Playa Hotels & Resorts(PLYA) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, with detailed notes Condensed Consolidated Balance Sheets | Metric | June 30, 2021 ($ in thousands) | December 31, 2020 ($ in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | 237,715 | 146,919 | | Total assets | 2,042,931 | 2,097,665 | | Debt | 945,409 | 1,251,267 | | Total liabilities | 1,405,559 | 1,529,529 | | Total shareholders' equity | 637,372 | 568,136 | - Cash and cash equivalents increased by $90.8 million from December 31, 2020, to June 30, 2021, reflecting improved liquidity[9] - Total debt decreased by $305.8 million, contributing to a reduction in total liabilities[9] Condensed Consolidated Statements of Operations | Metric | 3 Months Ended June 30, 2021 ($ in thousands) | 3 Months Ended June 30, 2020 ($ in thousands) | 6 Months Ended June 30, 2021 ($ in thousands) | 6 Months Ended June 30, 2020 ($ in thousands) | | :----------------------------- | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Total revenue | 128,803 | 982 | 206,549 | 178,210 | | Operating loss | (642) | (86,042) | (53,465) | (82,626) | | Net loss | (7,768) | (87,458) | (77,513) | (110,014) | | Losses per share - Basic | (0.05) | (0.67) | (0.48) | (0.85) | - Total revenue for the three months ended June 30, 2021, significantly increased to $128.8 million from $0.98 million in the prior year, reflecting the reopening of resorts[11] - Net loss for the three months ended June 30, 2021, improved substantially to $7.8 million from $87.5 million in the same period last year[11] Condensed Consolidated Statements of Comprehensive Loss | Metric | 3 Months Ended June 30, 2021 ($ in thousands) | 3 Months Ended June 30, 2020 ($ in thousands) | 6 Months Ended June 30, 2021 ($ in thousands) | 6 Months Ended June 30, 2020 ($ in thousands) | | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Net loss | (7,768) | (87,458) | (77,513) | (110,014) | | Total other comprehensive income (loss) | 2,984 | 3,078 | 5,867 | (12,025) | | Comprehensive loss | (4,784) | (84,380) | (71,646) | (122,039) | - Total other comprehensive income for the six months ended June 30, 2021, was $5.9 million, a significant improvement from a loss of $12.0 million in the prior year, primarily due to unrealized gains on interest rate swaps[14] Condensed Consolidated Statements of Shareholders' Equity - Total shareholders' equity increased from $568.1 million as of December 31, 2020, to $637.4 million as of June 30, 2021[19] - The increase in shareholders' equity was primarily driven by a $137.7 million equity issuance, net, partially offset by a net loss of $77.5 million for the six months ended June 30, 2021[19] - Paid-in capital increased by $140.7 million from December 31, 2020, to June 30, 2021[19] Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | 6 Months Ended June 30, 2021 ($ in thousands) | 6 Months Ended June 30, 2020 ($ in thousands) | | :-------------------------------- | :------------------------------------ | :------------------------------------ | | Net cash used in operating activities | (13,578) | (28,396) | | Net cash provided by investing activities | 80,560 | 58,862 | | Net cash provided by financing activities | 23,520 | 227,544 | | Increase in cash and cash equivalents | 90,502 | 258,010 | - Net cash used in operating activities decreased by $14.8 million, from $28.4 million in 2020 to $13.6 million in 2021, indicating improved operational cash burn[22] - Net cash provided by investing activities increased by $21.7 million, primarily due to higher proceeds from asset sales in 2021[22] - Net cash provided by financing activities decreased significantly by $204.0 million, mainly due to lower debt issuances and higher debt repayments in 2021 compared to 2020[22] Notes to the Condensed Consolidated Financial Statements Note 1. Organization, operations and basis of presentation - Playa Hotels & Resorts N.V. is a leading owner, operator, and developer of all-inclusive resorts in Mexico, the Dominican Republic, and Jamaica, with a portfolio of 22 resorts[26] - All resorts, which temporarily suspended operations from late March through June 2020 due to COVID-19, were reopened as of June 30, 2021, with additional safety measures[27] - The unaudited interim financial statements are prepared in accordance with U.S. GAAP and should be read in conjunction with the 2020 Annual Report on Form 10-K[28] Note 2. Significant accounting policies - The company adopted ASU No. 2019-12, Income Taxes (Topic 740), in January 2021, resulting in a $3.4 million cumulative-effect adjustment to opening retained earnings for deferred tax liabilities related to Dominican Republic resorts[31] - The company is evaluating the impact of ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional expedients for applying GAAP to transactions affected by reference rate reform, with potential early adoption[32] Note 3. Revenue | Revenue Type | 3 Months Ended June 30, 2021 ($ in thousands) | 3 Months Ended June 30, 2020 ($ in thousands) | 6 Months Ended June 30, 2021 ($ in thousands) | 6 Months Ended June 30, 2020 ($ in thousands) | | :------------- | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Package | 104,780 | 302 | 168,674 | 153,357 | | Non-package | 22,602 | 240 | 35,597 | 22,818 | | Management fees| 452 | (18) | 796 | 627 | | Total revenue | 128,803 | 982 | 206,549 | 178,210 | - Package revenue for the three months ended June 30, 2021, saw a dramatic increase to $104.8 million from $0.3 million in the prior year, reflecting the resumption of resort operations[33] - Advance deposits, recorded as contract liabilities, are generally recognized as revenue within one year, with no material contract assets reported[35] Note 4. Property and equipment | Metric | June 30, 2021 ($ in thousands) | December 31, 2020 ($ in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Total property and equipment, gross | 2,045,231 | 2,177,629 | | Accumulated depreciation | (432,457) | (450,246) | | Total property and equipment, net | 1,612,774 | 1,727,383 | - Net property and equipment decreased by $114.6 million from December 31, 2020, to June 30, 2021, primarily due to asset sales[36] - The company completed the sale of Capri Resort for $55.2 million in June 2021, recognizing a $24.0 million impairment loss and a $0.5 million loss on sale[37][38] - The Dreams Puerto Aventuras was sold for $34.3 million in February 2021, resulting in a gain of less than $0.1 million[39] Note 5. Income taxes | Metric | 3 Months Ended June 30, 2021 ($ in thousands) | 6 Months Ended June 30, 2020 ($ in thousands) | | :---------------- | :------------------------------------ | :------------------------------------ | | Income tax benefit | 12,452 | 13,536 | - Income tax benefits were $12.5 million and $14.4 million for the three and six months ended June 30, 2021, respectively, including discrete adjustments from resort sales and valuation allowances[43] - The sale of Capri Resort resulted in a $5.6 million income tax benefit from deferred tax liability write-off and a $1.2 million income tax expense from capital gains[44] - Additional valuation allowances of $0.7 million and $3.7 million were recognized against deferred tax assets for Mexico and Jamaica entities due to COVID-19 impacts[45] Note 6. Related party transactions - Hyatt Hotels Corporation is a related party due to ownership and board representation, with Playa paying franchise fees and receiving reimbursements for loyalty program guests[48] - Davidson Kempner Capital Management L.P. (DKCM) is a related party, with affiliated funds being lenders for the Property Loan and Additional Credit Facility, resulting in interest payments from Playa[50] | Related Party | Transaction | 3 Months Ended June 30, 2021 ($ in thousands) | 6 Months Ended June 30, 2021 ($ in thousands) | | :-------------- | :------------ | :------------------------------------ | :------------------------------------ | | Hyatt | Franchise fees| 4,459 | 7,975 | | DKCM | Interest expense | 5,467 | 10,871 | Note 7. Commitments and contingencies - The company is involved in various claims and lawsuits in the normal course of business, which are covered by insurance, and the ultimate outcome is not expected to have a material effect on financial statements[53] - Playa Resorts Holding B.V. is the head of the Dutch fiscal unity and is jointly and severally liable for the tax liabilities of the fiscal unity[54] Note 8. Ordinary shares - On January 11, 2021, the company issued 28,750,000 ordinary shares in a public equity offering, raising $137.7 million in cash consideration, net of underwriting discounts[55] - As of June 30, 2021, there were 164,209,875 ordinary shares outstanding, with a par value of €0.10 per share[56] Note 9. Share-based compensation - The 2017 Omnibus Incentive Plan is used to attract and retain key personnel, with 4,841,947 shares available for future grants as of June 30, 2021[57] | Restricted Share Awards Activity | Number of Shares | Weighted-Average Grant Date Fair Value ($) | | :------------------------------- | :--------------- | :--------------------------------------- | | Unvested balance at January 1, 2021 | 2,225,139 | 8.53 | | Granted | 1,925,298 | 5.45 | | Vested | (897,793) | 8.61 | | Forfeited | (7,956) | 8.66 | | Unvested balance at June 30, 2021 | 3,244,688 | 6.68 | - In January 2021, 1,027,519 performance share awards were issued, with vesting based on Relative TSR and Absolute TSR targets over a three-year period[59] Note 10. Earnings per share | Metric | 3 Months Ended June 30, 2021 | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2021 | 6 Months Ended June 30, 2020 | | :------------------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss ($ in thousands) | (7,768) | (87,458) | (77,513) | (110,014) | | Denominator for basic EPS - weighted-average shares | 164,119,693 | 130,466,383 | 162,482,673 | 129,876,545 | | EPS - Basic ($) | (0.05) | (0.67) | (0.48) | (0.85) | | EPS - Diluted ($) | (0.05) | (0.67) | (0.48) | (0.85) | - Unvested performance-based equity awards (1,027,519 shares) and restricted share awards (3,244,688 shares) were excluded from diluted EPS calculations for the three and six months ended June 30, 2021, as their effect would have been anti-dilutive[62][63] Note 11. Debt | Debt Type | Interest Rate | Maturity Date | Outstanding Balance as of June 30, 2021 ($ in thousands) | Outstanding Balance as of December 31, 2020 ($ in thousands) | | :----------------------------- | :------------ | :------------ | :--------------------------------------- | :--------------------------------------- | | Revolving Credit Facility | LIBOR + 3.00-4.00% | April 27, 2022 / Jan 27, 2024 | — | 84,667 | | Term Loan | LIBOR + 2.75% | April 27, 2024 | 946,919 | 976,348 | | Term A1 Loan | 11.4777% | April 27, 2024 | 35,000 | 35,000 | | Term A2 Loan | 11.4777% | April 27, 2024 | 31,000 | 31,000 | | Term A3 Loan | LIBOR + 3.00% | April 27, 2024 | 28,000 | 28,000 | | Property Loan | 9.25% | July 1, 2025 | 110,000 | 110,000 | | Total debt, net | | | 1,139,162 | 1,251,267 | - The Fifth Amendment to the Amended & Restated Credit Agreement extended the maturity date for $68.0 million of the revolving credit facility to January 2024 and repaid the $84.7 million outstanding balance[67] - The company was in compliance with all applicable debt covenants as of June 30, 2021, maintaining a minimum liquidity balance of $70.0 million through the Relief Period[68] Note 12. Derivative financial instruments - The company uses two interest rate swaps with notional values of $200.0 million and $600.0 million to mitigate interest rate risk on its floating rate debt, fixing LIBOR at 2.85% on $800.0 million of the Term Loan[69] - These interest rate swaps are designated as cash flow hedges but were deemed ineffective due to decreasing interest rates, with all fair value changes recognized through interest expense[70] | Metric | June 30, 2021 ($ in thousands) | December 31, 2020 ($ in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Interest rate swaps (Derivative financial instruments) | 35,924 | 46,340 | Note 13. Fair value of financial instruments - The company's financial instruments, excluding debt, approximate their fair values as of June 30, 2021, and December 31, 2020, with no Level 3 instruments reported[75] | Financial Liability | Carrying Value as of June 30, 2021 ($ in thousands) | Fair Value as of June 30, 2021 ($ in thousands) | | :------------------ | :------------------------------------ | :------------------------------------ | | Term Loan | 943,161 | 927,421 | | Term A1 Loan | 33,969 | 35,327 | | Term A2 Loan | 30,087 | 31,289 | | Term A3 Loan | 27,175 | 27,648 | | Property Loan | 102,521 | 111,841 | | Total liabilities | 1,136,913 | 1,133,526 | - Fair values for interest rate swaps are estimated using expected future cash flows and observable market-based inputs, including interest rate curves and credit valuation adjustments[76] Note 14. Other balance sheet items | Metric | June 30, 2021 ($ in thousands) | December 31, 2020 ($ in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Trade and other receivables, net | 39,695 | 25,433 | | Prepayments and other assets | 39,391 | 47,638 | | Goodwill, net | 61,654 | 61,654 | | Other intangible assets | 8,040 | 8,556 | | Trade and other payables | 138,534 | 123,410 | | Other liabilities | 28,971 | 29,768 | - Trade and other receivables, net, increased by $14.3 million, while prepayments and other assets decreased by $8.2 million[77][80] - Goodwill remained stable at $61.7 million, with no impairment losses recognized during the three and six months ended June 30, 2021[81] Note 15. Segment information - The company operates in four reportable geographic segments: Yucatán Peninsula, Pacific Coast, Dominican Republic, and Jamaica[86] - Performance is primarily evaluated using Adjusted EBITDA and Owned Resort EBITDA, which are non-U.S. GAAP measures[88] | Segment Owned Net Revenue | 3 Months Ended June 30, 2021 ($ in thousands) | 3 Months Ended June 30, 2020 ($ in thousands) | 6 Months Ended June 30, 2021 ($ in thousands) | 6 Months Ended June 30, 2020 ($ in thousands) | | :-------------------------- | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Yucatán Peninsula | 45,067 | 21 | 78,670 | 62,338 | | Pacific Coast | 20,514 | (74) | 29,135 | 21,081 | | Dominican Republic | 33,888 | 11 | 54,769 | 35,607 | | Jamaica | 24,134 | 564 | 35,856 | 52,000 | | Total Segment Owned Net Revenue | 123,603 | 522 | 198,430 | 171,026 | | Segment Owned Resort EBITDA | 3 Months Ended June 30, 2021 ($ in thousands) | 3 Months Ended June 30, 2020 ($ in thousands) | 6 Months Ended June 30, 2021 ($ in thousands) | 6 Months Ended June 30, 2020 ($ in thousands) | | :-------------------------- | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Yucatán Peninsula | 13,022 | (8,004) | 20,196 | 16,931 | | Pacific Coast | 7,078 | (2,816) | 7,563 | 6,056 | | Dominican Republic | 7,926 | (4,881) | 9,592 | 2,908 | | Jamaica | 4,072 | (8,097) | 1,292 | 10,976 | | Total Segment Owned Resort EBITDA | 32,098 | (23,798) | 38,643 | 36,871 | Note 16. Subsequent events - There were no subsequent events since June 30, 2021, that required disclosure in the interim Condensed Consolidated Financial Statements[95] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and operational results, highlighting recovery from the pandemic, key metrics, and liquidity management Cautionary Note Regarding Forward-Looking Statements - The report contains forward-looking statements subject to various risks, including general economic uncertainty, changes in regional conditions, and the success of brand relationships[98][99] - The most significant factor impacting forward-looking statements is the adverse effects of the COVID-19 pandemic, including reduced occupancy, resurgences of variants, and economic impacts[98] - The company disclaims any obligation to publicly update or revise forward-looking statements, except as required by law[100] Overview - Playa is a leading owner, operator, and developer of 22 all-inclusive resorts (8,366 rooms) in Mexico, Jamaica, and the Dominican Republic[101] | Metric | 3 Months Ended June 30, 2021 ($ in thousands) | 3 Months Ended June 30, 2020 ($ in thousands) | | :---------------- | :------------------------------------ | :------------------------------------ | | Net loss | (7,800) | (87,500) | | Total revenue | 128,800 | 1,000 | | Net Package RevPAR| 150.98 | 0 | | Adjusted EBITDA | 22,900 | (31,400) | - The company leverages operating expertise and relationships with global hospitality brands like Hyatt and Hilton to enhance guest experience and drive repeat business[101] Impact of COVID-19 Pandemic - The COVID-19 pandemic severely impacted global leisure travel, leading to temporary resort suspensions in March 2020 and reduced occupancy levels even after reopening[104][105] - As of June 30, 2021, all resorts are open, and occupancy has increased due to vaccine availability and easing travel restrictions, though still below pre-pandemic levels[105] - Liquidity measures taken in 2021 include raising $138.0 million in equity, repaying the Revolving Credit Facility, and selling Dreams Puerto Aventuras ($34.5 million) and Capri Resort ($55.2 million)[106][108] Our Portfolio of Resorts | Segment | Owned Resorts (Rooms) | Managed Resorts (Rooms) | | :----------------- | :-------------------- | :---------------------- | | Yucatán Peninsula | 5 (2,126) | 2 (498) | | Pacific Coast | 2 (926) | 0 | | Dominican Republic | 5 (2,269) | 1 (324) | | Jamaica | 4 (1,104) | 1 (129) | | Total | 16 (6,425) | 4 (951) | - As of June 30, 2021, Playa owned and/or managed a total portfolio of 22 resorts (8,366 rooms) across Mexico, Jamaica, and the Dominican Republic[101][109][110] - New management agreements were entered into for Hyatt Ziva Riviera Cancún (expected Q3 2021 opening) and Hyatt Zilara Riviera Maya (expected Q1 2022 opening), both currently closed for renovations[110] Results of Operations - Three Months Ended June 30, 2021 and 2020 | Metric | 2021 ($ in thousands) | 2020 ($ in thousands) | Change ($ in thousands) | % Change | | :------------------------------------ | :-------------------- | :-------------------- | :---------------------- | :------- | | Total revenue | 128,803 | 982 | 127,821 | 13,016.4%| | Operating loss | (642) | (86,042) | 85,400 | 99.3% | | Net loss | (7,768) | (87,458) | 79,690 | 91.1% | | Adjusted EBITDA | 22,915 | (31,422) | 54,337 | 172.9% | | Adjusted EBITDA Margin | 18.4% | (5,996.6)% | 6,015.0 pts | 100.3% | - Total revenue increased by $127.8 million (13,016.4%) due to the resumption of resort operations compared to the prior year when all resorts were closed[111][115] - Net loss significantly improved by $79.7 million (91.1%) year-over-year[111] Total Revenue and Total Net Revenue | Revenue Type | 2021 ($ in thousands) | 2020 ($ in thousands) | Change ($ in thousands) | % Change | | :------------------------ | :-------------------- | :-------------------- | :---------------------- | :------- | | Net Package Revenue | 101,615 | 302 | 101,313 | 33,547.4%| | Net Non-package Revenue | 22,357 | 240 | 22,117 | 9,215.4% | | Management Fee Revenue | 452 | (18) | 470 | 2,611.1% | | Total Net Revenue | 124,424 | 524 | 123,900 | 23,645.0%| - Comparable Total Net Revenue increased by $124.0 million (24,892.2%) due to the reopening of resorts[114][117] Direct Expenses | Expense Type | 2021 ($ in thousands) | 2020 ($ in thousands) | Change ($ in thousands) | % Change | | :-------------------------- | :-------------------- | :-------------------- | :---------------------- | :------- | | Direct expenses | 79,534 | 20,380 | 59,154 | 290.3% | | Less: compulsory tips | 3,410 | — | 3,410 | —% | | Net Direct Expenses | 76,124 | 20,380 | 55,744 | 273.5% | - Net Direct Expenses increased by $55.7 million (273.5%) due to the resumption of resort operations[118][119] - Food and beverage expenses increased by 2,252.8%, and salaries and wages increased by 149.2% year-over-year[121] Selling, General and Administrative Expenses - Selling, general and administrative expenses increased by $8.8 million (44.6%) to $28.6 million, driven by increased advertising, commissions, and corporate personnel expenses due to resort reopenings[123] - Share-based compensation expense increased by $0.7 million due to January 2021 grants[123] - These increases were partially offset by a $1.2 million decrease in insurance expenses following asset sales[123] Depreciation and Amortization Expense - Depreciation and amortization expense decreased by $2.4 million (10.6%) to $20.0 million, primarily due to asset sales in May 2020, February 2021, and June 2021[124] Impairment Loss - Impairment loss decreased by $25.3 million (100.0%) to zero, as the prior year included a $25.3 million property and equipment impairment from assets held for sale[125] Interest Expense - Interest expense decreased by $2.0 million (9.4%) to $19.0 million, mainly due to a $7.0 million decrease from changes in the fair value of interest rate swaps (non-cash gain in 2021 vs. non-cash loss in 2020)[126] - Cash interest paid increased by $5.0 million to $19.9 million, driven by additional interest from the Additional Senior Secured Credit Facility and Property Loan Agreement[127] Income Tax Benefit - Income tax benefit decreased by $2.2 million (15.0%) to $12.5 million[128] - This decrease was primarily due to lower pre-tax book losses, decreased discrete tax benefits, and increased tax expense from valuation allowances, partially offset by increased tax benefits from the Capri Resort sale and foreign exchange fluctuations[128] Results of Operations - Six Months Ended June 30, 2021 and 2020 | Metric | 2021 ($ in thousands) | 2020 ($ in thousands) | Change ($ in thousands) | % Change | | :------------------------------------ | :-------------------- | :-------------------- | :---------------------- | :------- | | Total revenue | 206,549 | 178,210 | 28,339 | 15.9% | | Operating loss | (53,465) | (82,626) | 29,161 | 35.3% | | Net loss | (77,513) | (110,014) | 32,501 | 29.5% | | Adjusted EBITDA | 20,410 | 18,921 | 1,489 | 7.9% | | Adjusted EBITDA Margin | 10.2% | 11.0% | (0.8)pts | (7.3)% | - Total revenue increased by $28.3 million (15.9%) due to the resumption of resort operations[130][134] - Net loss improved by $32.5 million (29.5%) year-over-year[130] Total Revenue and Total Net Revenue | Revenue Type | 2021 ($ in thousands) | 2020 ($ in thousands) | Change ($ in thousands) | % Change | | :------------------------ | :-------------------- | :-------------------- | :---------------------- | :------- | | Net Package Revenue | 163,698 | 148,398 | 15,300 | 10.3% | | Net Non-package Revenue | 35,226 | 22,663 | 12,563 | 55.4% | | Management Fee Revenue | 796 | 627 | 169 | 27.0% | | Total Net Revenue | 199,720 | 171,688 | 28,032 | 16.3% | - Comparable Total Net Revenue increased by $49.2 million (32.9%) due to the resumption of resort operations[133][137] Direct Expenses | Expense Type | 2021 ($ in thousands) | 2020 ($ in thousands) | Change ($ in thousands) | % Change | | :-------------------------- | :-------------------- | :-------------------- | :---------------------- | :------- | | Direct expenses | 139,755 | 118,278 | 21,477 | 18.2% | | Less: compulsory tips | 5,347 | 5,114 | 233 | 4.6% | | Net Direct Expenses | 134,408 | 113,164 | 21,244 | 18.8% | - Net Direct Expenses increased by $21.2 million (18.8%) due to the resumption of resort operations[138][139] - Food and beverage expenses increased by 24.2%, and salaries and wages increased by 9.0% year-over-year[141] Selling, General and Administrative Expenses - Selling, general and administrative expenses decreased by $0.4 million (0.7%) to $53.2 million, primarily due to lower professional fees and insurance expenses following asset sales[143] - This decrease was partially offset by increased advertising, commissions, and corporate personnel expenses due to resort reopenings[143] Depreciation and Amortization Expense - Depreciation and amortization expense decreased by $6.5 million (13.6%) to $40.9 million, mainly due to asset dispositions and accelerated depreciation from renovation projects in 2020[144] Impairment Loss - Impairment loss decreased by $17.4 million (42.1%) to $24.0 million[145] - The decrease was driven by $25.3 million of property and equipment impairment and $16.2 million goodwill impairment in 2020, partially offset by a $24.0 million property and equipment impairment in 2021 related to the Capri Resort sale[145] Interest Expense - Interest expense decreased by $4.8 million (11.4%) to $37.1 million, primarily due to a $16.0 million decrease from changes in the fair value of interest rate swaps and lower Revolving Credit Facility interest[146] - Cash interest paid increased by $9.8 million to $38.7 million, mainly due to the Additional Senior Secured Credit Facility and Property Loan Agreement executed in June 2020[147] Income Tax Benefit - Income tax benefit increased by $0.9 million (6.4%) to $14.4 million[148] - This increase was mainly driven by higher pre-tax book losses, increased tax benefits from the Capri Resort sale, and foreign exchange rate fluctuations, partially offset by increased valuation allowances and decreased discrete tax benefits[148] Key Indicators of Financial and Operating Performance - The company uses non-U.S. GAAP measures like Net Package Revenue, Net Non-package Revenue, Owned Net Revenue, Management Fee Revenue, Total Net Revenue, Occupancy, Net Package ADR, Net Package RevPAR, Adjusted EBITDA, and Owned Resort EBITDA to monitor performance[149][153] - Adjusted EBITDA is considered a key performance indicator by the Board and management for assessing core operating performance and determining variable compensation[168] - Comparable non-U.S. GAAP measures exclude results from resorts not owned or in operation for the entire reporting period, providing consistent metrics for evaluating operating resorts[170] Segment Results - Three Months Ended June 30, 2021 and 2020 | Segment | Owned Net Revenue 2021 ($ in thousands) | Owned Net Revenue 2020 ($ in thousands) | Owned Resort EBITDA 2021 ($ in thousands) | Owned Resort EBITDA 2020 ($ in thousands) | | :----------------- | :------------------------------------ | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Yucatán Peninsula | 45,067 | 21 | 13,022 | (8,004) | | Pacific Coast | 20,514 | (74) | 7,078 | (2,816) | | Dominican Republic | 33,888 | 11 | 7,926 | (4,881) | | Jamaica | 24,134 | 564 | 4,072 | (8,097) | | Total | 123,603 | 522 | 32,098 | (23,798) | - All segments showed significant increases in Owned Net Revenue and Owned Resort EBITDA due to the resumption of operations compared to Q2 2020 when resorts were closed[174] Yucatán Peninsula - Comparable Owned Net Revenue increased by $45.1 million (68,328.8%) due to resort reopenings[176] - Comparable Net Package ADR was $328.51, benefiting from a change in OTA billing methodology; excluding this, it would be $321.58[176] - Comparable Owned Resort EBITDA increased by $20.4 million (308.2%)[178] Pacific Coast - Owned Net Revenue increased by $20.6 million (27,821.6%) due to resort reopenings[179] - Net Package ADR was $339.20, with a $5.83 benefit from OTA billing changes; excluding this, it would be $333.37[179] - Owned Resort EBITDA increased by $9.9 million (351.3%)[181] Dominican Republic - Owned Net Revenue increased by $33.9 million (307,972.7%) due to resort reopenings[182] - Net Package ADR increased by $75.36 (41.3%) compared to 2019, driven by the opening of Hyatt Ziva and Hyatt Zilara Cap Cana[183] - Owned Resort EBITDA increased by $12.8 million (262.4%)[184] Jamaica - Comparable Owned Net Revenue increased by $23.6 million (3,773.1%) due to resort reopenings[186] - Comparable Net Package ADR decreased by $13.72 (4.3%) compared to 2019[187] - Comparable Owned Resort EBITDA increased by $10.7 million (159.1%)[187] Segment Results - Six Months Ended June 30, 2021 and 2020 | Segment | Owned Net Revenue 2021 ($ in thousands) | Owned Net Revenue 2020 ($ in thousands) | Owned Resort EBITDA 2021 ($ in thousands) | Owned Resort EBITDA 2020 ($ in thousands) | | :----------------- | :------------------------------------ | :------------------------------------ | :---------------------------------------- | :---------------------------------------- | | Yucatán Peninsula | 78,670 | 62,338 | 20,196 | 16,931 | | Pacific Coast | 29,135 | 21,081 | 7,563 | 6,056 | | Dominican Republic | 54,769 | 35,607 | 9,592 | 2,908 | | Jamaica | 35,856 | 52,000 | 1,292 | 10,976 | | Total | 198,430 | 171,026 | 38,643 | 36,871 | - Yucatán Peninsula, Pacific Coast, and Dominican Republic segments showed strong growth in Owned Net Revenue and Owned Resort EBITDA, while Jamaica experienced declines[188] Yucatán Peninsula - Comparable Owned Net Revenue increased by $26.6 million (52.2%) due to resort reopenings[190] - Comparable Net Package ADR was $314.43, with a $3.83 benefit from OTA billing changes; excluding this, it would be $310.60[190] - Comparable Owned Resort EBITDA increased by $6.4 million (42.5%)[192] Pacific Coast - Owned Net Revenue increased by $8.1 million (38.2%) due to resort reopenings[194] - Net Package ADR was $330.29, with a $3.98 benefit from OTA billing changes; excluding this, it would be $326.31[194] - Owned Resort EBITDA increased by $1.5 million (24.9%)[196] Dominican Republic - Owned Net Revenue increased by $19.2 million (53.8%) due to resort reopenings[197] - Net Package ADR increased by $56.06 (26.6%) compared to 2019, driven by the opening of Hyatt Ziva and Hyatt Zilara Cap Cana[198] - Owned Resort EBITDA increased by $6.7 million (229.8%)[199] Jamaica - Owned Net Revenue decreased by $5.3 million (12.8%) due to a higher mix of occupancy at lower chain scale resorts[201] - Comparable Net Package ADR decreased by $53.50 (15.3%) compared to 2019[202] - Owned Resort EBITDA decreased by $7.3 million (89.6%)[202] Non-U.S. GAAP Financial Measures | Metric | 3 Months Ended June 30, 2021 ($ in thousands) | 3 Months Ended June 30, 2020 ($ in thousands) | 6 Months Ended June 30, 2021 ($ in thousands) | 6 Months Ended June 30, 2020 ($ in thousands) | | :-------------------------- | :------------------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Net loss | (7,768) | (87,458) | (77,513) | (110,014) | | EBITDA | 18,747 | (58,789) | (13,899) | (34,320) | | Adjusted EBITDA | 22,915 | (31,422) | 20,410 | 18,921 | | Owned Resort EBITDA | 32,098 | (23,798) | 38,643 | 36,871 | | Comparable Owned Resort EBITDA | 32,776 | (21,029) | 39,502 | 32,219 | - Adjusted EBITDA for the three months ended June 30, 2021, was $22.9 million, a significant improvement from a loss of $31.4 million in the prior year[204] - Comparable Owned Resort EBITDA for the six months ended June 30, 2021, increased to $39.5 million from $32.2 million in the prior year[204] Seasonality - The lodging industry's seasonality typically results in highest demand and package rates between mid-December and April[205] - The COVID-19 pandemic has altered these seasonal trends in 2020 and 2021, impacting predictable fluctuations in revenue and liquidity[206] Inflation - Recent inflation may limit the company's ability to fully offset cost increases by adjusting room rates due to competitive pressures and the ongoing effects of the COVID-19 pandemic[207] Liquidity and Capital Resources - Available cash increased to $237.7 million as of June 30, 2021, from $146.9 million at December 31, 2020, driven by equity raises and asset sales[209] - Short-term liquidity needs are expected to be met through existing cash, equity issuances, or short-term borrowings under the $85.0 million Revolving Credit Facility[211] - Long-term liquidity needs may include property developments, acquisitions, and debt repayment, to be met through various financing sources including equity or debt issuances[212][214] Cash Flows | Cash Flow Activity | 6 Months Ended June 30, 2021 ($ in thousands) | 6 Months Ended June 30, 2020 ($ in thousands) | | :-------------------------------- | :------------------------------------ | :------------------------------------ | | Net cash used in operating activities | (13,578) | (28,396) | | Net cash provided by investing activities | 80,560 | 58,862 | | Net cash provided by financing activities | 23,520 | 227,544 | - Net cash used in operating activities improved to $13.6 million in 2021 from $28.4 million in 2020, reflecting reduced net loss and non-cash adjustments[218][220] - Net cash provided by investing activities increased to $80.6 million in 2021, primarily due to $89.1 million in net proceeds from asset sales[219][220] - Net cash provided by financing activities decreased to $23.5 million in 2021, mainly due to $137.7 million from equity issuance offset by $29.4 million in Term Loan principal payments and $84.7 million in Revolving Credit Facility repayments[221][225] Contractual Obligations - Total debt decreased by $114.1 million to $1,153.2 million as of June 30, 2021, driven by repayments on the Revolving Credit Facility and Term Loan[232] - The company anticipates repaying net proceeds from asset sales (Jewel Dunn's River, Jewel Runaway Bay, Dreams Puerto Aventuras, and Capri Resort) in May 2022, February 2023, and December 2022, respectively, in accordance with credit agreements[233] Off Balance Sheet Arrangements - The company had no off-balance sheet arrangements for the three and six months ended June 30, 2021 and 2020[234] Critical Accounting Policies and Estimates - The preparation of financial statements requires significant management judgment and estimates, which are subject to greater volatility due to the COVID-19 pandemic's increased uncertainty[235] - No material changes to critical accounting policies or methodologies have occurred, except for those disclosed in Note 2[238] Fair Value of Financial Instruments - The fair value of financial instruments, excluding debt, approximates their carrying value, as detailed in Note 13[239] Related Party Transactions - Information on related party transactions is provided in Note 6 to the Condensed Consolidated Financial Statements[240] Recent Accounting Pronouncements - Details on recent accounting pronouncements are available in Note 2 to the Condensed Consolidated Financial Statements[241] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to market risks, including interest rate and foreign currency risks, and management strategies Interest Rate Risk - As of June 30, 2021, 15% of outstanding indebtedness bore interest at floating rates, and 85% at fixed rates[243] - A 1.0% increase in market interest rates on floating rate debt would decrease future earnings and cash flows by approximately $0.2 million annually[243] - The company uses an interest rate swap to manage exposure to floating rate risk, fixing LIBOR at 2.85% on $800.0 million of its Term Loan[243][69] Foreign Currency Risk - Approximately 3.2% of revenues and 84% of operating expenses for the six months ended June 30, 2021, were denominated in currencies other than the U.S. dollar[244][245] - A 5% adverse change in foreign exchange rates would impact net income before tax by approximately $3.5 million for Mexican Peso, $2.0 million for Dominican Peso, and $1.6 million for Jamaican Dollar denominated expenses[246] - The company currently does not have outstanding derivatives or other financial instruments to hedge foreign currency exchange risk[247] Item 4. Controls and Procedures This section addresses the effectiveness of disclosure controls and procedures, reporting on changes and an identified material weakness in income tax provision Disclosure Controls and Procedures - As of June 30, 2021, the company's disclosure controls and procedures were not effective due to an identified material weakness in internal control over financial reporting[248] Changes in Internal Control Over Financial Reporting - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[249] - A material weakness related to the income tax provision (the 'Tax Weakness') identified as of December 31, 2020, has not yet been remediated[249] - Remediation efforts include hiring additional resources and implementing enhanced policies, procedures, and controls for income tax account reconciliations and analysis[249] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section reports on routine legal claims and administrative proceedings, none expected to materially affect financial condition or operations - The company is subject to claims and administrative proceedings in the ordinary course of business, none of which are believed to be material[252] - The ultimate outcome of such proceedings is not expected to have a material adverse effect on the company's financial condition, cash flows, or results of operations[252] Item 1A. Risk Factors This section confirms no material changes to risk factors previously disclosed in the Annual Report on Form 10-K - No material changes to the risk factors have occurred since the Annual Report on Form 10-K filed on March 4, 2021[253] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales of equity securities or use of proceeds from such sales during the period - There were no unregistered sales of equity securities during the period[254] - There was no use of proceeds from unregistered sales of equity securities[255] Item 3. Defaults Upon Senior Securities This section states no defaults upon senior securities occurred during the reporting period - There were no defaults upon senior securities during the period[257] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable to the registrant[258] Item 5. Other Information This section confirms no other information is reported under this item - No other information is reported under this item[259] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL financial statements - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[261] - The financial statements and notes are filed in XBRL (eXtensible Business Reporting Language) format as Exhibit 101[261]