News | October 7, 2020

Service Properties Trust Terminates Agreements With Marriott For 122 Hotels

NEWTON, MASS.--(BUSINESS WIRE)--

Service Properties Trust (Nasdaq: SVC), or SVC, today announced that it has terminated the management agreements for 122 hotels with Marriott International, Inc. (NYSE: MAR), or MAR. As previously announced, SVC sent a letter requesting MAR advance $11.0 million to cover the cumulative shortfall between the payments SVC had received to date and 80% of the cumulative priority returns due to SVC for the eight months ended August 2020. MAR had until October 5, 2020 to avoid termination by making payment to SVC. SVC did not receive any payment from MAR, and based on discussions with MAR, SVC does not expect MAR to pay the cumulative shortfall for the balance of 2020. Accordingly, on October 6, 2020, SVC sent MAR a letter exercising its termination right. The effective date of the termination is January 31, 2021 and SVC currently plans to transfer the branding and management of 98 of these hotels to Sonesta.

SVC’s agreements with MAR cover 122 hotels (2 Marriott®, 2 Springhill Suites®, 12 TownePlace Suites®, 35 Residence Inns®, 71 Courtyards®) in 31 states, currently require annual minimum returns of $194.6 million and currently expire in 2035.

Pursuant to its existing agreement with MAR, SVC is proceeding with the sale of 24 of the 122 Marriott branded hotels. SVC has entered agreements to sell a portfolio of eight TownePlace Suites® hotels with 834 rooms in four states for an aggregate sales price of $45.3 million and a portfolio of 16 hotels with 2,155 rooms in nine states (13 Courtyard hotels with 1,813 rooms and three Residence Inn hotels with 342 rooms) for an aggregate sales price of $107.8 million. SVC expects these sales to be completed by year end. Separate from selling these 24 hotels, SVC has been unable to sell nine additional Marriott branded hotels pursuant to its existing agreement with MAR, and the management of these nine hotels will be transitioned to Sonesta on December 15, 2020. The balance of the MAR portfolio, or 89 hotels, will be transitioned to Sonesta on January 31, 2021.

Upon transfer to Sonesta, SVC expects that the 98 Marriott branded hotels not being sold will be operated under the Royal Sonesta, Sonesta, Sonesta Select and Sonesta ES Suites brands. There are currently 80 Sonesta branded hotels worldwide. SVC owns approximately 34% of Sonesta and will share in the benefit of these new management agreements and in the hotels’ performance to the extent they ramp up in the post-pandemic recovery.

John Murray, President and Chief Executive Officer of SVC, made the following statement:

“SVC and MAR have had a long relationship which began in 1994, but because of MARs current non-payment and our understanding that MAR does not intend to pay SVC any shortfall amounts in the future, we have terminated our agreements with MAR and we plan to rebrand these hotels with Sonesta. We believe that the rebranding of these hotels with Sonesta will benefit SVC as an owner of Sonesta, create greater flexibility in managing these hotels through these challenging market conditions and have a positive impact on this portfolio’s performance in the future.”

“Service, quality and safety are of primary focus for hotel guests at this time and most of Sonesta’s managed hotels have been recognized in the top 10% of TripAdvisor hotels worldwide, demonstrating that Sonesta has established a high standard of service in its hotels that we believe will be essential as it grows.”

Even though SVC has the right to transfer these Marriott branded hotels as early as 60 days from non-payment from MAR, SVC has elected to terminate the agreement effective on January 31, 2021, or almost 120 days later, to ensure there is enough time for an orderly transfer of management of the hotels to Sonesta. MAR has disputed the timing of SVC’s termination rights under its agreements with MAR and argued that SVC may not terminate the MAR agreements until after year end 2020.

SVC will only recognize the hotel level cash flow, if any, of its currently Marriott branded hotels in its operating results through the termination date. The 122 Marriott branded hotels generated $2.6 million, or $0.02 per diluted common share, of hotel level cash flows during the eight months ended August 31, 2020.

About Service Properties Trust

Service Properties Trust is a real estate investment trust which owns a diverse portfolio of hotels and net lease service and necessity-based retail properties across the United States and in Puerto Rico and Canada with 149 distinct brands across 23 industries. SVC’s properties are primarily operated under long-term management or lease agreements. SVC is managed by the operating subsidiary of The RMR Group Inc. (Nasdaq: RMR), an alternative asset management company that is headquartered in Newton, Massachusetts.

Warning Concerning Forward-Looking Statements

This press release contains statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. Also, whenever SVC uses words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, “will”, “may” and negatives or derivatives of these or similar expressions, SVC is making forward-looking statements. These forward-looking statements are based upon SVC’s present intent, beliefs or expectations, but forward-looking statements are not guaranteed to occur and may not occur. Actual results may differ materially from those contained in or implied by SVC’s forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, some of which are beyond SVC’s control. For example:

  • This press release states that SVC plans to transition management and branding of 98 hotels to Sonesta from MAR. In addition, this press release states that SVC has an approximate 34% ownership interest in Sonesta, and that SVC will therefore share in the benefit from these new management agreements and in the hotels’ performance to the extent they ramp up in the post-pandemic recovery. However, Sonesta may not operate these hotels profitably and SVC may not receive the benefit it would expect to receive. Further, it is not known how long the Covid-19 pandemic will last or how severe it will be, including its continued impact on the hotel industry. Moreover, it is not known how long it will take the economy to recover following the pandemic or what adverse changes on the hotel industry may be realized, such as if business and leisure travel are significantly reduced on a long-term or permanent basis. These and other factors may adversely affect the performance of these hotels, regardless of which operator is managing them.
  • This press release also states that SVC currently plans to transfer the branding and management of nine of these hotels to Sonesta on December 15 and the remaining 89 hotels on January 31, 2021. However, some of the hotels may be transferred on different dates or may be sold.
  • This press release states SVC has entered agreements to sell certain hotels. This may imply that SVC will succeed in completing those sales, at the times it expects and at prices it expects. The sales of SVC’s properties are subject to various contingencies; accordingly, SVC cannot provide any assurance that it will sell any of these properties and the sales may be delayed or may not occur.
  • This press release also states that MAR is disputing the timing of SVC’s termination rights under SVC’s agreements with MAR. SVC believes that it may terminate the MAR agreements at this time, but MAR could pursue legal action, the results of which are difficult to predict, and SVC can provide no assurances regarding such results. Even if SVC is successful in such legal proceedings, the pendency and conduct of such proceedings may be expensive and distracting to SVC management and could be disruptive to SVC’s operations or cause SVC to experience losses.

The information contained in SVC’s filings with the Securities and Exchange Commission, or SEC, including under the caption “Risk Factors” in SVC’s periodic reports, or incorporated therein, identifies other important factors that could cause differences from SVC’s forward-looking statements. SVC’s filings with the SEC are available on the SEC's website at www.sec.gov.

You should not place undue reliance upon forward-looking statements.

Except as required by law, SVC does not intend to update or change any forward-looking statements as a result of new information, future events or otherwise.

A Maryland Real Estate Investment Trust with transferable shares of beneficial interest listed on the Nasdaq.
No shareholder, Trustee or officer is personally liable for any act or obligation of the Trust.


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