Why Tata's Indian Hotels Company sold the Taj Boston

Taj Boston

In May, The Taj Boston (owned by debt-stressed Tata Group hospitality major Indian Hotels Company Limited, which runs Taj Group of hotels), went on the market. Within two weeks, a local group of real estate firms reached a deal with Taj to acquire the hotel, and today, less than two months later, the deal is done. New England Development and Eastern Real Estate, along with their partners Highgate, Rockpoint Group of Boston and Philadelphia-based Lubert-Adler, reached an agreement with the Taj Group to buy the hotel for $125 million. Net sale proceeds will “largely” be utilized to reduce the company’s outstanding debt.

"United Overseas Holdings effected on July 12 the divestment of Taj Boston Hotel through sale of the entire issued and outstanding LLC interests of IHMS (Boston) LLC held by UOH to AS Holding LLC, Boston for an aggregate consideration of $125 million," Indian Hotels Company Limited (IHCL) said in a regulatory filing. 

United Overseas Holdings is an indirect wholly owned subsidiary of Indian Hotels Company and IHMS (Boston) LLC is a direct subsidiary of UOH.

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Taj Hotels Resorts and Palaces will continue to manage the 273-room hotel under a long-term management services agreement with the owning company, the company said in a statement. New England Development, Eastern Real Estate and Highgate will serve as asset managers, “working closely” with the Taj Hotels Resorts and Palaces team, Rockpoint Group and Lubert Adler, according to the statement.

Taj Hotels Resorts and Palaces MD and CEO Rakesh Sarna said the sale was in line with Taj's global business strategy. “The U.S. remains an important market for us and we are committed to our presence which we have built over the past decade in key cities like New York, San Francisco and Boston," he said in a statement.

An Indian Company in America

IHCL bought the formerly Ritz-Carlton-run hotel from Millennium Partners for approximately $170 million in November 2006 as part of a plan to expand IHCL's global footprint and lessen its dependence on India. At the time, the property was the oldest continuously operating Ritz-Carlton in the country, having been in operation for almost 80 years.

But when the Great Recession caused both leisure and business travel to plummet, IHCL's U.S.-based properties, which included the Pierre in New York and Campton Place in San Francisco, ceased to be profitable and became a drain on the company. 

In particular, net loss (before tax) for the Taj Boston reached $7.3 million in 2015-16 against $6.7 million in 2014-15. The hotel’s total revenue in 2015-16 dropped 1.15 percent to $34.1 million from $34.5 million in 2014-15, making it the third consecutive year that the property was operating at a loss.

IHCL Goes Asset-Light

IHCL has started shifting toward an asset-light model even as it increases its brand presence globally and domestically within India. In May, Sarna said that the company would be “divesting certain assets in the spirit of being asset light and using those proceeds of divestment to not only reduce our financial exposure but to fuel growth. Our growth agenda remains intact.” Two weeks ago, IHCL sold its shares in luxury hotel and travel operator Belmond for $49.5 million. 

IHCL’s outstanding debt is reportedly more than R 5,000 crore (more than $740 million). Its net consolidated loss narrowed to R 60.53 crore at the end of March from R 378.10 crore in the previous financial year. On a standalone basis, its net profit in the fourth quarter stood at R 88 crore against a loss of R 119.15 crore in the same quarter a year ago.

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