Checking In: Taj on the prowl, sets sight on Mubadala’s Viceroy Hotels | Economic Times

New Delhi|Mumbai: The Tata group’s Indian Hotels Co Ltd (IHCL), which operates the Taj hotels, is in talks with Abu Dhabi’s sovereign fund, Mubadala, to acquire Viceroy Hotels & Resorts Group, said several people aware of the matter.A deal would give IHCL ownership of more than a dozen hotels across the world.IHCL has submitted an initial term sheet and is said to be looking to finalise the deal after completing due diligence and legal documentation. It would help the salt-to-software conglomerate expand its hospitality footprint across key markets, especially in the US, where it selectively withdrew operations to address balance sheet concerns. After an acquisition spree, Taj sold its Boston property for $125 million in FY17.The deal will also mark the first cross-border acquisition by IHCL under Tata Sons chairman N Chandrasekaran and company CEO Puneet Chhatwal, coming at a time when the global travel and hospitality sector has been decimated by the Covid-19 pandemic.Mubadala, Viceroy Hotels, Tata Sons and IHCL didn’t respond to queries.Positioned as a boutique lifestyle luxury brand, California based Viceroy provides hotel management and development services in several of the big US cities like San Francisco, Chicago, Los Angeles, that cater to business travellers, the high-end leisure markets in Latin America and the Caribbean and a few across Europe.IHCL has a portfolio of 200 hotels including 42 under development properties globally across 12 countries. As per Mubadala’s website, it owns 50% of the company but has been looking to double down by buying the residual half from fugitive Malaysian financier Jho Low, linked to the $2.5 billion 1MDB corruption scandal. Sources said, Mubadala is now the sole owner.STRATEGIC EXITThe SWF, among the largest in the world managing $232 billion in assets, is believed to have taken a strategic call to exit hospitality management and services business, a decision precipitated by the Covid-19 pandemic and instead focus on the real estate.“Thanks to woeful state of affairs in the tourism industry post Covid and Mubadala’s shifting priorities, Tatas are negotiating hard to get the asset for a song and in one shot increase their global presence in both the high-end leisure and business travel segment. But, beyond Viceroy, this will be cement a strategic relationship between Tatas and the Abu Dhabi Emirati officials, its royalty and should expand to other areas of hospitality or sectors like, retail, technology and maybe even aviation,” said an old Tata Group watcher on condition of anonymity as the discussions are in private domain. From a pre-Covid valuation expectation of a $100 million, the deal is likely to get stitched at $25 million-$35 million, said one of the officials mentioned above. American chains have had to announce furloughs and pay cuts for employees across the globe. As per industry tracker STR, the U.S. hotel industry reported slightly lower performance metrics from August in September. Occupancy in September was estimated at 48.3%, down 28.2% from September 2019 and down 0.6% from August. Revenue per available room was $47.87, down 46.1% year over year and down nearly 4% from August.It is speculated Mubadala might bid for Low’s Beverly Hill boutique property put under the hammer by US prosecutors for $100 million and subsequently ask Taj to manage it as well. But this could not be independently verified.Last year, it had even acquired the plush Park Lane Hotel off Central Park in New York, also a former Low investment. 78799662 LIGHT TOUCHGlobally chains including Marriott– the largest in the world and even homegrown Taj is moving away from owning the real estate and opt for an “asset light model” to conserve cash and increase efficiencies. Several of the Viceroy US properties are owned by Pebblebrook Hotel Trust, an NYSE listed real estate investment trust (REIT).Under Chhatwal, IHCL has been restructuring its operations, selling its non-core assets and becoming less ownership driven (60% of its assets will not be owned by the company by 2022), moving the hotels portfolio of some of the group companies to the holding company and striking new alliances.In May last year, it announced a partnership with Singapore’s sovereign wealth fund, GIC for an investment platform to the tune of Rs 4000 crore to acquire fully operational hotels in the luxury, upper upscale and upscale segments in India. In a regulatory filing, IHCL had said the partnership will enable it to pursue acquisitions in an 'asset light format' with the equity contribution from IHCL at 30% and the balance to be contributed by GIC over a period of three years. The Viceroy negotiations are separate.But severely hit by the Covid 19 pandemic, IHCL, which had swung to profitability last year, posted an 86% drop in its revenue from operations for the quarter ended June 30. The company had said the management had secured additional financing for the next 12 months to prevent disruption of the operating cash flows and to enable the group to meet its debts and obligations as they fall due.