• Newly split Accor tells positive story

Accor improved like for like revenues 2.8% in the first half of 2014, as the group accelerated its new strategy of being both a hotel operator, and a hotel owner via its new HotelInvest division.

Earnings at EUR219m were up 17.6% compared with the first HotelInvest assets, now valued at over EUR5bn, are delivering a 10.6% return on investment.

“The group’s transformation is well under way,” said CEO Sebastien Bazin. “The strong results for the period, with an increase in margins, reflect good momentum and the work of highly committed teams to deploy our new strategy. We have significantly increased resources and completed major acquisitions and restructuring for HotelInvest in the first half; in the second half, we will focus in paritcular on deploying the HotelServices strategy built around innovation, digital solutions and brands.”

Growth continues apace, with 12,284 rooms added in the half year, and the pipeline now standing at 144,000 rooms. Performance at HotelServices saw every market except France improving (the home market “remains a concern”) and full year ebit is expected in the range EUR575-595m.

Following its internal split, Accor now reports ebit by region as a group, and per its operating and property units. The combined figures showed Asia-Pacific delivering best, with a 23.3% improvement in ebit, thanks to HotelService performance. Also doing well were the Americas, up 21.5% overall, while France – reported separately – saw a 3.6% fall in ebit. Here, though HotelServices delivered an improved contribution, HotelInvest saw returns fall. Elsewhere in Europe, both the UK and Benelux markets saw solid demand.

Having recruited former Orange innovation executive Vivek Badrinath earlier in the year, Accor is now looking to improve its digital and online connections. A new digital guest solution initiated in April will be rolled out to 1,000 hotels by the end of the year, with a digital roadshow promised this autumn, while its Le Club loyalty programme is improving its member offering. Accor generated 32% of its gross revenues through the web in the first half, and initiatives including a four year football sponsorship (see below) are dedicated to driving that figure up.

HotelInvest now has an interest in 1,369 hotels, of which it owned 368 at the end of June. Three quarters of these are in Europe, and 95% are budget, economy or midscale segment properties. Of the total, 56% of the properties are on variable leases, while 24% remain on fixed leases. The gross asset value is put at somewhere between EUR5-5.5bn, with the ROI calculated at 8% for the owned assets, and 15% on the leased hotels, producing an average 10.6%.

A more detailed breakdown of the HotelInvest portfolio reveals the 336 fixed lease properties are delivering an ebit margin of just 0.8%, while 44 properties listed under “other” – ie those not owned, or rented on fixed or variable leases – are pulling the results down, with a negative 18.3% ebit margin. During the half, deals on a further 25 properties were restructured, improving the situation at 18 leased and 7 owned properties.

The company is poised to grab further acquisitions as it sees opportunities, having drawn together further financial firepower in the first half. A EUR900m issue of loan notes and EUR1.8bn syndicated credit line were put in place, attracting strong demand from participants that enabled Accor to strike deals at record low interest rates. 

Following the end of the accounting period, the company has been busy buying more assets for HotelInvest. In the UK, it has purchased a EUR89m portfolio of 13 hotels from investor Tritax. The package includes 12 Ibis and one Ibis budget hotels, in UK city locations including Birmingham and Manchester.

The deals have not all been one way, however, as recently two Novotels in the UK were sold to an investor, Fairview Hotels, and franchised back.

“These transactions demonstrate Accor’s ability to act swiftly in implementing the strategy announced nine months ago,” said HotelInvest COO John Ozinga. “It’s an important step forward in the significant restructuring that we are leading with HotelInvest, fully aligned with our objectives which include creating value by optimising return on capital employed, while strengthening our position as the largest owner of economy and midscale hotels in key European markets.”

Once again, the purchase is effectively a buy back, with Accor having operated the hotels since 2001 under variable leases, opting to sell them to Tritax in 2005. The deal will give HotelInvest an immediate portfolio rationalisation opportunity, as three F1 branded hotels Accor already owns, adjacent to Ibis hotels in Liverpool and east London, are to be debranded and integrated as extensions to the Ibis properties.

Accor has said it will use debt to fund the purchase, with the deal reducing off balance sheet debt by around EUR39m, improving ebit and increasing HotelInvest’s net operating income by 0.5%.

The company has also been busy cranking up expansion in Australia, with two major new projects announced, as it opened the 311 room Ibis Adelaide, its first Ibis hotel opened in the country since 2008. In Sydney, it will brand a new 616 room Sofitel, scheduled to open in 2017; the development is being forward funded by local investor Jerry Schwartz, who already owns the city’s Mercure. In Brisbane, it has signed to open a 368 room Ibis, the largest in the region, which should take its first guests in 2016. The AUD90m project will be developed by Dubai developer Action Hotels.

And in its home French market, Accor has signed a four year deal that ensures its accorhotels.com booking portal gets in front of soccer fans. The agreement with the French football federation will see Accor sponsor the French national team, junior and women’s teams, as well as supporting national and amateur competitions.


HA Perspective [by Chris Bown]: What was one is now effectively two – and seeing Accor’s performance figures split down the middle for the first time means more to make sense of. The operating business, HotelServices, is enjoying an uptick in all its key markets, with the exception of the home French market, which is still languishing in recession.

And while there’s been lots of exciting action at HotelInvest, the challenge going forward will be in clearly explaining to Accor’s shareholders that the property acquisitions are delivering, against the performance targets set. Already Accor is declaring a 10% variability in the value of the properties – somewhere between EUR5bn and EUR5.5bn, we are told – which means that the ebit figure is harder to read. When the properties were held by others, at least they had a clearer open market value. 

The real value of HotelInvest may be not in protecting the group against rents struck too high, but in active asset management. In the case of the Tritax UK deal, the purchase also allows Accor to extract some value from its three Formule 1 hotels in the UK, which it owns, by converting the 253 rooms across the three sites to extensions for adjacent Ibis properties. The sub-budget brand [technically, on standard industry definitions, it is a budget brand with Ibis, Premier Inn et al being economy brands], with its separate bathrooms, never really caught on in the UK and is becoming ever harder to find in Europe. It has been reinvented, however, for the Indian market, where the brand is expanding. 

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