This publication recently interviewed the manager of an investment fund targeting Macau's property market, renowned as a centre for the gambling industry.

The Macau Property Opportunities Fund, which is listed in the UK, recently announced a major acquisition in the form of a luxury private residence adjoining the “Green House” in the coastal city, renowned – or notorious, depending on one’s viewpoint – for its gambling industry. The city, dependent for years on gambling as a driver of revenue, will need to adjust. As the manager of the fund, Sniper Capital, said in a recent note, gaming revenue growth remains weak with short-term uncertainties lingering. The fund is a closed-end investment fund that is registered in Guernsey. Its portfolio stands at $543 million. MPO’s adjusted NAV per share was $4.97 as at 30 September 2014, an uplift of 1.7 per cent quarter-on-quarter and a yearly increase of 26.8 per cent equating to an annual total return (including distributions made on 29 April 2014) of 35.7 per cent. This publication recently interviewed Sniper Capital about the fund and its views on Macau and the wider region.

Describe Sniper Capital
Sniper Capital is responsible for day-to-day management of the fund and it is an Asia-based property investment manager with a focus on emerging property themes across Asia. It has a team of 35 people and manages/advises more than $600 million of real estate assets.

What is the MPO fund's date of inception?
The fund listed on the main market of the London Stock Exchange in June 2006 and is also a constituent stock of the FTSE All-Share and FTSE SmallCap indices.

Does the fund have an end point?
As with most investment trusts, the fund’s life is subject to a recurring continuation vote, which will ultimately decide whether it is wound-up or continues. For MPO, the next continuation vote is expected to take place at or before the end of 2016.

Can you provide performance figures, including NAV, share price premium/discount?
As of 30 September 2014, the overall portfolio value stood at $543 million, which comprises a mix of residential and retail property assets. Adjusted NAV per share was $4.97/£3.06, based on a dollar/sterling exchange rate of 1.622, and the share price was £2.36 with a discount to adjusted NAV per share of 23 per cent.

There have been some concerns about the state of the Chinese property markets; what is your take on the general situation? What sort of risks/opportunities are there?
Although the state of the China property market may have some influence on overall Macau sentiment, they are in reality very different markets. Macau is a completely open economy with a fully convertible currency, no capital gains tax and, being 30 square kilometres in size, has very limited land availability.

This makes it a very interesting proposition. The gaming industry in Macau has increased in size multiple times over in recent years and, with government revenues from this prosperous industry swelling significantly, we are seeing a lot of this being fed back into the region via spending. With salaries rising as a direct result of this expansionary fiscal policy along with a great demand for labour, money is ultimately filtering into a very healthy property market.

Please outline your general view on Macao's property market. Any special features in terms of taxes, regulations, forces or developments worth mentioning?
The city has very strong economic fundamentals, which has seen the average price of a residential unit in Macau increase by almost six times in the past five years. Personal and corporate tax rates in the region are low (up to 12 per cent on income) and there is no capital gains tax, which supports positive investment activity. The market itself is very open for anybody looking to buy property, regardless of domicile.

However, it’s not just the current conditions and performance that are favourable. With an upcoming wave of Cotai casino resort openings there is significant future development planned for the region. Macau itself is a very small area. With a limited amount of land available and a shortage in the supply of property, there is continued upward pressure on prices. Despite these factors, property prices are about half the price of Hong Kong and there is a lot of unfulfilled upside potential.  

More recently, we’ve seen some increased activity in relation to government regulation, largely with the intention of closing the gap between public housing and demand. However, our view is that these changes are less likely to impact the high-end residential sector.

Are you only investing in residential/hotels?
Our core portfolio developments are in the residential sector. An example of a typical asset we would hold is The Waterside, which is a luxury waterfront residential property that allows residents to enjoy flexible leasing packages and from which we have seen our strategy begin to pay off in the form of strong rental growth.

Another example from the portfolio would be The Fountainside, which is a low-density residential development in Macau’s prestigious and historical Penha Hill district, which we are currently marketing units of to prospective buyers. Outside of the residential sector we also see lots of potential in the retail sector. This led us to invest in our first retail project, Senado Square, which is a 70,000 square feet development located in Macau’s vibrant shopping destination and UNESCO-endorsed historical centre. We also previously invested in APAC Logistics Centre, which was sold in early 2014 generating a significant return for our investors.

How much leverage/debt does this fund typically have? What are the limits?
Typically, the loan-to-value ratio has averaged approximately 25 per cent over the past five years. In theory, the fund could be allowed to gear up to 60 per cent, but over-gearing is a dangerous strategy and we don’t see the need to do so to such an extent. The board is very much of the opinion that we will continue to adopt a more conservative stance in this regard.

A lot of people will know of the city as a place where there are lots of casinos. What other sectors are worth mentioning?
There are several other sectors beyond the casinos and gaming industry that offer alternative options to investors. Taipa Village, which is a stone’s throw from Cotai casinos, is home to Macau’s rich and ancient heritage. It is an area which offers diverse tourist options, including food and beverage and retail, cultural sites and events. It is a location that attracts an increasing number of non-gaming visitors.
 
Taking the government’s lead in diversification, many casinos themselves are already investing into non-gaming facilities, such as the new projects in Cotai strip including Wynn Diamond’s 15,000-seat Coliseum arena, The Parisian’s retail mall, Galaxy’s cinemas and venue halls. Infrastructural projects, such as the Hong Kong – Zhuhai – Macau Bridge, are an important factor boosting the growth of retail and tourism in Macau. Given its location and proximity to Asia’s commercial centre such as Hong Kong, Macau has huge potential to develop into a hub for entertainment, meetings and conventions.

Are you getting investment interest from high net worth individuals, private banks, family offices, discretionary wealth advisors?
Yes, the niche focus of the fund generates strong interest from a range of investors, including high net worth individuals and institutional investors.

How do people usually hold your fund in a portfolio: as part of a broader real estate exposure or some other segment?
The fund attracts a range of institutional and private investors who see MPO as a unique way in which to gain exposure to Macau’s economic growth story, as well as the region’s high-end residential and commercial property market. As such, the fund is held in a variety of segments.