Playa Hotels & Resorts(PLYA) - 2018 Q4 - Annual Report

PART I Business Playa Hotels & Resorts N.V. operates 21 all-inclusive resorts in Mexico and the Caribbean, focusing on strategic brand partnerships and technology to drive growth - As of December 31, 2018, Playa owned or managed 21 resorts with 7,908 rooms across Mexico, Jamaica, and the Dominican Republic[23] - Strategic relationships with Hyatt and Hilton provide access to approximately 100 million and 85 million loyalty program members, driving revenue and reducing acquisition costs[26][29][30] - In June 2018, Playa acquired five all-inclusive resorts and two developable land sites in Jamaica through a business combination with Sagicor[20] - Utilization of new technologies increased direct bookings from 18.2% in 2017 to 21.6% in 2018[31] - Exclusive agreements allow operation of Hyatt Ziva and Hyatt Zilara brands through 2021 and potential development of up to eight additional Hilton resorts by 2025[36][37] Risk Factors The company faces significant risks including geographic concentration, reliance on brand partnerships, financial volatility, and an identified material weakness in IT controls - Significant geographic concentration in Mexico, accounting for 57.8% of 2018 Total Net Revenue, exposes the company to regional risks[56] - Business highly dependent on Hyatt and Hilton relationships; failure to maintain standards could lead to franchise agreement termination, harming resort value and performance[60][71] - Exposure to currency exchange rate fluctuations as most operating expenses are in local currencies while revenues are primarily in U.S. dollars[82] - Substantial debt of $996.5 million as of December 31, 2018, could restrict operations, limit investment, and increase vulnerability to rising interest rates[104] - A material weakness in internal IT controls (system access, change management, segregation of duties) was identified as of December 31, 2018, with ongoing remediation efforts[125][126] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - No unresolved staff comments to report[184] Properties Overview of the company's 21 resorts across four geographic segments, detailing owned and managed rooms, and a significant Cap Cana development project Portfolio Overview as of December 31, 2018 | Category | Number of Rooms | | :--- | :--- | | Total Rooms Owned | 7,456 | | Total Rooms Operated (Managed) | 452 | | Total Rooms Owned and Operated | 7,908 | - The portfolio is organized into four geographic business segments: Yucatán Peninsula, Pacific Coast, Dominican Republic, and Jamaica[185] - Development of Hyatt Ziva and Hyatt Zilara Cap Cana in the Dominican Republic is underway, expected to add 750 rooms by Q4 2019 with an estimated budget of $202.0 million[214] Legal Proceedings The company is subject to ordinary course legal claims and proceedings, none expected to materially affect financial condition or operations - Ordinary course claims and proceedings are not expected to materially affect the company's financial condition[215] Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[216] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Overview of the company's NASDAQ-listed ordinary shares, dividend policy, and the initiation of a $100.0 million share repurchase program in December 2018 - The company's ordinary shares trade on NASDAQ under the ticker symbol PLYA[218] - Playa has never paid cash dividends and does not anticipate future payments, partly due to credit facility restrictions[220] - In December 2018, the Board authorized a share repurchase program of up to $100.0 million of outstanding ordinary shares[227] Q4 2018 Share Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | Total Value (approx.) | | :--- | :--- | :--- | :--- | | Dec 1 - Dec 31, 2018 | 47,241 | $6.65 | $314,000 | Selected Financial Data A five-year summary of historical financial data, highlighting consistent revenue growth, fluctuating net income, and increasing assets and debt Selected Consolidated Statement of Operations Data (in thousands) | Year Ended Dec 31, | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenue | $617,013 | $559,545 | $521,491 | $408,345 | $367,237 | | Operating income (loss) | $90,597 | $88,669 | $84,631 | $58,692 | $(13,457) | | Net income (loss) | $18,977 | $(241) | $20,216 | $9,711 | $(38,216) | Selected Consolidated Balance Sheet Data (in thousands) | As of Dec 31, | 2018 | 2017 | | :--- | :--- | | Total assets | $2,135,158 | $1,737,823 | | Total debt | $989,387 | $898,215 | | Total equity | $839,841 | $599,549 | Management's Discussion and Analysis of Financial Condition and Results of Operations Analysis of 2018 financial performance, highlighting revenue growth driven by acquisitions, improved net income, liquidity, and debt utilization for development Financial Performance Summary (2018 vs. 2017, in thousands) | Metric | 2018 | 2017 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $617,013 | $559,545 | 10.3% | | Operating Income | $90,597 | $88,669 | 2.2% | | Net Income (Loss) | $18,977 | $(241) | N/A | | Adjusted EBITDA | $179,031 | $170,865 | 4.8% | - The $50.8 million increase in 2018 revenue was primarily driven by the acquisition of Sagicor Assets[245] - On a comparable portfolio basis, Total Net Revenue increased by only 0.3% and Adjusted EBITDA decreased by 1.3% year-over-year[244] - As of December 31, 2018, the company held $116.4 million in cash and cash equivalents with full availability under its $100.0 million Revolving Credit Facility[328] - Total debt outstanding was $996.5 million as of year-end 2018, primarily a term loan facility maturing in 2024[329] Results of Operations Detailed comparison of 2018, 2017, and 2016 operating results, highlighting revenue growth driven by acquisitions, net income fluctuations, and segment-specific performance Year-over-Year Performance Comparison (in thousands) | Metric | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Total Revenue | $617,013 | $559,545 | $521,491 | | Net Income (Loss) | $18,977 | $(241) | $20,216 | | Adjusted EBITDA | $179,031 | $170,865 | $154,669 | - The Jamaica segment's Owned Net Revenue increased by 93.8% in 2018, driven by the Sagicor acquisition and strong performance at Hyatt Ziva/Zilara Rose Hall[290][302] - The Yucatán Peninsula segment's Owned Net Revenue decreased by 3.6% in 2018 due to lower Net Package ADR and Occupancy, partially offset by Hyatt Ziva Cancun's strong performance[290][292] - The 2017 net loss was primarily caused by a $25.1 million loss on extinguishment of debt from refinancing activities[270] Liquidity and Capital Resources Analysis of liquidity sources, including cash from operations and credit facilities, and uses of capital for debt service, development projects, and acquisitions Cash Flow Summary (in thousands) | Year Ended Dec 31, | 2018 | 2017 | | :--- | :--- | :--- | | Net cash from operating activities | $114,430 | $64,191 | | Net cash used in investing activities | $(204,586) | $(109,829) | | Net cash from financing activities | $89,280 | $119,704 | - Major 2018 investing activities included $93.1 million for the Sagicor acquisition and $110.9 million in capital expenditures, with $82.3 million for Cap Cana development[337] - Total capital expenditures in 2018 were $110.9 million, a significant increase from $60.6 million in 2017, primarily due to the Cap Cana project[340] Contractual Obligations as of Dec 31, 2018 (in thousands) | Obligation | Total Amount | | :--- | :--- | | Term Loan principal payments | $996,548 | | Term Loan interest payments | $288,821 | | Total Contractual Obligations | $1,313,485 | Quantitative and Qualitative Disclosures About Market Risk Discussion of primary market risks, including interest rate risk on variable-rate debt and foreign currency risk from local currency operating expenses - A 1% increase in market interest rates on floating rate debt would increase annual interest expense by approximately $2.0 million[387] - The company faces foreign currency risk as 80.2% of 2018 operating expenses were in local currencies, while most revenue is in U.S. dollars[389] - A hypothetical 5% adverse change in foreign exchange rates would have impacted 2018 pre-tax net income by approximately $8.7 million (Mexican Peso), $3.4 million (Dominican Peso), and $4.1 million (Jamaican Dollar)[390] Financial Statements and Supplementary Data Presents audited consolidated financial statements for 2018, 2017, and 2016, including balance sheets, statements of operations, and cash flows, with detailed notes Consolidated Balance Sheet Highlights (in thousands) | As of December 31, | 2018 | 2017 | | :--- | :--- | :--- | | Cash and cash equivalents | $116,353 | $117,229 | | Property and equipment, net | $1,808,412 | $1,466,326 | | Total assets | $2,135,158 | $1,737,823 | | Debt | $989,387 | $898,215 | | Total liabilities | $1,295,317 | $1,138,274 | | Total shareholders' equity | $839,841 | $599,549 | Consolidated Statement of Operations Highlights (in thousands) | Year Ended December 31, | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Total revenue | $617,013 | $559,545 | $521,491 | | Operating income | $90,597 | $88,669 | $84,631 | | Net income (loss) | $18,977 | $(241) | $20,216 | - The Sagicor Assets acquisition on June 1, 2018, totaled $308.5 million, comprising $93.1 million in cash and 20 million ordinary shares valued at $215.4 million[465][466] - The company's debt as of December 31, 2018, primarily consists of a $996.5 million term loan facility maturing in 2024[553] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - No changes in or disagreements with accountants to report[616] Controls and Procedures Management concluded that disclosure controls were ineffective as of December 31, 2018, due to an unremediated material weakness in IT general controls - Management concluded that disclosure controls and procedures were not effective as of December 31, 2018[618] - Ineffectiveness stems from an unremediated material weakness in IT controls regarding system access, change management, and segregation of duties[620] - Remediation efforts are underway, including phased implementation of a new SAP system throughout 2019[620] - The internal controls assessment as of December 31, 2018, excluded recently acquired Sagicor Assets, as permitted by SEC guidelines[622] Other Information The company reports no other information for this item - No other information to report[624] PART III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2019 Proxy Statement - Information is incorporated by reference from the company's 2019 Proxy Statement[627] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2019 Proxy Statement - Information is incorporated by reference from the company's 2019 Proxy Statement[628] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the 2019 Proxy Statement - Information is incorporated by reference from the company's 2019 Proxy Statement[629] Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the 2019 Proxy Statement - Information is incorporated by reference from the company's 2019 Proxy Statement[630] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2019 Proxy Statement - Information is incorporated by reference from the company's 2019 Proxy Statement[631] PART IV Exhibits and Financial Statement Schedule Lists all financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K - This section contains the list of all financial statements, schedules, and exhibits filed with the 10-K report[634][637] Form 10-K Summary This item is not applicable - Not applicable[644]