Action Hotels has decided to delay the opening of Mercure Riyadh Hotel - its first in Saudi Arabia - until the first quarter of 2019, due to current conditions in the Middle East.
The group has also agreed to a rent waiver of US$1.2 million with the owner of the ibis Salmiya Hotel in Kuwait for the six-month period from the beginning of July to the end of December 2017.
Action Hotels' director and major shareholder Sheikh Mubarak A. M. Al Sabah is a director of Action Real Estate Co., which is the owner of ibis Salmiya and as such, the waiver constitutes a related party transaction under AIM rules.
According to a statement, Action Hotels said the Middle East and North Africa (MENA) hospitality market as a whole was currently experiencing static economic conditions, driven by lower oil prices, reduced government and private sector spending. This is leading to muted growth demand and resulting in a drop in RevPAR, the statement said.
While the group remains confident that it has a resilient business model, focusing on the economy and mid-scale hotel market, as a result witnessing less of a decline in RevPAR from its Middle East hotels compared to many luxury and upper upscale hotels in the region, the group said that given the current climate, it was taking 'appropriate actions' to reduce its cost base to balance out lower than expected revenue from its hotels.
Among these steps are reviewing and renegotiating terms with hotel owners on their leasehold properties, in addition to monitoring running costs by working closely with hotel operators.
The rent waiver for the ibis Salmiya in Kuwait would assist in offsetting the expected 7% underperformance in 2017 revenue against market expectations, the statement said. Adjusted EBITDA was now expected to be in the region of $15.6 million.
Looking ahead to 2018, the statement continued: 'Given the current conditions in the Middle East, the Board has also taken the decision to delay the opening of Mercure Riyadh Hotel which is its first in the Kingdom of Saudi Arabia, to Q1 2019.
"The board will then prioritise these resources to concentrate on the 347-room, Novotel South Wharf, Melbourne Convention Centre hotel, which is expected to open in April 2018.
"The company is currently reforecasting its 2018 expectations to reflect these changes.
"Despite the numerous challenges facing the hotel industry, the Middle East, particularly the Gulf Cooperation Council (GCC), remains one of the fastest growing markets in the world".
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