Good day, and welcome to the LuxUrban Hotels 2024 second-quarter conference call. (Operator Instructions)
Please note this event is being recorded. I would now like to turn the conference over to Adam Holdsworth, Managing Director of Investor Relations. Please go ahead.
Thank you, and good afternoon, everyone. Thanks for joining our conference call to discuss the LuxUrban Hotels second-quarter 2024 financial results and corporate highlights. Leading the call today will be Robert Arigo, Chief Executive Officer; joined by Mike James, Chief Financial Officer.
Before we begin, I'd like to remind everyone that our remarks today may contain forward-looking statements based on the current expectations of management, which involve inherent risks and uncertainties that could cause the actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings. You are cautioned not to place any undue reliance on any forward-looking statements, which speak only as of the date made and may change at any time in the future.
Although we voluntarily do so from time to time, the company undertakes no commitment to update or revise forward-looking statements, whether a result of new information, future events or otherwise, except as required by acceptable law.
This call also includes references to certain financial measures that are not calculated in accordance with generally accepted accounting principles, or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the company's quarterly report filed with the SEC.
With that, I'm now pleased to turn the call over to Robert Arigo, CEO.
Thank you, Adam, and we appreciate everyone who joined our call today.
During this call, Mike, our CFO, and I will review the highlights from our second quarter of 2024, outline our strategy for success through the Lux 2.0 brand, and discuss our recent corporate transformation, which includes the addition of new management team composed of hospitality veterans and a refreshed Board of Directors. We look forward to discussing the significant changes we've implemented as well as providing transparency regarding our current business operations in a necessary adjustments following the previous management team.
LuxUrban Hotels leases an entire existing hotels on a long-term basis and rents of hotel rooms with the properties we manage. And in 2024, we launched a comprehensive initiative to enhance our company's management and operations, which we refer to as LuxUrban 2.0. This initiative includes the addition of experienced professionals from the hotel and finance sectors to our management team, Board of Directors, and the strategic elimination of the non-performing hotel properties.
In targeted efforts to reduce operating overhead, while significant work remains as we navigate the third quarter and prepare for the fourth quarter of 2024, we believe the Lux 2.0 is starting to yield the intended benefits. We currently manage a portfolio of seven hotels in Manhattan, one in Brooklyn and one in New Orleans, all under long-term lease agreement. As of this date of this report, we have had 1,056 hotel rooms available for rent across our portfolio.
Over the past nine months, we are strategically reducing our domestic operations and US-based portfolio, focusing solely on the properties that have the potential to generate positive cash flow. As part of our recent 2.0 transition, we are committed to enhancing our management and operations team by recruiting talented directors and officers with significant experience in the hospitality and financial sectors.
I was appointed in June of 2024, bringing over a number of years -- I'm sorry, 36 years of experience in the hotel industry; while Michael James joined as Chief Financial Officer in the same month, bringing extensive financial expertise. We were also pleased to welcome Elan Blutinger and Kim Schaefer, veterans in the hotel and travel technology, to our Board of Directors.
Our ongoing efforts to strengthen management and operational expertise across all areas of our company include actively recruiting new personnel and reallocating existing management to areas where the skills can be mostly affected and utilized. With my extensive experience in hotel management and successfully operating a variety of properties, I am confident in the tremendous opportunities that lie ahead for LuxUrban Hotels. Our strategic approach to Lux 2.0 positions us to generate sustainable positive cash flow moving forward.
This quarter presented challenges, including write-offs from the previous management team, but I believe we are at a pivotal inflection point. One significant hurdle we encountered was the decision to pre-sell 40% of our room inventory, which resulted in funds being collected at an average room rate in Q2 of $220.96. However, I am pleased to report that these advanced sales will expire at the end of 2024.
I want to repeat that. These advanced sales will expire at the end of 2024, allowing us to enter 2025 with average room rates projected in the same period, same quarter of $252.11, which is a $31 increase just within that quarter.
We are implementing transformative changes with LuxUrban that will enhance our financial stability and provide a solid foundation for future growth. I am excited about the potential that these initiatives hold for positioning our company as a leader in the market.
Now I will turn the call over to Mike to provide detailed review of the financial results. Mike, please take it from here.
Michael James
Thanks, Rob. As highlighted, the financials for the second quarter reflect write-offs and necessary accounting adjustments to properly reflect the financial position of the company. It's important to note that the figures we're presenting today pertain to our core properties and operations, which form the foundation of the portfolio.
Despite these challenges, we are focused on leveraging our existing assets and driving operational improvements to strengthen our financial outlook moving forward. I look forward to discussing the specific results in detail and sharing how our strategic initiatives are positioning us for success.
Net rental revenue for the three months ended June 30, 2024 was $18.2 million as compared to $31.9 million for the three months ended June 30, 2023, a decrease of 43%. The decrease predominantly resulted from the decrease in average units available to rent from 1,625 for the three months ended June 30, 2023 to 1,056 for the three months ended June 30, 2024. This decrease in net rental revenues was exacerbated by booking of guaranteed reservations at relatively low rates for the three months ended June 30 of 2024 as compared to the same period during the prior year.
The TRevPAR, or revenue per available room, was $257 for the three months ended June 30, 2023 versus $188 for the three months ended June 30, 2024. The lower key RevPAR in the current quarter is attributable to the impact of the pre-selling of the rooms at lower rates versus the same period last year, which we are forecasting to increase after the pre-booked guest have stayed at the property.
Cost of revenue increased from$ 21.7 million in the three months ended June 30, 2023 to $40.4 million for the three months ended June 30, 2024, an increase of 86%, primarily as a result of the company expensing the unamortized lease acquisition costs and security deposits surrendered for the properties that were exited during the period, as well as the increase in costs related to utilities, labor, cable, WiFi, credit card processing fees, commissions, and costs related to the relocation of guests from our terminated properties to alternative properties.
Gross profit decreased $22.2 million in the three months ended June 30, 2024 from $10.2 million in the three months ended June 30, 2023, a decrease of $32.6 million, or 318%. The decrease is primarily as a result of the company expensing the unauthorized lease acquisition cost and security deposits surrendered for the properties that were exited during the period as well as deposit surrenders and commission cost to relocate guests from the terminated properties to alternative properties.
Total operating expenses incurred for the three months ended June 30, 2024 decreased approximately $1.2 million from the three months ended June 30, 2023. Of the decrease, general and administrative expenses were reduced, offset by $600,000 for costs related to the exit of our partnership with Wyndham.
Total other expense for the three months ended June 30, 2024 was $185,000 as compared to $29.7 million for the three months ended June 30, 2023. The decrease was primarily due to the lower cash interest and financing costs during the three months ended June 30, 2024 as compared with the three months ended June 30, 2023. As a result of the Greenle revenue share transaction.
As of June 30, 2024, our cash and cash equivalents were $61 as compared to $752,848 at December 31, 2023, and the total current assets were $3,315,844 at June 30 of 2024 as compared to $19,721,057 at December 31, 2023. The working capital deficit was $62.6 million at June 30, 2024 versus a deficit of $13.4 million at December 31, 2023.
We continue to explore capital raising transactions as well as strategic initiatives to improve the company's cash position. Through Lux 2.0 and the recent changes from the previous management team, we are optimistic that our knowledge and strong work ethic alongside our investors and bankers will change the business for the positive as we enter the fourth quarter and into 2025.
I will now pass the call back over to Rob.
Adam Holdsworth
Thank you, Mike. I'm optimistic about the future of our company, especially in the light of the significant changes we've made to our personnel and the strategic direction. We anticipate that the fourth quarter will yield a positive impact on our overall operating results, particularly as the New York hotel market typically performs at its strongest during this period.
With our focus on optimizing operations, we expect to generate revenues at higher daily average rate room rates. As we implement our strategy, we are committed to maintaining transparency with our shareholders. We will keep you informed of our progress through regular communications, including press releases and media updates. This is a transformative moment in our company's history, and we are excited about the opportunities that lie ahead.
With that, I will turn it over to the operator to facilitate questions from the audience.
Operator
(Operator Instructions) Jon Old, Long Meadow Investors.
Jon Old
Thank you, Rob and Mike. First, thanks for battling through all the tough issues you've had to deal with. Appreciate all your hard work and feels like we're close to coming out the other side.
So putting all the tough stuff aside, let's look forward to the next year when all the pre-sold rooms are gone and we're sort of starting fresh. What is -- I know you wouldn't want to give detailed projections, but RevPAR with a clean slate feels like it could be in the $300 range maybe and EBITDA margins still 25%-ish, 30%-ish. Just give us some guidance as to what a clean, fresh year might look like to the extent that you can. Thank you very much.
Robert Arigo
Jon -- Mike, if I could take this, Jon, I want to thank you for your support. Without the investors' support, we wouldn't be Lux 2.0.
So at this point, I'm going to say this, is we all know that the pre-sale had a substantial impact on our overall ability to sell. And there were times where the rates were being sold at $50 or $100 to $150 below market. So we know that same store next year, there's going to be substantial RevPAR growth naturally, just in the fact that our inventory will be released.
So this is the time I can say this. Our VP of Revenue Management, who is one of the most talented people, he's been in the market 38 years. They're very excited about what's going to happen in Q4, as well as 2025. They have control of the entire inventory, and everyone that sees our portfolio knows we have great hotels and strategic locations.
The increase in ADR will be significant. We're also going to realize the year that we're not going to have all these extraordinary changes. We've gone through a complete repricing, resegmentation of the hotel. We're also going to be looking at all new segmentations for our properties. We've been an OTA provider since the beginning of the operations of the company.
We are going to be going after the highest segments with the quality of the hotels that we have within New York. And that's the reason why we changed our approach. We wanted to narrow the field, focus on what we're good at, and deliver better results. And we've gone through some heavy lifting to do that.
But with the ADR lift, the demand that we see in New York, the demand in New York is not going to wane based on what we see. With the migrant housing of over 16,000 keys, the elimination of Airbnb of 44,000 keys, keys in New York are extremely valuable, and we have a great portfolio to start to build from.
What's going to be fantastic for us in 2025 for our audience is we're not going to be riddled by a lot of the legacy challenges we've had in the operations. We have made substantial reductions in labor. We've made tremendous headway with all of our vendors. We are in great standing with the key vendors that are closest to us.
So what we see in 2025 is an opportunity to show tremendous growth, but naturally, it's not a promise. It's going to happen because we've already done the heavy lifting. Now we just need to see the results. Hopefully I answered your question.
Jon Old
Okay, thanks. So ADRs should be -- what would be sort of a market number right now based on comparable hotels and et cetera, et cetera, like [3,350], something like that?
Michael James
I feel confident to say we'll be in the low-3s. It's safe to say that if the market doesn't change dramatically, which -- just to say this, we're seeing Q1 numbers that we've never seen before. I've mentioned this to a few other investor reviews where Q1 historically in New York has always been incredibly soft.
What we're seeing now because of the moderate weather, that's a key factor in Q1, moderate weather in New York has allowed people to start booking conferences and meetings in Q1 that typically happened out throughout the year. The ADRs have grown financially. So we see a tremendous opportunity in Q1 that we've never seen before.
The other opportunity that we've seen in the market, hotels have shoulder nights traditionally. They were Thursdays and Sundays. Because of now the new office where many people do not travel the home office Monday or Friday, those Thursdays and those Sundays are becoming great selling nights in the hotel industry because people are already getting to their location Thursday night and working from that location, same thing on Sunday. So they're missing those traditional travel days.
So we're seeing a flattening out of occupancy, which is great, which allows us to compress and to charge. So Q1, I'm bold on, and I think that we're going to perform well. Q4, I see strong ADR growth in Q4. And I'll say this. Many of you, the New Yorkers, they know that shopping week about 10 years ago became very weak. And over the last three years, it's become, again, what it used to be.
New York is vibrant. There's a tremendous amount of activity going on entertainment wise, as well as other opportunities in New York. So 2024 will see, I'm confident saying at least 15% growth in ADR, maybe even 18%, and we'll see that continue all the way through 2025.
Jon Old
Great, thanks. And then a quick one for Mike. Mike, thanks for -- I know it's been tough getting all the cues up to date, given all the issues, but I assume we can expect a cleaner third quarter without as much noise and on time going forward.
Michael James
That's my number one goal, to be on time and to put out a great product. So going forward, that's what we're looking for.
Jon Old
Okay. Thanks very much, guys. Appreciate all your hard work.
Michael James
Thank you.
Robert Arigo
Thanks, Jon.
Operator
(Operator Instructions) Allen Klee, Maxim Group, LLC.
Allen Klee
Yes, good afternoon. Could you just review for the quarter what -- how much was what you would characterize as one-time operating expenses?
Michael James
I don't have that right now available, but I could work that up and get you what that number is.
Allen Klee
Okay. Thank you.
Michael James
We also restated Q1, so a bunch of the expenses were in Q1 when you look at the date numbers. So there were a bunch of one-time expenses in Q1 as well as in Q2.
Allen Klee
Right. I was just curious for 2Q at this point, but both of them would be helpful. I mean, do you feel like besides the one-time cost, there's other things you'll be doing on the expense side going forward? Or do you think that the run rate that you are -- excluding the one-time cost, is you're comfortable with?
Michael James
We've reduced overhead by a few million dollars by cutting back on the labor. Part of it was due to getting rid of the properties, and the other part, which rolled into COGS, and then the other part were just other individuals that we lightened up on. So we're running thin, lean business, so the cost should stay relatively low for quite some time. And then as we scale into the future, we would add people going forward.
Allen Klee
Thank you. Do you think that -- you said you're at nine properties now? Do you think that there's more that you'll have to sell or that you feel good about that number?
Michael James
No, we feel good about that number.
Robert Arigo
If I could expand on that, I recently spent a lot of time in the hotel industry. And our product, the hotel leasing product, we're kind of redesigning who we are to be able to deliver a product that's interesting. I sat in front of a bunch of hotel owners and I said to them, third-party management companies, their success historically is the ability to bill the owner for everything, in charge of gross revenue fee of 2% to 3%.
We want to design a program that is -- going forward, that is very transparent to the owner as well to us to make sure that we're designing leases that are successful for both parties. And with today's economy, there's a lot of hotel owners seeking relief, seeking a new management option. So there is a lot of people very interested in our formula.
And so we want to make sure the formula is right going forward. That's why we're focusing our efforts in New York. The demand is there, the opportunities are there, but we want to make sure the formula works well there before we look at other bigger markets.
But the reality is New York has so many opportunities for us, and the timing couldn't -- and we believe the perfect storm is right now to look for the future owners. So we're excited about the future. We really are.
Allen Klee
Thank you. So for the property leases that you've gotten out of, what's left in terms of if there is any of the liability or potential litigation related to them?
Robert Arigo
I mean, we've exited Florida. The reason why the hotels we've exited recently was Florida, LA, and these assets were less than -- many of them were less than 75 keys. They were not strategic. They were not high performers.
So the reality is Florida, most of that has been resolved. There'll be some legal costs and some settlement costs, but we don't believe it's going to be that substantial. So those are things we're working through, but I don't foresee those to be substantially going to change the future financial results of this company. And I think many of the owners realize, too, that the solution that we were giving them was not designed the right way for them as well. So I don't see it to be a hindrance substantially in the future.
Allen Klee
Okay, thanks. My last question is I'm looking at the subsequent events section of your 10-Q, and it looks like related -- tell me if I got this wrong, [I did it back at the] envelope. You've raised around $10 million net subsequent to quarter end, and then I guess, how do we think about it? So that number's right, let me know, or in the ballpark. And then you said that the net working capital deficit is a little over $60 million. So how do you feel about kind of those factors?
Michael James
So, yeah, the $10 million is a realistic number for Q3. And we're fighting an uphill battle just burning off the pre-sold rooms. As of the June quarter, I believe we had about $11.2 million unrealized -- unearned revenue on the balance sheet. That will burn off or burn off about $2 million a month. So as we get towards the year end, that will be about $400,000.
So right there, we'll take in, let's say, $10.8 million. We'll reduce that liability. And we're going to continue focusing on getting the company cash flow positive and looking to work that number down quite a bit.
Allen Klee
So the unearned revenue, that'll be cash coming in over the second --?
Michael James
No, no, no. So we've already collected that cash. So that cash has actually been collected and spent. Yeah, so the number is $11.264 million. So it's been collected and spent as the guests come and stay, that's when we earn it. So when the guest shows up, that's when we earn that revenue.
So from a GAAP accounting standpoint, each month, we're burning off, let's say, roughly $2 million. And then next year, if everything remains the same, then that $2 million, let's say, we still rent those rooms out to the exact same rate if you're doing same-store sales, then we would be collecting that cash. But since we're not pre-selling like they were before at the discounts that they were doing, we would expect it to be higher, assuming that the marketplace doesn't change drastically.
Allen Klee
Got it. Okay. Thank you so much. Appreciate it. Good luck.
Michael James
You're welcome.
Operator
Mike Wells, private investor.
Mike Wells
Good evening. I was curious how you're going to handle the Nasdaq compliance.
Michael James
So I'll take that, Rob. So right now, what we're looking to do is we'll probably do reverse stock split that will get the price of stock above the $0.10 level, above the $1 level. And then it's kind of up to us to properly project how we're turning the business around. We'll be answering questions to the Nasdaq on that. And hopefully, the stock will cooperate and we get the market cap above $35 million, at which point we'd be in compliance with the Nasdaq at that point.
Mike Wells
Timing?
Michael James
I'm sorry, say it again.
Mike Wells
What's your timing?
Michael James
The timing on that, if we were to file a proxy, that's probably going to be 30 to 45 days out. We have a hearing set with Nasdaq in October and we'll know a lot after that meeting.
Mike Wells
Okay, good luck.
Michael James
Thank you.
Robert Arigo
Thank you.
Operator
That concludes our question-and-answer session. I would like to turn the conference back over to Robert Arigo for any closing remarks.
Robert Arigo
I would like to say this, during the call, I'm getting so many texts, positive support. I do want to say this, the ownership groups that we've been working with have been exceptional. They see the value of Lux 2.0. They see that in five months we've taken a company to positive cash flow, rebuilt vendor relationships, changed an entire leadership team at the property level as well as the top level. And we brought some of the most talented people in a company that was challenged.
And everyone on the team, I can say this with absolute confidence and support, everyone within LuxUrban is excited about the future. They're excited about turning around a company that they know that the formula that we have behind us is really what the economy needs.
Hotel owners today are just embattled with cost between third-party management companies, franchise companies, and asset managers. They can no longer afford that level. So this opportunity for us to do it right. We scaled ourselves down for a reason. We want to make sure that we are focused, we are forward, and we are strong when we present ourselves to owners.
The strength of Mike and I in the last six months working together, he's been an exceptional partner, is being honest and being transparent. And that's the formula that we're going to use with owners. And that's what owners have not had historically.
They've had third-party management companies hide themselves within their P&L statements. We're opening the book, and we're going to make a difference in this real estate market. And we are going to be -- when we finish what we do, the formula that we run is how everyone should operate or own their hotels in the future.
So it's been a heavy lift for six months, but as they say, it's the hard that makes you great. Lux 2.0 will be great. Q4 will start to show the real results. And I'm excited that the team gets to see it as much as the owners. And of course, never mind the guests of our hotel.
So we look forward for the future. And we thank everybody for their support. Thank you.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.