Accor is investing $300 million into getting full control of SBE’s hotel brands while forming a new combined entity with Hoxton owner Ennismore to become the largest player globally in lifestyle hotels.
*3 p.m. ET, 25 November 2020: This story has been updated to include context on the sale of two hotels in the SBE portfolio to Cain International.
GLOBAL REPORT—Accor is expanding its lifestyle division with the creation of a combined entity with Hoxton owner Ennismore and the $300 million acquisition of SBE founder Sam Nazarian’s remaining stake in that company’s hotel brands, Delano, Mondrian, SLS and Hyde.
The new, combined company, which was announced Tuesday and will retain the Ennismore identity, will be led by the tandem of Ennismore founder Sharan Pasricha and Accor’s Gaurav Bhushan, who will both assume the title of co-CEO for the new division.
The deal with Ennismore was all stock with no specific value announced. The SBE buyout was valued at $300 million and comes in the form of Accor assuming debt. Nazarian retains full control of the Disruptive Restaurant Group, which includes what was SBE’s restaurants and nightlife brands, and increased ownership in digital kitchens and food halls business C3.
Accor now has 12 lifestyle brands with 73 hotels in operation and another 110 in the pipeline for its new division, according to a news release from the company. Its brands include The Hoxton, Gleneagles, Delano, SLS, Mondrian, SO/, Hyde, Mama Shelter, 25h, 21c Museum Hotels, TRIBE, JO&JOE and WorkingFrom.
In the news release announcing the creation of the combined lifestyle entity, Accor CEO and Chairman Sébastien Bazin said the moves will “take our lifestyle ambition to a new and exciting level.”
“With this combination, we are leading the hospitality industry by creating the largest and fastest growing ecosystem of world-class brands,” he said. “Lifestyle is a sector fueled by passionate and daring entrepreneurs, constantly pushing the boundaries of a reinvented vision of travelling the world. I am proud Accor has been able to join forces with many of the most creative and talented ones.”
Pasricha said this move will help the company expand The Hoxton and Gleneagles brands globally.
“This exciting autonomous entity with Accor—one with culture and brand purpose at its heart—allows us to come together to build on our combined portfolio of unique lifestyle brands, accelerate our growth and explore new markets,” he said. “I look forward to working with Gaurav and Sébastien on this exciting next chapter as we become an unrivalled player in the hospitality industry.”
Accor officials also noted a leaner management structure as a benefit.
The creation of the “combined entity” is not finalized, but the two sides are in “exclusive negotiations,” according to the release.
In a note to clients, analysts from Bernstein praised Accor’s efforts to simplify its business, which include plans to buy out joint venture partners for the 25h and Mama Shelter brands, and selling the assets associated with the SBE brands—the 878-key Hudson Hotel in New York and the 191-key Delano South Beach in Miami—to Eldridge’s real estate investment arm Cain International.
Eldridge, through its real estate investment arm Cain Investment, previously partnered with SBE to buy the Hudson Hotel and the Delano South Beach in 2017. That deal was financed via a commercial mortgage backed security loan that was set to mature in February and ultimately was paid off in March, according to Intex Solutions.
Cain acquired a 50% ownership stake in SBE in 2016 with Yucaipa Companies, founded by self-made billionaire Ron Burkle, who co-owns the NHL’s Pittsburgh Penguins. Cain and Yucaipa sold their stake to Accor in 2018. Cain and Eldridge were founded by billionaire Todd Boehly, part owner of the Major League Baseball’s Los Angeles Dodgers.
“This is a great first step,” wrote analysts Richard Clarke, Harry Martin and Pranavi Agarwal. “The next steps are likely the sale of the Mantra property portfolio in Australia, the sale of the AccorInvest stake—both likely a few years away—and any actions on remaining minority assets.”
Bruno de La Rochebrochard, equity analyst with Bryan, Garnier & Co., wrote that the move to take full ownership of the SBE brands “undeniably consolidates the group’s offer” but “sounds particularly expensive” based on SBE’s 2019 revenue figures.
He was more bullish on the Ennismore side of restructuring.
“This merger, which will be carried out through an all-share merger, undeniably represents an opportunity to acquire a real international dimension in this segment—today the lifestyle segment generates 5% of Accor’s fees and represent over 25% of the pipeline,” he wrote.
Yi Zhong, equity research analyst for AlphaValue, said there is reason for optimism from the moves.
“Accor should be able to benefit from its meaningful expansion in lifestyle, one of the fastest-growing segments of the industry, as well as the relating alleviation in its net debt position, since the hotel giant is always seeking to streamline/simplify its investment portfolio,” she said.
In a note to investors, Deutsche Bank research analyst André Juillard wrote that the firm is bullish both on Accor’s moves and lifestyle as a growth segment for the hotel industry.
“Lifestyle is one of the most dynamic segments in the hotel industry,” Juillard wrote. “With these two deals Accor becomes the world leader in this segment, and the pipeline demonstrates how attractive these brands can be. The profitability of such brands is also traditionally higher than the regular hotels, but the duration of a concept can also be shorter and needs to be managed carefully to keep its attractiveness intact as well as its originality.”
Accor and SBE first got into business together in 2018, roughly nine years after Nazarian opened his first hotel—the SLS in Beverly Hills. SBE has 22 properties in operations, and the pipeline of properties doubled to 40 from 2018 to 2020.
In a news release from C3, Nazarian noted he will remain a “special advisor” to Accor and is confident this is the right step for the growth of the hotel business.
“Ever since I established my partnership and sincere friendship with my mentor Sébastien Bazin, I also knew that there would be no one better, along with the amazing Accor global family, to take what we have built at SBE hotels into the next stratosphere,” he said.
Richard Lawson, with CoStar News, contributed to this article. CoStar Group is the parent company of STR, and HNN is a division of STR. This story has been edited to HNN style and to add additional information.