COURBET has just acquired 6,000sqm of buildings in Cannes. The acquisition should re-inforce its portfolio and contribute significantly to its NAV.
Structuring acquisition
Following two acquisitions in La Bourboule and another in Cannes (Hôtel Hollywood), COURBET has made here a high potential investment which could become a Trophy Asset. Only 15 minutes from Cannes Palais des Festivals on foot, with a nice Mediterranean Sea view and access to the beach, the plot benefits from gardens with trees on a landbank of one hectare.
The format of such an acquisition, leasehold (emphytéose in French) is similar to the model of Hôtel Hollywood in Cannes (100 rooms), located in the grounds of the Cannes-Mandelieu Airport concession (welcoming private jets mainly). This business model (no freehold) lowers initial capex significantly and isn’t that far off an asset-light business model with the exception that long-term contracts provide the tenant (COURBET) with protective rights vs. classical rents. COURBET could therefore capture the différence between economic profitability of assets under management and the annual rent paid to the landlord.
When mentioning value (Londoners are accustomed to such a scheme), the long-term contract will provide banks with sufficient guarantees: COURBET is able to use it as collateral for financing work, in our view.
Following a beauty contest (Chapter 11 of the initial tenant, for which 35 workers and teachers were kept on), COURBET was designated as single repreneur by the commercial Court of Cannes on 13 February 2023. Such a procedure is often synonymous of low cash-out.
The project
The buildings are fully occupied by Collège International de Cannes, teaching French language and culture to foreign students. COURBET will preserve this business which employs 35 people but aims to improve footfall significantly through partnerships with Asian, American or Middle-Eastern institutions as partners, and / or developing its own distribution network. We believe that “Cannes” trademark is powerful enough to increase the chance of success of such a project.
Around this initially low profitable business (managed until now by a French “Loi 1901” – non-profit association), COURBET aims to add some extra sources of revenue: i/ enlarge significantly the number of students; ii/ develop events (weddings, congress); iii/ housing under the YMCA format, e.g. for capitalising on existing beds; and iv/ development of a cooking school on top of an F&B offer (restaurant) to maximise the use of on-site existing collective kitchen equipment.
Work
The amount of work needed is unavailable to date. COURBET will probably need 9-12 months to present both the final version of the project and associated expenses. We expect capex of €6-10m depending on how much restructuring of the asset is required. This range would be compatible with revenue of c.€1.3-1.5m p.a. (rents equivalent only, AV’s preliminary estimate) with a significant value creation at the end of the day (€3-5m to give a wide range). The level of NAV accretion can be estimated when the following items are made public: i/ the material residual length of the leasehold; ii/ annual rent; iii/ amount expected for work; and iv/ the final project with rents to be collected.
This project looks coherent. It offers free optionalities and the potential uses of the plot look wide. A privileged location, coupled with attractive acquisition conditions, make the risk-reward appealing.
Once COURBET discloses final figures (including financing and or additional equity) about the Collège International de Cannes project, we will be able to revisit our target price. It should bring an additional but significant contribution to COURBET’s NAV (if work is 100% financed by debt) and compared to its current market cap of €5m.
