If you’re a brand company which has management or franchise agreements with a Reit - and that’s a fair few, given that Reits aren’t allowed to get into putting the mint on the pillow game themselves - you will have been watching SVC’s antics with a quickly-beating heart.
The hands-off relationship between Reits and brands has been, in the main, very benign. Reits have been happy to play the brand game, sometimes deliriously so. Host was quick to hail Hyatt for its cost cutting earlier this year and Marriott last year for the way in which its loyalty programmes put heads on beds.
Last year there were no heads, but plenty of beds and the most many owners could hope for was a cut in costs, because there was precious little else happening. They found themselves, in the main, taking all the pain of an empty hotel and there was a fair amount of gringeing on the sidelines.
Less so at SVC (formerly Hospitality Properties Trust), where the company had a 34% stake in Sonesta, which it acquired in February last year. The first act was to exit the extended stay model, which it may have come to rue, but to focus on full service, which it clearly has not.
John Murray, president & CEO, SVC, said at the time: “As performance improves at the full-service hotels, as expected, we and our shareholders will share in that upside. We are optimistic that this restructuring resolves, for the long term, concerns about Sonesta’s performance and our termination rights.”
And how prescient Murray was - less so about the performance, but he was clearly closely attuned to termination rights and how they could make a company stronger.
What Sonesta gave SVC when it found itself staring closely at its contracts with IHG, Marriott and Hyatt was options, options the other Reits didn’t have. And it started to pile in. The most recent wag of the tale was the acquisition of Red Lion, which took Sonesta from 58 hotels under three brands at he beginning of last year to 1,200 hotels under 13 brands by the close. Not a bad year out even without a pandemic.
It also added Keith Pierce as EVP, president, franchise & development, a former EVP, brand operations, North America at Wyndham Worldwide, and if that’s not a flag of intent then it’s off the gang plank for everyone.
It is clear that Sonesta/SVC’s ambitions are more than just making gimlet eyes at the brands. What will it buy next? Wyndham itself? Why not. When you clamber back up the SVC ownership tree you come to The RMR Group, an alternative asset management company which falls into the category of Very Serious Investor Indeed.
Headed up by Adam Portnoy, the company has commercial real estate all over the US, with properties in every state. It currently has $32bn in assets under management, across the gamut of real estate assets.
Portnoy took over RMR after his father, Barry, died in 2018. Portnoy senior, known as the ‘anti Trump’ for his low-key profile and pleasant ways, had been a director at Sonesta and an enthused investor in hotels. He was also known for his attention to costs - at one time commuting to work in a Subaru.
His son has slightly more exuberant transportation - he has a yacht called the Mutressa, a Bulgarian term that loosely translates as “gangster’s mistress” (Portnoy’s wife, Elika was a runner-up in a Miss Bulgaria beauty contest).
But, like his father, he has a reputation for being a good egg and last year joined the Pioneer Institute, an organisation which defines success as “a state and nation where our people can prosper and our society thrive because we enjoy world-class options in education, healthcare, transportation and economic opportunity, and where our government is limited, accountable and transparent”. So plenty on its To Do list.
On the occasion of the split with Marriott, Portnoy told Bloomberg “a lot of our competitors would really be in a bind, but given the scale and breadth of our organisation we feel very confident in taking back these hotels. We think that this is a great opportunity for us because it gives us lots of flexibility. It really sets us apart. We feel very good about where we are.”
With the firepower of RMR, the company could make a much bigger impact than just Red Lion, now it is shining its light on hotels. Is this what happens to the hotel sector when serious investors start to show an interest? It looks like. Existing incumbents, gird your loins.