TIDMMPO
RNS Number : 1569N
Macau Property Opportunities Fund
16 January 2019
16 January 2019
Macau Property Opportunities Fund Limited
("MPO" or the "Company")
Investor Update
Fourth Quarter 2018
Quick Facts
Inception Date 5 June 2006
Exchange London Stock Exchange
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Domicile Guernsey
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Market Capitalisation GBP100.2 million
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Share Price 162p
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Number of Principal Properties 3
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Total Portfolio GFA 195,000 square feet(1,2)
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Portfolio Valuation US$330.4 million(2)
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Adjusted NAV per share US$3.24/249p(2,3)
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Discount to Adjusted
NAV 35%
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Cash Balance US$36.1 million(2)
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Total Debt US$148.2 million(2)
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Loan-to-Value Ratio 40%(2)
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(1) Includes the 12 remaining units at The Fountainside.
(2) As at 30 September 2018.
(3) Based on US$/GBP exchange rate of 1.303 as at 30 September
2018.
All other data are as at 31 December 2018.
At a Glance
-- The Waterside saw occupancy decline. Occupancy fell to 53%
from 60% due to a slowing VIP gaming market which adversely
affected some gaming-related tenants.
-- New sales campaign at The Fountainside. We renewed our
marketing of available apartments and car parks with special
offers, but buyers remain cautious.
-- Marketing efforts continue at Estrada da Penha. There have
been several new enquiries and viewings following the recent
enhancement of the property.
-- The secondary market for luxury properties remains subdued.
Buyers are still hesitant due to an uncertain macroeconomic
environment and restrictive mortgage policies.
-- The Hong Kong-Zhuhai-Macau Bridge opened to traffic. The 55km
bridge is expected to be a long-term driver of Macau's economy and
property market.
Overview
The US$20 billion Hong Kong-Zhuhai-Macau Bridge opened to much
fanfare in October and has seen strong initial usage. Although
Macau's economy continues to expand, growth in gross gaming revenue
is forecast to slow in 2019. Activity in the luxury property
segment remains muted.
Fund
As at 30 September 2018, the key indicators of MPO's performance
were as follows:
-- Adjusted Net Asset Value (NAV) was US$200.2 million, while
Adjusted NAV per share was US$3.24 (249 pence), a decline of 5%
from 30 June 2018.
-- Portfolio value stood at US$330.4 million, a decrease of 2.2%
after adjusting for the divestment of properties in Q3 2018.
-- Cash on hand totalled US$36.1 million, while bank borrowings
totalled US$148.2 million. MPO's loan-to-value ratio was 40.4%.
-- As at 31 December 2018, MPO's share price was 162 pence, a
15% quarter-on-quarter (QoQ) decline.
Portfolio
We are continuing to focus on securing further portfolio
divestments, while proactively asset managing our properties to the
highest standard.
The Waterside
The Waterside, MPO's landmark asset in downtown Macau, which
comprises 59 residential units available for lease, saw occupancy
decline to 53% from 60%.
Six gaming-related tenants terminated their leases, likely due
to headwinds facing the industry: China's slowing economy, reduced
VIP gaming activity, and the Macau government's plans to step up
its regulation of the junket sector.
The quarter was a busy lease renewal period, during which we
focused on improving rental levels. Our leasing team successfully
renewed 75% of leases expiring in Q4 on improved terms.
The average rental rate for The Waterside, however, saw a slight
quarterly decrease of 2.2% to HK$21.42 (US$2.74) per square foot
per month, since new leases were signed for units generally on
lower floors with lower asking rents.
The Fountainside
The Fountainside is MPO's low-density residential development in
the prestigious Penha Hill district, comprising 42 homes and 30
car-parking spaces. Twelve units and nine car-parking spaces remain
available for sale.
We have applied to the Macau authorities to reconfigure the six
largest units - four villas and two duplexes - into smaller, more
marketable units, and we are awaiting a response to our
submission.
We continue to actively market the remaining apartments,
although the residential property sector remained quiet during the
quarter as potential buyers adopted a "wait-and-see" attitude.
Estrada da Penha
Estrada da Penha is a prestigious, colonial-style villa atop
Penha Hill, an exclusive, highly sought-after residential
enclave.
We continue to pursue divestment opportunities for the property.
The opening of the new bridge has increased the attractiveness of
Macau as an investment market within the Greater Bay Area, and a
number of new enquiries have emerged from Hong Kong and mainland
China.
Macau
Positive GDP growth
Macau's third-quarter GDP expanded by 1.6% year on year (YoY).
The territory's economy grew at a slower pace due mainly to a
continuous decline in construction investment and a notable
slowdown in service export growth. In the first three quarters,
Macau's GDP grew 5.6% YoY.
The International Monetary Fund forecasts 6.3% full-year growth
for Macau, while the Economist Intelligence Unit's full-year growth
forecast for the territory stands at 3.8%.
The Economist Intelligence Unit expects Macau's economy to
maintain its positive growth trend in 2019, albeit at a slower pace
of 2.3%.
Gross gaming revenue (GGR) set to slow
GGR increased 8.9% YoY to reach US$9.8 billion in Q4. For the
full year, Macau's accumulated casino GGR stood at US$37.6 billion,
up 14% YoY.
Looking forward, however, analysts are tempering their
forecasts, with Morgan Stanley revising its 2019 GGR growth outlook
from 5% to -2%, citing concerns over China's slowing economy and
its ongoing anticorruption campaign. Fitch Ratings forecasts that
Macau's GGR will grow in a mid-single-digit percentage range in
2019, and it has maintained a long-term positive outlook for the
city's gaming industry.
Gaming operators continue to expand
Las Vegas Sands has announced that it will invest US$2.2 billion
to upgrade three of its Cotai properties through 2021, doubling the
scale of investments it had announced in 2017.
Wynn Macau has announced plans to add two hotel towers to the
Wynn Palace Casino Resort in Cotai, increasing its guest room count
from 1,700 units to more than 3,000.
SJM Holdings and China Duty Free Group (CDFG) have announced a
memorandum of understanding to open a CDFG flagship store at the
Grand Lisboa Palace that is due to open later this year.
Visitor arrivals hit record in 2018
For the period ending in November, visitor arrivals grew by
15.3% YoY to 3.3 million. The Macao Government Tourism Office
expects the number of tourists visiting Macau to increase 7% YoY to
35 million for full-year 2018, the highest ever.
There were a total of 116 hotels and guesthouses in operation in
Macau at the end of November, providing 39,000 hotel and guesthouse
rooms, of which around 25,000 were five-star hotel rooms. The
average occupancy rate increased to 94% in November, up by 2.5
percentage points YoY.
The tourism office recently said that the city should add around
1,000 new guestrooms annually in order to drive more overnight
visitation.
Hong Kong-Zhuhai-Macau Bridge
The Hong Kong-Zhuhai-Macau Bridge was declared open by Chinese
President Xi Jinping on 23 October. The 55km bridge - the world's
longest sea crossing - connects Macau to Hong Kong, and is one of a
series of government infrastructure initiatives to integrate and
connect the Greater Bay Area.
The bridge significantly improves access to Macau for visitors
arriving via Hong Kong airport, compared to existing ferry
services. It offers a shorter travel time of 40 minutes via a bus
service that runs every five minutes during peak hours.
The considerable improvement in connectivity to Macau provided
by the bridge is a potential game-changer for the territory's
economy, promising to boost mass-market GGR and drive growth in
non-gaming revenue streams such as MICE (meetings, incentives,
conferences and exhibitions), retail and food & beverage.
The bridge has attracted an impressive number of travellers
since its opening. In the initial four weeks, the Macau boundary
crossing point on the bridge handled a total of 407,241 inbound
travellers.
Over time, the bridge is likely to provide upside for property
prices in the Western Pearl River Delta, particularly Macau and
Zhuhai, where real estate values lag those of Hong Kong.
Property
First-time buyers dominate residential market; luxury market
remains subdued
On the back of new housing policies and relatively low borrowing
costs, the territory's residential market remains dominated by
first-time buyers, who accounted for more than 80% of transactions
in 2018. The secondary market, particularly for the larger
properties to which MPO is predominantly exposed, remains subdued
as buyers' caution persists in an uncertain macroeconomic
environment.
Driven by an increase in pre-sales of new residential property,
Macau's average home prices reached HK$9,825 (US$1,255) per square
foot as of November, up 8% YoY. The number of residential units
transacted totalled 10,169 from January to November, an increase of
3.1% from the previous year.
Housing prices remained stable on the Macau Peninsula, where the
market is mainly driven by end-users, while in Taipa, the
residential property market became more active as some owners of
newly-completed residential units were looking to sell at or
slightly below contract prices.
The Monetary Authority of Macao raised its base lending rate by
25 basis points to 2.5% in September, the third increase of the
year. However, year on year in October, the total outstanding
balance of residential mortgage loans had increased by 12.4% to
US$26.3 billion, with loans to local residents accounting for
nearly 93% of the total.
In December, the monetary authority raised its base rate for a
fourth time this financial year, by 25 basis points to 2.75%, in
line with rate hikes by the US Federal Reserve and the Hong Kong
Monetary Authority, although local banks have so far kept their
mortgage lending rates unchanged.
Macroeconomic uncertainties temper Macau's positive outlook
In the short term, first-time buyers will continue to dominate
the real estate market, with the acquisition of smaller,
lower-priced properties which benefit from more generous mortgage
allowances.
Investors and upgraders, who are affected by a mortgage cap for
transactions worth more than MOP 8 million, meanwhile, will likely
stick with their wait-and-see attitude until there is more clarity
in the macro environment, which has been buffeted by the trade war
between the US and China, rising interest rates, and consequently
softer regional markets.
Despite the challenging economic environment and current lack of
demand for higher-priced properties, we are continuing to work
towards further portfolio disposals as a top priority.
Please note that henceforth, investor updates will be released
on a biannual basis with the next report due to be issued in Q3
2019.
- End -
About Macau Property Opportunities Fund
Macau Property Opportunities Fund Limited is a closed-end
investment company registered in Guernsey and is the only quoted
property fund dedicated to investing in Macau, the world's largest
gaming market and the only city in China where gaming is
legalised.
Premium listed on the London Stock Exchange, it is also a
constituent stock of the FTSE All-Share and FTSE SmallCap
indices.
Launched in 2006, the Company targets strategic property
investment and development opportunities in Macau. Its portfolio of
property assets was valued at US$330.4 million as at 30 September
2018.
www.mpofund.com
About Sniper Capital Limited
The Company is managed by Sniper Capital Limited, an Asia-based
property investment manager with an established track record in
fund management and investment advisory.
For further information
Investor Relations
Sniper Capital Limited
Tel: +65 6222 1440
info@snipercapital.com
www.snipercapital.com
Corporate Broker
Liberum Capital
Gillian Martin / Louis Davies
Tel: +44 20 3100 2234
Company Secretary & Administrator
Estera International Fund Managers (Guernsey) Limited
Kevin Smith
Tel: +44 14 8174 2742
Stock Code
London Stock Exchange: MPO
LEI
213800NOAO11OWIMLR72
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END
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