TIDMMPO
RNS Number : 9957F
Macau Property Opportunities Fund
14 July 2023
14 July 2023
Macau Property Opportunities Fund Limited
("MPO" or the "Company")
Investor Update H1 2023
KEY DATA
Inception date 5 June 2006
Exchange London Stock Exchange
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Domicile Guernsey
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Market capitalisation GBP36.2 million
---------------------- ------------------
Portfolio valuation US$213.8million(1) -1.5%
(vs 31 December
2022)
---------------------- ------------------
Adjusted NAV US$94.1 million(1)
---------------------- ------------------
Adjusted NAV per share US$1.52(1) /121p(2) -5.4%
(vs 31 December
2022)
---------------------- ------------------
Share price 58.5p +12.0%
(vs 31 December
2022)
---------------------- ------------------
Discount to Adjusted 51.5% 61.6% (as at 31
NAV December 2022)
---------------------- ------------------
Cash balance US$1.9 million(1)
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Total debt US$110.4 million(1)
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Loan-to-value ratio 51.2%(1)
---------------------- ------------------
(1) As at 31 March 2023.
(2) Based on a US$/GBP exchange rate of 1.261441 as at 30 June
2023.
All other data are as at 30 June 2023.
Opening Paragraph
Macau's economic engines roared back into life in H1 2023. The
property sector, however, has so far lagged the overall economy at
this relatively early stage of the recovery and challenges
including high interest rates and a slow return of confidence have
persisted. Against this backdrop, the Company continued to advance
its divestment programme during the period, selling an additional
nine units at The Waterside.
Portfolio
The lifting of travel restrictions to and from Macau just six
months ago has been extremely positive for the territory's tourism
industry, but the immediate impact on the ultra-luxury segment of
its residential property market and the Company's portfolio has so
far been muted.
The Waterside
The Company's strata sales programme at The Waterside has made
further progress, with the disposal of three additional units since
the last update to Shareholders in the Company's Interim Report,
issued in February. The disposals bring total year-to-date sales at
the property to nine standard units. Overall, 14 of the
development's 59 apartments have so far been sold through the
strata sales programme.
The combined value of year-to-date sales at The Waterside is
approximately US$22.3 million, with 80% of the apartments sold
being standard units located on low to middle floors. Units located
on more valuable higher floors, including the special simplex and
duplex units, have been reserved for future sales as Macau's
property market improves.
In line with the recovery in Macau's tourism industry, leasing
demand at The Waterside is showing continued signs of improvement.
Occupancy currently stands at 47%, up from 32% at the end of 2022,
driven by a 22% increase in new leases since last December and an
11% reduction in the number of units available for lease during the
same period. Rental income has also increased since December, up
22%, while the average rent remains unchanged at US$2.17 per square
foot, despite average rentals in the immediate area around The
Waterside dropping 8.3% year on year (YoY) in Q1.
Securing further sales at The Waterside remains a priority. The
Company is therefore balancing increased rental income from current
leasing demand with further strata sales of vacant units. Sales of
units with sitting tenants are a component of our strategy,
bringing our leasing and sales approaches into alignment. The
Company intends to progress the strata sales programme but pace
this to take advantage of the expected property market
recovery.
The Fountainside
At The Fountainside, four villas, three reconfigured units and
two car-parking spaces remain available for sale. A few potential
purchasers have viewed the villas and negotiations remain ongoing,
a reflection of the current state of the luxury segment of Macau's
property market, which has faced ongoing challenges despite the
territory's economic recovery. Nevertheless, in anticipation of
increased market activity in the coming months, a renewed marketing
campaign is currently in progress for the villas.
The issuance of occupancy permits for the three smaller
reconfigured units has been delayed. The authorities completed
inspections in January and comments detailing minor changes have
been received. The permits are now expected to be issued in Q3,
following which the marketing of the three units will commence.
Penha Heights
Interest in Penha Heights has been muted, consistent with the
lack of activity in Macau's ultra-luxury property segment. Although
several viewings have taken place in the past six months, a
sustained economic recovery in both Macau and mainland China is a
prerequisite for investor interest in an asset such as Penha
Heights - a fact that is likely to become more apparent entering
2024. In the meantime, maintenance work has been ongoing to keep
the property in pristine condition and a very targeted marketing
campaign is planned for the second half of the year.
Property
Property sector expected to lag economic recovery
Macau's property market has so far lagged the impressive tourism
industry recovery. The market faces a number of challenges,
including a high interest rate environment that has seen the
territory's base lending rate rise to 5.25% while yields on
properties have remained historically low at below 2% per
annum.
Following FY2022's 40-year low in transaction volumes, Macau's
residential property market improved in terms of both transaction
volume and value during the period. In Q1 2023, 848 units changed
hands, representing 31% quarter-on-quarter (QoQ) growth, while
total transaction value rose by 34% QoQ to MOP5.6 billion.
The luxury segment of the market has remained quiet, with only
48 luxury units transacted in Q1 2023, a 9% YoY decline, although
the average transaction price per square foot increased 3.1% YoY in
the same period. The market environment remains challenging, with
high interest rates driving potential investors to seek increased
yields when considering investment opportunities, or to seek price
reductions to compensate for lower expected returns. Sellers are
exhibiting strong holding power, with many reluctant to accept
lower prices at a time when the tourism sector is seeing such a
strong rebound. In addition, potential investors are also
distracted as they grapple with immediate concerns amid the
recovery - reviving their businesses and coping with a spike in
demand while simultaneously managing labour shortages.
Average rents declined across Macau's residential property
market in Q1 2023, with the average rent per square feet of usable
area at MOP12 (US$1.5), 7% lower YoY and 2% lower QoQ.
Macau
Economy: Rapid recovery from an extremely low base
With the lifting of Macau's travel restrictions, the territory's
economy rallied in the first half of 2023, driven by its twin
economic engines, gaming and tourism. In Q1 2023, gross domestic
product grew 39% YoY to reach approximately 66% of Q1 2019 levels.
Macau's economy has clearly turned the corner following its 27%
contraction in 2022, but its recovery will require significant time
and effort to restore balance sheets, rebuild capacity, address
labour shortages and re-establish flight connectivity.
The outlook for the second half of 2023 is encouraging, with
Fitch Ratings and the International Monetary Fund predicting
full-year GDP growth of 48% and 59%, respectively.
Tourism: Year-to-date arrivals have already topped 2022
numbers
Macau's tourist arrivals have surged since the lifting of border
control measures, and for the first half of the year , year-to-date
tourist arrivals had already exceeded 2022's visitor arrivals by
104%. Tourist arrivals grew month on month during the first half of
the year, and the territory had admitted 11.6 million visitors by
May, approximately 57% of 2019's record-breaking total.
More than two-thirds of visitors are mainland Chinese, but
travellers from Hong Kong SAR now make up 30%, an increase of 21
percentage points since travel restrictions were lifted. By May,
the number of visitor arrivals from Hong Kong had recovered to
c.92% of 2019 levels.
Macau's tourism agencies have been actively promoting the
territory, particularly to North Asian and Southeast Asian
tourists, with special offers and packages to boost visitation. In
Q1 2023, Macau International Airport recorded YoY passenger traffic
growth of 170%, while flight movements increased 57% YoY. As
airlines tackle the task of restoring routes paused during the
pandemic, international tourist numbers will take time to reach
pre-pandemic levels.
Gaming: Year-to-date Revenue has beaten full-year 2022 GGR
GGR has rallied in line with Macau's surging visitor numbers. By
June, year-to-date GGR had exceeded 2022's total by c.90%, with
June's GGR reaching c.64% of pre-Covid levels, surpassing analysts'
initial forecasts.
The rally in GGR is being led by the premium mass-market and
mass-market gaming segments, which have rebounded to c.90% of
pre-pandemic levels in June, while VIP GGR is at c.24% of its level
pre-Covid, heavily impacted by an official clampdown on the junket
business. The current mix of GGR is positive for gaming operators'
financial performance as the mass-market segments are generally
more profitable than VIP gaming. JP Morgan has estimated that Q2
EBITDA for Macau's six gaming operators rang in at US$1.7 billion,
or 73% of 2019 levels, which puts the gaming industry significantly
ahead of previous projections.
Outlook
Continued economic recovery
The economic outlook for the second half of 2023 is positive,
with a continued recovery expected through the period and beyond.
In addition to predicting full-year 2023 GDP growth of 59%, the IMF
forecasts that in 2024, Macau's economy is likely to grow by 21%,
taking it to 86% of its pre-pandemic size.
Nevertheless, challenges remain as Macau rebounds from a low
base and faces shortages of labour and other inputs. Investor
sentiment is increasingly buoyant, but it will take time for that
optimism to spill over into the property sector, which faces
additional headwinds, particularly with regard to high interest
rates.
Divestments remain the Company's key priority
We remain cautiously optimistic that the Company's sales
programme can be actively advanced in the second half of 2023,
given the overall positive sentiment in Macau, but we are balancing
transaction velocity with achievable disposal prices, while also
managing our debt amid higher interest rates.
The Company will continue to position its portfolio properties
to take advantage of opportunities that arise as Macau's economy
recovers to its pre-pandemic condition, prioritising debt
repayments and the return of capital to Shareholders in the
shortest possible timeframe.
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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