LuxUrban Hotels Q2 2024 Earnings Call Transcript

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September 25, 2024

There are 6 speakers on the call.

Operator

Please note this event is being recorded. I would now like to turn the conference over to Adam Holdsworth, Managing Director of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, and good afternoon, everyone. Thanks for joining our conference call to discuss the Luxe Urban Hotel Second Quarter 2024 Financial Results and Corporate Highlights. Leading the call today will be Robert Arrigo, Chief Executive Officer joined by Mike James, Chief Financial Officer. Before we begin, I'd like to remind everyone that our remarks today may contain forward looking statements based on the current expectations of management, which involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings. You are cautioned not to place any undue reliance on any forward looking statements, which speak only as of the date made and may change at any time in the future.

Speaker 1

Although we voluntarily do so from time to time, the company undertakes no commitment to update or revise forward looking statements, whether as a result of new information, future events or otherwise, except as required by acceptable law. This call also includes references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non GAAP financial measures. Reconciliations of those non GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the company's quarterly report filed with the SEC. With that, I'm now pleased to turn the call over to Robert Arrigo, CEO.

Speaker 2

Thank you, Adam, and we appreciate everyone who joined our call today. During this call, Mike, our CFO, and I will review the highlights from our Q2 2024, outline our strategy for success through the Luxe 2.0 brand and discuss our recent corporate transformation, which includes the addition of new management team composed of hospitality veterans and a refreshed Board of Directors. We look forward to discussing the significant changes we've implemented as well as providing transparency regarding our current business operations and the necessary adjustments following the previous management team. Luxe Urban Hotels leases entire existing hotels on a long term basis and rents up hotel rooms with the properties we manage, and in 2024, we launched a comprehensive initiative to enhance our company's management and operations, which we refer to as Luxe Urban 2.0. This initiative includes the addition of experienced professionals from the hotel and finance sectors to our management team, Board of Directors and the strategic elimination of the non performing hotel properties and targeted efforts to reduce operating overhead.

Speaker 2

While significant work remains as we navigate the Q3 and prepare for the Q4 of 2024, we believe the Luxe 2.0 is starting to yield the intended benefits. We currently manage a portfolio of 7 hotels in Manhattan, 1 in Brooklyn and 1 in New Orleans, all under long term lease agreements. As of this date of this report, we have 1056 hotel rooms available for rent across our portfolio. Over the past 9 months, we are strategically reducing our domestic operations and U. S.-based portfolio, focusing solely on the properties that have the potential to generate positive cash flow.

Speaker 2

As part of our recent 2.0 transition, we are committed to enhancing our management and operations team by recruiting talented directors and officers with significant experience in the hospitality and financial sectors. I was appointed in June of 2024, bringing over a number of years of I'm sorry, 36 years of experience in the hotel industry, while Michael James joined as Chief Financial Officer in the same month, bringing extensive financial expertise. We are also pleased to welcome Elan Buitlinger and Tim Schafer, veterans in the Hotel and Travel Technology, to our Board of Directors. Our ongoing efforts to strengthen management and operational expertise across all areas of our company include actively recruiting new personnel and reallocating existing management to areas where the skills can be mostly affected and utilized. With my extensive experience in hotel management and successfully operating a variety of properties, I am confident in the tremendous opportunities that lie ahead for Luxe Urban Hotels.

Speaker 2

Our strategic approach to Luxe 2.0 positions us to generate sustainable positive cash flow moving forward. This quarter presented challenges, including write offs from the previous management team, but I believe we are at a pivotal inflection point. One significant hurdle we encountered was the decision to pre sell 40% of our room inventory, which resulted in funds being collected at an average room rate in Q2 of $220.96 However, I am pleased to report that these advanced sales will expire at the end of 2024. I want to repeat that. These advanced sales will expire at the end of 2024, allowing us to enter 2025 with average room rates projected in the same period, same quarter of $52.11 which is a $31 increase just within that quarter.

Speaker 2

We are implementing transformative changes with Lux Urban that will enhance our financial stability and provide a solid foundation for future growth. I am excited about the potential that these initiatives hold for positioning our company as a leader in the market. Now I will turn the call over to Mike to provide detailed review of the financial results. Mike, please take it from here.

Speaker 3

Thanks, Rob. As highlighted, the financials for the Q2 reflect write offs and necessary accounting adjustments to properly reflect the financial position of the company. It's important to note that the figures we're presenting today pertain to our core properties and operations, which form the foundation of the portfolio. Despite these challenges, we are focused on leveraging our existing assets and driving operational improvements to strengthen our financial outlook moving forward. I look forward to discussing the specific results in detail and sharing how our strategic initiatives are positioning us for success.

Speaker 3

Net rental revenue for the 3 months ended June 30, 2024 was $18,200,000 as compared to $31,900,000 for the 3 months ended June 30, 2023, a decrease of 43%. The decrease predominantly resulted from the decrease in average units available to rent from 16.25 for the 3 months ended June 30, 2023 to 10.56 for the 3 months ended June 30, 2024. This decrease in net rental revenues was exacerbated by booking of guaranteed reservations at relatively low rates for the 3 months ended June 30, 2024 as compared to the same period during the same during the prior year. The T REV PAR or revenue per available room was $2.57 for the 3 months ended June 30, 2023 versus $188 for the 3 months ended June 30, 2024. The lower T REV par in the current quarter is attributable to the impact of the pre selling of the rooms at lower rates versus the same period last year, which we are forecasting to increase after the pre booked guests have stayed at the property.

Speaker 3

Cost of revenue increased from $21,700,000 in the 3 months ended June 30, 2023 to $40,400,000 for the 3 months ended June 30, 2024, an increase of 86%, primarily as a result of the company expensing the unamortized lease acquisition cost and security deposits surrendered for the properties that were exited during the period as well as the increase in cost related to utilities, labor, cable, Wi Fi, credit card processing fees, commissions and costs related to the relocation of guests from our terminated properties to alternative properties. Gross profit decreased $22,200,000 in the 3 months ended June 30, 2024 from $10,200,000 in the 3 months ended June 30, 2023, a decrease of $32,600,000 or 3 18%. The decrease is primarily as a result of the company expensing the unauthorized lease acquisition cost and security deposits surrendered for the properties that were exited during the period as well as deposit surrenders and commission cost to relocate guests from the terminated properties to alternative properties. Total operating expenses incurred for the 3 months ended June 30, 2024 decreased approximately $1,200,000 from the 3 months ended June 30, 2023. Of the decrease, general and administrative expenses were reduced, offset by $600,000 for costs related to the exit of a partnership with Wyndham.

Speaker 3

Total other expense for the 3 months ended June 30, 2024 was 185,000 dollars as compared to $29,700,000 for the 3 months ended June 30, 2023. The decrease is primarily due to the lower cash interest and financing costs during the 3 months ended June 30, 2024 as compared with the 3 months ended June 30, 2023, as a result of the Greenlee revenue share transaction. As of June 30, 2024, our cash and cash equivalents were $61 as compared to $752,848 at December 31, 2023. And the total current assets were $3,315,844 at June 30, 2024 as compared to $19,721,057 at December 31, 2023. The working capital deficit was 62,600,000 at June 30, 2024 versus a deficit of $13,400,000 at December 31, 2023.

Speaker 3

We continue to explore capital raising transactions as well as strategic initiatives to improve the company's cash position. Through Luxe 2.0 and the recent changes from the previous management team, we are optimistic that our knowledge and strong work ethic alongside our investors and bankers will change the business for the positive as we enter the Q4 and into 2025. I will now pass the call back over to Rob.

Speaker 2

Thank you, Mike. I'm optimistic about the future of our company, especially in light of the significant changes we've made to our personnel and the strategic direction. We anticipate that the 4th quarter will yield a positive impact on our overall operating results, particularly as the New York hotel market typically performs at its strongest during this period. With our focus on optimizing operations, we expect to generate revenues at higher daily average room rates. As we implement our strategy, we are committed to maintaining transparency with our shareholders.

Speaker 2

We will keep you informed of our progress through regular communications, including press releases and media updates. This is a transformative moment in our company's history, and we are excited about the opportunities that lie ahead. With that, I will turn it over to the operator to facilitate questions from the audience.

Operator

We will now begin the question and answer session. And our first question today comes from John Old with Longmeadow Investors. Please go ahead.

Speaker 4

Thank you. Rob and Mike, first thanks for battling through all the tough

Speaker 5

issues you've had

Speaker 4

to deal with. Appreciate all your hard work and it feels like we're close to coming out the other side. So putting all the tough stuff aside, let's look forward to the next year when all the pre sold rooms are gone and sort of starting fresh. What is I know you don't want to give detailed projections, but RevPAR with a clean slate feels like it could be in the 300 range maybe and EBITDA margins still 25 ish, 30 ish. Just give us some guidance as to what a clean fresh year might look like to the extent that you can.

Speaker 4

Thank you very much.

Speaker 2

John, Mike, if I could take this. John, I want to thank you for your support. Without the investor support, we wouldn't be Lux 2.0. So at this point, I'm going to say this is we all know that the presale had a substantial impact on our overall ability to sell. And there were times where the rates were being sold at $50 or $100 to $150 below market.

Speaker 2

So we know that same store next year, there's going to be substantial RevPAR growth naturally, just in the fact that our inventory will be released. So this is the time, I can say this, our VP of Revenue Management, who's one of the most talented people, he's been in the market 38 years, they're very excited about what's going to happen in Q4 as well as 2025. They have control of the entire inventory, and everyone that sees our portfolio knows we have great hotels and strategic locations. The increase in ADR will be significant. We're also going to realize a year that we're not going to have all these extraordinary changes.

Speaker 2

We've gone through a complete, re pricing, resegmentation of the hotel. We're also going to be looking at all new segmentations for our properties. We've been an OTA provider since the beginning of the operations of the company. We are going to be going after the highest segments with the quality of the hotels that we have within New York. And that's the reason why we changed our approach.

Speaker 2

We wanted to narrow the field, focus on what we're good at and deliver better results. And we've gone through some heavy lifting to do that. But with the ADR lift, the demand that we see in New York, the demand in New York is not going to wane based on what we see. With the migrant housing of over 16,000 keys, the elimination of Airbnb of 44,000 keys, Keys in New York are extremely valuable, and we have a great portfolio to start to build from. What's going to be fantastic for us in 2025 for our audience is we're not going to be riddled by a lot of the legacy challenges we've had in the operations.

Speaker 2

We have made substantial reductions in labor. We've made tremendous headway with all of our vendors. We are in great standing with the key vendors that are closest to us. So what we see in 2025 is an opportunity to show tremendous growth, but naturally, it's not a promise. It's going to happen because we've already done the heavy lifting.

Speaker 2

Now we just need to see the results. Hopefully, I answered your question.

Speaker 4

Okay. So ADRs should be what would be sort of a market number right now based on comparable hotels and etcetera, like 3.50 something like that?

Speaker 2

I think that you're going to we're going to I feel confident to say we'll be in the low 3s. It's safe to say that if the market doesn't change dramatically, which just to say this, we're seeing Q1 numbers that we've never seen before. I've mentioned this to a few other investor reviews where Q1 historically in New York has always been incredibly soft. What we're seeing now because of the moderate weather, that's a key factor in Q1, moderate weather in New York has allowed people to start booking conferences and meetings in Q1 that typically happened out throughout the year, but ADRs have grown substantially. So we see a tremendous opportunity in Q1 that we've never seen before.

Speaker 2

The other opportunity that we've seen in the market, hotels have shoulder nights traditionally. They were Thursdays Sundays. Because of now the new office where many people do not travel the home office Monday or Friday, those Thursdays and those Sundays are becoming great selling nights in the hotel industry because people are already getting to their location Thursday night and working from that location. Same thing on Sunday. So they're missing those traditional travel days.

Speaker 2

So we're seeing a flattening out, of occupancy, which is great, which allows us to compress and to charge. So Q1, I'm bold on and I think that we're going to perform well. Q4, just I see strong ADR growth in Q4. And I'll say this, many of you, the New Yorkers, they know that shopping week, about 10 years ago, became very weak. And over the last 3 years, it's become again what it used to be.

Speaker 2

New York is vibrant. There's a tremendous amount of activity going on entertainment wise as well as other opportunities in New York. So, Q4 was other opportunities in New York. So, Q4 will see, I'm confident saying, at least 15% growth in ADR, maybe even 18%. And we'll see that continue all the way through 2025.

Speaker 4

Great. Thanks. And then quick one for Mike. Mike, thanks for I know it's been tough getting all the queues up to date, given all the issues, but assume we can expect a cleaner Q3 without as much noise and on time going forward?

Speaker 3

That's my number one goal to be on time and to put out a great product. So going forward, that's what we're looking for.

Speaker 4

Okay. Thanks very much, guys. Appreciate all your hard work.

Speaker 5

Thank you,

Operator

John. And our next question comes from Allen Klee with Maxim Group LLC. Please go ahead.

Speaker 5

Yes, good afternoon. Could you just review for the quarter what how much was what you would characterize as one time operating expenses?

Speaker 3

I don't have that right now available, but I could work that up and get you what that number is.

Speaker 5

Okay. Thank you.

Speaker 3

We also restated Q1. So a bunch of the expenses were in Q1 when you look at the year to date numbers. So there were a bunch of one time expenses in Q1 as well as in Q2.

Speaker 5

Right. I was just curious for 2Q at this point, but both of them would be helpful. I mean, do you feel like besides the one time cost, there's other things you'll be doing on the expense side going forward? Or do you think that the run rate that you are excluding the one time costs is you're comfortable with?

Speaker 3

We've reduced overhead by a few $1,000,000 by cutting back on the labor. Part of it was due to getting rid of the properties and the other part, which rolled into COGS and then the other part were just other individuals that we lightened up on. So we're running a thin lean business. So the cost should stay relatively low for quite some time. And then as we scale into the future, we would add people going forward.

Speaker 5

Thank you. Do you think that you said you're at 9 properties now. Do you think that there's more that you'll have to sell or that you feel good about that number?

Speaker 3

No, we feel good about that number.

Speaker 2

I mean, if I could expand on that, I've recently spent a lot of time within the hotel industry and our products, the hotel leasing product, we're kind of redesigning who we are to be able to deliver a product that's interesting. I sat in front of a bunch of hotel owners and I said to them, 3rd party management companies, their success historically is the ability to bill the owner for everything and charge a gross revenue fee of 2% to 3%. We want to design a program that is going forward that is very transparent to the owner as well to us to make sure that we're designing leases that are successful for both parties. And with today's economy, there's a lot of hotel owners seeking relief, seeking a new management option. So we have there is a lot of people very interested in our formula.

Speaker 2

And so we want to make sure the formula is right going forward. That's why we're focusing our efforts in New York. The demand is there. The opportunities are there. But we want to make sure the formula works well there before we look at other bigger markets.

Speaker 2

But the reality is New York has so many opportunities for us, and the timing couldn't we believe the perfect storm is right now to look for the future owners. So, we're excited about the future. We really are.

Speaker 5

Thank you. So for the property leases that you've gotten out of, what's left in terms of the if there is any

Speaker 4

of the

Speaker 5

liability or potential litigation related to that?

Speaker 2

I mean, we've exited Florida. The reason why the hotels we've exited recently was Florida, LA and these assets were less than many of them were less than 75 Keys. They were not strategic. They were not high performers. So the reality is Florida, most of that has been resolved.

Speaker 2

There'll be some legal costs and some settlement costs, but we don't believe it's going to be that substantial. So those are things we're working through, but I don't foresee those to be substantially going to change the future financial results of this company. I think many of the owners realize too that the solution that we were giving them was not designed the right way for them as well. So I don't see it to be a hindrance substantially in the future.

Speaker 5

Okay. My last question is, I'm looking at the subsequent events section of your 10 Q and it looks like related to tell me if I got this wrong, I did it back of the envelope. You've raised around $10,000,000 net subsequent to quarter end. And then I guess how do we think about so if that number is right, let me know or in the ballpark. And then you said that the net working capital deficit is little over $60,000,000 So how do you feel about kind of those factors?

Speaker 3

So that yes, the $10,000,000 is a realistic number for Q3. And we're fighting an uphill battle, just burning off the pre sold rooms. As of the June quarter, I believe we had about $11,200,000

Speaker 4

unrealized

Speaker 3

unearned revenue on the balance sheet that that will burn off would burn off about $2,000,000 a month. So as we get towards year end, that will be about $400,000 So right there, we'll take in, let's say, dollars 10,800,000 we'll reduce that liability. And we're going to continue focusing on getting the company cash flow positive and looking to work that number down quite a bit.

Speaker 5

So, the unearned revenue that you that will be cash coming in over the second half of

Speaker 3

the year? No, no, no. So we've already collected that cash. So that cash has actually been collected in the spend. Yes, so the number is $11,264,000 So it's been collected and spent as the guests come and stay, that's when we earn it.

Speaker 3

So when the guest shows up, that's when we earn that revenue. So from a GAAP accounting standpoint, each month we're burning off, let's say, roughly $2,000,000 And then next year, if everything remains the same, then that $2,000,000 let's say, we still rent those rooms out for the exact same rate if you're doing same store sales, then it would be we would be collecting that cash. But since we're not pre selling like they were before at the discounts that they were doing, we would expect it to be higher, assuming that the marketplace doesn't change drastically.

Speaker 5

Got it. Okay. Thank you so much. Appreciate it. Good luck.

Speaker 2

You're welcome.

Operator

And our last question will come from Mike Wells, Private Investor. Please go ahead.

Speaker 4

Good evening.

Speaker 5

I was curious how you're going

Speaker 3

to handle the NASDAQ compliance? So I'll take that Rob. So right now what we're looking to do is we'll probably do reverse stock split that will get the price of stock above the $0.10 level, above the dollar level. And then it's kind of up to us to properly project how we're turning the business around. We'll be answering questions to the NASDAQ on that.

Speaker 3

And we hopefully the stock will cooperate and we get the market cap above $35,000,000 at which point we'd be in compliance with the NASDAQ at that point. Timing? I'm sorry, say it again. What's your timing? The timing on that, if we were to file a proxy, that's probably going to be 30 to 45 days out.

Speaker 3

We have a hearing set with NASDAQ in October, and we'll know a lot after that meeting.

Speaker 4

Okay. Good luck.

Speaker 3

Thank you.

Speaker 2

Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Robert Arrigo for any closing remarks.

Speaker 2

I would like to say this during the call, I'm getting so many texts, positive support. I do want to say this, the ownership groups that we've been working with have been exceptional. They see the value of Luxe 2.0. They see that in 5 months, we've taken a company to positive cash flow, rebuild vendor relationships, changed an entire leadership team at the property level as well at the top level, and we brought some of the most talented people in a company that was challenged. And everyone on the team, I can say this, with absolute confidence and support.

Speaker 2

Everyone within Lux Urban is excited about the future. They're excited about turning around a company that they know that the formula that we have behind us is really what the economy needs. Hotel owners today are just embattled with costs between 3rd party management companies, franchise companies and asset managers. They can no longer afford that level. So this opportunity for us to do it right, we scaled ourselves down for a reason.

Speaker 2

We want to make sure that we are focused, we are forward and we are strong when we present ourselves to owners. The strength of Mike and I in the last 6 months working together, he's been an exceptional partner, is being honest and being transparent. And that's the formula that we're going to use with owners, and that's what owners have not had historically. They've had 3rd party management companies hide themselves within their P and L statements. We're opening the book, and we're going to make a difference in this real estate market and we are going to be when we finish what we do, the formula that we run is how everyone should operate or own their hotels in the future.

Speaker 2

So it's been a heavy lift for 6 months, But as they say, it's the heart that makes you great. Luxe 2.0 will be great. Q4 will start to show the real results. And I'm excited that the team gets to see it as much as the owners. And of course, never mind the guests of our hotels.

Speaker 2

So we look forward for the future, and we thank everybody for their support. Thank you.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • Management has launched the Luxe Urban 2.0 transformation—adding hospitality and finance veterans to the executive team and board, exiting non-performing properties, and cutting overhead to drive positive cash flow.
  • Q2 net rental revenue fell 43% year-over-year to $18.2 million, primarily due to a reduction in rooms available (from 16.25 to 10.56 average units) and the pre-sale of inventory at below-market rates.
  • About 40% of room inventory was pre-sold at an average rate of $220.96 in Q2; those advanced bookings expire end-2024, paving the way for a projected $31 uplift to an average room rate of $252 in Q1 2025.
  • Liquidity remains strained—cash stood at $61 and the working capital deficit widened to $62.6 million as of June 30, 2024—prompting the company to pursue capital raises and strategic initiatives.
  • Looking ahead, Luxe Urban expects strong ADR growth of 15–18% in Q4 2024 and a significant RevPAR rebound in 2025, targeting mid-20% to 30% EBITDA margins once legacy pre-sales and lease adjustments are cleared.
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Earnings Conference Call
LuxUrban Hotels Q2 2024
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