Q2 2023 Playa Hotels & Resorts NV Earnings Call
Good morning, and welcome to the Playa hotels and resorts second quarter 2023 earnings call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note. This event is being recorded.
I would now like to turn the conference over to Ryan.
Please go ahead.
Thank you very much Jason good morning, everyone and welcome again to Playa hotels, <unk> resorts second quarter 2023 earnings conference call for.
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.
For a discussion of some of the factors that could cause our actual results to differ. Please review the risk factors section of our quarterly report on Form 10-Q, which we filed with the SEC last night.
We've updated our Investor relations website at investors Playa resorts Dot com with the Companys recent releases. In addition, reconciliations to GAAP of the non-GAAP financial measures. We will discuss on this call were included in yesterday's press release.
Call, Bruce <unk>, <unk>, Chairman and Chief Executive Officer will provide comments on the second quarter demand trends and key operational highlights I will then address our second quarter results and our outlook, whereas the wrap up the call with some concluding remarks before we turn it over to Q&A with that I'll turn the call over to Bruce.
Thanks, Brian .
Good morning, everyone and thank you for joining us our second quarter results continued to build on the momentum established in 2022 with both ADR and occupancy growing year over year in our core legacy portfolio and owned resort EBITDA margin expansion, despite a significant FX headwind.
Players owned resort EBITDA of $83 $1 million in the second quarter was the best second quarter performance in the Companys history, driven by the continued recovery in our Jamaica segment, and an 18, 2% year over year, Revpar increase and our core legacy portfolio the quarter was not without challenges. However, as we can.
<unk> to experience year over year pressure from both of the two dual resorts in the Dominican Republic that recently transitioned to Playa management and foreign currency exchange headwinds in Mexico. Additionally, our operations teams executed at the resort level, delivering 100 basis points of owned resort EBITDA margin expansion on a reported basis.
Despite an approximate 260 basis point FX drag from the appreciation of the Mexican peso this quarter. The core legacy portfolio resort margins improved 280 basis points year over year inclusive of a negative 270 basis points foreign currency drag the margin performance was particularly impressive.
Given the moderating pace of year over year Revpar growth.
As a reminder, our expectation was that the first quarter would represent the highest year over year ADR growth for 2023, as we lapped the impact of omicron last year and that growth would normalize as we entered the second half of 2023.
Finally, I would also like to note that during the second quarter, we recognized a $4 $3 million benefit from business interruption insurance in the Dominican Republic related to Hurricane Fiona which occurred in the second half of 2022.
Though we expect more business interruption insurance proceeds the exact amount and timing of the proceeds as unpredictable.
As I mentioned fundamental strength during the quarter was led by our Jamaican segment as this market is a little behind on the recovery curve compared to our other segments due to the longer lived COVID-19 related travel restrictions being in place until April of 2022.
The second quarter of 2023 marked the highest Q2 occupancy rate and owned resort EBITDA margin, we have ever achieved in Jamaica, reinforcing our belief that nothing has fundamentally changed for this market compared to the pre pandemic period. When it was our best performing segment.
2019 international passenger arrivals into Montego Bay Airport had been lagging our other major destinations by approximately 15% to 20 basis points during the first quarter.
That gap narrowed to approximately 10 to 15 percentage points during the second quarter with June showing a significant ramp comparing ADR in the segment vis vis peers, we believe <unk> still have a meaningful runway of improvement ahead.
In Mexico revenue growth in this market was predominantly ADR driven.
Given where the country was on the recovery curve.
Both of our Mexican segments were negatively impacted by the year over year change in the Mexican peso during the quarter and we estimate both segments would have seen improved margins year over year, excluding the impact of FX. We have been actively working on efficiency opportunities to manage costs and help mitigate the significant impact of FX on our margins in Mexico.
As evidenced by our Yucatan segment growing margins year over year on a currency neutral basis, an ADR growth of 6%.
Although the second quarter was largely as expected we experienced some softness in close in demand for the Yucatan in June for the summer period demand. However, improved in July in the month for the month.
Our expectation is that demand in the Yucatan will remain choppy through the fall as the Trans Atlantic travel research and subsides.
In the Dominican Republic, our legacy Dr resource.
Resorts, excluding the dual Palm Beach, and Joel pointed kind of resorts grew both occupancy and ADR year over year, yielding over 900 basis points of margin resort margin expansion year over year.
Adjusting for the previously discussed business interruption insurance benefit resort margins for the legacy Dr. Pepper.
<unk> grew by 170 basis points year over year rich.
The results of the two dual resource in the Dr segment were slightly ahead of the expectations. We laid out on our last earnings call, representing an approximate $7 million year over year EBITDA drag in the second quarter.
We continue to expect the year over year profit drag from these resorts to improve during the second half of the year, while we continue to pursue the sale of these assets.
We have been in negotiations with two separate buyers to sell the assets individually and the only update I can share with you today is that one of the processes is further along than the other but we are diligently working on both dispositions on.
On the booking front demand has remained steady as a whole in aggregate during the second quarter of 2023 47, 2% of Playa owned and managed transient revenues were booked booked were booked direct down 190 basis points year over year. The decline was driven by fewer world of Hyatt redemption bookings following.
A significant increase during the first quarter ahead of a change in the conversion rate for point redemptions would expect us to smooth out over the course of the year and believe we will.
Excuse me and believe we will be ahead of our targeted 50% booked revenue mix of transient revenue.
During the second quarter of 2023, Playa resorts Dot com accounted for approximately 10% of.
Of our total player owned and managed room night bookings continuing to be a critical factor in our customer sourcing and ADR gains.
Taking a look at who is traveling roughly 39% of the Playa owned and managed room night stays in the quarter came from our direct channels. Our OTA mix has remained the most depressed channel compared to pre pandemic levels for stays geographically the biggest change in our guest mix during the second quarter was our Mexican source guests.
<unk>, which was up nearly 500 basis points year over year, our European source guests mix was down slightly year over year, but well ahead of pre pandemic levels, our Asian sourced guest mix improved modestly year over year, but remains the most depressed as it is only approximately 20% recover.
Our visibility remains a critical factor of our success as our booking window has.
Our booking window was just under three months once again I would like to thank all of our player associates, who have continued to deliver world class service in the face of unexpected challenges and rising operating costs their unwavering passion and dedication to service from the heart is what truly sets <unk> apart.
Finally on the capital allocation front.
Purchased approximately $34 million worth of Playa stock during the second quarter and an additional $24 million in July bringing our total repurchases since resuming our program in September 2022 to approximately $145 million, we're well over 11, 5% of the shares outstanding we continue to believe that our.
<unk> free cash flow generation is underappreciated, given the modest amount of ROI driven capex expected in the near term and our healthy business fundamentals. We believe that our stock offers a tremendous value opportunity and share repurchases are a phenomenal use of capital from our free cash flow to boost total shareholder.
Turns over time.
With that I will turn the call back over to Ryan to discuss the balance sheet and our outlook.
Thanks Bruce.
Before I begin my review of the quarter I'd like to remind everyone that beginning with the first quarter of 2003, we elected to reclassify on property room upgrade revenues from non package revenue that package revenue to be consistent with industry trends.
Recast prior periods to conform with our current period presentation and a reconciliation of the changes made prior made to the prior reporting period for 2021 and 2022 can be found on our investor deck on slide five.
Our second quarter results were in line with our expectations. As a result of continued ADR growth and easing pressure from energy costs, leading to resort margin expansion of 100 basis points year over year, which again includes a 260 basis point headwind from foreign exchange.
180 basis point headwind from the two jewel resorts in the Dominican Republic, and 180 basis point tailwind from the business interruption proceeds.
While the quarter fundamentally was generally in line with our expectations foreign currency related headwinds in the quarter were approximately $1 million higher than expectations outlined on our last earnings call and we also had a onetime pension related catch up in Mexico.
Finally, we experienced a safety related travel warning for Jamaica during the quarter, which temporarily impacted bookings and weighed on June results. These types of warnings are not unusual nor unheard of in Jamaica. However, this one picked up more media coverage than we typically see and led to some disruption in bookings and cancellations, particularly in the group segment and was however, very short lived.
As we are not seeing any lingering effects into the fall.
D var strength was broad based with all segments reporting year over year ADR growth, excluding the dual resorts in the Dr. On the cost front as I mentioned on previous earnings calls, we began to see stabilization in food and beverage and utilities costs on a per unit basis in the middle of 2022, and we're hopeful that the inflationary pressures from these two areas will begin to ease.
We moved into 2023 and lap the surge that occurred around the start of 2002, we began to see signs of improvement during the fourth quarter and that carried over into the first half of 2023, although it's nice to see some cost relief. These expenses can be volatile quarter to quarter.
As Bruce mentioned, we are undertaking undertaking efforts to streamline and improve our procurement process across the entire portfolio to take advantage of our size and scale.
These efforts are just beginning to bear fruit and the work taken undertaken thus far in 2023, and we expect the benefits to accelerate as the company moves into 2024 and beyond as our cost savings per purchase category are averaging mid single digit to high single digit improvements per category, thus far.
At the segment level, Jamaica led the way in year over year, ADR occupancy growth and margin improvement despite the temporary impact of the travel warning.
Obviously mentioned.
The segment experienced significant year over year growth in group room night mix, helping yield ADR and closing the gap versus other segments ADR improvement versus 2019.
As a reminder, Jamaica got off to a slower start in 'twenty two due to the <unk>, having a disproportionate impact on the segment given its COVID-19 testing requirements at that time.
The ongoing recovery in addition to the significant investment being made to improve the Montego Bay Airport, which is expected to be completed in the near future bode well for the Jamaica segment for the second half of 2023 and beyond <unk>.
Forecasted flight seats into mine takeaway are expected to grow over 10% year over year in the second half of 2023, leading all of our major destinations on the margin front, Jamaica once again benefited from better than expected food and beverage and utilities expense and.
And keeping please keep in mind when comparing results in Jamaica versus other segments that you make are generally has higher operating costs in our other segments and we typically generate higher ADR as well.
Looking at our other destinations Yucatan Peninsula continued to deliver strong results with year over year occupancy improving reported ADR growth of six 4%.
Reported owned resort EBITDA margins were down 460 basis points year over year, primarily as a result of a 570 basis point negative impact from foreign exchange food.
Food and beverage and utilities expenses were favorable on a year over year on a currency neutral basis, while higher government policy, driven labor cost negatively impacted margins the timing of sales and marketing spend also had a modest favorable impact on our margins all told as Bruce mentioned, we're pleased with the operations teams ability to expand margins on a currency neutral.
Basis as Revpar growth normalizes.
The Pacific Coast had another fantastic quarter with year over year ADR improvement of over 18% leading to robust margin performance as food and beverage expenses were also favorable year over year in this segment.
Similar to the Yucatan segment margins were negatively impacted by approximately 490 basis points as a result of the sharp fluctuation of the Mexican peso and would have been up year over year, excluding the foreign exchange impact.
In the Dominican Republic, our legacy resorts, the Hyatt cap Cana and the Hilton La Romana grew 18% 18, 5% year over year and Theyre ADR with occupancy of nearly 74%, which is also up year over year Mike.
<unk> business at these resorts increased significantly compared to the second quarter of 'twenty, two helping yield higher ADR and driving non package revenue per sold room growth the fundamental.
Improvement year over year, yet led resort margins at these resorts improving significantly even after adjusting for business interruption proceeds as food and beverage and utilities expense pressure continue to ease.
The segment performance was dragged down by the two jewel results resorts. We recently assumed management of those our performance was slightly ahead of our expectations. We continue to expect the performance of the two dual resorts to improve sequentially year over year, while we execute the sale process at the resorts.
Now turning to our <unk> group business, our 2023 net <unk> group business on the books is $59 million versus $55 million at the time of our last earnings call and is well ahead of our final full year 2019, <unk> revenue of $32 million.
Looking ahead to 2024, we currently have approximately $48 million of <unk> revenue on the books well ahead of where we were at the same time last year and setting us up favorably for the first half of 2024 and the high season.
From a pacing perspective this base of mice business combined with our leisure transient bookings as our first half 2024 revenue pacing up over 20% with both ADR and occupancy contributing to that.
This gives us a sense of optimism as we move through the summer period and look ahead to the high season.
Finally, turning to the balance sheet, we finished the quarter with a total cash balance of approximately $269 million and total outstanding interest bearing debt of $1 9 billion. We currently have no outstanding borrowings on our $225 million revolving credit facility and.
And our net leverage on a trailing basis stands at three times.
Dissipate, our cash Capex spend for full year 2023 to be approximately $65 million to $75 million for the year with roughly $45 million to $50 million for maintenance and other critical capex needs as the remainder designated for ROI oriented projects.
Also effective April 15, where we entered into two interest rate swaps to mitigate floating rate risk in our new term loan due 2029.
We entered into a two and three year contract both of which have a fixed notional amount of $275 million and carry fixed sofa rates of four five and $3 71% respectively.
On the capital allocation front as Bruce mentioned.
Purchased an additional $34 million of stock in the second quarter and an additional $24 million in July .
Since we began repurchasing shares last September .
We purchased 19 five shares million shares or approximately 11, 5% of the shares outstanding we still have approximately $110 million remaining on our existing repurchase authorization 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 continue to believe repurchase.
<unk> is a very compelling use of capital into it and intend to use our discretionary cash to repurchase shares going forward depending on market conditions. We will also continue to invest in our business to deliver value to our guests and shareholders, but the bar is high for new projects on a risk adjusted basis, given the valuation of our stock.
Now turning our attention to our 2023 outlook relative to the expectation set at the beginning of the year. Our revpar growth outlook has largely been as expected with ADR is improving versus initial expectations occupancies slightly lower better than expected performance in our core and legacy portfolio and fundamentals coming in worse at the <unk>.
Fuel resorts in the Dominican.
As we said in our release, we now expect full year adjusted EBITDA of $260 million to $275 million again inclusive of approximately $26 million negative impact from the appreciation of the Mexican peso.
$15 million of which is expected to hit in the second half of 2023.
This is approximately $5 million to $6 million higher impact and at the time of our last call.
Our fundamental outlook has remained steady for most of the portfolio with the exception of the aforementioned summertime choppiness in demand and the Yucatan and construction disruption impacting the specific segment.
At the midpoint, our full year guidance represents approximately 10% year over year growth in adjusted EBIT on a reported basis, but after adjusting for the hurricane related expenses and business interruption in 2022 and 2023.
And foreign currency impacts the midpoint reserve represents adjusted EBITDA growth of approximately 15% year over year.
For the third quarter, we expect reported occupancy to be approximately 70%.
We expect Q3 reported ADR to grow high single digits on a year over year basis.
And owned resort EBITDA margins to decline year over year, given the year over year EBIT drag in the Dr. From the two dual resorts and continuing FX headwinds and Mexico excluding.
Excluding the impact of foreign exchange, we expect owned resort EBITDA margins to improve year over year.
Putting it altogether, we expect Q3 owned resort EBITDA.
Approximately 50% to $54 million.
The Playa collection and management fee income of two to $2 5 million.
Corporate expense.
14, five to $15 5 million.
Thus leading to adjusted EBITDA of.
Of <unk> $36 million to $40 million.
Keep in mind that these Q3 estimates.
Include approximately $8 million year over year impact from foreign exchange headwinds or approximately $2 5 million worse in this time of our last call.
Given our booking window, we're currently 87% booked for the third quarter.
For the fourth quarter of 'twenty, three we expect reported occupancy to be in the low to mid seventies.
Low single digit to mid single digit year over year ADR growth on a reported basis and we again expect owned resort EBITDA margins to be down but up year over year, excluding the impacts of foreign exchange in Mexico.
Hope that framework helps guide you as you fine tune your models and give you further insight to what we're seeing and expecting.
I'll turn it back over to Bruce.
Great. Thanks, Brian with the increasing uncertainty in the macro backdrop, we are diligently focus on the areas within our control and are carefully monitoring the landscape. We continue to believe the price certainty and amazing value provided by players all inclusive resorts resonates very well with travelers even in the face of an uncertain economic backdrop with that.
I'll open up the line for any questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we'll pause momentarily to assemble our roster.
Our first question comes from Shaun Kelley from Bank of America. Please go ahead.
Hi, Good morning, everyone. Thank you for taking my questions.
Bruce Ryan maybe just to start obviously, you talked a little bit about.
Shopping is in the Yucatan and I think this has been a theme we've seen a little bit of seasonal normalization across a lot of different travel behavior out there. It sounds like youre rates remained strong. So can you just talk a little bit more about exactly what sort of customer behavior.
Youre seeing are kind of calling out there and just sort of.
Using your longer term experience kind of how would you characterize it would you characterize it more as normalization or something a little bit more in the background.
From our perspective, we began to see a divergence between Mexico and the Caribbean during the second quarter, which we believe is likely attributable to what we've been calling destination fatigue and effecting a few others in the space have done so as well and we believe that's the case rather than anything having to do with pricing or other issues around demand.
You've heard US mentioned many times on the call. We've continued to see great strength in our other segments in the Caribbean and in Jamaica, and this is really just kind of manifested itself in the summer period.
For per our comments around our guide and our assumptions, we're going to assume that it continues throughout the remainder of the year, but as Bruce mentioned, we already saw some nice stabilization in July so we're kind of preparing for choppiness, but it very very well could just be a blip in time or a far more normalized moment for that for that destination.
If you think and you look at the Yucatan, specifically that Ken Kun Airport and just like international arrivals wanted you've heard US say many times, it's the deepest and most mature market of all of our destinations and if you look back I think to 2013.
Through 2019 international arrivals on a kind of annual CAGR basis into that market into that airport, where roughly seven to seven 5% and if you extend that number through 2022.
That CAGR goes to only about 6%. So we're actually still below trend, but I think what essentially happened is you had a lot of people visit Mexico in 2021 and 2022.
It's essentially the place to be and then this year as you've seen in Europe and other destinations reopen some of which we own assets and you saw people with more choice and chose to go other locations. So we view it more as normalization and just like the return of other choices, but.
We still expect it to be choppy, but we're.
We're not we don't have any long term concerns about the destination.
Yes.
All the comments, Brian made and I'll tell you from my standpoint, you can see that this may be kind of a June slash summer phenomena as Ryan mentioned when people have other options and going into the high season, I think it bodes very well for the high season, just anecdotally, a United announced that they are adding the triple seven wide bodies, which they haven't done.
<unk> ever and some of the markets or in a very very long time.
Daily flights coming from Chicago, Denver, and Houston into the <unk> market and that's a huge number of flights and just kind of indicative I think of the strength that the airlines are saying so if United is doing that I would imagine the other airlines are going to be doing that.
Nothing that I think is indicative of anything kind of longer term I think it's more of a kind of a summer phenomenon.
Thank you for that and then just as my follow up.
Thanks for all the color on owned and operated margins I mean, obviously, there's a few moving pieces here between jewel in the FX piece, but.
Brian just overall like how do you think about driving operating leverage from here. We are seeing I think for owned and operated hotels in the U S. A bit more of a struggle to kind of leverage operating cost relative to the topline.
<unk> model, let's call it FX neutral.
What kind of revenue growth you need right now to be able to drop through.
Either hold margins or see a little bit of <unk>.
Margin leverage again in a normalized FX environment as we're thinking about 2024.
On a currency neutral basis, I think we want to see kind of low to mid single digit ADR growth.
Commented on a few times in the first kind of indications are the first kind of sight lines you have into that where this quarter in the yucatan.
It was a low single digits, but it was mid single digits around 6% ADR growth and on a currency neutral basis railroad expand margins Bruce and the operation teams have been acutely focused on on costs and kind of re staffing, giving some of the softness in occupancy that we're expecting in the back half of the year and as I mentioned and Bruce mentioned.
Made investment and time and energy into our procurement team NFC and started to see some nice gains.
In small bits now, but that's why we're pretty excited about what we can what we can expand into into 2024. So right now our expectation is that our currency neutral basis, we can still expand margins on a low to mid single digit ADR growth.
Thank you very much thanks, Sean.
The next question comes from Patrick Schultz from Truest. Please go ahead.
Hi, Good morning, Bruce Ryan.
On a pad of course.
Morning, Bruce you were in the previous question just briefly touching on.
Airlift and air pricing.
We certainly heard from some other companies.
It's a mixed information are.
It's about those two trends now and going forward I'd like to hear your thoughts on sort of where we are.
The trends in airlift to you made to your markets and also on pricing and it sounds like pricing is going down for especially Mexico on the air.
Got it.
Airlines.
How do you think that.
Might impact your ability to price at your resorts of the ADR. Thank you.
Yes, I mean, I think Ryan you can add in here, but I think overall, what we're saying is very positive as you said prices are coming down.
<unk>.
The kind of the.
Pandemic in early post pandemic recovery.
Leisure travel dominated the airline business and they were able to.
Increased rates, particularly to high demand markets and we were in high demand markets.
And as Jamaica has recovered its become as we've highlighted a high demand market, but overall.
With airline travel kind of diminishing somewhat and then just the change in patterns right with the business traveler, what theyre doing or more importantly, what they're not doing and how it how it flows throughout the week and so I think you know just like Youre seeing United adding Triple Sevens.
Youre, having the airlines adjust their schedules in ways that they never had before and so with the weaker kind of weaker flying mid week Tuesday, Wednesday Thursday, they have a lot more capacity and we're going to be in my opinion, a beneficiary of that excess capacity as they try to put more and more customers who didn't.
And let's face it this is where theyre, making this is where theyre, making their money. So I think that is just going to be economically driven and we're going to we're going to benefit from that so.
What you are seeing this summer with with people traveling to Europe , It's amazing.
Absolutely amazing and so it's not that people aren't spending money not traveling they're absolutely spending money and traveling theyre just traveling different places because you know the the world literally has opened trade. It's it's much different than it was a year ago or two years ago look at the Airbnb earnings report for the second quarter record.
Record profits and why is that it's because the rates people are paying so I think it bodes very well for us both on the airline side and in People's willingness to still pay rates and just to highlight we never kind of charged the exorbitant rates as others did we were always modestly increase.
<unk> our rate sure they look great.
Per year, but it was not you know kind of your your price gouging type of rates. So I think our.
Ability to sustain those rates and continue to increase them is very strong and thats, what youre going to see particularly in the high season. So for me.
I'm very bullish on.
The high season, so late fourth quarter and into the first quarter of next year.
Okay.
Just a couple of follow up questions.
Remind us.
Sure.
Alrighty.
Somewhere else.
Your average ADR right now for the summer how much are you Bob.
For 2019 at this point.
Yes, I think for the summertime, it's between like 40%, 45% on a clean underlying basis. When you adjust for some of the accounting things and piano and adjusts for the fact that we have top corner and others. So again thats to Bruce's point and I think thats at it.
Peak, which was last quarter.
And then last year at some point a couple of resorts reached as high as 50%, 60%, but again the absolute dollar is.
75 to potentially $175 more than 2019, and again don't mean to help soon at not a lot of money, but when you include food and beverage entertainment and a great Guy.
It's not up double like you've seen a lot of resorts and leisure markets in United States.
Okay.
One last question this is very high level.
<unk>.
This is a question I get a lot from investors and that's I think that's really a point of controversy.
In the stock.
Certainly.
Domestic higher than domestic.
I'd say higher end resorts, obviously, a lot of pressure.
Year over year.
I thought that last summer was a bubble and then we had.
Hotel, We report this morning.
They are high end Napa properties saw revpar down 11%.
Well I mean.
Do you think.
Next summer.
Your resorts can it may.
Mccain.
Year over year Revpar.
Again, it's.
Highly speculative question, but I just wanted to hear your thoughts about it.
Thank you.
Yes, I mean, yes, I mean, the short answer to your question is yes, I think we can and what you've seen is not really softening, which you described about Napa I mean people got kind of tired of paying $4000 for a room night in Napa Valley, you know theyre not going to do that we don't charge $4000. Okay. So we have a much more.
Normalized pattern this year in the summer and I think going into next year youre going to see it too in the benefit that Playa has.
And for those who haven't been to our properties and don't know our properties as we are for the most part the premier resorts within any given market that we have and so we are able to garner kind of that premium customer instill attract good healthy rate increases, we do very well on tripadvisor.
And other social media rankings and that allows us some some level of pricing power. So.
I think if you look at 2024, what do I think you know.
At a high level I think we're going to have a lot of pricing power in and strong demand for the high season and the <unk>.
High season is going to be the first quarter into the early second quarter as we look at that and then I think youre going to see normalized patterns throughout the summer and shoulder seasons and Thats not bad. So maybe those normalized patterns are mid single digit rate increases as opposed to the higher ones that we've got in the past, but I think during the high season, we will have more.
Pricing power, so I don't see anything that has occurred.
Recently for us.
Any kind of warning signal or red flags.
As Ryan mentioned July recovered well. So you know you had a little bit of a phenomenon softening phenom phenomena in June and then you had kind of pick back up in July youll, probably be kind of <unk>.
Soft into the into the shoulder season into the fall September I'm, Sorry August September early October which is traditionally our slowest time of the year anyway. So you know just the dollar impact isn't as significant but I think for going into the high season into next year.
No warning signs and then you look at what are what are the headwinds that we face and the three headwinds with that we've hammered through in the second quarter report the Mexican peso seasonal weakness in the Yucatan and the drag of the dual dual resorts in the Dr. All three of those things can be mitigated the Mexican peso.
At levels, we haven't seen for almost 10 years.
We've talked well about the Yucatan situation.
If when we sell the two dual resorts that eliminates the drag issue and then that provides more more more cash for us to continue to buy back stock. So I'm very bullish very very bullish.
Okay that sounds very encouraging.
I could ask a lot more questions, but I think I will stop myself here. Thank you.
Patrick.
The next question comes from Chris <unk> from Deutsche Bank. Please go ahead.
Hey, good morning, guys. Thanks for all the details so far.
Maybe we could spend a second on Jamaica, and realizing that it's obviously earlier in the recovery.
Phase does that tail extend into 'twenty four beyond and do you think if we try to connect the dots between where say Mexico got relative to prior peak is that going to be a similar kind of trajectory in Jamaica in terms of percentage over prior peak is going to be better any any thoughts on that.
I think the way you said it is perfect and that's kind of our expectation and you guys are probably tired of us saying it but just as a reminder, that destination was our best performing market prior to prior to Covid and so we never had any long term concerns or impairment concerns about that destination is just purely around the ability to get in and out of the country when.
The rest of the countries, where we're not testing right and so we're pretty bullish on that market and learning some of the investments, we're making into the months Eagle Bay Airport.
And the fact that that that market, namely fairly close to the airport where most of our resorts are located is limited to no supply over the last couple of years, even even pre COVID-19. So just lends itself to some nice demand.
Nice runway for that for that segment and I'll just add to that.
Ryan said as you know Jamaica draws very significantly from the northeast coast of the U S and you know that's a.
<unk> market to draw from because those customers are willing to pay higher rates than other other markets and the other place that draws very well from our higher end groups. So I think the fact that we have such premier properties and as Ryan mentioned, they're very close to the airport.
It's really attractive for our guest and guests that are somewhat discerning and willing to pay higher rates.
Okay understood.
On the Juul sales I think you mentioned one of them is closer than the other.
What needs to happen to get both of those across the finish line or are there any is this an issue of financing is it something else just your level of confidence that they can actually get done this year sure.
First of all to address it is not an issue of financings. So both purchasers we're able to.
Get multiple quotes from.
That's debt providers within the country and so I think thats, a good indicator and it's due to the strength in the country and the fact that the banks there are willing to lend and so it's not it's not that.
Quite honestly, we were further along with the one that is now not further along because you know the buyer that we were very confident of for a variety of their reasons not related to refinancing our economics pulled out of out of the process. So.
<unk>.
Somewhat delayed where we are on that one but I'm optimistic.
To mystic were going to be back on pace and get that done and the other one as we've alluded to is further ahead and there are no.
Indications of <unk>.
Not occurring but.
And we've said this before Chris and you know it in our part of the World things just move a little slower. So it's just it's just kind of the way it is.
You add to that where we are in the season and as we said we're here. We're in August going into September October slow. This time of the year, It's always amazing to me that when Youre trying to sell a resort in this time of year people kind of slow walk it because you know when do they want to buy it they want to buy like December one when they can immediately have higher cash flow. So it's just kind of.
In nature nature of the Beast, but.
Hum.
Positive that we're on track to sell the two resorts.
Okay.
Great last question was just kind of on the I think back to Ryan's comment on the what you have for 2004, so far I think you said $48 million.
Nice revenue in that your overall revenue pacing for first half is up more than 20%. So the question is what percentage of first half revenue is on the.
Or do you think what percentage do you think that represents what percentage that you have in 19 for the first half of 'twenty at this time.
It's about we're about kind of a 3rd% to 40%.
Our kind of forecasted occupancy already on the books and again a lot of that is <unk>, driven and that's the beauty of mice and particularly having it at three key segments.
Key three key markets for us because it allows the revenue team to yield from there so.
Cautiously optimistic about the high season at this point.
Okay very good thanks, guys.
Chris.
The next question comes from Chad Beynon from Macquarie. Please go ahead.
Good morning, Thanks for taking my question.
Ryan Thanks for all the details around the guide wanted to just trying to one of the near term loans. So Q3, you said I think occupancy should be around 70%. If im looking at Q2 portfolio Occupancies, that's about 600 basis points off of pre pandemic, so 70% would kind of imply.
Around 600 basis points kind of between five and 600 basis points. So I guess firstly on that you said you were at 87% booked why can't this get a little bit higher, particularly in some of those higher arc market's like.
Yucatan and and Pacific Coast, and then secondly, and we've heard this from some of the operators is this just how we should think about how you know company.
Companies like.
Companies are going to be running occupancies, so a few hundred basis points below.
Yes, so I'll start with your second question first and we've been pretty pretty.
Pretty strict about the way we've thought about rate versus occupancy since we reopened and we spent an immense amount of time kind of building up the profile of the assets great consumer reports grade tripadvisor ratings, great height that ranking et cetera, and so we want to do everything we can to protect those rates that we built and not have a knee jerk reaction even if so.
Summertime softness as are dropping rates and so we are 100%, okay with seating occupancy in favor of ADR. Obviously that is a hotel by hotel decision tree, depending on the asset quality level and things like that but in general across the board. That's been first in mind and the entire revenue and commercial teams focus and so to answer your question yes.
Like many other operators it makes more sense to run at a lower occupancy so.
And to answer your first one it couldnt be higher our expectation is that the summertime softness that we started to see and particularly in June as more of a Q3 phenomenon in the yucatan more than it was even so in Q2.
And then again, we do have some construction disruption that we pointed out in the last call stop measure, but it brings the Pacific coast occupancy down you've got some rooms out of service at the port of air to asset.
And then again just in general Q3, while it is certainly our lowest season and the differences in rate between Q3, and Q1 are much wider than occupancies would be it's still our lowest period in is a little more seasonal it is hurricane season people wait a little bit more to book because they want to see what what's coming down the pike in one there.
Want to make decision.
So it could absolutely be better than what we're expecting but at this point, that's what we're comfortable forecasting.
Okay, great. Thanks, and then separately just thinking about future ROI projects, you said capex is kind of still in that.
75 million or <unk> 65 to 75 million for the year with with just a little bit of project Capex.
Now that Leverages at these levels in the business is humming along pretty well how are you thinking about expanding or renovating any other properties within the portfolio. Thanks.
So I mean theres no.
Question.
We think the business is doing well and that it makes sense, where theres high ROI projects to do those projects, but there is just one big one big caveat and that is does that return generate more than just repurchasing our stock and quite honestly the attractiveness of our stock I mean.
In my opinion, you know Chad we're trading at a ridiculously low multiple for our business.
I'm not.
It kind of in your shoes I can't tell you what investors think or don't think or what they're concerned about are not concerned about all I know is you know I'm a hotel guy I've been doing this for 36 years and I look at where we sit today and we're in an incredibly attractive position and so.
When you've got leverage at three times I'm not worried.
About our balance sheet.
We bought back significant levels of stock and our cash balance at the end of the quarter was still almost $270 million. It just says to me we should keep doing what we're doing and we will reap the benefits of doing that because eventually.
It'll become obvious.
Yes, it's a lot lower and our EBITDA continues to grow at nice at a nice pace that the company is undervalued and.
Benefit is going to accrue to the remaining shareholders and so that's the plan. So its not that were abandoning ROI projects at all it just we have set a high a high bar and so that's kind of it.
Fair point for US we have you trading at a mid <unk> mid teens yield off of next year. So it makes sense to us as well thanks.
Thanks, Chad.
The next question comes from Tyler Batori from Oppenheimer. Please go ahead.
Hi, good morning, Thanks for taking my questions here up a couple of follow ups just in terms of the choppy trends in Mexico is that isolated to the U S gas.
Are you seeing some choppiness from European travelers as well, but just also talk about the mix in the summer.
First Europe , where you are right now versus what's what's more typical.
Yes, I mean, we're still over indexed to the U S customer than where we were pre COVID-19, but yes. It has been.
More acutely seen from U S customers going out elsewhere more than anything.
Same thing with Europeans are down we actually saw Bruce mentioned higher mix of Mexicans and local residents coming into the Yucatan and kind of staying in our country, but it's certainly a less of a mix from the U S and European as they have more choice and heading elsewhere. So you get that one on the head.
Okay.
As your competition reacting to some of that although dropping rates in the market I'm not sure. If that's kind of exacerbating the problem a little bit it is.
That's a good question.
These happens the hotel business and again I've been through this many many times you know.
Some people get scared more quickly than others and it depends on where you are in the price point spectrum. So if you're kind of in the lower part of the price point spectrum here the only really.
The only real lever you have to pull is price right and so some of some of those who are there they're doing that.
We have been very focused on on the service side, so even with our lower rated properties, where they stay stand kind of in the in the right mix, we're focused way more on service delivery, okay, and getting the satisfaction of the customer and at the higher end.
It's even more that way so it's magnified and that's why I said that for the most part we have the premium resorts and all of the markets. We're in and so we're able to kind of retain that so you know Ryan answered that before.
Our decision tree is very much that we're going to focus on rate over occupancy and if we have to see it a little bit of occupancy. That's okay. Because you know what we're an all inclusive business. So it's not like it's just an empty room.
You can or an empty airplane seat that you can sell at any price. There is a lot that comes into it because of the food and beverage and service component and then the impact on the other guests so we'd rather.
Air on the side of maintaining the rates versus driving the highest level of occupancy and we think it's done really well.
We came out of the pandemic and we continue to do that way, but I think you're also seeing.
Some of the pricing that the competitors are doing is really short term kind of drops in pricing and it doesn't go into the high season. So again. It gives me optimism that this is more of a kind of a summer shoulder season shoulder period phenomenon than it is a kind of fundamental change in the market or the demand and if its truly.
Destination fatigue, which we really believe it is.
Then moving our price wouldn't stimulate demand anyway that just means they want to go try somewhere else. So we're fine with our with our pricing.
Okay, Great very helpful. And then last question for me.
On the mountain package.
This thing is just talk about trends within that I'm not sure maybe the uptake on some of those extra options has changed at all.
Over the past couple of months.
Although non package continues to be strong on a per room basis.
As a reminder.
When youre looking at our results they get a little wonky because of the fact that this is the last quarter in a meaningful way that we're lapping our extended stay protection plan I think you guys. All remember that during Covid. When you had your test to come back to the United States, We offer that ESP program, where our guests adults would pay I think.
It was like $49 for guests to essentially if they tested positively on exit then they would stay at our hotel for free.
That was a big big sellers of our that all rents are not packaging that we're lapping effects of that so if you just kind of.
Take our reported year over year non package for sold room growth of just basically down roughly 90 basis points you add back the impasse.
Facts are that ESP program, lapping or ending was roughly 500 basis points.
The dual mix in there as well makes things also a little wonky as well just given the profile of that customer and the fact that we are building occupancies, but even if you just include the jewels.
Fee on kind of on a clean basis.
Youre not package growth is about 4%.
Okay. Okay. That's all for me thank you.
Thanks Tyler.
The next question comes from Smedes Rose from Citi. Please go ahead.
Hi, Thanks, you covered a lot of ground, but I just wanted to ask you are you seeing any significant.
New supply coming online in any of your markets either with new construction or just kind of repositioning of assets that might be more competitive to you.
No. It still remains where most of the supply that is at least scheduled or has come in is in the greater Riviera Maya market South of the airport or points North of the airport, obviously, you've heard US say many times, there's really nowhere else to builder not a whole lot of conversions going on in Cancun proper.
But a lot of that supply is being absorbed was really Riviera Maya where you saw the most and that's it.
Basically from 2019 to 2023.
Roughly a 4% CAGR, but you compare that to other destinations that were like 2% or below so while it's elevated relative to others, it's still not a massive massive amount.
One trend that's going on and you've seen Hilton made a recent announcement of converting the royalton and cancun proper and the hotels on their you know to a Hilton brand.
As you are.
<unk> to see kind of brand conversions, but that's not adding any new rooms, it's adding more branded rooms within the market and from our standpoint, that's a positive because the more kind of big hotel brand customers that start to look at the all inclusive product and look at the markets that we're in and kind of get that.
Confidence level to go there we think that's a positive. So you are seeing that trend, but you know.
Very importantly, it is not adding new rooms.
Okay.
Thank you.
Smedes.
This concludes our question and answer session I would like to turn the conference back over to Bruce <unk> for any closing remarks right now we just I.
Date, everybody joining us early on this Friday morning, and in the summer time. So thank you very much for participating in our call. We think there is a lot of reasons to be optimistic about the future player and we're going to continue to execute on our strategy. So with that I wish everybody, a great day, and a great weekend take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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