• Rezidor is key to emerging markets for Carlson

Rezidor suffered a massive slump in profitability during 2009 and it warns that it is still too early to assume the recovery has started.

But the operator, which has a significant leased portfolio, said the final quarter had at least seen occupancy stabilising.

The profit battering suffered by Rezidor during 2009 left it with EBITDA of just Eu5m compared to Eu71m in 2008. This was after revpar fell 16% and sales fell 14%. The EBITDA fall left it with a net loss of Eu28m compared to a net profit of Eu26m a year earlier.

The big profit hit came in the leased portfolio which suffered a loss of Eu25m in Western Europe outside of the Nordics. Even in the Nordics, where variable leases dominate, EBITDA was down from Eu54m to Eu32m.

The struggles in the lease portfolio are vindication of Rezidor's strategy to focus development on fee business, either management or franchise. Of the 18,600 rooms opened since the IPO in November 2006, only 10% are leased.

New development is focused on developing markets with nearly three-quarters of the pipeline in such territories. Currently a third of Rezidor's portfolio is in developing markets. The company said these territories offered "fundamental structural demand".

Last year 39 hotels were signed and 36 hotels opened. Taken offline were 10 hotels, mostly for non-compliance with brand standards.

Puneet Chhatwal, chief development officer, admitted that projects in emerging markets were not as stable as in developed markets. But he believed there was a risk of delays for only 15% to 20% of the pipeline and 60% of the pipeline is under construction or site preparation.

The opportunity for conversion might compensate for such delays and such franchise growth does not show in the pipeline.

The big hit in Rezidor's performance happened in the first half and was driven mostly by slumping occupancy. This has now stabilised but rate is continuing to fall, although in the fourth quarter the drop was less than double digit.

The most resilient markets last year were the UK, Germany and Sweden. Eastern Europe slumped by 29% and the Middle East and Africa was down 16%.

HA Perspective: With 22,000 rooms in the pipeline on a existing room stock of 60,000, Rezidor is one of the fastest growing hotel companies in the world. It is probably just as well as otherwise its leased portfolio would have left it in considerable pain.

Even after heroic cost cuts – Eu32m from operations and Eu5m centrally – the company went dramatically into the red last year. The cost cuts meant break-even revpar level was brought down from Eu60 in 2003 to Eu57 in 2009. Taking inflation into account that is a considerable improvement in efficiency.

The trends look good, probably better than the company was willing to admit. If the company is able to hold costs down as the recovery kicks in – it said it was optimistic about being to maintain the new level of fixed costs – then it should enjoy a strong recovery. The fixed lease estate should deliver as strong a boost on the way up as it was a drag on the way down.

The big question mark over Rezidor is what Carlson, the owner of nearly all of its brands (the exception being Missoni) and a stake of 44%, intends to do. Rezidor in many ways continues to outperform its parent.

Globally Carlson has 160,000 rooms of which Rezidor comprises 60,000. But it is the global growth, particularly in emerging markets, where Rezidor has left Carlson in its wake. Of the 66 hotels signed to Carlson brands last year, more than half were by Rezidor.

Other than India, where Carlson earlier this year struck a deal to acquire 87% of its local development partner and where there are plans to add 50 hotels, Rezidor is Carlson's key access to emerging markets.

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