At the end of October, Canada-based private equity firm Brookfield Asset Management completed its acquisition of India-based Hotel Leelaventure for approximately $558 million, helping pay down the Indian hospitality giant’s debt and bringing an end to a dramatic story of ups and downs for for the luxury brand.
Big Business
The sale, announced earlier in the year, included four hotels in Bengaluru, Chennai, Delhi and Udaipur, managed properties in Gurugram, Delhi, Goa and Kovalam, land in the city of Agra and 100 percent holding in the subsidiary, Leela Palace & Resorts—representing 80 percent of the company’s revenues and 88 percent of its net worth, according to HVS.
“Brookfield Asset Management was a dream fit strategically,” Rajiv Kaul, president of Leela Palaces, Hotels & Resorts, told Hotel Management during a recent visit to HM's New York City offices at parent company Questex. The acquisition worked out well, he explained, “not just as it related to financial parameters but also based on shared vision and values [and] the company’s commitment to India.” Brookfield has invested nearly $16 billion in India to date, Kaul noted.
The closing was delayed for several months due to reported objections from ITC Hotels and other minority stakeholders. “Due to [Hotel Leelaventure Limited] being a public limited company, it was mandatory to have all necessary statutory, regulatory, and shareholder approvals in place,” Kaul explained. “Regrettably, while the sale had already been approved by more than 85 percent of shareholders, a minority shareholder entity (having 7.8 percent of total shares) initiated litigation. This delayed completion of the transaction.”
India’s Securities Appellate Tribunal ultimately rejected the complaints, and the deal—reportedly the largest hospitality asset transaction to date in the country, Kaul said—was finalized in October.
Next Steps
Now that the deal is done, Kaul emphasized guests should not expect a significant change in their experiences at the company's nine owned and managed hotels. “Brookfield is not just buying the assets, it’s buying the business,” he said, noting this was the first time the Canadian company was not just acquiring hotel properties on their own. Just as significantly, Brookfield is unlikely to rename or reflag any of their new properties. “If they did not believe in [the name], they would not buy the brand,” Kaul said. “They would buy the asset and reflag it.” By buying the brand, he said, the company demonstrated the value of the Leela moniker and its potential for growth. “And fortunately for us, there is a tremendous opportunity for us to grow our brand in the pure luxury sphere.”
That sphere gives Leela room to gain ground and grow its market share. “There’s no market saturation that forces you to do other things,” Kaul explained. Still, while the luxury segment has a dedicated following, the company isn’t ruling out expansion into other market segments, he said, and might consider an upper-upscale brand to fit in markets where a luxury hotel would not be as effective.
But all of that is still a way away. For the time being, Leela Palaces, Hotels & Resorts will keep focusing on growing the Leela Hotels and Leela Palaces before launching an upscale or upper-upscale brand. “We want to stick to one brand right now,” he said, noting there is “a certain amount of elasticity” under the existing names. “It gives us bandwidth. We can work in that zone for the next five years and then recalibrate.” The company maintains a marketing alliance with U.S.-based Preferred Hotels & Resorts to remain on the radar of luxury travelers and their agents, and Kaul noted 25 percent of the business at the Delhi, Bangalore and Udiapur hotels comes from the United States.
Global Growth
While Leela’s hotels are currently limited to India, the company is poised to go global in the coming years now that the Brookfield acquisition is complete. “We are ... in advanced talks for luxury resorts in Maldives and the Indian Ocean,” Kaul said, noting the source markets for these destinations are the same as for India. “We have established relationships with the international travel trade [and other] travel partners. We can harness our strengths.” Strengthening relationships in international markets, he added, will help the company’s resorts in India.
Domestically, Leela’s next cycle of growth will be through a combination of owned and managed assets, Kaul said. Within the next year, the company expects to open the 170-room Leela Hyderabad in Banjara Hills, Hyderabad; the 275-room Leela Bhartiya City in Bangalore; and the 300-room Leela Gandhinagar in Gujarat, which will be connected to India’s largest convention and exhibit center. Kaul quipped that “2020 shall be a busy year."
Leela also is planning to open a 100-room Leela Palace hotel in the historic city of Agra, where seven acres of land were part of the Brookfield purchase. The site, Kaul said, is “fantastic” because construction is banned within a one-kilometer radius of the Taj Mahal. “We’re just outside of that, 1.1 kilometers away.” As such, when it opens, the property will have prime views of the historic monument. A Leela Palace resort in Jaipur and a hill resort in the Himalayas also are in the planning stages.
While the midscale sector is certainly a powerful force in the hospitality industry, Kaul sees ongoing demand for genuine luxury hotels. “A lot [of places] call themselves luxury, but just because the marble is shining, it doesn’t mean it’s luxury,” he said. “There’s always room at the top for hotels offering a distinctive, authentic, pure luxury experience. That is where we do better. That is an area where we feel at home and comfortable.”