Accor sells 55 per cent of owned assets amid investor jitters

Posted in Business, News on 7 March, 2018

AccorHotels is asset-light. AccorHotels is asset-heavy. AccorHotels is asset-light again.

After eight months of negotiations with unnamed parties, AccorHotels via its AccorInvest division’s Booster project has sold a majority 55 per cent stake of its owned portfolio for a sum of approximately €4.4 billion ($5.4 billion), according to sources.

AccorHotels’ CEO Sébastien Bazin has been vocal the French hotel firm would keep the largest single percentage of assets, which it said would be capped at 30 per cent, and thus voting rights.

In the call, Bazin said AccorHotels would sell its remaining stake down to 30 per cent, after which a five-year lock down on further activity would be put in place.

After that period of time, its own owned stake would be reduced further to give “AccorInvest … its own life,” he said.

The asset-management buyers include London-based Amundi, Singapore-based GIC, Paris-based Crédit Agricole Assurances, Saudi Arabia-based PIF and U.S.-based Colony Northstar.

The news came several days after the French hotel firm announced its full-year 2017 results, which included a 2.5 per cent to 6.7 per cent improvement on its previously stated full-year guidance of between €460 million ($562.2 million) and €480 million ($586.6 million).

During a telephone presentation announcing the AccorInvest news, Bazin said following the closing of the transaction, expected by the second quarter of 2018, AccorHotels will implement a two-year timeline of returning €1.35 billion ($1.6 billion) to shareholders via share buybacks, which represents 10 per cent of its share capital based on current market capitalization.

Accor is to retain management contracts of between 30 and 50 years on the sold assets.

Bazin said the “entry of new shareholders and the deconsolidation of AccorInvest will provide AccorHotels with substantial leeway to enhance our dynamic growth and innovation strategy and create value for shareholders.

“For its part, AccorInvest will take advantage of its new powerful shareholders’ support, as well as a strengthened financial structure to execute its roadmap and continue to reinforce its portfolio of assets,” he said.

Investor jitters
Initial reaction from the stock market was a tinge of disappointment at the structure of the sale, with some analysts expecting a higher percentage of the HotelInvest portfolio to be sold, and others saying the special dividend accompanying the sale was lower than expected.

Matthias Desmarais, head of equity research at Paris-based investment bank Oddo & Cie, said it’s a good deal with a good valuation, but he added investors might be a little disappointed at the low percentage sold now.

“In time, they will sell 100% and fully dispose of the assets, as there is no stake for them in keeping anything,” he said.

HotelInvest still will exist, sources added.

“The decision now is to go asset light, and I do not have the impression (AccorHotels) will change the model now, but it will definitely act more pragmatically than the U.S. hotel firms, and it will buy assets if it feels it is correct to do so,” Desmarais said.

He added that AccorHotels had not included its Orbis portfolio of Polish assets, and others in Eastern Europe, in the AccorInvest Booster portfolio.

Alex Brignall, travel and leisure analyst at Redburn, said he had heard rumors several days ago the sale would be announced, but he also voiced the market’s concerns.

“As well as the percentage sold being on the low side, so was the special dividend a little less than hoped for,” he said.

That dividend is 5% based on the net asset value of the transaction, according to the accompanying presentation.

Brignall also said he had heard concerns over the discount AccorHotels announced it is giving new owners of some hotels, which he said is quite substantial in relation to the overall value of the deal.

That sum is estimated to be €10 million ($12.2 million) per annum, calculated on fees paid subject to net operating income profitability thresholds.

AccorHotels announced a new fee structure for the sold AccorInvest assets, calculated 60% based on profitability and 40% based on revenue, essentially a like-for-like flip of the current fee percentage structure.

Bazin said this will permit better alignment.

Initially on 28 February, those concerns were reflected in the share price of AccorHotels on the Euronext Paris stock exchange being down 2.12%, but at press time it had rebounded to -0.04%. In comparison, the Baird/STR Hotel Stock Index was down 1% year to date.

All change
AccorHotels decided to reverse its asset-light strategy in November 2013, when Bazin formed two divisions—HotelInvest, an ownership and investment arm, and HotelServices, an operations arm.

The sold 55% stake derives from its HotelInvest division, which Bazin said would have an enterprise value of €6.2 billion ($7.6 billion).

One of the transactions that added to the HotelInvest pot was the October 2015 buy of 43 French hotels from its principal lease partner, publicly traded real estate investment trust Foncière des Régions for €281 million ($343.4 million).

At press time, AccorHotels’ market capitalization on Euronext Paris was €13.7 billion ($16.7 billion). When John Ozinga, HotelInvest’s COO, spoke with Hotel News Now on 15 June, that figure was €8.6 billion ($10.5 billion).

Ozinga said AccorHotels is happy to have reached this stage of the process.

“We’re not 100% there yet—a little waiting between the execution now and the closing. We announced this (project) in July 2016, and it has taken a little longer than expected, but that is due to the asset base and the number of countries we operate in, as well we the number of people involved. We did it all in good order,” he said.

AccorHotels also is pleased with the firms newly on board.

“We always said we wanted to have involved long-term institutional type investors, ones who believe and trust in us, and we also said we wanted long-term management agreements,” Ozinga said. He confirmed that management agreements were for 50 years, including a 15-year renewal option, on luxury assets; and 30 years for economy and midscale, including a 10-year renewal option.

Ozinga will head up AccorInvest as CEO.

“Looking forward, my interest is in delivering our business plan amid support from investors, and with AccorHotels as the largest one. The plan always was to sell more than 50%,” he said.

“The sale is in line with expectations, and importantly we have serious, committed investors who trust the management and believe in the business plan.”

AccorInvest has leverage with banks, too.

Ozinga said AccorInvest recently secured a €3.6 billion ($4.4 billion) loan from a pool of 23 banks.

“Clearly the loan is to fund our growth through acquisitions, renovations and development … and the goal remains having €10 billion in gross asset value by 2021,” he said.