TIDMMPO
RNS Number : 5688E
Macau Property Opportunities Fund
05 July 2019
5 July 2019
Macau Property Opportunities Fund Limited
("MPO" or the "Company")
Investor Update
First Half 2019
Key Data
Inception date 5 June 2006
Exchange London Stock Exchange
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Domicile Guernsey
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Market capitalisation GBP90.3 million
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Portfolio valuation US$316.2 million(1) -1.3%
(vs 31 December 2018)
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Adjusted NAV US$182.1 million(1)
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Adjusted NAV per share US$2.94/225p(1,2) -3.3%
(vs 31 December 2018)
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Share price 146p -9.9%
(vs 31 December 2018)
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Discount to Adjusted 35% No change
NAV (vs 31 December 2018)
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Cash balance US$30.4 million(1)
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Total debt US$147.8 million(1)
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Loan-to-Value ratio 42.6%(1)
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(1) As at 31 March 2019.
(2) Based on a US$/GBP exchange rate of 1.304 as at 31 March
2019.
All other data are as at 30 June 2019.
Summary
Macau's property market continues to be affected by
macroeconomic factors and restrictive mortgage policies. While
overall transaction prices have been stable, the wider residential
sector has seen a decline in transaction volumes, with the luxury
segment remaining particularly quiet. The Manager and the Board are
intently focused on achieving optimal disposals of each asset.
Market conditions are not helpful, but we are continuing to apply a
determined, proactive approach.
Portfolio
The Waterside
The Waterside, MPO's landmark asset in downtown Macau, offering
59 residential luxury apartments for lease, continued to operate in
a challenging environment.
Demand from junket operators, a key tenant segment at The
Waterside, remained weak as VIP gaming revenues declined following
stricter regulations and slower economic growth in China.
Competition is also growing from other regional gaming
destinations, some of which offer more discreet environments for
VIP clients.
Despite these challenges, proactive leasing incentives and
attractive packages promoted by the Manager resulted in occupancy
rates rising over the period to 55%, with 15 new leases and seven
lease renewals offsetting lease expiries. The average rental rate
remained stable at HK$22 (US$2.8) per square foot per month.
The Manager is continuing to work towards an en-bloc divestment
of The Waterside and is in various stages of discussions with a
number of investment groups. Meanwhile, our asset management team
continued to focus on general upgrading works to ensure that The
Waterside maintains its pre-eminent position as the high-end
apartment complex of choice in Macau.
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. As previously announced, in response to much
stronger demand for smaller properties, we applied to the Macau
authorities to reconfigure the development's six largest apartments
into 12 smaller, more marketable units with additional car-parking
spaces. Architectural approval was received in May, allowing us to
proceed to full submission in July. Full approval is expected in
the second half.
We have continued to actively market the available apartments
and car-parking spaces, deploying special offers and incentives
agreed with the Board, and are in advanced dialogue with a number
of interested parties. Potential buyers, however, have remained
hampered by stricter mortgage policies introduced by the government
last year.
Estrada da Penha
Estrada da Penha is a prestigious, colonial-style villa atop
Penha Hill, an exclusive, highly sought-after residential enclave.
We are continuing our carefully focused efforts to promote the
property to ultra-high-net-worth investors following the opening of
the Hong Kong-Zhuhai-Macau Bridge (HZMB) in October 2018. The HZMB
has improved connectivity within the Greater Bay Area and boosted
Macau's positioning within the region.
We have recently successfully extended a US$9 million term loan,
representing c. 50% of the total debt held against the asset, for a
further two years on improved terms.
Macau
Macau's economy contracted in Q1 2019
Macau's Q1 GDP shrank by 3.2% year on year (YoY), its first
contraction following 10 consecutive quarters of growth. This was
due largely to a decrease in the number of construction projects
being undertaken in both the public and private sectors following
the completion of the HZMB in late 2018. The decline is likely to
be temporary, with the IMF expecting Macau's economy to expand by
4.3% in 2019 and 4% annually over the medium term, despite
cautioning that ongoing tensions arising from the US-China trade
war could adversely impact the territory's longer-term forecasts
due to slower economic growth in China.
Gross gaming revenue stable, VIP sector declines
First-half gross gaming revenue (GGR) was stable, decreasing by
a moderate 0.5% YoY. Although the VIP gaming segment came under
pressure, contracting by approximately 12%, the decline was largely
offset by strong growth in mass-market gaming revenues, which
expanded 14%, taking that segment's market share to more than 50%
for the first time.
The VIP gaming segment has faced significant challenges since
2014 as its biggest clients - primarily from mainland China - have
been impacted by the Chinese central government's clampdown on
corruption and by capital controls. Although the VIP segment
experienced a rebound in 2016-18, heightened restrictions on
capital outflows, a weaker Chinese currency, increasing tensions in
US-China trade relations, and stricter regulation of junket
operators have recently curtailed growth. This has prompted junket
operators to diversify into other Asian gaming markets that offer
more relaxed regulations and lower taxes.
Gaming operators face uncertainty over concession renewals
Uncertainty has increased over the prospect of Macau gaming
licences held by US companies - Wynn Resorts, Las Vegas Sands and
MGM Resorts International - becoming pawns in the US-China trade
war. The renewal criteria and licence conditions for the existing
six concessions, which expire in 2022, are not likely to be
finalised for another two years.
Macau's current chief executive, Fernando Chui, will step down
in December this year following the election of a new chief
executive in August. This has added to uncertainty, as the incoming
administration will be charged with undertaking fresh tenders for
casino concessions. There has been speculation over new policy
considerations such as an expansion of the number of concessions, a
shortening of their duration, and an increase in gaming taxes.
Gaming operators have announced expansion plans in Macau worth
approximately US$18 billion, but are likely to exercise increased
caution in executing those plans until the way forward becomes
clearer. This slowdown could spill over into Macau's banking and
property sectors.
Hong Kong-Zhuhai-Macau Bridge brings surge in visitor
arrivals
Since the HZMB opened, Macau has become more accessible for
international visitors travelling via Hong Kong International
Airport and Chinese tourists from Guangdong Province. The number of
visitor arrivals by land increased sharply in the first quarter of
2019, to 7.6 million, a jump of almost 50% YoY. Market research
indicates that visitors arriving via the HZMB spend one-third more
than those who arrive by ferry.
The HZMB has also boosted the MICE (meetings, incentives,
conferences and exhibitions) market. With better connectivity via
Hong Kong's airport, Macau is now more attractive for large-scale
events that include participants from the United States and Europe.
In Q1 2019, Macau hosted 377 MICE events, a 15% YoY increase,
attracting 332,800 attendees.
Sustained increase in visitation
Based on our estimation, the number of visitors to Macau is
likely to reach 20 million in H1 2019, a significant YoY increase
of 19%. Visitors from mainland China (14 million) and Hong Kong
(3.6 million) increased YoY by 22% and 19%, respectively.
The average stay among visitors to Macau was 1.1 days as of H1
2019 (0.1 day less compared with Q1 2018). In the first four months
of the period, the number of day-trippers was up 32% YoY. This is
attributable to the opening of the HZMB, which has made it more
convenient for residents of the Greater Bay Area to drive to Macau
and spend the day.
Property
Macau's residential property market has got off to a slow start
this year. Transaction volumes dominated by first-time buyers
seeking affordable homes priced at under US$1,000,000, accounted
for more than 80% of turnover. Sales activity in the first two
months was down 77% YoY, although this was mainly due to a high
comparison base from the same period last year, when buyers made
purchases before the implementation of the government's new
anti-speculation measures.
Since March, mass-market property prices have recovered
slightly, thanks to the launch of several new residential projects.
Average home prices remained stable at HK$9,789 per square foot
(US$1,250 per square foot) during the period, but the number of
residential transactions slumped 46% YoY during the first five
months of the year.
Meanwhile, the luxury segment remained extremely subdued as a
result of restrictive mortgage policies remaining in place and
adverse investor sentiment due to concerns over China's economic
growth prospects amid the country's ongoing trade war with the
US.
Outlook
Economic uncertainty
Global markets are expected to remain highly volatile in the
coming months. The spillover effects of the ongoing US-China trade
dispute and its potential adverse impact on the Chinese economy are
likely to make Macau's market environment more challenging.
Property market expected to remain quiet
In the short term, analysts expect Macau's property market to
continue to face some pressure due to slowing growth and ongoing
regulatory measures designed to curb real estate market
speculation. The capital values of high-end residential properties
may continue to drift, but rental values are expected to remain
stable.
Luxury buyers likely to maintain 'wait and see' stance
A potential catalyst for renewed property market strength may
arise from a recovering credit cycle in mainland China, where we
expect to see credit-easing measures in H2 2019 that may boost the
mainland economy. There is also scope for the US Federal Reserve to
lower interest rates. This would be positive for Macau real estate,
since Macau's currency is indirectly pegged to the US dollar and
therefore to US interest rates.
In the meantime, coupled with ongoing trade war concerns and
slower-than-expected growth in mainland China's economy, Macau's
luxury property market is likely to remain quiet, with investors
continuing to exercise caution when making big-ticket
commitments.
- 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$316.2 million as at 31 March
2019.
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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