The non-traded hotel REIT posted a wider net loss and elevated debt costs in 2025 while canceling millions of partnership units and retaining Piper Sandler to explore a potential sale, merger, or listing.The non-traded hotel REIT posted a wider net loss and elevated debt costs in 2025 while canceling millions of partnership units and retaining Piper Sandler to explore a potential sale, merger, or listing.

May 18, 2026

Lodging Fund REIT III, Inc., a non-traded real estate investment trust focused on hotel properties in secondary and tertiary markets across America’s Heartland, reported its annual results for the fiscal year ended December 31, 2025, painting a picture of a company navigating rising debt costs, portfolio contraction, and a pivotal strategic crossroads.

The Fargo, North Dakota-based company, which owns fourteen hotel properties spanning Iowa, Minnesota, Texas, Mississippi, Colorado, Illinois, and Kansas, reported a net loss for the year amid elevated interest expenses and the lingering effects of property dispositions. The weighted-average interest rate on its outstanding mortgage debt rose to 8.14 percent from 7.48 percent the prior year, adding pressure to the bottom line at a time when the company was simultaneously reducing its portfolio footprint.

Portfolio and Capital Structure

As of year-end, the company held fourteen hotel properties, down from eighteen at the close of 2024. Outstanding mortgage debt secured by those properties totaled approximately $140 million, compared with $174.3 million a year earlier. The reduction reflected the impact of property sales completed during the year as part of the company’s broader repositioning effort. Maturity dates on the remaining debt range from November 2024 to December 2029, with fixed and variable interest rates spanning 3.85 percent to 14.50 percent.

In addition to property-level debt, the company carried approximately $14.9 million in outstanding balances on lines of credit and other corporate borrowings at year-end, down from $19 million at the close of 2024. Available credit facilities include a $5 million line with Western State Bank and a $20 million line with Legendary A-1 Bonds, LLC, an affiliate of the company’s advisor.

Since launching its private offering in June 2018, the company has raised approximately $100.8 million from the sale of roughly 10.3 million shares of common stock at an offering price of $10.57 per share. After selling commissions and other costs, net proceeds totaled about $83.6 million, which have been used primarily to acquire properties, fund distributions, and service debt. The offering was extended by the board to May 31, 2026.

Series T LP Unit Cancellation

One of the most notable developments in the annual report was the cancellation of all 5,073,506 outstanding Series T Limited Partnership Units, which had been issued in connection with property contributions to the operating partnership. During the fourth quarter of 2025, all remaining conversion anniversary dates for these units elapsed. Under the conversion formula specified in the partnership agreement, cumulative deductions — including closing costs, loan assumption fees, capital expenditures, and operating cash contributions — exceeded the capitalized net operating income for every series. As a result, the general partner determined that no value was available for conversion, and all Series T LP Units converted to zero Common LP Units and were cancelled.

The carrying amount of the Series T noncontrolling interest, approximately $45.5 million, was reclassified to additional paid-in capital within stockholders’ equity. The reclassification had no impact on total equity, net loss, or cash flows. No income or loss had been allocated to the Series T holders during the holding period, consistent with the partnership agreement’s terms.

Series A and Series P Preferred Units

In late December 2024, the operating partnership restructured four loans with Access Point Financial by issuing Series A Preferred Units in exchange for outstanding principal and interest. By year-end 2025, the company had issued a total of approximately 4.56 million Series A Preferred Units, including roughly 488,000 units issued during 2025 in lieu of cash interest payments.

The company also launched a Series P Preferred Unit offering in December 2024, targeting up to $50 million in capital with the potential to increase to $75 million. As of year-end, approximately 155 Series P Preferred Units had been sold, generating gross proceeds of $1.6 million. A portion of the Series P proceeds are designated to redeem the outstanding Series A Preferred Units under a tiered allocation formula.

Management Changes and Property Operations

In February 2025, the company terminated its management agreement with National Hospitality Services, a firm wholly owned by Norman Leslie, who serves as both an officer and director of the company and a principal of the advisor. The company transitioned management of nine properties to Hotel Equities Group, LLC, a third-party management company. Other third-party operators continue to oversee the remaining properties in the portfolio.

The company’s aggregate loan-to-value ratio, based on the aggregate purchase price of the hotel properties, stood at approximately 56 percent at year-end, within its stated target range of 35 to 65 percent.

Strategic Review and Exit Strategy

As [[previously reported]], the board authorized management in May 2024 to pursue an exit strategy and position the company for a potential sale or merger as early as 2025, contingent on favorable economic conditions. The company has been preparing its portfolio through strategic acquisitions and dispositions with the goal of maximizing property-level profitability ahead of any transaction.

In a subsequent development [[covered by SQX Alts]], a special committee of independent directors retained Piper Sandler as financial advisor in April 2026 to evaluate a full range of strategic alternatives, including a sale or merger of the entire company, listing common stock on a national securities exchange, divesting some or all hotel assets, a recapitalization, or continuing the existing business plan. Faegre Drinker Biddle & Reath is serving as legal counsel to the committee. No timeline has been established for the review, and the company has indicated it does not plan to provide updates unless a specific transaction is approved or disclosure becomes legally required.

Other Capital Activity

The GO II Unit Offering, which launched in April 2023, had generated approximately $6.7 million in gross proceeds from roughly 895,520 units as of year-end. The offering was extended to March 31, 2026. A prior Series GO LP Unit offering, terminated in February 2022, had raised approximately $21.5 million from about 3.1 million units.

The company’s share repurchase plan remained in place, though activity has been limited. As of year-end, approximately 287,525 shares had been repurchased since inception, representing an original investment of roughly $2.86 million repurchased for approximately $2.79 million. As of May 15, 2026, there were approximately 10.02 million shares of common stock outstanding.

Lodging Fund REIT III has no direct employees. All management, accounting, legal, and investor relations services are provided by employees of Legendary Capital, LLC, an affiliate of the advisor. The company’s current hotel portfolio targets 80- to 200-room limited-service, select-service, full-service, and extended-stay properties affiliated with brands including Marriott, Hilton, IHG, and Hyatt.