Dutch pension fund asset manager APG has invested a further €35m in Lemon Tree Hotels, a hotel chain in India.

The latest investment doubles APG’s stake in the company to 13%. Warburg Pincus has a 25% holding.

Lemon Tree, which is aimed mainly at mid-market domestic customers, currently owns 25 hotels in 15 cities, with 2,800 rooms. The chain is halfway through a strategic plan to build further hotels, bringing the total number of rooms owned or managed to 8,000 by 2017.

APG first invested in the chain in March 2012 with a €100m tranche, split into a €27.5m injection in Lemon Tree and €72.5m in Fleur Hotels, a joint venture between APG and the hotel company, which was set up to build the hotels.

The latest investment is split €22m into Lemon Tree, and €13m into Fleur Hotels.

Sachin Doshi, head of non-listed real estate Asia at APG Asset Management, said: “We originally invested with Lemon Tree to capitalise on the growing Indian consuming middle class and our positive view on the mid-scale hotel segment in India. We are long-term investors and see the current market conditions as a good opportunity to enhance our exposure with Lemon Tree.”

He added: “We have a very strong relationship with the company and its management team and this transaction creates further alignment between APG, Warburg Pincus and Lemon Tree’s founders.”

APG works closely with Lemon Tree and has board representation in both its ventures.

Patu Keswani, Lemon Tree’s founder and chairman, has suggested that the company may make an initial public offering (IPO) in the next two years. 

Doshi said: “Lemon Tree informed us about this when we made our initial investment. Our intention is to continue growing the business and if there was an IPO, we’d be supportive. But we are still looking at it as a long-term hold.”

Lemon Tree is APG’s first and only hotel investment in India. Typically, the pension fund asset manager identifies the sector it wishes to acquire exposure to, then invests in what it considers to be the best operator in that sector.

Within India, it also has an investment in a residential development club with Mumbai-based Godrej Properties.

Real estate as a whole currently makes up 9% of APG’s €27bn portfolio. India, However, forms a small part of APG’s Asian allocation.

But Doshi said: “In the long run, we remain positive on India. It has a large, growing population and we do see a pathway to continued growth. Although this has slowed recently, we believe this recent investment is an opportunity to secure a long term asset at attractive valuations, and also to work with partners who share our long term views.”

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