DLF may exit Amanresorts to focus on properties

India’s largest property firm, DLF, that scaled down ambitions in the hotel
business, following an economic downturn, to focus on core
areas of building homes, offices and shops, is planning various options to fully or partly exit from the international luxury hotel chain Aman resorts that the developer had purchased at the peak of the economic boom in 2007 end. The company has also held preliminary talks with at least two Indian hotel chains, but a huge gap between the buyer and seller’s expectations has played spoilsport for concrete deal discussions.

Founded by Indonesian hotelier Adrian Zecha, Amanresorts is a super luxury chain of resorts usually built with small inventory of rooms to offer exclusivity. The company is known to charge one of the highest average daily room rates that sometimes cross $600. The hotel company owns and manages 23 small luxury resorts worldwide and will open a new resort in Utah, USA, in October, as per the company’s website. It operates three resorts in India — one in New Delhi and two in Rajasthan.

In 2007, Adrian Zecha, announced that he has formed an equal partnership with DLF, which has entered into a definitive agreement to acquire a controlling interest in the Aman Resorts group. DLF, currently, holds 50% in Aman and as per the agreement, would acquire controlling stake in due time.

As per two executives in the hotel industry and one at DLF, the Indian real estate developer’s interest in carrying Aman in its portfolio has whittled given the economic downturn that has substantially pared occupancy levels as well as room rates across the hotel industry.

As per industry estimates, Indian hotels together lost Rs 4,000 crore in revenues due to the economic slowdown and after the Mumbai terror attacks in the last financial year. Following this, few tourists visited India or stayed in five-star hotels and room rates dropped by at least 20-30%.

A senior DLF executive, who asked not to be named, said: “There is surely an interest among potential buyers. They have spoken to us. But it’s just been talks, little else, as their offer price is too low compared with the price we had paid for Aman in 2007.” He did not name the companies that has shown interest in Aman.

But the DLF spokesman denied the company was planning to dilute equity or sell any property of Amanresorts. In the past, while announcing the company’s falling interest in the hotel business, DLF vice-chairman Rajiv Singh had said the company would want to retain Aman as it was a boutique brand.

As per two hotel industry executives, who did not wish to be named, DLF has held some preliminary talks with ITC Hotels. But the ITC spokesman said: “We have made no move” to acquire stake in Amanresorts. But hotel consultants said it makes sense for an Indian hotel company like ITC to bid for Aman since they have no presence in that segment.

Another senior hotel industry executive said DLF could consider an option to hive off Aman properties in Alwar, Rajasthan, and two loss-making properties in Sri Lanka to some investors or hotel chain without the Aman brand.
It is speculated that the realty major spent $200-250 million with plans to get into full-fledged hotel business.

It planned to build around 75 hotels in a joint venture with foreign hotel chain Hilton in India. But following Hilton’s takeover by private equity player Blackstone, Hilton’s interest in hotels with DLF waned. Meanwhile, DLF, too, had started facing cashflow pressures. The two partners scaled down their ambition to just four properties.

In early 2008, the stock market started seeing turbulence and the entire economy took a nosedive following the collapse of US investment bank Lehman Brothers later that year. As demand for homes, offices and shops dried up, property firms were faced with cash crunch. Realtors reprioritised their plans in order to ease cashflow pressure.

DLF decided to sell assets and shift focus from capital-intensive businesses such as hotels to those like homes where revenue could easily be generated. DLF plans to raise Rs 5,500 crore through sale of assets and exit from some businesses such as windpower and township projects in Dankuni, West Bengal and Bidadi, Karnataka.

DLF has already sold its small hotel project in Saket, Delhi. It has put on block over 10 hotel plots across the country, including in Gurgaon and Mumbai. The company has since been able to successfully sell some of its assets.

As per reports, Amanresorts was adversely impacted after 2002, due to the tourism downturn in south-east Asia, following the Bali bombing and other disaster since a large chunk of its resorts are in Asia. The current economic slowdown, which significantly reduced business and leisure travel, has hurt all luxury and five star hotels.