Q4 2022 Playa Hotels & Resorts NV Earnings Call
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Good morning, everyone and welcome to the Playa hotels and resorts Q4, 2022 earnings conference call.
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At this time I'd like to turn the floor over to Ryan Emo. Please go ahead.
Thanks, Jamie and good morning, everyone and welcome to Playa hotels, <unk> resorts fourth quarter 2022 earnings conference call before we begin I'd like to remind participants that many of our comments today will be considered forward looking statements and 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.
Some of the factors that could cause our actual results to differ. Please review the risk factors section of our annual report on Form 10-K, which we filed last night with the SEC.
We've updated our Investor relations website at investors that Playa resorts Dot com with the Companys recent releases.
In addition, reconciliation to GAAP of the non-GAAP financial measures. We discussed on this call were included in yesterday's press release.
Great call Bruce word M E Flyers, Chairman and Chief Executive Officer will provide comments on the fourth quarter demand trends and key operational highlights I will then address our fourth quarter results and our outlook for his wrap the call with some concluding remarks before we turn it over to Q&A with that I'll turn the call over to Bruce.
Great. Thanks, Ryan Good morning, everyone and thank you for joining us the fourth quarter capped off play as best year in a relatively short history as we continue to execute on our strategic objective of increasing the value and service we provide our guests while yielding a D are appropriately as demand and awareness of our high quality resorts continue to build.
Despite persistent fears of a potential slowdown in leisure travel our business performed well during the fourth quarter and our net bookings for the Playa owned and managed properties have reached new weekly high so far in 2020 three.
We have seen no noteworthy changes in cancellation activity, but as we have previously stated we will adjust our costs and operating protocols. Accordingly, if there were to be a pullback in guest demand.
Playa generated the highest fourth quarter adjusted EBITA and owned resort EBITDA margin in the company's history as our compelling value proposition continued to resonate with travelers as evidenced by our ADR growth compared to 2019 accelerating to approximately 67% on a reported basis or approximately 46 person.
On a like for like basis, adjusted for portfolio mix and non cash adjustments.
I'd like to note that these ADR gains coincide with our own and third party N. P. F scores, reaching new highs a true testament to the attractive value proposition of the all inclusive experience, particularly in an inflationary world.
As I mentioned before although our headline ADR growth compared to 2019 has been robust the headline growth in the fourth quarter benefited by approximately 20 percentage points from noncash adjustment asset dispositions of lower ADR resorts and the addition of our Hyatt cap Cana resort. These are important considerations when contemplating our ADR grew.
Sustainability and the campaign the compelling value we continue to offer our guest does.
It is also worth noting that the absolute underlying ADR dollar change versus 2019 during the second half of 2022 was less than $100.
Strategically, we still believe that ceding some occupancy in favor of ADR, mainly at our Hyatt resorts is the best path forward for Playa as it establishes us as the right leader from a competitive standpoint in our respective markets is more manageable from an operations perspective and improves the overall guest experience.
Fourth quarter fundamentals exhibited a sequential acceleration in growth versus the comparable period in 2019 and on a year over year basis with healthy occupancy and broad based ATR strength, leading to year over year margin improvement, despite a difficult expense inflation environment lapping record fourth quarter margins from the prior year.
And the impact of hurricane related closures resort closures in the Dominican Republic.
Jamaica had another strong quarter as our recovery accelerated during the fourth quarter with underlying ADR growth versus 2019, roughly in line with the Yucatan segment and occupancy levels higher than Q4, 18, 19 and 21.
As a reminder, Jamaica removed COVID-19 related travel restrictions requirements during the second quarter of 2022, and we anticipated that Jamaica would see demand accelerate as.
This was our best performing segment prior to the pandemic and we Didnt believe there were any structural issues that would prohibit demand from recovery.
The pace of the recovery in Jamaica has been stellar and we hope to carry the momentum going forward, particularly as the my segment there continues to recover eight.
Aided by a higher mix of groups I am optimistic that the recovery in Jamaica has a healthy runway.
In Mexico, the Yucatan led the way on occupancy and saw underlying ADR growth versus 2019 of nearly 50%, while the Pacific Coast reported another quarter of robust ADR growth.
Up 24% year over year also aided by the highest fourth quarter group mix, we have experienced in that segment.
In the Dominican Republic following the temporary closure of several resorts late in September due to the impact of Hurricane Fiona we reopened all of the disruptive resorts largely ahead of schedule during the fourth quarter.
The properties reopened better than ever and more importantly, we experienced little to no slippage in booking demand.
Finally over the past few months, we assumed management of the two resorts and the D are that were previously managed by a third party on our behalf and rebranded them as the dual Palm Beach and dual Punta Cana, respectively.
As is usually the case there was significant disruption during the transition process is a resource were handed over to us largely blank slate with insignificant revenues on the book.
In addition, we decided to perform some renovation work during the transition period that is not materially expensive from a capital perspective, but will require one of the resorts to be closed for a short period of time in the first quarter I will discuss our plans for these resorts later on the call.
As of mid February our Playa owned and managed revenue on the books, excluding the two new dual properties in the Dr. For both the first and second quarter is pacing up over 30% year over year with ADR gains accounting for roughly one third of the increases.
It is important it is important to note that these figures include the impact from the resorts, we temporarily closed in the Dominican Dominican Republic as a result of necessary repair work related to hurricane Fiona during the post pandemic period, we began to experience a slight change in our typical seasonal demand patterns as the summer periods saw less of a dip.
And ADR versus high season, which we believed would be largely structural and sticky going forward. Because frankly, we were previously too inexpensive relative to the to the product offering and a more pronounced seasonality will likely re emerge as a result of demand pushing up high season, probably pricing not necessarily as a result.
Sort of a drop in third quarter pricing is a value is now being better recognized by the consumer.
With that in mind, our third quarter revenue on the books is pacing up over 20% year over year with ADR up high single digits again, driving a significant portion of the increase.
We are pleased with our revenue and ADR pacing, which have continued to build since our last earnings call. We're also pacing well ahead of last year and the mice group segment with further potential to drive more mice business in that segment in the second half of the year.
Shifting to bookings our focus on direct channels continues to pay off and we are confident that play is on target with our five year plan to increase transient consumer direct business to at least 50% by 2020 threat in aggregate during the fourth quarter of 2020 to 43, 2% apply a managed room nights booked were.
Look to rack up 160 basis points year over year growing year over year for the second straight quarter.
Excluding group business, approximately 47% of our Playa managed room nights booked were generated via direct channels.
During the fourth quarter of 2022, Playa resorts Dot com accounted for approximately 15% of our total Playa managed room night bookings continuing to be a significant factor in our customer sourcing and ADR gains.
Taking a look at who is traveling a little less than 40% of our Playa managed room night stays in the quarter came from our direct channels as our group and O T. A mix improved year over year, though our O T. A mix remained depressed compared to pre pandemic levels.
Geographically the biggest change in our guest mix during the fourth quarter was the resurgence of our Canadian guests facts, which was up approximately seven percentage points year over year nearing pre pandemic Q4 mix levels.
Our U S guest mix was steady year over year remains significantly higher than the pre pandemic period, our European sourced guest mix was down significantly year over year, but in line with pre pandemic levels.
If you recall, we had a rather large surge in European source gas during the fourth quarter of 2021, particularly from Ukraine, and Russia, which subsided during 2022.
Our Asian sourced guests mix improved modestly year over year.
It remains the most depressed as it is only about 20% to 25% recover.
Our booking window of over three months with slightly longer than Q4 2019.
As a result of the robust pacing figures, we have been sharing with you in our prior earnings calls.
Once again I would like to sincerely. Thank all of our associates that have continued to deliver world class service in the face of pandemic related challenges their unwavering passion and dedication to service is what truly sets play out apart.
Finally on the capital allocation front as you may have seen our board of directors reauthorized, a $100 million share repurchase program in September of 2022, given the recovery in the business moderating leverage ratios and the attractive valuation of our stock.
After the reauthorization, we repurchased approximately seven 8 million shares during 2022 and another approximately one 5 million shares in 2023 or approximately five 5% of the diluted shares outstanding as of the end of Q3 of 2022 for total proceeds of approximately 50.
$6 million given the current valuation apply a stock share repurchases I played a bigger role in our capital allocation decisions versus ROI capex projects, taking into consideration the repurchases to date.
And the company's expected cash generation our board our board of Directors recently approved a new $200 million authorization to provide ample flexibility with respect to the company's capital allocation.
While we still fully intend to pursue capital projects their hurdle becomes that much higher when the stock is so disconnected compared to fundamentals.
Also as part of the capital allocation framework, we have decided not to pursue a significant renovation and repositioning of the two dual properties. We recently took over in the Dr and.
Instead have engaged a broker with the goal of selling the properties in 2023 and to use the proceeds to further fund high priority projects and to continue to repurchase shares in the interim we are confident that we can return these properties to profitability as we increase our sales efforts.
With that I will turn the call back over to Ryan to discuss the balance sheet and our outlook.
Thank you Bruce I'll begin with our capital markets activity during the fourth quarter and I'm pleased to share that we completed a refinancing of our total debt stack during the fourth quarter, replacing our previous term loan due 2020 for a property on don't do 25, and revolving credit facility, replacing those with a new $1 $1 billion term loan maturing.
In January of 2009, and a new $225 million revolving credit facility, replacing our prior $60 million line.
The new capital structure provides us with ample flexibility and liquidity to continue investing in high return all inclusive projects repurchasing shares and greatly improves our ability to plan our project runway going forward.
We finished the year with total cash balance of $284 million following the completion of the refinancing.
Currently have no outstanding borrowings on our revolving credit facility and our total outstanding interest bearing debt is $1 1 billion.
Our net leverage on a trailing basis stands at three four times.
We anticipate our cash capex spend for full year 2023 to be approximately 55 to 65 million for the year partitioned out between roughly $35 million to $40 million for maintenance Capex and the remainder to more ROI oriented projects.
On the capital allocation front as Bruce mentioned, our board of directors reauthorized $100 million share repurchase program back in September of 'twenty, two and as of January 31, we have repurchased $56 million or $9 4 million shares under that authorization and have since increased our authorization in 2023, bringing our repurchase capacity to $200 million.
With our leverage ratio is well below four times anticipated free cash flow generation of the business and the attractive valuation of our stock. We believe repurchasing shares is very compelling use of capital and intending to use our discretionary capital available to repurchase shares going forward depending of course on market conditions.
Well also continue to invest in our business to deliver value to both our guests and shareholders, but the bar is high for new projects on a risk adjusted basis, given the valuation of our stock.
Turning to our <unk> business, our 2023 net <unk> business on the books is approximately $50 million versus $40 million at the time of our last earnings call and it's well ahead of our final full year 2019 mice revenue of $32 million.
The vast majority of the mice business on the books for 2023 is scheduled to stay with us during the first half of the year as compared to roughly two thirds of U F. 2022 is my business being first half weighted.
A significant portion of the mice business realized during the second half of 2022 with shorter lead time business compared to typical might've bookings during the high season.
Our sales funnel and pacing.
Second half remain healthy.
And then moving onto the fundamentals, excluding excluding the impact from Hurricane Fiona on our Dr segment, our fourth quarter results exceeded our expectations as a result of better than expected ADR occupancy and less inflationary pressure on F&B and utilities with respect to topline occupancy came in above our expectations driven by close in demand and the Yucatan and Jamaica.
Also okay.
<unk> also came in above our expectations due to better than anticipated ADR gains in the Dominican Republic and both our managed properties following their reopening post hurricane Fiona.
On the cost front as Bruce mentioned the teams have done an excellent job navigating the current challenges of the environment.
Our resort margins were well ahead of Q4, 18, 19 and 21 levels.
As I mentioned, our last earnings call, we began to see stabilization in F&B and utilities costs on a per unit basis around the middle of 2022 and we're hopeful that the inflationary pressure from these two areas will begin to ease as we move into 2023 and lap the surge that occurred around the start of 'twenty two.
We began to see signs of this during the fourth quarter driving a significant portion of the upside to owned resort EBITDA outside of the D. R. Although.
Although it's nice to see some cost relief these expenses can be volatile quarter to quarter.
Also like to point out that we're forecasting our insurance premiums to increase substantially in 2023 during our April renewal in this line may pressure second half margins. This expectation is not only due to our own claims related to hurricane Fiona it's double it but several incidents that plagued the insurance industry in 2022.
At the segment level as Bruce mentioned, we experienced broad based strength in Q4, excluding the impact of Hurricane Fiona.
Make them a more Jamaica made more headway on closing the gap versus other segments with underlying growth versus Q4, 2019, just shy of the Yucatan segment adjust.
Adjusting ADR in Jamaica for the mix impact associated with asset sales like for like 80 ours in Jamaica are still lagging comparable peers by roughly 10 to 15 percentage points.
As a reminder, Jamaica got off to a slower start in the beginning of 2022 due to the omicron variant, having a disproportionate impact on the segment given its COVID-19 testing requirements at the time.
On the margin front, Jamaica reopened fourth quarter reported record fourth quarter owned resort EBITDA margins, driven by accelerating ADR growth and better than expected F&B and utilities expense keep in mind when comparing results in Jamaica, where this other segment that you make are generally has higher operating costs in our other segment and typically experiences higher 80 ours as well.
Looking at our other segments. The Yucatan Peninsula continue to deliver strong results with sequential occupancy improvements to a post pandemic high of 81%.
Courted ADR gains of nearly 72% versus Q4, 19, or 49% underlying ADR growth when adjusted for OTI Commission changes and mix impact from asset dispositions.
On a year over year basis, the Yucatan segment, ADR increased roughly 11% on an underlying basis adjusted for OTI Commission changes.
Noncash Commission changes also weighed on year over year segment margins by roughly 25 basis points as we're required to gross up both the revenue and expense under U S. GAAP, but should have a diminishing impact on our reported results as we continue to lap the implementation of the change in the recovery of the OTT channel mix.
F&B costs were again significantly better than expected and Yucatan, while utilities expense was comparable to last year. However.
However, based on current spot rates for utilities utilities should see year over year improvement in the first half of 'twenty three.
Margins were also negatively impacted by roughly 30 to 50 basis points due to the timing of uneven expenses, such as brand related fees and sales and marketing.
The Pacific Coast had another fantastic quarter with underlying ADR gains.
Proximately, 80% versus 2019, or 24% year over year, leading to robust robust margin performance again, F&B and utilities expenses were less of a headwind year over year.
<unk> for the change in O J Commission accounting ADR grew just under 26% year over year in the fourth quarter.
In the Dominican Republic, we reopened our Hilton and Hyatt properties a bit ahead of schedule just in time for the IC.
The performance out of the gate was quite strong helping our Q4 results as Bruce mentioned, we are fortunate that we experienced very little demand disruption on the bookings front at those properties for 2023, we experienced approximately $13 million of disruption related to hurricane Fiona in the fourth quarter in line with our expectation of $13 million to $15 million impact before business interruption proceeds.
One item to note due to the adjustments that affect the a T rates in the Dr. We recorded an adjustment in the fourth quarter of 2022 to true up non income based gratuities and taxes for the full year is positively impacted Q4 reported ADR in the Dr. By just over $20 and total company Q4 reported ADR by approximately six.
Total owned resort EBITDA margins were favorably impacted by roughly 80 basis points as a result of the adjustment.
Now turning our attention to our 2023 outlook.
We expect our full year adjusted EBITDA of.
Of approximately $260 million to $280 million, representing year over year growth of low double digits at the midpoint and this is driven by double digit revpar growth for the year.
For the first quarter of 2023, we expect owned resort EBITDA to be between 98 and $103 million and that is inclusive of a $10 million year over year dragging EBITDA from the transition of the two jewel properties in the Dominican Republic.
To be clear I'm, referring to <unk> $98 million to $103 million of owned resort EBITDA before corporate expense of roughly $13 million to $14 million and includes fee income of roughly $2 million to $3 million.
We expect our reported occupancy levels inclusive of the two Dr. Jules to be in the low 70%, reflecting the rooms out of service and the D are due to the closure of one of our dual properties.
Occupancy at our other legacy owned resorts is anticipated to be nearly 10 percentage points higher during the first quarter.
With respect to Q1, ADR, we expect approximately 20% year over year ADR growth on a reported basis and given our booking window, where roughly 90% to 95% booked for the first quarter.
Looking ahead to the second quarter, we expect reported occupancy in the low to mid seventies down slightly year over year, which again includes a mid single digit drag from the two jewel properties in the Dr.
We expect Q2 ADR to grow high single digits to low double digits on a year over year basis, and owned resort EBITDA margin to expand year over year, Despite a $5 million year over year EBIT drag in the Dr from the two dual properties.
Given our booking window, we're roughly 50% booked for the second quarter at this time.
And for the second half of 2023, we expect reported occupancy in the mid seventies and year over year ADR growth to be up mid single digits on a reported basis.
We anticipate owned resort EBITDA margins to be flat to up on a year over year basis in the second half and the two dual properties in the Dr to be a year over year tailwind to EBITDA in the fourth quarter and nearly neutral on the third quarter.
As we said before commodities and insurance are wildcards as we head into the second half and are key considerations when contemplating our full year guidance.
Given the number of moving parts to consider flying I think it'd be best to frame our guidance as such.
For the legacy core and owned managed portfolio, which again excludes the two dual properties in the Dr. We expect low double digit ADR growth for the first half of the year and mid single digit year over year growth in the back half.
Occupancy levels for this core portfolio in the high <unk> in the first half and mid Seventy's in the second half and owned resort EBITDA margin expansion given the aforementioned ADR gains.
An easing inflationary pressures.
As for the dual <unk> dual Palm Beach, we expect them to ramp from mid teens occupancy in the first quarter approximately 50% in the second quarter, which should get them near breakeven on an EBIT basis near the end of the second quarter following EBIT loss in the first quarter.
We expect these two properties to be stabilized on an occupancy and EBITDA dollars contribution basis in the second half of the year. However, as Bruce mentioned earlier, we're actively working to sell these resorts.
So to recap following the key the following are the key inputs to consider as you think about our 2023 outlook.
As I and Bruce mentioned, we're currently pacing year over year, ADR gains of 10% or more for the first half of the year.
We'll be lapping omicron during the first quarter, which impacted our Q1 2020 to occupancy levels and ADR, thus ADR growth will be likely higher than Q1 and Q2, even after adjusting for typical seasonality.
Expect full year occupancy would be slightly higher than 2022 adjusting for extraneous factors.
We anticipate a better inflation rate in our cost basket as compared to what we experienced during 2022, although we will likely remain elevated.
We have good visibility on our labor cost and had a wage increase is slightly higher than what we experienced in 2022, but are experiencing lower cost inflation in food and beverage and utilities during the first quarter of 'twenty, three and while we hope the lower prices persist. These categories can again be quite volatile.
Our results are fully staffed and we have good visibility on wages and related growth.
We hope that framework helps guide you as you fine tune your models and give you further insight to what we're seeing and expecting.
With that I'll turn it back over to Bruce for some concluding remarks.
Great. Thanks, Ryan.
In summary, I have just a couple of comments first our results speak for themselves.
I read a market quote this morning that I found really interesting you said big Tech is out and the old economy isn't on Wall Street.
There's almost no business older than lodging, we've been around since the beginning of mankind the res.
Isn't why this quote resonates with me and on play out is that while our business prospects looked really good before the pandemic the pandemic has changed everything.
People don't want to spend all day on their computer screens, they're looking to experience life and that's for all ages and their ability to travel and work remotely while doing it has allowed a lot of flexibility. They can spend time with people and they can live their lives to the fullest in my mind. This is what Playa offers to our guests at a gray.
Price value proposition and I think that's why you know our.
Our business is doing well with that I will open up the line for any questions.
At this time, we'll begin the question and answer session to ask a question you May Press Star and then one to withdraw your question you May Press Star and two if you are using a speaker phone. We do ask you. Please pick up your handset before pressing the keys to ensure the best sound quality.
So withdraw your questions. Once again, you May press star into we will pause momentarily to assemble the roster.
And our first question today comes from Patrick shows from tourist Securities. Please go ahead with your question.
Hi, good morning, everyone.
Good morning, good morning.
Okay.
Lots of color there on.
Quarterly expectations and margins et cetera, but could you give some more specifics.
On a.
Granular percentage wise on our overall for the year.
Your wage growth wage and benefit growth expectations as well as overall.
Operating cost growth, including utilities and insurance.
On the wage side likely high single digits is kind of blended across the board, we've got a number of different buckets.
Wage costs within our properties right, you've kind of got the executive team, that's kind of on its own kind of salary scale and things like that and then you've outlined staff that are governed more by minimum wage increases from the government and then you've got union employees, which we negotiated with on an annual basis, but call. It blended on the labor front.
High single digit percentage as I mentioned earlier I don't don't expect our our F&B to move materially from what it's been over the last quarter, particularly given some of the investments we've made in that arena, adding some staffing on food and beverage as well as purchasing which is beginning to start paying some dividends from a cost recovery risk.
Active in purchasing power as we've grown.
And then on insurance.
Honestly, it's pretty difficult.
Hurricane Ian was the third worst storm in history, and and total global insured property losses in 2022 was well over 130 billion. So you know without our claim we were expecting a difficult year. So kind of built into our guidance range is significant call. It 50% increase in our premium right now.
But it's still that's still a wildcard at this point, we'll have better information on our next call.
Okay. Thank you and then a follow up question.
You talked about the Asian customer.
Visitation being significantly down I think you said.
Roughly 75% historically pre COVID-19 what did.
That customer segment represent as a percentage of your business.
Around 4%.
Okay, So four 4% down 10%.
Also stop loss, primarily at our Hyatt.
Okay little opportunity for that.
Okay. Thank you I'm all set thank.
Thank you.
Yes.
And our next question comes from Danny Assad from Bank of America. Please go ahead with your question.
Hi, good morning, everybody.
Question on is on rate Joe like at a high level, how do you guys think about lapping.
Really strong rates in especially in your most recovered market.
Specifically thinking about like <unk>, and then and then again strategically how do you balance you know.
The how do you kind of balanced ADR growth without you know, possibly hurting net promoter scores down the line as you kind of push rate more and more and more in your markets now.
Now that's an important question is the basis for thesis coming out of coming out of the pandemic and Brewster is credit has had his focus on ADR gains while.
Providing exceptional service and Bruce touched on it earlier, our NPS scores, both internally and at the brands are some of the highest ever and Bruce can chime in on that in a minute, but more importantly, it's something we try and hammer home every single time, whether it's on these calls externally or more importantly internally. When you look at yes, you look at some of these percentage gains over prepaying.
<unk> and they look they look large, but one first and foremost when you adjust for asset sales you take out the impact of popcorn.
And you take out the adjustments from accounting from from a gross up from Expedia commissions those underlying percentage gains while still strong arch ridiculous and then more importantly, the absolute dollar that we charge someone more than they were spending in 2019.
As Bruce mentioned earlier as you know at least on the last half of this year was roughly $100 and it ranges anywhere from kind of 50 to 60 Bucks to maybe up to $200 at some of our higher end properties, but again that includes food and beverage includes great service includes alcohol and again you'd layer that against everything else than everyone else's life. That's more expensive. These days the value proposition just jumps off.
Page and so that's been our focus while making sure that we are still maintaining the great customer satisfaction, while still pushing rates as much as we possibly can and at the same time to your point on occupancy I think we've found a proper sweet spot with occupancy right now right now when you think about kind of depending on the season, obviously, but kind of high <unk> into the low eighty's versus.
Is mid to upper 80 that we ran pre pandemic. It just makes everyone's life easier first of all it makes the customers experience better. It makes operating these hotels in a rising inflationary environment easier, it's easier on cost and so for us and if theres little things that we need to do from a capex perspective or maintenance. It just makes it far easier to do in the.
Properties are 100% fall don't get me wrong during Christmas, we're still 90 plus percent full but on.
On a year round basis in high season. This is how we've decided to balance maximum profitability, while while maintaining that guest experience. Yeah. Let me just add in I mean, I agree completely with everything Ryan said and when you think about it what what drives the satisfaction of the guests at an all inclusive resort or any resort because particularly at an all include.
Resort and I'd say, there's two main factors number one is food and beverage and number two its service from our staff. So if you. If you go back at the beginning of the pandemic. We made a conscious decision to focus on rate and not to you know kind of dilute the food and beverage experience nor the staff expire.
<unk>. So from early on we had very high levels of staff and that comes out with.
With what the guests are experiencing and as Ryan said, we've consciously focused on sacrificing a little bit of occupancy you know.
For a much higher amount of rate and what that does is that allows us to serve the guests to even better. So you don't have you know the crowding at the restaurants or the crowding out chairs around the pool, where you have to get up at six in the morning and put a book of your sunglasses or you know.
Sunscreen on on there and fight with people to get a good location on the beach or the pool in all of those things then they may sound silly are small, but they really do make the experience.
One that we've really really focused on is food and beverage and especially at the higher rated resort and if you look at going out where ever people are in the United States. If they go out to a nice restaurant not only how you've been talking super expensive just a nice restaurant you know the cost is so much higher than it was before the pandemic so you're dropping a.
Lot of money to go out now go to a resort destination go to Miami go to Los Angeles go to Las Vegas, how much youre going to spend you know to go out at night people say, yeah, Okay fine the room rates kind of reasonable or high but reasonable, but then by the time you finished your four or five days or a week with your family you know the cost is just <unk>.
Exorbitantly you know so you know you get our experience and what happened during the pandemic is when people couldn't travel to other places they couldn't go to Europe or they couldn't go to other destinations they experienced our resorts for the very first time and those people are coming back and then word of mouth is spreading and then you see.
The ratings on Tripadvisor and others and those are spreading and more people are coming so I don't I don't see this as a fear of not being able to deliberate or our guest scores going down I see it as an opportunity for our guest scores to go up into you know kind of delivered this extremely positive experience to a whole new.
A group of customers and that's what we're focused on.
Got it thank you very much thanks, David.
Our next question comes from Chad Beynon from Macquarie. Please go ahead with your question.
Thanks for taking my question.
Bruce I wanted to first off thanks for all the the guidance commentary really helpful. Ryan.
What's your comment on the summer kind of becoming a regular season instead of an off season I wanted to drill into that a little bit.
What gives you the confidence that that that's you know kind of changed for you know.
For the future is it just the pacing that you're seeing or kind of what you saw in 'twenty two.
Obviously, you can't change the weather of the air the air capacity et cetera kind of in those and those hotter summer months, but it really seems like that's been a nice change for the business model. So just any more color in terms of why you think this is sustainable going forward. Thanks sure sure Chad Great question first of all you know you hit the nail on the head on the first one.
It's pacing right. So we see it so the first thing is we see it.
You know we had it last year. So you know I have no reason to think it's not going to continue again and then kind of you. You mentioned you know you can't change the weather or the or the airlift, while the airlift has really good okay and the airlines are really have been flying into our markets are pretty strongly since the pandemic.
We're still going on through this recovery period, and why are they flying into our markets because the customers want to go there.
And so you know I think what Youre seeing now is people.
Who maybe would've gone to our resorts in the high season, but you know quite honestly are priced out of it a little a little bit and so now they're trading off and I can tell you that because anecdotally I have people, who I know you know friends or family, who are like Wow I can't believe how higher rates are in January and February is that for real.
I'm like Oh, it's completely for real and they go well what you know what would you recommend I said well either trade down to a slightly lower price point resort or I guess once you can go in May you can go in June you know great times of the year to go and you know risk of of Hurricanes isn't that high and quite honestly, the weather's better than in many of the beach.
Destinations you'll have in the United States. So I think people are now seeing you know you know how good an experience they can get at our resorts in and they want to go there and so now it's like Okay. When is the best time for me you know a couple of family whoever to experience the resort and then.
The other thing that we're benefiting from and it's not just in the summer, but it's also in the shoulder seasons is what I alluded to in the whole remote work you know.
Scenario, where you know just people have so much more flexibility coming out of the pandemic and you cannot under.
Underestimate how how big that is for people to be able to travel and I really believe you know the pandemic caused people to rethink their lives in so many ways, but one of them is no. One thought that you know something as simple as going on vacation could be taken away from them.
Now they say you know hey, who knows maybe we'll have a pandemic next year, maybe you have something else next year I want to go on vacation you know I won't enjoy life and that's what they're doing they're going out and enjoying life and I think that's going to continue but we're seeing it primarily in our inner pacing in our bookings.
Yeah, Jack I don't think that Q3 will from an ADR perspective were up in Q1, but the main point is that that gap has closed and we've essentially reset a floor.
Okay perfect. Thank you.
And then separately just in terms of capital you were quite clear as you think about your grid of opportunities with with new projects with with share repurchases.
With with renovations, you're kind of leaning towards the repos on new deals or renovation projects as the costs just gotten to be more expensive are there fewer deals out there or are you simply just kind of thinking about your guidance, where the stock is trading and that has just increased in terms of.
You know the difference in returns.
Sure.
Number one it was certainly it's been the latter your last point, Okay. So if you go back over.
You know the last few months.
Really focus on September when we made the first announcement on the share repurchases you know.
We were just trading at a price that you know was complete as we say in our scripts you know a disconnect between our operating fundamentals and you know the value of the company and so you know I just looked at that and and we discussed it at our at the board level and management level and we just felt you know theres nope nope better places to put our money than in our own.
Stock and so it just became the baseline hurdle for doing anything we said, okay. Let's look at it from that perspective, we know what we've got here you know can we you know can we beat it in and so there are projects that can beat it I mean, the nice thing in our business is it's a very high free cash flow generating business, so, particularly where we can.
Add rooms, okay. We can expand on rooms that generates a lot of free cash flow and you've seen that you know historically you know you know some of our case studies with with with our ROI projects, especially our expansion projects, where we can really drive you know very significant return. So we look at those projects, we're going to keep doing.
Those projects when it comes to.
Acquisitions, or you know bigger kind of opportunities I will say that you know people in our segment or across the board doing well.
I think we're doing a little better than many but people are doing well and so you know there hasn't been.
This.
Need to sell or desire to sell because they think their business is going pretty pretty darn well and so from our perspective, we will focus on opportunities that we have and there have been opportunities and we've picked up those third party management contracts largely due to the success that we've been having and others are seeing it as an opportunity. So I think we'll grow there.
And we will we will grow with the ROI projects and if an acquisition comes around that makes sense for us, particularly one that involves rebranding and one that has does not have a high percentage of direct sales. Those are really the you know the places where we can pool.
You know the lever and dramatically change the profit potential of our resort and I think we'll get more of those and so you know we think they'll come but in the meantime, if we think there's a disconnect between the value of our underlying business and the stock price, you'll see us continue to buyback our stock.
Thank you very much congrats on where the business is trending.
Thanks Pat.
Our next question comes from Smedes Rose from Citi. Please go ahead with your question.
Hi, Thanks, I, just wanted to ask a little bit more about your intention to sell the <unk>.
Jewel assets, you took back management on and I guess, specifically I mean, certainly in the U S and their transaction volume has gotten a lot more challenging I mean, all the stuff we know about so I'm just kind of curious what you think.
The process is like and who kind of are the buyers for those kinds of assets in the world. We're in right now.
Sure sure no great question. So first of all let's step back and you know go into the rationale for why we choose to sell versus choose to do something else Ellsworth them. Okay. So it kind of goes on the last question about you know kind of the opportunity with share repurchases and with high ROI projects right.
So to renovate these two hotels okay.
Would take you know.
A good amount of money and more importantly than the good amount of money a good amount of time, Okay. And then when you look at the returns that you'll generate from those wall, while very attractive. Okay is it better than doing share repurchases are high ROI projects, It's arguable right, but the thing is the other opportunities are you know probably more like.
So kind of it from a risk adjusted basis.
Look at share repurchases or I can look at these higher ROI projects and say I'm highly certain my return is going to be outstanding there. Okay. On these others, it's going to be a very good return, but it's going to take a little time.
In a normal world I would go do that and Thats you know historically, what we have done and we've done incredibly well, but you know kind of this world I said you know what why do we need to do that and so if we if we sell the assets well get those proceeds and we can reallocate those proceeds into either share repurchases or high ROI.
Projects. So I think we'll we'll generate a higher return by selling your.
The second part of your question is who are they and comparing it to the U S. I think it's very different than you know comparing it to the U S market. The first big issue with people buying well, there's two big issues I think in buying hotels in the U S. You know number one is what are the business prospects of those hotels and it's very different.
If you're an urban hotel or a business transient hotel versus a leisure resort both have there they're complicating factors urban.
Group business transient and you're like Okay. When does that business come back how strong is that this is going to be what what's the impact of office occupancy rates in cities all of that so that affects it even on resorts, it's a little different because they've been doing really well over the last couple of years, but then the question is how long is that sustainable are the rates sustainable what happens when people.
<unk> have to fully staff and add back all the services that they would cut we never cut our services. Okay. So we don't have that issue that issue exists in the U S. So for those reasons I think selling in the U S is a little harder the other big one okay. The real big one is that debt financing and interest rates and obviously as interest rates go up.
It makes the hurdle go up for any buyer of a hotel so theyre going to want a lower price in order to meet their hurdle well. If you look at our segment as I mentioned.
Most people in our segments are doing well the other thing unique about our segment as many of the players with cheese or big family owned companies. They.
They don't have a lot of debt and they don't necessarily need any debt to acquire these assets. So they could just buy them in and then rebrand them into their brands, they're already in markets, where they are currently existing so the ability to transact is really easy.
Dr. As a market is is doing incredibly well and you know they have been hitting month after month quarter after quarter record number of of guests visiting the country. So I think when you look at the attractiveness of these two resorts to a wide variety of potential buyer.
<unk> I think they are incredibly attractive and so I don't envision we're going to have a huge amount of difficulty selling that at a good price for playa.
Is there any kind of range you can provide on what you think gross proceeds would be no not at this time, it's going to depend on the buyer of their structure and things like that in their duration.
It really varies by buyer in our markets.
Okay, Alright, thank you guys.
Great. Thanks Pete.
Our next question comes from Tyler Battery from Oppenheimer. Please go ahead with your question.
Hey, good morning, Thank you.
Quick follow ups on the on the guidance. So the full year EBITDA range that you gave.
The expectation in terms of the total drag from from the Jewel properties will be acquired assuming they were with us for the full year about $13 million.
Okay, and then the comment on margin expansion year over year was that meant to exclude those assets.
So for the full year, we should still be able to have margin expansion, even with that drag. The first quarter. My expectation is that for our total portfolio the margins would potentially be flat to slightly down, but if you excluded those jewels it would be up but beginning in Q2 and beyond again, assuming they remain with us for the full year, we should be able to laugh.
Last year's margin.
Okay. Okay I appreciate that.
And then the.
Q1 rate commentary up 20% year over year.
That pretty broad based I mean are there.
Markets that are pacing and substantially higher than that.
Our difference.
Different brands in the portfolio is it higher or lower than that as well.
As you can imagine Jamaica, what would be on the higher end of the range. Obviously, because they are still lapping if you recall last year in the first quarter. They still had the restriction around entry. So they would kind of be leading the charge there, but much like the results in the fourth quarter. The ADR strength is pretty pretty broad based I mean, like I said, there's individual pockets within our segment that do better than others.
As you've heard us talk in the past that's why Cancun proper will outperform by department market for a number of reasons and things like that but generally it's fairly fairly broad based across segment and across.
Appetite.
Okay.
One last one more strategic question.
Any update on.
The vacation club, but you teased out or discuss a couple a couple of quarters ago I'm not sure if thats yes.
So I can I can jump and therefore, our results. Okay. Yes. So we will beginning of 2023, it will start to break that out on its own line.
Is buried within.
It offsets corporate our corporate expense in our earnings release, we actually footnote how much it was but essentially at only selling at three assets that none of them were highest in 2022, we accrued a little under $2 million of revenue as of today is now rolled out at or five resort and the plan is in the schedule. It will be rolled out in all of our resorts, including.
The highest by end of Q3 potentially early Q4 of this year. So my expectation is you see a bigger contribution.
From that from that fee driven business in 2024, but our expectation is you should you should have some some nice growth again, it's not massive dollar contribution but on a percentage basis year over year in 2020 'twenty three so we will start while you can't find it and see the numbers again, they werent very large, but they should start to grow this year and more meaningfully in 2024.
We're excited again doing a couple of million Bucks that essentially to Wyndham and Hilton Playa del Carmen in 2022, and they weren't even being sold most of the year you kind of extrapolate that out it should generate some real decent fee income for us in the future.
Okay. That's all for me thank you.
Thanks Tyler.
And our next question comes from Chris <unk> from Deutsche Bank. Please go ahead with your question.
Hey, guys. Thanks for all the details so far.
But.
So just and congratulations on a really nice quarter here.
So just.
Maybe beat the capital allocation horse to death, a little bit more.
Appreciate the guidance, you've given on everything from EBITDA to Capex and even.
Even before we would think about proceeds from from Juul dispositions, you're going to have a lot of free cash flow.
On a net basis I mean is there any reason why you wouldn't.
Continue buying stock I know you've done some more in year to date, but still a pretty big disconnect. So I mean.
I know you don't want to accumulate cash. So is there any reason you wouldn't keep buying buying back stock.
Yeah, No and Thats exactly why the board authorized another 200 million you know a couple of weeks ago, when we announced it last night and so that is.
Particularly at today's valuation that makes sense.
Won't repeat everything Bruce just said, but the bar is high for other projects and other uses of cash and it also weighed into the decision on <unk>.
A part of the decision of why we want to sell the sell the jewels and so no. There is no reason why we wouldn't.
And then on as far as other projects and things like that I alluded to spending a little bit above and beyond maintenance capex at a few other properties it should be.
A little to no disruption and it's included in the guidance, but it's starting to spend money on areas that still drive the customer experience a little thing that Laura can could derail port of <unk>.
And <unk> and we've been meeting to do again, not full scale renovations, but it's starting to put some of our money to work that just helps us play a little more offense with rate and the guest experience, which as Bruce said very eloquently as the name of the game when it comes to our business and maintain rate integrity. So it's still a consistent balanced but.
At multiples that were trading at it still makes sense to buy back stock.
Okay.
Good Thanks, Ryan and then.
Yes.
I looked at your guys I look at you more now actually on a Trump par basis, because youre getting like 15% of your total revenue from from non package.
What's the opportunity there.
No.
By nature, and all inclusive company, but there is still plenty of add ons people can do and can you maybe just give us a little bit of color like.
You've grown that over time, how big can that get and maybe just a little bit of detail on that.
Is that the Hyatt or in some cases Hilton customer do they have a significantly higher <unk>.
Contribution to the non package. Thanks.
Yes, the higher end properties and specifically very higher season has a disproportionate contributor to just the overall opex spend.
Many many years ago, we just prove that thesis that people paying a higher rate don't want to spend as much on ancillary product that in fact, the opposite so as you can imagine it's more more beginning of the year weighted there are some things that we did throughout the pandemic and have layered on sequentially. Since then and you've heard me talk about it adding private chance first from the resort.
And so from the airport that we werent selling prior actually charging for cabanas things like that that we've added have been very successful. There are some things that you have a finite amount of you have a finite amount of.
What do you call it beds and treatment rooms that respond and things like that and you've heard me joke in the past there are certain times that people want to go to this bothers other times a day they'll never when I go to the small so there are some things that as far as the number of items that you can sell you.
You have a finite amount the area. We're focusing on now is actually pricing optimization that area, our sales and marketing team and the digital teams have actually put together kind of apps and what they're calling a digital concierge.
Guests can use and it actually will actually do more dynamic pricing for cabanas.
A week, rather than just quarter by quarter or month by one hits.
Historically, we would sell a core a cabana more extensively in high season than we would in October for instance, now we can actually sell it based on demand.
Trying to optimize the earnings from those things same thing with the Spa and others. So that's the best way to optimize it.
And when you have run out of additional things to sell because as you said, it's a fine line you walk that you don't want to have somebody feel like they're nickeled and dimed when they show up at all because that's what our counterparts do in other parts of the world in the U S that we don't want to do.
And then lastly, the other area, where it can grow at group has come back and it is obviously fully back but given the pacing number that I gave you is going to continue to grow that is another area of upside for non package spend just purely because those groups are spending four events space Big dinners on the beach celebrations things like that.
Okay.
Thanks, Brian and just sorry, if I missed it but.
On the jewels on the sales you are those are totally unencumbered of your of your management is that right.
They are being sold unencumbered, but again it will depend on who we sell it to do and what the plan is whether we can manage it or not obviously in a perfect world. If we can hold on the management, we would do that but it really just depends on the buyer and the pricing structure.
Okay got you very good thanks, guys.
Thanks, Chris.
And ladies and gentlemen, with that we'll conclude today's question and answer session I would like to turn the floor back over to Bruce <unk> for any closing remarks great.
I think we've covered everything exhaustively on this call. So thanks for everyone participating today and I hope everyone has a good weekend take care bye.
And ladies and gentlemen, the conference has now concluded we thank you for attending today's presentation. You may now disconnect your lines.
Okay.