LuxUrban Hotels Inc. (NASDAQ:LUXH) Q4 2023 Earnings Call Transcript

LuxUrban Hotels Inc. (NASDAQ:LUXH) Q4 2023 Earnings Call Transcript April 16, 2024

LuxUrban Hotels Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. My name is Kath, and I will be your conference operator today. At this time, I would like to welcome everyone to the LuxUrban Hotels Incorporated 2023 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Devin Sullivan, Managing Director at the Equity Group. Please go ahead.

Devin Sullivan : Thank you, Kath, and 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 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. 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 & Resorts, scheduled property opening, expected 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 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 or 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 10-K 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 filings.

Forward-looking information and forward-looking statements are made of 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.

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 with favorable economics. At that time, many of these properties were struggling in a post-pandemic trouble 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. 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, who 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 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 Elan Blutinger and Kim Schaefer to the Board of Directors and Robert Arigo 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 LuxUrban’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 Shanoop, I want to make it clear we are focused on rebuilding trust with our 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 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.

Shanoop Kothari: Thanks, Brian, and thank you for joining us today. 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 selected 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 to 1,249 from 487 as well as an improvement in total RevPAR. We welcomed approximately 150,000 guests in 2023 up from approximately 80,000 in 2022. Total RevPAR 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 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 are 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 better term, quarterly results that are not met 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 million in non-cash rent amortization which will continue in 2024, but is a non-cash item related to lease accounting under ASC 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 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 reoccur 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 foreign expenses in Q1 2024 in the range of $5.5 million 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 were 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 and pro-form 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 31, 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 31, 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 contingent on 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 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 are 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+ by A.M. Best (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 Arigo. Robert is a highly accomplished hand 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 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 31, 2024, net rental revenue is expected to be in the range of $27 million 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 TRevPAR 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 million to $30 million of quarterly revenues with about $2 million of free cash flow or $6 million quarterly when properly capitalized.

We expect to clarify our outlook — 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 derisked 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 will 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.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Allen Klee with Maxim Group.

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Q&A Session

Allen Klee : 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?

Shanoop Kothari: No. I think we’ve got the right portfolio. Some of the units that we walked away from were legacy issues where landlord actually didn’t perform what they did on their side 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 operating metrics such as overall portfolio occupancy and RevPAR as a result, right, 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.

Allen Klee : 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?

Brian Ferdinand: Sure. This is Brian. I’ll take that. So, historically, when we were scaling the portfolio from capital requirement as people familiar with the business are aware, we have our subsidiary deposit or 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 cap on average in New York City, which is where our focus. What happens 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. 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 impediment to currently, which was not a requirement prior to March of ’24. So they’ve implemented that in a way to look at it is around another, 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 of other insurance companies to satisfy those. And it’s part of our capital structure or capital outlay on a go-forward basis. So cost per key in New York a union hotel went from about $14,000 to $20,000 an 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 pointing out even at $20,000, $21,000 per key, when you look at top line revenue we’re generating per key in New York City around $100,000 at 24% EBITDA margins, still really high-quality investment in return on capital but a little bit higher capital requirements 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.

Allen Klee : 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?

Shanoop Kothari : Yes, sure. So — we’re — as I mentioned in my remarks, we’re — management owns 40-plus percent of the business. 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 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 I think over the next few months, we’ll see improvements 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 methodically growing as well. But look, as large shareholders, we’re looking at what’s the best interest of all shareholders, including ourselves.

Allen Robert : 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?

Shanoop Kothari : I would say sometime in the second half of 2024.

Operator: Your next question comes from the line of Matthew Erdner with JonesTrading.

Matthew Erdner : So from an operational standpoint, where should we expect expenses to go? How much of the total headcount 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?

Shanoop Kothari : Yes. So headcount was only reduced at the property level. So if you think about it, I would say the comment is if 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. As I mentioned in my comments, Rob hit the ground running. He’s got a number of initiatives that’s in play. And so revenue is a big focus. So the impact to the overall business has been actually very positive, right, and sort of trying to figure out how to maximize assets that were underperforming. We just sort of ripped the Band-Aid off. And then generally speaking, like anything else in life underperforming assets create ancillaries issues for whatever reason, there’s more employee matters.

There’s more 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.

Matthew Erdner : Yes, definitely. And then going back to expenses, you touched on the legal expenses. Could you expand on that a little bit? And where you think you’re going to see some of those savings from that $8.4 million 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?

Shanoop Kothari : Yes. So with regard to legal, the legal and just accrued liabilities 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, right? 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 server where you think the number is going to end up. In this approach, 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 we’ll 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 to 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 — sorry, insurance. 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 — probably go up slightly utilities sort of normal course a few percentage points.

Matthew Erdner : And then one last quick one from me. You said strong pipeline, what’s the average number of keys that you guys are looking at to take on with these new hotels?

Brian Ferdinand : Sure. So there’s a couple over 300 and then minimum size is around 170.

Shanoop Kothari : 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 smaller scale entities. So that’s also the rationale behind it as well.

Brian Ferdinand : And there were sub-three star as well. Yes.

Operator: Your next question comes from the line of Nehal Chokshi with Northland Capital Markets.

Nehal Chokshi : All right. And Shanoop, 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?

Shanoop Kothari : Yes.

Nehal Chokshi : Okay. And so relative to my model, I think that — that’s probably the explanation for about the $7 million weaker than cash from operations than what we were modeling. Why are you saying that these property taxes would be a nonrecurring item, though?

Shanoop Kothari : Yes. So historically, what we’ve done is we’ve — we paid the taxes to prepaid and then at the tax due date, our leases are structured where they’re primarily structured where we’re paying monthly or periodically prior to the tax due date as part of the lease commitment. And then on the tax due date, we flipped from prepaid to expense, right? So what we’ve done sort of as a relook on sort of how we’ve done some of the accounting is we decided that we’re going to expense as paid and built, right, to us. It’s not — we’re 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. And going forward in 2024, it’s going to be done as expenses paid.

Nehal Chokshi : 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.

Shanoop Kothari : 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, right? 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, right, 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.

Nehal Chokshi : And then a follow-on to Alan’s initial question about union labor and Brian responded, hey, we need to basically put up an incremental $6,000 per key in New York City — for New York City rooms. So at 1,140 rooms, I think that equates to that you had to basically put up $7 million of incremental working capital in the month of March, which was above and beyond working capital considerations that you had talked about at your February 6 Investor Day, is that correct?

Shanoop Kothari : That’s correct.

Nehal Chokshi : And have you had any Wyndham key money receipts during the December quarter or March quarter?

Shanoop Kothari : Yes. It’s — if you look at the balance sheet, you’ll see at 1,231 there was $5 million. It’s under the line item development incentive advances. 5 million 667, 857 as a VRM.

Nehal Chokshi : And what about for the March quarter?

Shanoop Kothari : Yes, $3 million.

Nehal Chokshi : And do you have anything more coming that’s contractually committed at this point in time?

Shanoop Kothari : No, not without a new lease on it.

Nehal Chokshi : And then, Shanoop you talked about how you have a $27 million to $30 million quarterly revenue run basis with the current portfolio of hotels and that you believe that 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 fourth quarters of the calendar year?

Shanoop Kothari : It’s Q1. I mean, seasonally, we should expect that to be higher in Q2, Q3. And then it’s $2 million a month not a quarter.

Operator: Your next question comes from the line of Tom Kerr with Zacks Investment Research.

Thomas Kerr : 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?

Shanoop Kothari : No, there’s other opportunities. It’s basically — it’s a form of credit, right? So the description I gave was 70%, right, cash collateralized, 30% credit. And so with regard to tools, we’re looking at for future growth, right? We have obviously Wyndham key money, which we talked about with know-how and the surety bond is another tool. So Wyndham key money comes to us. The surety bond is sort of how we post the landlords have to be subject to landlord’s approval, but they like it, right, versus other forms because it’s — it has some legal protections that other forms of deposits don’t. And then obviously, coupled that’s the positives. The negatives is what Brian went off with associated with union bonding and such.

Thomas Kerr : One last quick one. Can you comment on the James NoMad Hotel was in possession in March as expected.

Shanoop Kothari : Brian, do you want to go through that?

Brian Ferdinand : 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, and 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.

Thomas Kerr : And that’s expected this quarter? Or can you comment on the timing of that?

Shanoop Kothari : Yes, I would expect this quarter. Yes, this quarter. Yes.

Operator: Your next question comes from the line of Nehal Chokshi with Northland Capital Markets.

Nehal Chokshi : So for the $27 million to $30 million for the March Q, what is actually the average rooms that you have available for March Q?

Shanoop Kothari : 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.

Nehal Chokshi : And then what’s the RevPAR that you then expect at the midpoint?

Shanoop Kothari : Let me just do that math. In the high 200s — low 200s, I’m sorry. I mean 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 sort of in any market and drive up occupancy. And so you got to reduce rate in January to make fill rooms, right? So it’s a very slow month. And it picks up mid-February. You sort of think the world’s come in to an end until mid-February and then all of a sudden people start snapping back for spring break travel.

Nehal Chokshi : 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% Q-over-Q 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. But can you just further elaborate on that, why so resilient.

Shanoop Kothari : Yes. So we presold a lot of that inventory earlier part of the year, sort of nature of cash flow management for the business, which we’ve talked about. Also just coming out of a few years at COVID, we take the opportunity when we can. And 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 why 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 strategy, we’re resetting that. Look, the benefit of our approach to things is we try not to leave things money on the table.

But if all of a sudden, there’s a huge run on particular locations, especially in New York, we saw in the fourth quarter, we were not able to capitalize on that. It’s a risk-reward standpoint, right? We sold that months before collected that revenue in many cases beforehand as well as deferred revenue versus waiting to the night and hoping that 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 as we look at 2024.

Nehal Chokshi : And then my final question is that looking ahead, I believe you track percent of rooms are being booked on, say, a one, two and three month forward basis. How is that trending relative to year ago levels?

Shanoop Kothari: To a 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.

Nehal Chokshi : And what about the ADRs on those?

Shanoop Kothari: ADRs have improved. Obviously, now we’re hitting the spring break season. There’s more — much more demand. We’re seeing an uptick in ADRs. We’re now probably in the mid-200s on average. Now some of that’s benefit of reducing lower performing assets but also some of that is just the snapback that we typically see Q1 to Q2, right? And that tends to continue through the end of the year.

Operator: That concludes our Q&A session. I will now turn the conference back over to Shanoop Kothari for closing remarks.

Shanoop Kothari: Thank you again for your participation. We remain optimistic about the business model opportunities and our prospects. Thank you so much for your interest in the company and joining the call today. Have a great rest of the day. Thank you.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.