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Economy Nov 23, 2012

Why Royal Palms is selling its profit making hotels in Goregaon

By Arlene Chang

Mumbai's Royal Palms India Pvt. Ltd has announced that it will be selling its hotel properties in the western suburb of Goregaon and diversifying into agriculture. The company owned Royal Palms is a 240-acre mixed-use campus housed in the lap of the green belt of Mumbai's Aarey Milk Colony with commercial spaces, residential properties, malls and hotels, of which the company has developed 90 acres.

In a chat with Firstpost its Joint Managing Director, Dilawar Nensey, talks about scope for the hospitality industry, why the company is selling off their hotel properties and its plans for the future.

Which of its properties is Royal Palms putting up for sale?

The company is putting up The Palms Hotel -- initially known as the Park Plaza Royal Palms -- a 245 room hotel which was built in 2005, on sale. We are also selling the Palms Villa Hotel, a hotel which consists of 109 individual villas of 1,200 square feet each with a sundeck, living room, bedroom and a swimming pool. And the third property being sold is the 422 room hotel called the Imperial Palace which was built in 2009.

All the hotels mentioned are hotels that are up and running and doing well independently.

We have a room capacity of 800 rooms which are totally operational. We are the third largest in Mumbai in terms of functional number of rooms, the Taj being number one followed by the Oberoi. All three of our hotels see good revenue throughout the year by way of room revenue and then by the rental of other facilities like the conference room or banquet halls. And most of our guests are corporate businessmen and airline crews.

Why would a developer want to sell its hotels if they are doing well? Why would anyone want to kill the goose that lays the golden egg?

We have a 240 acre space in Goregaon, of which we have developed only about 90 acres, and we could well use the money we get from the sales of these hotels to develop the remaining land we have. The money that will come off these sales will be put back into the Royal Palms land at Goregaon.

Our selling of running hotel businesses is a purely commercial decision. We have always been in the business of building and developing land and then exiting at the right value, at the right time.

Keeping that in mind, we feel that the right time for selling our hotels is now.

Does the company have other business plans?

At the moment we are looking to further develop our Goregaon land, but, yes, we are looking to diversify into the agriculture business.

We have in fact, already bought 300 acres of agriculture land, 3,500 feet above sea level in Pune and have begun cultivating different types of berries on 100 acres of that land. On the remaining 200 acres we own, we plan to grow exotic varieties of vegetables like Okra and rocket leaves and also regular garden vegetables like tomatoes, mint and corn.

Agriculture according to us is a field with much scope considering that we have such a huge population which needs to be fed -- even as consumption increases with awareness, longevity and improved health.

From a business point of view, it is still a tax free space. As irrigable and cultivable land is becoming scarce, we still need to feed people and cultivating agriculture land is the only way to be able to sustain.

We hope that our land with rich red soil can contribute to the food output of the region. Our plans for our agriculture business is to grow organic, environment friendly food using the expertise of people in areas surrounding it, who are traditionally farmers.

Image credit: Royal Palms India

What's the scope of the hospitality industry in India?

A report by HVS, the world's leading consulting and services organization focused on the hotel and restaurant industries, cites Delhi NCR and Mumbai as having the most number of branded hotel rooms -- 12,708 and 11,303 respectively -- in the country by way of being India's gateway cities. However, in comparison to China's cities of Beijing and Shanghai, these numbers seem miniscule. Beijing has 1,29,452 branded hotel rooms, while Shanghai has 61,192 rooms.

The total available inventory of hotel rooms -- both branded and unbranded -- stand at 1,63,038. But according to HVS, rooms required in India by 2021 will be 3,51,540 -- which translates into an additional 1,88,502 rooms.

Even presently there is a hugh shortfall in the number of rooms available and the number of rooms needed. Mumbai itself needs over 7,000 rooms over the next three years. So the scope for hospitality is still huge.

What is the USP of your hotels at Royal Palms? Why would anyone want to buy it in a market which is still relatively cautious?

Our biggest selling point is that all of our three hotels up for sale are assets that are already making money. In fact, our Palms Villa property has an occupancy of 75 to 80 percentat any given time.

All our properties bring with it an assured immediate revenue, rather than waiting for break-even for 5-6 years after purchasing a place and building it.

We have been in this business in Mumbai for a while and have seen that recovering the money put in building a hotel aside, another major hurdle is that of buying land and developing it. In our properties, that hassle is saved. Our land is clear of litigation and all compliances associated with building a hotel are already in place since it is a ready product. There will also be a substantial saving in the sense of the cost of land and building, permissions and also possible delays in its start.

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by Arlene Chang

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