Skift Take
FIVE has seen years of success in Dubai, and it's still growing. But how many hotels can Dubai handle?
Key Points
- FIVE Hotels experienced an 8.9% drop in room revenues at FIVE Palm Jumeirah due to internal competition.
- The company is focusing on international expansion, particularly in the U.S. and Europe, to mitigate domestic cannibalization.
- FIVE acquired Ibiza's Pacha Group and reported a 5.3% increase in gross profit for Q2, while remaining open to selling its Zurich property.
Summary
FIVE Hotels reported mixed financial results, highlighting both the benefits of Dubai's strong tourism sector and the challenges of internal competition among its properties. The company faced an 8.9% decline in room revenues at its flagship FIVE Palm Jumeirah, attributed to 'cannibalization' from its other hotels in Dubai. Looking to mitigate this, FIVE is focusing on international expansion, particularly in the U.S. and Europe. The company has recently acquired Ibiza's Pacha Group and aims to rebrand some properties to enhance its portfolio. Despite a 5.3% increase in gross profit for Q2, FIVE is open to selling its Zurich property if the right offer comes along.
Local Dubai hotel group FIVE reported financial results Monday that show the company has continued to benefit from the emirate’s robust tourism sector, but also that it may need to look elsewhere for growth.
FIVE chairman Kabir Mulchandani pointed to lower room revenues at the flagship FIVE Palm Jumeirah, and attributed the dip to “potential cannibalization” from the opening in March of FIVE Luxe, another beach hotel less than 20 minutes away.
“There have been some challenges we’re facing at FIVE Palm Jumeirah,” Mulchandani said, adding: “It’s primarily driven by a form of potential cannibalization. When FIVE LUXE opened, we have two hotels on the beach.”
“We’ve been focusing a lot more on our direct business [and] we’ve reactivated our tour operators to widen our net, because we now understand the level of potential cannibalization, which is not large.”
Room revenues at FIVE Palm Jumeirah fell 8.9%.
Mulchandani said another reason FIVE Palm has slipped is due to more holiday homes in that property being put on the market, pulling business away from its core hotel rooms business.
“We have also grown holiday homes by adding more inventory, so that affects room revenue as well.”
FIVE now has three hotels in Dubai, including FIVE JVC, which is located in the city.
“There has been no cannibalization at FIVE JVC as that is a very different hotel, that is not a beach hotel, it is a city hotel,” Mulchandani said.
FIVE Holdings has four hotels in all: FIVE Palm Jumeirah; FIVE JVC; FIVE LUXE; and FIVE Zurich, which is a reflagged property. The group also has a private jet that its chairman uses and charters to guests in a venture called FLY FIVE.
While the group’s flagship hotel was down, Mulchandani stressed that it was overall a strong quarter, boosted by a new hotel opening and the completed integration of Spanish entertainment group Pacha.
Across the group, hospitality revenue was up 32% in the second quarter for properties that were operating at the same time last year. EBITDA increased 17%. (Revenue and EBITDA were up 99% and 72%, respectively, if you include the addition of Luxe.)
Moving Out of Dubai
In a call Monday discussing results, Mulchandani discussed the potential of U.S. expansion. “The goal was always… Our brands would do exceptionally well in the U.S. We won’t overstress ourselves right now. The U.S. would be a priority over Saudi Arabia for now, given that Saudi needs to open up a bit more for our kind of product.”
FIVE also is focused heavily on the European market, particularly Spain, after it acquired Ibiza’s Pacha Group. This deal gives FIVE the Pacha nightclub brand, the El Hotel in Ibiza, and the Destino hotel, which will reflag as FIVE Ibiza in 2025. FIVE will spend around $26.9 million upgrading the Destino to make it FIVE-worthy.
Speaking about FIVE’s only non-Dubai hotel, located in Switzerland, Mulchandani said FIVE Zurich is doing well, but he wouldn’t turn down a chance to sell it.
He said: “We’ve been debating internally [selling FIVE Zurich]. For now, while it is generating positive EBITA, we’re not actively looking to dispose of it. But if we received an offer we can’t refuse, we would take it.”
A Look at The Numbers
In the second quarter, FIVE reported a gross profit of 196 million Dirhams ($53.3 million), up 5.3% from 186 million Dirhams ($50.6 million) at the same point last year.
Here are some of the key figures in the quarter:
- Revenue per available room (RevPAR) in the quarter rose 11.1% to 887 Dirhams ($241).
- Hospitality revenue in Q2 2024 reached 448 million Dirhams ($121.9 million), a 99% increase from 225 million Dirhams ($61.2 million) in Q2 2023. FIVE’s surge in revenue can be attributed to the opening of its fourth hotel, FIVE LUXE in March.
- The group completed its acquisition of Pacha, a deal which saw FIVE acquire long-standing Spanish entertainment group Pacha for $350 million.
Editor’s Note: This article has been updated to include more of FIVE’s quarterly results and additional comments from a call with investors. We’ve clarified in the headline that the chairman referred to “potential cannibalization.”
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