Emaar Hospitality seeks asset sales to focus on hotel management, chairman says

Emaar Hospitality IPO still on the cards, potentially within four years, Mohamed Alabbar tells CNBC Arabia

Mohamed Alabbar, chairman of Emaar Properties, says Emaar Hospitality will sell some assets to focus on hotel management. Courtesy Crown Prince Court - Abu Dhabi

Emaar Hospitality Group, a unit of Dubai's biggest developer Emaar Properties, will sell part of its portfolio to focus on hotel management and is still eyeing listing of its own shares, the parent company's chairman said on Tuesday.

The company is seeking to sell some of its assets but an initial public offering could be possible within four years, Mohamed Alabbar said in an interview with CNBC Arabia.

"It is the start of expanding into the hospitality sector," Mr Alabbar said. "We have to focus on the issue of management and hotel management contracts like other global brands such as Hilton and Marriot."

Mr Alabbar didn't say which properties would be sold or the amount that the company plans to raise. He did not say when the sales will happen or if there are any prospective buyers.

The company may sell assets worth $1.4 billion (Dh5.15 bn), according to a CNBC Arabia story on its website. The UK’s Financial Times was the first publication to report on the potential sale on Monday, citing unidentified people briefed on the process.

Emaar has hired Standard Chartered bank for the sale process and is close to a deal with several parties, the newspaper reported. Emaar wants to raise $700 million by selling its entire hotel portfolio except two properties, and another $700m for clinics and schools across its mixed-use communities, according to the FT.

Emaar Hospitality owns and manages a portfolio of assets including hotels, golf clubs and restaurants. Its main hotel brands are Address Hotels and Resorts, Vida Hotels and Resorts and Rove Hotels.

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Emaar Hospitality has a pipeline of 35 projects in the Saudi Arabia, UAE, Bahrain, Egypt, Turkey and the Maldives, bringing the total number of destinations in which it operates to 58 markets, the company said in April.

Analysts told The National the potential sale is a good move by the property developer.

"This is very positive news for Emaar, as it shows it is sticking to its core business of building cities," Nabil Al Rantisi, managing director of capital markets at Daman Investments, said. "Emaar Hospitality is supposed to be first and foremost a hotel operator as other hospitality businesses across the world are, so it is just following global standards.”

An IPO of Emaar Hospitality is "not out of the question" as the company is in a "good position" and its loans are "almost negligible" but it's a young company and the listing needs to be at "the right time," Mr Alabbar said.

An asset sale will not threaten the planned IPO because divesting non-core hospitality assets would allow Emaar to increase revenues through hotel management contracts, as many global listed hotel companies do, rather than opt for the more costly hotel development, Mr Al Rantisi said.

“At a time when debt costs are increasing in a higher interest environment, Emaar possibly thought [an asset sale] would be a cheaper way of fuelling expansion than using debt," he said.

The asset sales are likely to yield "significant profit" as their developer Emaar has held them for many years, he said. Emaar would likely retain key assets such as the Armani Hotel at Burj Khalifa and the Palace Downtown, he added.

Some analysts are waiting to see the pricing of the assets before assessing the move.

“While the news comes as a bit of a surprise to us, given that real estate prices are currently still subdued in the UAE, the pricing of the underlying assets is what we curiously await to see to assess if this would be value-accretive,” said Amir Badran, a research analyst at Naeem Holding.

The sale of non-core assets could allow Emaar to finance larger projects in the pipeline rather than accumulate high-interest debt, according to other analysts said. Within the UAE, Emaar announced plans for large projects including Dubai Creek, for which it was expected to issue a multi-billion dirham tender last year.

"Emaar has a very healthy cash position but obviously such a huge project needs to be financed and the sale of non-core assets would mean Emaar would not have to take on debt in a high-interest rate environment," said an analyst who asked not to be named due to the potential asset sale being in the early stage.

The asset divestment "won't be an easy sell" given that Dubai's hospitality market has been under pressure for years.

If it materialises, the Emaar Hospitality IPO would be the fourth listing in the UAE by the Emaar group following share sales by Emaar Properties, Emaar Development and Emaar Malls on the Dubai Financial Market. Emaar Misr, the company's Egyptian unit, is listed in Cairo.

Emaar Properties' shares closed 0.96 per cent lower at Dh5.15 on the Dubai bourse.