Executive Summary / Key Takeaways

• Lightstone Value Plus REIT III ($LVVR) is a UPREIT primarily focused on U.S. hospitality properties, including eight wholly-owned limited-service hotels and equity interests in two joint venture hotels (one limited-service, one full-service).
• Recent operational performance in Q1 2025 showed a slight decline in consolidated revenue year-over-year, driven by lower RevPAR and ADR despite increased occupancy, reflecting ongoing market challenges.
• The company maintains a manageable liquidity position with $5.3 million in cash and $5.9 million in marketable securities as of March 31, 2025, believing these resources are sufficient for expected cash needs for at least 12 months, excluding debt balloon payments.
• LVVR manages a significant debt load ($57.2 million as of March 31, 2025, representing 59% of net assets), primarily variable rate, with notable maturities in 2026 and 2027, requiring careful capital management and potential refinancing.
• Regular quarterly distributions have been suspended since March 2024, with future distributions contingent on performance, capital availability, and REIT requirements; the Share Repurchase Program offers limited liquidity under specific conditions.

Setting the Scene: A Hospitality-Focused REIT in a Dynamic Market

Lightstone Value Plus REIT III, Inc. ($LVVR) operates as a real estate investment trust with a primary focus on the U.S. hospitality sector. Structured as an umbrella partnership REIT (UPREIT), the company conducts the majority of its business through its Operating Partnership, in which it holds a 99% general partnership interest. Since its formation in 2012 and REIT election effective 2015, LVVR has built a portfolio predominantly consisting of limited-service hotels, complemented by strategic investments in joint ventures, including a full-service hotel in a key urban market.

The REIT landscape is diverse, with players specializing in various property types. LVVR's strategy of focusing on hospitality, while retaining the flexibility to invest in other real estate assets and related debt, positions it differently from highly specialized peers. For instance, VICI Properties (VICI) dominates the experiential real estate sector with high-margin, triple-net leases, achieving significantly higher net margins (77.17% in 2024) compared to typical hospitality or diversified REITs. Ventas Inc. (VTR) focuses heavily on healthcare and senior living, demonstrating strong revenue growth (10.53% in Q4 2024) but lower margins (4.56% net margin in 2024). Realty Income Corporation (O) specializes in single-tenant retail, known for stable income and solid margins (16% net margin in 2024). Prologis Inc. (PLD) leads the industrial and logistics sector, benefiting from robust growth and technological integration in supply chain management, resulting in strong performance (45% net margin in 2024).

LVVR's competitive standing is shaped by its diversified approach within real estate, contrasting with the specialization seen in peers like VICI or PLD. While its UPREIT structure offers flexibility in forming joint ventures and potentially navigating complex deal structures, its broader focus across different property types (primarily hospitality, but with allowance for others) can lead to higher operational overheads compared to the streamlined models of single-sector REITs. The company acknowledges that technological advances and challenges, such as the use and impact of artificial intelligence and machine learning, could adversely affect its business and financial performance. However, the company does not appear to detail any specific technological differentiators or significant R&D initiatives unique to LVVR's operations or competitive strategy that would constitute a distinct technological moat compared to peers who might leverage technology for operational efficiency (like PLD in logistics). LVVR operates in markets subject to competition, and its ability to maintain or grow market share depends on effective asset management, strategic capital allocation, and navigating broader economic and industry-specific trends.

Portfolio Performance and Operational Realities

As of March 31, 2025, LVVR's core portfolio consisted of eight wholly-owned and consolidated limited-service hotels totaling 872 rooms. Additionally, the company holds unconsolidated equity method interests in two joint ventures: a 50% stake in the Hilton Garden Inn Long Island City (183 rooms) and a 25% stake in the Williamsburg Moxy Hotel (216 rooms), which opened in March 2023.

The first quarter of 2025 presented a mixed picture for the consolidated portfolio's operational metrics compared to the same period in 2024. While occupancy increased to 67% from 65%, average daily rate (ADR) declined to $113.05 from $116.83, and revenue per available room (RevPAR) decreased to $75.27 from $76.31. This resulted in a slight decrease in consolidated revenues, falling to $6.135 million for the three months ended March 31, 2025, from $6.270 million in the prior-year period. Property operating expenses saw a modest increase, attributed to the higher occupancy levels.

The unconsolidated joint ventures also impacted the company's results. The loss from investments in unconsolidated affiliated real estate entities decreased slightly to $1.265 million in Q1 2025 from $1.501 million in Q1 2024. A notable event impacting the Williamsburg Moxy Hotel Joint Venture was a fire in December 2024. While the joint venture recognized a gross casualty loss of $1.0 million in 2024, partially offset by a $0.5 million insurance advance received in Q1 2025, additional remediation costs of $0.1 million were incurred in Q1 2025, resulting in a net casualty loss recognized in the quarter. The joint venture is still pursuing additional insurance recoveries, including for business interruption, though there is no assurance of receiving these funds.

Overall, the operational performance in early 2025 indicates that while demand (occupancy) showed some resilience, pricing power (ADR, RevPAR) faced headwinds, contributing to the slight revenue decline. This highlights the sensitivity of the hospitality portfolio to current market conditions.

Financial Condition and Capital Structure

LVVR's financial position as of March 31, 2025, shows total assets of $119.3 million and total liabilities of $61.9 million, resulting in total equity of $57.4 million. The company held $5.3 million in cash and cash equivalents and $5.9 million in marketable securities. Management believes these liquid resources, combined with property revenues and potential distributions from joint ventures, will be sufficient to cover anticipated operating expenses, scheduled debt service (excluding balloon payments), capital expenditures (excluding non-recurring), potential joint venture contributions, and share redemptions for at least the next 12 months. Additional liquidity sources include potential asset dispositions, sale of marketable securities, joint ventures, and new or refinanced borrowings.

The company's debt structure is a critical component of its financial profile. As of March 31, 2025, total mortgages payable, net, stood at $56.6 million, representing approximately 59% of the company's net assets. This is well below the charter limit of 300% of net assets, providing some headroom, although the company intends to limit long-term permanent borrowings to 75% of the aggregate fair market value of properties unless specifically approved and disclosed.

Key debt facilities include:

• A $30.8 million outstanding balance on a non-recourse revolving credit facility, bearing interest at SOFR plus 3.30% (subject to a 6.64% floor), maturing in July 2027 (with potential extensions). This facility is collateralized by six wholly-owned hotels. An interest rate cap contract is in place, capping SOFR at 5.34% until July 2025.
• Cross-collateralized Home2 Suites Mortgage Financings totaling approximately $26.4 million ($16.0 million for Tukwila, $10.4 million for Salt Lake City), bearing interest at AMERIBOR plus 3.50% (subject to a 3.75% floor), maturing in December 2026. These loans require monthly principal and interest payments.
• The Williamsburg Moxy Hotel Joint Venture has Moxy Mortgage Loans totaling $95.0 million (senior and junior facilities), bearing interest at SOFR plus 5.10% (subject to an 8.75% floor, 9.43% as of March 31, 2025), maturing in April 2027 (with potential extensions). These loans are interest-only with a balloon payment at maturity and are collateralized by the Moxy hotel. They also require the maintenance of a minimum debt service coverage ratio (DSCR), which if not met starting October 1, 2025, could require principal paydowns.

The variable nature of the majority of the company's debt exposes it to interest rate risk, although interest rate caps provide some mitigation on the revolving credit facility. The contractual principal maturities show significant amounts due in 2026 ($26.0 million) and 2027 ($30.8 million), highlighting the importance of successful refinancing or asset dispositions in the coming years. As of March 31, 2025, the company was in compliance with all financial covenants.

LVVR is dependent on its Advisor and certain affiliates for essential services, including asset and property management (excluding hospitality, which is third-party managed), acquisitions, dispositions, financing, and administrative functions. Fees are paid to these related parties based on various agreements. Notably, the Advisor agreed to temporarily defer asset management and finance fees during the first quarter of 2024, indicating some financial pressure or a need to conserve cash at that time.

Shareholder Considerations and Outlook

For investors in LVVR, liquidity is limited as the common shares are not listed on a national securities exchange, and there is no active public market anticipated until listing occurs. The company does maintain a Share Repurchase Program (SRP) offering limited, interim liquidity for stockholders under specific circumstances (death or hardship). Redemptions are priced at the estimated net asset value (NAV) per share and are subject to annual limitations (0.5% of outstanding shares for each category). In the first three months of 2025, the company repurchased 32,276 shares at a weighted average price of $9.93, compared to 2,238 shares at $10.28 in the same period of 2024, indicating increased redemption activity. The SRP can be amended or suspended at any time at the Board's sole discretion.

Regarding distributions, the Board of Directors suspended regular quarterly distributions in March 2024. Future distributions, if any, will be determined at the Board's discretion based on performance, capital availability, revenues, expenses, debt refinancing ability, and the requirement to distribute at least 90% of REIT taxable income to maintain REIT status. This suspension signals a focus on preserving capital amidst the current operating and financial environment.

The outlook for LVVR is closely tied to the performance of its hospitality portfolio and its ability to manage its debt obligations, particularly the upcoming maturities. While the company believes its current resources are sufficient for near-term needs, successful refinancing or strategic asset sales will be crucial for addressing the 2026 and 2027 debt balloons. The performance of the hospitality sector is sensitive to broader economic conditions, inflation, interest rates, and labor/supply chain challenges, all of which are noted risks. The impact of the fire at the Williamsburg Moxy Hotel and the outcome of the related insurance claims also remain factors to monitor.

Risks and Challenges

Several factors pose potential risks to LVVR's performance and investment thesis. Macroeconomic conditions, including inflation and higher interest rates, directly impact property operating costs and the cost of variable rate debt, as well as potentially dampening travel demand. The reliance on variable rate debt exposes the company to increased interest expense if rates rise further. The significant debt maturities in 2026 and 2027 present refinancing risk, particularly in a challenging credit market environment. Failure to meet debt covenants, such as the DSCR requirement on the Moxy loans starting in October 2025, could also trigger adverse consequences.

Operational risks include potential increases in property operating expenses and real estate taxes. The fire damage at the Williamsburg Moxy Hotel introduces uncertainty regarding the timing and amount of insurance recoveries and potential business interruption impacts. Furthermore, the company's dependence on its Advisor and affiliates for essential services means that any disruption in these relationships or the Advisor's capacity could adversely affect operations. The illiquidity of the common shares due to the lack of a public listing is a significant factor for investors seeking an exit.

Conclusion

Lightstone Value Plus REIT III operates a portfolio primarily concentrated in the U.S. hospitality sector, facing headwinds reflected in the slight revenue decline in Q1 2025 despite improved occupancy. The company manages its capital structure with a moderate leverage ratio relative to its charter limits, but faces notable debt maturities in the coming years that will require strategic refinancing or asset dispositions. The suspension of regular distributions underscores a focus on capital preservation in the current environment.

The investment thesis for LVVR hinges on the potential for recovery in the hospitality sector, effective management of its variable rate debt and upcoming maturities, and successful execution of its asset management strategy. Key risks to monitor include the impact of macroeconomic conditions on travel demand and operating costs, interest rate fluctuations, the outcome of the Moxy fire insurance claims, and the ability to address debt obligations. Given the illiquidity of the shares and the discretionary nature of future distributions, investors should carefully consider these factors and the company's performance in navigating the current market dynamics and capital requirements.