NEWTON, Mass.--(BUSINESS WIRE)--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.”
About Service Properties Trust
Service Properties Trust is a real estate investment trust which owns a diverse portfolio of hotels and net lease service and necessity-based retail properties across the United States and in Puerto Rico and Canada with 148 distinct brands across 23 industries. SVC’s properties are primarily operated under long-term management or lease agreements. SVC is managed by the operating subsidiary of The RMR Group Inc. (Nasdaq: RMR), or RMR Inc., an alternative asset management company that is headquartered in Newton, Massachusetts.
Warning Concerning Forward-Looking Statements
This press release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Also, whenever SVC uses words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar expressions, SVC is making forward-looking statements. These forward-looking statements are based upon SVC’s present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Actual results may differ materially from those contained in or implied by SVC’s forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond SVC’s control. For example:
- This press release states that, absent a cure payment from IHG, SVC plans to transition management and branding of 103 hotels from IHG to Sonesta. In addition, this press release states that SVC has an approximate 34% ownership interest in Sonesta and that SVC would share in the benefit from these new management agreements and in the hotels’ performance to the extent they ramp up in the post- pandemic recovery. However, Sonesta may not operate these hotels profitably and SVC may not receive the benefit it would expect to receive. Further, it is not known how long the pandemic will last or how severe it will be, including its continued impact on the hotel industry. Moreover, it is not known how long it will take the economy to recover following the pandemic or what adverse changes on the hotel industry may be realized, such as if business and leisure travel are significantly reduced on a long-term or permanent or basis. These and other factors may adversely affect the performance of these hotels, regardless of which operator is operating them.
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This press release also states that some of these hotels may be repurposed to an alternative use or sold. However, these outcomes may not occur.
The information contained in SVC’s filings with the Securities and Exchange Commission, or SEC, including under the caption “Risk Factors” in SVC’s periodic reports, or incorporated therein, identifies other important factors that could cause differences from SVC’s forward-looking statements. SVC’s filings with the SEC are available on the SEC's website at www.sec.gov.
You should not place undue reliance upon forward-looking statements.
Except as required by law, SVC does not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.
