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Financial Summary
KHI reports a strong financial performance for the period ended 30 June 2008, from both existing hotels and acquisitions underpinned by continued diversification into high growth markets, particularly Asia, and further investment.
- Strong revenue and KHI EBITDA growth in subsidiaries driven by the 5 Asian subsidiary properties acquired in 2007, as well as strong like-for-like growth across KHI's 12 comparable hotels. Asia represented 43% of reported hotel revenues (versus 21% in 2007).
- In addition to KHI EBITDA growth, KHI Adjusted EBITDA expanded as real estate sales were accelerated in our associated Egypt Four Seasons properties as well as very strong hotel performance at associated properties.
- Reported net profit growth was impacted by non-recurring write-offs related to changes in certain capacity expansion projects; a gain on sale of KHI's investment in the Dubai Pearl development; and favourable restatements to 2007 P&L.
- Conservative balance sheet with net debt to equity ratio of 13% as at 30 June 2008.
Management's discussion and analysis of financial condition and results of operations are available online the Kingdom Hotel Investments website.
Strategic Highlights
- Benefits of the diversification strategy are apparent with particularly robust revenue growth from hotels in Middle East North African region.
- Continued portfolio rationalization with the sale of KHI's minority investment in the Dubai Pearl development and increase in its holding in Mövenpick El Quseir in July 2008 (subsequent event).
- Active capital reallocation in line with changing market conditions and opportunities.
- In Phang Nga, Thailand, KHI decided not to proceed with real estate sales on the land acquired.
- In Da Nang, Vietnam, KHI decided not to proceed with the residential component of the project due to a significant change in local macro-economic conditions and development risks.
- In Langkawi, Malaysia, capacity expansion at the Four Seasons hotel has been cancelled due to cost escalation and overall market conditions. KHI continues with the ancillary real estate development at this property.
Operational Highlights
Focused on delivering a robust, top-line System hotel performance and developments are progressing well with strong pre-sales performance.
- Robust System RevPAR growth of 23% (16% before foreign exchange effects) was driven principally by rate gains across the portfolio and very strong performance in Middle Eastern North Africa properties and our George V associated investment.
- Ancillary real estate sales progressing. All inventory at the Four Seasons Sharm El Sheikh and most of the inventory at the Four Seasons Cairo has been sold with the remaining apartments in Egypt expected to be sold by year-end. In terms of development projects, two-thirds of the Four Seasons Mauritius' residential villas have been sold. Following the marketing launch of the Raffles Residences in Manila, 50% of inventory was pre-sold in July and August (subsequent event). Four Seasons Marrakech villas are fully pre-sold.
- Advances in development pipeline. Four Seasons Beirut, Mauritius and Marrakech, Raffles Seychelles as well as the Mövenpick Accra are all under construction. Our Manila development is at the tender and negotiation phase. Opening of the Four Seasons Beirut is now expected in H1 2009 (previously H2 2008) and our Manila project in H1 2011 (previously H2 2010).
- Renovation programmes are near completion. Renovation of the InterContinental Lusaka and room capacity expansion of the Mövenpick Bur Dubai are complete. Conversion works at Mövenpick Bur Dubai Residences are also complete and its operating licence is expected in the second half of 2008. Renovations of our two Kenya hotels also expected to be finalized in the second half of 2008.
Outlook
- Based on current trading trends, KHI continues to expect System RevPAR growth in the mid-teens for 2008.
- During the balance of the year KHI expects to complete its planned renovation programmes, open the Four Seasons Mauritius resort and complete residential sales in October, as well as advance construction on development projects.
- Other ancillary real estate sales are expected to progress with continued pre-sales activities in Manila and the launch of the Raffles Seychelles residential marketing programme.
- KHI continues to manage its portfolio actively to ensure ongoing flexibility and resilience despite the implications for growth of potentially more challenging global economic conditions, combined with inflationary pressures on energy costs and wages. The company will continue to leverage its balance sheet to fully fund selected developments and provide flexibility to pursue acquisitions as attractive opportunities arise. The group is committed to realize shareholder value through disposals in line with its business model.
- KHI is in advanced stages of negotiation with various lenders to add between US$300-350 million of new debt commitments by year end, representing corporate, development and refinancing facilities in a combination of non-recourse, limited recourse and corporate recourse facilities.
- In July 2008, KHI's Four Seasons associated hotels in Egypt resolved to distribute dividends, of which KHI's share is $28m.
Commenting on the results Sarmad Zok, Chief Executive Officer, said:
'KHI has delivered a strong financial performance in the first half as we continue to actively manage the Group's portfolio in selective high growth markets. Our diverse product portfolio across assets and regions has enabled us to deliver strong revenue and profit growth despite the challenges affecting the worldwide economy. I am particularly pleased by the considerable progress and contribution from our real estate sales. KHI will continue to leverage its asset base in line with market opportunities to maximize shareholder value.'
Zok added, 'I would like to take this opportunity to express my deep personal sorrow at the recent loss of Mr. Jassim Al-Bahar and, on behalf of the Board, to express our gratitude for the significant contribution he has made to KHI.'
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Posted by Siba Sami Ammari
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