Warburg Pincus to invest ₹960 crore in Lemon Tree's Fleur Hotels

Lemon Tree Hotels announced on Saturday, 10 January, that its board has approved Warburg Pincus's acquisition of a 41.09% stake of APG Strategic Real Estate Pool NV in its subsidiary Fleur Hotels, along with an investment of ₹960 crore in stages.

“The Board has also approved the execution of the Share Purchase Agreement by and amongst the Company, APG Strategic Real Estate Pool NV , Coastal Cedar Investments BV, an affiliate of Warburg Pincus, and Fleur Hotels Limited, for the sale of APG’s entire shareholding of 41.09% in the Fleur to the Investor,” the filing read.

The board approved an agreement for Warburg Pincus to make a primary investment of up to ₹960 crore in stages, to fund the company's future growth Fleur, which will be listed separately on the exchanges.

Details of the scheme

The proposed reorganisation will establish two distinct and complementary platforms such as Lemon Tree Hotels Limited, focusing solely on hotel management and branding with an asset-light model; and Fleur Hotels Limited, which will aim to be a large-scale, growth-focused hotel ownership platform with development expertise and a strong pipeline.

The scheme is subject to regulatory and shareholder approvals.

"The scheme, to be implemented through an NCLT-approved process, will reorganise the group's asset ownership and operating structure. The hotel assets currently owned by Lemon Tree will be transferred to Fleur, which will serve as the group's exclusive asset ownership and development company," Lemon Tree stated.

Fleur will oversee all of the group's future hotel acquisitions and developments, while Lemon Tree will shift to a fully asset-light model, concentrating on expanding its hotel management, franchising, and digital businesses, it added.

According to the proposal, Fleur's shares will be listed on NSE and BSE. Patanjali Govind Keswani, Founder of Lemon Tree Hotels, will serve as the Executive Chairman of Fleur Hotels and will eventually transition to a Non-Executive role at Lemon Tree.

"This scheme is intended to create a simplified, transparent, and growth-oriented structure for both companies, which we believe will enhance long-term value for our shareholders," Keswani said.

Anish Saraf, Managing Director, Warburg Pincus, said, “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. With favourable industry fundamentals and a clear strategic roadmap, we look forward to supporting the team as they continue to scale the business.”

Under the plan, Lemon Tree will merge two of its wholly owned subsidiaries, Carnation Hotels and Hamstede Living, with itself. Additionally, four other wholly owned subsidiaries — Oriole Dr Fresh, Sukhsagar Complexes, Manakin Resorts, and Canary Hotels — will be merged into Fleur in exchange for shares issued by it to Lemon Tree.

Additionally, 12 hotels (11 operational hotels and one under-construction hotel in Shimla) of Lemon Tree, along with the investment in one under-construction hotel in Shillong through a 100% subsidiary of Lemon Tree, will be demerged with Fleur.

The entire process of listing Fleur is expected to be completed within 12 to 15 months.

Following the proposed transaction, Fleur will become one of the largest owners of hospitality assets in India. Its owned portfolio will grow substantially, increasing from 3,993 keys and 24 operating hotels to 5,813 keys across 41 hotels, Lemon Tree said.

Lemon Tree will keep running its leased hotels in Indore and Aurangabad, which are nearing the end of their lease periods. Additionally, Lemon Tree will manage 1,820 keys across 17 hotels transferred to Fleur, alongside its existing portfolio of 3,993 keys in 24 hotels operated by Fleur through Lemon Tree.