Emaar Hospitality Group has confirmed that it will sell hotel assets to focus on growth through management contracts.
It is thought that the company could sell around USD1.4bn in assets, including USD700m in hotels, with an IPO also being mooted.
In an interview with CNBC, Mohamed Alabbar, chairman of Emaar Properties, said: “It is the start of expanding into the hospitality sector. We have to focus on the issue of management and hotel management contracts like other global brands such as Hilton and Marriott.”
Emaar has a portfolio of 50 hotels under the Address Hotels and Resorts, Vida Hotels and Resorts and Rove Hotels brands, including 35 upcoming projects in the UAE and international markets, as well as 15 hotels and serviced residences operational in Dubai.
Olivier Harnisch, CEO, Emaar Hospitality Group, said: “Since 2007, we have been shaping a new identity and presence in the hospitality scene, and with three distinctive brands, we have now achieved a remarkable milestone in our growth journey of having a robust portfolio of 50 hospitality projects – both operational and upcoming – together offering more than 25,000 rooms and residences. While our primary footprint is the UAE and the Middle East and North Africa region, we are delighted by the response from owners and developers to our hotel concepts, and are expanding to new geographies.”
Emaar Hospitality Group’s upcoming international projects were in Saudi Arabia, Bahrain, Egypt, Turkey and The Maldives. In June the group announced its expansion into sub-Saharan Africa, after signing to operate a hotel in Lome, capital of Togo. The 30-storey property will launch under its Address brand, with 256 rooms and 64 serviced apartments and is owned by Kalyan Group. In the UAE, the Group has expanded its presence from Dubai to Abu Dhabi, Sharjah, Ras Al Khaimah and Fujairah.
Harnisch said: “Our ambition is to be one of the world’s most admired and trusted hospitality companies, and with Dubai evolving as a global tourism and business hub, we have earned remarkable brand recognition in global markets that power our onward journey.”
The CEO said that all three brands had gained the traction to grow further.
According to parent group Emaar Properties’ first-quarter results, 19 of its hotels were owned and operated. In the first quarter, Emaar Hospitality saw 47% of its revenue from rooms and 36% from F&B.
Last year saw Emaar Hospitality launch an incentive-fee-only management agreement, creating, it said, “mutually beneficial opportunities for owners and operators”. The company claimed an industry first with the move, said that its new contractual model removed the customary base management fee and linked the operator’s fee earnings exclusively to generated profit rather than revenue.
The group said that it assigned several management contracts to operate hotels in the UAE, Saudi Arabia, Bahrain, Turkey and Egypt for other developers and hotel owners, offering both the new and standard models.
Harnisch said: “The distribution landscape in the hotel industry has changed dramatically over the past years and we feel that profit is a more powerful indicator of operator performance than revenue. We are leveraging our experience both as a hotel owner and operator in developing the new model.
“The new model brings two core strengths: One, it enhances owner-operator relationships with greater onus on the operator to drive profitability. Two, it creates lasting value for hotel owners, even in the face of challenging economic conditions as the operator will focus on minimising operating expenses and strengthening profits.
“With the new model, we are looking to expand our footprint in the UAE and other international markets to operate hotels with a clear commitment on our side to enhance operating profits. We have evaluated the market landscape in preparing the new model, and we see it as an ideal fit to all geographies.”
HA Perspective [by Katherine Doggrell]: When Emaar launched its fun-for-owners management model, it was an owner itself and the group commented that it was still putting its money where its mouth was and developing hotels itself.
Now that is no longer the case, it must do what the other asset-lite operators do and trade on the strength of its brands, with which it is creeping into territories outside its domestic market with rapid enthusiasm.
It is not clear what has happened to the new model and to what extent the company is keen to push it now that it is on the other side. Expanding into new territories with young brands is all very entertaining, but can it survive when incentive fees are thin on the ground or will it find, as some less-charitable observers have suggested, other ways to bill owners? The group has, for example, a loyalty programme, will these fees be leaned on? Parent Emaar Properties is reported to be selling the properties to shore up its balance sheet, but could it yet be a case of the bank of Mum and Dad?