Grupo Hotelero Santa Fe SAB de CV

BMV:HOTEL

Earnings Call Transcript 2024-Q1

[Maximilian Zimmermann Canovas, executive]

Good afternoon, and thank you for joining us today. My name is Max Zimmermann, Investor Relations Director of HOTEL, and I would like you to welcome you to the company's earnings webcast for the first quarter of 2024.

On the line, we have Francisco Medina, our CEO. The presentation slides that 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.

[Francisco Medina Elizalde, executive]

Thank you, Max. Good morning, everyone. It's a pleasure to be with you today. Let me start saying that in the first quarter of 2024, we posted a 70% occupancy in our portfolio, the highest first quarter occupancy in the past 5 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. And finally, at the end and the path of my duration of the new hotels in our portfolio.

Revenue totaled MXN 778 million for the first quarter '24, down 11% compared to the same quarter of '23. 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 or difference will have been minus 5.7% 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.

[Maximilian Zimmermann Canovas, executive]

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 '23, driven by the effect of the temporary closing of the Krystal Beach Acapulco due to Hurricane Otis, and the sale of 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 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 [indiscernible].

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 2024. 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 the lower operating income. The main difference is the lower exchange rate gain that was much higher in the first quarter of '23 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 total debt-to-EBITDA -- a net debt-to-EBITDA last 12 months ratio of 2.9x, worth mentioning that, that's the lowest this KPI has been for some years. Total debt is mostly U.S. dollar-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 U.S. dollar 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.

[Francisco Medina Elizalde, executive]

Thank you, Max. Lastly, I would like to highlight and express my gratitude to the more than 4,300 associates who have been supported the company unconditionally. As always, we are especially thankful for the trust and support of our shareholders. Again, to all of our tremendously professional and cooperative teams.

With that, I would like to open the call for questions and answers.

[Operator]

[Operator Instructions] Our first question comes from Carol Socarras from Appalachia Research.

[Unknown Analyst]

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. Ask what is the status of the remodeling progress? And finally, considering the current market conditions, will you be making rate increases during the year? Or will you prioritize occupancy?

[Francisco Medina Elizalde, executive]

Thank you, Carol. Very interesting questions. First of all, let me start saying that our strategy since we were checking or pick up reservations in January that they were coming at low in checking that the market was doing a very aggressive special promotions, reducing the rate with the slightly obtaining occupancy, we have to reduce a little bit of ADR in order to get more occupancy. That really it worked very well.

So 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 operational wise with the staff in cost and expenses. Saying that of reaching that occupancy, we are glad to do without giving you any specific numbers that we cannot do, but we can say that we are planning to increase step-by-step, segment-by-segment a little bit of our ADR with the idea that in the second quarter we'll increase a little bit more over ADR without losing occupancy for the rest of the 3 months.

Second one is remodelation 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 design it, keep going in the same direction. In other words, we are planning to open on July 12, 200 to 250 rooms with all the different service areas. Lobby, motor lobby and restaurant and bar, game, et cetera.

And then throughout the year, from that July 12 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 [indiscernible] hotels that gives very important numbers during the year.

And last question was regarding the same situation of the strategy of increasing or not the ADR. We have seen that the rest of the market, it's having a little bit or taking out pressure with the rates that, as I said, they were met recently 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.

[Maximilian Zimmermann Canovas, executive]

Let me just step in here and say that Martin Lara from Miranda Global Research also sent us some questions. I think he's having a problem with his microphone.

So 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 the higher occupancy, correct?

[Francisco Medina Elizalde, executive]

That's correct. The [indiscernible] was to maintain and give more priority to the occupancy in order to maintain a good operation and good experience to the clients. And -- with the situation of reducing a little bit the ADR, which was at the end minus 3% compared to last year. But what we are expecting to do is to increase the ADR for the next quarter and maintain the same level of good occupancy.

[Maximilian Zimmermann Canovas, executive]

Yes, I agree with you. I think the number you mentioned is for our owned hotels that was down 3%, but our ADR -- RevPAR was flat. Great. And the third question Martin 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 I think what do you think for this year...

[Francisco Medina Elizalde, executive]

We will not change the dynamics. It will be maintained in the same level of last year of second quarter. Obviously, the first quarter normally is the highest occupancy of the year because you have the production of the American market, Canadian market and the Mexican market for the winter, we'll say it. And 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.

[Maximilian Zimmermann Canovas, executive]

Yes, of course, having the different finalization of the occupancy, but as you say, maintaining it versus last year. That makes a lot of sense. And 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. So I think it was a great job growing occupancy versus last year.

Thank you, Martin. And with that, we open questions for -- from others. Thank you, operator.

[Operator]

Perfect. Our next question comes from Felipe Barragan from BTG Pactual.

[Felipe Barragan, analyst]

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 at some acquisitions. Any update on that would be greatly appreciated.

[Maximilian Zimmermann Canovas, executive]

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 high at 724 and also the Secrets Tulum which we have a 25% participation in. Those 2 hotels opened last year. The Hyatt Regency opened in April and Secrets Tulum opened in October. So we are done with that CapEx.

And the only CapEx that we have -- that we are currently making is from [indiscernible] the change of the brand of the -- what used to be the Hilton -- Hotel Hyatt which after that was the Krystal Grand Puerto Vallarta, and the remodeling of Acapulco is now turning into a Breathless. So we are investing and in that and in Acapulco.

I mean, additionally, from the 4% CapEx that we have. I think -- remember from the side of Acapulco, we still are working together with our growth 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. And in terms of the Breathless, we will be investing some.

[Francisco Medina Elizalde, executive]

I think it's going to be a number between MXN 3 million and MXN 4 million [indiscernible] for this quarter, and the rest will be at the end, the total project [indiscernible], and the majority of that will be done this year -- April 2025.

[Felipe Barragan, analyst]

And that's for the Breathless, right?

[Francisco Medina Elizalde, executive]

Yes, correct. So you'll see a part of that this year and a part of that next year, $4 million.

[Felipe Barragan, analyst]

I'm sorry, what? What was that again?

[Maximilian Zimmermann Canovas, executive]

Just confirming the number. It's $13.4 million.

[Operator]

[Operator Instructions] With no further questions in the queue, I would like to turn the call to the management for the close of this conference.

[Francisco Medina Elizalde, executive]

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 of our associates for their constant effort, and I hope everyone have a great weekend. Thank you very much.

[Operator]

With this, we conclude our conference of today. You may disconnect.