Earnings Call: Q3 2024

Oct 25, 2024

Summary

9M24 occupancy reached a seven-year high, with a 25.7% EBITDA margin, while 3Q revenue rose 3.4% and EBITDA declined 7.7% amid cost pressure and Acapulco rebuilding. Full reopening was targeted for November; planned long-term financing and insurance proceeds were expected to repay Acapulco's working-capital debt.

Good afternoon, and thank you for joining us. Good day, everyone, and welcome to today's Grupo Hotelero Santa Fe third quarter 2024 investor relations call. Please note, this call is recorded. All lines have been placed on mute to prevent any background noise. There will be a question and answer session after the speaker's opening remarks and instructions will be given at that time. It is now my pleasure to turn the conference over to Max Zimmermann. Good afternoon, and thank you for joining us today. My name is Max Zimmermann, Investor Relations Director of Hotelero, and I would like to welcome you to the company's earnings webcast for the third quarter of 2023. On the line, we have Alberto Santana, our Administration Director. 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 factors. 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 9 months of 2024, we posted a 66.6% occupancy in our portfolio, the highest first 9 months occupancy in the past 7 years for Grupo Hotelero Santa Fe. Additionally, we posted a 25.7% EBITDA margin in the same period, which is remarkable given some of the challenges we faced this quarter, including the remodeling of the Krystal Beach Acapulco due to the affectations of Hurricane Otis. In terms of operating indicators of company-owned hotels, in the third quarter of 2024, we grew our RevPAR by 8.1% as we increased our ADR by 6.9%, combined with a 0.7 percentage point growth in occupancy. Revenues totaled MXN 678 million for the third quarter of 2024, up 3.4% compared to the third quarter of 2023. EBITDA was MXN 144 million for the quarter, down 7.7% compared to the third quarter of last year. Now, please move to slide 2. Room revenue increased 3% to MXN 326 million in 3Q24 compared to 3Q23. Food and beverage revenue remained stable at MXN 274 million in third quarter 2024 compared to the third quarter of 2023. Other income, which includes, among other items, event room rentals, parking, laundry, telephone, and leasing of commercial spaces, increased 25% to MXN 43 million in the third quarter of 2024 compared to the third quarter of 2023. Vacation Club income decreased 13%, reaching MXN 11 million, and third party- We are reconnecting Max Zimmermann. We posted a 1.5 percentage point increase in occupancy, reaching 64%, combined with an ADR increase of 15% to MXN 1,819. RevPAR in the quarter was MXN 1,161, which was 18% higher than the third quarter of 2023. Now, please move to slide 4. EBITDA in the quarter decreased 8% to MXN 144 million compared to MXN 156 million in the third quarter of last year. This result was driven by higher expenses driven by the Krystal Beach. Moving on, operating income increased 26% to MXN 72 million compared to MXN 68 million in the third quarter of 2023. In terms of net income, we went from a MXN 55 million peso loss in the third quarter of last year to a MXN 86 million peso loss in the third quarter of 2024. This was driven by a higher foreign exchange currency rate loss. Now, please move to slide 5. Net debt was MXN 2,604 million pesos at the end of the third quarter of 2024, which represented a net debt to EBITDA last 12 months ratio of 3.6 times. Total debt is mostly U.S. dollar denominated, 88% to be exact, and this tranche of debt has an average cost of 8.4%, while the remaining portion of 12% of total debt is peso denominated with an average cost of 14.4%, having an overall debt mix of 9.1%. Additionally, I would like to mention that over 85% of debt maturities are long-term. Our short U.S. dollar position by the end of the quarter was $123 million, equivalent to MXN 2,416 million pesos. Lastly, I would like to highlight and express my gratitude to the more than 4,300 associates who have supported the company and competition. As always, we are especially thankful for the trust and support of our shareholders, and again, of all our tremendously professional and cooperative teams. With that, I would like to open the call to Q&A. 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. Again, to ask 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, from Miranda Research. Martín, go ahead, please. Hi, Max Zimmermann. Good evening, and thank you for the call. I have the following questions. Could you please give us an update on the Acapulco hotel? The second one is, could you please share with us your plans with respect to the short-term debt of MXN 445 million? Do you have available lines of credit, and what percentage of your assets have been provided as collaterals? Sure, Martín. Thank you for connecting, and thank you for your questions. Starting off on your first question, talking about Acapulco. We plan to have the complete hotel open by the end of November. We are still missing, up to date, around 150 rooms. That means the hotel is currently operating with around 250 rooms and should get closer to 300 rooms by the end of this month. By the end of November, we should have all our rooms open and also our meeting rooms in order to be ready for December and all the vacation occupancy that that implies. Having said that, as you know, we've been remodeling the hotel since we opened the first rooms in July and have been working since then. We also had Hurricane John, which I'm sure you heard of. Fortunately, this did not damage the hotel in any meaningful way. There was only some small maintenance issues and some elevators that had to get maintenance and so forth. The truth is that we were lucky, and there was not too many affectations. John did not change our plans to have the hotel complete by November. However, we did see less people going to Acapulco after John. As you know, there were some road closures and a little bit less people going to Acapulco. However, now things are getting back to normal. With the rooms we had in July and August, we've had some pretty good occupancies and are already starting to generate some interesting cash. Now moving on to your second question, talking about our short-term debt. There's something different in our short-term debt that was not in there in the last quarter, which is, I would say, a new credit line of, let's call it a working capital line, that we have with one of our main banks, and we are funding for Acapulco. This means that we have got some short-term credit for Acapulco because we are currently getting financing for the Acapulco hotel. We should have that ready in the next couple of weeks. Once we get that money, which will be, of course, long-term debt, we will pay the short-term credit line, which we've been using to fund Acapulco. Also when we receive the rest of the funds from the insurance companies, which we are only missing the last payments, however, we have already ended negotiations, and we should be receiving that. That, I would say, is the effect that you see in our short-term debt. Having said that, I would mention that talking about what we have in our debt and our guarantees. Remember that we have mortgage debt on not all hotels, but I would say on the majority of the hotels that we own or that we have 50% on, except I think four or five hotels which have already finished their payments, and we have not refinanced given the high interest rates. Having said that, the guarantees are normally the property of the hotel which is in, and sometimes there is also some cross guarantees, which could be at the Grupo Hotelero Santa Fe, SAB level, which let us say is the corporate offices. And sometimes it is a mixed guarantee with other hotels. But that is basically it, and we feel comfortable with our debt levels for the first nine months of the year. As you saw in our press release, we have a 1.5 times debt service coverage ratio, which is above our covenants. So we are moving in the right direction, and as interest rates lower, that number should also be improving. But do you think you could raise additional mortgage financing if needed? Yes. As I was mentioning, we have four hotels which do not have any guarantees or any debt currently, which are stabilized properties which we could get debt for those hotels when we would need that. But for now, we still feel pretty comfortable where we stand. Okay. Thank you, Martín. Thank you, Martín. Our next question comes from Carlos Alcaraz from Appalachia Research. Please, sir, go ahead. Hello, Max. Good afternoon. Thank you for taking my questions. First, how much do you expect in CapEx during next year? And regarding the beach hotels, what is your occupancy expectations in light of the normalization of international tourism? In terms of CapEx, normally we looked at investing around 4% of revenue. That would be the number we would be expecting for next year. Of course, if sometimes we have some years which might be a little bit tighter than others, we could adjust that number. If you look at the CapEx that we've been spending this year, it's going to be slightly below that. But I think we do plan to do some catching up in the last quarter. In terms of the, I would say, resort properties that we have, we normally don't give forward-looking guidance, but I would tell you that, if you remember, there was the, we call it the COVID honeymoon, so a lot of people traveling after COVID. We had a great 2022 full year because of that. We still had, let's say, the tail of that effect until around March or April of 2023. Since then, I think that occupancy has been normalizing after having this growth due to more people traveling after COVID. So we've already lapped this by a year and a half almost. So I think that the current levels that you are seeing in our resort properties should be reasonable and should be showing some growth going forward. Now that the exchange rate has shifted a little and is closer to the 19 or 20 peso range, remember this has various effects for us. The first effect is that Mexico is cheaper for Americans. That means that you can get more bang for your buck, so to say. Of course, it also helps our P&L because we receive more pesos for the dollar tariffs that we have. I think that this devaluation of the peso could be helping our numbers next year, but I think we still have to see what will go on. Thank you very much, Max, and have a great weekend. Thank you, Carlos. You too. Our next question comes from Felipe Barragan from BTG Pactual. Please go ahead. Hey, Max. Good morning or good afternoon. Thanks for the call and for my question. We've heard a lot of hotel peers talking about a lot of cost pressure, particularly with wages. I know you guys have a good employee to hotel ratio, if not the best. Just would like to hear your thoughts on how you guys are sort of combating this and if it's been an issue for you guys as well. Definitely, Felipe. Thank you for your question and for joining the call. Cost pressure has definitely been intense this year, especially if you talk about wages in Mexico. The minimum wage in Mexico has been going up importantly, 2, 3 times what it was before. Even though we don't have too many associates with minimum wage, it does affect salaries. I would say the most important cost pressures that we've had have been people, of course, salaries, and also energy costs. Those two, I think, are the most important ones. We have been doing, as you know, which is our specialty, to be as lean as possible and trying to have the best margins because of this and also try to protect our margins. We've been doing our best to do this. Also, food and beverage costs have also been coming up importantly. If you see it in our press release, you might not see it, I would say, as directly as if we were not making these cost-cutting programs. But you will see that we grew revenue 3.4%, but our costs and expenses grew 6.5%. I think you can see a part of that there. And of course, this is after all of the efforts that we've made. However, we also have the Acapulco hotel, which is basically already fully staffed and operating, but still having, after Hurricane John in September, having low occupancy, so you still have a higher cost versus lower revenue. That's affecting us. But yes, it's definitely costs have been coming up and we've been trying to adapt as best as we can. We have various initiatives to do this. We have on one side, sometimes, people that are working, let's say, on rooms can also be waiters in the morning in the restaurant, and then we have to have lower headcount. If you look at headcount in general, the average, I would say, for Mexico is well above one or sometimes even 2 employees per room. We normally try to keep that number close to 0.6, 0.7. So we're very efficient on that side. But of course, we've also been affected by these costs. Got it. That's very helpful. Thank you, Max Zimmermann. Thank you, Felipe Barragan. As a final reminder, if you want to make a question, please use the function, raise your hand in Zoom. With no further questions in the queue, I would like to turn the call to Max for the close of this conference. Thank you so much. We would like to thank you for the trust that you have placed in us, and we affirm our commitment to maximize your investment. We would also like to thank all of our associates for their constant efforts. Have a great day and a great weekend, everyone. Thank you. You may disconnect