S&P base-case operating scenario
Accor's 2012 results should primarily be driven by asset disposals. We anticipate a decline in reported revenues close to 10%, pro forma of the sale of Motel 6. On a like-for-like basis, we forecast a low single-digit growth rate driven by emerging markets and rising management and franchise fees. In our view, revenue per available room (RevPAR) should remain broadly flat in Europe, as northern Europe should offset the poor performance of peripheral countries, while France should remain broadly stable. We forecast a 10 basis points (bps) erosion of the reported EBITDA margin, with a 30bps decline of the up and midscale division and a 20bps increase in the economy segment.
Visibility remains limited for 2013. We anticipate a low-single digit decline in reported revenues, as hotel disposals will more than offset the contribution of previous acquisitions and new room openings. We assume that the EBITDA margin will remain broadly flat, supported by an increasing proportion of rooms operated under franchise and management contracts as well as cost cutting measures.
S&P base-case cash flow and capital-structure scenario
We believe that asset disposals should enable the company to reach an adjusted FFO-to-debt ratio above 25% in 2012. The sale of Motel 6 should reduce reported debt by about EUR330 million, and discounted lease payments by roughly EUR530 million. This adds to the contribution of hotel disposals under the group's "Asset Light" program, which should reduce adjusted debt by about EUR500 million, according to our forecasts. Financial flexibility is limited, in our view, given that a significant part of these proceeds has been invested in acquisitions, notably the South American hotel portfolio of the Mexican hotel company Grupo Posadas for $275 million, and the Australian hotel management company Mirvac for EUR167 million. For 2013, we anticipate that Accor will use any room for maneuver to finance capital expenditure (capex), bolt-on acquisitions, and shareholder remuneration, in line with its stated financial policy.
Reported FOCF generation should remain limited. We forecast that Accor will generate less than EUR100 million of reported FOCF in 2012 owing to a reduced consolidation scope, rising working capital, and increasing capex relative to revenues. For 2013, we anticipate FOCF generation of EUR110 million, assuming a stabilization of working capital.
The short-term credit rating is 'A-3'. We assess Accor's liquidity as "strong," according to our criteria, as we expect liquidity sources to cover funding needs by more than 1.5x over the next 12 months.
On June 30, 2012, we calculated liquidity sources of about EUR4.2 billion over the next 12 months, including:
-- EUR1.3 billion of cash and cash equivalents;
-- EUR1.7 billion of undrawn credit facilities, of which EUR1.5 billion mature in 2016;
-- About EUR0.6 billion of FFO forecast over the next 12 months; and
-- EUR0.6 billion of announced asset sales, of which EUR0.3 billion of net proceeds coming from the sale of Motel 6.
This compares with liquidity needs of about EUR1.4 billion for the same period, comprising:
-- EUR0.5 billion of short-term debt;
-- About EUR0.5 billion of capex;
-- About EUR0.2 billion of acquisitions; and
-- EUR0.2 billion of dividends.
The EUR1.5 billion credit facility maturing in 2016 is subject to a leverage ratio covenant (consolidated net debt to consolidated EBITDA). There was comfortable headroom at year-end 2011.
The stable outlook reflects our view that Accor will use some of the proceeds from asset disposals to strengthen its financial metrics in 2012 to push its adjusted FFO-to-debt ratio beyond 25% and maintain its adjusted debt-to-EBITDA ratio below 3.5x. We also assume that the erosion of the group's EBITDA margin will remain moderate.
We might lower the rating if we considered that unexpected operating setbacks caused by macroeconomic deterioration or a loosening financial policy made the company unable to maintain its debt-to-EBITDA ratio below 3.5x and raise its ratio of FFO to debt above 25%. We might consider a positive rating action if Accor's ratio of adjusted FFO to debt exceeded 30%, if adjusted debt to EBITDA fell below 3x, and if the company improved its FOCF generation. Such an outcome appears unlikely at the moment given the company's more acquisitive financial policy.
Related Criteria And Research
-- Principles Of Corporate And Government Ratings, June 26, 2007
-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, May 27, 2009
-- Methodology And Assumptions: Standard & Poor's Standardizes Liquidity Descriptors For Global Corporate Issuers, July 2, 2010
-- Key Credit Factors: Methodology And Assumptions On Risks In The Hotel And Lodging Industry, Aug. 11, 2009