Brigade Enterprises may even go for an IPO for the proposed hotel unit at an appropriate time, says CEO Vineet VermaNew Delhi, January 08, 2018: Bengaluru-based Brigade Enterprises Ltd, which is in the process of moving all its hotel assets into a separate unit, may consider listing the new entity as a real estate investment trust (REIT) or going public in the future as part of its strategy to expand its hospitality business, said a top company executive.
Apart from bringing private equity (PE) partners in the new unity, the firm will also explore “listing on REIT once we have achieved critical mass in terms of inventory or even going public at an appropriate time,” Vineet Verma, executive director and chief executive officer, Brigade Hospitality, told Mint according to livemint.com.
The firm already has plans to double the number of hotel rooms to 2,000 in two years. It operates five hotel properties under global hospitality brands Grand Mercure and Sheraton.
Five more hotels are under various stages of construction, Verma said, adding reaching 2,000 rooms would be the “time to look for a REIT option or going public”.
However, it would all depend on the market conditions and how the REIT space matures by then, he said.
In 2016, the firm announced plans to hive off its hotel business to a wholly owned subsidiary with plans to bring potential investors into its hospitality business. The process of transferring the assets to the new entity—Brigade Hotel Ventures Ltd—is expected to be completed in the next few weeks, Verma said. Besides, a valuation of the current five properties is also underway, he added. At present, the group earns over Rs250 crore from its hotel business.
While the current pipeline of upcoming hotels is funded through internal accruals and debt, the firm is looking at PE investments for its future expansion plans. Verma said the firm plans to add 3,000 hotel rooms by 2025.
“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.
Though India is yet to see its first REIT listing, few commercial real estate developers like Embassy group and RMZ Corp. have been gearing up for it. While a REIT in the hospitality sector may be at a nascent stage, there has been renewed interest from PE firms to invest in the hotel sector as demand fast caught up with supply in the last two years.
According to a December report by rating agency ICRA, PE and venture capitalist interest revived in the past 15-19 months as both occupancies and revenue per available room (RevPar) improved.
The report also said PE interest in the hotel industry is likely to pick up significantly in coming years. “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.
