Item 1.01. Entry into a Material Definitive Agreement.
On January 7, 2022, we amended and restated our management agreements with
subsidiaries of Sonesta Holdco Corporation, or Sonesta, effective January 1,
2022. We currently own 261 hotels that are managed by Sonesta and 67 of these
hotels are expected to be sold, or the sale hotels. Among other things, the
amendments to the agreements with Sonesta for 194 hotels, or the retained
hotels, are as follows:
· The term for the retained hotels expires on January 31, 2037 and includes two
15-year renewal options.
· All retained hotels are subject to a pooling agreement that combines the
management agreements for the retained hotels for purposes of calculating gross
revenues, hotel operating expenses, fees and distributions and the owner's
priority return due to us.
· The owner's priority return for the retained hotels is initially set at $325.2
million annually. We have the right to terminate Sonesta's management of
specific hotels that we own if minimum performance thresholds are not met
starting in 2023.
· We will renovate the retained hotels to comply with agreed upon brand
standards. As we advance such funding or fund other capital expenditures, the
aggregate annual owner's priority return due to us will increase by 6% of the
amounts funded.
· Trade area restrictions by hotel brand have been added to define boundaries to
protect our owned hotels in response to Sonesta increasing its franchising and
third-party management activities.
For the sale hotels, the term has been extended to the earlier of December 31,
2022 or until the applicable hotel has been sold and the FF&E reserve funding
requirement has been removed. Following the sale of a sale hotel, our owner's
priority return will be reduced by the current owner's priority return for that
hotel; the total owner's priority for all the sale hotels is $84.1 million. The
sale hotels are subject to a pooling agreement that combines the management
agreements for the sale hotels for purposes of calculating gross revenues, hotel
operating expenses, fees and distributions and the owner's priority return due
to us.
The foregoing descriptions of our management agreements and pooling agreements
with Sonesta are not complete and are subject to and qualified in their entirety
by reference to the forms of our management agreements and pooling agreements
with Sonesta, as amended, which are filed as Exhibit 10.1 , Exhibit 10.2 ,
Exhibit 10.3 and Exhibit 10.4 to this Current Report on Form 8-K and are
incorporated herein by reference.
Information Regarding Certain Relationships and Related Person Transactions
Sonesta is a private company. One of our Managing Trustees, Adam D. Portnoy, is
the controlling shareholder and a director of Sonesta. One of Sonesta's other
directors is our other Managing Trustee, President and Chief Executive Officer
and Sonesta's other director serves as executive vice president, general counsel
and secretary of our manager, The RMR Group LLC, or RMR LLC, and its parent, The
RMR Group Inc., or RMR Inc., as a managing director of RMR Inc. and as our
Secretary. Certain of Sonesta's executive officers are officers of RMR LLC.
Certain other officers and employees of Sonesta are former employees of RMR LLC.
RMR LLC also provides certain services to Sonesta. As of January 7, 2022, we
owned approximately 34% of Sonesta, which managed 261 of our hotels.
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For further information about these and other such relationships and related
person transactions, please see our Annual Report on Form 10-K for the year
ended December 31, 2020 , or the Annual Report, our definitive Proxy
Statement for our 2021 Annual Meeting of Shareholders , or the Proxy Statement,
our Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 ,
or the Quarterly Report, and our other filings with the Securities and Exchange
Commission, or the SEC, including Notes 4, 5 and 9 to the Consolidated Financial
Statements included in the Annual Report, the sections captioned "Business",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Related Person Transactions" and "Warning Concerning Forward-Looking
Statements" of the Annual Report, the section captioned "Related Person
Transactions" and the information regarding our Trustees and executive officers
in the Proxy Statement, Notes 5 and 9 to the Condensed Consolidated Financial
Statements included in the Quarterly Report and the sections captioned
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Related Person Transactions" and "Warning Concerning Forward-Looking
Statements" of the Quarterly Report. In addition, please see the section
captioned "Risk Factors" of the Annual Report for a description of risks that
may arise from these transactions and relationships. Our filings with the SEC,
including the Annual Report, the Proxy Statement and the Quarterly Report, are
available at the SEC's website at www.sec.gov. Copies of certain of our
agreements with these related parties are publicly available as exhibits to our
public filings with the SEC and accessible at the SEC's website.
Warning Concerning Forward-Looking Statements
This Current Report on Form 8-K contains statements that constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and other securities laws. Whenever we use words
such as "believe", "expect", "anticipate", "intend", "plan", "estimate", "will",
"may" and negatives or derivatives of these or similar expressions, we are
making forward-looking statements. These forward-looking statements are based
upon our present intent, beliefs or expectations, but forward-looking statements
are not guaranteed to occur and may not occur. Actual results may differ
materially from those contained in or implied by our forward-looking statements
as a result of various factors. For example:
• We are marketing for sale the 67 sale hotels. The sales of our properties are
subject to conditions; accordingly, we cannot provide any assurance that we will
sell any of these properties and the sales may be delayed, may not occur or
their terms may change.
• Sonesta operated 261 of our hotels as of January 7, 2022, many of which were
transitioned to Sonesta over the past year. Transitioning hotels to another
operator is disruptive to the hotels' operations and requires significant
capital investments. If Sonesta were to fail to provide quality services and
amenities or to maintain a quality brand, our income from these properties may
be adversely affected. There can be no assurance that Sonesta can operate the
hotels as effectively or for returns at levels that could otherwise be achieved
by other large well known hotel companies. Further, if we were required to
replace Sonesta, we could experience significant disruptions in operations at
the applicable properties, which could reduce our income and cash flows from,
and the value of, those properties. We have no guarantee or security deposit
under our agreements with Sonesta. Accordingly, the returns we receive from our
hotels managed under our agreements with Sonesta are dependent upon the
financial results of those hotel operations and we may continue to receive
amounts from Sonesta that are less than the contractual minimum returns stated
in our agreements with Sonesta or we may be requested to fund operating losses
for our Sonesta hotels. Further, we own an approximately 34% ownership interest
in Sonesta. If Sonesta experiences losses, or requires additional capital,
Sonesta may request we fund our share through the contribution of additional
capital and if we do not fund those contributions, our equity interest in
Sonesta will be diluted if Sonesta obtains those contributions from other
shareholders.
The information contained in our filings with the SEC, including under the
caption "Risk Factors" in our Annual Report, or incorporated herein or therein,
identifies other important factors that could cause differences from our
forward-looking statements. Our filings with the SEC are available on the SEC's
website at www.sec.gov.
You should not place undue reliance upon our forward-looking statements.
Except as required by law, we do not intend to update or change any
forward-looking statements as a result of new information, future events or
otherwise.
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Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
10.1 Representative Form of Management Agreement among Sonesta
International Hotels Corporation, Cambridge TRS, Inc., HPT CY TRS, Inc.,
HPT TRS IHG-2, Inc. and HRP TRS MRP, Inc. (Retained Hotels)
(Schedule of applicable agreements).
10.2 Amended, Restated and Consolidated Pooling Agreement, dated as of
January 1, 2022, among Sonesta International Hotels Corporation, certain
subsidiaries of the Company named therein as owners and certain
subsidiaries of Sonesta International Hotels Corporation named therein
as managers. (Retained Hotels)
10.3 Representative Form of Management Agreement among Sonesta
International Hotels Corporation, Cambridge TRS, Inc., HPT CY TRS, Inc.,
HPT TRS IHG-2, Inc. and HRP TRS MRP, Inc. (Sale Hotels) (Schedule of
applicable agreements).
10.4 Amended, Restated and Consolidated Pooling Agreement for Sale Hotels,
dated as of January 1, 2022, among Sonesta International Hotels
Corporation, certain subsidiaries of the Company named therein as owners
and certain subsidiaries of Sonesta International Hotels Corporation
named therein as managers. (Sale Hotels)
104 Cover Page Interactive Data File (Embedded within the Inline XBRL
document.)
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