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Service Properties Trust, a company that owns over a hundred properties that are currently operating under various Marriott brands, has announced that it is terminating all of its agreements with Marriott effective 31 January 2021. There doesn’t look to be any going back so from 1 February next year, Marriott’s North America portfolio will have noticeably fewer properties in it than it did the day before.
A Bit Of History
At the end of August, we discovered that IHG had been withholding payments due to a company that owns 103 properties flagged with various IHG brands. As IHG was showing no sign of paying up, the company in question terminated its agreements with IHG and moved all of its properties over to Sonesta. That company was Services Properties Trust (SVC).
At the time, a lot of people (including me) found it more than a little incredible that a global hotelier like IHG would simply ignore its contractual obligations and default on payments due to the owner of properties that it held in its portfolio. But that’s exactly what happened and history has just repeated itself with Marriott.
The Marriott Story
On 24 September 2020, SVC sent Marriott a notice claiming that the hotelier was in arrears in its payments and requesting $11m that SVC said was needed to “cover the shortfall between the payments SVC has received to date from MAR and 80% of the priority returns due to SVC for the eight months ended August 2020“. Marriott was given 10 days to respond and was warned that failure to pay would see SVC move its properties from Marriott to Sonesta.
The 10 day notice period expired on Monday and no payment from Marriott has been forthcoming (according to SVC) so, yesterday afternoon, SVC announced that it was terminating all 122 of the management agreements it has with Marriott. Here’s the relevant part of the statement issued yesterday:
“Service Properties Trust (Nasdaq: SVC), or SVC, today announced that it has terminated the management agreements for 122 hotels with Marriott International, Inc. (NYSE: MAR), or MAR. As previously announced, SVC sent a letter requesting MAR advance $11.0 million to cover the cumulative shortfall between the payments SVC had received to date and 80% of the cumulative priority returns due to SVC for the eight months ended August 2020. MAR had until October 5, 2020 to avoid termination by making payment to SVC. SVC did not receive any payment from MAR, and based on discussions with MAR, SVC does not expect MAR to pay the cumulative shortfall for the balance of 2020. Accordingly, on October 6, 2020, SVC sent MAR a letter exercising its termination right. The effective date of the termination is January 31, 2021 and SVC currently plans to transfer the branding and management of 98 of these hotels to Sonesta.
Not only has Marriott not yet paid the $11m that SVC says it is due but it also, apparently, has no intention of paying it going forward.
As Marriott doesn’t appear to have made any comment on its dispute with SVC (at the time of writing there’s nothing pertaining to this issue on Marriott’s press releases page nor is there anything on Marriott’s investor relations site) and as Marriott has not come out and denied SVC’s claims (something I’d expect a publicly traded corporation to do if it was falsely accused of breaking a contract), we can only assume that SVC’s version of events is correct and that Marriott, like IHG, is happy to ignore its contractual commitments in this case. That’s mindblowing.
What Happens Now?
When IHG defaulted on its payments to SVC, the company confirmed that it would be moving all 103 IHG branded properties across to Sonesta effective 30 November 2020. In the case of the Marriott branded properties things aren’t quite that straightforward.
It would appear that SVC was already in the process of disposing of 33 properties (with Marriott’s agreement) and the sale of 24 of those properties will go ahead. SVC has not been able to find a buyer for the remaining 9 properties so these will be transferred over to Sonesta effective 15 December 2020.
The remaining 89 properties will be transferred over to Sonesta effective 31 January 2021.
I’ve extracted the 122 Marriott properties from the list of all of SVC’s holdings and I’ve put them in a table below. The key takeaways are as follows:
- The 122 properties are spread across 5 brands:
- 2 x Marriott branded properties
- 2 x Springhill Suites branded properties
- 12 x TownePlace Suites branded properties
- 35 x Residence Inn branded properties
- 71 x Courtyard branded properties
- Marriott is losing a total of 17,085 rooms
- The best known property that Marriott is losing is the Marriott Kauai Resort & Beach Club (356 rooms)
- The largest property Marriott is losing is the Marriott Nashville Airport (392 rooms)
|Courtyard Birmingham Colonnade||Birmingham||AL|
|Courtyard Phoenix Camelback||Phoenix||AZ|
|Courtyard Phoenix Chandler||Phoenix/S. Chandler||AZ|
|Courtyard Scottsdale @ Mayo Clinic||Scottsdale||AZ|
|Courtyard Tempe Downtown||Tempe||AZ|
|Courtyard Los Angeles LAX El Segundo||El Segundo (LA AP)||CA|
|Courtyard Oakland Emeryville||Emeryville||CA|
|Courtyard Huntington Beach Fountain Valley||Fountain Valley||CA|
|Courtyard Laguna Hills Irvine Spectrum||Laguna Hills||CA|
|Courtyard San Francisco Airport Oyster Point Waterfront||Oyster Point/San Francisco||CA|
|Courtyard Pleasant Hill||Pleasant Hill||CA|
|Courtyard San Jose Airport||San Jose||CA|
|Courtyard San Ramon||San Ramon/Oakland||CA|
|Courtyard Los Angeles Torrance South Bay||Torrance||CA|
|Courtyard Wilmington Newark Christiana||Newark (Wilmington)||DE|
|Courtyard Boca Raton||Boca Raton||FL|
|Courtyard Miami Lakes||Hialeah (Miami lakes)||FL|
|Courtyard Jacksonville Mayo Clinic Beaches||Jacksonville||FL|
|Courtyard Atlanta Cumberland Center||Atlanta (Cumberland)||GA|
|Courtyard Atlanta Midtown Georgia Tech||Atlanta (Midtown)||GA|
|Courtyard Atlanta Airport North Virginia Avenue||Hapeville (Atlanta AP 2)||GA|
|Courtyard Atlanta Norcross I 85||Norcross (JC Blvd)||GA|
|Courtyard Bettendorf Quad Cities||Bettendorf (Quad City)||IA|
|Courtyard Chicago Arlington Heights North||Arlington Heights||IL|
|Courtyard Chicago Elgin West Dundee||Chicago/W. Dundee||IL|
|Courtyard Indianapolis Carmel||Indianapolis||IN|
|Courtyard Boston Danvers||Danvers||MA|
|Courtyard Boston Foxborough Mansfield||Foxborough||MA|
|Courtyard Boston Lowell Chelmsford||Lowell||MA|
|Courtyard Boston Milford||Milford||MA|
|Courtyard Boston Norwood Canton||Norwood||MA|
|Courtyard Boston Stoughton||Stoughton||MA|
|Courtyard Boston Woburn Burlington||Woburn||MA|
|Courtyard Detroit Auburn Hills||Auburn Hills||MI|
|Courtyard Detroit Novi||Detroit/Novi||MI|
|Courtyard Minneapolis Eden Prairie||Eden Prairie||MN|
|Courtyard Kansas City Airport||Kansas City AP||MO|
|Courtyard Kansas City South||Kansas City Holmes||MO|
|Courtyard Charlotte University Research Park||Charlotte University||NC|
|Courtyard Durham Research Triangle Park||Durham||NC|
|Courtyard Raleigh Durham Airport||Morrisville (Raleigh Durham)||NC|
|Courtyard Tinton Falls Eatontown||Tinton Falls||NJ|
|Courtyard Hanover Whippany||Whippany (Hanover)||NJ|
|Courtyard Las Vegas Summerlin||Las Vegas West/Summerlin||NV|
|Courtyard Syracuse Carrier Circle||Syracuse||NY|
|Courtyard Oklahoma City Northwest||Oklahoma City||OK|
|Courtyard Allentown Bethlehem Lehigh Valley Airport||Allentown||PA|
|Courtyard Pittsburgh Airport||Coraopolis (Pitt AP)||PA|
|Courtyard Philadelphia Airport||Philadelphia AP||PA|
|Courtyard Philadelphia Willow Grove||Willow Grove||PA|
|Courtyard Newport Middletown||Middletown||RI|
|Courtyard Charleston North Coliseum||Charleston/North||SC|
|Courtyard Chattanooga I 75||Chattanooga||TN|
|Courtyard Dallas Central Expressway||Dallas Northpark||TX|
|Courtyard Dallas Richardson @ Campbell||Dallas/Richardson||TX|
|Courtyard Fort Worth Fossil Creek||Fort Worth (Fossil Creek)||TX|
|Courtyard Houston Hobby Airport||Houston Hobby||TX|
|Courtyard Arlington Rosslyn||Arlington Rosslyn||VA|
|Courtyard Dulles Airport Chantilly||Fairfax (West Dulles)||VA|
|Courtyard Richmond Northwest||Richmond||VA|
|Courtyard Williamsburg Busch Gardens Area||Williamsburg||VA|
|Courtyard Seattle Bellevue Redmond||Bellevue||WA|
|Courtyard Milwaukee Brookfield||Brookfield (Milwaukee)||WI|
|Marriott Kauai Resort & Beach Club||Lihue Kauai||HI|
|Marriott Nashville Airport||Nashville||TN|
|Residence Inn Birmingham Homewood||Homewood||AL|
|Residence Inn Scottsdale Paradise Valley||Scottsdale||AZ|
|Residence Inn Tempe||Tempe||AZ|
|Residence Inn Huntington Beach Fountain Valley||Fountain Valley||CA|
|Residence Inn Fresno||Fresno||CA|
|Residence Inn San Francisco Airport Oyster Point Waterfront||Oyster Point/San Francisco||CA|
|Residence Inn San Diego Rancho Bernardo||San Diego (Rancho Bernado)||CA|
|Residence Inn Atlanta Alpharetta Windward||Alpharetta||GA|
|Residence Inn Atlanta Kennesaw Town Center||Atlanta Town (Ken)||GA|
|Residence Inn Atlanta Alpharetta North Point Mall||Atlanta/Northpoint Mall||GA|
|Residence Inn Chicago Dwntn Magnificent Mile||Chicago||IL|
|Residence Inn Chicago Waukegan Gurnee||Chicago/Waukegan||IL|
|Residence Inn New Orleans Downtown||New Orleans||LA|
|Residence Inn Boston Westborough||Westborough||MA|
|Residence Inn Annapolis||Annapolis||MD|
|Residence Inn Baltimore Washington Airport||BWI Airport||MD|
|Residence Inn Detroit Warren||Warren||MI|
|Residence Inn Durham Research Triangle Park||Durham||NC|
|Residence Inn Raleigh Durham Airport||Raleigh Airport/Morrissville||NC|
|Residence Inn Raleigh Cary||Raleigh/Carey||NC|
|Residence Inn Parsippany||Parsippany||NJ|
|Residence Inn Albuquerque||Albuquerque||NM|
|Residence Inn Reno||Reno||NV|
|Residence Inn Syracuse Carrier Circle||East Syracuse||NY|
|Residence Inn Allentown Bethlehem Lehigh Valley Airport||Allentown||PA|
|Residence Inn Philadelphia Willow Grove||Horsham (Willow Grove)||PA|
|Residence Inn Nashville Brentwood||Brentwood (Nash Farms)||TN|
|Residence Inn Dallas Market Center||Dallas Mkt Ctr||TX|
|Residence Inn Dallas Central Expressway||Dallas Nrth Prk||TX|
|Residence Inn Dallas Richardson||Dallas-Richardson||TX|
|Residence Inn Fort Worth Fossil Creek||Fort Worth (Fossil Creek)||TX|
|Residence Inn San Antonio Dwntn Alamo Plaza||San Antonio (Alamo)||TX|
|Residence Inn Charlottesville||Charlottesville||VA|
|Residence Inn Fair Lakes Fairfax||Fairfax||VA|
|Residence Inn Charleston||Charleston||WV|
|Springhill Suites Nashville Airport||Nashville AP||TN|
|Springhill Suites Seattle South Renton||Renton||WA|
|TownePlace Suites Scottsdale||Phoenix/Scottsdale||AZ|
|TownePlace Suites Atlanta Northlake||Atlanta/Northlake||GA|
|TownePlace Suites Atlanta Norcross Peachtree Corners||Norcross||GA|
|TownePlace Suites Chicago Elgin West Dundee||Chicago/W. Dundee||IL|
|TownePlace Suites Boston North Shore Danvers||Danvers||MA|
|TownePlace Suites Detroit Novi||Detroit/Novi||MI|
|TownePlace Suites Chantilly Dulles South||Fairfax/Chantilly||VA|
|TownePlace Suites Falls Church||Falls Church||VA|
|TownePlace Suites Newport News Yorktown||Norfolk/Newport||VA|
|TownePlace Suites Richmond||Richmond/Glenn Allen||VA|
|TownePlace Suites Virginia Beach||Virginia Beach||VA|
|TownePlace Suites Seattle South Renton||Renton||WA|
The one small oddity here comes in the form of the best known property on the list above – the Kauai Beach Club – which, as far as I can tell, is a timeshare resort that’s part of the MVCI portfolio. If the Kauai Beach Club is a timeshare resort it must be owned by the people who own the timeshares (to the best of my knowledge, all of Marriott’s timeshare properties in the United States are deeded properties) so what is it doing on a list of properties owned by SVC?
There must be something that I’m missing here (perhaps the hotel and timeshare resort share a common piece of land but are actually separate entities?) so I’ll have to look into this more – I’ll report back if I get any more information.
Apart from the resort on Kauai, there aren’t any obvious big-name losses for Marriott here but it is losing a significant number of airport hotels. That will probably be disappointing to the legions of business people for whom Marriott is their primary hotelier and who make up the overwhelming majority of returning guests at these properties.
From SVC’s point of view, Sonesta already has a “suites” brand (Sonesta ES Suites) so it’s easy to see where the Residence Inn, TownPlace Suites and Springhill Suites properties will fit in while, presumably, the Courtyard properties will just fit in with the rest of Sonesta’s regular portfolio.
The big question here, however, is the one that asks if Sonesta is actually up to managing all of these additional properties? As things stand, Sonesta operates just 84 properties (mainly in North America) but it’s about to take on 103 former IHG properties at the end of November, 9 former Marriott properties in mid-December, and a further 89 former Marriott properties at the end of February. That’s 201 new properties in the space of just two months which will see Sonesta’s portfolio increase by ~239%.
It’s hard not to question where the resources are going to come from to scale up Sonesta’s operations so dramatically and so quickly. Given time the integrations can probably be done, but I wouldn’t be surprised to see quite a bit of chaos surrounding Sonesta in the short term.
Marriott is set to lose 122 properties from its North America portfolio and among them is the Marriott Kauai Resort & Beach Club. It will be interesting to see just how smoothly (or otherwise) the majority of these properties are integrated into the Sonesta portfolio as I’m yet to be convinced that Sonesta will be up to the task of integrating all the properties that SVC says it is about to dump in its lap.
Featured image: Kauai Beach Club courtesy of Marriott