ITC, a conglomerate in India, is reportedly exploring alternative structures, including a Real Estate Investment Trust (REIT), for its hospitality business. While ITC has expressed commitment to implementing an "asset-right" strategy, it has refrained from commenting on specific hypotheses or speculation. The potential transfer of hotel properties to a REIT would allow ITC to list the trust separately and distribute income to unitholders. The move comes as the Indian market witnesses the success of listed REITs and their growing popularity among investors.
ITC, a conglomerate, is said to be considering alternative structures, including a Real Estate Investment Trust (REIT), for its hospitality business. The company aims to explore options that would enhance value for stakeholders and ensure tax efficiency. A report from Nomura, a Japanese broking stationery, revealed that ITC was evaluating various alternative structures, such as REITs and joint ventures, to facilitate the potential divestment of its hospitality business. The information was obtained from discussions with ITC management at a conference in Singapore.
When queried about the matter, ITC expressed its commitment to implementing an "asset-right" strategy. The company aims to focus on maximizing the value of its existing assets, generating additional revenue streams, and pursuing business structures aligned with industry recovery dynamics. ITC refrained from commenting on any specific hypotheses or speculation.
Sources in the industry suggest that ITC is considering different options for alternative structures in the hospitality sector. However, due to the diverse characteristics of individual properties, such as land holdings, creating a standardized structure for hotels poses challenges.
Under the REIT structure, ITC would transfer some of its hotel properties to a trust and list it separately. As per regulations set by the Securities and Exchange Board of India (SEBI), a REIT is required to distribute 90% of its income to unitholders. REITs have gained popularity as an effective way to include real estate in investment portfolios without physical ownership. Currently, there are four listed REITs in India, including Embassy Office Parks, Mindspace Business Parks, Brookfield India Real Estate Trust, and Nexus Select.
The Indian market witnessed the successful launch of Nexus Select, the country's first retail-focused REIT, which raised Rs 3,200 crore. The REIT also owns two hotel properties. Puri suggests that the REIT asset class is shaping up well and holds promise for wealthy investors, as evidenced by the oversubscription of the four listed REITs.
In the financial year 2022-23 (FY23), ITC's hospitality segment delivered strong performance, with increased business and leisure travel. Revenues from the segment nearly doubled to Rs 2,689 crore compared to Rs 1,348 crore in the previous fiscal year. The profit before interest and tax (PBIT) reached Rs 557 crore, a significant improvement from the previous year's loss. ITC's asset-right strategy also contributed to the positive bottom line.
During the early 2000s, ITC pursued an investment-led strategy to expand its hotel portfolio. However, in recent years, the company shifted its focus to management contracts. In FY23, ITC added 11 new properties to its portfolio through management contracts, bringing the total number of properties to 121. The portfolio comprises approximately 11,500 rooms, with an owned-to-managed ratio of approximately 50:50.
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