AccorHotels has cemented its grip on the UAE’s luxury hotel segment after it acquired FRHI Holdings, the owner of the Fairmont, Raffles and Swissôtel chains.
FRHI’s investors include the Qatar Investment Authority, Saudi Arabian Prince Alwaleed bin Talal’s Kingdom Holding and Canada’s Oxford Properties.
The US$2.9 billion deal gives the Paris-listed Accor the right to operate 17 luxury hotels in Africa and the Middle East, including the pyramid-shaped 252-room Raffles Dubai at Wafi City, the 394-room Fairmont Dubai on Sheikh Zayed Road, the 381-room Fairmont The Palm on the Palm Jumeirah and the 369-room Fairmont Bab Al Bahr in Abu Dhabi.
It has also acquired an operating lease on the under-construction 280-room Swissotel Dubai, which is being developed by Aabar in the Jadaf district and is expected to open in 2018.
Globally, Toronto-based FRHI operates hotels including Raffles Singapore, The Savoy in London, Shanghai’s Fairmont Peace Hotel and The Plaza Hotel in New York. It has 155 hotels and resorts – of which 40 are under development – and more than 56,000 rooms.
The deal comes as major hotel companies are chasing scale, and occupancy in luxury hotels. Last month Marriott International bought Starwood Hotels and Resorts in a $12.2bn deal.
It also comes as Dubai’s luxury hotels are looking for all the extra marketing help they can get as room rates and occupancy levels stagnate.
Accor is known for its luxury hotel brands Sofitel, Pullman, Grand Mercure; midscale brands Novotel, Mercure and Adagio; and economy brands ibis, ibis Styles, ibis Budget, Adagio Access and hotelF1.
Accor will add the new properties to its existing portfolio of 76 hotels in the Middle East and 49 hotels under development.
These include the 543-room room Sofitel Dubai The Palm resort and spa, along with six mid-range hotels in Dubai alone.
Accor said that the acquisition would position the company further into the lucrative luxury sector, which has grown faster than the overall market in recent years and where margins are higher.
“This is an outstanding opportunity to add three prestigious brands – Fairmont, Raffles and Swissôtel – to our portfolio, and a great step forward for AccorHotels,” said Sébastien Bazin, the chairman and chief executive of AccorHotels. “It offers us robust and global leadership in luxury hotels, a key segment in terms of geographic reach, growth potential and profitability, for long-term value creation.”
Under the deal, Accor will pay QIA and Kingdom Holding US$840 million in cash and issue them 46.7 million Accor shares, leaving QIA with a 10.5 per cent stake in Accor and Kingdom Holding with a 5.8 per cent holding.
As part of the transaction, QIA will have two seats on Accor’s board, while Kingdom Holding will take another.
With its new portfolio including nearly 500 luxury and upscale properties, Accor said that it aims to generate about €65m (Dh261m) in revenue and cost synergies around the world because of the deal thanks to the combination of brands, the maximisation of hotel earnings, the increased efficiency of marketing and sales costs.
“This deal is likely to mean more visibility for the UAE’s top hotels,” said Filippo Sona, head of hotels and hospitality for the Mena region at Colliers International. “There are fewer than 20 Raffles hotels worldwide and only perhaps 50 or 60 Fairmonts. After the acquisition, these hotels will be part of a much larger network, which provides a platform from which they can attract guests from all around the world in the luxury segment.”
The research company STR Global in September predicted that hotel room rates in Dubai would stabilise next year and remain steady for the next three years as tourists become more budget-conscious and new supply enters the market.
Since 2006 the supply of hotels has increased – and so has demand.
In 2020, Dubai is expected to have 107,905 hotel rooms, up from 29,041 rooms in 2000, according to STR Global.
But economic slowdowns in Europe, China and other emerging markets are expected to curb the spending power of tourists.
The average daily room rate in Dubai last year was $241, the third-highest in the world after Paris and New York, with an occupancy rate of 78.5 per cent.