Upon closing these agreements today, HPT now owns 76 Candlewood hotels which are now operated by IHG as Candlewood Suites hotels. Also, HPT's Owner's Priority return on its 76 Candlewood Suites hotels is partially guaranteed by IHG.
Prior to the closing today HPT owned 64 Candlewood Suites hotels which were leased to Candlewood Hotel Group [OTC: CNDL] . In early 2003 CNDL advised HPT that CNDL was considering strategic alternatives. Since that time, HPT has been working with CNDL and its advisors regarding various long term alternatives for the HPT owned Candlewood Suites hotels. The agreements completed today are the result of these efforts.
Pursuant to these agreements HPT purchased 12 Candlewood Suites hotels for $90 million. Simultaneously with this purchase, the lease for 64 hotels between HPT and CNDL was terminated, and HPT entered a new 25 year management contract with IHG for all 76 of these hotels. Also, simultaneously with these transactions, IHG purchased the rights to the "Candlewood Suites" brand from CNDL. Including the 76 Candlewood hotels which are owned by HPT, there are approximately 112 Candlewood Suites hotels currently in operation or in development.
The 76 Candlewood hotels now owned by HPT contain 9,220 suites, are located throughout the USA in 28 states, and the average age of the 76 hotels is only five years. The new Owner's Priority return which HPT will receive from the 76 hotels managed by IHG is $60 million/year. IHG is providing a limited guaranty of the Owner's Priority payments to HPT up to $50 million/year. In connection with CNDL's release from its lease obligations, HPT retained a security deposit and a capital improvements escrow totaling about $45 million. In order to pay for capital costs at the 76 hotels and to convert various operating systems to IHG systems, HPT will invest $15 million in the 76 managed hotels during the two years following closing of these transactions.
A summary of certain terms of the previous lease between HPT and CNDL and the new management contract between HPT and IHG is as follows:
Previous HPT/CNDL Lease New HPT/IHG Contract
Number of Hotels 64 (7,775 suites) 76 (9,220 suites)
Base Rent $52 million/year N/A
Owner's Priority Return N/A $60 million/year
Guarantor CNDL IHG (guarantee limited
to $50 million/year)
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