An all-cash offer for the entire hotel portfolio
Service Properties Trust has received an all-cash offer of around €1.7bn for its entire hotel portfolio, comprising 92 properties and just under 21,000 rooms according to figures published by the company in June. The announcement came from the prospective buyer, TKO Hotels, rather than from the REIT itself.
The scope is strictly limited to hotels. The 745 net lease retail properties owned by SVC are not part of the proposal. The largest hotel in the portfolio is the Sonesta Los Angeles Airport LAX, with 614 rooms.
A step change in scale for the bidder
According to CoStar data, TKO Hotels currently owns 58 properties totalling just over 4,000 rooms across the United States. The company says it is well placed to unlock the full value of SVC’s portfolio.
Jim Koehler, CEO of TKO Hotels, described the acquisition as a transformational opportunity for the company. He said SVC had assembled an exceptional collection of hotel assets in top-tier markets and that TKO Hotels was ready to move quickly and decisively to complete the transaction. According to Koehler, the all-cash nature of the offer removes financing risk and gives SVC the certainty it needs to carry out its strategic repositioning. He added that TKO Hotels hopes to engage in constructive dialogue with SVC’s board and management in order to reach a mutually beneficial agreement.
LTH analysis – On the basis of the figures disclosed, the deal would more than quintuple the number of rooms owned by TKO Hotels. The offer values the portfolio at an average of around €82,000 per room.
Seven years of retreat from hotels
Based in Newton, Massachusetts, the REIT has been steadily reducing its hotel exposure since it dropped the name Hospitality Properties Trust at the end of 2019. At that time it owned 329 hotels with more than 51,000 rooms, compared with 92 properties today.
This refocusing is also reflected in its earnings. According to SVC’s latest investor presentation, hotels have fallen from two-thirds of the REIT’s earnings at the end of 2019 to 30% in June this year.
Disposals have so far targeted smaller, less profitable assets deemed non-core, while preserving long-term franchise agreements with Sonesta International Hotels, the eighth-largest hotel company in the United States. The brand is jointly owned by SVC and its external manager, RMR Group.
The sale of the Royal Sonesta Chicago River North, the latest milestone
The most recent disposal is the former Royal Sonesta Chicago River North, a 261-room property acquired by Manga Hotel Group, which plans to convert it under its TOOR Hotel brand. Property records consulted by CoStar show a price of around €18m, a figure the buyer had not disclosed.
Analysis – This sale works out at less than €70,000 per room, below the average implied by TKO Hotels’ offer. The comparison has its limits, however, as the remaining 92 hotels vary widely in profile and location.
A valuation the market struggles to read
At the time of publication, SVC shares were trading at around €6.15, giving a market capitalisation of approximately €800m. The REIT does not publish an estimate of net asset value, either for its assets as a whole or for its hotel portfolio alone.
LTH analysis – The offer for the hotels alone therefore comfortably exceeds the market capitalisation of the entire group, although this gap must be read in light of the REIT’s debt. The board’s response will be decisive, particularly given its contractual ties with Sonesta and RMR Group, in a US market where listed REITs are stepping up asset rotation, as illustrated by Braemar Hotels & Resorts and its sale of the Four Seasons Resort Scottsdale.
At a glance by The Hospitality Tribune
TKO Hotels makes unsolicited $2bn bid for Service Properties Trust’s hotel portfolio
All-cash offer for 92 hotels and just under 21,000 rooms
SVC’s 745 net lease retail properties excluded from the proposal
Bidder currently owns 58 properties with just over 4,000 rooms
SVC has shrunk from 329 hotels since rebranding from Hospitality Properties Trust in 2019
Hotels now account for 30% of SVC’s earnings, down from two-thirds in late 2019
