Marriott CEO on why citizenM is the next brand it can scale

NEW YORK — When asked what made the citizenM brand attractive for acquisition, Marriott CEO Anthony Capuano said it was really where it fit into its brand architecture and how well it fits the company’s model in terms of a brand it can scale.

“We have a pretty strong track record of identifying, particularly in the lifestyle space, select-brand platforms that we think we can scale,” said Capuano, who spoke at the Morgan Stanley Travel & Leisure Conference in New York on Tuesday.

“You don’t have the luxury of an acquisition sitting idly by and available until it’s convenient with your schedule,” Capuano said, mentioning Marriott’s acquisitions of AC Hotels and Protea as good past examples.  “If you see something that you think represents a regional or global growth platform, if you think it will allow you to accelerate your geographic footprint in a market where you are not satisfied with your pace of organic growth… or if you just think there’s a strategic opportunity, and you want to move quickly to get into that space and fill out a gap in your brand architecture.”

Regarding where citizenM fits in Marriott’s brand architecture, Capuano said the company likes where it fits between Moxy and AC.

“Moxy is edgier, a lot of fun, a little irreverent in terms of its design esthetic,” he said. “citizenM is much more design-forward, business-focused, maybe accomplishment-focused, and tech-forward.”

Capuano said that on the long list of citizenM’s attributes that got Marriott excited, there are technology things that the brand does really well.

“The kiosk check-in that they’ve done is as good as I’ve seen in our industry,” he said. “Many of us have struggled to check into a room with some sort of keypad to control everything and either it’s broken or you can’t figure out how to make it work. They’ve got a very elegant, simple solution that works quite well.”

In terms of a comparable acquisition, Capuano used the AC Hotels deal because of what the company was able to do post-acquisition.

“We acquired AC, which was largely a Spanish chain in 2011, so 14 years ago, and if you look at the way we’ve grown that platform, just coincidentally, we’ve grown it at a CAGR growth of about 14% since our acquisition in 2011,” he said.

Capuano spoke on several subjects during the interview. Here are some of his thoughts on different subjects. 

Why would somebody want to build a hotel today?

Anthony Capuano: The good news is that our loyal group of owners and franchisees around the world understand the cyclicality of the industry where they’re investing, and they typically invest with a very long-term horizon. These are assets with a decades-long useful life, and they tend to look at those investments through that lens… While your question is a fair one: why invest in hotels? It would be a more relevant question to somebody who was jumping in and out of real estate sectors and trying to time the market. Those investing long-term in the sector fundamentally believe and are voting with their development budgets in a long-term belief in travel and tourism. 

Does the optimism or commitment differ by region or chain scale?

Capuano: It’s not much by region, to be honest. From a pure operating business perspective, RevPAR perspective, Greater China is the softest market we see right now. Those record volumes of deal production that I talked about also occurred in Greater China as well… We see growth across the chain scales, including strong luxury growth in a market like the U.S., where most projects require conventional financing. If you’re an optimist, you look and say, thank goodness, that the strength of our brands and the track record of our development partners allows us to capture a disproportionate share of the new construction desk financing out there. The problem is it’s not flowing as freely as we would like, and so there’s still a bit of constriction there.

How does continued net unit growth contribute to fee growth?  

Capuano: Some of the activity we’ve done in mid-scale is commanding a lot of headlines, which is terrific, but if you look at the composition of the pipeline at the end of Q1, 38% of the rooms in that pipeline are in the two highest chain scales: luxury and upper upscale. So I would submit to you that, in terms of how that net unit growth translates into fees, we feel pretty good, given our strong concentration in the most valuable [chain scales].