TIDMMPO
RNS Number : 4439B
Macau Property Opportunities Fund
08 October 2020
8 October 2020
Macau Property Opportunities Fund Limited
("MPO" or the "Company")
Annual results for the year ended 30 June 2020
Macau Property Opportunities Fund Limited announces its results
for the year ended 30 June 2020. The Company, which is managed by
Sniper Capital Limited, holds strategic property investments in
Macau.
FINANCIAL HIGHLIGHTS
Fund performance
-- MPO's portfolio value(1) declined 10.0% over the year to US$275.6 million.
-- Adjusted NAV was US$136.5 million, which translates to
US$2.21 (179 pence(2) ) per share, a 21.9% decrease year-on-year
(YoY).
-- IFRS NAV was US$100.6 million or US$1.63 (132 pence(2) ) per share, a 23.1% decrease YoY.
Capital management
-- As at 30 June 2020, MPO's balance sheet held assets worth a
total of US$260.6 million, against combined liabilities of US$160.0
million.
-- The Company ended the financial year with a consolidated cash
balance (including deposits with lenders) of US$20.5 million.
-- During the year, the Company successfully refinanced its
banking facilities for Estrada da Penha and The Fountainside on
improved terms.
-- As at 30 June 2020, gross borrowing stood at US$146.9
million, which translates to a loan-to-value ratio of 49.6%.
(1) Calculation was adjusted to reflect like-for-like
comparisons to 30 June 2019 due to the divestment of properties
during the year.
(2) Based on the Dollar/Sterling exchange rate of 1.231 on 30 June 2020.
PORTFOLIO HIGHLIGHTS
Despite the challenging environment, the Company has made
progress on the disposal of assets, with total divestments achieved
since mid-2019 valued at around HK$100 million (c.US$13
million).
-- The Waterside
- Occupancy declined to 36% versus 55% a year ago, primarily due
to COVID-19 related travel restrictions that prevented certain
tenants from entering Macau. The average rental was US$2.49 per
square foot per month, down 12% YoY.
-- Strata units at One Central Residences
- One individual unit was successfully disposed of for HK$19
million (c.US$2.4 million.).
- Since the year end, the Company entered into a provisional
sales and purchase agreement to sell its remaining individual unit
at a price of HK$25 million (c.US$3.2 million).
- With completion expected by the end of November 2020. Upon
completion this will conclude the sales of the individual units in
One Central Residences.
-- The Fountainside
- During the financial year, the Company entered into sales
transactions worth a combined HK$32.6 million (c.US$4.2 million)
involving two residential units, three car-parking spaces and five
motorcycle-parking spaces. These transactions have been
completed.
- Since the year end, two additional residential units were sold
for HK$13 million (c.US$1.7 million) and HK$11 million (c.US$1.4
million), respectively. These transactions are expected to complete
by the end of 2020. The remaining units continue to be actively
marketed to the local market and overseas.
-- Estrada da Penha
- While the Company has continued to receive enquiries, most
prospective purchasers are located outside Macau and have been
subjected to COVID-19 travel restrictions.
- To improve the saleability of the property, further
enhancement works have been undertaken in preparation for a
re-launch of the sales and marketing programme as travel
restrictions ease.
Mark Huntley, Chairman of Macau Property Opportunities Fund,
said:
"Despite the adverse impact on our divestment timetable caused
by the COVID-19 pandemic, progress is being made on achieving
divestment of the remaining assets in the Company's portfolio,
albeit over a longer timeframe than that originally envisaged. The
Board and the Manager remain fully committed to the divestment
programme and the return of capital to shareholders."
"We are seeing encouraging signs of market stability both in
Macau and in mainland China. This is supported by the gradual
resumption of tourist visa issuance for Chinese visitors to Macau,
which is expected to have a positive impact on business conditions
and market sentiment."
For more information, please visit www.mpofund.com for the
Company's full Annual Report 2020.
The Manager will be available to speak to analysts and the
media. If you would like to arrange a call, please contact Investor
Relations of Sniper Capital Limited at info@snipercapital.com .
- End -
About Macau Property Opportunities Fund
Premium listed on the London Stock Exchange, Macau Property
Opportunities Fund Limited is a closed-end investment company
registered in Guernsey and is the only quoted property fund
dedicated to investing in Macau, the world's largest gaming market
and the only city in China where gaming is legalised.
Launched in 2006, the Company targets strategic property
investment and development opportunities in Macau. Its current
portfolio comprises prime residential property assets.
The Company is managed by Sniper Capital Limited , an Asia-based
property investment manager with an established track record in
fund management and investment advisory.
Stock Code
London Stock Exchange: MPO
LEI
213800NOAO11OWIMLR72
For further information:
Manager
Sniper Capital Limited
Group Communications
Tel: +852 2292 6789
Email: info@snipercapital.com
Corporate Broker
Liberum Capital
Gillian Martin / Owen Matthews
Tel: +44 20 3100 2234
Company Secretary & Administrator
Ocorian Administration (Guernsey) Limited
Kevin Smith
Tel: +44 14 8174 2742
7 October 2020
MACAU PROPERTY OPPORTUNITIES FUND LIMITED
ANNUAL RESULTS & ACCOUNTS FOR THE YEARED 30 JUNE 2020
CORPORATE INTRODUCTION
Macau Property Opportunities Fund Limited, a closed-end
investment company, was incorporated and registered in Guernsey
under the Companies (Guernsey) Law, 2008 (as amended) on 18 May
2006, under registration number 44813. The Company is an authorised
entity under the Authorised Closed-Ended Investment Schemes Rules
2008. The Company is premium listed on the London Stock
Exchange.
Sniper Capital Limited, the Manager for Macau Property
Opportunities Fund, is responsible for the day-to-day management of
the Company's property portfolio and the identification and
execution of divestment opportunities.
The Company is managed with the objective of realising the value
of all remaining assets in its portfolio, individually, in
aggregate or in any other combination of disposals or transaction
structures, in a prudent manner. The overriding aim is to deliver
cost-effective and timely divestment of the remaining properties,
to enable further returns of capital to the shareholders. The
Company has ceased to make any new investments and will not
undertake additional borrowings other than to refinance existing
loans or for short-term working capital purposes.
The Board provides a diversity of fund and real estate
experience and geographical perspective, coupled with an essential
understanding of the unique features of Macau, its property market
and the portfolio. The Board has assessed that it has the capacity
to fulfil its obligations in the context of the latest corporate
governance guidelines, taking full account of the late phase
divestment stage that the Company is in and its clearly defined
business objectives.
Pursuant to resolutions passed at MPO's Annual General Meeting
(AGM) in 2016, the Company will be subject to annual continuation
votes. The first and second Continuation Resolutions were passed at
General Meetings held on 5 July 2018 and 29 November 2019,
respectively. The next Continuation Resolution will be put to
shareholders no later than 30 November 2020. The Board will be
recommending the continuation of the Company at the AGM.
Currently 100% of Macau Property Opportunities Fund's investment
portfolio is allocated to residential property investments in
Macau.
KEY FACTS
Exchange
London Stock Exchange
Main Market
Symbol
MPO
Lookup
Reuters - MPO.L
Bloomberg - MPO:LN
Domicile
Guernsey
Shares In Issue
61,835,733
Shares Held in Treasury
Nil
Share Denomination
Pound Sterling,
Reporting currency US Dollars
Fee Structure
A realisation focussed fee structure which incentivises the
Manager to realise assets
Inception Date
5 June 2006
ADVISERS & SERVICE PROVIDERS
Company Secretary and Administrator
Ocorian Administration (Guernsey) Limited
Corporate Broker
Liberum Capital Limited
Auditor
Ernst & Young LLP
Chairman's Message
Introduction
During the last financial year, the Company initially
experienced a continued sluggish high-end residential market,
followed by a more encouraging period in the final quarter of 2019
as trade tensions eased and optimism grew ahead of the appointment
of a new Chief Executive in Macau. What then developed was an
emerging issue described in our Interim Accounts, which grew into a
situation replicated across the globe as the effects of the
COVID-19 pandemic took hold.
The pipeline of prospects that had been building around the turn
of the calendar year was largely put on hold as Macau's government
took decisive action to close its borders and casinos to protect
its population. The consequence was that potential buyers and
tenants from overseas were sidelined, not only by restrictions on
travel, but also the uncertainty of an unfolding and ongoing global
economic crisis. It is a global downturn whose outcome is difficult
to predict, unique because it was created by the actions of
governments rather than cycles in the global or regional economies.
Against this gloomy backdrop, the Board and the Manager have kept
their focus on what can be delivered and positioned the Company
accordingly.
Positive developments to report are that a combination of sales
and debt restructuring has been achieved, which provides a further
measure of stability and lower debt levels. The Company has also
benefitted from a reduced cost base, with more favourable borrowing
costs and a change to management fees and administration costs
during the period.
These more positive aspects have positioned the Company to
manage the current situation and continue delivering the divestment
programme we had previously set out. The programme will inevitably
take longer, although an improved cashflow will sustain it through
this consequence of the COVID-19-related downturn. Whilst there are
encouraging signs as the territory tentatively opens its borders,
the road may have twists and turns before we arrive at where we
want to be.
Macau - More Decisive Government
The appointment Mr Ho Iat Seng as Macau's new Chief Executive,
sworn in by Chinese President Xi Jinping in December, marked a
turning point, and the new administration has reacted swiftly and
decisively to COVID-19. Closing the territory's borders has
severely impacted its economy and the gaming revenues that drive it
have all but dried up. Macau has, however, set an enviable record
in terms of safeguarding its population, with just 46 recorded
cases and no deaths attributed to the virus.
Support measures to stabilise the economy are directed towards
the local population and businesses. There is also a strong
commitment to restoring external-facing activities and to
restarting the wider economy. This has been reinforced by further
infrastructure projects including a new border crossing and
expansion of the Light Rail system. Macau is in a strong position
relative to other small jurisdictions, with deep reserves to
support and stimulate various growth initiatives. If the positive,
proactive approach seen during the current crisis can translate
into the future development of Macau over the medium to longer
term, optimism will return. Optimistic sentiment is a key component
to support the Company's divestment plan.
The renewal of gaming licences is an uncertain factor that will
overhang the market. The major players seem willing to press on
with expansion plans, which is encouraging, although timeframes are
being extended due to current market conditions.
China and the Greater Bay Area Initiative
Statistics are hard to interpret accurately when it comes to
China. Lower growth and the continued adverse effects of US-China
trade tensions, coupled with Chinese capital controls on overseas
investment, are external factors that will work against the
near-term prospects for property-related activity in Macau in the
sector to which we are exposed. However, the Greater Bay Area (GBA)
initiative is a cornerstone of President Xi Jinping's plans for
China, of which Macau remains a core component. It is a realistic
expectation that the larger cities within the GBA will be the
property markets to benefit before Macau, but interest in Macau
will return once a favourable environment is in evidence. Rapid
changes in sentiment have been seen in the past. We have been
focused on being able to respond in an agile and determined manner
as such opportunities develop.
Investment Objective and Financial Performance
Our investment objective of a well-timed orderly disposal of our
remaining assets remains unchanged. This objective can be delivered
by either the sale of individual assets or disposals en bloc.
Sales of units at The Fountainside, as well as of the strata
apartments at One Central, during the financial year, with further
sales including the remaining individual One Central unit post the
financial year-end, have been achieved. The Manager and the sales
team successfully maintained momentum with Macau-based prospects
against a very difficult market backdrop to convert sales. These
achievements have had the positive effect of reducing our debt and
supporting our cash cushion to ride out the unexpected effects of
the COVID-19 crisis.
It has been a disappointing year in terms of financial
performance, primarily because the externally appraised values of
our properties fell by 10.0% year on year and Adjusted Net Asset
Value (NAV) fell by a corresponding 21.9%, from US$174.9 million to
US$136.5 million. Our cash reserves at the year's end were US$20.5
million, with borrowings of US$146.9 million, translating into a
loan-to-value ratio of 49.6%.
Equally disappointing has been the material discount in the
share price compared to NAV, which was affected by the combination
of a market re-rating of real-estate shares and selling pressure
from investors that allocate only to constituents of the FTSE 250
All-Share Index. The Chairman purchased 200,000 shares during the
period and the Manager indirectly remains the Company's largest
shareholder. Their interests are firmly aligned towards the
delivery of our objective.
Asset Management
Estrada da Penha
The timing of planned maintenance and cosmetic upgrades largely
coincided with the imposition of COVID-19 restrictions, positioning
the property for a resumption of sales activity as access for
potential buyers located in mainland China is eased.
The Waterside
A decline in the occupancy rate to 36% by the end of the
financial year, from 55% a year ago, was largely a disappointing
consequence of overseas tenants being unable to return to Macau due
to travel restrictions. Tenants had to forgo three months' deposit,
which softened the near-term impact of tenancy terminations. The
leasing team is working hard to rebuild tenancy levels.
Cost-effective refurbishment and maintenance works have been
conducted, and essential modernisation has also been undertaken to
maintain the tower's status as a premier location. This is a key
aspect of the divestment plan.
The Fountainside
The primary focus has been sales of available units and, as
separately noted, some success has been achieved in this
regard.
The approach to the disposal of remaining units remains under
consideration, with variable factors including whether
government-imposed mortgage limits are relaxed and market sentiment
changes. The Manager is evaluating a more modest reconfiguration of
the remaining units as one option.
Going Concern
The Board, in conjunction with the Manager, has given
considerable focus to this aspect of our operations to determine
the likely effects of the severe economic contraction brought about
by measures to contain COVID-19.
The Manager has renegotiated a number of our debt obligations,
including the significant post-financial-year-end restructuring of
The Waterside debt, mitigating some of the LTV downside pressures.
The fall between the property valuations at the end of March 2020
and the year end in June 2020 was a comparatively modest 0.6%. A
degree of COVID-19 related uncertainty remains in any valuations
where transaction volumes are limited. However it is acknowledged
by the Board that there is a material uncertainty in relation to
the ongoing impact of COVID-19.
The Company has been positioned such that the Board has cash
flow visibility for three years, subject to shareholders agreeing
to a further extension of its life, which will maximise the
opportunity to deliver well-timed disposals and continue the
limited but important success achieved in the last financial
year.
Governance
Board-Manager dialogue has increased since the outbreak of
COVID-19 via video conferencing, which has ensured that our focus
was maintained, notwithstanding the difficult circumstances that
affected our functions and operations.
Set out in this Report and Accounts is our report on
Environment, Social and Governance issues. We have, to a sensible
extent, summarised the position this year, as our situation is
largely unchanged with each area having been carefully reviewed by
the Board in November 2019.
We have also considered carefully the board's composition and
the various requirements of the Association of Investment Companies
(AIC) Code, which we follow. It is perhaps important that I state
that governance codes have moved and where practical have been
fully adhered to. There are elements of governance codes which
present genuine practical challenges for a company in the late
stage of its life, with a clearly defined but narrow strategic
objective, and which invests in a jurisdiction its board cannot
currently visit.
It is the intention to maintain majority board independence
within the meaning of the AIC Code. We will commence the process of
board succession in 2021 to achieve this, with a view to changes
taking place on or before the 2021 AGM. The Company has benefitted
greatly from the knowledge, expertise and skills mix of the Board
as we continue to navigate the current situation.
There are no concerns about either stale behaviour or a lack of
vigour when it comes to delivering the Company's strategy, which
requires a sound understanding of the market in Macau and broader
experience of the real estate market; indeed, the Board and
Manager's dynamics have been most constructive and measured in the
face of unprecedented challenges.
Costs and Expenses
Expenses have remained under close scrutiny and control. The
Company benefitted from a combination of lower management and
administration fees, periods of favourable exchange rates and
borrowing costs. The Board and the Manager are in discussion on a
variation and extension of the fees paid to the Manager. This
followed an approach to recognise the financial impact on the
Manager as a consequence of the extended timeframe and involvement
brought about by COVID-19 related restrictions and market impact.
Any changes to the agreement reached last year will be set out in a
communication which will accompany the formal Notice of the Annual
General meeting. Any such costs will not exceed the current reduced
fee levels which have been in place from 1 January 2020.
Conclusion
This report sets out the Company's performance in the last
financial year - the areas where progress has been achieved and
those aspects of our strategy which have been frustrated by the
extraordinary events brought about by the COVID-19 pandemic.
Our divestment timetable has been correspondingly adversely
impacted by these mainly external events, yet the progress that has
been made in both sales and viability allow it to be achieved,
albeit over a longer timeframe as some form of normality
returns.
The Company has a vote to extend its life, which will be
presented to shareholders at the AGM, to be held on 30 November
2020. The Board recommends a vote to continue the life of the
Company to enable the orderly divestment of the remaining assets.
We respectfully seek shareholders' support for this proposal.
The uncertainty that the COVID-19 outbreak produced during the
first half of 2020 has affected all aspects of life and business
sentiment, and wider world markets will remain challenged. Against
this backdrop, we are seeing encouraging signs of market stability
both in Macau and in mainland China. This is supported by the
resumption of tourist visa issuance for Chinese visitors to Macau,
which has had a positive impact on business conditions. With
continued strong leadership, there is good reason to be optimistic,
although the timeframe for a gradual return to the vibrancy to
which we look forward is harder to predict.
MARK HUNTLEY
CHAIRMAN
MACAU PROPERTY OPPORTUNITIES FUND LIMITED
7 October 2020
BOARD OF DIRECTORS
MARK HUNTLEY
Chairman
Mark Huntley has over 40 years' experience in the fund and
fiduciary sectors. His involvement in the fund and private asset
sectors has spanned real estate, private equity and emerging
markets investments. He has served on boards of listed and private
investment funds and management/general partner entities. He holds
board appointments at ICG-Longbow Senior Secured UK Property Debt
Investments Limited (from which he will step down on 25 September),
Stirling Mortimer No.8 Fund UK Limited and Stirling Mortimer No.9
Fund UK Limited. Mr Huntley is a resident of Guernsey.
ALAN CLIFTON
Non-executive Director
Alan Clifton began his career at stockbroker Kitcat &
Aitken, first as an analyst, thereafter becoming a Partner and then
a Managing Partner, prior to the firm's acquisition by The Royal
Bank of Canada. He was subsequently invited to take up the role of
Managing Director of the asset management arm of Aviva plc, the
UK's largest insurance group. He is currently a Director of Invesco
Select Trust and several other investment companies. Mr Clifton is
a UK resident.
WILFRED WOO
Non-executive Director
Wilfred Woo is a qualified chartered accountant who joined
Coopers & Lybrand as an auditor in 1982, before becoming Chief
Financial Officer in 1990 at Abbey Woods Development Limited, a
real estate company listed on the Toronto Stock Exchange. He has
since spent more than 30 years with the Kuok Group, notably with
Kerry Properties Limited and Shangri-La Asia Limited. He currently
holds senior management and board positions at Shangri-La-linked
companies as well as a Kerry Properties-linked company listed on
the Philippine Stock Exchange. Mr Woo is a Canadian citizen and a
resident of Hong Kong.
FINANCIAL REVIEW
2016 2017 2018 2019 2020
NAV (IFRS) 106.6 128.8 212.8 131.1 100.6
(US$ million)
----- ----- ----- ----- -----
NAV per share
(IFRS) (US$) 1.40 1.69 2.78 2.12 1.63
----- ----- ----- ----- -----
Adjusted NAV
(US$ million)(a) 226.3 249.3 260.6 174.9 136.5
----- ----- ----- ----- -----
Adjusted NAV per share
(US$) (a) 2.96 3.26 3.41 2.83 2.21
----- ----- ----- ----- -----
Adjusted NAV per share
(pence) (1 &) (a) 223 250 258 223 179
----- ----- ----- ----- -----
Share price (pence) 105.0 157.0 194.0 146.0 61.75
----- ----- ----- ----- -----
Portfolio valuation (US$
million) (b) 393.7 425.7 338.4 311.1 275.6
----- ----- ----- ----- -----
Loan-to-value ratio (%) 40.3 39.4 34.7 43.5 49.6
----- ----- ----- ----- -----
(1) Based on the following US Dollar/Sterling exchange rates on
30 June - 2016: 1.326; 2017: 1.303; 2018: 1.321; 2019:1.270; 2020:
1.231
(a) Refer to Note 18 for calculation of Adjusted NAV and
Adjusted NAV per share
(b) Refer to Notes 6 & 7 for independent valuations of the
Group's portfolio including investment property and inventories
Macau's economy faced headwinds from slowing growth in China and
escalating US-China trade tensions in 2019. The arrival of COVID-19
dealt the territory a further setback by seizing up its economic
engines - tourism and gaming - for most of H1 2020. Measures
imposed to curb the spread of the pandemic also dealt a blow to
transactions in the luxury residential property market as potential
buyers in Macau remained cautiously on the sidelines and those
prospective purchasers outside the territory were unable to attend
viewings. The recent easing of border controls and quarantine
restrictions between Guangdong Province and Macau has helped
sentiment and business conditions, and represents the first step
towards restoring regular movement within the Greater Bay Area,
which is crucial for Macau's economic recovery. Despite the
challenging environment, the Company has made progress on the
disposal of assets, with total divestments achieved since mid-2019
valued at around HK$100 million (c.US$13 million).
Financial Results
The unfavourable economic conditions negatively impacted by the
COVID-19 outbreak, together with the strict capital controls and
lending restrictions, have had an adverse impact on the Company's
financial results. MPO's portfolio, comprising three main assets,
was valued at US$275.6 million as at 30 June 2020, reflecting a
10.0% year-on-year (YoY) decline.
MPO's Adjusted Net Asset Value was US$136.5 million, which
translates to US$2.21 (179 pence) per share, a 21.9% decrease YoY.
IFRS NAV was US$100.6 million, or US$1.63 (132 pence) per share, a
23.1% drop over the one-year period.
Capital Management
As at 30 June 2020, MPO's balance sheet held assets worth a
total of US$260.6 million, against combined liabilities of US$160.0
million.
The Company ended the financial year with a consolidated cash
balance (including deposits with lenders) of US$20.5 million.
During the year, the Company successfully refinanced its banking
facilities for Estrada da Penha and The Fountainside on improved
terms. As at 30 June 2020, gross borrowing stood at US$146.9
million, which translates to a loan-to-value ratio of 49.6%.
Extension of Company Life and Fee Revision
At the Annual General Meeting in November 2019, shareholders
passed a resolution to extend the Company's life by one year until
the next continuation vote in late 2020 to permit the orderly
divestment of its portfolio. The conditions for the extension were
aimed at enhancing shareholder value by restructuring fees to
reduce operating expenses while ensuring that the Manager is
appropriately incentivised to achieve satisfactory divestments.
From 1 January 2020, management fees were reduced from 2% to 1%
of adjusted NAV for the calendar year 2020. A tiered structure of
realisation fees and an extra incentive fee will be paid to the
Manager if realised values exceed pre-set thresholds and if sales
are concluded within agreed timeframes (see Note 20).
PORTFOLIO OVERVIEW
Property Sector Type Current No. Commitment Gross Acquisition Project Market Changes Project
status of (US$ floor cost development valuation (based on composition
Units million) area (US$ cost (US$ market value) (based
(Square million) (US$ million) on
feet) million) market
value)
Over Since
the Acquisition
year
------------ -------------- ----------- ----- ---------- ------- ----------- ----------- --------- ------ ----------- -----------
The Waterside
Tower Six
of One Central Luxury Divestment
Residences* residential Investment phase 59 101.3 148,000 87.8 13.5 200.0 -11.5% 128% 72.6%
------------ -------------- ----------- ----- ---------- ------- ----------- ----------- --------- ------ ----------- -----------
One Central
Residences Luxury Divestment
Strata unit residential Investment phase 1 2.5 2,288 2.5 N.A. 3.1 -11.4% 24% 1.1%
------------ -------------- ----------- ----- ---------- ------- ----------- ----------- --------- ------ ----------- -----------
The Low-density Sales
Fountainside** Residential Redevelopment phase 11 8.5 28,799 3.0 5.5 27.9 -9.1% 823% 10.1%
------------ -------------- ----------- ----- ---------- ------- ----------- ----------- --------- ------ ----------- -----------
Estrada da Luxury Divestment
Penha residential Investment phase N.A. 28.6 12,030 27.1 1.5 44.6 -3.4% 65% 16.2%
------------ -------------- ----------- ----- ---------- ------- ----------- ----------- --------- ------ ----------- -----------
Total 140.9 191,117 120.4 20.5 275.6 -10.0% 129% 100%
----- ---------- ------- ----------- ----------- --------- ------ ----------- -----------
* One Central is a trademark registered in Macau Special
Administrative Region (SAR) under the name of Basecity Investments
Limited. Sniper Capital Limited, Macau Property Opportunities Fund
Limited, MPOF Macau (Site 5) Limited, Bela Vista Property Services
Limited and The Waterside are not associated with Basecity
Investments Limited, Shun Tak Holdings Limited or Hongkong Land
Holdings Limited.
** Information listed refers to the remaining units and parking
spaces available for sale.
PORTFOLIO UPDATES
The Waterside
The Waterside, accommodating 59 ultra-luxury residential
apartments, is MPO's landmark development in the prime area of the
Macau Peninsula.
As at 30 June 2020, the occupancy level at The Waterside was
36%, declining from 55% a year earlier, while the average rental
was US$2.49 per square foot per month versus US$2.81 a year ago.
Although occupancy had improved to 58% at the end of 2019, in 1H
2020 some tenants were unable to return to Macau due to COVID-19
travel restrictions. As a result, security deposits equivalent to
three months' rent were forfeited and the apartments were
remarketed.
The Waterside remains a unique and attractive asset for
investors seeking exposure to Macau and the Greater Bay Area's next
phase of growth. The recent lifting of quarantine requirements on
visitors travelling between mainland China and Macau, coupled with
the phased resumption of tourist visa issuance for mainland Chinese
travelling to Macau is a positive step towards the restarting of
Macau's economy. As this occurs, the Company will proactively start
to reach out to the pool of prospective buyers and resume its
pursuit of an en-bloc divestment of The Waterside. In the meantime,
the leasing team continues to focus on restoring the occupancy
level and achieving a more diverse tenant profile.
Strata Units at One Central Residences
Despite the challenging market, in April, the Company completed
the disposal of an individual unit at One Central Residences for a
total consideration of HK$19 million (c.US$2.4 million) or
HK$10,288 per square foot (c.US$1,327 per square foot). Since the
year end, the Company has entered into a provisional sales and
purchase agreement to sell the remaining unit at a price of HK$25
million (c.US$3.2 million), or HK$10,800 per square foot
(c.US$1,393 per square foot). The transaction is expected to
complete by the end of November 2020.
The Fountainside
The Fountainside is a low-density, freehold residential
development comprising 42 residential units and 30 car-parking
spaces in Macau's sought-after Penha Hill district.
Demand for high-end residential properties such as The
Fountainside remained subdued during the financial year. The
anti-speculation mortgage policies introduced in 2018 by Macau's
government resulted in some potential buyers being unable to raise
sufficient financing. The COVID-19 outbreak and associated measures
further dampened the market sentiment, with entry restrictions
having narrowed the buyer pool primarily to locals and disrupted
viewings by non local potential buyers.
Against this backdrop, the Company has entered into sales
transactions worth a combined HK$32.6 million (c.US$4.2 million)
involving two residential units, three car-parking spaces and five
motorcycle-parking spaces. These transactions have been completed.
Since the year end, two additional residential units were sold in
July for HK$13 million (c.US$1.7 million) and HK$11 million
(c.US$1.4 million), or at HK$5,950 and HK$6,030 per square foot,
respectively. These transactions are expected to complete by the
end of 2020.
Moving forward, with only eight units remaining, which include
four larger villas, the Company will continue to pursue creative
disposal strategies to complete sales of all units in a timely
manner.
Estrada da Penha
Estrada da Penha is a prestigious, colonial-style villa nestled
among lush greenery atop Penha Hill - an exclusive and highly
desirable residential enclave. With sweeping bay views, this
magnificent villa has a gross floor area of more than 12,000 square
feet spread across five storeys.
The luxury segment of Macau's property sector has remained
quiet. During the financial year, economic woes globally and in the
region, combined with the US- China trade war, has seen potential
buyers stay on the sidelines and remain unwilling to make major
commitments. In addition, the COVID-19 pandemic prompted investors
to hold off any purchases while awaiting greater clarity on market
conditions. Yet the Macau government's decisive and prudent
management of the COVID-19 outbreak may in due course further boost
confidence and the appeal of high-end properties in the
territory.
To improve the attractiveness of the property, further
enhancement works have been undertaken during this quiet period,
giving it a refreshed look in preparation for a re-launch of the
sales and marketing effort. Although the Company has received
enquiries, most are from prospective purchasers located outside
Macau and hence subject to COVID-19 travel restrictions.
MACROECONOMIC OUTLOOK
COVID-19 and other defining events
Macau's economy in H2 2019 was negatively affected by slowing
growth in China and the escalating trade war between Washington and
Beijing. In mid-December 2019, when the US and China announced they
had reached Phase 1 of a trade pact, cautious optimism about an
economic recovery in Macau began to emerge. However, that was
short-lived. As the New Year began, the twin drivers of Macau's
economy - tourism and gaming - were about to suffer a hammer blow
as the government put in place measures to deal with the looming
threat of COVID-19.
On 20 April, in his first policy address, Macau Chief Executive
Ho Iat Seng described the COVID-19 situation in the territory as
"basically under control". The total number of infections currently
stands at 46, and all coronavirus patients have recovered. Macau
has suffered no deaths related to COVID-19 to date.
With the outbreak having been reined in, a "travel bubble" set
up by the Guangdong and Macau authorities in July 2020 has eased
quarantine measures for travellers between the two places. Macau
lifted all restrictions previously imposed on visitors from
COVID-19 hotspots in mainland China in mid-July, following which
all travellers from the mainland, with the exception of visitors
from areas with COVID-19 outbreaks including Hong Kong, would not
have to undergo quarantine when visiting Macau.
Travel restrictions between Macau and the Chinese mainland were
eased further in August as the COVID-19 situation has remained
stable following a relaxation of quarantine measures in July.
Zhuhai authorities resumed the issuance of Individual Visit Scheme
(IVS) and group tourist visas to Macau from mid-August. According
to mainland Chinese authorities, tourist visas for travel to Macau
will be reintroduced for residents of all mainland provinces from
late September, in time for China's Golden Week holiday in October.
This is viewed as a milestone in the reopening of Macau's tourism
and gaming sectors.
The authorities will continue to act with caution, adjusting
policy in accordance with developments related to the pandemic.
According to Macau authorities, the city has admitted an average of
around 10,000 visitors a day following the partial resumption of
tourist visa issuance. This is far below the daily average of
around 108,000 visitors in 2019, and government officials have
suggested that a recovery to pre-COVID-19 visitor levels may be a
long way off.
Clearly any further wave of infection and controls would have a
detrimental effect on any nascent recovery.
Given Macau's proximity to Hong Kong and mainland China, both of
which have recently seen new COVID-19 clusters, the territory's
government is on high alert for a new wave of infections.
Nevertheless, China's management of the pandemic is proving to
be more effective than that of other countries and Macau deserves
much credit for their approach. Taking a longer term view, Macau
has strong reserves and continues to build for the future.
Economic contraction
Macau's economy continued to contract in H2 2019, in tandem with
slowing growth in mainland China. The escalating US-China trade war
and volatility in global markets added downward pressure on the
territory's economy. Macau's gross domestic product declined 4.7%
in 2019.
By the end of Q1 2020, COVID-19 containment measures imposed by
the government had taken a toll on the economy, as gaming and
tourism were all but shut down. Macau's economic performance
plummeted 49% YoY and 68% YoY in Q1 and Q2 2020, respectively. For
full-year 2020 GDP, the International Monetary Fund, the Economist
Intelligence Unit and Fitch Ratings have predicted contractions
ranging between 24% and 70% YoY.
GDP forecasts for 2021 vary considerably, from a prediction of
12.6% growth by Fitch Ratings to bullish expansions of around 32%
by the Economist Intelligence Unit and International Monetary
Fund.
Gross gaming revenue decimated
In 2019, gross gaming revenue (GGR) contracted 3.4% YoY. VIP
gaming revenue fell by 19% YoY, offset by an expansion in
mass-market GGR of 15%. The VIP segment accounted for 46% of
Macau's total GGR, down from 55% in 2018 and marking the first year
that it was surpassed by the mass-market segment.
In H1 2020, with the gaming sector severely hit by Macau's
travel restrictions and the unprecedented 15-day closure of casinos
in February, GGR was dealt a crushing blow, falling 77.4% YoY. For
the months of May and June alone, GGR slumped 93.2% and 97.0% YoY
respectively, marking nine consecutive months of declines. Mass
gaming revenue continued to outpace that of the VIP segment during
the period but was also negatively impacted.
On the issue of uncertainties surrounding the renewal of gaming
concessions, which are expiring in mid-2022, the government has
provided little insight into the criteria and conditions for
renewal. The Macau chief executive's policy address in April
outlined the government's plan to hold a public consultation on the
territory's gaming laws in H2 2020. After obtaining public
feedback, legislation will be revised and a fresh public tender for
gaming rights will be held.
Despite the uncertainties, Sands China and Galaxy Entertainment
Group have indicated that they are proceeding with previously
announced expansion plans. In rebranding its Cotai Central, Sands
began trial operations at The Grand Suites at Four Seasons, and its
new Londoner Macau is on schedule to be ready for launch this year.
Galaxy has announced that work on phases 3 and 4 of its flagship
Galaxy Macau, in Cotai, is continuing.
In light of the challenges the sector faces, Sanford C.
Bernstein, a US brokerage, estimates a GGR contraction of 44% for
full-year 2020. However, its forecast for 2021 is far more
optimistic, with an expected rebound in GGR by 96% YoY.
A rollercoaster ride for tourism
At the end of 2019, Macau's visitor arrival numbers had hit yet
another record high of 39.4 million, a 10.1% YoY increase. Those
numbers plunged in H1 2020, however, due to strict COVID-19
containment measures, with the Q2 2020 performance being
particularly poor, decreasing by 99.5% YoY to 49,730.
Although reviving Macau's flagging economy is important, the
territory's government emphasised that the health, safety and
wellbeing of its residents is the top priority. With the COVID-19
situation in Macau as essentially under control, the government has
set out to rebuild tourism.
In addition to the agreement with Guangdong Province on
reciprocal green lanes, a framework for a broader Greater Bay Area
travel bubble that would include Hong Kong was also in its final
stages. However, the inclusion of Hong Kong had to be postponed
amid increasing recent cases of locally transmitted COVID-19.
Nonetheless, the authorities have stated their intention to include
the entire Greater Bay Area in the arrangement at an appropriate
time.
The recent announcement on the gradual resumption of tourist
visa issuance for mainland visitors to Macau is a positive
development, although it remains to be seen how quickly tourists
will return to the territory.
Macau's Chief Executive sworn in
Ho Iat Seng, a businessman and former president of Macau's
Legislative Assembly, was sworn in by Chinese President Xi Jinping
in December 2019 at a ceremony that also marked the 20th
anniversary of the Macau Special Administrative Region of
China.
In his first policy address on 20 April, Mr Ho reiterated the
government's focus on protecting the safety and health of Macau's
residents and of stabilising and revitalising the city's economy.
The territorial government's stated focus on social welfare, job
creation and institutional reform was demonstrated in its swift
reaction to the economic impact of COVID-19. A US$6 billion package
of economic relief measures was rolled out to boost local spending
and reduce the financial burden on Macau based businesses,
particularly small and medium-sized enterprises, including
consumption subsidies, rental waivers, job-training opportunities,
tax deductions, interest-free loans and other business
incentives.
Mr Ho also repeated his aim to diversify Macau's economy and
reduce its overdependence on gaming revenues to prepare for a more
sustainable future. Boosting Macau's participation in the
development of the Greater Bay Area was identified as a key enabler
in this respect. Recent related measures include extending Macau's
jurisdiction to the passenger clearance building of the new Hengqin
Port to streamline border processes at the new state-of-the-art
facility, which boasts an annual capacity of around 80 million
people - greater than Heathrow Airport. The new border crossing
began operations on 18 August. Macau has also stated its intention
to kick-start the next phase of the Light Rail Transit (LRT)
project to connect Cotai with Hengqin Island this year.
PROPERTY MARKET OVERVIEW
Affordable homes shrugging off COVID-19 effect
After a poor showing in H1 2019, Macau's residential property
market had regained some ground in H2 2019, with the number of
transactions increasing marginally by 0.8% YoY to 3,825. However,
activity was concentrated in the more affordable segment of the
market, in which first-time buyers accounted for the bulk of
transactions. For full-year 2019, market volume was down 27% YoY to
7,745, and the average transaction price fell by 2%.
During the first half of 2020, residential property sales
remained subdued in Q1 2020, with the number of transactions
totalling 1,016, down 22% YoY, while average transaction prices
declined 8% YoY to US$1,130 per square foot. In Q2 2020, market
sentiment improved with the stabilisation of the COVID-19 situation
as potential local buyers began arranging property viewings. On the
supply side, property developers have launched a number of new
units since mid-April, tempting buyers to take advantage of low
interest rates with incentives such as flexible payment
methods.
As a result, June transaction volumes picked up by 53% month on
month (MoM) and 18% YoY. In the first half of 2020, a total of
3,040 residential units were transacted, down 22% YoY. The average
transaction price in June was around US$1,180 per square foot, down
11% YoY. Home purchases by first-time buyers continued to dominate,
accounting for more than 84% of all transactions during the
period.
Luxury residential segment still quiet
According to real estate agent Centaline Macau, residential
properties priced under MOP8 million (US$1 million) remain the most
sought-after in the market. At the luxury end of the spectrum, at
which MPO operates, the secondary market for high-end properties
has remained quiet.
The effects of capital controls imposed by Beijing, which have
restricted outflows of yuan from mainland China, continued to weigh
on luxury property purchases by mainland Chinese investors in
Macau. Anti-speculation measures introduced by Macau's government
have also made mortgage terms restrictive and driven up property
purchase costs for investors. Coupled with broader economic
uncertainties caused by COVID-19 and travel restrictions, there has
been a distinct reluctance among potential buyers to make new
commitments involving large sums.
The property market could, however, regain some momentum now
travel restrictions are beginning to be relaxed and travel permits
for individual mainland Chinese to travel to Macau are
reintroduced.
Looking ahead
The economic outlook for Macau's luxury property segment remains
both challenging and uncertain. Mainland China's economy has been
impacted both by COVID-19 as well as Western nations efforts to
curtail China's growing influence. This has been exacerbated by the
West's response to the recent security law implementation in Hong
Kong. These factors may all have a negative impact on Macau's
economy and the luxury residential property market, representing a
substantial setback for the Company and delays the asset disposal
timetable.
Yet encouraging signs are visible.
Macau's government took a swift and decisive, yet cautious and
measured, response to the COVID-19 pandemic that successfully
contained the spread of the virus. This was followed by an
efficiently implemented economic stimulus and financial aid package
helping to revive the economy.
With the return of a degree of normalcy in travel between
mainland China and Macau, there is optimism that Macau's economic
engines will resume firing on all cylinders. Although the travel
bubble currently excludes Hong Kong, which is dealing with a local
re-emergence of COVID-19, official announcements from all parties
indicate that the groundwork has been completed for the Greater Bay
Area travel bubble to come into effect as soon as prevailing health
conditions permit.
Despite the current challenges and uncertainties, gaming
operators are proceeding with major expansion plans, demonstrating
their confidence in the long-term strength of the territory's
economy. In addition, the Chief Executive's pursuit of closer
integration of Macau within the Greater Bay Area will help secure
and sustain its economic future.
As travel restrictions are relaxed, the Company will recalibrate
and implement its asset divestment strategy to the maximum benefit
of investors.
Manager:
Sniper Capital Limited
7 October 2020
ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT
1 About This Report
This Environmental, Social and Governance Report (the "ESG
Report") has been prepared with reference to The Ten Principles of
United Nations Global Compact (UNGC). The ESG Report elaborates the
environmental and social responsibility measures and performances
of Macau Property Opportunities Fund Limited and subsidiaries (the
"Group") from 1 July 2019 to 30 June 2020. For details on corporate
governance, please refer to the Corporate Governance Report of the
annual report.
1.1 Core Business of the Group
During the year under review, the Group invests in residential
properties in Macau.
1.2 Report Boundary
The ESG Report focuses on the environmental and social
responsibility performances of the core business during the year
under review. The reported results cover the properties in Macau
during the year under review, which are listed below:
-- The Waterside
-- The individual unit at One Central Residences
-- The Fountainside
-- Estrada da Penha
1.3 Overall ESG Approach
The Board understands the significance of ESG and has
incorporated ESG- related risks into the Group's risk management.
The overall ESG approach is aimed at creating profit for
shareholders in a responsible manner while taking into
consideration the environment, social responsibility and supply
chain management.
The ESG Approach is developed based on The Ten Principles of
UNGC. UNGC is a voluntary multi stakeholder platform which requires
multinational companies to align against The Ten Principles
covering human rights, labour, environment and anti-corruption
standards. The Board is committed to reflect the basic concepts of
fairness, honesty and respect for people and the environment in the
business actions.
The Ten Principles are:
Human Rights
1. Businesses should support and respect the protection of
internationally proclaimed human rights; and
2. Businesses must make sure that they are not complicit in
human rights abuses.
Labour
3. Businesses should uphold the freedom of association and the
effective recognition of the right to collective bargaining;
4. Businesses should support the elimination of all forms of
forced and compulsory labour;
5. Businesses should support the effective abolition of child
labour; and
6. Businesses should support the elimination of discrimination
in respect of employment and occupation;
Environment
7. Businesses should support a precautionary approach to
environmental challenges;
8. Businesses should undertake initiatives to promote greater
environmental responsibility; and
9. Businesses should encourage the development and diffusion of
environmentally friendly technologies;
Anti-Corruption
10. Businesses should work against corruption in all its forms,
including extortion and bribery
2 Environment
2.1 Commitment Principle
The Group strives to adopt environmental-friendly practices
during the business operations so as to minimise the negative
impacts on the environment and natural resources. The Group
strictly complies with all the applicable environmental laws and
regulations. Different environmental protection measures are
implemented at the key stages of property development, along with
the incorporation of green building designs and implementation of
responsible construction practices in the work sites. The Group
also upholds the principles of recycle and reuse at the
properties.
2.2 Initiatives and Performances
Property Design
The environmental impact of a building can be traced back to as
early as its design phase. The Group acknowledges this impact and
aim to reduce the buildings' future consumption of water and
electricity by referencing green building designs when it is
applicable and practicable. The Group follows local green building
requirements, which take into consideration green design elements
like building materials, indoor air quality, site selection and
energy considerations. Examples of green building designs and
features are provided as follows:
- Preserve and retain the cultural heritage façade of the historical building;
- Incorporation of passive building designs to improve
ventilation and optimise sunlight exposure;
- Use of water-efficient fixtures;
- Greening of rooftops; and
- Use of renewable energy features such as solar energy.
The Group improves indoor air quality through introducing the
air purifying equipment. The Group also implements measures capable
of monitoring temperature and humidity in residential units and
thus enhance the living conditions for residents.
Construction Sites
The construction process has a direct impact on the environment
due to the generation of air emissions, wastewater discharge and
construction waste. The Group strictly follows local government
requirements to properly reduce and manage the environmental impact
of the construction sites, and continued to focus on the following
key construction site management aspects:
- Regularly communicate with construction contractors to ensure
they are updated on local environmental laws and regulations and
comply with these laws and regulations;
- Properly manage the dust and air emission at the construction
sites as per local regulatory requirements;
- Properly dispose of construction wastes and recycle construction wastes as practicable;
- Use qualified vendors for the proper disposal of hazardous wastes;
- Treat wastewater at the work sites prior to discharge; and
- Regularly visit construction contractors to see if they have
conducted adequate environmental, safety and health
inspections.
Property Management
Various green measures have been adopted in the properties to
improve the overall environmental performance. For example,
- Energy efficiency: The Group has been able to reduce the
energy consumption by (i) replacing lighting fixtures with LEDs,
(ii) reducing the amount of lighting used in common areas; and
(iii) installing air- conditioning systems with energy efficiency
labelling in accordance with local requirements.
- Tenants' engagement: tenants are encouraged to minimise their
resource consumption (electricity, water and material use) and are
provided with recycling facilities to reduce waste.
- Rechargeable battery recycling: The Group has placed public
collection points for rechargeable battery recycling. Certain
materials in rechargeable batteries, such as cadmium, are hazardous
to human health and the environment. The Group encourages the
residents to recycle them rather than risk them seeping into the
environment.
An effective environmental management system has been
implemented in practices. Some of the main environmental objectives
regarding property management are as follows:
- Use of pesticides and cleansing agents in accordance with
relevant regulations, aiming for zero incidents regarding their use
and storage; and
- Manage community wastewater, material waste and noise according to local standards.
Regulatory Compliance
During the year under review, the Group was not aware of any
non-compliance with environmental regulatory requirements that may
significantly impact the Group's business.
3 Social Responsibility and Supply Chain Management
The Group strongly believes that quality property is a gateway
to quality living. The Group strives to provide quality property
through innovation and delicacy, as well as operates with sincerity
to provide customers with a tasteful lifestyle. Through such
efforts, the Group aims to improve the living quality of the
tenants.
3.1 Supply Chain Management
During the process of property construction, the Group carefully
appointed external contractors by taking into consideration various
factors such as human rights protection, non-discrimination of
employment and occupation, environmental protection, construction
safety and product safety. While selecting contractors for property
construction, the Group searched for those who are familiar with
the environmental, social and safety requirements and in line with
the Group's concerns over abolition of child labour and anti-
corruption. The Group established close contacts with the
contractors on all constructions and sourcing affairs. The Group
organised regular meetings to facilitate two-way communications. In
addition, the Group performed regular assessment of contractors
based on environmental and social risks.
3.2 Quality Services
To ensure the consistently high quality in property management
services, the Group appointed a property management company to:
- Maintain quality properties that embrace innovation and enhance the neighbourhood;
- Provide sincere service and constantly improve the property management;
- Strive for high standards of property management services, and
achieve customer satisfaction; and
- Provide a tasteful living to the residents.
3.3 Protection of Privacy
To ensure the well-being of the tenants, the Group regularly
communicates with them through satisfaction surveys in order to
identify potential areas for improvement. The Group keeps
customers' information confidential, and access to information is
restricted. During the year under review, there were no reported
non-compliances regarding privacy and data protection.
Regulatory Compliance
During the year under review, the Group was not aware of any
non-compliance by supply chain management that may significantly
impact the Group's business.
MANAGER AND ADVISER
Sniper Capital
Manager Investment Adviser
Sniper Capital Limited Sniper Capital (Macau) Limited
--------------------------------------------------------------------------------------------------------------------
Research & Transaction Project Development Asset Management Corporate Communications Finance & Administration
* Macro & micro analysis * Consultant appointment & coordination * Property & estate management * Investor & media relations * Administration & accounting
* Forecasting & modelling * Project monitoring & reporting * Sales & leasing * Marketing & product positioning * Compliance & reporting
* Sourcing * Project delivery & handover * Facilities management * Statutory & regulatory communication * Cash management & treasury
* Due diligence * Asset value enhancement
* Divestment
-------------------------------------------- ----------------------------------- ------------------------------------------- ----------------------------------
Manager
The day-to-day responsibility for the management of the Macau
Property Opportunities Fund's ("MPOF", "Company" or "Group")
portfolio rests with Sniper Capital Limited(1) .
Founded in 2004, Sniper Capital Limited focuses on capital
growth from carefully selected investment, development and
redevelopment opportunities in niche and undervalued property
markets.
Sniper Capital Limited is focused on the identification,
acquisition and development of properties chosen for their
location, current and potential value, or for the sustainable
demand for the accommodation or facilities they offer.
Sniper Capital Limited's team of over 30 professionals covers
all the required investment and development disciplines, including
research, site acquisition, project development, asset management,
investor relations and finance.
Working closely with Headland Developments Limited(2) and Bela
Vista Property Services Limited(3) , Sniper Capital Limited ensures
that all necessary project management skills and services are
provided in a way that will deliver each MPOF project to the right
standards and on budget.
For more information, please visit www.snipercapital.com
(1) Thomas Ashworth and Martin Tacon, Directors of Sniper
Capital Limited, have a beneficial interest in Sniper Investments
Limited and Thomas Ashworth was a Non-Executive Director of the
Company until retiring on 29 November 2019.
(2) Headland Developments Limited is part owned by Thomas
Ashworth and Martin Tacon, Directors of Sniper Capital Limited, and
therefore constitutes a related party of the Company.
(3) Thomas Ashworth and Martin Tacon, Directors of Sniper
Capital Limited, are Directors and have a beneficial interest in
Bela Vista Property Services Limited which therefore constitutes a
related party of the Company.
With its 25 August 2020 holding of 11.46 million shares or
18.54% of the Company's issued share capital, Sniper Investments
Limited - an investment vehicle associated with Sniper Capital
Limited - is the largest shareholder in MPOF, which bears witness
to Sniper Capital Limited's belief in the Company.
Adviser
The Company's Board of Directors and Manager are advised by
Sniper Capital (Macau) Limited, which has a highly developed
network of contacts and associates spanning Macau's financial and
business community.
The Investment Adviser's brief is to source, analyse and
recommend potential divestment opportunities, whilst providing the
Board with property investment and management advisory services in
relation to the Company's investments.
Investment Policy
The Company is managed with the objective of realising the value
of all remaining assets in the portfolio, individually, in
aggregate or in any other combination of disposals or transaction
structures, in a prudent manner consistent with the principles of
good investment management with a view to making an orderly return
of capital to shareholders over time.
The Company may sell or otherwise realise its investments
(including individually, or in aggregate or other combinations) to
such persons as it chooses, but in all cases with the objective of
achieving the best exit values reasonably available within
reasonable time scales.
The Company has ceased to make any new investments and will not
undertake additional borrowing other than to refinance existing
borrowing or for short- term working capital purposes.
Any net cash received by the Company after discharging any
relevant loans as part of the realisation process will be held by
the Company as cash on deposit and/or as cash equivalents prior to
its distribution to shareholders, which shall be at such intervals
as the Board considers appropriate.
The Company's Articles of Incorporation do not contain any
restriction on borrowings.
DIRECTORS' REPORT
The Directors present their report and audited financial
statements of the Group for the year ended 30 June 2020. This
Directors' report should be read together with Corporate Governance
Report.
Principal activities
Macau Property Opportunities Fund Limited (the "Company") is a
Guernsey-registered closed-ended investment fund traded on the
London Stock Exchange (the "LSE"). Following the passing of all
resolutions at the Extraordinary General Meeting held on 28 June
2010, the Company's shares obtained a Premium Listing on the LSE
Main Market on 30 June 2010.
The Company is an authorised entity under the Authorised
Closed-Ended Investment Schemes Rules 2008 and is regulated by the
Guernsey Financial Services Commission ("GFSC"). During the year,
the principal activities of the Company and its subsidiaries as
listed in Note 4 to the consolidated financial statements (together
referred to as the "Group") were property development and
investment in Macau.
Business review
A review of the business during the year, together with likely
future developments, is contained in the Chairman's Message and in
the Manager's Report.
Going Concern
The financial risk management objectives and policies of the
Group and the exposure of the Group to credit risk, market risk and
liquidity risk are discussed in Note 2 to the consolidated
financial statements.
A fundamental principle of the preparation of financial
statements in accordance with IFRS, the Directors have assessed as
to whether the Company will continue in existence as a going
concern for a period of at least 12 months from signing of the
financial statements, which contemplates continuity of operations
and the realisation of assets and settlement of liabilities
occurring in the ordinary course of business.
The financial statements have been prepared on a going concern
basis for the reasons set out below and as the Directors, with
recommendation from the Audit and Risk Committee, have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future.
In reaching its conclusion, the Board have considered the risks
that could impact the Group's liquidity over the period to 31
October 2021. This period represents the required period of 12
months from the date of signing of the Annual Report.
As part of their assessment the Audit Committee highlighted the
following key considerations:
1. Whether the Group can refinance its loan facilities to
discharge its liabilities over the period to 31 October 2021
2. COVID-19 impact on valuation of the Group's investment
portfolio and related loan covenants
3. Extension of life of the Company
1. Whether, the Group can refinance its loan facilities to
discharge its liabilities over the period to 31 October 2021
The Group has several major debt obligations to settle during
the going concern period being:
i) instalment to repay principal of the loan facility with Hang
Seng Bank of approximately US$10 million due for settlement on 19
March 2021;
ii) full repayment of the loan facilities with Banco Tai Fung
and ICBC Macau of approximately US$19 million due for settlement in
June 2021; and
iii) instalment to repay principal of the loan facility with
Hang Seng Bank of approximately US$10 million due for settlement on
19 September 2021.
An instalment to repay principal of the loan facility with Hang
Seng Bank of approximately US$70 million was due for settlement on
19 September 2020. This was refinanced on 21 September 2020 and
will mature in September 2025. It is anticipated that the Group
will be able to refinance the remaining loan facilities that are
due for settlement over the going concern period. The settlement of
these loan facilities is not dependent on the realisation of the
Group's underlying assets.
The Manager is responsible for the relationship with the Group's
lenders, monitor compliance with loan terms and covenants and
report to the Board on matters arising. Throughout the year ended
30 June 2020, the Group has continued to be in compliance with
covenant terms and made all scheduled interest payments on
time.
2. COVID-19 impact on valuation of the Group's investment
portfolio and related loan covenants
The COVID-19 outbreak has severely impacted economic and
business activities across the globe, and significantly delayed the
Group's divestment schedule. In Macau for the first quarter,
residential sales were at their lowest levels in more than a
decade, and commercial property sales hit a record low. It is
without doubt that the real estate industry in other countries is
experiencing the same issues, if not worse.
The pandemic has unfortunately created an environment where the
completion of corporate transactions has predominantly stalled.
Therefore, the Group have had to consider the effect on liquidity.
The Board have concluded that they have a reasonable expectation
that delays in scheduled realisations will be short-lived and
completed as financial markets return to a level of normality.
Future valuation losses may impact compliance with covenants
placed on the Group's loan facilities. The Group's loan facilities
have loan-to-value covenants ranging between 55% to 60% on loans
with Hang Seng Bank and ICBC Macau. The Company's current
loan-to-value ratio of each of the properties are below the
covenants per the respective facility agreements while the
Company's net borrowing level of 50% is below the overall Company
level borrowing restriction of 60%.
The Manager is responsible for the relationship with the Group's
lenders, monitor compliance with loan terms and covenants and
report to the Board on matters arising. Throughout the year ended
30 June 2020, the Group has continued to be in compliance with
covenant terms and made all scheduled interest payments on time.
The Board do however note that as at 30 June 2020, the
loan-to-value ratio for the Company's properties in One Central
Residences and The Fountainside were 57% and 41%, respectively. A
15% fall in the valuation of The Waterside and a 51% fall in the
valuation of The Fountainside from the 30 June 2020 valuation would
trigger breaches of the respective LTV covenants. The Group has
repaid HK$2.25 million (US$0.29 million) subsequent to year end and
intended to apply proceeds from disposal of the two individual One
Central Residences units to pay down loan balance of the One
Central facility to reduce the gearing. In addition the refinancing
arrangement for One Central loan facility executed on 21 September
2020 included cross guarantee provision with the loan facility of
The Fountainside, which could reduce the aggregated LTV ratio to
mitigate risk of non-compliance with the loan covenant in light of
the uncertainties caused by COVID-19 over post year end
valuations.
The overall uncertainty brought about by COVID-19 and its impact
on the valuation of the Group's investment portfolio is being
monitored closely by the Board.
3. Extension of life of the Company
The Directors, after the Ordinary Resolution was passed at the
Annual General Meeting of the Company on 29 November 2019 to extend
the Company's life until November 2020, assessed whether the
continuation vote before the end of 2020 gives rise to a material
uncertainty that might cast significant doubt about the Company's
ability to continue as a going concern. The Directors have also
considered the going concern assumption outside the primary going
concern horizon. The Directors expect to receive continuation
support from major shareholders and note that 50% of shareholder
support is required to ensure continuation. It is likely that
returns from the sale of properties would be significantly lower if
the Company was forced to sell as a result of a failed continuation
vote and it is therefore commercially sensible for the Company to
continue in business.
Going Concern Conclusion
After careful consideration and based on the reasons outlined
above, the Board are satisfied, as of today's date, that it is
appropriate to adopt the going concern basis in preparing the
financial statements and they have a reasonable expectation that
the Company will continue in existence as a going concern for 12
months from the date of signing of the Annual Report.
The future impact of COVID-19 on the valuation of the Group's
investment portfolio and related loan covenants is not known at
this time which means that there is a material uncertainty that
unforeseen consequences of COVID-19 could create significant doubt
over the ability of the Company to remain as a going concern. The
financial statements do not include any adjustments that might
result from the unknown and unquantifiable uncertainty that
exists.
Viability Statement
The Board has a robust assessment process of the principal risks
facing the Company, including those that would threaten its
business model, future performance, solvency and liquidity. The
Directors consider each of the Company's principal risks and
uncertainties during the quarterly Board meetings. The Directors
also considered the Company's policy for monitoring, managing and
mitigating its exposure to these risks. This assessment involved an
evaluation of the potential impact on the Company of these risks
occurring. Where appropriate, the Company's financial model was
subject to a sensitivity analysis involving flexing a number of key
assumptions in the underlying financial forecasts in order to
analyse the effect on the Company's net cash flows and other key
financial ratios. Tranches of the Waterside loan facility which
totalled HK$540 million were due for settlement on 19 September
2020. They were successfully refinanced and are now due to mature
in September 2025. The Board expects the other loan facilities
which mature within the next 12 months will be re-financed, that
COVID-19 will not result in the LTV's breaching loan covenants and
that the Company's life will be further extended at the 2020 Annual
General Meeting. The Board assumes that the LTV covenants will not
be breached as the 30 June 2020 market valuations already reflect
the impact of COVID-19 and it is not anticipated to further reduce
to the extent that the covenants will be impacted.
In accordance with provision 31 of the 2018 revision of the UK
Code, the Directors have assessed the prospects of the Company over
a longer period than the 12 months required by the going concern
provision. The Board has conducted this review for a period
covering the next three years including review of a comprehensive 3
years cash flow projection together with adverse scenario to stress
test the cash positions of the Company. The Board considers three
years to be an appropriate time horizon for its divestment plan,
being the period over which most of the Company's properties should
have been disposed of. This has remained the same timeframe as the
prior year due to the delay in divestment as a result of the
COVID-19 pandemic. Based on an assessment of the principal risks
facing the Company and the stress testing based assessment of the
Company's prospects, the Directors have a reasonable expectation
that the Company will be able to continue in operation (subject to
continuation vote) and meet its liabilities as they fall due over
the three-year period of their assessment.
Share capital
Ordinary Shares
The Company has one class of ordinary shares, which carries no
rights to fixed income. On a show of hands, each member - present
in person or by proxy - has the right to one vote at general
meetings. On a poll, each member is entitled to one vote for every
share held.
The Company's Memorandum and Articles of Incorporation contain
details relating to the rules that the Company has regarding the
appointment and removal of Directors or amendment to the Company's
Articles of Incorporation.
Results and dividends
The results for the year are set out in the consolidated
financial statements. There are no dividends proposed or declared
for the current year end (2019: US$nil).
Authority to purchase own shares
Following the authority first granted in the Extraordinary
General Meeting on 28 June 2010 and subsequently renewed at each
Annual General Meeting, the Board has publicly stated its
commitment to undertake share buybacks at attractive levels of
discount of the share price to Adjusted NAV. The Board intends to
renew this authority at the 2020 Annual General Meeting.
Significant shareholdings
As at 30 June 2020, a total of 8 shareholders each held more
than 3% of the issued ordinary shares of the Company, accounting
for a total of 44,128,169 shares (2019: 44,062,142) or 71.36%
(2019: 71.26%) of the issued share capital. Significant
shareholdings as at 30 June 2020 are detailed below:
Name of shareholder No. of shares %
Sniper Investments Limited 11,463,312 18.54
------------- ------
Lazard Asset Management LLC 10,153,489 16.42
------------- ------
Universities Superannuation Scheme 8,494,683 13.74
------------- ------
Apollo Multi Asset Management 3,881,312 6.28
------------- ------
Premier Miton Investors 3,225,000 5.21
------------- ------
Fidelity International 2,329,001 3.76
------------- ------
Ironsides Partners 2,292,887 3.71
------------- ------
Banque de Luxembourg 2,288,485 3.70
------------- ------
Subtotal 44,128,169 71.36
------------- ------
Others 17,707,564 28.64
------------- ------
Total 61,835,733 100.00
------------- ------
Significant shareholdings as at 25 August 2020, which is the
most up to date available, are detailed below:
Name of shareholder No. of shares %
Sniper Investments Limited 11,463,312 18.54%
------------- -------
Lazard Asset Management LLC 10,087,670 16.31%
------------- -------
Universities Superannuation Scheme 8,494,683 13.74%
------------- -------
Apollo Multi Asset Management 3,881,312 6.28%
------------- -------
Premier Miton Investors 3,134,000 5.07%
------------- -------
Fidelity International 2,475,245 4.00%
------------- -------
Ironsides Partners 2,292,887 3.71%
------------- -------
Banque de Luxembourg 2,288,485 3.70%
------------- -------
Subtotal 44,117,594 71.35%
------------- -------
Other 17,718,139 28.65%
------------- -------
Total 61,835,733 100.00%
------------- -------
Directors
Date of Date of
Name Function appointment resignation
Mark Huntley Chairman, Chairman of the Management 3 October 2018 -
Engagement Committee and the
Chairman of the Disclosure and
Communications Committee
-------------------------------------- -------------- ------------
Alan Clifton Director, Chairman of the Audit 18 May 2006 -
and Risk Committee and the Nomination
and Remuneration Committee
-------------------------------------- -------------- ------------
Wilfred Woo Director 3 January 2012 -
-------------------------------------- -------------- ------------
Thomas Ashworth Director 18 May 2006 29 November
2019
-------------------------------------- -------------- ------------
Directors' interests
Directors who held office during the year and had interests in
the shares of the Company as at 30 June 2020 were:
Ordinary Shares of US$0.01
Held at Held at
30 June 2020 30 June 2019
------------- -------------
Thomas Ashworth* N/A -
------------- -------------
Alan Clifton 80,902 80,902
------------- -------------
Wilfred Woo - -
------------- -------------
Mark Huntley 200,000 -
------------- -------------
* Thomas Ashworth has a beneficial interest in Sniper
Investments Limited, which as at the prior year held 11,341,960
shares. Thomas Ashworth was no longer a Director as at 30 June
2020.
There have been no changes to the aforementioned interests since
30 June 2020.
Non-mainstream pooled investments
The Board notes the changes to the Financial Conduct Authority
(FCA) rules ("UK Listing Rules") relating to the restrictions on
the retail distribution of unregulated collective investments
schemes and close substitutes which came into effect on 1 January
2014.
Following the receipt of legal advice, the Board confirms that
it has conducted the Company's affairs in such a manner that the
Company would have qualified for approval as an investment trust if
it was resident in the United Kingdom, and that it is the Board's
intention that the Company will continue to conduct its affairs in
such a manner. Thus, the Company is, and the Board expects it will
continue to be, outside the scope of the new restrictions and
Independent Financial Advisors (IFAs) should therefore be able to
recommend ordinary shares in the Company to retail investors in
accordance with the FCA relating to non-mainstream investment
products.
AIFM directive
The Directors have considered the impact of the EU Alternative
Investment Fund Managers Directive (no. 2011/61/EU) ("AIFM
Directive"), which was transposed into United Kingdom law on 22
July 2013 with the transitional period having ended in June 2014,
on the Company and its operations.
The Company is a non-EU domiciled Alternative Investment Fund
which does not currently intend to market its shares within Europe,
therefore the Directors consider that neither authorisation nor
registration is required.
Directors' remuneration
Directors of the Company are all non-executive and, by way of
remuneration, receive an annual fee. During the year, the Directors
received the following emoluments in the form of Directors' fees
from the Company:
2020 2019
US$ US$
------- -------
Mark Huntley* 72,092 49,007
------- -------
Alan Clifton 53,812 56,130
------- -------
Wilfred Woo 45,057 46,494
------- -------
Thomas Ashworth** - -
------- -------
Chris Russell*** - 30,492
------- -------
Total 170,961 182,123
------- -------
* Mark Huntley appointed to Board on 3 October 2018 and
appointed as Chairman on 12 November 2018.
** As disclosed in Note 19 to the consolidated financial
statements, Thomas Ashworth is a shareholder and Director of Adept
Capital Partners Services Limited, and he has a beneficial interest
in and is a Director of Sniper Capital Limited and Bela Vista
Property Services Limited, all of which received fees from the
Group during the year. Thomas Ashworth has waived his Director's
fees from the Company. Thomas Ashworth retired on 29 November
2019.
*** Chris Russell retired on 12 November 2018.
Directors' Responsibilities to Stakeholders
Section 172 of the UK Companies Act 2006 applies directly to UK
domiciled companies. Nonetheless the AIC Code requires that the
matters set out in section 172 are reported on by all companies,
irrespective of domicile.
Section 172 recognises that directors are responsible for acting
in a way that they consider, in good faith, is the most likely to
promote the success of the Company for the benefit of its
stakeholders as a whole. In doing so, they are also required to
consider the broader implications of their decisions and operations
on other key stakeholders and their impact on the wider community
and the environment. Key decisions are those that are either
material to the Company or are significant to any of the Company's
key stakeholders.
Stakeholder Group Methods of Engagement Benefits of Engagements
Shareholders
The major investors The Company engages In the financial year
in the Company's shares with its shareholders the Company issued:
are through the issue of
set out in the Significant regular portfolio updates * 4 NAV updates by way of RNS
shareholdings section. in the form of RNS announcements
and half yearly updates.
Continued shareholder * 2 half yearly updates.
support is vital to The Company provides
the in depth commentary
Company's divestment on the investment portfolio,
objectives, and therefore, corporate governance The Company, through
in line with its objectives, and corporate outlook the Manager, meets major
the Company seeks to in its semi-annual financial shareholders.
maintain shareholder statements.
satisfaction through:
In addition, the Company,
* Net asset value preservation through its Manager
undertake regular roadshows
to meet with existing
* Divestment of remaining properties, an and prospective investors
d to solicit their feedback
and understand any areas
of concern.
* Operating cost reduction
The Manager and Board
have achieved a substantial
operating cost reduction.
The Corporate Broker
has held discussions
with the five largest
shareholders who have
all indicated a willingness
to vote in favour of
a continuation of the
Company.
---------------------------------- -----------------------------------
Service Providers
The Company does not The Company's Management The Feedback given by
have any direct employees; Engagement Committee the service providers
however it works closely has identified its key is used to review the
with a number of service service providers. On Company's policies and
providers (the Manager, an annual basis it undertakes procedures to ensure
the Investment Adviser, a review of performance open lines of communication,
Administrators, Company based on a questionnaire operational efficiency
Secretary, brokers and through which it also and appropriate pricing
other professional advisers) seeks feedback. for services provided.
whose interests are
aligned to the success Furthermore, the Board
of the Company. and its sub-committees
engage regularly with
The quality and timeliness its service providers
of their service provision on a formal and informal
is critical to the success basis.
of the Company.
The Management Engagement
Committee will also
regularly review all
material contracts for
service quality and
value.
---------------------------------- -----------------------------------
Lenders
The Group has interest-bearing The Group's engagement The facilities have
loans with three banks. with its bankers is continued to operate
primarily through its throughout the year,
These facilities provides Manager who provides and no issues or concerns
the Group with the resources regular reports to the have been raised by
which can be used to banks and has an open the banks.
finance capital expenditure line of communication
or working capital and in respect of the ongoing
therefore their availability operation and maintenance
is a key component of of the facilities.
the Company's ability
to operate
---------------------------------- -----------------------------------
Tenants
The Group has rental Formal lease agreements Positive feedbacks received
paying tenants in The are executed to safeguard from residents at The
Waterside the interests of the Waterside as well as
landlord, The Waterside, from the local market.
and tenants. In addition,
top-class facilities
and quality property
management services
are provided at The
Waterside to help ensure
a comfortable stay.
---------------------------------- -----------------------------------
Community & Environment
As an Investment Company As discussed above the The ESG report provides
whose purpose is the Board actively engages further information
investment in real estate with the Company's service on the Manager's approach
in Macau, the Company's providers on a regular to this important subject.
direct engagement with basis.
the local Community
and the Environment
is limited.
---------------------------------- -----------------------------------
Change of control
There are no agreements that the Company considers significant
and to which the Company is party, that would take effect, alter or
terminate upon change of control of the Company, following a
takeover bid.
Annual General Meeting
The Annual General Meeting of the Company will be held on
November 2020 either at Floor 2, Trafalgar Court, Les Banques, St
Peter Port, Guernsey or virtually.
Independent auditors
The Audit and Risk Committee reviews the appointment of the
external auditor, its effectiveness and its relationship with the
Group, which includes monitoring the use of the Auditor for
non-audit services and the balance of audit and non-audit fees
paid. In accordance with the FRC guidance applicable to UK
Incorporated London Stock Exchange Listed companies, the audit of
the Company will be put out to tender for the year ended 30 June
2021 following the tenth year of Ernst & Young LLP's tenure as
external auditor. Each Director believes that there is no relevant
information of which the Auditor is unaware. Each has taken all
steps necessary, as a director, to be aware of any relevant audit
information and to establish that Ernst & Young LLP is made
aware of any pertinent information. This confirmation is given and
should be interpreted in accordance with the provisions of Section
249 of the Companies (Guernsey) Law, 2008.
Subsequent events
Significant subsequent events have been disclosed in Note
25.
Financial risk management policies and objectives
Financial risk management policies and objectives are disclosed
in Note 2.
Principal risks and uncertainties
Principal risks and uncertainties are discussed in the Corporate
Governance Report.
On behalf of the Board
Mark Huntley
Chairman of the Board
7 October 2020
CORPORATE GOVERNANCE REPORT
The Board has put in place a framework for corporate governance
which it believes is appropriate for an investment company.
Paragraph 9.8.6R of the UK Listing Rules obliges Boards to report
upon their corporate governance arrangements against the UK Code
issued by the Financial Reporting Council (the "FRC"). The Company
is a member of the Association of Investment Companies (the "AIC")
and the Board has considered the principles and recommendations of
the 2019 AIC's Code of Corporate Governance ("AIC Code"). The Board
considers that reporting against the principles and recommendations
of the AIC Code will provide better information to shareholders.
The FRC has provided the AIC with an endorsement letter to cover
the latest edition of the AIC Code. The endorsement confirms that
by following the AIC Code, investment company boards should fully
meet their obligations in relation to the UK Code and paragraph
9.8.6R of the UK Listing Rules.
The AIC Code is available on the AIC's website,
www.theaic.co.uk. The UK Code is available on the FRC's website,
www.frc.org.uk.
Throughout the accounting period, the Company has complied with
the recommendations of the AIC Code and thus the relevant
provisions of the UK Code, except as set out below.
The UK Code includes provisions relating to:
-- the role of the chief executive;
-- executive directors' remuneration;
-- the need for an internal audit function;
-- appointment of senior independent director; and
-- whistleblowing policy.
The Board considers that the above provisions, where practical,
have been fully adhered to but many are not currently relevant to
the position of the Company, being an internally managed investment
company, which delegates most day-to-day functions to third
parties. There are areas of governance codes which present genuine
practical challenges for a company that is both in the late stage
of life, with a clearly defined but narrow strategic objective and
where we are investing in a Jurisdiction which we cannot currently
visit. As an investment company, the Company has no employees, and
thus no whistle blowing policy is required. All Directors are
non-executive and independent of the Investment Adviser and
therefore the Directors consider the Company has no requirement for
a Chief Executive or Senior Independent Director and the Board is
satisfied that any relevant issues can be properly considered by
the Board. The absence of an internal audit function is discussed
in the Report of the Audit and Risk Committee.
The GFSC Finance Sector Code of Corporate Governance (the "GFSC
Code") came into force in Guernsey on 1 January 2012 and was
amended in February 2016. The Company is deemed to satisfy the GFSC
Code provided that it continues to conduct its governance in
accordance with the requirements of the AIC Code.
Except as disclosed below, the Company complied throughout the
year with the recommendations of the AIC Code and the relevant
provisions of the UK Code.
The Board
The Board consists of three non-executive directors, all of whom
are independent of the Company's Manager and Investment
Adviser.
Directors' details are listed under Board of Directors section,
which set out the range of investment, financial and business
skills and experience represented. Provision 14 of the AIC Code
states that a Board should consider appointing one independent
non-executive director to be the senior independent director. The
Board, having taken into account its small size and that all
directors are each similarly independent and non-executive,
considers it unnecessary to appoint a senior independent
director.
All Directors will retire annually in accordance with the AIC
Code. A retiring director shall be eligible for reappointment. No
director shall be required to vacate his office at any time by
reason of the fact that he has attained any specific age.
The Board has considered the need for a policy regarding tenure
of office and a succession plan for the retirement of existing
officers; however, the Board believes that any decisions regarding
tenure should consider the need for continuity and maintenance of
knowledge and experience and to balance this against the need to
periodically refresh board's composition and have a balance of
skills, experience, age and length of service bearing in mind the
limited expected life of the Company.
The Company has benefitted greatly from the knowledge, expertise
and skill mix of the Board as we have had to navigate through the
difficulties of the current situation. We believe it is important
to maintain the current composition. There are no concerns about
either stale behaviour or lack of vigour to deliver the Company's
strategy which require a sound understanding of the market in Macau
as well as broader experience of the real estate market: to the
contrary, the Board and Manager dynamics have been most
constructive and measured in the face of an unprecedented
challenges.
It is the intention to maintain the majority board independence
within the meaning of the AIC Code. We will commence the process of
board succession in 2021 to achieve this with a view to changes
taking place on or before the 2021 AGM.
The Board meets at least four times a year for regular scheduled
meetings and, should the nature of the activity of the Company
require it, additional meetings may be held, some at short notice.
At each meeting, the Board follows a formal agenda that covers the
business to be discussed. Since the outbreak of the COVID-19
pandemic all board meetings have been held virtually.
To fulfil the recommendation of AIC Code Provision 15 and to
give sufficient attention to strategy, the Board discusses strategy
at each of its regular scheduled meetings, but holds a separate
session annually devoted to strategy.
Between meetings, there is regular contact with the Manager and
the Administrator, and the Board requires to be supplied in a
timely manner with information by the Manager, the Company
Secretary and other advisers in a form and of a quality to enable
it to discharge its duties.
The terms and conditions of appointment of non-executive
directors are available for inspection from the Company's
registered office.
Performance and evaluation
Pursuant to Provision 26 of the AIC Code which requires a formal
and rigorous annual evaluation of its performance, the Board
formally reviews its performance annually through an internal
process. Internal evaluation of the Board, the Audit and Risk
Committee, the Nomination and Remuneration Committee, the
Management Engagement Committee, the Disclosure and Communications
Committee and individual Directors has taken the form of
self-appraisal questionnaires and discussions to determine
effectiveness and performance in various areas, as well as the
Directors' continued independence. Given the stage of life of the
Company, the Board considered it sufficient to undertake its own
evaluation rather than appointing at cost an external
facilitator.
During the year, a formal board performance appraisal was
carried out by the Nomination and Remuneration Committee. Following
review and collation of the results, the Board considered that the
overall performance of the Board during the year had been
satisfactory and that the Board is confident in its ability to
continue effectively to lead the Company and oversee its affairs.
The Board believes that the current mix of skills, experience,
knowledge and location of the Directors is appropriate to the
requirements of the Company.
Any new directors would receive an induction from the Manager as
part of the familiarisation process of candidates following
appointment. All directors receive other relevant training as
necessary.
Duties and responsibilities
The Board is responsible to shareholders for the overall
management of the Company. The Board has adopted a Schedule of
Matters Reserved for the Board which sets out the particular duties
of the Board. Such reserved powers include decisions relating to
the determination of investment policy and approval of investments,
strategy, capital raising, statutory obligations and public
disclosure, financial reporting and entering into any material
contracts by the Company.
The Directors have access to the advice and services of the
Company Secretary and Administrator, who are responsible to the
Board for ensuring that Board procedures are followed and that it
complies with Guernsey Law and applicable rules and regulations of
the GFSC and the LSE. Where necessary, in carrying out their
duties, the Directors may seek independent professional advice at
the expense of the Company. The Company maintains appropriate
Directors' and Officers' liability insurance in respect of legal
action against its Directors on an on-going basis.
The Board has responsibility for ensuring that the Company keeps
proper accounting records, which disclose with reasonable accuracy
at any time the financial position of the Company, and which enable
it to ensure that the financial statements comply with the
Companies (Guernsey) Law, 2008.
The Board has responsibility for ensuring that the Annual Report
presents a fair, balanced and understandable assessment of the
Company's position and prospects. This responsibility extends to
interim and other price-sensitive public reports.
Committees of the Board
Nomination and Remuneration Committee
Refer to the Nomination and Remuneration Committee Report
section.
Management Engagement Committee
Refer to the Management Engagement Committee Report section.
Audit and Risk Committee
Refer to the Audit and Risk Committee Report section.
Meeting Attendance
Nomination
and Management
Audit and Remuneration Engagement
Scheduled Other Risk Committee Committee Committee
Board Meeting Board Meeting Meeting Meeting Meeting
Name (max 4) (max 7) (max 3) (max 1) (max 2)
Mark Huntley 4 7 3 1 2
-------------- -------------- --------------- ------------- -----------
Thomas Ashworth* (retired
29 November 2019) 2 1 N/A - N/A
-------------- -------------- --------------- ------------- -----------
Alan Clifton 4 5 3 1 2
-------------- -------------- --------------- ------------- -----------
Wilfred Woo 4 5 3 1 2
-------------- -------------- --------------- ------------- -----------
* Thomas Ashworth was not a member of the Audit and Risk
Committee or the Management Engagement Committee.
Internal control and financial reporting
The Board is responsible for the Group's system of internal
control and for reviewing its effectiveness, and the Board has,
therefore, established a process designed to meet the particular
needs of the Group in managing the risks to which it is
exposed.
The process takes a risk-based approach to internal control
through a matrix which identifies the key functions carried out by
the Manager and other key service providers, the various activities
undertaken within those functions, the risks associated with each
activity and the controls employed to minimise those risks. A
residual risk rating is then applied. Regular reports are provided
to the Board, highlighting material changes to risk ratings and a
formal review of these procedures is carried out by the Audit and
Risk Committee and reported to the Board on an annual basis and has
been completed during the financial year. By their nature, these
procedures provide a reasonable, but not absolute, assurance
against material misstatement or loss.
At each board meeting, the Board also monitors the Group's
investment performance and activities since the last board meeting
to ensure that the Manager adheres to the agreed investment policy
and approved investment guidelines. Furthermore, at each board
meeting, the Board receives reports from the Company Secretary and
Administrator in respect of compliance matters and duties performed
on behalf of the Company.
The Board considers that an internal audit function specific to
the Group is unnecessary and that the systems and procedures
employed by the Administrator and Manager, including their own
audit functions, provide sufficient assurance that a sound system
of internal control, which safeguards the Group's assets, is
maintained. Investment advisory services are provided to the Group
by Sniper Capital (Macau) Limited. The Board is responsible for
setting the overall investment policy and monitors the action of
the Manager at regular board meetings. The Board has also delegated
administration and company secretarial services to Ocorian
Administration (Guernsey) Limited (formerly Estera International
Fund Managers (Guernsey) Limited) but retains accountability for
all functions it delegates.
Management agreement
The Company has entered into an agreement with the Manager. This
sets out the Manager's key responsibilities, which include
proposing the property investment strategy to the Board,
identifying property investments to recommend for acquisition and
arranging appropriate financing to facilitate the transaction. The
Manager is also responsible to the Board for all issues relating to
property asset management.
The Company has delegated the provision of all services to
external service providers whose work is overseen by the Management
Engagement Committee at its regular scheduled meetings. Each year,
a detailed review of performance pursuant to their terms of
engagement is undertaken by the Management Engagement
Committee.
In accordance with Listing Rule 15.6.2(2) R and having formally
appraised the performance and resources of the Manager, in the
opinion of the Directors, the continuing appointment of the
Manager, on the terms agreed, is in the interests of the
shareholders as a whole.
Relations with shareholders
The Company welcomes the views of shareholders and places great
importance on communication with its shareholders. Senior members
of the Manager are available at all reasonable times to meet with
principal shareholders and key sector analysts. The Manager,
Chairman and other Directors are not only available to meet with
shareholders, but have actively done so.
Reports on the views of shareholders are provided to the Board
on a regular basis. The Board is also kept fully informed of all
relevant market commentary on the Company by the Manager and the
Corporate Broker.
All shareholders can address their individual concerns to the
Company in writing at its registered address. The Annual General
Meeting of the Company provides a forum for shareholders to meet
and discuss issues with the Directors and the Manager. The Manager
and Board also engage with shareholders on an ongoing basis. In
addition, the Company maintains a website (www.mpofund.com) which
contains comprehensive information, including company
notifications, share information, financial reports, investment
objectives and policy, investor contacts and information on the
Board and corporate governance.
Principal risks and uncertainties
The Group's assets consist of residential property investments
in Macau. Its principal risks are therefore related to the
residential property market in general, but also the particular
circumstance of the properties in which they are invested and where
relevant, their tenants. The Manager seeks to mitigate these risks
through active asset management initiatives and carrying out due
diligence work on potential tenants before entering into any new
lease agreements. All the properties in the portfolio are
insured.
Each Director is aware of the risks inherent in the Group's
business and understands the importance of identifying and
evaluating these risks. The Board has adopted procedures and
controls that enable it to manage these risks within acceptable
limits and to meet all its legal and regulatory obligations.
For each material risk, the likelihood and consequence are
identified, management controls and frequency of monitoring are
confirmed and results are reported and discussed at board
meetings.
The Company's principal risk factors are fully discussed in the
Company's prospectus, available on the Company's website and should
be reviewed by shareholders. Note 2 further describes the Group's
risk management processes.
The principal risks and uncertainties faced by the Group are set
out below:
-- The global COVID-19 pandemic and the resulting uncertainty is
having on Macau's real estate market, the valuation of the
underlying assets and whether this could prevent the Group from
being able to realise its assets.
-- There can be no guarantee that Macau will remain the only
centre in China where gambling is legal. Changes in policies of the
government or changes in laws and regulations may result in the
legalisation of gambling in other parts of China. This, in turn,
may have an adverse effect on Macau's economy and property market
and the favourable treatment of gambling in Macau. This is an
inherent risk of investing in the Macau region and therefore cannot
be mitigated or managed by the Board.
-- The Group's loan refinancing may not be available in the
future due to reduced lending appetite from banks and a change in
market sentiment.
-- New legislation or regulations, or different or more
stringent interpretation or enforcement of existing laws or
regulations, in any jurisdiction in which the Group operates, may
have a material adverse effect on the Group's financial performance
and returns to shareholders.
-- Macau law governs the majority of the Group's agreements
which relate to property investments, property ownership rights and
securities. It cannot be guaranteed that the Group will be able to
enforce any such agreements or that remedies will be available
outside of Macau.
-- The Group's return on its investments and prospects are
subject to economic, legal, political and social developments in
Macau and China, and the Asia Pacific region in general. In
particular, the Group's return on its investments may be adversely
affected by:
-- changes in Macau's and China's political, economic and social
conditions including the short and medium term effects of
COVID-19;
-- changes in policies of the government or changes in laws and
regulations (including the revocation or modification by the
Chinese Government of Macau's SAR status and high autonomy levels),
or the interpretation of laws and regulations;
-- changes in foreign exchange rates or regulations;
-- measures that may be introduced to control inflation, such as
interest rate increases;
-- changes in the rate or method of taxation;
-- title and/or legal disputes with neighbouring land owners and
legal disputes with architects, project managers and suppliers;
and
-- changes to restrictions on or regulations concerning
repatriation of funds.
Emerging risks
Emerging risks have been identified by the Board through a
process of evaluating which of the principal risks or any
previously unidentified risks have increased materially through the
year and/or are expected to significantly grow and such evaluation
is completed at regular Board meetings. Any such emerging risks are
likely to cause disruption to the Group's business. If ignored,
there could be significant impact on the Group's financial
performance and future performance but, if recognised, they could
provide opportunities for transformation. In the current year, the
following two significant emerging risks have been identified:
-- The Group's strategic objectives, linked to a widening of the
discount and the continuation vote in the Annual General Meeting in
November 2020; and
-- Economic changes particularly associated with the COVID-19
pandemic and the political demonstrations against the government in
Hong Kong and the resultant impact upon the Macanese economy and
the resultant impact on the Macanese property market.
There is a process for identifying, evaluating and managing the
principal and emerging risks faced by the Group. This process
(which accords with the FRC's "Guidance on Risk Management,
Internal Control and Related Financial and Business Reporting") has
been regularly reviewed and has been in place throughout the
financial year and up to the date of approval of these annual
accounts.
The above principal and emerging risks are mitigated and managed
by the Board through continual review, policy setting and annual
updating of the Group's risk matrix to ensure that procedures are
in place with the intention of minimising the impact of the above
mentioned risks. The Board relies on reports periodically provided
by the Administrator and the Manager regarding risks that the Group
faces. When required, experts are employed to gather information,
including tax advisers, legal advisers and planning advisers. Some
risks are, however, beyond the Board or Managers' ability to
mitigate.
The Board relies on the Manager's close relationship with legal
professionals in Macau, Hong Kong and China to keep abreast of any
potential changes to the law and any possible impact on the Group.
The Board also regularly monitors the investment environment and
the management of the Group's property portfolio, and applies the
principles detailed in the internal control guidance issued by the
FRC. Details of the Group's internal controls are described in more
detail under the Internal Control and Financial Reporting
section.
The Group's financial risks and uncertainties are further
discussed in Note 2 to the consolidated financial statements.
On behalf of the Board
Mark Huntley
Chairman of the Board
7 October 2020
NOMINATION AND REMUNERATION COMMITTEE REPORT
Summary of the role of the Nomination and Remuneration
Committee
The Nomination and Remuneration Committee regularly reviews the
structure, size and composition (including the skills, knowledge,
gender, experience and diversity) of the Board and makes
recommendations to the Board with regard to any changes and also
considers the appropriate levels of the Board's remuneration. The
Board monitors the developments in corporate governance to ensure
the Board remains aligned with best practice. The Board
acknowledges the importance of diversity of experience, approach
and gender, for the effective functioning of a board and commits to
supporting diversity in the boardroom. The Board also values
diversity of business skills and experience because directors with
diverse skills sets, capabilities and experience gained from
different geographical backgrounds enhance the Board by bringing a
wide range of perspectives to the Company. The Board is satisfied
with the current composition and functioning of its members. It is
the Company's policy to give careful consideration to issues of the
Board's balance and diversity when appointing board members, but
its priority is to appoint based on merit, notwithstanding a strong
desire to maintain the Board's diversity. The terms of reference
are considered annually by the Nomination and Remuneration
Committee and are then referred to the Board for approval and are
available on the Company's website. The Board believes a succession
plan is not presently needed given that the Company is in the final
phase of its life.
Composition of the Nomination and Remuneration Committee
The members of the Nomination and Remuneration Committee are
listed under Directors and Company Information section.
Meetings
The Nomination and Remuneration Committee shall meet at least
once a year and otherwise as required. Meetings of the Nomination
and Remuneration Committee shall be called by the Company Secretary
at the request of the Committee Chairman. Unless otherwise agreed,
notice of each meeting confirming the venue, time and date,
together with an agenda of items to be discussed, shall be
forwarded to each member of the Nomination and Remuneration
Committee, any other person required to attend and all other
non-executive directors, no later than five working days before the
date of the meeting. Supporting papers shall be sent to the
Nomination and Remuneration Committee and to other attendees as
appropriate, at the same time. Any non-executive director who is
not considered independent will not take part in the Nomination and
Remuneration Committee's deliberations regarding remuneration
levels.
Consideration of Directors for re-election
All Directors will retire annually in accordance with the AIC
Code. A retiring director shall be eligible for reappointment. No
director shall be required to vacate his office at any time by
reason of the fact that he has attained any specific age.
The Nomination and Remuneration Committee will consider the use
of external consultants to assist with the appointment of future
directors.
Overview
The Nomination and Remuneration Committee met twice in the year
ended 30 June 2020. Matters considered at the meeting included but
were not limited to:
-- the structure, size and composition (including the balance of
skills, knowledge, experience and diversity) of the Board and Audit
and Risk Committee and the need periodically to refresh
membership;
-- to note guidance set out in the AIC Code;
-- to consider key outcomes from the Board's evaluation
process;
-- to consider Board's tenure and succession planning;
-- consideration of Directors for re-election; and
-- consideration of Directors' remuneration.
As a result of its work during the year, the Nomination and
Remuneration Committee has concluded that it has acted in
accordance with its terms of reference.
On behalf of the Nomination and Remuneration Committee
Alan Clifton
Chairman of the Nomination and Remuneration Committee
7 October 2020
MANAGEMENT ENGAGEMENT COMMITTEE REPORT
Summary of the role of the Management Engagement Committee
The Management Engagement Committee annually reviews the terms
of the Investment Management Agreement between the Company and the
Manager and review the performance and terms of engagement of any
other key service providers to the Company, as detailed in Appendix
1 of the Terms of Reference of the Committee. The terms of
reference are considered annually by the Management Engagement
Committee and are then referred to the Board for approval and are
available on the Company's website.
Composition of the Management Engagement Committee
The members of the Management Engagement Committee are listed
under the Directors and Company Information section.
Meetings
The Management Engagement Committee meets at least once a
calendar year and otherwise as required. Meetings of the Management
Engagement Committee shall be called by the Company Secretary at
the request of the Committee Chairman. Unless otherwise agreed,
notice of each meeting confirming the venue, time and date,
together with an agenda of items to be discussed, shall be
forwarded to each member of the Management Engagement Committee,
any other person required to attend and all other non-executive
directors, no later than five working days before the date of the
meeting. Supporting papers shall be sent to the Management
Engagement Committee and to other attendees as appropriate, at the
same time.
Performance of the Manager
Following discussion, it is the opinion of the Management
Engagement Committee that the performance of the Manager for the
year ended 30 June 2020 was satisfactory and the continuing
appointment of the Manager on the terms agreed is in the interests
of the shareholders as a whole.
Performance of key service providers
Following discussion, it is the opinion of the Management
Engagement Committee that the performance of key service providers
(as detailed in Appendix 1 of the Terms of Reference of the
Committee) for the year ended 30 June 2020 was satisfactory.
Overview
The Management Engagement Committee met once during the year and
as a result of its work, the Management Engagement Committee has
concluded that it has acted in accordance with its terms of
reference.
On behalf of the Management Engagement Committee
Mark Huntley
Chairman of the Management Engagement Committee
7 October 2020
AUDIT AND RISK COMMITTEE REPORT
Summary of the role of the Audit and Risk Committee
The Audit and Risk Committee is appointed by the Board from the
non-executive directors of the Company. The Audit and Risk
Committee's terms of reference include all matters indicated by
Disclosure Guidance and Transparency Rule 7.1 and the UK Code. The
terms of reference are considered annually by the Audit and Risk
Committee and are then referred to the Board for approval and are
available on the Company's website.
The Audit and Risk Committee is responsible for:
-- reviewing and monitoring the integrity of the Annual Report
and Audited Consolidated Financial Statements, the Interim Report
and Interim Condensed Consolidated Financial Statements of the
Group, and any formal announcements relating to the Group's
financial performance, and reviewing significant financial
reporting judgements contained therein;
-- reporting to the Board on the appropriateness of the
accounting policies and practices including critical accounting
policies and practices;
-- advising the Board that the annual report and accounts, taken
as a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Company's
performance, business model and strategy;
-- reviewing the Group's internal financial controls and, unless
expressly addressed by the Board itself, the Group's internal
controls and principal risks;
-- making recommendations to the Board for a resolution to be
put to the shareholders, for their approval in general meetings, on
the appointment of the external auditor and the approval of the
remuneration and terms of engagement of the external auditor;
-- reviewing and monitoring the external auditor's independence
and objectivity and the effectiveness of the audit process, taking
into consideration relevant UK professional and regulatory
requirements;
-- developing and implementing a policy on the engagement of the
external auditor to supply non-audit services, taking into account
relevant guidance regarding the provision of non-audit services by
the external audit firm;
-- reviewing the valuations of the Company's investments
prepared by the Investment Adviser, and make a recommendation to
the Board on the valuation of the Company's investments;
-- meeting the external auditor to review their proposed audit
programme of work and the subsequent audit report and to assess the
effectiveness of the audit process and the levels of fees paid in
respect of both audit and non-audit work;
-- considering annually whether there is a need for the Company
to have its own internal audit function; and
-- reviewing and considering the UK Code, the AIC Code and the
Stewardship Code.
The Audit and Risk Committee is required to report its findings
to the Board, identifying any matters on which it considers that
action or improvement is needed, and to make recommendations on the
steps to be taken.
The Audit and Risk Committee is also required to report to the
Board, identifying how it has discharged its responsibilities
during the current year.
The Board has taken note of the requirement that at least one
member of the Audit and Risk Committee should have recent and
relevant financial experience and is satisfied that the Audit and
Risk Committee is properly constituted in that respect, with all
members having relevant sector experience, and in particular, one
of its members having background as a chartered accountant.
The Audit and Risk Committee reviews the information contained
in the other sections of the Annual Report including the Directors'
Report, Chairman's Message and the Manager's Report. The
independent auditor reports by exception if the information in the
other sections of the Annual Report is materially inconsistent with
the information in the audited financial statements.
The Audit and Risk Committee is the formal forum through which
the auditor reports to the Board. The external auditor is invited
to attend the Audit and Risk Committee meetings at which the Annual
Report and Audited Consolidated Financial Statements, and at which
they have the opportunity to meet with the Audit and Risk Committee
without representatives of the Investment Adviser being present at
least once per year.
Composition of the Audit and Risk Committee
The members of the Audit and Risk Committee are:
Date of Date of
appointment resignation
Alan Clifton (Chairman) 23 May 2006 -
---------------- ------------
Wilfred Woo 27 February 2012 -
---------------- ------------
Mark Huntley 12 November 2018 -
---------------- ------------
Appointments to the Audit and Risk Committee will be for a
period of up to three years, which is extendable, depending upon
members continuing to be independent. Alan Clifton has been a
member of the Audit and Risk Committee for 14 years. However, the
Board and Audit and Risk Committee have satisfied themselves that
Alan Clifton continues to remain independent. The Board are
satisfied that Alan Clifton remains completely independent of the
Investment Manager and provides consistency and continuity in the
current realisation phase of the Company, so have previously
resolved to extend his appointment to the Audit and Risk Committee
for a further year. It is the intention to maintain the majority
board independence within the meaning of the AIC Code. We will
commence the process of board succession in 2021 to achieve this
with a view to changes taking place on or before the 2021 AGM.
Financial Reporting
The primary role of the Audit and Risk Committee in relation to
the financial reporting is to review with the Administrator,
Investment Adviser and the Auditor on the appropriateness of the
Annual Report and Audited Consolidated Financial Statements and
Interim Report, concentrating on, among other matters:
-- the quality and acceptability of accounting policies and
practices;
-- the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements;
-- material areas in which significant judgement have been
applied or there has been discussion with the Auditor;
-- whether the Annual Report and Audited Consolidated Financial
Statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for the shareholders to
assess the Company's performance, business model and strategy;
and
-- any correspondence from regulators in relation to Company's
financial reporting.
To aid its review, the Audit and Risk Committee considers
reports from the Administrators, Manager and Investment Adviser and
also reports from the Auditor on the outcomes of their annual
audit. The Audit and Risk Committee supports Ernst and Young LLP in
displaying the necessary professional scepticism their role
requires.
Significant issues considered in relation to the financial
statements
The Audit and Risk Committee has had regular contact with the
Investment Adviser and the Auditor during the year end audit
process. The Committee's discussions have been broad ranging,
including the consideration of the Company's going concern status
and key areas of judgement.
The Audit and Risk Committee is satisfied, having received
advice from professional advisers which include valuers, tax
advisers and lawyers, that these sensitivities have been
appropriately reflected and disclosed in the financial
statements.
During its review of the Group's financial statements for the
year ended 30 June 2020, the Audit and Risk Committee considered
the following significant issues:
-- material uncertainty surrounding the impact of the COVID-19
pandemic;
-- going concern and viability in relation to the continuation
vote in November 2020 and availability of loan refinancing;
-- valuation of investment properties and inventories;
-- ownership and existence of investments properties and
inventories; and
-- accounting treatment for taxes incurred in multiple
jurisdictions.
The risk relating to going concern and viability is mitigated
through communications with major shareholders, ongoing management
of cash resources, regular monitoring of compliance with loan
covenants and re-negotiation with lender banks prior to loan
maturities.
The risk relating to the valuation of investment properties and
inventories are mitigated through use of a professionally qualified
independent valuer to conduct the valuations in accordance with
current Royal Institution of Chartered Surveyors Appraisal and
Valuation Standards.
The valuation is overseen by the Investment Adviser to ensure
that the values are comparable to current market values of similar
properties. The valuation process and methodology are discussed
with the Investment Adviser regularly during the year and with the
Auditor as part of the year-end audit planning. These valuations
are reviewed, challenged and ultimately agreed by the Board, who
possesses knowledge and understanding of the markets where the
properties are situated. The Board ordinarily meets with the valuer
at least once a year. The factors that affect the value and
ownership of the investment property and inventory are further
discussed in Notes 3, 6 and 7.
The risks relating to the ownership and existence of investment
properties and inventories are mitigated through ensuring proper
title deeds for the properties are held. Asset reconciliations are
performed by the Administrator with the SPV Administrator on a
quarterly basis. Property searches showing ownership of each of the
assets are conducted to ascertain that there are no changes in
ownership.
The risk relating to taxation is mitigated through the setup of
the Group structure. When taxation queries arise, an independent
taxation adviser is employed to advise the Board on such issues.
The factors that affect the Group's taxation position are further
discussed in Note 9.
Meetings
The Audit and Risk Committee meets not less than twice a year
and at such other times as the Chairman requires. Any member of the
Audit and Risk Committee may request that a meeting be convened by
the Company Secretary. The external auditors may request that a
meeting be convened if they deem it necessary. Other Directors and
third parties may be invited by the Audit and Risk Committee to
attend meetings as and when appropriate.
Annual General Meeting
The Audit and Risk Committee Chairman, or other members of the
Audit and Risk Committee appointed for the purpose, shall attend
each Annual General Meeting of the Company, prepared to respond to
shareholders' questions on the Audit and Risk Committee's
activities.
Risk management
The Company's risk assessment process and the way in which
significant business risks are managed is a key area of focus for
the Audit and Risk Committee. The work of the Audit and Risk
Committee was driven primarily by the Company's assessment of its
principal risks and uncertainties as set out in the Corporate
Governance Report. The Audit and Risk Committee receives reports
from the Investment Adviser and Administrator on the Company's risk
evaluation process and reviews changes to principal risks
identified, including emerging risks.
Internal audit
The Audit and Risk Committee considers at least once a year
whether or not there is a need for an internal audit function.
Currently, the Audit and Risk Committee does not consider there to
be a need for an internal audit function, given that there are no
employees in the Group and all outsourced functions are with
parties/administrators who have their own internal controls and
procedures. During the year, an ISAE 3402 report was produced for
the Administrator, Ocorian Administration (Guernsey) Limited
(formerly Estera International Fund Managers (Guernsey) Limited).
The Audit and Risk Committee also considers the review of controls
of the service organisations.
During the year, the Audit and Risk Committee discussed the
planning, conduct and conclusions of the external audit as it
proceeded. At the June 2020 Audit and Risk Committee meeting, the
Committee discussed and approved the auditor's Group plan in which
they identified the Group's going concern assumption, valuation of
the investment property, carrying value of inventories and revenue
recognition as the key areas of risk of misstatement in the Group's
financial statements.
The Audit and Risk Committee discussed these issues at the June
2020 meeting to ensure that appropriate arrangements are in place
to mitigate these risks.
To fulfil its responsibility regarding the independence of the
external auditor, the Audit and Risk Committee will consider:
-- the going concern assumption;
-- discussions with or reports from the external auditor
describing its arrangements to identify, report and manage any
conflicts of interest; and
-- the extent of non-audit services provided by the external
auditor.
To assess the effectiveness of the external auditor, the Audit
and Risk Committee will review:
-- the external auditor's fulfilment of the agreed audit plan
and variations from it;
-- discussions or reports highlighting the major issues that
arose during the course of the audit; and
-- feedback from other service providers evaluating the
performance of the audit team.
Non-audit services
To safeguard the objectivity and independence of the external
auditor from becoming compromised, the Audit and Risk Committee has
a formal policy governing the engagement of the external auditor to
provide non-audit services. This precludes Ernst & Young LLP
from providing certain services, such as valuation work or the
provision of accounting services, and also sets a presumption that
Ernst & Young LLP should only be engaged for non-audit services
where Ernst & Young LLP is best placed to provide the non-audit
service, for example, the interim review service or specialist tax
advice. Please see Note 23 for details of services provided by
Ernst & Young LLP.
Overview
The Audit and Risk Committee met three times in the year ended
30 June 2020. Matters considered at these meetings included but
were not limited to:
-- consideration and agreement of the terms of reference of the
Audit and Risk Committee for approval by the Board;
-- review of the accounting policies and format of the financial
statements;
-- review of the 2019 Annual Report and Audited Consolidated
Financial Statements for the year ended 30 June 2019;
-- review of the 2019 Interim Report and Interim Condensed
Consolidated Financial Statements for the 6 months ended 31
December 2019;
-- review of the quarterly results announcement issued in May
2020;
-- review of the audit plan and timetable for the preparation of
the 2020 Annual Report and Audited Consolidated Financial
Statements;
-- discussions and approval of the fee for the external
audit;
-- assessment of the effectiveness of the external audit process
as described above; and
-- review of the Company's principal risks, emerging risks and
internal controls.
As a result of its work during the year, the Audit and Risk
Committee has concluded that it has acted in accordance with its
terms of reference and has ensured the independence and objectivity
of the external auditor. The Audit and Risk Committee has
recommended to the Board that the Annual Report and Financial
Statements are considered to be fair, balanced and understandable.
The Audit and Risk Committee has recommended to the Board that the
external audit is put to tender in accordance with the FCA guidance
applicable to UK Incorporated London Stock Exchange listed
companies and the Board's recommendation will be contained in the
AGM Notice.
On behalf of the Audit and Risk Committee
Alan Clifton
Chairman of the Audit and Risk Committee
7 October 2020
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the annual report
and accounts in accordance with applicable laws and regulations.
The Companies (Guernsey) Law, 2008 requires the Directors to
prepare financial statements for each financial year. The Directors
prepare the Group's financial statements in accordance with
International Financial Reporting Standards as adopted by the
European Union ("IFRS"). Under Company Law, the Directors must not
approve the accounts unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and of the
financial performance and cash flows of the Group for that period.
In preparing these Group's financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgements that are reasonable and prudent;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRS are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Group's financial position and financial
performance;
-- state that the Group has complied with IFRS, subject to any
material departures disclosed and explained in the Group's
financial statements; and
-- prepare the Group's financial statements on a going concern
basis unless it is inappropriate to presume that the Group will
continue in business.
The Directors confirm that they have complied with the above
requirements in preparing the Group's financial statements.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy, at any time,
the financial position of the Company and which enable them to
ensure that the financial statements comply with the Companies
(Guernsey) Law, 2008. They are also responsible for safeguarding
the assets of the Company and hence, for taking reasonable steps
for the prevention and detection of fraud and other
irregularities.
The maintenance and integrity of the Company's website
(www.mpofund.com) is the responsibility of the Directors. The work
carried out by the Auditor does not involve consideration of these
matters and, accordingly, the Auditor accepts no responsibility for
any changes that may have occurred to the financial statements
since they were initially presented on the website.
Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
All companies with a Premium Listing of equity shares in the UK
are required under the Listing Rules to report on how they have
applied the UK Code in their annual report and financial
statements.
Responsibility Statement of the Directors in respect of the
Annual Report and Accounts
Each of the Directors, whose names are set out under the Board
of Directors section of the Annual Report, confirms that, to the
best of their knowledge and belief that:
Directors' statement under the Disclosure and Transparency
Rules
-- The Group's financial statements, prepared in accordance with
IFRS, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole.
-- The management report, which is incorporated into the
Directors' Report, Manager's Report and Chairman's Message
contained in the Annual Report, includes a fair review of the
development and performance of the business and of the position of
the Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties they face.
Directors' statement under the UK Corporate Governance Code
-- The Directors are responsible for preparing the Annual Report
and Group's financial statements in accordance with applicable law
and regulations. Having taken advice from the Audit and Risk
Committee, the Directors consider the Annual Report and Group's
Financial Statements, taken as a whole, as fair, balanced and
understandable and that it provides the information necessary for
shareholders to assess the Group's performance, business model and
strategy.
On behalf of the Board
Mark Huntley
Chairman of the Board
7 October 2020
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF
MACAU PROPERTY OPPORTUNITIES FUND LIMITED
Opinion
We have audited the Financial Statements of Macau Property
Opportunities Fund Limited (the 'Company') and its subsidiaries
(together the 'Group') for the year ended 30 June 2020 which
comprise of the Consolidated Statement of Financial Position, the
Consolidated Statement of Comprehensive Income, the Consolidated
Statement of Changes in Equity, the Consolidated Statement of Cash
Flows and the related notes 1 to 25, including a summary of
significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and
International Financial Reporting Standards as adopted by the
European Union.
In our opinion, the financial statements:
-- give a true and fair view of the state of the Group's affairs
as at 30 June 2020 and of its loss for the year then ended;
-- have been properly prepared in accordance with International
Financial Reporting Standards ('IFRS') as adopted by European
Union; and
-- have been properly prepared in accordance with the
requirements of the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) ('ISAS (UK)') and applicable law. Our
responsibilities under those standards are further described in the
"Auditor's responsibilities for the audit of the Financial
Statements" section of our report below. We are independent of the
Group in accordance with the ethical requirements that are relevant
to our audit of the Financial Statements in the UK, including the
FRC's Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Material uncertainty related to Going Concern
We draw your attention to Note 1 in the Financial Statements,
which states that there is a material uncertainty which casts
significant doubt over the ability of the Group to continue as a
going concern in relation to the ongoing impact of COVID-19 on the
valuation of the Group's investment portfolio and hence its
compliance with the related loan covenants. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.
We describe below how our audit responded to the risk relating
to going concern:
1. The audit engagement partner increased his time directing and
supervising the audit procedures on going concern;
2. We have assessed the determination made by the Board of
Directors that the Group is a going concern and challenged the key
assumptions and checked arithmetical accuracy in the cash flow
forecasts checking the details against the supporting documents
(e.g. loan agreements, minutes of meeting) obtained from our audit
work;
3. We have discussed with management their meetings with the
principal shareholders and obtained supporting documentation
regarding their intention to vote in the forth-coming continuation
vote;
4. We engaged our own internal valuation specialists from Hong
Kong and London to corroborate the disclosed fair values of
investment property and inventory properties and confirmed that the
valuations are within the acceptable range;
5. We have obtained and read loan agreements, checked the
calculation of the covenant compliance for the loans, including the
adherence to minimum Loan-to-Value ratio. We also have obtained and
read the re-financing loan agreements made subsequent to year-end
for the extension of loans classified as current liabilities at
year-end;
6. We have read the board minutes with a view of identifying any
matters which may impact on the going concern assessment; and
7. We assessed the disclosures in the Annual Report and
Financial Statements relating to going concern, including the
material uncertainty, to ensure they were fair, balanced and
understandable and in compliance with IAS 1.
We draw attention to the viability statement in the Annual
Report, which indicates that the key assumptions to the statement
of viability are that the Board assumes that the LTV covenants will
not be breached as the 30 June 2020 market valuations already
reflects the impact of COVID-19 and it is not anticipated to
further reduce to the extent that the covenants will be impacted.
The Directors consider that the material uncertainty referred to in
respect of going concern may cast significant doubt over the future
viability of the Company should these not be correct.
Our opinion is not modified in respect of this matter.
Conclusions relating to principal risks, going concern and
viability statement
Aside from the impact of the matters disclosed in the material
uncertainties related to going concern section, we have nothing to
report in respect of the following information in the Annual
Report, in relation to which the ISAS (UK) require us to report to
you whether we have anything material to add or draw attention
to:
-- the disclosures in the Annual Report that describe the
principal risks and explain how they are being managed or
mitigated;
-- the Directors' confirmation set out in the Annual Report that
they have carried out a robust assessment of the principal risks
facing the entity, including those that would threaten its business
model, future performance, solvency or liquidity;
-- whether the Directors' statement set out in the Annual Report
in relation to going concern and their assessment of the prospects
of the Company required under the Listing Rules is materially
inconsistent with our knowledge obtained in the audit; or
-- the Directors' explanation set out in the Annual Report as to
how they have assessed the prospects of the entity, over what
period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the entity will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Overview of our audit approach
Key audit matters
* Fair valuation of investment property
* Carrying value of inventories
* Recognition of rental income and income on sale
* of inventories
Audit scope
* We performed an audit of the complete financial
information of the Group.
---------------------------------------------------------------
Materiality
* Overall Group materiality of $1.03m (2019: $1.3m)
which represents 1% (2019: 1%) of Net Asset Value
("NAV").
---------------------------------------------------------------
What has changed
* Our scope of work remained the same as compared to
the previous year and as communicated during our
planning meeting.
---------------------------------------------------------------
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the Financial
Statements of the current year. In addition to the matters
described in the 'Material Uncertainty Related to Going Concern'
section, we have determined the matters described below to be the
key audit matters to be communicated in our report. These matters
were addressed in the context of our audit of the Financial
Statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. For each matter
below, our description of how our audit addressed the matter is
provided in that context.
We have fulfilled the responsibilities described in the
Auditor's responsibilities for the audit of the Financial
Statements section of our report, including in relation to these
matters. Accordingly, our audit included the performance of
procedures designed to respond to our assessment of the risks of
material misstatement of the Financial Statements. The results of
our audit procedures, including the procedures performed to address
the matters below, provide the basis for our audit opinion on the
accompanying Financial Statements.
Risk Our response to the risk Key observations
communicated to
the Audit Committee
-------------------------- ----------------------------------------------------------------- -------------------
Fair valuation of We performed full scope audit We confirmed that
investment property procedures over the valuation there were no
($200.0m; 2019: 225.9m) of the investment property. Audit material
procedures performed by component matters arising
Refer to the Audit audit team are based on instructions from our audit work
and Risk Committee issued by the Group audit team. on the inputs used
Report; Accounting Those procedures are described and the judgments
policies ; and Note below: made by Specialists
6 of the Consolidated that we wished to
Financial Statements * We documented our understanding of the processes and bring to the
performed walkthrough tests to confirm our attention
The valuation of understanding of the systems and controls of the Audit
investment implemented; Committee.
property is the key
driver of the Group's We confirmed that
net asset value and valuation of the
total return. Valuation * We agreed the valuations recorded in the consolidated investment property
of the investment financial statements to the value reported by the is within the
property requires management's independent specialists (the acceptable
specialist expertise "Specialists"); range and not
and the use of significant materially
estimates and judgements misstated.
giving rise to a higher
risk of misstatement. * We agreed the significant inputs in the valuation
that were sourced from tenancy agreements to a sample
of individual tenancy agreements and agreed the other
significant inputs from the Specialist market
research data;
* We tested the calculation of the loss on revaluation
for the year and verified that the recording and
reporting of these amounts was in compliance with
IFRS as adopted by the EU;
* We engaged our own internal valuation specialists
(from Hong Kong and London) to:
* verify whether the valuation methodology used was
consistent with valuation market practice and
appropriate under the circumstances by ensuring that
the recorded fair value is within the acceptable
range of values calculated by our real estate
specialists;
* use their knowledge of the market to compare and
corroborate the market related judgements and
valuation inputs (including discount rates, exit
yields and sales values) used by the Specialists; and
* assist us in determining whether the Specialists were
appropriately qualified and independent.
-------------------------- ----------------------------------------------------------------- -------------------
Carrying value of We performed full scope audit We confirmed that
inventory properties procedures over the valuation there were no
($39.6m 2019: $41.5m) of inventory properties. Audit material
procedures performed by component matters arising
Refer to the Audit audit team are based on instructions from our audit work
Committee Report; issued by the Group audit team. on the inputs used
Accounting policies; Those procedures are described and the judgments
and Note 7 of the below: made by the
Consolidated Financial Specialists
Statements * We documented our understanding of the processes for that we wished to
valuing inventory properties and performed bring to the
Inventory properties walkthrough tests to confirm our understanding of the attention
are stated at lower systems and controls implemented; of the Audit
of cos and net realisable Committee.
value. The valuation
of inventory properties We confirmed that
is the key driver * We agreed a sample of the significant inputs used by valuation of
to determine the net the Specialists to value the properties, inventory
realisable value of properties are
properties. within
acceptable range
Valuation of property * We have agreed additions and disposals of inventories carrying value
requires specialist to the general ledger and tested individual items inventory
expertise and the above our testing threshold; properties not
use of significant materially
estimates and judgements misstated.
giving rise to a higher
risk of misstatement. * We checked fair value was greater than cost. We have
not identified any inventory properties that have a
risk of impairment; and
* We engaged our own internal valuation specialists
from Hong Kong and London to corroborate the
disclosed fair values of inventory properties by:
* using their knowledge of the market to compare and
corroborate the market related judgements and
valuation inputs (including discount rates, exit
yields and sales values) used by the Specialists; and
* assisting us in determining whether the Specialists
were appropriately qualified and independent.
-------------------------- ----------------------------------------------------------------- -------------------
Recognition of rental Rental income We confirmed that
income ($2.6m; * We have agreed a sample of tenancy agreements there were no
2019:$2.8m)/Income selected based on our testing threshold to amounts matters
on sale of inventories recorded as rental income in the general ledger and identified during
($4.6m; 2019: $1.2m) from the general ledger to tenancy agreements; our audit work on
revenue recognition
Refer to the Audit that we wished to
Committee Report; bring to the
Accounting policies; * Performed analytical procedures on rental income to attention
and Note 6 and 7 of identify any inconsistencies in rental income of the Audit
the Consolidated Financial patterns or rent holiday periods; and Committee.
Statements
We confirmed that
Management may seek revenue from rental
to overstate revenue * Determined that the accounting policy for rental income and on
generated from rental income was in compliance with IFRS as adopted by the disposal
income by changing EU. of properties was
the timing of revenue recognised in
recognition and on accordance
disposal of inventory with IFRS as
properties by overstating Income on sale of inventories adopted
the selling price * We have re-performed calculations of the realised in the EU.
or lowering the cost gain on disposal of properties by taking the selling
of sales as it is price from final sales and purchase agreements and
a significant metric cost of properties sold from allocation schedule and
and indicator of the underlying supporting documents and checked that the
Group's return giving resulting gain/(loss) of properties agrees to the
rise to a higher risk recorded gain/(loss) in the general ledger. We also
of misstatement. vouched the proceeds to the bank statements.
-------------------------- ----------------------------------------------------------------- -------------------
In current year, there are no changes in key audit matters
reported in prior year except for material uncertainty related to
going concern.
An overview of the scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit scope
for each entity within the Group. This enables us to form an
opinion on the Financial Statements. In assessing the risk of
material misstatement to the Group financial statements, and to
ensure we had adequate quantitative coverage of significant
accounts in the financial statements, we performed an audit of the
complete financial information of all components covering entities
within Macau, Hong Kong, BVI and the Channel Islands which
represent all business units of the Group.
The audit team comprised individuals from the Channel Islands
("Group audit team") and Hong Kong ("Component audit team") and we
operated as an integrated team across both jurisdictions. We
performed the audit procedures and responded to the risks
identified as described below.
Changes from the prior year
There has been no change in scope of our audit from prior
year.
Team structure
The overall audit strategy is determined by the audit partner
who is based in the Channel Islands. Since the Group's operations
are principally located in Hong Kong/Macau, the audit team includes
EY team members from Hong Kong.
Involvement with component team
We identified the risks of material misstatement described above
as those that had the greatest effect on our overall audit
strategy, the allocation of resources in the audit and the
direction of the efforts of the audit team. In addressing these
risks, we have performed the procedures above which were designed
in the context of the financial statements as a whole and,
consequently, we do not express any opinion on these individual
areas.
In establishing our overall approach to the Group audit, we
determined the type of work that needed to be undertaken at each of
the components by the Group audit team, or by the component audit
team from other EY global network firms operating under our
instruction. We determined the appropriate level of involvement to
enable us to determine that sufficient audit evidence had been
obtained as a basis for our opinion on the Group as a whole.
The Group audit team, assisted by our real estate specialists in
Hong Kong and London, performed procedures on the valuations of the
Group's investment property and inventories.
The Group audit team interacted regularly with the component
team in Hong Kong where appropriate during various stages of the
audit, reviewed key working papers and were responsible for the
scope and direction of the audit process. This, together with the
additional procedures performed at the Group level, gave us
appropriate audit evidence for our opinion on the Group financial
statements.
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
"Materiality" is the magnitude of omissions or misstatements
that, individually or in aggregate, could reasonably be expected to
influence the economic decisions of the users of the financial
statements. Materiality provides a basis for determining the nature
and extent of our audit procedures.
We determined planning materiality for the Company to be $1.03
million (2019: $1.3 million), which is 1% (2019: 1%) of NAV. We
believe that NAV provides us with an appropriate basis for audit
materiality as it is a key published performance measure and is a
key metric used by management in assessing and reporting on overall
performance.
It was considered inappropriate to determine materiality based
on the Group's NAV as this is the primary performance measures of
the Group for internal and external reporting.
Performance materiality
"Performance materiality" is the application of materiality at
the individual account or balance level. It is set at an amount to
reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds
materiality.
Based on our risk assessment, together with our assessment of
the Group's overall control environment, our judgement was that
overall performance materiality (i.e. our tolerance for
misstatement in an individual account or balance) for the Group
should be 50% of materiality, namely $0.5 million (2019: 75% of
materiality, namely $1.0 million). There is a change in percentage
from prior year as a result of higher engagement risk.
Reporting threshold
"Reporting threshold" is an amount below which identified
misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of $51,000 (2019:
$66,000) which is set at 5% of planning materiality, as well as
differences below that threshold that, in our view, warranted
reporting on qualitative grounds.
We evaluated any uncorrected misstatements against both the
quantitative measures of materiality discussed above and
considering other relevant qualitative considerations in forming
our opinion.
Other information
The other information comprises the information included in the
Annual Report, including the Manager's Report, Directors' Report
and Corporate Governance Report, other than the financial
statements and our auditor's report thereon. The directors are
responsible for the other information.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the Financial Statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether there
is a material misstatement in the financial statements or a
material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material
misstatement of the other information, we are required to report
that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report regarding our
responsibility to specifically address the following items in the
other information and to report as uncorrected material
misstatements of the other information where we conclude that those
items meet the following conditions:
-- Fair, balanced and understandable set out in the Statement of
Directors' Responsibilities - the statement given by the Directors
that they consider the Annual Report and financial statements taken
as a whole is fair, balanced and understandable and provides the
information necessary for Shareholders to assess the Company's
performance, business model and strategy, is materially
inconsistent with our knowledge obtained in the audit; or
-- Audit committee reporting set out in the Audit and Risk
Committee Report - the section describing the work of the audit
committee does not appropriately address matters communicated by us
to the audit committee; or
-- Directors' statement of compliance with the UK Corporate
Governance Code set out in the Statement of Directors'
Responsibilities - the parts of the Directors' statement required
under the Listing Rules relating to the Company's compliance with
the UK Corporate Governance Code containing provisions specified
for review by the auditor in accordance with Listing Rule 9.8. IOR
(2) do not properly disclose a departure from a relevant provision
of the UK Corporate Governance Code.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in
relation to which the Companies (Guernsey) Law, 2008 requires us to
report to you if, in our opinion:
-- proper accounting records have not been kept by the Company;
or
-- the financial statements are not in agreement with the
Company's accounting records and returns; or
-- we have not received all the information and explanations we
require for our audit.
Responsibilities of directors
As explained more fully in the Directors' Responsibilities
Statement, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the Financial Statements, the Directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the Financial Statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor's report.
Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Andrew Jonathan Dann, FCA
For and on behalf of Ernst & Young LLP
Guernsey, Channel Islands
7 October 2020
Notes:
1. The maintenance and integrity of the Company's website is the
sole responsibility of the Directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditor accepts no responsibility for any changes
that may have occurred to the Financial Statements since they were
initially presented on the website.
2. Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2020
2020 2019
Note US$'000 US$'000
---- ------- -------
ASSETS
---- ------- -------
Non-current assets
---- ------- -------
Investment property 6 199,988 225,885
---- ------- -------
Deposits with lenders 21 4,278 1,608
---- ------- -------
Trade and other receivables 111 110
---- ------- -------
204,377 227,603
---- ------- -------
Current assets
---- ------- -------
Inventories 7 39,631 41,453
---- ------- -------
Trade and other receivables 10 366 192
---- ------- -------
Deposits with lenders 21 175 235
---- ------- -------
Cash and cash equivalents 16,078 26,980
---- ------- -------
56,250 68,860
---- ------- -------
Total assets 260,627 296,463
---- ------- -------
EQUITY
---- ------- -------
Capital and reserves attributable to the Company's
equity holders
---- ------- -------
Share capital 12 618 618
---- ------- -------
Retained earnings 83,916 115,438
---- ------- -------
Distributable reserves 15,791 15,791
---- ------- -------
Foreign currency translation reserve 251 (788)
---- ------- -------
Total equity 100,576 131,059
---- ------- -------
LIABILITIES
---- ------- -------
Non-current liabilities
---- ------- -------
Deferred taxation provision 9 11,837 15,083
---- ------- -------
Taxation provision 9 533 804
---- ------- -------
Interest-bearing loans 8 47,102 123,855
---- ------- -------
59,472 139,742
---- ------- -------
Current liabilities
---- ------- -------
Trade and other payables 11 1,285 2,286
---- ------- -------
Interest-bearing loans 8 99,294 23,376
---- ------- -------
100,579 25,662
---- ------- -------
Total liabilities 160,051 165,404
---- ------- -------
Total equity and liabilities 260,627 296,463
---- ------- -------
Net Asset Value per share (US$) 18 1.63 2.12
---- ------- -------
Adjusted Net Asset Value per share (US$) 18 2.21 2.83
---- ------- -------
The accompanying notes are an integral part of these
consolidated financial statements.
The consolidated financial statements were approved by the Board
of Directors and authorised for issue on 7 October 2020.
Director Director
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 30 June 2020
2020 2019
Note US$'000 US$'000
---- -------- --------
Income
---- -------- --------
Income on sale of inventories 7 4,620 1,183
---- -------- --------
Rental income 2,606 2,770
---- -------- --------
Other income - 5
---- -------- --------
7,226 3,958
---- -------- --------
Expenses
---- -------- --------
Net loss from fair value adjustment on investment
property 6 27,924 24,357
---- -------- --------
Cost of sales of inventories 7 2,692 542
---- -------- --------
Management fee 20 2,668 4,491
---- -------- --------
Non-Executive Directors' fees 19 177 189
---- -------- --------
Auditors' remuneration: audit fees 23 100 108
---- -------- --------
Auditors' remuneration: non-audit fees 23 8 -
---- -------- --------
Property operating expenses 15 1,388 1,297
---- -------- --------
Sales and marketing expenses 16 517 168
---- -------- --------
General and administration expenses 13 681 832
---- -------- --------
Loss on foreign currency translation 159 49
---- -------- --------
(36,314) (32,033)
---- -------- --------
Operating loss for the year (29,088) (28,075)
---- -------- --------
Finance income and expenses
---- -------- --------
Bank loan interest (5,690) (6,514)
---- -------- --------
Other financing costs 14 (328) (324)
---- -------- --------
Bank and other interest 26 29
---- -------- --------
(5,992) (6,809)
---- -------- --------
Loss for the year before tax (35,080) (34,884)
---- -------- --------
Taxation 9 3,558 3,013
---- -------- --------
Loss for the year after tax (31,522) (31,871)
---- -------- --------
Items that may be reclassified subsequently to
profit or loss
---- -------- --------
Exchange difference on translating foreign operations 1,039 719
---- -------- --------
Total comprehensive loss for the year (30,483) (31,152)
---- -------- --------
Loss attributable to:
---- -------- --------
Equity holders of the Company (31,522) (31,871)
---- -------- --------
Total comprehensive loss attributable to:
---- -------- --------
Equity holders of the Company (30,483) (31,152)
---- -------- --------
2020 2019
---- -------- --------
US$ US$
---- -------- --------
Basic and diluted loss per ordinary share attributable
to the equity holders of the Company during the
year 18 (0.5098) (0.5124)
---- -------- --------
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 30 June 2020
Foreign
currency
Share Retained Distributable translation
capital earnings reserves reserve Total
Note US$'000 US$'000 US$'000 US$'000 US$'000
---- -------- --------- ------------- ------------ --------
Balance brought forward at 1 July
2019 12 618 115,438 15,791 (788) 131,059
---- -------- --------- ------------- ------------ --------
Loss for the year - (31,522) - - (31,522)
---- -------- --------- ------------- ------------ --------
Items that may be reclassified
subsequently to profit or loss
----------------------------------- ---- -------- --------- ------------- ------------ --------
Exchange difference on translating
foreign operations - - - 1,039 1,039
----------------------------------- ---- -------- --------- ------------- ------------ --------
Total comprehensive loss for the
year - (31,522) - 1,039 (30,483)
---- -------- --------- ------------- ------------ --------
Balance carried forward at 30 June
2020 12 618 83,916 15,791 251 100,576
---- -------- --------- ------------- ------------ --------
Foreign
currency
Share Retained Distributable translation
capital earnings reserves reserve Total
Note US$'000 US$'000 US$'000 US$'000 US$'000
---- -------- --------- ------------- ------------ --------
Balance brought forward at 1 July
2018 12 764 147,309 66,208 (1,507) 212,774
---- -------- --------- ------------- ------------ --------
Loss for the year - (31,871) - - (31,871)
---- -------- --------- ------------- ------------ --------
Items that may be reclassified
subsequently to profit or loss
---- -------- --------- ------------- ------------ --------
Exchange difference on translating
foreign operations - - - 719 719
---- -------- --------- ------------- ------------ --------
Total comprehensive loss for the
year - (31,871) - 719 (31,152)
---- -------- --------- ------------- ------------ --------
Share buy back 12 (146) - (50,417) - (50,563)
---- -------- --------- ------------- ------------ --------
Balance carried forward at 30 June
2019 12 618 115,438 15,791 (788) 131,059
---- -------- --------- ------------- ------------ --------
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 30 June 2020
2020 2019
Note US$'000 US$'000
---- -------- --------
Net cash generated from/(used in) operating activities 17 768 (1,965)
---- -------- --------
Cash flows from investing activities
---- -------- --------
Capital expenditure on investment property 6 (340) (502)
---- -------- --------
Movement in pledged bank balances (2,610) 5,076
---- -------- --------
Net cash (used in)/generated from investing activities (2,950) 4,574
---- -------- --------
Cash flows from financing activities
---- -------- --------
Proceeds from bank borrowings 11,478 10,239
---- -------- --------
Repayment of bank borrowings (13,679) (11,059)
---- -------- --------
Share buy back - (50,563)
---- -------- --------
Interest and bank charges paid (6,686) (5,738)
---- -------- --------
Net cash used in financing activities (8,887) (57,121)
---- -------- --------
Net movement in cash and cash equivalents (11,069) (54,512)
---- -------- --------
Cash and cash equivalents at beginning of year 26,980 81,290
---- -------- --------
Effect of foreign exchange rate changes 167 202
---- -------- --------
Cash and cash equivalents at end of year 16,078 26,980
---- -------- --------
The accompanying notes are an integral part of these
consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
General information
Macau Property Opportunities Fund Limited (the "Company") is a
Company incorporated and registered in Guernsey under The Companies
(Guernsey) Law, 1994. This law was replaced by the Companies
(Guernsey) Law, 2008 on 1 July 2008. The Company is an authorised
entity under the Authorised Closed-Ended Investment Schemes Rules
2008 and is regulated by the GFSC. The address of the registered
office is given on Directors and Company Information.
The consolidated financial statements for the year ended 30 June
2020 comprise the financial statements of the Company and its
subsidiaries (together referred to as the "Group"). The Group has
investments in residential property in Macau.
These consolidated financial statements have been approved for
issue by the Board of Directors on 7 October 2020.
1 Summary of significant accounting policies
The principal accounting policies applied in the preparation of
these consolidated financial statements are set out below. These
policies have been consistently applied to all years presented,
unless otherwise stated.
Statement of compliance
The financial statements have been prepared in accordance with
the International Financial Reporting Standards as adopted by the
European Union, which comprise standards and interpretations
approved by the International Accounting Standards Board, together
with applicable legal and regulatory requirements of Guernsey Law
and the GFSC.
Basis of preparation
The consolidated financial statements have been prepared in
accordance with IFRS; applicable legal and regulatory requirements
of Guernsey Law and under the historical cost basis, except for
financial assets and liabilities held at fair value through profit
or loss ("FVPL") and investment properties that have been measured
at fair value.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the financial
statements, are disclosed in Note 3. The consolidated financial
statements are presented in US Dollars and all values are rounded
to the nearest thousand ($'000), except where otherwise
indicated.
Going Concern
The financial risk management objectives and policies of the
Group and the exposure of the Group to credit risk, market risk and
liquidity risk are discussed in Note 2 to the consolidated
financial statements.
A fundamental principle of the preparation of financial
statements in accordance with IFRS, the Directors have assessed as
to whether the Company will continue in existence as a going
concern for a period of at least 12 months from signing of the
financial statements, which contemplates continuity of operations
and the realisation of assets and settlement of liabilities
occurring in the ordinary course of business.
The financial statements have been prepared on a going concern
basis for the reasons set out below and as the Directors, with
recommendation from the Audit and Risk Committee, have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future.
In reaching its conclusion, the Board have considered the risks
that could impact the Group's liquidity over the period to 31
October 2021. This period represents the required period of 12
months from the date of signing of the Annual Report.
As part of their assessment the Audit Committee highlighted the
following key considerations:
1. Whether the Group can refinance its loan facilities to
discharge its liabilities over the period to 31 October 2021
2. COVID-19 impact on valuation of the Group's investment
portfolio and related loan covenants
3. Extension of life of the Company
1. Whether, the Group can refinance its loan facilities to
discharge its liabilities over the period to 31 October 2021
The Group has several major debt obligations to settle during
the going concern period being:
i) instalment to repay principal of the loan facility with Hang
Seng Bank of approximately US$10 million due for settlement on 19
March 2021;
ii) full repayment of the loan facilities with Banco Tai Fung
and ICBC Macau of approximately US$19 million due for settlement in
June 2021; and
iii) instalment to repay principal of the loan facility with
Hang Seng Bank of approximately US$10 million due for settlement on
19 September 2021.
An instalment to repay principal of the loan facility with Hang
Seng Bank of approximately US$70 million was due for settlement on
19 September 2020. This was refinanced on 21 September 2020 and
will mature in September 2025. It is anticipated that the Group
will be able to refinance the remaining loan facilities that are
due for settlement over the going concern period and that these are
not dependent upon the realisation of the Group's underlying assets
in order to settle these amounts.
The Manager is responsible for the relationship with the Group's
lenders, monitor compliance with loan terms and covenants and
report to the Board on matters arising. Throughout the year ended
30 June 2020, the Group has continued to be in compliance with
covenant terms and made all scheduled interest payments on
time.
2. COVID-19 impact on valuation of the Group's investment
portfolio and related loan covenants
The COVID-19 outbreak has severely impacted economic and
business activities across the globe, and significantly delayed the
Group's divestment schedule. In Macau for the first quarter,
residential sales were at their lowest levels in more than a
decade, and commercial property sales hit a record low. It is
without doubt that the real estate industry in other countries is
experiencing the same issues, if not worse.
The pandemic has unfortunately created an environment where the
completion of corporate transactions has predominantly stalled.
Therefore, the Group have had to consider the effect on liquidity.
The Board have concluded that they have a reasonable expectation
that delays in scheduled realisations will be short-lived and
completed as financial markets return to a level of normality.
Future valuation losses may impact compliance with covenants
placed on the Group's loan facilities. The Group's loan facilities
have loan-to-value covenants ranging between 55% to 60% on loans
with Hang Seng Bank and ICBC Macau. The Company's current
loan-to-value ratio of each of the properties are below the
covenants per the respective facility agreements while the
Company's net borrowing level of 50% is below the overall Company
level borrowing restriction of 60%.
The Manager is responsible for the relationship with the Group's
lenders, monitor compliance with loan terms and covenants and
report to the Board on matters arising. Throughout the year ended
30 June 2020, the Group has continued to be in compliance with
covenant terms and made all scheduled interest payments on time.
The Board do however note that as at 30 June 2020, the
loan-to-value ratio for the Company's properties in One Central
Residences and The Fountainside were 57% and 41%, respectively. A
15% fall in the valuation of The Waterside and a 51% fall in the
valuation of The Fountainside from the 30 June 2020 valuation would
trigger breaches of the respective LTV covenants. The Group has
repaid HK$2.25 million (US$0.29 million) subsequent to year end and
intended to apply proceeds from disposal of the two individual One
Central Residences units to pay down loan balance of the One
Central facility to reduce the gearing. In addition the refinancing
arrangement for One Central loan facility executed on 21 September
2020 included cross guarantee provision with the loan facility of
The Fountainside, which could reduce the aggregated LTV ratio to
mitigate risk of non-compliance with the loan covenant in light of
the uncertainties caused by COVID-19 over post year end
valuations.
The overall uncertainty brought about by COVID-19 and its impact
on the valuation of the Group's investment portfolio is being
monitored closely by the Board.
3. Extension of life of the Company
The Directors, after the Ordinary Resolution was passed at the
Annual General Meeting of the Company on 29 November 2019 to extend
the Company's life until November 2020, assessed whether the
continuation vote before the end of 2020 gives rise to a material
uncertainty that might cast significant doubt about the Company's
ability to continue as a going concern. The Directors have also
considered the going concern assumption outside the primary going
concern horizon. The Directors expect to receive continuation
support from major shareholders and note that 50% of shareholder
support is required to ensure continuation. It is likely that
returns from the sale of properties would be significantly lower if
the Company was forced to sell as a result of a failed continuation
vote and it is therefore commercially sensible for the Company to
continue in business.
Going Concern Conclusion
After careful consideration and based on the reasons outlined
above, the Board are satisfied, as of today's date, that it is
appropriate to adopt the going concern basis in preparing the
financial statements and they have a reasonable expectation that
the Company will continue in existence as a going concern for 12
months from the date of signing of the Annual Report.
The future impact of COVID-19 on the valuation of the Group's
investment portfolio and related loan covenants is not known at
this time which means that there is a material uncertainty that
unforeseen consequences of COVID-19 could create significant doubt
over the ability of the Company to remain as a going concern. The
financial statements do not include any adjustments that might
result from the unknown and unquantifiable uncertainty that
exists.
New and amended standards and interpretations applied
The following amendments to existing standards and
interpretations were effective for the year ended 30 June 2020 and
therefore were applied in the current year but they did not have a
material impact on the Group:
- IFRS 16: Leases
IFRS 16 Leases
Transition to IFRS 16
The Group adopted IRFS 16 applying the fully retrospective
approach. Lessors continue to classify all leases using the same
classification principle as in IAS 17 and distinguish between two
types of leases: operating leases and finance leases.
IFRS 16 also requires lessors to make additional disclosure
compared IAS 17. The Group is only a lessor of operating lease and
adopting this standard has no impact other than the additional
disclosure in Note 24.
There is no impact on opening comparative balance sheet and a
third balance sheet has not been presented.
New and amended standard and interpretation not applied
The Group has assessed the impact of standards issued but not
yet applicable, and have concluded that there are none that are
expected to have a material impact on the Financial Statements.
Consolidation
The consolidated financial statements incorporate the financial
statements of the Company and all SPVs controlled by the Company
and (its subsidiaries). Control is achieved when the Group is
exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns
through its power over the investee. The financial statements of
subsidiaries are included in the consolidated financial statements
from the date control commences until the date control ceases.
Certain of the Company's subsidiaries have non-coterminous
year-ends. These companies are consolidated on the basis of actual
transactions occurring within the financial year.
All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
Segment reporting
A business segment is a group of assets and operations engaged
in providing products or services that are subject to risks and
returns different from those of other business segments. A
geographical segment is engaged in providing products or services
within a particular economic environment that are subject to risks
and returns different from those segments operating in other
economic environments.
The Directors are of the opinion that the Group is engaged in a
single segment of business, being property investment and related
business. This segment includes residential properties in Macau.
Please refer to Note 5 for segment reporting.
Foreign currency translation
a) Presentation currency
The consolidated financial statements are shown in US Dollars
("US$") which is the Group's presentation currency.
b) Transactions and balances
Foreign currency transactions are recorded in the respective
functional currencies of group entities, Macanese Patacas (the
"functional currency"). using the exchange rates prevailing at the
date of the transaction. Foreign exchange gains and losses -
resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the
Consolidated Statement of Comprehensive Income.
Non-monetary items that are measured in terms of historical cost
in a foreign currency are translated using the exchange rates at
the date of the initial transaction. Non-monetary items measured at
fair value in a foreign currency are translated using the exchange
rates at the date when the fair value is determined. The gain or
loss arising on translation of non-monetary items measured at fair
value is treated in line with the recognition of gain or loss on
change in fair value of the item (i.e. translation differences on
items whose fair value gain or loss is recognised in other
comprehensive income or profit or loss are also recognised in other
comprehensive income or profit or loss).
c) Group companies
The results and financial position of all the Group entities
that have a functional currency different from the presentation
currency are translated into the presentation currency as
follows:
i) assets and liabilities for each statement of financial
position are translated at the closing rate at the date of that
statement of financial position;
ii) income and expenses for each statement of comprehensive
income are translated at average exchange rates;
iii) all resulting exchange differences are recognised as a
separate component of other comprehensive income; and
iv) on disposal of a foreign operation, the component of other
comprehensive income relating to that particular foreign operation
is recognised in profit or loss.
Foreign currency translation reserve
Foreign currency differences arising on translation of foreign
operations into the Group's presentation currency are recognised in
other comprehensive income and presented in the foreign currency
translation reserve in equity.
Investment property
Property that is held for long-term rental yields or for capital
appreciation or both, and that is not occupied by companies in the
consolidated Group, is classified as investment property.
Investment property also includes property that is being
constructed or developed for future use as investment property.
Investment property is measured initially at its cost, including
related transaction costs.
Subsequent expenditure is capitalised to the asset's carrying
amount only when it is probable that future economic benefits
associated with the item will flow to the Group and the cost of the
item can be measured reliably. All other repairs and maintenance
costs are charged to the Consolidated Statement of Comprehensive
Income during the financial period in which they are incurred.
After initial recognition, investment property is carried at fair
value.
The Group must be able to access the principal or the most
advantageous market at the measurement date. The fair value of an
asset or a liability is measured using the assumptions that market
participants would use when pricing the asset or liability,
assuming that market participants act in their economic best
interest.
There are no contractual obligations to purchase, construct or
develop investment property for repairs, maintenance or
enhancements.
Fair value measurements
The Group measures certain financial instruments such as
derivatives, and non-financial assets such as investment property,
at fair value at the end of each reporting period.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either:
-- in the principal market for the asset or liability; or
-- in the absence of a principal market, in the most
advantageous market for the asset or liability.
A fair value measurement of a non-financial asset takes into
account a market participant's ability to generate economic
benefits by using the asset in its highest and best use, or by
selling it to another market participant that would use the asset
in its highest and best use.
The Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs significant to
the fair value measurement as a whole:
Level 1 - inputs that reflect unadjusted quoted prices in active
markets for identical assets or liabilities that the Group has the
ability to access at the measurement date;
Level 2 - inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly
(that is, prices) or indirectly (that is, derived from prices);
and
Level 3 - inputs for the asset or liability that are not based
on observable market data (that is, unobservable inputs).
For assets and liabilities that are recognised in the financial
statements on a recurring basis, the Group determines whether
transfers have occurred between levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that
is significant to the fair value measurement as a whole) at the end
of each reporting period.
Fair value of investment property
Fair value is based on active market prices, adjusted, if
necessary, for any difference in the nature, location or condition
of the specific investment property. If this information is not
available, the Group uses alternative valuation methods such as
recent prices on less active markets or discounted cash flow
projections. Valuations are prepared semi-annually by Savills
(Macau) Limited ("Savills"), whose valuers hold recognised and
relevant professional qualifications and have recent experience in
the location and category of the investment properties being
valued. Investment property that is being redeveloped for
continuing use as investment property continues to be measured at
fair value, if the fair value is considered to be reliably
measurable. Changes in fair values are recorded in the Consolidated
Statement of Comprehensive Income.
Inventories
Properties and land that are being held or developed for future
sale are classified as inventories. In the opinion of the Board,
inventories are held with a view to short term sale in the ordinary
course of business. They are individually carried at the lower of
cost and net realisable value ("NRV"). NRV is the estimated selling
price in the ordinary course of business less costs to complete
redevelopment and selling expenses. Cost is the acquisition cost
together with subsequent capital expenditure incurred, including
capitalised interest where relevant.
Disposals
Disposals are recognised when the risks and rewards of ownership
of an asset transfer to the purchaser.
Borrowing costs
Borrowing costs incurred for the purpose of acquiring,
constructing or producing a qualifying asset, such as investment
property or inventory, are capitalised as part of the cost.
Borrowing costs are capitalised while the acquisition or
construction is actively underway, and cease once the asset is
substantially complete, or suspended if the development is
suspended. All other borrowing costs are expensed in the period in
which they occur. Borrowing costs consist of interest and other
costs that an entity incurs in connection with the borrowing of
funds. The interest capitalised is calculated using the Group's
weighted average cost of borrowing after adjusting for borrowing
associated with specific developments. Where borrowings are
associated with specific developments, the amount capitalised is
the gross interest incurred on those borrowings less any investment
income arising from their temporary investment.
Impairment
Financial assets
The Group holds only trade and other receivables with no
financing component and which have maturities of less than 12
months at amortised cost and deposit with lenders which represent
restricted cash in relation to borrowing. The liquidity of this
deposit with lenders follows the maturity of the borrowings. As
such, the Group has chosen to apply an approach similar to the
simplified approach for Expected Credit Losses (ECL) under IFRS 9
to all its trade and other receivables. Therefore, the Group does
not track changes in credit risk, but instead, recognises a loss
allowance based on lifetime ECLs at each reporting date.
Deposits with lenders represent restricted cash in relation to
the Group's borrowings. The liquidity of deposits with lenders
follows the maturity of the borrowings. The Group applies low
credit risk simplification on deposits with lenders who are
considered to have low credit risk, using all reasonable and
supportable information available without undue cost or effort. In
making that evaluation, the Group assess the internal credit rating
of the lenders.
The Group's approach to ECLs reflects a probability-weighted
outcome, the time value of money and reasonable and supportable
information that is available without undue cost or effort at the
reporting date about past events, current conditions and forecasts
of future economic conditions.
The Group uses the provision matrix as a practical expedient to
measuring ECLs on trade and other receivables based on days past
due for groupings of receivables with similar loss patterns.
Receivables are grouped based on their nature. The provision matrix
is based on historical observed loss rates over the expected life
of the receivables and is adjusted for forward-looking
estimates.
Non-financial assets
The carrying amounts of the Group's non-financial assets, other
than investment property are reviewed at each reporting date to
determine whether there is any indication of impairment. If any
such indication exists, then the asset's recoverable amount is
estimated. The recoverable amount of an asset or cash-generating
unit is the greater of its value in use and its fair value less
costs to sell.
Leases
Leases in which the Group does not transfer substantially all
the risks and benefits of ownership to a lessee are classified as
operating leases. Initial direct costs incurred in negotiating an
operating lease are added to the carrying amount of the leased
asset and recognised over the term of the lease on the same basis
as rental income. Contingent rents are recognised as revenue in the
period in which they are earned. The Group regularly reviews and
assesses the risk associated with the leases of the underlying
assets.
The Group earns revenue from acting as lessor in operating
leases which do not transfer substantially all of the risks and
rewards incidental to ownership of an investment property. No
subleases are currently held.
Rental income
Rental income from operating leases is recognised as income on a
straight-line basis over the lease term. When the Group provides
incentives to its customers, the cost of incentives is recognised
over the lease term, on a straight-line basis, as a reduction of
rental income.
For investment property held primarily to earn rental income,
the Group enters as a lessor into lease agreements that fall within
scope of IFRS 16.
Financial instruments
i) Classification
Financial assets
The Group classifies its financial assets as subsequently
measured at amortised cost or measured at fair value through profit
or loss on the basis of both:
-- The entity's business model for managing the financial assets
-- The contractual cash flow characteristics of the financial assets
Financial assets measured at amortised cost
Deposits with lenders and trade and other receivables are
measured at amortised cost if it is held within a business model
whose objective is to hold financial assets in order to collect
contractual cash flows and its contractual terms give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Financial liabilities
Financial liabilities measured at amortised cost
This category includes all financial liabilities, other than
those measured at FVPL. The Group includes in this category
interest-bearing loans and trade and other payables.
ii) Recognition
The Group recognises financial asset or a financial liability
when it becomes a party to the contractual provisions of the
instrument.
Purchases or sales of financial assets that require deliver of
assets within the time frame generally established by regulation or
convention in the market place (regular way trades) are recognised
on the trade date, i.e., the date that the Group commits to
purchase or sell the assets.
iii) Initial measurement
Financial assets and liabilities (other than those classified as
at FVPL) are measured initially at their fair value plus any
directly attributable incremental costs of acquisition or
issue.
iv) Subsequent measurement
After initial measurement, the Company's deposits with lenders
and trade and other receivables are measured at amortised cost
using the effective interest method less any allowance for
impairment. Gains and losses are recognised in profit or loss when
the deposits with lenders and trade and other receivables are
derecognised or impaired, as well as through the amortisation
process.
Financial liabilities, other than those classified as at FVPL,
are measured at amortised cost using the effective interest method.
Gains and losses are recognised in profit or loss when the
liabilities are derecognised, as well as through the amortisation
process.
The effective interest method is a method of calculating the
amortised cost of a financial asset or a financial liability and of
allocating and recognising the interest income or interest expense
in profit or loss over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash
payments or receipts through the expected life of the financial
asset or financial liability to the gross carrying amount of the
financial asset or to the amortised cost of the financial
liability. When calculating the effective interest rate, the Group
estimates cash flows considering all contractual terms of the
financial instruments, but does not consider ECL. The calculation
includes all fees paid or received between parties to the contract
that are an integral part of the effective interest rate,
transaction costs and all other premiums or discounts.
Deposits with lenders
Deposits with lenders comprise cash held at bank that is pledged
for loan covenants and are recognised as current and non-current
assets.
Cash and cash equivalents
Cash and cash equivalents in the Consolidated Statement of
Financial Position comprise cash at bank and on hand and demand
deposits with an original maturity of three months or less and
other short-term, highly-liquid investments that are readily
convertible to a known amount of cash and are subject to an
insignificant risk of changes in value. For the purpose of the
Consolidated Statement of Cash Flows, cash and cash equivalents
consist of cash and cash equivalents as defined above. Deposits
with lenders are excluded and not considered cash and cash
equivalents.
Provisions
Provisions are recognised when the Group has a present legal or
constructive obligation as a result of past events, it is probable
that an outflow of resources will be required to settle the
obligation, and the amount can be reliably estimated.
Share capital
Shares are classified as equity when there is no obligation to
transfer cash or other assets. Shares issued by the Company are
recorded based upon the proceeds received, net of incremental costs
directly attributable to the issue of new shares.
Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable, and includes rental income and income from
property trading. Revenue from sales of completed properties and
properties under development is within the scope of IFRS 15.
Sale of completed property
In relation to the sale of completed property there is generally
considered to be one performance obligation. Revenue from sale of
completed properties is recognised when effective control of
ownership of the properties is transferred to the buyer, which is
on unconditional exchange of contracts and change of title on the
property. The proceeds from disposal are recognised in income and
net assets disposed of are recognised in cost of sales in
expenses.
Sale of property under development
Where property is under development and an agreement has been
reached to sell such property when construction is complete, and
where the Directors determine the pre-sale to constitute the sale
of a completed property, revenue is recognised when the significant
risks and rewards of ownership of the real estate have been
transferred to the buyer, which is on the unconditional exchange of
contracts and change of title on the property. The criteria for
recognising revenue over time is generally not met, therefore
revenue is recognised at a point in time.
Sale of subsidiary
Revenue from the sale of a subsidiary is recognised when
effective control of ownership of the subsidiary is transferred to
the buyer. The sale of the subsidiary is regarded as a loss of
control under IFRS 10 with all assets and liabilities of the
subsidiary derecognised at the date control is lost, the fair value
of the consideration received from the transaction compared to the
net assets of the subsidiary and the resulting net income or
expense of the transaction recorded in the income statement.
Borrowings
Borrowings are recognised initially at fair value, net of
transaction costs of the loan to the extent that it is probable
that some or all of the facility will be drawn down and are
subsequently measured at amortised cost using the effective
interest method.
Borrowings are classified as current liabilities, unless the
Group has an unconditional right to defer settlement of the
liability for at least 12 months after the date of the consolidated
statement of financial position.
Offsetting
Financial assets and financial liabilities are offset and the
net amount is reported in the statement of financial position if
there is a currently enforceable legal right to offset the
recognised amounts and there is an intention to settle on a net
basis, to realise the assets and to settle the liabilities
simultaneously.
Finance income and expenses
Interest income is recognised using the effective interest rate
method in the Consolidated Statement of Comprehensive Income.
Finance costs comprise interest expense on borrowings. Interest
expense is recognised using the effective interest rate method in
the Consolidated Statement of Comprehensive Income.
Distributable reserves
Distributable reserves may be legally paid out in the form of a
dividend. Payments to shareholders from reserves can be seen as a
distribution of accumulated profit.
Taxes
Current income tax
Current income tax assets and liabilities are measured at the
amount expected to be recovered from or paid to taxation
authorities. The tax rates and tax laws used to compute the amount
are those that are enacted or substantively enacted by the
reporting date. Current income tax relating to items recognised
directly in equity is recognised in equity and not in the
Consolidated Statement of Comprehensive Income. Management
periodically evaluates positions taken in tax returns with respect
to situations in which applicable tax regulations are subject to
interpretation and establishes provisions where appropriate.
Deferred income tax
Deferred income tax is provided using the liability method on
all temporary differences at the reporting date between the tax
basis of assets and liabilities and their carrying amounts for
financial reporting purposes, except where the timing of the
reversal of the temporary differences can be controlled by the
Group and it is probable that the temporary differences will not
reverse in the foreseeable future.
Deferred income tax assets are recognised only to the extent
that it is probable that taxable profit will be available against
which deductible temporary differences, carried forward tax credits
or tax losses can be utilised.
Deferred income tax assets and liabilities are measured at the
tax rates that are expected to apply to the year when the asset is
realised or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at the
reporting date. Deferred income tax relating to items recognised
directly in equity is recognised in equity and not in the
Consolidated Statement of Comprehensive Income.
As a result of the discussion of the IFRS Interpretations
Committee in its July 2014 meeting relating to deferred taxation
for a single asset held by a corporate wrapper, the Group has
recognised the deferred tax liability for the taxable temporary
timing difference relating to the investment property carried at
fair value.
2. Financial risk management, policies and objectives
The Group's activities expose it to a variety of financial
risks: market risk (including foreign exchange risk, cash flow and
fair value interest rate risk), credit risk and liquidity risk.
The Board of Directors provides written principles for overall
risk management, as well as written policies covering specific
areas, such as foreign exchange risk, interest rate risk and
liquidity risk.
Market risk
Market risk is the risk that the fair value of future cash flows
of a financial instrument will fluctuate as a result of changes in
market prices, whether caused by factors specific to an individual
financial instrument or all factors affecting all financial
instruments traded in the market including foreign exchange risk,
equity price risk and cash flow and fair value interest rate risk
as detailed below.
The Group's market risk is managed by the Manager in accordance
with policies and procedures in place. The Group's overall market
position is monitored on a quarterly basis by the Board of
Directors.
Sensitivities to market risks included below are based on a
change in one factor while holding all other factors constant. In
practice, this is unlikely to occur and changes in some of the
factors may be correlated, for example, changes in interest rates
and changes in foreign currency rates.
a) Foreign exchange risk
The Group operates internationally and is exposed to foreign
exchange risk arising from various currency exposures. Foreign
exchange risk arises from future commercial transactions,
recognised monetary assets and liabilities and net investments in
foreign operations. The Group's policy is not to enter into any
currency hedging transactions. The following tables summarise the
Group's exposure to foreign currency risk as at 30 June 2020 and 30
June 2019. The Group's financial assets and liabilities are
included in the table, categorised by their currency at their
carrying amount in US$'000. In the current economic climate,
management's assessment of a reasonable possible change in foreign
exchange rates would be up to a 1% increase/decrease for Hong Kong
Dollar ("HK$")/US$, due to the HK$ being pegged to the US$, and up
to a 10% increase/decrease for all other currencies.
The following table presents financial assets and liabilities
denominated in foreign currencies held by the Group as at 30 June
2020 and 30 June 2019, and can be used to monitor foreign currency
risk as at that date.
At 30 June 2020, if Sterling weakened/strengthened by 10%
against US$ with all other variables held constant, the loss for
the year would have been US$16,000 lower/higher (2019: US$13,000
lower/higher). The HK$ is pegged to the US$ with the Hong Kong
Monetary Authority pledging to keep the exchange rate within a
trading band of 5 Hong Kong cents either side of HK$7.80 per
dollar. At present the rate is HK$7.75 per dollar so no downward
risk. The foreign exchange risk is considered minimal and as such
the Company does not actively manage against this risk. If the HK$
weakened/strengthened by 1% against the US$ with all other
variables held constant, the net assets and movement in foreign
currency translation reserve would have been US$1,267,000
higher/lower (2019: US$1,192,000 higher/lower). Any movement would
have no other effect on the remaining equity components of the
Group. There are no material transactions that would have effect on
the profit/loss for the year.
The Macanese Patacas ("MOP") is fixed to the HK$ at a rate of
MOP:HK$ of 1.03. Due to the low level of assets held in this
currency, a 10% change in rate would not have a significant effect
on the consolidated financial statements.
As the HK$ is pegged to the US$ and the MOP is fixed to the US$
the foreign exchange risk of these currencies is considered minimal
as under the normal course of business the Group has minor exposure
to other currencies.
Movements in other currencies would not have a significant
impact on the consolidated financial statements.
a) Foreign exchange risk
Other
US$ GBP HK$ currencies Total
As at 30 June 2020 US$'000 US$'000 US$'000 US$'000 US$'000
------- ------- --------- ----------- ---------
Trade and other receivables
(excluding prepayments) - - 2 111 113
------- ------- --------- ----------- ---------
Cash and cash equivalents - 31 15,745 302 16,078
------- ------- --------- ----------- ---------
Deposits with lenders - - 4,453 - 4,453
------- ------- --------- ----------- ---------
Total financial assets - 31 20,200 413 20,644
------- ------- --------- ----------- ---------
Trade and other payables 48 186 11 1,040 1,285
------- ------- --------- ----------- ---------
Interest-bearing loans - - 146,857 - 146,857
------- ------- --------- ----------- ---------
Total financial liabilities 48 186 146,868 1,040 148,142
------- ------- --------- ----------- ---------
Net financial position (48) (155) (126,668) (627) (127,498)
------- ------- --------- ----------- ---------
Other
US$ GBP HK$ currencies Total
As at 30 June 2019 US$'000 US$'000 US$'000 US$'000 US$'000
------- ------- --------- ----------- ---------
Trade and other receivables
(excluding prepayments) - - 4 110 114
------- ------- --------- ----------- ---------
Cash and cash equivalents - 38 26,856 86 26,980
------- ------- --------- ----------- ---------
Deposits with lenders - - 1,843 - 1,843
------- ------- --------- ----------- ---------
Total financial assets - 38 28,703 196 28,937
------- ------- --------- ----------- ---------
Trade and other payables 104 165 16 2,001 2,286
------- ------- --------- ----------- ---------
Interest-bearing loans - - 147,852 - 147,852
------- ------- --------- ----------- ---------
Total financial liabilities 104 165 147,868 2,001 150,138
------- ------- --------- ----------- ---------
Net financial position (104) (127) (119,165) (1,805) (121,201)
------- ------- --------- ----------- ---------
b) Cash flow and fair value interest rate risk
The Group's interest rate risk is managed by the Manager, in
accordance with policies and procedures in place and can be
mitigated through the use of interest rate swaps. The Group's
overall positions and exposures are monitored on a quarterly basis
by the Board of Directors.
If interest rates had been 1% higher/lower and all other
variables were held constant, the Group's loss for the year would
have increased/decreased by US$1,263,000 (2019: loss for the year
increased/decreased by US$1,190,000) (based on the interest bearing
net financial liability per the table below). This is mainly due to
the Group's exposure to interest-bearing loans.
The following table details the Group's exposure to interest
rate risks:
Interest Non-interest
As at 30 June 2020 bearing bearing Total
US$'000 US$'000 US$'000
-------- ------------ -------
Trade and other receivables (excluding
prepayments) - 113 113
-------- ------------ -------
Cash and cash equivalents 16,078 - 16,078
-------- ------------ -------
Deposits with lenders 4,453 - 4,453
-------- ------------ -------
Total financial assets 20,531 113 20,644
-------- ------------ -------
Trade and other payables - 1,285 1,285
-------- ------------ -------
Interest-bearing loans 146,857 - 146,857
-------- ------------ -------
Total financial liabilities 146,857 1,285 148,142
-------- ------------ -------
Interest Non-interest
As at 30 June 2019 bearing bearing Total
US$'000 US$'000 US$'000
-------- ------------ -------
Trade and other receivables (excluding
prepayments) - 114 114
-------- ------------ -------
Cash and cash equivalents 26,980 - 26,980
-------- ------------ -------
Deposits with lenders 1,843 - 1,843
-------- ------------ -------
Total financial assets 28,823 114 28,937
-------- ------------ -------
Trade and other payables - 2,286 2,286
-------- ------------ -------
Interest-bearing loans 147,852 - 147,852
-------- ------------ -------
Total financial liabilities 147,852 2,286 150,138
-------- ------------ -------
Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Group. The Group is exposed to credit
risks from both its leasing activities and financing activities,
including deposits with banks and financial institutions.
The Group's main exposure to credit risk is its cash balances
with banks. This risk is mitigated through using banks with a high
credit rating.
The Group's cash and cash equivalents have the following ratings
from Fitch and Moody's Ratings:
2020 2019
Credit Rating US$'000 US$'000
------- -------
AA 14,744 25,844
------- -------
AA- 274 207
------- -------
A+ 812 679
------- -------
A- 16 16
------- -------
BBB+ 229 231
------- -------
BBB 3 3
------- -------
16,078 26,980
------- -------
The Group's deposits with lenders with the following ratings
from Fitch and Moody's Ratings:
2020 2019
Credit Rating US$'000 US$'000
------- -------
AA 4,278 1,608
------- -------
A+ 175 235
------- -------
4,453 1,843
------- -------
The Group is exposed to loss of rental income and increase in
costs, such as legal fees, if tenants fail to meet their payment
obligations under their leases. The Group seeks to mitigate default
risk by diversifying its tenant base and requiring deposits or
guarantees from banks or parent companies, where there is a
perceived credit risk or in accordance with prevailing market
practice.
All of the Group's major tenants have met their rental
requirements within the terms of arrangement and no material
receivables which are past due have been impaired.
The maximum exposure to credit risk at the reporting date is the
carrying value of each class of financial asset.
The Group's financial assets subject to the ECL model within
IFRS 9 are cash and cash equivalents, deposits with lenders and
trade and other receivables. There is not considered to be any
concentration of credit risk within these assets. The amount of ECL
on cash and cash equivalents and deposit with lenders are
considered to be small considering the credit quality as indicated
on the credit risk tables.
None of the Group's financial assets are past their due date as
at the current or prior year end.
Liquidity risk
The Group adopts a prudent approach to liquidity management and
maintains sufficient cash reserves and borrowings to meet its
obligations. The Group is able to obtain funding through credit
facilities to meet its current liabilities and property development
expenditure in addition to cash currently held.
As at 30 June 2020, the Group's current liabilities of US$100.6
million exceeded its current assets and resulted in a net liability
of US$44 million. Current liabilities mainly represented principal
repayments of the loan facilities that are due for settlement
within 12 months from the year end date amounted to US$99 million,
of which US$70 million has already been refinanced on 21 September
2020 to mature in September 2025. It is anticipated that the
remaining US$29 million loan repayment obligations will also be
refinanced, and that these are not dependent upon the realisation
of the Group's underlying assets in order to settle such
amounts.
Deposits amounting to US$4,453,000 (2019: US$1,843,000) have
been pledged to secure banking facilities, of which US$4,278,000
(2019: US$1,608,000) relates to long-term banking facilities, and
are, therefore, classified as non-current assets. Pledged bank
balances represent deposits pledged to the banks to secure the
banking facilities granted to the Group.
As at 30 June 2020, the Group has term loan facilities with Hang
Seng Bank, Industrial and Commercial Bank of China (Macau) Limited,
and Banco Tai Fung for its investments in The Waterside, individual
unit in One Central Residences, The Fountainside, and Estrada da
Penha. The Group's liquidity position is monitored by the Manager
and is reviewed quarterly by the Board. Please refer to Note 8 for
details of the facilities.
The table below analyses the Group's financial assets and
liabilities into relevant maturity profiles based on the remaining
period at the Consolidated Statement of Financial Position date to
the contractual maturity date. The amounts disclosed in the table
are the contractual undiscounted cash flows (including interest
payable).
Less than 3 to 1 to 2 to Over
As at 30 June 2020 On demand 3 months 12 months 2 years 5 years 5 years Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------- --------- ---------- -------- -------- -------- ---------
Trade and other receivables
(excluding prepayments) - 2 - 111 - - 113
--------- --------- ---------- -------- -------- -------- ---------
Cash and cash equivalents 16,078 - - - - - 16,078
--------- --------- ---------- -------- -------- -------- ---------
Deposits with lenders - - 175 - 4,278 - 4,453
--------- --------- ---------- -------- -------- -------- ---------
Total financial assets 16,078 2 175 111 4,278 - 20,644
--------- --------- ---------- -------- -------- -------- ---------
Trade and other payables - 1,285 - - - - 1,285
--------- --------- ---------- -------- -------- -------- ---------
Interest-bearing loans - 71,028 31,370 25,694 23,250 - 151,342
--------- --------- ---------- -------- -------- -------- ---------
Total financial liabilities - 72,313 31,370 25,694 23,250 - 152,627
--------- --------- ---------- -------- -------- -------- ---------
Net financial position 16,078 (72,311) (31,195) (25,583) (18,972) - (131,983)
--------- --------- ---------- -------- -------- -------- ---------
Less than 3 to 1 to 2 to Over
As at 30 June 2019 On demand 3 months 12 months 2 years 5 years 5 years Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------- --------- ---------- -------- -------- -------- ---------
Trade and other receivables
(excluding prepayments) - 4 - 110 - - 114
--------- --------- ---------- -------- -------- -------- ---------
Cash and cash equivalents 26,980 - - - - - 26,980
--------- --------- ---------- -------- -------- -------- ---------
Deposits with lenders - - 235 - 1,608 - 1,843
--------- --------- ---------- -------- -------- -------- ---------
Total financial assets 26,980 4 235 110 1,608 - 28,937
--------- --------- ---------- -------- -------- -------- ---------
Trade and other payables - 1,282 1,004 - - - 2,286
--------- --------- ---------- -------- -------- -------- ---------
Interest-bearing loans - 3,297 26,958 91,856 36,947 - 159,058
--------- --------- ---------- -------- -------- -------- ---------
Total financial liabilities - 4,579 27,962 91,856 36,947 - 161,344
--------- --------- ---------- -------- -------- -------- ---------
Net financial position 26,980 (4,575) (27,727) (91,746) (35,339) - (132,407)
--------- --------- ---------- -------- -------- -------- ---------
The table below analyses the Group's changes in financial
liabilities arising from financing activities.
Foreign Profit
1 July Exchange and 30 June
2019 Cashflows Movement Other Loss 2020
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------- --------- --------- -------- ------- -------
Current interest-bearing
loans 23,679 (13,679) 759 69,398 - 80,157
------- --------- --------- -------- ------- -------
Non-current interest-bearing
loans 124,173 11,478 447 (69,398) - 66,700
------- --------- --------- -------- ------- -------
Loan arrangement fees (621) (163) - - 323 (461)
------- --------- --------- -------- ------- -------
Net interest-bearing
loans 147,231 (2,364) 1,206 - 323 146,396
------- --------- --------- -------- ------- -------
Interest payable 981 (6,523) - - 5,669 127
------- --------- --------- -------- ------- -------
Total 148,212 (8,887) 1,206 - 5,992 146,523
------- --------- --------- -------- ------- -------
Foreign Profit
1 July Exchange and 30 June
2018 Cashflows Movement Other Loss 2019
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------- --------- --------- -------- ------- -------
Current interest-bearing
loans 19,006 (10,128) 104 14,697 - 23,679
------- --------- --------- -------- ------- -------
Non-current interest-bearing
loans 129,039 9,308 523 (14,697) - 124,173
------- --------- --------- -------- ------- -------
Loan arrangement fees (920) (21) - - 320 (621)
------- --------- --------- -------- ------- -------
Net interest-bearing
loans 147,125 (841) 627 - 320 147,231
------- --------- --------- -------- ------- -------
Interest payable 209 (5,717) - - 6,489 981
------- --------- --------- -------- ------- -------
Total 147,334 (6,558) 627 - 6,809 148,212
------- --------- --------- -------- ------- -------
The 'Other' column includes the effect of reclassification of
non-current portion of interest-bearing loans to current due to the
passage of time. The Group classifies interest paid as cash flows
from financing activities.
Fair value hierarchy
Financial investments measured at fair value
IFRS 13 requires disclosure of fair value measurements by level
as discussed in Note 1.
For all financial instruments, other than those recognised at
fair value or whose fair value is disclosed within these financial
statements, carrying value of the financial asset/liability is an
approximation of their fair value.
Capital risk management
The Group's objectives, when managing capital, are to safeguard
the Group's ability to continue as a going concern in order to
provide returns for shareholders and benefits for other
stakeholders, and to maintain an optimal capital structure to
reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group
may adjust the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares or sell assets to reduce
debt.
The Group's objective is to provide Shareholders with an
attractive total return, which is expected to comprise primarily
capital growth but with the potential for dividends over the medium
to long term. The timing and amount of rental or other income
cannot be predicted and there can therefore be no guarantee as to
the amount of any dividend payable by the Company.
Any cash received by the Company as part of the realisation
process will be held by the Company as cash on deposit and/or as
cash equivalents prior to its distribution to shareholders, which
shall be at such intervals as the Board considers appropriate.
During the year ended 30 June 2020, there were no borrowings
other than the Group's loan facilities in place which are
classified as interest bearing loans in the Consolidated Statement
of Financial Position.
Discount management policy
The Board closely monitors the discount to Adjusted Net Asset
Value (adjusted NAV) at which the Company's shares trade and has
sought shareholders' approval of powers to buy shares in the market
to moderate the volatility of the discount. These powers will be
sought again at the forthcoming Annual General Meeting. The Board
is also very mindful of the working capital operating needs of the
Company when considering buying back its shares in the market.
During the year ended 30 June 2020, the Company did not purchase
any ordinary shares under the discount management policy.
Shares which are bought back by the Company may either be
cancelled or held in treasury and subsequently re-issued. Pursuant
to the Companies (Guernsey) Law, the number of shares of any class
held as treasury shares must not, at any time, exceed 10% of the
total number of issued shares of that class at that time. The
authority to buy back up to 14.99% per annum of shares in issue is
renewed at each Annual General Meeting of the Company by special
resolution.
The Board remains committed to an active discount management
policy.
A compulsory redemption of 14,597,231 shares was made for
US$50.5 million, pro-rated amongst shareholders as at that date, by
the Group on 24 July 2018.
3. Critical accounting estimates, assumptions and judgements
The Directors' and Investment Adviser (the "management") make
estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the actual
results. The estimates and assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year are outlined
below:
a) Fair value of the investment property, NRV and Adjusted NAV
are based on the current market valuation provided by Savills, an
independent valuer. Savills is required to make assumptions on
establishing the current market valuation. The most significant
assumptions (as described further in Note 6), relate to estimating
costs to complete property under development, future income streams
and discount rates applicable to these estimates. The valuation has
been made on the assumption that the owner sells the properties in
the open market without a deferred term contract, leaseback, joint
venture, management agreement or any similar arrangement, which
could serve to affect the value of the properties. This is an
accounting estimate and assumption.
b) Inventory is stated at the lower of cost and NRV. NRV for
completed inventory property is assessed with reference to market
conditions and prices existing at the reporting date, and is
determined by the Group, having taken suitable external advice and
in the light of recent market transactions. NRV in respect of
inventory property under construction (see Note 7), is assessed
with reference to market prices at the reporting date for similar
completed property, less estimated costs to complete construction
and less an estimate of the time value of money to the date of
completion. This is an accounting estimate.
c) Significant management judgement is required to determine the
amount of deferred tax liabilities that can be recognised, based
upon the likely timing and the level of future taxable temporary
differences, together with future tax planning strategies. This is
an accounting judgement.
d) The Directors have considered the basis for preparing the
financial statements and are confident that the going concern basis
is appropriate for the reasons set out in Note 1.
The Group did not make any critical accounting judgements, other
than as described above, in the year ended 30 June 2020 or the year
ended 30 June 2019.
4. Subsidiaries
All SPVs are owned 100% by the Company. There are no significant
restrictions on the ability to access or use the assets to settle
the liabilities of the Group. The following subsidiaries, active
for both the 30 June 2020 and 30 June 2019 year ends, have a year
end of 31 December to coincide with the Macanese tax year and are
the only subsidiaries which do not have the same year end as the
Company:
* MPOF Macau (Site 2) Limited * The Fountainside Company Limited
* The Waterside Company Limited
* MPOF Macau (Site 5) Limited
* Castelo Branco Companhia Limitada
The consolidated financial statements include the financial
statements of the Company and the subsidiaries listed below:
Ownership Incorporation Ownership Incorporation
MPOF Macau (Site
2) Limited 100% Macau Cannonball Limited 100% Guernsey
--------- --------------- ------------------------- --------- ---------------
MPOF Macau (Site
5) Limited 100% Macau Civet Limited 100% Guernsey
--------- --------------- ------------------------- --------- ---------------
The Waterside Company Gorey Hills International
Limited 100% Macau Limited 100% BVI
--------- --------------- ------------------------- --------- ---------------
The Fountainside Hillsleigh Holdings
Company Limited 100% Macau Limited 100% BVI
--------- --------------- ------------------------- --------- ---------------
Castelo Branco Companhia Mega League Investments
Limitada 100% Macau Limited 100% BVI
--------- --------------- ------------------------- --------- ---------------
Smooth Run Group
MPOF (Jose) Limited 100% Guernsey Limited 100% BVI
--------- --------------- ------------------------- --------- ---------------
China City Properties
MPOF (Sun) Limited 100% Guernsey Limited 100% Hong Kong
--------- --------------- ------------------------- --------- ---------------
East Base Properties
MPOF (Guia) Limited 100% Guernsey Limited 100% Hong Kong
--------- --------------- ------------------------- --------- ---------------
Eastway Properties
MPOF (Antonio) Limited 100% Guernsey Limited 100% Hong Kong
--------- --------------- ------------------------- --------- ---------------
Weltex Properties
Bream Limited 100% Guernsey Limited 100% Hong Kong
--------- --------------- ------------------------- --------- ---------------
5. Segment reporting
The Chief Operating Decision Maker (the "CODM") in relation to
the Company is deemed to be the Board itself. The factors used to
identify the Group's reportable segments are centred on asset class
and differences in both geographical area and regulatory
environment. Furthermore, foreign exchange and political risks are
identified, as these also determine where resources are
allocated.
Based on the above and a review of information provided to the
Board, it has been concluded that the Group is currently organised
into one reportable segment based on the geographical area,
Macau.
This segment refers principally to residential properties.
Furthermore, there are multiple individual properties that are held
within each property type. However, the CODM considers, on a
regular basis, the operating results and resource allocation of the
aggregated position of all property types as a whole, as part of
their on-going performance review. This is supported by a further
breakdown of individual property groups only to help support their
review and investment appraisal objectives.
Information about major customers
The Group does not have any customers or rental agreements which
represent more than 10% of Group's revenues. Revenues represented
by rental income were US$2,606,000 for the year ended 30 June 2020
(2019: US$2,770,000).
6. Investment property
2020 2019
US$'000 US$'000
-------- --------
At the beginning of the year 225,885 248,763
-------- --------
Capital expenditure on property 340 502
-------- --------
Fair value adjustment (27,924) (24,357)
-------- --------
Exchange difference 1,687 977
-------- --------
Balance at end of the year 199,988 225,885
-------- --------
Valuation losses from investment property are recognised in
profit and loss for the year, and are attributable to changes in
unrealised losses relating to completed investment property held at
the end of the reporting period.
The valuation process is initiated by the Investment Adviser who
appoints a suitably qualified valuer to conduct the valuation of
the investment property. The results are overseen by the Investment
Adviser. Once satisfied with the valuations based on their
expectations, the Investment Adviser reports the results to the
Board. The Board reviews the latest valuation based on their
knowledge of the property market and compares these to previous
valuations. The Group's investment properties were revalued at 30
June 2020 by an independent, professionally-qualified valuer,
Savills. The valuation has been carried out in accordance with the
current Royal Institution of Chartered Surveyors (RICS) Appraisal
and Valuation Standards to calculate the market value of the
investment properties in their existing state and physical
condition, with the assumptions that:
-- The owner sells the property in the open market without any
arrangement, which could serve to affect the value of the
property.
-- The property is held for investment purposes.
-- The property is free from encumbrances, restrictions and
outgoings of any onerous nature which could affect its value.
The fair value of investment property is determined by Savills,
using recognised valuation techniques. The principal technique
deployed was the income capitalisation method. The determination of
the fair value of investment property requires the use of estimates
such as future cash flows from assets (such as lettings, tenants'
profiles, future revenue streams, capital values of fixtures and
fittings, plant and machinery, any environmental matters and the
overall repair and condition of the property) and discount rates
applicable to those assets. These estimates are based on the local
market conditions existing at the reporting date.
Capital expenditure on property during the year relates to
fit-out costs for The Waterside.
Rental income arising from The Waterside of US$2,606,000 (2019:
US$2,770,000) was received during the year. Direct operating
expenses of US$956,000 (2019: US$1,070,000) arising from rented
units were incurred during the year. Direct operating expenses
during the year arising from vacant units totalled US$255,000
(2019: US$257,000).
There are no disposals of investment property during the
year.
The following tables show the inputs used in valuing the
investment property which is classified as Level 3 in the fair
value hierarchy:
Unobservable
Carrying and
amount/ observable
fair value inputs used
as at in determination
Property 30 Jun 2020 Valuation of Other key
information US$'000 technique Input fair values information
Name The Waterside 199,988 Term and Term rent HK$19.2 psf Age of building
Reversion (inclusive
Analysis of management
fee and furniture)
--------------- ------------- ----------- -------------------- ----------------- ---------------
Type Residentia/ Term yield 1.4%-2.2% Remaining
Completed (exclusive useful life
apartments of management of building
fee and furniture)
--------------- ------------- ----------- -------------------- ----------------- ---------------
Location One Central Reversionary HK$15.6 psf
Tower 6 Macau rent
(exclusive
of management
fee and furniture)
--------------- ------------- ----------- -------------------- ----------------- ---------------
Reversionary
yield 1.7%
------------------------------------------------------------------------ ----------------- ---------------
Unobservable
Carrying and
amount/ observable
fair value inputs used
as at in determination
Property 30 Jun 2019 Valuation of Other key
information US$'000 technique Input fair values information
Name The Waterside 225,885 Term and Term rent HK$21.5 psf Age of building
Reversion (inclusive
Analysis of management
fee and
furniture)
---------------------- ------------- ----------- ----------------- ----------------- -----------------
Type Residential/Completed Term yield 1.4% - 2.2% Remaining
apartments (exclusive useful
of management life of building
fee
and furniture)
---------------------- ------------- ----------- ----------------- ----------------- -----------------
Location One Central Reversionary HK$17.8 psf
Tower 6 Macau rent
(exclusive
of management
fee and
furniture)
---------------------- ------------- ----------- ----------------- ----------------- -----------------
Reversionary
yield 1.7%
---------------------------------------------------------------------------- ----------------- -----------------
The fair value of The Waterside is determined using the income
approach, more specifically a term and reversion analysis, where a
property's fair value is estimated based on the rent receivable and
normalised net operating income generated by the property, which is
divided by the capitalisation (discount) rate. The difference
between gross and net rental income includes the same expense
categories as those for the discounted cash flow method with the
exception that certain expenses are not measured over time, but
included on the basis of a time weighted average, such as the
average lease up costs. Under the income capitalisation method,
over- and under-rent situations are separately capitalised
(discounted).
If the estimated reversionary rent increased/decreased by 5%
(and all other assumptions remained the same), the fair value of
The Waterside would increase or decrease by US$10 million (2019:
increase or decrease by US$11 million).
If the term or revisionary yield increased/decreased by 5% (and
all other assumptions remained the same), the fair value of The
Waterside would decrease or increase by US$10 million (2019:
decrease by $11 million or increase by US$12 million).
The Waterside is currently valued at its highest and best use.
There is no extra evidence available to suggest that it has an
alternative use that would provide a greater fair value
measurement.
There have been no transfers between levels during the period or
a change in valuation technique since the last period.
7. Inventories
2020 2019
US$'000 US$'000
------- -------
Cost
------- -------
Balance brought forward 41,453 41,897
------- -------
Additions 546 42
------- -------
Disposals (2,707) (664)
------- -------
Exchange difference 339 178
------- -------
Balance carried forward 39,631 41,453
------- -------
Adjustment to net realisable value
------- -------
Balance brought forward - (120)
------- -------
Write-back to net realisable value - 120
------- -------
Balance carried forward - -
------- -------
Carrying amounts 39,631 41,453
------- -------
Additions include capital expenditure, development costs and
capitalisation of financing costs.
Under IFRS, inventories are valued at the lower of cost and NRV.
The carrying amounts for inventories as at 30 June 2020 amounts to
US$39,631,000 (2019: US$41,453,000). The market value as at 30 June
2020 as determined by the independent, professionally-qualified
valuer, Savills, was US$75,585,000 (2019: US$85,256,000). The NRV
as at 30 June 2020 was US$74,829,000 (2019: US$84,404,000).
An impairment will be recognised if the NRV falls below cost. At
30 June 2020 for one of the items in inventories, an impairment
would be recognised if the NRV were to fall by 1.5%.
One residential unit, two car parking spaces and five motorcycle
spaces of The Fountainside, and one individual unit of One Central
Residences (2019: Three car parking spaces and six motorcycle
parking spaces of The Fountainside, and the Smaller Property) were
sold during the year for a total consideration of US$4.6 million
(HK$36.0 million) (2019: US$1.2 million (HK$9.3 million)) against a
total cost of US$2.7 million (HK$21.0 million) (2019: US$0.6
million (HK$4.3 million)) which resulted in a net profit of US$1.9
million (HK$15.0 million) (2019: US$0.6 million (HK$5.0 million))
after all associated fees and transaction costs.
8. Interest-bearing loans
2020 2019
US$'000 US$'000
------- -------
Bank loans - Secured
------- -------
* Current portion 99,294 23,376
------- -------
* Non-current portion 47,102 123,855
------- -------
146,396 147,231
------- -------
There are interest-bearing loans with three banks:
The Group has a loan facility for The Waterside and the
individual unit in One Central Residences:
Hang Seng Bank
The Group has a term loan facility with Hang Seng Bank for The
Waterside and the individual unit in One Central Residences. As at
30 June 2020, four tranches remained outstanding. Tranche 3 had an
outstanding balance of HK$300 million (US$38.7 million) (2019:
HK$300 million (US$38.4 million)); Tranche 4 had an outstanding
balance of HK$40 million (US$5.2 million) (2019: HK$40 million
(US$5.1 million)); Tranche 5 had an outstanding balance of HK$132
million (US$17.1 million) (2019: HK$132 million (US$16.9 million));
and Tranche 6 had an outstanding balance of HK$428 million (US$55.2
million) (2019: HK$428 million (US$54.8 million)).
The interest rates applicable to Tranche 3, Tranche 4, Tranche 5
and Tranche 6 of the term loan were revised from 2.25% per annum,
2.35% per annum, 2.35% per annum and 2.35% per annum, respectively,
over the 1-, 2- or 3-month HIBOR rate to 1.9% per annum over the
1-, 2- or 3-month HIBOR rate for all tranches in September 2019.
The choice of rate is at the Group's discretion. Tranche 3, Tranche
4 and Tranche 5 matured on 19 September 2020 and were refinanced
until September 2025. Tranche 6 matures on 19 September 2022 and
the principal is to be repaid in half-yearly instalments commencing
19 September 2020, with 25% of the principal due upon maturity. The
loan-to-value covenant is 60%. As at 30 June 2020, the
loan-to-value ratio for the Hang Seng One Central facility was
57.20% (2019: 49.65%). The facility is secured by means of a first
registered legal mortgage over The Waterside and the individual
residential unit owned by the Group at One Central Residences, as
well as a pledge of all income from the units. The Company is the
guarantor for the credit facility. In addition, the Group is
required to maintain a cash reserve equal to six months' interest
with the lender. Early prepayment covenant for sales proceeds out
of the individual One Central Residences unit will be waived,
subject to the Group maintaining a loan-to-value ratio of not more
than 50% on the facility. The carrying value of the individual
residential unit owned by the Group at One Central Residences as at
30 June 2020 is US$2,492,000.
The Group has a loan facility for The Fountainside:
During the year, the Group executed a loan facility with Hang
Seng Bank to refinance the credit facility with the Industrial and
Commercial Bank of China (Macau) Limited in relation to The
Fountainside. The Facility amount is HK$96 million (US$12.4
million) divided into 3 tranches, with a tenor of 4 years to mature
in March 2024. Tranche A is a facility for an amount of HK$89
million (US$11.5 million) for refinancing the loan facility with
ICBC, which expired in March 2020. Tranche B is a facility for an
amount of HK$7 million (US$0.9 million) for financing the
alteration costs of The Fountainside. The facility of Tranche A was
fully drawdown in March 2020 to repay the ICBC facility. The
interest rates applicable to Tranche A and Tranche B are 2.8% per
annum and 3.3% per annum respectively over the 1-, 2- or 3-month
HIBOR rate. The choice of rate is at the Group's discretion. The
principal is to be repaid in half-yearly instalments commencing in
September 2021 with 27% of the principal due upon maturity. The
loan-to-value covenant is 55%. The facility is secured by means of
a first registered legal mortgage over all unsold units and car
parking spaces of The Fountainside as at the loan facility date as
well as a pledge of all income from the units and the car parking
spaces. The Company is the guarantor for the credit facility. In
addition, the Group is required to maintain a cash reserve equal to
six months' interest with the lender. The carrying value of The
Fountainside as at 30 June 2020 is US$8,531,000.
As at 30 June 2020, the facility had an outstanding balance of
HK$89.0 million (US$11.5 million) (2019: HK$106.0 million (US$13.6
million)). As at 30 June 2020, sales proceeds of US$nil (2019:
US$5,000) were pledged with the lender and the loan-to-value ratio
was 41.19% (2019: 41.25%).
The carrying value of Estrada da Penha as at 30 June 2020 is
US$28,608,000. The Group has two loan facilities for Estrada da
Penha:
Banco Tai Fung
The loan facility with Banco Tai Fung originally had a term of
two years and the facility amount was HK$70 million which expired
in June 2019 and was subsequently renewed for another term of two
years. Interest was charged at 2.3% per annum over the 3-month
HIBOR rate and was revised to Prime Rate minus 1.375% per annum in
June 2019. Repayment is due in full at maturity in June 2021. As at
30 June 2020, the facility had an outstanding balance of HK$70
million (US$9.0 million) (2019: HK$70 million (US$9.0 million)).
This facility is secured by a first legal mortgage over the
property as well as a pledge of all income from the property. The
Company is the guarantor for this term loan. Interest is paid
monthly on this loan facility. As at 30 June 2020, the
loan-to-value ratio was 44.30% (2019: 42.42%).
There is no loan-to-value covenant for this loan.
ICBC Macau
The loan facility with Industrial and Commercial Bank of China
(Macau) Limited originally had a term of two years. Interest was
2.3% per annum over the 3-month HIBOR rate and repayment was due in
full at maturity in December 2019. It was subsequently renewed for
another term until June 2021 at the same interest rate. As at 30
June 2020, the facility had an outstanding balance of HK$79 million
(US$10.2 million) (2019: HK$79 million (US$10.1 million)). This
facility is secured by a first legal mortgage over the property as
well as a pledge of all income from the property. The Company is
the guarantor for this term loan. In addition, the Group is
required to maintain a cash reserve equal to six months' interest
with the lender. Interest is paid monthly on this loan facility.
The loan-to-value covenant is 60%. As at 30 June 2020, the
loan-to-value ratio for this facility was 42.02% (2019:
40.31%).
Bank Loan Interest
Bank loan interest incurred during the year was US$5,690,000
(2019: US$6,514,000), including US$nil (2019: US$nil) capitalised
during the year (see Note 7).
Amortised loan arrangement fees for the year are disclosed in
Note 14.
Fair Value
The fair value of fixed rate financial assets and liabilities
carried at amortised cost are estimated by comparing market
interest rates when they were first recognised with current market
rates for similar financial instruments.
The estimated fair value of fixed interest bearing loans is
based on discounted cash flows using prevailing market interest
rates for debts with similar credit risk and maturity. As at 30
June 2020, the fair value of the interest-bearing loans was
US$332,000 higher than the carrying value of the financial
liabilities (2019: the fair value of the interest-bearing loans was
US$101,000 higher than the carrying value of the financial
liabilities).
The Group's interest-bearing loans have been classified within
Level 2, as they have observable inputs from similar loans. There
have been no transfers between levels during the period or a change
in valuation technique since the last period.
9. Taxation
The Company is exempt from taxation in Guernsey under the
provisions of The Income Tax (Exempt Bodies) (Guernsey) Ordinances,
1989 to 1992, and is charged an annual exemption fee of GBP1,200
(US$1,577) (2019: GBP1,200 (US$1,531)).
The Group would only be exposed to Hong Kong profits tax if it
is:
(i) not exempted under the Revenue (Profits Tax Exemption for
Offshore Funds) Ordinance 2006 (the "Ordinance"); and
(ii) treated as carrying on a trade or business in Hong Kong
either on its own account or through any person as an agent.
No accrual has been made for Hong Kong profits tax, as the Board
believes that no such tax exposure exists at the end of the
reporting year (2019: US$nil).
The Group is not subject to any income, withholding or capital
gains taxes in the BVI. No capital or stamp duties are levied in
the BVI on the issue, transfer or redemption of shares. As a
result, no provision for BVI taxes has been made in the
consolidated financial statements.
The Macanese SPVs are liable to Macau property tax in respect of
their ownership of Macau properties. Taxation will be charged at
the higher of 8% (2019: 8%) of any rent received or 6% (2019: 6%)
of the official ratable rentable value. Newly built residential
buildings or commercial buildings were exempted from property tax
for four years and six years, respectively (such time running from
the month after the occupancy permit is issued) for properties
located in Macau peninsula and outlying islands. Macau
Complementary Taxes are generally levied on income and profits
arising in or derived from commercial and/or industrial activities
carried on in Macau. There is no distinction made between a
"revenue profit" and "capital profit" under the Macau complementary
tax regulations. Accordingly, all income booked by a Macau
corporate taxpayer, including gains on sale of investment/immovable
property, will be subject to complementary tax. In general, gains
on the disposal of shares in a Macau company (such as an SPV of the
Company) should not attract Macau complementary tax.
The Board closely monitors and assesses the level of provisions
for Macanese tax taking into consideration factors such as the
Group's structure.
As at the year-end, the following amounts are the outstanding
tax provisions.
Non-current liabilities 2020 2019
US$'000 US$'000
------- -------
Deferred taxation 11,837 15,083
------- -------
Provisions for Macanese taxations 533 804
------- -------
12,370 15,887
------- -------
Deferred taxation
The Group has recognised a deferred tax liability for the
taxable temporary difference relating to the investment property
carried at fair value and has been calculated at a rate of 12% as
relates to Macau taxation.
Provisions for Macanese taxations
The Group has made provisions for property tax and complementary
tax arising from its Macau business operations.
Major components of income tax expense
2020 2019
US$'000 US$'000
------- -------
Movement in deferred tax charge provision 3,351 2,923
------- -------
Movement in provision for Macanese taxations 207 90
------- -------
At the effective income tax rate of 10.1% (2019:
8.7%) 3,558 3,013
------- -------
The differences between the taxation credit for the year and the
movement in taxation provisions are due to the foreign exchange
rate movements and Macanese taxation paid during the year.
10. Trade and other receivables
Current assets 2020 2019
US$'000 US$'000
------- -------
Trade receivables 2 4
------- -------
Prepayments 364 188
------- -------
366 192
------- -------
11. Trade and other payables
Current liabilities 2020 2019
US$'000 US$'000
------- -------
Accruals 256 290
------- -------
Other payables 1,029 1,996
------- -------
1,285 2,286
------- -------
Other payables principally comprise outstanding amounts for
operating expenses.
12. Share capital
Ordinary shares 2020 2019
US$'000 US$'000
------- -------
Authorised:
------- -------
300 million ordinary shares of US$0.01 each 3,000 3,000
------- -------
Issued and fully paid:
------- -------
61.8 million (2019: 61.8 million) ordinary shares
of US$0.01 each 618 618
------- -------
The Company has one class of ordinary shares which carries no
rights to fixed income.
The Board has publicly stated its commitment to undertake share
buybacks at attractive levels of discount of the share price to
Adjusted NAV. In order to continue this strategy, the Board intends
to renew this authority at the 2020 Annual General Meeting.
On 24 July 2018, a compulsory redemption of 14,597,231 shares
was made for US$50.5 million, pro-rated amongst shareholders as at
that date, which included a compulsory redemption of 2,508,101
shares from Sniper Investments Limited for US$8,687,000. The
compulsory redemption reduced the share capital by US$146,000 and
the distributable reserves by US$50,417,000. No redemption of
shares was made during the current year.
There are no restrictions on the distribution of dividends and
repayment of capital.
13. General and administration expenses
2020 2019
General and administration expenses US$'000 US$'000
------- -------
Legal and professional 105 145
------- -------
Holding Company administration 199 263
------- -------
Guernsey SPV administration 100 132
------- -------
BVI, Hong Kong, & Macanese SPV administration 58 63
------- -------
Insurance costs 12 15
------- -------
Listing fees 14 15
------- -------
Printing & postage 19 18
------- -------
Other operating expenses 174 181
------- -------
681 832
------- -------
Administration fees for the BVI, Hong Kong and Macanese SPVs are
payable to Adept Capital Partners Services Limited in which Thomas
Ashworth is a shareholder and Director.
14. Other financing costs
2020 2019
Financing costs US$'000 US$'000
------- -------
Bank charges 5 4
------- -------
Loan arrangement fees 323 320
------- -------
328 324
------- -------
As at 30 June 2020, unamortised loan arrangement fees were
US$461,000 (2019: US$621,000). These have been netted off against
the interest bearing loans and also split between current and
non-current.
15. Property operating expenses
2020 2019
Property operating expenses US$'000 US$'000
------- -------
Property management fee 902 691
------- -------
Property taxes 306 411
------- -------
Utilities 14 15
------- -------
Other property expenses 166 180
------- -------
1,388 1,297
------- -------
16. Sales and marketing expenses
2020 2019
Sales and marketing expenses US$'000 US$'000
------- -------
Agent commission 254 159
------- -------
Sales incentive 257 -
------- -------
Marketing 6 9
------- -------
517 168
------- -------
17. Cash flows from operating activities
Cash flows from operating activities 2020 2019
US$'000 US$'000
-------- --------
Loss for the year before tax (35,080) (34,884)
-------- --------
Adjustments for:
-------- --------
Net loss from fair value adjustment on investment
property 27,924 24,357
-------- --------
Write-back of inventories to net realisable value - (120)
-------- --------
Net finance costs 5,992 6,809
-------- --------
Operating cash flows before movements in working
capital (1,164) (3,838)
-------- --------
Effects of foreign exchange rate changes 159 49
-------- --------
Movement in trade and other receivables (175) 1,234
-------- --------
Movement in trade and other payables (190) (25)
-------- --------
Movement in inventories 2,161 622
-------- --------
Net change in working capital 1,796 1,831
-------- --------
Taxation paid (23) (7)
-------- --------
Net cash generated from/(used in) operating activities 768 (1,965)
-------- --------
Cash and cash equivalents (which are presented as a single class
of assets on the face of the Consolidated Statement of Financial
Position) comprise cash at bank and other short-term, highly-liquid
investments with a maturity of three months or less. For both year
ends, there are no cash equivalents held by the Group.
18. Basic and diluted loss per ordinary share and net asset
value per share
The basic and diluted loss per equivalent ordinary share is
based on the loss attributable to equity holders for the year of
US$31,522,000 (2019: loss of US$31,871,000) and on the 61,835,733
(2019: 62,195,665) weighted average number of ordinary shares in
issue during the year.
30 June 2020 30 June 2019
Weighted Weighted
Average Average
No. of Loss Per No. of Loss Per
Loss Attributable Shares Share Loss Attributable Shares Share
----------------- -------- -------- ----------------- -------- --------
US$'000 '000s US$ US$'000 '000s US$
----------------- -------- -------- ----------------- -------- --------
Basic and diluted (31,522) 61,836 (0.5098) (31,871) 62,196 (0.5124)
----------------- -------- -------- ----------------- -------- --------
Net asset value reconciliation 2020 2019
US$'000 US$'000
------- -------
Net assets attributable to ordinary shareholders 100,576 131,059
------- -------
Uplift of inventories held at cost to market value 35,954 43,803
------- -------
Adjusted NAV 136,530 174,862
------- -------
Number of ordinary shares outstanding ('000) 61,836 61,836
------- -------
NAV per share (IFRS) (US$) 1.63 2.12
------- -------
Adjusted NAV per share (US$) 2.21 2.83
------- -------
Adjusted NAV per share (GBP)* 1.79 2.23
------- -------
The NAV per share is arrived at by dividing the net assets as at
the date of the Consolidated Statement of Financial Position, by
the number of ordinary shares in issue at that date.
Under IFRS, inventories are carried at the lower of cost and
NRV. The Adjusted NAV includes the uplift of inventories to their
market values before any tax consequences or adjustments.
The Adjusted NAV per share is arrived at by dividing the
Adjusted NAV as at the date of the Consolidated Statement of
Financial Position, by the number of ordinary shares in issue at
that date.
There are no potentially dilutive shares in issue.
* US$:GBP rate as at 30 June 2020 is 1.231 (2019: 1.270).
19. Related party transactions
Directors of the Company are all non-executive and by way of
remuneration, receive only an annual fee which is denominated in
Sterling.
2020 2019
US$'000 US$'000
------- -------
Directors' fees 177 189
------- -------
Directors' fees include fees paid to Timothy Henderson, a former
Director of the Company and current Director of certain SPVs, of
US$6,000 (2019: US$7,000). The Directors are considered to be the
key management personnel (as defined under IAS 24) of the Company.
Directors' fees outstanding as at 30 June 2020 were US$37,000
(2019: US$38,000). Thomas Ashworth retired from the Board at the
Annual General Meeting on 29 November 2019 and is therefore not a
related party as at 30 June 2020.
Thomas Ashworth has a beneficial interest in and is a Director
of Sniper Capital Limited. Sniper Capital Limited is the Manager to
the Group and received fees during the year, as detailed in the
Consolidated Statement of Comprehensive Income and on the basis
described in Note 20.
Management fees paid for the year totalled US$2,668,000 (2019:
US$4,491,000) with US$nil outstanding as at 30 June 2020 (2019:
US$nil) (see Note 20). Management fees of US$nil have been prepaid
as at 30 June 2020 (2019: US$nil).
No performance fee was accrued at the year end (2019: US$nil).
No performance fee was paid during the year (2019: US$nil).
Thomas Ashworth is a shareholder and Director of Adept Capital
Partners Services Limited. Adept Capital Partners Services Limited
provides administrative services to the Macanese, Hong Kong and BVI
SPVs and received fees during the year as detailed in Note 13.
The Group has a Development Management Services Agreement with a
development management company named Headland Developments Limited
("Headland"). Thomas Ashworth has a beneficial interest in and is a
Director of Headland and therefore, constitutes a related party of
the Group. Development Management Services fees capitalised in
investment property and inventories during the year are detailed in
Note 20.
The Group has an Agency Services Agreement with a property
management company named Bela Vista Property Services Limited
("Bela Vista"). Thomas Ashworth has a beneficial interest in and is
a Director of Bela Vista and therefore, constitutes a related party
of the Group. Agency services fees paid during the year are
detailed in Note 20.
20. Material contracts
Management fee
Under the terms of an appointment made by the Board of Directors
of the Company on 23 May 2006, Sniper Capital Limited was appointed
as Manager to the Group. The Manager is paid quarterly in advance,
a fee of 1.0% of the net asset value, as adjusted to reflect the
Property Investment Valuation Basis, reduced from a fee of 2.0%
from the start of 2020. During the year ended 30 June 2015, an
amendment was made to the Investment Management Agreement relating
to the definition of net asset value on which the fee is
calculated. The definition of net asset value changed to include an
'add-back' of deferred taxation to the Adjusted NAV, subject to a
claw-back provision, as the Directors are of the opinion that such
a liability will not be payable by the Group in the future.
Management fees paid for the year totalled US$2,668,000 (2019:
US$4,491,000) with US$nil outstanding as at 30 June 2020 (2019:
US$nil).
Realisation fee
A realisation fee shall be payable on deals originated and
secured by the Manager in 2020 which shall be linked to the sales
price achieved. Where the sale price of the asset is 90 per cent.
or more of the value of the relevant asset as at 30 September 2019
(the "Carrying Value") a fee of 2.5 per cent. of net proceeds (net
of debt, costs and taxes) ("Net Proceeds") shall be payable; where
the sale price of an asset is more than 80 per cent. but less than
90 per cent. of the Carrying Value of the relevant asset, a
realisation fee of 1.5 per cent. of Net Proceeds shall be payable;
and where the sale price of an asset is less than 80 per cent. of
the Carrying Value, no realisation fee shall be payable.
Realisation fees payable for the year totalled US$nil (2019:
US$nil).
For the calendar year 2021, a realisation fee of 1.5 per cent.
shall be payable on sales of assets above 80 per cent. of the
Carrying Values and, as set out above, zero management fee shall be
payable.
Extra Incentive fee
Additionally, in the event that divestments of all of the assets
are secured by the Manager (either in one transaction or multiple
transactions) prior to 31 December 2020, an extra incentive fee
equal to 1 per cent. of the Net Proceeds of the assets shall be
payable (the "Extra Incentive Fee"), subject to the aggregate sale
price of those assets exceeding 80 per cent. of the Carrying Values
of the relevant assets in aggregate. The time period for securing
the realisation of all assets in order for the Manager to qualify
for the Extra Incentive Fee may be extended for a further six month
period subject to the satisfaction of certain conditions. In no
circumstances will the 2020 Realisation fee and Incentive Fee
exceed in aggregate US$5 million. The 2021 Realisation fee
(together with Incentive Fee (if any) during such period) shall not
exceed in aggregate US$5 million. Incentive fees payable for the
year totalled US$nil (2019: US$nil).
Performance fee
Prior to 1 January 2020, the Manager was entitled to a
performance fee in certain circumstances. This fee was payable by
reference to the increase in Adjusted NAV per ordinary share over
the course of each calculation period. The first calculation period
ended on 30 June 2007; each subsequent performance period was a
period of one financial year.
Payment of the performance fee was subject to:
(i) the achievement of a performance hurdle condition: Adjusted
NAV per ordinary share at the end of the relevant performance
period must exceed an amount equal to the US Dollar equivalent of
the Placing Price increased at a rate of 10% per annum on a
compounding basis up to the end of the relevant performance period
(the "performance hurdle");
(ii) the achievement of a 'high water mark': Adjusted NAV per
ordinary share at the end of the relevant performance period must
be higher than the highest previously reported Adjusted NAV per
ordinary share at the end of a performance period in relation to
which a performance fee, if any, was last earned; and
(iii) the accumulated distributions per ordinary share to
shareholders exceed the high water mark.
If the basic performance hurdle was met, and the high water mark
exceeded, the performance fee will be an amount equal to 20% of the
excess of the Adjusted NAV per ordinary share at the end of the
relevant performance period over the higher of (i) the basic
performance hurdle; (ii) the Adjusted NAV per ordinary share at the
start of the relevant performance period; and (iii) the high water
mark (in each case on a per share basis), multiplied by the time
weighted average of the number of ordinary shares in issue in the
performance period (or since Admission in the first performance
period) (together, if applicable, with an amount equal to the VAT
thereon).
In the year ended 30 June 2020, no performance fee was accrued
(2019: US$nil) by the Group. During the year ended 30 June 2020, a
performance fee of US$nil was paid (2019: US$nil) by the Group.
The Manager's appointment is terminable by the Manager or the
Company on not less than 12 months' notice. The Company may
terminate the Management Agreement with immediate effect, if either
or both of the Principals is removed from their position of
full-time employment with the Manager or ceases to be available for
any reason beyond the Manager's reasonable control and the Manager
fails, within three months (or six months in the case of one only)
of such event, to cause to be made available the services of a
competent replacement(s) of equivalent skill and experience. The
Management Agreement may also be terminated with immediate effect
by either the Manager or the Company if the other party has gone
into liquidation, administration or receivership or has committed a
material breach of the Management Agreement.
Development Management Services Agreement
A Development Management Services Agreement dated 1 June 2010
was entered into between the Group and Headland, under which
Headland provides development management services to the Group in
respect of the Group's properties that require development.
Headland is paid a development management fee based on the hourly
rates of its personnel and the actual time spent on each project
for the Group. Such hourly rates will be reviewed annually by the
Board. Budgeted development management fees are submitted to the
Board for approval and are used to monitor against actual fees
charged to the Group. Under certain circumstances, a fixed
percentage fee cap based on construction value of the project may
apply, should the Board deem necessary.
The Group also agrees to reimburse Headland for any reimbursable
expenses reasonably incurred in the performance of its duties under
the agreement. Headland agrees to exercise all the reasonable
skill, care and diligence to be expected of a prudent and competent
development manager experienced in the provision of development
management services for projects of a similar size, scope, nature
and complexity as the projects on which it will be engaged by the
Group.
During the year, development management services fees of US$nil
(HK$nil) (2019: US$nil (HK$nil)) were capitalised in investment
property, US$nil (HK$nil) (2019: US$nil (HK$nil)) were capitalised
in inventories and US$nil (HK$nil) (2019: US$nil) (HK$nil) were
expensed. As at 30 June 2020, US$nil (2019: US$nil) was
outstanding.
Project Management Services Agreement
The Group and Bela Vista entered into a Project Management
Services Agreement, under which Bela Vista provides project
management services to the Group in respect of the renovation and
enhancement works at The Waterside. Bela Vista is paid a project
management fee based on a percentage of the total renovation and
enhancement costs and expenses incurred or contracted by The
Waterside. Such percentage will be reviewed annually by the
Board.
During the year, project management services fees of US$nil
(HK$nil) (2019: US$nil (HK$nil)) were capitalised in investment
property. As at 30 June 2020, US$nil (2019: US$nil) was
outstanding.
Agency Services Agreement
The Group and Bela Vista entered into an Agency Services
Agreement, under which Bela Vista provides agency services to the
Group in respect of the sales of residential units and car and
motorbike parking spaces of The Fountainside as well as the
individual unit in One Central Residences. Bela Vista is paid an
agency services fee based on a percentage of the total sales
considerations. Such percentage will be reviewed annually by the
Board.
During the year, agency services fees of US$20,000 (HK$157,000)
(2019: US$5,000 (HK$36,000)) were paid. As at 30 June 2020, US$nil
(2019: US$nil) was outstanding.
Leasing and Tenancy Management and Property Management Services
Agreement
On 23 January 2020, the Group and Bela Vista entered into a
Leasing and Tenancy Management and Property Management Services
Agreement, under which Bela Vista provides property services to the
Group in respect of asset management, tenant management and leasing
at The Waterside. Bela Vista is paid a leasing and tenancy
management fee based on a percentage of the monthly rental
receivable by The Waterside and fixed fees for property management
services and the staff costs and overhead incurred.
During the year, the leasing and tenancy management and property
management services fees of US$226,000 (HK$1,751,000) were paid. As
at 30 June 2020, US$nil was outstanding.
21. Deposits with lenders
Pledged bank balances represent deposits pledged to the banks to
secure the banking facilities granted to the Group. Deposits
amounting to US$4.3 million (2019: US$1.6 million) have been
pledged to secure long-term banking facilities and are, therefore,
classified as non-current assets. There are no other significant
terms and conditions associated with these pledged bank
balances.
2020 2019
US$'000 US$'000
------- -------
Non-current 4,278 1,608
------- -------
Current 175 235
------- -------
Pledged for loan covenants 4,453 1,843
------- -------
22. Commitments and contingencies
As at 30 June 2020, the Group had agreed a consultancy contract
with an architectural firm and is consequently committed to future
capital expenditure in respect of inventories of US$63,000 (2019:
US$90,000).
23. Auditors' remuneration
All fees payable to the auditors relate to audit services except
for US$8,000 that was payable to Ernst & Young Tax Services
Limited for Macau tax services.
Auditors' remuneration was broken down as follows:
2020 2019
US$'000 US$'000
------- -------
Audit fees 100 108
------- -------
Non-audit fees 8 -
------- -------
108 108
------- -------
24. Operating leases - Group as lessor
The Group has entered into leases on its property portfolio.
Future minimum rentals receivable under non-cancellable
operating leases as at 30 June 2020 are as follows:
2020 2019
US$'000 US$'000
------- -------
Residential
------- -------
Within 1 year 804 1,618
------- -------
After 1 year, but not more than 5 years - 10
------- -------
Total future rental income 804 1,628
------- -------
The majority of leases involve tenancy agreements with a term of
12 months, accordingly there is a limited impact on the group due
to changing market conditions.
As at 30 June 2020, lease incentives on which the Group was
lessor amounted to US$47,000 (2019: US$39,000) with rent free
liabilities of US$13,000 (2019: US$17,000).
25. Subsequent events
Subsequent to year end, the Group has entered into provisional
sale and purchase agreements to sell two units at The Fountainside
for HK$12.8 million (c.US$1.7 million) and HK$10.8 million
(c.US$1.4 million). These transactions are expected to complete by
the end of November 2020.
Subsequent to year end, the Group has entered into a provisional
sale and purchase agreement to sell its remaining individual unit
at One Central Residences at a price of HK$25 million (c. US$3.2
million). The transaction is expected to complete by the end of
November 2020.
Subsequent to year end in September 2020, the Group has executed
a HK$540 million (US$69.7 million) five-year term loan facility
agreement with Hang Seng Bank for its properties in One Central
Residences. The new loan facility serves to refinance previous
tranches which were due for settlement on 19 September 2020. The
loan will mature in September 2025 and interest will be charged at
1.80% per annum over 1-, 2- or 3-month HIBOR rate.
DIRECTORS AND COMPANY INFORMATION
Directors
Mark Huntley (Chairman)
Alan Clifton
Wilfred Woo
Thomas Ashworth (retired at AGM on 29 November 2019)
Audit and Risk Committee
Alan Clifton (Chairman)
Wilfred Woo
Mark Huntley
Management Engagement Committee
Mark Huntley (Chairman)
Alan Clifton
Wilfred Woo
Nomination and Remuneration Committee
Alan Clifton (Chairman)
Wilfred Woo
Mark Huntley
Thomas Ashworth (retired at AGM on 29 November 2019)
Disclosure and Communications Committee
Mark Huntley (Chairman)
Alan Clifton (appointed on 19 February 2020)
Thomas Ashworth (retired at AGM on 29 November 2019)
Manager
Sniper Capital Limited
Vistra Corporate Services Centre
Wickhams Cay II
Road Town, Tortola
VG1110
British Virgin Islands
Investment Adviser
Sniper Capital (Macau) Limited
Rua Correia Da Silva No. 53
Soi Cheong Res-Do-Chao A, Taipa
Macau
Solicitors to the Group as to English Law
Norton Rose Fulbright LLP
3 More London Riverside
London SE1 2AQ
Advocates to the Group as to Guernsey Law
Carey Olsen
Carey House
Les Banques
St Peter Port
Guernsey GY1 4BZ
Corporate Broker
Liberum Capital Limited
Ropemaker Place, Level 12
25 Ropemaker Street
London EC2Y 9LY
Independent Auditors
Ernst & Young LLP
PO Box 9
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4AF
Property Valuers
Savills (Macau) Limited
Suite 1309-10
13/F Macau Landmark
555 Avenida da Amizade
Macau
Administrator & Company Secretary
Ocorian Administration(Guernsey) Limited
(formerly Estera International Fund Managers (Guernsey)
Limited)
PO Box 286
Floor 2, Trafalgar Court
Les Banques
St Peter Port, Guernsey
Channel Islands GY1 4LY
Macau and Hong Kong Administrator
Adept Capital Partners Services Limited
Unit B1, 25/F, MG Tower
133 Hoi Bun Road
Kwun Tong, Kowloon
Hong Kong
Registered Office
PO Box 286
Floor 2, Trafalgar Court
Les Banques
St Peter Port, Guernsey
Channel Islands GY1 4LY
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END
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