Warburg Pincus-Backed Lemon Tree Buys Indian Rival Keys Hotels

Warburg Pincus-backed Lemon Tree Hotels has entered into a preliminary agreement to purchase Keys Hotels, a unit of New York’s Berggruen Hotels, according to a stock exchange filing by the New Delhi-based company.

Should the transaction take place, it would give Lemon Tree, already India’s largest budget hotel chain ownership of an additional seven assets in six Indian cities, according to the documents provided by Lemon Tree, in addition to bringing another 14 hospitality properties under its management.

No financial figures were released for the potential transaction, however, local media reports indicated that the value for the set of loss-making assets was expected to be approximately $70 million. The reports come less than one year after Lemon Tree made one of India’s hottest stock market debuts in April 2018.

Adding 936 Guest Rooms in Six Cities

Lemon Tree said in the statement that it has signed a non-binding agreement with Berggruen Hotels Pvt Ltd and its affiliates to acquire 100 percent of the equity in Keys Hotels, whichi is a wholly owned subsidiary of Berggruen Hotels.

“It’s a consolidation play,” Lemon Tree chairman and managing director Patu Keswani told local news site DNA India. “Most of their hotels are in cities where Lemon Tree is not present. So post-acquisition, the network effect will give us a fair share of the market in those cities.” The hospitality entrepreneur explained that the fragmentation in India made acquisitions appealing, while pointing out that Keys’ represents 1.5 percent of the country’s room inventory in its market segment.

The hotels owned by Keys include a total of 936 guest rooms in cities including Bangalore, Pune, Trivandrum and Ludhiana, as well as land parcels in Goa and Raipur for future developments. In addition to its owned assets, Keys, which is the fourth largest mid-market hotel company in India, manages 975 guest rooms in 14 cities, including Mumbai, Chennai, Gurgaon, Goa, Pune, Tirupati and Silvasa.

Patu Keswani, chairman and managing director of Lemon Tree Hotels, explained to local newspaper DNA India that the mid-market segment in India is very fragmented, and Key Hotels is the fourth largest mid-market hotel company with 1.5 percent of the inventory in this category of hotel accommodations in the country.

Lemon Tree Builds Indian Budget Empire

15-year-old Lemon Tree currently operates 5,411 rooms in 54 hotels across 32 Indian cities, and has been expanding into the residential sector after forming a co-living joint venture with Warburg Pincus late last year.

The INR 30 billion ($430 million) co-living investment aims to develop rental housing projects through a combination of developing new greenfield projects and refurbishing under-managed or stressed existing commercial and residential assets, as well as management of existing for-rent accommodation projects.

On March 12, Lemon Tree Hotels disclosed to the Indian Stock Exchange that it had appointed Rahul Pandit, former managing director and CEO of Tata Group’s Ginger Hotels, as managing director and CEO of the Lemon Tree-Warburg Pincus co-living business.  Pandit, a co-founder of Lemon Tree Hotels, has over 25-years of experience the hotel field.