Sixteen Months Without a Payout: Lodging Fund REIT III Conserves Cash Ahead of Potential Sale
Lodging Fund REIT III, Inc. has not paid a distribution to its common stockholders since August 2024 and declared none in any quarter of fiscal 2025, according to the hotel real estate investment trust’s tardy 2025 annual report, filed late last week.
Sam Montgomery, chief financial officer for Lodging Fund REIT III, told AltsWire in an interview Tuesday that the board’s decision to pause distributions has been and continues to be responsible capital management, citing first the high inflation and high interest rates of 2024 and then the sharp declines in demand in 2025. “The prudent asset protection move that the board ultimately chose, which I think was the right one, was to pause distributions and protect the assets,” he said.
The Fargo-based REIT filed the report roughly six weeks after the standard March 31 deadline for non-accelerated filers and outside the additional 15-day window available to companies that file a notification of late filing. The board says the distribution halt reflects an effort to conserve cash as the company reviews strategic alternatives.
The company’s board authorized management in May 2024 to pursue a sale or merger, provided that the economic environment was conducive to such a transaction. Two years on, the annual report’s caveat language is unchanged: there is “no assurance” any transaction will occur, and the outcome “will be dependent on a number of factors that may be beyond our control.”
“We’ve always committed to selling, only when the economic environment is conducive for it … which I think is important … because it shows this isn’t a fire sale. This isn’t a rush to action or responding to undue pressure. This was a very thoughtful and orderly transition,” Montgomery said. “Piper Sandler is going to perform an analysis of strategic alternatives and bring that analysis back to the special committee. They’ll make a determination on how to move forward, and which alternative best unlocks the most value for our shareholders.”
The 16 months without a distribution follows an earlier rate cut. The board reduced the distribution rate beginning in April 2024 from an annualized 7% — based on a $10 initial offering price — to a range of 3.5% to 5%, before halting distributions entirely after the August 2024 payment. The annual report also attributes the change to “an effort to conserve cash” and says the board “will determine whether to authorize and declare distributions in such amounts or if at all based on our financial conditions and such other factors as our board of directors deems relevant.”
Although the suspension dates to Q3 2024, Lodging Fund REIT III did not announce it through a dedicated current report, as some nontraded REIT sponsors have done when halting distributions. The status had been visible only by inference from the absence of declared distributions in the company’s quarterly reports, themselves filed on extended delays.
The company separately notified the U.S. Securities and Exchange Commission this week that it cannot timely file its Q1 2026 quarterly report, and disclosed in the same notice that its Q1 2025 quarterly report also remains outstanding.
Montgomery framed the company’s reporting posture as voluntary. “We’re a private Reg D offering, and we voluntarily chose to begin reporting with the SEC. And to my knowledge, I believe we’re the only Reg D that’s continuing to voluntarily public report,” he said. “We take that obligation seriously. … We [wanted] to set a standard for private Reg Ds to hold a higher elevation of transparency. As for the timeliness of our most current 10-K, our last three 10-Qs were timely filed. It was getting a new audit firm up to speed.”
Late filings have been a recurring feature of the company’s history. The 2022 annual report was filed approximately 12 months past its deadline, the 2023 annual report roughly nine months late. The company filed its first three 2023 quarterly reports together in August 2024 and its first three 2024 quarterly reports together in February 2025. The Q3 2022 report was filed in April 2024, about 17 months late.
“Our controls are in place. Our systems work. We’re in agreement with the auditors on every step. So there’s nothing juicy hiding in the delay,” Montgomery added. “It’s really nothing more than just getting a new audit firm up to speed. And our belief that the quality and completeness of our disclosures will at times justify the additional time that’s required.”
The aforementioned fiscal 2025 report provides the most detailed picture yet of where the company stands as it pursues a sale, including the first full-year confirmation that distributions to common stockholders remained halted throughout 2025. The company reported a net loss of $34.4 million for fiscal 2025, compared with $29.9 million in 2024, and used $3.7 million in cash from operating activities, versus $0.9 million the prior year.
The company’s portfolio stood at 14 hotel properties as of Dec. 31, 2025, down from 18 a year earlier as it worked to shed assets and position the portfolio for a sale. AltsWire previously reported on the company’s January 2025 disposition of two hotel properties for $27.2 million.
Among the more consequential disclosures in the annual report is the outcome of the company’s Series T limited partnership units, a structure Lodging Fund REIT III used to acquire hotel properties by issuing equity interests to contributors rather than paying cash. All conversion anniversary dates for the outstanding Series T units elapsed in the fourth quarter of 2025. When management applied the conversion formula — which calculates common LP units based on hotel net operating income, adjusted for debt, capital expenditures, and operating costs infused by the partnership — the result was the same across every series: the deductions exceeded the capitalized net operating income, leaving no value available for conversion.
All 5,073,506 outstanding Series T units were cancelled and converted to zero common LP units. The company reclassified $45.5 million in carrying value — representing the fair value of the contributed hotel properties at the time of their original contribution, net of assumed debt — to additional paid-in capital. Contributors received nothing.
The company also disclosed an ongoing debt restructuring with Access Point Financial, LLC, a lender that holds mortgage loans on several of the company’s hotel properties. In late 2024, Lodging Fund REIT III restructured approximately $31.9 million in loans — covering the Sheraton Northbrook, Residence Inn in Fort Collins, and Courtyard by Marriott in Aurora — by issuing the lender Series A Preferred Units rather than repaying the debt in cash. During 2025, the company issued an additional 488,330 Series A Preferred Units to that same lender in lieu of cash interest payments, bringing the total issued to 4,555,739 units.
Outstanding mortgage debt fell to $140 million at the end of 2025, from $174.3 million a year earlier, reflecting the property dispositions. The weighted-average interest rate rose to 8.14% from 7.48%. The company reported $14.9 million outstanding on lines of credit and other corporate debt as of year-end, compared with $19 million in 2024. The aggregate loan-to-value ratio, based on purchase price, was approximately 56%.
The company’s share offering price remains $10.57, a figure based on a net asset value per share estimate the board approved as of Dec. 31, 2022. The company acknowledged it hasn’t determined a new share NAV since then and that the current offering price “may not reflect an accurate estimation of the company’s enterprise value.” As of Dec. 31, 2025, the company had raised $100.8 million in total proceeds from its common stock offering and $6.7 million from its secondary GO II unit offering, which had a $30 million target.
The filing delays and governance disclosures come against a backdrop of prior SEC scrutiny. In September 2023, the SEC fined Corey Maple, co-founder of Legendary Capital and a director of Lodging Fund REIT III, $100,000 for his role in what the agency found to be improper reimbursement of approximately $5 million in overhead expenses from the REIT to its external adviser in a manner inconsistent with disclosures to investors. The adviser entity was ordered to disgorge $4.8 million covering the reimbursed funds, interest, and penalties. The SEC finalized a plan of distribution for affected investors in September 2025.
Lodging Fund REIT III is based in Fargo, N.D., and is advised by Legendary Capital REIT III, LLC. The company holds 14 hotel properties concentrated in the Midwest, South, and Mountain West, operating under Marriott, Hilton, IHG, and Hyatt flags.
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