Singapore’s State Investment Fund Unloads Its Storied Raffles Hotel
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.
