Property

High noon in Hong Kong

Colonial stalwart mulls $3.8 billion hotel sale

Mandarin-w

Will it sell the Excelsior hotel?

In the 1970s Jardine Matheson’s then-taipan Henry Keswick was asked for his advice on Hong Kong property. His pithy reply was “never sell”. Over the decades his recommendation has largely been respected by his successors (Keswick remains the patriarchal figure at the family-owned conglomerate). Through its various group companies (such as Hongkong Land), Jardines owns a dominant chunk of Hong Kong’s most prestigious district: Central. It plays host to the stock exchange and banking offices in Exchange Square, its own headquarters in Jardine House, plus luxury retail space in the Princes Building, Landmark, Alexandra House and Chater House (as well as the prime office blocks atop them). It also has two hotels (the famed Mandarin Oriental and the more boutique Landmark Mandarin).

However, Jardines caused a major stir in the property market last week when it indicated a likely deviation from the Keswick doctrine. Executives have announced that bids have been received for the Excelsior Hotel for as much as HK$30 billion ($3.8 billion) in a sale that the Financial Times described as closing a chapter in the “colonial-era conglomerate’s storied history”.

The Excelsior stands on what is termed ‘Lot No 1’ – the first piece of land sold by the British government after Hong Kong became a colony in 1841. The buccaneering Scottish traders Jardines purchased the plot in Causeway Bay and used it for their first warehouse (known in Hong Kong as a godown). Just over the road from the hotel’s lobby is the Noonday Gun, the firing of which gets a famous mention in Noël Coward’s ditty Mad Dogs and Englishmen.

Today the property is owned by the Jardine-controlled, but separately listed Mandarin Oriental Hotel Group, and news of its potentially gargantuan price tag sent the stock up 21% last Friday.

There is good reason to think the hotel will be sold (most likely to a mainland Chinese developer that will tear it down and put up a mixed-use commercial plaza in its place). The price being offered – at what looks to be the top of the Hong Kong property cycle – will be more than enough to erase any sentimentality. The Excelsior also fits a little oddly into Jardine’s premium hotel portfolio. It is more of a mid-market venue and of less strategic importance to a brand that has a goal to be “the world’s best luxury hotel group”. Likewise, it’s a plot of land that’s (relatively) disconnected from Jardine’s core property holdings in Central.

For Hong Kong’s oldest company – Jardines was the inspiration for classic James Clavell novels such as Taipan and Noble House – selling its original block of land is still symbolic. But slimming down its holdings in the territory might also mirror moves by local billionaire Li Ka-shing (who as we reported in WiC268 has reoriented his portfolio away from assets in Hong Kong and mainland China towards Europe).

The significant date here is 2047, which may seem far off, but which is starting to spark debate in the city. As of today there is zero certainty as to what property rights will look like in Hong Kong after the Basic Law expires at midnight on June 30 that year. Nervousness among property owners is likely to rise with each passing year (for our first discussion of this topic see WiC287). So those with the highest exposure to the real estate market (like Jardines) may think it sensible to pare back on some of their noncore holdings while land prices are still so stratospheric.

 

Keeping track, Sep 27, 2017: The mainland money wasn’t there after all. Jardines controlled Mandarin Oriental pulled the sale of the Excelsior Hotel on Wednesday morning reported the South China Morning Post after bids failed to meet expectations (possibly because mainland property developers are finding it harder to get funds across the border into Hong Kong).


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