LIGHTSTONE VALUE PLUS REIT III, INC. MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS: (Form 10-K)

You should read the following discussion and analysis together with our
consolidated financial statements and notes thereto included in this Annual
Report on Form 10-K. The following information contains forward-looking
statements, which are subject to risks and uncertainties. Should one or more of
these risks or uncertainties materialize, actual results may differ materially
from those expressed or implied by the forward-looking statements. Please see
"Special Note Regarding Forward-Looking Statements" above for a description of
these risks and uncertainties. Dollar amounts are presented in whole numbers,
except per share data and where indicated in millions.

Overview

Lightstone Value Plus REIT III, Inc. ("Lightstone REIT III"), which was formerly
known as Lightstone Value Plus Real Estate Investment Trust III, Inc. before
September 16, 2021, together with the Operating Partnership (as defined below),
the "Company", also referred to as "we", "our" or "us" herein) has and expects
to continue to acquire and operate or develop in the future, hospitality,
residential and/or commercial properties and/or make real estate-related
investments, principally in the United States. Our acquisitions and investments
are, principally conducted through the Operating Partnership, and may include
both portfolios and individual properties. As of December 31, 2021, our
portfolio of properties consisted of ten hospitality properties (eight
consolidated and two unconsolidated). Our real estate investments have been and
are expected to continue to be held by us alone or jointly with other parties.

We do not have employees. We entered into an advisory agreement with Lightstone
Value Plus REIT III LLC, a Delaware limited liability company, which we refer to
as the "Advisor," pursuant to which the Advisor supervises and manages our
day-to-day operations and selects our real estate and real estate related
investments, subject to oversight by our Board of Directors. We pay the Advisor
fees for services related to the investment and management of our assets, and we
will reimburse the Advisor for certain expenses incurred on our behalf.

To qualify or maintain our qualification as a REIT, we conduct certain activities through a wholly-owned taxable REIT subsidiary (“TRS”). As such, we are subject to we federal and state income taxes and deductibles from these activities.

Acquisitions and investment strategy

We have made and intend to continue to make direct or indirect real estate
investments that will satisfy our primary investment objectives of preserving
capital, making cash distributions as necessary to maintain our status as a REIT
and achieving appreciation of our assets over the long term. The ability of our
Advisor to identify and execute investment opportunities directly impacts our
financial performance.

We will continue to seek to acquire and operate hotels and other commercial real
estate assets, residential properties and make other real estate-related
investments primarily located in the United States. We may acquire and operate
all such properties alone or jointly with another party.

Current environment

Our operating results are substantially impacted by the overall health of local,
U.S. national and global economies and may be influenced by market and other
challenges. Additionally, our business and financial performance may be
adversely affected by current and future economic and other conditions;
including, but not limited to, availability or terms of financings, financial
markets volatility, political upheaval or uncertainty, natural and man-made
disasters, terrorism and acts of war, unfavorable changes in laws and
regulations, outbreaks of contagious diseases, cybercrime, loss of key
relationships, and recession.

These and other market and economic challenges could materially affect (i) the
value and performance of our investments, (ii) our ability to pay future
distributions, if any, (iii) the availability or terms of financings, (iv) our
ability to make scheduled principal and interest payments, and (v) our ability
to refinance any outstanding debt when contractually due.


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Update on operations and liquidity in the event of the COVID-19 pandemic

The World Health Organization declared COVID-19 a global pandemic on March 11,
2020 and since that time many of the previously imposed restrictions and other
measures which were instituted in response have been subsequently reduced or
lifted. However, the COVID-19 pandemic remains highly unpredictable and dynamic
and its duration and extent continue to be dependent on various developments,
such as the emergence of variants to the virus that may cause additional strains
of COVID-19, the administration and ultimate effectiveness of vaccines,
including booster shots, and the eventual timeline to achieve a sufficient level
of herd immunity among the general population. Accordingly, the COVID-19
pandemic may continue to have negative effects on the health of the U.S. economy
for the foreseeable future.

The extent to which our business could be affected by the ongoing COVID-19 pandemic will largely depend on current and future developments, all of which are highly uncertain and cannot be reasonably predicted.

Furthermore, as a result of the COVID-19 pandemic, room demand and rental rates
for our consolidated and unconsolidated hotels significantly declined starting
in March 2020 at the onset of the pandemic; and while these metrics have
improved since then (late 2020 and continuing throughout 2021); room demand and
rental rates remain below their pre-pandemic historical levels. Accordingly, the
COVID-19 pandemic has negatively impacted our operations, financial position and
cash flow; and while the severity of the impact has lessened, we currently
expect we will continue to experience a negative impact for the foreseeable
future. We cannot currently estimate if and when room demand and rental rates
will return to historical pre-pandemic levels for our hotels.

Given the past, present and potential future impact of the COVID-19 pandemic on the operating results of its hotels, we have taken various measures to preserve our liquidity, including the following:

? We have implemented cost reduction strategies for all of our hotels, leading to

reductions in certain operating expenses and capital expenditures.

? Amendments to the Revolving Credit Facility



On June 2, 2020, our revolving credit facility (the "Revolving Credit Facility")
was amended to provide for (i) the deferral of the six monthly debt service
payments aggregating $0.8 million for the period from April 1, 2020 through
September 30, 2020 until July 13, 2022; (ii) a 100 bps reduction in the interest
rate spread to LIBOR + 2.15%, subject to a 3.00% floor, for the six-month period
from September 1, 2020 through February 28, 2021; (iii) our pre-funding $0.8
million into a cash collateral reserve account to cover the six monthly debt
service payments due from October 1, 2020 through March 1, 2021; and (iv) a
waiver of all financial covenants for quarter-end periods before June 30, 2021.
Additionally, a principal paydown of $0.6 million, which was previously due on
April 1, 2020 was bifurcated into two separate principal paydowns, of $0.3
million, which were made in June 2020 and September 2020.

Subsequently, on March 31, 2021, the Revolving Credit Facility was further
amended providing for (i) us to make another principal paydown of $3.8 million,
(ii) us to fund an additional $0.7 million into the cash collateral reserve
account; (iii) a waiver of all financial covenants for quarter-end periods
through September 30, 2021 with a phased-in gradual return to the full financial
covenant requirements over the quarter-end periods beginning December 31, 2021
through March 31, 2023; (iv) two one-year extension options at the lender's sole
discretion (v) certain limitations and restrictions on asset sales and
additional borrowings related to the pledged collateral.

See note 5 of the notes to the consolidated financial statements for more information.

? In April 2020 and during the first quarter of 2021, our hotels received a

aggregate of $1.5 million and $1.9 millionrespectively, loans granted

under the Federal Paycheck Protection Program (“PPP Loans”). Until December

On December 31, 2021, we received notice from the US Small Business Administration (the

“SBA”) this set of $0.9 million of our PPP loans and accrued liabilities

interest was legally forgiven. See note 6 of the notes to the consolidated financial statements

Financial Statements for more information.



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? At June 19, 2019the Board of Directors had previously decided to suspend

regular monthly distributions and, therefore, have declared no

distributions on our common stock since suspension. Moreover, on

March 19, 2020the Board of Directors approved the suspension of all

repurchases under our shareholder repurchase program (the “SRP”). Next

to May 10, 2021the Board of Directors partially reopened the SRP to allow,

under various conditions, for redemptions presented within the framework of a

   stockholder's death or hardship. See Note 7 of the Notes to Consolidated
   Financial Statements for additional information.


? The Hilton Garden Inn Joint Venture obtained various amendments to its

non-recourse mortgage loan secured by the Hilton Garden InnLong Island

    City. See Note 3 of the Notes to Consolidated Financial Statements for
    additional information.



We believe that these actions, along with our available cash on hand and
marketable securities, as well as our intention to seek to extend the Revolving
Credit Facility to July 13, 2023 pursuant to the lender's first extension
option, as discussed in Note 5 of the Notes to Consolidated Financial
Statements, will provide us with sufficient liquidity to meet our obligations
for at least 12 months from the date of issuance of these consolidated financial
statements.

We are not currently aware of any other material trends or uncertainties,
favorable or unfavorable, that may be reasonably anticipated to have a material
impact on either capital resources or the revenues or income to be derived from
our operations, other than those referred to above or throughout this Form 10-K.
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America ("GAAP") requires our
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities and
the reported amounts of revenues and expenses during a reporting period.

Critical accounting estimates and policies

General

Our consolidated financial statements included in this annual report include our
accounts and the Operating Partnership (over which we exercise financial and
operating control). All inter-company balances and transactions have been
eliminated in consolidation.

The discussion and analysis of our financial condition and results of operations
is based upon our consolidated financial statements, which have been prepared in
accordance with GAAP. The preparation of our financial statements requires us to
make estimates and judgments about the effects of matters or future events that
are inherently uncertain. These estimates and judgments may affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities.

On an ongoing basis, we evaluate our estimates, including contingencies and
litigation. We base these estimates on historical experience and on various
other assumptions that we believe to be reasonable in the circumstances. These
estimates form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.

To assist in understanding our results of operations and financial position, we
have identified our critical accounting policies and discussed them below. These
accounting policies are most important to the portrayal of our results and
financial position, either because of the significance of the financial
statement items to which they relate or because they require management's most
difficult, subjective or complex judgments.


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Investments in Real Estate

Carrying Value of Assets

The amounts to be capitalized as a result of periodic improvements and additions
to real estate property, when applicable, and the periods over which the assets
will be depreciated or amortized, are determined based on the application of
accounting standards that may require estimates as to fair value and the
allocation of various costs to the individual assets. Differences in the amount
attributed to the assets may be significant based upon the assumptions made in
calculating these estimates.

Impairment assessment

We evaluate our investments in real estate assets for potential impairment
whenever events or changes in circumstances indicate that the undiscounted
projected cash flows are less than the carrying amount for a particular
property. We evaluate the recoverability of our investments in real estate
assets at the lowest identifiable level, the individual property level. No
single indicator would necessarily result in us preparing an estimate to
determine if an individual property's future undiscounted cash flows are less
than its carrying value. We use judgment to determine if the severity of any
single indicator, or the fact there are a number of indicators of less severity
that when combined, would result in an indication that a property requires an
estimate of the undiscounted cash flows to determine if an impairment has
occurred. Relevant facts and circumstances include, among others, significant
underperformance relative to historical or projected future operating results
and significant negative industry or economic trends. The estimated cash flows
used for the impairment analysis are subjective and require us to use our
judgment and the determination of estimated fair value are based on our plans
for the respective assets and our views of market and economic conditions. The
estimates consider matters such as future operating income, market and other
applicable trends and residual value, as well as the effects of demand,
competition, and recent sales data for comparable properties. An impairment loss
is recognized only if the carrying amount of a property is not recoverable
and
exceeds its fair value.

Depreciation and Amortization
Depreciation expense is computed based on the straight-line method over the
estimated useful life of the applicable real estate asset. We generally use
estimated useful lives of up to 39 years for buildings and improvements and 5 to
10 years for furniture and fixtures. Maintenance and repairs will be charged to
expense as incurred.

Investments in non-consolidated entities

We evaluate all investments in other entities for consolidation. We consider our
percentage interest in the joint venture, evaluation of control and whether a
variable interest entity exists when determining whether or not the investment
qualifies for consolidation or if it should be accounted for as an
unconsolidated investment under the equity method of accounting.

If an investment qualifies for the equity method of accounting, our investment
is recorded initially at cost, and subsequently adjusted for equity in net
income or loss and cash contributions and distributions. The net income or loss
of an unconsolidated investment is allocated to its investors in accordance with
the provisions of the operating agreement of the entity. The allocation
provisions in these agreements may differ from the ownership interest held by
each investor. Differences, if any, between the carrying amount of our
investment in the respective joint venture and our share of the underlying
equity of such unconsolidated entity are amortized over the respective lives of
the underlying assets as applicable. These items are reported as a single line
item in the statements of operations as income or loss from investments in
unconsolidated affiliated entities.

We review investments for impairment in value whenever events or changes in
circumstances indicate that the carrying amount of such investment may not be
recoverable. An investment is impaired only if management's estimate of the fair
value of the investment is less than the carrying value of the investment, and
such decline in value is deemed to be other than temporary. The ultimate
realization of our investment in partially owned entities is dependent on a
number of factors including the performance of that entity and market
conditions. If we determine that a decline in the value of a partially owned
entity is other than temporary, we will record an impairment charge.


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Revenue Recognition

Our revenues consist primarily of hotel operating revenues.

Room revenue is generated through contracts with customers whereby the customers
agree to pay a daily rate for right to use a hotel room. Our contractual
performance obligations are fulfilled at the end of the day that the customer is
provided the room and revenue is recognized daily at the contract rate. Payment
from the customer is secured at the end of the contract upon check-out by the
customer from our hotel. We participate in frequent guest programs sponsored by
the brand owners of our hotels whereby the brand owner allows guests to earn
loyalty points during their hotel stay. We recognize revenue at the amount
earned that it will receive from the brand owner when a guest redeems their
loyalty points by staying at one of our hotels.

Revenue from food, beverage and other ancillary services is generated when a
customer chooses to purchase goods or services separately from a hotel room and
revenue is recognized when these goods or services are provided to the customer
and our contractual performance obligations have been fulfilled.

Some contracts for rooms, food, beverage or other services require an upfront
deposit which is recorded as deferred revenues (or contract liabilities) and
recognized once the performance obligations are satisfied. The contractual
liabilities are not significant.

We do not note any significant judgment regarding the recognition of accommodation, catering or other revenues.

Management compensation processing, expense reimbursements

Management of our operations is outsourced to our Advisor and certain other
affiliates of our Sponsor. Fees related to each of these services are accounted
for based on the nature of such service and the relevant accounting literature.
Such fees include acquisition fees associated with the purchase of interests in
real estate entities; asset management fees paid to our Advisor and property
management fees paid to affiliates of our Advisor. These fees are expensed or
capitalized to the basis of acquired assets, as appropriate.

Affiliates of our Advisor may also perform fee-based construction management
services for both our development and redevelopment activities and tenant
construction projects. These fees will be considered incremental to the
construction effort and will be capitalized to the associated real estate
project as incurred. Costs incurred for tenant construction will be depreciated
over the shorter of their useful life or the term of the related lease. Costs
related to development and redevelopment activities will be depreciated over the
estimated useful life of the associated project.

The rental activity of our properties may be sub-contracted to affiliates of our consultant. Any related lease costs paid by us will be capitalized and amortized over the term of the related lease.

Expense reimbursements made to both our advisor and our advisor’s affiliates are expensed or capitalized based on the assets acquired, as applicable.

Income taxes

We elected to qualify and be taxed as a REIT for U.S. federal income tax
purposes beginning with the taxable year ended December 31, 2015. As a REIT, we
generally are not subject to U.S. federal income tax on our net taxable income
that we distribute currently to our stockholders. To maintain our REIT
qualification under the Internal Revenue Code of 1986, as amended (the "Code")
we must meet a number of organizational and operational requirements, including
a requirement that we annually distribute to our stockholders at least 90% of
our REIT taxable income (which does not equal net income, as calculated in
accordance with GAAP), determined without regard to the deduction for dividends
paid and excluding any net capital gain. If we fail to remain qualified for
taxation as a REIT in any subsequent year and do not qualify for certain
statutory relief provisions, our income for that year will be taxed at regular
corporate rates, and we may be precluded from qualifying for treatment as a REIT
for the four-year period following our failure to qualify as a REIT. Such an
event could materially adversely affect our net income and net cash available
for distribution to our stockholders.


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We engage in certain activities through taxable REIT subsidiaries TRSs. When we
purchase a hotel we establish a TRS and enter into an operating lease agreement
for the hotel. As such, we are subject to U.S. federal and state income taxes
and franchise taxes from these activities.

As of December 31, 2021 and 2020, we had no material uncertain income tax
positions. Additionally, even if we continue to qualify as a REIT for U.S.
federal income tax purposes, we may still be subject to some U.S. federal, state
and local taxes on our income and property and to U.S. federal income taxes and
excise taxes on our undistributed income.

Operating results

Disposition of an unconsolidated 22.5% interest in the Cove joint venture

On February 12, 2020, we completed the disposition of an unconsolidated 22.5%
membership interest in the Cove Joint Venture which resulted in the recognition
of a gain on the disposition of unconsolidated affiliated real estate entity of
$7.9 million during the first quarter of 2020. During August 2020, we received
$0.1 million of additional proceeds related to the redemption of our membership
interest in the Cove Joint Venture and recognized a gain on the disposition of
investment in unconsolidated affiliated real estate entity of $0.1 million
during the third quarter of 2020. As a result, we recognized an aggregate gain
on the disposition of investment in unconsolidated affiliated real estate entity
of $8.0 million during the year ended December 31, 2020. See Note 3 of the Notes
to Consolidated Financial Statements for additional information

Comparison of the year ended December 31, 2021 vs. December 31, 2020

Consolidated

Our consolidated revenues, property operating expenses, real estate taxes,
general and administrative expense and depreciation and amortization for the
years ended December 31, 2021 and 2020 are attributable to our consolidated
hospitality properties, all of which were owned by us during the entire periods
presented.

As a result of the COVID-19 pandemic, room demand and rental rates for our
consolidated and unconsolidated hotels significantly declined starting in March
2020 at the onset of the pandemic; and while these metrics have improved since
then (late 2020 and continuing throughout 2021); room demand and rental rates
remain below their pre-pandemic historical levels. Overall, our consolidated
hospitality portfolio experienced increases in (i) the percentage of rooms
occupied from 49.0% to 68.1% for the year ended December 31, 2020 and 2021,
respectively, (ii) revenue per available room ("RevPAR") from $42.75 to $66.51
for the year ended December 31, 2020 and 2021, respectively, and (iii) the
average daily rate ("ADR") from $87.30 to $97.65 for the year ended December 31,
2020 and 2021, respectively.

Revenues

Revenue increased by $7.6 million for $21.8 million during the year ended
December 31, 2021 compared to $14.2 million for the same period in 2020. This increase reflects the increase in occupancy rate, RevPAR and ADR during the 2021 period.

Building operating expenses

Property operating expenses increased by $2.6 million to $13.8 million during
the year ended December 31, 2021 compared to $11.2 million for the same period
in 2020. This increase reflects the increased costs associated with higher
occupancy during the 2021 period.

Property taxes

Real estate taxes decreased slightly by $0.1 million to $1.4 million during the
year ended December 31, 2021 compared to $1.5 million for the same period in
2020.


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General and administrative costs

General and administrative expenses remained relatively stable at $2.5 million
over the past two years December 31, 2021 and 2020.

Depreciation and amortization

Depreciation expense remained relatively unchanged at $5.1 million
over the past two years December 31, 2021 and 2020.

Interest expense

Interest expense slightly decreased by $0.1 million to $2.9 million during the
year ended December 31, 2021 compared to $3.0 million for the same period in
2020. Interest expense is attributable to financings associated with our hotels
and reflects both changes in market interest rates on our variable rate
indebtedness and the weighted average principal outstanding during the periods.

Gain on debt forgiveness

During the year ended December 31, 2021, we received notices from the SBA that
all of the PPP Loans received in April 2020 totaling $1.5 million and their
related accrued interest aggregating $19,311 had been legally forgiven and
therefore, we recognized a gain on forgiveness of debt of $1.5 million in our
consolidated statements of operations during the year ended December 31, 2021.

Gain on disposal of an unconsolidated affiliated real estate entity

On February 12, 2020, we completed the disposition of our unconsolidated 22.5%
membership interest in the Cove Joint Venture which resulted in the recognition
of a gain on the disposition of unconsolidated affiliated real estate entity of
$7.9 million during the first quarter of 2020. During August 2020, we received
$0.1 million of additional proceeds related to the redemption of our membership
interest in the Cove Joint Venture and recognized a gain on disposition of
investment in unconsolidated affiliated real estate entity of $0.1 million
during the third quarter of 2020. As a result, we recognized an aggregate gain
on the disposition of investment in unconsolidated affiliated real estate entity
of $8.0 million during the year ended December 31, 2020.

Earnings from investments in unconsolidated affiliated real estate entities

Our loss from investments in unconsolidated affiliated real estate entities was
$0.3 million during the year ended December 31, 2021 compared to $2.1 million
for the same period in 2020. Our earnings from investments in unconsolidated
affiliated real estate entities are attributable to our unconsolidated 50.0%
membership interest in the Hilton Garden Inn Joint Venture and our
unconsolidated 22.5% membership interest in the Cove Joint Venture (through the
date of the redemption of our membership interest on February 12, 2020). The
Williamsburg Moxy Hotel is currently under construction and expected to open
during the fourth quarter of 2022. Therefore, the Williamsburg Moxy Hotel Joint
Venture had no operating results from August 5, 2021 (date of acquisition)
through December 31, 2021.

Financial position, liquidity and capital resources

Overview:

Revenues, interest and dividend income, proceeds from the sale of marketable
securities, cash on hand and borrowings are our principal sources of funds to
pay operating expenses, scheduled debt service, capital expenditures (excluding
non-recurring capital expenditures), contributions to our unconsolidated
affiliated entities, redemptions and cancellations of shares of our common
stock, if approved, and distributions, if any, required to maintain our status
as a REIT. During the year ended December 31, 2021, our primary sources of funds
were cash flows from operations of $1.7 million, proceeds from the sales of
marketable securities of $1.5 million, proceeds from PPP loans of $1.9 million
and distributions from the Hilton Garden Inn Joint Venture of $0.5 million.
                                       25




We currently believe that these cash resources along with our available cash on
hand of $16.6 million and marketable securities of $1.8 million, all as of
December 31, 2021, as well as our intention to seek to extend the Revolving
Credit Facility to July 13, 2023 pursuant to the lender's first extension
option, as discussed in Note 5 of the Notes to Consolidated Financial
Statements, will be sufficient to satisfy our cash requirements for the
foreseeable future, and we do not currently anticipate a need to raise funds
from other than these sources within the next 12 months. However, to the extent
that cash flow from operations and available cash on hand and marketable
securities are not sufficient to cover our cash needs or our lender does not
agree to the first extension option under the Revolving Credit Facility, we may
use proceeds from additional borrowings and/or selective asset sales to fund
such needs.

In light of the COVID-19 pandemic's impact on our operating performance, we have
successfully negotiated various changes to the terms of our Revolving Credit
Facility, including forbearance of scheduled debt service, reductions in
interest rates and waiver periods and modifications of financial covenants. See
"Contractual Mortgage Obligations" for additional information.

As of December 31, 2021, we have $61.3 million of outstanding mortgage debt and
$1.9 million of PPP Loans (classified as notes payable on our consolidated
balance sheet). We have and intend to continue to limit our aggregate long-term
permanent borrowings to 75% of the aggregate fair market value of all properties
unless any excess borrowing is approved by a majority of the independent
directors and is disclosed to our stockholders. Market conditions will dictate
our overall leverage limit; as such our aggregate long-term permanent borrowings
may be less than 75% of aggregate fair market value of all properties. We may
also incur short-term indebtedness, having a maturity of two years or less.

Our charter provides that the aggregate amount of our borrowing, both secured
and unsecured, may not exceed 300% of net assets in the absence of a
satisfactory showing that a higher level is appropriate, the approval of our
Board of Directors and disclosure to stockholders. Net assets means our total
assets, other than intangibles, at cost before deducting depreciation or other
non-cash reserves less our total liabilities, calculated at least quarterly on a
basis consistently applied. Any excess in borrowing over such 300% of net assets
level must be approved by a majority of our independent directors and disclosed
to our stockholders in our next quarterly report to stockholders, along with
justification for such excess. Market conditions will dictate our overall
leverage limit; as such our aggregate borrowings may be less than 300% of net
assets. As of December 31, 2021, our total borrowings were $63.2 million which
represented 59% of our net assets.

Our borrowings currently consist of mortgages cross-collateralized by a pool of
properties. Our mortgages typically provide for either interest-only payments
(generally for variable-rate indebtedness) or level payments (generally for
fixed-rate indebtedness) with "balloon" payments due at maturity.

Any future properties that we may acquire or develop may be funded through a
combination of borrowings and the proceeds received from the disposition of
certain of our assets. These borrowing may consist of single-property mortgages
as well as mortgages cross-collateralized by a pool of properties. Such
mortgages may be put in place either at the time we acquire a property or
subsequent to our purchasing a property for cash. In addition, we may acquire
properties that are subject to existing indebtedness where we choose to assume
the existing mortgages. Generally, though not exclusively, we intend to seek to
encumber our properties with non-recourse debt. This means that a lender's
rights on default will generally be limited to foreclosing on the property.
However, we may, at our discretion, secure recourse financing or provide a
guarantee to lenders if we believe this may result in more favorable terms. When
we give a guaranty for a property owning entity, we will be responsible to the
lender for the satisfaction of the indebtedness if it is not paid by the
property owning entity.

We may also obtain lines of credit to be used to acquire properties. If
obtained, these lines of credit will be at prevailing market terms and will be
repaid from proceeds from the sale or refinancing of properties, working capital
and/or permanent financing. Our Sponsor and/or its affiliates may guarantee our
lines of credit although they are not obligated to do so. We expect that such
properties may be purchased by our Sponsor's affiliates on our behalf, in our
name, in order to minimize the imposition of a transfer tax upon a transfer of
such properties to us.

In addition to meeting working capital needs and distributions, if any, made to
maintain our status as a REIT, our capital resources are used to make certain
payments to our Advisor, including payments related to asset acquisition fees
and asset management fees, the reimbursement of acquisition-related expenses to
our Advisor. We also reimburse our advisor for actual expenses it incurs for
administrative and other services provided to us. Additionally, the Operating
Partnership may be required to make distributions to Lightstone SLP III LLC, an
affiliate of the Advisor.


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We have agreements with the Advisor to pay certain fees in exchange for services
performed by the Advisor and/or its affiliated entities. Upon the liquidation of
assets, we may pay our Advisor or its affiliates a real estate disposition
commission. Additionally, our Operating Partnership may be required to make
distributions to Lightstone SLP III LLC, an affiliate of the Advisor.

The following table represents the fees incurred associated with payments to the Advisor for the periods indicated:

                                                                         For the
                                                                       Year Ended
                                                                      December 31,
                                                                  2021            2020
Finance fees (1)                                               $   144,375     $         -
Disposition fees (general and administrative costs)                      - 

39,200

Wealth management costs (general and administrative costs) 1,204,422

     1,256,459
Total                                                          $ 1,348,797     $ 1,295,659



(1) Financing costs of $144,375 paid to the advisor as part of the organization

the Williamsburg Moxy Hotel Joint Venture the construction loan has been capitalized

and included in investments in unconsolidated affiliated real estate entities

on the consolidated balance sheets.

Cash flow summary

The following summary discussion of our cash flows is based on the consolidated
statements of cash flows and is not meant to be an all-inclusive discussion of
the changes in our cash flows for the periods presented below:

                                                                 Year Ended        Year Ended
                                                                December 31,      December 31,
                                                                    2021              2020
Cash flows provided by/(used in) operating activities           $   1,662,560     $  (3,765,414 )
Cash flows (used in)/provided by investing activities             (12,050,995 )      20,600,226
Cash flows used in financing activities                            (2,943,807 )        (406,759 )
Net change in cash, cash equivalents and restricted cash          (13,332,242 )      16,428,053
Cash, cash equivalents and restricted cash, beginning of year      29,971,246        13,543,193
Cash, cash equivalents and restricted cash, end of year         $  16,639,004     $  29,971,246



Operating activities

The net cash provided by operating activities of $1.7 million during the year
ended December 31, 2021 consisted of our net loss of $2.7 million and a gain on
forgiveness of debt of $1.5 million adjusted for depreciation and amortization,
loss from investments in unconsolidated affiliated real estate entities,
amortization of deferred financing costs and other non-cash items aggregating
$5.6 million and net changes in operating assets and liabilities of $0.2
million.

Investing activities

The net cash used in investing activities of $12.1 million during the year ended
December 31, 2021 primarily consisted of $7.9 million for the purchase of our
25% membership interest in the Williamsburg Moxy Hotel Joint Venture and
additional aggregate contributions of $4.3 million to the Williamsburg Moxy
Hotel Joint Venture, $1.3 million of contributions made to the Hilton Garden Inn
Joint Venture and capital expenditures of $0.3 million, partially offset by $1.5
million of proceeds received from the sale of marketable securities and
distributions of $0.5 million received from the Hilton Garden Inn Joint Venture.


                                       27




Financing activities
The cash used in financing activities of $2.9 million during the year ended
December 31, 2021 consisted of payments on our mortgages payable of $30.4
million (including the repayment in full of the Home2 Suites Promissory Note and
a $3.8 million paydown on our Revolving Credit Facility) and redemptions and
cancellations of common shares of $0.6 million, partially offset by aggregate
net proceeds received from new mortgage financings of $26.2 million and proceeds
from PPP Loans of $1.9 million.

Common Share Distributions

On June 19, 2019, our Board of Directors determined to suspend regular monthly
distributions on our Common Shares and as a result, no distributions have been
declared since the suspension.

Previously, distributions on our Common Shares in an amount equal to a 6.0%
annualized rate, based on a share price of $10.00, were declared on a monthly
basis beginning on January 14, 2015 through June 30, 2019 and were paid on or
about the 15th day following each month end.

Future distributions declared on our Common Shares, if any, will be at the
discretion of the Board of Directors based on their analysis of our performance
over the previous periods and expectations of performance for future periods.
The Board of Directors will consider various factors in its determination,
including but not limited to, the sources and availability of capital, revenues
and sources of income, operating and interest expenses and our ability to
refinance near-term debt as well as the IRS's annual distribution requirement
that REITs distribute no less than 90% of their taxable income. We cannot assure
that any future distributions will be made or that we will maintain any
particular level of distributions that we have previously established or may
establish.

Share Repurchase Program
Our share repurchase program (the "SRP") may provide eligible stockholders with
limited, interim liquidity by enabling them to sell their Common Shares back to
us, subject to restrictions and applicable law.

At March 19, 2020the board amended the SRP to remove shareholder notification requirements and also approved the suspension of all redemptions with immediate effect.

Effective May 10, 2021, the Board of Directors reopened the SRP to allow,
subject to various conditions as set forth below, for redemptions submitted in
connection with a stockholder's death or hardship and set the price for all such
purchases to our current NAV per Share, as determined by the Board of Directors
and reported by us from time to time.

Deaths occurring after January 1, 2020 were eligible, subject to certain conditions. Start January 1, 2022redemption requests relating to the death of a shareholder must be submitted and received by us within one year of the date of the shareholder’s death for review.

On the above noted date, the Board of Directors established that on an annual
basis, we would not redeem in excess of 0.5% of the number of shares outstanding
as of the end of the preceding year for either death or hardship redemptions,
respectively. Additionally, redemption requests generally would be processed on
a quarterly basis and would be subject to pro ration if either type of
redemption requests exceeded the annual limitation.

For the period from January 1 through March 18, 2020, we redeemed 80,436 shares
of common stock at an average price per share of $9.92. For the year ended
December 31, 2021 we repurchased 77,678 shares of common stock, pursuant to our
SRP at an average price per share of $8.05.


                                       28



Contractual mortgage obligations

The following is a summary of our estimated contractual mortgage obligations outstanding over the next 5 years and thereafter as of December 31, 2021.

Contractual Mortgage
Obligations                         2022            2023            2024            2025             2026          Thereafter         Total
Principal maturities            $ 34,573,333     $    52,333     $   657,787     $   685,707     $ 25,354,173     $          -     $ 61,323,333
Interest payments(1)               1,758,639       1,003,125       1,003,125         992,574        1,839,740                -        6,597,203
Total Contractual Mortgage
Obligations                     $ 36,331,972     $ 1,055,458     $ 1,660,912     $ 1,678,281     $ 27,193,913     $          -     $ 67,920,536



(1) These amounts represent future mortgage interest payments payable

bonds based on the fixed and variable interest rates specified in the

associated debt agreement. All floating rate debt contracts are based on the

one-month LIBOR rate. For the purpose of calculating future amounts of interest on

variable-rate debt the one-month LIBOR rate at December 31, 2021

     was used.



Revolving Credit Facility

We, through certain subsidiaries, have a non-recourse Revolving Credit Facility
with a financial institution. The Revolving Credit Facility provides us with a
line of credit of up to $60.0 million pursuant to which we may designate
properties as collateral that allow borrowings up to a 65.0% loan-to-value ratio
subject to also meeting certain financial covenants. The Revolving Credit
Facility provides for monthly interest-only payments and the entire principal
balance is due upon its expiration.

The Revolving Credit Facility, bears interest at LIBOR + 3.15%, subject to a
4.00% floor, and is currently scheduled to mature on July 13, 2022, subject to
two, one-year extension options at the sole discretion of the lender.

On June 2, 2020, our Revolving Credit Facility was amended to provide for (i)
the deferral of the six monthly debt service payments aggregating $0.8 million
for the period from April 1, 2020 through September 30, 2020 until July 13,
2022; (ii) a 100 bps reduction in the interest rate spread to LIBOR + 2.15%,
subject to a 3.00% floor, for the six-month period from September 1, 2020
through February 28, 2021; (iii) our pre-funding $0.8 million into a cash
collateral reserve account to cover the six monthly debt service payments due
from October 1, 2020 through March 1, 2021; and (iv) a waiver of all financial
covenants for quarter-end periods before June 30, 2021. Additionally, a
principal paydown of $0.6 million, which was previously due on April 1, 2020 was
bifurcated into two separate principal paydowns, of $0.3 million, which were
made in June 2020 and September 2020.

Subsequently, on March 31, 2021, our Revolving Credit Facility was further
amended providing for (i) us to make another principal paydown of $3.8 million,
(ii) us to fund an additional $0.7 million into the cash collateral reserve
account; (iii) a waiver of all financial covenants for quarter-end periods
through September 30, 2021 with a phased-in gradual return to the full financial
covenant requirements over the quarter-end periods beginning December 31, 2021
through March 31, 2023; (iv) two one-year extension options at the lender's sole
discretion; and (v) certain limitations and restrictions on asset sales and
additional borrowings related to the pledged collateral.

As of December 31, 2021, the Revolving Credit Facility had an outstanding
principal balance of $34.6 million and six of our hotel properties were pledged
as collateral. Additionally, no additional borrowings were available under the
Revolving Credit Facility as of December 31, 2021. We currently intend to seek
to extend the Revolving Credit Facility to July 13, 2023 pursuant to the
lender's first extension, however, there can be no assurances that we will be
successful in such endeavors.

Financing Home2 Suites

On October 5, 2016, we entered into a non-recourse promissory note (the "Home2
Suites Promissory Note") for $28.4 million. The Promissory Note had a term of 5
years and bore interest at 4.73%. The Home2 Suites Promissory Note was
cross-collateralized by the Home2 Suites - Tukwila and the Home2 Suites - Salt
Lake City.


                                       29



On December 6, 2021,we entered into a non-recourse loan facility providing for
up to $19.1 million (the "Home2 Suites - Tukwila Loan"). At closing, we
initially received $16.2 million and the remaining $2.9 million is available
after December 31, 2022, subject to satisfaction of certain conditions. The
Home2 Suites - Tukwila Loan is scheduled to mature on December 6, 2026, bears
interest at LIBOR+3.50%, subject to a 3.75% floor, and requires monthly
interest-only payments through December 2023 and subsequently, monthly payments
of interest and principal of $0.1 million through its maturity date. The Home2
Suites Tukwila Loan is cross-collateralized by the Home2 Suites - Tukwila and
the Home2 Suites - Salt Lake City.

On December 6, 2021, we entered into a non-recourse loan facility providing for
up to $12.5 million (the "Home2 Suites - Salt Lake City Loan"). At closing we
initially received $10.5 million, and the remaining $2.0 million is available
after December 31, 2022 subject to satisfaction of certain conditions. The Home2
Suites - Salt Lake City Loan scheduled to mature on December 6, 2026, bears
interest at LIBOR+3.50%, subject to a 3.75% floor, and requires monthly
interest-only payments through December 2023 and subsequently, monthly payments
of interest and principal of $0.1 million through its maturity date. The Home2
Suites Salt Lake City Loan is cross-collateralized by the Home2 Suites - Salt
Lake City and the Home2 Suites - Tukwila.

On December 6, 2021, we repaid the Home2 Suites Promissory Note (outstanding
principal balance of $26.0 million) in full using the initial proceeds from the
Home2 Suites - Tukwila Loan and the Home2 Suites - Salt Lake City Loan.

PPP loans

In April 2020, we, through various subsidiaries (each such entity, a "Borrower"
and collectively, the "Borrowers"), received aggregate funding of $1.5 million
through loans (the "PPP Loans") originated under the federal Paycheck Protection
Program, which was established under the Coronavirus Aid, Relief, and Economic
Security Act (the "CARES Act") and is administered by the SBA. During the first
quarter of 2021, the Borrowers received an additional aggregate funding of
$1.9 million of PPP Loans.

The PPP Loans each have a term of five years and provide for an interest rate of
1.00%. The payment of principal and interest on the PPP loan is deferred until
the day that the forgiven amount is remitted to the lender (approximately 5
months after the forgiveness application is submitted to the lender, unless the
Borrower appeals a denial of forgiveness) or 10 months after the end of the
Borrower's covered period, whichever is earlier. Pursuant to the terms of the
CARES Act, the proceeds of the PPP Loans may be used for payroll costs, mortgage
interest, rent or utility costs.

The promissory note for each of the PPP Loans contains customary events of
default relating to, among other things, payment defaults and breach of
representations and warranties or of provisions of the relevant promissory note.
Under the terms of the CARES Act, each Borrower can apply for and be granted
forgiveness for all or a portion of the PPP Loans. Such forgiveness will be
determined, subject to limitations, based on the use of loan proceeds in
accordance with the terms of the CARES Act. Although we intend for each Borrower
to apply for forgiveness, no assurance may be given that all of the Borrowers
will ultimately obtain forgiveness under any relevant PPP Loan in whole or in
part. In the event all or any portion of the PPP Loans is forgiven, the amount
forgiven will be applied to outstanding principal and recorded as income. The
PPP Loans are subject to audit by the SBA for up to six years after the date the
loans are forgiven.

During the year ended December 31, 2021, we received notices from the SBA that
all of the PPP Loans received in April 2020 totaling $1.5 million and their
related accrued interest aggregating $19,311 had been legally forgiven and
therefore, we recognized a gain on forgiveness of debt of $1.5 million in its
consolidated statements of operations. As of December 31, 2021 and 2020, the PPP
Loans had outstanding balances of $1.9 million and $1.5 million, respectively,
and are classified as Notes Payable on the consolidated balance sheets.

LIBOR

The Revolving Credit Facility, PPP Loans and the Williamsburg Moxy Joint
Venture's Moxy Construction Loan (See "Williamsburg Moxy Hotel Joint Venture and
Moxy Construction Loan") are indexed to LIBOR. In late 2021, it was announced
LIBOR interest rates will cease publication altogether by June 30, 2023. We have
and intend continue to incorporate relatively standardized replacement rate
provisions into our LIBOR-indexed debt documents, including a spread adjustment
mechanism designed to equate to the current LIBOR "all in" rate. There is
significant uncertainty with respect to the implementation of the phase out and
what alternative indexes will be adopted which will ultimately be determined by
the market as a whole. It therefore remains uncertain how such changes will be
implemented and the effects such changes would have on us and the financial
markets generally.


                                       30



Investments in unconsolidated affiliated entities

Hilton Garden Inn Joint Venture

On March 27, 2018, we and Lightstone Value Plus REIT II, Inc. ("Lightstone REIT
II"), a REIT also sponsored by our Sponsor and a related party, acquired,
through LVP LIC Hotel JV LLC (the "Hilton Garden Inn Joint Venture"), a
183-room, limited-service hotel located at 29-21 41st Avenue, Long Island City,
New York (the "Hilton Garden Inn - Long Island City") from an unrelated third
party, for aggregate consideration of $60.0 million, which consisted of
$25.0 million of cash and $35.0 million of proceeds from a loan from a financial
institution (the "Hilton Garden Inn Mortgage"), excluding closing and other
related transaction costs. We and Lightstone II each have a 50.0% membership
interest in the Hilton Garden Inn Joint Venture.

We paid $12.9 million for a 50.0% membership interest in the Hilton Garden Inn
Joint Venture. Our membership interest in the Hilton Garden Inn Joint Venture is
a co-managing interest. We account for our membership interest in the Hilton
Garden Inn Joint Venture in accordance with the equity method of accounting
because we exert significant influence over but do not control the Hilton Garden
Inn Joint Venture. All capital contributions and distributions of earnings from
the Hilton Garden Inn Joint Venture are made on a pro rata basis in proportion
to each member's equity interest percentage. Any distributions in excess of
earnings from the Hilton Garden Inn Joint Venture are made to the members
pursuant to the terms of the Hilton Garden Inn Joint Venture's operating
agreement. We commenced recording our allocated portion of profit/loss and cash
distributions beginning as of March 27, 2018 with respect to our membership
interest of 50.0% in the Hilton Garden Inn Joint Venture.

In light of the impact of the COVID-19 pandemic on the operating results of the
Hilton Garden Inn - Long Island City, the Hilton Garden Inn Joint Venture has
entered into certain amendments with respect to its non-recourse mortgage loan
(the Hilton Garden Inn Mortgage") as discussed below.

On June 2, 2020, the Hilton Garden Inn Mortgage was amended to provide for (i)
the deferral of the six monthly debt service payments aggregating $0.9 million
for the period from April 1, 2020 through September 30, 2020 until March 27,
2023; (ii) a 100 bps reduction in the interest rate spread to LIBOR plus 2.15%,
subject to a 4.03% floor, for the six-month period from September 1, 2020
through February 28, 2021; (iii) the Hilton Garden Inn Joint Venture pre-funding
$1.2 million into a cash collateral reserve account to cover the six monthly
debt service payments due from October 1, 2020 through March 1, 2021; and (iv)
waiver of all financial covenants for quarter-end periods before June 30, 2021.

Additionally, on April 7, 2021, the Hilton Garden Inn Joint Venture and the
lender further amended the terms of the Hilton Garden Inn Mortgage to provide
for (i) the Hilton Garden Inn Joint Venture to make a principal paydown of $1.7
million; (ii) the Hilton Garden Inn Joint Venture to fund an additional $0.7
million into the cash collateral reserve account; (iii) a waiver of all
financial covenants for quarter-end periods through September 30, 2021 with a
phased-in gradual return to the full financial covenant requirements over the
quarter-end periods beginning December 31, 2021 through December 31, 2022; (iv)
a 11-month interest-only payment period from May 1, 2021 through March 31, 2022;
and (v) certain restrictions on distributions to the members of the Hilton
Garden Inn Joint Venture during the interest-only payment period.

Williamsburg Moxy Hotel Joint Venture and ready to build Moxy

On August 5, 2021, we formed a joint venture with Lightstone Value Plus REIT IV,
Inc. ("Lightstone REIT IV"), a REIT also sponsored by the Sponsor and a related
party, pursuant to which we acquired 25% of Lightstone REIT IV's membership
interest in the Bedford Avenue Holdings LLC (the "Williamsburg Moxy Hotel Joint
Venture") for aggregate consideration of $7.9 million.

Subsequent to our initial acquisition, we made additional capital contributions
to the Williamsburg Moxy Hotel Joint Venture of $4.3 million through December
31, 2021.

Bedford Avenue Holdings LLC previously acquired four adjacent parcels of land
located at 353-361 Bedford Avenue in Brooklyn, New York, on which it is
developing and constructing a 210-room branded hotel (the "Williamsburg Moxy
Hotel").


                                       31




As a result, we and Lightstone REIT IV have 25% and 75% membership interests,
respectively, in the Williamsburg Moxy Hotel Joint Venture. We account for our
membership interest in the Williamsburg Moxy Hotel Joint Venture in accordance
with the equity method because we exert significant influence over but do not
control the Williamsburg Moxy Hotel Joint Venture. All capital contributions and
distributions of earnings from the Williamsburg Moxy Hotel Joint Venture are
made on a pro rata basis in proportion to each member's equity interest
percentage. Any distributions in excess of earnings from the Williamsburg Moxy
Hotel Joint Venture are made to the members pursuant to the terms of the
Williamsburg Moxy Hotel Joint Venture's operating agreement. The Williamsburg
Moxy Hotel is currently under construction and expected to open during the
fourth quarter of 2022. Therefore, the Williamsburg Moxy Hotel Joint Venture had
no operating results from August 5, 2021 (date of acquisition) through December
31, 2021.

Moxy Construction Loan
On August 5, 2021, the Williamsburg Moxy Hotel Joint Venture entered into a
recourse construction loan facility for up to $77.0 million (the "Moxy
Construction Loan") scheduled to mature on February 5, 2024, with two, six-month
extension options, subject to the satisfaction of certain conditions. The Moxy
Construction Loan bears interest at LIBOR plus 9.00%, subject to a 9.50% floor,
with monthly interest-only payments based on a rate of 7.50% with the accrued
and unpaid interest added to the outstanding loan balance and due at maturity.
The Moxy Construction Loan is collateralized by the Williamsburg Moxy Hotel. The
Williamsburg Moxy Hotel Joint Venture received initial proceeds of $16.0 million
under the Moxy Construction Loan and repaid a previously outstanding mortgage
loan of $16.0 million in full. As of December 31, 2021, the outstanding
principal balance of the Moxy Construction Loan was $18.6 million (including
$0.1 million of interest capitalized to principal) and the remaining
availability under the facility was up to $58.6 million.

As part of the Moxy construction loan, the Williamsburg Moxy Hotel Joint Venture has provided certain completion and carry guarantees.

See note 3 of the notes to the consolidated financial statements for more information.

Funds from Operations and Modified Funds from Operations

The historical accounting convention used for real estate assets requires
straight-line depreciation of buildings, improvements, and straight-line
amortization of intangibles, which implies that the value of a real estate asset
diminishes predictably over time. We believe that, because real estate values
historically rise and fall with market conditions, including, but not limited
to, inflation, interest rates, the business cycle, unemployment and consumer
spending, presentations of operating results for a REIT using the historical
accounting convention for depreciation and certain other items may be less
informative.

Because of these factors, the National Association of Real Estate Investment
Trusts ("NAREIT"), an industry trade group, has published a standardized measure
of performance known as funds from operations ("FFO"), which is used in the REIT
industry as a supplemental performance measure. We believe FFO, which excludes
certain items such as real estate-related depreciation and amortization, is an
appropriate supplemental measure of a REIT's operating performance. FFO is not
equivalent to our net income or loss as determined under GAAP.

We define FFO, a non-GAAP measure, consistent with the standards set forth in
the White Paper on FFO approved by the Board of Governors of NAREIT, as revised
in February 2004 (the "White Paper"). The White Paper defines FFO as net income
or loss computed in accordance with GAAP, but excluding gains or losses from
sales of property and real estate related impairments, plus real estate related
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures.

We believe that the use of FFOs provides investors and management with a more complete understanding of our performance, and reflects the impact on our operations of trends in occupancy rates, rental rates, operating costs, general and administrative expenses and interest expense, which may not appear immediately on net income.

Changes in the accounting and reporting promulgations under GAAP that were put
into effect in 2009 subsequent to the establishment of NAREIT's definition of
FFO, such as the change to expense as incurred rather than capitalize and
depreciate acquisition fees and expenses incurred for business combinations,
have prompted an increase in cash-settled expenses, specifically acquisition
fees and expenses, as items that are expensed under GAAP across all industries.
These changes had a particularly significant impact on publicly registered,
non-listed REITs, which typically have a significant amount of acquisition
activity in the early part of their existence, particularly during the period
when they are raising capital through ongoing initial public offerings.


                                       32




Because of these factors, the Investment Program Association (the "IPA"), an
industry trade group, published a standardized measure of performance known as
modified funds from operations ("MFFO"), which the IPA has recommended as a
supplemental measure for publicly registered, non-listed REITs. MFFO is designed
to be reflective of the ongoing operating performance of publicly registered,
non-listed REITs by adjusting for those costs that are more reflective of
acquisitions and investment activity, along with other items the IPA believes
are not indicative of the ongoing operating performance of a publicly
registered, non-listed REIT, such as straight-lining of rents as required by
GAAP. We believe it is appropriate to use MFFO as a supplemental measure of
operating performance because we believe that both before and after we have
deployed all of our offering proceeds and are no longer incurring a significant
amount of acquisition fees or other related costs, it reflects the impact on our
operations from trends in occupancy rates, rental rates, operating costs,
general and administrative expenses, and interest costs, which may not be
immediately apparent from net income. MFFO is not equivalent to our net income
or loss as determined under GAAP.

We define MFFO, a non-GAAP measure, consistent with the IPA's Guideline 2010-01,
Supplemental Performance Measure for Publicly Registered, Non-Listed REITs:
Modified Funds from Operations (the "Practice Guideline") issued by the IPA in
November 2010. The Practice Guideline defines MFFO as FFO further adjusted for
acquisition and transaction-related fees and expenses and other items. In
calculating MFFO, we follow the Practice Guideline and exclude acquisition and
transaction-related fees and expenses (which includes costs incurred in
connection with strategic alternatives), amounts relating to deferred rent
receivables and amortization of market lease and other intangibles, net (which
are adjusted in order to reflect such payments from a GAAP accrual basis to a
cash basis of disclosing the rent and lease payments), accretion of discounts
and amortization of premiums on debt investments and borrowings, mark-to-market
adjustments included in net income (including gains or losses incurred on assets
held for sale), gains or losses included in net income from the extinguishment
or sale of debt, hedges, foreign exchange, derivatives or securities holdings
where trading of such holdings is not a fundamental attribute of the business
plan, unrealized gains or losses resulting from consolidation from, or
deconsolidation to, equity accounting, and after adjustments for consolidated
and unconsolidated partnerships and joint ventures, with such adjustments
calculated to reflect MFFO on the same basis. Certain of the above adjustments
are also made to reconcile net income (loss) to net cash provided by (used in)
operating activities, such as for the amortization of a premium and accretion of
a discount on debt and securities investments, amortization of fees, any
unrealized gains (losses) on derivatives, securities or other investments, as
well as other adjustments.

MFFO excludes non-recurring impairment of real estate-related investments. We
assess the credit quality of our investments and adequacy of reserves on a
quarterly basis, or more frequently as necessary. Significant judgment is
required in this analysis. We consider the estimated net recoverable value of a
loan as well as other factors, including but not limited to the fair value of
any collateral, the amount and the status of any senior debt, the prospects for
the borrower and the competitive situation of the region where the borrower does
business.

We believe that, because MFFO excludes costs that we consider more reflective of
acquisition activities and other non-operating items, MFFO can provide, on a
going-forward basis, an indication of the sustainability (that is, the capacity
to continue to be maintained) of our operating performance after the period in
which we are acquiring properties and once our portfolio is stabilized. We also
believe that MFFO is a recognized measure of sustainable operating performance
by the non-listed REIT industry and allows for an evaluation of our performance
against other publicly registered, non-listed REITs.

Not all REITs, including publicly registered, non-listed REITs, calculate FFO
and MFFO the same way. Accordingly, comparisons with other REITs, including
publicly registered, non-listed REITs, may not be meaningful. Furthermore, FFO
and MFFO are not indicative of cash flow available to fund cash needs and should
not be considered as an alternative to net income (loss) or income (loss) from
continuing operations as determined under GAAP as an indication of our
performance, as an alternative to cash flows from operations as an indication of
our liquidity, or indicative of funds available to fund our cash needs including
our ability to make distributions to our stockholders. FFO and MFFO should be
reviewed in conjunction with other GAAP measurements as an indication of our
performance. FFO and MFFO should not be construed to be more relevant or
accurate than the current GAAP methodology in calculating net income or in its
applicability in evaluating our operating performance. The methods utilized to
evaluate the performance of a publicly registered, non-listed REIT under GAAP
should be construed as more relevant measures of operational performance and
considered more prominently than the non-GAAP measures, FFO and MFFO, and the
adjustments to GAAP in calculating FFO and MFFO.

Neither the SEC, NAREIT, the IPA nor any other regulatory body or industry trade
group has passed judgment on the acceptability of the adjustments that we use to
calculate FFO or MFFO. In the future, NAREIT, the IPA or another industry trade
group may publish updates to the White Paper or the Practice Guidelines or the
SEC or another regulatory body could standardize the allowable adjustments
across the publicly registered, non-listed REIT industry, and we would have to
adjust our calculation and characterization of FFO or MFFO accordingly.


                                       33



The below table illustrates the items deducted from or added to net loss in the
calculation of FFO and MFFO during the periods presented. The table discloses
MFFO in the IPA recommended format and MFFO without the straight-line rent
adjustment which management also uses as a performance measure. Items are
presented net of non-controlling interest portions where applicable.

                                                                          For the
                                                                        Year Ended
                                                                       December 31,
                                                                   2021             2020
Net loss                                                       $ (2,733,289 )   $ (2,886,775 )
FFO adjustments:
Adjustments to equity earnings from unconsolidated entities,
net                                                               1,248,163

1,484,152

Depreciation and amortization of real estate assets               5,113,576

5,101,313

Gain on disposition of unconsolidated affiliated real estate
entity                                                                    -       (7,996,967 )
FFO                                                               3,628,450       (4,298,277 )
MFFO adjustments:
Loss on sale of marketable securities(1)                             22,505

18,666

Acquisition and other transaction related costs expensed                  -            2,113
Unrealized loss/(gain) on marketable equity securities(2)             9,188             (265 )

Adjustments to results of equity of unconsolidated affiliated real estate entities

                                    (190,708 )              -
Gain on forgiveness of debt(1)                                   (1,469,541
)              -
MFFO                                                              1,999,894       (4,277,763 )
Straight-line rent(3)                                                     -                -
MFFO - IPA recommended format                                  $  1,999,894

($4,277,763)

Net loss                                                       $ (2,733,289 )   $ (2,886,775 )
Less: net loss attributable to noncontrolling interests                  28               30
Net loss applicable to Company's common shares                 $ (2,733,261 )   $ (2,886,745 )
Net loss per common share, basic and diluted                   $      (0.21

) $(0.22)

FFO                                                            $  3,628,450     $ (4,298,277 )
Less: FFO attributable to noncontrolling interests                      (68 )             53
FFO attributable to Company's common shares                    $  3,628,382     $ (4,298,224 )
FFO per common share, basic and diluted                        $       0.27

$(0.32)

MFFO - IPA recommended format                                  $  1,999,894     $ (4,277,763 )
Less: MFFO attributable to noncontrolling interests                     (43 )             51
MFFO attributable to Company's common shares                   $  1,999,851

($4,277,712)

Weighted average number of common shares outstanding, basic
and diluted                                                      13,215,471       13,233,527



(1) Management believes that the adjustment for gains or losses related to

the extinguishment/sale of debt, derivative instruments or securities

appropriate because these are elements that may not reflect

operations. Excluding these items, management believes that MFFO provides

additional information related to sustainable operations that will be more

comparable between the other reporting periods.

(2) Management believes that the mark-to-market adjustment is

appropriate because these are one-time items that may not reflect

ongoing operations and reflects unrealized impacts on value based solely on

then the current market conditions, although they may be based on the

operational issues related to an individual property or industry or general issues

market conditions. Mark-to-market adjustments are made for items such as

ineffective derivatives, certain transferable securities and any

other items that GAAP requires us to make a mark-to-market adjustment. the

     need to reflect mark-to-market adjustments is a continuous process and is
     analyzed on a quarterly and/or annual basis in accordance with GAAP.

(3) Under GAAP, rental income is allocated to periods using various

methodologies. This can result in revenue recognition that is significantly

different from the underlying contractual clauses. By adjusting for these elements (for

reflect these payments from GAAP accrual to cash basis

rents and rents), MFFO provides useful additional information

on the realized economic impact of lease terms and debt investments,

provide an overview of the contractual cash flows of these lease terms and debt

investments and aligns the results with the analysis by the management of operations

     performance.




                                       34




The table below presents our cumulative distributions declared and cumulative
FFO:

                                                 For the period
                                                 October 5, 2012
                                               (date of inception)
                                                     through
                                                  December 31,
                                                      2021

FFO attributable to common shares of the Company $15,246,549 Cumulative distributions declared

             $          25,876,082




                                       35

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