Radisson Hotel Group announced plans to take on up to EUR400m of lease risk over the next five years as it looks to expand in Europe.
The group said that the decision was taken in part because of the increased demand for leases from institutional investors targeting the hotel sector.
Elie Younes, EVP & CDO, told Hotel Analyst that the decision to move back towards leases after having favoured management contracts was driven by the need to do things “in a different way. We need to rejuvenate the way that we do business and leases are the way forward in Europe. Why? Because there are an increasing number of institutional investors active in the hotel investment word in Europe and a number of these institutions have certain regulations which mean they can only do leases and hence our decision to fit with those investors.
“We have allocated EUR80m for industrial investments and this is to stimulate organic growth on a deal-by-deal basis, for example with key money. Really small investments to stimulate growth. We have also allocated EUR400m in lease debt money – not cash – for the next five years. Every time you do a lease you generate a certain liability for the rent and usually we do a cap on the lease – what is the maximum loss you can make before something happens on the lease – and the sum of those potential baskets that we have estimated at EUR400m. So we will expose ourselves up to EUR400m over the next five years.”
The comments were made as Carlson Rezidor Hotel Group announced its rebranding to Radisson Hotel Group. Rezidor Hotel Group will become Radisson Hospitality in April, subject to the approval of shareholders. The group said it planned to become “a top three hospitality company in the world”.
Federico González, president & CEO, told delegates at the International Hotel Investment Forum in Berlin: “The mission that we have created is completely compelling. Being one of the top three doesn’t mean that you are the largest, but we have the conviction that we can do much better than the competitors. It is about the quality of work we do.
“The five-year plan is fully focused on organic growth. In the coming years we will increase our capabilities in a way that we can integrate anything that may come into the company. We need to be very focused and get ready if the opportunity comes.”
The group used the IHIF to launch Radisson Collection, which it described as “a premium collection of exceptional hotels in landmark locations, driven by consumer demand for individuality and more personalised experiences”. The 15 hotels which have previously been branded under the Quorvus label will be included in the new collection. The launch took the number of brands using the Radisson name up to four, including Radisson Red.
Younes said that owners had so far been welcoming of the brands, despite the further extension of the Radisson name, commenting: “We have a very distinct brand architecture unlike some of our competitors. The four brands are clearly in four different segments. If you look at our competitors, with 30, 40 brands, this is where it becomes very confusing to the owner, but equally to the consumer. In our case we have more realistic positioning.”
Rezidor’s five-year growth plan, launched in January, aims to deliver revenue growth of 6% to 7% on an annual basis. The Ebitda margin is expected to reach 13% to 15% by the end of 2022, from 8% in 2016.
As part of the strategy, it is looking to pull up ADR, including at Park Inn. Younes said: “What will help Park Inn increase its rate is the new marketing plan that we have. We are planning to spend EUR140m on our marketing plan over the next four years, EUR67m on IT, we’re planning to launch our digital platform and it is all these initiatives together which will help Park Inn and all our brands to lift their average price. We are hoping to reach 20% [direct] on our channels over the next five years. That’s our aspiration.”
HA Perspective [by Katherine Doggrell]: Who doesn’t enjoy a five-year plan? All of us, of course, but none more than González, who, having implemented one at NH Hotel Group, is now here for more of the same at Radisson. And with limited capital to dispense, it’s all about the brand building and the willingness to get back into leases and share the burden.
But one question remains for Radisson, which was also a feature of NH Hotel Group, and which González would not be drawn on at the group’s relaunch at IHIF – that of HNA Group. The company is looking for an exit from its NH Hotel Group stake, and from its Park Hotels & Resorts stake and one wonders how long it will be until the company continues its pullback from the hotel sector and looks to sell off Radisson.
When HNA first made inroads into hotels many had expected to see, at the very least, Carlson, Rezidor and NH bought together, with some looking further at Hilton. As we heard on repeat at IHIF, consolidation is all (at least for the moment). It’s all very jolly aligning interests with hotel owners, but the five-year plan is facing pressure from the group’s owner. We – and the M&A lawyers – watch with interest.