Lemon Tree Hotels has unveiled a major corporate restructuring initiative that will create two distinct business entities and introduce Warburg Pincus as a strategic investor through a ₹960 crore investment commitment. The comprehensive reorganisation aims to unlock shareholder value while establishing clear operational divisions between hotel management and asset ownership.

Restructuring Framework and New Entity Creation

The proposed reorganisation will transform Lemon Tree Hotels into a pure-play, asset-light hotel management and brand platform. Simultaneously, a new entity called Fleur Hotels will house the group's hotel ownership assets along with development capabilities. Currently, Lemon Tree holds a 58.91% stake in Fleur, while APG owns the remaining 41.09%.

The restructuring will be executed through a scheme of arrangement involving multiple subsidiary mergers and asset transfers:

• Lemon Tree will merge two wholly-owned subsidiaries into itself
• Four other subsidiaries will merge with Fleur Hotels in exchange for shares
• Twelve hotels will be transferred from Lemon Tree to Fleur Hotels

Warburg Pincus Investment and Shareholding Structure

Private equity firm Warburg Pincus will acquire APG's entire 41.09% stake in Fleur Hotels and has committed to invest ₹960 crore in Fleur Hotels in tranches as required for future growth and expansion. The investment structure will significantly reshape the ownership dynamics of both entities.

Post-Restructuring Ownership and Operations

Following the scheme completion, the shareholding structure will be redistributed across both entities. Lemon Tree shareholders will directly own 32.96% of Fleur Hotels, while Lemon Tree itself will retain a 41.03% stake. Warburg Pincus will hold the remaining 26.01% in Fleur Hotels.

The operational scale will be significantly enhanced post-restructuring:

Fleur Hotels will expand from its current portfolio of 24 hotels with 3,993 keys to 41 hotels with 5,813 keys. Lemon Tree Hotels will manage 89 hotels with 6,011 keys, all owned either by Fleur Hotels or third-party owners.

Analyst Perspectives and Market Outlook

Brokerage firms have responded positively to the restructuring announcement. Nuvama Institutional Equities maintains a 'Buy' rating with a price target of ₹178 per share, viewing Warburg's presence as de-risking future large-scale capital expenditure. Investec also holds a 'Buy' rating with a ₹187 price target, describing the Fleur demerger as unlocking value for the high-growth, asset-light business.

The management plans to establish a dividend distribution policy after the scheme implementation to provide annual rewards to shareholders. Post-arrangement, Lemon Tree Hotels is expected to emerge as a high-growth, high return on capital employed, and zero-debt company. Fleur Hotels will be listed as a separate entity within 12 to 15 months, providing shareholders with direct exposure to both business models.

Lemon Tree Hotels announced on Saturday, 10 January, that its board has approved a significant corporate restructuring involving Warburg Pincus's strategic investment in its subsidiary Fleur Hotels. The transaction includes both a stake acquisition and substantial primary investment to fuel future growth.

Investment Structure and Stake Acquisition

The board approved Warburg Pincus's acquisition of APG Strategic Real Estate Pool NV's entire 41.09% shareholding in Fleur Hotels through its affiliate Coastal Cedar Investments BV. Additionally, Warburg Pincus will make a primary investment of up to ₹960.00 crore in stages to fund the company's future growth initiatives.

Corporate Restructuring Plan

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

The scheme, to be implemented through an NCLT-approved process, will reorganise the group's asset ownership and operating structure. 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.

Asset Transfer and Portfolio Expansion

Under the restructuring plan, Lemon Tree will merge two wholly owned subsidiaries, Carnation Hotels and Hamstede Living, with itself. Four other wholly owned subsidiaries will be merged into Fleur:

• Oriole Dr Fresh
• Sukhsagar Complexes
• Manakin Resorts
• Canary Hotels

Additionally, 12 hotels from Lemon Tree (11 operational hotels and one under-construction hotel in Shimla), along with investment in one under-construction hotel in Shillong, will be demerged with Fleur.

Leadership and Future Operations

Patanjali Govind Keswani, Founder of Lemon Tree Hotels, will serve as 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 stated.

Anish Saraf, Managing Director at Warburg Pincus, commented: "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."

Timeline and Regulatory Approvals

Fleur's shares will be listed on NSE and BSE, with the entire listing process expected to be completed within 12 to 15 months. The scheme is subject to regulatory and shareholder approvals. Following the proposed transaction, Fleur will become one of the largest owners of hospitality assets in India.

Lemon Tree will continue operating its leased hotels in Indore and Aurangabad, which are nearing the end of their lease periods. The company will also manage 1,820 keys across 17 hotels transferred to Fleur, alongside its existing portfolio managed through the restructured arrangement.

Source: https://www.livemint.com/companies/news/warburg-pincus-to-invest-rs-960-crore-in-lemon-trees-fleur-hotels-11768042719978.html