Sonesta Acquiring Red Lion Hotels

Filed Under: Hotels

2020 was a rough year for most major hotel groups, though there was one exception — Sonesta. The previously unheard of hotel group started the year with fewer than 100 properties, and now has plans to have 1,200+ properties, thanks to its latest acquisition.

How Sonesta took over 200+ IHG & Marriott hotels

In 2020 we saw IHG lose contracts for 103 hotels, and Marriott lose contracts for 122 hotels (and Hyatt may soon lose contracts for 22 hotels). These were all hotels that were owned by Service Properties Trust (SVC), and the company ended its contracts with the two hotel giants.

The reason? Because the major hotel groups promise a certain minimum return payment, but that wasn’t achieved in 2020 due to the pandemic. I guess both IHG and Marriott thought the situation was exceptional enough to not make those payments, and SVC decided to take action.

Why would SVC rebrand all of these properties as Sonestas, though? Because SVC owns a 34% stake in Sonesta, meaning SVC shares the benefit of new management contracts on both ends. Some SVC properties had previously been rebranded as Sonestas, and the transitions were apparently quite successful.

Sonesta is growing unlike any other hotel group

Sonesta acquiring Red Lion Hotels

This past week it has been announced that Sonesta has entered into a definitive merger agreement with Red Lion Hotels. Red Lion is the 10th largest US-based hotel franchise company, and includes eight brands, like Red Lion Hotels, Knights Inn, America’s Best Value Inn, etc.

Red Lion Hotels has eight different brands

Sonesta is acquiring Red Lion in an all-cash transaction for $90 million. Those who own Red Lion’s common stock will receive $3.50 per share in cash, an 88% premium over the November 4, 2020, closing price.

It’s expected that this deal will close in the fist half of 2021.

This growth is exciting, but…

In the US we kind of have a handful of hotel groups that control most market share in major markets. In that sense it’s great to see Sonesta emerge as a real competitor, and it even has a solid loyalty program.

All that being said, I wouldn’t expect this to cause much concern among executives at Hilton, Marriott, etc.

On the most basic level, a vast majority of Sonesta’s portfolio will be extremely budget conscious, in an even different league than the limited service properties we see from some other hotel groups. These aren’t segments we’ve seen most major hotel groups otherwise compete in much.

I’d say this probably poses much more of a threat to Wyndham, which owns brands like Days Inn, Super 8, etc.

Furthermore, for those of us into collecting points and getting outsized value, I’m not sure there’s going to be all that much to get excited about here.

I don’t think I’ll be making any Knights Inn mattress runs soon

Bottom line

Sonesta is the hotel success story of the past year, as the previously unheard of group will soon have well over 1,200 properties. This happened first thanks to acquiring 200+ IHG and Marriott properties, and now thanks to acquiring Red Lion Hotels.

What do you make of Sonesta’s growth? Has anyone stayed at a Sonesta property, and if so, what was your experience like?

  1. LOL – “won’t be making any Knights Inn mattress runs anytime soon.” That’s some shade but the truth hurts sometimes!

  2. I’d disagree and say somewhere like Knights Inn would be the perfect place to mattress run. If they ever run a promotion like “stay 2 times and get a free night,” I would love to check in 2 times at my local Knights Inn (not staying there overnight, of course) for $50/night, and get a free night at a Royal Sonesta five star hotel.

  3. A novel design: Building rooms above the lobby drive through … and making them half a floor higher than the rest of the hotel. For loyalty program members this scream upgrade!

  4. This does sound like a Norwegian Air and Wow Air scheme to me, go big or go broke. It has failure written all over it, hopefully they know what they are doing.

  5. I wonder if Sonesta will make some investment for renovations. The Red Lion in Appleton, WI (was a Radisson) has great potential, but it is need of an upgrade.

  6. @ Steve — Keep in mind that Red Lion operates under a franchise model, so that will probably limit the extent to which properties can be forced to renovate.

  7. @ JW — Hah, yes and no. The difference between the airline and hotel industry is that hotel groups only have management or branding contracts, rather than actually owning all their properties. That’s quite different than airlines, which own most of their planes, etc. Sonesta is likely just taking a cut on revenue for individual properties, so downside is relatively limited.

  8. That bottom tier of hotel does have a use when you are traveling through the remote portions of the country. And the reality is, the ex-Candlewood Suites properties aren’t really that much higher than Knights Inn anyway.

  9. @ Ben,
    It is splitting hairs but, major airlines operate most of their flights on airframes that are leased. In the long run your point remains valid, the airlines still operate their flights which is unlike the lodging contracts.

  10. This is an interesting investment situation. The small hotel/motel REIT is making a major, aggressive stab of the market situation. Who is the “Whale” that is financing this transaction? Is somebody is betting on the come of this throw of the dice?
    Believe me, this investment has been well researched by more than a few accounting eggheads, and their recommendation is (1) “Roll with it Baby” or…
    (2) “If I could stick my pen in my heart
    And spill it all over the stage”
    OK, the last recommendation was over the top; but I couldn’t help from using another Rolling Stone lyric.
    This is the world of income producing assets in Capitalism. If these businesses cannot produce happy customers, and then produce profits, then the “pooch has been screwed”.

  11. BTW,
    Has anyone looked at the share price of SVC. Sunk faster than the the Titanic or maybe the NFC East.
    Hail Mary

  12. A little off Topic here: I opened my First WOH account in December, received 5 nights, a couple of nights later 5 more nights,had 10 nights till the 31st December, checked today account only had 5 nights that were awarded this year. Contacted Hyatt, they suggested I contact Chase. huh? I should have 15 nights according to OMAAT Blogs, Right?

  13. Aside from Drury hotels, I dont think there are any other fully corporate owned hotel chains in the U.S. Enter ‘consistent inconsistencies’ in too many instances…
    That being said, my experiences at Sonesta properties have been far superior to the regurgitated locations with my RLH stays. This may be the kick in the butt needed for improvement.

Leave a Reply

If you'd like to participate in the discussion, please adhere to our commenting guidelines. Your email address will not be published. Required fields are marked *

Reminder: OMAAT comments are changing soon. Register here to save your space.