IHG Defaulting On Payments – May Lose 103 Hotels In North America

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SVC, a trust containing hotels under brands from Hyatt, Marriott, and IHG, among others, has sent a notice to InterContinental Hotels Group to terminate its affiliation with 103 properties due to IHG’s failure to remit agreed-upon payments.

IHG owes SVC $8.4M for July, and there is another payment of $17.4M due on August 1, 2020. Unless IHG pays by August 24, these 103 hotels may lose their affiliation with InterContinental, Kimpton, Holiday Inn, Crowne Plaza, and Candlewood Suites brands on November 30.

You can access IHG here.

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Here are the hotels that IHG may lose:

  • InterContinental = 3 hotels (Toronto, Austin & San Juan)
  • Kimpton = 5 hotels (Palomar DC, Allegro Chicago, Palomar Chicago, Monaco Portland & Alexis Seattle)
  • Crowne Plaza – 11 properties
  • Holiday Inn – 3 properties
  • Staybridge Suites – 20 properties
  • Candlewood Suites – 61 properties

Here’s the spreadsheet of all SVC affiliated hotels & businesses:

Download (XLSX, 157KB)

Their IHG affiliated hotels:

Download (XLSX, 59KB)

Here’s the release from SVC:

Service Properties Trust (Nasdaq: SVC), or SVC, today sent a notice of event of default and termination to InterContinental Hotels Group plc (NYSE: IHG), or IHG, as a result of IHG’s failure to pay SVC approximately $8.4 million of required priority return for the month of July 2020. IHG has 30 days, or until Monday, August 24, 2020, to make the payment plus accrued interest to avoid termination of its operating agreements with SVC. The effective date of the termination set in the notice is November 30, 2020. IHG’s priority return payment of approximately $17.4 million is also due on August 1, 2020 and failure to pay such amounts will be an additional event of default, which would increase the amount IHG is required to pay to avoid termination.

SVC’s agreements with IHG covering 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 U.S., the District of Columbia, Ontario, Canada and Puerto Rico require annual minimum returns and rents of $216.6 million and currently expire in 2036. IHG’s $100 million security deposit that SVC held to secure the minimum return payments under these agreements has been fully utilized. 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 and would share in the benefit of these new management agreements and in the hotels’ performance to the extent they ramp up in the post-pandemic recovery.

John Murray, President and Chief Executive Officer of SVC, made the following statement:

“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.”

Conclusion

According to the release above, IHG has agreed to pay annual minimum rents and returns of $216.6 million to SVC and is now defaulting on its contractual obligations – not good.

SVC must have reminded IHG a few times to come up with the money (see the $100M security deposit has already been fully allocated) and hopes to get them to pay up by publicly shaming.

IHG can always file for bankruptcy reorganization if they feel the need to restructure their debt and other obligations or ask for more cash from the UK taxpayers to pay for their bills on the other side of the pond.

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