0001692412-17-000006.txt : 20170508 0001692412-17-000006.hdr.sgml : 20170508 20170508172045 ACCESSION NUMBER: 0001692412-17-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 84 CONFORMED PERIOD OF REPORT: 20170331 FILED AS OF DATE: 20170508 DATE AS OF CHANGE: 20170508 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Playa Hotels & Resorts N.V. CENTRAL INDEX KEY: 0001692412 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 000000000 STATE OF INCORPORATION: P7 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-38012 FILM NUMBER: 17823493 BUSINESS ADDRESS: STREET 1: PRINS BERNHARDPLEIN 200 STREET 2: 1097 JB CITY: AMSTERDAM STATE: P7 ZIP: 1097 JB BUSINESS PHONE: 31-208-081-081 MAIL ADDRESS: STREET 1: PRINS BERNHARDPLEIN 200 STREET 2: 1097 JB CITY: AMSTERDAM STATE: P7 ZIP: 1097 JB FORMER COMPANY: FORMER CONFORMED NAME: Porto Holdco B.V. DATE OF NAME CHANGE: 20161215 10-Q 1 plya2017q110-q.htm 10-Q Document


        
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________
FORM 10-Q
 _______________________________________________
 
 
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended March 31, 2017

OR
 
 
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
COMMISSION FILE NO. 1-38012
 Playa Hotels & Resorts N.V.
(Exact name of registrant as specified in its charter)
 
 
 
 
The Netherlands
 
Not Applicable
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification Number)
 
 
 
Prins Bernhardplein 200
 
 
1097 JB Amsterdam, the Netherlands
 
Not Applicable
(Address of Principal Executive Offices)
 
(Zip Code)
 
 
 
+31 20 521 49 62
(Registrant's Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past ninety (90) days.    YES ý   NO  o

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

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

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

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

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

As of May 8, 2017, there were 103,464,186 shares of the registrant’s ordinary shares, €0.10 par value, outstanding.






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




2



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Playa Hotels & Resorts N.V.
Condensed Consolidated Balance Sheets
($ in thousands, except share data)
(unaudited)
 
As of March 31,
 
As of December 31,
 
2017
 
2016
ASSETS
 
 
 
Cash and cash equivalents
$
134,156

 
$
33,512

Restricted cash
10,048

 
9,651

Trade and other receivables, net
52,556

 
48,881

Accounts receivable from related parties
1,945

 
2,532

Inventories
11,328

 
10,451

Prepayments and other assets
28,803

 
28,633

Property, plant and equipment, net
1,391,902

 
1,400,317

Investments
1,389

 
1,389

Goodwill
51,731

 
51,731

Other intangible assets
1,754

 
1,975

Deferred tax assets
1,818

 
1,818

Total assets
$
1,687,430

 
$
1,590,890

LIABILITIES, CUMULATIVE REDEEMABLE PREFERRED SHARES AND SHAREHOLDERS' EQUITY
 
 
 
Trade and other payables
$
128,214

 
$
145,042

Accounts payable to related parties
5,284

 
8,184

Income tax payable
13,918

 
5,128

Debt
828,156

 
780,725

Debt to related party

 
47,592

Deferred consideration
1,180

 
1,836

Other liabilities
10,066

 
8,997

Deferred tax liabilities
76,832

 
76,832

Total liabilities
1,063,650

 
1,074,336

Commitments and contingencies

 

Cumulative redeemable preferred shares (par value $0.01; 0 and 28,510,994 shares authorized, issued and outstanding as of March 31, 2017 and December 31, 2016, respectively; aggregate liquidation preference of $0 and $345,951 as of March 31, 2017 and December 31, 2016, respectively)

 
345,951

Shareholders' equity
 
 
 
Ordinary shares (par value €0.10; 103,464,186 and 50,481,822 shares authorized, issued and outstanding as of March 31, 2017 and December 31, 2016, respectively)
11,039

 
5,386

Paid-in capital
769,314

 
349,358

Accumulated other comprehensive loss
(3,790
)
 
(3,719
)
Accumulated deficit
(152,783
)
 
(180,422
)
Total shareholders' equity
623,780

 
170,603

Total liabilities, cumulative redeemable preferred shares and shareholders' equity
$
1,687,430

 
$
1,590,890


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

3



Playa Hotels & Resorts N.V.
Condensed Consolidated Statements of Operations and Comprehensive Income
($ in thousands)
(unaudited)
 
Three Months Ended March 31,
 
2017
 
2016
Revenue:
 
 
 
Package
$
152,956

 
$
142,456

Non-package
21,111

 
17,500

Total revenue
174,067

 
159,956

Direct and selling, general and administrative expenses:
 
 
 
Direct
77,106

 
72,498

Selling, general and administrative
28,664

 
21,986

Depreciation and amortization
12,410

 
13,134

Insurance proceeds

 
(130
)
Direct and selling, general and administrative expenses
118,180

 
107,488

Operating income
55,887

 
52,468

Interest expense
(14,015
)
 
(13,743
)
Other expense, net
(645
)
 
(282
)
Net income before tax
41,227

 
38,443

Income tax provision
(13,588
)
 
(1,906
)
Net income
27,639

 
36,537

Other comprehensive (loss) income, net of taxes:
 
 
 
Benefit obligation (loss) gain
(71
)
 
58

Other comprehensive (loss) income
(71
)
 
58

Total comprehensive income
$
27,568

 
$
36,595

Accretion and dividends of cumulative redeemable preferred shares
(7,922
)
 
(10,684
)
Net income available to ordinary shareholders
$
19,717

 
$
25,853

Earnings per share - Basic
$
0.21

 
$
0.28

Earnings per share - Diluted
$
0.21

 
$
0.28

Weighted average number of shares outstanding during the period - Basic
62,255,681

 
50,481,822

Weighted average number of shares outstanding during the period - Diluted
62,255,681

 
50,481,822


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

4



Playa Hotels & Resorts N.V.
Condensed Consolidated Statements of Cumulative Redeemable Preferred Shares, Shareholders'
Equity and Accumulated Other Comprehensive Loss for the three months ended March 31, 2016 and 2017
($ in thousands, except share data)
(unaudited)
 
 
 
 
 
Shareholders' Equity
 
Cumulative Redeemable Preferred Shares
 
Ordinary Shares
 
Treasury Shares
 
Paid-In Capital
 
Accumulated Other
Comprehensive Loss
 
Accumulated Deficit
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
 
Balance at December 31, 2015
32,738,094

 
$
352,275

 
60,249,330

 
$
656

 
5,373,884

 
$
(23,108
)
 
$
420,872

 
$
(4,067
)
 
$
(200,638
)
 
$
193,715

Retroactive application of recapitalization
 
 
 
 
(9,767,508
)
 
4,730

 
(5,373,884
)
 
23,108

 
(27,838
)
 
 
 
 
 

Adjusted balance at December 31, 2015
32,738,094

 
$
352,275

 
50,481,822

 
$
5,386

 

 
$

 
$
393,034

 
$
(4,067
)
 
$
(200,638
)
 
$
193,715

Net income for the period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
36,537

 
36,537

Benefit obligation gain, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
58

 
 
 
58

Dividends of cumulative redeemable preferred shares
 
 
10,684

 
 
 
 
 
 
 
 
 
(10,684
)
 
 
 
 
 
(10,684
)
Balance at March 31, 2016
32,738,094

 
$
362,959

 
50,481,822

 
$
5,386

 

 
$

 
$
382,350

 
$
(4,009
)
 
$
(164,101
)
 
$
219,626

 
 
 
 
 
Shareholders' Equity
 
Cumulative Redeemable Preferred Shares
 
Ordinary Shares
 
Treasury Shares
 
Paid-In Capital
 
Accumulated Other
Comprehensive Loss
 
Accumulated Deficit
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
 
 
Balance at December 31, 2016
28,510,994

 
$
345,951

 
60,249,330

 
$
656

 
5,373,884

 
$
(23,108
)
 
$
377,196

 
$
(3,719
)
 
$
(180,422
)
 
$
170,603

Retroactive application of recapitalization
 
 
 
 
(9,767,508
)
 
4,730

 
(5,373,884
)
 
23,108

 
(27,838
)
 
 
 
 
 

Adjusted balance at December 31, 2016
28,510,994

 
$
345,951

 
50,481,822

 
$
5,386

 

 
$

 
$
349,358

 
$
(3,719
)
 
$
(180,422
)
 
$
170,603

Net income for the period
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
27,639

 
27,639

Benefit obligation loss, net of tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(71
)
 
 
 
(71
)
Recapitalization transaction
 
 
 
 
52,982,364

 
5,653

 
 
 
 
 
427,878

 
 
 
 
 
433,531

Dividends of cumulative redeemable preferred shares
 
 
7,922

 
 
 
 
 
 
 
 
 
(7,922
)
 
 
 
 
 
(7,922
)
Purchase of cumulative redeemable preferred shares
(28,510,994
)
 
(239,492
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Settlement of accrued dividends of cumulative redeemable preferred shares
 
 
(114,381
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Balance at March 31, 2017

 
$

 
103,464,186

 
$
11,039

 

 
$

 
$
769,314

 
$
(3,790
)
 
$
(152,783
)
 
$
623,780


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


5



Playa Hotels & Resorts N.V.
Condensed Consolidated Statements of Cash Flows
($ in thousands)
(unaudited)
 
Three Months Ended March 31,
 
2017
 
2016
CASH FLOW FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
27,639

 
$
36,537

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
12,410

 
13,134

Amortization of debt discount, premium and issuance costs
777

 
771

Gain on insurance recoverables

 
(129
)
Other
(407
)
 
41

Changes in assets and liabilities:
 
 
 
Trade and other receivables, net
(2,319
)
 
(13,849
)
Accounts receivable from related parties
(769
)
 
(1,057
)
Insurance recoverable

 
206

Inventories
(915
)
 
(221
)
Prepayments and other assets
(9,273
)
 
3,088

Trade and other payables
(11,647
)
 
(14,657
)
Accounts payable to related parties
354

 
800

Income tax payable
9,323

 
(4,358
)
Deferred consideration
(26
)
 
161

Other liabilities
588

 
166

Net cash provided by operating activities
25,735

 
20,633

INVESTING ACTIVITIES:
 
 
 
Purchase of property, plant and equipment
(3,175
)
 
(2,010
)
Purchase of intangibles
(10
)
 
(108
)
Proceeds from disposal of property, plant and equipment
4

 

Net cash used in investing activities
(3,181
)
 
(2,118
)
FINANCING ACTIVITIES:
 
 
 
Repayment of deferred consideration
(630
)
 
(625
)
Repayments of debt
(938
)
 
(938
)
Recapitalization transaction
79,658

 

Repayments of borrowings on revolving credit facility

 
(15,000
)
Net cash provided by (used in) financing activities
78,090

 
(16,563
)
INCREASE IN CASH AND CASH EQUIVALENTS
100,644

 
1,952

CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD
$
33,512

 
$
35,460

CASH AND CASH EQUIVALENTS, END OF THE PERIOD
$
134,156

 
$
37,412

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
Cash paid for interest, net of interest capitalized
$
22,777

 
$
21,292

Cash paid for income taxes
$
6,045

 
$
6,337

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Capital expenditures incurred but not yet paid
$
527

 
$
350

Non-cash PIK Dividends
$
7,922

 
$
10,684

   Purchase of cumulative redeemable preferred shares
$
(239,492
)
 
$

Settlement of accrued dividends of cumulative redeemable preferred shares
$
(114,381
)
 
$


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

6


Playa Hotels & Resorts N.V.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
Note 1. Organization, operations and basis of presentation
Background
Playa Hotels & Resorts N.V. (“Playa” or the "Company") is a leading owner, operator and developer of all-inclusive resorts in prime beachfront locations in popular vacation destinations. Playa’s portfolio consists of 13 resorts located in Mexico, the Dominican Republic and Jamaica. We currently manage eight of our 13 resorts. Unless otherwise indicated or the context requires otherwise, references in our condensed consolidated financial statements (our “Condensed Consolidated Financial Statements”) to “we,” “our,” “us” and similar expressions refer to Playa and its subsidiaries.
Basis of preparation, presentation and measurement
Our Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Certain information and disclosures normally included in financial statements prepared in accordance GAAP have been condensed or omitted. Accordingly, these unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Company’s Consolidated Financial Statements as of and for the year ending December 31, 2016, included in our Form 8-K filed on March 14, 2017.
In our opinion, the unaudited interim Condensed Consolidated Financial Statements have been prepared on the same basis as the annual Consolidated Financial Statements and include all adjustments, consisting of only normal recurring adjustments, necessary for fair presentation.

The results of operations for the three months ended March 31, 2017 are not necessarily indicative of the results of operations to be expected for the full year ending December 31, 2017. All dollar amounts (other than per share amounts) in the following discussion are in thousands of United States dollars, unless otherwise indicated.
Note 2. Impact of recently issued accounting standards
Future Accounting Standards

In March 2017, the FASB issued ASU No. 2017-07 ("ASU 2017-07"), Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. Net periodic benefit cost is currently reported as an employee cost within operating income. ASU 2017-07 requires bifurcation of net benefit cost resulting in the service cost component being presented with other employee compensation costs in operating income. The other components will be reported separately outside of operations, and will not be eligible for capitalization. The ASU is effective for annual periods beginning after December 15, 2017, including interim periods therein. We do not expect the implementation of ASU 2017-07 to have a material impact on our financial statements. All non-service cost components of our net periodic benefit cost will be presented within the Condensed Consolidated Statements of Operations and Comprehensive Income as other expense, net instead of direct expense with no impact to overall net income.
Note 3. Business combination
At 12:00 a.m. Central European Time on March 12, 2017, we consummated a business combination (the "Business Combination") pursuant to that certain Transaction Agreement by and among us, Playa Hotels & Resorts B.V. (our "Predecessor"), Pace Holdings Corp. ("Pace") and New Pace Holdings Corp. ("New Pace"), the effects of which replicated the economics of a reverse merger between our Predecessor and Pace. In connection with the Business Combination, Pace formed Porto Holdco B.V., a Dutch private limited liability company (besloten vennootschap met beperkte aansprakelijkheid), as a wholly-owned subsidiary to facilitate the reverse merger with our Predecessor. Prior to the consummation of the Business Combination, Porto Holdco B.V. was converted to a Dutch public limited liability company (naamloze vennootschap) and changed its name to Porto Holdco N.V. Upon the consummation of the Business Combination, the Company's name was changed to Playa Hotels & Resorts N.V.

For accounting and financial reporting purposes, the Business Combination was accounted for as a recapitalization of our Predecessor because Pace was incorporated as a special purpose acquisition company and considered a public shell company. Our Predecessor also maintained effective control of the combined entity because our Predecessor's operations comprise the ongoing operations of the

7


combined entity, our Predecessor's senior management became the senior management of the combined entity and our Predecessor's directors were appointed to, and constitute the majority of, the combined entity's board of directors. Accordingly, no step-up in basis of assets or goodwill were recorded.

The Condensed Consolidated Financial Statements presented herein are those of our Predecessor for all periods prior to the completion of the Business Combination and the recapitalization of the number of ordinary shares attributable to our Predecessor shareholders is reflected retroactively to the earliest period presented. Accordingly, the number of shares of ordinary shares presented as outstanding as of January 1, 2016, totaled 50,481,822 and consisted of the number of ordinary shares issued to Predecessor shareholders. This number of shares was also used to calculate the Company’s earnings per share for all periods prior to the Business Combination.

The consideration received as a result of the Business Combination is summarized as follows ($ in thousands):
Purchase of all of our Predecessor's cumulative redeemable preferred shares (1)
$
353,873

Net cash transferred from Pace
78,859

Playa Employee Offering (2)
799

Total Consideration Transferred
$
433,531

________
(1) Balance consisted of the face value of our Predecessor's cumulative redeemable preferred shares and their associated PIK dividends as of March 10, 2017, per the terms of the Business Combination.
(2) In connection with the Business Combination, we entered into subscription agreements (the “Subscription Agreements”) with Playa employees, their family members and persons with business relationships with Playa, pursuant to which those persons agreed to purchase 82,751 ordinary shares for an aggregate purchase price of $0.8 million.
Note 4. Warrants
Public Warrants: 
We issued 45,000,000 warrants to former shareholders of Pace as consideration in the Business Combination (the "Public Warrants"), which entitle such warrant holders to purchase one-third of one Ordinary Share for an exercise price of one-third of $11.50. The Public Warrants became exercisable on April 10, 2017, which was thirty days after the completion of the Business Combination. The Public Warrants expire five years after the completion of the Business Combination. As of the date of this filing, no Public Warrants have been exercised.

Founder Warrants: 
We issued 22,000,000 warrants to former holders of certain privately placed warrants of Pace and our Predecessor's former common shareholders as consideration in the Business Combination (the "Founder Warrants"), which entitle such warrant holders to purchase one-third of one Ordinary Share for an exercise price of one-third of $11.50. The Founder Warrants became exercisable on April 10, 2017, which was thirty days after the completion of the Business Combination. The Founder Warrants expire five years after the completion of the Business Combination or earlier upon redemption or liquidation in accordance with their terms. As of the date of this filing, no Founder Warrants have been exercised. The holders of the Founder Warrants may not effect any sale or distribution of the Founder Warrants or the ordinary shares underlying the Founder Warrants for a period lasting until 180 days after the completion of the Business Combination.

Earnout Warrants:
We issued a total of 3,000,000 warrants to our Predecessor's former common shareholders and TPG Pace Sponsor, LLC, a Cayman Islands limited liability company and an affiliate of TPG Global, LLC, as consideration in the Business Combination (the "Earnout Warrants"). The Earnout Warrants entitle such warrant holders to acquire one ordinary share for each Earnout Warrant for an exercise price of €0.10 per ordinary share in the event that the price per share underlying the Earnout Warrants on the NASDAQ is greater than $13.00 for a period of more than 20 days out of 30 consecutive trading days after the closing date of the Business Combination but within five years after the closing date of the Business Combination. As of the date of this filing, none of the Earnout Warrants were exercised. The holders of the Earnout Warrants may not effect any sale or distribution of the Earnout Warrants or the ordinary shares underlying the Earnout Warrants for a period lasting until 180 days after the completion of the Business Combination.

All warrants issued as part of the Business Combination are classified as paid-in capital and were considered part of a value for value exchange. There was no fair value adjustment to retained earnings and no earnings per share impact.

8


Note 5. Earnings per share
Prior to the consummation of the Business Combination, our Predecessor's cumulative redeemable preferred shares ("Preferred Shares") and their related accumulated Non-cash PIK Dividends were participating securities. If a dividend was declared or paid on our Predecessor's ordinary shares, holders of our Predecessor's ordinary shares and Preferred Shares were entitled to proportionate shares of such dividend, with the holders of our Predecessor's Preferred Shares participating on an as-if converted basis.
Under the two-class method, basic earnings per share (“EPS”) attributable to ordinary shareholders is computed by dividing the net income attributable to ordinary shareholders by the weighted-average number of ordinary shares outstanding during the period. Net income attributable to ordinary shareholders is determined by allocating undistributed earnings between ordinary and preferred shareholders. Diluted EPS attributable to ordinary shareholders is computed by using the more dilutive result of either the two-class method or the if-converted method. The if-converted method uses the weighted-average number of ordinary shares outstanding during the period, including potentially dilutive ordinary shares assuming the conversion of the outstanding Preferred Shares of our Predecessor, as of the first day of the reporting period.
For periods in which there are undistributed losses, there is no allocation of earnings to preferred shareholders and the number of shares used in the computation of diluted losses per share is the same as that used for the computation of basic losses per share, as the result would be anti-dilutive. Under the two-class method, the net loss attributable to ordinary shareholders is not allocated to share premium reserve of the Preferred Shares until all other reserves have been exhausted or such loss cannot be covered in any other way.
The calculation of basic and diluted EPS, under the two-class method, are as follows ($ in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
Numerator:
 
 
 
Net Income
$
27,639

 
$
36,537

Convertible Preferred Share dividends
(7,922
)
 
(10,684
)
Allocation of undistributed earnings to preferred shareholders
(6,799
)
 
(11,923
)
Numerator for basic EPS-income available to common shareholders
12,918

 
13,930

Add back convertible Preferred Share dividends (1)

 

Add back of undistributed earnings to preferred shareholders (1)

 

Numerator for diluted EPS-income available to common shareholders after assumed conversions
$
12,918

 
$
13,930

Denominator:
 
 
 
Denominator for basic EPS-weighted shares
62,255,681

 
50,481,822

Convertible Preferred Shares

 

Denominator for diluted EPS-adjusted weighted-average shares
62,255,681

 
50,481,822

 
 
 
 
Basic EPS
$
0.21

 
$
0.28

Diluted EPS
$
0.21

 
$
0.28

________
(1) For the three months ended March 31, 2017 and 2016, cumulative preferred shareholder dividends of our Predecessor of $7.9 million and $10.7 million, respectively, and the preferred shareholders’ allocation of undistributed earnings of our Predecessor of $6.8 million and $11.9 million, respectively, were not added back for purposes of calculating diluted EPS-income available to ordinary shareholders because the effect of treating our Predecessor's convertible preferred securities as if they had been converted to their 32,032,530 and 41,937,483 ordinary share equivalents as of January 1, 2017 and 2016, respectively, is anti-dilutive.

Outstanding Public Warrants, Founder Warrants and Earnout Warrants to acquire a total of 25,333,333 ordinary shares are not included in the computation of diluted EPS-income available to ordinary shareholders after assumed conversions because the warrants were not exercisable as of March 31, 2017.

9


Note 6. Property, plant and equipment
The balance of property, plant and equipment is as follows ($ in thousands):
 
As of March 31,
 
As of December 31,
 
2017
 
2016
Land, buildings and improvements
$
1,421,623

 
$
1,421,371

Fixtures and machinery
62,775

 
60,294

Furniture and other fixed assets
161,970

 
163,753

Construction in progress
5,734

 
3,866

Total property, plant and equipment, gross
1,652,102

 
1,649,284

Accumulated depreciation
(260,200
)
 
(248,967
)
Total property, plant and equipment, net
$
1,391,902

 
$
1,400,317


Depreciation expense for property, plant and equipment was $12.2 million and $12.9 million for the three months ended March 31, 2017 and 2016, respectively.
For the three months ended March 31, 2017 and 2016, no interest expense was capitalized on qualifying assets.
Note 7. Fair value of financial instruments
Our financial instruments consist of cash and cash equivalents, restricted cash, trade and other receivables, accounts receivable from related parties, insurance recoverable, trade and other payables, accounts payable to related parties, deferred consideration and debt. We believe the carrying value of these assets and liabilities, excluding deferred consideration and debt, approximate their fair values at March 31, 2017 and December 31, 2016.
Fair value measurements
The objective of a fair value measurement is to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions. U.S. GAAP establishes a hierarchical disclosure framework, which prioritizes and ranks the level of observability of inputs used in measuring fair value as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Unadjusted quoted prices for similar assets or liabilities in active markets, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3: Inputs are unobservable and reflect our judgments about assumptions that market participants would use in pricing an asset or liability.
We did not have any movements in and out of Level 3 for our fair valued instruments during any of the above periods.
The following table presents our fair value hierarchy for our financial liabilities measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 ($ in thousands):
 
 
March 31, 2017
 
Level 1

 
Level 2

 
Level 3

Fair value measurements on a recurring basis:
 
 
 
 
 
 
 
 
Deferred Consideration
 
$
1,180

 
$

 
$

 
$
1,180

 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
Level 1

 
Level 2

 
Level 3

Fair value measurements on a recurring basis:
 
 
 
 
 
 
 
 
Deferred Consideration
 
$
1,836

 
$

 
$

 
$
1,836


10


The following table presents a reconciliation from the opening balances to the closing balances for our Level 3 fair valued instruments as of March 31, 2017 and December 31, 2016 ($ in thousands):
 
Deferred Consideration
Balance as of December 31, 2015
$
4,145

Total losses included in earnings (or change in net assets) (1)
160

Settlements
(625
)
Balance as of March 31, 2016
3,680

Total losses included in earnings (or change in net assets) (1)
49

Settlements
(638
)
Balance as of June 30, 2016
3,091

Total losses included in earnings (or change in net assets) (1)
28

Settlements
(628
)
Balance as of September 30, 2016
2,491

Total gains included in earnings (or change in net assets) (1)
(36
)
Settlements
(619
)
Balance as of December 31, 2016
1,836

Total gains included in earnings (or change in net assets) (1)
(26
)
Settlements
(630
)
Balance as of March 31, 2017
$
1,180

________
(1) All losses and gains (other than changes in net assets) are included in interest expense in the Condensed Consolidated Statements of Operations and Comprehensive Income.
The following tables present our fair value hierarchy for our financial liabilities not measured at fair value as of March 31, 2017 and December 31, 2016 ($ in thousands):
 
 
Carrying Value
 
Fair Value
 
 
As of March 31, 2017
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial liabilities not recorded at fair value:
 
 
 
 
 
 
 
 
 
 
Debt:
 
 
 
 
 
 
 
 
 
 
Term Loan
 
$
356,564

 
$

 
$

 
$
360,125

 
$
360,125

Revolving Credit Facility(1)
 

 

 

 

 

Senior Notes due 2020
 
471,592

 

 
507,467

 

 
507,467

Total
 
$
828,156

 
$

 
$
507,467

 
$
360,125

 
$
867,592

 
 
Carrying Value
 
Fair Value
 
 
As of December 31, 2016
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial liabilities not recorded at fair value:
 
 
 
 
 
 
 
 
 
 
Debt:
 
 
 
 
 
 
 
 
 
 
Term Loan
 
$
356,937

 
$

 
$

 
$
363,060

 
$
363,060

Revolving Credit Facility(1)
 

 

 

 

 

Senior Notes due 2020
 
471,380

 

 
513,405

 

 
513,405

Total
 
$
828,317

 
$

 
$
513,405

 
$
363,060

 
$
876,465

________
(1) We estimate that the carrying value of our revolving credit facility (the "Revolving Credit Facility") is the fair value as of March 31, 2017 and December 31, 2016 . The valuation technique and significant unobservable inputs are consistent with our term loan (the "Term Loan"), but the valuation using the discounted cash flow technique approximates the carrying value as the expected term is significantly shorter in duration. We typically use our Revolving Credit Facility solely for short term liquidity.

11


The following table displays valuation techniques and the significant unobservable inputs for our Level 3 assets and liabilities measured at fair value as of March 31, 2017 and December 31, 2016 ($ in thousands):
 
Fair Value
 
Fair Value Measurements as of March 31, 2017
 
 
Significant Valuation Techniques
 
Significant Unobservable Inputs
 
Input
Deferred Consideration
$
1,180

 
 Discounted Cash
 
 Discount Rate
 
4.15%
 
 
 
 Flow
 
 Forward Rate
 
4.63
%
-
5.00%
 
 
 
 
 
 Expected Term
 
4 months
Term Loan
$
360,125

 
 Discounted Cash
 
 Discount Rate
 
3.25%
 
 
 
 Flow
 
 Forward Rate
 
4.00
%
-
5.12%
 
 
 
 
 
 Expected Term
 
29 months
 
Fair Value
 
Fair Value Measurements as of December 31, 2016
 
 
 
 
Significant Valuation Techniques
 
Significant Unobservable Inputs
 
Input
Deferred Consideration
$
1,836

 
 Discounted Cash
 
 Discount Rate
 
4.00%
 
 
 
 Flow
 
 Forward Rate
 
4.63
%
-
5.00%
 
 
 
 
 
 Expected Term
 
7 months
Term Loan
$
363,060

 
 Discounted Cash
 
 Discount Rate
 
3.00%
 
 
 
 Flow
 
 Forward Rate
 
4.00
%
-
5.33%
 
 
 
 
 
 Expected Term
 
32 months
Term Loan and deferred consideration
The fair value of our Term Loan and deferred consideration are estimated using cash flow projections applying market forward rates and discounted back at the appropriate discount rate. The primary sensitivity in each estimate is based on the selection of an appropriate discount rate. Fluctuations in this assumption will result in a different estimate of fair value as an increase in the discount rate would result in a decrease in the fair value.
Senior Notes due 2020
The fair value of the Senior Notes due 2020 is estimated using unadjusted quoted prices in a market that is not active. Current pricing was compiled and applied to the outstanding principal amount.
Note 8. Income taxes
We are domiciled in The Netherlands and are taxed in The Netherlands with our other Dutch subsidiaries. Dutch companies are subject to Dutch corporate income tax at a general tax rate of 25%.
For the three months ended March 31, 2017, our income tax provision was $13.6 million, compared to $1.9 million tax provision for the prior year period. The increased income tax provision of $11.7 million was driven primarily by the impact on increased pre-tax book income and an increase in the discrete tax expense associated with foreign exchange rate fluctuations.
Dominican Republic

Taxes in the Dominican Republic are determined based upon Advance Pricing Agreements (APA) with The Ministry of Finance of the Dominican Republic (“The Ministry of Finance”). Historically, based upon our APAs all three of our Dominican entities were subject to the greater of an asset tax or gross receipts tax; thus, such entities have not been subject to income tax accounting under U.S. GAAP. To date, the Company’s APAs for 2016 and subsequent years have not been finalized with The Ministry of Finance, as the tax authorities in the Dominican Republic are working to finalize a Memoranda of Understanding (“MOU”) with the Association of Hotels and Tourism of the Dominican Republic, which the Company is party to, and that will provide a framework for the negotiation of the new Company APAs. As such, the Company maintains its position from the December 31, 2016 income tax provision, which contemplates the existing Dominican statutory law without consideration of an MOU and associated APA. Accordingly, the Dominican branch of Playa Cana B.V., incorporated in the Dominican Republic, is treated as an income taxpayer, and our other two

12


Dominican-incorporated entities, Inversiones Vilazul, S.A.S and the Dominican branch of Playa Romana Mar B.V., are treated as asset taxpayers. Should the final MOU and APA result in the Dominican branch of Playa Cana B.V. being an asset tax payer for the foreseeable future, the Company would reverse the deferred tax expense recorded to date. Should the finalized MOU and APA require our other two Dominican entities to be subject to income tax the Company would need to establish income tax balances for both current and deferred tax expense.
Note 9. Related party transactions
The following summarizes transactions and arrangements that we have entered into with related parties. The details of the balances between us and related parties as of March 31, 2017 and December 31, 2016 are as follows ($ in thousands):
 
As of March 31,
 
As of December 31,
 
2017
 
2016
Accounts receivable
$
1,945

 
$
2,532

Accounts payable
$
5,284

 
$
8,184

Deferred consideration(1)
$

 
$
1,836

Term Loan(2)
$

 
$
47,592

Preferred Shares Non-cash PIK Dividends(3)
$

 
$
106,459

________
(1)
Playa H&R Holdings B.V., our wholly owned subsidiary, agreed to make payments of $1.1 million per quarter to the selling shareholder of Real Resorts (the “Real Shareholder”) through the quarter ending September 30, 2017.
(2)
The Real Shareholder is one of the lenders under our Term Loan. The Real Shareholder's portion of the original Term Loan was $50.0 million. The balance is net of the discount on the Term Loan and associated deferred financing costs.
(3)
No Non-cash PIK Dividends had been issued or declared with respect to the Preferred Shares. The total accumulated amounts of Non-cash PIK Dividends payable to the Real Shareholder were $0.0 million and $19.4 million as of March 31, 2017 and December 31, 2016, respectively. The total accumulated amounts of Non-cash PIK Dividends payable to HI Holdings Playa B.V., an affiliate of Hyatt Hotels Corporation ("HI Holdings Playa"), were $0.0 million and $87.1 million as of March 31, 2017 and December 31, 2016, respectively.
Relationship with Hyatt
In connection with the Business Combination, all outstanding Preferred Shares of our Predecessor owned by HI Holdings Playa were purchased at a purchase price of $8.40 per share for $196.0 million in face value and $93.6 million of associated PIK dividends.
Relationship with Real Shareholder
In connection with the Business Combination, all outstanding Preferred Shares of our Predecessor owned by the Real Shareholder were purchased at a purchase price of $8.40 per share for $43.5 million in face value and $20.8 million of associated PIK dividends. Due to the acquisition of the Real Shareholder's Preferred Shares from our Predecessor, the Real Shareholder is no longer considered a related party and deferred consideration and the Real Shareholder's portion of the original Term Loan were not considered related party balances as of March 31, 2017.
Transactions with related parties
Transactions between us and related parties during the three months ended March 31, 2017 and 2016 were as follows ($ in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
Dividends on the Preferred Shares (1)
$
(7,922
)
 
$
(10,684
)
Deferred consideration accretion (2)
(36
)
 
(47
)
Interest expense on related party debt (2)
(372
)
 
(494
)
Franchise fees (3)
(4,365
)
 
(3,849
)
Lease payments (3)
(309
)
 
(314
)
Total transactions with related parties
$
(13,004
)
 
$
(15,388
)
________
    (1) Included in accretion and dividends of Preferred Shares in the Condensed Consolidated Statements of Operations and Comprehensive Income.
(2) Included in interest expense in the Condensed Consolidated Statements of Operations and Comprehensive Income.
(3) Included in direct expense in the Condensed Consolidated Statements of Operations and Comprehensive Income.

13


Franchise fees relate to resorts currently operating under the all-ages Hyatt Ziva and adults-only Hyatt Zilara brands (the "Hyatt All-Inclusive Resort Brands".)
One of our offices is owned by our Chief Executive Officer, and we sublease the space at that location from a third party. Lease payments related to this space were $0.3 million and $0.3 million for the three months ended March 31, 2017 and 2016, respectively.
One of our offices in Cancún, Mexico is owned by an affiliate of the Real Shareholder, and we sublease the space from a third party also affiliated with the Real Shareholder. Lease payments related to this space were less than $0.1 million for the three months ended March 31, 2017 and 2016.
Note 10. Commitments and contingencies
Litigation, claims and assessments
We are subject, currently and from time to time, to various claims and contingencies related to lawsuits, taxes and environmental matters, as well as commitments under contractual obligations. Many of these claims are covered under current insurance programs, subject to deductibles. We recognize a liability associated with commitments and contingencies when a loss is probable and reasonably estimable. Although the ultimate liability for these current matters cannot be determined at this point, based on information currently available, we do not expect that the ultimate resolution of such claims and litigation will have a material effect on our Condensed Consolidated Financial Statements.
The Dutch corporate income tax act provides the option of a fiscal unity, which is a consolidated tax regime wherein the profits and losses of group companies can be offset against each other. Our Dutch companies file as a fiscal unity, with the exception of Playa Romana B.V., Playa Romana Mar B.V. and Playa Hotels & Resorts N.V. As of January 1, 2016, Playa Resorts Holding B.V. replaced our Predecessor as the head of our Dutch fiscal unity and is jointly and severally liable for the tax liabilities of the fiscal unity as a whole.

The Mexican tax authorities have issued an assessment to one of our Mexican subsidiaries. In February 2014, we filed an appeal before the tax authorities, which was denied on May 26, 2014. On June 11, 2014, we arranged for the posting of a tax surety bond issued by a surety company, which guarantees the payment of the claimed taxes and other charges (and suspends collection of such amounts by the tax authorities) while our further appeal to the tax court is resolved. To secure reimbursement of any amounts that may be paid by the surety company to the tax authorities in connection with the surety bond, we provided cash collateral to the surety company valued at approximately $4.4 million as of March 31, 2017. On August 15, 2014, we filed an appeal of the assessment with the tax court. In August 2016, we received notice of a favorable resolution from the tax court, which was appealed by both, the Mexican tax authorities and our local subsidiary, which would only be analyzed if the appeal by the tax authorities succeeds. The total assessment from the Mexican tax authorities was valued at $9.7 million as of March 31, 2017.
During the third quarter of 2015, we identified and recorded a potential Dutch operating tax contingency resulting from allocations to be made of certain corporate expenses from 2014 and 2015. We have provided all requested documentation to the Dutch tax authorities for their review and are currently waiting for their final determination. We have an estimated amount of $1.5 million as a tax contingency at March 31, 2017 that is recorded in other liabilities within the Condensed Consolidated Balance Sheet.
Electricity supply contract
One of our subsidiaries entered into an electricity supply contract wherein we committed to purchase electricity from a provider over a five-year period ending December 2019. In consideration for our commitment, we received certain rebates. Should this contract be terminated prior to the end of the five-year period, we will be obligated to refund to the supplier the undepreciated portion of (i) the capital investment it made to connect our facilities to the power grid (original amount approximately $1.4 million) and (ii) the unearned rebates we received (total unearned rebates of $1.1 million and $1.2 million as of March 31, 2017 and December 31, 2016, respectively), in each case using a 20% straight-line depreciation per annum.
Leases and other commitments
We lease certain equipment for the operations of our hotels under various lease agreements. The leases extend for varying periods through 2021 and contain fixed components and utility payments. In addition, several of our administrative offices are subject to leases of building facilities from third parties, which extend for varying periods through 2023 and contain fixed and variable components.

14


Rental expense under non-cancelable operating leases, including contingent leases, consisted of $0.5 million and $0.5 million for the three months ended March 31, 2017 and 2016, respectively.
Note 11. Ordinary shares
As of January 1, 2016, the number of shares of ordinary shares presented as outstanding totaled 50,481,822, consisting of the number of shares of ordinary shares issued to Predecessor shareholders after the retroactive application of the recapitalization. On March 12, 2017, 52,982,364 shares of ordinary shares were issued as part of a recapitalization completed in the Business Combination. See Note 3 for a further discussion of the Business Combination.
As of March 31, 2017, our ordinary share capital consisted of 103,464,186 ordinary shares outstanding, which have a par value of €0.10 per share.
Note 12. Preferred Shares
Prior to the consummation of the Business Combination, all of our Predecessor's outstanding Preferred Shares were purchased at a purchase price of $8.40 per share for an aggregate amount of $353.9 million, which consisted of $239.5 million in face value and $114.4 million of associated PIK dividends. The Preferred Shares issued by our Predecessor were eliminated and extinguished as part of the reverse merger in the Business Combination. The extinguishment is reflected as a non-cash financing activity in the Condensed Consolidated Statements of Cash Flows.
The following summarizes Preferred Shares as of March 31, 2017 and December 31, 2016 ($ in thousands):
 
As of March 31,
 
As of December 31,
 
2017
 
2016
Face value
$

 
$
239,492

Non-cash PIK Dividends

 
106,459

Net value of the Preferred Shares
$

 
$
345,951

Note 13. Debt
Debt consists of the following ($ in thousands):
 
As of March 31,
 
As of December 31,
 
2017
 
2016
Debt Obligations
 
 
 
Term Loan - 4.00%
$
361,875

 
$
362,813

Revolving Credit Facility

 

Senior Notes due 2020 - 8.00%
475,000

 
475,000

Total Debt Obligations
836,875

 
837,813

Unamortized (discount) premium
 
 
 
Discount on Term Loan
(738
)
 
(811
)
Premium on Senior Notes due 2020
3,873

 
4,123

Total unamortized (discount) premium
3,135

 
3,312

Unamortized debt issuance costs:
 
 
 
Term Loan
(4,573
)
 
(5,065
)
Senior Notes due 2020
(7,281
)
 
(7,743
)
Total unamortized debt issuance costs
(11,854
)
 
(12,808
)
Total Debt
$
828,156

 
$
828,317

Debt Covenants
Our Senior Secured Credit Facility also requires us to meet leverage ratio and interest coverage ratio financial covenants in each case measured quarterly as defined in our Senior Secured Credit Facility. We were in compliance with all applicable covenants as of March 31, 2017 and December 31, 2016.

15


Note 14. Employee benefit plan
In accordance with labor law regulations in Mexico, certain employees are legally entitled to receive severance that is commensurate with the tenure they had with us at the time of termination without cause, which results in an unfunded benefit obligation. There were no plan assets as of March 31, 2017 or December 31, 2016 as contributions are made only to the extent benefits are paid.

The following table presents the components of net periodic benefit cost for the three months ended March 31, 2017 and 2016 ($ in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
Service cost
$
158

 
$
166

Interest cost
68

 
60

Effect of foreign exchange rates
372

 
(41
)
Amortization of prior service cost

 
1

Amortization of gain
(8
)
 
(2
)
Compensation-non-retirement post employment benefits
4

 
(12
)
Settlement gain
(7
)
 

Curtailment gain

 
(5
)
Net periodic benefit cost
$
587

 
$
167

Note 15. Other balance sheet items
Trade and other receivables, net
The following summarizes the balances of trade and other receivables, net as of March 31, 2017 and December 31, 2016 ($ in thousands):
 
As of March 31,
 
As of December 31,
 
2017
 
2016
Gross trade and other receivables
$
53,253

 
$
49,942

Allowance for doubtful accounts
(697
)
 
(1,061
)
Total trade and other receivables, net
$
52,556

 
$
48,881

Our allowance for doubtful accounts as of March 31, 2017 and December 31, 2016 was approximately $0.7 million and $1.1 million, respectively. We have not experienced any significant write-offs to our accounts receivable.
Prepayments and other assets
The following summarizes the balances of prepayments and other assets as of March 31, 2017 and December 31, 2016 ($ in thousands):
 
As of March 31,
 
As of December 31,
 
2017
 
2016
Advances to suppliers
$
4,244

 
$
5,769

Prepaid income taxes
4,976

 
2,759

Prepaid other taxes(1)
15,033

 
15,343

Other Assets
4,550

 
4,762

Total prepayments and other assets
$
28,803

 
$
28,633

________
(1) Includes recoverable value-added tax and general consumption tax accumulated by our Mexico and Jamaica entities
during remodeling respectively.

16


Goodwill
The gross carrying values and accumulated impairment losses of goodwill as of March 31, 2017 and December 31, 2016 are as follows ($ in thousands):
 
As of March 31,
 
As of December 31,
 
2017
 
2016
Gross carrying value
$
51,731

 
$
51,731

Accumulated impairment loss

 

Carrying Value
$
51,731

 
$
51,731

Other intangible assets
The summary of other intangible assets as of March 31, 2017 and December 31, 2016 consisted of the following ($ in thousands):
 
As of March 31,
 
As of December 31,
 
Weighted average useful life
 
2017
 
2016
 
Strategic Alliance
$
3,748

 
$
3,748

 
 
Licenses
991

 
987

 
 
Other
2,216

 
2,196

 
 
Acquisition Cost
6,955

 
6,931

 
 
 
 
 
 
 
 
Strategic Alliance
(3,578
)
 
(3,472
)
 
 
Other
(1,623
)
 
(1,484
)
 
 
Accumulated Amortization
(5,201
)
 
(4,956
)
 
 
 
 
 
 
 
 
Strategic Alliance
170

 
276

 
3 years
Licenses
991

 
987

 
 
Other
593

 
712

 
3 years
Carrying Value
$
1,754

 
$
1,975

 
 
Amortization expense for intangibles was $0.2 million and $0.2 million for the three months ended March 31, 2017 and 2016, respectively. Our licenses have indefinite lives. Accordingly, there is no associated amortization expense or accumulated amortization. As of March 31, 2017 and December 31, 2016, such indefinite lived assets totaled $1.0 million.
Trade and other payables
The following summarizes the balances of trade and other payables as of March 31, 2017 and December 31, 2016 ($ in thousands):
 
As of March 31,
 
As of December 31,
 
2017
 
2016
Trade payables
$
16,040

 
$
21,229

Advance deposits
36,870

 
41,621

Withholding and other taxes payable
36,678

 
27,432

Accrued professional services
14,248

 
19,566

Interest payable
6,578

 
16,151

Payroll and related accruals
8,755

 
12,963

Other payables
9,045

 
6,080

Total trade and other payables
$
128,214

 
$
145,042


17


Other liabilities
The following summarizes the balances of other liabilities as of March 31, 2017 and December 31, 2016 ($ in thousands):
 
As of March 31,
 
As of December 31,
 
2017
 
2016
Tax contingencies
$
2,988

 
$
2,969

Pension obligations
4,175

 
3,556

Casino loan and license
1,023

 
1,027

Other
1,880

 
1,445

Total other liabilities
$
10,066

 
$
8,997

Note 16. Segment information
We consider each one of our hotels to be an operating segment, none of which meets the threshold for a reportable segment. We also allocate resources and assess operating performance based on individual hotels. Our operating segments meet the aggregation criteria and thus, we report three separate segments by geography: (i) Yucatán Peninsula, (ii) Pacific Coast and (iii) Caribbean Basin.
Our operating segments are components of the business which are managed discretely and for which discrete financial information is reviewed regularly by our Chief Executive Officer, Chief Financial Officer and Chief Operating Officer, all of whom represent our chief operating decision maker (“CODM”). Financial information for each reportable segment is reviewed by the CODM to assess performance and make decisions regarding the allocation of resources. We did not provide a reconciliation of reportable segments' assets to our consolidated assets as this information is not reviewed by the CODM to assess performance and make decisions regarding the allocation of resources.
The performance of our operating segments is evaluated primarily on adjusted earnings before interest expense, income tax provision, and depreciation and amortization expense (“Adjusted EBITDA”), which should not be considered an alternative to net income or other measures of financial performance or liquidity derived in accordance with U.S. GAAP. We define Adjusted EBITDA as net income, determined in accordance with U.S. GAAP, for the period presented, before interest expense, income tax provision, and depreciation and amortization expense, further adjusted to exclude the following items: (a) other expense, net; (b) transaction expenses; (c) other tax expense, and (d) insurance proceeds.
There are limitations to using 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 financial measures that other companies publish to compare the performance of those companies to our performance. Because of these limitations, Adjusted EBITDA should not be considered as a measure of the income or loss generated by our business or discretionary cash available for investment in our business and investors should carefully consider our U.S. GAAP results presented in our Condensed Consolidated Financial Statements.
The following tables present segment net revenue and a reconciliation to gross revenue and segment Adjusted EBITDA and a reconciliation to net income ($ in thousands):
 
Three Months Ended March 31,
 
2017
 
2016
Revenue:
 
 
 
Yucatàn Peninsula
$
80,748

 
$
71,617

Pacific Coast
28,432

 
22,889

Caribbean Basin
61,330

 
62,347

Segment net revenue (1)
170,510

 
156,853

Other

 
4

Tips
3,557

 
3,099

Total gross revenue
$
174,067

 
$
159,956

________
(1) Net revenue represents total gross revenue less compulsory tips paid to employees and other miscellaneous revenue not derived from segment operations.

18



Three Months Ended March 31,

2017
 
2016
Adjusted EBITDA:
 
 
 
Yucatàn Peninsula
$
43,070

 
$
36,398

Pacific Coast
14,272

 
11,224

Caribbean Basin
24,940

 
26,271

Segment Adjusted EBITDA
82,282

 
73,893

Other corporate - unallocated
(7,809
)
 
(7,059
)
Total consolidated Adjusted EBITDA
74,473

 
66,834

Less:
 
 
 
Other expense, net
645

 
282

Transaction expenses
6,000

 
944

Other tax expense
176

 
418

Insurance proceeds

 
(130
)
Add:
 
 
 
Interest expense
(14,015
)
 
(13,743
)
Depreciation and amortization
(12,410
)
 
(13,134
)
Net income before tax
41,227

 
38,443

Income tax provision
(13,588
)
 
(1,906
)
Net income
$
27,639

 
$
36,537

Note 17. Subsequent events

For our interim Condensed Consolidated Financial Statements as of March 31, 2017, we have evaluated subsequent events through the date the interim financial statements were issued.

Senior Secured Credit Facility Refinance

On April 27, 2017, we amended and restated our existing Senior Secured Credit Facility, which consists of our $530.0 million Term Loan priced at 99.75% of the principal amount and a Revolving Credit Facility with a maximum aggregate borrowing capacity of $100.0 million. The proceeds received from the Term Loan were used to repay our existing term loan and $115.0 million of our Senior Notes due 2020. The repayment of our existing term loan and partial repayment of our Senior Notes due 2020 will be accounted for as an extinguishment of debt and is estimated to result in a loss of $12.5 million.

19




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

Cautionary Note Regarding Forward-Looking Statements
Some of the statements contained in this quarterly report 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 Condensed 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 quarterly report reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement. The 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, including the rebranding of two of our resorts under the new all-inclusive “Panama Jack” brand;
our failure to successfully complete 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 the remediation efforts for the material weaknesses that 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 other of our securities; and
the increasingly competitive environment in which we operate.
 
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. The Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or

20



factors, new information, data or methods, future events or other changes after the date of this quarterly report, except as required by applicable law. You should not place undue reliance on any forward-looking statements, which are based only on information currently available to us (or to third parties making the forward-looking statements).
Explanatory Note
At 12:00 a.m. Central European Time on March 12, 2017 (the "Closing Time"), we consummated a Business Combination that replicated the economics of Playa Hotels & Resorts B.V. (our "Predecessor") and Pace Holdings Corp., an entity that was formed as a special purpose acquisition company for the purpose of effecting a merger or other similar business combination with one or more target businesses ("Pace"), with us (the "Business Combination"). In connection with the Business Combination, which is described in detail in our Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on March 14, 2017, we changed our name from Porto Holdco N.V. to Playa Hotels & Resorts N.V. In addition, in connection with the Business Combination, (i) prior to the consummation of the Business Combination, all of our Predecessor's cumulative redeemable preferred shares were purchased and were subsequently extinguished upon the reverse merger of our Predecessor with and into us, (ii) Pace's former shareholders and our Predecessor's former shareholders received a combination of our ordinary shares and warrants as consideration in the Business Combination. Our Predecessor was the accounting acquirer in the Business Combination, and the business, properties, and management team of our Predecessor prior to the Business Combination are the business, properties, and management team of the Company following the Business Combination.
Our financial statements, other financial information and operating statistics presented in this Form 10-Q reflect the results of our Predecessor for all periods prior to the Closing Time. Our financial statements and other financial information also include the consolidation of Pace from the Closing Time of the Business Combination to March 31, 2017.

21



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. As of March 31, 2017, we owned a portfolio consisting of 13 resorts (6,142 rooms) located in Mexico, the Dominican Republic and Jamaica. 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 three months ended March 31, 2017, we generated net income of $27.6 million, total revenue of $174.1 million, Net Package RevPAR of approximately $270.67 and Adjusted EBITDA of $74.5 million. For the three months ended March 31, 2016, we generated net income of $36.5 million, total revenue of $160.0 million, Net Package RevPAR of approximately $249.66 and Adjusted EBITDA of $66.8 million.

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 12.6% of our total net revenue or 14.1% of our consolidated Adjusted EBITDA for the three months ended March 31, 2017. 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)(1)
 
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)(1)
 
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(2)
 
Montego Bay, Jamaica
 
Hyatt Ziva (all ages) and Hyatt Zilara (adults-only)
 
Playa
 
620
Total Rooms
 
 
 
 
 
 
 
6,142
    
 
(1) Pursuant to an agreement with Panama Jack, we have agreed to rebrand these resorts under the Panama Jack brand. We expect the rebranding to be completed in 2017.
(2) Our Jamaica property is treated as a single resort operating under both of the all-ages Hyatt Ziva and adults-only Hyatt Zilara brands (the "Hyatt All-Inclusive Resort Brands"), rather than as two separate resorts.


22



Results of Operations
Three Months Ended March 31, 2017 and 2016
The following table summarizes our results of operations on a consolidated basis for the three months ended March 31, 2017 and 2016:
 
Three Months Ended March 31,
 
Increase / Decrease
 
2017
 
2016
 
Change
 
% Change
Revenue:
($ in thousands)
 
 
Package
$
152,956

 
$
142,456

 
$
10,500

 
7.4
 %
Non-package
21,111

 
17,500

 
3,611

 
20.6
 %
Total revenue
174,067

 
159,956

 
14,111

 
8.8
 %
Direct and selling, general and administrative expenses:
 
 
 
 
 
 
 
Direct
77,106

 
72,498

 
4,608

 
6.4
 %
Selling, general and administrative
28,664

 
21,986

 
6,678

 
30.4
 %
Depreciation and amortization
12,410

 
13,134

 
(724
)
 
(5.5
)%
Insurance proceeds

 
(130
)
 
130

 
(100.0
)%
Direct and selling, general and administrative expenses
118,180

 
107,488

 
10,692

 
9.9
 %
Operating income
55,887

 
52,468

 
3,419

 
6.5
 %
Interest expense
(14,015
)
 
(13,743
)
 
(272
)
 
2.0
 %
Other expense, net
(645
)
 
(282
)
 
(363
)
 
128.7
 %
Net income before tax
41,227

 
38,443

 
2,784

 
7.2
 %
Income tax provision
(13,588
)
 
(1,906
)
 
(11,682
)
 
612.9
 %
Net income
$
27,639

 
$
36,537

 
$
(8,898
)
 
(24.4
)%
    
The following tables set forth information with respect to our Occupancy, Net Package ADR, Net Package RevPAR, Net Package Revenue, Net Non-package Revenue (as defined below), total net revenue and Adjusted EBITDA for the three months ended March 31, 2017 and 2016. 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 reconciliation to the most comparable U.S. GAAP financial measures, see “Key Indicators of Financial and Operating Performance” and “Non-U.S. GAAP Financial Measures,” below.
Total Portfolio
 
Three Months Ended March 31,
 
Increase / Decrease
 
2017
 
2016
 
Change 
 
% Change
Occupancy
87.4
%
 
82.3
%
 
5.1
 pts
 
6.2
%
Net Package ADR
$
309.61

 
$
303.40

 
$
6.21

 
2.0
%
Net Package RevPAR
270.67

 
249.66

 
21.01

 
8.4
%
 
($ in thousands)
 
 
Net Package Revenue
$
149,622

 
$
139,538

 
$
10,084

 
7.2
%
Net Non-package Revenue
20,888

 
17,319

 
3,569

 
20.6
%
Total net revenue
170,510

 
156,857

 
13,653

 
8.7
%
Adjusted EBITDA
$
74,473

 
$
66,834

 
$
7,639

 
11.4
%

23



Total Revenue and Total Net Revenue    
Our total revenue for the three months ended March 31, 2017 increased $14.1 million, or 8.8%, compared to the three months ended March 31, 2016. Our total net revenue (which represents total revenue less compulsory tips paid to employees) for the three months ended March 31, 2017 increased $13.7 million, or 8.7%, compared to the three months ended March 31, 2016. This increase was driven by an increase in Net Package Revenue of $10.1 million, or 7.2%, and an increase in Net Non-package Revenue of $3.6 million, or 20.6%. The increase in Net Package Revenue was the result of an increase in Net Package ADR of $6.21, or 2% and an increase in average occupancy from 82.3% to 87.4%, the equivalent of an increase of $21.01, or 8.4%, in Net Package RevPAR.
Direct Expenses
The following table shows a reconciliation of our direct expenses to net direct expenses for the three months ended March 31, 2017 and 2016 ($ in thousands):
 
Three Months Ended March 31,
 
Increase/Decrease
 
2017
 
2016
 
Change 
 
% Change
Direct expenses
$
77,106

 
$
72,498

 
$
4,608

 
6.4
%
Less: tips
3,557

 
3,099

 
458

 
14.8
%
Net direct expenses
$
73,549

 
$
69,399

 
$
4,150

 
6.0
%
Our direct expenses include resort expenses, such as food and beverage, salaries and wages, utilities and other ongoing operational expenses. Our net direct expenses (which represents total direct expenses less compulsory tips paid to employees) for the three months ended March 31, 2017 were $73.5 million, or 43.1%, of total net revenue and $69.4 million, or 44.2%, of total net revenue for the three months ended March 31, 2016. Net direct expenses for the three months ended March 31, 2017 include $19.5 million of food and beverage expenses, $24.4 million of resort salary and wages, $7.0 million of utility expenses, $3.4 million of repairs and maintenance expenses, $0.6 million of licenses and property taxes, $3.9 million of incentive and management fees, $4.4 million of Hyatt fees, and $10.3 million of other operational expenses. Other operational expenses primarily include $1.2 million of office supplies, $1.1 million of guest supplies, $0.6 million of laundry and cleaning expenses, $1.1 million of transportation and travel expenses, $0.9 million of entertainment expenses, $1.0 million of other supplies and expense amortization, $1.4 million of property and equipment rental expenses and $3.0 million of other expenses.
Net direct expenses for the three months ended March 31, 2016 include $18.9 million of food and beverage expenses, $24.4 million of resort salaries and wages, $6.0 million of utility expenses, $3.6 million of repairs and maintenance expenses, $0.8 million of licenses and property taxes, $4.2 million of incentive and management fees, $3.8 million of Hyatt fees, and $7.7 million of other operational expenses. Other operation expenses primarily include $1.2 million of office supplies, $1.1 million of guest supplies, $0.8 million of laundry and cleaning expenses, $1.1 million of transportation and travel expenses, $0.9 million of entertainment expenses, $0.9 million of other supplies and expense amortization, $0.7 million of property and equipment rental expenses, and $1.0 million of other expenses.
Net direct expenses for the three months ended March 31, 2017 increased $4.2 million, or 6%, compared to the three months ended March 31, 2016. The increases in net direct expenses were primarily attributable to an increase in utility expenses of $1.1 million, an increase in food and beverage expenses of $0.6 million and an increase in other operational expenses of $2.6 million. These expenses were partially offset by a decrease in incentive and management fees of $0.3 million and a decrease in license and property taxes of $0.2 million.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the three months ended March 31, 2017 increased $6.7 million, or 30.4%, compared to the three months ended March 31, 2016. This increase was primarily driven by an increase in transaction expenses of $4.9 million, an increase in advertising expenses of $0.8 million, an increase in professional fees of $0.2 million, an increase in corporate personnel costs of $0.8 million, and an increase of $0.5 million in other selling, general and administrative expenses. These expenses were partially offset by a decrease in insurance expenses of $0.5 million.
Depreciation and Amortization Expense
Our depreciation and amortization expense for the three months ended March 31, 2017 decreased $0.7 million, or 5.5%, compared to the three months ended March 31, 2016.

24



Insurance Proceeds
We did not receive insurance proceeds during the three months ended March 31, 2017. We received $0.1 million of insurance proceeds during the three months ended March 31, 2016, which represents proceeds related to a small claim at the Dreams Palm Beach resort.
Interest Expense
Our interest expense for the three months ended March 31, 2017 increased $0.3 million, or 2.0%, as compared to the three months ended March 31, 2016. This increase was primarily attributable to the issuance of an additional $50.0 million of our senior unsecured notes, which mature on August 15, 2020 (the "Senior Notes due 2020") on October 4, 2016. This was partially offset by a decrease in interest expense on our Revolving Credit Facility.
Income Tax Provision
The income tax provision for the three months ended March 31, 2017 was $13.6 million, an increase of $11.7 million compared to the three months ended March 31, 2016, during which we reported an income tax provision of $1.9 million. The increased income tax provision in the three months ended March 31, 2017 was driven primarily by a $3.1 million increase of the tax impact on increased pre-tax book income and an $8.3 million increase in the discrete expense associated with foreign exchange rate fluctuations.
Adjusted EBITDA
Our Adjusted EBITDA for the three months ended March 31, 2017 increased $7.6 million, or 11.4%, compared to the three months ended March 31, 2016. For discussions of Adjusted EBITDA and reconciliation to the most comparable U.S. GAAP financial measures, see “Key Indicators of Financial and Operating Performance” and “Non-U.S. GAAP Financial Measures,” below.
Key Indicators of Financial and Operating Performance
We use a variety of financial and other information to monitor the financial and operating performance of our business. Some of this is financial information prepared in accordance with U.S. GAAP, while other information, though financial in nature, is not prepared in accordance with U.S. GAAP. For reconciliations of non-U.S. GAAP financial measures to the most comparable U.S. GAAP financial measure, see “Non-U.S. GAAP Financial Measures.” Our management also uses other information that is not financial in nature, including statistical information and comparative data that are commonly used within the lodging industry to evaluate the financial and operating performance of our portfolio. Our management uses this information to measure the performance of our segments and consolidated portfolio. We use this information for planning and monitoring our business, as well as in determining management and employee compensation. These key indicators include:
Net 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.

25



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.
The following table shows a reconciliation of Net Package Revenue, Net Non-package Revenue and Net Revenue to Total Revenue for the three months ended March 31, 2017 and 2016:
 
Three Months Ended March 31,
 
2017
 
2016
 
($ in thousands)
Total Net Package Revenue
$
149,622

 
$
139,538

Total Net Non-package Revenue
20,888

 
17,319

Total net revenue
170,510

 
156,857

Plus: compulsory tips
3,557

 
3,099

Total revenue
$
174,067

 
$
159,956

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.
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 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

26



Other tax expense
Insurance proceeds
Stock-based compensation expense
Loss (gain) on extinguishment of debt
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, 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, revenue from insurance policies, other than business interruption insurance policies is infrequent in nature, and we believe excluding these expense and revenue items permits investors to better evaluate the core operating performance of our resorts over time.
The second principal reason that we believe Adjusted EBITDA is useful to investors is that it is considered a key performance indicator by our board of directors (our "Board") and management. In addition, the compensation committee of our Board determines the annual variable compensation for certain members of our management based, in part, on consolidated Adjusted EBITDA. We believe that Adjusted EBITDA is useful to investors because it provides investors with information utilized by our Board and management to assess our performance and may (subject to the limitations described below) enable investors to compare the performance of our portfolio to our competitors.
Adjusted EBITDA is not a substitute for net income or any other measure determined in accordance with U.S. GAAP. There are limitations to the utility of non-U.S. GAAP financial measures, such as Adjusted EBITDA. For example, other companies in our industry may define Adjusted EBITDA differently than we do. As a result, it may be difficult to use 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.
For a reconciliation of EBITDA and Adjusted EBITDA to net income as computed under U.S. GAAP, see “Non-U.S. GAAP Financial Measures.”
Segment Results
Three Months Ended March 31, 2017 and 2016
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 three months ended March 31, 2017 and 2016:
 
 
Three Months Ended March 31,
 
 
 
 
 
2017
 
2016
 
Change 
 
% Change 
Net revenue:
($ in thousands)
 
 
Yucatán Peninsula
$
80,748

 
$
71,617

 
$
9,131

 
12.7
 %
Pacific Coast
28,432

 
22,889

 
5,543

 
24.2
 %
Caribbean Basin
61,330

 
62,347

 
(1,017
)
 
(1.6
)%
Segment net revenue
170,510

 
156,853

 
13,657

 
8.7
 %
Other

 
4

 
(4
)
 
(100.0
)%
Total net revenue   
$
170,510

 
$
156,857

 
$
13,653

 
8.7
 %

27



 
 
Three Months Ended March 31,
 
 
 
 
 
2017
 
2016
 
Change 
 
% Change
Adjusted EBITDA:
($ in thousands)
 
 
Yucatán Peninsula
$
43,070

 
$
36,398

 
$
6,672

 
18.3
 %
Pacific Coast
14,272

 
11,224

 
3,048

 
27.2
 %
Caribbean Basin
24,940

 
26,271

 
(1,331
)
 
(5.1
)%
Segment Adjusted EBITDA
82,282

 
73,893

 
8,389

 
11.4
 %
Other corporate—unallocated
(7,809)

 
(7,059)

 
(750
)
 
10.6
 %
Total Adjusted EBITDA   
$
74,473

 
$
66,834

 
$
7,639

 
11.4
 %
For a reconciliation of segment net revenue and segment Adjusted EBITDA to gross revenue and net income, respectively, each as computed under U.S. GAAP, see Note 16 to our Condensed Consolidated Financial Statements.
Yucatán Peninsula
The following tables set forth information with respect to our Occupancy, Net Package ADR, Net Package RevPAR, Net Package Revenue, Net Non-package Revenue, total net revenue and Adjusted EBITDA for our Yucatán Peninsula segment for the three months ended March 31, 2017 and 2016 for the total segment portfolio. As the properties in the Yucatán Peninsula 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.
 
 
Three Months Ended March 31,
 
 
 
 
 
2017
 
2016
 
Change 
 
% Change
Occupancy
90.6
%
 
83.5
%
 
7.1 pts