LuxUrban Hotels Stock Plummets After Disclosing Audit, Posting $65M Loss

Shares in LuxUrban Hotels lost roughly 30% of their value on Wednesday after the Miami-based hospitality company posted a $41M quarterly loss and disclosed that it wouldn't file its annual report on time as it undergoes an internal audit.

The company disclosed the update in a press release Tuesday evening before the company's scheduled earnings call Wednesday morning, which was abruptly canceled.

The disclosures came after a short seller report and an investigation by Bisnow revealed that the company had potentially misrepresented the status of at least two hotel leases on previous financial disclosures.

In unaudited financial statements published Tuesday, LuxUrban said it lost $65.2M in 2023, $40.2M of which came in the fourth quarter. The losses represent massive increases from 2022, when it reported a $9.4M annual loss. The company reported $114M in net rental revenue last year.

It also revealed that it had surrendered four hotels it previously leased, dropping its portfolio of leased hotels from 18 to 14, and announced that it “decided to not move forward on a previously agreed to Master Lease Agreement due to repairs not being completed by the landlord.”

It didn't disclose which hotels it surrendered or isn't moving forward with. Earlier this month, Bisnow reported that the hotel company had said in a financial disclosure that it had two hotels listed as “under lease,” but co-CEO Brian Ferdinand said in an email that those hotel deals were actually “pending.”

The discrepancies were cited as cause for concern to Bisnow by two independent analysts who reviewed LuxUrban's disclosures. 

LuxUrban said it plans to file a notice with the Securities and Exchange Commission that it would be late to disclose its audited 2023 annual report because of an expanded internal audit. It added that it expects to file within the SEC's 15-day grace period for late filings.

“In a little more than 18 months, we have grown from a newly public start up to an evolving and maturing operator of a wide range of hotel properties in destination cities,” Ferdinand said in the press release. “In that time, we have learned a lot and have gained a better understanding of the inherent opportunities and complexities of our industry. Although there is still much work to be done, we have responded in kind so that we may fully capitalize on these prospects while both addressing the concerns of and delivering long-term value to our shareholders.”

The company didn't say why it was embarking on an expanded audit, only that it was recommended by its board's audit committee and that its independent public accounting firm, Grassi & Co., would “conduct a thorough internal review of certain aspects of the Company’s operations.”

The company's operations have come under fire in several lawsuits around the country over failure to pay vendors, pay rent or secure the necessary insurance for hotels it operates, Bisnow previously reported.

The company is also dialing back its aggressive growth plans. Besides shrinking its portfolio of rooms from 1,599 to 1,406 with the surrendered hotels, it also said it would be “adopting a slower pace of acquisitions.” An investor presentation from January estimated LuxUrban could operate as many as 12,000 rooms by the end of 2024.

“Following a period of significant expansion, we have adopted a more strategic approach to growth in 2024 with a focus on improving our working capital profile, receivables, and free cash flow,” LuxUrban co-CEO and Chief Financial Officer Shanoop Kothari said in a statement.

Ferdinand, Kothari and a LuxUrban spokesperson didn't respond to Bisnow's requests for comment Wednesday afternoon. 

After touting its profitability in previous quarters, LuxUrban's bottom line has veered into the red. It recorded a $16.5M Q4 charge attributed to a combination of exiting leases, legacy union costs, restructuring costs and “bad debt expenses.”

Nearly $6M of those costs were the result of relinquishing security deposits for the four surrendered properties and “potential claims against the company,” according to the release. LuxUrban gave up on the four hotels because they were either too small, in a struggling market, were performing poorly or “of a quality that could create other risks to the Company,” it said.

Chris Drose, who runs short seller Bleecker Street Capital, which published a report in January that cast doubt on LuxUrban's financial statements, told Bisnow Wednesday that he was surprised by the size of the charges LuxUrban disclosed.

“All those costs were lumped into that bucket, and I was like, ‘Wow, I did not expect to see such a big number,’” Drose said in a phone call. “That's a huge loss.”

The audit is just the latest turmoil to hit LuxUrban, which was founded as short-term rental provider CorpHousing Group.

As the company was raising funds to go public in 2022, it faced allegations, first reported by Bisnow, that it had failed to refund dozens of customers and was being sued by former employees alleging tens of thousands of dollars in unpaid wages.

New York City fined the company $1.2M earlier this month for illegally operating short-term rentals over a three-year period. The next day, LuxUrban announced that Ferdinand would step back as co-CEO, a move he told Bisnow was previously planned.

The company's launch as a hotel operator came despite few executives and board members having prior experience in the hospitality industry. It has sought to change that with recent hires and appointments. It named a new chief operating officer with a long track record in the hotel management business and a veteran corporate officer to the board. On Monday, it named former Great Wolf Resorts CEO Kim Schaefer as another new director.

Shares in LuxUrban closed trading on Wednesday at $1.50 a share, down 29.9% for the day and 73.6% so far in 2024. Several class-action law firms issued press releases this week calling for investors who had lost money in LuxUrban to file claims against the company.