TIDMMPO
RNS Number : 1143D
Macau Property Opportunities Fund
05 October 2018
5 October 2018
Macau Property Opportunities Fund Limited
("MPO" or the "Company")
Investor Update
Third Quarter 2018
Quick Facts
Inception Date 5 June 2006
Exchange London Stock Exchange
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Domicile Guernsey
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Market Capitalisation GBP117.5 million
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Share Price 189.98p
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Number of Principal Properties 3
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Portfolio Valuation US$338.4 million(2)
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Adjusted NAV per share US$3.41/258p(1,2)
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Discount to Adjusted
NAV 26%
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Cash Balance US$88.2 million(2)
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Total Debt US$148.0 million(2)
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Loan-to-Value Ratio 35%(2)
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(1) Based on US$/GBP exchange rate of 1.321 as at 30 June
2018.
(2) As at 30 June 2018.
All other data are as at 30 September 2018.
At a Glance
-- Occupancy level at The Waterside declined to c.60%. Early
lease terminations were exercised by several junket-related
tenants.
-- Ongoing activities at The Fountainside. Marketing of six
apartments continues, while awaiting authorities' approval on the
larger units' reconfiguration plans.
-- Continued pursuit of ultra-high net worth buyers for Estrada
da Penha. Large-scale infrastructure projects connecting 11 cities
in the region is expected to boost sentiment and assist our
marketing efforts.
-- Macau's economy to continue expansion. The city's gross
domestic product is forecast to grow 5.8% for 2018 and 3.9% in
2019.
-- Sanguine outlook for the property market. Average home prices
are predicted to rise further for the remainder of the year and
into 2019.
Overview
The Waterside secured eight new leases and had several early
terminations by junket-related tenants. Sale campaigns for both The
Fountainside and Estrada da Penha are continuing. The imminent
opening of the Hong Kong-Zhuhai-Macau Bridge is expected to boost
sentiment and drive long term property values in Macau and the
western Pearl River Delta.
Fund
The Company announced its annual financial results on 24
September 2018.
As at 30 June 2018, MPO's adjusted Net Asset Value was US$260.6
million, which translated to US$3.41 (258 pence), representing an
annual growth rate of 4.5%.
On a like-for-like comparison for the assets in the MPO's
portfolio, the total value appreciated 2.3% year-on-year to
US$338.4 million.
The Company had US$88.2 million in cash and US$148.0 million as
borrowings, which worked out to a loan-to-value ratio of 35%.
Subsequently, in July 2018, there was a distribution of US$50.5
million to shareholders.
As at end September, MPO had a share price of 189.98 pence, a
2.1% QoQ decline.
Portfolio
Macau was hit by a typhoon in September, which caused widespread
disruption in the city. Fortunately, the Company's portfolio of
properties, which is fully insured for typhoon risk, suffered
minimal damage.
The Waterside
The average rental rate registered a modest sequential quarterly
increase of 1.2% to HK$21.90 (US$2.81) per square foot per month -
thanks to eight well-negotiated new leases which were sealed on the
back of an active level of leasing enquiries.
Meanwhile, during the quarter, several junket-related tenants
exercised early terminations on their leases. These terminations
are believed to be due to the Macau government's plans to introduce
greater and more stringent oversight of junket operators via fresh
legislation and regulations. This is compelling some junket
operators to carry out reviews of their current business and
compliance models. Consequently, the occupancy level during the
quarter declined to c.60% from 70% in the prior quarter.
We believe this spate of terminations was a 'one-off' event and
are hopeful that the overall occupancy level will recover to a
healthier level going forward, on the back of optimisim in Macau's
economic growth as well as the positive impact of the opening of
the Hong Kong-Zhuhai-Macau Bridge this year.
We commenced the latest phase of our upgrading programme for all
units during the quarter, including installing and upgrading of
kitchen appliances. Such asset enhancement programmes aim to
maintain the premium positioning of The Waterside, ensuring its
capability to continue commanding attractive rental rates and to
further boost the occupancy level.
The Fountainside
Architectural approval for the recongfiguration of the four
villas and two duplex units into smaller apartments is expected by
the end of 2018. Notwithstanding any unforeseen delays, the entire
reconfiguration project should be completed by end 2019.
We actively continue to market the other six apartments,
although the residential sales market remains somewhat muted due to
stricter mortgage policies implemented earlier this year.
We sold one car-parking space in August for HK$2.37 million
(US$0.3 million). Consequently, there are 12 residential units
remaining for sale at the end of the quarter - including 4 villas
and 2 duplexes - and 9 car-parking spaces.
Estrada da Penha
With the imminent opening of the Hong Kong-Zhuhai-Macau Bridge,
the Greater Bay Area is clearly in focus, with much discussion
about the integration of the region's 11 cities, shortened travel
times and the impact on property values. It is expected that the
price gap for residential assets between Macau and the neighbouring
cities will gradually narrow.
Macau's sister city, Hong Kong, was ranked as the "most
luxurious" residential market worldwide and has boasted two
residential sales of above US$100 million and the highest price per
square foot of any urban area in 2017(3) . As such, we are hopeful
that the niche group of ultra-high net worth buyers will soon
expand their search for trophy homes to the neighbouring cities,
and recognise similar scarcity value of the ultra-luxury properties
such as Estrada da Penha in Macau. In the meantime, dedicated
marketing efforts in promoting the property are continuing.
(3) Christie's International Real Estate: Luxury defined 2018 |
An insight into the luxury residential market
Macau
Continued expansion in economy
Macau's economy grew by 6.0% in Q2 2018, registering the eighth
quarter of consecutive growth since Q3 2016. On a full-year growth
projection, the Economist Intelligence Unit forecasts that Macau's
GDP will grow 5.8% this year and 3.9% in 2019. Against such
sustained growth, Moody's has renewed Macau's credit rating to
"Aa3" with a stable outlook in June. The city is expected to
continue its economic expansion over the next two years, amid
booming gaming and non-gaming tourism.
Based on statistics released by the Gaming Inspection and
Coordination Bureau, gross gaming revenue (GGR) surged 2.8%
year-on-year (YoY) to MOP22 billion (US$2.7 billion) in September.
The modest gain for the month could be attributed to Typhoon
Mangkhut that struck Macau and which forced a 33-hour closure of
all casinos for the first time in history. For the first nine
months of the year, GGR totalled to MOP224 billion (US$28 billion),
representing an increase of 15.9% YoY. However, short-term
uncertainties such as the on-going trade dispute between US and
China, weakening Chinese currency and rising interest rates remain.
Hence, Bank of America Merrill Lynch revised Macau's 2018 full-year
GGR growth forecast from 17% to 15%.
Looking at different segments, Nomura predicts that the VIP and
mass market GGR this year will increase by 13% and 16%,
respectively. For 2019, Nomura revised down its forecast for VIP
sector growth from 14% to 7%, and for mass market from 14% to
12%.
The gaming concessions of SJM Holdings and MGM China Holdings
will expire in March 2020, whereas the gambling permit of the
remaining four casino operators, Sands China, Wynn Macau, Galaxy
Entertainment and Melco Resorts & Entertainment, will expire in
June 2022. The Government received a preliminary proposal for
amending the existing gaming law in July, but details remain
unknown at the moment, casting some doubts on the license renewal
process.
Quality new resorts support tourism growth
According to DSEC, visitor arrivals totalled 3.4 million in
August, up 18.7% YoY. The number of overnight and same-day visitors
increased by 16.3% and 21.6%, respectively YoY. The average length
of stay of visitors dropped slightly by 0.1 day YoY to 1.2 days.
For the first eight months, Macau welcomed 23.3 million visitors,
an increase of 8.9% YoY.
Following the opening of the Morpheus Hotel in June, the number
of hotel rooms and guest-houses in Macau was approximately 39,400
as of end-July, with occupancy averaging at 89.9%. Looking ahead,
the 2,000-room Grand Lisboa Palace is now expected to open in the
second half of 2019. Galaxy Entertainment has also pushed back the
launch date of Phase 3 of its Cotai flagship resort from 2019 to
2020. Phase 3 is expected to feature 1,500 hotel rooms, some casino
space and a large venue that has capacity to hold 16,000 seats. In
addition, Phase 4 is expected to be launched in 2021.
Infrastructure projects nearing completion to boost economy
Macau's economy will be further boosted by the upcoming new
infrastructure projects. According to the Macau International
Airport Company, with the completion of the new northern terminal,
the airport handled a total of four million passengers in the first
half of 2018, up 20% YoY. The majority of the passengers were from
Mainland China, Taiwan and Southeast Asia. The airport is expected
to handle around 7.4 million passengers for the whole year.
In the Greater Bay Area (GBA) region, the Hong Kong section of
the Guangzhou-Shenhen-Hong Kong Express Rail Link (Express Rail
Link) that links West Kowloon in Hong Kong and Futian in Shenzhen
became operational in September 2018. The Express Rail Link will
shorten the commuting time between the two cities from 1 hour to 15
minutes, and connect Hong Kong with the national high speed rail
service totalling over 25,000 km in length. This rail link,
together with the much-anticipated Hong Kong-Zhuhai-Macau Bridge,
will boost exchange of goods and services, tourism and enhance the
transportation system of one-hour commuting circle in the GBA.
Property
Macau's property market remains robust
According to the Financial Services Bureau, the average home
price stood at MOP9,221 (US$1,153) per square foot in August, up
4.7% from a year earlier. The number of home sales totalled 8,443
units in the January-August period of 2018, also up 17.1% from the
previous year. Following the upswing in the first eight months,
property agencies predict that the property market would maintain
its momentum for the remainder of the year, among which Centaline
(Macau) forecasts housing prices to increase by 15% for 2018.
Possibility of vacancy tax levy on newly completed flats
In late June, Hong Kong introduced a plan to levy a vacancy tax
on property developers for all newly completed flats that are
unsold or not rented for six months in a year, with the tax rate
amounting to 4-5% of the property value. The aim of the tax levy is
to prevent developers from hoarding flats, while easing the supply
shortage. Consequently, there have been discussions on whether the
Macau government should follow suit. By far, the government has
been hesitant to do so, given the limited number of vacant newly
completed flats in Macau and the technical difficulties, such as
the official definition of a vacant home. Official data from DSEC
shows that the number of vacant units totalled 15,252 units as at
the end of 2017, accounting for 6.82% of total residential
units.
Macau's ranking improves in Global Real Estate Transparency
Index
The Macau property market has, for the first time, been deemed
'semi-transparent' by the Global Real Estate Transparency Index
2018. Of 158 countries and regions, the city was ranked 60th in the
latest edition, moving up 10 places from 2016. The index, which is
published every two years, measures the transparency of global
property markets in terms of various issues from investment
performance measurement to regulatory and legal systems. The
improvement in Macau's rank on the Index was the result of the
strengthening efforts by the government in clamping down on money
laundering and in releasing detailed residential sales figures
every month. The improved transparency level will increase
investors' confidence in Macau.
Cautiously optimistic outlook for the property market
Global economic fluctuations, such as the China-US trade
dispute, are unlikely to subside anytime soon, and global markets
may remain highly volatile. Furthermore, in the wake of six rate
hikes in the US since December 2015, Macau might face pressure for
more rate hikes, restraining the investment and asset market
performance.
However, we believe Macau's heathy financial fundamentals will
be able to mitigate any macro economic impact. The distinct lack of
supply in the local housing market and the imminent opening of the
Hong Kong-Zhuhai-Macau Bridge should also provide the necessary
cushion for the overall property market in the next few years.
Note:
All figures reported under the Macau and Property sections are
based on latest information released by The Statistics and Census
Service unless otherwise stated.
- 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 are valued at US$340.2 million as at 31 March
2018.
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
Email: info@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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