French hotel group Accor has completed a swathe of disposals, shifting its structure to an asset-light hotel group – and opening the way for further bolt-on acquisitions.
A disposal of the assets of Polish group Orbis to AccorInvest, and a sale and manageback agreement covering 16 Movenpick hotels in Germany, Switzerland and the Netherlands, completes a raft of transactions.
“Accor has now become a fully asset light group,” declared CEO Sebastien Bazin. “By combining a two-year EUR1bn shareholder return programme with the pursuit of a targeted acquisition strategy, the group demonstrates the strength of its new model and its ability to rigorously execute its strategic roadmap. We are now focused on the organic growth of our portfolio, the strengthening of our leadership in our key markets, the attractiveness of our brands for our customers and our owners and an unwavering commitment to promoting our values and a distinctive vision of hospitality.”
A total of EUR1bn will be returned to shareholders, the group has promised, over the next two years. Of that, around EUR300m will be spent buying back shares – something Accor has already spent EUR850m doing, over the last 18 months.
The Polish deal saw EUR1.06bn paid by AccorInvest for the assets of Orbis, which had built a portfolio of Accor branded properties in eastern Europe, based around Poland. The management business will stay with Accor. And the Movenpick leases were sold to German fund HR Group – with Accor signing 20-year management agreements covering the properties.
Recently, Accor halved its stake held in Chinese hotel group Huazhu, leaving it with a 5% holding in its Chinese expansion partner. The move followed the EUR204m disposal of a further 5.2% stake in AccorInvest, and a refinancing that leaves the group ready to resume its acquisition programme, should it wish.
The December disposal of the Huazhu shares bagged Accor a 4.5 times profit on the USD451m sale. The announcement follows news that Huazhu has acquired Deutsche Hospitality, aligning it for growth with a fresh stable of brands, both inside and outside China.
A month earlier, the group disposed of a further 5.2% stake in its AccorInvest property vehicle, realising EUR204m. The transaction, which saw the shares transfer to its partners, drops Accor’s shareholding to 30%, a threshold it cannot breach before May 2023, under a lock-in agreement made in 2018. The deal was at a price representing a 12.4% value uplift on the portfolio, compared with the initial sale in May 2018.
During October, the group also tidied up its maturing bond issues. A fresh issue of EUR500m of perpetual hybrid bonds with a 2.625% coupon was launched, with the proceeds reimbursing its existing hybrid bond with a first call date in June 2020. The issue was six times oversubscribed.
“Accor and Huazhu will continue to develop their successful partnership and growth dynamic initiated four years ago, which has enabled the openings of 200 economy and midscale hotels in China, mainly under the ibis, Novotel and Mercure brands,” said the company in a prepared statement. “An additional 250 properties in the pipeline are scheduled to open over the next 3 years.”
The 2018 sale of the AccorInvest stake brought in a mix of property investment partners: sovereign wealth funds Public Investment Fund (PIF) and GIC, institutional investors Colony NorthStar, Crédit Agricole Assurances and Amundi, and other private investors. Between them, they agreed to pay EUR4.6bn for 57.8% of the AccorInvest portfolio.
The moves to tidy up holdings and reduce debts come after a period of drawing breath for Accor, which for a while went on a lively acquisition spree, buying a mix of businesses across the digital, and broader hospitality space. It faced some investor criticism for the spread of those acquisitions, with some of the investments having to be subsequently written off.
At the same time, the group has spent the last few months building momentum with new signings across its stable of brands, augmented by acquisitions over the previous three years. Australian group Mantra, bought for AUD1.2bn in 2018 followed the USD2.7bn purchase of the Fairmont Raffles group in 2016. The last six months has seen Fairmont signings in Prague and Windsor, Swissotel adding a rebrand in Bern, and new Raffles hotels in China and the Maldives.
The group has also been working on its rebranded loyalty programme, as well as refreshing its Ibis brand, and launching into the co-working space alongside French construction group Bouygues.
HA Perspective [by Chris Bown]: The end of a journey? Not quite – there’s the small matter of a holding in AccorInvest, which the group is duty bound to hold onto, until 2023. But, substantially, Accor has disposed of its property assets, putting its structure much more in line with Hilton and IHG. Bazin will doubtless be hoping for a re-rating of the shares, as a result.
But that’s probably where the similarity ends. Under Bazin, Accor has shown it is prepared to invest in some left field and future tech ideas, and be prepared for some of those to fail. It’s yet to hit the big time, but you never know…..
Meantime, there’s plenty of financial headroom now, to launch another bid or two, in order to grow the stable of brands. Who’s next?
Additional comment [by Andrew Sangster]: This then is the emergence of Accor as a true asset-light player. It also marks the end of Accor’s acquisition spree, with the buyback signifying a recognition that investors would prefer to see money returned than spent.
All the global majors now have a similar look and feel (the other three of the big four being Marriott, Hilton and IHG). The key differences in Accor’s case being focus on management and strength outside of the US. What is the same is the focus on fee income via management contracts or franchising, ownership and leasing are off the agenda in all but exceptional cases.
We have written before in Hotel Analyst about Accor’s preference for management rather than franchising and how it is something of a defensive moat. But it is also worth noting that Accor’s Ibis brand is the market leader in around 60 countries. And Accor’s strength in emerging markets is significant compared to its rivals.
Where Accor is weak is in its lack of North American exposure and its loyalty programme. On the latter, it has high hopes for Accor Live Limitless. Right now, it lags rivals in terms of membership and proportion of room nights booked through the scheme.
But it is aggressively attempting to make ALL a part of consumers’ everyday life through deals with partners. It this week announced an extension to its partnership with AEG, the sports and music venue business. This will give the 57 million ALL members access to more live music experiences on which points can be spent.