Travel and Tourism

Kingdom Hotel posts first half profit drop

Kingdom Hotel Investments (KHI) said its net profit for the first half of the year fell by 61 per cent.

Rebecca Bundhun

August 26, 2009

Kingdom Hotel Investments (KHI) has posted a 61 per cent fall in first-half net profit after weaker performances by its Four Seasons hotels, particularly in Paris and Cairo, property sales and impairment charges. Profits for the Dubai-based hotel and resort investment company declined to US$8 million (Dh29.3m) for the first six months of the yearm, compared with $20.6m in the same period last year. Revenues fell 11 per cent to $103.3m in the first half from $115.5m last year in a "challenging environment", as hotels worldwide were hit by a decline in demand for international travel. The Saudi billionaire Prince Alwaleed bin Talal founded the company and is the majority shareholder. Sarmad Zok, the chief executive of KHI, said: "Our determination to drive profitability across our wholly owned hotel operations has paid off and they remain cash generative. "Trading, however, is still tough across the wider portfolio but we don't expect the rate of deterioration to get any worse." Revenue per available room, the key industry measure, declined by 18.4 per cent in the first half of the year for KHI's hotels, compared with the same period last year. KHI said all of its hotels, except those in Kenya, Beirut and Lusaka in Zambia, suffered a fall in profitability driven by revenue declines. Dubai was particularly hard hit, with revenue per available room at its Movenpick Bur Dubai hotel down 42 per cent in the first half, said Gordon Drake, the chief financial officer for KHI. "The greatest challenge that Dubai has had is inexperience in managing through a crisis," said Mr Zok. "The market does not have the sophistication and the maturity to cope with a crisis." He said he added that he expected to see an improvement in its Dubai property's performance during the second half of the year, and that the market had good fundamentals and "long-term growth potential". Real estate sales would remain challenging "with a continuation in reduced sales volumes", the company said in a report. KHI's portfolio includes Fairmont, Raffles and Movenpick hotels, and the company's focus is in on emerging markets in the Middle East, Africa and Asia. In the first quarter of the year, KHI cancelled or put on hold four development and expansion projects: in Langkawi, Malaysia;, Da Nang, Vietnam; Phang NgaPhang Nga, Thailand; , and Uganda. KHI currently has five hotels under development, including properties in Marrakech and Manila. It said that its Four Seasons hotel in Beirut would open in the second half of this year. Mr Zok said KHI's development programme was "on schedule and fully funded". KHI is listed in London and Dubai. Deutsche Bank said it continued to rate the shares as a "buy" in a note to clients. "The group's balance sheet remains very strong, with significant cash resource left," said Simon Champion, a research analyst at Deutsche Bank.. "The 'nice problem' with this is how does the group intend to use this cash. - Tthe group does not foresee a pick up in acquisitions in the the second half of 2009." rbundhun@thenational.a

The White Lotus: Season three

Creator: Mike White

Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell

Rating: 4.5/5

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”