Effect of Raffles purchase weighed

By Liz Benston (contact)

Tuesday, July 19, 2005 | 11:14 a.m.

Analysts say they are unsure what kind of long-term effect Colony Capital's purchase of Raffles Holdings Ltd. could have on the company's expanding casino holdings in the United States or the company's designs on developing casinos in Asia, the world's fastest growing casino market.

Monday, Colony, which owns the Las Vegas Hilton, announced plans to purchase the Singapore-based Raffles' network of more than 40 hotels worldwide for about $1 billion. Raffles owns 14 of the 41 hotels it operates under the Raffles and Swissotel brands. Colony will take over management contracts for the hotels Raffles doesn't own.

Raffles' signature property is in Singapore, the Raffles Hotel. The company operates only a handful of luxury hotels in the United States including the Raffles L'Ermitage in Beverly Hills and the Drake in New York City. Most of its properties are in the Asia Pacific region including Singapore, Thailand and Indonesia.

Colony, a private investment fund based in Los Angeles, bought four casinos in April for $1.2 billion including Harrah's East Chicago, Harrah's Tunica, the Atlantic City Hilton and Bally's Tunica. The deal was related to Harrah's Entertainment Inc.'s acquisition of Caesars Entertainment Inc., which closed last month. Colony also owns Resorts Atlantic City.

"Our priorities here are first and foremost to act as custodians for the Raffles brand," Colony Capital Asia Chief Executive Grant Kelley said in a statement. Kelley said Colony was committed to the continued growth of the Raffles and Swissotel brands "over the years ahead," especially in Asia.

Gaming analyst Jonathan Galaviz, who has worked with Las Vegas casino companies in Singapore, said Colony may leverage the valuable Raffles brand -- widely known across Asia for its luxury hotels -- in the gaming business.

Singapore, Macau and potentially other regions in Asia are opening up their markets to a significant expansion of casinos, analysts say. Asians are some of the world's most prolific gamblers and among the most courted high-rollers in Las Vegas.

The Raffles purchase gives Colony "one of the most powerful brand names within the hospitality sector in Asia and one of the best names for expansion internationally," Galaviz said.

It would make more sense for the company to potentially expand the Raffles brand to new gaming properties rather than existing ones, which would have to meet the highest standards for quality and service, he said.

"Colony has built up its (casino) portfolio through acquisitions," he said. "I suspect they will take a while to understand the business they've purchased, operate it for a while and embark on new development thereafter."

Only one Raffles hotel to date, a property in the Caribbean, has a casino.

John Maxwell, a bond analyst with Merrill Lynch, said he wasn't so sure that the Raffles brand will end up being used for or with casinos.

"I'm not sure what synergies there are with gaming," Maxwell said.

"Ultimately Colony is an investment fund, not a gaming entity like Harrah's with the longer-term goal of becoming a bigger gaming company," he said.

Maxwell said the deal, like those for other luxury hotels Colony has purchased in recent years, is intended to generate a high, shorter-term return for investors.

Casinos make up only a small part of Colony's assets. The company has bought and sold several luxury hotels worldwide including the Stanhope Hotel, Orchid at Mauna Lani and Hyatt Regency Waikoloa.

Colony has completed $7.5 billion in transactions over the past 17 years involving hotels in 27 countries.

Raffles' latest expansion plans don't appear to include the United States. The company had previously announced plans to open hotels in Estonia, China, Thailand, Indonesia and the United Arab Emirates by 2007.

The company takes its name from Sir Thomas Stamford Raffles, a clerk for the British East India Company who became a political leader in Asia and founded the British colony of Singapore in 1819. He is viewed as a benevolent figure whose name has been memorialized with various landmarks and public buildings in Singapore.

Singapore became an independent state in 1965.