Los Angeles Times, CA
July 24 2005
Singapore’s State Investment Fund Unloads Its Storied Raffles Hotel
The buyer, L.A. private equity firm Colony Capital, promises to
preserve the property, renowned as a hangout for actors and writers.
By John Burton, Financial Times
SINGAPORE – Founded by four Armenian brothers, home to Japanese army
officers during World War II and previously owned by several local
banks, the 118-year-old Raffles Hotel reflects the cosmopolitan
nature of Singapore.
So it is perhaps not surprising that Raffles is being sold to a Los
Angeles-based private equity fund, Colony Capital, in spite of its
iconic status for many Singaporeans.
Last week’s $1-billion deal to dispose of Raffles and 40 other hotels
around the world owned or managed by Raffles Holdings indicates that
Temasek Holdings, the Singapore state investment company and Raffles’
ultimate owner, is becoming serious about shedding non-core assets.
In the last few years, Temasek has been best known for its
acquisition spree across Asia, mainly in the banking and telecom
sectors, under its executive director, Ho Ching, the wife of the
city-state’s prime minister. But it has appeared reluctant to sell
existing holdings.
The Raffles deal could convince skeptics that Temasek has only been
waiting for the right price to sell and fulfill its goal of enhancing
shareholder returns.
Analysts have applauded the sale for unlocking hidden value, with
Colony paying 64% more than the estimated value of the hotels.
The main beneficiary will be CapitaLand, the Temasek-owned property
developer that owns 60% of Raffles Holdings. CapitaLand has been
focusing on buying shopping malls in the region, especially China,
and the hotel business was seen as becoming irrelevant because hotels
accounted for about 5% of its net income last year.
“All our other sectors are growth sectors,” said Liew Mun Leong,
CapitaLand chief executive, referring to a recent investment in 15
Chinese malls and plans to build a casino in Singapore. “And that’ll
need a call for capital if we are successful.”
Raffles represented a potential drain on CapitaLand’s financial
resources. Analysts have estimated that Raffles, which now ranks 17th
in size among global hotel chains, with 12,000 rooms, would have to
spend 10 to 20 years to achieve industry leadership. In contrast,
Colony already has 19,000 hotel rooms.
It is “very difficult to grow” the hotel business, said Jennie Chua,
Raffles’ chief executive and main architect of its international
expansion.
The history of the Raffles Hotel illustrates the pitfalls of the
hotel business. Founded by the Sarkies brothers in 1887, the hotel
was famous for its prominent guests, including Charlie Chaplin, Noel
Coward, Joseph Conrad and Rudyard Kipling. It was also known as the
birthplace of the Singapore Sling cocktail and where, according to
legend, the last tiger in Singapore was shot under one of the
billiard tables.
But its grande dame status did not prevent the Sarkies from losing
control of the hotel during the Great Depression, with Raffles
managing to survive by going public. After World War II, the hotel
fell into the hands of OCBC Bank and then the state-owned DBS Bank.
It was DBS that revived the fortunes of the hotel, which had fallen
on hard times in the 1970s and 1980s. In the early 1990s, it restored
Raffles to its glory with only 104 luxury rooms, although critics
complained that it had “Disneyfied” its appearance in the process.
The makeover, however, established Raffles as a premium brand, and it
began buying other historic hotels, including the Vier Jahreszeiten
in Hamburg, Germany, and Cambodia’s Grand Hotel d’Angkor.
After the merger of DBS Land and Pidemco Land to form CapitaLand in
2000, Raffles bought 26 deluxe business hotels from Swissotel in 2001
that gave it a bigger presence in Europe and the U.S. But in 2003,
Raffles turned to an “asset-light” strategy to focus on hotel
management contracts, which offered steady revenue without ownership
burdens, by selling more than half of its hotels.
Although sales and profit have improved since 2003, the performance
was not sufficient to justify CapitaLand keeping Raffles, executives
said.
Colony has promised to preserve the historic heritage of Raffles,
which is listed as a national monument in Singapore. But there is
speculation that Colony, which owns hotel and casino properties in
Europe and the U.S., including the Las Vegas Hilton, might introduce
gambling at Raffles if Singapore relaxes further its rules on gaming.
Somerset Maugham used to eavesdrop on the talk of inebriated rubber
planters staying at the Raffles, which provided gist for his stories
about the Far East. Some future writer might do the same if the
Raffles ever becomes the haunt for high rollers.