www.Buy2Greece.com – France’s decline pushes owners to foreign markets

PARIS—French hotel owners are increasingly looking to expand their global footprints as their home country persists through a depressed economy and as Paris hotel demand sits below levels seen before the November terrorist attacks.

France and Europe’s largest hotel company—Paris-based AccorHotels—remains on the hunt to acquire global properties. However, John Ozinga, COO of AccorHotels’ HotelInvest ownership and investment division, said the company will focus on selling rather than buying in 2016. It’s a different strategy from 2014, when AccorHotels bought portfolios of properties in Germany, The Netherlands, the United Kingdom and an 11-hotel portfolio from AXA Investment Managers in Switzerland. (Also, in December 2015, AccorHotels inked a deal to purchase FRHI Holdings.)

“We remain focused on all of Europe, and it depends on where the opportunities are. … The advantages of doing portfolios are that they allow us to accelerate the process and create value for the group,” Ozinga said. “Add to that (capital expenditure) and it is a virtuous circle that improves operating margins.

“From a real-estate point of view, we are not worried. Economies are different in different countries (in Europe), and a wide footprint allows us to have the correct exposure and demand base.”

Philippe Doizelet, managing partner of business consultancy Horwath HTL, said decreasing exposure in France makes sense for French owners, mostly because the French real-estate market has changed fundamentally due to pressures on the economy.

Doizelet said that for a long time revenue per available room in France was heavily correlated to gross domestic product at current values.

“It was an obvious correlation, but since the global financial crisis, France experienced a drop in RevPAR that never recovered to that level. The market is influenced by external factors rather than internal ones,” he said. “Inside France, the market is very contrasted. Now the external market is the catalyst for RevPAR. Overall, the French market is upside down.”

According to STR, parent company of Hotel News Now, the Paris hotel market has seen mostly negative performance from November 2015 to April 2016 in year-over-year figures.

Occupancy has declined over the previous year during each of the six months, according to the data. In December 2015, Paris’ occupancy dropped 19.5% to 59.7%. In April 2016, occupancy fell 15.1% to 67.3%.

RevPAR saw similar declines, as the metric decreased by an average of 12.4% during the six-month period, including a drop of 22.3% to €136.76 ($155.82) in April. Average daily rate saw growth in November and December but decreased during each of the first four months in 2016. The largest decline in the six-month period happened in April, when ADR fell 8.4% to €203.30 ($231.63).

The right opportunities still exist
Recent accounting practice changes in France have altered the landscape, Doizelet said. He said in the 2000s AccorHotels had recurrent deals with French bank Societe Generale, but at some point this was challenged by accounting practices, as it was all debt.

“In 2004, AccorHotels did its first deal with Foncière des Régions, for 104 hotels, deals based on 100% variable leases, so that there was no predefined type of debt or financial commitment and part of the revenue was pre-empted,” Doizelet said.

Doizelet said he saw Foncière des Régions’ strategy over recent years adapt to lessen its exposure both in France and with AccorHotels.

Although French ownership companies are considering acquisitions and transactions outside of France, there are still deals to be made within the country.

In January, AccorHotels announced a €504-million ($574 million) deal to spin off 85 properties—61 of which are in France—in a new joint venture with Paris-based Eurazeo, which owns 70% of the portfolio. Of the 85 hotels, AccorHotels owned 28, while 57 were owned by Paris-based Foncière des Régions and AXA.

In May, Foncière des Régions acquired two portfolios via subsidiary FDM Management worth €936 million ($1.07 billion). The transaction included nine German properties that will be managed by Event Hotels and an additional nine, mostly independent properties in France and Belgium that will be managed by FDM.

Dominique Ozanne, CEO of hotels and hospitality management at FDM Management, said Foncière des Régions will operate a portfolio worth €19 billion ($21.7 billion) after these acquisitions, which he said was “a fantastic growth story considering the business was created in 2001 with a €100-million ($114-million) total portfolio.”

Regarding real estate
On the real-estate side of the ownership-operations equation, values remain strong in France and have picked up in 2016.

“Values are higher as there is confidence in the hotel market, and there are lots of players trying to get in,” Doizelet said.

Ozanne said that hotel ownership remains among the four strategic pillars of the company, the others beings French and Italian office and German residential ownership.

“To address hotel operators’ needs, we have two main ways to invest: buying rental properties via FDM, one of our vehicles; and buying hotels, which combines the real-estate and operations businesses and which is for another, FDM Management,” he said. “Both these vehicles focus on Europe … and both have different equity partners, alongside the Foncière des Régions group.”

Ozanne said Europe could continue to improve, and the continent’s hotels will rebound.

“On the real-estate investment side, we are not at the bottom of the cycle due to low interest rates and the returns that the real-estate asset class can deliver,” Ozanne said. “These two points are why we have to focus on quality and operating excellence. Foncière des Régions has ambitions to grow its four strategic pillars. It is listed and a long-term player. Demand remains from hotel customers, and supply needs to adapt to new clients’ needs, so we think that there is a strong case to continue to grow our hotel business.”

Doizelet said that with both AccorHotels and Foncière des Régions at the helm of French ownership initiatives, the outlook is good for French hotel owners, even if the domestic economics of the country might occasionally shake domestic hotel performance. He added it is prudent for hotel owners to spread risk across both geographies and hotel flags.

“It is wise to diversify, and it is a wise way in which to control the market, to have it owned by owners, not operators,” Doizelet said. “It is a clever way of protecting assets.”

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