Q2 2020 Playa Hotels & Resorts NV Earnings Call

August 7, 2020

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Q2 Twentytwenty earnings Conference call.

This time, all participants I know listen only mode. There will be a presentation followed by question and answer session at which time. If you wish to ask a question you will need to press star one on your telephone.

You need any fortress essentially suppressed star zero.

I'd like to today's conference call it should be recorded.

Now I'd like to have the conference over to your speaker today Mr. Ryan.

Thank you. Please go ahead Sir.

Thank you very much Michelle good morning, everyone and welcome to apply hotels <unk> resorts second quarter 2020 earnings conference call before we begin I'd like to remind participants that many of our comments today will be considered forward looking statements that are subject to numerous risks and uncertainties that may cause the company's actual results to differ materially from what has been communicated.

Forward looking statements made today are effective only as of today and the company undertakes no obligation to update forward looking statements for discussion at some of the factors that could cause our actual results to differ. Please review the risk factor section of our annual report on form 10-K, which were filed at the end of February with the Securities and Exchange Commission, we've updated our Investor Relations website at investors that fly resort.

It's dot com with todays.

Recent releases.

In addition, a reconciliation to GAAP and non-GAAP financial measures, we will discuss on the call were included in yesterday's press release on todays call Bruce Winski, Plies, Chairman and Chief Executive Officer will provide some comments on the second quarter and key operational highlights I will then address our second quarter results or liquidity situation or outlook. Bruce will then wrap the call with some concluding remarks before we turn it over to Cuba day, but.

Now I'll turn the call over to burst.

Great. Thanks, Ryan Good morning, everyone and thanks for joining us.

We appreciate your interest imply a during this extraordinary time for the world and certainly for our industry I'll begin today by reviewing some of the measures we have taken to prepare the resource for reopening share insights with respect to what we're seeing in the operating in booking environment.

Then turn the call over the Ryan to discuss our balance sheet and outlook.

The time of our Q1 earnings call or focus was on mitigating the financial impact of travel restrictions and the safety of or associates and stakeholders as we temporarily ceased operation at all or resorts temporarily ceasing operations that are resorts did not however, meaning that we have been sitting idle usually better [noise].

Excuse me using best practices glean from our Green partners. There is governing bodies, leading experts are operations in marketing teams have tirelessly labor to reimagine, what the resort experience should look like in the new normal culminating in these reduce introduction of the playoffs safe to say program.

As we mentioned on her last earnings call, we have the luxury of having expansive footprints numerous dining outlets in predominantly outdoor in open designs at the majority of our resorts, which provides some much needed flexibility to redesign with distancing and safety precautions in mine.

I will not go into all of the specific details regarding the individual safety measures. We're taking the guests staying at our resorts now see safeguards replicable areas touchless payment in booking option using a QR code and our new play out sanitizer MPP available throughout our resorts and medical staff at each of our properties.

I encourage all of you to check out or May four press release detailing or protocols and the videos on our website.

One major milestone in the reopening process that is extremely important to me is bringing back thousands of our associates to the resort and being able to help generate activity in the local communities.

Shutting down operations that are resorts, what's the most difficult thing I have done in my 30, plus years, and hospitality and lodging business, but x. I am extremely grateful to be able to bring back. So many of our associates that have helped build this great company and deliver service from the hard to so many travelers every day.

From a balance sheet perspective, or subsequent asset sales and capital markets transactions have addressed or immediate liquidity needs, allowing our focus to turn to the successful in safe reopening of or resort portfolio.

Travel restrictions in various countries in the Caribbean Latin America began to ease in June thus, allowing us to begin the reopening process in July for many of our resorts.

As we discussed on our last call using the fairly close proximity of our resorts to each other in certain destinations as a resource we were able to aggregate demand and plan to take a phased approach to reopening based on the demand we're seeing in each market and the response to our new offerings in safety protocols.

We believe that our property level breakeven occupancy up prevailing market rates expected in the third quarter is in the range of 35% to 45%.

But our indifference point, where we lose the same amount open or closed is in the mid teens. Our objective is to open resource, which we believe can sustain occupancy levels near the indifference point, because we believe booking momentum is likely to build once guests have confidence that the lights will be onto their future stays.

And more information regarding regarding the experienced offered at our resorts is available on social media.

This view has been playing out thus far.

Additionally, opening the resort help gauge crude demand levels as we were able to wash the sale bookings that had no intention of traveling to get a better sense of how to phase the rest of the opening timeline and set us up for a successful high season.

Thus far we're extremely pleased with how business is building, particularly in Mexico as the market has seen a healthy amount of airlift return consumers appear to be taking comfort in the fact that there's a robust medical system at the need were to arrive in close in bookings have been strong.

The customer reviews for those who have traveled thus far have been extremely positive as well, we're working on increasing our customer base by expanding sales effort to new segments prioritizing, our health and wellness offering and as many of you have seen offering a unique extended stay program called work and learn from Paradise today.

Name a few examples Ryan will update you on the financials in our thoughts on liquidity management momentarily, but as we move through the remainder of 2020, we are aiming to see sequential improvement on a cash burn basis as more of a resorts open and momentum builds as we move toward the high season in the new year.

Shifting over to our sales efforts, we remain focused on growing our direct booking lowering our customer acquisition cost and are confident that we're on target with our five year plan to increase consumer direct business to at least 50% by 2023.

In aggregate during the second quarter 2020, 51.6% of room nights booked were direct that is up 23 percentage points year over year, reflecting the relative strength of our direct channels and our business model as a whole versus most of our competition.

To give a better gauge of the underlying fundamentals of our direct to consumer website.

As of July 15th like resorts Dot Com was pacing behind last year with 32.5 million of gross revenue on the books for 2020 versus 47.5 million in 2019.

During the second quarter, PR dotcom accounted for 28.3% of or total bookings up 17.4 percentage points year over year. Looking ahead to 2021 layers worth Dot com has generated 7.4 million of bookings for next year versus 6.1 billion for 2020 at the same time last.

Here.

Generally as we think about direct booking growth partnering with globally recognized us bringing is key to driving the highest value guests at the lowest possible costs, where resorts by reducing customer acquisition cost.

Increasing or total addressable market mitigating the impact active supply growth and minimizing the negative effects of competition.

With that I will turn the call back over to Ryan to discuss the balance sheet and what we're seeing in the operating environment.

Thank you Bruce good morning, again, everyone given the entirely close status of our resort portfolio during the second quarter I'll jump straight to measures we've taken to preserve liquidity and then give some color on forward bookings and market trends as Bruce mentioned, we took several drastic steps to reduce cost and enhance liquidity over the past few months as our resorts were close entirely due to the company.

Indeed pandemic, we reduced all non essential property costs, all non revenue generating marketing spend on non mission critical capital expenditures, all non essential corporate travel and make company wide compensation reductions.

The bulk of our DNA savings in the second quarter came in the form of reductions in sales and marketing spend and compensation in head count reductions, which we expect to fully paid back end as we reopened hotels and resorts them appropriately, but some portion of the DNA savings will likely be permanent.

Our goal is always is to improve cash burn, but we once again cannot give earnings guidance given the continuing changes to travel restrictions and limited visibility.

On the capital markets front as you recall, we drew down the maximum availability under our existing credit facility in March but as it became apparent that the pandemic was going to be disruptive for a prolonged period of time, we began to pursue other avenues of enhancing liquidity.

In May we closed on the sale of two resorts in Jamaica, and what we believe was the first lodging asset transaction in the postcode world.

I can assure you this was no easy feat and the pandemic presented obstacles on the touring administrative and legal front. If you recall at the time of the Sajid core transaction. The ultimate plan was to renovate and expand these two resorts with our current leverage profile, we would have been unable to reposition these hotels for the foreseeable future and the hotel didnt fit the strategic vision of the portfolio.

As is given the capex need distance from the airport and non global brand affiliation.

Also in June we announced that we raised a total of 224 million in the form of 94 million credit facility $110 million property loan and 20 million common equity issuance at a price of $4.10 per share in a private transaction.

As we've mentioned world and state of travel restrictions remains highly uncertain and we want to ample liquidity to whether another disruptive shock to the travel landscape and that dictated the size of the capital raise.

With respect to cash usage, our cash burn rate in May and June was consistent with what we've communicated to the investment community and as we mentioned on our last earnings call. We've also provided cash use bridge from May Onest through June Thirtyth in our earnings release that will provide you with additional details on the sources and uses of cash since the last time, we spoke.

One item to note is the capex spend of approximately 7 million during the second quarter. This was associated with final payments for Capex at our Hyatt Coopcana that were originally intended to be spread out over 2020, and 2021, but was required to be accelerated to eliminate all outstanding liabilities of the resort in conjunction with the property loan agreement we entered into in June.

There was roughly 4 million a finer spinal spend attributable to coopcana that will impact our Q3 cash burn.

And as we've discussed in the past, we still have some outstanding payments on the Hilton La Maana conversion project as well and are in the process of negotiating the terms and amounts of these payments.

Now that Weve opened many of our resorts, we will not be updating our burn rate target at this time, given the lack of earnings visibility in the market, but we'll speak to burn metrics on our quarterly update calls.

An important point to share however is that nearly all of our hotels that we opened at the beginning of July thus far are at her well above the respective indifference point.

Additionally, because we're still getting our restarting cost and investments calibrated as we get accustomed to the new normal we don't have an estimate of recurring incremental costs related to new safety protocols to share with you at this time, where we can share with you is that the incremental labor costs are negligible at this point and we've invested roughly 600000 in capex to prepare for reopening.

In a socially distance manner.

We're pleased to see that guests are responding extremely positively to the intention to safety that as a parent throughout our resorts and demonstrated by our associates, especially versus some of our competitors.

Lastly, I'd like to point out that the incremental capital we raised will increase our interest expense by nearly 5 million per quarter going forward.

I'd like I'd like to now turn your attention to our group business, we were fortunate that coming into the year, we had slightly over 50% of our mice business slated to stay in the first quarter and were able to recognize that revenue with little disruption prior to the crisis.

Another roughly 30% was roughly was scheduled to stay in Q2 and hope that business about half those groups had already rebooked at the time of our last call with 60% of them Rebooking for later in 2020.

25% Rebooking for 2021, and the rest Rebooking for 2022.

As of the disruption from the pandemic has continued the complexity of our mice group business for the second half of 2020 has continued to change.

Since our last earnings call. Our Q3 group business has seen roughly 1.3 million of cancellations and we still have roughly 1.6 million on the books for the third quarter.

Our fourth quarter group on the books business has experienced a modest net loss of only about $600000 since our last investor update.

So in aggregate approximately 51% of our 2020 group business that had been impacted as a result of the crisis has definitely cancelled or not rebooked, So said differently.

All the group business that was on the books at the beginning of the year prior to the crisis, we were able to recognize roughly half of that.

Fourth of that moved or rebooked, and a fourth outright cancelled.

Our 2021 group business has been quite fluid as well and we're currently modestly trailing behind where we're pacing at the same time last year and Thats inclusive of over 4 million a business that shifted from 2020 to 2021.

On the leisure side of the group business, our wedding sales team and marketing team has been extremely active during the second quarter, our wedding business on the books for 2021 has grown threefold since mid February in a very encouraging sign that trends will hopefully begin to normalize as we head into the new year.

With respect to advanced deposits. We currently have just over 21 million sitting with us versus $30 million at the time of our last earnings call with 38% of that $20 million that is related to stays in the second half of 2020.

The 25% of that associated with stay slated for 2021 and the balances for all periods thereafter.

All of the aforementioned efforts in transactions bring us to a total cash balance of 280 million as of June Thirtyth, and that's inclusive of roughly 28 million in restricted cash.

On the other side of the Ledger, we have of 85 million outstanding borrowings on our original revolving credit facility and total outstanding debt of $1.27 billion, we do not have any debt maturities until our revolver matures in April 2022.

And our term loan does not mature until April of 2024, one final item to note in June we reached an agreement to amend our existing revolving credit facility to provide relief for the spring leverage based covenant test through and including the second quarter 2021.

We're very very grateful to have phenomenal lending partners and extremely pleased with the outcome. We've included the new springing Covenant test conditions in our earnings release for your reference.

Our forecasted use of cash does not include additional share repurchases at we have as we have decided to suspend buyback activity for now.

Now turning our attention toward operating tens and the reopening process as we look at each of our jurisdiction. We believed that roughly 50% of all the rooms in the market have reopened in Mexico in Jamaica, and roughly 25% in the Dominican Republic.

And competitive activity has been as expected thus far but again. These are just estimates we believe customer sourcing via our brand partners has been a decisive advantage for us during the reopening process as our direct channel take significantly outperformed other challenge source of businesses.

Taking a look at who is traveling over 50% of our business booked during the second quarter as Bruce mentioned came through direct channels geographically our usource.

Business increased 600 basis points to 80% of all business booked and Mexico based business increased 400 basis points to 13% of all business while in the other side, Canada fell 600 basis points in Europe fell 100 basis points.

We've mentioned several times of one of the biggest challenges we face is a hotel operators during during the reopening process has been that continued contraction of the cancellation period to roughly 24 hours across our portfolio and across the lodging industry generally I won't go into too much detail due to competitive reasons that we did see cancellation activity, leading up to the reopening of our resorts across the board.

Very much in line with our internal projections as a reminder, the vast majority of our leisure business is not paying advance. So there are no no deposits to refund with most of these cancellations.

We have however been extremely encouraged by the daily occupancy build for the resorts that have opened in Mexico and by the level of non package revenue per occupied room that is being spent.

Which we attribute to the cabin fever phenomenon and the implementation of our Touchless QR code App that allows us to effectively up sell for experiences and products across the resorts.

To make it has been more volatile out of the gate, despite having the healthiest book position not too long ago, which we believe is likely attributable to changes in the airport arrival protocol related to covert 19.

Given that the D.R. began their reopening process a few weeks ago after Mexico in Jamaica.

It's too early to comment on what we're seeing there, but we're very very encouraged by the early trends.

We shared on our last call that our revenue on the books for the fourth quarter of 2020 was slightly ahead of our position. The same time last year and that we expected that to fall behind prior year meaningfully as we got closer to the fourth quarter.

As of now our revenue in the books is down approximately in the mid 30% versus last year for the fourth quarter with the drop off in pacing being roughly split evenly between Jamaica and Mexico, while the D.R. is actually improved given the new high at properties that we opened.

As we mentioned before while this is extremely encouraging guests will still need to be able to travel to the resorts and there's always the risk of delayed cancellation given the 20. The current 24 hour policies available in the market with that ill turn it back over to Bruce for some closing remarks.

Thanks, a lot Ryan.

To recap the reopening process is well underway with approximately two thirds of our resorts currently open for business.

Operating level cash burn is heading the right direction as or direct booking engine offset weaker channels in should give us a unique advantage versus the competition.

And we believe that are immediate liquidity needs have been largely appropriately addressed for the current environment.

Specifically on our liquidity in estimated uses of cash I want to reiterate the following points that Ryan and I have discussed on this call first or property level cash burn. While we were closed was approximately eight to 9 million per month in going forward. We expect that number two improved sequentially as two thirds.

Of our resorts are currently open and help alleviate pressure on cash from.

Second our monthly interest expense was approximately 5 million per month prior to the incremental financing we raised in June which adds approximately $1.5 million per month or total cash interest of 6.5 to 7 million per month going forward.

Third our corporate overhead was forecasted to burn approximately 3 million per month. During Q2, it should increase incrementally by 500 to 700000 per month in Q3, as we begin to reopening process, which is about half of the corporate expenses reduced in Q2 versus our original budget at the start of the year.

Fourth we still expect 1.5 million per month for insurance premium payments.

Taken altogether or cash burn will be approximately 20 million per month in a zero revenue environment, but given the fact that two thirds of our resorts are open we would expect that number to be lower.

It may not feel like it but high season is rapidly approaching which should lead to significantly higher 80 hours compared to Q3 and substantially help our cash burn all else equal.

Im very optimistic about our ability to rebound as we move into 2021 and Im encouraged by the early trends, we're seeing in a resorts leisure traveler is resilient and we'll continue to bounce back faster than business transient travelers and our customer source. The via brand affiliations has enabled us to opened faster and stronger than many of our peers.

Although guest can see our smiles they can see our hands over hearts, Walt welcoming them back to our resource.

With that I will open up line for any questions.

Ladies and gentlemen, we will now begin the question and answer session.

A question. Please press star one on your telephone if you Miss you guys, Chris Please press the pound.

Your first question comes from the line of Chris.

Your line is now over.

Hey, good morning, guys.

Right.

Morning, appreciate all the all the data points.

So first question was just kind of I guess maybe for Bruce.

Bruce Youve been been in this business awhile, how do you think the rate integrity holds up.

We've never seen anything like this but I know rates had been a little bit so under a little bit of pressure, particularly in Mexico last couple of years.

How do you think it goes from now until high season that are you confident that the you can get the kind of rates you want and need in the first quarter.

Sure pure credits well first of all I'd like to avail comment on that I am really old by saying I've been in the industry 11 times. So I guess, a subtle input impacted our Christmas, but as you are right I've been around.

In a lot of downturns see lot of different situation, including.

H, one and one in Sars that nothing compares to this right. So everything we've all seen in our lives from a lodging and business in general environment. Nothing compares to this I think the one positive and Ryan could give more detail about if I think the one positive here. If you want to dig a positive out of everything is that right.

Is not the discerning issue. Okay. So people who are going to travel are going to travel because they want to go where they have the best chance, okay of being very safe and having a great experience and I think if you look at our resorts you look at Playa Stakes day, you look at all of our protocol up we.

Low away our competition I mean, absolutely blow them will well, okay. If you look at hotels in the U.S I mean forget about.

Covance spikes in Florida, but just take resorts and Florida, they're small they are tight there congested. They do not give you the kind of experience that you're going to get a ours ours are big expansive multiple restaurants lots of room to do whatever you want to do and socially distance. So.

When people are evaluating whether or not they want to go on vacation and I think theres such tremendous pent up demand that you really see in Mexico, where their certainty on the airport protocols and people are confident that you're really seeing that happening there they're going to pay the rates. So I'm not concerned about the rates I think what we need to see is when.

There is more certainty as to.

The experience okay. The experience at the airport the experience on the airplane the experience are rising into the destination. When people are confident of that and we're going to seat on social media, they're going to go to the resorts and is this I mean I haven't told everyone. I run into is like I can't wait to go to one of your resorts are you guys open what can you do in so I think you're going to see it is.

I'm not concerned about rates for the first on probably my career I'm not concerned about rate what I'm concerned about is occupancy and thats going to build is going to take time is not going off on the MRO, okay, but it's going to build and I think we offer such a better product than what people can get in the us or in Europe or anywhere else.

I think youre going to see us doing better in the near medium and long term and Chris just add a little.

At some numbers to that you heard us talk about the fact that we are booking in the second quarter well over 50% direct.

And.

It just shows that the fruits of our labor are well worth it tour operator business is about 60% of where it was last year and odah about half of where they where last year and so it's encouraging sign of revenue that much direct so you've heard us talk about being from a revenue perspective about in the mid 30% behind prior year for fourth quarter our rate.

The only down about one percentage point and if you look out to the first quarter. It's up about one percentage point, so all things equal rate is holding and quite nicely all things considered.

Okay. Yes. Those are those are I think pretty pretty favorable data points.

Thanks, Thanks for that and then the other question would be on the on the cancellation policy where.

Thank you guys in the near term mentioned, that's a little bit of an issue what point do you think that.

Goes back a little bit more towards normal and can you can you maybe negotiate something.

And especially with Hilton or higher given the kind of unique nature of bookings for year for your hotels.

Yes, I think that I don't have an answer as to when that would change I understand why big brands and just the overall industry is doing so to make sure there stimulating demand I understand that I think the stance we've taken for a lot of our customers is that they look.

At the end of the day to the best of our belief we can move them. That's what we'll do and talk to them and this is not unlike a few others that have said this on their call remind them that they look.

This is still a pretty good rate here getting and if you wait him cancel and you try and come back a year from now our six months from now that rates only going to go up so that's kind of the best thing we can do it in whether the global pandemic I think it's kind of hard. However, I think it's hard to argue against force majeure clauses, but if you can convince them, particularly when it comes to group and just fantastic expensive.

30 that we have so much easier to have a group a group.

Meeting or a wedding at one of our properties in somewhere else. So I think it's easier to convince somebody to move rather than cancel that said, it's still very difficult and I'll just comment on the wedding side of things I got to report the other day from a wedding.

Middle market kind of firm in what they were showing is that wall.

Paul.

You know, there's some cancellation of weddings most of them are just being deferred so they're being deferred into for the most part into 2021. Some into late 2020. Some of the 2021 some people or are still getting married now in there just pushing off the celebration. So theres a lot of of that business, which I don't think.

It's going to go away and I think you're going to see the same with some of the group business do where people are like Hey, we don't wanted to kind of stopped doing what we want to do and there is the reasons a book back to begin with in the pandemic has has put kind of temporarily temporary hold on things, but I think youre going to see people are going to want to get back celebrate wed.

Adding celebrate.

Big sales initiative, all those kind of things.

Again optimistic that we're not going to lose tremendous amount of that business.

Great very helpful. Just just one last was impossible to know.

You guys mentioned the differences in how you picked up more us business and lost a little bit of Canada, Europe and picked up Mexico, what how would you kind of bucket the rate differential I would guess that business coming from US is generally a highest rate is at the way to think about it yes, yes, obviously, it's always thought the highest rated.

Other thing to think about is what time of year warheads, okay. The the European business coming in the summertime is typically.

Group business is not the best rates, so if you're getting more Mexican and US business here, you are getting better better rate.

By definition.

Great very good thanks, guys. Thanks, Chris.

Your next question comes from the line Chad Beynon your line.

Hi, Good morning, Thanks for taking my question in a congrats on everything you're able to accomplish on the balance sheet in the quarter. Thanks Chad.

First wanted to start with.

Just your outlook I guess kind of on the back of what you guys were able to do from a financing standpoint, what's going to happen with some of these family owned private companies in markets that you compete against I mean, what or what's their financing situation do you think that could help.

Sure up some assets or do you think those will I guess remain closed could you just kind of frame out what this means for you all inclusive industry over the next couple years, given that dynamic that sure search and that's a that's a great question.

If you go back back.

At the beginning apply up one of our premises was that we felt we could be a consolidator in the all inclusive space that you had these family owner operators.

That were second generation going into third generation and we thought it's just us a great opportunity and I think as you're well aware openness to our shareholders or were these are not there are no branded affiliations Caesars brands that most people don't really.

No. We are recognized in predominantly it's been sold through tour operators and it's been it's been on rate issue. Okay. So they get the volume because the rates are low in again go into kind of the answer to Chris is question right now low rates aren't the issue, okay, and especially when a lot of the tour operators.

Failing, okay, and I mean that industry is going to be very different if it's even around in the near future, okay, but going back to your point about the family owner operators I think there's tremendous opportunity right now into the discussions I've had with some of the people at those companies is that they felt in this was going back to the beginning.

In March I guess I was at the beginning but for us going at the beginning and then until recently in the view early on was that Oh, it's going to be really bad but by November things are going to be good December is going to be good. The high season is going to be good is so all we need to do is survive kind of through September October.

I don't believe that's the situation for them and I think they're going to be very stressed so how will they have the financial wherewithal to reopen I don't I don't think all of them will instead of going forward I think theres two benefits to apply it from this okay from a medium and long term strategic view one is that there were going to be properties.

Coming out of out of the system right, they're just going to be properties that don't reopened and thats going to benefit US second okay. I think theres going to be companies that are going to be forced indoor highly encouraged okay. Two to sell and I think the advantage play has as a public company will be the ability to execute on some of.

Those transactions and I think our model of of rebranding when we've done the rebranding.

To the Hyatt or Hilton brand. Our case studies are tremendous the success rate is tremendous so as we look into the opportunities going forward the ability to rebrand. These properties could really be positive for us for the industry for our our business. So I think it's a positive in the long run for us.

I don't ever want to see someone else's pain were are suffering but I think it could be like hey, let's collaborate in some way and we can both when I think is that's what we want to pursue in its really the opportunity for them and for us to do better in do better than the rest of the competition in the all inclusive space.

[music].

That's great. Thank you and then.

Right and I guess moving on to or I guess round numbers for EBITDA margins.

I guess you have you have two factors you have some extra costs going into the business, but then as you read examine the properties you were able to take out some things if we if and when we get back to.

I guess historical revenues at a property or within a region should we expect that margins get back to the same level or do you think it will take just a little bit of a longer ramp maybe an extra couple of quarters to get back to those kind of high.

High Twentys Thirtys that we saw pretty pandemic.

Yeah. It honestly, Chad, it's really too early to tell right now and like we said in our in our comment so far the additional opex has been negligible in the capex hasn't been that much but just given the fact that we've been open for call. It 30, something days is just too early too early to tell if itself, but we do think that some of the amount spent in the staffing that we havent.

Properties currently it's probably appropriate for at least get us to probably 40, 45% occupancy and then you can think about probably a sequential step from there where you start into layer on more staffing.

So we think were appropriately SAP today, but of course, they just too early to tell what those costs are going to be overtime.

Okay.

Thank you very much guys. Thanks, Chad Thank you.

Your next question comes from the line of Fat tissue. Your line is now open.

Hi, good morning, everyone that a lot of my question's been answered but.

I wanted to hear your thoughts on.

You are seeing for market share gains.

Currently and expectations going forward. Thank you.

Sure I mean, I think it's again, it's a little hard just to tell you know as you're well aware, we don't get good star data or other data.

In the marketing given kind of the fluid situation. We're facing today, we don't see a lot of it having said that go to our direct booking numbers look at what we're accomplishing and the fact is traditionally the biggest producer of customers into all inclusive has during the term for operators in a lot of our competitors realized hugely.

On on that.

I'm talking 70, 580 plus percent, okay. We do not so you're seeing our strong on direct booking numbers and I think thats why were doing so well and I think going forward, we're going to continue to do well other people are having to really discount their rates or discounting the rates because we're losing their distribution sort.

So we are holding our rates. So I think you know of the proposition going forward is going to be positive for for us and again.

I don't want to look at other people, saying, but you know the disruptions going to happen. It is half. It has happened. It is happening is going to continue to happen. We're all going to have to do business.

In new ways and that's what we're focused on I think the Fortunately for Playa was we were already doing business a new weigh in with the brand affiliations that we have done I think you're going to continue to see that growth.

Okay. Thank you.

Thanks, yet.

And.

Your next question comes from the line of Tyler batteries. Your line is now open.

Thank you good morning.

What about for first just in terms of future bookings.

There are booking window at all just wondering how far in advance gaps are making there's some making some of their reservations and then I'm also wondering how far in advance guests or can't find their reservations.

Yeah. So it is up on a cancellation is perspective, it's all over the map.

We saw cancellations a couple days in advance two weeks in advance just given the flexibility that is out there and again that it wasn't anything.

Different from what we would've expected it was pretty much in line with what we assumed to be internal wash if you will.

The booking window is still continues to compress you've heard us talk in the path kind of 30 to 45 days you've got some people booking a couple of weeks out its still just overall with the advent of technology, even pre Cove. It allows people more choice into look online in shop for best rates and so that brought the booking window down obviously I'm not talking about group.

The leisure transient.

But then this process and this cobot crisis has just kind of continue to compress at it does make visibility more difficult and so it's harder to projected at this current time my hope is that at cancellation policies eventually loosen and go back to little bit normal back to our kind of our traditional 14 days for international leisure that helps a little bit the visibility.

And the booking window.

Okay, Great and then.

On the labor side of things just as you ramp back up operations at your properties have you had any issues rehiring.

Employees at the property level no not at all if you think about in just one the destinations that we operate in tourism is the big source of of jobs for those communities.

We've done a phenomenal job the operations team the HR teams and working with those people. The property that we've had to furlough. We're also fortunate that in our jurisdictions, particularly the DRM Jamaica, the local governments for very proactive with.

Plans and policy they put in place to help support some of the or some of the wages that are lost for some of these people because I understood that they needed to keep these people engage in happy and helps support the owners and operators in these markets. So that when things reopened we can reopen helpfully no not at all and that speaks very very highly of the entire operations team with Alex and Greg and all the read.

And we'll be piece.

Okay and last question for me any general comments in terms of what you're seeing on airlift and some of your markets.

Yeah, it's still hard to tell me in general Airlift is still stating the obvious down compared to what we've seen as normal the the best performing right now is Mexico, particularly can could you know and that's why you heard us talk about that the Mexico properties are enjoying the best occupancy is right now have ramped the quickest.

Right now we believe it to be a couple of for a couple of reasons one.

Just the.

Just the distance that they can't can market is from so many of the major specifically east coast airports, you know from Washington, D.C. three hours Philly three and a half New York, It's a little more so it's pretty easy to get too I think they benefited from some of these spikes in states like Texas and Florida. During these times as well, but also the restrictions at the.

The airport there are they essentially are taking your temperature when you land so as not additional restrictions in place like Youre seeing in Jamaica. So those properties have done extremely well.

Jamaica and the D.R. from what we can see the Drs currently it's still down 80, 590% of traditional flights coming in and then Jamaica down roughly 70% to 75% in a number of flights coming and so there so long way to go.

But just given where everything Dan and getting it back that we just opened 30 something days ago. I think we're pleased with where things are.

Okay. That's all for me. Thank you very much thanks out.

Your next question comes from the line ups need is wells. Your line is now open.

Hi, Thanks, I would just wanted to go back to some of your earlier comments about breakeven points I think you had mentioned 35% to 45%.

Occupancy is is that.

Property level or is that.

Corporate wide level, great question that is at the property level corporate wide.

I would be closer to a very high fiftys lows low to mid Sixtys, just depending on the month in the rates were getting and as you heard Bruce mentioned you know as we approach high season, all else equal with higher rate that helps us bring down those those breakeven from both the property in a corporate level.

Okay. So when you talked about 35% to 45% breakeven at the property level, what sort of rate is that underwriting.

It's the right that we're currently seeing and forecasting in the markets now so what in the fourth quarter is roughly about.

Just down about one percentage point to last year and the first quarter was about one percentage point.

Okay and then just final question what.

So to get to kind of 60% its occupancy.

At that point, you should be I guess.

EBITDA positive on the corporate wide level from what you're seeing now, which I know, it's early but on the books trajectory in is that something that happens in the first half of 21 gets to longer where well even.

Lets assume there's some sort of the pandemic you know by year end or early next year. How do you think about getting back up to that kind of occupancy level.

Unfortunately, it's just too hard to tell right now it's made I do want to point out that I was talking about 60% at the cash breakeven from a cash perspective, obviously, there is noncash items like amortization of all if any and other things that run through a piano that would make it a little bit longer to get back to it from an EBITDA perspective, but you are generally in the range, but as far as how quickly.

We can get back I know your guess is as good as mine at this point.

Okay. Thank you.

Thanks Vince.

Yeah.

There are no further questions from participants online I would now like turn the conference next today's presenters.

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Great no. Thank you all for participating I think we've given you as much information as we're able to at this point in time, but I'll just say, it's a unique situation none of us I've ever gone through it before but we are seeing some positive trends and we're going to continue to push our team.

The corporate level and at the properties is working really hard to the best we can and I'm really you know kind of more optimistic than have been throughout this whole process. At this point in time. So thank you very much for all your interest in Playa and hope everyone has a good day and a good weekend. Thank you.

That does conclude today's conference call. Thank you for participating.

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Yes.

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Okay.

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Ladies and gentlemen, thank you for standing by and welcome to the kitchen sensor.

This conference call at this time, all participants listen only mode.

I'll be a presentation, followed by question and answer session at which time, if you wish to ask a question you will need to press star one on your telephone.

She need any Ferguson, Please press star zero.

Please be advised that today's conference call.

I would now like to handle conference.

Mr. Ryan.

Thank you. Please go ahead.

Thank you very much Michelle good morning, everyone and welcome to apply hotels and resorts second quarter 2020 earnings conference call before we begin I'd like to remind participants that many of our comments today will be considered forward looking statements that are subject to numerous risks and uncertainties that may cause the company's actual results to differ materially from what has been communicated.

Forward looking statements made today, our effective only as of today and the company undertakes no obligation to update forward looking statements for discussion at some of the factors that could cause our actual results to differ. Please review the risk factor section of our annual report on form 10-K, which we filed at the end of February with the Securities and Exchange Commission, we've updated our Investor Relations website at investors that Playa resorts.

Dot com with todays.

Recent releases.

In addition, a reconciliation to GAAP of the non-GAAP financial measures, we will discuss on the call were included in yesterday's press release on today's call Bruce Wardinsky, plus Chairman Chief Executive Officer will provide some comments on the second quarter and key operational highlights I will then address our second quarter results our liquidity situation our outlook. Bruce will then wrap up the call some concluding remarks before we turn it over to Q today without.

I'll turn the call over diverse.

Great. Thanks, Ryan Good morning, everyone and thanks for joining US. We appreciate your interest imply a during this extraordinary time for the world and certainly for our industry I'll begin today by reviewing some of the measures we have taken to prepare the resource for reopening in share insights with respect to what we're seeing in the operating in booking environment.

I'll, then turn the call over to Ryan to discuss our balance sheet and outlook.

As a time over Q1 earnings call or focus was on mitigating the financial impact of travel restrictions and the safety of our associates and stakeholders as we temporarily ceased operation at all or resorts.

Temporarily ceasing operations that are resorts did not however, meaning that we have been sitting idle using Bennett excuse me using best practices glean from our Grand partners various governing bodies, leading experts are operations and marketing teams have tirelessly labor to reimagine, what the resort experienced should look like in the new normal Coleman.

I think in these reduced introduction of the apply a safe stay program.

As we mentioned on our last earnings call, we have the luxury of having expansive footprints numerous dining outlets in predominantly outdoor and open designs at the majority of our resorts, which provides some much needed flexibility to redesign with distancing and safety precautions in mine.

I will not go into all of the specific details regarding the individual safety measures. We are taking the guests staying at our resource now see safeguards applicable areas touchless payment in booking option using a QR code in our new play App sanitizer MPP available throughout our resorts and medical staff at each of our properties.

I encourage all of you to checkout or May four press release detailing our protocols and the videos on our website.

One major milestone in the reopening process that is extremely important made is bringing back thousands of our associates to the resorts and being able to help generate activity in the local communities.

Shutting down operations at our resorts was the most difficult thing I have done in my 30, plus years, and hospitality and lodging business, but x. I am extremely grateful to be able to bring back. So many of our associates that have helped build this great company and deliver service from the hard to so many travelers every day.

From a balance sheet perspective, or subsequent asset sales and capital markets transactions have addressed or immediate liquidity, allowing our focus to turn to the successful in safe reopening of our resort portfolio.

Travel restrictions in various countries in the Caribbean Latin America began to ease in June thus, allowing us to begin the reopening process in July for many of our resorts.

As we discussed on our last call using the fairly close proximity of our resorts to each other certain destinations as a resource we were able to aggregate demand and plan to take a phased approach to reopening based on the demand we're seeing in each market and the response to our new offerings and safety protocols.

We believe that our property level breakeven occupancy at prevailing market rates expected in the third quarter is in the range of 35% to 45%.

But our indifference point, where we lose the same amount open or closed is in the mid teens. Our objective is to open resorts, which we believe can sustain occupancy level near the indifference point, because we believe booking momentum is likely to build once guests have confidence that the lights will be on for their future state.

And more information Regal regarding the experience offered at our resorts is available on social media.

This view has been playing out thus far.

Additionally, opening the resort helped gauge crude demand levels as we were able to wash the sale bookings that had no intention of traveling to get a better sense of how to phase the rest of the opening timeline and set us up for a successful high season.

Thus far we're extremely pleased with how business is building, particularly in Mexico as the market has seen a healthy amount of airlift return consumers appear to be taking comfort in the fact that theres a robust medical system and these were to arrive in close in bookings have been strong.

The customer reviews for those who have traveled thus far have been extremely positive as well, we're working on increasing our customer base by expanding sales efforts new segments prioritizing, our health and wellness offering and as many of you would see offering a unique extended stay program called work and learn from Paradise.

Name a few examples Ryan we will update you on the financials in our thoughts on liquidity management momentarily, but as we move through the remainder of 2020, we are aiming to see sequential improvement on a cash burn basis as more of a resource open in momentum builds as we move towards the high season in the new year.

Shifting over to our sales efforts, we remain focused on growing our direct bookings lowering our customer acquisition cost and are confident that we're on target with our five year plan to increase consumer direct business to at least 50% by 2020 Threerd.

To give a better gauge of the underlying fundamentals of our direct to consumer website.

As of July 15th like resorts Dot Com was pacing behind last year with $32.5 million gross revenue on the books for 2020 versus $47.5 million in 2090.

Here.

Increasing or total addressable market mitigating the impact of supply growth and minimizing the negative effects of competition.

With that I will turn the call back over to Ryan to discuss the balance sheet and what we're seeing in the operating environment.

And pandemic, we reduced all non essential property costs, all non revenue generating marketing spend on non mission critical capital expenditures, all non essential corporate travel and May company wide compensation reductions.

Our goal is always is to improve cash burn, but we once again cannot give earnings guidance given the continuing changes to travel restrictions and limited visibility.

In May we closed on the sale of two resorts in Jamaica, and what we believe was the first lodging asset transaction in the post cobot World.

I can assure you. This was no easy feat as a pandemic presented obstacles on the touring administrative and legal front. If you recall at the time to Sajid core transaction. The ultimate plan was to renovate and expand these two resorts with our current leverage profile, we would have been unable to reposition these hotels for the foreseeable future and the hotel didnt fit the strategic vision of the portfolio.

As is given the capex need distance from the airport and non global brand affiliation.

One item to note is the capex spend of approximately 7 million during the second quarter. This was associated with final payments for Capex at our Hyatt katakana that were originally intended to be spread out over 2020 and 2021.

What was required to be accelerated to eliminate all outstanding liabilities of the resort in conjunction with the property loan agreement we entered into in June.

There was roughly 4 million a finer spinal spend attributable to coopcana that will impact our Q3 cash burn.

An important point to share however is that nearly all of our hotels that we opened at the beginning of July thus far are at her well above the respective indifference point.

Additionally, because we're still getting our restarting cost and investments calibrated as we get accustomed to the new normal we don't have an estimate of recurring incremental costs related to new safety protocols to share with you at this time, where we can share with you that the incremental labor across our negligible at this point and we've invested roughly 600000 in capex to prepare for reopening.

In a socially distance manner.

We're pleased to see that guests are responding extremely positively to the intention to safety that as apparently throughout our resorts and demonstrated by our associates, especially versus some of our competitors.

Lastly, I'd like to point out that the incremental capital we raised will increase our interest expense by nearly 5 million per quarter going forward.

25% Rebooking for 2021, and the rest Rebooking for 2022.

As of the disruption from the pandemic has continued the complexity of our mice group business for the second half of 2020 has continued to change.

Since our last earnings call. Our Q3 group business has seen roughly 1.3 million of cancellations and we still have roughly 1.6 million on the books for the third quarter.

Our fourth quarter group on the books business has experienced a modest net loss of only about $600000 since our last investor update.

So in aggregate approximately 51% of our 2020 group business that had been impacted as a result of the crisis has definitely cancelled or not rebooked, So said differently.

All the group business that was on the books at the beginning of the year prior to the crisis, we were able to recognize roughly half of that.

Fourth of that moved or rebooked, and a fourth outright cancelled.

Our 2021 group business has been quite fluid as well and we're currently modestly trailing behind where we're we're pacing at the same time last year and that's inclusive of over 4 million a business that shifted from 2020 to 2021.

On the leisure side of the group business, our wedding sales team and marketing team has been extremely active during the second quarter. Our wedding business on the books for 2021 has grown three fold since mid February and a very encouraging sign that trends will hopefully begin to normalize as we head into the new year.

With respect to advance deposits. We currently have just over 21 million sitting with us versus 30 million at the time of our last earnings call with 38% of that 20 million that is related to stays in the second half of 2020.

The 25% of that associated with stay slated for 2021 and the balances for all periods thereafter.

All of the aforementioned efforts in transactions bring us to a total cash balance of 280 million as of June Thirtyth, and that's inclusive of roughly 28 million in restricted cash.

On the other side the ledger, we have 85 million outstanding borrowings on our original revolving credit facility and total outstanding debt of 1.27 billion, we do not have any debt maturities until our revolver matures in April 2022.

And our term loan does not mature until April of 2024.

One final item to note in June we reached an agreement to amend our existing revolving credit facility to provide relief for the spring leverage based covenant.

Test through and including the second quarter 2021.

Now turning to Capex aside from the spend associated with cop can allow Romano, we're not expecting any significant development capex for the remainder of 2020 and anticipate spending minimal minimal amounts the maintenance capex. Our forecasted use of cash does not include additional share repurchases at we have as we have decided to suspend buyback activity for now.

Now turning our attention toward operating tens and the reopening process as we look at each of our jurisdictions, we believed that roughly 50% of all the rooms in the market have reopened in Mexico in Jamaica, and roughly 25% in the Dominican Republic.

And competitive activity has been as expected thus far but again. These are just estimates we believe customer sourcing via our brand partners has been a decisive advantage for us during the reopening process as our direct channels have significantly outperformed other challenge source of businesses.

Taking a look at who is traveling over 50% of our business booked during the second quarter as Bruce mentioned came through direct channels.

Geographically our usource.

We've mentioned several times of one of the biggest challenges we face as a hotel operators during during the reopening process has been that continued contraction of the cancellation period to roughly 24 hours across our portfolio and across the lodging industry generally I won't go into too much detail due to competitive reasons, but we did see cancellation activity, leading up to the reopening of our resorts across the board.

It's very much in line with our internal projections as a reminder of the vast majority of our leisure business is not paying advance. So there are no no deposits to refund with most of these cancellations.

We have however been extremely encouraged by the daily occupancy build for the resorts that have opened in Mexico and by the level of non package revenue per occupied room that is being spent.

Which we attribute to the cabin fever phenomenon and the implementation of our Touchless QR code App that allows us to effectively up sell for experiences and products across the resorts.

Given that the D.R. began their reopening process a few weeks ago after Mexico in Jamaica.

It's too early to comment on what we're seeing there, but we're very very encouraged by the early trends.

As we mentioned before while this is extremely encouraging guests will still need to be able to travel to the resorts and there's always the risk of delayed cancellation given the 20. The current 24 hour policies available in the market, but that ill turn it back over to Bruce for some closing remarks.

Thanks, a lot Ryan.

To recap the reopening process is well underway with approximately two thirds of our resorts currently open for business.

Operating level cash burn is heading the right direction as or direct booking engine offset weaker channels and should give us a unique advantage versus the competition and we believe that are immediate liquidity needs have been largely appropriately addressed for the current environment.

Specifically on our liquidity in estimated uses of cash I want to reiterate a following point that Ryan and I have discussed on this call first or property level cash burn. While we were closed was approximately eight to 9 million per month in going forward. We expect that number two improved sequentially as two thirds of.

Our resorts are currently open and help alleviate pressure on cash burn.

Second our monthly interest expense was approximately 5 million per month prior to the incremental financing we raised in June which adds approximately 1.5 million per month or total cash interest of 6.5 to 7 million per month going forward.

Third our corporate overhead was forecasted to burn approximately 3 million per month. During Q2, it should increase incrementally by 500 to 700000 per month in Q3, as we begin the reopening process, which is about half of the corporate expenses reduced in Q2 versus our original budget at the start of the year.

Fourth we still expect 1.5 million per month for insurance premium payments.

Taken altogether or cash burn will be approximately 20 million per month zero revenue environment.

But given the fact that two thirds of our resorts are open we would expect that number to be lower it may not feel like it but high season is rapidly approaching which should lead to significantly higher 80 hours compared to Q3 and substantially help our cash burn all else equal.

I'm very optimistic about our ability to rebound as we move into 2021 and Im encouraged by the early trends, we're seeing in a resorts leisure traveler is resilient.

And we'll continue to bounce back faster than business transient travelers and our customer source. The via brand affiliations has enabled us to open faster and stronger than many of our peers.

Although guest can see our smiles they can see our hands over hearts, Walt welcoming them back to our resource.

With that I will open up line for any questions.

Ladies and gentlemen, we will now begin to question and answer session.

A question. Please press star one on your telephone if you, Michigan, Chris Please press the pound.

Your first question comes from the line of Chris Woronka. Your line is now.

Hey, good morning, guys.

Right.

Morning, appreciate all the all the data points.

So first question was just kind of I guess maybe for Bruce.

Bruce Youve been been in this business awhile, how do you think the rate integrity holds up.

I've never seen anything like this but I know rates had been a little bit under a little bit of pressure, particularly in Mexico last couple of years.

How do you think it goes from now until high season that are you confident that the can get the kind of rates you want and need in the first quarter.

Sure sure credit so first of all I'd like to avail comment on that I'm really old I think I've been in the industrial time, So I guess, a subtle input impacted our Christmas, but as you are right I've been around I've seen a lot of downturn see lot of different situation, including.

H, one and one in Sars that nothing compares to this right. So everything we've all seen in our life from a lodging and business in general environment. Nothing compares to this I think the one positive and Ryan could give more detail about if I think the one positive here.

You want to dig a positive out of everything is that rate is not the discerning issue. Okay. So people who are going to travel are going to travel because they want to go where they have the.

Chance, okay of the very safe and having a great experience and I think if you look at our resorts you look at Playa say stay you look at all of our protocols up we low away our competition I mean, absolutely blow them all well, okay. If you look at hotels in the U.S I mean forget about.

It's spikes in Florida, but just take.

Resorts and Florida, they're small they are tight there congested they do not give you the kind of experience that you're going to get a ours ours are big expansive multiple restaurants lots of room to do whatever you want to do and socially distance. So.

When people are evaluating whether or not they want to go on vacation and I think theres such tremendous pent up demand you really see in Mexico, where their certainty on the airport protocols and people are confident that you really see that happening there they're going to pay the rates. So I'm not concerned about the rates I think what we need to see is when.

There is more certainty as to.

The experience okay experience at the airport the experience on the airplane the experience arriving into the destination with people are confident of that they're going to seat on social media, they're going to go to the resorts. In this this I mean I haven't told everyone I run into is like I can't wait to go to one of your resorts are you guys open what can you do in so I think you're going to see it is.

I'm not concerned about rates for the first on probably my career I'm not concerned about Rick what I'm concerned about is occupancy and that's going to build is going to take time is not going off on tomorrow, okay, but it's going to build and I think we offer such a better product than what people can get in the us or in Europe or anywhere else.

I think youre going to see us doing better in the near medium and long term and Chris just add a little.

At some numbers so that you heard us talk about the fact that we are booking in the second quarter well over 50% direct.

And.

It just shows that the fruits of our labor are well worth it tour operator business is about 60% of where it was last year and odah about half of where they where last year and so it's encouraging sign of revenue that much direct so you heard us talk about being from a revenue perspective about in the mid 30% behind prior year for fourth quarter our rate.

The only down about one percentage point and if you look out to the first quarter. It up about one percentage point, so all things equal rate, it's holding and quite nicely all things considered.

Okay. Yes. Those are those are I think pretty pretty favorable data points.

Thanks, Thanks for that and then the other question would be on the on the cancellation policy where.

Thank you guys in the near term mentioned, that's a little bit of an issue what point do you think that.

Goes back a little bit more towards normal and can you can you maybe negotiate something.

Especially with Hilton or higher given the kind of unique nature of.

Bookings for your for your hotels.

At the end of the day to the best of our belief we can move them. That's what we'll do and talk to them and this is not unlike a few others that have said thats on their call remind them that they look.

This is still a pretty good rate, you're getting and if you wait him cancel and you try and come back a year from now our six months from now that rates only going to go up so that's kind of the best thing we can do it whether the global pandemic I think it's kind of hard at however, I think it's hard to argue against force majeure clauses, but if you can convince them, particularly when it comes to group and just fantastic expensive.

Operator that we have so much easier to have a group a group.

Meeting oral wedding at one of our properties in somewhere else. So I think it's easier to convince somebody to move rather than cancel that said, it's still very difficult and I'll just comment on the wedding side of things I got to report the other day from a wedding.

Middle market kind of from and what they were showing is that wall.

Paul.

There's some cancellation of weddings most of them are just being deferred so they are being deferred into for the most part into 2021. Some into late 2020. Some into 2021, some people or are still getting married now in there just pushing off the celebration. So theres a lot of that business, which I don't think.

It's going to go away and I think you're going to see the same with some of the group business do where people are like Hey, we don't want it to kind of stopped doing what we want to do and there is the reasons that book back to begin with in the pandemic has put kind of temporarily temporary hold on things, but I think youre going to see people are going to want to get back celebrate wed.

I think celebrate.

Big sales initiative, all those kind of things I'm again optimistic that we're not going to lose tremendous amount of that business.

Great very helpful. Just just one last one is it possible to know.

You guys mentioned the differences in how you picked up more us business and lost a little bit of Canada, Europe and picked up Mexico, what how how would you kind of bucket the rate differential I would guess that business going from US is generally a highest rate is at the way to think about it yeah. Yeah, obviously, it's always thought the highest rate and the.

Other thing to think about is what Tom a year, where it okay. The the European business coming in the summertime is typically.

Group business is not the best rates, so if you're getting more Mexican and US business here, you are getting better better rate.

By definition.

Great very good thanks, guys. Thanks, Chris.

Your next question comes from the line up Chad Beynon. Your line is now.

Hi, Good morning, Thanks for taking my question in a congrats on everything you're able to accomplish on the balance sheet in the quarter. Thanks Chad.

First wanted to start with.

Just your outlook.

Just kind of on the back of what you guys were able to do from a financing standpoint, what's going to happen with some of these family owned private companies in markets that you compete against I mean, what or what's their financing situation do you think that could help.

Sure up some assets or do you think those will I guess remain closed can you just kind of frame out what this means for you all inclusive industry over the next couple years, given that dynamic that sure search and that's a that's a great question.

If you go back back.

At the beginning apply up one of our premises was that we felt we could be a consolidator in the all inclusive space that you had these family owner operators.

That were second generation going into third generation and we thought it's just a great opportunity and I think as you're well aware of Mystore shareholders or were these are not there are no branded affiliation Caesars brands that most people don't really.

Okay, and I mean that industry is going to be very different if it's even around in the near future, okay, but going back to your point about the family owner operators I think there's tremendous opportunity right now into the discussions I've had with some of the people at those companies is that they felt in this was going back to the beginning back.

In March I guess I was at the beginning but for us going at the beginning and then until recently in the view early on was that Oh, it's going to be really bad but by November things are going to be good December is going to be good. The high season is going to be good. So all we need to do is survive kind of through September October.

I don't believe that's the situation for them and I think they're going to be very stressed so how will they have the financial wherewithal to reopen I don't I don't think all of a will instead of going forward I think theres two benefits supplier from this okay from a medium and long term strategic view one is that there were going to be properties.

Coming out of out of the system right, they're just going to be properties that don't reopen and that's going to benefit US second okay. I think theres going to be companies that are going to be forced indoor highly encouraged okay to sell and I think the advantage player has as a public company will be the ability to execute on some.

Of those transactions and I think our model of of rebranding when we've done the rebranding.

To the Hyatt or Hilton brand. Our case studies are tremendous success rate is tremendous so as we look at the the opportunities going forward the ability to rebrand. These properties could really be positive for us for the industry for our business. So I think it's a positive in the long run.

I don't ever want to see someone else's paper or are suffering but I think it could be like hey, let's collaborate in some way and we can both when I think this is that's what we want to pursue in its really the opportunity for them and for us to do better in do better than the rest of the competition in the all inclusive space.

Yeah.

That's great. Thank you and then.

Right and I guess moving on to or I guess round numbers for EBITDA margins.

I guess you have you have two factors you have some extra costs going into the business.

But then as you read examine the properties you were able to take out some things if we if and when we get back to I.

I guess historical revenues at a property or within a region should we expect and margins get back to the same level or do you think it will take just a little bit of a longer ramp maybe an extra couple of quarters to get back to those kind of high.

Hi, Twentys thirtys that we saw pretty pandemic.

Honestly, Chad, it's really too early to tell right now and like we said in our and our comments so far the additional opex had been negligible in the capex hasn't been that much but just given the fact that we've been open for call. It 30 something days, it's just too early too early to tell if itself, but we do think that some of the amount spent in the staffing that we have at the.

Properties currently is probably appropriate for at least get us to probably 40, 45% occupancy and then you can think about probably a sequential step from there where you start into layer on more staffing.

So we think were appropriately staffed today, but of course, they just too early to tell what those costs are going to be overtime.

Okay.

Very much guys. Thanks, Chad Thank you.

Your next question comes from the line of fabric shelves. Your line is now open.

Hi, good morning, everyone.

A lot of my questions and answers but.

I'd like to hear your thoughts on.

What you're seeing for market share gains.

Currently and expectations going forward. Thank you.

Sure I mean, I think it's again, it's a little hard to tell as you're well aware, we don't get good star data or other data.

In the marketing given kind of the fluid situation. We're facing today, we don't see a lot of it having said that go through our direct booking numbers look at what we're accomplishing and the fact is traditionally the biggest producer of customers is all inclusive has during the term for operators in a lot of our competitors rely hugely.

On that.

I'm talking 70, 580 plus percent, okay, we do not in so you're seeing our strong on direct booking numbers and I think thats why were doing so well and I think going forward, we're going to continue to do well other people are having to really discount their rates or discounting the rates because they're losing their distribution sort.

So we are holding our rates so I think.

Of the proposition going forward is going to be positive for for us and again.

I don't want to look at other people pay but you know the disruptions going to happen. It is half. It has happened. It is happening is going to continue to happen. We're all going to have to do business.

New ways and that's what we're focused on I think Fortunately for Playa was we were already doing business new weigh in with the freight affiliations that we have and I think youre going to continue to see that growth.

Okay. Thank you.

Thanks, yet.

Your next question comes from the line of Tyler.

Your line is now open.

Thank you good morning.

What about for first just in terms of future bookings.

There are booking window at all just wondering how far in advance jasser, making there some making some of their reservations and then I'm also wondering how far in advance guests are canceling their reservations.

Yeah. So it is helpful. My cancellations perspective, it's all over the math.

We saw cancellations a couple days in advance two weeks in advance just given the flexibility that is out there and again that it wasn't anything.

Different from what we would have expected it was pretty much in line with what we assumed to be internal wash if you will.

The booking window is still continues to compress you've heard us talk in the past kind of 30 to 45 days, you've got some people booking a couple of weeks out.

It's still just overall with the advent of technology than free Cove. It allows people more choice than to look online and shopper best rates and so that brought the booking window down obviously I'm not talking about group leisure trend it.

But then this process and this covert crisis has just kind of continue to compress that it does make visibility more difficult.

And so it's harder to projected at this current time my hope is that as cancellation policies eventually loosen and go back to little bit normal back to our kind of our traditional 14 days for.

International leisure that helps a little bit of the visibility and de booking window.

Okay, Great and then how about on the labor side of things just as you ramp back up operations at your properties have you had any issues rehiring.

Employees at the property level no not at all if you think about just one the destinations that we operate in tourism is the big source of of jobs for those communities.

We've done a phenomenal job the operations team the HR team that in working with those people at the property that we've had to furlough. We're also fortunate that are jurisdictions, particularly the DRM Jamaica, the local governance for very proactive with.

Plans and policy they put in place to help support some of the some of the wages that our loss for some of these people are they understood that they needed to keep these people engage in happy and help support the owners and operators in these markets. So that when things reopened we can reopen helpfully no not at all and that speaks very very highly of the entire operations team with Alex and Greg in all the read.

And we'll be piece.

Okay and last question for me any general comments in terms of what you're seeing on airlift and some of your markets.

Yeah, it's still hard some in general airlift is still stating the obvious down compared to what we've seen as normal the the best performing right now is Mexico, particularly can code. That's why you heard us talk about that the Mexico properties are enjoying the best occupancy is right now have ramped the quickest.

Right now we believe it to be a couple of for a couple of reasons one.

Just the.

Just the distance that they can't we market as from so many of the major specifically east coast airports from Washington, you see three hours phase three and a half New York, It's a little more so it's pretty easy to get too I think they benefited from some of these spikes in states like Texas and Florida. During these times as well, but also their restrictions at the.

Airport there are they essentially are taking your temperature when you land so as not additional restrictions in place like Youre seeing in Jamaica. So those properties have done extremely well.

Jamaica and the D.R. from what we can see the Drs currently still down 80, 590% of traditional flights coming in and then jamaica's down roughly 70% to 75% in a number of flights coming and so there's still a long way to go.

But just given where everything is Dan and given the fact that we just opened 30 something days ago. I think we're pleased with where things are.

Okay Thats all from me. Thank you very much thanks out.

Your next question comes from the line ups need is roles. Your line is now open.

Hi, Thanks, I would just wanted to go back to some of your earlier comments about breakeven points I think you had mentioned 35% to 45%.

Occupancy is that.

Property level or is that.

On a corporate wide level, great question that is that the property level corporate wide.

Would be closer to a very high fiftys lows low to mid Sixtys, just depending on the month in the rates for getting and as you heard Bruce mentioned you know as we approach high season, all else equal with higher rate that helped us bringing down the breakeven from both the property at a corporate level.

Okay. So when you talked about 35% to 45% breakeven at the property level, what sort of rate is that underwriting.

It's the rate that we're currently seeing and forecasting in the markets now so what in fourth quarter is roughly about.

Just down about one percentage point to last year and the first quarter was up about one percentage point.

Okay, and then just final question.

So to get you kind of 60 Percentish occupancy.

At that point, you should be I got.

EBITDA positive on the corporate wide level from what you're seeing now, which I know, it's early but on the bookings trajectory and then is that something that happens in the first half of 21 thirds gets to longer where we even.

Let's just call, there's some sort of the pandemic by year end into early next year.

How do you think about getting back up to that kind of occupancy level.

It's unfortunately, it's just too hard to tell right now it's made I do want to point out that I was talking about 60% at a cash breaking from a cash perspective, obviously, there is noncash items like amortization of always thinking and other things that run through a piano that would make it a little bit longer to get back to it from an EBITDA perspective, but you are generally in the range, but as far as how cool.

We can get back I guess is as good as mine at this point.

Okay. Thank you.

Thanks Nate.

Yeah.

There are no further questions from participants on line I would now like to add a conference next today's presenting.

Great no. Thank you all for participating I think we've given you as much information as we're able to at this point in time, but I'll just say, it's a unique situation none of us have ever gone before but we are seeing some positive trends and we're going to continue to push our team.

The corporate level and at the properties is working really hard to the best we can and I'm really kind of more optimistic than who've been throughout this whole process at this point in time. So thank you very much for your interest in Playa and hope everyone has a good day and a good weekend. Thank you.

That does conclude today's conference call. Thank you for participating.

Q2 2020 Playa Hotels & Resorts NV Earnings Call

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