New World mulls fee to avoid US$9 billion rent for 11 Skies mall project

[HONG KONG] Hong Kong real estate company New World Development is in talks to pay up to end its obligations to the struggling 11 Skies mall project, according to people familiar with the matter, the latest option for a firm that is locked in negotiations with officials in the city.The payment – effectively an exit fee – would cover some of New World’s long-term rental obligations with Hong Kong’s Airport Authority, the people said, asking not to be identified while discussing private information. It is unlikely to be paid in cash but could instead be in the form of land parcels or other assets, the people said.The two sides have not yet settled on the size of the potential payment, according to the people. But New World’s current commitment is huge: It is expected to pay rent of at least HK$1.8 billion (S$294 million) per year from 2028 through 2066, according to UBS Group – an amount that would ultimately tally around US$9 billion.The negotiations are the latest chapter in the long-running saga of the 11 Skies project, which has become a stumbling block for New World as it moves to ease a cash crunch that pushed it to the brink last year. An exit is seen as key to its plans to draw investment either through partnerships with strategic investors or a public share sale.Those efforts were dealt a blow when Blackstone recently walked away from a proposed US$4 billion tie-up with New World. The Cheng family, which is led by billionaire Henry Cheng and is the controlling shareholder of the developer, remains in talks with other parties including a consortium led by RRJ Capital and Ares Management, Bloomberg News reported earlier.Several proposals for the payment have been discussed, including the Airport Authority receiving land that’s owned by New World or taking a stake in the developer, the people said. Other options include New World providing free services for the authority or paying in cash, one of the people said.The airport authority is now trying to find new partners among major Hong Kong developers and global leisure and entertainment operators, who could run the mall after New World’s exit, the people said.A spokesperson for New World did not respond to requests for comment. A representative for the Airport Authority said it has been maintaining close communication with New World regarding 11 Skies, and plans to lean more heavily on entertainment and dining for the project.The authority said earlier this year that it considers 2028 to be a good time for 11 Skies to open in phases – a delay from its previous target of launching the project in mid-2026.Negotiations are ongoing and it’s possible New World will remain the manager of the project with a revised agreement, one of the people said. Bloomberg News previously reported the parties were discussing a rent reduction.While an exit from 11 Skies may help restore investor interest, the cost would potentially add to New World’s financial strain. Although last year’s US$11 billion refinancing has offered some breathing room, New World is still seeking to sell assets including the Grand Hyatt and the Rosewood hotels, Bloomberg has previously reported.The 11 Skies complex now sits largely vacant as a broader retail slump in the city sees the developer struggle to attract and keep tenants. When New World won the tender in 2018 – at a projected cost of HK$20 billion – it was set to be Hong Kong’s largest shopping and entertainment hub. BLOOMBERG