COURBET

Since February 26, 2022, Mr. Jean-François Ott has been the CEO of Courbet. Mr. Ott is a renowned real estate professional who has created, developed and supported the deployment of projects and assets in Europe over the last thirty years worth several billion euros, particularly in the hotel sector but also in residential and office space. He is also in investor in several listed companies.
As an investor and entrepreneur, Mr. Ott has demonstrated real know-how in identifying development assets whose values have since been multiplied by sometimes 5x or even 20x (Prague, Berlin, Hvar, Austin) due to particularly low acquisition prices (€150-300 per sqm in Berlin and Prague in the 1990s, for example). Under the impetus of Mr. Ott, the objective pursued by Courbet will be similar: to identify, acquire and hold neglected assets over the long term, which are by nature inexpensive, benefiting from favourable market developments which will significantly increase their economic value. Well beyond the traditional operational leverage (capitalisation of the repayment of bank debts, EBITDAR of the accommodation, etc.), Courbet’s attractiveness therefore lies in the revaluation of its assets and their accumulation. One of the advantages of this strategy is the ability to acquire assets at a discounted unit price in a “cherry picking” format which, when regrouped, will benefit from a higher portfolio value (in blocks). The market value of the property portfolio is likely to exceed €100m in the coming years. The acceleration of growth (beyond the projects already announced) seems to us to be in line with the market timing: we share Mr Ott’s view that the changing economic situation (interest rates, inflation, changing consumer behaviour) will create plenty of buying opportunities. Unlike many players who accumulated expensive assets in the upward phase of the cycle and are now heavily indebted, Courbet is going to grow its assets significantly in a more favourable phase of the cycle.

Courbet, founded in 1955, has long been listed on Euronext Access (unregulated market, formerly the Marché Libre). The company has been an empty shell for over ten years, with no significant operational activity, the last remaining stake having been sold in August 2021. As at 30 June 2021, the balance sheet total was €0.1m. The Board of Directors of Courbet was reorganised in 2021. In addition to the CEO, it includes two members close to the OTT group. This governance reorganisation was a prerequisite for the use of Courbet as a vehicle to aggregate real estate assets to be repositioned in France.
In June 2022 Courbet announced the acquisition of a first real estate complex of more than 8,000m² in La Bourboule (France) from the OTT group, which holds 95% of Courbet’s capital via OTT HERITAGE.

In September 2022, Courbet announced the acquisition of a second asset in Cannes (France), i.e. a 100-room hotel. This asset changed hands in H2 22 in consideration for the creation of 3m shares issued at €1.20 each, representing a value of €3.6m. This asset will be fully renovated by 2023-24.

The strategy is to acquire hotel assets in France that need to be revitalised via renovation, equipping them with modern communication tools and a professional management team. Courbet benefits from a favourable price differential between “wholesale to be renovated” and “standard retail” assets with the related acquisition prices (€70,000 per key in Cannes after works, €200/m² in La Bourboule before works).

The global hotel market is made up of 700,000 establishments, offering 18m rooms and generating $600bn in turnover. In 2021, INSEE estimated the average growth rate of the world market at 13% between 2020 and 2027.

Courbet will operate more specifically in the French market, which consists of 18,000 tourist hotels (excluding campsites and tourist residences). Tourism has contributed 8% to French GDP of which 40% is linked to international flows. According to the OECD, the share of tourism – in the broad sense – has been stable for the last twenty years at between 7% and 8% of GDP. France remains the world’s leading tourist destination with 90m annual arrivals and the 3rd largest destination in terms of international revenue (€58bn). Hotels alone market 215m overnight stays annually (Source Atout France, 2019) and generate around €19bn in annual turnover. France has 650,000 rooms (around 400,000 in 1980) of which 156,000 are in the Ile de France region. The market has been stable since 2010-15. The average capacity is 36 rooms per hotel. The average occupancy rate is 62%, of which 79% is in the Île de France, or by deduction about 56% for the whole territory outside the Île de France. Excluding spa treatments, the average length of stay in hotels is 1.8 days (1.6 for French people, 2.1 for foreigners).

Hotels can be classified according to three main operating modes: i/ independent and ii) affiliated (82% of units); and iii/ integrated, owned and managed by Accor-type chains (18%). Due to their better-chosen locations and higher capital intensity (vs. the more numerous independents but less well located and offering lower unit capacities) chains market 47% of overnight stays. Courbet will not use a brand name or create a specific brand. The group will therefore operate its hotels as an independent, non-affiliated company.

The hotel market is considered mature, as shown by the relative stability of the number of establishments over the last decade. This stability nevertheless masks a change in the offer. The change of distribution methods via the Internet, although modifying behaviour, is not considered as disruptive. As shown by some famous examples (Negresco in Nice, Sacher in Vienna, etc.), the well-placed hotel building is characterised by its permanence despite changes in ownership or operators during crises. The reinforcement of standards has not to date created a wave of hotel closures. These standards, such as the forthcoming adaptation of heating methods (and thermal insulation), generally have an inflationary impact on the price of overnight stays and a deflationary impact on the price of assets, without leading to a restriction in supply. The hotel industry therefore remains a mature industry whose pricing is cost-driven.

The occupation rate of ungraded independent hotels rarely exceeds 50%. These are generally units of fewer than 30 rooms, poorly located, poorly marketed or difficult to market. Independents of sufficient size (50-80 rooms), for whom classification provides visibility (e.g. three stars), generally benefit from an occupancy premium because of their ability to allocate manpower to reception, investment and marketing, and simply because of their location. Occupancy rates can be very much linked to the seasonality of the activity in the location. Courbet will undoubtedly look for a three-star rating in areas with a ‘guaranteed’ tourist season in La Bourboule (spa clients) as well as in Cannes (end/out of season business from congresses, film festivals etc.).

Over the last 10 years, independent hoteliers have made significant changes to their marketing methods by adapting to the emergence of OTAs (Online Travel Agencies). Booking.com, hotels.com and Airbnb have shaken up hoteliers, who are now trying to reappropriate their marketing by rationalising it. This reappropriation can only be optimised – internally – within the framework of “hotel clusters” that pool certain operational costs. We estimate that 1,000 rooms (i.e. 10-12 hotels, which is Courbet’s target) is the optimal size of a platform to absorb the costs related to the professional optimisation of marketing costs (internal pricing & yield management, external communication, allocation of investment resources, risk management etc.).

After a 49% drop in revenues in 2020 attributable to the Covid public health crisis, the French hotel industry rapidly recovered to approach or exceed its pre-crisis levels of Occupancy Rate (OR) and Price Per Night (RevPAR) by H1 2022, depending on the asset. Due to the timing of the launch of its projects, Courbet is operating after this crisis and is therefore not impacted. By 2023, France is likely to recover its 2019 activity levels according to the World Travel & Tourism Council.

In the medium term, we expect the Covid crisis and the rise in interest rates to lead to a phase of under-investment in the entire hotel industry, precipitating a decline in the most dilapidated or poorly managed units. There is therefore an opportunity for a new entrant to bring to market a renovated product, in line with market expectations. Given the turnover rate of hotel ownership and the ownership structure of the market (including chains) we estimate that the Covid impact to be eradicated by around 2030. Until then, we believe that there is a relatively deep pool of hotel acquisitions that have been weakened by the crisis or marked by the ageing of their owner-operators.

Courbet also envisages its own activity from a “post-Covid” perspective, which is likely to be reflected in a lasting change in consumer behaviour: i/ green tourism; ii/ localism and ecology; iii/ general inflation with a growing demand for responsible, reasonable, sustainable, geographically and economically accessible, quality tourism.

In the first stage, Courbet’s resources will be based on the marketing of rooms in La Bourboule (Project 1) and Cannes (Project 2, see below). La Bourboule is a spa town in the Puy-de-Dôme (central France, Auvergne) at an altitude of 850 metres, developed in the segment of treatment of respiratory ailments. There are currently 89 active spas in France. The absorption of wealth from 1914 onwards, the evolution of medicine as well as of modes of consumption, and the possibilities of international tourism via the development of aviation, have led to a decline in demand for spa treatments only interrupted by a period of stabilization since the 1990s.

Thermal cure baths have been exploited in La Bourboule since the Roman times. Having been a resort frequented by high society, with a mainly French clientele, La Bourboule was subsequently to become the leading spa destination for children between 1950 and 1980, for the treatment of asthma in particular, and remains the leading paediatric resort in France. Children represent about a third of customers taking the waters. Plus the adults accompanying them.

Strictly speaking (excluding luxury spas and detox centres such as Palace Chenot, Clinique La Prairie, or the Champs Elysées clinic), the thermal cure market in France is based on approximately 600,000 patients with a unit stay of 18 days, i.e. 11 million overnight stays (i.e. 5% of the French hotel market). 90% of the spa industry’s turnover comes from cures reimbursed by the Social Security (excluding accommodation, paid for by the patients), i.e. a negligible 0.2% of its expenditure. 75% of the cures are oriented towards rheumatology, a speciality that La Bourboule does not address because of its positioning in respiratory disorders (asthma) and dermatology (eczema, psoriasis). Overall, La Bourboule enjoys a good reputation, partly due to the conditions it treats. Leveraging this reputation should allow for an increase in the number of customers taking thermal cures in the future.

La Bourboule ranks 40th amongst the 89 listed thermal spas hosting a little more than 100 thermal establishments. With 4,500 visitors per year in the high season from April to December, La Bourboule is an intermediate sized resort with about 1% of the national market. The first 18 establishments welcome more than 9,000 customers taking the waters each year, thus capturing 61% of the market (more than 20,000 annually for Balaruc-les-Bains – 55,000, Dax – 48,000, Gréoux-les-Bains – 35,000, Amélie-les-Bains – 27,000). Significant investment linked to the resumption of municipal management in 2009 has enabled a significant increase in attendance at La Bourboule: 2,400 in 2010, 3,300 in 2014 and now almost 5,000. The town no longer benefits from a rail service. It is 4.5 hours from Paris by car.

In January 2021, the commune of La Bourboule voted an investment plan of €7m for the municipal thermal baths through to 2024, to improve the thermal cure capacity and reception area and to carry out maintenance work on the building. As part of the government’s Avenir Montagnes plan announced in 2021, La Bourboule should receive significant subsidies for this. As part of the recycling of derelict land (France Relance governmental plan), an additional subsidy of €2.3m already seems to have been granted to the commune. All of these investments will perpetuate and develop the local infrastructure for a total amount that Courbet quotes as €22m for the whole resort, including €5m of work at the municipal casino managed by the independent Arevian group (12-year Public Service Delegation signed in 2010). Beyond this extension in capacity and maintenance of the installations, the treatment of the “commercial lighting” and the reinforcement of the resort’s attractiveness (communication and publicity) does not seem to have been dealt with to date. Nevertheless, tourist numbers in the Auvergne have increased by 12% overall in 2022 vs. 2021. 43% of all accommodation types have recorded an increase in visitor numbers compared to 2019.

The difficulty of finding tourist accommodation in La Bourboule is in line with the national average for spas. The commercial accommodation offer is made up of 9 hotels with a total of 254 rooms (average size 29 rooms). In addition, there are campsites and other facilities with 970 beds which meet the needs of approximately 400-450 people taking the waters (plus accompanying persons) who are permanently present for a standard stay of 18 days. The current hotel offer can be considered as being on average outdated or requiring significant investment/renovation to reach a level of quality adapted to the CSP+ tourist clientele that the resort may wish to attract.

The development of the hotel offer resulting from the Courbet project is therefore partly based on the hypothesis of an increase of about 30% of the thermal cure frequentation of the resort, unless part of the clientele frequenting the competitor accommodation establishments is captured. This increase in frequentation can only be obtained by three means: i/ a strong increase of the autonomous demand linked to Covid (2022 data not yet available but the thermal baths of Mont-Dore announced in April 2022 that it hoped to return to its pre-crisis frequentation level in 2023); ii/ a strong increase of the communication budget of the municipality focused on the Paris region and iii/ long-term diversification for the local economy away from thermal cures, based on shorter stays and returning to the multiplication of the “classic” Social Grade A customer base, looking for thermal wellness as an ancillary service.

In this respect, the resort should benefit in the long term from the increase of the demand for a form of “green” tourism, that it economically affordable, at altitude and therefore cool during hot spells with, however, a frequentation mostly focused on the high season from June to September. Such an evolution could allow yield management by hoteliers, favouring tourists in the summer and customers taking thermal cures towards the end of the season/or during the off season, so as to optimise and smooth the occupation rates of the infrastructures over the whole year. This hypothesis is based on the development of a far more comprehensive local product offer (notably outdoor sports) which can only correspond to isolated individual initiatives. The development of green tourism offerings (including electric bikes) and “family” formulas by hotel establishments may prove attractive in the long term.

Cannes is a world-renowned tourist and congress destination with 130 hotels and 8,000 rooms. In the heart of the Côte d’Azur, its attractiveness is reinforced by the presence of 500 restaurants, 3 casinos and 31 private beaches. In September 2022, Courbet announced the acquisition of a 100 room hotel (Société de l’Hôtel Gril Aéroport de Cannes Mandelieu S.A.) for by OTT HERITAGE in return for 3m Courbet shares issued at €1.20 each. The location of the Hollywood Hotel, on the concession land of the Cannes-Mandelieu airport, as well as its immediate environment on a quality property (swimming pool, parking, wooded grounds), will bring it the natural clientele of an entry-middle-range establishment located at 20mn by car from the Croisette. An intermediate accommodation (three-star rating) in this destination is, in our opinion, a good asset.

This hotel is operated under an Authorisation for Temporary Occupancy (AOT) renewed on 26 October 2022 and extended to 2044. It will benefit from a €5m renovation investment in two tranches (€2.5m already invested prior to the acquisition), enabling the hotel to be brought up to a full standard, i.e. a cost price of around €70,000 per key. This cost price is moderate, but should be seen in the light of the way the asset is held, which is not freehold.

Courbet is looking to continue to invest in future, whether in La Bourboule or in other destinations. These projects could be the source of additional value creation in terms of revalued NAV. Initially, Courbet’s ambition is to create a group of a dozen establishments in France.