Far East Hospitality’s great leap outward

SINGAPORE – The appointment of Mark Rohner as managing director of Far East Hospitality signals a definitive pivot. While his predecessor, Arthur Kiong, spent more than a decade carving out the group’s brand identity and culture, Rohner’s mandate is clear: scale-building and aggressive regional expansion.

In Asia’s investment circles, this is overdue. Far East Hospitality appears to already have scale, boasting a portfolio of 100 hotels with 17,800 rooms across 11 countries. However, most of these properties are under a 50:50 joint venture with Australia’s Toga Group, Toga Far East Hotels, formed in 2013 and based in Sydney.

Excluding the joint venture, Singapore-based Far East Hospitality is more medium size. It manages 31 hotels and serviced residences totaling nearly 7,000 keys. But geographical concentration remains a risk, as 25 of these properties are located in Singapore, with the remainder spread across Japan (five) and Malaysia (one).

Far East Village Hotel Osaka, Namba South, in Japan

Furthermore, few of these assets are under third-party management contracts; the majority are owned by Far East Hospitality’s parent, Far East Orchard, or the group’s ultimate parent, Far East Organization, a major real estate player.

This is why investors have long viewed Far East Hospitality as a proxy for the Singapore property market – an arm that manages owned hotels rather than a pure management company, let alone a regional one that it now aspires to be after 14 years of founding.

“Over 80% of our inventory mix at the moment is in Singapore. That works well when Singapore is doing well. So, we want to diversify and grow Far East Hospitality into a regional hotel management company,” Rohner said.

In future, he sees the possibility of a more balanced mix of 60% in Singapore, 25% in Japan and 15% in Southeast Asia.

Rohner aims for Far East Hospitality to manage another 3,000 keys by 2030, half of which will be in Japan and the other half in Vietnam, Thailand and Indonesia. This will raise its total key count to 10,000 by then. Based on an average of 150 keys, it would work out to an addition of 20 hotels. The segment remains mid-tier, but the focus is on third-party management contracts.

Soul versus scale

Rohner’s background leans more towards investment and asset management than hospitality operations, having served companies including GIC, Frasers Hospitality Trust and Patience Capital Group, a firm known for aggressive Japan-focused real estate plays.

His predecessor Arthur Kiong was more slanted towards hospitality operations. Joining Far East Hospitality from day one of its founding, Kiong redefined or launched brands (Oasia, Quincy, Rendezvous, Village, Clan and Far East Collection) and positioned the company as Singapore-inspired hospitality with pillars such as ‘Acts of Grace.’

In short, under Kiong, Far East Hospitality found its soul. Under Rohner, it looks set to finally find its scale.

We would probably want to see if we could come up with a similar playbook as we did in Japan to jumpstart some of our other target markets.

Mark Rohner

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Exporting this platform as a fee-earning engine should come more naturally to Rohner. But breaking through the markets will be a challenge as shown in Japan, where parental support was needed to jumpstart growth.

The first two Far East Village hotels in Tokyo (Ariake) and Yokohama, opened in 2020 and 2021 respectively, are owned by Far East Organization. These assets served as a showcase of the Village brand and brought in three management contracts for another Village hotel in Tokyo (Asakusa) and two in Osaka (Honmachi and Namba South).

“We would probably want to see if we could come up with a similar playbook as we did in Japan to jumpstart some of our other target markets,” Rohner said.

The company is also keeping “a very open eye” on M&A opportunities to fast-track growth rather than growing by one hotel management agreement at a time. “We did look at Fusion [Hotel Group]. That’s the kind of acquisition that would help us scale. But we came a bit late to the table and were probably not set up yet in [areas such as resources] to seize the opportunity,” Rohner explained.

Fusion was recently acquired by SC Capital Partners’ Founder and Chairman Suchad Chiaranussati. The Vietnam homegrown management company, founded in 2008, manages 23 properties, primarily in Vietnam and a clutch in Thailand.

“Vietnam’s growth is phenomenal. Hanoi, Ho Chi Minh City, Phu Quoc and Danang are the markets that we’re looking at,” Rohner said.

Far East Organization is in a joint venture with CapitaLand to develop major residential projects in Vietnam, a presence that will help open doors for Far East Hospitality, he believes.

Japan hospitality fund

Meanwhile, in Japan, parent Far East Orchard is launching a hospitality fund focusing on mid-tier hotels. Rohner, who is helping to drive the fund forward alongside a dedicated team, participates in investor meetings and underwriting from an investment committee perspective.

We have a regional team in Japan with 16 people in the corporate office. So, it’s easy to ‘bolt on’ additional Village hotels, a brand which is not complicated [mid-tier, select-service]. The mid-tier is where the opportunity is for us because the larger hotel management companies are focusing on upscale, upper upscale and luxury.

Mark Rohner

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When asked about the size of the fund, he said it would be at least $100 million depending on the fundraising environment. “So far, discussions have been positive,” said Rohner, adding the group is also prepared to support the fund’s creation by taking a non-controlling ownership stake.

“Japan is a market we want to grow as its structural tailwinds are very strong, both from an operating and investment point of view,” Rohner added. “Because they are big markets, we could have more Village hotels in Tokyo and Osaka, then go into Kyoto and secondary cities like Nagoya, Fukuoka, Sapporo and Okinawa.”

But geopolitics such as Japan-China tensions has led to a drop of arrivals from China. Japan also suffers from high inflation, rising operational and development costs, and an acute labor shortage.

Rohner agrees the labor shortage is a challenge, although Japan is now “more open” to issuing work permits to workers from Southeast Asia, he said. “We have non-Japanese staff now, unlike five to 10 years ago. We can still operate profitably in Japan at this stage,” he said.

“We believe Japan still has strong tailwinds for both operations and investment,” Rohner said. “The interest rate and currency are still favorable. Supply is limited because construction costs are high. The government is diversifying the tourist flow away from Tokyo and Osaka and if tourism spreads out across the country, I think they can reach their target of 60 million by 2030.”

He added, “We have a regional team in Japan with 16 people in the corporate office. So, it’s easy to ‘bolt on’ additional Village hotels, a brand which is not complicated [mid-tier, select-service]. The mid-tier is where the opportunity is for us because the larger hotel management companies are focusing on upscale, upper upscale and luxury. Moreover, there are lots of domestic operators in the mid-tier; it could enable us to move the needle in asset performance.”

Does ‘Singapore-inspired hospitality’ excite investors, given the city’s reputation for excellence?

Rohner said, “What owners want is a bang for their buck, that the fees they pay are being put to good use. And there is space for medium-sized hotel management companies between the independent hotels and the big chains. Management is a big part of our value proposition; we are a lot more hands-on and involved in operations while the larger players are becoming more like distribution platforms.”

When asked if he’s more of a business builder than GM of hotels, the new chief said, “I see myself as a business builder in growing the business, but also in building the capabilities of Far East Hospitality further, especially in key areas such as revenue management, digital marketing and loyalty.”