Newton, Mass.-based real estate investment trust Service Properties Trust (which commonly goes by its Nasdaq symbol SVC) has sent a letter to Marriott International, requesting Marriott advance $11 million to cover the shortfall between the payments SVC has received to date from Marriott and 80 percent of the priority returns due to SVC for the eight months ended August.
Marriott has 10 days from receipt of the letter to make the payment, or SVC will have the right to terminate its agreement with Marriott.
SVC’s agreement with Marriott covering 122 hotels (two Marriotts, two Springhill Suites, 12 TownePlace Suites, 35 Residence Inns and 71 Courtyards) in 31 states currently requires annual minimum returns of $194.6 million and currently expires in 2035. Both the security deposit that SVC previously held to secure the minimum return payments under this agreement and the $30 million guarantee provided by Marriott have been fully utilized.
During SVC's Q2 earnings call in early August, President and CEO John Murray said that the company's Marriott portfolio saw the greatest percentage revenue per available room declines versus last year and the weakest nominal RevPAR results.
"Under our Marriott agreement for 122 hotels, we have received payments or utilized the available security deposit for an aggregate of 80 percent of the minimum returns due for the six months ended June 30," SVC CFO Brian Donley said during the August call. "Given the security deposit and guarantee from Marriott is depleted, Marriott is required to fund any shortfall of cash flow generated by the hotels and 80 percent of the annual minimum return due to us. The 80 percent threshold and settlement of cash amounts are calculated on a monthly basis after hotel results are finalized each period."
If Marriott does not make the requested payment and SVC terminates the agreement, SVC currently plans to transition management and branding of these 122 hotels from Marriott to Sonesta International Hotels Corp. SVC owns approximately 34 percent of Sonesta and expects to share in the benefit of this new management agreement and in the hotels’ performance to the extent they ramp up in the post-pandemic recovery.
The news comes a month after SVC announced plans to transfer management and branding of 103 hotels from IHG to Sonesta for failure to pay SVC’s minimum returns and rents due for July and August totaling $26.4 million. That transaction brought Sonesta's portfolio to more than 160 hotels, and this deal would bring the number to nearly 300 properties.