Lodging Fund REIT III's Net Loss Widens 47.6% Amid Revenue Decline

TL;DR

**Lodging Fund REIT III is bleeding cash, with a widening net loss and shrinking asset base, making it a risky bet for investors.**

AI Summary

Lodging Fund REIT III, Inc. reported a significant increase in net loss for the six months ended June 30, 2025, reaching $13,739,661, up from $9,305,331 in the prior year, representing a 47.6% increase. Total revenue decreased by 11% to $32,933,442 for the six months ended June 30, 2025, compared to $37,005,031 in the same period of 2024, primarily driven by a decline in room revenue from $34,740,606 to $30,667,718. The company's total assets also declined to $254,460,344 as of June 30, 2025, from $278,860,026 at December 31, 2024, largely due to the reclassification of $21,829,784 in assets held for sale to zero. Interest expense surged by 25% to $10,026,067 for the six months ended June 30, 2025, compared to $8,016,892 in the prior year. The company's total stockholders' deficit worsened to $(24,745,668) from $(14,119,383) at December 31, 2024. Despite these challenges, the company generated $22,775,000 from the sale of a hotel property during the period, contributing to a net cash provided by investing activities of $19,731,535.

Why It Matters

This filing reveals a deteriorating financial position for Lodging Fund REIT III, with a substantial increase in net loss and a notable decline in revenue. For investors, the growing accumulated deficit of $(122,720,371) and negative stockholders' equity of $(24,745,668) signal significant financial distress and potential long-term viability concerns. Employees might face job insecurity if the company continues to struggle with profitability and asset divestitures. Customers could experience reduced service quality or property maintenance if financial pressures persist. In the competitive lodging market, these results suggest Lodging Fund REIT III is losing ground, potentially impacting its ability to acquire or maintain attractive properties compared to better-capitalized rivals.

Risk Assessment

Risk Level: high — The company's net loss increased by 47.6% to $13,739,661 for the six months ended June 30, 2025, compared to $9,305,331 in the prior year. Furthermore, total stockholders' deficit worsened to $(24,745,668) from $(14,119,383) at December 31, 2024, indicating severe financial instability and a negative equity position.

Analyst Insight

Investors should exercise extreme caution and consider divesting any holdings in Lodging Fund REIT III. The significant and increasing net losses, coupled with a negative and worsening stockholders' equity, suggest fundamental operational and financial challenges that pose a high risk to capital.

Financial Highlights

debt To Equity

N/A

revenue

$32,933,442

operating Margin

N/A

total Assets

$254,460,344

total Debt

$174,838,625

net Income

-$13,739,661

eps

N/A

gross Margin

N/A

cash Position

$3,110,226

revenue Growth

-11.0%

Revenue Breakdown

Key Numbers

• $13.7M — Net Loss (Increased from $9.3M in prior year, a 47.6% increase)
• $32.9M — Total Revenue (Decreased from $37.0M in prior year, an 11% decline)
• $254.5M — Total Assets (Decreased from $278.9M at December 31, 2024)
• $10.0M — Interest Expense (Increased from $8.0M in prior year, a 25% surge)
• $(24.7M) — Total Stockholders' Deficit (Worsened from $(14.1M) at December 31, 2024)
• $22.8M — Proceeds from Hotel Sale (Generated from sale of hotel property, boosting investing cash flow)
• 10,014,042 — Outstanding Common Shares (As of August 14, 2025)
• $30.7M — Room Revenue (Decreased from $34.7M in prior year, a key driver of revenue decline)

Key Players & Entities

• Lodging Fund REIT III, Inc. (company) — Registrant and primary entity in the filing
• Legendary Capital REIT III, LLC (company) — Advisor and related party managing the Company's business activities
• Lodging Fund REIT III OP, LP (company) — Operating Partnership, a subsidiary holding substantially all of the Company's assets and liabilities
• SEC (regulator) — Securities and Exchange Commission, governing body for financial filings
• $13,739,661 (dollar_amount) — Net Loss for the six months ended June 30, 2025
• $9,305,331 (dollar_amount) — Net Loss for the six months ended June 30, 2024
• $32,933,442 (dollar_amount) — Total revenue for the six months ended June 30, 2025
• $37,005,031 (dollar_amount) — Total revenue for the six months ended June 30, 2024
• $10,026,067 (dollar_amount) — Interest expense for the six months ended June 30, 2025
• $24,745,668 (dollar_amount) — Total stockholders' deficit as of June 30, 2025

FAQ

Risk Factors

• Increasing Net Loss and Interest Expense [high — financial]: The company reported a net loss of $13,739,661 for the six months ended June 30, 2025, a 47.6% increase from the prior year. This is exacerbated by a 25% surge in interest expense to $10,026,067, indicating rising financing costs and a worsening financial position.
• Deteriorating Stockholders' Deficit [high — financial]: The total stockholders' deficit widened significantly to $(24,745,668) as of June 30, 2025, from $(14,119,383) at December 31, 2024. This indicates a substantial erosion of equity value.
• Decline in Total Assets [medium — financial]: Total assets decreased to $254,460,344 from $278,860,026, largely due to the reclassification of $21,829,784 in assets held for sale to zero. This suggests a strategic divestment or a write-down of assets.
• Declining Total Revenue [medium — market]: Total revenue for the six months ended June 30, 2025, fell by 11% to $32,933,442 from $37,005,031 in the prior year. The primary driver was a decline in room revenue, signaling potential weakness in occupancy or average daily rates.
• Property Operations Expenses [low — operational]: While total revenue declined, property operations expenses also decreased from $18,095,112 to $16,717,144 for the six months ended June 30, 2025. However, the continued high level of these expenses relative to revenue could indicate operational inefficiencies or fixed cost burdens.

Industry Context

The lodging real estate sector is highly sensitive to economic cycles, consumer spending, and travel trends. Rising interest rates and inflation can impact property valuations and operating costs. Competition is intense, with many players vying for market share, and operational efficiency is key to profitability.

Regulatory Implications

As a REIT, Lodging Fund REIT III, Inc. is subject to specific tax regulations and reporting requirements. Changes in real estate laws, tax policies, or accounting standards could impact its financial performance and reporting. Compliance with debt covenants and disclosure obligations is critical.

What Investors Should Do

1. Monitor Debt Service Coverage
2. Analyze Asset Disposition Strategy
3. Evaluate Revenue Generation Trends
4. Assess Equity Erosion

Key Dates

• 2025-06-30: Six Months Ended — Reporting period for the significant increase in net loss, decrease in revenue, and widening stockholders' deficit.
• 2024-12-31: Year End — Prior period balance sheet data showing higher total assets and a less severe stockholders' deficit.
• 2025-08-14: Outstanding Common Shares Date — Indicates 10,014,042 outstanding common shares as of this date.

Glossary

Stockholders' Deficit

A negative stockholders' equity, meaning the company's liabilities exceed its assets. (Lodging Fund REIT III, Inc. has a substantial and growing stockholders' deficit, indicating a precarious financial position.)

Assets Held for Sale

Assets that management has committed to selling and are available for immediate sale, and are actively marketed. (The reclassification of $21,829,784 in assets held for sale to zero significantly reduced the company's total assets.)

Variable Interest Entities (VIEs)

Entities in which equity investors have no voting rights or are otherwise unable to direct the entity's activities, and where the equity investment is insufficient to finance the entity's activities on an ongoing basis. (The company reports assets and liabilities related to VIEs, which can introduce complexity and potential consolidation risks.)

Mandatorily Redeemable Preferred Units

Preferred equity securities that the issuer is obligated to redeem at a specified future date or upon the occurrence of a specified event. (These represent a form of debt-like financing that must be repaid, impacting the company's liquidity.)

Year-Over-Year Comparison

Compared to the prior year's six-month period, Lodging Fund REIT III, Inc. experienced an 11% decrease in total revenue, primarily driven by a decline in room revenue. Concurrently, the net loss widened by 47.6%, and interest expense surged by 25%. The company's balance sheet also reflects a significant reduction in total assets due to assets held for sale, and a substantial worsening of its stockholders' deficit.

Key Financial Figures

• $250,000 — on ("FDIC") up to an insurance limit of $250,000. At times, the Company's cash and cash

Filing Documents

• lfr-20250630x10q.htm (10-Q) — 2273KB
• lfr-20250630xex31d1.htm (EX-31.1) — 13KB
• lfr-20250630xex31d2.htm (EX-31.2) — 12KB
• lfr-20250630xex32d1.htm (EX-32.1) — 8KB
• 0001558370-25-011586.txt ( ) — 9856KB
• lfr-20250630.xsd (EX-101.SCH) — 84KB
• lfr-20250630_cal.xml (EX-101.CAL) — 70KB
• lfr-20250630_def.xml (EX-101.DEF) — 339KB
• lfr-20250630_lab.xml (EX-101.LAB) — 626KB
• lfr-20250630_pre.xml (EX-101.PRE) — 493KB
• lfr-20250630x10q_htm.xml (XML) — 1801KB

Financial Statements (unaudited)

Financial Statements (unaudited) 2 Condensed Consolidated Balance Sheets as of June 30, 2025 and December 31, 2024 2 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2025 and 2024 3 Condensed Consolidated Statements of Changes in Stockholders' Equity for the Three and Six Months Ended June 30, 2025 and 2024 4 Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2025 and 2024 5 Notes to the Condensed Consolidated Financial Statements 7 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 29 Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Quantitative and Qualitative Disclosures about Market Risk 50 Item 4.

Controls and Procedures

Controls and Procedures 50 PART II. OTHER INFORMATION 51 Item 1.

Legal Proceedings

Legal Proceedings 51 Item 1A.

Risk Factors

Risk Factors 51 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 51 Item 3. Defaults upon Senior Securities 55 Item 4. Mine Safety Disclosures 55 Item 5. Other Information 55 Item 6. Exhibits 56

SIGNATURES

SIGNATURES 58 i Table of Contents

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements LODGING FUND REIT III, INC. CONDENSED CONSOLIDATED BALANCE SHEETS June 30, December 31, 2025 2024 (unaudited) (audited) Assets Investment in hotel properties, net of accumulated depreciation and amortization of $ 38,112,094 and $ 33,318,590 $ 238,909,532 $ 241,973,045 Cash and cash equivalents 3,110,226 2,354,025 Restricted cash 7,731,273 7,986,767 Accounts receivable, net 1,975,783 1,092,900 Franchise fees, net 1,547,419 1,616,447 Prepaid expenses and other assets 1,186,111 2,007,058 Assets held for sale — 21,829,784 Total Assets (variable interest entities - $ 21,612,163 and $ 22,117,277 ) $ 254,460,344 $ 278,860,026 Liabilities and Equity Debt, net $ 174,838,625 $ 175,362,117 Finance lease liabilities 13,170,452 13,185,884 Accounts payable 7,711,592 6,101,337 Accrued expenses 10,796,533 9,133,344 Distributions payable 265,370 276,408 Due to related parties 15,137,870 13,821,435 Other liabilities 4,435,058 3,791,457 Mandatorily redeemable Series P preferred units, net 180,650 203,575 Liabilities related to assets held for sale — 16,512,618 Total liabilities (variable interest entities - $ 16,985,754 and $ 17,011,733 ) 226,536,150 238,388,175 Commitments and contingencies (See Note 10) Equity Preferred stock, $ 0.01 par value, 100,000,000 shares authorized; no shares issued and outstanding — — Common stock, $ 0.01 par value, 900,000,000 shares authorized; 10,014,043 and 10,011,475 shares issued and outstanding 100,140 100,114 Additional paid-in capital 97,874,563 97,847,449 Accumulated deficit ( 122,720,371 ) ( 112,066,946 ) Total stockholders' deficit ( 24,745,668 ) ( 14,119,383 ) Non-controlling interest – Series B LP Units ( 6,168,895 ) ( 5,482,556 ) Non-controlling interest – Series GO LP Units 3,516,957 5,606,139 Non-controlling interest – Series GO II LP Units 4,088,078 2,639,750

View Full Filing

View this 10-Q filing on SEC EDGAR