The transaction is expected to complete in the first quarter of 2005, with IHG retaining long term management contracts on the properties.
The properties will be sold for a cash price of US$450 million, with IHG allocating US$25 million of the proceeds for capital expenditure on the 13 hotels over the next three years. The remaining $425 million of net disposal proceeds will be used for general corporate purposes, including paying down US dollar denominated debt, returning funds to shareholders and investing in the business.
The 13 hotels (3,946 rooms) form part of the tranche of 20 properties IHG placed on the market in July 2004 as part of its ongoing asset disposal programme and consist of InterContinental hotels in Toronto, Houston, San Juan and Austin, four Crowne Plaza hotels, three Holiday Inn hotels and two Staybridge Suites properties.
The hotels will continue to be managed by IHG under a 25 year management contract with HPT, with the exception of the contract on the InterContinental San Juan which, for technical reasons, is structured as an operating lease but with effectively the same economic structure as the management contract. IHG has two consecutive options to extend the contracts on the properties for 15 years each, giving a total potential contract length of up to 55 years.
Richard Solomons, finance director of IHG, commented:
”This transaction represents another significant step forward for IHG and builds on our strong relationship with HPT. This demonstrates our ability to continue to deliver on our stated strategy of reducing capital intensity by selling hotels at attractive prices whilst retaining our brand on the properties.”
Transaction details
1. HPT will receive an initial owner’s priority cash return of 8% of the transaction value, rising to 8.5% in the second year of the transaction. Following payment of the priority, IHG will be entitled to receive base fees, after which HPT is entitled to receive further (non-guaranteed) priority fees and IHG to receive incentive fees.
2. As a result of the transaction, the aggregate level of guarantees given by IHG to HPT will rise by less than 5% or US$5 million (£3 million) and will have a limited life. In 2003, the 13 hotels generated US$13 million (£8 million) of EBIT and US$34 million (£21 million) of EBITDA.
3. Any tax payable on this transaction has been fully provided for.
4. The transaction is subject to certain regulatory approvals expected to be forthcoming.
Since Separation in April 2003, including today’s announcement, IHG will have sold 43 hotels with proceeds of £569 million. 94 properties remain on the market with a net book value of £1.6 billion.
IC Toronto, ON, Canada 210 rooms
IC San Juan, Puerto Rico 402 rooms
IC Austin, TX, USA 189 rooms
IC Houston, TX, USA 485 rooms
CP Hilton Head, SC, USA 340 rooms
CP Los Angeles Airport, CA, USA 613 rooms
CP Redondo Beach, CA, USA 346 rooms
CP White Plains, NY, USA 401 rooms
HI Anaheim, CA, USA 264 rooms
HI Atlanta Airport, GA, USA 190 rooms
HI Memphis, TN, USA 243 rooms
SBS Toronto Markham, ON, Canada 120 rooms
SBS Anaheim, CA, USA 143 rooms
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