New World Development (0017.HK): Evaluating the Early Termination on 11 Skies & the CTFE Option

In this report, we evaluate the early termination on 11 Skies & the CTFE Options. 11 Skies exit positive for NWD — New World (NWD) announced an early termination of its 11 Skies sub-lease with the Airport Authority (AA) on 30 Sep, at a cost of HK$3.35bn (incl. HK$2.3bn cash). The exit removed NWD's annual guaranteed rent obligation of HK$1.8bn (or 20–30% of revenue) through Sep-2066. We view this positively, as our expected rental income from 11 Skies is below the guaranteed rent. NWD booked a HK$18.3bn net impairment loss in FY26. CTFE granted AA a 3-year call option to acquire 750mn NWD shares (29.8% of existing shares) through Sep-2029 for HK$2.25bn (implied HK$3.0/share), with a lock-up until 30 Sep 2032. The option is exercisable only if it does not result in any breach of bank covenants and AA does not become NWD's single largest shareholder. Our view: the option structure requires CTFE to raise its NWD stake, as CTFE currently holds 45.33% of NWD;