Hoteles City Express SAB de CV

BMV:HCITY

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, and welcome to the Hoteles City Express Fourth Quarter 2021 Earnings Conference Call. Thank you for joining us today. Please note, today's conference is being recorded. For opening remarks and introductions, I would like to turn the call over to Héctor Vázquez, Investor Relations Director for Hoteles City Express. Please go ahead.

[Héctor Montoya, executive]

Thank you, and good morning, everyone. Hoteles City Express fourth quarter '21 results were released yesterday after the market closed. They are available on Hoteles City Express Investor Relations website. We want to remind you that during this call, the management comments may include forward-looking statements. We ask that you please refer to the legal disclaimer in the quarterly report for guidance on this matter.

Joining us on today's call are Mr. Luis Barrios, our CEO; Mr. Santiago Parra, our CFO. Luis will begin with some opening remarks followed by Santiago, who will present the company's financial results. We will then open the floor for questions. Now it's my pleasure to turn the call over to Luis.

[Luis Eduardo Barrios Sánchez, executive]

Thank you, sir. Good morning, everyone, and thank you for joining us today to discuss Hoteles City Express fourth-quarter results for 2021. We hope you and your family are healthy and safe. As the year progressed, we have witnessed our portfolio's resilience and a continued recovery after showing four quarters -- four consecutive quarters of sustained growth. The challenges that arose on the pandemic's first year and that continue to be present well into the second, compelled to us to deeply rethink how we managed our business. Initially, we worked with our suppliers to reduce our cost structure, automate processes, and focused on lowering our operating breakeven points at every property. We also had to constantly carry out in-depth mobility analysis, always looking for ways to understand and adapt to evolving guest trends in new market segments and regions.

We generated additional distribution channels to stay in touch with our guests and design different marketing strategies that broaden our reach towards potential clients and other demand buckets. We did all this while upholding our brand commitment to quality and service and trying to optimize our operations at each one of our hotels.

2021 was also a key year in the refinancing of both short- and long-term debt. Adjusting the company's capital structure and privileging liquidity generation through our latest capital raise process and asset sales have led us to navigate to the most restrictive pace of the pandemic. As previously mentioned, our team has been working very hard on many fronts throughout the year. We are satisfied with the results we have achieved for and how we have positioned the company for the coming years by getting more flexibility to tackle what is coming.

Looking at the fourth quarter more specifically, we witnessed the fourth COVID-19 wave globally over the past few months, fueled by the Omicron variant. This continues to affect certain sectors of the economy in different ways, but the relatively good news for us was that while the number of active cases skyrocketed in our geographies, hospitalization remained relatively well-controlled and mobility, most importantly, was not affected. We believe this has to do with the progress achieved by the vaccination front, both in Mexico and other countries. Furthermore, we believe lower hospitalization and higher mobility set the stage for strong recovery trends in the tourism sector.

The northern corridor once again delivered very good results, reaching 93% of 2019's occupied room nights for the whole year. We saw a reactivation of local travel agencies, local business travelers, and group trips. The U.S. recovery, which has boosted export-related sectors has been a relevant factor to the improvement in the demand coming from the manufacturing, oil, and services industries. The region that continues to lag the rest is Bajío, which has been affected by the automotive sector supply chain disruptions.

However, we have seen that this specific region has begun to recover and represent a great opportunity once the automotive sector stabilizes. I want to remind you that we have closely -- close to 38 properties in that region. That depends on the auto industry. It is important to note that thanks to our portfolio diversification, we have been able to continue increasing average daily rates at the chain level. Our ADR for the fourth quarter posted a year-on-year increase of 11.9%, partly boosted by local events like Formula 1 in Mexico City [Indiscernible] and the implementation of our leisure strategy. Within this sequential increase, the once -- the rate once again is above the level seen in the fourth quarter of 2019.

As for occupancy, October closed at 80% of the occupancy registered for the same month of 2019, November at 86%, and December at 92%. Quarter-on-quarter as well as year-on-year, we are able to generate more room presales than we expected. And we continue to benefit from the marketing strategies focused on the leisure segments that we put in motion over the past year. Including our programs called the [Indiscernible] and City Expressions. Thanks to all these combined, as well as our cost and expense management efforts, process automation, and empowerment culture at all levels in our company, we were able to deliver a quarterly EBITDA generation of MXN 186 million, 16% above the EBITDA reported in the third quarter of 2021. This implies a 25.6% EBITDA gain margin, which shows our profitability recovered over the past few quarters.

Looking ahead, undoubtedly, one of the most relevant topics we're working on is our balance sheet structure and liquidity. Considering the debt refinancing and the first phase of the equity issuance that we concluded in 2021, as well as the asset sales we have closed over the past 12 months, which add up to over MXN 635 million of sales proceeds. We estimate we will repay MXN 150 million of our syndicated facility, leading to a reduction of around 8% in our consolidated net debt.

With the latter, we have been able to extend the grace period of our syndicated loan up to until the first quarter of 2023. It is worth noting that we negotiated with our creditors that the prepayment will be considered with a direct order of maturity and not as part of a balloon payment. Thanks to this, we have achieved greater flexibility for the upcoming quarters. Our capital allocation strategy for this year will still be to continue analyzing potential divestment opportunities along with the possibility to place the remaining shares of the second phase of the equity offering. It is worth mentioning that as of today, we do not have an urgency for additional resources. Thus, depending on the speed and convenience of asset sales, we could eventually cancel the remaining shares that are allocated in our treasury. Following the same goal as we defined last year, which is to cover the remainder of the MXN 1 billion of cash flow that was not generated during the worst months of the pandemic.

To date, we have covered 60% of this amount through asset sales and rights issuance. We also continue to study eventually IPO-ing our

Fibra STAY vehicle, but we will only go ahead if the timing and pricing is right. I also want to say, as we did last year, we were able to negotiate the necessary covenant waivers with our bank creditors to have full coverage until the end of this year. This means we are currently operating with a stronger capital position, better market trends, and no covenants risk for the next 12 months.

I believe we are on the right path to finish hitting the negative effects that the pandemic brought. Before I pass the call, I am glad to announce that Santiago Parra

has been ratified as our CFO following Paul's departure. Santiago has been part of this company for over 13 years, more recently as Corporate Finance Director, and has excelled at his previous responsibility. He knows and leads the City Express culture, and I am convinced he will help us to continue with the implementation of our current strategy. On that note, I would like to hand the call over to him as he will provide you with further details on our financial and operational performance. Santiago, please proceed.

[Santiago Parra, executive]

Thank you, Luis. I'm excited about this new opportunity within City Express, and I will continue to work tirelessly in my new role to help this company reach its full potential. My remarks here are based on Hoteles City Express's fourth-quarter 2021 financial results, which were prepared under IFRS. Our portfolio closed the year with 152 properties in total. This compares to 154 hotels as of the fourth quarter of 2020. Of the 152 hotels in operation at the end of the quarter, 141 were considered established properties, 9 more than in the fourth quarter of 2020.

We closed the quarter with 17,331 rooms, a 1% decrease year-on-year. At chain level, our ADR increased 11.9% year-on-year to MXN 1,062, and occupancy rate increased 5.5 percentage points to 49.1% over the same period. With both impacts combined, RevPAR increased 83.6% year-on-year, closing the quarter at MXN 522. On a sequential basis, ADR increased 1.7% and RevPAR increased 14.4%. As Luis said, we are very encouraged by the continued sequential improvements in our portfolio's results. Revenues totaled MXN 726.2 million for the quarter. This implies an 87.8% year-on-year increase and a 13.9% quarter-on-quarter increase.

Total costs for the quarter increased 22.7% year-on-year to MXN 680.9 million, mainly due to the increase in occupancy. However, we continued our cost and expense containment efforts, working closely with suppliers and collaborators to counteract adverse economic effects and optimize our cost and expense structure. Also, this increase was proportionately less than the increase in revenues. That brings us to our fourth-quarter adjusted EBITDA, which was MXN 185.5 million.

This represented a 16% quarter-on-quarter growth, leading to a 25.7% margin for the quarter. Comprehensive financing costs decreased 43.6% year-on-year during the quarter to MXN 89.6 million, compared to the MXN 159 million reported on 4Q

2020. Our financial liabilities decreased 4.4% quarter-on-quarter to MXN 5,908 billion. Cash and cash equivalents decreased to MXN 990 million, bringing net debt to MXN 4,918.5 billion. This is a 3.8% sequential decrease in our net debt. Our net profit for the quarter was $2.8 million due to after mentioned trends combined. This represents an improvement compared to the MXN 327.5 million quarterly net loss from the fourth quarter 2020.

In summary, the recovery in hotel demand and reopening of activities, combined with our cost and expense containment efforts, refinancing strategies, and asset sales has led to a strong and profitable quarter. We look to continue delivering on this front in 2022. Thank you for your attention. Operator, please begin the Q&A portion of our call.

[Operator]

[Operator Instructions] Our first question from Armando Rodriguez with Signum Research.

[Armando Rodriguez, analyst]

Congratulations on the results. Well, my question is about January, particularly from this first quarter. What's your color about this quarter? And what's your view, particularly on the seasonally effect, generally for this year, particularly in the first, second and third quarter. That's my question.

[Luis Eduardo Barrios Sánchez, executive]

Armando, we're definitely seeing an improvement during the current year. We believe that the Omicron effect is going down and people are just getting moving and the mobility has -- I mean, has been going great. So in terms of getting to 2019 numbers, we're improving, getting there.

[Santiago Parra, executive]

Yes. We are looking at the start of the year with a typical seasonality. However, with a good increase, a substantial increase over the first quarter of last year. We definitely see a stronger year. We hope for the second quarter -- for the supply glut in the auto industry to disappear, not necessarily only the auto industry, several industries related to manufacturing have suffered from the supply chain problems. So as this continues to appear, we will definitely be closer to 2019 numbers in this year, much closer than last month.

Another thing in certain fronts is that we have been consolidating all the measures, the marketing measures we introduced during the pandemic, by adjusting our product in certain aspects, as well as reinforcing our distribution channels, the digital channel, especially and then moving towards a more trying to tap all the retail travel agencies, as well as medium-sized and small companies that are the ones that need to travel rather than the large corporations that normally with huge corporate offices that normally use more technology to carry on their work.

So what we have concentrated is on adjusting our product, moving along the new trends and the new consumption patterns of the different market segments and reinforcing the distribution channels where those persons that those -- that new market that we were not tackling before, normally use to make the reservations. So we find that the numbers that we're showing are a result of, yes, the recovery and yet coupled with the adaptation of the company and its resources to the new ships in the market consumption patterns.

[Armando Rodriguez, analyst]

Perfect. Very clear.

[Operator]

[Operator Instructions]

Our next question comes from Valentín Mendoza from Actinver.

[Valentín Mendoza Balderas, analyst]

Congratulations on the recovery. I just have a question regarding the occupancy levels in the Bajío region. You just mentioned that you have over 38 assets in that region that has been affected still by the bottlenecks in the automotive industry. So I was wondering if you could give us some color on the occupancy in that region so we can assess the impact it is having on the overall portfolio.

[Luis Eduardo Barrios Sánchez, executive]

Yes. I mean the way to say it would be that if we are -- they are below the average of the overall chain. And they are probably somewhere between 10% to 20% below in the region. That region is averaging about 15% below the average of the chain. And that is where the opportunity relies, getting back to that region would definitely help. It would really show in the average of the chain for a couple of points. Probably 4 to 5 points.

[Operator]

Ladies and gentlemen, this concludes today's question-and-answer session. I'd like to turn the conference back over to Luis Barrios for closing remarks.

[Luis Eduardo Barrios Sánchez, executive]

Okay. Thank you, everyone, again for being here. I am confident about the future of our company as we are in a good position to optimize our strategic decisions in the coming quarters. I want to reiterate how grateful I am to all of you who continue to trust on us and look forward to continuing generating value for our stakeholders. I will connect with you soon in our next earnings call. But in the meantime, please feel free to reach out if you have any questions or comments. We're always happy to talk with you all. Thank you very much, and have a good day.

[Operator]

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.