Earnings Call: Q2 2024

Jul 26, 2024

Summary

H1 occupancy reached a six-year first-semester high, while Q2 EBITDA and net income were pressured by Acapulco’s temporary closure, FX losses and prior-year sale gains. Acapulco reopened in July, with full room capacity targeted by November.

Good day, everyone, and welcome to today's Grupo Hotelero Santa Fe second 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 speakers' 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 HOTEL, and I would like to welcome you to the company's earnings webcast for the second quarter of 2024. 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. Let me begin with our prepared remarks. In the first half of 2024, we posted a 68% occupancy in our total portfolio, the highest first semester occupancy in the past six years for Grupo Hotelero Santa Fe. Additionally, we posted a 27.8% EBITDA margin in the semester, which is remarkable given some of the challenges we faced this quarter, including the remodeling of the Krystal Beach Acapulco due to the effect of Hurricane Otis, and the effects of not having Holy Week this quarter compared to having it in the second quarter of 2023. Also, we had the Hilton Guadalajara, which we sold in May of last year. We had two months of that hotel in the 2023 numbers. We were negatively impacted by exchange rates, which at the end of the quarter, after the elections, were higher, but still for the months of April and May, played against us. As you know, our Hotel Krystal Beach Acapulco was affected by Hurricane Otis in October. On that front, let me share that we have partially opened the hotel the second week of July with 150 rooms out of 400. We have had great occupancies with good ADRs and expect this to continue for the following months. We will be adding another 50 rooms by the end of July and continue adding inventory month by month to reach 400 rooms by the end of November of this year. This event had an impact on our quarterly results and will continue impacting until the end of the year. Now, please move to slide 2. Room revenue decreased 11% to MXN 318 million in the second quarter of 2024 compared to the second quarter of 2023, driven by the temporary closing of Krystal Beach Acapulco due to the effect of Hurricane Otis and the seasonality of Holy Week that I previously mentioned. Food and beverage revenue decreased 7% to MXN 275 million in the second quarter of 2024 compared to the second quarter of 2023. Another income, which includes among other items, event room rentals, parking, laundry, telephone, and leasing of commercial spaces, increased 3% to MXN 33 million in the second quarter of this year compared to the second quarter of last year. Vacation club income decreased 24% to MXN 10 million, and third-party hotel management fees were MXN 25 million, which were up 9% in the quarter compared to last year. Moving on to our key operational metrics. On a consolidated level this quarter, we posted a 0.5 percentage point increase in occupancy to 66.2%, combined with an ADR increase of 9% to MXN 1,822. Please keep in mind that these numbers are only for open hotels. RevPAR in the quarter was MXN 1,205, which was 11% higher than in the second quarter of 2023. Now, please move to slide 4. To slide 4. EBITDA in the quarter decreased 28% to MXN 148 million, compared to MXN 204 million in the second quarter of last year, reflecting lower revenues combined with lower operational leverage, driven by the effect of the temporary closing of Krystal Beach Acapulco due to Hurricane Otis and the sale of Barceló Guadalajara and the other factors I previously mentioned. Moving on, we posted an operating income of MXN 75 million compared to an operating income of MXN 438 million in the second quarter of 2024. The lower result was driven by the sale of Barceló Guadalajara in May 2023, which represented an extraordinary benefit in that quarter. That is why these numbers are not comparable. In terms of net income, we have a similar story. We went from MXN 409 million gain in the second quarter of last year to a MXN 134 million loss in the second quarter of 2024. This result was driven again by the sale of Barceló Guadalajara and by an FX loss in the quarter. Last quarter, we had an FX gain of around MXN 100 million, and this quarter we had an FX loss of around MXN 180 million. If you add those two together, you have a MXN 280 million effect in same comp, just driven by the FX. Now please move to slide 5. Net debt was MXN 2,488 million at the end of the second quarter of 2024, which represented a total debt to EBITDA last 12 months ratio of 3.4 times. Total debt is mostly US dollar denominated, 87% to be exact, and this tranche of debt has an average cost of 8.5%, while the remaining portion of 13% of total debt is peso denominated with an average cost of 14.9%, having an overall debt mix of 9.3%. In this quarter, it's important to mention that we changed the debt of one hotel in our portfolio from pesos to dollars, and now we only have one hotel with debt in pesos. That is why this number changed from last quarter. Additionally, I would like to mention that over 85% of debt maturities are long-term. Our short USD position by the end of the quarter was $121 million, equivalent to MXN 2,234 million. With that, I would like to highlight and express my gratitude to the more than 4,300 associates who have supported the company unconditionally. As always, we are especially thankful for the trust and support of our shareholders, and again, to all of our tremendously professional and cooperative teams. With that, I would like to open the call for questions 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. 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 Martin Lara, from BofA Research. Please, sir, go ahead. Hi, Max. Thank you for the call. I have two questions. The first one is that the ADR increased 2% in owned hotels, but 18% in managed hotels in the quarter. Could you please explain the difference? The second question is if you could explain or give us an updated guidance on the CapEx level for this year, especially taking into account the remodeling process of the Krystal Beach Acapulco hotel. Thank you, Martin. In terms of the first question, it is because we added a new hotel to the third-party managed hotel portfolio, which was Secrets Tulum. As you know, Secrets Tulum has the highest ADR from the company, because it is an all-inclusive resort in Tulum. Since it is so high, it moves the boat or the numbers for the third-party hotels. That is why it is basically not comparable and why you see this large increase year-over-year. Once we reach the first quarter of 2025, this will be comparable because we opened the hotel in October. Maybe the fourth quarter will be a bit more comparable, but until then, we will still see these differences. In terms of CapEx for our hotels, I would tell you that 4% CapEx is what we expect and what we normally invest into our hotels. That is what our guidance basically is for CapEx. In terms of the hotel in Acapulco, we are still talking to the insurers of the hotel, and we still have not finished that process. But we estimate that the investment to remodel that hotel will be partly from what we receive from the insurance. Also partly to make some improvements to the hotel which we are already making. All in all, I think the investment in that hotel should be around the range of MXN 150 million, including both of those concepts. That is something that we have already started at the beginning of the year, or basically since even the fourth quarter of last year. It will continue until the fourth quarter of this year when we have all of the rooms and everything else online. Thank you, Martin. Okay. Thank you much. So that is on top of the 4% maintenance CapEx, right? Yes, that is correct. Okay. Thank you very much. Thank you. Just to mention something else, sorry. In terms of on top of that, yes, just remember that part of that will be some of the insurance money that we received. The net number that you should see should be smaller than that. Thank you. Our next question comes from Carlos Alcaraz of Apalache Research. Please, sir, go ahead. Hello, Max. Thank you for the call, and congratulations on the results. I have a couple of questions. The first one is about the Acapulco hotel. Could you give us some color on the status of the refurbishment? About the ADR, what is your expectation for the second half of the year, and do you expect them to maintain stable, or do you expect them to continue growing? Thank you, Carlos. Great questions. Let me dive into the first one of Krystal Beach Acapulco. We opened the hotel on July 12th, this month, and the response that we have received has been amazing. We have been with very high occupancies between 80% and 100%. We had already set an ADR for this hotel. We have had some groups coming in and reservations that were already there months before. We see some space for ADR improvement. There are still many hotels that still are not open in Acapulco, so this plays to our benefit. We were able to open 150 rooms on July 12th, so that is still less than half of the inventory of rooms in the hotel. We plan to increase that to 200, which would be 50% of the rooms in the hotel, before the end of the month. Between the weekend and next week, we will already have 200 rooms online. It is important to mention that we already have all the common areas. The pools, the restaurants, the lobby are already working. Plus, they got a pretty nice upgrade. Even the outside of the building, the façade, was also renewed. So Krystal Beach Acapulco is coming out a much better product than it was before Hurricane Otis, which I think will also play in our favor. Fortunately, we have had very good results, very good occupancy, very good ADR, and we expect this to continue going forward, remembering that Acapulco is the best road or car destination from Mexico City. We have a lot of that tourism, and very loyal to Krystal and to our hotel. We expect great results coming from that side. In terms of your second question, well, as you know, we have been growing our ADR in owned hotels. If we go to the numbers, we have had a 7.5% increase for the first semester. So these are prices that have already been taken, so if you compare them to 2023, they will be higher. I would expect this trend to continue for the second half of the year. Even though you didn't ask it, the complement of this question is occupancy. If we remember 2023, we had a very good first four or five months in 2023, where there was still a honeymoon of people traveling after COVID. So we had a tough comp for those first five months. As this progresses, so from June going forward, the comparable is easier, so we should be able to be posting results in line or better than last year, compared to the first semester of the year where comps were much more complicated. Okay. Another question if I could. Regarding the occupancy of the total portfolio, what is your expectation for the second half of the year? Well, as I was saying, we should be able to continue the trend that we have seen up till now, where we would be hoping for occupancy in line or a little bit better than what we saw last year. Perfect. Thank you, Max, and have a great weekend. Thank you, Carlos. Same for you. Our next question comes from Edson Munguia. Please sir, go ahead. Hi. Good afternoon. Thank you for taking my questions. I have two of them. Probably my line got disconnected. Max, when you refer to the partially open hotel, was referring to the Acapulco hotel, to the Beach Acapulco hotel? If I'm getting it right after Carlos' question. I'm curious about when, if that is the case, when it will be fully open. Just trying to figure out, join the dots. Because for me, at least, it was not clear if it's another hotel. No problem, Hector. Yes. The hotel that we were talking about was Krystal Beach Acapulco. This hotel was affected by Hurricane Otis in October and was in remodeling or in refurbishment from then until the 12th of July, where we opened the hotel with 150 rooms. Then we expect to reach 200 rooms by the end of this month, so in the following days. That would bring us to around 50% of the hotel's capacity, which is 400 rooms. We expect to have the 400 rooms available in November. The math basically comes out to opening around 50 rooms per month in August, September, October, and November, which are four months, basically taking you to around 400 rooms by the end of November. The only thing that we would be missing would be the remodeling of the last floor, which is the floor where we have the meeting rooms and the space for groups. That's basically the plan we have to be opening those rooms. However, as I was also telling Carlos, we have had great occupancy and great ADRs in the hotel since opening. We still see opportunity for that in the following months, because there's still a lot of hotels in the area that I would call them our peers for that location, which are still not open, which will obviously help us because there would be less offering of hotel rooms. Demand would be high because this is one of the main road or driving destinations from Mexico City. As you know, there's a lot of people that would like to go to these hotels. That's why we've had such good occupancy. To complement that, we already have our remodeled pools, our remodeled restaurants, remodeled lobby, façades, all of that, which already was part of the opening for July 12th. Air conditioning and the kids' pool and all of that. We basically have all the common areas of the hotel also ready, and we will be adding more rooms in the following months. Okay. Crystal clear. Just curious about the insurance process, because if you're already in the process of the remodeling and partially open, the insurance company paid or how it will be take to get it done with the insurance? Sure. We have been investing our own money for the remodeling of this hotel. We are also in the process of refinancing the hotel. I would tell you that in terms of the insurance, the insurance in general for insurance payments for all of Acapulco, from what we've heard, has been relatively slow. However, we are already pretty advanced. We have already received three prepayments, let's say, of this, and we are getting closer to finishing the payments, which we would expect before the one-year anniversary of Hurricane Otis, which would be at the end of the third quarter at the most. We're moving definitely in the right direction. As I told Martin Lara, we are not only investing what we have received and will receive when we finish negotiations, but we have also invested more into the hotel to higher the standards a little bit. With a new pool, with a new lobby, with a new restaurant, all of this also will definitely be an upgrade for the hotel. Okay. Last, if I may. Regarding the cash that you have available, cash and equivalents. When you compare with other quarters, probably on average, it is lower than the historical average. My question is, in which level of cash do you feel comfortable enough to be prepared for any eventuality? Well, I would tell you that if you look back on last year, we are like 40% lower than that in terms of cash. As I mentioned, we have also been investing into Acapulco, and we are in the process of refinancing that, so I think that will also help our cash position going forward. Also, of course, what we received from the insurance companies. Also important to mention that we still have apartment inventory in our Hyatt Regency 724 residences, which is our building on Insurgentes, in front of the World Trade Center, where we are still selling apartments. This number, as you can see in our balance sheet, is around MXN 500 million. So we have also, I would say that our cash position has also been partially affected by this. When we continue selling those apartments, that will also help our cash position. Okay. Thank you so much. Thank you so much. Have a great day and a great weekend. We have a follow-up question from Martin Lara. Please sir, go ahead. Sorry, what is the ADR in the Acapulco property, and should we see some startup costs here in the next few quarters? Hi, Martin. We don't give numbers for specific properties, so I can't tell you the exact number. Oh, okay. What I can tell you is that it would be at least 15%-20% higher than what we saw before Otis. It should be growing beyond that because there's high demand in the property. It's definitely good news in terms of ADR. In terms of startup costs, I would say that, no, I wouldn't expect any big startup costs because we have the people on the property. What we did was we rotated some people from the Acapulco property to some of our other hotels while we were remodeling the hotel. I think we will be increasing expenses as occupancy rises, but since we have a high occupancy, I think that's already at the levels that we are expecting. Other than that, other than the CapEx, I would not see high startup costs because those costs normally come when you open a hotel, you need some working capital, and you need to do some marketing and some other stuff. That's something that we do not expect at the property, after the opening. Okay, thank you very much. Thank you, Martin. Once again, if you want to make a question, please push the function, raise your hand from Zoom. With no further questions in the queue, I would like to turn the call to Max for the close of this conference. Well, thank you everyone for the trust that you have placed in us, and we would like to reaffirm our commitment to maximize your investment. We would also like to thank all of our associates for their constant effort. Have a great day and a great weekend, everyone. With this, we conclude our conference. You may disconnect now.