AccorHotels announced Monday that it is setting up a $1 billion hospitality investment fund with Qatar-based, government-owned Katara Hospitality, focused on growing the hospitality markets in various sub-Saharan African countries.

The investment will focus on new projects and on hotel conversions, with the expectation of ultimately investing in 40 hotels, or 9,000 rooms, throughout the region, ranging from economy to luxury hotels.

The fund amounts to $500 million in equity initially. Over the next five to seven years, Katara is expected to contribute $350 million and AccorHotels will contribute $150 million. The additional $500 million is expected to be financed with debt and co-investments.

Katara owns and operates a number of hotels worldwide, including some iconic properties that are part of AccorHotels’ own portfolio of branded hotels. They include New York’s Plaza Hotel, The Savoy in London, Le Royal Monceau – Raffles Paris, and Raffles Hotel Singapore.

Becoming the Market Leader in Africa

AccorHotels has been very transparent about its pursuit of growth in Africa. Earlier this year, the company announced it would buy a 50-percent stake in South Africa’s Mantis Group.

Most recently, at the Skift Forum Europe in Berlin this April, AccorHotels CEO and Chairman Sebastien Bazin spoke about his desire to make Accor a leader in the region.

“I will never be the largest operator in China because it is dominated by two or three big guys,” said Bazin. “But I will never let the door open to anybody else to be the largest operator in Europe, South America, Africa, Middle East, or the Asia Pacific because [we are the largest operator today]. When you have leadership someplace and a chance to accelerate your leadership, [and the chance] to penetrate a market deeper, just do it. When you control the market, you have a much better interaction with the digital space.”

Asset Heavy Versus Asset Light

However, as Richard Clarke, Bernstein senior analyst for European hotels and leisure, noted: This investment seems to contradict the company’s asset-light strategy of owning very little real estate — a strategy also adopted by AccorHotels’ peers such as Marriott and Hilton. Earlier this year, AccorHotels completed a spin-off of its real estate arm in an effort to pursue a more asset-light strategy.

“This is the third asset-heavy transaction since the split of AccorInvest,” Clarke wrote. He noted, “Accor also recently bought a 20 percent stake in Atton Hotels portfolio in Latin America in May, and SBE Entertainment, in which Accor owns 50 percent, owns a handful of its hotels.” He continued, “Assuming a 10 percent return on investment (unlevered) on the new fund and including its remaining stake in AccorInvest, we estimate that Accor will get approximately 30 percent of its income from asset ownership, far higher than its asset-light peers [such as] IHG, Hilton, etc.”

While it’s not uncommon for asset-light hotel companies to make investments like this one, Clarke also wondered if this decision to invest in hard assets is driven by the fact that AccorHotels’ global hotel pipeline, as a percentage of its current hotel supply, lags its peers such as Hilton and Marriott.

“Accor therefore may feel the need to provide capital to support the growth of its brands rather than relying 100-percent on third-party capital,” Clarke wrote.

In a press statement about the investment fund, Bazin said, “I am thrilled to announce this key alliance with our outstanding business partner Katara Hospitality. Having been present for over 40 years in Africa, we also know that there are increasing and sizable needs for quality hospitality. Through this fund, we will match the expertise of Katara Hospitality together with AccorHotels’ world leading brand portfolio to accelerate our dynamic growth trajectory in the Sub-Saharan region. Above all, by this initiative we demonstrate our shared intention to support sustainable development over the long-term on this continent”.

Photo Credit: The view from the Fairmont Mount Kenya, which is currently part of AccorHotels' portfolio in Africa. AccorHotels, along with Qatar's Katara Hospitality, are investing $1 billion in hotels throughout sub-Saharan Africa over the next five to seven years. AccorHotels