Hope and hospitality

Warimpex Finanz- und Beteiligungs is not planning to expand into new CEE markets. But this does not include countries in which the company already operates. It is there that things are going to happen – according to Franz Jurkowitsch, head of Warimpex Finanz- und Beteiligungs

Zuzanna Wiak, ‘Eurobuild Central and Eastern Europe’: Warimpex’s portfolio includes hotels in several countries in Central and Eastern Europe. Which of those has proved to be the bull’s-eye, as seen against the backdrop of the current market situation?

Franz Jurkowitsch, president of Warimpex Finanz- und Beteiligungs: Very definitely Poland. This market has proved unusually resistant to all the economic and financial turmoil, as can be seen mainly in the fact that the five hotels we have in Poland boast an occupancy rate of 50 pct generated by the domestic market. This means we have not lost out on currency exchange differences, as was the case in the Czech capital Prague, for instance. The poorer results registered in that city were dictated by two factors: first, our base there is restricted to the higher market segment, i.e. 4- and 5-star hotels, secondly, the number of local customers there is small. In Prague, 40 pct of the revenue is generated by Americans and 35 pct by British customers. It was, therefore, clear that we were going to record a fall in revenue there. In addition, the crisis on the international finance markets has led to weaker activity on the part of large corporations, and our Prague facilities are addressed to such customers. The turnover generated by conference activities has also substantially slumped there, while the Polish market has proved more resistant to crisis conditions. As regards our 5 Polish-based hotels, around 50 pct of customers in Polish hotels are Polish citizens, while the Polish economy continues to be in quite good health.

So why has Warimpex discarded its Warsaw hotel project which was to have been housed in historic buildings on ul. Próżna, since you claim the Polish hotel market is so stable?

Switching that project to an office development was the right decision, in our opinion. The buildings on ul. Próżna would have held between 60 and 70 hotel rooms, but a hotel of that size would not bring the expected results, bearing in mind mounting costs, including the rise in wages in the hotel industry in recent years. That is not to say we do not believe its occupancy rate would be poor, but only that the ‘incurred costs to expected revenue’ relationship would be unsatisfactory. We are still looking for a suitable site in Warsaw on which an Angelo brand hotel with 150-200 rooms could be opened.

But Warimpex recently announced it had purchased land in Bydgoszcz and Zielona Góra. Does that mean your company is turning towards small cities in search for business?

We had been looking for sites in Bydgoszcz and Zielona Góra where hotels in the less expensive sector could be built. A similar strategy was employed for a Wrocław investment. These locations are investment-attractive due to their prospering local economies, the large volume of foreign investment and also the convenient access to good approach roads.

Will Warimpex also be putting its

money into economy-class buildings in 
other Central and Eastern European countries, or will it rather be investing in what is known on the market as

designer hotels?

We have a contract with the Louvre Hotels group, an economy-class hotels operator, and under the terms of the contract we shall be focusing on developing such hotels in four CEE markets: the Czech Republic, Poland, Russia and Hungary. From our vantage point, such logos as Andel’s and Angelo require higher grade markets, such as Munich, Berlin, Warsaw and Kraków, while we could use Campanile and Premiere Classe hotels to enter medium-class cities

Does that mean Warimpex intends to enter other CEE countries?

For the moment we have no plans to expand into those countries. Local labour and experts are needed to develop anything, and we have strong teams on markets where we already exist: Poland, the Czech Republic, Romania, Hungary and Russia. Were we to invest in any other country we would have to set up a comprehensive group of workers to meet the challenges on that specific market, its legal environment and, for instance, its construction regulations. In my opinion, we still have our hands full on the markets where we are already working. With that in mind, I would identify Polish cities with populations exceeding 100,000 as a subject worth closer attention.

Land prices are again falling. Does your company intend to make use of this encouraging period to start buying sites?

That is precisely the reason why we have been foot-dragging in entering the economy hotels sector. The price of land and labour were unusually exorbitant, especially in smaller cities. This period lasted from around the second half of 2007 until the first half of 2008 and resulted in slowing down our entry onto the economy hotels market. But now we shall definitely review opportunities to purchase new sites wherever they appear.

Since land prices are plummeting, you may also be thinking of enlarging the number of 5-star hotels?

We do not intend to invest in 5-star hotels at present, because the profitability of such an investment is lower than in the case of 3- or 4-star hotels. The hard-cash return is worse in the case of 5-star hotels, although there is also another side of the coin. Should a 5-star hotel be built in a good location in a city centre, its value is bound to increase with the passage of time. If any difficulties arise, the possibility always remains, for instance, to convert assets into residential or office premises. Having said that, however, our shareholders are more interested in the return of hard cash than a long-term increase in the value of the investment itself.

You did mention the possibility of transforming the function of a hotel into something different. Is that, most often, the outcome of supply exceeding demand? The plans presented by various investors suggest that even as many as 500 hotels could be opened by 2012.

Today we are no longer afraid of any excessively burgeoning competition. We are also not afraid of having to turn hotels into buildings serving other purposes. There are still many Polish towns and cities where the hotel properties are too few and the market is still wide open. I may even add that we are delighted to see new hotels being built, since the infrastructure is bound to improve as a result, enhancing the value of a given location, creating the ground for investment and further expansion. Łódź is an excellent example of what can be achieved by projects of this sort. There are, at present, only four 2-star hotels in that huge, rapidly growing city, which also has no conference base. But supply might exceed demand at some point, although this should not be a problem of any great scale. Should it occur, the natural consequence will be that those who offer a poorer quality product will have to leave the market, while those companies will remain who will be the market leaders and able to claim they own the best facilities.

Is Warimpex’s 2009 financial performance going to be as good as that of 2008?

A sober appraisal must be made. A fall in income is to be expected, but studying what has already happened elsewhere, such as on the Czech market, it would be difficult to achieve worse results there than in the last several months. On the other hand, the result of opening new hotels should compensate what has happened with the additional revenue having a material influence on our 2009 performance. We have already opened a hotel in Berlin in 2009, in June we shall open our first hotel in Łódź, in the summer in Yekaterinburg, while in Q1 of 2010 we are planning to open an