Soneva proves it’s a good investment again

BANGKOK – In 2019, an affiliate of KSL Capital Partners took a significant minority stake in Bangkok-based Soneva Holdings after China’s Sailing Capital exited at the end of its five-year term with its CEO Liang Tsui citing “a healthy return.”

Turns out it's an investment that keeps giving.

As other Asian destinations went into COVID-19 lockdowns in 2020, the Maldives – and Dubai – were the only two that resisted. As bookings rolled in, Soneva invested $70 million in expanding its two resorts in the Maldives, Soneva Fushi and Soneva Jani, and upgrading its private yacht product. Its EBITDA more than doubled between 2019 and 2021, according to Co-founder and CEO Sonu Shivdasani.

The Maldives provided 90% of revenues, while in Thailand, Soneva Kiri struggled due to the kingdom’s border closure.

Room inventory at Fushi and Jani doubled to 64 and 54 respectively, with categories ranging from a one-bedroom villa to a nine-bedroom private reserve. This accounts for a healthy ADR of $3,000 at each resort. Some of that is also due to the introduction of Soneva Unlimited in 2021 for guests who want all-inclusive rates.

Sonu Shivdasani

“We’ve got all our money back from that expansion,” Shivdasani told Hotel Investment Today. “I find that if you can incrementally invest in your existing assets, improve either revenues or costs or both, you normally get the quickest and the safest payback.

Soneva is currently spending $10 million on solar infrastructure to increase renewable energy to 60% at both resorts. “Financially this is also sensible. Our electricity costs will go down by nearly a quarter when the panels are installed in August – they'll be the largest of any resort in the Maldives,” Shivdasani said.

The solar development is funded by Germany's Aareal Bank, which is supporting Soneva's transition to a zero-carbon future. KSL has also been “very supportive” through the pandemic years, Shivdasani said.

KSL, together with an undisclosed partner, is believed to hold a 35% to 40% share of Soneva, with the rest owned by Shivdasani and his wife, Eva.

But plans to open three new resorts, two in the Maldives and one in Okinawa, Japan, “pre-approved” by the investors in 2019, face some delays. Only one, Soneva Secret, is on track to open this November, albeit that’s a significant development. Shivdasani expects the resort’s ADR to be 30% more than the current ADR of $3,000 at Fushi and Jani.

Small is beautiful

Even if Soneva eventually grows to six resorts in the next few years, it’s still a question mark whether small players can survive independently, or actually become stronger and more attractive because they are small.

“Most new boutique/small brands are built to sell,” observed Robert Williams, partner and head of hotels and hospitality Asia Pacific of Watson Farley & Williams. “Think of the explosion in craft beer, gin, tequila and bourbon start-ups – all sell to a global brewer at some point.

“Scale helps with diversity and in de-risking the notoriously fickle resort market, but it's terribly hard to go from owner-operator to third-party management. So, not many [small resort brands] actually want to be independent forever, or even for very long. Even those that do will likely run into a wall at some point – on capital or succession.”

But there can be exceptions, Williams added. “Where there is motivation, yes, small resort brands can survive. Travelers are looking for the unique, the special, the personal touch. Genuine owner-operators do that best; they really care. And more than a few staff in the sector are looking for something they can put their heart into.”

It also depends on geography, Williams said. “As seen, small brands with Maldives exposure have been fine, unlike those with Thailand exposure.”

Ghaly Murthala, founder and managing director of Morteza Capital, which specializes in the Maldives, believes small brands can survive.

“Brands become more important as they go higher on the luxury scale. Their reputation and credibility become more important to travelers than their size,” Murthala said. “Some luxury hotel groups with fewer properties have been able curate each individual property in their portfolio as a unique experience. This creates a loyal following, enabling them to attract premium rates.”

Murthala added that for small brands in the lower end of the market, sales and distribution matters more than brand differentiation. “We see that independent groups with a strong sales presence are able to compete with larger global brands. The challenge of course is for independent brands to capture market share without compromising margins, which may require a larger initial investment, he added.

But it looks like KSL won’t flip the Soneva investment, now nearing its fourth year.

“We remain fully supportive of Soneva and its mission of providing luxurious, sustainable resorts and experiences of a lifetime,” said a KSL spokesperson. “We are anxiously awaiting the opening of Soneva’s third resort [in the Maldives], Soneva Secret, later this year. The Maldives remains one of the world’s most desirable destinations, and Soneva’s mission and KSL’s mission to ‘invest in the unforgettable to create the enduring’ remain uniquely aligned.”

It’s a secret

Shivdasani is tight-lipped about Soneva Secret, located in the north of the Maldives, saying with a laugh that “we’re doing a slow reveal.”

“It’s quite exclusive and we will be selling residences. It’s about celebrating the beauty of nature, taking our mission to create unique environments to another level,” he said. “It's the sort of experience you might get on a 60m luxury yacht. Each villa has a team of three – private butler, chef de partie and runner – looking after guests. There won’t be many restaurants; it's a lot about destination dining.”

The key point is we [Soneva and investors] are continuing to work together to grow the business.

Sonu Shivdasani

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Each villa costs more than $3 million to build, and the total investment is $40 million. The resort targets a November opening.

Shivdasani said Soneva has also put in an offer to buy a resort in Thailand in a unique location. “We hope to close that by the end of the year, if not sooner. It's with a public company and we can't reveal too much until they make the offer public. We just have to upgrade it, add rooms and Soneva touches,” he said.

Plans for the fourth Maldives resort and an entry into Okinawa have not been shelved. Said Shivdasani, “It's been difficult to secure a site for the other one in the Maldives. There are tons of islands but not the type we want. But we’re working on a really nice island and hope to close that in a couple of months.

“In Okinawa, we’re just about to get all the government approvals to give us the land but it will still take another year or two to get all the permits. So, I don’t think we will start construction there anytime soon.

“The key point is we [Soneva and investors] are continuing to work together to grow the business.”