A New World Where Art and Property Collide

(Bloomberg Opinion) -- Ten years ago, when New World Development Co. vice chairman and heir apparent Adrian Cheng wanted to infuse art into his property projects to add value, Hong Kong critics were skeptical. The 38-year-old has made his plan a reality, setting off a lifestyle trend for Chinese millennials.

In his 20s, Cheng took note that people under 40 would soon account for half of China's 1.38 billion population. The Harvard graduate and former banker joined New World, the company founded by his late grandfather Cheng Yu-tung, with a vision to build a strategy specifically aimed at attracting millennials, the main consumption driver in the decades to come. 

With board approval, Cheng introduced K11, the world's first art mall, to Hong Kong in 2009. In collaboration with artists, design and art features were interwoven to attract traffic.

The concept spread to four major cities in China, and K11 in Shanghai has drawn millions of visitors to exhibitions featuring artists from Claude Monet to Salvador Dali.

Cheng says his strategy “is to create an ecosystem of carefully curated elements of art and culture, food and fashion, and living and working spaces, which are blended proportionately to produce a value-driven customer experience which cannot be found elsewhere.”

One month ago, Cheng launched Victoria Dockside in Hong Kong, an art and culture destination on the city's waterfront. The development, which took 10 years of planning and cost $2.6 billion, covers 3 million square feet of mixed-use space, including a prime office tower, a 5-star hotel, serviced apartments and a shopping center. Surveyors have valued the land at $10 to $12 billion.

Despite considerable media attention, the millennial following, and the proof that property development can be creative, Cheng has yet to woo investors. New World shares have moved sideways since he joined the company in 2006. From January 2007 through June this year, the stock returned 27 percent, including reinvested dividends. Two direct competitors, Henderson Land Development Co. and Sun Hung Kai Properties Ltd., returned 123 percent and 87 percent, respectively.

Cheng's long-term vision for brand-building strategies contrasts with a market that is often shortsighted and results-oriented. In recent years, operating margins of New World's property-related segments have been below those of its competitors, and the stock has traded consistently at a 15 to 20 percent discount to peers.

With a market capitalization of slightly more than $14 billion, New World trades at a price-to-book ratio of 0.5 times. Having spent the past decade setting up the means to gain traction among millennials, Cheng's focus for the next decade should shift to convincing investors that the company deserves to trade at least at par with its peers, if not higher.

(Ronald W. Chan and his firm, Chartwell Capital, do not hold positions in the companies he writes about for Bloomberg Opinion.)

To contact the editor responsible for this story: Paul Sillitoe at psillitoe@bloomberg.net

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