and these hotels shall be excluded from the scope of this provision. The directors, managers, officers, and other owners, will not compete directly or indirectly with Property for a period of 36 months following the Closing Date; and, the names of directors, managers, officers, and the resident agent of the Contributor, together with each individual owner, are set forth on attached Exhibit E.

4.2.30Brand Standards.  The Contributor represents that to its Knowledge that the hotel operated at the Property is within brand standards, and that any future Property Improvement Plan (“PIP”) items that have been negotiated for delayed implementation have been disclosed to the Operating Partnership.

4.2.31OFAC.  The Contributor is not, nor will the Contributor become, a person or entity with whom United States persons or entities are restricted from doing business under regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury (including those named on OFAC’s Specially Designated and Blocked Persons List) or under any statute, executive order (including, without limitation, the September 24, 2001, Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action, and is not and will not engage in any dealings or transactions or be otherwise with such person or entities.

4.2.32No Representations.  The Contributor acknowledges that no representation or warranty has been made by the Company or the Operating Partnership with respect to the legal and tax consequences of the transfer of the Property, the Contributed Assets, the Assumed Liabilities and the Assumed Agreements to the Operating Partnership and the receipt of Series T Limited Units and the Total Consideration, as consideration therefor.  The Contributor further represents and warrants that it has not relied on the Operating Partnership or its affiliates, representatives, counsel or other advisors and its respective representatives for legal or tax advice and the Contributor acknowledges that it has not relied upon any other such representation or warranty with respect to legal and tax matters.

5.Indemnification.

5.1Survival of Representations and Warranties; Remedy for Breach.  All representations and warranties contained in Section 4.1 and 4.2 (as qualified by the Disclosure Schedule) or in any Schedule or certificate delivered pursuant hereto shall survive the Closing, except for the representations and warranties made in Sections 4.2.4, 4.2.17, 4.2.18 and 4.2.20, which survive for a period of 18 months.

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5.2General Indemnification.

5.2.1The Contributor or Operating Partnership, as applicable (each of which is an “Indemnifying Party”) shall indemnify and hold harmless the Operating Partnership or Contributor, as applicable, and its respective directors, officers, employees, agents, representatives and affiliates (other than the Contributor or Operating Partnership, as applicable) (each of which is an “Indemnified Party”) from and against any and all claims, losses, damages, liabilities and expenses, including, without limitation, amounts paid in settlement, reasonable attorneys’ fees, costs of investigation, costs of investigative, judicial or administrative proceedings or appeals therefrom, and costs of attachment or similar bonds (collectively, “Losses”), asserted against, imposed upon or incurred by the Indemnified Party in connection with or as a result of any breach of a representation, warranty or covenant of the Indemnifying Party contained in this Agreement from and after the Closing Date.

5.2.2The Contributor shall also indemnify and hold harmless the Indemnified Parties from and against any and all Losses asserted against, imposed upon or incurred by the Indemnified Parties in connection with or as a result of all fees and expenses of the Contributor in connection with the transactions contemplated by this Agreement, except as provided in Section 3.4.

5.2.3With respect to any claim of an Indemnified Party pursuant to this Section 5.2, to the extent available, the Operating Partnership agrees to use diligent good faith efforts to pursue and collect any and all available proceeds under any insurance policy which covers the matter which is the subject of the indemnification prior to seeking indemnification from the Indemnifying Party until all proceeds, if any, to which the Operating Partnership or the Indemnified Party is entitled pursuant to such insurance policy have been exhausted; provided, however, that the Indemnified Party may make a claim under this Section 5.2 even if an insurance coverage dispute is pending, in which case, if the Indemnified Party later receives insurance proceeds with respect to any Losses paid by the Indemnifying Party for the benefit of any Indemnified Party, then the Indemnified Party shall reimburse the Indemnifying Party in an amount equivalent to such proceeds in excess of any deductible amount pursuant to Section 5.4 up to the amount actually paid by the Indemnifying Party to the Indemnified Party in connection with such indemnification (it being understood that all costs and expenses incurred by the Indemnifying Party with respect to insurance coverage disputes shall constitute Losses paid by the Indemnifying Party for purposes of this Section 5.2.3).

5.3Notice and Defense of Claims.  As soon as reasonably practicable after receipt by the Indemnified Party of notice of any liability or claim incurred by or asserted against the Indemnified Party that is subject to indemnification under this Section 5, the Indemnified Party shall give notice thereof to the Indemnifying Party, including liabilities or claims to be applied against the indemnification deductible established pursuant to Section 5.4; provided that failure to give notice to the Indemnifying Party will not relieve it from any liability which it may have to any Indemnified Party, unless it did not learn of such claim and such failure results in the forfeiture by the Indemnifying Party of substantial rights and defenses.  The Indemnified Party may at its option demand indemnity under this Section 5 as soon as a claim has been threatened by a third party, regardless of whether an actual Loss has been suffered, so long as the Indemnified Party shall in good faith determine that such claim is not frivolous and that the Indemnified Party may be liable for, or otherwise incur, a Loss as a result thereof and shall give notice of such

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determination to the Indemnifying Party.  The Indemnified Party shall permit the Indemnifying Party , at the Indemnifying Party’s option and expense, to assume the defense of any such claim by counsel selected by the Contributor and reasonably satisfactory to the Indemnified Party, and to settle or otherwise dispose of the same; provided, however, that the Indemnified Party may at all times participate in such defense at its expense; and provided further, however, that the Indemnifying Party shall not, in defense of any such claim, except with the prior written consent of the Indemnified Party in its sole and absolute discretion, consent to the entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff in question to all Indemnified Parties a release of all liabilities in respect of such claims, or that does not result only in the payment of money damages which are paid in full by the Indemnifying Party.  If the Indemnifying Party shall fail to undertake such defense within 30 days after such notice, or within such shorter time as may be reasonable under the circumstances or as required by applicable law, then the Indemnified Party shall have the right to undertake the defense, compromise or settlement of such liability or claim on behalf of and for the account of the Indemnifying Party at the Indemnifying Party’s sole cost and expense.

5.4Limitations on Indemnification Under Section 5.2.1.  The Indemnifying Party shall not be liable under Section 5.2.1 unless and until the total amount recoverable by the Indemnified Parties from the Indemnifying Party under Section 5.2.1 exceeds $20,000, in the aggregate (the “Basket”); provided, however, that claims for Losses exceeding the Basket shall be recoverable from the first dollar of Losses.  Notwithstanding anything herein to the contrary, any Losses arising out of a breach of representations or warranties contained in Sections 4.2.1, 4.2.2, 4.2.7, 4.2.8 and 4.2.10 shall not be subject to the Basket and shall be recoverable from the first dollar of Losses.

5.5Matters Excluded from Indemnification.  Notwithstanding anything in this Agreement to the contrary, the neither party shall have an obligation under this Agreement to indemnify or hold harmless the other from any Losses to the extent arising as a direct result of the party’s breach of this Agreement.

5.6Offset.  To the extent the Contributor fails to comply with the terms of this Section 5, the Operating Partnership may be entitled to offset such obligations against the Series T Units by reducing the contribution or conversion values or the Series T Units.

6.Covenants.

6.1Covenants of the Contributor.

6.1.1From the Effective Date through the Closing, the Contributor shall not, without the prior written consent of the Operating Partnership:

(a)Sell, transfer (or agree to sell or transfer), assign or otherwise dispose of, or cause the sale, transfer, assignment or disposition of (or agree to do any of the foregoing) all or any portion of its interest in the Contributed Assets or Assumed Agreements or all or any portion of its interest in the Property; or

(b)Except as otherwise disclosed in the Disclosure Schedule, mortgage, pledge or encumber all or any portion of its Property or Contributed Assets.

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6.1.2From the Effective Date through the Closing, the Contributor shall conduct its business with respect to the Property in the ordinary course of business consistent with past practices, and shall to the extent within its control, not, without the prior written consent of the Operating Partnership:

(a)Enter into any material transaction not in the ordinary course of business with respect to any Property;

(b)Except as otherwise disclosed in the Disclosure Schedule, mortgage, pledge or encumber (other than by Permitted Liens) the Property or any assets related to the Property or the Contributed Assets, except (i) liens for taxes not delinquent or being disputed by the Contributor in good faith and by appropriate proceeding in the ordinary course of the Contributor’s business, and (ii) mechanics’ liens being disputed by the Contributor in good faith and by appropriate proceeding in the ordinary course of the Contributor’s business;

(c)Cause or permit a change to the existing use of the Property other than as a result of entering into new Leases in compliance with this Agreement;

(d)Cause or take any action that would render any of the representations or warranties regarding the Property as set forth in this Agreement untrue in any material respect (other than as a result of entering into new Leases in compliance with this Agreement); or

(e)Enter into any new Leases related to the Property.  The Operating Partnership shall approve or disapprove in writing any such action by the Contributor within 5 business days after receiving a written request (providing all information reasonably relevant to the Operating Partnership’s consideration) for such approval from the Contributor, which approval shall be in the Operating Partnership’s sole and absolute discretion.

6.1.3From the Effective Date, the Contributor agrees to provide the Operating Partnership with such tax information relating to the Property as reasonably requested by the Operating Partnership and to cooperate with the Operating Partnership with respect to its filing of tax returns;

6.1.4From the Effective Date, the Contributor shall promptly provide notice to the Operating Partnership upon any discovery that may lead to the Contributor’s representations and warranties contained in this Agreement being incomplete, inaccurate or in any manner not completely true and correct as of the Closing Date, including without limitation, any matter which if uncured prior to the Closing Date would have such effect, even if the Contributor intends to cure, correct or remedy such matter prior to the Closing and is implementing such cure, correction or remedy.  If the disclosed item(s) represents a breach by the Contributor and the Operating Partnership determines in good faith that the disclosed item(s) contained in any such notice represents an impairment in the value of the Property in excess of the Maximum Per Property Total Consideration Adjustment, then the Operating Partnership may elect, in its sole discretion, to terminate this Agreement and, if such election is made, shall receive a full return of the Earnest Money.  In the alternative, in the event that such impairment in value is below the Maximum Per Property Total Consideration Adjustment or the Operating Partnership otherwise elects to proceed with the acquisition of the Property, then the Operating Partnership may deduct from the Contributor’s Total Consideration an amount representing the reduction in value to the Property

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that the Operating Partnership reasonably determines has resulted or is likely to result from such disclosed item(s).

6.1.5If the liquor license has not been transferred to the Operating Partnership effective as of the Closing Date, and to the extent allowable under the State of Texas, parties will execute a mutually agreeable temporary liquor management agreement to oversee and control the food and beverage operations of the Property.  The Contributor and the Operating Partnership will cooperate with information as reasonably required to facilitate the transfer of the existing liquor permit.  The Contributor shall reasonably cooperate with the Operating Partnership in connection with the transfer of the liquor license to the Operating Partnership or its designee on or after the Closing Date.  The Operating Partnership shall pay all application fees in connection with the transfer of the liquor license.

6.1.6From the Effective Date, the Contributor agrees to provide the Operating Partnership with all information relating to the franchise at the Property as reasonably requested by the Operating Partnership and to cooperate with the Operating Partnership with respect to entering into or assuming the Franchise Agreement.

6.1.7Neither the Contributor nor any owner, subsidiary or affiliate of the Contributor shall establish, engage in, or become interested in, directly or indirectly, as an owner, partner, agent, shareholder, employee, independent contractor, consultant, or otherwise, within a radius of 25 miles from the Property in the operation of a hotel for a period 36 months.  At the Closing, the Contributor shall execute the Non-Competition and Non-Solicitation Agreement set forth as Exhibit E (the “Non-Competition Agreement and Non-Solicitation Agreement”).

6.1.8The Contributor shall enter into the Confidentiality and Non-Disclosure Agreement (the “NDA”), set forth as Exhibit F, with the Operating Partnership.

6.2Prorations.

6.2.1Prorations.  All income and expenses of the Property shall be apportioned as of 12:01 a.m.. local El Paso, Texas time, on the Closing Date, with the Operating Partnership being deemed to be the owner of the Property during the entire day on which the Closing Date occurs and being entitled to receive all revenue of the Property, and being obligated to pay all expenses of the Property, with respect to such day.

(a)Such prorated items shall include the following:

(i)any other income with respect to the Property received by the Closing Date, if any, and for the current month not yet delinquent.  Such proration shall be based on an operating statement updated not less than 1 day prior to the Closing Date;

(ii)taxes and assessments (including personal property taxes on the Fixtures and Personal Property) levied against the Property;

(iii)utility charges for which the Contributor is liable, if any, such charges to be apportioned at the Closing on the basis of the most recent meter reading occurring prior to the Closing (dated not more than 15 days prior to the Closing) or, if unmetered, on the basis of a current bill for each such utility;

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(iv)all amounts payable with respect to Assumed Liabilities in effect as of the Closing;

(v)credit shall be given to the Contributor for interest accounts, impound accounts, escrow accounts and other reserves included within the Existing Loan, which shall be transferred to the Operating Partnership at the Closing;

(vi)room charges for the night before the Closing Date and ending on the morning of the Closing Date shall be split between the Contributor and the Operating Partnership on a fifty/fifty (50/50) basis and

(vii)any other operating expenses or other items pertaining to the Property which are customarily prorated between a transferor and transferee of real estate in the county in which the Property is located.

(b)Notwithstanding anything contained in this Section 6.2.1, the following shall apply:

(i)The Operating Partnership shall be entitled to a credit against the Contributor’s Total Consideration to be delivered for the total sum of all deposits with respect to the Assumed Liabilities (not including interest accounts, impound accounts, escrow accounts and other reserves included within the Existing Loan, which shall be addressed in accordance with Section 6.2.1(a)(v) above) (the “Property Deposits”) to the extent not paid over to the Operating Partnership, and the Operating Partnership shall assume at the Closing the obligation under the Assumed Liabilities with respect to all Property Deposits credited or paid over to the Operating Partnership;

(ii)Except as provided in the following sentence, all delinquent real estate taxes and assessments shall be paid by the Contributor at or before the Closing, together with any interest, penalties or other fees related to any delinquent taxes.  In determining prorations relating to non-delinquent taxes, the Operating Partnership shall be credited with an amount equal to the real estate taxes and assessments applicable to the period prior to the Closing Date, to the extent such amount has not been actually paid by the Contributor.  In the event that the Contributor has paid prior to the Closing any real estate taxes or assessments related to the Property applicable to the period after the Closing Date, the Contributor shall be entitled to a credit for such amount.  In connection with the re-proration of real estate taxes and assessments for which a credit was given or a proration was made at the Closing, the Parties shall adjust the differences between them promptly upon demand being made therefor by either the Contributor or the Operating Partnership.  If, after the Closing, any additional real estate taxes or assessments applicable to the period prior to the Closing Date are levied for any reason, including back assessments or escape assessments, then the Contributor shall pay all such additional amounts, including any additional fees and interest, if any.  If, after the Closing, the Contributor or the Operating Partnership receive any property tax refunds regarding any Property relating to a period prior to the Closing, then that portion of the refunds related to a period prior to the Closing that is required to be refunded to any tenant of the Property shall be delivered to or retained by, as the case may be, the Operating Partnership for the purpose of making such refund payments with the remaining portion of such refunds retained by or delivered to, as the case may be, the Contributor.  The Operating Partnership

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shall pay all supplemental taxes resulting from the change in ownership and reassessment occurring as the result of the Closing pursuant to this Agreement;

(iii)The Operating Partnership shall take all steps necessary to effectuate the transfer of all utilities to the name of the Operating Partnership as of Closing, where necessary, post deposits with the utility companies, and provide the Contributor with written evidence of the transfer at or prior to Closing.  The Contributor shall be entitled to recover any and all deposits held by any utility company as of the Closing Date;

(iv)The net proration credit to or charge against the Contributor on account of the prorations adjustments to be made upon the Closing shall be reflected through an adjustment to the cash portion of the Contributor’s Total Consideration to be delivered pursuant to this Agreement.  Any other proration adjustments made following the Closing shall be made in cash; and

(v)If any prorations hereunder cannot be calculated accurately on the Closing Date, then they shall be calculated as soon after the Closing Date as feasible.  Either party owing the other party a sum of money based on such subsequent proration(s) shall promptly pay said sum to the other party, with interest per annum at the prime rate of interest as set forth in The Wall Street Journal, plus 2% from the Closing Date to the date of payment if payment is not made within 10 business days after delivery of a bill therefor.  Once all revenue and expense amounts have been finally and completely ascertained, the Operating Partnership shall prepare a final proration statement which shall be subject to the Contributor’s reasonable approval.  Upon the Contributor’s acceptance and approval of any final proration statement submitted by the Operating Partnership, such statement shall be conclusively deemed to be accurate and final.

6.3Tax Covenants.  The Contributor shall provide to the Operating Partnership with such cooperation and information relating to any of the Property as the parties reasonably may request in (i) filing any tax return, amended tax return or claim for tax refund, (ii) determining any liability for taxes or a right to a tax refund, (iii) conducting or defending any proceeding in respect of taxes, or (iv) performing tax diligence, including with respect to the impact of this transaction on the Company’s tax status as a REIT.  The Contributor shall promptly notify the Operating Partnership in writing upon receipt by the Contributor or any of their respective affiliates of notice of any pending or threatened federal, state, local or foreign tax audits or assessments relating to the income, properties or operations of the Contributor.  The Operating Partnership may participate at its own expense in the prosecution of any claim or audit with respect to taxes attributable to any taxable period ending on or before the Closing Date.  The Contributor shall retain all tax returns, schedules and work papers, and all material records and other documents relating thereto, until the expiration of the statute of limitations (and, to the extent notified by any party, any extensions thereof) of the taxable years to which such tax returns and other documents relate and until the final determination of any tax in respect of such years.

6.4Capital Contribution.  The Contributor and the Operating Partnership (i) agree that the contribution transaction pursuant to this Agreement shall constitute a “capital contribution” to the Operating Partnership and is intended to be governed by Section 721(a) of the Code (subject to the limitations and qualifications of Subchapter K of the Code), (ii) intend that no gain or loss shall be recognized by the Contributor for income tax purposes as a result of such transaction, provided the Contributor provides information to the Operating Partnership reasonably

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demonstrating that the “disguised sale” rules in Section 707 of the Code are not applicable, (iii) shall report such transaction in a manner consistent with such intent, except to the extent that a final determination within the meaning of Section 1313(a) of the Code requires otherwise and (iv) agree that it will not take any action that could jeopardize such tax treatment.

7.Termination.

7.1Termination.  Provided that the Operating Partnership is not in default, this Agreement may be terminated prior to the Closing Date at the Operating Partnership’s option (and the Earnest Money immediately returned to the Operating Partnership in full) in the event of any of the following occurrences:

7.1.1The Contributor fails to comply with any of the Contributor’s obligations hereunder after any applicable cure periods;

7.1.2A default exists in any material financial obligation of the Contributor that remains uncured after any applicable cure periods;

7.1.3Any representation made or contained in any submission from the Contributor proves to be untrue, substantially false or misleading when made at any time prior to the Closing Date that has a Material Adverse Effect;

7.1.4There shall be a material action, suit or proceeding pending or threatened against the Contributor that has a Material Adverse Effect;

7.1.5The Title Company shall refuse to provide written confirmation it will issue an owner’s title insurance policy reflecting only Permitted Liens, endorsements or affirmative insurance requested by the Operating Partnership during the Due Diligence Period; and

7.1.6Notice of termination given by the Operating Partnership pursuant to any express right to do so under this Agreement.

7.2Default by the Operating Partnership.  If the Operating Partnership fails to perform any of the Operating Partnership’s obligations hereunder, then the Contributor, at the Contributor’s option, if such failure continues for 15 business days after written notice of such default from the Contributor and as the Contributor’s sole and exclusive remedy, the Contributor shall have the right to terminate this Agreement by giving written notice to the Operating Partnership, in which event the Contributor shall be entitled to the full Earnest Money Deposit as liquidated damages, and neither the Operating Partnership nor the Contributor shall have any further rights or obligations under this Agreement except matters that survive termination.  Notwithstanding the foregoing, this provision is not intended to limit the Operating Partnership’s obligations to indemnify the Contributor for certain matters as expressly provided in this Agreement nor is it intended to limit the Operating Partnership’s ability to terminate this Agreement as provided herein.

7.3Default by the Contributor.  If the Contributor fails to perform any of the Contributor’s closing obligations, then the Contributor will have 3 business days to cure after receipt of written notice from the Operating Partnership; if any of the Contributor’s representations or warranties set forth herein are determined to be materially inaccurate or untrue when made and

36

such failure continues for 15 business days after written notice thereof from the Operating Partnership (or such longer period as reasonably required by the Contributor to effect such cure, but in no event more than 30 days) or the Closing Date of earlier, then the Operating Partnership, at the Operating Partnership’s option and as the Operating Partnership’s sole and exclusive remedies, shall have the right to (i) terminate this Agreement by giving written notice to the Contributor, whereupon the Earnest Money shall be immediately delivered to the Operating Partnership by the Title Company upon receipt of written notice from the Operating Partnership of such termination and the Contributor shall reimburse the Operating Partnership for all of the Operating Partnership’s third party actual documented reasonable out-of-pocket expenses (the “Contributor’s Breakage Fee”) and thereafter, neither the Operating Partnership nor the Contributor shall have any further rights or obligations hereunder except matters which survive termination, (ii) pursue a damage claim not to exceed the Contributor Breakage Fee (plus a refund of the Earnest Money) or (iii) enforce specific performance of the obligations of the Contributor under this Agreement.  Any suit for specific performance must be filed within 180 days after the Closing Date or shall thereafter be barred.  Notwithstanding the foregoing, this provision is not intended to limit the Contributor’s obligations to indemnify the Operating Partnership for certain matters as expressly provided in this Agreement.

8.Miscellaneous.

8.1Further Assurances.  The Contributor and the Operating Partnership shall take such other actions and execute such additional documents following the Closing as the other may reasonably request in order to effect the transactions contemplated hereby.

8.2Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

8.3Governing Law.  This Agreement shall be governed by and construed in accordance with the internal laws of the state in which the Property is located, without regard to the choice of laws provisions thereof.

8.4Amendment; Waiver.  Any amendment hereto shall be in writing and signed by all parties hereto.  No waiver of any provisions of this Agreement shall be valid unless in writing and signed by the party against whom enforcement is sought.

8.5Entire Agreement.  This Agreement, the exhibits and schedules hereto constitutes the entire agreement and supersede conflicting provisions set forth in all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and thereof, as the case may be.

8.6Assignability.  This Agreement shall be binding upon, and shall be enforceable by and inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and assigns; provided, however, that this Agreement may not be assigned (except by operation of law) by any party without the prior written consent of the other parties, and any attempted assignment without such consent shall be void and of no effect except that the Operating Partnership may assign this Agreement to an Affiliate.

37

8.7Titles.  The titles and captions of the Articles, Sections and paragraphs of this Agreement are included for convenience of reference only and shall have no effect on the construction or meaning of this Agreement.

8.8Third Party Beneficiary.  Except as may be expressly provided or incorporated by reference herein, including, without limitation, the indemnification provisions hereof, no provision of this Agreement is intended, nor shall it be interpreted, to provide or create any third party beneficiary rights or any other rights of any kind in any customer, affiliate, stockholder, partner, member, director, officer or employee of any party hereto or any other person or entity.

8.9Severability.  If any provision of this Agreement, or the application thereof, is for any reason held to any extent to be invalid or unenforceable, the remainder of this Agreement and application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto.  The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of the void or unenforceable provision and to execute any amendment, consent or agreement deemed necessary or desirable by the Operating Partnership to effect such replacement.

8.10Reliance.  Each party to this Agreement acknowledges and agrees that it is not relying on tax advice or other advice from the other party to this Agreement, and that it has or will consult with its own advisors.

8.11Survival.  It is the express intention and agreement of the parties hereto that the representations, warranties and covenants of the Contributor and the Operating Partnership set forth in this Agreement shall survive the consummation of the transactions contemplated hereby.  The provisions of this Agreement that contemplate performance after the Closing and the obligations of the parties not fully performed at the Closing shall survive the Closing and shall not be deemed to be merged into or waived by the instruments of Closing.

8.12Days.  All references to days in this Agreement will be construed as calendar days unless otherwise specified and a day will begin at 12:00 a.m. local El Paso, Texas time and end at 11:59 p.m. local El Paso, Texas time.

8.13Calculating Time Periods.  In calculating any time period prescribed or allowed by this Agreement, the day of the act or event from which the time period begins to run is not included and the last day of the time period is included.

8.14Incorporation of Exhibits.  All exhibits attached and referred to in this Agreement are hereby incorporated and will be deemed to be a part of this Agreement.

8.15Notice.  Any notice to be given hereunder by any party to the other shall be given in writing by either (i) personal delivery, (ii) registered or certified mail, postage prepaid, return receipt requested, or (iii) facsimile transmission (provided such facsimile is followed by an original of such notice by mail or personal delivery as provided herein), and any such notice shall be deemed communicated as of the date of delivery (including delivery by overnight courier, certified mail or facsimile).  Mailed notices shall be addressed as set forth below, but any party may change the address set forth below by written notice to other parties in accordance with this paragraph.

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To the Contributor:

HD Sunland Park Property LLC

c/o Ken Okamoto

Button Capital Management

29834 N Cave Creek Rd

Suite 118-283

Cave Creek, Arizona 85331

Email: ken.okamoto@buttoncapital.com

With a copy to:

The Convergence Group

c/o Sean Hawkins

[                         ]

[                         ]

Email: sean@theconvergence.group

To the Operating Partnership:

Lodging Fund REIT III OP, LP

Attn: Linzey Erickson

1635 43rd Street S, Suite 205

Fargo, ND 58103

Fax: (701) 532-3369

Email: lerickson@lodgingfund.com

With copy to:

Legendary Capital

Attn: David Durell

644 Lovett SE, Suite B

Grand Rapids, MI 49506

Fax: (701) 532-3369

Email:  ddurell@lodgingfund.com

8.16Force Majeure.  A party is not liable for failure to perform the party’s obligations if such failure is as a result of acts of God (including fire, flood, earthquake, storm, hurricane or other natural disaster), pandemic, war, invasion, act of foreign enemies, hostilities (regardless of whether war is declared), civil war, rebellion, revolution, insurrection, military or usurped power or confiscation, terrorist activities, nationalization, decrees of a court, tribunal or governmental authority, government sanction, blockage, embargo, labor dispute, strike, or lockout.  If a party asserts any force majeure as an excuse for failure to perform, such non-performing party must prove that it took reasonable steps to minimize delay or damages caused by foreseeable events and that the other Party was timely notified of the likelihood or actual occurrence of a force majeure event.  In the event of non-performance and/or termination pursuant to this Section 8.16,

39

notwithstanding any other provision of this Agreement, the Earnest Money shall be returned to the Operating Partnership in full.

8.17Impracticability.  The Operating Partnership shall not be required to perform its obligations under this Agreement to the extent the performance (i) becomes impracticable, in any material respect, as a result of a cause or causes outside the reasonable control of the Operating Partnership, (ii) would require the Operating Partnership to violate any applicable laws, rules, or regulations, or (iii) would result in the breach of any agreement or other applicable contract existing on the Execution Date.  In the event of non-performance and/or termination pursuant to this Section 8.17, notwithstanding any other provision of this Agreement, the Earnest Money shall be returned to the Operating Partnership in full.

8.18Equitable Remedies.  The Contributor agrees that irreparable damage would occur to the Operating Partnership in the event that any of the provisions of this Agreement were not performed in accordance with the specific terms hereof or were otherwise breached.  It is accordingly agreed that the Operating Partnership shall be entitled to an injunction or injunctions to prevent breaches of this Agreement by the Contributor and to enforce specifically the terms and provisions hereof in any federal or state court located in the state in which the Property is located (as to which the parties agree to submit to jurisdiction for the purpose of such action), this being in addition to any other remedy to which the Operating Partnership is entitled under this Agreement.

[signature page follows]

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IN WITNESS WHEREOF, the parties have executed this Contribution Agreement as of the date first written above.

OPERATING PARTNERSHIP: Lodging Fund REIT III OP, LP a Delaware limited partnership
By:	Lodging Fund REIT III, Inc., a Delaware corporation, its General Partner
	By:		/s/ Samuel C. Montgomery
	Name:		Samuel C. Montgomery
	Title:		Chief Operating Officer
CONTRIBUTOR: HD Sunland Park Property LLC, a Delaware limited liability company
By:		High Desert Investments 3 LLC, a Delaware
		limited liability company, its Sole Member
By:		/s/ Albert Ken Okamoto
Name:		Albert Ken Okamoto
Title:		Authorized Signatory

41

EXHIBIT A

TO

AMENDED AND RESTATED CONTRIBUTION AGREEMENT

LEGAL DESCRIPTION OF THE PROPERTIES

A PARCEL OF LAND CONTAINING 5.314 ACRES MORE OR LESS, BEING A PORTION OF LOT 1, BLOCK 2, SUNLAND COMMERCIAL DISTRICT UNIT 2, AN ADDITION TO THE CITY OF EL PASO, EL PASO COUNTY, TEXAS, ACCORDING TO THE MAP THEREOF RECORDED IN BOOK 23, PAGE 42, PLAT RECORDS OF EL PASO COUNTY, TEXAS, AND BEING MORE PARTICULARLY DESCRIBED BY METES AND BOUNDS AS FOLLOWS:

COMMENCING AT AN EXISTING CITY MONUMENT FOUND AT THE CENTERLINE INTERSECTION OF SUNLAND PARK DRIVE AND CONSTITUTION DRIVE; THENCE, WITH SAID CENTERLINE OF SUNLAND PARK DRIVE, NORTH 83° 39' 16" EAST A DISTANCE OF 380.98 FEET; THENCE, LEAVING SAID CENTERLINE, SOUTH 06° 20' 44" EAST A DISTANCE OF 60.00 FEET TO A SET CROWS FOOT IN CONCRETE ON THE SOUTH RIGHT OF WAY LINE OF SUNLAND PARK DRIVE AND BEING THE "POINT OF BEGINNING";

THENCE, WITH SAID RIGHT OF WAY, NORTH 83° 39' 16" EAST A DISTANCE OF 52.73 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, WITH SAID RIGHT OF WAY, NORTH 78° 22' 46" EAST A DISTANCE OF 149.41 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, LEAVING SAID RIGHT OF WAY, SOUTH 11° 39' 57" EAST A DISTANCE OF 96.73 FEET TO A SET NAIL WITH SHINER, TX NO. 1798;

THENCE, SOUTH 62° 09' 00" EAST A DISTANCE OF 87.94 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, NORTH 78° 20' 03" EAST A DISTANCE OF 76.65 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, NORTH 26° 32' 34" EAST A DISTANCE OF 147.75 FEET TO A POINT AT THE INTERSECTION WITH THE SOUTHWESTERLY RIGHT OF WAY LINE OF U.S. INTERSTATE HIGHWAY NO. 10, (A WITNESS CORNER BEING SET SOUTH 26° 32' 34" WEST A DISTANCE OF 1.00 FEET);

THENCE, ALONG THE RIGHT OF WAY LINE OF U.S. INTERSTATE HIGHWAY NO. 10 THE FOLLOWING COURSES;

NORTH 78° 20' 03" EAST A DISTANCE OF 213.36 FEET TO A SET 5/8" REBAR WITH CAP;

Exhibit A

1

NORTH 49° 53' 58" EAST A DISTANCE OF 228.07 FEET TO A SET CHISELED ''X'';

SOUTH 40° 06' 02" EAST A DISTANCE OF 343.40 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, LEAVING SAID RIGHT OF WAY, SOUTH 49° 53' 58" WEST A DISTANCE OF 332.76 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, SOUTH 78° 20' 03" WEST A DISTANCE OF 245.75 FEET TO A SET CHISELED ''X'' IN CONCRETE;

THENCE, NORTH 62° 09' 00" WEST A DISTANCE OF 618.23 FEET TO THE "POINT OF BEGINNING" OF THE HEREIN DESCRIBED PARCEL, AND CONTAINING 5.314 ACRES OF LAND MORE OR LESS. (REFERENCE: METES AND BOUNDS DESCRIPTION CONTAINED IN THAT CERTAIN DEED WITHOUT WARRANTY RECORDED UNDER INSTRUMENT NO. 20060040427, REAL PROPERTY RECORDS OF EL PASO COUNTY, TEXAS.)

SAVE AND EXCEPT THE PROPERTY DESCRIBED IN NOTICE OF LIS PENDENS FILED FOR RECORD MARCH 01, 2016 UNDER COUNTY CLERK'S FILE NO. 20160013652, OFFICIAL PUBLIC RECORDS OF EL PASO, TEXAS.

Exhibit A

2

EXHIBIT B

TO

CONTRIBUTION AGREEMENT

CONTRIBUTION AND ASSUMPTION AGREEMENT

FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged, the undersigned hereby assigns, transfers and conveys to Lodging Fund REIT III OP, LP, a Delaware limited partnership (the “Operating Partnership”), its entire legal and beneficial right, title and interest (other than any Excluded Assets) in, to all of the Contributed Assets and the Assumed Agreements, including but not limited to those listed on Schedule 2.2 of the Agreement, together with all amendments, waivers, supplements and other modifications of and to such agreements, contracts, licenses and other instruments through the date hereof, in each case to the fullest extent assignment thereof is permitted by applicable law,

TO HAVE AND TO HOLD the same unto the Operating Partnership, its successors and assigns, forever.

Upon the execution and delivery hereof, the Operating Partnership absolutely and unconditionally accepts the foregoing assignment of each Contributed Asset and Assumed Agreement and assumes all Assumed Liabilities in respect of the Assumed Agreements, and agrees to be bound by the terms, conditions and covenants thereof, and to perform all duties and obligations of the Contributor thereunder from and after the date hereof.

The Contributor for itself, its successors and assigns hereby covenants and agrees that, at any time and from time to time after the date hereof upon the written request of the Operating Partnership, the Contributor will, without further consideration, do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered, each and all of such further acts, deeds, assignments, transfers, conveyances and assurances as may reasonably be required by the Operating Partnership in order to assign, transfer, set over, convey, assure and confirm unto and vest in the Operating Partnership, its successors and assigns, title to the Assumed Agreements (other than the Excluded Assets) granted, transferred, conveyed and delivered by this Agreement.

Capitalized terms used herein, but not defined have the meanings ascribed to them in the Amended and Restated Contribution Agreement, dated as of May 12, 2021, between the Operating Partnership and the Contributor.

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered the Agreement as of the date first above written.

[signature page follows]

Exhibit B

1

CONTRIBUTOR: HD Sunland Park Property LLC a Delaware limited liability company By: High Desert Investments 3 LLC, a Delaware limited liability company, its Sole Member
By:
Name:	Albert Ken Okamoto
Title:	Authorized Signatory

ACKNOWLEDGEMENT

STATE OF                           )

                                             ) ss.:

COUNTY OF                      )

This instrument was acknowledged before me on this ______ day of May, 2021, Albert Ken Okamoto, Authorized Signatory of High Desert Investors 3 LLC, a Delaware limited liability company, acting in its capacity as the sole member HD Sunland Park Property LLC, a Delaware limited liability company, on behalf of said limited liability company.

Notary Public (SEAL)

Exhibit B

2

EXHIBIT C

TO

AMENDED AND RESTATED CONTRIBUTION AGREEMENT

ASSIGNMENT OF WARRANTIES

Exhibit C

1

EXHIBIT D

TO

AMENDED AND RESTATED CONTRIBUTION AGREEMENT

TOTAL CONSIDERATION

Total Consideration pursuant to Section 2.8 of the Agreement shall be $9,700,000, consisting of:

$7,900,000 via assumption of Contributor’s current financing as of the Effective Date

$1,500,000 in Series T Limited Units, equivalent to 150,000 Series T Limited Units

$300,000 in cash at Closing

Distributions pursuant to Section 2.11 of the Agreement shall be:

Exhibit D

1

The number of Common Limited Units in the Operating Partnership shall be determined based on the formula below, which shall constitute the Series T Value.  The Series T Value shall be determined upon (i) 36 months, or in the event the Operating Partnership is then in the process of transacting a sale of the Operating Partnership’s assets or another significant capital event necessitating a conversion is then in process, up to 48 months, after the Closing Date, (ii) the sale of (a) the Property or (b) substantially all of the Operating Partnership’s asset, or (iii) change in control of the Operating Partnership or its general partner.

The Applicable Cap Rate when applied to the then current trailing 12 month net operating income of the Contributed Asset, less amounts incurred or accrued by the Partnership for (i) $100,000 contribution towards closing costs, (ii) the original loan balance, (iii) loan assumption fees and related expenses, (iv) if applicable, costs of defeasance and related expenses, (v) PIP and capital expenditures, (vi) operating cash infused by the Operating Partnership, (vii) any shortfall of the 10% minimum cumulative yield on the Operating Partnership’s General Partner’s invested capital, and (viii) any other unrealized or unreimbursed costs of operating the Contributed Asset.

Applicable Cap Rate shall mean:

9.5%

“12 month net operating income of the Contributed Asset” shall mean: (a) the Gross Revenue of the Property, minus (b) Operating Expenses for the Property, for the current trailing twelve (12)-month period.

“Gross Revenue” shall include the following amounts recorded in accordance with generally accepted accounting principles consistently applied:

Exhibit D

2

(a)The entire amount of the price charged, whether wholly or partly for cash or on credit, or otherwise, for the rental of all rooms, suites, conference rooms, restaurants, banquet facilities, and any other facilities and for all goods, wares, and merchandise sold, leased, licensed, or delivered, and all charges for services sold or performed in, at, upon, or from any part of, the Property;

(b)All gross income from parking fees and valet service fees billed to guests of or visitors to the Property or any transient use of parking facilities by anyone;

(c)Without duplication, all deposits received and not refunded to the person or entity making the deposit in connection with any transactions at such time as the Operating Partnership becomes entitled to such deposit or the expiration of one (1) year from the date of such deposit, whichever first occurs;

(d)In-room entertainment services, communication services, Internet services, in-room masseur/masseuse services, and the like, if charged to a guest of the Property.

“Operating Expenses” shall mean: all of the ordinary and normal expenses of operation of the Property, determined on an annualized accrual basis, including annualized property taxes and Paycheck Protection Program (“PPP”) loan payments, insurance premiums (or taxes and/or insurance impounds, if taxes and/or insurance are impounded by Lender), reserve account equal to 4 percent (4%) of Gross Revenue for furniture, fixtures and equipment reserves, franchise fees and royalties, telephone and internet expenses, administrative and general expenses, management fees, utilities, repair and maintenance, salaries and wages, and advertising and marketing expenses; provided, however, that Operating Expenses will not include:

a. depreciation and amortization;

b. non-cash items;

c. all capital items or expenditures, including construction costs and professional fees and other expenses relating thereto and any amortization thereof;

d. costs of repair or restoration after a casualty or condemnation;

e. debt service payments made to lenders;

f. income or franchise taxes; and

g. extraordinary one-time expenses that are not reasonably expected to be incurred in future periods.

Exhibit D

3

EXHIBIT E

TO

AMENDED AND RESTATED CONTRIBUTION AGREEMENT

NON-COMPETITION AGREEMENT AND NON-SOLICITATION AGREEMENT

This NON-COMPETITION AND NON-SOLICITATION AGREEMENT (this “Agreement”) is dated as of May 12, 2021 (the “Effective Date”), between Lodging Fund REIT III OP, LP a Delaware limited partnership with an address of 1635 43rd Street South, Suite 205, Fargo, North Dakota 58103 (“Operating Partnership”), HD Sunland Park Property LLC, a Delaware limited liability company with an address of 900 Sunland Park Dr., El Paso, TX 79922 (“Contributor”), and ___________, its manager and _________________, operating officers of the Contributor (the “Interested Parties”).  The Contributor and Interested Parties are collectively referred to herein as the “Restricted Parties.”

R E C I T A L S:

A.The Operating Partnership and Contributor have entered into an Amended and Restated Contribution Agreement, dated as of May 12, 2021, (the “Contribution Agreement”), pursuant to which the Contributor has agreed to contribute property to the Operating Partnership, such property located at 900 Sunland Park Dr., El Paso, TX 79922 (the “Hotel”).

B.The agreement of the Restricted Parties to deliver this Agreement was a material inducement to Operating Partnership in entering into the Purchase Agreement.

C.The Operating Partnership, as the owner of the Hotel from and after the date of closing of the Contribution Agreement, desires to preclude the Restricted Parties from competing against it during the term of this Agreement.

A G R E E M E N T

For valuable consideration, the parties agree to the following covenants and agreements set forth in this Agreement and in the Contribution Agreement:

1.1Non-Competition.  The Restricted Parties covenant and agree that, for a period of 3 years beginning on the closing date of the Purchase Agreement (the “Closing Date”), neither the Restricted Parties, nor any entity controlled by the Restricted Parties (an “Affiliate”) will, without the prior written consent of the Operating Partnership, directly or indirectly, own, manage, operate, join, control, or engage or participate in the ownership, management, operation, or control of, or be connected as a shareholder, director, officer, agent, partner, joint venturer, lender, employee, consultant or advisor with, any business or organization any part of which engages in the business of hotel or motel ownership or management or is in competition with any of the business activities of the Operating Partnership, or any affiliate of the Operating Partnership within the Non-Competition Area.  Notwithstanding anything to the contrary set forth herein, Operating Partnership consents to the ownership and management of the Courtyard by Marriott – El Paso Airport and Hilton Garden Inn – University (UTEP) by Contributor’s Affiliates and/or Interested Parties, and these hotels shall be excluded from the scope of the Non-Competition Area.

Exhibit E

1

1.2Geographic Restriction. The term “Non-Competition Area” in this Agreement means the area within a 25-mile radius of the Hotel.  This provision will not apply to any business which was in operation prior to the Effective Date of the Contribution Agreement, and will not restrict the Interested Parties, individually or as owners or employees of an entity from managing or consulting regarding one or more hotel(s) or motel(s) under management agreement for owner(s) or lender(s) which either or both Interested Parties: (a) do business with prior to the Effective Date, (b) are part of a multi-property management relationship with owner(s); or a lender(s); or (c) is a property in receivership or foreclosure controlled by a lender.

1.3Confidential Information.

(a)On and after the Closing Date, the Restricted Parties will not use or disclose to anybody, and will cause all of their respective Affiliates to refrain from disclosing, any Confidential Information except:  (a) where necessary to comply with any legal obligation, such as a court order or subpoena, provided the Restricted Parties will first promptly notify the Operating Partnership prior to any such disclosure and permit Operating Partnership to intervene to block such disclosure; (b) where necessary, to the Restricted Parties’ attorneys and accountants, provided that they will have first been apprised of the limitations of this Agreement and will have agreed to be comply with and be bound by such limitations; or (c) where the Restricted Parties have obtained the express, prior written consent from the Operating Partnership.

(b)The term “Confidential Information” includes but is not limited to information specific to the Hotel, including but not limited to: customer lists, contact information, needs, preferences and history of service; business operations and methods; training materials; marketing plans; customer relations information; service and operations forms; practices, procedures, policies and guidelines; sales information; supplier/vendor agreements and information; and all other information, lists, records and data relating to or dealing with the business operations or activities of the Hotel, the disclosure of which may provide valuable benefits to any other person or entity or which would embarrass or damage the Hotel, Operating Partnership or their affiliates, monetarily or otherwise.  Furthermore, the term “Confidential Information” is intended to be construed broadly, including information in all forms, written or oral, on paper or stored electronically or in any other medium, and includes all originals, summaries, portions and copies of any such information.  Confidential Information does not include information that: (i) was widely known in the industry at the time of disclosure to the Restricted Party, or (ii) becomes widely known or readily available other than by a breach of this Agreement.

1.4Non-Solicitation; Non-Interference.  Except with the prior written approval of the Operating Partnership, for a period of 3 years after the Closing Date, neither the Restricted Parties nor their respective Affiliates will (a) employ or offer to employ any person who was principally employed at the Hotel on the Closing Date, (b) solicit, recruit, or encourage any employee or independent contractor of the Hotel or Operating Partnership to leave his or her employment, (c) hire, employ or cause to be hired, or establish a business with, any person who was employed at the Hotel, within the 12-month period preceding the Closing Date, (d) solicit any business clients of the Hotel or encourage them to terminate any contracts, and (e) interfere with or encourage any adjustments to long term negotiated rate clientele.  In addition, any attempt by any Restricted Party to induce others to terminate any contracts, employment, or independent contractor relationship with Operating Partnership or the Hotel, or any effort by any Restricted Party to interfere with any

Exhibit E

2

of the relationships between each of the Operating Partnership and the Hotel and any of their business clients, employees, or independent contractors, would be harmful and damaging to the Operating Partnership. For purposes of this Section 1.3, an “employee” will include any person who is a common law employee or who is an independent contractor providing personal services.

1.5Non-Disparagement.  The Restricted Parties will not: (a) make any disparaging or defamatory statements about Operating Partnership, the Hotel or their affiliates, or (b) authorize, encourage or participate with anyone to make such statements.

1.6Reasonableness; Independent Covenants.  The Restricted Parties acknowledge that the restrictions set forth in this Agreement are reasonable and necessary to prevent the use and disclosure of the Hotel’s and the Operating Partnership’s Confidential Information, to protect the goodwill and business relationships of the Hotel, and to otherwise protect the legitimate business interests of Operating Partnership and the Hotel from and after the Closing Date.  The Restricted Parties further acknowledge that all restrictions in this Agreement are reasonable in all respects, including duration, territory and scope of activity restricted.

1.7Remedies.

(a)The Restricted Parties agree that if they or any of their Affiliates engage or threaten to engage in any activity that constitutes a violation of any of the provisions of this Agreement, Operating Partnership will have the right and remedy to have the provisions of this Agreement specifically enforced by law or by any court having jurisdiction.

(b)The Restricted Parties agree a breach of this Agreement would cause immediate irreparable injury to Operating Partnership and/or the Hotel and that money damages would not provide an adequate remedy at law for any breach. Further, without limiting any other legal or equitable remedies available to it, Operating Partnership will be entitled to obtain equitable relief by temporary restraining order, preliminary and permanent injunction or otherwise from any court of competent jurisdiction (without the requirement of posting a bond or other security), including, without limitation, injunctive relief to prevent the Restricted Parties’ failure to comply with the terms and conditions of Section 1 of this Agreement.  Such right and remedy will be in addition to, and not in lieu of, any other rights and remedies available to Operating Partnership at law or in equity, including the right to seek monetary damages.

(c)The applicable 3-year period of the covenants contained in Section 1.4 above will be extended on a day for day basis for each day during which a Restricted Party is in violation of the covenant, so that each Restricted Party is restricted from engaging in the activities prohibited by the covenant for the full 3-year time period.

(d)The Restricted Parties agree that Operating Partnership will have the right to set-off any damages hereunder against any amount owed by Operating Partnership to Contributor at or after the closing of the Purchase Agreement.

(e)The Restricted Parties agree that the existence of any claim or cause of action by a Restricted Party against Operating Partnership, whether predicated on this Agreement or otherwise, will not constitute a defense to the enforcement by Operating Partnership of the covenants and restrictions in this Agreement.

Exhibit E

3

1.8Construction.  The parties acknowledge that the parties and their counsel have reviewed and revised this Agreement and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party will not be employed in the interpretation of this Agreement or any exhibits or amendments hereto.

1.9Severability.  If any provision of this Agreement will, for any reason, be adjudged by any court of competent jurisdiction to be invalid or unenforceable, such judgment will not affect, impair or invalidate the remainder of this Agreement but will be confined in its operation to the provision or provisions hereof directly involved in the controversy in which such judgment will have been rendered, and this Agreement will be construed as if such provision had never existed, unless such construction would operate as an undue hardship on Contributor or Operating Partnership or would constitute a substantial deviation from the general intent of the parties as reflected in this Agreement.

1.10Notices.  All notices, requests, demands, and other communications under this Agreement will be in writing and will be sent by hand messenger, electronic facsimile transmission, electronic mail (e-mail), reputable overnight courier, or certified mail, postage prepaid, return receipt requested.  Notices and other communications will be deemed to have been duly given, as applicable (i) if by hand delivery, on the date of delivery, if such date is a business day (or if such date is not a business day, then on the first business day following such date), (ii) if by electronic facsimile transmission, the date of transmission as evidenced by automated date and time confirmation from sender’s machine, (iii) if given by e-mail, the communication is instantaneous and the day of receipt can be designated to be the same day as sending and a written copy must also be sent via certified mail, (iv) if given by overnight courier, 1 business day after deposit with the overnight courier, or (v) if given by certified mail, 1 business day after deposit with the United States Post Office.  Notices will be addressed as set forth below, or to any other address that the parties will designate in writing:

If to the Restricted Parties:

HD Sunland Park Property LLC

c/o Ken Okamoto

Button Capital Management

29834 N Cave Creek Rd

Suite 118-283

Cave Creek, Arizona 85331

Email: ken.okamoto@buttoncapital.com

With copy to:

Button Capital

c/o Ken Okamoto

29834 N Cave Creek Rd, Suite 118-283

Cave Creek, AZ 85331

Email: ken.okamoto@buttoncapital.com

Exhibit E

4

If to Operating Partnership:

Lodging Fund REIT III OP, LP

Attn: Linzey Erickson

1635 43rd Street S, Suite 205

Fargo, ND 58103

Fax: (701) 532-3369

Email: lerickson@lodgingfund.com

With copy to:

Legendary Capital

Attn: David Durell

644 Lovett SE, Suite B

Grand Rapids, MI 49506

Fax: (701) 532-3369

Email:  ddurell@lodgingfund.com

1.11Other Legal Obligations.  Nothing in this Agreement shall be construed to limit or otherwise waive any other legal obligations of the Restricted Parties in favor of the Operating Partnership.

1.12Benefit and Binding Effect.  The Restricted Parties may not assign this Agreement without the prior written consent of Operating Partnership.  The Operating Partnership may assign to an entity of which the Operating Partnership or one of its affiliates is a constituent.  This Agreement will be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns.

1.13Further Assurances.  The parties will execute upon request any other documents that may be necessary and helpful for the effectiveness and enforceability desirable to the implementation and consummation of this Agreement.

1.14Governing Law.  This Agreement will be governed by the laws of the State of Delaware, without giving effect to the conflict of laws provisions thereof.

1.15Entire Agreement.  This Agreement constitutes the entire agreement and understanding between the parties hereto concerning the subject matter hereof.

1.16Headings.  The headings herein are included for ease of reference only and will not control or affect the meaning or construction of the provisions of this Agreement.

1.17Amendments/Waivers.  This Agreement cannot be amended except by an agreement in writing that makes specific reference to this Agreement and which is signed by the party against which enforcement of any such amendment is sought.  Any waiver of any provision of this Agreement must be in writing and signed by the party granting the waiver.

1.18Counterparts.  This Agreement may be signed in counterparts with the same effect as if the signature on each counterpart were upon the same instrument.

[signature page follows]

Exhibit E

5

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

OPERATING PARTNERSHIP:

Lodging Fund REIT III OP, LP

a Delaware limited partnership

By:

Lodging Fund REIT III, Inc., a Delaware corporation, its General Partner

By:

Name: Samuel C. Montgomery

Title: Chief Operating Officer

CONTRIBUTOR:

HD Sunland Park Property LLC

a Delaware limited liability company

By:  High Desert Investments 3 LLC, a Delaware

limited liability company, its Sole Member

By:

Name: Albert Ken Okamoto

Title: authorized Signatory

RESTRICTED PARTIES:

Exhibit E

6

EXHIBIT F

TO

AMENDED AND RESTATED CONTRIBUTION AGREEMENT

CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT

THIS AGREEMENT is made and entered into as of May 12, 2021 by and between Lodging Fund REIT III OP, LP (individually and collectively with its subsidiaries, owners and affiliates, the “Partnership”) and HD Sunland Park Property LLC (“Contributor”) (the Partnership and Contributor individually, a “Party” and collectively, the “Parties”).

The Parties intend to exchange Confidential Information to one another in connection with the possibility of engaging in the transaction described in the Contribution Agreement (the “Transaction”).

In consideration of the promises exchanged herein, the Parties hereto agree that the following terms and conditions shall apply when one Party discloses "Confidential Information" to the other Party:

1. DEFINITION OF “CONFIDENTIAL INFORMATION”.  As used in this Agreement, the term “Confidential Information” means all information relating to or used in the Partnership’s or Contributor’s business, regardless of whether it is marked “confidential” or otherwise. Confidential Information includes, but is not limited to, all business processes and procedures, systems, methods of doing business, data, reports, specifications, formulae, proposals, strategies, business plans and analyses, financial information and projections, investment strategy, marketing, advertising, promotions, market research, plans, information about past, present or potential investors, information about past, present or potential vendors, information about existing or future technology, and proprietary software or models.  Without limiting the foregoing, the term “Confidential Information” expressly includes: the Partnership’s investment strategies, including without limitation the possibility of entering into an umbrella real estate investment trust (“UPREIT”) transaction; and potential details related to the Transaction, including without limitation potential Transaction terms, provisions, and pricing.  The foregoing notwithstanding, the term “Confidential Information” does not include information that:

a) Is or becomes known to the public through no fault of the receiving Party;

b) The receiving Party already rightfully possessed before the disclosing Party disclosed it to the receiving Party;

c) Is subsequently disclosed to the receiving Party by a third-party who is not under obligation of confidentiality to the disclosing Party; or

d) The receiving Party develops independently without using Confidential Information.

2. NON-DISCLOSURE OBLIGATIONS.  Neither Party shall not disclose Confidential Information of the other Party to any of its officers, directors, employees, contractors or agents or to any third-party without the disclosing Party’s written consent, except that (a)

Exhibit F

1

the receiving Party may disclose such information to its officers, directors, employees, contractors, and agents whose duties justify their need to know such Confidential Information, and who have been clearly informed of their obligation to maintain the confidential status of such Confidential Information, and in the case of contractors or agents, who have signed a written document acknowledging the obligation to maintain the confidential status of Confidential Information, and shall cause them to comply fully with these obligations; and (b) the receiving Party may disclose Confidential Information to the extent required by applicable federal, state or local law, regulation, court order, or other legal process, provided such Party has given the disclosing Party prior written notice of such required disclosure and, to the extent reasonably possible, has given the disclosing Party an opportunity to contest such required disclosure at the disclosing Party’s expense.

3. PROTECTION OF CONFIDENTIAL INFORMATION.  The receiving Party shall use the same care to prevent the unauthorized use or disclosure of the Confidential Information as such Party uses with respect to its own confidential information of a similar nature, which shall not in any case be less than the care a reasonable business person would use under similar circumstances.  Without limiting the foregoing, the receiving Party shall take reasonable action by instruction, agreement or otherwise with respect to such Party’s employees or other persons permitted access to Confidential Information to cause them to comply fully with the receiving Party’s obligations hereunder.

4. PERMITTED USE OF CONFIDENTIAL INFORMATION.  The receiving Party may not use the Confidential Information directly or indirectly for any purpose other than the evaluations and uses contemplated pursuant to the Contribution Agreement, or for any purposes which could be deemed to be adverse to or competitive with the disclosing Party’s business.  Notwithstanding the foregoing and anything to the contrary in this Agreement, nothing contained herein shall impair Partnership’s right (or the right of any permitted assignee or Lodging Fund REIT III, Inc. (“Parent”)) to disclose information relating to this Agreement, the Contribution Agreement, or the Property (a) to any due diligence representatives and/or consultants that are engaged by, work for or are acting on behalf of, any securities dealers, investment advisors and/or broker-dealers evaluating Partnership, its permitted assignees or Parent, (b) in connection with any filings with governmental agencies (including the Securities and Exchange Commission) by Parent, (c) to any broker-dealers or investment advisors in Parent’s selling group and any of Parent’s investors, including pursuant to the confidential offering memorandum used in connection with Parent’s ongoing private offering, and (d) to the public as long as such information does not specifically disclose the identity of the Contributor or the Property and Partnership takes reasonable steps to ensure the party to whom information is given agrees to keep such information confidential, if such disclosure occurs before the end of the Due Diligence Period.

5. DESTRUCTION OF CONFIDENTIAL INFORMATION.  Upon the written request of the disclosing Party, the receiving Party shall cease using and arrange for the destruction of all copies of any Confidential Information then in the receiving Party’s possession or under such Party’s control. The receiving Party agrees to dispose of the Confidential Information in such a manner that the information cannot be read or reconstructed after

Exhibit F

2

destruction.  Upon the written request of the disclosing Party, the receiving Party shall certify in writing that it has complied with the obligations set forth in this paragraph.

6. INFORMATION SECURITY.  (a) The receiving Party shall take appropriate measures designed to protect the security, confidentiality, and integrity of Confidential Information; (b) the receiving Party shall restrict access to Confidential Information to those officers, directors, employees, contractors, agents or other third parties whose access the disclosing Party deems appropriate; (c) Confidential Information shall continue to be subject to the terms of this Agreement indefinitely; and (d) the disclosing Party shall have the right to review the receiving Party’s operations and procedures to ensure compliance with the foregoing requirements.  The receiving Party agrees to indemnify the disclosing Party for all reasonable fees, costs, charges, and expenses resulting from any unauthorized access to Confidential Information.

7. OWNERSHIP OF CONFIDENTIAL INFORMATION.  The disclosing Party shall retain all right, title and interest in and to its own Confidential Information.  Neither this Agreement nor any disclosure of Confidential Information shall be deemed to grant the receiving Party any license or other intellectual property right.

8. DISCLAIMERS.  The receiving Party acknowledges and agrees that the disclosing Party provides Confidential Information disclosed hereunder on an “AS IS” basis, without warranties of any kind, except as specified in Section 7 above.  Without limiting the foregoing, the disclosing Party does not represent or warrant that Confidential Information is accurate, complete or current.  The disclosure of Confidential Information containing business plans is for planning purposes only.  The disclosing Party may change or cancel its plans at any time at such Party's sole discretion. The receiving Party further acknowledges and understands that disclosure of Confidential Information is not a representation that the parties will enter into any type of business relationship.

9. INJUNCTIVE RELIEF.  The receiving Party acknowledges that the unauthorized use or disclosure by such Party of Confidential Information would cause immediate and irreparable damage that could not be fully remedied by monetary damages.  The receiving Party therefore agrees that the disclosing Party may specifically enforce this Agreement and shall be entitled to injunctive or other equitable relief to prevent unauthorized use or disclosure without the necessity of proving actual damage.

10. TERMINATION.  This Agreement shall remain in full force and effect until the earlier of (i) the Parties’ execution of a binding agreement superseding this Agreement, or (ii) a date two years after the conclusion of business discussions between the Parties.

11. SEVERABILITY.  If any provision of this Agreement is held invalid, illegal or unenforceable the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.

12. GENERAL.  This Agreement supplements the LOI, and to the extent inconsistent, supersedes any other non-disclosure or confidentiality agreement between the Parties.  The Parties may not amend this Agreement except in a writing that each party signs.  The terms of such an amendment shall apply as of the effective date of the amendment, unless the

Exhibit F

3

amendment specifies otherwise.  This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns. The laws of the State of Delaware shall govern this Agreement.  No provision of this Agreement may be waived, except pursuant to a writing executed by the party against whom the waiver is sought to be enforced.  No failure or delay in exercising any right or remedy or requiring the satisfaction of any condition under this Agreement operates as a waiver or estoppel of any right, remedy or condition.  All remedies provided for in this Agreement shall be cumulative and in addition to and not in lieu of any other remedies available at law, in equity or otherwise.

LODGING FUND REIT III OP, LP on behalf of itself and its subsidiaries, owners and affiliates	HD SUNLAND PARK PROPERTY LLC a Delaware limited liability company By:  High Desert Investments 3 LLC, a Delaware limited liability company, its Sole Member
By:	By:
Name:  Samuel C. Montgomery Title:  Chief Operating Officer	Name: Albert Ken Okamoto Title: Authorized Signatory

Exhibit F

4

EXHIBIT G

TO

AMENDED AND RESTATED CONTRIBUTION AGREEMENT

TAX INFORMATION

Exhibit G

1

Schedule 2.2

List of Contributed Assets, Assumed Agreements and Leases

1. All FF&E at the property, including and not limited to the FF&E inventory provided by Contributor during due diligence

2. All linen at the property, including and not limited to the linen inventory provided by Contributor during due diligence

3. Otis Elevator Company service agreement dated November 17, 1986

4. Cannon Copier lease with Spectrum Technologies dated 8.31.15

5. Phase II Dishmachine Rental with EcoLab dated 12.7.18

6. Dishmachine Rental Program with EcoLab dated 7.17.19

Schedule 2.2

1

Schedule 2.4

List of Excluded Assets

1. Contributor’s cash, cash equivalents and investments not relating to the operation of the Property.

2. Any Fixtures and Personal Property that contains hazardous materials that the Operating Partnership requires to be removed.

3. Any management agreement pertaining to the Property, which management agreements must be terminated at Closing.

Schedule 2.4

1

Schedule 2.5

List of Assumed Liabilities; Permitted Liens

Paycheck Protection Program Loan from the U.S. Small Business Association in an amount of $257,500, all or a portion of which may be forgiven.

Paycheck Protection Program Loan from the U.S. Small Business Association in an amount of $360,538.50, all or a portion of which may be forgiven.

Schedule 2.5

1

Schedule 2.6

List of Excluded Liabilities

Schedule 2.6

1

Schedule 2.10

Allocation of Total Consideration

Schedule 2.10

1

Schedule 3.1.8

3-05 Audit

Contributor acknowledges that under either Rule 3-05 or Rule 3-14 of Regulation S-X, the Operating Partnership is required to provide certain information in connection with reports the Company is required to file with the Securities and Exchange Commission.

Accordingly, Contributor agrees to:

(a)allow the Operating Partnership and its representatives which includes third party auditors, at the Operating Partnership’s sole cost and expense, to perform an audit of the Property, the Contributed Assets and business operations of and at the Property to the extent required under either Rule 3-05 or Rule 3-14 of Regulation S-X (hereinafter a “Rule 3-05 or 3-14 Audit”); and

(b)make available to the Operating Partnership and its representatives for inspection and audit following the Closing, at the Contributor’s offices the Contributor’s books and records relating solely to the Contributor’s operations that are reasonably requested by the Operating Partnership (but specifically excluding Contributor’s tax returns) for any full or partial years reasonably necessary to complete the Rule 3-05 or 3-14 Audit; and

(c)sign the management representation letter to be provided by the Operating Partnership’s independent auditors.

In connection with the foregoing, the Operating Partnership will give the Contributor no less than 10 business days’ prior written notice of the Operating Partnership’s plans to inspect and audit such books and records, and the Contributor’s obligation to perform herein shall extend beyond the Closing.

Notwithstanding the foregoing, the Contributor will not be required to (a) prepare or compile any materials, (b) incur any third-party costs or expenses in connection with the Rule 3-05 or 3-14 Audit, (c) provide any books, records or materials that could reasonably be expected to be books, records or materials in the possession or control of the tenant parties, (d) provide any books, records or materials that are not within the possession or control of the Contributor, or (e) make any representations or warranties with respect to such information beyond a customary management representation letter signed by the Contributor reasonably requested by any accounting firm engaged by the Operating Partnership to deliver its auditors report with respect to the Rule 3-05 or Rule 3-14 Audit.  The Operating Partnership acknowledges and agrees that the foregoing accounting and financial materials to be provided by the Contributor does not include any information or materials related to the period prior to the date the Contributor acquired the Property and the Contributed Assets and is to be limited solely to information regarding the Property and the Contributed Assets after they were placed into operation by the Contributor.  The Contributor acknowledges that the Rule 3-05 or Rule 3-14 Audit may require the Operating Partnership to perform a Rule 3-05 or 3-14 Audit both after the Effective Date and after the Closing Date and the Contributor agrees that the Contributor’s obligations under this Schedule 3.1.8 are material terms of this Agreement, and breach of this Schedule 3.1.8 will constitute a default under the terms of this Agreement.  The Contributor further agrees, that the Operating Partnership’s sole and absolute remedy in the event of default is that of specific performance.

Schedule 3.1.8

1

EX-10.24

Exhibit 10.24

LOAN AGREEMENT

BETWEEN

LF3 EL PASO, LLC

AND

LF3 EL PASO TRS, LLC

AS BORROWER

AND

EPH DEVELOPMENT FUND LLC

AS LENDER

May 12, 2021

TABLE OF CONTENTS

		Page
LIST OF SCHEDULES		iii
Article I Definitions		1
Section 1.1 Specific Definitions		1
Article II General Loan Terms		11
Section 2.1 The Loan		11
Section 2.2 Interest, Monthly Payments		11
(a)	Generally	11
(b)	Default Rate	12
(c)	Taxes	12
(d)	Requirements of Law	12
Section 2.3 Loan Repayment		13
(a)	Repayment	13
(b)	Mandatory Prepayments	13
(c)	Optional Prepayments	13
Section 2.4 Release of Property		14
Section 2.5 Payments and Computations		14
(a)	Making of Payments	14
(b)	Computations	14
(c)	Late Payment Charge	14
Section 2.6 Extension Option		14
Article III Cash Management And Reserves		15
Section 3.1 Cash Management Arrangements		15
Section 3.2 Required Repairs		15
Section 3.3 Taxes and Insurance Escrow		15
Section 3.4 Operating Expense Subaccount		16
Section 3.5 Interest Reserve		17
Section 3.6 FF&E Reserve		17
(a)	Funding of FF&E Reserve	17
(b)	Disbursements of FF&E Reserve Funds	18
Section 3.7 Casualty/Condemnation Funds		19
Section 3.8 Excess Cash Flow Subaccount		19
Section 3.9 Grant of Security Interest, Application of Funds		19
Section 3.10 Property Cash Flow Allocation		20
Section 3.11 Reasonable Care		20
Section 3.12 Lender’s Liability		21
Article IV Representations And Warranties		21
Section 4.1 Organization, Special Purpose		21
Section 4.2 Proceedings, Enforceability		21
Section 4.3 No Conflicts		22
Section 4.4 Litigation		22
Section 4.5 Agreements		22
Section 4.6 Title		22
Section 4.7 No Bankruptcy Filing		23
Section 4.8 Full and Accurate Disclosure		23
Section 4.9 No Plan Assets		23
Section 4.10 Compliance		23
Section 4.11 Contracts		24

TABLE OF CONTENTS, PAGE i

Section 4.12 Federal Reserve Regulations, Investment Company Act		24
Section 4.13 Utilities and Public Access		24
Section 4.14 Physical Condition		24
Section 4.15 Leases		24
Section 4.16 Fraudulent Transfer		25
Section 4.17 Ownership of Borrower		25
Section 4.18 Management Agreement		25
Section 4.19 Franchise Agreement		25
Section 4.20 Hazardous Substances		25
Section 4.21 Name, Principal Place of Business		25
Section 4.22 Other Debt		25
Section 4.23 Embargoed Person		26
Section 4.24 Anti-Money Laundering		26
Section 4.25 Sharing Agreements		26
Section 4.26 Labor Matters		26
Section 4.27 Operating Lease		26
Article V Covenants		26
Section 5.1 Existence		26
Section 5.2 Taxes		27
Section 5.3 Repairs, Maintenance and Compliance, Alterations		27
(a)	Repairs, Maintenance and Compliance	27
(b)	Alterations	27
Section 5.4 Performance of Other Agreements		28
Section 5.5 Cooperate in Legal Proceedings		28
Section 5.6 Further Assurances		28
Section 5.7 Environmental Matters		28
Section 5.8 Title to the Property, Liens		28
Section 5.9 Leases		29
Section 5.10 Estoppel		29
Section 5.11 Property Management		29
(a)	Management Agreement	29
(b)	Termination of Manager	30
(c)	Co-Management; Management Agreement (NHS)	30
Section 5.12 Special Purpose Bankruptcy Remote Entity		30
Section 5.13 Change in Business or Operation of Property		30
Section 5.14 Certain Prohibited Actions		30
Section 5.15 Prohibited Transfers, Loan Assumption		31
Section 5.16 Expenses		32
Section 5.17 Indemnity		33
Section 5.18 Embargoed Person		34
Section 5.19 Anti-Money Laundering		35
Section 5.20 Easements, Rights-of-Way, and Restrictive Covenants		36
Section 5.21 Use and Operation of the Property		36
Section 5.22 Hotel Covenants		36
Section 5.23 Hospitality License Covenants		38
Section 5.24 Operating Lease Covenants		38
Article VI Notices And Reporting		38
Section 6.1 Notices		38
Section 6.2 Borrower Notices and Deliveries		39
Section 6.3 Financial Reporting		40
(a)	Bookkeeping	40
(b)	Monthly Reports	40
(c)	Quarterly Reports	40

TABLE OF CONTENTS, PAGE ii

(d)	Annual Reports	40
(e)	Other Reports	40
(f)	Annual Budget	41
Article VII Insurance, Casualty, And Condemnation		41
Section 7.1 Insurance		41
(a)	Coverage	41
(b)	Policies	43
Section 7.2 Casualty		43
(a)	Notice, Restoration	44
(b)	Settlement of Proceeds	44
Section 7.3 Condemnation		44
(a)	Notice, Restoration	44
(b)	Collection of Award	44
Section 7.4 Application of Proceeds or Award		45
(a)	Application to Restoration	45
(b)	Application to Debt	45
(c)	Procedure for Application to Restoration	45
Article VIII Defaults		46
Section 8.1 Events of Default		46
Section 8.2 Remedies		48
(a)	Acceleration	48
(b)	Remedies Cumulative	48
(c)	Delay	48
(d)	Lender’s Right to Perform	49
Article IX Miscellaneous		49
Section 9.1 Survival		49
Section 9.2 Lender’s Discretion		49
Section 9.3 Rules of Construction		49
Section 9.4 Modification, Waiver in Writing		50
Section 9.5 Time of Essence		50
SECTION 9.6 WAIVER OF JURY TRIAL		50
Section 9.7 Severability		50
Section 9.8 Preferences		50
Section 9.9 Waiver of Notice		50
Section 9.10 Remedies of Borrower		51
Section 9.11 Prior Agreements		51
Section 9.12 Offsets, Counterclaims and Defenses		51
Section 9.13 No Usury		51
Section 9.14 Conflict, Construction of Documents		52
Section 9.15 No Third Party Beneficiaries		52
Section 9.16 Yield Maintenance Premium		52
Section 9.17 Joint and Several Liability		53
Section 9.18 Assignment		56
SECTION 9.19 GOVERNING LAW		56
Section 9.20 Counterparts		56
Section 9.21 Final Agreement		56

LIST OF SCHEDULES

Schedule 1 -	Form of Note
Schedule 2 -	Required Repairs
Schedule 3 -	Organization of Borrower

TABLE OF CONTENTS, PAGE iii

Schedule 4 -	Definition of Special Purpose Bankruptcy Remote Entity
Schedule 5 -	Service Contracts

TABLE OF CONTENTS, PAGE iv

TABLE OF DEFINITIONS

	Page		Page
Account Collateral	19	Accounts	19
Act	4-5	Affiliate	1
Agreement	1	Annual Budget	41
Applicable Taxes	12	Approved Capital Expenses	1
Approved FF&E Expenditures	1	Approved Operating Expenses	1
Award	44	Bankruptcy Action	4-6
Bankruptcy Proceeding	23	Borrower	1
Borrower Representative	1	Business Day	1
Capital Budget	41	Capital Expenses	1
Cash Management Account	15	Cash Management Bank	1
Casualty	44	Casualty/Condemnation Funds	19
Casualty/Condemnation Prepayment	13	Change in Control	1
Code	2	Condemnation	44
Control	2	Control Party	2
Debt	2	Debt Service	2
Default	2	Default Rate	2
Effective Date	1	Embargoed Person	34
Equipment	2	ERISA	2
ERISA Affiliate	3	Event of Default	46
Excess Cash Flow	19	Excess Cash Flow Subaccount	19
Excusable Delay	3	Extended Stated Maturity Date	14
Extension Notice	14	Extension Option	14
FF&E	3	FF&E Expenditures	3
FF&E Initial Deposit	17	FF&E Reserve Funds	17
FF&E Reserve Monthly Deposit	17	FF&E Reserve Subaccount	18
FF&E Work	17	GAAP	3
Governmental Authority	4	Gross Revenues	4
Guarantor	4	Guaranty	4
Hotel Transactions	4	Improvements	4
		Indemnified Parties	33
Independent Director	4-3	Independent Manager	4-4
Insurance Premiums	43	Insurance Requirements	4
Insured Casualty	44	Interest Period	4
Interest Rate	4	Inventory	4
Late Payment Charge	14	Leases	4
Legal Requirements	5	Lender	1
Lender Loss Payee	42	License Holder	4
Licenses	23	Lien	5
Liquor Concession Agreement	5	Loan	5
Loan Agreement	1-1	Loan Documents	5
Lockbox Account	15	Lockbox Bank	15
Maker	1-1	Management Agreement	5
Manager	5	Manager Default	6
Material Agreements	6	Material Alteration	6
Maturity Date	6	Net Cash Flow	6
Note	7
Obligations	7	OFAC	34
OFAC Laws	34	Officer’s Certificate	7
Operating Budget	41	Operating Expense Reserve Funds	16

TABLE OF DEFINITIONS, PAGE i

Operating Expense Subaccount	16	Operating Lease	7
Payment Date	7	Permitted Encumbrances	7
Permitted FF&E Financing	7	Permitted Indebtedness	31
Permitted Transfers	8	Person	8
Plan	8	Policies	43
Principal	9	Proceeds	44
Property	9	Rent Roll	24
Rents	9	Required Percentage	17
Required Repairs	15	Requirement of Law	12
Reserve Funds	9	Restoration	45
Significant Casualty	44	Single Member Bankruptcy Remote LLC	4-4
Sole Member	4-4	Special Member	4-5
Special Purpose Bankruptcy Remote Entity	30	SPE Owner	1
SPE Owner GP	9	State	9
Stated Maturity Date	10	Subaccounts	15
Subordination Agreement	10	Successor Control Party	10
		Sweep Event	10
Sweep Period	10	Sweep Termination Event	10
Tax and Insurance Escrow Funds	16	Tax and Insurance Escrow Initial Deposit	15
Tax and Insurance Escrow Monthly Deposit	16	Tax and Insurance Subaccount	16
Taxes	10	Term	10
Transfer	10	Transfer Conditions	10
TRS Lessee	1	UCC	11
Uniform System of Accounts for Hotels	11	Welfare Plan	11
Yield Maintenance Date	11	Yield Maintenance Premium	11

TABLE OF DEFINITIONS, PAGE ii

LOAN AGREEMENT

This Loan Agreement (this “Agreement”), dated as of May 12, 2021 (the “Effective Date”) is made by and between LF3 EL PASO, LLC, a Delaware limited liability company (“SPE Owner”) and LF3 EL PASO TRS, LLC, a Delaware limited liability company (“TRS Lessee”; and collectively with SPE Owner , “Borrower”), and EPH Development Fund LLC, a Delaware limited liability company (“Lender”).

Article I Definitions

Section 1.1 Specific Definitions. The following terms have the meanings set forth below:

“Affiliate” means, as to any Person, any other Person that, directly or indirectly, is in Control of, is Controlled by, or is under common Control with such Person or is a director or officer of such Person or of an Affiliate of such Person.

“Alcohol Concession Agreement” means the Alcohol Concession Agreement by and between LF3 El Paso TRS, LLC and TVO ABC Corporation dated May 12, 2021.

“Approved Capital Expenses” means Those Capital Expenses incurred by Borrower that are either (i) included in the Capital Budget or (ii) approved by Lender in its reasonable discretion.

“Approved FF&E Expenditures” means the cost of FF&E Expenditures incurred by Borrower and either (i) included in the Annual Budget, (ii) approved by Lender, which approval will not be unreasonably withheld or delayed, or (iii) permitted to be incurred by Manager without the consent of TRS Lessee pursuant to the provisions of the Franchise Agreement.

“Approved Operating Expenses” means Operating expenses incurred by Borrower which (i) are included in the approved Operating Budget for the current calendar year, (ii) are for real estate taxes, insurance premiums, electric, gas, oil, water, sewer or other utility service to the Property, (iii) are for sales, use, occupancy, liquor or similar taxes at the Hotel, or (iv) have been approved in writing by Lender.

“Borrower Representative” means individually or collectively, as the context may require, SPE Owner’s Member, SPE Owner’s Member GP, and TRS Lessee’s Member.

“Business Day” means any day other than a Saturday or a Sunday or any day on which commercial banks in El Paso, Texas are authorized or required to close.

“Capital Expenses” means expenses that are necessary for the repair and improvement of the Property which are required to be capitalized under GAAP.

“Cash Management Agreement” means the cash management agreement or deposit account control agreement in form and substance satisfactory to Lender to be executed by Borrower, Lender, Manager and the Cash Management Bank within five business days after the Effective Date.

“Cash Management Bank” means Wells Fargo Bank, National Association, or such other bank or depository selected by Lender in its discretion.

“Change in Control” means if Control Party no longer has the power to direct or cause the direction of the management and policies of Borrower or Borrower Representative.

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“Code” means the Internal Revenue Code of 1986, as amended and as it may be further amended from time to time, any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.

“Control” means with respect to any Person, either (i) ownership directly or indirectly of 25 percent or more of all equity interests in such Person or (ii) the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, through the ownership of voting securities, by contract or otherwise.

“Control Party” means SPE Owner’s Member GP, or any Successor Control Party.

“Debt” means the unpaid Principal, all interest accrued and unpaid thereon, any Yield Maintenance Premium and all other sums due to Lender in respect of the Loan or under any Loan Document.

“Debt Service” means with respect to any particular period, the scheduled Principal and interest payments due under the Note in such period.

“Debt Service Amount” means Debt Service due on the Loan during the 12 month period ending on the applicable Determination Date; provided, during the first 12 months after the Effective Date, the Debt Service Amount will be calculated based on Debt Service made to the applicable Determination Date, provided such payments will be annualized; and provided further, if at any time during the 12 month period ending on the applicable Determination Date, interest-only payments are due, then with respect to such interest-only period, the Debt Service Amount will be the monthly payment of Principal and interest that would be due based on a 25 year amortization schedule using the then-current interest rate.

“Debt Service Coverage Ratio” means with respect to the 12-month period ending on the measurement date, the ratio, calculated Borrower for such time period, each as determined in accordance with GAAP and calculated according to the Uniform System of Accounts for Hotels, of (a) Net Operating Income; to (b) the Debt Service Amount.

“Debt Yield” means, with respect to the 12-month period of time immediately preceding the date of determination, the percentage, calculated for Borrower for such time period, each as determined in accordance with GAAP and calculated according to the Uniform System of Accounts for Hotels, of: (a) Net Operating Income to (b) the outstanding Principal as of the date of determination.

“Default” means the occurrence of any event under any Loan Document which, with the giving of notice or passage of time, or both, would be an Event of Default.

“Default Rate” means a rate per annum equal to the lesser of (i) the maximum rate permitted by applicable law, or (ii) 7 percent above the Interest Rate, compounded monthly.

“Determination Date” means the last day of each Fiscal Quarter occurring after the Effective Date.

“Elevation” means Elevation Hotel Management, L.L.C., a Colorado limited liability company.

“Equipment” means the property described in Section 1.23(f) of the Security Instrument.

“ERISA” means the Employment Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder.

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“ERISA Affiliate” means all members of a controlled group of corporations and all trades and business (whether or not incorporated) under common control and all other entities which, together with Borrower, are treated as a single employer under any or all of Section 414(b), (c), (m) or (o) of the Code.

“Excusable Delay” means a delay due to acts of God, governmental restrictions, stays, judgments, orders, decrees, war, other enemy actions, terrorism, civil commotion, fire, casualty, strikes, work stoppages, shortages of labor or materials or other causes beyond the reasonable control of the party in question.

“FF&E” means fixtures, furnishings, equipment, furniture, and other items of tangible personal property now or hereafter located in or on the Property or the Improvements or used in connection with the use, occupancy, operation and maintenance of all or any part of the hotel located on the Property, other than stocks of food and other supplies held for consumption in normal operation but including, without limitation, appliances, machinery, equipment, signs, artwork, office furnishings and equipment, guest room furnishings, and specialized equipment for kitchens, laundries, bars, restaurant, public rooms, health and recreational facilities, linens, dishware, all partitions, screens, awnings, shades, blinds, floor coverings, hall and lobby equipment, heating, lighting, plumbing, ventilating, refrigerating, incinerating, elevators, escalators, air conditioning and communication plants or systems with appurtenant fixtures, vacuum cleaning systems, call or beeper systems, security systems, sprinkler systems and other fire prevention and extinguishing apparatus and materials, reservation system computer and related equipment, all equipment, manual, mechanical or motorized, for the construction, maintenance, repair and cleaning of, parking areas, walks, underground ways, truck ways, driveways, common areas, roadways, highways and streets, and the Vehicles (as defined in the Uniform System of Accounts for Hotels).

“FF&E Expenditures” means for any period means the amount expended for FF&E in, at or to the Property to the extent the same is not a Capital Expense.

“Fiscal Quarter” means, the quarterly accounting periods of Borrower consistent with the Borrower’s accounting and reporting practices in effect on the Effective Date.

“Force Majeure Event” means any damage to the Improvements or disruption to the operation of the Property that is caused by fire or acts of God (such as flood, lightning, earthquake, or hurricane), war, strikes, other labor disputes, or riots or similar civil disturbance, but only to the extent such damage or disruption (a) is beyond the control of and not caused in whole or in part by negligence, illegal acts, or willful misconduct of Borrower, its employees, or any Person acting under Borrower’s control or with the approval or authorization of Borrower and (b) could not have been avoided or overcome by the exercise of due diligence or reasonable foresight on the part of Borrower or any other such Person.

“Franchise Agreement” means the License Agreement dated as of May 12, 2021, between TRS Lessee, as licensee, and Franchisor, as licensor, as modified by the comfort letter dated effective on or about as of May 16, 2021, executed by Franchisor and TRS Lessee.

“Franchisor” means Holiday Hospitality Franchising, LLC, a Delaware limited liability company.

“GAAP” means generally accepted accounting principles in the United States of America as of the date of the applicable financial report.

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“Governmental Authority” means any court, board, agency, commission, office or authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) now or hereafter in existence.

“Gross Revenues” means, for any period, the Rents actually received by Borrower or Manager.

“Guarantor” means each of SPE Owner’s Member and Guarantor (Individual).

“Guarantor (Individual)” means Corey R. Maple.

“Guaranty” means the Guaranty Agreement dated as of the Effective Date by SPE Owner’s Member, guarantying the obligations of the Borrower under the Loan Documents.

“Guaranty (Recourse)” means the Guaranty Agreement (Recourse Obligations) dated as of the Effective Date by Guarantor (Individual), guarantying certain obligations of the Borrower under the Loan Documents.

“Hotel Transactions” means, collectively, (i) occupancy arrangements for customary hotel transactions in the ordinary course of Borrower’s business conducted at the hotel located at the Property, including nightly rentals (or licensing) of individual hotel rooms or suites, banquet room use, and food and beverage services, and (ii) informational or guest services that are terminable on one month’s notice or less without cause and without penalty or premium, including co-marketing, promotional services, and outsourced services.

“Improvements” means all buildings and other improvements on the Land.

“Insurance Requirements” means collectively, (i) all material terms of any insurance policy required pursuant to this Agreement and (ii) all material regulations and then-current standards applicable to or affecting the Property or any part thereof or any use or condition thereof, which may, at any time, be recommended by the Board of Fire Underwriters, if any, or such other body exercising similar functions, having jurisdiction over the Property.

“Interest Period” means (i) the period beginning on and including the Effective Date and ending on the last day of the calendar month in which the Effective Date occurs, (ii) each calendar month thereafter until the calendar month before the month in which the Maturity Date occurs, and (iii) the period beginning on the first day of the calendar month in which the Maturity Date occurs and ending on the Maturity Date.

“Interest Rate” means five percent per annum (or, when applicable pursuant to this Agreement or any other Loan Document, the Default Rate).

“Inventory” means, as defined in the UCC, and including items which would be entered on a balance sheet under the line items for “Inventories” or “china, glassware, silver, linen and uniforms” under the Uniform System of Accounts for Hotels.

“Land” means the approximately 5.2713 acre tract of land located in El Paso County, Texas described on Exhibit A to the Security Instrument.

“Leases” means all leases, licenses, and other agreements or arrangements heretofore or hereafter entered into affecting the use, enjoyment or occupancy of, or the conduct of any activity upon or in, the Property or the Improvements, including any guarantees, extensions, renewals, modifications or amendments thereof and all additional remainders, reversions and other rights and estates appurtenant thereunder. As used herein, the term “Leases” will not include Hotel Transactions.

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“Legal Requirements” means statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting Borrower, any Loan Document or all or part of the Property or the construction, ownership, use, alteration or operation thereof, whether now or hereafter enacted and in force, and all permits, licenses and authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instrument, either of record or known to Borrower, at any time in force affecting all or part of the Property.

“Lien” means any mortgage, deed of trust, lien (statutory or otherwise), pledge, hypothecation, easement, restrictive covenant, preference, assignment, security interest or any other encumbrance, charge or transfer of, or any agreement to enter into or create any of the foregoing, on or affecting all or any part of the Property or any interest therein, or any direct or indirect interest in Borrower or Borrower Representative, including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic’s, materialmen’s and other similar liens and encumbrances.

“Liquor Concession Agreement” means the Alcohol Concession Agreement dated on or about the Effective Date between TRS Lessee and Manager.

“Loan” means the loan in the Principal amount made pursuant to this Agreement and evidenced by the Note.

“Loan Assumption Agreement” means the Loan Assumption Agreement dated the Effective Date among Original Borrower, Borrower, and Lender.

“Loan Documents” means this Agreement and all other documents, agreements and instruments now or hereafter evidencing, securing or delivered to Lender in connection with the Loan, including, but not limited to, the following, each of which (other than the Security Instrument) is dated as of the Effective Date (a) the Loan Assumption Agreement, (b) the Note, (c) the Security Instrument, as amended by the Loan Assumption Agreement, (d) Memorandum of Loan Assumption Agreement among Lender, Original Borrower, and Borrower, (e) the Cash Management Agreement, (f) the Guaranty, (g) the Guaranty (Recourse), and  (h) the Environmental Indemnity Agreement made by Guarantor and Borrower (the “Environmental Indemnity”), as each of the foregoing may be (and each of the foregoing defined terms will refer to such documents as they may be) amended, restated, replaced, supplemented or otherwise modified from time to time.

“Management Agreement” means each of the Management Agreement (Elevation) and the Management Agreement (NHS), as each of the same may be amended, restated, replaced, supplemented or otherwise modified from time to time in accordance with Section 5.11.

“Management Agreement (Elevation)” means the Hotel Management Agreement dated November 2, 2017, between Original Borrower and Elevation, as assigned to and assumed by Lessee pursuant to the Assignment and Assumption of Management Agreement dated May 12, 2021, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time in accordance with Section 5.11.

“Management Agreement (NHS)” means a Management Agreement to be executed  by Lessee and NHS on the form previously provided to and reviewed by Lender, with such changes as are approved by Lender pursuant to Section 5.11(c).

“Manager” means initially Elevation; and upon execution of the  Management Agreement (NHS) as required by Section 5.11(c), will mean each of Elevation and NHS, and will

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include any successor, assignee or replacement manager appointed by a Borrower in accordance with Section 5.11.

“Manager Default” means has means the occurrence of a breach by or default of Manager under any of its obligations in the Management Agreement.

“Material Agreements” means each contract and agreement relating to the ownership, management, development, use, operation, leasing, maintenance, repair or improvement of the Property or any portion thereof, other than the Management Agreement, Liquor Concession Agreement and the Leases, as to which either (a) the amount of the aggregate expenditures thereunder would, or are reasonably anticipated to, exceed $50,000.00 or (b) the term thereof extends beyond one year (unless cancelable on 30 days or less notice without requiring the payment of termination fees or payments of any kind). Material Agreements will also include any Hotel Transaction (x) relating to any reservation lasting for more than 90 days and any reservation covering more than 20 rooms or any other use or occupancy arrangement outside of the ordinary course of Borrower’s business conducted at the Hotel located at the Property and (y) that requires Borrower’s consent in order for Manager to enter into any such Hotel Transaction.

“Material Alteration” means any alteration affecting structural elements of the Property, any utility or HVAC system contained in the Property, or the exterior of any building constituting a part of the Property, or any alteration at the Property the cost of which exceeds $200,000, in each case, however, other than the following, which will not constitute Material Alterations means (i) Required Repairs, (ii) alterations performed as part of a Restoration, or (iii) alterations performed in connection with Approved Capital Expenses.

“Maturity Date” means the date on which the final payment of principal of the Note becomes due and payable as therein provided, whether at the Stated Maturity Date, by declaration of acceleration, or otherwise.

“Net Cash Flow”  means for any period Gross Revenues actually received by Borrower or Manager, annualized, less the greater of (1) Approved Operating Expenses and (2) operating expenses actually paid by Borrower or Manager for the 12 month period ending with the most recent calendar month reporting. For the purpose of determining Net Cash Flow, operating expenses will (x) not include depreciation, amortization and other non-cash items, debt service, Capital Expenses, any contributions to any of the Reserve Funds, income taxes or other taxes in the nature of income taxes on sales, or use taxes required to be paid to any Governmental Authority, equity distributions, and other extraordinary and non-recurring items, and legal or other professional services fees and expenses unrelated to the operation of the Property, (y) be increased to reflect known increases in operating expenses that are anticipated, in Lender’s reasonable determination, to occur within the succeeding 12-month period including without limitation those related to Taxes and Insurance Premiums and (z) include (I) the actual fees paid to the Manager pursuant to the Management Agreement for such period of determination and (II) an amount equal to the greater of (x) an imputed capital improvement/FF&E requirement amount equal to the Required Percentage (as defined in Section 3.10(b) of Gross Revenue per annum (regardless of whether a reserve therefor is required hereunder or the amount of such reserve) and (y) the amount actually deposited into the FF&E Reserve Subaccount.

“Net Operating Income” means, as determined in accordance with GAAP and calculated according to the Uniform System of Accounts for Hotels, the following: (a) the sum of net income (or loss), interest expense, income taxes, depreciation, amortization, management fees, replacement reserves, and officers’ salaries expensed on the income statement, minus (b) the greater of (i) 4% of total revenues as an assumed reserve for replacement and (ii) actual

LOAN AGREEMENT, PAGE 6

replacement reserve, minus (c) the greater of (i) 3% of total revenues as an assumed management fee and (ii) actual management fees (including both base and incentive management fees, if any), minus (d) non-recurring miscellaneous income (as determined by Lender), plus (e) non-recurring miscellaneous expense (as allowed by Lender), and (f) plus or minus any adjustments made by Lender in its sole discretion to calculations for acquisitions or other similar circumstances where operating performance history is limited.

“Note” means Amended and Restated Promissory Note in the form of Schedule 1 hereto made by Borrower to Lender, in the original amount of $7,900,000, as the same may be amended, restated, modified, or assigned, which instrument amends and restates in its entirety, but does not novate, the Promissory Note dated May 31, 2018, from Original Borrower to Payee.

“NHS” means NHS LLC dba National Hospitality Services, a North Dakota limited liability company.

“Obligations” means (a) Borrower’s obligations for the payment of the Debt (b) the performance of all obligations of Borrower contained herein, (c) the performance of each obligation of Borrower contained in any other Loan Document, (d) the payment of all costs, expenses, legal fees and liabilities incurred by Lender in connection with the enforcement of any of Lender’s rights or remedies under the Loan Documents, or any other instrument, agreement or document which evidences or secures any other Obligations or collateral therefor, whether now in effect or hereafter executed, and (e) the payment, performance, discharge and satisfaction of all other liabilities and obligations of Borrower to Lender, whether now existing or hereafter arising, direct or indirect, absolute or contingent, and including, without limitation, each liability and obligation of Borrower under any one or more of the Loan Documents and any amendment, extension, modification, replacement or recasting of any one or more of the instruments, agreements and documents referred to herein or therein or executed in connection with the transactions contemplated hereby or thereby.

“Officer’s Certificate” means a certificate delivered to Lender by Borrower which is signed by an authorized officer of the appropriate entity and the person executing such Officer’s Certificate has the power and authority to execute the same.

“Operating Lease” means will mean the Lease Agreement dated May 12, 2021, between SPE Owner, as landlord, and TRS Lessee, as tenant, as it may be further amended, restated, replaced, supplemented, extended or otherwise modified from time to time in accordance with the terms of the Loan Documents.

“Original Borrower” means HD Sunland Park Property, L.L.C., a Delaware limited liability company.

“Payment Date” means (i) the Effective Date and (ii) the first first Business Day of each calendar month after the month in which the Effective Date occurs..

“Permitted Encumbrances” means (i) the Liens created by the Loan Documents, (ii) all Liens and other matters disclosed in the title insurance policy insuring the Lien of the Security Instrument, (iii) Liens, if any, for Taxes or other charges not yet due and payable and not delinquent, (iv) any workers’, mechanics’ or other similar Liens on the Property provided that any such Lien is bonded or discharged within 30 days after Borrower first receives notice of such Lien and (v) such other title and survey exceptions as Lender approves in writing in Lender’s discretion.

“Permitted FF&E Financing” means, collectively any purchase agreement, equipment leases, financing leases and other agreements relating to the acquisition of FF&E related to the

LOAN AGREEMENT, PAGE 7

ownership and operation of the Property provided that (i) such financing and/or leasing is subject to commercially reasonable terms and conditions and at a market rate of interest and/or leasing rate, (ii) the aggregate annual amount of payments (including principal and interest) of such financing and/or leasing for FF&E will at all times be less than one percent of the then-Principal, (iii) the removal of any FF&E which is the subject of such financing and/or leasing will not materially damage or impair the value of the Property, (iv) the financing and/or leasing does not create a lien or security interest on any Property other than the FF&E being financed and/or leased, (v) such financing and/or leasing is not evidenced by a note, and (vi) upon request by Lender, Borrower will provide Lender with copies of the documentation for such financing and/or leasing.

“Permitted Transfers” means

(i) a Lease, easement, license, or Hotel Transaction entered into in accordance with the Loan Documents,

(ii) a Permitted Encumbrance or Permitted FF&E Financing,

(iii) any Transfer of direct limited liability company interests in SPE Owner or any Transfer of direct limited liability company interests in TRS Lessee, provided, however, (a) Borrower will give Lender notice of such Transfer not less than ten Business Days prior to the date of such Transfer together with all instruments effecting such Transfer and such other information regarding the Transfer as Lender may reasonable require, (b) Borrower will pay all of Lender’s out-of-pocket costs of review and (c) all the Transfers in this subparagraph (iii) must satisfy the Transfer Conditions;

(iv) any Transfer, directly as a result of the death of a natural person, of stock, membership interests or other ownership interests previously held by the decedent in question to the Person or Persons lawfully entitled thereto, or

(v) Transfers of ownership interests in any entity that is a publicly traded entity on a nationally recognized stock exchange.

“Person” means any individual, corporation, partnership, limited liability company, joint venture, estate, trust, unincorporated association, any other person or entity, and any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing.

“PIP” means the Property Improvement Plan issued for Holiday Inn El Paso West – Sunland Park on February 23, 2021 by IGH in connection with the proposed change of ownership, acknowledged on or about the Effective Date by TRS Lessee .and any subsequent property improvement plan Property Improvement Plan pursuant to the Franchise Agreement.

“PIP Requirements” means those items set forth in any PIP.

“Plan” means (i) an employee benefit or other plan established or maintained by Borrower or any ERISA Affiliate or to which Borrower or any ERISA Affiliate makes or is obligated to make contributions and (ii) that is covered by Title IV of ERISA or Section 302 of ERISA or Section 412 of the Code.

“PPP Loan Documents” means any and all loan agreements, loan applications, promissory notes, and other documents and instruments evidencing or issued in connection with (1) Loan No. 70711018, issued by WestStar Bank in El Paso, Texas ("WestStar") to Original

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Borrower  in the original principal amount of $257,500 and (2) Loan No. 68911985-02, issued by WestStar to Original Borrower on March 3, 2021, in the original principal amount of $360,538.50, both of which loans were issued under and in connection with the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and the Consolidated Appropriations Act, 2021, respectively, and both of which loans are being assumed by Borrower on or about the Effective Date.

“Principal” means the principal amount of the Note, which on the date hereof is $7,900,000.00

“Property” means the Land and Improvements thereon consisting of an approximately 175 key full service hotel owned by Borrower and encumbered by the Security Instrument, together with all rights pertaining to such real property and Improvements, and all other collateral for the Loan as more particularly described in the granting clauses of the Security Instrument and referred to therein as the Property. The street address of the Property is 900 Sunland Park Dr, El Paso, TX 79922.

“Rents” means all rents, additional rents, rent equivalents, moneys payable as damages (including, without limitation, payments in the nature of Lease termination payments and payments by reason of the rejection of a Lease in a Bankruptcy Proceeding) or in lieu of rent or rent equivalents, royalties (including all oil and gas or other mineral royalties and bonuses), income, fees, receivables, receipts, revenues, deposits (including security, utility and other deposits), accounts, cash, issues, profits, charges for services rendered, and other payment and consideration of whatever form or nature received by or paid to or for the account of or benefit of Borrower, Manager or any of their agents or employees from any and all sources arising from or attributable to the Property and the Improvements, including all receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of all or any portion(s) of the Property and/or the Improvements or rendering of services by Borrower, Manager or any of their agents or employees and proceeds, if any, from business interruption or other loss of income insurance. Rents will include revenues from the rental of rooms, guest suites, conference and banquet rooms, food and beverage facilities, health clubs, spas or other amenities, telephone services, laundry, vending, television and parking and all other items of revenue, receipts or other income as identified in the Uniform System of Accounts of Hotels.

“Reserve Funds” means, collectively, the Tax and Insurance Escrow Funds, the Operating Expense Reserve Funds, the FF&E Reserve Funds, the Excess Cash Flow and any other escrow or reserve fund established pursuant to the Loan Documents.

“Security Instrument” means the Deed of Trust, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents dated May 31, 2018, from Original Borrower to WestStar Title, LLC, as trustee, for the benefit of Lender, recorded on May 31, 2018 as Document Number 20180042472 in the real property records of El Paso County, Texas, as modified by the Loan Assumption Agreement.

“SPE Owner’s Member” means Lodging Fund REIT III OP, LP, a Delaware limited partnership.

“SPE Owner’s Member GP” means Lodging Fund REIT III, Inc., a Maryland corporation.

“State” means the State of Texas.

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“Stated Maturity Date” means initially, May 15,  2023, or the Extended Stated Maturity Date if the Loan is extended pursuant to Section 2.6.

“Subordination Agreement” means the Collateral Assignment, Subordination, Non- Disturbance and Attornment Agreement by and between Borrower, Lender, and Manager, and will include the Collateral Assignment, Subordination, Non- Disturbance and Attornment Agreement by and between Borrower, Lender, and NHS if executed and delivered pursuant to Section 5.11(c).

“Successor Control Party” means any Person that succeeds to the ownership of all or substantially all of the assets of the Control Party, provided that such Person directly or indirectly owns assets, or has assets under management, equal to or greater than $300,000,000.00.

“Sweep Event” means (a) an Event of Default has occurred and is continuing, (b) a Manager Default has occurred and is continuing, or (c) the Management Agreement has expired or has been terminated.

“Sweep Period” means any period during which a Sweep Event has occurred and is continuing. A Sweep Period will automatically commence upon the occurrence of a Sweep Event and will end upon the occurrence of a Sweep Termination Event.

“Sweep Termination Event” means (a) with respect to a Sweep Period that commenced as a result of the occurrence of an Event of Default, the Event of Default giving rise to such Sweep Event has been cured or waived and no other Event of Default and/or Manager Default has occurred and is then continuing, (b) with respect to a Sweep Period that commenced as a result of a Manager Default, the Manager Default giving rise to such Sweep Event has been cured or waived and no other Manager Default and/or Event of Default has occurred and is continuing, and (c) with respect to a Sweep Period that commenced as a result the termination or expiration of the Management Agreement, a replacement manager is appointed pursuant to Section 5.11(b) and no event of default by successor manager pursuant to the replacement management agreement and/or Event of Default has occurred and is continuing.

“Taxes” means all real estate and personal property taxes, assessments, water rates or sewer rents, maintenance charges, impositions, vault charges and license fees, now or hereafter levied or assessed or imposed against all or part of the Property, provided that Taxes will not include income taxes, sales and use taxes, occupancy taxes or other similar taxes.

“Term” means the entire term of this Agreement, which will expire only upon repayment in full of the Debt and full performance of each and every obligation to be performed by Borrower pursuant to the Loan Documents.

“Transfer” means any sale, conveyance, transfer, lease, assignment, lien, hypothecation, encumbrance or pledge, or the entry into any agreement to sell, convey, transfer, lease, assign, lien, hypothecate, encumber or pledge whether by law or otherwise, of, on, in or affecting (a) all or part of the Property (including any legal or beneficial direct or indirect interest therein), (b) any direct or indirect interest in Borrower (including any profit interest), or (c) any direct or indirect interest in Borrower Representative.

“Transfer Conditions” means, after giving effect to the Transfer in question, (a) the Transfer will not cause Borrower to cease to be a Special Purpose Bankruptcy Remote Entity or to breach the OFAC Laws, (b) the Transfer will not result in (y) the transferee (together with its Affiliates) increasing its direct or indirect interest in Borrower or in Borrower Representative to an amount that exceeds 49 percent or (z) a Change in Control, (c) SPE Owner’s Member GP will continue to own at least 51 percent of all equity interests (direct or indirect) in Borrower, and

LOAN AGREEMENT, PAGE 10

(d) no Person will acquire, either directly or indirectly, 30 percent or more of the direct or indirect equity interests in Borrower or Borrower Representative (that did not already own 30 percent or more of the direct or indirect equity interests in Borrower or Borrower Representative prior to such acquisition).

“TRS Lessee’s Member” means Lodging Fund REIT III TRS, Inc., a Delaware corporation.

“UCC” means the Uniform Commercial Code as in effect in the State or the state in which any of the Accounts are located, as the case may be.

“Uniform System of Accounts for Hotels” means the accounting standards printed in the then most recently revised edition of A Uniform System of Accounts for Hotels, as adopted by the Hotel Association of New York City, Inc. and the American Hotel and Motel Association, as amended or changed from time to time by the Hotel Association of New York City, Inc. and the American Hotel and Motel Association (or other appropriate board or committee of both Associations), except that any accounting principle or practice required or permitted to be changed by the Hotel Association of New York City, Inc. and the American Hotel and Motel Association (or other appropriate board or committee of both Associations) in order to continue as an accounting standard or practice may be so changed only so long as such required or permitted change will not have the effect of permitting Borrower’s and Guarantor’s compliance with any financial covenants or performance tests contained in this Agreement when without such change, such parties would not so comply.

“Welfare Plan” means an employee welfare benefit plan, as defined in Section 3(1) of ERISA.

“Yield Maintenance Date” means the date that is 90 days before the Stated Maturity Date.

“Yield Maintenance Premium” means with respect to any payment or prepayment of Principal (whether voluntary or due to the acceleration of the Loan) on or before the Yield Maintenance Date, an amount equal to the lesser of (i) the maximum amount permitted by applicable law and (ii) (A) the amount of such prepayment (or the amount of Principal so accelerated) multiplied by (B) the Interest Rate multiplied by (C) a fraction (expressed as a percentage) having a numerator equal to the number of days difference between the Yield Maintenance Date and the date such prepayment occurs and a denominator equal to 360.

Article II General Loan Terms

Section 2.1 The Loan. Lender is making the Loan to Borrower on the Effective Date, which will mature on the Maturity Date. Borrower acknowledges receipt of the Loan, the proceeds of which are being and will be used to refinance existing indebtedness. No amount of the Loan that is repaid may be reborrowed.

Section 2.2 Interest, Monthly Payments.

(a) Generally. From and after the Effective Date, interest on the unpaid Principal will accrue at the Interest Rate and be payable as hereinafter provided. On first Payment Date, Borrower will pay interest on the unpaid Principal from the Effective Date through and including the last day of the calendar month in which the Effective Date occurs. On each Payment Date, through and including the Maturity Date, Borrower will pay interest on the unpaid Principal accrued and accruing through the last day of the Interest Period in which such Payment Date

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occurs. All accrued and unpaid interest will be due and payable on the Maturity Date.

(b) Default Rate. After the occurrence and during the continuance of an Event of Default, the entire unpaid Debt will bear interest at the Default Rate, and will be payable upon demand, to the extent permitted by applicable law.

(c) Taxes. Any and all payments by Borrower hereunder and under the other Loan Documents will be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on Lender’s income, and franchise taxes imposed on Lender by the law or regulation of any Governmental Authority (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to in this Section 2.2(c) as “Applicable Taxes”). If Borrower is required by law to deduct any Applicable Taxes from or in respect of any sum payable hereunder to Lender, the following will apply: (i) the sum payable will be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.2(c)), Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower will make such deductions and (iii) Borrower will pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. Payments pursuant to this Section 2.2(c) will be made within ten days after the date Lender makes written demand therefor.

(d) Requirements of Law. If any requirement of any applicable law or any change in the interpretation or application thereof or compliance by Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the Effective Date

(i) will subject Lender to any tax of any kind whatsoever with respect to this Agreement, the Note or the Loan (excluding net income taxes) or change the basis of taxation of payments to Lender in respect thereof, or

(ii) will impose on Lender any other condition (together with subsections (i) and (ii) above, individually and collectives, a “Requirement of Law”),

and the result of any of the foregoing is to increase the cost to Lender, by an amount which Lender deems to be material, of making or maintaining the Loan or to reduce any amount receivable hereunder in respect thereof, then, in any such case, Borrower will, from time to time, upon receipt of prior written notice of not less than ten Business Days of such fact and a reasonably detailed description of the circumstances, promptly pay Lender such additional amount or amounts as will compensate Lender for such increased cost or reduced amount receivable (provided such additional amounts are then being charged by Lender to its borrowers under similar loans generally) and are not prohibited by such Requirement of Law to be charged back.

(iii) If Lender will have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by Lender or any corporation controlling Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made

LOAN AGREEMENT, PAGE 12

subsequent to the Effective Date will have the effect of reducing the rate of return on Lender’s or such corporation’s capital as a consequence of its obligations hereunder by an amount deemed by Lender to be material (taking into consideration Lender’s or such corporation’s policies with respect to capital adequacy), then from time to time, Borrower will promptly, upon notice from Lender, pay to Lender such additional amount or amounts as will compensate Lender for such reduction (provided such additional amounts are then being charged by Lender to its borrowers under similar loans generally).

(iv) If Lender becomes entitled to claim any additional amounts pursuant to this Section 2.2.5, it will promptly notify Borrower of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this subsection submitted by Lender to Borrower will be conclusive in the absence of manifest error or the provision of immediate proof by Borrower to the contrary.

Section 2.3 Loan Repayment.

(a) Repayment. Borrower will repay the entire outstanding principal balance of the Note in full on the Maturity Date, together with (i) accrued and unpaid interest thereon to (but excluding) the date of repayment and any (ii) any other amounts then due and owing under the Loan Documents. Except during the continuance of an Event of Default, all proceeds of any repayment, including any prepayments of the Loan, will be applied by Lender as follows in the following order of priority: First, accrued and unpaid interest at the Interest Rate, second, to Principal, and third, to any other amounts then due and owing under the Loan Documents, including the Yield Maintenance Premium. If prior to the Stated Maturity Date, the Debt is accelerated following the occurrence and during the continuance of an Event of Default, then Lender will be entitled to receive, in addition to the unpaid Principal and accrued interest and other sums due under the Loan Documents, an amount equal to the applicable Yield Maintenance Premium applicable to such prepayment. During the continuance of an Event of Default, all proceeds of repayment, including any payment or recovery on the Property (whether through foreclosure, deed-in-lieu of foreclosure, or otherwise) will, unless otherwise provided in the Loan Documents, be applied in such order and in such manner as Lender will elect in Lender’s discretion.

(b) Mandatory Prepayments. The Loan is subject to mandatory prepayment in certain instances of Insured Casualty or Condemnation (each a “Casualty/Condemnation Prepayment”), in the manner and to the extent set forth in Section 7.4(b). Each Casualty/Condemnation Prepayment, after deducting Lender’s costs and expenses (including reasonable attorneys’ fees and expenses) in connection with the settlement or collection of the Proceeds or Award, will be applied in the same manner as repayments under Section 2.3(a), and if such Casualty/Condemnation Payment is made on any date other than a Payment Date, then such Casualty/Condemnation Payment will include interest that would have accrued on the Principal prepaid to but not including the next Payment Date. If no Event of Default is continuing, any such mandatory prepayment under this Section 2.3(b) will be without the payment of Yield Maintenance Premium.

(c) Optional Prepayments. Borrower may prepay all or a portion of the Principal on any Payment Date, but only if Borrower gives Lender at least 30 days’ prior written

LOAN AGREEMENT, PAGE 13

notice thereof and such prepayment is accompanied by the applicable Yield Maintenance Premium.

Section 2.4 Release of Property. Lender will, upon the written request and at the expense of Borrower, upon the indefeasible payment in full of the Debt in accordance herewith, release the Lien of the Loan Documents if not theretofore released.

Section 2.5 Payments and Computations.

(a) Making of Payments. Each payment by Borrower will be made in immediately available funds by 11:00 a.m., Central Standard time, on the date such payment is due, to Lender by deposit to such account as Lender may designate by written notice to Borrower. All such payments will be made irrespective of, and without any deduction, set-off or counterclaim whatsoever and are payable without relief from valuation and appraisement laws and with all costs and charges incurred in the collection or enforcement thereof, including attorneys’ fees and court costs.

(b) Computations. Interest payable under the Loan Documents will be computed on the basis of the actual number of days elapsed over a three hundred sixty 360-day year.

(c) Late Payment Charge. If any Principal, interest or other sum due under any Loan Document is not paid by Borrower on the date on which it is due (other than the balloon payment due on the Maturity Date), Borrower will pay to Lender upon demand an amount equal to the lesser of 5 percent of such unpaid sum or the maximum amount permitted by applicable law (the “Late Payment Charge”), in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. Such amount will be secured by the Loan Documents.

Section 2.6 Extension Option. Borrower may request that Lender extend (the “Extension Option”) the Stated Maturity Date to May 15, 2024 (the “Extended Stated Maturity Date”). Upon receipt of any such request to so extend the Stated Maturity Date, Lender will promptly confirm to Borrower in writing that the Stated Maturity Date will be so extended upon the satisfaction of the following conditions, with no extension fee or other fee payable to Lender.

(a) Borrower will give Lender its written notice requesting such extension (an “Extension Notice”) not less than 60 days prior to original or then-current Stated Maturity Date, as applicable (i.e., the then-current Maturity Date without giving effect to the requested extension) (the “Current Maturity Date”),

(b) no Event of Default exists at the time such request is made and on the then-current Stated Maturity Date (i.e., the then-current Stated Maturity Date without giving effect to the requested extension), and no more than two Events of Default have occurred before the time that such request is made (including an Event of Default that is continuing at the time that the request is made),

(c) Borrower delivers to Lender an Officer’s Certificate confirming the accuracy of the information contained in clause (b) above,

(d) the Debt Service Coverage Ratio of Borrower, measured as of the last day of the month immediately prior to the month in which the Current Maturity Date will occur, is at least 1.3:1.0, and

LOAN AGREEMENT, PAGE 14

(e) the Debt Yield of Borrower, measured as of the last day of the month immediately prior to the month in which the Current Maturity Date will occur, is at least 12.5%.

With respect to any request by Borrower to extend the Stated Maturity Date pursuant to this Section 2.6, if Borrower is unable to satisfy all of the foregoing conditions within the applicable time frames for each such condition, Lender will have no obligation to extend the Stated Maturity Date hereunder.

Article III Cash Management And Reserves

Section 3.1 Cash Management Arrangements.  Within five business days after the Effective Date, Borrower will execute and will cause Cash Management Bank to execute and deliver the Cash Management Agreement to Lender, in form and substances satisfactory to Lender (which Lender will then execute and deliver to Borrower and the Cash Management Bank). Borrower represents and warrants that all issuers of credit cards accepted at the Property are and have been instructed to cause all sums payable by such issuers to be transmitted directly into a depository account designated account number 5817966343 (the “Lockbox Account”) maintained at the Cash Management Bank. The requirement in the foregoing sentence will apply from and after the Effective Date, including the period of time before the full execution of the Cash Management Agreement. Until the Cash Management Agreement is fully executed and effective, funds in the Lockbox Account will be disbursed only if and to the extent expressly permitted by this Agreement or otherwise agreed to in writing, in each instance, by Lender. All Rents received by Borrower or Manager will be deposited into the Lockbox Account within three Business Days after receipt, except that, that Manager will be entitled to maintain up to $25,000 at the Hotel as petty cash. So long as no Sweep Period has occurred and is continuing, Manager, as agent for Borrower, will have access to all funds deposited into the Lockbox Account and may direct Cash Management Bank to make disbursements in accordance with the directions of Manager, as agent for Borrower, pursuant to and in accordance with the Management Agreement. Upon the occurrence of a Sweep Event, Lender will notify the Cash Management Bank of such Sweep Event, and Borrower and Cash Management Bank will establish an Eligible Account at the Cash Management Bank, which Eligible Account will be controlled by Lender (the “Cash Management Account”). During the continuance of any Sweep Period, funds deposited into the Lockbox Account in excess of $25,000 will be swept by the Cash Management Bank on each Business Day into the Cash Management Account and applied and disbursed in accordance with this Agreement and the Cash Management Agreement. Lender will also establish subaccounts of the Cash Management Account that will at all times be Eligible Accounts (and may be ledger or book entry accounts and not actual accounts) (such subaccounts are referred to herein as “Subaccounts”). The Cash Management Account and any Subaccount will be under the sole control and dominion of Lender, and Borrower will have no right of withdrawal therefrom. Funds on deposit in the Cash Management Account will be released as contemplated in this Agreement and the Cash Management Agreement. Borrower will pay for all reasonable expenses of opening and maintaining all of the above accounts.

Section 3.2 Required Repairs. Borrower will perform and complete each item of the repairs and environmental remedial work at the Property described on Schedule 2 (the “Required Repairs”) within the designated time frame set forth for such item on Schedule 2. The Required Repairs constitute FF&E Work and accordingly may be paid for with FF&E Reserve Funds subject to the requirements set forth in Section 3.6.

Section 3.3 Taxes and Insurance Escrow. On the Effective Date, Borrower will pay to Lender $92,000.00 (the “Tax and Insurance Escrow Initial Deposit”). Thereafter, Borrower will pay to Lender on each Payment Date (a) one-twelfth of the Taxes that Lender estimates will be payable during the next 12 months in order to accumulate with Lender sufficient funds to pay all such Taxes at least 30 days prior to their respective delinquency dates and (b) one-twelfth of the

LOAN AGREEMENT, PAGE 15

Insurance Premiums that Lender estimates will be payable for the renewal of the coverage afforded by the Policies upon the expiration thereof in order to accumulate with Lender sufficient funds to pay all such Insurance Premiums at least 30 days prior to the expiration of the Policies (the “Tax and Insurance Escrow Monthly Deposit”, which, together with the Tax and Insurance Escrow Initial Deposit, are hereinafter called the “Tax and Insurance Escrow Funds”). Upon the occurrence of a Sweep Event and during the continuance of a Sweep Period, funds on deposit in the Cash Management Account will be swept into a Subaccount (the “Tax and Insurance Subaccount”) in accordance with the priority pertaining to the application of funds as set forth in, and otherwise pursuant to the terms and conditions of, this Agreement and the Cash Management Agreement. If no Event of Default has occurred and is continuing then Lender will (x) apply the Tax and Insurance Escrow Funds to payments of Taxes and Insurance Premiums required to be made by Borrower pursuant to Section 5.2 and Section 7.1, provided that Borrower has promptly supplied Lender with notices of all Taxes and Insurance Premiums due. In making any payment relating to Taxes and Insurance Premiums, Lender may do so according to any bill, statement or estimate procured from the appropriate public office (with respect to Taxes) or insurer or agent (with respect to Insurance Premiums), without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien or title or claim thereof. If Lender determines in its reasonable judgment that the current balance of Tax and Insurance Escrow Funds will be insufficient to pay (or in excess of) the Taxes or Insurance Premiums not otherwise relating to Policies maintained through Manager’s (or its Affiliates’) insurance programs next coming due, Lender may increase (or decrease) the amount of the Tax and Insurance Escrow Monthly Deposit required to be made by Borrower.

Section 3.4 Operating Expense Subaccount. During the continuance of any Sweep Period,

(a) on or before each Payment Date, Borrower will pay to Lender the monthly amount set forth in the approved Operating Budget for the month of such Payment Date together with any operating expenses in excess of the Operating Budget for the month in which such Payment Date occurs

(b) funds on deposit in the Cash Management Account will be swept into a Subaccount (the “Operating Expense Subaccount”) in accordance with the priority pertaining to the application of funds as set forth in, and otherwise pursuant to the terms and conditions of, the Cash Management Agreement and Section 3.10(a) (the “Operating Expense Reserve Funds”), and

(c) release of monies from the Operating Expense Subaccount on each Payment Date will be conditioned on the following:

(i) no Event of Default will have occurred and is continuing, and

(ii) no later than ten days prior to such Payment Date Borrower will deliver (A) an Officer’s Certificate certifying (w) that such funds to be disbursed on such Payment Date will be used to pay for Approved Operating Expenses, (x) that all outstanding trade payables and amounts then due and payable in connection with any Permitted FF&E Financing (other than those to be paid from the requested disbursement or those constituting Permitted Indebtedness) have been paid in full, (y) that the same has not been the subject of a previous disbursement, and (z) that all previous disbursements have been or will be used to pay Approved Operating Expenses, and (B) reasonably detailed documentation of expenses incurred in the proceeding month satisfactory to Lender as to the amount, necessity and purpose therefor.

LOAN AGREEMENT, PAGE 16

On each Payment Date, if the amount so disbursed to Manager as agent of Borrower from the Operating Expense Subaccount in the preceding month was (i) less than the total of the Approved Operating Expenses actually incurred for such prior month (subject in all respects to the approved Annual Budget), then Lender will, on such Payment Date, disburse funds held in the Operating Expense Subaccount equal to the difference, or (ii) greater than the total of the Approved Operating Expenses actually incurred for such prior month, then Lender will retain from the amount disbursed from the Operating Expense Subaccount equal to such difference. Borrower will use (and will cause Manager to use) all monies released to it pursuant to this Section to pay for Approved Operating Expenses.

Section 3.5 Interest Reserve. On the Effective Date, Borrower will deposit $400,000.00 in an account controlled by Lender (the “Interest Reserve Account”). At any time that Lender estimates in its sole but good faith discretion that the Net Cash Flow will not be sufficient to pay the Debt Service on each Payment Date through the Maturity Date, Lender will notify Borrower (the “Interest Shortfall Notice”) of such determination and Borrower will deposit such additional amount that Lender notifies Borrower it estimates in its sole but good faith discretion is necessary to make up such deficiency in the Interest Reserve Account within ten Business Days of the delivery of the Interest Shortfall Notice (the amount of such deficiency being herein referred to as the “Interest Shortfall”). For the avoidance of doubt, an Interest Shortfall may exist whether or not Lender delivers an Interest Shortfall Notice to Borrower. Failure to make such deposit as set forth herein will be an immediate Event of Default. Amounts deposited from time to time in the Interest Reserve Account pursuant to this Section 3.5 are referred to herein as the “Interest Reserve Funds”. Interest Reserve Funds in the minimum amount of $100,000.00 shall be maintained in the Interest Reserve Account at all times during the Term (the “Interest Reserve Minimum Balance”). Lender will apply amounts, if any, in the Interest Reserve Account (subject to the Interest Reserve Minimum Balance) toward the Debt Service on each Payment Date, provided no Event of Default has occurred and is continuing, there is no Interest Shortfall, the Debt Service Coverage Ratio of Borrower, measured as of the last day of the month that is two months prior to the month in which such Payment Date occurs (the “IR Measurement Date”), is at least 1.5:1.0, and the Debt Yield of Borrower, measured as of the IR Measurement Date, is at least 16% (and for the avoidance of doubt, Borrower will pay Debt Service on each Payment Date from sources other than the Interest Reserve Funds with respect to each Payment Date on which the criteria in this sentence are not satisfied).

Section 3.6 FF&E Reserve.

(a) Funding of FF&E Reserve. On the Effective Date, Borrower will deposit with Lender $1,000,000.00 (the “FF&E Initial Deposit”). Thereafter, Borrower will deposit with Lender on each Payment Date an amount equal to the greatest of (x) the Required Percentage of the Gross Revenue of the Property for the prior month, (y) the amount required to be deposited in the FF&E Reserve Account pursuant to the Franchise Agreement (whether to satisfy PIP Requirements or otherwise) and the Capital Budget, and (z) the amount necessary to cause the balance of the FF&E Subaccount to be no less than the aggregate budgeted expenditures for FF&E Work (including work to be performed pursuant to the PIP) for the six-month period following such Payment Date, as determined by Lender based upon quarterly reviews (the greatest of the amounts described in the immediately preceding clauses (x), (y), and (z), the “FF&E Reserve Monthly Deposit”, and all such funds so deposited with Lender, together with the FF&E Initial Deposit, collectively, the “FF&E Reserve Funds”) for FF&E Work. “Required Percentage” means four percent. “FF&E Work” means Approved

LOAN AGREEMENT, PAGE 17

Capital Expenses and Approved FF&E Expenditures. Upon the occurrence of a Sweep Event, funds on deposit in the Cash Management Account will be swept into a Subaccount (the “FF&E Reserve Subaccount”) in accordance with the priority pertaining to the application of funds as set forth in, and otherwise pursuant to the terms and conditions of, the Cash Management Agreement. The insufficiency of FF&E Reserve Funds will not relieve Borrower from its obligation to fulfill all preservation and maintenance covenants in the Loan Documents or in the Franchise Agreement.

(b) Disbursements of FF&E Reserve Funds. Lender will make disbursements of the FF&E Reserve Funds for the cost of FF&E Work incurred by Borrower upon satisfaction by Borrower of each of the following conditions with respect to each such disbursement:

(i) Borrower will submit Lender’s standard form of draw request for payment to Lender at least five Business Days prior to the date on which Borrower requests such payment be made, which request will specify the FF&E Work to be paid and will be accompanied by copies of invoices for the amounts requested,

(ii) on the date such request is received by Lender and on the date such payment is to be made, no Event of Default will exist and remain uncured and the Management Agreement will be in full force and effect, and

(iii) Lender will have received

(A) an Officer’s Certificate from Borrower (or, if a Default or Event of Default has occurred and is continuing and so long as the Management Agreement remains in full force and effect, an Officer’s Certificate of Manager, as agent for Borrower) (A) stating that the items to be funded by the requested disbursement for FF&E Work, and a description thereof, (B) stating that all FF&E Work to be funded by the requested disbursement have been completed in a good and workmanlike manner and in accordance with all applicable Legal Requirements, (C) identifying each Person that supplied materials or labor in connection with the FF&E Work to be funded by the requested disbursement, (D) stating that each such Person has been paid in full or will be paid in full upon such disbursement, (E) stating that the FF&E Work to be funded have not been the subject of a previous disbursement, (F) stating that all previous disbursements of FF&E Reserve Funds have been used to pay the previously identified FF&E Work, and (G) stating that all outstanding trade payables and/or amounts then due and payable under any Permitted FF&E Financing relating to the FF&E Work (other than those to be paid from the requested disbursement) have been paid in full,

(B) a copy of any license, permit or other approval by any Governmental Authority, if applicable, required in connection with FF&E Work consisting of Approved Capital Expenditures and not previously delivered to Lender,

LOAN AGREEMENT, PAGE 18

(C) if required by Lender for requests of FF&E Reserve Funds for the payment of Approved Capital Expenditures in excess of $50,000, lien waivers or other evidence of payment satisfactory to Lender and releases from all parties furnishing materials and/or services in connection with the requested payment,

(D) at Lender’s option for requests of FF&E Reserve Funds for the payment of Approved Capital Expenditures in excess of $50,000, a title search for the Property indicating that the Property is free from all Liens, claims and other encumbrances not previously approved by Lender,

(E) evidence reasonably satisfactory to Lender that all invoices and bills in connection with FF&E Work that were the subject of the previous disbursements of FF&E Reserve Funds have been paid in full, and

(F) such other evidence as Lender will reasonably request to demonstrate that the FF&E Work to be funded by the requested disbursement has been completed and has been or will be paid upon such disbursement to Borrower.

Lender will make disbursements as requested by Borrower no more frequently than monthly. Lender may require an inspection of the Property or any portion thereof at Borrower’s expense prior to making a monthly disbursement in order to verify completion of improvements which are the subject of any draw requests for Approved Capital Expenditures in excess of $75,000.00 for which reimbursement is sought.

Section 3.7 Casualty/Condemnation Funds. Borrower will pay, or cause to be paid, to Lender, immediately upon receipt, all Proceeds or Awards due to any Casualty or Condemnation (the “Casualty/Condemnation Funds”). The Casualty/Condemnation Funds will be disbursed in accordance with the provisions of Article VII.

Section 3.8 Excess Cash Flow Subaccount. Upon the occurrence of a Sweep Event, all Rents after application pursuant to clauses (i) through (vi) of Section 3.10(a) (the “Excess Cash Flow”) will be deposited into a Subaccount (the “Excess Cash Flow Subaccount”) pursuant to clause (vii) of such Section 3.10(a). All funds in the Excess Cash Flow Subaccount will be held by Lender as additional collateral for the Loan. Upon the termination of any Sweep Period, provided that no Event of Default or other Sweep Period has occurred and is continuing, Lender will disburse all funds on deposit in the Excess Cash Flow Subaccount to an account designated in writing by Borrower.

Section 3.9 Grant of Security Interest, Application of Funds. As security for payment of the Debt and the performance by Borrower of all other terms, conditions and provisions of the Loan Documents, Borrower hereby pledges and assigns to Lender, and grants to Lender a security interest in, the following (the “Account Collateral”): all Borrower’s right, title and interest in and to all Rents and the Reserve Funds, the Lockbox Account, the Cash Management Account, all Subaccounts created pursuant to this Agreement (collectively, the “Accounts”), and all payments to or monies held in any of the Accounts. Borrower hereby grants to Lender a continuing security interest in, and agrees to hold in trust for the benefit of Lender, all Rents in its possession prior to (a) payment of such Rents to Lender or (b) deposit of such Rents into the Cash Management Account. Borrower will not, and will not permit Manager to, further pledge, assign or grant any security interest in any Account, or permit any Lien to attach thereto, or any levy to be made

LOAN AGREEMENT, PAGE 19

thereon, or any UCC-l Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto. This Agreement is, among other things, intended by the parties to be a security agreement for purposes of the UCC. Except as otherwise provided in this Agreement, upon the occurrence and during the continuance of an Event of Default, Lender may apply any sums in any Account in any order and in any manner as Lender will elect in Lender’s discretion without seeking the appointment of a receiver and without adversely affecting the rights of Lender to foreclose the Lien of the Security Instrument or exercise its other rights under the Loan Documents. Accounts will not constitute trust funds and may be commingled with other monies held by Lender. Upon repayment in full of the Debt, all remaining funds in the Subaccounts, if any, will be promptly disbursed to Borrower.

Section 3.10 Property Cash Flow Allocation.

(a) During any Sweep Period, any Rents deposited into the Cash Management Account up to and including the Business Day prior to a Payment Date will be applied on such Payment Date as follows in the following order of priority: (i) first, to make payments for Approved Operating Expenses (except for any fees payable to Borrower or any of Affiliate of Borrower) as required under Section 3.4, (ii) second, to make payments into the Tax and Insurance Subaccount as required under Section 3.3, (iii) third, to Lender to pay the Debt Service due on such Payment Date, (iv) fourth, to pay interest accruing at the Default Rate (plus, if applicable, all other amounts, other than those described under other clauses of this Section 3.10(a), then due to Lender under the Loan Documents), (v) fifth, to make payments of the Interest Reserve Account and FF&E Reserve Monthly Deposit as required under Section 3.5 and Section 3.6, (vi) sixth, to pay the monthly portion of the fees charged by the Cash Management Bank in accordance with the Cash Management Agreement, and (vii) seventh, any excess amounts, will be deposited into the Excess Cash Flow Subaccount.

(b) During any Sweep Period,, the failure of Borrower to make all of the payments required under clauses (i) through (vi) of Section 3.10(a) in full on each Payment Date will constitute an Event of Default. At any time when no Sweep Period is then continuing, the failure of Borrower to make payments required pursuant to Section 3.3 and Section 3.8 will constitute an Event of Default under this Agreement.

(c) Notwithstanding anything to the contrary contained in this Agreement or any of the other Loan Documents, after the occurrence of a Default or an Event of Default, Lender may apply any Reserve Funds, all Rents deposited into the Lockbox Account, and the Cash Management Account and other proceeds of repayment in such order and in such manner as Lender will elect.

Section 3.11 Reasonable Care. Beyond the exercise of reasonable care in the custody thereof, Lender will have no duty as to any Account Collateral in its possession or control as agent therefor or bailee thereof or any income thereon or the preservation of rights against any person or otherwise with respect thereto. Lender will be deemed to have exercised reasonable care in the custody and preservation of the Account Collateral in its possession if the Account Collateral is accorded treatment substantially equal to that which Lender accords its own property, it being understood that Lender will not be liable or responsible for any loss or damage to any of the Account Collateral, or for any diminution in value thereof, by reason of the act or omission of Lender, its Affiliates, agents, employees or bailees, except to the extent that such loss or damage results from Lender’s or its Affiliate’s, agent’s, employee’s or bailee’s gross negligence or willful misconduct. In no event will Lender be liable either directly or indirectly for losses or delays resulting from any event which may be the basis of an Excusable Delay, computer malfunctions,

LOAN AGREEMENT, PAGE 20

interruption of communication facilities, labor difficulties or other causes beyond Lender’s reasonable control or for indirect, special or consequential damages except to the extent of Lender’s or its Affiliate’s agent’s, employee’s or bailee’s gross negligence or willful misconduct. Notwithstanding the foregoing, Borrower acknowledges and agrees that (i) Lender does not have custody of the Account Collateral, (ii) Cash Management Bank has custody of the Account Collateral, (iii) the initial Cash Management Bank was chosen by Borrower and (iv) Lender has no obligation or duty to supervise Cash Management Bank or to see to the safe custody of the Account Collateral.

Section 3.12 Lender’s Liability.

(a) Lender will be responsible for the performance only of such duties with respect to the Account Collateral as are specifically set forth in this Article 3 or elsewhere in the Loan Documents, and no other duty will be implied from any provision hereof. Lender will not be under any obligation or duty to perform any act with respect to the Account Collateral which would cause it to incur any out-of-pocket expense or liability or to institute or defend any suit in respect hereof, or to advance any of its own monies. Borrower will indemnify and hold Lender, its employees and officers harmless from and against any loss, cost or damage (including, without limitation, reasonable attorneys’ fees and disbursements) incurred by Lender in connection with the transactions contemplated hereby with respect to the Account Collateral except as such may be caused by the negligence, gross negligence or willful misconduct of Lender, its employees, officers, agents, Affiliates or bailees.

(b) Lender will be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bond or other paper, document or signature believed by it in good faith to be genuine, and, in so acting, it may be assumed that any person purporting to give any of the foregoing in connection with the provisions hereof has been duly authorized to do so. Lender may consult with counsel, and the opinion of such counsel will be full and complete authorization and protection in respect of any action taken or suffered by it hereunder and in good faith in accordance therewith.

Article IV Representations And Warranties

Borrower represents and warrants to Lender as of the Effective Date that:

Section 4.1 Organization, Special Purpose. Each of Borrower and Borrower Representative has been duly organized and is validly existing and in good standing under the laws of the state of its formation, with requisite power and authority, and all rights, licenses, permits and authorizations, governmental or otherwise, necessary to own its properties and to transact the business in which it is now engaged. Each Borrower and Borrower Representative is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with its properties, business and operations. Each Borrower, SPE Owner’s Member, and SPE Owner’s Member GP, and TRS Lessee’s Member is a Special Purpose Bankruptcy Remote Entity.

Section 4.2 Proceedings, Enforceability. Borrower has taken all necessary action to authorize the execution, delivery and performance of the Loan Documents. The Loan Documents have been duly executed and delivered by Borrower and constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms, subject to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and general principles of equity. The Loan Documents are not subject to, and Borrower has not asserted, any right of rescission, set-off, counterclaim or defense, including the defense of usury.

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No exercise of any of the terms of the Loan Documents, or any right thereunder, will render any Loan Document unenforceable.

Section 4.3 No Conflicts. The execution, delivery and performance of the Loan Documents by Borrower and the transactions contemplated hereby will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any Lien (other than pursuant to the Loan Documents) upon any of the property of Borrower (including the Property) pursuant to the terms of, any agreement or instrument to which Borrower is a party or by which its property is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any Governmental Authority having jurisdiction over Borrower or any of its properties (including the Property). Borrower’s rights under the Licenses and the Management Agreement will not be adversely affected by the execution and delivery of the Loan Documents, Borrower’s performance thereunder, the recordation of the Security Instrument and the Memorandum of Loan Assumption Agreement, or the exercise of any remedies by Lender. Any consent, approval, authorization, order, registration or qualification of or with any Governmental Authority required for the execution, delivery and performance by Borrower of the Loan Documents has been obtained and is in full force and effect.

Section 4.4 Litigation. There are no actions, suits or other proceedings at law or in equity by or before any Governmental Authority now pending (or threatened in writing or otherwise known to Borrower) against or affecting Borrower, Borrower Representative or the Property, which, if adversely determined, might materially adversely affect the condition (financial or otherwise) or business of Borrower, Borrower Representative or the condition or ownership of the Property.

Section 4.5 Agreements. Borrower is not a party to any agreement or instrument or subject to any restriction which might adversely affect Borrower or the Property, or Borrower’s business, properties, operations or condition, financial or otherwise. To the best of Borrower’s knowledge, Borrower is not in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Permitted Encumbrance or any other agreement or instrument to which it is a party or by which it or the Property is bound.

Section 4.6 Title. Borrower has good and indefeasible title in fee to the real property and good title to the balance of the Property, free and clear of all Liens other than the Permitted Encumbrances. All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal Requirements in connection with the transfer of the Property to Borrower have been paid. The Security Instrument, together with any UCC Financing Statements required to be filed in connection therewith creates (a) a valid, perfected first priority lien on the Borrower’s interest in the Property and (b) valid and perfected first priority security interests in and to, and perfected collateral assignments of, all personalty (including the Leases), all in accordance with the terms thereof, in each case subject only to any applicable Permitted Encumbrances. All mortgage, recording, stamp, intangible or other similar taxes required to be paid by any Person under applicable Legal Requirements in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents have been paid. No Condemnation or other proceeding has been commenced or, to Borrower’s best knowledge, is contemplated with respect to all or part of the Property or for the relocation of roadways providing access to the Property. There are no claims for payment for work, labor or materials affecting the Property which are or may become a Lien prior to, or of equal priority with, the Liens created by the Loan Documents. There are no outstanding options to purchase or rights of first refusal affecting all or any portion of the Property. The survey for the Property delivered to Lender does not fail to reflect any material matter affecting the Property or the title thereto. Except as shown on the survey of the

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Property delivered to Lender, all of the Improvements included in determining the appraised value of the Property lie wholly within the boundaries and building restriction lines of the Property, and no improvement on an adjoining property encroaches upon the Property, and no easement or other encumbrance upon the Property encroaches upon any of the Improvements, except those insured against by the title insurance policy insuring the Lien of the Security Instrument. Each parcel comprising the Property is a separate tax lot and is not a portion of any other tax lot that is not a part of the Property. There are no pending or proposed special or, to the knowledge of Borrower, other assessments for public improvements or otherwise affecting the Property, or any contemplated improvements to the Property that may result in such special or other assessments.

Section 4.7 No Bankruptcy Filing. Borrower is not contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency law or the liquidation of all or a major portion of its property (a “Bankruptcy Proceeding”), and Borrower has no knowledge of any Person contemplating the filing of any such petition against it. In addition, neither Borrower nor Borrower Representative nor Guarantor has been a party to, or the subject of a Bankruptcy Proceeding for the past ten years.

Section 4.8 Full and Accurate Disclosure. No statement of fact made by Borrower in any Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained therein not misleading. There is no material fact presently known to Borrower that has not been disclosed to Lender which adversely affects, or, as far as Borrower can foresee, might adversely affect, the Property or the business, operations or condition (financial or otherwise) of Borrower. All financial data, including the statements of cash flow and income and operating expense, that have been delivered to Lender in respect of Borrower and the Property (a) are true, complete and correct in all material respects, (b) accurately represent the financial condition of Borrower and the Property as of the date of such reports, and (c) to the extent prepared by an independent certified public accounting firm, have been prepared in accordance with GAAP and the Uniform System of Accounts for Hotels consistently applied throughout the periods covered, except as disclosed therein. Borrower has no contingent liabilities, liabilities for taxes, unusual forward or long-term commitments, unrealized or anticipated losses from any unfavorable commitments or any liabilities or obligations not expressly permitted by this Agreement. Since the date of such financial statements, there has been no materially adverse change in the financial condition, operations or business of Borrower or the Property from that set forth in said financial statements.

Section 4.9 No Plan Assets. Borrower is not an “employee benefit plan,” as defined in Section 3(3) of ERISA, subject to Title I of ERISA, and none of the assets of Borrower constitute or will constitute “plan assets” of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101.

Section 4.10 Compliance. Borrower, the Property, and the use of the Property comply in all material respects with all applicable Legal Requirements (including with respect to parking and applicable zoning and land use laws, regulations, and ordinances). To the best of Borrower’s knowledge, Borrower is not in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority, the violation of which might materially adversely affect the condition (financial or otherwise) or business of Borrower. The Property is used exclusively for hotel use and other appurtenant and related uses. No legal proceedings are pending or, to the knowledge of Borrower, threatened with respect to the zoning of the Property. To the best of Borrower’s knowledge, all certifications, permits, licenses and approvals, including certificates of completion and occupancy permits required for the legal use, occupancy and operation of the Property (collectively, the “Licenses”), have been obtained and are in full force and effect. The use

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being made of the Property is in conformity with the certificate of occupancy issued for the Property and all other restrictions, covenants and conditions affecting the Property.

Section 4.11 Contracts. Except as set forth on Schedule 5, there are no service, maintenance or repair contracts affecting the Property that are not terminable on one month’s notice or less without cause and without penalty or premium. All service, maintenance or repair contracts affecting the Property have been entered into at arms-length in the ordinary course of Borrower’s business and provide for the payment of fees in amounts and upon terms comparable to existing market rates.

Section 4.12 Federal Reserve Regulations, Investment Company Act. No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose that would be inconsistent with such Regulation U or any other regulation of such Board of Governors, or for any purpose prohibited by Legal Requirements or any Loan Document. Borrower is not (i) an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended, (ii) a “holding company” or a “subsidiary company” of a “holding company” or an “affiliate” of either a “holding company” or a “subsidiary company” within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (iii) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money.

Section 4.13 Utilities and Public Access. The Property has rights of access to public ways and is served by water, sewer, sanitary sewer, storm drain and electric facilities adequate to service it for its intended uses. All public utilities necessary or convenient to the full use and enjoyment of the Property are located in the public right-of-way abutting the Property, and all such utilities are connected so as to serve the Property without passing over other property absent a valid easement. All roads necessary for the use of the Property for its current purpose have been completed and have either been dedicated to public use and accepted by all Governmental Authorities.

Section 4.14 Physical Condition. The Property, including all Improvements, parking facilities, systems, Equipment and landscaping, are in good condition, order and repair in all material respects, to the best of Borrower’s knowledge, there exists no structural or other material defect or damages to the Property, whether latent or otherwise. Borrower has not received notice from any insurance company or bonding company of any defect or inadequacy in the Property, or any part thereof, which would adversely affect its insurability or cause the imposition of extraordinary premiums or charges thereon or any termination of any policy of insurance or bond. No portion of the Property is located in an area as identified by the Federal Emergency Management Agency as an area having special flood hazards.

Section 4.15 Leases. Borrower has delivered to Lender a true, correct and complete rent roll for the Property (the “Rent Roll”), which includes all Leases affecting the Property. Except as set forth on the Rent Roll: (i) to the best of Borrower’s knowledge, each Lease is in full force and effect, (ii) the tenants under the Leases have accepted possession of and are in occupancy of all of their respective demised premises, have commenced the payment of rent under the Leases, and there are no offsets, claims or defenses to the enforcement thereof, (iii) all rents due and payable under the Leases have been paid and no portion thereof has been paid for any period more than 30 days in advance, (iv) the rent payable under each Lease is the amount of fixed rent set forth in the Rent Roll, and there is no claim or basis for a claim by the tenant thereunder for an adjustment to the rent, (v) no tenant has made any claim against the landlord under any Lease which remains outstanding, to the best of Borrower’s knowledge, there are no defaults on the part of the landlord under any Lease, and no event has occurred which, with the giving of notice or passage of time, or both, would constitute such a default, (vi) to Borrower’s best knowledge, there is no present

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material default by the tenant under any Lease, (vii) all security deposits under Leases are as set forth on the Rent Roll, (viii) Borrower is the sole owner of the entire lessor’s interest in each Lease, (ix) each Lease is the valid, binding and enforceable obligation of the Borrower and, to the best of Borrower’s knowledge, the applicable tenant thereunder, (x) no Person has any possessory interest in, or right to occupy, the Property except under the terms of the Lease, and (xi) to the best of Borrower’s knowledge, each Lease is subordinate to the Loan Documents, either pursuant to its terms or pursuant to a subordination and attornment agreement. None of the Leases contains any option to purchase or right of first refusal to purchase the Property or any part thereof. Neither the Leases nor the Rents have been assigned or pledged except to Lender, and no other Person has any interest therein except the tenants thereunder.

Section 4.16 Fraudulent Transfer. Borrower has not entered into the Loan or any Loan Document with the actual intent to hinder, delay, or defraud any creditor, and Borrower has received reasonably equivalent value in exchange for its obligations under the Loan Documents. Giving effect to the transactions contemplated by the Loan Documents, the fair saleable value of Borrower’s assets exceeds and will, immediately following the execution and delivery of the Loan Documents, exceed Borrower’s total liabilities, including subordinated, unliquidated, disputed or contingent liabilities, including the maximum amount of its contingent liabilities or its debts as such debts become absolute and matured. Borrower’s assets do not and, immediately following the execution and delivery of the Loan Documents will not, constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrower does not intend to, and does not believe that it will, incur debts and liabilities (including contingent liabilities and other commitments) beyond its ability to pay such debts as they mature (taking into account the timing and amounts to be payable on or in respect of obligations of Borrower).

Section 4.17 Ownership of Borrower. The organizational chart attached hereto as Schedule 3 is complete and accurate and illustrates all Persons who have a direct or indirect ownership interest in Borrower.

Section 4.18 Management Agreement. The Management Agreement is in full force and effect. There is no default, breach or violation existing thereunder, and, to the best of Borrower’s knowledge, no event has occurred (other than payments due but not yet delinquent) that, with the passage of time or the giving of notice, or both, would constitute a default, breach or violation thereunder, by either party thereto. The Management Agreement constitutes all of the agreements with respect to the management of the Property.

Section 4.19 Franchise Agreement. The Franchise Agreement is in full force and effect. There is no default, breach or violation existing thereunder, and, to the best of Borrower’s knowledge, no event has occurred (other than payments due but not yet delinquent) that, with the passage of time or the giving of notice, or both, would constitute a default, breach or violation thereunder, by either party thereto.

Section 4.20 Hazardous Substances. The representations and warranties made by Borrower in the Environmental Indemnity are incorporated by this reference as if fully set forth herein.

Section 4.21 Name, Principal Place of Business. Borrower does not use and will not use any trade name and has not done and will not do business under any name other than its actual name set forth herein. The principal place of business of Borrower is its primary address for notices as set forth in Section 6.1, and Borrower has no other place of business.

Section 4.22 Other Debt. There is no indebtedness with respect to the Property or any indebtedness secured over excess cash flow or any residual interest therein, whether secured or unsecured, other than Permitted Encumbrances and Permitted Indebtedness.

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Section 4.23 Embargoed Person. (a) None of the funds or assets of Guarantor or of Borrower constitute property of, or are beneficially owned directly or, to Borrower’s best knowledge, indirectly, by any Embargoed Person (as hereinafter defined) and (b) no Embargoed Person has any direct interest, and to Borrower’s best knowledge, as of the Effective Date, based upon reasonable inquiry by Borrower, indirect interest, of any nature whatsoever in Borrower or any Guarantor, as applicable, with the result that the investment in Borrower or any Guarantor, as applicable (whether directly or indirectly), is prohibited by law or the Loan is in violation of law.

Section 4.24 Anti-Money Laundering. None of the funds of Borrower, Borrower Representative or any Guarantor, as applicable, that are used to consummate this transaction are derived from or are the proceeds of any unlawful activity, with the result that the investment in Borrower, Borrower Representative or any Guarantor, as applicable (whether directly or indirectly), is prohibited by law or the Loan is in violation of law or may cause any of the Property to be subject to forfeiture or seizure. Borrower has ascertained the identity of all persons and entities that have provided funds to capitalize Borrower and has conducted verification procedures which are sufficient to establish the identity and source of such funds.

Section 4.25 Sharing Agreements. There are no joint services, reciprocal easement or other similar sharing agreements relating to the Property.

Section 4.26 Labor Matters. Borrower is not a party to any collective bargaining agreements.

Section 4.27 Operating Lease. SPE Owner is the owner and lessor of landlord’s interest in the Operating Lease. The Operating Lease is in full force and effect and there is no default thereunder by either party and there are no conditions that would constitute defaults thereunder. No rent under the Operating Lease has been paid more than one month in advance of its due date. All security deposits (if any) are held by SPE Owner in accordance with applicable law. All work (if any) to be performed by SPE Owner and TRS Lessee under the Operating Lease has been performed as required and has been accepted by TRS Lessee, and any payments, free rent, partial rent, rebate of rent or other payments, credits, allowances or abatements required to be given by SPE Owner to TRS Lessee has already been received by TRS Lessee. There has been no prior sale, transfer, assignment, hypothecation or pledge of the Operating Lease or of the rent thereunder which is outstanding. TRS Lessee has not assigned the applicable Operating Lease or sublet all or any portion of the premises demised thereby other than pursuant to a Hotel Transaction or Lease. TRS Lessee has no right or option pursuant to the Operating Lease or otherwise to purchase all or any part of the leased premises or the building of which the leased premises are a part.

All of the representations and warranties in this Article 4 and elsewhere in the Loan Documents (1) will survive for so long as any portion of the Debt remains owing to Lender and (2) will be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf, provided, however, that the representations, warranties and covenants set forth in Section 4.19 will survive in perpetuity.

Article V Covenants

Borrower hereby covenants and agrees with Lender that:

Section 5.1 Existence. Each of Borrower and Borrower Representative will (a) do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, and franchises, (b) continue to engage in the business presently conducted by it, (c) obtain and maintain all Licenses, and (d) qualify to do business and remain in good standing under the laws of each jurisdiction, in each case as and to the extent required for the ownership, maintenance, management and operation of the Property.

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Section 5.2 Taxes. Borrower will pay all Taxes prior to delinquency, and deliver to Lender receipts for payment or other evidence satisfactory to Lender that the Taxes have been so paid no later than 30 days before they would be delinquent if not paid (provided, however, that Borrower need not pay such Taxes nor furnish such receipts for payment of Taxes paid by Lender pursuant to Section 3.3). Borrower will not suffer and will promptly cause to be paid and discharged any Lien against the Property, and will promptly pay for all utility services provided to the Property. After prior notice to Lender, Borrower, at its own expense, may contest by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application of any Taxes, provided that (i) no Default or Event of Default has occurred and is continuing, (ii) such proceeding will suspend the collection of the Taxes or all such Taxes will have been paid in full prior to contesting the same, (iii) such proceeding will be permitted under and be conducted in accordance with the provisions of any other instrument to which Borrower is subject and will not constitute a default thereunder, (iv) no part of or interest in the Property will be in danger of being sold, forfeited, terminated, canceled or lost, (v) if required by Lender, Borrower will have furnished such security as may be required in the proceeding, or as may be requested by Lender, to insure the payment of any such Taxes, together with all interest and penalties thereon, which will not be less than 110 percent of the Taxes being contested, and (vi) Borrower will promptly upon final determination thereof pay the amount of such Taxes, together with all costs, interest and penalties. Lender may pay over any such security or part thereof held by Lender to the claimant entitled thereto at any time when, in the judgment of Lender, the entitlement of such claimant is established.

Section 5.3 Repairs, Maintenance and Compliance, Alterations.

(a) Repairs, Maintenance and Compliance. Borrower will cause the Property to be maintained in a good and safe condition and repair and will not remove, demolish or alter the Improvements or Equipment (except for the normal replacement of Equipment with Equipment of equivalent value and functionality). Borrower will promptly comply with all Legal Requirements and immediately cure properly any violation of a Legal Requirement. Borrower will notify Lender in writing within one Business Day after Borrower first receives notice of any such non-compliance. Borrower will promptly repair, replace or rebuild any part of the Property that becomes damaged, worn or dilapidated and will complete and pay for any Improvements at any time in the process of construction or repair. There will never be committed by Borrower and Borrower will not permit any other Person in occupancy of or involved with the operation or use of the Property to commit any act or omission affording any Governmental Authority the right of forfeiture against the Property or any part thereof or any monies paid in performance of Borrower’s obligations under any of the Loan Documents. Borrower hereby covenants and agrees not to commit, permit or suffer to exist any act or omission affording such right of forfeiture.

(b) Alterations. Borrower may, without Lender’s consent, perform alterations to the Improvements and Equipment which (i) do not constitute a Material Alteration, (ii) do not adversely affect Borrower’s financial condition or the value or cash flow of the Property, (iii) are in the ordinary course of Borrower’s business, and (iv) are in accordance with the PIP. Borrower will not perform any Material Alteration without Lender’s prior written consent, which consent will not be unreasonably withheld or delayed, provided, however, that Lender may, in its sole and absolute discretion, withhold consent to any alteration the cost of which is reasonably estimated to exceed $200,000. Lender may, as a condition to giving its consent to a Material Alteration, require that Borrower deliver to Lender security for payment

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of the cost of such Material Alteration in an amount equal to 115 percent of the cost of the Material Alteration as estimated by Lender. Upon substantial completion of the Material Alteration, Borrower will provide evidence satisfactory to Lender that (i) the Material Alteration was constructed in accordance with applicable Legal Requirements and substantially in accordance with plans and specifications approved by Lender (which approval will not be unreasonably withheld or delayed), (ii) all contractors, subcontractors, materialmen and professionals who provided work, materials or services in connection with the Material Alteration have been paid in full and have delivered unconditional releases of lien and (iii) all material Licenses necessary for the use, operation and occupancy of the Material Alteration (other than those which depend on the performance of tenant improvement work) have been issued. Borrower will reimburse Lender upon demand for all out- of-pocket costs and expenses (including the reasonable fees of any architect, engineer or other professional engaged by Lender) incurred by Lender in reviewing plans and specifications or in making any determinations necessary to implement the provisions of this Section 5.3(b).

Section 5.4 Performance of Other Agreements. Borrower will observe and perform each and every term to be observed or performed by it pursuant to the terms of any agreement or instrument affecting or pertaining to the Property, including the Loan Documents. Without limiting the foregoing, Borrower will (a) observe and perform each and every term to be observed or performed by it pursuant to the terms of the PPP Loan Documents, including making all payments thereunder as and when due and payable and (b) use its best efforts to cause the PPP Loans to be forgiven pursuant to the forgiveness provisions of the CARES Act and related governmental laws and regulations.

Section 5.5 Cooperate in Legal Proceedings. Borrower will cooperate fully with Lender with respect to, and permit Lender, at its option, to participate in, any proceedings before any Governmental Authority which may in any way affect the rights of Lender under any Loan Document.

Section 5.6 Further Assurances. Borrower will, at Borrower’s sole cost and expense, (a) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the collateral at any time securing or intended to secure the Debt and/or for the better and more effective carrying out of the intents and purposes of the Loan Documents, as Lender may reasonably require from time to time, and (b) upon Lender’s request therefor given from time to time after the occurrence of any Default or Event of Default pay for (i) reports of UCC, federal tax lien, state tax lien, judgment and pending litigation searches with respect to Borrower and Borrower Representative and (ii) searches of title to the Property, each such search to be conducted by search firms reasonably designated by Lender in each of the locations reasonably designated by Lender.

Section 5.7 Environmental Matters. The covenants and agreements made by Borrower in the Environmental Indemnity Agreement are incorporated herein by this reference as if fully set forth at length herein.

Section 5.8 Title to the Property, Liens. Borrower will warrant and defend the title to the Property, and the validity and priority of all Liens granted or otherwise given to Lender under the Loan Documents, subject only to Permitted Encumbrances, against the claims of all Persons. Without Lender’s prior written consent, Borrower will not create, incur, assume, permit or suffer to exist any Lien on all or any portion of the Property or any direct or indirect legal or beneficial ownership interest in Borrower or Borrower Representative, except Liens in favor of Lender and Permitted

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Encumbrances, unless such Lien is bonded or discharged within 30 days after Borrower first receives notice of such Lien.

Section 5.9 Leases. Other than Hotel Transactions, Borrower will not enter into any Lease (or any renewals, amendments or modifications of a Lease) without Lender’s prior consent. Upon request, Borrower will furnish Lender with executed copies of all Leases then in effect, whether executed before or after the Effective Date.

Section 5.10 Estoppel. After request by Lender, Borrower will within ten days furnish Lender with a statement addressed to Lender, its successors and assigns, duly acknowledged and certified, setting forth (i) the unpaid Principal, (ii) the Interest Rate, (iii) the date installments of interest and/or Principal were last paid, (iv) any offsets or defenses to the payment of the Debt, and (v) that the Loan Documents are valid, legal and binding obligations and have not been modified or if modified, giving particulars of such modification.

Section 5.11 Property Management.

(a) Management Agreement. Borrower will (i) cause the Property to be managed pursuant to the Management Agreement, (ii) promptly perform and observe all of the covenants required to be performed and observed by it under the Management Agreement and do all things necessary to preserve and to keep unimpaired its rights thereunder, (iii) promptly notify Lender of any default under the Management Agreement of which it is aware, (iv) promptly deliver to Lender a copy of any other notice given for any other reason by Borrower to Manager pursuant to the terms of the Management Agreement, and (v) promptly accept and/or enforce the performance and observance of all of the covenants required to be performed and observed by Manager under the Management Agreement. Without Lender’s prior written consent, such consent to be exercised in Lender’s sole and absolute discretion, Borrower will not (a) surrender, terminate, cancel, extend or renew the Management Agreement, waive any defaults thereunder, or otherwise replace the Manager or enter into any other management agreement (except pursuant to Section 5.11(b)), (b) reduce or consent to the reduction of the term of the Management Agreement, (c) increase or consent to the increase of the amount of any charges under the Management Agreement, (d) otherwise modify, change, supplement, alter or amend in any material respect, or waive or release any of its rights and remedies under, the Management Agreement, (e) suffer or permit the occurrence and continuance of a default beyond any applicable cure period under the Management Agreement (or any successor management agreement) if such default permits the Manager to terminate the Management Agreement (or any successor management agreement), or (f) knowingly permit the ownership, management, or control of the Manager to be transferred to any Person except as otherwise permitted pursuant to Section 18.1 of the Management Agreement.  Borrower will not assign, pledge, delegate, waive or transfer any interests, rights or obligations under the Management Agreement, including the proceeds thereof, Borrower will not borrow, or accept any forbearance to collect, any amount due from it to Manager or any affiliate of Manager without the prior written consent of Lender. Lender may ender a cure or to cure any default or purported default in the obligations of Borrower under the Management Agreement, and that any cost incurred by Lender in connection with such cure or attempt to cure will constitute an additional advance as a demand obligation of Borrower under this Agreement and the other Loan Documents.

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(b) Termination of Manager. If (i) an Event of Default is continuing and Borrower has the right to terminate the Manager pursuant to the terms of the Management Agreement, or (ii) Manager (A) is in default under the Management Agreement, or (B) commits gross negligence, misappropriation of funds, willful misconduct or fraud with respect to the Property or its duties under the Management Agreement, Borrower will, at the request of Lender, (i) terminate the Management Agreement, and (ii) enter into a new management agreement acceptable to Lender with a replacement manager acceptable to Lender in its sole discretion, and a collateral assignment, subordination and non- disturbance agreement in form and substance acceptable to Lender. Borrower’s failure to appoint an acceptable manager and satisfy the requirements of this Section 5.11(b) within 30 days after Lender’s request of Borrower to terminate the Management Agreement or any other termination or earlier expiration of the Management Agreement will constitute an immediate Event of Default.

(c) Co-Management; Management Agreement (NHS). Borrower will appoint NHS as a co-manager of the Property on and subject to the following terms and conditions: Within 30 days after the Effective Date, Borrower will provide to Lender for its review and approval (i)  a draft of the Management Agreement (Elevation) on the form previously submitted to Lender for review (which Lender hereby approves), with such changes as necessary so that Elevation and NHS are co-managers of the Property (provided that NHS will be responsible for national marketing of the Property and for satisfying financial and operational standards) and (ii) an amendment to the Management Agreement with Elevation with such changes as necessary so that Elevation and NHS are co-managers of the Property (the “Elevation Amendment”). Within 60 days after the Effective Date, Borrower will provide to Lender fully executed copies of the NHS Agreement and the Elevation Amendment and a Subordination Agreement in substantially the same form as the Subordination Agreement provided by Elevation, executed by Lessee and NHS (which Lender will execute following receipt). Following the execution of the Management Agreement (NHS) and the Elevation Amendment,  all terms and conditions set forth in each of the Loan Documents regarding Manager and the Management Agreement will apply to each of Elevation and NHS, and will apply to each of the Management Agreement (Elevation) and the Management Agreement NHS).

Section 5.12 Special Purpose Bankruptcy Remote Entity. Each Borrower, SPE Owner’s Member, and SPE Owner’s Member GP, and TRS Lessee’s Member will at all times be and remain a Special Purpose Bankruptcy Remote Entity. A “Special Purpose Bankruptcy Remote Entity” will have the meaning set forth on Schedule 4 hereto. The organizational documents of each Borrower will at all times include the language set forth on Schedule 4.

Section 5.13 Change in Business or Operation of Property. Borrower will not purchase or own any real property other than the Property and will not enter into any line of business other than the ownership and operation of the Property, or make any material change in the scope or nature of its business objectives, purposes or operations, or undertake or participate in activities other than the continuance of its present business or otherwise cease to operate the Property as a hotel or terminate such business for any reason whatsoever (other than temporary cessation in connection with renovations to the Property or caused by a Force Majeure Event).

Section 5.14 Certain Prohibited Actions. Borrower will not directly or indirectly do any of the following: (a) change its principal place of business or chief executive office without first giving

LOAN AGREEMENT, PAGE 30

Lender 30 days’ prior notice, (b) make any change, amendment, or modification to the organizational documents of Borrower, or otherwise take any action that could result in Borrower not being a Special Purpose Bankruptcy Remote Entity, (c) cancel or otherwise forgive or release any claim or debt owed to Borrower by any Person, except for adequate consideration and in the ordinary course of Borrower’s business in its reasonable judgment, (d) create, incur or assume any indebtedness secured by the Property other than the Debt, Permitted FF&E Financing and unsecured trade payables incurred in the ordinary course of business relating to the ownership and operation of the Property which do not exceed, at any time, a maximum amount of one percent of the original amount of the Principal and are not evidenced by a promissory note and are paid when due, but in no event no more than 30 days of the date incurred (collectively, “Permitted Indebtedness”), (e) transfer any License required for the operation of the Property, except to the extent required by a Governmental Authority (unless such requirement is on account of Borrower’s failure to abide by the terms of such License or is otherwise the result of the negligence or intentional misconduct of Borrower or its agents or contractors), or (f) maintain, sponsor, contribute to or become obligated to contribute to, or suffer or permit any ERISA Affiliate of Borrower to, maintain, sponsor, contribute to or become obligated to contribute to, any Plan or any Welfare Plan or permit the assets of Borrower to become “plan assets,” whether by operation of law or under regulations promulgated under ERISA.

Section 5.15 Prohibited Transfers, Loan Assumption. Borrower will not directly or indirectly make, suffer or permit the occurrence of any Transfer other than a Permitted Transfer. In connection with any Transfer otherwise prohibited pursuant to the provisions of this Section 5.15, Borrower may request Lender’s consent to such Transfer and, in connection with a sale of the Property, the assumption of the Loan by the purchaser of the Property, Lender may grant or deny any such consent hereunder in its sole and absolute discretion. Any such assumption of the Loan will be conditioned upon, among other things,

(a) (i) the financial condition and creditworthiness of such purchaser and its direct and indirect owners and sponsors must be acceptable to Lender in all respects, (ii) the delivery of financial information, including, without limitation, audited financial statements and other documents reasonably requested by Lender, for such purchaser and the direct and indirect owners and sponsors of such purchaser in order for Lender to make a determination with respect to the terms of the preceding clause (i),

(b) the delivery of evidence that the purchaser is a Special Purpose Bankruptcy Remote Entity,

(c) the execution and delivery of all documentation reasonably requested by Lender including a replacement guaranty and environmental indemnity agreement, from an entity or entities satisfactory to Lender, the form and substance of each will be the same in all material respects as the Guaranty, Guaranty (Recourse), and Environmental Indemnity delivered by Guarantor,

(d) the delivery of opinions of Borrower’s counsel requested by, and in form and substance satisfactory to, Lender, including, without limitation, a non-consolidation opinion, with respect to the purchaser and other entities identified by Lender and opinions with respect to the valid formation, due authority and good standing of the purchaser and any additional pledgors and the continued enforceability of the Loan Documents and any other matters requested by Lender,

LOAN AGREEMENT, PAGE 31

(e) the delivery of an endorsement to the title insurance policy insuring the Lien of the Security Instrument in form and substance acceptable to Lender, as assumed, subject only to the Permitted Encumbrances,

(f) the payment of all of Lender’s fees, costs and expenses, including, without limitation, attorneys’ fees and costs, actually incurred by Lender in connection with such assumption,

(g) evidence that the new borrower is of good repute and qualified to own properties of this type,

(h) payment to Lender of an assumption fee equal to 1.0% of the then outstanding Principal, and

(i) confirmation that the transferee or its Affiliate (i) as not (within the past ten years) defaulted, or is not now in default, beyond any applicable cure period, of its material obligations, under any material written agreement with Lender, any Affiliate of Lender, or any other financial institution or other person providing or arranging financing, (ii) has not been convicted in a criminal proceeding for a felony or a crime involving moral turpitude or that is not an organized crime figure or is not reputed (as determined in good faith by Lender in its sole discretion) to have substantial business or other affiliations with an organized crime figure, (iii) has not at any time filed a voluntary petition under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law, (iv) as to which an involuntary petition (which was not subsequently dismissed within 60 days), has not at any time been filed under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law, (v) has not at any time filed an answer consenting to or acquiescing in any involuntary petition filed against it by any other person under the Bankruptcy Code or any other federal or state bankruptcy or insolvency law, (vi) has not at any time consented to or acquiesced in or joined in an application for the appointment of a custodian, receiver, trustee or examiner for itself or any of its property, (vii) has not at any time made an assignment for the benefit of creditors, or has at any time admitted its insolvency or inability to pay its debts as they become due, and (viii) has not been found by a court of competent jurisdiction or other governmental authority in a comparable proceeding to have violated any federal or state securities laws or regulations promulgated thereunder.

Section 5.16 Expenses. Borrower will reimburse Lender upon receipt of notice for all reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by Lender in connection with the Loan, including

(a) the preparation, negotiation, execution and delivery of the Loan Documents and the consummation of the transactions contemplated thereby and all the costs of furnishing all opinions by counsel for Borrower,

(b) Borrower’s and Lender’s ongoing performance under and compliance with the Loan Documents, including confirming compliance with environmental and insurance requirements,

(c) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications of or under any Loan Document and any other documents or matters requested by Lender,

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(d) the filing and recording of any Loan Documents,

(e) title insurance, surveys, inspections and appraisals,

(f) the creation, perfection or protection of Lender’s Liens in the Property and the Accounts (including fees and expenses for title and lien searches, intangibles taxes, personal property taxes, Security Instrument, recording taxes, due diligence expenses, travel expenses, accounting firm fees, costs of appraisals, environmental reports and Lender’s Consultant, surveys and engineering reports),

(g) enforcing or preserving any rights in response to third party claims or the prosecuting or defending of any action or proceeding or other litigation, in each case against, under or affecting Borrower, the Loan Documents, the Property, or any other security given for the Loan,

(h) enforcing any obligations of or collecting any payments due from Borrower under any Loan Document or with respect to the Property or in connection with any refinancing or restructuring of the Loan in the nature of a “work-out”, or any insolvency or bankruptcy proceedings and

(i) the fees and expenses of any special servicer retained in respect of the Loan. Any costs and expenses due and payable to Lender hereunder which are not paid by Borrower within ten days after demand may be paid from any amounts in the Cash Management Account, with notice thereof to Borrower.

The obligations and liabilities of Borrower under this Section 5.16 will survive the Term and the exercise by Lender of any of its rights or remedies under the Loan Documents, including the acquisition of the Property by foreclosure or a conveyance in lieu of foreclosure.

Section 5.17 Indemnity. Borrower will protect, indemnify and save harmless Lender, its Affiliates and all of their respective officers, directors, stockholders, members, partners, employees, agents, successors and assigns thereof (collectively, the “Indemnified Parties”) from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including all attorneys’ fees and expenses incurred) imposed upon or incurred by or asserted against the Indemnified Parties or the Property or any part of its interest therein, by reason of the occurrence or existence of any of the following, except to the extent caused by the fraud, illegal acts, willful misconduct or gross negligence of the Indemnified Parties, EVEN IF CAUSED BY THE NEGLIGENCE OF AN INDEMNIFIED PARTY, but not if caused by the willful misconduct or gross negligence of an Indemnified Party: (a) ownership of Borrower’s interest in the Property, or any interest therein, or receipt of any Rents or other sum therefrom, (b) any accident, injury to or death of any persons or loss of or damage to property occurring on or about the Property thereto, (c) any design, construction, operation, repair, maintenance, use, non-use or condition of the Property, including claims or penalties arising from violation of any Legal Requirement or Insurance Requirement, as well as any claim based on any patent or latent defect, whether or not discoverable by Lender, and any claim the insurance as to which is inadequate, (d) any Event of Default under this Agreement or any of the other Loan Documents, (e) any performance of any labor or services or the furnishing of any materials or other property in respect of the Property or any part thereof, (f) any negligence or tortious act or omission on the part of Borrower or any of its agents, contractors, servants, employees, sublessees, licensees or invitees, or (g) any contest of Taxes referred to in Section 5.2 hereof, or of the Legal Requirements pursuant to this Agreement. Any amounts the Indemnified Parties are legally entitled to receive under this Section which are not paid within 30 days after written demand therefor by the Indemnified Parties or Lender,

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setting forth in reasonable detail the amount of such demand and the basis therefor, will bear interest from the date of demand at the Default Rate, and will, together with such interest, be part of the Debt and secured by the Security Instrument. In case any action, suit or proceeding is brought against the Indemnified Parties by reason of any such occurrence, Borrower will at Borrower’s expense resist and defend such action, suit or proceeding or will cause the same to be resisted and defended by counsel at Borrower’s expense for the insurer of the liability or by counsel designated by Borrower (unless disapproved by Lender promptly after Lender has been notified of such counsel), provided, however, that nothing herein will compromise the right of Lender (or any Indemnified Party) to appoint its own counsel at Borrower’s expense for its defense with respect to any action which in the reasonable opinion of counsel for such Indemnified Party presents a conflict or potential conflict between Lender and Borrower that would make such separate representation advisable, provided, further, that if Lender will have appointed separate counsel pursuant to the foregoing, Borrower will not be responsible for the expense of additional separate counsel of any other Indemnified Party unless in the reasonable opinion of Lender a conflict or potential conflict exists between such Indemnified Party and Lender. So long as Borrower is resisting and defending such action, suit or proceeding as provided above in a prudent and commercially reasonable manner, Lender and the Indemnified Parties will not be entitled to settle such action, suit or proceeding without Borrower’s consent which will not be unreasonably withheld or delayed, and claim the benefit of this Section with respect to such action, suit or proceeding and Lender agrees that it will not settle any such action, suit or proceeding without the consent of Borrower, provided, however, that if Borrower is not diligently defending such action, suit or proceeding in a prudent and commercially reasonable manner as provided above, and Lender has provided Borrower with 30 days’ prior written notice, or shorter period if mandated by the requirements of applicable law, and opportunity to correct such determination, Lender may settle such action, suit or proceeding and claim the benefit of this Section 5.17 with respect to settlement of such action, suit or proceeding. Any Indemnified Party will give Borrower prompt notice after such Indemnified Party obtains actual knowledge of any potential claim by such Indemnified Party for indemnification hereunder, provided, however, the failure to do so will not affect Borrower’s indemnification obligations hereunder. The obligations and liabilities of Borrower under this Section 5.17 will survive the Term and the exercise by Lender of any of its rights or remedies under the Loan Documents, including the acquisition of the Property by foreclosure or a conveyance in lieu of foreclosure.

Section 5.18 Embargoed Person.

(a) At all times throughout the term of the Loan, including after giving effect to any Transfers permitted pursuant to the Loan Documents, (i) none of the funds or assets of Borrower, Borrower Representative or Guarantor, whether or not used to repay the Loan, will constitute property of, or will be beneficially owned directly or, to Borrower’s best knowledge, indirectly, by any person, entity or government subject to sanctions or trade restrictions under United States law (“Embargoed Person”) that are identified on (A) the “List of Specially Designated Nationals and Blocked Persons” maintained by the Office of Foreign Assets Control (“OFAC”), U.S. Department of the Treasury’s FINCEN list, and/or to Borrower’s best knowledge, as of the date thereof, based upon reasonable inquiry by Borrower, on any other similar list maintained by OFAC or FINCEN pursuant to any authorizing statute (collectively, the “OFAC Laws”) including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Order or regulation promulgated thereunder, with the result that the investment in Borrower, Borrower Representative or any Guarantor, as applicable (whether directly or indirectly), is prohibited by law, or the Loan made by Lender would be

LOAN AGREEMENT, PAGE 34

in violation of law, or (B) Executive Order 13224 (September 23, 2001) issued by the President of the United States (“Executive Order Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten to Commit, or Support Terrorism”), any related enabling legislation or any other similar Executive Orders, and (ii) no Embargoed Person will have any direct interest or, to Borrower’s best knowledge, indirect interest, of any nature whatsoever in Borrower, Borrower Representative or any Guarantor, as applicable, with the result that the investment in Borrower, Borrower Representative or any Guarantor, as applicable (whether directly or indirectly), is prohibited by law or the Loan is in violation of law.

(b) At all times throughout the Term, none of any of the Borrower, Borrower Representative or Guarantor, nor any Person controlling, controlled by or under common control with any of Borrower, Borrower Representative or Guarantor, nor any Person having a beneficial interest in, or for whom any of the Borrower, Borrower Representative or Guarantor is acting as agent or nominee in connection with the investment, is (a) a country, territory, person or entity named on an OFAC or FINCEN list, or is a Person that resides in or has a place of business in a country or territory named on such lists, (b) a Person resident in, or organized or chartered under the laws of a jurisdiction identified as non-cooperative by the Financial Action Task Force, or (c) a Person whose funds originate from or will be routed through , an account maintained at a foreign shell bank or “offshore bank.”.

(c) None of the Borrower, Borrower Representative or Guarantor, nor any Person controlling, controlled by or under common control with Borrower, Borrower Representative or Guarantor is a “senior political figure” or an “immediate family” member or “close associate” (as all such terms are defined below) of a senior foreign political figure within the meaning of the USA PATRIOT Act (i.e., the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, H.R. 3162, Public Law 107-56, as may be amended). For the purposes of this subsection (c), (i) “senior foreign political figure” means a senior official in the executive, legislative, administrative, military or judicial branches of a foreign government (whether elected or not), a senior official of a major foreign political party or a senior executive of a foreign government-owned corporation, and such term also includes any corporation, business or other entity that has been formed by, or for the benefit of, a senior political figure, (ii) “immediate family” of a senior foreign political figure includes the figure’s parents, siblings, spouse, children and in-laws, and (iii) “close associate” of a senior foreign political figure means a person who is widely and publicly known to maintain an unusually close relationship with the senior foreign political figure, and includes a person who is in a position to conduct substantial domestic and international financial transactions on behalf of the senior foreign political figure.

Section 5.19 Anti-Money Laundering. At all times throughout the Term, including after giving effect to any Transfers permitted pursuant to the Loan Documents, none of the funds of Borrower, Borrower Representative or any Guarantor, as applicable, that are used to consummate this transaction or to repay the Loan will be derived from or are the proceeds of any unlawful activity, with the result that the investment in Borrower, Borrower Representative or any Guarantor, as applicable (whether directly or indirectly), is prohibited by law or the Loan is in violation of law or may cause any of the Property to be subject to forfeiture or seizure. Borrower has ascertained the identity of all persons and entities that have provided funds to capitalize Borrower and has

LOAN AGREEMENT, PAGE 35

conducted verification procedures which are sufficient to establish the identity and source of such funds.

Section 5.20 Easements, Rights-of-Way, and Restrictive Covenants. Borrower will not grant any easement, right-of-way, restrictive covenant or encumbrance with respect to all or any portion of the Property or Improvements without the prior written consent of Lender, which consent will not be unreasonably withheld (provided that Lender will not be required to subordinate its lien or other rights under the Loan Documents to any such easement, right-of-way, restrictive covenant or encumbrance). Borrower will at all times comply with all easement agreements, reciprocal easement agreements, declarations, restrictive covenants and any other similar types of agreements now or hereafter affecting the Property, and Borrower will not amend, modify or terminate any such easement agreements, reciprocal easement agreements, declarations, restrictive covenants or any other similar types of agreements without Lender’s prior written consent, to be exercised in its sole and absolute discretion. Borrower will not impose or consent to the imposition of any restrictive covenants, easements, or encumbrances upon the Property and Improvements (or any portions thereof) in any manner that adversely affects in any material respect the value, utility or transferability of the Property and Improvements.

Section 5.21 Use and Operation of the Property. Borrower will not do any of the following:

(a) change the use of the Property or Improvements, or any portion thereof or take any steps whatsoever to convert the Property or Improvements, or any portion thereof, to a condominium or cooperative form of management or ownership,

(b) without the prior written consent of Lender, permit any drilling or exploration for or extraction, removal, or production of any minerals from the surface or the subsurface of the Property, regardless of the depth thereof or the method of mining or extraction thereof,

(c) initiate or support any limiting change in the permitted uses of the Property and Improvements (or to the extent applicable, zoning reclassification of the Property and Improvements) or any portion thereof, seek any variance under existing land-use restrictions, laws, rules or regulations (or, to the extent applicable, zoning ordinances) applicable to the Property and Improvements or any portion thereof, or use or permit the use of the Property and Improvements in a manner that would result in the use of the Property and Improvements becoming a nonconforming use under applicable land-use restrictions or zoning ordinances or that would violate the terms of any Lease, Legal Requirement or Permitted Encumbrance,

(d) consent to any modification, amendment or supplement to any of the terms of any Permitted Encumbrance in a manner adverse to the interests of Lender,

(e) execute or file any subdivision plat affecting the Property and Improvements (or any portion thereof), or institute, or permit the institution of, proceedings to alter any tax lot comprising the Property and Improvements,

(f) permit or consent to the Property’s (or any portion thereof) being used by the public or any Person in such manner as might make possible a claim of adverse usage or possession or of any implied dedication or easement, or

(g) without the prior written consent of Lender, enter into any Material Agreement.

Section 5.22 Franchise Agreement

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(a) Borrower will cause the hotel located on the Property to be operated pursuant to the Franchise Agreement.

(b) Borrower will (i) promptly perform and/or observe all of the covenants and agreements required to be performed and observed by it under the Franchise Agreement and do all things necessary to preserve and to keep unimpaired its material rights thereunder, (ii) promptly notify Lender of any default under the Franchise Agreement of which it is aware, (iii) promptly deliver to Lender a copy of each financial statement, business plan, capital expenditures plan, notice, report and estimate received by it under the Franchise Agreement, and (iv) promptly enforce the performance and observance of all of the covenants and agreements required to be performed and/or observed by the Franchisor under the Franchise Agreement.

(c) If Borrower will enter into any new or amended Franchise Agreement, Lender will receive within 30 days following the execution of such Franchise Agreement a Subordination Agreement from the Franchisor which is in form and substance reasonably acceptable to Lender and, without limiting the foregoing, pursuant to which Franchisor will agree (i) that Lender will have the right, but not the obligation, to cure any defaults under the Franchise Agreement, (ii) to give Lender written notice of, and a reasonable time to cure, any default of Borrower under the Franchise Agreement, (iii) not to assert against Lender any defaults which by their nature are personal to Borrower and not curable by Lender, (iv) to allow Lender, at Lender’s option, to either terminate the Franchisor upon the occurrence of an Event of Default or to require Franchisor to attorn to enter into a new Franchise Agreement with Lender on substantially the same terms as the existing Franchise Agreement, (v) that, if Lender or its Affiliate will acquire title to the Property, Lender or its Affiliate will have an option to succeed to the interest of Borrower under the Franchise Agreement without payment of any fees to Franchisor, (vi) that the Franchise Agreement will remain in effect during any foreclosure proceedings by Lender provided Lender cures all monetary defaults under the Franchise Agreement, (vii) not to modify, cancel, surrender or otherwise terminate the Franchise Agreement during the Term without the consent of Lender, and (viii) that if Lender or its Affiliate succeeds to Borrower’s interest under the Franchise Agreement, Lender may assign its rights therein to any entity which acquires the Property from Lender or its Affiliate (subject to Franchisor’s reasonable approval).

(d) Borrower will not, without Lender’s prior written consent (i) surrender, terminate or cancel the Franchise Agreement, (ii) reduce or consent to the reduction of the term of the Franchise Agreement, (iii) increase or consent to the increase of the amount of any charges under the Franchise Agreement, or (iv) otherwise modify, change, supplement, alter or amend, or waive or release any of its rights and remedies under, the Franchise Agreement.

(e) Without in any way limiting the covenants set forth in the Loan Documents, Borrower will: (i) cause the hotel located on the Property to be operated, repaired and maintained as a well-maintained hotel, providing amenities, services and facilities substantially equivalent to hotels of similar average room rate and targeted market segment from time to time operating in the same or comparable geographic area of the Property, taking into consideration the age and location of the hotel located on the Property and (ii) maintain Inventory in amounts sufficient

LOAN AGREEMENT, PAGE 37

to meet the hotel industry standard for hotels comparable to the hotel located on the Property and at levels sufficient for the operation of the hotel located on the Property at full occupancy levels.

Section 5.23 Hospitality License Covenants. Borrower will maintain, or cause Manager to maintain, all hospitality licenses required to operate the Property as operating on the Effective Date and will cause Manager to maintain the liquor licenses pursuant to the Liquor Concession Agreement. Borrower will cause Manager to maintain a liquor license and all other necessary hospitality licenses in full force and effect throughout the term of the Loan.

Section 5.24 Operating Lease Covenants.

(a) Borrower represents, covenants and warrants that it is the express intent of SPE Owner and TRS Lessee that the Operating Lease constitute a lease under applicable real property laws and laws governing bankruptcy, insolvency and creditors’ rights generally, and that the sole interest of TRS Lessee in the Property is as tenant under the Operating Lease. In the event that is will be determined that the Operating Lease is not a lease under applicable real property laws and laws governing bankruptcy, insolvency and creditors’ rights generally, and that the interest of TRS Lessee in the Property is other than that of tenant under the Operating Lease, then Borrower hereby covenants and agrees that it will cause TRS Lessee’s interest in the Property, however characterized , to continue to be subject and subordinate to the lien of the Security Instrument on all of the same terms and conditions as contained in the Operating Lease. The Operating Lease and any and all rights and interests of TRS Lessee thereunder and to the Property are and shall be in all respects subject and subordinate to the lien and security interests created under the Security Instrument and other Loan Documents, and to all renewals, extensions, increases, supplements, amendments, modifications and replacements of any of the foregoing and any advances made thereunder.

(b) Without Lender’s prior written consent, Borrower will not (i) surrender, terminate or cancel the Operating Lease, (ii) reduce or consent to the reduction of the term of the Operating Lease, (iii) increase or consent to the increase of the amount of any charges under the Operating Lease, (iv) modify, change, supplement, alter or amend the Operating Lease or waive or release any of SPE Owner’s rights and remedies under the Operating Lease, or (v) waive, excuse, condone or in any way release or discharge TRS Lessee of or from TRS Lessee’s obligations, covenants and/or conditions under the Operating Lease.

(c) Borrower will, from time to time, deliver to Lender such certificates of estoppel with respect to compliance by Borrower with the terms of the Operating Lease as may be requested by Lender.

Article VI Notices And Reporting

Section 6.1 Notices. Any notice, demand, request, approval, consent, or other communication made from or to a party as required by, permitted by, or contemplated in this Agreement (each a “Notice”) will only be effective if (i) it is in writing and (ii) the intended recipient actually receives it or is deemed to have received it in accordance with this paragraph. A Notice will be deemed received (x) if sent by local or overnight courier to the Recipient’s Address, upon delivery or first attempted delivery and (y) if sent by registered or certified first class mail, return receipt requested, two business days after deposit in the mail. If, however, a provision in this Agreement specifies different methods and requirements regarding a particular Notice, such provision will

LOAN AGREEMENT, PAGE 38

control with regard to the specified Notice. “Recipient’s Address” means the recipient’s address identified below as the recipient’s notice address (or as its address, if a separate notice address is not specified), or a new address identified in a Notice from the recipient to the sending party at least ten days before the date of the sending party’s Notice.

To Lender:

EPH Development Fund LLC

c/o Button Capital

Attn: Ken Okamoto

29834 N Cave Creek Rd

Suite 118-283

Cave Creek, AZ 85331

Ken.okamoto@buttoncapital.com

With a copy to:

Convergence Group

Attn: Sean Hawkins

9475 Briar Village

Suite 220

Colorado Springs, CO 80920

To Borrower:

LF3 El Paso, LLC

LF3 EL PASO TRS, LLC

LF3 El Paso, LLC

LF3 EL PASO TRS, LLC

C/o Lodging Fund REIT III OP, LP

Attn: Linzey Erickson

1635 43rd Street S, Suite 205

Fargo, ND 58103

With a copy to:

Legendary Capital

Attn: David Durell

644 Lovett SE, Suite B

Grand Rapids, MI 49506

Section 6.2 Borrower Notices and Deliveries. Borrower will (a) give prompt written notice to Lender of: (i) any litigation, governmental proceedings or claims or investigations pending or threatened against Borrower or Borrower Representative which might materially adversely affect the Property or Borrower’s or Borrower Representative’s condition (financial or otherwise), business, operations or assets, (ii) any event or circumstance resulting in, or which would reasonably be expected to result in, a material adverse change in the Property or Borrower’s or Borrower Representative’s condition (financial or otherwise), business, operations or assets, or of the occurrence of any Default or Event of Default of which Borrower has knowledge, together with a detailed statement of the steps being taken to cure such Default or Event of Default, and (b) furnish and provide to Lender: all instruments, documents, boundary surveys, footing or foundation surveys, certificates, plans and specifications, appraisals, title and other insurance reports and agreements, reasonably requested, from time to time, by Lender. In addition, after

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request by Lender (but no more frequently than twice in any year), Borrower will furnish to Lender (x) within ten days, a certificate addressed to Lender, its successors and assigns reaffirming all representations and warranties of Borrower set forth in the Loan Documents as of the date requested by Lender or, to the extent of any changes to any such representations and warranties, so stating such changes, and (y) within 30 days, tenant estoppel certificates addressed to Lender, its successors and assigns from each tenant at the Property in form and substance reasonably satisfactory to Lender.

Section 6.3 Financial Reporting.

(a) Bookkeeping. Borrower will keep or cause Manager to keep on a calendar year basis, in accordance with GAAP and the Uniform System of Accounts for Hotels, proper and accurate books, records and accounts reflecting all of the financial affairs of Borrower and all items of income and expense and any services, Equipment or furnishings provided in connection with the operation of the Property, whether such income or expense is realized by Borrower, Manager or any Affiliate of Borrower. Lender will have the right from time to time during normal business hours upon reasonable notice to examine such books, records and accounts at the office of Borrower or other Person maintaining them, and to make such copies or extracts thereof as Lender will desire. After an Event of Default which remains uncured, Borrower will pay any costs incurred by Lender to examine such books, records and accounts, as Lender will determine to be necessary or appropriate in the protection of Lender’s interest.

(b) Monthly Reports. Borrower will furnish to Lender within 30 days after the end of each calendar month the following items: the balance sheet, income statement, and STR report for the Property.

(c) Quarterly Reports. Borrower will furnish to Lender within 45 days after the end of each calendar quarter a balance sheet and income statement of Guarantor for such calendar quarter.

(d) Annual Reports. Borrower will furnish to Lender annually, within 90 days after each calendar year, a complete copy of Borrower’s annual audited financial statements prepared by a “big four” accounting firm or a regional accounting firm reasonably acceptable to Lender, each in accordance with GAAP and the Uniform System of Accounts for Hotels and containing balance sheets and statements of profit and loss for Borrower and the Property in such detail as Lender may reasonably request. Each such statement (i) will be in form and substance satisfactory to Lender, (ii) will set forth the financial condition and the income and expenses for the Property on a monthly basis for the immediately preceding calendar year, including statements of annual Net Cash Flow as well as a list of tenants and (iii) will be accompanied by an Officer’s Certificate certifying (A) that such statement is true, correct, complete and accurate in all material respects and presents fairly the financial condition of the Property and has been prepared in accordance with GAAP and the Uniform System of Accounts for Hotels and (B) whether there exists a Default or Event of Default, and if so, the nature thereof, the period of time it has existed and the action then being taken to remedy it.

(e) Other Reports. Borrower will furnish to Lender (x) within three Business Days of receipt, any notices or reports received from Manager pursuant to the Management Agreement and/or the Franchise Agreement and (y) within ten Business Days after request, such further detailed information with respect to the

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operation of the Property and the financial affairs of Borrower or Borrower Representative as may be reasonably requested by Lender.

(f) Annual Budget. Borrower will prepare and submit (or will cause Manager to prepare and submit) to Lender by November 30^th of each year for approval by Lender in its sole and absolute discretion, a proposed pro forma budget for the Property for the succeeding calendar year (the “Annual Budget”), and, promptly after preparation thereof, any revisions to such Annual Budget. Lender’s failure to approve or disapprove any Annual Budget or revision within 30 days after Lender’s receipt thereof will be deemed to constitute Lender’s approval thereof. The Annual Budget will consist of (i) an operating expense budget (the “Operating Budget”) showing, on a month-by-month basis, in reasonable detail, each line item of the Borrower’s anticipated operating income and operating expenses (on a cash and accrual basis), including amounts required to establish, maintain and/or increase any monthly payments required hereunder, (ii) a capital budget (the “Capital Budget”) showing, on a month-by-month basis, in reasonable detail, each line item of anticipated Capital Expenses and to replace FF&E and other items at the Property. Borrower acknowledges that in no event will monthly management fees (including asset management fees) exceed three percent of Rents from the Property.

Article VII Insurance, Casualty, And Condemnation

Section 7.1 Insurance.

(a) Coverage. Borrower, at its sole cost, for the mutual benefit of Borrower and Lender, will obtain and maintain during the Term the following policies of insurance:

(i) Property insurance insuring against loss or damage customarily included under so called “all risk” or “special form” policies including fire, lightning, flood, earthquake, windstorm/hail, vandalism, and malicious mischief, boiler and machinery and coverage for damage or destruction caused by “War” or the acts of “Terrorists”, both foreign and domestic (or such policies will have no exclusion from coverage with respect thereto) and such other insurable hazards as, under good insurance practices, from time to time are insured against for other property and buildings similar to the premises in nature, use, location, height, and type of construction. If such insurance for destruction caused by “War” or the acts of “Terrorists” will exceed 200 percent of the standard premium for the Property insurance, Lender will consider amending this Agreement (without any obligation to do so) with respect to such “Terrorism” insurance requirement. Such insurance policy will also insure costs of value of the undamaged portion of the Improvements, demolition and increased cost of construction (which insurance for demolition and increased cost of construction may contain a sub- limit satisfactory to Lender). Each such insurance policy will (i) be in an amount equal to the greater of (A) 100 percent of the then replacement cost of the Improvements without deduction for physical depreciation, and (B) such amount as is necessary so that the insurer would not deem Borrower a co-insurer under such policies, (ii) have deductibles no greater than $100,000, (iii) be paid annually in advance and (iv) contain an agreed amount replacement cost endorsement with a waiver of depreciation, and will cover, without limitation, all tenant improvements and betterments that Borrower is required to insure on a replacement cost basis. If the

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insurance required under this paragraph is not obtained by blanket insurance policies, the insurance policy will be endorsed to also provide guaranteed building replacement cost to the Improvements and such tenant improvements in an amount to be subject to the consent of Lender, which consent will not be unreasonably withheld. Lender will be named Loss Payee on a Standard Mortgagee Endorsement.

(ii) Flood insurance if any part of the Property is located in an area identified by the Federal Emergency Management Agency as an area having special flood hazards, in an amount at least equal to the initial Principal amount.

(iii) Liability insurance, to be written on an occurrence basis with no deductible or self-insured retention, including (i) “Commercial General Liability Insurance”, (ii) “Owned”, “Hired” and “Non Owned Auto Liability”, and (iii) umbrella liability coverage for personal injury, bodily injury, death, accident and property damage, such insurance providing in combination no less than $2,000,000 per occurrence and $5,000,000 annual aggregate on per location basis. The policies described in this paragraph will also include coverage for elevators, escalators, independent contractors, “Contractual Liability” (covering, to the maximum extent permitted by law, Borrower’s obligation to indemnify Lender as required under this Agreement and the other Loan Documents), “Products”, “Completed Operations Liability” and “Terrorism” coverage.

(iv) Rental loss and/or business interruption insurance (i) with Lender being named as “Lender Loss Payee”, (ii) in an amount equal to 100 percent of the projected net profit, from the Property and continuing expenses and necessary payroll during the period of restoration, and (iii) containing an extended period of indemnity endorsement which provides that after the physical loss to the Property has been repaired, the continued loss of income will be insured until such income either returns to the same level it was at prior to the loss, or the expiration of 12 months from the date that the Property is repaired or replaced and operations are resumed, whichever first occurs, and notwithstanding that the policy may expire prior to the end of such period. The amount of such insurance will be increased from time to time during the Term as and when the estimated or actual Rents increase.

(v) Comprehensive boiler and machinery insurance covering all mechanical and electrical equipment against physical damage, rent loss and improvements loss and covering, without limitation, all tenant improvements and betterments that Borrower is required to insure pursuant to the lease on a replacement cost basis.

(vi) Worker’s compensation and disability insurance with respect to any employees of Borrower, as required by any Legal Requirement.

(vii) During any period of repair or restoration, builder’s “all-risk” insurance in an amount equal to not less than the full insurable value of the Property, against such risks (including fire and extended coverage and collapse of the Improvements to agreed limits) as Lender may request, in form and substance acceptable to Lender.

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(viii) Such other insurance (including environmental liability insurance, earthquake insurance and windstorm insurance) as may from time to time be required by Lender in order to protect its interests.

(b) Policies. All policies of insurance (the “Policies”) required pursuant to Section 7.1.1 will (i) be issued by companies approved by Lender and licensed to do business in the State, with a rating of A/X or better in the current Best’s Insurance Reports, (ii) name Lender and its successors and/or assigns as their interest may appear as the mortgagee (in the case of property insurance) or an additional insured (in the case of liability insurance), (iii) contain (in the case of property insurance) a Non-Contributory Standard Mortgagee Clause and a Lender’s Loss Payable Endorsement, or their equivalents, naming Lender as the Person to which all payments made by such insurance company will be paid, (iv) contain a waiver of subrogation against Lender, (v) be assigned and the originals thereof delivered to Lender, (vi) contain such provisions as Lender deems reasonably necessary or desirable to protect its interest, including (A) endorsements providing that neither Borrower, Lender nor any other party will be a co-insurer under the Policies, (B) that Lender will receive at least 30 days’ prior written notice of any modification, reduction or cancellation of any of the Policies, (C) an agreement whereby the insurer waives any right to claim any premiums and commissions against Lender, provided that the policy need not waive the requirement that the premium be paid in order for a claim to be paid to the insured and (D) providing that Lender is permitted to make payments to effect the continuation of such policy upon notice of cancellation due to non-payment of premiums, (vii) in the event any insurance policy (except for general public and other liability and worker’s compensation insurance) will contain breach of warranty provisions, such policy will provide that with respect to the interest of Lender, such insurance policy will not be invalidated by and will insure Lender regardless of (A) any act, failure to act or negligence of or violation of warranties, declarations or conditions contained in such policy by any named insured, (B) the occupancy or use of the premises for purposes more hazardous than permitted by the terms thereof, or (C) any foreclosure or other action or proceeding taken by Lender pursuant to any provision of the Loan Documents, and (viii) be satisfactory in form and substance to Lender and approved by Lender as to amounts, form, risk coverage, deductibles, loss payees and insureds. Borrower will pay the premiums for such Policies (the “Insurance Premiums”) prior to or upon the closing of the Loan and furnish to Lender evidence of the renewal of each of the Policies together with (unless such Insurance Premiums have been paid by Lender pursuant to Section 3.3) receipts for or other evidence of the payment of the Insurance Premiums reasonably satisfactory to Lender. If Borrower does not furnish such evidence and receipts at least 30 days prior to the expiration of any expiring Policy, then Lender may, but will not be obligated to, procure such insurance and pay the Insurance Premiums therefor, and Borrower will reimburse Lender for the cost of such Insurance Premiums promptly on demand, with interest accruing at the Default Rate. Borrower will deliver to Lender a certified copy of each Policy within 30 days after its effective date. Within 30 days after request by Lender, Borrower will obtain such increases in the amounts of coverage required hereunder as may be reasonably requested by Lender, taking into consideration changes in the value of money over time, changes in liability laws, changes in prudent customs and practices, and the like.

Section 7.2 Casualty.

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(a) Notice, Restoration. If the Property is damaged or destroyed, in whole or in part, by fire or other casualty (a “Casualty”), Borrower will give prompt notice thereof to Lender. Following the occurrence of a Casualty, Borrower, regardless of whether insurance proceeds are available, will promptly proceed to restore, repair, replace or rebuild the Property in accordance with Legal Requirements to be of at least equal value and of substantially the same character as prior to such damage or destruction.

(b) Settlement of Proceeds. If a Casualty covered by any of the Policies (an “Insured Casualty”) occurs where the loss does not exceed $250,000, provided no Default or Event of Default has occurred and is continuing, Borrower may settle and adjust any claim without the prior consent of Lender, provided such adjustment is carried out in a competent and timely manner, and Borrower is hereby authorized to collect and receive the insurance proceeds (the “Proceeds”). In the event of an Insured Casualty where the loss equals or exceeds $250,000 (a “Significant Casualty”) or if an Event of Default exists, Lender may, in its sole discretion, settle and adjust any claim without the consent of Borrower and agree with the insurer(s) on the amount to be paid on the loss, and the Proceeds will be due and payable solely to Lender and held by Lender in the Casualty/Condemnation Subaccount and disbursed in accordance herewith. If Borrower or any party other than Lender is a payee on any check representing Proceeds with respect to a Significant Casualty, Borrower will immediately endorse, and cause all such third parties to endorse, such check payable to the order of Lender. Borrower hereby irrevocably appoints Lender as its attorney-in-fact, coupled with an interest, to endorse such check payable to the order of Lender. The expenses incurred by Lender in the settlement, adjustment and collection of the Proceeds will become part of the Debt and will be reimbursed by Borrower to Lender upon demand.

Section 7.3 Condemnation.

(a) Notice, Restoration. Borrower will promptly give Lender notice of the actual or threatened commencement of any condemnation or eminent domain proceeding affecting the Property (a “Condemnation”) and will deliver to Lender copies of any and all papers served in connection with such Condemnation. Following the occurrence of a Condemnation, Borrower, regardless of whether an Award is available, will promptly proceed to restore, repair, replace or rebuild the Property in accordance with Legal Requirements to the extent practicable to be of at least equal value and of substantially the same character (and to have the same utility) as prior to such Condemnation.

(b) Collection of Award. Lender is hereby irrevocably appointed as Borrower’s attorney-in-fact, coupled with an interest, with exclusive power to collect, receive and retain any award or payment in respect of a Condemnation (an “Award”) and to make any compromise, adjustment or settlement in connection with such Condemnation. Notwithstanding any Condemnation (or any transfer made in lieu of or in anticipation of such Condemnation), Borrower will continue to pay the Debt at the time and in the manner provided for in the Loan Documents, and the Debt will not be reduced unless and until any Award will have been actually received and applied by Lender to expenses of collecting the Award and to discharge of the Debt. Lender will not be limited to the interest paid on the Award by the condemning authority but will be entitled to receive out of the Award interest at the rate or rates provided in the Note. If the Property is sold, through

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foreclosure or otherwise, prior to the receipt by Lender of such Award, Lender will have the right, whether or not a deficiency judgment on the Note will be recoverable or will have been sought, recovered or denied, to receive all or a portion of the Award sufficient to pay the Debt. Borrower will cause any Award that is payable to Borrower to be paid directly to Lender. Lender will hold such Award in the Casualty/Condemnation Subaccount and disburse such Award in accordance with the terms hereof.

Section 7.4 Application of Proceeds or Award.

(a) Application to Restoration. If an Insured Casualty or Condemnation occurs where (i) the loss is in an aggregate amount less than (x) 30 percent of the unpaid Principal in the event of an Insured Casualty or (y) 15 percent of the unpaid Principal in the event of a Condemnation, (ii) in the reasonable judgment of Lender, the Property can be restored within six (6) months, and prior to six (6) months before the Stated Maturity Date and prior to the expiration of the rental or business interruption insurance with respect thereto, to the Property’s pre-existing condition and utility as existed immediately prior to such Insured Casualty or Condemnation and to an economic unit not less valuable and not less useful than the same was immediately prior to the Insured Casualty or Condemnation, and after such restoration will adequately secure the Debt and (iii) no Default or Event of Default will have occurred and be then continuing, then the Proceeds or the Award, as the case may be (after reimbursement of any expenses incurred by Lender), will be applied to reimburse Borrower for the cost of restoring, repairing, replacing or rebuilding the Property (the “Restoration”), in the manner set forth herein. Borrower will commence and diligently prosecute such Restoration. Notwithstanding the foregoing, in no event will Lender be obligated to apply the Proceeds or Award to reimburse Borrower for the cost of Restoration unless, in addition to satisfaction of the foregoing conditions, both (x) Borrower will pay (and if required by Lender, Borrower will deposit with Lender in advance) all costs of such Restoration in excess of the net amount of the Proceeds or the Award made available pursuant to the terms hereof, and (y) Lender will have received evidence reasonably satisfactory to it that during the period of the Restoration, the Rents will be at least equal to the sum of the operating expenses and Debt Service, as reasonably determined by Lender.

(b) Application to Debt. Except as provided in Section 7.4.1, any Proceeds and/or Award may, at the option of Lender in its discretion, be applied to the payment of (i) accrued but unpaid interest on the Note, (ii) the unpaid Principal and (iii) other charges due under the Note and/or any of the other Loan Documents, or applied to reimburse Borrower for the cost of any Restoration, in the manner set forth in Section 7.4(c). Any such prepayment of the Loan will be subject to the Yield Maintenance Premium.

(c) Procedure for Application to Restoration. If Borrower is entitled to reimbursement out of the Proceeds or an Award held by Lender, such Proceeds or Award will be disbursed from time to time from the Casualty/Condemnation Subaccount upon Lender being furnished with (i) evidence satisfactory to Lender of the estimated cost of completion of the Restoration, (ii) a fixed price or guaranteed maximum cost construction contract for Restoration satisfactory to Lender, (iii) prior to the commencement of Restoration, all immediately available funds in addition to the Proceeds or Award that in Lender’s judgment are required to complete the

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proposed Restoration, (iv) such architect’s certificates, waivers of lien, contractor’s sworn statements, title insurance endorsements, bonds, plats of survey, permits, approvals, licenses and such other documents and items as Lender may reasonably require and approve in Lender’s discretion, (v) all plans and specifications for such Restoration, such plans and specifications to be approved by Lender prior to commencement of any work and (vi) Lender will be satisfied that the Restoration will be completed in accordance with any requirements under the Franchise Agreement. Lender may, at Borrower’s expense, retain a consultant to review and approve all requests for disbursements, which approval will also be a condition precedent to any disbursement. No payment made prior to the final completion of the Restoration will exceed 90 percent of the value of the work performed from time to time, funds other than the Proceeds or Award will be disbursed prior to disbursement of such Proceeds or Award, and at all times, the undisbursed balance of such Proceeds or Award remaining in the hands of Lender, together with funds deposited for that purpose or irrevocably committed to the satisfaction of Lender by or on behalf of Borrower for that purpose, will be at least sufficient in the reasonable judgment of Lender to pay for the cost of completion of the Restoration, free and clear of all Liens or claims for Lien. Provided no Default or Event of Default then exists, any surplus that remains out of the Proceeds held by Lender after payment of such costs of Restoration will be paid to Borrower. Any surplus that remains out of the Award received by Lender after payment of such costs of Restoration will, in the discretion of Lender, be retained by Lender and applied to payment of the Debt subject to the Yield Maintenance Premium or returned to Borrower.

Article VIII Defaults

Section 8.1 Events of Default. An “Event of Default” will exist with respect to the Loan if any of the following occur:

(a) any portion of the Debt due hereunder is not paid when due or any other amount under Section 3.10(a)(i) through (vi) is not paid in full on each Payment Date,

(b) any Taxes are not paid prior to delinquency (unless Lender is paying such Taxes pursuant to Section 3.3),

(c) the Policies are not kept in full force and effect, or are not delivered to Lender upon request,

(d) a Transfer other than a Permitted Transfer occurs,

(e) any representation or warranty made by Borrower or Guarantor or in any Loan Document, or in any report, certificate, financial statement or other instrument, agreement, or document furnished by Borrower or Guarantor in connection with any Loan Document, is false or misleading in any material respect as of the date the representation or warranty was made,

(f) Borrower, Borrower Representative, or Guarantor makes an assignment for the benefit of creditors, is generally not paying its debts as they become due, or admits in writing its inability to pay its debts as they become due,

(g) a receiver, liquidator, or trustee will be appointed for Borrower, Borrower Representative or Guarantor, or Borrower, Borrower Representative or Guarantor will be adjudicated a bankrupt or insolvent, or any petition for bankruptcy,

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reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, will be filed by or against, consented to, orchestrated or participated in the orchestration of, acquiesced in by, aided, solicited or supported by, colluded to be caused by, or failed to be contested by Borrower, Borrower Representative or Guarantor, as the case may be, or any proceeding for the dissolution or liquidation of Borrower, Borrower Representative or Guarantor will be instituted, provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to, not aided, solicited, supported, colluded to be caused or orchestrated by, not participated in the orchestration of by, not acquiesced in by, and properly contested by Borrower, Borrower Representative or Guarantor, as the case may be, only upon the same not being discharged, stayed or dismissed within 60 days,

(h) Borrower breaches any covenant contained in any of Sections5.7, 5.12, 5.13, 5.14, 5.18, 5.19, 5.20, 5.21, or 6.3,

(i) except as expressly permitted in this Agreement, the actual or threatened alteration, improvement, demolition, or removal of all or any of portion of the Improvements without the prior written consent of Lender,

(j) an Event of Default as defined or described elsewhere in this Agreement or in any other Loan Document occurs, or any other event will occur or condition will exist, if the effect of such event or condition is to accelerate or to permit Lender to accelerate the maturity of any portion of the Debt,

(k) a default occurs under any term, covenant or provision set forth herein or in any other Loan Document which specifically contains a notice requirement or grace period and such notice has been given and such grace period has expired,

(l) any of the assumptions contained in any substantive non-consolidation opinion, delivered to Lender by Borrower’s counsel in connection with the Loan or otherwise hereunder, were not true and correct as of the date of such opinion or thereafter became untrue or incorrect,

(m) a default is continuing under any of the other terms, covenants or conditions of this Agreement or any other Loan Document not otherwise specified in this Section 8.1, for five days after notice to Borrower (and Guarantor, if applicable) from Lender, in the case of any default which can be cured by the payment of a sum of money, or for 30 days after notice from Lender in the case of any other default, provided, however, that if such non-monetary default is susceptible of cure but cannot reasonably be cured within such 30 day period, and Borrower (or Guarantor, if applicable) will have commenced to cure such default within such 30 day period and thereafter diligently and expeditiously proceeds to cure the same, such 30 day period will be extended for an additional period of time as is reasonably necessary for Borrower (or Guarantor, if applicable) in the exercise of due diligence to cure such default, such additional period not to exceed 30 days.

(n) Guarantor breaches any of the covenants contained in the Guaranty or Guaranty (Recourse) (as applicable), or

(o) a default by Borrower has occurred and continues beyond any applicable cure period under the Management Agreement (or any successor management agreement) or the Franchise Agreement.

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Section 8.2 Remedies.

(a) Acceleration. Upon the occurrence of an Event of Default (other than an Event of Default described in paragraph (f) or (g) of Section 8.1) and at any time and from time to time thereafter, so long as such Event of Default remains uncured, in addition to any other rights or remedies available to it pursuant to the Loan Documents or at law or in equity, Lender may take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrower and in and to the Property, including declaring the Debt to be immediately due and payable (including unpaid interest), Default Rate interest, Late Payment Charges, Yield Maintenance Premium, and any other amounts owing by Borrower), without notice or demand, and upon any Event of Default described in paragraph (f) or (g) of Section 8.1, the Debt (including unpaid interest, Default Rate interest, Late Payment Charges, Yield Maintenance Premium, and any other amounts owing by Borrower) will immediately and automatically become due and payable, without notice or demand, and Borrower hereby expressly waives any such notice or demand, anything contained in any Loan Document to the contrary notwithstanding. Notwithstanding anything to the contrary set forth herein, after the occurrence of an Event of Default, Lender may accept or reject the tender of cure for such Event of Default in its sole and absolute discretion.

(b) Remedies Cumulative. Upon the occurrence of an Event of Default, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrower under the Loan Documents or at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Debt will be declared, or be automatically, due and payable, and whether or not Lender will have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents. Any such actions taken by Lender will be cumulative and concurrent and may be pursued independently, singly, successively, together or otherwise, at such time and in such order as Lender may determine in its discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth in the Loan Documents. Without limiting the generality of the foregoing, Borrower agrees that if an Event of Default is continuing, (i) to the extent permitted by applicable law, Lender is not subject to any “one action” or “election of remedies” law or rule, and (ii) all Liens and other rights, remedies or privileges provided to Lender will remain in full force and effect until Lender has exhausted all of its remedies against the Property, the Security Instrument has been foreclosed, the Property has been sold and/or otherwise realized upon in satisfaction of the Debt or the Debt has been paid in full. To the extent permitted by applicable law, nothing contained in any Loan Document will be construed as requiring Lender to resort to any portion of the Property for the satisfaction of any of the Debt in preference or priority to any other portion, and Lender may seek satisfaction out of the entire Property or any part thereof, in its discretion.

(c) Delay. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default, or the granting of any indulgence or compromise by Lender will impair any such remedy, right or power hereunder or be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one Default or Event of

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Default will not be construed to be a waiver of any subsequent Default or Event of Default or to impair any remedy, right or power consequent thereon. Notwithstanding any other provision of this Agreement, Lender reserves the right to seek a deficiency judgment or preserve a deficiency claim in connection with the foreclosure of the Security Instrument to the extent necessary to foreclose on all or any portion of the Property, the Rents, the Accounts or any other collateral.

(d) Lender’s Right to Perform. If Borrower fails to perform any covenant or obligation contained herein and such failure will continue for a period of five Business Days after Borrower’s receipt of written notice thereof from Lender, without in any way limiting Lender’s right to exercise any of its rights, powers or remedies as provided hereunder, or under any of the other Loan Documents, Lender may, but will have no obligation to, perform, or cause performance of, such covenant or obligation, and all costs, expenses, liabilities, penalties and fines of Lender incurred or paid in connection therewith will be payable by Borrower to Lender upon demand and if not paid will be added to the Debt (and to the extent permitted under applicable laws, secured by the Security Instrument and other Loan Documents) and will bear interest thereafter at the Default Rate. Notwithstanding the foregoing, Lender will have no obligation to send notice to Borrower of any such failure.

Article IX Miscellaneous

Section 9.1 Survival. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto will survive the making by Lender of the Loan and the execution and delivery to Lender of the Note, and will continue in full force and effect so long as any of the Debt is unpaid or such longer period if expressly set forth in this Agreement. All Borrower’s covenants and agreements in this Agreement will inure to the benefit of the respective legal representatives, successors and assigns of Lender.

Section 9.2 Lender’s Discretion. Whenever pursuant to this Agreement or any other Loan Document, Lender exercises any right given to it to approve or disapprove, or consent or withhold consent, or decide whether any arrangement or term is to be satisfactory to Lender or is to be in Lender’s discretion, the decision of Lender to approve or disapprove, to consent or withhold consent, or to decide whether arrangements or terms are satisfactory or not satisfactory, or acceptable or unacceptable or in Lender’s discretion will (except as is otherwise specifically herein provided) be in the sole discretion of Lender and will be final and conclusive.

Section 9.3 Rules of Construction. In this Agreement and each other Loan Document, (a) a capitalized term that is not defined in this Agreement, but is defined in another Loan Document, will have the meaning ascribed to it in the other Loan Document, (b) headings of articles, sections, paragraphs, and other subdivisions of this Agreement (each a “subdivision”) are for convenience only and do not modify the meaning of the text following a heading, (c) each Exhibit, Schedule, Attachment, Annex, and other attachment to this Agreement (each an “attachment”) is incorporated into the Loan Document to which it is attached, (d) unless reference is made to another document, a reference to a subdivision or attachment refers to such subdivision of or attachment to the Loan Document containing the reference, (e) a capitalized term that refers to another document or a Legal Requirement refers to such document or a Legal Requirement as renewed, extended, supplemented, amended, or modified at any time, (f) a word indicating a particular gender includes all genders and a word indicating the singular include the plural and vice versa, unless the context otherwise requires, (g) the rule of ejusdem generis will not be applied to limit the generality of any term when followed by specific examples, and the words “include”, “including”, and similar terms will be construed as if followed by “without limitation to”, (h) consent of or notice to any Person means prior written consent and prior written notice,

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respectively, (i) “year” means a calendar year, unless otherwise specified, and (j) ”party” means a party to such Loan Document.

Section 9.4 Modification, Waiver in Writing. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement or of any other Loan Document, nor consent to any departure by Borrower therefrom, will in any event be effective unless the same will be in a writing signed by the party against whom enforcement is sought, and then such waiver or consent will be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to or demand on Borrower will entitle Borrower to any other or future notice or demand in the same, similar or other circumstances. Neither any failure nor any delay on the part of Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under any other Loan Document, will operate as or constitute a waiver thereof, nor will a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under any Loan Document, Lender will not be deemed to have waived any right either to require prompt payment when due of all other amounts due under the Loan Documents, or to declare an Event of Default for failure to effect prompt payment of any such other amount.

Section 9.5 Time of Essence. Time is of the essence as to all obligations created by and all notices required by this Agreement

Section 9.6 WAIVER OF JURY TRIAL. EACH PARTY WAIVES ITS RIGHT TO A JURY TRIAL FOR ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MIGHT BE FILED IN A COURT AND THAT RELATE TO THE SUBJECT MATTER OF THE TRANSACTION ARISING OUT OF THE LOAN DOCUMENTS, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP AND THE PARTIES HAVE EACH RELIED ON THIS WAIVER IN ENTERING INTO THE LOAN DOCUMENTS. EACH PARTY WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IF LITIGATION OCCURS, THIS WAIVER AND THE AGREEMENT IN WHICH IT IS CONTAINED MAY BE FILED AS A CONSENT TO A TRIAL BY THE COURT.

Section 9.7 Severability. The invalidity or unenforceability of one or more covenants, terms, or conditions in this Agreement will not affect the remainder of this Agreement.

Section 9.8 Preferences. Upon the occurrence and continuance of an Event of Default, Lender will have the continuing and exclusive right to apply or reverse and reapply (or having so applied, to reverse and reapply) any and all payments by Borrower to any portion of the Debt. To the extent Borrower makes a payment to Lender, or Lender receives proceeds of any collateral, which is in whole or in part subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the Debt or part thereof intended to be satisfied will be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender. This provision will survive the expiration or termination of this Agreement and the repayment of the Debt.

Section 9.9 Waiver of Notice. Borrower will not be entitled to any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or any other

LOAN AGREEMENT, PAGE 50

Loan Document specifically and expressly requires the giving of notice by Lender to Borrower and except with respect to matters for which Borrower is not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice. Borrower hereby expressly waives the right to receive any notice from Lender with respect to any matter for which no Loan Document specifically and expressly requires the giving of notice by Lender to Borrower.

Section 9.10 Remedies of Borrower. If a claim or adjudication is made that Lender or any of its agents,, has acted unreasonably or unreasonably delayed acting in any case where by law or under any Loan Document, Lender or any such agent, as the case may be, has an obligation to act reasonably or promptly, Borrower agrees that neither Lender nor its agents will be liable for any monetary damages, and Borrower’s sole remedy will be to commence an action seeking injunctive relief or declaratory judgment. Any action or proceeding to determine whether Lender has acted reasonably will be determined by an action seeking declaratory judgment. Borrower specifically waives any claim against Lender and its agents with respect to actions taken by Lender or its agents on Borrower’s behalf.

Section 9.11 Prior Agreements. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements, understandings and negotiations among or between such parties, whether oral or written, are superseded by the terms of this Agreement and the other Loan Documents.

Section 9.12 Offsets, Counterclaims and Defenses. Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Lender or its agents or otherwise offset any obligations to make payments required under the Loan Documents. Any assignee of Lender’s interest in and to the Loan Documents will take the same free and clear of all offsets, counterclaims or defenses which Borrower may otherwise have against any assignor of such documents, and no such offset, counterclaim or defense will be interposed or asserted by Borrower in any action or proceeding brought by any such assignee upon such documents, and any such right to interpose or assert any such offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by Borrower.

Section 9.13 No Usury. The invalidity, or unenforceability in particular circumstances, of any provision of this Agreement, the Note or the other Loan Documents shall not extend beyond such provision or such circumstances and no other provision of any such agreement or instrument shall be affected thereby.  The term “Maximum Legal Rate of Interest” shall mean and refer to the maximum rate of non-usurious interest, if any, that Lender may from time to time charge Borrower and in regard to which Borrower would be prevented successfully from raising the claim or defense of usury under Applicable Law as now, or to the extent permitted by Applicable Law, as may hereafter be, in effect and which allow a higher maximum non-usurious interest rate than Applicable Law now allows (said Applicable Law permitting the highest rate being herein referred to as the “Interest Law”).  Unless changed in accordance with Applicable Law, the applicable rate ceiling under Applicable Law shall be the weekly rate ceiling, from time to time in effect, as provided in Chapter 303 of the Texas Finance Code, as amended.  It is the intention of Borrower and Lender to conform strictly to the Interest Law applicable to this loan transaction.  Accordingly, it is agreed that notwithstanding any provision to the contrary in this Agreement, the Note, or any of the documents securing payment hereof or thereof or otherwise relating hereto or thereto, the aggregate of all interest and any other charges or consideration constituting interest under applicable Interest Law that is taken, reserved, contracted for, charged or received under this Agreement, under the Note, or under any of the other aforesaid agreements or otherwise in connection with this loan transaction shall under no circumstances exceed the maximum amount of interest allowed by the Interest Law applicable to this loan transaction.  If

LOAN AGREEMENT, PAGE 51

any excess of interest in such respect is provided for, or shall be adjudicated to be so provided for, in this Agreement, the Note, or in any of the documents securing payment hereof or thereof or otherwise relating hereto or thereto, then in such event (i) the provisions of this Section 9.13 shall govern and control, (ii) neither Borrower nor Borrower’s heirs, legal representatives, successors or assigns or any other party liable for the payment of the Note shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest allowed by the Interest Law applicable to this loan transaction, (iii) any excess shall be deemed a mistake and cancelled automatically and, if theretofore paid, shall be credited on the Note by Lender (or if the Note shall have been paid in full, refunded to Borrower) and (iv) the effective rate of interest shall be automatically subject to reduction to the Maximum Legal Rate of Interest allowed under such Interest Law as now or hereafter construed by courts of appropriate jurisdiction.  The foregoing specifically includes prepayment premiums that may become due in the event of an acceleration of maturity under the Note or the Security Instrument.  All sums paid or agreed to be paid Lender for the use, forbearance or detention of the Debt shall, to the extent permitted by the Interest Law applicable to this loan transaction, be amortized, prorated, allocated and spread throughout the full term of the Note.  In no event shall the provisions of Chapter 346 of the Texas Finance Code as amended (which regulates certain revolving credit loan amounts and tri-party accounts) apply to the Loan.  As used in this Section 9.13, “Applicable Law” means all federal, state and local laws, statutes, codes, ordinances, orders, rules and regulations, including judicial opinions or precedential authority in the State of Texas, as any of the same may from time to time be amended, modified or supplemented.

Section 9.14 Conflict, Construction of Documents. In the event of any conflict between the provisions of this Agreement and any of the other Loan Documents, the provisions of this Agreement will control. The parties hereto acknowledge that each is represented by separate counsel in connection with the negotiation and drafting of the Loan Documents and that the Loan Documents will not be subject to the principle of construing their meaning against the party that drafted them.

Section 9.15 No Third Party Beneficiaries. The Loan Documents are solely for the benefit of Lender and Borrower and nothing contained in any Loan Document will be deemed to confer upon anyone other than the Lender and Borrower any right to insist upon or to enforce the performance or observance of any of the obligations contained therein.

Section 9.16 Yield Maintenance Premium. Borrower acknowledges that (a) Lender is making the Loan in consideration of the receipt by Lender of all interest and other benefits intended to be conferred by the Loan Documents and (b) except as otherwise provided in the Loan Documents, if payments of Principal are made to Lender on or prior to the Yield Maintenance Date, for any reason whatsoever, whether voluntary, as a result of Lender’s acceleration of the Loan after an Event of Default, by operation of law or otherwise, Lender will not receive all such interest and other benefits and may, in addition, incur costs. For these reasons, and to induce Lender to make the Loan, Borrower agrees that, except as expressly provided in the Loan Documents, all prepayments, if any, whether voluntary or involuntary, will be accompanied by Yield Maintenance Premium. Such Yield Maintenance Premium, as applicable, will be required whether payment is made by Borrower, by a Person on behalf of Borrower, or by the purchaser at any foreclosure sale, and may be included in any bid by Lender at such sale. Borrower further acknowledges that (A) it is a knowledgeable real estate developer and/or investor, (B) it fully understands the effect of the provisions of this Section 9.16, as well as the other provisions of the Loan Documents, (C) the making of the Loan by Lender at the Interest Rate and other terms set forth in the Loan Documents are sufficient consideration for Borrower’s obligation to pay Yield Maintenance Premium (if required), and (D) Lender would not make the Loan on the terms set forth herein without the inclusion of such provisions. Borrower also acknowledges that the provisions of this

LOAN AGREEMENT, PAGE 52

Agreement limiting the right of prepayment and providing for the payment of Yield Maintenance Premium and other charges specified herein were independently negotiated and bargained for, and constitute a specific material part of the consideration given by Borrower to Lender for the making of the Loan except as expressly permitted hereunder.

Section 9.17 Joint and Several Liability. If more than one Person has executed this Agreement as “Borrower,” the representations, covenants, warranties and obligations of all such Persons hereunder will be joint and several. Each entity that constitutes Borrower acknowledges and agrees that it will be jointly and severally liable for the Loan and all other Obligations arising under this Agreement and/or any of the other Loan Documents. In furtherance thereof, each Borrower acknowledges and agrees as follows:

(a) For the purpose of implementing the joint borrower provisions of the Loan Documents, each Borrower hereby irrevocably appoints each other Borrower as its agent and attorney-in-fact for all purposes of the Loan Documents, including the giving and receiving of notices and other communications.

(b) To induce Lender to make the Loan, and in consideration thereof, each Borrower hereby agrees to indemnify Lender against, and hold Lender harmless from, any and all liabilities, expenses, losses, damages and/or claims of damage or injury asserted against Lender by any Borrower or by any other Person arising from or incurred by reason of (i) reliance by Lender on any requests or instructions from any Borrower, or (ii) any other action taken by Lender in good faith with respect to this Agreement or the other Loan Documents.

(c) Each Borrower acknowledges that the liens and security interests created or granted herein and by the other Loan Documents will secure the Obligations of all Borrowers under the Loan Documents and, in full recognition of that fact, each Borrower consents and agrees that Lender may, at any time and from time to time, without notice or demand, and without affecting the enforceability or security hereof or of any other Loan Document:

(i) agree with any Borrower to supplement, modify, amend, extend, renew, accelerate, or otherwise change the time for payment or the terms of the Obligations or any part thereof, including any increase or decrease of the rate(s) of interest thereon,

(ii) agree with any Borrower to supplement, modify, amend or waive, or enter into or give any agreement, approval or consent with respect to, the Obligations or any part thereof or any of the Loan Documents or any additional security or guaranties, or any condition, covenant, default, remedy, right, representation or term thereof or thereunder,

(iii) accept new or additional instruments, documents or agreements in exchange for or relative to any of the Loan Documents or the Obligations or any part thereof,

(iv) accept partial payments on the Obligations,

(v) receive and hold additional security or guaranties for the Obligations or any part thereof,

(vi) release, reconvey, terminate, waive, abandon, subordinate, exchange, substitute, transfer and enforce any security for or guaranties of the

LOAN AGREEMENT, PAGE 53

Obligations, and apply any security and direct the order or manner of sale thereof as Lender, in its sole and absolute discretion, may determine,

(vii) release any Person or any guarantor from any personal liability with respect to the Obligations or any part thereof, or

(viii) settle, release on terms satisfactory to Lender or by operation of applicable laws or otherwise liquidate or enforce any Obligations and any security therefor or guaranty thereof in any manner, consent to the transfer of any such security and bid and purchase at any sale, and consent to the merger, change or any other restructuring or termination of the corporate existence of any Borrower or any other Person, and correspondingly restructure the obligations of such Borrower or other Person, and any such merger, change, restructuring or termination will not affect the liability of any Borrower or the continuing existence of any lien or security interest hereunder, or under any other Loan Document to which any Borrower is a party, or the enforceability hereof or thereof with respect to all or any part of the Obligations.

(d) Upon the occurrence of and during the continuance of any Event of Default, Lender may enforce this Agreement and the other Loan Documents independently as to each Borrower and independently of any other remedy or security Lender at any time may have or hold in connection with the Obligations, and in collecting on the Loan it will not be necessary for Lender to marshal assets in favor of any Borrower or any other Person or to proceed upon or against and/or exhaust any other security or remedy before proceeding to enforce this Agreement and the other Loan Documents. Each Borrower expressly waives any right to require Lender, in connection with Lender’s efforts to obtain repayment of the Loan and other Obligations, to marshal assets in favor of any Borrower or any other Person or to proceed against any other Person or any collateral provided by any other Person, and agrees that Lender may proceed against any Persons and/or collateral in such order as it will determine in its sole and absolute discretion in connection with Lender’s efforts to obtain repayment of the Loan and other Obligations. Lender may file a separate action or actions against each Borrower to enforce the Obligations, whether action is brought or prosecuted with respect to any other security or against any other Person, or whether any other Person is joined in any such action or actions. Each Borrower agrees that Lender, each Borrower and/or any other Person may deal with each other in connection with the Obligations or otherwise, or alter any contracts or agreements now or hereafter existing among any of them, in any manner whatsoever, all without in any way altering or affecting the security of this Agreement or the other Loan Documents. The rights of Lender hereunder and under the other Loan Documents will be reinstated and revived, and the enforceability of this Agreement and the other Loan Documents will continue, with respect to any amount at any time paid on account of the Obligations, which thereafter will be required to be restored or returned by Lender as a result of the bankruptcy, insolvency or reorganization of any Borrower or any other Person, or otherwise, all as though such amount had not been paid. The enforceability of this Agreement and the other Loan Documents at all times will remain effective even though any or all Obligations, or any other security or guaranty therefor, may be or hereafter may become invalid or otherwise unenforceable as against any Borrower or any other Person and whether or not any Borrower or any other Person will have any personal liability with respect thereto.

LOAN AGREEMENT, PAGE 54

Each Borrower expressly waives any and all defenses to the enforcement of its Obligations under the Loan Documents now or hereafter arising or asserted by reason of (i) any disability or other defense of any Borrower or any other Person with respect to the Obligations, (ii) the unenforceability or invalidity of any security or guaranty for the Obligations or the lack of perfection or continuing perfection or failure of priority of any security for the Obligations, (iii) the cessation for any cause whatsoever of the liability of any Borrower or any other Person (other than by reason of the full and final payment and performance of all Obligations), (iv) any failure of Lender to marshal assets in favor of any of the Borrowers or any other Person, (v) any failure of Lender to give notice of sale or other disposition of any Collateral or Pledged Collateral for the Obligations to Borrower or to any other Person or any defect in any notice that may be given in connection with any such sale or disposition, (vi) any failure of Lender to comply in any non-material respect with applicable laws in connection with the sale or other disposition of any collateral or other security for any Obligation, (vii) any act or omission of Lender or others that directly or indirectly results in or aids the discharge or release of any Borrower or of any other Person or of any of the Obligations or any other security or guaranty therefor by operation of law or otherwise, (viii) any law that provides that the obligation of a surety or guarantor must neither be larger in amount nor in other respects more burdensome than that of the principal or which reduces a surety’s or guarantor’s obligation in proportion to the principal obligation, (ix) any failure of Lender to file or enforce a claim in any bankruptcy or similar proceeding with respect to any Person, (x) the election by Lender, in any bankruptcy or similar proceeding of any Person, of the application or non-application of Section 1111(b)(2) of the Bankruptcy Code, (xi) any extension of credit or the grant of any lien under Section 364 of the Bankruptcy Code except to the extent otherwise provided in this Agreement, (xii) any use of cash collateral under Section 363 of the Bankruptcy Code, (xiii) any agreement or stipulation with respect to the provision of adequate protection in any bankruptcy or similar proceeding of any Person, (xiv) the avoidance of any lien or security interest in favor of Lender securing the Obligations for any reason, or (xv) any bankruptcy or similar proceeding commenced by or against any Person, including any discharge of, or bar or stay against collecting, all or any of the Obligations (or any interest thereon) in or as a result of any such proceeding.

(e) Borrowers represent and warrant to Lender that they have established adequate means of obtaining from each other, on a continuing basis, financial and other information pertaining to their respective businesses, operations and condition (financial and otherwise) and their respective properties, and each now is and hereafter will be completely familiar with the businesses, operations and condition (financial and otherwise) of the other and their respective properties. Each Borrower hereby expressly waives and relinquishes any duty on the part of Lender to disclose to such Borrower any matter, fact or thing related to the businesses, operations or condition (financial or otherwise) of the other Borrowers or the other Borrowers’ properties, whether now known or hereafter known by Lender during the life of this Agreement. With respect to any of the Obligations, Lender need not inquire into the powers of any Borrower or the officers, employees or other Persons acting or purporting to act on such Borrower’s behalf.

(f) EACH BORROWER WARRANTS AND AGREES THAT EACH OF THE WAIVERS AND CONSENTS SET FORTH HEREIN IS MADE WITH FULL KNOWLEDGE OF ITS SIGNIFICANCE AND CONSEQUENCES, WITH THE UNDERSTANDING

LOAN AGREEMENT, PAGE 55

THAT EVENTS GIVING RISE TO ANY DEFENSE WAIVED MAY DIMINISH, DESTROY OR OTHERWISE ADVERSELY AFFECT RIGHTS THAT EACH OTHERWISE MAY HAVE AGAINST THE OTHER, AGAINST LENDER OR OTHERS, OR AGAINST ANY COLLATERAL. IF ANY OF THE WAIVERS OR CONSENTS HEREIN IS DETERMINED TO BE CONTRARY TO ANY APPLICABLE LAW OR PUBLIC POLICY, SUCH WAIVERS AND CONSENTS WILL BE EFFECTIVE TO THE MAXIMUM EXTENT PERMITTED BY LAW.

Section 9.18 Assignment. The Loan, the Note, the Loan Documents and/or Lender’s rights, title, obligations and interests therein may be assigned by Lender and any of its successors and assigns to any Person at any time in its discretion, in whole or in part, whether by operation of law (pursuant to a merger or other successor in interest) or otherwise. Upon such assignment, all references to Lender in this Loan Agreement and in any Loan Document will be deemed to refer to such assignee or successor in interest and such assignee or successor in interest will thereafter stand in the place of Lender. Borrower may not assign its rights, title, interests or obligations under this Loan Agreement or under any of the Loan Documents.

Section 9.19 Governing Law. THIS AGREEMENT AND ANY CONTROVERSY, DISPUTE, CLAIM OR CAUSE OF ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, THE BREACH THEREOF, THE TRANSACTIONS CONTEMPLATED THEREBY, OR ANY OTHER DISPUTE BETWEEN OR AMONG THE PARTIES TO THE LOAN DOCUMENTS (WHETHER IN CONTRACT, TORT OR OTHERWISE) WILL BE GOVERNED BY, CONSTRUED IN ACCORDANCE WITH, AND INTERPRETED PURSUANT TO THE LAWS OF THE STATE OF TEXAS; PROVIDED THAT ADMINISTRATIVE AGENT AND LENDERS WILL RETAIN ALL RIGHTS UNDER FEDERAL LAW. THIS AGREEMENT IS PERFORMABLE FOR ALL PURPOSES IN EL PASO COUNTY, TEXAS. THE PARTIES HEREBY AGREE THAT ANY LAWSUIT, ACTION, OR PROCEEDING THAT IS BROUGHT (WHETHER IN CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE LOAN DOCUMENTS, THE TRANSACTIONS CONTEMPLATED THEREBY, OR THE ACTS, CONDUCT OR OMISSIONS OF ADMINISTRATIVE AGENT AND/OR LENDERS IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS WILL BE BROUGHT IN A STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED IN EL PASO COUNTY, TEXAS. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY (A) SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS, (B) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH LAWSUIT, ACTION, OR PROCEEDING BROUGHT IN ANY SUCH COURT, AND (C) FURTHER WAIVES ANY CLAIM THAT IT MAY NOW OR HEREAFTER HAVE THAT ANY SUCH COURT IS AN INCONVENIENT FORUM. EACH OF THE PARTIES HERETO AGREE THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED AT THE ADDRESS FOR NOTICES CONTAINED ON THE SIGNATURE PAGE OF THIS AGREEMENT.

Section 9.20 Counterparts. To facilitate execution, this Agreement may be executed in multiple identical counterparts. The signature of each party, or the signature of all persons required to bind a party, need not appear on each counterpart. All counterparts, taken together, will constitute a single document. The validity of a signature page will not be affected by its detachment from one counterpart of this Agreement and attachment to an identical counterpart of this Agreement.

Section 9.21 Final Agreement. This Agreement is the final, complete, and exclusive agreement of the parties regarding its subject matter, and supersedes all prior and contemporaneous agreements, representations, and understandings regarding such subject matter. No modification of this Agreement will be binding on the parties to it unless contained in a writing signed by the parties hereto.

[NO FURTHER TEXT ON THIS PAGE]

LOAN AGREEMENT, PAGE 56

Executed to be effective as of the Effective Date.

Borrower:
LF3 EL PASO, LLC, a Delaware limited liability company
	By:	Lodging Fund REIT III OP, LP, a Delaware limited partnership, its sole member
		By:	Lodging Fund REIT III, Inc., a Maryland corporation, its general partner
		By:		/s/ Samuel C. Montgomery
		Name:		Samuel C. Montgomery
		Title:		Chief Financial Officer

LF3 EL PASO TRS, LLC, a Delaware limited liability company
	By:	Lodging Fund REIT III TRS, Inc., a Delaware corporation, its sole member
	By:		/s/ Samuel C. Montgomery
	Name:		Samuel C. Montgomery
	Title:		Chief Financial Officer

Lender:
EPH DEVELOPMENT FUND LLC, a Delaware limited liability company
By:	/s/ Albert Ken Okamoto
Name:	Albert Ken Okamoto
Title:	Authorized Signatory

LOAN AGREEMENT

SCHEDULE 1

FORM OF AMENDED AND RESTATED PROMISSORY NOTE

7,900,000.00 May       , 2021

For value received, LF3 El Paso, LLC, a Delaware limited liability company and LF3 El Paso TRS, LLC, a Delaware limited liability company (collectively, “Maker”), promises to pay to the order of EPH Development Fund LLC, a Delaware limited liability company at its principal place of business at1635 43rd Street S, Suite 205, Fargo, ND 58103 (together with its successors and assigns “Payee”), or at such place as the holder hereof may from time to time designate in writing, the principal sum of Seven Million Nine Hundred Thousand Dollars ($7,900,000), in lawful money of the United States of America, with interest on the unpaid principal balance from time to time outstanding to be computed in the manner, at the times and, subject to the provisions of Section 2.2(a) of the Loan Agreement dated of even date herewith between Payee, as lender, and Maker, as borrower (the “Loan Agreement”), at the Interest Rate. Capitalized terms used but not defined herein will have the respective meanings given such terms in the Loan Agreement.

1.Payment Terms. Maker will pay to Payee the monthly interest on the unpaid Principal and in the manner and at the times specified in Article 2 of the Loan Agreement, which payments will be applied in the order of priority set forth in the Loan Agreement. Maker will also pay to Payee interest at the Default Rate, Late Payment Charges, the Yield Maintenance Premium, if any, and all other amounts due and payable as and when provided for in the Loan Agreement. The balance of the Principal, together with all accrued and unpaid interest thereon, and all other amounts payable to Payee hereunder, under the Loan Agreement and under the other Loan Documents will be due and payable on the Maturity Date.

2.Loan Documents. This Note is evidence of the Loan and is executed pursuant to the terms and conditions of the Loan Agreement. This Note is secured by and entitled to the benefits of, among other things, the Security Instrument and the other Loan Documents. Reference is made to the Loan Documents for a description of the nature and extent of the security afforded thereby, the rights of the holder hereof in respect of such security, the terms and conditions upon which this Note is secured, and the rights and duties of the holder of this Note. All of the agreements, conditions, covenants, provisions and stipulations contained in the Loan Documents to be kept and performed by Maker are by this reference hereby made part of this Note to the same extent and with the same force and effect as if they were fully set forth in this Note, and Maker covenants and agrees to keep and perform the same, or cause the same to be kept and performed, in accordance with their terms.

3.Loan Acceleration, Prepayment. The Debt will, without notice, become immediately due and payable at the option of Payee upon the occurrence of any Event of Default. This Note may not be prepaid except as expressly provided in, and subject to the terms and conditions of, the Loan Agreement.

4.Revival. To the extent that Maker makes a payment or Payee receives any payment or proceeds for Maker’s benefit, which are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, debtor in possession, receiver, custodian or any other party under the Bankruptcy Code or any other bankruptcy law, common law or equitable cause, then, to such extent, the obligations of Maker hereunder intended to be satisfied will be revived and continue as if such payment or proceeds had not been received by Payee.

LOAN AGREEMENT, SCHEDULE 1, PAGE 1-1

5.Amendments. This Note may not be modified, amended, waived, extended, changed, discharged, or terminated orally or by any act or failure to act on the part of Maker or Payee, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought. Whenever used, the singular number will include the plural, the plural the singular, and the words “Payee” and “Maker” will include their respective successors, assigns, heirs, executors and administrators. If Maker consists of more than one person or party, the obligations and liabilities of each such person or party will be joint and several.

6.Waiver. Maker and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, protest, notice of protest, notice of nonpayment, notice of intent to accelerate the maturity hereof and of acceleration except as otherwise expressly provided in the Loan Documents. No release of any security for the Debt or any person liable for payment of the Debt, no extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of the Loan Documents made by agreement between Payee and any other person or party will release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Maker, and any other person or party who may become liable under the Loan Documents, for the payment of all or any part of the Debt.

7.Interest.  As used herein, the term “Maximum Legal Rate of Interest” shall mean and refer to the maximum rate of non-usurious interest, if any, that Lender may from time to time charge Borrower and in regard to which Borrower would be prevented successfully from raising the claim or defense of usury under applicable law as now, or to the extent permitted by law, as may hereafter be, in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow (said law permitting the highest rate being herein referred to as the “Interest Law”).  Unless changed in accordance with law, the applicable rate ceiling under Texas law shall be the weekly rate ceiling, from time to time in effect, as provided in Chapter 303 of the Texas Finance Code, as amended.  It is the intention of Borrower and Lender to conform strictly to the Interest Law applicable to this loan transaction.  Accordingly, it is agreed that notwithstanding any provision to the contrary in this Note or in any of the documents securing payment hereof or otherwise relating hereto, the aggregate of all interest and any other charges or consideration constituting interest under applicable Interest Law that is taken, reserved, contracted for, charged or received under this Note, or under any of the other aforesaid agreements or otherwise in connection with this loan transaction shall under no circumstances exceed the maximum amount of interest allowed by the Interest Law applicable to this loan transaction.  If any excess of interest in such respect is provided for, or shall be adjudicated to be so provided for, in this Note or in any of the documents securing payment hereof or otherwise relating hereto, then in such event (a) the provisions of this paragraph shall govern and control, (b) neither Borrower nor Borrower’s heirs, legal representatives, successors or assigns or any other party liable for the payment of this Note shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest allowed by the Interest Law applicable to this loan transaction, (c) any excess shall be deemed a mistake and cancelled automatically and, if theretofore paid, shall be credited on this Note by Lender (or if this Note shall have been paid in full, refunded to Borrower) and (d) the effective rate of interest shall be automatically subject to reduction to the Maximum Legal Rate of Interest allowed under such Interest Law as now or hereafter construed by courts of appropriate jurisdiction.  The foregoing specifically includes, but is not limited to, prepayment premiums that may become due in the event of an acceleration of maturity under this Note or the Security Instrument.  All sums paid or agreed to be paid Lender for the use, forbearance or detention of the indebtedness evidenced hereby shall, to the extent permitted by the Interest Law applicable to this loan transaction, be amortized, prorated, allocated and spread throughout the full term of this Note.  In no event shall

LOAN AGREEMENT, SCHEDULE 1, PAGE 1-2

the provisions of Chapter 346 of the Texas Finance Code as amended (which regulates certain revolving credit loan amounts and tri-party accounts) apply to the loan evidenced by this Note.

8.Notices. All notices or other communications required or permitted to be given pursuant hereto will be given in the manner specified in the Loan Agreement.

9.Joint and Several. If more than one Person constitutes Maker, each Person constituting Maker hereunder will have joint and several liability for the obligations of Maker hereunder.

10.Amendment and Restatement. This Note amends and restates in its entirety, but does not novate, the Promissory Note in the stated principal amount of $8,400,000 dated May 31, 2018, from Original Borrower to Payee.

11.Governing Law. This Note will be governed by and construed in accordance with the laws of the State of Texas.

Maker:
LF3 EL PASO, LLC, a Delaware limited liability company
	By:	Lodging Fund REIT III OP, LP, a Delaware limited partnership, its sole member
		By:	Lodging Fund REIT III, Inc., a Maryland corporation, its general partner
		By:		/s/ Samuel C. Montgomery
		Name:		Samuel C. Montgomery
		Title:		Chief Financial Officer

LF3 EL PASO TRS, LLC, a Delaware limited liability company
	By:	Lodging Fund REIT III TRS, Inc., a Delaware corporation, its sole member
	By:		/s/ Samuel C. Montgomery
	Name:		Samuel C. Montgomery
	Title:		Chief Financial Officer

LOAN AGREEMENT, SCHEDULE 1, PAGE 1-3

SCHEDULE 2

REQUIRED REPAIRS

*To be added.

LOAN AGREEMENT, SCHEDULE 2, PAGE 2-1

SCHEDULE 3

ORGANIZATION OF BORROWER

*To be added.

LOAN AGREEMENT, SCHEDULE 3, PAGE 3-1

SCHEDULE 4

DEFINITION OF SPECIAL PURPOSE BANKRUPTCY REMOTE ENTITY

A “Special Purpose Bankruptcy Remote Entity” means (x) a limited liability company that is a Single Member Bankruptcy Remote LLC or (y) a corporation, limited partnership or limited liability company which at all times since its formation and at all times thereafter

(i)was and will be organized solely for the purpose of (A) owning the Property, (B) operating, leasing and financing the Property or (C) acting as a general partner of the limited partnership that owns the Property or member of the limited liability company that owns the Property;

(ii)has not engaged and will not engage in any business unrelated to (A) the ownership of the Property, (B) the operation, leasing and financing of the Property, (C) acting as general partner of the limited partnership that owns the Property or (D) acting as a member of the limited liability company that owns the Property, as applicable;

(iii)has not had and will not have any assets other than those related to the Property or its partnership or member interest in the limited partnership or limited liability company that owns the Property, as applicable;

(iv)has not engaged, sought or consented to and will not engage in, seek or consent to any dissolution, winding up, liquidation, consolidation, merger, asset sale (except as expressly permitted by this Agreement), transfer of partnership or membership interests or the like, or amendment of its limited partnership agreement, articles of incorporation, articles of organization, certificate of formation or operating agreement (as applicable);

(v)if such entity is a limited partnership, has and will have, as its only general partners, Special Purpose Bankruptcy Remote Entities that are corporations or limited liability companies;

(vi)if such entity is a corporation, has and will have at least one Independent Director, and has not caused or allowed and will not cause or allow the board of directors of such entity to take any action requiring the unanimous affirmative vote of 100 percent of the members of its board of directors unless all of the directors and all Independent Directors will have participated in such vote;

(vii)intentionally omitted;

(viii)if such entity is a limited liability company, has and will have articles of organization, a certificate of formation and/or an operating agreement, as applicable, providing that (A) such entity will dissolve only upon the bankruptcy of the managing member, (B) the vote of a majority-in-interest of the remaining members is sufficient to continue the life of the limited liability company in the event of such bankruptcy of the managing member and (C) if the vote of a majority-in-interest of the remaining members to continue the life of the limited liability company following the bankruptcy of the managing member is not obtained, the limited liability company may not liquidate the Property without the consent of the Lender for as long as the Loan is outstanding;

(ix)has not, and without the unanimous consent of all of its partners, directors or members (including all Independent Directors and/or Independent Managers), as applicable, will

LOAN AGREEMENT, SCHEDULE 4, PAGE 4-1

not, with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest, take any Bankruptcy Action;

(x)has remained and will remain solvent and has maintained and will maintain adequate capital in light of its contemplated business operations;

(xi)has not failed and will not fail to correct any known misunderstanding regarding the separate identity of such entity;

(xii)has maintained and will maintain its accounts, books and records separate from any other Person and will file its own tax returns;

(xiii)has maintained and will maintain its books, records, resolutions and agreements as official records;

(xiv)has not commingled and will not commingle its funds or assets with those of any other Person;

(xv)has held and will hold its assets in its own name;

(xvi)has conducted and will conduct its business in its name only, and has not and will not use any trade name,

(xvii)has maintained and will maintain its financial statements, accounting records and other entity documents separate from any other Person;

(xviii)has paid and will pay its own liabilities, including the salaries of its own employees, out of its own funds and assets;

(xix)has observed and will observe all partnership, corporate or limited liability company formalities, as applicable;

(xx)has maintained and will maintain an arm’s-length relationship with its Affiliates;

(xxi)(a)if such entity owns the Property, has and will have no indebtedness other than the Permitted Indebtedness, or

(b)if such entity operates, leases and/or finances the Property, has and will have no indebtedness other than leasehold obligations to the owner of the Property, which are not evidenced by a promissory note and are paid when due, but in no event no more than 30 days of the date incurred,

(c)if such entity acts as the general partner of a limited partnership which owns the Property, has and will have no indebtedness other than unsecured trade payables in the ordinary course of business relating to acting as general partner of the limited partnership which owns the Property which (1) do not exceed, at any time, $10,000 and (2) are not evidenced by a promissory note and are paid when due, but in no event no more than 30 days of the date incurred, or

(d)if such entity acts as a managing member of a limited liability company which owns the Property, has and will have no indebtedness other than unsecured trade payables in the ordinary course of business relating to acting as a member of the limited liability company which owns the Property which (1) do not exceed, at any time, $10,000 and (2) are paid within 30 days of the date incurred;

LOAN AGREEMENT, SCHEDULE 4, PAGE 4-2

(xxii)has not and will not assume or guarantee or become obligated for the debts of any other Person or hold out its credit as being available to satisfy the obligations of any other Person except for the Loan;

(xxiii)has not and will not acquire obligations or securities of its partners, members or shareholders;

(xxiv)has allocated and will allocate fairly and reasonably shared expenses, including shared office space, and uses separate stationery, invoices and checks;

(xxv)except in connection with the Loan, has not pledged and will not pledge its assets for the benefit of any other Person;

(xxvi)has held itself out and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name and not as a division or part of any other Person;

(xxvii)has maintained and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person;

(xxviii) has not made and will not make loans to any Person;

(xxix)has not identified and will not identify its partners, members or shareholders, or any Affiliate of any of them, as a division or part of it;

(xxx)has not entered into or been a party to, and will not enter into or be a party to, any transaction with its partners, members, shareholders or Affiliates except in the ordinary course of its business and on terms which are intrinsically fair and are no less favorable to it than would be obtained in a comparable arm’s-length transaction with an unrelated third party;

(xxxi)has and will have no obligation to indemnify its partners, officers, directors, members or Special Members, as the case may be, or has such an obligation that is fully subordinated to the Debt and will not constitute a claim against it if cash flow in excess of the amount required to pay the Debt is insufficient to pay such obligation; and

(xxxii)will consider the interests of its creditors in connection with all corporate, partnership or limited liability company actions, as applicable.

“Independent Director” means in the case of a corporation, a natural person who has not been, and during the continuation of his or her service as Independent Director is not, directly or indirectly:

(i)an employee, manager, stockholder, director, member, partner, officer, attorney or counsel of the corporation or any of its Affiliates (other than his or her service as an Independent Director of the corporation),

(ii)a creditor, customer of, or supplier or other Person who derives any of its purchases or revenues from its activities with the corporation or any of its shareholders or Affiliates (other than his or her service as an Independent Director if such Person has been provided by a nationally-recognized company that provides professional independent managers),

(iii)a Person controlling or under common control with any such employee, manager, stockholder, director, member, partner, officer, attorney, counsel, customer, supplier or other Person, or

LOAN AGREEMENT, SCHEDULE 4, PAGE 4-3

(iv)any member of the immediate family (including a grandchild or sibling) of a person described in clauses (i), (ii) or (iii) immediately above. A natural person who otherwise satisfies the foregoing definition will not be disqualified from serving as an Independent Director of the corporation because such person is an independent director or independent manager of a “Special Purpose Bankruptcy Remote Entity” affiliated with the corporation that does not own a direct or indirect equity interest in the corporation or any entity that is a co-borrower, or the member or general partner of a co-borrower, with the corporation if such individual is an independent director provided by a nationally-recognized company that provides professional independent directors.

“Independent Manager” means in the case of a limited liability company, (a) a member that is a Special Purpose Bankruptcy Remote Entity, (b) a Special Purpose Bankruptcy Remote Entity that is not a member or (c) a natural person who has not been, and during the continuation of his or her service as Independent Manager is not, directly or indirectly:

(i)an employee, manager, stockholder, director, member, partner, officer, attorney or counsel of the limited liability company or any of its Affiliates (other than his or her service as an Independent Manager or Special Member of the limited liability company),

(ii)a creditor, customer of, or supplier or other Person who derives any of its purchases or revenues from its activities with the limited liability company or any of its members or Affiliates (other than his or her service as an Independent Manager if such Person has been provided by a nationally-recognized company that provides professional independent managers),

(iii)a Person controlling or under common control with any such employee, manager, stockholder, director, member, partner, officer, attorney, counsel, customer, supplier or other Person, or

(iv)any member of the immediate family (including grandchildren or siblings) of a person described in clauses (i), (ii) or (iii) immediately above. A natural person who otherwise satisfies the foregoing definition will not be disqualified from serving as an Independent Manager of the limited liability company because such person is an independent manager or independent director of a “Special Purpose Bankruptcy Remote Entity” affiliated with the limited liability company that does not own a direct or indirect equity interest in the limited liability company or any entity that is a co-borrower with the limited liability company if such individual is an independent manager provided by a nationally-recognized company that provides professional independent managers.

“Single Member Bankruptcy Remote LLC” means a limited liability company organized under the laws of the State of Delaware which at all times since its formation and at all times thereafter

(i)complies with the following clauses of the definition of Special Purpose Bankruptcy Remote Entity above: (i), (ii)(A), (B) or (C), (iii), (iv), (ix), (x), (xi) and (xiii) through (xxxii);

(ii)has maintained and will maintain its accounts, books and records separate from any other person;

(iii)has and will have an operating agreement which provides that the business and affairs of such limited liability company will be managed by or under the direction of

(A)a board of one (1) or more directors designated by the sole member of the Single Member Bankruptcy Remote LLC (the “Sole Member”), and at all times there will be at least two duly appointed Independent Directors on the board of directors, and the board of directors

LOAN AGREEMENT, SCHEDULE 4, PAGE 4-4

will not take any action requiring the unanimous affirmative vote of 100 percent of the members of its board of directors unless, at the time of such action there are at least two members of the board of directors who are Independent Directors, and all of the directors and all Independent Directors will have participated in such vote or

(B)Sole Member, provided that at all times there will be at least two Independent Managers designated by Sole Member and the operating agreement provides that Sole Member will not take any Bankruptcy Actions without the unanimous affirmative vote of 100 percent of the Independent Managers;

(iv)has and will have an operating agreement which provides that, as long as any portion of the Debt remains outstanding,

(A)upon the occurrence of any event that causes Sole Member to cease to be a member of such limited liability company (other than (x) upon an assignment by Sole Member of all of its limited liability company interest in such limited liability company and the admission of the transferee, if permitted pursuant to the organizational documents of such limited liability company and the Loan Documents, or (y) the resignation of Sole Member and the admission of an additional member of such limited liability company, if permitted pursuant to the organizational documents of such limited liability company and the Loan Documents), one of the Independent Managers will, without any action of any Person and simultaneously with Sole Member ceasing to be a member of such limited liability company, automatically be admitted as the sole member of such limited liability company (the “Special Member”) and will preserve and continue the existence of such limited liability company without dissolution,

(B)no Special Member may resign or transfer its rights as Special Member unless (x) a successor Special Member has been admitted to such limited liability company as a Special Member, and (y) such successor Special Member has also accepted its appointment as an Independent Manager and

(C)except as expressly permitted pursuant to the terms of this Agreement, Sole Member may not resign and no additional member will be admitted to such limited liability company;

(v)has and will have an operating agreement which provides that, as long as any portion of the Debt remains outstanding,

(A)such limited liability company will be dissolved, and its affairs will be would up only upon the first to occur of the following: (x) the termination of the legal existence of the last remaining member of such limited liability company or the occurrence of any other event which terminates the continued membership of the last remaining member of such limited liability company in such limited liability company unless the business of such limited liability company is continued in a manner permitted by its operating agreement or the Delaware Limited Liability Company Act (the “Act”) or (y) the entry of a decree of judicial dissolution under Section 18-802 of the Act;

(B)upon the occurrence of any event that causes the last remaining member of such limited liability company to cease to be a member of such limited liability company or that causes Sole Member to cease to be a member of such limited liability company (other than (x) upon an assignment by Sole Member of all of its limited liability company interest in such limited liability company and the admission of the transferee, if permitted pursuant to the organizational documents of such limited liability company and the Loan Documents, or (y) the resignation of Sole Member and the admission of an additional member of such limited liability company, if permitted pursuant to the organizational documents of such limited liability company and the

LOAN AGREEMENT, SCHEDULE 4, PAGE 4-5

Loan Documents), to the fullest extent permitted by law, the personal representative of such member will be authorized to, and will, within 90 days after the occurrence of the event that terminated the continued membership of such member in such limited liability company, agree in writing to continue the existence of such limited liability company and to the admission of the personal representative or its nominee or designee, as the case may be, as a substitute member of such limited liability company, effective as of the occurrence of the event that terminated the continued membership of such member in such limited liability company;

(C)the bankruptcy of Sole Member or a Special Member will not cause such member or Special Member, respectively, to cease to be a member of such limited liability company and upon the occurrence of such an event, the business of such limited liability company will continue without dissolution;

(D)in the event of dissolution of such limited liability company, such limited liability company will conduct only such activities as are necessary to wind up its affairs (including the sale of the assets of such limited liability company in an orderly manner), and the assets of such limited liability company will be applied in the manner, and in the order of priority, set forth in Section 18-804 of the Act; and

(E)to the fullest extent permitted by law, each of Sole Member and the Special Members will irrevocably waive any right or power that they might have to cause such limited liability company or any of its assets to be partitioned, to cause the appointment of a receiver for all or any portion of the assets of such limited liability company, to compel any sale of all or any portion of the assets of such limited liability company pursuant to any applicable law or to file a complaint or to institute any proceeding at law or in equity to cause the dissolution, liquidation, winding up or termination of such limited liability company.

“Bankruptcy Action” means, with respect to any Person, if such Person

(i)makes an assignment for the benefit of creditors,

(ii)files a voluntary petition in bankruptcy,

(iii)is adjudged a bankrupt or insolvent, or has entered against it an order for relief, in any bankruptcy or insolvency proceedings,

(iv)consents to, orchestrates or participates in the orchestration of, or files a petition or answer seeking for itself, any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation,

(v)files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against it in any bankruptcy or insolvency proceeding,

(vi)seeks, consents to, orchestrates or participates in the orchestration of, or acquiesces in the appointment of a trustee, receiver, liquidator, sequestrator, custodian or any similar official of or for such Person or of all or any substantial part of its properties,

(vii)120 days after the commencement of any proceeding against such Person seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, if the proceeding has not been dismissed,

(viii)within 90 days after the appointment without such Person’s consent or acquiescence of a trustee, receiver or liquidator of such Person or of all or any substantial part of its properties, the appointment is not vacated or stayed, or within 90 days after the expiration of any such stay, the appointment is not vacated or

LOAN AGREEMENT, SCHEDULE 4, PAGE 4-6

(ix)takes any action in furtherance of any of the foregoing.

LOAN AGREEMENT, SCHEDULE 4, PAGE 4-7

SCHEDULE 5

SERVICE CONTRACTS

*To be added.

LOAN AGREEMENT, SCHEDULE 5, PAGE 5-1 5-1

EX-10.25

Exhibit 10.25

NOTICE OF CONFIDENTIALITY RIGHTS:  IF YOU ARE A NATURAL PERSON, YOU MAY REMOVE OR STRIKE ANY OF THE FOLLOWING INFORMATION FROM THIS INSTRUMENT BEFORE IT IS FILED FOR RECORD IN THE PUBLIC RECORDS:  YOUR SOCIAL SECURITY

NUMBER OR YOUR DRIVER'S LICENSE NUMBER.

Special Warranty Deed

THE STATE OF TEXAS

KNOW ALL MEN BY THESE PRESENTS:

COUNTY OF    El Paso     

That HD Sunland Park Property LLC, a Delaware limited liability company, with an address of 29834 N Cave Creek Rd, Suite 118-283, Cave Creek, Arizona 85331 (hereinafter called "Grantor," whether one or more, masculine, feminine or neuter) for and in consideration of the sum of TEN and no/100 DOLLARS and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, paid by LF3 El Paso, LLC, a Delaware limited liability company, whose address is 1635 – 43^rd Street S, Suite 205, Fargo, ND 58103 (hereinafter called "Grantee"), for which no lien is retained either express or implied, has Granted, Sold and Conveyed, and by these presents does Grant, Sell and Convey, unto the said Grantee in that certain real property located in  El Paso County, Texas legally described on the attached Exhibit A, together with all improvements thereon, if any, and all right, title and interest in and to adjacent sidewalks, streets, roads, alleys and rights-of-way.

This deed is executed and delivered subject to all easements, reservations, conditions, covenants and restrictive covenants as the same appear of record in the office of the County Clerk of the aforesaid County.

TO HAVE AND TO HOLD the above described premises, together with all and singular the rights and appurtenances thereto in anywise belonging, unto the said Grantee, his, her or its successors, heirs and assigns, as the case may be, forever; and Grantor does hereby bind Grantor and Grantor's successors, heirs, executors and administrators, as the case may be, to Warrant and Forever Defend all and singular the said premises unto the said Grantee and Grantee's successors, heirs and assigns, as the case may be, against every person whomsoever lawfully claiming, or to claim the same, or any part thereof, by, through or under Grantor, but not otherwise.

Signature Page Follows

Executed this  _11th_ day of May, 2021.

GRANTOR:
HD Sunland Park Property LLC, a Delaware
limited liability company
By: High Desert Investors 3 LLC, a Delaware
limited liability company, its sole member
By:	/s/ Albert Ken Okamoto
	Albert Ken Okamoto, Authorized Signatory

STATE OF	Arizona	§
COUNTY OF	Maricopa	§

This instrument was acknowledged before me on this _11th_ day of May, 2021, Albert Ken Okamoto, Authorized Signatory of High Desert Investors 3 LLC, a Delaware limited liability company, acting in its capacity as the sole member HD Sunland Park Property LLC, a Delaware limited liability company, on behalf of said limited liability company.

/s/ Kevin R. Eberly
Notary Public, State of	Arizona
Printed Name:	Kevin R. Eberly Jr.
My Commission Expires:	Aug 3, 2022

When Recorded Return to:

LF3 El Paso, LLC

Attn: Linzey Erickson

1635 – 43^rd Street S, Suite 205

Fargo, ND 58103

Exhibit A

Legal Description

A PARCEL OF LAND CONTAINING 5.314 ACRES MORE OR LESS, BEING A PORTION OF LOT 1, BLOCK 2, SUNLAND COMMERCIAL DISTRICT UNIT 2, AN ADDITION TO THE CITY OF EL PASO, EL PASO COUNTY, TEXAS, ACCORDING TO THE MAP THEREOF RECORDED IN BOOK 23, PAGE 42, PLAT RECORDS OF EL PASO COUNTY, TEXAS, AND BEING MORE PARTICULARLY DESCRIBED BY METES AND BOUNDS AS FOLLOWS:

COMMENCING AT AN EXISTING CITY MONUMENT FOUND AT THE CENTERLINE INTERSECTION OF SUNLAND PARK DRIVE AND CONSTITUTION DRIVE; THENCE, WITH SAID CENTERLINE OF SUNLAND PARK DRIVE, NORTH 83° 39' 16" EAST A DISTANCE OF 380.98 FEET; THENCE, LEAVING SAID CENTERLINE, SOUTH 06° 20' 44" EAST A DISTANCE OF 60.00 FEET TO A SET CROWS FOOT IN CONCRETE ON THE SOUTH RIGHT OF WAY LINE OF SUNLAND PARK DRIVE AND BEING THE "POINT OF BEGINNING";

THENCE, WITH SAID RIGHT OF WAY, NORTH 83° 39' 16" EAST A DISTANCE OF 52.73 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, WITH SAID RIGHT OF WAY, NORTH 78° 22' 46" EAST A DISTANCE OF 149.41 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, LEAVING SAID RIGHT OF WAY, SOUTH 11° 39' 57" EAST A DISTANCE OF 96.73 FEET TO A SET NAIL WITH SHINER, TX NO. 1798;

THENCE, SOUTH 62° 09' 00" EAST A DISTANCE OF 87.94 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, NORTH 78° 20' 03" EAST A DISTANCE OF 76.65 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, NORTH 26° 32' 34" EAST A DISTANCE OF 147.75 FEET TO A POINT AT THE INTERSECTION WITH THE SOUTHWESTERLY RIGHT OF WAY LINE OF U.S. INTERSTATE HIGHWAY NO. 10, (A WITNESS CORNER BEING SET SOUTH 26° 32' 34" WEST A DISTANCE OF 1.00 FEET);

THENCE, ALONG THE RIGHT OF WAY LINE OF U.S. INTERSTATE HIGHWAY NO. 10 THE FOLLOWING COURSES;

NORTH 78° 20' 03" EAST A DISTANCE OF 213.36 FEET TO A SET 5/8" REBAR WITH CAP;

NORTH 49° 53' 58" EAST A DISTANCE OF 228.07 FEET TO A SET CHISELED ''X'';

SOUTH 40° 06' 02" EAST A DISTANCE OF 343.40 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, LEAVING SAID RIGHT OF WAY, SOUTH 49° 53' 58" WEST A DISTANCE OF 332.76 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, SOUTH 78° 20' 03" WEST A DISTANCE OF 245.75 FEET TO A SET CHISELED ''X'' IN CONCRETE;

THENCE, NORTH 62° 09' 00" WEST A DISTANCE OF 618.23 FEET TO THE "POINT OF BEGINNING" OF THE HEREIN DESCRIBED PARCEL, AND CONTAINING 5.314 ACRES OF LAND MORE OR LESS. (REFERENCE: METES AND BOUNDS DESCRIPTION CONTAINED IN THAT CERTAIN DEED WITHOUT WARRANTY RECORDED UNDER INSTRUMENT NO. 20060040427, REAL PROPERTY RECORDS OF EL PASO COUNTY, TEXAS.)

SAVE AND EXCEPT THE PROPERTY DESCRIBED IN NOTICE OF LIS PENDENS FILED FOR RECORD MARCH 01, 2016 UNDER COUNTY CLERK'S FILE NO. 20160013652, OFFICIAL PUBLIC RECORDS OF EL PASO, TEXAS.

EX-10.26

Exhibit 10.26

Continuing Guaranty

This Continuing Guaranty (this “Guaranty”), dated as of May 12, 2021 (the “Effective Date”), is made by by Lodging Fund REIT III OP, LP, a Delaware limited partnership (the “Guarantor”) in favor of EPH Development Fund LLC, a Delaware limited liability company (“Lender”).

Recitals

A.LF3 El Paso, LLC, a Delaware limited liability company and LF3 EL PASO TRS, LLC, a Delaware limited liability company (collectively, “Borrower”) are indebted to Lender pursuant to the Amended and Restated Promissory Note in the principal amount of $7,900,000 dated the Effective Date from Borrower payable to the order of Lender, issued pursuant to the Loan Agreement (defined below).

B.Guarantor is the beneficial owner of a direct or indirect interest in Borrower and is an affiliate of Borrower. The value of the consideration and benefit received and to be received by Guarantor, directly or indirectly, as a result of Lender’s extension of credit to Borrower is a substantial and direct benefit to Guarantor.

C.As a condition to extending credit to Borrower, Lender requires Guarantor to guaranty the indebtedness of Borrower to Lender.

For good and valuable consideration, receipt and sufficiency of which is hereby acknowledged, and to induce Lender, at its option, at any time or from time to time to lend money to Borrower, the Guarantor hereby agrees as follows:

1. As used herein, the following terms have the meanings assigned; provided however, capitalized terms used herein but not defined will have the meaning assigned to such terms in the Loan Agreement:

“Event of Default” has the meaning ascribed to such term in the Loan Agreement.

“Guaranteed Obligations” means (a) all indebtedness of every kind and character, whether now existing or hereafter arising, of Borrower to Lender, whether direct or indirect, primary or secondary, joint or several, fixed or contingent and whether evidenced by note, draft, open account, acceptance, overdraft, line of credit, endorsement, guaranty, security agreement, loan agreement, application for letter of credit or otherwise, together with interest thereon, (b) the full and prompt performance when due all of the covenants, agreements and other obligations undertaken by Borrower in the Loan Documents, and (c) any and all costs, reasonable attorneys’ fees and expenses incurred or expended by Lender in collecting any of the foregoing indebtedness/obligations or due to any default in the performance of the foregoing obligations or in enforcing any right granted hereunder or under the other Loan Documents.

“Debt” has the meaning ascribed to such term in the Loan Agreement.

“Loan Agreement” means that certain Loan Agreement dated of even date herewith between Borrower and Lender.

“Loan Documents” means each and every note, deed of trust, mortgage, draft, line of credit, loan agreement, application for letter of credit, interest rate protection

Continuing Guaranty, Page 1

agreement, guaranty or other similar document or instrument (if any) at any time and from time to time executed in connection with the Guaranteed Obligations, all amendments, modifications, restatements, supplements, endorsements, renewals, extensions and rearrangements thereof and substitutions therefor, and each and every deed of trust, mortgage, security agreement, pledge, assignment or other similar instrument (if any), at any time and from time to time securing, in whole or in part, the Guaranteed Obligations.

“Net Worth” means a net worth (excluding goodwill, patents, trademarks and other similar intangible assets, but including prepaid expenses and unamortized commitment fees) calculated in accordance with GAAP (as defined in the Loan Agreement).

“Obligations” as defined in the Loan Agreement.

2. Guarantor unconditionally guarantees unto Lender the prompt and complete payment when due (whether at its stated maturity, by acceleration or otherwise) and performance of the Guaranteed Obligations in accordance with the terms of the Loan Documents.

3. This Guaranty is unconditional and absolute, and if for any reason all or any portion of the Guaranteed Obligations is not paid promptly when due, Guarantor will immediately pay the same to Lender or any other Person entitled thereto, regardless of any defense, right of setoff or counterclaim which Borrower may have or assert and regardless of any other condition or contingency.

4. The obligations, covenants, agreements and duties of Guarantor under this Guaranty will in no way be affected or impaired by reason of the happening from time to time of any of the following with respect to the Loan Documents, without the necessity of any notice to, or further consent of Guarantor: (a)the release or waiver, by operation of law or otherwise, of the performance or observance by Borrower or any co-guarantor, surety, endorser or other obligor of any express or implied agreement, covenant, term or condition in any of the Loan Documents to be performed or observed by such party, (b)the extension of the time for the payment of all or any portion of the Guaranteed Obligations or any other sums payable under the Loan Documents or the extension of time for the performance of any other obligation under, arising out of or in connection with the Loan Documents, (c)the supplementing, modification or amendment (whether material or otherwise) of any of the Loan Documents or of the obligations of Borrower, Guarantor or any surety for Borrower set forth in the Loan Documents or otherwise, (d)any failure, omission, delay or lack of diligence on the part of Lender, or any other Person, to enforce, assert or exercise any right, privilege, power or remedy conferred on Lender, or any other Person in any of the Loan Documents, or any action on the part of Lender, or such other Person granting indulgence or extension of kind, (e)the release of any security under any deed of trust, mortgage, security agreement, pledge, assignment or other Loan Document, or the release, modification, waiver or failure to enforce any pledge, security device, insurance agreement, bond or other guaranty, surety or indemnity agreement whatsoever, (f)the release, modification, waiver or failure to enforce any right, benefit, privilege or interest under any contract or agreement, under which the rights of Borrower or any other obligor have been collaterally or absolutely assigned, or in which a security interest has been granted to Lender as direct or indirect security for payment of the Guaranteed Obligations or performance of any obligations to Lender, (g)the voluntary or involuntary liquidation, dissolution, sale of any collateral, marshaling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization,

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arrangement, composition or deficiency readjustment of debt of, or other similar proceedings affecting Borrower or any other surety for Borrower or any of the assets of Borrower, (h)any failure to acquire, perfect or to maintain perfection of any lien on or security interest in any collateral securing payment of the Guaranteed Obligations or any portion thereof or performance of Borrower’s or any other person’s obligations under the Loan Documents or securing this Guaranty, (i)the settlement, compromise or subordination of any obligation guaranteed hereby or hereby incurred, or  (j)the insanity, minority or other disability or bankruptcy, insolvency, death or corporate dissolution of Borrower (even though the same will render the Guaranteed Obligations void or unenforceable or uncollectible, in whole or in part, as against Borrower).

5. Guarantor hereby waives marshaling of assets and liabilities, rights of offset, sale in inverse order of alienation, notice of acceptance of this Guaranty and of any liability to which it applies or may apply, acceleration, presentment, demand for payment, protest, notice of non-payment, notice of dishonor, notice of acceleration, notice of intent to accelerate and all other notices and demands, collection suit or the taking of any other action by Lender. Guarantor expressly waives each and every right to which it may be entitled by virtue of the suretyship law of the State of Texas, including, without limitation, any rights it may have pursuant to Rule31, Texas Rules of Civil Procedure, Chapter43 of the Texas Civil Practice and Remedies Code and Section 17.001, Texas Civil Practice and Remedies Code. Further, Guarantor expressly waives all rights, remedies, claims and defenses based upon or related to Sections 51.003, 51.004 and 51.005 of the Texas Property Code, to the extent the same pertain or may pertain to any enforcement of this Guaranty.

6. This is an absolute guaranty of payment and not of collection, and Guarantor waives any right to require that any action be brought against Borrower or any other Person. Should Lender seek to enforce the obligations of Guarantor by arbitration or action in any court, Guarantor waives any necessity, substantive or procedural, that a judgment previously be rendered against Borrower or any other Person or that a separate action be brought against Borrower or any other Person. The obligations of Guarantor hereunder are joint and several from those of Borrower or any other Person (including any other surety for Borrower), and are primary obligations concerning which Guarantor is the principal obligor. All waivers herein contained will be without prejudice to Lender at their option to proceed against Borrower or any other Person, whether by separate action or by joinder. This is a continuing guaranty, and all extensions of credit and financial accommodations heretofore, concurrently herewith or hereafter made by Lender to Borrower will be conclusively presumed to have been made in acceptance of and reliance on this Guaranty.

7. This Guaranty is an absolute and unconditional guaranty of the payment and performance of the Guaranteed Obligations, is irrevocable and will continue in full force and effect until payment in full of the Guaranteed Obligations. Guarantor will remain fully liable hereunder notwithstanding the death of, or complete or partial release for any cause of, any one or more of Guarantor (if more than one), or of Borrower or of anyone liable in any manner for the liabilities (including those hereunder) incurred directly or indirectly in respect thereof or hereof, and notwithstanding the dissolution, termination or change in personnel of any one or more of Guarantor (if more than one).

8. Guarantor agrees that so long as all or any part of the Guaranteed Obligations remains unpaid and/or unperformed: (a) Lender may determine in its sole discretion which remedy to pursue and Lender may pursue any one or more remedies without prejudice to the right of Lender to pursue any other remedy (including enforcement and collection of

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this Guaranty), (b) except as expressly provided herein or agreed to by Lender, the receipt of sums by Lender through pursuit of any one or more remedies will not prejudice the right of Lender to receive payment of sums through pursuit of any other remedy, and the rights of Lender under the Loan Documents are cumulative, (c) realization upon the collateral security or guaranties and the other obligations provided for in any Loan Documents and application of the proceeds thereof to reduce the Guaranteed Obligations will not affect or impair Lender’s right to seek enforcement of any other Loan Documents in accordance with their respective terms, and (d) Lender may apply any sums realized through pursuit of any remedy toward payment of principal, interest and other expenses owing by Borrower, by Guarantor or by any other obligor or surety in such order of priority and manner as Lender may elect in its sole discretion.

9. Guarantor (jointly and severally if more than one) represents and warrants to Lender that: (a)Guarantor, if a legal entity, is duly organized, legally existing and in good standing under the laws of the State of its organization and is duly qualified and/or registered to do business in each jurisdiction where it is required to do so by applicable law, (b) this Guaranty has been duly executed and delivered by Guarantor and constitutes a legal, valid and binding obligation of Guarantor enforceable in accordance with its terms; (c)the execution, delivery and performance of this Guaranty (i)do not and will not violate any agreement, certificate or instrument by which Guarantor or its property may be bound, (ii)do not and will not violate or conflict with any law, governmental rule or regulation or any judgment, writ, order, injunction, award or decree of any court, arbitrator, administrative agency or other governmental authority applicable to Guarantor or any indenture, mortgage, contract, agreement or other undertaking to which Guarantor is a party or by which Guarantor may be bound or affected, and (iii)do not and will not require any consent of any other Person or any consent, license, permit, authorization or other approval of, registration with, any giving of notice to or any exemption by, any court, arbitrator, administrative agency or other governmental authority, (d)there is no action, suit or proceeding pending or, to the knowledge of Guarantor, threatened against or affecting Guarantor before any court or administrative agency which might result in any material adverse change in the business or financial condition of Guarantor, (e)Guarantor has filed all federal and state tax returns which are required to be filed, and has paid all taxes as shown on said returns and all assessments against the property of Guarantor to the extent that such taxes and assessments have become due and payable, (f)Guarantor is not a party to any contract or agreement which materially and adversely affects the business, property or assets, or financial condition of Guarantor, (g)all information supplied and statements made to Lender by or on behalf of Guarantor prior to, contemporaneously with or subsequent to the execution of this Guaranty are and will be true, correct, complete, valid and genuine, (h)all financial statements and applications for credit furnished to Lender by or on behalf of Guarantor fully and accurately present the financial condition of the subject thereof as of the dates thereof and for the periods then ended, (i)no material adverse change has occurred in the financial condition reflected in such financial statements and applications for credit since the respective dates thereof, (j)Guarantor is not in default with respect to any order, writ, injunction, decree or demand of any court or other governmental authority, or in the payment of any indebtedness for borrowed money or under the terms or provisions of any agreement or instrument evidencing or securing any such indebtedness, (k)the execution and delivery of this Guaranty to Lender will directly or indirectly benefit Guarantor, (l) Guarantor is the beneficial owner of a direct or indirect interest in Borrower and is an Affiliate of Borrower and the value of the consideration and benefit received and to be received by Guarantor, directly or indirectly, as a result of Lender’s extension of credit to Borrower is a substantial and direct benefit to Guarantor, (m) all of the assets listed on Guarantor’s financial

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statements delivered to Lender and to be delivered to Lender are available to pay the Guaranteed Obligations without the joinder of any other party, and (n)no representation or warranty contained in this Guaranty and no statement contained in any certificate, schedule, list, financial statement or other instrument furnished to Lender contains, or will contain, any untrue statement of material fact or omits or will omit, to state a material fact necessary to make the statement contained herein or therein not misleading.

10. Guarantor will furnish to Lender all such financial statements and other information relating to the financial condition, properties and affairs of Guarantor as required by the Loan Agreement Additionally, Guarantor will:

(a) at all times, maintain a Net Worth of at least $100,000,000.00.

(b) within five business days after the Effective Date, Guarantor and Lender will agree upon a definition of liquid assets and will agree upon minimum liquid asset and unrestricted cash balance requirements, and within ten business days after the Effective Date, Guarantor and Lender will amend this Guaranty to incorporate such requirements.

11. Guarantor will not change its address, name or identity without notifying Lender of such change in writing at least thirty (30) days prior to the effective date of such change.

12. If an Event of Default exists, the holder or holders of the Guaranteed Obligations may, at its or their option, declare the unpaid balance of the Guaranteed Obligations, together with all interest then accrued thereon, to be immediately due and payable, and thereupon the Guaranteed Obligations will immediately be due and payable without presentation, notice of protest, other notice of dishonor, notice of intent to accelerate, or notice of acceleration, all of which are hereby expressly waived by Guarantor.

13. All property of Guarantor now or hereafter in the possession or custody of or in transit to Lender for any purpose, including safekeeping, collection or pledge, for the account of Borrower or Guarantor, or as to which Guarantor may have any right or power, will be held by Lender subject to a lien and security interest in favor of Lender to secure payment and performance of all obligations and liabilities of Guarantor to Lender hereunder. The balance of every account of Guarantor with, and each claim of Guarantor against, Lender and any Lender existing from time to time will be subject to a lien and subject to set-off against any and all liabilities of Guarantor to Lender and such Lender, and Lender may, at any time and from time to time at their option and without notice, appropriate and apply toward the payment of any of such liabilities the balance of each such account or claim of Guarantor against Lender and/or such Lender, as applicable. If a particular security instrument expressly requires an application different from that permitted under the preceding sentence, proceeds realized by Lender from such security instrument will be applied as provided in such instrument.

14. Guarantor expressly subordinates its rights to payment of any indebtedness owing from Borrower to Guarantor, whether now existing or arising at any time in the future, to the prior right of Lender to receive or require payment in full of the Guaranteed Obligations and until payment and performance in full of the Guaranteed Obligations (and including interest accruing after any petition under the Bankruptcy Code, which post-petition interest Guarantor agrees will remain a claim that is prior and superior to any claim of Guarantor notwithstanding any contrary practice, custom or ruling in proceedings under the Bankruptcy Code generally). Notwithstanding anything to the contrary contained herein, (a) Guarantor will not have any right of subrogation in or under any of the Loan

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Documents or to participate in any way therein, or in any right, title or interest in and to any security or right of recourse for the Obligations of Borrower, until the Obligations of Borrower have been fully and finally paid, and (b) if Guarantor is or becomes an “insider” (as defined in Section 101 of the Bankruptcy Code) with respect to Borrower, then Guarantor hereby irrevocably and absolutely waives any and all rights of contribution, indemnification, reimbursement or any similar rights against Borrower with respect to this Guaranty (including any right of subrogation, except to the extent of collateral held by Lender), whether such rights arise under an express or implied contract or by operation of law. It is the intention of the parties that Guarantor will not be deemed to be a “creditor” (as defined in Section 101 of the Bankruptcy Code) of Borrower by reason of the existence of this Guaranty in the event that Borrower or Guarantor becomes a debtor in any proceeding under the Bankruptcy Code. This waiver is given to induce Lender to make the Loan.

15. Guarantor hereby assigns and grants to Lender for the benefit of Lender a security interest in all indebtedness and security, if any, of Borrower to Guarantor now existing or hereafter arising, including any dividends and payments pursuant to debtor relief or insolvency proceedings. In the event of receivership, bankruptcy, reorganization, arrangement or other debtor relief or insolvency proceedings involving Borrower as debtor, Lender will have the right to prove its claim in any such proceeding so as to establish its rights hereunder and will have the right to receive directly from the receiver, trustee or other custodian (whether or not an Event of Default will have occurred or be continuing under any of the Loan Documents), dividends and payments that are payable upon any obligation of Borrower to Guarantor now existing or hereafter arising, and to have all benefits of any security therefor, until the Obligations of Borrower have been fully and finally paid and performed. If, notwithstanding the foregoing provisions, Guarantor should receive any payment, claim or distribution that is prohibited as provided above in this Section, Guarantor will have absolutely no dominion over the same except to pay it immediately to Lender. Guarantor will promptly upon request of Lender from time to time execute such documents and perform such acts as Lender may require to evidence and perfect its interest and to permit or facilitate exercise of its rights under this Section.

16. If more than one person executes this Guaranty, their obligations under this Guaranty will be joint and several. To the extent any dispute exists at anytime between or among multiple third parties that comprise the Guarantor, Guarantor agrees to indemnify, defend and hold Lender harmless from and against any loss, damage, claim, demand, cost or other liability (including, without limitation, reasonable attorneys’ fees, legal expenses and other costs) Lender may suffer as a result of such dispute. Suit may be brought against such person jointly and/or severally or against any one or more but less than all of them, without impairing or releasing the rights of Lender against any other such person.

17. No delay on the part of Lender in exercising any right hereunder or failure to exercise the same will operate as a waiver of such right, nor will any single or partial exercise of any right, power or privilege bar any further or subsequent exercise of the same or any other right, power or privilege.

18. This Guaranty will not be changed orally, but will be changed only by agreement in writing signed by the person against whom enforcement of such change is sought.

19. Any notice, request or other communication required or permitted to be given hereunder will be given in accordance with the notice provisions of the Loan Agreement to the Guarantor’s address set forth on the signature page hereof.

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20. The masculine and neuter genders used herein will each include the masculine, feminine and neuter genders and the singular number used herein will include the plural number. The words “person” and “entity” will include individuals, corporations, partnerships, joint ventures, associations, joint stock companies, trusts, unincorporated organizations, and governments and any agency or political subdivision thereof.

21. This Guaranty will be binding upon Guarantor, its heirs, devisees, executors, administrators, personal representatives, trustees, receivers, successors and assigns and will inure to the benefit of, and be enforceable by, Lender and its successors and assigns and each and every other person who will from time to time be or become the owner or holder of any of the Guaranteed Obligations, and each and every reference herein to “Lender” will also include each and every successor or holder. Guarantor will not assign its obligations hereunder without the prior written consent of Lender. This Guaranty may be executed in multiple counterparts, and each counterpart executed by any party will be deemed an original and will be binding upon the Person executing the same, irrespective of whether any other Guarantor has executed that or any other counterpart of this Guaranty. Production of any counterpart other than the one to be enforced will not be required.

22. This Guaranty and the rights and obligations of the parties hereunder will in all respects be governed by, and construed and enforced in accordance with, the laws of the State of Texas. Guarantor hereby irrevocably submits to the non-exclusive jurisdiction of any State or federal court sitting in the County of Harris, State of Texas, over any suit, action or proceeding arising out of or relating to this Guaranty.

23. If any other Person will, with respect to any of the Guaranteed Obligations at any time, execute and deliver any guaranty, or any other agreement or document with substantially the same effect as a guaranty, or grant any collateral security, the obligations of Guarantor hereunder will be joint and several with the obligations of such other Person pursuant to such agreement or document and the agreement or document granting such collateral security.

24. Nothing herein will be construed to cancel, amend, discharge or limit any other guaranty or similar obligation executed by Guarantor in favor of Lender.

25. Lender will be entitled, in its sole discretion, to image or make copies of all or any selection of the agreements, instruments, documents, and items and records governing, arising from or relating to any of Borrower's or Guarantor’s loans, including, without limitation, the Loan Documents, and Lender may destroy or archive the paper originals. Guarantor (a) waives any right to insist or require that Lender produce paper originals, (b) agrees that such images will be accorded the same force and effect as the paper originals, (c) agrees that Lender is entitled to use such images in lieu of destroyed or archived originals for any purpose, including as admissible evidence in any demand, presentment or other proceedings, and (d) further agrees that any executed facsimile (faxed), scanned, or other imaged copy of the Loan Documents will be deemed to be of the same force and effect as the original manually executed document.

26. Guarantor will (a) promptly correct any defect, error or omission in this Guaranty, and (b) execute, acknowledge, deliver, record, and/or file such further instruments and perform such further acts and provide such further assurances as may be necessary, desirable or proper, in Lender’s opinion, to carry out the purposes hereof.

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27. IN ACCORDANCE WITH SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE, THE PARTIES ACKNOWLEDGE THAT THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

Guarantor has executed this Guaranty on the date of acknowledgment below to be effective as of the date first above written.

Lodging Fund REIT III OP, LP, a Delaware limited partnership, its sole member
	By:Lodging Fund REIT III, Inc., a Maryland corporation, its general partner
	By:	/s/ Samuel C. Montgomery
	Name:	Samuel C. Montgomery
	Title:	Chief Financial Officer

Address for Notice:

Lodging Fund REIT III OP, LP,

C/o Lodging Fund REIT III OP, LP

Attn: Linzey Erickson

1635 43rd Street S, Suite 205

Fargo, ND 58103

With a copy to:

Legendary Capital

Attn: David Durell

644 Lovett SE, Suite B

Grand Rapids, MI 49506

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EX-10.27

Exhibit 10.27

Assignment, Consent and Subordination

of Management Agreement

This Assignment, Consent and Subordination of Management Agreement (this “Agreement”) is made as of May ___, 2021 by and among LF3 El Paso, LLC, a Delaware limited liability company and LF3 EL PASO TRS, LLC, a Delaware limited liability company (collectively, “Owner”), NHS LLC dba National Hospitality Services, a North Dakota limited liability company (“Manager”), and and EPH Development Fund LLC, a Delaware limited liability company (“Lender”).

Recitals

A. Owner owns the real property described on Exhibit A attached hereto (the “Property”). Manager and Owner, among others, are parties to a certain Hotel Management Agreement, dated on or about the Effective Date (the “Management Agreement”). The Management Agreement describes Manager’s and Owner’s respective rights and obligations regarding the management of the hotel on the Property (the “Hotel”).

B. Borrower is indebted to Lender pursuant to the Amended and Restated Promissory Note in the principal amount of $7,900,000 dated the Effective Date from Borrower payable to the order of Lender, issued pursuant to the Loan Agreement dated as of the Effective Date between Lender and Borrower (the “Loan Agreement”). Terms used and not otherwise defined herein have the meanings ascribed to them in the Loan Agreement.  The Loan is secured by, among other things, a Deed of Trust, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents dated May 31, 2018, from HD Sunland Park Property, L.L.C., a Delaware limited liability company (“Original Borrower”) to WestStar Title, LLC, as trustee, for the benefit of Lender, recorded on May 31, 2018 as Document Number 20180042472 in the real property records of El Paso County, Texas, as modified by the Loan Assumption Agreement dated the Effective Date among Original Borrower, Borrower, and Lender (the “Security Instrument”) encumbering the Property.

C. Owner has assigned its interest in the Management Agreement to Lender pursuant to this Agreement and certain other Loan Documents.

D. At Owner’s request and in order to facilitate Lender’s consent to the Management Agreement, Manager and Owner desire to subordinate the Management Agreement, their respective rights under the Management Agreement and their respective interests in the Property, if any, to the Security Instrument and the Loan upon the terms and conditions contained in this Agreement.

E. Manager and Owner intend that the indebtedness evidenced by the Note, the liens and security interests of the Security Instrument and the Loan Documents be senior and prior to any and all obligations, expenses and indebtedness owing to Manager which arise from the Management Agreement and any and all existing liens or future rights to liens of Manager or any Person claiming by, through or under Manager which arise from any and all obligations, expenses and indebtedness owing to Manager under or in connection with the Management Agreement.

For good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereto agree as follows:

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Agreement

1. Assignment; Consent. As additional security for the payment and performance by Owner of all of its obligations under the Loan (collectively, the “Obligations”), Owner hereby assigns, transfers and pledges to Lender, and hereby grants to Lender a security interest in (a) all of Owner’s right, title and interest in, to and under the Management Agreement and (b) all of Owner’s rights, benefits and interest in, to and under all of the governmental approvals, permits, consents or licenses owned or held by Owner relating in any manner to the ownership or operation of the Hotel. Manager hereby consents to the assignment to Lender of Owner’s rights under the Management Agreement, including without limitation Owner’s interest in all accounts maintained under the Management Agreement. Lender will be entitled to exercise any and all rights of Owner under the Management Agreement in accordance with the terms thereof during the continuance of an Event of Default (as defined below), and Manager will permit and comply in all respects with such exercise. Lender will have the right to cure any default of Owner under the Management Agreement, and may perform any act, duty or obligation required to be performed by Owner under the Management Agreement; provided, however, that nothing herein will require Lender to cure any such default or to perform any such act, duty or obligation.

2. Subordination. Manager and Owner hereby unconditionally subordinate and subject the Management Agreement and all of their respective rights and interests under the Management Agreement, including, without limitation, any right to receive any amounts or fees (heretofore, now or hereafter payable) as management fees, management commissions, incentive management fees, affiliate payments, termination fees, liquidated damages, “key money”, reimbursements of advances made by Manager to Owner or any other compensation payable under the Management Agreement, to the lien of the Security Instrument and all other liens, rights and interests of Lender under the Loan Documents, including, without limitation, Lender’s right to receive payments of principal, interest and all other sums due and owing from time to time under the Loan Documents. Manager and Owner agree that the liens, rights and interests of Lender under the Security Instrument and the other Loan Documents are senior and prior to any rights and interests of Manager and Owner under the Management Agreement. Notwithstanding any provision under or arrangement pursuant to this Agreement, the Loan and the Loan Documents, so long as no Event of Default is then existing, Lender agrees to permit any amounts payable to Manager under the Management Agreement to be paid directly and timely to Manager as and when due thereunder. For the avoidance of doubt, nothing in this Agreement will be deemed or construed to modify, amend, limit, waive or suspend (i) Owner’s obligations to Manager for the direct and timely payment of all amounts due and payable to Manager under the Management Agreement or (ii) Manager’s rights and remedies under the Management Agreement against Owner when Owner fails to perform such obligations; subject however, to the provisions of Sections 4, 5 and 6 hereof.

3. Representations, Warranties, Acknowledges and Certifications. Manager and Owner hereby represent, warrant, certify and acknowledge to Lender as follows: (a) would not make and fund the Loan or consent to the Management Agreement without the execution and delivery of this Agreement; (b) a true and complete copy of the Management Agreement (including, without limitation, all modifications and amendments thereto, if any) is attached to this Agreement as Exhibit B; (c) the Management Agreement represents the entire agreement between Manager and Owner with respect to the Property and the operation of the Hotel; (d) the Management Agreement is not a lease; (e) Manager has no possessory interest in the Property; (f) as of the date hereof, management fees, management commissions, incentive management fees, affiliate payments, termination

Assignment, Consent and Subordination of Management Agreement, Page 2

fees, liquidated damages, “key money”, reimbursements of advances made by Manager to the owner of the Hotel and all other compensation due and payable to Manager as of the date hereof under the Management Agreement have been paid; (g) as of the date hereof, Manager has no existing defenses or claims against Owner with respect to the Management Agreement or any payments due and owing to Manager as of the date hereof thereunder; and (h) as of the date hereof, the Management Agreement is in full force and effect, and no event of default on the part of either party thereunder, or any event or condition that, with the giving of notice or the passage of time, or both, would constitute an event of default on the part of either party thereunder, has occurred and is continuing.

4. Default; Lender’s Exercise of Rights. Manager and Owner agree that in the event of a default by Owner (continuing beyond any applicable grace or cure period) under any of the Loan Documents during the term of this Agreement (an “Event of Default”), Lender may  take in Lender's own name or in the name of Owner or either or both of them, such action as Lender may at any time or from time to time determine to be necessary or appropriate, including, without limitation:

(a) exercising any of the rights of Owner under the Management Agreement and requiring Manager to attorn to Lender;

(b) terminating the Management Agreement upon not less than thirty (60) days prior written notice (notwithstanding anything provided for in the Management Agreement) and requiring Manager to transfer its responsibility for the management of the Hotel to a management company selected by Lender in Lender's sole discretion, and Manager will have no rights or recourse against Lender on account of such termination;

(c) amending, modifying or extending the Management Agreement by agreement with Manager;

(d) curing any default under the Management Agreement; and

(e) otherwise protecting the rights of Lender hereunder and under the Management Agreement.

Further, upon the occurrence and during the continuance of an Event of Default during the term of this Agreement, Owner hereby irrevocably (i) authorizes and empowers Lender, in Lender’s sole discretion, to assert, either directly or on behalf of Owner, any right, privilege or claim Owner may, from time to time, have against Manager that Lender may deem proper and to receive and collect any and all monies resulting therefrom and to apply the same on account of any of the Obligations; and (ii) makes, constitutes and appoints Lender (and all officers, employees and Lenders designated by Lender), as Owner’s true and lawful attorney -in-fact for the purposes of enabling Lender to assert any such right, privilege or claim and to receive, collect and apply such monies in the manner set forth above.

Lender will not incur any liability as between themselves and Owner if any action taken by or on its behalf in good faith pursuant hereto will prove to be, in whole or in part, inadequate or invalid.

Owner agrees to indemnify and hold harmless, and agrees to cause any guarantor of the loan to indemnify and hold harmless, Lender and each of its affiliates, officers, directors, employees, agents, advisors, attorneys and representatives (each, an “Indemnified Party”) from and against any and all claims, damages, losses, liabilities and expenses

Assignment, Consent and Subordination of Management Agreement, Page 3

(each an “Indemnified Claim”) (including, without limitation, reasonable fees and disbursements of counsel unless Lender asserts that a conflict exists, in which case Lender may retain additional counsel as Lender determines necessary to resolve such conflict and all reasonable fees and expenses of such counsel will constitute an Indemnified Claim hereunder), joint or several, that may be incurred by or asserted or awarded against any Indemnified Party (including, without limitation, in connection with or relating to any investigation, litigation or proceeding or the preparation of any defense in connection therewith), in each case arising out of or in connection with or relating to this agreement or the transactions contemplated hereby, even if caused by the negligence of an Indemnified Party, but not if caused by the willful misconduct or gross negligence of an Indemnified Party. In the case of an investigation, litigation or other proceeding to which the indemnity in this paragraph applies, such indemnity will be effective whether or not such investigation, litigation or proceeding is brought by Owner or any guarantor of the loan, any of the directors, security holders or creditors of Owner or any such guarantor, an Indemnified Party or any other person, and whether or not an Indemnified Party is otherwise a party thereto. This indemnity will survive repayment of the loan.

5. Attornment; Right to Terminate. If Lender or any designee or affiliate of Lender will acquire possession of the Property through judicial or nonjudicial foreclosure or otherwise, Lender or such designee or affiliate will have the right to cause Manager to continue its management of the Hotel by assuming the obligations of Owner under the Management Agreement, but (a) without any liability for any act or omission of Owner prior to the date of acquisition, (b) without being subject to any offsets or advances which Manager may have had against Owner, and (c) without being bound by any agreement or modification of the Management Agreement entered into without Lender’s prior written consent. If Lender or any designee or affiliate of Lender explicitly assumes the obligations of Owner under the Management Agreement in writing pursuant to this Section, and if Lender or such designee or affiliate will thereafter desire to sell the Property to a third party, then Lender will either (i)cause such third party to assume the obligations of Owner under the Management Agreement or (ii)terminate the Management Agreement by written notice to Manager without further obligation thereunder. If a third party will acquire title to the Property as a purchaser at a foreclosure sale or otherwise in connection with the exercise of any remedies of Lender under the Loan Documents, then such third party, immediately upon acquiring title to the Property, will have the right to cause Manager to continue its management of the Hotel by assuming the obligations of Owner under the Management Agreement, but subject to the conditions set forth in clauses (a) through (c) of this Section. Following any assumption by Lender or any designee or affiliate of Lender or any such third party, in accordance with the terms and conditions of this Section, of the obligations of Owner under the Management Agreement, Manager will recognize such Person as the Owner under the Management Agreement. Upon any termination or expiration of the Management Agreement, Manager will reasonably cooperate with and assist Lender (or its designee or successor) in accordance with the applicable terms and conditions of the Management Agreement to effect the transfer to Lender (or its designee or successor) of any and all licenses (including food, beverage and liquor licenses), permits, governmental authorizations, keys, combinations, reservation lists, statements, books and records, insurance policies, documents and/or agreements required for the operation of the Hotel.

6. Liability of Lender. Manager agrees that Lender and each of its successors and assigns will not have any liability under the Management Agreement until such time, if any, as Lender or such successor or assign, as applicable, will have explicitly assumed the obligations of Owner under the Management Agreement in writing and elected to cause Manager to

Assignment, Consent and Subordination of Management Agreement, Page 4

continue its management of the Hotel. Manager will look only to the estate and property of Lender in the Property for the satisfaction of Manager’s remedies for the collection of a judgment (or other judicial process) requiring the payment of money in the event of any default by Lender under the Management Agreement.

7. Indemnification. Owner agrees to indemnify Lender and defend and hold Lender harmless from and against any and all liabilities, claims, demands, losses, damages, costs and expenses (including but not limited to reasonable attorney’s fees) which Lender may incur under the Management Agreement or this Agreement and from any alleged or actual obligation or undertaking on its part to perform or discharge any of the terms, covenants or agreements contained in the Management Agreement. This indemnification will not apply to actions taken by Lender subsequent to Lender’s acquisition of title to the Property by foreclosure. This provision will survive any termination of the Management Agreement and any foreclosure.

8. Notices. Any notice, demand, request, approval, consent, or other communication made from or to a party as required by, permitted by, or contemplated in this Agreement (each a “Notice”) will only be effective if (i)it is in writing and (ii)the intended recipient actually receives it or is deemed to have received it in accordance with this paragraph. A Notice will be deemed received (x)if sent by local or overnight courier to the Recipient’s Address, upon delivery or first attempted delivery and (y)if sent by registered or certified first class mail, return receipt requested, two business days after deposit in the mail. If, however, a provision in this Agreement specifies different methods and requirements regarding a particular Notice, such provision will control with regard to the specified Notice. “Recipient’s Address” means the recipient’s address identified below as the recipient’s notice address (or as its address, if a separate notice address is not specified), or a new address identified in a Notice from the recipient to the sending party at least ten days before the date of the sending party’s Notice.

To Lender:

With a copy to:

Button Capital Management

29834 N Cave Creek Rd

Suite 118-283

Cave Creek, AZ 85331

Attn.: Ken Okamoto

ken.okamoto@buttoncapital.com

To Manager:

NHS LLC

c/o Norman Leslie

1635 – 43^rd Street S, Suite 305

Fargo, ND 58103

To Borrower:

Assignment, Consent and Subordination of Management Agreement, Page 5

LF3 El Paso, LLC

LF3 EL PASO TRS, LLC

C/o Lodging Fund REIT III OP, LP

Attn: Linzey Erickson

1635 43rd Street S, Suite 205

Fargo, ND 58103

With a copy to:

Legendary Capital

Attn: David Durell

644 Lovett SE, Suite B

Grand Rapids, MI 49506

9. Governing Law. This Agreement shall be interpreted, construed and enforced in accordance with the laws of the State of Texas.

10. Relation to Management Agreement. In the event of any conflict or discrepancy between any provision in this Agreement and any provision of the Management Agreement, the applicable provision of this Agreement will control; provided, however, that nothing contained in this Agreement will be deemed or construed to modify or affect the rights and obligations of Owner to Manager under the Management Agreement.

11. Successors and Assigns. This Agreement will be binding upon and inure to the benefit of the parties and their respective heirs, personal representatives, successors, and permitted assigns. As used herein “Lender” will include any subsequent holders of the Security Instrument.

12. Counterparts. To facilitate execution, this Agreement may be executed in multiple identical counterparts. The signature of each party, or the signature of all persons required to bind a party, need not appear on each counterpart. All counterparts, taken together, will constitute a single document. The validity of a signature page will not be affected by its detachment from one counterpart of this Agreement and attachment to an identical counterpart of this Agreement.

13. Final Agreement. This Agreement is the final, complete, and exclusive agreement of the parties regarding its subject matter, and supersedes all prior and contemporaneous agreements, representations, and understandings regarding such subject matter. No modification of this Agreement will be binding on the parties to it unless contained in a writing signed by the parties hereto

[Remainder of Page Intentionally Left Blank]

Assignment, Consent and Subordination of Management Agreement, Page 6

Borrower:
LF3 El Paso, LLC, a Delaware limited liability company
	By:		Lodging Fund REIT III OP, LP, a Delaware limited partnership, its sole member
			By:	Lodging Fund REIT III, Inc., a Maryland corporation, its general partner
			By:	/s/ Samuel C. Montgomery
			Name:	Samuel C. Montgomery
			Title:	Chief Financial Officer
LF3 El Paso TRS, LLC, a Delaware limited liability company
		By:	Lodging Fund REIT III TRS, Inc., a Delaware corporation, its sole member
		By:	/s/ Samuel C. Montgomery
			Name: Samuel C. Montgomery
			Title: Chief Financial Officer
Manager:
NHS LLC dba National Hospitality Services, a North Dakota limited liability company
By:			/s/ Norman H. Leslie
Name:			Norman H. Leslie
Title:			President
Lender:
EPH Development Fund LLC, a Delaware limited liability company
By:			/s/ Albert Ken Okamoto
Name:			Albert Ken Okamoto
Title:			Authorized Signatory

Assignment, Consent and Subordination of Management Agreement, Page 7

EXHIBIT A

TO

LEGAL DESCRIPTION

A PARCEL OF LAND CONTAINING 5.314 ACRES MORE OR LESS, BEING A PORTION OF LOT 1, BLOCK 2, SUNLAND COMMERCIAL DISTRICT UNIT 2, AN ADDITION TO THE CITY OF EL PASO, EL PASO COUNTY, TEXAS, ACCORDING TO THE MAP THEREOF RECORDED IN BOOK 23, PAGE 42, PLAT RECORDS OF EL PASO COUNTY, TEXAS, AND BEING MORE PARTICULARLY DESCRIBED BY METES AND BOUNDS AS FOLLOWS:

COMMENCING AT AN EXISTING CITY MONUMENT FOUND AT THE CENTERLINE INTERSECTION OF SUNLAND PARK DRIVE AND CONSTITUTION DRIVE; THENCE, WITH SAID CENTERLINE OF SUNLAND PARK DRIVE, NORTH 83° 39' 16" EAST A DISTANCE OF 380.98 FEET; THENCE, LEAVING SAID CENTERLINE, SOUTH 06° 20' 44" EAST A DISTANCE OF 60.00 FEET TO A SET CROWS FOOT IN CONCRETE ON THE SOUTH RIGHT OF WAY LINE OF SUNLAND PARK DRIVE AND BEING THE "POINT OF BEGINNING";

THENCE, WITH SAID RIGHT OF WAY, NORTH 83° 39' 16" EAST A DISTANCE OF 52.73 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, WITH SAID RIGHT OF WAY, NORTH 78° 22' 46" EAST A DISTANCE OF 149.41 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, LEAVING SAID RIGHT OF WAY, SOUTH 11° 39' 57" EAST A DISTANCE OF 96.73 FEET TO A SET NAIL WITH SHINER, TX NO. 1798;

THENCE, SOUTH 62° 09' 00" EAST A DISTANCE OF 87.94 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, NORTH 78° 20' 03" EAST A DISTANCE OF 76.65 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, NORTH 26° 32' 34" EAST A DISTANCE OF 147.75 FEET TO A POINT AT THE INTERSECTION WITH THE SOUTHWESTERLY RIGHT OF WAY LINE OF U.S. INTERSTATE HIGHWAY NO. 10, (A WITNESS CORNER BEING SET SOUTH 26° 32' 34" WEST A DISTANCE OF 1.00 FEET);

THENCE, ALONG THE RIGHT OF WAY LINE OF U.S. INTERSTATE HIGHWAY NO. 10 THE FOLLOWING COURSES;

NORTH 78° 20' 03" EAST A DISTANCE OF 213.36 FEET TO A SET 5/8" REBAR WITH CAP;

NORTH 49° 53' 58" EAST A DISTANCE OF 228.07 FEET TO A SET CHISELED ''X'';

SOUTH 40° 06' 02" EAST A DISTANCE OF 343.40 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, LEAVING SAID RIGHT OF WAY, SOUTH 49° 53' 58" WEST A DISTANCE OF 332.76 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, SOUTH 78° 20' 03" WEST A DISTANCE OF 245.75 FEET TO A SET CHISELED ''X'' IN CONCRETE;

ASSIGNMENT, CONSENT AND SUBORDINATION OF MANAGEMENT AGREEMENT, EXHIBIT A, PAGE1

THENCE, NORTH 62° 09' 00" WEST A DISTANCE OF 618.23 FEET TO THE "POINT OF BEGINNING" OF THE HEREIN DESCRIBED PARCEL, AND CONTAINING 5.314 ACRES OF LAND MORE OR LESS. (REFERENCE: METES AND BOUNDS DESCRIPTION CONTAINED IN THAT CERTAIN DEED WITHOUT WARRANTY RECORDED UNDER INSTRUMENT NO. 20060040427, REAL PROPERTY RECORDS OF EL PASO COUNTY, TEXAS.)

SAVE AND EXCEPT THE PROPERTY DESCRIBED IN NOTICE OF LIS PENDENS FILED FOR RECORD MARCH 01, 2016 UNDER COUNTY CLERK'S FILE NO. 20160013652, OFFICIAL PUBLIC RECORDS OF EL PASO, TEXAS

ASSIGNMENT, CONSENT AND SUBORDINATION OF MANAGEMENT AGREEMENT, EXHIBIT A, PAGE2

EX-10.28

Exhibit 10.28

ASSIGNMENT AND ASSUMPTION

OF

MANAGEMENT AGREEMENT

This Assignment and Assumption of Management Agreement (this “Agreement”) is made as of May 12, 2021, by and between HD Sunland Park Property, LLC, a Delaware limited liability company (“Assignor”), LF3 El Paso TRS, LLC, a Delaware limited liability company (“Assignee”), and LF3 El Paso, LLC, a Delaware limited liability company (“Owner”).

RECITALS:

A.Assignor and Elevation Hotel Management, LLC, a Texas limited liability company (“Operator”) are parties to that certain management agreement dated as of November 29, 2018 as amended by the First Amendment dated December 19, 2020 (“Management Agreement”), relating to the Holiday Inn El Paso Sunland Park, located at 900 Sunland Park, El Paso, Texas 79922 (“Hotel”).

B.Assignor is conveying all of its right, title and interest in and to the Hotel (as defined as the, together with the buildings, and all other improvements constructed, all easements or other appurtenant rights thereto) to Owner as of the date hereof.

C.Assignor is conveying all of its right, title and interest in FF&E and Fixed Asset Supplies as defined in the Management Agreement to the Assignee

D.Assignor desires to assign to Assignee all of Assignor’s right, title and interest in and to the Management Agreement, and Assignee desires to assume the rights and obligations of Assignor with respect to the Management Agreement.

NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Assignor and Assignee hereby agree as follows:

1.Assignment.  Assignor hereby sells, assigns, conveys, transfers and grants to Assignee all of Assignor’s right, title and interest in, to and under the Management Agreement as of 12:00 PM on the date hereof (the “Effective Date”).

2.Article II, Term. Article II as amended shall be replaced in its entirety to reflect the following:

“2.0This Agreement is effective on May 12, 2021 (the “Commencement   Date”) and shall have a term commencing on the Commencement Date and automatically expiring ninety (90) days after the Commencement Date. Operator and Manager shall endeavor during the Term to negotiate a new management agreement on terms acceptable to each.”

3.Article III, Appointment and Agreement of Operator. The last sentence is section 3.1 is deleted.

4.Article VII, Books, Records, and Statements; Budgets. Section 7.4(A), there last sentence shall be replaced with the following:

“the Operating Budget for Assignor was prepared and approved for fiscal year 2021, however, Assignee reserves the right to request changes or additions to the Budget in due course of the Term.”

5.Article VIII, Management Fees and Payments to Operator and Owner. Section 8.1 as amended shall be replaced with the following:

“8.1 Owner shall pay to Operator, on a monthly basis, for services rendered under this Agreement a management fee (the “Basic Fee”) equal to three percent (3%) of Total Revenues.”

6.Article XIX, Notices. The notice addresses within Article XIX shall be replaced with the following:

Assignor/Owner:LF3 El Paso TRS, LLC

1635 43rd St. South, Suite 205

Fargo, ND 58103

Attn: Corey Maple

Telephone No.: 701-630-6500

Telecopy No.: 701-532-3369

And Copy to:Linzey Erickson

Chief Executive Officer

1635 43rd St. South, Suite 205

Fargo, ND 58103

Telephone No.: 701-566-5238

Telecopy No.: 701-532-3369

and Operator:

Elevation Hotel Management LLC

5772 North Mesa St

El Paso, TX 79912

Attention: Michelle Kaip

michelle@elevationhm.com

7.Assumption.  Assignee hereby accepts all of Assignor’s right, title and interest in, to and under the Management Agreement, agrees to be bound by the Management Agreement, and assumes all the duties, obligations and liabilities of Assignor accruing under or with respect to the Management Agreement accruing from and after the Effective Date; provided, that as between Manager and Assignee, from and after the Effective Date, Assignee shall be deemed to have assumed, and shall be responsible for, all duties, obligations and liabilities of “Owner”

2

accruing under or with respect to the Management Agreement irrespective of the date on which such duties, obligations and liabilities accrued.

8.Further Assurances.  Promptly upon request of the other party, Assignor and Assignee shall each execute, acknowledge (as appropriate) and deliver to the other such further assurances and take such further actions as may be reasonably required or appropriate to perfect the assignment and assumption of the Management Agreement and otherwise carry out the intent and purpose of this Agreement, provided that neither party shall incur any material additional cost, expense or obligation in connection with any act that the other party may request.

9.Binding Effect.  The terms, covenants, conditions, and obligations imposed upon each party herein shall be binding upon the successors and assigns of such party.

10.Miscellaneous.  Capitalized terms used but not defined herein shall have the meanings set forth in the Management Agreement.  This Agreement constitutes the entire agreement between the parties with respect to the matters addressed herein.  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which shall constitute one and the same instrument.

[SIGNATURES FOLLOW ON NEXT PAGE]

3

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

/s/
	ASSIGNOR:
	HD SUNLAND PARK PROPERTY, LLC,
	a Delaware limited liability company
	By: High Desert Investors 3 LLC, a Delaware limited liability company, its sole member
	By:	/s/ Albert Ken Okamoto
		Albert Ken Okamoto, Authorized Signatory
	ASSIGNEE:
	LF3 El Paso TRS, LLC
	a Delaware limited liability company
	By:	Lodging Fund REIT III, Inc.
	Its:	Sole Member
	By:	Lodging Fund REIT III OP, LP
	Its:	Sole Shareholder
	By:	Lodging Fund REIT III, Inc.
	Its:	General Partner
		/s/ Samuel C. Montgomery
	By:	Samuel C. Montgomery
	Its:	Chief Financial Officer

4

C.
	OWNER:
	LF3 El Paso, LLC
	a Delaware limited liability company
	By:	Lodging Fund REIT III OP, LP
	Its:	Sole Member
		/s/ Samuel C. Montgomery
	By:	Samuel C. Montgomery
	Its:	Chief Financial Officer

[Signature follow on next page]

5

MANAGER’S CONSENT

The undersigned, as “Manager” under the Management Agreement, hereby consents to the foregoing Assignment and Assumption of Management Agreement.

MANAGER:
ELEVATION HOTEL MANAGEMENT, LLC
a Delaware limited liability company
By:	/s/ Michelle Kaip
Name:	Michelle Kaip
Title:	President

6

EX-10.29

Exhibit 10.29

Environmental Indemnity Agreement

This Environmental Indemnity Agreement (this “Agreement”), dated as of May 12, 2021 (the “Effective Date”), is made, by LF3 El Paso, LLC, a Delaware limited liability company and LF3 EL PASO TRS, LLC, a Delaware limited liability company] (collectively, “Borrower”) in favor of EPH Development Fund LLC, a Delaware limited liability company ( “Lender”).

Recitals:

A.LF3 El Paso, LLC, a Delaware limited liability company and LF3 EL PASO TRS, LLC, a Delaware limited liability company (collectively, “Borrower”) are indebted to Lender pursuant to the Amended and Restated Promissory Note in the principal amount of $7,900,000 dated the Effective Date from Borrower payable to the order of Lender, issued pursuant to the Loan Agreement dated as of the Effective Date between Lender and Borrower (the “Loan”).

B.The Loan is secured by, among other things, a Deed of Trust, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents dated May 31, 2018, from HD Sunland Park Property, L.L.C., a Delaware limited liability company (“Original Borrower”) to WestStar Title, LLC, as trustee, for the benefit of Lender, recorded on May 31, 2018 as Document Number 20180042472 in the real property records of El Paso County, Texas, as modified by the Loan Assumption Agreement dated the Effective Date among Original Borrower, Borrower, and Lender (the “Security Instrument”) encumbering the property as more particularly described therein (the “Property”).

C.As a condition to making the Loan, Lender requires Borrower to indemnify and hold Lender harmless from any Environmental Claim, any requirements or violations of any Environmental Laws, any violation of any Environmental Permit and all Costs related to any of the foregoing related to the Property.

Agreement

For good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereto agree as follows:

1.Definitions. As used herein, the following terms have the meanings assigned:

“Costs” means all liabilities (including strict liabilities), losses, costs, damages (including consequential damages or indirect), expenses, claims, reasonable attorneys’ fees, experts’ fees, consultants’ fees and disbursements of any kind or of any nature whatsoever. For the purposes of this definition, such losses, costs and damages will include, without limitation, remedial, removal, response, abatement, cleanup, legal, investigative and monitoring costs and related costs, expenses, losses, damages, penalties, fines, obligations, defenses, judgments, suits, forfeitures, proceedings and disbursements.

“Environmental Claim” means, but not be limited to, any claim, demand, action, cause of action, suit, loss, cost, damage, fine, penalty, expense, liability, judgment, forfeitures, proceeding, or injury, whether threatened, sought, brought, or imposed, that seeks to impose costs or liabilities for (i)noise; (ii)pollution or contamination of the air, surface water, groundwater, or soil; (iii)solid, gaseous, or liquid waste generation, handling, treatment, storage, disposal, or transportation; (iv)exposure to Hazardous Materials; (v)the generation, handling, treatment, transportation, manufacture, processing, distribution in commerce, use, storage or disposal of Hazardous Materials; (vi)injury to or death of any person or persons directly or indirectly connected with Hazardous Materials and directly or indirectly related to the Property; (vii)destruction or

Environmental Indemnity Agreement, Page 1

contamination of any property directly or indirectly in connection with Hazardous Materials and directly or indirectly related to the Property; or (viii)any and all penalties directly or indirectly connected with Hazardous Materials and directly or indirectly related to the Property. The term “Environmental Claim” also includes (i)the costs of removal of any and all Hazardous Materials from all or any portion of the Property, (ii)costs required to take necessary precautions to protect against the release of Hazardous Materials at, on, in, about, under, within, near or in connection with the Property in or into the air, soil, surface water, groundwater, or soil vapor, any public domain, or any surrounding areas, (iii)costs incurred to comply, in connection with all or any portion of the Property or any surrounding areas, with all applicable laws with respect to Hazardous Materials, including any such laws applicable to the work referred to in this sentence, and (iv) the costs of site investigation, response, and remediation of any and all Hazardous Materials at, on, about, under, within, near or in all or any portion of the Property. “Environmental Claim” also includes any asserted or actual breach or violation of any requirements of Environmental Laws, or any event, occurrence, or condition as a consequence of which, pursuant to any requirements of Environmental Laws, (i)Borrower, Lender, or any owner, occupant, or person having any interest in the Property will be liable or suffer any disability, or (ii)the Property will be subject to any restriction on use, ownership, transferability, or (iii)any Remedial Work will be required.

“Environmental Laws” means any and all present and future federal, state and local law (whether under common law, statute, rule, ordinance, agreement, regulation or otherwise) requirement under any permit issued with respect thereto, and other requirements of governmental authorities having jurisdiction thereunder relating to pollution or the protection of the environment, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. Sections 9601 et seq.), as heretofore and hereafter amended.

“Environmental Permit” means any permit, license, approval, or other authorization with respect to any activities, operations, or businesses conducted on or in relation to the Property under any applicable law, regulation, or other requirement of the United States or any state, municipality, or other subdivision or jurisdiction related to pollution or protection of health or the environment, or any private agreement (such as covenants, conditions and restrictions), including laws, regulations or other requirements relating to spills, emissions, discharges, or releases or threatened releases of Hazardous Materials into ambient air, surface water, groundwater, or soil, or otherwise relating to the manufacture, processing, distribution, use, generation, treatment, storage, disposal, transportation, or handling of Hazardous Materials directly or indirectly related to the Property.

“Hazardous Materials” means any chemical, compound, material, mixture or substance that is now or hereafter defined or listed in, or otherwise classified pursuant to, any Environmental Laws as a “hazardous substance,” “hazardous material,” “hazardous waste,” “acutely hazardous”, “extremely hazardous waste,” infectious waste,” “toxic substance,” “toxic pollutant” or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, or toxicity, including any petroleum, natural gas, natural gas liquids, liquified natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas) or derivatives thereof. “Hazardous Materials” will also include, without limitation, those substances listed in the United States Department of Transportation Table (49CFR 172.101, as amended), spillage, seepage, storage, holding, existence or suspected existence, release or suspected releases, emission, discharge, disposal,

Environmental Indemnity Agreement, Page 2

generation, processing, abatement, removal, disposition, handling, transportation or other use of any Hazardous Materials from, at, under, into, on, about, within, near or in connection with the Property or surrounding property. The term “Hazardous Materials” does not include any Hazardous Materials used in connection with routine construction, maintenance, repair and operation of the Property in compliance with Environmental Law and in amounts or concentrations which do not violate Environmental Laws.

“Hazardous Materials Activity” will include any activity relating to such Hazardous Materials.

“Transfer Date” means the earlier of the date (i) the lien of the Security Instrument is foreclosed or a conveyance by deed in lieu of such foreclosure is fully effective and (ii) a receiver is appointed by a court for the Property, which receiver is requested by Lender, and in each case Borrower and/or its affiliates are no longer in possession of the Property; provided, if such foreclosure, conveyance or appointment is challenged, in bankruptcy proceedings or otherwise, the Transfer Date will be deemed not to have occurred until such challenge is rejected, dismissed or withdrawn with prejudice. If the Transfer Date is triggered by the appointment of a receiver as provided in clause (ii) of this definition, the receiver is subsequently dismissed and the Borrower once again has possession of the Property, the term “Transfer Date” means the period of time during which the receiver had possession of the Property.

2.Indemnification.

(a)Borrower hereby agrees to protect, defend, indemnify, reimburse, and hold harmless Lender and its officers, directors, shareholders, agents, employees and attorneys and their respective heirs, legal representatives, successors and assigns (all such persons and entities individually an “Indemnitee” and collectively the “Indemnitees”) from and against all Costs, which at any time may be imposed upon the Property, the Indemnitees, or any of them, arising out of or in connection with any one or more of the following, but not if caused by the willful misconduct, gross negligence, or negligence of an Indemnified Party: (i)the breach of any representation, warranty or covenant contained in the Loan Documents (as defined in the Loan Agreement) relating to the Hazardous Materials; (ii) any requirements of Environmental Laws; (iii)Environmental Claims; (iv)the failure of Borrower, or any other party directly or indirectly connected with the Property, or affiliated with Borrower to obtain, maintain, or comply with any Environmental Permit; (v)the conduct of any Hazardous Materials Activity; and/or (vi)the presence or existence of Hazardous Materials at, on, about, under, within, near or in connection with the Property, but only with respect to matters occurring or conditions existing prior to the Transfer Date.

(b)In the event that any investigation, monitoring, response, remediation, removal, restoration, abatement, repair, cleanup, detoxification or other ameliorative work is required by Lender or any agency, governmental or private, having jurisdiction over Hazardous Materials or Hazardous Materials Activity (the “Remedial Work”), Borrower will within thirty(30) days after written demand for performance thereof by any Indemnitees or any such agency (or such shorter period of time as may be required under any applicable Environmental Laws), promptly commence, or cause to be commenced, and thereafter diligently prosecute to completion, all such Remedial Work, but only with respect to matters occurring or conditions existing prior to the Transfer Date. All Remedial Work will be performed by one or more contractors, approved in advance in writing by Lender, and, if required by Lender, under the supervision of a consulting engineer

Environmental Indemnity Agreement, Page 3

approved in advance in writing by Lender. All Costs related to such Remedial Work will be paid by Borrower including, without limitation, Costs incurred by any Indemnitee in connection with oversight, monitoring or review of such Remedial Work. In the event Borrower will fail to promptly commence, or cause to be commenced, or fail to diligently prosecute to completion, such Remedial Work, Lender may, but will not be required to, cause such Remedial Work to be performed and all Costs will become an Environmental Claim hereunder.

(c)This Agreement, and all rights and obligations hereunder, are separate and distinct from the rights and obligations of Borrower, Lender under the Loan Documents and will survive (i) payment of all amounts payable pursuant to the Notes and secured by the Security Instrument, (ii)surrender of the Notes; (iii)release, satisfaction, assignment or reconveyance of the Security Instrument or other security provided in connection with the Loan; (iv)foreclosure of the Security Instrument and other security instruments in connection with the Loan; (v)acquisition of the Property by Lender; or (vi)transfer of any or all Lender’s rights in the Loan and the Property, except to the extent specifically set forth herein. The indemnities and releases set forth herein will benefit all parties who have been, or are currently, a “Lender” under the Loan Agreement.

(d)Nothing contained in this Agreement will prevent or in any way diminish or interfere with any rights or remedies, including, without limitation, the right to contribution, which any Indemnitee may have against Borrower or any other party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (codified at Title42 U.S.C. § 9601 et seq.), as it may have been or may be amended from time to time, or any other Environmental Laws, all such rights being hereby expressly reserved.

3.Notice of Actions. Borrower and Lender each agree to give the other prompt written notice of the receipt of any notice or discovery of any information regarding any actual, alleged or potential Environmental Claim or any claim under this Agreement, and to deliver copies of any and all orders, notices, permits, reports, and other communications, documents and instruments pertaining to such Environmental Claim.

4.Procedure Relating to Indemnification.

(a)Any Indemnitee will have the right to join and participate in, as a party if such Indemnitee so elects, any legal proceedings or actions in connection with the Property involving any Environmental Claim, any Hazardous Materials or any requirements of Environmental Laws, and Borrower will reimburse such Indemnitee upon demand for all of its Costs in connection therewith, but only with respect to Costs arising from or relating to matters occurring or conditions existing prior to the Transfer Date.

(b)In any circumstances in which this Agreement applies, any Indemnitee may, but will not be obligated to, employ its own legal counsel and consultants to investigate, prosecute, negotiate, or defend any such circumstances, including, but not limited to, any Environmental Claim, at its own expense and such Indemnitee will have the right to compromise or settle the same without the necessity of showing actual liability therefor, and without the consent of Borrower.

(c)Borrower will not, without the prior written consent of Lender (i)settle or compromise any action, suit, proceeding, or claim or consent to the entry of any judgment that does not include as an unconditional term thereof and delivery by the claimant or plaintiff to Lender of (x)a full and complete written release of Indemnitees (in form, scope

Environmental Indemnity Agreement, Page 4

and substance satisfactory to Lender in its sole discretion) from all liability in respect to such action, suit or proceeding and (y)a dismissal with prejudice of such suit, action or proceeding; or (ii)settle or compromise any action, suit, proceeding, or claim in any manner that may adversely affect Indemnitee as determined by Lender in its sole discretion.

5.Binding Effect.

(a)This Agreement will be binding upon the Borrower, its successors and permitted assigns and will inure to the benefit of the Indemnitees and their successors and assigns, without limitation, any holder of the Notes and any affiliates of Lender which acquires all or part of the Property by any sale, assignment, deed in lieu of foreclosure, foreclosure under the Security Instrument, or otherwise. The obligations of Borrower under this Agreement will not be assigned, voluntarily or by operation of law, without the prior written consent of Lender which consent may be given or withheld in the sole discretion of Lender.

(b)In the event of a dissolution of Borrower or other disposition involving Borrower or all or substantially all the assets of Borrower to one or more persons or other entities, the surviving entity or transferee of assets, as the case may be, will (i)be formed and existing under the laws of a state, district or commonwealth of the United States of America and (ii)deliver to Lender an acknowledged instrument in recordable form assuming all obligations, covenants and responsibilities of Borrower under this Agreement.

6.Enforcement of Agreement. Failure of Borrower to satisfy its obligations under this Agreement will constitute an Event of Default under the Loan Agreement; provided that the liability of Borrower under this Agreement will in no way be limited or impaired by the provisions of the Loan Documents, or any amendment, modification, extension or renewal thereof. This Agreement may be enforced by Lender or any Indemnitee without regard to any other rights and remedies existing against Borrower under the Loan Documents. Enforcement of this Agreement will not be deemed to constitute an action for recovery of the Loan indebtedness nor for recovery of a deficiency judgment against Borrower following foreclosure of the Security Instrument. Borrower expressly and specifically agrees that a separate action or actions may be brought and prosecuted against Borrower whether or not action is brought against Borrower or any other indemnitor and whether or not Borrower is joined in any action against such indemnitor on this Agreement. Lender would not make the Loan without this Agreement and Borrower acknowledges and understands that this Agreement is a material inducement for their agreement to make the Loan..

7.Waiver. Borrower waives any right or claim of right to cause a marshaling of the assets of Borrower or to cause Lender to proceed against any of the security for the Loan before proceeding under this Agreement against Borrower. Borrower agrees that any payments required to be made hereunder will become due on demand. Borrower expressly waives and relinquishes all rights, remedies or defenses accorded by applicable law to indemnitors or guarantors, except any rights of subrogation that Borrower may have, provided that the indemnity provided for hereunder will neither be contingent upon the existence of any such rights of subrogation nor subject to any claims or defenses whatsoever that may be asserted in connection with the enforcement or attempted enforcement of such subrogation rights, including, without limitation, any claim that such subrogation rights were abrogated by any acts or omissions of Lender.

Environmental Indemnity Agreement, Page 5

8.Notices. All notices, consents, approvals, elections and other communications hereunder will be given and received (or deemed received) in accordance with the terms of the Loan Agreement.

9.Attorneys’ Fees. In the event that any Indemnitee brings or otherwise becomes a party to any suit or other proceeding (including, without limitation, any administrative proceedings) with respect to the subject matter or enforcement of this Agreement, such Indemnitee will, in addition to such other relief as may be awarded, be entitled to recover from Borrower reasonable attorneys’ fees, expenses and costs of investigation as are reasonably incurred.

10.Governing Law. This Note will be governed by and construed in accordance with the laws of the State of Texas.

11.Successive Actions. A separate right of action hereunder will arise each time an Indemnitee acquires knowledge of any matter indemnified by Borrower under this Agreement. Separate and successive actions may be brought hereunder to enforce any of the provisions hereof at any time and from time to time. No action hereunder will preclude any subsequent action, and Borrower hereby waives and covenants not to assert any defense in the nature of splitting of causes of action or merger of judgments.

12.Severability. The invalidity or unenforceability of one or more covenants, terms, or conditions in this Agreement will not affect the remainder of this Agreement.

13.Interest on Unpaid Amounts. All amounts required to be paid or reimbursed to any Indemnitee hereunder will bear interest from the date of written demand to Borrower until paid to Indemnitee(s). The interest rate will be the “Default Rate” specified in the Loan Agreement.

14.Joint and Several Liability. The obligations of each Borrower, if more than one, under this Agreement will be the joint and several obligations of each of them.

15.Recitals. All of the Recitals set forth above are true and correct and are incorporated herein by this reference.

Environmental Indemnity Agreement, Page 6

The  undersigned have executed this Agreement as of the date first set forth above.

BORROWER:
LF3 El Paso, LLC, a Delaware limited liability company
	By:	Lodging Fund REIT III OP, LP, a Delaware limited partnership, its sole member
		By:	Lodging Fund REIT III, Inc., a Maryland corporation, its general partner
		By:	/s/ Samuel C. Montgomery
		Name:	Samuel C. Montgomery
		Title:	Chief Financial Officer
LF3 El Paso TRS, LLC, a Delaware limited liability company
	By:	Lodging Fund REIT III TRS, Inc., a Delaware corporation, its sole member
	By:	/s/ Samuel C. Montgomery
	Name:	Samuel C. Montgomery
	Title:	Chief Financial Officer

Environmental Indemnity Agreement, Page 7

EX-10.30

Exhibit 10.30

Loan Assumption Agreement

This Loan Assumption Agreement (this “Agreement”), dated as of May 12, 2021 (the “Effective Date”) is made by and among HD Sunland Park Property, L.L.C., a Delaware limited liability company (“Original Borrower”), LF3 El Paso, LLC, a Delaware limited liability company (“SPE Owner”) and LF3 EL PASO TRS, LLC, a Delaware limited liability company (“TRS Lessee”; and collectively with SPE Owner , “New Borrower”), and EPH Development Fund LLC, a Delaware limited liability company (“Lender”). Original Borrower and New Borrower are hereinafter sometimes collectively referred to as the  “Borrower Parties”.

Recitals

A. Original Borrower is the current owner of fee title to the real property described on Exhibit A attached hereto (“Land”) and the buildings and improvements thereon (“Improvements”), with a street address of 900 Sunland Park Dr, El Paso, TX 79922 (the “Property”).

B. Lender is the current owner and holder of a loan (“Loan”) evidenced by a Promissory Note in the original principal amount of $8,400,000, dated May 31, 2018, from Original Borrower to Lender (the “Original Note”) and secured by a Deed of Trust, Security Agreement, Fixture Filing, Financing Statement and Assignment of Leases and Rents dated May 31, 2018, from Original Borrower to WestStar Title, LLC, as trustee, for the benefit of Lender covering the Property (the “Security Instrument”; and together with the Original Note, the “Original Loan Documents”), recorded on May 31, 2018 as Document Number 20180042472 in the real property records of El Paso County, Texas (the “Records”).

C. Original Borrower is in default under the Loan for failure to pay debt services and other amounts payable thereunder to Lender, and all indebtedness owing by Original Borrower to Lender continues to be due and payable.

D. New Borrower desires to purchase the Property from Original Borrower and to assume the Assumed Payment Obligation (defined in Paragraph 3 below) and Original Borrower’s other obligations under the Original Loan Documents as provided herein (the “Assignment and Assumption”).

E. Lender has agreed to consent to the Assignment and Assumption on the terms and subject to the conditions hereinafter set forth.

Agreement

For good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties agree as follows.

1. Conditions Precedent to Lender’s Consent to the Assignment and Assumption. Lender’s consent and approval as set forth in Paragraph 3 below is conditioned upon the satisfaction of each of the following conditions precedent (the “Conditions Precedent”):

(a) Additional Documents. Lender will have received the following documents, each executed by the persons and entities as set forth below, each acknowledged as

appropriate, each in form and substance acceptable to Lender (the “Additional Loan Documents”):

(i) Loan Agreement executed by New Borrower,

(ii) Amended and Restated Promissory Note in the principal amount of $7,900,000 executed by New Borrower,

(iii) Memorandum of Loan Assumption Agreement executed by New  Borrower,

(iv) Cash Management Agreement executed by New Borrower and Wells Fargo Bank, National Association as the deposit account bank,

(v) Continuing Guaranty executed by Lodging Fund REIT III OP, LP, a Delaware limited partnership (“Entity Guarantor”),

(vi) Continuing Guaranty (Carve Out) executed by Corey R. Maple (together with Entity Guarantor, “Guarantor”),

(vii) Environmental Indemnity Agreement executed by New Borrower and Guarantor and New Borrower, and

(viii) Assignment, Consent and Subordination of Management Agreement executed by NHS LLC dba National Hospitality Services and TRS Lessee.

(b) Escrow. Borrower shall have established and fully funded all escrows as and in the amounts required by the Loan Agreement.

(c) Comfort Letter. Lender shall have received a comfort letter in form and substance satisfactory to Lender executed by Holiday Hospitality Franchising, LLC, a Delaware limited liability company (“Licensor”) and TRS Lessee in connection with the License Agreement dated on or about the Effective Date between TRS Lessee, as licensee, and Licensor, related to the Property.

(d) Ownership and Organizational Documents. Lender shall have received and approved such ownership documents and organizational documents as are requested by Lender.

(e) Title Policy. Lender shall have received a mortgagee’s policy of title insurance satisfactory to Lender in the amount of the Loan from First American Title Insurance Company or another underwriter satisfactory to Lender, with such endorsements as Lender may require, at New Borrower’s sole cost.

(f) Financing Statements. Borrower shall have delivered to Lender financing statements and/or financing statement amendments in form and substance reasonably satisfactory to Lender in all places necessary in connection with the perfection of Lender’s security interest in the fixtures and other property described in the Security Instrument.

(g) Conveyance of Property to New Borrower. Original Borrower shall have executed and contemporaneously a deed or deeds, in the form approved by Lender, in the Records, pursuant to which title to the Property shall be conveyed to New Borrower.

(h) No Subordinate Liens; Status of Title. There shall be no secondary or subordinate financing of the Property in connection with the conveyance and transfer of the

Property by Original Borrower to New Borrower; provided, however, that the PPP Loan is being assumed by New Borrower and no other changes to the status of title to the Property not approved by Lender.

(i) Insurance. Borrower shall have delivered to Lender evidence of insurance coverage for the Property as required by the Loan Agreement.

2. Existing Loan Indebtedness. Original Borrower acknowledges that it is in default under the Loan, and hereby authorizes Lender to apply to the current outstanding balance of the Loan the following (the “Partial Payment Amount”): (a) all amounts held by or for the benefit of Lender in any and all operating and other accounts, whether such accounts are in the name of Original Borrower, Manager, or Lender, in connection with the Property, (b) all amounts escrowed or deposited by Original Borrower or Manager to or for the benefit of Lender before or the Effective Date and designated as escrow payments or deposits for taxes, insurance, operating expenses, reserve funds, ad FF&E reserves, and (c) all cash on hand at the Property on the Effective Date. Original Borrower hereby conveys and relinquishes the Partial Payment Amount to Lender. New Borrower acknowledges and agrees that (x) the Partial Payment Amount will be applied by Lender to the outstanding balance of the Loan on the Effective Date, immediately prior to the assumption of the Loan by New Borrower, (y) following the application of the Partial Payment Amount to the outstanding balance of the Loan, such balance will exceed $7,900,000, and (z) New Borrower will not receive the benefit of or any credit for the Partial Payment Amount.

3. Assumption of Loan. New Borrower hereby assumes (a) $7,900,000 of the indebtedness due under the Note (the “Assumed Payment Obligation”) and (b) all of Original Borrower’s other obligations, as grantor, mortgagor, borrower, assignor, trustor, indemnitor, guarantor, or maker, as the case may be, under the Original Loan Documents, and (c) all indebtedness and obligations of  Original Borrower under the PPP Loan. New Borrower agrees to comply with and be bound by all the terms, covenants, conditions, and provisions set forth in the Original Loan Documents, as modified by the Additional Loan Documents. New Borrower hereby acknowledges and agrees that title to the Property and Borrower’s interest in the Property is encumbered by and subject to the liens, security interests, assignments and other terms, covenants, restrictions and provisions of the Security Instrument. Subject to complete satisfaction of the Conditions Precedent, Lender approves the Assignment and Assumption. Original Borrower acknowledges that the aggregate amount of indebtedness owing by Original Borrower to Lender on the Effective Date less the sum of the Partial Payment Amount and the Assumed Payment Obligation (the “Residual Amount”) remains outstanding, and Original Borrower acknowledges that by executing this Agreement and approving the Assignment and Assumption, Lender does not intend to forgive or abate the Residual Amount.

4. Payment of Transaction Costs and Expenses. Either or both of Borrower Parties shall pay at the time of execution of this Agreement by Lender (a) the legal fees and disbursements of Lender’s counsel in connection with the preparation of this Agreement and the transactions contemplated in this Agreement; (b) all recording costs and documentary stamps, or other taxes if any, due upon the recording of this Agreement; and (c) the costs of obtaining a new Lender’s policy of title acceptable to Lender insuring the Loan Documents as affected by this Agreement.

5. Modification to Security Instrument. The Security Instrument is hereby modified as follows:

(a) Section 1.8, 1.14, 1.15, and 1.17 of the Security Instrument are hereby deleted in their entirety and  replaced with the following:

1.8 LF3 El Paso, LLC, a Delaware limited liability company (“SPE Owner”) and LF3 EL PASO TRS, LLC, a Delaware limited liability company,

LF3 El Paso, LLC

LF3 EL PASO TRS, LLC

C/o Lodging Fund REIT III OP, LP

Attn: Linzey Erickson

1635 43rd Street S, Suite 205

Fargo, ND 58103

With a copy to:

Legendary Capital

Attn: David Durell

644 Lovett SE, Suite B

Grand Rapids, MI 49506

1.14. Loan: The loan from Beneficiary to Grantor evidenced by, among other documents, the Note and the Loan Agreement dated May 16, 2021, between Grantor and Beneficiary (the “Loan Agreement”).

1.15 Loan Documents: The Note, the Loan Agreement, and all of the deeds of trust, mortgages and other instruments, certificates and documents securing or executed and delivered in connection with the Loan, including, without limitation, this Deed of Trust, and each other agreement evidencing or securing the Loan now or hereafter executed or delivered by Grantor. The term “Loan Documents” also includes all modifications, extensions, renewals and replacements of each document referred to above.

1.17 Note: Amended and Restated Promissory Note dated May 12, 2021 executed by LF3 El Paso, LLC, a Delaware limited liability company and LF3 EL PASO TRS, LLC, a Delaware limited liability company, payable to the order of Beneficiary, in the maximum principal amount of $7,900,000.00, the last payment under which is due on May 15, 2023, or, if extended by Beneficiary pursuant to its terms, May 15, 2024, ,together with all renewals, extensions, and modifications thereof. All terms and provisions of the Note are incorporated by this reference in this Deed of Trust.

(b) The following Section 6.13 is added to and made a part of the Security Instrument:

6.13. Event of Default under Loan Agreement. An Event of Default, as such term is defined in the Loan Agreement, occurs.

(c) If there is a conflict between any provision or requirement of the Security Instrument and any provision or requirement of the Loan Agreement, the provision or requirement of the Loan Agreement will govern and control.

6. Representations and Warranties of Original Borrower. Original Borrower hereby represents and warrants to Lender as follows:

(a) Organization. Original Borrower has been duly organized and is validly existing and in good standing under the laws of the state of its formation, with requisite power and authority, and all rights, licenses, permits and authorizations, governmental or otherwise, necessary to own its properties and to transact the business in which it is now engaged. Original Borrower is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with its properties, business and operations.

(b) Proceedings; Enforceability. Original Borrower has taken all necessary action to authorize the execution, delivery and performance of this Agreement. This Agreement has been duly executed and delivered by Borrower and constitute legal, valid and binding obligations of Original Borrower enforceable against Original Borrower in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and general principles of equity. This Agreement is not subject to, and Original Borrower has not asserted, any right of rescission, set-off, counterclaim or defense, including the defense of usury.

(c) No Conflicts. The execution, delivery and performance of this Agreement by Original Borrower and the transactions contemplated hereby will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien upon any of the property of Original Borrower (including the Property) pursuant to the terms of, any agreement or instrument to which Original Borrower is a party or by which its property is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any governmental authority having jurisdiction over Original Borrower or any of its properties (including the Property). Any consent, approval, authorization, order, registration or qualification of or with any Governmental Authority required for the execution, delivery and performance by Original Borrower of this Agreement has been obtained and is in full force and effect.

(d) Litigation. Original Borrower is not a party to any agreement or instrument or subject to any restriction which might adversely affect Original Borrower or the Property, or Original Borrower’s business, properties, operations or condition, financial or otherwise. To the best of Original Borrower’s knowledge, Original Borrower is not in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument to which it is a party or by which it or the Property is bound, other than Original Borrower’s default under the Loan as described herein.

(e) Title. Original Borrower has good and indefeasible title in fee to the real property and good title to the balance of the Property, free and clear of all liens other than the Permitted Exceptions (as such term is defined in the Security Instrument). All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal

Requirements in connection with the transfer of the Property by Original Borrower to Borrower have been paid or will be paid at the time of such transfer.

(f) No Bankruptcy Filing. Original Borrower is not contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency law or the liquidation of all or a major portion of its property (a “Bankruptcy Proceeding”), and Original Borrower has no knowledge of any person or entity contemplating the filing of any such petition against it. In addition, Original Borrower has not been a party to, or the subject of a Bankruptcy Proceeding for the past ten years.

(g) Original Loan Documents. The Original Loan Documents constitute valid and legally binding obligations of Original Borrower enforceable against Original Borrower and the Property in accordance with their terms. Original Borrower acknowledges and agrees that, nothing contained in this Agreement, or the Assignment and Assumption, shall release or relieve Original Borrower from its obligations under the Original Loan Documents arising prior to the Effective Date. Original Borrower has no defenses, setoffs, claims, counterclaims or causes of action of any kind or nature whatsoever against Lender or its past, present and future partners, members, officers, directors, employees, agents, contractors, representatives, and participants and each of the successors and assigns of each of the foregoing or with respect to (i) the Loan, (ii) the Original Loan Documents, or (iii) the Property. To the extent Original Borrower would be deemed to have any such defenses, setoffs, claims, counterclaims or causes of action as of the date hereof, Original Borrower knowingly waives and relinquishes them.

(h) Reaffirmation .Original Borrower reaffirms and confirms the truth and accuracy of all representations and warranties set forth in the Original Loan Documents as if made on the date hereof.

7. Miscellaneous.

(a) No Limitation of Remedies. No right, power or remedy conferred upon or reserved to or by Lender in this Agreement is intended to be exclusive of any other right, power or remedy conferred upon or reserved to or by Lender under this Agreement, the Loan Documents or at law, but each and every remedy shall be cumulative and concurrent, and shall be in addition to each and every other right, power and remedy given under this Agreement, the Loan Documents or now or subsequently existing at law.

(b) No Waivers. Except as otherwise expressly set forth in this Agreement, nothing contained in this Agreement shall constitute a waiver of any rights or remedies of Lender under the Loan Documents or at law. No delay or failure on the part of any party hereto in the exercise of any right or remedy under this Agreement shall operate as a waiver, and no single or partial exercise of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. No action or forbearance by any party hereto contrary to the provisions of this Agreement shall be construed to constitute a waiver of any of the express provisions. Any party hereto may in writing expressly waive any of such party’s rights under this Agreement without invalidating this Agreement.

(c) Severability. The invalidity or unenforceability of one or more covenants, terms, or conditions in this Agreement will not affect the remainder of this Agreement.

(d) Further Assurances. Borrower Parties shall execute and deliver to Lender such agreements, instruments, documents, financing statements and other writings as may be requested from time to time by Lender to perfect and to maintain the perfection of Lender’s security interest in and to the Property, and to consummate the transactions contemplated by or in this Agreement.

(e) Notices. Any notice, demand, request, approval, consent, or other communication made from or to a party as required by, permitted by, or contemplated in this Agreement (each a “Notice”) will only be effective if (i) it is in writing and (ii) the intended recipient actually receives it or is deemed to have received it in accordance with this paragraph. A Notice will be deemed received (x) if sent by local or overnight courier to the Recipient’s Address, upon delivery or first attempted delivery and (y) if sent by registered or certified first class mail, return receipt requested, two business days after deposit in the mail. If, however, a provision in this Agreement specifies different methods and requirements regarding a particular Notice, such provision will control with regard to the specified Notice. “Recipient’s Address” means the recipient’s address identified below as the recipient’s notice address (or as its address, if a separate notice address is not specified), or a new address identified in a Notice from the recipient to the sending party at least ten days before the date of the sending party’s Notice.

To Lender:

With a copy to:

Button Capital Management

29834 N Cave Creek Rd

Suite 118-283

Cave Creek, AZ 85331

Attn.: Ken Okamoto

ken.okamoto@buttoncapital.com

To Original Borrower:

With a copy to:

Button Capital Management

29834 N Cave Creek Rd

Suite 118-283

Cave Creek, AZ 85331

Attn.: Ken Okamoto

ken.okamoto@buttoncapital.com

To New Borrower:

LF3 El Paso, LLC

LF3 EL PASO TRS, LLC

C/o Lodging Fund REIT III OP, LP

Attn: Linzey Erickson

1635 43rd Street S, Suite 205

Fargo, ND 58103

With a copy to:

Legendary Capital

Attn: David Durell

644 Lovett SE, Suite B

Grand Rapids, MI 49506

(f) Modifications. The terms of this Agreement may not be changed, modified, waived, discharged or terminated orally, but only by an instrument or instruments in writing, signed by the Party against whom the enforcement of the change, modification, waiver, discharge or termination is asserted. Lender’s consent to the Requested Actions shall not be deemed to constitute Lender’s consent to any provisions of the organizational documents that would be in violation of the terms and conditions of any of the Loan Documents.

(g) Time of Essence. Time is of the essence as to all obligations created by and all notices required by this Agreement.

(h) Waiver of Jury Trial. Each party waives its right to a jury trial for any claim or cause of action based upon or arising out of this Agreement. The scope of this waiver is intended to be all encompassing of any and all disputes that might be filed in a court and that relate to the subject matter of the transaction arising out of this Agreement, including contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. This waiver is a material inducement to enter into a business relationship and the parties have each relied on this waiver in entering into this Agreement. Each party warrants and represents that it has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. If litigation occurs, this waiver and the agreement in which it is contained may be filed as a consent to a trial by the court.

(i) Successors or Assigns. This Agreement will be binding upon and inure to the benefit of the parties and their respective heirs, personal representatives, successors, and permitted assigns.

(j) Governing Law. This Agreement shall be interpreted, construed and enforced in accordance with the laws of the State of Texas.

(k) Counterparts. To facilitate execution, this Agreement may be executed in multiple identical counterparts. The signature of each party, or the signature of all persons required to bind a party, need not appear on each counterpart. All counterparts, taken together, will constitute a single document. The validity of a signature page will not be affected by its detachment from one counterpart of this Agreement and attachment to an identical counterpart of this Agreement.

(l) Final Agreement. This Agreement is the final, complete, and exclusive agreement of the parties regarding its subject matter, and supersedes all prior and contemporaneous agreements, representations, and understandings regarding such subject matter. No modification of this Agreement will be binding on the parties to it unless contained in a writing signed by the parties hereto.

Original Borrower:

HD Sunland Park Property, L.L.C., a Delaware limited liability company

By: High Desert Investors 3 LLC, its sole member

By: Button US Investors Sunland Park Inc.

By: /s/ Edwin Cheung​ ​

Edwin Cheung, Authorized Signatory

By: /s/ Justin Ng​ ​

Justin Ng, Authorized Signatory

By: VB Hotel Group C, LLC

By:​ ​

Name:​ ​

Title:​ ​

By: MT Sunland Park Hotel, L.L.C., its managing member

By: ASI Capital, LLC

By:​ ​

Name:​ ​

Title:​ ​

New Borrower:

LF3 El Paso, LLC, a Delaware limited liability company

By: Lodging Fund REIT III OP, LP, a Delaware limited partnership, its sole member

By: Lodging Fund REIT III, Inc., a Maryland corporation, its general partner

By:/s/ Samuel C. Montgomery​ ​

Name: Samuel C. Montgomery​ ​

Title: Chief Financial Officer​ ​

LF3 El Paso TRS, LLC, a Delaware limited liability company

By: Lodging Fund REIT III TRS, Inc., a Delaware corporation, its sole member

By:/s/ Samuel C. Montgomery​ ​

Name: Samuel C. Montgomery​ ​

Title: Chief Financial Officer​ ​

Lender:

EPH Development Fund LLC, a Delaware limited liability company

By: /s/ Albert Ken Okamoto​ ​

Name: Albert Ken Okamoto​ ​

Title: Authorized Signatory​ ​

EXHIBIT A

LEGAL DESCRIPTION

A PARCEL OF LAND CONTAINING 5.314 ACRES MORE OR LESS, BEING A PORTION OF LOT 1, BLOCK 2,

SUNLAND COMMERCIAL DISTRICT UNIT 2, AN ADDITION TO THE CITY OF EL PASO, EL PASO COUNTY, TEXAS, ACCORDING TO THE MAP THEREOF RECORDED IN BOOK 23, PAGE 42, PLAT RECORDS OF EL PASO COUNTY, TEXAS, AND BEING MORE PARTICULARLY DESCRIBED BY METES AND BOUNDS AS FOLLOWS:

COMMENCING AT AN EXISTING CITY MONUMENT FOUND AT THE CENTERLINE INTERSECTION OF SUNLAND PARK DRIVE AND CONSTITUTION DRIVE; THENCE, WITH SAID CENTERLINE OF SUNLAND PARK DRIVE, NORTH 83° 39' 16" EAST A DISTANCE OF 380.98 FEET; THENCE, LEAVING SAID CENTERLINE, SOUTH 06° 20' 44" EAST A DISTANCE OF 60.00 FEET TO A SET CROWS FOOT IN CONCRETE ON THE SOUTH RIGHT OF WAY LINE OF SUNLAND PARK DRIVE AND BEING THE "POINT OF BEGINNING";

THENCE, WITH SAID RIGHT OF WAY, NORTH 83° 39' 16" EAST A DISTANCE OF 52.73 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, WITH SAID RIGHT OF WAY, NORTH 78° 22' 46" EAST A DISTANCE OF 149.41 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, LEAVING SAID RIGHT OF WAY, SOUTH 11° 39' 57" EAST A DISTANCE OF 96.73 FEET TO A SET NAIL WITH SHINER, TX NO. 1798;

THENCE, SOUTH 62° 09' 00" EAST A DISTANCE OF 87.94 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, NORTH 78° 20' 03" EAST A DISTANCE OF 76.65 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, NORTH 26° 32' 34" EAST A DISTANCE OF 147.75 FEET TO A POINT AT THE INTERSECTION WITH THE SOUTHWESTERLY RIGHT OF WAY LINE OF U.S. INTERSTATE HIGHWAY NO. 10, (A WITNESS CORNER BEING SET SOUTH 26° 32' 34" WEST A DISTANCE OF 1.00 FEET);

THENCE, ALONG THE RIGHT OF WAY LINE OF U.S. INTERSTATE HIGHWAY NO. 10 THE FOLLOWING COURSES;

NORTH 78° 20' 03" EAST A DISTANCE OF 213.36 FEET TO A SET 5/8" REBAR WITH CAP;

NORTH 49° 53' 58" EAST A DISTANCE OF 228.07 FEET TO A SET CHISELED ''X'';

SOUTH 40° 06' 02" EAST A DISTANCE OF 343.40 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, LEAVING SAID RIGHT OF WAY, SOUTH 49° 53' 58" WEST A DISTANCE OF 332.76 FEET TO A SET 5/8" REBAR WITH CAP;

THENCE, SOUTH 78° 20' 03" WEST A DISTANCE OF 245.75 FEET TO A SET CHISELED ''X'' IN CONCRETE;

THENCE, NORTH 62° 09' 00" WEST A DISTANCE OF 618.23 FEET TO THE "POINT OF BEGINNING" OF THE HEREIN DESCRIBED PARCEL, AND CONTAINING 5.314 ACRES OF LAND MORE OR LESS. (REFERENCE: METES AND BOUNDS DESCRIPTION CONTAINED IN THAT CERTAIN DEED WITHOUT WARRANTY RECORDED UNDER INSTRUMENT NO. 20060040427, REAL PROPERTY RECORDS OF EL PASO COUNTY, TEXAS.)

SAVE AND EXCEPT THE PROPERTY DESCRIBED IN NOTICE OF LIS PENDENS FILED FOR RECORD MARCH 01, 2016 UNDER COUNTY CLERK'S FILE NO. 20160013652, OFFICIAL PUBLIC RECORDS OF EL PASO, TEXAS.

EX-31.1

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 350)

I, Corey R. Maple, certify that:

1. I have reviewed this annual report on Form 10-K of Lodging Fund REIT III, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 17, 2021

/s/ Corey R. Maple

Corey R. Maple, Chief Executive Officer,

Chairman of the Board and Secretary

(principal executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 350)

I, Samuel C. Montgomery, certify that:

1. I have reviewed this annual report on Form 10-K of Lodging Fund REIT III, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 17, 2021

/s/ Samuel C. Montgomery

Samuel C. Montgomery, Chief Financial Officer

(principal financial officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Certification of Chief Executive Officer and Chief Financial Officer

In connection with theQuarterlyReport on Form 10-Qof Lodging Fund REIT III, Inc. (the “Company”) for the quarter endedMarch 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Corey R. Maple, as the Chief Executive Officer of the Company, and Samuel C. Montgomery, as the Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section906 of the Sarbanes-Oxley Act of 2002, to his or her knowledge, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 17, 2021

/s/ Corey R. Maple

Corey R. Maple, Chief Executive Officer,

Chairman of the Board and Secretary

(principal executive officer)

/s/ Samuel C. Montgomery

Samuel C. Montgomery, Chief Financial Officer

(principal financial officer)

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2021	May 17, 2021
Document and Entity Information [Abstract]
Document Type	10-Q
Document Period End Date	Mar. 31, 2021
Entity Registrant Name	LODGING FUND REIT III, INC.
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		7,942,025
Entity Central Index Key	0001745032
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Mar. 31, 2021	Dec. 31, 2020
Assets
Investment in hotel properties, net of accumulated depreciation of $5,715,332 and $4,712,578	$ 124,085,114	$ 100,744,186
Cash and cash equivalents	7,547,457	7,960,159
Restricted cash	5,414,955	4,568,908
Accounts receivable, net	224,016	114,282
Franchise fees, net	1,111,468	955,238
Prepaid expenses and other assets	1,996,728	2,071,708
Total Assets	140,379,738	116,414,481
Liabilities and Equity
Debt, net	78,458,927	63,924,719
PPP Loan	801,800	763,100
Accounts payable	1,020,862	670,548
Accrued expenses	1,350,332	1,560,931
Distributions payable	1,358,705	1,327,912
Due to related parties	2,432,640	1,904,051
Other liabilities	440,115	653,292
Total liabilities	85,863,381	70,804,553
Commitments and contingencies (See Note 10)
Equity
Preferred stock, $0.01 par value, 100,000,000 shares authorized; no shares issued and outstanding
Common stock, $0.01 par value, 900,000,000 shares authorized; 7,807,944 and 7,611,653 shares issued and outstanding	78,079	76,116
Additional paid-in capital	76,485,072	74,610,627
Accumulated deficit	(34,926,072)	(31,855,995)
Total stockholders' equity	41,637,079	42,830,748
Total equity	54,516,357	45,609,928
Total Liabilities and Equity	140,379,738	116,414,481
Series B LP Units
Equity
Non-controlling interest	(1,160,274)	(1,005,785)
Series GO LP Units
Equity
Non-controlling interest	7,291,975	$ 3,784,965
Series T LP Units
Equity
Non-controlling interest	$ 6,747,577

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
CONSOLIDATED BALANCE SHEETS
Accumulated depreciation	$ 5,715,332	$ 4,712,578
Preferred stock, Par Value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	100,000,000	100,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	900,000,000	900,000,000
Common stock, shares issued	7,807,944	7,611,653
Common stock, shares outstanding	7,807,944	7,611,653

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Revenues
Total revenue	$ 3,785,161	$ 3,832,506
Expenses
Property operations	1,742,248	1,650,313
General and administrative	1,345,842	1,388,284
Sales and marketing	305,454	371,070
Franchise fees	296,352	319,901
Management fees	438,090	395,204
Acquisition expense	27,466	72,995
Depreciation	1,003,052	818,401
Total expenses	5,158,504	5,016,168
Other Income (Expense)
Other income (expense), net	678,875	(72,524)
Interest expense	(947,073)	(735,766)
Total other income (expense)	(268,198)	(808,290)
Net Loss Before Income Taxes	(1,641,541)	(1,991,952)
Income tax benefit (expense)	(25,000)	607,916
Net Loss	(1,666,541)	(1,384,036)
Net Loss Attributable to Common Stockholders	$ (1,423,627)	$ (1,314,880)
Basic and Diluted Net Loss Per Share of Common Stock	$ (0.18)	$ (0.20)
Weighted-average Shares of Common Stock Outstanding, Basic and Diluted	7,751,978	6,539,024
Series B LP Units
Other Income (Expense)
Net loss attributable to non-controlling interest	$ (82,978)	$ (69,156)
Series GO LP Units
Other Income (Expense)
Net loss attributable to non-controlling interest	(159,936)
Room
Revenues
Total revenue	3,720,791	3,777,730
Other
Revenues
Total revenue	$ 64,370	$ 54,776

XML

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Total Stockholder's Equity	Non-controlling Interest Series B LP Units	Non-controlling Interest Series GO LP Units	Non-controlling Interest Series T LP Units	Total
Balance - Beginning at Dec. 31, 2019	$ 60,057	$ 58,961,101	$ (18,396,163)	$ 40,624,995	$ (439,985)			$ 40,185,010
Balance - Beginning (Shares) at Dec. 31, 2019	6,005,743
Issuance of common stock	$ 9,569	9,371,964		9,381,533				9,381,533
Issuance of common stock (Shares)	956,897
Offering costs			(1,520,647)	(1,520,647)				(1,520,647)
Distributions declared			(1,144,602)	(1,144,602)	(60,308)			(1,204,910)
Distributions reinvested	$ 440	417,846		418,286				418,286
Distributions reinvested (in shares)	44,030
Redemptions	$ 100	91,900		92,000				92,000
Redemptions (in shares)	(10,000)
Net loss			(1,314,880)	(1,314,880)	(69,156)			(1,384,036)
Balance - Ending at Mar. 31, 2020	$ 69,966	68,659,011	(22,376,292)	46,352,685	(569,449)			45,783,236
Balance - Ending (Shares) at Mar. 31, 2020	6,996,670
Balance - Beginning at Dec. 31, 2019	$ 60,057	58,961,101	(18,396,163)	40,624,995	(439,985)			40,185,010
Balance - Beginning (Shares) at Dec. 31, 2019	6,005,743
Redemptions								$ 590,547
Redemptions (in shares)								64,190
Balance - Ending at Dec. 31, 2020	$ 76,116	74,610,627	(31,855,995)	42,830,748	(1,005,785)	$ 3,784,965		$ 45,609,928
Balance - Ending (Shares) at Dec. 31, 2020	7,611,653
Issuance of common stock	$ 824	793,756		794,580				794,580
Issuance of common stock (Shares)	82,414
Issuance of GO Units						4,201,300		4,201,300
Issuance of T Units							$ 6,747,577	6,747,577
Offering costs			(287,745)	(287,745)		(534,354)		(822,099)
Distributions declared			(1,358,705)	(1,358,705)	(71,511)			(1,430,216)
Distributions reinvested	$ 1,139	1,080,689		1,081,828				$ 1,081,828
Distributions reinvested (in shares)	113,877
Redemptions (in shares)								0
Net loss			(1,423,627)	(1,423,627)	(82,978)	(159,936)		$ (1,666,541)
Balance - Ending at Mar. 31, 2021	$ 78,079	$ 76,485,072	$ (34,926,072)	$ 41,637,079	$ (1,160,274)	$ 7,291,975	$ 6,747,577	$ 54,516,357
Balance - Ending (Shares) at Mar. 31, 2021	7,807,944

XML

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Distributions declared (in dollars per share)	$ 0.175	$ 0.175

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Cash Flows from Operating Activities:
Net loss	$ (1,666,541)	$ (1,384,036)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation	1,003,052	818,401
Amortization	81,780	58,352
Gain on PPP 1oan forgiveness	(763,100)
Deferred tax assets, net		(186,573)
Change in operating assets and liabilities:
Accounts receivable	(109,734)	11,467
Franchise fees	(175,000)	(300,000)
Prepaid expenses and other assets	74,980	(50,364)
Accounts payable	297,381	147,028
Accrued expenses	(202,599)	496,689
Due to related parties	381,586	(623,882)
Other liabilities	(214,040)	(129,055)
Net cash used in operating activities	(1,292,235)	(1,141,973)
Cash Flows from Investing Activities:
Acquisitions of hotel properties	(1,862,423)	(27,190,749)
Improvements and additions to hotel properties	(733,980)	(196,753)
Net cash used in investing activities	(2,596,403)	(27,387,502)
Cash Flows from Financing Activities:
Proceeds from mortgage debt		13,597,819
Proceeds from lines of credit	1,000,000	6,200,000
Proceeds from PPP loans	801,800
Principal payments on mortgage debt	(197,147)	(170,941)
Principal payments on lines of credit	(1,000,000)	(1,000,000)
Payments of deferred financing costs	(330,792)	(633,572)
Proceeds from issuance of common stock	794,580	9,381,533
Proceeds from issuance of units	4,201,300
Payments of offering costs	(701,674)	(1,612,371)
Payments for shares redeemed		(92,000)
Distributions paid	(246,084)	(691,604)
Net cash provided by financing activities	4,321,983	24,978,864
Net change in cash, cash equivalents, and restricted cash	433,345	(3,550,611)
Beginning Cash, Cash Equivalents, and Restricted Cash	12,529,067	16,174,371
Ending Cash, Cash Equivalents, and Restricted Cash	12,962,412	12,623,760
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of amounts capitalized	889,861	577,708
Income taxes paid	1,963
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Issuance of Units for Aurora property	6,747,577
Debt issued for acquisition of Aurora property	15,000,000
Debt assumed in connection with hotel property acquisition		9,998,437
Offering costs included in accounts payable	52,933	(7,020)
Offering costs included in due to related parties	75,492	(63,922)
Offering costs included in accrued expenses	(8,000)	(20,782)
Distributions included in accrued expenses		34,712
Distributions included in due to related parties	71,511	60,308
Reinvested distributions	1,081,828	418,286
Reconciliation of Cash, Cash Equivalents, and Restricted Cash:
Cash and cash equivalents, beginning of period	7,960,159	10,898,556
Restricted cash, beginning of period	4,568,908	5,275,815
Cash, cash equivalents, and restricted cash, beginning of period	12,962,412	12,623,760
Cash and cash equivalents, end of period	7,547,457	7,934,605
Restricted cash, end of period	5,414,955	4,689,155
Cash, cash equivalents, and restricted cash, end of period	$ 12,962,412	$ 12,623,760

XML

ORGANIZATION

3 Months Ended

Mar. 31, 2021

ORGANIZATION

ORGANIZATION

1.    ORGANIZATION

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

Substantially all of the Company’s assets and liabilities are held by, and substantially all of its operations are conducted through, Lodging Fund REIT III OP, LP (the “Operating Partnership,” or “OP”), a subsidiary of LF REIT III. The OP has three voting classes of partnership units, Common General Partnership Units (“GP Units”), Interval Units and Common Limited Partnership Units (“Common LP Units”), and three classes of non-voting partnership units, Series B Limited Partnership Units (“Series B LP Units”), Series Growth & Opportunity (“GO”) Limited Partnership Units (“Series GO LP Units”) and Series T Limited Partnership Units (“Series T LP Units”).  LF REIT III was the sole general partner of the OP, as of March 31, 2021 and December 31, 2020. As of March 31, 2021 and December 31, 2020, there were no outstanding Common LP Units or Interval Units, and there were 1,000 outstanding Series B LP Units, all of which were owned by the Advisor.  As of March 31, 2021 and December 30, 2020, there were 1,103,758 and 0 Series T LP Units outstanding, respectively. As of March 31, 2021 and December 30, 2020, there were 1,258,817 and 654,868 Series GO LP Units outstanding, respectively.

On June 1, 2018, the Company commenced a private offering of shares of common stock, $0.01 par value per share, with a maximum offering of $100,000,000 (the “Offering”) to accredited investors only, pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended. In addition to sales of common shares for cash, the Company has adopted a dividend reinvestment plan (“DRIP”), which permits stockholders to reinvest their distributions back into the Company. As of March 31, 2021, the Company had issued and sold 7,872,134 shares of common stock, including 506,688 shares attributable to the DRIP, and received aggregate proceeds of $76.6 million.  As of December 31, 2020, the Company had repurchased 64,190 shares, which represents an original investment of $641,898, including $16,898 of DRIP, for $590,547 under the Company’s Share Repurchase Plan.  As of March 31, 2021, there were no outstanding redemption proceeds needing to be paid.

On April 29, 2020, the Company classified and designated 7,000,000 shares of authorized but unissued common stock, $0.01 par value per share, as shares of “Interval Common Stock,” to be part of the Offering. The offering of the Interval Common Stock, is a maximum offering of $30,000,000, which may be increased to $60,000,000 in the sole discretion of the Company’s board of directors, (the “Interval Share Offering”) to accredited investors only, pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended. As of March 31, 2021, the Company had not issued or sold any shares of Interval Common Stock.

On June 15, 2020, the Operating Partnership commenced a private offering of limited partnership units in the OP, designated as Series GO LP Units, with a maximum offering of $20,000,000, which may be increased to $30,000,000 in the sole discretion of  LF REIT III as the General Partner of the OP, (the “GO Unit Offering”) to accredited investors only, pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended. As of March 31, 2021, the Company had issued and sold 1,258,817 Series GO LP Units and received aggregate proceeds of $8.7 million.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2021

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation—The accompanying unaudited consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the SEC applicable to interim financial information. Accordingly, the unaudited financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. The financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, and which, in the opinion of management, are necessary for a fair and consistent presentation of the results for such periods. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The consolidated financial statements include the accounts of LF REIT III, the OP and its wholly-owned subsidiaries. For the controlled subsidiaries that are not wholly-owned, the interests owned by an entity other than the Company represent a noncontrolling interest, which is presented separately in the consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation.

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

During the first quarter of 2020, there was a global outbreak of a novel coronavirus, or COVID-19, which has spread to over 200 countries and territories, including the United States, and has spread to every state in the United States. The World Health Organization has designated COVID-19 as a pandemic, and numerous countries, including the United States, have declared national emergencies with respect to COVID-19. The impact of the outbreak on the U.S. and world economies has been evolving, and as cases of COVID-19 have continued to be identified in additional countries, there have been international mandates, and mandates in the United States from federal, state and local authorities, instituting quarantines and stay-at-home orders, closing schools, and instituting restrictions on travel and/or limiting operations of non-essential offices and retail centers. Such actions are adversely impacting many industries, with the travel and hospitality industries being particularly adversely affected. Although the Company’s hotel properties have remained open through the pandemic in 2020 and 2021, the Company’s occupancy levels have been lower than historic levels. The outbreak could have a continued adverse impact on economic and market conditions and could trigger a continued slowdown in leisure and business travel, which is adversely impacting the travel and hospitality industries. The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions. The Company believes the estimates and assumptions underlying the Company’s consolidated financial statements are reasonable and supportable based on the information available as of March 31, 2021, however uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of March 31, 2021 inherently less certain than they would be absent the current and potential impacts of COVID-19.

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

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

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

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

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

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

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

Advertising Costs – The Company expenses advertising costs as incurred.  These costs represent the expense for franchise advertising and reservation systems under the terms of the hotel management and franchise agreements and expenses that are directly attributable to advertising and promotion. Advertising expense was $136,995 and $169,959 for the three months ended March 31, 2021 and 2020, respectively, and is included in sales and marketing in the consolidated statement of operations.

Non-controlling Interest—Non-controlling interests represent the portion of equity related to shares with limited voting interest. Non-controlling interests are reported in the consolidated balance sheets within equity, separate from stockholders’ equity. Revenue and expenses attributable to both the Company and the non-controlling interests are reported in the consolidated statements of operations, with net income or loss attributable to non-controlling interests reported separately from net income or loss attributable to the Company.

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

Restricted Cash—Restricted cash consists of earnest money deposits related to hotel property acquisitions, as well as certain funds maintained in escrow accounts to fund future payments for insurance, property tax obligations, and reserves for future capital expenditures, as required by our debt agreements.  As of March 31, 2021 and December 31, 2020, restricted cash on the accompanying consolidated balance sheets included $1.8 million and $1.85 million, respective, of earnest money deposits.

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

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

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

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

Property Management Fees—Property management fees include expenses incurred for management services provided for the day-to-day operations of our hotel properties, which are generally charged at a rate of 4% of gross revenues. Property management fees also include asset management fees, which may be charged at an annual rate of up to 0.75% of gross assets and are paid to the Advisor.  For the three months ended March 31, 2021 and 2020, asset management fees were charged only on the value of investments in hotel properties.

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

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

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

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

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

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

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

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

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

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

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

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

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014‑09, Revenue from Contracts with Customers (Topic 606). The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014‑09 is effective for fiscal years beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company adopted ASU 2014‑09 as of January 1, 2019 and has applied it on a modified retrospective basis. Based on the Company’s completed assessment of this updated accounting guidance, it does not materially affect the amount or timing of revenue recognition for the Company and the Company did not recognize any cumulative-effect adjustment as a result of adoption.

In February 2016, the FASB issued ASU No. 2016‑02, “Leases” (“ASU No. 2016‑02”) (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU No. 2016‑02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right of use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. ASU No. 2016‑02 is effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. We plan to adopt ASU 2016‑02 for the fiscal year ending December 31, 2022, and for interim periods beginning on January 1, 2022. We do not anticipate any reclassifications or significant impacts on our consolidated financial statements as a result of this adoption.

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INVESTMENT IN HOTEL PROPERTIES

3 Months Ended

Mar. 31, 2021

INVESTMENT IN HOTEL PROPERTIES

INVESTMENT IN HOTEL PROPERTIES

3.    INVESTMENT IN HOTEL PROPERTIES

Investment in hotel properties as of March 31, 2021 and December 31, 2020 consisted of the following:

	March 31,		December 31,
	2021		2020
Land and land improvements	$	14,730,590	$	10,324,772
Building and building improvements		103,262,396		85,213,846
Furniture, fixtures, and equipment		10,721,289		8,927,694
Construction in progress		1,086,171		990,452
Investment in hotel properties, at cost		129,800,446		105,456,764
Less: accumulated depreciation		(5,715,332)		(4,712,578)
Investment in hotel properties, net	$	124,085,114	$	100,744,186

As of March 31, 2021, the Company owned eight hotel properties with an aggregate of 847 rooms located in seven states.

Acquisitions of Hotel Properties

The Company acquired one property during the three months ended March 31, 2021 and two properties during the year ended December 31, 2020.  Each of the Company’s hotel acquisitions to date have been determined to be asset acquisitions.  The table below outlines the details of the property acquired during the three months ended March 31, 2021.

2021 Acquisitions
				Number
			Date	of Guest	Purchase			Transaction				%
Hotel	Property Type	Location	Acquired	Rooms	Price			Costs		Total		Interest
Courtyard by Marriott (the "Aurora Property")	Select Service	Aurora, CO	February 4, 2021	141	$	23,610,000	(1)	$	458,129	$	24,068,129	100	%
				141	$	23,610,000		$	458,129	$	24,068,129

(1) Includes the issuance of 1,103,758 Series T LP Units of the Operating Partnership

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

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

Each of the Company’s hotel properties, except the Southaven Property, is subject to a property management agreement with NHS, LLC dba National Hospitality Services (“NHS”) with an initial term expiring on December 31st of the fifth full calendar year following the effective date of the agreement, which will automatically renew for successive 5‑year periods unless terminated earlier in accordance with its terms. The Southaven Property is currently being managed on a day-to-day basis by Vista Host, Inc. pursuant to a property management agreement with an initial term expiring on February 21, 2025, which will automatically renew for two successive 5-year periods unless terminated earlier in accordance with its terms.

The seller of the Pineville Property, an affiliate of Beacon, may be entitled to additional cash consideration if the property exceeds certain performance criteria based on increases in the property’s net operating income (“NOI”) for a selected 12‑month period of time. At any time during the period beginning April 1, 2021 through the date of the final NOI determination (on or about April 30, 2023), the seller of the property may make a one-time election to receive the additional consideration. The variable amount of the additional consideration, if any, is based on the excess of the property’s actual NOI over a base NOI for the applicable 12‑month calculation period divided by the stated cap rate for such calculation period. As of March 31, 2021, no amounts were owed or paid to the seller of the Pineville Property, and no election to receive the additional consideration had been made.

The Aurora Property was acquired on February 4, 2021 for contractual consideration comprising of $15.0 million in debt, $1.9 million in cash paid at closing and the issuance of 1,103,758 Series T LP Units of the Operating Partnership” (the “Series T Units”).  The Series T Units will convert into Common Limited Units of the Operating Partnership beginning 36 months, or at the option of the Company, up to 48 months, after February 4, 2021, at which point the value will be calculated pursuant to the terms of a Contribution Agreement, dated as of September 1, 2020, as amended on February 4, 2021 (the “Contribution Agreement”).  The number of Common Limited Units to be issued to the Company based on such conversion may be higher or lower than the initial valuation of the Series T Units.  Accordingly, the aggregate purchase price used for the acquisition accounting noted in the tables above and below of $23.6 million, was determined to be the value assigned by a third-party appraisal, as the appraisal value was more reliably measurable. The aggregate purchase price for the hotel properties acquired during the three months ended March 31, 2021 and the year ended December 31, 2020 were allocated as follows:

	March 31,		December 31,
	2021		2020
Land and land improvements	$	4,400,098	$	2,576,166
Building and building improvements		18,048,551		31,605,174
Furniture, fixtures, and equipment		1,619,480		3,007,846
Total assets acquired		24,068,129		37,189,186
Premium on assumed debt		—		(597,665)
Total liabilities assumed		—		(597,665)
Total purchase price(1)		24,068,129		36,591,521
Assumed mortgage debt		—		9,400,772
Net purchase price	$	24,068,129	$	27,190,749

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

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DEBT

3 Months Ended

Mar. 31, 2021

DEBT

DEBT

4.    DEBT

Lines of Credit

On February 10, 2020, the Company entered into a $5.0 million revolving line of credit.  The line of credit requires monthly payments of interest only, with all outstanding principal amounts being due and payable at maturity on February 10, 2021. On January 19, 2021, the line of credit was amended to extend the maturity date to May 10, 2021. The line of credit had a variable interest rate equal to the U.S. Prime Rate, plus 0.50%, resulting in an effective rate of 3.75% per annum as of March 31, 2021.  On May 6, 2021, the line of credit was amended to extend the maturity date to May 10, 2022.  On that date, the interest rate was also amended to incorporate an interest rate floor equal to 4.00%.  The line of credit is secured by the Company’s Cedar Rapids Property and Eagan Property, which are also subject to term loans with the same lender, and 100,000 Common LP Units of the Operating Partnership.  The line of credit includes cross-collateralization and cross-default provisions such that the existing mortgage loan agreements with respect to the Cedar Rapids Property and the Eagan Property, as well as future loan agreements that the Company may enter into with this lender, are cross-defaulted and cross-collateralized with each other.  The line of credit, including all cross-collateralized debt, is guaranteed by Corey Maple, the Company’s Chief Executive Officer.  As of March 31, 2021, there was no outstanding balance on the line of credit.

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

Mortgage Debt

As of March 31, 2021, the Company had $79.3 million in outstanding mortgage debt secured by eight properties, with maturity dates ranging from February 2024 to April 2029. Seven of the loans have fixed interest rates ranging from 3.70% to 5.33%, and a weighted-average interest rate of 4.54%.  One of the loans is a variable interest loan at a rate of LIBOR plus 6.0% per annum, provided that LIBOR shall not be less than 1.0%, resulting in an effective rate of 7% as of March 31, 2021. The loans generally require monthly payments of principal and interest on an amortized basis, with certain loans allowing for an interest-only period up to 12 months following origination, and generally require a balloon payment due at maturity. As of March 31, 2021 and December 31, 2020, certain mortgage debt was guaranteed by the members of the Advisor.  Except as described below, the Company was either in compliance with all debt covenants or received a waiver of testing of its debt covenants as of March 31, 2021 and December 31, 2020.

As of March 31, 2021, the Company was not in compliance with the required financial covenants under the terms of its promissory note secured by the Pineville Property and related loan documents (the “Pineville Loan”), which constitutes an event that puts the Company into a trigger period pursuant to the loan documents. At the onset of a trigger period, the Pineville Loan will enter into a cash management period. The Company has requested a waiver of the financial covenants as of March 31, 2021 and December 31, 2020, but as of the date of this filing it had not been received. If the Company is unable to obtain a waiver, the loan will go into cash management, however the other terms of the Pineville Loan will not change, including the timing or amounts of payments, or the expiration date. The lender for the Company’s loan secured by the Lubbock Fairfield Property (the “Lubbock Fairfield Loan”) waived the required financial covenants under the terms of the Lubbock Fairfield Loan through March 31, 2021. The promissory note and related loan documents regarding the Lubbock Home2 Property did not have any required financial covenants as of March 31, 2021 and December 31, 2020. Other than as described above for the Pineville Loan, the Company was either in compliance with its debt covenants or received a waiver of testing of its debt covenants as of March 31, 2021 and December 31, 2020 as noted below.

Forbearance Agreements and Loan Amendments

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

On April 17, 2020, the Company entered into a Change In Terms Agreement (the “Eagan Amendment”), amending the terms of the its original Promissory Note (the “Eagan Note”), dated June 19, 2019 in the original principal amount of $9.4 million. Pursuant to the Eagan Amendment, the maturity date of the Eagan Note was extended from July 1, 2024, to January 1, 2025, the requirement to make any replacement reserve deposits was waived until June 1, 2021, and the requirement to make any payments of principal and interest was deferred until October 1, 2020. In addition to the Eagan Amendment, the lender has also waived the required financial covenants under the terms of the Eagan Note through December 31, 2020.

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

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

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

On August 14, 2020, the Southaven Loan was amended (the “Southaven Amendment”) to waive the Southaven Projected Events of Default and to adjust other terms of the Southaven Loan.  The Southaven Amendment, among other things, extended the required PIP completion date to align with the extension provided by the franchise agreement, adjusted certain financial covenants, put into place certain liquidity requirements and added restrictions on capital expenditures, related party payments, including loan guarantee fees, and cash distributions until certain financial covenants are achieved. Pursuant to the Southaven Forbearance Agreement and Southaven Amendment, until certain financial covenants are achieved, the borrower may not make any payments for capital expenditures or any distributions and must maintain a minimum cash balance of $225,000 in its hotel operating account.  The restriction on distributions precludes the borrower subsidiary entities from making distributions of cash to the Operating Partnership, and as of December 31, 2020, the borrower subsidiary entities had cash balances in the amount of $1,498,889, which is included in cash and cash equivalents on the accompanying consolidated balance sheets. The Company did not have any required financial covenants under the terms of the Southaven loan in effect as of December 31, 2020. The Company was in compliance with the required financial covenants under the terms of the Southaven Amendment as of March 31, 2021.

Paycheck Protection Program (“PPP”) Loans

In April 2020, the Company entered into six unsecured promissory notes under the Paycheck Protection Program (the “PPP”), totaling $763,100. The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was passed in March 2020, and is administered by the U.S. Small Business Administration (the “SBA”). The term of each PPP loan is 2 years, which may be extended to 5 years at the Company’s election. The interest rate on each PPP loan is 1.0% per annum, which shall be deferred for a period of time. After the initial deferral period, each loan requires monthly payments of principal and interest until maturity with respect to any portion of such PPP loan which is not forgiven as described below.  The initial deferral period ends at either i) the date the SBA remits the borrower’s loan forgiveness amount, or ii) if the Company has not applied for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. The Company’s covered period ended September 25, 2020, for two of its PPP loans and ended October 2, 2020, for four of its PPP loans. The Company is permitted to prepay each PPP loan at any time with no prepayment penalties.   Under the terms of the CARES Act, PPP loan recipients can apply for, and be granted, forgiveness for all or a portion of loans granted under the PPP. Such forgiveness will be determined, subject to limitations and ongoing rulemaking by the SBA, based on the use of loan proceeds for payroll costs and mortgage interest, rent or utility costs and the maintenance of employee and compensation levels. As of December 31, 2020, the outstanding balance of the PPP Loans was $763,100. In February 2021, we applied for and received one hundred percent (100%) forgiveness of all six PPP Loans.  

In January 2021, the Company entered into six new unsecured promissory notes totaling $716,400, under the Second Draw Paycheck Protection Program (the “Second Draw PPP”) created by the Consolidated Appropriations Act, 2021 (the “CAA Act”), through Western State Bank. The term of each Second Draw PPP loan is five years. The interest rate on each Second Draw PPP loan is 1.0% per annum, which shall be deferred for the first sixteen months of the term of the loan. After the initial sixteen-month deferral period, each loan requires monthly payments of principal and interest until maturity with respect to any portion of such Second Draw PPP loan which is not forgiven as described below.  The Company is permitted to prepay each Second Draw PPP loan at any time with no prepayment penalties.

In February 2021, the Company, through its subsidiary LF3 Southaven TRS, LLC (“Southaven TRS”), entered into an unsecured promissory note under the PPP through Western State Bank.  The amount of the PPP loan for Southaven TRS is $85,400.  The term of each PPP loan is five years. The interest rate on the PPP loan is 1.0% per annum, which shall be deferred for the first sixteen months of the term of the loan. After the initial sixteen-month deferral period, the loan requires monthly payments of principal and interest until maturity with respect to any portion of the PPP loan which is not forgiven as described below.  The Company is permitted to prepay the PPP loan at any time with no prepayment penalties.

Under the terms of the CARES Act and the CAA Act, as applicable, PPP loan recipients and Second Draw PPP loan recipients can apply for, and be granted, forgiveness for all or a portion of such loans. Such forgiveness will be determined, subject to limitations and ongoing rulemaking by the SBA, based on the use of loan proceeds for payroll costs and mortgage interest, rent or utility costs, the maintenance of employee and compensation levels and certain other approved expenses. No assurance is provided that the Company will obtain forgiveness of any or all of the Second Draw PPP loans or the PPP loan for Southaven TRS in whole or in part.

The following table sets forth the hotel properties securing each loan, the interest rate, maturity date, and the outstanding balance as of March 31, 2021 and December 31, 2020 for each of the Company’s mortgage debt obligations, respectively.

	Interest		Outstanding		Outstanding
	Rate as of		Balance as of		Balance as of
	March 31,	Maturity	March 31,		December 31,
Hotel Property	2021	Date	2021		2020
Holiday Inn Express - Cedar Rapids(1)	5.33%	09/01/2024	$	5,858,134	$	5,858,134
Hampton Inn & Suites - Pineville	5.13%	06/06/2024		8,925,255		8,973,775
Hampton Inn - Eagan	4.60%	01/01/2025		9,317,589		9,317,589
Home2 Suites - Prattville(1)	4.13%	08/01/2024		9,591,110		9,647,085
Home2 Suites - Lubbock	4.69%	10/06/2026		7,737,573		7,792,602
Fairfield Inn & Suites - Lubbock	4.93%	04/06/2029		9,235,247		9,272,870
Homewood Suites - Southaven(1)	3.70%	03/03/2025		13,586,110		13,586,110
Courtyard by Marriott - Aurora	7.00%	02/05/2024		15,000,000		—
Total Mortgage Debt				79,251,018		64,448,165
Premium on assumed debt, net				821,922		854,928
Deferred financing costs, net				(1,614,013)		(1,378,374)
Net Mortgage				78,458,927		63,924,719
$3.0 million line of credit(2)	—	11/22/2020		—		—
$5.0 million line of credit	3.75%(3)	5/10/2022		—		—
Total Lines of Credit				—		—
PPP Loans	1.00%	Various(4)		801,800		763,100
Debt, net			$	79,260,727	$	64,687,819

⁽¹⁾ Loan is interest-only for the first 12 months after origination, then monthly principal and interest payments, with a balloon payment at maturity.

⁽²⁾ Loan was not renewed at maturity.

⁽³⁾ Variable interest rate equal to U.S. Prime Rate plus 0.50%. One May 6, 2021, the loan was amended to incorporate an interest rate floor of 4.0%

⁽⁴⁾ Each of the currently outstanding PPP loans has a five year term. All six PPP loans which were outstanding as of December 31, 2020 were forgiven in February 2021.

Future Minimum Payments

As of March 31, 2021, the future minimum principal payments on the Company’s debt were as follows:

2021	$	861,353
2022		1,544,938
2023		1,737,149
2024		39,242,552
2025		21,579,995
Thereafter		15,086,831
		80,052,818
Premium on assumed debt, net		821,922
Deferred financing costs, net		(1,614,013)
	$	79,260,727

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FAIR VALUE OF FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2021

FAIR VALUE OF FINANCIAL INSTRUMENTS

FAIR VALUE OF FINANCIAL INSTRUMENTS

5.    FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments as of March 31, 2021 and December 31, 2020 consisted of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, lines of credit, and mortgage debt. With the exception of the Company’s mortgage debt, the carrying amounts of the financial instruments presented in the consolidated financial statements approximate their fair value as of March 31, 2021. The fair value of the Company’s mortgage debt was estimated by discounting each loan’s future cash flows over the remaining term of the mortgage using current borrowing rates for debt instruments with similar terms and maturities, which are Level 3 inputs in the fair value hierarchy.  As of March 31, 2021, the estimated fair value of the Company’s mortgage debt was $83.4 million, compared to the gross carrying value $79.3 million. As of December 31, 2020, the estimated fair value of the Company’s mortgage debt was $67.5 million, compared to the gross carrying value $64.4 million.

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INCOME TAXES

3 Months Ended

Mar. 31, 2021

INCOME TAXES

INCOME TAXES

6.    INCOME TAXES

The Company’s earnings (losses), other than those generated by the Company’s TRS, are not generally subject to federal corporate and state income taxes due to the Company’s REIT election. The Company did not pay any federal and state income taxes for the periods ended March 31, 2021 and 2020. The Company did not have any uncertain tax positions as of March 31, 2021 or December 31, 2020.

The Company’s TRS generated a net operating loss (“NOL”) for the three months ended March 31, 2021 and the year ended December 31, 2020, which can be carried forward to offset future taxable income.  As of June 30, 2020, the Company recorded a partial valuation allowance against its deferred tax assets of $1.1 million, primarily related to the uncertainty of effects of the ongoing COVID-19 pandemic on hospitality and travel industries.  During the three months ended September 30, 2020, the Company experienced some level of recovery, from the unprecedented lows in April and May 2020, at all of our hotel properties. As a result, the Company revised the partial valuation allowance against deferred tax assets to $600,901 as of September 30, 2020. Based on the Company’s actual results through March 31, 2021, and general industry projections that the hotel industry will return to 2019 levels of activity and RevPAR sometime during 2024 or 2025, the Company expects to fully utilize our NOL to offset future taxable income prior to expiration. As such, the Company has not recorded a valuation allowance against its deferred tax assets as of March 31, 2021. As of December 31, 2020, the Company had a recorded net deferred tax asset of $1,466,942, primarily attributable to its NOLs generated in the prior periods, net of temporary differences primarily related to depreciation. The Company’s NOLs will expire in 2038‑2039 for state tax purposes and will not expire for federal tax purposes. As of March 31, 2021, the tax years 2019 through 2020 remain subject to examination by the U.S. Internal Revenue Service (“IRS”) and various state tax jurisdictions.

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

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RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2021

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

7.    RELATED PARTY TRANSACTIONS

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

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

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

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

Fees and reimbursements earned and payable to the Advisor and its affiliates, for the three months ended March 31, 2021 and 2020, and amounts outstanding and payable as of March 31, 2021 and December 31, 2020, were as follows:

	Incurred
	For the Three Months Ended March 31,
	2021		2020
Fees:
Acquisition fees	$	330,540	$	501,949
Financing fees		330,540		501,949
Asset management fees		248,708		197,165
Performance fees		—		—
	$	909,788	$	1,201,063
Reimbursements:
Offering costs	$	338,187	$	583,926
General and administrative		760,158		813,575
Sales and marketing		44,454		76,153
Acquisition costs		37,931		64,847
Other (income) expense, net		—		282
	$	1,180,730	$	1,538,783

For the three months ended March 31, 2021 and 2020, the Operating Partnership recognized distributions payable to the Advisor in the amount of $71,511 and $60,308, respectively, in connection with the Advisor’s ownership of Series B LP Units.  As of March 31, 2021 and December 31, 2020, the Company had distributions payable to the Advisor $399,408 and $399,270, respectively.  For the three months ended March 31, 2021 and 2020, the Company paid distributions in the amount of $9,831 and $9,409, respectively, to Corey Maple and Norman Leslie in connection with their ownership of 56,899 shares each, of the Company’s common stock. 

The members of the Advisor personally guaranty certain loans of the Company and may receive a guarantee fee of up to 1.0% per annum of the guaranty amount. Mr. Maple, our Chief Executive Officer and Chairman of the Board, is a guarantor of the Company’s loans secured by the hotel properties located in Prattville, Alabama and Southaven, Mississippi, which had original loan amounts of $9.6 million and $13.5 million, respectively, and is a guarantor of the Company’s $5.0 million line of credit which is secured by the hotel properties located in Cedar Rapids, Iowa and Eagan, Minnesota, and 100,000 Common LP Units of Lodging Fund REIT III OP, LP. Mr. Leslie, our President, Chief Investment Officer and Director, is a guarantor of the Company’s loan secured by the Company’s hotel property in Pineville, North Carolina, which had an original loan amount of $9.3 million.  Mr. Maple and Mr. Leslie were also guarantors of the Company’s $3.0 million line of credit, each in the amount of $1.2 million.  That line of credit was closed in November 2020. For the three months ended March 31, 2021, the Company accrued guarantee fees in the amount of $40,189 to each Mr. Maple and Mr. Leslie. The total amount accrued of $391,955 remained unpaid as of March 31, 2021 and is included in due to related parties on the accompanying consolidated balance sheet.  Guarantee fees of $69,334 were assessed for three months ended March 31, 2020.

As of March 31, 2021 and December 31, 2020, the Company had amounts due and payable to the Advisor and its affiliates of $2,127,634 and $1,720,605, respectively, which is included in due to related parties on the accompanying consolidated balance sheets.

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

NHS earns a monthly base management fee for property management services, including overseeing the day-to-day operations of the hotel properties equal to 4% of gross revenue. NHS may also earn an accounting fee of $14.00 per room for accounting services, payable monthly, and an administrative fee equal to 0.60% of gross revenues for administrative and other services. The Company reimburses NHS for certain costs of operating the properties incurred on behalf of the Company. All reimbursements are paid to NHS at cost.

NHS also earns a flat fee of $5,000 per hotel property for due diligence services, including analyzing, evaluating, and reporting on documentation and information received by sellers or contributors during the period of due diligence.  Such fee is waived if, upon acquisition by us, NHS is selected as the management company for the hotel property.  NHS is also reimbursed for actual out-of-pocket costs incurred in providing the due diligence services.

Fees and reimbursements earned and payable to, NHS for the three months ended March 31, 2021 and 2020, and amounts outstanding and payable as of March 31, 2021 and December 31, 2020, were as follows:

	Incurred				Payable as of
	For the Three Months Ended March 31,				March 31,		December 31,
	2021		2020		2021		2020
Fees:
Management fees	$	110,055	$	116,089	$	53,008	$	36,509
Administrative fees		29,090		17,863		19,819		5,648
Accounting fees		16,546		20,820		13,648		10,701
	$	155,691	$	154,772	$	86,475	$	52,858
Reimbursements	$	75,924	$	80,576	$	44,735	$	5,530

One Rep Construction, LLC (“One Rep”)—One Rep is a related party through common management and ownership, as Corey Maple, Norman Leslie, and David Ekman, each hold a 33.33% ownership interest in One Rep. One Rep is a construction management company which provided construction management services to the Company during 2021 and 2020 related to the renovation construction activities at certain hotel properties. For the services provided, One Rep is paid a construction management fee equal to 6% of the total project costs. The Company reimburses One Rep for certain costs incurred on behalf of the Company, and all reimbursements are paid to One Rep at cost. For the three months ended March 31, 2021 and the year ended December 31, 2020, the Company incurred $37,034 and $176,669 of construction management fees payable to One Rep, respectively. As of March 31, 2021 and December 31, 2020, the amounts outstanding and due to One Rep were $69,994 and $34,988, respectively, which is included in due to related parties on the accompanying consolidated balance sheets. 

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FRANCHISE AGREEMENTS

3 Months Ended

Mar. 31, 2021

FRANCHISE AGREEMENTS

FRANCHISE AGREEMENTS

8.    FRANCHISE AGREEMENTS

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

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STOCKHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2021

STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY

9.    STOCKHOLDERS’ EQUITY

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

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

Common Stock

Initial Offering

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

Dividend Reinvestment Plan

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

Distributions

Distributions for the three months ended March 31, 2021 were based on daily record dates and were calculated based on stockholders of record each day during this period at a rate of $0.00191781 per share per day. Distributions for the periods from April 1, 2020 through June 30, 2020 were payable to each stockholder in shares of common stock issued through the DRIP, or at the election of the stockholder, in shares of common stock valued at $10.00 per share.  Distributions for the periods from July 1, 2020 through September 30, 2020, October 1, 2020 through December 31, 2020, and January 1, 2021 through March 31, 2021 were payable to each stockholder 30% in cash (or through the DRIP if then currently enrolled in the DRIP) and 70% in shares of common stock issued through the DRIP, or at the election of the stockholder, in shares of common stock valued at $10.00 per share.  Going forward, the Company expects the board of directors of the Company to authorize and declare distributions, if at all, based on daily record dates and to pay these distributions on a quarterly basis. Distributions will be determined by the board of directors based on the Company’s financial condition and other factors as the board of directors deems relevant, and may be paid in cash or in shares pursuant to the DRIP. The Company has not established a minimum distribution level, and the charter does not require that the Company make distributions to its stockholders.

Share Repurchase Plan

The board of directors has adopted a share repurchase plan that may enable its stockholders to have their shares repurchased in limited circumstances. In its sole discretion, the board of directors could choose to terminate or suspend the plan or to amend its provisions without stockholder approval. The repurchase plan may be reviewed and modified by the board of directors as it deems necessary in its sole discretion.  The price at which the Company will repurchase shares is dependent on the amount of time the holder has owned the shares, and the then current value of the shares.  There are several limitations on the Company’s ability to repurchase shares under the share repurchase plan, including, but not limited to, a limitation that during any calendar year, the maximum number of shares potentially eligible for repurchase can only be the number of shares that the Company could purchase with the amount of net proceeds from the sale of shares under the Company’s dividend reinvestment plan during the prior calendar year. The board of directors may, in its sole discretion, reject any request for repurchase and may, at any time and without stockholder approval, upon 10 business days’ written notice to the stockholders (i) amend, suspend or terminate its share repurchase plan and (ii) increase or decrease the funding available for the repurchase of shares pursuant to our share repurchase plan. There were no repurchases during the three months ended March 31, 2021. During the year ended December 31, 2020, the Company repurchased 64,190 shares, which represents an original investment of $641,898, including $16,898 of DRIP shares, for $590,547.  As of December 31, 2020, $24,032 of the redemption proceeds had not yet been paid and was included in other liabilities on the accompanying consolidated balance sheets.  At March 31, 2021 and December 31, 2020, the Company had $3,695,479 and $208,586, respectively, available for eligible repurchases.

Interval Common Stock

Distributions

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

Repurchase Plan

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

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

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

Interval Share Offering

The Company is offering up to 3,000,000 shares of Interval Common Stock in the Company’s ongoing private offering, which amount may be increased to up to 6,000,000 Interval Shares in the sole discretion of the board of directors. Except as otherwise provided in the offering memorandum, the initial purchase price for the Interval Shares is $10.00 per Interval Share, with Interval Shares purchased in the Company’s dividend reinvestment plan at an initial price of $9.50 per Interval Share.  As of March 31, 2021, the Company had not issued or sold any shares of Interval Common Stock.  

Non-Controlling Interests

The Operating Partnership currently has 4 classes of Limited Partner Units which include the Common Limited Units, the Series B LP Units, the Series T LP Units and the GO Limited Units.  The Series B LP Units are issued to the Advisor and entitle the Advisor to receive annual distributions and an incentive distribution based on the net proceeds received from the sale of the Projects (as defined below).

Non-Controlling Interest – Series T LP Units

The Series T LP Units are expected to be issued to persons who contribute their property interests in certain Projects to the Partnership in exchange for Series T LP Units. The Series T LP Units will have allocations and distributions as determined by the General Partner in its sole discretion at the time of issuance of the Series T LP Units, and any Series T LP Units issued may have different allocations and distributions than other Series T LP Units.  The Series T LP Units will be converted into Common Limited Units beginning 36 months after their issuance, and will automatically convert into Common Limited Units upon a Termination Event. As of March 31, 2021, the Company had issued 1,103,758 Series T LP Units.

Non-Controlling Interest – Series GO LP Units

Distributions

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

Upon the sale of all or substantially all of the GP Units held by LF REIT III or any sale, exchange or merger of LF REIT III or the Operating Partnership (each, a “Termination Event”), or with respect to proceeds received upon the sale or exchange of a property which are not reinvested in additional properties, distributions will be made between the Series GO LP Units and the other Participating Partnership Units as follows: (i) first, to the Participating Partnership Units in proportion to their Partnership Units until the GP Units (the Common LP Units and the Interval Units) have received 70% of their original capital contributions (determined on a grossed-up basis) reduced by any prior distributions received in connection with the sale of a property in which the sale proceeds are not reinvested in additional properties; (ii) second, to the Participating Partnership Units in proportion to their Partnership Units until each Participating Partnership Unit has received a Participating Amount ($1.00 for any period after December 31, 2020, $2.00 for any period after December 31, 2021 and $3.00 for any period after December 31, 2022, determined as a singular determination and not a cumulative determination); (iii) third, to the Participating Partnership Units (other than the Series GO LP Units) in proportion to their Partnership Units until the GP Units have received any remaining unreturned original capital contributions; (iv) fourth, to the Series GO Limited Partners in proportion to their Series GO LP Units until the amount distributed to the Series GO Limited Partners per Series GO LP Unit is equal to the amount distributed to the Participating Partnership Units per Participating Partnership Unit (other than the Series GO Limited Partners) pursuant to (iii); and (v) thereafter, to the Participating Partnership Units in proportion to their Participating Partnership Units.

GO Unit Offering

On June 15, 2020, the Operating Partnership commenced a private offering of limited partnership units in the OP, designated as Series GO LP Units, with a maximum offering of $20,000,000, which may be increased to $30,000,000 in the sole discretion of LF REIT III as the General Partner of the OP, to accredited investors only, pursuant to a confidential private placement memorandum exempt from registration under the Securities Act of 1933, as amended. As of March 31, 2021, the Company had issued and sold 1,258,817 Series GO LP Units and received aggregate proceeds of $8.7 million.

Non-Controlling Interest – Series B LP Units

Distributions

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

Series B LP Unit Offering

As of March 31, 2021, the Operating Partnership has issued 1,000 Series B LP Units to the Advisor.

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2021

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

10.  COMMITMENTS AND CONTINGENCIES

Impact of COVID-19 — As further discussed in Note 2, the full extent of the impact of COVID-19 on the U.S. and world economies generally, and the Company’s business in particular, is uncertain. As of March 31, 2021, no contingencies have been recorded on the Company’s consolidated balance sheet as a result of COVID-19, however as the global pandemic continues and the economic implications worsen, it may have long-term impacts on the Company’s financial condition, results of operations, and cash flows. Refer to Note 2 for further discussion of COVID-19.

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

In December 2020, the Company received notice that the SEC is conducting an inquiry into the Company’s reimbursement of certain expenses to the Advisor and the Company’s disclosure of the reimbursement policies and procedures.  The Company has been and intends to continue cooperating with the inquiry.  At this time, the Company is unable to estimate the cost of complying with the inquiry or its outcome.

Property Acquisitions

The seller of the Pineville Property, may be entitled to additional cash consideration if the property exceeds certain performance criteria based on increases in the property’s net operating income (“NOI”) for a selected 12-month period of time. At any time during the period beginning April 1, 2021 through the date of the final NOI determination (on or about April 30, 2023), the seller of the property may make a one-time election to receive the additional consideration. The variable amount of the additional consideration, if any, is based on the excess of the property’s actual NOI over a base NOI for the applicable 12-month calculation period divided by the stated cap rate for such calculation period. As of March 31, 2021, no additional consideration had paid to the seller of the Pineville Property, and no election to receive the additional consideration had been made.

In November 2019, the Company entered into a purchase agreement, to acquire 3 hotel properties in Pennsylvania, from a third party group of sellers (collectively, the “PA Sellers”), for $46.9 million plus closing costs, subject to adjustment as provided in the purchase agreement.  The Company has deposited a total of $1.5 million into escrow as earnest money (the “Earnest Money”) pending the closing or termination of the purchase agreement. In July 2020, the Company and the PA Sellers exchanged written notices of default with one another in accordance with the terms of the purchase agreement. The notice from each party was based on allegations that the other party failed to perform its obligations under the purchase agreement. On October 27, 2020, the PA Sellers filed a lawsuit against Lodging Fund REIT III OP, LP in the Supreme Court of Pennsylvania alleging breach of the purchase agreement. The PA Sellers seek the full amount of the Earnest Money and recovery of fees and expenses incurred in bringing the lawsuit. The lawsuit is in an early stage and the likelihood of any material loss in connection with the case cannot be determined at this time. As a result, no amount was recorded related to this matter as of March 31, 2021, the Earnest Money remained in escrow and is included in restricted cash on the accompanying consolidated balance sheets.

Properties Under Contract

On February 17, 2021, the Operating Partnership entered into a Contribution Agreement (the “Houston Contribution Agreement”), pursuant to which the Contributors agreed to contribute the 182-room Hilton Garden Inn Houston Bush Intercontinental Airport hotel in Houston, Texas (the “Houston Property”) to the Operating Partnership. The aggregate contractual consideration for the Houston Property is approximately $20,000,000 plus closing costs, subject to adjustment as provided in the Houston Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the Houston Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T LP Units of the Operating Partnership and the payment by the Operating Partnership of cash. As required by the Houston Contribution Agreement, the Operating Partnership has deposited $50,000 into escrow as earnest money pending the closing or termination of the Houston Contribution Agreement. Except in certain circumstances described in the Houston Contribution Agreement, if the Operating Partnership fails to perform its obligations under the Houston Contribution Agreement, it will forfeit the earnest money. See “-Subsequent Events” below for additional information regarding this agreement.

On March 8, 2021, the Operating Partnership entered into a Contribution Agreement (the “Corpus Christi Contribution Agreement”), for the contribution of the 88-room Fairfield Inn & Suites Corpus Christi Aransas Pass hotel in Aransas Pass, Texas (the “Corpus Christi Property”) to the Operating Partnership. The aggregate contractual consideration for the Corpus Christi Property is approximately $9,800,000 plus closing costs, subject to adjustment as provided in the Corpus Christi Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the Corpus Christi Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T LP Units of the Operating Partnership and the payment by the Operating Partnership of cash. As required by the Corpus Christi Contribution Agreement, the Operating Partnership has deposited $50,000 into escrow as earnest money pending the closing or termination of the Corpus Christi Contribution Agreement. Except in certain circumstances described in the Corpus Christi Contribution Agreement, if the Operating Partnership fails to perform its obligations under the Corpus Christi Contribution Agreement, it will forfeit the earnest money.

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

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2021

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

11. SUBSEQUENT EVENTS

Distributions Declared or Paid

On April 9, 2021, the Company paid distributions totaling $1.4 million, consisting of $0.3 million in cash

distributions and $1.1 million of distributions paid in shares of common stock issued through the DRIP, for daily

record dates in the period from January 1, 2021 through March  31, 2021.

Recent Property Acquisitions

On May 12, 2021, the Operating Partnership acquired the Holiday Inn El Paso West Sunland Park hotel property located in El Paso, Texas (the “Holiday Inn El Paso”) pursuant to an Amended and Restated Contribution Agreement (the “El Paso Amended Contribution Agreement”), dated as of the same date. The aggregate contractual consideration under the El Paso Amended Contribution Agreement was approximately $9.7 million plus closing costs, subject to adjustment as provided in the Amended Contribution Agreement. The consideration consists of a new loan entered into by subsidiaries of the Operating Partnership with EPH Development Fund LLC, which is the lender under the existing loan secured by the Holiday Inn El Paso (the “Lender”) of $7.9 million secured by the Holiday Inn El Paso (the “El Paso Loan”), the issuance by the Operating Partnership of 150,000 Series T Limited Units of the Operating Partnership, and the payment by the Operating Partnership of $300,000 in cash. The El Paso Loan is evidenced by a promissory note and has a fixed interest rate of 5.0% per annum.  The El Paso Loan matures on May 15, 2023, which may be extended by us until May 15, 2024 upon satisfaction of certain conditions contained in the El Paso Loan, including no then-existing event of default and satisfaction of certain financial covenants. The El Paso Loan requires monthly payments of interest-only throughout the term, with the outstanding principal and interest due at maturity. We have the right to prepay the El Paso Loan in full subject to certain fees, costs and conditions contained in the loan documents. In connection with the acquisition, we assumed the existing management agreement with Elevation Hotel Management, LLC (“EHM”) (as amended, the “EHM Management Agreement”), to provide property management and hotel operations management services for the Holiday Inn El Paso.  The EHM Management Agreement has an initial term of 90 days after its effective date. Pursuant to the EHM Management Agreement, we agree to pay to EHM a management fee equal to 3% of total revenues plus an accounting fee of $1,800 per month for accounting services.  As a condition to the El Paso Loan, we must enter into a management agreement with NHS, LLC dba National Hospitality Services (“NHS”), an affiliate of the Advisor which is wholly-owned by Norman Leslie, a director and executive officer of the Company and a principal of the Advisor, to act as co-manager of the Holiday Inn El Paso, and amend the EHM Management Agreement such that EHM will act as co-manager of the Holiday Inn El Paso.

The Company funded the acquisition of the Holiday Inn El Paso with proceeds from the Company’s ongoing private offering, Series T units issued to the Contributor as described above, and a new loan secured by the Holiday Inn El Paso.  The Holiday Inn El Paso is a 175-room hotel property. 

Properties Under Contract

On April 1, 2021, the Operating Partnership entered into an Amended and Restated Contribution Agreement (the “Amended Contribution Agreement”), for the contribution of the 182-room Hilton Garden Inn Houston Bush Intercontinental Airport hotel in Houston, Texas (the “Houston Hilton Garden Inn Property”) to the Operating Partnership. The Amended Contribution Agreement amends and restates that certain Contribution Agreement entered into among the Operating Partnership and the contributors, dated as of February 17, 2021. The aggregate consideration for the Houston Hilton Garden Inn Property under the Amended Contribution Agreement is approximately $19,700,000 plus closing costs, subject to adjustment as provided in the Amended Contribution Agreement. The majority of the consideration consists of the assumption or refinancing by the Operating Partnership of existing debt secured by the Houston Hilton Garden Inn Property. The remaining consideration consists of the issuance by the Operating Partnership of Series T Limited Units of the Operating Partnership. Pursuant to the Amended Contribution Agreement, the Operating Partnership is responsible for up to $300,000 of certain closing costs to be agreed upon by the parties. As required by the Amended Contribution Agreement, the Operating Partnership has deposited $50,000 into escrow as earnest money pending the closing or termination of the Amended Contribution Agreement. Except in certain circumstances described in the Amended Contribution Agreement, if the Operating Partnership fails to perform its obligations under the Amended Contribution Agreement, it will forfeit the earnest money.

This pending acquisition is subject to the Company’s completion of satisfactory due diligence and other closing conditions, including the Operating Partnership’s assumption or refinancing of the existing debt secured by the Houston Hilton Garden Inn Property. There can be no assurance that the Operating Partnership will complete the acquisition of the Houston Hilton Garden Inn Property.

Amendment of $5.0 million Line of Credit

On May 6, 2021, the Company amended its $5.0 million revolving line of credit to extend the maturity date to May 10, 2022 and to incorporate an interest rate floor of 4.0%.

Status of the Offering

As of May 17, 2021, the Company’s private offering remained open for new investment, and since the inception of the offering the Company had issued and sold 8,006,215 shares of common stock, including 622,904 shares issued pursuant to the DRIP, resulting in the receipt of gross offering proceeds of $77.8 million.

Status of the GO Unit Offering

As of May 17, 2021, the Company’s GO Unit Offering remained open for new investment, and since the inception of the offering the Company had issued and sold 1,390,615 Series GO LP Units, resulting in the receipt of gross GO Unit Offering proceeds of $9.6 million.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2021

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation—The accompanying unaudited consolidated financial statements and related notes have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the SEC applicable to interim financial information. Accordingly, the unaudited financial statements do not include all of the information and footnotes required by GAAP for audited financial statements. The financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, and which, in the opinion of management, are necessary for a fair and consistent presentation of the results for such periods. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.

The consolidated financial statements include the accounts of LF REIT III, the OP and its wholly-owned subsidiaries. For the controlled subsidiaries that are not wholly-owned, the interests owned by an entity other than the Company represent a noncontrolling interest, which is presented separately in the consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

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

During the first quarter of 2020, there was a global outbreak of a novel coronavirus, or COVID-19, which has spread to over 200 countries and territories, including the United States, and has spread to every state in the United States. The World Health Organization has designated COVID-19 as a pandemic, and numerous countries, including the United States, have declared national emergencies with respect to COVID-19. The impact of the outbreak on the U.S. and world economies has been evolving, and as cases of COVID-19 have continued to be identified in additional countries, there have been international mandates, and mandates in the United States from federal, state and local authorities, instituting quarantines and stay-at-home orders, closing schools, and instituting restrictions on travel and/or limiting operations of non-essential offices and retail centers. Such actions are adversely impacting many industries, with the travel and hospitality industries being particularly adversely affected. Although the Company’s hotel properties have remained open through the pandemic in 2020 and 2021, the Company’s occupancy levels have been lower than historic levels. The outbreak could have a continued adverse impact on economic and market conditions and could trigger a continued slowdown in leisure and business travel, which is adversely impacting the travel and hospitality industries. The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions. The Company believes the estimates and assumptions underlying the Company’s consolidated financial statements are reasonable and supportable based on the information available as of March 31, 2021, however uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of March 31, 2021 inherently less certain than they would be absent the current and potential impacts of COVID-19.

Revenue Recognition

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

Investment in Hotel Properties

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

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

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

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

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

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

Advertising Costs

Advertising Costs – The Company expenses advertising costs as incurred.  These costs represent the expense for franchise advertising and reservation systems under the terms of the hotel management and franchise agreements and expenses that are directly attributable to advertising and promotion. Advertising expense was $136,995 and $169,959 for the three months ended March 31, 2021 and 2020, respectively, and is included in sales and marketing in the consolidated statement of operations.

Non-controlling Interest

Non-controlling Interest—Non-controlling interests represent the portion of equity related to shares with limited voting interest. Non-controlling interests are reported in the consolidated balance sheets within equity, separate from stockholders’ equity. Revenue and expenses attributable to both the Company and the non-controlling interests are reported in the consolidated statements of operations, with net income or loss attributable to non-controlling interests reported separately from net income or loss attributable to the Company.

Cash and Cash Equivalents

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

Restricted Cash

Restricted Cash—Restricted cash consists of earnest money deposits related to hotel property acquisitions, as well as certain funds maintained in escrow accounts to fund future payments for insurance, property tax obligations, and reserves for future capital expenditures, as required by our debt agreements.  As of March 31, 2021 and December 31, 2020, restricted cash on the accompanying consolidated balance sheets included $1.8 million and $1.85 million, respective, of earnest money deposits.

Accounts Receivable

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

Deferred Financing Costs

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

Offering Costs

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

Property Operations Expenses

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

Property Management Fees

Property Management Fees—Property management fees include expenses incurred for management services provided for the day-to-day operations of our hotel properties, which are generally charged at a rate of 4% of gross revenues. Property management fees also include asset management fees, which may be charged at an annual rate of up to 0.75% of gross assets and are paid to the Advisor.  For the three months ended March 31, 2021 and 2020, asset management fees were charged only on the value of investments in hotel properties.

Franchise Fees

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

Acquisition Costs

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

Net Loss Per Share of Common Stock

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

Income Taxes

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

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

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

Fair Value Measurement

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

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

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

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

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

Recent Accounting Pronouncements

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

In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014‑09, Revenue from Contracts with Customers (Topic 606). The core principle of the new standard is that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014‑09 is effective for fiscal years beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company adopted ASU 2014‑09 as of January 1, 2019 and has applied it on a modified retrospective basis. Based on the Company’s completed assessment of this updated accounting guidance, it does not materially affect the amount or timing of revenue recognition for the Company and the Company did not recognize any cumulative-effect adjustment as a result of adoption.

In February 2016, the FASB issued ASU No. 2016‑02, “Leases” (“ASU No. 2016‑02”) (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU No. 2016‑02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right of use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales type leases, direct financing leases and operating leases. ASU No. 2016‑02 is effective for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. We plan to adopt ASU 2016‑02 for the fiscal year ending December 31, 2022, and for interim periods beginning on January 1, 2022. We do not anticipate any reclassifications or significant impacts on our consolidated financial statements as a result of this adoption.

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INVESTMENT IN HOTEL PROPERTIES (Tables)

3 Months Ended

Mar. 31, 2021

INVESTMENT IN HOTEL PROPERTIES

Schedule of investment in hotel properties

	March 31,		December 31,
	2021		2020
Land and land improvements	$	14,730,590	$	10,324,772
Building and building improvements		103,262,396		85,213,846
Furniture, fixtures, and equipment		10,721,289		8,927,694
Construction in progress		1,086,171		990,452
Investment in hotel properties, at cost		129,800,446		105,456,764
Less: accumulated depreciation		(5,715,332)		(4,712,578)
Investment in hotel properties, net	$	124,085,114	$	100,744,186

Schedule of acquisitions of hotel properties

2021 Acquisitions
				Number
			Date	of Guest	Purchase			Transaction				%
Hotel	Property Type	Location	Acquired	Rooms	Price			Costs		Total		Interest
Courtyard by Marriott (the "Aurora Property")	Select Service	Aurora, CO	February 4, 2021	141	$	23,610,000	(1)	$	458,129	$	24,068,129	100	%
				141	$	23,610,000		$	458,129	$	24,068,129

(1) Includes the issuance of 1,103,758 Series T LP Units of the Operating Partnership

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

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

Schedule of aggregate purchase price for the hotel properties

	March 31,		December 31,
	2021		2020
Land and land improvements	$	4,400,098	$	2,576,166
Building and building improvements		18,048,551		31,605,174
Furniture, fixtures, and equipment		1,619,480		3,007,846
Total assets acquired		24,068,129		37,189,186
Premium on assumed debt		—		(597,665)
Total liabilities assumed		—		(597,665)
Total purchase price(1)		24,068,129		36,591,521
Assumed mortgage debt		—		9,400,772
Net purchase price	$	24,068,129	$	27,190,749

Total purchase price includes purchase price plus all transaction costs.

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DEBT - (Tables)

3 Months Ended

Mar. 31, 2021

DEBT

Schedule of debt outstanding

	Interest		Outstanding		Outstanding
	Rate as of		Balance as of		Balance as of
	March 31,	Maturity	March 31,		December 31,
Hotel Property	2021	Date	2021		2020
Holiday Inn Express - Cedar Rapids(1)	5.33%	09/01/2024	$	5,858,134	$	5,858,134
Hampton Inn & Suites - Pineville	5.13%	06/06/2024		8,925,255		8,973,775
Hampton Inn - Eagan	4.60%	01/01/2025		9,317,589		9,317,589
Home2 Suites - Prattville(1)	4.13%	08/01/2024		9,591,110		9,647,085
Home2 Suites - Lubbock	4.69%	10/06/2026		7,737,573		7,792,602
Fairfield Inn & Suites - Lubbock	4.93%	04/06/2029		9,235,247		9,272,870
Homewood Suites - Southaven(1)	3.70%	03/03/2025		13,586,110		13,586,110
Courtyard by Marriott - Aurora	7.00%	02/05/2024		15,000,000		—
Total Mortgage Debt				79,251,018		64,448,165
Premium on assumed debt, net				821,922		854,928
Deferred financing costs, net				(1,614,013)		(1,378,374)
Net Mortgage				78,458,927		63,924,719
$3.0 million line of credit(2)	—	11/22/2020		—		—
$5.0 million line of credit	3.75%(3)	5/10/2022		—		—
Total Lines of Credit				—		—
PPP Loans	1.00%	Various(4)		801,800		763,100
Debt, net			$	79,260,727	$	64,687,819

⁽¹⁾ Loan is interest-only for the first 12 months after origination, then monthly principal and interest payments, with a balloon payment at maturity.

⁽²⁾ Loan was not renewed at maturity.

⁽³⁾ Variable interest rate equal to U.S. Prime Rate plus 0.50%. One May 6, 2021, the loan was amended to incorporate an interest rate floor of 4.0%

⁽⁴⁾ Each of the currently outstanding PPP loans has a five year term. All six PPP loans which were outstanding as of December 31, 2020 were forgiven in February 2021.

Schedule of future minimum principal payments

2021	$	861,353
2022		1,544,938
2023		1,737,149
2024		39,242,552
2025		21,579,995
Thereafter		15,086,831
		80,052,818
Premium on assumed debt, net		821,922
Deferred financing costs, net		(1,614,013)
	$	79,260,727

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RELATED PARTY TRANSACTIONS (Tables)

3 Months Ended

Mar. 31, 2021

Advisor And Affiliates

Related Party Transactions

Schedule of fees and reimbursements incurred and payable

	Incurred
	For the Three Months Ended March 31,
	2021		2020
Fees:
Acquisition fees	$	330,540	$	501,949
Financing fees		330,540		501,949
Asset management fees		248,708		197,165
Performance fees		—		—
	$	909,788	$	1,201,063
Reimbursements:
Offering costs	$	338,187	$	583,926
General and administrative		760,158		813,575
Sales and marketing		44,454		76,153
Acquisition costs		37,931		64,847
Other (income) expense, net		—		282
	$	1,180,730	$	1,538,783

NHS

Related Party Transactions

Schedule of fees and reimbursements incurred and payable

	Incurred				Payable as of
	For the Three Months Ended March 31,				March 31,		December 31,
	2021		2020		2021		2020
Fees:
Management fees	$	110,055	$	116,089	$	53,008	$	36,509
Administrative fees		29,090		17,863		19,819		5,648
Accounting fees		16,546		20,820		13,648		10,701
	$	155,691	$	154,772	$	86,475	$	52,858
Reimbursements	$	75,924	$	80,576	$	44,735	$	5,530

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ORGANIZATION - (Details)	3 Months Ended		12 Months Ended
	Mar. 31, 2021 USD ($) segment item $ / shares shares	Mar. 31, 2020 USD ($)	Dec. 31, 2020 USD ($) $ / shares shares	Jun. 15, 2020 USD ($)	Apr. 29, 2020 USD ($) $ / shares shares	Jun. 01, 2018 USD ($) $ / shares
Organization
Number of reportable segments | segment	1
Number of voting classes of partnership units | item	3
Number of non voting classes of partnership units | item	3
Common stock, par value (in dollars per share) | $ / shares	$ 0.01		$ 0.01
Common stock, shares authorized | shares	900,000,000		900,000,000
Stock repurchased, original investment			$ 641,898
Value of stock repurchased		$ 92,000	$ 590,547
Number of shares repurchased | shares	0		64,190
Accrued share repurchases	$ 0
Proceeds from issuance of units	$ 4,201,300
Other Liabilities
Organization
Accrued share repurchases			$ 24,032
DRIP
Organization
Value of stock repurchased			$ 16,898
Interval Common Stock
Organization
Common stock, par value (in dollars per share) | $ / shares					$ 0.01
Number of shares of common stock designated as non-voting shares of Interval Common Stock | shares					7,000,000
Private offering
Organization
Common stock, par value (in dollars per share) | $ / shares						$ 0.01
Maximum offering						$ 100,000,000
Cumulative number of shares issued | shares	7,872,134
Cumulative number of shares issued pursuant to the DRIP | shares	506,688
Cumulative gross proceeds from issuance of stock	$ 76,600,000
Private offering | Interval Common Stock
Organization
Common stock, par value (in dollars per share) | $ / shares					$ 0.01
Number of shares of common stock designated as non-voting shares of Interval Common Stock | shares					7,000,000
Maximum offering					$ 30,000,000
Maximum offering per the sole discretion of the Company's board of directors					$ 60,000,000
Series GO LP Units | Private offering
Organization
Maximum offering				$ 20,000,000
Maximum offering per the sole discretion of the General Partner				$ 30,000,000
Cumulative number of units issued since inception of the Offering | shares	1,258,817
Cumulative gross proceeds from issuance of units since inception of the Offering	$ 8,700,000
Operating Partnership | Common LP Units
Organization
Number of outstanding partnership units | shares	0		0
Operating Partnership | Series B Limited Partnership Units
Organization
Number of outstanding partnership units | shares	1,000		1,000
Operating Partnership | Series T LP Units
Organization
Number of outstanding partnership units | shares	1,103,758		0
Operating Partnership | Series GO LP Units
Organization
Number of outstanding partnership units | shares	1,258,817		654,868

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Advertising Costs
Advertising Expense	$ 136,995	$ 169,959
Management Fees
Management fees (as a percent)	4.00%
Asset management fees (as a percent)	0.75%
Acquisition Costs
Acquisition fee (as a percent)	1.40%
Income Taxes
Non eligibility term for REIT non compliance	4 years
Restricted Cash
Restricted Cash
Amount deposited in escrow as earnest money	$ 1,800,000		$ 1,850,000
Land improvements
Investment in Hotel Properties
Estimated useful lives	15 years
Building improvements
Investment in Hotel Properties
Estimated useful lives	15 years
Buildings
Investment in Hotel Properties
Estimated useful lives	40 years
Furniture, fixtures, and equipment | Minimum
Investment in Hotel Properties
Estimated useful lives	3 years
Furniture, fixtures, and equipment | Maximum
Investment in Hotel Properties
Estimated useful lives	7 years

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INVESTMENT IN HOTEL PROPERTIES - Summary (Details)	Mar. 31, 2021 USD ($) state property room	Dec. 31, 2020 USD ($)
Investment in hotel properties consisted of the following:
Land and land improvements	$ 14,730,590	$ 10,324,772
Building and building improvements	103,262,396	85,213,846
Furniture, fixtures, and equipment	10,721,289	8,927,694
Construction in progress	1,086,171	990,452
Investment in hotel properties, at cost	129,800,446	105,456,764
Less: accumulated depreciation	(5,715,332)	(4,712,578)
Investment in hotel properties, net	$ 124,085,114	$ 100,744,186
Other disclosures
Number of hotel properties owned | property	8
Aggregate number of rooms in hotel properties | room	847
Number of states where hotel properties are owned | state	7

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INVESTMENT IN HOTEL PROPERTIES - Acquisitions (Details)				3 Months Ended	12 Months Ended
	Feb. 04, 2021 USD ($) room shares	Feb. 21, 2020 USD ($) room	Jan. 08, 2020 USD ($) room	Mar. 31, 2021 USD ($) property room	Dec. 31, 2020 USD ($) property room
Acquisitions
Number of rooms | room				141	200
Purchase Price				$ 23,610,000	$ 35,650,000
Transaction costs				458,129	941,521
Total				24,068,129	36,591,521
Other disclosures
Total Cost				$ 124,085,114	$ 100,744,186
Management agreement, automatic renewal term				5 years
Fairfield Inn & Suites (the "Lubbock Property")
Acquisitions
Number of rooms | room			101
Purchase Price			$ 15,150,000
Transaction costs			496,431
Total			$ 15,646,431
Interest (as a percent)			100.00%
Homewood Suites (the "Southaven Property")
Acquisitions
Number of rooms | room		99
Purchase Price		$ 20,500,000
Transaction costs		445,090
Total		$ 20,945,090
Interest (as a percent)		100.00%
Courtyard by Marriott (the Aurora Property) [Member]
Acquisitions
Number of rooms | room	141
Purchase Price	$ 23,610,000
Transaction costs	458,129
Total	$ 24,068,129
Interest (as a percent)	100.00%
Courtyard by Marriott (the Aurora Property) [Member] | Series T LP Units
Other disclosures
Consideration (in shares) | shares	1,103,758
Asset Acquisitions 2021
Other disclosures
Number of properties acquired | property				1
Asset Acquisitions 2020
Other disclosures
Number of properties acquired | property					2
Aurora Hotel Properties
Other disclosures
Total Cost	$ 23,600,000
Aurora Hotel Properties | Series T LP Units
Other disclosures
Consideration (in shares) | shares	1,103,758
Aurora Hotel Properties | Series T LP Units | Minimum
Other disclosures
Time period for conversion of units	36 months
Aurora Hotel Properties | Series T LP Units | Maximum
Other disclosures
Time period for conversion of units	48 months

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INVESTMENT IN HOTEL PROPERTIES - Purchase Price Allocation (Details) - Nonrecurring - USD ($)	Mar. 31, 2021	Dec. 31, 2020
2021 Acquisitions
INVESTMENT IN HOTEL PROPERTIES
Land and land improvements	$ 4,400,098
Building and building improvements	18,048,551
Furniture, fixtures, and equipment	1,619,480
Total assets acquired	24,068,129
Total purchase price	24,068,129
Net purchase price	$ 24,068,129
2020 Acquisitions
INVESTMENT IN HOTEL PROPERTIES
Land and land improvements		$ 2,576,166
Building and building improvements		31,605,174
Furniture, fixtures, and equipment		3,007,846
Total assets acquired		37,189,186
Premium on assumed debt		(597,665)
Total liabilities assumed		(597,665)
Total purchase price		36,591,521
Assumed mortgage debt		9,400,772
Net purchase price		$ 27,190,749

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DEBT - Lines of Credit (Details) - Revolving line of credit - USD ($)		3 Months Ended
	Aug. 22, 2018	Mar. 31, 2021	Dec. 31, 2020	Feb. 10, 2020
Lender One
Debt
Revolving line of credit	$ 3,000,000	$ 3,000,000	$ 3,000,000
Partnership units pledged	300,000
Lender One | Corey Maple
Debt
Line of credit guarantee amount		1,200,000
Line of credit, guarantee amount		1,200,000
Lender One | Norman Leslie
Debt
Line of credit guarantee amount		1,200,000
Line of credit, guarantee amount		1,200,000
Lender One | Minimum
Debt
Variable interest rate (as a percent)	5.00%
Lender One | U.S. Prime Rate
Debt
Basis spread (as a percent)	1.00%
Lender Three
Debt
Revolving line of credit		$ 5,000,000		$ 5,000,000
Partnership units pledged				100,000
Variable interest rate (as a percent)		3.75%
Outstanding amount		$ 0
Interest rate (as a percent)		4.00%
Lender Three | U.S. Prime Rate
Debt
Basis spread (as a percent)		0.50%

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DEBT - Mortgage Debt and Loans (Details)			1 Months Ended			3 Months Ended
	Oct. 02, 2020 loan	Sep. 25, 2020 loan	Feb. 28, 2021 USD ($) loan	Jan. 31, 2021 USD ($) loan	Apr. 30, 2020 USD ($) loan	Mar. 31, 2021 USD ($) property loan	Dec. 31, 2020 USD ($)	Jul. 31, 2020 USD ($)	Mar. 31, 2020 USD ($)	Feb. 21, 2020 USD ($)	Jul. 11, 2019 USD ($)	Jun. 19, 2019 USD ($)	Mar. 05, 2019 USD ($)
Debt
Outstanding balance									$ 80,052,818
Mortgage Debt
Debt
Number of properties as security for mortgage debt | property						8
Weighted-average interest rate (as a percent)						4.54%
Number of variable interest rate loans | loan						1
Number of fixed interest rate loans | loan						7
Effective interest rate						7.00%
Outstanding balance						$ 79,251,018	$ 64,448,165
Mortgage Debt | Minimum
Debt
Fixed interest rate (as a percent)						3.70%
Mortgage Debt | Maximum
Debt
Fixed interest rate (as a percent)						5.33%
Mortgage Debt | LIBOR
Debt
Basis spread (as a percent)						6.00%
Mortgage Debt | LIBOR | Minimum
Debt
Basis spread (as a percent)						1.00%
PPP Loans
Debt
Principal amount				$ 716,400
Term of loan			5 years	5 years
Interest rate (as a percent)				1.00%	1.00%	1.00%
Interest deferral period				16 months
Number of PPP loans cover period ended | loan	4	2
Number of unsecured promissory notes | loan				6	6
Outstanding balance					$ 763,100	$ 801,800	763,100
Percentage of loan forgiven			100.00%
Number of loans forgiven | loan			6
PPP Loans | Minimum
Debt
Term of loan					2 years
PPP Loans | Maximum
Debt
Term of loan					5 years
Southaven TRS | PPP Loans
Debt
Principal amount			$ 85,400
Term of loan			5 years
Interest rate (as a percent)			1.00%
Interest deferral period			16 months
Holiday Inn Express (the "Cedar Rapids Property") | Mortgage Debt
Debt
Principal amount													$ 5,900,000
Interest rate (as a percent)						5.33%
Outstanding balance						$ 5,858,134	5,858,134
Hampton Inn (the "Eagan Property") | Mortgage Debt
Debt
Principal amount												$ 9,400,000
Interest rate (as a percent)						4.60%
Outstanding balance						$ 9,317,589	9,317,589
Home2 Suites (the "Prattville Property")
Debt
Principal amount						$ 9,600,000
Home2 Suites (the "Prattville Property") | Mortgage Debt
Debt
Principal amount											$ 9,600,000
Accrued interest paid-in-kind								$ 100,878
Minimum cash balance required during forbearance period							155,000
Cash balance held by borrower subsidiary entities							831,379
Interest rate (as a percent)						4.13%
Outstanding balance						$ 9,591,110	9,647,085
Homewood Suites (the "Southaven Property")
Debt
Principal amount						$ 13,500,000
Homewood Suites (the "Southaven Property") | Mortgage Debt
Debt
Principal amount										$ 13,500,000
Accrued interest paid-in-kind								$ 126,110
Minimum cash balance required during forbearance period							225,000
Cash balance held by borrower subsidiary entities							1,498,889
Interest rate (as a percent)						3.70%
Outstanding balance						$ 13,586,110	$ 13,586,110

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DEBT - Summary of Debt (Details)		3 Months Ended
	Aug. 22, 2018 USD ($)	Mar. 31, 2021 USD ($)	Feb. 28, 2021 loan	Jan. 31, 2021	Dec. 31, 2020 USD ($)	Apr. 30, 2020 USD ($)	Mar. 31, 2020 USD ($)	Feb. 10, 2020 USD ($)
Outstanding Debt:
Outstanding balance							$ 80,052,818
Premium on assumed debt, net		$ 821,922			$ 854,928		821,922
Deferred financing costs, net		(1,614,013)			(1,378,374)		(1,614,013)
Debt, net		79,260,727			64,687,819		$ 79,260,727
Lender One | Revolving line of credit
Outstanding Debt:
Line of credit	$ 3,000,000	3,000,000			3,000,000
Lender One | Revolving line of credit | Minimum
Outstanding Debt:
Interest rate (as a percent)	5.00%
Lender One | Revolving line of credit | U.S. Prime Rate
Outstanding Debt:
Basis spread (as a percent)	1.00%
Lender Three | Revolving line of credit
Outstanding Debt:
Line of credit		$ 5,000,000						$ 5,000,000
Interest rate (as a percent)		3.75%
Lender Three | Revolving line of credit | U.S. Prime Rate
Outstanding Debt:
Basis spread (as a percent)		0.50%
Mortgage Debt
Outstanding Debt:
Outstanding balance		$ 79,251,018			64,448,165
Debt, net		$ 78,458,927			63,924,719
PPP Loans
Outstanding Debt:
Interest rate (as a percent)		1.00%		1.00%		1.00%
Outstanding balance		$ 801,800			763,100	$ 763,100
Number of loans forgiven | loan			6
Holiday Inn Express (the "Cedar Rapids Property") | Mortgage Debt
Outstanding Debt:
Interest rate (as a percent)		5.33%
Outstanding balance		$ 5,858,134			5,858,134
Hampton Inn & Suites(the "Pineville Property") | Mortgage Debt
Outstanding Debt:
Interest rate (as a percent)		5.13%
Outstanding balance		$ 8,925,255			8,973,775
Hampton Inn (the "Eagan Property") | Mortgage Debt
Outstanding Debt:
Interest rate (as a percent)		4.60%
Outstanding balance		$ 9,317,589			9,317,589
Home2 Suites (the "Prattville Property") | Mortgage Debt
Outstanding Debt:
Interest rate (as a percent)		4.13%
Outstanding balance		$ 9,591,110			9,647,085
Home2 Suites (the “Lubbock Home2 Property”) | Mortgage Debt
Outstanding Debt:
Interest rate (as a percent)		4.69%
Outstanding balance		$ 7,737,573			7,792,602
Fairfield Inn & Suites - Lubbock | Mortgage Debt
Outstanding Debt:
Interest rate (as a percent)		4.93%
Outstanding balance		$ 9,235,247			9,272,870
Homewood Suites (the "Southaven Property") | Mortgage Debt
Outstanding Debt:
Interest rate (as a percent)		3.70%
Outstanding balance		$ 13,586,110			$ 13,586,110
Courtyard by Marriott - Aurora | Mortgage Debt
Outstanding Debt:
Interest rate (as a percent)		7.00%
Outstanding balance		$ 15,000,000

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DEBT - Future Minimum Payments (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020	Mar. 31, 2020
Future minimum payments
2021			$ 861,353
2022			1,544,938
2023			1,737,149
2024			39,242,552
2025			21,579,995
Thereafter			15,086,831
Total			80,052,818
Premium on assumed debt, net	$ 821,922	$ 854,928	821,922
Deferred financing costs, net	(1,614,013)	(1,378,374)	(1,614,013)
Debt, net	$ 79,260,727	$ 64,687,819	$ 79,260,727

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020	Mar. 31, 2020
Fair value of financial instruments
Debt			$ 80,052,818
Mortgage Debt
Fair value of financial instruments
Fair value	$ 83,400,000	$ 67,500,000
Debt	$ 79,251,018	$ 64,448,165

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INCOME TAXES - Narrative (Details) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020	Sep. 30, 2020	Jun. 30, 2020
INCOME TAXES
Income taxes paid	$ 0	$ 0
Net deferred tax assets			$ 1,466,942
Deferred tax asset valuation allowance				$ 600,901	$ 1,100,000

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RELATED PARTY TRANSACTIONS - Narratives (Details)	3 Months Ended
	Mar. 31, 2021 USD ($) $ / property $ / room shares	Mar. 31, 2020 USD ($)	Dec. 31, 2020 USD ($) shares	Feb. 20, 2020 shares	Feb. 10, 2020 USD ($)	Aug. 22, 2018 USD ($)
Related Party Transactions
Distributions Paid	$ 246,084	$ 691,604
Accrued guarantee fees	391,955
Loan guarantee fees		69,334
Reimbursements payable	$ 2,432,640		$ 1,904,051
Advisor And Affiliates
Related Party Transactions
Guarantee fees (as a percent)	1.00%
Reimbursements payable	$ 2,127,634		1,720,605
NHS
Related Party Transactions
Renewal term of advisory agreement	5 years
Monthly base management fee (as a percent)	4.00%
Accounting fee per room | $ / room	14.00
Administrative fee (as a percent)	0.60%
Flat fee per property | $ / property	5,000
Corey Maple
Related Party Transactions
Accrued guarantee fees	$ 40,189
Corey Maple | One Rep Construction, LLC
Related Party Transactions
Ownership interest by related party (as a percent)	33.33%
Norman Leslie
Related Party Transactions
Accrued guarantee fees	$ 40,189
Norman Leslie | One Rep Construction, LLC
Related Party Transactions
Ownership interest by related party (as a percent)	33.33%
One Rep Construction, LLC
Related Party Transactions
Reimbursements payable	$ 69,994		34,988
Construction management fee (as a percent)	6.00%
Home2 Suites (the "Prattville Property")
Related Party Transactions
Loan amount	$ 9,600,000
Homewood Suites (the "Southaven Property")
Related Party Transactions
Loan amount	13,500,000
Hampton Inn & Suites(the "Pineville Property")
Related Party Transactions
Loan amount	9,300,000
Revolving line of credit | Lender One
Related Party Transactions
Revolving line of credit	3,000,000		3,000,000			$ 3,000,000
Revolving line of credit | Lender One | Corey Maple
Related Party Transactions
Line of credit guarantee amount	1,200,000
Revolving line of credit | Lender One | Norman Leslie
Related Party Transactions
Line of credit guarantee amount	1,200,000
Revolving line of credit | Lender Three
Related Party Transactions
Revolving line of credit	$ 5,000,000				$ 5,000,000
Revolving line of credit | Lender Three | Corey Maple
Related Party Transactions
Partnership units held as collateral | shares				100,000
Advisory Agreement | Legendary Capital REIT III, LLC
Related Party Transactions
Term of advisory agreement	10 years
Acquisition fee (as a percent)	1.40%
Financing fee (as a percent)	1.40%
Asset management fee (as a percent)	0.75%
Refinancing fee (as a percent)	0.75%
Real estate commissions, maximum (as a percent)	5.00%
Annual guarantee fee (as a percent)	1.00%
Annual subordinated performance fee (as a percent)	20.00%
Cumulative return (as a percent)	6.00%
Distributions (as a percent)	5.00%
Distributions as a percent of the limited partners' capital contributions in event of liquidation, termination, merger or other cessation (as a percent)	5.00%
Distributions as a percent of net proceeds from sale of properties in event of liquidation, termination, merger or other cessation (as a percent)	20.00%
Reimbursement after termination of the Offering (as a percent)	15.00%
Distributions payable	$ 71,511	60,308
Advisory Agreement | Legendary Capital REIT III, LLC | Maximum
Related Party Transactions
Disposal fee (as a percent)	4.00%
Real estate commissions (as a percent)	3.00%
Advisory Agreement | Legendary Capital REIT III, LLC | Minimum
Related Party Transactions
Disposal fee (as a percent)	0.00%
Advisory Agreement | Legendary Capital REIT III, LLC | Advisor And Affiliates
Related Party Transactions
Distributions payable	$ 399,408		$ 399,270
Advisory Agreement | Legendary Capital REIT III, LLC | Corey Maple
Related Party Transactions
Distributions Paid	$ 9,831
Number of shares held by shareholders | shares	53,763		53,763
Advisory Agreement | Legendary Capital REIT III, LLC | Norman Leslie
Related Party Transactions
Distributions Paid		$ 9,409
Number of shares held by shareholders | shares	56,899		56,899

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RELATED PARTY TRANSACTIONS - Legendary Capital (Details) - Advisor And Affiliates - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Related Party Transactions
Fees incurred	$ 909,788	$ 1,201,063
Reimbursements incurred	1,180,730	1,538,783
Acquisition Fees
Related Party Transactions
Fees incurred	330,540	501,949
Financing Fees
Related Party Transactions
Fees incurred	330,540	501,949
Asset Management Fees
Related Party Transactions
Fees incurred	248,708	197,165
Offering Costs
Related Party Transactions
Reimbursements incurred	338,187	583,926
General and Administrative
Related Party Transactions
Reimbursements incurred	760,158	813,575
Sales and Marketing
Related Party Transactions
Reimbursements incurred	44,454	76,153
Acquisition Costs
Related Party Transactions
Reimbursements incurred	$ 37,931	64,847
Other (income) expense, net
Related Party Transactions
Reimbursements incurred		$ 282

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RELATED PARTY TRANSACTIONS - NHS (Details) - NHS - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Related Party Transactions
Fees incurred	$ 155,691	$ 154,772
Fees payable	86,475		$ 52,858
Reimbursements incurred	75,924	80,576
Reimbursements payable	44,735		5,530
Management Fees
Related Party Transactions
Fees incurred	110,055	116,089
Fees payable	53,008		36,509
Administrative Fees
Related Party Transactions
Fees incurred	29,090	17,863
Fees payable	19,819		5,648
Accounting Fees
Related Party Transactions
Fees incurred	16,546	$ 20,820
Fees payable	$ 13,648		$ 10,701

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RELATED PARTY TRANSACTIONS - One Rep Construction, LLC (Details) - USD ($)	Mar. 31, 2021	Dec. 31, 2020
One Rep Construction, LLC | Construction Management fees
Related Party Transactions
Fees payable	$ 37,034	$ 176,669

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FRANCHISE AGREEMENTS - (Details)	3 Months Ended
	Mar. 31, 2021 USD ($)
Maximum
Franchise Agreements
Initial term of franchise agreement	18 years
Royalty fee (as a percent)	6.00%
Program fee (as a percent)	4.00%
Initial franchise fee	$ 175,000
Minimum
Franchise Agreements
Initial term of franchise agreement	10 years
Royalty fee (as a percent)	4.00%
Program fee (as a percent)	3.00%
Initial franchise fee	$ 50,000

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STOCKHOLDERS' EQUITY - Common Stock (Details)	3 Months Ended
	Mar. 31, 2021 Vote $ / shares shares	Dec. 31, 2020 $ / shares shares	Sep. 30, 2020 $ / shares	Jun. 30, 2020 $ / shares	May 14, 2020 $ / shares	Apr. 29, 2020 USD ($) $ / shares shares	Jun. 01, 2018 USD ($) $ / shares
Stockholders' Equity
Common stock, shares authorized | shares	900,000,000	900,000,000
Preferred stock, shares authorized | shares	100,000,000	100,000,000
Common stock voting rights | Vote	1
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, offering price	$ 10.00	$ 10.00	$ 10.00	$ 10.00
Percentage of current share net asset value	95.00%
Interval Common Stock
Stockholders' Equity
Common stock, par value (in dollars per share)						$ 0.01
Number of shares of common stock designated as non-voting shares of Interval Common Stock | shares						7,000,000
Private offering
Stockholders' Equity
Common stock, par value (in dollars per share)							$ 0.01
Common stock, offering price							$ 10.00
Maximum offering | $							$ 100,000,000
Private offering | Interval Common Stock
Stockholders' Equity
Common stock, par value (in dollars per share)						$ 0.01
Common stock, offering price					$ 10.00
Maximum offering | $						$ 30,000,000
Number of shares of common stock designated as non-voting shares of Interval Common Stock | shares						7,000,000

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STOCKHOLDERS' EQUITY - Distributions (Details) - $ / shares	3 Months Ended			12 Months Ended
	Mar. 31, 2021	Dec. 31, 2020	Sep. 30, 2020	Dec. 31, 2020	Jun. 30, 2020
STOCKHOLDERS' EQUITY
Common stock dividends per share declared on daily rate basis				$ 0.00191781
Share price (in dollars per share)	$ 10.00	$ 10.00	$ 10.00	$ 10.00	$ 10.00
Percentage of distribution in cash or through DRIP	30.00%	30.00%	30.00%
Percentage of distribution in shares of common stock issued through DRIP	70.00%	70.00%	70.00%

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STOCKHOLDERS' EQUITY - Share Repurchase Program (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2021	Mar. 31, 2020	Dec. 31, 2020
Stockholders' Equity
Number of shares repurchased	0		64,190
Stock repurchased, original investment			$ 641,898
Value of stock repurchased		$ 92,000	590,547
Accrued Share Repurchases	$ 0
Share repurchase plan, amount available for eligible repurchases	$ 3,695,479		208,586
Other Liabilities
Stockholders' Equity
Accrued Share Repurchases			24,032
DRIP
Stockholders' Equity
Value of stock repurchased			$ 16,898

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STOCKHOLDERS' EQUITY - Interval Common Stock (Details)	Apr. 29, 2020	Mar. 31, 2021 $ / shares	Dec. 31, 2020 $ / shares	Sep. 30, 2020 $ / shares	Jun. 30, 2020 $ / shares	May 14, 2020 $ / shares shares	Jun. 01, 2018 $ / shares
Stockholders' Equity
Common stock, offering price		$ 10.00	$ 10.00	$ 10.00	$ 10.00
Repurchase Plan
Stockholders' Equity
Minimum period of time holders of Interval Common Stock shares must be required to have held the Interval Common Stock shares to participate in the Repurchase Plan	1 year
Limit of repurchases of Interval Common Shares after Repurchase Reserve has been exhausted, percentage per calendar quarter	1.25%
Limit of repurchases of Interval Common Shares after Repurchase Reserve has been exhausted, percentage per calendar year of the Interval Shares Value	5.00%
Repurchase Reserve expressed as a percentage of the aggregate gross proceeds from the Company's private offering of Interval Shares	20.00%
Notice period	10 days
Repurchase Plan | Last day of same calendar quarter preceding year
Stockholders' Equity
Percentage of Aggregate Value of Interval Shares to be repurchased, threshold	5.00%
Repurchase Plan | Last day of preceding calendar quarter
Stockholders' Equity
Percentage of Aggregate Value of Interval Shares to be repurchased, threshold	5.00%
Interval Common Stock
Stockholders' Equity
Dividend rate (as a percent)	86.00%
Share price, dividend reinvestment plan (in dollars per share)						9.50
Private offering
Stockholders' Equity
Common stock, offering price							$ 10.00
Private offering | Interval Common Stock
Stockholders' Equity
Maximum number of shares authorized per the offering | shares						3,000,000
Maximum number of shares authorized per the offering at the sole direction of the Board of Directors | shares						6,000,000
Common stock, offering price						$ 10.00

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STOCKHOLDERS' EQUITY - Noncontrolling Interests (Details) - USD ($)	3 Months Ended
	Mar. 31, 2021	Dec. 31, 2020	Jun. 15, 2020	Jun. 01, 2018
Series GO LP Units
Stockholders' Equity
Non-voting partnership units, holding period required before distributions will be paid	18 months
Specified percentage of original GP unit capital contributions	70.00%
Participating amount, any period after December 31, 2020	$ 1.00
Participating amount, any period after December 31, 2021	2.00
Participating amount, any period after December 31, 2022	$ 3.00
Series B LP Units
Stockholders' Equity
Distributions (as a percent)	5.00%
Cumulative return (as a percent)	6.00%
Percentage of original contributions (as percent)	5.00%
Operating Partnership | Series GO LP Units
Stockholders' Equity
Number of outstanding partnership units	1,258,817	654,868
Operating Partnership | Series T LP Units
Stockholders' Equity
Number of outstanding partnership units	1,103,758	0
Operating Partnership | Series B Limited Partnership Units
Stockholders' Equity
Number of outstanding partnership units	1,000	1,000
Private offering
Stockholders' Equity
Maximum offering				$ 100,000,000
Private offering | Series GO LP Units
Stockholders' Equity
Maximum offering			$ 20,000,000
Maximum offering per the sole discretion of the General Partner			$ 30,000,000
Cumulative number of units issued since inception of the Offering	1,258,817
Cumulative gross proceeds from issuance of units since inception of the Offering	$ 8,700,000

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COMMITMENTS AND CONTINGENCIES (Details)			1 Months Ended	3 Months Ended	12 Months Ended
	Mar. 08, 2021 USD ($)	Feb. 17, 2021 USD ($) room	Nov. 30, 2019 USD ($) property	Mar. 31, 2021 USD ($) room	Dec. 31, 2020 USD ($) room
COMMITMENTS AND CONTINGENCIES
Number of rooms | room				141	200
Purchase Price				$ 23,610,000	$ 35,650,000
Hampton Inn & Suites(the "Pineville Property")
COMMITMENTS AND CONTINGENCIES
Real estate acquisition, additional consideration				$ 0
Houston Contribution Agreement | Houston Property
COMMITMENTS AND CONTINGENCIES
Number of rooms | room		182
Purchase Price		$ 20,000,000
Escrow Deposit		$ 50,000
Corpus Christi Contribution Agreement | Corpus Christi Property
COMMITMENTS AND CONTINGENCIES
Number of rooms	88
Purchase Price	$ 9,800,000
Escrow Deposit	$ 50,000
Commitment to Purchase Hotel Properties | Pennsylvania Hotel Properties
COMMITMENTS AND CONTINGENCIES
Escrow Deposit			$ 1,500,000
Number of real estate properties to be acquired | property			3
Contractual purchase price			$ 46,900,000

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SUBSEQUENT EVENTS - (Details)				3 Months Ended		12 Months Ended
	May 12, 2021 USD ($) room	Apr. 09, 2021 USD ($)	Apr. 01, 2021 USD ($) room	Mar. 31, 2021 USD ($) room shares	Mar. 31, 2020 USD ($)	Dec. 31, 2020 USD ($) room	May 17, 2021 USD ($) shares	Jan. 31, 2021	Apr. 30, 2020
Subsequent Events
Distributions paid in cash				$ 1,430,216	$ 1,204,910
Number of rooms | room				141		200
Aggregate consideration				$ 23,610,000		$ 35,650,000
Transaction costs				$ 458,129		$ 941,521
Private offering
Subsequent Events
Cumulative number of shares issued since inception of the Offering | shares				7,872,134
Cumulative number of shares issued pursuant to the DRIP | shares				506,688
Cumulative gross proceeds from issuance of stock since inception of the Offering				$ 76,600,000
Private offering | Series GO LP Units
Subsequent Events
Cumulative number of units issued since inception of the Offering | shares				1,258,817
Cumulative gross proceeds from issuance of units since inception of the Offering				$ 8,700,000
PPP Loans
Subsequent Events
Interest rate (as a percent)				1.00%				1.00%	1.00%
Subsequent Event
Subsequent Events
Aggregate distributions paid		$ 1,400,000
Distributions paid in cash		300,000
Distributions paid pursuant to the DRIP		$ 1,100,000
Subsequent Event | Private offering
Subsequent Events
Cumulative number of shares issued since inception of the Offering | shares							8,006,215
Cumulative number of shares issued pursuant to the DRIP | shares							622,904
Cumulative gross proceeds from issuance of stock since inception of the Offering							$ 77,800,000
Subsequent Event | GO Unit Offering | Series GO LP Units
Subsequent Events
Cumulative number of units issued since inception of the Offering | shares							1,390,615
Cumulative gross proceeds from issuance of units since inception of the Offering							$ 9,600,000
Subsequent Event | Holiday Inn El Paso | El Paso Contribution Agreement
Subsequent Events
Number of rooms | room	175
Aggregate consideration	$ 9,700,000
Debt incurred	7,900,000
Cash consideration	$ 300,000
Initial term of management agreement	90 days
Management fee expressed as a percentage of revenue	3.00%
Monthly accounting fee per the management agreement	$ 1,800
Subsequent Event | Holiday Inn El Paso | Series T LP Units | El Paso Contribution Agreement
Subsequent Events
Units issued as consideration	$ 150,000
Subsequent Event | Hilton Garden Inn Houston Bush Intercontinental Airport Hotel | Amended Contribution Agreement
Subsequent Events
Number of rooms | room			182
Aggregate consideration			$ 19,700,000
Transaction costs			300,000
Escrow Deposit			$ 50,000
Subsequent Event | Mortgage Debt | Holiday Inn El Paso | El Paso Contribution Agreement
Subsequent Events
Interest rate (as a percent)	5.00%