IHG has bought its way into the boutique segment with Monday’s announcement that it will acquire Kimpton Hotels & Restaurants for US$430 million. The purchase includes Kimpton’s management business, which includes 62 hotels and an additional 16 hotels in the development pipeline (10 under construction).
Kimpton Real Estate Investment Funds (run by four existing Kimpton executives, currently own about 30% of the existing portfolio) and third-party owners will continue to own the real estate associated with the portfolio with Kimpton executive Mike DeFrino moving up from COO to CEO and current CEO Mike Depatie taking a more active role on the deal side with the investment funds. Depatie will likely be busier on the acquisition side as the deal is expected to accelerate growth, especially with IHG’s balance sheet and surplus capital now able to act as a catalyst where needed.
Solomons said while Kimpton’s portfolio has been developed is some of the U.S.’s highest RevPAR market (US$180-plus RevPAR with 80% occupancy), he sees Europe and Asia as potentially fertile ground for Kimpton’s soft branded hotels, especially on the conversion front. It also gives IHG a more upscale option in the wildly popular boutique segment.
R.W. Baird Analyst David Loeb noted that this deal essentially deploys the approximately US$400 million of expected proceeds from the sale of the InterContinental Paris, which is expected to close in 1Q15, adding that the purchase price represents 21.5x Kimpton’s projected 2014E EBITDA of ~US$20 million. IHG estimates EBITDA will grow to ~US$39 million by 2017 (11.0x multiple).
Founded in 1981 by the true creator of the boutique hotel movement, Bill Kimpton, the Internet was abuzz with the news with many Kimpton loyalists expressing concern over an independent falling into the hands of a giant brand company and over potential changes to its unique loyalty program.
Solomons told HOTELS on Tuesday that it will leave Kimpton’s Karma loyalty program alone for now, adding that IHG is buying this business because Kimpton put itself up for sale to protect its future and allow it to grow. “We bought it for what it stands for and understand what guests see in it. We chose it as partner because our cultures and values are very close. They get it and we get it.”
Solomons also said IHG is not going to break the Kimpton mold of a successful business model. “We can accelerate growth, bring in new international customers and add technology that is more than about booking rooms. It’s about whole guest experience… We will protect and enhance what they stand for and customers will see that.”
Kimpton’s Depatie added, “IHG is the ideal partner for Kimpton and has absolutely the right experience and specialist capabilities to help the business move to the next phase of rapid growth. Kimpton and IHG have many things in common, not least our shared values and approach to building brands. As an owner of a significant number of Kimpton hotels through our real estate investment funds, I am committed to developing additional Kimpton hotels and I look forward to seeing Kimpton go from strength to strength as part of IHG.”