10-Q 1 plya2019q110-q.htm FORM 10-Q Document


        
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________
FORM 10-Q
 _______________________________________________

ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended March 31, 2019

OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

COMMISSION FILE NO. 1-38012
 Playa Hotels & Resorts N.V.
(Exact name of registrant as specified in its charter)
 
 
 
 
The Netherlands
 
98-1346104

(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification Number)
 
 
 
Prins Bernhardplein 200
 
 
1097 JB Amsterdam, the Netherlands
 
Not Applicable
(Address of Principal Executive Offices)
 
(Zip Code)
 
 
 
+31 20 571 12 02
(Registrant's Telephone Number, Including Area Code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Ordinary Shares, €0.10 par value
PLYA
NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past ninety (90) days.    YES ý   NO  o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES  ý      NO  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
o
Accelerated filer
ý
Non-accelerated filer  
o
Smaller reporting company         
o
 
 
Emerging growth company
ý

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ý  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES  o    NO  ý  

As of May 2, 2019, there were 130,414,648 shares of the registrant’s ordinary shares, €0.10 par value, outstanding.





Playa Hotels & Resorts N.V.
TABLE OF CONTENTS
 
 
 
 
 
Page
Item 1.
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.




PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Playa Hotels & Resorts N.V.
Condensed Consolidated Balance Sheets
($ in thousands, except share data)
(unaudited)
 
As of March 31,
 
As of December 31,
 
2019
 
2018
ASSETS
 
 
 
Cash and cash equivalents
$
111,018

 
$
116,353

Trade and other receivables, net
68,223

 
64,770

Accounts receivable from related parties
7,702

 
6,430

Inventories
16,343

 
15,390

Prepayments and other assets
36,692

 
32,617

Property and equipment, net
1,834,767

 
1,808,412

Goodwill
83,656

 
83,656

Other intangible assets
6,509

 
6,103

Deferred tax assets
15,032

 
1,427

Total assets
$
2,179,942

 
$
2,135,158

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
Trade and other payables
$
148,356

 
$
159,600

Payables to related parties
6,968

 
4,320

Income tax payable
2,172

 
1,899

Debt
987,201

 
989,387

Derivative financial instruments
20,351

 
12,476

Other liabilities
30,815

 
21,602

Deferred tax liabilities
106,033

 
106,033

Total liabilities
1,301,896

 
1,295,317

Commitments and contingencies

 

Shareholders' equity
 
 
 
Ordinary shares (par value €0.10; 500,000,000 shares authorized, 130,743,778 shares issued and 130,490,991 shares outstanding as of March 31, 2019, and 130,494,734 shares issued and 130,440,126 shares outstanding as of December 31, 2018)
14,190

 
14,161

Treasury shares (at cost, 252,787 as of March 31, 2019 and 54,608 shares as of December 31, 2018)
(1,916
)
 
(394
)
Paid-in capital
995,016

 
992,297

Accumulated other comprehensive loss
(9,667
)
 
(3,658
)
Accumulated deficit
(119,577
)
 
(162,565
)
Total shareholders' equity
878,046

 
839,841

Total liabilities and shareholders' equity
$
2,179,942

 
$
2,135,158


The accompanying Notes form an integral part of the Condensed Consolidated Financial Statements.

1


Playa Hotels & Resorts N.V.
Condensed Consolidated Statements of Operations
($ in thousands)
(unaudited)
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Revenue:
 
 
 
 
Package
 
$
169,792

 
$
154,708

Non-package
 
24,482

 
21,799

Management fees
 
934

 
296

Cost reimbursements
 
588

 
44

Total revenue
 
195,796

 
176,847

Direct and selling, general and administrative expenses:
 
 
 
 
Direct
 
93,743

 
81,056

Selling, general and administrative
 
31,828

 
26,473

Pre-opening
 
89

 
—

Depreciation and amortization
 
22,311

 
15,689

Reimbursed costs
 
588

 
44

Gain on insurance proceeds
 
—

 
(1,521
)
Direct and selling, general and administrative expenses
 
148,559

 
121,741

Operating income
 
47,237

 
55,106

Interest expense
 
(14,194
)
 
(21,882
)
Other expense
 
(602
)
 
(1,824
)
Net income before tax
 
32,441

 
31,400

Income tax benefit (provision)
 
10,547

 
(9,583
)
Net income
 
$
42,988

 
$
21,817

Earnings per share - Basic
 
$
0.33

 
$
0.20

Earnings per share - Diluted
 
$
0.33

 
$
0.20

Weighted average number of shares outstanding during the period - Basic
 
130,540,057

 
110,345,855

Weighted average number of shares outstanding during the period - Diluted
 
130,770,356

 
110,601,606


The accompanying Notes form an integral part of the Condensed Consolidated Financial Statements.
 

2

Playa Hotels & Resorts N.V.
Condensed Consolidated Statements of Comprehensive Income
($ in thousands)
(unaudited)
 
 
Three Months Ended March 31,
 
 
2019
 
2018
Net income
 
$
42,988

 
$
21,817

Other comprehensive loss, net of taxes
 
 
 
 
Unrealized loss on interest rate swaps
 
(5,858
)
 
—

Benefit obligation loss
 
(151
)
 
(81
)
Total other comprehensive loss
 
(6,009
)
 
(81
)
Comprehensive income
 
$
36,979

 
$
21,736


The accompanying Notes form an integral part of the Condensed Consolidated Financial Statements.


3


Playa Hotels & Resorts N.V.
Condensed Consolidated Statements of Shareholders' Equity for the three months ended March 31, 2019 and 2018
($ in thousands, except share data)
(unaudited)

 
Ordinary Shares
 
Treasury Shares
 
Paid-In Capital
 
Accumulated Other
Comprehensive Loss
 
Accumulated Deficit
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
 
Balance at December 31, 2017
110,297,697

 
$
11,803

 
7,367

 
$
(80
)
 
$
773,194

 
$
(3,826
)
 
$
(181,542
)
 
$
599,549

Net income

 

 

 

 

 

 
21,817

 
21,817

Other comprehensive loss

 

 

 

 

 
(81
)
 
 
 
(81
)
Share-based compensation
48,699

 
6

 


 

 
1,780

 

 
 
 
1,786

Balance at March 31, 2018
110,346,396

 
$
11,809

 
7,367

 
$
(80
)
 
$
774,974

 
$
(3,907
)
 
$
(159,725
)
 
$
623,071

 
Ordinary Shares
 
Treasury Shares
 
Paid-In Capital
 
Accumulated Other
Comprehensive Loss
 
Accumulated Deficit
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
 
Balance at December 31, 2018
130,440,126

 
$
14,161

 
54,608

 
$
(394
)
 
$
992,297

 
$
(3,658
)
 
$
(162,565
)
 
$
839,841

Net income

 

 

 

 

 

 
42,988

 
42,988

Other comprehensive loss

 

 

 

 

 
(6,009
)
 

 
(6,009
)
Share-based compensation
249,044

 
29

 


 

 
2,719

 

 

 
2,748

Repurchase of ordinary shares
(198,179
)
 
 
 
198,179

 
(1,522
)
 
 
 
 
 
 
 
(1,522
)
Balance at March 31, 2019
130,490,991

 
$
14,190

 
252,787

 
$
(1,916
)
 
$
995,016

 
$
(9,667
)
 
$
(119,577
)
 
$
878,046

The accompanying Notes form an integral part of the Condensed Consolidated Financial Statements.

4


Playa Hotels & Resorts N.V.
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(unaudited)
 
Three Months Ended March 31,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
42,988

 
$
21,817

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
22,311

 
15,689

Amortization of debt discount and issuance costs
339

 
327

Share-based compensation
2,748

 
1,786

Loss on derivative financial instruments
2,017

 
11,025

Deferred income taxes
(13,605
)
 
—

Amortization of key money
(34
)
 
—

Other
487

 
119

Changes in assets and liabilities:
 
 
 
Trade and other receivables, net
(4,077
)
 
(10,549
)
Accounts receivable from related parties
(1,272
)
 
(933
)
Inventories
(938
)
 
59

Prepayments and other assets
(2,765
)
 
488

Trade and other payables
(11,523
)
 
2,076

Payables to related parties
2,648

 
1,019

Income tax payable
273

 
3,206

Other liabilities
5,126

 
527

Net cash provided by operating activities
44,723

 
46,656

INVESTING ACTIVITIES:
 
 
 
Capital expenditures
(48,348
)
 
(20,293
)
Receipt of key money
1,000

 
—

Purchase of intangibles
(677
)
 
(1,246
)
Proceeds from disposal of property and equipment
5

 
2

Property damage insurance proceeds
2,009

 
—

Net cash used in investing activities
(46,011
)
 
(21,537
)
FINANCING ACTIVITIES:
 
 
 
Repayment of Term Loan
(2,525
)
 
(2,275
)
Repurchase of ordinary shares
(1,522
)
 
—

Net cash used in financing activities
(4,047
)
 
(2,275
)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(5,335
)
 
22,844

CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD
$
116,353

 
$
117,229

CASH AND CASH EQUIVALENTS, END OF THE PERIOD
$
111,018

 
$
140,073


The accompanying Notes form an integral part of the Condensed Consolidated Financial Statements.

5


Playa Hotels & Resorts N.V.
Condensed Consolidated Statements of Cash Flows (Continued)
($ in thousands)
(unaudited)

 
Three Months Ended March 31,
 
2019
 
2018
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
Cash paid for interest, net of interest capitalized
$
11,460

 
$
7,836

Cash paid for income taxes
$
2,413

 
$
5,014

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Capital expenditures incurred but not yet paid
$
540

 
$
1,006

Intangible assets capitalized but not yet paid
$
422

 
$
251

Interest capitalized but not yet paid
$
80

 
$
540

Key money invoiced but not yet received
$
1,500

 
$
—

Right-of-use assets obtained in exchange for new operating lease liabilities
$
1,393

 
$
—

Par value of vested restricted share awards
$
29

 
$
—


The accompanying Notes form an integral part of the Condensed Consolidated Financial Statements.


6

Playa Hotels & Resorts N.V.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Note 1. Organization, operations and basis of presentation
Background
Playa Hotels & Resorts N.V. (“Playa” or the “Company”) is a leading owner, operator and developer of all-inclusive resorts in prime beachfront locations in popular vacation destinations. We own and/or manage a portfolio of 21 resorts located in Mexico, the Dominican Republic and Jamaica. Unless otherwise indicated or the context requires otherwise, references in our condensed consolidated financial statements (our “Condensed Consolidated Financial Statements”) to “we,” “our,” “us” and similar expressions refer to Playa and its subsidiaries.
Basis of preparation, presentation and measurement
Our Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Certain information and disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Consolidated Financial Statements as of and for the year ended December 31, 2018, included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2019 (the “Annual Report”).
In our opinion, the unaudited interim Condensed Consolidated Financial Statements have been prepared on the same basis as the annual Consolidated Financial Statements and include all adjustments, consisting of only normal recurring adjustments, necessary for fair presentation. Results for all comparative prior periods have been reclassified to conform to the current period presentation.

The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results of operations to be expected for the full year ended December 31, 2019. All dollar amounts (other than per share amounts) in the following disclosures are in thousands of United States dollars, unless otherwise indicated.
Note 2. Significant accounting policies

Derivative financial instruments

We use derivative financial instruments, primarily interest rate swap contracts, to hedge our exposure to interest rate risk. Such derivative financial instruments are initially recorded at fair value on the date on which a derivative contract is entered into and are subsequently remeasured to fair value at period end. As of March 20, 2019, we elected to adopt hedge accounting and designate our existing interest rate swaps as cash flow hedges. Changes in the fair value of a derivative contract that is qualified, designated and highly effective as a cash flow hedge are recorded in total other comprehensive loss in our Condensed Consolidated Statements of Comprehensive Income and reclassified into interest expense in our Condensed Consolidated Statements of Operations in the same period or periods during which the hedged transaction affects earnings. If a derivative contract does not meet this criteria, then the change in fair value is recognized in earnings.

7

Standards adopted
Standard
 
Description
 
Date of Adoption
 
Effect on the Financial Statements or Other Significant Matters
Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842)
 
This standard introduces a lessee model that brings most leases on the balance sheet. This will increase a lessee’s reported assets and liabilities—in some cases very significantly. Lessor accounting remains substantially similar to current U.S. GAAP.
 
January 2019
 
We adopted ASU 2016-02 using the transition method outlined in ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, resulting in no cumulative adjustment to accumulated deficit as our lease portfolio consists solely of operating leases. Refer to Note 9 for further discussion.
ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220)

 
This standard provides guidance regarding the treatment of stranded income tax effects in accumulated other comprehensive income resulting from the Tax Cuts and Jobs Act of 2017. Entities can make an election to reclassify these stranded income tax effects from accumulated other comprehensive income to retained earnings. 

 
January 2019
 
We adopted ASU 2018-02 and concluded that the effect on our Condensed Consolidated Financial Statements was immaterial. The tax effects presented in accumulated other comprehensive loss relate to our employee benefit plan and have been historically immaterial.
Note 3. Revenue

The following tables present our revenues disaggregated by geographic segment (refer to discussion of our reportable segments in Note 19) ($ in thousands):
 
Three Months Ended March 31, 2019
 
Yucatán
Peninsula
 
Pacific
Coast
 
Dominican
Republic
 
Jamaica
 
Other
 
Total
Package revenue
$
64,301

 
$
22,723

 
$
28,524

 
$
54,244

 
$
—

 
$
169,792

Non-package revenue
7,839

 
3,646

 
4,600

 
8,394

 
3

 
24,482

Management fees
—

 
—

 
—

 
—

 
934

 
934

Cost reimbursements
—

 
—

 
—

 
—

 
588

 
588

Total revenue
$
72,140

 
$
26,369

 
$
33,124

 
$
62,638

 
$
1,525

 
$
195,796

 
Three Months Ended March 31, 2018
 
Yucatán
Peninsula
 
Pacific
Coast
 
Dominican
Republic
 
Jamaica
 
Other
 
Total
Package revenue
$
73,054

 
$
25,026

 
$
35,388

 
$
20,899

 
$
341

 
$
154,708

Non-package revenue
8,230

 
5,042

 
5,030

 
3,487

 
10

 
21,799

Management fees
—

 
—

 
—

 
—

 
296

 
296

Cost reimbursements
—

 
—

 
—

 
—

 
44

 
44

Total revenue
$
81,284

 
$
30,068

 
$
40,418

 
$
24,386

 
$
691

 
$
176,847

Contract assets and liabilities

We do not have any material contract assets as of March 31, 2019 and December 31, 2018 other than trade and other receivables, net on our Condensed Consolidated Balance Sheet. Our receivables are primarily the result of contracts with customers, which are reduced by an allowance for doubtful accounts that reflects our estimate of amounts that will not be collected.

We record contract liabilities when cash payments are received or due in advance of guests staying at our resorts, which are presented as advance deposits (see Note 18) within trade and other payables on our Condensed Consolidated Balance Sheet. For the three months ended March 31, 2019, we recognized $41.1 million of package revenue that was included in the advanced deposits balance as of December 31, 2018. For the three months ended March 31, 2018, we recognized $28.7 million of package revenue that was included in the advanced deposits balance as of December 31, 2017.

8

Note 4. Business combinations
Business combination with the Sagicor Parties

On February 26, 2018, we entered into a Share Exchange Implementation Agreement with JCSD Trustee Services Limited, X Fund Properties Limited, Sagicor Pooled Investment Funds Limited, and Sagicor Real Estate X Fund Limited (collectively, the “Sagicor Parties”), as amended by that certain First Amendment to Share Exchange Implementation Agreement dated May 31, 2018 (as amended, the “Contribution Agreement”). Pursuant to the Contribution Agreement, the Sagicor Parties agreed to contribute a portfolio of the following assets (the “Sagicor Assets”) to a subsidiary of Playa in exchange for consideration consisting of a combination of our ordinary shares and cash:

•
The Hilton Rose Hall Resort & Spa;
•
The Jewel Runaway Bay Beach & Golf Resort;
•
The Jewel Dunn’s River Beach Resort & Spa;
•
The Jewel Paradise Cove Beach Resort & Spa;
•
The 88 units comprising one of the towers in the multi-tower condominium and spa at the Jewel Grande Montego Bay Resort & Spa;
•
Developable land sites adjacent to the Jewel Grande Montego Bay Resort & Spa and the Hilton Rose Hall Resort & Spa;
•
The management contract for the units owned by the Sagicor Parties at the Jewel Grande Montego Bay Resort & Spa; and
•
All of the Sagicor Parties’ rights to “The Jewel” hotel brand.

On June 1, 2018 (the “Acquisition Date”), we consummated our acquisition of the Sagicor Assets for total consideration, after prorations and working capital adjustments, of $308.5 million. The Company accounted for the acquisition as a business combination in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, and allocated the purchase price to the fair values of assets acquired and liabilities assumed. The business combination with the Sagicor Parties allows us to expand our portfolio of resorts in the all-inclusive segment of the lodging industry, capitalize on opportunities for growth and create significant operational synergies.

The following table summarizes the fair value of each class of consideration transferred to the Sagicor Parties on the Acquisition Date ($ in thousands, except share data):
Cash consideration, net of cash acquired of $0.1 million
 
$
93,128

Ordinary shares (20,000,000 shares at the Acquisition Date closing price of $10.77 per share, €0.10 par value)
 
215,400

Total purchase consideration
 
$
308,528

Preliminary fair values of assets acquired and liabilities assumed
The following table presents our preliminary estimates of fair values of the assets that we acquired and the liabilities that we assumed on the Acquisition Date, as previously disclosed in our Annual Report, and as of March 31, 2019. We did not revise our preliminary estimates during the first quarter of 2019. Our preliminary estimates are based on the information that was available as of the Acquisition Date, and we are continuing to evaluate the underlying inputs and assumptions used in our valuations. Accordingly, these preliminary estimates, primarily income taxes, are subject to change during the measurement period, which can be up to one year from the Acquisition Date.
 
 
June 1, 2018
(as previously reported)
Total purchase consideration
 
$
308,528

Net assets acquired
 
 
Working capital
 
(1,665
)
Property and equipment
 
304,299

Identifiable intangible assets and liabilities
 
(449
)
Deferred income taxes
 
(25,582
)
Goodwill
 
31,925

Total net assets acquired
 
$
308,528


9

Property and equipment
Property and equipment primarily consists of the all-inclusive resorts and adjacent developable land sites. We provisionally estimated the value of the acquired property and equipment using a combination of the income and market approaches, which are primarily based on significant Level 2 and Level 3 assumptions (as described in Note 16), such as estimates of future income growth, capitalization rates, discount rates, and capital expenditure needs of the Sagicor Assets.
Identified intangible assets and liabilities
The following table presents our preliminary estimates of the fair values of the identified intangible assets and liabilities and their related estimated useful lives ($ in thousands):
 
 
Balance Sheet Classification
 
Estimated Fair Value
 
Weighted-Average Amortization Period
(in years)
Management contract
 
Other intangible assets
 
$
1,900

 
20
Unfavorable ground lease liability
 
Other liabilities
 
(2,349
)
 
22
Total identifiable intangibles acquired
 
 
 
$
(449
)
 
 
We provisionally estimated the value of the management contract using the multi-period excess earnings valuation method, which is a variation of the income valuation approach. This method estimates an intangible asset’s value based on the present value of its incremental after-tax cash flows. This valuation approach utilizes Level 3 inputs (as described in Note 16).
Deferred income taxes
Deferred income taxes primarily relate to the fair value of non-current assets and liabilities acquired from the Sagicor Parties, including property and equipment, intangible assets and liabilities and other. We provisionally estimated deferred income taxes based on the statutory rate in the jurisdiction of the legal entities where the acquired non-current assets and liabilities are recorded. Our estimate includes deferred tax assets, net of a valuation allowance, of $0 million and deferred tax liabilities of $25.6 million related to the acquisition.
Goodwill
The excess of the purchase consideration over the aggregate estimated fair values of assets acquired and liabilities assumed was recorded as goodwill. The goodwill recognized is attributable primarily to expected synergies and future growth opportunities of our combined operations and is not deductible for income tax purposes. Goodwill related to the business combination was recognized at the Jamaica reportable segment (refer to discussion of our reportable segments in Note 19).
Note 5. Property and equipment
The balance of property and equipment, net is as follows ($ in thousands):
 
As of March 31,
 
As of December 31,
 
2019
 
2018
Land, buildings and improvements
$
1,788,625

 
$
1,787,727

Fixtures and machinery
70,566

 
69,396

Furniture and other fixed assets
193,830

 
195,036

Construction in progress
151,557

 
106,520

Total property and equipment, gross
2,204,578

 
2,158,679

Accumulated depreciation
(369,811
)
 
(350,267
)
Total property and equipment, net
$
1,834,767

 
$
1,808,412

Depreciation expense for property and equipment was $22.1 million and $15.4 million for the three months ended March 31, 2019 and 2018, respectively.
For the three months ended March 31, 2019 and 2018, $2.1 million and $0.7 million of interest expense was capitalized on qualifying assets, respectively. Interest expense was capitalized using the weighted-average interest rate of the debt.

10

Note 6. Income taxes
We are domiciled in The Netherlands and are taxed in The Netherlands with our other Dutch subsidiaries. Dutch companies are subject to Dutch corporate income tax at a general tax rate of 25%.

During the first quarter of 2019, we implemented a new transfer pricing policy, where the intercompany pricing mechanics between our entities are based on the return on operating assets per applicable guidelines defined by the Organization for Economic Cooperation and Development. We executed new intercompany contracts related to this policy, which were substantially completed as of March 31, 2019. As a result, certain of our hotel entities that were previously in loss positions are now expected to be profitable, which resulted in the release of their valuation allowances. The income tax impact of the new policy has been reflected in the income tax computation for the three months ended March 31, 2019.
For the three months ended March 31, 2019, our income tax benefit was $10.5 million, compared to a $9.6 million tax provision for the three months ended March 31, 2018. The increased income tax benefit of $20.1 million was driven primarily by the valuation allowance release of $13.6 million from the newly implemented transfer pricing policy, a decrease of $2.8 million due to lower pre-tax book income from the tax paying entities and a $3.5 million decrease in the discrete tax expense associated with foreign exchange rate fluctuations.
Note 7. Related party transactions
Relationship with Hyatt
Hyatt is considered a related party due to its ownership of our ordinary shares and representation on our Board of Directors. We pay Hyatt fees associated with the franchise agreements of our resorts operating under the all-ages Hyatt Ziva and adults-only Hyatt Zilara brands and receive reimbursements for guests that pay for their stay using the World of Hyatt® guest loyalty program.
Relationship with Sagicor
In connection with the acquisition of the Sagicor Assets, we issued 20,000,000 ordinary shares of our common stock to affiliates of Sagicor Group Jamaica Limited (“Sagicor”). Sagicor is considered a related party due to the ownership of our ordinary shares by its affiliated entities and representation on our Board of Directors.
For our Jamaica properties, we pay Sagicor for insurance coverage for our properties and our employees. As of March 31, 2019 and December 31, 2018, we were also owed approximately $1.6 million and $4.8 million, respectively, from Sagicor related to advance deposits and credit card collections which were paid to Sagicor, rather than us, following the acquisition.
Lease with our Chief Executive Officer
One of our offices is owned by our Chief Executive Officer, and we sublease the space at that location from a third party. Lease expense related to this space was $0.1 million and $0.2 million for the three months ended March 31, 2019 and 2018, respectively.
Transactions with related parties
Transactions between us and related parties during the three months ended March 31, 2019 and 2018 were as follows ($ in thousands):
 
 
 
 
Three Months Ended March 31,
Related Party
 
Transaction
 
2019
 
2018
Hyatt
 
Franchise fees (1)
 
$
4,636

 
$
4,451

Sagicor
 
Employee insurance premiums (1)
 
231

 
—

Sagicor
 
Property insurance premiums (1)
 
520

 
—

Chief Executive Officer
 
Lease expense (2)
 
146

 
217

________
(1) 
Included in direct expense in the Condensed Consolidated Statements of Operations with the exception of certain immaterial fees associated with the Hyatt franchise agreements, which are included in selling, general, and administrative expense.
(2) 
Included in selling, general, and administrative expense in the Condensed Consolidated Statements of Operations.

11

Note 8. Commitments and contingencies
We are involved in various claims and lawsuits arising in the normal course of business, including proceedings involving tort and other general liability claims, and workers' compensation and other employee claims. Most occurrences involving liability and claims of negligence are covered by insurance with solvent insurance carriers. We recognize a liability when we believe the loss is probable and reasonably estimable. We currently believe that the ultimate outcome of such lawsuits and proceedings will not, individually or in the aggregate, have a material effect on our Condensed Consolidated Financial Statements.
The Dutch corporate income tax act provides the option of a fiscal unity, which is a consolidated tax regime wherein the profits and losses of group companies can be offset against each other. Our Dutch companies file as a fiscal unity, with the exception of Playa Romana B.V., Playa Romana Mar B.V. and Playa Hotels & Resorts N.V. Playa Resorts Holding B.V. is the head of our Dutch fiscal unity and is jointly and severally liable for the tax liabilities of the fiscal unity as a whole.
Note 9. Leases

On January 1, 2019, we adopted ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), as described in Note 2, using the transition method outlined in ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. The adoption of ASU 2016-02 resulted in no cumulative adjustment to accumulated deficit as our lease portfolio consists solely of operating leases. The comparative periods presented in our Condensed Consolidated Financial Statements are presented in accordance with ASC 840, Leases and do not reflect the impact of ASU 2016-02. On the date of adoption, January 1, 2019, we recorded right-of-use assets of $5.0 million and lease liabilities of $5.3 million related to our portfolio of operating leases (see Note 18 for balances as of March 31, 2019).
We elected the following practical expedients, as provided under the applicable transition guidance:
•
Package of practical expedients, which, among other things, allows us to carry forward our prior lease classifications under ASC 840, Leases.
•
Recognized lease payments on a straight-line basis over the lease term for all leases with a term of 12 months or less and were not classified on the balance sheet.
Our administrative offices, located in Virginia, Florida and Cancun, are leased under various lease agreements that extend for varying periods through 2025, with the option to extend our Cancun and Florida office leases through 2026 and 2030, respectively. The extension options are reasonably certain to be exercised and included in the amounts recorded. Our administrative offices contain lease components (e.g., fixed rent payments) and non-lease components (e.g., common-area maintenance, shared service costs, real estate taxes and insurance costs), which we account for separately. The lease components and non-lease components associated with our administrative offices represent the majority of our lease expense and variable lease expense, respectively.
Our minimum future rents payable under non-cancelable operating leases with third parties and related parties as of March 31, 2019 were as follows ($ in thousands):
 
 
As of March 31, 2019
Remainder of 2019
 
$
720

2020
 
991

2021
 
1,036

2022
 
1,074

2023
 
786

2024
 
652

Thereafter
 
2,928

Total minimum future lease payments
 
8,187

Less: imputed interest
 
(1,478
)
Total
 
$
6,709


12

Our minimum future rents, at December 31, 2018, payable under non-cancelable operating leases with third parties and related parties were as follows ($ in thousands):
 
 
As of December 31, 2018
2019
 
$
1,199

2020
 
1,031

2021
 
1,016

2022
 
1,044

2023
 
745

Thereafter
 
3,394

Total
 
$
8,429


The following table presents the components of lease expense and supplemental cash flow information for the three months ended March 31, 2019 ($ in thousands):
 
 
Three Months Ended March 31, 2019
Lease expense (1)(2)
 
$
480

Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from operating leases
 
$
142

    ________
(1) Includes variable lease and short term lease expenses, which are considered individually immaterial. Our lease expense is reported in direct expense and selling, general and administrative expense in the Condensed Consolidated Statements of Operations depending on the nature of the lease.
(2) Lease expense under ASC 840, Leases, related to our non-cancelable operating leases, including variable lease cost, was $0.5 million for the three months ended March 31, 2018.

The following table presents other relevant information related to our leases for the three months ended March 31, 2019:
Weighted-average remaining lease term
 
8.5 years

Weighted-average discount rate (1)
 
4.54
%
________
(1) The discount rates applied to each lease reflects our estimated incremental borrowing rate.

We rent certain real estate to third parties for office and retail space within our hotels. Our lessor contracts are considered operating leases and generally have a contractual term of one to three years. The following table presents our rental income for the three months ended March 31, 2019 ($ in thousands):
Leases
 
Financial Statement Classification
 
Three Months Ended March 31, 2019
Operating lease income (1)
 
Non-package revenue
 
$
1,471

________
(1) Includes variable lease revenue, which is typically calculated as a percentage of our tenant's net sales.
Note 10. Ordinary shares
On December 14, 2018, our Board of Directors authorized the repurchase of up to $100.0 million of our outstanding ordinary shares as market conditions and Playa's liquidity warrant. Repurchases may be made from time to time in the open market, in privately negotiated transactions or by other means (including Rule 10b5-1 trading plans). Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without prior notice. During the three months ended March 31, 2019, we purchased 198,179 ordinary shares under the repurchase program. The shares repurchased are recorded as treasury shares on the Condensed Consolidated Balance Sheet as of March 31, 2019.
As of March 31, 2019, our ordinary share capital consisted of 130,490,991 ordinary shares outstanding, which have a par value of €0.10 per share. In addition, 2,984,588 restricted shares and performance share awards and 18,732 restricted share units were outstanding under the 2017 Plan (as defined in Note 12). The holders of restricted shares and performance share awards are entitled to vote, but not dispose of, such shares until they vest. The holders of restricted share units are neither entitled to vote nor dispose of such shares until they vest.

13

Note 11. Warrants
We previously issued 3,000,000 warrants (the “Earnout Warrants”) which entitle the holders to acquire one ordinary share for each Earnout Warrant for an exercise price of €0.10 per ordinary share in the event that the price per share underlying the Earnout Warrants on the NASDAQ is greater than $13.00 for a period of more than 20 days out of 30 consecutive trading days within the five years after March 11, 2017. The Earnout Warrants expire on March 11, 2022 or earlier upon redemption or liquidation in accordance with their term.
As of March 31, 2019, there were 2,987,770 Earnout Warrants outstanding.
Note 12. Share-based compensation
The Company adopted the 2017 Omnibus Incentive Plan (the “2017 Plan”) to attract and retain independent directors, executive officers and other key employees and service providers. The 2017 Plan was approved by the Board of Directors and shareholders of the Company on March 10, 2017. The 2017 Plan is administered by the Compensation Committee of our Board of Directors, who may grant awards covering a maximum of 4,000,000 of our ordinary shares under the 2017 Plan. The Compensation Committee may award share options, share appreciation rights, restricted shares, share units, unrestricted shares, dividend equivalent rights, performance shares and other performance-based awards, other equity-based awards, and cash bonus awards. As of March 31, 2019, there were 23,244 shares available for future grants under the 2017 Plan.
Restricted share awards
Restricted share awards consist of restricted shares and restricted share units that are granted to eligible employees, executives, and board members and consist of ordinary shares (or the right to receive ordinary shares) subject to restrictions and to a risk of forfeiture. Restricted shares issued to employees and executives of the Company generally vest over a period of three or five years. Restricted share units generally vest over a period of three years. For restricted share awards with a three-year vesting period, one-third of the award vests on each of the first three anniversaries of the grant date of the award. For restricted share awards with a five-year vesting period, 25% of the award vests on the third anniversary of the grant date of the award, 25% vests on the fourth anniversary of the grant date of the award and 50% vests on the fifth anniversary of the grant date of the award. Restricted share awards issued to directors of the Company for their services as directors generally vest immediately on the grant date of the award.

The vesting of restricted share awards is subject to the holder’s continued employment through the applicable vesting date. Unvested restricted share awards will be forfeited if the employee’s or the executive’s employment terminates during the vesting period, provided that unvested restricted share awards will accelerate upon certain terminations of employment as set forth in the applicable award agreements.

The holders of restricted shares have the right to vote the restricted shares and receive all dividends declared and paid on such shares, provided that dividends paid on unvested restricted shares will be subject to the same conditions and restrictions applicable to the underlying restricted shares. The holders of restricted share units have no right to vote the underlying shares and may be entitled to be credited with dividend equivalents in respect of each cash dividend declared and paid by Playa, in an amount per share unit equal to the per-share dividend paid on our ordinary shares, which dividend equivalents will be deemed to have been reinvested in additional restricted share units that are subject to the same terms and conditions applicable to the underlying restricted share units to which they relate.

Compensation expense for the restricted share awards is measured based upon the fair market value of our ordinary shares at the date of grant and is recognized on a straight-line basis over the vesting period.

A summary of our restricted share awards from January 1, 2019 to March 31, 2019 is as follows:
 
Number of Shares
 
Weighted-Average Grant Date Fair Value
Unvested balance at January 1, 2019
1,718,684

 
$
10.19

Granted
773,302

 
7.07

Vested
(249,044
)
 
9.24

Forfeited
(20,667
)
 
9.63

Unvested balance at March 31, 2019
2,222,275

 
$
9.22



14

The fair value of vested restricted share awards during the three months ended March 31, 2019 and 2018 was $1.8 million and $0.5 million, respectively. As of March 31, 2019 and 2018, the unrecognized compensation cost related to restricted share awards was $15.4 million and $14.4 million, respectively, and is expected to be recognized over a weighted-average period of 2.4 years and 3.3 years, respectively.

Compensation expense related to the restricted share awards was $2.4 million and $1.6 million for the three months ended March 31, 2019 and 2018, respectively. Compensation expense is recorded within selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

Performance share awards

Performance share awards consist of ordinary shares that may become earned and vested based on the achievement of performance targets adopted by our Compensation Committee. The actual number of ordinary shares that ultimately vest will range from 0% to 150% of the target award and will be determined at the end of the three-year performance period based on two performance criteria as defined in the applicable award agreements for the period of performance.

Any ordinary shares that ultimately vest based on the achievement of the applicable performance criteria will be deemed to be vested on the date on which our Compensation Committee certifies the level of achievement of such performance criteria. Except in connection with certain qualifying terminations of employment, as set forth in the applicable award agreements, the awards require continued service through the certification date. The holders of these awards have voting rights equivalent to the target level of ordinary shares granted to the holder and any dividends declared on such shares will be accumulated and paid within 30 days after and to the extent the target ordinary shares vest.

The grant date fair value of the portion of the award based on the compounded annual growth rate of the Company's total shareholder return was estimated using a Monte-Carlo model. The table below summarizes the key inputs used in the Monte-Carlo simulation ($ in thousands):
Performance Award Grant Date
 
Percentage of Total Award
 
Grant Date Fair Value by Component
 
Volatility (1)
 
Interest
Rate (2)
 
Dividend Yield
May 26, 2017
 
 
 
 
 
 
 
 
 
 
Total Shareholder Return
 
50
%
 
$
770

 
27.02
%
 
1.39
%
 
—
%
Adjusted EBITDA Comparison
 
50
%
 
$
1,350

 
—
%
 
—
%
 
—
%
January 2, 2018
 
 
 
 
 
 
 
 
 
 
Total Shareholder Return
 
50
%
 
$
860

 
26.13
%
 
2.00
%
 
—
%
Adjusted EBITDA Comparison
 
50
%
 
$
1,475

 
—
%
 
—
%
 
—
%
January 2, 2019
 
 
 
 
 
 
 
 
 
 
Total Shareholder Return
 
50
%
 
$
537

 
27.78
%
 
2.46
%
 
—
%
Adjusted EBITDA Comparison
 
50
%
 
$
900

 
—
%
 
—
%
 
—
%
________
(1) Expected volatility was determined based on the historical share prices in our industry.
(2) The risk-free rate was based on U.S. Treasury zero coupon issues with a remaining term equal to the remaining term of the measurement period.

In the table above, the total shareholder return component is a market condition as defined by ASC 718, Compensation—Stock Compensation, and compensation expense related to this component is recognized on a straight-line basis over the vesting period. The grant date fair value of the portion of the awards based on the compounded annual growth rate of the Company's Adjusted EBITDA (as defined in Note 19) was based on the closing stock price of our ordinary shares on such date. The Adjusted EBITDA component is a performance condition as defined by ASC 718, and, therefore, compensation expense related to this component is reassessed at each reporting date based on the Company's estimate of the probable level of achievement, and the accrual of compensation expense is adjusted as appropriate.


15

A summary of our performance share awards from January 1, 2019 to March 31, 2019 is as follows:
 
Number of Shares
 
Weighted-Average Grant Date Fair Value
Unvested balance at January 1, 2019
523,545

 
$
8.26

Granted
257,500

 
5.58

Unvested balance at March 31, 2019
781,045

 
$
7.38


As of March 31, 2019 and 2018, the unrecognized compensation cost related to the performance share awards was $2.8 million and $4.1 million, respectively, and is expected to be recognized over a weighted-average period of 2.1 years and 2.3 years, respectively. Compensation expense related to the performance share awards was approximately $0.4 million and $0.1 million for the three months ended March 31, 2019 and 2018, respectively. Compensation expense is recorded within selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.
Note 13. Earnings per share
The calculations of basic and diluted EPS are as follows ($ in thousands, except share data):
 
Three Months Ended March 31,
 
2019
 
2018
Numerator:
 
 
 
Net income
$
42,988

 
$
21,817

Denominator:
 
 
 
Denominator for basic EPS - weighted-average shares
130,540,057

 
110,345,855

Effect of dilutive securities:
 
 
 
Unvested restricted share awards
230,299

 
255,751

Denominator for diluted EPS - adjusted weighted-average shares
130,770,356

 
110,601,606

 
 
 
 
EPS - Basic
$
0.33

 
$
0.20

EPS - Diluted
$
0.33

 
$
0.20


For the three months ended March 31, 2019 and 2018, 781,045 and 538,951 shares of unvested performance-based equity awards, respectively, were not included in the computation of diluted EPS after assumed conversions as the performance criteria were not met as of the end of the reporting period. For the three months ended March 31, 2019, 535,059 of unvested restricted share awards were not included in the computation of diluted EPS as their effect would have been anti-dilutive.

For the three months ended March 31, 2019 and 2018, outstanding Earnout Warrants to acquire a total of 2,987,770 and 3,000,000 ordinary shares, respectively, were not included in the computation of diluted EPS after assumed conversions because the warrants were not exercisable as of March 31, 2019 or 2018, respectively.

16

Note 14. Debt
Debt consists of the following ($ in thousands):
 
As of March 31,
 
As of December 31,
 
2019
 
2018
Debt obligations
 
 
 
Term Loan(1)
$
994,023

 
$
996,548

Revolving Credit Facility(2)
—

 
—

Total debt obligations
994,023

 
996,548

Unamortized discount and debt issuance costs
 
 
 
Discount on Term Loan
(2,554
)
 
(2,681
)
Unamortized debt issuance costs on Term Loan
(4,268
)
 
(4,480
)
Total unamortized discount and debt issuance costs
(6,822
)
 
(7,161
)
Total debt
$
987,201

 
$
989,387

________
(1) 
Borrowings under the Term Loan bear interest at floating rates equal to one-month London Interbank Offered Rate (“LIBOR”) plus 2.75% (where the applicable LIBOR rate has a 1.0% floor). The interest rate was 5.25% and 5.27% as of March 31, 2019 and December 31, 2018, respectively. Effective March 29, 2018, we entered into two interest rate swaps to fix LIBOR at 2.85% on $800.0 million of our Term Loan (see Note 15).
(2) 
The commitment fee on the $100.0 million undrawn balance of our Revolving Credit Facility bore interest of 0.5% as of March 31, 2019 and December 31, 2018. The commitment fee may range from 0.5% to 0.25% depending on certain leverage ratios. For any drawn balances, the Revolving Credit Facility bears interest at one-month LIBOR plus 3.0%.
Financial maintenance covenants
Our Senior Secured Credit Facility requires us to meet a springing leverage ratio financial maintenance covenant, but only if the aggregate amount outstanding on our Revolving Credit Facility exceeds 35% of the aggregate revolving credit commitments as defined in our Senior Secured Credit Facility. On March 19, 2019, we entered into the Third Amendment to Amended & Restated Credit Agreement (the “Third Amendment”) to exclude the lesser of $50.0 million and the aggregate amount of revolving credit commitments borrowed in connection with the Hyatt Ziva Cap Cana and Hyatt Zilara Cap Cana development project from the calculation of the springing leverage ratio for the period July 1, 2019 through June 30, 2020. On July 1, 2020, the springing leverage ratio will be calculated based on the provisions in the Senior Secured Credit Facility as if the Third Amendment had not taken place. We were in compliance with all applicable covenants as of March 31, 2019.
Note 15. Derivative financial instruments
Interest rate swaps
Effective March 29, 2018, we entered into two interest rate swaps to mitigate the interest rate risk inherent to our floating rate debt, including the Revolving Credit Facility and Term Loan. The interest rate swaps are not for trading purposes and have fixed notional values of $200.0 million and $600.0 million. The fixed rate paid by us is 2.85% and the variable rate received resets monthly to the one-month LIBOR rate, which results in us fixing LIBOR at 2.85% on $800.0 million of our Term Loan. The interest rate swaps mature on March 31, 2023.

As of March 20, 2019, we elected to adopt hedge accounting and designate our interest rate swaps as cash flow hedges. Prior to our adoption of hedge accounting, the change in fair value of our interest rate swaps was recognized through interest expense in the Condensed Consolidated Statements of Operations. Following the adoption, the change in the fair value of our interest rate swaps that qualify as effective cash flow hedges is recorded through other comprehensive loss (OCI) in the Condensed Consolidated Statements of Comprehensive Income. Unrealized gains and losses in accumulated other comprehensive loss (AOCI) are reclassified to interest expense as interest payments are made on our variable rate debt.


17

The following tables present the effect of our interest rate swaps, net of tax, in the Condensed Consolidated Statements of Comprehensive Income and Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 ($ in thousands):
Derivative Liabilities Designated as Hedging Instruments
 
2019
 
2018
AOCI from our cash flow hedges as of January 1
 
$
—

 
$
—

Change in fair value
 
5,834

 
—

Reclassification from AOCI to interest expense (1)
 
24

 
—

OCI related to our cash flow hedges for the three months ended March 31
 
5,858

 
—

AOCI from our cash flow hedges as of March 31
 
$
5,858

 
$
—

________
(1) As of March 31, 2019, the total amount expected to be reclassified from AOCI to interest expense during the next twelve months is less than $0.1 million.
Derivative Liabilities Not Designated as Hedging Instruments
 
Financial Statement Classification
 
Three Months Ended March 31,
 
 
2019
 
2018
Interest rate swaps (1)
 
Interest expense
 
$
2,715

 
$
11,025

________
(1) Includes the change in fair value of our interest rate swaps and the cash interest paid for the monthly settlements of the derivative prior to our hedge designation date of March 20, 2019.

The following tables present the effect of our interest rate swaps in the Condensed Consolidated Balance Sheet as of March 31, 2019 and December 31, 2018 ($ in thousands):
Derivative Liabilities Designated as Hedging Instruments
 
Financial Statement Classification
 
As of March 31,
 
As of December 31,
 
 
2019
 
2018
Interest rate swaps
 
Derivative financial instruments
 
$
20,351

 
$
—

Derivative Liabilities Not Designated as Hedging Instruments
 
Financial Statement Classification
 
As of March 31,
 
As of December 31,
 
 
2019
 
2018
Interest rate swaps
 
Derivative financial instruments
 
$
—

 
$
12,476


Derivative financial instruments expose the Company to credit risk in the event of non-performance by the counterparty under the terms of the interest rate swaps. The Company incorporates these counterparty credit risks in its fair value measurements (see Note 16). The Company believes it minimizes this credit risk by transacting with major creditworthy financial institutions.
Note 16. Fair value of financial instruments
The objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions. U.S. GAAP establishes a hierarchical disclosure framework, which prioritizes and ranks the level of observability of inputs used in measuring fair value as follows:
•
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
•
Level 2: Unadjusted quoted prices for similar assets or liabilities in active markets, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
•
Level 3: Inputs are unobservable and reflect our judgments about assumptions that market participants would use in pricing an asset or liability.
We believe the carrying value of our financial instruments, excluding our debt, approximate their fair values as of March 31, 2019 and December 31, 2018. We did not have any Level 3 instruments during any of the above periods.


18

The following table presents our fair value hierarchy for our financial liabilities measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018 ($ in thousands):
 
 
March 31, 2019
 
Level 1
 
Level 2
 
Level 3
Fair value measurements on a recurring basis:
 
 
 
 
 
 
 
 
Interest rate swap
 
$
20,351

 
$
—

 
$
20,351

 
$
—

 
 
December 31, 2018
 
Level 1
 
Level 2
 
Level 3
Fair value measurements on a recurring basis:
 
 
 
 
 
 
 
 
Interest rate swap
 
$
12,476

 
$
—

 
$
12,476

 
$
—

The following tables present our fair value hierarchy for our financial liabilities not measured at fair value as of March 31, 2019 and December 31, 2018 ($ in thousands):
 
 
Carrying Value
 
Fair Value
 
 
As of March 31, 2019
 
Level 1
 
Level 2
 
Level 3
Financial liabilities not recorded at fair value:
 
 
 
 
 
 
 
 
Debt:
 
 
 
 
 
 
 
 
Term Loan
 
$
987,201

 
$
—

 
$
—

 
$
956,675

Revolving Credit Facility
 
—

 
—

 
—

 
—

Total
 
$
987,201

 
$
—

 
$
—

 
$
956,675

 
 
Carrying Value
 
Fair Value
 
 
As of December 31, 2018
 
Level 1
 
Level 2
 
Level 3
Financial liabilities not recorded at fair value:
 
 
 
 
 
 
 
 
Debt:
 
 
 
 
 
 
 
 
Term Loan
 
$
989,387

 
$
—

 
$
—

 
$
927,025

Revolving Credit Facility
 
—

 
—

 
—

 
—

Total
 
$
989,387

 
$
—

 
$
—

 
$
927,025

The following table summarizes the valuation techniques used to estimate the fair value of our financial instruments measured at fair value on a recurring basis and our financial instruments not measured at fair value:
 
 
Valuation Technique
Financial instruments recorded at fair value:
 
 
Interest rate swaps
 
The fair value of the interest rate swaps is estimated based on the expected future cash flows by incorporating the notional amount of the swaps, the contractual period to maturity, and observable market-based inputs, including interest rate curves. The fair value also incorporates credit valuation adjustments to appropriately reflect nonperformance risk.
Financial instruments not recorded at fair value:
 
 
Term Loan
 
The fair value of our Term Loan is estimated using cash flow projections over the remaining contractual period by applying market forward rates and discounting back at the appropriate discount rate.
Revolving Credit Facility
 
The valuation technique of our Revolving Credit Facility is consistent with our Term Loan. The fair value of the Revolving Credit Facility generally approximates its carrying value as the expected term is significantly shorter in duration.
Note 17. Employee benefit plan
In accordance with labor law regulations in Mexico, certain employees are legally entitled to receive severance that is commensurate with the tenure they had with us at the time of termination. There were no plan assets as of March 31, 2019 or December 31, 2018 as contributions are made only to the extent benefits are paid.

19

The following table presents the components of net periodic pension cost for the three months ended March 31, 2019 and 2018 ($ in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Service cost
$
186

 
$
174

Interest cost
121

 
87

Effect of foreign exchange rates
(16
)
 
345

Amortization of prior service cost
—

 
25

Amortization of gain
(6
)
 
(6
)
Compensation-non-retirement post employment benefits
(76
)
 
4

Curtailment gain
(97
)
 
—

Net periodic pension cost
$
112

 
$
629


The service cost component of net periodic pension cost is recorded within direct expense in the Condensed Consolidated Statements of Operations. The non-service cost components of net periodic pension cost are recorded within other expense for all periods presented.
Note 18. Other balance sheet items
Trade and other receivables, net
The following summarizes the balances of trade and other receivables, net as of March 31, 2019 and December 31, 2018 ($ in thousands):
 
As of March 31,
 
As of December 31,
 
2019
 
2018
Gross trade and other receivables (1)
$
68,903

 
$
65,363

Allowance for doubtful accounts
(680
)
 
(593
)
Total trade and other receivables, net
$
68,223

 
$
64,770

________
(1) 
Includes $2.0 million in receivables related to property damage insurance claims as of December 31, 2018. There were no such receivables as of March 31, 2019.

We have not experienced any significant write-offs to our accounts receivable during the three months ended March 31, 2019 and 2018.

20

Prepayments and other assets
The following summarizes the balances of prepayments and other assets as of March 31, 2019 and December 31, 2018 ($ in thousands):
 
As of March 31,
 
As of December 31,
 
2019
 
2018
Advances to suppliers
$
6,561

 
$
9,447

Prepaid income taxes
7,215

 
7,538

Prepaid other taxes (1)
11,574

 
10,240

Right of use assets (2)
6,238

 
—

Contract deposit (3)
2,700

 
2,700

Other assets
2,404

 
2,692

Total prepayments and other assets
$
36,692

 
$
32,617

________
(1) Includes recoverable value-added tax and general consumption tax accumulated by our Mexico and Jamaica entities, respectively.
(2) Represents right of use assets recognized in connection with our adoption of ASU 2016-02 on January 1, 2019 (see Note 9).
(3) Represents a cash deposit related to the Sanctuary Cap Cana management contract. We are in the process of negotiating final terms for the purchase of a 30% interest, and the deposit will be used towards this purchase if we are able to agree on terms. If the purchase is not completed, this amount, together with an additional $0.8 million due, will be treated as key money.
Goodwill
The gross carrying values and accumulated impairment losses of goodwill by reportable segment (refer to discussion of our reportable segments in Note 19) as of March 31, 2019 and December 31, 2018 are as follows ($ in thousands):
 
Yucatán Peninsula
 
Pacific Coast
 
Dominican Republic
 
Jamaica
 
Total
Gross carrying value as of December 31, 2018
$
51,731

 
$
—

 
$
—

 
$
31,925

 
$
83,656

Accumulated impairment losses
—

 
—

 
—

 
—

 
—

Net carrying value as of December 31, 2018
51,731

 
—

 
—

 
31,925

 
83,656

 
 
 
 
 
 
 
 
 
 
Gross carrying value as of March 31, 2019
51,731

 
—

 
—

 
31,925

 
83,656

Accumulated impairment losses
—

 
—

 
—

 
—

 
—

Net carrying value as of March 31, 2019
$
51,731

 
$
—

 
$
—

 
$
31,925

 
$
83,656


21

Other intangible assets
Other intangible assets as of March 31, 2019 and December 31, 2018 consisted of the following ($ in thousands):
 
As of March 31,
 
As of December 31,
 
2019
 
2018
Gross carrying value:
 
 
 
Licenses (1)
$
858

 
$
858

Management contract (2)
1,900

 
1,900

Enterprise resource planning system (3)
2,729

 
2,246

Other
3,091

 
3,027

Total gross carrying value
8,578

 
8,031

 
 
 
 
Accumulated amortization:
 
 
 
Management contract (2)
(71
)
 
(48
)
Enterprise resource planning system (3)
(124
)
 
(67
)
Other
(1,874
)
 
(1,813
)
Total accumulated amortization
(2,069
)
 
(1,928
)
 
 
 
 
Net carrying value:
 
 
 
Licenses (1)
858

 
858

Management contract (2)
1,829

 
1,852

Enterprise resource planning system (3)
2,605

 
2,179

Other
1,217

 
1,214

Total net carrying value
$
6,509

 
$
6,103

________
(1) Our licenses have indefinite lives. Accordingly, there is no associated amortization expense or accumulated amortization.
(2) Represents the fair value of a management contract acquired in the business combination with the Sagicor Parties (see Note 4).
(3) Represents software development costs incurred to develop and implement SAP as our integrated enterprise resource planning (“ERP”) system. $0.7 million of these costs were placed into service in February 2019 and are being amortized over a weighted-average amortization period of 7 years.
Amortization expense for intangible assets was $0.2 million and $0.3 million for the three months ended March 31, 2019 and 2018, respectively.
Trade and other payables
The following summarizes the balances of trade and other payables as of March 31, 2019 and December 31, 2018 ($ in thousands):
 
As of March 31,
 
As of December 31,
 
2019
 
2018
Trade payables
$
20,659

 
$
24,452

Advance deposits
41,391

 
57,339

Withholding and other taxes payable
48,576

 
45,274

Interest payable
436

 
147

Payroll and related accruals
11,637

 
14,251

Accrued expenses and other payables
25,657

 
18,137

Total trade and other payables
$
148,356

 
$
159,600


22

Other liabilities
The following summarizes the balances of other liabilities as of March 31, 2019 and December 31, 2018 ($ in thousands):
 
As of March 31,
 
As of December 31,
 
2019
 
2018
Pension obligations
$
5,423

 
$
5,123

Cap Cana land purchase obligation
10,625

 
10,625

Lease liabilities (1)
6,709

 
—

Unfavorable ground lease liability (2)
2,267

 
2,294

Key money (3)
4,466

 
1,994

Other
1,325

 
1,566

Total other liabilities
$
30,815

 
$
21,602

________
(1) Represents lease liabilities recognized in connection with our adoption of ASU 2016-02 on January 1, 2019 (see Note 9).
(2) Represents the amortized balance of the unfavorable ground lease intangible acquired in the business combination with the Sagicor Parties (see Note 4).
(3) Represents the amortized balance of key money received from Hilton in connection with the conversion of our Hilton La Romana and Hilton Playa del Carmen properties. The amortization is recorded as a reduction to franchise fees within direct expenses in the Condensed Consolidated Statements of Operations. We recorded $2.5 million in March 2019.
Note 19. Segment information
We consider each one of our owned resorts to be an operating segment, none of which meets the threshold for a reportable segment. We also allocate resources and assess operating performance based on individual resorts. Our operating segments meet the aggregation criteria and thus, we present four separate reportable segments by geography: (i) Yucatán Peninsula, (ii) Pacific Coast, (iii) Dominican Republic and (iv) Jamaica. For the three months ended March 31, 2019 and 2018, we have excluded the immaterial amounts of management fees, cost reimbursements and other from our segment reporting.
Our operating segments are components of the business which are managed discretely and for which discrete financial information is reviewed regularly by our Chief Executive Officer, Chief Financial Officer and Chief Operating Officer, all of whom represent our chief operating decision maker (“CODM”). Financial information for each reportable segment is reviewed by the CODM to assess performance and make decisions regarding the allocation of resources.
The performance of our business is evaluated primarily on adjusted earnings before interest expense, income tax benefit (provision), and depreciation and amortization expense (“Adjusted EBITDA”), which should not be considered an alternative to net income or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. The performance of our segments is evaluated on Adjusted EBITDA before corporate expenses and management fee income (“Owned Resort EBITDA”).
We define Adjusted EBITDA as net income, determined in accordance with U.S. GAAP, for the period presented, before interest expense, income tax benefit (provision), and depreciation and amortization expense, further adjusted to exclude the following items: (a) other expense; (b) pre-opening expenses; (c) share-based compensation; (d) other tax expense; (e) transaction expenses; and (f) Jamaica delayed opening accrual reversal.
There are limitations to using financial measures such as Adjusted EBITDA and Owned Resort EBITDA. For example, other companies in our industry may define Adjusted EBITDA differently than we do. As a result, it may be difficult to use Adjusted EBITDA or similarly named financial measures that other companies publish to compare the performance of those companies to our performance. Because of these limitations, Adjusted EBITDA should not be considered as a measure of the income or loss generated by our business or discretionary cash available for investment in our business and investors should carefully consider our U.S. GAAP results presented in our Condensed Consolidated Financial Statements.

23

The following table presents segment owned net revenue and a reconciliation to total revenue for the three months ended March 31, 2019 and 2018 ($ in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Owned net revenue:
 
 
 
Yucatàn Peninsula
$
70,213

 
$
79,271

Pacific Coast
25,570

 
29,055

Dominican Republic
33,075

 
40,418

Jamaica
59,147

 
23,760

Segment owned net revenue (1)
188,005

 
172,504

Other
2

 
352

Management fees
934

 
296

Cost reimbursements
588

 
44

Compulsory tips
6,267

 
3,651

Total revenue
$
195,796

 
$
176,847

________
(1) Segment owned net revenue represents total revenue less compulsory tips paid to employees, cost reimbursements, management fees and other miscellaneous revenue not derived from segment operations.

The following table presents segment Owned Resort EBITDA, Adjusted EBITDA and a reconciliation to net income for the three months ended March 31, 2019 and 2018 ($ in thousands):

Three Months Ended March 31,

2019
 
2018
Owned Resort EBITDA:
 
 
 
Yucatàn Peninsula
$
32,159

 
$
39,604

Pacific Coast
12,387

 
13,908

Dominican Republic
13,463

 
18,427

Jamaica
24,348

 
10,644

Segment Owned Resort EBITDA
82,357

 
82,583

Other corporate - unallocated
(8,506
)
 
(8,320
)
Management fees
934

 
296

Total Adjusted EBITDA
74,785

 
74,559

Add:
 
 
 
Interest expense
(14,194
)
 
(21,882
)
Depreciation and amortization
(22,311
)
 
(15,689
)
Other expense
(602
)
 
(1,824
)
Pre-opening expenses
(89
)
 
—

Share-based compensation
(2,748
)
 
(1,786
)
Other tax expense
(359
)
 
(431
)
Transaction expenses
(1,967
)
 
(2,344
)
Jamaica delayed opening accrual reversal
—

 
342

Non-service cost components of net periodic pension (benefit) cost (1)
(74
)
 
455

Net income before tax
32,441

 
31,400

Income tax benefit (provision)
10,547

 
(9,583
)
Net income
$
42,988

 
$
21,817

________
(1) 
Represents the non-service cost components of net periodic pension (benefit) cost recorded within other expense in the Condensed Consolidated Statements of Operations. We include these (benefits) costs in calculating Adjusted EBITDA as they are considered part of our ongoing resort operations.  


24

The following table presents segment property and equipment, gross and a reconciliation to total property and equipment, net as of March 31, 2019 and December 31, 2018 ($ in thousands):
 
As of March 31,
 
As of December 31,
 
2019
 
2018
Segment property and equipment, gross:
 
 
 
Yucatàn Peninsula
$
864,243

 
$
861,380

Pacific Coast
285,881

 
285,936

Dominican Republic
540,906

 
501,624

Jamaica
501,988

 
500,550

Total segment property and equipment, gross
2,193,018

 
2,149,490

Other corporate
11,560

 
9,189

Accumulated depreciation
(369,811
)
 
(350,267
)
Total property and equipment, net
$
1,834,767

 
$
1,808,412


The following table presents segment capital expenditures and a reconciliation to total capital expenditures for the three months ended March 31, 2019 and 2018 ($ in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Segment capital expenditures:
 
 
 
Yucatàn Peninsula
$
4,057

 
$
3,198

Pacific Coast
250

 
772

Dominican Republic
40,678

 
16,001

Jamaica
1,556

 
1,056

Total segment capital expenditures (1)
46,541

 
21,027

Other corporate
2,347

 
272

Total capital expenditures (1)
$
48,888

 
$
21,299

________
(1) 
Includes capital expenditures incurred, but not yet paid.  
Note 20. Subsequent events
In preparing the interim Condensed Consolidated Financial Statements, we have evaluated subsequent events through May 7, 2019, which is the date the Condensed Consolidated Financial Statements were issued.

During the period from April 1, 2019 through May 2, 2019, we purchased 94,673 ordinary shares at an average price of $7.83 per share.

25


The following discussion and analysis of Playa Hotels & Resorts N.V.'s (“Playa”) financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements (our “Condensed Consolidated Financial Statements”) and the notes related thereto which are included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q. Unless the context otherwise requires, “we,” “us,” “our” and the “Company” refer to Playa and its subsidiaries.

Cautionary Note Regarding Forward-Looking Statements
This quarterly report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Forward-looking statements reflect our current views with respect to, among other things, our capital resources, portfolio performance and results of operations. Likewise, all of our statements regarding anticipated growth in our operations, anticipated market conditions, demographics and results of operations are forward-looking statements. In some cases, you can identify these forward-looking statements by the use of terminology such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words or phrases.
The forward-looking statements contained in this quarterly report reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. The factors discussed in our filings with the United States Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019, together with the following factors, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
•
general economic uncertainty and the effect of general economic conditions on the lodging industry in particular;
•
the popularity of the all-inclusive resort model, particularly in the luxury segment of the resort market;
•
changes in economic, social or political conditions in the regions we operate, including changes in perception of public-safety and changes in the supply of rooms from competing resorts;
•
the success and continuation of our relationships with Hyatt Hotels Corporation (“Hyatt”) and Hilton Worldwide Holdings, Inc. (“Hilton”);
•
the volatility of currency exchange rates;
•
the success of our branding or rebranding initiatives with our current portfolio and resorts that may be acquired in the future, including the rebranding of two of our resorts under the all-inclusive “Panama Jack” brand and rebranding of certain resorts recently acquired from Sagicor in Jamaica;
•
our failure to successfully complete acquisition, expansion, repair and renovation projects in the timeframes and at the costs and returns anticipated;
•
changes we may make in timing and scope of our development and renovation projects;
•
significant increases in construction and development costs;
•
significant increases in utilities;
•
our ability to obtain and maintain financing arrangements on attractive terms;
•
the impact of and changes in governmental regulations or the enforcement thereof, tax laws and rates, accounting guidance and similar matters in regions in which we operate;
•
the effectiveness of our internal controls and our corporate policies and procedures and the success and timing of the remediation efforts for the material weakness that we identified in our internal control over financial reporting;
•
changes in personnel and availability of qualified personnel;

26


•
environmental uncertainties and risks related to adverse weather conditions and natural disasters;
•
dependence on third parties to provide Internet, telecommunications and network connectivity to our data centers;
•
the volatility of the market price and liquidity of our ordinary shares and other of our securities; and
•
the increasingly competitive environment in which we operate.
 
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. The Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes after the date of this quarterly report, except as required by applicable law. You should not place undue reliance on any forward-looking statements, which are based only on information currently available to us (or to third parties making the forward-looking statements).
Overview
 Playa is a leading owner, operator and developer of all-inclusive resorts in prime beachfront locations in popular vacation destinations in Mexico and the Caribbean. Playa owns and/or manages a total portfolio consisting of 21 resorts (7,914 rooms) located in Mexico, Jamaica, and the Dominican Republic. In Mexico, Playa owns and manages Hyatt Zilara Cancun, Hyatt Ziva Cancun, Panama Jack Resorts Cancun, Panama Jack Resorts Playa del Carmen, Hilton Playa del Carmen All-Inclusive Resort, Hyatt Ziva Puerto Vallarta and Hyatt Ziva Los Cabos. In Jamaica, Playa owns and manages Hyatt Zilara Rose Hall, Hyatt Ziva Rose Hall, Hilton Rose Hall Resort & Spa, Jewel Dunn’s River Beach Resort & Spa, Jewel Grande Montego Bay Resort & Spa, Jewel Runaway Bay Beach & Golf Resort and Jewel Paradise Cove Beach Resort & Spa. In the Dominican Republic, Playa owns and manages the Hilton La Romana All-Inclusive Family Resort and the Hilton La Romana All-Inclusive Adult Resort. Playa also owns four resorts in Mexico and the Dominican Republic that are managed by a third party and Playa manages the Sanctuary Cap Cana in the Dominican Republic. We believe that the resorts we own and manage are among the finest all-inclusive resorts in the markets they serve. All of our resorts offer guests luxury accommodations, noteworthy architecture, extensive on-site activities and multiple food and beverage options. Our guests also have the opportunity to purchase upgrades from us such as premium rooms, dining experiences, wines and spirits and spa packages.
For the three months ended March 31, 2019, we generated net income of $43.0 million, total revenue of $195.8 million, Net Package RevPAR of approximately $244.20 and Adjusted EBITDA of $74.8 million. For the three months ended March 31, 2018, we generated net income of $21.8 million, total revenue of $176.8 million, Net Package RevPAR of approximately $273.50 and Adjusted EBITDA of $74.6 million.

27


Our Portfolio of Resorts
As the date hereof, the following table presents an overview of our resorts. None of the resorts we own individually contributed more than 13.5% of our Total Net Revenue or 15.6% of our consolidated Adjusted EBITDA for the three months ended March 31, 2019. The table below is organized by our four geographic business segments: the Yucatán Peninsula, the Pacific Coast, the Dominican Republic and Jamaica.
Name of Resort 
 
Location 
 
Brand and Type 
 
Operator 
 
Year Built; Significant Renovations
 
Rooms
Owned Resorts
 
 
 
 
 
 
 
 
 
 
Yucatán Peninsula
 
 
 
 
 
 
 
 
 
 
Hyatt Ziva Cancún
 
Cancún, Mexico
 
Hyatt Ziva (all ages)
 
Playa
 
1975; 1980; 1986; 2002; 2015
 
547
Hyatt Zilara Cancún
 
Cancún, Mexico
 
Hyatt Zilara 
(adults-only)
 
Playa
 
2006; 2009; 2013; 2017
 
307
Panama Jack Resorts Cancún
 
Cancún, Mexico
 
Panama Jack (all ages)(1)
 
Playa
 
1985; 2009; 2017
 
458
Hilton Playa del Carmen All-Inclusive Resort(2)
 
Playa del Carmen, Mexico
 
Hilton (adults-only)
 
Playa
 
2002; 2009
 
513
Panama Jack Resorts Playa del Carmen
 
Playa del Carmen, Mexico
 
Panama Jack (all ages)(1)
 
Playa
 
1996; 2006; 2012; 2017
 
287
Secrets Capri
 
Riviera Maya, Mexico
 
Secrets (adults-only)
 
AMResorts
 
2003
 
291
Dreams Puerto Aventuras
 
Riviera Maya, Mexico
 
Dreams (all ages)
 
AMResorts
 
1991; 2009
 
305
Pacific Coast
 
 
 
 
 
 
 
 
 
 
Hyatt Ziva Los Cabos
 
Cabo San Lucas, Mexico
 
Hyatt Ziva (all ages)
 
Playa
 
2007; 2009; 2015
 
591
Hyatt Ziva Puerto Vallarta
 
Puerto Vallarta, Mexico
 
Hyatt Ziva (all ages)
 
Playa
 
1969; 1990; 2002; 2009; 2014; 2017
 
335
Dominican Republic
 
 
 
 
 
 
 
 
 
 
Hilton La Romana All-Inclusive Resort(2)
 
La Romana, Dominican Republic
 
Hilton (adults-only)
 
Playa(3)
 
1997; 2008
 
350
Hilton La Romana All-Inclusive Resort(2)
 
La Romana, Dominican Republic
 
Hilton (all ages)
 
Playa(3)
 
1997; 2008
 
412
Dreams Palm Beach
 
Punta Cana, Dominican Republic
 
Dreams (all ages)
 
AMResorts
 
1994; 2008
 
500
Dreams Punta Cana
 
Punta Cana, Dominican Republic
 
Dreams (all ages)
 
AMResorts
 
2004
 
620
Jamaica
 
 
 
 
 
 
 
 
 
 
Hyatt Ziva Rose Hall 
 
Montego Bay, Jamaica
 
Hyatt Ziva (all ages)
 
Playa
 
2000; 2014; 2017
 
276
Hyatt Zilara Rose Hall
 
Montego Bay, Jamaica
 
Hyatt Zilara
(adults-only)
 
Playa
 
2000; 2014; 2017
 
344
Hilton Rose Hall Resort & Spa
 
Montego Bay, Jamaica
 
Hilton (all ages)
 
Playa
 
1974; 2008
 
495
Jewel Runaway Bay Beach & Golf Resort
 
Runaway Bay, Jamaica
 
Jewel (all ages)
 
Playa
 
1960; 1961; 1965; 2007; 2012
 
268
Jewel Dunn’s River Beach Resort & Spa
 
Ocho Rios, Jamaica
 
Jewel (adults-only)
 
Playa
 
1957; 1970; 1980; 2010
 
250
Jewel Paradise Cove Beach Resort & Spa
 
Runaway Bay, Jamaica
 
Jewel
(adults-only)
 
Playa
 
2013
 
225
Jewel Grande Montego Bay Resort & Spa(5)
 
Montego Bay, Jamaica
 
Jewel (all ages)
 
Playa
 
2016; 2017
 
88
Total Rooms Owned
 
 
 
 
 
 
 
 
 
7,462
Managed Resorts
 
 
 
 
 
 
 
 
 
 
Sanctuary Cap Cana(4) 
 
Punta Cana, Dominican Republic
 
Sanctuary (adults-only)
 
Playa
 
2008; 2015; 2018
 
323
Jewel Grande Montego Bay Resort & Spa(5)
 
Montego Bay, Jamaica
 
Sagicor (condo-hotel)
 
Playa
 
2016; 2017
 
129
Total Rooms Operated
 
 
 
 
 
 
 
 
 
452
Total Rooms Owned and Operated
 
 
 
 
 
 
 
 
 
7,914
(1) Pursuant to an agreement with Panama Jack, we rebranded these resorts as Panama Jack resorts in 2017.
(2) Pursuant to an agreement with Hilton, we rebranded these resorts as Hilton all-inclusive resorts in November 2018. The resorts are still owned and operated by Playa.
(3) Effective November 20, 2018, this resort was rebranded into two Hilton all-inclusive resorts. Renovations are currently underway and projected to be complete by the end of 2019.
(4) Owned by a third party.
(5) We acquired an 88-unit tower and spa as part of our acquisition of the Sagicor Assets. Additionally, we manage the majority of the units within the remaining two condo-hotel towers owned by Sagicor that comprise the Jewel Grande Montego Bay Resort & Spa.

28



Results of Operations
Three Months Ended March 31, 2019 and 2018
The following table summarizes our results of operations on a consolidated basis for the three months ended March 31, 2019 and 2018 ($ in thousands):
 
Three Months Ended March 31,
 
Increase / Decrease
 
2019
 
2018
 
Change
 
% Change
Revenue:

 
 
 
 
 
 
Package
$
169,792

 
$
154,708

 
$
15,084

 
9.7
 %
Non-package
24,482

 
21,799

 
2,683

 
12.3
 %
Management fees
934

 
296

 
638

 
215.5
 %
Cost reimbursements
588

 
44

 
544

 
1,236.4
 %
Total revenue
195,796

 
176,847

 
18,949

 
10.7
 %
Direct and selling, general and administrative expenses:
 
 
 
 
 
 
 
Direct
93,743

 
81,056

 
12,687

 
15.7
 %
Selling, general and administrative
31,828

 
26,473

 
5,355

 
20.2
 %
Pre-opening
89

 
—

 
89

 
100.0
 %
Depreciation and amortization
22,311

 
15,689

 
6,622

 
42.2
 %
Reimbursed costs
588

 
44

 
544

 
1,236.4
 %
Gain on insurance proceeds
—

 
(1,521
)
 
1,521

 
(100.0
)%
Direct and selling, general and administrative expenses
148,559

 
121,741

 
26,818

 
22.0
 %
Operating income
47,237

 
55,106

 
(7,869
)
 
(14.3
)%
Interest expense
(14,194
)
 
(21,882
)
 
7,688

 
(35.1
)%
Other expense
(602
)
 
(1,824
)
 
1,222

 
(67.0
)%
Net income before tax
32,441

 
31,400

 
1,041

 
3.3
 %
Income tax benefit (provision)
10,547

 
(9,583
)
 
20,130

 
(210.1
)%
Net income
$
42,988

 
$
21,817

 
$
21,171

 
97.0
 %
The tables below set forth information with respect to our Occupancy, Net Package ADR, Net Package RevPAR, Net Package Revenue, Net Non-package Revenue, Management Fee Revenue, Total Net Revenue, Adjusted EBITDA and Adjusted EBITDA Margin. For a description of these operating metrics and non-U.S. GAAP measures, see “Key Indicators of Financial and Operating Performance” below. For discussions of Adjusted EBITDA and reconciliation to the most comparable U.S. GAAP financial measures, see “Key Indicators of Financial and Operating Performance” and “Non-U.S. GAAP Financial Measures” below.
Our comparable resorts for the three months ended March 31, 2019 exclude the following: Hilton La Romana All-Inclusive Resort and Hilton Playa del Carmen All-Inclusive Resort, which are currently under renovation, Hilton Rose Hall Resort & Spa, Jewel Runaway Bay Beach & Golf Resort, Jewel Dunn’s River Beach Resort & Spa, Jewel Paradise Cove Beach Resort & Spa and Jewel Grande Montego Bay Resort & Spa, which were acquired on June 1, 2018, and Hyatt Ziva & Zilara Cap Cana, a ground up development projected to open during the fourth quarter of 2019.

29


Total Portfolio
 
Three Months Ended March 31,
 
Increase / Decrease
 
2019
 
2018
 
Change 
 
% Change
Occupancy
80.1
%
 
87.6
%
 
(7.5
)pts
 
(8.6
)%
Net Package ADR
$
304.88

 
$
312.33

 
$
(7.45
)
 
(2.4
)%
Net Package RevPAR
244.20

 
273.50

 
(29.30
)
 
(10.7
)%
 
($ in thousands)
Net Package Revenue
$
163,787

 
$
150,890

 
$
12,897

 
8.5
 %
Net Non-package Revenue
24,220

 
21,966

 
2,254

 
10.3
 %
Management Fee Revenue
934

 
296

 
638

 
215.5
 %
Total Net Revenue
188,941

 
173,152

 
15,789

 
9.1
 %
Adjusted EBITDA
$
74,785

 
$
74,559

 
$
226

 
0.3
 %
Adjusted EBITDA Margin
39.6
%
 
43.1
%
 
(3.5
)pts
 
(8.1
)%
Comparable Portfolio
 
Three Months Ended March 31,
 
Increase / Decrease
 
2019
 
2018
 
Change 
 
% Change
Occupancy
83.8
%
 
87.4
%
 
(3.6
)pts
 
(4.1
)%
Net Package ADR
$
315.55

 
$
319.85

 
$
(4.30
)
 
(1.3
)%
Net Package RevPAR
264.55

 
279.46

 
(14.91
)
 
(5.3
)%
 
($ in thousands)
Net Package Revenue
$
115,736

 
$
122,261

 
$
(6,525
)
 
(5.3
)%
Net Non-package Revenue
17,354

 
18,539

 
(1,185
)
 
(6.4
)%
Management Fee Revenue
934

 
296

 
638

 
215.5
 %
Total Net Revenue
134,024

 
141,096

 
(7,072
)
 
(5.0
)%
Adjusted EBITDA
$
52,524

 
$
58,128

 
$
(5,604
)
 
(9.6
)%
Adjusted EBITDA Margin
39.2
%
 
41.2
%
 
(2.0
)pts
 
(4.9
)%
Total Revenue and Total Net Revenue
Our total revenue for the three months ended March 31, 2019 increased $18.9 million, or 10.7%, compared to the three months ended March 31, 2018. Our Total Net Revenue for the three months ended March 31, 2019 increased $15.8 million, or 9.1%, compared to the three months ended March 31, 2018. This increase was driven by an increase in Net Package Revenue of $12.9 million, or 8.5%, and an increase in Net Non-package Revenue of $2.3 million, or 10.3%. The Sagicor Assets contributed $33.7 million in Total Net Revenue.

30


The following table shows a reconciliation of comparable Net Package Revenue, Net Non-package Revenue and Management Fee Revenue to total revenue for the three months ended March 31, 2019 and 2018 ($ in thousands):
 
Three Months Ended March 31,
 
Increase/Decrease
 
2019
 
2018
 
Change 
 
% Change
Net Package Revenue
 
 
 
 
 
 
 
Comparable Net Package Revenue
$
115,736

 
$
122,261

 
$
(6,525
)
 
(5.3
)%
Non-comparable Net Package Revenue
48,051

 
28,629

 
19,422

 
67.8
 %
Net Package Revenue
163,787

 
150,890

 
12,897

 
8.5
 %
 
 
 
 
 
 
 


Net Non-package Revenue
 
 
 
 
 
 


Comparable Net Non-package Revenue
17,354

 
18,539

 
(1,185
)
 
(6.4
)%
Non-comparable Net Non-package Revenue
6,866

 
3,427

 
3,439

 
100.4
 %
Net Non-package Revenue
24,220

 
21,966

 
2,254

 
10.3
 %
 
 
 
 
 
 
 
 
Management Fee Revenue
 
 
 
 
 
 
 
Comparable Management Fee Revenue
934

 
296

 
638

 
215.5
 %
Non-comparable Management Fee Revenue
—

 
—

 
—

 
—
 %
Management Fee Revenue
934

 
296

 
638

 
215.5
 %
 
 
 
 
 
 
 


Total Net Revenue:
 
 
 
 
 
 


Comparable Total Net Revenue
134,024

 
141,096

 
(7,072
)
 
(5.0
)%
Non-comparable Total Net Revenue
54,917

 
32,056

 
22,861

 
71.3
 %
Total Net Revenue
188,941

 
173,152

 
15,789

 
9.1
 %
Compulsory tips
6,267

 
3,651

 
2,616

 
71.7
 %
Cost reimbursements
588

 
44

 
544

 
1,236.4
 %
Total revenue
$
195,796

 
$
176,847

 
$
18,949

 
10.7
 %
Comparable Total Net Revenue
Our Comparable Total Net Revenue for the three months ended March 31, 2019 decreased $7.1 million, or 5.0%, compared to the three months ended March 31, 2018. This decrease was driven by a decrease in Comparable Net Package Revenue of $6.5 million, or 5.3%, and a decrease in Comparable Net Non-package Revenue of $1.2 million, or 6.4%. Comparable Total Net Revenue decreased primarily to the decreases in Comparable Total Net Revenue at our Mexico resorts compared to the three months ended March 31, 2018.
Direct Expenses
The following table shows a reconciliation of our direct expenses to Net Direct Expenses for the three months ended March 31, 2019 and 2018 ($ in thousands):
 
Three Months Ended March 31,
 
Increase/Decrease
 
2019
 
2018
 
Change 
 
% Change
Direct expenses
$
93,743

 
$
81,056

 
$
12,687

 
15.7
%
Less: compulsory tips
6,267

 
3,651

 
2,616

 
71.7
%
Net Direct Expenses
$
87,476

 
$
77,405

 
$
10,071

 
13.0
%
Our direct expenses include resort expenses, such as food and beverage, salaries and wages, utilities and other ongoing operational expenses. Our Net Direct Expenses for the three months ended March 31, 2019 were $87.5 million, or 46.3%, of Total Net Revenue and $77.4 million, or 44.7%, of Total Net Revenue for the three months ended March 31, 2018.
Net Direct Expenses for the three months ended March 31, 2019 increased $10.1 million, or 13.0%, compared to the three months ended March 31, 2018. Net Direct Expenses increased primarily due to the acquisition of the Sagicor Assets, which accounted

31


for $17.4 million of the change, which was partially offset by the $4.5 million decrease in Net Direct Expenses as shown in the Comparable Portfolio table below. Direct operating expenses fluctuate based on various factors, including changes in occupancy, labor costs, utilities, repair and maintenance costs and license and property taxes. Management fees and franchise fees, which are computed as a percentage of revenue, increase as a result of higher revenues.
Net Direct Expenses consists of the following ($ in thousands):
Total Portfolio
 
Three Months Ended March 31,
 
Increase/Decrease
 
2019
 
2018
 
Change 
 
% Change
Direct expenses:
 
 
 
 
 
 
 
Food and beverages
$
21,593

 
$
19,328

 
$
2,265

 
11.7
 %
Salaries and wages
31,697

 
26,561

 
5,136

 
19.3
 %
Repairs and maintenance
3,798

 
3,496

 
302

 
8.6
 %
Utilities
9,033

 
7,535

 
1,498

 
19.9
 %
Licenses and property taxes
904

 
794

 
110

 
13.9
 %
Incentive and management fees
2,606

 
4,166

 
(1,560
)
 
(37.4
)%
Franchise / license fees
6,371

 
4,656

 
1,715

 
36.8
 %
Transportation and travel expenses
1,339

 
1,229

 
110

 
9.0
 %
Laundry and cleaning expenses
1,166

 
654

 
512

 
78.3
 %
Property and equipment rental expense
987

 
1,587

 
(600
)
 
(37.8
)%
Entertainment expenses
1,786

 
1,148

 
638

 
55.6
 %
Office supplies
499

 
961

 
(462
)
 
(48.1
)%
Other operational expenses
5,697

 
5,290

 
407

 
7.7
 %
Total Net Direct Expenses
$
87,476

 
$
77,405

 
$
10,071

 
13.0
 %
Comparable Portfolio
 
Three Months Ended March 31,
 
Increase/Decrease
 
2019
 
2018
 
Change 
 
% Change
Direct expenses:
 
 
 
 
 
 
 
Food and beverages
$
13,828

 
$
15,705

 
$
(1,877
)
 
(12.0
)%
Salaries and wages
25,079

 
24,340

 
739

 
3.0
 %
Repairs and maintenance
2,440

 
2,869

 
(429
)
 
(15.0
)%
Utilities
5,866

 
5,950

 
(84
)
 
(1.4
)%
Licenses and property taxes
486

 
475

 
11

 
2.3
 %
Incentive and management fees
2,688

 
2,943

 
(255
)
 
(8.7
)%
Franchise / license fees
4,692

 
4,656

 
36

 
0.8
 %
Transportation and travel expenses
862

 
1,061

 
(199
)
 
(18.8
)%
Laundry and cleaning expenses
580

 
574

 
6

 
1.0
 %
Property and equipment rental expense
747

 
1,543

 
(796
)
 
(51.6
)%
Entertainment expenses
1,460

 
1,043

 
417

 
40.0
 %
Office supplies
423

 
804

 
(381
)
 
(47.4
)%
Other operational expenses
3,144

 
4,796

 
(1,652
)
 
(34.4
)%
Total Net Direct Expenses
$
62,295

 
$
66,759

 
$
(4,464
)
 
(6.7
)%
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the three months ended March 31, 2019 increased $5.4 million, or 20.2%, compared to the three months ended March 31, 2018. This increase was primarily driven by an increase in share based compensation expense of $1.0 million and the acquisition of the Sagicor Assets, which accounted for an additional $3.6 million of expenses.

32


Depreciation and Amortization Expense
Our depreciation and amortization expense for the three months ended March 31, 2019 increased $6.6 million, or 42.2%, compared to the three months ended March 31, 2018. This increase is primarily due to the acquisition of the Sagicor Assets, which accounted for $3.9 million, and accelerated depreciation at Hilton La Romana All-Inclusive Resort as part of the renovations.
Interest Expense
Our interest expense for the three months ended March 31, 2019 decreased $7.7 million, or 35.1%, as compared to the three months ended March 31, 2018. The decrease in interest expense was driven primarily by an increase of $1.4 million in capitalized interest and a decrease of $9.0 million from the change in fair value of our interest rate swaps due the adoption of hedge accounting in March 2019. We recorded a portion of the change in fair value of our interest rate swaps to other comprehensive income in 2019 compared to interest expense in 2018. The decrease was partially offset by an increase in interest expense of $2.7 million due primarily to the issuance of the $100.0 million add-on to our Term Loan to fund the business combination with Sagicor.
Cash interest paid, excluding the effect of capitalized interest, increased $5.0 million for the three months ended March 31, 2019 as compared to the three months ended March 31, 2018. Cash interest paid increased $4.3 million on our Term Loan as we changed the tenor of our variable interest from three-month LIBOR to one-month LIBOR in the first quarter of 2018 to coincide with our interest rate swaps. The interest owed in the first quarter of 2018 was not paid until the second quarter after the new tenor was set. We also paid $0.7 million in additional interest related to our interest rate swaps as they were outstanding for three days in 2018 compared to the full quarter in 2019.
Income Tax Provision
The income tax benefit for the three months ended March 31, 2019 was $10.5 million, an increase of $20.1 million compared to the three months ended March 31, 2018, during which period we reported an income tax provision of $9.6 million. The increased income tax benefit was driven primarily by a discrete tax benefit of $13.6 million from the valuation allowance release due to the newly implemented transfer pricing policy, a $2.8 million decrease due to lower pre-tax book income from our tax paying entities, and a $3.5 million decrease in the discrete tax expense associated with foreign exchange rate fluctuations.
Key Indicators of Financial and Operating Performance
We use a variety of financial and other information to monitor the financial and operating performance of our business. Some of this is financial information prepared in accordance with U.S. GAAP, while other information, though financial in nature, is not prepared in accordance with U.S. GAAP. For reconciliations of non-U.S. GAAP financial measures to the most comparable U.S. GAAP financial measure, see “Non-U.S. GAAP Financial Measures.” Our management also uses other information that is not financial in nature, including statistical information and comparative data that are commonly used within the lodging industry to evaluate the financial and operating performance of our portfolio. Our management uses this information to measure the performance of our segments and consolidated portfolio. We use this information for planning and monitoring our business, as well as in determining management and employee compensation. These key indicators include:
•
Net Package Revenue
•
Net Non-package Revenue
•
Owned Net Revenue
•
Management Fee Revenue
•
Total Net Revenue
•
Occupancy
•
Net Package ADR
•
Net Package RevPAR
•
Adjusted EBITDA
•
Adjusted EBITDA Margin
•
Owned Resort EBITDA
•
Owned Resort EBITDA Margin
•
Comparable Non-U.S. GAAP Measures

33


Net Package Revenue, Net Non-package Revenue, Owned Net Revenue, Management Fee Revenue, Cost Reimbursements, Total Net Revenue and Net Direct Expenses
“Net Package Revenue” is derived from the sale of all-inclusive packages, which include room accommodations, food and beverage services and entertainment activities, net of compulsory tips paid to employees in all of our jurisdictions. Government mandated compulsory tips in the Dominican Republic are not included in this adjustment, as they are already excluded from revenue. Revenue is recognized, net of discounts and rebates, when the rooms are occupied and/or the relevant services have been rendered. Advance deposits received from guests are deferred and included in trade and other payables until the rooms are occupied and/or the relevant services have been rendered, at which point the revenue is recognized.
“Net Non-package Revenue” represents all other revenues earned from the operations of our resorts, other than Net Package Revenue, net of compulsory tips paid to employees in all of our jurisdictions. Government mandated compulsory tips in the Dominican Republic are not included in this adjustment, as they are already excluded from revenue. Net Non-package Revenue includes revenue associated with guests' purchases of upgrades, premium services and amenities, such as premium rooms, dining experiences, wines and spirits and spa packages, which are not included in the all-inclusive package. Revenue not included in a guest’s all-inclusive package is recognized when the goods are consumed.
“Owned Net Revenue” represents Net Package Revenue and Net Non-Package Revenue. Owned Net Revenue represents a key indicator to assess the overall performance of our business and analyze trends, such as consumer demand, brand preference and competition. In analyzing our Owned Net Revenues, our management differentiates between Net Package Revenue and Net Non-package Revenue. Guests at our resorts purchase packages at stated rates, which include room accommodations, food and beverage services and entertainment activities, in contrast to other lodging business models, which typically only include the room accommodations in the stated rate. The amenities at all-inclusive resorts typically include a variety of buffet and á la carte restaurants, bars, activities, and shows and entertainment throughout the day.
“Management Fee Revenue” is derived from fees earned for managing hotels owned by third-parties. The fees earned are typically composed of a base fee, which is computed as a percentage of revenue, and an incentive fee, which is computed as a percentage of profitability. Management Fee Revenue was immaterial to our operations for the three months ended March 31, 2019 and 2018, but we expect Management Fee Revenue to be a more relevant indicator to assess the overall performance of our business in the future as we enter into more management contracts.
“Total Net Revenue” represents Net Package Revenue, Net Non-package Revenue and Management Fee Revenue. “Cost Reimbursements” is excluded from Total Net Revenue as it is not considered a key indicator of financial and operating performance. Cost reimbursements is derived from the reimbursement of certain costs incurred by Playa on behalf of resorts managed by Playa and owned by third parties. This revenue is fully offset by reimbursable costs and has no net impact on operating income or net income.
“Net Direct Expenses” represents direct expenses, net of compulsory tips paid to employees in all of our jurisdictions.
Occupancy
“Occupancy” represents the total number of rooms sold for a period divided by the total number of rooms available during such period. Occupancy is a useful measure of the utilization of a resort’s total available capacity and can be used to gauge demand at a specific resort or group of properties during a given period. Occupancy levels also enable us to optimize Net Package ADR by increasing or decreasing the stated rate for our all-inclusive packages as demand for a resort increases or decreases.
Net Package ADR
“Net Package ADR” represents total Net Package Revenue for a period divided by the total number of rooms sold during such period. Net Package ADR trends and patterns provide useful information concerning the pricing environment and the nature of the guest base of our portfolio or comparable portfolio, as applicable. Net Package ADR is a commonly used performance measure in the all-inclusive segment of the lodging industry, and is commonly used to assess the stated rates that guests are willing to pay through various distribution channels.
Net Package RevPAR
“Net Package RevPAR” is the product of Net Package ADR and the average daily occupancy percentage. Net Package RevPAR does not reflect the impact of non-package revenue. Although Net Package RevPAR does not include this additional revenue, it generally is considered the key performance measure in the all-inclusive segment of the lodging industry to identify trend information with respect to net room revenue produced by our portfolio or comparable portfolio, as applicable, and to evaluate operating performance on a consolidated basis or a regional basis, as applicable.

34


EBITDA, Adjusted EBITDA, Owned Resort EBITDA, Owned Resort EBITDA Margin and Adjusted EBITDA Margin
We define EBITDA, a non-U.S. GAAP financial measure, as net income or loss, determined in accordance with U.S. GAAP, for the period presented, before interest expense, income tax and depreciation and amortization expense. We define Adjusted EBITDA, a non-U.S. GAAP financial measure, as EBITDA further adjusted to exclude the following items:
•
Other expense
•
Pre-opening expense
•
Transaction expenses
•
Severance expense
•
Other tax expense
•
Gain on property damage insurance proceeds
•
Share-based compensation
•
Loss on extinguishment of debt
•
Other items which may include, but are not limited to the following: management contract termination fees; gains or losses from legal settlements; repairs from hurricanes and tropical storms; impairment loss and Jamaica delayed opening accrual reversals.
We include the non-service cost components of net periodic pension benefit (cost) recorded within other expense in the Condensed Consolidated Statements of Operations in calculating Adjusted EBITDA as they are considered part of our ongoing resort operations.
“Owned Resort EBITDA” represents Adjusted EBITDA before corporate expenses and Management Fee Revenue.
“Owned Resort EBITDA Margin” represents Owned Resort EBITDA as a percentage of Owned Net Revenue.
“Adjusted EBITDA Margin” represents Adjusted EBITDA as a percentage of Total Net Revenue.
Non-U.S. GAAP Measures
Net Package Revenue, Net Non-package Revenue, Owned Net Revenue, Total Net Revenue, Net Package ADR, Net Package RevPAR and Net Direct Expenses are all useful to investors as they more accurately reflect our operating results by excluding compulsory tips. These tips have a margin of zero and do not represent our operating margins.
We also believe that Adjusted EBITDA is useful to investors for two principal reasons. First, we believe Adjusted EBITDA assists investors in comparing our performance over various reporting periods on a consistent basis by removing from our operating results the impact of items that do not reflect our core operating performance. For example, changes in foreign exchange rates (which are the principal driver of changes in other expense), and expenses related to capital raising, strategic initiatives and other corporate initiatives, such as expansion into new markets (which are the principal drivers of changes in transaction expenses), are not indicative of the operating performance of our resorts. The other adjustments included in our definition of Adjusted EBITDA relate to items that occur infrequently and therefore would obstruct the comparability of our operating results over reporting periods. For example, revenue from insurance policies, other than business interruption insurance policies, is infrequent in nature, and we believe excluding these expense and revenue items permits investors to better evaluate the core operating performance of our resorts over time. We believe Adjusted EBITDA Margin provides our investors a useful measurement of operating profitability for the same reasons we find Adjusted EBITDA useful.
The second principal reason that we believe Adjusted EBITDA is useful to investors is that it is considered a key performance indicator by our board of directors (our “Board”) and management. In addition, the compensation committee of our Board determines the annual variable compensation for certain members of our management based, in part, on consolidated Adjusted EBITDA. We believe that Adjusted EBITDA is useful to investors because it provides investors with information utilized by our Board and management to assess our performance and may (subject to the limitations described below) enable investors to compare the performance of our portfolio to our competitors.
Any of our non-U.S. GAAP financial measures are not substitutes for revenue, net income or any other measure determined in accordance with U.S. GAAP. There are limitations to the utility of non-U.S. GAAP financial measures, such as Adjusted EBITDA. For example, other companies in our industry may define Adjusted EBITDA differently than we do. As a result, it may be difficult to use

35


Adjusted EBITDA or similarly named non-U.S. GAAP financial measures that other companies publish to compare the performance of those companies to our performance. Because of these limitations, all of our non-U.S. GAAP financial measures should not be considered as a measure of the income or loss generated by our business or discretionary cash available for investment in our business, and investors should carefully consider our U.S. GAAP results presented.
For a reconciliation of EBITDA, Adjusted EBITDA and Owned Resort EBITDA to net income as computed under U.S. GAAP, see “Non-U.S. GAAP Financial Measures.”
Comparable Non-U.S. GAAP Measures
We believe that presenting Adjusted EBITDA, Total Net Revenue, Net Package Revenue, Net Non-package Revenue and Net Direct Expenses on a comparable basis is useful to investors because these measures include only the results of resorts owned and in operation for the entirety of the periods presented and thereby eliminate disparities in results due to the acquisition or disposition of resorts or the impact of resort closures or re-openings in connection with redevelopment or renovation projects. As a result, we believe these measures provide more consistent metrics for comparing the performance of our operating resorts. We calculate Comparable Adjusted EBITDA, comparable Total Net Revenue, comparable Net Package Revenue and comparable Net Non-package Revenue as the total amount of each respective measure less amounts attributable to non-comparable resorts, by which we mean resorts that were not owned or in operation during some or all of the relevant reporting period.
Our comparable resorts for the three months ended March 31, 2019 exclude the following: Hilton La Romana All-Inclusive Resort and Hilton Playa del Carmen All-Inclusive Resort, which are currently under renovations, Hilton Rose Hall Resort & Spa, Jewel Runaway Bay Beach & Golf Resort, Jewel Dunn’s River Beach Resort & Spa, Jewel Paradise Cove Beach Resort & Spa and Jewel Grande Montego Bay Resort & Spa, which were acquired on June 1, 2018, and Hyatt Ziva & Zilara Cap Cana, a ground up development projected to open during the fourth quarter of 2019.
A reconciliation of net income as computed under U.S. GAAP to Comparable Adjusted EBITDA is presented below. For a reconciliation of comparable Net Package Revenue, comparable Net Non-package Revenue, comparable Management Fee Revenue and comparable Total Net Revenue to total revenue as computed under U.S. GAAP, see “Net Package Revenue, Net Non-package Revenue, Owned Net Revenue, Management Fee Revenue, Cost Reimbursements and Total Net Revenue” in this section.

Segment Results
Three Months Ended March 31, 2019 and 2018
We evaluate our business segment operating performance using segment Owned Net Revenue and segment Owned Resort EBITDA. The following tables summarize segment Owned Net Revenue and segment Owned Resort EBITDA for the three months ended March 31, 2019 and 2018 ($ in thousands):
 
Three Months Ended March 31,
 
Increase / Decrease
 
2019
 
2018
 
Change 
 
% Change 
Owned Net Revenue:
 
 
 
 
 
 
 
Yucatán Peninsula
$
70,213

 
$
79,271

 
$
(9,058
)
 
(11.4
)%
Pacific Coast
25,570

 
29,055

 
(3,485
)
 
(12.0
)%
Dominican Republic
33,075

 
40,418

 
(7,343
)
 
(18.2
)%
Jamaica
59,147

 
23,760

 
35,387

 
148.9
 %
Segment Owned Net Revenue
188,005

 
172,504

 
15,501

 
9.0
 %
Other (1)
2

 
352

 
(350
)
 
(99.4
)%
Management Fee Revenue
934

 
296

 
638

 
215.5
 %
Total Net Revenue
$
188,941

 
$
173,152

 
$
15,789

 
9.1
 %

36


 
Three Months Ended March 31,
 
Increase / Decrease
 
2019
 
2018
 
Change 
 
% Change
Owned Resort EBITDA:
 
 
 
 
 
 
 
Yucatán Peninsula
$
32,159

 
$
39,604

 
$
(7,445
)
 
(18.8
)%
Pacific Coast
12,387

 
13,908

 
(1,521
)
 
(10.9
)%
Dominican Republic
13,463

 
18,427

 
(4,964
)
 
(26.9
)%
Jamaica
24,348

 
10,644

 
13,704

 
128.7
 %
Segment Owned Resort EBITDA
82,357

 
82,583

 
(226
)
 
(0.3
)%
Other corporate - unallocated
(8,506
)
 
(8,320
)
 
(186
)
 
2.2
 %
Management Fee Revenue
934

 
296

 
638

 
215.5
 %
Total Adjusted EBITDA
$
74,785

 
$
74,559

 
$
226

 
0.3
 %
________
(1) Primarily includes a reversal on an expense accrual recorded in 2014 related to our future stay obligations provided to guests affected by the delayed opening of Hyatt Ziva and Hyatt Zilara Rose Hall. This reversal concluded in the first quarter of 2018.
For a reconciliation of segment Owned Net Revenue and segment Owned Resort EBITDA to total revenue and net income, respectively, each as computed under U.S. GAAP, see Note 19 to our Condensed Consolidated Financial Statements.
Yucatán Peninsula
The following tables set forth information with respect to our Occupancy, Net Package ADR, Net Package RevPAR, Net Package Revenue, Net Non-package Revenue, Owned Net Revenue, Owned Resort EBITDA and Owned Resort EBITDA Margin for our Yucatán Peninsula segment for the three months ended March 31, 2019 and 2018 for the total segment portfolio and comparable segment portfolio:
Total Portfolio
 
Three Months Ended March 31,
 
Increase / Decrease
 
2019
 
2018
 
Change 
 
% Change 
Occupancy
85.1
%
 
90.3
%
 
(5.2
)pts
 
(5.8
)%
Net Package ADR
$
301.80

 
$
323.23

 
$
(21.43
)
 
(6.6
)%
Net Package RevPAR
256.73

 
291.95

 
(35.22
)
 
(12.1
)%
 
($ in thousands)
Net Package Revenue
$
62,569

 
$
71,154

 
$
(8,585
)
 
(12.1
)%
Net Non-package Revenue
7,644

 
8,117

 
(473
)
 
(5.8
)%
Owned Net Revenue
70,213

 
79,271

 
(9,058
)
 
(11.4
)%
Owned Resort EBITDA
$
32,159

 
$
39,604

 
$
(7,445
)
 
(18.8
)%
Owned Resort EBITDA Margin
45.8
%
 
50.0
%
 
(4.2
)pts
 
(8.4
)%
Comparable Portfolio
 
Three Months Ended March 31,
 
Increase / Decrease
 
2019
 
2018
 
Change 
 
% Change 
Occupancy
86.3
%
 
90.8
%
 
(4.5
)pts
 
(5.0
)%
Net Package ADR
$
300.45

 
$
316.62

 
$
(16.17
)
 
(5.1
)%
Net Package RevPAR
259.15

 
287.61

 
(28.46
)
 
(9.9
)%
 
($ in thousands)
Net Package Revenue
$
51,194

 
$
56,817

 
$
(5,623
)
 
(9.9
)%
Net Non-package Revenue
6,309

 
6,617

 
(308
)
 
(4.7
)%
Owned Net Revenue
57,503

 
63,434

 
(5,931
)
 
(9.3
)%
Owned Resort EBITDA
$
25,814

 
$
30,357

 
$
(4,543
)
 
(15.0
)%
Owned Resort EBITDA Margin
44.9
%
 
47.9
%
 
(3.0
)pts
 
(6.3
)%
 Segment Owned Net Revenue. Our Owned Net Revenue for the three months ended March 31, 2019 decreased $9.1 million, or 11.4%, compared to the three months ended March 31, 2018. Owned Net Revenue at all properties in this segment except Panama

37


Jack Cancun decreased $9.2 million compared to the three months ended March 31, 2018, with Hilton Playa del Carmen All-Inclusive Resort accounting for $3.1 million of the total decrease as this resort is currently under renovation, due to their decrease in both Net Package ADR and Occupancy compared to the prior year. These decreases were partially offset by a $0.1 million increase in Panama Jack Resorts Cancun Owned Net Revenue.
Segment Owned Resort EBITDA. Our Owned Resort EBITDA for the three months ended March 31, 2019 decreased $7.4 million, or 18.8%, compared to the three months ended March 31, 2018. Owned Resort EBITDA at all properties in this segment except Panama Jack Cancun decreased $7.5 million compared to the three months ended March 31, 2018, with Hilton Playa del Carmen All-Inclusive Resort accounting for $2.9 million of the total decrease as this resort is currently under renovation. This decrease was offset by the performance of Panama Jack Resorts Cancun, which accounted for a $0.1 million increase in Owned Resort EBITDA compared to the three months ended March 31, 2018. All properties within this segment have been affected by increased insurance premiums and energy costs year over year which contributed to a $0.9 million decrease in Owned Resort EBITDA compared to the three months ended March 31, 2018.
Pacific Coast
The following tables set forth information with respect to our Occupancy, Net Package ADR, Net Package RevPAR, Net Package Revenue, Net Non-package Revenue, Owned Net Revenue, Owned Resort EBITDA and Owned Resort EBITDA Margin for our Pacific Coast segment for the three months ended March 31, 2019 and 2018 for the total segment portfolio:
 
Three Months Ended March 31,
 
Increase / Decrease
 
2019
 
2018
 
Change
 
% Change
Occupancy
75.8
%
 
81.1
%
 
(5.3
)pts
 
(6.5
)%
Net Package ADR
$
347.85

 
$
356.00

 
$
(8.15
)
 
(2.3
)%
Net Package RevPAR
263.65

 
288.84

 
(25.19
)
 
(8.7
)%
 
($ in thousands)
Net Package Revenue
$
21,972

 
$
24,072

 
$
(2,100
)
 
(8.7
)%
Net Non-package Revenue
3,598

 
4,983

 
(1,385
)
 
(27.8
)%
Owned Net Revenue
25,570

 
29,055

 
(3,485
)
 
(12.0
)%
Owned Resort EBITDA
$
12,387

 
$
13,908

 
$
(1,521
)
 
(10.9
)%
Owned Resort EBITDA Margin
48.4
%
 
47.9
%
 
0.5
 pts
 
1.0
 %
Segment Owned Net Revenue. Our Owned Net Revenue for the three months ended March 31, 2019 decreased $3.5 million, or 12.0%, compared to the three months ended March 31, 2018. The decrease was due to the performance of Hyatt Ziva Los Cabos, which accounted for a $4.4 million decrease in Owned Net Revenue compared to the three months ended March 31, 2018. These results were offset by Hyatt Ziva Puerto Vallarta, which accounted for a $0.9 million increase in Owned Net Revenue.
Segment Owned Resort EBITDA. Our Owned Resort EBITDA for the three months ended March 31, 2019 decreased $1.5 million, or 10.9%, compared to the three months ended March 31, 2018. This decrease was due to the performance of Hyatt Ziva Los Cabos, which had decreased Owned Resort EBITDA compared to the three months ended March 31, 2018. Group business, which generate higher rates and additional non-package revenue, was also significantly lower compared to the three months ended March 31, 2018. All properties within this segment have been affected by increased insurance premiums and energy costs year over year which contributed to a $0.4 million decrease in Owned Resort EBITDA compared to the three months ended March 31, 2018.

38


Dominican Republic
The following tables set forth information with respect to our Occupancy, Net Package ADR, Net Package RevPAR, Net Package Revenue, Net Non-package Revenue, Owned Net Revenue, Owned Resort EBITDA and Owned Resort EBITDA Margin for our Dominican Republic segment for the three months ended March 31, 2019 and 2018 for the total segment portfolio and comparable segment portfolio:
Total Portfolio
 
Three Months Ended March 31,
 
Increase / Decrease
 
2019
 
2018
 
Change
 
% Change
Occupancy
71.9
%
 
89.4
%
 
(17.5
)pts
 
(19.6
)%
Net Package ADR
$
233.66

 
$
234.44

 
$
(0.78
)
 
(0.3
)%
Net Package RevPAR
168.11

 
209.60

 
(41.49
)
 
(19.8
)%
 
($ in thousands)
Net Package Revenue
$
28,475

 
$
35,388

 
$
(6,913
)
 
(19.5
)%
Net Non-package Revenue
4,600

 
5,030

 
(430
)
 
(8.5
)%
Owned Net Revenue
33,075

 
40,418

 
(7,343
)
 
(18.2
)%
Owned Resort EBITDA
$
13,463

 
$
18,427

 
$
(4,964
)
 
(26.9
)%
Owned Resort EBITDA Margin
40.7
%
 
45.6
%
 
(4.9
)pts
 
(10.7
)%
Comparable Portfolio
 
Three Months Ended March 31,
 
Increase / Decrease
 
2019
 
2018
 
Change
 
% Change
Occupancy
89.3
%
 
90.0
%
 
(0.7
)pts
 
(0.8
)%
Net Package ADR
$
236.50

 
$
232.42

 
$
4.08

 
1.8
 %
Net Package RevPAR
211.10

 
209.29

 
1.81

 
0.9
 %
 
($ in thousands)
Net Package Revenue
$
21,279

 
$
21,097

 
$
182

 
0.9
 %
Net Non-package Revenue
3,313

 
3,103

 
210

 
6.8
 %
Owned Net Revenue
24,592

 
24,200

 
392

 
1.6
 %
Owned Resort EBITDA
$
10,225

 
$
11,243

 
$
(1,018
)
 
(9.1
)%
Owned Resort EBITDA Margin
41.6
%
 
46.5
%
 
(4.9
)pts
 
(10.5
)%
Segment Owned Net Revenue. Our Owned Net Revenue for the three months ended March 31, 2019 decreased $7.3 million, or 18.2%, compared to the three months ended March 31, 2018. This decrease was due to decreased Owned Net Revenue by Hilton La Romana All-Inclusive Resort, which accounted for $7.7 million compared to the three months ended March 31, 2018. Hilton La Romana All-Inclusive Resort is currently being renovated with 350 rooms out of service.
Segment Owned Resort EBITDA. Our Owned Resort EBITDA for the three months ended March 31, 2019 decreased $5.0 million, or 26.9%, compared to the three months ended March 31, 2018. This decrease was due to the performance of Hilton La Romana All-Inclusive Resort and Dreams Punta Cana, which accounted for the full $5.0 million decrease in Owned Resort EBITDA compared to the three months ended March 31, 2018. The Occupancy, Net Package RevPAR, Owned Net Revenue and Owned Resort EBITDA declines are largely attributable to the renovations underway at Hilton La Romana All-Inclusive Resort, which is currently being renovated with 350 rooms out of service. The Owned Resort EBITDA of Dreams Punta Cana decreased due to a non-recurring prior year gain from business interruption insurance proceeds of $1.5 million received during the three months ended March 31, 2018.

39


Jamaica
The following table sets forth information with respect to our Occupancy, Net Package ADR, Net Package RevPAR, Net Package Revenue, Net Non-package Revenue, Owned Net Revenue, Owned Resort EBITDA and Owned Resort EBITDA Margin for our Jamaica segment for the three months ended March 31, 2019 and 2018 for the total segment portfolio and comparable segment portfolio.
Total Portfolio
 
Three Months Ended March 31,
 
Increase / Decrease
 
2019
 
2018
 
Change
 
% Change
Occupancy
83.1
%
 
79.6
%
 
3.5
 pts
 
4.4
 %
Net Package ADR
$
350.47

 
$
456.54

 
$
(106.07
)
 
(23.2
)%
Net Package RevPAR
291.33

 
363.36

 
(72.03
)
 
(19.8
)%
 
($ in thousands)
Net Package Revenue
$
50,771

 
$
20,276

 
$
30,495

 
150.4
 %
Net Non-package Revenue
8,376

 
3,484

 
4,892

 
140.4
 %
Owned Net Revenue
59,147

 
23,760

 
35,387

 
148.9
 %
Owned Resort EBITDA
$
24,348

 
$
10,644

 
$
13,704

 
128.7
 %
Owned Resort EBITDA Margin
41.2
%
 
44.8
%
 
(3.6
)pts
 
(8.0
)%

Comparable Portfolio
 
Three Months Ended March 31,
 
Increase / Decrease
 
2019
 
2018
 
Change
 
% Change
Occupancy
77.5
%
 
79.6
%
 
(2.1
)pts
 
(2.6
)%
Net Package ADR
$
492.33

 
$
456.54

 
$
35.79

 
7.8
 %
Net Package RevPAR
381.55

 
363.36

 
18.19

 
5.0
 %
 
($ in thousands)
Net Package Revenue
$
21,290

 
$
20,276

 
$
1,014

 
5.0
 %
Net Non-package Revenue
4,132

 
3,484

 
648

 
18.6
 %
Owned Net Revenue
25,422

 
23,760

 
1,662

 
7.0
 %
Owned Resort EBITDA
11,670

 
10,644

 
1,026

 
9.6
 %
Owned Resort EBITDA Margin
45.9
%
 
44.8
%
 
1.1
 pts
 
2.5
 %
Segment Owned Net Revenue. Our Owned Net Revenue for the three months ended March 31, 2019 increased $35.4 million, or 148.9%, compared to the three months ended March 31, 2018. This increase was due in part to the performance of Hyatt Ziva and Zilara Rose Hall, which accounted for an increase in Owned Net Revenue of $1.7 million compared to the three months ended March 31, 2018. The remaining increase can be attributed to the acquisition of the Sagicor Assets which accounted for a $33.7 million increase compared to the three months ended March 31, 2018. The decrease in Net Package ADR and Net Package RevPAR is due to the fact that the Sagicor resorts have a lower relative ADR than the Hyatt properties in this segment. The addition of the Sagicor Assets led to the 19.8% decline in Net Package RevPAR in this segment.
Segment Owned Resort EBITDA. Our Owned Resort EBITDA for the three months ended March 31, 2019 increased $13.7 million, or 128.7%, compared to the three months ended March 31, 2018. This increase was due in part to the performance of Hyatt Ziva and Zilara Rose Hall, which accounted for an increase in Owned Resort EBITDA of $1.0 million compared to the three months ended March 31, 2018 and to the acquisition of the Sagicor Assets, which accounted for the remaining $12.7 million increase. The Hyatt Ziva and Zilara Rose Hall continues to show positive results after completing renovations in 2017.

40


Non-U.S. GAAP Financial Measures
Reconciliation of Net Income to Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)
The following is a reconciliation of our U.S. GAAP net income to EBITDA, Adjusted EBITDA, Owned Resort EBITDA and Comparable Owned Resort EBITDA for the three months ended March 31, 2019 and 2018 ($ in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Net income
$
42,988

 
$
21,817

Interest expense
14,194

 
21,882

Income tax (benefit) provision
(10,547
)
 
9,583

Depreciation and amortization
22,311

 
15,689

EBITDA
68,946

 
68,971

Other expense (a)
602

 
1,824

Share-based compensation
2,748

 
1,786

Pre-opening expense
89

 
—

Transaction expense (b)
1,967

 
2,344

Other tax expense (c)
359

 
431

Jamaica delayed opening accrual reversal (d)
—

 
(342
)
Non-service cost components of net periodic pension benefit (cost) (e)
74

 
(455
)
Adjusted EBITDA
74,785

 
74,559

Other corporate - unallocated
8,506

 
8,320

Management fee income
(934
)
 
(296
)
Owned Resort EBITDA
82,357

 
82,583

Less: Non-comparable Owned Resort EBITDA(f)
22,261

 
16,431

Comparable Owned Resort EBITDA
$
60,096

 
$
66,152

________
(a)
Represents changes in foreign exchange and other miscellaneous expenses or income.
(b) 
Represents expenses incurred in connection with corporate initiatives, such as: debt refinancing costs; other capital raising efforts including our business combination with Sagicor in 2018; the redesign and build-out of our internal controls and strategic initiatives, such as the launch of a new resort or possible expansion into new markets.
(c) 
Relates primarily to a Dominican Republic asset/revenue tax, which is an alternative tax to income tax in the Dominican Republic. We eliminate this expense from Adjusted EBITDA because it is substantially similar to the income tax provision we eliminate from our calculation of EBITDA.
(d)
Represents a reversal on an expense accrual recorded in 2014 related to our future stay obligations provided to guests affected by the delayed opening of Hyatt Ziva and Hyatt Zilara Rose Hall. This reversal concluded in the first quarter of 2018.
(e) 
Represents the non-service cost components of net periodic pension benefit (cost) recorded within other expense in the Condensed Consolidated Statements of Operations. Previously, these expenses were presented within direct expense. We include these benefits (costs) for the purposes of calculating Adjusted EBITDA as they are considered part of our ongoing resort operations.  
(f) 
Owned Resort EBITDA for Hilton La Romana All-Inclusive Resort, Hilton Playa Del Carmen All-Inclusive Resort, Hilton Rose Hall Resort & Spa, Jewel Runaway Bay Beach & Golf Resort, Jewel Dunn’s River Beach Resort & Spa, Jewel Paradise Cove Beach Resort & Spa, Jewel Grande Montego Bay Resort & Spa and Hyatt Ziva & Zilara Cap Cana.  
Seasonality
The seasonality of the lodging industry and the location of our resorts in Mexico and the Caribbean generally result in the greatest demand for our resorts between mid-December and April of each year, yielding higher occupancy levels and package rates during this period. This seasonality in demand has resulted in predictable fluctuations in revenue, results of operations, and liquidity, which are consistently higher during the first quarter of each year than in successive quarters.
Inflation
Operators of lodging properties, in general, possess the ability to adjust room rates to reflect the effects of inflation. However, competitive pressures may limit our ability to raise room rates to fully offset inflationary cost increases.

41


Liquidity and Capital Resources
Our primary short-term cash needs are paying operating expenses, maintaining our resorts, servicing of our outstanding indebtedness, and funding any ongoing development, expansion, renovation, repositioning and rebranding projects. As of March 31, 2019, we had $61.6 million of scheduled contractual obligations remaining in 2019.
We expect to meet our short-term liquidity requirements generally through net cash provided by operations, existing cash balances and, if necessary, short-term borrowings under our Revolving Credit Facility which permits borrowings of up to $100.0 million and which matures on April 27, 2022. We had cash and cash equivalents of $111.0 million as of March 31, 2019, compared to $140.1 million as of March 31, 2018. We plan to fund our Hyatt Ziva and Zilara Cap Cana development project over the next 6 to 9 months with the cash we have on hand, as well as our cash generated from operations. As of March 31, 2019, there was $0 outstanding under our Revolving Credit Facility. When assessing liquidity, we also consider the availability of cash resources held within local business units to meet our strategic needs.
Long-term liquidity needs may include existing and future property developments, expansions, renovations, repositioning and rebranding projects, potential acquisitions and the repayment of indebtedness. As of March 31, 2019, our total debt obligations were $994.0 million (which represents the principal amounts outstanding under our Revolving Credit Facility and Term Loan, excluding a $2.6 million issuance discount on our Term Loan and $4.3 million of unamortized debt issuance costs). We expect to meet our long-term liquidity requirements generally through the sources available for short-term needs, as well as equity or debt issuances or proceeds from the potential disposal of assets.
In an effort to maintain sufficient liquidity, our cash flow projections and available funds are discussed with our Board and we consider various ways of developing our capital structure and seeking additional sources of liquidity if needed. The availability of additional liquidity options will depend on the economic and financial environment, our credit, our historical and projected financial and operating performance and continued compliance with financial covenants. As a result of possible future economic, financial and operating declines, possible declines in our creditworthiness and potential non-compliance with financial covenants, we may have less liquidity than anticipated, fewer sources of liquidity than anticipated, less attractive financing terms and less flexibility in determining when and how to use the liquidity that is available.
Financing Strategy
In addition to our Revolving Credit Facility, we intend to use other financing sources that may be available to us from time to time, including financing from banks, institutional investors or other lenders, such as bridge loans, letters of credit, joint ventures and other arrangements. Future financings may be unsecured or may be secured by mortgages or other interests in our assets. In addition, we may issue publicly or privately placed debt or equity securities. When possible and desirable, we will seek to replace short-term financing with long-term financing. We may use the proceeds from any financings to refinance existing indebtedness, to finance resort projects or acquisitions or for general working capital or other purposes.
Our indebtedness may be recourse, non-recourse or cross-collateralized and may be fixed rate or variable rate. If the indebtedness is non-recourse, the obligation to repay such indebtedness will generally be limited to the particular resort or resorts pledged to secure such indebtedness. In addition, we may invest in resorts subject to existing loans secured by mortgages or similar liens on the resorts, or may refinance resorts acquired on a leveraged basis.
Cash Flows
The following table summarizes our net cash provided by or used in operating activities, investing activities and financing activities for the periods indicated and should be read in conjunction with our Condensed Consolidated Statements of Cash Flows and accompanying notes thereto ($ in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Net cash provided by operating activities
$
44,723

 
$
46,656

Net cash used in investing activities
$
(46,011
)
 
$
(21,537
)
Net cash used in financing activities
$
(4,047
)
 
$
(2,275
)

42


Net Cash Provided by Operating Activities
Our net cash provided by operating activities is generated primarily from operating income from our resorts. For the three months ended March 31, 2019 and 2018, our net cash provided by operating activities totaled $44.7 million and $46.7 million, respectively. Net income of $43.0 million for the three months ended March 31, 2019 included significant non-cash expenses, including $22.3 million of depreciation and amortization, $2.7 million of share-based compensation and a $2.0 million loss on the fair value of our interest rate swaps, offset by changes in our assets and liabilities through the normal course of operations. Net income of $21.8 million for the three months ended March 31, 2018 included significant non-cash expenses, including $15.7 million of depreciation and amortization, $2.3 million of transaction expenses, $1.8 million of share based compensation and a $11.0 million loss on the fair value of our interest rates swaps, offset by changes in our assets and liabilities through the normal course of operations.
Activity for the three months ended March 31, 2019:
•
Net decrease in interest expense of $7.7 million, primarily due to a decrease of $9.0 million in the fair value of the interest rate swap. We recorded a portion of the change in fair value of our interest rate swaps to other comprehensive income in 2019 compared to interest expense in 2018.
•
Transaction expenses of $2.0 million;
•
Share-based compensation expense of $2.7 million.
Activity for the three months ended March 31, 2018:
•
Net increase in interest expense of $7.9 million, primarily due to the change in fair value of the interest rate swap of $11.0 million. This was partially offset by a decrease of $3.1 million due to the paydown of our former Senior Notes due 2020 in April and December 2017.
•
Transaction expenses of $2.3 million;
•
Share-based compensation expense of $1.8 million.
Net Cash Used in Investing Activities
For the three months ended March 31, 2019 and 2018, our net cash used in investing activities was $46.0 million and $21.5 million, respectively.
Activity for the three months ended March 31, 2019:
•
Purchases of property and equipment of $48.3 million;
•
Purchase of intangibles of $0.7 million;
•
Property damage insurance proceeds of $2.0 million.
Activity for the three months ended March 31, 2018:
•
Purchases of property and equipment of $20.3 million;
•
Purchase of intangibles of $1.2 million.
Capital Expenditures
We maintain each of our properties in good repair and condition and in conformity with applicable laws and regulations, franchise and license agreements and management agreements. Capital expenditures made to extend the service life or increase the capacity of our assets, including expenditures for the replacement, improvement or expansion of existing capital assets (“Maintenance Capital Expenditures”), differ from ongoing repair and maintenance expense items which do not in our judgment extend the service life or increase the capacity of assets and are charged to expense as incurred. We have approval rights over capital expenditures made by our third-party manager as part of the annual budget process for each property they manage. From time to time, certain of our resorts may be undergoing renovations as a result of our decision to upgrade portions of the resorts, such as guestrooms, public space, meeting space, gyms, spas and/or restaurants, in order to better compete with other hotels in our markets (“Development Capital Expenditures”).

43


The following table summarizes our cash paid for capital expenditures for the three months ended March 31, 2019 and 2018 ($ in thousands):
 
Three Months Ended March 31,
 
2019
 
2018
Development Capital Expenditures
 
 
 
Hyatt Ziva and Zilara Rose Hall
$
—

 
$
775

Panama Jack Resorts Cancun
—

 
722

Hyatt Zilara Cancun
—

 
347

Panama Jack Resorts Playa del Carmen
—

 
566

Hilton Playa del Carmen All-Inclusive Resort
2,182

 
—

Hilton La Romana All-Inclusive Resort
13,341

 
—

Hyatt Ziva and Zilara Cap Cana
28,512

 
15,303

Total Development Capital Expenditures
44,035

 
17,713

Maintenance Capital Expenditures (1)
4,313

 
2,580

Total Capital Expenditures
$
48,348

 
$
20,293

________
(1) 
Typically, maintenance capital expenditures equate to approximately 3% to 4% of Total Net Revenue.

Net Cash Used in Financing Activities
Our net cash used in financing activities was $4.0 million for the three months ended March 31, 2019 compared to $2.3 million for the three months ended March 31, 2018.
Activity for the three months ended March 31, 2019:
•
Principal payments on our Term Loan of $2.5 million;
•
Purchases of ordinary shares of $1.5 million.
Activity for the three months ended March 31, 2018:
•
Principal payments on our existing term loan of $2.3 million.
Share Repurchases
On December 14, 2018, our Board authorized the repurchase of up to $100.0 million of our outstanding ordinary shares as means of returning capital to our shareholders. Repurchases may be made from time to time in the open market, in privately negotiated transactions or by other means (including Rule 10b5-1 trading plans). Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without prior notice. During the first quarter of 2019, we purchased 198,179 ordinary shares at an average price of $7.68 per share.
Senior Secured Credit Facility
Playa Resorts Holding B.V., a subsidiary of ours, holds a senior secured credit facility (“Senior Secured Credit Facility”), which consists of a term loan facility which matures on April 27, 2024 and our Revolving Credit Facility which matures on April 27, 2022. We borrowed $530.0 million under our initial term loan facility on April 27, 2017 (our “First Term Loan”). We received net proceeds of approximately $32.5 million from our First Term Loan after prepaying our existing Senior Secured Credit Facility and a portion of our Senior Notes due 2020 and deducting a debt issuance discount of $1.3 million and unamortized debt issuance costs of $2.6 million.
We borrowed an additional $380.0 million under an incremental term loan facility (our “Second Term Loan” and together with the First Term Loan, the “Term Loan”) on December 6, 2017. We received no proceeds from the Second Term Loan after full repayment of our Senior Notes due 2020 and deducting a debt issuance discount of $1.0 million and unamortized debt issuance costs of $0.2 million.

Our Initial Term Loan bore interest at a rate per annum equal to LIBOR plus 3.25% (where the applicable LIBOR rate had a 1.0% floor), and interest continued to be payable in cash in arrears on the last day of the applicable interest period (unless we

44


elected to use the ABR rate in which case, interest was payable on the last business day of each of March, June, September and December).

Effective March 29, 2018, we entered into two interest rate swaps to mitigate the long-term interest rate risk inherent in our variable rate Term Loan. The interest rate swaps have an aggregate fixed notional value of $800.0 million. The fixed rate paid by us is 2.85% and the variable rate received resets monthly to the one-month LIBOR rate.
On June 7, 2018, we entered into the Second Amendment to Amended & Restated Credit Agreement (the “Amendment”), which amended the Amended & Restated Credit Agreement, dated as of April 27, 2017 (the “Existing Credit Agreement”), governing our Senior Secured Credit Facility. The Amendment amended the Existing Credit Agreement to, among other things (i) effect an incremental term loan facility of $100.0 million (the “Third Term Loan” and, together with the Initial Term Loan, the “Term Loan”) that was incurred pursuant to the exercise of our option to request incremental loans under the Existing Credit Agreement and (ii) decrease the interest rate applicable to the Term Loan by 0.50% to, at our option, either a base rate plus a margin of 1.75% or LIBOR plus a margin of 2.75%. The other terms to the Existing Credit Agreement were not affected by the Amendment. 
Our Term Loan requires quarterly payments of principal equal to 0.25% of the original principal amount of the Term Loan on the last business day of each March, June, September and December. The remaining unpaid amount of our Term Loan is due and payable at maturity on April 27, 2024. We may voluntarily prepay borrowings at any time without premium or penalty, subject to customary breakage costs in the case of LIBOR-based loans.
Our Revolving Credit Facility bears interest at variable interest rates that are, at the Borrower's option, either based on LIBOR or based on an alternate base rate derived from the greatest of the federal funds rate plus a spread, prime rate, or a one-month euro-currency rate plus a spread. We are required to pay a commitment fee ranging from 0.25% to 0.5% per annum (depending on the level of our consolidated secured leverage ratio in effect from time to time) on the average daily undrawn balance.
The Senior Secured Facility requires that most of our subsidiaries, and in some limited cases the Company, comply with covenants relating to customary matters, including with respect to incurring indebtedness and liens, paying dividends or making certain other distributions or redeeming equity interests, making acquisitions and investments, effecting mergers and asset sales, prepaying junior indebtedness, and engaging in transactions with affiliates.
Contractual Obligations
The following table sets forth our obligations and commitments to make future payments under contracts and contingent commitments as of March 31, 2019 ($ in thousands):
 
 
Less than
1 Year(1)
 
Due in 1 to
3 years
 
Due in 3 to
5 years
 
Due in
Over 5 years
 
Total
Revolving Credit Facility (2)   
 
$
386

 
$
1,015

 
$
161

 
$
—

 
$
1,562

Term Loan principal payments
 
7,575

 
20,200

 
20,200

 
946,048

 
994,023

Term Loan interest payments (3)
 
41,671

 
108,520

 
102,062

 
16,140

 
268,393

Cap Cana land purchase obligation (4)
 
10,625

 
—

 
—

 
—

 
10,625

Operating lease obligations
 
720

 
2,027

 
1,860

 
3,580

 
8,187

Pension obligation (5)
 
602

 
1,120

 
1,363

 
4,790

 
7,875

Total contractual obligations
 
$
61,579

 
$
132,882

 
$
125,646

 
$
970,558

 
$
1,290,665

________
(1) 
The period less than 1 year represents remaining obligations in 2019.
(2) 
The interest commitment on our Revolving Credit Facility is calculated based on the contractual commitment fee of 0.5% applied to the undrawn balance of $100.0 million as we had no outstanding balance on our Revolving Credit Facility as of March 31, 2019.
(3) 
The interest commitment on our Term Loan is calculated based on LIBOR plus 275 basis points with a 1% LIBOR floor and the estimated net settlement of the related interest rate swaps. Projected interest rates range from 4.75% to 5.60%. Payments were calculated using the average forecasted one-month forward-looking LIBOR curve.
(4) 
The remaining $10.6 million of the purchase price is due on the earlier of (i) two years from the beginning of construction or (ii) the opening of the Hyatt Zilara Cap Cana and Hyatt Ziva Cap Cana resorts.
(5) 
Represents the undiscounted future expected plan payments for our pension obligation.

45


Off Balance Sheet Arrangements
We had no off balance sheet arrangements for the three months ended March 31, 2019 and 2018.
Critical Accounting Policies and Estimates

Our Condensed Consolidated Financial Statements included herein have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts and related disclosures. A number of our significant accounting policies are critical due to the fact that they require us to exercise a higher degree of judgment and estimation based on assumptions that are inherently uncertain. While we believe our estimates, assumptions and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions, which could have a material effect on our financial position, results of operations and related disclosures.

We have discussed those estimates that we believe are critical and require the use of complex judgment in their application in our 2018 Consolidated Financial Statements included within our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019. There have been no material changes to our critical accounting policies or the methodologies or assumptions we apply under them except for those disclosed in Note 2 to our Condensed Consolidated Financial Statements.
Fair Value of Financial Instruments

Our financial instruments consist of cash and cash equivalents, restricted cash, trade and other receivables, accounts receivable from related parties, certain prepayments and other assets, trade and other payables, payables to related parties, derivative financial instruments, other liabilities including our pension obligation and debt. See Note 16, “Fair value of financial instruments,” to our Condensed Consolidated Financial Statements for more information.
Related Party Transactions
See Note 7, “Related party transactions,” to our Condensed Consolidated Financial Statements for information on these transactions.
Recent Accounting Pronouncements
See the recent accounting pronouncements in Note 2 to our Condensed Consolidated Financial Statements.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk.
In the normal course of operations, we are exposed to interest rate risk and foreign currency risk which may impact future income and cash flows.
Interest Rate Risk
The risk from market interest rate fluctuations mainly affects long-term debt bearing interest at a variable interest rate. We currently use an interest rate swap (see Note 15 of our Condensed Consolidated Financial Statements) to manage exposure to this risk. As of March 31, 2019, approximately 20% of our outstanding indebtedness bore interest at floating rates and approximately 80% bore interest at fixed rates. If market rates of interest on our floating rate debt were to increase by 1.0%, the increase in interest expense on our floating rate debt would decrease our future earnings and cash flows by approximately $1.9 million annually, assuming the balance outstanding under our Revolving Credit Facility remained at $0. If market rates of interest on our floating rate debt were to decrease by 1.0%, the decrease in interest expense on our floating rate debt would increase our future earnings and cash flows by approximately $1.9 million annually, assuming the balance outstanding under our Revolving Credit Facility remained at $0.
Foreign Currency Risk
We are exposed to exchange rate fluctuations because all of our resort investments are based in locations where the local currency is not the U.S. dollar, which is our reporting currency. For the three months ended March 31, 2019 approximately 3.6% of our revenues were denominated in currencies other than the U.S. dollar. As a result, our revenues reported on our Condensed Consolidated Statements of Operations are affected by movements in exchange rates.

46


Approximately 80.5% of our operating expenses for the three months ended March 31, 2019 were denominated in the local currencies in the countries in which we operate. As a result, our operating expenses reported on our Condensed Consolidated Statements of Operations are affected by movements in exchange rates.
The foreign currencies in which our expenses are primarily denominated are the Mexican Peso, Dominican Peso and the Jamaican Dollar. The effect of an immediate 5% adverse change in foreign exchange rates on Mexican Peso-denominated expenses at March 31, 2019 would have impacted our net income before tax by approximately $2.1 million on a year-to-date basis. The effect of an immediate 5% adverse change in foreign exchange rates on Dominican Peso-denominated expenses at March 31, 2019 would have impacted our net income before tax by approximately $0.8 million on a year-to-date basis. The effect of an immediate 5% adverse change in foreign exchange rates on Jamaican Dollar-denominated expenses at March 31, 2019 would have impacted our net income before tax by approximately $1.5 million on a year-to-date basis.
At this time, we do not have any outstanding derivatives or other financial instruments designed to hedge our foreign currency exchange risk.
Item 4. Controls and Procedures.

Disclosure Controls and Procedures. We maintain a set of disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures. Based on that ongoing evaluation, and considering the continuing review of controls and procedures that is being conducted by our Chief Executive Officer and Chief Financial Officer, including the remedial actions and the material weakness in internal control over financial reporting disclosed below, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2019.

Changes in Internal Control Over Financial Reporting. There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on February 28, 2019 (“Form 10-K”), we have identified, and Deloitte & Touche, LLP, the independent registered public accounting firm that audited our Consolidated Financial Statements as of December 31, 2018 and 2017, and for each of the three years in the period ended December 31, 2018, included in our Form 10-K and the related Condensed Financial Information of Registrant included in this quarterly report, has communicated, a material weakness in our internal control over financial reporting that existed as December 31, 2018. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis. We previously reported the following material weakness in our internal control over financial reporting that existed as of December 31, 2018, which has not been remediated as of March 31, 2019:
•
Our information technology controls, including system access, change management, and segregation of duties are not sufficiently designed and implemented to address certain information technology risks and, as a result, could expose our systems and data to unauthorized use or alteration.

We continue to take steps to remediate the identified material weakness. The Company has engaged a third-party consulting firm to assist the Company with the implementation of SAP, which is a global information technology solution designed to address the elements which give rise to our material weakness. As of March 31, 2019, SAP was successfully implemented in our corporate entities and several of our properties located in Mexico and the Dominican Republic. We expect to implement SAP in our remaining operational entities, in phases, throughout the remainder of 2019. However, effectiveness will need to be successfully tested over several quarters before we can conclude that the material weakness has been remediated. There can be no assurance that we will be successful in making these improvements and in remediating our current material weakness in a timely manner, or at all, and we may not prevent future material weaknesses from occurring.

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PART II. OTHER INFORMATION
Item 1.    Legal Proceedings.

In the ordinary course of our business, we are subject to claims and administrative proceedings, none of which we believe are material or would be expected to have, individually or in the aggregate, a material adverse effect on our financial condition, cash flows or results of operations. The outcome of claims, lawsuits and legal proceedings brought against us, however, is subject to significant uncertainties. Refer to Note 8 to our financial statements included in “Item 1. Financial Statements ” of this Form 10-Q for a more detailed description of such proceedings and contingencies.
Item 1A. Risk Factors.

At March 31, 2019, there have been no material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2019, which is accessible on the SEC’s website at www.sec.gov.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The following table sets forth information regarding our purchases of shares of our common stock during the quarter ended March 31, 2019:
 
 
Total number of shares purchased
 
Average price paid per share (1)
 
Total number of shares purchased as part of publicly announced program (2)
 
Maximum approximate dollar value of shares that may yet be purchased under the program
($ in thousands) (2)
January 1, 2019 to January 31, 2019
 
128,588

 
$
7.62

 
128,588

 
$
98,706

February 1, 2019 to February 28, 2019
 
54,611

 
7.78

 
54,611

 
98,281

March 1, 2019 to March 31, 2019
 
14,980

 
7.78

 
14,980

 
98,164

Total
 
198,179

 
$
7.68

 
198,179

 
$
98,164

________
(1) The average price paid per share and maximum approximate dollar value of shares disclosed above include broker commissions.
(2) In December 2018, our Board of Directors authorized the repurchase of up to $100.0 million of our outstanding ordinary shares as market conditions and our liquidity warrant. Repurchases may be made from time to time in the open market, in privately negotiated transactions or by other means (including Rule 10b5-1 trading plans). Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without prior notice.
Item 3.    Defaults Upon Senior Securities.

None.
Item 4.    Mine Safety Disclosures.

Not applicable.
Item 5.    Other Information.

On February 21, 2019, we entered into the First Amendment (the “First Amendment”) to our 2017 Omnibus Incentive Plan (the “2017 Plan”). Under the 2017 Plan, each of the Company’s 12 directors, four executive officers and 12,000 employees are eligible to receive awards. Often, these awards are in the form of restricted share awards which vest over a period of years. Pursuant to the First Amendment, certain provisions of the 2017 Plan were amended in order to provide the Company with greater flexibility to determine the fair market value of shares underlying an award for purposes of determining taxable income and the amount of the related tax withholding obligation. This summary is qualified in its entirety by reference to the First Amendment, which is filed as Exhibit 10.5 hereto and incorporated by reference herein.
Under our Senior Secured Credit Facility, in the event that the aggregate amount outstanding on our Revolving Credit Facility exceeds 35% of the aggregate revolving credit commitments as defined therein, then we are required to meet a springing financial

48


maintenance covenant. On March 19, 2019, we entered into the Third Amendment to our Senior Secured Credit Facility (the “Third Amendment”), pursuant to which our lenders agreed to exclude the lesser of $50.0 million and the aggregate amount of revolving credit commitments borrowed in connection with the Hyatt Ziva Cap Cana and Hyatt Zilara Cap Cana development project from the calculation of the springing leverage ratio for the period July 1, 2019 through June 30, 2020. On July 1, 2020, the springing leverage ratio will be calculated based on the provisions of the Senior Secured Credit Facility as if the Third Amendment had not taken place. This summary is qualified in its entirety by reference to the Third Amendment, which is filed as Exhibit 10.6 hereto and incorporated by reference herein.
Item 6.    Exhibits.
The following exhibits are filed as part of this Form 10-Q:
Exhibit
Number
  
Exhibit Description
 
 
 
10.1
 
 
 
 
10.2
 
 
 
 
10.3
 
 
 
 
10.4
 
 
 
 
10.5
 
 
 
 
10.6
 
 
 
 
31.1
 
 
 
 
31.2
  
 
 
 
32.1
  
 
 
 
32.2
  
 
 
 
101
 
The following materials from Playa Hotels & Resorts N.V.’s Quarterly Report on Form 10-Q for the period ended March 31, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income (iv) Condensed Consolidated Statements of Shareholders' Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) the Notes to the Condensed Consolidated Financial Statements



49


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
 
 
Playa Hotels & Resorts N.V.
 
 
 
 
 
 
Date:
May 7, 2019
By:  
/s/ Bruce D. Wardinski
 
 
 
 
Bruce D. Wardinski
 
 
 
 
Chairman and Chief Executive Officer
 
 
 
 
(Principal Executive Officer)
 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the undersigned, in his capacity as the principal financial officer of the registrant.
 
 
 
 
 
 
 
Playa Hotels & Resorts N.V.
 
 
 
 
 
 
Date:
May 7, 2019
By:  
/s/ Ryan Hymel
 
 
 
 
Ryan Hymel
 
 
 
 
Chief Financial Officer
 
 
 
 
(Principal Financial Officer)