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Accor’s Budget Brands Sale ‘transformational’

Offloading the economy brands allows Accor to exit the U.S. economy-hotel business and frees up space on the company’s balance sheet.

PARIS—Accor has taken another step in the evolution of its hotel portfolio via the sale of its North American Motel 6 and Studio 6 brands to a Blackstone Group affiliate for $1.9 billion.

The 1,102 hotels, acquired by an affiliate of Blackstone Real Estate Partners VII, comprise 107,347 rooms in the United States and Canada.

“I am delighted by the transaction signed with Blackstone, which ensures the future of Motel 6 and its teams in North America, where we will remain present with luxury and upscale flagships under the Sofitel and Novotel brands,” Accor Chairman and CEO Denis Hennequin said in a news release. “This deal will provide Accor with additional resources to address the tremendous growth potential in the Asia Pacific region, in Latin America and in Europe, where the leadership of our brands is one of the key drivers of our future growth.”

Messages left with executives at Blackstone and Accor were not returned prior to deadline.

A Reuters report said the deal is the biggest in the U.S. hotel industry since the $3.93-billion acquisition of Extended Stay America in 2010, which also included Blackstone.

Blackstone is already an industry heavyweight, and owns several hotel brands, including: Hilton Worldwide, La Quinta Inns & Suites, Extended Stay America and Mint Hotels. As of November 2010, it was reported the company owned, managed, franchised, leased or had joint-venture interest in 5,950 hotels with 892,608 rooms.

“We are excited about the opportunity to acquire Motel 6 and we look forward to working with its employees and franchisees,” Jonathan Gray, global head of real estate at Blackstone, said in a news release. “Although Motel 6 will be operated on a stand-alone basis, similar to other lodging investments we have made on behalf of our investors, we plan to invest significant capital in the company’s properties and to accelerate the expansion of the franchise base.”

A ‘transformational’ deal
In a research note, Deutsche Bank analyst Simon Champion said Accor will need to buy out “a large number” of Motel 6 leases for $1.4 billion. After deducting sales costs, net proceeds from the deal are expected to work out to €330 million ($420.9 million.) The sales price is in line with expectations, Champion said.

Accor said it will use proceeds to reduce debt fixed-lease commitments. The company will record an exceptional non-cash loss of €600 million ($765.52 million).

The sale is “transformational” for Accor for two reasons, Champion said.

“It completes the (group’s) exit from U.S. budget hotels, which has been a drag on group earnings for two decades,” he said. “The brand has a poor consumer image at present in our view, and had no synergies with the rest of the group.”

“Secondly, the deal frees up the balance sheet as Accor now gets rid of the (€92 million, or $117.47 million) of annual lease costs,” he continued. “And so this is a critical point in the group’s move to divest assets and realize this hidden value within the group’s real estate.”

Future of the brands
In September, Accor announced its focus would turn to expanding the Ibis brand. Later that month, Jim Amorosia became CEO of Accor NA with the departure of Olivier Poirot.

At the time, some questions were raised about the future of Motel 6 and Studio 6. Amorosia late last year was quick to point out his continued commitment—he had  served as COO for the brands since 2004—to moving forward with renovations throughout the portfolio.

 “We’re absolutely committed to the growth of the brand,” he said in September. “And we’ve accelerated our goal of asset light. I’m certainly committed to the plans and the expectations of me from Accor.”

The plan for Accor moving forward was to grow Motel 6 and Studio 6 by way of a true franchising model and led mostly by conversions. There were a handful of new-build locations, but the brand’s Phoenix Prototype was installed mostly at times when product-improvement-plans were due.

HotelNewsNow.com’s Jason Q. Freed contributed to this report.