SAUDI HOSPITALITY Saudi HospitalityBy: Hany Hussein, CFA

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Mr. Hany Hussein has been Head of Asset Management at Abu Dhabi Islamic Bank since September 2008. Mr. Hussein has with him over 18 years of experience in the financial service and banking industry. Prior to ADIB, he was Head of Asset Management of Union National Bank in Abu Dhabi, UAE. He served as Lead Fund Manager for Mashreqbank, Portfolio Manager for Injazat Technology Private Equity Fund, Investment Analyst for Unit Trust of India and Robert Fleming Securities. Mr. Hussein is an Egyptian national, holds Bsc of commerce from Cairo University and a CFA Charter holder since 2004

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Global hospitality overview

- As per UNWTO, Middle East is the fastest growing region in terms of tourism market followed by North America

- In 2008 – 2009: Spending on leisure & hospitality was among first things to cut during the global crisis. RevPAR dropped world wide.

North America

Asia Pacific Europe Middle East & Africa

0%

10%

20%

30%

40%

% of global room supply

2009-20102011-2014

Source: STR Global

Middle East is attracting more investments / chains at the expense of Europe

Between 2009-2010, the most of the new room supply ( 217,000) came from N. America & Asia.

In 2011 – 2014, the share of the Middle East of the new upcoming room supply ( 883,000) is expected to grow from 9% to 13% at the expense of Europe yet is lowest compared to rest of the world

2007 2008 2009 2010

5.7

-1.6 -1.7

6.1

16.4 17

-13.3

4

12.2

1.8

-19.4

21.3

5.9

-5.1

-16.7

9.9

Rev PAR Growth %

North America Middle East & AfricaAsia Pacific Europe

Wor

ld (A

vera

ge)

Euro

pe

N. Am

erica

Asia &

Asia

Pacifi

c

Africa

Middl

e Ea

st

6.73.2

12.67.7 6.4

13.9

4.5 38

5 5.58.5

Tourism Industry% - Growth Outlook by UNWTO

2010 2011

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GCC hospitality market

Market size: 2010: US$ 16 billion as of 2010, US$ 22bln in 2012, and US$ 27 billion in 2015 ( CAGR of 11%)

Supply: 330,500 room as of 2010 expected to grow to 495,000 by 2015

Saudi is the largest market within GCC dominating 66% of total regional supply followed by UAE with 25%

Several multinational chains offering luxury, upscale, mid, and budget

ADR & RevPAR are estimated to stabilize across the region at US$ 260 and US$ 170 respectively

Source: STR Global

Saudi; 66%

Oman; 3%

Qatar; 2%

UAE; 25%

Bahrain; 2%

Saud

i UAE

Qatar

Oman

Bahra

in

Kuwai

t0

5

10

15

20

Size of hospitality markets accross GCC in US$ bln

201020122015

Source: Alpen Capital

% of regional supply as of 2010 ( 300,000 rooms)

Source: Alpen Capital

2008 2010 2012 20150

50

100

150

200

250

300GCC ADR & RevPAR in US$

ADR $RevPAR $

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GCC- Demand, Supply, and Occupancy

Demand

Supply

Occupancy

2008 2010 2015 20200

20

40

60

80

Number of toursts arrrivals in mln

Demand in the region is based on number of tourist arrivals which will grow from 41 million in 2010 to 54 million in 2015 ( CAGR of 5.6%)

• Supply in the region is estimated based on the number of planned hotels. • As per STR, current GCC pipeline comprises of 437 hotels, totaling 165,281 guestrooms. Saudi leads in terms of the number of new rooms followed by UAE and then Qatar. • Total new supply ( post expansion) would be 495, 000 units ( likely by 2015)

2008 2010 2012 2015 20200.55

0.60

0.65

0.70

0.75

Occupancy %

Average occupancy is estimated to stabilize at 67%

Source: Alpen Capital

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Saudi vs. GCC

Occupancy vs. ADR per Country

• GCC countries including Saudi focus on differentiating themselves through niche tourism offerings such as sports, adventure and eco tourism, healthcare, heritage and the important religious tourism

• UAE / Dubai: Business hub, sports, politically stable, good connectivity around the world through Emirates Airlines and Etihad Airways, mature infrastructure, convention centres, resort and business hotels, and good transport facilities

• Qatar: 2022 FIFA World Cup has put a spotlight on Qatar. Tremendous investments into infrastructure and facilities will make Doha an important destination in the coming years.

• Saudi “ The seat of Islam, ”: The largest regional economy , business hub, religious tourism, and heavy investments into the religious tourism industry. • In 2011, Saudi came second directly after UAE and followed by Qatar with occupancy of 59.4% ( UAE was 69%). During the same year, it had an average ADR of US$ 198 which is relative low compared to regional standards.

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Saudi hospitality industry overview

2010 2012e 2015e02468

10121416

Size of Saudi Hospitality in US bln

CAGR 10%

• As per Alpen, Saudi hospitality market reached US$ 9billion in 2010 and estimated to grow at a CAGR of 10% reaching US$ 14.6 billion by 2015• Saudi market represents 55-60% of the overall hospitality market in the region• Religious tourism is a major factor with Saudi Arabia generating more than US$ 7 billion in 2009 from visitors to Muslim pilgrimage sites and projecting visitor numbers to grow from over 12 million in 2009 to 15 million in 2013. Key market trends: •Religious tourism remains the predominant reason for overseas visitors, generating over 50% of the inbound trips •The cities of Mecca and Medinah have become the focus for major investment in hotels and leisure development •The existing hotel market in Saudi Arabia is largely driven by the corporate business and in particular the three and four star hotel segment. This represents 62% of all hotels in the market • Business tourism is also growing in the region given Saudi Arabia‘s status as the world‘s largest oil exporter, not to mention its other large industries

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Market segments

Macca /Madina

Khobar / Dammam

Jeddah

• Macca & Madina enjoy very high visitation mainly for religious tourism from all over the world and not affected by financial forces • Saudi is heavily investing in this segment to prepare it for increased religious visiting •Still there is a market gap for upscale hotels around the Harams and mid scale within walking distance from the Harams

• Khobar & Dammam segment is a pure corporate and oil play. •The segment witnessed improved occupancy during 2011 and better RevPAR is most likely will continue to do so over the foreseeable future

•The city outperformed all cities in terms of occupancy on the backdrop of strong domestic leisure segment.•Key developments in Al Corniche area. •Jeddah will benefit from Mecca expansion as the gate way to the “holy city”

Riyadh• The political and business capital of the largest economy in the region. It enjoys strong inbound corporate tourism• It has the highest ADR all over the kingdome

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Jeddah vs. Saudi

Alkobar Jeddah Mecca Madina Riyahd0

50

100

150

200

250

300

188.8204.5 212

118.3

266.2

ADR 2010 – 2011 - USD

20102011

Alkobar Jeddah Mecca Madina Riyahd0%

10%20%30%40%50%60%70%80%

51%

70%60% 57%

63%

Occupany Rate 2010- 2011

20102011

Alkobar Jeddah Mecca Madina Riyahd0

20406080

100120140160180

96.8544

142.332127.624

67.3127

167.706

RevPAR 2010 – 2011 - USD

20102011

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Demand & growth drivers

2008 2010 2015 20200

5,000

10,000

15,000

20,000

25,000

30,000

International Tourist Arrivals ( mln)

CAGR 6.7%

• Demand for hospitality market in Saudi relies mainly on international tourist arrivals which is expected to grow by 6.7% until 2020 reaching 27.5 million

Key drivers: • Religious tourism & government heavy investment in religious sites ($6bn, 276-mile rail link between the two holy cities, a $2.4bn upgrade for Medina airport, and King AbdulAziz International airport in Jeddah will also expand its capacity).

• The robust economic growth ( compared to rest of the world and in particular the G8) fuels the business & event tourism •Geographic position at the centre of the major air routes

•Boost in inbound travel especially intra-regional travel from countries such as Qatar, Kuwait, UAE and Bahrain, all experiencing positive economic conditions.

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Supply

1999 2007 2010 2015e0

50000

100000

150000

200000

250000

300000

350000

Number of rooms as per Alpen Capital

CAGR 8.0%

• BMI forecasts that there will be 319,000 hotel rooms by 2015 from 218,000 in 2010 ( CAGR of 8%).

• Colliers expects Mecca which has the biggest number of hotel rooms ( almost 62,000) to add another 13,000 over the next 3 years. Similarly, Madina our second holy city is adding 5,500 rooms

• Colliers expects Jeddah which has 11,500 rooms to add another 2000 rooms during the same period.

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Key challenges

Middle East political uncertainty Global economic uncertainty and seasonality Oversupply in hospitality industry Lack of talent staff & management Rising cost of land, construction, and accordingly lower profitability and

longer payback periods Lack of project / bridge finance Shortage of good hotel operators