Friday, April 15, 2011

Interview: Joyce Lo, Associate Director – Head of Corporate & Investor Strategy, Sniper Capital

Sniper Capital was established in 2004 to capitalize on the many property development and investment opportunities offered by Macau’s burgeoning economy. Since then its business has grown considerably.
Today the company employs 25 dedicated professionals working on a portfolio that has expanded beyond Macau's city limits to include the Western Pearl River Region of Southern China.
Sniper Capital utlises a broad array of in-house capabilities to efficiently execute every aspect of the investment and development cycle. Its dedicated focus on research and acquisitions, project development, asset management, fund administration, capital raising and investor communications allows the company to act both independently and swiftly to maximise returns on each project.Joyce Lo, Associate Director – Head of Corporate & Investor Strategy, Sniper Capital, spoke to us about the company’s plans as well as prospects for the Macau market.

Could you give us some background of your company and your major projects?
Sniper Capital Limited is an independent property investment manager specialising in property investment and development in niche and undervalued markets. Today, the firm manages two funds – the private closed-end South China Sniper Fund (SCSF) and London Stock Exchange Main Board listed Macau Property Opportunities Fund (MPO) – with combined assets of $350 million.
MPO is an opportunistic investment fund that focuses on delivering long term returns from the investment and development of high quality properties in Macau and China’s Pearl River Delta. The portfolio properties are generally of medium to larger sizes. SCSF acquires niche, small sized properties in districts which have yet to reach their full potential, and creates value through the amalgamation, redevelopment and repositioning of these properties into retail and food and beverage outlets.
Since November 2010, Sniper Capital has begun officially marketing the Macau Sniper Fund, a $100 million private fund that adopts a strategy similar to SCSF. With over seven years of experience operating in the Macau and Southern China property markets, Sniper Capital has established a strong track record in sourcing, planning and redevelopment, including working with sensitive heritage sites and old buildings. Recently, Sniper Capital has also started leveraging its sourcing and acquisitions expertise and extensive investor reach to build an investment advisory business.
Sniper Capital’s in-house expertise covers every aspect of the investment and development cycle, including research, site acquisition, project development, asset management, investor relations and finance.
Within MPO, major portfolio residential projects include The Waterside (luxury residential leasing) – Tower Six of One Central Residences, the most prestigious residential project in Macau – and The Fountainside (low density residential development) – 42 apartments catering to middle- and upper-income locals. Other key assets include a retail development in Senado Square– located in the heart of Macau’s popular tourist and shopping district – and APAC Logistics Centre (warehousing and logistics) – close to the recently-opened Guangzhou-Zhuhai rail network and the Hong Kong-Zhuhai-Macau Bridge, currently under construction.
We have also recently entered into an agreement with a local Macau developer to sell our Rua do Laboratório project (entry level residential) for $41 million, representing a net return on investment of 84%, upon the sale completion expected in April 2011.
On the private funds side, the Group is involved in a number of non-gaming destination creation projects through the conversion of older, Portuguese-colonial style buildings into retail outlets that can be leased to attractive bars, restaurants, and niche shopping designed for the enjoyment of both locals and tourists. These new landmarks are rapidly becoming places of choice for people who want to experience the vibrancy of the new Macau as well as the rich 500-year history that the territory’s historic areas have to offer. These unique projects, which have been conceived in conjunction with Macau's dedicated Heritage Department, are in complete contrast to the cutting edge designs of the nearby casino hotel resort projects.

Why are you focusing on the Macau market and what are the investment opportunities?
The firm’s principals, Tom Ashworth and Martin Tacon were attracted to Macau’s potential after its 1999 handover from Portugal to China, and the local administration’s decision soon after to break the 40-year gaming monopoly held by Stanley Ho and allow foreign casino groups to open resorts. Once a sleepy fishing village, Macau is today by far the world’s largest gaming market, generating $25 billion in casino revenues and welcoming 25 million visitors a year.
We continue to believe that Macau remains in the early stages of a period of sustained economic growth. A new round of mega resort expansion in Cotai, coupled with ambitious infrastructure projects such as the Hong Kong-Zhuhai-Macau Bridge, PRD inter-city rail network and Macau Light Rail Transit system all point to an increasingly dynamic and rapidly growing economy. Macau remains well positioned to benefit from the opportunities that will arise as a result.
Non gaming Retail and Food & Beverage
Non-gaming currently accounts for less than 20% of Macau visitors’ expenditure. The heavy focus on Macau casino projects has left Macau with a significantly underdeveloped non-gaming entertainment and leisure market. Underscored by the government’s commitment to diversify the economy, Sniper Capital expects the proportion of non-gaming revenues to increase exponentially in the coming years. Looking at the evolution of Las Vegas – where half of visitor expenditure today is allocated to non-gaming activities – we believe there is a great deal of potential upside by focusing on non-gaming real estate in Macau.
The entry of the international casino and resorts has lifted the benchmark for an improved standard of living in Macau. There is an increasing demand for high quality housing in prime locations from both expatriates and the more affluent locals looking to upgrade. Unemployment in Macau has dropped to a historical low of 2.7% while median monthly incomes are on the rise. There are also favourable government initiatives that spur demand for affordable accommodation from first time local buyers. Macau’s residential property market – which rebounded strongly post the financial crisis – is still exhibiting good value. According to Jones Lang LaSalle, capital values for the high end residential market rose by 9.6% in 2010. The modest upturn in Macau’s residential property market, compared to Hong Kong and other regional markets, is expected to continue benefitting from powerful local drivers and high levels of affordability.
The construction of the $11 billion Hong Kong-Zhuhai-Macau Bridge will create a critical transportation link between western and eastern Pearl River Delta (PRD). When completed in 2016, travelling time between Hong Kong and Zhuhai will be reduced to a mere 30 minutes. To capitalise on increasing opportunities arising from the rapid economic integration of the PRD region, MPO is developing APAC Logistics Centre – a state of the art warehousing and logistics facility in Zhuhai.

What are the major differences between Macau and other Asian countries?
Macau, the only gaming jurisdiction in China, has since 2006 replaced Las Vegas as the largest gaming market in the world by gaming revenues, and are now almost double that of Nevada and New Jersey combined. Figures show that one of Macau’s casino groups – SJM – has revenues that exceed those of the entire Las Vegas strip.
CLSA expects Macau’s nearest rival, Singapore, to hit gaming revenues of $6.5 billion this year, on par with that of Las Vegas, but behind Macau at $30 billion. By 2012, Singapore is expected to rake in $8.1 billion, ahead of Las Vegas at $6.8 billion but still a fraction of Macau’s forecasted $34.7 billion.
Underpinned by strong fundamentals, Macau is set to be Asia’s fastest growing economy, at an estimated growth rate of 30% in 2010. With less than 30 square kilometre of land, Macau has the highest population density at 18,835 per sq km as well as one of the highest GDP per capita of $48,000 in Asia.
Aside from outstanding economic fundamentals, Macau, the oldest European colony in East Asia and the most recently relinquished colony in the world, boasts almost 500 years of rich Portuguese heritage. The government has established an official heritage department to preserve the unique blend of Chinese & European in architecture. The fusion of these cultures is also prevalent in the cuisine and the population.
In addition, Macau is the only place in China that has freehold land, although there is not necessarily a price differential between leasehold and freehold.

What differentiates Sniper Capital from other Boutique houses?
Our independence and minimal bureaucracy make us nimble and innovative. Our culture is highly entrepreneurial which encourages lateral thinking and attracts self-driven personnel.
As our name suggests, we are highly focused on certain markets and segments. We are attracted to “below the radar” properties that are often overlooked by larger developers. Moreover, we have the technical knowledge and capability in working with heritage sites. At this point, we are the only major foreign fund manager that is established and continue to grow in Macau. We believe in having local presence with our team developing a vast network of proven and established contacts in the markets in which we are operating. This fuels our ability to source, acquire and manage quality investment opportunities with strong value propositions.
In addition, we possess excellent in-house resources to across the entire investment cycle, delivering value enhancement through planning, development, asset management and eventually through a successful exit.