Lodging Fund REIT III, Inc. Annual Report: A Simple Breakdown

I’ve put together this guide to help you understand Lodging Fund REIT III’s performance. Instead of wading through dense legal filings, I’m breaking down the key takeaways so you can see how the company is doing and what it means for your investment.

1. What does this company do?

Lodging Fund REIT III is a real estate investment trust (REIT) that owns hotels across the U.S., focusing on brands like Hilton Garden Inn, Hampton Inn, and Courtyard by Marriott. They generate revenue by renting rooms and providing hospitality services. As a REIT, their primary goal is to distribute a portion of their earnings to shareholders, though these payments are directly tied to the operational success of their properties.

2. Financial performance: The big picture

The company is currently shifting its strategy from acquiring new properties to optimizing its existing portfolio. As of mid-2025, there are over 10 million shares held by outside investors. Management is actively selling off select properties to simplify the business model and reduce debt levels. While these sales generate immediate cash, they also reduce the total number of assets available to produce long-term rental income.

3. Major wins and challenges

The Wins: The company is focused on strengthening its balance sheet. By divesting non-essential properties, they are streamlining operations and lowering their debt burden. Additionally, they are restructuring existing loans to better manage the impact of high interest rates, which helps stabilize their cash flow.

The Challenges: The hotel industry is highly sensitive to the broader economy. If travel demand slows, occupancy rates and nightly room prices typically drop, making it more difficult to cover operating expenses and debt obligations. Because the company relies on borrowed money to finance its properties, they remain vulnerable to interest rate fluctuations. Higher borrowing costs reduce the profit available for shareholder distributions or property improvements.

4. Financial health: Red flags to watch

This is the most important section for you as an investor:

• Funding Distributions: The company has utilized proceeds from the sale of new shares to fund shareholder distributions. Relying on capital raises rather than operational profit to pay investors can limit the funds available for property maintenance and long-term growth.
• Conflicts of Interest: The company pays management and advisory fees to its sponsor, Legendary Capital. Because these entities are related, these fees are not negotiated at arm’s length. This creates a structure where the advisor’s financial incentives may not always align perfectly with those of the shareholders.
• Debt Reliance: The company carries a significant amount of debt. If they are unable to generate sufficient cash through property sales or operations, their fixed costs could limit their financial flexibility and ability to grow.

5. Future outlook

Management’s stated goal for the coming year is stabilization. They aim to transition away from relying on new stock sales to fund operations, with the objective of paying distributions and funding growth solely through the profits generated by their hotel portfolio. Success in this area depends on the effective sale of non-core assets and a steady recovery in hotel performance.

6. Is it a good investment?

Deciding whether to invest depends on your personal risk tolerance. This is a complex, private investment characterized by high insider fees and a heavy reliance on debt. If you prioritize liquidity—the ability to easily sell your shares—this may not be the right fit for your portfolio. The company is currently in a "survival mode" phase, prioritizing debt management over expansion. When considering this investment, weigh the potential for income against the inherent risks of the hotel industry, the impact of management fees, and the company’s ongoing need for external capital.