Radisson Hospitality said that it was making progress on its five-year plan as it moved its lease focus to primary locations.
The company was unable to comment on the likely impact of HNA’s expected sale of its stake in the group, which was expected to be announced imminently.
Federico González, president & CEO, Radisson Hospitality, told analysts that HNA Group “have not communicated anything to the company”. He said that the group remained “very focused on delivering and executing our plan. We try to make sure that managing the business doesn’t get any kind of interference or effect of whatever any shareholder does with their shares”.
Last month saw a similar comment from John Kidd, CEO & COO, Radisson Hotel Group, who told Bloomberg: “While it has been widely reported that HNA has recently been exploring the sale of some of its assets, we are in a very strong place with our business and remain committed to our go-forward strategy.”
HNA Group acquired Carlson Hotels in 2016 and holds a stake of 70.4% in the former Rezidor Hotel Group. In 2017 a global committee was created to oversee both companies.
González was speaking on the company’s first-half earnings call. The group saw revenue fall by 0.2% on the year to EUR253.7m, due to the exit of eight leases at the end of last year.
Knut Kleiven, deputy president & CFO, Radissson Hospitality, told Hotel Analyst that disposing of the leases, the latest in the a series as the group rationalised its estate, was “a good thing for us. The hotels that we have exited have been secondary and tertiary locations. Twenty per cent of our hotels are leased and our five-year plan plans to keep it at around 20%. We have 57 leases today and these are hotels which are incredibly profitable.
“There will be some new leased hotels over the next few years but the difference is that that they will be in strong locations. In the UK this would be locations like London, Manchester, Edinburgh and Glasgow, but not places like Thurrock and West Bromwich.
“Our development strategy will not change in the emerging markets, where we have 90% of our pipeline. Of course there is more competition for hotels in primary locations such as Paris and Rome and we don’t feel that we are any different to any other hotel company. In Western Europe everyone needs to put some money in your offer, whether that is through performance guarantees or leases, there is a need for some kind of commitment.”
The first half of the year saw the group issue EUR250m in senior secured notes to finance the fie-year plan.
In March this year the company 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 us: “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.”
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. At the end of the first half the Ebitda margin had increased 3.6 percentage points to 10.1%, with the CFO commenting that it was on track to hit its target.
Looking ahead, Radisson Hospitality has forecast like-for-like revenue growth, including hotels under renovation, of 4.0% to 4.5% and reported Ebitda margin at around 11%.
HA Perspective [by Katherine Doggrell]: The question of ownership is one which has never been far from the surface at Radisson Hospitality in recent years, with many of us having come to terms with the idea of the then-Rezidor joining forces with NH Hotel Group and bringing north and south together in glorious harmony. Accor looked at Rezidor then and this correspondent thinks they are likely to look now, particularly with NH back in play, as we report elsewhere in this issue.
Radisson Hospitality does, of course, come with a chum in the form of Radisson Hotel Group, with which it has formed closer ties since sharing an owner. Kleiven told us that, while the pair did not share corporate offices (Radisson Hospitality remains listed in Stockhom), “we have strong links through reservations and the loyalty programmes, so from that angle it’s incredibly important that we work together and we have been able to work together more in the past year”.
Radisson Hospitality may have much to offer in terms of emerging market coverage and leases – which are back from their pariah status thanks to the increased interest of the institutions – but Radisson Hotel Group may give some pause, although that doesn’t appear to be deterring Jin Jiang, according to the rumour mill – and let’s not forget their stake in Accor. There is some reassurance to be had from the fact that brands such as Country Inns & Suites could be hived off after the deal. HNA has yet to confirm that it is marketing the group, but the mental slide rules are already out. Again.