SINGAPORE - Far East Orchard Limited (FEOrchard) has entered into a joint venture implementation agreement with The Straits Trading Company Limited (STC).
Under the agreement, Far East Orchard and The Straits Trading Company will pursue and conduct hospitality management and hospitality-related businesses and invest in hospitality-related real estate through the joint venture company.
FEOrchard has incorporated a new wholly-owned subsidiary named Far East Hospitality Holdings Pte. Ltd. (JVCo) and FEOrchard and STC will hold 70% and 30% shareholdings in JVCo's issued share capital respectively under the joint venture.
Far East Orchard's group chief executive and managing director Mr Lucas Chow said this is a first step in expanding and growing to becoming a regional hospitality management player with a portfolio of distinctive hospitality brands.
"This is also another step towards building a scalable business that is generating recurring profit for the Group," he said.
FEOrchard will also contribute into JVCo, a cash amount of approximately $76.2 million, which is to be paid to STC.
Concurrently, STC will enter into sale and purchase agreements with JVCo or its whollyowned subsidiary to purchase the STC Assets.
The completion of the Business Transfer Agreement and S&P agreements are expected to be on 28 June 2013 or such later date to be agreed by FEOrchard and STC.
Through the proposed JVCo, FEOrchard will be able to significantly expand its hospitality management business beyond Singapore and Malaysia, into Australia and New Zealand, where 11 out of the 13 of STC-managed hotels are situated.
The proposed JVCo is in line with FEOrchard's long term objectives of delivering growth and enhancing its recurring income stream for the Company and its shareholders. FEOrchard intends to leverage on its expanded platform to continue growing in the Asia-Pacific region by operating more third party hospitality assets and engaging in cross-selling initiatives between its brands and geographic markets. As a result of these transactions under the proposed joint venture, FEOrchard will see a growth in its recurring income streams.
Through the proposed JVCo, FEOrchard and STC will be able to combine their financial resources to pursue more yield accretive acquisition and growth opportunities, either in hospitality-related assets or hospitality management business and share their networks to direct new and exciting opportunities to JVCo.
Chief Executive Officer for Far East Hospitality, Mr Arthur Kiong said the group will manage an expanded portfolio with more than 6,000 rooms in 30 hotels and serviced residences across a regional footprint that extends into Australia and New Zealand where 11 out of 13 STC's managed hotels are located.
"Also, with the addition of two new hospitality brands, we can now offer more options to customers across multiple geographies catering to different target segments," he said.