Action Hotels plc (LON:AHCG); a leading owner, developer, and asset manager of branded three and four-star hotels in the Middle East and Australia reports its trading update for the year ended 31 December 2017 as well as the first two months of 2018.
The Board reports that it expects the results for the year ended 31 December 2017 to be broadly in line with market expectations in respect of Revenue and adjusted EBITDA and anticipates delivering in the region of US$58.3m and US$15.2m respectively. However, loss before tax is expected to come in materially higher than expected at approx. US$(12.2)m mainly due to not being able to capitalise some of the interest costs in the year ended 31 December 2017 as there were delays in two hotel openings, early repayment fees and a higher than forecast depreciation charge as valuations have increased. Whilst valuations are being finalised it also expects an increase in the Net Asset Value for the year compared to that reported for 2016 of US$195m.
As reported in the last report to the market dated 22 December 2017, the current economic climate in the Middle East remains challenging with pressure on room rates and at the time of the market update the Board took the decision to delay the opening of two of its Middle Eastern hotels in Saudi Arabia. Since then the Board has decided to only proceed with one of these hotel openings being the Mercure Riyadh Hotel which is expected to open during 2019 in a prime location of Riyadh. The previously planned leasehold hotel; Tulip Inn Jeddah, has been removed from the development pipeline and will save anticipated capital costs of circa. $6.4m, which the Board can reallocate to other projects that are expected to deliver higher returns on capital employed.
2018 update
Trading for the first two months of 2018 has been encouraging and underpins the Group’s resilient business model. Current revenues are 8.9% ahead of last year (6.4% on a like for like basis; excluding the recently opened ibis Styles Bahrain) and trading of the recently opened hotels in Sohar Oman and Brisbane Australia are showing revenue growth year on year and good customer feedback as they mature into their relative markets. The ibis Styles Bahrain, opened in August 2017, is also showing a promising start to trading and the two hotels in Kuwait continue to perform well and combined are 12% ahead of last year revenue.
On the development pipeline, the Group’s flagship hotel; the 347 room Novotel South Wharf, Melbourne, located at the City’s new Convention Centre is nearing completion and opening is expected in April 2018, in good time for Melbourne events season. Early bookings have been ahead of expectations; currently holding more than AUD $3m in reservations.
Dividends
Action Hotels plc is still in its development phase, and notwithstanding this, dividends have been paid from the time of IPO. Moving forward, the Board have carefully considered the best use of the funds available to it and recognising both the need to continue to utilise cash for development and the desire for certain investors to continue to receive dividends will be recommending a significant reduction in the final dividend for FY2017 as well as future dividends. The final dividend for FY2017 will be declared at the time the results are published in H1 2018.
