New World Keeps Shanghai Complex in the Family with $278M Sale

It’s been a long time since bargains were available in Shanghai’s property market, but a director of Hong Kong-listed New World Development just picked up a mixed-use project in the city’s Zhongshan Park area at an attractive price.

The property and retail conglomerate controlled by the billionaire Cheng family has agreed to sell a complex comprising the Shanghai Ramada Plaza shopping center, the New World Shanghai Hotel and the Pentahotel Shanghai in the city’s Changning district to Oriental Triumph Inc for RMB 1.85 billion ($278 million), according to an announcement to the Hong Kong exchange.

The British Virgin Islands-incorporated buyer is wholly owned by New World vice-chairman William Doo Wai-hoi, who is also the brother-in-law of New World chairman Henry Cheng Kar-shun.

Changning Property Sells for RMB 22K Per Square Metre

The selling price for the 82,504 square metre development just over 2.5 kilometres (1.6 miles) west of Jing An Temple equates to RMB 22,423 ($3,370) per square metre. In its October 27th statement, New World specified that, “The Directors (including the independent non-executive Directors) are of the view that the terms of the Sale and Purchase Agreement have been negotiated on an arm’s length basis and on normal commercial terms, in the ordinary course of business, and are fair and reasonable and in the interests of the Company and its shareholders as a whole.”

The price per square metre for the property along Shanghai’s bustling metro Line 2 is around 36 percent less than the RMB 34,788 per square metre that Shanghai’s Fuxing Group spent on a hotel and serviced apartment block at 767 Tianshan Road — one station west of Zhongshan Park — nearly two years ago, according to information from real estate data provider Real Capital Analytics (RCA).

The acquisition by Doo’s BVI firm is also priced nearly 43 percent less than the RMB 39,072 per square metre that a fund managed by Gaw Capital paid for Soho China’s Sky Soho office and retail project in the same district last month.

In its statement to the exchange, New World specified that the purchaser is a “connected person of the Company [New World Development],” and makes clear Doo’s relationship to the Cheng family and that the businessman is “the beneficial owner of several corporate substantial shareholders of certain subsidiaries of the Company.”

Combined, the Cheng family holds over 44 percent of New World Development. The next largest shareholders are US asset manager Vanguard Group, which holds 1.62 percent and BlackRock Fund Advisors, which holds 1.15 percent of the company.

Shanghai Retail-Hotel Complex Changes Hands

Shanghai Ramada Plaza lies at the intersection of Changning Road and Dingxi Road, just south of Zhongshan Park. The 22,209 square metre shopping mall connects to the Zhongshan Park stop of Metro Line 2 and includes a New World Department Store, serviced apartments and restaurants.

“The Disposal enables the Group to realize cash resources and unlock the value in low-yielding assets held by the Target Group at fair market value,” according to the announcement. “The proceeds arising from the Disposal will be used as general working capital of the Group.”

Opened in 2003, the 38-storey, 605-room New World Shanghai Hotel within the same complex is one of the largest hospitality properties in the city, spanning 46,942 square metres. The neighbouring 258-key Pentahotel Shanghai, launched in 2010, is marketed as a hip business hotel and has a footprint of 13,353 square metres.

New World points out that the combined assets being sold have an unaudited consolidated negative net asset value (NAV) of HK$1.8 million ($230,595) as of June 30. The transaction covers the three properties as well as the land parcels on which the development sits. Ramada Property also operates the pair of hotels.

New World Splashes Out on Hong Kong, Mainland Projects

New World may find the infusion of cash useful, after two weeks ago, the top Hong Kong developer ramped up its mainland China commitment by winning a plot of land in Guangzhou for RMB 2.09 billion ($314.1 million), where New World will build a 250,000 square metre commercial and residential project.

New World also successfully bid a total of over RMB 4.8 billion ($618 million) for four parcels in Shenzhen, just across the border from Hong Kong, through a 51/49 joint venture with Guangdong builder China Merchants Shekou Industrial Zone Holdings last December. The company plans to contribute a total of RMB 9.1 billion ($1.2 billion) to build a range of commercial and residential spaces on the group of sites in city’s Qianhai district.

New World’s core businesses include commercial and residential property development, infrastructure, department stores and hotels, with a total asset value of HK$420.4 billion ($53.88 billion) as of the end of last year.