Emaar Hospitality Group, a subsidiary of Dubai’s biggest listed developer Emaar Properties, is selling five of its hotels, including the flagship Address Dubai Mall and Address Boulevard, to Abu Dhabi National Hotels (ADNH), the company said on Tuesday.
“Emaar’s hospitality business has recorded robust growth since its inception in 2007 and moving to an asset-light model will enable the business to unlock its potential,” said Emaar Properties’ chairman Mohamed Alabbar.
The transaction is subject to conditions and expected to be completed in late 2018 or early 2019. The value was not disclosed.
Mr Alabbar revealed in July that the Dubai-listed developer planned to sell some of its non-core portfolio to finance future growth and focus on hotel management rather than asset ownership. "We have to focus on the issue of management and hotel management contracts like other global brands such as Hilton and Marriott," he told CNBC Arabia at the time.
This month, Emaar confirmed in a statement to the Dubai Financial Market, where its shares are traded, that talks were ongoing with Abu Dhabi National Hotels. But under “definitive documentation” signed this week, Emaar’s hotels and leisure unit Emaar Hospitality will divest its entire commercial interest in a portfolio of five hotels in Dubai to ADNH, it said.
The hotels are Address Dubai Mall, Address Boulevard, Address Dubai Marina, Vida Downtown and Manzil Downtown. Together, they account for around 1,000 hotel rooms.
“The market will see this as a positive move, demonstrating the availability of quality product and appetite to buy trophy assets,” said Craig Plumb, head of research at consultancy JLL Mena.
As part of the deal, ADNH - one of the biggest hotel owners in the emirate of Abu Dhabi - will enter into long-term management agreements with Emaar Hospitality to operate the assets under the Address and Vida brands.
“This transaction will strengthen our presence in Dubai and expand our current luxury portfolio of hospitality assets,” said Sheikh Ahmed Al Dhaheri, vice chairman of ADNH.
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Other hotels under ADNH include the Ritz Carlton Abu Dhabi Grand Canal, Park Hyatt on Saadiyat Island and Sofitel JBR Dubai. It also owns the Le Meridien, Sheraton and two Hiltons in Abu Dhabi as well as stakes in resorts in Morocco and Egypt.
UAE real estate developers such as Emaar are seeking increased efficiencies as they continue to tackle the fallout from a three-year slump in oil prices, which has driven down property prices and squeezed their profit margins.
Emaar Properties’ third-quarter net profit declined 29 per cent year-on-year to Dh1.1 billion, below analysts’ forecasts.
In July, the Financial Times reported that Emaar Hospitality's planned hotel sale would encompass around $1.4bn of assets. Asked by CNBC Arabia whether the company would retain flagship hotels such as the Armani Hotel in Burj Khalifa and The Address Dubai Mall, Mr Alabbar had said: "Of course, it's Downtown, these are our landmarks."
He said the proceeds from a hotel sale could be used to fund the development of other Emaar projects, such as the Dh10bn Dubai Square retail complex at Dubai Creek Harbour.
Real estate experts on Tuesday said it was hard to analyse the merits of the deal without knowing its value. “We await details especially relating to the sale price, where we expect the proceeds to be used in Emaar’s ongoing retail expansion projects,” said Ayub Ansari, senior analyst at Bahrain’s Sico Bank.
In recent years, Emaar has focused on developing its budget ‘Rove’ hotel brand, which should outperform luxury hotels in Dubai given the rising number of middle-income tourists from countries such as India and China, he added.
Mr Plumb said when prices do emerge, they could set a benchmark for UAE hotel assets, providing greater clarity for international investors.
He also said the divestment could provide an alternative to raising money through capital markets, as Emaar has done with its subsidiaries Emaar Malls and Emaar Developments.
However, Mr Alabbar said in July Emaar Hospitality continues to eye an initial public offering, which had been mooted for some time.