Serviced apartments, extended-stay and lifestyle hotels provide Frasers Hospitality with a solid foundation to build upon. CEO Choe Peng Sum plans to use key markets around the world to reach his goal of 30,000 units by 2019.
SYDNEY—With its 20th anniversary on the horizon in 2018, Frasers Hospitality Group continues on its quest to reach the 30,000-unit mark in its portfolio.
With fewer than 8,000 units to go to reach that milestone, CEO Choe Peng Sum said the company will achieve its goal by adding to its footprint in current strongholds such as Europe, the Middle East, Asia and Australia as well is finding the right fit in North America.
While traditionally focused on serviced apartments—also called extended-stay hotels in some parts of the world—Frasers has expanded to lifestyle hotels as it builds its global roster.
The company’s brands include Fraser Suites, Fraser Place, Fraser Residence, Modena by Fraser, Capri by Fraser, Malmaison and Hotel du Vin.
“Besides investing our own balance sheet of Frasers Hospitality Group, about two years ago we launched a real estate (investment) trust called Frasers Hospitality Trust, and we listed it in Singapore stock exchange,” Choe said during an interview at the Frasers Hospitality Trust-owned Sofitel Sydney Wentworth. “For that, the growth will be global. We will have our brands, but we’ll also go for third-party brands.”
In addition to the Sofitel Sydney, FHT has acquired the InterContinental Singapore; the Westin Kuala Lumpur, the ANA Crowne Plaza in Kobe, Japan; the Maritim Hotel Dresden in Germany; the Park International in London; and the Novotel Rockford Darling Harbour in Australia.
“We made it such that in our balance sheet we will be buying for our brand group, and we set up in our capital markets the real estate trust to also grow—we can participate in not only our own brands,” Choe said. “It’s like an ecosystem. Once we buy something on our balance sheet and we run it well, it becomes very yield-driven; we actually exit it back into our REIT, and so that way we get our money out, but we still get to manage it.”
That process has helped build a roster of 148 properties for the Singapore-based company. Frasers will continue to look for available assets, Choe said.
“We always try to buy around that six, seven o’clock in the property cycle,” he said. “We won’t try to hit it at that twelve o’clock cycle. We have put in strict yield hurdle rates that put in risk factors and some countries are good, but when the political scene is no good the risk shoots up. It’s a discipline because we use other people’s money as if it’s our own money.”
Choe said it’s inevitable that cycles end, but that doesn’t mean Frasers will quit looking for quality assets to acquire. He hopes to use that strategy in North America.
“North America is a jigsaw puzzle we have yet to fit in, to fill,” Choe said. “We think we are three years too late and enterprises have ramped up quite a bit, but we’re looking. We’re probably looking for a portfolio.”
Choe, who graduated from Cornell University’s School of Hotel Administration, said the company made a bid for a portfolio in North America “but we got beat out by some crazy money that paid twice the amount we would have.
“We won’t chase for the sake of the chase, but we will always be looking,” he added. “North America is a place we need to fill.”
The company’s North American expansion will most likely come in the form of its Capri by Frasers brand, but if the right opportunity comes along to acquire an asset that fits its Malmaison brand, it will jump at the chance, Choe said.
Extended stays from the start
Choe was working in China for Hong Kong-based Shangri-La Hotels and Resorts in 1997 when he was recruited to join F&N Foods, a 132-year-old beverage company that wanted to diversify its portfolio because the beverage business was starting to go flat. He said he convinced the ownership team to invest in serviced apartments because of their revenue potential. The company opened its first properties—a Fraser Suites property and a Fraser Place asset—in 1998 under the umbrella of Frasers Centerpoint Limited and built a portfolio of serviced apartments.
But like most of the hotel business, the landscape changed over time. After carefully examining his clientele’s reservation habits, Choe decided it was time to enter the traditional hotel market.
“When we first opened Fraser Suites and Fraser Place in 1998, 85% of our clientele were Fortune 500 corporate companies that stayed for at least a year or two,” Choe said. “As we went on and spread out, we were beginning to see that companies were cutting back … so companies started to instead of sending more senior executives for two to three years with their families, they were sending out younger people and they were sending out sometimes singles, sometimes couples, especially without children because paying school fees and all that (was expensive). So, the shift started kind of midway through our history.”
The expansion eventually led to the launch of the company’s Capri brand, which Choe said caters to a demographic that doesn’t want full living quarters but does require a kitchenette (Choe calls it a kitchen wall), separate bedroom(s) and other long-term-stay amenities—the facilities of a smart hotel and the comfort and convenience of space.
Capri has nine properties open in diverse markets such as Singapore, Vietnam, Malaysia, Australia, Spain, Germany and China. There are several others under construction, Choe said.
“We’ve already bought Frankfurt (Germany) Capri, we just opened Capri in Berlin, we are in the process of building one in Wuxi (China), the one in Hamburg (Germany) will be ready in about a year’s time,” Choe said. “We’re in various stages of completion, but it’s a good flow for us, and that’s been great. Barcelona has been open and is also wonderful. That’s added on to our activity in Europe—when people didn’t dare go in and build a hotel—and we’ve had a good run there.”
Another attractive segment
Frasers’ expansion also led to the realization that there was another niche that could be served: unique properties that feature “Instagrammable moments” in key cities, Choe said. It acquired British lifestyle hotel chain Malmaison and Hotel du Vin to fill the void.
“One way to jump-start into this boutique hotel was to buy a brand, and then we stumbled onto this Hotel du Vin and Malmaison,” Choe said. “It’s really boutique and a great experience, even for food and beverage.”
The company paid £363.4 million ($474 million) for the brands in June 2015—but Choe said Frasers was not the highest bidder.
“There were two other companies ahead of us, Chinese companies—I don’t know what calculator they used, but I could never justify the kind of yields that they (were willing to pay) for it,” Choe said. “Somewhere along the line, they took a while to settle the deal, and so the (previous owner KSL Capital Partners) came back to us and says can you close it in record time? And I said, ‘We will do the entire due diligence in a month and we’ll close it in cash.’”
As a result, Frasers re-entered the deal and accomplished Choe’s stated timeline.
“We did the full duty, we went in a checked everything from structure, asbestos … titles, we went into taxation, we went into financial duty, our whole team was almost sleepless in the U.K.,” Choe said. “The team really, really made it. They were so dedicated. I had a full team stationed in London almost locked in the data room and with the lawyers, the tax consultants, accountants; one month, did the duty, fully paid, and we got the deal. So, I was happy because we didn’t pay the highest (price), but we got the deal.
Choe said the company is excited about the “boutique side of the business,” and has plans to bring Malmaison to Asia and Europe.
“When we bought it, it was 29 hotels, and within about two years we now brought it to 40 hotels. Even in U.K., I can see it going even up to 50, beyond that,” he said. “This can multiply into Europe. There are a lot of nice places we can convert in Europe but also in Asia. People are looking for that quirky, different kind of playful hotel design.”