A fast-paced interview at HICAP reveals Frasers Hospitality CEO Choe Peng Sum's thoughts on a variety of topics, including his company’s use of serviced apartments to grow, his preferred way to expand Frasers’ footprint and the challenges for the hotel industry.
HONG KONG—Like any CEO, Choe Peng Sum of Singapore-based Frasers Hospitality is driven by growing his company’s presence around the globe. He has used the serviced-apartment concept to build a company with 24,000 units—but Choe is not shy when it comes to aggressively growing his portfolio.
Choe discussed expansion, the state of the global hotel industry and more in an eight-minute interview with Hotel News Now as part of the Hotel Investment Conference Asia Pacific Program. Designed to be a fast-paced, high-level interview, the eight-minute session was a prelude to a later town hall session featuring Choe being interviewed by Christopher Hur, chief investment officer for Lodgis Hospitality.
Below is the transcript of the session, held at The Kerry Hotel. The text was edited for brevity and clarity.
Q: You have been at Frasers for 20 years. You started with two properties in Singapore, now more than 24,000 units across five brands (Fraser, Modena, Malmaison, Capri and Hotel du Vin) around the world. The globe is shrinking, your company is growing. How do you do describe your strategy?
Choe: “With 24,000, we’re still babies. We have plenty of room to grow. I would bandy the number of 100,000 (as a goal). I remember when I first brought up to the board … after we finished two properties, I went up to the board with the strategy that we would do 3,000 and they all almost fell of their chairs. Part of the strategy to the board was we couldn’t just grow with management contracts. We needed to grow with acquisitions, we needed to grow with a capital market REIT as well as management contracts. Looking back, I think we’ve grown on these three prongs fine.”
Q: You have acquired brands, you have launched brands. Which is more fun for you? What do you like to do and what would you like to do more of in the future?
Choe: “It’s always good to travel around with a suitcase full of money buying things, so that’s kind of fun. When we saw the market was shifting more toward the millennials and people looking for something different, we went ahead to buy a boutique setup, Malmaison du Vin. But we couldn’t find a hybrid … the extended-stay market had people ranging from long stay, so we created Capri.
“That’s exciting, because you create Capri and then you see that in the last two and half years, three years, we’ve grown to about 19 Capris. It’s fun that way. Even more fun is we are (implementing) version two of Malmaisons and version two of Capris. That’s the fun part, to keep on changing and flowing with the lifestyle.”
Q: We have extended-stay, we have serviced apartments, we have corporate housing—all the same type of product. It can be called many things and has grown exponentially. What is it about that segment that makes it tick?
Choe: “I call it Blue Ocean (strategy). No (hoteliers) really looked at it (20 years ago), and there were a lot of (consumers) that wanted a product where they could stay more than a week, more than a month. There was space to grow, that’s why we started Fraser. Then we found out later that trends were converging and people were staying shorter, so we went to do Capris. Then we found road warriors traveling and people were cutting costs, then we had a mid-tier called Modena, then the millennial market started to grow and we went to something very different—something designer based, very boutique in Malmaison. If we meet a need, then there’s a reason to exist. It’s not just getting there, launching a brand and saying, ‘Let’s hope it works.’”
Q: What qualities to the millennials bring that you want to attract?
Choe: “People hate this word because it’s been overused … millennials, millennials. But the truth is, we did a study with Deloitte and close to 50% of the market is going to come through millennial stays. That’s why Airbnb is doing so well with the millennials. What they’re looking for is an experience. Even technology, sometimes when I walk into a hotel and see all these robots, actually it’s all gimmicky. There’s one that followed me into the elevator, and I had to kick it out! It’s all about lifestyle, it’s all about mobile technology. It’s going to come. How do we meet those needs is the most important question.”
Q: Your primary capital source is internal. How does that shape the way you look at investments, and how is that affected by Frasers Hospitality Trust, the REIT that you launched a few years ago?
Choe: “You’re getting me excited about talking about that. We need to buy things off our balance sheet, because that’s how we can pick and choose the right product and property that we want. It goes in an ecosystem with the REITs because real estate is heavy in capital. I wish there was a bottomless pit, but there isn’t and if we go leveraging, it can be really dangerous. Those days of the 1998 Asian financial crisis …we’ve got very short memories. People over borrow, they get into trouble.
“We need to buy off our balance sheet, but at the same time when it’s ready, when it’s yielding, we need a pipeline into the REITs. More than that, when we can buy off our balance sheet, we can actually buy things from a development stage. If you buy then versus a ready-made project, the premium of a ready-made project can be 30%, 40%, 50% more than if you buy land. … When we can stomach that with our balance sheet, when it’s ready and build, we have a ready exit strategy. That’s the whole ecosystem we’re working with that.”
Q: How is the environment right now? Are we OK?
Choe: “The world is changing so much … we have to watch it. We haven’t even seen the tip of that interest rate rise coming up. We have to watch it and be nimble. That’s why it’s important to look at balance-sheet investment, not overleveraging. We need to look at the capital markets, the REITs. Right now you can buy a lot things with the equity market the way it is. When we grow with management we need a brand, we need a real brand that people can trust. The world is in a very precarious situation. You just have to be nimble.”