Playa Hotels & Resorts N.V.
Q1 2021 Earnings Call Transcript

Published: 9 May 2021

[Operator:]

Good day, and welcome to the Playa Hotels First Quarter 2021 Earnings Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Ryan Hymel, Executive Vice President. Please go ahead.

[Ryan Hymel:]

Thank you, Haley. Good morning, everyone, and welcome to Playa Hotels & Resorts first quarter 2021 earnings conference call. Before we begin, I’d like to remind participants that many of our comments today will be considered forward-looking statements and are subject to numerous risks and uncertainties that may cause the company’s actual results to differ materially from what has been communicated.

[Bruce Wardinski:]

Great. Thanks a lot, Ryan. Good morning, everyone. Thanks for joining us. As always, we appreciate your interest in Playa and hope that all of you are in good health and spirits. I’ll begin today with a review of our first quarter results by geographic segment, followed by insights into the current booking environment. I’ll then turn the call over to Ryan to discuss our balance sheet, provide more detail on our results and on our outlook. We came into 2021 enthusiastic and hopeful, as our business saw significant improvement during the holiday period and booking momentum for 2021 was picking up steam, while many others in the travel industry were experiencing a more volatile recovery, with the difference likely attributable to Playa’s predominantly leisure focused portfolio. The change in travel guidelines from the CDC in January caused some level of volatility during the first quarter, as it sparked a wave of cancellations and significantly impacted our February results, as we became even more reliant on extremely close-in demand. Our operations team and hotel associates once again rose to the occasion and rapidly adapted to the change by offering on-site antigen testing at all of our resorts, providing a seamless guest experience given the new COVID testing requirements. The team’s dedication and hard work, combined with safety measures implemented to protect our guests, have helped maintain market leadership at many of our resorts since our reopening process began last year.

[Ryan Hymel:]

Thank you, Bruce. Good morning again, everyone. I will first give you an update on our liquidity and balance sheet, and then review the fundamentals of the first quarter and then finish off with a discussion of forward bookings and market trends. Starting with the balance sheet liquidity, much like last quarter, we’ve included a monthly cash bridge on Page 5 of our earnings release to help guide our discussion. We began the quarter with $147 million of unrestricted cash and our burn rate improved during the first quarter, burning approximately $13 million, $6 million and $8 million during each month of the quarter, with March including roughly $8.6 million of unique items that we’ve detailed in our release. We took significant actions to improve our liquidity during the first quarter, namely an equity capital raise for net proceeds totaling just under $138 million, of which we used $85 million to repay our outstanding balance on our revolving credit facility. We also completed the sale of the Dreams Puerto Aventuras for net cash proceeds of roughly $33 million. All the aforementioned efforts bring us to a total unrestricted cash balance of approximately $200 million as at March 31. Also, as a reminder, we still have $26 million of additional restricted cash on the balance sheet from our June 2020 financing. On the other side of the ledger, we have no outstanding borrowings on our revolving credit facility and total outstanding interest bearing debt of $1.18 billion. I do want to highlight a few additional points. One, we do not have any debt maturities until our revolver matures in January of 2024, aside from the $17 million portion of our revolving credit facility that matures in April of 2022, and our term loan does not mature until April of 2024. Two, we are able to draw on the credit line were the need to arise. And three, should the need arise to make draws on our credit line, the covenant relief period has now been extended until March 31, 2022, and is only tested if we draw more than 35% of the balance.

[Bruce Wardinski:]

Great. Thanks, Ryan. So in summary, we are very optimistic for the recovery to pick up in earnest as we move through this year and into 2022, as demand has continued to build and our direct booking capabilities are enabling us to meaningfully outperform our competitors. For sure, the recovery will not be linear nor uniform, as we expect to experience volatility month-to-month as many around the world are still not able to access vaccine or travel with ease. Based on the booking trends Ryan shared with you, we anticipate Jamaica will potentially lag behind our other segments in the near-term. But we are confident in the intermediate to long-term potential of the market once the effects of the pandemic meaningfully subside. As you may have seen, we have also been quite active on the asset management of our resort portfolio. The actions we have taken over the past year have significantly improved the overall quality of our owned portfolio, conserved cash otherwise required to maintain the competitive positioning of our resorts and increased our mix of branded resorts. The three recent management contract announcements of the Yucatan Resort Playa del Carmen under the Tapestry brand, the Hyatt Ziva Riviera Cancun and a to-be-converted Capri Resort are the high-quality additions to our managed portfolio. But these management contracts also have strategic value for Playa as we’re becoming a preferred operating partner for owners looking to convert their properties to branded all-inclusive resorts. Additionally, these new additions provide synergies, particularly on the sales and marketing front. As we continue to demonstrate our third-party management abilities, I am hopeful more opportunities will present themselves in the post-COVID era. Thank you all for your time. We will now open up the line for your questions.

[Operator:]

We’ll now begin the question-and-answer session. Our first question today comes from Chris Woronka with Deutsche Bank.

[Chris Woronka:]

Hey, good morning, guys. Thanks for all the details you gave out, very helpful. I guess maybe can you talk a little bit about the playa.com channel and maybe where that customer comes from when they book there? Is it someone that would have gone to a brand website or someone else, and maybe how the rates on that business compare to either the branded website rates or generic rates?

[Bruce Wardinski:]

Sure, Chris, great question. When you look at our whole focus on direct booking, what we’re trying to do is grow a wider net. So historically people booking all-inclusive resorts went through tour operator channels. Then they kind of gravitated a little bit to OTAs, as they started to learn about all-inclusive and got more exposure there. But they really had no ability to book through branded sites or through a direct site like ours, like playaresorts.com. So what we have done, and we’ve been highlighting this in our earnings calls, is that these are things that we had underway, but the pandemic really accelerated them, right. Because we had to. We had to focus on what do we do to get more direct booking, while you had a lot of the historical channels really shut down or diminish the amount of volume they had going through them. So we’re out there selling, just like everybody is selling in a digital world, okay. So who are those customers, to your question? There – a lot of them are people who not in the past would have considered all-inclusive. They could be cruise customers. No longer cruises are there. They could be people looking at any leisure trip anywhere in the United States or outside of the United States. They could be people that are World of Hyatt members, or Hilton Honors members or other affinity programs with other brands. So they’re all of those people. They’re all out there looking. And what we’ve done is we’ve just gotten really better at getting our name, our brands, our properties out in front of them. And that’s really what the push is. So when Ryan went through some of the demographics, you can see one big group are some of the younger people. Why? Those are people who do this a lot more, right. The other thing is people who are used to being on their phones. I will say, I get three of my 20-plus- year-old sons who are giving me advice constantly on what we can do better to access our properties. And I pass them on to our sales guys, because they’re going, you need this, or you need that or this is how we book, okay. And it’s helpful, but we’re just trying to throw a broader net. And I think the results you are seeing are super positive. And going forward, I think they’ll continue to be positive. And let’s be very, very clear. Our goal is to be 100% branded. And it’s not by accident, right? I mean our belief is that people go to the brands. They have confidence in the brands. And they view brands as a positive, and we do too. And then when you look at all-inclusive, we want to be the dominant all-inclusive player with the brands and that’s our goal. And so right now, you see that with our Hyatt Ziva and Zilaras, as we continue grow there. We’re growing our Hilton portfolio, and you’ll see new announcements in the future. But we just want to continue accessing every potential customer and that’s our goal. Sorry for the long answer to your question. Maybe more than you wanted, but that’s what we’re going after.

[Chris Woronka:]

Very helpful, Bruce, really appreciate it. And then I think we heard yesterday or pretty recently that some of the cancellation policies are, especially on leisure business for the brands, are going to revert back to pre-COVID at some point this summer. Is that your understanding? And then maybe talk a little bit about how you think that maybe helps your business build for the back half.

[Bruce Wardinski:]

Yes, well I’ll tell you this, Chris. I absolutely hope so. I mean there is no reason that we shouldn’t be back to normal with those policies. It’s just crazy, right? And so when I have discussions with my brand partners, I implore that they continue to get more and more disciplined. And historically the hotel business has been a laggard when you look at airlines and other travel-related companies in a lot of these policies. Sure, when COVID hit, everybody had to adjust. But you’ve seen a lot of those things rolled back, and I hope the cancellation policies get rolled back, particularly in leisure properties going into high demand months. Okay? I’m talking about the summer and then I’m talking beginning in the high season, which for us really begins in November of this year. So there is no reason that we should be having kind of really loose policies. We really need to be tighter and I think that that’s our goal.

[Chris Woronka:]

Right, that’s great. Just last one for me is on really encouraging to see you guys getting more management contract opportunities. Can you maybe talk a little bit about how much more is out there? Not specific deals, of course, but just what you might be seeing. And does this allow you guys to go well outside of the markets where you own hotels, since the management side of it doesn’t have the same kind of operating leverage? I mean is it just a much more far-reaching net on management contracts.

[Bruce Wardinski:]

Yes, I mean I think it’s a great growth opportunity for us, okay? And as we said in our comments, there are synergies for it. Let’s face it. If we have more branded all-inclusive resorts with any of our brand partners, that’s just really good for them and really good for us, and we can spread our cost. But more importantly, we can spend more dollars, right. You can spend more dollars going after the customer to your first question. Who are these people? How do you access them? So it’s just a really big positive for us. If you look at what we announced with the – actually all three of them, if you look at what we announced. The owners of those properties are really sophisticated, very large, one institutional, one big family group. These are ideal partners for us, right? And it could be straight management contracts. It could be joint ventures. It could be a number of things going forward. But we want to grow. And we’ll just throw a net that’s wider than our existing market? Absolutely. I think our success, particularly our success with conversions, when you look at what we’ve done with the numbers, when we take an unbranded property and we reposition it with a brand and with Playa management and with selling direct, the results – the experience is fantastic. And what’s happening is as COVID decimated a lot of people’s resorts in our segment and in others, they looked at us and they said, wow. Why are theirs doing better than ours? And the fact that we’re public, they can see what our properties are doing. And so they came to us. And so I’m hopeful that that momentum will continue.

[Chris Woronka:]

Okay, perfect, appreciate all that detail, Bruce. Thanks.

[Bruce Wardinski:]

Thanks, Chris.

[Operator:]

Our next question comes from Shaun Kelley with Bank of America.

[Shaun Kelley:]

Hi, good afternoon, everybody. So Bruce, can you just remind us of – like at this point, in a normal season, right? I appreciate that we haven’t had one of those in at least a couple of years now. Just how much will we typically have on the books for the fourth quarter? I mean, so when we start to see – talk about Ryan’s booking numbers, just help us get a sense of what kind of base we would have or what kind of base those numbers are off of?

[Ryan Hymel:]

Yes. We would not have as much as we do today. I think that points to the fact that people are wanting to get out of the house. They’re looking to their availability to be able to travel in the back half of the year. So typically, we would have for kind of the fourth quarter, the back half of the year, anywhere from maybe 20% to 30% of our overall business on the books at this time. And so that’s why you’re seeing such larger numbers on the books now because people’s propensity. They want to get out and book now. And we’ve kind of talked about it internally almost like a land grab. I think people realize where occupancy is building and then more importantly, rates building particularly in these destinations, if they don’t grab that land now, they go to rebook later, the pricing will be higher.

[Bruce Wardinski:]

Yes. I mean, historically, Shaun, what you’ve seen is really high early booking for the two weeks, Easter week, Christmas week, right? That’s what you see. And to Ryan’s point, now that’s expanding, right? Because people are saying, I need to book earlier in December or I need a book in January. Whatever it is, they’re adjusting for that. And so I think that’s a big positive. And again, it just demonstrates that pent-up demand out there.

[Shaun Kelley:]

And Ryan, at least for the Yucatan, I think you mentioned ADR is also pacing ahead. Sorry, you were rattling off a lot of numbers very fast. How much is ADR up either for third quarter, fourth quarter or just overall?

[Ryan Hymel:]

The ADRs are up low single digits in the third and fourth quarter from what’s on the books today.

[Shaun Kelley:]

Great. And that’s low single-digit off of 2019, correct?

[Ryan Hymel:]

Yes.

[Shaun Kelley:]

And just what’s your expectation of then as we get closer to day of arrival and you’re going in with a healthier mix of occupancy or more on the books than you would normally have, your ability to kind of push rate? And I know it’s a little bit dependent on the broader competitive environment. But what are you kind of seeing out there from other operators on the rate front, specifically?

[Bruce Wardinski:]

Sure. Well, I’ll tell you, Shaun. I’m very bullish on the rate potential. So I mean – and now this is going back weeks, months, right? And I told our sales team do not discount, okay? Just we’re not discounting, that I’m confident that the demand is going to be there, and we don’t need to kind of build a base like you may do historically in more difficult times, coming out of a downturn. So typically, you try to build a base at lower rates and then you would yield later. We’re not doing that. To Ryan’s point, we’re already ahead. We’re not building a base at lower rates, okay? We’re building a base at good rates. And then I think our ability to continue to drive those is going to drive week by week, month by month as we get closer to it, and I’m highly confident of that. I’ve never seen anything like this. I’ve been in the hotel business a few years, about 35 years, and I’ve been through a few downturns. I’ve never seen a downturn like this. Obviously, the cause of this downturn was very different than being driven by financial kind of metrics. And so the people have the money, they have the desire, okay. And all they’re waiting for is individual reasons for going out there and traveling. So I don’t think it’s going to be a demand issue. And so I really think we can continue to drive it. Then if you look at a couple of things that we have put in place over the last year, with rolling out Duetto and some other revenue management programs, those are all fully implemented at this point in time. So we have the tools that we didn’t have in the past to yield. Also, historically, the way it worked in the all-inclusive business was you would give static rates to distribution channels like tour operators, and those rates could be there for 12 or 18 months. You didn’t even have the ability to change them, okay? Now we are 100% dynamic. So if we see the business grow, we can adjust the rates. And we just didn’t have that flexibility. So I think we’re well-positioned to continue to drive the rates up as the demand materializes.

[Shaun Kelley:]

Thanks, everyone. And maybe my final question or thought would just be around Jamaica, right? It seems like we got very good sight lines in the DR and in Mexico. But what are you looking for? What’s going to be to tell on when we get things to turn back on? And how are those conversations going with Jamaica? Where do we think they’ll be on the curving? Do you think we’re going to miss the holiday? I guess the direct question is, do you think were at risk of missing this coming holiday season? Or do you think that is in play based on the tone of conversations?

[Bruce Wardinski:]

I do not think we’re going to miss this holiday season is the short answer. I was in communication with the government in Jamaica as recently as last night at about 11

[Shaun Kelley:]

Helpful. Thanks everyone. Thanks, Shaun.

[Ryan Hymel:]

Thanks, Shaun.

[Operator:]

Our next question comes from Smedes Rose with Citi.

[Smedes Rose:]

Hi, thanks. I just wanted to follow-up a little bit on Shaun’s question. So you – just to clarify, you said that revenues are up 25%, revenues on the books in the third quarter and 40% in the fourth quarter as well as 52,000 in 2019?

[Ryan Hymel:]

That’s right.

[Smedes Rose:]

Okay, you kind of buried the lead there, Ryan. I think – so my question is, if the rates are only up modest single digit, that would imply then that, I guess, occupancies are well ahead of where you would normally be in the 20% to 30% range, you said. So can you just share what kind of occupancy is on the books now, if all that business kind of flows through?

[Ryan Hymel:]

Yes. No, you’re right. And it just goes back to what we’ve been saying that folks are booking a little bit further out now or they’re looking, so they try and lock in a vacation later in the year. So we’re seeing more on the books, higher occupancies than we’ve ever seen before. I was trying to make it clear in the prepared remarks that, obviously, if we’re ahead 40% in the fourth quarter, I don’t believe that by the time we get to the fourth quarter, we’ll be ahead 40% over 2019, right? And the fact that the absolute revenue that’s on the books for fourth quarter is still smaller than what’s on the books for the third quarter at this point. But what you’re seeing is people booking further out with their desire to get out and travel. So you’re right, that implies that occupancies are certainly ahead.

[Smedes Rose:]

Okay. And when you look at that – the components of that booking, is it still mostly coming through or coming at the same rate through the direct channels? Or is there some sign that the tour and travel groups are also starting to see a pickup in business?

[Ryan Hymel:]

You’re seeing slight pickup, but it’s still the direct channels of what we’re seeing come through most strongly. You’re absolutely right.

[Smedes Rose:]

Okay, thank you.

[Ryan Hymel:]

Thanks, Smedes.

[Bruce Wardinski:]

Thanks, Smedes.

[Operator:]

Our next question comes from Patrick Scholes with Truist Securities.

[Patrick Scholes:]

Hi, good morning.

[Bruce Wardinski:]

Good morning, Patrick.

[Patrick Scholes:]

Question, are you seeing – at your properties, are you seeing any of the labor availability and wage pressures that U.S. hotels are seeing at the moment? Thank you.

[Bruce Wardinski:]

Thank you for your question. So I think if you look at a big difference between us and kind of the situation with lodging companies, owners in the U.S. is we are in a completely different situation than they are, right? So if you look at the dynamics, what happened in the U.S. with labor? Okay, you had two big groups. One are all the people, they lost their jobs and they’ve moved on. They moved on to other opportunities. Because in many segments, whether it’s Amazon or others, there’s opportunities, right? So they got new jobs, they’ve moved on. The other thing you had is the government had very strong unemployment benefits. And there’s a big group of people who – they’re like, hey, I’m not that motivated to go back because I’m getting really high unemployment benefits. So until those ease up, and I believe that’s in September, you see the pressure. So the hotels are going to have to bribe people to come back and it’s going to be at higher rates, and it’s going to be a challenge for the margins. Our situation is completely different, right? There are no other jobs, okay? The jobs in the country, in our destinations, are resort, travel-dominated jobs, okay? Jamaica, Dominican, even in the Yucatan, Los Cabos, Puerta Vallarta; that’s the game in town, right? Tourism travel is the game in town. So the people, while the government has done an effective job, it hasn’t been as attractive or beneficial as it would be. So they are eager to get back. So what we did is early on as soon as we started the reopening process, we started to bring back – our goal was to bring back 100% of our people. Now 100% doesn’t mean full-time 100% of our people. We’d bring people back for one or two days, and then we’d bring back another person for one or two days. So we may only be bringing back 40% or 50% of the people. So they’re at reduced hours, but it’s the higher number of people. That was intentional, okay? We wanted to make sure our people knew that we wanted them back. So we’ve been able to retain the people we wanted to retain, and we still remain a very desirable employer in all of our markets, okay. But the people want to work. And so we’re not seeing the rate pressure that you’re seeing in the U.S., and you’re not seeing the supply issue that you’re seeing in the U.S. So I think we’re in a really good position. And I think it’s going to be a positive for us where I think it’s going to be a negative for others.

[Patrick Scholes:]

Okay. Thank you for the color on that. And then just one modeling question. On the 1Q earnings, certainly your SG&A was below our expectations. How should we think about the trajectory of SG&A for the quarters for the rest of the year? Thank you.

[Ryan Hymel:]

Yes. So we – starting in kind of Q3 and Q4 last year, we did start layering some costs back in, mostly on salary and wages. Everybody in the company took salary and wage cuts. And certainly, just like everybody else in the industry, we have a moratorium on T&E and travel and things like that. And so we are not currently in a position to start ramping back up new FTEs. I think there’s a good portion of the SG&A cuts that will remain permanent. I do think what you’ll see right now, what we’re planning for is probably in the back half of the year, assuming that this kind of shape of this trajectory continues, you might see us start spending a little more on T&E and filling out some other FTE positions that we would need as we ramp up our third-party management business with these new properties coming online. But right now, it’s not our intention to start ramping things up too significantly from where they are today.

[Patrick Scholes:]

Okay. Thank you, everyone.

[Ryan Hymel:]

Thanks. You bet.

[Operator:]

Our next question comes from Tyler Batory with Janney.

[Jonathan Jenkins:]

Good morning. This is Jonathan on for Tyler. Thanks for taking our questions. First one from me, you guys have provided some excellent color so far on the back half bookings. And Bruce, in the prepared remarks, you highlighted the CDC restrictions not really having an impact on the pace of bookings in the back half of the year. And I’m curious as a further positive of that, if you think there’s still some incremental demand, if that gets lifted over the summer or later in the year. Or is that kind of a nonfactor going forward?

[Bruce Wardinski:]

No, it’s definitely a factor. So I think let’s just clarify because I think I really appreciate your focus on this issue because it’s an important issue for us. We expected, when the announcement was made, we expected it to have a much worse and much longer kind of duration of an impact, okay? What our positive surprise was, was that while it was kind of really negative right out of the blocks, it ended pretty quickly. I shouldn’t say it ended. It diminished really quickly. So all of our points about the second half of the year, and obviously we’ve given the numbers on the second half of the year, you can see that while it’s still there, it’s not having that big of an impact. Why is it not having that big of an impact? I think there’s two big factors. One is people are used to a lot of things, right. They’re used to social distancing. They’re used to wearing masks. They’re used to airplane and airport restrictions, all kinds of things. Likewise, they’re like, okay, worst case, I have to do testing to get back, I’ll do testing to get back. Well, what do they care about? They care about, it’s really easy to do, and it’s not going to impact them and that there’s a very low probability that they’re going to have any issues, right? And so what you see is, what our focus was, was putting it at the resorts. Getting this testing at the resorts, so we’re trying to make it as easy as possible. And the fact is the results, the positive results have been incredibly low, really, really low. And that’s because people are getting tested before they travel. Now a lot of people are vaccinated, et cetera, okay? But it’s still in everyone’s mind. So you look at Jamaica, right? The fact that Jamaica is below is because people don’t want to deal with the hassle of getting tested going into Jamaica, right? They’re kind of accepting of the fact that to get back to the U.S., they have to get tested, and they’re really happy that we’re doing it on property and it’s so well done and easy, and they see that in all of the social media posts, et cetera, okay. But let’s be clear. If that is lifted, that is going to be hugely positive because there is a big, big group of people, who will be like, I don’t want to take the risk, right? I don’t want to take the risk of – or maybe the hassle, whatever it is, they don’t want it, and they’re not going to travel while that restriction remains in place. So the day that gets lifted, I think we’re going to have a big increase in bookings directly as a result of that.

[Jonathan Jenkins:]

Okay, great. Thanks for all the detail. And then, Ryan, you touched on this in the prepared remarks, but wondering if you could provide some additional color on what you’re hearing and seeing with respect to the airlift in your markets. How much of a factor that remains, and if there’s any markets or which markets are seeing outsized growth in the lift?

[Ryan Hymel:]

Yes. So as you would imagine, it follows suit with just the performance of our portfolio. So what you’ve seen in Mexico has certainly outpaced slightly the DR, which is outpacing Jamaica. So load factors improved in March versus January. Obviously, February didn’t with the cancellations because of CDC requirements. But it improved in March versus January for all of our markets, which is pretty encouraging. What we look at, the same data that you all see about international passenger arrivals, and then we also take a look at forecasted seats into our markets. Now it’s a little bit harder to set your watch by the seats that are they’re scheduling into the markets because they’re certainly still subject to change. But what we’re seeing in the fourth quarter is actually pretty good, particularly in Cancun, in Punta Cana. Montego Bay, specifically from the United States is still only slightly up or flat, but everyone else is forecasting larger amounts of seats coming into the destinations, specifically from the U.S., not as much internationally, as you would imagine, but more from the U.S. Q3 is still a bit of a wildcard right now. I think we touched on it a little bit earlier when we talked about the recovery. I think a lot of that has to do with the consumer’s assumption and just the general, particularly in the U.S. population that life will be somewhat back to normal, meaning I may be back in the office, my kids may be back in school in person. And so we’ve seen more volatility, not just with airline seats forecasted, but with our bookings generally into Q3 versus what we’re seeing positively in Q2 and Q4.

[Jonathan Jenkins:]

Okay, great. Thank you for all the color guys. Very helpful.

[Ryan Hymel:]

Thanks, Jon.

[Operator:]

Our final question today comes from Chad Beynon with Macquarie.

[Chad Beynon:]

Hi, good afternoon. Bruce and Ryan, thanks for taking my question.

[Bruce Wardinski:]

Thanks, Chad.

[Chad Beynon:]

I wanted to go back to your general segments, your group MICE, wedding, et cetera, business versus the leisure business. Across your portfolio or at least the ones with more group offerings, should we expect a meaningful change in terms of the percentage mix of one versus the other in high season or 2022, given some of the trends that we expect to see? And if so, what’s the general directional impact of revenues and margins if this does change? Thank you.

[Ryan Hymel:]

Yes. So from – I think from – let’s talk about the weddings. I don’t think you’ll see a shift in when people want to get married, because our properties are warm year-round and the people are a little more agnostic, they’re outside. And we’re seeing that business come back more rapidly than the group business, because our weddings are outside. It’s smaller groups. It’s usually familial group. So they’re less worried about anything that could be on the top of mind, including return vaccinations or anything like that. On the group side, you’re really talking in the larger convention group, you’re really just talking about the three properties where we have 50,000-plus square feet of meeting space, that being historically Jamaica and Los Cabos, even Zilara Jamaica and Ziva Los Cabos, but now even Zilara Cap Cana. That helps margin significantly at those properties when the business comes back. Namely because, one, the rates are pretty fantastic. The commissions that you pay meetings incentive planners is not too much higher than what you see from our direct channel. So if our direct is anywhere from, call it, 3% to 8%, depending on how the customer came to our property, meeting incentive planners is in the low double digits, right? So it’s still much cheaper than OTA or obviously through our operator business. And then on top of that, because the vast majority of our group business is kind of incentive business, meaning like top salesman, Presidents Club, Gold Club, stuff like that; it’s usually paid for by their company. So people are coming with a friend or a spouse, and they’re spending a lot more on non-package items like spa trips, wine upgrades. And then the group itself is doing a lot of large events on the beach or additional upsells, and that is high profitable margins revenue for us. So as the group comes back, I don’t see it shifting any different in the time of year that normally shows up. But at those properties, it should help margins.

[Chad Beynon:]

Okay, great. Thanks. And then once we get through this and we’re more in a normal free cash flow period, how are you thinking about some of these conversions, expansions that you talked about in prior years? Obviously, nothing to talk about in 2021, but how are you thinking about those opportunities versus other ways of capital deployment, like share repurchases that you’ve done in the past? Thank you.

[Bruce Wardinski:]

Sure. I mean, obviously, like I said, the conversions are hugely profitable to us. Okay. Now if you look at what we did, right, we sold some properties, which are those properties we sold, the ones that required very large CapEx dollars, and didn’t really fit well with our strategy. They weren’t highly attractive candidates for branded conversion, okay? So we’ve got the ones left. And so you can kind of just look at our list of portfolios and you say, okay, here’s the ones left that are branded that haven’t been converted. What needs to be done there? Not much – I shouldn’t say not much, not as much need to be done. So we don’t have the significant level of CapEx or disruption that you’ve seen in the past. So as we look at 2022 and beyond, for those non-branded properties, there are opportunities there to convert, and we’ll be willing to do that. And beyond that, the cash flows, whatever makes the most sense when we will analyze the cash flow, and let’s take your point about, hey, we get back to our normal world. And let’s face it, Playa’s normal world is we’re a really high free cash flow generating company. And I can’t wait to get back to that normal world, right? And we can start focusing on what are the best things to do with that cash. And that’s really where does it drive the most value for our stock and for our shareholders.

[Ryan Hymel:]

And to answer your question directly on buybacks, of course, we’d be open to reopening that once we get further along through the pandemic. Obviously, we’re still in cash conservation mode. Obviously, we’re getting closer and closer to stopping burning cash, which is great. Obviously, we want to get progressed a little bit further, but that’s certainly something we would consider, just particularly given where you think the EBITDA could go, that would imply that our stock is trading pretty cheaply off kind of run rate EBITDA. So we would be certainly open to that. We would have to discuss with our board.

[Chad Beynon:]

Great. Thanks. Appreciate it guys. Best of luck.

[Ryan Hymel:]

Thanks, Chad.

[Bruce Wardinski:]

Thanks, Chad.

[Operator:]

This concludes our question-and-answer session. I’d like to turn the call back over to Bruce Wardinski for any closing remarks.

[Bruce Wardinski:]

Great. Thank you. So just to close, I just want to emphasize that I am cautiously optimistic about the rest of 2021 and much optimistic for 2022 and beyond. As vaccines continue to grow, leisure demand will accelerate and Playa Resorts should be incredibly attractive to people to go to. We expect to continue reporting positive results for the foreseeable future. So I think really, the horizon looks good. Everything looks good. Again, thanks for taking the time to join us today, and I hope everyone has a great day. Thanks for your interest in Playa.

[Operator:]

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.