Service Properties to End Pact With IHG on Missed Payments
(Bloomberg) -- Service Properties Trust will terminate a management agreement with InterContinental Hotels Group Plc for a portfolio of 103 hotels after IHG failed to pay minimum returns and rents due.
The Newton, Massachusetts-based real estate investment trust, led by Chief Executive Officer John G. Murray, will transfer the branding and management of those hotels to Sonesta International Hotels Corp., effective Nov. 30, the REIT said in a statement Tuesday, confirming an earlier report by Bloomberg. Some of the properties may be repurposed or sold, the company said.
The portfolio is composed of 81 extended-stay hotels and 22 full-service hotels and resorts in the U.S., Canada and Puerto Rico. They include three InterContinental hotels, five Kimpton Hotels as well as other brands such as Candlewood Suites and Holiday Inn.
Service Properties “has indicated its intent to terminate the management agreement with IHG, effective November 2020,” an IHG spokesman said in an emailed statement.
“As the industry continues to recover from the unprecedented impact of Covid-19, IHG is committed to remaining in sound financial condition by reducing costs and protecting cash flow, ensuring our management agreements are in line with this approach,” the representative said. “We are well capitalized and maintain a total available liquidity of $2 billion.”
Service Properties previously sent notices of termination to IHG for failing to pay $26.4 million in returns and rents due for July and August. The agreement called for annual payments totaling $216.6 million, according to a filing for the quarter ended June 30.
The two companies “have had a long relationship which began in 2003, but we were unable to reach a mutually agreeable resolution to the defaults by IHG under our management agreements with them,” Murray said in Tuesday’s statement. “Therefore, after a period of negotiation with IHG, we determined to terminate IHG and rebrand these hotels with Sonesta.”
Service Properties owns about 34% of Sonesta, which currently manages more than 50 of the REIT’s hotels, including 16 that were rebranded from IHG in 2012.
Like most REITs operating in the hospitality sector, Service Properties’ stock has been hammered by the pandemic, which all but halted travel earlier this year. Shares of the company, managed by an affiliate of Adam Portnoy’s RMR Group Inc., have tumbled about 65% in 2020. That compares with a decline of about 48% for a Bloomberg index of hotel REITs.
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