Raffles Holdings Selling Hotel Business for US$1B

SINGAPORE-Locally headquartered Raffles Holdings Ltd. has agreed to sell its 12,000-room 41-hotel portfolio to an international investment fund of Los Angeles-based Colony Capital LLC for approximately $1.72 billion [US$1.01 billion] including debt. CapitaLand, a 59.7% owner of Raffles Holdings and one of the largest property companies in Asia, has committed to voting in favor of the transaction, which is expected to close by the end of the year.For Raffles, the sale will not only return a large amount of capital to its shareholders by way of a special dividend, but also allow it to retain substantial capital for reinvestment into “higher yielding assets,” says company president-chief executive Jennie Chua. Raffles deputy chairman Liew Mun Leong adds that while its hotel business is performing well, it is at strategic crossroads. “To grow the hotel business to gain global scale will entail significant capital investments,” she says. “The strong performance of the hotel business combined with the current active M&A market presented a timely opportunity for RHL to realize value in the business it has built over the years….”While Raffles’ portfolio ranks it 18th in the world in term of rooms, its 12,000 rooms are no match for market leaders such as Hilton Hotel Group (358,408 rooms) and Best Western (310,000 rooms). After completion of the sale, Raffles will continue to hold a 45% direct equity interest in Tincel Properties. Tincel owns the Raffles City Complex, a 3.45 million-sf multi-use development that includes 2 hotels, a convention center and a retail office complex that in 2004 generated a total operating profit of S$96.3 million (US$57.17 million).Colony Capital has more than 19,000 rooms in its portfolio in addition to the 12,000 rooms in the Raffles chain. Raffles executives say Colony Capital’s larger global portfolio of hotels will provide an even stronger platform for further growth and development. Speaking through a spokesperson, Colony Capital principals declined to comment on the transaction beyond its press release, in which they say they plan to maintain all operations under the current flags and will look for opportunities to selectively grow the franchise, especially in Asia. “We are committed to the continued growth of the Raffles and Swissotel brands over the years ahead,” states Colony Capital Asia CEO Grant Kelley.Colony Capital’s international hotel portfolio includes legendary Costa Smeralda resort in Sardinia, Italy, and Hotel Guanahani in St. Barts. Colony Capital CEO Thomas Barrack says Raffles’ Chua will join Colony Capital as chairman of the trophy asset in the Raffles portfolio, the 118-year-old Raffles Hotel Singapore. The fabled hotel has been patronized and written about by the likes of Ernest Hemingway, Rudyard Kipling and Somerset Maugham. The hotel was named after the founding father of colonial Singapore, Sir Stamford Raffles. The Raffles portfolio also includes the Swissotel chain. As part of the deal, Raffles Holdings has an option to buy back the lease of the Raffles Hotel in Singapore after 82 years following completion of the sale. Willkie Farr & Gallagher LLP and White and Case LLP acted as legal advisors to Colony and CIBC World Markets acted as financial advisor.