Selling the property will allow Mandarin Oriental to take advantage of record prices as the company reduces its reliance on the Hong Kong's competitive market. While its parent company, Jardine Matheson Holdings, maintains a robust footprint across the Hong Kong CBD and Southeast Asia through Hongkong Land Holdings, Mandarin Oriental has maintained a mainly local portfolio. Mandarin Oriental operates luxury hotels and residences worldwide, but 54 percent of the group's EBITDA is earned from its Hong Kong and Macau properties.
This strategy has produced negative results for the Singapore-based hotel company. Mandarin Oriental's target guests—big-spending mainland tourists—have been making more trips to London, Paris and Tokyo than to Hong Kong. Before Mandarin Oriental began accepting bids for the Excelsior in June, the group's Singapore-listed shares were underperforming those of its parent.
Ever since announcing the hotel was up for sale, Mandarin Oriental's share price has surged, outperforming Jardine Matheson Holdings. Mandarin Oriental aims to benefit from the disposal of the 848-guestroom hotel built in 1973, which is in disrepair and is in need of an expensive restoration. Capitalizing on the resurgence of interest in Hong Kong office space, Mandarin Oriental has planned to sell the property for office redevelopment, for which the company has already been granted permission. This revival is attributed to Henderson Land Development's record $3-billion purchase of a former parking lot in the city in May 2017.
However, Mandarin Oriental must deal with a smaller pool of bidders, as mainland investors face strict government restrictions on capital. Hong Kong's office sector saw a decline in Chinese investment to 8 percent in the first half of 2017, compared with last year's 31 percent, according to a JLL survey. Interest in the hotel shows an attraction to the Excelsior's Causeway Bay seafront location near retail facilities and the center of the city. Investor interest also stems from the property's history as the first plot of land the British acquired in 1841. According to reports, at least five investors have placed their bids, including a Chinese-backed consortium of Sun Hung Kai Properties and Hysan Development and a joint venture between Hong Kong's Chinese Estates Holdings and the mainland's China Evergrande Group.