Macau Property Opportunities has long been a core investment in Nick Greenwood’s Miton portfolio of closed end funds. The logic behind the holding has always been impeccable – great quality assets in the heartland of China’s offshore version of Las Vegas. The shares have always seemed to trade at a vast discount – around 25% – which is odd because the fund is supposed to be realizing assets. But the devil has always been in the detail for a very concentrated portfolio of buildings – what matters is exactly how the portfolio is wound down. Will they get the right price for the assets ? How long and at what cost will the realisation process proceed? Well, yesterday brought some pretty positive news. Its agreed to sell its Senado Square retail development project at a 14% premium to the last valuation. If we apply that uplift across the portfolio, we could see a rather dramatic increase in the NAV, with that discount looking increasingly anomalous. The risk, of course, is with ‘events’ i.e China could slow down markedly before the realization process is complete. This week deal though minimizes the risk of that downside – I’m now tempted to upgrade this little-known fund to my watchlist, with a possible buy in the next few weeks.
Here’s the note from yesterday from Numis on the Senado Sq deal….
“Macau Property Opportunities has agreed to sell its Senado Square retail redevelopment project to Ardent Success and City Universe for HK$800m (c.US$102.3m). The sale price represents a premium of 14% to the valuation of HK$703m (c.US$90.0m) at 31 December. This implies an uplift of 4.8% to NAV, equivalent to c.11.4p, before costs. The acquisition cost was US$15.96m in October 2007, and the holding has generated an IRR of 20%.
Proceeds: The proceeds of the disposal will be received in stages, with an initial HK$15m (c.US$1.9m) or 1.9% of the sale price, received by 7 February. Most of the proceeds are expected on completion, on or before 29 March, representing a further HK$705m, (US$90.2m), 88.1% of the sale price. The final HK$80m (US$10.2m), 10% of the sale price, will be pledged as a bank guarantee for six months from completion. This will be released, provided that no past debts, taxes or miscellaneous fees arise during the six months. A HK$20m (US$2.6m) corporate guarantee will be given for a further six month period.
Numis Views: The disposal of a key investment is positive for Macau Property Opportunities. Senado Square represented 20% of the portfolio value at 30 June 2017. It demonstrates the company’s commitment to realising assets over the next two years. In addition, it supports the valuation of investments, given that the disposal is c.14% above valuation. The company had two tranches of debt, totaling HK$118m (US$15.2m) for Senado Square, via two tranches. The shares are up 3.6% this morning to 189p, representing a c.25% discount to the estimated NAV. The remaining large investments are The Waterside (luxury residential development in downtown Macau), The Fountainside (residential development in Penha Hill district) and Estrada de Penha (colonial style vial on Penha Hill)”.