BERAL, INC.  
Andrew G. Racz  
Director of Research  
300 East 54 Street, 26C  
New York, New York 10022  
Telephone: (212) 319-6949  
Fax: (212) 753-1944  

SONESTA INTERNATIONAL HOTELS CORPORATION

[SNSTA - NASDAQ] 

SONESTA INTERNATIONAL HOTELS CORPORATION
[SNSTA]

The investment merit of Sonesta consists of the conversion of choice leisure properties into saleable equities. In that, they are in the forefront of managing a diversified hotel concern in the 21st Century.

The prestigious part of the international leisure world probably got its historic background after the first World War. The elegant hotels of the French Riviera and then the major name hotels in Paris, such as the Grand Hotel, the Plaza Athenée, George V, in London the Dorchester and the Grosvenor House, in Vienna Hotel Imperial and in New York, of course, the Waldorf-Astoria and the Plaza Hotel, represented a distinguished and enviable paradise for the wealthy.

Little is known today, or rather mentioned today, about the history of the Sonnabend family. The father, who established Sonesta almost a hundred years ago, owned the Waldorf-Astoria and later bough thee Plaza Hotel. The Sonesta chain, which was previously named Hotel Corp. of America, in 1969 owned 34 hotels all over the world, including the Carlton Tower in London, the Balmoral Club in the Bahamas, various hotels in Bermuda, and the Plaza Hotel in New York City.

Thirty-five years ago, the standard market capitalization of Hotel Corp. of America, with the prestigious Plaza in the middle, was about $20 million. Today the Plaza is worth $450M. In contrast, Sonesta’s net worth is $15M. With the post-war generation, the various hotel chains like Sheraton, began to benefit from the greater valuation of their hotel accommodations. The so-called super luxury hotels have vastly increased in value. Patient and long-term stockholders handsomely benefited from various cash distributions.

Some chains like Hilton, both in Europe and in America, have remained a single entity, whereas others liquidated their properties and remained smaller entities after cash has been distributed from the sale of individual hotel properties. Sonesta, as it is today, is somewhere in between. The company remained an international hotel company, and is engaged in ownership and operation of various hotels and ships. The current property portfolio is diversified:

Sonesta Beach Key Biscayne
Trump International – Sonesta
Sonesta – Coconut Grove
Royal Sonesta – New Orleans
Royal Sonesta, Cambridge
South Beach, Bermuda

 

5 Hotels & 3 Cruise Hotels in Egypt

 

Sharm al Sheikh – Sonesta Beach

 

Peru (7) – Franchised
Tuscany (4) – Franchised

 

Brazil – Sao Paulo

The company in its current structure is a hotel company with various interest. With no particular expansion tendencies, it received moderate interest until it began to realize its assets designed for the 21st century. The company’s income statement for the year December, 2004, represents no particular excitement and the stock during that period averaged about $5.00 a share.

SONESTA INTERNATIONAL HOTELS CORPORATION

Sale and Transfer of Assets

SONESTA INTERNATIONAL HOTELS CORPORATION
[SNSTA]

SONESTA INTERNATIONAL HOTELS CORPORATION

Monetizing Assets

In early 2005, the company signed an agreement to convert one of its most attractive hotels, the Sonesta Beach Hotel, into a condominium with a partner. This conversion, creating about 300 units with a potential price of $2 million each, representing $600 million revenue potential of which let’s say half goes to Sonesta, is a number that we have to consider seriously. $150 million for a company with less than 4 million shares outstanding is $40 a share.

In the development of the leisure industry, this is a revolutionary but not unique step. People have money to buy condominiums, the same way the super-rich a hundred years ago could stay at the George V in Paris. The agreement which changed the Sonesta is in Table 2.

The financial transactions have made an immediate change in the balance sheet. Sonesta received $30 million and $30 million mortgage money was wiped off its balance sheet and transferred to the joint company. On September 30, 2005, the company was immediately in an attractive position. There is total current assets of $40 million with an additional $15 million filtering in over a period of years, so a total of $54 million, with current liabilities of $15 million.

Sonesta only has not $34 million long-term debt, a reasonable number for the number of real estate properties which the company has and which is valued at around $120 million. Furthermore, the income statement also improved dramatically. For the first nine months earnings were $1.77, and the last quarter $.42 versus a $.91 deficit.

The interesting part is the future conversion of the company by this single deal. According to the agreement, the joint partnership which owns the real estate of $120 million will pay the sale of the first $60 million proceeds from the condominiums to Sonesta. That would mean that theoretically the $60 million will wipe out 100% of long-term and short-term liabilities of the company and create a balance sheet of $40 million immediate short-term assets and an additional $15 million, with no liabilities long- or short-term at all. It is easy to see that the interest savings would add at least $1.50 per share to Sonesta’s earnings.

The agreement then calls for the partnership to retain $30 million and then split the remaining proceeds between the partnership and Sonesta, assuming that this remaining sum would amount to $60 million for Sonesta, meaning about $1.50 per share, it would create a real estate company with no debt and $100 million short-term cash on the balance sheet.

The future of Sonesta, however, is far greater than just the potential numbers from the Sonesta Beach condominium deal. It is operating now on three continents, in about twenty ventures. It has a management team which is theoretically a hundred years old. The company is headed by the Roger Sonnabend who had been at the helm almost forty years. The condition of the world today is for leisure. The world is in a peaceful atmosphere, a transition from the century of war to a century of peace. That means leisure, that means boats, new hotels, joint ventures, international travel. In other words, the Sonesta of $100 million surplus cash and management and only 3.7 million shares is facing a possibility of becoming a company with very meaningful price appreciation possibility.

If Mr. Sonnabend would use the cash intelligently and perhaps convert other properties via condominiums, he will after forty years of being president, represent something worthwhile for the century to follow, the company would be a the forefront of providing leisure accommodation for the lower middle class up to the higher middle class. It would historically be the company which was there at the creation in the 1930s and will continue to be the leader of the leisure industry in the early part of the 21st century.

It is a stock to buy for the 21st century.

SONESTA INTERNATIONAL HOTELS CORPORATION   
[SNSTA]   

(Article 16 - posted December 29, 2005)

e-mail: mlikar@aol.com

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