Playa Hotels & Resorts - Q3 2024

Executive Summary

• Q3 2024 results were below prior-year but exceeded internal expectations, driven by FX tailwinds (+170 bps to resort margins), modest fee revenue growth, and lower corporate expense timing; Total revenue was $183.5M, Adjusted EBITDA $25.1M, and Owned Resort EBITDA $36.6M, with diluted EPS of -$0.02.
• Guidance was narrowed to FY 2024 Adjusted EBITDA of $250–$255M (from $250–$275M previously), citing improving Jamaica demand and favorable FX; management guided Q4 Adjusted EBITDA to $48–$53M, occupancy low–mid-70s, ADR up mid-single digits YoY, and ~50 bps FX margin tailwind.
• Segment trends: Yucatán resilient; Dominican Republic steady with reduced BI proceeds; Pacific Coast pressured by renovations; Jamaica materially weaker but improving with lower ADRs to rebuild occupancy into high season.
• Capital allocation remains a positive catalyst: ~$50M of buybacks in Q3 and ~$25M in October, >$140M YTD, with ~$50M authorization remaining; net leverage ~3.3x and strong FCF conversion support continued repurchases.

What Went Well and What Went Wrong

What Went Well

• “Improving demand in Jamaica and the Pacific Coast, combined with continued execution in the Yucatan and Dominican Republic, resulted in our Q3 Owned Resort EBITDA and Adjusted EBITDA exceeding our expectations” – Bruce Wardinski.
• FX helped: management estimated a ~170 bps resort margin tailwind and ~$2.9M EBITDA benefit in Q3, better than anticipated due to favorable MXN/USD moves.
• Direct channel progress and fee income: 46.2% of owned/managed transient revenue booked direct (+50 bps YoY), with Playa Collection fee ramp contributing ~$1M upside in Q3.

What Went Wrong

• Jamaica faced a ~30% RevPAR decline, driven by the U.S. travel advisory and Hurricane Beryl; Owned Resort EBITDA margin fell to 8.9% (-21.9 pts YoY).
• Pacific Coast renovations drove occupancy down ~20 pts and EBITDA down ~60% in Q3; ADR was lower amid construction disruption.
• Company-wide margin compression: Adjusted EBITDA margin fell to 14.2% (-5.6 pts YoY), with underlying margins down ~660 bps after adjusting for FX and BI effects.

Transcript

Operator (participant)

Good day, and welcome to the Playa Hotels & Resorts Q3 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the Star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on a touch-tone phone. To withdraw your question, please press Star and then two. Please note this event is being recorded. I would now like to turn the conference over to Ryan Hymel. Please go ahead.

Ryan Hymel (CFO)

Thank you very, very much, Dave. Good morning, everyone, and welcome again to Playa Hotels & Resorts Q3 2024 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. Forward-looking statements made today are effective only as of today, and the company undertakes no obligation to update forward-looking statements. For discussion of some of the factors that could cause our actual results to differ, please review the risk factor section of our quarterly report on Form Q 10 , which we filed last night at the SEC. We've updated our investor relations website at investors.playaresorts.com. The company's recent releases.

In addition, reconciliations to GAAP of the non-GAAP financial measures we discussed on this call were included in yesterday's release. On today's call, Bruce Wardinski, Playa's Chairman and Chief Executive Officer, will provide comments on the second quarter demand trends and key operational highlights. I'll then review our Q3 results and our outlook for the Q4. Bruce will wrap up the call with some concluding remarks before we turn it over to Q&A. With that, I'll turn the call over to Bruce.

Bruce Wardinski (Chairman and CEO)

Great. Thanks, Ryan. Good morning, everyone, and thank you for joining us. Our Q3 results exceeded our expectations, led by steady underlying performance in our Yucatan and Dominican Republic segments and improving demand in the Pacific Coast and Jamaica. Following the disruption in bookings due to Hurricane Beryl, underlying demand reverted back to trend across our segments or has slightly improved in the case of Jamaica. Playa's own resort EBITDA of $36.6 million in the Q3 of 2024 included a benefit from business interruption insurance proceeds of approximately $700,000 in Q3 2024, compared to the $1 million in business interruption proceeds we received in Q3 2023.

Excluding business interruption, the upside compared to the expectations shared on our last earnings call was driven by: one, better than expected close in demand in the Pacific Coast and Jamaica, and better than expected ADR growth in the Yucatan and Dominican Republic. Two, $1 million of higher fee income driven by the continued ramp of the Playa Collection. Three, $1 million of lower corporate expense, which was partially timing related with some of the expected expense falling into the Q4. Four, a favorable year-over-year foreign currency exchange tailwind of approximately $2.9 million, which was higher than we anticipated. Given the sharp drop in the US dollar/Mexican peso conversion rate in the weeks ahead of our Q2 earnings report, we felt it would be prudent to approach guidance with a potential reversal of the favorable move in mind.

However, the dollar/peso exchange rate continued to move in a favorable manner throughout the quarter. For Q3 2024, we estimate that foreign exchange was a 170 basis points tailwind for both our reported owned resort EBITDA margin and on our legacy portfolio margins. Business interruption proceeds received in Q3 2024 favorably impacted resort margins by approximately 40 basis points, but was an approximate 10 basis point net headwind on a year-over-year basis, as the amount of business interruption proceeds received was slightly lower year-over-year. Adjusting for all of these factors, underlying owned resort EBITDA growth was down approximately 36% in the Q3 for the total portfolio and down approximately 39% for the legacy portfolio, reflecting one, the significant impact of Hurricane Beryl, two, the construction disruption in the Pacific Coast, and three, the U.S. State Department travel advisory on our Jamaican segment.

We expect our underlying EBITDA growth to improve substantially in the Q4 compared to the negative 36% in the Q3 , as the Q4 will have: one, less of an estimated impact from Hurricane Beryl, two, less disruption in Los Cabos, three, improving demand in the Pacific Coast and Jamaica, and four, expected overall strength and fundamentals for the holiday period. At the segment level, our teams in the Yucatan did an excellent job on the cost run, despite the challenges presented by Hurricane Beryl. Occupancy declined 270 basis points year-over-year in the Q3, driving currency-neutral margins to decline by approximately 450 basis points year-over-year and underlying EBITDA growth of negative 17%.

As you may recall, following the realignment of key management personnel, we've been revisiting various processes, staffing models, and procurement practices since the second quarter of 2023, and the results of our efforts really began to show in the second half of 2023 as ADR growth moderated. As we've mentioned on previous earnings calls, the process improvements will be iterative, and we will continue increasing efficiency where possible to help offset the impacts of rising wages and inflation in various expense categories, but the contribution from our expense initiatives will taper on a year-over-year basis moving forward as we lap the implementation of our measures. In the Pacific, our planned renovation work in this segment continued during the Q3, with the peak of the guest impact in construction work taking place during Q3. Demand began to firm up as we moved through the peak of the construction disruption.

While this has been encouraging, the increased demand is coming at lower ADRs given the ongoing construction. We anticipate completing the bulk of the renovations ahead of the holidays, with the remaining rooms to be completed in early 2025. Turning to the Dominican Republic, we completed the sale of the Jewel Punta Cana Resort in late December of 2023, and the Jewel Palm Beach Resort was closed for a significant portion of Q1 2023 and sold in the Q3 of this year. The remaining core resorts in this segment continue to perform well on an underlying basis, and we expect year-over-year occupancy and ADR to increase in the Q4 following the dip in Q3 as a result of Hurricane Beryl.

As previously mentioned, year-over-year comparisons in the segment were also impacted by the receipt of $1 million of business interruption proceeds during the Q3 of 2023 and $700,000 of business interruption proceeds received in Q3 2024. Finally, Jamaica's Q3 was largely as expected, with the approximate 30% RevPAR decline driving a material decline in resort EBITDA. As we outlined on our last earnings call, the segment was starting to regain its footing, especially for the Q4 but the recovery was significantly disrupted by Hurricane Beryl in late June. Although the physical property impact of Beryl was not significant, it had a meaningful impact on demand for the summer and early fall period in both the Caribbean and the Yucatan, as both destinations were in the direct path of the storm.

However, the recovery resumed as we moved through the quarter, and ADRs in the market adjusted lower. As we look ahead to the Q4 and first half of 2025, our occupancy is pacing close to flat year-over-year, albeit at lower ADRs. This is encouraging as it is the first step toward rebuilding the market, and the relative value should aid the destination over time. Looking at demand as a whole, following the significant disruption in booking patterns caused by Hurricane Beryl, we largely saw demand normalize as we moved through the quarter, with the status quo segments of the Dominican Republic and Yucatan Peninsula returning to underlying trends and the Pacific and Jamaica actually seeing underlying improvement, particularly for the holiday period.

Looking at the Q4, our revenue is pacing up, low single digits in the Yucatan, up mid-teens in the Dominican Republic, and down low double digits in Jamaica, with the latter marking a significant improvement compared to the approximate 30% decline in the Q3. More importantly, the upcoming high season is continuing to build nicely, and the demand looks solid, with ADR up low single digits for the total portfolio and up high single digits excluding Jamaica. In aggregate, during the Q3 of 2024, 46.2% of Playa-owned and managed transient revenues booked were booked direct, up 50 basis points year-over-year. PlayaResorts.com accounted for approximately 13% of our total Playa-owned and managed transient room night bookings, continuing to be a critical factor in our customer sourcing and ADR gains.

Taking a look at who is traveling, roughly 40.8% of the Playa-owned and managed transient room night stays in the quarter came from our direct channels. Geographically, our South American, European, and Canadian guest mix all improved meaningfully year-over-year as our American-source guest mix continues to normalize. Recovery of our Canadian guest segmentation versus pre-pandemic remains near approximately 80%, and our American guest mix is roughly back to pre-pandemic levels. Our European and South American guest mix remained the most elevated versus pre-pandemic at approximately 175%-200%, while our Asian guest mix was largely unchanged and remains only about 25% recovered. Our visibility remains a critical factor for success, as our booking window was just over three months during the Q3.

Finally, on the capital allocation front, we repurchased approximately $50 million worth of Playa stock during the Q3 and roughly an additional $25 million thus far in the Q4, bringing our total repurchases since resuming our program in September 2022 to approximately $375 million, or approximately 29% of the shares outstanding. Once again, I would like to sincerely thank all of our associates who have continued to deliver world-class service in the face of unexpected challenges and rising operating costs. Their unwavering passion and dedication to service from the heart is what truly sets Playa apart. With that, I will turn the call back over to Ryan to discuss the balance sheet and our outlook.

Ryan Hymel (CFO)

Thank you, Bruce. I'll begin with a recap of the segment fundamentals, followed by an overview of our balance sheet and expected uses of cash, and conclude with our outlook. Before I begin, all references, as a reminder, to expense and margin KPIs are on a currency-neutral basis and also exclude business interruption proceeds unless otherwise stated. Our Q3 results were slightly ahead of our expectations on a fundamental basis as demand improved through the quarter. Outside of core owned resort operations, as Bruce mentioned, given the volatility in the dollar/peso exchange rate around the time of our last earnings call, we felt it was prudent to use an exchange rate that was below spot rates at the time of the call, leading to an upside from FX in the quarter as the dollar/peso exchange rate remained favorable.

Other factors driving the beat were $700,000 business interruption proceeds, higher fee revenue from the Playa Collection, and the timing of corporate expenses all contributed to better-than-expected adjusted EBITDA. Reported owned resort EBITDA margins declined over 500 basis points year-over-year, including a net negative impact of 10 basis points from lower business interruption proceeds in the quarter versus last year, and a positive FX tailwind of 170 basis points. Adjusting for FX and BI, our underlying margins declined 660 basis points, reflecting the impact of Hurricane Beryl, the peak disruption of the renovation work in the Pacific, and the challenging environment in Jamaica.

On the cost front, similar to what we're experiencing in bookings in recent months, trends normalized post-Hurricane Beryl, and our underlying expense inflation assumptions across the major cost buckets have remained steady since our last update, with labor remaining a headwind and food and beverage costs favorably impacting margins. Returning to our MICE group business, our 2024 net MICE group business on the books is approximately $68 million, up roughly 13% compared to the same time last year. For 2025, we have currently $45 million of MICE business on the books, which is a decline versus prior year. The decline was expected, however, given the renovation work in the Pacific Coast and lapping a large group buyout of our Los Cabos Resort in Q1 of 2024.

As a reminder, that buyout in the Pacific in Q1 of this year was a legacy contract booked at far below market rates, which resulted in the Q1 Pacific Coast reported occupancy up 7.3% points year-over-year, but an ADR decline of just under 3%. Finally, turning to the balance sheet, during the second quarter, we again repriced our term loan, which is due 2029, reducing the spread by an additional 50 basis points to SOFR plus 275, saving over $5 million per year and cumulatively over $15 million annually since our original refinancing in December of 2022. We finished the quarter with a total cash balance of $211.1 million and total outstanding interest-bearing debt of $1.08 billion. We currently have no outstanding borrowings on our $225 million revolver, and our net leverage on the trailing basis stands at 3.3 times excluding lease capitalization.

We continue to anticipate our cash CapEx spend for full year 2024 to be approximately $100 million-$120 million for the year, partitioned out between roughly $40 million-$45 million for maintenance and other critical CapEx, and the remainder designated for ROI-oriented projects. Also, as a reminder, effective April 15th, we entered into two interest rate swaps to mitigate the floating rate interest risk in our term loan due 2029. We entered into two and three-year contracts, both of which have a fixed notional amount of $275 million and carry fixed SOFR rates of 4.05% and 3.71%, respectively. Separately, we have implemented FX hedges on approximately half of our Mexican peso exposure for 2024, which has greatly reduced the volatility of the impact on our reported EBITDA this year.

Based on the exchange rates at the time we entered into the FX forwards, we estimate the full year 2024 EBITDA impact from the Mexican peso to be roughly $0-$3 million headwind, which is slightly better than our previous outlook of a $5-$8 million headwind. We expect the Q4 FX impact to be a favorable approximately $1 million. On the capital allocation front, as Bruce mentioned, we repurchased an additional $50 million of stock during the quarter and an additional approximately $25 million thus far in Q4 of this year. Since we began repurchasing shares in September of 2022, we've repurchased over 48 million shares, or over 29% of our float. We still have over $50 million remaining on our existing repurchase authorization.

With our leverage ratios at or near three times, plus the anticipated Free Cash Flow generation of the business and the attractive valuation of our stock, we continue to believe repurchasing shares is a very compelling use of capital and intend to use our discretionary capital to repurchase shares going forward, depending, of course, on market conditions. Now, turning our attention to our outlook for 2024. First, again, I'd like to remind everyone of the unique items affecting the comparability of our financials compared to 2023 before we dive in. So, as a reminder, first, foreign exchange, the Mexican peso and the appreciation of the peso had a $24.5 million impact on Adjusted EBITDA in 2023. Business Interruption in 2023, we recognized $6.1 million of BI proceeds, with $4.3 million coming in the second quarter of 2023 and approximately $900,000 in Q3 and Q4 of last year, respectively.

As a reminder, the DR Jewel Properties, both of which have been sold, resorts recorded an EBITDA loss of approximately $15 million and negatively impacted owned resort margins by 280 basis points. Roughly one-third of the loss occurred during the first quarter of 2023 as the Jewel Palm Beach Resort was closed for the majority of the quarter. So now, turning to our outlook, we currently expect full year 2024 adjusted EBITDA to be $250-$255 million, which includes the following key considerations and inputs. Firstly, our expectation for occupancy is unchanged. We still expect to be up low single-digit percentage points for the total portfolio and down low single digits for the legacy portfolio.

We expect a slight improvement in the total portfolio ADR growth, as we now expect mid-single-digit ADR growth reflecting the disposition of the Jewel Palm Beach Resort, and we expect to be up low single-digit ADR growth for the legacy portfolio. There's currently no change to the RevPAR growth of mid-single-digit to high-single-digit for the total portfolio, and we still expect to be down low single-digits for the legacy portfolio. As I mentioned, we still expect an FX headwind of approximately $0 million-$3 million for the full year based on current exchange rates net of our forwards. We still expect construction disruption impact in the mid- to high-teens in the Pacific Coast for the renovations. As I mentioned, there's no change in underlying expense inflation assumptions.

As we've mentioned in previous calls, we've been diligently working to improve our efficiency, and we still believe we've lowered our margin leverage hurdle to approximately 4% ADR growth to hold margins flat on a currency and business interruption adjusted basis. We expect a modest net negative impact from annualizing corporate expense increases from 2023, which again is partially offset by higher and growing fee income, particularly from the Playa Collection. Returning specifically to our Q4 outlook for the Q4, we expect reported occupancy to be in the low to mid-70s and reported package ADR to increase mid-single digits on a year-over-year basis. We expect owned resort EBITDA margins to decline significantly year-over-year, given the obvious continued renovation disruption in the Pacific and the aforementioned $900,000 of business interruption proceeds recorded in Q4 of last year, which again was a positive 40 basis points impact to the comparison period.

FX again is expected to positively impact margins by approximately 50 basis points. Putting it all together, we expect Playa Collection and management fee income of $2 million-$3 million, corporate expense for the quarter of $15 million-$16 million, and Adjusted EBITDA of $48 million-$53 million. Again, we anticipate that Hurricane Beryl will have a negative impact on the Q4, but the bulk of the storm's disruption was felt in the Q3. Given our booking window, we're currently 95% booked for the Q4 as of the end of October. We hope that this framework helps guide you as you fine-tune your models and gives further insight into what we're seeing and expecting. With that, I'll turn the call back over to Bruce for some closing remarks.

Bruce Wardinski (Chairman and CEO)

Great. Thanks, Ryan. Following the disruption caused by Hurricane Beryl, fundamentals are largely back on track as we near the upcoming high season. I'm encouraged by the improvement in Jamaica and the momentum as we approach the holidays, but we remain mindful that we still face headwinds early in 2025 until we lap the decline in Jamaica and as we build up higher-rated bookings in the Pacific following the anticipated completion of the renovation work in early 2025. The sizable opportunity ahead in 2026 following the renovation of Zilara Cancun and the anticipated ramp in MICE business in Los Cabos should create meaningful shareholder value for years to come. We intend to continue executing at a high level and managing costs while returning free cash flow to shareholders through share repurchases. With that, I'd like to open up the call for your questions.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press Star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star and then two. Our first question comes from Patrick Scholes with Truist Securities. Please go ahead.

Patrick Scholes (Managing Director)

Hey. Good morning. Thank you. Ryan and Bruce, I wonder if you could give us, if possible, a little bit of your initial expectations for 2026. Certainly, 2025, you're going to have an earnings hit from renovation disruption. But how might we think about what potentially a range of Adjusted EBITDA could be for 2026 coming out of the 2025 renovations? Thank you. If you can provide.

Ryan Hymel (CFO)

Yeah. Sure. I mean, we're certainly a long way from giving guidance for 2026, but I think it might be helpful to bridge you to 2025 and make sure everybody understands those building blocks so then you have a good idea for then what could potentially come back in 2026. I think that's the best way to think about it before we start commenting on any sort of fundamental assumptions two years out. I think that's probably the best way to do it if that's okay with you, CPAT. But let's start with 2025. Yeah. Let's start with 2025. So you heard us talk many times about the significant renovation disruption in the Pacific, and we've said we've had kind of high teens disruption, EBITDA disruption. So let's call that $20 million.

That work is largely completed by the end of this year, but there will still be rooms out of service next year in Q1. So we expect, just by virtue of having rooms back online in Q2 through Q4, we will recoup some of that $20 million disruption next year, but not all of it. So as a baseline of assumption, we've assumed roughly half of that $20 million. So you get positive $10 million, right? Could we outperform? Certainly. We don't expect that we'll have group substantially next year because groups are booking for 2026, and the sentiment from meeting planners is that the room rent work that we've done there is great, but we don't expect big group business in 2025. So that's why we expect roughly to get half of that back. So let's talk about that. That's a positive $10 million for next year.

Jamaica is still a wild card. As a reminder, we won't lap the impacts to the travel advisory warning until Q2 of next year because our first quarter was still pretty good this year. So net-net, our best estimate for the impact of annualizing that travel advisory warning is a negative $10 million to next year. So up 10, down 10. We've talked about our plans for renovating the Zilara in Cancun. I know we've covered all the reasons why, but it's a spectacular asset, and I think it's going to drive some nice incremental returns in 2026 and beyond. But that property does roughly high teens EBITDA this year, so we'll keep it open through the end of March next year, shut it down, reopen at the end of the year.

And so net-net, it's roughly a $20 million year-over-year swing because it'll obviously lose money and have carrying costs throughout the time it's closed. So that's a down $20 million impact. You have to remove business interruption that we recorded this year. But then lastly, the nice tailwind is, as I'm sure you've followed, the foreign exchange, the Mexican peso has weakened substantially. It started doing so in June and July, but really weakened in August. And we actually leaned into it and layered on 12 more Mexican peso forwards for 2025 throughout the year at a weighted average of roughly 19.5. So all that means is you're walking into next year with roughly $12 million-$17 million of EBITDA in your pocket, mostly first half weighted.

Add all that up, CapEx, you're roughly flat to probably down five-ish next year for 2025 before you make any assumptions on operating fundamentals or any assumptions yet on what will happen with Jamaica when you start to lap the travel advisory. Now, you skip ahead to 2026, far from guidance, you could at least expect that you get back the additional $10 million in the Pacific, right? You would at least get back, and hopefully more, the $20 million lost from the Zilara Cancun. And then you can start to make assumptions on how the shape of the recovery plays out with Jamaica. Right now, Bruce touched on it, and we talked about it in the prepared remarks. We've seen occupancy begin to stabilize because of some of our yield management tactics. We've essentially been stimulating demand the old-fashioned way by lowering ADRs.

The pacing for occupancy looks good, but it's at the expense of ADR. This is a first step in recovering that market. Hopefully in 2026, you're able to start yield managing ADR up as you've kind of returned occupancy to previous levels. Net-net, that puts you in the plus $30 million plus-plus. You're somewhere in the potentially $275 and above. Again, that's extremely early. That's a long way off. Then you can layer in incremental growth from the renovations, any fundamental growth you expect in the markets, and how Jamaica recovers. I know that was a long answer, but I thought it was important to give you those building blocks.

Patrick Scholes (Managing Director)

That was great. More than I expected. It sounds like you're well prepared for the call to answer a question like mine. So thank you. I appreciate it.

Ryan Hymel (CFO)

Thanks, Pat.

Operator (participant)

The next question comes from Smedes Rose with Citi. Please go ahead.

Smedes Rose (Director)

Hi. Thank you. I just wanted to maybe talk a little just nearer term. You mentioned some of the bookings activity you're seeing in the Q4, but maybe just a little more color around, I guess, what's called the festive season that we're hearing other companies talk about. And then if you could maybe just talk a little bit more about the recent announcement that Hyatt made with an all-inclusive group in the same regions you're competing in. Do you think it matters for you one way or the other with them taking over management of those assets?

Ryan Hymel (CFO)

Yep. I'll let Bruce handle the second one. We're still not too dissimilar to what others have said. Our festive season looks pretty good, particularly at our Yucatan and the DR segment. Both are pacing up for Q4 and for Q1. Obviously, Jamaica ADR and revenue is still pacing down as we haven't reached the reference point by which the travel advisory started to take effect, and the Pacific is still largely behind because of the rooms offline, but our steady-state markets are pacing very well for both Thanksgiving and the festive season, which we're very excited about.

Bruce Wardinski (Chairman and CEO)

None. Smedes, on the Hyatt announcement, I think it's a great deal for Hyatt. I think I've said all along that in our space, and this goes back to our founding in 2006, that there's a tremendous opportunity in the all-inclusive segment for consolidation. There's a lot of family owner-operator companies just like Grupo Piñero, which operates under the Bahia Principe brand, and I think what Hyatt's doing is just really smart strategically. They already are the dominant major global brand in all-inclusive with the original deal with us and then with their acquisition of Apple Leisure Group and now with this transaction, so I think it's really, really strategically smart for them, and I think you'll continue to see that in other brands doing these same kind of deals. Now, with regards to, does it impact us? Quite honestly, no.

Number one, it's already existing stuff that's out there, so it's not like you're adding new rooms into these markets. Number two, for the most part, these properties are different, very different than ours. They're very large properties with lots and lots of rooms at them. They traditionally sell through tour operator channels, and they're at a lower price point than our properties tend to be. And they go after, quite honestly, a different kind of customer. So I think it's a great add-on for Hyatt, and I don't think it's any kind of negative for us whatsoever. Okay. Thank you.

Operator (participant)

The next question comes from Tyler Batory with Oppenheimer. Please go ahead.

Tyler Batory (Executive Director)

Thank you. Good morning, so I want to talk through a little bit more of the commentary on Jamaica, and the first question that I have is, it sounds like you've been able to build some occupancy with lower ADR. Are other resorts in the market doing the same thing? Can you talk about the competitive environment in Jamaica? I don't want to suggest that there's potentially a race to the bottom sort of dynamic here, but how do you think about rebuilding some of the ADR and price as the demand starts to come back?

Ryan Hymel (CFO)

Yeah. I don't think there's a race to the bottom. It's an absolutely fair question. As we moved throughout this year and started seeing that a lot of the promotional activities that were more short-term in nature were having, just as you would expect, a short-term impact. And then also, Bruce had a lot of discussions with other owner-operators. I'm sure you can guess who they are in that destination. A lot of people were feeling the same sort of pressures. We also started looking around, seeing that there were one or two new resorts, not massive, but new resorts that came into markets nearby some of ours at lower introductory rates, and that lower price was moving demand.

And so we said, "Look, let's just take a step back and figure out at what point can we at what price point can we move our occupancy from using round numbers, 60-something% to back into the 70s?" And we found that with a 10%-15% ADR decline. And so the nice part is you're building occupancy back up. You start to see it pacing flat from an occupancy perspective kind of into the high season, which is nice, and then it allows the revenue management teams to start to yield manage from there. To be clear, Q1 will still be a headwind just because we had a great Q1, and ADRs will still be down because of this travel advisory.

But the hope is, and I think a great fantastic goal would be, by the time you're exiting 2025, perhaps you've started to build EBITDA back up again, albeit at lower margins. Obviously, when you have lower ADRs, higher occupancies, it's going to eat into margin. But then you exit 2025 with a good base of occupancy, potentially better, and then hopefully have the ability to yield up from there. It's nothing scientific other than just getting heads into beds again. And Bruce mentioned in his prepared remarks as well, there is something to be said about the relative value this will start to show versus our other destinations. People still want to go, and they're like, "Okay. Jamaica, for what it's worth, is however many dollars cheaper to go for a great experience at any one of the resorts there versus heading to the DR Mexico.

Let's check it out." So we've seen this play out over time, and hopefully we're on the right path here. So this is step one.

Tyler Batory (Executive Director)

Okay. Great. Follow-up question on airlift into your markets. I don't know if you can talk a little bit more about what you're seeing, especially early next year. Not sure if there's been some movement in terms of seats going from different markets, just given some of the dynamics and some of the demand trends in Jamaica too.

Ryan Hymel (CFO)

Yeah. I mean, as you saw, and if you can follow the same data, the airlift in our markets kind of in prior to and then through Q1 was quite robust. It started to decline across generally all our markets in Q2, basically low single digits year over year, but still very healthy versus 2019. And basically, essentially what we saw was airlines start to normalize capacity. Based on the scheduled seats into the destinations in Q4 and Q1 next year, that decline is stabilizing, and it still remains at those healthy levels versus 2019. So I think what you'll see, again, based on what is scheduled, Q3 kind of was the bottom, and then Q4 is starting to work its way back up, which is nice to see. I do think load factors should be able to kind of help mitigate the magnitude of this decline.

People have asked us too, Tyler, "Okay. You've seen airlift go down into Cancun. Why aren't you seeing massive hits to your resorts?" Part of it is just the basic location of where our assets are located in the prime locations in the hotel zones, very, very close to the airport or at most 45 minutes away when you think about our assets in Playa del Carmen. So maybe we've been stealing share from some of those folks that are further away, further into Tulum or places far to the north like Playa Mujeres and others. But also at the same time, it comes to the going back to the original decision by Bruce and the team to focus on ADR and not having our hotels sit at 90% full coming out of COVID.

And so if there are declines in airlift into the markets and our relative value that we present to the customer still resonates, we're fine with it because we can still get 70%-80% occupancies without blinking an eye.

Tyler Batory (Executive Director)

Okay. And then the last question is just housekeeping on FX. And I appreciate the numbers and the details and the guidance. When we look at the EBITDA impact that you provided for Q4 and for 2025, what sort of spot rate is assumed for that impact? How much of your 2025 exposure is hedged at this point? Is there an easy way to think about the potential sensitivity to EBITDA depending on what might happen with the currency?

Ryan Hymel (CFO)

Yeah. So let's start with Q4. The midpoint of our guidance assumes 19, which is slightly stronger than spot rates. The data went on a wild ride on Tuesday during the election, but basically finished flat, and it's a little stronger today, but still above 19. So if the FX weakens or stays where it is or kind of gets closer to 20, that kind of helps lead to outperformance in our guidance range. When you think about next year, we hedged roughly. It's not a perfect number because, as you can imagine, the quantum of Mexican peso expenses moves as we forecast out. But we hedged roughly 70%-75% of our Mexican peso denominated expense base.

And the rates that we put in at the time we did it in August, obviously it was a curve, but it essentially is a weighted average of a little over 19 and a half for the full year. So based on that 19 and a half and based on where the rates were this year and where we expect them to remain for the rest of this year, that's how you get to roughly $12-17 million, to call it $15 million of FX tailwind as you walk into next year. So roughly, the sensitivity is one point change in MXN is roughly $2.75-ish million dollars of EBITDA per quarter on a hedged basis, on unhedged basis.

Tyler Batory (Executive Director)

Okay. Okay. All right. That's all for me. Appreciate that detail. Thank you.

Operator (participant)

The next question comes from Chad Beynon with Macquarie. Please go ahead.

Chad Beynon (Managing Director)

Hi. Good morning. Thanks for taking my question. Ryan, you talked about CapEx this year, $100 million-$120 million. Can you help us? Can you frame out roughly what it would look like in 2025 based on the Zilara project? And then how does that kind of fit into the share repurchases, which have been running really strong lately? Bruce, I think you said you have $50 million left, but just help us there on the capital allocation side, please. Thanks.

Ryan Hymel (CFO)

Yeah. Yeah. I mean, the board has been very supportive of re-upping our authorizations whenever needed, and they're still, just like Bruce and I, big fans of continuing to purchase back our stock. Our expectation for next year is that kind of the overall CapEx spend is not too dissimilar from this year because you'll be finishing some of the work, finishing out the work in the Pacific, but then beginning the project in Cancun, which on a per-key basis, we're still working through the numbers, but it's obviously higher just because it's a full renovation and bringing a property to a pretty nice and wonderful high level. So we expect roughly the same quantum. Again, the nice part is that our free cash flow generation remains incredibly strong.

We're still converting anywhere from 40%-50%, sometimes 55% of our EBITDA into free cash flow after normal fixed expenses. So we have the luxury today of continuing to do both. Obviously, if something changed in the macro, we'd have to rethink it. But our consistent stance has been we want to be consistent buyers of our stock and continue to thoughtfully reduce our float as we continue to invest in our existing property base. And the nice part too is you've seen us sell some of the non-core assets. So that's great. And so really, once you think about finishing the work in the Pacific and once we get through the Zilara renovation next year, the portfolio is largely in pretty good shape, short of regular maintenance CapEx that you do annually.

Chad Beynon (Managing Director)

And I just want to emphasize what Ryan said.

It's a very key plank of our strategy, and we tend to continue to do it. We have a good amount of cash right now on our balance sheet. As Ryan said, we sold non-core assets. We have a couple more non-core assets to sell. We kind of take that capital, we redeploy it into the CapEx, and we really target the free cash flow for the stock buybacks. But we've been buying at a very consistent and significant level, and we intend to continue doing that.

Okay. Great. Thank you. And then can we just talk roughly about some of the expense components to help us frame out margins, maybe looking at that farther out target? I know you went over how the peso impacts margins and what that benefit should be. But just as we think about some of the other items, has anything really changed in, let's call it, the past six months? And based on kind of where we're seeing energy and utility prices and maybe just kind of cost of food, etc., is there an opportunity to improve margins on a same-store basis once some of the disruption is complete? Thank you.

Ryan Hymel (CFO)

Yeah. I believe so. I mean, we still continue to make headwinds, particularly on F&B and procurement. The team has been a tremendous, tremendous asset to us here, taking advantage of our size and scale and our buying power. So you've heard me talk about it before, but F&B is roughly 20-ish, a little less% of our cost basket. And the efforts thus far have resulted in 20-30 basis points in annualized cost savings permanently. And I think we're only 30%-40% of the way through our addressable base. So there's more to be done there, and we expect to kind of continue to focus on that area. You heard us talk about we're lapping the impacts of some of these now, and you'll see us lap those impacts in Q4 of this year.

Starting in the middle of last year, we started to kind of reprioritize some of our staffing models and rethink them coming out of COVID. We redid our operations team in Mexico, brought in a new head of operations who's been a key, key component to rethinking our staffing because labor remains still a headwind. We still, every year, contend with minimum wage increases or union negotiations or any government-mandated changes because of a change in president or prime minister or policy or whatever. So it's still going to be just as important, but we still expect F&B to be helpful and labor to be a headwind. And labor is like roughly 30% of our cost basket. So it's something we have to contend with. FX is roughly, to your question, 65-70% of our overall OPEX.

It does have a big impact in what we do. That's why our focus has been and the way we speak to everyone in the investment community about our margins on a constant currency basis and why we wanted to enter into these hedges to at least remove the volatility on either end and make it a little more predictable because these last couple of years have been more volatile than my entire career at this company, which has been since it was incepted in 2006. It's been a little bit more difficult to wade through. I think if we keep focusing on F&B and procurement and hopefully do our best with labor, we should be able to kind of at least maintain that roughly mid-single-digit ADR hurdle rate to maintain margins on a constant currency basis.

Chad Beynon (Managing Director)

Excellent. Thanks, Ryan. Appreciate it.

Operator (participant)

This concludes our question and answer session. I would like to turn the conference back over to Bruce Wardinski for any closing remarks.

Bruce Wardinski (Chairman and CEO)

Great. Thanks, everybody. It was a good quarter for us. We're looking forward to continuing the strategy that we outlined today and driving value for Playa shareholders. Thank you very much for being part of our call today.

Operator (participant)

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