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May 28 (The following statement was released by the rating agency)
Fitch Ratings says Accor SA's (BBB-/Stable) announcement that it has agreed to purchase two hotel portfolios for around EUR900m is in line with the group's recently announced redefined business model and hotel ownership strategy. Although leverage will initially rise, it will nevertheless remain within acceptable parameters for the 'BBB-' IDR.
Under its new strategy announced in November 2013, Accor has set a value-oriented disciplined hotel ownership strategy, which includes an end to expansion through leases and no further disposals of hotels, unless they are structurally underperforming assets.
In purchasing the Moor Park Fund portfolios for EUR722m, Accor is acquiring hotel assets already operated and leased by the Accor group under various brand names, but is replacing more expensive variable-cost lease liabilities with cheaper debt financing. Although leverage will initially rise from the current lease-adjusted net debt/ EBITDAR of 3.6x at end-2013 to an estimated 3.9x, the group's fixed charge coverage will slightly improve.
Under the redefined business model, which splits the group into two distinct entities with their own targets, the HotelInvest division owns and leases 1,400 hotels and is yield-oriented. There is a disciplined hotel ownership strategy and this includes an end to expansion through further new operating leases which should assist in reducing Accor group's lease-adjusted debt burden.
HotelInvest's owned hotels account for 50% of this division's net operating income and the objective to raise this to over 75% will be assisted by the Moor Park acquisition.
Accor's HotelServices division is the hotel operator and brand franchisor within the group and is fee-oriented. Its development strategy is based on management and franchise contracts. It also implements a segmented hotel strategy to strengthen the existing hotel brand portfolio.
From a rating perspective, this new hotel "twin track" strategy should ensure that Accor generates additional free cash flow in the medium term, as it moves more towards a fee-based structure and reduces expensive variable-lease payments.