Q2 2024 Playa Hotels & Resorts NV Earnings Call
Speaker Change: © BF-WATCH TV 2021
Speaker Change: Good day, and welcome to the Playa Hotels & Resorts Q2 2024 Earnings Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Ryan Hymel. Please go ahead.
Ryan Hymel: Thank you very much, Nick. Good morning, everyone, and welcome to Playa Hotels & Resorts' second quarter 2024 earnings conference call. Before we begin, I'd like to remind participants that many of our comments today will be considered forward-looking statements and are subject to numerous risks and uncertainties that may cause the company's actual results to differ materially from what has been communicated.
Ryan Hymel: Forward-looking statements made today are effective only as of today, and the company undertakes no obligation to update forward-looking statements. For 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.
Ryan Hymel: We've updated our investor relations website at investors.plyersorts.com with the company's recent release
Ryan Hymel: [inaudible]
Speaker Change: On today's call, Bruce Wardinski, Playa's Chairman and Chief Executive Officer, will provide comments on the second quarter demand trends and key operational highlights. I will then review our second quarter results and outlook for 2024. Bruce will wrap it up with some concluding remarks before we turn it over to Q&A. With that, I'll turn the call over to Bruce.
Bruce Wardinski: Thanks, Ryan. Good morning, everyone, and thank you for joining us.
Bruce Wardinski: Our second quarter results exceeded our expectations, led by continued momentum in our Yucatan and Dominican Republic segments. The performance is highly encouraging as these two segments are largely status quo in that there is no renovation disruption in either segment or impact from any government travel warnings.
Bruce Wardinski: Playa's own resort Ibida of $75.1 million in the second quarter of 2024 included a year-over-year foreign currency exchange headwind of approximately $1.4 million due to the appreciation of the Mexican peso and a benefit from business interruption insurance proceeds of approximately $1 million.
Bruce Wardinski: Excluding business interruption, the upside compared to the expectations shared on our last earnings call were driven by strong all-around execution by our operations team and modestly better demand, with FX being less of a headwind than expected in June .
Bruce Wardinski: For Q2 2024, we estimate that the FX headwinds were a negative 60 basis points impact on both our reported owned EBITDA margin and on our legacy portfolio.
Bruce Wardinski: Business interruption proceeds received in Q2 2024 favorably impacted resort margins by approximately 45 basis points, while the significant $4.3 million received in Q2 2023 was a margin detractor on a reported basis.
Bruce Wardinski: Netting out BI from both periods, the net margin impact of BI on reported owned resort margin was approximately 140 basis points.
Bruce Wardinski: Adjusting for all of these factors, underlying owned resort EBITDA growth was down approximately 4% in the second quarter for the total portfolio and down approximately 8% for the legacy portfolio, reflecting the impact of the U.S. State Department Travel Advisory on our Jamaican segment.
Bruce Wardinski: The results in the Yucatan were once again quite exceptional on a currency-adjusted basis.
Bruce Wardinski: The expense efficiencies were broad-based across categories, with the most significant change being sequential improvement in insurance, as we lapped a sizable 50% plus increase in our insurance premiums from the second quarter of 2023.
Bruce Wardinski: As you may recall, following the realignment of key management personnel, we've been revisiting various processes, staffing models, and procurement practices since the second quarter of 2023, and the results of our efforts really began to show in the second half of 2023 as ADR growth moderated.
Bruce Wardinski: As we've mentioned on previous earnings call, the process improvements will be iterative, and we will continue increasing efficiency where possible to help offset the impacts of rising wages and inflation in various expense categories.
Bruce Wardinski: We believe we can hold FX neutral margins steady year-over-year in the Yucatan in 2024 on positive low-single-digit to mid-single-digit PDR growth, despite continuing underlying wage pressure.
Bruce Wardinski: In the Pacific, our planned renovation work in this segment began in earnest during the second quarter, specifically in late May, resulting in the expected decline in occupancy in flat ADR year over year.
Bruce Wardinski: Turning to the DR, we completed the sale of the Jewel Punta Cana Resort in late December of 2023, and the Jewel Pond Beach Resort was closed for a significant portion of Q1 2023, which we expect will lead to a meaningful year-over-year increase in EBITDA in 2024.
Bruce Wardinski: Year-over-year comparisons in the segment were heavily impacted by the receipt of $4.3 million of business interruption proceeds during the second quarter of 2023, and $1 million of business interruption proceeds received in Q2 2024.
Bruce Wardinski: Excluding BI from both periods in the DR, our underlying EBITDA growth grew 31%, led by our legacy assets, which were up approximately 11% on 6.6% red part growth.
Bruce Wardinski: Finally, Jamaica's second quarter was largely as expected, with the approximate 20% rep bar decline driving a material decline in resort EBITDA.
Bruce Wardinski: As we outlined on our last earnings call, the segment was off to a good start in 2024, but the U.S. State Department's Travel Advisory Notice for Jamaica on January 23rd has had a negative impact on the segment, as cancellations picked up meaningfully thereafter, with the bulk of the impact affecting the second and third quarter of 2024.
Bruce Wardinski: Although the Travel Advisory doesn't pertain specifically to our resorts as much as the major metropolitan areas and other regions of the country, and the level of the Travel Advisory was unchanged from the prior advisory, the press coverage of this advisory notice was significantly greater than prior warnings.
Bruce Wardinski: Booking demand for the second half was fairly steady during the second quarter in Jamaica until the emergence of Hurricane Beryl in late June.
Bruce Wardinski: Although the physical property impact of Beryl was not significant, it had a meaningful impact on demand for the summer period in both Jamaica and the Yucatan as both destinations were in the direct path of the storm.
Bruce Wardinski: We estimate the EBITDA impact from Hurricane Beryl to be approximately $2.5 to $3.5 million in the third quarter in Jamaica specifically, but approximately $6 to $8 million across all of our segments on a loss of approximately 6 to 9% of revenue.
Bruce Wardinski: We believe also that, to a lesser extent, new supply delivered to the market during the second quarter into a choppy environment has added some incremental challenges in Jamaica, in a market which would have likely absorbed the additional rooms without much of a problem.
Bruce Wardinski: Looking at demand as a whole, we saw steady demand through the quarter prior to Hurricane Beryl, with the Legacy DR and Yucatan leading the way, with both segments expecting
Bruce Wardinski: Positive low single-digit to mid single-digit rep park growth in the third quarter prior to barrel.
Bruce Wardinski: Looking out to the fourth quarter, our revenue is pacing positive high single digits in the Yucatan, positive mid-single digits in the DR, and negative high single digits in Jamaica, with the latter making
Bruce Wardinski: I'm sorry, with the latter marking a significant improvement compared to the mid-20 percent decline in the third quarter. More importantly, the coming high season is starting to take shape, and the demand looks solid, with ADR up high single-digit for the legacy portfolio.
Speaker Change: In aggregate, during the second quarter of 2024, 47.4% of Playa owned and managed transient revenues booked, or booked direct, of 10 basis points year over year.
Speaker Change: The improvement in the year-over-year change was largely driven by lapping the change in world of higher redemption rates, 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.
Speaker Change: During the second quarter of 2024, PlayaResorts.com accounted for approximately 12.9% of our total Playa owned and managed transient room night bookings, continuing to be a critical factor in our customer sourcing and ADR gains.
Speaker Change: Taking a look at who is traveling, roughly 44.4% of the Playa-owned and managed transit room night stays in the corridor came from our direct channels.
Speaker Change: Geographically, the biggest change in our guest mix during the second quarter was once again our Canadian sourced guest mix.
Speaker Change: which increased 230 basis points year-over-year. The recovery of our Canadian guest segmentation versus pre-pandemic improved to approximately 80% in the second quarter versus 64% in the first quarter.
Speaker Change: Our visibility remains a critical factor for success as our booking window is just over three months during the second quarter.
Speaker Change: Finally, on the capital allocation front, we repurchased approximately $37 million worth of Playa stock during the second quarter.
Speaker Change: And an additional $12 million thus far in the third quarter, bringing our total repurchases since resuming our program in September 2022 to approximately $314 million, or approximately 25% of the shares outstanding.
Speaker Change: Once again, I would like to thank all of our 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 Playa apart.
Speaker Change: Thank you, Bruce. I'll again begin with a recap of the segment fundamentals, followed by an overview of our balance sheet and expected uses of cash, and conclude with our Outlook.
Speaker Change: So, before I begin, just as a reminder, all references to expense and margin KPIs are on a currency-neutral basis and also exclude business interruption proceeds unless otherwise stated.
Speaker Change: Our second quarter results were slightly ahead of our expectations, driven by $1M of business interruption proceeds, slightly better than expected foreign exchange impact, and continued expense efficiency gains across the portfolio.
Speaker Change: Adjusting for FX and BI, our legacy portfolio experienced approximately 160 basis points of resort margin decline on a year-over-year basis as a result of the significant REVBAR decline in Jamaica and the construction disruption of the Pacific Coast.
Speaker Change: On the cost front, F&B costs continue to be favorable as a result of lower input prices and cost-efficiency efforts by our operations team.
Speaker Change: Labor costs were a headwind given the ongoing wage inflation across our markets. Insurance was less of a headwind during the second quarter as well as we lapped significant increases in our premiums from Q2 of 2023, with our current year renewal coming in at favorable rates.
Speaker Change: Now turning to our MICE group business, our 2024 net MICE group business on the books is approximately $65 million, up roughly 12% compared to the same time last year.
Speaker Change: Our mice business is much more balanced on a year-over-year basis compared to what we experienced during 2023, as 2023 left incredibly difficult mice comparisons in the second half of the year.
Speaker Change: The decline was expected, however, given the renovation work in the Pacific Coast and lapping a large group buyout of our Las Campos Resort in Q1 of this year.
Speaker Change: We finished the quarter with a total cash balance of just under $234 million and total outstanding interest-bearing debt of $1.08 billion.
Speaker Change: And we anticipate our cash CapEx spend for full year 2024 to be approximately $110 to $120 million for the year, partitioned out between approximately $45 to $50 million for maintenance and other critical CapEx and the remainder designated for ROI-oriented projects.
Speaker Change: Also, as a reminder, effective April 15th of 2023, we entered into two interest rate swaps to mitigate the floating interest rate risk in our term loan through 29.
Speaker Change: Separately, we have implemented foreign exchange hedges on approximately half of our Mexican peso exposure for 2024, which should greatly reduce the volatility of the impact of a reported EBITDA this year.
Speaker Change: Based on the exchange rates at the time we entered in the FX forwards, we estimate the full year 2024 impact from the Mexican Peso to be roughly $5 to $8 million, slightly better than our previous outlook of $7 to $10 million.
Speaker Change: We expect third quarter foreign exchange impact to be a favorable, approximate $1 million, and a modest negative impact in the fourth quarter.
Speaker Change: On the capital allocation front, as Bruce mentioned, we repurchased an additional $36.7 million of stock during the second quarter, an additional $12 million thus far in Q3 of 2024. Since we began repurchasing shares last September , we've purchased over 40 million shares, or nearly 25% of our shares outstanding.
Speaker Change: We still have over $115 million remaining on our existing repurchase authorization.
Speaker Change: And with our leverage ratios at or near three times, plus the anticipated free cash flow generation of the business and the attractive valuation of our stock, we believe repurchasing shares remains a very compelling use of capital and intend to use our discretionary capital to repurchase shares going forward depending on market conditions.
Speaker Change: Now turning our attention to our outlook for 2024.
Speaker Change: First, I'd like to remind everyone of the unique items affecting the comparability of our financials compared to 2023 before we dive in. So firstly, on foreign exchange, the appreciation of the Mexican peso had an approximately $24.5 million impact on adjusted EBITDA in 2023.
Speaker Change: Business interruption. In 2023, we recognized approximately 6.1 million of business interruption proceeds, with 4.3 million coming in the second quarter.
Speaker Change: And roughly $900K in Q3 and Q4 of 2023, respectively.
Speaker Change: The DR Jewel Resorts, these resorts recorded an EBITDA loss of approximately $15 million in 2023 and negatively impacted owned resort margins by approximately 280 basis points.
Speaker Change: Roughly one-third of that loss occurred during the first quarter of 2023, but the Jewel Palm Beach Resort was closed for the majority of the quarter.
Speaker Change: So, now turning to 2024, we expect full-year adjusted EBITDA for 2024 to be at the low end of our previously guided $250 to $275 million range, which includes the following key considerations and inputs.
Speaker Change: Occupancy, we expect to be up low single-digit percentage points for the total portfolio and down low single digits for the legacy portfolio. This change reflects the incremental impact of Hurricane Beryl and the continued expected renovation disruption in the Pacific Coast.
Speaker Change: We expect ADR growth of low single-digit to mid-single-digit for the total portfolio and low single-digit growth for the legacy portfolio.
Speaker Change: We expect red-bar growth of mid-single-digit to high-single-digit for the total portfolio.
Speaker Change: And down, low single-digit percentage points for the legacy portfolio.
Speaker Change: As we discussed last time, we estimate that the disposition of the Jewel Punta Cana Resort at the end of last year and the ramping occupancy at the Jewel Palm Beach Resort contributes roughly 900 basis points to 2024 REV FAR.
Speaker Change: With the vast majority of that contribution being the result of disposing of the Jewel Punta Cana Resort, and only a modest contribution of REVPAR from the Jewel Palm Beach Resort as the improving occupancy is offset by negative mix of the ADR.
Speaker Change: On foreign exchange, as I mentioned, we still expect a full-year headwind of approximately $5 to $8 million based on current exchange rates net of our FX forwards.
Speaker Change: We expect construction disruption impact of approximately mid-to-high teens EBITDA in the Pacific.
Speaker Change: And inflation, as we've mentioned on this call, we've been diligently working to improve our efficiency and believe that we've again lowered our margin leverage hurdle to approximately 4% ADR growth to hold margins flat on a currency and business interruption adjusted basis.
Speaker Change: We expect modest net negative impact from annualized and corporate expense increases from 2023, mostly offset by higher and growing fee income.
Speaker Change: To summarize what has changed since our last update, I think it's best to partition the drivers into ongoing operating changes.
Speaker Change: and Extraordinary Changes.
Speaker Change: On the fundamental operating changes, our strong second quarter and the continued momentum in the Yucatan and the DR into the second half were almost perfectly offset by the degradation in the second half outlook for Jamaica, which we knew was a manageable risk. The ongoing fundamental shifts would not have resulted in a change in our expectations for Florida Year 24.
Speaker Change: The two extraordinary items impacting the outlook were the impact of Hurricane Beryl and the greater-than-expected construction disruption in the Pacific. These two items combined for roughly $15-$16 million impact, but are more extraordinary in our view.
Speaker Change: So now turning to the third quarter outlook, the third quarter we expect reported occupancy to be in the low to mid-60s and reported package ADR to increase, low single digit to mid-single digit percentage points on a year-over-year basis.
Speaker Change: We expect owned resort EBITDA margins to decline significantly year-over-year, given the million of business interruption proceeds we recorded last year in Q3, which had a positive 50 basis point impact to the comparison period.
Speaker Change: FX is also expected to positively impact margins by approximately 50 basis points. So putting it all together, we expect Q3 owned resort EBITDA
Speaker Change: of $31 to $35 million.
Speaker Change: Supply a collection and management fee income of approximately $2 to $2.5 million.
Speaker Change: Corporate expense of roughly $15 to $16 million.
Speaker Change: And finally, adjusted EBITDA of $17 to $21 million.
Speaker Change: Again, as a reminder, we estimate that Hurricane Beryl is expected to have an approximately $6 to $8 million negative impact on the third quarter's EBITDA, and the incremental disruption related to the renovation work in the Pacific Coast as being an approximately $3 to $4 million change to the third quarter.
Speaker Change: Given our booking window, we're currently 83% booked for the third quarter.
Speaker Change: And then just looking ahead to the fourth quarter at a high level, we anticipate year-over-year occupancy declines to improve versus the third quarter, but expect low-single-digit to mid-single-digit ADR growth and the year-over-year margin decline to improve versus the third quarter.
Speaker Change: I hope that framework helps guide you as you fine-tune your models and give further insight into what we're seeing and expecting. With that, I'll turn it back over to Bruce for some closing remarks.
Bruce Wardinski: Great. Thank you, Ryan.
Bruce Wardinski: While I'm disappointed by the setback from Hurricane Beryl and the decrease in occupancy due to our renovation work in the Pacific Coast, we are seeing silver linings as the pickup and demand in the Pacific has improved following clear changes on booking channels highlighting that the resort is currently undergoing renovations.
Speaker Change: The general demand for the third quarter has stabilized, and demand across the portfolio for the fourth quarter has been less volatile than we experienced for the third quarter following Hurricane Beryl.
Speaker Change: Our renovation plans are proceeding as expected, and the room product at Los Cabos Resort looks spectacular.
Speaker Change: I am particularly excited to see the response from our mice guests as the work continues and we begin selling the 2026 high season.
Speaker Change: With respect to our capital projects and renovation work in 2025, planning for the significant overhaul of the Solara Cancun Resort is moving forward with the intended goal of completing the full renovation in 2025, while we anticipate a modest, less disruptive plan for the high-edge Ziva.
Speaker Change: and Zalara at Rose Hall. The planned CapEx for Rose Hall Resorts will see investments made into critical infrastructure for convention center meeting space and various F&B outlets to significantly enhance the guest experience. With that, I would like to open the call to your questions.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from Chad Beynon with Macquarie. Please go ahead.
Chad Bainon: Good morning. Thanks for taking my question. Bruce, Ryan, I wanted to ask a little bit more just in terms of the disruption.
Chad Bainon: Could there be additional lingering effects from this? How are you thinking about...
Speaker Change: Some of the scores internally when that starts to improve and kind of clean out, you know, maybe some of the negative effects from disruption. And then just in terms of the ROI on the CapEx, has anything changed in terms of how you're thinking about the returns there? Thanks.
Speaker Change: Sure, sure. I'll take the first half of that question, Chad, and Ryan can take the second half of it. But with regards to do we expect more disruption, no. The answer is we don't. So the additional disruption is really related to the Los Cabos Resort.
Speaker Change: And, you know, there we're basically completely renovating about 40% of the rooms and that was a building that was the original building when we acquired the resort back in 2008-2009.
Ryan Hymel: And so it really was a desperate need of renovation and the new product is going to be exceptional. And that's why we made the comments in our script about the kind of excitement we're seeing from the MICE customers with regards to what the finished product is going to be there. And then we're doing a number of other things related to that.
Speaker Change: N.V. outlets, gym, lobby, etc. So the whole resort is being renovated, it's really going to look great.
Speaker Change: In that building, I'll just be blunt about it, you had jackhammering. When you have jackhammering at a resort, there's a lot of noise. And that jackhammering has basically come to an end.
Speaker Change: So, you know, that was that was the cause for the additional disruption, you know, got picked up on social media, you know, some mice groups canceled, you know, things like that. But I think you're seeing, as we mentioned, an improvement in the pickup, you know, right now for the summer and going into into the fall, even though it's a slower time of the year. But we're pretty optimistic about, you know, kind of how that's going to recover.
Speaker Change: With that, I'll pass it on to Ryan about the RLI.
Reineve: Yeah, and just as far as the forecast and outlook, at least the...
Reineve: Incremental disruption does not assume that there's any meaningful change or pickup.
Reineve: For improvement in what we're booking today, or the cancellation rates meaningfully improve once the major part of the disruption and jackhammering finishes, which is late August . So, that's the nice part there. We did not decide to get kind of over our skis with that.
Speaker Change: As far as the overall ROI on that project, as we talked about on our last call, it generally was meant to be a little more defensive in nature, despite
Speaker Change: The fact that the rooms really needed to work and we're doing a lot of work to the various parts of the property, we think the best thing that we're able to do there is protect the EBITDA in place, potentially get a little bit higher mice paying business, and potentially gain some market share. So, there's no real change to our outlook on our expectations for any sort of returns at that property. But as Bruce mentioned, sample rooms that I've seen look fantastic and the commercial team was there last week.
Speaker Change: Redefining room categories given the work and so I think there should be some nice uplift when you get those rooms back in 2025 and then potentially with group business in 2026.
Speaker Change: Okay, great. Thank you.
Speaker Change: Any different trends in terms of room categories or price of rooms, any price elasticity within, you know, certain categories of rooms that would kind of indicate that there could be a canary in the coal mine in one of your consumer areas?
Speaker Change: And we really haven't seen a real difference in kind of high versus versus low end, you know, we kind of continue to point to what we've kind of deemed our status quo segments in the Yucatan and in the DR.
Speaker Change: Where we see differences really based on a property-by-property or more probably a location-by-location. You heard us say many times the Cancun market has performed better and recovered faster than Playa del Carmen. You can see that with the differences between our two Wyndham Ultras, one that we have in Cancun and one that we have in Playa del Carmen.
Speaker Change: And so, even though our Wyndham product is priced more cheaply than the Hyatt product up the street, the value proposition we're offering still resonates with that consumer. And as we've said a few times...
Speaker Change: People are still taking vacations versus short-term trips driving to somewhere in the panhandle of Florida or something like that. So no real trends there.
Speaker Change: Thank you very much. Thanks, Chad.
Speaker Change: The next question comes from Smedes Rose with Citi. Please go ahead.
Sneeds Rose: Hi, thanks. I just wanted to ask a little bit more on Cabo. I'm sorry if you said this, but you kind of put out a lot of numbers there. So when exactly is this expected to be finished, the work you're doing? And I guess the second part is, did you accelerate the work that's causing incremental construction disruption?
Speaker Change: So, on our last call, just as a reminder, we decided to accelerate the work and essentially complete that entire building, the three main buildings of this property, and that's what Bruce was referring to in his previous remarks.
Speaker Change: All right, so in Alaska, we decided to accelerate that and get it done, the vast majority of it done this year. We'll still have some rooms out of service.
Speaker Change: The heavy jackhammering began in May and should finish sometime here near the end of August . So, there will still be rooms out of service.
Speaker Change: you know, in September onward, and obviously trickling into next year, but the heaviest disruption, the loudest noise, the loudest complaints...
Speaker Change: should subside by the end of this month.
Speaker Change: Chad's question, are we assuming there's pickup or change in cancellation rates? I'm not assuming that, so maybe there's some upside in the numbers when people stop complaining about the...
Speaker Change: The Jackhammering on social media, you know, hopefully there. So, really what transpired is we accelerated the work, we gave you incremental disruption on the last call, we assumed it's roughly around $10 million for the year. We're now saying that number is now mid to high teens disruption for the year, you know, given the additional jackhammering and noise and disruption.
Speaker Change: Congratulations.
Speaker Change: You mentioned that you have $36 million of group business on the books for next year. Where does that stand relative to where you'd like it to be? It sounds like there were a couple of one-time items or difficult comps. In general, how is that pacing relative to your expectations?
Speaker Change: It's pacing down, but that was largely expected. As I said in the prepared remarks, it's pacing down about 25% year-over-year.
Speaker Change: You don't have groups that are groups typically book as you know, you know, 12-18 months out So you really don't have much group business on the books in Cabo, which we knew And so a lot of that business is at Topkana and and in the first quarter to the first half of Jamaica next year So really you're got a big gaping hole in Pacific
Speaker Change: And so as we start finishing sample rooms and start getting more photos and media things put together, the commercial team will start preparing and marketing that hotel for 2026.
Ryan Hymel: The nice groups always, you know, they're always going to be cautious and they just want to see the finished product. And so like Ryan said, once you have the sample rooms and once you can show them what it is, you know, going to look like, you know, that's when you really start to see momentum on the bookings.
Speaker Change: Would you expect to put in business interruption insurance related to the hurricane barrel numbers that you put up there?
Speaker Change: No, unfortunately not, you need property damage.
Speaker Change: For business interruption, the triggering event for business interruption is property damage. And we didn't have enough property damage to put in a claim.
Speaker Change: Like cosmetic and landscaping things in Jamaica
Speaker Change: [inaudible]
Speaker Change: Thank you. Thanks, Steve.
Speaker Change: Our next question comes from Patrick Scholes with Truist. Please go ahead.
Patrick Scholz: Great, thank you.
Patrick Scholz: It does seem it's going to be...
Patrick Scholz: to be a rough hurricane season above and beyond the hurricane impact of the one that's already hit. Do you have any...
Speaker Change: degree of conservatism and your guidance that there might be
Speaker Change: Hurricanes hitting and impacting you folks. Thank you.
Speaker Change: No. No. At this point just...
Speaker Change: given what transpired and then the two kind of extraordinary items.
Speaker Change: We wanted to bring everybody to the bottom end of the range.
Speaker Change: So, if another larger storm came through and we had rooms offline, it would certainly impact. Just remember, though, that, you know,
Speaker Change: If it wasn't clear, July is such an important part.
Speaker Change: of what we call our second season. So I would say everybody on the phone probably recognizes that our high season is essentially Christmas through Easter. And then our second quarter is still an incredibly phenomenal quarter for us, but the vast majority of the profits and the highest ADRs are contained within July and roughly the first two to three weeks of August . And then as you can imagine, people go back to school, return to their desks, etc.
Speaker Change: So, if there was another hurricane, you've seen it in the past,
Speaker Change: The disruption would be far less just given the absolute ADRs and occupancies that we normally have on the books.
Speaker Change: For that time of year and then on top of it, you know
Speaker Change: The fact that the demand in Jamaica is lower than what you would expect for a normal year or two, the impact would be smaller if you had something similar come through.
Speaker Change: Okay.
Speaker Change: And then my follow-up question, a couple...
Speaker Change: Questions on a little more specific topics?
Speaker Change: on your call.
Speaker Change: And I apologize, maybe you did provide granularity on these. You mentioned...
Speaker Change: Insurance is down this year. Can you give more color on how much that is down?
Speaker Change: And what percentage of cost insurance represents today? And then you mentioned rising wages, what's your expectation for wage growth over the next several quarters? Thank you.
Speaker Change: [inaudible]
Speaker Change: 5-7% of our overall cost base.
Speaker Change: As far as wage growth, that is the biggest headwind for us.
Bruce Wardinski: Bruce Hymel, Bruce Wardinski
Speaker Change: you know, portfolio, specifically Mexico, we kind of expect.
Speaker Change: Roughly mid to 4-6% wage growth across the portfolio in our steady state.
Speaker Change: Obviously, staffing levels are lower in the Pacific right now because of the renovation disruption and potentially in Jamaica as well. But all of our costs essentially are the same as we've kind of guided through the last couple of years. The food and beverage continues to be a tailwind, which is great.
Speaker Change: which is excellent.
Speaker Change: Thank you and I'm all set.
Speaker Change: The next question comes from Sean Kelley with Bank of America. Please go ahead.
Sean Kelly: Hey, good morning, everyone. Bruce, Ryan, maybe you could just help us think through the bridge for 2025 as we look forward a little further here, because there's obviously a lot going on here.
Speaker Change: Barrel, the construction disruption, possibly a boost from the ROI if the disruption is entirely behind us.
Speaker Change: As we enter 2025 in the Pacific Coast.
Speaker Change: And then we think about Jamaica. Can you help us think about kind of each bucket and how we would sort of do the bridge for what 2025 could – just on those factors, we'll leave out a same-store assumption.
Speaker Change: But just on sort of those factors and particularly the Jamaican normalization and the Pacific Coast, that would be really helpful.
Speaker Change: I'm not going to get into specific numbers today. We're still working through forecasts and guidance and it's a little early, but those kind of buckets are the biggest ones to consider when you build out a model for next year.
Speaker Change: Let's start with the Pacific. We're largely done with all that work at the end of this year. As I mentioned earlier, some of the rooms will still be out of service in Q1 of next year. And so, net-net, I would expect Q1 in the Pacific occupancy and EBITDA to be down compared to Q1 this year.
Speaker Change: But you're getting back all of those rooms, essentially beginning Q2 through Q4. I did mention earlier, very specifically, I don't expect a lot of group business to come on the books in the back half, or Q2 through Q4 of next year, just because they book further out.
Speaker Change: But I would expect Q2 through Q4, just by virtue of having all of these rooms back online, to be better from an EBITDA perspective. Are they getting back to 2023 numbers? Probably not, but you're getting just a decent amount of EBITDA back just by virtue of those being back online.
Speaker Change: So net-net for the year, the Pacific should be up when you take out Q1 and you add back what you get back Q2 to Q3.
Speaker Change: Don't forget we have business interruption insurance on the books this year. I don't want to forget that.
Speaker Change: Bruce Hymel, Bruce Wardinski
Speaker Change: FX is a consideration. As you can imagine, it's been incredibly volatile. Starting in June , it was weakened considerably after the announcement of the elections, and then just given everything that's happened in the markets, the unwinding of that trade, it's gotten
Speaker Change: And that's in extremely weak over just the last four or five days. row, right, where it just kind of jumped up to over the weekend if it remained at 19 for the rest of this year.
Speaker Change: And then...
Speaker Change: 19 was the kind of forecasted spot rate for all of 2025.
Speaker Change: Without any hedging activity, you're looking at, you're starting off at the high single-digit to potentially low double-digit tailwind of EBITDA if all operating expenses and everything else remain equal.
Speaker Change: So that's a big consideration. Again, very difficult to forecast and we'll likely put another hedge in place which eats into that a little bit, but that's a big bucket of consideration.
Speaker Change: And then the last, and the biggest one that you point to, is Jamaica.
Speaker Change: So, right now, just given where things are booking and pacing, as we talked about multiple times, the continued degradation of the forecast or the lack of improvement in the pickup and booking pace, what's infected Q2 and Q3 is fully infected Q4 and we're pacing behind
Speaker Change: Q1 of next year. So unless something substantially changes, I don't expect any improvement until we start lapping these effects in Q2 of next year.
Speaker Change: So, if you assumed everything remains the same,
Speaker Change: From here on out, and nothing changes through the entirety of 2025, at a minimum, you will have a significant impact in Q1 of 2025.
Speaker Change: This travel advisory and the demand hits began in RQ1 of this year, but we still had a phenomenal January and a phenomenal February in that market before all of that took place.
Speaker Change: So it's one of the things I don't want people lost when they think about their models for next year. Q1, unless there's a considerable change in pickup or sentiment, Q1 will be down in Jamaica. So I know it's kind of long, Sean, and I didn't put real numbers around it yet because we're still working through it, but those are the main buckets to be thinking about.
Speaker Change: Super, and then obviously the last piece would just be Beryl, which I think you generally called out at $6-$8 million.
Speaker Change: Bruce Hymel, Bruce Wardinski
Speaker Change: Okay, great. And then my follow-up, just digging in on Jamaica, I think in the prepared remarks, if I caught it right, I think it was Bruce,
Speaker Change: mentioned, you know, maybe a touch of new supply in that market as well. Could you just comment on that? Is it in the sub-market? You know, like, it didn't sound like it would be something you might have called out if it wasn't for the softening, but, yeah, just what do you see in there?
Speaker Change: Yeah, no question. We wouldn't have called it out because, you know, for the main reason, it's...
Speaker Change: At a lower price point, so it's typically more European customers sold through tour operators at a lower price point, and it's further away from the Montego Bay Airport.
Speaker Change: Our resorts, except for Paradise Cove, the other ones are all located within Rose Hall, and for people who don't know, Rose Hall is like 15 minutes, within 15 minutes, 15 to 20 minutes from the airport.
Speaker Change: And so it's incredibly convenient and Rose Hall is kind of the
Speaker Change: Upscale desired location to be within the Montego Bay.
Speaker Change: [inaudible]
Speaker Change: Bruce Wardinski, The Cool British Guide to Obstetrics and Gynecology Bruce Wardinski, The Cool British Guide to Obstetrics and Gynecology
Speaker Change: The next question comes from Chris Woronka with Deutsche Bank. Please go ahead.
Chris Warronka: Hey, good morning, guys.
Speaker Change: I think, Bruce, I think last quarter you mentioned that you were considering, you know, kind of reaching out to your...
Speaker Change: Contacts at State Department and maybe working with Adam to try to get some positive momentum or at least some feedback on this.
Speaker Change: Travel advisory. Is there any, could there be any update there or is that still something that that can happen?
Speaker Change: No, no. So I had a good meeting with the Jamaican ambassador to the United States last month. We went over all the initiatives that the Jamaican government, mostly through the embassy here in Washington, D.C., are working on with the U.S. Embassy.
Speaker Change: [inaudible]
Speaker Change: JTB which is Jamaican Tourism Bureau as well on some initiatives and they've done that I've been in contact with with you know
Speaker Change: Adam Stewart at Sandals. We have had some other back-channel with some other, you know, hotel operators, you know, colleagues, competitors within Jamaica. It's, you know, it's a challenging, it's a challenging situation. You know, some of the things that the advisory relate to are more systemic, but it's not like...
Speaker Change: Jamaica specific is the frustrating part, right? It's things that exist in countries all over the world, all kinds of countries, and so, you know, that's just the frustration. We're hopeful, you know, to get progress. We're hopeful that people see that, you know, whatever, you know, is included in the advisory really doesn't have any impact on the north coast of Jamaica, which is where, you know, the tourism zone is, right? Montego Bay, Ocho Rios, Negril, that's where we're located and that's really not seriously impacted by that. So, you know, I'm hopeful. I think the government is much more focused and I probably.
Speaker Change: You know, kind of stated on the last call. So, you know, I'm positive about that too. We have an open dialogue with them and we're hoping that things will improve. But, you know, it's really impossible to forecast that.
Speaker Change: Okay, fair enough. Thanks, Bruce.
Speaker Change: As a follow-up, thinking about Zalara Cancun next year, I know you probably don't have final decisions or budgets, but big picture, now that you've had another quarter to consider what you could do there,
Speaker Change: Is there any thought as to...
Speaker Change: You know whether you want that to be more of a life cycle renovation or whether you truly maybe
Speaker Change: you know, can do some things and take ADR up significantly above where you are now.
Speaker Change: Yeah, Chris, that's a great question. Thanks for asking it. You know, this is something I personally am really, really excited about. Okay, first of all, we said this before,
Speaker Change: Resort is located on, you know, one of the absolute best beaches, best position within Income Hotel South, okay? 100% of the rooms are oceanfront.
Speaker Change: So, not ocean view, not, you know, ocean if you bend around the corner, you're just looking straight at the ocean, okay? The original room concept was incredibly inefficient, you know, you probably had about 25 to 30% of the room.
Speaker Change: space, you know, just your square footage that was lost due to angles and other things that, you know, an architect designed. We're taking all of those out. So we're going to take this thing down to
Speaker Change: We're definitely not just doing a life cycle renovation. This is going to be a complete reinvention of Vox.
Speaker Change: of this resort, and I think the potential is incredible. We talked about the ADR gap between this and the Ziva Cancun, between this and the Sularic Hapkana, you know, we have significant
Speaker Change: You know, upside for that, you know, our plan is, you know, that we will shut the resort down. It'll be closed for eight to nine months. We're looking at, and we're optimistic, but we'll come out with more definitive news on this, you know, probably by our next call, the possibility of actually increasing the room count due to, you know, the, you know, kind of the layout of our combined resort between that and the Wynnum Ultra next door. You know, and again, that may allow us to add another higher category room type, you know, to the resort, which, of course, would be, you know, another value enhancing.
Ryan Hymel: you know, opportunity. But this will definitely be value-enhancing. So, you know, Ryan, you know, described Los Cabos, and that's like, hey, we're trying to protect, you know, the golden goose mice business that we have in Los Cabos, as well as the, you know, transient business. And so that was, you know, both in kind of the...
Speaker Change: Goal behind that renovation, same with Puerto Vallarta, this one is very, very different. We have an opportunity to really create something exceptional here, that's what we're shooting for.
Speaker Change: Okay, very good. Appreciate all that. Thanks Bruce.
Chris Warronka: Thank you, Chris.
Speaker Change: With that, I think we've covered everything we wanted to get through today. I appreciate the questions, and we look forward to catching up on our next earnings call. Thank you very much.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.