REG - Macau Prop Opp Fund - Investor Update H2 2021

Macau Property Opportunities FundAnnouncement

31/01/2022 08:00

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RNS Number : 0161A  Macau Property Opportunities Fund  31 January 2022

31 January 2022

 

Macau Property Opportunities Fund Limited

 ("MPO" or the "Company")

 

Investor Update

Second Half 2021

 

Key Data

 

 

 Inception date                 5 June 2006
 Exchange                       London Stock Exchange
 Domicile                       Guernsey
 Market capitalisation          £29.2 million
 Portfolio valuation            US$262.9 million(1)    -0.4%

                                                       (vs 30 June 2021)
 Adjusted NAV                   US$126.1 million(1)

 Adjusted NAV per share         US$2.04(1)/151p(2)     -3.1%

                                                       (vs 30 June 2021)
 Share price                    47.3p                  -29.9%
                                                       (vs 30 June 2021)
 Discount to Adjusted NAV       68.7%                  55.6%

                                                       (as at 30 June 2021)
 Cash balance                   US$9.7 million(1)
 Total debt                     US$134.7 million(1)
 Loan-to-Value ratio            49.4%(1)

 

 

(( 1 )) As at 30 September 2021.

(2) Based on a US$/£ exchange rate of 1.3503318 as at 31 December 2021.

 

All other data are as at 31 December 2021.

 

 

Summary

 

Macau's economy grew 27.5% in Q1-Q3 2021, but overall sentiment remained weak
as the territory's zero-COVID strategy adversely impacted the gaming and
tourism sectors. The gaming industry was buoyed by the announcement of the
draft new gaming bill which set out the key parameters for licensing and
alleviated long-standing uncertainty within the industry.

 

Portfolio

 

Macau's economy showed some improvement in Q3, but the luxury segment of the
residential property market remained quiet. The determined pursuit of a
zero-COVID strategy across mainland China, Macau and Hong Kong has resulted in
lockdowns of cities as a primary public health tool. This has delayed the
launch of the travel bubble with Hong Kong, and has, alongside government
mortgage caps, continued to adversely weigh on sentiment.

 

We thank our Shareholders for their continued support at the recent Annual
Meeting and for the extension of the Company's life during this challenging
period.

 

The Waterside

The Waterside is MPO's flagship asset, comprising 59 luxury apartments with
commanding views of downtown Macau. At the end of 2021, 30% of The Waterside's
apartments were occupied, yielding an average monthly rental of US$2.3 per
square foot.

 

Leasing demand for luxury property in Macau remains subdued due to ongoing
travel restrictions. COVID-19 outbreaks and three rounds of citywide COVID
testing in H2 2021 have also impacted sentiment. While market conditions have
challenged efforts to secure an en-bloc sale of the property, there remains
active investor interest in this direction. We are reviewing the divestment
strategy against the market developments while engaging potential buyers. Each
apartment has a separate strata title.

 

The Fountainside

The Fountainside is a residential development in the Penha Hill district that
originally comprised 42 homes and 30 car-parking spaces. The sale of the last
remaining standard-type unit was completed for HK$11.8 million (US$1.5
million, in line with its latest valuation) in August 2021, bringing to an end
the divestment of all 36 standard units at the property.

 

In the remaining six units, reconfiguration work on the two duplex units has
commenced and is expected to be largely completed in Q1 2022. This will result
in the availability of three new units and two new parking spaces for sale,
with marketing expected to commence in February following the Chinese New
Year. We are also continuing to market the property's four villas.

 

Penha Heights
Penha Heights is a prestigious, colonial-style villa atop Penha Hill. Despite
increased sales and marketing efforts, the potential pool of buyers remains
limited, a situation that will persist as long as travel restrictions continue
to inhibit viewings of the property by potential investors from outside Macau.
We will continue to work with specialist agents to explore all possible
channels for an optimal exit from the asset.

 

Macau

COVID-19 containment - a successful management of the pandemic

Macau's official COVID-19 case numbers remain remarkably low, at total of 79,
despite the emergence of the highly transmissible Delta and Omicron variants
that prompted closure of non-gaming entertainment and leisure outlets and
tightening of travel restrictions. Follow-on citywide COVID testing on three
occasions confirmed that community infections were minimal and contained.
Nevertheless, these measures fostered an unprecedented level of uncertainty in
Macau's economy, with its main drivers - tourism and gaming - among the
sectors most affected.

 

As of the end of 2021, around 75% of Macau's population had been fully
vaccinated against the virus, and around 80% had received at least one vaccine
dose. Booster shots have also been available since early November.

 

Economy - growth hit by zero-COVID strategy and termination of junket
operations

During the first three quarters of the year, GDP grew by 27.5% YoY. Amid
economic uncertainties, in October the International Monetary Fund cut its
full-year growth forecast for Macau to 20.4% YoY, a sharp drop from its growth
forecast of 61% issued in April. This change reflects the adverse externally
influenced factors affecting Macau's economy which significantly altered the
outlook from that which was expected earlier in 2021. The numbers may be
revised further with the termination of junket operations as VIP gaming
contributes to 30% of Macau's gross gaming revenue.

 

Policy Address - further integration into the Greater Bay Area

Macau Chief Executive Ho Iat Seng delivered his annual Policy Address in
November. He outlined the policies of mainland China, including the
diversification of Macau's economy to integrate with the Greater Bay Area.
Brief comments were made on the new framework for the gaming industry
emphasising the need to improve oversight of gaming activities.

 

Tourism - an erratic recovery

With disruptions caused by the Delta and Omicron COVID variants, Macau tourism
operators were particularly disappointed as the reopening of Hong Kong's
borders with mainland China and Macau was shelved yet again following local
transmissions of the Omicron variant in Hong Kong.

 

Macau welcomed a total of 6.9 million visitors from January to November 2021,
up 31% YoY. During the period from January to October, the total number of
guests in hotels and guesthouses was 94% higher YoY despite occasions of mass
cancellation of travel plans following the discovery of local COVID cases in
Macau and mainland China. The year ended on a high note as festivities drew
over 40,000 visitors on Christmas Eve.

 

Gaming - details of new gaming law announced

Gross gaming revenue (GGR) increased 44% YoY to MOP87 billion (c.US$11
billion) in 2021, but was still less than a third of the MOP292 billion
(c.US$36 billion) reported in 2019 before the pandemic. GGR in October and
November was affected by travel restrictions that saw tourist numbers plummet
during the Golden Week holiday.

 

Industry sentiment was also impacted by the escalation of the mainland Chinese
government's efforts to crack down on suspicions of money laundering and
capital flight. The chief executive of Macau's largest junket operator was
arrested, and regulatory orders were subsequently issued for junket operators
to stop providing credit to clients.

 

While the VIP gaming segment had been in decline for several years due to
tightened regulations, the growth of the premium mass market has been the
industry sweet spot with the expansion of China's middle class and their
demands for memorable experiences.

 

On a positive note, the industry's most pressing concerns over the new gaming
laws have been somewhat allayed by the announcement of the results of the
public consultation and government's responses. The main features of the new
licensing regime include a maximum of six gaming concessions for 10 years with
the potential to extend for a further three years. Earlier government
proposals to increase gaming taxes, appoint delegates to the boards of
concessionaires and to approve dividend payouts were dropped. Although the
draft bill may be amended as it passes through the legislature, industry
players and analysts have commented positively on the transparency of the
public consultation and the clarifications provided by the government.

 

Property

 

Impacted by renewed concerns over COVID created by the outbreaks and mass
testing, Macau's residential property market remained relatively quiet in Q3
2021, with a total of 1,500 transactions - a decline of 15% YoY. The luxury
end of the market remained stagnant, affected by external factors and muted by
current sentiment. Overall, prices rose slightly to an average of US$1,170 per
square foot - an increase of 0.76% YoY. For the first 11 months of the year, a
total of 5,557 residential units were transacted, down 6% YoY. First-time
buyers accounted for 83% of all transactions, second time buyers accounted for
14%, and the remaining 3% were buyers purchasing residential properties for at
least the third time.

 

Within the Greater Bay Area, luxury home sales in Hong Kong appear to be en
route to a new record high this year. The value of transactions involving
properties worth more than HK$100 million (US$12.8 million) in the first 11
months of the year reached HK$46.4 billion (US$5.95 billion), 60% higher than
the total value for full-year 2020. The figure is remarkable, given that Hong
Kong's borders have been closed throughout the pandemic. The boom has been
fuelled largely by "IPO billionaires" - founders of Chinese companies recently
listed on Hong Kong's stock exchange.

 

Given Macau's track record on public health, alongside infrastructure and
connectivity improvements, investors may look to the territory's luxury
property market, prices of which are considered to be at a five-year lows, as
they return to the Greater Bay Area and economic activity in the region
resumes more fully.

 

Outlook

 

Macau and mainland China are maintaining a stringent zero-COVID policy that is
expected to remain in place for some time and at least until the end of the
Winter Olympics in Beijing. Macau's economy will nevertheless be vulnerable to
disruption by COVID outbreaks on the Chinese mainland and locally, as seen in
H2 2021, and more recently in January 2022, with a 14-day ban on international
flights to Macau aimed at curbing the spread of the Omicron variant.

 

The Macau government has warned that the economic conditions are expected to
remain challenging in 2022 and a recovery from the pandemic will take time. It
has consistently outlined specific plans for Macau's role within the Greater
Bay Area to diversify Macau's economy away from gaming and turn the territory
into a technology and tourism hub. Although the plan is still in its early
stages, the potential for the property market to gain is clear.

 

Fitch Ratings expects Macau's GGR to pick up in 2022, particularly when the
travel bubble with Hong Kong goes into operation to boost the gaming and
tourism industry and contribute to a potential spill over into the retail and
the property sectors. The Macao Government Tourism Office had also predicted
that the border reopening together with the resumption of the e-visa programme
with mainland China may boost visitation to Macau to 10 million arrivals in
2022.

 

Restrictions on travellers from other countries will, however, limit the
number of potential buyers of the Company's properties and continue to disrupt
the Company's divestment plan. We will continue to pursue the divestment of
the remaining assets on acceptable terms within current market conditions. A
return of capital to shareholders in the shortest possible timeframe remains
the primary objective.

 

-  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.

 

The Company is premium listed on the London Stock Exchange.

 

Launched in 2006, the Company targets strategic property investment and
development opportunities in Macau. Its portfolio of property assets was
valued at US$262.9 million as at 30 September 2021.

 

www.mpofund.com (http://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: +852 2292 6789

info@snipercapital.com (mailto:info@snipercapital.com)

www.snipercapital.com (http://www.snipercapital.com)

 

 

Corporate Broker

Liberum Capital

Darren Vickers / Owen Matthews

Tel: +44 20 3100 2234

 

Company Secretary & Administrator

Ocorian Administration (Guernsey) Limited

Kevin Smith

Tel: +44 14 8174 2742

 

Stock Code

London Stock Exchange: MPO

 

LEI

213800NOAO11OWIMLR72

 

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