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Dec 12 (The following statement was released by the rating agency)
Fitch Ratings says the announcement by Accor
SA (BBB-/Stable) that it will separate its hotel operations and ownership
activities into two core businesses could reduce volatility of its profits and
leverage in the medium term.
The functional split could also be a precursor to the creation of the first
large hotel real estate investment trust (REIT) in Europe.
This continued development of Accor's asset-light strategy will allow it to
further refine its focus on the operational and management aspects of the
business, while clearly identifying the group's property ownership risks and
returns. From a rating perspective Fitch views this breakdown of roles as
positive, allowing each entity to concentrate on optimising different parts of
the business. In addition the asset-light strategy should ensure that Accor
generates additional free cash flow, as it moves more towards a fee-based
structure and reduces operating lease payments and capital expenditure.
Accor's new HotelServices division will be the hotel operator and brand
franchisor within the group and will be fee-oriented. The development strategy
will be based on management and franchise contracts. It will also implement a
segmented hotel strategy to strengthen the existing hotel brand portfolio. The
HotelInvest division will own and lease 1,400 hotels and will be yield-oriented.
There will be a disciplined hotel ownership strategy and this will include an
end to expansion through further new operating leases.
This business split and end to expansion by way of leases should assist in
reducing Accor group's debt burden, as Accor's Fitch-adjusted debt mainly
comprises capitalised operating leases (lease-adjusted net debt to EBITDAR of
3.6x at FYE12). Fitch treats these leases as debt-like instruments by
capitalising them at a multiple of 8x on fixed leases and 8x on turnover
contingent leases (with a haircut of 25%).
Accor has been moving from a capital-intensive development model to an
asset-light strategy, expanding mostly via franchise and management contracts in
developing markets. Fitch nevertheless sees some execution risks associated with
this strategy due to the need to find new franchisees and the difficulty of
rapidly restructuring operating leases in a subdued economic environment in
While hotel REITs are available for investors in the US and are major players in
the US hotel market, major REITs in Europe to date have concentrated on office
and retail space. A new hotel REIT encompassing well-known hotel brands such as
Mercure and Sofitel, managed by an experienced and dependable operator, could be
an attractive alternative and new outlet for international funds.