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Lemon Tree Hotels Ltd
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Ladies and gentlemen, good day and welcome to the Lemon Tree Hotels Limited Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Mr. Anoop Poojari of CDR India. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and thank you for joining us on Lemon Tree Hotels Q3 and 9M FY '20 earnings conference call. Apologies for the slight delay in initiating the call. We have with us today Mr. Patanjali Keswani, Chairman and Managing Director; Mr. Rattan Keswani, Deputy Managing Director; Mr. Kapil Sharma, Chief Financial Officer; and Mr. Vikramjit Singh, President of the company.We will start the call with brief opening remarks from the management, following which we'll have a forum open for a question-and-answer session. Before we begin, I would like to point out that some statements made in today's call may be forward-looking in nature, and a detailed statement in this regard is available in the results presentation shared with you earlier.I would now request Mr. Keswani to make his opening remarks.
Thank you. Good afternoon, everyone, and thank you for joining us on the call. I hope all of you have had the opportunity to go through our financial -- our results presentation, which provides details of our operational and financial performance for the third quarter and the 9 months ended 31st December 2019. We have delivered a strong performance during the quarter despite subdued market sentiments and challenges in micro markets. In Q3 FY '20, our consolidated revenue from operations grew by 39.3% year-on-year to INR 199.6 crores. This growth was primarily driven by the addition of 978 owned/leased rooms over the last 15 months, the acquisition of Keys Hotels, and increase in the ARR at the group level. Our consolidated EBITDA increased by 47.9%, and we also registered a healthy EBITDA expansion of 213 bps year-on-year. Our PBT in Q3 FY '20 increased by 16.1% year-on-year.I would now like to disaggregate our consolidated Q3 FY '20 performance into 3 buckets, which are: same hotels, that is hotels which were operational for at least 15 months, that is Q3 FY '19 onwards; new hotels, that is hotels which opened either during Q3 FY '19 or later; and Keys Hotels, which we acquired effective 1st November 2019.Same hotels. Our same hotels recorded a 5.8% increase in revenue from operations, driven by a 5.4% increase in ARR and a 148 bps expansion in occupancy from 74.7% to 76.2%. Our focus on cost optimization has resulted in the operating costs of our same hotels reducing by 1% year-on-year, which, combined with this increase in revenue, has led to a 19% increase in EBITDA for same hotels. The EBITDA margin of our same hotels has, therefore, expanded by 425 bps year-on-year from 34.2% to 38.4%. Now what I'd like to point out is that our below-the-line corporate expenses are actually expensed in the same hotels bucket. So actually, this 38.4% is on a fee expenses basis because the corporate expenses have not been distributed across new hotels and Keys. It's actually significantly higher. Profit before tax of our same hotels increased by 67% year-on-year from INR 18.3 crores to INR 30.6 crores.New hotels. About our 6 new hotels with a total inventory of 978 rooms, which account for about 19% of our group inventory, operated at an average ARR of about 1.2x our group average in Q3 FY '20, but at a significantly lower occupancy than the group average, which had a pull-down effect on our group RevPAR. Due to this, the PBT contribution from these new hotels was negative INR 9.2 crores for Q3 FY '20. But I'm happy to share with you that all the new hotels are ramping up quite well. For those of you who attended my briefing in Mumbai in September last year, where we had presented the dramatic improvement in the performance of the last 4 adult hotels we had opened from infant phase to the adult phase, I would like to inform you that improvement in performance of these 6 new hotels is on the same trajectory.Keys Hotels. Keys Hotels, which we acquired and consolidated into our financials from 1st November 2019 onwards, comprise 7 hotels with 936 rooms, which account for 18% of our group inventory. Currently, these hotels, on all performance parameters, like occupancy, revenue per room, EBITDA per room, EBITDA margins, et cetera, are enormously lower than similar Lemon Tree Hotels and are somewhat similar to the performance of our new hotels. The contribution of Keys Hotels to the group PBT was negative INR 1.2 crores for Q3 FY '20. So our strategy to ramp up Keys Hotels is similar to our strategy of ramping up our 6 new hotels. On the operational front, our team is working hard on seamlessly consolidating operations. As there are significant opportunities to derive multiple synergies from this acquisition, we are very confident of delivering significant improvements in operational and financial performance from Keys Hotels in the coming 6 to 8 quarters. To give a better perspective on the company's operations vertical-wise, we have incorporated a slide, #16, in our results presentation. It gives you a summary of how our businesses have performed across same hotels, new hotels and on the acquired Keys Hotels. Moving to operational developments. During the year, we opened 3 large owned hotels at Mumbai, Udaipur and Calcutta. While recently launched Udaipur property under our new brand, Aurika, is still in the process of stabilizing, we are very happy with the improvement in monthly performance versus the run rate reported by Lemon Tree Premier Mumbai and Calcutta, which were launched in June and October 2019, respectively. In another key development, we have also made our international debut with the opening of Lemon Tree Hotel in Dubai during Q3 FY '20. The hotel is strategically situated close to famous tourist spots in the city. We will also be launching our second international hotel in Thimphu, Bhutan, soon, which, too, will be a Lemon Tree Hotel. The inclusion of these hotels is in sync with our strategy to go asset-light through expanding our managed hotels portfolio by leveraging our strong brand in the country.Our current operational inventory, as of 31st January 2020, consists of 79 hotels and 7,979 rooms, out of which 5,192 rooms are owned/leased and 2,787 rooms are managed. Our active development pipeline consists of an additional 748 owned/leased rooms and 1,925 rooms under management contracts, all of which will be operational within the next 2 years. To conclude, even as we anticipate the industry cycle to positively turn in the near term, we continue to build on our cost leadership and strengthen our leading position in the mid-priced hotel segment in India. We believe we are well positioned overall to capitalize on the upcoming opportunities led by the stabilization of a very large inventory commissioned in the downcycle over the last 15 months, the successful integration of Keys Hotels and the aggressive ramp up of our asset-light model through managed hotels.On that note, I come to the end of our opening remarks and would like to now ask the moderator to open the line for Q&A.
[Operator Instructions] We have a first question from the line of Nihal Jham from Edelweiss.
Congratulations with a good set of numbers to the entire management. Sir, my first question was in our last discussion on the call, obviously, the Q2 performance was muted, and you did mention at that point of time that the industry scenario remains challenging and it is a little difficult to take price increases from a lot of the end user industry that you cater to. As I see that at least for the same hotels, we have seen a decent pricing hike. So first of all, if you could just comment how the industry has been shaping up? And what phase of the cycle are we in, and also, on the rate negotiations that we have done with the MNCs and large Indian corporates? So that will be helpful to start with.
Okay. So Nihal, overall, the industry -- you have to understand the hotel industry is highly discretionary. It has multiple types of customers. So there are, obviously, large corporates, there are small, medium and micro enterprises and then there are retail customers who come either directly or through the OTA channels, online channels to hotels.Now if I looked at it, and I think I mentioned it after the Q2 -- during the Q2 conversation, too, the large corporate segment, especially those related to -- those which have been significantly affected by the slowdown in the last few quarters, their demand has dramatically dropped. It has not dropped slightly, but it has dropped dramatically. So the key challenge is to actually replace the lost -- the drop in demand from those industry segments with retail. So I think if you look at Lemon Tree, we have managed to do it, well, fairly successfully. We have not only replaced the lost demand with retail. We have actually expanded our retail even beyond the lost demand, which is why you will find that we have increased their occupancy in the same hotels.This has also led to an increase in average rate because surprisingly, in spite of the slowdown, I find that retail demand in the price point of 4,000 to 6,000 is actually increasing in India, and we have tried to target that. So overall, on a macro basis, I think demand in -- from large corporates has reduced; demand from small, medium micro enterprises has also reduced, I think, especially after demonetization. But this has been more than compensated by retail demand, and that to us, is very encouraging because long term, we would like to be more and more B2C rather than B2B2C.
That's helpful. And just on retail, could you share that what will be the share of retail this quarter or this year compared to what it was in the same quarter last year?
It will be, I think -- same quarter last year?
Same quarter last year was 36%, now it's 39%.
Yes. From 36%, it has gone to 39%.
That's very helpful. And I note you mentioned that corporates, obviously, remains a bit of a pain point, but just in terms of the negotiations with larger MNC customers and the large Indian corporates, are there negotiations in recent hikes or it's also between...?
I would say, between 3% to 4%. In large corporates, small, medium, micro, those that are still consuming hotel rooms would be 5% to 6% and retail would be higher.
Absolutely. So just one more thing was on the discussion of Hyderabad, specifically. I see that there has been a phenomenal increase in the region, possibly to one of the best cycles that the sector has seen in terms of 15% to 20% growth. I want you to comment that, is this a base on time to generate the demand in your hotel or the intercity so strong that we are seeing such kind of strong increase there?
So one is, if you look at some of the office leasing reports, you'll find Hyderabad is continuing to offer very large office spaces, which are being absorbed fairly quickly. So this, as a rule of thumb, typically, if there is 10,000 square feet of office space occupied, then the closest hotel benefits by one room per day, as a rule of thumb. This is a global rule of thumb. Now Hyderabad has been seeing an enormous amount of development and leasing activity. So we are obviously beneficiary, but the whole industry has been a beneficiary, though I feel that we have done quite remarkably in Hyderabad, because fundamentally, this has enabled us, since we are already at high occupancies -- I think in the past, a number of analysts have asked me that if you reach a high occupancy, what do you do. And I had explained to them that once we reach a certain level, we start repricing, irrespective actually of industry.So if you look at Hyderabad, we repriced our rooms by 17.7%. Although we could raise our occupancy since it was already very high, even earlier, by only 58 bps, but it led to an overall improvement in RevPAR of 14.5%. So basically, I think Hyderabad, where interestingly we have one of our largest inventories of owned rooms, Hyderabad is looking brilliant for the next 4 to 5 years, not even short term. So it's not a one-off. If you look at development activity and future leasing, it is strong for the next, I think, 8 quarters. So I'm very bullish on Hyderabad. My guess is Hyderabad, because of the open areas and the very well-planned infrastructure, especially in the area where our hotels are, which is HITEC City and Gachibowli, is going to -- well, is going to see an enormous surge in economic activity in the next few years.
Just last question from my side...
[Operator Instructions] We have next question from the line of Deepika Mundra from JPMorgan.
Sir, just firstly, on the balance sheet, could you tell us what are the latest debt levels? And would you need any additional debt for construction of the Bombay airport hotel?
Well, I think we have said repeatedly that our debt will peak at INR 1,550-odd crores. So we are roughly there right now. To answer your question about the Bombay hotel, we have invested a little over INR 300 crores in it. The total investment will be INR 850 crores, INR 900 crores. What we see is with our free cash flows and refinancing some of our debt because we'll be repaying about INR 200-plus crores of debt in the next 2 years, plus we will have free cash flows well in excess of that. So we think we will be financing the Bombay hotels through internal accruals and just refinancing our current debt. So the short answer is the debt won't increase.
Okay. And sir, on the newer properties, which is Udaipur, Calcutta and Bombay, for the third quarter, would you be able to share any specific details on both ARR and occupancy? I understand it's the first quarter for some of the properties, but just an indicative performance?
Well, these are all brand new properties, but I'll share them with you. Pune, the net average rate is INR 4,900 about. It is doing 60% now. Mumbai, I'm talking Q3, by the way, Q4 is significantly stronger. Pune now is doing -- where is Pune?
For all new orders in Q4?
No, only year-to-date.
So Mumbai onwards, it's there. Pune is not there.
So Pune now is, I think, at a little over 70%. But anyway, I don't have the numbers right here. Bombay is doing a net ARR of INR 6,700 in Q3 and is about -- at about 62%. Aurika, which we opened in November -- so you have to understand unlike business hotels, leisure hotels, a lot of their demand is prebooked a year out. So Aurika for the first 1 year, we were aware would be significantly lower in occupancy. It would only be retail local occupancy that would drive performance. So it did an occupancy of only 20%, but at a net ARR of INR 15,000. Calcutta did 44% in the first quarter since opening at INR 6,500.
Got it, sir. And sir, lastly, if I can ask just one more. On the distribution cost side, given that you've added so many more properties, both on managed contracts and with Keys, are you seeing any significant benefits?
What do you mean by distribution?
So in particularly with OTAs, given that you have a much larger inventory now, are you seeing much better rates with OTAs?
Of course. No, no, we acquired that once we acquired Keys. An indirect benefit of that was we started controlling 15% of India's mid-market. So then your relationship becomes far more equal, which is reflected in the increase in our retail and the fact -- I don't want to comment on it, but we have very positive commercial terms with our partners in the online travel space. And more importantly, I think what has happened is that about 10% of the occupancy which I just mentioned to you, whether in Bombay, Pune or Calcutta, came from our loyalty members in the first 3 months. So actually, if I remove that, the occupancy would have been 10% lower.
We have next question from the line of Venkat Samala from Tata Asset Management.
So I'm not really sure if this question was asked before, but just wanted to get your perspective on this. So last 3, 4 years, we've seen double-digit RevPAR growth in your hotels. So just wanted to know, other than the change in the mix, what other factors would you attribute to the RevPAR growth to? And secondly, what you -- what are your expectations for the RevPAR growth here on, given the macroeconomic scenario?
So broadly, I think one thing our company is, I think, absolutely laser focused on -- laser focus, sorry, is that we don't want to increase costs. So what benefit we get when we grow very fast is that we have an ability to transfer a high-cost resource from an existing hotel on a promotion to a new hotel and replace that resource with a much lower cost. So what we are really looking at is constantly churning our people. We have 8,000 employees. So every time we add a hotel, especially now we are adding so many managed hotels, we have an ability to offer career opportunities and reduce our wage book. So that's one. Number two is, we are focused on a very simple metric, which is our power and fuel costs should be less than 2 watts per square foot per hour, which is less than 50% of the average in the Indian hotel industry. And we are -- right now, we are, I think, at 1.91. So that's something we track very closely. And I think, overall, you will find that next 2 years, you will find that our cost per room will reduce rather than increase irrespective of inflation being at 4% or 5%. The other 2 things that we expect will happen, and you will see this in the next 5 quarters, starting from the quarter we are in, is a fairly significant recent increase in our revenue. So if you add the 2 together, like I would expect that our net EBITDA should grow very significantly in the next year and our PBT should grow at least, I don't know, at least 75% to 100% next year. So this will continue happening as these hotels stabilize. And with the opening of -- usually, if you look at Bombay alone, with just a 300-room hotel, you will find it is significantly cash positive in 4 months. And the real game changer for us will be when we open those 670 rooms in Bombay. You, I think, heard me say that Aurika in Udaipur is doing an ARR of INR 15,000. Well, the Lemon Tree premiered at INR 6,700. I'm pretty sure that the Lemon -- the Aurika in Bombay will do in excess of INR 11,000. So when you look at those numbers and just plug in our cost structure, I think you can see that we will be compounding our EBITDA and our PBT at very high levels in the next 3 years because my capital deployment cycle is effectively over, finally. I mean it's been a real pain and a nightmare, but over the last 5 years, we've deployed all the capital required.
Right. Sir, my question specifically was about the last 4-year performance in terms of RevPAR growth. I mean other than the change in the mix towards -- in the favor of retail, what other factors do you attribute to the RevPAR growth specifically, I mean not the cost side?
It's obviously occupancy and price, so how do you combine to maximize. See, sometimes in some hotels, when we open new hotels, we take the occupancy up by giving very attractive pricing. And the minute we hit a certain level of pricing, we start -- we hit a certain level of occupancy, we start repricing. So I think one of your previous questions was specifically on Hyderabad, and that demonstrates to you how we, as a company, plan RevPAR hikes. So Hyderabad, if you notice, we -- once we reach that level of 77%, 78% occupancy, we started repricing. And we do observe -- where is that slide you gave me? So I will show you that if you look at 3 markets where we have large inventory, look at Hyderabad, in Q3 versus Q4 FY '20, we hit a -- from 76.8%, we went to 77.3% and felt confident that we could reprice. So we repriced at 17.7% and the REVPAR, therefore, effectively, grew appropriately. Now look at Delhi, we went from 81% to 85% or 386 bps change in occupancy, and we reviewed -- I mean increased the pricing by 7.7%. So this is very specific to micro markets. But fundamentally, once we can drive the occupancy to a certain level and ensure we have sticky customers, we start repricing very aggressively, independent of the market or the macro.
Sure, sure. And sir, how are you finding the resistance from the customer end while you are trying to reprice it at higher levels?
Obviously, they will resist it all...
I mean given the macro being how it is, so...
I'll give you an example. So there was a certain segment we had of corporate customers who were not willing to increase their price in Hyderabad from, I think, INR 4,500 in the LTP. So -- and they used to consume about 50 rooms a day. We reduced it to 20 rooms a day. And because we were confident of the market, we replaced it with 30 more rooms from other segments which were priced at about INR 1,500 higher. Simple. I'm giving you simple math. So what happens is that you start playing with the mix. So it's not that you are increasing the price. And I want to be very specific here, I don't think the market easily accepts price increases. What you do is you replace a lower rate customer with a higher rate customer, but that higher rate customer is basically got that same price even earlier. It's just that you are getting more of them.
We have next question from the line of Vinod Bansal from Franklin Templeton.
Sir, two questions, one sort of old question. The space is often seen as very susceptible to disruption. Any recent trends you have seen on the OTA channel, in terms of discounting, given the environment is weak, trend in the last 3, 4 months as well as your medium-term expectations from that?
So let me break it into 3 parts. The key to any business is who controls the customer. So OTAs are for me, are -- I don't know, there is a new millennial world called frenemy. So both -- they are both friends and enemy. Now OTAs, very natural in the business model, want to capture access to customers. So they offer stuff which we cannot compete with, like cashbacks.Now how do you compete with a customer who is -- with a competitor in some ways who is willing to offer cashback? You cannot compete unless you are ready to lose money too. So my view is that the only way Lemon Tree or any hotel company will survive in the long term is if it controls so much supply that you cannot ignore it. So that is the simple answer to my response to disruption. That is, currently, we have 15% of India's mid-market. Our target is to hit 25% in the next 4 years, okay? And we will be actually over 20% in 2 years. So one answer is that.Number two is that build your -- now obviously, OTAs and so on, while we are offering cashbacks, this is not sustainable in the long term. So over time, online travel agents will also stop offering cashbacks. So we want to be in a position with our own loyalty program and our own website that we capture as much -- as many of the customers as we can into our own -- through our own booking agent and website. And I'm very pleased, actually, in Lemon Tree, in spite of the onslaught of these cashbacks and whatnot, our share has been increasing significantly in absolute numbers year-on-year. So we are very clear that we want to control enough supply that you cannot ignore me and you cannot bully me, and number two is that we have a strong enough front-end technology platform that we can capture as many of these customers directly as we can through our loyalty program and the choice that we offer.
Right. I'd like to follow up on that. But before this, any recent trends why these frenemies of yours, in the last 3, 4 months, given the -- as the environment is weak, are they raising cashbacks versus what was there 6 months back?
Yes, they are doing what is necessary to maintain their number of customers because their valuation is often a function of the number of customers they are putting through their pipeline, but it is not affecting us because our pricing is not changing. You see, it is your decision, as an OTA or as a travel agent, what price you offer the customer to get the customer, but my price to you has not changed. So it is not affecting us, at least, directly.
Also, you mentioned about the fact that you want to control a greater share of supply, 15% going up to 25%. That goes against the general understanding of it being a very fragmented industry, and therefore, the pricing discipline is so low. I wonder if supply goes up over the medium term, those 25% targets may not continue to hold on. So basically, we believe the whole thing that it is a fragmented industry. We're noticing in various industries that are fragmented, including other discretionaries, like apparel, like footwear. Let me take other examples, OTAs...
So can I call your attention to Slide 8. So please look at Slide 8 of our investor presentation. So you will find in the most critical markets in India, which are Bombay, Delhi, Hyderabad and Bangalore. We are in Bombay. In another 2 years, we will have 1 in 5 mid-market hotel rooms, mid-to-upscale hotel rooms. In Pune, we are -- we will be 1 in 7. In Bangalore, we will be 1 in 7. In Delhi, we are already 1 in 7, we will be 1 in 6. And in Hyderabad, we are 1 in 4, we will be 1 in 5. So I think that should tell you that, obviously, we don't intend to have -- this 25% supply that I'm referring to does not apply across India; it specifically applies to those key markets which are high in demand relatively and also, therefore, relatively high in price. And interestingly, these are the markets with the highest barriers to entry because building a hotel room there today does not make financial sense with the current pricing. So that's the moat we are trying to build.
If I may slip in one question, on the part of holding 20% supply in key markets, there is a thought around that, the players like OYO that are looking to convert some of the unbranded inventory into branded, they would be more in competition with 2-, 3-star hotels. Can that be a risk over the medium-term if they expand, convert fast and then...?
No, no, I don't agree with you because you say to me, many of these -- you are referring to these aggregators, the supply, the kind of customers profile that they have, the customer segment, and the kind of supply and quality they offer is very, very different to the branded mid-market. So I -- at the current level of operations that they have, I don't see them as a threat. In fact, in many ways, I see them as a positive contributor to the hotel industry because they are the most fragmented side of the business, which is at the bottom end. They are actually trying to consolidate. But they don't affect us. And I have not found -- although many people have asked me this question, where they are today does not affect me. That is not to say if tomorrow they raise capital and then move into my sector, they won't be moving in there, maybe they will. But I see that more or less collaboration of conversion of a fragmented market into a consolidated market, and then everybody becomes more pricing rational. So I don't see it as a threat. That's the short answer.
We have next question from the line of Karthik Chellappa from Buena Vista Fund Management.
Sir, my first question is, if I were to look at it brand-wise, on Slide 17, the Lemon Tree Premier, which has seen the sharpest occupancy increase and a very healthy ADR, has actually seen the lowest EBITDA margin expansion year-on-year. What could explain that?
This is all hotels, no, including the...
Old hotels. Old hotels.
Yes, so I think what has brought it down is really what's happening in -- I'm talking RevPAR because an EBITDA. What is really interesting is that Bangalore has been still working through its very large supply. So all-India supply has reduced the additional supply. But in certain micro markets, like Bangalore, and in fact, in Gurgaon, supply injections are still continuing and will continue for the next 2 years. So these are effectively overall weak. So where do we have Lemon Tree Premiers? Where do we have it in the old ones are in Gurgaon, in Delhi, in Bangalore, in Hyderabad and -- while Hyderabad has been good and Delhi has been good, Bangalore and Gurgaon have seen a lot of competitive action for the moment. And that's why you will see that while the average rate has gone up -- the occupancy has gone up, the average rate has remained kind of flat. That's the broad answer.
Okay. Because the reason I ask is, if you look at Bangalore, despite -- okay, for Bangalore, the 363 basis points occupancy rate had some sort of an impact basically on RevPAR and the hotel level EBITDA margin for Lemon Tree Premier.
And also on pricing. Because while the pricing is showing an increase, a part of that is linked to our attempt to shift out of -- you see, whenever a new hotel opens, it gets corporates. It focuses on corporates, basically, because it takes time to get retail. So in the corporate segment, the pricing comes down effectively because your competitor goes and offers a lower price. And it's actually a self-defeating because everybody retains their customer but at the lower price offered by the competitor. So it's an overall mix. It's difficult for me unless you come over one day to my office, I can show you all the Lemon Tree Premiers and how each of them is performing. But overall, actually, we are -- the reason Lemon Tree Premier's occupancy has gone up and ARR has not gone up so much is because of different -- in different hotels, the dynamics have been different.
Okay. Perfect. Okay. And sir, to an earlier comment of the debt right now close to about INR 1,500-odd crores and you said that's almost close to peak, if I were to look at it on a pre-AS-116 adjustment basis, the interest cost today is almost half of EBITDA, INR 35 crores, INR 36 crores interest from a INR 72 crores to INR 73 crore EBITDA. Do you think that figure or ratio has more or less peaked?
100%.
Okay. That was starting from [indiscernible] moderate?
No, let me give you a simple example. You look at our performance -- go back to our Q3 performance. Basically, if you look at same hotels, if you look at the debt coverage, okay, the EBITDA is close to INR 60 crores, and this EBITDA is after corporate office expenses of INR 15 crores -- of INR 12 crores. So really, the EBITDA on a hotel level is close to about INR 70 crores and the interest is INR 20 crores, right? Now you take my new hotels, where most of this debt you are referring to actually is in my new hotels. In these new hotels, I have after less than 1 year brought the occupancy, with much pain, effort and so on, to 57%. We are pretty sure that in the next 1 -- maximum 1.5 years, this will also hit INR 75 crores, INR 76 crores irrespective of macro. When that happens, you see even today at the new hotels level, if you forget depreciation, our cash profit is only negative by INR 2 crores. So we've been able to cover the interest, which is about INR 13.7 crores, with more or less 100% with EBITDA. The EBITDA in these new hotels will just keep increasing, and they will increase dramatically in the next 2 years, as you will see, in fact, in Q4. So when that happens, this ratio will completely change. And Keys Hotels, if you notice, the EBITDA, while it is low, it is still enough to cover the debt, and we expect Keys' EBITDA will also probably double in the next 1.5 years. So this will also not be relevant. So if you look at the 3 buckets, keep in mind that half of my debt, close to half of my debt, is in the new hotels and Keys. And they are not as yet stable, though we are very confident that they will move towards the same hotels category in the next 6 quarters.
Okay. Perfect. Sir, just one last question. Any early indicators of any impact to demand from any segment, whether corporate or retail, on account of the potential threat from coronavirus?
Yes. So coronavirus, in certain markets where we got some conferences from where the visitors or the conference attendees were from China/Asia, we have seen a significant fall in Q4, and I think that will continue till it is resolved. But overall, on an aggregate basis for Lemon Tree, we have managed to, and I repeat, managed to, more than replace them. So at the current level of the virus, I don't see -- assuming -- I mean, well, I'm not talking a black swan event, but as it is today, it has not had any impact on us.
Okay. So no retail level cancellations in any of the geographies, whether Delhi, Bombay and Calcutta?
No, no, we've got cancellations from markets which are affected, but -- and a number of people, say, from Hong Kong are afraid to come to India because they might go into quarantine, I'm just giving you as an anecdote, but we have managed to more than replace it, is my broad point.
We have next question from the line of Sumant Kumar from Motilal Oswal.
Yes. Sir, we have seen a 2% decline in Gurgaon at 75% occupancy. And when you see all the geographies, you have a -- for Hyderabad at 77%, we have 18% increase in ARR. And also Mumbai, we have -- sorry, Delhi, we have seen an 8% kind of ARR increase. So what is the difference between that? What is the dynamics change when you have a 85% occupancy in Delhi and your increase is only 8%? And Hyderabad, you have 77% occupancy, you have 18% increase. So what is the key reason for that? Any change in any customer mix changes in Hyderabad or in Delhi?
No. You see, again, Delhi, we have...
How many hotels we have in Delhi, I have forgotten.
But we have many, many hotels and each of them is in a different micro market. So what I -- I mean what we have reported to you is an aggregate. But broadly, when you hit 80-odd percent occupancy, you reprice. So what you will find in Delhi is actually, we have repriced over 3 years. So let me give you a number. If I remember right, Delhi, 3 years ago, the ARR was INR 3,500. It's gone up 50%. So obviously, we would love to reprice even more, but we are a little prudent in the current market conditions. So in Delhi, we said -- I mean we try to optimize to this INR 5,400 average rate. The real increase in Delhi has been in the Red Fox Hotel and the Lemon Tree Premier in Delhi Airport, but not in the hotels in Delhi, which have actually witnessed a decline in both occupancy and ARR because that market, fortunately, we have a very small exposure there. But both our hotels there have gone into a decline because that market has been very badly affected by supply and by a drop in demand. So you are seeing an aggregate number. But if I talk Delhi alone, from where I'm sitting, which is Delhi Airport, actually, the increase in ARR is significantly higher, and that is reflected in similar numbers like Hyderabad.
Okay. So if there are higher retail customer contribution in Hyderabad, that's why the higher rate increase?
Both. I think what's happening is that Hyderabad has got -- is one of the few markets that has a tailwind, which is that in spite of macro, as I said, so much new supply of office space have been occupied, but there is an improvement in demand. In Delhi, that is not the case. But if you look at the 500 rooms that we have or 480 rooms that we have in the Aerocity, that has characteristics which are very similar to Hyderabad, but has been somewhat brought down by the performance of the 2 smaller hotels, which is about 150 rooms in East Delhi.
2% decline in Gurgaon, in Gurugram, is all because of CAA protest?
No. Well, CAA has had actually a very minor impact. Gurgaon has been going through massive supply injections, and that is still not over. It will still take another year. And I think a lot of new hotels opened in Gurgaon in the last 2 years who are trying to grab market share. So our policy there was to maintain our occupancy, which is why you will find we increased our occupancy though we had to take a small hit in our average rate. But overall, as far as EBITDA goes, we managed to maintain a healthy improvement in EBITDA by about 23%.
We have next question from the line of Archana Gude from IDBI Capital.
Congrats on the good set of numbers. I have 2 questions. Sir, you said that in Q3, we had this retail at 39%. So where do you see this mix next year, 2 years down the line?
50%.
Okay. And in that case, like, what will be -- like, how that will contribute to my RevPAR growth retail if we charge more in terms of ARR and all the things. So on a sustainable basis, what kind of RevPAR growth can be expected?
So typically -- and by the way, this is very, very simplistic. If my average rate is 1, okay, my corporate rates will be from 0.8% to 0.9%, my large corporates. My small, medium micro will be from 0.95% to, say, 1.05%, and my retail will be 1.2%. So if I change my retail mix from 39% or, say, 40% to 50%, it really makes -- it means that my average rate will go up by 10% or 20%, which is 2%.
Sure. Okay. And sir, sorry, if it's a repeat question. Sir, how was this MICE performance in the quarter? And on the corporate side, can you throw some light on the negotiations happening for the next year?
For what, specifically, MICE?
For the MICE. Yes.
Yes, so look, earlier, Lemon Tree was not really focused -- the business model was not focused on MICE. We reoriented it only with our new hotels. So the old hotels typically don't have large banquet facilities. Now what we have noticed is that large corporates who are typically consumers of MICE, who create demand for MICE, there has been a significant drop in demand from them because they are basically cutting back on travel, on hotels or meetings and so on, unless absolutely necessary. However, the social segment has been really increasing. So since we have put MICE for large banquet halls in Calcutta, in Udaipur, in Pune, in Bombay, we are finding that social demand is high. And -- well, since it's new facilities, yes, we are obviously getting corporate demand, but it is, I am told, not the same as it was 2 to 2, 3 years ago. So that's the broad answer. I -- going forward, I find that for Aurika, Udaipur, the wedding demand is enormous. So I'll give you an example. In February, we have sold, or I think January, we sold the hotel for 2 days for INR 1.5 crores to a wedding party. So we are aggressively targeting it. The hotel has been built with an eye to capture the wedding market in Udaipur, which is the strongest segment. And that's why I'm very confident that in Udaipur specifically, weddings are not dependent on, frankly, on the macro. And we are relatively price-insensitive. So we are doing well in the MICE segment. I'm not very sure how the rest of India is doing. But we are quite happy with what we've got.
Sure. And sir, on the corporate side, any -- like any light on the negotiations happening for the next year?
Yes, I think I mentioned that the large corporates will give you 3%, 4%, the small guys 5% to 6%, and retail, we are looking at -- above that, say, 8% to 10%.
We have next question from the line of Satyam Thakur from Morgan Stanley.
Patu, my question is -- or rather, I would request if you could throw more light on -- share your views on how you see the positioning of the brand Aurika? And I'll give you a context of why I asked you that, because you shared that Aurika in Udaipur, in this quarter, would have realized around INR 15,000 ADR, which based on checks looks like the Taj Aravali, which is in the same micro market, that also probably is at similar ADR level. So ADR-wise, you are sitting close to that INR 16,000. Similarly -- and then similarly, the Bombay Aurika, which will open next couple of years, there again, today, you mentioned that you expect INR 11,000 ADR when it opens in 2 years from now. And the JW Marriotts are, which is also a 600-room hotel in the same micro market is that, again, just a public data, it's around INR 9,500 ADR also today. So in 2 years to growth INR 11,000 would mean, like, 10% kind of an ADR growth each year. So what I'm saying is that while you call Aurika an upscale brand, your pricing at both the 2 properties so far, since pricing strategy seems to be to keep it at par to the luxury brands, the 3 hotels in the same micro market, is that a correct reading? And why then this mismatch between the brand positioning and the pricing of the same? And also, what impact will this have on the occupancy ramp up of these properties, given it's a newer brand and so pricing is at par with luxury? Does that kind of make the occupancy ramp up a little slower? How has the occupancy ramped up at Udaipur being in this quarter versus your own expectations?
Okay. Satyam, you asked me a very interesting question. So let me give you -- let me go off for a moment and tell you that in 2 micro markets, which is Delhi and Hyderabad, the Lemon Tree Premier, which is an upper midscale property, does the same ARR as some 5 stars in that market. So how customers pay and what they pay, what is the mix of your customers, I think, often determines your ARR, and not necessarily your positioning, if you get what I mean. So now let's come to Aurika. In Udaipur, it is an upscale hotel. By upscale, I mean we designed it in our version of our scale and we spent the amount of money per room which we felt you would require for an upscale hotel. Now the hotel is -- for you to understand how that hotel is doing, if you have some time, I suggest you go to TripAdvisor, go to Aurika, Udaipur, and see the reviews. It has the simply the single-best reviews across the whole of Udaipur, including any and every hotel. If you read it -- I mean it is open only for the last 3.5 months, but there are about 50 customer reviews. You must read it to understand how customers, retail customers, are perceiving this property. Now hear my view. Aurika, for me, is a long-term play on focusing on acquiring management contracts of the 25,000 upscale hotel rooms in India, of which about half are in distress. We think with our cost structure and our national loyalty program, we can significantly improve the performance of these hotels. And in that sense, the 2 old Aurikas that we have are a positioning to show owners what we can do when we offer an upscale product. What's my view on Bombay? Since you asked me, INR 11,000, and simply looking at our own Lemon Tree Premier, which is doing INR 6,500, a little over that, and we expect that this will go to INR 7,500 to INR 8,000 next year. So if I do simple rule of thumb, I would expect Aurika, and I'm not comparing it with JW Marriott or Hyatt or ITC Maratha. All I'd say is that if I can do 85%, 90% in Bombay and the LTP next year, with a INR 7,500, INR 8,000 ARR, then there is no reason why the Aurika, which is an absolutely phenomenal hotel, will not do INR 11,000 a year after that, and that's my perspective. And well, we'll see what time tells.
Fair enough. Makes sense. And my second question, Patu, was on the other exciting opportunity which is there for us, which is improving the metrics of the Keys portfolio that we have got in. So I know it's very early, but how was the performance on a Y-o-Y basis for the Keys portfolio in this quarter or even in Jan/Feb? Has that improvement on a Y-o-Y basis started happening now that we are selling it all in that phase [indiscernible] quarters?
So roughly, from the figures that we had of Q3 of FY '18 versus Q3 of FY '19, the improvement was about 10%. But it's not what -- frankly, it's not a number I want to talk about. We want to improve it by 50%. That's our target. It will take 2 years. I think I mentioned when we acquired Keys, that our target is to bring it to an EBITDA level of about INR 60 crores, INR 65 crores, and that's what we are targeting.
We have next question from the line of Himanshu Shah from Dolat Capital.
Yes, sir. Most of my questions have been answered. Sir, just want to check, what would have been the industry RevPAR growth versus our same-store RevPAR growth of 5.3%?
It would be about similar, I would say, 4% to 5%. What is Taj, Oberoi in our reports? So we have some numbers. Look, I have only the listed numbers. So where is it? I can share with you what I have. Yes, so I think East India hotels reported -- what did they report? 4.6%. Taj reported 5.6%. Chalet reported 9.9% because they are in Bombay and Hyderabad, fundamentally. We reported RevPAR of 7.5%. I'm talking RevPAR, 7.5%. And all hotels, because the RevPAR was debt to the new hotels, we reported was only 1.9%. But on a same hotel basis -- I think what you folks need to also do is look at depreciation. You see because depreciation tells you which company is growing and which is not. So depreciation of same hotels was obviously negative. But what hit us was high depreciation with new hotels. So as I split it only into same hotels, then revenue from operations in Oberoi was minus 2.4%, Taj was 5.3%, Chalet was 11.7%, and we were 5.8%.
So secondly, with respect to Keys, you called out that we target a INR 50 crores to INR 60 crores EBITDA over the next 18 to 24 months. But the current quarter run rate seems to be much lower versus what even the company had done historically when we transacted around INR 22 crores -- INR 21 crores, INR 22 crores without corporate expenses and around INR 30 crores with corporate expenses -- excluding corporate expenses the EBITDA run rate that the company is used to do. Compared to that, this number is on a much lower side for Q3 for the 2 months' numbers. Just trying to understand, anything specific to a year or just it's too early to comment?
It's too early, but broadly, the corporate expenses of Keys, which we intend to reduce did not reduce because we did not ask people to go, we were repositioning people within the broader system. So it had very large corporate expenses, which will reduce, for example, in Q4 significantly. So the corporate expense, when we acquired Keys, the corporate expenses were close to, I think, INR 14 crores, INR 15 crores -- INR 15 crores for the year. From April, it will drop to INR 2 crores. Okay? That's the first point. Now the EBITDA of Keys was at pre-corporate expense level. It was some INR 30-some cores. And our target is very simple, that the EBITDA should be over INR 62 crores pre-corporate expenses in 2 years. So basically, after corporate expenses, it should be at least INR 60 crores. And we think it's possible. Now the reason why Keys has not done as well as we would have liked is because 250 rooms of Keys are in Kerala, which has been affected by this coronavirus and the floods; and Visakhapatnam, where we have another 100 owned rooms, where because of this political uncertainty about the capital and so on and so forth, there has been a drop in demand. But these are very short-term things. We are pretty sure we'll be able to ramp it up. And that's why I told you that our 2-year target is INR 60 crores to INR 65 crores net EBITDA.
Ladies and gentlemen, as there are no further questions from the participants, I'd now like to hand the conference over to the management for closing comments. Sir, over to you.
Okay. Thank you, everybody, once again, for your interest and support. We'll continue to stay engaged. Please be in touch with our Investor Relations team or CDR India for any further details or discussions, and I look forward to interacting with you soon.
Ladies and gentlemen, on behalf of Lemon Tree Hotels Limited, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.