LuxUrban Hotels Announces Agreement in Principle to Issue Up to $5.0 Million Senior Notes Due 2027

Rhea-AI Summary

LuxUrban Hotels Inc. (Nasdaq: LUXH) has announced an agreement in principle to issue up to $5.0 million in senior notes due 2027 to accredited investors in a private offering. The notes will be convertible into a new series of preferred stock, subject to certain conditions. The company expects to receive approximately $4.425 million in net proceeds after deducting costs, which will be used for working capital and general corporate purposes.

LuxUrban operates by securing long-term rights to entire hotels through Master Lease Agreements (MLAs), managing the properties and renting rooms on a short-term basis to business and vacation travelers. This strategy allows hotel owners to retain their assets and equity value while LuxUrban operates the business and owns the cash flows for the duration of the MLA.

Positive

• Securing up to $5.0 million in additional funding through senior notes
• Expected net proceeds of $4.425 million for working capital and corporate purposes
• Potential for future equity conversion through preferred stock option

Negative

• Increase in debt obligations with the issuance of new senior notes
• Potential dilution of existing shareholders if notes are converted to preferred stock

Financial Analyst

LuxUrban Hotels' announcement of a potential $5 million senior notes offering is a significant development that warrants careful analysis. The company's strategy to secure long-term operating rights for hotels through Master Lease Agreements (MLAs) is an innovative approach in the hospitality industry, but it also requires substantial working capital.

The proposed $5 million senior notes due 2027 could provide LuxUrban with much-needed liquidity to fuel its growth strategy. However, the 11.5% discount on the net proceeds ($4.425 million vs. $5 million face value) suggests a relatively high cost of capital, which could be indicative of the company's risk profile or current market conditions.

The convertibility feature of these notes into preferred stock is intriguing. This structure provides flexibility for both the company and investors, potentially allowing LuxUrban to conserve cash in the short term while giving noteholders an option for equity upside. However, the details of this conversion mechanism and the terms of the preferred stock will be important in assessing the long-term impact on the company's capital structure and existing shareholders.

Investors should closely monitor how efficiently LuxUrban deploys this capital for working capital and general corporate purposes. The success of their MLA strategy in generating sufficient cash flows to service this debt will be critical. While this financing provides near-term liquidity, it also increases the company's leverage, which could be a concern if their business model doesn't scale as anticipated.

Real Estate Investment Analyst

LuxUrban's unique business model of securing long-term operating rights for entire hotels through Master Lease Agreements (MLAs) is particularly interesting in the current commercial real estate landscape. The company is strategically positioning itself to capitalize on the dislocation in commercial real estate markets, especially given the large amount of debt maturity obligations coming due for many property owners.

This $5 million senior notes offering could be a pivotal move for LuxUrban to expand its portfolio of hotel properties in destination cities. The timing seems opportune, as many hotel owners may be facing challenges refinancing their properties due to tightening credit markets and changing valuations in the commercial real estate sector.

However, investors should be cautious. While LuxUrban's model allows hotel owners to retain their equity value, the success of this strategy heavily depends on LuxUrban's ability to efficiently operate these properties and generate sufficient cash flows. The company is essentially taking on operational risk while hotel owners retain asset ownership. This model could be highly lucrative if executed well, but it also exposes LuxUrban to significant downside if travel demand fluctuates or if they're unable to manage properties efficiently.

The use of proceeds for working capital and general corporate purposes suggests that LuxUrban is preparing for growth. Investors should watch for announcements of new MLAs or expansion into new markets as indicators of how effectively this capital is being deployed. The success of this strategy could potentially reshape how hotel assets are managed and financed in the future, making LuxUrban an interesting company to watch in the evolving landscape of hospitality real estate.

MIAMI, July 29, 2024 (GLOBE NEWSWIRE) -- LuxUrban Hotels Inc. (“LuxUrban” or the “Company”) (Nasdaq: LUXH), which secures long-term operating rights for entire hotels through Master Lease Agreements (MLA) under which it manages the hotel and rents out, on a short-term basis, rooms to business and vacation travelers, today announced that it has reached an agreement in principle with certain accredited investors to sell up to $5.0 million aggregate principal amount of new senior notes due 2027 (the "Notes") in a private offering exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”).

The offering of the Notes is subject to the execution of definitive agreements. Subject to certain conditions, the Notes will be convertible into a newly created series of preferred stock.

The Company estimates that the net proceeds from the Notes offering will be approximately $4.425 million after deducting the initial purchasers' discount and other transaction-related costs. The Company intends to use the proceeds from the offering for working capital and other general corporate purposes.

The Notes will not be registered under the Securities Act and may not be offered or sold absent registration or an applicable exemption from the registration requirements of the Securities Act and applicable state laws. 

This press release shall not constitute an offer to sell or a solicitation of an offer to buy any of these securities, nor shall there be any sale of these securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the applicable securities laws of such state or jurisdiction.

LuxUrban Hotels Inc.
LuxUrban Hotels Inc. secures long-term operating rights for entire hotels through Master Lease Agreements (MLA) and rents out, on a short-term basis, hotel rooms to business and vacation travelers. The Company is strategically building a portfolio of hotel properties in destination cities by capitalizing on the dislocation in commercial real estate markets and the large amount of debt maturity obligations on those assets coming due with a lack of available options for owners of those assets. LuxUrban’s MLA allows owners to hold onto their assets and retain their equity value while LuxUrban operates and owns the cash flows of the operating business for the life of the MLA.

Forward Looking Statements
This press release contains 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). The statements contained in this release that are not purely historical are forward-looking statements. Forward-looking statements 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,” “projects,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this release may include, for example, statements with respect to the Company’s ability to successfully de-platform its properties from its former franchise partner and operate independently, its ability to improve its working capital and cash flow profiles, enhance its balance sheet and deliver organic revenue growth, scheduled property openings, expected closing of noted lease transactions, the Company’s ability to continue closing on additional leases for properties in the Company’s pipeline, as well the Company’s anticipated ability to commercialize efficiently and profitably the properties it leases and will lease in the future. The forward-looking statements contained in this release are based on current expectations and belief concerning future developments and their potential effect on the Company. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements are subject to a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results of performance to be materially different from those expressed or implied by these forward-looking statements, including those set forth under the caption “Risk Factors” in our public filings with the SEC, including in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 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 with the SEC, the base prospectus comprising part of the Registration Statement and when filed, the prospectus supplement filed with respect thereto. 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.

Additional Information
In addition to the debt financing described above, the Company has filed a registration statement (including a prospectus and a prospectus supplement dated July 26, 2024) with the SEC for an offering of common stock. Before you invest in the common stock, you should read the prospectus and the prospectus supplement in that registration statement and other documents the Company has filed with the SEC for more complete information about the Company and the offering of common stock. You may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, the Company, any underwriter or any dealer participating in the offering of common stock will arrange to send you the prospectus and the prospectus supplement if you request it by calling Alexander Capital, L.P. at 212-687-5650.

Contact
Devin Sullivan        
Managing Director
The Equity Group Inc.
dsullivan@equityny.com

Conor Rodriguez, Analyst
crodriguez@equityny.com

FAQ

What is the purpose of LuxUrban Hotels' $5.0 million senior notes offering?

LuxUrban Hotels (LUXH) is issuing up to $5.0 million in senior notes due 2027 to raise funds for working capital and other general corporate purposes. The company expects to receive net proceeds of approximately $4.425 million after deducting costs.

How will the senior notes issued by LuxUrban Hotels (LUXH) be convertible?

The senior notes issued by LuxUrban Hotels will be convertible into a newly created series of preferred stock, subject to certain conditions. This feature provides potential equity conversion options for noteholders in the future.

What is LuxUrban Hotels' (LUXH) business model?

LuxUrban Hotels (LUXH) secures long-term operating rights for entire hotels through Master Lease Agreements (MLAs). The company manages these hotels and rents out rooms on a short-term basis to business and vacation travelers, generating cash flows from the operations while hotel owners retain their assets and equity value.