Goh Han Peng recently became a shareholder of Mandarin Oriental International. A RHB Research analyst until recently, he contributed this article to NextInsight.
Photo: CompanyI would like to share a situational idea, Mandarin Oriental, which probably has more upside if the company sells the HK Excelsior hotel.
The company announced on 5 June 2017 it has earmarked its Excelsior hotel in HK for a "strategic review", which could lead to a sale.
Mandarin Oriental has already obtained planning permission for the hotel to be redeveloped into a commercial development with GFA 680,000 sf.
Commercial land plots are fetching sky high prices currently. A site at central HK at Murray Road was recently sold by the government for HK$50,000 psf, and was bought by Henderson Land.
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Mandarin Oriental International |
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Mandarin Oriental currently operates 29 hotels and eight residences in 19 countries and territories. The Group’s hotels are all five-star luxury properties, with the exception of The Excelsior, Hong Kong which is a leading four-star hotel. It also has a strong pipeline of hotels and residences under development. Mandarin Oriental is a member of the Jardine Matheson Group. |
Mandarin Oriental's Excelsior Hotel is located at Causeway Bay and enjoys a waterfront view.
Assuming it can be sold for HK$30,000 psf, and based on the approved GFA of 680,000 sf, the proceeds would be USD 2.6bn.
This would equate to US$2.06/share, or the entire market capital of Mandarin Oriental!
The company has low net gearing of 8% on adjusted net assets, and if the Excelsior is sold, the company would be flushed with cash and there is a good chance of a special dividend being dished out.
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Strong NTA of US$3.10/share |
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Another point to note is Mandarin Oriental operates all its hotels under the Mandarin Oriental brand, except for the Excelsior HK.
So a sale would not affect the operating business of the Mandarin Oriental brand per se, except for some loss of earnings.
The company has a good pipeline of new managed hotels coming onstream, and this will add to the profit stream of the group.
Comments
Thanks to Han Peng for flagging this.