Rezidor Q4 LFL RevPAR up by 5.4% and FY 5.8% and hotel group proposes €60m rights issue to accelerate strategy and profitability initiatives in line with “Route 2015”

12 February 2014

Rezidor Hotel group has reported 2013 fourth quarter like-for like RevPAR was up by 5.4%. Revenue decreased by 1.9% to €236m (Q4 2012: €240.6m) as a result of the strengthening of the Euro. On a LFL basis Revenue increased by 4%.

EBITDA was €25.8m (€15.4m) and the EBITDA margin grew by 4.5 percentage points to 10.9%. The main reasons for the improvement were cost reduction initiatives, additional high margin fee revenue, lower rent costs and reduction in provisions for onerous contracts.

EBIT was €12.9m (-€8.9m) and the EBIT margin grew by 9.2 percentage points to 5.5%. In addition to the above, the strong increase compared to last year was mainly due to lower write-downs of fixed assets (€3.2m in Q4 2013 versus €6.7m in Q4 2012) as well as lower contract termination costs compared to 2012 (€1.9m in 2013 versus €9.4m in 2012).

Profit after tax amounted to €7.3m compared to -€13.5m last year.

All key countries were ahead of last year in Q4 with the UK (8% due to increased transient volumes) and Ireland (9.9% due to increased corporate and leisure group volumes) having the most significant developments.

In the fourth quarter, Rezidor opened four new hotels with ca 950 rooms. Three hotels with ca 410 rooms left the system, resulting in a net opening of ca 540 rooms. Contracts were signed for eight new hotels with ca 2,150 rooms. All openings and signings were under management or franchise contracts.

For the full year ended December 2013 LFL RevPAR was up by 5.8%. Revenue decreased marginally to €919.5m (€923.7m), on a LFL basis Revenue increased by 3.2%.

Revenue was negatively impacted by the exit of nine leased hotels at the end 2012 as well as by the strengthening of the Euro. Fee revenue grew by 11% as a result of a strong underlying performance in the emerging markets.

EBITDAR improved by €16.7m to €317m and the EBITDAR margin increased by two percentage points to 34.5%. Rezidor said his was a result of the additional high-margin fee revenue and the cost reduction initiatives launched in 2012. As a consequence of these initiatives coupled with non-repeating consultancy costs in 2012, central costs were €5.6m lower than last year. The margin increase compared to 2012 was also helped by a €2.3m write-down of fee receivables in Q2 2012 and the exit of the nine leases by the end of 2012.

EBITDA improved by €30m to €80.7m and the EBITDA margin by 3.3 percentage point to 8.8%. EBITDA improved by an estimated 2.6 percentage points due to the combined efforts of the Route 2015 initiatives.

Total rent as a percentage of leased hotel revenue decreased from 30.2% to 30.0%. The decrease is mainly due to re-negotiated terms for two leased hotels in Q4

Ca 6,400 new rooms were contracted, ca 3,300 new rooms opened and ca 2,000 rooms left the system during the year.

The Board of Directors have said they intend to propose a rights issue of approximately MEUR 60 to accelerate strategy and profitability initiatives in line with its “Route 2015” turnaround plan see details below),and that no dividend to paid out for the financial year 2013.

Commenting on the results Wolfgang M. Neumann, President & CEO, said: “I am pleased to report a like-for-like RevPAR increase of 5.4% for the fourth quarter and 5.8% for the full year 2013. The increase in RevPAR in the fourth quarter was primarily driven by improvements in average room rates, coupled with continued occupancy growth. Revenue was slightly down compared to last year primarily due to the strengthening of the Euro and the exit of nine leased hotels at the end of 2012.

“We gained further market share and generated significant margin improvements in line with our Route 2015 targets. The EBITDA margin grew by 4.5 percentage points to 10.9% in the fourth quarter and by 3.3 percentage points to 8.8% in 2013. In total it is estimated that Route 2015 yielded 2.6 percentage points improvement in EBITDA margin in 2013.

“Asset Management has proven to be a key driver of Route 2015 and we concluded a year of successful activities by signing four agreements to further improve the profitability of the leased portfolio. We maintain the momentum, having signed another asset management deal in January with an annual positive effect on EBITDA of ca €1.2m as from 2014.

“To accelerate the execution of key strategic initiatives, the Board of Directors intends to propose a rights issue of approximately €60m. The capital raised from the rights issue will allow Rezidor to capture additional opportunities within Asset Management, continue to invest in the leased hotels at an accelerated rate and further drive focused growth in emerging markets.

“During the quarter, we opened ca 950 rooms and added ca 2,150 rooms to the pipeline. All new rooms signed and opened were under fee based contracts, supporting our asset-light strategy.”

Market Development
RevPAR for 2013 across Europe was up 3.4% (at constant exchange rates), mainly driven by increased occupancy. RevPAR growth in Northern, Eastern and Western Europe was driven by occupancy; while growth in Southern Europe was more due to higher average rates as these markets rebound and recover. Some of the top performers in terms of RevPAR growth were Lithuania (28.4%), Ireland (10.5%), Estonia (8.7%) and Malta (7.8%), albeit from a relatively low base.

Trading in the Middle East has been much more robust, with RevPAR up 7%, led equally by occupancy and average rate. However, there are mixed results across the region, with countries such as Lebanon and Jordan having witnessed a negative impact due to their proximity to the troubles occurring in Syria, whilst Oman, Bahrain and Kuwait are doing well as a result of increased investment.

With the exception of South Africa, results in Africa have largely been subdued, with Northern Africa witnessing a 10.3% RevPAR decrease led by declines in occupancy.

Occupancy was negatively impacted by the political unrest in Egypt and instability in Libya, however growth in Morocco and Tunisia was stable. In Sub-Saharan Africa, Lagos in Nigeria saw a RevPAR decrease of 2.2% as increased competition put pressure on room rates.

Route 2015 Initiative Update
In December 2011 Rezidor announced “Route 2015”, a turnaround plan to improve the group’s EBITDA margin by 6 to 8 percentage points by 2015. The group said the plan is crucial to help reach the EBITDA margin target of 12% over a business cycle.

The program entailed initiatives across many areas including revenue generation, fee-based growth, cost savings, asset management initiatives and the full utilisation of contractual caps on fixed commitments.

In total it is estimated that the turnaround plan yielded 2.6 percentage points improvement in EBITDA margin in 2013 with 0.7 percentage points coming from revenue generation, 0.3 percentage points from fee- based growth, 1.2 percentage points from cost savings and 0.4 percentage points from asset management.

The total impact is in line with the goals, and further improvement is expected as per the original turnaround plan. In 2012 the program yielded 1.8 percentage points improvement in EBITDA margin.

Rezidor €60m rights issue to accelerate strategy and profitability initiatives
Rezidor’s Board of Directors also have stated that they intend to propose a rights issue of approximately €60m to accelerate strategy and profitability initiatives in line with its “Route 2015” turnaround plan.

The group’s new management team has accelerated the implementation of key strategic initiatives, while exploiting opportunities in an improved market environment. Rezidor has successfully taken a number of steps in the field of asset management, and has seen the positive effects of exiting or re-negotiating unprofitable lease agreements and management contracts.

Rezidor said it sees additional opportunities within asset management, but also recognizes that the current capital structure of the group may be a constraint for it to act on these opportunities.

In addition to asset management initiatives, Rezidor said the additional capital will also put the group in a stronger position to continue to invest in its hotel portfolio at an accelerated pace and further position the company to take advantage of the positive development in the marketplace.

The company is currently investing annually approximately 6-7% of revenues in its leased portfolio, in excess of a normal expected run-rate over time of approximately 5%. Rezidor intends to continue investing at this accelerated rate over the next 2-3 years to further upgrade the quality and profile of its offering to customers with an aim to continue to win market share. The capital raised from this rights issue will also allow Rezidor to accelerate development, with particular emphasis on emerging markets.

Neumann said: “We have made solid progress in improving the financial performance of Rezidor in 2013, and are confident that the proceeds of the intended rights issue will allow us to accelerate the pace in exploiting the defined strategic opportunities around asset management, focused growth and upgrading of our hotel portfolio.”

The rights issue of €60m is expected to be approved in conjunction with the AGM of the company on 24th April with the subscription period for the rights issue and trading in rights expected to commence shortly thereafter.

Given this intention to strengthen the balance sheet of Rezidor, the company said no dividend will be proposed for 2013.

Carlson, Inc., which owns 51% of Rezidor, said it supported Rezidor’s plans as outlined above, and has informed Rezidor that it intends to subscribe for its pro rata share of the rights issue and to vote in favour of the rights issue at the AGM.

Trudy Rautio, Chairman of The Rezidor Hotel Group, commented: “Rezidor is in the middle of a turnaround process which has so far been very successful. The Board of Directors of the Company is confident that this additional capital will give the Company a solid platform to accelerate and continue its improvement in financial performance.”

Rezidor has appointed SEB Corporate Finance as financial adviser in relation to the rights issue.