Hotel deals are slowly picking up in India after a slump in 2016 as institutional investors and hospitality firms show increasing interest in acquiring assets in the sector which has seen some recovery during the past year.
According to data compiled by News VCCEdge, the financial research arm of News Corp VCCircle, 12 private equity deals worth around $91.69 million (Rs587 crore) have closed so far this year as against a total of $40.85 million in 17 deals the whole of last year.
Three major transactions worth more than Rs800 crore have been closed so far this year, while 2016 saw just two major hotel merger and acquisition deals worth Rs1,221 crore.
According to property advisory firm JLL India, 2017 is poised to close hotel transactions worth around $500 million, of which deals about $100 million have already been signed.
“We will be transacting a total volume of 11 hotels with about 1,800 rooms this year as per current mandates with us for a valuation of close to $300 million,” said Mandeep Lamba, managing director (India), hotels and hospitality group, JLL India.
Earlier in August, hotel investment and development firm Samhi Hotels bought out British hotel chain Premier Inn’s five hotel properties in India for around Rs220 crore. JLL India, the transaction adviser to the deal, is currently running mandates of another six hotel deals. All of them are in advanced stages of negotiation, Lamba said.
Other big hotel deals signed this year include Paris-based Louvre Hotels Group’s acquisition of a controlling stake in Indian hospitality chain Sarovar Hotels Ltd for around Rs350 crore and Mozambique-based Masa Hotels Ltd’s purchase of Aristo Realty hotel project in Mumbai for about Rs200 crore.
“It is evident there is continued improvement in performance of most hotels. Secondly, valuations are attractive now but as the hotel industry starts performing better, it will only go up. So this is the time when people are getting in and over the next 12-18 months, a fair number of acquisitions would take place for operating hotels,” Lamba said.
Similarly, global hotel consultant HVS Global Hospitality’s investment advisory team is currently running mandates for four to five hotel transactions, said Achin Khanna, managing director (South Asia), consulting and valuation practice, HVS Global Hospitality Services.
Khanna says investors and hoteliers have realised that early stages of an upcycle is the best time to buy hotel assets even as the challenge of a price expectations mismatch between buyers and sellers remains.
“This is the first time that we have started seeing structured institutional capital entering the hotel space. The fundamentals of sector is also such that we are at the highest ever occupancy since 2008-09,” Khanna said.
According to HVS, pan-India hotel occupancy has touched 65% in 2017 for the first time since 2008-2009 while average daily rate (ADR), or the average realized room rental per day, has shown improvement for two consecutive years.
“While supply is expected to grow at 6-7% in the next five to six years, demand will grow at 11-14%. So demand is outpacing supply by almost double for the next four to five years. We are at a very early juncture of a strong cycle and people want to invest early on,” Khanna said.
However, few hoteliers feel that while the hotel industry has generated interest among investors due to improving performances in the last one year, transactions are still taking time and not moving at a pace at which they should be moving.
“Compared to last year, there is some movement. There is money out there and people are looking around (for acquisitions). People have realised that hotel business is performing reasonably but hotel sector is not disjointed from real estate businesses and there is no sign of improvement there,” said Vimal Singh, managing director (South Asia), Louvre Hotels Group.