Playa Hotels & Resorts N.V. (NASDAQ:PLYA) Q3 2023 Earnings Call Transcript

Playa Hotels & Resorts N.V. (NASDAQ:PLYA) Q3 2023 Earnings Call Transcript November 5, 2023

Operator: Good day, and welcome to the Playa Hotels & Resorts Third Quarter 2023 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ryan Hymel. Please go ahead.

Ryan Hymel: Thank you very much, Betsy. Good morning, everyone, and welcome to Playa Hotels & Resorts Third Quarter 2023 Earnings Conference Call. Before we begin, I’d like to remind participants that many of our comments today will be considered forward-looking statements and are subject to numerous risks and uncertainties that may cause the company’s actual results to differ materially from what has been communicated. Forward-looking statements made today are effective only as of today, and the company undertakes no obligation to update forward-looking statements. For a discussion of some of the factors that could cause our actual results to differ, please review the risk factors section of our quarterly report on Form 10-Q, which we filed last night with the SEC.

We’ve updated our Investor Relations website, at investors.playaresorts.com, with the company’s recent releases. In addition, reconciliations to GAAP of the non-GAAP financial measures we discuss on this call were included in yesterday’s press release. On today’s call, Bruce Wardinski, Playa’s Chairman and CEO, will provide comments on the third quarter demand trends and key operational highlights. I will then review our third quarter results and our outlook. Bruce will wrap up the call with some concluding remarks before we turn it over to Q&A. With that, I’ll turn the call over to Bruce.

Bruce Wardinski: Great. Thanks, Ryan. Good morning, everyone. Thank you for joining us. Our third quarter results were in line with the expectations we shared with you on our last earnings call, led by strong performance in our Jamaica segment. Playa’s owned resort EBITDA of $52.8 million in the third quarter included a significant year-over-year foreign currency exchange headwind of approximately $8 million due to the appreciation of the Mexican peso, a benefit from business interruption insurance proceeds of approximately $1 million and negative EBITDA at the Jewel resorts in the Dominican Republic. Also, as a reminder, Hurricane Fiona hit the Dominican Republic in late September of 2022, causing us to close the Hyatt Ziva/Zilara Cap Cana and Hilton La Romana resorts for repairs for a portion of the third quarter last year, which we estimated to be a $2.9 million negative impact on EBITDA and an 80 to 90 basis point hit to our Q3 ’22 owned resort EBITDA margin.

We estimate that in Q3 2023, the foreign exchange headwinds had a negative 390 basis points impact on our reported owned resort EBITDA margin and 410 basis points for our legacy portfolio resort margins. Adjusting for all of these factors, underlying EBITDA growth for our legacy portfolio was approximately 9.5% during the third quarter, and we were still able to improve legacy resort margins by 150 basis points year-over-year. As we outlined earlier this year, our expectation was that the first quarter would represent the highest year-over-year ADR and EBITDA growth for 2023 as we lapped the impact from Omicron last year and growth would normalize as we entered the second half of 2023, as the base comparison period had less noise. Playa’s third quarter legacy portfolio year-over-year EBITDA growth was driven by ADR growth of 8.9% and the cost efficiency measures we have implemented, particularly in Mexico.

Fundamental strength during the third quarter was led by our Jamaican segment, which posted our highest occupancy rate and ADR growth, resulting in 510 basis points of resort margin expansion year-over-year. Although Jamaica had a fantastic year in 2023, there is still plenty of room to go in the recovery in that market. One, on an underlying basis, growth versus pre-pandemic is still lagging versus our other segments by 10 to 20 percentage points and is also evident when you drill down to like-for-like peers at the hotel level. Two, supply growth over the last few years has been benign, at a little under 10%, with year-to-date international arrivals into Montego Bay only slightly exceeding the additional supply, but this was largely due to the timing of additional airlift.

Three, airlift versus 2019 was only slightly positive in Q1 2023, but is estimated to be over 20% in the second half of 2023, which bodes well for increased demand and the ability to close the ADR gap versus peers. With the improvements made to the Montego Bay Airport and the expected growth in additional flight capacity, we remain extremely optimistic for the Jamaican segment fundamentals. In Mexico, revenue declined modestly year-over-year as a result of construction disruption in the Pacific and the impact of increased visitation to Europe this summer, which was largely offset by ongoing increases in ADR. We believe we are significantly outperforming the market in Mexico, a testament to our service from the heart and execution by our operations team.

As I mentioned, both the Yucatan and the Pacific segments were negatively impacted by year-over-year appreciation in the Mexican peso, and we estimate that the Yucatan would have seen approximately 130 basis points of margin improvement year-over-year, excluding the impact of FX, and the Pacific would have expanded margins by approximately 50 basis points. With the hiring of a new regional operations director for Mexico, we’ve been taking a fresh look at our cost structure in Mexico and believe we have room to further optimize our staffing during the ebbs and flows of occupancy levels. While our early efficiency actions are already bearing fruit, we expect to see a long tail from greater efficiencies, especially as it relates to areas like procurement and staffing models, given the iterative nature of these changes.

In the Dominican Republic, our legacy resorts, excluding the Jewel Palm Beach and the Jewel Punta Cana, grew both occupancy and ADR year-over-year. Adjusting for the previously discussed business interruption insurance benefit and the impact in Q3 2022 from Hurricane Fiona, resort EBITDA for our legacy DR Resorts grew over 6% during the third quarter. However, the results of the two Jewel resorts in the DR segment continue to weigh on this segment, negatively impacting profits by approximately $6 million year-over-year in the third quarter. We had anticipated a weak summer for these two properties as a result of missing the summer selling season, particularly for its core European guest base. We still expect to improve on the year-over-year profit drag as we move into the fourth quarter.

We do not have any information to share with respect to the timing of the disposition of the two resorts, but hope to have more to share on that in the future. On the booking front, demand for the fourth quarter and beyond improved in July and continued to accelerate through the third quarter. In aggregate, during the third quarter of 2023, 45.7% of Playa-owned and managed transient revenues booked were booked direct, down 450 basis points year-over-year. The decline was driven by fewer World of Hyatt redemption bookings, following a spike during the first quarter of 2023 ahead of a change in the conversion rate for point redemptions, which pulled forward quite a bit of demand. We expect this to smooth-out in the coming months and believe we are on track with our targeted 50% booked revenue mix of transient revenue.

During the third quarter of 2023, playaresorts.com accounted for approximately 11% of our total Playa-owned and -managed transient room night bookings, continuing to be a critical factor in our customer sourcing and ADR gains. Taking a look at who is traveling, roughly 39% of the Playa-owned and managed room night stays in the quarter came from our direct channels. Geographically, the biggest change in our guest mix during the third quarter was once again our Mexican-sourced guest mix, which was up nearly 570 basis points year-over-year. Our European-sourced guest mix was up slightly year-over-year and remained well ahead of pre-pandemic levels. Our Asian-sourced guest mix improved modestly year-over-year but remains the most depressed, as it is still only approximately 25% recovered.

The most noteworthy geographic source market to keep a close eye on, though, is Canada, which was a large sourced market for us prior to the pandemic but has only recovered approximately 60%. However, recently there has been a significant increase in flight capacity into our markets from Canada for the high season. So I am optimistic that our Canadian guest mix will improve in the coming months. Our visibility remains a critical factor of our success, as our booking window was just under three months. In total, while 2023 was a very successful year for Playa on many fronts, we faced significant headwinds that masked the robust performance in our core portfolio. However, our focus on execution and the stellar fundamentals should shine brighter in the near future as the profit headwinds are expected to abate.

Starting in the first quarter, we will begin to lap the significant profit decline at the two Jewel properties in the Dominican Republic. At current US dollar to Mexican peso spot FX rates, FX would cease to be a profit headwind beginning in Q2 2024. And we will be lapping the significant increase in our insurance expense in Q2 2024 as well. Finally, on the capital allocation front, we repurchased approximately $76 million worth of Playa stock during the third quarter and an additional $15.4 million thus far in the fourth quarter, bringing our total repurchases since resuming our program in September 2022 to approximately $212 million, or 17% of the shares outstanding. We continue to believe that our significant free cash flow generation is underappreciated, given the modest amount of ROI-driven CapEx expected in the near term and healthy business fundamentals.

We believe our stock offers a tremendous value and that share repurchases are a phenomenal use of capital for our free cash flow to boost total shareholder return over time. Once again, I would like to thank all of our associates that have continued to deliver world-class service in the face of unexpected challenges and rising operating costs. Their unwavering passion and dedication to service from the heart is what truly sets Playa apart. With that, I’ll turn the call back over to Ryan to discuss the balance sheet and our outlook.

Ryan Hymel: Thank you, Bruce. I’ll begin with a recap of the segment fundamentals, followed by an overview of our balance sheet and expected uses of cash and conclude with our outlook for the remainder of the year. Before I begin my review of the quarter, I’d again like to remind everyone that beginning with the first quarter of 2023, we elected to reclassify on-premise room upgrade revenues from non-package revenue to package revenue to be consistent with industry trends. We’ve recasted prior periods to conform with current period presentation. A reconciliation of the changes made prior to the reporting period for ’21 and ’22 can be found in our investor deck, on Slide 5. Furthermore, as Bruce mentioned, there are some unique items affecting the comparability of our financials in the second half of this year that I would like to remind you of before we dive in.

Firstly, as Bruce mentioned, Hurricane Fiona hit the Dominican Republic towards the end of Q3 2022 and caused significant disruption at the Hilton La Romana and the Hyatt Cap Cana, which we chose to fully close for a small portion of Q3 ’22 and over half of Q4 ’22. We shared on our previous earnings calls that we estimate the EBITDA impact to Q3 2022 to be roughly $2.9 million and an approximately 80 to 90 basis point hit to resort EBITDA margins and then an approximately $5.4 million EBITDA impact, net of business interruption, in Q4 of 2022. Given the pronounced seasonality of our ADRs during the fourth quarter, these resorts were disproportionately open during a much higher ADR and margin portion of the fourth quarter, skewing our Q4 2022 ADR and margin comparisons.

Second, foreign exchange. As Bruce mentioned, the Mexican peso had its largest year-over-year change during the third quarter of ’23, which negatively impacted our EBITDA by just under $8 million and resort margins by 390 basis points. During the fourth quarter of 2022, we also had several true-up adjustments that significantly increased reported Q4 2022 ADRs. The largest of these was related to an advanced pricing agreement rates in the Dominican Republic that affects our VAT, which was detailed in our Q4 2022 earnings release on Page 17. These adjustments in total sum up to nearly approximately $10, or 2.5% of ADR. Business interruption. We received $1 million of BI proceeds during Q3 of 2023, as we outlined in our release, which increased owned resort margins by approximately 50 basis points.

And lastly, as we mentioned, the DR Jewels. These resorts have continued to weigh on the performance of the portfolio, negatively impacting owned resort margins by over 200 basis points during Q3 ’23 and are expected to continue to be a drag on Q4 ’23 margins as well. Now I’ll take a look at our fundamentals. Our third quarter results were in line with our expectations. Continued ADR growth, easing pressure from food and beverage expenses and cost efficiency measures led to reported resort margin declines of 330 basis points year-over-year, which, as we mentioned, included a 390 basis point headwind from foreign exchange, a 50 basis point benefit from business interruption proceeds and a 210 basis points headwind from the two Jewel resorts in the Dominican.

Adjusting for foreign exchange and business interruption, our legacy portfolio grew underlying margins 150 basis points year-over-year. The ADR growth was broad-based, with all segments reporting year-over-year ADR growth, excluding the two Jewels in the DR. On the cost front, food and beverage costs continued to be favorable as a result of lower input prices and cost efficiency efforts by our operations and procurement teams, while utilities and labor were headwinds in the quarter. As Bruce mentioned, we are undertaking efforts to streamline and improve our procurement processes across the entire portfolio to take advantage of our scale. These efforts are really just beginning to bear fruit from all the heavy lifting undertaken thus far in ’23, and we expect the benefits to accelerate as the company moves into ’24 and beyond, as our cost savings are averaging mid-single-digit to high single-digit improvements per category.

At the segment level, Jamaica again led the way in year-over-year ADR and occupancy growth and margin improvement. As a reminder, Jamaica got off to a slower start in ’22 due to the Omicron variant having a disproportionate impact on the segment given its COVID testing requirements at the time. The ongoing recovery, in addition to the recent investment made into the airport, bode well for the Jamaican segment in the second half of 2023 and beyond. Forecasted flight seats into Montego Bay for the next six months are expected to grow mid-teens year-over-year, leading all of our major destinations, with the recent additions of more flights from Canada boosting growth in the fourth quarter. On the margin front, Jamaica once again benefited from better-than-expected F&B and utilities expense, while insurance and labor costs pressured margins.

Keep in mind when comparing results in Jamaica versus other segments that Jamaica generally has higher operating costs than our other segments and typically generates higher ADRs as well. Looking at our other segments, the Yucatan Peninsula continued to deliver strong results, with reported year-over-year ADR growth of 4.1% and FX-adjusted margins expanding 130 basis points year-over-year. Occupancy during the third quarter was down 310 basis points year-over-year, as we anticipated and discussed on our last earnings call. We believe this is attributable to the increased visitation to Europe this summer, and it’s evident as year-over-year occupancy increased in September and is expected to be relatively stable in the fourth quarter. Reported owned resort margins were down 700 basis points year-over-year, primarily again as a result of the 840-basis point negative impact from foreign exchange.

Food and beverage expenses were favorable year-over-year on a currency-neutral basis, while higher government policy-driven labor costs negatively impacted the margins. All told, we’re pleased with the operations team to again expand margins on a currency-neutral basis on more modest ADR and revenue growth. Pacific had another fantastic quarter, with year-over-year ADR improvement of 8.1%, leading to currency-adjusted margin gains of 50 basis points, as F&B expenses remained favorable year-over-year. Similar to the Yucatan, segment margins were negatively impacted by approximately 800 basis points as results of the changes in the Mexican peso. In the Dominican Republic, our legacy resorts, the Hyatt Ziva/Zilara Cap Cana and the Hilton La Romana, grew ADR over 12% year-over-year, with occupancy of nearly 69%, which was up sharply given the impact of the Hurricane Fiona in late Q3 ’22.

Adjusting for the impact of Hurricane Fiona in 2022 and business interruption proceeds in Q3 of 2023, underlying EBITDA at these two resorts grew just over 6%. The segment performance was dragged down by the two Jewel resorts, which experienced a more challenging summer period than we anticipated. We continue to expect the performance of the two Jewels to improve sequentially year-over-year while we execute the sale process of these resorts. Now turning to our MICE group business. Our 2023 net MICE group business on the books is approximately $60 million and is well ahead of our final full year 2019 MICE revenue of $32 million. Looking ahead to 2024, we currently have approximately $56 million of MICE revenue already on the books, well ahead of where we were at this same time last year, and we believe this sets us up favorably for the first half of ’24 and the high season.

From a pacing perspective, this base of business, combined with our leisure transient bookings, currently has our first half revenue pacing up over 20%, with both ADR and occupancy contributing to that. Finally, turning to the balance sheet. We finished the quarter with a total cash balance of approximately $185 million and total outstanding interest-bearing debt of $1.09 billion. We currently have no outstanding borrowings on our $225 million revolving credit facility. And our net leverage on a trailing basis stands at 3.4 times. We anticipate our cash CapEx spend for full year ’23 to be approximately $55 million to $60 million, partitioned out between $35 million to $40 million for maintenance CapEx and the remainder designated for ROI-oriented projects.

Also as a reminder, effective April 15, we entered into two interest rate swaps to mitigate floating-rate risk in our new term loan due 2029. As a reminder, we entered into a two-year and three-year contract, both of which have a fixed notional amount of $275 million and carry fixed SOFR rates of 4.05% and 3.71%, respectively. On the capital allocation front, as Bruce mentioned, we purchased an additional $76 million of stock during the third quarter and an additional $15 million thus far in Q4. Since we began repurchasing shares last September, we’ve purchased over 28.8 million shares, or over 17% of the shares outstanding. We still have $43 million remaining on our existing repurchase authorization. With our leverage ratios well below four times the anticipated free cash flow generation of the business and the attractive valuation of our stock, we believe repurchasing shares is a very compelling use of capital and intend to use our discretionary capital to repurchase shares going forward, depending on market conditions.

We’ll also continue to invest in our business to deliver value to our guests and shareholders, with the bar set high for new projects on a risk-adjusted basis given the valuation of our stock. Now turning our attention to our outlook for the remainder of 2023. Relative to the expectations set at the beginning of the year, our RevPAR growth outlook has largely been as expected, with ADRs improving versus initial expectations and occupancy slightly lower and better-than-expected performance in our core legacy portfolio and fundamentals coming in lower than expected at the DR Jewel resorts. We expect full year adjusted EBITDA of $260 million to $265 million, and that is inclusive of an approximately $25 million negative impact from the appreciation of the Mexican peso, approximately $6 million of which is expected to hit in the fourth quarter of 2023.

Our core total legacy portfolio EBITDA forecast for the second half has remained steady in Jamaica and the DR, but year-over-year occupancy declines in Mexico in the second half due to construction disruption in the Pacific, choppiness in the shoulder period and disruptions in October from the recent storms in the Pacific have incrementally weighed on our Q4 outlook for Mexico. The FX outlook, however, has improved slightly based on an estimated average exchange rate of approximately MXN17.25 for the fourth quarter, bringing the full year impact to approximately $25 million with, again, $6 million hitting in the fourth quarter. At the midpoint, our full year guidance represents approximately 8% year-over-year growth on an adjusted EBITDA basis on a reported basis, but after adjusting for hurricane-related expenses, business interruption and foreign currency impacts, the midpoint of our guidance represents adjusted EBITDA growth of approximately 12.5%.

For the fourth quarter, we expect reported occupancy to be in the low 70s, reported ADR growth of low single digits on a year-over-year basis, again, given the aforementioned impact of the factors affecting Q4 2022 reported ADR. We expect owned resort EBITDA margins to decline year-over-year given the EBITDA drag in the DR from the two Jewel resorts and, again, continuing FX headwinds in Mexico. Putting it all together, we expect Q4 owned resort EBITDA of $63 million to $67 million, Playa Collection and management fee income of $2 million to $2.5 million, corporate expense of approximately $15 million to $16 million, which includes a negative FX impact related to our shared service centers in Mexico, all leading to adjusted EBITDA of approximately $49 million to $54 million.

Given our booking window, we’re approximately 90% booked for the fourth quarter. We’re not giving guidance for 2024 today, but I want to flag the following adjustments and unique items to keep in mind as you think about next year. So just as a reminder, in total, thus far in 2023, we’ve booked $5.3 million of business interruption proceeds. As of today, foreign exchange is forecasted to be an approximately $25 million drag on EBITDA this year. And at current spot rates, it would remain a drag into Q1, but we expect it to be closer to neutral beginning in the second quarter. The DR resorts were a material drag on our profits this year, with a combined loss of over $15 million, with approximately a third of that coming in the first quarter of 2023, given the fact that one of the resorts was only open for a small portion of the first quarter this year.

While this creates favorable profit comparisons year-over-year in the fourth quarter, the lack of lower-rated room nights vis-a-vis the rest of our portfolio, it will therefore artificially depress our ADR as our occupancy improves materially year-over-year. The Playa Collection and management fee contribution should grow in 2024, given the ramp of the managed properties and, most importantly, the rollout of the Playa Collection across our Hyatt resorts during 2023 and into the early part of 2024. Lastly, as a reminder, we have a robust amount of MICE business on the books for the first half of 2024, which should give us a healthy base to yield ADR from. We hope this framework helps guide you as you fine-tune your models and gives you further insight to what we’re seeing and expecting.

With that, I’ll turn it back over to Bruce for some closing remarks.

Bruce Wardinski: Great. Thanks, Ryan. So although the complexion was significantly different than we anticipated, 2023 is expected to finish as we originally anticipated back in February. We expected that the second half of the year would be much more difficult than the first half due to tougher comparisons, including an unfavorable MICE calendar, more normal seasonality, a major return of Europe as a destination and the non-fundamental ADR comparisons from last year’s fourth quarter. Despite that, our Mexican resorts performed slightly better than expected on a currency-neutral basis, despite the soft patch this summer, and continued strength in the Caribbean led to robust profit growth, but disappointing performance at the two DR Jewels offsetting the stellar performance in the Caribbean.

We are diligently moving forward on the disposition of the two DR Jewels and remain committed to returning cash to shareholders with anticipated proceeds. With the increasing uncertainty in the macro backdrop, we are diligently focused on the areas within our control and are carefully monitoring the landscape. We continue to believe the price certainty and amazing value provided by Playa’s all-inclusive resorts resonates with travelers even in the face of an uncertain economic backdrop. With that, I’ll open up the line for any questions.

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Q&A Session

Operator: [Operator Instructions] The first question today comes from Chad Beynon with Macquarie. Please go ahead.

Chad Beynon: Good morning. Thanks for taking my question. Great to see all the share repurchases. And Ryan, thanks for all the same-store commentary. Definitely kind of paints the appropriate picture that we’re looking for. As we’re thinking about the first quarter, have you started to see any price discounting from peers? I guess we could kind of go around your markets. It sounds like Jamaica, with the mid-teens growth in flight seats, demand is probably going to exceed supply. Mexico is probably the one that we’ll be looking for. But just trying to understand price integrity as we kind of get into a period where maybe demand is a little bit lower in Yucatan and Pacific in the first quarter. Thanks.

Ryan Hymel: Yeah, no, that’s something that we’ve been focused on throughout the entirety of this year, knowing that, as you’ve seen in the last two quarters, starting with the Yucatan, ADR growth is normalizing and now kind of low single-digits. Our focus is still on maintaining rate integrity over pushing occupancy unless there’s some sort of major shift in demand, which again, as you saw from Bruce’s comments, you saw that we’ve seen demand really begin to stabilize, particularly once that summer season was over, and you really saw some nice pickup for the fourth quarter and the first quarter starting kind of tail end of July and August. I’m not saying stays, I’m saying bookings for future periods. And so given our booking window, that leads you to believe that’s bookings for Q4 and for Q1.

Right now, with the exception of the Pacific, we’re pacing up for Q1 on an ADR basis anywhere from kind of low single-digits in the Yucatan to potentially high single-digits in Jamaica. The Pacific, given the MICE business that’s on the books, a very large book of business that we have coming, I think it’s either in January or February, for a legacy group that’s done a lot of business with us, actually has a kind of legacy rate still on the books back from COVID times that we elected to honor and move forward because they’ve done such amount of business with us. So that’s really kind of a lumpy book of business, even though they spend a lot on non-package revenue that weighs on the rates on the books for that period. But otherwise, the pacing and the amount of business we have on the books today gives us a sense of optimism.

Obviously, booking patterns have returned to normal, and the way we build and pick up occupancy has kind of returned to normal. So it’s going to be critical to see how things continue to book and build the remainder of the winter, but we’re happy with where we sit today.

Chad Beynon: Perfect. Thanks, Ryan. And then in terms of some of these margin improvement or procurement opportunities that you touched on, is there a way to frame out same-store or kind of FX-adjusted total saves, whether we’re thinking about a dollar amount or a margin amount? I mean, could this be over 100 basis points in margins if you’re able to execute as planned, understanding that it’s just kind of underway? Thanks.

Ryan Hymel: Yes. The answer is yes. So why don’t we break it into kind of the two main buckets. You heard Bruce and I talk about procurement initiatives, and then kind of resort efficiency, as we’ve kind of called it, more so having to do with staffing and kind of waste reduction. But on the procurement side, we hired a woman in our Florida office who has really spent the last year condensing and taking advantage of our scale and our buying power. And thus far, and again, very early innings, we’re achieving a just under 2% cost savings on food thus far and just on a few unit items within our food base. And just as a reminder, food is approximately 15% of our costs. So if you want to extrapolate a 1.8% savings times 15%, that kind of annualizes to roughly 25 to 30 basis points of annual savings.

And we estimate we’re only about 20% of the way through the addressable cost base. So we’re just getting started there. We’re actually planning on actually adding a couple of other members to that team in some of our local destinations starting next year in our budget just because we think those members of the team will just pay for themselves 10 times over. And then the other side, Bruce mentioned it, is on — with an addition of a new head of operations in Mexico and then just, generally, our overall focus on rationalizing staffing models across our portfolio, kind of with the ebbs and flows of occupancy. I think most hotel companies every couple of years will kind of relook at their staffing models and kind of throw old ones out the window, and that’s exactly what we’ve begun to do and say like, hey, how do we think about staffing at these lower occupancies, different times of year and then also how we — we’ve been actually starting to measure food waste at our buffets and at some of our a la carte restaurants and hope that we can extrapolate and take advantage of some scale there in the future.

We don’t have a set goal in mind on that. It’s a fairly iterative process, again based on occupancy and how ADR is moving, but that’s something that has been a real focus for us starting at probably about Q2, as we knew and called out earlier in the year that ADR was going to be far more normal in the back half of this year.

Chad Beynon: That’s great, thank you very much guys. Appreciate it.

Ryan Hymel: Thanks Chad.

Operator: The next question comes from Patrick Scholes with Truist Securities. Please go ahead.

Patrick Scholes: Hi, good morning, Bruce and Ryan.

Ryan Hymel: Hey. Morning too, Pat.

Patrick Scholes: My first question, can you just confirm again that your target leverage, I guess, at the high end of net debt to EBITDA is four times? I think you implied that in the call, but is that correct?

Bruce Wardinski: That’s correct. I mean, if you look at it, if we’re in the three to four times range, I think that’s an incredibly prudent place to be. You add to that kind of our existing cash balance, we have over $1.30 per share of cash. We’ve got the anticipated proceeds from the sale of the two Jewels. So anything we do with regards to share repurchases should be replenished by the proceeds we got, which we have specifically said we’re going to use. So I think we’re in a very prudent level. And just compare us, for example, just to the lodging REITs, and we are at the low end of all of that group. So I feel very comfortable with where we are. And we’ve got nothing drawn on our revolver. So just from a liquidity standpoint, from a cash standpoint, from a debt to EBITDA standpoint, I think we’re in a really good place.

Patrick Scholes: Okay. Thank you. And one more question. Looking hopefully a bit at 2024, would you expect your CapEx to be materially different from that of 2023? And what — if you are able to sell the Jewel properties, I guess, early next year, would that change your CapEx expectations for 2024? Thank you.