FILE PHOTO: A general view of developer New World Development's office tower, K11 Atelier King's Road, in North Point of Hong Kong, China February 2, 2023. REUTERS/Clare Jim/File photo
HONG KONG: Hong Kong’s real estate downturn is taking a growing toll on New World Development Co, the property developer owned by the billionaire Cheng family.
The company said last Friday that it expects to post a loss of as much as HK$20bil for the financial year ended in June, its first annual loss in two decades.
New World has been grappling with higher debt levels than its peers and a plunging share price, adding pressure on 44-year-old chief executive officer Adrian Cheng – the third generation to run the business, to turn things around.
The developer cited asset impairment, losses on investments and higher interest rates for the decline.
A revaluation of the group’s investment and development properties, including a goodwill assessment, will lead to a non-cash loss of HK$8.5bil to HK$9.5bil, the company said. Meanwhile, core operating profit is expected to drop as much as 23%.
The sizeable asset writedowns “could raise its leverage ratio and hurt the developer’s deleveraging plan,” said Patrick Wong, a real estate analyst at Bloomberg Intelligence.
“This could also raise investors’ concerns about potential risk of further valuation decline of its investment properties, particularly Hong Kong office buildings.”
The company said that the writedown was a proactive move to position the company “for the upcoming interest rate cut cycle where the overall property market is expected to rebound”.
The developer has been under scrutiny in recent years over its high level of borrowings.
Net debt to equity was 82.7% as of the end of last year, compared with 41.4% at rival Henderson Land Development Co and 21.2% at Sun Hung Kai Properties Ltd, according to BIoomberg Intelligence.
New World shares have fallen 35% this year as of Friday, compared with a 5.5% gain in the benchmark Hang Seng Index.
New World’s writedown reflects a broader problem among developers.
Hong Kong’s residential prices have plummeted to an eight-year low.
Office and retail sectors remain weak, reducing rental income and hence the value of developers’ investment properties.
The city’s prestigious office towers have seen value decline significantly in the past few years. CK Asset Holdings Ltd.’s landmark Cheung Kong Centre, for instance, lost one-third of its rental value over the four years ending in 2023. — Bloomberg
