Sale And Leaseback In Europe Finance Essay

Over the last two decennaries, Real Estate has been progressively integrated into the broader capital market going one of the universes largest plus categories. Thankss to its intrinsic fiscal features – low correlativity with equities & A ; bonds, rising prices fudging & A ; higher entire hazard adjusted returns – Real Estate has proved itself as a dependable beginning of income and a stabilising factor in a mixed-asset category portfolio. Understanding those advantages, the European market tried to follow the US tendency of apportioning in corporate assets and utilizing it as funding alternate though sale-and-leaseback minutess. This paper evaluates, in an empirical scene, the impact of sale-and-leaseback in footings of risk-adjusted returns. It will associate the fluctuation of hazard, public presentation and value creative activity with fluctuations in Real Estate retentions. Many surveies have been performed in that intent, but the bulk considered different sectors and companies. This paper aims to capture the impact of such dealing on one listed group/company ‘s stock – Accor – over a decennary. A quantitative study has been conducted over the 2002-2011 period in which information from 9 minutess has been analyzed. Consistent with the theory, we argue that the market is more likely to break respond upon a SLB dealing taking to an addition in stock public presentation – measured by beta. However SLB induce an addition in systematic hazard if the company financess growing instead than liabilities ( Gronlund et al. ) . Furthermore, the theory states that stock public presentation varies positively when the ratio of dealing value to tauten value is high and when the P/E ratio is higher. The empirical survey will assist to corroborate or infirm this statement.

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Table of contents



Objective and purpose

Background and job statement

Objective and restrictions

Part I – Definition and market mentality

Definition of SLB and procedure

Development of SLB minutess

The Hotel industry

A speedy mentality – The European market

From an “ Asset – visible radiation ” to an “ Asset- right ” scheme – ACCOR

The hereafter in the Hotel industry

Part II – Literature reappraisal and model

Why Real Estate?

Real Estate as an alternate plus category

Inflation fudging

Each dealing is alone

Sale and leaseback

Incentives to rent or to have – The Modigliani Theorem

Fiscal motives

SLB as a cheaper replacement of debtaˆ¦ .

aˆ¦.that releases capital, reduces costs aˆ¦

aˆ¦and conveys a good signal to the market

Tax motives

Accounting motives

Accounting fiscal and operational rentals aˆ¦

..Improves the fiscal wealth of the company

SLB as a solution to the bureau costs

The principle of a SLB

The benefits realisation

The fiscal wealth of the Lessee

Restrictions of SLB dealing

The prostration of some trades – The value displacement job

The alteration in ordinances


Part III – Empirical Survey

Sample & A ; informations aggregation


Data aggregation

Hypothesis & A ; variables definition


Variables definitions

Methodology & A ; Consequences

Hypothesis 1

Hypothesis 2

Hypothesis 3

Part IV: Decision

Part V: Sources & A ; Mentions


In October 2011, the Gallic Group Accor has sold seven “ Suite Novotel ” for a entire sum of a‚¬ 77 billion to an institutional OPCI belongings direction fund managed by La Francaise REM while at the same time undertaking a variable long term rental understanding. This came on the heels of another sale -and- leaseback dealing.

A sale – and- leaseback dealing could be understood by its really name. It is a dealing where a belongings is sold and at the same time contracted to a rental doing the Vendor a “ seller-Lessee ” and the Purchaser a “ Purchaser Lessor ” – This process will onwards be referred to as SLB in our survey. In Europe, It began in the mid 1930 ‘s in the UK with the little retail merchants selling off the “ household Ag ” and has been spread in the 1980 ‘s with the first to encompass it the hotel industry ( Accor ) so followed by a important figure of European listed companies in different sectors, among them France Telecom, HSBC, Club Med, La Poste, registry more than +585 % addition in the glorification times between 2004 and 2007. This plus outsourcing highlighted the fact that, in the current ambitious economic environment, many established listed companies recognized that they have locked considerable sum of capital value into their operational belongingss that produce lower returns while pretermiting their nucleus concern activities and the related concern growing.

Therefore, in this deleveraging fiscal industry, SLB minutess appear as an alternate funding option: it bring forth an immediate hard currency flow that could be used to get the better of the capital restraints – chiefly the final payment of debt – and to fund growing. In fact in our hard-pressed fiscal ambiance where rates in Italian and Spanish markets are scaling upwards, where France about lost its AAA evaluation and Greece is about to go forth Europe, investors are less “ hungry ” even for nucleus belongingss within the Real Estate investing market. Third one-fourth 2011 information showed merely 32.2 billion a‚¬ of belongings gross revenues in Europe, stand foring 22 % year-over-year addition and betterment from the 2nd one-fourth of 2011 ( RCA analytics ) . A batch of companies began to seek for alternate methods to fund its activities, to afford its liabilities and to fulfill its stockholders demands of dividends. The chief illustration was France Telecom which sold more than a‚¬ 8 billion assets since 2001 to get the better of its hard-pressed state of affairs. In fact, in clip of profound economic system uncertainness, the debt and equity suppliers are affected, stockholders are more demanding and funding becomes scare and dearly-won. SLB are viewed as a manner to salvage deteriorating balance sheets as it improves the debt to equity ratio, the net incomes per portion of the company while leting the company to administer more dividends to its stockholders. And in many instances it sends back a positive impact on direction and public presentation.

The purchaser besides benefits from the dealing. The SLB confers a security to the purchaser as the plus is already occupied with normally a 15 or 20 twelvemonth long term rental therefore procuring the hard currency flows and extinguishing the selling costs related to the leasing. It therefore increases the value of the plus while take downing the volatility of hard currency flows. In add-on, the sale boosts its after revenue enhancement return thanks to the tax write-off of the related depreciation. It seems that the SLB is a sort of win – win game, giving possible advantages to both parties.

However, despite the fact that the market for SLB minutess has started to turn in Europe during the late old ages, there is still today a important difference in the SLB to entire minutess ratio between European and US Corporations. And this divergency will go on to increase for most European states, as France. Harmonizing to CBRE and Jones Lang LaSalle, the companies continue to outsource the ownership of their assets but in a slower gait. The issue is of import as the estimated current value of the plus owned by corporate companies and occupied is more than a‚¬ 2,250 billion as of 2011. It seems that SLB does n’t truly make value as it was promised and is far from being a win – win game. The impact on the company ‘s public presentation has besides been criticized. An even more the revenue enhancement benefits related to such dealing were weakened ( i.e. the terminal of the financial advantage – for illustration the terminal of the Article 203 of the CGI in France, the restrictions of the REITs or new ordinances as Solvency II ) .

Objective and Aim

Problem statement

Documents and surveies on the SLB minutess, its benefits over the house and the impact of the proclamation on the market are extended. They overall announced a positive impact demoing unnatural returns ( Smith, 1986 ) upon proclamation ( Fattal & A ; Janhein, 2010 ) but some showed equivocal consequences through their explanatory variables. While Solvin et all. ( 1990 ) argued that support concern enlargement is the hint ; Brounen and Eichholtz ( 2005 ) found a negative relationship between Real Estate ‘s ownership and company ‘s systematic hazard. This was besides highlighted by Gyourko ( 1999 ) and Seiler et Al. ( 2011 ) . But we all agree that merely a few of them have focused on explicating the eventual difference in stock market public presentation over a certain clip period sing one industry and even more one group or company denoting SLB in different states. In add-on, the bulk of those surveies have performed empirical trials based on minutess announced in the US market ( Slovin et al. ( 1990 ) , Rutherford ( 1990 ) , Allen et Al. ( 1993 ) , Ezzell and Vora ( 2001 ) , Fisher ( 2004 ) ) and really few on the European market ( Gronlund, Louko, and Vaihekoski 2008, Fattal and Janheim 2010 ) . And so far, to my cognition, no old survey has outlined the impact on the market utilizing informations from one individual company or industry. Based on these decisions, I decided to concentrate my research on one individual industry at a European graduated table – the Hotel market industry.

Since 2001, the Hotel industry has been one of the first sectors to follow the British SLB theoretical account supported by the consolidation that began at that minute in the industry with the purpose to derive maximal exposure within the market, the accomplishment of economic system of graduated tables and maximization of stockholders value. Even non new with Accor that has been really aggressive in the 1990 ‘s, the theoretical account became clear grounds a decennary after and changed all the form of the concern.

I chose the Hotel market for two chief grounds: The hotel industry is one of the sectors that use other signifiers of plus ‘s outsourcing ( franchising, sale-and-management back… ) . The sale and leaseback becomes, more than in other sectors, a pick. Second, the assets concerned by SLBs are corporate Real Estate but owned by companies that are really near to the Real Estate industry and hence which view it as investing – the deficiency of Real Estate direction accomplishments are non longer a ground to outsource.

Furthermore, taking as illustration Accor, I will seek to demo if the market can respond otherwise harmonizing to the development of the company ‘s fiscal place ( portion monetary value consequence ) and if it can set its reactions over clip once it discovers the existent driver behind the SLB dealing.

Aims and restrictions

I limited my research to the European SLB performed in the hotel industry from 2002 until 2011 and more exactly those contracted by Accor. I used informations pre every bit good as station proclamation day of the month and the difference between the consequences will foreground the value creative activity upon a SLB proclamation, the consequence on company ‘s portion monetary value every bit good as the related hazard.

But before covering with this aim, I wanted to name the inducements to travel for a SLB both for the Seller and the Buyer and the principle behind this type of dealing. It will assist understand the purpose behind such dealing, the related benefits but besides to calculate out some of the restrictions that could impact the hereafter of the SLB.

Furthermore, holding an mentality of the SLB market, its development and more exactly on the hotel market is besides a good manner to calculate out non merely the paradigms crap in affair of portfolio direction and investing manners but besides to understand investors demands in term or risk-adjusted returns.

Finally, I know that Sale-and-leaseback is non the lone theoretical account for a total/partly plus outsourcing. There are other signifiers: sale and direction back, franchising, belongings outsourcing, separate belongings and trading divisionaˆ¦the sale-and-management dorsum is really popular in the leisure industry. It implies that the operating company sells its belongings to an investor which than grants a direction contract, alternatively of a subordinate involvement in the belongings to the operator. I decided to restrict my survey to Sale-and-leaseback minutess.

Finally, the purpose of this paper, as set above is to cover with the hotel industry due to its specificities and more exactly with Accor, as a innovator in SLB but our research paper will non travel further in analysing the scheme of Accor in deepness. We will evidently associate the market reaction to the company specificities but merely to explicate the different reaction upon SLB proclamations.

Part I: Definition & A ; Market mentality

Definition of SLB dealing & A ; procedure

Adam & A ; Clarke defined the sale-and-leaseback ( SLB ) dealing as a dealing where the proprietor of the belongings sells to a 3rd party and at the same time takes a long term rental on that belongings. The Vendor ( Lessee ) raises money on that plus while go oning to use/control it. In theory, this type of dealing could be done for all the fixed plus types ( Real Estate, plans, equipmentsaˆ¦ ) .

The rental contract that is at the same time negotiated is normally a long term rental ( long term fixed period ) that sets the one-year rental payment ( based on the estimated market value or a per centum of the company ‘s turnover, EBITDA.. ) and the related conditions ( recoverability of the charges, structural fixs, plants performed, status of selling the belongings, right of first offer.. ) . The rental is by and large structured as a ternary net rental ( all charges recoverable from the renter except the structural fixs ) and may include an option for the Lessee to buy the belongings.

The procedure of a SLB dealing should follow a specific figure of stairss, approximately the same stairss as a traditional Real Estate dealing ( Figure 1 ) . It is normally initiated by the Vendor ( the fund direction squad or the corporate Real Estate squad ) that has targeted some “ low-return ” corporate assets or wanted to take down its expounding on a specific market. Once the trade is validated by the Investment commission ( the board ) , an investing memoranda is presented to the targeted investors and a command procedure in launched with the response of letters of involvements ( LOIs ) and the choice of the best offer. Once the bidder is selected, a complete due diligence of the plus starts ( accounting, revenue enhancement, fiscal, administrativeaˆ¦ ) . The due diligence is concluded by the acceptation of a concluding command monetary value which includes accommodations on the initial offered monetary value. Finally, dialogue on the conditions of the rental understanding finalizes the SLB procedure. This portion of the trade is normally the most strategic one and frequently overcomes the sale itself. In fact, the SLB induces certain status such as ROFO or non concurrency understanding over the future sale of the belongings by the Lessor.

Figure 1: Stairss of a sale and leaseback dealing

The development of SLB minutess

The theoretical account was born in the UK in the late 20 ‘s and was used by a figure of little household offices. Before that minute, the individual entity was the alone theoretical account: the belongings is owned by the entity carry oning the concern ( single, partnership or concern ) as a free plus with no rent or mortgage payment on it. Then we moved to the belongings and company split with SLB deriving importance in the US in the 30 ‘s ( Safeway ) and recently in Europe with first to encompass it the province owned companies, in the 1980 ‘s. At that minute, SLB were non every bit popular as they are today, many companies still sing their belongingss as their most of import plus and were loath to outsource its ownership. However, the turning demand of hard currency, the stockholder force per unit area and the rise in belongings values has led many companies to follow the gait ; with a good illustration in Europe is the telecom industry ( France Telecom, France ) that has multiplied SLB minutess to fund enlargement and acquire entree to new engineerings and the leisure industry ( Accor ) taking to acquire a rapid and maximal exposure to specific markets. In the UK, the first was the “ Home office ” and some esteemed companies which followed with the celebrated illustration being Woolworth – 21 premises sold and leased-back between 1987 and 1991 – and Boots – 50 shops between 1988 & A ; 1991. After 1996, it has been adopted by an of import figure of listed companies in different industries, largely after the Real Estate crisis. Harmonizing to Jones Lang LaSalle, at the European graduated table, SLB minutess have increased by 585 % between 2004 & A ; 2007, traveling from 6 % of the entire European investings ( a‚¬7 billion ) to 40 % ( a‚¬23 billion ) with more than 750 independent minutess over all the sectors. Below some noteworthy minutess that have shaped the SLB market at that minute ( Figure 2 )

Figure 2: Noteworthy sale-and-leaseback dealing between 2004 & A ; 2007

Beginning: CBRE – European sale and leasebacks, a feasible option for raising capital?

Furthermore, the debut in the UK of Real Estate Investment Trusts ( REITS ) and the creative activity of SPVS in Europe in 2007 has increased the appetency of the investors for SLB minutess. For illustration, in France, the most popular vehicle was SIIC ( “ Societe d’Investissement Immobilier Cotee ” ) which is the Gallic acronym of the American signifier, REITS. It benefits from a decreased revenue enhancement regime- the capital additions are taxed at an issue rate of 16.5 % instead than 33, 1/3 % . This financial advantage encouraged the companies to outsource their corporate Real Estate assets. In return they are required to administer 85 % of their nonexempt income to the investors & A ; 50 % of the net income ensuing from plus disposals.

In fact, SLB have well increased due to the “ financialization ” of the Real Estate market and, in parallel the related revenue enhancement advantages. Making value through Real Estate is going a strategic point for companies that invest more than 30 % of its corporate assets into existent assets doing this subdivision the 2nd most dearly-won behind human resources ( Rodriguez & A ; Sirmans, 1996 ) . And with this turning importance, the portion of the SLB in the entire European investings has continuously increased since 2004 except in 2009 ( Figure 3 ) , which lead us think that the SLB has structurally become an in agreement theoretical account into the European investing market

Figure 3: Proportion of SLB in the entire investing market from 2004 to 2009

Following those glory yearss, the widespread crisis has weakened all the markets, whom the Real Estate industry. But it has surprisingly increased the proportion of SLB as it leaded to an of import immediate demand of hard currency. In fact, in this downswing period, SLB has outperformed core Real Estate due to their guaranteed income and renter ‘s recognition quality. In France, 2010 was distinguished by the sale of more “ specified ” assets such as retirement houses ( ORPEA – 120 million a‚¬ ) , station offices ( La Poste ) , province owned assets ( Gallic province – 900 million a‚¬ , ex: Meteo France ‘s headquarter was sold to Russia and leased back ) .

The Hotel industry

A speedy mentality – The European market

As for other sectors, the tendency began in the 70 ‘s in the UK with investors developing a strong appetency for SLB in the hotel industry. It has been spread after among investors taking to get portfolios instead than individual assets. The first breakage minutess that “ opened ” the doors to others were foremost, the acquisition of nine noncore Hilton hotels by Norwich Union, a UK pension fund in 1999 and 2nd, the first Continental European SLB dealing in 2000 with the acquisition of Accor ‘s Novotel portfolio by the German fund DGI. Accor de-investing the capital tied up while perpetrating into a 20 long term rental with the option to regenerate. Then Spain followed the tendency with the first SLB in 2002 when Amencio Ortega ‘s ( a HNWI in Spain ) bought the NH hotels, a joint venture where investors assumed portion of the operational hazard, giving a profitable output somewhat above the 7 % . After those minutess, SLB were an in agreement theoretical account into the industry model.

In Europe, the hotel industry still represents a little portion in footings of volume into the whole investing market – merely 7 % as of 2011 with a entire sum of transacted hotels of a‚¬ 8, 1 billion ( Figure 4 ) . The principal markets are the UK ( 3, 3 billion Euros ) and France ( 1, 6 billion Euros ) .

Figure 4: Transaction volume ( billion a‚¬ ) in the hotel industry – Europe

But the hotel industry is deriving importance as confirmed by professionals in the sector as it offers a higher hazard – adjusted return than the other plus categories. In fact during the last decennary, it has achieved better public presentation than the office and logistic type or assets and about reached the one registered by the retail section. As seen ( Figure5 ) , taking France, Germany and the UK as examples the hazard – return trade off offered by the hotel are higher than the one registered by offices or retails. France is far above UK and Germany with a return twice equal to the hazard taken ( 12 % vs. 6 % of hazard )

Figure 5: The risk- return tradeoff for different plus categories ( UK, France & A ; Germany )

This higher wages increased the investors ‘ appetite toward hotels and they began to put in portfolios with the purpose of deriving fast-track representation in the sector. This is highlighted by the immense figure of minutess contracted over the decennary in the European hotel SLB minutess. The smallest trade was registered in 2005 by Ramada Jarvis Hotel who sold 4 of its belongingss in the UK to private equity pool for a entire sum of 25 million Euros and the largest trade was concluded by Thistle hotel in 2002 and concerned 37 belongingss besides in the UK sold for a entire sum of 951 million Euros to a pool of Gallic institutional investors ( Figure 6 ) . Among those minutess, Accor seems to the leader in the exercising with 43 % of the dealing ( 9 portfolios sold ) over the decennary. The minutess were contracted in France, Switzerland, Germany, the Netherlands and the UK. The largest dealing in footings of value concerned a 91- hotels portfolio located in Germany and Netherlands sold in 2007 for a entire sum of a‚¬ 863 billion to Moor Park Real Estate.

Figure 6: SLB dealing in the hotel industry between 2002 and 2011

SLB are positions as an fiscal solution by listed hotel companies as they are under changeless force per unit area from planetary equity market to raise hard currency and cut debt. Furthermore, the demands from investors in footings of returns are higher ( by and large over 10 % ) foregrounding the higher hazard behind the dealing. This hazard taken is rewarded in the hotel industry by a long term rental in topographic point protecting the proprietor from return ‘s fluctuations. In add-on, the nexus between rental rental payment and turnover ( with low guaranteed rent ) enables to profit from the above-average growing prognosiss.

In the hotel industry, SLB allow to besides equilibrate between owned, leased and under direction understandings. It is, more than of all time, a manner for investors to acquire exposed to the market – acknowledging the potency of the industry- without being burdened with the hazard of hotel operation. In fact, the SLB are perceived – in contract with the Sale-and-management back- as a nucleus investing into the hotel industry model. The investor bear the hazard of having the belongings while the concern, the direction and the trade name hazard is supported by the operator. The rental contracted offers a secure long term income, fudging from the hazard of vacancy for a long term period.

From an “ Asset – visible radiation ” to an “ Asset- right ” scheme – ACCOR

The hotel industry has showed an of import addition of the “ plus light ” schemes that hotel trade names embraced for old ages. Bing really property-intensive by nature, the hotel industry began to divide really rapidly the ownership from operations and many international ironss got evolved into a 100 % direction construction or franchising construction. The consequence was that they began to have or rent belongingss of a really limited figure of the hotels that bear their trade name. A good illustration is Marriott which owns 6 of a sum of 3,400 and Intercontinental with merely a 15 owned over more than 4,000 branded.

The Gallic Group Accor pursued a somewhat different scheme, traveling from the “ plus visible radiation ” to an “ plus right ” scheme. Even though Accor was the first group to follow the gait, with an aggressive scheme of plus outsourcing, the group still wanted to include in their portfolio a big portion of assets owned or at least leased. Since 2005, Accor engaged a value-creating plus direction scheme taking at cut downing the capital strength of the hotel portfolio every bit good as the hard currency flow volatility. Accor ‘s has decided that its hotel portfolio would be 30 % managed but non owned by Accor, 28 % will be franchised and the remainder wholly owned or leased. The first and a portion of the last nonsubjective enter in the model of the SLB.

The thought is to aline the per centum keeping with the capital strength and hazard profile of each class of hotels – The higher the quality of the hotel ( 5* such as Sofitel ) the lower the per centum of the ownership ( for illustration 20 % to 25 % for Sofitel ) . The scheme depends besides on the location. For illustration, in the European key metropoliss where return on capital employed ( ROCE ) is high compared to the hazard taken, Accor ‘s scheme consists on support runing those hotels until outputs are below the cost of capital. Over this bound, the group disposes those assets. Accor ‘s aims when selling its Real Estate in mature states is non merely to optimise the output but besides to optimise “ legal footings ” of contracts and besides to construct long term relationship in order to make new chances of sourcing new locations for organic developments and to be in a place to establish joint coup d’etat commands with spouses ( The trades signed with Fonciere des Murs on a French/Italian portfolio is a good illustration ) .

Furthermore, portion of a planetary scheme, SLB were followed by long term rental contracts dialogues ( the bulk 12- twelvemonth rental contract with an option to regenerate every 12 twelvemonth period ) with a rental payment equal to a per centum of gross with no minimal guaranteed ( for illustration, 15 % in France, 18 % in Germany and 21 % in the UK ) . The rental could be renewed hotel by hotel to the discretion of Accor. The proprietor is responsible for the Capex and Accor for the FF & A ; E. These rental contracts cut down the hard currency flow volatility while continuing operator flexibleness and possible long term control on hard currency flow watercourses.

Having sold more than 841 hotels between 2005 and 2009, Accor has once more achieved its end of disposing more than 450 hotels in 2012-2013 therefore cut downing the debt by a‚¬ 1, 2 billion euro and has announced a new program of divestitures for the following 3 old ages be aftering to sell more than 175 hotels. With these extra disposals, the Group wants to beef up its leading in Europe and to rapidly develop operations in the Emerging markets.

The hereafter in the Hotel industry

Even if the Hotel industry was one of the first industries to encompass the SLB theoretical account, it is now confronting a basically different landscape that the 1 that existed in 2008. The alteration in the European fiscal policy has truly affected investings. Solvency II is two old ages off but insures still non active as loaner. In a study[ 1 ]made by professionals in the sector, 47 % of the participants think that the alterations in the policy will impact their growing and investing. Deleveraging is the current adopted theoretical account and with traditional debt market stop deading up, for the following one or two old ages, the alternate signifiers of loaning may go dominant: first balcony finance, private equity financess. SLB are more viewed as an attractive mode to portion hazard in the hereafter.

Part II – Literature Review and Framework

Why Real Estate?

Real Estate offers higher returns – The Modern Portfolio theory

Before covering with the quandary between having its ain belongings or merchandising and renting it afterword, the chief inquiry to inquire is: why Real Estate? What are the benefits of holding/ puting into Real Estate?

This inquiry gained in relevancy in the planetary context of the euro zone autonomous debt crisis as the belongings market performed good in the downtime periods in comparing to other markets. Investors began to understand that compared to bonds or stocks, which are intangible securities, Real Estate is a concrete investing which is easy for many to see and “ drama with ” . It has significant advantages listed below.

First, Real Estate offers returns by and large uncorrelated with stocks and bonds, presenting a existent diverseness to investors. This inquiry finds its involvement into the hazard and portfolio theory. The Modern Portfolio Theory ( MPT ) introduced by Markowitz ( 1952 ) stated that variegation is the cardinal component for an investor looking for increasing return and cut downing hazard. In this model, Real Estate is attractive because it increases portfolios returns without increasing the volatility ( i.e. hazard ) and inversely lessenings hazard without impacting the returns. In this same position, Webb, Curcio and Rubens ( 1985 ) started to add Real Estate into the portfolio allotment and found that Real Estate is an of import portion of MPT.

In fact, Real Estate has, historically generated higher returns than other traditional plus categories, such as bonds or equities. The low correlativity between Real Estate with stocks and bonds makes this plus category a good investing, and a stabilizing factor when it comes to variegation ( Ibbotson, Siegel 1984 ) . Therefore, the Real Estate public presentation ( i.e. hazard adjusted return ) should be better than other plus categories. A comparing of the European mean one-year return ‘s public presentation of European market belongings, authorities bonds and Equities ( Figure 6 ) shows that that Real Estate provinces between Equities and bonds when it comes to put on the line wages. In the short term, it has the certainty of income that investors would acquire from bonds and in the long term, this income will raise in line with market rents.

Figure 6: European norm entire returns – Europe

Affecting the fiscal construction of the company- and supplying higher returns- Real Estate has hence an impact on the risk- return profile of the overall house. Sing the Sharpe ratio and the Treynor ratio as hazard adjusted steps, we should anticipate low beta house ‘s to hold higher degree of Real Estate into its plus allotment, therefore diminishing the systematic hazard ( beta ) . This decision was made by Seiler, Chatrath and Webb ( 2001 ) in their paper “ Real Asset Ownership and the Hazard and Return to Shareholders ” . In their analysis conducted on 80 companies between 1984 and 1991, they confirmed that Real Estate provides variegation benefits and hence house with high degree of existent assets display lower degree of systematic hazard ( beta ) .

Inflation fudging

In his survey, Golan ( 1998 ) argued that one of the chief advantage or Real Estate is its protection against rising prices. The buying costs are set up at the acquisition day of the month and fixed ( except plants performed on the edifice ) while the rents perceived additions with the indexation or rising prices over the lease term.

Furthermore, Real Estate has four key elements that make it a good hedge: a belongings has its ain just market value that is non eroded by rising prices, it is marketable and easy to sell, it is divisible and the split into portion does n’t take to a loss in value and could be financed ( and it is by and large the instance ) in full equity ( hard currency ) .

It has been profoundly studied by the theory and particularly by Fama and Schwert that have tested the fudging effectivity of T-bills, authoritiess bonds and residential Real Estate and concluded that private Real Estate is a complete hedge against both expected and unexpected rising prices. This was besides showed by Gordon ( 1962 ) through his theoretical account which suggests that Real Estate is a “ long -lived plus with income that adjusts to rising prices. Its monetary values are given by the NPV of future hard currency flows which are assumed to turn at a given changeless g and discounted by the appropriate nominal rate r. Assuming no alteration in the economic system, rising prices will impact the price reduction rate R and the rent growing rate g in equal step and therefore will hold no impact on capitalisation rates in rising prices adjusted -terms, or on Real Estate plus values.

A secured income beginning

One of the chief advantages of Real Estate for an investor is the fact that it procures a unafraid income over a certain period of clip. For investors, such as pension financess, that follow an “ plus liability ” plus direction, Real Estate is a good investing as it allows reassigning straight the net hard currency influxs to sack hard currency escapes. Traditionally invested into bonds or index linked bonds, this type of investors began to apportion in Real Estate due to its higher return compared to bonds.

Sale and Leaseback

Incentive to rent or to have – The Modigliani Miller theorem

Thankss to the Real Estate apparent benefits over the other plus categories and the development of the SLB minutess a inquiry emerges about the inducements to rent instead to have its individual longstanding belongings. In fact, as Linneman ( 1998 ) provinces, in “ the old yearss ” houses were forced to have their corporate belongingss since no competitory options existed on the rental/investment market. But the tendency toward outsourcing rises this inquiry that has been profoundly studied by the literature and more exactly through the Modigliani Miller theorem ( 1958 ) .

The theorem stands that, in an efficient market ( i.e. no revenue enhancement, no catching costs, no bureau costs and no asymmetric information ) , the capital construction ( whether the company is financed by debt, equity or a mix of both ) is irrelevant to find the value of a company. In other footings, with a universe with no catching costs no affair if the company uses debt or equity to finance its concern, the value remains the same and there is no creative activity of value. The arbitrage between the allotment of the capital between debt and equity is irrelevant. Using this decision to the leasing determination, Miller & A ; Upton ( 1976 ) showed that there is no fiscal advantage of renting in a perfect capital market. Therefore the thought buttocks is that renting creates no value for the Lessee house and the market does n’t respond though a stock monetary value readjustment. The market consequence is impersonal.

This statement is interesting as this corporate determination is non every bit easy/straightforward as it seems. In the current fiscal markets, revenue enhancement is applied and market imperfectnesss exist: Asymmetry information, catching costs, bureau jobs aˆ¦And this may impact the allotment of debt vs. equity ( i.e. corporate determination ) or in other words the leasing/buying determination. Leasing is a strategic determination that could hold benefits listed afterlife.

Fiscal motives

SLB as a cheaper replacement of debtaˆ¦ .

In November 2011, Euro sodium thiosulphate ( Commerzbank Finance ) announced that it will suspend all new concern loaning while Societe Generale stopped its loaning engine in the UK. It has been really hard to acquire fresh debt into a starved Real Estate market topographic point. 2012 is estimated to be the hardest twelvemonth for the Real Estate market ( PWC ) in footings of loaning. The loan-to-value ( LTV ) significantly decreases, traveling from an norm of 70 % / 80 % in the glorification Real Estate yearss to 50 % at the best, today. And because of the scarceness of traditional debt suppliers, 2012 was the twelvemonth when the demand to alternative and besides inexpensive beginning of funding becomes imperative.

Real Estate has already proven itself as a inexpensive investing, particularly in this downtime period. In fact, Real Estate is inexpensive when demand is down and demand is down when economic system is weak. Macro forces are in Real Estate advantage as involvement rates have reached their historical degree ( Figure 7 ) .

Figure 7: Interest rate development from 2009-2012 – Europe

Confronting this procedure of deleveraging, SLB are more and more viewed, in the Seller position, as a replacement of debt, in the sense that more rentals should take to less debt ( the “ Leasing mystifier[ 2 ]“ introduced by Ang & A ; Peterson ) . Using an internal beginning instead than undertaking an external debt funding evidently allow cut downing dealing costs ( i.e. loaner monitoring costs ) . This was confirmed by Sharpe & A ; Nguyen ( 1995 ) who showed that houses with high costs of external support should rent. As an internal beginning of support, leasing is as “ The Pecking Order theory ” provinces ( Donaldson – 1961 ) , the least expensive manner to finance growing. In fact, thanks to asymmetric information – directors cognizing their company needs, positions of growing, hazards and value better than outside investors- directors are more intended to utilize internal funding instead than external and debt instead than equity.

aˆ¦.that releases capital, reduces costs aˆ¦

The generated hard currency though a SLB allows the company reinvesting the capital antecedently locked into the sold belongingss into valuable disbursals like R & A ; D -a positive growing potency that should be perceived by the market. However this statement has to be balanced if the company works in the leasing industry at it should be interpreted as an awaited event ( Slovin, Sushka & A ; Polonchek ) .

Furthermore, because rentals are less dearly-won for the Lessor, it reduces bankruptcy costs in comparing with funding through equity or debt market. For this ground, Krishnan & A ; Moyer ( 1994 ) argued that it should be used more by riskier less than established houses. In fact, when a company is in default, a redistribution of the assets is made harmonizing the claims against the house. By utilizing leasing, that is a legal contract ; a house reduces the legal engagement when bankruptcy arises as the debt holder claim is straight tied to the plus.

In the other manus, the Lessor / Buyer benefits besides from a decrease of costs. A SLB dealing allows him to get an occupied plus with a long term renter which eliminates the vacancy costs, the leasing fees ( agent fees ) associated with the re-letting of the belongings and frequently reduces the renter inducements ( free rent, renovation plants ) and the operating disbursals – the implicit in rental understanding being normally a triple-net rental with all the charge recoverable from the renter except some structural fixs on the belongings ( ex. Art 606 from the Gallic Civil Code ) . This cost shriveling evidently induces a decrease of uncertainness about “ vacancy events ” and operating disbursals development for a long clip therefore heightening the value of the plus. The plus being really near, with those features to a high-quality mortgage bond as Sirmans and Slade showed in their paper ( 2010 ) all the more as the Buyer has the ability to measure straight and transparently the quality of the renter – compact analysis.

aˆ¦and conveys a good signal to the market

Traveling farther, Myers & A ; Majluf ( 1984 ) confirmed that directors, taking to move in the involvement of stockholders, are intended to utilize renting instead than debt to convey a good signal to the market ( signaling effects ) , i.e. signaling the thought than an investment/the house is profitable. This could take to a positive or at least impersonal consequence on the market, i.e. the portion monetary value of the company. In fact, as Smith showed in his paper, SLB minutess as alternate beginning of debt should hold the same consequence than the bond issue for the Seller. These positive proclamation effects are consistent with the fact that a SLB transfers the wealth from bondholders to stockholders.

Slovin et Al. ( 1990 ) , analyzing more than 53 SLBs proclamation on the US over a 10 twelvemonth period, concluded on a statically important mean unnatural extra return of 0, 85 % demoing that SLB increase the value of the company. Furthermore, Grolund et Al. ( 2008 ) , concentrating on the European market ( 76 proclamations on 11 different European states ) , reached the same decision, and confirmed that the account of this positive reaction stands chiefly in ” values ” that antecedently were hidden.

Tax motives

Tax inducements were widely studied by the theory of renting as the chief principle behind this determination. Based on Modigliani – Miller theorem, Myers & A ; Al. ( 1976 ) argued that debt maximizes the value of the house and applied to renting, they conclude that SBL minutess have revenue enhancement advantages and should be more used by houses that pay higher revenue enhancement ( depending on the revenue enhancement rate applied in the state ) as the rental payments are revenue enhancement deductible disbursals. In fact, as Graham, Lemmon & A ; Schellheim ( 1998 ) showed, fringy revenue enhancement rate are reciprocally relative to renting. Companies with comparatively low fringy revenue enhancements use more leasing than others. Furthermore, renting allows reassigning the revenue enhancement shield from the Lessee ( Vendor ) to the Lessor ( Purchaser ) when the revenue enhancement tax write-off has non been to the full utilised – a revenue enhancement benefit that is enhanced when the fringy revenue enhancement rate between Lessor and Lessee differ. In fact, if the Lessor has a higher revenue enhancement rate, the higher involvement and revenue enhancement shield will make revenue enhancement advantages that could be shared by both parties.

In add-on, the revenue enhancement benefits were enhanced by the debut of the REITS ( UK ) or more by and large SPvs in Europe as there are exempt of taking into history the latent capital additions into their ratings. Example: Article 210-E of the Gallic Civil Code, which reduces the revenue enhancement rate at 19 % on Capital additions on assets realised upon a sale of a existent plus, eligible for the SIIC government[ 3 ].

Accounting motives

Accounting fiscal and operating leasesaˆ¦

In Europe, the SLB minutess are accounted under the IFRS regulations for amalgamate histories and more exactly the IAS 17 ( International Accountancy Standard ) regulation that became compulsory in Europe in 2005 for all companies publically traded in the European Union. But the accounting intervention differs whether the dealing consequences on a fiscal ( capital rental ) or an operational rental, impressions that have been introduced in the UK by the SSAP 21 ( ASC 1984 ) . The difference relies on, non merely who owns the plus ( the Lessor/ Lessee ) , but besides who supports the related risks/benefits. More exactly, the fiscal rental transfers the risk/benefits of the ownership from the Lessor to the Lessee and normally covers the staying economic life of a belongings. It respects the four following standards:

1 ) The ownership should be transferred at the terminal of the lease term

2 ) A ROFO ( a bargain-purchase option ) should be associated to the rental

3 ) The rental should be a long term rental that is adapted to the life clip rhythm of the plus ( at least 75 % )

4 ) The NPV of the minimal rental payments should be equal ( or attacks at 90 % ) to the just value of the plus.

For the Lessee, even if the dealing occurred, the plus still appears in the balance sheet every bit good as the related liability. Any capital addition ensuing from the sale ( fundamentally book value minus the in agreement sale monetary value ) should non be instantly presented as an income in the Seller ‘s fiscal statements. It should be deferred / amortized over the term of the rental. The Lessee depreciates the leased plus and amortizes the debt liability.

On the other manus, the operational rental is the common rental understanding between the plus ‘s proprietor and the renter, which contracts the sale of an plus and the payment of one-year rental income for utilizing the premises. The operational rental is estimated to be approx. 13 times frequent than the fiscal 1.

When covering with an operational rental, the sale of the belongings leads to the remotion of the plus ( and the related funding ) from the balance sheet ‘s Seller. The rental is accounted for in the income statement as a rent disbursal over the rental length. The capital addition ensuing from the dealing is straight recognized in the income statement whereas the liability inducted is recorded in the balance sheet.

..Improves the fiscal wealth of the company

Concentrating on the most frequent type of SLB ( runing rental ) and presuming that the dealing monetary value is higher than the plus ‘s book value – status without which there is no capital addition ensuing from the dealing – a SLB improves significantly the house ‘s fiscal ratio/margins, through both the income statement and the balance sheet, therefore giving a good “ signal ” to the market. In other more “ concrete ” footings, SLB generates hard currency that is the strongest plus in the balance sheet. The balance sheet is improved by interchanging fixed existent assets, carried at a below market value, with hard currency thereby showing the company in a stronger fiscal place. Bing a male monarch of “ off-balance sheet ” dealing, SLB lowers the involvement coverage ratio ( ICR ) of the company, while increases the dividends payments. Second the income statement is improved by the amortisation of capital addition which increases the Seller ‘s reported net incomes ( Moyer & A ; Krishman, 1995 ) .

SLB as a solution to the bureau costs

As Jensen and Meckling showed ( 1976 ) , bureau jobs may originate between Lessee and Lessor due to the ownership/usage of the plus. It could make non merely jobs between directors and recognition holders but besides directors and stockholders. Due to asymmetry information, a director ( house ) confronting a hard fiscal place, may accept negative NPV undertakings or at the contrary cull positive NPV undertakings when he has more information than the proprietor. This is typically the instance in houses paying low dividends. However, as the Pecking Order theory provinces, this inauspicious choice could be overcome by renting as it is normally viewed as the less dearly-won internal capital to be used followed by debt ( creditors ) and equity ( stockholders ) .

Rationale of a SLB

The benefits realisation

Sing all the above benefits, a SLB dealing has more opportunity to happen if both parties have advantages and on the reverse of what Grenadier ( 2005 ) said in his paper, it is non merely a affair of rental footings and monetary value. There are determination standards for both Seller and Buyer.

For the Seller, the SLB dealing is worthy merely if the benefits from selling are higher than the benefits from keeping the belongings and reciprocally for the costs. In other footings, for the Seller the dealing is valuable merely if this equation is realized:

In other footings, the after revenue enhancement gross revenues returns received at the decision of the dealing, and the revenue enhancement deductible lease payment over the life contract should be higher than the depreciation revenue enhancement shied induced by busying the belongings.

On the Purchaser side, the determination is made based on the comparing between the purchase monetary value and the pure benefit of purchasing.

In other footings, The present value of the after-tax income received from the Seller + present value of the revenue enhancement shield + present value of the after revenue enhancement sale returns related to the future sale of the belongings ( reversion return ) should be higher than the initial purchase monetary value.

We noticed through those two equation s that one chief determination variables of continuing in a SLB dealing is the purchase monetary value, the buyer/ marketer cost of capital and the purchaser / seller revenue enhancement rate. The cost of capital for the purchaser should be lower than the Seller ‘s one and the purchaser revenue enhancement rate should be lower than the Seller ‘s one.

The fiscal wealth of the Lessee

On the other manus, the chief manner, for the Purchaser to measure the profitableness of a SLB is to deeply analyze the fiscal state of affairs of the Seller to measure the fiscal strength of its compacts and the strategic program sing the hereafter investing.

As an houseman within a Real Estate squad, I had the chance to work on an off-market Sale and leaseback consisting two hotels in Germany owned by a big in private owned Spanish hotel group. This instance was interesting as the company was a non listed one so the analysis was performed based on the elaborate information provided by the direction and fiscal squads. Measuring the signature of the renter was a manner for the squad to detect if the principle behind the SLB was to fund growing or payback bing debt which in that instance could deter to contract the 20-years rental and therefore to travel further in the trade. After holding obtained information about their 5-year concern program and positions of developing and bettering their concern and consequences, we calculated the ICR ( involvement coverage ratio ) over the EBITDA which was satisfactory as the computation showed ratios below 1. All the more as, the deadlines of debts were all manageable ( the bulk was over 5 old ages ) and the company clearly expressed its purpose to cut down the group ‘s entire debt, even though the current LTV was already satisfactory ( even if we applied a price reduction of approximately 20 % on some plus values, more particularly those located in hard-pressed states such as Spain or Italy ) . In add-on the corporate warrants could be an extra point to corroborate the fiscal strength of a Lessee. Finally, the evaluation, the concern sentiment and repute are the intangible but necessary statement to contract a SLB.

Restrictions of SLB dealing

The prostration of some trades – the value displacement job

As we see above, the dealing monetary value is a cardinal component in a SLB dealing which is to a great extent reliant on the belongings value. And the later is to a great extent dependent on the market growing and the current macro economic conditions. The chief hazard for both parts is the possible motion of the belongings value. For the Seller it will be more hard to purchase back its belongings ( ROFO ) if the value additions and the Buyer bear the hazard of a possible autumn that will take down the hereafter merchandising monetary value ( reversion output ) and therefore lower the possible hereafter capital additions. Empirical groundss have shown that this hazard is far for being panic. For illustration, we could foreground the “ HSBC instance ” in 2008 in the UK. In May 2007, Metrovacesa ‘s bought HSBC ‘s headquarter in Canada Square for a entire sum of 1.09 billion ? , while at the same time signed a 20 old ages long term understanding with the company based on an initial rent of ?43.5 million. Metrovacesa put ?280 million of equity into the trade and HSBC raised ?810 million in the signifier of a bridging loan. Following the market fluctuation that occurred on that clip, syndication of the bridging loan has non been possible and the parties have come to an understanding that the edifice will be handed back to HSBC. HSBC repurchased the plus in 2008 for ?838 million, recognizing approx. ?250 million of net income to the hurt of Metrovacesa.

The alteration in the ordinance

Three alterations in the European ordinance will likely impact the Real Estate Market and hence the SLB 1: Solvency II, Basel III & A ; the Alternative Investment Fund directors Directive ( AIFMD ) .

BASEL III: The Basell II demands have been strengthened in September 2010 and the ordinance of the banking sector was besides one of the precedence of the G20 acme in Cannes, . Basel III put a existent quandary to the Bankss: increase capital or cut down assets. A Tier 1 ratio to be reached by terminal of June 2012 should impact the Real Estate sector, the activity become non a precedence for the Bankss. They will be forced to sell a immense measure of assets.

Solvency II: The execution of the ordinance will hold a major impact for the insurance companies, major investors in the Real Estate sector. Negative consequence non on the direct investings but the manner the companies would cover with the currency hazards. International investings would likely been affected.

Alternate Investment Fund directors Directive ( AIFMD ) : Implemented in November 2011, the purpose of this directive is to put a EU common attack to conveying to private equity and fudge financess with a range of ordinance ( macro & A ; micro prudential hazards, appropriate mandate & A ; ordinances, accounting and liability principles.. ) to heighten transparence and stableness of the manner financess operate.

Part III- Empirical Test

Sample & A ; informations aggregation


The purpose of this paper is to look into the European hotel market of SLB minutess and more exactly the dealing made by the Gallic group Accor. Therefore the sample is composed of SLB proclamations made by Accor during a decennary, from 2002 to 2011. The information set contains the twelvemonth, the proclamation day of the month, the Lessee ( Vendor, i.e. Accor ) , the Lessor name ( the Purchaser ) , the figure of assets in the portfolio sold and the merchandising monetary value. To be noticed that we excluded all the franchising and all the direction back signed by the company. The sample is hence made of 9 minutess listed below.

Data aggregation

There is no specific database that records all the SLB and even more the proclamation day of the months. Despite all the SLB searched for it in cyberspace, the bulk of the minutess were recorded in the HVS studies that I read from 2002 to 2011. HVS Consulting & A ; Valuation is the universe ‘s prime hotel consulting and rating house that provides annually statistics for the Hotel market industry and a list of minutess. For the proclamation day of the months, I searched for it in the specialised imperativeness release, agents ‘ web sites and interviews with professionals in the sector, and publically available beginnings. I selected the earliest available proclaimed day of the month in the public beginnings ( normally different from the dealing day of the month ) and so adjusted the proclamation day of the month to fall within the financial twelvemonth. All the fiscal placeholders used to prove my hypothesis are those reported in the fiscal statement one twelvemonth prior the proclamation day of the month fixed. For the Accor ‘s stock daily return and the market index return ( CAC 40 ) , I gathered all the needed information through the Yahoo finance web site.

Hypothesis & A ; variables definition

The first aim of this research paper is to foreground how SLB dealing affects the stock hazard and public presentation of the company ( the Lessee ) involved in the dealing. As we set supra, there is a negative relationship between Real Estate retention and company ‘s systematic hazard ( measured by beta ) . Therefore our “ Hypothesis NA°1 ” to be tested is:

Hypothesis 1: “ SLB increase the systematic hazard measured by beta ” .

As we have seen in the old subdivisions, companies use SLB minutess either as an alternate beginning of funding to refund the debt and afford its liabilities or uses the hard currency returns to reinvest into activities that generate growing ( Like R & A ; D ) . So, as Elayan et Al. ( 2006 ) affirmed, we could expect that the market reacts otherwise harmonizing to the Lessee ‘s “ driver ” behind the SLB dealing. In other words, I want to prove if the market can comprehend if SLB financess are likely to be used for growing as value enhancing or used to run into debt duties. But this statement is really hard to prove through empirical observation as the companies seldom announce their nonsubjective behind such dealing, peculiarly when it aims to “ salvage ” their fiscal place, as confirmed by Mr. Gael Lelay, Asset Manager at AXA Investment Managers specialized in the Hotel industry ( and who spend more than 25 twelvemonth in the direction squad of Accor ) . But the fiscal place could be assessed by placeholders and the market can utilize some indexs to measure the fiscal place and calculate the nonsubjective behind SLB dealing. One of the placeholders is the P/E ( monetary value gaining ) ratio of the company. As Mc Connel & A ; Servaes showed in their surveies, there is a positive correlativity between the P/E ratio and the reaction of the market, i.e. the unnatural return. As Ezzel & A ; Vora ( 2001 ) , in the same industry, companies that are likely to sell their corporate assets are those who have lower ICR and hard currency flow ratios, while have high debt ratios.

Hypothesis 2: “ There is a positive correlativity between the P/E ratio and the market reaction ” .

Last but non least, the size of the SLB dealing has, evidently, an impact over the market. The higher the ratio of the size dealing over the company ‘s market capitalisation better is the reaction of the market.

Hypothesis 3: “ The size of the dealing is positively correlated with the reaction of the market ”

Definition of variables


The trial is an event survey based on a clip changing informations analysis. I decided to utilize as a placeholder of hazard, the beta variable. In fact, in downswing periods, standard divergence as a hazard step could be biased as it follows the market fluctuations. Beta is defined as a systematic hazard related to the plus, in comparing with the market as a whole. In other words, it is the correlative volatility of an plus ( here the company ) in relation to the volatility of the benchmark ( the overall fiscal market ) . It is calculated as follows:

Beta is an of import step in finance and in Real Estate as it is to a great extent reliant on the needed return of the stockholders. It has been profoundly studied by William Sharpe in the CAPM theoretical account ( 1990 ) where it states that the market assesses the systematic hazard ( beta ) looking at the expected future covariance of the company ‘s return in comparing with the market.

The P/E ratio

The monetary value net incomes ratio ( P/E ratio ) is defined as the market monetary value of a portion divided by the one-year net incomes per portion ( EPS ) .

It is a good placeholder to measure a company: a higher P/E ratio means that investors are paying more for each unit of portion. It means that the market value “ good ” this company. It is normally the instance for companies that have high position of growing. In add-on, higher hazard stocks ( higher beta ) are positively correlated with P/E ratio.

Methodology & A ; consequences

Hypothesis 1: “ SLB increase the systematic hazard measured by beta ” .

Taking as en event window 100 yearss before and after the proclamation day of the month, I performed a arrested development analysis to gauge the beta pre and post the proclamation day of the month. To make that, I followed the below stairss:

I searched for Accor ‘s day-to-day stock monetary values for each dealing on Yahoo finance that gives the current ‘s twenty-four hours information on the stock ‘s trading. I besides searched for the hard currency dividends for the same periods

I calculated the returns on stocks utilizing this expression:

Daily return = [ Price at day of the month ( T ) – Monetary value at day of the month ( t-1 ) + hard currency dividend ] / ( Price at day of the month ( t-1 )

For the market index return, I choose to see the CAC 40 stock index and I used the same method to obtain the market return

Then, I used the arrested development tool informations analysis on Excel to gauge the beta pre and station proclamation for each dealing. The input Y scope represented the Stock market returns and the input X range the market during the same period.

The incline coefficient is beta.

We obtained the undermentioned consequences:

Table 1: alteration in beta for all observation ( -100 ; +100 )

Then, I performed a Paired Sample trial T ( Table2 ) to measure the significance of the alteration in beta. A mated sample trial compares the agencies of two variables. It computes the difference between the two variables for each instance and trials to see if the mean difference is significantly different from nothing.

I found the above consequences:

Table 2: Paired sample trial ; alteration in beta for all observation ( -100 ; +100 )

The Table 2 represents alteration in beta between pre and station proclamation day of the month for each dealing. We did n’t happen the same alteration in beta for all the minutess but all showed an addition of the variable. The most of import alteration were registered for the dealing 1 with a comparative alteration of 3,03 and the smallest 1 was for the dealing 7 were the beta remained about unchanged. We noticed besides a rearward alteration of beta than the one expected. In fact, for the dealing 5, the beta station proclamation day of the month decreased. For all the observations, the T – trial showed significance at 5 % degree.

This beta addition station proclamation day of the month is in-line with the theory ( Brounen & A ; Eichholtz 2005 ) and our outlooks or hazard increasing with diminishing variegation due to plus divestiture.

Furthermore, the highest addition in beta ( 3, 03 & A ; 0, 33 ) was for the dealing 1 & A ; 9, for which Accor announced it will utilize the capital released from the SLB dealing to finance growing in its nucleus concern ( pull offing hotels as operators ) . The first dealing concerned the trade conducted in 2004 by Accor in the UK refering 3 assets for a entire sum of a‚¬57 billion and the dealing 9 was the sale of the 7 Novotel in France for a entire sum of a‚¬77 billion. It confirms that SLB decreases benefits of variegation and increases the stock hazard. To be noted that we can non explicate the beta alteration for the dealing 5. We searched for exogenic events that could hold impacted the dealing at that clip but found no relevant information in that intent.

The other fiscal options ( Repays loans or funding growing ) show low alteration in beta. We could take the illustration of the dealing 3 & A ; 4 refering severally 91- assets dealing made in Germany & A ; Netherlands and 30 assets sold in the UK both in 2007. These dealing entered into the “ plus right ” scheme of Accor of depriving the lower bring forthing assets to cut down debt ( a‚¬-2.2 billion mark ) and let go o


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