Bengaluru’s Brigade Enterprises Ltd, which is progressing in the direction of converting all its hotel assets into an independent unit, might look at including the new entity in the list of Real Estate Investment Trust (REIT) or making it a public limited concern in the times to come as another strategic move to broaden its hospitality business, as confirmed by a senior company official.
Besides adding private equity (PE) partners to the new entity, the company will also probe into “listing on REIT once we have achieved critical mass in terms of inventory or even going public at an appropriate time,” says Vineet Verma, Executive Director and Chief Executive Officer of Brigade Hospitality.
The company has indeed proposed to replicate the number of hotel suites to 2,000 in another 24 months. It runs five hotel holdings within the ambit of worldwide hospitality brands Grand Mercure and Sheraton.
Five more hotels are going through a variety of phases of construction, Verma said, an increment of 2,000 rooms would be an ideal “time to look for a REIT option or going public”.
Nevertheless, it is all dependent on the environment of the market and the way in which REIT space mellows till that time, he said.
In 2016, the company made it public its endeavor to branch out its hospitality business to an entirely owned subsidiary that intends to allow on board, prospective investors into its hotel business. The procedures involved in moving the assets to the new entity—Brigade Hotel Ventures Ltd—is believed to culminate in the coming few weeks, Verma said. In addition, an assessment of the present five properties is also in progress, he added. As of now, the income of the group is in excess of Rs250 crore that comes from its hospitality business.
Although, the finance backing of the present crop of forthcoming hotels comes from internal accruals and debt, the company is considering PE investments for its upcoming plans to expand. According to Verma, addition of 3,000 hotel rooms by 2025 is under consideration.
“Growing beyond our committed pipeline of over 2000 keys by 2020 will require a hybrid approach… For us, it will mostly be a combination of brownfield and greenfield projects unless something truly attractive comes up by way of an operating asset,” Verma said.
Even though, India is still awaits its first REIT listing, some commercial realty developers like Embassy group and RMZ Corp. have been preparing for it. Even though an REIT in the hotel industry might still be in its infancy period, PE firms have exuded a positive interest to invest in the hospitality industry as demand has come within breathing distance of supply since the past two years.
In accordance with a December report by valuation agency ICRA, PE and venture capitalist interest refreshed in the last 15-19 months, since both possessions and income per room at hand (RevPar) has become better.
The report additionally mentions that PE interest in the hospitality industry will probably improve drastically in years to come. “However, ability to successfully monetize PE investments, preferably through IPOs, would be a cornerstone for future investments,” it said.
“Unlike the interest during 2005-08, investors this time are cautious and looking more at operational/ready hotels, rather than going through 3-5 year construction cycle, to avoid project delays and cost overruns,” said Pavethra Ponniah, vice-president, corporate sector ratings, ICRA, in the report.