SINGAPORE (June 30): Mandarin Oriental International has seen its shares jump 38% over the past month, after the company said on June 5 it was undertaking a strategic review of its hotel The Excelsior Hong Kong.

It is worth keeping in mind that Mandarin Oriental is operating in a challenging sector.

The company’s flagship property, Mandarin Oriental Hong Kong, was affected by a decline in visitor arrivals to the city, as well as softening demand from the corporate sector.

Meanwhile, The Excelsior Hong Kong’s occupancy is languishing at 75% due to the citywide decline in leisure demand, particularly from Mainland China.

Against this backdrop, the whole idea of monetising and redeveloping The Excelsior Hong Kong as a as commercial real estate makes sense from the viewpoint of shareholders.

And, excitement in the market was stoked by an auction in May of a hotly-contested car park on Murray Road in Hong Kong, won by Henderson Land.

However, some analysts warn that the lofty benchmark set by Henderson Land is unlikely to be matched by a transaction involving The Excelsior Hong Kong. While the hotel sits on a 999-year leasehold site that expires in 2842, it simply is not as well located as the Murray Road car park.

Instead, a more appropriate benchmark for The Excelsior Hong Kong would be Times Square, which is owned by The Wharf Holdings. It was valued at HK$54.5 billion (S$9.64 billion) or HK$27,700 psf of GFA last year. Some analysts see The Excelsior Hong Kong being sold for as much as HK$20 billion or HK$30,000 psf.

On the other hand, Shangri-La Asia benefited from a spillover of enthusiasm for hotel stocks in early June, fuelled by the big run in Mandarin Oriental International.

But Shangri-La Asia had already rallied strongly in the preceding months, on growing optimism in the market for a new management team.

Like Mandarin Oriental, Shangri-La Asia carries its hotel properties on its books at cost less depreciation.

According to analysts, if the company’s assets were revalued, its net asset value would be well in excess of HK$30 a share.

Analysts are also growing more confident of a rebound in profitability at Shangri-La Asia’s hotels in China, as Chinese hotels have all seen strong RevPAR in 1Q17.

Will the stocks climb higher? Or, is it too late for investors to get in now?

Find out in this week’s edition of The Edge Singapore (Issue 786, week of July 3), available on the newsstands now.