Orchard Parade Holdings Ltd., a unit of Singapore’s largest closely held developer, plans to expand its hotel management business in Southeast Asia to tap the region’s tourism growth, Chief Executive Officer Lucas Chow said. The stock surged to the highest in 4 ½ years.
The company proposed a transaction on June 13 to set up a hospitality property trust and swap assets with its parent, Far East Organization. The deal will give Orchard Parade a hotel management company with three hotel brands, Village, Oasia and Quincy, and contracts to run more than 3,400 hotel rooms and serviced apartments in the city, giving it a base he calls “fortress Singapore.”
Orchard Parade is seeking to expand overseas with an increasing number of tourists traveling to Southeast Asia, a region with a population that’s about twice of the U.S. Singapore, Bangkok and Kuala Lumpur were this week ranked among the top 10 destinations in the world by Mastercard Inc.
“If you want to grow beyond a certain size, and if you really want to grow your brand, we need to have a presence in some of the major cities in Asia,” Chow, who’s also an executive director at Far East, said in an interview in Singapore late yesterday. “We will have to look at other countries for opportunities of growth.”
The initial focus will be on cities within a three-hour flight radius, Chow said, which will include Jakarta, Manila, Kuala Lumpur and Bangkok. Europe may also be a consideration in the longer term, he said.
“The tourism numbers are rising and expected to continue to skyrocket exponentially” in Southeast Asia, said Nicholas Mak, executive director at SLP International Property Consultants, a real estate consulting company. “Businessmen will be going there to look for business opportunities, and there is a great shortage of business grade, four-to-five star hotels over there.”
The transaction with Far East will also include a one-time dividend to shareholders and the distribution of shares held in a Singapore beverage maker, according to a June 13 statement.
Orchard Parade expects to get S$233 million ($183 million) in cash from the hospitality trust, which it will use help fund the expansion overseas. It may also get more management contracts as Far East builds new properties in the city, including a hotel where a temple built in 1824 will be converted into its lobby, Chow, 59, said.
The stock surged 2.9 percent to S$1.925 at the close in Singapore, the highest since October 2007. That extended this year’s rally to 50 percent, compared with the 6.9 percent advance in the Singapore benchmark Straits Times Index.
The deal with Far East will also include parts of two medical developments close to the downtown owned by the parent company, Orchard Parade said last week.
The addition of health care, along with its property development and hotel businesses, will help broaden its appeal to investors, Chow said. The most expensive real estate in Singapore is in the health-care industry, Chow said, citing a recent transaction in the country.
“We like to call ourselves the emporium of real estate because we like to diversify ourselves into different kinds of properties,” Chow said, adding that health care is less sensitive to economic cycles compared with the property business. “If you diversify, you are also diversifying the kinds of cycles for the company.”