craz

The agreement between the companies covers 122 hotels in 31 states, including 71 Courtyards, 35 Residence Inns, 12 TownePlace Suites, two Springhill Suites and two Marriotts.

If Marriott doesn’t make the requested payment, Service Trust said it would transition management and branding of the properties to Sonesta International Hotels, which it has a 34% stake in.

controller1

Here's some detail:

https://www.businesswire.com/news/ho...ing-122-Hotels

dcstudent

COVID must've really hit these hotels hard for Marriott to already to be in default. Marriott and Service just reupped this agreement in January 2020 to 2035.

https://www.businesswire.com/news/ho...-with-Marriott

storewanderer

Good- Service Trust is taking this opportunity to build up the Sonesta brand. More competition in the hotel business is good given the consolidation that has taken place. When all the dust settles from COVID, more loyalty programs that will be fighting for travelers will be a net win for the traveler. I wish Sonesta well, hope they create a compelling loyalty program, and hope they have high brand standards for their properties. Plus I think Sonesta is a good name. It just sounds good.

I am a little concerned by some of the variable level properties they are getting (older Candlewood Suites and Town Place Suites concern me the most- but there is a market for those concepts).

warakorn

Ouch! Marriott has entered a contract with SVC where Marriott seems to guarantee revenues of almost USD 200m. Wow! This sounds insane. I guess Coronavirus is the "Black Swan" event that risk managers have not anticipated, at all.

Mr. BoH

The prior link didn't work for me but here is another one: https://onemileatatime.com/marriott-...se-122-hotels/

This is fascinating to me - I had no idea that Marriott guaranteed revenue levels as part of their brand agreements. Seems like a risky move; perhaps foolish in hindsight.

dcstudent

I have to imagine a COVID type destruction of travel was never even contemplated. Would love to see the Force Majeure clause. Wonder if brands will still enter into these types of agreements after COVID.

MSPeconomist

Losing more than seventy Courtyards could be a good thing, right?

Can anyone comment on the general quality level of the Service Trust Marriott properties? Would any important locations be lost with no alternative Marriott family hotels nearby?

BTW, are the 22 Hyatts next?

TBD

Rebranding to Sonesta won't make the pandemic go away. If they were losing money with Marriott, they aren't going to suddenly be profitable with Sonesta.

I smell a bluff. They need to balance their books and threatening Marriott is the easiest way to do it.

Kagehitokiri

cutting costs, seeing if they can get money from chains, then seeing if they can sell eventually sell sonesta

craz

Its NO bluff as the title states, I take it you dont spend any time on The IHG Forum; https://www.flyertalk.com/forum/inte...30-2020-a.html

spgplat21

If Marriott was clearly in default and they were owed all this money, they would almost certainly be suing for the money and not just terminating the agreement. Why would a company give up a guaranteed minimum return in this environment? It's not often that I stick up for Marriott, but if there is a bad guy in the story it seems like its Service Properties Trust. If Marriott was defaulting on payments and attempting to screw over property holders, I imagine we would be hearing about more hotels suing Marriott for defaulting on payments.

I'm sure the agreement had some sort of force majeure clause that Marriott is pointing to as a reason for not making the payments, and Marriott will just let them terminate the agreement rather than argue and sue each other over the provision.

Losing options is not positive, but more competition is probably good in the long run and it looks like there are still MAR options in most of these places.

Kacee

Force majeure clauses rarely excuse payment of monies due under the contract. I haven't seen one yet that gives any relief due to COVID.

writerguyfl

The guaranteed revenue numbers are neither insane nor risky when place in context of normal operations. Or, even operations during a recession like 2007-2009.

I don't have time to look up the total number of rooms for each of these 122 hotels. But, here's a quick and dirty analysis.

Split equally, it's a guaranteed profit of $1.6 million per hotel. Any hotel that can't make a profit of that amount shouldn't be open. That's a paltry $4,370 profit per night.

In days of yore, I was a revenue manager at a full-service hotel. My revenue goals for transient rooms (aka all non-group rooms) were significantly higher than $1 million every month.

Without getting into proprietary information, that hotel where I worked could have knocked out virtually all of any $200 million guaranteed revenue agreement on our own. Adding in another 100+ hotels would have meant meeting that goal within a single month, if not weeks.

This isn't about making the pandemic go away. Rather, this is about using the current economic reality to get out of existing contracts en masse.

Franchises have some fixed fees and some variable fees (i.e. per reservation) that are paid to the hotel group. By removing hundreds of hotels from IHG and (possibly) Marriott, the hotel owner will no longer be paying those fixed fees to IHG/Marriott.

Instead, those fees will get paid to Sonesta, which is partially-owned by the hotels' owner. As such, they are potentially saving money by forcing their way out of the existing contracts.

(I use the qualifier "potentially" because there are costs associated with changing franchises.)

While I personally don't think it is ethical to use a global pandemic to break contracts, it almost certainly is a smart move.

cmd320

By all means, they can axe all the select service dumps they want. The only two full service hotels are the Nashville Airport Marriott and some resort property on Kauai.

I wish them the best of luck rebranding as Sonesta though. That's one of the brands I don't even consider when looking for hotels. Old Courtyards should fit perfectly with their brand vision.