• Sol eyes deals

Sol Melia is expecting the credit crunch to work in its favour by clearing the field of rivals for potential acquisitions.

But rather than buying chains, the main focus for growth at the company is likely to be driven by single asset purchases and spend on existing properties.

At an investor day held at the end of February, the company outlined its new organisational model structured along brand lines and plans to spend Eu520m expanding the hotels division.

Helping Sol to meet its return on capital employed target of 12% for this spending is the slowdown in room supply growth in its domestic market.

During 2000 to 2006 supply in Barcelona and Madrid grew 10% but this year growth in Madrid is expected to shrink to 2.1% and then to just 1.0% in 2009. In Barcelona, growth this year will still be double digit at 10.4% but next year it too will fall back to 3.2%.

Sol believes that despite the current economic slowdown, hotels in Europe are set to improve revpar thanks to demand far outstripping supply.

There is planned to be a slight shift towards managed and franchised hotels over the next three years as more hotels of this contract type rather than owned or leased are added to the portfolio.

Between 2007 and 2010 the total room count is expected to grow a net 18%, from 75,000 to 88,500 rooms.

The luxury segment brands – Paradisus, ME and Gran Melia – are set to receive Eu87m to deliver an annual growth in room numbers of 1.5%, from 3,397 to 4,375.

The upscale Melia brand is benefit from Eu364m of spend to increase the room count by 9% each year on average, from 9,179 in 2007 to 12,016 by 2010.

For the mid-scale Tryp brand, the number of rooms is expected to contract by 2.5% on average each year, down from 8,422 to 7,816. The mid-scale Sol brand will shrink even faster, by 5% a year on average, going from 13,016 to 11,176 rooms.

The overall impact of these changes will be to nudge the company's room inventory towards upscale or luxury brands. In 2007, mid-scale was 60% of the portfolio but by 2010 this proportion will have shrunk to 52%.

A strong balance sheet means Sol has Eu515m of cash available to it. The total sum for planned investments between 2008 and 2010 is Eu1.1bn spread between hotel and other property development (53%), timeshare (6%), brand equity (28%) and maintenance (13%).

During 2007, revenue at Sol was up 7.5% to Eu1.35bn. This enabled EBITDA to increase by 7.1% to Eu349m and net profit to leap 18.9% to Eu162m.

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