Cost control Nakheel Hotels priority

This year will be all about survival, says the chief executive officer of the company.

Nakheel Hotels is focusing this year on cost control, asset management and restructuring its debt, a senior executive said yesterday. "This year is all about survival, so our focus is largely on asset management," said Joe Sita, the chief executive of Nakheel Hotels, at the Arabian Hotel Investment Conference in Dubai. "From an investment perspective, we're not actively out in the market today. We're preserving cash to ensure that our existing assets can continue to operate correctly but where there are distressed opportunities we will look at those. We're working with lenders trying to restructure debt." When asked about the amount of debt, a company spokesman said Nakheel would "not discuss such confidential information". Mr Sita said Nakheel Hotels was working closely with its partners and operators to improve profitability during the economic downturn. "We are working hard to mitigate downturn in profitability," he said. The company owns 27 hotels in 19 countries and holds a 31 per cent stake in Kerzner International, the operator of the Atlantis and One&Only brands. It owns the master franchise for easyHotels in the region and is due to open its first easyHotel in Jebel Ali later this year. It also owns the Mandarin Oriental in New York and is scheduled to open its W Hotel in Washington within two months. "The focus is on cost control both through workforce reductions and through other means, and looking for new sources of business all the time," Mr Sita said. The value of the hotel owner and developer's portfolio "notwithstanding the current environment is still hovering around the US$4 billion (Dh14.69bn) mark". Mr Sita said the biggest issues for hotel owners was the decline in occupancies, room rates and, subsequently, cash flow. Assets purchased in good times meant that leverage was quite high, he said, adding that owners and operators had to co-operate to meet costs and debt-service obligations by, for example, deferring capital expenditure and drawing on reserves. CBRE Hotels, a hotel investment consultancy, said that focusing on current assets was the appropriate strategy for hotel owners in the current environment. "Later on, I think, in the short term they will come back to investment, but at the current time it is not a market where development is easy," said Amine Hamdani, the vice president at CBRE Hotels. "You really should asset-manage your current properties and get the best of them in terms of cash flows and in terms of optimisation of costing and restructuring of fixed costs and variable costs to get better margins." Mr Hamdani said the recovery in investment would come about only once lending conditions improved. He said he expected hotel investors to return to the market at the beginning of next year, although it would "not be steep growth" initially. [e-mail]