Agreement Expected to Significantly Improve Cash Position, Access to Growth Capital, Increase Margins, and Future Cash Flows
Company Increases 2023 EBITDA Guidance and Initiates 2024 Net Rental Revenue and EBITDA Guidance
LuxUrban Hotels Inc. (Nasdaq: LUXH) (or “the Company”), which utilizes an asset-light business model to lease entire hotels on a long-term basis and rent out hotel rooms in these properties in key major metropolitan cities, announced today that on May 21, 2023 it entered into an agreement with its pre-IPO investors that will eliminate an estimated $87.5million in Revenue Share payments in exchange for a one-time issuance of 6,740,000 shares (the “Agreement Shares”) of the Company’s common stock subject to an extended lock up agreement.
As a result of the agreement, the Company is increasing its EBITDA forecast for 2023 to $25 to $30 million from its previous estimate of $21 to $25 million. The Company is also initiating 2024 net rental revenue and EBITDA guidance of $220 to $240 Million and $48 to $60 million, respectively.
“This agreement closes the chapter related to our pre-IPO debt arrangements and, we believe, accelerates margin expansion removing a long-term drag on our financial results,” said Brian Ferdinand, Chairman and Chief Executive Officer. “We view this agreement as an accretive investment with the ability to deliver value in the near-term and over-time by significantly increasing future cash flows and profitability while enhancing our access to growth capital.”
The Company will issue the Agreement Shares to Greenle Partners LLC Series Alpha P.S and Greenle Partners LLC Series Beta P.S (collectively, “Greenle”) in exchange for the termination of any and all rights of Greenle to receive any future Revenue Share and any related payments with respect to any property or operations of the Company. These Revenue Share payments would have been payable by the Company to Greenle through December 31, 2038. The Agreement Shares will be initially unregistered and, following their registration, may only be sold at specified dates and amounts ending 2025. The Agreement Shares include a blocker provision which restricts Greenle’s beneficial ownership to 9.9% of the Company’s outstanding common stock. The issuance of the Agreement Shares is subject to, among other things, the approval of the Company’s shareholders at the next Annual Meeting.
“We are grateful for the early support provided by our pre-IPO lenders,” said Shanoop Kothari, President and Chief Financial Officer. “However, as we have matured as an organization and demonstrated the validity of the business model, the time is right to eliminate these legacy obligations. The elimination of these Revenue Share payments will allow us to direct cash towards growth, enhance our margins, and afford us the opportunity to design and implement a long-term capital allocation strategy that more accurately reflects the evolving profile of our Company.”
Mr. Kothari concluded, “We believe that the willingness of our pre-IPO lenders to accept shares with an extended lock-up in lieu of cash payments throughout the life of the selective leases reflects their confidence in our abilities and outlook.”
The Company’s guidance is based on current plans and assumptions and subject to the risks and uncertainties more fully described in the Company’s filings with the United States Securities and Exchange Commission. This 2023 and 2024 guidance provided by the Company is based on, among other factors, current business, economic, and public health conditions; the status of its acquisition pipeline and its ability to close on these potential acquisitions; and its current view of forward-looking unit operating metrics. The Company reminds investors that the impacts of inflation and general market conditions are uncertain and impossible to predict. See “Forward-looking Statements” below.
The foregoing summary of the agreement and the conditions to the issuance of the Agreement Shares is not complete and is qualified by the full text of the agreement, which will be included in the Company’s filings with the Securities and Exchange Commission.
LuxUrban Hotels Inc.
LuxUrban Hotels Inc. utilizes an asset light business model to lease entire hotels on a long-term basis and rent out hotel rooms in the properties it leases to business and vacation travelers through the company’s online portal and third-party sales and distribution channels. The company currently manages a portfolio of hotel rooms in New York, Washington D.C., Miami Beach, New Orleans and Los Angeles. As of March 31, 2023, the company has 1,034 hotel rooms available for rent and seeks to rapidly build its portfolio on favorable economics through the acquisition of additional accommodations that were dislocated or are underutilized as a result of the pandemic and current economic conditions. In late 2021, the company commenced the process of winding down its legacy business of leasing and re-leasing multifamily residential units, as it pivoted toward its new strategy of leasing hotels. This transition has been substantially completed.
Forward Looking Statements
This press release contains forward-looking statements, including with respect to the anticipated success of the transactions contemplated by this press release, the Company’s expectations regarding its financial performance, market rental rates, national or local economic growth, including the impact of inflation, occupancy levels, and the Company’s 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 the 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 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 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.