LuxUrban Hotels Inc. Q1 2023 Earnings Call
Good morning, everyone and thank you for joining us for Lux Urban 2023 first quarter financial results Conference call.
At this time all participants are in a listen only mode.
Brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
Our speakers for today will be Brian Ferdinand Chairman, and Chief Executive Officer, and Chinook Qatari at the company's President and Chief Financial Officer.
Before we begin I'd like to remind everyone that during this call we will be discussing forward looking statements.
With respect to financial and operational guidance.
Scheduled property openings.
Specced at closings as noted lease transactions continues closings on additional leases for properties in the Companys pipeline.
As well as the Companys anticipated ability to commercialize efficiently and profitably the properties at leases and belief in the future.
These forward looking statements are subject to a number of risks uncertainties and assumptions, including those set forth under caption risk factors in our public filings with the SEC.
<unk>, including in item one a of our 10-K for the year ended December 31 2022.
Generally such forward looking information or forward looking statements can be identified by the use of forward looking terminology.
Such as plans expects, where it does not expect is expected budget schedule estimates forecasts intends anticipates or does not anticipate.
Or beliefs or variations of such words and phrases or may contain statements that contain certain actions events or results may could would might well will be taken will continue will occur or will be achieved.
Forward looking information may relate to anticipated events or results, including but not limited to the business strategy leasing terms high level occupancy rates and sales and growth plans.
The financial protections provided herein are based on certain assumptions and existing and anticipated market travel and public health conditions, all of which May change.
The forward looking information or forward looking statements contained in this press release are made as of the date of this press release and the company does not undertake to update any forward looking information or forward looking statements that are contained a reference herein.
Except in accordance with applicable securities laws.
Management will also be discussing non-GAAP financial metrics metrics.
Reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in the company's press release.
With that said I'd like to turn the call over to Brian Ferdinand Chairman and Chief Executive Officer. Thank.
Thank you Brian . Please go ahead.
Good morning, and thank you for joining us today after a strong full year 2022, we started off 2023 and a promising fashion.
Rental revenue increased more than 150% to $22 8 million on an adjusted basis, we reported our seventh consecutive quarter of cash based net income in six consecutive quarter of positive EBITDA. We also improved our financial profile from year end 2022 by reduced.
In our legacy debt substantially subs.
Subsequent to quarter end, we began hosting guess at 101 Bogart Street in Brooklyn on May 1st the Condor Horton Hotel, our second property in Brooklyn, and the Trinity Hotel in L. A our second property in Los Angeles are expected to begin hosting guests on or about July 1st.
As of May nine.
We had 20 hotel properties under Master lease agreements consisting of 1673 evenings that we'll be hosting guests from early in the current second quarter early in the third quarter, we expect to have approximately 2000.
Short term rental hotel rooms operational at the start of the third quarter of 2023 located in five cities.
Enver, New York, Miami, Los Angeles, and Washington D C.
In New Orleans.
A high growth company operating in a generational opportunity environment. We are cognizant that our expansion must be managed appropriately the days of growth at all costs are over right. Now we are balancing two dynamic forces. The first is addressing a growing historic pipeline of opportunities driven by the lingering effects.
Of the pandemic and exacerbated by rapidly rising interest rates. Many hotel property owners are facing the challenge of meeting their daily operational costs in the case of lingering effects of the Covid shutdowns looming, Mitch maturing debt liabilities, approximately 31 billion obscene MBS loans back.
Our hotels are set to mature by the end of 2020 for these factors form the foundation of our growth strategy to acquire the long term operating rights under Master lease agreements for turnkey hotel properties at pricing that is at historic cyclical lows. We offer these owners operators the opportunity to them.
Lloyd default generates stable cash flow improve ROI on the property drive occupancy and restructure their debt. We believe that this opportunity will continue through at least 2025.
Second as the business continues to scale and mature we must remain focused on creating a predictable sustainable and profitable operating model.
First step towards that goal is adhering to a disciplined asset light strategy by focusing on select high quality properties and destination locations. Our portfolio is presently concentrated in New York City, which is expected to welcome more than 60 million visitors this year and approached pre pandemic levels of tourism.
We plan to add further density in New York City.
New Orleans, Los Angeles, and Miami, We are also beginning to realize the benefits of a maturing an increasingly efficient operating structure, which includes strong union relationships and an elevated industry profile of being able to bring properties online quickly. This is driving higher deal flow and attracting a more select group of prop.
<unk> for us to consider we have combined the benefits of acquiring the operating rights to our properties and what we view as a generational low point with a focus on optimizing operational efficiencies across the organization. This is reflected for example in the fact that we believe that we currently have the lowest per night property level.
<unk> cost in our markets.
Finally, we are ever mindful of maintaining a strong financial position to that end as previously announced we have entered into a debt extension and conversion agreements with our pre IPO investors. In addition to decreasing our legacy debt by approximately 5 million from December 31, 2022 to March 31, two.
23. These agreements have also carpet pathway for improved cash flow and access to growth capital subject to certain conditions.
Flow remains incredibly strong, which we believe will allow us to select only the most favorable properties and deal structures to advance our growth with that I'll turn it over to Shane Authority, our President and Chief Financial Officer for a review of our financials.
Thanks, Brian .
I stated last quarter, we believe that the true growth in earnings power inherent in our model would be more fully manifest beginning with the first half of 2023 strip.
Stripping away the noncash charges, we incurred we reported a strong quarter and continue to believe that 2023 will be a period of significant growth I will first provide a brief overview of our financial results share our guidance for the year and then we'll open it up open the call up for questions.
Net rental revenue rose, 151% to $22 8 million from $9 1 million in last year's first quarter, driven primarily by an increase in average units available to rent from $4 79. In Q1 2022 2988 in Q1, 'twenty three as well as improved revenue per available.
Room or revpar during the period.
More impressively quarter to quarter growth from December 31, 2022 to March 31, 2023 was 76%.
Q1, 2023 total rent expense was $7 1 million consisting of $5 4 million of cash expenses and $1 7 million of noncash rent amortization. This compared to total rent expense of $2 5 million in Q1, 2022, consisting of cash rent expense of $2.
$3 million and noncash rent expense of about 255000.
On a percentage basis total rent expense rose to 31% of net rental revenue from 28% in last year's first quarter. Despite a 150% increase in net rental revenue and doubling of average units available for rent.
<unk> expense as a percentage of revenue increased due to property additions in the quarter, adding expenses without the full benefit of the ramp up of revenues.
Gross profit rose to $5 4 million or 23, 5% of net.
Until revenue from $2 5 million or 27, 6% of net revenue rental revenue in last year's first quarter as.
As we continue to gain economies of scale and become less impacted by property additions during the quarter. We believe gross profit will normalize at or above 30% of net rental revenue.
General and minutes administrative expenses increased to $3 6 million or 15, 9% of revenue from 1.1 million.
Or 10, 9% of revenue in Q1 2022.
Our net loss for the first quarter was $2 8 million or 10 cents per share compared to net income of $1 4 million or seven cents per share in the first quarter of 2021.
We recorded a few noncash nonrecurring items in the quarter, which included.
$1 7 million of noncash rent expense amortization as compared to 255000 in Q1 2022.
Proximately 900000, a noncash related.
Expenses.
For the issuance of shares for operating expenses as compared to no such expenses in Q1 2020 to approximately 400000 of noncash stock compensation expense as compared to no such expense in Q1 2022.
Approximately 200000 of noncash option compensation expense as compared to no such expense in Q1 2022.
Approximately $1 7 million of noncash financing costs associated with shares issued for revenue share agreement. There was no such expense occurred in 2020.
Two.
And approximately 600000 of exit.
So be and why exit costs, which we do not expect any more such costs with regard to the exit of our legacy apartment rental business going forward exclusive of these items adjusted cash net income improved to $2 2 million.
Up from $1 4 million last year.
First quarter EBITDA improved to 4.0 million from just under $2 million last year.
For the March 31, 2023 quarter, our EBITDA margin was 18% all in.
Dressed this more specifically later.
During the March 2023 quarter, we hosted slightly under 70000 room nights versus approximately 35000 room nights.
In last year's first quarter moving to the balance sheet at March 31, 2023, cash and cash equivalents totaled $2 9 million restricted cash was $1 1 million.
The previously announced amendments with our pre IPO lenders.
Has had the desired effect on our financial position during the quarter as total debt declined to $9 million.
From $14 million at December 31, 2022.
Net debt at the quarter end was $6 1 million down from $10 3 million at the end of 2022, resulting in a debt and net debt to LTM EBITDA ratio at March 31 2023.
0.07, and 0.05, respectively as compared to 1.1 and 0.8 at December 31 2022, respectively.
This effectively is a reduction of about a quarter turn from quarter to quarter.
Continuing on the balance sheet, our days payable outstanding.
On a cash payable basis was 35 days as of March 31, 2023 down five days versus 40 days.
As of December 31, 2022.
As we have limited property level capex with our current portfolio and pipeline, our operating cash flow plus security deposits placed in the quarter mirrors, our EBITDA at 4.0 million.
As we as we have stated previously we continue to make efforts to improve free cash flow and liquidity and look to improve these metrics, while continuing to reduce our higher cost debt over the coming quarters. Finally, looking at our portfolio at March 31, 2023 and today.
As of March 31, 2023, we operated 12 properties and 1034 units in four cities. We currently have under Master lease 20 properties and <unk> hundred 73 units in five cities.
As of March 31st across our portfolio.
Our investment in <unk> or security deposits were 13554 per unit with the high being in New York of 16348, and the low being in New Orleans in D. C. At 5005 thousand and 789, respectively per unit. We expect these amounts to remain relatively consistent in the future.
We continue to go responsible responsibly.
Leverages dislocation in the market and execute as good as we believe our results are we can try and we will do better couple of areas for improvement as we continue to gain economies of scale.
Continue to do better.
To better leverage our size and optimize our human capital. We believe we can achieve 20 plus percent EBITDA margins in the short term and 25 plus percent EBITDA margins in the longer term, we have developed scale and operations and it.
And experience and as a result.
Of and.
And as a result, better maybe not yet best practices for our properties in New York, We're looking to leverage our experience and results in New York to better optimize our properties in Miami D. C. We plan to do this throughout the balance of 2023.
We've started the process to look at ancillary revenue opportunities to start putting this in perspective, if we were able to generate $10 per additional room over the March 31, 2023 quarter, we would've increased revenue by approximately $1 million with the majority of it would drop to EBITDA and net income.
With regard to guidance.
We have maintained our guidance.
For 2023 of net rental revenue of $115 million to $120 million and EBITDA of 21% to $25 million. We continue to expect that all in Revpar for 2023 will be 220 to 240 to $2 50 per night, while achieving.
Over the year, a target quarterly gross margin of 30 plus percent, we expect G&A, excluding noncash related items will be approximately 10% to 12% during the year, which we would believe it would result in EBITDA margins of between 20% to 25 mentioned, 20% to 25% as I mentioned earlier.
To continue in various stages we.
We continue in various stages of negotiation with multiple property owners to acquire long term operating rights for hotels in the United States and Europe , and we expect by the end of the year to operate between 20 503000 short term stay hotels under MLA up from 844 at December 30, <unk> and 1000.
And 34 as of March 31, 2023, the timing of reaching our goal between 2500 to 3000 units may positively impact our revenue guidance for the year I'll now turn the conversation back to Brian .
Yeah.
Thank you Chanel.
And thanks to each of you for joining today I'll now ask the operator to open up the call to questions.
Thank you the floor is now open for questions.
We would like the opportunity to ask a question. Please press star one on your telephone keypad at this time.
Information tone will indicate your line is in the question queue you.
You May press star two if he would like to move your questions from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys.
Again, Thats Star one to register a question at this time.
Today's first question is coming from Allen Klee of Maxim Group. Please go ahead.
Hi, congratulation on the strong results.
Question on <unk>.
When you see when you sign up a new M.
In that way.
On a unit.
How should we think about the timing to get that unit operational and then the timing to maybe get a full full potential. Thank you.
Sure. Thanks, Alan so.
Thanks for joining.
We when we sign an MLA.
And we actually signed the lease and funding which is it represents the 1600 and 73 units.
And the Delta between the operational unit count on typically it takes approximately 30 days to take over possession of the property and then.
From there.
Really from a.
Going operational.
As an additional 60 to 90 days to fully ramp up the property.
Of which we typically have a rent abatement period.
To do that so when we look at bringing a new property online it's from lease signing.
<unk>, it's typically 30 days.
When we announce it and fund it and then it's about 90 days to bring it to maturity, which typically is done during the rent abatement or free rent period.
Okay.
That's great and.
You said that you currently have 1673.
Rooms operational and I think I did I also hear you say that you think that the beginning of next quarter, you'll be at around 2000, and so that 2000 number that means fully operational.
Yes, it's been funded so yes, that's correct 16 73 currently that we will have.
Some are coming online this month, it signed and funded.
And that kind of 30 day period, where we have under I'm already signed and funded 6200 73 keys.
And now.
Now, we're kind of starting that 30 day period on some of them. Some of them are already operational the new units and we will have 2000 keys operational so between the difference would be going on in May and June and the view is we will have 2000 operational units.
Better live selling hosting under GAAP revenue for the start of the third quarter.
That's great I'll add one more question and I'll jump back in queue.
Hum.
In terms of.
Yeah.
Sorry.
I lost my thought there.
In terms of your revenue par very strong during the quarter a $2 57.
Up from the quarter before.
You're guiding for the year to $2 20 to 240, but you also said that starting in.
In the second quarter, you have actions that could increase that number $20.
From.
Over the year so if.
Are you just being conservative or is this factoring in maybe that there might be a slowdown in the rest of the year or how do you think about like the $20 kicking in and then also.
You know just.
Just how this plays out thank you.
Yeah sure I'll, let you take that question, yes. So there's two factors to this one is is being conservative.
For sure the second is that.
We got the benefit in Q1.
Of.
Two really fabulous properties in our portfolio, so really kind of skewed the numbers a little bit as we look forward.
Our plan is economically focused not quality focused right. So we're looking at overall property economics first and foremost and so as I look forward to the pipeline and we're going to continue to add good good quality properties, but we're also going to add three star three and a half star properties. So.
We want to balance that and not set expectations on the higher end of that just based on the Q1 SKU associated to some better quality properties. So I would expect it to be at the higher end of the range, but I don't think we you know if we're if we hit on all cylinders yet we can we can exceed that but we want to be a little concern.
And laid out our guidance.
Okay.
Let's see.
Sorry, maybe just to follow up on that the $20 that you could potentially add how how do you think about how that could.
Layer in through the rest of the year.
When it materializes.
So the example was $10, but it could be 'twenty. So.
So we just embarked on incremental revenue opportunities.
It could be zero four.
60, 70% of the properties in 30 or $40 for a few of the property. So we haven't got enough data.
To lay that out yet, but I would think that we'd start seeing a bigger impact of that we just kicked off the initiative in the summer of this year. So we could probably give some more guidance on it for at the end of next quarter.
Alright, thank you so much.
Okay.
Thank you. The next question is coming from Bryan Maher of B Riley Securities. Please go ahead.
Thank you good morning, Brian .
A couple of quick questions for me today.
Current logistically if you could take over a Union hotel, let's say in New York City.
Can you transition that to be non union or do you reduce ftes I mean, how do you control costs and in that type of a scenario when you take over an asset in a market like New York.
Sure. Thanks, Brian So we typically focus exclusively on Union hotels in New York City, We work very close to me it's about the very good relationship with the hotel Union.
So when we reopen a closed hotel, which we reopened.
Three in New York City to this point.
They always employees had been severance out and the previous owner had paid severance and done some pension withdrawal payments and basically settled out the liabilities for the previous so it helps when we come in and open up a new hotel outward reopening closed hotel, we then under.
Our <unk> agreement with the Union are able to control costs through reduced head count because we have to do a recall and limited amount of workers come back.
So we reduced the head count and then since those employees were severance.
And furloughed or southern style from the previous employer, which is not our expense when they restart with us at the hotel, whether it's the engineer on fire safety Inspector Bellmon lobby, they're starting at a lower rate of wage rate. So there's both a head count reduction and also.
Labor wage reduction.
And so that that occurs.
Within a closed hotel that is now being reopened by Luxe urban which the blakeley was plus when he was on the Marriott former Marriott in Herald square it was.
And then a situation, where we're taking over and already operating hotel, which we're in process of a couple right now in New York City.
It's it's it's obviously underwriting those costs relative to the rent.
And looking for ways to whether it's the F&B, whether it's the mini bar component is third party those out and then reduce our operational footprint within the hotel and Thats part of what you were just talking about with ancillary revenue was partnering with F&B operators.
Leasing restaurants spaces and event spaces to reduce not only our cost but also increased revenue on a revenue share with partners and operators in those hotels. So those are really the two ways, we look at that.
Okay and two more for me kind of related first of all have you come across anybody out.
Out in the marketplace trying to do what you're doing.
We have not.
We have very limited competition.
Whats occurring is.
Typically.
These opportunities are coming to us on refinance opportunities for the owners that have debt maturing.
I have very high interest rates and needs to restructure so theyre looking for.
Triple net lease.
Being up a lot of the upside.
On the performance of the hotel over the life of the lease, but really just to restructure the debt and get the property stable from a debt load and interest rate perspective.
And get a longer maturities. So we're not seeing that the alternatives for the owners as to maybe sell it.
Which obviously, a depressed value, which isn't really a realistic option.
And then obviously third party management just in process of doing a deal where we're displacing large management company.
It is not financeable.
On a third party management contracts. So they are opting for a triple net lease you were seeing very limited.
Competition, if any at all.
And what we're doing currently.
Okay and then just lastly for me when you look at this opportunity it really seems like kind of a sweet spot and the opportunity for you guys is just kind of the next 12 to 18, maybe 24 months, but well.
Kind of over the next year year and a half what would you say is your biggest limiter of growth is a capital is it personnel what is it that keeps you from growing from.
2000 keys to eight or 10000 keys.
Yeah.
Yes, I think it's.
Currently we're executing right so.
If you look at our unit growth from the IPO right in August to where it was in Q1 two to 2000 keys at the end of Q2 right.
My belief was nothing's going to stop us doing that.
Could we accelerate it.
With more capital right.
Potentially.
As you know the equity starts to perform I think people really start to understand the story and the opportunity.
Perhaps down the road, but right now were men.
Mentioned, we generated $4 million of positive cash flow.
Through the Q2 Q1 right.
Lot of those units.
That we put on were not fully mature through that period right. So we expect that to accelerate.
You've done a lot of work with our lenders to both convert out glut.
As well as pay down debt through that period, so we put $3 million or free cash flow into security deposits in Q1.
Which got us.
Traditional scale and we expect that to continue.
Hum.
That's our current view is Adam you know six 600 units per Q organically.
There are opportunities to accelerate the growth if.
If we were we would do it in a non dilutive fashion.
Not looking too.
Utilize the equity at these levels and of course valuation.
That's our current view, but in terms of.
Being at five 6000 keys at the end of 'twenty, four we could do that organically and to your point.
We watched the window very closely and watch the <unk> refinance market some maturity markets very closely and that's counterparts are key as well as interest rates.
So you know as.
As we see that opportunity I mean, we believe I believe that it's more like 24 to 36 months given the maturities out.
Through 'twenty five.
But our view is that we will get to 10 to 12000 units, we could accelerate that.
Into a two year window versus a three or four year window and that will really depend on a variety of factors.
As we walk great. Thanks, very much. So thank you Brian just Brian just just to add to that just laying out what the history has been from the IPO to this quarter.
We went from roughly 500 units to 1000, and that's not exactly correct because the 500 had apartment rentals in there too so it actually the growth was higher.
We've we have 16 37 under contract.
And the 2000 is a real number I mean, if you think about sort of a last minute changes of what was going on.
It's going to get there pretty quick.
So from Q1 to Q3.
Call. It six ish months, we go from 1000 to 2000, and then you know our goal we say 25 to 300, where our goal is always at the higher end of the range and so can we get from 2000 to 3000, you know maybe it's not exactly your and maybe it's right after.
But then that's spitting distance of 4000 is pretty close so we can get with the momentum we have and reinvesting cash flow at a 4000 I think it gets a little bit harder from four to eight.
As you allude to.
Hum, but could we get there by the end of 'twenty four yeah, we could right and so so that's the way we think about the growth is sort of the three or four Doublings and then your earlier point.
About why isn't anyone doing this.
Yes.
We've laid this out in our financials and we get the question all the time, there's really three aspects to the business that I think are collectively unique individually not.
Is.
Have we.
We are actively negotiating multiple units at the same time to get the best deal right. So Brian and his team leads that you know to get the best deal at this point, what we consider to be a cyclical low maybe maybe more than that.
The second is we distribute wide.
And we we've got distinct tools to do that to maximize revenue and bring that forward to right to help fund the growth rate. So we're booking right now through the balance of the year some of them. Some of that money comes to us immediately and that gets reinvested at the ground level and then the block.
And tackling of the hotel business, which it's dealing with people and it's you know as you can imagine anytime you're dealing with people.
There's challenges to it but you snap that together I just don't think there's anyone out there that has the savvy at our size and scale.
Okay. Thank you.
Thank you. The next question is coming from Ashok Kumar of think equity. Please go ahead.
So please make sure your line is not on mute.
Oh, yes, thank you, Brian and Shin Oak.
Oh, just a long term <unk>.
<unk> question right EBITDA, you guided to 20% to 25% drag was at 18% right now.
And what would it take to get to above the upper end of that range right in the past you've talked about.
The economies of scale potentially relationship, but rebel and being able to outsource.
Some of the internal cost.
In terms of optimization and then of course, the credit card processing and other initiatives are also reducing had gone internally right. So what would it take to step function increase that EBITDA to the 30% to 35% which has been in the conversation.
In the past.
Yes, So let me I'll, let <unk> answer that from a financial perspective, but I just wanted to give you a practical.
Example, so Tuscany hotel, we opened on February one.
This year right. So.
We took on cost right to open that hotel and when Allen Klee asks about the ramp up periods. So we took possession of that hotel on or around February 1st.
It took us about 65 days to get that hotel filled up right but.
In Q1, right you have that hotel that had staffing has cost some startup costs, which degrades the overall EBIT margins, but as we move into Q2 that hotel at 95% occupied at a very very healthy.
ADR Revpar. So you have just this gap, where you put a hotel on them because were growing so quickly.
We're adding hotels every quarter some of the hotels that are coming on.
Our running sub optimized.
Optimize EBITDA, but the hotels that are mature like 123, Washington, Blakely Marriott Herald square.
Now the Tuscany right in Q2 there.
Ask those optimized EBIT margins right. So that's a big part of how we grow and I'll, let you take it over but I just want to make that distinction as we're in rapid growth.
Youre going to have a little bit of choppiness, depending on when we start a hotel, but that hotel matures, we're seeing those levels.
At the property level for the more mature properties, but shouldn't we will let you answer.
Yes, so so.
We get greater impacts now.
With our size and opening.
100 to 200 room property mid quarter based on the ramp up. So that's you know that's part of what Brian is referring to but overall you know how do we how do we dragged it up one is occupancy with any portfolio now we have the benefit of the portfolio, but we also we also have.
Our least favorite children. So we got to get them to work better right. So we've started that process internally of benchmarking or different properties and jurisdictions amongst each other and working putting putting the effort into where it moves the needle the greatest.
For example, the blakeley and the Washington.
They've been they've been with us for a while and they've been doing very well. So it's that one piece is improved.
Improve occupancy.
Improve.
Revpar per unit as well our ADR really the occupancy piece will will follow through so that's one.
The second is incremental revenue.
We really haven't focused in on that we really Havent you know our model is simple we don't try to provide ancillary services like foodservice and such but there are still opportunities for late checkout early check in.
Bag storage et cetera that is fairly easy to do but requires discipline and the operational side.
And and some benchmarking so that that's a piece of it and just overall, we have grown so quickly and we have we have pivoted the business also very quickly.
So we just need to optimize our expense structure when I say optimize.
It's really looking at legacy expenses associated Department rental unit business do we still need.
Do we still need the staffing associated to it.
<unk> really sort of.
Looking at overall human capital et cetera, and so the combination of all of that I think gets us well within the range what we're talking about.
Right.
The unit economics right.
Our revenue par.
And it almost $100 2018 through first quarter right from $1 60 to 257.
And where do you see the leverage and then of course you breakeven.
You know property level breakeven rate.
Or revenue per available room, that's about 140 to 150 D C more leverage on the cost side as opposed to the revenue side right. In other words are you synthetically approaching your sweet spot in our revenue bar.
And you'll get better leverage on the cost side to improve gross margins.
Uh huh.
So.
From my perspective, the expense side of the property level. There are some economies, but you were still going to have to have a general manager, we're still going to have to have front desk folks. We're still gonna have utilities associated the property the property as a independent effectively segment business unit.
There are some ways to optimize so for example in New York You know we have some of the qualified staff at one property.
Helping the engineering at other properties, so theres, a little bit of overlap, but you've got to remember.
When a guest shows up and something isn't working they're not waiting for someone to drive across town to fix it they're looking for someone to show up in the next five or 10 minutes right. So so less.
Synergies at the at the property level more synergies at the portfolio level with regard to revenue.
Driving revenue being more methodical in terms of how we price things.
And so forth.
Got it and then just in terms of you know the apples to apples right I think some of the.
Cash expenses were on the noncash side in terms of SBC. You know you don't have professional fees you know I think called out in your P&L and so on so I assume.
On an apples to apples you know the 24% of gross margins reported in than the 19% expense ratio will normalize through the rest of the year right. So we're still looking at about 30% gross margins and maybe 12% expenses expense ratios.
Good.
The operating leverage.
No.
Yeah.
Exactly so so so.
The bigger factor there is as you know I think the G&A side stays relatively consistent right. So we will get the expansion as revenues expand.
Really its really optimizing on the revenue side.
Got it.
And one last question on the below the line right in terms of interest expense has indicated that the industry headwind you know the $2 million in Q1 right.
You see it normalize that there's $8 million annualized level or do you see a better I think more leverage or to reduce the pain points.
On the financing side right to get a better flow through in your business model.
Yes, so we had $1 $7 million of expenses associated to the shares issued for revenue share agreements that were part of the original some of the original financing.
The accounting for that is based on when the shares are issued the shares the stock price.
We've already publicly announced the amount of shares so it's and it's in an 8-K.
A few months ago. So that's a variable piece of it that it falls under interest expense the fixed side of it is the balance so roughly $8 million million ish and as we as we reduce further reduce debt you know obviously that that goes to zero.
Thank you Brian as you know congratulations thank you.
Thank you very much.
Thank you at this time I'd like to turn the floor back over to Mr. Friedman for closing comments.
Thank you again for your participation and continued interest in Luxor, but hotels, we remain very optimistic about our future and our ability to capitalize on the opportunities in front of US we still have a lot of work to do but we are committed to building the business, serving our valued guests and delivering long term values to our share.
Our holders thank.
Thank you again for your participation and have a wonderful day.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect your lines or log off the webcast at this time and enjoy your day.
Uh huh.
Okay.
[music].
Yeah.