Earnings Call: Q1 2025

Apr 25, 2025

Summary

Q1 revenue rose 25% and EBITDA 26%, with record first-quarter occupancy of 72%. Management cited positive demand signals but flagged tariff uncertainty, cost pressures, and possible occupancy softness.

Thank you operator, and good afternoon everyone. Thank you for joining us today. My name is Max Zimmermann, Investor Relations Director of HOTEL, and I would like to welcome you to the company's earnings webcast for the first quarter of 2025. The presentation slides we will follow during this call are available on our webcast, which you can find in our investor relations section of our website. Before we begin, I would like to remind you that this call is being recorded and that information discussed today may include forward-looking statements regarding the company's financial and operating performance. Our projections are subject to risks and uncertainties, and actual results may differ materially based on a number of facts. Please refer to the detailed notes in the company's press release regarding forward-looking statements. At the end of the presentation, we will open the call to any questions you may have. In the first quarter of 2025, we posted a 72% occupancy in our portfolio, the highest first-quarter occupancy in the history of Grupo Hotelero. Additionally, we posted a 32.8% EBITDA margin, which is remarkable given some of the headwinds we faced this quarter, including the ramp-up of the Krystal Beach Acapulco and the path to maturation of new hotels in our portfolio. In terms of operating indicators of company-owned hotels, in the first quarter of 2025, we increased our RevPAR by 14.1% as we increased our ADR by 10%, combined with an expansion in occupancy of 2.4 percentage points. Revenues totaled MXN 969 million for the quarter, up 25% compared to the first quarter of 2024. EBITDA was MXN 318 million for the quarter, up 26% compared to the same quarter of last year. Room revenue increased by 25% to MXN 468 million in the first quarter of 2025, compared to the first quarter of 2024, driven by higher hotel activity. Food and beverage revenue increased 23% to MXN 409 million in the first quarter of 2025 compared to the first quarter of last year. Other income, which includes among other items event room rentals, parking, laundry, telephone, and leasing of commercial spaces, increased 40% to MXN 48 million in the quarter. Vacation club income increased 37% to MXN 12 million, and third-party hotel management fees were MXN 32 million, which were up 12% in the quarter compared to the same quarter last year. Moving on to our key operational metrics. We posted a two percentage point increase in occupancy to 72%, combined with an ADR increase of 10% to MXN 2,125. RevPAR in the quarter was MXN 1,530, which was 13% higher than the first quarter of 2024. EBITDA in the quarter increased 26%, reflecting higher revenues combined with operational leverage. We posted an operating income growth of 30%, from MXN 185 million in the first quarter to MXN 240 million in the first quarter of 2024, driven by the same factors as EBITDA. Net income in the quarter increased 60% and went from MXN 99 million in the first quarter of last year to MXN 160 million in the first quarter of 2025. This was mainly driven by higher operating income. Now please move to slide five. Net debt was MXN 2,391 million at the end of the first quarter of 2025, which represented a total debt to EBITDA last 12 months ratio of 2.75. Total debt is now 100% US dollar denominated and has an average cost of 7.5%. Additionally, I would like to mention that over 90% of debt maturities are long-term. Our short US dollar position by the end of the quarter was $128 million, equivalent to MXN 2,650 million. Now please move to slide six. Lastly, I would like to highlight that and express my gratitude to the more than 4,600 associates who have supported the company's ambition. As always, we are especially thankful for the trust and support of our shareholders. Again, to all of our tremendously professional and cooperative teams. With that, I would like to open the call for question and answers. Operator? Thank you. At this time, we will open the floor for your questions. Ladies and gentlemen, if you have a question, please use the raise hand function on your Zoom tool. Please make sure that the microphone is turned on. Our first question comes from Martín Lara of Miranda Global Research. Please, sir, go ahead. Hi, Max. Good evening, and thank you for the call, and congratulations for these strong results. I have three questions. Do you expect to maintain a similar pricing strategy in the rest of the year? The second one is, how do you see the occupancy levels under the current tariff scenario, the uncertainty? The third one is, how is the Krystal Beach Acapulco performing? Sure, Martín. Thank you for your questions. I would say that Krystal Acapulco is performing strongly. We opened the hotel fully at the end of last year. We have already had some months of activity. Acapulco has also been increasing in general occupancy. As you know, we are one of the hotels that is open and that has very good customer recognition. Therefore, we have seen some strong numbers, especially recently in the Holy Week in Mexico, last week and this week. We are encouraged by the good results that we are seeing. In terms of your pricing question, at least for the first quarter, which is the information that we have now, we have been able to take some strong pricing. As you saw, we took around 10% increases in ADR, which also were reflected at the RevPAR. Let me also tell you that we have Francisco Zinser on the call, which is going to complement that. Yeah. Just very quickly. We are seeing a strong rest of the year, but under the circumstances and under all this uncertainty, it is difficult to take a definite approach in terms of how we look at the rest of the year. By now, for the signs we see, it looks quite good. As Max was saying, we have been able to increase some pricing in terms of bedrooms, both due to the effects and also to the pricing strategy of increasing prices. The Canadian market is starting to look at Mexico more than the U.S., as we all know, due to the tariffs and all that is going on around there. But I think we will see an increase of international travel and Canadian travel, international meaning European, because of the effect of the attitude they are taking against the tariffs. To complement that, in terms of answering both questions of pricing and occupancy, I would say that if, and that is something that we have not seen yet, but if we would see a softer couple of months in the next month, that would mean that maybe there could be softer occupancy, and we could see some promotions from our competitors. But if that were the case, we already have a strategy in place to be able to take advantage of the best pricing and occupancy. Thank you, Martín. Okay. Thank you very much. Our next question comes from Carlos Alcaraz of Apalache Research. Please, sir, go ahead. Hi, Max. Thank you very much for the call and for taking my questions. On that note, first asking if you could give us more color on the non-recurring expenses for the quarter. My second question will be on debt. Given the 100% of debt is in dollars denomination, do you consider balancing the currency of debt to reduce your risks? Finally, to ask you if despite the revenue increase, cost and expense grew 21%, where are you seeing more cost pressure? Do you expect that to normalize? Thank you, Carlos, for your questions. Could you please repeat the first question? I didn't hear it correctly. Sure. Could you give us more color on the non-recurring expenses for the quarter? Non-recurring. Carlos, thank you. In terms of the non-recurring expenses, actually in the quarter, we saw it was a benefit. Meaning that it was not an expense, but an income. The reason of that is that we recovered some money from insurance, from the Acapulco hotel, which we have been recovering in the past. That is why you see a benefit in that line. The same as you saw benefits in the first quarter of last year. We have been receiving payments from insurance, and we have seen that in different quarters. Second, in terms of your question about debt, we feel very comfortable having 100% USD-denominated debt. The reason is because, of course, the rate is lower. However, as you may know, we have a natural hedge. What do I mean by this? If you actually go to our press release, you will see that we publish a table, which we denominate as the currency hedging analysis, and that is actually on page 13 of our press release. There, you can see that 48% of our revenues in the quarter, this is the strongest quarter, by the way, where we have higher dollar revenues, was 48.4%. If you go down a couple of lines, you will see that 100% of our operating cash flow was in dollars. This is the case normally for Grupo Hotelero. At the end, we finish the year with normally between 90% and 100% of our operating cash flow, which is very similar to our EBITDA in dollars. That means that we never have to buy dollars to pay our dollar-denominated debt. With this natural hedge that we have, we feel completely comfortable with having our debt dollar-denominated. I would also add, Max, that we have a very good ratio between EBITDA and debt. It is 2.7 times, which is, I think it is the lowest one we have ever had. This considers that one of the hotels, the Hyatt Regency Insurgentes, which is doing phenomenally well. Is still in the process of consolidation. This ratio should improve for the rest of the year. We see absolutely no issue with debt, and obviously we would continue to have our debt in dollars based on what Max just explained. Thank you, Francisco. Understood. Getting into the third question about the cost that increased 21%. You have to consider that revenues increased 25%. That means that you had more guests, you had more food and beverage, you had more income because of that. But if you have more people at your hotels, you also have more costs, of course. Considering that we increased our revenues 25%, if costs would have increased above revenues, meaning above 25%, that means that costs would have grown beyond revenues. This was not the case. Costs grew below revenues, and therefore that means that we were able to have some operational leverage, because of our cost-cutting initiatives, which are something that we run every day of the year, and we always are looking how to improve. I will tell you that even with the growth that we saw this quarter, we're not worried about that 21% increase. Having said that, the most important increases that affect us normally are the cost of labor, also energy, and of course, F&B costs, which, as you know, food and beverage have increased a lot recently. But, we adjust our pricing in the menus and in our all-inclusive resorts to reflect those increases. Okay, perfect. One more question about Francisco's comments. Do you expect to increase the net debt to EBITDA ratio this year? To increase the net debt to EBITDA ratio? Well, as Francisco was mentioning, the 2.7 could improve with the performance of the hotels such as 724 in Turks Head, the Hyatt Regency. However, I will tell you that we feel pretty comfortable being between 2.5 and 3 times. That's normally what we internally look for. However, if we open new hotels or if we increase debt, that number sometimes may be slightly above 3, maybe 3.5. But normally we aim to have it below 3. Industry average is 4 times. The industry average is 4 times. On that side, I would tell you that we prefer to be a little bit more conservative. But that normally when rates are high, such as they are in the recent months, then that benefits us because it doesn't put us in so much of a problem as if we would have a higher debt. So I would tell you that we feel pretty comfortable at those levels. Perfect. All very clear. Thank you very much, Francisco and Max, and congratulations for the results. Thank you. Thank you, Francisco. Again, to ask a question, please use the raise hand function on your Zoom tool. Please make sure that the microphone is turned on. With no further questions, I would like to give the floor to the management to close the conference. Thank you everyone. I would like to thank you for the trust that you have placed in us, and we affirm our commitment to maximize your investment. Also, I would like to thank all of our associates for their constant effort. Have a great day, everyone. This concludes today's conference call. You may disconnect.