MANDARIN ORIENTAL: If it sells its Excelsior hotel .....

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.

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.

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.