US Reit warns IHG

IHG Atlanta

Service Properties Trust has sent a notice to InterContinental Hotels Group for terminating its operating agreement covering 103 hotels.

The Reit said that IHG owed $8.4m and would move to rebrand the hotels if payment was not made by 24 August.

SVC’s agreements with IHG covers 103 hotels (three InterContinental, five Kimpton Hotels & Restaurants, 11 Crowne Plaza, three Holiday Inn, 20 Staybridge Suites and 61 Candlewood Suites) in 30 states in the US, the District of Columbia, Ontario, Canada and Puerto Rico require annual minimum returns and rents of $216.6m and currently expire in 2036.

The Reit said that IHG’s $100m security deposit that SVC held to secure the minimum return payments under these agreements had been fully utilised. SVC has the right to keep the hotels branded and managed by IHG for up to one year post termination to aid in an orderly transition.

Absent a cure payment by IHG, SVC currently plans to transition management and branding of these 103 hotels from IHG to Sonesta International Hotels Corporation, or Sonesta, primarily under the Royal Sonesta, Sonesta and Sonesta ES Suites brands.

SVC owns approximately 34% of Sonesta.

John Murray, president & CEO, SVC, said: “SVC and IHG have had a long relationship and we are in regular dialogue with them. We hope IHG cures this default so that we can move forward without a termination and rebranding.

“However, it is important to SVC that we enforce our agreements and seek to protect our bargained-for cash flows so that we can pay SVC’s operating costs and other obligations without interruption. Furthermore, if IHG is not prepared to continue paying us our returns on these important assets, we believe that the rebranding of these hotels with Sonesta will benefit SVC as an owner of Sonesta, create greater flexibility in managing these hotels through these challenging market conditions and may have a positive impact on these hotels’ performance during their expected recovery.

“For example, while all of our hotels have been significantly negatively affected by the COVID-19 pandemic, year to date and for the second quarter of 2020, comparable hotel revpar performance at existing Sonesta managed hotels has been among the least negatively impacted of SVC’s hotel portfolios. If these hotels are all rebranded with Sonesta, we also expect that some of the transitioned hotels may be repurposed to an alternative use or sold in the future.”