Sri Lanka’s JKH to seek partners for future hotels in ‘asset-light’ strategy
ECONOMYNEXT – Sri Lanka’s John Keells Holdings will seek partners for future hotel projects to reduce its own investment burden by employing an ‘asset-light’ model.
"The Group is conscious of the quantum of capital deployed to businesses, and to this end, places a strong emphasis on evaluating projects in such manner which optimises capital efficiency,
especially in capital intensive businesses such as Leisure,"
"..[E]mphasis is placed on both return generating capabilities of the business against its capital employed, and the earnings potential of the business or project," shareholders were told in the annual report.
"In order to manage the effective quantum of capital deployed, the Group will continue to explore investment structuring options such as asset-light investment models for future hotel projects."
JKH said it was currency evaluating several investments to expand its hotel portfolio.
"The model for expansion will primarily be on an asset light model where the Group will seek partners for select hotel investments to manage its effective capital deployed in the industry group whilst increasing its share of rooms under management and hotel management income," the firm said.
"In light of the above, the Group will explore options for the investment structure of the Nuwara Eliya and Maldivian hotel projects – subject to feasibilities on the cost parameters and expected returns."
Sri Lanka’s construction costs are high due to excessive import tax protection on steel and other building materials imposed by rulers to give profits to several politically connected oligarchs.
Keells Hotels Plc, JKH’s leisure unit has just closed Bentota Beach Hotel to build a new 4.0 billion hotel.
A planned hotel in Nuwara Eliya will cost 3.7 billion rupees and Kakahura Hotel in the Maldives will cost 13.5 million US dollars, the firm has said.
The firm said its hurdle rate of return is now 15 percent.
JKH is building a large capital intensive mixed development in Colombo, Cinnamon Life, involving hotels. (Colombo/June04/2017)