Hotel Analyst
the way out of the problem is to take a deep breath and dive deeper (while maintaining some connection with the surface). The provincial conference
business, however, looks to be in very deep water indeed. And there are no signs of the wider economy coming to its rescue. While also down in the depths
right now, the mid market Village brand probably has the best chance of surfacing soonest. Spinning off Village in a year or two would leave the De Vere Venues and De Vere four-star properties with a bit more air in their tanks to survive a bit longer.
Accor quits US economy
sector Accor has called time on its involvement in American economy hotels, selling its complete portfolio of 1,102 Motel 6 and Studio 6 budget hotels to investor Blackstone.
Described by Accor as a “key milestone” in its growth strategy, the move was welcomed by commentators, with Accor shares rising on the news. At the same time, Blackstone
has grown its directly owned and shared interests in the hotel sector to portfolios reckoned to add up to 1 million rooms, in 7,000 hotels. By cutting 107,000 rooms or 20% from its global portfolio, Accor has explained the move as one that will improve returns, and improve its asset light profile. Conversely, new owner Blackstone has plans to invest in the properties and grow Motel 6. “This deal will provide Accor with additional resources to
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address the tremendous growth potential in the Asia Pacific region, in Latin America and in Europe, where the leadership of our brands is one of the key drivers of our future growth,” said Accor CEO Denis Hennequin, announcing the deal. “Motel 6 has a model that was not suited to the group and had no synergies with our other activities.” At a stroke, Accor’s portfolio
interest in north America falls from 21% to just 1%, signalling a further step in a major push into emerging markets, and into the still relatively fragmented European market. As a result of the sale, the company’s portfolio is now oriented 64% in Europe, and 22% in Asia Pacific. The company had no expansion aspirations in the USA, so the pipeline figures remain 50% in Asia Pacific, and 27% in Europe, 13% in South America and 10% in Middle East and Africa. Hennequin has set Accor
on a path to upend its current dependence on Europe, which has been responsible for 70% of its business, with just 30% elsewhere in the world. He told the German magazine WirtschaftsWoche he wants to flip the figures to 30% Europe, 70% in emerging markets. Taking account of the latest change, and including pipeline, the figures currently stand at 56% Europe and 43% from emerging markets. The disposal has cost Accor substantially, with the company having to pay to exit the fixed leases within the Motel 6 portfolio. Despite its best efforts in the last year, when it opened 55 new franchised hotels, disposed of 41 sites and exercised call options on 60 fixed leases, still 48% of the portfolio was either owned or on fixed leases
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with just 35% franchised. Thus although the headline figure for the deal is EUR1.5bn, the net contribution to reducing Accor’s debt is just EUR330m. Fixed lease commitments will reduce by EUR525m, while Accor will take a book loss of around EUR600m, from the early buyout of fixed
leases.The company restated its 2011 results to show that had Motel 6 been disposed of earlier, the company would have delivered better numbers. In a hint of the direction
Accor is now taking, news of the deal broke on the same day the company completed its previously announced EUR195m deal to purchase the Mirvac portfolio, adding 48 hotels in Australia and New Zealand. Deutsche Bank analyst Simon Champion called Accor’s move “transformational”, adding: “It completes the group’s exit from U.S. budget hotels, which has been a drag on group earnings for two decades. The brand has a poor consumer image at present in our view, and had no synergies with the rest of the group.” “Secondly, the deal frees up
the balance sheet as Accor now gets rid of EUR92m of annual lease costs. And so this is a critical point in the group’s move to divest assets and realise this hidden value within the group’s real estate.” Meanwhile, Motel 6’s new
owners Blackstone have already given a hint of the direction its is planning for the chain. “We are excited about the opportunity to acquire Motel 6,” said Jonathan Gray, global head of real estate at Blackstone. “Although it will be operated on a stand-alone basis, similar to other lodging investments we have made on behalf of our investors, we plan to invest significant capital in the company’s properties and to
accelerate the expansion of the franchise base.” Those other
lodging
investments include interests in Hilton Worldwide, La Quinta Inns & Suites, Extended Stay America, Mint Hotels and Columbia Sussex. The holdings are substantially leveraged, with the scale of borrowings and the stress such borrowings are under was revealed with Bloomberg reporting that Blackstone refinanced of USD2.65bn of debt against the La Quinta purchase. Funds for the two year loan extension are reportedly costing Blackstone Libor plus 4.3%, compared with a previous level of Libor plus 0.8%. Motel 6 established in 1962, and was acquired by Accor in 1990, at which time the chain was 550 strong. In 1999, the company added critical mass by buying Red Roof Inns for USD1.115bn. However, eight years later in 2007 Red Roof was sold on, for USD1.3bn, to Citigroup and Westbridge Hospitality. Accor’s minimal presence in
North America now amounts to just eight US Sofitels and one in Canada. There are 10 Novotels spread thinly across the continent, with seven in Canada, one in the US and two in Mexico.
HA Perspective: Exiting Motel 6 is a brave move and the courage it has taken should not be under estimated. Reducing the size of your company by 20% is not an easy thing to do, particularly the reduction involves selling-off what many might perceive as a core part of your business, namely economy hotels. The Accor rooms portfolio goes from 535,200 rooms at March 2012 to just 427,800 restated to account for the Motel 6 exit.
While the lack of corporate ego is welcome, the disposal did
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