HNA Group has sold off its last piece of land in Hong Kong’s Kai Tak area at a HK$740 million ($94 million) loss, as the mainland conglomerate struggles to liquidate assets in a slowing market.
Hong Kong International Construction Investment Management Group Co, Ltd (HKICIM), a Hong Kong-listed subsidiary of Hainan-based HNA Group, announced to the stock exchange on Friday that it had sold a 9,842 square metre (102,063 square foot) residential site in Kowloon East to Wheelock & Company for just over HK$6.89 billion, making the local blue chip developer the beneficiary of a pair of stressed sales by the mainland group.
The sale of Kai Tak Area 1L Site 2, less than two years after HNA had paid HK$7.44 billion to acquire the fourth of its four adjoining plots on the former airport site, effectively liquidates the group’s Hong Kong property portfolio, bringing to an end an HNA’s attempt to transform itself into a power in the city’s real estate industry.
HNA Closes Out Last HK Property Asset
In its announcement, HKICIM informed the public that it had reached agreement with a Wheelock subsidiary for the sale and purchase of the property in return for just over HK$3.91 billion in equity, with the local developer also agreeing to take over HK$2.98 billion in outstanding bank loans associated with the project.
HNA expects the deal to close on or before 27 February of this year and informed its shareholders that it anticipates recording a before tax loss of HK$740 million. As of 31 December, an independent valuer is said to have valued the project, which is currently under construction, at HK$7.48 billion.
In its statement HNA indicated that, “Having assessed the prospects of developing the Property, the market competition and the associated costs, efforts and risks involved in the development of the Property, the Board considers that the Transaction provides an opportunity for the Group to realise its investment and re-deploy its resources in a more prudent matter.” The company blamed “recent volatile market conditions globally and generally weakening property prices and the transaction volume in Hong Kong” as adding to the risks of continuing its efforts to develop the site.
Without revealing a potential buyer, HNA had informed the stock exchange late last month that it was in discussions regarding the potential sale of the property.
Wheelock Expands Kai Tak Holdings
The site is approved for construction of up to 551,134 square feet (51,202 square metres) of housing which puts Wheelock’s acquisition cost at the equivalent of just over HK$12,500 per square foot of completed homes, not including future development expenses.
This week’s transaction comes after Wheelock has purchased the adjacent Kai Tak Area 1L Site 1 (New Kowloon Inland Lot No. 6564) from the Hainan-based group for HK$6.36 billion in March of last year.
Wheelock’s latest prize allows it to assemble a single plot totalling nearly 185,000 square feet of land with the two projects combined approved for construction of over 976,000 square feet of housing.
The company expects to begin sales on another Kai Tak property, the 648-unit Oasis Kai Tak during the first half of this year, according to local property brokerages. In November last year Wheelock joined a consortium including Henderson Land, New World Development and Empire Group, a developer formerly run by the late Walter Kwok, to purchase a 104,475 square foot site on the former Kai Tak runway at a price of HK$8.33 billion.
HNA Liquidates an Empire That Never Was
With this latest asset disposal HNA has sold off the last piece of what had been a four-plot mega-site that it had acquired for record prices in late 2016 and 2017 as it attempted to elbow its way into Hong Kong’s residential market.
“HNA was a non-strategic buyer for all of the parcels, paying inflated prices based upon untenable financing,” Brock Silvers, founder of Shanghai-based real estate investment advisory firm Kaiyuan Capital told Mingtiandi. “Although a bull market reportedly carried HNA to three prior profitable Kaitak dispositions, that market has now turned, leaving HNA with a reported loss on this latest sale.
HNA had spent HK$27.2 billion acquiring its four Kai Tak sites across just over four months in late 2016 and early 2017, paying nearly double the prices established at previous land sales in the area.
The company had sold the other two Kai Tak plots to Henderson Land in February of 2018 for HK$16 billion.
A Trail of Hong Kong Fails
In addition to selling off its portfolio of sites to meet debt obligations that were said to total around $100 billion in mid-2018, HNA last year was also forced to abandon its lease of eight floors in Hong Kong’s Three Exchange Square.
While the mainland conglomerate never moved into the HK$12.85 million per month premises, its landlord, Hongkong Land, last month filed suit against HNA seeking to collect HK$8.3 million in unpaid fees associated with the lease.
Also in January, news reports indicated that another HNA subsidiary, Hong Kong Airlines was being sued for failing to repay interest and principal on a $20 million loan it had taken out in October 2017. Payment of the $20 million, plus interest, was due on 28 December, however, the bank filed suit after Hong Kong Airlines managed to pay just $257,934.44 on January 1st, according to an account in the South China Morning Post, citing court documents.