Q3 2023 Playa Hotels & Resorts NV Earnings Call
[music].
Good day and welcome to the Playa hotels, <unk> resorts third quarter 2023 conference call.
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I would now like to turn the conference over to Ryan email. Please go ahead.
Thank you very much Betsy and good morning, everyone and welcome to Playa hotels <unk> resorts third quarter 2023 earnings conference call before we begin I'd like to remind participants that many of our comments today will be considered forward looking statements that are subject to numerous risks and uncertainties that may cause the company's actual results to differ materially from what has been communicated.
Forward looking statements made today are effective only as of today and the company undertakes no obligations to update forward looking statements for a discussion on 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 were filed last night with the SEC.
We've updated our Investor relations website at investors suppliers on Dot com and the company's recent releases.
Reconciliations to GAAP and non-GAAP financial measures discussed on this call were included in yesterday's press release.
Today's call Bruce Keith Myers, Chairman and CEO will provide comments on the third quarter demand trends and key operational highlights.
Then review, our third quarter results and our outlook.
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.
Great. Thanks, Ryan Good morning, everyone. Thank you for joining us our third quarter results were in line with the expectations. We shared with you on our last earnings call led by strong performance in our Jamaica segment.
Players owned resort EBITDA of $52 8 million in the third quarter included a significant year over year foreign currency currency exchange headwind of approximately $8 million due to the appreciation of the Mexican peso benefit from business interruption insurance proceeds of approximately $1 million in negative EBITDA at the dual resource in the Dominik.
And Republic.
Also as a reminder, hurricane Fiona hit the Dominican Republic in late September of 2022.
Causing us to close the hyatt's, even Florida top corner Hilton La Romana resorts for repairs for a portion of the third quarter last year, which we estimate it to be a $2 9 million negative impact on EBITDA, and then 80 to 90 basis point hit to our Q3 22 owned resort EBITDA margin.
We estimate that in Q3, 2023 the foreign exchange headwinds had a negative 390 basis points impact on our reported owned resort EBITDA margin and 410 basis points for a legacy portfolio of resort margins.
Adjusting for all of these factors underlying EBITDA growth for legacy portfolio was approximately nine 5% during the third quarter and we were still able to improve legacy resort margins by 150 basis points year over year.
As we outlined earlier this year, our expectation was that the first quarter would represent the highest year over year ADR and EBITDA growth for 2023, as we lap the impact from Omicron last year and growth would normalize as we enter the second half of 2023 is the base comparison period had less noise.
Fly is third quarter legacy portfolio year over year EBITDA growth was driven by ADR growth of eight 9% and the cost efficiency measures, we have implemented particularly in Mexico.
Fundamental strength during the third quarter was led by our Jamaican segment, which posted our highest occupancy rate and ADR growth, resulting in 510 basis points of resort margin expansion year over year.
Although Jamaica had a fantastic year in 2023, there is still plenty of room to go and the recovery in that market.
One on an underlying basis growth versus pre pandemic is still lagging versus our other segments by 10 to 20 percentage point and is also evident when you drill down to like for like peers at the hotel level.
Supply growth over the last few years has been benign at a little under 10% with year to date international arrivals into Montego Bay, only slightly exceeding the additional supply, but this was largely due to the timing of additional airlift.
Three airlift versus 2019 was only slightly positive in Q1 2023, but is estimated to be over 20% in the second half of 2023, which bodes well for increased demand and the ability to close the ADR gap versus peers.
With the improvements made to the Montego Bay Airport and the expected growth and additional flight capacity, we remain extremely optimistic for the Jamaican segment fundamentals.
In Mexico revenue declined modestly year over year as a result of construction disruption in the Pacific.
Pacific and the impact of increased visitation to Europe. This summer, which was largely offset by ongoing increases in ADR.
We believe we are significantly outperforming the market in Mexico, a testament to our service from the heart and execution by our operations team.
As I mentioned, both the Yucatan and the Pacific segments were negatively impacted by year over year appreciation in the Mexican peso and we estimate that the yucatan would've seen approximately 130 basis points of margin improvement year over year, excluding the impact of FX and the Pacific would have expanded margins by approximately <unk> <unk>.
50 basis points.
With the hiring of a new regional operations director for Mexico, We have been taking a fresh look at our cost structure in Mexico and believe we have room to further optimize our staffing during the ebbs and flows of occupancy levels. While our early efficiency actions are already bearing fruit, we expect to see a long tail from greater efficiencies, especially as it.
It's two areas like procurement and staffing models given the iterative nature of these changes.
In the Dominican Republic, our legacy resorts, excluding the jewels Palm Beach, and the Jewel Punta Cana group, both occupancy and ADR year over year.
Adjusting for the previously discussed business interruption insurance benefit and the impact in Q3 2022 from Hurricane Fiona resort EBITDA for legacy Dr. Resorts grew over 6% during the third quarter.
However, the results of the two dual resorts in the Dr segment continue to weigh on this segment negatively impacted profits by approximately $6 million year over year in the third quarter we.
We had anticipated a weak summer for these two properties as a result of missing the summer selling season, particularly for its core European guest base, we still expect to improve on a year over year profit drag as we move into the fourth quarter.
Do not have any information to share with respect to the timing of the disposition of the two resorts, but hope to have more to share on that in the future.
On the booking front demand for the fourth quarter and beyond improved in July.
Continue to accelerate through the three through the third quarter in aggregate during the third quarter of 2023 45, 7% apply our owned and managed transient revenues booked.
Looked direct down 450 basis points year over year.
The decline was driven by fewer world of Hyatt redemption bookings following a spike during the first quarter of 2023 ahead of a change in the conversion rate for point redemptions, which pulled forward quite a bit of demand.
We expect this to smooth out in the coming months and believe we are on track with our targeted 50% booked revenue mix of transient revenue.
During the third quarter of 2023, why resorts Dot com accounted for approximately 11% of our total play at owned and managed transient room night bookings.
<unk> to be a critical factor in our customer sourcing and ADR gains.
Taking a look at who is traveling roughly 39% of our Playa owned and managed room night stays in the quarter came from our direct channels geographically the biggest change in our guest mix during the third quarter was once again, our Mexican sourced guest mix, which was up nearly 570 basis points year over year.
Our European sourced guests mix was up slightly year over year and remained well ahead of pre pandemic levels.
Our Asian source guests mix improved modestly modestly year over year, but remains the most depressed as it is still only approximately 25% recovered.
The most noteworthy geographic source market to keep a close eye on though is Canada, which was a large source market for us prior to the pandemic, but it's only recovered approximately 60%.
However, recently there has been a significant increase in flight capacity into our markets from Canada for the high season, So I am optimistic that our Canadian guests mix will improve in the coming months, our visibility remains a critical factor of our success as our booking window was just under three months.
In total while 2023 was a very successful year for fly on many fronts, we faced significant headwinds that masked the robust performance in our core portfolio How's.
However, our focus on execution and a stellar fundamentals should shine brighter in the near future as a profit headwinds are expected to abate starting in the first quarter. We will begin to lap the significant profit decline at the two dual properties in the Dominican Republic.
Current U S dollar to Mexican peso spot FX rates FX would cease to be a profit headwind beginning in Q2, 'twenty 'twenty four and we will be lapping the significant increase in our insurance expense in Q2, 'twenty 'twenty four as well.
Finally on the capital allocation front, we repurchased approximately $76 million worth of Playa stock during the third quarter and an additional $15 4 million, thus far in the fourth quarter, bringing.
Bringing our total repurchases since resuming our program in September 2022 to approximately $212 million or 17% of the shares outstanding.
We continue to believe that our significant free cash flow generation is underappreciated given the modest amount of ROI driven capex expected in the near term and healthy business fundamentals well.
But we believe stock our stock offers a tremendous value and that share repurchases are phenomenal use of capital for our free cash flow to boost total shareholder return over time.
Once again I would like to thank all of our associates that 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 play apart with that I'll turn the call back over to Ryan to discuss the balance sheet and our outlook.
Thank you Bruce.
I'll begin with the recap of the segment fundamentals followed by an overview of our balance sheet and expected uses of cash and conclude with our outlook for the remainder of the year.
Before I begin my review of the quarter I'd again like to remind everyone that beginning with the first quarter of 2023, we elected to reclassify on premise room upgrade revenues from non package revenue to package revenue to be consistent with industry trends.
Recast prior periods to conform the current period presentation, a reconciliation to the changes made prior to the reporting period for 'twenty, one and 'twenty two can be found in our investor deck on slide five.
Furthermore, as Bruce mentioned, there are some unique items affecting the comparability of our financials in the second half of this year I would like to remind you of before we dive in.
Firstly as Bruce mentioned Hurricane Fiona hit the Dominican Republic towards the end of Q3, 2022 and caused significant disruption at the Hilton La Romana and the Hyatt cap Cana, which we chose to fully close for a small portion of Q3, 'twenty two and over half of.
Q4 'twenty two.
We shared on our previous earnings calls that we estimate the EBITDA impact to Q3, 2022 to be roughly $2 9 million.
And an approximately 80 to 90 basis point hit to resort EBIT margins.
And then an approximately $5 4 million EBIT impact net of business interruption in Q4 of 2022.
Given the pronounced seasonality of our ADR during the fourth quarter East resorts were disproportionately opened during a much higher ADR and margin portion of the fourth quarter.
Skewing, our Q4, 2022, ADR and margin comparisons.
Second foreign exchange as Bruce mentioned, the Mexican peso had its largest year over year change during the third quarter of 'twenty, three which negatively impacted our EBITDA by just under $8 million and resort margins by 390 basis points.
During the fourth quarter of 2022, we also had several true up adjustments that significantly increased reported Q4 2022 adr's. The largest of these was related to an advance pricing agreement rates in the Dominican Republic that affects our VA tea, which was detailed in our Q4 2022 earnings release on <unk>.
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Adjustments in total sum up to nearly approximately $10.
Or two 5% in ADR.
Business interruption, we received $1 million of bi proceeds during Q3 of 2023 as we outlined in our release, which increased one resort margins by approximately 50 basis points.
Lastly, as we mentioned the Dr. Jewels ease resorts have continued to weigh on the performance of the portfolio negatively impacting owned resort margins by over 200 basis points. During Q3, 'twenty three and I expect it to continue to be a drag on Q4, 'twenty three margins as well.
Now, let's take a look at our fundamentals our third quarter results were in line with our expectations continued ADR growth easing pressure from food and beverage expenses and cost efficiency measures led to a reported resort margin declined to 330 basis points year over year, which as we mentioned included a 390 basis point headwind from foreign exchange.
A 50 basis point benefit from business interruption proceeds and 210 basis points headwind from the two dual resorts in the Dominican.
Adjusting for foreign exchange and business interruption, our legacy portfolio grew underlying margins 150 basis points year over year.
The ADR growth was broad based with all segments reporting year over year ADR growth.
Quitting the two jewels in the Dr. On.
On the cost front food and beverage cost continued to be favorable as a result of lower input prices and cost efficiency efforts by our operations and procurement teams, while utilities and labor were headwinds in the quarter.
As Bruce mentioned, we're undertaking efforts to streamline and improve our procurement processes across the entire portfolio to take advantage of our scale. These efforts are really just beginning to bear fruit from all the heavy lifting undertaken thus far in 'twenty three and we expect the benefits to accelerate as the company moves into 'twenty four and beyond as our cost savings are averaging mid single digits or high single digit improvements.
Per category.
At the segment level, Jamaica again led the way in year over year, ADR and occupancy growth and margin improvement.
As a reminder, Jamaica got off to a slower start in 'twenty two due to the omicron variant habit, having a disproportionate impact on the segment given its COVID-19 testing requirements at the top.
Ongoing recovery. In addition to the recent investments made into the airport bode well for the Jamaican segment in the second half of 2023 and beyond.
Forecasted flight keeps into Montego Bay for the next six months are expected to grow mid teens year over year, leading all of our major destinations with the recent additions of more flights from Canada boosting growth in the fourth quarter.
On the margin front, Jamaica, once again benefited from better than expected F&B and utilities expense, while insurance and labor costs pressured margins 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 typically generate higher ADR is as well.
Looking at our other segments do you could tamper peninsula continues to deliver strong results with reported year over year ADR growth of four 1% and FX adjusted margins, expanding 130 basis points year over year.
Occupancy during the third quarter was down 310 basis points year over year as we anticipated and discussed on our last earnings call. We believe this is attributable to the increased visitation to Europe. This summer.
It's evident as year over year occupancy increased in September and is expected to be relatively stable in the fourth quarter.
Reported owned resort margins were down 700 basis points year over year, primarily again as a result of the 840 basis point negative impact from foreign exchange food.
Food and beverage expenses were favorable year over year on a currency neutral basis, while higher government policy, driven labor cost negatively impacted the margins.
All told we're pleased with the operations team. So again expand margins on a currency neutral basis on a more modest ADR and revenue growth.
Specific had another fantastic quarter with year over year ADR improvement of eight 1% leading to currency adjusted margin gains of 50 basis points, that's F&B expenses remain favorable year over year.
So what are the Yucatan segment margins were negatively impacted by approximately 800 basis points. A result of the changes in the Mexican peso.
In the Dominican Republic, our legacy resorts, the Hyatt deepens, our top corner and the Hilton La Romana grew ADR over 12% year over year with occupancy of nearly 69%, which was up sharply given the impact of the hurricane Fiona in late Q3 'twenty two.
Adjusting for the impact of Hurricane Fiona in 2022 and business interruption proceeds in Q3 of 2023 underlying EBITDA at these two resorts grew just over 6% the.
The segment performance was dragged down by the two dual resorts, which experienced more challenging summer period than we anticipated. We continue to expect the performance of the two jewels true to improve sequentially year over year, while we execute the sale process. These resort.
Now turning to our mice group business, our 2023 net mice group business on the books is approximately $60 million and is well ahead of our final full year 2019, <unk> revenue of $32 million.
Looking ahead to 2024, we currently have approximately $56 million of mice revenue already on the books well ahead of where we were at the same time last year and we believe this sets us up favorably for the first half of 'twenty four and the high season.
From a pacing perspective this base of business combined with our leisure transient bookings currently has our first half revenue pacing up over 20% with both ADR and occupancy contributing to that.
Finally, turning to the balance sheet, we finished the quarter with a total cash balance of approximately $185 million and total outstanding interest bearing debt of 1.09 billion. We currently have no outstanding borrowings on our $225 million revolving credit facility.
And our net leverage on a trailing basis stands at three four times.
We anticipate our cash capex spend for full year 'twenty three to be approximately $55 million to $60 million partitioned out between $35 million to $40 million for maintenance Capex and the remainder designated for ROI oriented projects.
Also as a reminder, effective April 15th when we entered into two interest rate swaps to mitigate floating rate risk and our new term loan due 2029.
A reminder, we entered into a two year and three year contract both of which have a fixed notional amount of $275 million and carry fixed sofa rates of 4.05 and $3 71, respectively.
On the capital allocation front as Bruce mentioned, we repurchased an additional $76 million of stock during the third quarter and an additional $15 million. Thus far in Q4. Since we began repurchasing shares last September we purchased over $28 8 million shares or over 17% of the shares outstanding we still have $43 million remaining on our existing repurchase.
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With our leverage ratios well below four times anticipated free cash flow generation of the business and in fact, the valuation of our stock. We believe repurchasing shares is very compelling use of capital and intend to use our discretionary capital 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 outlook for the remainder of 2023.
Relative to the expectations set at the beginning of the year, our Revpar growth outlook has largely been as expected with 80 hours improving versus initial expectations and occupancy slightly lower.
And better than expected performance in our core legacy portfolio and funnel and fundamentals coming in lower than expected at the Dr. Jewel resorts, we expect full year adjusted EBITDA of $260 million to $265 million and that is inclusive of approximately $25 million negative impact from the appreciation of the Mexican peso.
Approximately $6 million of which is expected to hit in the fourth quarter of 2023.
Our core total legacy portfolio EBITDA forecast for the second half has remained steady in Jamaica, and the Dr. But year over year occupancy declines in Mexico in the second half due to construction disruption and the Pacific Choppiness in the shoulder period and disruptions in October from the recent storms in the Pacific have incrementally weighed on our Q4 outlook.
For Mexico.
Yes X outlook whoever has improved slightly based on an estimated average exchange rate of approximately 17.
17 in a quarter for the fourth quarter, bringing the full year impact of approximately $25 million with again 6 million hitting in the fourth quarter.
At the midpoint of our full year guidance represents approximately 8% year over year growth on an adjusted EBITDA basis on a reported basis, but after adjusting for hurricane related expenses business interruption and foreign and foreign currency impacts the midpoint of our guidance represents adjusted EBITDA growth of approximately 12, 5%.
For the fourth quarter, we expect reported occupancy to be in the low seventies.
Reported ADR growth of low single digits on a year over year basis again, given the aforementioned impact of the factors affecting Q4 2022 reported ADR.
We expect owned resort EBITDA margins to decline year over year, given the EBIT drag and the D are from the two dual resorts and again, continuing FX headwinds and Max.
Putting it altogether, we expect Q4 owned resort EBITDA of $63 million to $67 million.
Fly collection and management fee income of two to two and a half million dollars.
Corporate expense of approximately $15 million to $16 million, which includes a negative FX impact related to our shared service centers in Mexico.
All leading to adjusted EBITDA.
Approximately $49 million to $54 million, given our booking window, where approximately 90% booked for the fourth quarter.
We're not giving guidance for 2020 for today, but I want to flag the following adjustments and unique items to keep in mind as you think about next year.
As a reminder, in total thus far in 2023, we booked $5 3 million of business interruption proceeds.
As of today foreign exchange is forecasted to be approximately $25 million drag on EBITDA. This year.
And at current spot rates it would remain a drag into Q1, but we expect it to be closer to neutral beginning in the second quarter.
The D R resorts, where a material drag on our profits this year with a combined loss of over $15 million with approximately a third of that coming in the first quarter of 2023, given the fact that one of the resorts was only opened for a small portion of the first quarter of this year.
While this creates favorable profit comparisons year over year in the fourth quarter. The lack of lower rated room nights vis vis the rest of our portfolio.
It will therefore artificially depress our ADR is our occupancy improves materially year over year.
The Black collection and management management fee contribution should grow in 'twenty 'twenty four given the ramp of the managed properties and most importantly, the rollout of the ply collection across our Hyatt resorts during 2023 and into the early part of 2024.
Lastly, we have room as a reminder, we have a robust amount of mice business on the books for the first half of 2024, which should give us a healthy base to yield ADR for them.
We hope this framework helps guide you as you fine tune your models. It gives you further insight to what we're seeing and expecting with that I'll turn it back over to Bruce for some closing remarks, great. Thanks, Brian.
So although the complexion was significantly different than we anticipated 2023 is expected to finish as we originally anticipated back in February.
We expected that the second half of the year would be much more difficult in the first half due to tougher comparisons, including an unfavorable mice calendar or normal seasonality a major return of Europe as a destination and the non fund them fundamental ADR comparisons from last year's fourth quarter.
Spite that our Mexican resorts performed slightly better than expected on our currently I'm not I'm, sorry on a currency neutral basis. Despite the soft patch. This summer and continued strength in the Caribbean led to robust profit growth, but disappointing performance at the two Dr jewels offsetting the stellar performance.
In the Caribbean, we are diligently moving forward on the disposition of the two D or jewels and remain committed to returning cash to shareholders with anticipated proceeds.
With the increasing uncertainty in the macro backdrop, we are diligently focused 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 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.
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Early to assemble our roster.
The first question today comes from Chad Beynon with Macquarie. Please go ahead.
Good morning, Thanks for taking my question, great to see all the share repurchases and Ryan. Thanks for all the same store commentary definitely kind of paints the appropriate picture that we're looking for.
As we're thinking about the first quarter have you started to see any price discounting from from peers. I guess, we could kind of go around your markets. It sounds like you know Jamaica with the mid teens growth in in flight seats.
Demand is probably going to exceed supply Mexico is probably the one that we'll be looking for but just trying to understand price integrity as we kind of get into.
A period, where maybe demand is a little bit lower and yucatan and and Pacific in the first quarter.
No that's something that we've been focused on you know throughout the entirety of this year, knowing that you've seen the last two quarters, starting with the Yucatan ADR growth is normalizing and now kind of low single digits. You know our focus is still on maintaining rate integrity over pushing occupancy unless there's some sort of major shift in demand.
Which again you know as you saw from Bruce's comments, you saw that we've seen demand really begin to stabilize particularly once that summer season was over.
And you really saw some nice pick up for the fourth quarter and the first quarter, starting kind of tail end of July and August I'm, not saying stays in <unk> bookings for future periods and so given our booking window that leads you to believe that bookings for Q4 for Q1.
Now with the exception of the Pacific We're pacing up for Q1 on an ADR basis anywhere from kind of low single digits in the yucatan to potentially high single digits in Jamaica, the Pacific given the mice business. That's on the books, a very large book of business that we have coming I think it would be.
They are in January or February.
For legacy group, that's done a lot of business have us with us actually had they kind of legacy rates still on the books back from Covid times that we elected to honor and move forward because they've done such an amount of business with us. So that's really kind of a lumpy book of business, even though they spend a lot of non package revenue that weighs on the rates on the books for that period, but otherwise you know that.
<unk> in the amount of business, we have on the books today gives us a sense of optimism obviously booking patterns have returned to normal and the way, we build and pick up occupancy has kind of returned to normal. So it's going to be critical to see how things continue to book and build the remainder of the winter, but were happy with where we sit today.
Perfect. Thanks, Ryan and then in terms of some of these.
Margin improvement or a procurement opportunities that you've touched on is there a way to frame out same store or kind of FX adjusted.
Total saves whether we're thinking about a dollar amounts for our margin amount I mean could this be over 100 basis points in margins, if you're able to execute as planned understanding that it's a it's just kind of underway.
Yes. The answer is yes, so why don't we break it into kind of the two main buckets, you heard Bruce and I talked about procurement initiatives, and then kind of kind of resort efficiency, you know as we've kind of called it out more so having to do with staffing and kind of waste reduction, but on the procurement side, we hired a woman on our in our Florida Office, who has really spent the last year.
Year, condensing and taken advantage of our scale and our buying power and thus far and again very early innings, we're achieving just under 2% cost savings on food thus far.
And just on a you know a few unique items within our food base and just a reminder, food is approximately 15% of our costs. So if you want extrapolate a 1.8% savings time, 15% you know that kind of annualize it to roughly 25 to 30 basis points of annual savings and we estimate we're only.
20% of the way through the through the addressable cost base. So we're just getting started there we're actually.
Planning on actually adding a couple of other members of that team and some of our local destinations starting next year in our budget just because we think those the members of the team will just pay for themselves 10 times over.
And then the other side is Bruce mentioned it is on with an addition of a new head of operations in Mexico, and then just generally our overall focus on rationalizing staffing models.
Across our portfolio kind of with the ebbs and flows of occupancy.
Most hotel companies will every couple of years, we'll kind of re look at their staffing models and kind of throw all went out the window and that's exactly what we've begun to do and say like Hey, how do we think about staffing at these lower occupancies different times of year.
And then also how we we've actually starting to measure food waste at our buffet and at some of our Ala Carte restaurants, and hope that we can extrapolate and take advantages of some scale there in the future.
Don't have a set goal in mind on that its a fairly iterative process again based on occupancy and how ADR is moving but that's something that it's been a real focus for US you know starting it probably about Q2 as we knew and called out earlier in the year that 80 hours can be far more normal in the back half of this year.
That's great. Thank you very much guys I appreciate it thanks Chad.
Yeah.
Your next question comes from Patrick Scholes.
Mr. Kim Please go ahead.
Hi, good morning, Bruce and Ryan.
Hey, good morning, Steve.
My first question can you just confirm again that your your target leverage I guess at the high end our net debt to EBITDA is four times I think you've implied that in the call but is that correct.
No that's correct I mean, if you look at it.
If we are in the three to four times range I think that's an incredibly prudent place to be you add to that you know kind of our existing cash balance we have over $1 30 per share of cash.
We've got the anticipated proceeds from the sale of the two jewels. So anything we do with regards to share repurchases should be replenished by the proceeds we got which we have specifically said we're going to use. So I think you know where we're in a very prudent level and you know just compare US for example, just to the lodging Reits and.
We were at the low end of all of that group. So I feel very comfortable with where we are and you know we've got you know nothing drawn on our on our revolver. So you know just from a liquidity standpoint from a cash standpoint from a debt to EBITDA standpoint, I think we're in a really good place.
Okay. Thank you and one more question.
Looking hopefully a bit at 2024.
Would you expect your capex to be materially different from that of 2023.
And.
What if you are able to sell the jewel properties I guess early next year.
Would that change your capex expectations for 2024, thank you.
Just based on the timing of what we have planned whether or not we sold the jewels wouldn't change the plans.
But I expect that the maintenance capex levels to remain similar but the kind of growth capex or ROI capex that we've called out in the past should grow over what we spent this year, we called out a few time some construction disruption in the Pacific What's happening. There is it's an ongoing stage renovation of our CEVA imported by ear to ear.
That's one of our legacy highest that hasn't seen a rooms renovation in about seven years or so and so it's a great honor for us and we want to update the rooms to the levels that are more closely associated with some of our newer Hyatt. We're also spending a small amount of money this year, but a little more forcefully next year in Los Cabos on public space and meeting space.
Because that property again.
As a meetings and incentive destination is phenomenal, but its been punching its weight for a while now given you know again comparisons to our devens, Laura in Jamaica, or the brand Spanking news, even Laura and <unk>. So we want to make sure that we're protecting some of those assets and allowing us to continue to push group business in there which for all the reasons you already know is great margin great.
And great NPR business for us So I expect it to go up some.
Okay can you just give us you know for modeling purposes, I guess, a little bit more granularity.
On.
Rough ballpark of.
What percentage.
Something ballpark too well.
When you say up some I mean is that 10% or 50%.
Oh, so if we're if we're spending kind of twentyish to 25 million on growth Capex. This year. It could go up another 50% to 75% from there.
You know maybe doubled but probably not.
We've got just based on the timing of what we've got planned we're probably not going to do more than that next year. We have other plans that Bruce can go into if you'd like I don't believe there'll be ready to begin next year, but theres other things in the pipeline, but if we're specifically talking about 'twenty for you know call it 50% to 75% more on growth Capex that we spent this year.
Okay, that's oh.
Good color there. Thank you I'm all set.
Thanks Pat.
The next question comes from Christopher Rolland.
Please go ahead.
Hey, good morning, guys covered a lot of covered a lot of ground there.
As always.
So.
Could we maybe talk a little bit about the you called out at the high end change in the highest point redemption.
Levels and in addition to that I know that Dave <unk> Molson on quite a few brand.
Brands in recent years, and really kind of ramped up their their.
Our resort offerings to their loyalty members do you think any of that as is or will have an impact on you guys.
And then maybe you could give us.
Really quick tutorial on economics.
Point redemptions for you.
Yeah on the redemption side the change was actually a net positive for US you know and in fact you know.
In the sense that it required more points and so therefore you know.
The next step from that would be that we would get better ADR rate redemptions from high at the following year. It pushed a lot of those redemptions into kind of the first and second quarter. Just said, it's kind of like a percentage of our overall Hyatt room nights.
As an example, we've traditionally had mid to high single digit point stays from all of our from all of our Hyatt business that in this quarter dropped down so kind of a low low single digits purely just because there was a mad dash in the first and second quarter to redeem points before they made that change.
But generally it's not made up a massive portion one way or another of our room nights from higher it's far higher you know kind of double low double digit numbers from Hilton and then Bruce if you want to talk to any of the brands.
Thank you know from just a big picture, Chris If you look at it I think it's all positive right. So sure Hyatt added more resort offerings with the Apple Leisure group transaction, but we are at the upper end. So our products are high it is even heightened Laura or you know higher higher they have higher requirements for redemption.
The number of points you need to do so we're kind of targeting a little different hyatt customer. There. So I don't really think of them, adding you know the stuff below us is really going to have a big impact and then just overall you know and I've said this many times in the past just the more exposure, we get to the customers kind of your traditional lodging customer.
As your Marriott Hyatt Hilton Intercontinental customers to all inclusive is positive for us. So all of it's positive. So I think we just wanted to highlight that because it was just a little bit of a interesting phenomenon you've seen that before with airlines, where you know the airlines do the same thing they'll have a flurry of redemptions because they are.
You know that's all it is I don't think really you know as Brian said, it's not a huge number anyway and I don't think it's.
A big issue, but I think it's just positive that there's more and more exposure to from your traditional lodging customer to all inclusive.
Okay.
Thanks for that.
Bruce and then.
I guess could we I know you said you don't have any information to.
Sure about the dual asset sales, but maybe.
Maybe talk a little bit about what the what the gaming primary gating factor is right now in terms of getting things over the finish line or not getting them over the finish line and is there a point at which given the dilution there.
Causing to the portfolio.
Or any kind of.
The Red line or line in the sand as to when you when you really want to get rid of those.
So I mean, Chris or our desire obviously as it is to sell them as soon as possible. Okay and is there a big issue I mean, it's not per se a big issue. It's just the kind of the macro market that we're all sitting in right everybody knows the uncertainty out there everybody knows about interest rates and volatility of interest.
Right and you know if if you look across and I you know.
Recently had discussions with a number of people in just the lodging space generally right in the level of transactions is way down Okay, and and you know that includes new supply that includes sales lots of things. So just things are moving slower I think again, you step back and the big picture is going to benefit us.
Over the next two to three years you know all of these you know kind of fundamentals on supply and demand with regards to this there's still a lot of interest and the pricing is attractive for someone who's coming in looking at it you know on a price per key it's attractive for us on a trailing multiple for both sides I think its attractive transaction.
I don't think there's any significant issue I think we're going to conclude the two sale and hopefully we'll be able to say something in the near future.
Okay Fair enough just one one quick last one is on the I know you mentioned that the locally sourced I think business for Mexico was up 570 Bips can you maybe compare what is what is profitability look on that relative to I know, you're still missing gene I know, you're still missing a little bit of Europe.
More of Asia. So is there any way to just kind of bucket those in terms of their contribution to.
Yes.
The best way to look at it it's kind of a as a percentage of the pie on room nights or revenue.
We still remain very heavily.
North American centric, Mexico traditionally has been kind of eight to 10 percentage points of kind of room nights revenue ish.
U S being a very large portion and then Canada, Canada and Asia, where the two up until recently that we're still kind of behind Canada had been had stops and starts and Asia was still only about 28, 25% recovered, but Asia pre pandemic was only about 4% of our overall pie Canada.
Particularly you've heard us reference some of the increases in flights into all of our destinations Canada is a large part of that across all of our destination they've got big pick up.
The D R in Mexico, and Jamaica for Q4 for Q1, so I expect by the time, we're talking to you next year about Q4 results, Canada will be essentially fully recovered if not if not better than prepaying dynamic levels, which is exciting so a big piece of our overall business.
Okay very helpful. Thanks, guys. Thanks, Chris.
The next question comes from school.
Please go ahead.
Alright, Thanks, I Wonder if you go back to the jewel assets, which I think you said there were a drag of 50 million.
This year.
I think you've been trying to solve them for close to a year now so as you look out into 'twenty four.
How do you think you can sell them, but if you cannot I mean is there a point, where it's better just to close them instead of diluting your shareholders. So significantly I mean, what what's the.
Whats the argument for keeping them open when they were losing money.
Yeah. So I mean first of all you know and as we highlighted speed in our script.
One of the big issues with the properties is kind of how.
We took them over okay, and so when that happened from a timing perspective, we had really missed the European sales period in.
The Dominican Republic relies very significantly on European customers and they sell kind of a more traditional way than we do to our other segments, particularly to the U S customers and even the Canadian customers. So it's done well in advance through a lot of the traditional channels and so we missed that and particularly that.
Did you know kind of the summer into into into the third quarter right. So the really big into the second and third quarter. So I'll, let Ryan talk about how that goes forward, but you know our focus number one is on selling the assets as I just said, Chris I feel confident we're going to be able to we will start lapping the big.
Negative, but we also have a better sales position with regards to Europe, and so I think that will benefit us.
Yes.
Sorry can I just the question that's for 24, if you're not able to sell them at least get to breakeven do you think you can get them to zero or would you expect since that's where I was going to answer. So yeah. So the good news is all of those things that held us in 'twenty. Three you shouldn't have the one just by design theyre going to be opened in the high season, right you have a better chance of.
Getting them to breakeven and then we spent a lot of time, particularly over the summer actually building up.
Our sales force in the Dominican and we brought in a vice president of.
Sales for the Dominican Republic, who has deep ties to Europe, and just even having come a couple of weeks ago from our board excuse me not our board meeting our budget meetings in the Dominican is a very very large focus internally and in the sales and commercial organization on getting these back up.
Closer to 2022 levels and in other so I think we have a good chance of getting them to breakeven and if not they are still significantly better than where they are today and they are far far far less of a drag, but you're absolutely right to meet this.
The goal should not be to get them to breakeven is to get them better than that that's right.
I think it seems like the goal is to be to close and if they can't get to breakeven.
Yes, I don't really get what's the point of keeping them open if they're losing money.
It has other there's other considerations on a sale process and other things you have to keep in mind, you can't look at them isolated in a vacuum.
Alright.
Okay.
Thanks.
The next question comes from Tyler Battery with Oppenheimer. Please go ahead.
Thank you good morning.
A question on the <unk>.
Our growth in specific to Q4, Ryan you mentioned low single digit growth year over year I think last quarter, you were talking about low single digit to mid single digits or did that change there in terms of the outlook and what are you seeing in terms of pricing around the holidays in Q4 in particular I know, it's a little more of a peak period.
Probably elevated route you're still expecting to see ADR growth during those periods.
Yes for the for the festive period, absolutely that looks good.
Solar periods are definitely more choppy the jewels have contributed to kind of that lower end of the original kind of guidance range for Q4, we did talk to specifics Tyler I don't think we ever gave Q4, specifically, we talked back half of the year and so that's where you're getting you know about the mid to low to me.
Mid single digit.
So I don't think its changed too much from where we spoke last time, but you know on a reported basis it should be up low single digits, but again for all those reasons. We discussed there is a lot of things working against us, including the aforementioned adjustments to Q2, 'twenty two or the fact that the two hurricane properties that we reopened in Q4.
Were opened at the highest ADR points of the fourth quarter Theres, a big difference between ADR than October than it is in December right. So if you look at that on a clean underlying basis, our reported our underlying ADR growth should be kind of low to mid single digits, but again, you wouldn't see it it'll that would be on an underlying basis.
Okay, Okay very good.
And then.
Do you think you look at your portfolio and Bruce I think you talked in Mexico.
Do you think that you're gaining market share does that comment extend to other.
Regions in the portfolio I mean, it might be tough to pass.
To measure, but just trying to get a sense of whether you think you're gaining market share.
Thank you are growing faster than the peers.
Trying to get a sense too or just how impactful. The Hyatt brands are in terms of your performance versus versus some of the competition. That's out there yeah. I mean, I think Tyler right now we can definitely say that for Mexico in the in the Dr and and you know we're targeting investment to go into Jamaica in order to continue to do that in Jamaica.
I would say that's an opportunity for us, but there's no question that if you look at our resorts I mean, we have a you know for the large part a very trophy.
Portfolio.
You know our <unk> kun is on the best location in the hotel zone and can't Kuehne, Our Hyatt's Evens Lauren Cop Kana is in the top destination in all point to corner you know.
Most cabos, where direct you know direct connection to the airport I'm you know one of the best stretches of beach in.
And and Los Cabos part of a yard to it was originally you know one of the best Mexican hotels, the Camino, Ralph where on a private beach and part of a yard. So you just look at the real estate and then you combine that with the rebranding in kind of the.
We highlighted that were there.
The U S consumer in particular, but all consumers are really much more familiar with all inclusive and once you experience all inclusive than you'd like it then you say, okay now I want to go to the best ones in the market.
We're going to be you know top of top of the radar when it comes to that so I think you know our gold needs to be and will be that we will continue to exceed.
You know.
The market conditions right, we're going to have a bigger premium we should continue to have our ADR and revpar premium over over our competition and quite honestly I'm not going to accept anything less than that.
Okay, Great and then my last question is on group business.
It's really been a.
Pretty significant driver of results for hotels in the U S.
Your booked position in terms of the numbers that you gave.
Sounds pretty pretty strong so just any more commentary in terms of what youre seeing for group bookings you mean, how sustainable is that strength.
You know what percentage of your mix is typically group Mike.
Mike.
Increase going.
Going forward.
Yeah before we built this evens are top corner, we were up around 10%. So I expect that to kind of move up a little bit more.
As revenues grow as well.
For us, we're already booking well into 25, I'm not expecting too much more.
Being added to 24 in the year for the year.
So I think it's pretty sustainable you know again, we have the nice benefit of having popcorn, where we didnt before its an incremental property. So now we've satisfied we used to say this is kind of a year or so ago. We were satisfying a lot of these meeting incentive planners, who want to do it two or three year rotation.
It's incremental bookings and someone who wants to come back it's not just some legacy pent up demand that we're still trying to work through so a lot of that with 'twenty two into 'twenty three in like the last couple of legacy ones are 24, So and then on top of that and you heard US mentioned before we're spending money this year and more importantly next year on some of the meeting space in Cabo to kind of protect some of those.
Kind of you know golden assets for us to drive a lot of meeting incentive business and allow us to yield.
Okay. That's all for me thank you.
Thanks Tyler.
This concludes our question and answer session I would like to turn the conference back over to Steve.
Steve for any closing remarks.
Great well, thank you all for participating today.
Guardedly optimistic about the rest of this year and into the first half of next year and we'll be very focused on sales and operating fundamentals.
We look forward to having you all join us for our next quarterly call. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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