• Rezidor’s revpar grows as margins fall

The Rezidor Hotel Group has reported revpar growth across much of its portfolio for the full year, accelerating in the fourth quarter, with total revenue increasing by 16%.

But the group also reported that Ebitdar margins had dropped to 30% from 33% as a result of higher costs, including higher variable salaries due to better than expected performance, marketing costs and write-offs in the Nordics.

President and CEO Kurt Ritter said that the costs did not represent an increase in the cost base going forward, focusing instead on future growth in the company's portfolio.

The group cut its full year loss to Eu2.7m, down from Eu28.2m in 2009, as the company added 7,200 rooms, or 32 hotels, 82% of which were fee-based. The group added 8,100 rooms to the pipeline in 2010, of a total pipeline of over 20,000 rooms, of which 96% was the higher-margin fee-based business.

Ritter said: "We are determined to continue our growth with the asset-light strategy – there is room for us to growth in EMEA in the mid-market segment, but there are immense opportunities in countries in which we are not yet present, which is 60 countries in EMEA".

Discussing potential acquisitions in a call with analysts, Puneet Chhatwal, SVP and chief development officer said: "There will be a lot of opportunities in 2011, albeit with cash purchases or very low leverages" but confirmed that, apart from strategically important sites, the group would pursue fee-based expansion. It would, however, continue to provide sliver equity as part of its development strategy.

He added: "The UK is one of the markets, especially on the mid-market side, where many portfolios are being offered. Unfortunately many of them have a lot of capex needs, which means a displacement in revenue. Or they are coming with a lot of real estate where we have to separate the bricks from the business. In the UK there is a likelihood of more distress coming up for sale."

Looking at the group's expansion in the Middle East, in the light of the current unrest in the region, Chhatwal said that the group had no hotels due to open in the short term, but that such factors were "part and parcel" of operating in the emerging markets and were why the group tried to balance its growth with existing markets.

Ritter spoke of "stronger collaboration with Carlson", which will see the Radisson Blu brand "go global" with the flag expanding in markets such as the US, as well as looking at possibilities for the Missoni brand in the Americas region. Rezidor, in turn, will help promote the international development of Country Inns & Suites By Carlson, although Chhatwal said that the group's focus would remain on Radisson and Park Inn.

Since the results announcement the two groups have announced a new loyalty programme, Club Carlson, with plans to double the size of membership to 10 million members by 2013.

Considering the group's performance, Ritter said: "Rest of Western Europe led the recovery throughout the year and we witnessed significant revpar increases in key markets such as Germany, France and Benelux."

Ritter added that the company was planning to invest in its existing hotels, in addition to continuing to add new hotels to its estate, with Knut Kleiven, deputy president and CFO, commenting that, after below-average capex during the downturn, the group would increase capex in 2011 and 2012, although no specific figures were given.

Norway and Denmark were both described by Ritter as "weak". However, Western Europe saw 10% revpar growth, driven by 5% increase in rate and 5% in occupancy. For the fourth quarter it was up 13%, 7% on rate and 6% on occupancy, but, looking forward, Ritter added there there was "still a way to go when we look at where we were for 2007 and 2008".

 

HA Perspective: There were at least a couple of interesting takeaways from Rezidor's presentation.

Firstly, there is the issue of costs. The typical pattern during a recession is for the early stages of the recovery to be the hardest. The change of pace can easily catch out companies and Rezidor is not alone in having to pay much higher bonuses than it expected (IHG too mentioned it during its latest results).

The critical factor will be whether these costs continue to rise faster than revenues and so it is too early to criticise the group's management.

Secondly, it is the expectations of opportunity to come. Rather like the issue with costs, it is in the early stage of the recovery rather than during the recession that the best opportunities arise.

Total basket case companies did collapse (although not many) in the couple of years following the Lehman's collapse. Now, however, companies that are a reasonable trading prospect but which have been crippled by an inappropriate capital structure might become available as their lenders seek an exit.

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