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UPDATE - Action Hotels to open new Kuwait hotel as trading exceeds expectations

Action Hotels has unveiled plans to build a new 160-room four-star hotel in the business district of Kuwait City.
UPDATE - Action Hotels to open new Kuwait hotel as trading exceeds expectations

--ADDS CEO COMMENTS--

Action Hotels (LON:AHCG) has unveiled plans to build a new 160-room four-star hotel in the business district of Kuwait City.

The company, which develops and manages three and four-star hotels in the Middle East, has signed a preliminary sale contract to buy a plot of land in the Sharq district for around US$12.3mln, with a hotel due to open in 2017.

It also confirmed it is in advanced talks with a “leading hotel operator targeting the midscale segment of the market”.

Action already has two three-star hotels in Kuwait, which both bear the ibis name badge, owned by French operator Accor.

Occupancy figures for these have been highly encouraging. In April, the ibis Sharq and the ibis Salmiya saw 91% and 95% of their respective rooms filled up – ahead of management’s expectations in terms of average daily rate, revenue per available room, and gross operating profit.

Operating EBITDA (on a like-for-like basis) has risen 23% for the Sharq and 34% for the Salmiya so far this year.

Chief executive Alain Debare pointed out in an interview with Proactive Investors that the occupancy rates were well above the industry average for April.

In fact, a recent report into Accor’s hotels showed an occupancy rate of 56% for April, well below the 90%-plus figures seen by Action's hotels.

“This is how much our hotels are outperforming the market and it illustrates the powerful model and that the market is undersupplying the economy mid-scale,” he said.

“So there is huge demand in our segment and with this new property in Kuwait it’s exactly where we’re going.”

The company believes the new hotel will target a different “intra-regional traveller” audience to its usual three-star offering.

The aim upon floating in December was to have 5,000 hotel rooms by 2020 on its books and this new hotel will take the total room count to 2,660.

Debare said in a statement this morning: “We are very excited about the prospect of developing another branded hotel in Kuwait.

“We have secured an excellent plot of commercial land that is in a prime location within the growing business district of Kuwait City. Obviously this is a country that we know well having completed two hotels that are performing ahead of our expectations to date.”

The shares rose 2% to 67.7p on the news, still some way off City brokers’ target prices.

Sanlam Securities has a 96p target price, while finnCap is even more bullish with a 110p goal.

Sanlam analyst Amisha Chohan said: “Given the macro opportunities for opening budget hotels in the GCC [Gulf Cooperation Council] and the strong partnerships it has with global hotel brands, Action Hotels is well placed to build a significant portfolio of hotels in the region.”

She added: “The addition to the pipeline will now bring a total of 1,656 rooms (165% growth) over the next 3 years. As a consequence, we believe the shares justifiably trade on a premium to current NAV [net asset value].”

FinnCap’s Guy Hewett said he expects the shares to follow the rapid growth in the NAV.

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