Hyatt & SVC Reach Agreement – Only Five US Hyatt Properties To Disappear

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At the beginning of January, it looked like Hyatt was going down a similar path to both Marriott and IHG as it entered into a dispute with an owner of 22 properties that were flagged under the Hyatt Place brand. At that point, it looked like Services Properties Trust was going to move control of its Hyatt Place properties to Sonesta, but following negotiations, it now seems that an agreement has been reached in the case of 17 of those 22 properties.

Background

Two of the more interesting bits of fallout that we’ve seen from the current crisis have been IHG losing over 100 North American properties in August 2020 and Marriott losing 122 properties in North America in October 2020 and both of those events had one thing in common – the owner of the hotels, Services Properties Trust (SVC).

In January 2021, SVC told the SEC that it had received a notice of termination from a subsidiary of Hyatt with respect to the management agreement for 22 Hyatt Place hotels owned by subsidiaries of SVC and that it was possible that all 22 properties would be transitioned over to SVC’s Sonesta brand.

A key difference between the disagreements that SVC had with Marriott and IHG and the disagreement that SVC had with Hyatt, is that Marriott and IHG were both said to have defaulted on payments due to SVC while Hyatt was simply exercising its legal right to invoke a termination clause that was present in its contract with SVC.

Essentially, Hyatt seemed to feel that the properties were not worth whatever it was having to pay SVC for the management contract and it wanted out.

At the time, SVC confirmed that it was in negotiations with Hyatt which “may enable some or all of the hotels to remain Hyatt Place hotels managed by Hyatt”.

Now

In a new announcement to the SEC (first noted by Loyalty Lobby), SVC has now confirmed that negotiations have gone well and that 17 of the 22 Hyatt Place properties that it owns will continue to be managed by Hyatt under a new 10-year agreement effective 1 April 2021.

Here’s the announcement:

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.

SV C has also confirmed that the management of the five remaining Hyatt Place properties has been “transitioned” to Sonesta International Hotels.

At the time of writing, SVC hasn’t updated its property portfolio so it still lists 22 Hyatt Place properties, but we now know that only 17 Hyatt Place branded properties will remain.

Bottom Line

Hyatt and SVC have come to an agreement that sees SVC keeping Hyatt as the management company for 17 of the 22 Hyatt Place properties that Hyatt originally wished to exit. Based on SVC’s announcement to the SEC it looks like both sides have entered into a new agreement that they feel is fair and while a loss of 5 properties from the World of Hyatt may be disappointing some, the fact that we’re not seeing 22 Hyatt Place properties move to Sonesta is definitely good news.