Dutch pension fund APG invests $50M to raise stake in Lemon Tree Hotels

Dutch pension fund APG has raised its stake in the country’s third-biggest hotel chain operator by number of properties Lemon Tree Hotels Pvt Ltd by investing an additional Rs 300 crore ($50 million) in the company, according to a report in The Economic Times citing the chief of the hospitality firm.

The report stated that the fund increased its stake in the company from 5.6 per cent to 13 per cent. 

Back-of-the-envelope-calculations show this could value the firm close to Rs 3,830 crore.

Lemon Tree first roped in APG two years ago when it invested Rs 650 crore in the group, of which Rs 180 crore went into Lemon Tree and Rs 470 crore in joint venture Fleur Hotels. That deal, in effect, valued Lemon Tree at around Rs 3,200 crore.

Lemon Tree, a mid-segment hospitality chain which operates under Lemon Tree and Red Fox brands, currently has around 3,000 operational rooms. The company, with this fresh capital infusion, is targeting close to 8,000 owned and managed rooms by 2017.

Of the fresh investment, Rs 190 crore will be invested in Lemon Tree while remaining Rs 110 crore will be invested in Fleur, Lemon Tree's chairman and MD Patu Keswani told the newspaper.

With this infusion, the Delhi-based hotel chain is planning to own 5,500 rooms and manage 2,000-2,500 more by 2017.

Under Lemon Tree Hotels, company plans to have 2,000 operations rooms by 2014, of which 600 rooms are under construction, to be ready by 2017. Under Fleur banner, it currently operates 900 rooms and plans to set up 3,000 rooms. The company has a management arm—Carnation Hotels—which manages two hotels at present and plans to open two in next one month and has another nine in the pipeline.

Keswani indicated that the firm is eyeing an IPO in the next two years.

APG manages Netherland’s largest and world’s-third largest pension fund Stichting Pensioenfonds ABP. Lemon Tree was its first investment in India in the hospitality space. It has also committed money in a residential development platform of Godrej Properties.

Apart from securing investment from APG, Lemon Tree has attracted funding from private equity giant Warburg Pincus among others.

(Edited by Joby Puthuparampil Johnson)

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