Lemon Tree Hotels, which is conducting due diligence to acquire New York-based billionaire investor and philanthropist Nicolas Berggruen’s hospitality business in India, will finalise its decision by June end. Earlier in March, the BSE-listed hotel company had entered into a non-binding term sheet with Berggruen Hotels Pvt Ltd (Keys Hotels) and its Mauritius incorporated holding company Berggruen Investments to acquire 100% shareholding.
Patanjali Keswani, chairman and managing director, Lemon Tree Hotels, said the due diligence is proceeding very satisfactorily. “By June end, we hope to make an announcement that will address two concerns. One is, whether we are taking it and what we expect to do with it, and therefore what is the effective multiple we are buying it at or what is the effective multiple we will correct it to within a year. The second one is about how we are going to finance it. We believe that we have found a nice way to finance it with very limited risk,” said Keswani in an earnings call last week on Friday.
Lemon Tree Hotels had earlier divested 25% stake in its subsidiary Carnation Hotels. The stake was offered to joint venture (JV) partner Rattan Keswani (not related to Patanjali Keswani) who is deputy managing director of Lemon Tree Hotels and chairman of Carnation Hotels P Ltd. At a later stage, the Lemon Tree management also plans to buy out the stake held by JV partner in Carnation Hotels.
Elaborating on the arrangement at Carnation, he said that Rattan Keswani, who was then president of Trident Hotels at The Oberoi Group, was brought on board to launch Carnation Hotels around seven years ago. “An external valuation for Carnation Hotels has been done already. And based on that multiple, over time, it is understood that we will buy him out and make Carnation a 100% subsidiary of Lemon Tree Hotels,” he said.
With 23 operational hotels currently in its portfolio, Carnation has a pipeline of 26 hotel management contracts. It is likely to cross 50 operational hotels over the next two-and-a-half years. The Carnation management is hoping to reach 100 hotels (operational and in the pipeline) in the next three years.
Lemon Tree, which has been largely focusing on the mid-market business hotel segment, has also added another brand to its portfolio. Christened ‘Aurika Hotels & Resorts’, the new offering will be an upscale brand positioned above the Lemon Tree Premiere hotels. The first Aurika branded hotel will be launched in the Udaipur market – it was earlier proposed as Lemon Tree Premier. The upcoming hotel at Mumbai International Airport Ltd (MIAL), Mumbai (the largest single structure hotel in India with a guest room inventory of 670) will also be launched later in the current fiscal under the Aurika banner.
“We have upgraded the Lemon Tree Premiere brand and our new hotels in Mumbai (soon to open) and Pune (already open) are now the next-gen Lemon Tree Premiere hotels in the portfolio. Aurika, in my view, is two steps above the new Lemon Tree Premiere. We have produced a product at not a significantly higher cost to us. It’s an upscale product with upper upscale, super levels of service. Our expectation is a minimum increase in the average room rate (ARR) of 50% over any Lemon Tree Premiere in that city,” he said, adding that Aurika in Udaipur will open at (room rates) about Rs 12,000 to Rs 14,000.
Entering the Mumbai hospitality market, the company will soon open its first Lemon Tree Premiere hotel in Andheri East. Its wholly owned subsidiary ‘Meringue Hotels Pvt Ltd’ has already received occupancy certificate from Municipal Corporation of Greater Mumbai and the property is expected to start receiving guests sometime in this month.
