The luxury collection

After conquering the Dubai property market Nakheel is taking on the world with its own portfolio of luxury hotels. BM meets Nakheel Hotels’ CEO Joe Sita.

“We have a very specific strategy in terms of the segments that we operate, both the luxury and branded budget segment”
-Joe Sita, CEO, Nakheel Hotels

Only in Dubai could a company acquire a hotel property portfolio worth US$4 billion in the space of just four years. But with the weight of its parent company’s brand and budget behind it, failure wasn’t an option for Nakheel Hotels. Today, the company’s portfolio includes 25 hotels across 18 cities, including joint ventures with luxury hotel giant Kerzner International’s Palm Atlantis hotel in Dubai and the One&Only resort in Cape Town. Nakheel’s close business relationship with Kerzner provided it with the leg-up it needed on the global hospitality ladder – and access not only to expertise and investment but to a highly lucrative brand name. Describing the importance of the partnership, Nakheel Hotels’ CEO Joe Sita says: “Our strategy has always been to be partnered in the luxury segment with the best of the best in terms of brands. So we have always had a very good relationship with Kerzner. We’re the largest single shareholder in Kerzner and one of the reasons that we are invested in them is because of the strength of both the One&Only brand and the Atlantis brand. We find that the value of the real estate we invest in is significantly enhanced if you have a very high quality luxury brand like One&Only.” The latter already has a well established and loyal following among luxury hotel clientele, he says: “It’s interesting that such a small portfolio of hotels can garner such interest and such a loyal following from its marketing. I put that down very simply to the quality of the hotels in terms of the experience that’s offered in terms of the physical product, because every one of the One&Only products is absolutely stunning.” He goes on to say, however, that he has no wish to establish Nakheel Hotels as a brand in itself – it is an investment, development and asset management company that operates behind the scenes and behind the face of the operators it chooses to associate itself with. “Nakheel hotels is really a hotel investment and development company. We’re not a brand per se. Nakheel is a very well known brand obviously but as Nakheel hotels we’re a fully integrated investment, development and asset management company. We’re not operators of hotels – we invest in hotel companies and real estate, then we appoint operators such as Kerzner to brand and run the hotels for us.”

Freedom of choice
This strategy means that from a business point of view Nakheel Hotels is free to pursue any avenues it views as profitable without compromising brand values. This flexibility means it focuses on five distinct lines of business: luxury hotels, private clubs, equity investments, QE2 Enterprises and branded budget hotels.

The latter is a sharp departure from Nakheel Hotels’ most high profile properties, such as The Atlantis or the One&Only. Sita, however, says the company sees strong potential in the branded budget hotels sector. It holds the master franchise for easyHotel in the Middle East, North Africa and the Levant and plans to open around 20 branded properties across the region in the next five years. “We see great growth potential for branded budget hotels in the Middle East hence we acquired the master franchise from Stelios [Haji-Ioannou – founder of the easyGroup]. The Middle East is well known for its luxury hotels but we do see a significant gap at the lower end of the market in the branded hotel segment. There is certainly many two and three-star unbranded hotels in the Middle East but there are very few in the budget sector and we see great opportunities for products in that market.”

In Asia Nakheel Hotels also sees strong potential for budget hotels and has a 40 percent stake in a fund set up by Tune Hotels, a subsidiary of AirAsia, which aims to develop between 20 and 30 hotels in the region in the next three to five years. “Tony Fernandes, the founder of AirAsia, came up with a concept for a branded budget hotel company which he formed and called Tune, and everywhere that AirAsia flies to he’s planning to put a Tune hotel,” explains Sita. “We think this concept is extremely valid and lucrative, hence the reason why we’ve invested in this fund.”

Challenges ahead
Sita admits that the company has had to put the brakes on some of its plans for Tune Hotels because of the economic downturn: “We currently have two hotels under construction in Bali and a number of other sites that have been acquired in Malaysia. Our plans for that are still the same but with the current economic conditions we’ve slowed down a little bit on that plan.”

It’s not the first time Sita has expressed concern about the effect of economic conditions on Nakheel Hotels’ aggressive expansion plans. Speaking at the Arabian Hotel Investment Conference in May this year, he said the company would not be making new investments in 2009, adding: “This year is all about survival. We are not out in the market [for new investments]. We are preserving cash.”

A month on, he says he believes that given the strength of the brands Nakheel Hotels has associated itself with it is well placed to weather the storm. However, he says the company is currently being hyper vigilant over its spending and is in talks with lenders about restructuring the considerable debts on its properties: “Nobody is immune to what’s going on in the world and we’re no different. But by virtue of the quality of the assets that we’ve invested in I’d like to think that we are reasonably well placed. We’re having our issues like everybody else. We’re focussed on very active asset management of our portfolio and we’re working with our partners to mitigate the impact of cash flow in all of our investments. We’re constantly looking at our overheads at our hotels. We’re talking to our lenders to find out how we can restructure some of the debt that we have on our properties.”

He reiterates also that the focus for Nakheel in 2009 is not on making new investments but on nurturing existing ones. “We’re continuing to look at how we might take advantage of the environment in terms of new opportunities that may arise. But certainly that’s not the primary focus at the moment. It’s all about looking after the assets we have and making sure we can continue to trade them properly.”

Grand gestures
It’s a new note of caution for the company whose reputation is built on spectacular and often record-breaking real estate feats. The opening of the Palm Atlantis featured a mind-bogglingly lavish US$24 million launch party – the most expensive in history with more than 2000 guests that feasted on lobster and champagne and were entertained with a display of 10 million fireworks – reportedly 10 times the scale of the display at the Beijing Olympics opening ceremony. The resort itself features 1539 rooms and was completed at a cost of US$1 billion in November – which given current economic conditions – was very bad timing. Sita maintains however, that the world still has an appetite for luxury and maintains, that the hotel’s launch has been a success despite the shadow that the downturn has cast over it: “It has been extremely successful. We are very happy with the way that it’s been launched. We launched it officially in November and despite the global economic conditions the hotel has traded exceptionally well. We had a tremendous March and a very strong April. So we’ve very pleased with how the property is performing.”

He is hoping similar success will be enjoyed by South Africa’s first One&Only resort, which it opened in April in a joint venture with Kerzner International and which features two artificial islands and restaurants operated by the celebrity chefs Gordon Ramsey and Nobu Matsuhisa. It’s one of several properties owned by Nakheel Hotels in Africa, including Djibouti’s first five star hotel, the Djibouti Palace Kempinski, which was launched in conjunction with US$1.3 billion of investment in the country by Nakheel Hotels’ parent company Dubai World, which has included the building of a new port, free zone and roads. Speaking about the importance of investing in Africa, at the time of the opening of Cape Town’s One&Only resort, Dubai World Chairman Sultan Ahmed Bin Sulayem, said: “We see a bright future for this dynamic continent and continue to invest in Africa for the long term. We are delighted to add the One&Only at Dubai World’s own Victoria & Alfred Waterfront to our Africa portfolio. Our strategy is to work with the best partners and invest in high-end assets in key destinations around the world, which deliver real, measurable results. The One&Only Cape Town is part of that highly successful business model.”

A confident outlook
The fact that Nakheel Hotels is still continuing to launch luxury properties is testimony to the success of its business formula, which Sita says is based on never diverting from the path that the company has set itself on – and continuing to leverage strong partnerships with more established names in the industry.

“We have a very specific strategy in terms of the segments that we operate, both the luxury and branded budget segment, and we stay focussed on those two segments. We actively look for high quality partners such as Kerzner, Starwood, Tune Hotels and easyHotel. We don’t get too distracted from that and therefore don’t dilute our efforts over the whole spectrum of hotel products and that allows us to be very focussed and very successful in what we do.”

For now the company’s strategy is to focus on the new openings that are in the pipeline, including the opening of several W hotel properties: “We have a few hotels that are still under development. We have two in Thailand, both W hotels. One is the W Retreat and Residences in Ko Samui. which opens towards the end of Q1 next year. We also have a W hotel under construction in Bangkok which opens probably Q3 2011. Apart from that we also have a W hotel under redevelopment in Washington DC, which opens in July. That’s fast approaching completion.”

Nakheel’s brash confidence as a company shines through in Sita’s predictions of future growth despite the downturn. But with a portfolio of super brands behind it – the company stands a pretty good chance of continuing the firm’s success story.