Intercontinental sells Hong Kong hotel for $938m cash, special dividend expected

Coming after the sales of its London, New York and Paris hotels, this is the latest IHG flagship to be sold and completes the disposals of IHG’s major owned assets.

Buyer Supreme Key Limited, a consortium of investors advised and managed by Gaw Capital Partners, has paid a cash deposit to IHG of $94m, with the remaining proceeds payable in cash on completion, which is scheduled for the second half of 2015.

Credit Suisse updated its estimates to reflect the deal and assumed a $1.5bn special dividend to be paid in the second quarter of 2016.

The sale of the 503-room hotel on the Kowloon waterfront, which has three Michelin-starred restaurants and a wide range of state-of-the-art meeting and banqueting facilities, "highlights the enduring appeal of InterContinental as one of the world's leading luxury hotel brands", said chief executive Richard Solomons.

"We are very pleased to be working closely with a highly regarded hotel investor that will be a great partner for IHG and with whom we look forward to building a successful long term relationship."

The transaction will give rise to an estimated exceptional pre-tax profit on disposal of $700m, IHG said, with an estimated exceptional non-cash tax charge of $40m. A decision on a return of funds to shareholders from these proceeds, alongside those received from the sale of InterContinental Paris will be announced at preliminary results in February 2016.

Credit Suisse said it has removed the $500m buyback it had assumed would be announced at 30 July interims but said this is more than compensated by assuming a $1.5bn special dividend will instead be announced and paid in the second quarter of 2016. CS raised its price target on InterContinental Hotels Group to 2,820p from 2,700p and lifted its full-year 2017 earnings per share estimate to $2.44 from $2.30.

Numis said it looked like "a very acceptable price”, adding that it was around $150m above its expectations.

“We estimate that the disposal will be around 3%-4% dilutive to FY16 earnings per share: this based on the assumption that IHG keeps the cash, but, in our opinion, it is far more likely that IHG will pay another special dividend.”

“However, we believe the valuation is up with events, unless there is material M&A activity and a reduction in uncertainty with regards to China.”