Kingdom Holding is reported to be considering reducing its minority holdings in the hotel sector, in favour of those investments where it holds a higher stake.
The comments came after the group announced a 20% increase in first-quarter profit to $24.16m, which it attributed to gains from the sale of a number of investments, including its share in the Swissotel Kunshan in China, and the sale of one of its land plots in Riyadh, in addition to cost cutting.
During the first-quarter period performance worsened at some affiliated companies and international hotel managing companies because of unrest in the Middle East, the group said.
Sarmad Zok, CEO of Kingdom Hotel Investments, a unit of Kingdom Holding, told Bloomberg that the group was looking at a handful of properties where its holding was less than 50% and would "assess the viability" of the stakes, with the consideration that it would reinvest in the hotel sector.
Zok said that the monetisation of minority stakes had been done successfully at Kingdom Hotel Investments over the last five years, "and we will be looking at assessing rationalisation opportunities" for Kingdom Holding's assets in the mature markets.
At the time of the sale of the Swissotel Kunshan last month, to TA Global Berhad for $60.7m, Zok said that the move represented "a further step in our ongoing strategy of value realisation and capital redeployment", with Prince Alwaleed identifying "a buoyant transactions environment in growth markets".
The CEO said in May that the group planned to invest $800m in the hotel sector in the second half of this year and the first of 2011, despite global economic issues, which have seen some focus in Dubai, where the group is headquartered. Kingdom Hotel's properties include 23 hotels and resorts in 19 countries, and four under construction or in the initial stages of development, including in Seychelles, Marrakesh and Accra.
Kingdom Holding did not identify which of its investments it would be reviewing. Its portfolio includes high profile hotels, with a 50% stake in the Savoy Hotel in London, 35.5% of the Plaza Hotel in New York and 50% of the Fairmont in San Francisco. However, it was reported that the group would retain its holdings in the management groups Fairmont Raffles Hotels, Four Seasons Hotels, IFA Hotels & Resorts, Movenpick Hotels & Resorts and in Kingdom Hotel Investments.
Kingdom Holdings has a long history of investment in the hotel sector, in particular in the luxury end of the market, which has come back strongly with the resurgence in business travel. Prince Alwaleed's profile in the sector and as a global investor was illustrated when he opened the Savoy in November alongside Prince Charles.
As, according to Forbes last year, the world's 19th richest man, with a net worth of $19.4bn, he is used to having a say in the future of his investments, which would explain why the group is looking to focus on its larger holdings.
Kingdom Holdings suffered in the recession, losing around $7.92bn in 2008 as the result of falling confidence in Dubai and the group's Citigroup holding, which has encouraged it to look to its more profitable investments. The prince also likes to steer the companies in which he invests, which would cause him to favour those in which he has a dominant ownership position.
HA Perspective: Just over a year ago the market gossip was about how much trouble Kingdom Holdings was in. The cause was Prince Alwaleed injecting personally held shares in Citigroup into Kingdom. The rumours centred on this demonstrating a desperate capital requirement on the part of Kingdom. Such worries seem overdone.
Despite being a listed company, the conglomerate structure and tightly held shares (the Prince owns 94%) makes Kingdom Holdings opaque. The company does not hold the highly choreographed investor events that companies with more liquid shareholder bases do.
Hence there can be sharp changes in strategy. Switching from minority holdings to majority ones is just such a sharp move. And it demonstrates a growing confidence in its purpose.
With the acquisition of Kingdom Hotel Investments – the formerly listed emerging market specialist – now fully digested, Kingdom Holdings has the opportunity to pursue a more aggressive strategy focused on high return emerging markets.
Whether it has the ability to do so or remains so over leveraged that its priority is paying down debt and selling off assets remains to be seen.