In announcing plans to sell or convert the company’s 22 Wyndham-branded properties, Hospitality Properties Trust became the second real estate investment trust in two days to discuss moving away from Wyndham’s brands.
NEWTON, Massachusetts—Hospitality Properties Trust officials are considering selling as many as 50 hotels and plans to completely exit its agreement with Wyndham Hotels & Resorts by selling or rebranding its current portfolio of 22 Wyndham-branded and managed properties, company executives said.
Speaking during HPT’s second-quarter earnings call, President and CEO John Murray said his company has had lengthy discussions with Wyndham about changing its deal after an extended period of underperformance, but both sides walked away dissatisfied with their options.
“As we tried to negotiate an alternative portfolio, we couldn’t find a way to slice and dice it in a way to be a positive portfolio going forward without obvious challenges,” he said. “Both sides agreed we’re better off trying to find a better way to bring the relationship to a conclusion.”
He noted the Wyndham portfolio has faced several headwinds, including supply growth in important markets like Chicago.
In answering a question from an analyst, Murray said he ultimately expects 15 to 20 of those properties to be sold, with some of them potentially staying with their current flags depending on the buyers. The remaining properties will move into brands under companies HPT currently has agreements with.
He specifically called out Sonesta as a possible option for those hotels. Both HPT and Sonesta are managed by The RMR Group.
HPT is already working with “several national brokers” to determine proper valuation of the properties it intends to sell, and Murray expects to hold on to properties in Irvine, California; and Chicago.
“I think our existing partners will probably look at these assets to see if there may be some they might want to add to existing portfolios,” he said. “There may be some shift from one portfolio to another.”
Just a day earlier, RLJ Lodging Trust officials announced they are considering rebranding their portfolio of eight Wyndham properties, with RLJ President and CEO Leslie Hale saying changing flags for those properties will “unlock substantial value embedded in these hotels.”
Wyndham officials did not respond to requests for comment on this story.
Looking at its Marriott portfolio
In addition to moving on from its Wyndham portfolio, Murray said HPT is in the early stages of evaluating a set of 30 Marriott International-branded properties, including the Kaua'i Marriott Resort, in a process that could ultimately culminate in their sale. He said it’s still too early to ultimately say what will happen with those properties, though.
The company is working on gauging valuation expectations for those properties, as well.
“Depending on where those valuations come in and where the levels of interest come in from the other operators we do business with and once we have all that data, we’ll make decisions on how much to sell,” he said.
As of the end of Q2, HPT owned 328 hotels under Marriott, InterContinental Hotels Group, Wyndham, Sonesta, Hyatt Hotels Corporation and Radisson Hotel Group brands.
Buying up retail space
In June, HPT officials announced a deal to acquire a net lease portfolio of retails space from Spirit MTA REIT for $2.4 billion in cash.
That deal is slated to close in September with company officials to sell off $500 million of the newly acquired retail space by the end of 2019.
One of the justifications for selling down part of HPT’s hotel portfolio is to reduce the company’s debt following the Spirit MTA deal.
Comparable hotel revenue per available room fell 2.1% year over year for the second quarter, with company officials pointing to widespread renovations, including at nine full-service properties, as one reason for the revenue decrease, along with supply issues and lowered expectations from brands.
The company had net income of $8.8 million for the quarter.
As of press time, HPT’s stock was trading at $24.19 a share, up 1.3% year to date. The Baird/STR Hotel Stock Index was up 13.2% for the same period.