• Accor’s Oz sell off

AccorInvest, the real estate company in which brand and operating company AccorHotels has a minority stake, has put its 23 Australia hotels on the market, with an estimated value of AUD300m (EUR190m).

The news came as AccorHotels signed its second deal this year in the US, acquiring 85% of the eight-strong 21c Museum Hotels for USD51m.

21c Museum Hotels will join AccorHotels’ MGallery collection of boutique hotels, marking the introduction of the MGallery brand into the North American market. The group also has three sites in development.

The company was described as combining “a multi-venue contemporary art museum, boutique

hotels and chef-driven restaurants”. The group’s founders will retain a 15% stake and it will

continue to be led by president & CEO Craig Greenberg. As a management company, the deal will not include any real estate.

Kevin Frid, COO North & Central America, AccorHotels, said: “We have a tremendous opportunity to grow the 21c brand, as well as introduce MGallery into the North American market, building both brand equities and further expanding the full range of unparalleled experiences for our guests. This strategic acquisition marks a new step in AccorHotels’ strategy of being the leading player in the luxury and lifestyle segment in North America.”

In June Accor bought a 50% stake in US group SBE Entertainment, in a USD319m deal.

In Australia the hotels being marketed were in the economy sector, managed by Accor on long term agreements of 30 to 50 years, with the French company reportedly preferring to sell the group in its entirety.

JLL’s Craig Collins, managing the sale, told the local media: “Never before has an offering of this nature been presented to the open market in Australia. Economy hotels are a highly proven and successful hotel model in the Australian market. Their typically low operating costs and high level of profitability make them very attractive investments

“There is significant potential for both trading and capital value upside as, in addition to ibis Melbourne Hotel & Apartments and Ibis Sydney Airport in particular, a number of assets are positioned in key economic growth areas.”

Accor’s acquisition of Mantra last year gave it over 300 hotels in Australia, and 11% of the country’s market.

At 30 June Accor’s assets division included 229 hotels, with revenue of EUR389m, a 8.6% like-for-like increase on the year. Europe accounted for 54% of the division’s revenue, Asia-Pacific for 25% and South America for 16%. Ebitda increased slightly in first-half 2018 to stand at EUR54m, versus EUR53m in first-half 2017.

The decision to sell came as the group announced a “record” half year for rooms added, with 45,000 rooms, 51% of which were in the midscale, 25% economy and 24% luxury and upscale. By region, Asia Pacific dominated, with 72%, driven by the group’s Mantra acquisition, which added 25,000 rooms.

The region accounted for 83,000 rooms in the total pipeline of 167,000, leading growth, with Europe second on 32,000 rooms.

The group used its results to report a write down of EUR246m at its New Businesses division, with the company commenting that a 53.7% drop in like-for-like Ebitda to negative EUR15m was  “mostly attributable to Onefinestay and John Paul, where topline growth notably relies on synergies and scaling plans with AccorHotels, which have not been delivered as planned”.

The company added that “nevertheless, the group firmly believes that both serviced private homes and concierge services offer strong potential in the group’s ecosystem” and that it maintained a target of breakeven earnings for 2019. The division reported revenues of EUR70m, a like-for-like rise of 7.1%, including the recent acquisitions of Gekko’s hotel reservation solutions for business travellers, ResDiary’s restaurant reservation and table management services and Adoria’s management solutions for corporate and contract catering.

Sébastien Bazin, chairman & CEO, AccorHotels, said: “The first half of 2018 saw AccorHotels continue the deep-seated transformation of its business model, with the sale of a majority stake in the capital of AccorInvest, the integration of Mantra in Australia and Mantis in South Africa, and the acquisition of Gekko in France. The second half of the year will see Mövenpick in Middle East, Atton in South America and SBE in the US join our network, enabling us to consolidate our market shares and the vast array of choices we offer our customers.”

The company confirmed that, at the end of July it had received an offer from Colony NorthStar to acquire an additional tranche of 7% of AccorInvest’s share capital, for EUR250m. After completion of this transaction AccorHotels will retain a 35.2% stake in AccorInvest’s share capital.

The group also announced that, after having considered the establishment of a strategic alliance with Air France-KLM, including taking a potential minority stake the group remained “convinced that a strengthened partnership between hotel companies and airlines offers significant value creation potential. However, given that required conditions for the acquisition of a minority stake in Air France-KLM have not been met at this stage, AccorHotels has decided not to further pursue this opportunity”.

The group has forecasting full-year 2018 Ebitda of between EUR690m and EUR720m, after reporting EUR291m in the first half of 2018, up 4.2% like-for-like on the year.

HA Perspective [by Katherine Doggrell]: Australia’s hotel market is rollicking along. Despite the Australian dollar trending higher for most of 2017 and amidst increased global economic and political uncertainty, according to Deloitte international visitor arrivals continued to grow strongly, up 6.5% to over 8.8 million visitors in 2017 – an additional 540,000 visitors on the 2016 count.

Looking ahead, the nation will see a significant number of new properties being completed which will have a strong impact on the market. The majority of this supply was concentrated in capital cities, with Melbourne having over 50 active projects alone. 2019 and 2020 are expected to see the largest number of new rooms becoming available, with an increase of 3.4% to total supply each year.

Deloitte said that, as a result of the strong pipeline of new properties, minimal change in occupancy would be seen, with an increase of only 0.3% added to occupancy rates each year until 2020.

Accor was not the only company looking to cash out – the Hilton Hotel Surfers Paradise also came onto the market at the end of July, joining the Crowne Plaza Surfers Paradise. Away from the needs of surfers, Deloitte has forecast a rise in business travel, making Accor’s package all the more attractive.

What the company will do with the cash has not been revealed, but its New Businesses division looks likely to swell further, despite some growing pains. We have previously reported from the coal face of AccorLocal, where the execution of a vision appears to need a jump start.

At Onefinestay the group bought in Javier Cedillo-Espin as CEO in July last year, after the brand’s founding CEO and the co-founder who replaced him left. One of the issues facing the brand is that unlike other sharing platforms, it is curated and adding content in volume can be time consuming. Asia is a key focus for the flag and Cedillo-Espin has worked for both Accor and Starwood Hotels & Resorts in the region.

The growing pains at Onefinestay are likely to be replicated throughout the sector as it tries to compete with Airbnb. Accor and now Marriott International have talked about the need for curation and added services, bolting on what they feel they can add to the experience, as hoteliers. Doing this will take time.

Additional comment [by Andrew Sangster]: At Australia’s equivalent to Berlin’s IHIF, the Sydney-located HotelsWorld held in late July, the Accor disposal was a source of considerable gossip.

Accor has come from a position as an also-ran in the Australian market to being the biggest hotelier in a decade. So a move to sell-off off its property, albeit by a connected party in AccorInvest rather than the operating company itself, is significant news.

In a market where transactions totalled AUD1.5bn last year, the sale of a portfolio representing 20% of that is in any case going to be interesting.

Craig Collins, the JLL director handling the AccorInvest disposal, said at the conference that transactions this year will hit AUD2bn. Given that year-to-date the total is just AUD383m, he is facing a busy few months.

The Australian Financial Review, in its write-up of the Accor news, suggested that the for sale sign “could be a signal global investors believe Australian hotel values – which have soared in recent years – have peaked”.

The AFR argument is something we hear often this side of the world too. But Tim Church, a managing director at UBS who looks at the wider real estate market as well as hotels, was much less concerned.

Church made the point that hotels are now firmly a core real estate asset class. This means that the previous experience of seeing capital flight from hotels towards what are perceived as safer real estate asset classes should not occur this cycle.

Current market volatility, from for example the threat of trade wars, also supports RE as it is seen as a haven in such environments. While Chinese capital has retreated, there is no shortage of equity.

In terms of debt, Church said that the phrase “lower for longer” had been replaced by “even lower for even longer” a few years ago. Today, he looked at debt pricing in terms of it being an “Artic summer”. He said: “We have a long period of sunshine and we are only half way through”.

The amount of capital coming into the market was accelerating and this gave Church confidence that the cycle was not set to end. What mattered was scale and platform, particularly for private equity. Both aspects were needed to effect a significant deployment of PE capital.

Other capital sources included wealthy Asian families and their longer-term outlook makes them highly competitive against institutional investors.

Kenny Gaw, president of Gaw Capital Partners, said he picked up his first Australian hotel this year after many years of investing in other Australian RE asset classes. The departure of some Chinese capital meant he was seeing more opportunities.

Gaw said the priority when considering an investment was location, then price and then the opportunity to add value. “If we get three out of three, it’s a home run,” he added.

Eric Cheah, head of investment management at Union Investment, said that forex was an important factor. Tighter yields meant there was less tolerance in forex. The relative shifts of the Euro against the US dollar had meant that Union Investment was struggling to find opportunity in the US, for example.

But Union was focused on increasing its exposure to non-European assets from 20% to 40%. The initial push has been in offices and only in the last 24 months has it been looking at hotels outside of the eurozone.

Cheah admitted, however, that he was looking for the equivalent of a unicorn in the Australian market, a hotel with a master lease. The potential growth of white label operators to take leases was making the Australian market more attractive.

He sounded a note of caution, however, warning that some analyses showed we are now at a point in the cycle where we were just before the Global Financial Crisis with some investors layering debt on debt.

Cheah compared the situation to playing Russian Roulette with a revolver that had a thousand chambers. “There is still a bullet in the gun,” he warned.

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