TIDMMPO
RNS Number : 9803T
Macau Property Opportunities Fund
28 July 2022
28 July 2022
Macau Property Opportunities Fund Limited
("MPO" or the "Company")
Investor Update
First Half 2022
KEY DATA
Inception date 5 June 2006
Exchange London Stock Exchange
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Domicile Guernsey
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Market capitalisation GBP23.6 million
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Portfolio valuation US$251.5 million(1) -3.0%
(vs 31 December
2021)
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Adjusted NAV US$113.3 million(1)
---------------------- ------------------
Adjusted NAV per share US$1.83(1) /151p(2) -6.7%
(vs 31 December
2021)
---------------------- ------------------
Share price 38.20p -19.2%
(vs 31 December
2021)
---------------------- ------------------
Discount to Adjusted 74.7% 68.7% (as at 31
NAV December 2021)
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Cash balance US$5.8 million(1)
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Total debt US$132.8 million(1)
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Loan-to-value ratio 51.6%(1)
---------------------- ------------------
[1] As at 31 March 2022.
2 Based on a US$/GBP exchange rate of 1.211859 as at 30 June
2022.
All other data are as at 30 June 2022.
Opening Paragraph
The sale of four apartments located in The Waterside has been
agreed for a combined US$14.4 million, marking the commencement of
MPO's strata sales programme. Meanwhile, Macau's success at
controlling the spread of COVID in the territory suffered a major
near-term setback in June with the most significant instance of
community transmission since the start of the pandemic.
Portfolio
Macau's zero-COVID strategy, which had already led to a sharp
economic downturn and high level of unemployment, culminated in the
start of a city-wide lockdown in June that included the closure of
all casinos. While this - along with the recent fall out in the
junket sector - has had a severe impact on property market
sentiment, there are early signs that wealthier individuals are
seeking to enter the prime luxury segment for the first time in
several years.
The Waterside
As highlighted in the Company's interim report, MPO's divestment
programme was widened in late 2021 to include strata sales of the
59 apartments located in The Waterside.
Since then, the Manager has been actively promoting a range of
units to an exclusive segment of buyers in extremely challenging
market conditions, compounded by several distressed transactions in
other less prominent developments. Encouragingly, The Waterside 's
standout positioning has led to the successful sale of one simplex
and three standard apartments worth a combined US$14.4 million,
representing an average discount of 6.8% to the units' latest
valuation. Two transactions were completed on 25 July for a gross
value of US$9.03 million. Sale & Purchase Agreements for a
further two units worth US$5.4 million are due to complete by end
August.
These sales have been driven by the re-emergence of cash-rich
buyers seeking ultra-high quality homes in the city and mark an
important first step towards the orderly strata sales of all
remaining 55 apartments in The Waterside.
Demand for luxury rental properties remains subdued due to
ongoing travel restrictions and the departure of foreign workers,
hindering The Waterside's leasing programme. 31% of The Waterside's
apartments are currently leased out, yielding an average monthly
rental of US$2.2 per square foot - unchanged from end 2021.
The Fountainside
The Fountainside is a residential development in the Penha Hill
district comprised of 42 homes and 30 car-parking spaces. The
divestment of all 36 standard units at the property was completed
in 2021. Four villas and two duplexes which have reconfigured into
three smaller units and additional carparks remain available for
sale.
The reconfiguration of two duplexes into three smaller units had
been substantially completed as of Q2 2022. An inspection by the
Land, Public Works and Transport Bureau (DSSOPT) is currently
pending, following which the Manager expects to commence marketing
efforts in Q4.
Several interested buyers from Macau and Hong Kong have been
identified for the four villas. Counter-offers have been made, but
negotiations have been hampered by the recent COVID-related
lockdown.
Penha Heights
Penha Heights is a prestigious, colonial-style villa atop Penha
Hill. Five viewings were conducted during the reporting period, but
no formal offers have yet been received. The Manager is continuing
to deploy its carefully targeted marketing efforts and various exit
strategies to divest the asset, although the current situation in
Macau has paused this process.
Property
Sluggish economy, zero-COVID policy and junket fallout weigh on
luxury property sector
The economic downturn and high unemployment rate in Macau in
2021 due to the pandemic has affected cashflows, purchasing power,
and investor interest and confidence in the property market. In H1
2022, the number of residential property transactions fell by 50.4%
YoY from 3,243 to 1,607 units.
For Q1 2022, the overall average price of residential units
dropped 8.4% quarter-on-quarter (QoQ) to MOP8,926 (US$1,106) per
square foot while the quiet market conditions continued for the
remainder of H1 2022.
The luxury end of the market has experienced new lows in
transaction prices, albeit primarily from distressed sellers of
sub-par properties. Local property agent Centaline Macau cited a
transaction involving a relatively large 3,000 square foot
residential unit that hit a 10-year low of HKD5,500 (US$700) per
square foot, around 40% of 2007's market price. Another transaction
involving a two-bedroom apartment was concluded at a price 15%
short of its pre-COVID levels. While some of the transactions were
forced sales following the recent collapse of the casino junket
industry, these units are not generally considered top-tier luxury
properties, and are not strictly comparable to the Company's
portfolio properties.
For H2 2022, Centaline predicts that the average price of
residential properties will likely increase by up to 5% as market
conditions improve, and as a growing number of cash-rich local
families are considering switching from renting to owning or
upgrading their current homes.
Macau
COVID-19: Battling community transmission
Macau's most severe COVID-19 outbreak to date was detected in
mid-June. Fuelled by the highly contagious Omicron BA.5.1 variant,
the territory's total COVID cases surged from 83 to a current
1,816. Although Macau recorded its first COVID-related fatalities,
so far only the most vulnerable - six elderly citizens with
co-morbidities - have succumbed.
The government responded swiftly and decisively, deploying its
dynamic zero-COVID strategy to identify sources of infection and
curb further spread which include repeated rounds of city-wide
testing, and a "standstill" period from 11-22 July during which
non-essential businesses and services, including casinos, were
closed. With community transmission falling to controllable levels,
a gradual reopening commenced on 23 July with strict capacity
limits as the health authorities are proceeding cautiously.
Macau's response has mirrored that of mainland China's
zero-COVID approach which locked down major cities and industrial
hubs in marked contrast to the "living with the virus" stance
adopted globally. Despite Macau's high vaccination rate of 90.2%,
the territory will therefore likely remain in lock step with
mainland China given its reliance on mainland Chinese visitors to
fuel the economy.
Economy weighed down by dynamic zero-COVID policy
Macau's FY2021 gross domestic product grew 17.7% year on year
(YoY), but 4Q 2021 GDP was 4.4% lower YoY after two consecutive
quarters of growth. The economy continued to be impacted in Q1 2022
as travel restrictions on an increasing number of COVID hotspots in
mainland China began to weigh on Macau's gaming and tourism
sectors, with Q1 2022 GDP shrinking 8.9% YoY.
Macau's government launched pandemic stimulus packages in H1
2022 of over MOP20 billion (US$2.48 billion), which include
subsidies for residents to use for designated goods, services and
utilities as well as financial aid for those worst affected by the
recent outbreak. The government broadly aims to mitigate the
financial burden on residents, boost consumption to stimulate local
businesses, and facilitate an economic revival.
Tourism recovering in fits and starts
Travel restrictions curtailed inbound tourism from mainland
China, with March through June being the worst months as lockdowns
affected Guangdong Province, the mainstay of Macau's visitors. In
H1 2022, visitor numbers were down 11.8% YoY compared to H1 2021.
The average occupancy rate of hotel rooms in Macau for the first
five months of 2022 decreased by 14.1 percentage points YoY to
37.3%, while the average room rate stood at around MOP800
(US$100).
Zhuhai, the city in Guangdong province which acts as a gateway
to Macau, has also reported the emergence of Omicron BA.5.1 cases
around the same time as the outbreak in Macau and travel curbs are
likely to continue in force, dampening visitor arrivals to Macau in
the near term.
Gaming: New regulations further curb VIP gaming
Macau's new gaming laws were passed by the Legislative Assembly
on 21 June, setting out the parameters for six new 10-year
operating concessions from 2023 onwards. The new framework reflects
mainland China's intensified efforts in clamping down on illegal
capital outflows. This spells the end of the current business model
of junket operators as the number of junkets will be limited to one
per concessionaire and profit-sharing by concessionaires is
prohibited. The closure of junket operations since Q4 2021 has
resulted in a sharp dip in VIP gaming revenues with a spill over
into the luxury property market as demand for luxury accommodation
for VIP gaming clients shrank.
The impact of Macau's zero-COVID measures was borne out in the
sharp decline in gross gaming revenue (GGR), with six-month GGR for
H1 2022 down 46.4% compared to the same period in 2021 and 82.4%
lower than 2019. Gaming operators are bracing themselves for a
continued period of low revenues in Q3, although the current
outlook for Q4, commencing with China's important National Day
holiday in the first week of October, is more optimistic.
Outlook for Macau
Near-term volatility but fundamentals remain intact
Amid the current COVID outbreak in Macau, the situation is fluid
and the nature of the "dynamic zero" COVID response may be both
swift and draconian, heightening near-term uncertainty. However,
Hong Kong's new Health Secretary's moves in relaxing COVID
restrictions under the "one country, two systems" banner may give
impetus for Macau to pursue further relaxation of its own rules
once the current outbreak is under control.
Focus on further divestments
Restrictions on travellers from outside China will continue to
limit the number of potential buyers in Macau, and thus impact the
timing of company's divestment plan. We may expect to see further
measures to ease travel restrictions for other nationalities once
the public health situation stabilises, but we will nevertheless
pursue the active divestment of the Company's remaining assets on
acceptable terms under current market conditions.
The focus on achieving debt repayments and the reduction of
gearing through sales, along with a return of capital to
Shareholders in the shortest possible timeframe, remains the
Company's primary objective.
The Company's Full Year Results are due to be published by the
end of September.
- End -
About Macau Property Opportunities Fund
Premium listed on the London Stock Exchange, 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.
Launched in 2006, the Company targets strategic property
investment and development opportunities in Macau. Its current
portfolio comprises prime residential property assets.
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.
Stock Code
London Stock Exchange: MPO
LEI
213800NOAO11OWIMLR72
For further information:
Manager
Sniper Capital Limited
Group Communications
Tel: +852 2292 6789
Email: info@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
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END
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