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HPT in midst of Sonesta brand expansion
May 18 2012

The $174-million acquisition of Sonesta International Hotels resulted in HPT rebranding several assets and launching an upscale, extended-stay brand, HPT president and COO John Murray said.

Highlights
  • The Sonesta brand traces its roots to 1944 and at one time was called Hotel Corporation of America.
  • HPT has already rebranded three of its existing assets to the Sonesta brand, including a Massachusetts property that became the first Sonesta ES Suites property.
  • President and COO John Murray said the time isn’t right to sell many assets because of the challenging debt environment.

BOSTON—Hospitality Properties Trust is committed to aggressively growing the recently acquired Sonesta International Hotels brand, which includes the launch of an extended-stay hotel brand, according to HPT president and COO John Murray.

Speaking during the inaugural Hotel Equity and Lender Perspectives conference, Murray said HPT wants to restore the U.S. presence of the Sonesta brand, which traces its roots to 1944 when Sonnabend Operated Hotels was launched.

“One of the reasons for the Sonesta acquisition was that it gives us an affiliated management company where we feel like we have a little more control over what our managers are doing and what direction the brand is going, where we can buy one-off hotels,” Murray said during “The REIT Beat” panel discussion. “Traditionally we haven’t bought one-offs, but we can build the Sonesta portfolio. We hope to make that a much more recognized brand over time, and we’ll be looking at some major markets to grow.

“We have some portfolios on our radar screen that we’re looking at,” he added. “We’re focusing a lot of time on rebranding hotels that we can rebrand.”

The Sonesta portfolio has 32 hotels with nearly 7,100 rooms, according to its website. The properties range in size from the seven-room Sonesta Amirat Dahabeya in Egypt to the 537-room Sonesta Maho Beach Resort & Casino in St. Maarten. The brand also operates five cruise ships.

Sonesta has seven properties in the U.S. Those properties include three properties that HPT rebranded to Sonesta after the deal closed on 31 January—the Royal Sonesta Harbor Court Baltimore (formerly the InterContinental Hotel Harbor Court Baltimore), the Sonesta Resort Hilton Head Island in South Carolina (formerly a Crowne Plaza property)  and the Sonesta ES Suites Burlington in Massachusetts (formerly a Staybridge Suites property). In addition, the company earlier this week announced the reflagging of an existing Staybridge Suites in Orlando to the Sonesta ES Suites Orlando. The switch will take place in July.

The Sonesta ES Suites product is an extended-stay hotel brand that Murray said HPT will grow by rebranding existing assets.

Acquiring hotels
Murray described the transaction to acquire Sonesta this way: “We’re an externally advised (real-estate investment trust) and our advisory company (Reit Management & Research) bought the management component of Sonesta, including the management enterprise, the management business in Egypt and the franchise business in Latin America and South America.”

Sonesta Acquisition Corporation, a taxable REIT subsidiary, is an affiliate of RMR. Murray is assistant secretary and executive VP of RMR. Murray said SAC will receive a standard 3% management fee for managing the Sonesta-branded properties.

He said the structure is similar to the way the company conducts business with other hotels in its portfolio.

“The majority of our contracts maybe look like leases, but they are management companies through (total return swaps),” he said.

 

The 483-room Royal Sonesta Hotel New Orleans was part of the deal that netted HPT the Sonesta brand name.

As of 31 March, HPT owned or leased 290 hotels; 234 of these hotels are leased by HPT to its taxable REIT subsidiaries and managed by hotel operating companies, one hotel is leased by one of its taxable REIT subsidiaries from a third party and managed by a hotel operating company and 55 Courtyard by Marriott hotels are leased to third parties.

 

Identifying rebranding opportunities
The rebranding of HPT-controlled hotels to the Sonesta brand will be part of previously negotiated agreements with Marriott International and InterContinental Hotels Group to dispose of or rebrand. It had identified 42 hotels branded under IHG-controlled brands and approximately 20 hotels flying various Marriott flags.

“We’re in the process of identifying some of those hotels to rebrand to the Sonesta brand and try to create a footprint in a way to replace what Sonesta used to have as a larger company up and down the East Coast,” Murray said. “Eventually we plan to grow it across the country.”

The disposition of properties took an unexpected turn when HPT couldn’t find buyers willing to pay the asking price.

 

The 340-room Sonesta Resort Hilton Head Island was converted from a Crowne Plaza following HPT’s January acquisition of Sonesta Hotels International.

“We had a number of select-service hotels on the market that we pulled back from selling because we weren’t getting the offers that we liked,” he said. “A lot of potential buyers said there were challenges on the financing front.

 

“It’s better for HPT and HPT’s investors to identify strong brands to rebrand with or to keep the hotels potentially with  the brands where we were going to sell them or rebrand, keep them, fix them up and move forward because we can get better returns holding than we can selling when buyers have a more challenging market.”

Included among the properties on the block were 21 Courtyard by Marriott assets comprising more than 2,900 rooms.

Murray said the decision to not sell the hotels at reduced prices is a result of the company’s goal of achieving 8% cash returns to its investors.

“A good portion of our investors are income investors, and they expect to see growth and a very healthy dividend,” he said.

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