Interim Management Statement

RNS Number : 5681R

Macau Property Opportunities Fund

07 November 2011

 



7 November 2011

Macau Property Opportunities Fund Limited

 ("MPO" or the "Company")

Investor Update

Third Quarter 2011

Quarterly Highlights

* Strong set of annual results

* Launch of The Waterside Club

* Zhuhai developments to top out soon

* New record for Macau gaming revenues

Overview

The strong Macau economy continued to accelerate in Q3 2011. In the midst of stellar visitor arrival records and robust retail sales growth, Macau's gaming revenues have once again broken new ground. Year-to-date gaming revenues stand at US$24.3 billion, already eclipsing the full year figure for 2010.

The Fund made good progress on its asset management and development programmes during the quarter. The Waterside Club, a members-only guild designed specifically for The Waterside tenants, was launched in October. Construction progress for projects in Zhuhai, China - APAC Logistics Centre and Cove Residence - is on track, with topping out scheduled to take place this month. Basement works for The Fountainside have been completed, with superstructure construction to begin by year-end.

Fund Update

Strong set of annual results and healthy balance sheet

The most recent adjusted NAV per share as at 30 June 2011 was US$2.72, which translates to 170p*. MPO's property valuation rose 21% YoY to US$334 million while the company's loan-to-value ratio dropped from 27% to 24%, assuming a full drawdown of MPO's committed credit facilities. The Company's cash balance currently stands at US$29.7 million, following a return of US$17.9 million to shareholders in July 2011.

*Based on a Dollar/Sterling exchange rate of 1.601 as at 4 November 2011.

Portfolio Summary

The Waterside - Leasing status

Of the six one-year leases that came up for expiry in Q3 2011, four were renewed with achieved rents up to 20% higher than a year earlier. The two non-renewed leases resulted in a slight reduction in The Waterside's total occupancy level, from 61% to 58%. The property's net yield based on the total rented area remains at 2.2%.

The Waterside Club, an extension of the property's "tailored luxury" service, was launched in October. Residents can look forward to enjoying a range of special offers and exclusive events that distinguish the community's unique tastes and preferences.

Responding to tenants' feedback for further differentiation in existing classic and contemporary home designs, MPO is in the process of implementing a premium enhancement programme for selected units, which will introduce artwork, decorative items and a wider selection of furniture and appliances.

Packages offering improved features that aim to provide a more personalised atmosphere for tenants, will also be available from early 2012. These schemes are part of MPO's ongoing strategy of enhancing the overall tenant experience, with the objective of continuing to grow The Waterside's reputation and rental income.

Basement for The Fountainside completed 

Construction of the double-storey basement has been completed and work on the superstructure will commence upon receiving the necessary licences, expected to be by year-end.

The Fountainside is close to 50% pre-sold following a successful initial sales programme earlier this year. The team is currently working on launching the second wave of marketing activities. This will aim to boost the profile of the remaining 22 units and will include a media tour of the site by early 2012.

The property's development programme remains on track for completion by mid-2012, with handover to buyers by year-end.

The Green House unveils its new look

Perched on the prestigious Penha Hill, the eye-catching The Green House has attracted the attention of several interested parties. Judging from the market demand for such prized assets, the Manager is targeting a premium exit price for this newly renovated, 5,000 square feet property.

Zhuhai projects to top out in November

Six months into their development programmes, construction works for APAC Logistics Centre and Cove Residence are progressing as planned, with a topping out ceremony scheduled to take place in November 2011. The development portion of APAC Logistics Centre, due for completion in phases from Q1 2012, will add a total of 1.1 million square feet to existing buildings on site.

On a nearby site, Cove Residence - a residential development designed with the region's burgeoning middle class in mind - is on track for construction completion in Q2 2012. The 250,000 square feet development will boast 450 residential units and a range of recreational facilities.

Senado Square well-positioned for success

Strategically located in the heart of Macau's UNESCO-endorsed historical centre, Senado Square is primed to benefit from ever-increasing volumes of tourist traffic and shopping receipts.

Macau's buoyant retail industry and shortage of prime retail space are harbingers of positive rental and capital growth for Senado Square - expected to commence construction next year and be completed in 2014.

Macau Overview

Macau economy remains resilient

China, the world's second-largest economy, grew at its slowest pace in two years in Q3 2011. Although full year GDP is expected to remain above 9%, analysts expect a slowdown over the next five years.

Despite fears of a liquidity squeeze and an economic slowdown in China, the Manager maintains the view that Macau - still at an early stage of its economic emergence - is backed by strong fundamentals. The Economist Intelligence Unit expects the territory to register robust GDP growth of 20% in 2011 and 15% in 2012. This is in sharp contrast to the low growth forecasts for Europe and the United States.

Coupled with Macau's increasing connectivity with the rapidly growing Pearl River Delta (PRD), we believe the credit tightening situation in mainland China may present attractive opportunities for MPO to broaden its reach into the PRD.

New record for Macau gaming revenues

Macau's gaming industry continued to surpass expectations in Q3 2011. Year-to-date revenues for the first nine months of the year registered US$24.3 billion, already surpassing 2010's full-year record of US$23.5 billion.

The Macau administration has stated openly that it will not blindly pursue revenue growth. As a means to diversify its economy and moderate the rapid growth of its gaming industry, the Macau government has set a gaming table cap of 5,500 until 2013 and restricted the rate of growth of gaming tables to 3% p.a. until 2023. The Manager believes this is a positive step towards the overall sustainable growth of the market.

While analysts widely expect gaming revenue growth in Macau to decelerate in tandem with tighter monetary policy in mainland China, they still see relative strength in the sector. Asian brokerage, CLSA, forecasts an average revenue growth of 17% p.a. over the next nine years, with the Macau gaming market poised to hit US$108 billion p.a. by 2020.

Developments on Cotai

In addition to the existing collective count of 6,600 rooms and 1,850 gaming tables across Galaxy Macau, City of Dreams, and Venetian Macau, the forthcoming Sands Cotai Central will add another 5,800 hotel rooms, 530 gaming tables and 100,000 square feet of meeting and convention space by Q3 2012. The US$4.5 billion project will feature hotels such as Sheraton, Conrad and Holiday Inn.

The rapid transformation of the Cotai Strip, including the new Taipa Ferry Terminal with annual passenger capacity of 15 million by 2013, has prompted fierce competition among developers for a foothold in Macau's new tourism epicentre. Melco Crown, MGM China, SJM Holdings and Wynn Macau also have new exciting projects lined up from 2015-6.

Transformation of Hengqin Island

Hengqin, the largest island in Zhuhai and designated as China's third state-level strategic zone, has begun introducing favourable tax policies to spur the development of businesses on the island. Besides plans to transform the island into a trade and technology hub, new notable developments include the 5.4 million square feet Hengqin Creative Culture City, a US$2.8 billion investment which aims to integrate Guangdong, Hong Kong and Macau's creative influences in the entertainment, technology and design industries.

Hengqin Island will also house the US$3 billion Chime Long International Ocean Resort and US$900 million University of Macau (Hengqin) campus. APAC Logistics Centre and Cove Residence are poised to benefit from the region's bustling activity once these developments materialise in the coming few years.

Property Market

New tightening measures come into effect

In August, home sales plunged to their lowest monthly level since April 2009, following a new stamp duty introduced in June 2011 that was designed to rein in speculative activities. Only 645 residential sales worth US$218 million were recorded in August, down 31% and 7% year-on-year, respectively.

According to the Financial Services Bureau, average home prices have stabilised at US$455 per square foot at the end of Q3 2011 (vs. US$450 per square foot in Q2 2011), an 11.7% increase year-on-year.

With 80% of residential transactions conducted by locals, Macau's residential property market remains largely end-user driven. As such, the Manager is of the view that the increasing purchasing power of locals, coupled with their demand for better quality homes, will provide support for residential transaction volumes and values in the mid to long-term.

High-end residential market remains robust

The Manager continues to prefer the high-end residential market and remains confident in its investment in One Central Residences. According to Jones Lang LaSalle, the luxury residential sector has seen capital values rise 15.2% in H1 2011, as compared with end-2010. This compares with a growth of 10.6% for the mass and medium residential market.

On the leasing side, buoyed by strong expatriate demand with the opening of new gaming facilities, average rental values of high-end residential properties registered 11.9% growth in the first six months of 2011. 

More affordable housing on the market

Approximately 3,600 affordable housing units will be allocated to eligible local residents by December this year, as part of the Macau government's plan to provide quality accommodation at subsidised prices. Priced between US$160 to US$235 per square foot, these affordable housing units stand at a 50% discount to the private market's typical value.

We maintain that the divestment in the Rua do Laboratório project was timely as it served to unlock shareholder value, whilst mitigating the Fund's exposure to the entry-level/mass market residential market.

Increasing demand for retail property

As the residential property market cools, investors are increasingly setting their sights on the retail sector. A subsidiary of the Emperor Group, Fai Lek Limited, has committed US$60 million for the right to build a five-storey commercial building in downtown Macau. Spanning a total area of 29,600 square feet, the project is due to be completed in 2014. Backed by such strong investor demand, capital values saw a 11.5% jump in the second quarter of the year, while rental values rose 11.9% in the first half of 2011, according to Jones Lang Lasalle.

Conclusion

The global outlook may appear threatening in the near-term, but Macau is predicted to out-perform most economies with a projected 20% GDP growth, driven by solid gaming and retail revenues.

MPO remains committed to strategic and prudent redeployment of capital and will continue to actively seek new accretive acquisitions of quality property assets in Macau and the PRD.

-  Ends -

About Macau Property Opportunities Fund

Macau Property Opportunities Fund Limited is a closed-end investment fund registered in Guernsey. Its shares began trading on AIM in June 2006, when it raised £105 million in an institutional placing, before moving to the Main Market of the London Stock Exchange in June 2010. The Company's investment policy is to provide shareholders with an attractive total return through investing in property opportunities in one of the world's fastest growing and most dynamic regions - Macau and the Western Pearl River Delta of Southern China.

The Fund is managed by Sniper Capital Limited, an independent investment manager that specialises in property investment, development and redevelopment opportunities in niche, undervalued and developing markets.

For further information:

Website: www.mpofund.com

Corporate Broker

Collins Stewart Europe Limited

David Yovichic / Dominic Waters

Tel: [phone]

Manager - Investor Contact

Sniper Capital (Hong Kong) Limited

Tel: [phone]

Email: [e-mail]

www.snipercapital.com

Company Secretary & Administrator

Heritage International Fund Managers Limited

Mark Huntley / Laurence McNairn

Tel: [phone]

Public Relations

MHP Communications

Simon Hockridge / Andrew Jaques 

Tel: [phone]

Stock Codes: 

Bloomberg:  MPO LN

Reuters:    MPO.L

 

END

 

 

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