Rotana interview: Selim El Zyr

It’s taken 20 years for Selim El Zyr to build the region’s biggest hotel company from scratch. While the CEO may be stepping down this year, Rotana’s plans are bigger than ever
By Ed Attwood
Sun 03 Feb 2013 09:49 AM

Selim El Zyr is clearly in a good mood. Sitting in the penthouse suite of the Abu Dhabi hotel where it all began, the boss of Rotana Hotels is rattling off the jokes. On taking the firm public one day: “It’s like the agenda of every girl to get married, and the agenda of every Maronite in Lebanon to become president”. On his eventual retirement: “Maybe in another 40 years?” And on launching in Bahrain later this year: “The suffering begins in March,” he says, with a wink.

If El Zyr seems relaxed, he has good reason to be. Only 20 years since he co-launched Rotana alongside chairman Nasser Al Nowais, the chain has 46 hotels in operation across the Middle East, with another six due to open this year. When he hands over the reins to his successor at the end of 2013, Rotana will be overseeing roughly 100 hotels, either in operation or under construction. It’s the kind of growth rate that could soon see Rotana take its place in the pantheon of the Middle East’s few global brands, alongside Emirates and Al Jazeera.

But behind the genial exterior, El Zyr is every inch the professional.

“In business, there is no such thing as a trajectory all the way up,” he says, when we discuss the political changes that have swept the region over the past two years. “So this [investing] is a risk every businessman takes, and every businessman that makes a 10-15 percent return on investment is legitimate.

“People shout ‘that guy’s making 10 percent’ – of course! When I have to take the risk, I have to work day and night, I have to sustain losses if need be. Otherwise everyone just puts their money in the bank and there is no more business for anyone. So who is going to create jobs? It’s us – the investors.”

When it comes to contributing to the economy, few are doing more than Rotana. It has created thousands of jobs in almost every country in the region, and has refused to shut up shop or mothball any property, despite unrest bringing occupancy in some hotels down to as low as 10 percent in Syria.

Overall, El Zyr says that the group was “about 8 percent above 2011 in terms of end results” last year. It was dragged down by the countries affected by the Arab Spring, but that was more than compensated by the performance of new hotels, and by the rebound in Dubai — which El Zyr refers to as “the best in the neighbourhood”. Occupancy rates in the emirate sit somewhere in the mid-80s, and have stayed high despite the introduction of another 4,500 rooms during 2012.

The Rotana CEO also says he is excited about the slew of megaprojects that have been announced by the Dubai government in the last few months. Top of the list is Mohammed Bin Rashid (MBR) City, a sprawling development that is estimated to cost as much as much as $110bn. Included in the project are plans for an extra 100 hotels, but El Zyr says he isn’t worried about whether the market will be oversupplied.

“They are speaking about a period of time,” he says. “I think the growth of supply in Dubai has been extremely well managed – it has been orchestrated in an extremely professional way. Now if you dump 100,000 rooms onto the market, it will be a disaster. But these 100,000 rooms, if they take ten years to come it will be good, because the growth of Dubai has been unbelievable.”

Dubai hoteliers may be licking their lips at the prospects for this year, but the same is not the case an hour or so down the road in the UAE capital. Abu Dhabi’s market has been characterised by a logjam of high-end properties, all of which have launched at a similar time. Amid cutthroat competition, operators have been forced to slash rates in a bid to keep market share.

Rotana, which is based in Abu Dhabi, has had its fair share of problems, especially as occupancy rates in the city sit at around 68 percent. At the same time, however, it is working on adding an extra two properties in the area. “It’s more challenging,” admits El Zyr. “But it’s the same as every market in the world — it’s not easy any more. One of the things one has to do in a competitive market is assess prices and keep on comparing them with competitors. People will not only pay for the brand, people want a better deal.”

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Elsewhere in the Gulf, Rotana will launch its first property in Bahrain this March. Jokes aside, the CEO says he does not have “huge expectations” for the first few months, although the hotel is “very nice, very smart, and I think it will be successful”. In Kuwait, where the firm has one hotel open and another under development, El Zyr seems less positive long term. The main problem, he says, is the exorbitant cost of land.

“The Kuwait market has not grown as much as we all would wish,” he adds. “If your hotel construction costs $100m and the land costs another $100m, it does not make commercial sense. The costs of the land should not be more than 25 percent of the overall cost of the project.”

Rotana is looking to expand its portfolio of hotels in Saudi Arabia, where it currently has five, but the CEO says that the firm has been hampered somewhat by the slow pace of change. “For example, in Jeddah, they are opening maybe one or two hotels a year – but in fact Jeddah can take ten new hotels a year,” he says. “There is definitely room for growth”.

And in Qatar, Rotana is also expanding quickly, with one hotel open, and three under construction. As the country builds its infrastructure to take on the flood of visitors that will descend on Doha for the World Cup in nine years time, operators are also fiercely adding properties to the market. But El Zyr sounds a word of warning about the fate of all those new hotels after the event finishes.

“We are concerned about this, of course,” he says. “The same has happened in every city that has hosted an Olympic Games or a World Cup — you have to build to accommodate and meet the demands of that particular month, and then you find yourself with a surplus of hotels.

“Countries like South Africa are suffering, Greece is bankrupt because of the Olympics. Qatar has oil and gas income, and I think the owners know that there will be an excess…and they expect that they will probably take a beating after the World Cup.”

But perhaps Rotana’s most exciting plans are outside the Gulf. Other than the Levantine countries, where it is well represented, it is expanding quickly in Iraq, with one hotel open, three officially in the pipeline, and “a couple” of hotels about to be signed up in Basra, El Zyr reveals. Three hotels are also in the pipeline in Iran, and the group sees India, Pakistan, Afghanistan and Sri Lanka as perhaps the most important area in its next growth phase.

Top of the list, undoubtedly, is India. The country’s economy has exploded in recent years, with annual GDP growth rates hitting up to 10 percent. That figure is set to drop to roughly 4.5 percent this year, but the opportunities are still massive. El Zyr reveals one astounding fact; India, a country of one billion people, has 170,000 rooms, while Las Vegas alone has 150,000. Rotana has already signed on the dotted line to build a hotel in Gurgaon — a tech hub just outside Delhi — which will take about four years to complete, and clearly has plans for more.

However, despite India’s undoubted potential, El Zyr still says there are barriers to overcome. Somewhat astonishingly, he cites labour shortages as one of those problems.

“It’s an expensive country,” he says. “If you go to a five-star hotel, you must be ready to pay $800-$1,000 — and in India this is a substantial amount, especially considering that 80 percent of tourism is domestic.

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“Costs are soaring; fuel is expensive, electricity is expensive, the salaries are the same as here, and imagine, with one billion people they are facing problems with labour. I was talking to one developer and he was saying he couldn’t get labour, he was having to bring in people from China. You have a billion people! If you don’t have people to build, who has?”

Away from Asia, Rotana had, at one time, considered Eastern Europe and the CIS, but the CEO says that those plans have been shelved as the firm concentrates on the low hanging fruit closer to home.

“Going step by step geographically is our main strategy,” he says. “I wouldn’t like today to have a hotel in New York, one in China and one in Kathmandu — it’s too spread out. I want to cover my area, cover it well, be the best in that area and move slowly. Turkey, India, Iran — these are our immediate targets. The next target will be Eastern Europe and the CIS.

“If I wanted a hotel in London tomorrow, I could get one tomorrow — but I could assure you that the company would lose $5m by the end of the year.”

With upwards of 40 hotels in the pipeline towards the end of this year, one might wonder how Rotana is able to continue financing its huge expansion plans. According to El Zyr, bank credit has certainly tightened since the boom, with lenders asking for as much as 50 percent of the value of the project upfront before dishing out any loans. In the past, it was enough for a big-name developer to simply own the land before trotting off to the bank and asking for a blank cheque.

“There’s no more name-lending any more,” says El Zyr. “The biggest businessman in Dubai – if he goes to the bank and does not have a viable proposition, plus 50 percent and the price of the land, he will have no finance. It’s not just in the hotel business, it’s any industry – and it’s imposed by the banks and the government in order to protect amateurs.”

Sadly, it doesn’t look like we’ll see Rotana listing on the Abu Dhabi Exchange any time soon, despite interest from international investors who are keen to access equities linked to the UAE’s fast-growing tourism and hospitality industry. When asked whether the firm will go public, El Zyr is quick to respond.

“Yes, of course — it’s in the agenda of every company to go, one day, as a public company,” he says. “But when? It’s a matter of timing. And what do we do with the capital we raise? Today we don’t need the money to develop the company. Number two, the timing is not right — the market is not ready. When? Two years, three years, five years from now.”

But by the time that Rotana is ready to list, El Zyr will no longer be running the company. At the end of this year, another CEO will be in place, who is believed to be long-serving executive vice president and chief operating officer Omer Kaddouri. El Zyr won’t be departing the scene immediately, though – he will be remaining on the board, and will “probably drive the strategy” of the firm. Is he sad? He shakes his head.

“The best decision I ever made was to co-launch Rotana,” El Zyr smiles. “For me, the most important thing is to be sure that my success will be measured in the success of the company after my departure. If the company keeps on improving, that means I have been successful in preparing this. If I go and things shake, that means I have not been a good leader.”

Not a good leader? You won’t hear many in the hotel industry agreeing with that.

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