Hyatt Reaches An Agreement With SVP Trust & Sells Hyatt Pines Lost Pines Resorts And Buys Ventana Big Sur

Services Properties Trust (SVC) reflagged all its 200+ hotels under IHG and Marriott brands under Sonesta after these two hotel companies failed to post Owners Priority Return after exhausting their reserves.

SVC also had 22 Hyatt Place hotels in danger exiting Hyatt to Sonesta, but Hyatt and SVC continued negotiations and reached an agreement. 17 of these 22 Hyatt Place hotels will continue under Hyatt for the next 10 years.

Here’s the announcement from SVC:

Service Properties Trust (Nasdaq: SVC), or SVC, today announced that it reached an agreement with a subsidiary of Hyatt Hotels Corporation, or Hyatt, to amend their 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, 2021. Among other terms, the new agreement with Hyatt provides as follows:

  • SVC’s owner’s priority return is set at $12.0 million annually, supported by a $30.0 million guaranty for 75% of the aggregate annual owner’s priority return beginning in 2023.
  • A management fee equal to 5% 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% 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. As such funding is advanced by SVC, the aggregate annual owner’s priority return due to SVC under the amended agreement will increase by 6% of the amounts funded.

John Murray, President and Chief Executive Officer of SVC, made the following statement:

“SVC and Hyatt have had a productive business relationship since 2005. 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.”

SVC and Hyatt have transitioned management of five hotels to Sonesta International Hotels Corporation, or Sonesta, under the Sonesta Select brand. SVC also owns approximately 34% of Sonesta.

Here’s the statement from Hyatt:

Recent Transactions Demonstrate Capital Strategy Progress

CHICAGO–(BUSINESS WIRE)– Hyatt Hotels Corporation (“Hyatt” or the “Company”) (NYSE:H) today announced an increase to its 2021 net rooms growth outlook and the completion of two transactions as part of its ongoing capital strategy. Details are as follows:

  • On June 4, 2021, a Hyatt affiliate and Service Properties Trust, or SVC, reached an agreement with respect to 22 Hyatt Place hotels in the U.S. owned by subsidiaries of SVC. Under the terms of the amended agreement effective April 1, 2021, Hyatt will continue to manage 17 of the 22 Hyatt Place hotels owned by subsidiaries of SVC for a 10-year term. As a result of the amended agreement, Hyatt is increasing its net rooms growth outlook for 2021 to approximately 6.0%, up from the prior expectation of greater than 5.0%.
  • On June 4, 2021, a Hyatt affiliate sold the 490-room Hyatt Regency Lost Pines Resort and Spa near Austin, Texas for approximately $275 million to an unrelated third party and entered into a long-term management agreement for the property upon sale. The owner anticipates enhancing and expanding this unique resort destination located on 405 acres along the banks of the Colorado River.
  • On June 3, 2021, a Hyatt affiliate acquired the 59-room Ventana Big Sur, an Alila Resort, located in Big Sur, California for approximately $148 million, securing the Company’s long-term brand presence in a highly sought-after resort destination. The resort, situated on 162 acres in one of the world’s premier leisure destinations, also includes 63 distinctive camping areas and 15 tent cabins and is one of three world-class Alila resorts operating in California. The resort is well-positioned to be considered as part of Hyatt’s capital strategy and Hyatt intends to turn to evaluating the sale of this asset while retaining a long-term management agreement.

With the completion of both asset transactions at attractive values, Hyatt remains on track to realize net proceeds from the sale of real estate of approximately $1.5 billion by March 2022 as part of its capital strategy announced in March 2019. To date, and including the net proceeds from the aforementioned transactions, the Company has realized approximately $1.1 billion in net proceeds while continuing to expand its management and franchising business. In addition to reducing the earnings from owned and leased hotels, Hyatt has expanded its managed and franchised property base by approximately 150 hotels, or by 18%, from March 2019 to May 2021 that will drive an increased percentage of earnings coming from management and franchising activity.

The Company’s 2021 outlook is based on a number of assumptions that are subject to change and many of which are outside the control of the Company. If actual results vary from these assumptions, the Company’s expectations may change. There can be no assurance that Hyatt will achieve these results.

Here’s what happened with SVC and IHG, and Marriott.

Marriott Loses 122 Hotels In The United States Due To Failure To Pay Priority Returns

IHG Loses 103 Hotels In North America To Sonesta After Defaulting On Payments

Conclusion

I am glad that Hyatt decided to work with the owner of these 22 Hyatt Place hotels, Service Properties Trust, and reached an agreement abidable for both parties.

Sonesta grew exceptionally this year after 200+ hotels from IHG and Marriott were moved under their brands. SVC owns a 34% share of Sonesta and appears to be building it up to a proper chain.

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