Macau Property Opportunities rejigs management fee – COVID-19 is delaying the realisation of the company’s assets. Macau Property Opportunities has been in realisation mode since 2016. During 2020 the manager has achieved asset disposals of the two remaining individual units in One Central Residences and two further residential units and a car park space in the Fountainside at close to external valuations. However, the COVID-19 global pandemic and subsequent travel restrictions has meant that efforts to achieve realisations across the other key assets which are targeted at overseas prospects have been severely hampered.
After a promising start to 2020, Macau’s two main business activities, gaming and tourism were effectively closed down, as travel restrictions closed Macau to visitors. Recently, however, some positive signs of recovery are emerging, with greater China in particular managing to keep a level of control on the COVID-19 virus. In the past few months Macau has gradually been opened up to visitors, which has provided a much needed boost to tourism and gaming forecasts, albeit off an extremely low base. Despite these positive developments, recovery in the overall Macau economy remains extremely fragile and hence divestment plans for the Waterside and Estrada da Penha remain on hold, and beyond the control of the Company and the Manager, pending a more robust and sustainable recovery.
Against this challenging backdrop, it is clear to the board that it is difficult for the manager to continue to operate and strive for the realisation of assets within the timeframe envisaged, under the current fee structure. The current fee arrangements were agreed in late 2019 and was focussed on aligning the manager’s remuneration with the delivery of realisations at attractive and realistic values. The fee structure was based on the realisation of most assets in 2020, and the elimination of management fees in 2021, but with the opportunity to earn incentive fees if the divestment objectives were achieved.
The ongoing pandemic has meant that major divestments have not been achieved during 2020 and hence realisation fees have not been paid. The manager would not be able to continue to operate in 2021 without a management fee. The board has assessed the minimum contribution necessary for the manager to complete the realisation strategy.
The changes entail the introduction of a further reduced management fee for 2021 of US$100,000 per month fixed at $1,200,000 for 2021 as a whole, and the extension of the existing 2020 realisation fee arrangements into 2021, using the 30 September 2019 valuation basis for calculating any realisation fees due. However, to offset this fee the maximum amount which could be payable under the realisation fees will be reduced by the amount of management fee paid for 2021. There will be no fees rolled forward to 2022 under this arrangement, keeping all focus on realising all assets in 2021. On the basis of this arrangement, the following fees will be capable of being earned by the manager:
- a management fee totalling $1.2m;
- a realisation fee of (i) 2.5% on disposals at or above 90% of NAV as at 2019 valuation; or (ii) 1.5% on disposals at or above 80% (but less than 90%) of NAV as at 2019 valuation;
- an extra incentive fee of 1% if all assets sold in 2021 at or above the 2019 valuation (extendable at the discretion of the board on the basis of the original terms).
MPO : Macau Property Opportunities rejigs management fee