Grupo Hotelero Santa Fe SAB de CV

BMV:HOTEL

Earnings Call Transcript 2023-Q4

[Operator]

Good day everyone, and welcome to today's Grupo Hotelero Santa Fe Fourth Quarter 2023 Investor Relations Call. Please note, this call is recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Max Zimmermann.

[Maximilian Zimmermann Canovas, executive]

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 earnings 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.

[Francisco Zinser Cieslik, executive]

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. And it's 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. And 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 2 noteworthy events since our last call. The first is the 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 would be the latest addition to Breathless Resorts & Spa brand collection, part of the Hyatt inclusive collection, which includes property in Mexico, Dominican Republic, Jamaica.

Breathless offers an authentic experience infused with styles 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 fully -- 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.

[Maximilian Zimmermann Canovas, executive]

Thank you, Pancho. Room revenue decreased in 5% to MXN 347 million in the fourth quarter of 2023 compared to the same quarter of 2022, driven by lower revenues, which more than compensated the effect of the temporary -- I mean, with lower revenues and 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 bps. So 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, contributed 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 move -- to mention that please move to Slide 4.

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 3.0x, very much in line with our internal best practice. Total debt is mostly U.S. 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 U.S. 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.

[Francisco Zinser Cieslik, executive]

I would like to point out that this 3x EBITDA that we're reporting includes, as mentioned, the effect of Acapulco not generating anything since October and also the recent opening of the Hyatt Regency. So -- and [indiscernible] 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. And so please, operator.

[Operator]

[Operator Instructions] Our first question comes from MartÃn Lara.

[Martín Lara, analyst]

Can you hear me?

[Maximilian Zimmermann Canovas, executive]

Yes.

[Martín Lara, analyst]

I have the following questions. On the Acapulco hotel, do you have received the insurance funds? And also, the second question is the 16% EBITDA reduction in fourth quarter was only due to the temporary closure of the Acapulco hotel, or you had other expenses?

[Maximilian Zimmermann Canovas, executive]

Thank you, MartÃn. So in terms of the update on Acapulco and the insurance funds, sure, 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.

And 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, and 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 and also our expenses growing slightly above revenues for the quarter. So it's around a half and half effect.

Thank you, MartÃn.

[Martín Lara, analyst]

Okay. And I have another question. Around 12% of debt maturity in 2024, what are your plans to refinance?

[Maximilian Zimmermann Canovas, executive]

Sure. That's a great question, MartÃn. 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. So actually, 1 of those, we just recently signed the refinancing with 1 of our banks, so you will be seeing that in the next quarter. And this is what we do with balloons before they are due. So we feel pretty comfortable, as Pancho mentioned, with our current debt level of 3x, considering that we still have important opportunities for EBITDA expansion due to Insurgentes 724 maturing together with other hotels reaching maturity.

[Operator]

Our next question comes from Carlos Alcaraz from Apalache Research.

[Carlos Alcaraz Pineda, analyst]

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? And I have a second question. How has occupancy we had in the city hotel portfolio?

[Francisco Zinser Cieslik, executive]

Okay. Thank you very much for your questions. We are expecting to open close to 200 rooms for the month of July, 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 3 shifts and very, very -- 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. And we hope to have this happening through, 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 prepandemic levels. We are getting all the segments that were hardly hit by the pandemic, mainly corporate travel and group travel, MCI, meetings, conventions and incentives. But it is coming back, as we've mentioned in previous calls. This is flat clearly and logically at a bigger pace or at a higher pace in the 3 key cities of the country, Mexico City, Guadalajara and Monterrey, but also secondary cities are starting to pick up. Thank you for your question.

[Operator]

Our next question comes from [ Felipe Varga ] from BTG.

[Unknown Analyst]

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 sort of the plan for the pipeline there?

And 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?

[Francisco Zinser Cieslik, executive]

Okay. I'll address the first part of the question, and Max will address the second part. And I would say that development right now is something that -- with the current environment of rates is something that has to be very, very cautiously seen. The rate ambience and the overall environment of the financial markets is too high in terms of looking at development. Clearly, greenfield development is something totally out of the question at this point. Wouldn't make a lot of sense to start with the -- 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 Mahekal acquisition.

And what we are seeing and are actively pursuing is our asset management, or optimizing our assets. And this is -- 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 [indiscernible] and looking at opportunities, but probably this is not the best environment to talk about development.

[Maximilian Zimmermann Canovas, executive]

Thank you, [ Felipe ]. And addressing your second question, did you -- are you talking about the line called apartment inventory, or which line are you mentioning?

[Unknown Analyst]

Yes, that line precisely.

[Maximilian Zimmermann Canovas, executive]

Perfect. That line is actually the apartments that we have in our 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 [indiscernible] this month, and it's going forward. We have some more programs. So we have already sold a part of that inventory, but it's still a question of receiving the money and closing those transactions.

So as time goes by, you will see that line coming down. And your question related to if this was 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?

[Unknown Analyst]

That was very clear, Max.

[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.

[Maximilian Zimmermann Canovas, executive]

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

[Francisco Zinser Cieslik, executive]

Thank you very much for joining.

[Operator]

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