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Action Hotels plugging the gap in the Gulf

Not all hotels in the Gulf States are five star giants and not everyone wants to pay the prices they charge.
Action Hotels plugging the gap in the Gulf
Revenues have been growing as new hotels come on stream and the region develops.

Not all hotels in the Gulf States are five star giants and not everyone wants to pay the prices they charge.

That has meant a growing market for business-focused, mid-tier properties, a hole that is being admirably filled by Aim-listed Action Hotels.

Established in 2005, Action is recognised as one of the pioneers of the branded three and four star hotel market in the Middle East. There is also a growing presence in Australia.

In February, Action Hotels acquired a plot of land located within Dubai’s Media City, due to open in 2017.

It is situated less than 1km from the coast and is surrounded solely by five star hotels, with only one other mid-market hotel in the vicinity. It is the company’s second hotel in Dubai but typical of the strategy for its Middle East Expansion.

Action Hotels’ sites are mostly located within the Gulf Co-operation Council - the economic union of the Arab states - as branded mid-scale hotels are significantly under-supplied in this region compared with Europe and the US.

With prime credit ratings and stable economic outlooks, underpinned by strong economic and tourism growth, the GCC is forecast to be among the world’s fastest growing economies.

Governments in the region are also increasingly focused on promoting tourism, supported by an increase in intra-regional travellers and demand for more affordable hotel accommodation for both business and leisure travellers.

In 2014, Dubai Airport overtook Heathrow as the world’s busiest airport.

Action currently operates nine completed properties offering more than 1,500 guest rooms in six countries.

Six new hotels are due to open in 2016 to take the portfolio to 2,537 operational rooms and 15 hotels by the year end.

It has ambitions to grow the portfolio to 17 hotels providing just under 3,000 rooms by 2017. The target is 5,000 rooms by 2020.

The model sees it operate sites for well-known groups such as ibis, ibis Budget, Mercure, Holiday Inn, Staybridge Suites, Premier Inn and Tulip.


It also has a growing presence in Australia, operating two hotels in Melbourne with a third in the pipeline in Brisbane, though this is seen as a strategic hedge to the Middle East operation.

In March 2016, the group opened its largest hotel to date. The property, in Brisbane, broke even after the first month.

Katie Shelton, financial director, said: “Australia is a market we know extremely well.

“Accor asked us to partner with it in Australia in the early stages of development, so we did.

“It provides some balance to the portfolio but we are definitely not looking to focus there.”

The focus remains the Middle East.

Shelton added: “We only operate in stable countries in the GCC.

"We are not in Lebanon, Syria, Iraq, Egypt and so on. We understand the region and know where it provides a safe opportunity. Therefore we are not worried about geo-political issues.”

Nor is the price of oil a concern for Action.

Governments in the region are diversifying away from oil and gas, meaning more jobs are being made available in different areas.

This is good news for Action, as businesses look to reduce costs such as travel budgets; the group offers corporate travellers a three-star no frills alternative.

Founded by a member of the Kuwaiti ruling family, Action Hotels has a solid grounding in its Middle Eastern market that it uses to its full advantage.

"To get into the Middle East you have to partner up with owners; to own property you have to be a GCC national; if you want to run a business a GCC national has to own 51% of that, so there are massive barriers to entry for any international company buying land and setting up businesses," explained Shelton.

Future Development

Revenues have been growing as new hotels come on stream and the region develops - the group saw a 14% increase in revenue in 2016 alone.

In its full year results for the period ending December 2015, the group saw a 30% increase in rooms, 92% since listing.

The hotel group set the target of 2,500 rooms but it now seems that figure is more like 2,650, given its current fully funded pipeline.

Net profit was up 47% on 2014 at US$2.8mln, ahead of management expectations.

Customer base is 77% business travellers. The hotels operated by Action feature business centres with fully-equipped meeting rooms and conference spaces to cater to this trend.

It currently has ownership of five of its operating properties, which it has developed from green-field sites.

Its business model is capital intensive, but owning the underlying assets enables the company to capitalise on any increase in property values and develop flagship hotels in key locations.

It has enjoyed significant development uplifts on its freehold hotels and continues to capitalise on increases in property values and develops flagship hotels in key locations.

Action Hotels wants to expand through long term operating leases, where appropriate, which require less capital expenditure.

In February, the group added that, because it focused on business travellers, it had not been affected by the recent terrorist attacks or global economic turbulence.

“Businesses become increasingly cost conscious and are looking for affordable quality mid-scale hotels which offer better value for money for their employees,” it said.

Sales in 2015 increased by 16%, operating profit was 18% higher with underlying profits [EBITDA] approximately 42% better.

Net assets will also rise due to new hotel openings and higher values attributed to the existing hotels.

Dividend is at a 5% yield at the moment, reflecting the company's resilient cash flows, even in its growth phase.

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April 18 2016
Not all hotels in the Gulf States are five star giants and not everyone wants to pay the prices they charge.

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