Warburg Pincus to Buy APG Stake in India Hotel Platform, Invest Up to $106M in Expansion

Private equity major Warburg Pincus will acquire Dutch pension manager APG’s 41.09 percent stake in the ownership platform of India’s Lemon Tree Hotels, with the US firm also committing up to INR 9.6 billion ($106.4 million) to back future growth, the companies said late last week.

The asset-owning platform, called Fleur Hotels, will split off into a separate entity from the asset-light hotel management and brand platform, to be known as Lemon Tree Hotels Ltd, according to the announcement. Under the restructuring, Lemon Tree’s hotel assets will be transferred to Fleur, whose shares will be listed on the NSE and BSE stock exchanges.

The deal marks a reunion for Lemon Tree and Manhattan-based Warburg Pincus, which made its initial investment in the hotel operator in 2006 and fully exited its Lemon Tree stake in September 2019. The newly invested primary capital will be deployed in tranches to strengthen Fleur’s balance sheet and fund the development and acquisition of hotel assets.

“Lemon Tree has played a pioneering role in shaping India’s mid-market hospitality segment, building a large-scale, high-quality portfolio with strong brands and operating capabilities,” said Anish Saraf, a Mumbai-based managing director at Warburg Pincus. “With favourable industry fundamentals and a clear strategic roadmap, we look forward to supporting the team as they continue to scale the business.”

Next Phase of Growth

New Delhi-based Lemon Tree operates more than 120 hotels across 80-plus cities in India and abroad under brands including Aurika, Lemon Tree Premier, Lemon Tree Hotels and Red Fox, as well as the Keys line of budget and mid-scale hostelries acquired in 2019.

The rejig will see Fleur expand its owned portfolio from 3,993 keys and 24 operating hotels to 5,813 keys across 41 hotels, becoming one of the largest owners of hospitality assets in India, the companies said. Lemon Tree Hotels Ltd will continue to manage and franchise its existing portfolio of third-party owned hotels, with 6,011 keys across 89 operational hotels and 9,414 keys across 127 hotels in various stages of development in India and internationally.

After the restructuring on 1 April, Lemon Tree’s existing shareholders will own 32.96 percent of Fleur, with Lemon Tree directly owning 41.03 percent and the balance of 26.01 percent held by Warburg Pincus (excluding dilution from its primary capital investment). The entire process through to the listing of Fleur is expected to be completed within 12 to 15 months.

Lemon Tree founder Patanjali “Patu” Keswani will serve as executive chairman of Fleur Hotels and eventually transition to a non-executive role at Lemon Tree.

“This collaboration marks a defining moment as we enter the next phase of expansion for Fleur,” Keswani said. “With the Indian hospitality industry at an important inflection point, we look forward to leveraging Warburg Pincus’s global network and deep real estate and hospitality experience to scale responsibly, advance digital-led capabilities and embed sustainability as a core pillar of Lemon Tree’s and Fleur’s long-term growth journey.”

Warburg Pincus has invested nearly $10 billion in more than 80 companies in India, including mortgage lender Truhome Finance (previously known as Shriram Housing Finance) and telecom giant Bharti Airtel. APG first invested in Lemon Tree in 2012 and increased its minority stake over the next decade while helping to build Fleur Hotels.

“This transaction in Fleur is the culmination of APG’s long-term approach to investing and provides our clients with a full-cycle return from one of the fastest-growing economies in the world,” said Dominic Doran, senior director of Asia Pacific real estate at APG. “We thank Patu and the Fleur team for their hard work and commitment to reach this milestone as the company enters its next phase of growth.”

Foreign Capital Flows

The Lemon Tree overhaul comes as India’s fast-growing hospitality sector continues to attract foreign capital, with private equity titan Blackstone said to have acquired a half-stake in Udaipur’s Taj Aravali Resort & Spa from Ishaan Group for an estimated $100 million to $110 million, sources told business news site Live Mint last week.

In April of last year, Singapore sovereign giant GIC agreed to pay INR 7.52 billion (then $88.2 million) for a 35 percent stake in a new investment platform for upscale hotel assets in India, as the partnership with Samhi Hotels acquired a seed portfolio of five Samhi-owned assets in Pune and Bengaluru valued at INR 22 billion.

US hotel giant Hilton continues to expand its India footprint, announcing last February that it would open 75 Hampton by Hilton hotels in the world’s most populous country.