Watch This Space - Investment Outlook - December 2005

Jumeirah is working hard to translate the success of its Middle Eastern icons into a brand that can best some heavy-hitting "6-star" competition.

By Staff -- HOTELS Magazine, 12/1/2005

Riding through Dubai in one of Jumeirah's fleet of Rolls Royces, it is hard not to focus on the saillike architecture of Burj Al Arab. At 1,051 ft. (321 m), the world's tallest all-suite hotel dominates the beachfront skyline. This is the kind of overnight icon any brand with breakout potential would covet. With its brigade of butlers, the virtual submarine ride to its posh seafood restaurant, its helipad and its starquality spas, "Burj" is one of the reasons the term "6-star" exists. Its name is synonymous with ultra-luxury; its distinctive profile is already the visual symbol of Dubai. But, for its management company, Jumeirah, the 202-suite property often termed "the world's most luxurious hotel" is an equally potent symbol of the challenges and opportunities inherent in the battle to build a global brand. If Jumeirah is to beat the odds and establish itself as an international "6-star" player, it is going to have to find a way to export both the style and delivery of Burj Al Arab and its five award-winning Middle Eastern sisters to destinations where costs are far higher and owners are far less patient.

FIGHTING CHANCE
Facing stiff competition from mature 5-star operators, legendary entrepreneurs and wellheeled up and comers, CEO Gerald Lawless acknowledges Jumeirah "has to punch above our weight" to get to its goal of 40 hotels within five years. The Irish-born Lawless is no ivory tower executive. He spent 23 years brand building for Forte Hotels-primarily in Dubai, South Africa and Bahrain-before joining Jumeirah International as managing director when the company launched in 1997. What Lawless' experience taught him is that high-end deal-making has to be as customized as guest services. "In any competitive market-and this certainly is a competitive market-a company like ours will have to be flexible to get the geographic spread we need," he says.

In his view, "flexibility" extends from the assessment of asset potential to the deal structure and the choice of destination. Unlike most ultra-luxury brand builders, Lawless would not discount acquisition of a portfolio that fits the brand. "If that kind of opportunity arises, well and good. But, we are not sitting back and waiting for that to happen," says Lawless, who sees nothing tempting on the market. Most available portfolios would require serious sell-offs to rationalize the assets against Jumeirah's standards.

Jumeirah's acquisition of the Essex House in New York City reflects its desire to reach key gateways-even if the property does not quite have "the bones" of a Burj Al Arab.

Expansion via single asset acquisitions and new construction are more efficient growth drivers for now. Targets include the major gateways and key resort destinations that populate development maps for any would-be global brand, with growth in North America, the Middle East and Africa and strategic points in Europe as the near-term priorities. But Lawless still has the peripheral vision to see good deals that are under the radar. "We will not balk at a good deal because it is not a dot on our map," he says.

Jumeirah can afford to be disciplined about its choices without interrupting its pace. Its 2004 decision to become a "member" of Dubai Holding positioned it under the wellcapitalized wing of a parent company that could drive development directly through the activities of Jumeirah's sister affiliate, Dubai Investment Group (DIG), or lend the necessary aura of stability to provide a comfort level for investors who otherwise might be unwilling to sign on an emerging brand. More importantly for a brand seeking critical mass, DIG can evaluate hotel deals with a longer-term vision and a different IRR schedule than purely commercial investors. That difference may prove critical to Jumeirah's success given current market conditions. This is unquestionably a seller's market. An investor who can make the numbers work despite premium prices can move into key locations while more penurious buyers are sidelined.

Clearly, DIG will not do deals at any price. As evidence, it recently pulled out of a deal in Paris that looked too expensive. But it does benefit from a farsighted vision, and so will Jumeirah. "To get top hotels in key locations, you have to pay prime prices," says Laurence Geller, CEO of the newly public Strategic Hotel & Resorts, which when still private sold the Essex House in New York City to DIG in a deal that closed in the third quarter of 2005. "It is a bold strategy, but Jumeirah needs a bold strategy if it intends to become an international force. And, it is a strategy that can work. It comes down to assessing current price versus long-term appreciation."

DELIVERING THE BOTTOM LINE
While there will be "opportunities for the parent company to invest," Lawless says Jumeirah's growth will be fueled by a mixture of ownership models. The goal for the management company is to remain "asset lite," with direct investment confined to strategic properties. So, how compelling will Jumeirah's track record be for prospective owners? It is doubtful opportunity funds with shortterm hold horizon and 20% IRR expectations will come courting. "Twenty percent IRR? I would not want to commit to that at this level of operation," Lawless says, realistically. But neither does he agree with critics who charge that Jumeirah has yet to prove it can deliver competitive results on a purely competitive basis. He cites benchmarked performance numbers that show Jumeirah to be the leader in RevPAR and yield. He points out that the company constantly assesses its metrics and measurements-essentially remaining private but internally acting public. If owners want more transparency, Lawless says, Jumeirah would address their needs on a case-by-case basis.

Jumeirah bolstered its bottom line with "a strong yield management program." The top line is benefiting from carefully targeted promotions, more aggressive marketing and inventive person-to-person programs-like letter/e-mail writing from employees to regular guests. The payoff is a high level of repeat business for leisure hotels-something north of 47% annually; more than 50% at Christmas-even with 100% occupancy. Unlike most regional chains, Jumeirah does not have to start at the bottom to build brand awareness. Lawless estimates that 85% to 90% of its guests are international, with only 25% of that total from the Middle East. With 12 flights a day between Dubai and the UK, it is not surprising that UK travelers make up another 30% of Jumeirah's Middle Eastern hotel business. Expansion of its loyalty program and the roll out of its own privatelabel GDS will continue to broaden brand awareness.

NEED FOR DISCIPLINE
Robert Hecker, managing director, Horwath Asia Pacific, Singapore, says the "professional, high quality" staff of Jumeirah's corporate entity gives plenty of comfort to developers and owners. "As a management company, Jumeirah deserves credit for delivering quality service and experience on built products, as well as demonstrating a smart growth plan as opposed to simply resting on its laurels or being passive," Hecker says. "A large part of the appeal for third-party developers will be to have the same market positioning as the Burj. That model works as long as Jumeirah is the best or at least is clearly competitive with the best in each market it is in. If it becomes just another 5-star operator in each market, then I think the expansion effort may fizzle out."

Guy Standish-Wilkinson, director and general manager, PKF, The Consulting House, Dubai, agrees that selectivity may be the key to Jumeirah's staying power. "Gerald Lawless has done wonders in growing Jumeirah into a local chain and surely has the stature to carry off the expansion," Standish- Wilkinson says. "The main difficulty Jumeirah faces is finding hotels to manage that have a similar level of extraordinary architecture as their multiple trophy hotels in Dubai. Jumeirah will have to balance its hunger to expand rapidly around the world with the need to be selective-like Four Seasons, for example, which only does deals on fantastic hotels with long-term commitments to and from its owners."

FRESH IDEAS
While Lawless "would not turn down" a 40-year contract instead of the 65-year deals Four Seasons supposedly might require, he is not about to sacrifice standards to speed. His vision is to build a "fresh" company with a different look, a different service attitude and a different way of operating. "Customers have different needs, wants and desires. We have evolved a plan that takes that into consideration," Lawless says.

If the Lowndes, London, is successful, it could lead to the start of a boutique brand.

He has to put that to work at the property level by implementing a general manager's plan for a "ladies floor" where guestrooms have special features, ranging from lock-off corridors to refrigerators for face creams, as well as shaping a corporate culture around a mandate "to never say no as the first response" and "greet the guest before he/she greets you."

Looking into the future, his effort at customization may lead to the launch of a second brand. The results of the Lowndes' renovation in London will be the test. The aim of its new boutique appeal will be to broaden its markets beyond domestic UK travelers and expand its appeal to another travel sector. As Lawless sees the market, the lines are blurring in terms of what people of various ages or budgets want from a hotel. What they all want are choices-something a second brand could help to guarantee. "You cannot work in a company like this and not be excited about going to work," the 53-year-old Lawless says. "We have incredible properties, and we have the means to develop and grow worldwide. This is a dream job."