Grupo Hotelero Santa Fe SAB de CV

BMV:HOTEL

Earnings Call Transcript 2021-Q3

[Operator]

We now have our presenters in conference. I would now like to turn the conference over to Max Zimmermann, Investor Relations Director of Grupo Hotelero Santa Fe.

[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 to welcome you to the company's earnings webcast for the third quarter of 2021. On the line, we have Francisco Zinser, Executive Vice President; Francisco Medina, our CEO; Enrique Martínez, our 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.

We will now begin with the presentation, and I will pass the call to Francisco Zinser, our Executive Vice President.

[Francisco Zinser Cieslik, executive]

Thank you, Max, and thank you all of you for joining. The third quarter of this year have shown a continued growth of our occupancies, which is clearly the underlying factor for the strong EBITDA generation for the period. Occupancy was mainly driven by resort hotels that are recovering at a faster pace than urban hotels.

During the portfolio -- during the quarter, sorry, our portfolio exceeded its operational breakeven point and generated strong EBITDA, of which Paco Medina, our CEO, will go into detail following this presentation. I would like to reiterate that we will remain focused on prudently navigating through the continuing unprecedented environment posed by the pandemic, which means to continue with our health and safety measures for our associates as well as our guests and our customers, the antigen complementary tests that are given in our resort hotels, continue with a tight control of expenses, liquidity levels and the continued search of operational and financial opportunities to ensure the long-term sustainability of our business.

To wrap up, I would like to mention that none of these achievements would have been possible without the support of our dedicated employees, experienced management team and the confidence that our investors have placed in us.

Now I would like to pass the call to Francisco Medina, and please go to Slide 2.

[Francisco Medina Elizalde, executive]

Thank you, Pancho. Good morning, everyone. Now let me get into our quarterly operational results, and therefore, please go to Slide 2.

Revenue totaled MXN 463 million compared to MXN 179 million in the third quarter of last year. Room revenue was MXN 288 million (sic) [ MXN 238 million ], Food and Beverage revenue was MXN 185 million and other income, which includes, among other items, event room rentals, parking, laundry, telephone and leasing of commercial spaces, was MXN 25 million. Third-party hotel management fees were MXN 14 million.

Now please go to Slide 3. Moving on to our key operational metrics. On a consolidated level, this quarter, we posted a 26 percent point increase in occupancy, where occupancy was 52%. Combined, with an ADR increase of 24%. RevPAR in the quarter was MXN 757.

Now please move to Slide 4, and I will hand the call over to Enrique Martínez, which will guide you through our financial results.

[Enrique Gerardo Martínez Guerrero, executive]

Thank you, Paco. EBITDA in the quarter was MXN 103 million compared to negative MXN 28 million in the third quarter of last year. This result was driven by higher revenues combined with operational efficiencies.

Moving on, operating income was MXN 43 million compared to negative MXN 90 million in the third quarter of 2020. In terms of net income, we went from a loss of MXN 32 million in the third quarter of last year to a loss of MXN 62 million in the third quarter of 2021. This was largely attributed to a negative FX exchange effect on our dollar-denominated obligations arising from a weaker Mexican peso.

Now please move to Slide 5. Net debt was MXN 2.5 billion at the end of the second quarter of 2021, which represented a total debt to EBITDA for the last 12 months ratio of 10.4x due to a lower EBITDA in the last 12 months, driven by the pandemic. Total debt is mostly U.S. dollar-denominated, 87% to be exact and the tranche of the debt and an average cost of 3.2%. While the remaining portion of 30% of total debt is peso-denominated with another cost of 7.8%, having a competitive overall debt mix of 3.2%.

Additionally, I would like to mention that over 90% of the maturities are long term. Our short U.S. dollar position by the end of the quarter was $126 million, equivalent to MXN 2.5 billion.

Now please move to Slide 6, and I will pass the call back to Pancho, who will finish up the call.

[Francisco Zinser Cieslik, executive]

Thank you very much, Enrique. Lastly, I would like to highlight and express my gratitude to the more than 2,800 associates who have supported the company unconditionally, with the tremendous attitude that goes way beyond the call of duty. As always, we are very thankful for the trust and support of our shareholders in these times, and again, to all of our tremendously professional teams.

With that, I would like to open the call for Q&A.

[Operator]

[Operator Instructions] Our first question comes from Carlos Alcaraz with Apalache Análisis.

[Carlos Alcaraz Pineda, analyst]

I have a couple of questions. The first one is due to the recent reopening of activities in most of the country's states, have you observed a growth in bookings in the urban segment? And the last question is, when do you expect the Hyatt Centric Campestre Leon to stabilize?

[Francisco Zinser Cieslik, executive]

Okay. I will answer the first part and the second question will be answered by Paco. We are seeing a slower recovery in the urban destinations rather than the resort, as I mentioned at the beginning of the call, but we are seeing an upward trend. We believe that one of the key elements that will make the urban segment take off is going to be the MICE segment, which is meetings, incentives, conventions and events. So we are seeing slow but steady growth in urban destinations, which contrasts with the very significant growth that we see in our resort destinations. Now Paco will answer the other question.

[Francisco Medina Elizalde, executive]

Yes. Thank you, Carlos, for the question of Leon. I was in Leon at the beginning of the month in October. And I was happy to see that we are starting to recuperate accounts, business accounts, corporate accounts, and we are going to close in a good occupancy compared to the other months and compared to the first, let's say, 8 months of the year, October is going to look a lot better than before. And I see a trend of recuperated occupancy in ADR as well because we are going to have a very good ADR as well in October. So I see that the first semester of the 2022 will be a trend of recuperated level of occupancy and very much at the level of 2019 but reduced in a big way the gap among 2020, 2021.

[Operator]

Our next question comes from [ Edson McGuire with Semicap ].

[Unknown Analyst]

I have a couple of them. The first one is related to the ADR. Because if we compare it to past quarter in this third quarter '21, the ADR is above average considering the past 6, maybe even 8 quarters. So the question specifically is, are you expecting to maintain the ADR in that level? Or maybe this specifically quarter is related more likely to the inflation rate that we have been seeing in the past couple of months?

The second one is related on cost and inflation, though. Competitors in the hospitality sector mentioned in different meetings and even calls [extending] their worry about inflation. So the question is, have you identified negative impact with the inflation rates that we have seen from April to the first weeks of September? And if that’s so, could you give us a little bit more color about it?

[Francisco Medina Elizalde, executive]

Sure. Thank you very much, and this is Francisco Medina. When we finished the first quarter at the end of March, we saw that the second part of the year after June, July, it was going to be a challenge. It was going to be a challenge because we were expecting to have a very good second semester. Then we, as a strategy, increase the ADR proposal in all the channels and distribution and became a real strength for the company. At the end, as you saw the results, and as you mentioned in the third quarter, we have a very good result. In the ADR if the market, it's in the proper way to maintain that increase, we will do it or otherwise, the supply and demand will lead us to a different strategy.

The second question of you, which is the inflation. We are foreseeing, and we were talking about that the past week. We are foreseeing in some cases, increases in supplies in the hotels between 4% to 6% and in some of them until 8%. So basically, the mix of that will lead us about 5.5% to 6% increase. And what we are doing is that we are reflecting that increase in our prices in the EP hotels, in the menu prices, in the [indiscernible] hotels and the package will be included that increase to cover the inflation cost.

[Unknown Analyst]

Okay. Really helpful. A follow on maybe it will be about CapEx. Of course, if we compare it to the -- to quarter '20, of course, the increase is relatively high. However, if we compare to the second quarter, and I remember asking you about the [ high vacancy ] right now in the third quarter doubled from the second quarter '21. So the question is, are you going to maintain the same level of CapEx for the following months or quarter even first half of 2022?

[Francisco Medina Elizalde, executive]

Okay. Just to make sure we understood well because the audio is not very clear. Just to make sure we understood what you're asking is, is the level of CapEx going to be more or less in the same path than it is today for the rest of the year?

[Unknown Analyst]

Not only for the rest of the year, maybe in the first half of 2022.

[Francisco Medina Elizalde, executive]

Well, remember that most of the CapEx and Enrique will address this now, but most of the CapEx is related to the construction of the Hyatt Regency Insurgentes and through the investment that we will do in Tulum that was announced for the [ Secrets Tulum and Zacatecas ].

[Enrique Gerardo Martínez Guerrero, executive]

Yes, that's correct. The CapEx that we have is as of -- yes, the [ capital ] that we have as of September of this year was basically on the construction of our project in Insurgentes, which will be finished by the end of the next year in the fourth quarter of next year. And we announced also an investment to acquire 25% of property in Tulum, and it will be also ended by the end of the next year.

[Unknown Analyst]

Okay. Really helpful. And last but not least, maybe it's too early to discuss. But let's put it on a best-case scenario and everything goes back to normal in the next year. What would be the strategy for Grupo Hotelero Santa Fe in the long run? Have you ever thought about it? Or are you planning to expand or maybe even recycling properties that you might not be interesting?

[Francisco Medina Elizalde, executive]

Yes. Well, basically, what -- If you look at our cash position, we have a cash position of MXN 532 million. And you remember that we made a capital increase not too long ago of MXN 500 million. So we've been able to, let's say, keep the capital increase at hand for possible acquisitions and possible deals that we are currently evaluating.

And regarding the turnover of assets, we would only do it if it's an opportunity to make it accretive for the company and not to increase necessarily a cash position that is -- that you don't have many opportunities to disimburse. Just to give you an idea, the discounts that have been seen by COVID are non-existent in resorts. They're even getting more expensive because now they have what they call a resilience prime. They've shown that they do quite well under such a tremendous scenario like the COVID pandemia has shown. So now they're even trading above pre-COVID levels in some markets. And in the urban markets, we are looking at opportunities, but we're very careful because we don't -- we want to see how exactly the urban market will return and the pace of discovery -- of recovery so of the main markets.

[Operator]

Our next question comes from [ Luis Hernandez with Miranda Global Research ].

[Unknown Analyst]

Congratulations for the strong results. I have one question. Do you expect any impact as a result of the electricity reform?

[Francisco Medina Elizalde, executive]

Yes, [ Luis ] this is Francisco Medina. No, not really, not really because we have considered that all the electricity, gas and water at the end will increase based on our analysis for the next year around 6%. And we are considering that in the increase of the price. So it's covered.

[Operator]

[Operator Instructions] At this time, I am showing no further questions in the queue. I would now like to turn the call back over to Max Zimmermann for closing remarks.

[Maximilian Zimmermann Canovas, executive]

Thank you. We would like to thank you for the trust that you have placed in us, and we affirm our commitment to maximize your investment. We also would like to thank all of our associates for their constant efforts. Have a great day, everyone, and a great weekend.

[Francisco Medina Elizalde, executive]

Thank you for joining.

[Enrique Gerardo Martínez Guerrero, executive]

Thank you.

[Operator]

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may now disconnect and log off.