Business | Property
KHI focuses on emerging markets to drive growth
KHI has combed the emerging markets and provided the funding for 32 hotels in 20 countries across the Middle East, Asia and Africa.
- Financial Times
- Published: 23:53 June 17, 2008
Five years ago, Prince Al Waleed Bin Talal, the Saudi billionaire, embarked on his "African vision" - an exploration to discover the travel potential of the continent.
"We went and met every president of these 42 African nations," says Sarmad Zok, chief executive of the prince's hotel and real estate investment company, Kingdom Hotel Investments (KHI).
"We conducted interview roadshows with Prince Al Waleed. He would get on his plane, visit 10 to 15 African nations, meet their presidents for 45 minutes to an hour and we would come up with a view.
"We rapidly positioned ourselves in these gateway business and travel destinations; we developed hotels and we built scale."
Prince Al Waleed is reaping the benefits of those and other endeavours.
KHI has combed the emerging markets and provided the funding for 32 hotels in 20 countries across the Middle East, Asia and Africa.
It has listings in Dubai and London, has a market capitalisation of $1.4 billion, and is one of the leading hotel developers in the emerging markets.
Zok's task is to find and build hotels and other real estate developments that provide a 10 to 15 per cent return on capital employed.
But where he looks tells us a lot about where business travellers will gravitate towards in the next 20 years.
Starting point
KHI's starting point, he says, is the belief that if you are looking for growth in the travel industry then you have to be in the emerging markets.
That conviction was underpinned by research from the UN World Tourism Organisation a few years ago that predicted growth in emerging markets at two to three times that of the developed world during the next 20 years.
"From a business travel standpoint, as they live the journey of emergence, transition and graduation to more developed status, they will acquire a significant amount of travel in and out of their markets, and that fuels and stimulates their business travel," Zok says.
The biggest impact on business travel in emerging markets is trade, he adds: "We also look at the quantum of trade and the trade relationships between the markets and the trade partners."
In everybody's line of sight is trade with China. A hotel fund like KHI is on the look-out for signs of deals such as the one last year between Hu Jintao, China's president, and his Zambian counterpart, Levy Patrick Mwanawasa, which sealed an $800 million trade agreement. It contributes to a total of $75 billion of trade agreements between China and Africa, up 50 per cent on last year.
"That agreement will stimulate economic and business activity in Ghana," Zok argues. "We own an InterContinental Hotel in Lusaka, and the double-digit revpar [revenue per available room] growth is driven by increased numbers of Chinese and Korean travellers and trade-correlated business travellers coming and staying in our hotel."
Zok has his eye on hotel development in second and third tier cities in China, as it decentralises its economy into zones.
Cyclical opportunities
KHI is also looking at cyclical opportunities. "We will shift capital in markets which have been traditionally overpriced as they enter their down cycle. It's for that reason that we're not in India, for example. India and Russia were overpriced simply because there was too much liquidity in the system," he explains.
KHI sees brands as a way of segmenting their assets. At the luxury end, KHI partners with Four Seasons - which Prince Al Waleed bought last year with the Microsoft founder Bill Gates - and Raffles. Next comes the "upper upscale", such as Fairmont, and then the upscale, such as Swisshotel.
KHI, Zok contends, was the first to create a hotel fund for the emerging markets. As others look to catch up, KHI plans hotel openings or renovations this year in Beirut, Dubai, Kenya, Mauritius and Zambia.
"People are trying to emulate our business, but they change by markets," he says. Competition is coming from local family-owned business, sovereign wealth funds with established hotel strategies and private equity funds.
Looking at the impact of travel on the developed world, Zok says future hotels will be designed more according to the needs of travellers.
Brazilians, Egyptians, Malaysians and Chinese are the fastest growing populations that are travelling, driven by disposable incomes and the relaxation of travel restrictions.
That will create challenges for hotels: catering to different cultural needs such as room size and bathroom needs, and putting pressure on the capital spend of developed markets.
"You look at the source market that will drive the business at your hotels and then you design accordingly. You may not want that source market."
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