Sonesta International to Acquire Red Lion Hotels

A smaller Boston-based hotel company that added hundreds of hotels to its portfolio during the pandemic managed to squeak out one last deal before the end of 2020.

Sonesta International Hotels Corp. late Wednesday night announced an acquisition agreement with RLH Corp., parent company of Red Lion Hotels and Americas Best Value Inn. Sonesta will acquire RLH’s more than 900 hotels across North America, a deal self-described as turning the Boston company into one of the largest hotel companies in the U.S. with roughly 1,200 hotels should the deal finalize.

The RLH deal is the latest in a year of opportunity for Sonesta, which added roughly 200 hotels to its portfolio in recent months due to disputes between major brands like Marriott and IHG and landlord Service Properties Trust, or SVC — a Boston real estate trust that also has a 34 percent stake in Sonesta.

The real estate firm’s cancelled franchise agreements with the bigger brands in favor of Sonesta affords the landlord greater upside in any profits. But the RLH acquisition delivers Sonesta even further growth opportunities.

“Upon the completion of hotel conversions previously announced and the acquisition of RLH, Sonesta will become one of the largest hotel companies in the U.S.,” said Sonesta CEO Carlos Flores in a statement. “Whereas all of Sonesta’s hotels in the U.S. are currently self-managed, the acquisition of RLH significantly accelerates Sonesta’s hotel franchising capabilities by adding a franchise platform with more than 900 hotels.”

The deal is slated to close in the first half of 2021. A third-party representative of Sonesta declined further details or an interview request to Skift, and Sonesta did not respond to a request for additional comment in time for publication.

RLH would bring in new brands to the Sonesta family as well as franchise opportunities, including the newly relaunched GuestHouse Extended Stay brand.

Before any of the 2020 growth, Sonesta had fewer than 100 hotels across North and South America as well as Egypt. Flores, in an October interview with Skift, claimed his goal was to grow Sonesta to a 1,000-hotel portfolio within five years. The RLH deal would significantly outperform that fall forecast.

The RLH acquisition comes amid Sonesta’s extraordinary pace of growth over the last few months. A roughly $8 million IHG default over the summer on guaranteed property returns to SVC on 103 properties drove the landlord to drop IHG brand flags and change brand affiliation to Sonesta — a deal known as a conversion.

SVC later announced a similar default and brand switch on its Marriott portfolio. Both conversion deals arose quickly following default during a global pandemic when most banks and landlords were known for flexibility.

“When we think about converting these hotels to Sonesta, first of all, we think it’s in the interest of our shareholders not to do what’s good for IHG and Marriott and allow them to not pay us and just sit here and say, ‘Oh, well. Shucks.’ We think it’s better to take control of the situation and be proactive,” SVC CEO John Murray said during an October investor call. “We think that’s going to be a much better result for SVC’s earnings.”

While SVC remains bullish on Sonesta’s growth, not everyone in the industry is as optimistic for the smaller brand — especially during a pandemic when some argue brand awareness will be crucial in gaining back business during the recovery from the worst year on record for travel.

Marriott CEO Arne Sorenson argued in November the SVC portfolio would garner half the return on investment on hotels with a Sonesta brand flag compared to when they were under Marriott affiliation.

“I think, based on what we heard as recently as yesterday from that team, they seem to be hard-wired to make those hotels Sonestas,” Sorenson said during a third quarter investor call.