• Accor suffers as investors demand divestment

Accor suffered the biggest fall in its share price for three years last week after investors were less than impressed with the full-year results presentation. While the profit increase fell short of most expectations the underlying reason for the gloom is the lack of news of divestment plans.
   Despite promises to sell Eu1.5bn of hotel property, Accor failed to assuage the craving from investors for more divestment. And by unveiling plans to invest Eu2.7bn back into the hotels business, almost twice the amount being raised, Accor further antagonised its shareholders.
   Just as with InterContinental, investors have the scent of money in their nostrils and it is hard to see the French giant making peace with the bulk of its backers unless it begins to shed assets.
   Shareholders understand the need to grow but are demanding that it is achieved without delving into the cash that can come their way following sell-offs. Accor is taking two big risks: that it can continue with its conglomerate structure (principally its hotels and services divisions) and that it can use its own capital to expand.
   At its results, which showed a 17.6% rise in profits before tax and non-recurring items, Accor unveiled plans to add more than 200,000 new rooms by 2010, half in economy and budget properties.
   Two-thirds of the growth will be in emerging markets with the rest in mature countries. The bulk, 70%, is intended to be management or franchise and just 30% owned or leased. The targeted return on the Eu2.7bn of investment is 15%. The expansion plans make sense and offer a sensible way forward but they do not go far enough in terms of divestment.
   CEO Gilles Pelisson admitted that the company was considering selling its stake in Carlson Wagonlit but he refused to commit to a timetable. And when challenged on hotel asset disposals, finance director Jacques Stern said that the intention was to reduce capital intensity in mature markets but to continue expansion in emerging markets via hotel ownership as property yields in such countries were high.
   What was announced in the past week on the disposal front was the sale of Accor's 1.42% stake in contract caterer Compass Group for Eu96m; the sale of six Sofitels in the US for $370m; and the sale of 76 hotels to Foncier des Murs for Eu583m.
The Sofitel divestment was to a joint venture comprising GEM Realty Capital, Whitehall Street and Accor, which is retaining a 25% stake.
   The hotels, totalling 1,931 rooms, are located in major metropolitan markets across the US. They are to be managed under 25-year contracts. Accor now plans to form further partnerships with real estate investors to grow its upscale management contract business.
   The Fonciere des Murs transaction concerned 59 French hotels, five Thalassotherapy institutes and 12 Belgium hotels. The total room count is 8,300 across Ibis, Mercure and Novotel brands.
   This second transaction with FdM, a SIIC (French Real Estate Investment Trust), is notable for including Belgium properties that do not benefit from the same tax advantages as the French ones, and for the lower rents.
   The previous transaction, which closed in June last year, saw turnover leases set at an average of 15%. This time it is 14%. As last time, the leases are on12-year terms renewable four times, effectively creating 60-year holds on the property for Accor.
The hunt is now on for a partner to strike a sale and variable leaseback deal with for 130 hotels in Western and Central Europe. These 21,000 rooms have a market value of Eu1.3bn. It is expected to complete a deal by 2008. Another 150 hotels in the region are to be sold outright or sold with a franchise-back.
   Accor said it wants to increase ROCE by 0.6 percentage points by 2008 through disposals expected to have a cash impact of Eu1.5bn. It will leave the company with just 11% of its upscale hotels as owned or on fixed leases, compared to the 51:49 split as at 2004.
   Midscale is expected to see 73% of the hotels on management contracts, franchises or variable rents, compared to 45% in 2004.
   During the presentation, no word was said about Accor's stake in Club Med but during the Q&A afterwards, Pelisson said that the lack of a mention did not indicate that this holding was for sale.
   The company is committed, however, to retaining and growing its services business. It intends to plough Eu500m into it and expects to see a return on invested capital of 20%.

Share →