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Action Hotels to delay opening of Saudi Arabia hotel

Saudi Arabia, December 23, 2017

Action Hotels has decided to delay the opening of Mercure Riyadh Hotel - its first in Saudi Arabia - until the first quarter of 2019 due to current conditions in the Middle East. The group also announced that it had agreed a rent waiver of US$1.2m with the owner of the ibis Salmiya Hotel (ibis Salmiya) in Kuwait for the six-month period from the beginning of July to the end of December 2017. Action Hotels' director and major shareholder Sheikh Mubarak A. M. Al Sabah is a director of Action Real Estate Co which is the owner of ibis Salmiya and as such the waiver constitutes a related party transaction under AIM rules. Action Hotels said the Middle East and North Africa (MENA) hospitality market as a whole was currently experiencing static economic conditions largely driven by lower oil prices, reduced government and private sector spending leading to muted growth demand resulting in a drop in revenue per available room (RevPAR). Action Hotels said it had a resilient business model, focusing on the economy and mid-scale hotel market, and as a result had seen less of decline in RevPAR from its Middle East hotels compared to many of the luxury and upper upscale hotels in the region. But it said that given the current climate, it had taken appropriate actions with regards to its cost base to balance out the lower than expected revenue from these hotels. It said one of these steps has been reviewing and renegotiating terms with the hotel owners on their leasehold properties in addition to monitoring the running costs by working closely with the hotel operators. It said the rent waiver would deliver a cost reduction of US$1.2m in the year to the 31 Dec 2017. It said this would assist in offsetting the expected 7% underperformance in 2017 revenue against market expectations. Adjusted EBITDA was now expected to be in the region of $15.6m. Looking ahead to 2018 it said: 'Given the current conditions in the Middle East, the Board has also taken the decision to delay the opening of Mercure Riyadh Hotel which is its first in the Kingdom of Saudi Arabia, to Q1 2019. 'The board will then prioritise these resources to concentrate on the 347 room, Novotel South Wharf, Melbourne Convention Centre hotel, which is expected to open in April 2018. 'The Australian market remains buoyant and is not seeing any slowdown in growth and the company's Australian portfolio is providing a good balance. 'The company is currently reforecasting its 2018 expectations to reflect these changes. 'Despite the numerous challenges facing the hotel industry, the Middle East, particularly the Gulf Cooperation Council (GCC), remains one of the fastest growing markets in the world. 'The market leading research for the hotel industry, STRG, forecast that most markets will either bottom out or slowly start recovering as oil prices stabilise, key infrastructure projects come online, and new tourism strategies take effect during the coming years.' At 9:39am: (LON:AHCG) Action Hotels share price was -2.5p at 25.5p Story provided by