Hotel real estate owner Service Properties Trust has threatened to sever ties with InterContinental Hotels Group at the end of November, citing IHG’s failure to pay approximately $8.4 million in guaranteed returns for July.
Service Properties Trust currently has 103 IHG agreements for hotels with the InterContinental, Kimpton, Crowne Plaza, Holiday Inn, Staybridge Suites and Candlewood Suites brands across the U.S., Ontario and Puerto Rico.
In a notice sent to IHG on July 23, Service Properties Trust said that the hotel group must pay the $8.4 million sum, plus interest, by Aug. 24 in order to avoid termination of all operating agreements on Nov. 30.
According to Service Properties Trust, another $17.4 million in guaranteed returns will come due Aug. 1. If this amount also goes unpaid, IHG will owe Service Properties Trust $25.8 million plus interest.
Service Properties Trust added that a $100 million security deposit from IHG has already been exhausted.
“We hope IHG cures this default so that we can move forward without a termination and rebranding,” said John Murray, Service Properties Trust’s president and CEO. “However, it is important that we enforce our agreements and seek to protect our bargained-for cash flows so that we can pay operating costs and other obligations without interruption.”
In the event of a termination, Service Properties Trust plans to reflag its IHG properties under Sonesta International Hotels Corp.’s Royal Sonesta, Sonesta and Sonesta ES Suites brands. Service Properties owns a 34% share in Sonesta.
“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 Service Properties Trust’s hotel portfolios,” added Murray. “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.”
A spokesperson from IHG confirmed that the company had received Service Properties Trusts’ notice but declined further comment.