TIDMMPO
RNS Number : 5757M
Macau Property Opportunities Fund
13 January 2023
13 January 2023
Macau Property Opportunities Fund Limited
("MPO" or the "Company")
Investor Update
Second 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 GBP32.3 million
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Portfolio valuation US$227.4 million(1) -0.1%
(vs 30 June 2022)
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Adjusted NAV US$101.9 million(1)
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Adjusted NAV per share US$1.65(1) /136p(2) -1.5%
(vs 30 June 2022)
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Share price 52.25p 36.8%
(vs 30 June 2022)
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Discount to Adjusted 61.6% 74.7% (as at 30
NAV June 2022)
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Cash balance US$3.5 million(1)
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Total debt US$118.8 million(1)
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Loan-to-value ratio 51.5%(1)
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([1]) As at 30 September 2022.
(2) Based on a US$/GBP exchange rate of 1.210295 as at 31
December 2022.
All other data are as at 31 December 2022.
Opening Paragraph
In the second half of 2022, China's maintenance of its
zero-COVID policy continued to have a severe impact on Macau's
economy, with GDP expected to have contracted by 25%. The rapid
reversal of that policy i n December - although ultimately positive
for Macau - is likely to continue to hinder the near-term progress
of the Company's divestment programme due to the ensuing
"exit-wave" of COVID infections sweeping across the region.
Portfolio
The economic downturn and zero-COVID restrictions over the past
six months prompted the Company to carefully adjust its divestment
strategy. This led to negotiations for all three portfolio
properties, although successful sales were concluded only at The
Waterside. The complete reversal of China and Macau's zero-COVID
policy in December, is far reaching and comes as a long-awaited,
positive development. Most significantly, it reinstates free access
across the region, including Hong Kong. However, a positive impact
on Macau's property market is unlikely to be immediate, and the
Company is adopting a cautious position as the rapid spread of
COVID following the lifting of restrictions may complicate the
near-term divestment programme.
The Waterside
The Company's strata sales programme at The Waterside made slow
progress in the second half, with the sale of only one additional
unit, bringing the total sold in 2022 to five out of the 59
apartments in the building. The total combined sales value of the
units was approximately US$17 million, equating to a discount of 6%
to their average valuations as of 30 June 2022.
From the US$17 million sales proceeds, the Company utilised
US$14 million for loan repayments and earmarked the balance for
working capital. The Waterside's lender extended new financing of
US$6.4 million partly to refinance an US$18.3 million repayment
that was due for settlement in September, resulting in an
improvement of the overall portfolio loan-to-value (LTV) ratio from
53.3% in June to its current 51.5%.
Securing further sales remains the Company's overriding priority
at The Waterside, but this is being balanced with its ongoing
leasing programme. Tenant demand showed signs of improvement in
December, with the occupancy rate increasing marginally to 32% at
an average rent of HK$17.06 per square foot, largely unchanged from
H1 2022. The Company has received interest in unit purchases in the
building from some long-term tenants.
The Fountainside
At The Fountainside, four villas and two duplexes that have been
reconfigured into three smaller units and two additional
car-parking spaces, remain available for sale. The reconfiguration
work was completed in Q3, but the occupancy permits have been
delayed by several months due to Macau's protracted approvals
process and the local COVID situation. The permits are now expected
to be issued by Q2 2023, following which the marketing of the three
units will commence.
Although several buyers from Macau and Hong Kong have been
identified, negotiations stalled as investor sentiment waned
following a COVID lockdown in Macau in July and amid restrictions
on access to the territory from China, which have now been
lifted.
Penha Heights
Marketing Penha Heights to potential purchasers has been
challenging, as viewings are an important step in the acquisition
of this type of luxury property. Demand for the asset remains
strongest from China where travel restrictions have discouraged
interested parties from actively viewing the property. The more
recent resumption of the free movement of people in the region and
a likely rebound in sentiment once the current COVID surge abates
should positively impact progress on a sale moving forward.
Property
Residential property sector hits new lows
Impacted by weak investor sentiment, Macau's residential
property sector continued to struggle in H2 2022. Following Macau's
citywide lockdown in July, the city's property market did not
recover as expected, resulting in Q3 transaction volumes declining
by 32% quarter on quarter (QoQ), or 65% year on year (YoY) to 541
transactions - a new low for the residential market. Average prices
declined 3.1% QoQ to HKD8,267 (US$1,061) per square foot,
indicating continued downward pressure on the property market.
In the luxury market segment, in which the Company is invested,
average prices in Q3 2022 declined by 9.1% YoY to HKD8,373
(US$1,078) per square foot. Investors persisted with a cautious
stance after the July lockdown, with fewer viewings conducted than
during the first half of the year. Rental values of high-end and
mass-market to mid-market residential properties also remained
under pressure, with average rental yields declining to 1.5%,
according to real estate agency JLL.
Although pent-up demand from cash-rich buyers in China and Hong
Kong remains strong, Macau's residential property market is
expected to remain quiet until after the Chinese New Year holiday
in late January. According to property agent Centaline, despite
positive recovery prospects in the tourism industry, the property
sector will continue to face pressure from other factors such as
interest rate increases, stock market volatility, high
unemployment, the Ukraine war, and regional tensions between China
and the United States.
Macau
COVID-19: Abrupt dismantling of zero-COVID
In December, China's central government rapidly reversed its
zero-COVID policy, replacing it with a renewed focus on the
country's economy. Investors welcomed the move, but fresh concerns
emerged that an anticipated "exit wave" of infections would be
severe due to low vaccination and booster rates among the country's
elderly population.
Macau, mirroring mainland China's shift away from zero-COVID,
eliminated zero-COVID measures including mass-testing for at-risk
groups in December. As a result, an exit wave of infections has
affected at least 60% of the territory's population, and the fact
that vast numbers of infected workers have been caught up in the
outbreak has disrupted gaming and tourism operations.
Despite rising infections, Macau's government quickly announced
a series of measures to restore pre-pandemic ease of travel. To
date, all quarantine requirements for visitors have been abolished.
Regular bus and ferry services between Macau and Hong Kong have
resumed. Direct international air connectivity is also resuming,
with Air Macau flights from major hubs set to restart through 2023.
These developments are significant milestones in the recovery of
Macau's tourism industry and the territory's economy. The resulting
rebound in sentiment in the property sector will likely benefit the
Company's divestment programme once the current and future COVID
exit waves subside.
Economy: A difficult second half
Macau's economy continued to suffer in H2 2022, with gross
domestic product expected to have fallen 25% YoY. The COVID
outbreak in summer led to a dismal third quarter, during which
visitor arrivals more than halved YoY and exports of gaming and
other tourism services tumbled 73% and 46% YoY, respectively.
The unemployment rate among Macau residents in Q3 2022 rose to
5.2%, one of the territory's highest unemployment figures since the
global financial crisis in 2008. Pre-COVID, Macau's unemployment
rate had hovered at a level of around 2.6%.
Tourism: Ebbs and flows from dynamic zero-COVID
Macau's visitor arrivals in H2 2022 reflect the impact of
dynamic zero-COVID measures taken in the territory and in mainland
China, its main source of visitors. H2 visitor arrivals expected to
have fallen 41% YoY. Hotel occupancy in Macau is estimated to have
fallen 12% YoY to 38% during 2022 and average room rates stood at
MOP741 (US$93). However, industry sources indicate that hotel
bookings have rebounded for the upcoming Chinese New Year holiday
period with room rates increasing in tandem.
Prior to December, Macau had announced several key measures to
boost visitor numbers. For mainland Chinese tourists, such as the
resumption of e-visa issuance under the Individual Visit Scheme.
The expectation of a steady influx of tourists into Macau as a
result of these changes has led to a rebound in sentiment among
investors, who expect a recovery in the tourism and gaming
industries - albeit with some lag - ultimately to spill over into
the residential property sector. Gaming stocks, a leading indicator
of economic recovery and investor sentiment, have rallied
strongly.
Gaming: Stability heralds better times ahead
Gross gaming revenue (GGR) for H2 2022 reflects the economic
impact of Macau and China's dynamic zero-COVID measures. For
full-year 2022, GGR was down 51.4% YoY, at US$5.26 billion, just
14% of 2019's total.
Following the passage of new gaming laws last June, seven
companies - the six incumbents and surprise bidder Genting Malaysia
- submitted bids for the six available licences. At the end of
November, Macau's government announced that the six incumbents
would be given new 10-year licences taking effect from January
2023. The long-awaited announcement was a nod to stability and
continuity for the concessionaires, whose investments in the
territory over the past 20 years total more than US$50 billion.
Outlook for Macau
China's pivot from zero-COVID
Macau's outlook for 2023 and beyond will depend very much on the
impact of mainland China's pivot away from zero-COVID. Although
Beijing's focus on economic growth is welcome, the exit wave of
COVID infections is likely to delay economic recovery for several
months as Macau's tourism and gaming sectors grapple with labour
shortages and demand constraints.
Divestments remain the key priority for the Company
We remain cautiously optimistic that the Company's sales
programme can be actively advanced in 2023, but the immediate
future will likely bring headwinds due to aforementioned reasons.
These challenges are expected to continue until investor confidence
is restored, potentially in H2 2023. That said, it seems clearer
that Macau is now better positioned for recovery and that the pace
of change could see an accelerated return to more positive
sentiment. The Company will continue to position its portfolio
properties to take advantage of opportunities that arise as Macau's
borders and economy reopen, and prioritise debt repayments and a
return of capital to Shareholders in the shortest possible
timeframe.
The Company would like to thank shareholders for their continued
support in extending the Company's life for a year at its recent
AGM. Its Interim Results are due to be published towards the end of
February.
Investor Relations
Sniper Capital Limited
Tel: +853 2870 5151
info@snipercapital.com
www.snipercapital.com
Corporate Broker
Liberum Capital
Darren Vickers / Owen Matthews
Tel: +44 20 3100 2234
Company Secretary and Administrator
Ocorian Administration (Guernsey) Limited
Kevin Smith
Tel: +44 14 8174 2742
Stock Code
London Stock Exchange: MPO
LEI:
213800NOAO11OWIMLR72
About The Company
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 leading 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.
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.
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END
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