Tune Hotels, the Malaysian budget chain linked to low cost carrier AirAsia, is to be backed by a JV vehicle comprising Istithmar, the Dubai investor that has a deal in the Middle East with easyHotel, and City e-Solutions, a subsidiary of Millennium & Copthorne’s parent City Developments.
The move will see 30 hotels opened over the next 24 months for a group that only opened its first property at the end of April.
The Tune model is to provide a no frills service – there are no towels for example – in rooms that are just 10 square metres in size. But this means rates can be as low as US$3 rising to $30.
The business was founded by Tony Fernandez, also the founder of low cost carrier AirAsia, and Dennis Melka, a former investment banker with Credit Suisse.
The new vehicle dubbed Tune Hospitality Investments, gives a 40% holding to each of Istithmar and City e-Solutions and 20% to Tune Hotels. The $50m fund is deemed sufficient to hit the initial 30 property target.
The new investors give the business a number of options, including the possibility of injecting the property element of each hotel into the REIT associated with CDL, the Singapore-listed CDL Hospitality Trusts.
The existing 172-room hotel in Kuala Lumpur is currently running at 95% occupancy. All rooms feature en-suite bathrooms but not all have windows. In addition, air conditioning is charged separately according to usage.
However, high quality beds and showers are fitted. Future properties will follow this pared down model and will similarly feature a branded f&b outlet.
Vincent Yeo, CEO of City e-Solutions, said: “Compared to North America and Europe, there has been gross under-investment in three-star and below product in Asia.”