Hong Kong’s New World Sells Stake in Shenzhen Office Tower to Cheng Family for $198M

New World Development has sold its 30 percent stake in an office tower in Shenzhen’s Nanshan district to a vehicle of the Cheng family who control the Hong Kong-based builder, as the company continues to lower its leverage.

The HKEX-listed developer has agreed to offload its interest in the 43-storey north tower of the Shenzhen Qianhai Chow Tai Fook Finance Tower to Chow Tai Fook Enterprises (CTFE), an entity ultimately owned by the family of the late New World founder Cheng Yu-tung, for an initial consideration of RMB 1.44 billion ($198 million), giving CTFE full ownership of the grade-A property.

“The Board takes the view that the Disposal is a good opportunity for the Group to unlock the value of its investment in the Property and it will enable the Group to realise cash resources in improving the liquidity and strengthening the financial position of the Group,” New World said in a filing on Wednesday.

The disposal, which is subject to shareholder approval, comes days after the developer disclosed that it has completed HK$35 billion ($4.5 billion) worth of new loan arrangements and debt repayments since January in an effort to boost liquidity and control financing costs.

37% Occupancy

Based on the initial consideration, CTFE is acquiring the property in the Qianhai Shenzhen-Hong Kong Cooperation Zone at RMB 38,211 per square metre, which represents a 4.3 percent discount to the asset’s independently appraised value of RMB 5.02 billion (RMB 39,934 per square metre) as of May.

That consideration is roughly equivalent to New World’s HK$1.56 billion shareholder loan to the property’s holding company, with the transaction enabling the developer to fully recoup the unsecured, non-interest bearing loan. New World expects to book a gain of HK$113 million on the disposal, and intends to use the net proceeds from the deal as general working capital.

“The Board considers the Company’s interest in the Property to be a non-core investment of the Group, and due to the Company’s minority equity interest in the Target Group, the Group does not have management control of the Property,” New World said in the filing.

Completed in August 2023, the property is located at 66 Shuniu Avenue in Nanshan subdistrict and has a gross floor area of 125,657 square metres (1.35 million square feet) across 36 levels of office space, a 3-storey fire protection layer, and a 5-storey shopping mall. The office portion measures 99,391 square metres in floor area, while the retail element spans 26,266 square metres.

As of May, the property’s occupancy stood at 37 percent for the office space and 33 percent for the retail element.

The property’s holding company posted an after-tax net loss of HK$1.42 billion in the 14 months ended May, which New World attributed to a HK$1.57 billion revaluation markdown on the property. That loss compares to the holding company’s after-tax net profit of HK$564 million and HK$187 million in the twelve months ended March 2023 and 2022, respectively.

In 2021, New World sold the south tower of the complex to an unnamed multinational financial services firm for RMB 3.2 billion.

Asset Divestitures

New World’s divestment comes after the developer in February raised its target for non-core asset disposals for the current fiscal year to HK$8 billion from HK$6 billion, as part of the company’s multi-year effort to cut its net gearing ratio to the “mid to high” 30 percent range by June 2027 from 49.9 percent as of December.

The developer has divested HK$59.6 billion of assets in the last three fiscal years, including the D-Park mall in the Tsuen Wan area, the 695-key Pentahotel in Kowloon, and a 51 percent stake in a Cheung Sha Wan office project. Those disposals also include the sale of a majority stake in NWS Holdings, New World’s HKEX-listed infrastructure and construction unit, to CTFE.

Earlier this week, New World disclosed that it has secured two new long-tenure renminbi loans totaling RMB 2.6 billion at fixed rates of 2.9 percent and 3.0 percent, while also having refinanced a HK$9.25 billion syndicated loan related to the 2015 acquisition of three hotels in Hong Kong under its 50:50 joint venture with the Abu Dhabi Investment Authority (ADIA).

New World has also slashed capex and operating expenses, bought back some $630 million of bonds and perpetual instruments, and cut its dividend by 57 percent to shore up its financial position.

Sluggish Market

New World’s disposal comes as citywide vacancy in Shenzhen’s grade-A office market increased by 6.2 percentage points year-on-year to 30.6 percent in the first quarter, with Nanshan district having the highest average vacancy of any submarket in the city at around 37 percent, according to a Savills report in April.

That compares to average citywide vacancies of 21.7 percent in Shanghai and 20.2 percent in Beijing in the same time period, according to the consultancy.

Average grade-A office rents in Shenzhen declined by 6.7 percent year-on-year to RMB 163.9 per square metre per month in the first quarter, with leasing demand remaining tepid against an increasing supply of office space.

Total citywide office stock in the first quarter grew 2.9 percent from the previous quarter to 11.2 million square metres, while net absorption came in at just 34,728 square metres, according to Savills.

Note: This story has been updated to show that New World’s disposals include the sale of a majority stake in NWS Holdings to CTFE. An earlier version stated that NWS was taken private by CTFE. That statement was incorrect and Mingtiandi regrets the errors.