The Resort at Pedregal

Project Summary

Management Assignment of a Five Star Luxury Resort

RHR was hired in the fall of 2014 to take over as manager of this luxury resort in Cabo San Lucas, Mexico with 119 luxury guestrooms. In addition to rebranding and managing the Resort, RHR oversaw the extensive renovation and restoration needed to reopen the Resort after the devastation caused by Hurricane Odile in September 2014.

The Resort at Pedregal, the premier spa resort in Cabo San Lucas with the only Forbes 5-Star Spa designation in Cabo, sits on the southernmost tip of Mexico’s Baja California Peninsula. The resort is accessed through a private mountain tunnel and encompasses 24 oceanfront acres at the very point where the Pacific Ocean meets the Sea of Cortez, near the legendary rock formations known as Land’s End. RHR works closely with its on-property team members to maximize the performance of the property.

Operational Improvements made by RHR have helped the resort earn various rewards reflecting its strength and quality of service:

• Forbes 5-Star Hotel & Spa designations
• AAA Five-Diamond Award
• 2018 & 2019 TripAdvisor Traveler’s Choice Top 25 Hotels in the World
• 2019 TripAdvisor Certificate of Excellence
• 2017 Travel & Leisure World’s Best Award
• 2018 Conde Nast Traveler Gold List
• 2018 Smart Meetings Platinum Choice Award

Since RHR took over management in 2014, we successfully grew the Resort’s NOI by 152.5% through 2018, a 26.1% CAGR. RHR also grew the Hotel’s NOI margin from 21% to 37% in that time, despite planning a major Capex project in 2018 and facing significant market headwinds towards the end of the year.

Top-Line Initiatives

RHR took the following initiatives to enhance property performance and guest experience:

1. RHR revamped sales & marketing efforts, completely redeploying the sales team while refocusing marketing strategies to boost top-line revenues and increase market penetration.
2. RHR identified group and incentive travel as an untapped source of business, especially during mid-week and shoulder/low-seasons.
3. Along with increasing group business, RHR focused on growing banquet & event business without disrupting the overall F&B operation.
4. RHR has focused on increasing direct bookings to boost net revenues and decrease reservation expenses.

Results:

1. The refocused strategy lead to an 18% increase in room revenues from 2013 to 2019, lead by a 12% ADR increase and an occupancy increase from 65% to 70%; RevPAR penetration increased from 97% to 108% in that time.
2. RHR increased group room nights 72% and revenues 127% as we moved from a 91%/9% transient/group segmentation to 82%/18%; transient revenues also increased 10% during that time as we created rate compression.
3. Banquet revenues increased 139% and contributed to F&B profit margin growing from 44% to 52%. Meanwhile, total F&B revenues increased 40% driven by both increased covers and increased average check size.
4. Direct booking revenues increased 20% from 2013 to 2017 as direct net ADR increased 13%; web bookings, our most profitable, increased 15% to make up 26% of reservations.

Operational Efficiencies

RHR took the following initiatives to enhance the hotel's operations, limiting expenses while maintaining the Resort's 5-Star quality of service:

1. RHR discovered missed opportunities and inflated costs when inserted as asset manager, leading to Ramsfield taking over cash management and revising operating practices.
2. Hurricane Odile devastated the Cabo market in September 2014, before RHR's eventual management takeover; as asset manager and then manager, RHR oversaw the recovery and restoration process.
3. RHR focused on increasing profitability by right-sizing staff, creating operational efficiencies, investing in systems, and reducing overhead.
4. As manager, RHR restructured the human resources department and constantly invested in our employees, building state of the art training programs for all hotel staff.
5. RHR discovered structural deficiencies in the 272-share fractional ownership program that contributed to third-party owner discord, inflated costs, and inefficient expense management.

Results:

1. NOI substantially increased from a deficit before RHF took over asset management in 2011; GOP margins increased from just 18% to over 50%. Under RHR management, NOI increased nearly 30% by 2017.
2. RHR managed a $21 million renovation and restoration project, reopening the resort four months after the storm, six months before its competitors; in addition, RHR has managed over $30 million of capital projects since taking over management.
3. RHR's initiatives resulted in a 13% increase in rooms' profitability POR since 2013 and a 6% decrease in overall overhead; NOI margin increased from 24% to 40% in that time.
4. Investments led to greater guest satisfaction and hotel ranking, but more importantly, greater employee satisfaction and significantly reduced turnover.
5. RHR restructured the operation, created a fractional owner assembly, right-sized the budget, and properly allocated costs.