Mandarin Oriental Selling DC Hotel to UK’s Henderson Park For $139M

Hong Kong-based Mandarin Oriental International is selling its five-star luxury hotel in Washington DC to UK asset manager Henderson Park for $139 million as the Jardine Matheson-controlled firm continues to offload US assets on weak corporate bookings.

Mandarin Oriental told the Singapore stock exchange on Tuesday that it entered into an agreement with the London-based private equity firm to divest the 373-room Mandarin Oriental Washington DC and relinquish its operations of the property.

“Today, with our track record in creating market-leading hotels, the Group’s strategy for expansion is focused on growing the management business with brand-defining properties,”  said James Riley, Mandarin Oriental’s group chief executive. “With strong interest from investors in this property, the time was right to initiate a sales process which has now been successfully concluded.”

The deal marks the Jardine-controlled firm’s second divestment of a US hotel this year following its sale of a quarter stake in the Mandarin Oriental New York to Indian conglomerate Reliance Industries for $98.15 million in March, amid lacklustre corporate and group bookings.

Henderson’s Hotel Spree

Upon completion of the deal, which is scheduled to take place on 8 September, Mandarin Oriental said it expects to receive $139 million in gross proceeds or a $45 million non-trading gain post taxes. The gross proceeds translate to around $372,654 per key of the hotel.

Opened in 2004, the firm spent $144 million to build the 11-storey asset at 1330 Maryland Ave SW, near the US capital’s Southwest Waterfront neighbourhood. With Mandarin Oriental taking its name with it upon check out, the property will be under new management, although new owner Henderson Park declined to comment on its plans for the lodging asset.

The Washington location may be deemed as non-core for the brand given the decision to let go of its operations, according to hospitality property investment specialist Corey Hamabata, who serves as managing director at Hong Kong-based investment manager Rockpool Capital and TREC Hospitality Investment.

Hamabata, who was not involved in the transaction, also noted the divestment could help free up cash that can be used in other productive uses like investing in new assets and expanding management contract business.

The acquisition will add to a global hospitality portfolio which Henderson Park has been actively expanding in recent months, including its acquisition of 12 Hilton branded hotels across the UK and Ireland late last year.

Henderson followed its purchase of that 2,424-unit portfolio with the launch of its Klarent Hospitality unit last December, after having taken over the hotel management business of Amaris Hospitality from European property investment and management firm LRC Group.

“Hotel transactions have been very active in the US recently. I believe transaction volumes are already exceeding pre-pandemic levels,” Hamabata said. ‘I think the high level of transactions reflects both the expectation of a strong tourism recovery as well as an abundant amount of investment capital looking for good opportunities.”

Lagging in the Capital

Situated near DC’s marina, the Mandarin Oriental Washington DC is within walking distance of top tourist attractions like the Tidal Basin and the Jefferson Memorial, but the luxury property is heavily reliant on corporate and group bookings.

Mandarin Oriental said in its 2021 annual report that the profitability of its US locations recovered last year as leisure travel picked up, but noted that the “performance in Washington DC was more challenging given the hotel’s size and historic reliance on corporate and group demand, which remained weak.”

The average occupancy rate at Mandarin Oriental’s Washington location only improved marginally last year; rising from 25 percent in 2020 to 29.9 percent in 2021. At its 148-key Boston hotel, the group’s only other wholly-owned US property, occupancy more than doubled in 2021 compared to the previous year, to average 38.7 percent.

Revenue per available room in Washington improved by 43 percent year on year to $101 in 2021, which lagged behind the 122 percent increase in revenue in Boston, where Mandarin Oriental was able to achieve REVPAR of $255 last year compared to $115 a year earlier.

Average room rates at the Mandarin Oriental Washington recovered by 20 percent year on year in 2021 to reach an average of $339 per night, while rates at the Boston property rose by nine percent to hover around $666 per night over the same period.

Manhattan Exit

Following its exits in Washington and New York, Riley said the US remains a key market for Mandarin Oriental as the group continues to expand its presence with ongoing hotel development projects in tourism-friendly locations like Boca Raton and Honolulu, as well as residential buildings under construction in New York and Beverly Hills.

The company, which operates 36 hotels globally, also has a hospitality project in progress on Grand Cayman and Riley promised that, “further exciting developments are expected in the coming months.”

Hamabata said hotel performance in the US will likely recover back to its 2019 levels by the end of the year in the absence of fresh headwinds, given the risk of a global recession.

“We think this (projected recovery) is being driven by strong consumption and pent up demand from the COVID disruption,” he said. “That being said, macroeconomic risks are still out there, both in the form of risk of a recession and the potential for rising interest rates to result in yield expansion.”