Service Properties to end management deal with InterContinental Hotels over missed payments

New York

SERVICE Properties Trust will terminate a management agreement with InterContinental Hotels Group (IHG) for a portfolio of 103 hotels after IHG failed to pay minimum returns and rents due.

The Newton, Massachusetts-based real estate investment trust (Reit), led by chief executive officer John Murray, will transfer the branding and management of those hotels to Sonesta International Hotels Corp.

This transfer will be effective on Nov 30, the Reit said in a statement on Tuesday. Some of the properties may be repurposed or sold, the company added.

The portfolio is composed of 81 extended-stay hotels and 22 fullservice hotels and resorts in the United States, 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 spokesperson said in a statement.

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"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 capitalised and maintain a total available liquidity of US$2 billion."

Service Properties previously sent notices of termination to IHG for failing to pay US$26.4 million in returns and rents due for July and August. The agreement called for annual payments totalling US$216.6 million, a filing for the quarter ended June 30 showed.

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", Mr 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," he said.

Service Properties owns about 34 per cent 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, have tumbled about 65 per cent in 2020. That compares with a decline of about 48 per cent for a Bloomberg index of hotel Reits. BLOOMBERG