S-1 1 d246339ds1.htm S-1 S-1
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As filed with the Securities and Exchange Commission on September 27, 2016

Registration No. 333-        

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM S-1

FOR REGISTRATION

UNDER

THE SECURITIES ACT OF 1933

 

 

PLAYA HOTELS & RESORTS B.V.(1)

(Exact Name of Registrant as Specified in Governing Instruments)

 

 

 

The Netherlands   7011   Not Applicable

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

Bruce D. Wardinski

Chief Executive Officer

Playa Hotels & Resorts B.V.

Prins Bernhardplein 200

1097 JB Amsterdam, the Netherlands

+31 20 521 47 77

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

Playa Hotels & Resorts B.V.

Prins Bernhardplein 200

1097 JB Amsterdam, the Netherlands

+31 20 521 47 77

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

 

 

Copies to:

 

Eve N. Howard, Esq.

Michael E. McTiernan, Esq.

Hogan Lovells US LLP

555 Thirteenth Street, N.W.

Washington, D.C. 20004

Phone: (202) 637-5600

Facsimile: (202) 637-5910

 

Edward F. Petrosky, Esq.

Bartholomew A. Sheehan III, Esq.

Jason A. Friedhoff, Esq.

Sidley Austin LLP

787 Seventh Avenue

New York, N.Y. 10019

Phone: (212) 839-5300

Facsimile: (212) 839-5599

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

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

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x (do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Proposed

Maximum

Aggregate

Offering Price(1)(2)

 

Amount of

Registration Fee

Ordinary Shares, par value $0.01 per share

  $100,000,000   $10,070

 

 

(1) Includes additional shares that the underwriters have the option to purchase solely to cover overallotments.
(2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.

 

(1) The registrant will be converted from a Dutch private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) to a Dutch public limited liability company (naamloze vennootschap) and renamed Playa Hotels & Resorts N.V. upon the completion of this offering.

 

 

 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to Completion

Preliminary Prospectus dated September 27, 2016

PROSPECTUS

             Shares

 

LOGO

PLAYA HOTELS & RESORTS B.V.(1)

Ordinary Shares

 

 

This is the initial public offering of Playa Hotels & Resorts B.V. We are selling              ordinary shares.

No public market currently exists for our ordinary shares. We currently expect the initial public offering price of our ordinary shares to be between $         and $         per share.

We intend to apply for the listing of our ordinary shares on the NASDAQ Global Select Market (“NASDAQ”), under the symbol “PLYA.”

 

 

We are an “emerging growth company” under the federal securities laws and will be subject to reduced public company reporting requirements. Investing in our ordinary shares involves substantial risks. See “Risk Factors” beginning on page 18 of this prospectus to read about factors you should consider before making a decision to invest in our ordinary shares.

 

     Per Ordinary
Share
     Total  

Public offering price

   $                    $                

Underwriting discount(a)

   $                    $                

Proceeds, before expenses, to us

   $                    $                

 

(a) See “Underwriting” for additional information regarding underwriting compensation.

 

 

The underwriters may also purchase up to an additional             ordinary shares from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus solely to cover overallotments, if any.

Neither the Securities and Exchange Commission nor any state or other securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The ordinary shares will be ready for delivery on or about                  , 2016.

 

 

Joint Book-Running Managers

 

BofA Merrill Lynch   Deutsche Bank Securities

 

 

The date of this prospectus is                      , 2016

 

(1)  We will be converted from a Dutch private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) to a Dutch public limited liability company (naamloze vennootschap) and renamed Playa Hotels & Resorts N.V. upon the completion of this offering.


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TABLE OF CONTENTS

 

Prospectus Summary

     1   

Risk Factors

     18   

Special Note Regarding Forward-Looking Statements

     46   

Use of Proceeds

     47   

Dividend Policy

     48   

Capitalization

     49   

Dilution

     50   

Selected Financial Information and Operating Data

     51   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     56   

Industry Overview and All-Inclusive Market Overview

     90   

Our Business and Resorts

     102   

Management

     117   

Certain Relationships and Related Party Transactions

     139   

Structure and Formation of Our Company

     146   

Description of Certain Indebtedness

     149   

Principal Shareholders

     153   

Description of Share Capital

     155   

Shares Eligible for Future Sale

     175   

Material Tax Considerations

     177   

Underwriting

     183   

Legal Matters

     190   

Experts

     190   

Enforceability of Civil Liabilities

     190   

Where You Can Find More Information

     192   

Index to Financial Statements

     F-1   

You should rely only on the information contained in this prospectus or in any free writing prospectus prepared by us. We have not, and the underwriters have not, authorized any other person to provide you with different or additional information. If anyone provides you with different or additional information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus and any free writing prospectus prepared by us is accurate only as of their respective dates or on the date or dates which are specified in these documents. Our business, financial condition, liquidity, results of operations and prospects may have changed since those dates.

Unless the context otherwise requires or indicates, references in this prospectus to “we,” “our” and “us” refer to Playa Hotels & Resorts N.V., after giving effect to its conversion to a Dutch public limited liability company (naamloze vennootschap), together with its subsidiaries.

 

 

Industry and Market Data

We use market data and industry forecasts and projections throughout this prospectus, and in particular in the sections entitled “Prospectus Summary—Industry Overview and All-Inclusive Market Overview,” “Industry Overview and All-Inclusive Market Overview” and “Our Business and Resorts,” and where otherwise indicated. These market data and industry forecasts and projections are based on or derived from a market study prepared for us in June 2016 by Jones Lang LaSalle (“JLL”), a financial and professional services firm that specializes in commercial real estate services and investment management, in connection with this offering. We have paid JLL a fee for such services. Such information is included herein in reliance on JLL’s authority as an expert on such matters. See “Experts.” We believe the data prepared by JLL is reliable, but we have not independently investigated or verified this information.


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Any forecasts or projections prepared by JLL are based on data (including third party data), models and experience of various professionals, and are based on various assumptions, all of which are subject to change without notice. The forecasts and projections are based on industry surveys and JLL’s experience in the industry, and there is no assurance that any of the projections or forecasts will be achieved.

 

 

This prospectus contains registered trademarks of Hyatt (as defined below). None of Hyatt, HI Holdings Playa (as defined below), our other existing equity investors, their respective parents, subsidiaries or affiliates or any of their respective officers, directors, members, managers, shareholders, owners, agents or employees (in such capacities) is or will be an issuer or underwriter of the ordinary shares being offered hereby, plays or will play any role in the offer or sale of our ordinary shares, has endorsed or will endorse the offer of ordinary shares hereby, has or will have any responsibility for the creation or contents of this prospectus, or has or will have any liability or responsibility whatsoever arising out of or related to the offer or sale of the ordinary shares being offered hereby, including any liability or responsibility for any financial statements or other financial information contained in this prospectus or information otherwise disseminated in connection with the offer or sale of the ordinary shares offered hereby.

 

 

In this prospectus:

The term “AMResorts” refers to AMR Management MX, S. de R.L. de C.V., AM Resorts, L.P. and AMR Resort Management, LLC, which are third party managers of five of our resorts.

The term “BD Real Shareholder” refers to the prior owner of Real Resorts (as defined below).

The term “FCM” refers to Farallon Capital Management, L.L.C. The term “Farallon” refers to FCM, collectively with its affiliates, exclusive sub-advisors and the funds and accounts managed thereby.

The term “Hyatt” refers to Hyatt Hotels Corporation and its affiliates. The term “HI Holdings Playa” refers to HI Holdings Playa B.V., an affiliate of Hyatt that received ordinary shares and cumulative redeemable preferred shares (“preferred shares”) issued as part of our Formation Transactions (as defined below).

The term “Hyatt Resort Agreements” means the franchise and other related agreements between Hyatt, on the one hand, and us (or any other applicable Resort Owner (as defined in “Our Business and Resorts—Our Hyatt Resort Agreements”)), on the other hand, relating to the operation of a resort under one or both of the Hyatt All-Inclusive Resort Brands (as defined below).

The term “prior parent” refers to Playa Hotels & Resorts, S.L. and certain of its subsidiaries.

The term “Real Resorts” refers to Desarrollos GCR, S. de R. L. de C.V., Gran Desing & Factory, S. de R. L. de C.V., Inmobiliaria y Proyectos TRPlaya, S. de R. L. de C.V., Playa Gran, S. de R. L. de C.V. and BD Real Resorts, S. de R.L. de C.V. and its subsidiaries, collectively, which owned and managed the four all-inclusive resorts located in Cancún that we acquired as part of our Formation Transactions. References to the “resort management company” of Real Resorts refer to, collectively, the resort management assets and operations acquired from the BD Real Shareholder as part of our Formation Transactions.


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PROSPECTUS SUMMARY

The following summary highlights certain information contained elsewhere in this prospectus and may not contain all of the information that is important to you in making a decision to invest in our ordinary shares. Before making an investment decision, you should read the entire prospectus carefully, including the section entitled “Risk Factors” and our consolidated financial statements and the related notes to those statements included elsewhere in this prospectus.

Overview

We are a leading owner, operator and developer of all-inclusive resorts in prime beachfront locations in popular vacation destinations in Mexico and the Caribbean. Upon the completion of this offering, we will be the only publicly-traded company focusing exclusively on the all-inclusive segment of the lodging industry. We own a portfolio consisting of 13 resorts (6,142 rooms) located in Mexico, the Dominican Republic and Jamaica. All-inclusive resorts provide guests with an integrated experience through prepaid packages of room accommodations, food and beverage services and entertainment activities. We believe that our properties 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 year ended December 31, 2015, we generated net income of $9.7 million, total revenue of $408.3 million, Net Package RevPAR (as defined below) of approximately $179 and Adjusted EBITDA (as defined below) of $101.7 million. For the six months ended June 30, 2016, we generated net income of $46.4 million, total revenue of $287.3 million, Net Package RevPAR of approximately $218 and Adjusted EBITDA of $100.3 million. This represents increases from the six months ended June 30, 2015, during which we generated net income of $24.3 million, total revenue of $214.9 million, Net Package RevPAR of approximately $201 and Adjusted EBITDA of $68.0 million.

We believe that our resorts have a competitive advantage due to their location, extensive amenities, scale and guest-friendly design. Our portfolio is comprised of all-inclusive resorts that share the following characteristics: (i) prime beachfront locations; (ii) convenient air access from a number of North American and other international gateway markets; (iii) strategic locations in popular vacation destinations in countries with strong government commitments to tourism; (iv) high quality physical condition; and (v) capacity for further revenues and earnings growth through incremental renovation or repositioning opportunities.

We focus on the all-inclusive resort business because we believe it is a rapidly growing segment of the lodging industry that provides our guests and us with compelling opportunities. Our all-inclusive resorts provide guests with an attractive vacation experience that offers value and a high degree of cost certainty, as compared to traditional resorts, where the costs of discretionary food and beverage services and other amenities can be unpredictable and significant. We believe that the all-inclusive model provides us with more predictable revenue, expenses and occupancy rates as compared to other lodging industry business models because, among other reasons, guests at all-inclusive resorts often book and pay for their stays further in advance than guests at traditional resorts. Since stays are generally booked and paid for in advance, customers are less likely to cancel, which allows us to manage on-site expenses and protect operating margins accordingly. These characteristics of the all-inclusive model allow us to more accurately adjust certain operating costs in light of expected demand, as compared to other lodging industry business models. We also have the opportunity to generate incremental revenue by offering upgrades, premium services and amenities not included in the all-inclusive package. For the year ended December 31, 2015, over 53% of our guests came from the United States. We believe that guests from the United States purchase upgrades, premium services and amenities that are not included in the all-inclusive package more frequently than guests from other markets.

Our portfolio consists of resorts marketed under a number of different all-inclusive brands. Hyatt Ziva, Gran and Dreams are all-ages brands. Hyatt Zilara, THE Royal and Secrets are adults-only brands. We believe that these brands enable us to differentiate our resorts and attract a loyal guest base.

We have a strategic relationship with Hyatt, a global lodging company with widely recognized brands, pursuant to which we jointly developed the standards for the operation of the all-ages Hyatt Ziva and the adults-only Hyatt Zilara brands (together, the “Hyatt All-Inclusive Resort Brands”). We currently are the only Hyatt-approved operator of the Hyatt All-Inclusive Resort Brands and we have rebranded five of our resorts under the Hyatt All-Inclusive Resort Brands since 2013. Pursuant to a strategic alliance agreement (the “Hyatt Strategic Alliance Agreement”), we and Hyatt have provided each other a right of first offer through 2018 with respect to any proposed offer or arrangement to acquire a property on which a resort under the Hyatt All-Inclusive Resort Brands would operate (a “Development Opportunity”) in Mexico, Costa Rica, the Dominican Republic, Jamaica and Panama (together, the “Market Area”).

 



 

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Specifically, if we intend to accept a Development Opportunity in the Market Area (and if Hyatt exercises the right of first offer), we must negotiate in good faith with Hyatt the terms of a franchise agreement and related documents with respect to such property, and if Hyatt intends to accept a Development Opportunity in the Market Area (and if we exercise the right of first offer), Hyatt must negotiate in good faith with us the terms of a management agreement and other documents under which we would manage the resort. In addition, if either party is approached by a third party with respect to the management or franchising of an all-inclusive resort in the Market Area, and such third party has not identified a manager or franchisor for the resort, the parties have agreed to notify each other and provide an introduction to the third party for the purposes of negotiating a management agreement or a franchise agreement, as the case may be. In addition to creating potential future opportunities to expand our business, we believe that our strategic relationship with Hyatt will further establish us as a leader in the all-inclusive resort business by providing our Hyatt All-Inclusive Resort Brand resorts access to Hyatt’s distribution channels and guest base that includes leisure travelers. We believe that our strategic relationship with Hyatt and the increasing awareness of our all-inclusive resort brands among potential guests will enable us to increase the number of bookings made through lower cost sales channels, such as direct bookings through Hyatt, with respect to our Hyatt All-Inclusive Resort Brand resorts, and our resort websites. In connection with this offering, Hyatt has committed to convert up to $50 million of our preferred shares currently owned by Hyatt into our ordinary shares upon the completion of this offering and the repurchase by us of the portion of Hyatt’s preferred shares that it has not committed to convert. As a result and assuming that Hyatt converts $             million of its preferred shares at $             per share, Hyatt will own approximately     % of our ordinary shares upon completion of this offering and the repurchase by us of the portion of Hyatt’s preferred shares that it has not committed to convert.

Our goal is to be the leading owner, operator and developer of all-inclusive resorts in the markets we serve and to generate attractive risk-adjusted returns and provide long-term value appreciation to our shareholders. In pursuit of this goal, we will seek to leverage our senior management team’s operational expertise and experience in acquiring, expanding, renovating, repositioning, rebranding and managing resorts. In addition, upon the completion of this offering, as the only publicly-traded company focusing exclusively on the all-inclusive segment of the lodging industry, we believe that we will be well-positioned to acquire additional all-inclusive resorts and traditional resorts or hotels that we can convert to the all-inclusive model, as we seek to aggregate an increasingly larger portfolio in the highly fragmented all-inclusive segment of the lodging industry.

Our Competitive Strengths

We believe the following competitive strengths distinguish us from other owners, operators, developers and acquirers of all-inclusive resorts:

 

    Premier Collection of All-Inclusive Resorts in Highly Desirable Locations. We believe that our portfolio represents a premier collection of all-inclusive resorts. Our resorts, a number of which have received public recognitions for excellence, are located in prime beachfront locations in popular vacation destinations, including Cancún, Playa del Carmen, Puerto Vallarta and Los Cabos in Mexico, Punta Cana in the Dominican Republic and Montego Bay in Jamaica. Guests may conveniently access our resorts from a number of North American and other international gateway markets. Our portfolio has been well-maintained and, in some cases, recently renovated and is in excellent physical condition. Since January 2014, we have made $228.5 million, or approximately $109,200 per room, of development capital improvements at four of our resorts, which included the addition of 362 rooms.

 

   

Recently Renovated Portfolio with Significant Embedded Growth Opportunities. We believe there are significant opportunities within our portfolio to increase revenue and Adjusted EBITDA from the recently completed expansion, renovation, repositioning and rebranding of certain of our resorts. By redeveloping and rebranding our properties and offering additional amenities to our guests, we endeavor to increase both occupancy and Net Package ADR (as defined below) at these properties in order to achieve attractive risk-adjusted returns on our invested capital. For example, in late 2014, we completed the process of expanding, renovating, repositioning and rebranding our Jamaica resort, which was formerly operated as a Ritz-Carlton hotel by the previous owner. The property was rebranded under both the all-ages Hyatt Ziva brand and the adults-only Hyatt Zilara brand. For the six months ended June 30, 2016, our Hyatt Ziva and Hyatt Zilara Rose Hall resort in Jamaica generated net income of $8.0 million and Adjusted EBITDA of $11.7 million. In addition, in late 2015 we completed the expansion and renovation of the resort formerly known as Dreams Cancún, and we rebranded it as Hyatt Ziva Cancún. We also renovated the resort formerly known as Dreams Puerto Vallarta, and rebranded it as Hyatt Ziva Puerto Vallarta. In conjunction with these two rebrandings, we also internalized management and eliminated the management fees that we previously paid to a third-party manager with respect to these resorts. While all three rebranded resorts registered a combined revenue growth of 113.3% in the six months ended June 30, 2016, compared to the corresponding 2015 period, we believe these resorts are still in their ramp-up phase and there is room for future growth in their operational results.

 



 

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We believe that these initiatives, which favorably impacted revenue in 2015 and the six months ended June 30, 2016, will be significant drivers of future growth. We also believe that we can generate earnings growth by internalizing, over time, resort management functions at the five resorts in our portfolio that we currently do not manage. We may also seek additional growth at these and other resorts through targeted, smaller investments where we believe we can achieve attractive risk-adjusted returns on our invested capital. For example, over the last two years, we have converted 128 rooms at Dreams La Romana and 120 rooms at Dreams Palm Beach to the preferred and premium categories, which generated a $25 and $24 increase in Net Package ADR for the rooms that were converted at Dreams La Romana and Dreams Palm Beach, respectively, for the year ended December 31, 2015, as compared to the corresponding period in 2014. These increases in Net Package ADR, and thus incremental revenue, ultimately produced a return on investment from 2014 to 2015 for these projects of approximately 29%.

 

    First Mover Advantage in a Highly Fragmented Industry. We believe that we are well-positioned to pursue acquisitions in the all-inclusive segment of the lodging industry and further establish us as a leading owner and operator of all-inclusive resorts. The all-inclusive resort segment is highly fragmented and includes numerous resorts owned and managed by smaller operators who often lack capital resources to maintain their competitive position. We believe that our management team’s experience with executing and integrating resort acquisitions, track record of renovating, repositioning and rebranding resorts, and relationships with premier all-inclusive resort brands, together with our developed and scalable resort management platform and strong brands, position us to grow our portfolio of all-inclusive resorts through targeted acquisitions. We believe that our ability to offer potential resort sellers the option of receiving our publicly-traded securities (instead of or in combination with cash) may provide us a competitive advantage over private buyers, as such securities can provide sellers potential appreciation from an investment in a diversified portfolio of assets. Our senior management team’s proven track record of sourcing and executing complex acquisitions has helped establish an international network of resort industry contacts, including resort owners, financiers, operators, project managers and contractors. For example, our August 2013 acquisition of Real Resorts included the purchase of four resorts located in Cancún with a total of 1,577 rooms and a resort management company for consideration consisting of cash, debt and our preferred shares.

 

    Exclusive Focus on the All-Inclusive Model. We believe the all-inclusive resort model is increasing in popularity as more people come to appreciate the benefits of a vacation experience that offers value and a high degree of cost certainty without sacrificing quality. We also believe that the all-inclusive model provides us with advantages over other lodging business models through relatively higher occupancy predictability and stability, and the ability to more accurately forecast resort utilization levels, which allows us to adjust certain operating costs in pursuit of both guest satisfaction and more efficient operations. Because our guests have pre-purchased their vacation packages, we also have the opportunity to earn incremental revenue if our guests purchase upgrades, premium services and amenities that are not included in the all-inclusive package. For the six months ended June 30, 2016, we generated $38.2 million of this incremental revenue, representing an increase of 34.7% over the comparable period in the prior year.

 

    Integrated and Scalable Operating Platform. We believe we have developed a scalable resort management platform designed to improve operating efficiency at the eight resorts we currently manage and enable us to potentially internalize the management of additional resorts we own or may acquire, as well as to proficiently manage hotels owned by third parties. Our integrated platform enables managers of each of our key functions, including sales, marketing and resort management, to observe, analyze, share and respond to trends throughout our portfolio. As a result, we are able to implement management initiatives on a real-time and portfolio-wide basis. Our resort management platform is scalable and designed to allow us to efficiently and effectively operate a robust and diverse portfolio of all-inclusive resorts, including resorts owned by us, resorts we may acquire and resorts owned by third parties that we may manage for a fee in the future.

 

   

Strategic Relationship with Hyatt to Develop All-Inclusive Resorts. Our strategic relationship with Hyatt, which will own approximately     % of our ordinary shares upon the completion of this offering, provides us with a range of benefits, including the right to operate certain of our existing resorts under the Hyatt All-Inclusive Resort Brands in certain countries and, through 2018, certain rights with respect to the development and management of future Hyatt All-Inclusive Resort Brands resorts in the Market Area. The Hyatt Ziva brand is marketed as an all-inclusive resort brand for all-ages and the Hyatt Zilara brand is marketed as an all-inclusive resort brand for adults-only. These brands are currently Hyatt’s primary vehicle for all-inclusive resort growth and demonstrate Hyatt’s commitment to the all-inclusive model. We also have, with respect to

 



 

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our Hyatt All-Inclusive Resort Brand resorts, access to Hyatt’s low cost and high margin distribution channels, such as Hyatt guests using the Hyatt Gold Passport® guest loyalty program (which had in excess of twenty million members as of December 31, 2015), Hyatt’s reservation system and website and Hyatt’s extensive group sales business. We believe that our strategic relationship with Hyatt and the increasing awareness of our all-inclusive resort brands among potential guests will enable us to increase the number of bookings made through lower cost sales channels, such as direct bookings through Hyatt, with respect to our Hyatt All-Inclusive Resort Brand resorts, and our resort websites.

 

    Experienced Leadership with a Proven Track Record. Our senior management team has an average of 28 years of experience in the lodging industry, including significant experience with all-inclusive resorts. Mr. Wardinski, our Chief Executive Officer and owner of approximately     % of our ordinary shares upon the completion of this offering, founded our prior parent and previously was the Chief Executive Officer of two lodging companies: Barceló Crestline Corporation (“Barceló Crestline”), an independent hotel owner, lessee and manager; and Crestline Capital Corporation (New York Stock Exchange (“NYSE”): CLJ), a then-NYSE-listed hotel owner, lessee and manager. Mr. Wardinski was also the non-executive chairman of the board of directors of Highland Hospitality Corporation, a then-NYSE-listed owner of upscale full-service, premium limited-service and extended-stay properties. Mr. Wardinski held other leadership roles within the industry including Senior Vice President and Treasurer of Host Marriott Corporation (now Host Hotels and Resorts (NYSE: HST)), and various roles with Marriott International, Inc. (“Marriott International”). Mr. Stadlin, our Chief Operating Officer and Chief Executive Officer of our resort management company, was employed by Marriott International for 33 years and spent 12 years working on Marriott International’s expansion into Latin America. Mr. Harvey, our Chief Financial Officer, has over 22 years of experience in finance and capital markets. Prior to joining us, Mr. Harvey was the Chief Financial Officer of Host Hotels and Resorts and currently serves as Audit Committee Chairman for American Capital Agency Corp. (NASDAQ: AGNC) and American Capital Senior Floating, Ltd. (NASDAQ: ACSF). Mr. Froemming, our Chief Marketing Officer, spent 10 years as the sales and marketing leader of Sandals Resorts International, leading the growth of its two well-known all-inclusive brands, Sandals and Beaches.

Our Business and Growth Strategies

Our goal is to be the leading owner, operator and developer of all-inclusive resorts in the markets we serve and to generate attractive risk-adjusted returns and provide long-term value appreciation to our shareholders by implementing the following business and growth strategies:

 

    Selectively Pursue Strategic Growth Opportunities. The all-inclusive segment of the lodging industry is highly fragmented. We believe that we are well positioned to grow our portfolio through acquisitions in the all-inclusive segment of the lodging industry. We believe that our extensive experience in all-inclusive resort operations, brand relationships, acquisition, expansion, renovation, repositioning and rebranding, established and scalable management platform and ability to offer NASDAQ-listed ordinary shares to potential resort sellers will make us a preferred asset acquirer.

 

    Capitalize on Internal Growth Opportunities. An important element of our strategy is to capitalize on opportunities to seek revenue and earnings growth through our existing portfolio and resort management platform. With respect to our existing portfolio, these opportunities may include resort expansions, renovations, repositionings or rebrandings. For example, in the last three years, we have completed three major expansion, renovation, repositioning and/or rebranding projects at Hyatt Ziva and Hyatt Zilara Rose Hall, Hyatt Ziva Cancún and Hyatt Ziva Puerto Vallarta. In addition, we intend to pursue opportunities to capitalize on our scalable and integrated resort management platform and our expertise and experience with managing all-inclusive resorts, by seeking to manage all-inclusive resorts owned by third parties for a fee and to potentially, over time, internalize the management of resorts we own that are currently managed by a third party.

 

    Seek Increased Operating Margins by Optimizing Sales Channels. For the year ended December 31, 2015, approximately 66% of our bookings were through wholesale channels, compared to 78% for the year ended December 31, 2014. For the six months ended June 30, 2016, approximately 67% of our bookings were through wholesale channels, compared to 69% for the six months ended June 30, 2015. We bear the costs of wholesale bookings (i.e., commissions), which are typically higher than those of direct guest bookings. We believe that our strategic relationship with Hyatt and the increasing awareness of our all-inclusive resort brands among potential guests will enable us to increase the number of bookings made through lower cost sales channels, such as direct bookings through Hyatt, with respect to our Hyatt All-Inclusive Resort Brand resorts, and our resort websites.

 



 

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Industry Overview and All-Inclusive Market Overview

All information in this Industry Overview and All-Inclusive Market Overview section is derived from a market study prepared for us in June 2016 in connection with this offering by JLL. See “Industry Overview and All-Inclusive Market Overview” and “Experts.” You should read the following discussion together with the information under the caption “Risk Factors.”

Travel and Tourism

According to the United Nations World Tourism Organization (“UNWTO”), global travel and tourism spending totaled $7.2 trillion in 2015. This figure consists of both domestic spending within a country and foreign inbound spending. The UNWTO further estimates that between 2006 and 2016, global travel and tourism spending grew by a compound annual growth rate of 3.6%. However, growth in global travel and tourism spending is projected to accelerate to a 7.2% compound annual growth rate over the next decade according to the World Travel and Tourism Counsel (“WTTC”), outpacing the 6.2% compound annual growth rate projected for the global economy according to Oxford Economics.

According to UNWTO figures, leisure travel and tourism spending in 2015 accounted for 76.6% of total global travel and tourism spending at $3.6 trillion. While leisure travel and tourism growth has lagged business travel growth over the past twenty years when indexed to 1990, the WTTC anticipates that leisure travel and tourism spending will grow more quickly than business travel spending over the next ten years, thus benefiting those destinations with more resort- and/or leisure-oriented lodging options. Over the next decade, the compound annual growth rate for leisure travel and tourism spending is projected at 4.2%, compared to a 3.7% compound annual growth rate for business travel spending during the same period, further signaling the promising growth in leisure travel and tourism.

All-Inclusive Overview

All-inclusive resorts provide room accommodations, food and beverage services and entertainment activities for a fixed package rate, as opposed to the “European Plan” lodging model, which is the traditional lodging model and only includes the room and, perhaps, limited food service, in the quoted price. The amenities at all-inclusive resorts include a variety of à la carte restaurants, bars, activities, shows and entertainment throughout the day. All-inclusive resorts charge rates on a per guest basis, rather than on a per room basis, as is typical of the European Plan model.

Within the travel and tourism industry, the all-inclusive model has consistently demonstrated outsized growth over the past several decades and is positioned to gain momentum in the future, as JLL believes that the all-inclusive model has reached an inflection point that will likely expose its benefits to a broader base of potential guests.

An evaluation of the all-inclusive model suggests that the segment is poised to capture an increasing share of the expected growth in leisure travel. The all-inclusive model has proven successful with experienced travelers, as well as with those vacationing for the first time. Moreover, in addition to individual leisure travelers, the model is gaining traction among the Meetings, Incentive, Corporate and Events (“MICE”) segment, appealing especially to higher value-added and more leisure oriented MICE segments, such as incentive meetings, product launches and the growing trend of destination weddings. Lastly, by capturing a greater share of a guest’s total vacation spending than European Plan hotels, all-inclusive resorts are often able to take advantage of more predictable operations and greater economies of scale to offer a compelling value proposition for their guests.

All-inclusive resorts tend to cluster in certain markets that are more conducive to the all-inclusive model based on overall market characteristics and external factors. Based on a study of destinations with a high proportion of all-inclusive resorts and JLL’s research on resort operators’ business plans, JLL compiled the following list of the attributes that are conducive to the all-inclusive model.

All-Inclusive Destination Attributes

Destinations that are conducive to the all-inclusive model tend to have a number of attributes, including:

 

    Year-round warm weather

 



 

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    Attractive beaches

 

    Sufficient airlift originating from key source markets

 

    Adequate infrastructure

 

    Low-cost labor

 

    Limited food and beverage options in the immediate area

The Caribbean and Mexico, which possess many of the attributes of successful all-inclusive destinations, have emerged as prime markets for the all-inclusive model. The Caribbean and Mexico are generally considered the birthplace and epicenter of the contemporary, pure play all-inclusive segment. An aggregate profile of six selected destinations in these regions, as further discussed in “Industry Overview and All-Inclusive Market Overview,” illustrates the growth in the all-inclusive segment, through new development and conversion of existing European Plan hotels over the past two decades. The table below summarizes these six selected destinations for the year ended December 31, 2015 (except for data for Montego Bay, which is for the year ended December 31, 2014):

 

Six Selected All-Inclusive Markets

 
Market    Number of
Hotel Rooms
     Hotel
    Occupancy    
     Percent Rooms
All-
  Inclusive(1)  
     International
  Arrivals  
 

Cancún/Riviera Maya

     68,300         79.0%         88%         6,700,000   

Los Cabos

     12,500         70.0%         72%         1,293,000   

Puerto Vallarta

     20,900         70.0%         78%         1,208,000   

Punta Cana

     34,500         82.8%         96%         3,200,000   

La Romana

     6,800         84.8%         96%         100,300   

Montego Bay

     6,600         72.3%         95%         1,853,000   

 

Source: JLL, Market participants(2)

 

(1) The percentage of all-inclusive rooms is based on institutional quality hotels with over 100 rooms.
(2) Market participants include: Jamaica Tourist Board and Tourism Information Publishing Site, Mexico Secretaría de Turismo, and Smith Travel Research, among others.

 



 

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Our Portfolio

The following table presents an overview of our resorts, each of which we own in its entirety. We manage eight of our resorts and a third party, AMResorts, manages five of our resorts. The table below is organized by our three geographic business segments: the Yucatán Peninsula, the Pacific Coast and the Caribbean Basin.

 

Name of Resort

  

Location

  

Brand and Type

  

Operator

  

Year Built;
Significant
Renovations

    

Rooms

 

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

  

  

  

     307   

THE Royal Playa del Carmen

   Playa del Carmen, Mexico    THE Royal (adults-only)    Playa     

 

2002;

2009

  

  

     513   

Gran Caribe Real

   Cancún, Mexico    Gran (all-ages)    Playa     

 

1985;

2009

  

  

     470   

Gran Porto Real

   Playa del Carmen, Mexico    Gran (all-ages)    Playa     
 

 

1996;
2006;

2012

  
  

  

     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

  

  

  

  
  

     335   

Caribbean Basin

              

Dreams La Romana

   La Romana, Dominican Republic    Dreams (all-ages)    AMResorts     

 

1997;

2008

  

  

     756   

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   

Hyatt Ziva and Hyatt Zilara Rose Hall(1)

   Montego Bay, Jamaica    Hyatt Ziva (all-ages) and Hyatt Zilara (adults-only)    Playa     

 

2000;

2014

  

  

     620   

Total Rooms

                 6,142   

 

(1) Our Jamaica property is treated as a single resort operating under both of the Hyatt All-Inclusive Resort Brands, rather than two separate resorts

 



 

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Our Formation Transactions

We were organized by our prior parent in March 2013 and, in August 2013, completed a series of transactions that included:

 

    the acquisition of eight resorts from our prior parent (the “Contributed Resorts”);

 

    the acquisition of Real Resorts, which owned four resorts in Mexico and a resort management company;

 

    the acquisition of our Jamaica resort;

 

    an investment in us by Hyatt of $325 million in cash in exchange for our issuance to Hyatt of our ordinary and preferred shares;

 

    the consummation by our wholly owned subsidiary, Playa Resorts Holding B.V., of our $375 million senior secured term loan (our “Term Loan”) and a revolving credit facility (our “Revolving Credit Facility,” and together with our Term Loan, our “Senior Secured Credit Facility”); and

 

    the issuance by our wholly owned subsidiary, Playa Resorts Holding B.V., of an aggregate principal amount of $300 million of our 8.00% Senior Notes due 2020 (our “Senior Notes due 2020”).

We refer to the foregoing as our “Formation Transactions.”

 



 

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Our Structure

The following chart depicts our structure and ownership after giving effect to the issuance and sale of the ordinary shares offered hereby, the application of the net proceeds therefrom as described under “Use of Proceeds,” assuming the underwriters do not exercise their overallotment option to purchase additional ordinary shares, and the conversion by Hyatt of a portion of our preferred shares into our ordinary shares as described under “Use of Proceeds.”

 

LOGO

If the underwriters exercise their overallotment option in full, our executive officers, directors and employees, collectively, public shareholders, Farallon, HI Holdings Playa and other continuing shareholders are expected to own     %,     %,     %,     % and     %, respectively, of our outstanding ordinary shares. Share percentages referenced in this section exclude treasury shares,              unvested restricted ordinary shares to be granted in connection with this offering to executive officers, employees and directors pursuant to our 2016 Omnibus Incentive Plan (our “equity incentive plan”) and              ordinary shares reserved for future issuance under our equity incentive plan. Other continuing shareholders consist of parties to the Investors Agreement (as defined in “Certain Relationships and Related Party Transactions—Investors Agreement”), other than Farallon, HI Holdings Playa and Bruce D. Wardinski, our Chairman and Chief Executive Officer.

 



 

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Investment Risks

An investment in our ordinary shares involves substantial risks and uncertainties that may adversely affect our business, financial condition, liquidity, results of operations and prospects. Please see “Risk Factors” for a discussion of factors you should consider before making a decision to invest in our ordinary shares. Among others, these risks include:

Risks Related to Our Business

 

    General economic uncertainty and weak demand in the lodging industry could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

 

    We are exposed to significant risks related to the geographic concentration of our resorts, including weather-related emergencies such as hurricanes, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

 

    The all-inclusive model may not be desirable to prospective guests in the luxury segment of the resort market, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

 

    Our relationship with Hyatt may deteriorate and disputes between Hyatt and us may arise. The Hyatt relationship is important to our business and, if it deteriorates, the value of our portfolio could decline significantly, and it could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

 

    Our right of first offer in the Hyatt Strategic Alliance Agreement will expire on December 31, 2018 and certain provisions of our Hyatt franchise agreements impose certain restrictions on us, and such agreements are terminable under certain circumstances, any of which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

 

    We are exposed to fluctuations in currency exchange rates, including fluctuations in (a) the value of the local currencies, in which we incur our costs at each resort, relative to the U.S. dollar, in which the revenue from each of our resorts is generally denominated, (b) the currency of our prospective guests, who may have a reduced ability to pay for travel to our resorts, relative to their ability to pay to travel to destinations with more attractive exchange rates, and (c) the value of local currencies relative to the U.S. dollar, which could impact our ability to meet our U.S. dollar-denominated obligations, including our debt service payments, any of which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

 

    Our resort development, acquisition, expansion, repositioning and rebranding projects will be subject to timing, budgeting and other risks, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

 

    Many of our guests rely on a combination of scheduled commercial airline services and tour operator services for passenger connections, and price increases or service changes by airlines or tour operators could have a material adverse effect on us, including reducing our occupancy rates and revenue and, therefore, our liquidity and results of operations.

 

    Our industry is highly competitive, which may impact our ability to compete successfully with other hotel and resort brands and operators for guests, which could have a material adverse effect on us, including our operating margins, market share and financial results.

 

    Each of Farallon and HI Holdings Playa owns a significant portion of our ordinary shares and has representation on our board of directors (our “Board”), and Farallon and Hyatt may have interests that differ from those of other shareholders.

 

    Some of the resorts in our portfolio located in Mexico were constructed and renovated without certain approvals. The authority granted to the Mexican government is plenary and we can give no assurance it will not exercise its authority to impose fines, remediation measures or close part or all of the related resort(s), which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

 



 

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Risks Related to the Lodging Industry

 

    The results of operations of our resorts may be adversely affected by various operating risks common to the lodging industry, including competition, over-supply and dependence on tourism, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

 

    The seasonality of the lodging industry could have a material adverse effect on us, including our revenues.

 

    The cyclical nature of the lodging industry may cause fluctuations in our operating performance, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

 

    Our concentration in a particular segment of a single industry limits our ability to offset the risks of a downturn in that segment, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

 

    Cyber risk and the failure to maintain the integrity of internal or guest data could harm our reputation and result in a loss of business and/or subject us to costs, fines, investigations, enforcement actions or lawsuits.

 

    We face risks related to pandemic diseases, including avian flu, H1N1 flu, H7N9 flu, Ebola virus and Zika virus, which could materially and adversely affect travel and result in reduced demand for our resorts and could have a material adverse effect on us.

Risks Related to Our Indebtedness

 

    We have substantial indebtedness and may incur additional debt in the future. The principal, premium, if any, and interest payment obligations of such debt may restrict our future operations and impair our ability to invest in our business.

 

    The agreements governing our various debt obligations impose restrictions on our business and limit our ability to undertake certain actions.

Risks Related to this Offering and Our Ordinary Shares

 

    We have identified, and our independent registered public accounting firm has communicated, four material weaknesses in our internal control over financial reporting as of December 31, 2015. Accordingly, our internal control over financial reporting and our monitoring controls and processes were not effective as of such date. These material weaknesses have not been remediated, and it will take time for us to develop, implement and test additional processes and other controls. Accordingly, we may not be able to accurately report our financial results, prevent fraud or file our required periodic reports pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in the market price of our ordinary shares.

 

    The rights of our shareholders and the duties of our directors are governed by Dutch law, our articles of association and internal rules and policies adopted by our Board, and differ in some important respects from the rights of shareholders and the duties of members of a board of directors of a U.S. corporation.

 

    Provisions of our articles of association or Dutch corporate law might deter acquisition bids for us that shareholders might consider to be favorable and prevent or frustrate any attempt to replace or remove our Board at the time of such acquisition bid.

 

    Provisions of our franchise agreements with Hyatt might deter acquisition bids for us that shareholders might consider to be favorable and/or give Hyatt the right to terminate such agreements if certain persons obtain and retain more than a specified percentage of our shares.

Company Information

Our registered office in the Netherlands is located at Prins Bernhardplein 200, 1097 JB Amsterdam. Our telephone number at that address is +31 20 521 47 77. We maintain a website at www.playaresorts.com, which includes additional contact information. However, the information on our website is not incorporated by reference into, and does not constitute a part of, this prospectus or the registration statement of which this prospectus is a part.

 



 

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The Offering

 

Issuer    Playa Hotels & Resorts N.V.
Ordinary shares offered by us    We are offering                  ordinary shares.
Offering price    $         per ordinary share, which is the midpoint of the price range set forth on the cover of this prospectus.
Underwriters’ overallotment option    The underwriters may also purchase up to an                  additional ordinary shares from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus solely to cover overallotments, if any.
Use of proceeds   

The net proceeds to us from this offering, after deducting the underwriting discount and other estimated offering expenses payable by us, will be approximately $         million (or $         million if the underwriters’ overallotment option is exercised in full) (based on the midpoint of the price range set forth on the cover of this prospectus).

 

We intend to use the net proceeds from this offering to repurchase all of our outstanding preferred shares (except for those preferred shares that Hyatt has committed to convert into our ordinary shares upon completion of this offering and the repurchase by us of the portion of Hyatt’s preferred shares that it has not committed to convert). Any net proceeds in excess of the amount needed to repurchase our outstanding preferred shares will be used for general corporate purposes, which may include working capital, capital expenditures, repayment of debt and funding acquisition opportunities that may become available to us from time to time. See “Use of Proceeds.”

Dividend policy    We do not currently anticipate paying any dividends on our ordinary shares in the foreseeable future. See “Dividend Policy.”
Listing    We intend to apply for the listing of our ordinary shares on the NASDAQ under the symbol “PLYA.”
Risk factors    See “Risk Factors” and other information included in this prospectus for a discussion of risk factors you should consider before deciding to invest in our ordinary shares.

Unless otherwise indicated, all references in this prospectus to the number and percentages of shares outstanding following the completion of this offering:

 

    reflect the initial public offering price of $         per ordinary share, which is the midpoint of the price range set forth on the cover of this prospectus;

 

    assume no exercise of the underwriters’ overallotment option to purchase up to an additional                ordinary shares from us;

 

    reflect the conversion of $50 million of our preferred shares currently owned by Hyatt into our ordinary shares based on a conversion price equal to $8.40 (or, if lower, the public offer price per ordinary share in this offering) that will occur upon the completion of this offering and the repurchase by us of the portion of Hyatt’s preferred shares that it has not committed to convert;

 

    reflect the                -for-one reverse share split that we intend to effect prior to the completion of this offering and the incidental issue of                ordinary shares and the repurchase of                ordinary shares in connection therewith to address fractional shares that would have resulted from the reverse stock split;

 

    reflect our conversion from Playa Hotels & Resorts B.V., a Dutch private limited liability company (besloten vennootschap met beperkte aansprakelijkheid), to Playa Hotels & Resorts N.V., a Dutch public limited liability company (naamloze vennootschap);

 

    reflect the repurchase by us of all our remaining outstanding preferred shares (after the conversion of a portion of the preferred shares owned by Hyatt into our ordinary shares discussed above) at a price per preferred share of $8.40 ($         after the                 -for-one reverse share split that we will undertake prior to the completion of this offering) (the “Preferred Share Repurchase Price”) plus accrued and unpaid dividends accumulated thereon. In addition, with respect to the preferred shares we repurchase from Hyatt (including for this purpose any additional unissued preferred shares which have accumulated as unpaid payments in-kind dividends), if the public offering price of our ordinary shares in this offering exceeds $         per share ($         per share after giving effect to the                 -for-one reverse share split), we will pay to Hyatt an additional per-preferred share amount equal to 50% of the difference between $         ($         after giving effect to the         -for-one reverse share split) and the public offering price per ordinary share in this offering. See “Certain Relationships and Related Party Transactions—Preferred Shares”; and

 

    do not give effect to                  treasury shares,                 unvested restricted ordinary shares to be granted in connection with this offering to our executive officers, employees and directors pursuant to our equity incentive plan and                 ordinary shares reserved for future issuance under our equity incentive plan.

 



 

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Summary Financial Information and Operating Data

The following tables set forth summary financial information and operating data. You should read the following summary financial information and operating data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Use of Proceeds,” and our consolidated financial statements and related notes, all included elsewhere in this prospectus. We derived the summary statements of operations data, other financial data, portfolio data and cash flows data for the years ended December 31, 2015 and 2014, and the summary balance sheet data as of December 31, 2015 and 2014 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the summary statements of operations data, other financial data, portfolio data and cash flows data for the six months ended June 30, 2016 and 2015, and the summary balance sheet data as of June 30, 2016 from our unaudited consolidated financial statements included elsewhere in this prospectus. The summary balance sheet data as of June 30, 2015 is derived from our unaudited consolidated financial statements as of June 30, 2015, which are not included elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements included elsewhere in this prospectus and, in our opinion, reflect certain adjustments, which include normal recurring adjustments, necessary to present fairly the financial information in those statements. Our historical results may not be indicative of the results that may be achieved in the future.

 

     Six Months Ended June 30,      Year Ended December 31,  
     2016      2015      2015      2014  
     ($ in thousands)  

Statements of Operations Data:

           

Total revenue

   $ 287,256          $ 214,890          $ 408,345          $ 367,237      
  

 

 

    

 

 

    

 

 

    

 

 

 

Direct and selling, general and administrative expenses:

           

Direct

     146,044            122,812            247,080            233,841      

Selling, general and administrative

     44,203            31,372            70,461            62,176      

Pre-opening

     —            6,145            12,440            16,327      

Depreciation and amortization

     25,787            20,717            46,098            65,873      

Impairment loss

     —            —            —            7,285      

Insurance proceeds

     (130)           (11,453)           (27,654)           (3,000)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Direct and selling, general and administrative expenses

     215,904            169,593          348,425            382,502      
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income (loss)

     71,352            45,297            59,920            (15,265)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest expense

     (27,201)           (24,481)           (49,836)           (41,210)     

Other (expense) income, net

     (2,189)           398            (2,128)           (10,777)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) before tax

     41,962            21,214            7,956            (67,252)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Income tax benefit

     4,429            3,077            1,755            29,036      
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

   $ 46,391          $ 24,291          $ 9,711          $ (38,216)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Other Financial Data:

           

Basic earnings (losses) per share

     0.24            0.05            (0.50)           (1.18)     

Diluted earnings (losses) per share

     0.24            0.05            (0.50)           (1.18)     

Portfolio Data:

           

Occupancy

     80.4%         82.9%         80.5%         85.6%   

Net Package ADR(1)

   $ 271          $ 243          $ 222          $ 207      

Net Package RevPAR(2)

     218            201            179            177      

Total net revenue(3)

     281,098            210,684            399,324            358,774      

Adjusted EBITDA(4)

   $ 100,342          $ 67,952          $ 101,681          $ 89,833      

Adjusted EBITDA margin

     35.7%         32.3%         25.5%         25.0%   

Comparable Portfolio(5)

           

Occupancy

     83.2%         82.9%         87.3%         88.7%   

Net Package ADR(1)

   $ 259          $ 242          $ 214          $ 204      

Net Package RevPAR(2)

     216            201            186            181      

Total net revenue(3)

     226,357            210,496            321,215            308,033      

Comparable Adjusted EBITDA(5)

   $ 80,185          $ 64,714          $ 92,074          $ 76,026      

Comparable Adjusted EBITDA margin

     35.4%         30.7%         28.7%         24.7%   

 



 

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(1) “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 total 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.
(2) “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 total portfolio or comparable portfolio, as applicable, and to evaluate operating performance on a consolidated basis or a regional basis, as applicable.

 



 

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(3) We derive total net revenue 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 Mexico and Jamaica. Government mandated compulsory tips in the Dominican Republic are not included in this adjustment as they are already excluded from revenue.

 

     Six Months Ended June 30,      Year Ended December 31,  
     2016      2015      2015      2014  
     ($ in thousands)  

Total revenue

   $ 287,256       $ 214,890       $ 408,345       $ 367,237   

Less: compulsory tips

     6,158         4,206         9,021         8,463   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net revenue

     281,098         210,684         399,324         358,774   
  

 

 

    

 

 

    

 

 

    

 

 

 

Less: non-comparable net revenue

     54,741         188         78,109         50,741   
  

 

 

    

 

 

    

 

 

    

 

 

 

Comparable total net revenue

     226,357         210,496         321,215         308,033   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(4) We define “EBITDA,” a non-generally accepted accounting principles in the United States of America (“non-U.S. GAAP”) financial measure, as net income (loss), determined in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), for the period presented, before interest expense, income tax benefit 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 (income), net

 

    Impairment loss

 

    Management termination fees

 

    Pre-opening expenses

 

    Transaction expenses

 

    Severance expenses

 

    Other tax expense

 

    Jamaica delayed opening expenses

 

    Insurance proceeds

We 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 (income), net), 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, impairment losses, such as those resulting from hurricane damage, and related revenue from insurance policies, other than business interruption insurance policies, as well as expenses incurred in connection with closing or reopening resorts that undergo expansions or renovations, are 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.

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 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.

 



 

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Adjusted EBITDA is not a substitute for net income (loss) 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 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, 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 this prospectus.

 

(5) We believe that Comparable Adjusted EBITDA is useful to investors because it includes only the Adjusted EBITDA of resorts owned and in operation for the entirety of the periods presented, which eliminates disparities in Adjusted EBITDA due to the acquisition or disposition of resorts or the impact of resort closures or reopenings in connection with redevelopment or renovation projects, and therefore provides a more consistent metric for comparing the performance of our operating resorts. We calculate Comparable Adjusted EBITDA as Adjusted EBITDA 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. For the years ended December 31, 2015 and 2014, our non-comparable resorts were: Hyatt Ziva Cancún, which closed on April 30, 2014 for renovation and reopened on November 15, 2015; Hyatt Ziva Los Cabos, which closed on September 14, 2014 for repairs following Hurricane Odile and reopened on September 15, 2015; Hyatt Ziva Puerto Vallarta, which closed on April 30, 2014 for renovation and reopened on December 20, 2014; and Hyatt Ziva and Hyatt Zilara Rose Hall, which closed in December 2013 for expansion, renovation and repositioning and reopened on December 10, 2014. For the six months ended June 30, 2016 and 2015, our non-comparable resorts were: Hyatt Ziva Cancún, which closed on April 30, 2014 for renovation and reopened on November 15, 2015; and Hyatt Ziva Los Cabos, which closed on September 14, 2014 following Hurricane Odile and reopened on September 15, 2015.

The following is a reconciliation of our net income (loss) to EBITDA and Adjusted EBITDA and Comparable Adjusted EBITDA for the six months ended June 30, 2016 and 2015 and the years ended December 31, 2015 and 2014:

 

     Six Months Ended June 30,      Year Ended December 31,  
         2016              2015              2015              2014      
     ($ in thousands)  

Net income (loss)

   $ 46,391        $ 24,291        $ 9,711        $ (38,216)   

Interest expense

     27,201          24,481          49,836          41,210    

Income tax benefit

     (4,429)         (3,077)         (1,755)         (29,036)   

Depreciation and amortization

     25,787          20,717          46,098          65,873    
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

   $ 94,950        $ 66,412        $ 103,890        $ 39,831    

Other expense (income), net (a)

     2,189          (398)         2,128          10,777    

Impairment loss (b)

     —            —            —            7,285    

Management termination fees (c)

     —            —            —            340    

Pre-opening expense (d)

     —            1,597          4,105          12,880    

Transaction expense (e)

     2,671          2,656          5,353          12,347    

Severance expense (f)

     —            —            —            2,914    

Other tax expense (g)

     662          1,591          1,949          1,190    

Jamaica delayed opening accrual (h)

     —            47          (1,458)         2,269    

Insurance proceeds (i)

     (130)         (3,953)         (14,286)         —      
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 100,342        $ 67,952        $ 101,681        $ 89,833    
  

 

 

    

 

 

    

 

 

    

 

 

 

Less: Non-Comparable Adjusted EBITDA

     (20,157)         (3,238)         (9,607)         (13,807)   
  

 

 

    

 

 

    

 

 

    

 

 

 

Comparable Adjusted EBITDA (j)

   $ 80,185        $ 64,714        $ 92,074        $ 76,026    
  

 

 

    

 

 

    

 

 

    

 

 

 

 



 

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(a) Represents changes in foreign exchange and other miscellaneous expenses or income.
(b) Impairment loss attributable to Hyatt Ziva Los Cabos following Hurricane Odile.
(c) Represents expenses incurred in connection with terminating the third-party management contracts pursuant to which our resorts located in Los Cabos, Cancún and Puerto Vallarta were previously managed.
(d) Represents pre-opening expenses incurred in connection with the expansion, renovation, repositioning and rebranding of Hyatt Ziva Cancún, Hyatt Ziva Puerto Vallarta, and Hyatt Ziva and Hyatt Zilara Rose Hall. Excludes pre-opening expenses incurred at Hyatt Ziva Los Cabos following Hurricane Odile, as those expenses were offset with proceeds from business interruption insurance.
(e) Represents expenses incurred in connection with this offering, including corporate initiatives, such as: the redesign and build-out of our internal controls; other capital raising efforts; and strategic initiatives, such as possible expansion into new markets. We eliminate these expenses from Adjusted EBITDA because they are not attributable to our core operating performance. Certain of these expenses are infrequent and unusual and are not expected to recur in future years.
(f) Represents expenses incurred in connection with the termination of employees at Dreams Cancún (now Hyatt Ziva Cancún) and Dreams Puerto Vallarta (now Hyatt Ziva Puerto Vallarta) in connection with the closure of these resorts for renovations in May 2014.
(g) Relates primarily to a Dominican Republic asset 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 expense we eliminate from our calculation of EBITDA.
(h) Represents an expense accrual recorded in 2014 related to our future stay obligations provided to guests affected by the delayed reopening of Hyatt Ziva and Hyatt Zilara Rose Hall. The reversal of this accrual occurred throughout 2015.
(i) Represents a portion of the insurance proceeds related to property insurance, including proceeds received in connection with Hurricane Odile in 2015, and not business interruption insurance proceeds. The business interruption insurance proceeds associated with Hurricane Odile were offset by the expenses incurred while Hyatt Ziva Los Cabos was closed and are included in net income (loss).
(j) Excludes Adjusted EBITDA contribution from Hyatt Ziva Los Cabos and Hyatt Ziva Cancún for the six months ended June 30, 2016 and 2015. Excludes Adjusted EBITDA contribution from Hyatt Ziva Puerto Vallarta, Hyatt Ziva and Hyatt Zilara Rose Hall, Hyatt Ziva Los Cabos and Hyatt Ziva Cancún for the years ended December 31, 2015 and 2014.

 

     Six Months Ended June 30,      Year Ended December 31,  
     2016      2015      2015      2014  
     ($ in thousands)  

Balance Sheet Data (as of end of period):

           

Property, plant, and equipment, net

   $ 1,413,245       $ 1,399,975       $ 1,432,855       $ 1,338,997   

Cash and cash equivalents

     52,408         57,716         35,460         39,146   

Total assets

     1,643,155         1,635,196         1,644,024         1,545,121   

Total debt

     803,156         812,649         828,438         753,105   

Total liabilities

     1,050,765         1,074,323         1,098,034         1,008,358   

Cumulative redeemable preferred shares

     373,970         331,672         352,275         312,618   

Total equity (excluding preferred shares)

   $ 218,420       $ 229,201       $ 193,715       $ 224,145   

Cash Flows Data:

           

Net cash provided by (used in):

           

Operating activities

   $ 50,913       $ 18,133       $ 30,799       $ 3,715   

Investing activities

     (5,827      (56,347      (104,147      (116,462

Financing activities

     (28,138      56,784         69,662         68,447   

Capital expenditures

   $ 5,843       $ 61,076       $ 119,704       $ 131,511   

 



 

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RISK FACTORS

Investing in our ordinary shares involves substantial risks and uncertainties. You should consider carefully and consult with your tax, legal and investment advisors with regard to the risks and uncertainties described below, together with all of the other information in this prospectus, including our consolidated financial statements and the related notes, before deciding to purchase our ordinary shares. Any of the following risks could materially and adversely affect our business, financial condition, liquidity, results of operations and prospects. The market price of our ordinary shares could decline due to any of these risks, and you may lose all or part of your investment. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition, liquidity, results of operations and prospects. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. See “Special Note Regarding Forward-Looking Statements.”

Risks Related to Our Business

General economic uncertainty and weak demand in the lodging industry could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

Our business strategy depends significantly on demand for vacations generally and, more specifically, on demand for all-inclusive vacation packages. Weak economic conditions in the United States, elsewhere in North America, Europe and much of the rest of the world, and the uncertainty over the duration of these conditions, have had and could continue to have a negative impact on the lodging industry. We cannot provide any assurances that demand for all-inclusive vacation packages will remain consistent with or increase from current levels. If demand weakens, our operating results and growth prospects could be adversely affected. As a result, any delay in, or a weaker than anticipated, economic recovery will adversely affect our future results of operations and cash flows, potentially materially. Furthermore, a significant percentage of our guests originate in the United States and elsewhere in North America and, if travel from the United States or elsewhere in North America was disrupted and we were not able to replace those guests with guests from other geographic areas, it could have a material adverse effect on our business, financial condition, liquidity, results of operations and prospects. Additionally, most of our resorts are located in Mexico and a portion of our guests originate from Mexico and, as a result, our business is exposed to economic conditions in Mexico. If the economy of Mexico weakens or experiences a downturn, it could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

Adverse changes in the economic climate, such as high levels of unemployment and underemployment, fuel price increases, declines in the securities and real estate markets, and perceptions of these conditions decrease the level of disposable income of consumers or consumer confidence and could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

The demand for vacation packages is dependent upon prospective travelers having access to, and believing they will continue to have access to, disposable income, and is therefore affected by international, national and local economic conditions. Adverse changes in the actual or perceived economic climate, such as high levels of unemployment and underemployment, higher interest rates, stock and real estate market declines and/or volatility, more restrictive credit markets, higher taxes, and changes in governmental policies could reduce the level of discretionary income or consumer confidence in the countries from which we source our guests. For example, the United Kingdom’s vote to leave the European Union (“EU”) in its “Brexit” referendum on June 23, 2016 has created global economic uncertainty, which may cause our customers to curtail their vacation spending. Further, the recent worldwide economic downturn had an adverse effect on consumer confidence and discretionary income, resulting in decreased demand and price discounting in the resort sector, including in the markets we service. We cannot predict whether the recent economic recession will return or when, and the extent to which, economic conditions in the future will be favorable. As a result of the foregoing, we could experience a prolonged period of decreased demand and price discounting in our markets, which would negatively affect our revenues and could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

 

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Terrorist acts, armed conflict, civil unrest, criminal activity and threats thereof, and other international events impacting the security of travel or the perception of security of travel could adversely affect the demand for travel generally and demand for vacation packages at our resorts, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

Past acts of terrorism have had an adverse effect on tourism, travel and the availability of air service and other forms of transportation. The threat or possibility of future terrorist acts, an outbreak, escalation and/or continuation of hostilities or armed conflict abroad, civil unrest or the possibility thereof, the issuance of travel advisories by sovereign governments, and other geo-political uncertainties have had and may have an adverse impact on the demand for vacation packages and consequently the pricing for vacation packages. Decreases in demand and reduced pricing in response to such decreased demand would adversely affect our business by reducing our profitability.

Nine of the thirteen resorts in our portfolio are located in Mexico, and Mexico has experienced criminal violence for years, primarily due to the activities of drug cartels and related organized crime. These activities and the possible escalation of violence associated with them in regions where our resorts are located, or an increase in the perception among our prospective guests of an escalation of such violence, could instill and perpetuate fear among prospective guests and may lead to a loss in business at our resorts in Mexico because these guests may choose to vacation elsewhere or not at all. In addition, increases in violence, crime or civil unrest in the Dominican Republic, Jamaica, or any other location where we may own a resort in the future, may also lead to decreased demand for our resorts and negatively affect our business, financial condition, liquidity, results of operations and prospects.

We are exposed to significant risks related to the geographic concentration of our resorts, including weather-related emergencies such as hurricanes, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

Our resorts located in Mexico accounted for 57.8% of our revenue for the year ended December 31, 2015 and 62.5% of our revenue for the six months ended June 30, 2016. In addition to the matters referred to in the preceding risk factor, damage to these resorts or a disruption of their operations or a reduction of travel to them due to a hurricane or other weather-related or other emergency could reduce our revenue, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects. We cannot assure you that any property or business interruption insurance will adequately address all losses, liabilities and damages. In addition, all of our resorts are located on beach front properties in Mexico and the Caribbean and are susceptible to weather-related emergencies, such as hurricanes. For example, our Hyatt Ziva Los Cabos resort, located in Los Cabos, Mexico was closed until September 2015 in order to repair damage caused by Hurricane Odile in September 2014.

The all-inclusive model may not be desirable to prospective guests in the luxury segment of the resort market, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

Our portfolio is composed predominantly of luxury all-inclusive resorts. The all-inclusive resort market has not traditionally been associated with the high-end and luxury segments of the lodging industry and there is a risk that our target guests, many of whom have not experienced an all-inclusive model, will not find the all-inclusive model appealing. A failure to attract our target guests could result in decreased revenue from our portfolio and could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

Our relationship with Hyatt may deteriorate and disputes between Hyatt and us may arise. The Hyatt relationship is important to our business and, if it deteriorates, the value of our portfolio could decline significantly, and it could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

Currently, we are the only operator of resorts operating under the Hyatt All-Inclusive Resort Brands. However, except for the Hyatt franchise agreements, we have no contractual right to operate any resort in our current or future portfolio under the Hyatt All-Inclusive Resort Brands or any other Hyatt-sponsored brands. In addition, in the future, Hyatt, in its sole discretion and subject to its obligations under the Hyatt Strategic Alliance Agreement in the Market Area, may designate other third parties as authorized operators of resorts, or Hyatt may decide to directly operate resorts, under the Hyatt All-Inclusive Resort Brands or any other Hyatt brand, whether owned by third parties or Hyatt itself.

 

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Also, and as described in “Certain Relationships and Related Party Transactions—Hyatt Agreements—Hyatt Resort Agreements,” subject to its obligations under the Hyatt Strategic Alliance Agreement, Hyatt is free to develop or license other all-inclusive resorts in the Market Area, even under the Hyatt All-Inclusive Resort Brands. Additionally, outside of the Market Area, Hyatt is free to develop or license other all-inclusive resorts under the Hyatt All-Inclusive Resort Brands and other Hyatt brands at any time.

Under the terms of our Hyatt Resort Agreements, we are required to meet specified operating standards and other terms and conditions. We expect that Hyatt will periodically inspect our resorts that carry a Hyatt All-Inclusive Resort Brand to ensure that we follow Hyatt’s standards. If we fail to maintain brand standards at one or more of our Hyatt All-Inclusive Resort Brand resorts, or otherwise fail to comply with the terms and conditions of the Hyatt Resort Agreements, then Hyatt could terminate the agreements related to those resorts and potentially all of our Hyatt resorts. Under the terms of the Hyatt franchise agreements, if, among other triggers, (i) the Hyatt franchise agreements for a certain number of Hyatt All-Inclusive Resort Brand resorts are terminated or (ii) certain persons acquire our shares in excess of specified percentage of our outstanding shares and certain mechanisms in our articles of association fail to operate to reduce such percentage within 30 days, Hyatt has the right to terminate the Hyatt franchise agreements for all (but not less than all) of our resorts by providing the notice specified in the franchise agreement to us and we will be subject to liquidated damage payments to Hyatt, even for those resorts that are in compliance with their Hyatt franchise agreements. For details regarding the calculation of liquidated damage payments under the Hyatt franchise agreements, see “Certain Relationships and Related Party Transactions—Hyatt Agreements—Hyatt Resort Agreements.” If one or more Hyatt franchise agreements are terminated, the underlying value and performance of our related resort(s) could decline significantly from the loss of associated name recognition, participation in the Hyatt Gold Passport® guest loyalty program, Hyatt’s reservation system and website, and access to Hyatt group sales business, as well as from the costs of “rebranding” such resorts and the payment of liquidated damages to Hyatt.

Hyatt may, in its discretion and subject to its obligations under the Hyatt Strategic Alliance Agreement, decline to enter into Hyatt franchise agreements for other all-inclusive resort opportunities that we bring to Hyatt, whether we own the properties or manage them for third-party owners.

If any of the foregoing were to occur, it could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects and the market price of our ordinary shares, and could divert the attention of our senior management from other important activities. For more detailed information regarding the Hyatt Resort Agreements, see “Certain Relationships and Related Party Transactions—Hyatt Agreements—Hyatt Resort Agreements.”

Our right of first offer in the Hyatt Strategic Alliance Agreement will expire on December 31, 2018 and certain provisions of our Hyatt franchise agreements impose certain restrictions on us, and such agreements are terminable under certain circumstances, any of which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

Pursuant to the Hyatt Strategic Alliance Agreement, which will expire on December 31, 2018, we and Hyatt have provided each other the right of first offer with respect to a Development Opportunity in the Market Area and the right to receive an introduction to any third party with respect to any management or franchising opportunity in the Market Area. See “Certain Relationships and Related Party Transactions—Hyatt Agreements—The Hyatt Strategic Alliance Agreement.”

Subject to its obligations under the Hyatt Strategic Alliance Agreement, Hyatt is free to develop or license other all-inclusive resorts in the Market Area, even under the Hyatt All-Inclusive Resort Brands. Additionally, outside of the Market Area, Hyatt is free to develop or license other all-inclusive resorts under the Hyatt All-Inclusive Resort Brands and other Hyatt brands at any time. Similarly, subject to our obligations under the Hyatt Strategic Alliance Agreement, we are allowed to operate any all-inclusive resort under a Playa-Developed Brand (as defined in “Certain Relationships and Related Party Transactions—Hyatt Agreements—Hyatt Resort Agreements”) under the Hyatt franchise agreements, provided that we implement strict informational and operational barriers between our operations with respect to the Playa-Developed Brand and our operations with respect to the Hyatt All-Inclusive Resort Brands.

 

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In addition, subject to certain exceptions, under the Hyatt franchise agreements, we are generally prohibited from owning, investing in, acquiring, developing, managing, leasing or operating, or becoming a licensee or franchisee with respect to, any all-inclusive resort anywhere in the world under any hotel concept or brand for all-inclusive hotels or resorts that is owned by or exclusively licensed to Marriott International, Hilton Worldwide Inc., Starwood Hotels & Resorts Worldwide, Inc., InterContinental Hotels Group, Accor Hotels Worldwide or any of their respective affiliates or successors (i.e., the “Restricted Brand Companies,” and each such company, a “Restricted Brand Company” defined in “Certain Relationships and Related Party Transactions—Hyatt Agreements—Hyatt Resort Agreements”), until we have less than three franchise agreements in effect for the operation of Hyatt All-Inclusive Resort Brand resorts and Hyatt owns less than 15% (on a fully-diluted, as-converted basis) of our shares. If any such Restricted Brand Company acquires any ownership interest in us, we are required to implement strict informational and operational barriers between our operations with respect to such brand and our operations with respect to the Hyatt All-Inclusive Resort Brands.

If we violate the aforementioned prohibitions and restrictions under the Hyatt franchise agreements, Hyatt may terminate all (but not less than all) of its franchise agreements with us by providing the notice specified in the franchise agreement to us and we will be subject to liquidated damage payments to Hyatt. These prohibitions and restrictions limit our ability to expand our business through the use of a Playa-Developed Brand or hotel concepts and brands owned by or licensed to the Restricted Brand Companies now or in the future. As a result, such prohibitions or violations could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

The success of five of our resorts depends substantially on the success of the recently developed Hyatt All-Inclusive Resort Brands, which exposes us to risks associated with concentrating a significant portion of our portfolio in a family of two recently developed related brands. There is a risk that we and Hyatt may not succeed in marketing the Hyatt All-Inclusive Resort Brands and that we may not receive the anticipated return on the investment incurred in connection with rebranding the five resorts under the Hyatt All-Inclusive Resort Brands, which could have a material adverse effect on us.

Five of the resorts in our portfolio bear the name of one or both of the Hyatt All-Inclusive Resort Brands. As a result of this concentration, our success depends, in part, on the continued success of these recently developed brands. We believe that building brand value is critical to increase demand and build guest loyalty. Consequently, if market recognition or the positive perception of Hyatt and its brands is reduced or compromised, the goodwill associated with Hyatt All-Inclusive Resort Brand resorts in our portfolio would likely be adversely affected. Under the Hyatt Resort Agreements, Hyatt provides (or causes to be provided) various marketing services to the relevant resorts, and we may conduct local and regional marketing, advertising and promotional programs, subject to compliance with Hyatt’s requirements. We cannot assure you that Hyatt and we will be successful in our marketing efforts to grow either Hyatt All-Inclusive Resort Brand. Additionally, we are not permitted under the Hyatt franchise agreements to change the brands of our resorts operating under the Hyatt All-Inclusive Resort Brands for fifteen years (plus any additional years pursuant to Hyatt’s renewal options) after the opening of the relevant resorts as Hyatt All-Inclusive Resort Brand resorts, even if the brands are not successful. As a result, we could be materially and adversely affected if these brands do not succeed. See “Certain Relationships and Related Party Transactions—Hyatt Agreements—Hyatt Resort Agreements.”

We have agreed to indemnify Hyatt for losses related to a broad range of matters and if we are required to make payments to Hyatt pursuant to these obligations, our business, financial condition, liquidity, results of operations and prospects may be materially and adversely affected.

Pursuant to the subscription agreement entered into between us and Hyatt in connection with our Formation Transactions, we agreed to indemnify Hyatt for any breaches of our representations, warranties and agreements in the subscription agreement, generally subject to (i) a deductible of $10 million and (ii) a cap of $50 million (other than for breaches of certain representations, for which indemnification is capped at $325 million). In addition, we have agreed to indemnify Hyatt for certain potential losses relating to the lack of operating licenses, noncompliance with certain environmental regulations, tax deficiencies, any material misstatements or omissions in the offering documentation relating to our Senior Notes due 2020 and certain indemnity obligations to our prior parent. The representations and warranties we made and our related indemnification obligations survive for varying periods of time from the closing date of our Formation Transactions (some of which have already elapsed) and some survive indefinitely. If we are required to make future payments to Hyatt pursuant to these obligations, however, our business, financial condition, liquidity, results of operations and prospects could be materially and adversely affected. See “Certain Relationships and Related Party Transactions—Hyatt Agreements—Hyatt Resort Agreements.”

 

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In addition to the Hyatt All-Inclusive Resort Brands, deterioration of our other resort brands’ strengths could have a material adverse effect on us.

In addition to the Hyatt All-Inclusive Resort Brands, maintaining and enhancing our other resort brands is critical to increasing demand, building guest loyalty and expanding our customer base. We cannot assure you that we will continue to be successful in marketing such brands. If the reputation or perceived quality of such brands declines, we could be materially and adversely affected.

New brands or services that we launch in the future may not be successful, which could have a material adverse effect on our business, financial condition, liquidity and results of operations.

We cannot assure you that any new brands, amenities or services we launch will be successful, or that we will recover the costs we incurred in developing the brands, amenities and services. If new brands, amenities and services are not as successful as we anticipate, it could have a material adverse effect on our business, financial condition, liquidity and results of operations.

We are exposed to fluctuations in currency exchange rates, including fluctuations in (a) the value of the local currencies, in which we incur our costs at each resort, relative to the U.S. dollar, in which the revenue from each of our resorts is generally denominated, (b) the currency of our prospective guests, who may have a reduced ability to pay for travel to our resorts, relative to their ability to pay to travel to destinations with more attractive exchange rates, and (c) the value of local currencies relative to the U.S. dollar, which could impact our ability to meet our U.S. dollar-denominated obligations, including our debt service payments, any of which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

The majority of our operating expenses are incurred locally at our resorts and are denominated in Mexican Pesos, the Dominican Peso or the Jamaican dollar. The net proceeds from this offering will be, and the net proceeds from our outstanding debt borrowings were, received and are payable by us, in U.S. dollars and our functional reporting currency is U.S. dollars. An increase in the relative value of the local currencies, in which we incur our costs at each resort, relative to the U.S. dollar, in which our revenue from each resort is denominated, would adversely affect our results of operations for those resorts. Our current policy is not to hedge against changes in foreign exchange rates and we therefore may be adversely affected by appreciation in the value of other currencies against the U.S. dollar, or to prolonged periods of exchange rate volatility. These fluctuations may negatively impact our financial condition, liquidity and results of operations to the extent we are unable to adjust our pricing accordingly.

Additionally, in the event that the U.S. dollar increases in value relative to the currency of the prospective guests living outside the United States, our prospective guests may have a reduced ability to pay for travel to our resorts and this may lead to lower occupancy rates and revenue, which could have a material adverse effect on us, including our financial results. An increase in the value of the Mexican Peso, the Dominican Peso or the Jamaican dollar compared to the currencies of other potential destinations may disadvantage the tourism industry in Mexico, the Dominican Republic or Jamaica, respectively, and result in a corresponding decrease in the occupancy rates and revenue of our resorts as consumers may choose destinations in countries with more attractive exchange rates. In the event that this appreciation occurs, it could lead to an increase in the rates we charge for rooms in our resorts, which could result in a decrease in occupancy rates and revenue and, therefore, negatively impact our business, financial condition, liquidity, results of operations and prospects.

Furthermore, appreciation of local currencies relative to the U.S. dollar could make fulfillment of our U.S. dollar denominated obligations, including our debt service payments, more challenging and could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

The departure of any of our key personnel, including Bruce D. Wardinski, Alexander Stadlin, Larry Harvey and Kevin Froemming, who have significant experience and relationships in the lodging industry, could have a material adverse effect on us.

We depend on the experience and relationships of our senior management team, especially Bruce D. Wardinski, our Chairman and Chief Executive Officer, Alexander Stadlin, our Chief Operating Officer, Larry Harvey, our Chief Financial Officer, and Kevin Froemming, our Chief Marketing Officer, to manage our strategic business direction. These members of our senior management team have an average of 28 years of experience owning, operating, acquiring, repositioning, rebranding, renovating and financing hotel, resort and all-inclusive properties. In addition, our senior management team has developed an extensive

 

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network of industry, corporate and institutional relationships. Other than our Chairman and Chief Executive Officer, Bruce D. Wardinski, and our Chief Marketing Officer, Kevin Froemming, our senior management team does not have employment agreements with us and we can provide no assurances that any of our key personnel identified above will continue their employment with us. The loss of services of any of Mr. Wardinski, Mr. Stadlin, Mr. Harvey, Mr. Froemming or another member of our senior management team, or any difficulty attracting and retaining other talented and experienced personnel, could have a material adverse effect on us, including, among others, our ability to source potential investment opportunities, our relationship with global and national industry brands and other industry participants or the execution of our business strategy.

We rely on a third party, AMResorts, to manage five of our resorts and we can provide no assurance that AMResorts will manage these resorts successfully or that AMResorts will not be subject to conflicts harmful to our interests.

Pursuant to management agreements with AMResorts, five of our 13 resorts will continue to be managed by AMResorts until the earlier of the sale of each such resort or the expiration date of each agreement. Other than the agreement for Dreams La Romana, which may be terminated at any time (and without termination fees after December 2017), these agreements do not expire until 2022. Therefore, absent payment by us of significant termination fees, until the expiration of the management agreements, we will not be able to terminate AMResorts and self-manage these resorts. We can provide no assurance that AMResorts will manage these resorts successfully. Failure by AMResorts to fully perform the duties agreed to in the management agreements or the failure of AMResorts to adequately manage the risks associated with resort operations could materially and adversely affect us. We may have differences with AMResorts and other third-party service providers over their performance and compliance with the terms of the management agreements and other service agreements. In these cases, if we are unable to reach satisfactory results through discussions and negotiations, we may choose to litigate the dispute or submit the matter to third-party dispute resolution. In addition, AMResorts currently owns and/or manages and may in the future own and/or manage other resorts, including all-inclusive resorts in our markets that may compete with our resorts. AMResorts and its affiliates may have interests that conflict with our interests, such as incentives to favor these other resorts over our resorts as a result of more favorable compensation arrangements or by ownership interests in these resorts.

We may not execute our business and growth strategy successfully which could have a material adverse effect on us, including our financial results.

Our ability to grow our business depends upon the business contacts of our senior management team and their ability to successfully hire, train, supervise and manage additional personnel. We may not be able to hire and train sufficient personnel or develop management, information and operating systems suitable for our expected growth. If we are unable to execute our business and growth strategy successfully, we could be materially and adversely affected, including our financial results.

Our strategy to opportunistically acquire, develop and operate in new geographic markets may not be successful, which could have a material adverse effect on us, including our financial condition, liquidity, results of operations and prospects.

In the future, we may acquire or develop and operate resorts in geographic markets in which our management has little or no operating experience and in which potential guests are not familiar with a particular brand with which the resort is affiliated or do not associate the geographic market as an all-inclusive resort destination. As a result, we may incur costs relating to the opening, operation and promotion of such resorts that are substantially greater than those incurred in other geographic areas, and such resorts may attract fewer guests than other resorts we may acquire. Consequently, demand at any resorts that we may acquire in unfamiliar markets may be lower than those at resorts that we currently operate or that we may acquire in our existing markets. Unanticipated expenses at and insufficient demand for resorts that we acquire in new geographic markets, therefore, could materially and adversely affect us, including our financial condition, liquidity, results of operations and prospects.

 

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Our resort development, acquisition, expansion, repositioning and rebranding projects will be subject to timing, budgeting and other risks, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

We may develop, acquire, expand, reposition or rebrand resorts from time to time as suitable opportunities arise, taking into consideration general economic conditions. To the extent that we develop, acquire, expand, reposition or rebrand resorts, we could be subject to risks associated with, among others:

 

    construction delays or cost overruns that may increase project costs;

 

    receipt of zoning, occupancy and other required governmental permits and authorizations;

 

    strikes or other labor issues;

 

    development costs incurred for projects that are not pursued to completion;

 

    investment of substantial capital without, in the case of developed or repositioned resorts, immediate corresponding income;

 

    results that may not achieve our desired revenue or profit goals;

 

    acts of nature such as earthquakes, hurricanes, floods or fires that could adversely impact a resort;

 

    ability to raise capital, including construction or acquisition financing; and

 

    governmental restrictions on the nature or size of a project.

As a result of the foregoing, we cannot assure you that any development, acquisition, expansion, repositioning and rebranding project will be completed on time or within budget. If we are unable to complete a project on time or within budget, the resort’s projected operating results may be adversely affected, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

Our insurance may not be adequate to cover our potential losses, liabilities and damages and we may not be able to secure insurance to cover all of our risks, which could have a material adverse effect on us, including our financial results.

The business of owning and managing resorts is subject to a number of risks, hazards, adverse environmental conditions, labor disputes, changes in the regulatory environment and natural phenomena such as floods, hurricanes, earthquakes and earth movements. Such occurrences could result in damage or impairment to, or destruction of, our resorts, personal injury or death, environmental damage, business interruption, monetary losses and legal liability.

While insurance is not commonly available for all these risks, we do maintain customary insurance against risks that we believe are typical and reasonably insurable in the lodging industry and in amounts that we believe to be reasonable but that contain limits, deductibles, exclusions and endorsements. However, we may decide not to insure against certain risks because of high premiums compared to the benefit offered by such insurance or for other reasons. In the event that costs or losses exceed our available insurance or additional liability is imposed on us for which we are not insured or are otherwise unable to seek reimbursement, we could be materially and adversely affected, including our financial results. We may not be able to continue to procure adequate insurance coverage at commercially reasonable rates in the future or at all, and some claims may not be paid. There can be no assurance that the coverage and amounts of our insurance will be sufficient for our needs.

Labor shortages could restrict our ability to operate our properties or grow our business or result in increased labor costs that could adversely affect our results of operations.

Our success depends in large part on our ability to attract, retain, train, manage, and engage skilled employees. As of June 30, 2016, we directly and indirectly employed approximately 9,466 employees worldwide at both our corporate offices and on-site at our resorts. If we are unable to attract, retain, train, manage, and engage skilled employees, our ability to manage and staff our resorts could be impaired, which could reduce guest satisfaction. Staffing shortages in places where our resorts are located also could hinder our ability to grow and expand our businesses. Because payroll costs are a major component of the operating expenses at our resorts, a shortage of skilled labor could also require higher wages that would increase labor costs, which could adversely affect our results of operations.

 

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A significant number of our employees are unionized, and if labor negotiations or work stoppages were to disrupt our operations, it could have a material adverse effect on us, including our results of operations.

In excess of half of our full-time equivalent work force is unionized. As a result, we are required to negotiate the wages, salaries, benefits, staffing levels and other terms with many of our employees collectively and we are exposed to the risk of disruptions to our operations. Our results could be adversely affected if future labor negotiations were to disrupt our operations. If we were to experience labor unrest, strikes or other business interruptions in connection with labor negotiations or otherwise, or if we were unable to negotiate labor contracts on reasonable terms, we could be materially and adversely affected, including our results of operations. In addition, our ability to make adjustments to control compensation and benefits costs, rebalance our portfolio or otherwise adapt to changing business needs may be limited by the terms and duration of our collective bargaining agreements.

Many of our guests rely on a combination of scheduled commercial airline services and tour operator services for passenger connections, and price increases or service changes by airlines or tour operators could have a material adverse effect on us, including reducing our occupancy rates and revenue and, therefore, our liquidity and results of operations.

Many of our guests depend on a combination of scheduled commercial airline services and tour operator services to transport them to airports near our resorts. Increases in the price of airfare, due to increases in fuel prices or other factors, would increase the overall vacation cost to our guests and may adversely affect demand for our vacation packages. Changes in commercial airline services or tour operator services as a result of strikes, weather or other events, or the lack of availability due to schedule changes or a high level of airline bookings, could have a material adverse effect on us, including our occupancy rates and revenue and, therefore, our liquidity and results of operations.

Our industry is highly competitive, which may impact our ability to compete successfully with other hotel and resort brands and operators for guests, which could have a material adverse effect on us, including our operating margins, market share and financial results.

We generally operate in markets that contain numerous competitors. Each of our resort brands competes with major chains in national and international venues and with independent companies in regional markets, including with recent entrants into the all-inclusive segment of the lodging industry in the regions in which we operate. Our ability to remain competitive and to attract and retain guests depends on our success in establishing and distinguishing the recognition and reputation of our brands, our locations, our guest satisfaction, our room rates, quality of service, amenities and quality of accommodations and our overall value from offerings by others. If we are unable to compete successfully in these countries, it could have a material adverse effect on us, including our operating margins, market share and financial results.

Each of Farallon and HI Holdings Playa owns a significant portion of our ordinary shares and has representation on our Board, and Farallon and Hyatt may have interests that differ from those of other shareholders.

Upon the completion of this offering, approximately     % of our ordinary shares will be owned by Farallon. In addition, two of our current directors were designated by Farallon and one of these directors is currently a managing member of FCM. As a result, Farallon may be able to significantly influence the outcome of matters submitted for director action, subject to our directors’ obligation to act in the interest of all of our stakeholders, and for shareholder action, including the nomination and appointment of our Board (and committees thereof) and approval of significant corporate transactions, including business combinations, consolidations and mergers. Following this offering, so long as Farallon continues to directly or indirectly own a significant amount of our outstanding equity interests and one or more individuals affiliated with Farallon are members of our Board and/or one or more committees thereof, Farallon may be able to exert substantial influence on us and may be able to exercise its influence in a manner that is not in the interests of our other stakeholders. Farallon’s concentration of ownership could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could cause the market price of our ordinary shares to decline or prevent our shareholders from realizing a premium over the market price for their ordinary shares. Additionally, Farallon is in the business of making investments in companies and owning other hotels, and Farallon may from time to time acquire and hold interests in businesses that compete directly or indirectly with us or that supply us with goods and services. Farallon may also pursue acquisition opportunities that may be complementary to (or competitive with) our business, and as a result those acquisition opportunities may not be available to us. Prospective investors in our ordinary shares should consider that the interests of Farallon may differ from their interests in material respects.

 

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Upon the completion of this offering, approximately     % of our ordinary shares will be owned by HI Holdings Playa. In addition, one of our current directors was designated by HI Holdings Playa and is currently an employee of Hyatt. As a result, HI Holdings Playa may be able to influence the outcome of matters submitted for director action, subject to our directors’ obligation to act in the interest of all of our stakeholders, and for shareholder action, including the nomination and appointment of our Board (and committees thereof) and approval of significant corporate transactions, including business combinations, consolidations and mergers. HI Holdings Playa’s concentration of ownership could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting to obtain control of us, which could cause the market price of our ordinary shares to decline or prevent our shareholders from realizing a premium over the market price for their ordinary shares. Additionally, Hyatt owns and franchises other hotels, and Hyatt may from time to time acquire and hold interests in, subject to the Hyatt Strategic Alliance Agreement, businesses that compete directly or indirectly with us or that supply us with goods and services. Hyatt may also pursue acquisition opportunities that may be complementary to or competitive with our business, and as a result those acquisition opportunities may not be available to us. Also, the loss of any Hyatt Resort Agreement or the Hyatt Strategic Alliance Agreement is likely to have a material adverse effect on us. Prospective investors in our ordinary shares should consider that the interests of Hyatt may differ from their interests in material respects. See “Certain Relationships and Related Party Transactions—Hyatt Agreements.”

Any joint venture investments that we make in the future could be adversely affected by our lack of sole decision-making authority, our reliance on co-venturers’ financial condition and liquidity and disputes between us and our co-venturers.

We may co-invest in resorts in the future with third parties through partnerships or other joint ventures, acquiring non-controlling interests in or sharing responsibility for any such ventures. In this event, we would not be in a position to exercise sole decision-making authority regarding the joint venture and, in certain cases, may have little or no decision-making authority. Investments through partnerships or other joint ventures may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners or co-venturers might become bankrupt, fail to fund their share of required capital contributions, make dubious business decisions or block or delay necessary decisions. Partners or co-venturers may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor the partner or co-venturer would have full control over the partnership or joint venture. Disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our executive officers, senior management and/or directors from focusing their time and effort on our business. Consequently, action by, or disputes with, partners or co-venturers might result in subjecting properties owned by the partnership or joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers.

 

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We may become subject to disputes or legal, regulatory or other proceedings that could involve significant expenditures by us, which could have a material adverse effect on us, including our financial results.

The nature of our business exposes us to the potential for disputes or legal, regulatory or other proceedings from time to time relating to tax matters, environmental matters, government regulations, including licensing and permitting requirements, personal injury, labor and employment matters, contract disputes and other issues. For example, the Mexican tax authorities have issued an assessment to one of our Mexican subsidiaries for approximately $8.9 million. See “Our Business and Resorts—Legal Proceedings.” In addition, amenities at our resorts, including restaurants, bars and swimming pools, are subject to significant regulations, and government authorities may disagree with our interpretations of these regulations, or may enforce regulations that historically have not been enforced. Such disputes, individually or collectively, could adversely affect our business by distracting our management from the operation of our business or impacting our market reputation with our guests. If these disputes develop into proceedings or judgments, these proceedings or judgments, individually or collectively, could distract our senior management, disrupt our business or involve significant expenditures and our reserves relating to ongoing proceedings, if any, may ultimately prove to be inadequate, any of which could have a material adverse effect on us, including our financial results.

Some of the resorts in our portfolio located in Mexico were constructed and renovated without certain approvals. The authority granted to the Mexican government is plenary and we can give no assurance it will not exercise its authority to impose fines, remediation measures or close part or all of the related resort(s), which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

Some of the resorts in our portfolio were constructed and renovated without certain approvals at the time the construction and renovation work was carried out, as the prior owners of such resorts determined that such approvals were not required under the Mexican law. We can give no assurance that the Mexican authorities will have the same interpretation of Mexican law as the prior owners. The authority granted to the Mexican government in this regard is plenary and we can give no assurance the Mexican government will not exercise its authority to impose fines, to require us to perform remediation/restoration activities and/or to contribute to environmental trusts, and/or to close part or all of the related resort(s), which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

As of 1988, Mexican environmental laws were amended in order to establish that, among other things, any new hotel construction and certain renovations require the preparation of an environmental impact statement (“MIA”) in order to obtain an Environmental Impact Authorization (Resolutivo de Impacto Ambiental). Furthermore, since 2003 depending on each specific project, a supporting technical report (“ETJ”) is required to obtain an Authorization to Change the Use of Soil of Forestal Land (Autorización de Cambio de Uso de Suelo en Terrenos Forestales).

With respect to Real Resorts:

 

    Two of the acquired resorts, Gran Caribe Real and Hyatt Zilara Cancún, were built prior to implementation of the MIA in 1988 and, therefore, required no such authorization. However, certain renovations to these resorts were carried out after 1988 without an MIA because the prior owner determined that no authorization was needed pursuant to an exception in the Mexican law. We can give no assurance that the Mexican authorities will have the same interpretation of the applicability of the exception as the prior owner.

 

    The remaining two resorts, Royal Playa del Carmen and Gran Porto Real, were constructed after 1988 without the required MIA and ETJ authorizations. Notwithstanding the foregoing, those resorts were operated by the prior owner, and since our acquisition have been operated by us, with no interference in the normal course of business.

The consequences of failing to obtain the MIA and/or ETJ, as applicable, could result in fines of up to approximately $300,000, obligations to perform remediation/restoration activities and/or contribute to environmental trusts, and, in the case of a severe violation, a partial or total closing or a demolition of the relevant resort(s). Although we are not aware of closings or demolitions due to the failure to obtain the MIA and/or ETJ, no assurance can be given that such action will not be taken in the future.

 

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Our wholly-owned subsidiary Playa Resorts Holding B.V. may be required to obtain a banking license and/or an exemption from the prohibition to attract repayable funds as a result of issuing our Senior Notes due 2020 and borrowing under our Senior Secured Credit Facility, which could have a material adverse effect on us.

Under the Regulation (EU) No 575/2013 of the European Parliament and of the Council of June 26, 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (the “CRR”), which took effect on January 1, 2014, there is uncertainty regarding how certain key terms in the regulation are to be interpreted.

If such terms are not interpreted in a manner that is consistent with current Dutch national guidance on which Playa Resorts Holding B.V. (our wholly-owned subsidiary) relies, Playa Resorts Holding B.V. could be categorized as a “credit institution” as a consequence of issuing our Senior Notes due 2020 and borrowing under our Senior Secured Credit Facility if it is deemed to be “an undertaking the business of which is to receive deposits or other repayable funds from the public and to grant credits for its own account.” This would require it to obtain a banking license and it could be deemed to be in violation of the prohibition on conducting the business of a bank without such a license. With respect to the borrowing under our Senior Secured Credit Facility, Playa Resorts Holding B.V. could also be deemed to be in violation of the prohibition on attracting repayable funds from the public. In each such case, it could, as a result, be subject to certain enforcement measures such as a warning and/or instructions by the regulator, incremental penalty payments (last onder dwangsom) and administrative fines (bestuurlijke boete), which all may be disclosed publicly by the regulator.

There is limited official guidance at the EU level as to the key elements of the definition of “credit institution,” such as the terms “repayable funds” and “the public.” The Netherlands legislature has indicated that, as long as there is no clear guidance at the EU level, it is to be expected that the current Dutch national interpretation of these terms will continue to be taken into account for the use and interpretation thereof. Playa Resorts Holding B.V. relies on this national interpretation to reach the conclusion that a requirement to obtain a banking license is not triggered, and that the prohibitions on conducting the business of a bank without such a license and on attracting repayable funds from the public have not been violated, on the basis that (i) each lender under our Senior Secured Credit Facility has extended loans to Playa Resorts Holding B.V. for an initial amount of at least the U.S. dollar equivalent of €100,000 or has assumed rights and/or obligations vis-à-vis Playa Resorts Holding B.V. the value of which is at least the U.S. dollar equivalent of €100,000 and (ii) all Senior Notes due 2020 issued by Playa Resorts Holding B.V. were in denominations which equal or are greater than the U.S. dollar equivalent of €100,000.

If European guidance is published on what constitutes “the public” as referred to in the CRR, and such guidance does not provide that the holder of a note of $150,000 or more, such as is the case with our Senior Notes due 2020, or the lenders under our Senior Secured Credit Facility, each providing a loan the initial amount of which exceeds the U.S. dollar equivalent of €100,000, are excluded from being considered part of “the public” and the current Dutch national interpretation of these terms is not considered to be “grandfathered,” then Playa Resorts Holding B.V. may be required to obtain a banking license, and/or may be deemed to be in violation of the prohibition on conducting the business of a bank without such a license and, with respect to our Senior Secured Credit Facility, the prohibition on attracting repayable funds from the public and, as a result may, in each case, be subject to certain enforcement measures as described above. If Playa Resorts Holding B.V. is required to obtain a banking license or becomes subject to such enforcement measures, we could be materially adversely affected.

Risks Related to the Lodging Industry

The results of operations of our resorts may be adversely affected by various operating risks common to the lodging industry, including competition, over-supply and dependence on tourism, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

Our resorts will be subject to various operating risks common to the lodging industry, many of which are beyond our control, including, among others, the following:

 

    the availability of and demand for hotel and resort rooms;

 

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    over-building of hotels and resorts in the markets in which we operate, which results in increased supply and may adversely affect occupancy and revenues at our resorts;

 

    pricing strategies of our competitors;

 

    increases in operating costs due to inflation and other factors that may not be offset by increased room rates or other income;

 

    international, national, and regional economic and geopolitical conditions;

 

    the impact of war, crime, actual or threatened terrorist activity and heightened travel security measures instituted in response to war, terrorist activity or threats (including Travel Advisories issued by the U.S. Department of State) and civil unrest;

 

    the impact of any economic or political instability in Mexico due to unsettled political conditions, including civil unrest, widespread criminal activity, acts of terrorism, force majeure, war or other armed conflict, strikes and governmental actions;

 

    the desirability of particular locations and changes in travel patterns;

 

    the occurrence of natural or man-made disasters, such as earthquakes, tsunamis, hurricanes, and oil spills;

 

    events that may be beyond our control that could adversely affect the reputation of one or more of our resorts or that may disproportionately and adversely impact the reputation of our brands or resorts;

 

    taxes and government regulations that influence or determine wages, prices, interest rates, construction procedures, and costs;

 

    adverse effects of a downturn in the lodging industry, especially leisure travel and tourism spending;

 

    changes in interest rates and in the availability, cost and terms of debt financing;

 

    necessity for periodic capital reinvestment to maintain, repair, expand, renovate and reposition our resorts;

 

    the costs and administrative burdens associated with compliance with applicable laws and regulations, including, among others, those associated with privacy, marketing and sales, licensing, labor, employment, the environment, and the U.S. Department of the Treasury’s Office of Foreign Asset Control and the U.S. Foreign Corrupt Practices Act (“FCPA”);

 

    the availability, cost and other terms of capital to allow us to fund investments in our portfolio and the acquisition of new resorts;

 

    regional, national and international development of competing resorts;

 

    increases in wages and other labor costs, energy, healthcare, insurance, transportation and fuel, and other expenses central to the conduct of our business or the cost of travel for our guests, including recent increases in energy costs and any resulting increase in travel costs or decrease in airline capacity;

 

    availability, cost and other terms of insurance;

 

    organized labor activities, which could cause the diversion of business from resorts involved in labor negotiations, loss of group business, and/or increased labor costs;

 

    currency exchange fluctuations;

 

    trademark or intellectual property infringement; and

 

    risks generally associated with the ownership of hotels, resorts and real estate, as we discuss in detail below.

Any one or more of these factors could limit or reduce the demand for our resorts or the prices our resorts are able to obtain or could increase our costs and therefore reduce the operating results of our resorts. Even where such factors do not reduce demand, resort-level profit margins may suffer if we are unable to fully recover increased operating costs from our guests. These factors could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

 

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The seasonality of the lodging industry could have a material adverse effect on us, including our revenues.

The lodging industry is seasonal in nature, which can be expected to cause quarterly fluctuations in our revenues. 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. We can provide no assurances that these seasonal fluctuations will, in the future, be consistent with our historical experience or whether any shortfalls that occur as a result of these fluctuations will not have a material adverse effect on us.

The cyclical nature of the lodging industry may cause fluctuations in our operating performance, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

The lodging industry is highly cyclical in nature. Fluctuations in operating performance are caused largely by general economic and local market conditions, which subsequently affect levels of business and leisure travel. In addition to general economic conditions, new hotel and resort room supply is an important factor that can affect the lodging industry’s performance, and over-building has the potential to further exacerbate the negative impact of an economic recession. Room rates and occupancy, and thus Net Package RevPAR, tend to increase when demand growth exceeds supply growth. A decline in lodging demand, or increase in lodging supply, could result in returns that are substantially below expectations, or result in losses, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects. Further, the costs of running a resort tend to be more fixed than variable. As a result, in an environment of declining revenue, the rate of decline in earnings is likely to be higher than the rate of decline in revenue.

Our concentration in a particular segment of a single industry limits our ability to offset the risks of a downturn in that segment, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

All of our assets are resorts and resort-related assets and we expect that all of our business will be resort-related. Furthermore, our existing business is focused primarily on, and our acquisition strategy will target the acquisition of resorts in, the all-inclusive segment of the lodging industry (and properties that we believe can be converted into all-inclusive resorts in a manner consistent with our business strategy). This concentration exposes us to the risk of economic downturns in the lodging industry and in the all-inclusive segment of the lodging industry to a greater extent than if our portfolio also included assets from other segments of the real estate industry or other sectors of the lodging industry. As a result, we are susceptible to a downturn in the lodging industry and, in particular, to a downturn affecting the all-inclusive segment thereof. If market conditions adversely affect the lodging industry, in general, and the all-inclusive segment thereof, in particular, it could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

The ongoing need for capital expenditures at our resorts could have a material adverse effect on us, including our financial condition, liquidity and results of operations.

Our resorts will have an ongoing need for renovations and other capital improvements, including replacements, from time to time, of furniture, fixtures and equipment. In addition, Hyatt also will require periodic capital improvements by us as a condition of maintaining the two Hyatt All-Inclusive Resort Brands. These capital improvements may give rise to the following risks:

 

    possible environmental liabilities;

 

    construction cost overruns and delays;

 

    the decline in revenues while rooms or restaurants are out of service due to capital improvement projects;

 

    a possible shortage of available cash to fund capital improvements and the related possibility that financing for these capital improvements may not be available to us on favorable terms, or at all;

 

    uncertainties as to market demand or a loss of market demand after capital improvements have begun;

 

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    disputes with Hyatt regarding compliance with the Hyatt Resort Agreements or the Hyatt Strategic Alliance Agreement; and

 

    bankruptcy or insolvency of a contracted party during a capital improvement project or other situation that renders them unable to complete their work.

The costs of all these capital improvements or any of the above noted factors could have a material adverse effect on us, including our financial condition, liquidity and results of operations.

The increasing use of Internet travel intermediaries by consumers could have a material adverse effect on us, including our financial results.

Some of our vacation packages will be booked through Internet travel intermediaries, including, but not limited to, Travelocity.com, Expedia.com and Priceline.com. As these Internet bookings increase, these intermediaries may be able to obtain higher commissions, reduced room rates or other significant contract concessions from us. Moreover, some of these Internet travel intermediaries are attempting to offer lodging as a commodity, by increasing the importance of price and general indicators of quality, such as “three-star downtown hotel,” at the expense of brand identification or quality of product or service. If consumers develop brand loyalties to Internet reservations systems rather than to the Hyatt All-Inclusive Resort Brands and the other brands under which our resorts are operated, the value of our resorts could deteriorate and we could be materially and adversely affected, including our financial results.

Cyber risk and the failure to maintain the integrity of internal or guest data could harm our reputation and result in a loss of business and/or subject us to costs, fines, investigations, enforcement actions or lawsuits.

We, Hyatt and our third-party resort manager collect, use and retain large volumes of guest data, including credit card numbers and other personally identifiable information, for business, marketing, and other purposes in our, Hyatt’s and our third-party resort manager’s various information technology systems, which enter, process, summarize and report such data. We also maintain personally identifiable information about our employees. We, Hyatt and our third-party resort manager store and process such internal and guest data both at on-site facilities and at third-party owned facilities including, for example, in a third-party hosted cloud environment. The integrity and protection of our guest, employee and company data, as well as the continuous operation of our, Hyatt’s and our third-party resort manager’s systems, is critical to our business. Our guests and employees expect that we will adequately protect their personal information. The regulations and contractual obligations applicable to security and privacy are increasingly demanding, both in the United States and in other jurisdictions where we operate, and cyber-criminals have been recently targeting the lodging industry. We continue to develop and enhance controls and security measures to protect against the risk of theft, loss or fraudulent or unlawful use of guest, employee or company data, and we maintain an ongoing process to re-evaluate the adequacy of our controls and measures. Notwithstanding our efforts, because of the scope and complexity of our information technology structure, our reliance on third parties to support and protect our structure and data, and the constantly evolving cyber-threat landscape, our systems may be vulnerable to disruptions, failures, unauthorized access, cyber-terrorism, employee error, negligence, fraud or other misuse. These or similar occurrences, whether accidental or intentional, could result in theft, unauthorized access or disclosure, loss, fraudulent or unlawful use of guest, employee or company data which could harm our reputation or result in a loss of business, as well as remedial and other costs, fines, investigations, enforcement actions, or lawsuits. As a result, future incidents could have a material impact on our business and adversely affect our financial condition, liquidity and results of operations.

We face risks related to pandemic diseases, including avian flu, H1N1 flu, H7N9 flu, Ebola virus and Zika virus, which could materially and adversely affect travel and result in reduced demand for our resorts and could have a material adverse effect on us.

Our business could be materially and adversely affected by the effect of, or the public perception or a risk of, a pandemic disease on the travel industry. For example, the outbreaks of severe acute respiratory syndrome (“SARS”) and avian flu in 2003 had a severe impact on the travel industry, and the outbreaks of H1N1 flu in 2009 threatened to have a similar impact. Recently, cases of the Zika virus have been reported in regions in which our resorts are located. Additionally, the public perception of a risk of a pandemic or media coverage of these diseases, particularly if focused on regions in which our resorts are located, may adversely affect us by reducing demand for our resorts. A prolonged occurrence of SARS, avian flu, H1N1 flu, H7N9 flu, Ebola virus, Zika virus or another pandemic disease also may result in health or other government authorities imposing restrictions on travel. Any of these events could result in a significant drop in demand for our resorts and could have a material adverse effect on us.

 

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We may be subject to unknown or contingent liabilities related to our existing resorts or resorts that we acquire, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

Our existing resorts or resorts that we acquire may be subject to unknown or contingent liabilities for which we may have no recourse, or only limited recourse, against the sellers. In general, the representations and warranties provided under the transaction agreements related to our existing resorts and any future acquisitions of resorts may not survive the closing of the transactions. Furthermore, indemnification under such agreements may not exist or be limited and subject to various exceptions or materiality thresholds, a significant deductible or an aggregate cap on losses. As a result, there is no guarantee that we will recover any amounts with respect to losses due to breaches by the transferors or sellers of their representations and warranties or other prior actions by the sellers. In addition, the total amount of costs and expenses that may be incurred with respect to liabilities associated with these resorts may exceed our expectations, and we may experience other unanticipated adverse effects, all of which may materially and adversely affect us, including our business, financial condition, liquidity, results of operations and prospects.

Conducting business internationally may result in increased risks and any such risks could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

We operate our business internationally and plan to continue to develop our international presence. Operating internationally exposes us to a number of risks, including political risks, risks of increase in duties and taxes, risks relating to anti-bribery laws, such as the FCPA, as well as changes in laws and policies affecting vacation businesses, or governing the operations of foreign-based companies. Because some of our expenses are incurred in foreign currencies, we are exposed to exchange rate risks. Additional risks include interest rate movements, imposition of trade barriers and restrictions on repatriation of earnings. Any of these risks could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

We could be exposed to liabilities under the FCPA and other anti-corruption laws and regulations, including non-U.S. laws, any of which could have a material adverse impact on us, including our business, financial condition, liquidity, results of operations and prospects.

As a result of our international operations, we are subject to compliance with various laws and regulations, including the FCPA and other anti-corruption laws in the jurisdictions in which we do business, which generally prohibit companies and their intermediaries or agents from engaging in bribery or making improper payments to foreign officials or their agents or other entities. The FCPA also requires companies to make and keep books and records and accounts which, in reasonable detail, reflect their transactions, including the disposition of their assets. We have implemented, and continue to evaluate and improve, safeguards and policies designed to prevent violations of various anti-corruption laws that prohibit improper payments or offers of payments to foreign officials or their agents or other entities for the purpose of conducting business and are in the process of expanding our training program. The countries in which we own resorts have experienced governmental corruption to some degree and, in certain circumstances, compliance with anti-corruption laws may conflict with local customs and practices. Despite our existing safeguards and any future improvements to our policies and training, we are exposed to risks from deliberate, reckless or negligent acts committed by our employees or agents for which we might be held responsible. Failure to comply with these laws or our internal policies could lead to criminal and civil penalties and other legal and regulatory liabilities and require us to undertake remedial measures, any of which could have a material adverse impact on us, including our business, financial condition, liquidity, results of operations and prospects.

Our existing resorts or resorts that we acquire may contain or develop harmful mold that could lead to liability for adverse health effects and costs of remediating the problem, either of which could have a material adverse effect on us, including our results of operations.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. Some of the resorts in our portfolio or resorts that we may acquire may contain

 

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microbial matter, such as mold and mildew, which could require us to undertake a costly remediation program to contain or remove the mold from the affected resort. Furthermore, we can provide no assurances that we will be successful in identifying harmful mold and mildew at resorts that we seek to acquire, which could require us to take remedial action at acquired resorts. The presence of significant mold could expose us to liability from guests, employees and others if property damage or health concerns arise, which could have a material adverse effect on us, including our results of operations.

Climate change may adversely affect our business, which could materially and adversely affect us, including our financial condition, liquidity and results of operations.

To the extent that climate change does occur, we may experience changes in the frequency, duration and severity of extreme weather events and changes in precipitation and temperature, which may result in physical damage or a decrease in demand for our properties, all of which are located in coastal beachfront locations that are vulnerable to significant property damage from severe weather events, including hurricanes. Should the impact of climate change be material in nature, we could be materially and adversely affected, including our financial condition, liquidity and results of operations. In addition, changes in applicable legislation and regulation on climate change could result in increased capital expenditures to improve the energy efficiency of our existing properties in order to comply with such regulations. Actual or anticipated losses resulting from the consequences of climate change could also impact the cost or availability of insurance.

General Risks Related to the Real Estate Industry

Illiquidity of real estate investments could significantly impede our ability to sell resorts or otherwise respond to adverse changes in the performance of our resorts, which could have a material adverse effect on us, including our financial results.

Because real estate investments are relatively illiquid, our ability to sell one or more resorts promptly for reasonable prices in response to changing economic, financial and investment conditions is limited. The real estate market is affected by many factors beyond our control, including:

 

    adverse changes in international, national, regional and local economic and market conditions;

 

    changes in interest and tax rates and in the availability and cost and other terms of debt financing;

 

    changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances;

 

    the ongoing need for capital improvements, particularly in older structures;

 

    changes in operating expenses; and

 

    civil unrest, widespread criminal activity, and acts of nature, including hurricanes, earthquakes, floods and other natural disasters, which may result in uninsured losses, and acts of war or terrorism.

We may decide to sell resorts in the future. We cannot predict whether we will be able to sell any resort for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a resort.

During the recent economic recession, the availability of credit to purchasers of hotels and resorts and financing structures, such as commercial mortgage-backed securities, which had been used to finance many hotel and resort acquisitions in prior years, was reduced. Subsequent to such economic recession, such credit availability and financing structures have been inconsistent from time to time. If financing for hotels and resorts is not available on attractive terms or at all, it will adversely impact the ability of third parties to buy our resorts. As a result, we may hold our resorts for a longer period than we would otherwise desire and may sell resorts at a loss.

In addition, we may be required to expend funds to correct defects or to make improvements before a resort can be sold. We can provide no assurances that we will have funds available, or access to such funds, to correct those defects or to make those improvements. In acquiring a resort, we may agree to lock-out provisions or tax protection agreements that materially restrict us from selling that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These factors and any others that would impede our ability to respond to adverse changes in the performance of our resorts or a need for liquidity could materially and adversely affect us, including our financial results.

 

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We could incur significant costs related to government regulation and litigation with respect to environmental matters, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

Our resorts are subject to various international, national, regional and local environmental laws that impose liability for contamination. Under these laws, governmental entities have the authority to require us, as the current owner of property, to perform or pay for the clean-up of contamination (including hazardous substances, waste, or petroleum products) at, on, under or emanating from our property and to pay for natural resource damages arising from such contamination. Such laws often impose liability without regard to whether the owner or operator or other responsible party knew of, or caused, such contamination, and the liability may be joint and several. Because these laws also impose liability on persons who owned a property at the time it was or became contaminated, it is possible we could incur cleanup costs or other environmental liabilities even after we sell resorts. Contamination at, on, under or emanating from our resorts also may expose us to liability to private parties for costs of remediation and/or personal injury or property damage. In addition, environmental laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination. If contamination is discovered on our resorts, environmental laws also may impose restrictions on the manner in which our property may be used or our business may be operated, and these restrictions may require substantial expenditures. Moreover, environmental contamination can affect the value of a property and, therefore, an owner’s ability to borrow funds using the property as collateral or to sell the property on favorable terms or at all. Furthermore, persons who sent waste to a waste disposal facility, such as a landfill or an incinerator, may be liable for costs associated with cleanup of that facility.

In addition, our resorts are subject to various international, national, regional and local environmental, health and safety regulatory requirements that address a wide variety of issues. Some of our resorts routinely handle and use hazardous or regulated substances and wastes as part of their operations, which are subject to regulation (e.g., swimming pool chemicals). Our resorts incur costs to comply with these environmental, health and safety laws and regulations and could be subject to fines and penalties for non-compliance with applicable laws.

Liabilities and costs associated with contamination at, on, under or emanating from our properties, defending against claims, or complying with environmental, health and safety laws could be significant and could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects. We can provide no assurances that (1) changes in current laws or regulations or future laws or regulations will not impose additional or new material environmental liabilities or (2) the current environmental condition of our resorts will not be affected by our operations, by the condition of the resorts in the vicinity of our resorts, or by third parties unrelated to us. The discovery of material environmental liabilities at our resorts could subject us to unanticipated significant costs, which could result in significant losses. See “Risks Related to Our Business—We may become subject to disputes or legal, regulatory or other proceedings that could involve significant expenditures by us, which could have a material adverse effect on us, including our financial results” as to the possibility of disputes or legal, regulatory or other proceedings that could adversely affect us.

Increases in property taxes would increase our operating costs, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

Each of our resorts is and will continue to be subject to real and personal property taxes. These taxes may increase as tax rates change and as our resorts are assessed or reassessed by taxing authorities. If property taxes increase, we would incur a corresponding increase in our operating expenses, which could have a material adverse effect on us, including our business, financial condition, liquidity, results of operations and prospects.

 

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Risks Related to Our Indebtedness

We have substantial indebtedness and may incur additional debt in the future. The principal, premium, if any, and interest payment obligations of such debt may restrict our future operations and impair our ability to invest in our business.

As of June 30, 2016, we had approximately $814.7 million aggregate principal amount of outstanding debt obligations (which represents the principal amounts outstanding under our Secured Credit Facility, Term Loan and Senior Notes due 2020 and excludes a $1.0 million issuance discount on our Term Loan, a $4.1 million issuance premium on our Senior Notes due 2020 and $14.7 million of unamortized debt issuance costs). In addition, the terms of our Senior Secured Credit Facility and the indenture executed in connection with the issuance of our Senior Notes due 2020 (the “Indenture”) permit us to incur additional indebtedness, subject to our ability to meet certain borrowing conditions.

Our substantial debt may have important consequences to you. For instance, it could:

 

    make it more difficult for us to satisfy our financial obligations;

 

    require us to dedicate a substantial portion of any cash flow from operations to the payment of interest and principal due under our debt, which would reduce funds available for other business purposes, including capital expenditures and acquisitions;

 

    place us at a competitive disadvantage compared to some of our competitors that may have less debt and better access to capital resources;

 

    limit our ability to respond to changing business, industry and economic conditions and to withstand competitive pressures, which may adversely affect our operations;

 

    cause us to incur higher interest expense in the event of increases in interest rates on our borrowings that have variable interest rates or in the event of refinancing existing debt at higher interest rates;

 

    limit our ability to make investments or acquisitions, dispose of assets, pay cash dividends or redeem or repurchase shares; and/or

 

    limit our ability to obtain additional financing required to fund working capital and capital expenditures and for other business purposes.

Our ability to service our significant financial obligations depends on our ability to generate significant cash flow, which is partially subject to general economic, financial, competitive, legislative, regulatory, and other factors beyond our control. We expect to use substantially all of the net proceeds from this offering to repurchase all of our outstanding preferred shares (except for those preferred shares which Hyatt has committed to convert into our ordinary shares upon completion of this offering and the repurchase by us of the portion of Hyatt’s preferred shares that it has not committed to convert) (see “Use of Proceeds”), and we cannot assure you that our business will generate cash flow from operations, that future borrowings will be available to us under our Revolving Credit Facility, or that we will be able to complete any necessary financings, in amounts sufficient to enable us to fund our operations, engage in acquisitions, capital improvements or other development activities, pay our debts and other obligations and fund our other liquidity needs. If we are not able to generate sufficient cash flow, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. Additional debt or equity financing may not be available in sufficient amounts, at times or on terms acceptable to us, or at all, and any additional debt financing we do obtain may significantly increase our leverage on unfavorable terms. If we are unable to implement one or more of these alternatives, we may not be able to service our debt or other obligations, which could result in us being in default thereon, in which circumstances our lenders could cease making loans to us, lenders or other holders of our debt could accelerate and declare due all outstanding obligations due under the respective agreements and secured lenders could foreclose on their collateral, any of which could have a material adverse effect on us. In addition, the current volatility in the capital markets may also impact our ability to obtain additional financing, or to refinance our existing debt, on terms or at times favorable to us.

 

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The agreements governing our various debt obligations impose restrictions on our business and limit our ability to undertake certain actions.

The agreements governing our various debt obligations, including the Indenture and our Senior Secured Credit Facility, include covenants imposing significant restrictions on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. These covenants place restrictions on our ability to, among other things:

 

    incur additional debt;

 

    pay dividends, redeem or repurchase shares or make other distributions to shareholders;

 

    make investments or acquisitions;

 

    create liens or use assets as security in other transactions;

 

    issue guarantees;

 

    merge or consolidate, or sell, transfer, lease or dispose of substantially all of our assets;

 

    amend our articles of association or bylaws;

 

    engage in transactions with affiliates; and

 

    purchase, sell or transfer certain assets.

The Indenture and our Senior Secured Credit Facility also require us to comply with a number of financial ratios and/or covenants. Our ability to comply with these agreements may be affected by events beyond our control, including prevailing economic, financial and industry conditions. These covenants could have an adverse effect on our business by limiting our ability to take advantage of financing, merger and acquisition or other corporate opportunities. The breach of any of these covenants could result in a default under the Indenture and/or our Senior Secured Credit Facility. An event of default under any of our debt agreements could permit such lenders to declare all amounts borrowed from them, together with accrued and unpaid interest, to be immediately due and payable, which could, in turn, trigger defaults under other debt obligations and could result in the termination of commitments of the lenders to make further extensions of credit under our Revolving Credit Facility. If we were unable to repay debt to our lenders, or were otherwise in default under any provision governing any secured debt obligations, our secured lenders could proceed against us and against any collateral securing that debt.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our annual debt service obligations to increase significantly.

Borrowings under our Senior Secured Credit Facility are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on our existing and any future variable rate indebtedness would also increase and our cash available to service our other obligations and invest in our business would decrease. Furthermore, rising interest rates would likely increase our interest obligations on future fixed or variable rate indebtedness, which could materially and adversely affect our financial condition and liquidity.

Any mortgage debt obligations we incur will expose us to increased risk of property losses due to foreclosure, which could have a material adverse effect on us, including our financial condition, liquidity and results of operations.

Incurring mortgage debt increases our risk of property losses because any defaults on indebtedness secured by our resorts may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing the loan for which we are in default. For tax purposes, a foreclosure of any nonrecourse mortgage on any of our resorts may be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. In certain of the jurisdictions in which we operate, if any such foreclosure is treated as a sale of the property and the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we could recognize taxable income upon foreclosure but may not receive any cash proceeds.

In addition, any default under our mortgage debt obligations may increase the risk of our default on our other indebtedness, including other mortgage debt. If this occurs, we may not be able to satisfy our obligations under our indebtedness, which could have a material adverse effect on us, including our financial condition, liquidity (including our future access to borrowing) and results of operations.

 

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Risks Related to this Offering and Our Ordinary Shares

There has been no public market for our ordinary shares and an active, liquid and orderly trading market for our ordinary shares may not develop or be sustained following this offering, which may adversely affect the market price of our ordinary shares and the ability of investors to sell their shares.

Prior to the completion of this offering, there has been no public market for our ordinary shares and there can be no assurance that an active, liquid and orderly trading market will develop or be sustained following this offering. In the absence of such a trading market, you may be unable to sell your ordinary shares at the time, and at the price, you desire. The initial public offering price of our ordinary shares will be determined through negotiations between us and the representatives of the underwriters, but there can be no assurance that our ordinary shares will not trade below the initial public offering price following this offering. See “Underwriting.”

We are an “emerging growth company,” and we cannot be certain if the reduced SEC (as defined below) reporting requirements applicable to emerging growth companies will make our ordinary shares less attractive to investors, which could have a material and adverse effect on us, including our growth prospects.

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). We will remain an “emerging growth company” until the earliest to occur of (i) the last day of the fiscal year during which our total annual revenue equals or exceeds $1 billion, (ii) the last day of the fiscal year following the fifth anniversary of this offering, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt securities and (iv) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act. We intend to take advantage of exemptions from various reporting requirements that are applicable to most other public companies, whether or not they are classified as “emerging growth companies,” including, but not limited to, an exemption from the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. The JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in the Securities Act for complying with new or revised accounting standards. However, we have chosen to “opt out” of this extended transition period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for all public companies that are not emerging growth companies. Our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable. We cannot predict if investors will find our ordinary shares less attractive because we intend to rely on certain of these exemptions and benefits under the JOBS Act. If some investors find our ordinary shares less attractive as a result, there may be a less active, liquid and/or orderly trading market for our ordinary shares and the market price and trading volume of our ordinary shares may be more volatile and decline significantly.

We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company, and particularly after we are no longer an emerging growth company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the NASDAQ, the Dutch Financial Supervision Act, the Dutch Financial Reporting Supervision Act (Wet op het financieel toezicht), the Dutch Corporate Governance Code (“DCGC”) and other applicable securities rules and rules and regulations promulgated under the foregoing impose various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives and corporate governance practices.

These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices and control environment process improvements.

 

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If you invest in this offering, you will experience immediate dilution from the purchase of our ordinary shares.

We expect the initial public offering price of our ordinary shares to be higher than the net tangible book value per ordinary share. Purchasers of our ordinary shares in this offering will experience immediate dilution of approximately $         from the contemplated offering price per ordinary share (based on the mid-point of the price range set forth on the cover page of this prospectus). This means that investors who purchase our ordinary shares will pay a price per share that exceeds the net tangible book value per ordinary share of our tangible assets after subtracting our liabilities. See “Dilution.”

The market price and trading volume of our ordinary shares may be volatile and could decline significantly following this offering.

The stock markets, including the NASDAQ on which we intend to list our ordinary shares under the symbol “PLYA,” have from time to time experienced significant price and volume fluctuations. Even if an active, liquid and orderly trading market develops and is sustained for our ordinary shares following this offering, the market price of our ordinary shares may be volatile and could decline significantly. In addition, the trading volume in our ordinary shares may fluctuate and cause significant price variations to occur. If the market price of our ordinary shares declines significantly, you may be unable to resell your shares at or above the initial public offering price. We cannot assure you that the market price of our ordinary shares will not fluctuate widely or decline significantly in the future in response to a number of factors, including, among others, the following:

 

    the realization of any of the risk factors presented in this prospectus;

 

    actual or anticipated differences in our estimates, or in the estimates of analysts, for our revenues, Adjusted EBITDA, results of operations, level of indebtedness, liquidity or financial condition;

 

    additions and departures of key personnel;

 

    failure to comply with the requirements of the NASDAQ;

 

    failure to comply with the Sarbanes-Oxley Act or other laws or regulations;

 

    future issuances, sales or resales, or anticipated issuances, sales or resales, of our ordinary shares;

 

    publication of research reports about us, our resorts, the all-inclusive segment of the lodging industry or the lodging industry generally;

 

    the performance and market valuations of other similar companies;

 

    broad disruptions in the financial markets, including sudden disruptions in the credit markets;

 

    speculation in the press or investment community;

 

    actual, potential or perceived control, accounting or reporting problems; and

 

    changes in accounting principles, policies and guidelines.

In the past, securities class-action litigation has often been instituted against companies following periods of volatility in the market price of their shares. This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have a material adverse effect on us.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which is likely to negatively affect our business and the market price of our ordinary shares.

Effective internal control over financial reporting is necessary for us to provide reliable financial reports and prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing conducted by us, or any testing conducted by our independent registered public accounting firm, may reveal, and in fact has revealed, deficiencies in our internal control over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other

 

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areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which is likely to negatively affect our business and the market price of our ordinary shares.

We will be required to disclose changes made in our internal controls and procedures on a quarterly basis and our management will be required to assess the effectiveness of these controls annually. However, for as long as we are an “emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act. We could be an “emerging growth company” for up to five years. An independent assessment of the effectiveness of our internal controls could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements and require us to incur the expense of remediation.

We have identified, and our independent registered public accounting firm has communicated, four material weaknesses in our internal control over financial reporting as of December 31, 2015. Accordingly, our internal control over financial reporting and our monitoring controls and processes were not effective as of such date. These material weaknesses have not been remediated, and it will take time for us to develop, implement and test additional processes and other controls. Accordingly, we may not be able to accurately report our financial results, prevent fraud or file our required periodic reports pursuant to the Exchange Act in a timely manner, which may cause investors to lose confidence in our reported financial information and may lead to a decline in the market price of our ordinary shares.

We have identified, and Deloitte & Touche LLP, the independent registered public accounting firm that audited our consolidated financial statements for the years ended December 31, 2015 and 2014, and for each of the two years in the period ended December 31, 2015, included in this prospectus and the related financial statement schedule included elsewhere in the registration statement, has communicated, material weaknesses in our internal control over financial reporting as of December 31, 2015. 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. The four material weaknesses we identified relate to: (1) the operating effectiveness of our internal controls relating to our review of our consolidated financial statements and the underlying accounting analyses and journal entries, due to the fact that we do not have formalized accounting policies and procedures, segregation of duties, and sufficient resources with the requisite level of experience and technical expertise for the timely preparation and review of the financial information required for accurate financial reporting in accordance with U.S. GAAP; (2) insufficient design and implementation of our information technology controls, including system access, change management, segregation of duties, backups and disaster recovery plans, which are insufficient to address certain information technology risks and, as a result, could expose our systems and data to unauthorized use, alteration or destruction; (3) the design and operating effectiveness of management’s reviews of our current and deferred tax provision workbooks to verify that all calculations are complete, accurate and in accordance with U.S. GAAP, and our lack of the technical competence, as well as systems and processes, to ensure our compliance with Accounting Standards Codification 740 “Income Taxes” (“ASC 740 “Income Taxes””); and (4) our lack of monitoring processes to ensure that internal controls are designed and implemented appropriately and are operating effectively, which applies to both our internal controls and the internal controls of third-party service providers, such as AMResorts (which manages five of our resorts). These material weaknesses increase the risk of a material misstatement in our financial statements.

Although we have taken steps to improve our internal control over financial reporting since the identification of these material weaknesses, including hiring an experienced Director of Financial Reporting and developing plans to implement improved processes and internal controls, we are still in the process of developing and implementing additional process and other controls. Moreover, once additional processes and other controls have been developed and implemented, they will need to be monitored and their effectiveness will need to be successfully tested over several quarters before we can conclude that the material weaknesses have been remediated. There can be no assurance that we will be successful in making these improvements in a timely manner, or at all, and in remediating our material weaknesses. If we are not successful in making these improvements, we may not be able to accurately report our financial results in accordance with U.S. GAAP, prevent fraud or file our periodic reports with the Securities and Exchange Commission (“SEC”) in a timely manner, which may expose us to legal and regulatory liabilities and may cause investors to lose confidence in our reported financial information and may lead to a decline in the market price of our ordinary shares. In addition, implementing changes to our internal controls may distract our executive officers and employees, entail substantial costs to evaluate

 

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and modify our existing processes and implement new processes, and take significant time to complete, monitor and test. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Internal Control over Financial Reporting.”

Future issuances of debt securities and equity securities may adversely affect us, including the market price of our ordinary shares and may be dilutive to existing shareholders.

In the future, we may incur debt or issue equity ranking senior to our ordinary shares. Those securities will generally have priority upon liquidation. Such securities also may be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our ordinary shares. Because our decision to issue debt or equity in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, nature or success of our future capital raising efforts. As a result, future capital raising efforts may reduce the market price of our ordinary shares and be dilutive to existing shareholders.

If securities or industry analysts do not publish research, publish inaccurate or unfavorable research or cease publishing research about us, our share price and trading volume could decline significantly.

The market for our ordinary shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on us. If no securities or industry analysts commence coverage of us, the market price and liquidity for our ordinary shares could be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade their opinions about our ordinary shares, publish inaccurate or unfavorable research about us, or cease publishing about us regularly, demand for our ordinary shares could decrease, which might cause our share price and trading volume to decline significantly.

The number of our ordinary shares available for future issuance, sale or resale could adversely affect the market price of our ordinary shares.

The market price of our ordinary shares could be adversely affected, as a result of issuances, sales or resales, or anticipated issuances, sales or resales, of a large number of our ordinary shares in the market after this offering or the perception that such issuances, sales or resales could occur. These issuances, sales or resales, or the possibility that these issuances, sales or resales may occur, also might make it more difficult for us to sell additional ordinary shares in the future at a time and at a price that we deem appropriate. Upon the completion of this offering we will have a total of                  ordinary shares outstanding (or                  ordinary shares assuming the underwriters exercise in full their overallotment option), excluding                  restricted ordinary shares to be granted in connection with this offering to our executive officers, directors and other employees pursuant to our equity incentive plan. Our                  ordinary shares sold in this offering (or                  ordinary shares assuming the underwriters exercise in full their overallotment option) will be freely transferable without restriction or further registration under the Securities Act of 1933, as amended (the “Securities Act”), by persons other than our directors, director nominees and executive officers and other affiliates. See “Shares Eligible for Future Sale.”

The remaining                  ordinary shares expected to be outstanding upon the completion of this offering, including                  ordinary shares owned by Farallon and                 ordinary shares owned by Hyatt, will be “restricted securities,” as defined in Rule 144 under the Securities Act, and these ordinary shares, along with any ordinary shares purchased by affiliates in this offering, may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemption provided by Rule 144. However, pursuant to a registration rights agreement among HI Holdings Playa, Farallon, Bruce D. Wardinski and certain of our initial shareholders and us, to be entered into in connection with this offering, but subject to applicable lock-up agreements, beginning six months after the completion of this offering, Hyatt and Farallon will each have the right to require us to file a registration statement with the SEC related to the resale of their shares if such requesting person then has $         million or more of invested capital, subject to certain adjustments, and our other current shareholders also have the right to require the registration of their shares under the Securities Act, under certain circumstances.

In addition, future issuances of our ordinary shares may be dilutive to existing shareholders.

 

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Our general meeting of shareholders (being the corporate body, or where the context requires, the actual meeting of shareholders, the “General Meeting”) adopted a resolution on             , 2016 pursuant to which our Board is irrevocably authorized to (i) for a period of five years from the date of the resolution, issue shares and grant rights to subscribe for shares in the form of ordinary shares up to the amount of the authorized share capital (from time to time) and (ii) exclude any preemptive rights relating thereto. See “Description of Share Capital.”

We have broad discretion in the use of the net proceeds from this offering and may not use them effectively or may use them in a way investors do not approve.

Although we currently intend to use the net proceeds from this offering in the manner described under “Use of Proceeds,” our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not improve our results of operations or enhance the market value of our ordinary shares or in a manner that investors do not approve. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on us or cause the market price of our ordinary shares to decline. Pending their use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.

We do not anticipate paying dividends on our ordinary shares.

Our articles of association prescribe that, after having made distributions on our outstanding preferred shares, if any, in accordance with our articles of association, some or all of our profits or reserves appearing from our annual accounts adopted by the General Meeting may be distributed as dividends to the holders of ordinary shares, subject to the appropriate record date, by the General Meeting at the proposal of our Board. We will have power to make distributions to shareholders only to the extent that our equity exceeds the sum of the paid and called-up portion of our share capital and the reserves that must be maintained in accordance with provisions of Dutch law or our articles of association. We may not make any distribution of profits on shares held by us as treasury shares and such treasury shares will not be taken into account when determining the profit entitlement of our shareholders. Our Board determines whether and how much of the profit shown in the adopted annual accounts it will reserve and the manner and date of any dividend (subject to certain preferential distributions on our outstanding preferred shares). All calculations to determine the amounts available for dividends will be based on our company-only annual accounts, which may be different from our consolidated financial statements, such as those included in this prospectus. Our annual accounts to date have been prepared under Dutch generally accepted accounting principles and are deposited with the Commercial Register of the Chamber of Commerce (Kamer van Koophandel) in the Netherlands. In addition, our Board is permitted, subject to certain requirements, to declare interim dividends without the approval of the shareholders. We may reclaim any distributions, whether interim or not interim, made in contravention of certain restrictions of Dutch law from shareholders that knew or should have known that such distribution was not permissible. In addition, on the basis of Dutch case law, if after a distribution we are not able to pay our due and collectable debts, then our shareholders or directors who at the time of the distribution knew or reasonably should have foreseen that result may be liable to our creditors. We have never declared or paid any cash dividends and we have no plan to declare or pay any dividends in the foreseeable future on our ordinary shares. We currently intend to retain any earnings for future operations and expansion. In addition, each of our Indenture and our Senior Secured Credit Facility contains covenants limiting our ability to pay cash dividends. As a result, capital appreciation, if any, of our ordinary shares will be your sole source of gain for the foreseeable future.

Since we are a holding company, our ability to pay dividends will be dependent upon the financial condition, liquidity and results of operations of, and our receipt of dividends, loans or other funds from, our subsidiaries. Our subsidiaries are separate and distinct legal entities and have no obligation to make funds available to us. In addition, there are various statutory, regulatory and contractual limitations and business considerations on the extent, if any, to which our subsidiaries may pay dividends, make loans or otherwise provide funds to us.

The rights of our shareholders and the duties of our directors are governed by Dutch law, our articles of association and internal rules and policies adopted by our Board, and differ in some important respects from the rights of shareholders and the duties of members of a board of directors of a U.S. corporation.

Our corporate affairs, as a Dutch public limited liability company (naamloze vennootschap), are governed by our articles of association, internal rules and policies adopted by our Board and by the laws governing companies incorporated in the Netherlands.

 

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The rights of our shareholders and the duties of our directors under Dutch law are different from the rights of shareholders and/or the duties of directors of a corporation organized under the laws of U.S. jurisdictions. In the performance of its duties, our Board is required by Dutch law to consider our interests and the interests of our shareholders, our employees and other stakeholders (e.g., our creditors, guests and suppliers) as a whole and not only those of our shareholders, which may negatively affect the value of your investment. For more information, see “Description of Share Capital—Differences in Corporate Law.”

In addition, the rights of our shareholders, including for example the rights of shareholders as they relate to the exercise of shareholder rights, are governed by Dutch law and our articles of association and such rights differ from the rights of shareholders under U.S. law. For example, if we engaged in a merger, Dutch law would not grant appraisal rights to any of our shareholders who wished to challenge the consideration to be paid to them upon such merger (without prejudice, however, to certain cash exit rights offered under Dutch law in certain circumstances). See “Description of Share Capital—Dutch Corporate Governance Code.”

We are organized and existing under the laws of the Netherlands, and, as such, the rights of our shareholders and the civil liability of our directors and executive officers will be governed in certain respects by the laws of the Netherlands.

We are organized and existing under the laws of the Netherlands, and, as such, the rights of our shareholders and the civil liability of our directors and executive officers will be governed in certain respects by the laws of the Netherlands. The ability of our shareholders in certain countries other than the Netherlands to bring an action against us, our directors and executive officers may be limited under applicable law. In addition, substantially all of our assets are located outside the United States. As a result, it may not be possible for shareholders to effect service of process within the United States upon us or our directors and executive officers or to enforce judgments against us or them in U.S. courts, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States. In addition, it is not clear whether a Dutch court would impose civil liability on us or any of our directors and executive officers in an original action based solely upon the federal securities laws of the United States brought in a court of competent jurisdiction in the Netherlands.

As of the date of this prospectus, the United States and the Netherlands do not have a treaty providing for the reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial matters. Accordingly, a judgment rendered by a court in the United States, whether or not predicated solely upon U.S. securities laws, would not automatically be recognized and enforced by the competent Dutch courts. However, if a person has obtained a final and conclusive judgment for the payment of money rendered by a court in the United States that is enforceable in the United States and files a claim with the competent Dutch court, the Dutch court will generally give binding effect to such foreign judgment insofar as it finds that (i) the jurisdiction of the U.S. court has been based on a ground of jurisdiction that is generally acceptable according to international standards, (ii) the judgment by the U.S. court was rendered in legal proceedings that comply with the Dutch standards of proper administration of justice including sufficient safeguards (behoorlijke rechtspleging) and (iii) the judgment by the U.S. court is not incompatible with a decision rendered between the same parties by a Dutch court, or with a previous decision rendered between the same parties by a foreign court in a dispute that concerns the same subject and is based on the same cause, provided that the previous decision qualifies for acknowledgment in the Netherlands and except to the extent that the foreign judgment contravenes Dutch public policy (openbare orde).

Based on the lack of a treaty as described above, U.S. investors may not be able to enforce against us or our directors, representatives or certain experts named herein who are residents of the Netherlands or countries other than the United States any judgments obtained in U.S. courts in civil and commercial matters, including judgments under the U.S. federal securities laws.

Under our articles of association, we indemnify and hold our directors harmless against all claims and suits brought against them, subject to limited exceptions. There is doubt, however, as to whether U.S. courts would enforce such an indemnity provision in an action brought against one of our directors in the United States under U.S. securities laws.

Our ordinary shareholders may not have any preemptive rights in respect of future issuances of our ordinary shares.

In the event of an increase in our share capital, our ordinary shareholders are generally entitled under Dutch law to full preemptive rights, unless these rights are limited or excluded either by a resolution of the General Meeting or by a resolution of our Board (if our Board has been authorized by the General Meeting for this purpose), or where shares are issued to our employees or a group company (i.e., certain affiliates, subsidiaries or related companies) or paid up by means of a non-cash contribution, or in case of an exercise of a previously acquired right to subscribe for shares. The same preemptive rights apply when rights to subscribe for shares are granted.

 

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Preemptive rights may be excluded by our Board on the basis of the irrevocable authorization of the General Meeting on             , 2016 to our Board for a period of five years from the date of this authorization with respect to the issue of shares up to the amount of the authorized share capital (from time to time). The General Meeting has delegated the authority to issue shares and grant rights to subscribe for shares up to the amount of our authorized share capital (from time to time) to our Board for that same period.

Accordingly, holders of ordinary shares may not have any preemptive rights in connection with, and may be diluted by, an issue of new ordinary shares and it may be more difficult for a shareholder to obtain control over our General Meeting. See “Description of Share Capital—Issuance of Shares and Preemptive Rights.” Certain of our ordinary shareholders outside the Netherlands, in particular, U.S. ordinary shareholders, may not be allowed to exercise preemptive rights to which they are entitled, if any, unless a registration statement under the Securities Act is declared effective with respect to our ordinary shares issuable upon exercise of such rights or an exemption from the registration requirements is available.

Provisions of our articles of association or Dutch corporate law might deter acquisition bids for us that shareholders might consider to be favorable and prevent or frustrate any attempt to replace or remove our Board at the time of such acquisition bid.

Certain provisions of our articles of association may make it more difficult for a third party to acquire control of us or effect a change in our Board. These provisions include:

 

    A provision that our directors are appointed by our General Meeting at the binding nomination of our Board. Such binding nomination may only be overruled by a General Meeting by a resolution adopted by at least 66 2/3% of the votes cast, if such votes represent more than 50% of our issued share capital.

 

    A provision that our shareholders at a General Meeting may suspend or remove directors at any time. A resolution of our General Meeting to suspend or remove a director may be passed by a simple majority of the votes cast, provided that the resolution is based on a proposal by our Board. In the absence of a proposal by our Board, a resolution of our General Meeting to suspend or remove a director shall require a vote of at least 66 2/3% of the votes cast, if such votes represent more than 50% of our issued share capital.

 

    A requirement that certain actions can only be taken by the General Meeting following a proposal by our Board, including an amendment of our articles of association, the issuance of shares or the granting of rights to subscribe for shares, the limitation or exclusion of preemptive rights, the reduction of our issued share capital, the application for bankruptcy, the making of a distribution from our profits or reserves on our ordinary shares, the making of a distribution in the form of shares in our capital or in the form of assets, instead of cash, the entering into of a merger or demerger, our dissolution and the designation or granting of authorizations such as the authorization to issue shares and to limit or exclude preemptive rights. Our General Meeting adopted a resolution to grant such authorizations to our Board. See “Description of Share Capital.”

 

    A provision prohibiting (a) a Brand Owner (which generally means a franchisor, licensor or owner of a hotel concept or brand that has at least 12 all-inclusive resorts and that competes with any Hyatt All-Inclusive Resort Brand resort (see “Certain Relationships and Related Party Transactions—Hyatt Agreements—Hyatt Resort Agreements”)) from acquiring our shares such that the Brand Owner (together with its affiliates) acquires beneficial ownership in excess of 15% of our outstanding shares, or (b) a Restricted Brand Company from acquiring our shares such that the Restricted Brand Company (together with its affiliates) acquires beneficial ownership in excess of 5% of our outstanding shares. Upon becoming aware of either share cap being exceeded, we will send a notice to such shareholder informing such shareholder of a violation of this provision and granting the shareholder two weeks to dispose of such excess ordinary shares to an unaffiliated third party. Such notice will immediately trigger the transfer obligation and suspend the right to attend our General Meeting and voting rights (together, “Shareholder Rights”) of the shares exceeding the cap. If such excess shares are not disposed by such time, (i) the Shareholder Rights on all shares held by the shareholder exceeding the share cap will be suspended until the transfer obligations have been complied with and (ii) we will be irrevocably authorized under our articles of association to transfer the excess shares to a foundation until sold to an unaffiliated third party.

Such provisions could discourage a takeover attempt and impair the ability of shareholders to benefit from a change in control and realize any potential change of control premium. This may adversely affect the market price of the ordinary shares.

 

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On             , 2016, our General Meeting authorized our Board to issue shares and grant rights to subscribe for shares in the form of ordinary shares, up to the amount of the authorized share capital (from time to time) and limit or exclude preemptive rights on those shares for a period of five years from the date of the resolution. Accordingly, an issue of new shares may make it more difficult for a shareholder or potential acquirer to obtain control over our General Meeting or us.

Provisions of our franchise agreements with Hyatt might deter acquisition bids for us that shareholders might consider to be favorable and/or give Hyatt the right to terminate such agreements if certain persons obtain and retain more than a specified percentage of our shares.

Certain provisions of our franchise agreements with Hyatt may make it more difficult for certain third parties to acquire more than a specified percentage of our shares. Our franchise agreements with Hyatt and articles of association both contain a provision prohibiting (a) a Brand Owner from acquiring our shares such that the Brand Owner (together with its affiliates) acquires beneficial ownership in excess of 15% of our outstanding shares, and (b) a Restricted Brand Company from acquiring our shares such that the Restricted Brand Company (together with its affiliates) acquires beneficial ownership in excess of 5% of our outstanding shares. Upon becoming aware of either share cap being exceeded, we will send a notice to such shareholder informing such shareholder of a violation of this provision and granting the shareholder two weeks to dispose of such excess shares to an unaffiliated third party. Such notice will immediately trigger the transfer obligation and suspend the Shareholder Rights of the shares exceeding the share cap. If such excess shares are not disposed by such time, (i) the Shareholder Rights on all shares held by the shareholder exceeding the share cap will be suspended until the transfer obligations have been complied with and (ii) we will be irrevocably authorized under our articles of association to transfer the excess shares to a foundation until sold to an unaffiliated third party. Our franchise agreements provide that, if the excess shares are not transferred to a foundation or an unaffiliated third party within 30 days following the earlier of the date on which a public filing is made with respect to either share cap being exceeded and the date we become aware of either share cap being exceeded, Hyatt will have the right to terminate all (but not less than all) of its franchise agreements with us by providing the notice specified in the franchise agreement to us and we will be subject to liquidated damage payments to Hyatt. In the event that any Brand Owner or Restricted Brand Company acquires any ownership interest in us, we are required to establish and maintain controls to protect the confidentiality of certain Hyatt information and will provide Hyatt with a detailed description and evidence of such controls. See “Certain Relationships and Related Party Transactions—Hyatt Agreements—Hyatt Resort Agreements.”

We are not obligated to and do not comply with all the best practice provisions of the DCGC. This could adversely affect your rights as a shareholder.

As we have our registered office in the Netherlands and will have our ordinary shares listed on an equivalent third (non-EU) country market to a regulated market (e.g., the NASDAQ), we are subject to the DCGC. The DCGC contains both principles and best practice provisions for our Board, shareholders and the General Meeting, financial reporting, auditors, disclosure compliance and enforcement standards.

The DCGC is based on a “comply or explain” principle. Accordingly, we are required to disclose in our management report publicly filed in the Netherlands, whether or not we are complying with the various provisions of the DCGC. If we do not comply with one or more of those provisions (e.g., because of a conflicting NASDAQ requirement or U.S. market practice), we are required to explain the reasons for such non-compliance.

We acknowledge the importance of good corporate governance. However, we do not comply with all the provisions of the DCGC, to a large extent because such provisions conflict with or are inconsistent with the corporate governance rules of the NASDAQ and U.S. securities laws that will apply to us upon the completion of this offering, or because we believe such provisions do not reflect customary practices of global companies listed on the NASDAQ. See “Description of Share Capital—Dutch Corporate Governance Code.” This could adversely affect your rights as a shareholder and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the DCGC.

The forecasts and projections relating to market data prepared by JLL are based upon numerous assumptions and may not prove to be accurate.

This prospectus contains forecasts and projections relating to market data that were prepared for us for use in connection with this offering by JLL, a financial and professional services firm. See “Industry Overview and All-Inclusive Market Overview.” No assurance can be given that the forecasts and projections will prove to be accurate. These forecasts and projections are based on data (including third-party data), significant assumptions, proprietary methodologies and the experience and judgment of JLL. No assurance can be given regarding the accuracy or appropriateness of the assumptions and judgments made, or the methodologies used, by JLL. The application of alternative assumptions, judgments or methodologies could result in materially less favorable forecasts and projections than those contained in this prospectus. Other real estate experts may have different views regarding these forecasts and projections that may be more positive or negative, including in terms of the timing, magnitude and direction of future changes.

 

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The forecasts and projections relating to market data are forward-looking statements and involve risks and uncertainties that may cause actual results to be materially different from the projections. There will usually be differences between projected and actual outcomes, because events and circumstances frequently do not occur as expected, and the differences may be material. Accordingly, the forecasts and projections relating to market data included in this prospectus might not occur or might occur to a different extent or at a different time. For the foregoing reasons, neither we nor JLL can provide any assurance that such forecasts and projections are accurate. Actual outcomes may vary significantly from those contained or implied by the forecasts and projections, and you should not place undue reliance on these forecasts and projections. Except as required by law, we are not obligated to, and do not intend to, update the statements in this prospectus to conform to actual outcomes or changes in our or JLL’s expectations.

Tax Risks Related to Ownership of Our Shares

The tax laws, rules and regulations (or interpretations thereof) in the jurisdictions in which we operate may change, which could have a material adverse effect on us, including our financial results.

We generally seek to structure our business activities in the jurisdictions in which we operate in a manner that is tax-efficient, taking into account the relevant tax laws, rules and regulations. However, tax laws, rules and regulations in these jurisdictions are complex and are subject to change as well as subject to interpretation by local tax authorities and courts. There can be no assurance that these tax laws, rules and regulations (or interpretations thereof) will not change, possibly with retroactive effect, or that local tax authorities may not otherwise successfully assert positions contrary to those taken by us. In any such case, we may be required to operate in a less tax-efficient manner, incur costs and expenses to restructure our operations and/or may owe past taxes (and potentially interest and penalties), which in each case could negatively impact our operations. For example, an increase in the value-added tax (“VAT”) rate in certain regions of Mexico at the end of 2013 negatively impacted our financial results, and we are currently appealing a $8.9 million tax assessment in Mexico. See “Our Business and Resorts—Legal Proceedings.” Moreover, there can be no assurance that any reserves we may establish in the future for any potential liabilities related to our tax positions will be sufficient.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this prospectus constitute forward-looking statements within the meaning of the federal securities laws. 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, our consolidated financial statements and 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 prospectus 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. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, 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;

 

    the success and continuation of our relationship with Hyatt;

 

    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;

 

    our failure to successfully complete our expansion, repair and renovation projects in the timeframes and at the costs anticipated;

 

    significant increases in construction and development costs;

 

    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 our remediation efforts for the material weaknesses we identified in our internal control over financial reporting;

 

    changes in personnel and availability of qualified personnel;

 

    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

 

    the increasingly competitive environment in which we operate.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim 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 prospectus, except as required by applicable law. For a further discussion of these and other factors that could cause our future results, performance or transactions to differ significantly from those expressed in any forward-looking statement, see “Risk Factors.” 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).

 

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USE OF PROCEEDS

We will issue                  ordinary shares in this offering, or                  ordinary shares if the underwriters’ overallotment option is exercised in full. We estimate that the net proceeds to us from the sale of                  ordinary shares in this offering will be approximately $         million, or $         million if the underwriters’ overallotment option is exercised in full, each based on the midpoint of the price range set forth on the cover of this prospectus, after deducting the underwriting discount and other estimated offering expenses payable by us.

In connection with this offering, Hyatt has committed to convert up to $50 million of our preferred shares currently owned by Hyatt into our ordinary shares upon the completion of this offering and the repurchase by us of the portion of Hyatt’s preferred shares that it has not committed to convert, based on a conversion price equal to the lesser of $8.40 ($         after giving effect to the          - for - one reverse share split) and the public offering price per ordinary share in this offering.

We intend to use the net proceeds from this offering and, if necessary, amounts available under our Revolving Credit Facility or cash on hand as follows:

 

    approximately $         million to repurchase at the Preferred Share Repurchase Price                  of our preferred shares (plus any accrued and unpaid dividends accumulated thereon) held by Hyatt, which represents all of our preferred shares held by Hyatt except for those preferred shares which Hyatt committed to convert into our ordinary shares upon completion of this offering and the repurchase by us of the portion of Hyatt’s preferred shares that it has not committed to convert;

 

    approximately $         million to repurchase at the Preferred Share Repurchase Price of our preferred shares (plus any accrued and unpaid dividends accumulated thereon) held by the BD Real Shareholder, which represents all of our preferred shares held by the BD Real Shareholder; and

 

    the remainder, if any, for general corporate purposes, which may include working capital, capital expenditures, repayment of debt and funding acquisition opportunities that may become available from time to time.

In addition, with respect to the preferred shares repurchased from Hyatt (including for this purpose any additional unissued preferred shares which have accumulated as unpaid payments in-kind dividends), if the public offering price of our ordinary shares in this offering exceeds $         per share ($         per share after giving effect to the             -for-one reverse share split), we will pay to Hyatt an additional per-preferred share amount equal to 50% of the difference between $         ($         after giving effect to the          -for - one reverse share split) and the public offering price per ordinary share in this offering). See “Certain Relationships and Related Party Transactions—Preferred Shares.”

Prior to repurchase with net proceeds from this offering, the preferred shares are entitled to preferred cumulative dividends of 12% per annum compounded quarterly. Upon consummation of the preferred share repurchases and conversion described above, we will not have any outstanding preferred shares.

 

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DIVIDEND POLICY

We do not currently anticipate paying dividends on our ordinary shares following this offering and intend to retain any earnings for future operations, expansion or deleveraging. For a description of the restrictions relating to the declaration and payment of dividends, see “Description of Share Capital—Dividends and Other Distributions.” In addition, each of our Indenture and our Senior Secured Credit Facility contains covenants limiting our ability to pay cash dividends. See “Description of Certain Indebtedness.” We have never paid any dividends on our ordinary shares in the past.

 

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CAPITALIZATION

The following table sets forth our consolidated cash and capitalization as of June 30, 2016 on:

 

    an actual basis; and

 

    an as-adjusted basis to reflect the sale by us of                  ordinary shares in this offering, the application of the net offering proceeds as described under “Use of Proceeds” and assuming the conversion of $50 million of our preferred shares currently owned by Hyatt into our ordinary shares as described under “Use of Proceeds,” as if this offering, the application of the net offering proceeds and the conversion had occurred on June 30, 2016.

 

     As of June 30, 2016  
     Actual      As Adjusted  
     ($ in thousands)  

Cash and cash equivalents (excluding restricted cash)

   $ 52,408       
  

 

 

    

 

 

 

Total debt (1)

   $ 803,156       
  

 

 

    

 

 

 

Cumulative redeemable preferred shares (par value $0.01; 32,738,094 shares authorized, issued and outstanding as of June 30, 2016; aggregate liquidation preference of $373,970 as of June 30, 2016)

     373,970       

Equity:

     

Ordinary shares (par value $0.01; 65,623,214 shares authorized and issued and 60,249,330 shares outstanding as of June 30, 2016)(2)

     656       

Treasury shares

     (23,108)      

Paid-in capital

     399,177       

Accumulated other comprehensive loss

     (4,058)      

Accumulated deficit

     (154,247)      
  

 

 

    

 

 

 

Total shareholders’ equity

     218,420       
  

 

 

    

 

 

 

Total capitalization

   $ 1,395,546       
  

 

 

    

 

 

 

 

(1) Represents the principal amounts outstanding under our Secured Credit Facility, Term Loan and Senior Notes due 2020 and includes a $1.0 million issuance discount on our Term Loan, a $4.1 million issuance premium on our Senior Notes due 2020 and $14.7 million of unamortized debt issuance costs.
(2) Excludes                  ordinary shares that may be issued by us upon exercise of the underwriters’ overallotment option,                 treasury shares,                 unvested restricted ordinary shares to be granted in connection with this offering to our executive officers, other employees and directors pursuant to our equity incentive plan and                  ordinary shares available for future awards under our equity incentive plan.

 

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DILUTION

Purchasers of our ordinary shares will experience an immediate dilution of the net tangible book value of our ordinary shares upon the completion of this offering from the initial public offering price. Dilution in net tangible book value per ordinary share represents the difference between the amount per share paid by purchasers of our ordinary shares in this offering (based on the midpoint of the price range set forth on the cover of this prospectus) and the net tangible book value per ordinary share immediately after this offering and the application of the estimated net offering proceeds.

Our net tangible book value represents the amount of total tangible assets less total liabilities before giving effect to this offering. Our net tangible book value as of June 30, 2016 was approximately $        million, or $        per ordinary share.

After giving effect to our sale of ordinary shares in this offering at an initial public offering price of $        per ordinary share, which is the midpoint of the price range set forth on the cover of this prospectus, and after deducting the underwriting discount and other estimated offering expenses payable by us and the application of the net proceeds received by us as described in “Use of Proceeds,” our net tangible book value as of June 30, 2016 would have been $        million, or $        per ordinary share. This represents an immediate increase in net tangible book value of $        per ordinary share to our existing owners and an immediate and substantial dilution in net tangible book value of $        per ordinary share to investors in this offering at the initial public offering price.

The following table illustrates this dilution on a per ordinary share basis:

 

Initial public offering price per ordinary share

   $                

Net tangible book value per ordinary share as of June 30, 2016

  

Increase in net tangible book value per ordinary share resulted from this offering(1)

  
  

 

 

 

Net tangible book value per ordinary share after giving effect to this offering and the application of the net proceeds received by us

  
  

 

 

 

Dilution per ordinary share to investors in this offering(2)

   $     
  

 

 

 

 

(1) After deducting the underwriting discount and other estimated offering expenses payable by us and the application of the net proceeds received by us as described in “Use of Proceeds.”
(2) Dilution is determined by subtracting (i) net tangible book value per ordinary share after giving effect to this offering and the application of the net proceeds from (ii) the initial public offering price per ordinary share paid by an investor in this offering.

The following table summarizes, as of June 30, 2016, the total number of ordinary shares purchased from us, the total cash consideration paid to us, and the average price per ordinary share paid by existing owners (including the ordinary shares received by Hyatt upon the completion of this offering upon Hyatt’s conversion of a portion of our preferred shares it currently owns as described in “Use of Proceeds”) and by investors in this offering. As the table shows, new investors purchasing ordinary shares in this offering will pay an average price per ordinary share substantially higher than our existing owners paid. The table below reflects an initial public offering price of $        per ordinary share for ordinary shares purchased in this offering, which is the midpoint of the price range set forth on the cover of this prospectus, and excludes the underwriting discount and other estimated offering expenses payable by us:

 

    

 

Ordinary Shares
Purchased

   

 

Total
Consideration

    Average
Price Per
Ordinary
Share
 
     Number      Percent     Amount      Percent    
     (Dollar amounts in thousands, except per share amounts)  

Existing owners

             $                           $                

Investors in this offering

                      
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

             $                $     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

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SELECTED FINANCIAL INFORMATION AND OPERATING DATA

The following tables set forth selected financial information and operating data. You should read the following selected financial information and operating data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Use of Proceeds,” and our consolidated financial statements and related notes, all included elsewhere in this prospectus. We derived the selected statements of operations data, other financial data, portfolio data and cash flows data for the years ended December 31, 2015 and 2014, and the selected balance sheet data as of December 31, 2015 and 2014 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the selected statements of operations data, other financial data, portfolio data and cash flows data for the six months ended June 30, 2016 and 2015, and the selected balance sheet data as of June 30, 2016 from our unaudited consolidated financial statements included elsewhere in this prospectus. The selected balance sheet data as of June 30, 2015 is derived from our unaudited consolidated financial statements as of June 30, 2015, which are not included elsewhere in this prospectus. The unaudited consolidated financial statements have been prepared on the same basis as our audited consolidated financial statements included elsewhere in this prospectus and, in our opinion, reflect certain adjustments, which include normal recurring adjustments, necessary to present fairly the financial information in those statements. Our historical results may not be indicative of the results that may be achieved in the future.

 

     Six Months Ended June 30,      Year Ended December 31,  
     2016      2015      2015      2014  
     ($ in thousands)  

Statements of Operations Data:

           

Total revenue

   $ 287,256          $ 214,890          $ 408,345          $ 367,237      
  

 

 

    

 

 

    

 

 

    

 

 

 

Direct and selling, general and administrative expenses:

           

Direct

     146,044            122,812            247,080            233,841      

Selling, general and administrative

     44,203            31,372            70,461            62,176      

Pre-opening

     —            6,145            12,440            16,327      

Depreciation and amortization

     25,787            20,717            46,098            65,873      

Impairment loss

     —            —            —            7,285      

Insurance proceeds

     (130)           (11,453)           (27,654)           (3,000)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Direct and selling, general and administrative expenses

     215,904            169,593            348,425            382,502      
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income (loss)

     71,352            45,297            59,920            (15,265)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest expense

     (27,201)           (24,481)           (49,836)           (41,210)     

Other (expense) income, net

     (2,189)           398            (2,128)           (10,777)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) before tax

     41,962            21,214            7,956            (67,252)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Income tax benefit

     4,429            3,077            1,755            29,036      
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

   $ 46,391          $ 24,291          $ 9,711          $ (38,216)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Other Financial Data:

           

Basic earnings (losses) per share

     0.24            0.05            (0.50)           (1.18)     

Diluted earnings (losses) per share

     0.24            0.05            (0.50)           (1.18)     

Portfolio Data:

           

Occupancy

     80.4%         82.9%         80.5%         85.6%   

Net Package ADR(1)

   $ 271          $ 243          $ 222          $ 207      

Net Package RevPAR(2)

     218            201            179            177      

Total net revenue(3)

     281,098            210,684            399,324            358,774      

Adjusted EBITDA(4)

   $ 100,342          $ 67,952          $ 101,681          $ 89,833      

Adjusted EBITDA margin

     35.7%         32.3%         25.5%         25.0%   

Comparable Portfolio(5)

           

Occupancy

     83.2%         82.9%         87.3%         88.7%   

Net Package ADR(1)

   $ 259          $ 242          $ 214          $ 204      

Net Package RevPAR(2)

     216            201            186            181      

Total net revenue(3)

     226,357            210,496            321,215            308,033      

Comparable Adjusted EBITDA(5)

   $ 80,185          $ 64,714          $ 92,074          $ 76,026      

Comparable Adjusted EBITDA margin

     35.4%         30.7%         28.7%         24.7%   

 

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(1) “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 total 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.
(2) “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 total portfolio or comparable portfolio, as applicable, and to evaluate operating performance on a consolidated basis or a regional basis, as applicable.

 

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(3) We derive total net revenue 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 Mexico and Jamaica. Government mandated compulsory tips in the Dominican Republic are not included in this adjustment as they are already excluded from revenue.

 

     Six Months Ended June 30,      Year Ended December 31,  
     2016      2015      2015      2014  
     ($ in thousands)  

Total revenue

   $ 287,256       $ 214,890       $ 408,345       $ 367,237   

Less: compulsory tips

     6,158         4,206         9,021         8,463   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net revenue

     281,098         210,684         399,324         358,774   
  

 

 

    

 

 

    

 

 

    

 

 

 

Less: non-comparable net revenue

     54,741         188         78,109         50,741   
  

 

 

    

 

 

    

 

 

    

 

 

 

Comparable total net revenue

     226,357         210,496         321,215         308,033   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(4) We define “EBITDA,” a non-U.S. GAAP financial measure, as net income (loss), determined in accordance with U.S. GAAP, for the period presented, before interest expense, income tax benefit 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 (income), net

 

    Impairment loss

 

    Management termination fees

 

    Pre-opening expenses

 

    Transaction expenses

 

    Severance expenses

 

    Other tax expense

 

    Jamaica delayed opening expenses

 

    Insurance proceeds

We 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 (income), net), 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, impairment losses, such as those resulting from hurricane damage, and related revenue from insurance policies, other than business interruption insurance policies, as well as expenses incurred in connection with closing or reopening resorts that undergo expansions or renovations, are 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.

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 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.

 

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Adjusted EBITDA is not a substitute for net income (loss) 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 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, 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 this prospectus.

 

(5) We believe that Comparable Adjusted EBITDA is useful to investors because it includes only the Adjusted EBITDA of resorts owned and in operation for the entirety of the periods presented, which eliminates disparities in Adjusted EBITDA due to the acquisition or disposition of resorts or the impact of resort closures or reopenings in connection with redevelopment or renovation projects, and therefore provides a more consistent metric for comparing the performance of our operating resorts. We calculate Comparable Adjusted EBITDA as Adjusted EBITDA 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. For the years ended December 31, 2015 and 2014, our non-comparable resorts were: Hyatt Ziva Cancún, which closed on April 30, 2014 for renovation and reopened on November 15, 2015; Hyatt Ziva Los Cabos, which closed on September 14, 2014 for repairs following Hurricane Odile and reopened on September 15, 2015; Hyatt Ziva Puerto Vallarta, which closed on April 30, 2014 for renovation and reopened on December 20, 2014; and Hyatt Ziva and Hyatt Zilara Rose Hall, which closed in December 2013 for expansion, renovation and repositioning and reopened on December 10, 2014. For the six months ended June 30, 2016 and 2015, our non-comparable resorts were: Hyatt Ziva Cancún, which closed on April 30, 2014 for renovation and reopened on November 15, 2015; and Hyatt Ziva Los Cabos, which closed on September 14, 2014 following Hurricane Odile and reopened on September 15, 2015.

The following is a reconciliation of our net income (loss) to EBITDA and Adjusted EBITDA and Comparable Adjusted EBITDA for the six months ended June 30, 2016 and 2015 and the years ended December 31, 2015 and 2014:

 

     Six Months Ended June 30,      Year Ended December 31,  
     2016      2015      2015      2014  
     ($ in thousands)  

Net income (loss)

   $ 46,391          $ 24,291          $ 9,711          $ (38,216)     

Interest expense

     27,201            24,481            49,836            41,210      

Income tax benefit

     (4,429)           (3,077)           (1,755)           (29,036)     

Depreciation and amortization

     25,787            20,717            46,098            65,873      
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

   $ 94,950          $ 66,412          $ 103,890          $ 39,831      

Other expense (income), net (a)

     2,189            (398)           2,128            10,777      

Impairment loss (b)

     —            —            —            7,285      

Management termination fees (c)

     —            —            —            340      

Pre-opening expense (d)

     —            1,597            4,105            12,880      

Transaction expense (e)

     2,671            2,656            5,353            12,347      

Severance expense (f)

     —            —            —            2,914      

Other tax expense (g)

     662            1,591            1,949            1,190      

Jamaica delayed opening accrual (h)

     —            47            (1,458)           2,269      

Insurance proceeds (i)

     (130)           (3,953)           (14,286)           —      
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 100,342          $ 67,952          $ 101,681          $ 89,833      
  

 

 

    

 

 

    

 

 

    

 

 

 

Less: Non-Comparable Adjusted EBITDA

     (20,157)           (3,238)           (9,607)           (13,807)     
  

 

 

    

 

 

    

 

 

    

 

 

 

Comparable Adjusted EBITDA (j)

   $ 80,185          $ 64,714          $ 92,074          $ 76,026      
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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(a) Represents changes in foreign exchange and other miscellaneous expenses or income.
(b) Impairment loss attributable to Hyatt Ziva Los Cabos following Hurricane Odile.
(c) Represents expenses incurred in connection with terminating the third-party management contracts pursuant to which our resorts located in Los Cabos, Cancún and Puerto Vallarta were previously managed.
(d) Represents pre-opening expenses incurred in connection with the expansion, renovation, repositioning and rebranding of Hyatt Ziva Cancún, Hyatt Ziva Puerto Vallarta, and Hyatt Ziva and Hyatt Zilara Rose Hall. Excludes pre-opening expenses incurred at Hyatt Ziva Los Cabos following Hurricane Odile, as those expenses were offset with proceeds from business interruption insurance.
(e) Represents expenses incurred in connection with this offering, including corporate initiatives, such as: the redesign and build-out of our internal controls; other capital raising efforts; and strategic initiatives, such as possible expansion into new markets. We eliminate these expenses from Adjusted EBITDA because they are not attributable to our core operating performance. Certain of these expenses are infrequent and unusual and are not expected to recur in future years.
(f) Represents expenses incurred in connection with the termination of employees at Dreams Cancún (now Hyatt Ziva Cancún) and Dreams Puerto Vallarta (now Hyatt Ziva Puerto Vallarta) in connection with the closure of these resorts for renovations in May 2014.
(g) Relates primarily to a Dominican Republic asset 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 expense we eliminate from our calculation of EBITDA.
(h) Represents an expense accrual recorded in 2014 related to our future stay obligations provided to guests affected by the delayed reopening of Hyatt Ziva and Hyatt Zilara Rose Hall. The reversal of this accrual occurred throughout 2015.
(i) Represents a portion of the insurance proceeds related to property insurance, including proceeds received in connection with Hurricane Odile in 2015, and not business interruption insurance proceeds. The business interruption insurance proceeds associated with Hurricane Odile were offset by the expenses incurred while Hyatt Ziva Los Cabos was closed and are included in net income (loss).
(j) Excludes Adjusted EBITDA contribution from Hyatt Ziva Los Cabos and Hyatt Ziva Cancún for the six months ended June 30, 2016 and 2015. Excludes Adjusted EBITDA contribution from Hyatt Ziva Puerto Vallarta, Hyatt Ziva and Hyatt Zilara Rose Hall, Hyatt Ziva Los Cabos and Hyatt Ziva Cancún for the years ended December 31, 2015 and 2014.

 

     Six Months Ended June 30,      Year Ended December 31,  
     2016      2015      2015      2014  
     ($ in thousands)  

Balance Sheet Data (as of end of period):

           

Property, plant, and equipment, net

   $ 1,413,245       $ 1,399,975       $ 1,432,855       $ 1,338,997   

Cash and cash equivalents

     52,408         57,716         35,460         39,146   

Total assets

     1,643,155         1,635,196         1,644,024         1,545,121   

Total debt

     803,156         812,649         828,438         753,105   

Total liabilities

     1,050,765         1,074,323         1,098,034         1,008,358   

Cumulative redeemable preferred shares

     373,970         331,672         352,275         312,618   

Total equity (excluding preferred shares)

   $ 218,420       $ 229,201       $ 193,715       $ 224,145   

Cash Flows Data:

           

Net cash provided by (used in):

           

Operating activities

   $ 50,913       $ 18,133       $ 30,799       $ 3,715   

Investing activities

     (5,827      (56,347      (104,147      (116,462

Financing activities

     (28,138      56,784         69,662         68,447   

Capital expenditures

   $ 5,843       $ 61,076       $ 119,704       $ 131,511   

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our consolidated financial statements and related notes that appear elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including, but not limited, to those described in the “Risk Factors” section of this prospectus. Actual results may differ materially from those contained in any forward-looking statements. You should carefully read “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”

Overview

We are a leading owner, operator and developer of all-inclusive resorts in prime beachfront locations in popular vacation destinations in Mexico and the Caribbean. Upon the completion of this offering, we will be the only publicly-traded company focusing exclusively on the all-inclusive segment of the lodging industry. We own a portfolio consisting of 13 resorts (6,142 rooms) located in Mexico, the Dominican Republic and Jamaica.

Our all-inclusive resort model provides guests with an integrated experience, through prepaid packages of room accommodations, food and beverage services and entertainment activities for one all-inclusive rate. This contrasts with other lodging business models which typically only include room accommodations and, in some cases, limited food and beverage service in the stated rate. The all-inclusive model also provides us with the opportunity to sell guests upgrades, premium services and amenities that are not included in the all-inclusive package and that typically generate higher operating margins than package revenue.

We believe that all-inclusive packages are attractive to a broad spectrum of travelers who seek an attractive vacation experience that offers value and a high degree of cost certainty, as compared to traditional resorts, where the costs of discretionary food and beverage services and other amenities can be more unpredictable and significant. We also believe that the cost certainty of the all-inclusive model makes it more resilient to economic downturns, as compared to models that do not provide guests with the same level of cost certainty. As compared to other lodging industry business models, we believe that the all-inclusive model provides us with more predictable revenue, expenses and occupancy rates because, among other reasons, guests at all-inclusive resorts often book and pay for their stays further in advance than guests at traditional resorts. Since stays are generally booked and paid for in advance, customers are less likely to cancel, which allows us to manage on-site expenses and protect operating margins accordingly. These characteristics of the all-inclusive model allow us to more accurately adjust certain operating costs in light of expected demand, as compared to other lodging industry business models. Additionally, occupancy at all-inclusive resorts historically has been more stable over time than occupancy at hotels and resorts operating under other business models. The increased visibility that we have with respect to future occupancy and rates gives us the opportunity to adjust certain costs in light of expected demand in an effort to improve operating margins.

We market and sell our all-inclusive vacation packages through a variety of sales channels, including, with respect to our Hyatt All-Inclusive Resort Brand resorts, multiple Hyatt distribution channels, and, with respect to all of our resorts, tour operators, individual resort websites, travel wholesalers and online outlets. The sales channels have different cost structures, and we seek to use them strategically to generate occupancy and seek higher operating margins. For example, we seek to use lower cost sales channels, such as direct bookings, to improve revenues and margins during the high season, and we may place more reliance on higher cost sales channels, such as online outlets and wholesalers, to drive occupancy during shoulder and lower rate seasons. We bear the costs of wholesale bookings (i.e., commissions), which are typically higher than those of direct guest bookings. We believe that our strategic relationship with Hyatt and the increasing awareness of our all-inclusive resort brands among potential guests will enable us to increase the number of bookings made through lower cost sales channels, such as direct bookings through Hyatt, with respect to our Hyatt All-Inclusive Resort Brand resorts, and our resort websites.

 

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Our Portfolio

The following table presents an overview of our resorts, each of which we own in its entirety. We manage eight of our resorts and a third party, AMResorts, manages five of our resorts. No resort in our portfolio contributed more than 12.5% of our total net revenue or 16.1% of our Adjusted EBITDA for the six months ended June 30, 2016. The table below is organized by our three geographic business segments: the Yucatán Peninsula, the Pacific Coast and the Caribbean Basin.

 

Name of Resort

   Location      Brand and Type      Operator      Rooms  

Yucatán Peninsula

           

Hyatt Ziva Cancún

     Cancún, Mexico         Hyatt Ziva (all ages)         Playa         547   

Hyatt Zilara Cancún

     Cancún, Mexico         Hyatt Zilara (adults-only)         Playa         307   

Gran Caribe Real

     Cancún, Mexico         Gran (all ages)         Playa         470   

THE Royal Playa del Carmen

     Playa del Carmen, Mexico         THE Royal (adults-only)         Playa         513   

Gran Porto Real

     Playa del Carmen, Mexico         Gran (all ages)         Playa         287   

Secrets Capri

     Riviera Maya, Mexico         Secrets (adults-only)         AMResorts         291   

Dreams Puerto Aventuras

     Riviera Maya, Mexico         Dreams (all ages)         AMResorts         305   

Pacific Coast

           

Hyatt Ziva Los Cabos

     Cabo San Lucas, Mexico         Hyatt Ziva (all ages)         Playa         591   

Hyatt Ziva Puerto Vallarta

     Puerto Vallarta, Mexico         Hyatt Ziva (all ages)         Playa         335   

Caribbean Basin

           

Dreams La Romana

    
 
La Romana,
Dominican Republic
  
  
     Dreams (all ages)         AMResorts         756   

Dreams Palm Beach

    
 
Punta Cana, Dominican
Republic
  
  
     Dreams (all ages)         AMResorts         500   

Dreams Punta Cana

    
 
Punta Cana, Dominican
Republic
  
  
     Dreams (all ages)         AMResorts         620   

Hyatt Ziva and Hyatt Zilara Rose Hall(1)

     Montego Bay, Jamaica        
 
Hyatt Ziva (all ages) and
Hyatt Zilara (adults-only)
  
  
     Playa         620   
           

 

 

 

Total Rooms

              6,142   
           

 

 

 

 

(1) Our Jamaica property is treated as a single resort operating under both of the Hyatt All-Inclusive Resort Brands, rather than as two separate resorts.

 

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Results of Operations

Six Months Ended June 30, 2016 and 2015

The following table summarizes our results of operations on a consolidated basis for the six months ended June 30, 2016 and 2015:

 

     Six Months Ended June 30,      Increase / Decrease  
     2016      2015      Change      % Change  
     ($ in thousands)         

Revenue:

     

Package

   $ 249,010        $ 186,487        $ 62,523          33.5%    

Non-package

     38,246          28,403          9,843          34.7%    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

     287,256          214,890          72,366          33.7%    
  

 

 

    

 

 

    

 

 

    

 

 

 

Direct and selling, general and administrative expenses:

           

Direct

     146,044          122,812          23,232          18.9%    

Selling, general and administrative

     44,203          31,372          12,831          40.9%    

Pre-opening

     —            6,145          (6,145)         (100.0)%   

Depreciation and amortization

     25,787          20,717          5,070          24.5%    

Insurance proceeds

     (130 )         (11,453)         11,323          (98.9)%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Direct and selling, general and administrative expenses

     215,904          169,593          46,311          27.3%    
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

     71,352          45,297          26,055          57.5%    
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest expense

     (27,201)         (24,481)         (2,720)         11.1%    

Other (expense) income, net

     (2,189)         398          (2,587)         (650.0)%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income before tax

     41,962          21,214          20,748          97.8%    
  

 

 

    

 

 

    

 

 

    

 

 

 

Income tax benefit

     4,429          3,077          1,352          43.9%    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income

   $ 46,391        $ 24,291        $ 22,100          91.0%    
  

 

 

    

 

 

    

 

 

    

 

 

 

The following tables set forth information with respect to our Occupancy, Net Package ADR, Net Package RevPAR, Net Package Revenue, Net Non-package Revenue (as defined below), total net revenue and Adjusted EBITDA for the six months ended June 30, 2016 and 2015 for both our total portfolio and comparable portfolio. For a description of these operating metrics and non-U.S. GAAP measures and a reconciliation of Net Package Revenue, Net Non-package Revenue and total net revenue to total revenue as computed under U.S. GAAP, see “—Key Indicators of Financial and Operating Performance,” below. For discussions of Adjusted EBITDA and Comparable Adjusted EBITDA and reconciliations of these measures to the most comparable U.S. GAAP financial measures, see “Prospectus Summary—Summary Financial Information and Operating Data.”

Total Portfolio

 

     Six Months Ended June 30,     Increase / Decrease  
     2016     2015     Change      % Change  

Occupancy

     80.4     82.9     (2.5) pts         (3.0 )% 

Net Package ADR

   $ 271      $ 243      $ 28         11.5

Net Package RevPAR

     218        201        17         8.5
     ($ in thousands)         

Net Package Revenue

   $ 243,252      $ 182,280      $ 60,972         33.4

Net Non-package Revenue

     37,846        28,404        9,442         33.2

Total net revenue

     281,098        210,684        70,414         33.4

Adjusted EBITDA

   $ 100,342      $ 67,952      $ 32,390         47.7

 

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Comparable Portfolio

 

     Six Months Ended June 30,     Increase / Decrease  
     2016     2015     Change      % Change  

Occupancy

     83.2     82.9     0.3 pts         0.4

Net Package ADR

   $ 259      $ 242      $ 17         7.0

Net Package RevPAR

     216        201        15         7.5
     ($ in thousands)         

Net Package Revenue

   $ 196,621      $ 182,165      $ 14,456         7.9

Net Non-package Revenue

     29,736        28,331        1,405         5.0

Total net revenue

     226,357        210,496        15,861         7.5

Comparable Adjusted EBITDA

   $ 80,185      $ 64,714      $ 15,471         23.9

Total Revenue and Total Net Revenue

Our total revenue for the six months ended June 30, 2016 increased $72.4 million, or 33.7%, compared to the six months ended June 30, 2015. Our total net revenue (which represents total revenue less compulsory tips paid to employees) for the six months ended June 30, 2016 increased $70.4 million, or 33.4%, compared to the six months ended June 30, 2015. This increase was driven by an increase in Net Package Revenue of $61.0 million, or 33.4%, and an increase in Net Non-package Revenue of $9.4 million, or 33.2%. The increase in Net Package Revenue was the result of an increase in Net Package ADR of $28, or 11.5%, partially offset by a decrease in average occupancy from 82.9% to 80.4%, the equivalent of an increase of $17, or 8.5%, in Net Package RevPAR.

Our comparable resorts for the six months ended June 30, 2016 and 2015 exclude the following: Hyatt Ziva Cancún, which closed on April 30, 2014 for renovation and reopened on November 15, 2015; and Hyatt Ziva Los Cabos, which closed on September 14, 2014 for repairs following Hurricane Odile and reopened on September 15, 2015. Our comparable resorts experienced an increase in average occupancy from 82.9% to 83.2% and an increase in Net Package ADR of $17, or 7.0%, the equivalent of an increase of $15, or 7.5%, in Net Package RevPAR.

Our net revenue increase was a result of a $15.9 million increase in net revenue attributable to our comparable resorts and a $54.5 million increase in net revenue attributable to non-comparable resorts, which was driven by the reopening of Hyatt Ziva Los Cabos and Hyatt Ziva Cancún.

Direct Expenses

The following table shows a reconciliation of our direct expenses to net direct expenses for the six months ended June 30, 2016 and 2015 ($ in thousands):

 

     Six Months Ended June 30,      Increase/Decrease  
     2016      2015      Change      % Change  

Direct expenses

   $ 146,044       $ 122,812       $ 23,232         18.9%   

Less: tips

     6,158         4,206         1,952         46.4%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net direct expenses

   $ 139,886       $ 118,606       $ 21,280         17.9%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Our direct expenses include resort expenses, such as food and beverage, salaries and wages, utilities and other ongoing operational expenses. Our net direct expenses (which represents total direct expenses less compulsory tips paid to employees) for the six months ended June 30, 2016 were $139.9 million, or 49.8%, of total net revenue and $118.6 million, or 56.3%, of total net revenue for the six months ended June 30, 2015. Net direct expenses for the six months ended June 30, 2016 include $37.5 million of food and beverage expenses, $43.8 million of resort salary and wages, $11.9 million of utility expenses, $7.2 million of repairs and maintenance expenses, $1.5 million of licenses and property taxes, $0.3 million of guest costs and $30.8 million of other operational expenses. Other operational expenses primarily include $2.4 million of office supplies, $2.3 million of guest supplies, $0.8 million of computer and telephone expenses, $1.2 million of laundry and cleaning expenses, $1.2 million of transportation and travel expenses, $1.7 million of entertainment expenses, $7.9 million of Hyatt fees, $4.0 million of outside service expenses and $2.5 million of property and equipment rental expenses.

 

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Net direct expenses for the six months ended June 30, 2015 include $31.7 million of food and beverage expenses, $43.2 million of resort salaries and wages, $12.2 million of utility expenses, $5.9 million of repairs and maintenance expenses, $2.6 million of licenses and property taxes and $17.3 million of other operational expenses. Other operational expenses primarily include $2.3 million of office supplies, $1.9 million of guest supplies, $0.8 million of computer and telephone expenses, $1.4 million of laundry and cleaning expenses, $1.4 million of transportation and travel expenses, $1.5 million of entertainment expenses, $2.9 million of Hyatt fees, $1.1 million of overbooking expenses and $1.1 million of property and equipment rental expenses.

Net direct expenses for the six months ended June 30, 2016 increased $21.3 million, or 17.9%, compared to the six months ended June 30, 2015. This increase was a result of a $27.1 million increase in net direct expenses attributable to our non-comparable resorts (due to the reopening of Hyatt Ziva Los Cabos and Hyatt Ziva Cancún) and a $5.8 million decrease in net direct expenses attributable to our comparable resorts. The increases in net direct expenses were primarily attributable to an increase in resort salaries and wages of $0.6 million, an increase in food and beverage expenses of $5.8 million, an increase in repairs and maintenance expenses of $1.3 million and an increase in other operational expenses of $13.6 million (all of which were primarily driven by the reopening of Hyatt Ziva Los Cabos and Hyatt Ziva Cancún). These expenses were partially offset by a decrease in license and property taxes of $1.1 million and a decrease in utility expenses of $0.3 million.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the six months ended June 30, 2016 increased $12.8 million, or 40.9%, compared to the six months ended June 30, 2015. This increase was primarily driven by an increase in advertising expenses of $8.2 million, an increase in professional fees of $1.4 million, an increase in insurance expenses of $0.2 million (all of which were primarily driven by the reopening of Hyatt Ziva Los Cabos and Hyatt Ziva Cancún) and an increase in corporate personnel costs of $2.6 million.

Pre-Opening Expenses

We incurred no pre-opening expenses during the six months ended June 30, 2016. Pre-opening expenses for the six months ended June 30, 2015 were $6.1 million and consisted of expenses incurred in connection with the renovations and expansions of Hyatt Ziva Los Cabos and Hyatt Ziva Cancún.

Depreciation and Amortization Expense

Our depreciation and amortization expense for the six months ended June 30, 2016 increased $5.1 million, or 24.5%, compared to the six months ended June 30, 2015. This increase was driven by the reopening of Hyatt Ziva Los Cabos and Hyatt Ziva Cancún.

Insurance Proceeds

We received $0.1 million of insurance proceeds during the six months ended June 30, 2016, which represents proceeds related to a small claim at Dreams Palm Beach. We received $11.5 million of insurance proceeds during the six months ended June 30, 2015, which represents business interruption and property damage insurance related to Hyatt Ziva Los Cabos. The resort sustained significant damage when Hurricane Odile, a Category 3 hurricane, made landfall on Mexico’s Baja peninsula on September 14, 2014. The resort underwent repairs and reopened on September 15, 2015.

Interest Expense

Our interest expense for the six months ended June 30, 2016 increased $2.7 million, or 11.1%, as compared to the six months ended June 30, 2015. This increase was primarily attributable to the issuance of an additional $50.0 million of our Senior Notes due 2020 on May 12, 2015.

 

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Income Tax Benefit

The income tax benefit for the six months ended June 30, 2016 was $4.4 million, an increase of $1.3 million compared to the six months ended June 30, 2015, during which we reported an income tax benefit of $3.1 million. The increased income tax benefit in the six months ended June 30, 2016 was driven primarily by a $2.8 million increase in the discrete benefit associated with foreign exchange rate fluctuations, partially offset by a $1.8 million decrease in tax benefit due to favorable tax rates in certain of our jurisdictions.

Adjusted EBITDA

Our Adjusted EBITDA for the six months ended June 30, 2016 increased $32.4 million, or 47.7%, compared to the six months ended June 30, 2015. This increase was a result of a $15.5 million increase in Comparable Adjusted EBITDA, and a $16.9 million increase in Adjusted EBITDA attributable to our non-comparable resorts.

For discussions of Adjusted EBITDA and Comparable Adjusted EBITDA and reconciliations of these measures to the most comparable U.S. GAAP financial measures, see “Prospectus Summary—Summary Financial Information and Operating Data.”

 

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Years Ended December 31, 2015 and 2014

The following table summarizes our results of operations on a consolidated basis for the years ended December 31, 2015 and 2014:

 

     Year Ended December 31,      Increase / Decrease  
     2015      2014      Change      % Change  
     ($ in thousands)         

Revenue:

     

Package

   $ 352,820        $ 312,130        $ 40,690          13.0%   

Non-package

     55,525          55,107          418          0.8%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

     408,345          367,237          41,108          11.2%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Direct and selling, general and administrative expenses:

           

Direct

     247,080          233,841          13,239          5.7%   

Selling, general and administrative

     70,461          62,176          8,285          13.3%   

Pre-opening

     12,440          16,327          (3,887)         (23.8)%   

Depreciation and amortization

     46,098          65,873          (19,775)         (30.0)%   

Impairment loss

     —            7,285          (7,285)         (100.0)%   

Insurance proceeds

     (27,654)         (3,000)         (24,654)         821.8%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Direct and selling, general and administrative expenses

     348,425          382,502          (34,077)         (8.9)%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating Income (loss)

     59,920          (15,265)         75,185          (492.5)%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Interest expense

     (49,836)         (41,210)         (8,626)         20.9%   

Other (expense) income, net

     (2,128)         (10,777)         8,649          (80.3)%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) before tax

     7,956          (67,252)         75,208          (111.8)%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income tax benefit

     1,755          29,036          (27,281)         (94.0)%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

   $ 9,711        $ (38,216)       $ 47,927          (125.4)%   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following tables set forth information with respect to our Occupancy, Net Package ADR, Net Package RevPAR, Net Package Revenue, Net Non-package Revenue, total net revenue and Adjusted EBITDA for the years ended December 31, 2015 and 2014 for both our total portfolio and comparable portfolio. For a description of these operating metrics and non-U.S. GAAP measures and a reconciliation of Net Package Revenue, Net Non-package Revenue and total net revenue to total revenue as computed under U.S. GAAP, see “—Key Indicators of Financial and Operating Performance” below. For discussions of Adjusted EBITDA and Comparable Adjusted EBITDA and reconciliations of these measures to the most comparable U.S. GAAP financial measures, see “Prospectus Summary—Summary Financial Information and Operating Data.”

Total Portfolio

 

     Year Ended December 31,     Increase / Decrease  
     2015     2014     Change      % Change  

Occupancy

     80.5     85.6     (5.1) pts         (6.0 )% 

Net Package ADR

   $ 222      $ 207      $ 15         7.2

Net Package RevPAR

     179        177        2         1.1
     ($ in thousands)         

Net Package Revenue

   $ 343,799      $ 303,667      $ 40,132         13.2

Net Non-package Revenue

     55,525        55,107        418         0.8

Total net revenue

     399,324        358,774        40,550         11.3

Adjusted EBITDA

   $ 101,681      $ 89,833      $ 11,848         13.2

 

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Comparable Portfolio

 

     Year Ended December 31,     Increase/Decrease  
     2015     2014     Change      % Change  

Occupancy

     87.3     88.7     (1.4) pts         (1.6 )% 

Net Package ADR

   $ 214      $ 204      $ 10         4.9

Net Package RevPAR

     186        181        5         2.8
     ($ in thousands)         

Net Package Revenue

   $ 275,434      $ 262,159      $ 13,275         5.1

Net Non-package Revenue

     45,781        45,874        (93      (0.2 )% 

Total net revenue

     321,215        308,033        13,182         4.3

Comparable Adjusted EBITDA

   $ 92,074      $ 76,026      $ 16,048         21.1

Total Revenue and Total Net Revenue

Our total revenue for the year ended December 31, 2015 increased $41.1 million, or 11.2%, compared to the year ended December 31, 2014. Our total net revenue (which represents total revenue less compulsory tips paid to employees) for the year ended December 31, 2015 increased $40.5 million, or 11.3%, compared to the year ended December 31, 2014. This increase was driven by an increase in Net Package Revenue of $40.1 million, or 13.2%, and an increase in Net Non-package Revenue of $0.4 million, or 0.8%. The increase in Net Package Revenue resulted from an increase in Net Package ADR of $15, or 7.2%, partially offset by a decrease in average occupancy of 5.1%, the equivalent of an increase of $2, or 1.1%, in Net Package RevPAR.

Our comparable resorts for the year ended December 31, 2015 exclude the following: Hyatt Ziva Cancún, which closed on April 30, 2014 for renovation and reopened on November 15, 2015; Hyatt Ziva Los Cabos, which closed on September 14, 2014 following Hurricane Odile and reopened on September 15, 2015; Hyatt Ziva Puerto Vallarta, which closed on April 30, 2014 for renovation and reopened on December 20, 2014; and Hyatt Ziva and Hyatt Zilara Rose Hall, which closed on June 1, 2014 for expansion, renovation and repositioning and reopened on December 10, 2014.

Our net revenue increase was a result of a $13.2 million increase attributable to our comparable resorts and a $27.3 million increase in net revenue attributable to our non-comparable resorts (due to the reopenings of Hyatt Ziva and Hyatt Zilara Rose Hall, Hyatt Ziva Puerto Vallarta, Hyatt Ziva Los Cabos and Hyatt Ziva Cancún).

Results for the year ended December 31, 2014 included $4.6 million of additional package revenue at our resorts in the Dominican Republic. This additional revenue is associated with the signing of an agreement that governs the local VAT rates with the authorities in the Dominican Republic. Excluding this item, net revenue for our comparable resorts for the year ended December 31, 2015 increased $17.8 million compared to the year ended December 31, 2014.

Our Net Package Revenue increase was the result of an increase in Net Package ADR of $15, or 7.2%, partially offset by a decrease in average occupancy of 5.1%, the equivalent of an increase of $2, or 1.1%, in Net Package RevPAR. Our comparable resorts experienced a decrease in average occupancy of 1.4% and an increase in Net Package ADR of $10, or 4.9%, the equivalent of an increase of $5, or 2.8%, in Net Package RevPAR.

 

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Direct Expenses

The following table shows a reconciliation of our direct expenses to net direct expenses for the years ended December 31, 2015 and 2014 ($ in thousands):

 

     Year Ended December 31,      Increase/Decrease  
     2015      2014      Change      % Change  

Direct expenses

   $ 247,080       $ 233,841       $ 13,239         5.7%   

Less: tips

     9,021         8,463         558         6.6%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net direct expenses

   $ 238,059       $ 225,378       $ 12,681         5.6%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Our direct expenses include resort expenses, such as food and beverage, salaries and wages, utilities and other ongoing operational expenses. Our net direct expenses (which represent total direct expenses less compulsory tips paid to employees) for the year ended December 31, 2015 were $238.1 million, or 59.6% of total net revenue, and $225.4 million, or 62.8% of total net revenue, for the year ended December 31, 2014. Net direct expenses for the year ended December 31, 2015 include $64.4 million of food and beverage expenses, $95.1 million of resort salaries and wages, $25.2 million of utility expenses, $12.4 million of repairs and maintenance expenses, $3.5 million of licenses and property taxes and $28.2 million of other operational expenses. Other operational expenses primarily include $5.1 million of office supplies, $3.8 million of guest supplies, $1.6 million of computer and telephone expenses, $2.8 million of laundry and cleaning expenses, $0.6 million of transportation and travel expenses, $2.8 million of entertainment expenses, $6.2 million of Hyatt fees and $2.5 million of property and equipment rental expenses.

Net direct expenses for the year ended December 31, 2014 include $57.8 million of food and beverage expenses, $85.8 million of resort salaries and wages, $27.6 million of utility expenses, $11.7 million of repairs and maintenance expenses, $4.0 million of licenses and property taxes, and $23.9 million of other operational expenses. Other operational expenses primarily include $3.6 million of office supplies, $2.7 million of guest supplies, $1.7 million of computer and telephone expenses, $2.9 million of laundry and cleaning expenses, $0.8 million of transportation and travel expenses, $2.3 million of entertainment expenses, $3.6 million of Hyatt fees, $2.2 million of overbooking expenses and $2.2 million of property and equipment rental expenses.

Net direct expenses for the year ended December 31, 2015 increased $12.7 million, or 5.6%, compared to the year ended December 31, 2014. This increase was a result of a $24.2 million increase in net direct expenses attributable to our non-comparable resorts (due to the reopenings of Hyatt Ziva and Hyatt Zilara Rose Hall, Hyatt Ziva Puerto Vallarta, Hyatt Ziva Los Cabos and Hyatt Ziva Cancún), partially offset by an $11.5 million decrease in net direct expenses attributable to our comparable resorts. The increase in net direct expenses was primarily attributable to an increase in resort salaries and wages of $9.3 million, an increase in food and beverage expenses of $6.6 million and an increase in other operational expenses of $4.3 million (all of which were primarily driven by the reopening Hyatt Ziva and Hyatt Zilara Rose Hall, Hyatt Ziva Puerto Vallarta, Hyatt Ziva Los Cabos and Hyatt Ziva Cancún). These were partially offset by a $3.4 million decrease in incentive and management fees and a $2.4 million decrease in utilities expenses.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the year ended December 31, 2015 increased $8.3 million, or 13.3%, compared to the year ended December 31, 2014. This increase was primarily driven by an increase in advertising expenses of $2.2 million, an increase in professional fees of $6.3 million, an increase in insurance expense of $3.3 million (due to the reopening of Hyatt Ziva and Hyatt Zilara Rose Hall, Hyatt Ziva Puerto Vallarta, Hyatt Ziva Los Cabos and Hyatt Ziva Cancún) and an increase in corporate personnel costs of $5.4 million. These were partially offset by a decrease in transaction expenses of $7.0 million and a decrease in other corporate expenses of $3.6 million.

Pre-Opening Expenses

Our pre-opening expenses for the year ended December 31, 2015 decreased $3.9 million compared to the year ended December 31, 2014. Pre-opening expenses for the year ended December 31, 2014 consisted of expenses incurred in connection with the renovations and expansions of Hyatt Ziva and Hyatt Zilara Rose Hall, Hyatt Ziva Puerto Vallarta, Hyatt Ziva Los Cabos and Hyatt

 

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Ziva Cancún. Pre-opening expenses for the year ended December 31, 2015 consisted of expenses incurred only in connection with renovations and expansions of Hyatt Ziva Los Cabos and Hyatt Ziva Cancún, as Hyatt Ziva and Hyatt Zilara Rose Hall and Hyatt Ziva Puerto Vallarta reopened for business in the fourth quarter of 2014.

Depreciation and Amortization Expense

Our depreciation and amortization expense for the year ended December 31, 2015 decreased $19.8 million, or 30.0%, compared to the year ended December 31, 2014. This decrease was largely driven by the closure of Dreams Cancún, which closed in April 2014 for expansion, renovation and rebranding into the Hyatt Ziva Cancún. The resort reopened on November 15, 2015, and, therefore, 2015 only includes one full month of depreciation for that resort.

Impairment Loss

We had no impairment loss for the year ended December 31, 2015 compared to an impairment loss of $7.3 million for the year ended December 31, 2014. Impairment loss for the year ended December 31, 2014 represents the impairment recognized at Hyatt Ziva Los Cabos after sustaining damage from Hurricane Odile on September 14, 2014, thus leading to the temporary closure of the resort.

Insurance Proceeds

Our insurance proceeds for the year ended December 31, 2015 increased $24.7 million compared to the year ended December 31, 2014. Insurance proceeds for the year ended December 31, 2014 represent business interruption insurance related to Hyatt Ziva Los Cabos. The resort sustained significant damage when Hurricane Odile, a Category 3 hurricane, made landfall on Mexico’s Baja peninsula on September 14, 2014. The resort underwent repairs and reopened on September 15, 2015. Insurance proceeds for the year ended December 31, 2015 represent property insurance and business interruption insurance related to Hyatt Ziva Los Cabos and included an additional $0.6 million related to a minor claim at Dreams Punta Cana.

Interest Expense

Our interest expense for the year ended December 31, 2015 increased $8.6 million, or 20.9%, as compared to the year ended December 31, 2014. This increase was primarily attributable to the issuance of an additional $50.0 million of our Senior Notes due 2020 on May 12, 2015 and an increase in the balance outstanding under our Revolving Credit Facility from $25.0 million as of the year ended December 31, 2014 to $50.0 million as of the year ended December 31, 2015.

Income Tax Benefit

The income tax benefit for the year ended December 31, 2015 was $1.8 million, a decrease of $27.3 million compared to the year ended December 31, 2014, during which we reported an income tax benefit of $29.0 million. The decreased income tax benefit in the year ended December 31, 2015 was driven primarily by a $75.2 million increase in net income before tax in 2015, as well as a $25.0 million tax benefit related to the reversal of previously accrued income tax contingencies in the year ended December 31, 2014, which is non-recurring.

Adjusted EBITDA

Our Adjusted EBITDA for the year ended December 31, 2015 increased $11.8 million, or 13.2%, compared to the year ended December 31, 2014. This increase was a result of a $16.0 million increase in Comparable Adjusted EBITDA and partially offset by a $4.2 million decrease in Adjusted EBITDA attributable to our non-comparable resorts. Results for the year ended December 31, 2014 included $4.2 million of additional EBITDA from our resorts located in the Dominican Republic. This additional EBITDA is associated with the signing of an agreement that governs the local VAT rates with the authorities in the Dominican Republic. Excluding this item, Comparable Adjusted EBITDA increased $20.2 million compared to the year ended December 31, 2014. For discussions of Adjusted EBITDA and Comparable Adjusted EBITDA and reconciliations of these measures to the most comparable U.S. GAAP financial measures, see “Prospectus Summary—Summary Financial Information and Operating Data.”

 

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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 “Prospectus Summary—Summary Financial Information and Operating Data.” 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 revenue

 

    Net Package Revenue

 

    Net Non-package Revenue

 

    Occupancy

 

    Net Package ADR

 

    Net Package RevPAR

 

    Adjusted EBITDA

 

    Comparable Adjusted EBITDA

Net Revenue, Net Package Revenue and Net Non-package Revenue

We derive net revenue 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 Mexico and Jamaica. Government mandated compulsory tips in the Dominican Republic are not included in this adjustment, as they are already excluded from revenue. Net revenue is recognized 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. Food and beverage revenue not included in a guest’s all-inclusive package is recognized when the goods are consumed. 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 results, our management differentiates between Net Package Revenue and Net Non-package Revenue (as such terms are defined below). 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. “Net Package Revenue” consists of net revenues derived from all-inclusive packages purchased by our guests. “Net Non-package Revenue” primarily includes net 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.

 

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The following table shows a reconciliation of comparable Net Package Revenue, comparable Net Non-package Revenue and comparable net revenue to total revenue for the six months ended June 30, 2016 and 2015 and the years ended December 31, 2015 and 2014:

 

     Six Months Ended June 30,      Year Ended December 31,  
     2016      2015      2015      2014  
     ($ in thousands)  

Net Package Revenue:

           

Comparable Net Package Revenue(1)

   $ 196,621       $ 182,165       $ 275,434       $ 262,159   

Non-comparable Net Package Revenue

     46,631         115         68,365         41,508   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Net Package Revenue

     243,252         182,280         343,799         303,667   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net Non-package Revenue:

           

Comparable Net Non-package Revenue

   $ 29,736       $ 28,331       $ 45,781       $ 45,874   

Non-comparable Net Non-package Revenue

     8,110         73         9,744         9,233   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Net Non-package Revenue

     37,846         28,404         55,525         55,107   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net revenue:

           

Comparable total net revenue

   $ 226,357       $ 210,496       $ 321,215       $ 308,033   

Non-comparable net revenue

     54,741         188         78,109         50,741   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net revenue

     281,098         210,684         399,324         358,774   
  

 

 

    

 

 

    

 

 

    

 

 

 

Plus: compulsory tips

     6,158         4,206         9,021         8,463   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenue

   $ 287,256       $ 214,890       $ 408,345       $ 367,237   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) See “—Comparable Non-U.S. GAAP Measures” below for a discussion of our comparable metrics.

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 for a 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.

 

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Adjusted EBITDA

We define EBITDA, a non-U.S. GAAP financial measure, as net income (loss), determined in accordance with U.S. GAAP, for the period presented, before interest expense, income tax benefit 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 (income), net

 

    Impairment loss

 

    Management termination fees

 

    Pre-opening expenses

 

    Transaction expenses

 

    Severance expenses

 

    Other tax expense

 

    Jamaica delayed opening expenses

 

    Insurance proceeds

We 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 (income), net), 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, impairment losses, such as those resulting from hurricane damage, and related revenue from insurance policies, other than business interruption insurance policies, as well as expenses incurred in connection with closing or reopening resorts that undergo expansions or renovations, are 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.

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 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.

Adjusted EBITDA is not a substitute for net income (loss) 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 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, 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 this prospectus.

For a reconciliation of EBITDA and Adjusted EBITDA to net income (loss) as computed under U.S. GAAP, see “Prospectus Summary—Summary Financial Information and Operating Data.”

 

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Comparable Non-U.S. GAAP Measures

We believe that presenting Adjusted EBITDA, total net revenue, Net Package Revenue and Net Non-package Revenue 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 reopenings 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. For the years ended December 31, 2015 and 2014, our non-comparable resorts were: Hyatt Ziva Cancún, which closed on April 30, 2014 for renovation and reopened on November 15, 2015; Hyatt Ziva Los Cabos, which closed on September 14, 2014 for repairs following Hurricane Odile and reopened on September 15, 2015; Hyatt Ziva Puerto Vallarta, which closed on April 30, 2014 for renovation and reopened on December 20, 2014; and Hyatt Ziva and Hyatt Zilara Rose Hall, which closed in December 2013 for expansion, renovation and repositioning and reopened on December 10, 2014. For the six months ended June 30, 2016 and 2015, our non-comparable resorts were: Hyatt Ziva Cancún, which closed on April 30, 2014 for renovation and reopened on November 15, 2015; and Hyatt Ziva Los Cabos, which closed on September 14, 2014 following Hurricane Odile and reopened on September 15, 2015.

For a reconciliation of Comparable Adjusted EBITDA to net income (loss) as computed under U.S. GAAP, see “Prospectus Summary—Summary Financial Information and Operating Data.” For a reconciliation of comparable Net Package Revenue, comparable Net Non-package Revenue and comparable total net revenue to total revenue as computed under U.S. GAAP, see “—Net Revenue, Net Package Revenue and Net Non-package Revenue” in this section.

 

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Segment Results

Six Months Ended June 30, 2016 and 2015

We evaluate our business segment operating performance using segment net revenue and segment Adjusted EBITDA. The following tables summarize segment net revenue and segment Adjusted EBITDA for the six months ended June 30, 2016 and 2015:

 

     Six Months Ended June 30,                
     2016      2015      Change      % Change  
     ($ in thousands)         

Net revenue:

     

Yucatán Peninsula

   $ 132,757       $ 110,281       $ 22,476         20.4%   

Pacific Coast

     43,057         8,709         34,348         394.4%   

Caribbean Basin

     105,280         91,527         13,753         15.0%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Segment net revenue

     281,094         210,517         70,577         33.5%   

Other

     4         167         (163)         (97.6)%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net revenue

   $ 281,098       $ 210,684       $ 70,414         33.4%   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Six Months Ended June 30,                
     2016      2015      Change      % Change  
     ($ in thousands)         

Adjusted EBITDA:

  

Yucatán Peninsula

   $ 60,799       $ 47,759       $ 13,040         27.3%   

Pacific Coast

     16,788         4,089         12,699         310.6%   

Caribbean Basin

     37,003         26,455         10,548         39.9%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Segment Adjusted EBITDA

     114,590         78,303         36,287         46.3%   

Other corporate—unallocated

     (14,248)         (10,351)         (3,897)         37.6%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Adjusted EBITDA

   $ 100,342       $ 67,952       $ 32,390         47.7%   
  

 

 

    

 

 

    

 

 

    

 

 

 

For a reconciliation of segment net revenue and segment Adjusted EBITDA to gross revenue and net income (loss), respectively, each as computed under U.S. GAAP, see Note 14 to our 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, total net revenue and Adjusted EBITDA for our Yucatán Peninsula segment for the six months ended June 30, 2016 and 2015 for the total segment portfolio and comparable segment portfolio:

Total Portfolio

 

     Six Months Ended June 30,                
     2016      2015      Change      % Change  

Occupancy

     84.0 %         88.6 %         (4.6) pts         (5.2)%   

Net Package ADR

   $ 280       $ 276       $ 4         1.4%   

Net Package RevPAR

     235         245         (10)         (4.1)%   
     ($ in thousands)         

Net Package Revenue

   $ 116,380       $ 96,135       $ 20,245         21.1%   

Net Non-package Revenue

     16,377         14,146         2,231         15.8%   

Total net revenue

     132,757         110,281         22,476         20.4%   

Adjusted EBITDA

   $ 60,799       $ 47,759       $ 13,040         27.3%   

 

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Comparable Portfolio

 

     Six Months Ended June 30,                
     2016      2015      Change      % Change  

Occupancy

     87.8 %         88.6 %         (0.8) pts         (0.9)%   

Net Package ADR

   $ 275            $ 276            $ (1)         (0.4)%   

Net Package RevPAR

     241              244              (3)         (1.2)%   
     ($ in thousands)         

Net Package Revenue

   $ 95,478            $ 96,135            $ (657)         (0.7)%   

Net Non-package Revenue

     13,643              14,111              (468)         (3.3)%   

Total net revenue

     109,121              110,246              (1,125)         (1.0)%   

Comparable Adjusted EBITDA

   $ 53,564            $ 47,772            $ 5,792           12.1%    

Segment Total Net Revenue. Our net revenue for the six months ended June 30, 2016 increased $22.5 million, or 20.4%, compared to the six months ended June 30, 2015. This increase was primarily due to the reopening of Hyatt Ziva Cancún, which accounted for a $23.6 million increase in net revenue compared to the six months ended June 30, 2015. The remaining resorts recorded a decrease of $1.1 million, or 1.0%, compared to the six months ended June 30, 2015. This was primarily attributable to a large decrease in occupancy at our two resorts in Playa del Carmen during January 2016 caused by fewer bookings from major tour operators.

Segment Adjusted EBITDA. Our Adjusted EBITDA for the six months ended June 30, 2016 increased $13.0 million, or 27.3%, compared to the six months ended June 30, 2015. This increase was due to a $7.2 million increase in Adjusted EBITDA related to the newly-opened Hyatt Ziva Cancún. The remaining resorts had Adjusted EBITDA of $53.6 million, an increase of $5.8 million, or 12.1%, compared to the six months ended June 30, 2015.

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, total net revenue and Adjusted EBITDA for our Pacific Coast segment for the six months ended June 30, 2016 and 2015 for the total segment portfolio and comparable segment portfolio:

Total Portfolio

 

     Six Months Ended June 30,                
     2016      2015      Change      % Change  

Occupancy

     68.5 %         58.3%         10.2 pts         17.5%   

Net Package ADR

   $ 314            $ 218           $ 96         44.0%   

Net Package RevPAR

     215              127             88         69.3%   
     ($ in thousands)         

Net Package Revenue

   $ 36,279            $ 7,719           $ 28,560         370.0%   

Net Non-package Revenue

     6,778              990             5,788         584.6%   

Total net revenue

     43,057              8,709             34,348         394.4%   

Adjusted EBITDA

   $ 16,788            $ 4,089           $ 12,699         310.6%   

 

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Comparable Portfolio

 

     Six Months Ended June 30,                
     2016      2015      Change      % Change  

Occupancy

     70.0%         58.3%         11.7 pts         20.1%   

Net Package ADR

   $ 247           $ 215           $ 32         14.9%   

Net Package RevPAR

     173             125             48         38.4%   
     ($ in thousands)         

Net Package Revenue

   $ 10,550           $ 7,604           $ 2,946         38.7%   

Net Non-package Revenue

     1,402             952             450         47.3%   

Total net revenue

     11,952             8,556             3,396         39.7%   

Comparable Adjusted EBITDA

   $ 3,866           $ 840           $ 3,026         360.2%   

Segment Total Net Revenue. Our total net revenue for the six months ended June 30, 2016 increased $34.3 million, or 394.4%, compared to the six months ended June 30, 2015. This increase was primarily due to the reopening of Hyatt Ziva Los Cabos in September 2015, which resulted in a $31.0 million increase in net revenue compared to the six months ended June 30, 2015. The remaining resort, Hyatt Ziva Puerto Vallarta, recorded an increase of $3.4 million, or 39.7%, compared to the six months ended June 30, 2015. This was primarily attributable to an increase in occupancy and Net Package ADR.

Segment Adjusted EBITDA. Our Adjusted EBITDA for the six months ended June 30, 2016 increased $12.7 million, or 310.6%, compared to the six months ended June 30, 2015. This increase was due to a $9.7 million increase in Adjusted EBITDA related to the newly-opened Hyatt Ziva Los Cabos. The remaining resort, Hyatt Ziva Puerto Vallarta, had Adjusted EBITDA of $3.9 million, an increase of $3.0 million, or 360.2%, compared to the six months ended June 30, 2015.

Caribbean Basin

The following table sets forth information with respect to our Occupancy, Net Package ADR, Net Package RevPAR, Net Package Revenue, Net Non-package Revenue, total net revenue and Adjusted EBITDA for our Caribbean Basin segment for the six months ended June 30, 2016 and 2015 for the total segment portfolio. As the properties in the Caribbean Basin were owned and operated during the entirety of the periods shown, the total segment portfolio and comparable segment portfolio statistics are identical, and as such, no comparable data is needed.

Total Portfolio

 

     Six Months Ended June 30,                
     2016      2015      Change      % Change  

Occupancy

     81.0%         81.3%         (0.3) pts         (0.4)%   

Net Package ADR

   $ 246           $ 214           $ 32         15.0%    

Net Package RevPAR

     199             174             25         14.4%    
     ($ in thousands)         

Net Package Revenue

   $ 90,593           $ 78,426           $ 12,167         15.5%    

Net Non-package Revenue

     14,687             13,101             1,586         12.1%    

Total net revenue

     105,280             91,527             13,753         15.0%    

Adjusted EBITDA

   $ 37,003           $ 26,455           $ 10,548         39.9%    

Segment Total Net Revenue. Our total net revenue for the six months ended June 30, 2016 increased $13.8 million, or 15.0%, compared to the six months ended June 30, 2015. This increase was primarily due to the performance of Hyatt Ziva and Hyatt Zilara Rose Hall, which accounted for a $10.6 million increase in net revenue compared to the six months ended June 30, 2015. The remaining resorts in the Dominican Republic recorded an increase of $3.2 million compared to the six months ended June 30, 2015. This was primarily attributable to an increase in Net Package ADR at these resorts.

 

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Segment Adjusted EBITDA. Our Adjusted EBITDA for the six months ended June 30, 2016 increased $10.5 million, or 39.9%, compared to the six months ended June 30, 2015. This increase was primarily due to the reopening of Hyatt Ziva and Hyatt Zilara Rose Hall, which accounted for an $8.4 million increase in Adjusted EBITDA compared to the six months ended June 30, 2015. The remaining resorts in the Dominican Republic had Adjusted EBITDA of $25.3 million, an increase of $2.1 million compared to the six months ended June 30, 2015.

Years Ended December 31, 2015 and 2014

The following tables summarize segment net revenue and segment Adjusted EBITDA for the years ended December 31, 2015 and 2014:

 

     Year Ended December 31,                
     2015      2014      Change      % Change  
     ($ in thousands)         

Net revenue:

           

Yucatán Peninsula

   $ 204,294       $ 206,076       $ (1,782)         (0.9)%   

Pacific Coast

     26,588         37,290         (10,702)         (28.7)%   

Caribbean Basin

     168,311         115,094         53,217         46.2%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Segment net revenue

     399,193         358,460         40,733         11.4%   

Other

     131         314         (183)         (58.3)%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total net revenue

   $ 399,324       $ 358,774       $ 40,550         11.3%   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Year Ended December 31,                
     2015      2014      Change      % Change  
     ($ in thousands)         

Adjusted EBITDA:

           

Yucatán Peninsula

   $ 82,466       $ 66,493       $ 15,973         24.0%   

Pacific Coast

     8,248         9,877         (1,629)         (16.5)%   

Caribbean Basin

     35,634         31,353         4,281         13.7%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Segment Adjusted EBITDA

     126,348         107,723         18,625         17.3%   

Other corporate—unallocated

     (24,667)         (17,890)         (6,777)         37.9%   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Adjusted EBITDA

   $ 101,681       $ 89,833       $ 11,848         13.2%   
  

 

 

    

 

 

    

 

 

    

 

 

 

For a reconciliation of segment net revenue and segment Adjusted EBITDA to gross revenue and net income (loss), respectively, each as computed under U.S. GAAP, see Note 14 to our consolidated financial statements.

 

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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, total net revenue and Adjusted EBITDA for our Yucatán Peninsula segment for the years ended December 31, 2015 and 2014 for the total segment portfolio and comparable segment portfolio:

Total Portfolio

 

     Year Ended December 31,         
     2015   2014   Change    % Change

Occupancy

     86.8     90.0     (3.2) pts         (3.6 )% 

Net Package ADR

   $ 249      $ 233      $ 16         6.9

Net Package RevPAR

     216        210        6         2.9
  

 

 

 

 

 

 

 

 

 

 

 

  
     ($ in thousands)     

Net Package Revenue

   $ 176,671      $ 175,286      $ 1,385         0.8

Net Non-package Revenue

     27,623        30,790        (3,167      (10.3 )% 

Total net revenue

     204,294        206,076        (1,782      (0.9 )% 

Adjusted EBITDA

   $ 82,466      $ 66,493      $ 15,973         24.0

Comparable Portfolio

 

     Year Ended December 31,         
     2015   2014   Change    % Change

Occupancy

     88.2     90.2     (2.0) pts         (2.2 )% 

Net Package ADR

   $ 247      $ 233      $ 14         6.0

Net Package RevPAR

     218        210        8         3.8
  

 

 

 

 

 

 

 

 

 

 

 

  
     ($ in thousands)     

Net Package Revenue

   $ 172,990      $ 166,235      $ 6,755         4.1

Net Non-package Revenue

     27,163        27,814        (651      (2.3 )% 

Total net revenue

     200,153        194,049        6,104         3.1

Comparable Adjusted EBITDA

   $ 81,684      $ 63,138      $ 18,546         29.4

Segment Total Net Revenue. Our total net revenue for the year ended December 31, 2015 decreased $1.8 million, or 0.9%, compared to the year ended December 31, 2014. This decrease was primarily due to the closure of Dreams Cancún, which closed in May 2014 for renovation, conversion and expansion into the Hyatt Ziva brand, and reopened in November 2015, and resulted in a $7.9 million decrease in net revenue compared to the year ended December 31, 2014. The remaining resorts recorded an increase of $6.1 million, or 3.1%, compared to the year ended December 31, 2014. This was primarily attributable to an increase in Net Package ADR, partially offset by a decrease in occupancy.

Segment Adjusted EBITDA. Our Adjusted EBITDA for the year ended December 31, 2015 increased $16.0 million, or 24.0%, compared to the year ended December 31, 2014. This increase was primarily due to increases in Net Package ADR and management’s ability to cut operational costs and a $2.5 million decrease in Adjusted EBITDA related to Dreams Cancún, which closed in May 2014 for renovation, conversion, and expansion into the Hyatt Ziva brand. The remaining resorts had Adjusted EBITDA of $81.7 million, an increase of $18.5 million, or 29.4%, compared to the year ended December 31, 2014.

Pacific Coast

The following table sets forth information with respect to our Occupancy, Net Package ADR, Net Package RevPAR, Net Package Revenue, Net Non-package Revenue, total net revenue and Adjusted EBITDA for our Pacific Coast segment for the years ended December 31, 2015 and 2014 for the total segment portfolio. Both of our properties in the Pacific Coast segment are considered non-comparable for the years ended December 31, 2015 and 2014 as they were closed during a part of either or both of these periods. As such, there are no comparable segment portfolio statistics.

 

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Total Portfolio

 

     Year Ended December 31,         
     2015   2014   Change    % Change

Occupancy

     53.7     65.1     (11.4) pts         (17.5 )% 

Net Package ADR

   $ 220      $ 235      $ (15      (6.4 )% 

Net Package RevPAR

     118        153        (35      (22.9 )% 
  

 

 

 

 

 

 

 

 

 

 

 

  
     ($ in thousands)     

Net Package Revenue

   $ 22,943      $ 31,133      $ (8,190      (26.3 )% 

Net Non-package Revenue

     3,645        6,157        (2,512      (40.8 )% 

Total net revenue

     26,588        37,290        (10,702      (28.7 )% 

Adjusted EBITDA

   $ 8,248      $ 9,877      $ (1,629      (16.5 )% 

Segment Total Net Revenue. Our total net revenue for the year ended December 31, 2015 decreased $10.7 million, or 28.7%, compared to the year ended December 31, 2014. This decrease was primarily due to the closure of Hyatt Ziva Los Cabos after sustaining damage from Hurricane Odile, which resulted in an $18.1 million decrease in net revenue compared to the year ended December 31, 2014. The remaining resort, Hyatt Ziva Puerto Vallarta, recorded an increase of $7.4 million, or 82.2%, compared to the year ended December 31, 2014. This was primarily attributable to the resort being open for the full period in 2015.

Segment Adjusted EBITDA. Our Adjusted EBITDA for the year ended December 31, 2015 decreased $1.6 million, or 16.5%, compared to the year ended December 31, 2014. Hyatt Ziva Los Cabos reported Adjusted EBITDA of $6.1 million, a decrease of $0.5 million compared to the prior year. Adjusted EBITDA for 2015 at Hyatt Ziva Los Cabos included $8.3 million of pre-opening expense, which was offset by $12.7 million of business interruption insurance proceeds as well as contribution from the resort’s operations following its reopening in September 2015. Adjusted EBITDA for 2014 at Hyatt Ziva Los Cabos included $3.4 million of pre-opening expense, which was partially offset by $3.0 million of business interruption insurance proceeds as well as contribution from the resort’s operations before closing in September 2014 after sustaining damage from Hurricane Odile. The remaining resort, Hyatt Ziva Puerto Vallarta, had Adjusted EBITDA of $2.2 million, a decrease of $1.1 million, or 33.4%, compared to the year ended December 31, 2014. This decrease was primarily attributable to the delayed reopening of the resort in December 2014.

Caribbean Basin

The following tables set forth information with respect to our Occupancy, Net Package ADR, Net Package RevPAR, Net Package Revenue, Net Non-package Revenue, total net revenue and Adjusted EBITDA for our Caribbean Basin segment for the years ended December 31, 2015 and 2014 for the total segment portfolio and comparable segment portfolio:

Total Portfolio

 

     Year Ended December 31,         
     2015   2014   Change    % Change

Occupancy

     80.5     86.3     (5.8) pts         (6.7 )% 

Net Package ADR

   $ 197      $ 167      $ 30         18.0

Net Package RevPAR

     159        144        15         10.4
  

 

 

 

 

 

 

 

 

 

 

 

  
     ($ in thousands)     

Net Package Revenue

   $ 144,185      $ 97,248      $ 46,937         48.3

Net Non-package Revenue

     24,126        17,846        6,280         35.2

Total net revenue

     168,311        115,094        53,217         46.2

Adjusted EBITDA

   $ 35,634      $ 31,353      $ 4,281         13.7

 

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Comparable Portfolio

 

     Year Ended December 31,         
     2015   2014   Change    % Change

Occupancy

     86.2     86.9     (0.7) pts         (0.8 )% 

Net Package ADR

   $ 174      $ 167      $ 7         4.2

Net Package RevPAR

     150        145        5         3.4
  

 

 

 

 

 

 

 

 

 

 

 

  
     ($ in thousands)     

Net Package Revenue

   $ 102,444      $ 95,924      $ 6,520         6.8

Net Non-package Revenue

     18,487        17,746        741         4.2

Total net revenue

     120,931        113,670        7,261         6.4

Comparable Adjusted EBITDA

   $ 35,057      $ 30,778      $ 4,279         13.9

Segment Total Net Revenue. Our total net revenue for the year ended December 31, 2015 increased $53.2 million, or 46.2%, compared to the year ended December 31, 2014. This increase was primarily due to the reopening of Hyatt Ziva and Hyatt Zilara Rose Hall in December 2014, which resulted in a $46.0 million increase in net revenue compared to the year ended December 31, 2014. The remaining resorts recorded an increase of $7.2 million, or 6.4%, compared to the year ended December 31, 2014. This was primarily attributable to an increase in Net Package ADR at Dreams Palm Beach and Dreams Punta Cana and an increase in occupancy at Dreams La Romana.

As previously mentioned, results for the year ended December 31, 2014 included $4.6 million of additional package revenue from our resorts located in the Dominican Republic. This additional revenue is associated with the signing of an agreement that governs the local VAT rates with the authorities in the Dominican Republic. Excluding this item, total net revenue for the year ended December 31, 2015 at our resorts in the Caribbean increased $57.8 million compared to the year ended December 31, 2014.

Segment Adjusted EBITDA. Our Adjusted EBITDA for the year ended December 31, 2015 increased $4.3 million, or 13.7%, compared to the year ended December 31, 2014. This increase was partially due to the reopening of Hyatt Ziva and Hyatt Zilara Rose Hall in December 2014, which resulted in a minimal increase in Adjusted EBITDA compared to the year ended December 31, 2014. The remaining resorts had Adjusted EBITDA of $35.1 million, an increase $4.3 million, or 13.9%, compared to the year ended December 31, 2014.

As previously mentioned, results for the year ended December 31, 2014 included $4.2 million of additional EBITDA from our resorts located in the Dominican Republic. This additional EBITDA is associated with the signing of an agreement that governs the local VAT rates with the authorities in the Dominican Republic. Excluding this item, Adjusted EBITDA for the year ended December 31, 2015 at our resorts in the Caribbean increased $8.5 million compared to the year ended December 31, 2014.

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.

 

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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 expansion, renovation, repositioning and rebranding projects. As of June 30, 2016, we had $28.7 million of scheduled contractual obligations due within one year.

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. We had cash and cash equivalents of $52.4 million as of June 30, 2016, compared to $57.7 million as of June 30, 2015 (excluding $6.4 million of restricted cash at both dates). As of June 30, 2016, there was $25.0 million outstanding under our $50.0 million 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 expansions, renovations, repositioning and rebranding projects, potential acquisitions and the repayment of indebtedness. As of June 30, 2016, our total debt obligations were $814.7 million (which represents the principal amounts outstanding under our Secured Credit Facility, Term Loan and Senior Notes due 2020 and excludes a $1.0 million issuance discount on our Term Loan, a $4.1 million issuance premium on our Senior Notes due 2020 and $14.7 million of unamortized debt issuance costs). In addition to the sources available for short-term needs, we may use equity or debt issuances or proceeds from the potential disposal of assets to meet these long-term needs.

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.

 

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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 consolidated statements of cash flows and accompanying notes thereto included in this prospectus.

 

     Six Months Ended June 30,  
     2016      2015  
     ($ in thousands)  

Net cash provided by operating activities

   $ 50,913       $ 18,133   

Net cash used in investing activities

     (5,827      (56,347

Net cash (used in) provided by financing activities

     (28,138      56,784   
     Year Ended December 31,  
     2015      2014  
     ($ in thousands)  

Net cash provided by operating activities

   $ 30,799       $ 3,715   

Net cash used in investing activities

     (104,147      (116,462

Net cash provided by financing activities

     69,662         68,447   

Net Cash Provided by Operating Activities

Our net cash from operating activities is generated primarily from operating income from our resorts. For the six months ended June 30, 2016 and 2015, our net cash provided by operating activities totaled $50.9 million and $18.1 million, respectively. Net income of $46.4 million for the six months ended June 30, 2016 included significant non-cash expenses, including $25.8 million of depreciation and amortization, representing an increase of $5.1 million compared to the six months ended June 30, 2015.

Activity for the six months ended June 30, 2016:

 

    Increase in interest expense of $2.7 million, primarily due to an increase in indebtedness outstanding during the period as a result of the issuance of an additional $50.0 million of our Senior Notes due 2020 on May 12, 2015

 

    Transaction expenses of $2.7 million

Activity for the six months ended June 30, 2015:

 

    Pre-opening expenses of $6.1 million associated with the Hyatt Ziva Cancún (formerly Dreams Cancún) and Hyatt Ziva Los Cabos projects

 

    Transaction expenses of $2.7 million

For the years ended December 31, 2015 and 2014, our net cash provided by operating activities totaled $30.8 million and $3.7 million, respectively. Net income of $9.7 million for the year ended December 31, 2015 included significant non-cash expenses, including $46.1 million of depreciation and amortization, and decreased $19.8 million compared to the year ended December 31, 2014.

Activity for the year ended December 31, 2015:

 

    Pre-opening expenses of $12.4 million associated with the Hyatt Ziva Cancún and Hyatt Ziva Los Cabos projects

 

    Transaction expenses of $5.4 million

 

    Increase in interest expense of $8.6 million, primarily due to an increase in indebtedness outstanding during the period as a result of the issuance of an additional $50.0 million of our Senior Notes due 2020 on May 12, 2015 and an increase in amounts outstanding under our Revolving Credit Facility

 

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Activity for the year ended December 31, 2014:

 

    Pre-opening expenses of $16.3 million associated with the Hyatt Ziva and Hyatt Zilara Rose Hall, Hyatt Ziva Puerto Vallarta, Hyatt Ziva Los Cabos and Hyatt Ziva Cancún projects

 

    Transaction expenses of $12.3 million

 

    Severance expenses of $2.9 million

Net Cash Used in Investing Activities

For the six months ended June 30, 2016 and 2015, our net cash used in investing activities was $5.8 million and $56.3 million, respectively.

Activity for the six months ended June 30, 2016:

 

    Capital expenditures of $5.8 million

 

    Insurance proceeds of $0.2 million

 

    Purchase of intangibles of $0.2 million

Activity for the six months ended June 30, 2015:

 

    Capital expenditures of $61.1 million, primarily related to renovations completed at Hyatt Ziva Cancún and Hyatt Ziva Los Cabos