Marriott Falls Behind on Payments to Service Properties Trust
Hotels have been hit very hard by the pandemic, prompting management companies—including large ones—to fall behind in their returns.
As the hotel industry continues its struggle with the Coronavirus-led economic downturn, it appears that some brands are having trouble paying their bills.
For the second time in recent days, Service Properties Trust has sent a letter to a well-known hotel company requesting payment on which the hotel giant has been delinquent.
Issued last week, the latest missive—which concerned an agreement covering 122 hotels across 31 states—asked Marriott International to “advance $11 million to cover the shortfall between the payments SVC has received to date from the hotel firm and 80% of the priority returns due to SVC for the eight months ended August 2020,” according to a statement from Service.
Marriott has 10 days after it receives the letter on which to make the payment, or else SVC will have the right to terminate its agreement with the company. If that happens, SVC plans to turn management and branding of the assets over to Sonesta International Hotels. Service already owns 34% of Sonesta.
Last month, SVC transferred to Sonesta the branding and management of 103 hotels that had been the domain of InterContinental Hotels. In that case, Service previously sent a notice of termination to IHG for failure to pay the REIT’s minimum returns and rents for July and August of this year, which added up to $26.4 million, plus accrued interest.
Hospitality has been one of the hardest hit industries by COVID-19 in the wake of business event cancellations, lockdowns and other societal shifts that have all but ended travel, across the globe. In a survey of American Hotel & Lodging Association members, reported last week, half of hotel owners said they are in danger of foreclosure by their commercial real estate debt lenders due to COVID-19. Further, over two-thirds of hotels, or 67% of those surveyed—said they only can last six more months at current projected revenue and occupancy levels, absent any government relief.
Signs of distress also are evident in other indicators for the hotel sector which, prior to the pandemic, had experienced solid growth for a record number of consecutive quarters. From March until mid-September, hotel occupancy rates collapsed, while ADR also took a nosedive, according to a mid-year report from Integra Realty Resources. Transaction volume also fell sharply.
The plight of hotels isn’t only a weak one because of the sharp reduction in demand. The capital markets also are skittish about the industry, preventing many lenders from doing hotel deals. Further, the few lenders who will operate in the space are being extremely selective.