In 2006, a unit of DLF, then an unlisted company, planned to set up 100 hotels across the country in 10 years, which included four-star, business and budget hotels in 50 cities. The company also planned to set up super luxury hotels in five to six cities.
The total investment envisaged was $800 million (around Rs 3,600 crore).
Today, besides the international luxury hotel chain Aman Resorts , DLF owns eight million square feet of hotel properties. This could be equivalent to 16 to 17 properties. It plans to sell both Aman, which owns 24 properties, and its hotel plots to reduce its debt, which stood at Rs 22,758 crore in the third quarter of the current financial year.
Recently, the company announced its hospitality company, DLF Hotels, would buy 26 per cent stake in the joint venture with Hilton International for Rs 120 crore. Although the JV had planned to build 75 hotels, while parting ways, the company said the JV had undeveloped properties in four cities.
The wind power business was another example of how the diversification did not work for the DLF group. The company had invested Rs 1,500 crore. It is now looking to sell it at Rs 1,000 crore. Most of the liquidity-powered diversification of real estate companies during the 2005-09 boom has fizzled out as home sales dwindled, debt piled up and availability of capital dried up.
Unitech, the country’s third-largest developer’s foray into telecom and selling majority stake in Unitech Wireless to Norwegian telco Telenor had its share of controversies. The partners have been on the warpath over a proposed rights issue. After the Supreme Court cancelled 122 telecom licences linked to the 2G scam recently, which also included that of Uninor's, the Telenor-Unitech JV, Telenor served a compensation notice to its Indian partner and said it was looking for a new partner in India.
Unitech’s hospitality plans, too, did not see the desired results. “A lot of money was available to developers during 2005-07 and they got into all sorts of fancy asset classes such as retail, hotels, insurance and so on. But soon it disappeared,” said Amit Goenka, national director, capital transactions at Knight Frank, a global property consultant. “Today, there is no money to be made in these assets and cost of capital is expensive...Whatever money is coming is mainly going into debt repayment.”
Another instance of real estate developers' diversification going awry was Indiabulls Real Estate’s foray into retail and subsequent purchase of Pyramid Retail from the Ashok Piramal Group in late 2007 for Rs 208 crore. It had plans to set up 30 hypermarkets with an investment of Rs 1,500 crore and expand Pyramid’s store network from 42 stores to 150 in a year. But the slowdown of 2008-09 impacted its cash flows adversely.
| REALiTY CHECK Several real estate companies had diversified into areas such as hotels, telecom and retail during 2005-2008. However, as the slowdown set in after the collapse of Lehman Brothers, these companies shifted back focus on their core business and are looking for buyers for their diversified assets | ||
| Company | Plan | Status |
| DLF | Build 100 hotels | Owns Aman Resorts, which holds 24 properties and around 16 to 17 undeveloped plots |
| Planned to build 300Mw of wind power. Invested Rs 1,500 crore | Installed capacity of 260 Mw, looking to sell for Rs 1,000 crore | |
| Planned to build 500 screens in 5 years in 2008 | Now runs 30 screens | |
| Unitech | Floats Unitech Wireless, sells majority stake to Telenor, | Supreme Court cancels 2G licence |
| In 2008, planned to invest Rs 2,500 cr to develop 35 hotels over 8 years | Scales it down to six properties, Sells one in 2009, rest on the block | |
| HDIL | Ventures into oil and gas in 2008, bids for NELP-VII, did not bag any blocks | Looks to exit the stake in HDIL Oil & Gas |
| Floats mutiplex arm, plans to set up 150 screens | Runs 30 screens | |
“Most of them believed it was a valuation game and could unlock the value at the some point in time,” said said Sanjay Dutt, chief executive of Jones Lang LaSalle. However, the realty companies said the diversification and exits were well thought out.
“Our core business is so complex that we do not get enough time to look after others. It’s a matter of strategy that we are exiting these assets,” said Rajeev Talwar, group executive director, DLF. “We have built rent yielding assets of Rs 27,000 crore to Rs 28,000 crore and created debt which are more than covered by this assets.”
In a emailed response, Unitech spokesperson said: "Unitech is one of India’s leading developers involved in large-scale integrated real-estate development spanning the entire spectrum of real estate development from residential projects to commercial, retail, hotels etc. Therefore developing hotels is not a “diversification strategy” for us but part of our real-estate development business. Unitech is developing three hotels and does not have plans to sell them."
(With inputs from Dilasha Seth)
