Ladies and gentlemen, the presentation will now begin.
Hey. Well, welcome everyone to SVC's Investor Day. We wanna welcome everyone here live with us in Chicago, as well as everyone joining live via webcast. My name is Todd Hargreaves. I'm the President and Chief Investment Officer of Service Properties Trust. The real reason we wanted to put on this event for you all today is really to introduce our investor community to the Sonesta team. SVC's had a long-standing relationship with Sonesta for about a decade now, but a couple of events have happened over the past couple of years that have really expanded that relationship. First, we transitioned about 200 of our hotels from previous operators to Sonesta. So now Sonesta is the largest operator of SVC-owned hotels.
Second, SVC has taken a 34% ownership stake in Sonesta, and we think there's real upside in that value of that equity ownership, especially in light of Sonesta's recent entry into the franchising side of the business, which Sonesta will cover here in a bit as well. The format of today's presentation, Sonesta will start off. They'll provide an overview of the company, their vision for the brand moving forward. Brian and I will then cover SVC, give an update on SVC, and then we'll open up to Q&A for those with us here in Chicago, as well as those joining via webcast, where you all can ask questions directly of both the SVC and the Sonesta management teams.
Before I turn it over to Sonesta, I just wanna remind everyone that these presentations do contain forward-looking statements. A reminder that while SVC is a publicly traded company, Sonesta is not. Sonesta is private. Please just keep that in mind. Now I'll introduce President and CEO of Sonesta, John Murray.
Thanks, Todd.
Welcome.
All right. Thank you very much. Good afternoon. Thank you, particularly people who came to be here in person. We definitely appreciate that, and everyone who's joining us online. As Todd mentioned, we're gonna do an overview, some discussion about our brand and commercial engines, operations, talk about operating results, franchising development, and then kick it back to Todd and Brian. You know, sometimes we say back in our corporate office that Sonesta is an eighty-year-old start-up, and it has had a pretty rich history in hospitality, including owning the Plaza Hotel in New York a long time ago. I'm not gonna go through that part of the history.
I'm gonna cover the start-up years, which to me started in 2012 when SVC acquired two hotels, one in Cambridge and one in New Orleans, and the Portnoy family invested in the Sonesta management company. There was a strategic rationale for that at the time. We had just come through the Great Recession, and we had some of our operators had defaulted, and we didn't really have any options. We couldn't rebrand the hotels to anybody else. The portfolios were too large, and so we just had to sort of sit back and wait to see what was gonna happen to us, when we'd be able to pay our regular dividend, when we would have the cash flow for debt service. It was not a fun experience.
When we had the opportunity to acquire Sonesta, the rationale really was so that SVC would have options if there were ever future events of default. Moving forward through 2012 to 2019, everything was pretty copacetic in the lodging space, and we grew Sonesta to managing 56 hotels for SVC. Then in 2020, the beginning of 2020, we amended the management agreements between Sonesta and SVC, as Todd mentioned, and SVC. Well, Sonesta got a 34% ownership interest in SVC as part of that. Sorry, SVC got a 34% ownership interest in Sonesta as part of that, those contract amendments. Then the pandemic hit.
As SVC moved forward, some of their operators stopped paying. They made some decisions. They amended some management agreements they had with some of their operators, and they decided to transition 205 hotels to Sonesta's management. That happened during the fourth quarter and the first few quarters of 2021. As a result of those transitions, created two new brands at Sonesta Select and Sonesta Simply Suites. In March of 2021, we made a decision to acquire Red Lion Hotels. Keith Pierce called me one day and told me about the opportunity, and it was a great opportunity. We could acquire a company with 900 hotels franchised under eight different brands, and that was EBITDA positive at an attractive price.
Really, that wasn't the real core attraction to us. The real attraction was that there was a great platform there that we could immediately apply to the Sonesta brands and begin franchising Sonesta Select, Sonesta ES, and Sonesta Simply Suites. In what I think was really record time, in six months, between March and at the end of September, we had done all the filings we needed to do so that we were franchising Sonesta Hotels. That was a tremendous step forward. In April of this year, we bought four hotels in New York City. They're all on the East Side in a part of town where supply has declined during the pandemic. Either hotels have converted to office or they've just closed.
One converted to student housing, so the amount of supply where our hotels are is much more limited. We were not just adding four hotels, but four separate brands. You know, many people say that you don't really have a brand in the U.S. hotel space unless you're in New York. For us to get a Royal Sonesta, a Sonesta, a Sonesta Select, and a Sonesta ES Suites in New York City is really great for the Sonesta brand. On top of that, we acquired the intellectual property for The James, which is a hotel brand that we'll be able to use on SVC-managed hotels as well as franchised hotels. All right. The clicker is working again. 2021 was really a foundational year for Sonesta.
We were focused on developing our people, our brands, our systems, and our processes. As a result of our rapid growth, we added approximately 100,000 rooms to our portfolio. One of the first things we did from a cost side was to negotiate with the OTAs and our res system, and we're able to significantly lower costs by about. We think in 2022, it's gonna be about almost $11 million in savings with the OTAs, $2 million-$3 million in savings at the Sonesta level. We've seen our hotels begin improving at a very measurable pace, as we've put the foundation in place. We're gaining on 2019 levels. We're gaining against our chain scales. We're gaining against our local competitive sets.
In fact, our Sonesta ES Suites and our Sonesta Simply Suites are back at 100% or more of performance of their chain scales and their local competitive sets. We feel very good about how those hotels are doing. We expect hotel level run rate EBITDA will be 20% by the end of the year, 25% by the end of 2023, and it'll continue to grow as our platform continues to expand. We have a number of initiatives in place to improve performance. One of the main target areas is to reduce our reliance on OTAs. We've made pretty good headway on there. We'll talk about that as we go. We've reduced OTA business by about 9% compared to 2021.
That's by growing group business transient, and contract business, all of which are more profitable. We're not improving everywhere as much as we would like. We're not perfect. Sonesta Select is really our biggest challenge. It's a... Those hotels are suburban hotels that have historically catered to the business traveler, and they really crushed it midweek and not so much on weekends. In today's environment, the business travel hasn't returned at a sufficient pace for those hotels to return to that level of activity. We have a number of initiatives that we're applying to try and resolve that. Definitely in terms of where we have room to make up a lot of ground, it's with the Sonesta Select brand.
We may not get every hotel back to 2019 RevPAR levels or EBITDA levels in 2022 or 2023, but we are confident that our improved hotel results, coupled with the 34% ownership interest in Sonesta's results from our 11 owned hotels and nearly 900 franchised hotels, will more than offset any shortfall for SVC. Today, we've got 243 hotels that Sonesta manages, 884 franchised hotels, 16 different brands, 100,000 guest rooms in seven countries, three continents with 10,000 associates.
Speaking of associates and speaking of the foundational year of 2021, you know, it's easy to say we transitioned 205 hotels, but we really took the Sonesta culture, the culture of several other operating companies that we transitioned hotels from and the culture from Red Lion Hotels, and we brought them all together. Some of SVC's prior operators were very structured, and they didn't really allow the local GMs to think a lot. They had a playbook that they had to follow, rules they had to follow. They had a robust pipeline of business coming in on their res system, and they weren't very entrepreneurial and thoughtful, in our opinion.
Their salespeople didn't work very hard because they had a pipeline of business that was reasonably strong. We had other operators at SVC that were a little bit less structured, more unstructured than we would like, and so we needed to rein them in a little bit. There was a lot of work making sure that we had the right talent in all of our hotels, and we think that we've done that now. I know you've probably heard the labor issue is a big issue in most service industries, but particularly in hotels.
As we tried to find the right people and make sure we had the right associates in our hotels and in our corporate and regional offices, you know, we had a lot of challenges finding people who were willing to work, frankly. We did studies in every market where we had hotels to determine market wage rates, benefits, and we made sure that if we needed to raise wages to meet the market, that's what we did. We have a fairly robust referral program internally, so that if our employees refer other employees, they get a nice payout. We've enhanced our hiring process so that we don't have a series of interviews, then a background check.
Everybody who needs to meet with somebody to decide if we're gonna hire them meets with them day one. If we like them, we make them an offer day one, subject to that background check. But it's shortened that experience for potential new hires by over 30 days, which has been a big change. We've implemented, where requested by employees, daily pay, so housekeepers could work a shift and get paid for that shift on the same day. We've implemented various flexible scheduling programs as well. We've done a lot of things to make it an easier place for our employees to work. We think it's been paying off.
Our employee engagement scores, we just completed about three weeks ago our 2022 employee engagement survey, and we've finished in the top 7% of all companies. We're confident that once we get employees in the door, they'll stay because it's a great place to work. People ask, you know, "Why Sonesta?" We've got a platform that we've created for long-term value. We have experience. We're an experienced owner-operator. We put our money where our mouth is in terms of investing in hotels in addition to managing and franchising for others. We believe we're an agile, fast-acting team.
Our customer advisory council gave us high marks for our creativity and our willingness to be thoughtful in our brand development and taking the time rather than just throwing a coat of paint on the hotels that we rebranded and putting a new name on and saying we're done. You know, we met with prospective customers and were thoughtful about what it was they were looking for and what things they liked about different brands and what things they disliked about different brands so that we could offer them what they were after. We have provided maximum franchisee flexibility. You know, being affiliated with SVC, so we have ownership in the hotels creates alignment of interest for that the franchisees like.
If we roll out brand standards at Sonesta, SVC has to comply with those brand standards as well as franchisees and that's not the case with nearly every other hotel franchisor. That's really resonated with our franchisee community. We're innovative and fresh thinking. We've got new designs on how we set up meeting space, particularly to enable us to do meetings like this, where we have comfortable seating for small groups of attendees and also virtual attendees. We've been thoughtful about the food and beverage programs, which Vera will talk about in a little bit. We've changed at the Sonesta Select how we do food and beverage so that we can scale it up or scale it down based on business levels and based on markets.
It very much meets the customer's needs, but doesn't save money wherever we can. We have great segmentation. We have hotels from the economy segment up to upper upscale and pretty much everywhere in between. We have hotels in resort locations, urban locations, suburban locations. We have hotels where you can stay for a night, or you can stay for a year if you prefer. Every type of traveler. Any type of hotel, we have a product to meet their needs. Finally, we have a very experienced, respected management team. We have a track record of growth and success. Our people really are our biggest asset. I'm gonna introduce you to a couple of people here on the stage. Vera Manoukian is our Chief Operating Officer.
Vera has a tremendous amount of experience in the hotel industry, and we're lucky to have her on our team. She's spent a lot of time at Hilton, especially Starwood, and everybody knows Vera. Keith Pierce runs franchise and development. Keith has been around the franchise world for a very strong career, led Wyndham's franchising for many years, and has really creates immediate recognition for our franchise program in the industry. Steve Miano is our CFO. He's very capable. Steve has had a number of stops along his career at Commune, Rosewood Hotels and Four Seasons. Also rounding out our executive leadership team, but not here today, is Brad Maxwell, our General Counsel, and Shawn Cryan, our SVP of Corporate Strategy.
Just a little bit about our portfolio of hotels managed and franchised today. Our managed hotels are 84% focused-service, 16% full-service hotels. They range from upscale, upper-upscale, midscale and suburban locations. On the franchise side, you know, we don't compete with the managed side. It's 96% economy hotels, and they're basically in suburban and small metro or interstate locations. With that, I will turn the presentation over to Vera Manoukian.
Thank you, John.
Thanks, Vera.
Hi, good afternoon, everybody. Hello, obviously to everyone in the room and also to the folks that are joining us virtually. Today I'm gonna walk you through a few things. One is our brand story, secondly, our commercial engine, and thirdly, some of the initiatives that our teams have been working on, both in the operations teams and also our innovation team. Let's start with who we are as a brand. We knew that, you know, in the beginning of this journey as we expanded, we had an opportunity to truly define our brands, to explain who we are, what we stand for, and why people should care.
As John mentioned, we had already three brands within Sonesta, and we added the Select brand and the Simply Suites brand with our expansion. John spoke about the variety of the brands we have, both for Red Lion and also for Sonesta. I'm gonna focus today more on the Sonesta brands, and spend some time to explain to you how we brought these brands to life and some of the work that we did in terms of the positioning. I also wanna talk about The James brand for a second. That came up a little bit on the tour that I was on today.
We knew when we were doing the brand work that we had a gap in the lifestyle segment, and our plan and our intent was actually to really work on a new brand in the lifestyle space, sometime at the end of this year or early next year. This opportunity came to us. We're excited about it because this is a brand that has equity. It has awareness, and it also has a great reputation in some markets like Chicago and D.C. and New York. Currently, there's only one James brand that's located in New York. It's on a licensing agreement, so our plan is obviously to grow this brand in key markets.
Today, you toured the three Royal Sonestas, and I think that gives, as you see, there's an opportunity to convert one of those hotels to a James brand. This gives us back presence of that brand in Chicago. We'll be doing the same as well in D.C. as we have a new hotel that's being built, a new Royal Sonesta in D.C., which will be completed in March. It's under construction right now. When that opens, there's an opportunity to convert the original Royal Sonesta to also another James brand. As John mentioned, you know, our plan is to grow this brand by third-party management agreement and also through franchising in key destinations. Okay, here we are.
As we started positioning our brands, I wanna walk you through very quickly through this slide so you really understand the work went into it, into positioning our five brands. Before we did any of that, we really needed to do research. We needed to understand where does Sonesta stand in the eyes of the consumer, also in the hospitality field. We did over 110 interviews. We did focus groups with customers who've done business with us before and who hadn't done business with us before. We talked to owners, to sellers, to operators to really understand what our opportunities are with this brand.
After we did this work, we identified our target customers, and it was real important for us to understand the target customer for each of our brand, understand what type of products and services they look for when they're deciding to stay at a brand so we can build the brand around those customers' needs. Then we got into the heavy lifting on the brand positioning work. Here is where we had to do the brand promise, the brand pillars, the brand vision, the brand personality, per se. At the same time we were doing this, we were working really heavily on the brand standards. Just to quickly touch on the brand standards, there's three type of standards. One is operating standards, which you probably don't see, which is, for example, the speed of the Internet, hours of operations of food and beverage.
The second standard is architecture, design, and construction standards. You saw today when you toured the ES Suites, the work that we did. Each one of our brands, our focused-service brands, has a prototype. We've been spending time developing those prototypes for those brands. Those prototypes are gonna come to life in our hotels as model rooms for the focused-service brands, as I said, and also for the public spaces. We will look at those rooms. We will see if we need to value engineer or add things. We will make sure the operations teams goes through them, make sure it's durable, and also make sure that this is the room that the target customer has told us they're looking for.
We will cost out that room and implement that when we're renovating and converting hotels in the future. Second is the training and material and development. All this work had to be put together. We had to develop training tools for our employees virtually. We developed videos, we developed brand books with style guides so that we can package all this work and roll it out internally. End of last year, beginning of this year, we rolled it out to our team members. It was real important to us to generate excitement. It was real important to us for our team members to understand what the brands are all about, to understand what the promise is to the customer, so they can deliver on that promise. Last is where we are right now, which is external communication.
Currently, we are working with a best-in-class media agency so that we can spread the word externally to activate messaging through different type of channeling. For example, digital channel would be our priority. The intent here is to enhance awareness of our brands and capture new customers. We're gonna go in front of consumers that we identified as target customers when we did all of the brand work. This should be very easy to measure and quick to measure because we'll start seeing more traffic on the website and ultimately more bookings on our websites. Now I'm gonna walk you through, again, very quickly on how this all came to life through our Select brand. This is the brand that John mentioned. These were essentially the Courtyard portfolios that came to us.
We have a total of 63 of those hotels. They're located in suburban markets, office parks, and airport locations. Before we did anything else, we had to identify the target customers. We gave each of those customers persona to understand their behavior better. The first one is On the Mover, which is the midweek business traveler. As you heard, this is critical to our success, and we have multiple initiatives, and our sales team is incredibly focused on making sure we go after this customer, so they stay at our hotels because this is super critical to our success. The second target customer is the Wrangler. The Wrangler is that weekend customer that's staying with us within a group. They're part of SMERF. SMERF is social, military, educational, religious, and fraternal.
They could be there, whether for a family reunion or could be there attending a tournament with their kids. We've designed spaces along with what these customers need. For example, the On the Mover may need meeting space to meet with clients or meet with colleagues that he or she are visiting. The On the Mover needs spaces to join with their group, unwind, and also to connect. Also, we're spending a lot of time over that weekend business because we have to make up for the lack of the BT segment that's been no part of the last two years due to COVID. Success story there, though. Because of our sales team has been so focused on that segment, we are now at 132 RGI in groups for this brand.
Because we're really focusing on this, which puts us at 122% of 2019 levels. What John mentioned for this previous operator focus on midweek, we're really focusing on midweek, additionally on weekend, so we'll make up some of the gap that we have. I'm gonna get into later how we're doing that by having property teams who are selling these segments and also by having the group center that we created in Orlando. Next, I'm gonna talk a little bit about the components of the brands. I'm gonna read a couple because I can't explain it to you. It's very brief. The first is the brand promise. For this brand, we will deliver amazing hospitality, making it easy to be your best. This is the brand.
It's all about spaces for our customers to be their best. Secondly is our brand vision: to create a lasting sense of community and belonging that warm hearts and lift spirits, bringing guests back each and every time. Last but not least is our brand pillars, which is essentially our foundation to every brand. The brand pillars for the Select brand is uplifting, to make it a warm experience, adaptable, and lastly, connected to the community. We did this for every single one of our brands, but I'm not gonna walk you through them. However, I'm gonna give you a highlight on some of the other brands we have. Simply Suites is the other new brand that we created. It's all about staying simple. This is in the mid-scale category. This is an extended stay product that has no frills, no food and beverage.
However, the guest rooms have kitchenettes. Is my mic working back and forth or am I okay?
Mm-hmm.
Okay, perfect. I feel like it's working when I look this way. Anyway, that's for the Simply brand. You see the brand promise, the brand pillars, target, and then the target guest. Who stays at Simply? Like, this was very successful, this brand, and continues to be super successful pre-COVID, and today. Think of frontline workers, think of people who've been displaced because of natural disasters, think of construction crews that's just looking for basic accommodations. The next brand that we have is the ES Suites brand. You saw an example of it today during the tour. This is our largest number of hotels that we have. We're almost reaching 100. This brand was created in 2012. Essentially, this is home on the road.
For someone who spends significant time on the road, whether they're on a consulting project or relocating because they're going through a home renovation, they're filming crews and so forth, that's the brand that they use. These are mostly located in suburban areas, but we do have some in city centers like you saw today here in Chicago, and we have also another one in Charlotte and also in New Orleans. This is in the upscale category. All those rooms have kitchenettes as well, and they're very spacious as you saw today. The next one is our Sonesta Hotels & Resorts. This is a full-service brand that we have in the upscale category. We have 24 of those hotels, and these hotels range from airport hotels, suburban hotels, urban hotels, resorts. We have a little bit of everything in this portfolio.
The newest one we added was in New York. We have one in Hilton Head, Silicon Valley, San Jose. So that's all about the Sonesta Hotels and Resorts. The next one is the Royal Sonesta. You got a great flavor of what Royal Sonestas are all about today. This is a brand about lighthearted, localized, upscale travel. If I read this, it says, "It's a collective of unique, memorable hotels in some of the world's most exciting travel destinations through warm, unscripted service and elevated wit. The Royal Sonesta is redefining the experience of upscale travel." I think many of you mentioned to me that none of the three hotels look the same, right? That's done on purpose. The Royal Sonesta brand is not a cookie cutter brand.
Like, if you walk into other full service brands, they all look the same, they smell the same. If you cover the sign, you're not sure which building are you in. If it's an M or an H or an I. Here with the Royal Sonesta, every one of our hotels has a unique personality. The design is really inspired by the local destination. However, the one thing that's constant is the amenities that we offer and also the service. Also we're taking a little bit of lightening up royalty a little bit and just to kind of point something out, like look at the target guests. It's explorers, it's a royal family, and it's not board members. We're really taking royalty and making it a little bit lighter, not as stuffy as it was before.
As I mentioned, I may have not mentioned it, we have 16 hotels. They're all in urban locations and resorts like Kauai, San Juan, Chicago, New York, Austin, and so forth. Now I'm gonna get into our commercial engine. We have a commercial team that is comprised of these departments, field marketing, digital marketing, revenue management, sales is corporate sales, regional sales, field sales, and then also distribution. This team has one purpose in existence in our company, and that is driving top-line revenue. That's all they do, deploy strategies to drive top-line revenue into our hotels. Now, I'm gonna talk to you a little bit about our commercial engine. The commercial engine is the most critical piece that faces Sonesta today for us to be successful, for us to drive performance, and for us to grow.
The power of the commercial engine is to drive market share, drive top line through these four pillars and shift bookings to our internal channels, whether it's sales, whether it's mobile app, whether it's the call center, whether it's the website, in order for us to create loyal Sonesta customers. We're doing significant amount of work on this because we know this is incredibly important to our future. I'm gonna walk you through each of our pillars. I got some questions today about some of those pillars, so forgive me for those of you who are gonna hear it twice. The first one is our Travel Pass program. We had Travel Pass, which is our loyalty program. It was a small program when we were a smaller company.
Now we know as we've grown, we have a really an opportunity to upgrade this program, to make it more differentiated, to make it more competitive, and really to make it more robust. We're now at a final stages of rolling out the design. That will be done in the next couple of days, actually. We've been working again with another best-in-class agency to help us get there. This is another thing that we did, was rooted in research. We didn't sit in a dark room, decide what loyalty will be about. Customers told us what are the problems with other loyalty programs that are out there and what do they wanna see differently. It's gonna be very interesting for us, and we feel this is critical to our success. We're also working on acquiring.
Actually, we're in the final stages of a technology platform to activate this program. This is gonna allow us to really have super strong acquisition strategy of getting new customers, also to engage with those customers, and lastly, retain them and make them loyal Sonesta customers. This program is gonna allow us to really offer differentiated and thoughtful experiences when these guests are staying at our hotels. We have a partnership with Mastercard right now. The program is gonna allow us to truly partner and take that partnership to the next level and leverage it even more given the strength and then awareness that Mastercard has.
The last stage of this is that once we roll this out and we're comfortable where we are, that next year we will combine that with Red Lion's Hello program and make them all under one umbrella. The next pillar for the commercial engine is drive Sonesta internal channels away from the OTAs. John mentioned this. We were in the mid-30s% last year. You know, we're not happy about that, so we're working really hard in shifting segmentations away from the OTAs. Why is that? Because it's the most profitable channel to have to book our business through our internal channels, right? It's the highest rated, it's the lowest cost. We're working super hard on all these initiatives to move that away from the OTAs. We launched our new website in March.
The new website gives us the capability for the customer to have an easier experience navigating, researching, booking, which leads to more conversions. We also created a new group booking tool on this website. It gives the capability for the meeting planner to go in, book. The lead goes to our group center in Orlando. It's answered within two hours, and this is for something we did for the Select brand as well. This is specifically for the Select brand because, again, we're activating every way to book business at those hotels because of the shortfall of the BT customer. We also launched our mobile app in March. It was a soft launching because we wanted to work out the bugs. Step phase one was all about booking reservations.
We have phase two that we'll launch in middle of June, and then phase three and phase four. The forward-looking phases will include check-in and checkout, will include communication of the guests with the hotel, and lastly, digital key. We will have a great campaign, marketing campaign to encourage downloads, obviously, and encourage bookings through that channel. Boosting digital marketing, we do this very aggressively, and we're gonna keep doing it, especially now when I talked about our external communication as well. It's real important that we show up in all digital channels, whether it's on an enterprise level, market level, regional level, and even as tactical as a hotel level for us to increase awareness. I know I keep sounding like a broken record, but increasing awareness, capturing some customers, it's a priority for us that we continuously focus on.
Last is the call center. Now that we grew, we really built a new efficient call center. It's gonna bring in some savings because they'll be charging us by reservation, not the minute, because, you know, that could be very expensive. Also the new model will give a capability for our folks in the call center to upsell to customers, to cross-sell. If one location is sold out, they don't lose the reservation, and they refer another hotel in the area. Last but not least, our intent is to really have one cohesive call center with the Red Lion brands. That, again, once we stabilize the Sonesta call center, we will be integrating that sometime in the beginning of next year. The third pillar is all about sales, sales.
The first thing I'm gonna talk about is global sales. That is really another thing that's very important to us. We recently combined the global sales for Red Lion along with the Sonesta team. Now we have a great team that covers all verticals, whether it's sports, entertainment, government, pharmaceuticals. This team touches global accounts and touches Fortune 100 accounts, national accounts that touch multiple properties. Their goal is, just to give you an idea how critical it is, about $180 million in sales. This is. They have a lot of work to do. Now I wanna talk about shared services. Steve is gonna talk about shared services a little bit more. He was instrumental in building that office in Orlando.
I do wanna talk about the group direct piece because this impacts the Select brand directly. We rolled this out in Q4 of last year. This group is targeted to do $10 million this year in revenue, all going to the Select hotels, and when it stabilizes next year, at a minimum, $15 million. How this works, they get a lead, just they answer it in. It's one-stop shop. They answer the customer, they close the lead, and within two hours. We have 40% conversion. For those of you who are intimate with sales, 40% is fairly healthy. Typically, it's about 20%. Field marketing and revenue management is another thing that we've done in shared services.
Instead of having one person at each property, we've collected group of people that are market specialists that really oversee those hotels, whether it's through marketing initiatives or whether it's through pricing. Those are field-based. They're experts in their markets. The second one is sales programming. We've created multiple programming this year to help us elevate our game in sales. The first one is the Ignite Sonesta. It's an internal referral program that we implemented. The way it works is that if a sales manager gets a call, they're sold out, they don't say, "Thank you, talk to you next time." They try to find another hotel to book that piece of business. They also ask, "Do you have any other business?
Do you do similar meetings as similar to this elsewhere so that we can keep the business within the family?" Currently, we launched this in December. We've booked about $1.5 million. We're looking, when we stabilize, about $15 million a year. We did this in another company I worked at. I can say it because it doesn't exist anymore. Somebody acquired it, and it was a huge number that we did, was like $300 million, but obviously they were much bigger. This is a very, very important initiative for us. Business Pass program. This is something we created for smaller backyard accounts so that they feel connected to Sonesta. They get a percentage off bar, they have some perks, and this is to target midweek, small backyard, small business accounts.
Instant Book. This is a pretty cool feature. This is an ability for a customer to go online, not every company does this, so we're excited about this, and book a meeting room without talking to anyone. Book it, give their credit card, get their confirmation, show up to the meeting. This is something we launched a month ago in cooperation with Cvent, which is an online booking tool that customers use. The last is Customer Advisory Board. We knew this was real important because I think you're hearing everything we're doing. We have a customer first approach. We always wanna make sure everything we're doing resonates with the customer, the customer's willing to buy it, and they're willing to spend money in our hotels. We established this. We've been working on this for some time.
We just met in Puerto Rico with 15 meeting planners, decision makers for travel managers and also meeting planners and companies like Tesla, UPS, NetJets, Bain & Company, also third parties like Maritz Travel, ConferenceDirect. It went exceptionally well. We wanted to run everything I ran by you right now in front of them. They loved what we were doing. They also told us what the competition does well and they don't do well. You know, they said even though some hotels have more awareness and presence everywhere, they're really difficult to do business with. They take their business for granted. You can't get a seller live on the phone that works at a hotel.
We're taking all this and learning and saying, apparently, there's a wide space for Sonesta to operate in, and that's what we're gonna focus on. They found us very relatable, authentic, approachable, and we promised them, obviously, we won't take their business for granted. They gave us a lot of feedback on the initiatives that we're working on, again, whether it was for the loyalty program and some of the other things that we're working on. We'll meet four times a year with them and to continue to get them involved so that to make sure that everything we're doing resonates with those customers, especially these folks, because as I said, 50% of them didn't do business with us, but now they will. The other 50 do business with us, and then those are in charge of travel programs.
They decide where the travelers go and where their groups go. We're pretty excited about that. The last pillar that I have is the partnership pillar. We feel that given our awareness opportunity, that we really wanna partner globally, have a global partnerships with established and like-minded brands. Why? To increase awareness and to work to tap in on their customer base. The example I'm gonna give you is American Express. We just did a campaign with them a couple of months ago. We generated from that one campaign $3.5 million, and 85% of the people who booked were never stayed at a Sonesta before. We tapped in on their database. We really wanna use that strategy and partner with, like I said, with good global partners.
We have a partnership we're launching with Lyft in June. We have another one for Shell, given the controversial gas prices in the summer. For those who are driving to go to their local, you know, drive-by destinations, we wanna work with Shell to do kind of a program that's refueling the great American road trip. They'll be able to get some savings on gas and be able to stay with our hotels, a great promotion during the summer for us. We've also partnering with all these decision makers that are listed that you see on the slide, like ConferenceDirect, like IPW, AHLA, Maritz Travel. Those are all third parties that book business for our customers.
We really are developing close relations with them, whether it's for group, whether it's for BT, whether it's for leisure and luxury partnership, so that they keep Sonesta front of mind when they're looking for hotels for their customers. That's it in terms of the commercial engine. Now I'm gonna touch on operations and innovations in the next two slides to tell you a little bit about what our ops team has been up to recently. We put together a team when we expanded. The team comes from very diverse backgrounds. Some have worked in large companies, third-party management companies. They have experience in extended stay. They have experience in focus service.
We brought them all together. These folks not only have the experience, but proven track record in driving top line and bottom line performance, which was real important to us. Along with that, we've added an innovation department to work to complement this team because we find that it's really critical for us to capitalize on the unique opportunity we're facing now post-pandemic, right? I think for us to reset and to reshape our business based on what's really happening out there. We're constantly evaluating what do we keep, what do we change, and in this area, because we know that there's been a significant shift in attitude from consumers about everything, technology, meetings and events, housekeeping.
Really, we want to stay in the forefront of that, and I'm gonna talk to you a little bit about some of the stuff that our team has implemented. The one thing I do wanna say that even though we've grown, we're still small in so many ways. We're a lean team. We are scrappy, we are nimble, we are agile. We operate like a startup, unlike our competition. When we have ideas, we roll them out, we test them, we iterate them, and then we roll them to the entire portfolio. If we fail, we fail fast, we learn, and then we move on. Some of the initiatives that we have that we're working on, the first one is food and beverage.
I think you know food and beverage is always a pain point for an operator, because most of them make little money. We're looking at opportunities here to say, and how do we reimagine food and beverage, whether it's bars, whether it's in our restaurants, whether it's in-room dining, but make sure that we do not forget about our customers, right? To ensure that the customer is in the forefront. By the way, everything this team does falls into three categories. One is elevating the brand, second is increasing revenue, third is driving profitability by reducing labor costs and operating costs. Everything you see here is focused around those three things. Of course, keeping the customer in the forefront to ensure that they don't leave us and go elsewhere because we're doing the wrong things.
For the food and beverage piece, John already alluded to it, given that we're spending so much time on Select. We just rolled out a new program for the new their outlet that they have. This program that we rolled out is very flexible. And again, this gives us an opportunity, by the way, to be flexible in all these initiatives, flexible way of introducing a tiered approach. We have rolled this out in all of our hotels. It has demonstrated 40% in savings in labor and 20% in beverage costs when you compare it to the previous operator.
The other one is really even though it's little things such as monetizing our kitchens, we're working with third parties to make our kitchens ghost kitchens that they can do takeouts from there instead of them sitting idle right now. They're currently in three hotels. Our intent is to roll it to 60 hotels by end of the year, and we're looking at couple million in revenue there. The next one is about automating grab-and-go markets. Right now we have people in markets that oversee markets, and they, you know, they're ringing stuff. Also a grab-and-go that requires somebody to give it to a guest. We're looking at automating both. We will be rolling this out next month. This is gonna bring us savings in labor or profitability anywhere between 35%-55%, depending on the location.
This will be for full service, for ES Suites, and also for the Simply brand. Housekeeping. Reimagining housekeeping is a hot topic. We clearly can't go back to cleaning every room every day. We're looking at how do we do it differently in resorts, and then in extended stay, and then in the Select brand, where possibly we do tidy ups instead of cleaning every day. This is super important because we need to find a cost-effective solution to housekeeping, and we're working on that right now. We will be testing some in different markets. Lastly but not least is a room upgrade incentive program that we have launched in 10 hotels. We estimate to produce about $10 million in revenue just this year in that. It's AI based. When it stabilizes, we're looking at doubling that number.
On the right, I won't get too much into it, but those are initiatives that are gonna enhance the guest experience, such as guest messaging, so the guest doesn't call down and ask for towels or their in-room dining. It'll be all automated, which will ultimately get us to more efficient staffing levels. The next one is enterprise-wide tap backs and preventive maintenance solutions to not only improve the way we take care of our hotels, but also make our engineering teams more efficient. Then last but not least is meetings and events. I'd like to introduce the Sonesta Work Suite. We did a lot of research here. We talked to a lot of customers. As you know, the way people work has changed dramatically given the hybrid solution and hybrid component that's come in.
Even we talked to customers even more of what they're looking for from a physical space. They've told us, "We don't wanna meet in a gray box anymore. We want spaces that gives us the ability to collaborate, spaces that give us the ability to connect and to meet, to power up or power down." This is an example of a suite that we'll be launching in July, the top picture, in Irvine. That will be our first model. As you can see, there is a space for to work, a space to socialize, a space to huddle and collaborate. The one on the bottom is one we are also introducing in the hotel in DC in March. This will be rolled out to all of our full service brands.
Each one of our hotels will have at a minimum of one or two depending on customer needs. There's a few things that are involved in this. I'm not gonna get into all of it. Design. To have that multi-zone experience in the meeting room would give everybody the flexibility to work the way today's professional folks that wanna work. Thirdly, technology. Technology is almost taken over. So we really wanna make sure we have intuitive technology, easy to use, ready technology in the rooms. I can't say who we're partnering with, but because the ink is not dry yet, but we will be partnering with a global company who's very well-known in doing hybrid meetings and has a tremendous technology platform that we will announce soon, and that's really gonna elevate the technology experience even to the next level.
Food and beverage, customers are telling us, "I don't want the traditional deli buffet or the roast beef and all of that." We're thinking of, you know, coming up with healthy snacks, gluten-free, vegan, vegetarian and dairy-free, everything that I'm not. We're all gonna have it, you know, in our food and beverage offering to make sure that we meet that customer expectation. Last but not least, that ease of booking that I mentioned before. Phase one that we just launched, the customer is able to book their own meeting. Phase two, they'll be able to book a block of rooms for the entire group without talking to anybody with the teams, just they book it, they pay for it, they come to the hotel, and we take care of them.
That's it in terms of what we're doing in operations, in brands, and also in the commercial engine. Thank you for your time, everybody. Really appreciate it. Now I'd like to turn it over to our CFO, Steve Miano.
Thank you, Vera.
You're welcome.
Good afternoon, everybody. I'm pleased to be able to take some time and to introduce you to some of our financial performance metrics, and perhaps give a little bit of context to those metrics as well. I'll start by taking a look at 2021 and some of the operating results. These operating results, just as a reminder, these do include or incorporate some of the results from the other operators of the hotels that we took over in 2021. We finished the year in 2021 at just under $1 billion in gross revenues, and we generated an EBITDA of $47.6 million. We also finished the year at 5% EBITDA margin.
While that's certainly not where we expect to be this year and into the years in the future, just a little context behind that, the first quarter was a loss of about $44 million. Each quarter thereafter, we progressively saw improvement. We did improve our performance by 157% over 2020, where, of course, we did incur losses from operations, and we saw revenue increases on a RevPAR basis about 23%. On a non-financial metric, we also saw a 27% increase in our loyalty program members. This graph that you're seeing in front of you, I think is very, very illustrative of the efforts that Sonesta, the commercial team that Vera and John were talking about, and what is happening on a trend. Let me explain.
The very top line in blue is the RevPAR from 2019 on a monthly basis. The line in white at the bottom is 2021, and yellow is 2022 through April. We are often asked, "How are you doing against 2019?" Well, as you can see, in 2021 on the white line, you see very, very steady improvement all throughout the year. We see a little bit of a dip in August. As you may recall, that was a surge in COVID, and we saw a little bit of pullback. You then see it rise again into the fourth quarter to the point where we got to 30% of our RevPAR for performance for 2019. Let's take a look at the yellow line, a continuation of the trend.
However, we saw a little bit of a gap grow in January. As you recall, that was the Omicron variant, where we did see a short-term rollback in progress towards 2019. What you do see over the course of the first four months is steady improvement to the point where in April, we reached 17% gap from 2019. I wanna continue a little bit of an illustration of topics that Vera had touched on regarding OTA by showing some market mix. Now, what you see in front of you are two graphs. On the left side is 2021, and these are the percentages of our market segmentation. On the right side is the year-to-date performance through 2022.
The section that I'm gonna call out to you in particular is the green section, and these are the OTA revenues. You'll see in 2021, 33% of our revenues was OTA business, 22% in red was corporate business, and 9% was group business. Now the shift over to the side on the right. You'll see that our OTA business has shrunk, as John pointed out, by 9%, down to 30% of our market mix. The important part that I wanna point out here is the growth in corporate, which is our business traveler, and group. What's so important about these two segments and the shrinking of the OTA is that group segment, the business travel segment are Sonesta managed segments.
These are the efforts of our commercial team driving more profitable business into the hotels. Lastly, I'd like to just touch on some financial data for Sonesta. Sonesta being us, Sonesta International, the management company, the franchising company. Of course, we're a private company, but we're sharing some selected financial information for you today. From 2021, our operating results, we generated $122 million in fee revenue. From that, we generated an EBITDA, a healthy EBITDA, of $13 million. Down in the bottom left-hand corner, showing Adjusted EBITDA of almost $20 million. The adjustments to this EBITDA are for those things which are the one-time expenses that we incurred, those such as the cost of the acquisition of Red Lion Hotels.
Also one-time expenses as we are building up our organization, these organizational design costs, implementation costs that we will not see recur in future years. Now, a couple of things that I do wanna highlight in the going forward, what's going to be happening with Sonesta. First and foremost, Sonesta is an owner of hotels. We own 11 hotels. We do expect with the continuing growth in the hospitality revenues that we are going to benefit significantly from those 11 hotels generating EBITDA for Sonesta. The second part here is that our managed hotel revenues and our franchise hotel growth over the next couple of years will create significant flow-through for the management company. The management company, Sonesta, predominantly, we have fixed costs, those being staffing costs or those being other structural costs. So when we see increases in revenue, there's very strong flow-throughs to profits.
For this year, we are targeting an Adjusted EBITDA of 20%. Over the next couple of years, we're going to see improved operational efficiency and also the absorption of our growth, and that's going to contribute to lower operating expenses. Well, what do I mean by that? What I mean by that is that we have hired a lot of employees, okay? In 2020, we only had 100 corporate employees. Our staffing for 2022 will end up being about 500. As you can imagine, bringing on all these employees, new people coming from new organizations, the recruiting costs, the efforts of our management team for recruiting will create inefficiencies. Over time, as people become integrated into the organization, we expect to see better operational efficiency and lower costs. Where does this lead us to?
What we're expecting by the end of 2023 or the early part of 2024, that we're going to see a 30% Adjusted EBITDA margin for the Sonesta International Hotels Corporation. Again, this is going back to John's comment about the value that Sonesta is creating for SVC. This will be part of that value creation for SVC. With that, I'm going to hand over to Keith Pierce to discuss lodging development and franchise.
Thank you very much. I have the pleasure to give you an update over the course of the next several minutes on our development and our growth plans. Today, Sonesta is in a very unique position in that our development comes in several different vehicles, franchising, which I'll spend the most time on, third-party management, acquisition, and then, of course, international growth. A quick timeline here that highlights the steps that we've taken over the course of the last several months to accelerate our franchising. As John touched on, in the first quarter of 2021, we did a public to private transaction with the acquisition of the RLH business, the Red Lion Hotels Corporation in Denver.
Asset light, 900 hotels, Denver-based company, as I mentioned. I went out to Denver and, over the course of eight months, stabilized the business. We transitioned the leadership team. The first day, we brought on a new Chief Development Officer, Brian Quinn, who has been in the industry for many, many years. We set our new senior leadership team in place. Then we set out to communicate with our franchisees, through regional meetings and through our advisory boards, and really spent a lot of time with our franchise community telling them about the Sonesta story, and frankly, the new owners, right? To stabilize the business.
When I say stabilize, in the franchise business, there are a couple of key drivers, many of the same in the managed business, RevPAR, performance, obviously, but net room growth. Growing the business is one driver, but retaining the existing properties is the other driver. Retention is a big key in the franchise business. Then the integration. We very quickly set out to integrate what I call the back of the house disciplines, so legal and finance and HR and IT. Working with Steve and Vera and the executive team in Newton, and then from our Denver offices, we've now integrated all of those back of the house disciplines, so it's one enterprise with one platform. There's a franchise division, and there's a managed group.
Now we're working on some of the consumer-facing integration, like global sales, as Vera touched on, which has now been completed. Franchise readiness. Franchise readiness for the Sonesta brands. When we say franchise readiness, really the key here is getting yourself registered. You need to have franchise disclosure documents to be out in the market selling franchises. Sonesta Hotels, Sonesta Simply Suites, Sonesta Select, and Sonesta ES Suites. September of last year, we were registered with all four of the Sonesta brands. We have not made the decision to franchise Royal Sonesta. In certain instances, where there's a unique opportunity for assets like this, if somebody asks us to put the Royal Sonesta flag on it, and we manage, we'll entertain those types of opportunities.
Right now it's the four core brands that I just touched on. Very quickly, in the matter of six months, we're in the marketplace selling franchises for those four Sonesta brands. Of course, all of the standards that Vera touched on and the team has been working on, you need to have brand standards so that when you sign on your franchisees, you can provide those brand standards and those operating SOPs. All complete. Lastly, accelerating growth. Here we are in the first quarter of this year. We have a team of approximately 20 franchise developers now on board focused on selling Sonesta franchises. The SVC asset sale, so we've been very successful in working closely with the buyers of the 68 properties that were listed.
48 of the properties, we've been successful in retaining as Sonesta franchises. Over the course of the next 60 days or so, we will have all of those properties open and operating as Sonesta franchises. Then lastly, Latin America. As you're growing a franchise business, your primary focus is on your North America, Canada that's now in place, and then you look at your adjacencies. Latin America is our next focus for growth. That's just a quick timeline. Ultimately, just to reinforce what John touched on, why? What was the investment thesis? It was really kind of a four-pronged investment thesis. Speed to market, franchising, wrap franchising around Sonesta, which we completed in six months. Scale, bringing scale to the table. Scale does a lot of things for you, right?
Taking 100,000 rooms and going to the OTAs and going to your reservation providers and reducing those cost bases, not only for the managed business, but also for your franchisees, so reducing the costs. Having portfolio brands that complement the Sonesta portfolio, so five brands on the Sonesta side, eight on the RLH side, right? Gives you 13 brands, 12 of which we're franchising today. Ultimately synergies, right? Integration of back-of-the-house synergies, legal, finance, HR, IT, all of those types of services. On the franchising side, there's really four core guiding principles that we focus on every day. As Vera touched on, they're not too dissimilar from what Vera and the team focus on every day on the managed side. The first and foremost is revenue, right? We need to focus on revenue, and we need to drive revenue.
We're very fortunate that all of the underlying commercial engines that Vera and team have been strengthening are the same commercial engines that you use in the franchise space. Driving performance to brand.com versus through the OTAs, right? The lowest cost driver of transaction is through brand.com. That's really the core, is to focus your performance through your brand.com, and that makes your brand more sticky in the franchising space. The second is reduced cost. As we can reduce the operating costs for our owners and operators through scale, by reducing those OTA fees, by reducing those reservation transaction fees, that drives more profit for them as franchisees and keeps them in the family. Support and services. The franchise business is a fee-for-service business. We operate the franchise business with approximately 100 employees.
We have 900 hotels, right? On the managed co side, 240 hotels, 8,000 employees, right? It's a fee-for-service business. They pay you a percentage of the gross, and we just focus on the top line. Support is absolutely paramount. Support in revenue management, support in field services, support in regional marketing, global sales, right? All of the same things that we focus on from a managed co side, we focus on a franchise side. Frankly, that's what makes this complement of these two companies very elegant with now one enterprise that has a franchising business model, it has a managed co business model, we have an acquisition opportunity, and now we can focus on international as well. Lastly, growth. We need dots on the map, right?
I had a lot of conversation through the course of our day today about how many Sonestas do you think we could have. We could have a lot of Sonestas. There's a lot of white space. I mean, think about it. There's 285 Sonestas, right? 50 franchise, 230 on the managed co side. Think about some of the other big hotel companies and what their numbers are, and that's just in the Americas, right? Think about rest of the world, which we will go after. The underlying commercial engines, right? I won't go through all these gears, but these gears represent the underlying tenants and the support that we provide to franchisees. We leverage off of all the work that's been done and Vera and team have put into the, into the commercial engines.
What I'll point to on the left-hand side that John mentioned, the real point of difference for us as a franchisor is who we are as a company. It's the makeup of this company. I spent almost 30 years in a 100% pure asset-light company, several thousand hotels. A very good story, very interesting story. This story is different. The reason this story is different is that we're owners and operators, right? We own, we manage, and all of the things that our franchisees wrestle with every day, we wrestle with it. When we're having a conversation about capital improvement or PIPs or human capital issues, right? We can share what our stories are, and when we ask them to do something, we're consuming that same request. We have a pretty big owner in SVC, right?
When we tell them, "You have to do this standard," or, "You have to put this capital in," we're gonna do it as well, right? That really resonates with franchisees. That really makes them feel like you have skin in the game. That has been, I would say, one of the most profound aspects of our selling story and our narrative. I've been asked during the course of the day, "So why? Why would people come to Sonesta?" That is one of the key reasons why folks are coming. It's another option, right? I mean, when you think about cities like New York and Chicago, how many Sonestas is three? How many of the other big brands are there? There are dozens, right? There's plenty of opportunity for us to grow.
In terms of our presence, we have now over the course of the last several months, covered every major industry event from the American Hotel & Lodging Association to AHLA, to ALIS, to the Lodging Conference. Last week, we were at the HOLA and CHRIS conferences, which is the Latin America conference. John was on the CEO panel. We were meeting with our master in Hollywood, Florida. It's safe to say that you should feel very comfortable that we have presence everywhere, and our press that we have received over the course of the last year has been nothing, you know, short of just incredible. These are all cover stories, and it's not because, you know, we like to see our faces on the covers. It's because the publications write about you when you have something profound to say.
We secured every major hotel magazine, four in the course of six months, which is unheard of. The reason we did is because the story is so compelling. I mean, what this company has been able to accomplish during a pandemic has just been absolutely amazing, right? The press, the story, it's really, really resonating, and we have a lot of presence out there. You could see the team there at our recent AHLA conference. Okay. Let me just touch on the SVC asset sale process, which has really been an incredible exercise for the whole organization. 68 hotels for sale, listed with brokers. Let me see here. There we go. Of the 68 hotels, we were able to retain 70% of the hotels for long-term franchise agreements. It's a critical piece to the puzzle here.
When the organization made the decision to sell the assets, we had just gotten ourselves registered, right? Back in September, the four brands, the FDDs are registered. When buyers, you know, were working with Todd and team to buy the assets, we were able to get in there from a franchising standpoint and have a conversation to say, "Stay with us. Buy the asset, but stay with us. Stay with us as a franchise." We were very successful in working with a group of folks to save 70% of them. That's the 48 number. If you took the 48% to 68%, I think it comes up to be 70%. These are long-term franchise agreements, by the way. I mean, these are 20-year agreements.
It says 10-20 because many times you'll put a window in there around the 10-year mark. If people wanna get out, it's a mutual out for them. They're full-fee deals, right? You're talking 8.5% for 20 years. We retain the dots on the map, the asset moves over to the franchise side of the business, the proceeds come into SVC, the fee flow comes in, and the margin's off the charts from a franchising standpoint. That's what Steve touched on in terms of blending the margins, right? As we diversify the portfolio and the franchise side of the business starts to fee in, the fee flow starts to come in, the margin's high, it marries to the management co, and the blended pushes the margin across, right?
20 different groups, and they range from mature equity, large equity groups, to individual owner-operators. We have some groups that bought what? Nine, seven, four, one. Here's the kicker. For every group that's purchased assets, we had them buy future deals, okay? 20 future deals. 20 Sonesta future deals, prepaid. Initial fees, prepaid, right? 48 assets coming over, long-term agreements. three of them we have for short-term agreements, six of them we have for management agreements, but 20 more to be done over the course of 24-36 months. They have an obligation to do it, and they already paid, okay? It was really a very effective way to stimulate and kickstart the Sonesta brand franchising. We started the year with 1 Sonesta franchise. Today, we have 34. It's unheard of, right? 34 franchises in five months. Okay. Royalty fee, 5%.
I was asked earlier, what's the fee structure? In all of the agreements, the rack rate is 5%. Typically, what you do when you sign a long-term agreement, there's a little bit of a step-up, so the first couple of years it'll be a 3.5%, a 4.5%, a 5%, or you'll get the full 5% in the first year, but it's for 20 years. You know, think about the gross room revenue associated with 48 assets, and now we have 5% fee flow, 3.5% marketing fund goes right into the overall Sonesta marketing fund, 3.5%, non-negotiable across all 48.
This exercise, just for the kind of the franchise side, we collected almost $4 million in initial fees just through this, the licensing, right? You pay for the initial fee for every one of these franchises. Every SVC deal that was sold has a franchise agreement attached to it that paid an initial fee that signed on for a future deal. Right? There's a lot of moving parts on this chart. Let me try to work through the colors. Let's go from left to right, 2018. The yellow box represents the total number of rooms in the RLH system pre-acquisition. Okay? This is a public company with prior leadership, obviously. What this chart illustrates is that going into 2019, the prior leadership, because of some poor leadership decisions, lost 20,000 rooms.
20,000 green, those are out. Those franchisees left on their own accord, okay? They were not kicked out of the system. They left. The franchisees threw the keys and left, right? 2,000 rooms open. Net negative 18,000. That's a bad business model. You'll eventually run out of rooms if you keep going that way. 2019, 2020, 12,000 rooms out, 1,400 rooms in. Okay, you can see the system started shrinking. Had the opportunity to take a look at the business, made a phone call to John Murray. Then we got in there. We bought the business on 3/1, stabilized the business. We actually were in the market selling franchises on the RLH portfolio two days after the close.
We didn't miss a beat. I had a new chief development officer in the building in Denver the day we closed. We had new franchise disclosure docs back in the market two days later, and we were selling franchises, right? We were able to sell 2,100 rooms. We lost about 5,000, which was incredible when you look at the ramp there. This year will be the first year that we'll show 10% net room growth. Now, this is just the franchise side of the business, not the managed co-side, right? The managed co-rooms are on the other side. This is just the franchise side. 10% net room growth. By the colors, the 62-92, that's the SVC portfolio sale. That's the 48 hotels, okay?
There's three short-term agreements in there as well and six short-term management agreements. The 1,390 is what I call organic Sonesta sales. Our franchise development team, they're bringing in new Sonestas, new Sonesta ESs, new Sonesta Simply Suites, new Sonesta Selects, right? New Sonesta hotels. SVC, organic, and then RLH, which is the 2,920, right? In 2022, this is open, by the way, not sale. This is open. We'll open approximately 10,000 rooms in this portfolio. We'll lose about 5,000. We'll net positive 5,000, and that's the 10%, right? That's an unbelievable growth rate. For the first time in many years, net positive. We'll continue to run that trend year after year.
It will start to stabilize a bit as we scale, but we should be able to grow this business 4%-7% net positive every year in North America. We're gonna light up Latin America, and then we're gonna light up the rest of the world. Those numbers will accelerate. Okay, let's talk a little bit about pipeline. In the franchise space, the way most franchisors kinda report pipeline is, it's based on applications and executed franchise agreements. This is just Sonesta. This is not RLH. This is just rooms. Left-hand side, blue bar, 10,192 rooms since we started franchising, since we started the disclosures in September of last year. We've PIP'd, meaning we've had a product improvement plan on-site, and we've disclosed a franchisee, right?
They've expressed interest in Sonesta. I have X brand. I wanna put a Sonesta flag on it. Send me your franchise disclosure document, here's an application, and come PIP my property and tell me what I have to do to be part of the family, okay? From the beginning of time, 10,192. Those have converted to 2,390 rooms, and then we've opened 4,477 rooms to date. Those are primarily the SVC properties that have been sold, you know, through Todd's organization, and then franchise agreement signed, flag stays on, and then we open them as a franchise. Okay? What does that convert to in terms of properties? 34. Today we have 34 Sonesta franchises. We didn't start franchising until September of last year.
Again, I've been doing this for 30 years, that it's just unheard of, right? To be 34. In 60 days we'll be at 48. By the end of the year, add the organic, right? A franchise platform is up, it's alive, it's robust. There's an enormous amount of excitement. There's another option in the marketplace, fast, friendly, right? Owners and operators. RLH, same thing, eight brands. This is the same pipeline. 3,125 converted to 2,263, 527, and we have nine properties that have opened. On the RLH portfolio, because it's economy lodging primarily, they're smaller properties. These are properties that range from 40-80 rooms, in that area.
I don't know why slide isn't going up. There we go. Nine properties opened. The 34+9 , right? 43 properties opened as part of the new room inventory for the Sonesta enterprise, right? I would say as you think about Sonesta, think about the Sonesta enterprise. Think about the portfolio brands now to include The James, right? It's the whole portfolio. It's the 15 brands. Okay. We touched on these earlier, expanding into key markets. We talked about New York City. I don't know why my slides are moving slowly here. The Benjamin, so we're keeping The Benjamin name, but we've added the Sonesta branding in a creative way, the same with The Shelburne, Sonesta New York. The 50, Sonesta Select, and then the ES. Whoops, sorry. Get back there.
The ES. The Sonesta branding for four assets, we get four of our segments, but we are retaining some of the integrity or keeping the names that were in place to keep the value of those names. Of course, as John touched on, with this acquisition, we now own the intellectual property rights to The James. The James will grow through strategic placement with our existing assets, and then we'll consume that on the franchise side, and then we'll grow that through franchising as well. Key markets for us to focus on as an organization, and it might come in a variety of different ways.
It might be through an acquisition, it might be through what we call a manchise, which is we'll manage, we'll put a flag on it, but somebody else owns it. New York, sorry, L.A., Miami, other strategic markets that we are looking to have presence in. Then lastly, Latin America. So we've had a presence in Latin America for some time with a master relationship with a company called GHL. GHL is in Colombia. We have approximately 15 properties or so. The way the master works is you basically give them the rights to your brand, but you give them a certain region to work within. In this case, it's Colombia, it's Peru, it's Chile, so they have a certain region that they're allowed to grow your business in.
Recently, this group just brought us a Four Points, and we converted it to a Sonesta hotel. This group, of course, through the course of COVID, has gone quiet a little bit. We met with them last week down in Hollywood, Florida. They have just received a round of funding, and there's gonna be some accelerated growth out of this group. More importantly, we are going to put our own team members in region. We're gonna put a body that will handle the Caribbean, as well as Central America, and then a body out of Brazil. Okay?
What you will see over the course of the remainder of this year and going into next year is accelerated growth for these brands on the right-hand side, the Royal Sonesta Hotels & Resorts, Sonesta Select, Red Lion, and Signature Inn. Signature Inn is a really neat economy brand within the RLH portfolio, and there's a great opportunity to grow that in Central America, Latin America as well. That sets the Americas for the Sonesta enterprise, right? Everything now is in place. All of our franchising is in place, our human capital is in place, all of our documentation is placed, our legal docs in place, and now the Americas are set, okay, after 2022.
Again, an incredible accomplishment, but accelerated because we were able to buy into a platform, and we were able to bring all of that discipline and skill set to the table very quickly and wrap it around the Sonesta business. Okay. I think I had a sizzle video. We're gonna play that quickly. This video is a business to business. This is what we show to the franchise community to get their Sonesta juices going.
Thank you very much for your time, and I'm now handing it back to Mr. Steve Miano. There you go, sir.
Thank you, Keith. Thank you. Okay, I'm gonna talk about some of the structural capabilities that we are building. Sonesta has invested significantly in our back-of-house structures, and I'll talk about those, but I'm gonna try to do it quickly in the interest of time. The first thing is regarding reporting and analytics. Sonesta is investing, has invested over the last year and continues to invest to enhance our abilities for decision-making and reporting. The first thing I'd like to express is that we use best-in-class systems. As you see up on the slide, many of the names here you should recognize, and I'm sure you do, that we do utilize the best systems that are available to us, and the whole purpose is to give us timely and accurate reporting, repeatable, secure processes, but the purpose is to make better decisions quicker.
The second thing I do wanna touch on is IT, something that we haven't touched on at all today, but risk mitigation as it relates to data security. This is an area of high focus for Sonesta, and frankly, we've done a very, very good job to date. As you can see here on the slide, in 2021, we had over 18 billion transactions, okay? But through that entire time, we blocked nearly 1 million security threats that came to our environments and had zero breaches. Over on the left-hand side, you'll see a rating there of 83, Scorecard B. This is from SecurityScorecard, which was named by Gartner in 2002 as a Peer Insights customer choice for IT vendor risk management. Down below, you'll see three of our major competitors and their ranking during that same period of time.
We feel very confident in how we are ranking up against our peers and the job that we're doing on information security. Lastly, I wanna start touching a little bit about shared services. Shared services has been a transformational activity for Sonesta as we've gone from a small hotel company to a much larger hotel company. In our shared services environment, we have approximately 230 employees that are providing services in revenue management, sales and marketing, finance and accounting, human resources, and other business support areas, okay? Why are we doing these? Well, the objective of this is to provide better overall services to our hotels, our customers, okay? The first thing on this is scalability. We have the ability to grow with our shared services organization to continue to take on more hotels, but also process consistency.
In a shared services environment, consistency of process and internal controls is an important aspect to what we do. Thirdly is operational efficiency. It brings efficiency to our hotel operators in the field as well as for the services that we're providing through our shared services environment. One of the hallmarks of shared services or centers of excellence is specialization, subject matter experts. These are people who, rather than being jack of all trades, which is often found out in the field, these are people who are knowledgeable in specific areas of their business. The shared services is designed for an equitable cost model, so that participating hotels within these shared services receive fair value for the services that they're receiving. Lastly is customer-focused. Our customers in shared services is predominantly our hotel operators.
We're very focused on helping them to be able to make the right decisions to drive real long-term value for the organization. I'm just gonna talk very, very briefly on the shared services value creation timeline. This is not something where we just flip the switch and say, "Shared services is up, it's working." This is a process that will occur over a couple of years as we continue to build out the capabilities. Where are we today? We're at about the 12-month mark, where, as you see, Q3 2022. This is where we're sitting today. We started by bringing on a lot of new employees, we built out some processes, and now we've gone through a process where we have redesigned, reevaluated how we operate the shared services.
The next steps is technology enhancement, leveraging technology to improve our decision-making capabilities, improve the consistency, improve our financial reporting, okay? This is also to create better efficiency. These are things such as automated transaction matching, robotic process automation. I also say the next step would be automation and outsourcing. I describe it as specialization, automation, and outsourcing. Over the next couple of years, we're investing in technologies that will bring greater automation, and also looking for opportunities to outsource services with third parties where it makes sense. We do see in the next couple of years, beyond 2023, we are going to see real long-term value creation through our shared services capabilities across the platforms within the organization. With that, I'm going to hand over to John for closing remarks.
I apologize, we're running late. It's obvious everybody on this team is very passionate about this business and excited to tell you about it. I apologize to Todd and Brian that we're cutting into their time. Just quickly, on our accomplishments, as I mentioned earlier, we've converted 205 hotels. We've relaunched five brands, websites, mobile app. We acquired Red Lion Hotels, added over 900 franchised hotels, eight brands, most importantly, the platform for franchising, the Sonesta brands. Acquired four hotels in New York, added almost 1,000 rooms. Acquired The James brand. All very positive steps. Franchise pipeline, aided by SVC's sales process, has been very positive.
Growth will continue through acquisitions, through third-party management agreements, and through continued strong strength in our franchising. We think all of those things is gonna continue to add long-term value to the Sonesta platform. We're, as we mentioned earlier, preparing to relaunch the TravelPass program this summer. The number of rewards program members has grown 27% in 2021. We expect 50% growth this year. Hopefully, you'll all sign up before you leave today, if we haven't gotten you to do that already. In sum, Sonesta is really a whole new company. It's growing quickly, creating value for its shareholders.
Our hotels continue to improve, are particularly aided by our very steady performance by our extended stay hotels, and our leisure-oriented hotels. 2022 RevPAR at our leisure hotels has exceeded 2019 levels. Business travel is showing signs of recovery. Group travel is picking up, especially small groups and hybrid meetings like we're having today. We've seen a mix change, reducing OTA in our hotels, which is cost-effective and a positive development. We continue to increase brand awareness to shrink the gap between our hotel's performance and their competitive sets and chain scales. As I mentioned again, our extended stay hotels are meeting or exceeding their segments and their comp sets.
As we get renovations completed across the portfolio over the next few years, that will also aid in the improvement at these hotels. Sonesta will continue to grow via franchising both Sonesta and Red Lion brands, including The James brand. We expect to see hotel RevPAR back at 2019 levels and EBITDA margin run rates at 20% by the end of 2022. Improving performance at our managed hotels and growth in the managed portfolio and higher margin franchising all lead to a more valuable Sonesta, which SVC, as you know, owns 34% of. I will now turn this over to Todd.
Great. Thank you, John. Thank you, Keith, Steve, Vera. Very informative. We do wanna leave some time for Q&A, so Brian and I will try to get through our slides. A lot of you already know the story, so I'll focus more on updates since our Q3 or Q1 earnings call. Okay. Just quick overview of the agenda. I'll touch on the company overview, recent events. I'll provide an update on the hotel portfolio as well as the net lease portfolio. Brian will talk about the balance sheet and the leverage strategy, and then we'll wrap it up with some key takeaways. Again, hopefully leave some time for Q&A that you can ask the Sonesta team as well as Brian and myself. Company overview.
Again, a lot of you are familiar with this story, but SVC invests in two primary asset categories. We invest in hotels, and we invest in service-focused net lease retail. Hotels represent about 54% of the portfolio by gross investment. The net lease, which includes our travel centers as well, consists of about 46%. You know, having that net lease portfolio really provided us with more stability during the pandemic. We experienced the worst lodging downturn we've ever seen, but our net lease portfolio helped us cover our fixed costs, our overhead, our interest expense as well, so a nice counterbalance to the lodging portfolio. This is what the portfolio is gonna look like post-sale to 68 hotels. We'll have 236 hotels with about 40,000 keys, just under 800 net lease retail properties.
That includes our 179 travel centers leased to TravelCenters of America and about 13.5 million sq ft. By gross investment, it's about a 54%-46% split. Recent events, we sent our press release this morning. We've made significant progress on the hotel sales. We're up to 42 of 68 hotels sold for just about $400 million. We've been focused on our debt as well. We amended our line of credit, extending the maturity date to January 2023. We also recently announced the early redemption of our August 2022 senior notes, so both of those are now behind us.
We'll touch on this in a couple slides upcoming here, but we really have started to see sequential improvement across the hotel portfolio from January through April. Again, just reiterating that steady net lease, the net lease cash flows from the net lease portfolio. I won't spend a ton of time here, but again, our heaviest concentrations by service level are in the extended stay space as well as the full service space, and that includes our urban resort and airport hotels, and then a smaller concentration in the select service. We're diversified by chain scale and location as well. Update on the disposition strategy. Again, we put out the press release this morning. We sold 42 of the 68 hotels. We're under purchase and sale for 22 additional hotels for $141 million.
There are four properties that have fallen out of contract that we're still marketing. We're still confident we can sell the hotels, and we expect to close most, if not all, of these hotels by the end of June. To reiterate what Keith was saying, 70% of these are being sold encumbered with long-term brands, with, again, across the Sonesta Select, Sonesta Simply Suites. We did a dual brand hotel in Atlanta that was full service and extended stay. So again, I don't wanna overlook that benefit to SVC and that potential earnings from the share of our 34% with those future royalty fees. The one thing we haven't touched on yet is that we have started marketing 16 Marriott branded hotels. We're in the very early stages.
We've hired a broker. We expect to market those on an unencumbered basis, provide potential investors with the ability to brand the hotels however they want. They could repurpose the hotels, but really are looking to maximize value to SVC through those sales. Just to give you a sense of the scale, the net book value for these 16 hotels was $98 million, and that consists of 13 select service hotels and three extended-stay hotels. We're really selling those hotels to deleverage, but we also, we've been talking about this a lot, we're really improving the portfolio of the retained hotels after these sales are complete.
If you look at the bar charts on the left, depending on which chart you look at, the exit hotels, the percentage of EBITDA for the entire portfolio is anywhere from 5%-6%, whereas the number of keys is 18%. A very small relative EBITDA contribution from the exit hotels. Then if you look at the top graph here, just a couple things to look at, significant RevPAR and ADR premiums for the retained hotels versus the exit, and significant EBITDA margin as well. Here, we just show kind of the monthly progression. I won't spend a ton of time on this slide, but focusing on the right side of the chart here, the blue bar is nominal RevPAR. The red line is RevPAR indexed to 2019.
Again, you see the sequential improvement across the portfolio, not just for the Sonesta hotels, but for our other hotels as well. You know, January was significantly impacted by Omicron, so was the first part of February, but we've seen sequential improvement through April. On the bottom here, we're back above 100% index ADR in the full service. Select service is the area we have certainly the most room to improve. Then the extended stay is about 84% of 2019 RevPAR. This is really a continuation, January through April, again, sequential improvement. January, we're about $50 RevPAR. In April, we're at $88. Then EBITDA contribution, January, we're $11 million loss to EBITDA. April, all the way up to $25 million.
We expect to see that continued improvement through the summer months. Here, we just wanted to put in a slide here just to show what the full service portfolio looks like. There was a few particular hotels that really had a negative impact to EBITDA in Q1, mostly northern hotels in urban locations. 43 of the 48 hotels contributed positive $7 million to EBITDA in the portfolio. We had a lot of success on some of our southern markets. We did well in Los Angeles, Austin, Phoenix, New Orleans, Miami. A lot of that was driven by event business, such as Mardi Gras, South by Southwest, the Super Bowl in Los Angeles. A lot of positive things to report. There was just a few hotels that brought down that EBITDA number.
This is something we get asked about a lot, the margins, EBITDA margins. Again, keep in mind, this is 2019, so some of these were previous operators. This includes the hotels that we've sold or are selling. We wanna show here that the margins at 25% relative to the peer group is at the low end, but a lot of the reason for that is RevPAR. Some of the markets that we're in, and this goes back to the slide about the relative RevPAR of what we're selling, we're exiting a lot of those markets. The margin pressure is really from revenue and not expenses. Again, as we sell some of those hotels in lower RevPAR markets, we expect to hopefully see that EBITDA margin improve.
On the net lease side of things, again, 46% of SVC's portfolio, 786 properties, that includes our 179 travel centers, $370 million of annual contractual rent, 10-year weighted average lease term, very strong rent coverage of 2.67 x, and we operate in 21 industries, 134 brands, and we're in 47 states. Here, we just wanna emphasize the reliable income stream and low CapEx requirements and the lease structures for these as well. 69% of our leases have some percentage rent. All of our travel centers pay SVC a base rent, but then they also pay us a percentage rent of non-fuel sales over a base year. We do have some inflation protection on the retail side.
14% are pegged to CPI, another 15% have fixed annual escalators. On the bottom here, you know, again, a nice counterbalance to the more cyclical lodging side of the business, very long lease term. 70% of the expirations don't expire until 2031. Here, we just wanna highlight, again, TravelCenters of America, they're 30% of SVC's portfolio based on investment. They've been performing extremely well throughout the pandemic. Going back to the earlier slide, we had $246 million of annual cash payments, but another $7 million based on that percentage rent. As you know, we...
Just like the lodging portfolio, we're seeing similar inflationary pressures on the net lease side of the business as well, and TA has been able to increase their non-fuel revenues, and so SVC is participating in that. If you just look at the rent coverage, just in the last 12 months, it's incredible. They've gone up from 1.9 x to 2.2 x just at the 179 properties owned by SVC. From a company perspective, they continue to perform extremely well. TA is a publicly traded company. They had a management change a few years ago, really focused on cost control measures. They continue to have a strong liquidity position. They've been putting money back into SVC's portfolio.
Just look at the performance on the bottom here throughout the pandemic. They've almost doubled their trailing 12-month EBITDA from Q4 2019 to Q1 2022, and that's been reflected in the share price, another benefit to SVC as SVC owns 8% of TA's common shares. In terms of the rest of the portfolio, we're well diversified across a number of different industries, highest concentrations in quick service restaurants, movie theaters, casual dining, health and fitness, and a number of others. The rent coverage for that portfolio has performed extremely well. We had some challenges at the beginning of the pandemic with our movie theaters and fitness centers.
Didn't forgive any rent, deferred some rent, but the rent coverage is really improving, going from 2.75x Q3 2020 to 3.46x Q1 2022. Again, they're seeing a lot of the same cost pressures that the hotels are seeing, costs of labor at our restaurants, cost of rising commodity prices, rising food prices, but they've been able to pass that through to their customers in the form of revenues. The only other thing I'll point out on this slide, the AMC Theatres, which is our largest tenant by rent after TravelCenters of America, they reported a 0.52x coverage for trailing 12 months, but in the most recent quarter, they were above a 1.0x.
The movie theater business is coming back. More people are going to the theaters. They're putting more movies in the box office. AMC, as a public company, has started to turn it around as well. That covers the real estate portfolio. I'll turn it to Brian now to talk about the balance sheet and liquidity.
Thank you. All right, I'll touch on the balance sheet, liquidity, a little bit of the operational outlook, going into Q2. The first slide and all the metrics I'm going to talk about are adjusted for recent activities. We recently paid down $200 million of our revolving credit facility balance. We announced the redemption of the $500 million of senior notes due in August, as well as the asset sales. From a balance sheet perspective, our book capitalization, we have $5.7 billion of unsecured senior notes on the balance sheet with a weighted average interest rate of 5%. Our variable rate debt today is limited to the $800 million under the revolving credit facility. In April, we had announced an amendment to the credit facility.
We exercised one of the six-month extension options to push the maturity date to January 2023, as well as getting some additional covenant relief through the end of this calendar year. We do have one additional six-month extension option under the revolving credit facility that could push the maturity date to July 2023. Beyond that, our next debt maturity is June 2023. We have $500 million of senior notes coming due. We could call those bonds in at par as early as December 2022. The left-hand side of this chart shows a roll forward of our cash position and liquidity. At March, we had $969 million of cash.
Factoring in the paydown on the revolver, $200 million, the redemption of the senior notes, $500 million, and the influx of proceeds from sales, both realized as well as anticipated, puts us around $700 million of cash on hand before any operational cash flow from this point forward, from the real estate. As Todd mentioned, we've also commenced marketing 16 additional hotels with a carrying value of $98 million. To give that portfolio a little bit of context, we expect a hotel EBITDA of around $8 million for that portfolio. The right-hand side of the chart, gross book value of real estate. We have about $10.4 billion of real estate on the books as of March.
To remind folks, in April 2020, during 2020, we did two amendments to the revolver. We provided equity pledges on a portfolio of real estate to secure the line of credit with a book value of $1.8 billion. That portfolio, that secures the line, 62 travel centers, 11 hotels. Stripping out the additional asset sales, SVC has over $8 billion unencumbered real estate that could tap for liquidity purposes as well as refinancing purposes. Debt covenants. I'll focus on the public debt covenants under the bonds. This has been a focus of ours for the last year. SVC's publicly traded bonds have four different financial covenants.
Three of these are what we refer to as incurrence tests, meaning anytime we enter into a debt transaction, we have to meet the required levels. One ratio, the one listed at the bottom is a maintenance covenant, which we maintain at all times. Debt to adjusted assets, 55%, as of March. Secured debt, which is limited to the revolving credit facility, slightly under 7%. One that's really the focus for SVC is the interest coverage ratio. Again, we have not been able to meet this covenant level starting last year as more quarters of COVID-impacted results rolled into our results. Again, these calculations are done on a rolling 12-month basis.
As more COVID-impacted quarters were in this number, we dropped below the required levels, so we weren't able to enter into any new debt transactions. As of now, we're right around 1.4 x. I expect this level to be around the 1.5 x in Q2 around when we announce Q2 earnings, and by Q3 to exceed the 1.5x level with enough cushion if we were to do any sort of debt transaction, factoring in rising interest rates, we'd still be okay. Next slide. To reiterate on our portfolio and the diversity of our portfolio, which we believe is a strength of ours, the net lease portfolio is a differentiator for us compared to other lodging REITs.
That portfolio generates over $380 million of EBITDA for SVC and covers our debt service, covers our overhead costs. Again, that's been able to maintain our liquidity position when the hotel portfolio's been lagging. We're now at a point where we expect the hotel portfolio to generate cash flow in excess of what we plan on spending on capital expenditures as well as generate some free cash flow. Leverage and coverage ratios. Net debt to gross assets is around 50%. Coverage of interest is around 1.35 x, and similar to the discussion about the bond covenants, we expect this ratio to continue to improve as hotel results ramp up. Then debt to adjusted EBITDA, 12.5 x. Leverage, pretty high. We recognize that.
Steady state as the hotel portfolio continues to ramp up and as we, you know, not factoring any possible other transactions, we expect that leverage ratio to be in the 8x range next year, for 2023. Our long-term debt to EBITDA leverage ratio is 6x, and this is something we had announced prior to our acquisition or right around the time we acquired the net lease portfolio, SMTA REIT. We intentionally raised leverage to buy that portfolio. We used 100%. Just to remind everybody, we used 100% debt leverage to acquire the net lease retail portfolio with the goal of bringing leverage back down to 6x. Again, we didn't wanna issue equity at the time. The stock was trading around $30 a share. We thought it was undervalued.
Didn't wanna issue equity then. Still don't wanna issue equity now, for sure. But again, our long-term debt target is 6x. How do we get there? EBITDA will be from the hotel portfolio, will be the primary short-term driver to bring these levels and leverage metrics in more realistic check. We'll continue to look at the portfolios strategically for disposition opportunities as well as we could look at the $8 billion of unencumbered real estate we have to unlock some value. Capital expenditures, $200 million expected to be spent in 2022. We have talked about this on our priorities call. We expect to renovate our Radisson, one of the Radisson hotels, our Hyatt Place portfolio as well as about a dozen Sonesta hotels.
We do expect cash flow from the hotel operations to exceed that level this year, 2022, and then beyond. Looking forward, what's our CapEx spend look like? We did announce when we did the Sonesta deal, we expect to spend around $600 million in total for that portfolio. On average, we think we'll spend about $250 million per year over the next 3-4 years. $65 million-$75 million of that number is maintenance CapEx, with the rest focused on renovations and doing ROI-type projects and renovating the hotels to maintain asset quality, improve asset quality. Like this hotel, for example, was recently renovated. You can see some of the end product.
Guest rooms, lobbies, ESG-type initiatives using sustainable projects, products, excuse me, energy efficiencies, technology updates, and other improvements that will help improve market share. One of the things that we've studied, given we have such a large hotel portfolio, over 300 hotels historically, is what when we deploy CapEx, what does that do for performance? You know, one of the things our asset management group has studied closely is the market share. Before renovation, stabilized after renovation, what does the improvement look like? What's the lift look like? It averages about 6%-10% on a RevPAR index. Bottom line flow through, we expect, you know, around 6%-8% return on our investment of that CapEx.
Again, pushing rate, growing market share, you know, we think we'll be able to improve bottom line and top line. Looking ahead to Q2. You know, Q1 obviously was fairly weak. Basically break even on the hotel portfolio. April, as like we've talked about today, was a very quick ramp-up from those January levels. We had $83 RevPAR, $25 million of hotel EBITDA, and 18% margins. For Q2, the full Quarter, we expect $85-$88 RevPAR, $70 million-$80 million range of hotel EBITDA, margins around 20%. Now Q2 and Q3 are our seasonally strongest quarters, and we do expect Q3 to continue to ramp upwards, but we do expect a pullback in Q4. That's typically the cycle for SVC's portfolio. We start dropping off in mid-November through February.
What does that mean in relative terms? You know, as I look back to 2019, Q3 to Q4, as much as a 30% decline in EBITDA, just to give everybody a sense of what that bell curve would look like. That was it for me. I'll turn it back to Todd.
Thank you, Brian. A few key takeaways before we open it up for hopefully have some time for Q&A. You know, again, SVC has that diversified portfolio, 54% lodging, 46% net lease retail. The net lease retail has really helped us navigate through the pandemic. We really think we're improving the quality and the performance of our hotel portfolio as we sell these 68 hotels and as we sell these 16 additional hotels. As Brian just mentioned, we're continuing to put money back into the properties. That should increase market share and allow us to push rate. There's still upside from the hotel lodging portfolio.
We've seen leisure recover, but there's still significant improvement in some of our service levels, specifically the select service brands as business travel resumes, as more people return to the office. Again, the franchising platform and SVC's 34% ownership in Sonesta, we're very excited about that. We think there's a lot of value that can be unlocked there. Then Sonesta, again, Sonesta is a much larger company. There's economies of scale that we're gonna realize at the hotel level. We've already seen it through their ability to renegotiate their commissions with the OTAs, but there's other things that their scale is gonna help with revenues and expenses at the hotels as well. That really wraps up everything we wanted to cover today. Again, thank you all for attending here in Chicago as well as via webcast.
Now I think we have time for Q&A, so I'll turn it over to Kristin in the back of the room here, who will moderate.
Thanks, Todd. I'm gonna start Q&A with questions from our audience. If you have a question, please raise your hand, and Jenna or Greg will come over to you with a microphone. We'll also be taking a couple questions from our virtual audience.
Great. Anyone in the
We got a few questions here.
Hi, Bryan Maher from B. Riley. A question on the net debt to EBITDA. You're at 12.6x now. You think you're gonna go to 8x, I guess, next year. What's the long-term goal? Is it 6x? Is it 7x? Where do you wanna be in two or three years from now?
As I mentioned in my remarks, 6x is still a longer term goal, and that's what we had put out when we bought the SMTA portfolio. Again, we think in short term we'll be in that 8x range as hotel results stabilize, but that is the longer term goal.
Yeah, if I'm doing my math right, you know, you had $722 million pro forma cash plus the $98 million from the 16 hotels, so $820 million or so cash after you sell the 16 Marriotts. How do you think you deploy that money over the next 12 months?
Short term, we'll just continue to focus on debt maturities. We'll have, you know, the $500 million of notes due for June. We have the revolver balance. You know, once we get past debt covenants and waiver periods at the end of the year and into next year, we would expect to start repaying some of the revolver balance as well as other maturities, but otherwise operational reasons.
Thanks. Just last from me, you know, at DHC and ILPT, you've done JV transactions over the past couple of years. Is there any scenario that if you needed to tap into the value of your travel centers that you could do a JV with a sovereign wealth fund to tap that pool of money?
Sure. That's a good question. That option is certainly on the table. We haven't had specific discussions recently about it, but as you point out, there is a significant amount of unencumbered assets that we could look to use JV capital as a potential for a capital source. It's something we've discussed, but we're not anywhere far along in discussions.
Thank you.
Thank you. Tyler Batory from Oppenheimer. A question on trends in the business and the guidance. I think you said $83 RevPAR in April, and then the guidance is $85-$88 in terms of Q2 overall. Just any thoughts on what you're seeing May, June? You know, obviously implies a little bit of improvement May, June over April, but perhaps less so than, you know, what we saw sequentially from March into April. Just kinda interested, you know, what you're seeing as you're moving through May here specifically.
Sure. Brian, you wanna do SVC, and then, John, you can touch on
Yeah. Just generally.
trends if you want.
Generally speaking, I'll start, and if anyone wants to jump in. You know, we have seen trends continue, you know, on a weekly basis. Obviously, we don't have May's results yet, but we've definitely seen trends continue in the right direction. You know, strength is still definitely on the weekends, but we've seen improved RevPAR and, you know, the guidance I'm giving, you know, hopefully is a little conservative, and we'll be able to beat it, but things are going in the right direction.
Yeah. What are you seeing at Sonesta here specifically?
Yeah, we're seeing a significant increase in group leads that we started to see at end of March, and we're very encouraged by that. In terms of pace of groups, we're ahead of same time last year by 114%. From a group level, we're at 70% of, from a volume perspective, of 2019 levels, but we're at 2019 rates. We're really encouraged by that. We're also starting to see that significant improvement in BT travel, which was really dried up except for that smaller backyard accounts and project business. In talking to our GSO sellers, some of the trends that we are seeing is that larger companies have started to really release their travel restrictions.
Big global companies that our GSOs deal with, they're seeing that they're now have the permission to travel, and we're seeing that in our urban locations as well. We're encouraged by that.
Just as a follow-up question, I'm still trying to wrap my head around some of the comments in terms of the margin trajectory and some of the improvements there. You know, obviously, there's, I would imagine right now you have disruption from COVID, and there's revenue disruptions, but also, you know, there's a lot of moving pieces in the business in terms of what you're doing on the cost side of things.
Just help us think a little bit more about, you know, the timeline of margin improvement, where you think you get both Sonesta and at SVC, the timeline, and then kind of how much of that improvement is driven by normalization of trends versus better revenue versus perhaps some of these initial startup costs, if you will, starting to normalize a little bit.
Yeah. I guess I'll start, and anyone else can jump in. The margin trajectory, I think you saw in one of the charts from January, which obviously was very depressed through April, ramped up significantly. You know, summer months, again, has always been our strongest part of the year for our portfolio, so we do expect margins around 20%, in the low 20s% for the next two quarters before they scale back a little bit. But on average, for 2022, even with how bad Q1 was, we'll be around high teens, 20%.
Yeah. You know, I think John had mentioned earlier that you know, we feel that this year we're on track to meet EBITDA margins approaching 20%. That will continue as we see the growth into the following year into 2023. You know, just as a reminder, we talked a lot about the building of the organization, the development of the commercial engine. These are all areas that we will continue to see that we'll reap rewards from over the next couple of years. We were certainly not at optimization yet, and we see this continuing growth organizationally to provide better returns. Over the next couple of years, we're targeting to get back to levels where SVC had seen their margins previously approaching 25%.
Yes. Adam Gabalski from Westport Capital. So you just sold the bottom quintile of your hotel portfolio for, I think, $66,000 a key. Where the stock is trading now, I think, you know, if you put a market value on the TA assets and the rest of the triple net portfolio, I think it's pricing in less than $40,000 a key. Some of the assets we toured today, the Royal Sonestas, are worth well into the six figures per key. So I'm just thinking, you know, when you think about future dispositions, has there been any talk or discussion about selling some of these marquee assets to, one, raise a huge amount of capital and boost your liquidity, but two, just sort of crystallize the value in what is embedded in the hotel portfolio for investors?
Yeah. Thanks for the question. That's it is a good question. Like you point out, what we're selling, the 68 hotels we're selling is about $65,000 a key, and a lot of that is select service and extended stay. There are a handful of full service in there, but that was driving it, the per key cost down. And certainly, you can't build anything less than $150,000 a key today. We have looked at selling some of our higher-end full service hotels. You know, when we looked at which hotels we wanted to sell to kind of get to that $500 million-$600 million to help us deleverage, we looked at the entire portfolio.
There were some markets we looked at where we had what we thought could be overexposure. We looked at selling potentially some of our full service in Royal Sonesta, where you may be able to get a higher per-key number, a lower cap rate. You know, there could be situations where we look to sell some of those assets. Nothing is on the table now. I think we're looking to sell some of the lower RevPAR producers, some of the lower EBITDA contributors. I think part of the success with the 68 hotel sales and the ability to get the prices we did led to us being more willing to sell these 16 hotels that we're taking to market. That's more on the lower end.
I think back to Bryan's question about, you know, potentially doing a JV. You could see us do that as well, because I think what you're getting at. I don't know if you said it, but really kind of establishing, all right, here's the value of these assets, here's the value of some of our higher-end assets. You don't have to sell properties to do that. You can also do that through joint ventures. It's something we talk about, but nothing pending at this time.
Thank you. A couple unrelated questions. When you talk about guidance and hotel EBITDA, just mechanically, is that before or after FF&E?
Hotel EBITDA is cash available, so after?
No, before. Before FF&E.
Oh, okay.
Yes.
'Cause in your supplemental, you include FF&E to get to EBITDA, but.
Some of those adjustments, they're in the expense side of it.
Yeah.
We're adding that back to take that out, so it's before. It's netting out.
We should take your guidance, and if we wanted to-
Yeah, but that.
If we wanted to take 4% off standard FF&E, we should do that.
Yes.
Thank you.
Again, for us, we, you know, give the CapEx guidance.
Sure
Separately. Yes.
Totally understand.
Yeah.
Appreciate it. Secondarily, this is a little unrelated, but AMC, which you spoke about the lease, it looks like it's less than a year remaining on the lease. What do you expect to transpire at the end of that lease given that they're, you know, the business is improving?
Sure. There's actually 11 separate leases with AMC that the one that's expiring within a year, that's just one of the leases. There's 11 separate leases. There's some leases that go out as far as 2031. What we did with AMC, we restructured those leases during the pandemic. As each of those leases expire, they roll to a straight percentage rent, and then they have the ability, either landlord or tenant has the ability to terminate that lease. There's a number of those leases. I'm sorry I don't have all the details handy right now. A number of those leases, AMC is probably expected to vacate, but a number of those, they will stay long term.
That was something we looked at when we were buying the SMTA portfolio. You know, I think we said it publicly, the movie theaters is an area we probably wanna divest. You know, some of these theaters are the older theaters, you know, more suburban locations, these huge boxes, whereas now the trend is to kinda go to those luxury, reclining seats, food service. A lot of the theaters that we have today are kind of that type of asset that we don't really think has long-term viability. You may see us eventually exit those through sale.
Got it. Assuming they don't renew, you-
Assuming they don't renew, right?
Okay. Separate question, the Denihan portfolio that was just purchased?
Right.
by Sonesta.
Right.
Can you speak to the full purchase price of the hotels? I think there was debt that was assumed, and give us a sense of the purchase price per key there and maybe an implied cap rate, either current or what you view as stabilized.
Sure. Do you wanna hit it?
Yeah. That was an acquisition by Sonesta. We kept the Denihan families stayed in with a minority interest to protect some tax consequences. In connection with that and in connection with them agreeing to be a silent partner not involved in the operations, we've agreed not to disclose the purchase price. I can tell you that to ballpark it, the purchase price was less than the debt that they had placed on the hotels in 2016. We think it was attractive pricing, but we can't give you the exact purchase price.
Okay. You did assume some debt associated with that deal?
We didn't assume any debt. The existing debt was repaid, and we placed new debt on the property.
Very helpful. Thank you. Last question. With respect to the CapEx program that you've talked about, which is broad-based, maybe at the asset that we're sitting at today, I know you put in $50 million
Right.
, which is a lot.
Right
On a per key basis. Can you use that as an example to talk about sort of what you did, how you view returns, and then that's probably a good way to extrapolate the other Royal Sonestas.
Sure. Do you wanna talk about what we did for in terms of the renovation or, and then?
Yeah, of course.
Brian, you can talk about how we looked at the returns.
The renovation included all of the guest rooms and all the suites and public spaces, with the exception of the only part we didn't do was the restaurant. It really was a top to bottom renovation. We didn't really leave anything unturned. The building really needed it, and we feel that by doing all the meeting space and the guest rooms and all the components that the building is ready for, really, given that it's great positioning and also great location and the great brand, that we really needed to do this to reposition the hotel and be able to get top-rated business and top-rated group business and BT as well. This used to be a Wyndham.
It was kind of a bottom of the barrel player, so we had to really turn the positioning of the hotel to attract to go after high-rated segments. Yeah. I'll just add, not every property we plan to renovate will need top to bottom like we've done here. A lot of the assets that were assumed by Sonesta have gone without significant key money for a number of years, so they're due for a refresh. Whether it's to maintain or enhance market share, I think I had mentioned earlier, we target around a 6%-8% improvement in performance post-renovation.
That's consistent with what you've expected with this property?
In any property is on average.
Okay.
Yeah.
I would just add one final thing. If you're gonna extrapolate from those numbers, in this particular hotel, there was about $6 million spent on the facade, and that's probably unlikely to be something you should extrapolate to other hotels.
Hey guys, two quick questions. Just to carry on with the asset sale theme. You guys recently, as part of the Sonesta transition, signed a long-term management agreement with them. To the extent you decide to sell more assets, can you talk about what flexibility you would have to sell assets without, you know, being encumbered by that agreement?
Yeah. I mean, Brian, you could talk to the specifics of the agreement, I think. Yeah, we can sell, we can exit, hotels, you know, depending on performance. Do you know the performance?
Yeah. There are performance provisions that they give us an out, but I think the bigger theme is the relationship, the ownership interest and the cooperation we have in jointly deciding on what hotels we wanna stay in or exit. Capital recycling is a big thing we talk about with Sonesta for the future and trying to improve the age of the portfolio and the quality of the portfolio. That's something down the road we would look to jointly is to recycle assets, you know, again, CapEx needs and so forth.
The only way that you would have a unilateral ability to sell a hotel unencumbered is if they are in breach of the performance requirements?
No. My point is, I think jointly we could agree to sell something.
That's what I mean, jointly, but unilaterally.
That's right. Right.
You'd have to be-
There's a contract in place. There are, of course, termination provisions for performance.
Got it.
three out of four years, I think the measurement is meeting the owner's priority. Again, I think the flexibility and the ownership and the relationship is the bigger theme for us.
Got it. Second question, just in terms of the returns on the $600 million of capital you plan to deploy, you talked about a 6%-8% return on capital. How do you think about that kind of in the context of, you know, the yields that your debt's trading at and, you know, what the share price might imply in terms of the kind of returns the equity market's looking for?
I guess I'll start.
Yeah, go ahead.
Feel free to jump in. You know, historically, under our prior contracts, any CapEx we deployed would increase our owner's priority thresholds, and there was credit support behind those. What we do and, you know, any CapEx we do deploy, we do expect those returns. Looking forward, we do expect similar run rates. As far as implied, I'll leave that to you guys and what you wanna imply with that.
Thank you.
Hi. Thanks. Could you talk about how the higher interest rate environment and just general economic situation now has impacted your ability to sell assets, including the ones that were deemed for sale, but also ones going forward?
Sure. Yeah. Thanks for that question. That's something we've been monitoring very closely, and we're living it every day. You know, really over the last couple months is where we've really seen the volatility in the debt markets and the impact that interest rates have had on pricing of our assets. I can tell you the prices that we're getting right now are the same prices that we were under agreement on three months ago before all the volatility occurred or at least you know the largest part of it is. We have had groups come back to us and try to reprice deals. You know, we've had a lot of interest in these hotels.
Typically, we just say, "No, we're not repricing the deal." There have been a handful of occasions where the buyer has walked because their cost of debt has moved, and they just can't pay the same price for the hotel. We've moved on, and we're remarketing those properties. Only four today are not under contract. One of those four is under LOI to purchase, and we think we can get offers soon on the other three. There's a lot of interest. You know, interest rates have certainly moved out, but liquidity is still there. I mean, there's you know, there's no shortage of lenders for these properties. Again, it's more the interest rates have moved out, and that's impacted the levered returns that these buyers are getting.
You know, we'll see. We're again early stages on the 16, so we'll see. You know, we don't have to sell those. We're gonna market them and see what prices we get. You know, to answer your question, it hasn't impacted these hotels specifically, and I think part of the reason is, you know, these hotels, most groups are looking at these on a forward cap rate of maybe 7%-8%. If interest rates have moved from 4.5%-5.5%, they can still buy it, whereas, you know, some of the lower cap rate deals, it doesn't work. But here we've been able to hold our prices.
We typically have significant deposits from these buyers as well, so there's leverage, we have leverage, the other kind of leverage if they try to walk from the deal. Hope that answers your question.
Okay.
We've actually come to the end of the time, so I'm gonna pass it back to Todd for closing remarks.
Great. Well, thank you again, everyone, for coming out to Chicago, and thank you, everyone, for joining via webcast as well. We really appreciate your time, and thank you to the Sonesta team for joining us as well. We hope it was very helpful for you to hear directly from Sonesta and be able to have access to that team. Hopefully, that's something we can do in the future as well. Again, thank you everyone for joining. Those who are with us in Chicago, we'll be having a reception after as we wrap up here. Thank you, everyone.
Thank you.