Marriott and IHG Fueling Sonesta’s Rapid Growth: Is Hyatt Next?

The smaller Sonesta International Hotels Corp. emerged in recent months as the coronavirus pandemic’s biggest hotel industry growth story, adding roughly 200 hotels to its portfolio at the expense of global giants IHG and Marriott.

There’s no reason to think the growth will stop there. Sonesta’s chief executive plans for the company portfolio to swell to as many as 1,000 hotels within five years.

“We’re a small group of individuals today, and we have every intention of leveraging that to our success,” said Sonesta CEO Carlos Flores.

The 80-hotel Sonesta chain is slated to add 98 Marriott-affiliated hotels to its portfolio after Boston-based Service Properties Trust canceled management deals with the world’s largest hotel company. Service Properties Trust, also known as SVC, faulted Marriott for failing to make an $11 million payment earlier this month on 122 hotels SVC owns. SVC is selling 24 of the hotels and plans to begin converting the remainder to Sonesta flags from mid-December through early 2021.

The move comes a little more than a month after SVC announced it was moving 103 IHG-flagged hotels to Sonesta branding for a similar default.

But it isn’t just serendipity driving SVC to rebrand these hotels with global brand affiliation to a chain largely limited to North and South America and Egypt. SVC has a 34 percent stake in Sonesta, meaning it has greater control and potential for upside financial benefit by bringing these hotels in-house.

SVC also claims the properties perform better with a Sonesta flag. SVC previously converted 16 IHG hotels it owned to Sonesta flags in 2012, and the real estate company reported revenue improved by more than 14 percent under the new flag affiliation.

There are several ways Sonesta could continue its growth momentum and hit the 1,000-hotel mark. A sizeable franchise and licensing push at properties across North and South America is already underway, Flores said. The company could even convert residential buildings to hotels, like it did at a Sonesta ES Suites in New Orleans.

SVC also owns 22 properties with Hyatt affiliation, leading some analysts to expect the Chicago-based company to be the next global hotelier to lose hotels and fuel Sonesta’s ambition.

Neither Hyatt nor SVC responded to a request for comment for this story.

Flores declined to speak directly about any potential incoming Hyatt portfolio of hotels to Sonesta, but he indicated the company continues to be prepared for any and all growth opportunities like the IHG and Marriott additions.

“I’m going to want to make sure we’re best prepared to turn any of those opportunities into a Sonesta,” Flores said.

Others are less sure Hyatt could be next on the chopping block.

“There’s a reputation within the groups in terms of how you handle these groups separately,” said Baron Ah Moo, a managing director and head of U.S. at PKF Hotelexperts. “Hyatt has a decent reputation to carry brands and, frankly, perform during these down periods.”

SVC noted in a second quarter earnings report that, while Hyatt continued to honor payment guarantees during the downturn, the hotel company could run into trouble sometime in the fourth quarter. The ability of the Hyatt properties to continue to meet payment obligations for that long could be a trump card, but SVC’s willingness to sever ties with Marriott and IHG is still a lesson to the big brands.

“It’s a ripple in our business, but it could become a wave if everybody starts to look at this as the way to go out and renegotiate management agreements,” Ah Moo said. “I think it’s going to be one people reference going forward when negotiating with their operator.”

Bigger Isn’t Always Better

SVC’s Sonesta shift is largely notable for going against what so much of the hotel industry is touting these days: the bigger the brand, the better the recovery from coronavirus due to travelers craving the familiarity of a global brand once they start taking trips again.

“People are in the honeymoon phase with Sonesta,” Ah Moo said. “There might be an opportunity for them.”

The chief executives from Marriott, Hilton, IHG, Accor, and other major hotel companies repeatedly tout their brand familiarity can fuel growth through the pandemic. Each expects to sign independent hoteliers or the owners of properties with a lesser-known flag due to their respective brand’s global reach and distribution channels to consumers.

Another significant hotel portfolio shift involves owners of the UK-based Travelodge chain, but many of those owners have signed onto affiliation with Accor’s Ibis brand — going in the opposite direction of what SVC is doing with Sonesta.

But Flores isn’t buying the bigger-is-better argument when it comes to brand distribution.

“What people are identifying in saying, ‘You’re still a minnow,’ as it relates to distribution, I look at that being the source of our competitive advantage within the marketplace — not to mention the agility that comes relative to a large organization like the Soviet Empire that takes forever to change,” he said.

Photo Credit: Sonesta Hotels continues to rapidly grow toward a five-year goal of hitting 1,000 properties in its portfolio. Sonesta International Hotels Corp.

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