Newton, Mass.-based real estate investment trust Service Properties Trust (which commonly goes by its Nasdaq symbol SVC) has reached an agreement with a subsidiary of Hyatt Hotels Corp. to amend the previous management agreement for 22 Hyatt Place hotels owned by subsidiaries of SVC.
Under the amended agreement, Hyatt will continue to manage 17 of the hotels for a 10-year term effective as of April 1.
Among other terms, the new agreement with Hyatt provides as follows:
- SVC’s owner’s priority return is set at $12 million annually, supported by a $30 million guaranty for 75 percent of the aggregate annual owner’s priority return beginning in 2023.
- A management fee equal to 5 percent of gross room revenues payable to Hyatt will be an operating cost paid senior to SVC’s owner’s priority return.
- Following payment of SVC’s owner’s priority return and reimbursement of certain advances, if any, Hyatt may earn a 20 percent incentive management fee and SVC will receive the remaining cash flow.
- SVC will fund approximately $50 million for renovations expected to be completed by the end of 2022. Because funding is advanced by SVC, the aggregate annual owner's priority return due to SVC under the amended agreement will increase by 6 percent of the amounts funded.
“SVC and Hyatt have had a productive business relationship since 2005,” said SVC President and CEO John Murray. “The amended agreement extends that relationship at least through 2031, maintains credit support for SVC’s owner’s priority return and provides for renovation activity, which will enhance the portfolio and is expected to result in improved coverage of SVC’s owner’s priority return for the portfolio.”
Related: Sonesta completes addition of 88 former Marriotts to portfolio
SVC and Hyatt have transitioned management of the five remaining hotels to Sonesta International Hotels Corp. under the Sonesta Select brand. SVC owns approximately 34 percent of Sonesta, and has been reflagging former Marriotts and IHG properties to the growing brand over the last year. At the end of December, Sonesta announced plans to acquire RLH Corp. in an all-cash transaction valued at approximately $90 million. As of February, the company reported a 350 percent increase in hotels since mid-2020. “Over the last six months, we have nearly quadrupled our presence in North America, added over 200 hotels to our national portfolio, and launched two new hotel brands: Sonesta Simply Suites and Sonesta Select,” Carlos Flores, president and CEO, Sonesta International Hotels Corp., said at the time.