SPT rethinks sales with Sonesta portfolio set to grow
 
SPT rethinks sales with Sonesta portfolio set to grow
10 AUGUST 2020 7:54 AM

Service Properties Trust, prepared to potentially deflag 103 IHG properties and add them to its Sonesta portfolio, has paused plans to sell 39 extended-stay properties.

NEWTON, Massachusetts—Service Properties Trust has delayed the sale of 39 extended-stay properties managed and branded under its sister company Sonesta as that segment outperforms and the company prepares to possibly add 103 hotels to the Sonesta portfolio.

Speaking during the company’s second-quarter earnings call, President and CEO John Murray confirmed earlier plans to sell the extended-stay hotels, collectively estimated to be worth $461.3 million.

“As the impacts of the pandemic set in, we obviously saw that extended-stay hotels were performing much better than any other hotel type,” he said. “So we stopped any marketing efforts. We’ve also been evaluating whether some of those hotels might be converted to an alternative use like multifamily. That’s something we’re still considering.”

Also factored into the decision-making process is the potential expansion of the Sonesta portfolio. SPT is planning to move the 103 properties currently under it’s management agreement with InterContinental Hotels Group, as that company has fallen into default for not paying their minimum returns and rents.

In its Q2 earnings release, SPT said it had entered into an agreement with IHG on 1 June “waiving the minimum security deposit requirement through 2021 and the requirement to fund FF&E reserves through (30 September).

SPT has received no payments from IHG for July or August, but officials said the two companies are currently in negotiations “to see if there may be a mutually beneficial resolution.”

Other transactions
The deals environment has been depressed during the COVID-19 pandemic, but SPT executives said they’re closing in on some large-scale transactions involving their Wyndham Hotels & Resorts and Marriott International portfolios.

SPT’s agreement with Wyndham is set to end on 30 September, by which time the real estate investment trust will have sold or rebranded those properties.

The company announced agreements to sell one Wyndham-branded property and eight Marriott properties for an aggregate sales price of $48.8 million, expected close in the fourth quarter.

Murray said he expects more sales to be announced soon.

“We’re very close on purchase and sale agreements for two other groups of assets: the portfolio of 15 Hawthorne Suites and a portfolio of 16 Marriott-branded hotels—that’s 13 Courtyards and three Residence Inns that per our agreement can stay in Marriott brands,” he said. “Within the coming week we’ll most likely sign the purchase and sale agreements, so that’s possible to close late in the fourth quarter.”

Q2 performance
SPT officials reported a $37.3 million net loss for the second quarter, with adjusted earnings before interest, taxes, depreciation and amortization for real estate of $152.2 million, a year-over-year decrease of 30.5%.

Across the company, revenue per available room fell 77.1% year over year to $23.45, with average daily rate down 36.4% and occupancy down 49.4 percentage points.

As of press time, SPT’s stock was selling at $8 a share, down 67% year to date. The Nasdaq Composite was up 20.7% for the same period.

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