This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk09: Thank you for standing by. My name is Cass, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lux Urban Hotels Incorporated 2023 Financial Results Conference Call. All lines have been placed in mute to prevent any background noise. 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 Equity Group. Please go ahead.
spk05: Thank you, Catherine. Good morning, everyone. Thank you for joining us today for Luxurban Hotels 2023 Financial Results Conference Call. Our speakers for today will be Brian Ferdinand, Chairman, and Chinook Katari, 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. 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. 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, prospective closing of noted lease transactions, the company's ability to continue closing on property 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, 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 caption risk factors in our public filings with the sec including an item 1a of our annual report on form 10k for the year ended december 31 2023 which was filed with the SEC on April 15, 2024, and any updates to those factors as set forth in subsequent quarterly reports on Form 10-Q or other public filing. Forward-looking information and forward-looking statements are made up to today's date, and the company does not undertake any update to any forward-looking information and or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities law. 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. With that said, I'll now turn the call over to Brian Ferdinand. Brian, please go ahead.
spk08: 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 economics. 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. Lux Urban 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 Eluxurban 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, who remains committed and supportive of our business and the opportunity in front of us. In less than two short years, Lux Urban 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. 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. 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 Blettinger, and Kim Schafer 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. 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 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. As Lux 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 scale the business moving on from legacy relationships as the business evolves. Before I turn the call over to Shenu, I want to make it clear we are focused on rebuilding trust with our shareholder-based 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 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 Shanubh Kothari. Thank you.
spk01: Thanks, Brian, and thank you for joining us today. We filed our 10-K and issued our press release on April 15th. Both documents contain significant details on 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 the period, the marketing and sale of our properties were taken off our prior OTAs and transitioned to the Wyndham booking platform and reservation platforms, during which time the rooms were not available to rent. All of the initial properties are now fully onboarded to the Wyndham platform. This was a one-time occurrence and not expected to be repeated in 2024. This transition impacted revenues by approximately 5 million in EBITDA by approximately 4.5 million. Now to our 2023 results. Net rental revenue rose 159% to 113.4 million from 43.8 million driven by an increase in average units available to rent from 1249 to 1249 from 487, as well as an improvement in total rev far. We welcomed approximately 150,000 guests in 2023, up from approximately 80,000 in 2022. Total rev par 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 break even 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 TREV PAR per unit, offset by $3 million in costs related to previously announced surrender of leases at four underperforming hotels. Other expenses of $66.5 million reflected $24.2 million in wages, $11.2 million in commissions, $7.0 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. Based on a change in our approach to the accounting of certain matters, we had approximately $1 million impact to revenues, $2 million impact to commissions, and $2 million impact to repairs and maintenance and other operating expenses in 2023 for a total impact to EBITDA of $5 million. We will see that benefit in 2024. General and administrative expense was $15.6 million compared to $6.8 million, reflecting higher payroll, 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 accrual financial risk, or CECL, 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 G&A margin in the range of 11 to 13%. Beyond G&A, our results of 2023 included quite a bit of noise. We incurred $61 million of non-cash charges and nearly $25 million of cash charges. 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 of 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 ASE 842. $11.6 million related to common stock 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. $41.2 million in non-cash financing charges compared to $2.0 million. Non-cash financing charges in 2023 included $28.2 million in non-cash non-recurring costs related to the May 2023 revenue share exchange 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 SOX, subject to an extended lockup agreement. These costs will not recur in 2024. In addition, $12.5 million in non-cash warrant-related expenses. Although we record non-cash warrant expenses although 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 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 2024. 3.4 million related to the surrender of deposits on leases at four properties 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. The expensing of 8.2 million of property taxes we owe as part of leases that historically we record as prepaid until the respective due dates for the taxes. If we peel away the charges and costs incurred in 2023, EBITDA increased to 25.3 million from 14.3 million In 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%. 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 in more of our properties for maintenance and updates. Moving to the balance sheet at December 31st, 2023. 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. Accounts payable and accrued expenses increased to approximately $24.4 million from $6.3 million. The December 31st, 2023 accounts payable and accrued expense balance included approximately 7.2 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 amounts lower to significantly lower to what has been recorded 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 operations operating rights of hotel properties at a fraction of their asset value. As Brian pointed out, the opportunity is substantial and contention our ability to secure the necessary capital. Luxurban's 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 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 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 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 bond is currently rated A-plus by AMBEST 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% annually. Scale-derived efficiencies are also a high priority for 2024 and a primary reason we brought on Robert Irrigo. 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, we believe we can add up to 5% top line revenues and drive 3% to 5% margin improvement pursuing these new revenue streams. Rob is well underway in the implementation of these initiatives. We also believe we can realize further benefits from our Wyndham relationships. 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 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 2024. Regarding guidance for 2024, 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 business. 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 higher quality 3.5 to 4.5 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. Improve our working capital profile, receivables, cash flow profile by adopting slower pace of acquisitions, increasing total REVPAR, focus on higher-end properties, and realizing the benefits of the above-referenced surrender of certain underperforming leases. I believe we have a very good business. Our business is roughly $27 to $30 million in quarterly revenues 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. We still have work to do. However, 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 to 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 rev share agreement, partnered and integrated with Wyndham. Thanks again for your time, and I'll turn the call over to the operator for questions from our analysts.
spk09: 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 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 again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. Your first question comes from the line of Alan Klee with Maxim Group. Please go ahead, your line is open.
spk02: 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?
spk01: No, 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, landlord actually didn't perform what they did on their side, you know, and also that impacted our results to it. So I think at this stage where we're at, we're very comfortable with the portfolio. We've actually seen increase in, you know, operating metrics such as, you know, overall portfolio occupancy and REVPAR. As a result, you take the solar performing units out, we see that impact immediately. But at this point, I think we're standing pat with what we've got before we're looking forward.
spk02: Thank you. And in terms of signing up new hotel rooms, can you talk about any issues with the unions and if you view them as temporary delays and costs that could be associated with that?
spk08: Sure. This Brian, I'll take that. So, you know, historically when we were scaling the portfolio from capital requirement, as you know, people familiar with the business are aware, you know, we have our security deposit, a refundable letter of credit we've implemented in combination with Wyndham key money. on the historic and go-forward transactions, as well as this Berkeley bond, which could help offset additional capital. It was in or around 14,000 or 15,000 key on average in New York City, which is where our focus. What happened with the unions is we scaled the portfolio quite rapidly. As everyone's aware, the company has grown very quickly with limited capital and limited resources. 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, you know, impediment to currently, which was not a requirement prior to March of 24. So they've implemented that, you know, and a way to look at it is around another, you know, call it 5,000 per key. in upfront deposits. It's not a spending, a 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. 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, you know, went from about $14,000 to $20,000, you know, in upfront deposit money. 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 even at, you know, 20, 21,000 per key, you know, when you look at top line revenue we're generating per key in New York City, around 100,000 at 24% EBITDA margins. Still, you know, really, you know, high quality investment in return on capital. But, you know, a little bit higher capital requirement as we go forward. That's what has 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.
spk02: Thank you. 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 of when you think this could turn positive?
spk01: Yeah, sure. So, you know, as I mentioned in my remarks, you know, management, you know, 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, so max exposure associated to it, so there'll be some reduction there. There's also Collection efforts with regard to the city of New York as well. So, so I think over the next few months, we'll see improvement to that. It might, you know, might might bleed into part of Q3. But, you know, we're, 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. But, but look, you know, as as large shareholders, you know, we're looking at what's, you know, the best interest of all of all shareholders, including ourselves.
spk02: 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?
spk00: I would say sometime in the second half of 2024.
spk02: Okay, great. Thank you so much.
spk09: And our next question comes from the line of Matthew Erdner. with Jones Trading. Please go ahead.
spk04: Hey, good morning, guys. 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?
spk01: Yeah, so headcount was only reduced at the property level. So if you think about it, you know, You know, I always say the comment is you spend an inordinate 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, you know, Rob's hit the ground running. He's got, you know, a number of initiatives that's in play. And so revenue is a big focus. So, you know, the impact to the overall business has been actually 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 Band-Aid off. And then generally speaking, you know, like anything else in life, underperforming assets create, you know, ancillary issues. For whatever reason, there's more employee matters. There's more, you know, slip and fall issues with guests. that occur. So we've really seen an impact associated to it. And 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 and exit the properties.
spk04: Yeah, definitely. And then, you know, going back to expenses, you touched on the legal expenses. Could you expand on that a little bit, you know, and where you think you're going to see some of those savings from that 8.4 to the lower number? And then also, you know, could you talk about the cost of insurance and utilities that you guys are seeing throughout the properties?
spk01: Yeah, so with regard to legal... the legal and just accrued liabilities, you know, our approach to how we did the annual audit was to really go on the higher end. You know, typically in these sort of processes, what you do is you sort of look at, you know, potential exposure, it's a range, and then you use sort of a best guess approach to it, right? And, you know, we've actually been very successful in accruing for amounts that, you know, 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 server where you think the number is going to end up. In this approach, again, under the cover 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 it's going to take time for that to occur, right? So it has to get reversed through the balance sheet, through the P&L, but it's probably a few quarters associated to that. With regard to other expenses, I would say that it's a few percentage points for both utilities and legal, I'm sorry, and insurance. Insurance-wise, we're probably going to ratchet up insurance. Um, you know, as we, as we're getting the benefits of looking at things in scale, we're also getting, you know, more comprehensive insurance. Um, 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. Um, you know, as opposed to individual assets, um, a little bit more expensive, but a lot more coverage. Um, so, so, uh, both in, you know, with, with insurance, I think we're, we're, we're gonna, we're gonna expand that probably gonna go up slightly. utilities, you know, sort of normal course, you know, a few percentage points.
spk04: Gotcha. That's helpful. And then one last quick one from me. You know, you said strong pipeline. What's the average number of keys that you guys are looking at to take on with these new hotels? Sure.
spk08: So, you know, there's a couple over 300, and then minimum size is around 170. Gotcha. Thank you.
spk01: Yeah. And Matt, one of the things, too, as well, with regard to the properties we surrendered are also small in scale, too. Right. So it's a little bit difficult to manage, you know, smaller scale entities. So so that's also the rationale behind it as well.
spk06: And they were sub three star as well. Yeah. OK. Yeah, that's helpful. Thank you, guys.
spk09: Your next question comes from the line of Nihal Chokshi with Northland Capital Markets. Your line is open.
spk07: All right. Thank you. And, Shanupa, thank you for that detailed explanation on the non-recurring non-cash and cash charges. Based on that description, it sounds like I think you called out $8.4 million of non-recurring property taxes. Did I hear that correctly?
spk01: Yeah.
spk07: Okay. So relative to my model, I think that that's probably the explanation for about the $7 million weaker than cash from operations and what we were modeling. Why are you saying that this property taxes would be a non-recurring item though?
spk01: Yeah. So historically what we've done is we've paid the taxes to prepaid and then at the tax due date, You know, 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. And then on the tax due date, you know, we flip from prepaid to expensed, right? So what we've done sort of as a relook on sort of how we've done some of the accounting um is we decided that you know we're going to expense as as uh as paid and built right to us um it's a it's a it's it's not you know we're we're not going to get that back even though you know we get the benefit of it in the future and so that's a one-time deal so we burdened effectively burdened 2023 with much higher taxes than we normally would um and the normal going going forward in 2024 it's going to be done as expenses paid
spk07: 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.
spk01: 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, what's the support for this? When does it turn? So we really looked hard at both sides. I think you've seen that sort of trend in my commentary. We looked really hard at the asset level side of things as to 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 future ups and downs. One thing, for example, as well, is we also tightened our policy for capitalization of fixed assets. So we increased the level where we do that primarily to reduce the amount of fixed assets we normally have. Again, looking at the balance sheet, do we want to put it on the balance sheet or just take it to the P&L? These items are not recurring in nature and will provide us anecdotal benefits in 2024. Got it. Okay.
spk07: And then follow on to Alan'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 that you had 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 on February 6th, Investor Day. Is that correct? That's correct. Okay, great. And have you had any Wyndham key money receipts during the December quarter or March quarter?
spk08: Yeah, if you look at the balance sheet, you'll see at 1231, There was $5 million. It's under the line item development incentive advances, $5,667,857 as a VRN. Okay.
spk07: And what about for the March quarter? Yes, $3 million. Okay. And do you have anything more coming that's contractually committed at this point in time? No, not without a new lease on it. Okay, great. And then, Chanuk, 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 the March quarter, Or does this represent the average quarterly revenue run rate through the four quarters of the calendar year?
spk01: It's Q1. I mean, seasonally, we should expect that to be higher. I think Q2, Q3. And then it's $2 million a month, not quarter.
spk07: Ah, thank you. Okay. All right. I do have a few more questions, if you don't mind.
spk00: Go ahead. I'll get back in the line.
spk09: I'm sorry, your next question comes from the line of Tom Kerr with Zacks Investment Research. Please go ahead.
spk03: Good morning, guys. Most of my questions have been answered. Just a quick one on the surety agreements. Is there other opportunities for that, or is it limited by your balance sheet, or how do those work?
spk01: No, there's other opportunities. You know, it's – It's a form of credit, right? So the description I gave was 70% cash collateralized, 30% credit. And so with regard to tools we're looking at for future growth, we have obviously Wyndham Key Money, which you talked about with Nihal. And, you know, the surety bond is another tool. So when the key money comes to us, the surety bond is sort of how we post to landlords, has to be subject to landlord's approval, but they like it, right, versus, you know, other forms because it has some legal protections that other forms of deposits don't. And then, you know, obviously coupled, you know, that's the positives, you know, the negatives is what Brian went off with associated with union bonding and such.
spk03: Okay, thanks. One last quick one. Can you comment if the James Nomad Hotel was in position in March as expected?
spk00: Brian, you want to go through that?
spk08: Oh, sure. So we are currently not operating, but in possession. Highgate is still managing the process, 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 were in deep negotiations with the union currently.
spk03: Okay, and that's expected this quarter, or can you comment on the timing of that?
spk07: Yeah, I would expect this quarter. Yeah, this quarter, yeah.
spk03: Great, that's all I have for today. Thank you.
spk09: Your next question comes from the line of Nihal Chokshi with Northland Capital Markets. Please go ahead.
spk07: Yeah, thank you. So for the $27 to $30 million for the March 2 period, What is actually the average rooms that you have available for March Q?
spk01: So the average rooms – so we exited – we surrendered some of the assets in March. So the average rooms is going to be around maybe 1,500. Okay.
spk07: And then what's the rev par that you then expect?
spk00: Let me just do that math. In the high 200s?
spk01: I'm sorry, low 200s. I'm sorry, low 200s. Good.
spk07: All right. That makes a lot more sense.
spk01: I mean, you know, it's the seasonal side, right, of things, right? So going back to one of our – what 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 know, you've got to reduce rate in January to make, you know, fill rooms, right? So it's a very slow month. And it picks up 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 for spring break travel.
spk07: Great. Yep, absolutely. Now, if I look at the December quarter REVPAR and I adjust for the 5 million impact of the Wyndham transition, I come out with basically, it's also low 200s of REVPAR in the December quarter. And therefore, you're not really seeing anywhere close to the typical 50% QVQ seasonal downtick that most New York City hotels are seeing. I think you kind of already answered to that, but I mean, the magnitude of difference is huge. So can you just, you know, further elaborate on that?
spk01: Yeah.
spk07: So why so resilient?
spk01: Yeah. So we pre-sold a lot of that inventory, um, earlier part of the year, um, sort of nature of cashflow management for the business, right. Which we've talked about, um, also just coming out of, you know, a few years of COVID, um, you know, we take the, we take the opportunity when we can, As we've discussed on the analyst day, part of our strategy is cancellation revenue. When you're in a period where the delta between the nightly stay versus the forward numbers are so wide, you have very few cancellations. People tend to show up if they feel like they've got a great deal on a property. Those items are coupled together. as we look to 2024 strategy um you know we're resetting that look look the benefit of our our approach to things is we try not to leave things you know money on the table but if if all of a sudden um there's a huge run on on um you know particular location especially new york we saw in the fourth quarter we were not able to to capitalize on that um you know it's risk reward standpoint right we sold that months and months before uh collected that revenue you know in many cases beforehand as well as deferred revenue versus waiting to the night and hoping that you know it's going to be robust what we've seen is new york has continued to be resilient so we're changing our approach to things you know as we look at 2024. yeah and then my final question is that looking ahead i believe you track percent of rooms that are being booked on say a one two and three month forward basis
spk07: How is that trending relative to year-ago levels?
spk01: To year-ago? 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 properties. which we probably were in the 70s a year ago.
spk07: What about the ADRs on those?
spk01: ADRs have improved. Obviously, now we're hitting the spring break season. There's much more demand. We're seeing an uptick in ADRs. We're now probably in the mid-200s on average. 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, right? And that tends to continue through the end of the year.
spk07: Yep. Great. Thank you for taking all my questions.
spk09: That concludes our Q&A session. I will now turn the conference back over to Shadub Qatari for closing remarks.
spk01: Thank you again for your participation. We remain optimistic about the business model opportunities and our prospects. Thank you so much for interest in the company and joining the call today. Have a great rest of the day. Thank you.
spk09: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Disclaimer