• Rezidor maintains pipeline through downturn

The Rezidor Hotel Group said that it had been able to maintain its pipeline throughout the downturn, aided by its strategy of focusing on the emerging markets.

The group has also shifted its new openings towards management contracts during the period. Speaking at the company's third-quarter results, Kurt Ritter, president and CEO, said: "We continued our momentum of openings and signings due the recession. We have opened over 18,000 rooms since the second quarter of 2008 as well as improving the quality of our contract mix."

He added: "Our strategy to grow in the emerging markets is paying off in terms of significant and growing EBITDA contribution from these markets. We have also seen positive contribution from newly-opened hotels."

Knut Kleiven, Rezidor's CFO, said that the group had been disappointed by the quality of hotels which had become available during the recession, although it had signed some conversions.

Puneet Chhatwal, chief development officer, added: "Almost all companies have been reporting revpar growth, which should stimulate more development. Further, there is considerable debt refinancing supposed to happen in the next two years. This should create branding opportunities for unbranded stock, particularly in Europe, as well as conversion opportunities for underperforming assets.

"There has been an improvement in the investment climate. The much-awaited consolidation activity in the industry is expected to pick up in the future quarters."

In the last eight quarters the group has signed 82 hotels and opened 78 hotels. Nintety-eight per cent were fee-based signings and 90% of openings in Eastern Europe, the Middle East and Africa.

Chhatwal added: "Twenty-five per cent of our portfolio was franchise at IPO. That was at a time in November 2006 when the market was at its top from a development perspective and it was easier to do franchise than management contracts. In line with our strategy of going into the emerging markets we had more chance to do management contracts, which have higher EBITDA margins and also allow you to keep the quality of growth."

Ritter said that limited supply in the developed markets was likely to aid the group's performance while the global economy recovered. He said: "Supply growth in Europe is at an all time low – approximately 1% according to MKG. Europe has suffered from tough financing conditions over the past couple of years. This is expected to help the revpar recovery in Europe."

The third quarter saw a 3.4% increase in rates for Rezidor, the first growth since the fourth quarter of 2008, with demand up across the company's geographic regions.

 

HA Perspective: Rezidor's belief that hotel real estate was likely to see more development as trading improved was backed by the latest report on the sector in Europe by Invesco Real Estate, which indicated increased hotel real estate values and interest from investors.

The study said that hotel markets were expected to recover quickly, being closely tied to economic recovery. It added: "This also suggests an increase in occupation and rise in daily room rates, which quickly flows through to asset performance and valuation."

Invesco pointed to interest in leased, rather than management structures, adding: "We expect hotels to become a larger part of an institutional real estate allocation in the longer term and hotels will continue to offer certain advantages over traditional commercial real estate. Such advantages are typically longer lease structures with a tenant whose success is tied closely to the real estate's success."

However, Invesco warned: "Value improvement in the hotel sector may lag the commercial real estate markets as it needs to await the return of business and leisure travel that is expected to follow once the general economic recovery takes hold and consumers are more confident and discretionary in their spending."

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