PE investments on a rise in the hospitality industry
TheiconicHiranandaniEstateis very close to major commercial office destinations within the Powai precinct. Nestled amidst high-endresidential apartments and landmarks like the Powai Lake, it attracts footfalls from upper-middle-class to HNI residents. F&B is a dominant category in this high street with multi-cuisine restaurants, ice cream parlours and a few pubs.
Mehar Chand Market, Delhi
This market is situated near Lodhi Colony in heart of New Delhi and is more or less a ‘boutique’ shopping destination for residents living around it. It includes an eclectic mix of retail categories such as designer stores, organic grocery stores, quirkyapparelstores, trendybistros andstationeryshops, among others. Mehar Chand Market attracts steady footfalls as it is surroundedbytheupmarketresidential neighbourhood of Jor Bagh, DefenseColony, GolfLinks and Sunder Nagar.
Breach Candy, Mumbai
MUMBAI: Private equity investmentsinthehospitality industry jumped three-fold in 2017, with transactions worth around $119 million closing during the year, indicating renewed interest in the sector.
Accordingtodatacompiledby VCCEdge, the financial research armofNewsCorp.’s VCCircle, 17 private equity deals were signed in the hospitality sector during the year, including hotels and restaurants.
While the number of deals remained the same, the size of transactions jumped significantly from the previous year. Deals worth around $43.58 million were signed in 2016, the data shows. Hotel consultants and ownerssaidthatwhilethepaceof investment has been slow, there has been a gradual increase in interest fromprivateequityfirms as the sector has been showing signs of recovery in the last two years. Hotel deals, including mergers and acquisitions, are likely to pick upfurtherin2018as severalpremiumhotelproperties are upforsale andafewdealsare likely to close in the coming months. For instance, while the LemonTreehotelchainwillsoon launch a$700 million initial public offering, other marqueeproperties such as Delhi’s Taj Mansingh, AsianHotel andHotelConnaught have been put up for auction. Besides, four properties of Aloft Hotels in India, comprising638rooms, areupforsale. One of the biggest deals was closed in September, when Goldman Sachs-backed Samhi Hotels bought out Premier Inn’s India portfolio for aroundRs250crore. Other private equity deals in the sector include Goldman Sachs GroupInc.’s investmentinDelhi- basedAzureHospitalityPvt. Ltd, which runs a restaurant chain under the Mamagotobrand, and GajaCapital FundIIpicking upa stake in Massive Restaurants Pvt. Ltd. “In terms of private equity investments, 2017 was markedlybetterthan2016. While thereisanimmenseinterestfrom PEfirms, the challenge is finding the right kind of portfolio. PE firms donotwanttoinvestinsingular assets,” said Saurabh Gupta, managingpartner(investmentadvisoryandassetmanagement) at Hotelivate, a hotel consultancy firm.
Theprivateequityinteresthas beendrivenbythegrowingoccupancy and also a gradual improvementinroomratesover the last two years. “Hotels have changed from being seen as a highlyriskyandnon-dependable investment (platform) to a very stable cash flow-based business andthis hashappenedinthepast two years,” Gupta said.
Mandeep Lamba, managing director (hotels and hospitality) at real estate consulting firmJLL India, agreed that there hasbeen growing interest from private equity investors in the last few years. According to him, hotel deals valued at almost $1 billion are likely to take place in 2018. “It could be one of the significant years for hotel transactions,” he said. According to a December report byrating agency Icra Ltd, private equity and venture capital investors’ interest in hotels has revived in the last past 15-19 months and is likely to pick up further. “Anotherareawhichhas attracted high PE interest is the budget hotel aggregator space, with players like Oyo, ZoRooms, Stayzilla, Rooms On Call and Treebo,” PavethraPonniah, vicepresident, corporate sector ratings, Icra, wrote in the report.
Bengaluru-based Brigade Enterprises Ltd, which hived off its hospitality businessintoaseparate division, is also looking to partner with private equity investments to expand its business, said Vineet Verma, executive director, BrigadeHospitality Services Ltd.
Hotel deals are likely to pick up further in 2018