IHG Sells 80% of Hotel in New York

Constellation Barclay Holding US, LLC, which is an affiliate of Constellation Hotels Holding Limited, has agreed to acquire an 80% interest in a joint venture with InterContinental Hotels Group to own and refurbish the InterContinental New York Barclay.

The 80% interest will be acquired for gross cash proceeds of $240m, which values the hotel at $300m prior to refurbishment. IHG will hold the remaining 20% interest.

The hotel was opened in 1926 and the freehold has been wholly owned by IHG since 1998. In 2012 the hotel generated revenues of $75m and EBIT of $16m.

IHG has secured a 30 year management contract on the 685-room hotel, commencing in 2014, with two ten year extension rights at IHG’s discretion, giving an expected contract length of 50 years.

Constellation Barclay Holding and IHG have agreed to invest through the joint venture in a significant refurbishment, repositioning and extension of the hotel. This is expected to commence in 2014 and will take place over a period of approximately 18 months.

Refurbishment costs are expected to be c.$175m and under the terms of the arrangement IHG will contribute 20% of this. This investment will be in addition to IHG’s existing capital expenditure guidance. Once the refurbishment is complete, management fees are expected to be c.$7m per annum. In addition IHG will receive a share of profits or losses under the terms of the joint venture arrangement.

Richard Solomons, Chief Executive of IHG, said, “InterContinental New York Barclay is an iconic hotel in one of the world’s iconic cities. Today’s announcement demonstrates the enduring strength of the InterContinental brand and deepens IHG’s relationship with Constellation Hotels, a highly respected owner. We are delighted to be working in partnership with them to manage and extensively refurbish and reposition the hotel. The result, in what is a prime location in New York, will be a fantastic InterContinental brand presence for IHG in one of the world’s leading hotel markets.”

The transaction is expected to complete in the first quarter of 2014, subject to the satisfaction of certain standard conditions.