Hospitality Properties Trust To Invest $375 Million with NH Hoteles in Latin America, Europe and the USA
All of the five hotels in Latin America were recently built or renovated and four of these five hotels are located in the capital cities of Mexico, Chile, Colombia and Uruguay1. The four hotels which will be the collateral for HPT’s mortgage loans are each full service hotels, well located in the city centers of Madrid, Barcelona, Amsterdam and Brussels. The NYC hotel is located in Mid-Town Manhattan
Hospitality Properties Trust (NYSE: HPT) announced that it has entered a letter of intent and an exclusive negotiating period for hotel investments with NH Hoteles, SA (BME: NHH) (NYSE: NHHEY (ADRs)) in Latin America, Europe and the USA totaling approximately US $375 million.
The outline of terms which have been negotiated between HPT and NHH is as follows:
- HPT will purchase five hotels (804 keys) in Latin America from NHH for approximately US $70 million. These hotels will be managed by NHH under long term contracts for 20 years plus renewal options. NHH will provide a limited guarantee of a priority return to HPT on HPT’s invested capital at the rate of 10% p.a. and HPT may receive additional returns after base and incentive management fees are paid to NHH. This investment and HPT’s returns will be paid in US Dollars.
- HPT will provide a loan to NHH for €170 million which will be secured by first mortgages on four hotels (1,203 keys) in Europe. The loan will be a recourse obligation of NH Hoteles, have a seven year term and require interest at a floating rate not less than 10% p.a. In certain circumstances, HPT will have the option to take ownership of these hotels by cancelling the loan and paying the difference between the loan amount and the agreed values of these hotels. The loan will be funded and interest and principal paid in Euros. HPT expects to hedge its foreign currency risk by borrowing in Euros an amount approximately equal to the loan.
- NHH and an European partner currently own a 242 key hotel in New York City. HPT and NHH will form a joint venture to acquire this hotel. HPT expects to provide up to US $80 million to retire the ownership of NHH’s current partner and fund a major refurbishment of this hotel. After this hotel is refurbished, NHH and Sonesta International Hotels, Inc. (“Sonesta”) will jointly brand and manage this hotel. HPT will receive a priority return on its investment in this hotel equal to 8% p.a. Also, after Sonesta and NHH receive management and branding fees and after NHH receives a return on its residual investment in this hotel, HPT and NHH will divide the cash flow based upon their agreed ownership interests.
NH Hoteles is one of the leading hotel management companies in the world. NH Hoteles operates approximately 400 hotels in Europe and Latin America, and it is simultaneously today announcing a strategic investment by HNA Group of China into NH Hoteles. HPT began its discussions with NH Hoteles almost one year ago and HPT hopes that, when the transaction outlined in the letter of intent announced today is implemented, it will be the beginning of a long term strategic relationship between our companies, especially in North and South America and possibly elsewhere.
The hotels in which HPT will be invested are all well located, market leading hotels. All of the five hotels in Latin America were recently built or renovated and four of these five hotels are located in the capital cities of Mexico, Chile, Colombia and Uruguay1. The four hotels which will be the collateral for HPT’s mortgage loans are each full service hotels, well located in the city centers of Madrid, Barcelona, Amsterdam and Brussels. The NYC hotel is located in Mid-Town Manhattan; when it is fully renovated it will be operated to top tier brand standards of both NH Hoteles and Sonesta, and HPT expects that the joint marketing programs to be developed by NH Hoteles and Sonesta will promote the hotel’s financial success as a “flagship” type asset for both managers.
The letter of intent announced today is detailed, but it is only an expression of current intents and not a binding agreement. HPT’s and NHH’s obligations to undertake this transaction are conditioned upon their agreement to and entry of final transaction documents and other matters. Also, because the transaction described in the letter of intent involves multiple hotels in multiple legal jurisdictions, it is expected that it may be implemented in a series of closings. At this time, HPT expects this transaction may be fully completed during the summer of 2013.
HPT was represented in the negotiation of the transaction announced today by Morgan Stanley.
Hospitality Properties Trust is a real estate investment trust, or REIT, which as of December 31, 2012, owned or leased 289 hotels and 185 travel centers located in 44 states, Puerto Rico and Canada. HPT is headquartered in Newton, Massachusetts, USA.
1 The fifth Latin America hotel is also in Mexico.
Logos, product and company names mentioned are the property of their respective owners.
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