Playa Hotels & Resorts Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2024

There are 8 speakers on the call.

Operator

Good day, and welcome to the Playa Hotels and Resorts Q1 2024 Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Ryan Himmel. Please go ahead.

Speaker 1

Thank you very much, Zico. Good morning, everyone, and welcome again to Playa Hotels and Resorts' Q1 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. Forward looking statements made today are effective only as of today, and the company undertakes no obligation to update forward looking statements. For a discussion of some of the factors that could cause our actual results to differ, please review the Risk Factors section of our quarterly report on Form 10 Q, which we filed last night with Securities and Exchange Commission.

Speaker 1

We've updated our Investor Relations website at investors. Plyresorts.com with the company's recent releases. In addition, reconciliations to GAAP of the non GAAP financial measures we will discuss on this call were included in yesterday's press release. Today's call, Bruce Wardinski, FLY's Chairman and Chief Executive Officer, will provide comments on the Q1 demand trends and key operational highlights, I'll then review our Q1 results and our outlook for 2024. Bruce will wrap up the call with some concluding remarks before we turn it over to Q and A.

Speaker 1

With that, I'll turn the call over to Bruce.

Speaker 2

Okay. Thanks, Ryan. Good morning, everyone, and thank you for joining us. Before we dive into our results, all commentary on comparable full year 2024 KPIs is synonymous with our legacy portfolio as the Jewel Palm Beach was closed for a portion of Q1 2023 and the Jewel Punta Cana was sold during Q4 2023 and thus would not be comparable for the full year metrics. Our first quarter results exceeded our expectations, coming in well above the high end of our expected adjusted EBITDA range.

Speaker 2

The better than expected results were broad based across our segments, driven by strong demand during the high season. Playa's owned resort EBITDA of $124,000,000 in the Q1 of 2024 included a significant year over year foreign currency exchange headwind of approximately $4,800,000 due to the appreciation of the Mexican peso. A benefit from business interruption insurance proceeds of approximately $400,000 and a modest EBITDA contribution from the Jewel Palm Beach Resort. For Q1 twenty twenty four, we estimate that FX headwinds were a negative 160 basis point impact on our reported owned resort EBITDA margin and 170 basis points drag on our legacy portfolio, which excludes the Jewel Resorts in the Dominican Republic. Business interruption proceeds favorably impacted resort margins by approximately 10 basis points.

Speaker 2

Adjusting for all of these factors, underlying owned resort EBITDA growth was up approximately 17% in the first quarter for the total portfolio and up approximately 11% for the comparable portfolio. The strength in bookings that we began to see during the second half of twenty twenty three carried into the Q1, particularly into Mexico, The demand was notable across our portfolio with all segments reporting positive year over year RevPAR growth despite the difficult growth comparison from last year's Q1 and the headwind from the shift of the Easter holiday in 2024. Our results in the Yucatan were once again quite exceptional on a currency adjusted basis with occupancy in line with the Q1 of 2019, but still trailing our 2018 peak and ADR growth of nearly 3% year over year. Our operations team continued to execute at high level in the Yucatan, delivering currency neutral margin expansion of approximately 2 40 basis points year over year on mid single digit RevPAR growth. As you may recall, following the realignment of key management personnel, we've been revisiting various processes, staffing models and procurement practices since the Q2 of 2023 and the results of our efforts really began to show in the second half of twenty twenty three as ADR growth moderated.

Speaker 2

As we've mentioned on previous earnings calls, 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. 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 ADR growth, despite continuing underlying wage pressure. In the Pacific, ADR growth was anticipated to be negative as a result of a large MICE Group buyout at legacy rates from 2020. However, the buyout led to a record high first quarter occupancy rate for the segment, resulting in year over year RevPAR growth of 6.2%. The strong revenue performance combined with our cost control efforts delivered 3 20 basis points of currency neutral resort margin expansion year over year in the Pacific.

Speaker 2

Additionally, we've decided to accelerate our renovation plans in the Pacific and now expect the construction disruption impact on EBITDA to be at the high end of the previously communicated range. We believe this is the best path forward to capitalize on the increased MICE demand we are seeing and position our resort in Los Cabos for a strong high season in 2026 and beyond. As a reminder, the Hyatt Ziva Los Cabos has not had any major renovation work done since the renovation that occurred following Hurricane Odile in 2014. Turning to the Doctor, we completed the sale of the Jewel Punta Cana in late December of 2023 and the Jewel Palm Beach was closed for a significant portion of Q1 2023, which we expect will lead to a meaningful year over year increase in EBITDA during 2024. Results in the segment were aided by the comparison from 2023, but the core comparable resorts also had a very strong quarter with double digit RevPAR growth and mid teens underlying EBITDA growth.

Speaker 2

Finally, Jamaica had another solid quarter with occupancy increasing year over year, reaching Q1 twenty nineteen levels and mid single digit ADR growth despite a significant headwind from lower mice group mix year over year. Segment was off to a good start in 2024, but the U. S. State Department's travel advisory notice for Jamaica on January 23 has had a negative impact on the segment near term, as cancellations picked up meaningfully thereafter. Although the travel advisory doesn't pertain specifically to our resorts as much as the major metropolitan areas in 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.

Speaker 2

Bookings in Jamaica saw a rapid improvement as we move through February, giving us a sense of optimism that the impact would be fairly short lived. But demand for the summer season did not continue to improve, leading to a significantly higher negative impact than we previously anticipated. Bulk of the impact experienced so far in Jamaica has been for Q2 and Q3, with revenue pacing down mid teens, while our 4th quarter pacing is holding up much better with a low single digit decline. Looking at demand as a whole, we saw steady demand through the quarter and the pacing into the summer season remains strong outside of Jamaica. In aggregate, during the Q1 of 2024, 48.4 percent of Playa owned and managed transient revenues booked were booked direct, down 300 basis points year over year.

Speaker 2

The decline was driven by fewer World of Hyatt redemption bookings following a spike during the Q1 of 2023 ahead of a change in the conversion rate for point redemptions, which pulled forward quite a bit of demand. During the Q1 of 2024, playaresorts.com accounted for approximately 11.3% of our total Playa owned and managed transient room night bookings, continuing to be a critical factor in our customer sourcing and ADR gains. Taking a look at who is traveling, roughly 41.7 percent of the Playa owned and managed transient room night stays in the quarter came from our direct channels. Geographically, the biggest change in our guest mix during the Q1 was our Canadian sourced guest mix, which increased 1 110 basis points year over year following several quarters of year over year declines. While this is encouraging, our Canadian guest mix still has plenty of room to improve, as it is only approximately 2 thirds recovered versus pre pandemic levels.

Speaker 2

Asian sourced guest mix improved modestly year over year, it remains the most depressed as it is still only approximately 25 percent recovered versus pre pandemic levels. Our visibility remains a critical factor of our success as our booking window was just over 3 months during the Q1. Finally, on the capital allocation front, we repurchased approximately $32,400,000 worth of Playa stock during the Q1 and an additional $17,400,000 thus far in the second quarter, bringing our total repurchases since resuming our program in September 2022 to approximately $280,000,000 or approximately 22 percent of the shares outstanding. 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 2

With that, I will turn the call back over to Ryan to discuss the balance sheet and our outlook.

Speaker 1

Thank you very much, Bruce. Again, before I begin, all references to expense and margin KPIs are on a currency neutral basis and also exclude business interruption proceeds unless otherwise stated. As we mentioned, our first quarter results were well ahead of our expectations as demand remained strong throughout the quarter. Healthy demand, easing pressure from food and beverage prices and our cost efficiency efforts led to reported margin expansion of 140 basis points year over year, which included 160 basis point headwind from foreign exchange and a 10 basis point benefit from business interruption proceeds, as well as 160 basis point tailwind from the 2 JUUL results in the Dominican Republic. So taken altogether, underlying reported resort EBITDA margins increased 2 90 basis points year over year in the Q1.

Speaker 1

Adjusting for FX and business interruption, our legacy portfolio delivered 140 basis points of resort margin expansion. On the cost front, food and beverage costs continue to be favorable as a result of lower input prices and cost efficiency efforts by our operations team. Labor costs were also favorable in the quarter reflecting our efficiency measures, but wage inflation generally remains a headwind. As Bruce mentioned, we are undertaking efforts to streamline and improve our procurement processes across the entire portfolio and take advantage of our scale. These efforts are really just beginning to bear fruit from the heavy lifting undertaken in 2023 and we expect the benefits to accelerate as the company moves throughout 2024 and beyond as our cost savings are averaging mid single digit to high single digit improvements per category.

Speaker 1

We estimate that we've only penetrated approximately 30% of the potential procurement savings thus far with half of the savings flowing through our costs during the Q4 of 2023. Underlying expense inflation has remained steady since our last update, with any changes in our margin expectations for the year resulting from higher construction disruption and deleveraging in Jamaica from weaker demand. Turning to our MICE Group business, our 2024 net MICE Group business on the books is approximately $65,000,000 up roughly 12% compared to the same time last year. Our MICE business is much more balanced on a year over year basis compared to what we experienced during 2023 as 2023 laps incredibly difficult MICE comparisons in the second half of the year. Finally, turning to the balance sheet.

Speaker 1

We finished the quarter with a total cash balance of $285,300,000 and total outstanding interest bearing debt of approximately $1,090,000,000 currently have no outstanding borrowings on our $225,000,000 revolving credit facility. Our net leverage on a trailing basis stands at 2.8x, excluding lease capitalization. We anticipate our cash CapEx spend for full year 2024 to be approximately 110 dollars to $120,000,000 for the year, partitioned out between approximately $40,000,000 to $50,000,000 for maintenance and other critical CapEx and the remainder designated for ROI oriented projects. This increase is largely due to the acceleration of the previously discussed renovation at our Hyatt Diva Los Cabos Resort. Also as a reminder, effective April 15, 2023, we entered into 2 interest rate swaps to mitigate floating interest rate risk in our term loan due 29.

Speaker 1

We entered into a 2 3 year contract, both of which have a fixed notional amount of 275,000,000 dollars and carry a fixed SOFR rates of 4.05 and 3.71 respectively. Separately, we've implemented foreign exchange hedges on approximately half our Mexican peso exposure for 2024, which should greatly reduce the volatility of the impact of our reported EBITDA this year. Based on the exchange rates at the time we entered into the FX forwards, we estimate the full year 2024 EBITDA impact from the Mexican peso year over year to be approximately $7,000,000 to $10,000,000 which is slightly better than our previous outlook of $7,000,000 to $11,000,000 Nearly 75% of the impact is expected to be in Q1 twenty twenty four nearly 100% of it in the first half of the year based on current spot rates. On the capital allocation front, as Bruce mentioned, we repurchased an additional $32,500,000 of stock during the Q1, an additional $17,500,000 thus far in Q2 2024. Since we began repurchasing shares last September, we've purchased over 36,600,000 shares or approximately 22% of our shares outstanding at the time.

Speaker 1

We still have over $145,000,000 remaining on our existing repurchase authorization. With our leverage ratios at or near 3 times, the anticipated free cash flow generation of the business and the attractive valuation of our stock, we believe repurchasing shares is still a very compelling use of generic capital to repurchase shares going forward depending on market conditions. Now turning our attention to our outlook for 2024. First, I'd like to remind everyone of the unique items affecting comparability of our financials compared to 2023 before we dive into the outlook. First with foreign exchange, as a reminder, the appreciation of the Mexican peso had a $24,500,000 impact on adjusted EBITDA in 2023.

Speaker 1

Business interruption as a reminder in 2023, we recognized $6,100,000 of BI proceeds with $4,300,000 of that coming in the Q2 of 2023 and approximately $900,000 in Q3 and Q4 respectively. The Doctor Jules, they recorded an EBITDA loss of approximately $15,000,000 in 2023 and negatively impacted owned resort margins by approximately 280 basis points. Roughly a third of their loss occurred during the Q1 of 2023 at the Jewel Palm Beach as a reminder was closed for the majority of the quarter. So with all that in mind, looking forward, we continue to expect full year 2024 adjusted EBITDA to be between $250,000,000 $275,000,000 which includes the following key considerations and inputs. We expect occupancy to be up low single digit percentage points for the total portfolio and down modestly for the legacy portfolio.

Speaker 1

This change reflects the travel advisory having a continuing negative impact on demand into Jamaica. We expect ADR growth of mid single digits for the total portfolio and low single digits for the comparable legacy portfolio. The driving force of the delta between the two is a positive 360 basis point impact from removing the lower ADR room night mix from the Jewel Ponticana that we sold last year and partially offset by the ramping occupancy at the Jewel Palm Beach Resort. We expect RevPAR growth of high single digit to low double digit for the total portfolio and low single digit for the legacy portfolio. We estimate that the disposition of the Jewel Punta Cana Resort and ramping occupancy at the Jewel Palm Beach Resorts contributes approximately 900 basis points to 2024 RevPAR, but the vast majority of that contribution being the result of disposing the Jewel Punta Cana Resort last year and only a modest contribution to RevPAR from the Jewel Palm Beach Resort as improving occupancy is partially offset by the negative mix of Palm Beach's ADR.

Speaker 1

We still expect foreign exchange headwinds, as we mentioned, of approximately $7,000,000 to $10,000,000 year over year based on current exchange rates and net of any FX forwards. As Bruce mentioned, we expect construction disruption impact of high single digit dollars of EBITDA in the Pacific and at the Hyatt Zilara Cancun. And inflation, as we've mentioned several times on the call, we've been diligently working to improve our efficiency and we believe we've lowered our margin leverage hurdle to approximately 4% ADR rate growth to hold margins flat on a currency and business interruption adjusted basis. We expect a modest net negative impact from annualizing corporate expense increases from 2023, partially offset from higher and growing fee income. With respect to the cadence of our profitability, we expect the Q1 to show the most robust profit in the year given the Q1 2023 comparison, which included a $5,000,000 loss at the Doctor.

Speaker 1

Jules. The drag from construction disruption and the weaker demand in Jamaica are likely most pronounced the second and third quarter and hopefully improve somewhat in the Q4. And now turning our attention to the 2nd quarter, we expect reported occupancy to be in the low 70% and reported package ADR to increase mid single digit percentage on a year over year basis. We expect owned resort EBITDA margins to decline significantly year over year given the $4,300,000 of business interruption in Mexico, which are expected to negatively impact margins by approximately 80 to 100 basis points. And altogether, we expect Q2 owned resort EBITDA $67,000,000 to 72,000,000 dollars Sequoia collection and management fee income of $2,000,000 to $3,000,000 corporate expense of roughly $15,000,000 to $16,000,000 which includes a negative FX impact Finally, adjusted EBITDA of $54,000,000 to $59,000,000 Given our booking window, we're currently 90% booked for the Q2.

Speaker 1

We hope all that framework helps guide you as you fine tune your models and gives further insight on what we're seeing and expecting. With that, I'll turn it back over to Bruce for some closing remarks.

Speaker 2

Great. Thanks, Ryan. So the year is off to a good start with solid top line growth despite the setback in Jamaica from the travel advisory and lapping difficult comparisons from 2023. We remain focused on the areas within our control such as our expense efficiency efforts and ongoing portfolio optimization. With respect to the portfolio, our Hyatt Ziva Los Cabos was among the first of our resorts to undergo a significant remodel following Hurricane Odile nearly 10 years ago.

Speaker 2

While the resort has performed extremely well, we expect our current renovation will significantly improve its competitive positioning in this key market. Our other successful early Hyatt renovations and conversions are also approaching the point in their life cycles for a refresh in the coming years, namely Hyatt Zilara Cancun, Hyatt Ziva and Zilara Rose Hall. We are targeting these resorts for renovations next year, funded by the recycling of Capital Home non core asset dispositions. Given the nature of the work involved and the specific footprints of these resorts, we expect the disruption to be greater than what we have recently experienced in the Pacific, which was done over multiple years. We will be back with more information on these projects later this year, but I am incredibly optimistic about the potential for our Hyatt Zilara Cancun as this resort sits on a prime piece of real estate and has performed well given the limited direct supply growth.

Speaker 2

The renovation of this resort has the potential to add significant value to the portfolio. Our Hyatt Ziva and Zilara Rose Hall have been significant drivers of EBITDA since the completion of their conversions in 2016 and have a large established position in the MICE segment. These resorts in a key market with limited supply growth and close proximity to the airport in Montego Bay also have the potential to drive meaningful value for years to come. In addition, we will consider room tower additions adjacent to our existing resorts, which should generate meaningful returns on capital and drive incremental EBITDA, but that is not a high probability near term endeavor for us. With our ROI projects largely funded with recycled capital, we will continue to redeploy the significant free cash flow we generate into share repurchases and maintaining our market leading assets, setting us up for success beyond 2024.

Speaker 2

With that, I'll open up the line for any questions.

Operator

Thank you. We will now begin the question and answer session. The first question is from the line of Smedes Rose with Citi. Please go ahead.

Speaker 3

Hi, thank you. First, Bruce, I guess I just was interested if you could talk a little bit more about what sounds like waning demand into Jamaica. And I'm just kind of wondering since those warnings have sort of been out for a while, like why do you think they're having a larger impact in the Q2? And is it really more sort of corporate groups that are switching out, so you're having to backfill with more transient? Or maybe just talk about the trends there and why you think they're playing out this way?

Speaker 2

Sure. No, it's a great question. Smedes, I mean, from our standpoint, we can't really answer that. We have a very strong booking window and we see that the weakness is kind of broad based. So it's not just on the group side, it's across the transient as well.

Speaker 2

If you look at the quarter, I would say the 2 things that kind of jumped out to me was number 1, just the strength of demand, right, particularly in the high season, but also just the overall strength of demand and we're seeing it through the rest of this year. And the other one is the concern people had about ADRs and the fact that we're not seeing any issue with ADRs. And so they're more than sustainable and it's what we've always said about the price value relationship and value is kind of in the eye of the beholder. It's still in my opinion relatively cheap and a great value proposition for people to go. So when you look at Jamaica, it really stands out from the standpoint of we have this very strong demand and we're getting good rates and why it's so significant, I really don't know.

Speaker 2

I've been in very close contact with Adam Stewart, who's the Head of Sandals and we intend to push the government to do something. Quite honestly, the government has really been asleep at the switch and has not done anything proactive to try to address the situation. And Sandoz has a much higher concentration in the country than even we do. So we're going to be pushing to see what we can do. Fortunately, what we see for the Q4 doesn't look as bad as Q2 and Q3.

Speaker 2

So that's good news. And I think again, it shows the resiliency of our business, particularly in the high season where we generate so much of our EBITDA. But we need to address this issue short term and we're not just sitting idly by, we're trying to do all kinds of initiatives and push it, but it doesn't make sense. I mean one of the things for example is the areas covered under the travel advisory are really nowhere near Montego Bay in the resort zone. So if you look at where we are located, which is on the north side of the island, completely in the resort corridor, there's not really any significant issue.

Speaker 2

It's on the other side of the island, the south side of the island

Operator

Okay. And

Speaker 3

Okay. And then I just wanted to follow-up, if I could, just on something you mentioned, sort of at the end of your remarks about the Hyatt Ziva Salar in Cancun going under renovation next year. I don't know if you can provide this, but I mean, I would imagine that's one of your bigger EBITDA generators across the portfolio. I mean, can you maybe just speak to well, I don't know if you can provide what percentage it is, that would be great. But can you just speak to how you are going to manage EBITDA coming out of that asset and balancing it against the need for renovation?

Speaker 3

And I think you've talked about a new room tower there in the past.

Speaker 1

Yes. So to be clear, we are only talking about the Zilara Cancun at this point. We are not referring to any renovation at this point for next year for Ziva Cancun. We're still going through a lot of these plans internally and going through scope and that's why Bruce mentioned we'll be back with more information. But what we're specifically talking about is the potential need to target

Operator

the Zilara in Cancun, which is

Speaker 1

about a 300 room property and the Ziva and Zilara Hyatt in Rose Hall. So the Zilara, rough figures has been roughly a high teens, almost $20,000,000 EBITDA contributor for our overall portfolio, adjusting for FX. And so it's a good EBITDA contributor just given the number of rooms. But as you recall, that property was essentially I think I've done this before on a call. I'm using air quotes right now.

Speaker 1

You can't see me, but it was converted to a Hyatt in 2013 when we recapped the company. And since then, we've done some things to the ancillary services like we've renovated the spa, we've renovated the gym, done some things to coffee shops and restaurants. But generally the rooms have just been repainted and have not been touched since we took over the property more than 10 years ago. And it's essentially lived under the umbrella of the Ziva Cancun up the street. So just given its proximity to the airport, the location in the prime real estate spot in all the in the hotel zone in Cancun, it's overdue quite frankly for a renovation.

Speaker 1

And so, again, scope and timing will come later this year. But in the past, we have discussed potentially running it through high season or effectively Easter and then potentially closing the property down for the remainder of the year to contain any lost EBITDA for the blast, call it, 8 to 9 months of the year and reopening in time for the high season. Again, more information to come there, but that's generally the plan we've discussed in the past. And let

Speaker 2

me just add to that just kind of the strategic rationale. So like Ryan said, it's been over 10 years and we haven't done rooms renovation. So just from a normal course you would do that, but I think the opportunity here at Zilara Cancun is even more significant. When we acquired that back in 2013, the rates that were being obtained for that type of resort in Cancun were good, but not kind of at the exceptional level that we're seeing, for example, with our newer properties like Hyatt Ziva and Zilar, Cap Cana, and even Los Cabos. So I look at Cancun being the number one all inclusive market and the high level of demand and the fact that is that we have a relatively limited number of rooms at Hyatt Zilara Cancun.

Speaker 2

So that demand profile is incredibly strong already. And then you have the ability to put an exceptional product there on as Brian described, probably the best kind of beach in the hotel zone in Cancun, I just think we really have a great opportunity. So it shouldn't be passed. This isn't just a renovation. This is absolutely an incredible resetting of the floor, okay, for Zilara Cancun.

Speaker 3

Great. Thank you. I appreciate it. Thanks, David.

Operator

Thank you. The next question is from the line of Chad Beynon with Macquarie. Please go ahead.

Speaker 4

Good morning. Thanks for taking my question. Bruce, I wanted to ask kind of a 2 parter on Jamaica. 1, can you just frame out, I'm not sure if you mentioned this in the prepared remarks, but what spring break or kind of the lead up to Easter in Q1, maybe just March in general, looked like versus prior year period? Was there an impact?

Speaker 4

And then secondly, on the look forward in Jamaica, is your approach to hold ADR and not fill the rooms with locals? I know in the past there was some good demand. Could you just kind of help us think about what will be locals versus tourists in your model right now? Thank you.

Speaker 2

Sure, sure. And I'll just kind of address the second part and then I'll pass over to Ryan. He can give you more kind of on the Q1 and the EBITDA impact in Easter. But our strategy absolutely is to hold ADR. Since we came out of the pandemic, we have been very focused on that and we don't believe there's anything kind of permanent or even longer term from this situation in Jamaica.

Speaker 2

We need to deal with it. But whenever you kind of reset your rate structure, I think it's a very slippery slope and it's challenging to kind of regain where you were. And especially in a hotel like this, which is such a big MICE contributor, that's something we don't envision doing. We have a high quality resort. We're going to maintain the high quality of that resort and ADR kind of discipline is critical to that.

Speaker 2

Then I'll pass it over to Ryan.

Speaker 1

And then Chad, to be clear, your question is around this the impact to March from these travel warning or

Speaker 4

I guess maybe if you could think about like spring break this year versus spring break last year. It doesn't sound like March was impacted, but I know it's not a same store, same week comparable.

Speaker 1

Yes, correct. For us, the fact that Easter meets the Mana Sansa week was within March, it certainly helps a little bit for Q1, but it certainly hurts April. For us, Easter week, particularly in the Mexican or the Spanish speaking countries, kind of marks the unofficial end of our high season. So the further out it goes, the better. So next year when it's in, I think, the 2nd or 3rd week of April, it's a definitive positive to Q2 and just generally a definitive positive to Playa because it elongates the high season.

Speaker 1

So for us, it was kind of as a minimal impact to Q1 on the positive side, but it definitely hurts Q2.

Speaker 4

Okay, thanks. And then lastly, any update in terms of Jewel Palm Beach, how you're thinking about hanging on to this property, marketing it, divesting it, what's the M and A market like out there?

Speaker 2

Yes. No, we are actively marketing the property and we're hopeful to be able to announce something in the near future. But we are actively marketing the property.

Speaker 5

Okay. Thank you both. Appreciate it.

Speaker 3

Thank you.

Operator

Thank you. The next question is from the line of Tyler Batory with Oppenheimer. Please go ahead.

Speaker 5

Good morning. This is Jonathan on for Tyler. Thanks for taking my questions. Maybe following up on Jamaica and understanding the dust hasn't fully settled yet, but can you talk about the disruption there and how it compares maybe to past travel advisories or interruptions you've seen over the years?

Speaker 1

It's funny that you asked that. Thanks for the question. So it's I mean, it's been a substantial swing, mostly concentrated as where we sit today in Q2 and Q3. And it's actually as far as the impact in the swing for what we were expecting for Q2 RevPAR, prior at the beginning of the year versus where we sit today, it's actually almost right on par with some issues we had in late 2019 with some crummy news cycles that came out in the Doctor. If you just look at a full year basis to kind of put some numbers around it, just using round figures, we were expecting the Jamaica segment to be up low single digit RevPAR.

Speaker 1

Now based on where we sit today, it's expected to be down mid single digits. So that's a high single digit to potentially double digit RevPAR swing in a few months here. So it's certainly, as Bruce mentioned earlier, I won't recast at all, a lot worse than we thought. And again, it's not that there's just an increasing number of cancellations, it more so has to do with demand. What we're picking up on a daily basis is below traditional trend lines from what we've expected beginning of this year or what we're able to experience last year.

Speaker 1

So the marketing team has done a number of different sales blitzes and tactics that have a nice impact for a couple of days, the demand falls back off again. They targeted some one of the questions to me that's earlier, they targeted some a lot of local groups as well, who obviously wouldn't be worried about a travel advisory and also Canadians as well. So we've seen peaks and valleys, but just generally, we're just below a traditional trend line from a booking basis. So the summer is essentially shot. And as Bruce mentioned, 4 looks okay, but we'll have to see how that works throughout the rest of the summer given our booking window is around 100 days.

Speaker 5

Okay, very helpful, Ryan. And then maybe following up on that booking window discussion. Can you talk about the booking window for the MICE Group business in Jamaica? Just trying to get a sense of maybe potential implications for 2025 from this near term headwind?

Speaker 1

Yes. So the they traditionally book at least at the absolute shortest, maybe 9 months out, but it's traditionally 12 to 18 months. So it certainly would have potential impact on 2025. And again, not going into too much detail yet, but it's also Bruce mentioned, there's potential plans to look at also renovating the Jamaica asset as well, which would have an impact. But that's our traditional booking window is the last couple of months been around 90 to 100 days with the exception of MICE that books further out.

Speaker 5

Okay, very good. Last one for me, if I could. Maybe on the relationship with Hyatt, any updated thoughts on that relationship and kind of what percent of Hyatt stays or redemption stays?

Speaker 1

Yes. So, traditionally our Hyatt redemptions have been around low to mid single digits as a percentage of our of the overall business we get from Hyatt. But the relationship has been good. I mean, we've had the benefit of having all of these Hyatt having been converted now for over 10 years now. They're well known in the system.

Speaker 1

They're well known in the markets and the NPS scores speak for themselves. A lot of that has to do with the operations teams at the resorts that are obviously run by us, but also just the Hyatt customers or higher paying discerning customers. So it's been a really nice marriage between the 2. And obviously, they bought Apple Leisure Group a few years ago and they're kind of still working through that. But our relationship is still very, very good and I think mutually beneficial to both.

Speaker 2

Yes. I mean it's been a great 11 years with Hyatt and jointly we really developed the Hyatt Ziva and Hyatt Zilara brands. And I think the exceptional performance of our teams in all three of our countries that we operate in is just a testament to the strength of our operations and then the fantastic properties that we own and operate as well as the great affiliation with Hyatt.

Speaker 5

Okay, excellent. Thank you for all the detail. That's all for me.

Operator

Thank you. The next question is from Gregory Miller with Truist Securities. Please go ahead.

Speaker 6

Thanks. Good morning. I'm on for Patrick Scholes. First question I have relates to the CapEx plans for Los Cabos and if you're willing to share beyond that for 2025. Could you share what your current high level cash on cash return expectations are for your CapEx work?

Speaker 1

So in Capos, this is definitely more defensive in nature. It's we don't talk about the 2 resorts in the Pacific as much because it's really just 2, but they generated nearly $60,000,000 of resort EBITDA in 2023 and Los Cabos is a substantial portion of our nice business. I say it all time, so I kind of sound like a broken record, but that hotel has punched above its weight for a number of years now considering that as Bruce mentioned, we have not done done quite a bit. We've not done any real renovation of that property, particularly in one of the older towers since the hurricane. It's doubled its EBITDA from 2019 to 2023 and again large in part due to the MICE business.

Speaker 1

And so we want to continue to ensure that we capture that share of that booming mice business for many, many years to come. So I can tell you the sales and marketing teams internally are happy about the things we are targeting, particularly one of the older towers, some of the meeting space, adding a new gym. It's attacking the things that have ailed us at that property and prohibited us from kind of pushing rates or potentially losing business to other newer properties that have come in over the last couple of years. So no explicit cash on cash returns on that because it's something that just needs to be done to protect the value of that real estate and give us a chance to capture that market even further.

Speaker 2

I think the enhancements will make expanding some of the meeting facilities like the pre function area at the ballroom and different things are going to make us more attractive to a large segment of groups. And so as Ryan said, the mice business there is really important and has been really successful. I think the things we're doing are just really positioning us to continue to maintain really strong Mike's business going forward.

Speaker 6

Okay, thanks. Appreciate it. In fact, I'd like to shift gears on my second question. I recognize that the 3rd party management business is a smaller piece of the overall portfolio, but you did announce some Wyndham Ultra deals in the Dominican Republic recently. I'm curious what opportunities do you see with this brand as a 3rd party manager going forward?

Speaker 6

What kind of hotels are best suited for conversion and for your operations?

Speaker 2

Yes. I mean, as we said, and you described it appropriately, the 3rd party management business is a lower kind of profit contributor for us. I mean, the vast majority of our profit comes from our owned assets. So there is a lot of focus on that. Having said that, the all inclusive space is really dominated by kind of the middle, right?

Speaker 2

Kind of like the same with most hotel markets around the world in the U. S. Or it's just a huge number of hotel rooms in the middle. Well, that's certainly the case in all inclusive. So when you look at Wyndham Altraum, what excited us working with Wyndham, on having the opportunity to convert some of those is just the broad number of hotels, resorts and rooms that could be converted to that brand.

Speaker 2

And many of them could be converted with relatively, not insignificant capital, but I mean, it's just more easily done than if you're going to a very high end or a luxury kind of property. So I think there's a lot of opportunity and we're excited to be partners. I can't really project how many we'll do, but we've had some really good success with the Wyndham Ultra brand and we love working with Wyndham. They're a great partner.

Speaker 1

Thanks, Bruce. That's all from us.

Operator

Thank you. The next question is from the line of Chris Woronka with Deutsche Bank. Please go ahead.

Speaker 7

Hey, good morning guys. Thanks for all the details so far. Bruce, I want to kind of revisit Jamaica a little bit. And I appreciate you mentioned you're working with Adam and hopefully maybe get the messaging from the Jamaica government up a little bit or the marketing. But isn't part of the issue here that in the U.

Speaker 7

S, the State Department? I'm just curious as to whether you know, is there some kind of formula they're using to determine this risk level? It seems a little not very scientific, if that could be diplomatic. Is there anything you can do on this side of the fence?

Speaker 2

It's a great question, Chris. And so I have volunteered and we will do this with the Jamaican government, but I have volunteered to go with the Jamaican ambassador here in the United States to go meet with the State Department and actually ask them that question because it's pretty nonsensical that you would come out with an updated travel advisory when nothing has changed,

Speaker 7

okay.

Speaker 2

I mean, it'd be like saying, okay, in the middle of a storm, it's going to rain, okay. Well, it is raining, okay. And why are you now telling us it's raining, okay? So, I live in the D. C.

Speaker 2

Area. I actually have friends who work at the State Department, and I can tell you it's going to be an interesting meeting I'm sure to find out exactly why they do that, but it doesn't make any sense to me.

Speaker 7

Okay, that's great. Appreciate that, Bruce. And then a question, I know you guys, I think recently wrapped up renovation in PVR. Are you seeing kind of expected rate lift there? Or would you say that's a little bit more like Cabo where it's somewhat defensive just to kind of bring the property up?

Speaker 1

It's more akin to Cabo. We're not done. They're still doing rooms right now. That kind of what Bruce mentioned earlier, that property and then like what we had been doing in Cabo before we decided to accelerate the work at 1 of the towers, was to kind of do it on a little bit in piecemeal and kind of do a third of the rooms at a time. That property just like Cabo, last major renovation was 2015.

Speaker 1

So it was due in its time. So there's potential for uplift in rate. That property again does really, really well. It's rate. That property again does really, really well.

Speaker 1

It's on a private kind of really one of the only real kind of private beaches in Puerto Vallarta, so close to the airport. It's kind of protected on both sides by the mountains. And so it's an excellent asset that needs to be maintained. So for us, it's little more defensive in nature and maintaining the EBITDA base that we've got there today. It's not a big group house or anything like that.

Speaker 1

It does pretty well with weddings, but that's about it.

Speaker 7

Okay, fair enough. Just last one is, when we think about what you might do on a renovation slash upgrade of Zilara and think about what you've got down the street with Xevo, Is there any thought to I'm not this preface this by saying I think your rates in the market are terrific, but is there any thought of possibly trying to maybe tap into the Andaz piece of Hyatt? I know that these Eva Zilara brands are created kind of for you guys when you launched the concept over 10 years ago. But with Andas, the kind of rate premium they get, is there any way to almost co brand or take a turquoise tower and put it on ANDAs on that and create even further rate separations or anything like that that's possible?

Speaker 2

I mean, we'll look at that. I mean, it's a good comment. We've always looked at whenever we reposition a hotel, we look at how do you optimize it from a brand perspective. And so that's an important part of the equation. But I'll tell you the opportunity here really from my perspective is to take a fantastic located resort with 100 percent oceanfront and try to create a product that maximizes ADR.

Speaker 2

And I think Hyatt Zilara, I mean, look at what we get in Cap Cana, look at what we get in Rose Hall. So I think Hyatt Zilara, Cancun can drive a very significant rate in premium if we have the appropriate product and that's our goal is to get appropriate product. But having said that, will we consider options? Absolutely.

Speaker 1

Just to just give you some context, some round figures because we don't disclose individual resort ADRs, but the for Q1, the Zilara in its existing state did very high $500 of package revenue a package ADR, dollars 500 Our Ziva Cancun up the street did $150 ish more than that per night and our Ziva and Zilara and Cana, again a different market, but a much newer property, did almost $200 more per night in package ADR. So the gap exists and the opportunity exists. And so that property's credit, it's doing really, really well for what it is. And I know you've been there and many others have and you go in, you're like, wow, this is just a very different product than you've got up the street. So if we can kind of decrease that gap and bring that property up, that's very, very high profitability on that higher end.

Speaker 2

Yes. And I do want to emphasize, we really think this is a huge opportunity. Okay, as we talked about, I think some of the others are more defensive and protective in nature. This is a huge opportunity and I'm expecting big success coming out of this repositioning.

Speaker 7

Okay. Understood. Super helpful. Thanks, guys.

Operator

Thank you. This concludes our question and answer session. I would now like to turn the conference back over to Bruce Wardinsky for closing remarks.

Speaker 2

Great. Well, thank you everyone for participating. It was a great quarter and we're looking forward to a lot more going on in the rest of this year. But thank you very much.

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Powered by Quartr
Earnings Conference Call
Playa Hotels & Resorts Q1 2024
00:00 / 00:00