Earnings Call: Q4 2023

Feb 23, 2024

Summary

FY23 revenue and EBITDA each rose 12% YoY despite the Acapulco closure. Q4 EBITDA fell 16%, while net income returned to a MXN 5 million gain; all 400 Acapulco rooms were targeted to reopen by year-end 2024.

Everybody, and welcome to today's Grupo Hotelero Santa Fe fourth quarter 2023 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. Thank you, operator. 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 fourth quarter of 2023. On the line, we have Francisco Zinser, Executive Vice President, and Alberto Santana, our Administration Director. The presentation slides we will follow during the 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. Now I will pass the call to Francisco Zinser, our Executive Vice President. Go ahead, Pancho. Hello, everyone. Thank you very much, Max. Thank you for joining us. I would like to share some of the outstanding and noteworthy events of the quarter and of this last report. Our revenues were up 12% compared to 2022, and EBITDA was also up 12% compared to the same period. It is interesting or important to consider that this is taking into account the impact of the Acapulco closing of our property due to Hurricane Otis since the month of October. RevPAR has also increased 12%. Basically a 9% increase in ADR and a 1.6%, almost 2% increase expansion in occupancy for the same period. These results were also possible, even though, as we can see in airport traffic, there was a slowdown of airport international traffic into Mexico. We had two noteworthy events since our last call. The first is a recently announced conversion of the Krystal Grand Puerto Vallarta Hotel to the Breathless Puerto Vallarta Resort & Spa by Hyatt. This conversion is expected to be fully implemented by the second quarter of 2025 and will offer 451 luxurious rooms and suites. This resort will be the latest addition to Breathless Resorts & Spas brand selection, part of the Hyatt Inclusive Collection, which includes property in Mexico, Dominican Republic, Jamaica. Breathless offers an authentic experience infused with stylish originality and the ideal blend of relaxation and entertainment for adults only. Secondly, as before mentioned, the Krystal Beach Acapulco was affected by the hurricane in the month of October, and we have already started renovations, in order to have a partial opening of this property by the third quarter of 2024, and with the objective of completing full operation of the 400 rooms before the end of the year. This has had an impact, obviously, on our quarterly results and will continue to do so until the inventory is fully displayed. Now I would like to pass the call to Max to get into our quarterly operational results. Go ahead, Max. Thank you, Pancho. Room revenue decreased 5% to MXN 347 million in the fourth quarter of 2023 compared to the same quarter of 2022, with lower revenues driven by the temporary closing of the Krystal Beach Acapulco due to Hurricane Otis, which Pancho mentioned. Food and beverage revenue decreased 2% to MXN 290 million in the quarter, and other income, which includes, among other items, event room rentals, parking, laundry, telephone, and leasing of commercial spaces, increased 6% to MXN 38 million in the quarter. Vacation club income decreased 49% to MXN 10 million, and third-party hotel management fees were MXN 24 million, which were up 5% in the quarter. Moving on to our key operational metrics. On a consolidated level this quarter, we posted a 0.8 percentage point decrease in occupancy to 66%. This was combined with an ADR increase of 7% to MXN 1,765. RevPAR in the quarter was MXN 1,165, which was 6% higher than the fourth quarter of 2022. Please note that since we had the Hurricane Otis, we have less rooms, which therefore, considering this RevPAR contributes to lower revenue. EBITDA in the quarter decreased 16% to MXN 180 million compared to MXN 250 million for last year. And this reflects lower revenues, again, driven by the effect of the temporary closing of Krystal Beach Acapulco. Combined with higher costs and also lower exchange rates, which in our hotels where we have dollar-denominated revenues, plays against us. Moving on, we posted an operating loss of MXN 16 million compared to an operating income of MXN 35 million in the fourth quarter of 2022. I forgot to mention, please move to slide four. This was a result of a consequence of lower revenues driven by the effect, as we mentioned, of Acapulco, combined with higher expenses and the exchange rate, just as we mentioned for EBITDA. In terms of net income, we went from a MXN 5 million loss in the fourth quarter of last year to a MXN 5 million gain in the fourth quarter of 2023. This was driven by lower income taxes due to negative operating income. Now please move to slide 5. Net debt was MXN 2,490 million at the end of the fourth quarter of 2023, which represented a total debt to EBITDA last 12 months ratio of 3.0 times, very much in line with our internal best practice. Total debt is mostly US dollar denominated, 76% to be exact, and this tranche of debt has an average cost of 8.5%, while the remaining portion of 24% of total debt is peso denominated with an average cost of 14.5%, having an overall debt mix of 9.9%. Additionally, I would like to mention that over 88% of debt maturities are long-term. Our short US dollar position by the end of the quarter was $119 million, equivalent to MXN 2,017 million. Now, please move to slide 6, and I will pass the call back to Pancho for conclusion comments and then open up the call for questions. I would like to point out that this 3-time EBITDA that we are reporting includes, as mentioned, the effect of Acapulco not generating anything since October, and also the recent opening of a Hyatt Regency in Xel-Há. So what this translates into is that we have quite a comfortable leverage ratio for the company within our objectives and our goals. I would like to open the table for Q&A, so please, 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 Martin Lara. Please, sir, go ahead. Hi, can you hear me? Yes. Good afternoon and thank you for the call. I have the following questions. On the Acapulco hotel, have you received insurance funds? Also, the second question is, the 16% EBITDA reduction in fourth quarter was only due to the temporary closure of the Acapulco hotel, or did you have other expenses? Thank you, Martin. In terms of the update on Acapulco and the insurance funds, we have already received some funds from the insurance company and are working together with our brokers in order to receive the remaining funds. As you know, sometimes these processes tend to be long, but we are definitely on the right path. In terms of your question about EBITDA reduction, I would tell you that around half of the reduction was due to less EBITDA generation from Acapulco. The rest was due to a variety of factors, including a lower exchange rate, which plays against us from dollarized revenue we received, combined with lower revenues driven by softer tourism trends that Pancho mentioned. Also, our expenses growing slightly above revenues for the quarter. So it is around a half and half effect. Thank you, Martin. Okay. Thank you, Max. I have another question. Around 2% of debt matures in 2024. What are your plans to refinance? Sure, that's a great question, Martin. I would tell you that we have some balloon payments coming up, which are the balloon payments at the end of certain credits, which we always refinance. Actually, one of those, we just recently signed the refinancing with one of our banks. You will be seeing that in the next quarter. This is what we do with balloons before they are due. We feel pretty comfortable, as Pancho mentioned, with our current debt level of 3 times, considering that we still have important opportunities for EBITDA expansion due to Insurgentes 724 maturing together with other hotels reaching maturity. Thank you. Okay. Thank you very much. Our next question comes from Carlos Alcaraz of Apalache Análisis. Please, sir, go ahead. Good afternoon, Francisco, Max. Thank you for taking my questions. First of all, I would like to ask you about the Krystal Hotel in Acapulco. When do you expect the hotel will be back in operation? I have a second question. How has the occupancy behaved in the City Hotel portfolio? Okay. Thank you very much for your questions. We are expecting to open close to 200 rooms by the month of July of this year, and having the hotel ready for Christmas, for year-end of 2024 with all 400 rooms. We are working three shifts and dedicating a lot of efforts to getting this up and running as soon as possible. The good news or the good signs that we see is that demand for Acapulco is strong in terms of the Mexican market trying to get the destination back, which I think is a very good thing. We hope to have this happening, at least for our hotel, by the end of the same year. Regarding occupancy in city properties, we are basically recovering sequentially as the year goes, and we have reached pre-pandemic levels. We are getting all the segments that were hardly hit by the pandemic, mainly corporate travel and group travel, MICE, meetings, conventions, and incentives. It is coming back. As we've mentioned in previous calls, this is clearly and logically at a bigger pace or at a higher pace in the three key cities of the country, Mexico City, Guadalajara, and Monterrey. Secondary cities are starting to pick up. Thank you for your question. Okay. Thank you, Francisco. Our next question comes from Felipe Barragan from BTG. Please, sir, go ahead. Hey, good afternoon, Max and Pancho. Thanks for the call, for taking my questions. One is on developments. This quarter, there wasn't anything out of the pipeline. I'm just curious on what you guys have been looking at these past few months. If you guys will focus more on urban resorts, what is the plan for the pipeline there? My other question is on the new line you guys added to the balance sheet. Is the apartment inventories related to the San Miguel Hotel? Could you touch a little bit on that new line? Thank you. Okay. I'll address the first part of the question and Max will address the second part. I will say that development right now is something that with the current environment of rates is something that has to be very cautiously seen. The rate ambience and the overall environment of the financial markets is too high in terms of looking at developing. Clearly, greenfield development is something totally out of the question at this point. Wouldn't make a lot of sense to start with. We still have the impact of the inflation, particularly the inflation in the construction area and the construction costs, plus the financial impact of the rates. In terms of acquisitions, we're always looking into probabilities, and although I can't share anything specific, I can tell you that we are always, as we've proven in the past, looking at opportunities to enhance our portfolio as we did recently with the Majacal acquisition. What we are doing and are actively pursuing is our asset management, are optimizing our assets. A clear example of this is the conversion of the properties that we've mentioned, particularly Breathless Puerto Vallarta, from being a Krystal Grand. That will generate a lot of value for the shareholders and a lot of value for the company as well. So we're always active and looking at opportunities, but probably this is not the best environment to talk about development. Thank you. Thank you, Felipe. Addressing your second question, are you talking about the line called apartment inventory or which line are you- Yes are you missing? That line precisely. Perfect. That line is actually the apartments that we have in Insurgentes 724 development, that we have in the same building as the Hyatt Regency Mexico City Insurgentes. As you know, that was a mixed development project, meaning that we have a commercial area on the bottom, then we have the hotel, and then we have apartments. Of the 87 apartments that we have there, those apartments are being delivered to final customers as we speak. We've already done some escrituras this month, and it's going forward. We have some more programmed. We have already sold a part of that inventory, but it's still a question of receiving the money and closing those transactions. As time goes by, you will see that line coming down. Your question related to, is this with San Miguel? No, actually, the development in San Miguel of La Serena is not part of Grupo Hotelero Santa Fe. The only part that is ours are the 22 hotel rooms that we have on that property, which were houses or apartments that we bought from the development in order to have that hotel. Is that clear, or do you have any other questions regarding that? That was very clear, Max. Thank you very much for the answers. Thank you, Pancho. Thank you. Thank you, Felipe Barragan. Once again, 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. Go ahead. Thank you. We would like to thank you for the trust you have placed in us, and reaffirm our commitment to maximize your investment. We would like to also thank all of our associates for their constant effort. Have a great day, everyone. Have a great weekend. Thank you very much for joining. With this, we conclude our conference of today. You may disconnect.