Service Properties Trust plans to sell 114 of its 187 Sonesta-branded hotels as part of a broader effort to reduce its debt levels and increase liquidity.
The Newton, Massachusetts-based real estate investment trust is looking to sell the properties encumbered with long-term franchise agreements throughout the course of 2025. The portfolio, with a total of 14,925 rooms, includes hotels under three Sonesta brands: 31 Sonesta Select, 44 Sonesta ES Suites and 39 Sonesta Simply Suites.
Service Properties will continue to own 73 Sonesta properties — 39 full service, 14 extended stay and six select service — and will retain its 34% ownership stake in the hotel brand company. The rest of Sonesta is owned by Service Properties' external manager The RMR Group.
Executives at the REIT internally value the portfolio they will put up for sale at $850 million and expect to save $725 million in capital expenditures by offloading those hotels over a six-year period.
The company's debt reduction plan also included a drop in its quarterly dividend from $0.20 to $0.01, resulting in an estimate of $127 million in annual savings.
Service Properties had been in the process of selling a smaller portfolio of Sonesta hotels it deemed as underperforming. The REIT currently owns $11 billion in real estate assets, split between 220 hotels and 749 retail net lease properties.
“Given the slow recovery of our hotel portfolio in combination with our hotel capital improvement and renovation program and our deteriorating leverage metrics, we believe it is prudent to reduce the distribution to increase SVC’s liquidity and enhance our financial flexibility," said President and Chief Investment Officer Todd Hargreaves in a news release announcing the plan.
In a corresponding news release, Sonesta President and CEO John Murray described the shift as a natural part of Sonesta's maturation as a company.
“The transition to an ‘asset-right’ and franchise-forward strategy is a natural, next step in Sonesta’s evolution and increases management attention on our existing larger, full-service hotels and growth opportunities in other key markets," said Murray, who served as Service Properties' president before taking over Sonesta. "However, one fundamental characteristic of Sonesta that will not change is that we will continue to own and manage both full-service and focused-service hotels in addition to being a brand owner and franchisor.”