Kingdom Hotel Investments announces H1 2007 results

The report highlights strong financial performance, underpinned by the ongoing diversification of KHI's hotel portfolio into new territories and the strength of the performance of existing hotels:


•Total revenue increased 74 per cent to $74.3 million as the Company continued to execute its strategy of diversifying income streams and developing its ancillary real estate business.

•Hotel revenue increased by 63 per cent to $66.5 million, while hotel EBITDA rose by 103 per cent to $19.2 million driven by acquisitions, comparable hotel performance and build up of recently opened hotels.

•Comparable hotel revenue and EBITDA, excluding Beirut, grew 19 per cent and 53 per cent respectively (including Beirut, comparable hotel Revenue and EBITDA increased by 1 per cent and 19 per cent respectively, as the Movenpick Beirut hotel was impacted by events in Lebanon)

•KHI EBITDA increased 171 per cent to $15.1 million and adjusted KHI EBITDA was up 91 per cent to $29.2 million.

•KHI net profit declined 39 per cent to $17.0 million for the first half of 2007 mainly because of a non-recurring deferred credit revenue of $12.8 million recorded in the first half of 2006. Net Profit before non-recurring items expanded 24 per cent to $17.3 million during the period.

•EPS of $0.10 for the first half of 2007 was 47 per cent lower than the same period last year due to the 2006 one-time gains that added 9 cents per share to last period's profits, and a higher weighted number of shares as KHI went public in March 2006. Excluding the impact of non-recurring items, EPS of $0.10 expanded by 8 per cent in the first half of 2007.

•KHI had a net cash position of $30.8 million as at June 30, 2007, against a net cash position of $349.9 million in June 2006 as proceeds from IPO, sales of investments and operating cash flows were deployed primarily to fund investments in acquisitions, associates and construction projects.

Chairman HRH Prince Alwaleed Bin Talal said, 'These strong figures demonstrate the successful implementation of KHI's strategy since its listing in early 2006. The Group's focus on building a portfolio of properties with clear potential supported by active asset management is delivering the expected returns and supporting the long term future of the Company.'

Operational and investment highlights

System RevPAR and EBITDA growth were 22 per cent and 37 per cent respectively, driven by increased pricing and repositioning across KHI's portfolio of consolidated and associated hotels. There is continued and successful progress with KHI's diversification strategy, through ongoing expansion into high growth emerging markets, with a focus on Asia.

Since the beginning of 2007, KHI has announced eight acquisitions (a combination of operating and hotels under development). Four were acquired in the period under review; consisting of two existing hotels and two sites for development.

KHI invested in the following hotels in the first half of 2007: Raffles Da Nang Resort and Residences, Da Nang (Vietnam): 80 per cent equity interest. The development is expected to include 150 rooms and ancillary real estate of 15 luxury villas for sale; Fairmont Makati Hotel and Raffles Suites, Makati City, Manila (Philippines): 80 per cent equity interest. The development is expected to include a 300-room Fairmont Hotel, a 30-suite Raffles hotel and ancillary real estate for sale of 240 Raffles-branded residences (negotiations with the management company is underway); Four Seasons Resort, Langkawi (Malaysia): 90 per cent equity interest, 91 rooms for $114.2 million. KHI's expansion plan includes the addition of 20 rooms and the selling of 24 luxury residential villas; Swissotel Kunshan, Kunshan (China): 100 per cent equity interest, 387 rooms for $58 million.

Asia represented 21 per cent of KHI's total consolidated hotel revenue and 26 per cent of EBITDA, compared with 1 per cent and 4 per cent last year, respectively and continues to grow as a proportion of the group.

Associated investments grew net profit by 83 per cent to $11.2 million (54 per cent excluding real estate sales profit) and helped drive KHI's bottom-line growth.

Chief Executive Officer Sarmad Zok said, 'Since the beginning of 2006, KHI has acquired interests in approximately $2 billion worth of hotels in high growth emerging markets. The 19 hotels acquired since 2006 represented a strong delivery on our acquisition objectives. We are now approaching a new phase in our development as we focus on integrating the diversified assets in our portfolio; we are on track to continue deploying capital in key areas of under penetrated growth or where we have invested. We will leverage our balance sheet to fund this next phase of organic growth and will continue to manage our development projects by scoping highest and best use projects on our land bank.'

Ancillary real estate business continues to support revenues and operating profits

Damascus Boulevard retail and Bur Dubai residence properties were fully leased; 13 apartments were sold in Karon Beach, Phuket; significant gains from the sale of real estate at associated hotels; the Four Seasons properties in Egypt (Cairo and Sharm El Sheikh); and KHI has completed pre-sales in Marrakesh and progressed pre-sales in Mauritius. It has also disposed of all equity interests in Four Seasons Hotels & Resorts, Inc. for total cash proceeds of $14.7 million realizing a gain of $2.7 million. Write-off impaired development assets of $2.5 million.

Subsequent events

KHI continued to execute on its capital deployment and acquisition strategy with a focus on Asia, as well as a step-up in increasing minority investments in associated hotels.

Subsequent to 30 June 2007, KHI invested in the following hotels: Raffles Hotel Le Royal in Phnom Penh (170 rooms) and the Raffles Grand Hotel d'Angkor in Siem Reap, Cambodia (125 rooms) for $36 million; signed an agreement to acquire the Four Seasons Jakarta, Indonesia (365 rooms) for a total of $48 million. Expected closing of this transaction is in September 2007; Raffles Praslin Island, Seychelles, a new development (90 villas and 17 residential villas for sale); and acquired an additional 5.5 per cent effective equity interest in the Four Seasons Damascus.

Outlook

KHI will continue to execute its capital deployment strategy by the leveraging of its balance sheet with an ongoing focus on diversification and operating acquisitions, primarily in emerging Asian market, as well as execution on its new developments.

Balance of year financing activities focused on leveraging recent acquisitions and refinancing existing operations. Expected additional new debt in excess of $100 million

Continued execution of hotel asset management plans and integration of the five newly acquired hotels in China, Malaysia, Cambodia and Indonesia, as well as the sale of apartments in Phuket and villa pre-sales at the Four Seasons Mauritius

Early trading trends in Beirut are stronger than in the first half, based on performance, weaker comparatives and increased diversification of the KHI portfolio

Drive design and construction activities through portfolio, namely: manage construction and completion of renovations in the Kenya Fairmont portfolio, Movenpick Bur Dubai and Zambia. Movenpick Zanzibar construction was completed in early July 2007 and will be re-branded to Fairmont in 2008; award construction contracts in Marrakech (new development), Ghana (new development), Langkawi (capacity expansion) and Dubai (capacity expansion). KHI will continue to monitor and manage construction cost pressures arising from commodity and contractor inflation through value engineering and re-scoping of development projects; and expected continued system RevPAR growth momentum into the second half of 2007.