Sonesta International Hotels is planning to franchise 114 hotels in the U.S. once their sale is completed. Sonesta will be entering into new long-term franchise agreements for these hotels, which are currently owned by Service Properties Trust (SVC).
Earlier on Wednesday, SVC had announced it would be selling the 114 hotels, which are currently managed by Sonesta, to lower its leverage levels. Once sold, these existing Sonesta long-term management deals will be converted into long-term franchise agreements.
The sale includes 31 Sonesta Select upscale hotels, 44 Sonesta ES Suites upscale extended stay hotels and 39 Sonesta Simply Suites mid-priced extended stay hotels. Totaling 14,925 keys across 28 states, these 114 hotels have an aggregate net carrying value of $85 million. The hotels are expected to be sold in 2025 and the proceeds from the sale will be used to repay debt, SVC said in a release.
Additionally, SVC projects the sales of these hotels will result in savings of roughly $725 million in capital expenditures, which was anticipated to be spent on these properties over six years.
Considering “the slow recovery” of SVC’s hotel portfolio coupled with the company’s hotel capital improvement and renovation program and the “deteriorating leverage metrics,” the disposition of these hotels will help reduce the distribution to increase SVC’s liquidity and upgrade its financial flexibility, SVC said.
“The reduction in the distribution from the previous level will preserve approximately $127 million of SVC’s liquidity annually. We are also planning to sell 114 hotels to generate additional liquidity and concentrate the Sonesta portfolio on full-service hotels and certain higher performing focused service hotels,” said SVC’s President and Chief Investment Officer Todd Hargreaves. “We expect these sales will also result in reduced capital expenditure and leverage, improve portfolio performance and better position SVC’s hotel portfolio for the long term.”
At present, SVC owns 187 hotels that are managed by Sonesta under five brands, which includes 14 properties that SVC is currently in the process of selling and the 114 announced for sale.
Once these 114 hotels are sold next year, SVC expects that Sonesta will continue to manage 39 full-service hotels, 14 extended stay properties and six select service hotels owned by SVC. SVC will continue to own 34% of Sonesta.
The transition to an “asset-right and franchise-forward strategy” is an organic next step for Sonesta and increases management attention on the group’s existing, larger full-service hotels and growth prospects in other key markets, Sonesta said.
“However, one fundamental characteristic of Sonesta that will not change is that we will continue to own and manage both full-service and focused service hotels in addition to being a brand owner and franchisor,” said John Murray, Sonesta’s president and CEO.
Following the sales and franchise conversions, Sonesta will continue to manage 44 full-service and 22 focused service (extended stay and select service) hotels in the U.S. and Canada.
The eighth largest hotel company in the U.S., according to STR, Sonesta currently has 1,100 properties totaling 100,000 rooms under 13 brands across eight countries.
