Earnings Call: Q1 2023

Apr 25, 2023

Summary

Q1 results strengthened on higher room and food-and-beverage revenue, lifting EBITDA 77% and net income to MXN 233 million. Tourism remained strong; Hyatt Regency Mexico City opened, while Secrets Tulum was targeted for 2H23.

Recording in progress. Good day everyone, and welcome to today's Grupo Hotelero Santa Fe first quarter 2023 investor relations call. Please note that this call may be recorded. It's now my pleasure to turn today's program over to Mr. Max Zimmermann, investor relations director of Grupo Hotelero Santa Fe. Good afternoon, everyone, 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 first quarter of 2023. On the line, we have Enrique Martínez, CFO, 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. Please move to slide one. We posted a strong quarter driven by the growth of the tourism industry in Mexico and the incorporation of the Mahekal Beach Resort into our portfolio. Resort hotels continue to perform better than urban hotels and were an important factor for our strong EBITDA generation in the quarter. Urban hotels also have been posting better results month-after-month, and we estimate that occupancy in this part of the portfolio will continue improving for the rest of the year, reaching pre-pandemic levels by this time. Our last 12 months EBITDA as of March 31, 2023, was MXN 879 million, and therefore, our net debt to last 12 months EBITDA ratio was 3.4 times, in line with our expected range. Now I will continue. Room revenue increased 50% to MXN 435 million in 1Q23 compared to 1Q22. Food and beverage revenue increased 63% to MXN 355 million in 1Q23 compared to 1Q22, and other income, which includes among other items, event room rentals, parking, laundry, telephone, and leasing of commercial spaces, decreased 16% to MXN 45 million in 1Q23 compared to 1Q22. Vacation club income increased 46.7%, reaching MXN 20 million, and third-party hotel management fees were MXN 24 million, which were up 30% in 1Q23 compared to 1Q22. Now please move to the next slide. Moving on to our key operational metrics. On a consolidated level this quarter, we posted a 9.9 percentage point increase in occupancy, reaching 68.9%, combined with an ADR increase of 13% to MXN 1,837. RevPAR in the quarter was MXN 1,265, which was 30% higher than in the first quarter of 2022. Now please move to the next slide. EBITDA in the quarter increased 77% to MXN 299 million, compared to MXN 169 million in the first quarter of last year. This result was driven by higher revenues. Moving on, operating income increased 116%, reaching MXN 214 million, compared to MXN 99 million in the first quarter of 2022. In terms of net income, we went from MXN 105 million in the first quarter of last year to MXN 233 million by the first quarter of 2023. The higher result was driven by higher operating income, combined with a lower financial cost. Please move to the next slide. Net debt was MXN 2,955 million at the end of the first quarter of 2023, which represented a total debt to EBITDA last 12 months ratio of 3.4 times. Total debt is mostly US dollar denominated, 80% to be exact, and this tranche of debt has an average cost of 7.8%, while the remaining portion of 20% of total debt is peso denominated, with an average cost of 14%, having an overall debt mix of 9%. Additionally, I would like to mention that over 85% of debt maturities are long-term. Our short US dollar position by the end of the quarter was $136 million, equivalent to MXN 2,465 million. Now please move to the next slide. Lastly, I would like to highlight and express our gratitude to the more than 3,400 associates who have supported the company unconditionally. As always, we are especially thankful for the trust and support of our shareholders in these times, and again, to all our tremendously professional and cooperative teams. With that, I would like to open the call for Q&A. At this time, we will open the floor for your questions. Ladies and gentlemen, if you have a question, please use the right-hand function on your Zoom tool. Please make sure that your microphone is turned on. Our first question come from Carlos Alcaraz of Apalache Análisis. Please, sir, go ahead. Hi. Thank you very much for the call, and congratulations for the results. I have a couple of questions. The first question is about the high inflation. During this year, will you be looking for a relevant increase in rates? Regarding the Hyatt Regency Hotel in Mexico City, what is the status of this hotel? Finally, how long do you estimate it will take to stabilize this property? Thank you. Thank you for your questions, Carlos. So definitely it's in our plans in 2023 to increase our rates. As you well mentioned, inflation is high. So we will continue to increase rates as we see possible. Obviously, this depends on market conditions, on our competition, and our customers. But it is in our plans and our budget. About your question about the Hyatt Regency in Mexico City, we're very happy to share that we opened the hotel last week, and it's been great. We had the first customers. We had our inauguration of the hotel, and it's going very well. The apartments will also be delivered in the following months. The commercial space is also being finalized by our tenants. So we should see more activity in the second half of the year. And in terms of the hotel stabilization, normally it takes us around 3 years to completely stabilize a hotel. As you know, during the first 12 months, we look to increase our occupancy up to certain levels. After that, we increase our profitability, and then we reach higher occupancies and higher profitability. So this should be taking us 3 years for us to call it completely stabilized. However, since this is a landmark hotel, maybe we could do it slightly before. Let's see how this hotel works out during the first couple of years, and we'll give you an update on that. Thank you so much. Thank you very much, Max, and congratulations again. Thank you. Thank you. Our next question come from Martín Lara for Miranda Global Research. Please, sir, go ahead. Hi, can you hear me? Yes, Martin. How are you? Good morning to you. Hi. How are you, Max? Good evening, and congratulations for these quarterly results. I have some questions. The first one is, how do you see the tourism activity in Mexico in the next few quarters? The second one is, could you please give us an update on the Secrets Tulum Resort & Spa? And the third one is if you feel comfortable with your current cash levels. Sure, Martin. Thank you for your questions. Addressing the first one, the tourism activity in Mexico, it should continue to be as good as we saw in the first quarter of the year. We have seen very good occupancy in resorts and also increasingly in urban destinations. This should be helping our results. As you know, tourism activity in Mexico has been doing very well, and we see no reason why this should change in the next few quarters. In terms of your second question about the Secrets Tulum Resort & Spa, this hotel should be opening in the second half of the year. As we get closer, we can give you an update on the exact date. The construction is looking great. We are already over 90% to 95% in terms of construction, and we are already working together with AMResorts in order to have everything ready for opening. It is going to be an impressive hotel, the largest hotel in Tulum, and we are very happy about this hotel, which should be opening in the second half of the year. In terms of our cash levels, yes, we feel comfortable with our current cash levels. Also keep in mind that we announced in December of last year that we were in process of selling our hotel in front of the Expo Guadalajara, which is now already under the Barceló brand. However, this transaction should close in the next weeks or months once we receive the authorization from the authorities in Mexico. That should also be helping our cash levels going forward. We feel pretty comfortable. Thank you, Martin. Thank you, Max. Could you please remind us how much money do you plan to raise with that sale? Yes. If you remember the press release that we put out, it is going to be MXN 56 million. MXN 59 million. MXN 59 million. We're going to be repaying the debt of that hotel, which is going to be a fraction of that, which is around MXN 99 million. We're going to also have some additional cash. Okay. Thank you, Max. Thank you, Martín. Once again, if you would like to make a question, please use the function, raise your hand in your Zoom tool. With no further question, I would like to return the call to the management for the close of this conference. Thank you everyone. We would like to thank you for the trust that you've placed in us, and reaffirm our commitment to maximize your investments. We would also like to thank all of our associates for their effort. Have a great day, everyone. If you need to catch up with me personally, please give me a call. Thank you, and have a great day. Thank you very much. You may disconnect.