Sonesta's ongoing growth spurt isn't likely to stop with just one acquisition target.
Sonesta International Hotel Corp.’s plan to acquire the parent company of Red Lion Hotels was a long time coming, according to the CEO of the smaller (until recently) Boston-based hotel company.
Sonesta CEO Carlos Flores remained bullish on growth opportunities for the hotel company as the pandemic wore on for months. After scooping up a roughly 200-hotel portfolio from Marriott and IHG in the latter half of last year due to respective defaults with landlord Service Properties Trust, Sonesta wasn’t done plotting out a growth trajectory.
The $90 million deal to acquire RLH Corp., announced just before the end of the year, puts Sonesta on track to have roughly 1,200 hotels under its various brand flags later in 2021. But it also opens up more franchising opportunities to fuel further organic growth at the combined entity.
“Red Lion has been in our sights for many years. They’re not the only ones, but they’ve been on our radar for a while,” Sonesta CEO Carlos Flores said in an interview with Skift. “When we started thinking about strategies we could start dispatching on the road ahead and what comes after IHG and Marriott looking forward, Red Lion came back into focus mainly in what their existing management team has done over the last year.”
RLH transitioned in recent years to an asset-light model where the company didn’t actually own the real estate of its hotels and instead franchised out brand licenses to individual owners. This is a general hotel industry trend that affords hotel companies the ability to grow faster and generally operate better in economic downturns — the current global pandemic being an exception.
Flores and other leaders at the company saw Red Lion for many years as a way to build up the hotel food chain, as the company’s mix of eight brands — from the upscale Hotel RL to the economy scale Americas Best Value Inn — complemented Sonesta’s five U.S. brands like Royal Sonesta and Sonesta ES Suites. Sonesta also operates the Sonesta Posadas del Inca brand in Peru and the Sonesta Cruise Collection in Egypt.
The combination of the pandemic and RLH’s asset-light shift in recent years made 2020 the ideal year to advance acquisition talks, Flores said.
The combined entity would be the eighth-largest U.S. hotel company in terms of property count, slightly smaller than the 1,341-hotel portfolio of G6 Hospitality, owner of Motel 6, according to STR data.
There are no plans to retire any Sonesta or RLH brands during the merger.
“We’re looking at it in terms of the combined portfolio being complementary in nature. There’s not too much in the way of overlap — arguably, maybe none,” Flores said. “There’s not a slash and burn component when it comes to those brands.”
One brand that may see some changes is RLH Corp.’s GuestHouse, which the parent company said last fall would be repositioned as an extended stay brand amid relative strength for the sector during the pandemic. While Flores didn’t rule out seeing that brand reinvention through, he also said it was too early to commit before discussing future strategy.
“It’s so fresh for Red Lion, it’s an exercise that was contemplated as a next step after we have an agreed-upon merger,” Flores said. “I don’t want to promise anything because it’s just too rash at this point.”
But Sonesta’s continued growth potential is one area where Flores is certain. The hotel executive previously told Skift his goal was to get Sonesta from less than 100 hotels last year to 1,000 hotels within five years. The RLH deal accomplishes the goal in a matter of months and has Flores thinking of a revised forecast.
“I think measuring in thousands of hotels might be a little bit premature at this point, but I do see opportunities still abound for the company. There are a few rabbits I’d love to pull out of the hat,” he added without naming specific acquisition targets. “I’ve got my wish list. Santa definitely delivered some but not all on my wish list.”
Photo credit: Sonesta International Hotels Corp. CEO Carlos Flores is on track to grow his company to the eighth-largest U.S. hotel company by property count this year (pictured: Royal Sonesta Houston). Sonesta International Hotels Corp.