Top Global to grow hospitality business via M&A

SINGAPORE (April 18): Jennifer Chang, chief operating officer of property developer Top Global, describes the Singapore property scene as being at a “standstill” amid weak demand and a supply glut in the market. So, the group is charting a new course in hospitality. Earlier this year, it acquired a 35% stake in boutique hostel chain 5Footway Founders for S$2.5 million (RM7.2 million). And Chang says Top Global is on the lookout for similar acquisitions to grow its hospitality segment.

“5Footway grew from a local backpackers’ [inn] into a full-fledged hospitality management company with a presence in four countries. This is the kind of growth that interests us,” she tells The Edge Singapore. “They [are not] at the mercy of the local economy or tourism [market].”

Founded in 2011, 5Footway is the largest backpackers’ inn group in Singapore, with five hostels and a 20% market share. It also manages hostels, boutique hotels, serviced apartments and student accommodations in Hong Kong, Macau, Japan and Singapore. It has a net tangible asset value of S$3.6 million.

The company looks set to grow rapidly. Hostel growth is fast outstripping that of traditional hotels as the number of travellers in Asia increases, according to Roger Loo, managing consultant at business consultancy firm BDO Singapore. Budget hostels, he adds, appeal to many Asian travellers with value-for-money services and the opportunity to mingle with locals and other travellers. And in emerging markets, hotels remain pricey because of the limited supply.

Chang hopes that with Top Global’s help, 5Footway will be able to grow its annual revenue to between S$15 million and S$20 million in the next five years. In 2015, 5Footway made less than S$8 million in revenue. “5Footway can ride on our resources and network,” she says. “[We may be able to help them with a] corporate exercise, further M&A opportunities and new projects to help them grow faster.”

Top Global is relatively new to the hospitality business. Its first foray into the industry was two years ago, when it acquired a 71.5% stake in Indonesian property and hospitality group Suryamas for S$133 million. Among other things, Suryamas owns the four-star R Hotel Rancamaya in Indonesia and the adjoining Rancamaya Golf & Country Club Resort. The hotel comprises 140 rooms and 10 villas sprawled across five hectares.

Last year, hospitality management made up just 6% of Top Global’s revenue and 3.4% of gross earnings. But Chang wants to enlarge this business significantly through 5Footway as well as other acquisitions or collaborations. “If we try to build from scratch in every new market, it will take a long time. But 5Footway has a presence in [several Asian markets], so it is easier to ride on their network to find opportunities for us,” she says, adding that Top Global has a number of collaborations with 5Footway in the pipeline.

Loo of BDO believes that the hostel business in Singapore is ripe for consolidation, with a saturated market and slim margins of 12% to 15%. “There will be three to four big players holding up to 70% market share in Singapore by the end of it,” he says.

With the backing of Top Global, 5Footway is in a good position to gain more share. The partnership could also give 5Footway additional bandwidth to take on more management contracts. “We realised that there are many property owners in the region — they may be boutique hotels or other types of properties, but they are looking for [operators] to help optimise yield,” Chang says, “5footway is a reputable brand and has experience in managing hospitality properties, so they are the right fit to tap on this market.”

Chang is also on the lookout for other regional hospitality plays.

Top Global had a good run last year. Its earnings increased 77% to S$5 million on the back of a 290% increase in revenue to S$195.7 million. Sales of two property projects, in Braddell and Bartley, were the primary contributor. But the company is not holding its breath for a blowout 2016.

Top Global has two property developments it is marketing now, namely The Maisons and The Quinn. About 30% to 40% of its units remain unsold. The Quinn will hit its five-year deadline for sale in about 12 months. The company is also developing a 512-unit executive condominium with several other partners, including Qingjian Realty and Suntec Property Ventures. Chang explains that the company has sought out partnerships to reduce its risks. — The Edge Singapore

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