Service Properties Trust executives are close to the finish line on a push to sell a portfolio of 68 Sonesta-branded hotels they began marketing for sale over a year ago.
Speaking during the company's fourth-quarter and full-year 2022 earnings call, President and Chief Investment Officer Todd Hargreaves said the company has completed the sale of 67 of the 68 properties, with the final hotel soon to close. The company had identified those hotels — which are primarily in the extended-stay segment — from their larger hotel portfolio because of their relatively lower performance and sought to sell most of those properties with long-term agreements to keep Sonesta flags.
In the fourth quarter of 2022, the company sold four hotels for $25.8 million. The company sold eight more in January and February for a combined $53.3 million. The 10 hotels it plans to sell but have not closed on — nine of which are Marriott hotels — are under contract for a total of $103.1 million.
The company also expects to sell the last of its owned Marriott International-branded hotels by the end of March, and that could mean the end of asset sales for the near future, although Hargreaves wouldn't fully close that door.
"There's no other hotels in the portfolio that we've identified for sale at this time, but that's something we can consider throughout 2023 as we look at our hotel portfolio and the performance overall, but there's nothing slated at the current time," he said. "Some of that, too, is just driven by the fact it's a tough time to be selling any assets. So it's probably not the right time to sell, but it's certainly an option for us down the road."
Service Properties owned a third of Sonesta International while the remaining stake in the hotel branding company is held by Service Properties' external manager, The RMR Group.
At the end of 2022, Service Properties owned 238 hotels, 196 of which were flagged with Sonesta brands, along with portfolios of travel centers and retail net lease properties.
Service Properties is also slated to see a windfall soon related to BP's pending acquisition of TravelCenters of America. The real estate investment trust owned 176 TravelCenters properties, and an amended lease with BP will yield the company a $188 million rent prepayment at the closing of the acquisition with "monthly rent credits totaling $25 million per year over the 10-year initial term of the leases."
Chief Financial Officer and Treasurer Brian Donley said the company's board of directors is still discussing how to handle the cash flow from the BP deal but it could be used to pay down debt.
"Obviously we have significant debt maturities coming next year, but where or not we deploy early or look to invest in opportunistic type investments that could be accretive remains to be seen," he said.
Earnings Performance
Service Properties posted a net loss for the fourth quarter of $31.4 million and $198.8 million for full year 2022, but saw significant improvements in hotel performance metrics in year-over-year comparisons.
Revenue per available room was up 21.4% for the final quarter of the year in the company's 236 comparable hotels to $79.03 and was up 41.7% for the full year to $82.10. That revenue growth was driven largely by spikes in average daily rate, which was up 14.5% for the quarter and 21.1% for the full year.
As of press time, Service Properties stock was trading at $10.80 a share, up 48.2% year to date. The Nasdaq Composite was up 8.7% for the same period.
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