Macau Property Opportunities Fund Ltd. : Macau Property Opportunities Fund - Investor Update Third Quarter 2012

Macau Property Opportunities Fund Limited

("MPO" or the "Company")

Investor Update

Third Quarter 2012

Quarterly Highlights

* Full Year Adjusted NAV up 10.4%

* Rental growth at The Watersideremains strong

* New property cooling measures announced

* China relaxes Individual Visitor Scheme

Overview

During the quarter, MPO released a healthy set of annual results, with full year adjusted NAV per share increasing by 10.4%. On the asset management front, The Watersidereached 83% occupancy with rental growth achieving 17% year-on-year for standard units. Meanwhile, construction at The Fountainside, APAC Logistics Centreand Cove Residenceare making good headway towards their expected completion dates.

The government recently announced new property measures intended to prevent overheating of the real estate market. These are largely targeted at non-Macanese buyers and the luxury segment. Given that Macau's property market remains predominantly locally driven, with foreign buyers representing only 20% of the market, we view the latest measures as preventive, rather than punitive, in nature. Please see the Property Market section for full details.

Fund Activity

Annual results for the period ended 30 June 2012

MPO's most recent adjusted NAV per share was US$3.01 or 189p (based on a Dollar/Sterling exchange rate of 1.595 as at 23 October 2012). The property portfolio valuation increased by 16% to US$375 million while the Company's loan-to-value ratio stood at 27%.

At the current share price of 114p, the Company is trading at a 40% discount to its latest adjusted NAV per share. MPO's board continues to believe that the current share price discount is unjustified and will continue to focus its efforts on discount narrowing measures.

Note: The Company is in a Close Period prior to the release of its Interim Management Statement, which will include MPO's end-September adjusted NAV per share and portfolio valuation, on 12 November 2012.

Portfolio Summary

The Watersiderental growth remains strong

Occupancy of MPO's cornerstone investment asset, The Waterside, has dropped slightly and currently stands at 83%. Latest effective rents achieved for standard and special units are 17% and 9% higher year-on-year respectively with average net yields standing at 2.4% per square foot - a premium for luxury residential assets in Asia.

The Sapphire Suites, a special collection of high-floor, luxuriously furnished premium units, were launched in February this year. These units are priced at a premium to the standard units and seven out of a total of eight are now leased.

Our focus remains on further increasing rental growth. We expect rental yields at The Watersideto be further enhanced by the recently announced property measures, as foreigners residing in Macau are likely to shift towards leasing whilst holding back on home purchases.

The Fountainsidedue to complete by early-2013

Construction of MPO's niche, low-density residential development is progressing as planned. The superstructure is topped-out and internal fit-out and finishings are well underway. Whilst 34% of the project's total gross floor area has been pre-sold, we intend to launch the second wave of marketing and sales activities closer to the project's completion early next year.

Senado Square ready to move forward

We have made further progress in our negotiations for the development plan of MPO's retail development, Senado Square, and are cautiously optimistic that we will soon be able to proceed with the submission process for its architectural design. Construction is expected to commence by end-2013 following the receipt of all necessary approvals, with project completion currently expected by end-2015. Meanwhile, we are continuing to receive interest from established local and international retailers looking for high quality space in this prime area of Macau Peninsula.

APAC Logistics Centre and Cove Residence approach completion

Completion of the development of these two blocks will add approximately 250,000 square feet of high quality warehousing and logistics space to the existing 205,000 square feet facility. Further plans for the second and final development phase have been put on hold until the new masterplan by the Zhuhai government is formally announced at year-end. The land on which APAC Logistics Centreis located could potentially be re-zoned from industrial to commercial office use. If this occurs, it will enable a revised planning application to be submitted for a higher plot ratio and better use for the remainder of the site.

Cove Residence, a 450-unit entry-level residential development comprising 215,000 square feet is also due for completion by year-end. Negotiations are underway with a number of prospective tenants who have shown initial leasing interest in taking up more than 50% of this project for their staff residential quarters.

Property Market

Government announces new property cooling measures

In October, the Macau government announced several measures intended to cool the property market, largely directed at foreign buyers and the luxury segment.

Mortgage lending rules have been further tightened for completed and pre-sale flats. We anticipate this will dampen demand for high-end residential property, especially for large transactions, but expect to see a continued growth over the medium term, driven by a shortage of supply, strong local demographics and the escalating demand for luxury assets across Asia.

The following Loan-To-Value (LTV) ceilings are effective from 12 October 2012.

The Special Stamp Duty (SSD) - implemented in June last year on residential transactions - will be extended to include commercial properties, offices and car parks. Sellers will have to pay a duty amounting to 20% of the transaction price for properties sold within a year of their purchase, and 10% for those sold within two years. As with the residential market, which saw prices reaching a new high, 15 months after the launch of SSD, we expect property prices and yields for commercial properties, offices and car parks to remain under upward pressure, driven by limited supply.

An additional buyer stamp duty of 10% will be imposed on the purchase of residential properties by companies and non-Macanese, on top of the current 3.15% stamp duty. We expect this imposition to increase barriers to entry for foreign buyers and as an unintended consequence could drive them towards the leasing market. This should benefit rental growth for MPO's principal investment asset, The Waterside.

The extension of the SSD and the additional buyer stamp duty, have been tabled for legislative approval and are expected to come into effect within two months.

Other cooling measures include

* Limiting the reduction of property tax for Macau residents such that non-residents will shoulder full property taxes

* Developing four new public housing projects to create an extra 4,000 flats by 2015

* Introducing new guidelines for pre-sale properties to better protect consumers

* Redeveloping certain public facilities to make more space for public housing

* Streamlining timeline for approval of construction 

plans

Macau Overview

Macau is powered by its own unique growth drivers 

Despite a delicate global economic environment and ongoing macro-economic risks in China, Macau grew by 12.6% in the first half of the year. Supported by solid fundamentals and a robust fiscal position, we expect the local economy to maintain its upward growth trajectory and achieve double-digit growth for the current year. The Economist Intelligence Unit estimates Macau's economy to grow by 13.5% in 2013.

Consolidation of Macau's gaming market

Growth of Macau's gaming industry has slowed in recent months along with the Chinese economy, but casino revenues for the first nine months of the year still grew by 15% YoY to US$28 billion. While analysts widely expect gaming revenue growth to decelerate in tandem with China's weaker economic outlook, they still see relative strength in the sector. Asian brokerage, CLSA, forecasts the world's single biggest casino market to continue growing and to reach US$100 billion by 2020.

Mass-market gaming growth appears to be outpacing that of VIP gaming, which has traditionally dominated the market. In Q3 this year, VIP gaming revenue amounted to US$6.4 billion, a 1.1% decrease YoY; in contrast, mass-market gaming revenue posted revenue of US$2.9 billion, a note-worthy 26.8% YoY increase. According to a recent research report issued by Morgan Stanley, mass market growth could continue to outpace VIP, driven by the rapid emergence of the Cotai Strip. This growth could also be further boosted by Sands China eventually being granted 200 new tables dedicated to mass-gaming in early-2013.

Visitor levels have continued to trend moderately downwards, with September registering 0.2% lower visitation YoY. The first nine months of 2012 recorded a total of 21 million visitors (+1.0% YoY) In the final quarter, however, we expect visitor numbers to receive a boost, following the Central Government's recent easing of Individual Visit Scheme restrictions to Macau for people living in the six big Mainland cities of Beijing, Chongqing, Guangzhou, Shanghai, Shenzhen and Tianjin. The Macau Government Tourist Office forecasts that visitor arrivals will hit 28-29 million in 2012.

Developments on Cotai

Sands Cotai Central has just unveiled the world's largest Sheraton hotel under its second phase of development in September. With 4,000 hotel rooms and a further casino, it claims the title of Macau's largest hotel. Upon full completion and opening of all its phases by 2014, Sands Cotai Central will feature close to 6,500 hotel rooms across leading international hospitality brands including St. Regis, Conrad and Holiday Inn.

Sands China is also planning to invest at least US$2.5 billion in the construction of a new casino resort on parcel 3 in Cotai. The project, to be named "The Parisian", will include 3,300 hotel rooms and have a 225-metre Eiffel Tower replica upon its expected completion in 2016.

Two more casino operators, MGM China and SJM Holdings, have recently received government's approval to proceed with developments on the Cotai Strip. Both casino projects are expected to open by 2016, adding almost 4,000 additional hotel rooms.

Conclusion

The introduction of the new property cooling measures is unlikely to have any significant impact on MPO's portfolio and in the case of The Waterside, could actually help drive rental values. MPO's prime luxury assets, The Skyhouseand The Green Housemay experience some slower growth in capital values, but only constitute 15% of total portfolio value.

We remain committed to enhancing shareholder value through the redevelopment of existing sites and ongoing asset management of our investment properties.

-  Ends -

About Macau Property Opportunities Fund

Macau Property Opportunities Fund Limited is a closed-end investment fund registered in Guernsey and listed on the London Stock Exchange Main Market.

Launched in 2006, the Company seeks to deliver long-term returns from the investment in and development of high quality properties located in Macau and the western region of China's Pearl River Delta. Its current US$375 million portfolio comprises a mix of strategically-positioned residential, retail and warehousing property assets.

The Fund is managed by Sniper Capital, an Asian-based property investment manager that provides highly focused Fund Management and Advisory Services. 

For further information:

Public Relations

MHP Communications

Simon Hockridge / Andrew Jaques 

Tel: +44 20 3128 8100

Manager (Investor Contact)

Sniper Capital

Tel: +65 6222 1440

Corporate Broker

Liberum Capital

Chris Bowman / Richard Bootle

Tel: +44 20 3100 2228

Company Secretary & Administrator

Heritage International Fund Managers

Mark Huntley

Tel: +44 1481 716000

Stock Codes: 

Bloomberg:  MPO LN

Reuters:    MPO.L