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IHG announces revision and extension of Hotel management contract

IHG announces revision and extension of Hotel management contract

The key terms of the deal are as follows:

The IHG guarantee on the previous contracts has been eliminated and will not be renewed. IHG will fund a security deposit of $37m to cover any future shortfalls to HPT’s owner priority returns. This was paid to HPT on 25 July 2011. The balance of the security deposit will be repaid to IHG at the end of the contract;

Up to 42 hotels (6,751 rooms) will be rebranded or sold by HPT, leaving 88 hotels (13,131 rooms) under IHG’s brands in the revised single management contract. These hotels will be removed from IHG’s system size in 2011 in addition to one hotel which has already been sold by HPT;

HPT will invest $300m to renovate the remaining 88 hotels. These include 3 InterContinental hotels, 6 Crowne Plaza hotels, 2 Holiday Inn hotels, 19 Staybridge Suites hotels and 58 Candlewood Suites hotels. On conclusion of the refurbishments the renewed HPT estate will be strong representations of their respective brands.
The net P&L impact to IHG in 2011 and 2012 is immaterial and IHG expects to begin earning base management fees in 2013.

The new contract is effective as of 1 July 2011.
Chief Executive of IHG, Richard Solomons, said: “Our relationship with HPT which commenced in 2003 has been a beneficial one, allowing us, amongst other things, to accelerate our expansion into the fast growing extended stay segment.  We are delighted to announce the continuation of this relationship with one of the premier real estate owners in the US through the revision and extension of our management contract.  The exit of up to 43 hotels and the $300m investment by HPT in the remaining 88 hotels will leave us with a high quality brand defining portfolio which will be well placed to deliver superior returns to IHG over the long term.”


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