SAUDI HOSPITALITYSaudi HospitalityBy: Hany Hussein, CFA
2 Mr. Hany Hussein has been Head of Asset Management at Abu Dhabi Islamic Bank since September 2008. Mr. Hussein has with him over 18 years of experience in the financial service and banking industry. Prior to ADIB, he was Head of Asset Management of Union National Bank in Abu Dhabi, UAE. He served as Lead Fund Manager for Mashreqbank, Portfolio Manager for Injazat Technology Private Equity Fund, Investment Analyst for Unit Trust of India and Robert Fleming Securities. Mr. Hussein is an Egyptian national, holds Bsc of commerce from Cairo University and a CFA Charter holder since 2004
Global hospitality overview3 - As per UNWTO, Middle East is the fastest growing region in terms of tourism market followed by North America - In 2008 – 2009: Spending on leisure & hospitality was among first things to cut during the global crisis. RevPAR dropped world wide. Tourism Industry% - Growth Outlook by UNWTO Rev PAR Growth % 2010 2011 North America Middle East & Africa 13.9 12.6 Asia Pacific Europe 8 7.7 8.5 6.7 6.4 5.5 4.5 5 21.3 3.2 3 16.4 17 12.2 9.9 5.9 5.7 6.1 4 1.8 -1.6 -1.7 -5.1 World Europe N. AmericaAsia & Asia Africa Middle 2007 2008 2009 2010 -13.3 (Average) Pacific East -16.7 -19.4 Middle East is attracting more investments / % of global room supply chains at the expense of Europe 50% 40% Between 2009-2010, the most of the new room supply 30% ( 217,000) came from N. America & Asia. 20% 2009-2010 In 2011 – 2014, the share of the Middle East of the 10% 2011-2014 new upcoming room supply ( 883,000) is expected to 0% grow from 9% to 13% at the expense of Europe yet is North Asia Pacific Europe Middle East lowest compared to rest of the world America & Africa Source: STR Global
GCC hospitality market4 Market size: 2010: US$ 16 billion as of 2010, US$ Size of hospitality markets accross GCC in US$ bln 22bln in 2012, and US$ 27 billion in 2015 ( CAGR of 20 11%) 15 Supply: 330,500 room as of 2010 expected to grow to 10 2010 495,000 by 2015 5 2012 2015 Saudi is the largest market within GCC dominating 0 66% of total regional supply followed by UAE with Saudi UAE Qatar Oman Bahrain Kuwait 25% Source: Alpen Capital Several multinational chains offering luxury, upscale, mid, and budget % of regional supply as of 2010 ( 300,000 rooms) Bahrain, 2% ADR & RevPAR are estimated to stabilize across the region at US$ 260 and US$ 170 in US$ GCC ADR & RevPAR respectively 300 UAE, 25% 250 Qatar, 2% 200 Saudi, 66% 150 ADR $ 100 RevPAR $ Oman, 3% 50 0 Source: STR Global 2008 2010 2012 2015 Source: Alpen Capital
GCC- Demand, Supply, and Occupancy5 Number of toursts arrrivals in mln 80 Demand in the region is based on 60 Demand number of tourist arrivals which will 40 grow from 41 million in 2010 to 54 20 0 million in 2015 ( CAGR of 5.6%) 2008 2010 2015 2020 • Supply in the region is estimated based on the number of planned hotels. • As per STR, current GCC pipeline comprises of 437 hotels, totaling 165,281 Supply guestrooms. Saudi leads in terms of the number of new rooms followed by UAE and then Qatar. • Total new supply ( post expansion) would be 495, 000 units ( likely by 2015) Occupancy % 0.75 0.70 Average occupancy is estimated to Occupancy stabilize at 67% 0.65 0.60 0.55 2008 2010 2012 2015 2020 Source: Alpen Capital
Saudi vs. GCC6 • GCC countries including Saudi focus on differentiating themselves through niche tourism offerings such as sports, adventure and eco Occupancy vs. ADR per tourism, healthcare, heritage and the important Country religious tourism • UAE / Dubai: Business hub, sports, politically stable, good connectivity around the world through Emirates Airlines and Etihad Airways, mature infrastructure, convention centres, resort and business hotels, and good transport facilities • Qatar: 2022 FIFA World Cup has put a spotlight on Qatar. Tremendous investments into infrastructure and facilities will make Doha an important destination in the coming years. • Saudi “ The seat of Islam, ”: The largest regional economy , business hub, religious tourism, and heavy investments into the religious tourism industry. • In 2011, Saudi came second directly after UAE and followed by Qatar with occupancy of 59.4% ( UAE was 69%). During the same year, it had an average ADR of US$ 198 which is relative low compared to
Saudi hospitality industry overview7 • As per Alpen, Saudi hospitality market reached US$ Size of Saudi Hospitality in US bln 9billion in 2010 and estimated to grow at a CAGR of 20 10% reaching US$ 14.6 billion by 2015 CAGR 10% 15 • Saudi market represents 55-60% of the overall hospitality market in the region 10 • Religious tourism is a major factor with Saudi Arabia 5 generating more than US$ 7 billion in 2009 from 0 visitors to Muslim pilgrimage sites and projecting 2010 2012e 2015e visitor numbers to grow from over 12 million in 2009 to 15 million in 2013. Key market trends: •Religious tourism remains the predominant reason for overseas visitors, generating over 50% of the inbound trips •The cities of Mecca and Medinah have become the focus for major investment in hotels and leisure development •The existing hotel market in Saudi Arabia is largely driven by the corporate business and in particular the three and four star hotel segment. This represents 62% of all hotels in the market • Business tourism is also growing in the region given Saudi Arabia„s status as the world„s largest oil exporter, not to mention its other large industries
Market segments8 • Macca & Madina enjoy very high visitation mainly for religious tourism from all over the world and not affected by financial forces • Saudi is heavily investing in this segment to prepare it for increased religious Macca /Madina visiting •Still there is a market gap for upscale hotels around the Harams and mid scale within walking distance from the Harams • Khobar & Dammam segment is a pure corporate and oil play. Khobar / •The segment witnessed improved occupancy during 2011 and better RevPAR Dammam is most likely will continue to do so over the foreseeable future •The city outperformed all cities in terms of occupancy on the backdrop of strong domestic leisure segment. Jeddah •Key developments in Al Corniche area. •Jeddah will benefit from Mecca expansion as the gate way to the “holy city” • The political and business capital of the largest economy in the region. It Riyadh enjoys strong inbound corporate tourism • It has the highest ADR all over the kingdome
Demand & growth drivers10 • Demand for hospitality market in Saudi relies mainly International Tourist Arrivals ( mln) on international tourist arrivals which is expected to 30,000 grow by 6.7% until 2020 reaching 27.5 million 25,000 CAGR 6.7% 20,000 Key drivers: • Religious tourism & government heavy investment 15,000 in religious sites ($6bn, 276-mile rail link between the 10,000 two holy cities, a $2.4bn upgrade for Medina 5,000 airport, and King AbdulAziz International airport in Jeddah will also expand its capacity). 0 2008 2010 2015 2020 • The robust economic growth ( compared to rest of the world and in particular the G8) fuels the business & event tourism •Geographic position at the centre of the major air routes •Boost in inbound travel especially intra-regional travel from countries such as Qatar, Kuwait, UAE and Bahrain, all experiencing positive economic conditions.
Supply11 • BMI forecasts that there will be 319,000 hotel Number of rooms as per Alpen Capital rooms by 2015 from 218,000 in 2010 ( CAGR of 350000 8%). 300000 CAGR 8.0% 250000 • Colliers expects Mecca which has the biggest 200000 number of hotel rooms ( almost 62,000) to add 150000 another 13,000 over the next 3 years. 100000 Similarly, Madina our second holy city is 50000 adding 5,500 rooms 0 1999 2007 2010 2015e • Colliers expects Jeddah which has 11,500 rooms to add another 2000 rooms during the same period.
Key challenges12 Middle East political uncertainty Global economic uncertainty and seasonality Oversupply in hospitality industry Lack of talent staff & management Rising cost of land, construction, and accordingly lower profitability and longer payback periods Lack of project / bridge finance Shortage of good hotel operators