Service Properties Trust, a Newton, Mass.-based REIT that owns hotel, net lease service and necessity-based retail properties, has terminated management agreements with Marriott International Inc., for 122 hotels stating it is owed at least $11 million by Marriott. SVC plans to transfer management of 98 of the properties to Sonesta International Hotels and sell 24 hotels for $153 million.
READ ALSO: Hotel Sellers Meet Investors With Vision
SVC, which owns 34 percent of Sonesta, took a similar approach in August when it terminated agreements with InterContinental Hotels and said it would transfer 103 IHG-branded hotels to Sonesta by Nov. 30 over failure to pay more than $26 million in minimum returns and rents, including accrued interest, in July and August.
Last month, SVC sent a letter to Marriott requesting the global hotel giant advance $11 million to cover the cumulative shortfall between payments SVC had received and 80 percent of the cumulative priority returns that were due to SVC by August. SVC gave Marriott until Oct. 5 to make up the missing payments. The REIT noted in a prepared statement that based on discussions with Marriott it did not expect Marriott make the payments for the balance of 2020. SVC sent a letter dated Oct. 6 exercising its termination right. SVC said the effective date of the termination will be Jan. 31, 2021.
SVC’s agreements with Marriott cover 122 hotels in 31 states consisting of two Marriotts, two Springhill Suites, 12 TownePlace Suites, 35 Residence Inns and 71 Courtyards. Under the agreements, which were to expire in 2035, Marriott was to make annual minimum payments of $194.6 million to SVC.
Marriott did not return a request for comment.
SVC said it was moving ahead with the sale of 24 hotels and has entered into agreements to sell a portfolio of eight TownePlace Suites hotels with 834 keys in four states for an aggregate sales price of $45.3 million and a portfolio of 16 hotels with 2,155 keys in nine states for an aggregate sales price of $107.8 million. The larger portfolio consists of 13 Courtyard hotels with 1,813 keys and three Residence Inn hotels with 342 keys. The REIT said it expects those sales to be completed by the end of the year. SVC said it was unable to sell nine additional Marriott-branded hotels and will transition management of those hotels to the Sonesta brand on Dec. 15. The remaining 89 hotels in the Marriott portfolio will be transitioned to Sonesta on Jan. 31, 2021, and are expected to operate under the Royal Sonesta, Sonesta, Sonesta Select and Sonesta ES Suites brands. There are currently 80 Sonesta-branded hotels worldwide.
Pandemic impacts industry
The COVID-19 crisis has hit the hospitality and travel industry hard. The American Hotel & Lodging Association noted in a recent report the “hotel industry remains on the brink of collapse.” U.S. hotel occupancy for the week of Sept. 20 to 26 was 48.7 percent, down 31.5 percent from the same week in 2019. The revenue per available room was $46.96, down 51.7 percent year-over-year, according to the latest data from STR, a hospitality-industry data benchmarking and analytics firm. As bad as those numbers were, they were an improvement over April when national occupancy dropped to nearly 20 percent, lowering RevPAR by more than 80 percent, according to a Marcus & Millichap report.
In April, Marriott took steps to shore up its liquidity by securing a $1.5 billion, 364-day revolving credit facility and a leverage covenant waiver for its existing credit facility. In August, when Marriott released its second-quarter earnings, the company noted the results were “dramatically impacted by the COVID-19 global pandemic and efforts to contain it.” Second-quarter RevPAR declined 84.4 percent worldwide and 83.6 percent in North America. Marriott reported second-quarter net loss totaling $234 million compared to net income of $232 million in the second quarter of 2019. Operating loss totaled $154 million for the second quarter compared to operating income of $409 million the previous year. Arne Sorenson, Marriott president & CEO, said in August worldwide RevPAR was improving but full recovery from COVID-19 would “clearly take time” and the impacts would continue to be material to the company’s financial results.