Frasers bullish despite crisis

Source : Today - 30 Oct 2008

IT LOOKS like being a business for all seasons. The global economic and financial turmoil has yet to have a major impact on Frasers Hospitality, the serviced apartments arm of Frasers Centrepoint, itself the property division of mainboard listed Fraser & Neave.

The firm is certainly playing in the big league; its newest property in China - Fraser Suites Top Glory in Pudong - was formally opened yesterday by former United States Secretary of State Henry Kissinger.

Chief executive Choe Peng Sum said: “We are still on course to meet our target of raising the number of apartments in our portfolio to over 8,000 units in 2010. In fact we’ll have some 7,000 by the end of next year.”

Frasers Hospitality maintains that the current crisis is providing new opportunities, as developers are finding that their projects could run up huge losses if they were to unload them now. So leasing them out as serviced apartments to generate recurring income makes better sense - and who better to manage these apartments in the meantime than a company like Frasers.

In many of the places Frasers is currently pursuing opportunities - such as China, the Middle East and India - many of the properties are owned by state-owned enterprises, sovereign wealth funds, or other entities with plenty of liquidity, and for whom the credit crunch hasn’t had much of an impact.

Mr Choe said: “In spite of the global economic issues, we are still extremely bullish about China. In fact, earlier we had announced 12 China properties by 2010, but as of now it is 13 and we are still signing on more properties.

“China is simply the world’s largest growth engine. The tremendous growth of economies like China and India is an ‘internal support base’ for the rest of the Asian economies, and a buffer from the full impact of the economic malaise sweeping the world.”

The 317-unit complex of six apartment blocks is owned by Cofco, one of China’s most widely diversified conglomerates and listed on the Fortune Global 500.

Frasers has a 10-plus-10-year service contract on the property. It has another two properties on the Puxi side, including one near the Xintiandi complex which is expected to open next February. And it is in negotiations for another one.

Frasers is looking for properties outside its four core areas of Beijing, Shanghai, Shenzhen and Guangzhou. It is also going into cities like Tianjin, Chengdu, Dalain, Suzhou, Xian, Chongqing, Hangzhou and Wuxi, besides going into Hong Kong.

Mr Choe says prospects for serviced apartments remain good as companies still have to carry on with their business, “unless there is a real crash which will throw all forecasts to the winds”.

Frasers is playing safe by seeking to lock clients into contracts for long-term stays. Up to now, business has been roughly equally divided between these tenants and short-term visitors, who pay more but by nature of their circumstances, offer a less certain income stream.