Minor Out of Race for India’s Leela Luxury Hotels as Brookfield Closes In

Thailand’s Minor International says it is not looking at Leela anymore as reports surfaced last month that Canada’s Brookfield Asset Management is close to buying a majority of the Indian chain’s hotel assets for $646 million (4,500 crore).

At that price “we won’t be able to look at it, the numbers don’t work for us,” Minor International’s COO and Minor Hotels’ CEO, Dillip Rajakarier, told Skift in a phone interview.

Minor and investment firm Trinity White City Ventures were considering a bid of $350 million for Hotel Leelaventure last November. The consortium was waiting in the wings as Brookfield has the exclusivity and has been exercising due diligence for some six months now.

But a price like $636 million would represent an earnings multiple of almost 17 to 18 times.

“The transaction is too highly priced. We’re not engaging therefore,” said Rajakarier.

“We bought NH [Hotel Group SA] on a 10 times multiple and their key strategic assets are spread all over Europe. Most of the deals we’ve done in the past, even Tivoli [Hotels & Resorts, Portugal], were nine to 10 times as well. Those are the numbers which would work for us.

“We are not a player who would go and pay a high price even for trophy assets because that’s not our business model.”

India’s business news publication Mint first reported on December 17 that Brookfield is close to buying at least four of five luxury hotels that Hotel Leelaventure owns, along with a large land parcel in Agra and the brand Leela, for 4,500 crore, which will cover Hotel Leelaventure’s debt of 3,799 crore (as of March 2018). It said the deal is expected to close this month.

Apart from the five hotels it owns, Hotel Leelaventure also operates another four properties under management contract.

The Mumbai-based company has been struggling with debt for nearly a decade, a period when the luxury hotel sector in India was battling a glut and the aftermath of the 2008 global financial crisis. When a corporate debt restructuring plan in 2014 failed, it transferred the loans from 14 creditors to JM Financial Asset Reconstruction Company, which is reported to be keen to retain about 10 percent of Hotel Leelaventure.

Emails sent to Brookfield Asset Management by Skift went unanswered at press time. If the deal is inked, it will be Brookfield’s first entry into India’s hospitality sector, even though it has invested in the country in other sectors. In 2014, it acquired a 1.4 million square metre portfolio of office properties, the largest commercial real estate transaction in India at the time.

Brookfield is also not new to hospitality. It owns and manages full-service hotels and related hospitality assets in North America, the UK and Australia. Its most recent hotel acquisition was the Sheraton Centre Toronto Hotel for $249 million in October 2017.

“We seek to acquire these assets at a significant discount to replacement cost and actively manage them, undertaking extensive capital improvements to turn around operational performance and drive cash-flow growth,” the company said.

Meanwhile, Minor’s Rajakarier said the company would continue to look for other opportunities in all regions.

“India has been on our radar for some time, as have other countries. We will keep looking. For us, it’s important we don’t pay a high price — we don’t want to be in the same situation as Leela is today,” he said.