Buzzy, nimble citizenM poised for growth

Led by Singapore sovereign wealth fund GIC, Dutch pension fund manager APG Asset Management and citizenM founder Rattan Chadha’s KRC Capital, citizenM hotels, Amsterdam, in November raised US$1 billion in new capital for further growth.

The lifestyle brand launched in 2008 finished 2021 with 24 hotels open and reportedly wants to add 40 or more by the end of 2024. It is also focused on introducing initiatives that include fully contactless operations and creative subscription products.

citizenM, known for its dedication to design, art, technology and comfort, also demonstrated its continuing commitment to ESG transparency and improved performance by participating in the 2021 Real Estate Assessment. In fact, it achieved the highest rating available, attained by only 20% of entrants, 5 stars.

More than half of the money raised in November is being set aside for hotel development and the balance will be used to complete existing development projects and make up for revenue lost during the pandemic, according to Chief Executive Officer Klaas van Lookeren Campagne.

Despite the impact of COVID-19 on the hospitality industry, citizenM is continuing with its ambitious global expansion with the support of its investors. GIC acquired a 25% stake in citizenM in March 2019 at a €2 billion (US$2.3 billion) valuation.

As it increases its growth trajectory in the United States, citizenM was most recently opening properties in Miami, Los Angeles, Washington D.C., and San Francisco, doubling U.S. presence to 10 hotels.

HOTELS recently spoke to citizenM Chief Growth Officer Ernest Lee about the state of the brand and plans for the way forward.

HOTELS: How are you best competing for deals? Why are developers choosing you?

Ernest Lee: We are competitive for primarily three reasons: (1) we are an asset-heavy brand, (2) our business model focuses on density and operating efficiency, and (3) we focus on long-term ownership.

Developers like working with us because we create a buzz in mixed-use projects, generate better unit economics, and enhance the overall credit and visibility of a sponsorship group.

H: Are any current citizenM developers coming back for more?

EL: We are always in discussions with our existing partners to do more business together.

“Developers like working with us because we create a buzz in mixed-use projects, generate better unit economics, and enhance the overall credit and visibility of a sponsorship group.” – Ernest Lee

H: What are developers looking for differently in terms of products, contract terms, key money, out clauses?

EL: Developers are constantly looking at the future of travel and making sure hotel concepts will have staying power. Our focus on high-quality design, experience and technology provides confidence to our partners that we will be as relevant in 25 years as we are today.

Our negotiations are not like a standard hotel management agreement since we are usually majority investors in our projects. We always prefer ownership.

H: Beyond the publicized pipeline, what is under development?

EL: In addition to those cities, we have ongoing U.S. projects in California’s Silicon Valley and Boston. H: Can you speak to the pipeline in Europe?

EL: We have ongoing European projects in London, Paris and Rome.

H: What is GIC’s influence on the company?

EL: They are a highly sophisticated global hotel investor, with an important macro perspective. Any time you bring in a partner playing at that level, everyone’s game improves.

H: Will citizenM consider a brand extension?

EL: For now, we think the challenges of rolling out one brand is enough.

H: Can you elaborate on 2021 performance and the current outlook?

EL: Like many other urban hotels, we had an uneven year in 2021. When travel restrictions were not in place, leisure was strong and for some time in the fall, some business travel returned.

Our outlook for 2022 is best characterized as cautious optimism. While it’s tough to have rose colored glasses with the current variant, we were surprised the level of demand exceeded our expectations in 2021 the moment travel was more open.

Public space at the citizen in Washington, D.C.

H: How are you best managing through pandemic to control costs and drive revenue?

EL: We were fortunate to have a lean operating model where we could scale down faster and be a bit nimbler than others. We never closed a hotel during the pandemic, unless required to do so by a local municipality. We also looked at the pandemic as an opportunity to test and improve a number of product initiatives – some that created new revenue ideas and others that helped control costs and improve service.

Throughout the pandemic, we continued to invest heavily into technology – especially in areas where we can gather more insights and intelligence about our guests and improving mobile app functionality. This will allow us to become more efficient in our digital marketing, operational and retention activities.

One area we’ve been experimenting in our revenue model has been the exploration into a subscription type business. We started with a few beta launches – first in late 2020 by offering a long-term stay membership, and then again in 2021 we offered a one-night-per-month option. We learned a lot from these tests and are working towards a full launch in the coming months, with a product that’s a bit more fine-tuned.

H: citizenM has always had a lean staff model. How is that evolving, what are you doing to manage staff these days?

EL: We always look to technology to better enable our ambassadors to focus more time on guests and actual hospitality. That means continuing to invest in tools and platforms that will take over more and more of the utilitarian functions, so our teams can mainly focus on the human elements.

H: What are your upcoming ESG initiatives?

EL: We have a number of environmental and social governance initiatives underway, and they are central to our long-range business model. Among the latest is an update to our charity citizenMovement, which is founded on the goal of “real caring.” Now, when guests decline room cleaning, €3 is donated to the citizenMovement Foundation on their behalf. To date, the foundation has donated over €830,000 (US$940,000) to charity partner World Bicycle Relief.

H: How have you replaced COO Michael Levie?

EL: As one of the original partners, Michael was an instrumental part of citizenM’s creation, growth and culture. While it’s always difficult to replace someone that was part of the founding team, there’s a highly talented group of home-grown executives that are jointly leading the operating business to the next level. These include senior management team members like Chief Commercial Officer Lennert de Jong; Chief Hotel Operating Officer Matt Bell; Chief Marketing Officer Robin Chadha; Chief Experience Officer Casper Overbeek; and myself. We have a combined 50 years with the company.