Expanding profits for Alwaleed’s Kingdom

Kingdom Hotel Investments (KHI), the Dubai based luxury hotel and resort group that is chaired and majority-owned by Saudi Prince Alwaleed bin Talal, has announced that its profits for the first half of the year rose 282% from the previous year. This extraordinary growth is as a result of an expansion of its real estate portfolio, and increased liquidity. Net income rose to US$27.9m and revenue increased 71% to US$42.7m.

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By  Massoud Derhally Published  October 1, 2006

Kingdom Hotel Investments (KHI), the Dubai based luxury hotel and resort group that is chaired and majority-owned by Saudi Prince Alwaleed bin Talal, has announced that its profits for the first half of the year rose 282% from the previous year. This extraordinary growth is as a result of an expansion of its real estate portfolio, and increased liquidity. Net income rose to US$27.9m and revenue increased 71% to US$42.7m. Sarmad Zok, chief executive of KHI, told Arabian Business the growth was largely attributed to “a combination of the ramp-up in the earnings of our assets, that are still relatively immature from a cash flow standpoint. There was a combination of an addition of assets and sale of real estate in Beirut, when we sold the chalets of the Movenpick Hotels.” KHI is headquartered in Dubai and has 28 properties (7057 rooms) in its portfolio in 14 countries, managed and operated by Four Seasons Hotels, Fairmont Hotels and Movenpick Hotels. The company is aggressively expanding after floating 25% on the Dubai International Financial Exchange and the London Stock Exchange last March. The listing raised US$397m and the offering was 14 times oversubscribed. That enthusiasm for the company has boosted confidence of KHI management, who are planning major undertakings in the coming months in Africa, the Eastern bloc, and the Russian market, and are eying the Chinese market. The firm plans to build on previous undertakings. Since the partial floatation, KHI has increased its stake in the Four Seasons Hotel in Damascus, acquired a 100% equity stake in a hotel in Mauritius (at a cost of US$55m) and acquired a 100% ownership stake in the Karon beach hotel in Phuket (US$100m), which it is re-branding as a Movenpick. “We are in line with our expectations. I know the net income results are stellar, but really the focus of this company for the next 12 months is going to be on the deal pipeline and the ability to execute transactions,” said Zok. “We did six transactions since the IPO and we bought 11 hotels since the beginning of the year. That’s relatively large. In the active deal pipeline are five projects that are signed memorandums of understanding in Asia mainly.” Zok said he was unfazed by the recent coup d’etat in Thailand and that the company would proceed as planned. “This is the softest coup d’etat in the history of coup d’etats in the world. I don’t think the Thais themselves are worried. It is a bloodless coup and the Thais are very peaceful people and we haven’t seen any material impact to the current operation that we have in Phuket or to the plan that we have to open a hotel in 2009,” said Zok. Tim Hansing, senior vice president of acquisitions and development at KHI told Arabian Business that Russia and Eastern bloc countries are in the firm’s sight. “The returns we are looking for there are largely similar to that which we will see in any of our emerging market strategies,” he explained. “We need to have a leveraged equity IRR in excess of 15% pre-tax. We look for a stabilized return of the capital employed anywhere between 10 and 15% a year.” Zok said expansion outside the Middle East was key largely due to the dynamics of competition in the region. “We are less focused on the Middle East because we have the presence and we are unable to get the pricing that we need to get in line with our return criteria. There is a lot of liquidity today in the market and it is mainly government liquidity and therefore it is not necessarily economically motivated.” Moving forward Zok said the company would seek to exploit more opportunities on the non-hotel real estate component of its hotel portfolio. “This goes well with our investment strategy because the brand provides an ability to charge a premium for the real estate,” explained Zok. Recently, KHI sold 95% of the villas in the Four Seasons hotel in Marrakech, reducing its equity commitment to that project from US$45m to US$10m.

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