Saturday, October 31, 2009

Frasers plans most aggressive expansion ever

Frasers Hospitality is embarking on its most aggressive expansion plan yet, notwithstanding the global downturn that has stung the business clientele it predominantly serves.

The hospitality arm of conglomerate Fraser & Neave is opening 26 new properties over the next two years, but is already looking beyond this number.

Its latest goal is to sign up as many as three times that figure in the coming years, said Frasers Hospitality chief executive officer Choe Peng Sum.

?’We are opening up 26 projects, but we are probably looking at double or triple that for new sign-ups going forward,’ he said.

He was speaking at an interview before signing a management contract with landlord China Resources Land (CRL) yesterday to manage Frasers’ fourth service residence in Shanghai.

The signing ceremony was witnessed by Mrs Lim Hwee Hua, Singapore’s Second Minister for Finance and Transport and a Minister in the Prime Minister’s Office, who was the guest-of-honour.

‘The window of opportunity will come up within this year or next. We need to gear up for that. We want to scale up the business and extend our footprint,’ Mr Choe told The Straits Times.

This sort of scalability – which allows companies to grow their businesses without needing to make major changes or investments – is key in the service hospitality sector, he said, not unlike the case for global hotel chains such as Marriott and Four Seasons.

‘The more we sign up, the more we earn,’ he said.

This growth model – which has enabled Frasers to boost revenues fairly quickly – is underpinned by high occupancy rates at its 35 properties worldwide, despite a fall in business travel caused by the global downturn.

Even in Europe, where economies are among the hardest-hit, occupancy rates at Frasers properties have held up.

‘In Europe, banks are reluctant to lend, and they are very careful and all,’ Mr Choe said. ‘But business-wise, we have been pleasantly surprised that occupancy at our existing properties is in the high 80 to 90 per cent range – from London to Paris, even at our two properties in Scotland.’

Though Europe has managed to hold its own, there is no denying that the real growth story is coming out of Asia, particularly in India and China. Frasers has inked deals to open six properties in India, while in China, it will be managing 18 properties, with more to come.

The latest addition – the 212-unit Fraser Place Shanghai, set to open in 2011 – will take the total number of residences in its portfolio in the Chinese city alone to 1,271. Overall, Frasers currently operates 4,171 apartments in nine major cities in China.

Worldwide, it has more than 5,000 individual residences.

‘And with another 4,000 residences already on the drawing board, the company is on course to manage nearly 10,000 residences by the end of 2012,’ Frasers said in a statement yesterday.

Beyond its traditional base, the company is also looking to establish a foothold in North and South America.

In New York, it has set up a sales office to help direct and manage the housing needs of American firms whose employees have been posted to markets where Frasers has a presence.

Setting up shop in Brazil is also a distinct possibility, Mr Choe said, given the potential offered by the South American market. Further, Brazil’s hosting of the 2014 World Cup Finals and 2016 Olympics should open up more opportunities.

While demand for service apartments remains strong, the same cannot be said of revenues. Ascott Residence Trust, a Singapore-based trust that derives its earnings from the service hospitality business, reported this week that its distributable income to unit holders had fallen by 25 per cent for the third quarter. It attributed the fall to a 24 per cent drop in average revenue per available room.

Mr Choe acknowledged that Frasers faced similar pricing pressure, with average rates dropping by 15 per cent to 20 per cent. Still, this segment is faring better than hotels, whose average revenue per available room has declined by 35 per cent to 40 per cent, he added.

Mr Stiven Tan, who manages the almost fully occupied 317-apartment Fraser Suites Shanghai, said that service apartments remain the preferred housing choice for expatriates, even though they might be able to secure cheaper accommodation through individual landlords.

Expats appreciate not having to deal with mundane but troublesome issues such as where to seek help if their washing machines break down, especially when they do not speak the local language, he said.

Source: Straits Times, 31 Oct 2009

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