Executive Summary / Key Takeaways

• InnSuites Hospitality Trust (IHT) is executing a strategic pivot, seeking to divest its two owned hotel properties at estimated market values significantly above book value while simultaneously pursuing growth through management services for independent hotels (IBC) and a high-potential clean energy investment (UniGen).
• Recent performance shows stability in hotel operations, with combined revenue reaching a new record level of approximately $2.82 million in the first four months of Fiscal Year 2026, despite a consolidated net loss in Q1 2026 influenced by non-controlling interests and specific adjustments.
• The Trust's investment in UniGen Power Inc., valued at approximately $1.67 million, represents a high-risk, high-reward play in innovative clean energy technology with promising simulated performance metrics and a growing market, although UniGen is currently delinquent on debenture payments.
• IHT's management subsidiary has taken over management of IBC Hotels, securing a five-year option to purchase the independent hotel reservation and branding platform at cost, positioning IHT to potentially capitalize on a significant unfulfilled market need.
• While liquidity appears sufficient for the near term supported by credit lines, successful execution of the asset sale strategy and realization of value from diversification investments are critical for long-term financial health and unlocking shareholder value, especially given competitive pressures and debt obligations.

A Five-Decade Foundation and a Strategic Pivot

InnSuites Hospitality Trust, founded in 1971, has built a legacy rooted in hotel ownership and operations, marked by an impressive record of uninterrupted annual dividends since its inception. Originally structured as an Ohio real estate investment trust, though currently taxed as a C corporation, IHT has demonstrated resilience and adaptability over its 55-year history. This journey has led to a strategic evolution, moving beyond solely owning and operating its core hotel assets to embracing diversified growth avenues and management services.

Today, IHT's business centers around two moderate-service hotels located in Tucson, Arizona, and Albuquerque, New Mexico, totaling 270 suites. These properties operate under both the federally trademarked InnSuites name and the Best Western brand through membership agreements. Management of these hotels, along with the burgeoning independent hotel services business, is handled by RRF Limited Liability Limited Partnership (RRF), a subsidiary in which IHT holds a 75.89% interest.

The current strategic narrative for IHT is one of unlocking embedded real estate value and cultivating new growth engines. The Trust is actively seeking to sell its two hotel properties, believing their estimated market value significantly exceeds their depreciated book value. Concurrently, IHT is pursuing opportunities in the independent hotel reservation and branding space through its management role and purchase option for IBC Hotels, LLC, and maintaining a high-potential, albeit high-risk, investment in innovative clean energy technology via UniGen Power Inc. This multi-faceted approach defines IHT's investment thesis: capitalizing on existing asset value while building future revenue streams in adjacent and diversified sectors.

Hotel Operations: Stability and Value Unlocking

IHT's hotel segment, its sole reportable segment, generates revenue primarily from room rentals, food and beverage sales, and management fees. The two properties, having undergone significant refurbishments in recent years, are positioned to benefit from the recovery in travel demand.

Recent performance indicates a degree of stability in hotel operations. For the three months ended April 30, 2025 (Q1 Fiscal Year 2026), total revenue was approximately $2.21 million, a slight decrease from $2.29 million in the same period of 2024 (Q1 Fiscal Year 2025). This was primarily driven by a 5% decrease in room revenues, falling from $2.24 million to $2.12 million. However, food and beverage revenue showed a strong 35% increase, rising from $22,654 to $30,444, attributed partly to cost savings initiatives offsetting rising purchasing costs and expanded offerings. Despite the slight revenue dip, consolidated operating income for the quarter increased by 25%, from $178,429 to $222,396, reflecting effective cost controls, particularly a significant decrease in general and administrative expenses due to corporate overhead savings.

Operational metrics for Q1 Fiscal Year 2026 compared to Q1 Fiscal Year 2025 show mixed trends:

• Albuquerque: Occupancy increased to 89.12% from 86.42%, while ADR decreased to $94.18 from $98.43, resulting in a slight RevPAR decrease to $83.93 from $85.06.
• Tucson: Occupancy decreased to 79.90% from 87.03%, but ADR increased to $113.66 from $111.41, leading to a RevPAR decrease to $90.82 from $96.96.
• Combined: Overall occupancy decreased to 83.75% from 86.78%, ADR decreased slightly to $105.01 from $106.05, and RevPAR decreased to $87.94 from $92.02.

Despite the Q1 RevPAR decline, management commentary highlights positive momentum, noting that both hotels achieved record revenue and Gross Operating Profit (GOP) in the prior fiscal year (ended January 31, 2025). Furthermore, the combined revenue for both hotels reached a new record level of approximately $2.82 million for the first four fiscal months of Fiscal Year 2026 (February through mid-June 2025). Management anticipates stable leisure travel demand, limited new supply in their markets, continued recovery in room rates, and ongoing cost control to lead to improved profitability for the hotels in Fiscal Year 2026.

The core strategic move for this segment is the planned divestiture of the properties. Management believes the hotels are available for sale at prices reasonable in relation to their current fair market value, earnings, profits, and replacement cost. The estimated market asking prices are stated as $9.50 million for Albuquerque (vs. a book value of $934,798 and mortgage balance of $1.15 million) and $18.50 million for Tucson (vs. a book value of $5.87 million and mortgage balance of $7.81 million). The total estimated market asking price of $28.0 million significantly exceeds the combined net book value of approximately $6.80 million and total mortgage balance of approximately $8.96 million. The Trust aims to sell these properties within the next 36 months to realize this embedded equity value.

Diversification: Building Future Growth Engines

Beyond traditional hotel ownership, IHT is actively cultivating two distinct diversification opportunities: independent hotel services through IBC and clean energy generation through UniGen.

InnDependent Boutique Collection (IBC)

Recognizing an unfulfilled need for reservation, branding, and related services among the world's independent hotels (which still represent half the global market), IHT founded IBC Hotels, LLC in 2014. After an initial sale in 2018, which resulted in a secured promissory note receivable for IHT (principal amount now $1.93 million), the COVID-19 pandemic led to a pause in IBC's operations under its new owner.

A significant recent development occurred in March 2025 when Rare Earth Financial, LLC, an affiliate of IHT's chairman and CEO, purchased IBC Hotels, LLC. Crucially, RRF LLLP, IHT's management subsidiary, was hired to manage the "rebirth" of IBC, leveraging updated technology. As part of this management agreement, RRF obtained a five-year option to purchase IBC at cost. The note receivable from the 2018 sale was also extended to June 30, 2030, with interest adjusted to 3.25% payable at maturity.

Management is "extremely optimistic for the high profit potential from IBC management, and the five-year option to purchase at cost." They believe this opportunity allows IHT to benefit from the revitalization of IBC and address the substantial global need for independent hotel services. While specific financial contributions from IBC management are not yet detailed in the Q1 2026 report, the strategic positioning provides a potential new revenue stream and a valuable asset option for IHT if IBC's relaunch is successful.

UniGen Power Inc.

IHT's most significant diversification investment is in UniGen Power Inc., a private company developing what is described as a "patented high profit potential new efficient clean energy generation innovation." IHT made an initial $1.0 million investment in December 2019, acquiring convertible debentures, common stock, and warrants. As of April 30, 2025, IHT's investment in UniGen is valued at approximately $1.67 million, consisting of a $700,000 note receivable, $668,750 in common stock (575,000 shares at cost), and $300,000 representing the fair value of warrants.

The technology under development, specifically the UPI 1000TA engine, is highlighted for its potential efficiency and low emissions. Based on a 96% core super computer simulated test, UniGen claims the engine is approximately 33% more fuel efficient than initially estimated and will emit only about 25% of the maximum emissions allowed by California's strict CARB standards. The design aims to utilize relatively clean fuels like natural gas, and potentially even cleaner fuels like ethanol and hydrogen.

The strategic rationale for this investment is the "high risk but also high profit potential" nature of the technology and the estimated growth in the market for electricity, projected to double in the U.S. over the next five years due to demand from data centers, electric vehicles, and artificial intelligence. IHT's President and Executive Vice President hold 40% of the seats on UniGen's Board of Directors to monitor and assist in its development.

However, the investment is not without challenges. UniGen is currently delinquent on principal and quarterly interest payments on the debenture and is focused on raising additional capital to complete prototypes. Engineering work is stated to be 61% complete. IHT may participate in future capital raising rounds. Despite the current delinquency and developmental stage, management expects the UniGen investment to "grow and provide a substantial source of income in the future" if successful.

Financial Performance and Liquidity

IHT's consolidated financial results for the three months ended April 30, 2025, show a consolidated net income of $39,030, a decrease from $86,598 in the same period of 2024. However, the net loss attributable to controlling interests widened to $121,032 from $148,550 in the prior year period. This difference is primarily due to the allocation of net income/loss to non-controlling interests, which amounted to $160,062 in Q1 2026 compared to $235,148 in Q1 2025. The Fiscal Year ended January 31, 2025, was the first fiscal year with a loss in the last four, influenced by one-time non-cash adjustments and high insurance costs, which have since been significantly reduced for Fiscal Year 2026.

Key financial metrics for the trailing twelve months (TTM) ending April 30, 2025, provide a broader view:

• Revenue (TTM): $7.59 million
• Net Income (TTM): -$1.39 million
• Gross Profit Margin (TTM): 36.07%
• Operating Profit Margin (TTM): -6.22%
• Net Profit Margin (TTM): -11.55%
• Debt/Equity Ratio (TTM): 2.40

Comparing these TTM margins to major competitors like Marriott (MAR), Hilton (HLT), Wyndham (WH), and Choice Hotels (CHH) reveals IHT's smaller scale and different business mix. While direct TTM comparisons across all metrics can be complex due to varying business models (asset-heavy vs. asset-light/franchise), IHT's TTM gross margin of 36.07% is notably lower than MAR (52%), HLT (48%), and WH (42%), though potentially comparable to CHH (38%). Operating and net margins are negative for IHT on a TTM basis, reflecting its current cost structure and investment phase compared to the profitability of larger, more established players. IHT's Debt/Equity ratio of 2.40 is higher than WH (1.0-1.2) and CHH (0.5-1.0), but lower than MAR (-5.09 due to negative equity) and HLT (-3.22 due to negative equity), indicating a moderate level of financial leverage relative to its equity base.

Liquidity is a critical factor. As of April 30, 2025, IHT had approximately $13,000 in cash. However, the Trust has access to significant credit facilities, including approximately $700,000 available from a $2.0 million related party Demand/Revolving Line of Credit and three Revolving Lines of Credit totaling $250,000 with Republic Bank of Arizona (zero balance drawn). Management believes these resources are sufficient to meet financial obligations for at least the next twelve months.

Cash flow from operations improved significantly, providing approximately $280,000 during the three months ended April 30, 2025, compared to a net cash used of approximately $459,000 in the same period of 2024. Net cash used in investing activities increased slightly to $196,000, primarily due to capital improvements at the hotels, although future capital expenditures are planned to decrease as major renovations are completed. Net cash used in financing activities decreased to $164,000, largely due to deferring distributions to non-controlling interest holders, a trend anticipated to continue in Fiscal Year 2026.

Minimum debt payments are scheduled, totaling approximately $656,000 in Fiscal Year 2026 and $1.34 million in Fiscal Year 2027, including mortgage notes and other notes payable. The related party line of credit also has a balance of approximately $1.08 million as of April 30, 2025, though interest payments have been paused.

Competitive Landscape and Positioning

The hotel industry is highly competitive, with IHT's properties facing competition from other mid-market hotels, properties in other geographic markets, and alternative lodging like Airbnb (ABNB). Larger competitors like Marriott, Hilton, Wyndham, and Choice Hotels possess greater marketing and financial resources, scale advantages, and more advanced technological platforms.

IHT positions itself in the budget to mid-scale segment, leveraging its long-standing InnSuites brand and Best Western affiliation. Its competitive advantages include established brand equity and customer loyalty in its regional markets, potentially leading to higher customer retention in specific segments compared to larger, more transactional brands. Furthermore, IHT's direct ownership model, while limiting scalability compared to franchise-heavy models like Wyndham or Choice, provides greater control over property quality and operational costs. Management highlights cost control as a key focus, which is essential in the competitive budget segment.

However, IHT faces significant disadvantages due to its smaller scale and technological gaps compared to industry leaders. While IHT's management subsidiary is now involved with IBC's updated technology for independent hotels, the core hotel operations may lag behind larger chains in areas like digital guest experiences, reservation system efficiency, and data analytics. The competitive analysis suggests IHT's operational costs per unit might be lower than some larger players, but this is offset by lower revenue per available room and overall lower margins and return metrics compared to the industry leaders.

The strategic pivot to divest hotels and focus on diversification is partly a response to this competitive reality. By seeking to unlock the estimated market value of its real estate, IHT aims to improve its financial position and potentially fund future growth initiatives. The IBC venture directly targets a segment (independent hotels) less dominated by the major branded players, offering a potential niche opportunity. The UniGen investment represents a complete departure from the core hospitality sector, a high-risk bet on a potentially disruptive technology that, if successful, could provide a significant, non-correlated revenue stream and fundamentally alter IHT's business profile and competitive standing in the broader energy sector.

Outlook and Risks

Management's outlook for Fiscal Year 2026 is cautiously optimistic regarding hotel operations, anticipating stable high-level occupancy, continued recovery and increases in room rates, and ongoing cost control leading to improved profitability. The record combined revenue in the first four months of the fiscal year supports this view. The strategic goal remains the sale of the two hotels within 36 months at estimated market values.

The diversification efforts, particularly IBC and UniGen, represent significant future potential, but also considerable uncertainty. The success of IBC's relaunch under RRF's management and the potential exercise of the purchase option depend on capturing market share among independent hotels and overcoming competitive pressures from large reservation providers. The UniGen investment is high-risk, contingent on successful prototype development, capital raising, and eventual commercialization of its technology, with no guarantee of overcoming technical hurdles or market adoption. The current delinquency on the debenture highlights the risks associated with this early-stage investment.

Key risks identified include the broader economic environment, tariffs affecting travel, inflation, increased labor costs, intense competition in the hotel industry, the ability to successfully sell the hotel properties at desired prices and timelines, the availability of favorable financing, and the inherent risks associated with the UniGen investment's development and market acceptance. The seasonal nature of the hotel business also exposes IHT to fluctuations and potential adverse impacts from unforeseen events.

Conclusion

InnSuites Hospitality Trust is at a pivotal juncture, actively transforming its business model. The core investment thesis hinges on successfully executing a dual strategy: realizing the estimated significant embedded value in its owned hotel real estate through planned sales and cultivating new, potentially high-growth revenue streams through its management role and purchase option in the independent hotel services market (IBC) and its high-risk, high-reward investment in innovative clean energy technology (UniGen).

While recent hotel operational performance shows stability and positive momentum in early Fiscal Year 2026, the path forward involves navigating competitive pressures from larger, more technologically advanced players and managing the inherent uncertainties of its diversification ventures. The potential for unlocking substantial value from asset sales provides a compelling financial catalyst, while the strategic positioning in IBC and UniGen offers long-term growth potential in underserved or emerging markets. Investors should closely monitor progress on hotel divestitures, the revitalization of IBC under IHT's management, and key milestones in UniGen's technological development and capital raising efforts, balancing the promising outlook with the significant execution and market risks inherent in this strategic transformation.