Newton-based, hospitality-focused REIT Hospitality Properties Trust (HPT) has revised and extended its hotel management contracts with InterContinental Hotels Group Inc., consolidating 130 hotel properties into one portfolio and agreeing to a $300 million renovation program.
The new contract brings all 130 hotel properties managed by InterContinental on behalf of HPT under one combination contract, expected to pay HPT $153.1 million annually in owner’s priority returns.
Existing contracts were scheduled to expire beginning in 2028 through 2031. The revised contract will be valid through 2036, with options to renew the combined contract for two consecutive 15 year terms on an all or none basis – that is, the renewal options must be exercised for all of the hotels included in the combination contract, according to a statement.
HPT and InterContinental have identified 42 of the 130 hotels in the combined contract which may be removed from the contract by HPT and rebranded or offered for sale, the companies said. If the hotels are removed from the contract and rebranded, the owner’s priority returns to HPT will be reduced by 8 percent per annum of the net sales proceeds received by HPT.
Additionally, HPT and InterContinental have agreed to a renovation program for all of the hotels included in the contract, pursuant to which HPT said it expects to invest approximately $300 million. The final amounts invested will depend upon the number of hotels which HPT determines to rebrand or sell and remove from the IHG contract. As HPT funds these renovations, the amounts of its owner’s priority returns will increase annually by 8 percent of the amounts HPT invests. According to a statement, the combined contract will require that up to 5 percent of gross revenues from all the hotels be escrowed for hotel maintenance and periodic refurbishment after the planned renovations are completed.
The security deposit held by HPT for prior InterContinental contracts ($27.6 million as of June 30) will continue to secure payment of HPT’s owner’s priority returns under the new combined contract. In addition, InterContinental has delivered an additional $37 million to HPT to supplement this security deposit, bringing the total deposit to $64.6 million.
Finally, the security deposit for HPT’s future owner’s priority returns will be further increased up to $100 million from 50 percent of the cash flows realized from operations of the hotels in the combined contract, after payment of HPT’s owner’s priority returns. All security deposits are and will be held by HPT, without interest or escrow, the company said.
