IHG announced on Thursday that it has agreed to sell its leasehold interest in the 447-room InterContinental London Park Lane to an affiliate of Constellation Hotels Holding for £301 million (US$454 million).
IHG, Denham, England, said as part of the deal it secured a 30-year management contract for the hotel with the Middle Eastern private investment group, which is registered in Luxembourg. The contract includes three 10-year extension rights at IHG’s discretion, giving an expected contract length of 60 years. IHG said management fees are expected to be approximately £4 million (US$6 million) per year and that the sale was 62% above the hotel’s December, 31 2012 net book value.
“The transaction we have announced today to sell InterContinental London Park Lane highlights the value of our asset portfolio and the attractiveness of InterContinental as one of the world’s leading luxury hotel brands. It is another step in our long standing commitment to reduce the capital intensity of IHG,” said Richard Solomons, IHG CEO.
IHG said the transaction is expected to complete in the second quarter of 2013 and that proceeds will be used for general corporate purposes, with £61 million (US$92 million) used to provide security over U.K. pension liabilities that were previously secured against the hotel.
The hotel is located between Hyde Park and Green Park in central London and is the latest of a string of hotels in European and North American primary markets snapped up by Middle Eastern and Asia Pacific investors.
“Reports suggest there were six bidders for the Park Lane asset, including sovereign wealth funds and other private investors from the Middle East and Asia,” David Loeb, an analyst with R.W. Baird & Co. wrote in a note to investors. “Foreign money has been eager to deploy idle capital and high-quality assets in major global markets are prime acquisition targets for these investors, which are willing to pay low cap rates for trophy assets.”