Why AccorHotels is spinning off its HotelInvest unit

(Novotel Madrid Center)

Europe’s biggest hotel operator, AccorHotels, has announced plans to spin off its HotelInvest property unit and plans to eventually sell a majority stake in the subsidiary. The move is expected to free up funds for the parent company to expand and improve existing properties.

“The project would enable HotelInvest to initiate a new phase of dynamic growth, by consolidating its existing asset portfolio through renovations, extensions and repositioning, expanding its network through acquisitions and hotel construction, and implementing an assertive asset turnover strategy,” the company said in a statement. HotelInvest will remain part of AccorHotels, and in a note to clients, Kepler Cheuvreux analyst Andre Juillard said that Accor may sell as much as 80 percent of the subsidiary.

AccorHotels’ assets rose to €7 billion last year from €5.5 billion in 2013, when it set up HotelInvest to buy properties, while its earnings of €973 million in the first quarter of this year accounted for about 83 percent of Accor's total earnings of €1.16 billion and about 51 percent of its total EBIT in 2015.

Goldman Sachs analysts, meanwhile, said that a valuation of about €7 billion for the new unit would equate to a enterprise value-to-EBITDA multiple of 10.6 times based on 12-month trailing figures, slightly below industry rivals Host Hotels & Resorts Inc. HST and LaSalle Hotel Properties LHO.

In a note to clients, Barclays analysts said that separating HotelInvest increases the possibility of mergers and acquisitions involving HotelInvest and HotelServices, which operates AccorHotels’s properties. “This is a particularly live issue in light of the recent stake acquisition by Jin Jiang,” the note claimed, noting that the Chinese investor owns about 15 percent of the hotelier.

AccorHotels completed the acquisition of the Fairmont, Raffles and Swissotel brands earlier this week for shares and cash from Prince Alwaleed Bin Talal’s Kingdom Holding Co., Qatar Investment Authority and Oxford Properties Group Inc. This acquisition puts Accor in a better position to compete with companies like Marriott International, which is slated to complete its merger with Starwood.