Sale of 73 Hotels in UK for £1 billion; Further Return of Funds
InterContinental Hotels Group PLC (“IHG”) today announces subject to, inter alia, EU merger clearance:
- the sale of 73 hotels with management contracts (with estimated fees of £12m per annum in the first full year) enabling IHG to maintain its strong UK market position and Holiday Inn brand distribution. The buyer is LRG Acquisition Limited, a consortium comprising Lehman Brothers Real Estate Partners, GIC Real Estate and Realstar Asset Management (“LRG”).
- a sale price of £1bn before transaction costs; £960m in cash and £40m deferred contingent cash consideration compared with a net asset value for the hotels of £1,022m; and
- subject to completion of the sale, a proposed further £1bn return of funds to shareholders in conjunction with a capital restructuring.
IHG has agreed to sell 73 hotels in the UK to LRG at a sale price of £1bn in cash. Receipt of £40m of the total proceeds has been deferred, contingent upon certain pre-agreed performance targets being reached. The proceeds from this and other recent hotel disposals will be used to return funds to shareholders, to fund investment in the business and to pay down debt. The sale is expected to complete in the second quarter of 2005.
The 73 hotels to be sold (12,841 rooms) were placed on the market in September 2004 as part of IHG’s continuing asset disposal programme and have a net asset value of £1,022m. They consist of 4 Crowne Plaza hotels, 68 Holiday Inn hotels and 1 Express by Holiday Inn hotel. The hotels include a core portfolio of 63 hotels and a secondary portfolio of 10 hotels. In addition to the consideration, LRG has agreed to invest an incremental £21m of improvement capital in the core portfolio.
The core portfolio of 63 hotels will continue to be managed and branded by IHG under 20 year management contracts with LRG. IHG has two consecutive options to extend the contracts on the core properties for 5 years each, giving a total potential contract length of 30 years. For the secondary portfolio of 10 hotels, which represent only 5% of the EBITDA of the whole portfolio, if LRG wishes to maintain an IHG brand on the properties after 2007, they must invest in the properties to comply with brand standards.
IHG is now proposing a further £1bn return of funds to shareholders. This will require a capital restructuring to enable the release of funds. Details of the capital restructuring and proposed method of returning funds will be contained in a Circular to be sent to shareholders in due course. Subject to necessary approvals, including from shareholders, completion of sale transactions and there being no material adverse change in market conditions, it is intended to complete the restructuring by the end of June 2005 and to return funds to shareholders as soon as practicable thereafter.
Since Separation in April 2003, including today’s announcement, IHG has sold or agreed to sell 121 hotels with proceeds of £1.75 bn, close to net book value, and announced the return of £2bn of funds, of which £767m has been returned.
Richard Solomons, finance director of IHG, commenting on the transaction and return of funds said:
”This is a significant step forward in the execution of our strategy and we have achieved attractive management contracts. These long term contracts give us excellent continued representation for Holiday Inn in the UK, one of our most important markets globally, and illustrate our strength as one of the leading hotel management companies in the world. Our strategy of focusing on branding, franchising and managing hotels continues to generate significant value for shareholders. We can now operate with a significantly lower capital base. I am very pleased to be able to announce the return of a further £1bn to shareholders, taking to £2bn the total we have committed to return, and enhancing our return on capital employed as a result.”
Mark H. Newman, Managing Director, Lehman Brothers Real Estate Partners LP added:
“We are very pleased to acquire this portfolio from InterContinental Hotels Group plc and look forward to working together with them and our joint venture partners GIC Real Estate and Realstar Group.”
Dr Seek Ngee Huat, President of GIC RE said:
“We are delighted to be extending our global hotel portfolio in this venture with our partners Lehman Brothers Real Estate Partners and Realstar as well as the strong IHG brands.”
Jonas Prince, Chairman of Realstar Group said:
"This acquisition represents a significant opportunity for us as these properties offer tremendous value in terms of real estate and brand equity. We are excited to be working in tandem with our joint venture partners and IHG to ensure the continued integrity and viability of these properties.“
Transaction details
- The buyer is LRG Acquisition Limited (a consortium comprising Lehman Brothers Real Estate Partners, GIC Real Estate and Realstar Group)
- Net asset value of hotels sold of £1.02bn comprising net book value of £1.08bn offset by deferred tax liabilities in the companies sold of £57m. All numbers are stated under UK GAAP for simplicity and consistency.
- The P&L tax charge and cash tax payable on this transaction is not expected to exceed £5m
- Expected management fees are initially in the region of £12m in the first full year, with additional incentive fees potentially payable thereafter.
- UK sale transaction conditional upon, inter alia, EU merger clearance; return of £1bn of funds conditional upon, inter alia, shareholder approval, completion of disposal transactions and no material adverse change in market conditions.
- Receipt of the deferred proceeds is contingent on meeting performance targets in 2005, 2006 and 2007. Proceeds are also subject to a working capital adjustment on completion.
- Since Separation in April 2003, including today’s announcement, IHG will have sold 121 hotels with proceeds of £1.75bn, almost half the hotel assets owned at Separation in April 2003. 16 properties remain on the market with a net book value of £360m.
- Sales announced today: 73 hotels, 12,841 rooms, proceeds of £1.0bn:
2004 £ |
2003 £ |
|
Revenue | 342 | 322 |
EBItdA | 107 | 95 |
EBIT | 69 | 60 |
Note: Profits before allocation of interest and tax |
Hotel | Location | Rooms |
IC Austin | US | 189 |
IC Central Park South | US | 208 |
IC Chicago | US | 807 |
IC Houston | US | 485 |
IC Miami | US | 641 |
IC San Juan | Puerto Rico | 402 |
IC Toronto | Canada | 210 |
IC Mayfair | UK | 289 |
CP Amsterdam | Netherlands | 174 |
CP Hilton Head | US | 340 |
CP Los Angeles Airport | US | 613 |
CP Redondo Beach | US | 346 |
CP White Plains | US | 401 |
CP Midland Manchester | UK | 303 |
CP Vanuatu | Vanuatu | 140 |
HI Anaheim | US | 264 |
HI Atlanta Airport | US | 190 |
HI Memphis | US | 243 |
HI South Bend | US | 229 |
HI Gatwick Crawley | UK | 217 |
HI Middlesbrough/Teeside | UK | 134 |
HI Preston | UK | 129 |
HI Plymouth | UK | 112 |
HI Sheffield West | UK | 138 |
HI Swansea | UK | 106 |
HI Adelaide | Australia | 193 |
HI Darwin | Australia | 183 |
HI Newcastle | Australia | 72 |
SBS Alpharetta | US | 118 |
SBS Anaheim | US | 143 |
SBS Atlanta Perimeter | US | 143 |
SBS Auburn Hills | US | 118 |
SBS Austin | US | 121 |
SBS Boston | US | 133 |
SBS Burlington | US | 141 |
SBS Carmel Mountain | US | 116 |
SBS Charlotte | US | 117 |
SBS Columbia | US | 118 |
SBS Denver | US | 115 |
SBS Eatontown | US | 131 |
SBS Fort Lauderdale | US | 141 |
SBS Houston Galleria | US | 93 |
SBS Myrtle Beach | US | 119 |
SBS Portland | US | 117 |
SBS San Antonio | US | 118 |
SBS Sorrento | US | 131 |
SBS Toronto Markham | Canada | 120 |
Posthouse Epping | UK | 79 |
UK Portfolio | UK | 12841 |
Total | 121 | 23,031 |