• AccorHotels takes Orbis stake to 85.84%

Accor has increased its stake in Polish hotel operator Orbis by around 33%, following the closure of the tender offer launched in November.

AccorHotels said that the deal strengthened its control on Orbis and consolidated its leadership in Central Europe.

Based on preliminary results of the offer, investors in Orbis tendered 15.3 million shares for a total consideration of 1.45 billion Polish zloty (USD383.7m). The company said that it would “explore options to crystallise the value of Orbis’ asset portfolio”.

Sébastien Bazin, AccorHotels’ chairman & CEO, told analysts at AccorHotels’ capital markets day that the deal was the “continued rollout of the asset-light strategy, replicating the value creation at AccorHotels through the monetisation of assets”

Bazin said: “As its largest shareholder since 2000, AccorHotels has fully supported Orbis’ growth in Poland, then across Central Europe since 2014, where Orbis has become today a formidable leader. The proposed transaction will enable AccorHotels to accelerate its development in the region. In addition, it will enable AccorHotels to further implement its active asset management policy.”

The region has been growing in popularity with both investors and brands looking to put a pin in the map. Earlier this year Nobu Hospitality announced plans for its first hotel in Poland, to open in the first half of 2020 in a new building designed by Medusa Group and Studio PCH.

The Nobu Hotel Warsaw will be backed by local firm Tacit Investment.

Countries such as Poland have benefitted in recent years from increases in connectivity, with carriers such as easyJet and Ryanair expanding their presence in these markets.

The CEE region was expected to see investment levels exceed EUR800m by year-end 2018, according to Cushman & Wakefield, down on the previous year because of a lack of prime assets and portfolios on the market. The company said that institutional and listed investors were becoming more dominant, accounting for 74% of total transaction volume in 2017 and 54% in the first three quarters of 2018.

“Due to historical and political factors, the CEE hotels market has faced a 30-year catch-up with the West,” says Lukáš Hejduk, CMS partner & head of hotels & leisure in CEE. “This pace of change has been reflected in the rate of sector development and investment across the region. Despite investment volume contracting slightly in 2018, growth across the sector over the last five years has been remarkable, with 2019 set to be another strong year. There are still large amounts of capital looking for healthy returns – and hotels in CEE offer superior yields compared to many other regions in Europe or indeed other asset classes.”

Recent years have seen a growing variety of investors acquiring assets across the region. During the first three quarters of 2018, the overall cross-border investment accounted for 67% of total volume. However, there was a decline of investment from non-European countries, especially from Middle Eastern and Asian investors.

While private investors once dominated the market, institutional and listed investors were playing an increasingly important role in the hotel investment market, accounting for 74% of total transaction volume in 2017 and 54% in the first three quarters of 2018.

“Hotels are currently moving from alternative to mainstream investments as investors get increasingly comfortable with the CEE becoming a maturing hotel market. The share of CEE-6 markets on total hotel investment volume in Europe has more than doubled since 2010, reaching approximately 4.5% in 2017.

“However, there is still lots of room to grow, considering that the region is capturing over 8% of nights spent across the continent and has nearly 10% of hotel room stock. We should therefore see transaction volumes over EUR2bn each year. The main challenge of the region is the lack of quality and large hotel assets on the market. As price per room is exceeding pre-crisis levels and debt financing costs are increasing making us believe that yields are reaching the bottom, we should see more owners realising it is the good time to sell and harvest their investment,” said Bořivoj Vokřínek, partner, strategic advisory, head of hospitality research, EMEA at Cushman & Wakefield.

 

HA Perspective [by Katherine Doggrell]: Roll up, roll up, buy your Orbis hotels here. As we heard from Cushman & Wakefield, a lack of stock has left investors hungry and by lucky chance Orbis has been investing in renovating its estate. And there is estate to sell. Of the group’s 128 operating hotels at at the third quarter of 2018, it owned 63 of them, with the remainder leased, franchised or managed.

With almost 60% of new supply coming into the CEE region within the three to four star range of hotels, Orbis is playing in the sweet spot, and with global brands under AccorHotels.

Cushman & Wakefield said: “It is the stage of the cycle when the opportunistic and value-add investors are typically looking to sell their repositioned hotels to institutional investors with long-term holding investment strategy, seeking stable cash-flow generating assets.” So you can imagine AccorHotels’ enthusiasm. Yes it didn’t get 100% so there will be some sharing of the spoils, but 85.84% is nothing to be sniffed at.

 

Additional comment [by Andrew Sangster]: At January’s HotCo held in Budapest, the mood was remarkably more upbeat about future prospects for hospitality investments than for Western Europe or North America.

Gilles Clavie, CEO at Orbis, said the outlook in Eastern Europe was “quite positive”. A key driver was the growing wealth of consumers: this increases labour costs but helps develop stronger domestic demand.

In the panel session where Clavie was speaking, others concurred with this rosy outlook. Bohus Hlavaty, CEO, Tatry Mountain Resorts said leisure demand was growing significantly as the product quality improved. A new market for Tatry was Poland and overall he saw the region growing for at least five years.

Jelena Stirna, CEO of Baltic operator Mogotel Group, said the countries in her patch were growing and, with the exception of Tallin old town, there were still green field sites available.

Slightly less exuberant was Herbert Haselbacher, founder of luxury player WSF Group. He said that after record years he saw Prague and Zagreb weakening.

Haselbacher was also cautious about the attractiveness of the region to investors, pointing out that bureaucracy was still “difficult”. He said projects required more equity when compared to more established European cities like Vienna and Barcelona.

There was resistance to projects even in Prague; and Serbia and Hungary were a “completely different story” [to the West]. “You have to get the legal system under control, banking has to work,” said Haselbacher. “In general, there is a lot of work to be done”.

Stirna said debt financing was a problem in her area plus yields were “much higher” than in Western countries.

So, the overall feedback from the conference was of a region in solid growth but still developing its financial and legal infrastructure to enable deals to be done on the same basis as in the West.

For Poland, the biggest individual market, it has been a remarkable growth trajectory. It was the only European economy to avoid recession during the 2008 Global Financial Crisis and it continues to show robust growth.

Accor looks to be in a prime seat to benefit from this economic expansion. Its approach of strategic stake building looks to have paid off and rival global hotel majors have considerable catching up to do.

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