Travel and Tourism

Hotel group's earnings down 37%

Abu Dhabi National Hotels (ADNH), the capital's largest hotel owner, is the latest casualty of the global economic slowdown.

Amena Bakr

February 12, 2009

Abu Dhabi National Hotels (ADNH), the capital's largest hotel owner with properties including the Hilton, Le Méridien and Al Diar hotels, saw annual net profits last year drop by 37.9 per cent compared with the year earlier, due to the global financial crisis. The company's net annual profit was Dh292.7 million (US$79.6m) compared with Dh471.6m in 2007, ADNH said in a statement yesterday.

"Earnings generated from overseas and local investments trimmed net annual profits," ADNH said, while no one was available to comment from the hotel owner on how the group performed during the fourth quarter. Operating revenue increased 29.5 per cent to Dh1.73 billion from Dh1.34bn in 2007, the preliminary financial results indicated. Analysts declined to comment on the results before the company releases a more detailed financial statement on March 5. However, last year Richard Riley, the chief executive of ADNH, attributed the 78 per cent decline in net profits for the third quarter of last year to the dramatic drop in non-operational profits in local and foreign investments, combined with lower bank interest rates on deposits due to the international financial crisis reducing interest income.

Hotels in Abu Dhabi have already started to cut room rates by as much as 15 per cent to shore up demand as travellers are looking to cut their budgets. Some hotels in Dubai have cut rates by as much as 60 per cent, a move analysts believe will severely dent year-end profits. National Hotels owns 14 hotels in Abu Dhabi and Fujairah. Many are operated by international groups such as Hilton, Mercure, Sheraton and Le Méridien, with the profits shared between the owner and operator. As part of its foreign investments, in 2001 ADNH created a joint venture with Compass, a UK-based catering group which operates in more than 94 countries.

The statement added that ADNH has plans to add two properties to its portfolio of hotels this year which include the Sofitel Jumeirah Beach and Al Diar Barsha Hotel and Apartments in Dubai. It has three hotels under construction in Abu Dhabi, including the JW Marriott Resort and Spa, Park Hyatt Saadiyat Island and Capital Centre Hotel. abakr@thenational.ae

UAE currency: the story behind the money in your pockets

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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