Financial Times

Spence Hotels' gains from expansionary drive - report

Aitken Spence Hotel Holdings' (AHUN) strategic edge over industry rivals currently lies in its expansionary activities into high tourist growth regions via the less capital intensive method of management contracts, according to a stock market research reort.

"Currently, its overseas management contracts include five properties each in India and Oman. Given likely better industry conditions in India once the global crisis has run its course, expanding its portfolio into this high growth region is an option AHUN is likely to consider, especially given that the 2010 Commonwealth Games are scheduled to be held in New Delhi, India from the 8th-14th October 2010," a C.T. Smith Stockbrokers report said.

AHUN has acquired a 24-room boutique resort in Coimbatore, expansion of the Andaman Island resort, as well as plans for building a hotel under the name of "Heritance Cochin" in India, are in the pipeline while it also has plans to manage properties in Dubai and Qatar in the coming year.

The report said that the short term outlook for AHUN's resorts in the Maldives based on the last quarter shows that there is a below forecast performance for the next year. "Amid declining tourist arrivals to the archipelago, decreased contributions to the Group bottomline in 2010 on account of high costs, competitive rates and increased competition, regardless of a possible improvement in performance from this sector in the second quarter of next year ( which is the peak tourist season), seems likely."

The report said that the contributions from the Maldives in 2010 and beyond however, would likely benefit from improved industry conditions, occupancies and rates, although increased competition, capacity and the potential opening of Maldives to the mid market could possibly negatively impact on returns.

"AHUN, which currently has a portfolio of ten properties in Sri Lanka (five owned, two associates and three managed), is in a strong position to benefit from a likely long term resurgence in tourism. Building new hotels in the newly liberated North- East region and other regions, in addition to refurbishing existing hotels are thus likely to further consolidate its foothold in the country in 2011 and beyond."

The report also noted that amidst the recent retail interest in the Hotel and Travel (H&T) sub index due to the conclusion of the conflict, AHUN's share price has risen 142% year to date outperforming the All Share Price Index which has risen 108% in the same period.

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