NEWTON, Massachusetts—Sonesta is undergoing its largest moment of growth in the company’s history thanks to plans to convert 200 Service Properties Trust hotels from Marriott International and InterContinental Hotels Group flags.
John Murray, president and CEO of Service Properties Trust, said he expects Sonesta will be up to the challenge.
Currently, 99 IHG properties will switch over to Sonesta, which is 33% owned by Service Properties, on 1 December, with the rest of the properties converting in the weeks and months to come.
“They’ve been working hard to increase their staffing, and they’re well on their way to creating a shared services platform of a much larger scale that can accommodate the select-service hotels in the IHG portfolio and then subsequently in the Marriott portfolio,” Murray said, speaking during his company’s third-quarter earnings call.
He said he’s seen steady progress in the preparations for the change.
“They’re taking a lot of positive steps,” Murray said. “I’d say that they’re not behind, and they’re not ahead. I think they’re about where we expected they would be. We do expect that they will be ready to take these hotels on.”
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That large portfolio of assets going to Sonesta, which is a sister company with Service Properties, owned largely by its external manager, The RMR Group, come from the ends of management deals with Marriott and IHG, as both of those companies balked at paying guaranteed minimum returns to the REIT during the depths of the COVID-19 pandemic and its associated downturn.
Planned transactions
While the deals market has been largely dead in the midst of the recession, Service Properties officials announced they’ve been able to reach agreements to sell 39 hotels, all of which are under Marriott and Wyndham Hotels & Resorts management agreements the REIT will soon be exiting.
The agreements cover 24 Marriott properties with 2,989 rooms and 15 Wyndham properties with 1,642 rooms. The REIT estimates the collective value of the properties to be roughly $181.3 million, but it has reached a sales price of $218 million. Sales are expected to close in late 2020 or early 2021.
The company is also looking to dispose of some properties from the IHG portfolio.
Todd Hargreaves, VP and chief investment officer for the company, said sales prices for the hotels they’ve sold were “at or near pre-pandemic levels.”
“Generally, we have found the extended-stay hotels we’ve marketed for sale have maintained their values as a result of strong buyer demand from investors interested in continuing to operate the properties as hotels as well as from groups that would convert to multifamily,” he said.
Q3 results
Service Properties posted a $102.6-million loss in the third quarter with adjusted earnings before interest, taxes, depreciation and amortization for real estate of $103.6 million, according to the company’s quarterly earnings release.
The company’s portfolio of 314 hotels saw occupancy drop 40.7% year over year to 46%, with average daily rate down 26.7% to $89.50, and revenue per available room down 56.6% to $41.17.
As of press time, Service Properties’ stock was trading at $10.39 a share, down 57.3% year to date. The Nasdaq Composite was up 30.5% for the same period.
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