Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our accompanying consolidated financial statements and notes thereto. See also the Cautionary Note Regarding Forward-Looking Statements section preceding Part I of this Annual Report. As used herein, the terms "we," "our" and "us" refer to Procaccianti Hotel REIT, Inc., a Maryland corporation, our Operating Partnership, and to their respective subsidiaries.

Overview

Procaccianti Hotel REIT, Inc. was formed on August 24, 2016, under the laws of Maryland to acquire and own a diverse portfolio of hospitality properties consisting primarily of select-service, extended-stay and compact full-service hotel properties throughout the United States. As of December 31, 2025, we owned an interest in five select-service hotel properties. We elected to be taxed as, and currently operate as a REIT under the Internal Revenue Code of 1986, as amended, commencing with our taxable year ended December 31, 2018. As a REIT, we generally will not be subject to U.S. federal income tax to the extent that we distribute qualifying dividends to our stockholders. If we fail to qualify as a REIT in any taxable year following the year we initially elect to be taxed as a REIT, we will be subject to U.S. federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for four years following the year in which qualification is lost, unless the IRS grants us relief under certain statutory provisions. Failing to qualify as a REIT could materially and adversely affect our net income and results of operations.

Substantially all of our business is conducted through the Operating Partnership. We are the sole general partner of the Operating Partnership. We are externally managed by PHA pursuant to the Advisory Agreement. PHA is an affiliate of our sponsor.

To maintain our qualification as a REIT, the Company cannot operate its hotels. Therefore, the Operating Partnership and its subsidiaries lease our wholly owned hotels to taxable REIT subsidiary lessees TRS Lessees, which are wholly owned by the Company's TRS holding company. Each hotel is leased to a TRS Lessee under a percentage lease that provides for rental payments equal to the greater of (i) a fixed base rent amount or (ii) a percentage rent based on hotel room revenue. Lease revenue from each TRS Lessee is eliminated in consolidation for financial statement purposes. The TRS Lessees have entered into management agreements with third-party management companies that provide day-to-day management for the hotels. These may include TPG Hotels & Resorts, Inc., an affiliate of our Sponsor and PHA, or TPG Hotels &

Resorts, Inc.'s wholly owned subsidiaries, which we collectively refer to as TPG, or other affiliates or designees of TPG. Our property manager operates and manages all or substantially all of our hotel properties.

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

PHA and affiliated property managers are entitled to receive fees during the acquisition and operational stages of the Company, and PHA may be eligible to receive fees during the liquidation stage of the Company.

We raised the equity capital for our real estate investments through the Private Offering and the Public Offering, together with the Private Offering, the Offerings from September 2016 through August 2021, and we have offered shares through our DRIP pursuant to a the DRIP Offering since August 2021.

We terminated our Private Offering prior to the commencement of the Public Offering, and, as of such termination, received approximately $15,582,755 in gross proceeds from the sale of shares of K Shares and A Shares, including the Units in the Private Offering. Of the $15,582,755 in gross proceeds received, $2,954,095 was from the sale of A Shares to THR, an affiliate of PHA, to fund organization and offering expenses associated with the K Shares and Units.

Since the commencement of the Public Offering and through December 31, 2025, we received approximately $42,901,601 in gross proceeds from the sale of K Shares, K-I Shares and shares of K-T Shares in the Public Offering, inclusive of proceeds from the sale of $2,354,795 of K Shares, $1,674,082 of K-I Shares and $72,561 of K-T Shares pursuant to the DRIP. Additionally, on October 26, 2018, June 10, 2019 and January 19, 2021, we received $1,500,000, $690,000 and $440,000, respectively, from the sale of A Shares to THR in private placements, the proceeds of which were used to pay the selling commissions, dealer manager fees, stockholder servicing fees, and other organizational and offering expenses related to the K Shares, K-I Shares and K-T Shares sold in the primary offering portion of the Public Offering. In addition, we allocated proceeds from the sale of A Shares in amounts that represent the difference between (i) the NAV per K-I Share and the applicable offering price of K-I Shares sold in the Public Offering and (ii) any discount to the applicable offering price of K Shares, K-I Shares and K-T Shares arising from reduced or waived selling commissions (other than reduced selling commissions for volume discounts) or dealer manager fees.

We intend to establish an estimated per share NAV on at least an annual basis. Each Estimated Per Share NAV was determined by our board of directors after consultation with PHA and an independent third-party valuation firm. The Estimated Per Share NAV is not subject to audit by our independent registered public accounting firm. The following table outlines the established Estimated Per Share NAV as determined by our

board of directors for the last five years as of each valuation date presented below (which were the Estimated Per Share NAV for the K Shares, K-I Shares and K-T Shares, unless otherwise indicated):

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

2025 Highlights

As of December 31, 2025:

Investment Objectives

We invest in commercial real estate properties with an intended focus on the hotel sector. Our primary investment objectives are:

Investment Strategy

We have used the net proceeds from the sale of K Shares, K-I Shares and K-T Shares in the Public Offering and other sources of debt and equity financing to invest in a diverse portfolio of real estate investments located throughout the United States in the hospitality sector. We have acquired existing hotel properties and entered into management agreements for their operations, with the objective of providing a stable and secure source of income for our stockholders and maximizing potential returns upon disposition of our assets through capital appreciation. Within our hotel portfolio, we have focused on investments in "upper midscale," "upscale," and "upper upscale" properties that satisfy our investment goals. Our emphasis has been on stabilized, income-producing hospitality assets and those that offer modest value-add opportunities through limited capital improvements, revenue enhancements, operational improvements, and correction of expense inefficiencies.

We have invested substantially all of the net proceeds of the Offerings and other sources of debt and equity financing in hospitality properties, which comprise 100% of the aggregate cost of our portfolio. Our board of directors may revise this targeted portfolio allocation from time to time, or at any time, if it determines that a different portfolio composition is in our stockholders' best interests.

Real Estate Portfolio

As of December 31, 2025, we owned interests in five select-service hotel properties located in four states with a total of 559 rooms. Our properties were financed with a combination of debt and offering proceeds from both our Private Offering and our Public Offering.

The following table summarizes our five select-service hotel properties as of December 31, 2025:

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Property investments in upgrades and improvements that are normal in the course of our business during the year ended December 31, 2025 were funded by refinancings and with cash on hand in our furniture and fixtures and equipment reserves accounts.

Borrowing Policies

We believe that utilizing borrowing is consistent with our investment objectives and has the potential to maximize returns to our stockholders. Under our charter, our borrowings may not exceed 300% of our total "net assets" (as defined in our charter) as of the date of any borrowing (which is the maximum level of indebtedness permitted under the NASAA REIT Guidelines, absent a satisfactory showing that a higher level is appropriate), which is generally expected to be approximately 75% of the cost of our investments. However, we can exceed this threshold if doing so is approved by a majority of our independent directors and is disclosed to our stockholders in our next quarterly report with an explanation of the justification for the excess borrowing.

As of December 31, 2025, our total outstanding indebtedness totaled $67,408,843, including mortgage notes and loans from affiliates. This amount did not exceed 300% of the value of our net assets.

Disposition Policies

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We intend to hold each property we acquired for an extended period. However, circumstances might arise that could result in the early sale of some properties. We expect our board of directors to make the determination pursuant to recommendations by PHA with respect to whether we should sell or dispose of a particular property based on the determination that the sale of the property would be in the best interest of our stockholders.

The determination of whether a particular property should be sold or otherwise disposed of before the end of the expected holding period for the property will be made after consideration of relevant factors (including prevailing economic conditions, and the performance or projected performance and appreciation of the property) with a view to achieving maximum capital appreciation. We cannot assure investors that this objective will be realized. In connection with our sales of properties, we may lend the purchaser all or a

portion of the purchase price. In these instances, our taxable income may exceed the cash received in the sale. The terms of payment will be affected by custom in the area in which the property being sold is located and the then-prevailing economic conditions.

If we do not begin the process of achieving a liquidity event by the seventh anniversary of the termination of our Public Offering, our charter requires a majority of our board of directors, including a majority of our independent directors, to adopt a resolution declaring that a plan of liquidation of our Company is advisable and directing that the plan of liquidation be submitted for consideration at either an annual or special meeting of stockholders, unless the adoption of a plan of liquidation by our board of directors and submission of such plan to stockholders is postponed by a vote of a majority of our board of directors and a majority of the independent directors. If we submit a plan of liquidation to our stockholders, holders of A Shares, K-I Shares, and K Shares, voting together as a single class, will each be entitled to one vote for each such share held as of the record data established by our board of such vote. If we have sought and failed to receive approval of such stockholders of a plan of liquidation, we will continue operating and, upon the written request of the holders of A Shares, K-I Shares, and K Shares owning in the aggregate not less than 10% of the then outstanding A Shares, K-I Shares, and K Shares, the plan of liquidation will be submitted for consideration by proxy statement to such stockholders up to once every two years.

S2K Financial LLC was the dealer manager for our offering and was responsible for the distribution of our common stock in our offering. PHA is our advisor and is an affiliate of our Sponsor. Subject to certain restrictions and limitations, PHA manages our day-to-day operations and our portfolio of properties and real estate-related assets. PHA sources and presents investment opportunities to our board of directors and provides investment management, marketing, investor relations and other administrative services on our behalf. We have no paid employees and rely on PHA to provide substantially all of our services. Pursuant to our Advisory Agreement with PHA, we will reimburse PHA for costs incurred in providing these administrative services. PHA will be required to allocate the cost of such services to us based on objective factors such as total assets, revenues and/or time allocations. At least annually, our board of directors will review the amount of administrative services expense reimbursable to PHA to determine whether such amounts are reasonable in relation to the services provided. As of December 31, 2020, PHA had forfeited its right to collect reimbursement for providing these administrative services provided through such date. In the year ended December 31, 2025, our Sponsor requested reimbursement for $185,318 of such administrative services provided through such date.

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

Our total operating expenses were less than 2% of our average invested assets and 25% of our net income for the twelve months ended March 31, 2024, June 30, 2024, September 30, 2024, December 31, 2024, March 31, 2025, June 30, 2025, September 30, 2025, and December 31, 2025.

Market Outlook

While destination and leisure travel have rebounded and remain strong, business travel continues to lag although showing signs of potential improvement. Ongoing headwinds include challenging interest rates, inflation, supply chain issues, insurance premiums, political discord and conflicts in the Middle East and its impacts on oil prices, and increased labor costs present additional challenges which we believe may continue to stifle recovery of business travel throughout 2026.

The U.S. lodging industry has historically exhibited a strong correlation to U.S. GDP. CBRE (U.S. Hotels State of the Union Midyear Review) states that erratic U.S. trade policy, geopolitical uncertainty and risks associated with large, ongoing deficit spending have tempered business and consumer confidence. According to CBRE, concerns about the economic impact of tariffs have subsided. However, new concerns about overinvestment in artificial intelligence (AI), government debt levels and a softening labor market are building. GDP growth is expected to slow to 2.0% in 2026 from 2.3% in 2025 due to less business investment and consumer spending.

The hospitality sector entered 2026 on comparably stronger footing, however the horizon is not free of challenges. Travel costs have been on the rise, led by generally higher airfares, fuel costs and hotel rates. While pent-up demand had somewhat compensated for high inflation, the potential for a recession-driven pullback in consumer spending remains a credible risk to industry momentum. Scenic destinations that have outperformed in recent years may begin to revert to traditional demand levels. Businesses have suggested they may boost business travel this year, which, combined with additional international visitation and a larger convention slate, is poised to drive recovery in many of the nation's larger hospitality markets.

TSA throughput in early 2026 is reaching record levels, with 44.3 million travelers during the end-of-year holiday season (December 19, 2025-January 4, 2026), peaking at ~2.86 million on December 28, 2025. We expect high volumes driven by major events, with 2.8% annual growth. The government shutdowns may have ripple effects throughout the broader economy and the potential impact on travel should be noted. TSA agents and air traffic controllers are considered 'essential workers' therefore are required to report to work despite the shutdowns. However, according to the US Travel Association, there have been noticeable delays at some of the country's major airports while smaller airports have fared better with security checkpoint delays and flight cancellations/delays remaining near normal during the government shutdown.

Near Term Challenge: The 2026 war in Iran has severely disrupted global travel, grounding more than 19,000 flights on its most chaotic days and leaving over one million passengers stranded across the Middle East. Major global hubs in Dubai, Doha, and Abu Dhabi have faced closures or significant restrictions due to direct strikes and widespread airspace shutdowns, upending a central link for travel between Europe, Asia, and North America. Many governments, including the U.S., UK, Canada, and Australia, have issued their highest-level "Do Not Travel" advisories for much of the region. As the war endures, we anticipate reduced international travel to the U.S., which could impact our revenues.

Review of our Investment Policies

Our board of directors, including our independent directors, has reviewed our investment policies described in this Annual Report and determined that they are in the best interests of our stockholders.

Critical Accounting Policies and Estimates

Our accounting policies have been established to conform with GAAP. The preparation of our financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. We believe the following critical accounting policies govern the significant judgments and estimates used in the preparation of our financial statements, which should be read in conjunction with the more complete discussion of our accounting policies and procedures included in Note 2 - "Summary of Significant Accounting Policies" to our consolidated financial statements in this Annual Report.

Income Taxes

We elected to be taxed as, and currently qualify as, a REIT under the Code and have operated as such commencing with our taxable year ended December 31, 2018. To qualify as a REIT for tax purposes, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to our stockholders (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). We must also meet certain asset and income tests, as well as other requirements. As a REIT, we will not be subject to U.S. federal income tax to the extent we make distributions to our stockholders equal to or in excess of our taxable income. We will monitor the business and transactions that may potentially impact our REIT status. If we fail to qualify as a REIT in any taxable year following 2018, we would be subject to U.S. federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate income tax rates and generally would not be permitted to qualify for treatment as a REIT for U.S. federal income tax purposes for the four taxable years following the year during which qualification is lost unless the IRS grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to our stockholders. However, we are, and intend to continue to be, organized and operated in such a manner as to qualify for treatment as a REIT.

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

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

We have reviewed tax positions under GAAP guidance that clarify the relevant criteria and approach for the recognition and measurement of uncertain tax positions. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken, or expected to be taken, in a tax return. A tax position may only be recognized in the financial statements if it is more likely than not that the tax position will be sustained upon examination. We had no material uncertain tax positions at December 31, 2025.

The preparation of our various tax returns requires the use of estimates for federal and state income tax purposes. These estimates may be subjected to review by the respective taxing authorities. A revision to an estimate may result in an assessment of additional taxes, penalties and interest. At this time, a range in which our estimates may change is not expected to be material. We will account for interest and penalties relating to uncertain tax provisions in the current period's results of operations, if necessary. We have not been assessed interest or penalties by any major tax jurisdictions. We have tax years 2022 through 2025 remaining subject to examination by various federal and state tax jurisdictions.

Real Estate Purchase Price Allocation

Upon the acquisition of hotel properties, we evaluate whether the acquisition is a business combination or an asset acquisition. For both business combinations and asset acquisitions, we allocate the purchase price of properties to acquired tangible assets and any assumed debt based on their fair value. For asset acquisitions, we capitalize transaction costs and allocate the purchase price using a relative fair value method allocating all accumulated costs. For business combinations, we expense transaction costs associated as incurred and allocate the purchase price based on the estimated fair value of each separately identifiable asset and liability.

The tangible assets acquired consist of land, buildings, improvements, furniture, fixtures and equipment. We utilize independent appraisals, as well as hotel construction costs and other available market data, to assist in the determination of the fair values of the tangible assets of an acquired property.

We determine the fair value of any assumed debt by calculating the net present value of the scheduled mortgage payments using methods similar to those used by independent appraisers, including using a discounted cash flow analysis that uses appropriate discount or capitalization rates and available market information where applicable. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market and economic conditions. Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan as interest expense.

In allocating the purchase price of each of our properties, we make assumptions and use various estimates, including, but not limited to, the estimated useful lives of the assets, the cost of replacing certain assets and discount rates used to determine present values. Many of these estimates are obtained from independent third-party appraisals. However, we are responsible for the source and use of these estimates. These estimates are based on judgment and subject to being imprecise; accordingly, if different estimates and assumptions were derived, the valuation of the various categories of our hotel properties or related intangibles could in turn result in a difference in the depreciation or amortization expense recorded in our consolidated financial statements. These variances could be material to our results of operations and financial condition.

Impairment of Long-Lived Assets

We review long-lived assets and certain identifiable intangibles, including franchise agreements with finite lives, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.

Recently Issued Accounting Pronouncements

Recently issued accounting pronouncements are described in Note 2 - "Summary of Significant Accounting Policies" to our consolidated financial statements in this Annual Report.

Distributions

Our board of directors may authorize payment of distributions in excess of those required for us to maintain REIT status as it deems appropriate. Our board of directors may reconsider our current distribution policy and may take further action with respect to distributions for our common stock, and could consider eliminating, suspending, or significantly reducing the payment of distributions in the future. The timing and amount of distributions will be determined by our board of directors, in its sole discretion, and may vary from time to time. Our board of directors' discretion will be influenced in substantial part by its obligation to cause us to comply with the REIT requirements of the Code. We can provide no assurance that we will be able to pay distributions on our K Shares and K-I Shares. However, distributions will continue to accumulate pursuant to our charter.

Our board of directors has adopted a policy to refrain from funding distributions with offering proceeds; instead, we plan to fund distributions from cash flows from operations and capital transactions (other than the Public Offering or other securities offerings but which may include the sale of one or more assets). However, our charter does not restrict us from paying distributions from any particular source, including proceeds from securities offerings, and our board of directors has the ability to change our policy regarding the source of distributions. However, in accordance with Maryland law, we may not make distributions that would: (1) cause us to be unable to pay our debts as they become due in the usual course of business; or (2) cause our total assets to be less than the sum of our total liabilities plus, unless our charter provides otherwise, senior liquidation preferences. Our charter currently provides that amounts that would be needed, if we were to dissolve at the time of such distributions, to satisfy the preferential rights upon dissolution of holders of K Shares and K-I Shares shall not be added to our total liabilities for these purposes. Subject to the preceding, our board of directors will determine the amounts of distributions we will pay to our stockholders. We have not established a minimum distribution level.

We have funded K Share distributions with operating cash flows from our hotel properties and with proceeds from loans from affiliates and from the issuance of common stock pursuant to the DRIP. To the extent we do not have sufficient earnings and profits, distributions paid will be considered a return of capital to stockholders. For information on the distributions paid during the years ended December 31, 2025 and 2024, refer to Note 8 - "Stockholders' Equity" to our consolidated financial statements included herein.

In the years ended December 31, 2025 and 2024, we paid the following K Share, K-I Share, and OP unit distributions, including those paid pursuant to the DRIP:

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The tax composition of our K Share, K-I Share, and OP unit distributions declared for the years ended December 31, 2025 and 2024, was as follows:

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Although a portion of the tax composition of such distributions may be a return of capital, distributions for the years ended December 31, 2025 and 2024 were paid for with gross cash flow from operations. To the extent we do not have taxable income, distributions paid will be considered a return of capital to stockholders.

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

On July 25, 2025, the Company's board of directors authorized the payment of A Share distributions accrued through June 30, 2024. The cumulative amount of distributions that had accrued on a daily basis with respect to each such A Share for the period from (i) September 29, 2016 through March 30, 2020 was $683,680, which reflects an accrual rate of six percent per annum of the "A Share Distribution Base" under the Company's charter, and (ii) April 1, 2020 through June 30, 2024 was $1,704,392, which reflects an accrual rate of seven percent per annum of the "A Share Distribution Base" under the Company's charter. On July 31, 2025, the Company paid $2,388,072 of accrued distributions to A Share stockholders.

We paid quarterly K Share distributions with respect to all four quarters of 2024 and 2025, sourced from the operations of our hotel properties and proceeds received pursuant to the DRIP, consistent with prior distributions. We paid accrued A Share distributions from inception through June 30, 2024,partially sourced from proceeds from the refinancing of the Hilton Garden Inn Providence Note. Unpaid distributions will continue to accumulate pursuant to our charter.

Our board of directors will make determinations as to the payment of future distributions on a quarter-by-quarter basis.

Results of Operations

The discussion that follows is based on our consolidated results of operations for the years ended December 31, 2025 and 2024.

This section of this Form 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2024 items and year-to-year comparisons between 2024 and 2023 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Factors That May Influence Results of Operations

We are not aware of any material trends or uncertainties, other than national and global economic conditions affecting real estate generally and those risks listed in Part I Item 1A "Risk Factors" herein that may be reasonably expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition, management and operation of our properties.

Rooms revenues

We expect the majority of our revenues to be derived from the operation of our hotel properties. Rooms revenues are the product of the number of rooms sold and the average daily room rate. Rooms revenues increased to $28,552,605 for the year ended December 31, 2025 from $28,130,637 for the year ended December 31, 2024. The $421,968 net increase was principally due to increases in ADR.

The following presents the hotel operating results for the years ended December 31, 2025 and 2024 for the entire portfolio:

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A comparison of hotel rooms revenues for the twelve months ended December 31, 2025 and 2024 are as follows:

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The decrease in rooms revenues of $205,572, or 4.37%, at the Springhill Suites Wilmington is primarily driven by a decrease in occupancy compared to the prior year. Occupancy at the Springhill Suites Wilmington decreased from 76.12% for the year ended December 31, 2024 to 72.07% for the year ended December 31,

2025. The ADR at the Springhill Suites Wilmington increased from $140.56 for the year ended December 31, 2024 to $142.36 for the year ended December 31, 2025, an increase of 1.28%.

The decrease in rooms revenues of $441,071, or 7.39%, at the Staybridge Suites St. Petersburg is primarily driven by decreases in both occupancy and ADR compared to the prior year. Occupancy at the Staybridge Suites St. Petersburg decreased from 78.98% for the year ended December 31, 2024 to 77.40% for the year ended December 31, 2025. The ADR at the Staybridge Suites St. Petersburg decreased from $173.48 for the year ended December 31, 2024 to $164.38 for the year ended December 31, 2025, a decrease of 5.25%.

The increase in rooms revenues of $295,254 or 4.23%, at the Hotel Indigo Traverse City is primarily driven by an increase in ADR compared to the prior year. Occupancy at the Hotel Indigo Traverse City decreased from 73.58% for the year ended December 31, 2024 to 71.65% for the year ended December 31, 2025. The ADR at the Hotel Indigo Traverse City increased from $242.23 for the year ended December 31, 2024 to $260.01 for the year ended December 31, 2025, an increase of 7.34%.

The increase in rooms revenues of $784,046, or 12.12%, at the Hilton Garden Inn Providence is primarily driven by increases in both occupancy and ADR compared to the prior year. Occupancy at the Hilton Garden Inn Providence increased from 64.09% for the year ended December 31, 2024 to 69.46% for the year ended December 31, 2025. The occupancy increase is attributed to a strike formed by unionized hospital employees within close proximity to the Hilton Garden Inn Providence. The ADR at the Hilton Garden Inn Providence increased from $201.28 for the year ended December 31, 2024 to $208.80 for the year ended December 31, 2025, an increase of 3.74%.

The decrease in rooms revenues of $10,689, or 0.27%, at the Cherry Tree Inn is primarily driven by a decrease in occupancy compared to the prior year. Occupancy at the Cherry Tree Inn decreased from 63.06% for the year ended December 31, 2024, to 59.68% for the year ended December 31, 2025. The ADR at the Cherry Tree Inn increased from $228.94 for the year ended December 31, 2024 to $241.94 for the year ended December 31, 2025, an increase of 5.68%.

Food and beverage revenues

Food and beverage revenues increased to $2,792,525 for the year ended December 31, 2025 from $2,359,189 for the year ended December 31, 2024. The increase of $433,336 is primarily due to an increase in banquets and functions at the Hotel Indigo Traverse City and Hilton Garden Inn Providence. These amounts are comprised of revenues realized in hotel food and beverage outlets as well as catering events.

Other operating revenues

Other operating revenues increased to $1,497,334 for the year ended December 31, 2025 from $1,394,051 for the year ended December 31, 2024. These amounts include ancillary hotel revenues and other items primarily driven by occupancy such as telephone/internet, parking, gift shops, resort fees and other guest services. The $103,283 increase from the prior year period is primarily due to increases in parking revenues for the year ended December 31, 2025 compared to the year ended December 31, 2024.

Rooms expenses

Rooms expenses were $6,017,057 and $6,018,897 for the years ended December 31, 2025 and 2024, respectively. Rooms expenses are typically primarily driven by the corresponding revenue account and

occupancy. Rooms expenses of $6,017,057 and $6,018,897 represent 21.07% and 21.40% of rooms revenues for the years ended December 31, 2025 and 2024, respectively.

Food and beverage expenses

Food and beverage expenses were $1,832,610 and $1,613,437 for the years ended December 31, 2025 and 2024, respectively. Food and beverage expenses are primarily driven by the corresponding revenue account and occupancy. Food and beverage expenses represent 65.63% and 68.39% of food and beverage revenues for the years ended December 31, 2025 and 2024, respectively.

Other property expenses

Other property expenses were $11,429,960 and $11,149,871 for the years ended December 31, 2025 and 2024, respectively. The $280,089 increase in other property expenses is primarily driven by the rise in franchise fees, utilities, and labor costs. These amounts include maintenance, utilities, sales and marketing, and general and administrative expenses of the hotel properties, as well as net franchise fees, property taxes and other taxes.

Property management fees to affiliates

Property management fees to affiliates were $985,488 and $956,558 for the years ended December 31, 2025 and 2024, respectively. Property management fees are property level expenses equal to 3% of the hotel properties' gross revenues, and we expect them to fluctuate accordingly.

Corporate, general and administrative expenses

Corporate, general and administrative expenses were $1,360,323 and $1,260,039 for the years ended December 31, 2025 and 2024, respectively. The $100,284 increase is primarily due to an increase in legal fees and outside services. Corporate general and administrative expenses consist primarily of transfer agent fees, fees paid to the board of directors, audit and tax fees, and other professional services fees.

Other fees to affiliates

Other fees to affiliates were $924,067 and $908,599 for the years ended December 31, 2025 and 2024, respectively. Other fees to affiliates include asset management fees due to PHA that are paid quarterly in arrears equal to one-fourth of 0.75% of the adjusted cost of our assets. Asset management fees increased to $738,748 for the year ended December 31, 2025 from $727,761 for the year ended December 31, 2024. Other fees to affiliates also includes certain administrative fees charged to us by our Sponsor. Such administrative fees were $185,318 and $180,839 for the years ended December 31, 2025 and 2024, respectively.

Depreciation and amortization

Depreciation and amortization expenses were $4,009,986 and $4,289,600 for the years ended December 31, 2025 and 2024, respectively. These amounts include depreciation on our hotel buildings, improvements, furniture, fixtures and equipment, along with amortization of our franchise fees and certain intangibles.

Interest expense, net

Interest expense, net, was $4,124,807 and $3,733,207 for the years ended December 31, 2025 and 2024, respectively. Interest expense includes monthly payments on the outstanding mortgage notes payable

balances, accrued interest on the outstanding asset management fees, acquisition fees and promissory notes. For the year ended December 31, 2025, we recognized $256,639 of interest expense relating to the amortization of deferred financing costs, offset by $22,052 relating to the amortization of the fair value of debt premium. For the year ended December 31, 2024, we recognized $184,165 of interest expense relating to the amortization of deferred financing costs and debt discounts, offset by $132,318 relating to the amortization of the fair value of debt premium.

Interest income on interest-bearing cash accounts was $219,006 and $274,207 for years ended December 31, 2025 and 2024, respectively. Interest income is presented as a reduction of the total interest expense on the consolidated income statement.

Gain on interest rate swap

Gain on our interest rate swap was $0 and $7,237 for the years ended December 31, 2025 and 2024, respectively.The interest rate swap was terminated in connection with the June 6, 2024 refinancing of the note secured by the Hotel Indigo Traverse City (the "TCI Note").

Income tax benefit (expense)

We had income tax expense of $300,475 for the year ended December 31, 2025, and income tax benefit of $106,253 for the year ended December 31, 2024. Income taxes relate to taxable income at the TRSs.

Net income

For the year ended December 31, 2025, we had net income of $1,857,691 compared to net income of $2,067,159 for the year ended December 31, 2024. The decrease in net income of $209,468 over the comparable prior year period was the result of the changes in revenues and expenses discussed above.

Net income attributable to noncontrolling interest

Net income relating to noncontrolling interests was $320,488, for the year ended December 31, 2025 compared to net income relating to noncontrolling interests of $526,756 for the year ended December 31, 2024. This amount includes net income or losses attributable to a third-party's 49% ownership interest in PCF and will fluctuate accordingly with any increases or decreases to net income at PCF. This amount also includes net income or losses attributable to the Class K units of limited partnership interests in the Operating Partnership ("Class K OP Units") issued as part of the Hilton Garden Inn Providence acquisition. The noncontrolling Class K OP Units are allocated net income or loss attributable to the Operating Partnership based on the total outstanding Class K OP Units as a percentage of all our outstanding common stock.

Liquidity and Capital Resources

We paid quarterly distributions with respect to the quarters ended March 31, 2024, June 30, 2024, September 30, 2024, December 31, 2024, March 31, 2025, June 30, 2025, September 30, 2025 and December 31, 2025, with operating cash flow, consistent with prior distributions. Our board of directors will make determinations as to the payment of future distributions on a quarter-by-quarter basis; however, distributions will continue to accumulate pursuant to our charter.

Our sources of funds are primarily funds equal to amounts reinvested in the DRIP, operating cash flows and borrowings. Our principal demands for funds will be for improvement costs, the payment of our operating and administrative expenses, continuing debt service obligations and distributions to and

repurchases from our stockholders. Should we acquire additional assets, we intend to use cash and mortgage or other debt. PHA and its affiliates have agreed to purchase A Shares in a private placement in order to provide us with funds sufficient to pay the selling commissions, dealer manager fees, stockholder servicing fees, and other organizational and offering expenses related to the K Shares, K-I Shares and K-T Shares sold in the primary offering portion of our Public Offering. In addition, we will allocate proceeds from the sale of A Shares in amounts that represent the difference between (i) the applicable estimated NAV per K-I Share and the applicable offering price of K-I Shares sold in our primary offering and (ii) any discount to the applicable offering price of K Shares, K-I Shares and K-T Shares arising from reduced or waived selling commissions (other than reduced selling commissions for volume discounts) or dealer manager fees.

In addition, in a normal operating environment, we expect to use debt financing as a source of capital. Our charter provides that the maximum amount of our total indebtedness shall not exceed 300% of our total "net assets" (as defined in accordance with Statement of Policy Regarding Real Estate Investment Trusts revised and adopted by the North American Securities Administrators Association on May 7, 2007) as of the date of any borrowing, which is generally expected to be approximately 75% of the cost of our investments; however, we may exceed that limit if approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report following such borrowing along with justification for exceeding such limit. This charter limitation, however, does not apply to individual real estate assets or investments. In addition, it is currently our intention to limit our aggregate borrowings to 50% of the aggregate fair market value of our assets, unless borrowing a greater amount is approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report following such borrowing along with justification for borrowing such a greater amount. This limitation, however, will not apply to individual real estate assets or investments. At the date of acquisition of each asset, we anticipate that the cost of investment for such asset will be substantially similar to its fair market value. However, subsequent events, including changes in the fair market value of our assets, could result in our exceeding these limits.

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

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

Sources and Uses of Cash

Our principal demands for funds are for capital expenditures, operating expenses, distributions to and repurchases from stockholders and principal and interest on any current and future indebtedness. Generally, cash for these items is generated from operations of our current future investments. Our sources of funds are primarily operating cash flows, funds equal to amounts reinvested in the DRIP, our credit facility and other borrowings.

Proceeds from the sale of common stock in the Private Offering and Public Offering were partially used to fund our investments in hotel properties and the related costs associated with the transactions. The remaining proceeds are held in liquid cash accounts.

Additionally, our principal uses of funds are expected to include possible operating shortfalls, owner-funded capital expenditures, distributions, and debt interest and principal payments. Items that impacted our cash flow and liquidity during the periods indicated are summarized as follows:

Cash Flows Provided by Operating Activities

During the years ended December 31, 2025 and 2024, we owned an interest in five hotel properties. During the years ended December 31, 2025 and 2024, net cash provided by operating activities was $6,110,733 and $6,662,923, respectively. Our operating cash flows during the year ended December 31, 2025 were the result of our net income, offset by adjustments for non-cash expenses, including depreciation and amortization, and by adjustments for receivables, other assets, amounts due to and from related parties, and accounts payable and accrued liabilities. Our operating cash flows during the year ended December 31, 2024 were the result of our net income, offset by adjustments for non-cash expenses, including depreciation and amortization, the change in fair value of the interest rate swap agreement and by adjustments for receivables, other assets, amounts due to and from related parties, and accounts payable and accrued liabilities.

Cash Flow Used in Investing Activities

Cash used in investing activities will vary based on the funds raised by the issuance of shares of common stock pursuant to the DRIP and how quickly we invest those funds towards acquisitions or improvements of real estate and real-estate related investments. During the year ended December 31, 2025, net cash used in investing activities was $1,361,323, which represented capital improvements at our hotel properties. During the year ended December 31, 2024, net cash used in investing activities was $1,418,271 which represented capital improvements at our hotel properties.

Cash Flows Used in Financing Activities

During the year ended December 31, 2025, net cash used in financing activities was $4,948,009. We refinanced the HGI note, paying the old note of $16,232,333, and borrowing $19,200,000. We made additional principal payments on the note secured by the Hilton Garden Inn Providence (the "HGI Note") and the note secured by the Cherry Tree Inn (the "CTI Note") totaling $427,390. We paid cash distributions of $5,356,351 to stockholders with proceeds from operations and the HGI refinancing. Cash flow from financing activities for the year ended December 31, 2025 also includes $1,112,300 of distributions to noncontrolling interests. Additionally, we repurchased $820,524 of outstanding shares of common stock and paid $199,111 in deferred financing costs.

During the year ended December 31, 2024, net cash used in financing activities was $4,887,480. We paid stockholder servicing fees totaling $127. We received $39,270,000 of mortgage note proceeds related to refinancings. We made principal payments on the note secured by the Springhill Suites Wilmington (the "Wilmington Note"), the note secured by the Staybridge Suites St. Petersburg (the "St. Petersburg Note"), the note secured by the Hilton Garden Inn Providence (the "HGI Note") and the note secured by the Cherry Tree Inn (the "CTI Note") totaling $38,825,525. We paid cash distributions of $2,985,108 to stockholders with proceeds from operations. Cash flow from financing activities for the year ended December 31, 2024 also includes $820,750 of distributions to noncontrolling interests. Additionally, we repurchased $797,838 of outstanding shares of common stock and paid $728,132 in deferred financing costs.

Debt

We intend to maintain amounts outstanding under long-term debt arrangements or lines of credit so that we will have more funds available for investment in property improvements. However, the percentage of debt

financing we utilize at any given time will be dependent upon various factors to be considered in the sole discretion of our board of directors, including, but not limited to, our ability to pay distributions, the availability of properties meeting our investment criteria, the availability of debt financing, and changes in the cost of debt financing. To help finance our initial acquisitions, we may utilize short-term borrowings. However, after our initial property acquisitions, as a general principle, we anticipate that the term of any debt financing we utilize will correspond to the anticipated holding period for the respective property.

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

The TCI Note was refinanced as of June 6, 2024. The TCI Note bears interest at a fixed per annum rate equal to 7.025% during the initial three-year term. This rate is calculated to 2.50% in excess of the yield on United States Treasury Securities adjusted to a constant maturity of three years as made available by the Federal Reserve Board. The TCI Note provides for interest only monthly payments for the initial three-year term. After the interest only period, principal will be amortized over a 30-year amortization schedule at a fixed per annum rate of interest equal to 2.50% in excess of the yield on United States Treasury Securities adjusted to a constant maturity of one year as made available by the Federal Reserve Board thereafter to maturity on June 6, 2027. The loan agreement allows for two one-year extensions. The TCI Note is collateralized by the Hotel Indigo Traverse City, including equipment, and is guaranteed by the Company (pursuant to a customary carveout/bad acts guaranty). As of December 31, 2025, we believe the Operating Partnership and its subsidiary for the Hotel Indigo Traverse City were in compliance with the loan requirements, including applicable covenants, and all required payments have been made as agreed.

The HGI Note was refinanced as of July 10, 2025. The HGI note bears interest at a fixed rate of 6.10% through July 10, 2030. The HGI Note requires interest only payments for the first two years of the five-year term, payments subsequent to July 10, 2027, will consist of principal and interest based on a 25-year amortization schedule. Out of the entire refinance amount of $19,200,000, $1,975,241 was allocated to fund a portion of the A Shares distribution, and $743,386 was allocated for renovation funding. The HGI Note is collateralized by the Hilton Garden Inn Providence, including equipment, and has been guaranteed by the Company (pursuant to a customary carveout/bad acts guaranty). As of December 31, 2025, we believe the Operating Partnership and its subsidiary for the Hilton Garden Inn Providence were in compliance with the loan requirements, including applicable covenants, and all required payments have been made as agreed.

The St. Petersburg Note was refinanced as of April 25, 2024. The St. Petersburg Note bears interest at the Secured Overnight Financing Rate ("SOFR") plus a SOFR rate margin of 2.50%. The St. Petersburg Note requires monthly interest payments for the first two years, and monthly principal and interest payments based on a 25-year amortization schedule thereafter to maturity on April 25, 2029. The St. Petersburg Note is collateralized by the Staybridge Suites St. Petersburg, including equipment. The St. Petersburg Note is also guaranteed by the Company (pursuant to a customary carveout/bad acts guaranty) and cross-collateralized by the Wilmington Note. As of December 31, 2025, we believe the Operating Partnership and its subsidiary for the Staybridge Suites St. Petersburg were in compliance with the loan requirements, including applicable covenants, and all required payments have been made as agreed.

The Wilmington Note was refinanced as of April 25, 2024. The Wilmington Note bears interest at SOFR plus a SOFR rate margin of 2.50%. The Wilmington Note requires monthly interest payments for the first two years, and monthly principal and interest payments based on a 25-year amortization schedule thereafter to maturity on April 25, 2029. The Wilmington Note is collateralized by the Springhill Suites Wilmington, including equipment. The Wilmington Note is also guaranteed by the Company (pursuant to a customary

carveout/bad acts guaranty), and is cross collateralized by the St. Petersburg Note. As of December 31, 2025, the Operating Partnership and its subsidiary for the Springhill Suites Wilmington were in compliance with the loan requirements, including applicable covenants, and all required payments have been made as agreed.

The CTI Note requires monthly interest payments at a fixed rate of 3.91% through November 23, 2023 and subsequent to November 23, 2023, monthly principal and interest payments of $52,601 through November 23, 2026, the maturity date. As of December 31, 2025, the Operating Partnership and its subsidiary for the Cherry Tree Inn were in compliance with the loan requirements, including applicable covenants, and all required payments have been made as agreed.

Contractual Obligations

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

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

Our contractual obligations as of December 31, 2025 are as follows:

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FFO and MFFO

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

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

We, along with others in the real estate industry, consider FFO to be an appropriate supplemental measure of a REIT's operating performance because it is based on a net income (loss) analysis of property portfolio performance that excludes non-cash items such as depreciation and amortization and asset

impairment write-downs, which we believe provides a more complete understanding of our performance to investors and to our management, and when compared year over year, reflects the impact on our operations from trends in occupancy.

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

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

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

Publicly registered, non-listed REITs, such as us, typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operations. While other start up entities may also experience significant acquisition activity during their initial years, we believe that publicly registered, non-listed REITs are unique in that they have a limited life with targeted exit strategies within a relatively limited time frame after the acquisition activity ceases. We intend to begin the process of achieving a liquidity event (i.e., listing of our shares of common stock on a national securities exchange, a merger or sale, the sale of all or substantially all of our assets, or another similar transaction) within seven years after the completion of our offering stage, which is generally comparable to other publicly

registered, non-listed REITs. Thus, we do not intend to continuously purchase real estate assets and intend to have a limited life. Due to these factors and other unique features of publicly registered, non-listed REITs, the IPA, an industry trade group, has standardized a measure known as MFFO, which we believe to be another appropriate supplemental measure to reflect the operating performance of a publicly registered, non-listed REIT. MFFO is a metric used by management to evaluate sustainable performance and distribution policy. MFFO is not equivalent to our net income (loss) as determined under GAAP.

We define MFFO, a non-GAAP measure, consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations ("Practice Guideline"), issued by the IPA in November 2010. The Practice Guideline defines MFFO as FFO further adjusted for the following items included in the determination of GAAP net income (loss): acquisition fees and expenses; amounts related to straight-line rental income and amortization of above and below intangible lease assets and liabilities; accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income (loss); nonrecurring gains or losses included in net income (loss) from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan; unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting; adjustments related to contingent purchase price obligations where such adjustments have been included in the derivation of GAAP net income (loss); and after adjustments for a consolidated and unconsolidated partnership and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. Our MFFO calculation complies with the IPA's Practice Guideline, described above. In calculating MFFO, we exclude paid and accrued acquisition fees and expenses that are reported in our consolidated statements of operations. Since MFFO excludes acquisition fees and expenses, it should not be construed as a historic performance measure. Acquisition fees and expenses are paid in cash by us, and we have not set aside or put into escrow any specific amount of proceeds from our offerings to be used to fund acquisition fees and expenses. Acquisition fees and expenses include payments to PHA or its affiliates and third parties. Such fees and expenses will not be reimbursed by PHA or its affiliates and third parties, and therefore if there are no further proceeds from the sale of shares of our common stock to fund future acquisition fees and expenses, such fees and expenses will need to be paid from either additional debt, operational earnings or cash flows, net proceeds from the sale of properties, or from ancillary cash flows. As a result, the amount of proceeds available for investment and operations would be reduced, or we may incur additional interest expense as a result of borrowed funds. Nevertheless, PHA or its affiliates will not accrue any claim on our assets if acquisition fees and expenses are not paid from the proceeds of our offerings. Under GAAP, acquisition fees and expenses related to the acquisition of properties determined to be business combinations are expensed as incurred, including investment transactions that are no longer under consideration, and are included in acquisition related expenses in the accompanying consolidated statements of operations, and acquisition expenses associated with transactions determined to be an asset purchase are capitalized.

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

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

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

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

FFO and MFFO, as described above, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income (loss) or in its applicability in evaluating our operational performance. The method used to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operation performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO. MFFO has not been scrutinized to the level of other similar non-GAAP performance measures by the SEC or any other regulatory body.

Our calculation of FFO and MFFO is presented in the following table for the years ended December 31, 2025 and 2024:

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Related-Party Transactions and Agreements

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

Subsequent Events

For a discussion of subsequent events, see Note 12 - "Subsequent Events" to the consolidated financial statements that are a part of this Annual Report.