Officials with Newton, Massachusetts-based Service Properties Trust said they're making significant progress in their plans to sell off a portfolio of select-service and extended-stay hotels, adding they currently have $430 million worth of recently closed or under-contract hotel sales.
Speaking during the company's fourth quarter and full-year 2021 earnings call, President and CEO John Murray said the company ultimately plans to sell 66 Sonesta-branded hotels while retaining 194 properties under Sonesta flags. Sonesta is a related company to Service Properties, with both being managed by The RMR Group and Service Properties holding a 34% interest in Sonesta.
Only two of the Sonesta hotels have closed, thus far, but many more are under contract, he said. Of those currently being sold, more than 70% are with long-term brand agreements with buyers "agreeing to [property improvement plans] and, in some cases, agreeing to additional future franchises."
"The sales are strategic to improving the overall quality of our hotel portfolio and an important step to improve our liquidity," Murray said.
Vice President and Chief Investment Officer Todd Hargreaves said the company currently has 45 hotels under contract, and the majority of those will close by early in the second quarter.
"The hotels that are being sold unencumbered of long-term franchising agreements are being sold at prices that commanded a premium compared to offers received to keep them as Sonesta-branded hotels," he said. "We believe our overall execution strategy on the sales will provide the maximum long-term value to SVC."
The company has converted more than 200 hotels to Sonesta branding in just over a year as the hotel and net-lease retail-focused real estate investment trust exited or drastically altered management agreements with various brands. Those deals included Marriott International, IHG Hotels & Resorts, Wyndham Hotels & Resorts and Hyatt Hotels Corp., Murray said, but he now believes "the transition disruption is behind us, and Sonesta's brand awareness is growing."
So far, pricing on the Sonesta assets for sale have been in line with the company's expectations, Murray said. Service Properties expects to have proceeds of more than $560 million at the conclusion of the sale process, which will be used to address upcoming debt maturities.
Ultimately, Murray said the company will have an improved portfolio after the sales process, and is doubly optimistic with early signs that there will be a more broad demand rebound in 2022.
"On the group business front, 2022 is pacing well ahead of 2021 despite omicron effects in January, though pace remains behind 2019 levels," he said. "Group rates are generally recovered to or slightly above 2019 levels."
Fourth Quarter Performance
According to the company's latest earnings release, Service Properties Trust saw adjusted earnings before interest, taxes, depreciation and amortization for real estate of $119 million in the fourth quarter, an 83.2% year-over-year increase.
The company's hotels reported revenue per available room of $61.99 for the quarter, while average daily rate hit $112.30 and occupancy was 55.2%.
The company reported a net loss of $198.8 million for the quarter, which was slightly worse than in the fourth quarter of 2020 when the REIT's net loss was $137.7 million.
As of press time, Service Properties stock was trading at $8.63 per share, down 2% year to date. The Nasdaq composite was down 5% for the same period.