LuxUrban Hotels Inc.

Good morning, everyone, and thank you for joining us for Lux Urban's 2023 First Quarter Financial Results Conference Call. At this time, all participants are on a listen-only mode. A 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 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, expected closings of noted lease transactions, continued closings on additional leases for properties in the company's pipeline, as well as the company's anticipated ability to commercialize efficiently and profitably the properties it leases and will lease 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, including in item 1A 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, or does not expect, is expected, budget, scheduled, estimates, forecasts, intends, anticipates, or does not anticipate, or believes, or variations of such words and phrases, or may contain statements that contain certain actions, events, or results. May, could, would, might, or 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 projections 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 and 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 and or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws. Management will also be discussing non-GAAP financial metrics. 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'd like to turn the call over to Brian Ferdinand, Chairman and Chief Executive Officer 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 in a promising fashion. Net 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 and sixth consecutive quarter of positive EBITDA. We also improved our financial profile from year end 2022 by reducing our legacy debt substantially. Subsequent to quarter end, we began hosting guests at 101 Bogart Street in Brooklyn on May 1st. The Condor Hotel, our second property in Brooklyn, and the Trinity Hotel in LA, our second property in Los Angeles, are expected to begin hosting guests on or about July 1st. As of May 9th, We had 20 hotel properties under master lease agreement consisting of 1,673 rooms that will be hosting guests from early in the current second quarter to early in the third quarter. We expect to have approximately 2,000 short-term rental hotel rooms operational at the start of the third quarter of 2023 located in five cities, Denver, New York, Miami, Los Angeles, and Washington, DC, and New Orleans. As 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 face of lingering effects of the COVID shutdowns and looming maturing debt liabilities. Approximately 31 billion of CMBS loans backed by hotels are set to mature by the end of 2024. 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 avoid default, generate 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. The first step towards that goal is adhering to a discipline asset light strategy by focusing on select high quality properties in destination locations. Our portfolio is presently concentrated in New York City, which is expected to welcome more than 60 million visitors this year and approach 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 and 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 properties 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 our organization. This is reflected, for example, in the fact that we believe that we currently have the lowest per night property level breakeven costs in our markets. Finally, we are ever mindful of maintaining a strong financial position. To that end, as previously announced, we have entered into 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, 2023. These agreements have also carved the pathway for improved cash flow and access to growth capital subject to certain conditions. Deal 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 Sunil Kothari, our President and Chief Financial Officer, for a review of our financials.

Thanks, Brian. As I stated last quarter, we believe that the true growth and earnings power inherent in our model would be more fully manifest beginning with the first half of 2023. Stripping away the non-cash 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 will 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 479 in Q1 2022 to 988 in Q1 2023, as well as improved revenue per available room or rev par 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 non-cash 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 non-cash rent expense of about 255,000. 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. Rent 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 rental revenue from $2.5 million or 27.6% of net rental revenue in last year's first quarter. 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 administrative expenses increased to $3.6 million or 15.9% of revenue from $1.0 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 7 cents per share in the first quarter of 2021. We recorded a few non-cash, non-recurring items in the quarter, which included 1.7 million in non-cash rent expense amortization, as compared to $255,000 in Q1 2022. Approximately $900,000 of non-cash related expenses for the issuance of shares for operating expenses as compared to no such expenses in Q1 2022. Approximately $400,000 of non-cash stock compensation expense as compared to no such expense in Q1 2022. Approximately $200,000 in non-cash option compensation expense as compared to no such expense in Q1 2022. Approximately $1.7 million of non-cash financing costs associated with shares issued for revenue share agreements. There was no such expense occurred in 2022. And approximately $600,000 of SOBNY exit costs, which we do not expect any more such costs with regards to the exit of our legacy apartment rental business going forward. Exclusive to these items, adjusted cash net income improved to 2.2 million, up from 1.4 million last year, and first quarter EBITDA improved to 4.0 million from just under 2 million last year. For the March 31st, 2023 quarter, our EBITDA margin was 18%. I'll address this more specifically later. During the March 2023 quarter, we hosted slightly under 70,000 room nights versus approximately 35,000 room nights in last year's first quarter. Moving to the balance sheet, at March 31st, 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 ratios at March 31, 2023, of 0.07 and 0.05, respectively, as compared to 1.1 and 0.8 at December 31st, 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 31st, 2023, down five days versus 40 days as of December 31st, 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 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 portfolio, At March 31st, 2023 and today, as of March 31st, 2023, we operated 12 properties and 1,034 units in four cities. We currently have under master lease 20 properties and 1,673 units in five cities. As of March 31st, across our portfolio, our investment or security deposits were 13,554 per unit with the high being in New York of 16,348 and the low being in New Orleans and D.C. at 5,000 and 5,789, respectively, per unit. We expect these amounts to remain relatively consistent in the future. We continue to go responsibly, leverage the dislocation in the market, and execute. As good as we believe our results are, we can try and will do better. Couple areas for improvement. As we continue to gain economies of scale, continue 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 experience and as a result better, maybe not yet best practices for properties in New York. We're looking to leverage our experience and results in New York to better optimize our properties in Miami and DC. We plan to do this throughout the balance of 2023. We have started the process to look at ancillary revenue opportunities. To start putting this in perspective, if we are able to generate $10 per additional room over the March 31st, 2023 quarter, we would have increased revenue by approximately $1 million with majority of it would drop to EBITDA net income. With regard to guidance, we have maintained our guidance for 2023 of net rental revenue of $115 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 $250 per night. While achieving over the year a target quarterly gross margin of 30 plus percent, we expect G&A excluding non-cash related items will be approximately 10 to 12 percent during the year which we would believe would result in EBITDA margins of between 20% to 25%, as I mentioned earlier. To continue in various stages, 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 2,500 and 3,000 short-term stay hotels under MLA up from 844 at December 31st and 1,034 as of March 31, 2023. The timing of reaching our goal between 2,500 to 3,000 units may positively impact our revenue guidance for the year. I'll now turn the conversation back to Brian.