Marriott buys citizenM hotels (now 37 brands, but who’s counting?)

Regular readers should be fairly familiar with the citizenM hotel brand, given the amount of coverage we’ve given it on Head for Points over the past few years.

citizenM first started as an airport hotel brand, opening its first property at Schiphol Airport in 2008. The select-service capsule-style rooms made a lot of sense for ‘value conscious’ passengers on early morning departures or very late arrivals.

citizenM’s selling point was small and cheap rooms, at hotel which had plenty of personality, good in-room tech, funky lobby lounges and often cool rooftop bars.

It turns out there is also a significant market for the concept in city centres, with citizenM branching out and opening hotels in Europe and the United States.

There are four in London, three of which we’ve reviewed:

• citizenM Shoreditch review
• citizenM Victoria review
• citizenM Tower of London review

The brand, which operates a total of 36 hotels comprising 8,544 rooms, seemed ripe for acquisition as Hilton, Marriott, Hyatt et al set their sights on the ‘select service’ market.

‘Select service’ brands offer well-priced rooms to guests with limited amenities – think smaller rooms, and no gyms, spas, pools or laundries. It’s a market that citizenM pioneered and has since been copied by the big chains, including Marriott’s own Moxy brand.

Well, if you can’t beat them, buy them! Just weeks after IHG acquired the smaller Ruby chain and Hyatt took control of the me and all brand from its partner Lindner, Marriott has just announced it has ‘reached an agreement’ to buy citizenM.

Interestingly, Marriott is only buying the brand itself – for $355 million. The existing owner will continue to own the actual hotels (or hold the leases, if they do not own the building outright). As a result, Marriott will get $30 million per year in franchise fees from the existing hotels and three ‘under construction’ for an immediate 8% return on investment.

The seller may receive up to $110 million in further payments based on the future growth of the citizenM portfolio.

What is surprising is how long it has taken for one of the big hotel chains to snap citizenM up. Hyatt, IHG, Marriott and Hilton have been hoovering up small brands like this for the last five years. It’s a bit of a loss for Hyatt, which could have significantly boosted its European portfolio, especially in London and Paris, for a modest cost.

Anthony Capuano, President and CEO of Marriott International said:

“We are thrilled to add citizenM as a unique, differentiated offering to our select-service brand portfolio as we continue to strengthen Marriott’s foothold in this valuable market segment around the world.”

Here’s how citizenM CEO Lennert de Jong explained the transaction:

“With the strength of Marriott’s development engine, we look forward to the prospect of many additional citizenM properties in new destinations around the world. We will continue to own our real estate and operate all our hotels. This relationship will allow us to work together to maximize returns.”

A more honest comment came in a separate email from Rattan Chadha, the founder of the chain:

“Our relationship with Marriott brings the opportunity to enhance occupancies, improve our revenue streams, and reduce our reliance on online travel agents.”

Fundamentally, the $30m which will be paid per year in franchise fees should be netted off with gains elsewhere. Assume a small uplift in occupancy frombeing part of the Marriott ‘system’, a decent shift in bookings from expensive online travel agents to marriott.com and a cut in directly employed sales and marketing staff and it should all net off – and the founders still have the $355m for selling the name.

It isn’t clear how citizenM will be integrated into Marriott Bonvoy. We can only hope that Marriott does not repeat the mistake it made with Four Points Flex and only give 0.5 elite nights per night (and nothing for a one night stay) and a reduced five points per $1 spent. Given the rates charged by Four Points Flex, especially the London Euston site, this is a joke.

Assuming the transaction gets waved through, Marriott now expects to grow the number of rooms it offers by 5% this year.