New World mulls majority sale of HK office tower
Hong Kong’s New World Development is talking to investors about the sale of a majority stake in an office tower under its premium K11 brand as it disposes of non-core assets to fund its rapid expansion, two people with direct knowledge of the matter said.
The Grade-A K11 Atelier King’s Road tower in eastern Hong Kong island from the city’s fourth-biggest developer is valued in its entirety at HK$11 billion (US$1.4 billion), according to the people.
To attract investors and sell at a good price, New World is offering a guaranteed capitalisation rate — a measure associated with rental yield — of around 4% under a deal structure similar to the sale of a land plot last year, the people added.
They spoke on condition of anonymity because the talks were private.
Previous big disposals by New World had raised liquidity concerns and contributed to a sell-off in bonds in the developer, which is majority-owned by local conglomerate Chow Tai Fook Enterprises and more highly leveraged than peers.
The bonds have since largely recovered in price after the developer repurchased notes worth HK$6.5 billion.
New World said in a statement to Reuters that it had no plans to sell a stake in K11 Atelier King’s Road, though it was common practice to exchange views with investors on business sentiment, valuation and potential investment opportunities.
“The K11 Atelier King’s Road is not among our flagship portfolio,” it said.
“New World Development also has no interest in selling any other
K11 properties. We are in a very strong liquidity position with robust cash reserves.”
K11 Atelier King’s Road was listed as a standout financial performer in an investor presentation in September, with operating profit up 35% year-on-year.
Hong Kong’s top developers have enjoyed decades of lucrative returns in one of the world’s most expensive property markets, but falling property sales and rents in both mainland China and the global financial centre, as well as rising interest rates are putting pressure on the sector.
“New World’s capex is bigger than many other developers, and it makes sense to recycle capital by disposing assets that have less potential to grow its portfolio,” said Will Chu, a Hong-Kong based analyst at CGS-CIMB Securities.
The people told Reuters that any disposal of K11 Atelier King’s Road is expected to model the sale of a 51% interest of a commercial land plot in western Kowloon to alternative asset manager Ares SSG last September, under which New World provided a 5% dividend rate for four years.
Details of the guaranteed rate have not been reported previously.
The guarantee allowed New World to sell at a higher-than-market HK$3.1 billion, booking a HK$450 million gain, and supported the valuation of its nearby projects for sale, the people added.
Ares SSG declined to comment. A similar structure is also being offered to investors to buy D-Park, a shopping mall worth HK$6 billion on a 100% basis, the people said.