AEON Stores (Hong Kong) Announces Major 15-Year Lease in Zhuhai, GBA – Key Shareholder and Financial Implications

Key Points from the Report

• Major Transaction: AEON Stores (Hong Kong) Co., Limited (“AEON Stores”, Stock Code: 984) has entered into a major 15-year lease agreement through its non-wholly owned subsidiary, Guangdong AEON Teem Co., Ltd. (“AEON GD”), with Zhuhai Huafu Business Development Co., Ltd., for a premium retail location in Zhuhai, Guangdong Province, PRC.
• Transaction Approved: The transaction has already received written shareholder approval from AEON Co., the controlling shareholder holding 59.91% of issued shares.
• Financial Commitment: The total base rent (excluding turnover rent and other charges) over the lease term is approximately RMB55.1 million, with a total management fee of about RMB15.3 million (inclusive of air-conditioning charges). The lease area is 3,886 sq. m. and the agreement includes turnover rent provisions that may increase the rent based on sales performance.
• Valuation and Market Comparison: Independent valuation pegs market rent at RMB294,400 per month, with the contracted rent for the first five years below this market rate, but rising above it in later years. The average annual rent increment is 0.92%, seen as commercially reasonable.
• Financial Impact: The transaction will require the Group to recognize a right-of-use asset and corresponding lease liability of approximately RMB38.8 million under HKFRS 16, increasing both consolidated assets and liabilities.
• Material Uncertainty Over Liquidity: The Group reports a loss of HK\$343.1 million for the nine months ended 30 September 2025, and net current liabilities of HK\$1,080.4 million as at the same date. There is a material uncertainty regarding the Group’s ability to continue as a going concern, dependent on ongoing support and loan extensions from AEON Co.
• Strategic Expansion in GBA: The lease is part of AEON’s continued expansion into the Greater Bay Area, with the Group planning multiple new store openings in the region in the second half of 2025.
• Market Environment: The company highlighted challenging retail conditions in both Hong Kong and Mainland China, with ongoing deflationary pressures, changing consumer behaviors, and competitive threats from e-commerce and outbound travel.

Details and Shareholder-Relevant Information

Lease Agreement Terms

• Premises: Shop A2001, 2nd Floor, Building 1, 8 Zhuhai Road, Xiangzhou District, Zhuhai, Guangdong Province, China.
• Lease Term: 15 years starting from the earlier of post-renovation or business commencement.
• Handover Date: Target 9 March 2026, extendable to 30 September 2026 by mutual consent.
• Base Rent: RMB0.004 million for months 1-3, RMB0.291 million for months 4-60, RMB0.311 million for months 61-120, and RMB0.330 million for months 121-180 per month.
• Turnover Rent: 0% for months 1-3, 3.0% for months 4-84, and 3.2% for months 85-180 of after-tax direct sales turnover (if higher than base rent).
• Management Fee: RMB0.074–0.078 million per month, inclusive of air-conditioning charges.
• Deposit: RMB0.6 million by way of bank guarantee.
• Early Termination: Within 60 months, AEON GD can terminate with 6 months’ notice and pay compensation of four times average monthly rent; after 60 months, 12 months’ notice without penalty.
• Safeguards: Rent concessions and potential lease termination rights are built in if the mall’s shop opening rate is below certain thresholds, protecting AEON GD from poor mall performance.

Financial and Strategic Impact

• IFRS 16 Impact: The lease will be recognized as a right-of-use asset and lease liability of RMB38.8 million, with annual depreciation charges of about RMB2.6 million and total expected interest expenses of RMB13.7 million over the lease term. This will negatively impact earnings due to amortization and interest costs, but increases asset base.
• Liquidity: As at 31 January 2026, AEON Stores’ total indebtedness is HK\$3,724.7 million, including significant lease liabilities and inter-company loans. The company is reliant on ongoing financial support from its parent, AEON Co., for working capital and loan extensions. There is a material uncertainty regarding going concern, which is a potentially price-sensitive issue for shareholders.
• Profitability Challenges: The Group remains loss-making, with an adjusted EBITDA loss of HK\$158.3 million for the first half of 2025 and a net loss of HK\$217.4 million. No interim dividend for the period, reflecting cash preservation and ongoing losses.
• Expansion Plans: Despite the losses, AEON is pushing ahead with new store openings in the GBA and Hong Kong, including small specialty stores, aiming to capture new market segments and leverage growing cross-boundary consumer flows.

Valuation and Market Comparison

• Independent valuer Cushman & Wakefield set market rent for the property at RMB294,400 per month. The contracted rent starts below this benchmark but rises above it later in the lease, though with a low average annual increment. The rent structure is deemed fair and within market norms for similar anchor space leases.
• The capitalized value of the market rent over 15 years is estimated at RMB34.7 million.

Potential Price-Sensitive Issues for Shareholders

• Going Concern Risk: The existence of material uncertainty over the Group’s ability to continue as a going concern, due to significant losses, net current liabilities, and reliance on parent company support and loan extensions, is highly relevant and could affect share value.
• Major Transaction Classification: The lease constitutes a “major transaction” under the HKEx Listing Rules, reflecting its scale relative to the Group’s size and balance sheet.
• Expansion Amid Headwinds: Aggressive store expansion is continuing despite weak consumer sentiment and losses. Execution risk remains, but successful implementation could support long-term recovery.
• No Dividend: No interim dividend declared, reflecting financial pressure and cash conservation.
• Parent Company Influence: AEON Co. continues to be the controlling shareholder and main financial backer; changes in support or group strategy could materially impact AEON Stores’ prospects.

Summary for Investors

AEON Stores (Hong Kong) is making a significant long-term investment in expanding its retail footprint in Zhuhai, GBA, with a 15-year lease for a large anchor space at Nanwan Huafa Shopping Mall. The transaction, classified as a major transaction, will materially increase the company’s right-of-use assets and lease liabilities, but also adds new operational leverage and market access in a key region. However, investors should be aware of the Group’s ongoing losses, heavy reliance on parent company support, and the material uncertainty over its ability to continue as a going concern. These factors could be price-sensitive and may impact future share price performance.

Disclaimer

This article is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. Investors should conduct their own due diligence and consult professional advisors before making investment decisions. The information herein is derived from the company’s circular and public filings, which may be subject to risks, uncertainties, and updates.

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