TKO makes $2B unsolicited cash bid for Service Properties Trust's 93 hotels

TKO LLC, a hotel investment firm run by Jim Koehler, has made an unsolicited $2 billion cash offer for the 93 hotels in Service Properties Trust's portfolio.

Service Properties Trust, managed by The RMR Group and trading under the ticker SVC, acknowledged the offer Friday and said it would carefully review it and act in shareholders' best interest. A spokesperson declined Bisnow's request for further comment Monday, the outlet reported. Bisnow first reported the letter and said the bid was made Oct. 7.

The 93 hotels are roughly 12% of SVC's 838-property portfolio, so the $2 billion bid works out to about $21.5 million per property.

The $2 billion bid exceeds SVC's entire market capitalization of less than $1 billion, more than double the equity market's valuation. The shares have slid more than 40% over the past 12 months.

SVC has been selling hotels for two years, part of a pivot to a net-leased platform as the REIT manages a significant debt load. It posted a $223.8 million net loss in the second quarter and disclosed in Aug. 5 filings that it sold a 133-key hotel in July for $18.4 million and was under contract to sell 13 more for $98.4 million. Those 13 hotels average about $7.6 million each, roughly a third of the $21.5 million per property implied by TKO's bid.

Other listed landlords are using portfolio sales to manage balance sheets: National Healthcare Properties is exiting medical office through a $531 million portfolio sale, per PRED's reporting, with proceeds earmarked for its revolver and senior housing.

A sale at TKO's price would complete the REIT's conversion into a purely net-leased platform; net-leased assets were 52.1% of the portfolio at the end of the second quarter.

TKO wants the hotels free of management agreements with hotel brands and franchise obligations. Lucid Capital Markets' Craig Kucera estimated in a Sunday note that exiting SVC's agreement with Sonesta, its largest operator, would cost $535 million; the REIT also has properties operated by Hyatt, Radisson and IHG. Management has put about $765 million of capital expenditures into the hotels still in the portfolio and is likely looking to secure more value through multiple sales, Kucera wrote.

B. Riley Securities analysts pointed to the absence of publicly available data on TKO LLC and no track record of executing a large hotel deal. "Our initial takeaway is that there is a limited chance that this transaction will be completed," they wrote. Bisnow reported the bid was TKO's first contact with SVC.

Shares in the REIT spiked Friday on news of the proposal, then gave back those gains in early trading Monday. SVC has until Friday to respond to the offer.