Hospitality Properties Trust (NYSE: HPT) today announced that it has entered an agreement to rebrand twenty (20) hotels currently owned by HPT to brands owned by Wyndham Hotel Group, a member of the Wyndham Worldwide Corporation (NYSE: WYN). Four (4) of the hotels will be branded as “Wyndham Hotels and Resorts” and sixteen (16) of the hotels will be branded as “Hawthorn Suites by Wyndham” hotels. All twenty (20) hotels will be managed by Wyndham Hotel Group under a long term contract.
Wyndham Hotel Group has agreed to pay HPT an owner’s priority from the operating results of these hotels of $770,000/month ($9,240,000/year). The payment of these amounts to HPT is partially guaranteed by Wyndham Hotel Group.
HPT has agreed to provide up to $75 million for refurbishment and rebranding of these twenty (20) hotels to “Wyndham Hotels and Resorts” and “Hawthorn Suites by Wyndham” brand standards. As these funds are advanced, the amount of the HPT owner’s priority will increase by 8% per annum of the amounts funded. Other important terms of this agreement include the following:
- There is one combined management contract for all twenty (20) hotels. Accordingly, the owner’s priority amount due to HPT and other financial obligations are calculated and paid on a pooled or combined basis.
- The management contract term will be twenty five (25) years, and Wyndham Hotel Group will have two consecutive fifteen (15) year renewal options. Renewal options may be exercised for all, but not less than all, the managed hotels.
- The management contract requires that up to 5% of the hotels’ gross revenues, or a “FF&E Reserve”, be escrowed for future periodic refurbishments of the hotels.
- Management and branding fees due to Wyndham Hotel Group are contractually subordinated to the owner’s priority due to HPT and the FF&E Reserve funding. After the owner’s priority is paid to HPT, the FF&E Reserve is funded and the management and branding fees are paid to Wyndham Hotel Group, Wyndham Hotel Group may receive an incentive management fee equal to 50% of the remaining cash flow from the hotels’ operations, and then the balance of the cash flow is available to HPT.
- In addition to the $75 million which HPT has agreed to fund for the refurbishment and rebranding of these hotels, Wyndham Hotel Group may request additional amounts for working capital or for improvements necessary to meet brand standards; and as such amounts are funded by HPT, the owner’s priority payments due to HPT will increase by a formula percentage of the amounts funded.
- Because of its long term, the contract permits the sale of a certain number of these hotels for which continued operation may become non-economic as determined by Wyndham Hotel Group or HPT and provides for the reduction of the owner’s priority amount due to HPT according to a formula percentage of the net sale proceeds received by HPT.
John Murray, President of HPT, made the following statement at the time this transaction was announced:
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