Industry NewsBrandsSVC and Sonesta Amend Existing Management Agreements

SVC and Sonesta Amend Existing Management Agreements

NEWTON, Massachusetts—Service Properties Trust announced that it reached an agreement with Sonesta International Hotels Corporation to amend its existing management agreements effective January 1, 2022. SVC currently owns 262 hotels that are managed by Sonesta and 68 of these hotels are expected to be sold, or the sale hotels. Among other terms, the changes to the agreements between SVC and Sonesta for 194 hotels, or the retained hotels, are as follows:

  • The term for the retained hotels will expire on January 31, 2037, and includes two 15-year renewal options.
  • All retained hotels are subject to a pooling agreement that combines the management agreements for the retained hotels for purposes of calculating gross revenues, hotel operating expenses, fees and distributions, and the owner’s priority return due to SVC.
  • The owner’s priority return for the retained hotels is set at $325.2 million annually. Although SVC continues to own 34 percent of Sonesta, SVC will have the right to terminate Sonesta’s management of specific SVC-owned hotels if minimum performance thresholds are not met starting in 2023.
  • SVC will renovate the retained hotels to comply with agreed-upon brand standards. As such funding is advanced by SVC, the aggregate annual owner’s priority return due to the company under the amended agreement will increase by 6 percent of the amounts funded. SVC currently expects to complete these renovations over the next three years at an estimated cost of $600.0 million.
  • Trade area restrictions by the hotel brand have been added to define boundaries to protect SVC-owned hotels in response to Sonesta increasing its franchising and third-party management activities.
  • For the sale hotels, the term will be extended to the earlier of December 31, 2022, or until the hotels are sold and the FF&E reserve funding requirement will be removed. Following the sale of the 68 Sonesta hotels, SVC’s owner’s priority return will be reduced by the current owner’s priority return for these assets, or $85.5 million.

SVC continues to make progress in its efforts to sell 68 Sonesta hotels with 8,760 keys and an aggregate net carrying value of $579.0 million. SVC is currently negotiating purchase and sale agreements or in the final stages of the buyer selection process for these hotels. SVC currently expects to be substantially complete with the sale of these hotels during the first quarter of 2022.

John Murray, president and CEO of SVC, said, “Between our amended management agreements with Sonesta and the expected sale of 68 Sonesta hotels, we believe we are taking important steps to create a stronger hotel portfolio with improved coverage of our owner’s priority return. The changes announced today to the Sonesta management agreements are substantially similar to the changes recently announced with the Hyatt and Radisson agreements and our 2019 Sonesta amendment. The Sonesta hotel sales process is going well, we have strong interest in these hotels from a deep pool of buyers and we believe that the proceeds will significantly enhance SVC’s liquidity position as it enters 2022.”