{"url_path":"/sec/cik-0001745032/10-k/2026/item-1a","section_key":"item-1a","section_title":"Item 1A Risk Factors.","topic":"sec","document":{"doc_type":"10-K","doc_date":"2026-05-15","source_url":"https://www.sec.gov/Archives/edgar/data/1745032/0001104659-26-062807-index.html","accession_number":"0001104659-26-062807","cik":"0001745032","ticker":null,"issuer_name":"Lodging Fund REIT III, Inc.","edgar_url":"https://www.sec.gov/Archives/edgar/data/1745032/0001104659-26-062807-index.html","primary_entity_key":"0001745032","primary_entity_name":"Lodging Fund REIT III, Inc."},"word_count":20452,"has_tables":true,"body_markdown":"Item 1A. Risk Factors.\n\nIn addition to the other information in this Annual Report on Form 10-K, the following risk factors should be considered carefully in evaluating our company and our business.\n\nRisks Related to Owning Shares of Our Common Stock\n\nThe offering price for our shares of common stock in the Offering has been determined by us, and we cannot guarantee that it represents an accurate estimation of our enterprise value.\n\nFrom inception of our Offering through December 31, 2022, the offering price for our shares of common stock in the Offering was $10.00 per share (ignoring purchase price discounts for certain purchasers), which was determined primarily by our board of directors and bore no relationship to any established criteria of value such as book value or earnings per share, or any combination thereof. Further, the price of our shares of common stock was not based on our past earnings, nor does that price necessarily reflect current market value for our assets. Our board of directors approved an estimated net asset value per share (“Share NAV”) of our assets as of December 31, 2022 and based on such Share NAV adjusted\n\n11\n\n[Table of Contents](#TOC)\n\nthe offering price for our shares in the Offering to $10.57 per share, effective January 6, 2023. The Share NAV was determined by our board of directors taking into account appraisals of the Company’s real estate properties and other factors deemed relevant by the board of directors. The ordinary course of our business does not entail the valuation of businesses or securities, and therefore cannot guarantee that our estimation of the Share NAV will be an accurate estimation of our enterprise value. Further, we have not determined a new Share NAV since December 31, 2022 and, as a result, the current Share NAV and Offering price per share may not reflect an accurate estimation of the Company’s enterprise value.\n\nOur shares of common stock have no public market, no public market is expected to develop, and consequently, it may be difficult for you to sell your shares.\n\nThere is no public trading market for our shares of common stock and we do not expect one to develop in the foreseeable future. The absence of a public market for our shares of common stock could impair your ability to sell your shares at a fair price or at all. In addition, the transfer of shares will be subject to additional limitations. Although our board of directors has adopted a share repurchase plan, there is no guarantee that such program will remain in place in its current form, and our board of directors may suspend, modify or terminate the share repurchase plan at any time. Consequently, you may have to hold your shares for an indefinite period of time because it may be difficult for you to sell your shares.\n\nThere are restrictions on transferring our shares of common stock, which may make your shares unattractive to prospective purchasers and may prevent you from selling them when you desire.\n\nTransfer of your shares is restricted by applicable federal and state securities laws as well as the charter. The offering of our shares in the Offering has not been registered under federal securities laws or the securities laws of any other state. Each investor who purchases shares must represent that it is acquiring our shares of common stock for investment and not with a view to distribution or resale and that it understands our shares of common stock are not freely transferable. You may not sell, offer for sale, or transfer your shares in the absence of either an effective registration statement under the Securities Act and under applicable state securities laws, or an opinion of counsel satisfactory to our legal counsel that such transaction is exempt from registration under the Securities Act and under applicable state securities laws. These restrictions may make your shares unattractive to prospective purchasers and may reduce the price prospective investors are willing to pay for your shares, even if transfer of these shares is allowed by state and federal securities laws. Consequently, an investment in our shares of common stock should be considered only as a long-term investment for persons of adequate financial means who do not need liquidity.\n\nThere is no specified or guaranteed liquidation date for our shares of common stock.\n\nThere is no specified or guaranteed liquidity event or liquidation date for our shares of common stock. Accordingly, shares must be considered solely as long-term investments.\n\nThe actual value of shares that we repurchase under our share repurchase plan may be substantially less than what we pay.\n\nUnder our share repurchase plan, shares currently may be repurchased at varying prices depending on the number of years our shares of common stock have been held and whether the repurchases are sought upon a stockholder’s death. The repurchase price is based on the NAV on the date of repurchase and is not based on the price at which a stockholder initially purchased its shares. Stockholders may receive less than the price that they paid for their shares upon repurchase by us pursuant to the stock repurchase plan. The maximum price that may be paid under our program was $10.00 per share through December 31, 2022 and is currently $10.57 per share, which is the current Offering price of our shares of common stock in the Offering (ignoring purchase price discounts for certain purchasers). This repurchase price is likely to differ from the price at which a stockholder could resell its shares. Thus, when we repurchase shares at $10.57 per share, the actual value of our shares of common stock that we repurchase may be less, and the repurchase will be dilutive to our remaining stockholders. Even at lower repurchase prices, the actual value of our shares of common stock may be substantially less than what we pay and the repurchase may be dilutive to our remaining stockholders.\n\n12\n\n[Table of Contents](#TOC)\n\nOur stockholders have limited redemption rights.\n\nOur share repurchase plan includes numerous restrictions that severely limit our stockholders’ ability to redeem their shares for cash should they require liquidity. See “Part II. Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities – Share Repurchase Plan” for more information about the plan.\n\nOur shares of common stock are being offered in reliance upon a private offering exemption under the Securities Act. If we should fail to comply with the requirements of such exemption, our stockholders would have the right to rescind their purchase of shares.\n\nOur shares of common stock are being offered and will be sold to investors in reliance upon a private offering exemption from registration provided in the Securities Act. If we should fail to comply with the requirements of such exemption, our stockholders would have the right to rescind their purchase of their shares if they so desired. It is possible that one or more stockholders seeking rescission would succeed. This might also occur under applicable state securities laws and regulations in states where our shares of common stock will be offered without registration or qualification pursuant to a private offering or other exemption. If a number of stockholders were successful in seeking rescission, we would face severe financial demands that would adversely affect us as a whole and, consequently, the investment in our shares of common stock by the remaining stockholders.\n\nOur board of directors may create additional classes of our securities.\n\nOur board of directors has the authority under the charter to create and issue additional classes of securities and to designate the rights, preferences and privileges thereof, such as the Interval Common Stock. Our board of directors may in the future create one or more additional classes of securities having rights, preferences and privileges that are superior to and dilutive of our shares of common stock, including additional shares of common stock, preferred stock, warrants and options. This could reduce the amount of cash available for distribution from our operations and liquidation to our stockholders and increases the risk that our stockholders will not profit from their acquisition of shares or will lose their investment entirely. Our stockholders do not have any preemptive rights with respect to any equity which the Company may issue in the future. Preferred stock could also have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price to holders of our shares of common stock.\n\nRisks Related to Our Business\n\nOur business strategy depends significantly on achieving revenue and net income growth from anticipated increases in demand for hotel rooms, which will be adversely affected by weak economic conditions and other economic events, high rates of inflation and travel-related concerns, and risks associated with possible future pandemics and outbreaks.\n\nOur business strategy depends significantly on achieving revenue and net income growth from anticipated improvement in demand for hotel rooms. We cannot, however, provide any assurances that demand for hotel rooms will increase from current levels, or the time or extent of any demand growth that we do experience. If demand does not increase in the near future, or if demand weakens, our operating results and growth prospects could be adversely affected. The lodging industry has historically been closely linked to the performance of the general economy and thus, is sensitive to business and personal discretionary spending levels. Declines in consumer demand due to adverse general economic conditions can result from various events that are beyond our control, including terrorist attacks, wars, including the current conflict between Russia and Ukraine, travel-related health concerns, travel-related accidents, and unusual weather patterns and natural disasters such as tornados, hurricanes, or earthquakes, and uncertainties regarding actual and potential shifts in United States and foreign trade, economic and other policies, including treaties, tariffs, layoffs of U.S. federal workers and freezes of federal funding.\n\n​\n\nThe United States has recently experienced significant inflation. Inflation could have an adverse impact on our financing costs (either through near-term borrowings on our variable rate debt, including our credit facilities, or refinancing of existing debt at higher interest rates), and general and administrative expenses and property operating expenses, as these costs could increase at a rate higher than our rental and other revenue. To the extent our exposure to increases in interest\n\n13\n\n[Table of Contents](#TOC)\n\nrates is not eliminated through interest rate caps or other protection agreements, such increases may also result in higher debt service costs, which will adversely affect our cash flows. Historically, during periods of increasing interest rates, real estate valuations have generally decreased due to rising capitalization rates, which tend to move directionally with interest rates. Consequently, prolonged periods of higher interest rates may negatively impact the valuation of our real estate assets. Although the extent of any prolonged periods of higher interest rates remains unknown at this time, negative impacts to our cost of capital may adversely affect our future business plans and growth, at least in the near term. Elevated inflation may also have an adverse effect on our operating expenses, including, but not limited to, labor, supplies, repairs and maintenance, as these costs could increase at a rate higher than our revenues. Inflation could also have an adverse effect on consumer spending, which could impact occupancy levels at our hotel properties and, in turn, our own results of operations.\n\n​\n\nIf we experience a pandemic or epidemic in the future, any increases in unemployment, increasing labor costs and shortages, decreased capital spending, declines in consumer confidence, commodity and other price inflation, supply chain disruptions, or economic slowdowns or recessions that may result therefrom may cause sustained negative consumer or business sentiment and reduced demand for travel and lodging, and may cause an increase in renovation, construction and operating costs, and may limit our access to critical operating supplies, all of which would materially and adversely affect our business, financial performance and condition, operating results and cash flows.\n\n​\n\nAdditionally, the management companies that operate our hotel properties may be limited in their ability to properly maintain the properties. Market fluctuations may affect our ability to obtain necessary funds for the operation of our hotels from current lenders or new borrowings. In addition, we may be unable to obtain financing for the acquisition of new hotels on satisfactory terms, or at all. Further, we have entered into agreements with lenders under our mortgage loans to provide for relief from certain obligations under the loan agreements, including deferral of payment obligations and covenant relief. If our financial condition and results of operation continue to be negatively affected beyond the terms of our existing lender accommodations, we may be unable to obtain further extensions of the payment obligations and covenant relief, and may be forced to make additional payments on the loans which could adversely affect our ability to pay distributions to our stockholders. Third-party reports relating to market studies or demographics we obtained prior to the COVID-19 virus outbreak for hotels we acquired or have identified for acquisition may no longer be accurate or complete. The occurrence of any of the foregoing events or any other related matters could materially and adversely affect our business, financial condition, results of operation and the overall value of our properties, and stockholders may lose all or a substantial portion of their investment in us.\n\n​\n\nWe depend on the efforts and expertise of the Advisor and its officers and principals, whose continued service is not guaranteed.\n\nWe depend on the efforts and expertise of our officers, the Advisor and its principals to execute our business strategy. The loss of their services, and our inability to find suitable replacements, could have an adverse effect on our business and, in turn, any return to our stockholders.\n\nOur Advisor, its executive officers and other key personnel, the Sponsor’s employees and certain of our officers and directors will not devote their time and energies exclusively to us.\n\nOur Advisor, its executive officers and other key personnel, the employees of the Sponsor, an affiliate of the Advisor, as well as certain of our officers and directors, whose services are essential to the Company, are, and will continue to be, involved in other business ventures, and will devote only such portion of their time to our affairs as they believe is appropriate to manage our affairs effectively. They 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.\n\nThere is no assurance that we will satisfy our business objectives, which could limit our ability to make distributions and decrease the value of your investment.\n\nThere is no assurance that we will satisfy our business objectives. No assurance can be given that our stockholders will realize a substantial return, if any, on their purchase or that we will be able to make distributions to our stockholders. We\n\n14\n\n[Table of Contents](#TOC)\n\nmay not be able to achieve our investment objectives, may make unwise decisions or may make decisions that are not in an investor’s best interests because of conflicts of interest. No assurance can be given that the Company will be able to acquire suitable investments or that the Company’s objectives will be achieved.\n\nWe own only hotel properties, which will limit the diversification of our investments.\n\nAs of December 31, 2025, we owned a portfolio of fourteen hotel properties, including the equity and profits interest in the parent of the entity which holds a leasehold interest in the El Paso University Property. We have no plans to acquire assets other than hotel properties, which limits the diversification of the type of properties we own. If we do not raise substantial funds in our securities offerings, we will be limited in the number and type of investments we and the Operating Partnership may make, which will result in a less diversified portfolio. We may not be able to acquire a large portfolio of assets, which may cause the value of an investment in us to experience more volatility due to the performance of certain investments and cause our general and administrative expenses to constitute a greater percentage of our revenue. In such event, the likelihood of our profitability being affected by the poor performance of any single investment will increase, which may limit our ability to pay distributions to our stockholders. A limited number of hotel properties may place a substantial portion of the funds invested in the same geographical location with the same property-related risks. In that case, the decline in a particular real estate market could substantially and adversely impact us. In the event of an economic recession affecting the economies of the areas in which the hotel properties are located, a decline in real estate values in general or the occurrence of any one of many other adverse circumstances, our financial performance could be materially and adversely affected.\n\nOur investment policies are subject to revision from time to time at our board of directors’ discretion, which could diminish stockholder returns below expectations.\n\nOur investment policies may be amended or revised from time to time at the discretion of our board of directors, without a vote of our stockholders. Such changes could result in investments that may not yield returns consistent with our stockholders’ expectations.\n\nIf we are unable to successfully manage our growth, our operating results and financial condition could be adversely affected.\n\nOur ability to grow our business depends upon our agreements with the Operating Partnership and the Advisor, and the business acumen of the individuals managing each of these entities. If these agreements are terminated, we may not be able to hire and train sufficient personnel or develop management, information and operating systems suitable for our expected growth. If we are unable to manage any future growth effectively, our operating results and financial condition could be adversely affected.\n\nOur future growth and success depends on obtaining financing, and if we cannot secure financing on acceptable terms or at all, our growth may be limited.\n\nThe success of our growth strategy depends on access to capital through the use of excess cash flow, borrowings or subsequent issuances of our common stock or other securities. We will require significant capital to acquire, renovate, rehabilitate, operate, and make periodic capital improvements at the hotel properties. We may not be able to fund acquisitions, renovations or capital improvements solely from cash provided from our operating activities. To the extent required funds are not available from operations, we will need to obtain new or additional borrowings on satisfactory terms, which will depend on capital markets conditions. There is no assurance that we will be able to obtain the required financing for our hotel properties on favorable terms, or at all.\n\nWe may be unable to raise substantial funds in our securities offerings or to invest the proceeds of our securities offerings in a timely manner or on acceptable terms.\n\nWe may be unable to raise substantial funds in our securities offerings, which could limit our ability to acquire a large portfolio of diverse assets. We may be unable to invest the Offering proceeds on acceptable terms, or at all, which could delay stockholders from receiving an appropriate return on their investment and reduce the amount available for distribution to our stockholders. We cannot assure you that we will be able to identify properties that meet our investment criteria, that we will successfully consummate any investment opportunities we identify or that investments we may make\n\n15\n\n[Table of Contents](#TOC)\n\nwill generate income or cash flow. Our failure to find suitable hotel properties to acquire in a timely manner or on acceptable terms could result in returns that are substantially below expectations or result in losses.\n\nWe must rely on management companies that are eligible independent contractors to operate the hotel properties in order to qualify as a REIT and, as a result, we have less control than if we were operating the hotel properties directly.\n\nIn order for us to qualify as a REIT, management companies that are eligible independent contractors must operate the hotel properties. Each of the hotel properties will be owned by a direct subsidiary of the Operating Partnership, which will lease the hotel properties to the TRS Lessees. The TRS Lessees, in turn, will enter into management agreements with a management company to operate the hotel properties. While we expect to have some input into operating decisions for the hotel properties leased by our TRS Lessees and operated under such management agreements, we have less control than if we were managing the hotels ourselves. Even if we believe that our hotels are not being operated efficiently, we may not be able to require an operator to change the way it operates our hotels. If this is the case, we may decide to terminate the management agreement and potentially incur costs associated with the termination.\n\nOur management agreements could adversely affect the sale or financing of the hotel properties and, as a result, our operating results and ability to make distributions to our stockholders could suffer.\n\nWe have entered into, and may continue to enter into, or acquire hotels subject to, management agreements that contain restrictive covenants. For example, the terms of some management agreements may restrict our ability to sell a hotel property unless, among other conditions, the purchaser is not a competitor of the operator and assumes the related management agreement. Also, the provisions of a long-term management agreement encumbering a hotel property may reduce the value of such hotel property. If we enter into or acquire hotel properties subject to any such management agreements, we may be precluded from taking actions that would otherwise be in our best interest or could cause us to incur substantial expense, which could adversely affect our operating results and our ability to make distributions to stockholders.\n\nOur franchisors could cause us to expend additional funds on upgraded operating standards, which may reduce cash available for distribution to stockholders.\n\nOur existing hotel properties are, and we expect future hotel properties will be, subject to franchise agreements, and we may become subject to the risks that result from concentrating the hotel properties in one or several hotel franchise brands. Our hotel operators will need to comply with operating standards and terms and conditions imposed by the franchisors of the hotel brands under which the hotel properties will operate. Pursuant to certain franchise agreements, certain upgrades are required every few years, and franchisors may also impose upgraded or new brand standards, which can add substantial expense for the affected hotel properties. The franchisors also may require us to make certain capital improvements to maintain the hotel properties in accordance with system standards, the cost of which can be substantial and may reduce cash available for distribution to our stockholders. Planned capital expenditures and upgrades may cost more and take longer to complete than expected as a result of increasing labor costs and shortages and other price inflation and shortages of materials due to supply chain challenges and adverse impacts of various political policies, including tariffs and immigration.\n\nOur franchisors may cancel or fail to renew our existing franchise licenses, which could adversely affect our operating results and our ability to make distributions to stockholders.\n\nFranchisors periodically inspect hotels to confirm adherence to their operating standards. We will rely on our operators to conform to the franchisors’ operating standards. The failure of a hotel property to maintain standards could result in the loss or cancellation of a franchise license. In addition, when the term of a franchise expires, the franchisor has no obligation to issue a new franchise. The loss of a franchise could have a material adverse effect on the operations or the underlying value of the affected hotel property because of the loss of associated name recognition, marketing support and centralized reservation systems provided by the franchisor. The loss of a franchise or adverse developments with respect to a franchise brand under which our hotels operate could also have a material adverse effect on our financial condition, results of operations and cash available for distribution to our stockholders.\n\n16\n\n[Table of Contents](#TOC)\n\nFluctuations in our financial performance, capital expenditure requirements and excess cash flow could adversely affect our ability to make and maintain distributions to our stockholders.\n\nAs a REIT, we are required to distribute at least 90% of our REIT taxable income each year to our stockholders (determined before the deduction for dividends paid and excluding any net capital gains). In the event of downturns in our operating results and financial performance or unanticipated capital improvements to the hotel properties (including capital improvements that may be required by franchisors), we may be unable to declare or pay distributions to our stockholders. The timing and amount of distributions are at the sole discretion of our board of directors, which considers, among other factors, our financial performance, debt service obligations, applicable debt covenants (if any), and capital expenditure requirements. Among the factors which could adversely affect our results of operations and distributions to stockholders are reductions in hotel revenues, increases in operating expenses at the hotels leased to our TRS Lessees and capital expenditures at the hotels, including capital expenditures required by the franchisors. We cannot assure you we will generate sufficient cash in order to continue to fund distributions.\n\nWe have not paid, and may not in the future pay, distributions solely from our cash flow from operations. To the extent we pay distributions from sources other than our cash flow from operations, the overall return to our stockholders may be reduced and subsequent investors will experience dilution.\n\nWe may not be able to pay distributions solely from our cash flow from operations, in which case distributions may be paid in whole or in part from other sources, including debt financing and proceeds from our Offering. There is no limit on the amount of distributions we may fund from sources other than from cash flow from operations. Distributions we paid through December 31, 2025 have been paid from proceeds from our Offering, and we expect that future distributions we may pay will not be made solely from our cash flow from operations. 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 and subsequent investors will experience dilution.\n\n​\n\nWe have made, and may from time to time continue to make, distributions to our stockholders in the form of our common stock, which could result in stockholders incurring tax liability without receiving sufficient cash to pay such tax.\n\nWe have distributed, and we may in the future distribute, taxable dividends that are payable in cash or common stock. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits for federal income tax purposes. As a result, stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common stock.\n\nWe may be subject to various conflicts of interest due to the relationships among the Advisor, the Operating Partnership, NHS, One Rep Construction, LLC (“One Rep”), Legendary A-1 Bonds, LLC (“A-1 Bonds”) and their respective affiliates.\n\nWe 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. The Advisory Agreement may result in a conflict of interest between the Advisor and our stockholders due to the Advisor’s receipt of certain incentive and management fees related to operating the Company. For example, the Advisor may earn increased management fees if a hotel property is retained, but it may be advantageous for our stockholders for such hotel property to be sold and the proceeds distributed. In addition, certain incentive fees are payable to the Advisor upon the sale or acquisition of a hotel property. This could incentivize the Advisor to acquire or dispose of hotel properties in instances where such acquisitions or dispositions are not in the best interests of our stockholders. Furthermore, NHS, the company which provides certain due diligence services related to property acquisitions and a lender under one of our loans, is an affiliate of Norman H. Leslie who is an officer of the Company and the Advisor. In addition, One Rep, the construction management company which provides construction oversight, project management and other related services, is owned by Corey Maple, Norman H. Leslie and David Ekman. In addition, A-1 Bonds a lender under one of our lines of credit and several loans secured by certain of our hotel properties, is an affiliate of Norman H. Leslie and Corey Maple. These relationships may be determined to cause conflicts of interest among the affected parties.\n\n17\n\n[Table of Contents](#TOC)\n\nOur current hotel properties include, and our future hotel properties will likely include certain amenities for hotel guests that could increase the potential liabilities at the hotel properties.\n\nOur current hotel properties include, and our future hotel properties will likely include, one or more amenities, such as swimming pools, exercise rooms, laundry facilities, business centers and rentable event rooms. Certain claims could arise in the event that a personal injury, death or injury to property should occur in, on, or around any of these improvements. There can be no assurance that particular risks pertaining to these improvements that are insured will continue to be insurable on an economical basis or that current levels of coverage will continue to be available. If a loss occurs that is partially or completely uninsured, we may lose all or part of our investment in the affected hotel property. We may also be liable for uninsured or underinsured personal injury, death or property damage claims. Liability in such cases may be unlimited but stockholders will not be personally liable.\n\nAlthough we have authorized management to pursue an exit strategy and position the Company for a sale or merger, we can give no assurances regarding the consummation of any particular transaction or that we will be successful in executing such strategy or in creating additional stockholder value.\n\nAlthough our board of directors has authorized management to pursue an exit strategy and position us for a sale or merger as early as 2025, there is no assurance that this process will result in the approval or completion of any specific transaction or outcome. Further, although we have begun the process of exploring strategic alternatives and marketing for sale our assets, there is no assurance that we will achieve an exit strategy within the proposed time period or in the manner anticipated. The process of exploring strategic alternatives and marketing our assets could be time-consuming and disruptive to our business operations and could divert management’s attention from our business, and we could incur substantial expenses associated with identifying and evaluating potential transactions. Further, any potential transaction would be dependent on a number of factors that may be beyond our control, including, among other things, market conditions, industry trends, the interest of third parties in a potential transaction with us and the availability of financing to potential buyers on favorable terms. Specifically, current general economic conditions, including high interest rates in a high inflation environment, may adversely impact the valuation of our assets and make it more difficult for potential purchasers to obtain acquisition financing on acceptable terms or at all. There can be no assurance that we will successfully implement our strategy, or that any potential transaction or other strategic alternative will result in stockholder liquidity or provide a return to stockholders that equals or exceeds our estimated value per share.\n\nRisks Related to the Lodging Industry\n\nThe lodging industry has experienced significant declines and failure of the lodging industry to exhibit improvement may adversely affect our ability to execute our business strategy.\n\nThe performance of the lodging industry has historically been closely linked to the performance of the general economy and, specifically, growth in U.S. GDP. It is also sensitive to business and personal discretionary spending levels. Declines in corporate budgets and consumer demand due to adverse general economic conditions and political policies, risks affecting or reducing travel patterns, lower consumer confidence or adverse political conditions can lower the revenues and profitability of the hotel properties and therefore, the net operating profits of our TRS Lessees. A substantial part of our business strategy is based on the anticipation that the lodging markets will experience improving economic fundamentals in the future. We cannot predict the extent to which the lodging industry will improve. In the event conditions in the industry do not improve, or if they deteriorate, our ability to execute our business strategy would be adversely affected, which could adversely affect our financial condition, results of operations and our ability to make distributions to our stockholders.\n\nCompetition for acquisitions may reduce the number of properties we can acquire.\n\nWe compete for hotel investment opportunities with competitors that may have a different tolerance for risk or have substantially greater financial resources than are available to us. This competition may generally limit the number of hotel properties that we are able to acquire and may also increase the bargaining power of hotel owners seeking to sell, making it more difficult for us to acquire hotel properties on attractive terms, or at all.\n\n18\n\n[Table of Contents](#TOC)\n\nCompetition for guests may lower our hotels’ revenues and profitability.\n\nThe limited-service, select-service, full-service and extended-stay segments of the hotel business are competitive. Our hotels compete on the basis of location, room rates and quality, service levels, reputation and reservation systems, among many other factors. Many competitors have substantially greater marketing and financial resources than our operators or us. New hotels create new competitors, in some cases without corresponding increases in demand for hotel rooms. The result in some cases may be lower revenue, which would result in lower cash available for distribution to stockholders.\n\nThe seasonality of the hotel industry may cause fluctuations in our quarterly revenues which may require us to borrow money to fund distributions to stockholders.\n\nSome hotel properties have business that is seasonal in nature. This seasonality can be expected to cause quarterly fluctuations in revenues. Quarterly earnings may be adversely affected by factors outside our control, including weather conditions and poor economic factors. As a result, we may have to enter into short-term borrowings in order to offset these fluctuations in revenue and to make distributions to our stockholders.\n\nThe cyclical nature of the lodging industry may cause the return on our investments to be substantially less than we expect.\n\nThe lodging industry is cyclical in nature. Fluctuations in lodging demand and therefore, operating performance, are caused largely by general economic and local market conditions, which subsequently affects levels of business and leisure travel. Any increases in inflation may adversely affect consumer confidence, which could reduce consumer purchasing power and dampen consumer demand for lodging, and which may also increase or operating and renovation costs. In addition to general economic conditions, new hotel room supply can significantly affect the lodging industry’s performance and overbuilding has the potential to further exacerbate the negative impact. Room rates and occupancy tend to increase when demand growth exceeds supply growth. Decline in lodging demand, or a continued growth in lodging supply, could result in returns that are substantially below expectations or result in losses, which could have a material adverse effect on our business, financial condition, results of operations and our ability to make distributions to our stockholders.\n\nThe ongoing need for capital expenditures at our hotel properties may adversely affect our financial condition and limit our ability to make distributions to our stockholders.\n\nHotel properties have an ongoing need for renovations and other capital improvements, including replacements, from time to time, of furniture, fixtures and equipment. The franchisors of our hotels also require periodic capital improvements as a condition of keeping the franchise licenses. These capital improvements may give rise to the following risks:\n\n●Possible environmental problems;\n\n●Construction cost overruns and delays, particularly in light of supply chain disruption;\n\n●Revenues may be reduced temporarily while rooms are out of service during construction;\n\n●Possible shortage of available cash to fund capital improvements;\n\n●Capital improvement financing may not be available on attractive terms;\n\n●Market demand uncertainties or a loss of market demand after capital improvements have begun; and\n\n●Disputes with franchisors/managers regarding compliance with relevant management/franchise agreements.\n\nWe have established, and intend to continue to establish, capital reserves in amounts we believe are necessary for the hotel properties. If we have insufficient capital reserves, we will be required to obtain financing from other sources to fund our capital expenditure requirements. There can be no assurance that sufficient financing will be available or, if available, will be available on economically feasible terms or on terms acceptable to us. Additional borrowing for capital needs and capital improvements will also increase our interest expense. The costs and expenses of all these capital improvements could adversely affect our financial condition and amounts available for distribution to our stockholders.\n\n19\n\n[Table of Contents](#TOC)\n\nThe increasing use of Internet travel intermediaries by consumers may adversely affect our profitability.\n\nSome of our hotel rooms are booked through Internet travel intermediaries, including, but not limited to, Travelocity.com, Expedia.com and Priceline.com. As Internet bookings increase, these intermediaries may be able to obtain higher commissions, reduced room rates or other significant contract concessions from us and our management companies. Moreover, some of these Internet travel intermediaries are attempting to offer hotel rooms as a commodity, by increasing the importance of price and general indicators of quality (such as “three-star downtown hotel”) at the expense of brand identification. These intermediaries hope that consumers will eventually develop brand loyalties to their reservations system rather than to the hotel brands under which our properties are franchised. Although most of the business for our hotels is expected to be derived from traditional channels, if the amount of sales made through Internet intermediaries increases significantly, room revenues may flatten or decrease and our profitability may be adversely affected.\n\nWe and our hotel managers and franchisors rely on information technology in our operations, and any material failure, inadequacy, interruption, cyber-attack or security failure of that technology could harm our business.\n\nWe and our hotel managers and franchisors rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, reservations, billing and operating data. We rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential customer information, such as personally identifiable information, including information relating to financial accounts. Although we have taken steps, and plan to continue to take steps, to protect the security of our information systems and the data maintained in those systems, it is possible that our safety and security measures will not be able to prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. Cyber-attacks are expected to accelerate on a global basis in both frequency and magnitude as threat actors are becoming increasingly sophisticated in using techniques that circumvent controls, evade detection, and remove or obfuscate forensic evidence, which means that we and our third-party providers may be unable to detect, investigate, contain or recover from future attacks or incidents in a timely or effective manner. The rapid evolution and increased adoption of artificial intelligence technologies, by us or by third parties, may also heighten our cybersecurity risks by making cyberattacks more difficult to detect, contain and mitigate. Security breaches, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. In addition, cybersecurity risk has increased as a result of global remote working dynamics for our customers, employees and third-party providers that present additional opportunities for threat actors to engage in social engineering and to exploit vulnerabilities in non-corporate networks. Many of the information systems and networks used to operate our lodging properties are managed by our third-party property managers or franchisors and are not under our control. Any failure to maintain proper function, security and availability of our information systems or the information networks managed by our third-party property managers or franchisors could interrupt our operations, result in delayed sales or bookings or lost guest reservations, damage our reputation, subject us to liability claims or regulatory penalties and could have a material adverse effect on our business, financial condition and results of operations.\n\nLabor shortages and increased costs for labor could adversely affect our business and financial results.\n\nOur success depends in part upon our management companies’ ability to attract, motivate and retain a sufficient number of qualified employees. Qualified individuals needed to fill these positions are in increasingly short supply in some areas, with such supply issues increasing to historical levels in 2025 and 2024. The inability to recruit and retain these individuals may adversely impact hotel operations and guest satisfaction, which could harm our business. Additionally, competition for qualified employees has required us to pay meaningfully higher wages to attract employees, and continued tightness in labor markets could result in continued escalation of labor costs.\n\nFuture terrorist attacks or changes in terror alert levels could adversely affect travel and hotel demand.\n\nRecent world events including increased terrorist activities and the political and military responses of the targeted countries have created an air of uncertainty concerning security and the stability of the United States economy. Previous terrorist attacks and subsequent terrorist alerts have adversely affected the U.S. travel and hospitality industries over the past several years, often disproportionately to the effect on the overall economy. The impact that terrorist attacks in the U.S. or\n\n20\n\n[Table of Contents](#TOC)\n\nelsewhere could have on domestic and international travel and our business in particular cannot be determined but any such attacks or the threat of such attacks could have a material adverse effect on our business, our ability to finance our business, our ability to insure our properties and our results of operations and financial condition.\n\nCompetition, including with vacation rental online marketplaces, may reduce our hotels’ revenues and profitability.\n\n​\n\nIn addition to competing with other hotels, our hotel businesses compete with resorts, motels, inns and vacation rentals in their geographic markets or customer segments, including facilities owned by local interests, individuals, national and international chains, institutions, investment and pension funds and real estate investment trusts (“REITs”). Competition in this industry generally is based on the attractiveness of the facility, location, level of service, quality of accommodations, amenities, food and beverage options, public spaces and other guest services, consistency of service, room rate, brand reputation and the ability to earn and redeem loyalty program points. Our principal competitors include other branded and independent hotel operating companies, national and international hotel brands and ownership companies, and independently owned vacation rentals, such as those listed on vacation rental online marketplaces. Increased demand for vacation rental online marketplaces and reduced demand for hotels could result in lower revenue and reduced cash availability for distribution to stockholders.\n\n​\n\nAdverse developments affecting the financial services industry may adversely affect our business, financial condition and results of operations.\n\n​\n\nActual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, Silicon Valley Bank (now a division of First Citizens Bank) was closed by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver, which has been followed by the collapse of Signature Bank, Silvergate Capital Corp. and First Republic Bank. Other than one account at Signature Bank for one of our hotel properties, we do not currently have direct exposure to these financial institutions. If a depository institution in which we deposit funds is adversely impacted from conditions in the financial or credit markets or otherwise, it could impact access to our cash or cash equivalents and could adversely impact our financial condition. Our cash and cash equivalents balance exceeded federally insurable limits as of December 31, 2025. In addition, if any parties with whom we conduct business are unable to access funds pursuant to such instruments or lending arrangements with such a financial institution, such parties' ability to pay their obligations to us or to enter into new commercial arrangements requiring additional payments to us could be adversely affected. Although we assess our banking relationships as we believe necessary or appropriate, our access to funding sources and other credit arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect us, the financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry.\n\n​\n\nGeneral Risks Related to the Real Estate Industry\n\nThe hotel properties are subject to various risks associated with an investment in real estate.\n\nThe economic success of an investment in the Company will depend upon the results of the operations of the hotel properties, which are subject to those risks typically associated with an investment in real estate. Fluctuations in land values, occupancy levels, revenue and operating expenses can adversely affect operating results or render the sale or refinancing of the hotel properties difficult or unattractive. No assurance can be given that certain assumptions as to the future levels of occupancy of the hotel properties or future costs of operating the hotel properties will be accurate because such matters will depend on events and factors beyond our control. Such factors include, among others, occupancy levels, revenue and sales levels in the local areas where the hotel properties are located, adverse changes in local population trends, market conditions, neighborhood values, local economic and social conditions, supply and demand for property such as the hotel properties, competition from similar projects, interest rates, real estate tax rates, governmental rules,\n\n21\n\n[Table of Contents](#TOC)\n\nregulations and fiscal policies, including the effects of inflation and enactment of unfavorable real estate, environmental or zoning laws, hazardous material laws, uninsured losses and other risks.\n\nIlliquidity of real estate investments could significantly impede our ability to liquidate our portfolio on advantageous terms or within any given period of time.\n\nBecause real estate investments are relatively illiquid and difficult to sell quickly, we have limited ability to vary our portfolio in response changes in economic and other conditions. Return of capital and realization of gains, if any, from an investment generally will occur upon disposition or refinance of the underlying hotel property. We may be unable to realize our investment objectives by sale, other disposition or refinance at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy. In particular, these risks could arise from weakness in or even the lack of an established market for a hotel property, availability of financing, capitalization rates, changes in the financial condition or prospects of prospective purchasers, changes in national or international economic conditions, and changes in laws, regulations or fiscal policies of jurisdictions in which the hotel property is located. Further, we may be required to expend funds to correct defects or to make improvements before a hotel property can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements. In addition, we may agree to lock-out provisions when acquiring a hotel property that materially restrict us from selling that hotel property for a period of time or impose other restrictions. Our inability to sell the hotel properties at the time and on the terms we desire could reduce our cash flow and limit our ability to make distributions to our stockholders.\n\nUninsured and underinsured losses could adversely affect our operating results and our ability to make distributions to our stockholders.\n\nWe maintain comprehensive insurance on each of our current hotel properties, and anticipate maintaining comprehensive insurance on future hotel properties, including liability, terrorism, fire and extended coverage, of the type and amount customarily obtained for or by hotel property owners. There can be no assurance that such coverage will continue to be available at reasonable rates, or at all. Various types of catastrophic losses, like earthquakes and floods and losses from toxic mold, terrorist activities and pandemic outbreaks may not be insurable or may not be insurable on reasonable economic terms. Lenders may require such insurance and failure to obtain such insurance could constitute a default under the loan agreements. Depending on our access to capital, liquidity and the value of the properties securing the affected loan in relation to the balance of the loan, a default could have a material adverse effect on our results of operations and ability to obtain future financing.\n\nIn the event of a substantial loss, insurance coverage may not be sufficient to cover the full current market value or replacement cost of the hotel property. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we invested in a hotel property, as well as the anticipated future revenue from that particular hotel property. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the hotel property. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace, rehabilitate or renovate a hotel after it has been damaged or destroyed. Under those circumstances, the insurance proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed hotel property.\n\nNoncompliance with environmental laws and governmental regulations could adversely affect our operating results and our ability to make distributions to stockholders.\n\nFederal, state and local laws impose liability on a landowner for the release or the otherwise improper presence on the premises of hazardous materials or hazardous substances. This liability is without regard to fault for, or knowledge of, the presence of such materials or substances, subject to certain defenses. A landowner may be held liable for hazardous materials or substances brought onto the property before it acquired title and for hazardous materials or substances that are not discovered until after it sells the property. In addition, a landowner may be held liable for hazardous materials or substances that migrate from the property onto or beneath adjacent sites, as well as hazardous materials or substances from unknown or unidentified sources that may migrate from adjacent sites onto or beneath the property. Similar liability may occur under applicable state law. If any hazardous materials or substances are found within the real property underlying any of the hotel properties at any time, we could be held liable for cleanup costs, fines, penalties and other costs, and we may have little or no recourse against the sellers of the hotel properties. Furthermore, various court decisions have\n\n22\n\n[Table of Contents](#TOC)\n\nestablished that third parties may recover damages for injury caused by release of hazardous substances and for property contamination. Although we will attempt to obtain current environmental site assessments for the hotel properties prior to acquisition, we may not obtain such information. If losses arise from hazardous substance contamination that cannot be recovered from responsible parties, the financial viability of the hotel properties may be materially and adversely affected.\n\nCompliance with the Americans with Disabilities Act of 1990, as amended, and applicable regulations promulgated thereunder (“ADA”) and other changes in governmental rules and regulations could substantially increase our cost of doing business and adversely affect our operating results and our ability to make distributions to our stockholders.\n\nOur hotel properties are subject to the ADA. Under the ADA, “public accommodations” as defined by the ADA must meet certain federal requirements related to access and use by disabled persons. Although we believe our current hotel properties are in substantial compliance with the ADA, and we intend to acquire future hotel properties that are substantially in compliance with the ADA, we may incur additional costs of complying with the ADA at the time of acquisition and from time-to-time in the future to remain in compliance. A number of additional federal, state and local laws exist that also may require modifications to the hotel properties or restrict certain renovations with respect to access by disabled persons. A violation of the ADA could result in the imposition of fines by the federal government or an award of damages to private litigants, and attorneys’ fees may be awarded to a plaintiff claiming ADA violations. State and federal laws in this area are constantly evolving and could place a greater cost or burden on us. If we were required to expend unbudgeted funds to comply with the ADA or other applicable rules and regulations, our financial condition, results of operations, the market price of our shares of common stock and our ability to make distributions to our stockholders could be adversely affected. The obligation to make readily achievable accommodations is an ongoing one, and we will continue to assess our properties and to make alterations as appropriate.\n\nThe hotel properties are subject to property taxes that may increase in the future, which could adversely affect our ability to make distributions to our stockholders.\n\nThe hotel properties are subject to real and personal property taxes. These taxes may increase as tax rates change and as the hotel properties are assessed or reassessed by taxing authorities, including upon acquisition. If property taxes increase, our financial condition, results of operations and our ability to make distributions to our stockholders could be materially and adversely affected. As the owner of the hotel properties, we are ultimately responsible for payment of the taxes to the applicable government authorities. If we fail to pay any such taxes, the applicable taxing authority may place a lien on the hotel property, and the hotel property could become subject to a tax sale.\n\nThe hotel properties may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediating the problem.\n\nLitigation and concern about indoor exposure to certain types of toxic molds have been increasing as the public becomes aware that exposure to mold can cause a variety of health effects and symptoms, including allergic reactions and respiratory problems. Toxic molds can be found almost anywhere; they can grow on virtually any organic substance, as long as moisture and oxygen are present. There are molds that can grow on wood, paper, carpet, foods and insulation. When excessive moisture accumulates in buildings or on building materials, mold growth will often occur, particularly if the moisture problem remains undiscovered or unaddressed. It is impossible to eliminate all molds and mold spores in the indoor environment. In warm or humid climates, the likelihood of toxic mold can be exacerbated by the necessity of indoor air conditioning year-round. The difficulty in discovering indoor toxic mold growth could lead to an increased risk of lawsuits by affected persons, and the risk that the cost to remediate toxic mold will exceed the value of the property. Because of attempts to exclude investigations, abatement and damage costs caused by toxic mold growth from certain liability provisions in insurance policies, there is no guarantee that insurance coverage for toxic mold will be available now or in the future.\n\nFuture changes in laws and regulations may adversely affect the resale value of real estate.\n\nFuture changes in land use and environmental laws and regulations, whether federal, state or local, may impose new restrictions on the development or use, and therefore the value, of real estate. The resale of real estate by us may be adversely affected by such regulations. In addition, cities and other municipalities may have different rules and regulations which may change from time to time, including retrofit ordinances, which may affect the capital needs of the hotel\n\n23\n\n[Table of Contents](#TOC)\n\nproperties. Any such changes would need to be addressed by us, which would reduce our net income and the amount of cash available for distributions to our stockholders.\n\nCertain sellers of hotel properties have made, and future sellers may only make, limited or no representations and warranties regarding the condition of the properties.\n\nWe have acquired, and may in the future acquire real estate from sellers who make only limited or no representations and warranties regarding the condition of such real estate, the presence of hazardous materials or hazardous substances within such real estate, the status of governmental approvals and entitlements for such real estate or other matters adversely affecting such real estate. We may not be able to pursue a claim for damages against such sellers except in limited circumstances. The extent of damages that we may incur as a result of such matters cannot be predicted but potentially could result in a significant adverse effect on the value of such real estate.\n\nWe may acquire hotel properties from affiliates of the Advisor.\n\nWe may acquire hotel properties from affiliates of the Advisor. Accordingly, notwithstanding that the purchase price will be based on a third-party appraisal, the purchase agreements for such hotel properties will not be negotiated on a third-party arm’s length basis. Some of the terms of the purchase agreements with affiliates of the Advisor may not be on market terms. The stockholders will not have approval rights with respect to the acquisition of hotel properties from affiliates.\n\nWe may not obtain audited results of operations for the hotel properties prior to acquiring the hotel properties.\n\nWe may not obtain audited operating statements regarding the prior operations of the hotel properties prior to acquiring the hotel properties. We may rely on unaudited financial information provided by the sellers of the hotel properties. Thus, it is possible that information we relied on with respect to the acquisition of the hotel properties may not be accurate.\n\nWe may not obtain independent third-party appraisals or valuations of a hotel property before acquiring it and our valuation may not be accurate.\n\nWe have obtained independent third-party appraisals or valuations or other reports for some, but not all, of our current hotel properties before purchasing them and may not obtain independent third-party appraisals or valuations of a future hotel property, or other reports with respect to a future hotel property, before we invest in such hotel property. If we do not obtain such third-party appraisals or valuations, there can be no assurance that our valuation of a hotel property will be accurate or that a hotel property’s value will exceed its cost to us or that any sale or other disposition of such hotel property will result in a profit for us. Third-party appraisals and other reports may be prepared for lenders, in which case we typically will try to obtain a copy of such appraisals and reports for review, as well as reliance letters from the third-party preparers to allow us to rely on such appraisals and reports. To the extent we do not obtain such other reports or reliance letters before investing in a hotel property, the risk of investing in such hotel property may be increased.\n\nIf capitalization rates increase, the value of our assets may decrease and we may not be able to sell our assets at anticipated prices.\n\nThe value of commercial real estate is generally based on capitalization rates. Capitalization rates generally trend with interest rates. Consequently, if interest rates go up, so do capitalization rates. If interest rates rise in the future, it is likely that capitalization rates will also rise and, as a result, the value of real estate will decrease. If capitalization rates continue to increase, the hotel properties will likely achieve lower sales prices than anticipated, resulting in reduced returns.\n\nCertain of the hotel properties in our current portfolio are, and future hotel properties may be, located in areas with increased risk of tornados, floods and other natural disasters and face risks associated with the direct and indirect physical effects of climate change, and we do not intend to obtain insurance to cover these natural disasters unless required by a lender.\n\nSome of the hotel properties in our current portfolio are, and future hotel properties may be, located in areas in the United States that have increased risk of tornados, floods, earthquakes, hurricanes, high winds or wildfires. A tornado, flood, earthquake, hurricane, high winds or wildfire could cause structural damage to or destroy a hotel property. Over time, our\n\n24\n\n[Table of Contents](#TOC)\n\nhotels located in coastal markets and other areas that may be impacted by climate change are expected to experience increases in storm intensity and rising sea-levels, which may cause damage to our hotel properties. As a result, we could become subject to significant losses and/or repair costs. Other markets may experience prolonged variations in temperature or precipitation that may limit access to the water needed to operate our hotel properties or significantly increase energy costs, which may subject those properties to additional regulatory burdens, such as limitations on water usage or stricter energy efficiency standards. We do not intend to obtain wind, flood or earthquake insurance for the hotel properties unless required by a lender. We have obtained flood insurance for one of our hotels. It is possible that any such insurance, if obtained, will not be sufficient to pay for damage to any hotel property. Further, to the extent we do obtain insurance for such hotels, weather events and climate change may increase the cost of, or make unavailable, such property insurance, on terms we find acceptable in areas most vulnerable to such events.\n\nWe may not have control of hotel properties we acquire through joint ventures.\n\nWe may make some of our investments through joint ventures between the Company and both affiliated and non-affiliated parties. It is anticipated that, with respect to any such investment, we and the joint venture partner will have joint control over the management and operation of the hotel property. Thus, we will be dependent on the decisions made by our joint venture partner. Such joint venture partner may have objectives which are different than those of the Company.\n\nThe presence of construction defects in newly or recently constructed hotel properties could adversely affect the financial performance of a hotel property.\n\nSome of our current hotel properties are, and future hotel properties may be, newly or recently constructed. Newly constructed properties are sometimes subject to construction defects that only reveal themselves over time. If any of the hotel properties should become subject to any construction defect issues, we may have remedies under state law as well as under any warranties from the contractors for the construction work, provided that the warranties were assigned to such owner. If the warranties do not cover all the expenses associated with any construction defects that may arise, we could be liable for the expenses associated with correcting the construction defect. If work is required to cure any construction defects, reserves may not be sufficient to pay for such work. Accordingly, the presence of construction defects could adversely affect the financial performance of the hotel properties, we may be required to pay for all or part of the repair of such construction defects, which will reduce the cash flow from the hotel properties, and the return to our stockholders may be reduced.\n\nConstruction and rehabilitation at the hotel properties entails risks that are beyond our and any general contractor’s control, and the costs may exceed the funds available to us.\n\nWe have rehabilitated, renovated and made capital improvement at some of the hotel properties in our current portfolio, and expect to do so with future hotel properties. Hotel properties have an ongoing need for capital improvements and the franchisors of our hotels also require periodic capital improvements as a condition of keeping the franchise licenses. The construction of commercial real property is cyclical and is significantly affected by changes in national and local economic and other conditions, such as employment levels, availability of financing, interest rates and demand for commercial properties. Such uncertainties could adversely affect our performance. In addition, construction entails risks that are beyond our or any general contractor’s control. Completion of new construction, rehabilitation or redevelopment may be delayed or prevented, and costs of such capital improvements may be increased, by factors such as adverse weather, strikes or energy shortages, shortages or increased costs of labor and material for construction, delays in construction schedules, cost overruns, inflation, environmental, zoning, title or other legal matters and unknown contingencies, including any such factors caused by supply chain disruptions. Changes in construction plans and specifications, delays due to compliance with governmental requirements, increases in real estate taxes and other local government fees or imposition of fees not yet levied, or other delays could cause construction costs to exceed the amounts available from the Offering proceeds and any loans. In the event that construction costs exceed funds available, our ability to complete the work to be done on a development hotel property will depend upon our ability to supply additional funds. There can be no assurance that we will have adequate funds available for that purpose. Any delays in construction may have an adverse impact on our cash flow and long-term success.\n\n25\n\n[Table of Contents](#TOC)\n\nWe will be required to obtain the approval of various governmental authorities when rehabilitating and improving the hotel properties, which may result in delays and increased costs.\n\nIn rehabilitating and improving the hotel properties, we will be required to obtain the approval of various government authorities regulating such matters as permitted land uses and levels of density and the installation of utility services such as water and waste disposal. Governmental authorities have imposed impact fees as a means of defraying the cost of providing certain governmental services to developing areas and the amount of these fees has increased significantly during recent years. Many state laws require the use of specific construction materials which reduce the need for energy consuming heating and cooling systems. Local governments also, at times, declare moratoriums on the issuance of building permits and impose other restrictions in areas where sewage treatment facilities and other public facilities do not reach minimum standards. We will also be subject to a variety of federal, state and local statutes, ordinances, rules and regulations concerning protection of health and the environment. Such governmental regulation may result in delays, cause us to incur substantial compliance and other costs and prohibit or severely restrict development in certain regions or areas, which could have an adverse effect on our business and results of operations.\n\nWe may not discover defects in the hotel properties prior to acquisition.\n\nAlthough we intend to perform due diligence on the hotel properties before we acquire them, there can be no assurance that all defects (including physical defects, title issues and financial issues) will be discovered prior to acquisition. In the event that a significant issue is not discovered with respect to a particular hotel property, our performance may be negatively impacted.\n\nThe hotel properties could become subject to condemnation actions.\n\nThe hotel properties or a portion of the hotel properties could become subject to an eminent domain or inverse condemnation action. Any such action could have a material adverse effect on the marketability of a hotel property or the amount of return on investment for our stockholders.\n\nWe may sustain losses resulting from litigation that is not completely covered by insurance.\n\nWe anticipate that litigation will occur in the ordinary course of our business. We intend to maintain adequate general liability insurance to cover such potential litigation which stems from the ordinary course of owning and operating the hotel properties; however, there can be no assurance that all losses will be covered. If a loss occurs that is partially or completely uninsured, we may lose all or part of our investment.\n\n​\n\n**Risks Related to Debt Financing**\n\n​\n\nWe have obtained, and in the future likely will obtain, mortgage indebtedness and other borrowings, which increases our risk of loss due to potential foreclosures.\n\n​\n\nWe have obtained, and expect in the future to obtain, loans to acquire the hotel properties and thus, the hotel properties will be leveraged. We may also obtain mortgage debt on hotel properties that we already own in order to obtain funds to acquire additional hotel properties, to fund property improvements and other capital expenditures, to make distributions and for other purposes. In addition, we may borrow as necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes, including borrowings to satisfy the REIT requirement that we distribute at least 90% of our annual REIT taxable income (computed without regard to the dividends-paid deduction and excluding net capital gain) to our stockholders. We anticipate that the aggregate loan-to-value ratio for the Company will be between 35% and 65%. We target a loan-to-value ratio for the hotel properties of between 35% and 70%, based on the purchase price of the hotel properties, however, we may obtain financing that is less than or higher than such loan-to-value ratio for an individual hotel property at the discretion of our board of directors. As of December 31, 2025, our aggregate loan-to-value ratio, based on the aggregate purchase price of the hotel properties, was approximately 56%. No assurance can be given that future cash flow will be sufficient to make the debt service payments on any loans and to cover all operating expenses. If the hotel properties’ revenues are insufficient to pay debt service and operating costs, we may be required to seek additional working capital. There can be no assurance that such additional funds will be available. In the event\n\n26\n\n[Table of Contents](#TOC)\n\nadditional funds are not available, the lenders may foreclose on the hotel properties and our stockholders could lose their investment. In addition, the degree to which we are leveraged could have an adverse impact on us, including (i) increased vulnerability to adverse general economic and market conditions, (ii) impaired ability to expand and to respond to increased competition, (iii) impaired ability to obtain additional financing for future working capital, capital expenditures, general corporate or other purposes and (iv) requiring that a significant portion of cash provided by operating activities be used for the payment of debt obligations, thereby reducing funds available for distributions, operations and future business opportunities.\n\nRestrictions on the availability of real estate financing, high interest rates and the cost of loans has increased our debt service payments and may make it difficult for us to finance or refinance the hotel properties on terms acceptable to us or at all.\n\nMarket fluctuations in real estate loans may affect the availability and cost of loans needed to acquire or refinance the hotel properties. Lenders of several loans that we have refinanced or extended recently have required higher interest rates than the original loans. There is no assurance that we will be able to obtain the required financing to acquire or refinance the hotel properties. Restrictions on the availability of real estate financing or high interest rates on real estate loans may also adversely affect our ability to sell the hotel properties. Interest rates have increased and may continue to rise, though the timing and amount of any such future interest rate increases are uncertain. As a result, the interest rates available for future real estate loans and refinancings may be higher than the current interest rates for such loans, which may have a material and adverse impact on the hotel properties and us.\n\nSome of our financing arrangements involve interest only loans and balloon payment obligations and an inability to prepay until shortly before maturity. These may, in the future, adversely affect our ability to make distributions.\n\nDebt on some of our existing hotel properties require us, and debt on future hotel properties may also require us, to make interest only payments with a lump-sum or “balloon” payment at maturity. Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or to sell the hotel property. At the time the balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell the hotel property at a price sufficient to make the balloon payment. Several of the loans obtained to acquire our existing hotel properties do not allow for prepayment until shortly before maturity and provide that any prepayment may require the payment of a prepayment fee. Consequently, we may not be able to take advantage of favorable changes in interest rates. The effect of a refinancing or sale could affect the rate of return to our stockholders and the projected time of disposition of the hotel properties. In addition, payments of principal and interest made to service our debts may leave us with insufficient cash to pay the distributions that we are required to pay to maintain our qualification as a REIT and/or avoid federal income tax.\n\nElevated interest rates have increased our interest costs, and future increases in interest rates could further increase our interest costs and reduce our cash flows.\n\n​\n\nAs of the date of this filing, we had a total of $26.4 million of variable rate notes payable, including our existing line of credit with Western State Bank, and it is anticipated that the loans we obtain in the future may have variable interest rates. Any increase in interest rates would increase our interest costs, which would reduce our cash flows and our ability to make distributions to our stockholders. An increase in interest rates could also affect our ability to refinance or extend existing financing on favorable terms, or at all. Lenders of several loans that we have refinanced or extended recently have required higher interest rates that the original loans. Given the challenges affecting the U.S. real estate industry and the elevated interest rate environment, in order to refinance or extend loans, we expect our interest expense to increase in the future as a result of recent extensions and as we continue to refinance our maturing debt. In the event that the interest rate on any loan increases significantly, we may not have sufficient funds to pay the required interest payments. In such event, the continued ownership of the applicable hotel property may be threatened. In addition, if we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments at times or on terms that may not permit realization of the maximum return on such investments. Increases in interest rates may cause our operations to suffer and the amount of distributions our stockholders receive and their overall return on investment may decline.\n\n27\n\n[Table of Contents](#TOC)\n\n​\n\nWe have incurred, and may in the future incur, recourse debt or be liable for nonrecourse carve-outs and springing recourse events under the loans for the hotel properties, which may permit the lenders to proceed against our assets.\n\nAlthough we attempt to obtain loans for the hotel properties that will be nonrecourse as to principal and interest, we have obtained and may in the future obtain recourse debt to finance our acquisitions. Further, lenders have required and may in the future require us to be personally liable for certain carve-outs and springing recourse events. In circumstances where personal liability attaches, the lender could proceed against our assets. If a lender successfully forecloses upon any of our assets, our ability to pay cash distributions to our stockholders will be reduced and our stockholders may lose part of their investment.\n\nIf we violate any restrictions on transfer imposed by lenders, the lender could have the right to declare the entire amount of the loan to be immediately due and payable.\n\nLoans on our existing hotel properties restrict, and we anticipate that loans on future hotel properties will, restrict our ability to sell our interests in the hotel properties. The lenders may also impose restrictions on the transferability of our shares of common stock. Upon violation of the restrictions on transfer or encumbrance, a lender will have the right to declare the entire amount of the loan, including principal, interest, prepayment premiums and other charges, to be immediately due and payable. If the lender declares the loan to be immediately due and payable, we will have the obligation to immediately pay the loan in full, including applicable prepayment charges. If replacement financing is not found or the loan is not immediately paid in full, the lender may invoke its other remedies under the loan, which may include proceeding with a foreclosure that would cause us to lose our entire interest in the applicable hotel property.\n\nIf we default on a loan, it could result in foreclosure of the hotel property, which could result the loss of all or a substantial portion of the investment we made in the hotel property.\n\nLoans on our existing hotel properties include, and we anticipate that future loans will include, various actions by us that will cause an event of default under such loans, including, among others, the failure to pay required payments under the loan, the failure to pay taxes, the failure to maintain insurance, the assignment by an owner of a hotel property of an interest in such hotel property to a creditor, the bankruptcy of an owner of a hotel property, the filing of an action for partition or the transfer of an interest in a hotel property without lender’s consent. Additional events of default may be applicable to some or all of the loans. If we default under a loan for any reason, the lender may declare a default under the applicable loan, which could result in foreclosure by the lender on the applicable hotel property and the loss of all or a substantial portion of the investment we made in such hotel property.\n\nThe derivative financial instruments we use to hedge against interest rate fluctuations may not be successful in mitigating our risks associated with interest rates and could reduce the overall returns on our stockholders’ investment.\n\nWe are exposed to the effects of interest rate changes as a result of borrowings we use to maintain liquidity and to fund the acquisition, expansion and refinancing of the hotel properties and our operations. Our profitability and the value of our investment portfolio may be adversely affected during any period as a result of interest rate changes. We may choose to manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that floating rate exposure is kept at an acceptable level. We may utilize a variety of derivative financial instruments, including interest rate caps, floors and swap agreements, in order to hedge exposures and limit the effects of changes in interest rates on our operations, but no hedging strategy can protect us completely. When we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that counterparties may fail to honor their obligations under these arrangements, these arrangements may not be effective in reducing our exposure to interest rate changes, and losses on a hedge position will reduce the funds available for the payment of distributions to our stockholders, and the losses may exceed the amount we invested in the instruments. These hedging agreements involve risks. We cannot assure you that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that its hedging transactions will not result in losses. In addition, the use of such instruments may reduce the overall return on our investments. These instruments may also generate income that may not be treated as qualifying REIT income for purposes of the 75% or 95% REIT gross income tests.\n\n28\n\n[Table of Contents](#TOC)\n\nCertain of the hotel properties and our other assets are cross-collateralized.\n\nWe have obtained a line of credit, and may obtain other debt financing, which require that our assets be cross-collateralized. No assurance can be given that future cash flow will be sufficient to make the debt service payments on our loans and to cover all operating expenses.\n\nRisks Related to Our Organization and Structure\n\nOur TRS Lessee structure subjects us to the risk of increased hotel operating expenses that could adversely affect our operating results and our ability to make distributions to our stockholders.\n\nOur leases with our TRS Lessees require our TRS Lessees to pay the owners of the hotel properties (which are wholly-owned subsidiaries of the Operating Partnership) rent based, in part, on revenues from the hotel properties. Our operating risks include decreases in hotel property revenues and increases in operating expenses, which would adversely affect our TRS Lessees’ ability to pay rent due under the leases, including, but not limited to, increases in wage and benefit costs, repair and maintenance expenses, energy costs, property taxes, insurance costs and other operating expenses. As these rent payments will be a primary source of our revenue, any inability of our TRS Lessees to make such rent payments would likely have a significant adverse impact on our financial condition, results of operations and our ability to make distributions to our stockholders.\n\nOur TRS structure increases our overall tax liability.\n\nOur TRS Lessees are subject to federal, state and local income tax on their taxable income, which consists of the revenues from the hotel properties, net of the operating expenses for the hotel properties and rent payments to the Operating Partnership. Accordingly, although ownership of our TRS Lessees allows us to participate in the operating income from the hotel properties in addition to receiving rent, that operating income is fully subject to corporate income tax. The after-tax net income of our TRS Lessees will be available for distribution to us.\n\nOur ownership of our TRSs is limited and our transactions with our TRSs will cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms.\n\nA REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT, including gross operating income from hotels that are operated by eligible independent contractors pursuant to management agreements. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20% of the value of a REIT’s gross assets may consist of stock or securities of one or more TRSs. In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. Our TRS entities are subject to federal, state and local income tax on their taxable income, and their after-tax net income is available for distribution, but is not required to be distributed to us. There can be no assurance that we will be able to comply with the 20% limitation or to avoid application of the 100% excise tax.\n\nIf our leases with our TRS Lessees are not respected as true leases for federal income tax purposes, we would not qualify as a REIT.\n\nTo qualify as a REIT, we are required to satisfy two gross income tests pursuant to which specified percentages of our gross income must be passive income, such as rent. For the rent paid pursuant to the leases with our TRS Lessees, which should constitute substantially all of our gross income, to qualify for purposes of the gross income tests, the leases must be respected as true leases for federal income tax purposes and must not be treated as service contracts, joint ventures or some other type of arrangement. We plan to structure our leases so that they will be respected as true leases for federal income tax purposes, but there can be no assurance that the Internal Revenue Service (“IRS”) will agree with this characterization or will not challenge this treatment, or that a court would not sustain such a challenge. If the leases were\n\n29\n\n[Table of Contents](#TOC)\n\nnot respected as true leases for federal income tax purposes, we would not be able to satisfy either of the two gross income tests applicable to REITs and likely would fail to qualify for REIT status.\n\nIf our hotel operators do not qualify as “eligible independent contractors,” we would not qualify as a REIT.\n\nRent paid by a lessee that is a “related party tenant” of a REIT will not be qualifying income for purposes of the two gross income tests applicable to REITs. We lease all of the hotel properties to our TRS Lessees. A TRS Lessee will not be treated as a “related party tenant,” and will not be treated as directly operating the hotel properties to the extent the hotel properties are operated by an “eligible independent contractor.” If our hotel property operators do not qualify as “eligible independent contractors,” we would not qualify as a REIT. Each of the management companies that enters into a management agreement with our TRS Lessees must qualify as an “eligible independent contractor” under the REIT rules in order for the rent paid to us by our TRS Lessees to be qualifying income for our REIT income test requirements. In order to qualify as an eligible independent contractor, an operator must not own more than 35% of our outstanding shares (by value). In addition, if the operator is a corporation, not more than 35% of the total combined voting power of whose stock (or 35% of the total shares of all classes of whose stock), or, if the operator is not a corporation, not more than 35% of the interest in whose assets or net profits is owned, directly or indirectly, by one or more persons owning 35% or more of our shares of common stock. Complex ownership attribution rules apply for purposes of these 35% thresholds. Although we intend to monitor ownership of our shares of common stock by our hotel property operators and their owners, there can be no assurance that these ownership levels will not be exceeded.\n\nThe lease of the hotel properties to a TRS is subject to special requirements.\n\nWe may lease certain “qualified lodging facilities” to a TRS (or a limited liability company of which a TRS is a member). The TRS in turn will contract with a management company to operate the lodging facility operations at the hotels. The rents paid by a TRS in this structure would be treated as qualifying rents from real property for purposes of the REIT requirements only if (i) they are paid pursuant to an arm’s-length lease of a qualified lodging facility property and (ii) the operator qualifies as an “eligible independent contractor” with respect to the property. An operator will qualify as an eligible independent contractor if it meets certain ownership tests with respect to us, and if, at the time the operator enters into the management agreement, the operator is actively engaged in the trade or business of operating qualified lodging facility properties for any person who is not a related person to us or our TRSs. If any of the above conditions are not satisfied, then the rents will not be considered income from a qualifying source for purposes of the REIT rules, which could cause us to incur penalty taxes or to fail to qualify as a REIT.\n\nThe ability of our board of directors to revoke our REIT qualification without stockholder approval may cause adverse consequences to our stockholders.\n\nOur board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to qualify as a REIT, we would become subject to federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders.\n\nThe ability of our board of directors to change our major policies may not be in your best interest.\n\nOur board of directors determines our major policies, including policies and guidelines relating to our acquisitions, leverage, financing, growth, operations and distributions to stockholders and our continued qualification as a REIT. Our board of directors may amend or revise these and other policies and guidelines from time to time without the vote or consent of our stockholders. Accordingly, our stockholders will have limited control over changes in our policies and those changes could adversely affect our financial condition, results of operations, the market price of our shares of common stock and our ability to make distributions to our stockholders.\n\nWe have not established a minimum distribution payment level and we may be unable to generate sufficient cash flows from our operations to make distributions to our stockholders at any time in the future.\n\nWe are generally required to distribute to our stockholders at least 90% of our REIT taxable income each year for us to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), which requirement we currently\n\n30\n\n[Table of Contents](#TOC)\n\nintend to satisfy. To the extent we satisfy the 90% distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. We have not established a minimum distribution payment level, and our ability to make distributions to our stockholders may be adversely affected by the risk factors described herein. Subject to satisfying the requirements for REIT qualification, in general, we intend over time to make regular monthly distributions to our stockholders. Our board of directors has the sole discretion to determine the timing, form and amount of any distributions to our stockholders. Our board of directors makes determinations regarding distributions based upon factors that it deems relevant.\n\nAmong the factors that could impair our ability to make distributions to our stockholders are:\n\n●our inability to realize attractive returns on our investments;\n\n●unanticipated expenses that reduce our cash flow or non-cash earnings;\n\n●decreases in the value of the underlying assets; and\n\n●the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates.\n\nAs a result, no assurance can be given that we will be able to continue to make distributions to our stockholders or that the level of any distributions we do make to our stockholders will achieve a market yield or increase or even be maintained over time. Distributions could be dilutive to our financial results and may constitute a return of capital to our investors, which would have the effect of reducing each stockholder’s basis in its shares.\n\nIf we are deemed to be an investment company under the Investment Company Act of 1940, our stockholders’ investment return may be reduced.\n\nThe Investment Company Act of 1940, as amended (the “Investment Company Act”) requires that any issuer that is beneficially owned by 100 or more persons and that owns certain securities be registered as required under the Investment Company Act. Pursuant to the Operating Partnership Agreement, we are solely responsible for the management and operation of the Operating Partnership and, as a result, our interest in the Operating Partnership has significant incidents of a true general partnership interest and does not fall within the definition of a “security” for purposes of the Investment Company Act. If our interest in the Operating Partnership is deemed to be a security or if the Operating Partnership fails to qualify for an exemption or exclusions from the Investment Company Act, we will be required to register under the Investment Company Act. In the event we are required to register under the Investment Company Act, the returns to our stockholders will likely be significantly reduced.\n\nWe will be subject to certain risks relating to the Operating Partnership’s acceptance of contributed property in exchange for limited partnership interests.\n\nWe intend to own all of our assets through the Operating Partnership. The Operating Partnership has accepted, and may in the future accept, contributions of property from certain persons in exchange for limited partnership interests in the Operating Partnership. The acceptance of persons as limited partners in the Operating Partnership involves certain risks including (i) entering into certain indemnification agreements with the contributing limited partners that would cause us to indemnify such persons for tax liability that may be incurred by the contributing limited partners related to the sale of the contributed property, (ii) the fact that the contributing limited partners will have certain voting rights with respect to the Operating Partnership and (iii) the need for the Operating Partnership to allocate debt to contributing limited partners.\n\n31\n\n[Table of Contents](#TOC)\n\nWe may need to modify our investment portfolio in the future in order to qualify as a REIT, which may adversely affect our performance.\n\nIf the market value or income potential of our qualifying real estate assets changes as compared to the market value or income potential of our non-qualifying assets, or if the market value or income potential of our assets that are considered “real estate-related assets” under the Investment Company Act or REIT qualification tests changes as compared to the market value or income potential of our assets that are not considered “real estate-related assets” under the Investment Company Act or REIT qualification tests, whether as a result of increased interest rates, prepayment rates or other factors, we may need to modify our investment portfolio in order to qualify as a REIT or maintain our exclusion from the definition of an investment company. If the decline in asset values or income occurs quickly, this may be especially difficult, if not impossible, to accomplish. This difficulty may be exacerbated by the illiquid nature of many of the assets that we intend to own. We may have to make investment decisions that we otherwise would not make absent REIT and Investment Company Act considerations.\n\nUnder Maryland law, our directors have limited liability if they perform their duties in good faith, in a manner he or she reasonably believes to be in our best interests, and with the care that an ordinarily prudent person in a like position would use under similar circumstances. We are required to indemnify our directors and officers to the maximum extent permitted under Maryland law.\n\nMaryland law provides that a director will not have any liability in that capacity so long as he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests, and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our charter provides that to the maximum extent permitted by Maryland law, none of our present or former officers or directors will be liable to us or our stockholders for money damages. In addition, the charter and the bylaws require us to indemnify (including advancement of expenses) our directors and officers for actions taken by them in those capacities to the maximum extent permitted by Maryland law. As a result, we and our stockholders may have more limited rights against these persons than might otherwise exist under common law.\n\nMaryland law prohibits business combinations with certain interested stockholder and their affiliates unless otherwise approved by our board of directors, which could inhibit a change in control.\n\nCertain provisions of the Maryland General Corporation Law applicable to us prohibit business combinations with (i) any person who beneficially owns, directly or indirectly, 10% or more of the voting power of our outstanding voting stock, which is referred to as an “interested stockholder,” (ii) an affiliate or associate of the Company who, at any time within the two-year period prior to the date in question, beneficially owned, directly or indirectly, 10% or more of the voting power of our then outstanding stock, which is also referred to as an interested stockholder or (iii) an affiliate of an interested stockholder. These prohibitions last for five years after the most recent date on which the interested stockholder became an interested stockholder. Thereafter, any business combination with the interested stockholder must be recommended by our board of directors and approved by the affirmative vote of at least 80% of the votes entitled to be cast by holders of our outstanding voting stock and two-thirds of the votes entitled to be cast by holders of shares of our voting stock other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder. These requirements could have the effect of inhibiting a change in control even if a change in control were in our stockholders’ interest. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by our board of directors prior to the time that someone becomes an interested stockholder.\n\nProvisions contained in Maryland law that are reflected in our charter and bylaws may have anti-takeover effects, potentially preventing investors from receiving a “control premium” for their shares.\n\nProvisions contained in our charter and bylaws, as well as Maryland corporate law, may have anti-takeover effects that delay, defer or prevent a takeover attempt, which may prevent our stockholder from receiving a “control premium” for their shares. For example, these provisions may defer or prevent tender offers for our common stock or purchases of large blocks of our common stock, thereby limiting the opportunities for our stockholders to receive a premium for their shares over then-prevailing market prices. These provisions include the following:\n\n32\n\n[Table of Contents](#TOC)\n\n●**Ownership limit**. The ownership limit in our charter limits related investors including, among other things, any voting group, from acquiring no more than 9.8% of the value or number of the aggregate, whichever is more restrictive, of our then outstanding shares of common stock, and no more than 9.8% of the value of our then outstanding capital stock (which includes all of our common stock and preferred stock), without the consent of our board of directors.\n\n●**Preferred stock**. Our charter authorizes our board of directors to issue preferred stock in one or more classes and to establish the preferences and rights of any class of preferred stock issued. These actions can be taken without soliciting stockholder approval.\n\n●**Maryland control share acquisition statute**. Maryland law limits the voting rights of “control shares” of a corporation in the event of a “control share acquisition.”\n\nFederal Income Tax Risks\n\nIf we sell a built-in gain asset within five years of the effective date of our REIT election, we may be subject to corporate-level tax on the built-in gain component.\n\nUpon our conversion from an entity taxable as a corporation to a REIT, each asset held directly, or indirectly through a partnership, that had a fair market value in excess of its adjusted basis generally will be considered a “built-in gain asset.” This built-in gain component will be fixed as of the date of conversion to REIT status. If we sell a built-in gain asset within five years of the effective date of our REIT election, we will (subject to certain exceptions) be subject to a corporate-level tax on the built-in gain component. To the extent that we are required to pay federal, state and local taxes, we will have less cash available for distributions.\n\nFailure to qualify as a REIT would reduce our net earnings available for investment or distribution.\n\nOur qualification as a REIT will depend upon our ability to meet requirements regarding our organization and ownership, distributions of our income, the nature and diversification of our gross income (an annual test) and assets (tested as of the end of each calendar quarter) and other tests imposed by the Code. If we fail to qualify as a REIT for any taxable year after electing REIT status, we will be subject to federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distributions to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends-paid deduction and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.\n\nGenerally, ordinary dividends payable by REITs do not qualify for reduced U.S. federal income tax rates.\n\nCurrently, the maximum tax rate applicable to qualified dividend income payable to certain non-corporate U.S. stockholders, is 20%. Dividends payable by REITs, however, generally are not eligible for the reduced rates. REIT dividends that are not designated as qualified dividend income or capital gain dividends are taxable as ordinary income. Although this does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividend income could cause certain non-corporate investors to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends. Commencing with taxable years beginning on or after January 1, 2018 and continuing through 2025, non-corporate U.S. taxpayers may be entitled to claim a deduction in determining their taxable income of up to 20% of qualified REIT dividends (dividends other than capital gain dividends and dividends attributable to certain qualified dividend income received by us). In addition, Treasury Regulations impose a minimum holding period for the 20% deduction that was not set forth in the Code. Under the Treasury Regulations, in order for a REIT dividend with respect to a share of REIT stock to be treated as a qualified REIT dividend, the U.S. stockholder (i) must have held the share for more than 45 days during the 91-day period beginning on the date which is 45 days before the date on which such share becomes ex-dividend with respect to such dividend and (ii) cannot have been under an obligation to make related payments with respect to positions in substantially similar or related property, e.g., pursuant to a short sale. Prospective investors are urged to consult with their tax advisors regarding the effect of this change on their effective tax rate with respect to REIT dividends.\n\n33\n\n[Table of Contents](#TOC)\n\nEven if we qualify as a REIT for federal income tax purposes, we may be subject to other tax liabilities that reduce our cash flow and our ability to make distributions to our stockholders.\n\nEven if we qualify as a REIT for federal income tax purposes, we may still be subject to some federal, state and local taxes on our income or property. For example:\n\n●In order to qualify as a REIT, we must distribute annually at least 90% of our taxable income to our stockholders (which is determined without regard to the dividends-paid deduction or net capital gain). To the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on the undistributed income. We intend to make distributions to our stockholders to comply with the REIT requirements of the Code.\n\n●We will be subject to a 4.0% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.\n\n●If we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay a tax on that income at the highest corporate income tax rate.\n\n●If we sell an asset, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, our gain would be subject to the 100% “prohibited transaction” tax unless such sale were made by one of our taxable REIT subsidiaries or we qualified for a “safe harbor” under the Code.\n\n●If we hold or acquire assets when we are taxable as a corporation prior to our qualification as a REIT, such assets when held by us as a REIT may be subject to tax if sold in the five-year period following the acquisition of such assets.\n\nThe ownership limits that apply to REITs, as prescribed by the Code and by the charter, may inhibit market activity in our shares of common stock and restrict our business combination opportunities.\n\nIn order for us to qualify as a REIT, not more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) at any time during the last half of each taxable year after the first year for which we elect to qualify as a REIT. Additionally, at least 100 persons must beneficially own our capital stock during at least 335 days of a taxable year (other than the first taxable year for which we elect to be taxed as a REIT). The charter, with certain exceptions, authorizes our board of directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. The charter also provides that, unless exempted by the Board, no person may own more than 9.8% by value or number of shares, whichever is more restrictive, of our outstanding shares of common stock, or 9.8% by value or number of shares, whichever is more restrictive, of our outstanding capital stock. Our board of directors may, in its sole discretion, subject to such conditions as it may determine and the receipt of certain representations and undertakings, prospectively or retroactively, waive the ownership limit or establish a different limit on ownership, or excepted holder limit, for a particular stockholder if the stockholder’s ownership in excess of the ownership limit would not result in our being “closely held” under Code Section 856(h) or otherwise failing to qualify as a REIT. These ownership limits could delay or prevent a transaction or a change in control of the Company that might involve a premium price for our shares of common stock or otherwise be in the best interest of our stockholders.\n\nREIT distribution requirements could adversely affect our ability to execute our business plan.\n\nTo qualify as a REIT, we must distribute to our stockholders each year 90% of our REIT taxable income (which is determined without regard to the dividends-paid deduction or net capital gain). Further, we must distribute 100% of our REIT taxable income in order to avoid a corporate level tax. From time to time, we may generate taxable income greater than our income for financial reporting purposes, or our taxable income may be greater than our cash flow available for distribution to our stockholders (for example, where a borrower defers the payment of interest in cash pursuant to a contractual right or otherwise). If we do not have other funds available in these situations, we could be required to borrow funds, sell investments at disadvantageous prices or find another alternative source of funds to make distributions sufficient\n\n34\n\n[Table of Contents](#TOC)\n\nto enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4.0% excise tax in a particular year. These alternatives could increase our costs or reduce our equity. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.\n\nComplying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments.\n\nTo qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our shares of common stock. In order to meet these tests, we may be required to forego investments we might otherwise make. Thus, compliance with the REIT requirements may hinder our performance. In particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our gross assets consists of cash, cash items, government securities and qualified real estate assets. The remainder of our investment in securities (other than government securities, securities that constitute qualified real estate assets and securities of our TRSs) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our gross assets (other than government securities, securities that constitute qualified real estate assets and securities of our TRSs) can consist of the securities of any one issuer, and no more than 20% of the value of our total gross assets can be represented by the securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.\n\nThe tax on prohibited transactions will limit our ability to engage in transactions that would be treated as sales for federal income tax purposes.\n\nA REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of assets, other than foreclosure property, deemed held primarily for sale to customers in the ordinary course of business (subject to a safe harbor under the Code for certain sales). It may be possible to reduce the impact of the prohibited transaction tax by conducting certain activities through taxable REIT subsidiaries. However, to the extent that we engage in such activities through taxable REIT subsidiaries, the income associated with such activities may be subject to full corporate income tax.\n\nNon-United States investors may be subject to FIRPTA on the sale of its shares if we are unable to qualify as a “domestically controlled” REIT.\n\nA non-United States person disposing of a United States real property interest, including shares of a United States corporation whose assets consist principally of United States real property interests, is generally subject to a tax under the Foreign Investment in Real Property Tax Act, known as FIRPTA, on the gain recognized on the disposition of such interest. Note that “qualified foreign pension funds” and certain other qualified foreign stockholders may be generally exempt from FIRPTA. In addition, FIRPTA does not apply, however, to the disposition of shares in a REIT if the REIT is a “domestically controlled” REIT. A REIT is a domestically controlled REIT if, at all times during a specified testing period (the continuous five-year period ending on the date of disposition or, if shorter, the entire period of the REIT’s existence), less than 50% in value of its shares is held directly or indirectly by non-United States holders. We cannot assure you that we will qualify as a domestically controlled REIT. Final Treasury regulations effective April 25, 2024 (the “Final Regulations”) modify the existing prior tax guidance relating to the manner in which we determine whether we are a domestically controlled REIT. These regulations provide a look through rule for our stockholders that are non-publicly traded partnerships, non-public REITs, non-public regulated investment companies, or domestic “C” corporations owned 50% or more directly or indirectly by foreign persons (“foreign-controlled domestic corporations”) and treat “qualified foreign pension funds” and “international organizations” as foreign persons for this purpose. The look-through rule in the Final Regulations applicable to foreign-controlled domestic corporations will not apply to a REIT for a period of up to ten years if the REIT is able to satisfy certain requirements during that time, including not undergoing a significant change in its ownership and not acquiring a significant amount of new U.S. real property interests, in each case since April 24, 2024, the date the Final Regulations were issued. If a REIT fails to satisfy such requirements during the ten-year period, the\n\n35\n\n[Table of Contents](#TOC)\n\nlook-through rule in the Final Regulations applicable to foreign-controlled domestic corporations will apply to such REIT beginning on the day immediately following the date of such failure. We cannot predict when we will commence being subject to such look-through rule in the Final Regulations and we may not be able to satisfy the applicable requirements for the duration of the ten-year period. Prospective investors are urged to consult with their tax advisors regarding the application and impact of these rules. If we were to fail to qualify as a domestically controlled REIT, and if a separate exemption did not apply, gain realized by a non-United States investor on a sale of its shares would be subject to FIRPTA unless our shares of common stock were traded on an established securities market and the non-United States investor did not at any time during a specified testing period directly or indirectly own more than 10% of the value of our outstanding common stock.\n\nComplying with the REIT requirements may limit our ability to hedge effectively.\n\nThe REIT provisions of the Code may limit our ability to hedge our assets and operations. Under these provisions, any income that we generate from transactions intended to hedge our interest rate, inflation and/or currency risks, including gain from the disposition of certain hedging transactions, will be excluded from gross income for purposes of the REIT 75% and 95% gross income tests if the instrument hedges (i) interest rate risk on liabilities incurred to carry or acquire real estate, (ii) risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the REIT 75% or 95% gross income tests or (iii) risks associated with the extinguishment of certain indebtedness or the disposition of certain property related to prior hedging transactions described in (i) or (ii) above and each such instrument is properly identified under applicable Treasury Regulations. Income from hedging transactions that do not meet these requirements will generally constitute nonqualifying income for purposes of both the REIT 75% and 95% gross income tests. As a result of these rules, we may have to limit our use of hedging techniques that might otherwise be advantageous, which could result in greater risks associated with interest rate or other changes than we would otherwise incur.\n\nIf we were considered to actually or constructively pay a “preferential dividend” to certain of our stockholders, our status as a REIT could be adversely affected.\n\nIn order to qualify as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain. For so long as we are not a publicly offered REIT (defined below), in order for distributions to be counted as satisfying the annual distribution requirements for REITs, and to provide us with a REIT-level tax deduction, the distributions must not be “preferential dividends.” A dividend is generally not a preferential dividend if the distribution is pro rata among all outstanding shares of stock within a particular class, and in accordance with the preferences among different classes of stock as set forth in the REIT’s organizational documents. There is no de minimis exception with respect to preferential dividends. However, the preferential dividend rules do not apply to a “publicly offered REIT.” A publicly offered REIT is defined as a REIT that is required to file annual and periodic reports with the SEC under the Securities and Exchange Act of 1934. We are required to file annual and periodic reports with the SEC.\n\nChanges made to the U.S. tax laws could have a negative impact on our business.\n\nThe federal income tax laws, regulations, and administrative interpretations applicable to REITs are subject to ongoing review and may be amended at any time. Legislative, administrative, or judicial changes to U.S. tax laws, potentially with retroactive effect, could materially and adversely affect our business, financial condition, results of operations, cash flows, or the tax treatment of an investment in our common stock.\n\nThe U.S. Congress, the U.S. Treasury Department, and the Internal Revenue Service regularly consider and implement changes to federal tax policy, including changes affecting the taxation of real estate, REIT qualification requirements, income tax rates, deductions, credits, and other tax benefits. We cannot predict whether, when, or to what extent any such changes will be enacted or become effective. Future tax legislation or regulatory guidance could increase our tax liability, reduce cash available for distribution to stockholders, limit our ability to maintain REIT qualification, or otherwise adversely affect us or our stockholders.\n\nProspective and existing stockholders are encouraged to consult their own tax advisors regarding the potential impact of current and future legislative, regulatory, or administrative developments on an investment in our common stock.\n\n36\n\n[Table of Contents](#TOC)\n\n**Retirement Plan Risks**\n\nIf the fiduciary of an employee benefit plan fails to meet the fiduciary requirements and other standards under ERISA and the Code as a result of investment in our shares of common stock, the fiduciary could be subject to criminal and civil penalties.\n\nSpecial considerations apply to (i) employee benefit plans subject to ERISA, (ii) plans, IRAs and other arrangements subject to Code Section 4975 (such as an individual retirement account (“IRA”)) and (iii) entities deemed under ERISA to hold the “plan assets” of any such employee benefit plans or plans that are investing in our shares of common stock. Fiduciaries investing the assets of such a plan in our shares of common stock should, among other things, consider the following:\n\n​\n\n●whether the investment is in accordance with the documents and instruments governing such plan;\n\n●the definition of “plan assets” under ERISA and the impact thereof on the plan’s investment in the Company;\n\n●whether the investment satisfies the diversification requirements of Section 404(a)(1)(C) of ERISA (or other applicable law);\n\n●whether, under Section 404(a)(1)(B) of ERISA (or other applicable law), the investment is prudent, considering the nature of an investment in the Company and our compensation structure and the fact that there is not expected to be a market created in which our shares of common stock can be sold or otherwise disposed of;\n\n●that we have a limited history of operations;\n\n●whether we or any of our affiliates are a “party-in-interest” (within the meaning of Section 3(14) of ERISA) or “disqualified person” (within the meaning of Code Section 4975) with respect to the plan;\n\n●the need to annually value our shares of common stock; and\n\n●whether an investment in the Company will cause the plan to recognize unrelated business taxable income.\n\nWith respect to the annual valuation requirements described above, we will provide an estimated value for our shares of common stock annually beginning after the Initial Valuation Date. We can make no claim whether such estimated value will or will not satisfy the applicable annual valuation requirements under ERISA and the Code. The Department of Labor or the IRS may determine that a plan fiduciary is required to take further steps to determine the value of our shares of common stock. In the absence of an appropriate determination of value, a plan fiduciary may be subject to damages, penalties or other sanctions.\n\nFailure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA and the Code may result in the imposition of criminal and civil penalties and could subject the fiduciary to claims for damages or for equitable remedies. In addition, if an investment in our shares of common stock constitutes a prohibited transaction under ERISA or the Code, the fiduciary who authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested. In the case of a prohibited transaction involving an IRA owner, the IRA may lose its tax-exempt status and thus, the entire value of the IRA would be considered to be distributed and taxable to the IRA sponsor. Plan fiduciaries should consult with their own legal advisors before making an investment in our shares of common stock.\n\n​"}