10-Q: InnSuites Hospitality Trust Reports Wider Q3 Loss

InnSuites Hospitality Trust reported a significant increase in net loss for the third quarter and nine months ended October 31, 2025, despite stable revenues, as total equity turned negative.

Summary

• Consolidated net loss for the nine months ended October 31, 2025, increased by 28% to $(713,982) from $(556,746) in the prior year.
• Net loss attributable to controlling interests for the nine months increased to $(869,120) or $(0.10) per share, compared to $(811,658) or $(0.09) per share in the prior year.
• For the three months ended October 31, 2025, consolidated net loss widened by 62% to $(351,993) from $(217,482) in the same period last year.
• Total revenue for the nine months decreased by 3% to $5.81 million, while for the three months, it remained relatively flat at $1.81 million.
• Total equity decreased to $(146,900) as of October 31, 2025, from $645,478 as of January 31, 2025.
• Cash and cash equivalents significantly decreased to $14,016 as of October 31, 2025, from $92,752 at January 31, 2025.
• Notes Payable Related Party increased to $1,969,250 as of October 31, 2025, from $1,151,225 at January 31, 2025.
• The company holds a $1 million convertible debenture in UniGen Power Inc., which is currently delinquent on principal and quarterly interest payments.
• RRF LLLP, an IHT subsidiary, has taken over management of IBC Hotels, LLC, and obtained a five-year option to purchase it at cost.
• Management believes the market value of its two hotel properties (Tucson and Albuquerque) is substantially higher than their depreciated book values, with an estimated market asking price of $28 million compared to a book value of $6.77 million.

Sentiment

Score: 3

Explanation: The financial results show a significant increase in net losses and a negative total equity, coupled with a substantial decrease in cash. While management highlights strategic initiatives and potential future profitability from diversification investments (UniGen, IBC) and hotel sales, these are high-risk and long-term. The immediate financial performance is concerning, indicating a challenging operational environment and increased financial risk, despite some operational cost savings and positive cash flow from financing activities.

Positives

• Operating loss for the nine months ended October 31, 2025, improved by 22% to $(197,701) from $(253,709) in the prior year, primarily due to a decrease in general and administrative expenses.
• Adjusted EBITDA for the nine months ended October 31, 2025, significantly increased to $108,000 from $12,000 in the prior year.
• Net cash used in operating activities significantly decreased to $18,240 for the nine months ended October 31, 2025, compared to $650,721 in the prior year.
• Net cash provided by financing activities increased to $518,101 for the nine months ended October 31, 2025, from $145,168 in the prior year, partly due to freezing non-controlling interest distributions.
• The Tucson Hotel's annualized insurance costs have been reduced significantly from approximately $450,000 in Fiscal Year 2025 to approximately $100,000 for Fiscal Year 2026, resulting in annual savings of approximately $350,000.
• Management believes the company has sufficient cash on hand and available credit facilities (approximately $300,000 from related party, $250,000 from Pima Federal Credit Union) to meet financial obligations for at least the next twelve months.
• The company's disclosure controls and procedures and internal control over financial reporting were concluded to be fully effective as of October 31, 2025, following remediation initiatives.
• Hotel operations for both the Tucson and Albuquerque hotels achieved record revenue and Gross Operating Profit (GOP) results for the Fiscal Year ended January 31, 2025, and showed consistently solid revenue results for the first three fiscal quarters of Fiscal 2026.

Negatives

• Consolidated net loss significantly increased for both the three-month (62% increase) and nine-month (28% increase) periods ended October 31, 2025.
• Total equity turned negative, decreasing to $(146,900) as of October 31, 2025, from $645,478 at January 31, 2025.
• Cash and cash equivalents decreased substantially to $14,016 as of October 31, 2025, from $92,752 at January 31, 2025.
• Notes Payable Related Party increased significantly to $1,969,250 as of October 31, 2025, from $1,151,225 at January 31, 2025.
• Interest expense increased by 23% for the nine months and 46% for the three months ended October 31, 2025.
• A new expense, BW Rewards Credit, of $(103,654) was recorded for the nine months ended October 31, 2025.
• Combined hotel occupancy, Average Daily Rate (ADR), and Revenue Per Available Room (REVPAR) all slightly decreased for the nine months ended October 31, 2025, compared to the prior year.
• Adjusted EBITDA for the three months ended October 31, 2025, showed an increased loss of $(31,000) compared to $(14,000) in the prior year.
• FFO for the nine months ended October 31, 2025, showed an increased loss of $(152,000) compared to $(36,000) in the prior year, and decreased for the three months to $210,000 from $304,000.
• UniGen Power Inc., a diversification investment, is delinquent on principal and quarterly interest payments on the $1 million convertible debenture.

Risks

• Tariffs and their effect on the Travel Industry, including potential economic recession and reduced government travel.
• Potential risk and uncertainty of investments, specifically UniGen Power Inc. and IBC Hotels, LLC, which are high-risk with high potential returns.
• Inflation and potential economic recession, leading to increased labor costs, supply chain issues, and higher operating expenses.
• Fluctuations in hotel occupancy and rates, and the ability to maintain room rates in response to market changes.
• Seasonality of hotel operations, increasing vulnerability to travel disruptions, labor shortages, and cash flow issues.
• Collectability of receivables, with management recording an allowance for doubtful accounts for balances over 90 and 120 days due.
• Ability to sell any of the hotels at market value or at all, within the expected 36-month timeframe, or on favorable terms.
• Interest rate fluctuations, impacting debt service obligations and refinancing capabilities.
• Changes in, or reinterpretations of, governmental regulations, including environmental, trade, ADA, COVID-19 restrictions, ERTC, and tax laws.
• Competition in the hotel industry from other mid-market hotels and alternative lodging facilities like Airbnb, potentially affecting occupancy, room rates, and market share.
• Availability of credit or other financing, and the ability to meet present and future debt service obligations or refinance/extend maturities.
• Insufficient resources to pursue the current strategy, including diversification investments.
• Concentration of investments in the InnSuites brand or another brand, and potential loss of Best Western membership contracts.
• The financial condition of franchises, brand membership companies, and travel-related companies.
• Ability to develop and maintain positive relations with current and potential future franchises or brands.
• Real estate and hospitality market conditions, including increased supply or decline in demand.
• The Trust's ability to remain listed on the NYSE American.
• Effectiveness and security of the Trust's software program, including potential data breaches or cybersecurity attacks.
• The need to periodically repair and renovate hotels at costs potentially exceeding the standard 4% reserve.
• Increases in the cost and availability of labor, energy, healthcare, and insurance.
• Presence of drugs or outbreaks of communicable diseases impacting the hotel industry.
• Natural disasters, including adverse climate changes in areas where hotels are located.
• Airline strikes and variations in airline travel demand, transportation, and fuel price increases.
• Loss of key personnel and uncertainties in the interpretation and application of tax laws.

Future Outlook

Management expects the current Fiscal Year 2026 to be uncertain for the travel industry, hotel occupancy, and room rates, but anticipates stable leisure travel demand and limited new-build hotel supply in its markets. The strategic plan includes obtaining full market value for its two hotels within 36 months, expanding IBC Hotels, benefiting from the UniGen clean energy investment, and pursuing a reverse merger with a larger private entity seeking a NYSE American listing. The Trust believes it will achieve positive cash flow in Fiscal Year 2027 and intends to maintain its conservative dividend policy of $0.02 per share per fiscal year.

Management Comments

• Management believes that it has and will have enough cash on hand to meet all of the financial obligations as they become due for twelve months or more from the date of filing this 10-Q.
• Management is analyzing strategic options available to the Trust, including the sale or refinance of one or both Hotel properties, sale or refinance of other investments, expansion of financing through the related party note, Demand/Revolving Line of Credit, and potential improved profitability and cash flow from hotels, independent hotels management, reservation services, and energy.
• Management believes recording the UniGen investment at cost approximates fair value since there have been no significant changes in the operations of UniGen and UniGen's projects are still in the developmental R&D phase.
• Management believes that our currently owned Hotels are valued at prices that are reasonable in relation to their current fair market value, which is believed to be substantially higher than lower book values.
• Management anticipates the property improvements at the Tucson, Arizona hotel, which comply with increasing Best Western standards, will lead to improvement in guest satisfaction and drive additional revenue growth through increased occupancy and increased rates.
• Management believes that our financial statements included in this Quarterly Report on Form 10-Q for the three and nine months ended October 31, 2025, fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

Industry Context

The travel and hospitality industry has rebounded from the COVID-19 pandemic, with lodging demand and revenue levels stabilizing. However, the industry faces ongoing challenges from inflation, economic uncertainty, and tariffs. The market for independent hotels, which represents half of the world's hotels, is seen as underserved by major reservation providers, presenting an opportunity for IBC Hotels. The demand for electricity in the U.S. is projected to double over the next five years due to data centers, electric vehicles, and AI, creating a strong market for clean energy innovations like UniGen Power Inc.

Comparison to Industry Standards

• The company's two hotels operate under the Best Western brand, indicating adherence to certain quality and service standards set by a major international hotel chain.
• The filing notes that there are only two major international hotel reservation systems, both with multi-billion dollar valuations, primarily focused on affiliated hotels, leaving a significant unfulfilled need for independent hotels. This positions IBC Hotels, LLC, which RRF LLLP now manages, to potentially capitalize on this niche market.
• UniGen Power Inc.'s innovation is described as a 'potentially power industry disruptive relatively clean, efficient, energy generation innovation,' with simulated tests showing 33% more fuel efficiency than initially estimated and emissions at only 25% of CARB's strictest standards. This suggests a strong competitive advantage if successfully commercialized, especially given the projected doubling of U.S. electricity demand over the next five years due to data centers, electric vehicles, and AI usage.

Management Changes

Corporate Governance

Legal Proceedings

• The Trust and/or its hotel affiliates are involved from time to time in various claims and legal actions arising in the ordinary course of business. Management believes the ultimate disposition of these matters will not have a material adverse effect on the Trust's financial position, results of operations, or liquidity.

Related Party Transactions

• A Demand/Revolving Line of Credit/Promissory Note with Rare Earth Financial, LLC (wholly owned by Mr. Wirth and his family members) had an amount payable of approximately $1,969,000 as of October 31, 2025, up from $1,151,000 at January 31, 2025. Interest at 7.0% per annum was paused beginning in Fiscal Year 2025.
• Mr. Wirth and his affiliates held 2,974,038 Class B Partnership units (22.51% of total Partnership units) and 6,257,296 Shares of Beneficial Interest in the Trust (71.26% of total outstanding Shares) as of October 31, 2025.
• RRF LLLP, a 75.92% owned subsidiary of the Trust, manages the two hotels under agreements that include a 5% of room revenue management fee and a monthly accounting fee of $2,000 per hotel.
• Brian James Wirth, an immediate family member of Mr. Wirth, is employed part-time to provide IT Technology support services, receiving up to approximately $24,000 per year plus bonuses.
• Rare Earth Financial LLC (an affiliate majority-owned by Mr. Wirth) purchased IBC Hotels, LLC, and RRF LLLP (IHT's management subsidiary) was hired to manage IBC, obtaining a five-year option to purchase IBC Hotels, LLC at cost. The note payable to IHT from IBC was extended to June 30, 2030, with interest at 3.25% payable at maturity.

Stakeholder Impact

• Shareholders: Experienced an increased net loss per share and a negative total equity, potentially impacting share value and future dividend sustainability, despite management's intent to maintain dividends.
• Employees: Cost-cutting measures and changes in corporate staffing may impact employees, though specific details are not provided beyond general and administrative expense reductions.
• Customers (Hotel Guests): Continued property improvements and complimentary amenities (breakfast, Wi-Fi) aim to improve guest satisfaction and drive revenue.
• Creditors: Increased related party notes payable and UniGen's delinquency on debt payments could raise concerns, though management asserts sufficient liquidity for the next 12 months.
• Partners (Best Western): Continued compliance with Best Western standards is crucial for maintaining brand affiliation and reservation system access, impacting hotel revenue.

Next Steps

• Continue cost-cutting efforts to improve operating profits.
• Pursue the sale of the two remaining hotel properties (Tucson and Albuquerque) within the next 36 months, aiming for an estimated market asking price of $28 million.
• Expand IBC Hotels, LLC operations under RRF LLLP management, with a five-year option to purchase IBC at cost.
• Monitor and potentially participate in UniGen Power Inc.'s capital raising efforts.
• Seek a larger private reverse merger partner to gain access to the NYSE American listing.
• Maintain the current conservative dividend policy of $0.02 per share per fiscal year, with the next payment anticipated on February 4, 2026.
• Continue to strengthen internal controls and accounting staff.

Key Dates

Recommendation

The company's financial performance shows a concerning trend with increased net losses and negative equity, alongside a significant drop in cash. However, management has outlined clear strategic initiatives, including the planned sale of hotel properties at values significantly above book, and high-potential diversification investments in clean energy (UniGen) and independent hotel services (IBC). The company also reports improved operating loss and positive cash flow from financing activities, along with strengthened internal controls. Given the high-risk, high-reward nature of its diversification strategy and the potential for significant asset sales, a 'hold' recommendation is appropriate. Investors should monitor progress on hotel sales, UniGen's capital raise and development, and IBC's revitalization, as these could materially impact future valuation, but the current financial state warrants caution.

Keywords

Hospitality, REIT, Hotel Management, SEC Filing, 10-Q, Financial Results, Net Loss, Operating Expenses, Liquidity, Real Estate, Diversification, Clean Energy, UniGen Power, IBC Hotels, Related Party Transactions, Corporate Governance, Risk Factors, NYSE American, Hotel Sales, Best Western