In InterContinental Hong Kong sale, IHG's asset-light strategy is clear

InterContinental Hotels Group has agreed to sell its full ownership of the InterContinental Hotel Hong Kong to an investor consortium advised and managed by Hong Kong-based private real estate investment firm, Gaw Capital Partners, for $938 million.

The consortium, named Supreme Key Limited, is reportedly owned by Hong Kong-listed property investment conglomerate Pioneer Global Group, as well as separate account investors advised by Gaw Capital. Pioneer Global is controlled by the family of Goodwin Gaw, founder of Gaw Capital, who is also an executive director of Pioneer Global. Today’s deal is expected to close in the second half of this year.

IHG is set to make a profit of around $700 million on the hotel, which it purchased in 2001. The company told investors it will consider whether or not it will return any proceeds directly to shareholders. But the nearly $1 billion price tag of the hotel, which contributed $42 million of earnings last year, won’t be the finished article for Supreme Key Ltd, which plans a significant 18-month refurbishment.

In the current deal, IHG will retain a 37-year management contract on the hotel (worth an initial $8 million per year, sources say), with three 10-year extension rights, giving an expected contract length of 67 years. 

The owner of the Holiday Inn and Crowne Plaza brands has been divesting properties over the past decade as it focuses on operating hotels rather than owning them. In December, InterContinental accepted a $366 million cash offer from Constellation Hotels Holding Ltd. for Le Grand hotel in Paris. 

IHG, like many other large hotel companies, has adopted an “asset-light strategy,” where it has been selling properties but retaining management contracts to operate the hotels. This has shifted its focus to its more profitable franchise chains such as Holiday Inn, amid repeated warnings that increasing geopolitical and macroeconomic uncertainty would weigh on occupancy rates.

The sale of the 503-room hotel, situated on the Kowloon waterfront, will raise hopes of further returns to shareholders after IHG pledged an 11 percent boost to its dividend in February. Pressure on the group has been heightened after attention from activist investors including Nelson Peltz and more recently hedge fund Marcato. Last year it returned more than $1 billion to shareholders, including a $763 million special dividend in May after an informal takeover approach and the sale of two hotels.