Earnings Call: Q1 2024

Apr 26, 2024

Summary

Q1 occupancy hit a five-year first-quarter high of 70%, while revenue and EBITDA fell 11% and 16% YoY, respectively, amid FX and property-related headwinds. Management plans gradual Q2 rate increases and a phased Acapulco reopening from July.

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 earning webcast for the first quarter of 2024. On the line, we have Francisco Medina, our CEO. 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 on 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. Now, I will pass the call to Francisco Medina, our CEO. Go ahead, Paco. Thank you, Max. Good morning, everyone. It's a pleasure to be with you today. Let me start by saying that in the first quarter of 2024, we posted a 70% occupancy in our portfolio, the highest first quarter occupancy in the past five years for Grupo Hotelero Santa Fe. Additionally, we posted a 32.4% EBITDA margin, which is remarkable given some of the headwinds we faced in this quarter, including a lower exchange rate, the remodeling of the Krystal Beach Acapulco, which was closed because of a hurricane, and the sale of Hilton Guadalajara. Finally, the path of maturation of the new hotels in our portfolio. Revenue totaled MXN 778 million for the first quarter of 2024, down 11% compared to the same quarter of 2023. EBITDA was MXN 252 million for this quarter, down 16% compared to first quarter 2023. Without these affectations of exchange rate and not having the Acapulco and Hilton Guadalajara properties, our difference would have been -5.6% instead of 16%. Results, despite a decrease in tourism in Mexico, driven by lower drops in airport traffic compared to the same quarter of last year. Now, I will pass the call back to Max who will get into our quarterly operational results. Go ahead, Max. Thank you, Paco. Now, please go to slide 2 of the presentation. Room revenue decreased 14% to MXN 375 million in the first quarter of 2024 compared to the first quarter of 2023, driven by the effect of the temporary closing of the Krystal Beach Acapulco due to Hurricane Otis and the sale of the Hilton Guadalajara in 2023. Food and beverage revenue decreased 7% to MXN 331 million in the first quarter of 2024 compared to the first quarter of 2023. Other income, which includes, among other items, event room rentals, parking, laundry, telephone, and leasing of commercial spaces, decreased 24% to MXN 35 million in the first quarter of 2024 compared to the first quarter of last year. Vacation club income decreased 18% to MXN 9 million, and third-party hotel management fees were MXN 28 million, which were up 17% in the quarter. Now, please move to slide 3. Moving on to our key operational metrics on a consolidated level this quarter. We posted a 1 percentage point increase in occupancy to 70%, combined with an ADR increase of 5.3% to MXN 1,934. RevPAR in the quarter was MXN 1,352, which was 7% higher than in the first quarter of 2023. Please keep in mind that these numbers are for the total hotels in operation of our portfolio. EBITDA in the quarter decreased 16% to MXN 252 million, compared to MXN 300 million in the first quarter of last year, reflecting lower revenues driven by the effect of the temporary closing of Krystal Beach Acapulco due to Hurricane Otis and the higher costs and the sale of Hilton Guadalajara. As Paco mentioned, excluding the effect of the Krystal Beach Acapulco and the sale of Hilton Guadalajara and the exchange rate, our EBITDA would have decreased 4%. Moving on, we posted an operating income of MXN 185 million compared to an operating income of MXN 214 million in the first quarter of 2023. This result was a consequence of the same effects I just mentioned. In terms of net income, we went from MXN 234 million in the first quarter of last year to MXN 99 million in the first quarter of 2024. This was driven by a lower exchange rate gain combined with a lower operating income. The main difference is the lower exchange rate gain that was much higher in the first quarter of 2023 compared to this quarter in 2024. Now, please move to slide 5. Net debt was MXN 2,296 million at the end of the first quarter of 2024, which represented a net debt to EBITDA last 12 months ratio of 2.9 times. Worth mentioning that that's the lowest this KPI has been for some years. Total debt is mostly USD denominated, 80% to be exact, and this tranche of debt has an average cost of 8.5%, while the remaining portion of 20% of total debt is peso denominated with an average cost of 14.7%, having an overall debt mix of 9.7%. Additionally, I would like to mention that over 90% of debt maturities are long-term. Also, our short USD position by the end of the quarter was $112 million, equivalent to MXN 1,877 million. Now, please move to slide 6, and I will pass the call back to Paco, who will finish up the call before opening for questions. Thank you, Max. Lastly, I would like to highlight and express my gratitude to the more than 4,300 associates who have been supporting 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. Ladies and gentlemen, if you'd like to make a question, please use the function, raise your hand from Zoom. You can also use the Q&A chat. Our first question comes from Carlos from Apalache Research. Please sir, go ahead. Hello. Thank you for the call. I have a few questions. The first regarding occupancy. Which regions drove the growth in the quarter? My second question is regarding the Acapulco hotel, what is the status of the remodeling progress? Finally, considering the current market conditions, will you be making rate increases during the year or will you prioritize occupancy? Thank you. Thank you, Carlos. Very interesting questions. First of all, let me start saying that our strategy, since we were checking our pickup reservations in January, that they were coming slow and checking that all the market was doing a very aggressive special promotions, reducing the rate with the strategy of gaining occupancy. We have to reduce a little bit our ADR in order to get more occupancy. That strategy, it worked very well. As we expressed in the report, we reached 70% of occupancy with a good level that help us to maintain a good performance in occupancy in operationally wise with the staff and cost and expenses. Saying that of reaching that occupancy, what we are planning to do without giving you any specific numbers that we cannot do, we can say that we are planning to increase step by step, segment by segment, a little bit our ADR with the idea that in the second quarter, we will increase a little bit more our ADR without losing occupancy for the rest of the 3 months. Second one is the renovation of Acapulco. Our plan is looking forward fine. I was last week in Acapulco for the Tianguis, and I made a very detailed inspection to our property and the plan as we designed it, keep going in the same direction. In other words, we are planning to open on July 12th, 200 to 250 rooms with all the different service areas, lobby, motor lobby, restaurant, bar, gym, et cetera. Throughout the year from that July 12th and so on, we are calculating to open around 50 rooms every month in order to be at the end of November, finishing the 400 total inventory we have for the hotel, including the rest of the areas which are the banquet space. So we are in the correct process to have this very good hotel that gives very important numbers during the year. Last question, it was regarding the same situation of the strategy of increasing or not the ADR. We are seeing that the rest of the market is having a little bit or taking out pressure with the rates that, as I said, they were very aggressive in the first quarter, and we think that in second quarter we can increase a little bit more the ADR without losing production from the different distributors. Thank you, Carlos. Thank you. Nice to hear. Have a good one. Thank you. Paco, let me just step in here and say that Martín Lara from Miranda Global Research also sent us some questions. I think he's having a problem with his microphone. There are 3 questions. I think we've already gone through some of them. The first one is an update on the Acapulco property, which we already did, when we expect to operate it once again. As you said, starting on July 12 and having the full inventory ready by the end of the year. Also, I think this one you got into it, but maybe we didn't touch on specifically, the significant increase in occupancy levels in the first quarter of 2024. I think as you mentioned, it was because the competition of hotels favored occupancy versus ADR, and us following that same route brought the higher occupancy, correct? That's correct. The strategy was to maintain and give more priority to the occupancy in order to maintain a good operation and good experience to the clients. With the situation of reducing a little bit, the ADR, which was at the end minus 3% compared to last year. What we are expecting to do is to increase the ADR for the next quarter and maintain the same level of good occupancy. Yeah, I agree with you. I think the number you mentioned is for our own hotels that was down 3%, but our ADR RevPAR was flat. Great. The third question Martín has is that you believe this occupancy rate is sustainable going forward. I think you also briefly touched on that, in terms of the strategy, but what do you think for this year's dynamics? It will be maintained in the same level of last year of second quarter. Okay. The first quarter normally is the highest occupancy of the year because you have the production of the American market, Canadian market, and Mexican market for the winter, we will say. Then we are starting to get into the spring and then summer. So during the spring and summer, the occupancy reduces a little bit compared to the first quarter. Yeah, of course. Having the different standardization of the occupancy, but as you say, maintaining it versus- Last year. versus last year, that makes a lot of sense. Also mentioning that the first quarter of 2023 was one of the quarters where we saw most growth for Grupo Hotelero, and that also making it a tough comp. I think it was a great job, even growing occupancy versus last year. Yeah. Thank you, Martín. Thank you, Martín. With that, we open questions from others. Thank you, operator. Perfect. Our next question coming from Felipe Barragán from BTG Pactual. Please, sir, go ahead. Hey, guys. Good afternoon. Thanks for the call and for taking my question. My question is on growth CapEx or developments that you guys have in mind. Last quarter, you guys touched on that you guys are looking into some acquisitions. Any update on that would be greatly appreciated. Thank you. Thank you, Felipe, and great to have you on our call. We appreciate your time. Talking about CapEx, we have already finished the hotels that were in construction, which was basically the Hyatt 724, and also the Secrets Tulum, which we have a 25% participation in. Those two hotels opened last year. The Hyatt Regency opened in April, and Secrets Tulum opened in October. We are done with that CapEx. The only CapEx that we have and that we are currently making is from our- With the process of the Breathless in Vallarta. The change of the brand of what used to be the Hilton Puerto Vallarta, which after that was the Krystal Grand Puerto Vallarta. The remodeling of Acapulco. Is now turning into a Breathless. We are investing in that and in Acapulco. Additionally, from the 4% CapEx that we have, I think that remember from the side of Acapulco, we still are working together with our broker and our insurance company. We have already received some money, but when we have the updated and closed figure, we will let you know about that. In terms of the Breathless, we will be investing some. Great. That's very helpful. I think it's going to be a number between $3 million and $4 million. 13.4 at the end. 13.4. 3 for this quarter, and the rest will be at the end, the third quarter, 13.4. 13.4, and the majority of that will be done this year, right? Until- That is for, April 2024. Got it. Okay. That's for the Breathless, right? Yes, correct. You will see a part of that this year and a part of that next year. Got it. That is very helpful. Thank you very much, guys. MXN 4 million. I am sorry, what? What was that again? Just confirming the number, its total is MXN 13.4 million. Got it. Thank you very much, Max. Thank you. Thank you, Felipe. As a last reminder, if you would like to make a question, please use the function, raise your hand from Zoom. With no further questions in the queue, I would like to turn the call to the management for the close of this conference. Well, thank you very much for participating with us today, and we would like to thank you for the trust that you have placed in us, and reaffirm our commitment to maximize your investment. We also would like to thank all our associates for their constant effort, and I hope everyone have a great weekend. Thank you very much. With this, we conclude our conference of today. You may disconnect. Thank you.