Accor into overdrive with asset-heavy stance
04 JUNE 2014 6:10 AM
With its latest portfolio acquisitions—two pieces of business with 97 hotels in three countries—Accor appears actively committed to an asset-heavy approach.
PARIS—Accor’s HotelInvest wing moved into overdrive last week with the Paris-based company agreeing to pay approximately €900 million ($1.23 billion) for 97 hotels it had previously sold and leased back, according to a news release.
The news represents Accor’s first major splash on the acquisitions front since former Colony Capital CEO Sébastien Bazin took the helm and reversed the company’s asset-light approach by creating HotelServices, which operates and franchises properties, and HotelInvest, which owns and invests in hotel assets.
The deal consisted of two portfolios, mostly of limited-service properties. The first, made up of 86 properties in Germany and the Netherlands, has a price tag of €722 million ($983.7 million) from Moor Park Capital Partners, while the remaining money will go to Axa Real Estate Fund for 11 properties in Switzerland.
Principal shareholder Colony, under Bazin’s leadership, was often critical of former Accor CEOs for not detaching bricks and mortar quickly enough from the balance sheet, so Accor’s past six months might to some seem an extraordinary turnaround. As recently as last October, all talk was of Accor’s full-blown charge into divestment.
Commentators and analysts, mindful of the latest and continued, upward trajectory of the hotel industry’s investment cycle, now look at Accor’s policy will new eyes. Accor, they said, would see itself as the buyer who can afford to pay the most for rents—payable back to itself for those new properties it owns—that they consider are sitting below market rates.
“The markets these latest deals have entered are good markets. I would say that these properties would be under-rented, and there appears to be a great deal of arbitrage in this particular portfolio,” said Charles Human, managing director and head of brokerage for HVS Hodges Ward Elliott in London.
By buying these hotels, Accor is moving leased hotels out of its system while fulfilling its stated objective of being a hotel investment company, he said.
“It is opportunistic, but now is the right point in the cycle. By creating HotelInvest, whose core business is to own assets, they obviously feel strongly that they should be able to buy advantageously and see strong capital gains,” Human added.
Accor failed to return repeated requests for comment.
Bazin to win
In a recent interview with HNN, Bazin said that in terms of Accor’s financial resources and human capital, “We have all the capacity we need on the balance sheet; we have virtually no debt, and we have all the talents needed.”
Analysts are bullish.
James Ainley, director at analyst Citi, forecasted the deals would benefit Accor’s earnings before interest, tax, depreciation and amortization by approximately €60 million ($81.7 million), mostly due to rent newly being saved, and earnings before interest and tax by approximately €30 million ($40.9 million).
In a Citi news alert to investors, he added that Accor’s move would make the real estate portfolio a more credible standalone operation.
“The implied yield on the assets (rent saved) is (approximately) 6.7%, which seems fair for what the company regards as high-quality assets in good markets (Germany, Netherlands and Switzerland). As a real estate transaction these acquisitions therefore seem to make sense, although we note that the (return on invested capital based on EBIT) is only 3.3%, suggesting investors will increasingly need to value Accor on a (sum-of-the-parts) basis,” Ainley said.
Also in a news alert, Vicki Stern, managing director at Barclays Capital, agreed that investors would be pleased to see Accor’s stated plans being put into action, although she alluded this was being done sooner than most expected.
“This is in line with (Accor’s) strategy, but (the return on capital employed) is low, however,” Stern said.
Barclays’ forecast of Accor growth was in line with Citi’s. Stern said she expects Accor to continue on its buying spree. “We expect (to) see the group buy back approximately €2.5 billion ($3.4 billion) (of) assets over the next three years.”
Accor is not undergoing its purchasing program in all markets.
The company plans to add 25 hotels in India by the end of 2015, according to a report in TravelTrendsToday.com, but in a combination of part-ownership deals (15 of the properties) and management contracts (the remaining 10) in economy, budget and midscale product.
But in Europe, bricks and mortar will be bought in mature markets, according to reports.
Accor’s total portfolio counts approximately 3,600 hotels and 460,000 keys in 92 countries.
Simon Mallinson, executive managing director, EMEA, Real Capital Analytics, said Accor is one of the few hotel chains that still has an active position in real estate.
“But I see Accor having done this for a number of years. It is not a new thing, although a great deal of personnel changes at the company did put it on pause,” he said.
Accor’s latest splurge has catapulted it into the top three buyers in Europe in the past 24 months, behind the Abu Dhabi Investment Authority (narrowly) and Qatar Investment Authority (by approximately €750 million, or $1 billion), according to Real Capital Analytics.
During the same time period, at least in deals of more than $10 million that it has tracked, Accor has sold 15 properties for $430 million.