January 24, 2022 – On today’s show we welcome special guests Rafael Museri, Co-Founder and CEO of Selina, and Ben Friedman, Co-Founder and CFO of BOA Acquisition. Selina is a fast-growing hospitality and experiential brand targeting Millennial and Gen Z travelers. It recently announced a merger with BOA Acquisition at a $942 million enterprise value.
On the show, Rafael and Ben discuss:
- Selina’s value proposition and how it differs from other hospitality brands
- How Selina’s operating model is “asset light”
- What BOA Acquisition found attractive about Selina’s business model
- Rafael and Ben’s favourite Selina vacation spot
- And more
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Welcome investors to The Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies, your hosts, Julian Klymochko, and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate because performance matters. Find out more at accelerateshares.com.
Julian Klymochko: All right. Well, I’m pleased to welcome. We have Ben from BOA Acquisition, and we also have Rafael from Selina here to talk about the business. The recently announced merger, going public transaction, and a lot of details on Selena, which I’m excited to get into. It makes me think that I really need a vacation because it is freezing cold here. So hopefully doing real on the boots, boots on the ground due diligence on Selena is in my near-term future somewhere hot preferably, but kicking off the podcast today, could we quickly touch on a history of both your backgrounds prior to the founding of both Selena and BOA respectively. Rafael why don’t we start off with you?
Rafael Museri: Thank you. My pleasure being here. Thanks for hosting us. My background, born in Israel, raised in [Inaudible 00:1:01] until I was about 26, spent about 12 years in the military service with a major rank. And since I was 30, I start my business at venture, which today I’m afforded to married with two little girls. We live, again, the last 12 years in Latin America. We lived in New York, we moved to London. So, every time we open a new continent for Selina, we move with the brand and the key executives, the company, and today we’re spending time between Israel, UK and New York and Latin America trying to maintain a nomadic lifestyle and a little bit similar to our guests around the world. Now a little bit before Selena born, we started a real estate venture was quite kind of the same DNA. Buying critical mass real estate and creating the appreciation through destination building strategy. And then Selena was a very organic development of this approach started seven years ago. So, this kind of background.
Julian Klymochko: Okay, great. And Ben, how about yourself?
Ben Friedman: Hi Julian. It’s a pleasure. Thank you so much for having us. My career, graduated Penn, I went to wall street and was a credit trader for a number of years before heading over to CQS which is a London based hedge fund where I focused on high yield and [Inaudible 00:2:41] investing. I was a portfolio manage there and then I went over to Citi Group to help run our energy trading practices before launching BOA with a few Detroit natives. One of whom is my cousin, our CEO and chairman, and we raised 230 million on the stock exchange in February of 2021 with a distinct focus on property technology and disruptive real estate related enterprises. And we’re fortunate enough to have found a wonderful partner in Selena and Rafael and Daniel. And we’re very excited to be bringing them public hopefully with a deal closing in the first half of 2022.
Julian Klymochko: Great. And I do want to do a deep dive into Selena, so founded in 2015, I find the mission quite interesting, inspiring, authentic, and meaningful connections through the world’s first work, stay and play ecosystem. What inspired you to pursue this mission, Rafael?
Rafael Museri: So again, both backgrounds, me and Daniel. Two co-founders, both travelers. I cross fourteen countries in bicycle, bicycle with a small tent, sleeping bag, food, and crossing India, Argentina, Chile, Egypt, and interesting places. And Daniel surf since he’s six years old, all around the world. So, we both love to travel. I think to get into a business in the hospitality industry was very natural of course. Number two, travel into many, many hostels kind of an average age of 20,21, very, very specific. And on the other side, we used to have all these traditional chains walking into big lobbies with America course in the morning, asking myself, this is it. And that’s like the best that the industry can deliver. And it was obvious for both of us that there is a need of a new platform.
First of all, we realized there was any platform that the average age anywhere between 30 to 35, you’re either in the twenties and your hostel or you’re in the forty-five, fifties. And it was nothing the really gather Millennial and Gen Z. So couldn’t be a bigger opportunity. Number two, again, 43% of the demand, the combined time of, you know, lifestyle accommodation, it’s over two trillion, just accommodation 850 billion. When you look at that combined time and being able to launch the first platform, try to lead this category. It’s an opportunity that you have not really often. And the third thing is very important is realize that north 70% of those two generations, which is close to 2 billion people appreciate experience over materialism for the first time. So, for the first time, if you put your focus on experience programming content, you’re going to get more attention than if you’re going to put your energy into physical spaces, marble floors.
So, it’s changed, something shifts. So, you can build a Pala, in Mexico and $12,000. It’s going to generate more revenue than a 2 million launch in [Inaudible 00:6:11], this is for me, it’s what those generations representing. And for us to build a brand, that the number one KPI that you measure every morning, what percentage of my guests make a friend before revenue? Before EBITDA? What percentage of them really make a new friend here? And percentage is north 60% that’s for me, it’s crazy, right? It’s crazy. And the good news? When 60% of your guests make a friend, you’re probably going to make more revenues than any other competitor in the area, the connection between people having fun, consuming, experience content, programming, meeting new people, and staying longer, spend more time with you, want to stay, your core working, it’s all connected.
Julian Klymochko: And so, if I understand this correctly and no doubt that as a millennial, the travel and digital nomad lifestyle makes a lot of sense. Your value proposition at Selena and how the company differentiates itself from other hospitality brands would just be more so on the experience, as you indicated, you know, making a friend is your number one KPI. Is it just, you know, you guys have this unique way of establishing these experiences and creating these connections in the operations that you offer?
Rafael Museri: Let’s start from [Inaudible 00:7:36], first of all in other data 25% of those three generations, that’s 600 million people. The purpose of their travel is to interact, is to meet new people. This is a big number. When you hear again and again, the same boring piece of commercial strategies, you need to improve your distribution channel. You need to improve your pictures. You need to improve people going through the same pattern. Imagine what’s just going to happen if just by being the best place to socialize, what an amazing commercial strategy, right? Even if it’s cost you to give a free drink or free meal. When you’re telling someone to travel alone or with the friend, the chance of you meeting a new friend or interacting with one, it’s bigger in this space versus another space. You’re going to choose this space where this chance is bigger.
That’s number one, number two, I’ll give you one example. Welcome drink. You walk into Selina. Every Selina around the world. There is a welcome drink. The welcome drink is a free cocktail made locally. All the new people that check in this morning, or this afternoon, 5:00 PM. They meet in the most beautiful space. And the person that will facilitate this introduction will ask you a question. Hey, where are you from? Where you’re coming? How many days are you going to stay here? And that’s enough in order to make this first introduction a little bit easier for people, you know, not everybody’s brave to walk into a space and say, hey, my name is John. Where you’re from, right? Maybe 5% brave enough. 95% will not do it. Someone needs to help this first step. We’re happy to be those facilitators in many cases.
Julian Klymochko: Okay. And so just to provide some context to investors, you have your Millennials and Gen Z travelers. They book a stay at a Salina property. They walk in, they get their free drink. Then what sort of experience can a customer expect?
Rafael Museri: So, there’s few brand standards. So, we always co-working professional co-working places you can really have a very great Wi-Fi all around the world. It’s a small village and Amazon in Ecuador all the way to Chelsea, New York or [Inaudible 00:9:58] market, London, et cetera. So great Wi-Fi, great co-working. Depends on the size of the location, small cinema. It can be for 10 people. It can be for 40 people, but it’s a great space. Well designed a hundred percent upcycle. You have a nice small library. You have a very little bit like an upgraded common kitchen. You remember the hostel days that was used to be a common kitchen. So yeah, we upgrade this product called the common kitchen into a little bit more design, and you can see on families, you can see 25 years old backpackers. You can see 35 years old people staying in suite and going to hang out and cook.
So those kinds of amenities existed in every Selina. Always going to have a food and beverage space, 1, 2, 3, or more depends on the size of the Selina. Always contented programming, always two or three or four events. Now it can be from a running group. It can be a yoga session. It can be a talk on the roof. It can just be live music. We’re always going to try to maximize the amount activities that will organically allow people to interact. From the room’s perspective, everything between dorms, big dorms, private boutique dorms, all the way to standards, kind of the three-star product. You have all the way to the suite and the loft, which is the fours and the five stars. So, every Selina from $10-20 to $400-500 again, Selina right now, it’s a hundred percent occupied and $700 an hour. Which is very expense because [Inaudible 00:11:41], those days is very expensive, but at the same times, you can have locations that there is no high demand and it’s different, but this kind of democratic approach of accommodation saying we don’t really care what the financial background, if you have $20, we have a pad for you, if you have $500, there’s a great suite for you. In the common area. Everybody is one. We’re never going to give a better attention to client that spend $300 a night versus the family that took a [Inaudible 00:12:16] for the two kids and parents, always the same, always treating everybody the same way.
Ben Friedman: And Julian, I think what’s so interesting about what Rafael and the Selina team have put together is if you think about how Zara became to be your [Inaudible 00:12:32] came to be in the mixing and matching of fast fashion with luxury fashion and things of those nature. For this generation, you know, an average age of 30, this hits that exact subset of the consumer base that’s looking for these variety of different experiences. And all of that is an underpinned by a very specific and well diligence manner of construction that allows them to standardize the process of real estate acquisition, of development, while at the same time, creating a unique product and a unique experience for each individual traveler that comes. So, you’re talking about at this juncture, the world’s largest lifestyle and hospitality brand, there’s, you know, north of 130 locations, their across, you know, almost every continent, but Antarctica. And they’ve been able to do this in under six years. And, you know, as we think about, you know, on the BOA side, when we were looking at this asset and trying to figure out what is the general shift, it really is Rafael figured it out. And, you know, they’ve been a COVID beneficiary as a result of this institutionalization of remote work. And we expect to see average stays increased. We expect to see ADRs increase over time. And as he pointed out, when you’re having a good time, when you’re socializing, you tend to spend more money on food, beverage and experience. And so, when you look at this type of asset versus a traditional three-to-four-star hotel property, that’s not providing, you know, much in the way of food and beverage. Take a standard Hilton Garden Inn, you know, maybe somebody goes down to the barn and has a cocktail, but in this experience, you might be signing up for classes.
There is addons, it’s tech enabled. You can do all of it on your phone from booking your room to booking your experience, to meeting new people in that particular location. And what’s so powerful about that is they generate an excess of 40% of their revenue from food and beverage and experience. So, we’re not talking about standard hotels doing in the way of 10 to 12%. So, you can only imagine the fact that, you know, they’re driving foot traffic from the local community, which is having an ancillary benefit on revenue. North is 60% of that revenue generation from food beverage and experience comes from people not staying in the hotel. So, they’ve become as Rafael likes to say, the place to be for the local community, which in turn has been able to allow them to drive foot traffic from travelers, which is a Hudson beds revenue. And when we think about growing that globally, this network effect should be cumulative and be able to drive ever increasing profit margin north of, you know, 25 to 27% by 2025, economies is scale grow here. So, we’re incredibly excited about the investment thesis. Their ability to touch their NPS scores. Frankly, everything that they’ve done here, all of the major hotel chains have taken a stab at over the last decade and have failed to standardize the process, to allow them to have global growth, scope and scale that Selina has done in such a short timeframe.
Michael Kesslering: Oh, and that’s very interesting. When you’re traveling, you want to be where the locals are. And so that’s really interesting where a material portion of the revenue is coming from local traffic. Rafael, how is Selina operating model asset light, and how do you use capital partners within your business model?
Rafael Museri: So, watching many, many real estate growth startups in the last few years, for me, it was very, very obvious. Because in hospitality, you can go franchise, you can go management, you can go lease, you can go [Inaudible 00:16:29]. This is kind of the four ways, right? You can buy and operate. And if you choose just to operate, you have three ways to go. You can franchise, lease or management. Ideally if you decide just to operate, you want to lease, why? Because in the lease you have the opportunity. If you’re a good operator, you have the opportunity to make 20 to 25% margin. Well, in franchise, you’re going to make 1 to 2% in management you’re going to do 3 to 4%. To maximize your profits. You want to go to the lease, but lease basically bring two big disadvantages, very highly abilities in your books because you need to lease property for 20 years.
You want security. So that’s a disadvantage. And the second disadvantage of lease, you need to put a lot of money out of your balance sheet because you lease the property for 20 years, you need to invest a lot of CAPEX in the conversion of the not relevant box as we like to call it to the relevant box. So, Selina and again, there is a lot of data out there. I believe we’re the only company in the hospitality area today, took the advantage of the lease, enjoying the high margins of 18 to 25% and taking out completely the two disadvantages. So, Selina and a hundred percent of its leases have a termination clause with an average of two to two and a half years. So, Selina can terminate without the penalty while our landlords commit to us for 20 years, that’s a very, very unique lease model.
That as a fact, in COVID, Selina lost no deals, Selina have no litigation. We have a very strong leverage and great relationship because we turn, we convert underutilize assets into a great destination. So, use a landlord. You’re going to watch how in a three-month process, a young group of locals came and convert this space to the most hip, cool and sexy product in the town. You will not really, you know, it’s not going to be that easy for you to let this operator to leave, right? So that’s disadvantage number one, which we sold, we have a termination clause to a very, again, strong relationship with landlord. Number two, the conversion cost. I’d say that conversion cost goes between $25 to 30,000 a key. If you want to open 3000, 4000, 5000 keys a year, you can end up with 150 million with a big number of CAPEX out of your balance sheet, which going to take you years to become profitable for years to turn your business, to stop burning. So again, we build a strong brand. We prove the model and then real estate institutions, local rates, and high [Inaudible 00:19:27]. Selina said, hey, I would like to be your local partner, in this specific geography. So, Selina today in hundred percent of the country we’re operating, we have local partners, those local partners pay the conversion. So, Selina chooses the location. We say, this is where we want to build an existing agent, our local partner fund the conversion and Selina basically stay asset light with a termination clause enjoying [Inaudible 00:19:54]. That’s a summary.
Julian Klymochko: And one of the best parts about being asset light is that you don’t need as much capital to grow. You guys certainly have grown and scaled quickly. Hundred thirty plus locations in just six years. So, kudo to that, and you recently announced this going public transaction, which I assume will just supercharge that growth. So, BOA and Selina merging proforma company. Equity value of 1.2 Billion. Enterprise value of nine hundred and forty-two million. How did this deal come together?
Rafael Museri: Please, Ben.
Ben Friedman: Of course. So, we had actually had the pleasure of having worked with the Selina folks for a number of years. My cousin Brian is in the hospitality space and is an individual asset location and had worked with the Selina team on identifying U.S. based assets previously, as we were looking at the COVID landscape and trying to identify something that was disruptive, we had a conversation internally and we said, you know what, at this juncture, with the shift to remote work, with what COVID is doing and transforming the manner in which we’re operating on a day to day basis, this is the right time to start talking to a group of individuals that have been able to exponentially grow in such a short period of time. And so, the conversations began in earnest, and we were lucky enough to be able to work with a wonderful partner here to consummate this transaction.
And now obviously we get the joy of going to a lot of these business functions together and really getting to tell the story. But as we thought about what is going to change in the world, and I come back to the fact that these are the first guys to scale this globally and Rafael doesn’t love this analogy as much, but the process that they’ve put in place is not dissimilar to how McDonald’s utilize a global growth strategy with regards to a standardized box. Utilizing standardized real estate procedures, but at the same time, taking into account the tastes and preferences of each individual country within which they operate. So, if I’m in McDonald’s in Japan and I’m in McDonald’s in the United States, I’m not going to have all the same product offerings. Selina created a local product built by locals up cycling their furniture.
And the most important part is their speed is their advantage in terms of the ability to get to market. So, they can upcycle, renovate an underutilized asset, bring it to market in three to four months. And all of a sudden that’s a huge competitive advantage in that market. Now, imagine if you have the ability to become that asset driver across an entire country, which is what we’ve seen them do in Panama, Costa Rica and now into Israel, Europe, United States, and all of these things, they’ve been able to do it so quickly. So that’s disruptive. Their method of doing things is disruptive. I was reading about Airbnb the other day and all the things they want to bring to the market in 2022, Selina been doing that for years, before remote work was anything other than a pipe dream for a number of people. But as data shifted to the cloud, as internet has become ubiquitous, we now all have the ability to experience what Selina offers. And there’s a huge potential as this network grows to not only increase the number of people coming and staying at our places. Increase the length of stay and all of those different things as a function of being able to travel from a Selina in New York to the Selina and Panama, to the one in Tulum, to the one in Portugal, and, you know, back into Israel, you can travel around and become a true, you know, beneficiary of the network they’ve created. So, all of those things are in so far as to say, we think that the growth potential here is limitless because the mismatch on the assets they’re looking for and the demand from the consumer base, it just means that we have the opportunity to take advantage of this.
And at this juncture, we’re the global growth leader. That’s a competitive advantage. And now to capitalize them appropriately, to give them the additional firepower, to look at a variety of different types of transactions, whether it’s portfolios of hotels, strategic mergers, adding new types of product services and offerings, all of that is only going to grow. And I think one of the coolest things they’ve done over the last few years is a shift towards a cashless product. It’s a wristband, I’m sure Rocky’s wearing one right now. I wore one when I stayed at the asset in Camden just across the street from the concert hall in London. And, you know, that drives incremental profit growth. They’re taking advantage of micro jets and you know, applications and all of that to continue to drive. So, it’s tech forward, it’s tech enabled. And I think that’s exciting. That’s disruptive, and you want to be a part of a disruptive, exponential growth company. And we’re just lucky enough to have been able to strike up a wonderful relationship with Rafael and Daniel and fortunately enough their head of business development and I went to college together. So, there was some preexisting relationships that gave us some comfort here. And I think the sky’s the limit for these guys.
Julian Klymochko: It’s great to hear. Certainly, you seem excited about the technological disruption and the global potential about the Selina business model. Now, Rafael as a company, that’s going to be out there in the public markets. It’s important to kind of set the stage as for what investors can expect. So, what can we look forward to over the next 5 to 10 years? I know that in your investor presentation, you are indicating that you could get to 1.2 billion in revenue by 2025. You also mentioned this new nomad passport subscription service. What do you expect and what can X investors look forward to with respect to Selina future?
Rafael Museri: 26:13 So, I think first of all, the most important, which is the most important [Inaudible 00:26:21] is stereo authentic, and to build unique locations around the world and scale. Everybody that deal with lifestyle, every operator, every person that build a company deal with lifestyle, the most important thing is to stay relevant, is to stay unique for the community where you build. When I build location in Santa Costa Rica, and in the same week, we open location in Peniche in Portugal and we’re opening Melbourne, Australia and Marrakesh coming soon. The most important things for the community need to know that we commit that each of those locations going to be hundred percent local. That’s going to be the place where the local community going to choose to go, and you will follow them. The local community will never follow the international community. That’s number one, it’s the most difficult job. It’s what Selina nailed.
We call it internally the destination building strategy. We’re going to keep putting 90% of my time will go towards the destination building strategy to ensure we’re unique, whatever we go. The way we’re doing that, and this time to say, thank you for experience board around the world. Experience board are three to two people in every village where Selina operates. It’s three people with no hospitality background, zero business background. They just know what the local going to do. They can be coming from the creative industry with DJ, can be great production people, can be creative people. They know what their friends want to consume in Marrakesh or in Chelsea or in DC. They are writing down the concept book of Selina. So, a promise to our community, we’re going to stay relevant and unique, number one. Number two, every place on this globe experience can be delivered we’re going to put a box.
I think that there are three platforms that you need to build in order to be able to scale. And there are three platforms that need to be built. One of them is the technology platform, you need to be able to plug and play every location around the world quickly. The second is the real estate platform. You need to find a way to find, to find those distress or underutilize asset. And in 90 days, convert them and triple the revenue. This is a very interesting platform. Imagine you walk in with 30 people, you upcycle all the furniture, you bring it back to the rooms, a lot of art and you open. You plug it into your technology platform that allow you to operate, right? And then the third platform is the destination business strategy. I feel today after seven years and more than 350 million investments to date, you are never finished build the platform, the suite platform in a very advanced stage to the point that I feel very comfortable to put Selina around the world. We just started. It’s the beginning of the beginning of this brand.
Julian Klymochko: That’s a really good story. And prior to letting you guys go, Rafael and Ben, I’m going to put you on the spot here. I want to know what’s your favorite Selina location globally. Sam planning on traveling. Where would you recommend, I go? Ben, we can start with you.
Ben Friedman: So, I would say, you know, Camden, because that was the first Selina, I ever stayed at was the best experience for me. There’s a wonderful vegan restaurant called power plant. We’re right across the street from the orchestra hall. It’s just a really unique location. And that’s where me and Rafael had some really fun conversations. But I’ve had the opportunity to experience them all across North America. And I just love the vibe that they brought off. You know, we spent a bunch of time down at the rooftop in Chelsea, in New York. There’s a beautiful pool. DJ is there every night, there’s, you know, a very hip crowd. It’s just a different experience. It’s a different vibe. And I think that they’re going to be able to bring that. Unfortunately, because of COVID, I haven’t been able to experience some of the new locations in Israel, but I follow them on Instagram. And if I could ever get to the destination in Ramon, I would be happy as a clam. It’s a beautiful camping setup that they put together. I think Rafael was able to put this property to work in under 30 days.
Rafael Museri: 27 days. That’s one of the highest revenues. Hotels ever delivered per square meter, 27 days.
Julian Klymochko: Wow.
Ben Friedman: And what they’re doing is exciting and it makes you want to be a part of it. So, I welcome as soon as, you know, travel restrictions, the opportunity to go just about everywhere in the network and, you know, experience the lifestyle.
Julian Klymochko: All right. Rafael how about you?
Rafael Museri: First of all, our remote Costa Rica, Mexico, Portugal, Peru, Bolivia, Argentina. I’m just saying, Selina, go to the obvious destinations, but Selina everywhere, looking for the unique ones, the remote of the grid, the places that people coming, and they can’t believe that someone put these boxes together. So, my favorite places, obvious, they’re of the grid remote. Now they’re packed with Americans, Canadians right now, Europeans, there is no space because again, they’re staying for a long time and working, playing, staying, and they’re having fun. So, and if I need to choose one, wow. I would say Annapolis, Brazil has an incredible combination of one of the best surf clubs in Brazil, combined with the most incredible skate park in Brazil, combined with the pool garden, with an internal big spa for the winter days and a great partnership with [Inaudible 00:32:33]. We just opened in Florida with ABG. A big welcome by Selina surf club, which we’re expanding right now around the world. So, Florida and Brazil, it’s a great one, but there’s so many. It’s difficult question.
Julian Klymochko: Yeah, Rafael. I think you have me sold as soon as you said a surf and skate club. I am interested. So, thanks gents, for coming on this show today. For investors interested in this story. BOA Acquisition trades, ticker symbol, BOAS the merger with Selina expected in the first half of 2022. Did you guys announce a ticker symbol for Selina once the deal’s done yet?
Ben Friedman: SLNA
Julian Klymochko: SLNA. All right. Well, thanks, gents. wish you the best of luck, and it’s an exciting story. We’ll be monitoring it.
Ben Friedman: Thank you so much, Julian, Mike, and have a happy new year.
Julian Klymochko: All right. You as well,
Rafael Museri: Julian and Mike, thank you so much. Happy new year.
Julian Klymochko: Bye everybody.
Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.
