New World Development has sold its ownership interest in a pair of mid-market Hong Kong community malls to MTR Corporation for HK$3 billion ($380 million), according to a company announcement.
The developer said that it was disposing of its 50 percent stake in Telford Plaza II, as well as its 21 percent share in Popcorn 2, to the Hong Kong railway operator in order to generate cashflow for its core businesses.
The deal comes amid a consumption slump in Hong Kong that has seen some of the city’s biggest retail landlords offer tenants rental relief as shopping goes out of style in the Asian financial hub.
The deal, which is due to complete before 31 March, is expected to have been made directly between the two parties, which co-developed the properties as joint ventures, according to an industry source who spoke to Mingtiandi.
Shedding Non-Core Assets
New World said that the sale of its stake in Telford Plaza II in Kowloon Bay and Popcorn 2 in Tseung Kwan O was the result of a continuing process of disposing non-core assets and recycling capital for its core businesses.
In line with this strategy, the company noted that New World Development and its subsidiary NWS Holdings Limited had disposed of non-core assets worth a combined HK$3.6 billion during 2019.
“In addition to disposing of non-core assets in Hong Kong and mainland China, the group will look for new projects and acquisition opportunities with growth potential and strong recurring cash flow to strengthen the long-term development of its core businesses and further improve its ecosystem, thus optimising value for stakeholders and enhancing the investment value of the Group,” the company said.
Exiting a Pair of JV Projects
New World is offloading its ownership interest in the properties after developing them together with Hong Kong’s mass transit operator.
Located on Wai Yip Street, next to the Kowloon Bay MTR station, the Telford Plaza II mall has 31,000 square metres (333,681 square feet) of gross floor area.
Following completion in 1997, New World Development retained a 50 percent stake in floors three through six of the property, while the MTR took a hundred percent interest in floors 7 and 8. As the second phase of the 83,000 square metre Telford Plaza, the community mall is tenanted by international fashion, sports and cosmetics brands, as well as F&B outlets.
Popcorn 2, which sits above the Tseung Kwan O MTR station, was completed in 2006 and has a net leasable area of 8,456 square metres.
Selling Out as Slump Worsens
New World Development’s decision to sell up comes amid a downturn in Hong Kong’s retail sector that has been exacerbated by the coronavirus outbreak.
The latest statistics from the Census and Statistics Department (C&SD), released on 4 February, reveal that retail sales in the city dropped 24 percent in the last three months of 2019 compared with the same period the year before – even before the outbreak.
“The near-term outlook for retail sales depends critically on how the situation of the novel coronavirus infection will evolve,” a government spokesperson explained, adding that the impact on retail had been severe.
In a press release today, property consultancy Knight Frank said that it expected the impact of COVID-19 to be worse than SARS.
Most shopping malls, including premium malls with a stable tenant mix, have introduced relief measures including rental reductions or rent-free period for tenants as a result of the crisis, the company noted.
Cutting Rents to Help Struggling Tenants
Just over two weeks ago, New World Development joined other landlords including Sun Hung Kai in confirming that it would cut mall rents this month, following an appeal from Hong Kong’s financial secretary, Paul Chan Mo-po, for property owners to fulfil their social responsibilities in helping with the crisis.
In response to Chan’s call to action, New World pledged to reduce rents on a case-by-case basis at its malls across the city, according to the South China Morning Post.
Sun Hung Kai, which owns 12 million square feet of retail space in the Asian financial hub, said it would cut its base rent in its Hong Kong malls by up to 50 percent to assist tenants.