citizenM has been valued at EUR2bn after Singapore’s sovereign wealth fund GIC acquired a 25% stake in the company.
Founding shareholders APG and KRC Capital have also committed additional equity, giving the group EUR750m to invest in expansion.
The company currently has a portfolio of 15 hotels in eight countries and a development pipeline of 25 more sites. The group is targeting 20 new hotels in the US over the next five years, plus further expansion in Europe and Asia Pacific.
Rattan Chadha, founder & executive chairman, citizenM hotels, and founder & president, KRC Capital, said: “We are excited to have GIC as our new investor. This move will help strengthen our position as one of the leading affordable luxury brands in the industry. With our bold expansion plans for the coming years, we are thrilled to have the financial support of investors who trust our vision and are instrumental in securing our future success.”
“Hotels benefit from various megatrends. Think for instance of the increase in global tourism, in part driven by an emerging middle class around the world,” said Robert-Jan Foortse, head of European Property Investments, APG. He also mentioned the growing importance for people to have experiences. “Modern travellers are looking for experiences and tend to put less value on material things. Travel is an important experience in their lives. Nowadays, modern travellers, including millennials, have different expectations when they are looking for accommodation.”
Lee Kok Sun, CIO GIC Real Estate, said: “CitizenM represents an attractive value proposition of affordable luxury in urban markets. It is well-received by consumers who are increasingly placing value in experience and authenticity. As a long-term global investor, we believe this is a good addition to our overall portfolio of quality assets, and look forward to partnering with the citizenM management team to further add value to CitizenM as they expand globally.”
Earlier this year saw APG and GIC Real Estate launch a jointly-owned European hotel investment vehicle, Archer Hotel Capital, following last year’s purchase of a stake in AccorInvest by GIC, as the sovereign wealth fund looked to strengthen its long-term position in Europe.
The Archer Hotel Capital portfolio comprised 11 hotels located in major cities across Western Europe with a gross asset value of around EUR2.1bn. All the hotels were formerly part of the Host Hotels & Resorts European joint venture, with APG and GIC Real Estate having bought out Host’s 33% stake last year for around EUR700m.
The shareholders intended to spend an additional EUR300m “to capitalise on opportunities to further enhance one of the best quality portfolios of its type in Europe”.
APG also has an investment of EUR100m in The Student Hotel, dating from 2015, when it said it planned to invest EUR600m over the next three to five years, taking it to 2018.
The first citizenM hotel opened at Amsterdam’s Schiphol Airport in 2008, followed by citizenM Amsterdam in 2009; citizenM Glasgow in 2010, and citizenM London Bankside in 2012. Rotterdam, New York and Paris locations followed in 2014. In 2016, two more hotels were added to the London portfolio: citizenM Tower of London, and citizenM Shoreditch. In 2017 the company moved into the Asian market, with its first location at Taipei North Gate and this year citizenM Shanghai Hongqiao became the group’s 15th hotel. Further Asian developments are in the works, with a brand new location in Kuala Lumpur next on the opening list.
The company, which pre-fabricates its hotels, was known for its innovative approach to distribution, having trialled listing on Airbnb and partnering with blockchain group Winding Tree, alongside Lufthansa and Nordic Choice. Lennert de Jong, chief commercial officer, citizenM, told Hotel Analyst: “CitizenM is always on the lookout for new innovations that can have an impact to change industries and/or business models.
“In the hospitality industry it is ridiculously expensive to get paid for hotels by their guests, very difficult and fragmented to authenticate an individual, and the power of distribution is with a handful of tech companies, that are charging heavily for this disintermediation.”
HA Perspective [by Katherine Doggrell]: In an age where more brands are more, there are those looking to build the kind of real-life loyalty that comes with a brand you either love or hate. And citizenM doesn’t mind much which. With 15 hotels there are enough lovers out there to fill all the rooms. With 30 hotels there will still be enough lovers to fill all the rooms.
This latest cash injection of EUR750m, courtesy of the addition of GIC and an extra dollop of cash from the founders, may be a sum which you or I would be happy to find in our bank accounts, but isn’t going to take citizenM to the kind of level where it is going to risk the hatred of ubiquity, as the company tells us that it is devoted to the owner/operator model, which does not come cheap.
These are not the only hotels belonging to GIC and APG, which launched Archer Hotel Capital with the former Host Hotels & Resorts European joint venture. When this correspondent spoke to them they confirmed that they were looking at rebranding, but to citizenM? Unlikely given the brand’s new-build mentality. But as the profile and expansion aspirations of the flag continue to grow, it is likely that owners are also going to come knocking, tempting the company with management and franchise contracts. At the moment, the integrity that can only come with controlling every aspect of service and real estate is intact. Temptation may be on its way.
Additional comment [by Andrew Sangster]: What sets citizenM apart from its peers – other than not having a CEO – is its commitment to vertical integration. It wants to own (or at least lease) the property, run the property and then brand the property.
In many ways, the company is a throwback to how the hotel industry used to look 20 years ago, before the separation of assets and brand / management became commonplace.
But citizenM is also the most modern of companies. It has embraced OTAs as an effective sales channel and it has employed the latest technology both with reservations and with back-of-house. Its senior team have been completely at ease with the advance of technology into the industry, a stark contrast with most other hotel groups. So the hotels are state-of-the-art in terms of maximising returns per sq m.
The company has also embraced change, seeing the potential benefits of innovators like the home sharing platforms and adopting the best ideas. It is also prepared to try things out: right now it is trialling co-working, charging people a fee to set up desk in the communal areas of some of their properties.
At first sight, the most surprising thing with citizenM is why it has taken so long to roll out. Its first hotel opened in 2008 and it has grown at a modest pace since then. One factor in this modest expansion (when compared to franchise or management brands) has been the heavy capital requirements and even with the backing of KRC Capital, the family office vehicle for the Chadhas, there are limits to a growth rate given the capital intensity.
Now, however, the company has built teams in the three major continental land masses – Europe, North America and Asia. Property development requires boots on the ground and with these in place, citizenM looks in a position to deploy a lot more capital.
The company bills itself as a “fully integrated real estate developer; design and project management company; and a hotel operator”. It may indeed be tempted to drive a higher return on its money by moving into management but this would handicap its ability to innovate and push boundaries. By remaining tied to real estate, the company is likely to create the biggest long-term value by being differentiated from the competition. It brings an owner’s eye to exploiting the opportunities in how the hotels are run.