New World seeks rent cut for ailing Hong Kong airport mega mall
Under the existing agreement, the property developer will pay a guaranteed rent of HK$1.8 billion a year, or up to 30% of the project’s annual gross revenue
[HONG KONG] New World Development is in talks with Hong Kong’s Airport Authority about reducing rental obligations at its flagship 11 Skies mall, according to sources familiar with the matter, as the debt-laden Hong Kong developer seeks to ease a liquidity crunch that’s pushed it to the brink.
New World is seeking approval to waive at least part of the requirement that it pay a guaranteed rent, though the developer will still give a share of the mall-and-office complex’s annual revenue to the Airport Authority, the sources said, asking not to be identified discussing private deliberations.
The companies are negotiating what the authority would get in return for the concession, with one option being a stake in the project, some of the sources said. New World has spent HK$20 billion (S$3.3 billion) developing the 3.8 million square foot complex on a site next to the airport leased from the authority.
Under the existing agreement, New World will pay a guaranteed rent of HK$1.8 billion a year, or up to 30 per cent of the project’s annual gross revenue – whichever is higher, according to stock exchange filings and a July note from UBS Group. Payments will start in 2028 and continue until 2066, according to the documents.
The authority is looking at past deals, including its acquisition of a minority stake in AsiaWorld-Expo in 2018 for HK$900 million, as a reference point in the talks, one of the sources said. Details of the agreement are subject to change, according to the sources.
Hong Kong’s Airport Authority said that it’s been maintaining close communication with New World regarding 11 Skies and it’s confident about the prospects of the Airport City development. A representative for New World did not respond to a request for comment.
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While the talks highlight the ongoing strain on New World’s business, they also underscore the potential blow to the government’s high-profile efforts to transform the airport area into a commercial and leisure hub, dubbed Skytopia, should business falter. Adding to the complexity of the negotiations is the Hong Kong government’s ownership of the self-funded Airport Authority, meaning the latter’s major financial decisions, particularly with a distressed developer, are likely to draw public scrutiny.
Fresh from pulling off a high-stakes US$11 billion refinancing deal that saved it from default, New World, one of Hong Kong’s flagship real estate developers, is ploughing ahead with efforts to ease its perilous financial position.
It’s already delayed interest payments for some bonds and is seeking to offload an array of assets, including investment properties in mainland China and the 11 Skies mall itself, which remains largely vacant as Hong Kong businesses battle a retail slump. The company’s controlling shareholder, the billionaire Cheng family, is also in talks with potential partners to jointly invest in the group.
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New World had long relied on debt to fuel its aggressive expansion, but Hong Kong’s political upheaval in 2019, then the city’s Covid-19 isolation, as well as a spike in interest rates and a property market slump, have accelerated its financial downturn.
With anxiety over its financial health growing, the group has seen a revolving door of leaders. Adrian Cheng, the eldest son of the Cheng family patriarch Henry Cheng, stepped down as chief executive officer in September last year, followed by Eric Ma, who resigned just two months after taking over the top job. Adrian has subsequently departed from most family-related operations. BLOOMBERG
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