Deteriorating credit metrics in the hotel industry is leading to asset sales in the sector. Hotel companies that have implemented aggressive debt-led capex in the past, are finding it difficult to manage their overleveraged balance sheets and are resorting to distress sales.

The year began with the Hyderabad-based Viceroy Hotels, owner of the JW Marriott property, selling its Chennai assets, including the hotel and other residential projects to Ceebros Hotels for an estimated Rs 480 crore. The sale was to help the company reduce its debt of Rs 560 crore.

Late last year Mahindra Holidays and Resorts exited its investments in two Austrian subsidiaries, BAH Hotelanlagen AG and MHR Hotel Management GmbH, for an undisclosed amount.

Even as Mumbai’s Tulip Star Hotel, a sea-facing property in midtown Juhu, awaits a customer with a price tag of Rs 1,315 crore, the Sahara Group’s three luxury hotels overseas are reportedly fanning interest with some UAE buyers.

In 2012 the Sahara Group acquired a 75 per cent stake in New York's Plaza Hotel for around $431 million from Israel's El-Ad Properties. Saudi Prince Al-Waleed bin Talal owns the remaining 25 per cent in the property.

Some luxury hotels are also seeing management changes. For instance, the conversion of the Le Royal Meridien at Sahar, Mumbai, to Hilton Mumbai International Airport Hotel, and the Shangri La Mumbai being rebranded Pallazio Hotel, Mumbai, among several others.

A report by India Ratings and Research (Ind-Ra) expects hotel companies to continue to face muted revenue growth, stagnant profitability and elevated credit risk in FY15 in the face of lower demand growth and supply side pressures.

The agency expects major hotel companies to register revenue growth of 5 to 10 per cent in FY15 due to muted growth among business travellers and foreign tourist arrivals.

Corporate travellers are key demand drivers for hotels as they account for around 60 per cent of guests, according to the Federation of Hotel and Restaurant Associations of India.

In its report, Ind-Ra has said profitability for major companies is expected to remain stagnant at around 20 per cent as the demand slowdown has stressed occupancy and average room rate (ARRs) across major cities, limiting the ability of hotel companies to pass on an increase in input costs.

According to the analysis, the credit metrics of hotel companies have shown a downward trend since FY08. An increased stabilisation period is worsening the condition of already stressed newer properties, with most hoteliers primarily dependent upon sponsors to repay their debt.

The report adds that the hotel industry is unlikely to witness fresh large-scale investor and developer interest in the near term.

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