Ryan Hymel - Executive Vice President and Chief Financial Officer Bruce Wardinski - Chairman and Chief Executive Officer.

Chris Woronka - Deutsche Bank Smedes Rose - Citigroup Paul Penney - Northland Capital.

Good morning. My name is Mikey, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Second Quarter Playa Hotel Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be question-and-answer session. [Operator Instructions] Thank you. Mr.

Hymel, you may begin your conference..

Thank you very-very much. Good morning, everyone, and welcome to Playa's 2018 Second Quarter Earnings 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 actual results to differ, please review the Risk Factors section of our most recent filing.

We have updated our IR website at investors.playaresorts.com with today's presentation and recent releases. Also, as we discuss certain non-GAAP measures, it may be helpful to review the reconciliations to GAAP located in our press release.

On today's call, Bruce Wardinski, Playa's Chairman and CEO, will provide some perspective on the quarter, key operational highlights and include our most recent acquisition in the first month performance of our Sagicor portfolio.

Bruce will then turn the call back over to me, and I will address our Q2 results and other financial matters for the company. We will then take your questions. With that, I will turn the call over to Bruce..

Great. Thanks, Ryan. Good morning, and thanks to everybody for joining us today. We're very happy to report that the second quarter was another successful period for Playa strategically and operationally as results exceeded our internal expectations.

I remain extremely bullish in my search and Playa will continue to enhance and grow its position as the leader in the all-inclusive space, a high-growth, very profitable and extremely fragmented sector.

This is no more evident than our successful consummation of the acquisition of the Sagicor portfolio of resorts in Montego Bay and Ocho Rios in Jamaica.

Well, it's still very early in our ownership having only included one month of contribution to our second quarter results, the portfolio is performing above our initial underwriting and bear in mind this is before implementing many of the value enhancing initiatives we've identified previously.

These are straightforward steps for Playa including incorporating preferred rates with OTAs and tour operators, purchasing and centralized services synergies, and cost synergies by integrating several functions including accounting, marketing, legal, procurement, and insurance.

While we are on the topic we'd like to publicly welcome to Sagicor properties to Playa family and personally thank the integration teams and the associates for always putting our guests first and keeping service level high during what must have been a very challenging time.

The excellent third-party reviews we received throughout the transition or testament to the character loyalty and passion for service I characterize Playa teams and we look forward to working with you to continue to exceed our guest expectations every day. This hard work certainly translated to financial results.

As you've seen from our release the Sagicor portfolio contributed $8 million of total revenue and $2.8 million of resort EBITDA during the 29 days we owned the resorts. We are very encouraged by these early results and look forward to further enhancing value at these excellent resorts.

This portfolio of assets highlights Playa's focus on continuing to diversify geographically. Our owned rooms in Jamaica grew from 10% to 26% of our total portfolio and this deal increases Playa's footprint in one of the best all-inclusive markets in the Caribbean with strong growth in the tourism sector.

International airport arrivals into Jamaica grew by 8% in 2017 to reach $4.2 million visitors with over 95% of tourist visits for leisure purposes. Another topic that we wanted to discuss today with some of the more positive macro news that we are seeing out of Mexico.

Everyone is aware of the negative press and travel advisories that have come out over the last 12 months but we are encouraged by some of the recent positive events as we near the anniversary of when this all started.

The first is the election of Andrés Manuel, López Obrador as president who will serve a six-year term representing a coalition that includes three parties all of which obtained majority in both Chambers of Congress. We view the potential here for successful legislative negotiation as a positive for Playa.

López Obrador's administration will be inaugurated on December 1, 2018. The president elects team is yet to make a public formal plan but we wanted to summarize some of his positions on economic and tax policy most applicable to Playa. These are based on public statements made during his campaign and his election day victory speech.

Some key points are, one, Obrador's campaign was tough on crime and corruption and focused on tourism in infrastructure improvements as the key catalyst for employment and wage growth.

Two, he will not increase tax rates there will be no tax reform for 2019 but likely for 2020 where both income tax and VAT are expected to be reduced for border regions. Three, creation of a public-private investment fund to deploy infrastructure projects and his emphasis on tourism as a facilitator of jobs, entrepreneurship and economic growth.

Four, plans to increase the minimum wage most significantly in the border regions. This shouldn't be too impactful to Playa though given that on average only 18% of our workforce is subject to minimum wage an actual minimum wage payroll represents on average only 5% to 8% or total labor cost.

Five, the re-establishment of the ministry of public security. This is a federal agency much like homeland security in the United States that we believe will play an important role in enhancing public security throughout Mexico and therefore help to combat the recent negative press regarding crime in some of the regions in the country.

At the end of the day these plans will be subject to change. Playa is very encouraged by López Obrador's passion and commitment most importantly to tourism.

At a minimum the government thanks to its congressional majority can begin to take measures to enact many of these policies particularly those related to crime where the current administration has been plagued recently by inactivity. In that same vein on July 16th the U.S.

State Department updated its travel advisories to Mexico and confirmed that there are no travel restrictions for any of the Playa locations categorizing them as level 2 destinations; the same level granted to countries like France, Germany and the United Kingdom.

We track Google search indices on crime in Cancun which spiked to 100 which is the maximum in August of 2017 into 75 last November. As of last month this search index was down to below 25 in some weeks. This is something we will continue to monitor but we are very pleased with this encouraging trend.

Another very exciting topic we wanted to cover in today's call is the new and improved booking engine on playaresorts.com. As you heard Kevin Froemming mentioned at our Investor day Playa recently entered into a relationship with Cyber-Nexus to arm our website with a new and highly responsive superfast search and mobile optimized booking experience.

This booking engine allows for direct connection to meta sites such as TripAdvisor, Kayak and Google Hotel. As well as multi-language and currency options for a diversified customer base.

The system allows us to sell customized targeted offers and rate plans that can be adjusted in real-time to optimize revenue management strategies and it allows Playa to sell high margin ancillary add-ons to increase the overall value of a reservation and help us drive customer conversion.

What's most exciting about this from my perspective is the very low cost of acquisition for a guest. Previously Playa paid a $64 booking fee per reservation through playaresorts.com and now we pay only $4 per reservation. That is the equivalent of a 300 basis points acquisition cost savings of an average five night stay.

Now when a customer books direct on our website the cost is approximately 3% to 8% depending on the guest which is obviously extremely low. We only went live with this new platform less than two months ago. And we are already seeing significant increases in the volume of bookings and revenue.

Here are some highly encouraging data points I want to share with you. One, we launched the system on June 17 of this year. For the 16 days from June 1st through the 16th on the old platform we sold 295,000 in gross revenue in 811 room nights.

For the remaining days from June 17th through the 30th on the new platform we sold 763,000 in gross revenue in 1873 room nights. When you add in the new $4 lowered booking cost this is the equivalent of enormous 16% increase in ADR from the first half of the month to the second half of the month.

Second, the statistics for the month of July are even more encouraging. In July 2017 we sold 344,000 in gross revenue on our old booking engine in 774 room nights. This year during the month of July we sold 2.4 million in gross revenue and 5680 room nights that's seven times the production in one single month.

Well this is certainly a small sample size the results are staggering even in the low booking season and are incredibly encouraging.

As we mentioned at our Investor day it is our goal to reach 50 million in annual gross revenues through playaresorts.com in the next 12 to 18 months with improvements as encouraging as the statistics I've just shared we should have no trouble reaching that goal.

This is of course not all incremental revenue but in any case this revenue that was previously being booked elsewhere either at a competing resort or more likely through a much higher cost distribution channel. We firmly believe this is only the beginning of excellent progress in our path to far more consumer direct business.

Next as a quick update we continue to make excellent progress in the development of our 750 room Ziva and Zilara in the gated community of Cap Cana and Punta Cana. To-date we've spent almost $90 million on the project including the purchase of the land. We are on schedule to open in late 2019 with 2020 being the first full year of operation.

This is a very strategic resort for Playa and Ziva and Zilara with meeting space to hand a large incentive groups in a destination like Punta Cana should do incredibly well.

We are already seeing group bookings in the system for 2020 in fact through today booking pace currently sits at about one third of the bookings of Cabos and Jamaica which is very encouraging given it's still early, very early in the sales process. There's no physical asset to tour and sell.

We also wanted to point out that unlike other lodging companies where a group up strategy is good for revenues but a headwind to margins Playa's all-inclusive model means that increases in group business will not only help bolster lower occupancy periods but are also accreative to margins as everything is already included in the package price.

Group guests are also more likely to book high margin non-package revenue items like spa packages and dinners on the beach. We've seen this playbook before in our results in Jamaica and Los Cabos; our two other large incentive group destinations. We believe this property should be a 30 plus million EBITDA reports on a run rate basis.

In the supplemental deck we've posted on our website for today's call you can see updated room and resort renderings and some very recent aerial photos of the construction site in the buildings that are already up. We are very excited about this project and EBITDA will produce for the company.

And lastly we are finalizing the schedule for a significant renovation rebranding or a 513 room royal in Playa Del Carmen. As we stated in our last call this resort has been a huge part of our success since we acquired it in 2013 and it has seen EBITDA improved significantly over the last few years.

Although we have seen some softening in 2018 given the need for renovation at this resort. The resort also lacks a true brand. We feel that rebranding to a U.S. consumer recognizable brand along with a full rooms renovation will greatly improve our financial results.

In the near future we will announce the brand, timing, and full scope of the renovation and update the market on any changes to the outlook. Again we are extremely bullish on the future growth of this resort upon completion of this important renovation.

I am excited about the near and long-term prospects for a company adamant that Playa remains a largely underappreciated story with an immense amount of upside in our current base of EBITDA.

As we've stated before it is our goal to build an iconic and distinctive portfolio recognizable branded all-inclusive hotels that will continue to outperform the market just as our Hyatt resorts have demonstrated.

Again the fact that Playa now is a full spectrum of brands at our disposal it allowed us to take a fresh look at our capital plans over the next few years and maintain our disciplined approach to capital allocation. With that I will turn it over to Ryan to discuss our second quarter 2018 results. .

Thank you Bruce and good morning everyone. Before we get in the results I wanted to walk through the various headwinds and tailwind that we saw on the quarter. As anticipated business was impacted in our markets by the shift in the Easter holiday which is the unofficial end apply as highest-rated season.

Since Playa is essentially a 100% leisure business model the Easter holiday shift had a negative impact on Playa where many other lodging companies actually see a benefit from that shift. That's something that we wanted you to be aware of.

In 2017 if you recall Easter week ended the third week of April on the 16th and this year was the last week of March and if you recall last year in 2017 our Q2 Rev bar was up 11.6%. This is more than two weeks shift pushed the benefit of the Easter week into March thus making it a very tough call for hotels particularly those in Mexico.

As a result of the holiday shift April RevPAR in April was down 5.5% but by June trends had rebounded and June RevPAR was actually up 3.2% percent on a same-store basis which was very encouraging.

Another item of note was the sharp increase in insurance premiums which we discussed briefly on our last call from a renewal of our annual property insurance program which went into effect in early April.

If you recall 2017 was a year of record catastrophic losses for the insurance industry between flooding and Houston, California wildfires and multiple hurricanes we as well as many other companies with cat exposure had very long and difficult renewal processes.

There were cases of other companies needing to take 100% to 200% premium increases with large changes in swings to underlying coverages and limits. Playa ended up with only a 33% premium increase but that still equates to almost 3.5 million in additional annualized premium.

But we're very happy to report we're able to maintain full coverage and limits with no changes to underlying deductibles or limits. The value of the assets is still protected. The prorated premium increase for the second quarter was over $500,000 which obviously affects our results.

On the positive side we are continued to be encouraged by airlift statistics into all of our regions and demand especially in Mexico. On a June year-to-date basis international rivals are up 4.7% in Cancun, 3.1% in Los Cabos, 4% [indiscernible], 8.6% in Punta Cana and 7.3% Montego Bay.

The geographic profile of our guests also continues to be well diversified. Through June 60% of our business was from the United States 13% from Europe, 12% from Canada, 5% from Mexico 3% from South America and 2% from Asia.

As Bruce stated before the Sagicor acquisition helps diversify our base of EBITDA and will offer more options in Jamaica which is a very very strong U.S. customer destination.

Another positive was Playa's flow through and gross operating profit which is a metric used by our operations team to measure the percentage of each incremental or lost dollar revenue that flows through to gross operating profit. Playa's portfolio achieved flow through of 78% on GOP for the quarter well above our 50% target and benchmark.

With these items as a backdrop I would like to now get in our second quarter results. As you saw in that package RevPAR decreased 1.8% which again a lot has to do with the shift in Easter and we think a low single-digit RevPAR increase is more indicative of our true trend for the quarter when you think about the fact that June was up over 3%.

ADR was down 4% and an increase in average occupancy of 190 basis points. Total net revenue including Sagicor increased 3% and resort EBITDA portfolio was just under 50 million which represents a 1.9% increase over prior year all totaling to consolidate adjusted EBITDA of 41.3 million which is a 70 basis point increase.

Our Hyatt properties continue to perform well. Net package RevPAR grew 4.9% for the quarter for the Hyatt’s and the Hyatt’s resort EBITDA grew 2.6% which would have been higher if not for the insurance increases. Now I would like to briefly review our operational segments.

Before that is you may have noticed from our earnings release we've adjusted the way we were going to report these segments going forward. Previously if you recall the Ziva and Zilara in Jamaica and the three assets in the DR were lumped together in the Caribbean segment.

Given the recent acquisition of Sagicor we will break Jamaica into his own segment now both on a total and same-store basis and the DR assets will remain in their own segment athlete called the DR As you may have figured out Jamaica on a same-store basis is simply results from these events in Laura and in Rose Hall in Jamaica so you actually get to see these individuals of statistics for that hotel the next couple quarters.

As you've seen from our release Playa's best performing segments in the quarter with the Dominican Republic in Jamaica on a same-store basis. RevPAR in Jamaica was up 29% with a significant increase in resort EBITDA and profit margin.

This is largely driven by the work we completed in 2017 as Ziva and Zilara and Rose Hall which has driven significant increases in rate and is yet another example the type of list Playa can generate from renovations and remodeling.

The DR outperformed our expectations particularly Dreams Palm Beach in La Romana where we saw RevPAR increased 3% and 7% respectively.

The Sagicor hotels as Bruce mentioned performed well in the first month as a part of Playa and as you'll see in future quarters the absolute dollar of RevPAR contribution will actually lower Playa's overall average simply given the fact that they're at a lower starting point in ADR which is of course a fantastic opportunity for Playa to improve upon.

So just to be clear and we've gotten this question the Sagicor hotels are not down versus prior year. It's simply the fact that they are absolute dollar of RevPAR is lower than that of Ziva and Zilara in Rose Hall. So it brings down the average. The Sagicor hotels for the month were actually slightly up over last year which is encouraging.

[indiscernible] results in the Yucatan like the rest of the hotels in the market were affected by the after mentioned shift in Easter holiday and the overall pressure on package rates in the destination.

Revenue decreased over 7% in the market although that was driven mostly by the performance of the Royal in Playa Del Carmen and the ramping up the to Panama Jack properties. This under performance of the Royal is one of the many reasons why we're so bullish as Bruce mentioned about the prospects of renovating and rebranding that resort.

The Panama Jack's to their credit did quite well in Q2 of last year posting RevPAR gains on average of 6.6% in Q2 of 2017 thus making it a tough confer for them in 2018 as they continue to ramp up after rebranding.

As we look forward to the fourth quarter the Panama Jack should outperform as they continue to improve the results and lap easier prior year comparisons.

And lastly the Pacific region the decrease in revenue and resort EBITDA was due to the performance of Los Cabos who saw its group revenue decline due to group cancellations particularly in the second half of last year which were backfilled with lower rated leisure business to maintain occupancies.

Encouragingly though, in the first six months of 2018 we've booked more than double the amount of business we did in the second half of last year and we also have a significant amount of tentative bookings in the pipeline which we expect to convert most of which in the second half of 2018.

So looking at our internal forecast for the third and fourth quarter we expect that our DR and Jamaica segments will continue to perform well against our portfolio on a same-store basis and we expect that we should marginally improve in the Yucatan and in the Pacific in the third quarter but also see much better improvements in RevPAR in the fourth quarter admittedly though some of us against easier comps in the fourth quarter.

As of June 30th in 2018 the company held 146 million in cash and equivalents total interest-bearing debt was just over a billion comprised of our term loan B secured debt due 2024 and as of June 30th they're no outstanding amounts on our revolving credit facility.

As Bruce mentioned we spent almost 90 million thus far on the development of our 750-room Ziva and Zilara in Cap Cana, including purchasing the land and adjusted net debt excluding that spending is 766 million. So now like to turn our attention to 2018 outlook.

As I mentioned at the beginning of this call Playa takes no obligation to update forward-looking statements and anything that can be regarded as a forward-looking statement is subject to numerous risks and uncertainties that may cause the company's actual results to differ materially from what it's been communicated.

As Bruce and I both mentioned we are very pleased with the results of the portfolio particularly given the shifts in the Easter holiday and the increase in insurance premiums and this really demonstrates the resiliency of our portfolio and our operating model.

We're encouraged as Bruce mentioned by the initial booking trends in playa.com and most importantly the immediate contribution of the Sagicor portfolio and therefore previously announced full year 2018 guidance of 179 to 185 million of adjusted EBITDA remains unchanged.

But as we've said before given the fact that we didn't have the benefit of owning Sagicor during the high season our pro forma annualized adjusted EBITDA is meaningfully higher than that.

Another thing to keep in mind is as you model out the remainder of 2018 please remember that the seasonality will be skewed a bit since we're only including Sagicor's contribution for the back half of the year. So we expect to earn about 14% to 16% of our annual adjusted EBITDA in the third quarter and 19% to 21% in the fourth quarter.

As Bruce stated we strongly believe Playa remains a largely underappreciated story than immense amount of upside in the current basis EBITDA and as we briefly mentioned on our last call and on our Investor day we think the proper way to value Playa is not based on our current results but rather the earnings power and potential of the pro forma Playa and Sagicor portfolio combined with run rate earnings Ziva and Zilara in Cap Cana project.

And incremental EBITDA from the strategic development projects that we've discussed previously. With that I'll turn it back over to Bruce. .

Great. Thanks Ryan and thanks to all of you for participating on today's quarterly earnings call for Playa. At the midpoint here of 2018 we could look back on a solid first half of financial results in a very successful M&A deal and say that has been a really good year so far.

However, what I'd like to focus attention on are the tremendous opportunities ahead of us. What excites me most are initiatives that we plan on announcing in the coming months. The Royal in Playa Del Carmen will be rebranded.

More than that, we're looking at additional opportunities to expand our strategy of outsourcing branding and hope to announce those projects soon as well. Results at our Jamaican resorts were super strong in the second quarter and should continue to outperform in the coming months and years.

I was in Jamaica two weeks ago and the potential we have there is incredible. I expect to look back on the Sagicor transaction and the related expansions conversions and improvement as much more profitable than we ever thought possible. Plain and simple our branding strategy is working and will continue to drive outstanding results.

Look at how our Hyatt resorts outperform in Q2. Hilton Rose Hall is up next for expansion and improve results are certainly going to come there. We absolutely will expand our brand of resort portfolio and believe we can continue to help position our non-branded competition in the all-inclusive segment.

Our playaresorts.com initiatives are paying off well above our expectations. What's obvious is that there is tremendous demand for quality all-inclusive resorts and we just need to find efficient ways to connect directly with consumers. These results while impressive are just the beginning of our efforts.

Shifting more of our business to consumer direct away from other high-cost distribution channels will drive our future profitability. We continue to make progress toward the creation of Playa vacation club. This concept is well known in our market and offers a competitive product versus timeshare companies.

The vacation club would offer an immense amount of value to Playa. First in the form of commissions the club pays the Playa's resorts for the membership sold but much more importantly the club serves as a loyalty program for our resort.

It establishes a long-term relationship with the guests and club members typically spend more on non-packaged items such as spa treatments and other upgrades. Club members also act as a great base of occupancy and allow us to yield manage more efficiently and can be supportive during the off-season.

Well I cannot yet share the specifics of how this will be structured and when this will be completed I can say, however, that we are focused on launching this in the near term. Sagicor will not be our last M&A deal.

We are in more discussions on possible transactions in the success of rolling resort portfolios into Playa like we had with rail resorts and now Sagicor are proving to be great case studies. We are a growth company in a highly fragmented industry. There are some really incredible opportunities out there.

In short we are not resting on past accomplishments but rather we continue striving to execute our strategy and increase shareholder value. We will continue to outsource branding and focus on what we do best to improve sales and profitability. We will also continue to grow but to do so when prudent and highly profitable ways.

I am so excited about the coming months and years for what our team Playa can accomplish and look forward to converting these plants and initiatives into concrete actions and results that will drive Playa to our bridge to 300 million and beyond. Thanks again for spending time with us this morning. We will now open up the phone line for any questions. .

[Operator Instructions] Your first question comes from the line of Chris Woronka of Deutsche Bank. Please ask your question. .

Hey good morning guys. I guess a question for Bruce.

Bruce I want to see if you could talk a little bit about how you expect the customer mix to change with some of your already announced branding initiatives as well as the book direct campaign and maybe talk a little bit about whether the little bit of slippage we saw on non-package in the second quarter is that all function of some of the group cancellations but what is your view on how the customer mix is going to change going forward?.

Sure. No, thanks Chris. I think the best customer from our side from both numbers and in dollars of revenue and then quite standard profitability comes from North America primarily from the U.S. market and then from Canada and I think the strength of the brands is obviously in that market.

So I think you'll see some improvement there but our focus is very much on maintaining a diversified customer base and fortunately the brands have done a great job expanding into Europe and into other regions. So I think they're going to resonate well. Our product will resonate well with their customers. So we're looking to do that.

So I'm super bullish on both the increase in the direct business and very much where the customers are coming from and the fact that they're going to be paying higher rates in that we're the net rates we will receive are going to be higher. When it comes to the non-package revenue I think you're right.

It was primarily just on a gross basis from some of the group cancellations if you look - if you break that out and you look at net at hotels it's a very positive picture.

I can tell you like I said I was in Jamaica two weeks ago and down there Rose Hall they're increasing and non-package revenue has been you know incredible and that's because we're really focused on it and you'll see through the rest of 2018 and then into the next year and continued focus on that non-package revenue because it's such highly profitable business for us.

I hope that answers the question. .

Yes. No, that's great and just maybe a second question for me.

Bruce when you mention some of the other acquisition opportunities that might be out there do you have a preference for straight-out ownership versus management contract versus JV and what are some of the things that shape the decision on which way you go depending on the opportunity?.

Sure. Now that's a great question Chris. The fact is we don't have a preference. So the benefit I guess of straight-out ownership is that you can make all your decisions and you can move more quickly. Having said that it limits our amount of growth because of capital as everyone's well aware.

We have a number of initiatives where groups are coming to us and they've seen what we've done to-date and I think Sagicor was really instrumental in getting interest from these kind of groups and these are people quite honestly that don't need. They don't need the cash.

So it's not like they're selling out to do anything with the money often it's generational transition issue or looking at the strategy that Playa has and the advantage of our strategy being the only number one only publicly traded all-inclusive company but more importantly the only all-inclusive company focused on working with the major U.S.

international brand is really attractive to people. So I cannot tell you how the success of our Hyatt resorts has resonated with people in our industry segments. So I think they're going to be interested. So it could be straight ownership or it could be joint ventures or it could be management contracts.

So we right now have the two management contracts. The sanctuary and Cap Cana that will reopen in September and I mean I look at that owner as a great example.

He interviewed numerous other companies and he's a Spaniard and he chose Playa and largely he chose it for and that's not a branded resort but he chose it for the success that we've had and then with Sagicor and the Jewel Grande.

I think they're again presents a potential branding opportunity but yes we won't focus so much on 100% ownership and I think it's going be able to accelerate our growth going forward with the things we're looking at. .

Okay. Very helpful. Just a quick one for Ryan. Ryan how should we think about pacing of CapEx I guess in the half and maybe into 19 as you think about some of the some of the projects in Jamaica but also obviously Cap Cana.

Is there any kind of you look at it on a monthly basis or something is there a way to [indiscernible] to jump up towards the end of Cap Cana or how should we think about it?.

Yes. So for Cap Cana as we've mentioned we've spent about 90 million that includes purchasing the land.

So all in including the land is about 250 million give or take so there's 160 million left of which is probably 90 or 100 of that is year and we've already spent some of that obviously but as with any of these major projects particularly a big ground-up development like that we've seen it at our other examples before it tends to get back loaded.

So 2019 there's going to be a lot of development CapEx the line share of which is obviously Cap Cana. The other projects that we've outlined are much smaller in scope in dollars. They certainly add up but on an individual basis they're no more than kind of call it anywhere from 20 to 30 million but 2019 is probably our biggest spend.

So you can model out probably around 160 to 180 all-in for 2019 between Cap Cana and some of the other projects we've discussed. In 2020 it continues to come back to more normalized levels where we just finish out some of those projects including the Ziva and Palmyra and then not a whole lot on 21 and beyond that we haven't already discussed. .

Okay. Great. Thanks guys. .

Thanks Chris. .

Your next question comes from the line of Smedes Rose of Citigroup. Please ask your question..

Hi! Thank you. I was just wondering if you could talk about a little bit on the just the competitive landscape what you're seeing from the other all-inclusive resorts particularly in Cancun in terms of pricing or other regions as well? And we just seen a lot of media reports about bad seaweed problems in Mexico this year.

I know that sort of become an annual event but maybe have you seen any kind of fallout in terms of demand around that or is it a non-issue?.

Sure. Thanks Smedes.

So if you look at our pricing Cancun you see it very much in the Hyatt Ziva Cancun and Hyatt Zilara Cancun even though that a lot relates to the branding strategy but even in Panama Jack Hank Cancun compared to Panama Jack Playa Del Carmen Cancun is doing relatively well in the Cancun hotel zone and we're really pleased with our results there and if you look at just from the competitive dynamics there's a limited amount of inventory and really able to have much new supply there.

So we're at the top of the food chain for the quality of our resorts and so I think there the competitive dynamic is very much in our favor.

As you go down to Playa Del Carmen and you've seen it in the results of the Royal that Ryan referred to earlier it's a little different dynamic and I think there we did face some of some of the headwinds over the last 12 months from the travel advisory, some new supply and to your point some negative with the Sargasso the seaweed issue.

So the Sargasso unfortunately know more about Sargasso than I want to but Sargasso is the sea of Sargasso which is kind of in the mid-Atlantic and it has these amazing currents that take it from the middle of the Atlantic in this clockwise motion up through our region and it's not just in Mexico so it's in a number of Caribbean islands and very importantly it's in Florida now.

So if you look at the media coverage Florida has had it as well as the Gulf Coast of the US. So what is causing it is debatable. Some people say it's increased water temperatures, climate change whatever I don't really know what's causing it.

I'm not a seaweed expert but it has had negative impact at just two or three of our resorts and so what we're doing there is working with our neighbors and we just successfully did this down at Playa Del Carmen at the Royal in the Panama Jack and you put up basically nets that are few hundred meters offshore and they prevent the seaweed from coming in.

Now the local governments have acquired two boats that basically are kind of like combines and they're like harvesting the stuff out before it gets to shore. The problem is once it gets to shore it can come in very heavy. It rots very quickly and it stinks. So number one it prevents people from swimming.

The second it smells but the pictures that we got recently from the situation after the nets went up is like night and day and so we're very encouraged. The second thing is this is a seasonal problem.

So typically this lasts for two to three months of the year and we're right in kind of the main part or the tail end of that and so once fortunately once the fall comes and the high season comes that that problem goes away for several months and then usually can come back in the late spring.

So I think we're seeing number one the end of just the seasonality of the problem and second we're being much more proactive working with our neighbors and working with the government to attack it and not let it just accumulate on the beach. .

And Smedes we actually monitor the TripAdvisor ratings and guest comments and you're actually more likely to see guests actually comment on how if the Sargasso gets to the beach how well and diligently our associates are actually cleaning it up and moving it out of the way to keep the beaches as pristine as possible particularly in the Cancun area.

So I think the guests appreciate that it's not a specific problem to any one location but that it's everywhere and that we're doing everything we can to get it out of the way and I appreciate that. .

Okay. I appreciate it. Thank you guys. .

Thanks Smedes..

Thanks Smedes. .

Your next question comes from the line of Paul Penney of Northland Capital. Please ask your questions. .

Thanks.

Bruce can you provide more redevelopment color on under Jamaican efforts in terms of what sort of ADR uplift you are receiving post redevelopment and then secondarily can you confirm that you're achieving north of 30% returns on your redevelopment dollars?.

Sure. I will let Ryan right, as I said Ryan I want you handle the number side of that. .

Yes. And so Paul thus far the Jamaica asset that we've done work out was Jamaica and if you recall we originally reopened that as a Ziva and Zilara in 2014 we expanded it from 427 million to 620 and it was a previously a Ritz-Carlton.

What we never did is actually redo those Ritz-Carlton rooms and all we had actually done is kind of refresh the rooms and kind of take away some of the tropical patterns and prints that were previously there.

That created this dichotomy where you actually had two very different two different - very different room categories of brand Ziva and Zilara rooms and then kind of these older rooms and since that's such a popular group destination with a lot of meeting space it actually kind of annoyed some of our groups and said like you've got one person staying from Northland Capital in one nice room and somebody in one of the older ones and that became a problem.

So we finished those out last year. We spent about $18 million finishing out those rooms and that hotel did about 16 million in EBITDA last year and we're forecasting to be well over 20 this year and that's even with some of the very-very early year headwinds with that state of emergency in Jamaica.

So we're very-very pleased and those are results well ahead of 30%. .

Great. Thanks.

And then maybe for Bruce where do you stand on establishing a loyalty program on playa.com and is this a new term or a more longer term goal?.

So Paul that's a good question. I think a lot of what you'll see is so with our branding strategy so with outsourcing branding each of the brands obviously has their own loyalty program. So we'll participate in benefit from those programs.

Second, we will implement as I mentioned in my comments Playa vacation club and so the vacation club in many ways it's kind of a hybrid in our space, an all-enclosure a hybrid between what people typically think of from a time care perspective or loyalty and so those club members will essentially become kind of a loyalty club to Playa and then the third initiative that we're doing which is per se a loyalty club but it's what the cruise lines also do is we work in a very non-aggressive way to re-book our customers further next vacation.

So if you're at one of our resorts we make it between emails and other touch points we make it very easy for you and we offer some incentive to go ahead and re-book now. And like I said the cruise lines have done that incredibly efficiently to kind of maintain those customers.

So I think you'll see kind of in the pecking order that the three kind of initiatives and number one is participating in the brands, Hyatt Hilton and others in the future their programs. Second, the implementation of our own vacation club and then third these book return booking initiative.

So that will be kind of how we take on maintaining retaining as much of our customer business as possible. .

That's very helpful Bruce. And last just two housekeeping items for Ryan. SG&A went up sequentially on the quarter versus last year when it was down [indiscernible] of Q1.

Any drivers there and then percent of bookings, total bookings for the quarter that were from direct channel?.

Yes. Bookings in the quarter that from were from direct was about 16% for the whole portfolio for those that we manage ourselves, so not including the AMRs. It's closer to 19% so there's a difference between those two obviously because the AMR resorts that are managed and sourced by them all run through their proprietary channels for the most part.

SG&A there's two different places that you're looking at. There's one on the face of the financials and then one in our earnings release where we discuss corporate expense. Corporate expense was about up $600,000 for the quarter.

A lot of that just has to do with some new public company costs like internal controls and internal internal audit and additional legal costs that come along with being a public company.

The larger switch which you see on the face of the financials we actually elected to actually shift some of our account groupings not to bore you with all the detail but under GAAP there's a bunch of things like IT licensing, cost, bank fees and stuff like that that can under GAAP can actually be put in either direct or SG&A.

We thought it's more appropriate to move it under SG&A. It's not a material amount. It doesn't affect the bottom line or anything like that and again it's completely fine under GAAP and either one so we actually moved it to SG&A. So that's actually causing a big swing there but as a total it's not really moving. So it's one bucket to the other. .

Great. Thanks guys. .

Thanks Paul..

Your next question comes from the line of [indiscernible]. Please ask your question. .

Hey good morning guys. I wanted to focus my question on the direct booking data that you gave and the target that you have.

What is the timeframe for that target and when you consider the EBITDA impact do you think that it will be more revenue driven or more cost savings driven?.

Great. Thanks Harry. Good morning. I think when you look at it in way the accounting works it basically becomes a combination but how it will be reported will be more revenue. Okay, and the reason being is that we report net ADRs.

So if you have the same gross ADR to the customer but you're selling direct in your percentage of costs related to acquiring that direct booking is lower, it's going to translate into a higher net ADR.

So you'll see it in the accounting numbers as higher revenue, higher ADR and higher revenue and then that will flow down because the cost has already been deducted in calculating that net ADR. So I think you'll see that. And if you look at our numbers I can - has talked about this but you've got the ones we don't manage very-very low direct business.

Then all of ours that we manage higher and then if you look at the Hyatt’s the branded even higher. So I think the strategy we have of working on the outsourcing branding, working with a major brands is working and so I'm incredibly bullish looking forward to 2019 and beyond as to how we can increase the percentage and continue to drive it.

But what you're going to see it is on the ADR and on the revenue line. And I know Ryan if you have anything to add there..

No. The only thing I'd add is just sticking with the Hyatt topic.

If you look at the Hyatt not only are they anywhere from 20% to 30% direct if you add in group that Ziva and Zilara they are, excuse me at the two Zivas in them in Cabos and Jamaica, they're actually above 30% when you add in group but more just as importantly the actual reliance on tour operators is far less.

It's kind of at those hotels thus far this year are kind of in the mid upper 20s to low 30% reliance on tour operators where take an example like the Royal where we've seen rate pressure it's well into the mid to upper 40s percent and so if again all fits with our strategy not just at more Hyatt but potentially more U.S.

branded properties in the future. .

And thank you. It's - the second question is related to the hotels that have more group business.

Can you give us more color on the demand trends, the more recent demand trends and has that been a positive surprise? Are you seeing - to what degree are you seeing that momentum carry through to 2019?.

Yes I can take that Bruce. So Jamaica continued to be very strong. It's really just those two properties. Jamaica particularly after what I discussed earlier we fixed the rooms that we never had finished out. We've seen demand be very very strong there and that should absolutely continue into 2019.

Cabos you had the phenomena of the cancellations in the second half of last year and as we mentioned we've already doubled our bookings from last year. Again let's not pat ourselves on the back just yet because it was off a lower base with a lot of cancellations with all the news.

But the tentative is the group guys would call it is actually pretty strong. In the second half of the year it's just the way Cabos works we tend to book a lot more in the second half of the year.

So while we aren't necessarily up being our forecast for that we actually feel pretty strongly that we're going to be able to convert a lot of that tentative business and that should carry into 2019 there. So at those two properties we're pretty optimistic. .

Got you. Very good. Thanks very much..

Thank you Harry. .

Thanks Harry..

Your next question comes from the line of [indiscernible] of Capital Market. Your line is open. .

Thank you. Good morning. So follow-up on the booking engine discussion. Bruce those statistics that you cited are very encouraging but what's the biggest change versus what you guys were using before that's driving that additional production.

Is it the connection of the meta websites? Is it just easier for the customer to use or is there anything else that's driving the additional room bookings that you saw?.

So that's a great question. A lot of it is the new system we are on so the Sabre SynXis has a lot more functionality and then in the near future we're going to be adding in even more features. So we're not at the endpoint yet. We're kind of at the beginning to early point.

So number one is the technology and you're right connecting into the meta sites has been really-really-really powerful for us. Second is the redesign of our own website. So how we present things. Similarly, you'll see that with Hyatt if you go at Hyatt.com they've redesigned for Ziva and Zilara.

So that's incredibly more attractive and I think it's much more user friendly. So the combination of the new technology with Sabre SynXis then with the changes we've made and then I think which you'll see the third part which really hasn't occurred yet is as we increase our spending on that business on that channel where we can drive more business.

his is all kind of evolutionary for us how we have spent our sales marketing dollars in the past was through different ways and now we're going to be allocating more capital to these channels through the technology side and we just haven't done that. So these numbers I think are even more encouraging when you look at the low spend that we've had.

So this really been more technology driven than anything else and we know it's a low base but that $50 million target I feel is highly achievable and then once you do that and you have resources and as we've grown and like we did with the Sagicor transaction just the size of our company and portfolio gives you just more pure dollars to spend and it's very efficient in order to kind of move yourself up on the search pages in order to do even better.

So I'm really bullish about what we can do on our own and then as Ryan mentioned when you look at results 30 plus percent for the Hyatt’s and as we go into the Hilton that has even seven times the number of state members you really start to see the benefit of our strategy both on the booking side and on the branding side. .

Okay. Great. That's helpful. And I wanted to ask about the Panama Jack properties. Ryan can you remind us when exactly you started those renovations in 2017? so when the comp starts to get really easy and then any additional colors you can share on the ramp there as far as forward bookings and whatnot. .

Yes. That's a great question. The line share of the work began at the very tailend of September but it's for the most part its fourth-quarter. Let me give you a couple extra statistics on booking.

We are cautiously optimistic that we are starting to turn a corner here as you said that we're not going to pat ourselves on the back fourth quarter should be an easy comp but just in the last kind of three to four weeks the Panama Jack Cancun picked up three to five points of occupancy for August and September.

Now for the first time that resort is now ahead of pace a prior year through October and November. Again some of that has to do renovation, some of it has to do that we're just finally starting to kind of get out of the woods a little bit of this property. Again it's early but it's a good, very good signal..

it's bigger way:.

Okay. That's great. That's all for me. Thank you..

Thanks..

Thanks..

[Operator Instructions] I'm sorry..

That should be everybody Mikey..

Alright sir. .

Okay. Great. Well thank you again everybody for participating. We've got a lot of stuff going on and I think you are definitely going to hear back from us before the third quarter call. So we look forward to sharing news with you hopefully in the near future. So take care. Thanks everybody. .

This concludes today's conference call. You may now disconnect..