Colony Capital-backed hotel owner Accor has sold 158 budget hotels in a €272 million sale-leaseback deal in an effort to slash its debt load, the hospitality company said today.
Accor said the deal would allow the firm to cut its debt by €187 million this year, €130 million of which had been added to cash reserves. Accor sold the hotels to a consortium of French institutional investors through a property investment trust.
In a difficult economic environment, the transaction confirms the renewed interest of investors for hotel real estate, and particularly for the low-cost segment.
Under the terms of the transaction will lease the properties back over a 12-year period, which Accor can renew up to six times. Accor will pay a variable rent based on 20 percent of revenues, equivalent to €21.3 million based on 2008 revenues.
“In a difficult economic environment, the transaction confirms the renewed interest of investors for hotel real estate, and particularly for the low-cost segment,” Accor said.
In May last year, Colony and Paris-based private equity firm Eurazeo increased their stake in the hotel owner to 30 percent just as the company planned a massive expansion of its business.
Colony increased its stake to 20 percent from nine percent, while Eurazeo planned to increase its stake to 10 percent over the course of 2008.
At the time, Accor planned to expand its hotel platform from almost 500,000 rooms to up to 700,000 by 2010, with 22 percent focused in Asia, 41 percent in Europe and 20 percent in North and Latin America. It currently operates the luxury hotel chain Sofitel, the upscale Novotel and Pullman brands and the economy Ibis hotel group.
Since the credit crisis though, Colony and Eurazeo’s investment has been hit. In December, listed-Eurazeo said it had injected another €200 million Accor, after its share price lost a third of its value. At the time Eurazeo’s chairman Patrick Sayer said: “Although this fall prompted us to protect our investment by temporarily injecting €200 million as collateral, the fact remains that the company has shown enormous resilience.”
In February, Accor’s chairman Serge Weinberg and five other directors left the company after reportedly clashing with Colony and Eurazeo. During Eurazeo’s first quarter presentation in March though, Accor’s chief financial officer Jacques Stern said: “We didn’t invest in Accor, and neither did Colony, to mishandle the group. That’s not our objective, let’s get rid of that fallacy. We are not investing to break up and dismantle the group.”
He added the two private equity firms had five-year investment plans for the hotel chain, adding: “We hope at the end of the five-year period, we hope the markets to be very much better than they are now.” Colony first invested in Accor in March 2005.