Home Hotels Hyatt Is Hyatt About To Lose 22 Properties In The United States?

Is Hyatt About To Lose 22 Properties In The United States?


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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. Now it looks like Hyatt may be going down a similar (if slightly different) road with the same owner.

Services Properties Trust (SVC) is, in part, a hotel owner whose properties have been managed by a variety of well-known brands. IHG and Marriott managed some of SVC’s properties until late 2020 and, up until now, Hyatt and Radisson have also been managing select properties on SVC’s behalf.

Now, and based on yesterday’s announcement to the SEC, Radisson may soon be the only well-known name to manage any of SVC’s properties. [HT: Loyalty Lobby]

Here’s what SVC told the markets:

Service Properties Trust (Nasdaq: SVC), or SVC, today announced that it has received a notice of termination from a subsidiary of Hyatt Hotels Corporation, or Hyatt, with respect to the management agreement for 22 Hyatt Place hotels owned by subsidiaries of SVC. Hyatt’s obligations under the management agreement, which requires minimum returns of $22.0 million annually, is supported by a $50.0 million limited guaranty. While Hyatt is current on its payments to SVC at this time, it recently exhausted this $50.0 million guaranty and under the terms of the management agreement, Hyatt may terminate the agreement upon 90 days’ notice once the guaranty has been fully utilized. The effective date of the termination pursuant to Hyatt’s notice is April 8, 2021.

SVC and Hyatt are currently in discussions regarding possible changes to the management agreement which may enable some or all of the hotels to remain Hyatt Place hotels managed by Hyatt. However, if such discussions do not result in a mutually acceptable agreement, SVC expects to transition management of the 22 hotels to Sonesta International Hotels Corporation, or Sonesta, on April 8, 2021 under the Sonesta Select brand. SVC also owns 34% of Sonesta.

Based on this announcement, the situation between SVC and Hyatt is slightly different from the situations we saw arise between SVC and Marriott and SVC and IHG. In the latter two cases, both hoteliers were accused of defaulting on payments due to SVC, while Hyatt has simply said that it’s exercising its right to extricate itself from its relationship with SVC as permitted by their agreement.

When SVC’s relationships with Marriott and IHG came to an abrupt end, most of the properties that had been managed by the two major hoteliers were moved over to Sonesta (a once small hotel chain that’s soon to grow by over 230%), and that’s what SVC is already suggesting it will do with the 22 properties that Hyatt manages if the two sides cannot come to an agreement.

The 22 Hyatt-managed properties in question are the following:

Hyatt Place Atlanta Airport South
Hyatt Place Atlanta Cobb Galleria
Hyatt Place Atlanta Duluth Gwinnett Mall
Hyatt Place Austin North Central
Hyatt Place Chantilly Dulles Airport South
Hyatt Place Charlotte Airport Lake Pointe
Hyatt Place Colorado Springs Garden Of Gods
Hyatt Place Columbus Dublin
Hyatt Place Dallas North
Hyatt Place Detroit Utica
Hyatt Place El Paso Airport
Hyatt Place Fort Wayne
Hyatt Place Indianapolis Airport
Hyatt Place Kansas City Airport
Hyatt Place Kansas City Overland Park Convention Center
Hyatt Place Mount Laurel
Hyatt Place Nashville Northeast
Hyatt Place Orlando Airport Northwest
Hyatt Place San Antonio Riverwalk
Hyatt Place Sterling Dulles Airport North
Hyatt Place Tempe Phoenix Airport
Hyatt Place Tucson Airport

Note: At the time of writing, these properties are still bookable on Hyatt’s website even for dates past 8 April 2021.

I can’t say that I know much about any of these properties (at least 9 of them appear to be located at or near airports) so it’s hard for me to comment with any authority on Hyatt’s reasons for exercising its option to sever ties with SVC…but I’m still happy to speculate 🙂

It’s possible that the costs that Hyatt has been incurring on these properties have simply got out of hand (a pandemic will have that effect!) and that Hyatt can see that it will take years before these costs can be recouped and so prefers to cut its losses and walk away rather than risk even bigger losses if travel takes a long time to return to pre-pandemic levels.

If that’s the case, then short of SVC offering Hyatt an amazing renegotiated deal, I can’t see these Hyatt Place properties being part of Hyatt after 8 April 2021.

It’s also possible that even though Hyatt has been taking losses on these properties, the hotelier is simply testing out the waters with SVC to see just what sort of concessions (if any) it can extract, and as long as SVC comes up with a reasonable suggestion for how the two can carry on working together, a deal can be made.

Out of those two options, I suspect that it’s more likely that we’ll see Sonesta grow by another 22 properties rather than seeing Hyatt and SVC come to a new agreement.

SVC has already moved (or is in the process of moving) almost 200 of its properties from other hotel brands to Sonesta so the addition of another 22 properties to Sonesta is hardly likely to faze the corporation. In fact, there’s a reasonable argument to be made that says that this is what SVC actually wanted Hyatt to do as it allows it to continue turning Sonesta (of which owns 34%) into a considerably bigger player in the hotel world.

Ultimately this may be a win-win for both sides. Hyatt can cut its losses and walk away from potentially more trouble down the road, and SVC gets to retake control of more of its properties and grows the Sonesta portfolio a little more. For now, we’ll just have to wait and see.

Bottom Line

Hyatt has exercised its right to terminate a management agreement that it had with Services Properties Trust (SVC) and which covered 22 Hyatt Place properties in the United States. As things stand, the two sides are in discussion to see if any common ground can be found but if no new deal is done, Hyatt will be shedding 22 Hyatt Place properties from its portfolio on 8 April 2021.

Featured image: Hyatt Place Austin North courtesy of Hyatt

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1 COMMENT

  1. with some background from an owners point of view I would venue to guess that “other side of the story” evolves around poor under preforming management and excessive expenditures. As I said a company I was part of the management team owning a number of property’s fired it managers from a well known “flag” which showing some respect for declining to name the propose of writing this is the other side of a story. ( possible)

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