Playa Hotels & Resorts(PLYA) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis of performance and condition, market risk disclosures, and internal controls for the period ended June 30, 2020 Financial Statements The company's financial statements for the period ending June 30, 2020, reflect a severe negative impact from the COVID-19 pandemic, leading to a dramatic decline in revenue, a significant net loss of $110.0 million for the first six months, and negative cash flow from operations Condensed Consolidated Balance Sheet Highlights | Balance Sheet Item | June 30, 2020 ($ in thousands) | Dec 31, 2019 ($ in thousands) | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | 251,022 | 20,931 | +1,099% | | Total assets | 2,267,264 | 2,196,964 | +3.2% | | Debt | 1,251,877 | 1,040,658 | +20.3% | | Total liabilities | 1,556,706 | 1,387,313 | +12.2% | | Total shareholders' equity | 710,558 | 809,651 | -12.2% | Condensed Consolidated Statement of Operations Highlights | Metric | Three Months Ended June 30, 2020 ($ in thousands) | Three Months Ended June 30, 2019 ($ in thousands) | Six Months Ended June 30, 2020 ($ in thousands) | Six Months Ended June 30, 2019 ($ in thousands) | | :--- | :--- | :--- | :--- | :--- | | Total revenue | 982 | 164,023 | 178,210 | 359,819 | | Operating (loss) income | (86,042) | 10,334 | (82,626) | 57,571 | | Net (loss) income | (87,458) | 1,040 | (110,014) | 44,028 | | (Losses) earnings per share - Diluted | (0.67) | 0.01 | (0.85) | 0.34 | Condensed Consolidated Statement of Cash Flows Highlights (Six Months Ended) | Cash Flow Activity | June 30, 2020 ($ in thousands) | June 30, 2019 ($ in thousands) | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | (28,396) | 86,076 | | Net cash provided by (used in) investing activities | 58,862 | (88,947) | | Net cash provided by (used in) financing activities | 227,544 | (8,972) | | Increase (Decrease) in Cash | 258,010 | (11,843) | Notes to the Condensed Consolidated Financial Statements The notes detail the severe impact of COVID-19, leading to the suspension of all 21 resorts from March to June 2020, prompting the sale of two resorts for $60.0 million, $224.0 million in new debt and equity, and a $41.5 million total impairment charge - Due to the COVID-19 pandemic, all of the company's 21 resorts temporarily suspended operations from late March through June 2020, with reopening beginning in stages on July 1, 2020, and 12 of 21 resorts open as of the report date[26] - To improve liquidity, the company sold two Jewel brand resorts for $60.0 million, raised additional capital through equity and debt, amended its Senior Secured Credit Facility to waive financial covenants until September 30, 2021, and significantly reduced staffing and capital expenditures[29][41] - On June 12, 2020, the company entered into new debt agreements, including an Additional Credit Facility for $94.0 million and a Property Loan for $110.0 million, to bolster its financial position[76][77][81] - The company recognized a $25.3 million impairment loss on the Jewel Dunn's River and Jewel Runaway Bay resorts upon their classification as held for sale, with an additional $16.2 million goodwill impairment recorded in Q1 2020 due to decreased future cash flow forecasts caused by COVID-19[41][99] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the unprecedented impact of the COVID-19 pandemic, causing a 99.4% Q2 2020 revenue decrease, a $87.5 million net loss, and an Adjusted EBITDA loss of $31.4 million, while detailing liquidity preservation actions including $224.0 million in new capital and $60.0 million from resort sales Impact of COVID-19 Pandemic and Overview The COVID-19 pandemic forced temporary suspension of all 21 resorts, causing near-total Q2 revenue loss, prompting $224.0 million in additional capital, $60.0 million from resort sales, and significant cost reductions to mitigate liquidity impact - All company resorts were temporarily closed from late March 2020 until July 1, 2020, due to the COVID-19 pandemic, with 12 out of 21 resorts having reopened as of the report date[127][128] - To manage liquidity during the shutdown, the company raised $224.0 million in new debt and equity financing, sold two resorts for $60.0 million, borrowed an additional $40.0 million under its Revolving Credit Facility, and deferred all non-critical capital expenditures for 2020[129] Results of Operations Q2 2020 total revenue plummeted 99.4% to $1.0 million, resulting in an $87.5 million net loss, while H1 revenue fell 50.5% to $178.2 million with a $110.0 million net loss, driven by resort closures, significant impairment losses, and increased interest expense Q2 2020 vs Q2 2019 Performance (Total Portfolio) | Metric | Q2 2020 | Q2 2019 | % Change | | :--- | :--- | :--- | :--- | | Occupancy | — % | 79.8% | (100.0)% | | Net Package RevPAR | $ — | $205.55 | (100.0)% | | Total Net Revenue | $0.5M | $155.5M | (99.7)% | | Adjusted EBITDA | $(31.4)M | $40.1M | (178.4)% | H1 2020 vs H1 2019 Performance (Total Portfolio) | Metric | H1 2020 | H1 2019 | % Change | | :--- | :--- | :--- | :--- | | Occupancy | 33.6% | 79.9% | (57.9)% | | Net Package RevPAR | $100.01 | $225.37 | (55.6)% | | Total Net Revenue | $171.7M | $344.4M | (50.1)% | | Adjusted EBITDA | $18.9M | $114.8M | (83.5)% | - Impairment losses for H1 2020 totaled $41.4 million, driven by a $25.3 million charge on two resorts classified as held for sale and a $16.2 million goodwill impairment due to reduced cash flow forecasts from COVID-19[174][154] - Interest expense for Q2 2020 increased by $10.3 million (96.1%) YoY, primarily due to a $5.9 million charge from the change in fair value of interest rate swaps which became ineffective in March 2020[155] Segment Results All geographic segments experienced near-total revenue collapse and significant EBITDA losses in Q2 2020 due to system-wide resort closures, with H1 EBITDA seeing dramatic year-over-year declines ranging from 68% to 84% across segments Owned Resort EBITDA by Segment (Three Months Ended June 30) | Segment | 2020 ($ in thousands) | 2019 ($ in thousands) | % Change | | :--- | :--- | :--- | :--- | | Yucatán Peninsula | (8,004) | 21,151 | (137.8)% | | Pacific Coast | (2,816) | 8,569 | (132.9)% | | Dominican Republic | (4,881) | 5,043 | (196.8)% | | Jamaica | (8,097) | 14,631 | (155.3)% | | Total Segment | (23,798) | 49,394 | (148.2)% | Owned Resort EBITDA by Segment (Six Months Ended June 30) | Segment | 2020 ($ in thousands) | 2019 ($ in thousands) | % Change | | :--- | :--- | :--- | :--- | | Yucatán Peninsula | 16,931 | 53,310 | (68.2)% | | Pacific Coast | 6,056 | 20,956 | (71.1)% | | Dominican Republic | 2,908 | 18,506 | (84.3)% | | Jamaica | 10,976 | 38,979 | (71.8)% | | Total Segment | 36,871 | 131,751 | (72.0)% | Liquidity and Capital Resources The company's liquidity was severely impacted by the pandemic, with operating cash flow turning negative to ($28.4) million for H1 2020, addressed by raising $224.0 million in new capital, selling two resorts for $60.0 million, and ending the quarter with $251.0 million in cash - As of July 31, 2020, the company had approximately $228.0 million of available cash, excluding $25.7 million of restricted cash[239] - On June 12, 2020, the company raised $224.0 million of additional capital through $204.0 million in debt financing and $20.0 million in equity financing[241] - The share repurchase program has been suspended to preserve cash, with approximately $83.5 million remaining under the authorization as of June 30, 2020[252] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk, with 23% of debt at floating rates, where a 1.0% increase would raise annual interest expense by approximately $1.2 million, and foreign currency risk due to 81.1% of operating expenses being denominated in local currencies - As of June 30, 2020, 23% of the company's debt bore floating interest rates, where a hypothetical 1.0% increase in market rates would increase annual interest expense by approximately $1.2 million[275] - Approximately 81.1% of operating expenses for H1 2020 were denominated in local currencies (Mexican Peso, Dominican Peso, Jamaican Dollar), creating exposure to foreign currency risk[277] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the quarter - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2020[280] PART II. OTHER INFORMATION This section details additional information including new risk factors related to the COVID-19 pandemic and the unregistered sale of equity securities Risk Factors This section adds a significant risk factor detailing the material adverse effects of the COVID-19 pandemic, highlighting the unprecedented impact on the hospitality industry, resort closures, revenue loss, and the need to service substantial debt with severely reduced cash flow - A new, detailed risk factor was added to address the significant material adverse effects of the COVID-19 pandemic on the business, including resort closures, revenue loss, and uncertainty about the recovery of travel demand[285][286] - Specific risks highlighted include the ability to service substantial debt with reduced cash flow, reliance on the recovery of commercial airline service, potential for non-cash impairment charges, and risks related to employee matters following terminations and furloughs[288][294] Unregistered Sales of Equity Securities and Use of Proceeds On June 12, 2020, the company sold 4,878,049 ordinary shares in a private placement for $20.0 million at $4.10 per share to affiliates of Davidson Kempner Capital Management LP, exempt from registration under the Securities Act - On June 12, 2020, the company sold 4,878,049 ordinary shares in a private placement for an aggregate price of $20.0 million ($4.10 per share)[289]