Full Year 2023 LuxUrban Hotels Inc Earnings Call

Operator: Ladies and gentlemen, thank you for standing by. Today's conference will begin momentarily until the timer lines will again repeat the music hold. Thank you for your patience. Thank you for standing by.

Ladies and gentlemen, thank you for standing by today's conference will begin momentarily until that time in our lives well again the piece I need to call. Thank you for your P. J.

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Cath: My name is Cath, and I will be your conference operator today. At this time, I would like to welcome everyone to the Luxurban Hotels, Inc. 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise.

Cathy: Thank you for standing by my name is Cathy and I will be your conference operator to gate at this time I would like to welcome everyone to the Luxe Orlando Towels incorporated 2000, Twenty's refined Azure Richard Richard Its conference call. All lines have been placed in mute to prevent any background noise. After the speakers' remarks, there will be a.

Cath: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Devin Sullivan, Managing Director at the. Please go ahead.

Cathy: And as a recession, if you would like to ask a question. During this time simply press star followed by number one on your telephone keypad. If you would like to withdraw your question crashed for why they can't Thank you I would now like to turn the call over to Devin child event managing director at the equity group. Please go ahead.

Devin Sullivan: Thank you, Cath, and good morning, everyone. Thank you for joining us today for the Luxurban Hotels 2023 Financial Results Conference Call. Our speakers for today will be Brian Ferdinand, Chairman, and Shanoop Kothari, the company's Co-CEO and Chief Financial Officer. Before we begin, I'd like to remind everyone that this call may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, set forth in Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended.

Cathy: Okay.

Devin: Thank you Kathy and good morning, everyone and thank you for joining US today, what urban hotels 2023 financial results conference call. Our speakers for today will be Brian burden than chairman and <unk>, The company's co CEO and Chief Financial Officer.

Devin: Before we begin I'd like to remind everyone that this call may contain certain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 set forth in section 27, a of the Securities Act of 1933 as amended and section 21 E of the Securities Exchange Act of 1934 as amended.

Devin Sullivan: Statements that are not purely historical are forward-looking statements. These statements may include but are not limited to statements regarding expectations, hopes, beliefs, intentions, or strategies regarding the future. In addition, any statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Generally, the words anticipates, believes, continues, could, estimates, expects, intends, may, might, plans, possible, potential, predicts, should, would, and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is forward-looking.

Devin: Mrs that are not purely historical are forward looking statements. These statements may include but are not limited to statements regarding expectations hopes beliefs intentions or strategies regarding the future. In addition, any statements that refer to projections forecasts or other characterizations of future events or circumstances, including any underlying assumptions are.

Devin: Forward looking statements generally the words anticipates believes continues could estimates expects intends may might plans possible potential projects should would and similar expressions may identify forward looking statements, but the absence of these words does not.

Devin: Forward looking.

Devin Sullivan: Forward-looking statements may include, for example, statements with respect to the success of the company's collaboration with Wyndham Hotels and Resorts, scheduled property opening, expected closing of noted lease transactions, the company's ability to continue closing on properties in the pipeline, as well as the company's anticipated ability to commercialize and efficiently and profitably operate these properties. These statements are based on current expectations and beliefs concerning future developments and their potential effects on the company, and there can be no assurances that these future developments, will be those that have been anticipated, forward-looking statements are subject to a number of risks and uncertainty, some of which are beyond the company's control or other assumptions that may cause results of performance to be materially different from those expressed or implied in these statements, including those set forth under the captioned risk factors in our public filings with the SEC, including an item 1A of our annual report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on April 15, 2024.

Devin: Good looking statements May include for example statements with respect to the success of the Companys collaboration with Wyndham hotels and resorts.

Devin: The opening I suspect clothing of noted nice transaction the company's ability to continue closing one property in the pipeline as well as the company's anticipated ability to commercialize and efficiently and profitably operate these properties.

Devin: Statements are based on current expectations and beliefs concerning future developments and their potential effects on the company and there can be no assurances that these future developments.

Devin: Will be those that had been anticipated.

Devin: Forward looking statements are subject to a number of risks and uncertainty some of which are beyond the company's control or other assumptions that may cause results and performance to be materially different from those expressed or implied in these statements, including those set forth under the caption risk factors in our public filings with the SEC, including in item one a of our annual report on form 10.

Devin: For the year ended December 31, 2023, which was filed with the SEC on April 15, 2024, and any updates to those factors.

Devin Sullivan: And any updates to those factors, as set forth in subsequent quarterly reports on Form 10-Q or other public files. Forward-looking information and forward-looking statements are made as of today's date, and the company does not undertake any, Update to any forward-looking information or forward-looking statements that are contained or referenced herein except in accordance with applicable securities law. Management. We'll also be discussing non-GAAP financial measures. A 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'll now turn the call over to Brian Ferdinand. Brian, please go ahead.

Devin: As set forth in subsequent quarterly reports on Form 10-Q.

Devin: Our other public filings.

Devin: Forward looking information and forward looking statements are made up of today's date and the company does not undertake any.

Devin: Okay.

Any forward looking information and are forward looking statements that are contained a reference herein, except in accordance with applicable securities law.

Devin: Management will also be discussing non-GAAP financial measures a reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in the company's press release.

Devin: With that said I'll now turn the call over to Brian for Adnan Brian. Please go ahead.

Brian Ferdinand: Thank you, Devin. Good morning. And thank you for joining us today. In 2022, we identified what we believe is a historic opportunity to acquire long-term operating rights to hotels and favorable economic conditions. At that time, many of these properties were struggling in a post-pandemic travel environment. Today, rising interest rates and looming debt maturities are creating a new class of hotel owners who are facing a refinancing environment that is considerably less favorable than in recent years, with assets in this category having declined significantly. This presents owners and lenders with limited options.

Thank you Kevin Good morning, and thank you for joining us today in 2022, we identified what we believe is a historic opportunity to acquire long term operating rights that would tell us its favorable economics that time. Many of these properties were struggling in a post pandemic travel environment.

Devin: Rising interest rates and looming debt maturities are creating a new class of hotel owners, we're facing a refinancing environment that is considerably less favorable than in recent years with assets in this category having declined significantly this presents owners and lenders with limited options Luxor and provides a much needed solution to lease.

Brian Ferdinand: Luxurban provides a much needed solution to lease these hotels on a long-term basis, which has created a significant pipeline of hotels available for lease, which Luxurban intends to capture. For the better part of two years, we leveraged our first mover status to address this opportunity by playing a critical role in the current commercial real estate ecosystem as a potential long-term lease partner to these owners. We've expanded our portfolio of hotel properties, curated a robust pipeline of opportunities in new and existing markets, and signed a collaboration agreement with Wyndham that provides financial, brand, and operating support to advance our growth objectives. Wyndham remains committed and supportive of our business and the opportunity in front of us. In less than two short years, Luxurban has grown into an industry-recognized MLA provider, generating more than $113 million annually and generating well over $20 million in EBITDA with limited capital and resources to date.

Devin: These hotels on a long term basis, which has created a significant pipeline of hotels available for lease which locks urban intents to catch up.

Devin: For the better part of two years, we leveraged our first mover status to address this opportunity by playing a critical role in the current commercial real estate ecosystem as a potential long term lease partner to these owners, we've expanded our portfolio of hotel properties generated a robust pipeline of opportunities in new and existing.

Devin: <unk> markets and signed a collaboration agreement with Wyndham to provide financial brand and operating support to advance our growth objectives, who remains committed and supportive of our business and the opportunity in front of us and less than two short years locks urban has grown into an industry recognized and the MLA provider generating more than 100.

Devin: $13 million annually and generating well over $20 million EBITDA with limited capital and resources to date, we believe the company's business model has redefined part of the hotel landscape and with a refined approach will reach its full potential in the coming years.

Brian Ferdinand: We believe the company's business model has redefined part of the hotel landscape and, with a refined approach, will reach its full potential in the coming years. We have also begun to mature as an organization, which is required for the next phase of our business, which will be focused on customer engagement and professional hotel operations that are up to industry standards. We have certainly faced several challenges and have acted with a sense of focus and urgency to address them.

Devin: We have also begun to mature as an organization, which is required for the next phase of our business, which will be focused on customer engagement and professional hotel operations that are up to industry standards.

Devin: We have certainly faced several challenges and have acted with a sense of focus and urgency to address them.

Brian Ferdinand: As you'll see in our 2023 results, we have confronted various legacy issues and taken steps to mitigate the effects of potential future headwinds. We have recently fortified our executive team and board with the additions of industry veterans such as Elon Bluttinger and Kim Schaefer to the board of directors and Robert Arrigo as chief operating officer. You can expect to see more of these types of appointments in the coming months as we continue to shape the organization to fully capture the opportunity in front of us while acting with a sense of responsibility as we move forward. Our pipeline of opportunities remains incredibly strong.

Devin: As you'll see in our 2020 through results, we have confronted various legacy issues and taken steps to mitigate the effects of potential future headwinds.

Devin: We have recently fortified our executive team and board with the additions of industry veterans, such as Elon Gluttons here and Kim Schaefer to the board of directors and Robert Rigo as Chief Operating Officer, you can expect to see more of these types of appointments in the coming months as we continue to shape the organization fully captured.

Devin: The opportunity in front of us, while acting with a sense of responsibility as we move forward.

Devin: Pipeline of opportunities remains incredibly strong 2024 will be a period of measured but still significant expansion with a focus on acquiring the long term operating rights to higher end hotel properties once our commitment to improving our working capital receivables and cash flow profile are realized.

Brian Ferdinand: 2024 will be a period of measured but still significant expansion with a focus on acquiring the long-term operating rights to higher-end hotel properties once our commitment to improving our working capital, receivables, and cash flow profile is realized in the coming quarter. We will continue to focus on adding depth to our core New York City market and selectively expanding our presence in Miami, New Orleans, and Los Angeles while exploring new market opportunities in destination cities across the U.S. We acknowledge that our shareholders want to own a company they can look to for growth, predictability, and profitability. I agree.

In the coming quarter, we will continue to focus on adding depth to our core New York City market and selectively expanding our presence in Miami, New Orleans, and Los Angeles, while exploring new market opportunities in destiny destination cities across the U S.

Devin: We acknowledge that our shareholders want to own a company they can look to for growth predictability and profitability.

Devin: Great.

Speaker Change: As locks urban's largest shareholder I can assure you that I am committed to ensuring the company operates in a way that maximizes the financial benefits of our growth and executing a strategy that allows us to reach our full potential my commitment is unwavering to help bring in the right executive team directors and capital partners to optimize and properly scaled the business.

Speaker Change: Moving on from legacy relationships as the business evolves.

Speaker Change: Before I turn the call over to Julie I want to make it clear we are focused on rebuilding trust with their shareholder base partners and being accountable for our missteps along the way there are no excuses to make and the only solution is to set the company on a better path with the initiatives outlined to capture the full opportunity in front of us with a refined.

Brian Ferdinand: As Luxurban's largest shareholder, I can assure you that I'm committed to ensuring the company operates in a way that maximizes the financial benefits of our growth and executes a strategy that allows us to reach our full potential. My commitment is unwavering to help bring in the right executive team, directors, and capital partners to optimize and properly scale the business, moving on from legacy relationships as the business evolves. Before I turn the call over to Shanoop, I want to make it clear we are focused on rebuilding trust with their shareholder-based partners and being accountable for our missteps along the way.

Julie: Broach in seasoned industry veterans, joining the team the opportunity for Luxor, but is more exciting than we could ever have foreseen. When we started the business with that I'll turn it over tissue part. Thank you.

Julie: Thanks, Brian and thank you for joining us today.

Julie: We filed our 10-K and issued our press release on April 15, both documents contain significant details on our operating results with that in mind I'll focus my remarks on select highlights and key items.

Speaker Change: As a reminder, our results for the year reflected a onetime negative impact from the Onboarding of the company's hotels to the Wyndham platform.

Brian Ferdinand: There are no excuses to make, and the only solution is to set the company on a better path with the initiatives outlined to capture the full opportunity in front of us. With a refined approach and seasoned industry veterans joining the team, the opportunity for Luxurban is more exciting than we could ever have foreseen when we started the business. With that, I'll turn it over to Shanoop Kothari. Thank you. Thanks, Brian, and thank you for joining us today.

Speaker Change: During the fourth quarter of 2023 during the period, the marketing and sale of our properties were taken off our prior otas and transition to the Wyndham booking platform and reservation platforms during which time the rooms were not available for rent.

Speaker Change: All of the initial properties are now fully on boarded to the Wyndham platform. This was a one time occurrence and not expected to be repeated in 2024.

Speaker Change: This transition impacted revenues by approximately $5 million and EBITDA by approximately $4 5 million.

Speaker Change: Now to our 2023 results.

Speaker Change: Net rental revenue rose, 159% to $113 4 million from $43 8 million driven by an increase in average units available to rent from 249.

Shanoop Kothari: We filed our 10-K and issued our press release on April 15th. Both documents contain significant details about our operating results. With that in mind, I'll focus my remarks on select highlights and key items. As a reminder, our results for the year reflected a one-time negative impact from the onboarding of the company's hotels to the Wyndham platform during the fourth quarter of 2023. During this period, the marketing and sale of our properties were taken off our prior OTAs and transitioned to the window booking platform and reservation platforms, during which time the rooms were not available. All of the initial properties are now fully onboarded to the Wyndham platform. This was a one-time occurrence.

Speaker Change: Two.

Speaker Change: Two 249 from 487 as well as an improvement in total revpar.

Speaker Change: We welcomed approximately 150000 guests in 2023 up from approximately 80000 in 2022 total Revpar for 2023 was 249 and would have been within our previously guided range if adjusted for the Wyndham transition.

Speaker Change: For some added perspective.

Speaker Change: Our property level breakeven for 2023 was 160 to $180 per night.

Gross profit was $8 9 million or seven 9% of net rental revenue compared to $12 4 million or 28% of net rental revenue, reflecting the increase in average units available to rent.

And better T revpar per unit offset by $3 million in costs related to previously announced surrendered leases at.

Speaker Change: At four underperforming hotels.

Speaker Change: Other expenses of $66 5 million reflected $24 2 million in wages $11 2 million in commissions seven point.

Shanoop Kothari: I'm not expected to be repeated in 2024. Transition impacted revenues by approximately $5 million and EBITDA by approximately $4.5 million. Now to our 2023. Net rental revenue rose 159% to $113.4 million from $43.8 million.

Speaker Change: Zero million in processing fees 13.0 million in operating expenses, such as Wi Fi cleaning repairs maintenance with the balance in taxes and other costs.

Speaker Change: Based on a change in our approach to the accounting of certain matters, we had approximately $1 million impact to revenues $2 million impact commissions.

Speaker Change: And $2 million impact of repairs and maintenance.

Shanoop Kothari: Driven by an increase in average units available to rent from $1,249 to $1,249 from $487, as well as an improvement in total revenue. We welcomed approximately 150,000 guests in 2023, up from approximately 80,000 in 2020.

Speaker Change: And other operating expenses in 2023 for a total impact to EBITDA of $5 million.

Speaker Change: We will see that benefit in 2024.

Speaker Change: General and administrative expense was $15 6 million compared to $6 8 million.

Speaker Change: <unk> higher payroll.

Speaker Change: Supplies legal accounting and software costs as a percentage of net rental revenues G&A was just under 14%, excluding new accounting for the cruel financial risk or seasonal in late 2023, and the additional cost of our audit G&A as a percent of revenue would have been 13% slightly above our guidance of 10% to 12%.

Shanoop Kothari: Total rev bar for 2023 was 249 and would have been within our previously guided range if adjusted for the Wyndham Transition. For some added perspective, our property level breakeven for 2023 was $160 to $180 per night. Gross profit was $8.9 million, or 7.9% of net rental revenue, compared to $12.4 million, or 28% of net rental revenue, reflecting the increase in average units available to rent and better TREVPAR per unit, offset by $3 million in costs related to previously announced surrender of leases at four underperforming. Other expenses of $66.5 million reflected $24.2 million in wages and $11.2 million in commission. 7.

Speaker Change: For 2024, we're targeting a G&A margin in the range of 11% to 13%.

Speaker Change: Beyond G&A our results for 2023 included quite a bit of noise.

Speaker Change: We incurred $61 million of noncash charges and nearly $25 million of cash charges of this total the majority will not recur in 2024. So we expect to be positioned to present cleaner for lack of better term quarterly results that are not masked by various costs and charges, let's address these cash and noncash items.

Speaker Change: One at a time.

Speaker Change: Of the $61 million of noncash charges, we incurred $8, two and noncash rent amortization, which will continue in 2024.

Speaker Change: It is a noncash item related to lease accounting under ASC 840 to $11 6 million related to common stock issued issuance stock compensation and stock option expenses as compared to $2 $5 million of such expenses in 2022, we expect a significant reduction in these expenses in 2024.

Speaker Change: 41 <unk>.

$2 million and noncash financing charges compared to two point million noncash financial charges in 2023 included $28 2 million in noncash.

Speaker Change: Nonrecurring costs related to the May 2023 revenue share exchange agreement between the company its pre IPO investors that eliminated an estimated $87 $5 million in future revenue share payments in exchange for one time issuance of $6 million 740000 shares of the company stock.

Shanoop Kothari: $13.0 million in operating expenses such as Wi-Fi cleaning, repairs, and maintenance, with the balance in taxes and other. Based on a change in our approach to the accounting of certain matters, we had approximately $1 million impact on revenue. $2 Million Impact Commission, and $2 million impact on repairs and maintenance, and other operating expenses in 2023 for a total impact to EBITDA 5.0. We will see that benefit in 2020. General and administrative expenses were $15.6 million compared to $6.8 million. Reflecting Higher Peril.

Speaker Change: Subject to an extended lockup agreement these costs will not recur in 2024.

Speaker Change: In addition, $12 5 million in noncash warrant related expenses, although we record noncash foreign expenses.

Speaker Change: Although we will record noncash foreign expenses in Q1 2024 in the range of five five to $6 $5 million, we do not expect any other charges of this nature beyond the first quarter.

The cash charges, we incurred consisted of $12 $2 million related to the exit of our legacy apartment rental business. These costs will not occur in 2020 434 million related to the surrender of deposits on leases for properties.

Shanoop Kothari: Supplies, Legal, and Accounting, and Software Costs. As a percentage of net rental revenues, G&A was just under 14%. Excluding new accounting for the Cruel Financial Risk, or CICL, in late 2023 and the additional cost of our audit, G&A as a percent of revenue would have been 13%, slightly above our guidance of 10 to 12%. For 2024, we're targeting a GNA margin in the range of 11 to 13 percent. Beyond GNA, our results of 2023 included quite a bit. We incurred $61 million of non-cash charges and nearly $25 million of cash.

Speaker Change: That we're creating a consistent drag in our operating results due to poor performance, we're comfortable with the remaining leases in our portfolio be expensing of $8 2 million of property taxes, we owe as part of leases that historically, we record as prepaid until their respective due dates for the taxes, if we peel away the charges and costs incurred from 2023 EBITDA.

Speaker Change: Increased to $25 3 million from $14 3 million and pro forma the impact of the Wyndham transition adjusted EBITDA increased to $29 8 million from $14 3 million on a percentage basis, EBITDA and adjusted EBITDA margins were 22% and 26% respectively in line with our guidance of $20 to 25%.

Speaker Change: This does not reflect the inherent profit potential of the business. Our current business is not optimized. So over time, we believe we can drive up these margins while at the same time investing more of our properties for maintenance and updates moving to the balance sheet at December 31, 2023, cash and cash equivalents.

Speaker Change: Were approximately 800000 compared to $1 1 million total debt declined to approximately $4 3 million from total debt of 14.0 million accounts payable and accrued expenses increased to approximately $24 4 million from $6 3 million. The December 31, 2023 accounts payable and accrued against.

Shanoop Kothari: Of this total, the majority will not recur in 2024, so we expect to be in a position to present cleaner, for lack of a better term, quarterly results that are not masked by various costs and charges. Let's address these cash and non-cash items, one at a time. Of the 61 million in non-cash charges we incurred, 8.2 in non-cash rent amortization, which will continue in 2024, but is a non-cash item related to lease accounting under ASC 840.

Speaker Change: <unk> included approximately seven 2 million in accounts payable $8 9 million in accrued expense inclusive of the amounts to surrendered units and $8 4 million in legal exposure the amounts in accrued expenses and legal exposure are very conservative and we believe will ultimately come in and Mt.

Speaker Change: Two significantly lower to what has been recorded the.

Shanoop Kothari: 11.6 million related to common stock issuance, stock compensation, and stock option expenses as compared to $2.5 million of such expenses in 2020. We expect a significant reduction in these expenses in 2020. $41.2 million in non-cash financing charges compared to $2.0. Non-cash financing charges in 2023 included $28.2 million in non-cash. Non-recurring costs related to the May 2023 revenue share exchange agreement between the company and its pre-IPO investors that eliminated an estimated $87.5 million in future revenue share payments in exchange for a one-time issuance of 6,740,000 shares of the company's stock, subject to an extended lockup agreement. These costs will not recur in 2020.

Speaker Change: The company expects that cash on hand cash flow from operations and cash flow from potential capital markets transactions as public company will be sufficient to fund operations. During the next 12 months and beyond.

We believe there are opportunities for us to raise capital in a strategic and efficient manner. Our strategy is focused on acquiring the long term operations operating rights of hotel properties at a fraction of their asset value as Brian pointed out the opportunity is substantial and contingent.

Speaker Change: Our ability to secure the necessary capital <unk>.

Speaker Change: <unk> insider ownership is about 40% led by Brian who is the largest shareholder we will be smart about any potential financings and any such activity will be taken with the best long term interest of our shareholders in mind as we have stated previously we continue to make efforts to improve free cash flow liquidity and working capital and look to improve these metrics over the coming quarters.

Let's talk about what we're working on for 2024, and our expectations to assist in our growth for 2024, we entered into a master Master collateral Trust agreement that provides up to an aggregate of $10 million of surety bonds that can be used to fund for deposit requirements under long term leases the provider of the Brian is currently rated <unk>.

Shanoop Kothari: In addition, $12.5 million in non-cash warrant-related expenses. Although we record non-cash warrant expenses, we will record non-cash warrant expenses in Q1 2024 in the range of 5.5 to 6.5 million. We do not expect any other charges of this nature beyond.

Speaker Change: <unk> plus by a M best superior the bonds have a 70% collateral requirement for example, a $1 million bond would require us to post collateral position of 700000.

Speaker Change: The cost of this facility.

Speaker Change: Facility is two 5% annually.

Speaker Change: Scale derived efficiencies are also a high priority for 2024 and a primary reason we brought on robbery grow.

Shanoop Kothari: The cash charges we incurred consisted of $12.2 million related to the exit of our Legacy Apartment rental. These costs will not occur in 2020. $3.4 million related to the surrender of deposits on leases at four properties because we're creating a consistent drag in our operating results due to poor performance. We're comfortable with the remaining leases in our, and Expensing $8.2 million of property taxes we owe as part of leases that we historically record as prepaid until the respective due dates for the taxes.

Speaker Change: Robert is a highly accomplished hands-on seasonal hotel executive with 35 years experience and a track record of enhancing property level operations optimizing supply chain relationships elevating customer experience and realizing ancillary revenue opportunities ancillary revenue was not a material contributor of our results in 2023. However, the course of 2024.

Speaker Change: We believe we can add up to 5% top line revenues and drive 3% to 5% margin in pursuing these new revenue streams, Rob is well underway and the implementation of these initiatives.

Speaker Change: We also believe we can realize.

Further benefits for our wonderful relationships with.

Speaker Change: With the integration of hotel properties to the Wyndham platform completed in Q4 2023, we're seeing an increased percentage of Wyndham direct sales, which are expected to reduce our dependency on comparatively lower margin third party otas, although the top 10 sales channels represented more than 90% of revenue in 2023 sales through the Wyndham franchise.

Shanoop Kothari: Peel away the charges and costs incurred in 2023, and EBITDA increased to $25,000. On a percentage basis, EBITDA and adjusted EBITDA margins were 22 and 26 percent, respectively, in line with our guidance of 20 to 25 percent.

Speaker Change: Platform generated approximately 22% of our revenues in Q4 2023 over time, we expect direct bookings across the Wyndham side to account for a greater percentage of revenue, which could exceed 50% by the end of 2024 regarding guidance for 2024.

Shanoop Kothari: This does not reflect the inherent profit potential. Current business is not optimized, so over time, we believe we can drive up these margins while at the same time investing more in our properties for maintenance and upkeep. Moving to the balance sheet at December 31st, 2020, cash and cash equivalents were approximately $800,000 compared to $1.1 million. Total debt declined to approximately $4.3 million from total debt of $14.0 million.

For the first quarter ended March 31, 2024, net rental revenue is expected to be in the range of 27% to $30 million, reflecting the seasonal aspect of the company's business.

Speaker Change: For the full year.

We are reiterating our commitment to the following prior to priorities.

Speaker Change: Increase our portfolio.

Speaker Change: Hotels under long term master lease with a focus on on higher quality three five to $4 five star properties generate increased net rental revenue and T. Revpar compared to 2024, driven partially by an increase in ancillary revenue and co branding opportunities.

Speaker Change: Our working capital profile receivables cash flow profile by adopting slower pace of acquisitions, and creating increasing total revpar focus on higher end higher end properties and realizing the benefits of the above referenced surrender certain underperforming leases.

Shanoop Kothari: Accounts payable and accrued expenses increased to approximately $24.4 million, from 6.3. The December 31st, 2023 accounts payable in accrued expenses balance included approximately $7.2 million in accounts payable, $8.9 million in accrued expenses, inclusive of the amounts to surrendered units and $8.4 million in legal exposure. The amounts in accrued expenses and legal exposure are very conservative and, we believe, will ultimately come in at amounts lower, significantly lower to what has been required.

Speaker Change: I believe we have a very good business, our business is roughly $27 million to $30 million a quarter revenues with about $2 million of free cash flow.

Speaker Change: Four 6 million quarterly when prop when properly capitalized.

Speaker Change: We expect to clarify our outlook further outlook for 2024 later this year.

Speaker Change: The actions we took in 2023, while painful for necessary, we still have work to do however, we believe we have derisked many aspects of the business and have entered 2024 with a more stable predictable and sustainable operating model for our shareholders we understand.

Speaker Change: That the proof will be in our results, we will hold ourselves accountable to that.

Shanoop Kothari: The company expects that cash on hand, cash flow from operations, and cash flow from potential capital markets transactions as a public company will be sufficient to fund operations during the next 12 months and beyond. We believe there are opportunities for us to raise capital in a strategic and efficient manner. Our strategy is focused on acquiring the long-term operating rights of hotel properties at a fraction of their asset value. As Brian pointed out, the opportunity is substantial and contingent on our ability to secure the necessary capital. Luxurban's insider ownership is about 40%, led by Brian, who is the largest shareholder.

Speaker Change: To that point, we did accomplish the following in 2023, we grew units from less than 500 to over 1500, we almost tripled revenue we eliminated our senior debt, we eliminated Rev share agreement partnered and integrated with Wyndham.

Speaker Change: Thanks again for your time and I'll turn the call over to the operator for questions from our analysts.

Speaker Change: Thank you we will now begin the question and answer session. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad Teresa ahead, and trying to queue. If you would like to withdraw your question. Please press star. One again, if you are called upon to answer question and are listening via loud speaker on your device.

Speaker Change: Please pickup your handset and ensure that you're following as Norton yet when asking your questions again press star one to join the queue. Your first question comes from the line of Allen Klee with Maxim Group.

Allen Robert Klee: Please go ahead your line is open.

Shanoop Kothari: We will be smart about any potential financings, and any such activity will be taken with the best long-term interests of our shareholders in mind. As we have stated previously, we continue to make efforts to improve free cash flow, liquidity, and working capital, and look to improve these metrics over the coming quarter. Let's talk about what we're working on for 2024 and our expectations. We entered into a Master Collateral Trust Agreement that provides up to an aggregate of $10 million of surety bonds that can be used to fund deposit requirements under long-term loans.

Allen Robert Klee: Yes, good morning.

Allen Robert Klee: Do you think what based on what you think today are there any other properties that you that you have units in that you might be considering divesting.

Allen Robert Klee: Okay.

Allen Robert Klee: No I think I think we've got the right portfolio.

Allen Robert Klee: Some of the units that we walked away from were legacy issues were landlord actually didn't perform what they did on their side.

Allen Robert Klee: And also that impacted our results to it so I think at this stage where we're at.

Allen Robert Klee: We're very comfortable with portfolio, we've actually seen an increase in operating metrics such as overall portfolio occupancy and revpar as.

Allen Robert Klee: As a result, right you take the solar performing units out.

Allen Robert Klee: We see that impact immediately but but at this point I think we're standing Pat with what we've got before we're looking forward.

Allen Robert Klee: Okay.

Speaker Change: Thank you and then in terms of.

Speaker Change: Signing up new hotel rooms.

Speaker Change: Can you talk about.

Speaker Change: Any issues with the unions and if you view them as temporary delays in costs that could be associated with that.

Shanoop Kothari: The provider of the bond is currently rated A-plus by AMBAS Superior. The bonds have a 70% collateral requirement. For example, a $1 million bond would require us to post a collateral position of $700,000. The cost of this facility is 2.5% annual. Scale-derived efficiencies are also a high priority for 2024 and a primary reason we brought on robbery. Robert is a highly accomplished, hands-on, seasonal hotel executive with 35 years of experience and a track record of enhancing property-level operations, optimizing supply chain relationships, elevating customer experience, and realizing ancillary revenue operations. However, ancillary revenue was not a material contributor to our results in 2023.

Speaker Change: Sure.

Speaker Change: Brian I'll take that so.

Brian: Historically, when we were scaling the portfolio.

Brian: From a capital requirement as people familiar with the business are aware, we have our security deposit refundable letter of credit.

Brian: We've implemented in combination with Wyndham key money.

Brian: On the historic and go forward transactions as well as this Berkeley bond, which could help offset additional capital it was in or around 14 or 15000, a cake on average in New York City, which is where our focus.

Brian: It happens with the unions is we scaled the portfolio quite rapidly.

Brian: As everyone's aware company has grown very quickly.

Brian: With limited capital and limited resources.

Brian: So we're employing hundreds of employees across the union.

And as we scale and go forward the Union requires three months of payroll bond, which is the.

Brian: Impediment to currently which was not a requirement prior to March of 'twenty four so they've implemented that.

Shanoop Kothari: However, over the course of 2024, we believe we can add up to 5% top line revenues and drive 3% to 5% margin improvement pursuing these new revenue streams. R.O.B. is well underway in the implementation of these initiatives. We also believe we can realize. Further benefits from our Windrum Relations. With the integration of hotel properties into the Wyndham platform completed in Q4 2023, we're seeing an increased percentage of Wyndham direct sales, which is expected to reduce our dependency on comparatively lower margin third party OTAs.

And a way to look at it is around another call. It 5000 per key.

Brian: In upfront deposits, it's not as spending a P&L item, it's a deposit.

Brian: Bond and were working with Allstate and a couple of other insurance companies to satisfy those.

Brian: And it's part of our capital structure or capital outlay on a go forward basis, so cost per key in New York.

Brian: Indian Hotel went from about 14000 to 20000.

Brian: And upfront deposit money.

Brian: So thats, an additional capital requirement across the existing portfolio that we've satisfied impart from cash flow and cash that we have on hand in the first quarter and will be a requirement going forward as we scale still poor.

Shanoop Kothari: Although the top 10 sales channels represented more than 90% of revenue in 2023, sales through the Wyndham franchise platform generated approximately 22% of our revenues in Q4 2023. Over time, we expect direct bookings across the Wyndham site to account for a greater percentage of revenue, which could exceed 50% by the end of 2020, as guidance for 2024.

Brian: Hinting out even at 2000 21000 per key.

Brian: When you look at top line revenue, we're generating per key in New York City around 100000 at 24% EBITDA margins.

Brian: Still really.

Brian: High quality investment in return on capital.

Brian: But a little bit higher capital requirement as we go forward.

Brian: What has happened.

Brian: Around that and that that kind of came to fruition in March.

Brian: As we moved into scaling some of the larger and higher quality properties that we're looking to bring on.

Brian: Okay.

Speaker Change: Thank you.

Speaker Change: And then just on working capital could you go in just a little bit more on how how youre thinking about that.

Shanoop Kothari: For the first quarter ended March 31st, 2024, net rental revenue is expected to be in the range of $27 to $30 million, reflecting the seasonal aspect of the company's, For the full year, we are reiterating our commitment to the following priorities. Increase our portfolio, of hotels under long term master lease with a focus on on higher quality 3.5 to 4.5 star properties, generate increased net rental revenue, and T. Brev Park compared to 2024, driven partially by an increase in ancillary revenue and co-branding, Improve our working capital profile, receivables, cash flow profile by adopting slower pace of acquisitions, increasing total REP bar, focus on higher-end properties, and realizing the benefits of the above-referenced surrender of certain underperforming properties.

Speaker Change: Receivables and payables.

Speaker Change: Payables.

Of when when do you think this could turn positive.

Speaker Change: Okay.

Speaker Change: Yes sure.

Speaker Change: So so.

Speaker Change: Yes.

Speaker Change: As I mentioned in my remarks.

Speaker Change: Management owns 40 plus percent of the business, we're thinking through.

Speaker Change: What's the right capital cap.

Speaker Change: Capital capital structure for the business.

Speaker Change: I would I would say that that sometime in Q2, we're thinking about.

Speaker Change: Turning some of that.

Speaker Change: As I mentioned.

Speaker Change: The payables R R.

Speaker Change: Max accrued in some in some fashion right. So max exposure associated to it so there'll be some reduction there.

Speaker Change: Theres also collection efforts with regard to the city of New York as well. So so I think over the next few months, we will see improvements to that it might Mike Mike bleed into part of Q3.

Speaker Change: But we're actively looking at that that's obviously a factor we need to resolve before we can start methodically growing.

Shanoop Kothari: I believe we have a very good business. Our business is roughly $27 to $30 million in revenue per quarter with about $2 million in free cash flow, or $6 million quarterly when properly capitalized. We expect to clarify our further outlook for 2024 later this year. The actions we took in 2023, while painful, were necessary.

Speaker Change: As well, but.

Speaker Change: <unk>.

Speaker Change: As large shareholders, we're looking at what's the best interest of all shareholders, including ourselves.

Speaker Change: Thank you my last question is.

Speaker Change: And I don't know if you can answer this but when do you expect to turn.

Speaker Change: Operating cash flow positive, which quarter in 'twenty four.

Speaker Change: I would say sometime in the second half of 2024.

Speaker Change: Okay, great. Thank you so much.

And our next question comes from the line of Matthew <unk> with Jones trading. Please go ahead.

Matthew: Hey, good morning, guys. Thanks for taking the question so from an operational standpoint, where should we expect expenses to go.

Shanoop Kothari: We still have work to do, but we believe we have de-risked many aspects of the business and have entered 2024 with a more stable, predictable, and sustainable operating model. For our shareholders, we understand that the proof will be in our results. We'll hold ourselves accountable for that. To that point, we did accomplish the following in 2023. We grew our units from less than 500 to over 1,400. We almost tripled revenue. We eliminated our senior debt. We eliminated the rev-share agreement, partnered, and integrated with Windows.

Matthew: Of the total head count was reduced with the removal of those other properties and then just in New York City do you think you have enough support operationally at the moment.

Speaker Change: Yes, so head count.

Speaker Change: It was only reduced at the property level.

Speaker Change: So if you think about it.

Speaker Change: I always I always said comment as you spend an inordinate amount of time on your lease performing assets.

Speaker Change: What this allows us to do is really focus in on our better performing assets.

As I mentioned in my comments, Rob sit the ground running he's got a number of initiatives in play.

Speaker Change: Our revenue is a big focus.

Speaker Change: So the impact to the overall business has been actually very positive right and sort of trying to figure out.

Shanoop Kothari: Thanks again for your time, and I'll turn the call over to the operator for questions from our analysts. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1. If you are called upon to ask a question and are listening via the loudspeaker on your device, pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: How to maximize assets that were underperforming, we've just sort of rip the band aid off.

Speaker Change: And then generally speaking.

Speaker Change: Like anything else in life underperforming assets create ancillary issues for whatever reason theres more employee matters theres more slip and fall issues with gas.

Speaker Change: Occur so we've really seen an impact associated to it.

Speaker Change: And look we've been talking about it internally for quite some time when we took the advantage of kind of kind of a <unk>.

Speaker Change: Call it up.

Speaker Change: Better time than ever to go ahead, and just make that decision and exit the properties.

Speaker Change: Yes, definitely and then going back to expenses you touched on the legal expenses could you expand on that a little bit.

Operator: Again, press star 1 to join the queue. Your first question comes from the line Allen Klee with Maxim. Please go ahead; your line is open. Yes, good morning. Do you think, based on what you think today, are there any other properties that you have units in that you might be considering divesting? No, I think I think we've got the right portfolio. You know, some of the units that we walked away from were legacy issues where, you know, the landlord actually didn't perform what they did on their side.

Speaker Change: Or do you think youre going to see some of those savings from that $8, Florida to the lower number and then also.

Speaker Change: Could you talk about the cost of insurance and utilities that you guys are saying.

Speaker Change: We have the properties.

Speaker Change: Yes, so so with regard to legal.

The legal and just accrued liabilities in our approach to how we did the annual audit was to really go on the higher end typically in these sort of processes. What you do is you sort of look at potential exposure. It's a range and then you use sort of a best guess approach to it.

Speaker Change: And we've actually been very successful in accruing for amounts that are ultimately where things end up right. You don't actually have an invoice you can't really well.

Shanoop Kothari: You know, and that also impacted our results. So I think at this stage where we're at, we're very comfortable with the portfolio, and we've actually seen an increase in operating metrics, such as, you know, overall portfolio occupancy and rev bar. As a result, right, you take the solar performing units out, and we see that impact immediately. But But at this point, you know, I think we're standing pat with what we've got before we look. Thank you.

Speaker Change: Whether it's an accrued liability or legal exposure you don't have an invoice you have to guess on server, where do you think the number is going to kind of end up in this approach.

Speaker Change: Again under the cover of sort of what we've been through we took the we took the attitude of being sort of the high end, so I fully expect that it.

Speaker Change: It will come in.

Speaker Change: Some somewhere less than that.

Speaker Change: And really significantly less.

Speaker Change: It's going to take time for that to occur right. So it has to get reversed.

Shanoop Kothari: And in terms of signing up new hotel rooms, can you talk about any issues with the unions and whether you view them as temporary delays and costs that could be associated with that? Sure, this Brian. I'll take that.

Speaker Change: The balance sheet to the P&L, but it's probably a few quarters associated to that.

Speaker Change: With regard to other expenses.

Speaker Change: I would say that.

Speaker Change: It's a few percentage points for both utilities and legal I'm sorry in insurance.

Brian Ferdinand: So, um, historically, when we were scaling the portfolio, from capital requirements, as you know, people familiar with the business are aware, we have our security deposit, a refundable letter of credit, we've implemented, in combination with Wyndham KeyMoney, on the historic and go forward transactions, as well as this Berkeley bond, which could help offset additional capital, it was in or around 14 or 15,000 keys, on average, in New York City, You know, as everyone's aware, the company has grown very quickly, you know, with limited capital and limited resources. So we're employing hundreds of employees across the union.

Speaker Change: Insurance wise, we're probably going to ratchet up insurance.

Speaker Change: As we as we're getting the benefit of looking at things and scale. We're also getting more comprehensive insurance.

Speaker Change: So we're taking advantage of it so we're in the process of kind of re bidding our entire portfolio on a comprehensive insurance policy.

Speaker Change: As opposed to individual assets.

Speaker Change: Little bit more expensive a lot more coverage.

Speaker Change: So both.

Speaker Change: With insurance I think we're going to we're going to expand that probably going to go up slightly.

Speaker Change: Utilities sort of normal course, a few percentage points.

Speaker Change: Got you that's helpful. And then one last quick one for me.

Speaker Change: You said strong port for a strong pipeline.

Speaker Change: What's the average number of keys that you guys are looking at to take on with these new hotels.

Speaker Change: Okay.

Speaker Change: Sure so.

Speaker Change: No.

Speaker Change: There is a couple.

Speaker Change: Over 300, and then minimum size is around 170.

Speaker Change: Gotcha. Thank you, yes, and Matt one of the things too as well with regard to the.

Brian Ferdinand: And as we scale and go forward, the union requires three months of payroll bond, which is the, you know, impediment to currently, which was not a requirement prior to March 24. So they've implemented that, you know, and a way to look at it is around another, you know, called 5,000 per key in upfront deposits. It's not a spending P&L item, it's a deposit or a bond, and we're working with Allstate and a couple other insurance companies to satisfy those.

Speaker Change: The properties we surrendered.

Matt: Are also small in scale too right. So, it's a little bit difficult to manage smaller scale entities. So.

Matt: So that's also the rationale behind it as well.

Matt: And there were sub three start as well.

Matt: Okay. Yeah. That's helpful. Thank you guys.

Manny Howchunky: Your next question comes from the line of Manny how chunky with Northland Capital markets. Your line is Scott Your line is open.

Manny Howchunky: Alright, thank you.

Manny Howchunky: And thank.

Manny Howchunky: Thank you for that detailed explanation on the nonrecurring noncash and cash charges.

Brian Ferdinand: And it's part of our capital structure or capital outlay on a go forward basis. So, you know, cost per key in New York, a union hotel, went from about 14,000 to 20,000, you know, upfront deposit money.

Manny Howchunky: Based on that description.

Speaker Change: But okay. Thank.

Speaker Change: I think you called out $8 $4 million of nonrecurring property taxes.

Speaker Change: Did I hear that correctly.

Speaker Change: Yes.

Speaker Change: Okay.

Brian Ferdinand: So that's an additional capital requirement across the existing portfolio that we've satisfied in part from cash flow and cash that we had on hand in the first quarter and will be a requirement going forward as we scale. Still, you know, pointing out that even at, you know, 20, 21,000 per key, you know, when you look at the top line revenue we're generating per key in New York City, around 100,000 at 24%, even the margins are still, you know, really, you know.

Speaker Change: And so relative to my model I think that Thats, probably the explanation for about $7 million of weaker than cash from operations and what we were modeling.

Speaker Change: Why are you, saying that this property taxes would be a nonrecurring item, though yes.

Yes, so so historically what we've done is we've.

Speaker Change: We paid the taxes to prepay and then at the tax due date.

Speaker Change: Our leases are structured where they're primarily structure, where we're paying monthly or periodically prior to the tax due date.

Speaker Change: As part of the lease commitment and then on the tax due date.

Speaker Change: We flipped from prepaid to expense right. So what we've done sort of as a re look on sort of how we've done some of the accounting.

Brian Ferdinand: High Quality Investment in Return on Capital, but you know, a little bit higher capital requirement as we go forward. That's what happened in or around that. And that kind of came to fruition in March, as we moved into scaling some of the larger and higher quality properties that we're looking to bring on. Thank you.

Speaker Change: Is we decided that we're going to expense as as as paid and built right to us.

Speaker Change: It is.

Speaker Change: It's not.

Speaker Change: Not going to get that back even though we get the benefit of it in the future and so that's a one time deal. So we burdened effectively burden 2023 with much higher taxes than we normally would.

Shanoop Kothari: And then just on working capital, could you go in just a little bit more on how you're thinking about the receivables and the payables when you think this could turn positive? Yeah, sure. So, as I mentioned in my remarks, you know, we're, As I mentioned in my remarks, you know, we're management, you know, who owns 40 plus percent of the business, you know, we're thinking through What's the right capital structure for the business? I would say that sometime in Q2, we're thinking about turning some of that, as I mentioned, The payables are max accrued in some fashion, right? So, maximum exposure is associated to it.

Speaker Change: And the normal going going forward in 2024, it's going to be done.

Speaker Change: Expenses paid.

Speaker Change: Got it if I may summarize I think essentially what youre, saying is that you accelerated the.

Speaker Change: Timing of the.

Speaker Change: Recurring payment and that acceleration represents a onetime incremental expense.

Speaker Change: Correct and think about it from a standpoint of looking at the balance sheet right. If you look at the balance sheet and you go down the line item accounts and you say okay.

Speaker Change: Whats the support for this when when does it turn right. So we really looked hard at both sides I think you've seen that sort of trend.

Speaker Change: Trend in my commentary, we look really hard at the asset level side of things right as to should we should we consider not having it as an asset and on the liability side of things, let's bolster it up so that we don't have sort of.

Shanoop Kothari: So there'll be some reduction there. There are also collection efforts with regard to the City of New York as well. So I think over the next few months, we'll see improvement to that. It might bleed into part of Q3, but we're actively looking at that. That's obviously a factor we need to resolve before we can start, you know, methodically growing as well.

Speaker Change: Future ups and downs.

Speaker Change: One thing for example, as well is we also tightened our policy for capitalization of fixed assets. So we increase the level of redo that primarily to reduce the amount of fixed assets. We normally have again.

Speaker Change: Looking at the balance sheet that we want to put it on the balance sheet or just take it to the P&L. These items are not.

Speaker Change: Not recurring in nature and will provide us anecdotal benefits in 2024.

Shanoop Kothari: But, but look, you know, as large shareholders, you know, we're looking at what's in the best interest of all of all shareholders. Thank you. My last question is, and I don't know if you can answer this, but when do you expect to turn operating cash flow positive? Which quarter in 24? I would say sometime in the second half of 2020.

Speaker Change: Got it okay.

Speaker Change: And then the follow on to Alan's initial question about.

Speaker Change: And Union Labor and Brian responded Hey, we need to basically put up an incremental 6K per key in New York City for New York City rooms, So at 1100 40 rooms.

Speaker Change: I think that equates to that you had to basically put up.

Speaker Change: The dollars are incremental working capital in the month of March which was above and beyond working capital considerations that you had talked about February six investor day is that correct.

Shanoop Kothari: Okay, great. Thank you so much. And our next question comes from the line of Matthew Erdner with Jones Trading. Please go ahead. Hey, good morning, guys.

Speaker Change: Okay.

Speaker Change: That's correct.

Speaker Change: Okay great.

Shanoop Kothari: Thanks for taking the question. So from an operational standpoint, where should we expect expenses to go? You know, how much of the total headcount was reduced with the removal of those other properties? And then, you know, just in New York City, do you think you have enough support operationally at the moment?

Speaker Change: And have you had any wyndham key money receipts during the December quarter or March quarter.

Speaker Change: Yes.

Speaker Change: If you look at the balance sheet, you will see at 12 31, there was $5 million.

Speaker Change: It's under the line item development incentive advances.

Speaker Change: $5 million 667857 as of year end.

Shanoop Kothari: Yeah, so headcount was only reduced at the property level. So if you think about it, you know, you know, I always I would say the comment is that you spend an unreasonable amount of time on your least performing assets. What this allows us to do is really focus in on our better performing assets. You know, as I mentioned in my comments, Rob's hit the ground running, he's got, you know, a number of initiatives in play.

Speaker Change: Yes.

Speaker Change: Okay, and what about for the March quarter.

Speaker Change: Yes $3 million.

Speaker Change: Okay, and do you have anything more coming.

Speaker Change: Contractually committed at this point in time.

Speaker Change: No not not without a new lease on it.

Speaker Change: Okay, Great and then <unk> you talked about how.

Speaker Change: You have a $27 million and $30 million quarterly revenue run basis with the current portfolio of hotels.

Speaker Change: And that you believe that will generate $2 million of quarterly free cash flow when properly accountable capitalized is this $27 million to $30 million.

Shanoop Kothari: Answer Revenue is a big focus. So, you know, the impact on the overall business has actually been very positive, right, and sort of trying to figure out, you know, how to maximize assets that were underperforming, we just sort of ripped the bandaid off. And then, generally speaking, you know, like anything else in life, underperforming assets create, you know, ancillary issues. For example, for whatever reason, there are more employee matters, there are more, you know, slip and fall issues with guests that occur.

Speaker Change: On a seasonally adjusted basis I E. Just the March quarter or does this represent.

Speaker Change: The average quarterly revenue run rate through the four quarters of the calendar year.

Speaker Change: Q1, seasonally we should expect that to be higher in Q2, Q3, and then it's 2 million a month in that quarter.

Speaker Change: Thank you okay.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Alright.

Speaker Change: More questions. If you don't want to go.

Speaker Change: Go ahead I'll get back in line.

Speaker Change: Okay.

Speaker Change: I'm sorry. Your next question comes from the line of Tom Curran with Zacks investment Research. Please go ahead.

Shanoop Kothari: So, you know, we've really seen an impact associated with it. And, you know, look, we've been talking about it internally for quite some time; we took the advantage of kind of a, I'd call it, a better time than ever to go ahead and just make that decision. Yeah, definitely. And then, you know, going back to expenses, you touched on legal expenses. Could you expand on that a little bit?

Unknown Attendee: Good morning, guys. Most of my questions have been answered just a quick one on the charity agreements is there other opportunities for that or is it limited by your balance sheet or haven't.

Unknown Attendee: Those work.

Unknown Attendee: No. There is there is other opportunities.

Unknown Attendee: It is.

Unknown Attendee: It's it's basic.

Unknown Attendee: Form of credit right. So the description I gave was 70% rate cash collateralized, 30% credit and.

Unknown Attendee: So with regard to tools, we're looking at for future growth rate, we have obviously Wyndham kimani, we just talked about.

Shanoop Kothari: You know, and where do you think you're going to see some of those savings from that 8.4 to the lower number? And then also, could you talk about the cost of insurance and utilities that you guys are seeing throughout the properties? Yeah, so, with regard to legal, the legal department, and just accrued liabilities. Our approach to how we did the annual audit was to really go on the higher end. Typically, in these sorts of processes, what you do is you sort of look at potential exposure, it's a range, and then you use sort of a best-guess approach to it, right?

Unknown Attendee: Which now.

Unknown Attendee: And the surety bond is is.

Unknown Attendee: Another tool so Wyndham key money comes to us.

Unknown Attendee: The surety bond is sort of how we post the landlords have to be subject to landlords approval, but they like it and 10 in versus other forms because it's.

Unknown Attendee: It's.

Unknown Attendee: It has some legal protections that other forms of deposit stone.

Unknown Attendee: And then and then obviously coupled that's the positives negatives as what Brian went off with with associated with the with Union bonding and such.

Speaker Change: Okay. Thanks, and one last quick one can you comment at that James Nomad Hotel was in position in March as expected.

Shanoop Kothari: And we've actually been very successful in accruing for amounts that are ultimately where things end up, right? You don't actually have an invoice, so you can't really, whether it's an accrued liability or legal exposure, you don't have an invoice; you have to guess on the server where you think the number's going to end up. In this approach... You know, again, under the cover of sort of what we've been through, we took the attitude of being sort of the high end. So I fully expect that it will come in somewhere less than that, and really significantly less. But you know, it's going to take time for that to occur, right?

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Brian you want to go through that.

Brian: Sure. So we are we are we are.

Brian: Currently not operating but in possession.

Brian: High yield is still managing the process and we're working through the union bond issues with the Union and the owner and we do expect to take possession of that property.

Brian: As we work through the balance of the Union bond issues, which we're in deep negotiations with the Union.

Brian: Yes.

Brian: Okay, and Thats expected this quarter or can you comment on the timing of that yes.

Speaker Change: Yes, I would expect by this this quarter this quarter yes.

Speaker Change: Great Thats all I have for today. Thank you.

Okay.

Speaker Change: Your next question comes from the line of <unk> <unk> with Northland capital markets. Please.

Speaker Change: Please go ahead.

Speaker Change: Yes. Thank you.

Speaker Change: So for the 27 of the 30 30 million for remarks too.

Speaker Change: What is actually the average rooms that you have available for Mark SKU.

Speaker Change: Yeah.

Speaker Change: So.

Speaker Change: So the average rooms.

Shanoop Kothari: So you know, it has to get reversed through the balance sheet to the P&L. But it's probably a few quarters associated with other expenses. I would say that it's a few percentage points for both utilities and legal, I'm sorry, and insurance.

Speaker Change:

Speaker Change: So we exited we surrendered some of the assets in March.

Speaker Change: The average rooms is going to be.

Speaker Change: Around maybe 500.

Okay.

Speaker Change: And then what's the Revpar.

Speaker Change: Revpar that you didn't expect.

Speaker Change: At the midpoint.

Speaker Change: Let me just do that math.

Speaker Change: Yes.

Speaker Change: In the high two hundreds.

Shanoop Kothari: Insurance-wise, we're probably going to ratchet up insurance. As we're getting the benefits of looking at things in scale, we're also getting more comprehensive insurance, so we're taking advantage of it. So we're in the process of kind of rebidding our entire portfolio on a comprehensive insurance policy as opposed to individual assets, a little bit more expensive but a lot more coverage. So both with insurance, I think we're going to expand that, probably going to go up slightly. Utilities, sort of a normal course, a few percentage points. Gotcha, that's helpful. And then there was one last quick one for me.

Speaker Change: I'm, sorry, low 200, I'm, sorry, low two hundreds.

Speaker Change: Okay, Alright that makes a lot more sense.

Speaker Change: Yes.

Speaker Change: It's the seasonal side of things right. So so going back to one of our what we think is one of our strengths is our ability to sell sort of in any market and drive up occupancy and so you've got to reduce rate in January to make fill rooms right. So it's a very slow month and it picks up mid February.

Speaker Change: You sort of think the world's coming to an end until mid February and then all of a sudden people start snapping back for spring break travel.

Speaker Change: Great.

Speaker Change: Absolutely.

Speaker Change: Now if I look at the December quarter, Revpar, and I adjust for the $5 million impact of the Wyndham transition.

Shanoop Kothari: You know, you said a strong portfolio or a strong pipeline. What's the average number of keys that you guys are looking at to take on with these new hotels? Sure. So, you know, there are a couple over 300, and then the minimum size is around 170.

Speaker Change: I come out with basically.

Speaker Change: It's also a low two hundreds of revpar in the December quarter, and therefore, youre not really seeing.

Speaker Change: Anywhere close to the typical 50% Q over Q seasonal downtick that most New York City hotels are seeing I think you've kind of already answered to that but I mean, the magnitude of difference is huge but can you just further elaborate on that yes, so whitestone resilient yes.

Shanoop Kothari: Gotcha. Thank you. Yeah. And Matt, one of the things too, as well as regard, The properties we surrendered are also small in scale, right, so it's a little bit difficult to manage, you know, smaller-scale entities, so that's also the rationale behind, and there were sub-three stars as well.

Speaker Change: We pre sold a lot of that inventory.

Speaker Change: Earlier part of the year.

Speaker Change: Sort of nature of cash flow management for the business, which we've talked about also just coming out of a few years of Covid, we take that we take the opportunity when we can.

Shanoop Kothari: Okay, yeah, it's helpful. Thank you, guys. Your next question comes from the line of Nihal Chokshi with Northland Capital Markets. Your line is open, your line is.

And as we've discussed on on the Analyst day part of our strategy is cancellation revenue when you when you're in a period, where the delta between the nightly stay versus the forward.

Nehal Sushil Chokshi: All right, thank you. And Shanoop, thank you for that detailed explanation of the non-recurring non-cash and cash charges. Based on that description, it sounds like, I think you called out $8.4 million in non-recurring property taxes.

Speaker Change: Numbers are so why do you have very few cancellations people tend to show up right. If they feel like they've got a great deal on a property right. So so those items are coupled together as we look to 2024 strategy.

Shanoop Kothari: Did I hear that correctly? Yeah. Okay. So relative to my model, I think that that's probably the explanation for about $7 million less than cash from operations and what we were modeling. Why are you saying that property taxes would be a non-recurring item, though? Yeah, so historically, what we've done is we've paid the taxes in advance, and then at the tax due date, our leases are structured where, you know, they're primarily structured where we're paying monthly or, you know, periodically prior to the tax due date as part of the lease commitment.

Speaker Change: We're resetting that look the benefit of our approach to things as we try not to leave things money on the table, but if if all of a sudden.

Speaker Change: There is a huge run on on.

Speaker Change: Particular location, especially in New York, we saw in the fourth quarter, we were not able to capitalize on that.

Speaker Change: It's a risk reward standpoint, right, we sold that months and months before.

Speaker Change: Collected that revenue on many cases beforehand, as well as deferred revenue versus waiting to the night and hoping that its going to be robust. What we've seen is new York has continued to be resilient. So we're changing our approach to things as we look at 2024.

Speaker Change: Got it and then my final question is that.

Shanoop Kothari: And then on the tax due date, you know, we flip from prepaid to expense, right? So, what we've done sort of as a relook at sort of how we've done some of the accounting is we decided that, you know, we're going to expense as paid and billed, right, to us. It's not, you know; we're not going to get that back, even though, you know, we will get the benefit of it in the future.

Speaker Change: Looking ahead I believe we track percent of rooms that are being booked on say a one two and three month forward basis.

Speaker Change: How is that trending relative to year ago levels.

Speaker Change: Two year ago.

Speaker Change: I think I think we are we are booking a little bit more.

Speaker Change: Then we were a year ago.

Speaker Change: I think we're kind of in the eighties out next month.

Speaker Change: And core properties.

Shanoop Kothari: And so, that's a one-time deal. So, we burdened 2023 with much higher taxes than we normally would. And the normal going forward in 2024, it's going to be done as expenses paid. If I may summarize, I think essentially what you're saying is that you've accelerated the timing of the recurring payment, and that acceleration represents a one-time incremental expense.

Speaker Change: Which we probably were in the seventies a year ago.

Speaker Change: So what about that.

Speaker Change: Yes.

Speaker Change: Approximately <unk> of improved obviously now we're hitting the spring break season, there's more there's more much more demand, we're seeing an uptick in ADR.

Speaker Change: We are now we're now probably in the mid two hundreds on average now some of that benefit of reducing lower performing assets, but also some of thats just the snapback that we typically see Q1 to Q2 right and that tends to continue through the end of the end of the year.

Shanoop Kothari: Correct. And think about it from the standpoint of looking at the balance sheet, right? If you look at the balance sheet, and you go down the line item accounts, and you say, okay, what's the support for this? When does it turn? Right? So we really looked hard at both sides.

Speaker Change: Yep, great. Thank you for taking all my questions.

Speaker Change: That concludes our Q&A session I will now turn the conference back over to Shannon <unk> for closing remarks.

Shannon: Thank you again for your participation.

Shannon: We remain optimistic about the business model opportunities and our prospects.

Shanoop Kothari: I think you've seen that sort of, Transcripts provided by Transcription Outsourcing, LLC, let's bolster it up so that we don't have sort of, you know, future ups and downs. One thing, for example, as well, is that we also tightened our policy for capitalization of fixed assets. So we increased the level where we do that, you know, primarily to reduce the amount of fixed assets we normally have. Again, you know, looking at the balance sheet, do we want to put it on the balance sheet or just take it off the balance sheet? These items are, you know, not recurring in nature and will provide us with anecdotal benefits.

Shannon: Thank you so much for interest company and joining the call today have a great rest of the day thing.

Shannon: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Shannon: [music].

Shannon: Sure.

Shannon: [music].

Nehal Sushil Chokshi: Okay, and then the follow-on to Allen's initial question about union labor, and Brian responded, hey, we need to basically put up an incremental $6k per key in New York City for New York City rooms. So, at 1140 rooms. I think that equates to you having to basically put up up to a million dollars of incremental working capital in the month of March, which was above and beyond working capital considerations that you had talked about as of February 6th and yesterday. Is that correct?

Shannon: Okay.

Shannon: [music].

Shannon: Yeah.

Shannon: Okay.

Shannon: [music].

Shannon: Yes.

Shannon: [music].

Shanoop Kothari: Okay, great. Um, and have you had any Wyndham key money receipts during the December quarter or March quarter? Yeah, if you look at the balance sheet, you'll see at $1231,000, there was $5,000,000. It's under the line item Development Incentive Advances, $5,000,667,857 as a VRM. Okay, and what about for the March quarter? Yes, $3 million.

Shannon: Yes.

Shannon: Yes.

Shannon: [music].

Shannon: Okay.

Shannon: [music].

Shanoop Kothari: Okay. And do you have anything more coming that's contractually committed at this point in time? No, not without a new lease.

Shanoop Kothari: Okay, great. And then, Shanoop, you talked about how... You know, you have a $27 million to $30 million quarterly revenue run basis with the current portfolio of hotels and that you believe this will generate $2 million of quarterly free cash flow when properly capitalized. Is this $27 million to $30 million on a seasonally adjusted basis, i.e., just a March quarter, or does this represent the average quarterly revenue run rate through the four quarters of the calendar year? It's Q1. I mean, seasonally, we should expect that to be, and then it's $2 million a month.

Sure.

Shannon: Yes.

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Shannon: Sure.

Shannon: [music].

Shannon: Sure.

Shannon: [music].

Sure.

Shannon: [music].

Nehal Sushil Chokshi: Ah, thank you. Okay. All right, I do have a few more questions if you don't mind. Go ahead. I'll get back on the line. I'm sorry, your next question comes from the line of Tom Kerr with Zacks Investment Research. Please go ahead.

Shannon: Thanks.

Shannon: [music].

Shannon: Yeah.

Shannon: Okay.

Shannon: [music].

Shannon: Okay.

Shannon: [music].

Shannon: Okay.

[music].

Shannon: Sure.

Shannon: [music].

Shannon: Okay.

Thomas Kerr: Good morning, guys. Most of my questions have been answered. Just a quick one on the surety agreements. Are there other opportunities for that? Or is it limited by your balance sheet? Or how do those work?

Shannon: [music].

Shanoop Kothari: No, there's there's other opportunities. You know, it's, it's, it's basic, you know, it's a form of credit, right? So the description I gave was 70%, right? Cash, collateralized 30% credit and, You know, so with regard to, you know, tools we're looking at for future growth, right, we have obviously Wyndham KeyMoney, which we talked about with Nahal, and, you know, the Shorty Bond is a different, another tool, so Wyndham KeyMoney comes to us, the Shorty Bond is sort of how we post to landlords, has to be subject to landlord's approval, It has some legal protections that other forms of deposits don't.

Shannon: Okay.

Shannon: [music].

Shannon: Sure.

Shannon: Sure.

Shannon: [music].

Shannon: Okay.

Shannon: [music].

Shannon: Okay.

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Shanoop Kothari: And then, you know, obviously, coupled, you know, that's the positives and the negatives. What Brian went off with associated with union bonding. Okay, thanks. One last quick one. Can you comment on whether the James Nomad Hotel was in position in March as expected? Brian, do you want to go through that?

Brian Ferdinand: Oh, sure. So we are we are currently not operating. But in possession, Highgate is still managing the process.

Brian Ferdinand: And we're working through the union bond issues with the union and the owner. We do expect to take possession of that property, as we work through the balance of the union bond issues, which we're in deep negotiations with the union.

Shannon: Yeah.

Shannon: Yes.

Shannon: [music].

Shannon: Yes.

Shannon: [music].

Thomas Kerr: Okay, and that's expected this quarter. Can you comment on the timing of that? Yeah, I would expect on this one. Yeah. Great, that's all I have for today.

Shannon: Sure.

Shannon: [music].

Nehal Sushil Chokshi: Thank you. Your next question comes from the line of Nihal Chokshi with Northland Capital Markets. Please go ahead.

Nehal Sushil Chokshi: Yeah, thank you. So for the 27 to 30 million for MarksQ, what is the average number of rooms that you have available for MarksQ? Um, so, the average rooms. So we exited; we surrendered some of the assets in March. So the average room is going to be around maybe 1,500. Okay, and then what's the rev par that you didn't expect? at the midpoint, in the high 200s. I'm sorry, low 200. I'm sorry, low 200.

Shannon: Okay.

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Shanoop Kothari: Good. All right. That makes a lot more sense. I mean, it's the seasonal side of things, right?

Shanoop Kothari: So going back to one of our strengths, which we think is one of our strengths is our ability to sell, you know, sort of in any market and drive up occupancy. And so you got to reduce the rate in January to make no fill room. Very slow month.

Shannon: Okay.

Shannon: [music].

Shanoop Kothari: And it picks up in mid February. You sort of think the world's coming to an end until mid February, and then all of a sudden, people start snapping back first. Great. Yep, absolutely. Now, if I look at the December quarter rev part and I adjust for the 5 million impact of the Wyndham transition, I come out with basically, it's also in the low 200s of rev par in the December quarter. And therefore, you're not really seeing anywhere close to the typical 50% Q2 seasonal downtick that most New York City hotels are seeing. I think you kind of already answered that. But I mean, the magnitude of the difference is huge.

Nehal Sushil Chokshi: So can you just, you know, further elaborate on that? Yeah, so we feel resilient. Yeah, so we pre-sold a lot of that inventory in the earlier part of the year, sort of the nature of cash flow management for the business, right, which we've talked about. Also, just coming out of, you know, a few years of COVID, we take the opportunity when we can, and, you know, as we've discussed on analyst day, part of our strategy is cancellation revenue.

Shannon: Okay.

Shannon: [music].

Yes.

Shannon: Yes.

Shannon: [music].

Nehal Sushil Chokshi: When you, when you're in a period where the delta between the nightly stay versus the forward numbers is, you know, so wide, you have very few cancellations, people tend to show up, right? If they feel like they've got a great deal on a property, right, so those items are coupled together. As we look to 2024, you know, we're resetting that look, look. The benefit of our approach to things is we try not to leave things, you know, money on the table.

Shannon: Okay.

Shannon: [music].

Nehal Sushil Chokshi: But if, all of a sudden, there's a huge run on, on, you know, particular locations, especially in New York, as we saw in the fourth quarter, we were not able to capitalize on that. You know, it's the risk reward standpoint, right? We sold that months and months before, collected that revenue, you know, in many cases beforehand as well as deferred revenue versus waiting until the night and hoping that, you know, it's going to be robust. What we've seen is that New York has continued to be resilient.

Shannon: Okay.

Shannon: Yes.

Shannon: Sure.

Shannon: [music].

Shannon: Okay.

Shannon: [music].

Shanoop Kothari: So we're changing our approach to things, you know, as we look. Yeah, and my final question is that, looking ahead, I believe you track the percent of rooms that are being booked on, say, a one, two, and three month forward basis. How is that trending relative to a year ago? levels? I think we are booking a little bit more than we were a year ago. I think we're kind of in the 80s out next month in core property, which we probably were in the 70s a year ago. And What about the ADRs on those?

Shannon: Yes.

Shannon: [music].

Shannon: Okay.

Shanoop Kothari: ADRs have improved, obviously now we're hitting the spring break season, there's much more demand, and we're seeing it go up. I would, you know, we're now probably in the mid 200s on average now. Some of that's the benefit of reducing lower performing assets. But also, some of that's just the snapback that we typically see q1 to q2.

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Shanoop Kothari: Right. And that tends to continue through the end of the end. Yes. Great. Thank you for taking all my questions. That concludes our Q&A session. I will now turn the conference back over to Shanoop Kothari for closing remarks. Thank you again for your participation. We remain optimistic about business model opportunities and our prospects.

Shanoop Kothari: Thank you. Thank you so much for interest company and joining the call today. Have a great, Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??