Koh Makes Billion as Fragrance Sheds Love Hotel Image

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

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

“I just continue to do my business,” Koh, 49, said in aninterview after the company’s March 28 annual shareholdersmeeting, while five dozen attendees nibbled on fried ricenoodles and egg sandwiches at Fragrance’s headquarters in aneastern suburb of Singapore. he said that he hadn’t valued hisassets recently, and that his fortune can be easily calculatedfrom his public holdings.

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

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

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

“He’s trying to change the image a little bit on the hotelside,” said Philip Smith, 72, who owns 300,000 Fragranceshares. his stock has gained 700 percent since he bought itshortly after the company’s IPO in 2005 and is “one of mybetter investments,” said Smith, who was trained as a charteredaccountant and previously held positions as chief financialofficer and finance director at various companies.

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

While a group of tourists huddled into an elevator at theFragrance Hotel-Emerald in Geylang at around midnight on April2, the lobbies at the company’s other hotels in the red-lightdistrict were empty save for a receptionist at the front desk.Tattooed prostitutes lingered near the Fragrance Hotel-Sunflowerand Fragrance Hotel-Sapphire on the same dimly lit street, andthe Fragrance Hotel-Crystal several blocks away.

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

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

While Fragrance has a reputation for love hotels, it is“also very good in property,” said Eric Ong, 58, a financialservices consultant who has invested in the stock for more thantwo 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 InternationalProperty Consultants in the city-state. It attracted strongdemand for its “Parc Rosewood” condominium complex in anorthern suburb where it managed to “squeeze in” 689 units,more than the 390 units originally estimated by the governmentcould be built on the site. Fragrance reduced the size of theapartments, Mak said.

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

Koh started building his fortune buying, renovating andflipping houses for a profit in the mid-1980s. he took over hisfamily’s property business in 1993 and started developingresidential and commercial projects, mainly targeting residentsof Singapore’s public housing who were seeking to own betterhomes.

Koh expanded into hotels in 1996 when he saw demand foraccommodation among cost-conscious travelers, according toFragrance’s IPO prospectus.

“He’s quite humble,” said Tan see Peng, 82, a retiredgovernment auditor who has owned Fragrance shares since its IPOand attended almost every annual meeting. “Although we give himembarrassing questions, he tries to answer.”

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

Fragrance, which announced on March 8 its plan to separateits hotels into a different company and to list it on theSingapore stock exchange, expects to raise S$420.5 million fromthe restructuring, which it will use to develop properties andrepay debt.

The planned listing is set to “unlock value forshareholders and increase Fragrance Group’s overall financialcapacity and flexibility to strengthen the growth of itsproperty business,” Maybank Kim Eng Research said in a reporton March 8. As a separate company, the hotel business will alsohave “additional financial capacity and direct access tocapital markets,” said the unit of Malaysia’s largest lenderMalayan Banking Bhd. (MAY)

Global Premium Hotels said in its prospectus that it isseeking to profit from leisure and business travelers who willlikely opt for cheaper accommodation as China’s growth slowdownthreatens the global economic recovery. It plans to increase thenumber of hotels operating under the “Fragrance” and “ParcSovereign” brands, and expand overseas, according to theprospectus. Fragrance’s hotel division reported a 21 percentincrease in sales to S$52.1 million last year.

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

Other holdings of Fragrance’s executive chairman includeSingapore-based property companies Roxy-Pacific Holdings Ltd. (ROXY)and Goodland Group Ltd. (GOOD) as well as curry-puff maker old ChangKee 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 0.1percent of newly registered cars in Singapore last year, said hehas few pastimes other than being with his family.

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

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

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

Koh Makes Billion as Fragrance Sheds Love Hotel Image


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