Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Lightstone Value Plus REIT II, Inc. and Subsidiaries and the notes thereto. As used herein, the terms "we," "our" and "us" refer to Lightstone Value Plus REIT II, Inc., a Maryland corporation, and, as required by context, Lightstone Value Plus REIT II LP and its wholly owned subsidiaries, which we collectively refer to as the "Operating Partnership". Dollar amounts are presented in thousands, except per share data, revenue per available room ("RevPAR"), average daily rate ("ADR"), annualized revenue per square foot and where indicated in millions.

Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q (the "Quarterly Report") constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements include discussion and analysis of the financial condition of Lightstone Value Plus REIT II, Inc. and our subsidiaries (which may be referred to herein as the "Company," "we," "us" or "our"), including our ability to make accretive real estate or real estate-related investments, to rent space on favorable terms, to address our debt maturities and to fund our liquidity requirements, to sell our assets when we believe advantageous to achieve our investment objectives, to fund our anticipated capital expenditures, to meet the amount and timing of anticipated future cash distributions to our stockholders, to grow the estimated net asset value per share of our common stock ("NAV per Share"), and other matters. Words such as "may," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "would," "could," "should" and variations of these words and similar expressions are intended to identify forward-looking statements.

These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors described below:

	●	market and economic challenges experienced by the United States ("U.S.") and global economies or real estate industry as a whole and the local economic conditions in the markets in which our investments are located. Additionally, our business and financial performance may be adversely affected by current and future economic and other conditions; such as inflation, tariffs, recession, political upheaval or uncertainty, terrorism and acts of war, natural and man-made disasters, cybercrime, and outbreaks of contagious diseases;
	●	the availability of cash flow from operating activities for distributions, if required to maintain our status as a real estate investment trust ("REIT");
	●	conflicts of interest arising out of our relationships with our advisor and its affiliates;
	●	our ability to retain our executive officers and other key individuals who provide advisory, property management and property management oversight services to us;
	●	our level of debt and the terms and limitations imposed on us by our debt agreements;
	●	the availability of credit generally, and any failure to obtain debt financing at favorable terms or a failure to satisfy the conditions and requirements of that debt;
	●	our ability to make accretive investments;
	●	our ability to diversify our portfolio of assets;
	●	changes in market factors that could impact our rental rates and operating costs;
	●	our ability to secure leases at favorable rental rates;
	●	our ability to sell our assets at a price and on a timeline consistent with our investment objectives;
	●	impairment charges;
	●	our ability to maintain and/or upgrade our hotels pursuant to the requirements of their respective franchise agreements;
	●	our ability to extend or replace expiring franchise agreements for our hotels;
	●	unfavorable changes in laws, regulations or ordinances impacting our business, our assets or our key relationships; and
	●	factors that could affect our ability to qualify as a real estate investment trust.

Forward-looking statements in this Quarterly Report reflect our management's view only as of the date of this Quarterly Report, and may ultimately prove to be incorrect. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results, except as required by applicable law. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.

Cautionary Note

The representations, warranties, and covenants made by us in any agreement filed as an exhibit to this Quarterly Report are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties, or covenants to or with any other parties. Moreover, these representations, warranties, or covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.

Business and Structure

Lightstone Value Plus REIT II, Inc. ("Lightstone REIT II"), is a Maryland corporation formed on April 28, 2008, which elected to qualify as a real estate investment trust ("REIT") for United States ("U.S.") federal income tax purposes beginning with the taxable year ending December 31, 2009.

Lightstone REIT II is structured as an umbrella partnership REIT ("UPREIT"), and substantially all of its current and future business is and will be conducted through Lightstone Value Plus REIT II LP (the "Operating Partnership"), a Delaware limited partnership formed on April 30, 2008. As of March 31, 2026, Lightstone REIT II held a 99% general partnership interest in our Operating Partnership's common units.

Lightstone REIT II and the Operating Partnership and its subsidiaries are collectively referred to as the "Company" and the use of "we," "our," "us" or similar pronouns in this Quarterly Report refers to Lightstone REIT II, its Operating Partnership or the Company as required by the context in which such pronoun is used.

Through the Operating Partnership, we own and operate commercial properties and make real estate-related investments. Since our inception, we have primarily acquired and operated commercial hospitality properties, principally consisting of limited-service hotels all located in the U.S. However, our commercial holdings may also consist of full-service hotels, and to a lesser extent, retail (primarily multi-tenanted shopping centers), industrial and office properties. Our real estate investments are held by us alone or jointly with other parties. In addition, we may invest up to 20% of our net assets in collateralized debt obligations, commercial mortgage-backed securities ("CMBS") and mortgage and mezzanine loans secured, directly or indirectly, by the same types of properties which we may acquire directly. Although most of our investments are these types, we may invest in whatever types of real estate or real estate-related investments that we believe are in our best interests. We evaluate all of our real estate investments as one operating segment. We currently intend to hold our investments until such time as we determine that a sale or other disposition appears to be advantageous to achieve our investment objectives or until it appears that the objectives will not be met.

As of March 31, 2026, we (i) majority owned and consolidated the operating results and financial condition of 10 limited-service hotels containing a total of 1,352 rooms, (ii) held an unconsolidated 48.6% membership interest in Brownmill, LLC (the "Brownmill Joint Venture"), an affiliated real estate entity that owns two retail properties, and (iii) held an unconsolidated 50% membership interest in LVP LIC Hotel JV LLC (the "Hilton Garden Inn Joint Venture"), an affiliated real estate entity that owns and operates one limited-service hotel. We account for our membership interests in the Brownmill Joint Venture and the Hilton Garden Inn Joint Venture under the equity method of accounting.

The Brownmill Joint Venture owns Browntown Shopping Center, located in Old Bridge, New Jersey, and Millburn Mall, located in Vauxhall, New Jersey. The Browntown Joint Venture is between us and Lightstone Holdings LLC ("LGH"), a wholly-owned subsidiary of the Lightstone Group LLC (the "Sponsor"), and a related party. We and LGH have 48.6% and 51.4% membership interests in the Brownmill Joint Venture, respectively. The Hilton Garden Inn Joint Venture owns a 183-room, limited-service hotel (the "Hilton Garden Inn - Long Island City") located in the Long Island City neighborhood in the Queens borough of New York City. The Hilton Garden Inn Joint Venture is between us and Lightstone Value Plus REIT III, Inc. ("Lightstone REIT III"), a related party REIT, which is sponsored by the Sponsor. We and Lightstone REIT III each have a 50% membership interest in the Hilton Garden Inn Joint Venture.

As of March 31, 2026, five of our consolidated limited-service hotels are held in LVP Holdco JV LLC (the "Hotel Joint Venture"), a joint venture formed between us and Lightstone Value Plus REIT I, Inc. ("Lightstone REIT I"), a related party REIT which is sponsored by the Sponsor. We and Lightstone REIT I have 97.5% and 2.5% membership interests in the Hotel Joint Venture, respectively. Additionally, as of March 31, 2026, one of our consolidated limited-service hotels also has ownership interests held by unrelated minority owners. The membership interests of Lightstone REIT I and the unrelated minority owners are accounted for as noncontrolling interests in our consolidated financial statements.

Our advisor is Lightstone Value Plus REIT II LLC (the "Advisor"), which is majority owned by David Lichtenstein. On May 20, 2008, the Advisor contributed $2 to the Operating Partnership in exchange for 200 limited partner units ("Common Units") in the Operating Partnership. Our Advisor also owns 20,000 shares of common stock ("Common Shares") which were issued on May 20, 2008 for $200, or $10.00 per share. Mr. Lichtenstein also is the majority owner of the equity interests of the Sponsor, which also served as our sponsor during our initial public offering and follow-on offering (collectively, the "Offerings"), which terminated on August 15, 2012 and September 27, 2014, respectively. Our Advisor, pursuant to the terms of an advisory agreement, together with our board of directors (the "Board of Directors"), is primarily responsible for making investment decisions on our behalf and managing our day-to-day operations. Through his ownership and control of the Sponsor, Mr. Lichtenstein is the indirect owner and manager of Lightstone SLP II LLC, a Delaware limited liability company (the "Associate General Partner"), which owns 177 subordinated profits interests ("Subordinated Profits Interests") in the Operating Partnership, which were acquired at a cost of $100,000 per unit, or aggregate consideration of $17.7 million in connection with our Offerings. Mr. Lichtenstein also acts as our Chairman and Chief Executive Officer. As a result, he exerts influence over but does not control Lightstone REIT II or the Operating Partnership.

We have no employees. We are dependent on the Advisor and certain affiliates of our Sponsor for performing a full range of services that are essential to us, including asset management, property management (excluding our hospitality properties which are managed by unrelated third-party property managers) and acquisition, disposition and financing activities, and other general administrative responsibilities; such as tax, accounting, legal, information technology and investor relations services. If the Advisor and certain affiliates of our Sponsor are unable to provide these services to us, we would be required to provide the services ourselves or obtain the services from another party or other parties.

Our Common Shares are not currently listed on any national securities exchange. We may seek to list our Common Shares for trading on a national securities exchange only if a majority of our independent directors believe listing them would be in the best interest of our stockholders. However, we do not intend to list our Common Shares at this time. We do not anticipate that there would be any active market for our Common Shares until they are listed for trading.

Noncontrolling Interests - Partners of the Operating Partnership

Limited Partner

On May 20, 2008, our Advisor contributed $2 to the Operating Partnership in exchange for 200 Common Units. The Advisor has the right to convert its Common Units into cash or, at our option, an equal number of our Common Shares.

Associate General Partner

In connection with our Offerings, the Sponsor and LGH contributed (i) cash of $12.9 million and (ii) equity interests totaling 48.6% in the Brownmill Joint Venture, which were valued at $4.8 million, respectively, to the Operating Partnership in exchange for it issuing 177 Subordinated Profits Interests to the Associate General Partner at a cost of $100,000 per unit, with an aggregate value of $17.7 million.

As the indirect majority owner of the Associate General Partner, Mr. Lichtenstein is the beneficial owner of a 99% interest in such Subordinated Profits Interests and thus receives an indirect benefit from any distributions made in respect thereof.

These Subordinated Profits Interests may entitle the Associate General Partner to a portion of any regular distributions that we make to our stockholders, but only after our stockholders have received a stated preferred return. However, there have been no distributions declared on the Subordinated Profits Interests for any periods after December 31, 2019. Since our inception, the cumulative distributions declared and paid on the Subordinated Profits Interests were $7.9 million. However, there have been no distributions declared or paid on the Subordinated Profits Interest for any quarterly periods subsequent to the fourth quarter of 2019. Any future distributions on the Subordinated Profits Interests will always be subordinated until stockholders receive a stated preferred return.

The Subordinated Profits Interests may also entitle the Associate General Partner to a portion of any liquidating distributions made by the Operating Partnership. The value of such distributions will depend upon the net proceeds available for distribution upon our liquidation and, therefore, cannot be determined at the present time. Liquidating distributions to the Associate General Partner will always be subordinated until stockholders receive a distribution equal to their initial investment plus a stated preferred return.

Other Noncontrolling Interests in Consolidated Subsidiaries

Other noncontrolling interests consist of the (i) membership interest in the Hotel Joint Venture held by Lightstone REIT I and (ii) membership interests held by minority owners in one of our limited-service hotels.

Related Parties

Our Sponsor, Advisor and their affiliates, including the Associate General Partner and LGH, are related parties of ours as well as other public REITs also sponsored and/or advised by these entities. Pursuant to the terms of various agreements, certain of these entities are entitled to compensation and reimbursement of costs incurred for services related to the investment, development, management and disposition of our assets. The compensation is generally based on the cost of acquired properties/investments and the annual revenue earned from such properties/investments, and other such fees and expense reimbursements as outlined in each of the respective agreements.

Concentration of Credit Risk

As of March 31, 2026 and December 31, 2025, we had cash deposited in certain financial institutions in excess of U.S. federally insured levels. We regularly monitor the financial stability of these financial institutions and currently believe that we are not exposed to any significant credit risk for our cash and cash equivalents or restricted cash.

Current Environment

Our operating results and financial condition 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, new and existing competition, inflation, the impact of tariffs and global trade disruptions, recessionary pressures, supply chain disruptions, wars and acts of war, geopolitical tensions, political upheaval or uncertainty, potential violence, civil unrest, criminal activity or terrorism, the availability and cost of comprehensive insurance coverage, the effects of climate change, environmental liabilities, natural and other disasters, security breaches and cybercrime, any disruptions in the financial markets that may adversely affect the availability or terms of financings, unfavorable changes in laws, ordinances and regulations, technological advances and challenges, such as the use and impact of artificial intelligence and machine learning, and loss of key relationships.

Our overall performance depends in part on worldwide economic and geopolitical conditions and their impacts on consumer behavior. Worsening economic conditions, increases in costs due to inflation or tariffs, higher interest rates, labor and supply chain challenges, and other changes in economic conditions, could adversely affect our future results of operations and financial condition.

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 Quarterly Report. The preparation of financial statements in conformity with generally accepted accounting principles in the U.S. ("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.

Portfolio Summary -

Consolidated Properties:

											Year to Date March 31,				Percentage Occupied for the Three Months				RevPAR for the Three Months				ADR for the Three Months
Hospitality - Limited-Service Hotel		Location		Year Built			Rooms				2026 Available Rooms				Ended March 31, 2026				Ended March 31, 2026				Ended March 31, 2026
Fairfield Inn - East Rutherford		East Rutherford, New Jersey		1990				141				12,690				66	%		$	87.11			$	132.81
Aloft - Tucson		Tucson, Arizona		1971				154				13,860				70	%		$	136.62			$	196.08
Aloft - Philadelphia		Philadelphia, Pennsylvania		2008				136				12,240				60	%		$	64.05			$	105.93
Four Points by Sheraton - Philadelphia		Philadelphia, Pennsylvania		1985				177				15,930				49	%		$	52.74			$	107.85
Courtyard - Willoughby		Willoughby, Ohio		1999				90				8,100				64	%		$	79.59			$	124.56
Fairfield Inn - DesMoines		West Des Moines, Iowa		1997				102				9,180				44	%		$	43.00			$	96.69
SpringHill Suites - DesMoines		West Des Moines, Iowa		1999				97				8,730				41	%		$	39.22			$	96.62
Courtyard - Parsippany		Parsippany, New Jersey		2001				151				13,590				49	%		$	68.03			$	138.14
Hyatt Place - New Orleans		New Orleans, Louisiana		1996				172				15,480				63	%		$	129.66			$	205.36
Residence Inn - Needham		Needham, Massachusetts		2013				132				11,880				76	%		$	104.48			$	137.74
				Total				1,352				121,680				59	%		$	83.64			$	142.45

Unconsolidated Affiliated Entities:

Retail		Location		Year Built			Leasable Square Feet				Percentage Occupied as of March 31, 2026				Annualized Revenue Based on Rents as of March 31, 2026				Annualized Revenue per Square Foot as of March 31, 2026
Browntown Shopping Center and Millburn Mall		Old Bridge and Vauxhall, New Jersey		1962				156,028				92	%		$	3.2 million			$	20.24

													Percentage Occupied for the Three Months				RevPAR for the Three Months				ADR for the Three Months
Hospitality - Limited-Service Hotel		Location		Year Built			Rooms				Year to Date Available Rooms		Ended March 31, 2026				Ended March 31, 2026				Ended March 31, 2026
Hilton Garden Inn - Long Island City		Long Island City, New York		2014				183			16,470			88	%		$	143.31			$	161.95

Annualized base rent is defined as the minimum monthly base rent due as of March 31, 2026 annualized, excluding periodic contractual fixed increases and rents calculated based on a percentage of tenants' sales. The annualized base rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants.

The following information generally applies to our investments in our real estate properties:

●

we believe our real estate properties are adequately covered by insurance and suitable for their intended purpose;

●

our real estate properties are located in markets where we are subject to competition; and

●

depreciation is provided on a straight-line basis over the estimated useful life of the applicable improvements.

Critical Accounting Policies and Estimates

There were no material changes during the three months ended March 31, 2026 to our critical accounting policies as reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

Results of Operations

Comparison of the three months ended March 31, 2026 vs. March 31, 2025

Consolidated

Our consolidated revenues, property operating expenses, real estate taxes, general and administrative costs and depreciation and amortization for the three months ended March 31, 2026 and 2025 are attributable to our 10 majority-owned and consolidated limited-service hotels.

During the three months ended March 31, 2026 compared to same period in 2025, our consolidated hospitality portfolio experienced an increase in the percentage of rooms occupied to 59% from 57% and RevPAR to $83.64 from $82.07 while ADR decreased to $142.45 from $144.11.

Revenues

Revenues increased by $0.4 million to $11.1 million during the three months ended March 31, 2026 compared to $10.7 million for the same period in 2025. The increase in revenues during the 2026 period reflects the higher percentage of rooms occupied, partially offset by the lower ADR.

Property operating expenses

Property operating expenses increased by $0.4 million to $8.7 million during the three months ended March 31, 2026 compared to $8.3 million for the same period in 2025. The increase reflects higher room and other operating expenses resulting from increased labor and utility costs during the 2026 period.

Real estate taxes

Real estate taxes were relatively unchanged at $0.6 million during both the three months ended March 31, 2026 and 2025.

General and administrative costs

General and administrative were relatively unchanged at $1.0 million during both the three months ended March 31, 2026 and 2025.

Depreciation and amortization

Depreciation and amortization was relatively unchanged at $1.3 million during both the three months ended March 31, 2026 and 2025.

Impairment charge

During the first quarter of 2026, we recorded a non-cash impairment charge of $5.2 million to reduce the carrying values of our Philadelphia Hotel Portfolio to its estimated fair value of $16.3 million as of March 31, 2026. See Note 3 of the Notes to Consolidated Financial Statements.

Casualty (gain)/loss, net

During the first quarter of 2026, we recognized a casualty gain of $0.1 million as a result of an insurance claim related to a small fire and related flooding incident at one of our limited-service hotels, which occurred in November 2025.

In January 2025, one of our limited-service hotels suffered damages to a number of its rooms caused by a fire and related flooding incident. As a result, we recognized a casualty loss, net of $1.0 million during the first quarter of 2025 consisting of the write-off of the physically damaged assets of $0.9 million plus associated remediation costs of $0.4 million, partially offset by proceeds of $0.3 million received under the related insurance claim.

Interest expense

Interest expense decreased by $0.3 million to $1.8 million during the three months ended March 31, 2026 compared to $2.1 million for the same period in 2025. Interest expense is attributable to the variable rate mortgage financing associated with our limited-service hotels and reflects changes in market interest rates and the weighted average principal outstanding during the respective periods.

Loss from investments in unconsolidated affiliated entities

Our loss from investments in unconsolidated affiliated entities was $0.2 million and $0.3 million during the three months ended March 31, 2026 and 2025, respectively. Our earnings from investments in unconsolidated affiliated entities is attributable to our ownership interests in the Hilton Garden Inn Joint Venture and the Brownmill Joint Venture.

Noncontrolling interests

The income or loss allocated to noncontrolling interests relates to the interest in our Operating Partnership held by our Advisor, the membership interest held by Lightstone REIT I in the Hotel Joint Venture, and the ownership interests held by unrelated minority owners in one of our limited-service hotels.

Financial Condition, Liquidity and Capital Resources

Overview

As of March 31, 2026, we had $21.9 million of cash on hand, $1.2 million of restricted cash and $10.1 million of marketable securities. We currently believe that these items, along with revenues generated from our properties, interest and dividend income earned on our marketable securities, proceeds from the potential sale of marketable securities, and distributions received from our investments in unconsolidated affiliated entities, if any, will be sufficient to satisfy our expected cash requirements for at least twelve months from the date of filing this Annual Report, which primarily consist of our anticipated operating expenses, scheduled debt service (excluding any balloon payments due before or at maturity) and including our current expectation that we will successfully exercise the first, one-year extension option under our Revolving Credit Facility or refinance the Revolving Credit Facility on or before its scheduled maturity (see "Revolving Credit Facility"), capital expenditures (excluding non-recurring capital expenditures), capital contributions to our investments in unconsolidated affiliated entities, if any, redemptions and cancellations of Common Shares, if approved, and distributions, if any, required to maintain our status as a REIT for the foreseeable future. However, we may also obtain additional funds, if necessary, through selective asset dispositions, joint venture arrangements, new borrowings and refinancing of existing borrowings.

As of March 31, 2026, we had mortgage indebtedness of $97.8 million. 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 our independent directors and is disclosed to our stockholders. Market conditions will dictate the 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 justification showing that a higher level is appropriate. 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 disclosure 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 March 31, 2026, our total borrowings aggregated $97.8 million which represented 75% of our net assets.

Additionally, in order to leverage our investments in marketable securities and seek a higher rate of return, we have access to borrowings under a margin loan. This margin loan is due on demand and any outstanding balance must be paid upon the liquidation of our securities.

Any future properties that we may acquire may be funded through a combination of borrowings and the proceeds received from the selective disposition of certain of our real estate assets. These borrowings 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 debt, which will be on a non-recourse basis. 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.

We have an advisory agreement with the Advisor and various agreements with certain affiliates of our Sponsor which provide for us to pay certain fees in exchange for services performed by them on our behalf. Additionally, our ability to secure financing and our real estate operations are dependent upon our Advisor and certain affiliates of our Sponsor to perform such services as specified in these agreements.

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 various payments to our Advisor and certain affiliates of our Sponsor, such as payments of fees related to asset acquisitions, asset management, and property management (excluding our hospitality properties, each of which is managed by an unrelated third party property manager) as well as the reimbursement of acquisition-related expenses and actual expenses incurred for administrative and other services provided to us. Additionally, in the event of a liquidation of our assets, we may pay our Advisor or certain affiliates of our Sponsor, disposition fees. Furthermore, the Operating Partnership may be required to make distributions to the Associate General Partner provided stockholders receive a distribution equal to their initial investment plus a stated preferred return.

The advisory agreement has a one-year term and is renewable for an unlimited number of successive one-year periods upon the mutual consent of the Advisor and our independent directors.

The following table represents the fees incurred associated with the services provided by our Advisor:

		For the Three Months Ended March 31,
		2026				2025
Asset management fees (general and administrative costs)		$	562			$	562

Summary of Cash Flows

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 Three Months Ended March 31,
		2026				2025
Net cash used in operating activities		$	(1,461	)		$	(1,229	)
Net cash provided by/(used in) investing activities			129				(118	)
Net cash used in financing activities			(1,779	)			(1,852	)
Change in cash, cash equivalents and restricted cash			(3,111	)			(3,199	)
Cash, cash equivalents and restricted cash, beginning of year			26,142				32,077
Cash, cash equivalents and restricted cash, end of the period		$	23,031			$	28,878

Operating activities

The net cash used in operating activities of $1.5 million for the three months ended March 31, 2026 consisted of our net loss of $7.3 million plus the net changes in our operating assets and liabilities of $0.9 million adjusted by depreciation and amortization, amortization of deferred financing costs and all other non-cash items aggregating $6.8 million.

Investing activities

The net cash provided by investing activities of $0.1 million for the three months ended March 31, 2026 consists primarily of the following:

●

capital expenditures of $0.3 million;

●

purchases of marketable securities of $0.1 million; and

●

aggregate distributions of $0.5 million received from the Hilton Garden Inn Joint Venture and Brownmill Joint Venture.

Financing activities

The net cash used in financing activities of $1.8 million for the three months ended March 31, 2026 consists primarily of the following:

●

distributions paid to common stockholders of $1.2 million; and

●

redemption and cancellation of Common Shares of $0.6 million.

Revolving Credit Facility

On October 23, 2023, we entered into a loan agreement with a financial institution providing for a non-recourse revolving credit facility (the "Revolving Credit Facility") of up to $106.0 million. At closing, we received an initial advance of $101.8 million under the Revolving Credit Facility and designated all 10 of our majority-owned and consolidated limited-service hotels as collateral. We used the initial advance from the Revolving Credit Facility to repay in full a maturing revolving loan with the same financial institution, which was also secured by the same 10 hotel properties. The Revolving Credit Facility bears interest at SOFR plus 3.45%, subject to a 6.45% floor, with an initial scheduled maturity of September 15, 2026, subject to two, one-year extension options at the sole discretion of the lender, and provides for monthly interest-only payments with the unpaid principal balance due at maturity. The Revolving Credit Facility provides for borrowings up to 65% of the loan-to-value ratio of properties designated as collateral and also requires the maintenance of certain financial covenants measured at the end of each calendar quarter, including a prescribed minimum debt service coverage ratio ("DSCR") and minimum debt yield ratio ("DYR"), which if not met may also be achieved through principal paydowns on the outstanding balance as discussed below. In connection with entering into the Revolving Credit Facility, we deposited $4.0 million into a cash collateral reserve account and during the second quarter of 2025 the lender and the Company agreed to use the $4.0 million of funds held in the cash collateral reserve account to make a principal paydown on the Revolving Credit Facility reducing its outstanding principal balance to $97.8 million.

As of both March 31, 2026 and December 31, 2025, the outstanding principal balance of the Revolving Credit Facility was $97.8 million, all 10 of our majority-owned and consolidated limited-service hotel properties remained pledged as collateral and no additional borrowings were available under the Revolving Credit Facility.

Pursuant to the terms of the Revolving Credit Facility, aggregate escrows in the amount of $1.2 million were held in restricted cash accounts as of both March 31, 2026 and December 31, 2025. Such escrows may be released in accordance with the terms of the Revolving Credit Facility for payments of real estate taxes, debt service, insurance and capital improvements.

As of March 31, 2026, we did not meet both the prescribed minimum DSCR and DYR. However, the lender has provided a waiver for both of these financial debt covenants.

We currently expect to extend the maturity or the Revolving Credit Facility from September 15, 2026 to September 15, 2027 pursuant to its first one-year extension option, or refinance the loan on or before its maturity. However, there can be no assurance that we will be successful in such endeavors.

Contractual Mortgage Obligations

The following is a summary of our estimated contractual mortgage obligations over the next five years and thereafter as of March 31, 2026.

Contractual Mortgage Obligations		2026				2027				2028				2029				2030				Thereafter				Total
Principal maturities		$	97,818			$	-			$	-			$	-			$	-			$	-			$	97,818
Interest payments(1)			3,840				-				-				-				-				-				3,840
Total Contractual Mortgage Obligations		$	101,658			$	-			$	-			$	-			$	-			$	-			$	101,658

(1)

These amounts represent future interest payments related to our mortgage payable obligations based on the interest rate specified in the associated debt agreement. Our variable rate debt agreement is based on the one-month SOFR rate. For purposes of calculating future interest amounts on our variable interest rate debt the one-month SOFR rate as of March 31, 2026 was used.

Margin Loan

We have access to a margin loan from a financial institution that holds custody of certain of our marketable securities. The margin loan is collateralized by the marketable securities in our account. The amounts available to us under the margin loan are at the discretion of the financial institution and not limited to the amount of collateral in our account. No amounts were outstanding under this margin loan as of March 31, 2026 and December 31, 2025. Any borrowings under the margin loan bear interest at SOFR plus 0.85% (4.50% as of March 31, 2026).

Distributions on Common Shares

We made an election to qualify as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2009. U.S. federal tax law requires a REIT to distribute at least 90% of its annual 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 in order to maintain its REIT status. However, in order to continue to qualify for REIT status, it is possible we may be unable to make any such required distributions if they are in an amount in excess of our available cash.

Our distributions, if any, are authorized 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 considers various factors in its determination, including but not limited to, our sources and availability of capital, our operating and interest expenses, our ability to refinance near-term debt, as well as the Internal Revenue Service's annual distribution requirement that REITs distribute no less than 90% of their taxable income. Although the Board of Directors' decisions will be substantially influenced by the intention to maintain our federal tax status as a REIT, we cannot provide assurance that we will pay distributions at any particular level, or at all.

On November 10, 2025, the Board of Directors authorized and we declared a Common Share distribution of $0.075 per share for the quarterly period ending December 31, 2025. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. The distribution of $1.2 million was paid on January 15, 2026 to stockholders of record at the close of business on December 31, 2025.

On March 25, 2026, the Board of Directors authorized and we declared a Common Share distribution of $0.075 per share for the calendar quarter ending March 31, 2026. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. The distribution of $1.2 million was paid on April 15, 2026 to stockholders of record at the close of business on March 31, 2026.

On May 11, 2026, the Board of Directors authorized and we declared a Common Share distribution of $0.075 per share for the quarterly period ending June 30, 2026. The distribution is the pro rata equivalent of an annual distribution of $0.30 per share, or an annualized rate of 3% based on a share price of $10.00. The distribution will be paid on or about the 15th day of the month following the quarter-end to stockholders of record at the close of business on the last day of the quarter end.

SRP

Our share repurchase program (the "SRP"), as amended from time to time by the Board of Directors, may provide eligible stockholders with limited, interim liquidity by enabling them to sell their Common Shares back to us, subject to various restrictions.

Our SRP currently provides for redemption requests to be submitted in connection with either a stockholder's death or certain hardships and the price for all such purchases has been set at our estimated net asset value per Common Share ("NAV per Share") as of the date of actual redemption. Our estimated NAV per Share is determined by the Board of Directors and reported by us from time to time. Requests for redemptions in connection with a stockholder's death must be submitted and received by us within one year of the stockholder's date of death to be eligible for consideration.

Additionally, the Board of Directors has established that on an annual basis we will not redeem in excess of 0.5% of the number of Common Shares outstanding as of the end of the preceding year for both death redemptions and hardship redemptions. Eligible redemption requests have been and are generally expected to be processed on a quarterly basis and will be subject to proration if the type of redemption requests exceeds its annual limitations (subject to a quarterly factor) as established by the Board of Directors. Furthermore, the Board of Directors may, at their sole discretion, amend or suspend the SRP at any time without any notice to stockholders.

For the three months ended March 31, 2026, we repurchased 54,164 Common Shares at a weighted average price per share of $10.89. For the three months ended March 31, 2025, we repurchased 61,523 Common Shares at a weighted average price per share of $9.84.

Investments in Unconsolidated Affiliated Entities

Brownmill Joint Venture

During 2010 through 2012, we entered into various contribution agreements with LGH, a wholly owned subsidiary of the Sponsor and a related party, pursuant to which LGH contributed to our Operating Partnership an aggregate 48.6% membership interest in the Brownmill Joint Venture in exchange for it issuing an aggregate of 48 units of Subordinated Profits Interests to the Associate General Partner at $100,000 per unit, with an aggregate total value of $4.8 million. The Brownmill Joint Venture owns two retail properties known as Browntown Shopping Center, located in Old Bridge, New Jersey, and Millburn Mall, located in Vauxhaull, New Jersey.

Our 48.6% membership interest in the Brownmill Joint Venture is a non-managing interest. LGH is the majority owner and manager of the Brownmill Joint Venture. Profits, cash contributions and cash distributions are allocated in accordance with each investor's ownership percentage. We account for our investment in the Brownmill Joint Venture in accordance with the equity method of accounting. During the three months ended March 31, 2026 and 2025, we received distributions from the Brownmill Joint Venture of $32 and $68, respectively.

Hilton Garden Inn Joint Venture

On March 27, 2018, we and Lightstone REIT III, a related party REIT also sponsored by the Sponsor, acquired, through the Hilton Garden Inn Joint Venture, 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 five-year term non-recourse mortgage loan from a financial institution (the "Hilton Garden Inn Mortgage"), excluding closing and other related transaction costs. We paid $12.9 million for a 50% membership interest in the Hilton Garden Inn Joint Venture.

On May 31, 2023, the Hilton Garden Inn Mortgage was further amended to provide for (i) an extension of the maturity date for an additional five years, (ii) the interest rate to be adjusted to SOFR plus 3.25%, subject to a 6.41% floor, (iii) interest-only payments for the first two years of its extended term with principal and interest payments pursuant to a 300-month amortization schedule thereafter and the remaining unpaid balance due in full at its maturity date of May 31, 2028, (iv) the ability to draw up to an additional $3.0 million of principal, subject to the satisfaction of certain conditions, and (v) certain changes to its financial covenants. Additionally, the Hilton Garden Inn Joint Venture is required to fund an aggregate of $1.3 million, through monthly payments of $37 from May 31, 2023 through June 1, 2026, into a cash collateral reserve account which may be drawn upon for specified capital expenditures.

We and Lightstone REIT III each have a 50% co-managing membership interest in the Hilton Garden Inn Joint Venture. 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 pursuant to the terms of the Hilton Garden Inn Joint Venture's operating agreement.

As of March 31, 2026, the Hilton Garden Inn Joint Venture was in compliance with all of its financial covenants.

During the three months ended March 31, 2026, we received distributions of $0.5 million from the Hilton Garden Joint Venture.

Funds from Operations and Modified Funds from Operations

We believe that the historical cost accounting convention used for real estate assets in accordance with GAAP implicitly assumes that the value of a real estate asset diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, we believe the presentation of operating results for a REIT using the historical accounting convention for depreciation and certain other items may be insufficient by themselves.

The National Association of Real Estate Investment Trusts ("NAREIT"), an industry trade group, has published a standardized non-GAAP 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. However, FFO is not equivalent to our net income or loss as determined under GAAP.

We calculate FFO in accordance with the current NAREIT definition. FFO represents net income or loss computed in accordance with GAAP, excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, income taxes attributable to gains from the sale of certain real estate assets, gains and losses from change in control and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.

Our computation of FFO may not be comparable to other REITs that do not compute FFO in accordance with the current NAREIT definition. We believe that the use of FFO provides a more complete understanding of our performance to investors and to management, and 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.

Changes in the accounting rules have resulted in a substantial increase in the number of non-operating and non-cash items included in the calculation of FFO. As a result, the Investment Program Association (the "IPA"), another industry trade group, published a standardized non-GAAP 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 another supplemental measure of operating performance because we believe that 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 or loss. However, MFFO is also not equivalent to our net income or loss as determined under GAAP.

We compute MFFO in accordance with the definition included in 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 as interpreted by management. The Practice Guideline defines MFFO as FFO further adjusted for acquisition and transaction-related fees and expenses and other items.

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 or loss or income or 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, if any, 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 loss 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 our FFO or MFFO. In the future, NAREIT, the IPA or another industry trade group may publish updates to the current definitions of FFO and MFFO or the SEC or another regulatory body could standardize the allowable adjustments across the publicly registered, non-listed REIT industry, and we may have to adjust our calculations and characterizations of FFO or MFFO accordingly.

Our calculations of FFO and MFFO are presented below. Items are presented net of non-controlling interest portions where applicable.

		For the Three Months Ended March 31,
		2026				2025
Net loss		$	(7,347	)		$	(3,726	)
FFO adjustments:
Depreciation and amortization of real estate assets			1,304				1,305
Casualty (gain)/loss, net			(75	)			989
Impairment charge			5,167				-
Adjustments to equity in earnings from unconsolidated affiliated entities			339				411
FFO			(612	)			(1,021	)
MFFO adjustments:
Adjustments to equity in earnings from unconsolidated affiliated entities			(10	)			12
Mark-to-market adjustments of debt, derivatives or securities holdings(1)			65				5
MFFO - IPA recommended format		$	(557	)		$	(1,004	)
Net loss		$	(7,347	)		$	(3,726	)
Less: loss attributable to noncontrolling interests			25				151
Net loss applicable to Company's common shares		$	(7,322	)		$	(3,575	)
Net loss per common share, basic and diluted		$	(0.46	)		$	(0.22	)
FFO		$	(612	)		$	(1,021	)
Less: FFO attributable to noncontrolling interests			(2	)			11
FFO attributable to Company's common shares		$	(614	)		$	(1,010	)
FFO per common share, basic and diluted		$	(0.04	)		$	(0.06	)
MFFO - IPA recommended format		$	(557	)		$	(1,004	)
Less: MFFO attributable to noncontrolling interests			(2	)			11
MFFO attributable to Company's common shares		$	(559	)		$	(993	)
Weighted average number of common shares outstanding, basic and diluted			15,902				16,065

(1)

Management believes that adjusting for mark-to-market adjustments is appropriate because they are nonrecurring items that may not be reflective of ongoing operations and reflects unrealized impacts on value based only on then current market conditions, although they may be based upon current operational issues related to an individual property or industry or general market conditions. Mark-to-market adjustments are made for items such as ineffective derivative instruments, certain marketable securities and any other items that GAAP requires we make a mark-to-market adjustment for. 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.

The table below presents our cumulative distributions declared and cumulative FFO attributable to our common shares:

		For the period April, 28, 2008
		(date of inception) through
		March 31, 2026
FFO attributable to Company's common shares		$	82,594
Distributions declared		$	101,017

New Accounting Pronouncements

See Note 2 of the Notes to Consolidated Financial Statements for further information of any accounting standards that have been adopted during 2026 and any accounting standards that we have not yet been required to implement and may be applicable to our future operations.