- TKO submitted a $2B offer for the hospitality portfolio of RMR-managed Service Properties Trust, which included 93 hotels and 21,110 keys as of June.
- The price exceeds SVC’s market cap, but termination fees, including up to $535M tied to Sonesta, and operator restrictions could complicate any sale.
- Selling the hotels would let SVC retire more than 40% of its debt while keeping its retail platform, according to TKO’s proposal.
TKO submitted a $2B offer for the hospitality portfolio of Service Properties Trust, an RMR Group-managed REIT, according to Commercial Property Executive.
The portfolio held 93 hotels with 21,110 keys as of June. SVC’s board will evaluate the proposal, the first approach between the two companies.
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Offer Tops the Market Cap
The price is higher than SVC’s entire public market value. Shares closed at $6.49 on Oct. 6, down more than 50% from a year earlier.
Management has previously said it intends to maximize portfolio value, after spending $765 million on improvements over three years, and prefers to wait for better market conditions before selling more assets.
Termination Fees Complicate the Math
Exit costs are significant. Terminating the Sonesta contract alone could cost as much as $535 million, and Hyatt, IHG and Radisson do not permit termination without cause.
What TKO Would Buy
The hotels sit in 31 states, D.C., Ontario and San Juan, Puerto Rico, mostly in urban or dense suburban settings near airports, hospitals, universities and tourist draws. The largest, the 614-key Sonesta Los Angeles Airport, had a $42 million renovation last year.
SVC has invested $9.7B across hotels and service-oriented net lease retail. Under TKO’s proposal, selling the hotels would let SVC pay off more than 40% of its debt and keep its retail business.
Why It Matters
Large hospitality deals are in motion. Fertitta Entertainment agreed in May to acquire Caesars Entertainment for $17.6B including $11.9B of assumed debt, and Ryman Hospitality closed its roughly $1.4B Grande Lakes Orlando purchase, the biggest nongaming resort sale on record.
Marcus & Millichap counted a 15% rise in deal velocity in the year through June. Higher yields still weigh on financing, much as rising yields stall REIT M&A elsewhere, and buyers using less leverage may have an edge.
What’s Next
SVC’s board must decide whether $2B justifies abandoning its wait-for-better-conditions stance. Watch for a counter, operator reactions on termination rights and comparisons with deals like Four Seasons Scottsdale.
