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IRVING, TX-FelCor Lodging Trust Inc. and InterContinental Hotels Group (IHG) have ended nearly seven months of negotiations to restructure their longstanding owner-manager contract in the wake of an ongoing disposition of non-core assets that began early this year. The settlement comes on the eve of a five-hotel sale.

Under the revision, IHG, with its US headquarters in Atlanta, gains another five years on the management side while FelCor, headquartered in Irving, gets $25 million of breathing room before it is required to buy out the operator’s contract in order to apply gain to overall debt reduction. To date this year, FelCor has sold 14 hotels, valued at $100 million, in the 33-property disposition brought to market in February. IHG’s management contract encompassed 58 FelCor hotels, including the 14 sold properties.

Richard J. O’Brien, FelCor’s executive vice president and CFO, tells GlobeSt.com that the “greatest benefit is the increased flexibility in allowing us to dispose of non-strategic hotels…and use sale proceeds to pay down debt instead of reinvesting.” Under the prior contract, FelCor was required to buy again and put in IHG as the manager or negotiate and pay liquidated damages within a year of the sale.

The disposition list has 31 hotels left to sell, of which 17 are IHG-managed. The 14 IHG-managed properties sold to date were bundled into the new agreement.

Should FelCor exceed the $25-million cap with IHG, the reworked pact allows the REIT to defer the financial hit until the fifth year. “Our plan is to utilize the credit. We’re not planning to pay liquidation damages,” O’Brien stresses. Any unused balance on the account expires at the end of five years.

Under the new deal, FelCor can terminate IHG’s management contract at three non-IHG branded properties, now under consideration for a flag conversion, and roll the credit into satisfying any liquidated damages from the canceled contract. O’Brien isn’t saying which three in the portfolio are affected.

FelCor’s trade-off is IHG stays in the driver’s seat for more five years, with a 2018 end date, at 27 hotels that aren’t marked for sale and ones that the REIT plans to hold for the long term, O’Brien explains.

“We’re pleased that we’ve been able to work together for our mutual benefit,” Thomas J. Corcoran Jr., FelCor’s president and CEO, said in a press release.

IHG’s president Steve Porter said the smaller FelCor hotels in secondary and tertiary markets are likely to retain the IHG affiliations following their trades “since most are likely to be sold to individual owner/operators.

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