Trade News
Inbound/ Domestic News
Outbound News
 
Home In Conversation Details

IN CONVERSATION

Thursday, 20 December, 2018, 10 : 53 AM [IST]

‘We focus on last mile funding & financing operational hotels’

Piramal Capital & Housing Finance (PCHFL) is a wholly owned subsidiary of Piramal Enterprises Limited which is registered as a housing finance company with National Housing Bank (NHB) and engaged in various financial services businesses. The company had announced its foray into hotel financing early this year and committed INR 10,000cr for lending over the next three years. In a detailed interview with P Krishna Kumar, Khushru Jijina, Managing Director, PCHFL shared their vision for hotel financing.

Q What made you look at the hotel sector as a potential area for investment, especially when fund companies and institutional investors are shying away from the sector due to the long gestation period?
Hospitality has always been an evergreen sector and quality assets at good locations have thrived across business cycles. Our deals are structured in a manner that takes care of the long gestation period and cyclicality of the cash flows as we provide tailor-made solutions to help the asset build out and operate smoothly across business cycles. We tend to avoid equity into greenfield projects since the construction and approval risks tend to be high in this sector, focusing instead on last mile funding opportunities and financing fully operational hotels. We have increased our coverage and exposure to hospitality as a part of our real estate financing business wherein we have the ability to provide financing solutions across the entire capital stack – be it senior debt opportunities, mezzanine funding, last mile funding towards completion or acquisition financing opportunities in the sector. Additionally, we are also targeting both the owners as well as operators of marquee hotel assets on a pan India basis. We are very selective on the partners, locations and hotel assets that we underwrite.

Q You had announced your intent to set aside INR 10,000 crore for investment in the hotel sector early this year? How do you plan to go about with the investment? What kind of properties are you targeting – joining as an equity partner in running properties, investing in Greenfield projects, brownfield projects, etc.?
We forayed into the hospitality sector in early 2018. At that point of time, we announced our commitment in this space with an investment of INR 10,000 crore in the next 3 years. We have always been clear that our involvement will only be as a financial partner in last mile funding opportunities and operational hotels and not directly in the equity or management of any property.

We ventured in this space with an initial investment of INR 650 crore towards two marquee hotel assets with the Gurgaon based Vatika Group (against the Westin Gurgaon and the Westin Sohna), followed by another INR 600cr with Advantage Raheja Group (against the JW Marriott, Bangalore and the Crowne Plaza, Pune). All of these loans are against operational assets. Our third significant investment was of INR 650 crore with a Gurgaon based SAMHI Group. This was a structured debt investment which will allow SAMHI Group to support their growth plans and refinance existing lenders across three assets – The Courtyard and Fairfield by Marriott in Bangalore, the Sheraton in Hyderabad and the Hyatt Regency in Pune.

We have also concluded 7 other transactions, totaling INR 800 crore against 7 hotel assets, (Four operational and three in final stages of construction and fit out) operated by top-tier brands like Taj, Hyatt, Radisson, etc. across regions like Bangalore, Hyderabad, Udaipur, Shimla, and Goa. Of this, INR 100 crore will be extended as last mile funding towards the completion of the first Taj Luxury Resort in Himachal Pradesh coming up in Theog, near Shimla.

In a short span of time, we have expanded our portfolio significantly in this space and will continue to do so for going forward.

Q Fund companies are usually interested in operational assets. In that sense, what is the sense of the health of the hospitality market today in key metro markets which you feel open up investment opportunities for you?
Markets across the country with regard to the hospitality space are looking strong and will continue to do so for the next couple of years primarily due to the reduced supply of new hotels and consumption from domestic travelers. We have also seen the strong demand of hotel rooms in established tourist destinations like Goa, Udaipur etc as these have now matured into all season holiday destinations and are benefitting from new age travellers with high disposable income. Hotels across metros especially Mumbai, Gurgaon, and Bengaluru are witnessing robust occupancy and ARRs. We see these markets as high-occupancy across seasons and they will continue to perform as each market has its own USP. The industry has also been supported by increased momentum from both domestic and foreign tourism as well as the recent interest in and renewal of destination hospitality.

We believe that traditional lenders are unable to meet the needs of the industry and we can, therefore, provide holistic financing solutions, together with deep real estate operational expertise and create customised solutions to cater to the requirements of this industry.

Q Although Pan India occupancies in hotels have seen marginal but consistent growth, the rates still below the pre-2010 levels. In that sense how would it make sense for companies like PCHFL to invest in the sector? What kind of positive outlook do you see for the sector in the country?
Room night prices pre-2010 levels were an exception and we do not expect it to reach those levels in near future. Having said that, it is important for any sector to grow gradually rather than overnight as witnessed in 2008-09. Currently, factors like a shortage of new supply over the next couple of years increased domestic consumption, increase in per capita income coupled with changing spending habits especially of middle-class Indians are driving the sector and will continue to do so over the medium term. Increase in air connectivity over the last couple of years especially from tier-II cities has also played an important role in the growth of the Hospitality Industry in India.

As far as growth strategy of PCHFL is concerned, we aim to service the needs of this industry across the various modes on behalf of both hotel owners as well as operators on a holistic basis The hospitality sector is uniquely positioned at the intersection of being both a real estate and a service-oriented business and through a combination of various platforms and we will be committing more resources towards the sector. As mentioned above, we have already committed a sizeable amount of funds towards the hospitality sector and will continue to scale our offerings in this vertical towards our target book size of ?10,000 crore in the next three years.

Q What is the kind of efficiencies that fund companies can bring into the sector?
By providing long-term loans which are mapped to cash flows of the hotel rather than doing template funding which doesn’t meet the requirement of the industry, we are essentially providing breathing space to the promoters and the asset to mature which automatically brings in a lot of efficiencies to the operations of a hotel. Such structures provide comfort both to owners and operators in the long term. We supplement all our investments with an extremely active asset management process wherein we replicate best practices from our wider real estate experience with an objective to reduce cost and increase the profitability of the hotel assets. We are very actively involved with our promoters to formulate strategies which would result in increased profitability for the asset over the longer term.

krishna.kumar@saffronsynergies.in
 
Post Your commentsPOST YOUR COMMENT
Comments
* Name :      
* Email :    
  Website :  
     
Receive the best of Travel content in your mailbox.
Enter your e-mail ID for our
Weekly e-Newsletter
   
© Copyright 2015 Saffron Synergies Pvt Ltd