Service Properties Trust Completes Transfer of 78 Hotels to Sonesta

Rhea-AI Summary

Service Properties Trust (Nasdaq: SVC) has transitioned 78 hotels to Sonesta International Hotels Corporation from Marriott International. Ten more hotels are set to transition by the end of March. SVC entered short-term agreements with Sonesta to manage these properties, consistent with previous agreements. SVC holds a 34% ownership in Sonesta, anticipating benefits from its growth and improved management flexibility in challenging market conditions. However, risks include potential operational quality issues with Sonesta, the impact of COVID-19 on hotel performance, and uncertain economic recovery.

Positive

• Transition of 78 hotels to Sonesta expected to improve management stability.
• SVC holds a 34% stake in Sonesta, potentially benefiting from its growth.
• Rebranding allows greater flexibility in managing properties.

Negative

• Dependence on Sonesta's operational performance raises risks for SVC's income.
• Potential for lower returns if Sonesta fails to deliver quality services.
• Uncertainties surrounding COVID-19's impact on the hotel industry persist.
• Delays in transitioning remaining hotels may affect plans.

Service Properties Trust (Nasdaq: SVC), or SVC, today announced that it has completed the transition of branding and management for 78 hotels to subsidiaries of Sonesta International Hotels Corporation, or Sonesta, from Marriott International, Inc., or MAR. Ten additional hotels are expected to transition to Sonesta by the end of March.

SVC entered short-term management agreements with Sonesta to manage the 78 hotels on terms substantially consistent with its legacy management agreements with Sonesta that expire on December 31, 2021. SVC will enter similar management agreements with Sonesta for the ten hotels scheduled to be transitioned to Sonesta by the end of March. These 88 hotels include one Royal Sonesta hotel, two Sonesta hotels, 32 Sonesta ES Suites, four Sonesta Simply Suites and 49 Sonesta Select brands.

John Murray, President and Chief Executive Officer of SVC, made the following statement regarding today’s announcement:

“We are pleased to have successfully transitioned 78 hotels to Sonesta, with ten additional hotels transitioning in the coming weeks. We believe that as a 34% owner of Sonesta, SVC will benefit from Sonesta’s growth, as well as share in more of the upside from the recovery of these hotels. The rebranding of these hotels with Sonesta will also create greater flexibility for us in managing through the presently challenging market conditions and provide improved decision-making control over dispositions or alternative uses, which we expect will have a positive impact on this portfolio’s performance in the future.”

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. SVC’s properties are operated by third parties pursuant to 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:

• Sonesta is a small privately held company with less resources and scale compared to MAR. If Sonesta were to fail to provide quality services and amenities or to maintain a quality brand, SVC’s income from these properties may be adversely affected. There can be no assurance that Sonesta can operate the hotels rebranded from MAR as effectively or for returns at levels that could otherwise be achieved by MAR. Further, if SVC was required to replace Sonesta, it could experience significant disruptions in operations at the applicable properties, which could reduce its income and cash flows from, and the value of, those properties. SVC has no guarantee or security deposit under its Sonesta agreements. Accordingly, SVC may receive amounts from Sonesta that are less than the contractual minimum returns stated in its agreements with Sonesta or SVC may be requested to fund losses for its Sonesta hotels. Further, SVC owns an approximate 34% interest in Sonesta. If Sonesta experiences losses, or requires additional capital, Sonesta may request that SVC fund its share through the contribution of additional capital.
• Mr. Murray states SVC believes that as a 34% owner of Sonesta, it will benefit from Sonesta’s growth as well as share in more of the upside from the recovery of these hotels. However, Sonesta may not operate these hotels profitably, Sonesta may not grow 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 states that nine additional hotels are expected to be converted to Sonesta brands and management by the end of March. These conversions are subject to various conditions that may not occur and these conversions may be delayed.
• This press release also states that some of these hotels may be disposed of or have alternative uses. However, these outcomes may not occur, or if they do occur, they may not have the expected positive impact on SVC’s portfolio.

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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FAQ

What is the recent development involving Service Properties Trust (SVC) and Sonesta?

SVC announced the transition of 78 hotels to Sonesta, with an additional ten hotels expected by March's end.

How many hotels did SVC transition to Sonesta and when will the next batch transition?

SVC has transitioned 78 hotels and expects ten more to transition by the end of March.

What percentage of Sonesta does Service Properties Trust (SVC) own?

SVC owns approximately 34% of Sonesta.

What risks does SVC face with the transition to Sonesta?

SVC risks lower income levels if Sonesta fails to operate the hotels effectively and faces uncertainties due to COVID-19.

What is the expected benefit for SVC from the transition to Sonesta?

SVC anticipates benefiting from Sonesta's growth and improved decision-making control over its portfolio.