IHG Acquires Kimpton Hotels & Restaurants

InterContinental Hotels Group has announced that it has agreed to acquire Kimpton Hotels & Restaurants Group LLC for cash consideration of $430 million (the “Transaction”).
Kimpton was established in 1981, and is the largest independent boutique hotel and restaurant business in the U.S.  It manages 62 hotels (11.3k rooms) across 28 cities in the US in attractive urban and resort locations such as Boston, Chicago, Florida, Los Angeles, New York, San Francisco, Seattle and Washington D.C.  There are a further 16 hotels in the development pipeline (3.0k rooms), of which 10 are under construction.  Kimpton also operates 71 hotel-based destination restaurants, bars and lounges across the U.S. 
Kimpton caters for a broad and varied range of guest needs, including ‘Mixing Business with Pleasure’, ‘Short Break Experience’, ‘Romantic Getaway’ and ‘Wellbeing’ at an upper upscale price point.  It also has a well-established and sophisticated member loyalty program, Kimpton Karma Rewards, which has approximately 1.6 million members.
Adding Kimpton to IHG’s portfolio of preferred brands, alongside its highly successful Hotel Indigo and EVEN Hotels brands, will create a leading boutique and lifestyle hotel business, with over 200 open and pipeline hotels across 19 countries. 
The boutique hotel segment has been the fastest growing in the hospitality industry over the last four years, with demand, supply, and RevPAR growth for boutique hotels in the US each significantly outperforming the overall industry.
IHG will capitalize on its scale, powerful global owner networks, digital platforms, and specialist capabilities of building preferred brands to enhance Kimpton’s growth globally.  In particular, there is a significant opportunity to expand the brand in Europe and Asia where there is strong demand for boutique brands.  IHG will also benefit from Kimpton’s strong track record in operational excellence, food & beverage and design, to add value across its current brand portfolio.
The Kimpton Real Estate Investment Funds, which are run by four existing Kimpton executives, expect to make future investments in Kimpton branded hotels.  The Funds own approximately 30% of Kimpton’s existing and pipeline properties and intend to raise additional funds to acquire, develop and redevelop boutique hotels.  As part of this investment platform, the Funds expect to have a meaningful and on-going relationship with the Kimpton brand.
Kimpton has a strong track record of operational and financial performance, achieving 4.0% per annum growth in system size and 7.7% average growth in comparable same store RevPAR in the last five years.  Kimpton’s EBITDA is expected to be approximately $20 million for the year ended 31 December 2014, and IHG expects to be able to deliver future growth in Kimpton EBITDA to approximately $39 million by 2017 from the opening of hotels in the pipeline and the achievement of certain back office and technology savings.
The Transaction will be financed through existing cash resources and new debt facilities, and is expected to close during the first quarter of 2015 upon satisfaction of certain customary conditions, including Hart-Scott-Rodino anti-trust clearance and Kimpton shareholder consent.  
For tax purposes, the transaction constitutes an asset sale for both the vendor and purchaser, and IHG is entitled to amortize the assets acquired.  It is anticipated that the relief associated with this amortization will reduce future taxes by approximately $160m.
BofA Merrill Lynch acted as financial adviser to IHG.
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