Bloomberg News

Koh Makes Billion as Fragrance Sheds Love Hotel Image

April 11, 2012

This photo shows one of the red-light district streets leading to a budget hotel in Singapore. Photographer: Roslan Rahman/AFP/Getty Images

This photo shows one of the red-light district streets leading to a budget hotel in Singapore. Photographer: Roslan Rahman/AFP/Getty Images

Koh Wee Meng, who develops property and runs a budget hotel chain in Singapore, has joined the ranks of the world’s billionaires as a surge in shares of Fragrance Group Ltd. (FRAG) boosted his fortune to $1.1 billion.

Koh and his wife, Lim Wan Looi, own an 84.2 percent stake in Fragrance worth almost $1 billion, which has almost doubled in the last 12 months. The rest of his net worth is derived from stakes in other public holdings and dividend income.

“I just continue to do my business,” Koh, 49, said in an interview after the company’s March 28 annual shareholders meeting, while five dozen attendees nibbled on fried rice noodles and egg sandwiches at Fragrance’s headquarters in an eastern suburb of Singapore. He said that he hadn’t valued his assets recently, and that his fortune can be easily calculated from his public holdings.

Fragrance shares reached a record 48.5 Singapore cents on March 22 after the company said it will spin off its hotels business and may pay shareholders a special dividend. Koh is riding gains in tourism as visitors arrive in record numbers, lured by Singapore’s two casinos, which opened in 2010, and more budget airlines flights to the city-state.

Fragrance, which derives 83 percent of its revenue building and selling homes, reported record sales of S$308.9 million ($245 million) last year as Singapore property prices rose 10 straight quarters to a record.

Hotel Upgrade

The company, which owns 22 of the 23 hotels that it manages, set up the “premium class” Parc Sovereign Hotel last year on the fringe of Singapore’s “Little India” district, according to its annual report. Parc Sovereign, which targets the mid-tier hotel market, charges about three times more for its rooms than Fragrance’s cheapest budget hotel.

“He’s trying to change the image a little bit on the hotel side,” said Philip Smith, 72, who owns 300,000 Fragrance shares. His stock has gained 700 percent since he bought it shortly after the company’s IPO in 2005 and is “one of my better investments,” said Smith, who was trained as a chartered accountant and previously held positions as chief financial officer and finance director at various companies.

Six of Fragrance’s namesake budget hotels, where guests can rent rooms by the hour, are located in Geylang, an area east of Singapore’s city center known for its love hotels, brothels, karaoke bars and street food.

Red-Light District

While a group of tourists huddled into an elevator at the Fragrance Hotel-Emerald in Geylang at around midnight on April 2, the lobbies at the company’s other hotels in the red-light district were empty save for a receptionist at the front desk. Tattooed prostitutes lingered near the Fragrance Hotel-Sunflower and Fragrance Hotel-Sapphire on the same dimly lit street, and the Fragrance Hotel-Crystal several blocks away.

Koh said in the interview Fragrance offers accommodations for budget-conscious travelers, not lovers’ lodges. The billionaire was drawn to the lower cost of land in Geylang, where he had built apartments and is developing an industrial building. Fragrance also owns hotels on the periphery of Singapore’s central business district and shopping belts.

Still, Global Premium Hotels Ltd. (GPHL), the hospitality business that Fragrance is planning to spin off by selling shares, said in its prospectus that the company faces “risks associated with illegal activities being carried out” in its hotels, including the use of its rooms by prostitutes and for drug abuse. The company said it is taking measures to comply with hotel licensing rules.

Tight Squeeze

While Fragrance has a reputation for love hotels, it is “also very good in property,” said Eric Ong, 58, a financial services consultant who has invested in the stock for more than two years. “In a way it balances it off,” he said.

The company has benefited from building and selling small, affordable apartments that are gaining popularity in Singapore, said Nicholas Mak, an executive director at SLP International Property Consultants in the city-state. It attracted strong demand for its “Parc Rosewood” condominium complex in a northern suburb where it managed to “squeeze in” 689 units, more than the 390 units originally estimated by the government could be built on the site. Fragrance reduced the size of the apartments, Mak said.

Koh is now seeking his first industrial project, Mak said. Fragrance said this week it made the highest bid of S$43.4 million for an industrial site in eastern Singapore.

Real Estate

Koh started building his fortune buying, renovating and flipping houses for a profit in the mid-1980s. He took over his family’s property business in 1993 and started developing residential and commercial projects, mainly targeting residents of Singapore’s public housing who were seeking to own better homes.

Koh expanded into hotels in 1996 when he saw demand for accommodation among cost-conscious travelers, according to Fragrance’s IPO prospectus.

“He’s quite humble,” said Tan See Peng, 82, a retired government auditor who has owned Fragrance shares since its IPO and attended almost every annual meeting. “Although we give him embarrassing questions, he tries to answer.”

Tan, who asked the billionaire whether Fragrance would offer a special dividend to shareholders with its S$120 million “war chest,” said he is happy with Koh’s performance. His holding has doubled to 180,000 shares after a one-for-one bonus issue last year.

Fragrance, which announced on March 8 its plan to separate its hotels into a different company and to list it on the Singapore stock exchange, expects to raise S$420.5 million from the restructuring, which it will use to develop properties and repay debt.

Shareholder Value

The planned listing is set to “unlock value for shareholders and increase Fragrance Group’s overall financial capacity and flexibility to strengthen the growth of its property business,” Maybank Kim Eng Research said in a report on March 8. As a separate company, the hotel business will also have “additional financial capacity and direct access to capital markets,” said the unit of Malaysia’s largest lender Malayan Banking Bhd. (MAY)

Global Premium Hotels said in its prospectus that it is seeking to profit from leisure and business travelers who will likely opt for cheaper accommodation as China’s growth slowdown threatens the global economic recovery. It plans to increase the number of hotels operating under the “Fragrance” and “Parc Sovereign” brands, and expand overseas, according to the prospectus. Fragrance’s hotel division reported a 21 percent increase in sales to S$52.1 million last year.

Shares Rally

Koh also owns shares in Aspial Corp. (ASP), a Singapore-based jewelry and property company. Shares of Aspial, run by his brother, Koh Wee Seng, tripled in the last 12 months as revenue rose to a record S$420 million in 2011.

Other holdings of Fragrance’s executive chairman include Singapore-based property companies Roxy-Pacific Holdings Ltd. (ROXY) and Goodland Group Ltd. (GOOD) as well as curry-puff maker Old Chang Kee Ltd. (OCK) Roxy-Pacific, which owns the Grand Mercure Roxy Hotel, rose to a record on April 5.

Koh, who owns a Rolls-Royce, a brand that accounted for 0.1 percent of newly registered cars in Singapore last year, said he has few pastimes other than being with his family.

“I work almost six days a week and my time off is only on Sunday,” he said, before being whisked away by his 47-year-old wife, a company executive director, to another meeting.

Smith, who has been attending Fragrance’s annual meetings since 2005, said he admires Koh.

“I asked him why he’s holding his meetings at 9 o’clock in the morning. He said: ‘So I can get back to work’,” Smith said. “He seems to be very dedicated to the business, he drives the businesses and he’s delivered.”

To contact the reporter on this story: Netty Ismail in Singapore at nismail3@bloomberg.net

To contact the editor responsible for this story: Matthew G. Miller at mmiller144@bloomberg.net


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