Lucas Chow never bites off more than he can chew. The group CEO and MD of Far East Orchard Singapore tells Raini Hamdi how he’s digesting the two-at-one-go merger and acquisition of Toga and Straits Trading
Why did Far East Orchard (formerly Orchard Parade Holdings), a residential developer, branch into hospitality (Far East Hospitality) and healthcare real estate?
Real estate is still the major line of business and the most profitable, but we want to diversify.
With real estate, it’s feast and famine – good years if we have project completion, drought years if we don’t. Hospitality gives us a good recurring income although arguably it is also cyclical, affected by global events, epidemics, etc. But under normal circumstances it gives us a steady income based on projected yields.
Healthcare is needed, regardless of economic situation in the world, thus this further helps us to balance the portfolio.
We want to create shareholder value and now there is a story, growth, future.
You were appointed CEO of Far East Orchard in July 2012 and went straight into not one, but two M&As at once – The Straits Trading Company and Toga Group – which were completed last year.
Yes, it was a stretched goal. We’re blessed to have accomplished so much in that timeframe. It’s beyond my own personal expectations.
What’s the vision behind the two JVs?
It was obvious to me we needed critical mass. What we had – 18 hotels and serviced residences in Singapore – were neither here nor there. We’re better off now with more than 80 properties and 13,000 rooms in eight countries as a result of the joint ventures with Toga and Straits Trading. Chains like Accor or Starwood Hotels & Resorts are of course much bigger but we don’t need to get to their size.
In order to achieve scale, we could build or buy. The former would take a long time, thus organic growth had to be the strategy.
My team and I looked at the gateway cities in South-east Asia – Vietnam, Thailand, Myanmar, etc – but while there’s fantastic upside in a country like Myanmar, the risk was equally high. We wanted something more stable and Australia was mature, with stable laws and regulations, a high domestic market volume and a different travel cycle (that would complement the cycle in Asia).
Why Toga and Straits Trading?
Toga caught my eye because it was among the top 10 (in Australia, in terms of room count) and there was a real alignment of values, vision, management processes and discipline in driving performance between us. Like us, they were an owner-operator and were looking for like-minded partners beyond Australia. That’s the most important thing; the rest was pricing and valuation.
We acquired five of Toga’s properties. At the same time, I also liked the revenue coming out of the three properties of Straits Trading in Australia, but we didn’t have the people or infrastructure to manage hotels in Australia. So I thought why not strike with both, then use Toga to manage the Straits Trading properties? It was a daunting thought as the amount of work in due diligence and integration for one M&A alone was already difficult, let alone two.
What’s in it for Toga and Straits Trading?
For Straits Trading, although its share is now 30 per cent, it comprises a much larger, global portfolio, not just an Australia and New Zealand focus. Its operation also becomes much more effective in Australia.
Toga climbs a few notches in room count – I believe they are now number four in Australia. The deal also gives them the opportunity to manage a larger portfolio and gain international exposure.
For us, it puts Far East Hospitality on the map. We’re now seen as a serious player from Asia-Pacific.
So now that you have critical mass, what’s next?
The immediate priority is to digest what we have and integrate the three companies well, as we need to deliver to the business case we presented to the shareholders when we proposed the M&A.
There is a lot to be done. The low-hanging fruits – central booking, combined marketing, database sharing, cross-referrals – have started. Then we need to look at deriving operational efficiencies from it by benchmarking and implementing our best practices. If we want to build an awesome hospitality company, our practices must not only be the best, but consistent across our group and brands.
Third is the use of technology and innovation. Perhaps because of my previous background (Hewlett-Packard, SingTel Mobile and MediaCorp), I find that the hotel product has not evolved much.
When I look at technology, it’s not just the consumer-facing aspects, e.g. enabling the guest’s emails, entertainment, etc, to pop up seamlessly on the big screen in-room. There is, for example, energy recycling technology. I’m tired of hotels that put a card on my pillow asking me to save the environment. This puts the guilt on the customer. I would rather tell my guests that I’m using biodegradable detergent and environment-friendly shampoo, that this percentage of my room is made up of recycled material yet is presentable, that 99 per cent of the room has been clinically disinfected before his arrival. I’d rather the hot water in the shower comes instantly, instead of seeing water run and run before there is hot water, which is such a waste of a precious resource.
I am forming a small team, led by Arthur (Kiong, CEO, Far East Hospitality), to look at the future product. Now we have to cook with what we have but all hotels at some point will need renovation, so I hope by this year we could come up with some interesting concepts that we could use in our new-builds or renovations. Thinking outside the box is a given. What we want is to find another box altogether.
Give me an example of finding another box.
Why do you need bathtubs? If the Japanese still want them, what if I build a beautiful Japanese bath, like the onsen, which they can use? Isn’t it easier to clean that bath in one place than 250 bathtubs on various floors? Why can’t we evolve, especially when we have a labour shortage, which is only going to get worse with an ageing population?
Mirror and glass give the illusion of bigger space but it takes a lot of cleaning time. Carpets are terrible. You may need them in cold countries but you can do away with them in the tropics. Why not rugs, which are cheaper to clean and replace than an entire carpet? Again, these are just the low-hanging fruits.
I have a lot of respect for hospitality people. They work hard. But if you ask, how much changes have they made to the product in the last 20 years, the answer is not much. The product has gone through an evolution, not revolution. Airlines, on the other hand, have revolutionised their product. You can now lie flat in business class and aircraft technology enables you to fly nonstop longhaul.
Does coming from outside the industry give you an edge in changing the product, i.e. having fresh perspectives?
Maybe the hoteliers are too close to it. Most have grown up doing things in the same way, are focused on RevPAR, ADR, services, have enough things occupying their minds in running the business, so there is very little time to think about the future. That’s why I want a separate group that’s not bothered by the day-to-day and can focus on a future product for me.
At MediaCorp, did you really reward people with ice cream if they do well?
Yes. Regardless of rank, you will get ice cream if you meet your target on a quarterly basis and we deliver it to you no matter where you are, at home, doing outside filming, etc. The idea is to let you pause for a moment and enjoy the success together. And to communicate about performance. When they get ice cream each quarter, they know the year-end bonus is assured. No ice cream, it’s a signal they have to work harder!
10 NEED TO KNOWS ABOUT LUCAS CHOW
• Who is in your family? One wife, one son
• What do you do for fun? Music, movies, golf
• Ideal vacation? Onsen
• How do you book your own leisure trips? Online
• What are you reading? The Bible and One Man’s View of the World by Lee Kuan Yew, Singapore’s Minister Mentor
• How do you stay healthy? Exercise daily, eat a balance diet and walk
• Favourite food? Everything!
• A bad habit you can’t kick? None
• Something that never fails to annoy you? Airline loses my luggage
• Most people don’t know you can do… Chinese calligraphy