By Thomas Kerr, CFA
LuxUrban Hotels LUXH reported 2023 full year results on April 15, 2024, which showed strong revenue growth when compared to 2022. Net rental revenue increased 159% to $113.4 million from $43.8 million in the prior year period. This was driven by an increase in average rooms available to rent to 1,249 from 487, as well as an improvement in TRevPAR, which increased to $249 from $247 in the prior year period.
Property-level breakeven for TRevPAR across the hotel portfolio as of December 31, 2023 was an estimated $160-$180 per night. The total guest count in 2023 was approximately 150,000, an increase from 80,000 in 2022.
Gross profit was $8.9 million (7.9% gross margin), compared to $12.4 million, (28.2% gross margin) in the prior year period. This reflects an increase in the average units available to rent and better TRevPAR per unit and offset by $3.0 million in costs related to the surrender of four under-performing hotels.
Total operating expenses for the year increased $39.5 million from $15.8 million but included a substantial amount of extraordinary charges and non-cash items. General and administrative expenses were $15.6 million as compared to $6.8 million which reflects higher payroll, supplies, legal and accounting, and software costs. Going forward, the company expects G&A expenses to be between 11%-13% of net rental revenues. Non-cash expenses of $11.6 million were related to common stock issuance, stock compensation, and stock options as compared to $2.5 million in 2022. For 2024, we expect a significant reduction in these non-cash expenses.
In addition, non-recurring cash costs of $12.2 million were associated with the company's exit from its legacy apartment rental business and the restructuring associated with the elimination of underperforming hotel properties in its portfolio. These cash costs are not expected to recur in 2024.
The company reported a GAAP net loss of ($78.5) million compared to a net loss of ($9.4) million in the prior year period. The net loss in 2023 also included $41.2 million of non-cash financing costs which included $28.2 million in non-recurring, non-cash costs related to the May 2023 Revenue Share Exchange Agreement between the company and its pre-IPO investors. This agreement eliminated an estimated $87.5 million in future Revenue Share payments in exchange for a one-time issuance of 6,740,000 shares of common stock subject to an extended lock up agreement. These non-cash costs are not expected to recur in 2024. The non-cash costs also included $12.5 million in warrant-related expenses. The company expects some warrant expense in the 1st quarter of 2024 but none thereafter.
In addition, results for 2023 reflected a one-time negative impact from the onboarding of the company's initial hotels to the Wyndham platform in the 2nd half of 2023. During this time these hotel rooms were not available for rent. The company estimates this negative impact was approximately $4.5 million which will not reoccur in 2024.
Cash on the balance sheet at year-end was approximately $0.8 million compared to $1.1 million at the end of 2022. The company indicated that cash on hand, cash flow from operations and cash available from potential capital market transactions as a public company will be sufficient to fund operations for the next 12 months. Total debt declined to approximately $4.3 million from total debt of $14.0 million at the end of 2022. As of the end of 2023, the company had a working capital deficit of $13.4 million as compared to a deficit of $13.9 million as of December 31, 2022.
New Management and Board Appointees
In 2024, the company made some Board and executive additions which should help support the company's operations. On February 20, the company appointed Elan Blutinger to the Board of Directors. Mr. Blutinger, a serial entrepreneur and investor, is Managing Director of Alpine Consolidated, LLC, a merchant bank he co-founded in 1996. Mr. Blutinger has executive experience or board membership with various travel related companies such as Hotels.com, Great Wolf Resorts, and Travel Services International.
On March 6, the company hired Robert Arigo as its Chief Operating Officer. Mr. Arigo brings 35 years of industry experience to LuxUrban and will be primarily responsible for the day-to-day operations of the company's hotel portfolio with a focus on enhancing property-level operations, optimizing supply chain relationships, elevating the customer experience, and pursuing ancillary revenue opportunities across the Company's portfolio. Mr. Arigo has held positions at M&R Hotel Management, Hersha Hospitality Management, and Widewaters Hotels.
On March 25, the company appointed Kimberly Schaefer, a 30-year real estate and hospitality industry veteran and the former CEO of Great Wolf Resorts, to the company's Board of Directors. Ms. Schaefer has held positions or board membership at Tow Bit Circus, Great Wolf Resorts, Hall of Fame Resort & Entertainment Company HOFV, United Parks & Resorts Inc. PRKS, and Education Realty Trust.
On April 22, the company announced that it had appointed Andrew Schwartz to the Board of Directors. Mr. Schwartz was a Managing Director of Silver Point Capital, an investment manager focused across multiple synergistic strategies, including real estate, direct lending, capital solutions, credit and special situations. Prior to Silver Point, Mr. Schwartz was a Senior Managing Director holding leadership positions at Guggenheim Securities.
Valuation and Estimates
The company provided an updated outlook for 2024 which stated it plans to:
1) increase its portfolio of hotels under long term Master Lease Agreement with a focus on higher-quality 3.5 star to 4.5 star properties,
2) generate increased TRevPAR compared to 2023, driven by portfolio expansion, the addition of 3.5 star to 4.5 star properties to the portfolio, and an increase in ancillary revenues,
3) generate increased EBITDA compared to 2023,
4) improve its working capital profile, receivables, and cash flow profile by adopting a slower pace of acquisitions, increasing Total RevPAR, focusing on higher end properties, and realizing the benefits of the surrender of certain underperforming properties.
Based on 2023 results and the company's updated outlook, we adjust our 2024 revenue estimate to $148.7 million and our 2024 EPS estimate is ($0.08). Our 2025 revenue estimate is $222.3 million and our 2025 EPS estimate is $0.26.
Our primary valuation tool utilizes a Discounted Cash Flow process which assumes continued steady growth in additional rooms available to rent, particularly in 3.5-4.5 star rated hotels. Over the next 3-5 years, we expect Adjusted EBITDA margins to reach the high end of the company's objectives.
We adjust our price target to $500 based on 2023 results, management commentary, and the expected slower pace of future growth.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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