PROCACCIANTI HOTEL REIT, INC.

Previous wording

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.

Current wording

We were 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, 2024, we owned an interest in five select-service hotel properties. We elected to be taxed as, and currently operate as, a REIT under the Code, 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.

Previous wording

Since the commencement of the Public Offering and through December 31, 2023, we received approximately $41,274,755 in gross proceeds from the sale of K Shares, K-I Shares and K-T Shares in the Public Offering, inclusive of proceeds from the sale of $1,452,853 of K Shares, $950,215 of K-I Shares and $71,524 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

Current wording

Since the commencement of the Public Offering and through December 31, 2024, we received approximately $42,080,120 in gross proceeds from the sale of K Shares, K-I Shares and K-T Shares in the Public Offering, inclusive of proceeds from the sale of $1,903,807 of K Shares, $1,303,590 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 our Public Offering. In addition, we allocated 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.

Previous wording

We recently upgraded and improved the Cherry Tree Inn. The total cost was approximately $1,700,000. Approximately $250,000 of this was paid in the year ended December 31, 2021 from cash on hand, an additional $1,270,226 was advanced through the existing mortgage note in 2022 and an additional $135,500 was advanced in 2023. Other property investments in upgrades and improvements that are normal in the course of our business during the year ended December 31, 2023 are expected to be funded with cash on hand in our furniture and fixtures and equipment reserves accounts.

Current wording

Property investments in upgrades and improvements that are normal in the course of our business during the year ended December 31, 2024 were funded by refinancings and with cash on hand in our furniture and fixtures and equipment reserves accounts.

Previous wording

As of December 31, 2023, our total outstanding indebtedness totaled $64,424,095, including mortgage notes and loans from affiliates. This amount did not exceed 300% of the value of our net assets.

Current wording

As of December 31, 2024, our total outstanding indebtedness totaled $64,774,375, including mortgage notes and loans from affiliates. This amount did not exceed 300% of the value of our net assets.

Previous wording

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, 2023, our Sponsor requested reimbursement for $147,095 of such administrative services provided through such date.

Current wording

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, 2024, our Sponsor requested reimbursement for $180,839 of such administrative services provided through such date.

Previous wording

Our total operating expenses were less than 2% of our average invested assets and 25% of our net income for the twelve months ended June 30, 2022, September 30, 2022, December 31, 2022, March 31, 2023, June 30, 2023, September 30, 2023 and December 31, 2023. During the twelve months ended March 31, 2022, our total operating expenses exceeded the greater of 25% of our net income but were below 2% of our average invested assets. We incurred operating expenses of approximately $1,488,977 and incurred an Excess Amount of approximately $54,498 during the twelve months ended March 31, 2022. Our board of directors (including a majority of our independent directors) determined that the Excess Amount for the twelve months ended March 31, 2022 was justified as unusual and non-recurring as a result of the COVID-19 pandemic.

Current wording

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, 2023, June 30, 2023, September 30, 2023, December 31, 2023, March 31, 2024, June 30, 2024, September 30, 2024, and December 31, 2024

Previous wording

Lingering impacts of the COVID-19 pandemic on the global and U.S. economy, and the travel industry in particular, continue to temper a full recovery to pre-pandemic performance levels in certain property segments and geographic areas. While destination and leisure travel have rebounded and remain strong, business travel has been slower to recover. Newer headwinds triggered by the pandemic including historic rises in interest rates, inflation, supply chain issues, insurance premiums, and labor costs present additional challenges which we believe will continue to hinder a full recovery of business travel throughout 2024 and 2025.

Current wording

While destination and leisure travel have rebounded and remain strong, business travel has been slower to recover. Ongoing headwinds including challenging interest rates, inflation, supply chain issues, insurance premiums, and labor costs present additional challenges which we believe may continue to hinder a full recovery of business travel throughout 2025.

Previous wording

Inflation remains elevated and its impact on the U.S. economy and the impact of any measures that may be taken by government officials to curb inflation remain uncertain. Inflation may adversely affect financial condition and results of operations. An increase in inflation could have an adverse impact on floating rate mortgages, credit facilities, property operating expenses, and general and administrative expenses, as these costs could increase at a rate higher than revenue. Inflation could also have an adverse effect on consumer spending, which could impact our revenues.

Current wording

Inflation remains elevated and its impact on the U.S. economy and the impact of any measures that may be taken by government officials to curb inflation remain uncertain. Inflation may adversely affect financial condition and results of operations. An increase in inflation could have an adverse impact on floating rate mortgages, credit facilities, property operating expenses, and general and administrative expenses, as these

Previous wording

The hospitality sector entered 2024 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 has 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.

Current wording

The hospitality sector entered 2025 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.

Previous wording

interests of our stockholders because: (1) they increase the likelihood that we will be able to acquire a diversified portfolio of income producing properties, thereby reducing risk in our portfolio; (2) there are sufficient property acquisition opportunities with the attributes that we seek; (3) the executive officers, directors and affiliates of PHA have expertise with the type of real estate investments we seek; and (4) borrowings should enable us to purchase assets and earn income more quickly, thereby increasing our likelihood of generating income for our stockholders and preserving stockholder capital.

Current wording

Our board of directors, including our independent directors, has reviewed our investment policies described in this Annual Report and our Registration Statement and determined that they are in the best interests of our stockholders because: (1) they increase the likelihood that we will be able to acquire a diversified portfolio of income producing properties, thereby reducing risk in our portfolio; (2) there are sufficient property acquisition opportunities with the attributes that we seek; (3) the executive officers, directors and affiliates of PHA have expertise with the type of real estate investments we seek; and (4) borrowings should enable us to purchase assets and earn income more quickly, thereby increasing our likelihood of generating income for our stockholders and preserving stockholder capital.

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

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.

Previous wording

This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2022 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in "Management’s Discussion and Analysis of Financial

Current wording

This section of this Form 10-K generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2023 items and year-to-year comparisons between 2023 and 2022 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, 2023.

Previous wording

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 decreased to $26,406,988 for the year ended December 31, 2023 from $26,520,330 for the year ended December 31, 2022. The $113,342 net decrease was principally due to decreases in ADR offset by a slightly higher occupancy.

Current wording

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 $28,130,637 for the year ended December 31, 2024 from $26,406,988 for the year ended December 31, 2023. The $1,723,649 net increase was principally due to increases in both occupancy and ADR.

Previous wording

The decrease in rooms revenues of $191,677, or 4.32%, at the Springhill Suites Wilmington is primarily driven by decreases in both occupancy and the ADR compared to the prior year. Occupancy at the Springhill Suites Wilmington decreased from 70.23% for the year ended December 31, 2022 to 68.02% for the year ended December 31, 2023. The ADR at the Springhill Suites Wilmington decreased from $144.23 for the year ended December 31, 2022 to $142.46 for the year ended December 31, 2023, a decrease of 1.22%.

Current wording

The increase in rooms revenues of $454,672, or 10.71%, at the Springhill Suites Wilmington is primarily driven by an increase in occupancy compared to the prior year. Occupancy at the Springhill Suites Wilmington increased from 68.02% for the year ended December 31, 2023 to 76.12% for the year ended December 31, 2024. The ADR at the Springhill Suites Wilmington decreased from $142.46 for the year ended December 31, 2023 to $140.56 for the year ended December 31, 2024, a decrease of 1.33%.

Previous wording

The decrease in rooms revenues of $32,584, or 0.58%, at the Staybridge Suites St. Petersburg is primarily driven by a decrease in occupancy compared to the prior year. Occupancy at the Staybridge Suites St. Petersburg decreased from 77.13% for the year ended December 31, 2022 to 74.70% for the year ended December 31, 2023. The ADR at the Staybridge Suites St. Petersburg increased from $166.75 for the year ended December 31, 2022 to $171.17 for the year ended December 31, 2023, an increase of 2.65%.

Current wording

The increase in rooms revenues of $413,296, or 7.44%, at the Staybridge Suites St. Petersburg is primarily driven by an increase in both occupancy and ADR compared to the prior year. Occupancy at the Staybridge Suites St. Petersburg increased from 74.70% for the year ended December 31, 2023 to 78.98% for the year ended December 31, 2024. The ADR at the Staybridge Suites St. Petersburg increased from $171.17 for the year ended December 31, 2023 to $173.48 for the year ended December 31, 2024, an increase of 1.34%.

Previous wording

The decrease in rooms revenues of $176,248, or 2.45%, at the Hotel Indigo Traverse City is primarily driven by a decrease in ADR compared to the prior year. The ADR at the Hotel Indigo Traverse City decreased from $245.63 for the year ended December 31, 2022 to $236.23 for the year ended December 31, 2023, a decrease of 3.83%. Occupancy at the Hotel Indigo Traverse City increased from 75.02% for the year ended December 31, 2022 to 76.10% for the year ended December 31, 2023.

Current wording

The decrease in rooms revenues of $40,784 or 0.58%, at the Hotel Indigo Traverse City is primarily driven by a decrease in occupancy compared to the prior year. occupancy at the Hotel Indigo Traverse City decreased from 76.10% for the year ended December 31, 2023 to 73.58% for the year ended December 31, 2024. The ADR at the Hotel Indigo Traverse City increased from $236.23 for the year ended December 31, 2023 to $242.23 for the year ended December 31, 2024, an increase of 2.53%.

Previous wording

The increase in rooms revenues of $256,224, or 4.69%, at the Hilton Garden Inn Providence is primarily driven by an increase in occupancy compared to the prior year. Occupancy at the Hilton Garden Inn Providence increased from 55.51% for the year ended December 31, 2022 to 59.12% for the year ended December 31, 2023. The ADR at the Hilton Garden Inn Providence decreased from $196.79 for the year ended December 31, 2022 to $193.47 for the year ended December 31, 2023, a decrease of 1.69%.

Current wording

The increase in rooms revenues of $749,341, or 13.10%, at the Hilton Garden Inn Providence is primarily driven by an increase in both occupancy and ADR compared to the prior year. Occupancy at the Hilton Garden Inn Providence increased from 59.12% for the year ended December 31, 2023 to 64.09% for the year ended December 31, 2024. The ADR at the Hilton Garden Inn Providence increased from $193.47 for the year ended December 31, 2023 to $201.28 for the year ended December 31, 2024, an increase of 4.04%.

Previous wording

The increase in rooms revenues of $30,943, or 0.81%, at the Cherry Tree Inn is primarily driven by an increase in ADR compared to the prior year. The ADR at the Cherry Tree Inn increased from $229.80 for the year ended December 31, 2022 to $232.56 for the year ended December 31, 2023, an increase of 1.20%. Occupancy at the Cherry Tree Inn decreased from 60.20% for the year ended December 31, 2022 to 59.97% for the year ended December 31, 2023.

Current wording

The increase in rooms revenues of $147,124, or 3.80%, at the Cherry Tree Inn is primarily driven by an increase in occupancy compared to the prior year. Occupancy at the Cherry Tree Inn increased from 59.97% for the year ended December 31, 2023 to 63.06% for the year ended December 31, 2024. The ADR at the Cherry Tree Inn decreased from $232.56 for the year ended December 31, 2023 to $228.94 for the year ended December 31, 2024, a decrease of 1.56%.

Previous wording

Food and beverage revenues decreased to $2,464,385 for the year ended December 31, 2023 from $2,476,680 for the year ended December 31, 2022. These amounts are comprised of revenues realized in hotel food and beverage outlets as well as catering events.

Current wording

functions at the Hilton Garden Inn Providence. These amounts are comprised of revenues realized in hotel food and beverage outlets as well as catering events.

Previous wording

Other operating revenues decreased to $1,108,881 for the year ended December 31, 2023 from $1,641,996 for the year ended December 31, 2022. 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 $533,115 decrease from the prior year period is primarily due to the receipt of a $215,660 North Carolina Business Recovery Grant by the Springhill Suites Wilmington, a $381,168 Growing Michigan Business grant awarded to the Hotel Indigo Traverse City and a $250,000 Rhode Island Rebounds grant received by the Hilton Garden Inn Providence offset by increases in resort fee and parking revenues in the year ended December 31, 2023 compared to the year ended December 31, 2022. Excluding the impact of the grants received, other operating revenues increased $313,713 or 39.45% from the same period in 2022.

Current wording

Other operating revenues increased to $1,394,051 for the year ended December 31, 2024 from $1,108,881 for the year ended December 31, 2023. 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 $285,170 increase from the prior year period is primarily due to increases in resort fees and parking revenues in the year ended December 31, 2024 compared to the year ended December 31, 2023.

Previous wording

Rooms expenses were $5,842,776 and $4,573,828 for the years ended December 31, 2023 and 2022, respectively. The $1,268,948 net increase in rooms expenses is primarily the result of $860,899 in reimbursements from an affiliate in the year ended December 31, 2022 as a result of the affiliate qualifying for ERTCs related to wages reimbursed by the Company. Rooms expenses are primarily driven by corresponding revenue account and occupancy. Excluding the impact of the ERTC, rooms expenses of $5,842,776 and $5,434,727 represent 22.1% and 20.5% of rooms revenues for the years ended December 31, 2023 and 2022, respectively. The percentage increase is primarily due to increases in labor and benefit costs.

Current wording

Rooms expenses were $6,018,897 and $5,842,776 for the years ended December 31, 2024 and 2023, respectively. The $176,121 net increase in rooms expenses is primarily due to increased housekeeping and complimentary breakfast expenses resulting from the overall increase in occupancy. Rooms expenses are typically primarily driven by the corresponding revenue account and occupancy. Rooms expenses of $6,018,897 and $5,842,776 represent 21.4% and 22.1% of rooms revenues for the years ended December 31, 2024 and 2023, respectively.

Previous wording

Food and beverage expenses were $1,602,021 and $1,591,061 for the years ended December 31, 2023 and 2022, respectively. The $10,960 increase in food and beverage expenses is primarily due to the rise in labor and consumable costs. Food and beverage expenses are primarily driven by the corresponding revenue account and occupancy. Food and beverage expenses represent 65.0% and 64.2% of food and beverage revenues for the years ended December 31, 2023 and 2022, respectively. The percentage increase is primarily due to the rise in labor and consumable costs.

Current wording

Food and beverage expenses were $1,613,437 and $1,602,021 for the years ended December 31, 2024 and 2023, respectively. Food and beverage expenses are primarily driven by the corresponding revenue account and occupancy. Food and beverage expenses represent 68.4% and 65.0% of food and beverage revenues for the years ended December 31, 2024 and 2023, respectively. The percentage increase is primarily due to the rise in labor and consumable costs.

Previous wording

Other property expenses were $10,579,777 and $10,046,963 for the years ended December 31, 2023 and 2022, respectively. The $532,814 increase in other property expenses is primarily driven by the rise in labor costs, utility costs and credit card commissions. 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.

Current wording

Other property expenses were $11,149,871 and $10,579,777 for the years ended December 31, 2024 and 2023, respectively. The $570,094 increase in other property expenses is primarily driven by the rise in franchise fees, management fees, 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.

Previous wording

Property management fees to affiliates were $899,516 and $894,075 for the years ended December 31, 2023 and 2022, respectively. Property management fees are property level expenses equal to 3% of the hotel properties’ gross revenues and we expect them to fluctuate accordingly.

Current wording

Property management fees to affiliates were $956,558 and $899,516 for the years ended December 31, 2024 and 2023, respectively. Property management fees are property level expenses equal to 3% of the hotel properties’ gross revenues and we expect them to fluctuate accordingly.

Previous wording

Corporate, general and administrative expenses were $1,409,838 and $1,410,130 for the years ended December 31, 2023 and 2022, respectively. Corporate general and administrative expenses consist primarily

Current wording

Corporate, general and administrative expenses were $1,260,039 and $1,409,838 for the years ended December 31, 2024 and 2023, respectively. 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.

Previous wording

Other fees to affiliates were $865,230 and $928,837 for the years ended December 31, 2023 and 2022, 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 $718,135 for the year ended December 31, 2023 from $708,318 for the year ended December 31, 2022. Other fees to affiliates also includes certain administrative fees charged to us by our Sponsor. Such administrative fees were $147,095 and $156,038 in the years ended December 31, 2023 and 2022, respectively. Other fees to affiliates for the year ended December 31, 2022, also included $64,481 of expenses incurred by an affiliate of our Sponsor related to the application for the ERTC.

Current wording

Other fees to affiliates were $908,599 and $865,230 for the years ended December 31, 2024 and 2023, 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 $727,761 for the year ended December 31, 2024 from $718,135 for the year ended December 31, 2023. Other fees to affiliates also includes certain administrative fees charged to us by our Sponsor. Such administrative fees were $180,839 and $147,095 in the years ended December 31, 2024 and 2023, respectively.

Previous wording

Depreciation and amortization expenses were $4,104,607 and $3,860,437 for the years ended December 31, 2023 and 2022, respectively. These amounts include depreciation on our hotel buildings, improvements, furniture, fixtures and equipment, along with amortization of our franchise fees and certain intangibles. The $244,170 increase in depreciation and amortization expense is primarily the result of the renovation of the Cherry Tree Inn.

Current wording

Depreciation and amortization expenses were $4,289,600 and $4,104,607 for the years ended December 31, 2024 and 2023, respectively. These amounts include depreciation on our hotel buildings, improvements, furniture, fixtures and equipment, along with amortization of our franchise fees and certain intangibles.

Previous wording

Gain (Loss) on the disposal of fixed assets

Current wording

Loss on the disposal of fixed assets

Previous wording

Gain on the disposal of fixed assets was $53,000 for the year ended December 31, 2023, and related to the sale of vehicles. Loss on disposal of fixed assets was $11,929 for the year ended December 31, 2022, and related to the replacement of certain room furnishings at the Staybridge Suites St. Petersburg.

Current wording

Loss on disposal of fixed assets was $53,000 for the year ended December 31, 2023, and related to the sale of vehicles.

Previous wording

Interest expense, net, was $2,939,204 and $2,809,105 for the years ended December 31, 2023 and 2022, 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 from PHA and our Sponsor, and the amortization of deferred financing costs and debt discounts or premiums. Additionally, during the year ended December 31, 2023, we incurred $127,251 of interest expense relating to the amortization of deferred financing costs and debt discounts, offset by $132,315 relating to the amortization of the fair value of debt premium. During the year ended December 31, 2022, we incurred $112,499 of interest expense relating to the amortization of deferred financing costs and debt discounts, offset by $132,316 relating to the amortization of the fair value of debt premium.

Current wording

Interest expense, net, was $3,733,207 and $2,939,204 for the years ended December 31, 2024 and 2023, 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 from PHA and our Sponsor, and the amortization of deferred financing costs and debt discounts or premiums. Additionally, during the year ended December 31, 2024, we incurred $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. During the year ended December 31, 2023, we incurred $127,251 of interest expense relating to the amortization of deferred financing costs and debt discounts, offset by $132,315 relating to the amortization of the fair value of debt premium.

Previous wording

Interest income on interest-bearing cash accounts was $258,725 and $13,195 for years ended December 31, 2023 and 2022, respectively. Interest income on the ERTC’s received was $33,794 for the year ended December 31, 2022. Interest income is presented as a reduction of the total interest expense on the consolidated income statement.

Current wording

Interest income on interest-bearing cash accounts was $274,207 and $258,725 for years ended December 31, 2024 and 2023, respectively. Interest income is presented as a reduction of the total interest expense on the consolidated income statement.

Previous wording

Unrealized loss on our interest rate swap was $183,370 for the year ended December 31, 2023 and related to changes in interest rates and time related to the TCI note interest rate swap (as defined herein), which expires on August 15, 2024. Unrealized gain on our interest rate cap was $170,459 for the year ended December 31, 2022 and related to changes in interest rates and time related to the TCI note interest rate cap, which expired on August 15, 2023.

Current wording

Gain on our interest rate swap was $7,237 for the year ended December 31, 2024. Unrealized loss on our interest rate cap was $183,370 for the year ended December 31, 2023. 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”).

Previous wording

We had income tax benefit of $149,374 for the year ended December 31, 2023, and income tax expense of $147,084 for the year ended December 31, 2022. Income taxes relate to taxable income at the TRSs.

Current wording

We had income tax benefit of $106,253 for the year ended December 31, 2024, and income tax benefit of $149,374 for the year ended December 31, 2023. Income taxes relate to taxable income at the TRSs.

Previous wording

For the year ended December 31, 2023, we had net income of $1,756,289 compared to net income of $5,478,621 for the year ended December 31, 2022. The decrease in net income of $3,722,332 over the comparable prior year period was the result of the changes in revenues and expenses discussed above.

Current wording

For the year ended December 31, 2024, we had net income of $2,067,159 compared to net income of $1,756,289 for the year ended December 31, 2023. The increase in net income of $310,870 over the comparable prior year period was the result of the changes in revenues and expenses discussed above.

Previous wording

Net income relating to noncontrolling interests was $482,117 for the year ended December 31, 2023 compared to net income relating to noncontrolling interests of $1,086,087 for the year ended December 31, 2022. 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.

Current wording

Net income relating to noncontrolling interests was $526,756 for the year ended December 31, 2024 compared to net income relating to noncontrolling interests of $1,756,289 for the year ended December 31, 2023. 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.

Previous wording

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.

Current wording

Our sources of funds are primarily 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.

Previous wording

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.

Current wording

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

Previous wording

During the years ended December 31, 2023 and 2022, we owned an interest in five hotel properties. During the years ended December 31, 2023 and 2022, net cash provided by operating activities was $6,449,101 and $8,297,577, respectively. Our operating cash flows during the year ended December 31, 2023 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/cap agreements and by adjustments for receivables, other assets, loss on disposal of fixed assets, amounts due to and from related parties, and accounts payable and accrued liabilities. Our operating cash flows during the year ended December 31, 2022 were the result of our net income, supplemented by adjustments for non-cash expenses, including depreciation and amortization; the change in fair value of the interest rate swap/cap agreements; and by adjustments for receivables, other assets, gain on loan extinguishment, amounts due to and from related parties, and accounts payable and accrued liabilities.

Current wording

During the years ended December 31, 2024 and 2023, we owned an interest in five hotel properties. During the years ended December 31, 2024 and 2023, net cash provided by operating activities was $6,662,924 and $6,449,101, respectively. 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/cap agreements 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, 2023 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/cap agreements; and by adjustments for receivables, other assets, gain on loan extinguishment, loss on disposal of fixed assets, amounts due to and from related parties, and accounts payable and accrued liabilities.

Previous wording

During the year ended December 31, 2023, net cash used in investing activities was $1,000,302, which represented capital improvements at our hotel properties. During the year ended December 31, 2022, net cash used in investing activities was $2,605,592 which represented capital improvements at our hotel properties.

Current wording

the year ended December 31, 2023, net cash used in investing activities was $1,000,302 which represented capital improvements at our hotel properties.