Conglomerate ITC weighs alternative structures for hospitality business

The ITC conglomerate may evaluate a real estate investment trust (REIT) as an “alternative” structure, among other options, for the hospitality business as it continues to explore ways to enhance value for stakeholders.

A report from the Japanese brokerage firm, Nomura, said that divestment from the hotel business was on the cards and that ITC was evaluating several alternative structures (such as REIT, JV, etc.) to ensure that they were both cost and tax efficient. The report said the takeaway was from meetings with ITC management at the Nomura conference in Singapore.

In response to an inquiry from Business Standard, ITC said it remains committed to executing its ‘right assets’ strategy, focusing on veining existing assets, creating additional revenue streams and seeking alternative structures aligned with the recovery dynamics in the industry towards creating the next horizon. of growth as well as promoting value creation. “Other than that, we will not comment on any other speculation,” she added.

Industry sources said that there are several options that may be under consideration as alternative structures for hotels. They explained that the structure of the hotels was complex because each property could have different characteristics in terms of land and was not a homogeneous product.

Anuj Puri, Chairman and Founder, ANAROCK, a real estate advisory firm, said going REIT is a win-win for ITC as well as for its shareholders.

The company would be able to monetize its assets – which is what the market wanted – without losing control. It would also help ease its balance sheet and help generate cash for other companies. It will also benefit investors in general as they can participate in the REIT offering.

Under a REIT structure, an ITC can transfer one or more of its hotel properties into a trust structure and list them separately. As per the Securities and Exchange Board of India (SEBI) regulations, the REIT is required to distribute 90 percent of its income to the unitholders.

REITs have emerged as a convenient way to hold real estate in portfolios, without the physical ownership of real estate. Currently, there are four REITs listed – Embassy Bureau, Mindspace Business Parks, Brookfield India Real Estate Trust REIT and Nexus Select.

In May, Nexus Select Trust – India’s first retail-focused REIT – successfully launched a Rs 3,200 crore REIT offering. The REIT also owns two hotels.

“REIT as an asset class is shaping up nicely. It is only a matter of time for the market to deepen and mature further. All four listed REITs are oversubscribed. The asset class holds a lot of promise for wealthy investors,” Buri said.

InvITs are similar to REITs, but they own a portfolio of infrastructure (or project) assets. In the past year, the market has seen several large companies raise capital through privately listed InVITs.

The “alternative” structure of hotels has been in the sights of ITC management for several years now. Postponed due to the Covid-19 pandemic which has significantly disrupted the hospitality industry. But she has since recovered.

In fiscal year 2022-23 (FY23), the ITC hotel segment performed stellar with business and leisure travel picking up. Revenue from the segment – at Rs. 2,689 crore – nearly doubled from Rs. 1,348 crore in FY22. Profit before interest and tax (PBIT) was Rs. 557 crore as compared to loss in the previous year.

The bottom line has also been supported by the company’s right asset strategy. After an investment-based strategy in the early 2000s to expand the footprint, ITC decided to expand under management contracts a few years ago.

In FY23, 11 new properties under management contracts were added to the group’s portfolio bringing the total number of properties in the portfolio to approximately 11,500 and the ownership-to-management ratio to approximately 50:50.