Amended Agreement Supported by $30.0 Million Guaranty
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.