Selina, The Next Generation Hospitality Brand

What is Selina?

Selina is one of the world’s largest hospitality brands built to address the needs of Millennial and Gen Z travelers, blending beautifully designed accommodations with co-working, recreation, wellness, and local experiences. Custom-built for today’s nomadic traveler, Selina provides guests with a global infrastructure to seamlessly travel and work abroad. Founded in 2014, each Selina property is designed in partnership with local artists, creators, and tastemakers, breathing new life into existing buildings in interesting locations around the world – from urban cities to remote beaches and jungles. Selina’s portfolio includes locations spanning 24 countries and 6 continents.

How does the hospitality industry work?

The hospitality industry encompasses a broad range of businesses that provide leisure services, and is typically divided into several sub-sectors: lodging, food and beverage, travel and tourism, and event planning. The whole industry – particularly lodging – was hit especially hard in 2020 when pandemic-induced lockdowns and travel restrictions curbed demand for global travel and tourism. Since then, demand has slowly started rebounding, and the industry’s been growing again as a result.

The pandemic brought about another major change in the industry: the rise of digital nomads. The recent widespread acceptance of working from home has allowed workers to leverage technology and log in from wherever they please. And they’re doing that in droves: the number of US digital nomads alone has increased by 131% since 2019. Digital nomads seek out opportunities that allow them to work while they experience new cultures, meet new friends, and enjoy a unique travel experience.

The industry as a whole will need to adapt to serve this new breed of travelers. Plus, in an environment of high interest rates, businesses in the industry will need to use their capital more efficiently, or shift to a more asset-light business model to improve returns.

Where does Selina sit in the industry?

The lodging industry is broadly split into two categories: major hotel brands with a global presence, and niche lifestyle brands. Disruptors like Airbnb and CitizenM have both tried to reinvent lodging: Airbnb impacted the supply side of hotels by introducing home rentals as a substitute, and CitizenM set out to digitalize the entire accommodation process from booking to checking in and out.

Selina is another disruptor to the industry, having identified a gap in the market. See, travelers looking for local, social experiences often miss out on the operational excellence they would get from sprawling hotel chains. Selina, though, aims to combine the experience of niche hotel brands with the slick operations of major global hotel chains. The result is an authentic and locally immersive travel experience on a global scale.

Selina’s offering is specifically designed for digital nomads. Remember, that’s millennial and Gen Z travelers who want to combine work and vacation time into one, meaning they want to have access to co-working spaces and the ability to immerse themselves in local culture while connecting with others.

What makes Selina stand out?

Selina’s proprietary in-house technology means it can uniquely source potential opportunities, like underperforming hotels in great locations that could be transformed or improved. And because Selina sources over 80% of its properties directly, the firm significantly cuts down on the transaction costs that would otherwise have been incurred by using a broker. Plus, this setup means the company can secure discounted leases compared to market prices, which keeps its costs lower compared to its peers. Selina’s playbook of identifying and converting poorly managed properties into desirable accommodations with unique experiences is scalable and easily replicated across the globe.

Environmental, social, and corporate governance (ESG) is at the core of Selina’s mission, a factor that resonates with its target market. In line with those values, all of Selina’s buildings are upcycled, meaning the company reduces waste and negative environmental impact by converting existing buildings into new locations. And as part of the company’s waste management reduction strategy, it has a target to tolerate zero single-use plastics in any of its locations by 2025.

What are Selina’s near-term plans?

When rising interest rates drive the cost of capital higher, businesses are forced to prioritize returns and profitability. That’s why Selina’s strategic initiatives for the next few years are focused on three main areas:

Positive cash flows: Selina seems to believe the “cash is king” mantra, targeting positive free operating cash flows by the end of 2023. The company is renegotiating prices on its leases and restructuring its debt to preserve cash outflows. Other high-priority targets include reductions in corporate overhead costs and ensuring a disciplined approach for any expansion plans.

A clear path to profitability: One key way Selina plans to improve profitability is to increase occupancy levels – that’s the percentage of occupied rooms in a property at any given time – to mitigate the high fixed costs that lodging businesses pay. Selina is targeting an occupancy rate of more than 55% in the short term, below the 67% average hotel occupancy rate in the US, giving it much more room to grow versus its peers. Selina also aims to forge a clear path to profitability by deepening its footprint in profitable locations and exiting underperforming properties, all while ensuring capital spending is concentrated on projects with the potential for high returns on investment. The company has goals to diversify its revenue sources too: 40% of its 2021 revenues were generated from non-room products, like co-working, experiences, and food and beverages.

Customer satisfaction: Selina’s focus on cash, costs, and profitability is not at the expense of its customers, mind you. The firm aims to keep increasing its number of customers by using loyalty and engagement-driving events.

Risks to bear in mind

One of the biggest risks for hotels is a steep drop off in demand, similar to the years during the pandemic. Because firms in this industry have high fixed costs, a big drop in demand can severely dent profitability and cash flows. Plus, given that growth is largely asset dependent (the number of beds acquired, for one example), persistently high interest rates can impact expansion plans. To address this potential issue, Selina has a large group of local partners that can finance real estate in the firm’s targeted growth locations (currently with over $300m of dry powder). That way, Selina should be able to expand quickly without taking on more debt.

Additional drivers of sales and profitability growth include a further increase in the number of digital nomads, higher travel demand, improved acceptance of alternative accommodations, and Selina’s ability to continue sourcing underperforming properties and repurposing them.

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