India Hospitality ends deal with Entertainment World

This story first appeared in DNA Money edition on Friday, December 9, 2011.

Blank-cheque firm India Hospitality Corp (IHC) has called off a Rs100 crore deal with real estate company Entertainment World Developers Pvt Ltd.

Under the deal, London Stock Exchange’s Alternative Investment Market listed firm was to lease and operate the realtor’s 10 under-development hotels and 14 food and beverage outlets in non-metros.

IHC was to also acquire Treasure Food & Beverage Pvt Ltd, the franchisee for Pizza Hut in central India, from Entertainment World.

IHC was doing the deal through its Indian subsidiary, Gordon House Estate Pvt Ltd, in which Entertainment World was to pick up a 15% stake.

The alliance announced in September 2009 was to be completed in three years. However, there was a buzz in the market sometime back that IHC was reviewing the partnership and now sources have confirmed that the deal has been called off.

"There has been no progress on the deal between IHC and Entertainment World. It has been terminated finally, with both parties free to go their own ways,” said an industry source.

Financial constraint faced by IHC was the key reason for the partnership to be called off, the source added.

Officials from IHC and Phoenix Mills, which owns 42% in Entertainment World Developers, were not available to comment.

The hotels and F&B outlets to be leased and managed by IHC were part of Entertainment World’s 24 million square feet development pipeline across India including 11 shopping malls, 10 hotels and 11 townships.

Entertainment World was developing a total of 900 hotel rooms across 10 locations. The first phase comprised 352 rooms across Nanded, Ujjain, Jabalpur, Bhilai and Raipur, and second phase 548 rooms across Chandigarh, Udaipur, Amravati, Indore and Thiruvanathapuram.

Faced with own set of financial challenges, Entertainment World is understood to be going slow on further developments, including those that were under the deal with IHC, and is currently believed to be undergoing a restructuring exercise to turn around its existing operations.

It was planning raise Rs500-600 crore last year through an initial public offering by selling 25-30% stake mid-2010, but could not because of unfavourable market conditions.

Delays turning hotel breakevens elusive

This story first appeared in DNA Money edition on Tuesday, December 06, 2011.

Delays and cost escalations are set to double the breakeven time for several upcoming upscale hotels in the country, including those of Leelaventure and French Group Accor, which are 2-3 years behind schedule and face a cost overrun of several hundreds of crores.

Several projects that were announced during the boom period in 2006-07, were affected by the economic slowdown of 2008-09 as funding dried and demand fell.

Experts said of every 100 guestrooms being built around 36 are behind schedule, which means only 48,000 guestrooms from the current total pipeline of 75,000 are at various stages of completion and the balance 27,000 are delayed.

Among the notable examples, Shangri-La hotel coming up at High Street Phoenix, Lower Parel, Mumbai and Sofitel at Bandra-Kurla Complex that were scheduled to open in 2009 have been delayed by almost three years and are only expected to receive guests next year. Work on both the hotels had started in 2006.

In case of Sofitel, the delay was because the French hotel group Accor decided to reposition it as a luxury hotel.

“The brand specs were redefined which led to change in the entire development plan. It not only delayed the development but also increased the cost per key from Rs80 lakh to Rs1.2 crore. The overall cost is now pegged at over Rs800 crore,” said an industry source. The total cost of the 302-key hotel was pegged at Rs473 crore. “Taking the cost escalation and the current stressed market scenario into account, the hotel’s breakeven will get extended by another 3-4 years at least,” said the source.

The asset owners could recover their investment in the hotel after 11 years from the time it gets operational as against 5-7 years earlier. Accor is also an investor in the hotel with Shree Naman Group, the asset owner. Michael Issenberg, chairman and chief operating officer, Accor Asia Pacific, recently told DNA that Accor continued to hold 40% stake in the development, which means it has to make further investment to maintain stake.

The over 400-room Shangri-La got delayed mainly because of issues with contractors. However, work resumed post hiring of new contractors late last year by the asset owner, Pallazzio Hotel and Leisure Ltd, a subsidiary of Phoenix Mills, and the property is now expected to be soft launched by April and a full-fledged opening by September.

The overall cost of the project as per 2010 timeline was estimated to be around Rs700 crore. A recent report by brokerage Edelweiss Securities has now pegged it at Rs835 crore. “The breakeven situation with Shangri-La is more or less similar to the Sofitel at BKC. I certainly don’t see it breaking even in the normal 5-7 years,” said top industry official.

Among the other hotels that have got delayed include the 250-room Ritz Carlton in Bangalore, being built by Nitesh Estates. The initial cost projection in 2007 was Rs450 crore, which has now risen to `700 crore. Industry experts feel the delay and cost escalation has been so severe that it may not be a viable project for the asset owner anymore.

Hotel Leelaventure’s hotel in Delhi also faced minor delays but it has its own challenges related to cost escalation. The Delhi market has seen a fairly good supply of hotels as a result the average room rate there is severely under pressure. The market scenario is expected to remain more or less the same for a while now and impact the breakeven of the hotel, a source said. The group’s Chennai hotel has been delayed by almost two years and is likely to open mid-next year.

Work on Emaar MGF’s JW Marriott hotel in Delhi, too, has been stalled for a while now with no updates on its resumption.

Experts say while a delay of few months is manageable, projects that deviate two years or more from their schedules affect profitability drastically and even make the project unviable.

Siddharth Thaker, managing partner, Prognosis Global Consulting, a hospitality advisory firm, said. “Breakeven is a function of how much leverage you have on the project. A delayed project inflates the interest component on the debt. The entire pressure is met through the operating cash flows of the hotel.”

The other factor is that the hotel misses the business cycle as the entire market dynamics changes, particularly the supply-demand situation, Thaker said.

Concept Hospitality to add over 650 guestrooms in 2012-13

Focusing on the five-star accommodation segment, Lighthouse Fund-backed Concept Hospitality Pvt Ltd (CHPL) will add over 650 guest rooms in the financial year 2012-13. A pure play hotel management firm, Concept has lined up a slew of launches across cities like Mumbai, Chennai, Chandigarh and Tejpur (Assam). CHPL’s current development pipeline includes 15 hotels across metros, tier II and III cities in the country of which the management expects 8 hotels to be operational by March 2013.

Param Kannampilly, chairman and managing director, CHPL, said, the company added a little over 500 guest rooms in the last 12-odd months taking the total number managed guestrooms to 1,207 across 20 hotels. “The next 12-16 months will see 8 new hotels getting operational adding approximately 660 guestrooms. All the new hotels will be five-star carrying The Fern flag. Among the new launches, five properties will be launched in the city of Chennai and will also mark our foray there,” he said.

The company – on a collective basis – is targeting a turnover of Rs 200 crore for the current fiscal of which Rs 65 crore has been achieved in the first half already. “We are currently in the business season and will enter the peak season in a few weeks from now. We are very much on track to achieve the Rs 200 crore turnover target in this fiscal as against Rs 120 crore in the previous financial year,” he said. On an entity level, CHPL (as a management company receiving management fees and other revenues) will register a turnover in excess of Rs 12 crore.

Managing hotels under The Fern, The Fern Residency and Beacon brands, CHPL will opened four 'ecotel' hotels in the five-star segment adding over 300 guest rooms under its flagship 'The Fern' brand across key metros and mini-metros in the country.

In Mumbai, the hotel management company opened Hiranandani Group’s second ecotel project the 141-rooms, Meluha - The Fern at Powai in March 2011. The first one – Rodas - an Ecotel hotel – also in Powai is managed by Concept as well. The company also manages a 35-room boutique hotel at Bandra called Grand Residency. Another 75-room hotel is currently in the final stages of completion and will come up in Chembur early next year and will be branded as The Fern Residency. The company’s fifth hotel in Mumbai is currently under development in Goregaon and is likely to start receiving guests sometime in 2014. “Going by the letter of intends (LoI) we have signed already Mumbai and Chennai will be two cities with five hotels each,” he said.

Elaborating on the funding for new developments, Kannampilly said, investment for all the hotels will be done by the respective asset owning companies with Concept coming in as a branding, operating and management partner. On an average, the cost per key for The Fern hotels ranges between Rs 55 to Rs 65 lakh excluding land and financing costs. In the three- and four-star categories, CHPL manages hotels under 'The Fern Residency' brand. The average cost per room for this category of hotels is Rs 25 lakh excluding land and financing costs.

The company is actively pursuing management contracts in the international markets and is currently in discussion with hotel asset developers in countries like Bangladesh, Tanzania and South Africa. While in Tanzania CHPL is mulling an eco village cum city-based resort project, it will be a management contract initially in Bangladesh followed by a joint venture with the same developer to manege eco-friendly hotels there. As for South Africa, the company is doing a management contract for a four-star hotel in the outskirts of Johannesburg.

DLF acquires Hilton's 26% stake in hotels JV for Rs 120 cr

DLF acquires Hilton's 26% stake in hotels JV for Rs 120 cr

DLF Ltd has acquired 26% stake held by Hilton in its joint venture company DLF Hotels & Hospitality Ltd (DHHL) for Rs 120 crore. The stake was acquired by DLF's wholly owned subsidiary (WoS) DLF Hotel Holdings Ltd which had 74% in the JV and the balance was held by Aro Participation Ltd and Splendid Property Co Ltd, affiliates of Hilton International Co.

The joint venture was instituted back in 2006-7 to set up a chain of hotels across the country. However, the realtor had to shelve plans because of the economic downturn in 2008 which impacted a host of real estate companies.

Confirming the development, a Hilton Worldwide spokesperson said, “DLF Ltd (DLF) has bought the 26% shareholding of Hilton Worldwide in the Hilton-DLF joint venture company. We value our relationship with DLF, and our association will continue with our managing the DLF-owned Hilton Garden Inn brand hotel in Saket, New Delhi. The hotel has performed very well and has won several awards including the prestigious HVS award for hotel of the year at the Hotel Investment Conference – South Asia in 2010.”

The DLF-Hilton JV was to build a chain of hilton branded hotels across the country over a period of 5-7 years from instituting the company. As per the arrangement Hilton was to invest up to $143 million in the 75-odd hotel developments to be undertaken by the JV company.

However, with this transaction getting concluded, DLF Hotels now becomes a wholly owned subsidiary of DHHL. DLF spokesperson when contacted confirmed the deal value to be Rs 120 crore and that the joint venture currently has 4 hotels sites one each in Kolkata, Chennai, Trivandrum and NCR.

"The transaction has been done to take complete ownership of the company and its underlying assets including unbuilt hotel sites with a view to monetize them. This is part of DLF's ongoing strategy to divest non-core assets," said the spokesperson.

ITC set for international foray with luxury hotel in Colombo

Cigarette to hospitality company ITC Ltd is set to enter the international hospitality market with a luxury hotel in the capital city of Sri Lanka, Colombo. The Indian hospitality major is currently in the last leg of discussions with Sri Lankan government and expects the deal to get sealed very soon.

ITC Hotels’ spokesperson confirmed the development saying final details are still being worked out. “All I can say at present is that details about the land parcel, investment, brand, guestroom inventory etc are being discussed,” he said. The project will be developed as a green hotel.

Quoting Sri Lankan government sources, a PTI report said that the ITC is likely to invest Rs 1,544 crore ($300 million) for the said project. The government has approved a $300 million foreign direct investment (FDI) enabling the hotel to be built on 5 acre land parcel located in close proximity to military headquarters in Colombo's famous Galle Face landmark beachfront on a 99-year lease, said the PTI report.

“ITC is a reputed hotel investment group in India, with investments and hotel in India. The government hopes that its presence in Sri Lanka will be a significant contribution toward promoting FDI and the tourism industry in the country,” said the Sri Lankan government information department.

The report further added that the Board of Investment of Sri Lanka will enter a Memorandum of Understanding (MoU) with ITC Hotels enabling the firm to execute the project under concessionary tax terms with permitted exemptions on investments.

The land parcel in discussion was earlier allocated to China Aviation Technology Import Export Corporation (CATIC) for $73.5 million for a hotel project. However, the Chinese firm later withdrew and the Sri Lankan government is in the process of reimbursing $54.4 million dollars already paid by CATIC for the lease of land.

Also Read: ITC will manage third-party hotels...

IndiaReit Fund to exit 2-3 investments in 2012

An edited version of this story first appeared in DNA Money edition on Friday, December 02. 2011.

Come 2012 and IndiaReit Fund, a subsidiary of Piramal Healthcare Ltd, will be looking to exit from 2-3 investments made from its developments funds till date. The exits are expected to give the real estate focused investment firm between Rs 450 to Rs 500 crore. The firm will also look to make a couple of new investments with some of their existing partner companies.

Ramesh T Jogani, managing director and chief executive officer, IndiaReit Fund Advisors Pvt Ltd, said, “We are talking on exits with all our investments but there is nothing that will happen in the next one or two months. It will take a couple of quarters for a few deals to conclude because when you talk to four people one might get active and eventually fructify,” he said without giving specific details.

Jogani said that since exits cannot be planned, the management basically works towards building on their entry point. “We have made enough exits from all our funds and when the time is right we take the exit call. The preferred route is selling back to the developer (buyback), exits through third-party or a real estate fund,” he added.

IndiaReit currently manages a corpus of over $900 million, spread across four funds (three domestic funds and one offshore fund), besides the AIM-listed Trinity Capital Plc. The investment firm recently invested Rs 200 crore in Mumbai-based Omkar Realtors’ mixed-use development at Mumbai’s premium location i.e. Worli. The investment was made from its Rs930 crore Domestic Fund IV.

Elucidating their approach to investing in current market scenario when investing in real estate is not concerned as smartest of the moves, Jogani, said that as a rule an investor must invest when times are not very good. “This is because you can get good opportunities. Investing into Omkar’s special purpose vehicle for the Worli development falls in this category and makes for a very good investment. Besides offering a prime location for development, we also have a very lucrative entry point with this investment. If we launch it at the right price, there is enough demand and the market will lap it up. I think liquidity is not an issue in Mumbai but affordability certainly is. We have worked out the affordability level and worked backwards before making this investment,” he said.

While the investment in Omkar SPV doesn’t give IndiaReit a stake it gives them preferred returns and a percentage on upside. “We have invested Rs 200 crore and if everything goes as per plans we should get 2.2x in terms of money multiple post tax,” he said.

The investment firm recently launched an Rs500 crore rental yield fund with a green shoe option of Rs250 crore. An offshore fund it will have a life of 6 years and money will be raised through high net worth individuals, particularly the non-resident Indians (NRIs) from Dubai, Middle East and Singapore. “It will be placed through leading players like ICICI and HDFC with a minimum investment of $100,000. An internal research was conducted to study the investor appetite and we found there was enough excitement in the investor community especially with rupee depreciating against the dollar. We have just started the road show and will take 5-6 months to close the entire fund raise,” said Jogani.

In terms of investment pipeline, the firm has been largely focusing is on five cities namely Mumbai, NCR, Pune, Bangalore and Chennai. It was also looking at the Hyderabad but since the real estate scenario there isn’t looking very good owing to political issue, oversupply in residential and commercial space the management has now de-focused from further developments there.

The firm is currently working with 9 partners however is not restricted to any opportunities outside these set of companies. The activity is largely in the residential and commercial segment and the investment sweet-spot is Rs70 – Rs80 crore in Tier II markets while it is Rs 200 crore in cities like Mumbai as properties are more expensive.

“Our chief reason to invest in a project is our lucrative entry point such that even if market falls beyond a certain point we do not loose money. For example if Rs100 is the selling price, I’ll remove Rs30 as construction expenditure so we are left with Rs70 and my entry price will be anything between Rs25 to Rs30. This approach allows us to make at least 2x returns from day one from any of our investments. If the markets go bad it could come down to 1x but if the markets improve we could get a return of 3x – unfortunately no one has seen that kind of returns (3x) in the last five years though,” he said.

Between the four funds, IndiaReit currently manages Rs 3,000 crore out of which Rs 350 crore is yet to be deployed. The Rental yield fund will add Rs 750 crore taking the available cash for investments to Rs 1,100 crore odd in calendar year 2012. “It is decent enough corpus to meet our investment activity for the coming year. Besides, fund raising is an annual affair for us so we may look to raise another one sometime next year,” he said.

IndiaReit’s current investment portfolio comprises 7 investments with a commitment of Rs620 crore across residential, commercial and hospitality projects. Seven investments with a commitment of Rs 290 core in Bangalore for residential projects. In the Hyderabad market, it has committed Rs 300 crore across 5 investments developing residential and integrated townships, 2 investments in Pune with a commitment of Rs350 core for residential and integrated townships, 1 investment of Rs24 crore in Chennai for residential project and Rs 20 crore for another residential development in NCR.

Reliance MediaWorks partners VenSat Tech for Chennai VFX studio

Anil Ambani-led film and entertainment services company Reliance MediaWorks Ltd (RMWL) has got into a strategic alliance with VenSat Tech Services to expand its visual effects (VFX), computer graphics (CG) and animation capabilities the country. As part of the arrangement VenSat will also set up a studio in Chennai dedicated exclusively for VFX, CG and animation projects allied with RMWL for Indian films.

Anil Arjun, chief executive officer, RMWL, termed the alliance as a strategic win for the company in many ways. “The alliance augurs well with our market positioning as an end-to-end service providers to the Indian media and entertainment inducts wherein VenSat gives us direct presence in Chennai enabling us to strengthen reach in the southern film market. This apart, their creative and technical expertise adds depth to our existing capabilities to execute projects in the Indian film market,” said Arjun.

As part of the arrangement, one of VenSat’s co-founders Venkatesh Roddam will take over a new role and join RMWL’s management as CEO of its entire film and media services division based out of RMWL’s Los Angeles office in the US. The alliance with VenSat is RMWL’s second initiative to beef up presence in south India media and entertainment market. Earlier, towards October end this year, the company had taken over management of Hyderabad-based Annapurna Studios, which is owned by veteran Telugu actor Akkineni Nageswar Rao’s family.

While financial details related to setting up of the new facility in Chennai were not disclosed, RMWL official said that VenSat already operates with over 200 artists from a studio spread across 14,680 square foot at Ascendas IT park in Chennai . The new dedicated studio will be carved out from the existing space and will house a team of 50-odd artists who will work exclusively on Indian film projects bagged by the alliance. Adding the Chennai facility will further enhance RMWL’s present strength of over 1000 artists between its Mumbai and London studios that handle domestic and international projects respectively.

Not restricting the services to just south film industry, the alliance will tap film projects from across the country thereby gaining a significant pie of the film and entertainment services business in the country. The size of animation, VFX and post production industry, according to KPMG, was pegged to be at Rs 2,360 crore in 2010 and witnessed a growth of 17.5% as compared to 2009. Industry experts envisage the growth momentum in this sector to continue in the coming years with a cumulative annual growth rate (CAGR) of 18.5% to reach Rs 5,590 crore by 2015.

In terms of value-proposition the alliance will offer its clients vis-a-vis existing competition in the market, Satyanarayana Mudunuri, executive director and co-founder VenSat Tech Services Pvt Ltd, said that competition continues to intensify both domestically and around the globe.

“The market situation calls for identifying key competitive advantages and focus on core competencies. Developing and harnessing the right competitive advantage will greatly improve our chances for success in getting new projects. We (RMWL-VenSat) will be able to leverage and complement out combined strengths and competencies to create meaningful synergies that would augment the market place. There are a few players in the industry but a strategic alliance as this will certainly bring great value to customers,” said Mudunuri.

VenSat, co-founded by Satyanarayana Mudunuri and Venkatesh Roddam in 2009, is a global provider of creative services for the international motion picture, television, home entertainment, gaming and mobile entertainment markets. Among some of its big budget projects include high grossing films namely Dabangg, Robo, Bodyguard and Ra.One.

Dalits will benefit the most from FDI in retail, says Dalit Indian Chamber

While chief minister of Uttar Pradesh Mayawati feels foreign direct investment (FDI) in retail will drastically impact livelihoods of the dalit section of the society, representatives from the community feel otherwise.

Speaking at a Confederation of Indian Industry (CII) discussion on FDI in retail, Milind Kamble, chairman, Dalit Indian Chamber of Commerce & Industry (DICCI), said, on the ground level, the schedule castes (SC) and schedule tribes (ST) will benefit the most with this move by the government.

“Approximately 8 million new job opportunities will get generated in the next 10 years and a significant percentage of the requirement will be for semi-skilled work force. This is a huge opportunity for the dalit youth who have not been able to pursue education beyond 10th and 12th standard. With short-term training programmes with assured placement being offered by most retail chains the dalit youth will be able to get gainful employment in these retail stores as well as other support areas including logistics firms,” said Kamble.

The dalit entrepreneurs are also set to benefit from the local sourcing clause which is one of the caveats for approving FDI in retail. “Of the overall sourcing by the retailers, 30% will have to be sourced locally of which around 4% will have to be from companies run by dalit entrepreneurs. This is again a very good move by the government and will work towards development and growth of the community,” said Kamble.

Rupa Mehta, chairperson, CII (WR) Family Business Task Force, said, previous experience has shown that good small and medium enterprises (SMEs) have survived and prospered well that too in face of competition. “I do not see any reason to change this optimism. Despite concerns about small kirana shops getting impacted leading to closure, not a single store had shut down in the past five years when modern retail grew to 7% from 2%. I firmly believe that Kirana stores today will innovate and change their complexion, but not go out of business. With this policy decision, Indian SMEs will get opportunities not only in Indian supply chain but also access perhaps to global markets,” she said.

Echoing the sentiments, Thomas Varghese, chairman, CII National Retail Committee and  CEO, Aditya Birla Retail, said, mom and pop kirana stores will shut down but not because of FDI in retail. “They shutting down because their new generation is not very keen on running kirana stores and wants to explore more lucrative job opportunities that go with the current market scenario,” said Varghese.

Satish Jamdar, vice-chairman, CII Maharashtra State Council and managing director, Blue Star Ltd, said the policy on FDI in retail is the right one and in the large interest of the country. “We recognise that there are some concerns, but it is time to cut through the hype and examine and address those concerns. On the whole, we feel FDI in retail will bring in choice, quality and price benefits to the consumer while providing growth opportunities especially to the farming and manufacturing sectors. Also today the service industry is a large generator of employment. Of the service industry, retail industry will potentially be the largest employer, if we factor in the back end infrastructure support. Consumers have benefited from the modern trade so far and FDI in retail will act as hedge against inflation,” he said.

Rating agency Crisil feels foreign retailers are unlikely to gain a dominant share over the next five years and that foreign direct investment (FDI) in multi-brand retail will stimulate investment in Indian retail sector. According to Crisil estimates FDI inflows of $2.5–3 billion over the next five years is modest in the context of overall FDI inflows of $160 billion in India over the past five years.

While food and grocery (F&G) vertical would attract a larger share of the likely FDI inflows, the clause specifying 50% investment in back-end infrastructure especially aligns with the commercial requirement in this segment. F&G accounts for two-thirds of Indian retail sales, but currently has organised retail sales of only around 2%, the lowest among retail verticals.

Ajay D’Souza, head, Crisil Research, said, “To improve profitability in the F&G segment, retailers need to control their supply chain costs and build scale. Every percentage point reduction in supply chain cost and resultant gain in earnings before interest, taxes, depreciation and amortisation (EBITDA) margin can improve equity internal rate of returns (IRR) of an F&G store by 250-300 basis points. Foreign retailers, with their access to capital and technology, are well placed to leverage this opportunity.”

French group Accor to open 12 hotels next year

This story first appeared in DNA Money edition on Thursday, November 17, 2011.

French hospitality major Accor is all set to more than double the number of its hotels and guestrooms in the Indian market by December 2012. It will open 12 hotels next year, adding 2,516 guest rooms to the existing 2,016 across 10 hotels in the country.

Accor will also debut three new brands— Sofitel, Pullman and Formule 1 — taking the number of operational brands in India to six from three (Novotel, Mercure and Ibis) earlier.

Michael Issenberg, chairman and chief operating officer, Accor Asia Pacific, told DNA, “Our first Sofitel branded hotel will open for guests next month in Mumbai. The 302-room hotel would be located at the Bandra Kurla Complex. Early 2012 will see another two brands — Pullman and Formule 1 — make their debut in Gurgaon and Greater Noida, respectively.”

The new openings include Formule 1 (3 hotels), Ibis (5), Novotel (2), and one each under Pullman and Sofitel brands. These would be a mix of owned and managed properties as well as pure management contracts with different asset owners.

Accor’s hotel pipeline till 2015 includes four Pullman, 14 Novotel, five Mercure and 12 Formule 1 hotels. “Our plan is to have 90 hotels across our brands in India by 2015. While we are emphasising on the mid and economy segments, efforts are being made to expand in the upscale segment as well,” said
Issenberg.

The Sofitel Mumbai hotel is being developed in partnership with city-based realtor Shree Naman Group wherein Accor has invested $16 million (Rs71 crore) for a 40% stake. Work on the hotel started in November 2006 and was scheduled to open in 2009.

The total cost of the project then envisaged was Rs473 crore. While the two year delay has shot up the project cost, Accor officials said their holding in the asset remained at 40%.

Two more Sofitel hotels in the pipeline though details have not been yet made public.

The Pullman Gurgaon Central Park project is a pure management contract with Delhi-based realtor Central Park, which is also developing a four-star hotel at the Delhi International Airport Aerocity Project.

All the Formule 1 hotels in the pipeline (12 hotels by 2015) would be owned and managed by Accor.

“The Formule 1 hotels are positioned at the economy segment carrying the sub-Rs2,000 price tag for a night’s stay. These hotels will largely compete with brands like Ginger and offer limited services. The food and beverage facility in these hotels will be outsourced to third-party firms,” said Issenberg. Accor formed a joint venture with InterGlobe Enterprises in 2004 to set up 15 Ibis hotels with 2,700 rooms at an investment of Rs805 crore by 2007.

Currently, there are four Ibis hotels operational in the country with another five to open in 2012.

Phoenix Mills cutting down frills, takes over arms

This story first appeared in DNA Money edition on Wednesday, November 16, 2011.

Multi-use integrated property developer, Phoenix Mills (PML), has set out to cut down the clutter. As part of its business restructuring exercise, the BSE-listed company is looking to acquire controlling stakes in its subsidiaries before merging them. The idea is simple: to keep the number of arms to a minimum and avoid complications in financial reporting.

On Monday, PML said it has acquired a controlling stake in Market City Management Pvt (MANCO) from Entertainment World Developers (EWDPL) and Big Apple Real Estate Development Pvt Pradumna Kanodia, director-finance, PML, said the company will be looking to merge some of the other wholly owned subsidiaries (WoS) with MANCO.

“It is a small company with a 40% holding and has been acquired at book value of Rs 6 lakh. The company was originally designed to take care of our property management contracts (PMCs) and other activities. We realised eventually that such an entity was not required anymore and hence, we have taken 100% ownership.

Going forward, we feel reporting in consolidation will be a Herculean task with too many subsidiaries. Reducing the number of companies that we need to manage will make accounting and reporting a lot simpler,” he said. Earlier in September this year, the company had acquired Mugwort Developers Pvt Ltd. The said acquisition, according to Kanodia, was also part of the broader restructuring initiative.

In another development, PML is targeting a March 2012 breakeven for its Phoenix Market City Pune property launched earlier in June this year. With around 22% occupancy at the time of launch, the property is currently enjoying occupancy of 60-65% with over 200 operational stores giving the developer rentals of over Rs 5 crore.

“The initial response for Pune property has been very encouraging. We are targeting a profit after tax (PAT) level breakeven by this fiscal end. The current rental realisation is almost covering my interest requirement for the month. We are hopeful the occupancies will reach 90% by March 2012 and averaging at close to Rs 65 per square foot (PSF) in terms of rental value. This rental realisation will not only cover our interest but will also take care of the repayments thereafter,” he said.

PML’s flagship luxury hotel Shangri-La with the High Street Phoenix development at Lower Parel in Mumbai which was to open by now has got further delayed owing to approval related issues. While the developer (PML) has completed most of the execution work, the management now envisages 3-4 month delay in the opening. “Given the current approval related issues faced by most developers in the city of Mumbai, we now feel a March-April opening of the hotel will be more realistic as against December which was communicated earlier. It will basically start with soft launch and the entire asset should be completely operational in a couple of months thereafter,” he said.

After numerous delays since 2009, the Shangri-La Hotel, Mumbai was envisaged to finally open by the year end. Its asset owning company, Phoenix Mills Ltd (PML), had earlier planned to soft-launch the property with 50% inventory sometime in Q2 FY2010-11. However, PML ran into problems with one of its contractors as a result of which work on the project suffered until new contractor was appointed. Work on the project finally resumed towards the end of 2010 and PML management was optimistic about handling over the hotel to the management company (Shangri-La Hotel and Resorts) for a soft-launch by December 2011. However, with the new set of delays, the property is now expected to start receiving guests by March-April 2012.

Featuring 410 guestrooms and 23 serviced apartments when fully operational, Shangri-La Hotel, Mumbai will soft launch with 250 guestrooms. The serviced apartment units will however be launched in the third and final phase which is likely to happen by the end of 2012-13. 

Most of the hotel projects being developed by PML sit under a separate special purpose vehicles (SPVs). The Shangri-La Hotel, Mumbai is under Pallazzio Hotel and Leisure Ltd (a subsidiary of Phoenix Mills Ltd). The overall cost of the hotel project is envisaged to be over Rs 700 crore, of which Pallazzio Hotels has already pumped in Rs 483 crore in equity while the balance is debt.

In an earlier interaction, Shishir Shrivastava, group CEO and joint managing director, PML, had said, “We have invested close to Rs 625 crore as of now and additional investment of Rs 175 to Rs 200 crore will be made to fully complete this property. The equity part has already gone in and we are now drawing down the debt component as and when required based on the extent of work completed.”