TIDMMPO
RNS Number : 5775O
Macau Property Opportunities Fund
11 October 2021
11 October 2021
Macau Property Opportunities Fund Limited
("MPO" or the "Company")
Annual results for the year ended 30 June 2021
Macau Property Opportunities Fund Limited announces its results
for the year ended 30 June 2021. 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 0.2% over the year to US$265.4 million.
-- Adjusted NAV was US$128.8 million, which translates to
US$2.08 (150 pence(2) ) per share, a 5.7% decrease year-on-year
(YoY)from prior period value of US$2.21 (179 pence(3) ) per
share.
-- IFRS NAV was US$97.9 million or US$1.58 (114 pence(2) ) per share, a 2.7% decrease YoY.
-- Achieved further sales of assets of US$9.9 million. The
proceeds from our property sales have been used to further reduce
debt.
Capital management
-- As at 30 June 2021, MPO's balance sheet held assets worth a
total of US$247.0 million, against combined liabilities of US$149.1
million.
-- The Company ended the financial year with a consolidated cash balance of US$11.8 million.
-- As at 30 June 2021, gross borrowing stood at US$136.6
million, which translates to a loan-to-value ratio of 49.3%.
(1) Calculation was adjusted to reflect like-for-like
comparisons to 30 June 2020 due to the divestment of properties
during the year.
(2) Based on the Dollar/Sterling exchange rate of 1.386 on 30 June 2021.
(3) Based on the Dollar/Sterling exchange rate of 1.231 on 30 June 2020.
PORTFOLIO HIGHLIGHTS
-- The Waterside
- Occupancy declined to 33% versus 36% a year ago, largely due
to ongoing COVID-19 related travel restrictions. The average rental
was US$2.3 per square foot per month, down 8% YoY.
- The leasing team continues to focus on improving the occupancy
rate and achieving a more diverse tenant profile, shifting exposure
away from gaming activities.
- On the divestment front, each of the units and each of the
floors has a separate strata title which allows flexibility of
disposal options compared to en-bloc sales. The Board and the
Manager are actively reviewing the company's divestment strategy
against the background of market developments.
- At One Central Residences, during the financial year, despite
the challenges posed by the pandemic, the Company secured the sale
of the last remaining unit at One Central Residences for HK$25
million (US$3.2 million), a 4% premium to its most recent
valuation.
-- The Fountainside
- During the financial year, the Company has completed sales
worth HK$51.8 million (US$6.7 million) involving four residential
units and a car park. The Manager has also signed a sale and
purchase agreement to sell the final standard unit at HK$11.8
million (US$1.5 million). The transaction was completed in August
2021. With these sales, the Company has divested all 36 standard
units at The Fountainside.
- While the Company continues to market the four villas, work to
reconfigure the two duplexes has commenced and is targeted to be
largely complete by the end of 2021. Rendering of the reconfigured
units have been created and marketing of sales is expected to
commence in early 2022.
-- Penha Heights
- The Company launched a refreshed sales and marketing push with
specialist property agents from Q4 2020.
- We continue to work thoughtfully with specialist agents to
explore all potential avenues for a divestment of the property on
acceptable terms.
Mark Huntley, Chairman of Macau Property Opportunities Fund,
said:
"Being seen as a motivated seller - as opposed to one compelled
to sell due to circumstances - has been key to our approach, as has
exploring a variety of complementary strategies to achieve our
divestment objectives.
"However, the magnitude of the challenges COVID-19 travel
restrictions have posed to the Manager's ability to execute the
divestment strategy cannot be overstated. Given the impact of such
external factors, it cannot be assumed that all of the Company's
assets will be divested on acceptable terms by the end of
2021."
For more information, please visit www.mpofund.com for the
Company's full Annual Report 2021.
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
Darren Vickers / Owen Matthews
Tel: +44 20 3100 2000
Company Secretary & Administrator
Ocorian Administration (Guernsey) Limited
Kevin Smith
Tel: +44 14 8174 2742
MACAU PROPERTY OPPORTUNITIES FUND LIMITED
ANNUAL RESULTS & ACCOUNTS FOR THE YEARED 30 JUNE 2021
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 three 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 ethnicity, of investment
company and real estate experience and geographical perspective,
coupled with an essential understanding of the unique features of
Macau, its property market and the Company's 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 is subject to annual continuation votes.
The first, second and third Continuation Resolutions were passed at
General Meetings held on 5 July 2018, 29 November 2019 and 30
November 2020, respectively. The next Continuation Resolution will
be put to shareholders no later than 31 December 2021. 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
Amount Returned to Shareholders
US$173 million
ADVISERS & SERVICE PROVIDERS
Company Secretary and Administrator
Ocorian Administration (Guernsey) Limited
Corporate Broker
Liberum Capital Limited
External Auditor
Deloitte LLP
CHAIRMAN'S MESSAGE
I present my report for the Company for the financial year ended
30 June 2021, a year that has proved to be truly challenging in
many respects. The difficult circumstances that have confronted all
businesses have delayed our exit from our remaining assets,
although the sales we have achieved attest to the strength of our
strategy and determination.
Our Adjusted Net Asset Value at the period end was 150 pence per
share, down 16% from a year earlier, very largely due to Sterling's
strength against the US Dollar, our reporting currency. The Net
Asset Value at the period end was 158 cents per share, down 3% from
the previous year. The Discount to which our shares trade to the
Adjusted NAV has widened to beyond 50%, reflecting the market's
appreciation of the severe difficulties faced by the Company as it
pursues its divestment strategy.
During the financial year, Macau demonstrated continued success
in managing COVID-19, with low case numbers. At the end of calendar
year 2020 and entering 2021, cautious optimism emerged around
visitor numbers, and the number of inbound travellers peaked at
866,063 visitors in May, coinciding with China's Golden Week peak
travel period. In H1 2021, Macau welcomed a total of 3.9 million
visitors, 20% up on H1 2020, building confidence that the economy
would recover.
However, that recovery proved to be erratic, as a range of
factors impacted visitation, especially the territory's continued
closure to visitors from Hong Kong and elsewhere. It also became
clearer that Macau's achievements in terms of low COVID numbers had
come at a high cost to the economy, with an 85% drop in visitor
arrivals year on year (YoY) and 2020 gross domestic product
slumping 56.3% YoY.
More recently, it has also become clearer that Macau, like other
COVID zero-tolerance jurisdictions, has suffered from slow
implementation of an immunisation programme, leaving the population
and the economy vulnerable to further pandemic-related shocks.
Although the immunisation shortfall is being addressed, with more
than 50% of Macau residents having received at least one dose of
COVID vaccine, it has nevertheless hampered recovery efforts and
slowed the progress that we had anticipated earlier in the
year.
Macau is heavily reliant on visitors to drive revenues from
gaming and tourism, which feed into confidence in its real estate
sector. The return of mainland Chinese visitors has restarted with
China itself, the only other jurisdiction with which Macau forms a
travel bubble. Macau is the only destination outside mainland China
that Chinese can visit, yet Macau's tourism and gross gaming
revenues (GGR) remain far below pre-pandemic levels.
The pandemic, related border control measures and the resulting
sluggish economy have had the direct effect of suppressing demand
in the luxury segment of the property market to which our remaining
assets are exposed. Alongside the economic uncertainty, the
shrinkage of the pool of potential investors affected by the
restrictions has severely constrained investment activity in the
real estate sector and hampered the Company's efforts to divest its
properties on acceptable terms as planned.
It is important to understand that the property market continues
to function effectively, although most transactions are in the
market for smaller and more affordable dwellings. A combination of
travel limitations, mortgage restrictions and capital controls in
China, alongside broader uncertainty driven by macroeconomic
conditions, has seen our target investor groups persist with a
"wait and see" approach, notwithstanding the comparably good value
that Macau offers to investors.
Against the backdrop of these market challenges, the Manager has
continued to work hard to implement the divestment strategy, and
has deployed a variety of tactics aimed at delivering exits from
each of our three remaining portfolio assets.
Enhancements made to Penha Heights have been helpful in
attracting prospective investors. Reconfiguration work at The
Fountainside has been aimed at offering smaller units adapted to
current market conditions and allowing sales off-plan. The fact
that we have the option to strata-sell individual units at The
Waterside provides further opportunities, albeit potentially over a
longer timeframe, for the completion of sales.
Being seen as a motivated seller - as opposed to one compelled
to sell due to circumstances - has been key to our approach, as has
exploring a variety of complementary strategies to achieve our
divestment objectives. Sales of the larger units, where much of the
value remains, will take time and changes in investor sentiment to
complete. Every member of the team is strongly motivated to achieve
timely divestments. The market environment has made execution of an
en-bloc divestment strategy extremely challenging, but initiatives
continue to achieve this outcome, alongside individual asset
sales.
Amid that continued focus on divestment, it is pleasing to
report the Manager has achieved sales of a unit at One Central
Residences at a premium of 4% to the latest valuation, and sales of
additional units at The Fountainside. Whilst we have explained the
uncertainty attached to market valuations, the prices achieved in
these transactions underpin external valuations of our assets.
As at the year-end, 33% of The Waterside's apartments were
occupied at an average monthly rent of US$2.3 per square foot.
Lower occupancy has persisted since 2Q 2020, with some apartments
becoming vacant as travelling tenants found themselves unable to
return to Macau. The leasing team has been relatively successful in
maintaining and replacing tenants while also achieving greater
tenant diversification. Although most travel restrictions between
mainland China and Macau have been lifted, the pre-pandemic ease of
travel has not been fully restored, and the pool of potential new
tenants remains limited.
The proceeds from our property sales have been used to further
reduce debt. The Manager had further success in restructuring and
renegotiating the Company's debt against a backdrop of more
stringent borrowing restrictions. A facility of HK$540 million
(US$69.7 million) was executed in September 2020 to refinance loan
repayments on earlier tranches, and a further facility of HK$250
million was arranged in February 2021 to cover payments due by
March 2022. These refinancing facilities have significantly
improved the Company's liquidity, with cash balances remaining
adequate for working capital purposes, including for an extension
of the Company's life. With additional cash balances pledged as
part of renegotiated debt, such sums can be released upon the sale
of assets. We have emphasised the importance of continued success
in managing the restructuring of our loan facilities which the
Manager has successfully achieved to date. Ongoing engagement
suggests that this will continue to be the case, however, some of
the facilities expire within 12 months as detailed under going
concern.
There have been signs of improvement in Macau's economy this
year compared to the second half of calendar 2020, when it shrank
64% YoY in Q3 and 46% in Q4. Over full-year 2020, GDP contracted
56.3% YoY. In Q1 2021, the contraction narrowed to 0.9% YoY
resulting from increasing visitor numbers and growing GGR. GDP
growth of 69.5% YoY was recorded in Q2 2021.
For full-year 2021, the International Monetary Fund has forecast
growth of 61% YoY, followed by 43% YoY growth in 2022. However, the
disruption to Macau's economy caused by recent COVID-19 outbreaks
in Guangdong Province and other parts of mainland China, as well as
a two-week hiatus caused by local cases in Macau in August and the
latest outbreaks in the territory, these numbers may be revised
downwards.
The outlook for recovery is likely to be closely linked to the
easing of travel restrictions between mainland China and Macau.
However, the cautious approach adopted by the Macau government will
most likely persist, especially if immunisation rates remain
comparably slow and the travel bubble has not been extended to Hong
Kong despite ongoing discussions.
More recently, further uncertainty has been introduced, with
long-expected announcements concerning the government's proposals
on renewals of casino licences. Details are still emerging, and it
is too early to say exactly how confidence will be affected,
although casino stocks have been downgraded - particularly due to a
proposed requirement to approve the upstreaming of dividends.
Although this seems to have been driven by sentiment around capital
adequacy, underlying concerns among external investors centre on
the effects of the increasing influence of the Chinese government.
Developments will be closely monitored, although the Manager
believes the eventual outcome may be more positive than some of the
market rumours would have it as the facts become clearer.
Turning to the Company's operations, in this report we have
explained our approach to ESG, and the development and operation of
our properties is covered in detail.
Governance remains an important aspect of the Company's
operations, and the Board and Committee meetings, alongside
interaction with the Manager, have all been virtual as a
consequence of travel restrictions in Macau, Hong Kong and Guernsey
in particular. Meetings have been more regular, although it is
clear to us that remote arrangements are no substitute for physical
meetings, which we hope eventually to resume, at least in part. The
Company's share price and discount to Adjusted Net Asset Value is
closely monitored together with share volumes which remain
comparably low on a daily basis. Our focus on returning capital is
key to closing the current discount level.
Our shareholder engagement has been achieved through virtual
media because of the travel and other restrictions prevailing
during the Financial Year. Both the Manager and the Board remain
committed to ongoing shareholder communication as we navigate our
way through the divestment phase especially given the proposed
extension of the life of the Company. The constructive feedback and
approaches towards divestment feed into our ongoing tactics to
achieve this objective.
The board has functioned well, and we have a balance of
experience and ethnic diversity that has seen us through this
difficult period. Wilfred Woo has indicated that he will not seek
re-election at the upcoming AGM. Our search for a candidate to
replace Wilfred is targeting an individual who meets various
criteria, including our continued recognition of the desire for
ethnic and gender diversity. The key requirement, however, is
relevant experience - especially in the context of this late stage
of the Company's life. There are a limited number of individuals
with the background and expertise we require, and our search has
been complicated by travel restrictions. Moreover, the probable
short tenure of any appointment is a disincentive to some
candidates under consideration.
Following a formal, competitive tender process, the Company has
appointed Deloitte LLP as its external auditor, replacing Ernst
& Young LLP, which had served as its external auditor for 10
years.
In previous years and to conserve cashflow, a change in the
management fee structure was agreed that reduced the fee from 2% of
adjusted NAV to a fixed rate of US$100,000 per month for 2021. A
tiered structure of fees and incentives for the Manager was also
agreed if realised values exceeded pre-set thresholds and were
concluded within specified timeframes.
However, COVID-19 travel restrictions continue to severely
affect the Manager's efforts to divest the portfolio properties.
The Board and Manager are in discussions in respect of the fee
arrangements for one further year as conditions have continued to
adversely affect the Manager's ability to wind down its activities
in relation to the Company.
Pursuant to resolutions passed at MPO's AGM in 2016, the Company
is subject to annual continuation votes. The first, second and
third Continuation Resolutions were passed at General Meetings held
on 5 July 2018, 29 November 2019 and 30 November 2020,
respectively. The next Continuation Resolution will be put to
shareholders no later than 31 December 2021. As detailed in the
Director's Report and Note 1, although the Financial Statements are
prepared on a going concern basis there is a material uncertainty
in relation to the going concern of the Company.
A forced sale of assets under current market conditions would
see significantly lower gains than a continued, measured disposal
of our remaining assets. The Board will be recommending the
continuation of the Company at the AGM.
However, the magnitude of the challenges COVID-19 travel
restrictions have posed to the Manager's ability to execute the
divestment strategy cannot be overstated. Given the impact of such
external factors, it cannot be assumed that all of the Company's
assets will be divested on acceptable terms by the end of 2021. The
Manager and the Board will continue to keep investors well informed
of progress in this respect.
MARK HUNTLEY
CHAIRMAN
MACAU PROPERTY OPPORTUNITIES FUND LIMITED
8 October 2021
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 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 Canada
Life Asset Management 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
2017 2018 2019 2020 2021
NAV (IFRS)
(US$ million) 128.8 212.8 131.1 100.6 97.9
==================== ===== ===== ===== ===== =====
NAV per share
(IFRS) (US$) 1.69 2.78 2.12 1.63 1.58
==================== ===== ===== ===== ===== =====
Adjusted NAV
(US$ million) (a) 249.3 260.6 174.9 136.5 128.8
==================== ===== ===== ===== ===== =====
Adjusted NAV per
share (US$) (a) 3.26 3.41 2.83 2.21 2.08
==================== ===== ===== ===== ===== =====
Adjusted NAV per
share (pence)(1,
a) 250 258 223 179 150
==================== ===== ===== ===== ===== =====
Share price (pence) 157.0 194.0 146.0 61.75 67.5
==================== ===== ===== ===== ===== =====
Portfolio valuation
(US$ million) (b) 425.7 338.4 311.1 275.6 265.4
==================== ===== ===== ===== ===== =====
Loan-to-value ratio
(%) 39.4 34.7 43.5 49.6 49.3
==================== ===== ===== ===== ===== =====
1 Based on the following US Dollar/Sterling exchange rates on 30
June - 2017: 1.303; 2018: 1.321; 2019: 1.270; 2020: 1.231; 2021:
1.386
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
During the current financial year, Macau demonstrated success in
managing COVID-19 through strict border control measures. However,
the city's public health achievement has come at a high cost to the
economy, with visitor arrivals tumbling 85% year on year (YoY) and
gross domestic product falling 56.3% YoY for 2020. Although the
return of mainland Chinese visitors has restarted Macau's economic
engines - tourism and gaming - economic activity is still far from
pre-pandemic levels. Macau's 2021 target of 8 million visitor
arrivals is only around 20% of 2019's figure and estimates for
gross gaming revenue (GGR) this year are approximately 33% of what
they reached in 2019.
The pandemic, associated border control measures and the
resulting sluggish economy have had a direct impact on the luxury
property market to which our remaining assets are exposed.
Alongside the economic uncertainty, the shrinkage of the pool of
potential investors has seriously constrained investment activity
in the real estate sector and hampered the Company's efforts to
divest its properties on acceptable terms as planned.
Financial Results
Ongoing economic difficulties, coupled with tighter capital
controls and tougher lending restrictions, have had an adverse
impact on the Company's financial results. MPO's portfolio,
comprising three main assets, was valued at US$265.4 million as at
30 June 2021, a 0.2% decline YoY.
MPO's Adjusted Net Asset Value was US$128.8 million, which
translates to US$2.08 (150 pence) per share, a 5.7% decrease YoY.
IFRS NAV, which records inventory at cost rather than market value,
was US$97.9 million, or US$1.58 (114 pence) per share, a 2.7% drop
over the one-year period.
Capital Management
As at 30 June 2021, MPO's balance sheet listed assets worth a
total of US$247.0 million, offsetting combined liabilities of
US$149.1 million.
The Company ended the financial year with a consolidated cash
balance of US$11.8 million, of which US$6.8 million is pledged with
lenders. As at 30 June 2021, gross borrowing stood at US$136.6
million, which translates to a loan-to-value ratio of 49.3%.
Extension of Company Life and Fee Revision
At the Company's Annual General Meeting for the financial year
ending 30 June 2020, shareholders passed a resolution to further
extend the life of the Company for a year to facilitate the orderly
divestment of the portfolio. In parallel, in order to conserve
cashflow, a change in the management fee structure was agreed,
reducing the fee to a fixed rate of US$100,000 per month for 2021.
A tiered structure of fees and incentives for the Manager was also
agreed if realised values exceed pre-set thresholds and are
concluded within specified timeframes.
However, COVID-19 travel restrictions continue to severely
affect the Manager's efforts to divest the portfolio properties.
The Board and Manager are in discussions in respect of the fee
arrangements for one further year as conditions have continued to
adversely affect the Manager's ability to wind down its activities
in relation to the Company.
The Company thanks all shareholders for their support and
continues to strive to achieve the clearly established divestment
goals. However, the magnitude of the challenges COVID-19 travel
restrictions are placing on the Manager's ability to execute the
divestment strategy cannot be overstated. Given the impact of
external factors, the divestment of the Company's assets is likely
to extend beyond 2021. The Manager and the Board will continue to
keep investors well informed of progress in this regard.
Change of external auditor
Following a formal competitive tender process, the Company
appointed Deloitte LLP as its external auditor, replacing Ernst
& Young LLP, which had served as its external auditor for 10
years. The Company's financial statements for the financial year
ending 30 June 2021 and contained in this report are the first to
be audited by Deloitte LLP.
PORTFOLIO OVERVIEW
Property Sector No. Commitment Acquisition Project Market Changes Project
of (US$ million) cost development valuation (based on market composition
units (US$ million) cost (US$ million) value) (based on
(US$ million) market
value)
Over Since
the acquisition
year
------------ ----- ------------- ------------- ------------- ------------- ----- ------------ -----------
The Waterside
Tower Six of
One Central Luxury
Residences* residential 59 101.4 87.8 13.6 199.6 -0.2% 128% 75.2%
------------ ----- ------------- ------------- ------------- ------------- ----- ------------ -----------
The Low-density
Fountainside** residential 7 6.2 2.2 4.0 21.2 -0.3% 861% 8%
------------ ----- ------------- ------------- ------------- ------------- ----- ------------ -----------
Luxury
Penha Heights residential N.A. 28.7 27.1 1.6 44.6 0.0% 65% 16.8%
------------ ----- ------------- ------------- ------------- ------------- ----- ------------ -----------
Total 136.3 117.1 19.2 265.4 -0.2% 127% 100%
----- ------------- ------------- ------------- ------------- ----- ------------ -----------
* One Central is a trademark registered in Macau 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
T he Waterside, with 59 luxury residential apartments for lease,
is MPO's flagship asset in the prime Macau Peninsula area.
As at 30 June 2021, 33% of The Waterside's apartments were
occupied, and the average rental was US$2.3 per square foot per
month. Low occupancy persisted from 2Q 2020, when some apartments
fell vacant as travelling tenants were unable to return to Macau
due to COVID-19 travel restrictions. Although travel restrictions
between mainland China and Macau have been mostly been lifted, the
pre-pandemic ease of travel has not been fully restored and
potential new tenants remain limited.
Meanwhile, the leasing team continues to focus on improving The
Waterside's occupancy rate and achieving a more diverse tenant
profile, shifting exposure away from gaming activities.
During the financial year, despite the challenges posed by the
pandemic, the Company secured the sale of the last remaining unit
at One Central Residences for HK$25 million (US$3.2 million), a 4%
premium to its most recent valuation. The sales proceeds were used
primarily to pay down The Waterside's debt facility.
A facility of HK$540 million (US$69.7 million) was executed in
September 2020 to refinance the loan repayments of the earlier
tranches, and a further facility of HK$250 million (US$32.2
million) was arranged in February 2021 to cover payments due by
March 2022. These refinancing facilities have significantly
improved the Company's liquidity.
The Waterside remains a unique and attractive asset for
investors seeking exposure to Macau and the Greater Bay Area's next
phase of growth, and with limited new supply entering the market is
well positioned for divestment. As mentioned elsewhere, however,
the potential investor pool remains limited and despite the
attractiveness of the asset, the current environment has made
execution of an en-bloc divestment strategy extremely challenging.
Investors continue to wait out the pandemic as growing numbers of
COVID-19 cases in the Asia-Pacific region, fuelled by the emergence
of new variants of the virus and low vaccination rates have
dampened sentiment.
End users, however, have shown a considerable increase in
activity in recent months at the affordable end of the residential
market where transaction volumes have picked up significantly. It
remains to be seen if this feeds through to the luxury segment of
the market. Each of the units and each of the floors has a separate
strata title which allows flexibility of disposal options compared
to en-bloc sales. The Board and the Manager are actively reviewing
the company's divestment strategy against the background of market
developments and will keep shareholders abreast of any proposed
changes.
The Fountainside
The Fountainside is a low-density, freehold residential
development that currently comprises 42 residential units and 30
car-parking spaces in Macau's Penha Hill district.
Demand for high-end residential properties such as The
Fountainside has remained subdued this financial year on the back
of continued strict mortgage policies, and travel restrictions
which have weighed on sentiment and disrupted viewings by potential
purchasers.
Despite these constraints, the Company continued to focus on
divestments. As a result, during the financial year, the Company
has completed sales worth HK$51.8 million (US$6.7 million)
involving four residential units and a car park. The Manager has
also signed a sale and purchase agreement to sell the final
standard unit at HK$11.8 million (US$1.5 million). The transaction
was completed in August 2021. With these sales, the Company has
divested all 36 standard units at The Fountainside.
The remaining units are the larger properties - four villas and
two duplexes. In view of current market demand for more affordable
units, the Company applied to reconfigure the two duplexes as three
units with additional car-parking spaces, obtaining approval for
the plans in April. The reconfiguration work has commenced and is
targeted to be largely complete by the end of 2021. Renderings of
the reconfigured units have been created and marketing of sales is
expected to commence in early 2022.
Moving forward, the Manager will continue to pursue creative
disposal strategies for the few remaining units.
Penha Heights
Penha Heights is a prestigious, five-storey, colonial-style
villa covering an area of more than 12,000 square feet, nestled
amid lush greenery atop Penha Hill - an exclusive and highly
desirable residential enclave. This magnificent villa, with its
sweeping bay views, has been enhanced through works undertaken
during the lull in the property market.
The Company launched a refreshed sales and marketing push with
specialist property agents from Q4 2020, following the relaxation
of travel restrictions at that time allowing mainland Chinese
nationals to enter Macau.
Although feedback on the property enhancements and its
positioning has been positive, restricted access for prospective
investors to Macau has significantly hampered efforts to achieve
divestment in 2021. We continue to work thoughtfully with
specialist agents to explore all potential avenues for a divestment
of the property on acceptable terms.
MACROECONOMIC OUTLOOK
COVID-19 is under control but zero-tolerance approach continues
to impact the economy
Macau has managed the public health aspects of COVID-19 well.
Despite the resumption of quarantine-free travel between the
territory and the Chinese mainland, the total number of infections
in Macau to date stands at 75 - the vast majority of which were
imported. Since the beginning of the pandemic Macau has suffered no
COVID-19 deaths.
This public health success story has come at a considerable cost
to Macau's economy however, as the zero-tolerance approach made it
necessary to navigate a delicate balance between lives and
livelihoods. The closure of Macau's borders and the imposition of
stringent quarantine requirements on permitted visitors, which have
been the key to the city's success in managing the pandemic, also
severely affected the economically critical tourism and gaming
sectors - with a spillover into other sectors such as retail, food
& beverage and property. Although the government responded with
a generous economic stimulus package that featured a particular
emphasis on small and medium-sized enterprises, it was not
sufficient to offset the impact of the sharp fall in visitors.
As in other economies adopting the zero-tolerance approach, an
unfortunate consequence of the COVID containment success story is
that Macau's vaccination programme got off to a slow start as
residents did not feel a sense of urgency to undergo inoculation.
As it is now clearer that the safe reopening of the economy depends
to a high degree on achieving herd immunity, Macau authorities have
ramped up the territory's vaccination drive, including partnering
with casino operators to incentivise their workers to be
vaccinated. As of mid-September, around 53% of the city's
population has received at least one shot of the COVID-19
vaccine.
The rolling back of travel restrictions between mainland China
and Macau in Q3 2020, reopened Macau's only travel bubble. However,
due to the cautious approach that was adopted, the number of
visitors to Macau was still limited by lengthy visa procedures and
the travel bubble has not been extended to Hong Kong despite
on-going discussions.
Economy shows signs of nascent recovery
Macau's economy in H2 2020 continued to contract, with steep
declines of 64% YoY and 46% YoY in Q3 and Q4, respectively. For the
full year, GDP contracted 56.3% YoY. In Q1 2021, the contraction
had narrowed to 0.9% YoY amid increasing visitor numbers and
growing GGR. Having reignited its economic engines, Macau went on
to record its highest ever YoY GDP growth in Q2 2021 of 69.5%.
For full-year 2021, the International Monetary Fund has forecast
growth of 61% YoY, and 43% YoY growth in 2022. However, with the
disruption to Macau's economy caused by recent COVID-19 outbreaks
in Guangdong Province and other parts of mainland China, as well as
the latest outbreaks in Macau these numbers may be trimmed.
Tourism cautiously resuming but faces speed bumps
Following the relaxation of travel restrictions on mainland
Chinese tourists, Q4 2020 visitor arrivals increased by 150%
quarter on quarter to around 1.9 million, although that
nevertheless represented a decline of 80% YoY. For full-year 2020,
visitor arrivals totalled 5.9 million, down 85% YoY, marking the
first year since 2015 in which tourist numbers declined.
In H1 2021, visitor numbers peaked at 866,063 visitors in May,
which coincided with China's Golden Week peak travel period. In H1
2021, a total of 3.9 million visitors were recorded, 20% up on H1
2020.
The tourism sector remains heavily dependent on a stable COVID
situation in both Macau and mainland China. Fresh COVID-19
outbreaks in Guangdong Province in June, and the latest outbreaks
in other parts of mainland China and Macau led to a return of
tightened travel restrictions, which affected visitor arrivals in
the short term. Macau's government expects a total of 8 million
visitor arrivals in 2021, around 20% of the peak achieved in 2019,
when it recorded 39.4 million arrivals. However, the forecast is
likely to be revised amid recent outbreaks in both mainland China
and Macau.
There was optimism that a long-awaited Macau-Hong Kong travel
bubble could be activated soon, however, Macau authorities
subsequently announced that the potential easing of travel
restrictions with Hong Kong would be subject to ongoing discussions
with mainland Chinese authorities. The recent Delta variant
clusters reported in Macau may further delay establishment of a
travel bubble even longer.
Gross gaming revenue increasing
After the precipitous 77.4% YoY decline in GGR in H1 2020, GGR
began to recover following the return of visitors from mainland
China from September 2020 onwards. For the full year, GGR totalled
US$7.6 billion, down 79% YoY.
Reflecting the number of visitor arrivals in Macau, in H1 2021,
the period's peak was in May, which saw GGR rise to US$1.3 billion
before declining by 37% MoM in June to the lowest monthly total
during the year to date - US$820 million. For H1 2021, GGR stood at
US$6.1 billion, an increase of 45% compared to H1 2020.
Full year forecasts, while indicating an emerging recovery,
nevertheless show GGR to be some way off from 2019 levels.
According to Morgan Stanley, GGR's growth trajectory puts it on
course to increase by 60% YoY in 2021 to US$12 billion,
approximately 33% of 2019's total. This represents a downward
revision from its earlier forecast in May that GGR for 2021 would
hit 45% of 2019's level. Over the medium term, Bernstein expects
GGR to be 25% higher than the level seen in 2019 by 2025.
On the gaming concessions front, a public consultation on
proposed amendments to gaming legislation was launched on 15
September. The consultation will run until 29 October, comprising a
range of proposals, including additional government oversight and
removal of sub-concessions system. The authorities are expected to
submit a final consultation report to the Legislative Assembly 180
days following the public consultation.
Gaming operators nevertheless remain confident, with several
facilities opening in H1 2021, such as Sands China's launch of The
Londoner Macao in February. The Grand Lisboa Palace finally
launched its first phase in July 2021, and Galaxy is scheduled to
unveil facilities for its Phase III in stages, including a new
convention centre, from 2022.
Government relief measures to boost domestic economy and
tourism
Macau's government has used its substantial fiscal reserves to
bankroll a series of relief measures to boost the local economy in
the wake of the pandemic, including three consumption subsidy
schemes, which are expected to result in approximately US$1.5
billion having been injected into the local economy between May
2020 and December 2021.
In H2 2020, the Macao Government Tourism Office (MGTO) launched
a MOP290 million (US$36 million) campaign targeting mainland
Chinese with attractive offers for accommodation and shopping
vouchers to tempt them back to Macau for holidays.
PROPERTY MARKET OVERVIEW
Macau's luxury residential segment has potential to improve in
2021
The luxury residential market, in which the Company's properties
are concentrated, has remained generally quiet over the period, but
has recently begun to show some pockets of market activity.
Property agent Centaline Macau believes that prices are currently
near a five-year low, and as market sentiment improves in 2021,
expects the segment to gain momentum and grow by approximately 10%
in terms of both volume and price. Factors fuelling investor
interest will be Macau's management of COVID-19, the progress of
the territory's vaccination programme, and the resumption of
convenient travel arrangements between Macau, mainland China and
potentially, Hong Kong.
First-time buyers dominate property transactions; affordable
segment significantly more active compared to the luxury sector
Macau's residential property market saw a total of 3,354
transactions in H2 2020, a drop of 12% YoY. In H1 2021, the
property sector improved compared to a year earlier, aided by
positive sentiment following the government's continued firm
management of the pandemic and the rollout of its vaccination
programme. In total, 3,297 residential units were transacted, a YoY
increase of 8%. The average transaction price remained stable at
approximately US$1,200 per square foot as at the end of June. While
sectors of Macau's residential property market have stabilised
further and any potential buyers have been more active in seeking
smaller units.
Properties at the affordable end of the market - smaller units
worth under MOP8 million (US$1 million)-are the most sought-after.
In H1 2021, first-time buyers accounted for more than 84% of
transactions, second time buyers accounted for some 13%, and the
other 3% were buyers acquiring properties for at least the third
time.
Set against those potentially encouraging developments are
dampening factors that include Macau's strict mortgage rules, which
have made mortgages more expensive and restrictive for buyers of
luxury properties. In addition, capital controls imposed by Beijing
have restricted outflows of yuan from mainland China, and have
continued to weigh on luxury property purchases by mainland Chinese
investors in Macau and elsewhere. Coupled with broader economic
uncertainties caused by COVID-19 and travel restrictions, there has
been a distinct reluctance among potential buyers to make new
investments or commitments involving large sums.
Luxury residential boom in Greater Bay Area
First tier cities in the Greater Bay Area such as Shenzhen and
Guangzhou are experiencing a boom in their luxury residential
markets. In a global list of 46 prime property markets tracked by
property consultant, Knight Frank, Shenzhen topped the list with
the fastest growth in luxury home prices in Q1 2021 with prices
leaping 19% YoY. Guangzhou took third place in the list with its
luxury home prices increasing by 16% YoY. This put the two cities
ahead of traditional bellwethers such as London, New York, Paris
and Hong Kong.
In neighbouring Hong Kong, the luxury segment has witnessed an
unprecedented level of confidence and investor interest despite the
pandemic. A buying spree by wealthy buyers in H2 2020 and H1 2021
resulted in 50 transactions in the luxury segment, nearly triple
the volume of the previous year. Among the factors underlying the
boom was the emergence of a new group of high net worth individuals
who are flush with funds from initial public offerings on the Hong
Kong and Shenzhen bourses.
As the supply of luxury homes in these cities is limited, there
is the potential for demand to spill over to other cities in the
Greater Bay Area, including Macau. As accessibility and
connectivity within the Greater Bay Area is Macau's key strength,
its luxury property segment stands ready to experience the growth
seen in other GBA cities.
Looking ahead
The immediate economic outlook for Macau's luxury property
segment remains challenging and uncertain as Macau juggles
priorities to manage the impact of the pandemic. The government's
imperatives include a race to vaccinate the population, the
reopening of borders and the economy safely, and management of the
response to new outbreaks - particularly in mainland China.
The travel bubble with mainland China has demonstrated the
capabilities of the authorities in both Macau and mainland China to
manage COVID-19 outbreaks, underscoring the effectiveness of their
zero-tolerance prevention and control strategy. The Chinese
government has recently indicated that it will continue to maintain
border controls for another year until H2 2022 to manage the
pandemic, taking into consideration, among other factors, its large
domestic market, its vaccination rate, and its commitment to
hosting the 2022 Winter Olympics. However it has also shown that a
zero-tolerance approach is likely to result in more frequent
economic disruptions as lockdowns and travel restrictions remain as
key public health tools to curb the spread of COVID-19 until a
level of herd immunity is achieved.
Despite the current challenges and uncertainties, major
investors in Macau, such as gaming operators, are proceeding with
expansion plans and openings of new facilities, demonstrating their
confidence in the long-term viability of the territory's
economy.
Although the economic headwinds and prevailing uncertainties
have resulted in setbacks for the Company's divestment strategy,
with Macau's plan to speed up vaccinations to enable the reopening
of its economy, improved opportunities to secure suitable
divestment deals on terms that create better value for investors
will emerge. Nevertheless, we continue to remain mindful that any
new COVID outbreaks in the area may affect our divestment
timeline.
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 (the
"Company").
1.1 Core Business of the Group
The Company is in the process of an orderly and managed
divestment of the three remaining portfolio properties. No further
new construction or development activities will be undertaken save
for the limited reconfiguration at The Fountainside.
The Company is solely focussed on and exposed to the high-end
residential property market in Macau. It has never had any exposure
to any property or other investment in the gaming or associated
hospitality sectors and each investment is in full compliance with
the parameters set out in the Company's Prospectus.
1.2 Report Boundary
The ESG Report focuses on the environmental and social
responsibility performances of the Company's core business of
investment in properties in Macau, as listed below:
-- The Waterside
-- 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 Company's risk management
processes. The overall ESG approach is aimed at creating profit for
shareholders in a responsible manner, while taking into
consideration environmental and social responsibility and supply
chain management.
The Company's ESG Approach is developed based on The Ten
Principles of UNGC. UNGC is a voluntary multi stakeholder platform
which convenes 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 its business actions.
2 Environment
2.1 Commitment Principle
The Company strives to adopt environmental-friendly practices
during our business operations so as to minimize the negative
impacts on the environment and natural resources. It complies
strictly with all the applicable environmental laws and regulations
in Macau. Different environmental protection measures have been
implemented at the key stages of property development, along with
the incorporation of green building designs and the implementation
of responsible construction practices at work sites. The Company
also upholds the principles of recycle and reuse at its
properties.
2.2 Initiatives and Performances
Property Design
The Company follows local green building requirements, which
take into consideration green design elements such as 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; and
- Greening of rooftops.
Indoor air quality is improved through the introduction of the
air purifying equipment. Measures capable of monitoring temperature
and humidity in residential units and thus enhance the living
conditions for residents have been implemented at One Central and
The Fountainside.
Property Management
Various green measures have been adopted in our properties to
improve the overall environmental performance. For example,
- Energy efficiency: energy consumption has been reduced 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 minimize their
resource consumption (electricity, water and material use) and are
provided with recycling facilities to reduce waste.
- Rechargeable battery recycling: public collection points for
rechargeable battery recycling have been provided and tenants are
encouraged to use these facilities for battery disposal. Certain
materials in rechargeable batteries, such as cadmium, are hazardous
to human health and the environment.
An effective environmental management system has been
implemented. Some of the Company's main environmental objectives
regarding property management are as follows:
- Use of pesticides and cleansing agents in accordance to
relevant regulations, aiming for zero incidents regarding their use
and storage; and
- Manage community wastewater, waste and noise according to local standards.
Regulatory Compliance
The Company is not aware of any non-compliance with
environmental regulatory requirements that may significantly impact
the Company's business.
3 Social Responsibility and Supply Chain Management
The Company strongly believes that quality property is a gateway
to quality living. The Company strives to provide a quality
property experience through innovation and sensitivity, as well as
operating with integrity. Through such efforts, the aim is to
improve the living quality of tenants and become their trusted
partners.
3.1 Supply Chain Management
During the process of property construction and redevelopment,
the Company carefully appoints 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, those who are familiar with
the environmental, social and safety requirements and are in line
with concerns over the abolition of child labour and
anti-corruption are sought. Close contacts with the contractors on
all constructions and sourcing affairs are established. Regular
meetings to facilitate two-way communications take place. In
addition, regular assessments of contractors, based on
environmental and social risks, are performed.
3.2 Quality Services
To ensure the consistently high quality in its property
management services, the Company aims to:
- Develop quality properties that embrace innovation and enhance the neighbourhood;
- Provide sincere service and ongoing improvement of its property management;
- Strive for high standards by building scientific and
standardised property management, and achieve customer
satisfaction; and
- Provide a tasteful living environment for residents.
3.3 Protection of Privacy
To ensure the well-being of tenants, there is regular
communication with them through satisfaction surveys which help to
identify potential areas for improvement. Customers' information is
kept confidential and access is restricted.
Regulatory Compliance
The Company is not aware of any non-compliance with supply chain
management that may significantly impact the Group's business.
MANAGER AND ADVISER
Sniper Capital
Manager Investment Adviser Sniper Capital
Sniper Capital Limited (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 Statutory & * Compliance & reporting
regulatory
* Sourcing * Project delivery & handover * Facilities management * Cash management & treasury
* Communication
* Divestment * Asset value enhancement
* Due diligence
-------------------------------------------- ------------------------------------- -------------------------------------------------- ----------------------------------
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.
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,
divestment, investor relations and finance.
Working closely with Headland Developments Limited and Bela
Vista Property Services Limited, 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.
With its 20 August 2021 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.
The Manager is committed to the full disposal of the Company's
Portfolio at the earliest possible time.
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 real estate assets.
For more information, please visit www.snipercapital.com
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
sound 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
acceptable 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 2021. 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 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 Group's business activities, together with the factors
likely to affect its future development, performance and position,
are set out in the Manager's Report. The financial position of the
Group, its cash flows and its liquidity position are described in
the Capital Management section of the Manager's Report.
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.
In accordance with provision 30 of the 2018 revision of the UK
Corporate Governance Code, (the "UK Code"), and as 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 2022. This period represents the 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 2022?
2. 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 2022?
The Group has major debt obligations to settle during the going
concern period being:
i) refinance ICBC Macau US$9 million loan facility due for settlement at the end of October 2021;
ii) full repayment of Banco Tai Fung US$9 million loan facility
due for settlement in June 2022;
iii) instalment to repay principal of the loan facility with
Hang Seng Bank of approximately US$19 million due for settlement in
September 2022.
It is anticipated that the Group will be able to refinance these
loan facilities that are due for settlement over the going concern
period. The Board is confident that the facilities will be
refinanced and has ongoing dialogue, through the Manager, with all
banks and the early indications being that they would be willing to
refinance. The loans have all been successfully renewed previously,
the loan-to-value ratios of the facilities are well below the
covenants required under the respective loan agreements.
The Manager is responsible for the relationship with the Group's
lenders for monitoring compliance with loan terms and covenants and
reporting to the Board on matters arising. Throughout the year
ended 30 June 2021 and up to the date of issue of the financial
statements, the Group has continued to be in compliance with
covenant terms and has made all scheduled interest payments on
time.
Given that the refinancing arrangement of the debt obligations
that will become due for settlements in June 2022 and September
2022 have not been formally agreed at the date of issue of the
financial statements, the Directors consider that there is a
material uncertainty that may cast significant doubt over the
Group's and Company's ability to continue as a going concern.
2. Extension of life of the Company
After the Ordinary Resolution was passed at the Annual General
Meeting of the Company on 30 November 2020 to extend the Fund's
life until 31 December 2021, the Directors assessed the impact of
the continuation vote on the Fund's ability to continue as a going
concern. The Directors have also considered the going concern
assumption outside the primary going concern horizon.
In line with Article 38 of the Articles of Incorporation, the
Company will put forward a resolution for its continuation at the
next annual general meeting (intended to be held in December 2021).
If any continuation resolution is not passed, the Directors are
required to formulate proposals to be put to Members to reorganise,
unitise, reconstruct or wind up the Company.
The Directors expect to receive continuation support from major
shareholders and note that 50% of shareholder support is required
to ensure continuation. The Board have ongoing communication with
shareholders and the feedback regarding the continuation vote is
broadly positive. It is likely that returns from the sale of
properties would be significantly lower if the Fund was forced to
sell as a result of a failed continuation vote and it is therefore
commercially sensible for the Fund to continue in business.
Given that the continuation vote has not taken place at the date
of issue of the financial statements, the Directors consider that
there is a material uncertainty that may cast significant doubt
over the Company's ability to continue as a going concern.
Going Concern Conclusion
After careful consideration and based on the reasons outlined
above, including the ongoing dialogue with lenders and
shareholders, whilst there is material uncertainty related to going
concern, the Board have a reasonable expectation that the Company
will continue in existence as a going concern for 12 months from
the date of signing the Annual report. They are therefore satisfied
that it is appropriate to adopt the going concern basis in
preparing the financial statements.
Viability Statement
The Board has carried out a robust assessment 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. A base case and adverse scenario where
projections calculated based upon flexing these key assumptions had
both resulted in positive cash held balances throughout the
projection period with ending cash balances of over US$10 million
under both scenarios. The Board expects the 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 2021 Annual General
Meeting. The Board assumes that the LTV covenants will not be
breached as the 30 June 2021 market valuations already reflect the
impact of COVID-19 and it is not anticipated that they will reduce
further 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. During the year, the Board conducted a review for a
period covering three years, of which two remain, including a
review of a comprehensive 3 years cash flow projection, together
with adverse scenarios to stress test the cash positions of the
Company. The Board considered the remaining two 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 votes) and meet its liabilities as they fall due over
the three-year period of their assessment. It is expected that the
timeframe for the disposal of assets will be within the remaining
two-year period.
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 (2020: 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 2021 Annual General Meeting. No shares
have been repurchased in the current or prior financial years.
Significant shareholdings
As at 20 August 2021, a total of 7 shareholders each held more
than 3% of the issued ordinary shares of the Company, accounting
for a total of 43,717,181 shares (2020: 44,128,169) or 70.72%
(2020: 71.36%) of the issued share capital. Significant
shareholdings as at 20 August 2021 are detailed below:
Name of shareholder No. of shares %
Sniper Investments Limited 11,463,312 18.54%
------------- -------
Lazard Asset Management LLC 9,916,149 16.04%
------------- -------
Universities Superannuation Scheme 8,494,683 13.74%
------------- -------
FIL Investment International 4,482,645 7.25%
------------- -------
Apollo Multi Asset Mgt 3,867,861 6.26%
------------- -------
Miton Asset Mgt 3,200,000 5.18%
------------- -------
Banque de Luxembourg 2,292,531 3.71%
------------- -------
Subtotal 43,717,181 70.72%
------------- -------
Other 18,118,552 29.28%
------------- -------
Total 61,835,733 100.00%
------------- -------
Directors
Biographies of the Directors who served during the year are
detailed in the Board of Directors section.
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 -
-------------------------------------- -------------- ------------
Wilfred Woo intends to resign at the Annual General Meeting in
December 2021.
Directors' interests
Directors who held office during the year and had interests in
the shares of the Company as at 30 June 2021 were:
Ordinary Shares of US$0.01
Held at Held at
30 June 2021 30 June 2020
------------- -------------
Mark Huntley 200,000 200,000
------------- -------------
Alan Clifton 80,902 80,902
------------- -------------
Wilfred Woo - -
------------- -------------
There have been no changes to the aforementioned interests since
30 June 2021.
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 requirements 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.
The Directors, therefore, 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. These amounts remain unchanged in Sterling
terms.
2021 2020
US$ US$
------- -------
Mark Huntley 81,205 72,092
------- -------
Alan Clifton 60,904 53,812
------- -------
Wilfred Woo 50,753 45,057
------- -------
Total 192,862 170,961
------- -------
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. The Company's engagement with key stakeholders
and the key decisions that were made or approved by the Directors
during the year are described below.
Stakeholder Group Methods of Engagement Benefits of Engagements
Shareholders
----------------------------------- ------------------------------
The major investors in The Company engages Shareholders are aware
the Company's shares with its shareholders of any developments
are set out in the Directors' through the issue of and issues and through
Report periodic portfolio updates engagement are actively
in the form of RNS announcements engaged in the process
Continued shareholder and half yearly updates. of divestment.
support is vital to the
Company's divestment The Company provides
objectives, and therefore, in depth commentary
in line with its objectives, on the investment portfolio,
the Company seeks to corporate governance
maintain shareholder and corporate outlook
satisfaction through: in its semi-annual financial
statements.
* Net asset value preservation
In addition, the Company
directly and through
* Divestment of remaining properties, and its Manager undertake
regular roadshows to
meet with existing and
* Operating cost reduction prospective investors
to solicit their feedback
and understand any areas
of concern.
The Manager and Board
have achieved a substantial
operating cost reduction.
In the financial year
the Company issued:
* 4 NAV updates by way of RNS
* 2 half yearly updates.
The Company directly
and through the Manager
interacts with major
shareholders. These
meetings have been virtual
during the period. Such
interaction provides
mutual understanding
of the Company's prospects
and outlook for divestment.
LTV ratios confirm that
none of the Company's
properties is impaired
or considered to be
at risk of loss.
----------------------------------- ------------------------------
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 of the Furthermore, the Board
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 is
paying tenants in The are executed to safeguard received from residents
Waterside. the interests of the at The Waterside as
landlord, The Waterside, well as from the local
and tenants. In addition, market..
top-class facilities
and quality property
management services
are provided at The
Waterside to help ensure
comfortable occupancy.
----------------------------------- ------------------------------
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 in
December 2021 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 external auditor
for non-audit services and the balance of audit and non-audit fees
paid. Deloitte LLP have been appointed as external auditor for the
year to 30 June 2021 following the audit tender process carried out
in accordance with FRC guidance applicable to UK Incorporated
London Stock Exchange Listed companies. Each Director believes that
there is no relevant information of which the external auditor is
unaware. Each has taken all steps necessary, as a director, to be
aware of any relevant audit information and to establish that
Deloitte 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
8 October 2021
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 provides 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 Section 1 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 a 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. 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 a 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 in the 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, with the limited expected
life of the Company in mind.
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. Whilst there are no concerns
about either stale behaviour or lack of vigour to deliver the
Company's strategy with Mr Woo not seeking re-election as a
director any appointment of a director requires 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 have commenced the process
of board succession and aim to complete this in 2021.
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 this.
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 Principle J 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 independet 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
The Nomination and Remuneration Committee Report section.
Management Engagement Committee
The Management Engagement Committee Report section.
Audit and Risk Committee
The Audit and Risk Committee Report section.
Meeting Attendance
Nomination Management
Audit and and Remuneration Engagement Other
Scheduled Other Risk Committee Committee Committee Committee
Board Meeting Board Meeting Meeting Meeting Meeting Meeting
Name (max 4) (max 1) (max 4) (max 3) (max 3) (max 1)
Mark Huntley 4 1 4 3 3 1
-------------- -------------- --------------- ----------------- ----------- ----------
Alan Clifton 4 1 4 3 3 1
-------------- -------------- --------------- ----------------- ----------- ----------
Wilfred Woo 4 1 4 3 3 -
-------------- -------------- --------------- ----------------- ----------- ----------
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 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.
Whistleblowing
The Board has considered the AIC Code recommendations in respect
of arrangements by which staff of the Administrator may, in
confidence, raise concerns within their respective organisations
about possible improprieties in matters of financial reporting or
other matters.
It has concluded that adequate arrangements are in place for the
proportionate and independent investigation of such matters and,
where necessary, for appropriate follow-up action to be taken
within their organisation.
GDPR
The Board confirmed that the Company has considered GDPR and
taken measures itself and with its service providers to meet the
requirements of GDPR and the equivalent Guernsey law.
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
circumstances 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, are 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. The Board, through the Manager, has an ongoing
dialogue with all external lenders and closely monitor the loan
covenants of all facilities.
-- 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
situation and future operating performance but, if recognised, they
could provide opportunities for transformation. In the current
year, the following two significant emerging risks have been
identified:
-- Inability to achieve the Group's strategic objectives, linked
to a widening of the discount and the continuation vote in the
Annual General Meeting in December 2021; and
-- Economic changes particularly associated with the ongoing
COVID-19 pandemic and its future path and the resultant negative
impact upon the Macanese economy and the consequent effect on the
Macanese luxury 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 above.
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
8 October 2021
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 has been
satisfied with the current composition and functioning of its
members but notes Mr Woo's intention not to seek re-election at the
Company's forth coming AGM. It is the Company's policy to give
careful consideration to issues of the Board's balance, including
gender and ethnic 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 Board's current
ethnic diversity ratio is 33.33% and current gender diversity ratio
is 0.00%. 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's approach to succession needs to take account of the fact
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 three times in the
year ended 30 June 2021. 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
8 October 2021
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. During the year the Management
Agreement was amended to extend the Manager's entitlement to earn
fees into 2021 (and in certain circumstances 2022) in reflection of
the delays to the realisation of assets arising as a consequence of
the coronavirus pandemic.
Composition of the Management Engagement Committee
The members of the Management Engagement Committee are listed on
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 2021 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 2021 was satisfactory.
Overview
The Management Engagement Committee met three times 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
8 October 2021
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 Audit and Risk Committee is the formal forum through which
the external 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 15 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. The Board has also considered the inclusion of
the Chairman within the Audit Committee and having taken into
account that the Chairman is independent and non-executive,
believes it appropriate for the Chairman to be a member. It is the
intention to maintain the majority board independence within the
meaning of the AIC Code. We have commenced the process of board
succession and aim to complete this in 2021.
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 external 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 external 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 Administrator, Manager and Investment Adviser and
also reports from the external auditor on the outcomes of their
annual audit. The Audit and Risk Committee supports Deloitte 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 external 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 2021, the Audit and Risk Committee considered
the following significant issues:
-- impact of the COVID-19 pandemic;
-- going concern and viability in relation to the continuation
vote in December 2021 and availability of loan refinancing;
-- valuation of investment properties and inventories;
-- existence and ownership of investments properties and
inventories;
-- accounting treatment for taxes incurred in multiple
jurisdictions; and
-- income recognition for rental income.
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 is 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
external 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. This has not been possible during
the last 12 months. The factors that affect the value and ownership
of the investment property and inventory are further discussed in
Notes 3, 6 and 7.
The risk relating to the ownership and existence of investment
properties and inventories is 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 auditor 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 the principal risks
identified, including emerging risks.
Primary Area of Judgement
The Audit and Risk Committee determined that the key risk of
misstatement of the Company's financial statements is the fair
value of the investment property held by the Group in the context
of the high degree of judgement involved in the assumptions and
estimates underlying the discounted cash flow calculations.
The valuation report received from the independent valuer
includes a 'Material Valuation Uncertainty' paragraph in relation
to the market risks linked to COVID-19 as discussed in Notes 3, 6
and 7.
As outlined in Note 6 of the financial statements, the fair
value of the Group's investment property as at 30 June 2021 was
US$199,629,000 (2020: US$ 199,988,000). 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 2021 by an
independent, professionally-qualified valuer, Savills.
Savills is required to make assumptions on establishing the
current market valuation. The most significant assumptions (as
described further in Note 6), relate to future income streams and
discount rates applicable to these estimates. The principal
technique deployed was the income capitalisation method and these
estimates are based on the local market conditions existing at the
reporting date.
The valuation of the Group's investment property as at 30 June
2021 has been determined by the Board based upon the information
provided by the Investment Adviser.
The properties accounted for as inventory under IFRS are
recorded at fair value for the purposes of reporting the Adjusted
NAV (see Note 18) using the valuation prepared by Savills. As
detailed above, Savills is required to make assumptions on
establishing the current market valuation. The valuation of the
Group's inventories at fair value for the purpose of the Adjusted
NAV as at 30 June 2021 has been determined by the Board based upon
the information provided by the Investment Adviser.
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. The
Audit and Risk Committee also considers the review of controls of
the service organisations.
External audit
Deloitte LLP have been appointed as external auditor for the
year to 30 June 2021 following the audit tender process carried out
in accordance with FRC guidance applicable to UK Incorporated
London Stock Exchange Listed companies. The external auditor is
required to rotate the audit partner every five years. The current
Deloitte LLP lead audit partner, David Becker, started his tenure
for the current financial year end. The GFSC have indicated that no
audit rotation requirements are applicable to a Guernsey company.
Accordingly, paragraph 3.9 of the FCA guidance which cross refers
to the requirement included in UK legislation, is not relevant for
a Guernsey incorporated company.
During the year, the Audit and Risk Committee discussed the
planning, conduct and conclusions of the external audit as it
proceeded. At the May 2021 Audit and Risk Committee meeting, the
Committee discussed and approved the external 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 May
2021 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:
-- 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;
-- feedback from other service providers evaluating the
performance of the audit team;
-- arrangements for ensuring independence and objectivity;
-- the robustness of the external auditor in handling key
accounting and audit judgements; especially with regard to the
external auditor's review of the following areas:
o Valuation of investment property: the external auditor
identified this as the main focus area of the audit and challenged
the underlying assumptions used to prepare the valuation of the
investment property by independent and professionally-qualified
valuer Savills using their regional market specialists in Hong Kong
and performed recalculations of assumptions to ensure within their
parameters.
o The going concern assumption: the external auditor noted
shareholder feedback in addition to rigorous testing of
management's cash flow forecasts and three-year viability period to
obtain comfort over the going concern assumption. A material
uncertainty paragraph has been included in the audit opinion in
relation to going concern.
o Carrying value of inventory: Deloitte LLP performed an
analysis of the cost of the properties classified as inventory
against the valuation prepared by Savills and challenged the
underlying assumptions that were used to prepare the valuations to
ensure that these were appropriate.
o Revenue recognition: The external auditor tested the rental
receipts from the Waterside against the external rental agreements
and performed analytical review procedures to ensure that rental
receipts were within their expectations.
The Audit and Risk Committee also held private meetings with the
external auditor during 2021 and the Audit and Risk Committee
Chairman also maintained regular contact with the audit partner
throughout the year. These meetings provide an opportunity for open
dialogue with the external auditor without management being
present.
The Audit and Risk Committee is satisfied with Deloitte LLP's
effectiveness and independence as the external auditor having
considered the degree of diligence and professional scepticism
demonstrated by them. Having carried out the review described above
and having satisfied itself that the external auditor remains
independent and effective, the Audit and Operational Risk Committee
has concluded that the external auditor implemented sufficiently
robust processes to deliver a high-quality audit. Accordingly, the
Committee recommended to the Board that Deloitte LLP be reappointed
as the external auditor for the year ending 30 June 2022.
The Audit and Risk Committee has provided the Board with its
recommendation to the shareholders on the re-appointment of
Deloitte LLP as external auditor which will be put to shareholders
at the Annual General Meeting.
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 Deloitte LLP from
providing certain services, such as valuation work or the provision
of accounting services, and also sets a presumption that Deloitte
LLP should only be engaged for non-audit services where Deloitte
LLP is best placed to provide the non-audit service, for example,
the interim review service. Please see Note 23 for details of
services provided by Deloitte LLP.
Overview
The Audit and Risk Committee met four times in the year ended 30
June 2021. 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 2020 Annual Report and Audited Consolidated
Financial Statements for the year ended 30 June 2020;
-- review of the 2020 Interim Report and unaudited Interim
Condensed Consolidated Financial Statements for the 6 months ended
31 December 2020;
-- review of the quarterly results announcement issued in May
2021;
-- review of the audit plan and timetable for the preparation of
the 2021 Annual Report and Audited Consolidated Financial
Statements;
-- challenge of the 2021 Annual Report and Audited Consolidated
Financial Statements for the year ended 30 June 2021;
-- discussions and recommendation regarding the appointment of
the external auditor;
-- 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 auditor is re-appointed.
On behalf of the Audit and Risk Committee
Alan Clifton
Chairman of the Audit and Risk Committee
8 October 2021
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:
-- properly select and apply accounting policies;
-- 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 IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- make an assessment of the Company's ability to continue as a
going concern.
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 Group's
transactions and disclose with reasonable accuracy, at any time,
the financial position of the Group 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 Group 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 external auditor does not involve consideration
of these matters and, accordingly, the external 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 in 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.
So far as each Director is aware, there is no relevant audit
information of which the Company's external auditor is unaware, and
each Director has taken all the steps that he ought to have taken
as a Director in order to make himself aware of any relevant audit
information and to establish that the Company's external auditor is
aware of that information. This confirmation is given and should be
interpreted in accordance with the provisions of section 249 of the
Companies (Guernsey) Law, 2008 (as amended).
On behalf of the Board
Mark Huntley
Chairman of the Board
8 October 2021
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF
MACAU PROPERTY OPPORTUNITIES FUND LIMITED
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of Macau Property
Opportunities Limited (the "Company") and its subsidiaries (the
"Group"):
-- give a true and fair view of the state of the Group's affairs
as at 30 June 2021 and of its loss for the year then ended;
-- have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as issued by the
International Accounting Standards Board (IASB);
-- have been prepared in accordance with the requirements of the
Companies (Guernsey) Law, 2008.
We have audited the financial statements which comprise:
-- 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.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as issued by the IASB.
2. 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.
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 Financial Reporting Council's
(the "FRC's") Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities in accordance
with these requirements. We confirm that the non-audit services
prohibited by the FRC's Ethical Standard were not provided to the
Group.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
3. Material uncertainty related to going concern
We draw attention to note 1 in the financial statements which
indicates that the Group has major debt obligations that fall due
within 12 months of the date of approval of the financial
statements, for which refinancing has not yet been formally agreed.
Also, the fund's life is due to expire 31 December 2021 and whilst
the Company will put forward a resolution for its continuation at
the next annual general meeting, the continuation vote has not been
passed at the date of approval of the financial statements. As
stated in note 1, these events or conditions, along with the other
matters as set forth in note 1 indicate that a material uncertainty
exists that may cast significant doubt on the Company's ability to
continue as a going concern. Our opinion is not modified in respect
of this matter.
In auditing the financial statements, we have concluded that the
directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors' assessment of the Company's
ability to continue to adopt the going concern basis of accounting
included:
- Evaluated management's assessment of the potential issues that
may give rise to a material uncertainty, including mitigating
actions identified by the Directors;
- Assessed the liquidity position of the Company by evaluating
the impact of the tranche and full repayment of the Company's
external financing arrangements at expiry without renewal;
- Considered the financial covenants currently in place and
whether sufficient headroom exists, particularly in the context of
independent valuation of properties as a result of the impact
arising from COVID-19;
- Evaluated the likelihood of renewal of external financing
arrangements at expiry, including consideration of history of
renewal of such arrangements;
- Evaluated the assumption made by the Directors related to
passing of the upcoming continuation vote for the extension of the
life of the Company, along with consideration of Broker discussions
with certain shareholders;
- Performed sensitivity analysis on the key assumptions applied
in the going concern assessment, including the ability to realise
properties at their market value given the ongoing uncertainty
arising from COVID-19 and the continuing outbreaks in Macau;
- Checked the consistency of the forecast assumptions applied in
the going concern assessment with other forecasts, including the
external loan facilities expiry as well as the fact the Company is
in its divestment phase; and
- Reviewed the appropriateness of the disclosures in the
financial statements.
In relation to the reporting on how the Company has applied the
UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to:
- the directors' statement in the financial statements about
whether the directors considered it appropriate to adopt the going
concern basis of accounting;
- the directors' identification in the financial statements of
the material uncertainty related to the Company's ability to
continue as a going concern over a period of at least twelve months
from the date of approval of the financial statements;
- our responsibilities and the responsibilities of the directors with respect to going concern.
4. Summary of our audit approach
Key audit matters The key audit matters that we identified in
the current year were:
* Key judgements in the valuation of investment
property
* Carrying value of inventory
* Going Concern (see material uncertainty related to
going concern noted above)
Materiality The materiality that we used for the Group
financial statements in the current year was
$979k which was determined on the basis of
1% of net asset value.
---------------------------------------------------------
Scoping The response to the risks of material misstatement
was performed directly by the Group audit engagement
team.
---------------------------------------------------------
Significant changes in This was the first year of our appointment
our approach as auditor of the Group.
---------------------------------------------------------
5. Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team.
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.
In addition to the matter described in the material uncertainty
related to going concern section, we have determined the matters
below to be the key audit matters to be communicated in our
report.
5.1. Key judgements in the valuation of investment property
Key audit matter description The Group owns a high-end residential investment
property in Macau, as disclosed in note 6, that
is valued at $199.6m as at 30 June 2021 (2020:
$199.9m).
The property is valued by an independent, professionally
qualified valuer using the 'income capitalisation'
method of valuation.
Management is required to make a number of significant
assumptions and judgements in determining the
fair value and therefore we have identified this
as a potential fraud risk.
The key inputs into the fair value model which
are subject to significant management estimates
include future cash flows from assets, such as
lettings, tenants' profiles, as well as applicable
discount rates. Unreasonable assumptions could
give rise to a material misstatement.
As detailed in note 6, in applying the Royal Institution
of Chartered Surveyors (RICS) Valuation Global
Standards 2020 ("Red Book"), the valuer has declared
a 'material valuation uncertainty' in their valuation
report. This is on the basis that the market for
high-end residential assets in China is being
impacted by COVID-19 such that as at the valuation
date they consider that they can attach less weight
to previous market evidence for comparison purposes
to inform opinions of value, and that a higher
degree of caution should be attached to their
valuation. Consistent with the market conditions
observed in the prior year, we note there continued
to be a higher level of judgement associated with
certain asset valuations, including high-end residential
properties. The valuation of investment property
is disclosed as one of the key sources of estimation
uncertainty in note 3 of the financial statements.
How the scope of our To respond to the key audit matter, we have performed
audit responded to the following audit procedures:
the key audit matter
* Obtained and documented an understanding of relevant
controls in relation to the valuation process;
* Performed tests over the completeness and accuracy of
the year end data provided to the valuers including
reconciling the information included in the valuation
report to supporting documentation such as lease
agreements;
* Alongside our valuation specialists, discussed and
challenged the appropriateness of the valuation
methodology and the key inputs and assumptions with
the valuers and management with reference to
independent market data including COVID-19
considerations;
* Considered the competence, objectivity and integrity
of the valuers; and
* Assessed whether the disclosures in the financial
statements are appropriate regarding the critical
accounting judgements and key sources of estimation
uncertainty.
------------------------------------------------------------
Key observations While we note the increased estimation uncertainty
in relation to the property valuation as a result
of COVID-19, as disclosed in note 6, we concluded
that the assumptions applied by management in
arriving at the fair value of the Group's property
portfolio were appropriate, and that the resulting
valuations were within a reasonable range.
------------------------------------------------------------
5.2. Carrying value of inventory
Key audit matter description The Group owns high-end residential properties
held as inventory in Macau, as disclosed in note
7, whose carrying values are $34.9m as at 30 June
2021 (2020: $39.6m).
Properties held as inventory are carried at the
lower of cost or Net Realisable Value ("NRV").
In order to determine the NRV, the properties
are valued by an independent, professionally qualified
valuer using the 'sales comparison' method of
valuation. The value indication is derived by
comparing the property being appraised to similar
properties that have been sold recently, then
applying appropriate units of comparison and making
adjustments to the sale prices of the comparable
properties based on the elements of comparison.
As disclosed in note 7, the NRV has been estimated
as $65.1m at 30 June 2021 (2020: $74.8m).
Management is required to make a number of significant
assumptions and judgements in determining the
NRV, which is necessary to assess the appropriate
carrying value in the financial statements. As
described in note 18, the adjusted NAV includes
the uplift of inventories to their market value
which is utilised to calculate NAV based fees
and therefore we have identified this as a potential
fraud risk.
The key inputs into the fair value model which
are subject to significant management estimates
include the average unit per square foot.
The valuation of inventory is disclosed as one
of the key sources of estimation uncertainty in
note 3 of the financial statements.
How the scope of our To respond to the key audit matter, we have performed
audit responded to the following audit procedures:
the key audit matter
* Obtained and documented an understanding of relevant
controls in relation to the valuation process;
* Performed substantive tests of detail over the
completeness and accuracy of the year end data
provided to the valuers including reconciling the
information included in the valuation report to
supporting documentation;
* Alongside our valuation specialists, discussed and
challenged the appropriateness of the valuation
methodology and the key inputs and assumptions with
the valuers and management with reference to
independent market data including COVID-19
considerations;
* Assessed whether the valuers are independent of the
Group and considered the reliability and competency
of the valuers;
* Compared NRV and cost to determine the carrying value
of the property; and
* Assessed whether the disclosures in the financial
statements are appropriate regarding the critical
accounting judgements and key sources of estimation
uncertainty.
------------------------------------------------------------
Key observations We note that the average unit per square foot
determined by the independent valuer is within
the range noted in our independent research, albeit
on the higher end of the range. However, we have
concluded that the assumptions applied by management,
in arriving at the NRV of the Group's property
portfolio were appropriate, and that the resulting
valuations were within a reasonable range.
------------------------------------------------------------
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Group Materiality $979k (2020: $1.03m as determined by the predecessor
Auditor)
Basis for determining 1% of net asset value ("NAV") (2020: 1% of NAV
materiality as determined by the predecessor Auditor)
---------------------------------------------------------
Rationale for the In determining the materiality, we considered
benchmark applied what the most important balances on which the
users of the financial statements would judge
the performance of the Group. We consider the
NAV of the Group to be an appropriate benchmark
as this is a key performance indicator for shareholders.
---------------------------------------------------------
6.2. Performance materiality
We set performance materiality at a level lower than materiality
to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial
statements as a whole. Group performance materiality was set at 70%
of Group materiality for the 2021 audit (2020: 50% as determined by
the predecessor auditor due to a higher engagement risk
identified).
In determining performance materiality, we considered the
following factors:
- Our risk assessment, including our assessment of the quality
of the control environment including that present at the
administrator, Ocorian Administration (Guernsey) Limited;
- The reduced severity of the impact of the COVID-19 pandemic on
the Group's performance in the current year, compared with the
prior year; and
- Our review of prior year misstatements identified by the
predecessor Auditor.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of $49k (2020: $51k as
determined by the predecessor Auditor), as well as differences
below that threshold that, in our view, warranted reporting on
qualitative grounds. We also report to the Audit Committee on
disclosure matters that we identified when assessing the overall
presentation of the financial statements.
7. An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the Group
and its environment, including internal control, and assessing the
risks of material misstatement for the Company and its
subsidiaries. In assessing the control environment, we also
considered the control environments of the key service providers,
including the administrators, to whom the board have delegated
certain functions for the Company and its subsidiaries. Audit work
to respond to the risks of material misstatement was performed
directly by the Group audit team and all work was performed to
Group materiality.
8. Other information
The other information comprises the information included in the
annual report, other than the financial statements and our
auditor's report thereon. The directors are responsible for the
other information contained within the annual report.
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
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 course of 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 this
gives rise to a material misstatement in the financial statements
themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we
are required to report that fact.
We have nothing to report in this regard.
9. 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 Group or to cease
operations, or have no realistic alternative but to do so.
10. 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 FRC's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor's report.
11. Extent to which the audit was considered capable of
detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
-- the nature of the industry and sector, control environment
and business performance including the design of the Group's
remuneration policies, key drivers for directors' remuneration,
bonus levels and performance targets;
-- the Group's own assessment of the risks that irregularities
may occur either as a result of fraud or error that was approved by
the board on 8 October 2021;
-- results of our enquiries of management and the audit
committee about their own identification and assessment of the
risks of irregularities;
-- any matters we identified having obtained and reviewed the
Group's documentation of their policies and procedures relating
to:
o identifying, evaluating and complying with laws and
regulations and whether they were aware of any instances of
non-compliance;
o detecting and responding to the risks of fraud and whether
they have knowledge of any actual, suspected or alleged fraud;
o the internal controls established to mitigate risks of fraud
or non-compliance with laws and regulations;
-- the matters discussed among the audit engagement team and
relevant internal specialists, including tax and valuation
specialists regarding how and where fraud might occur in the
financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities
and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the following
areas:
- Key judgements in the valuation of investment property;
- Carrying value of inventory; and
- Going concern.
In common with all audits under ISAs (UK), we are also required
to perform specific procedures to respond to the risk of management
override.
We also obtained an understanding of the legal and regulatory
framework that the Group operates in, focusing on provisions of
those laws and regulations that had a direct effect on the
determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this
context included the Companies (Guernsey) Law, 2008, the Listing
Rules and relevant tax legislation.
In addition, we considered provisions of other laws and
regulations that do not have a direct effect on the financial
statements but compliance with which may be fundamental to the
Group's ability to operate or to avoid a material penalty. These
included the Company's regulatory licences under The Protection of
Investors (Bailiwick of Guernsey) Law, 1987.
11.2. Audit response to risks identified
As a result of performing the above, we identified the key
judgements in the valuation of investment property and carrying
value of inventory as key audit matters related to the potential
risk of fraud. The key audit matters section of our report explains
the matters in more detail and also describes the specific
procedures we performed in response to those key audit matters.
In addition to the above, our procedures to respond to risks
identified included the following:
-- reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect
on the financial statements;
-- enquiring of management and the audit committee concerning
actual and potential litigation and claims;
-- performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
-- reading minutes of meetings of those charged with governance
and reviewing correspondence with Guernsey Financial Services
Commission;
-- in addressing the risk of fraud in revenue recognition, we
performed detailed substantive analytical procedures on rental and
the timing of its recognition. We also agreed rental terms and rent
free periods, as well as any adjustments to revenue such as rent
concessions arising from COVID-19, to tenancy agreements;
-- in addressing the risk of fraud through management override
of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members including
internal specialists, and remained alert to any indications of
fraud or non-compliance with laws and regulations throughout the
audit.
Report on other legal and regulatory requirements
12. Corporate Governance Statement
The Listing Rules require us to review the directors' statement
in relation to going concern, longer-term viability and that part
of the Corporate Governance Statement relating to the Company's
compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements and our knowledge obtained during the audit:
-- the directors' statement with regards to the appropriateness
of adopting the going concern basis of accounting and any material
uncertainties identified set out in the Directors' Report;
-- the directors' explanation as to its assessment of the
Company's prospects, the period this assessment covers and why the
period is appropriate set out in the Directors' Report;
-- the directors' statement on fair, balanced and understandable
set out in the Statement of Directors' Responsibilities;
-- the board's confirmation that it has carried out a robust
assessment of the emerging and principal risks set out in the
Corporate Governance Report;
-- the section of the annual report that describes the review of
effectiveness of risk management and internal control systems set
out in the Corporate Governance Report; and
-- the section describing the work of the audit committee set
out in the Audit and Risk Committee Report.
13. Matters on which we are required to report by exception
13.1. Adequacy of explanations received and accounting records
Under the Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
-- we have not received all the information and explanations we
require for our audit; or
-- proper accounting records have not been kept by the parent
company; or
-- the financial statements are not in agreement with the
accounting records.
We have nothing to report in respect of these matters.
14. 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.
David Becker (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Recognised Auditor
St Peter Port, Guernsey
10 October 2021
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2021
2021 2020
Note US$'000 US$'000
---- ------- -------
ASSETS
---- ------- -------
Non-current assets
---- ------- -------
Investment property 6 199,629 199,988
---- ------- -------
Deposits with lenders 21 6,657 4,278
---- ------- -------
Trade and other receivables 111 111
---- ------- -------
206,397 204,377
---- ------- -------
Current assets
---- ------- -------
Inventories 7 34,924 39,631
---- ------- -------
Trade and other receivables 10 503 366
---- ------- -------
Deposits with lenders 21 175 175
---- ------- -------
Cash and cash equivalents 5,003 16,078
---- ------- -------
40,605 56,250
---- ------- -------
Total assets 247,002 260,627
---- ------- -------
EQUITY
---- ------- -------
Capital and reserves attributable to the Company's
equity holders
---- ------- -------
Share capital 12 618 618
---- ------- -------
Retained earnings 81,440 83,916
---- ------- -------
Distributable reserves 15,791 15,791
---- ------- -------
Foreign currency translation reserve 56 251
---- ------- -------
Total equity 97,905 100,576
---- ------- -------
LIABILITIES
---- ------- -------
Non-current liabilities
---- ------- -------
Deferred taxation provision 9 11,786 11,837
---- ------- -------
Taxation provision 9 705 533
---- ------- -------
Interest-bearing loans 8 114,624 47,102
---- ------- -------
127,115 59,472
---- ------- -------
Current liabilities
---- ------- -------
Trade and other payables 11 1,176 1,285
---- ------- -------
Interest-bearing loans 8 20,806 99,294
---- ------- -------
21,982 100,579
---- ------- -------
Total liabilities 149,097 160,051
---- ------- -------
Total equity and liabilities 247,002 260,627
---- ------- -------
Net Asset Value per share (US$) 18 1.58 1.63
---- ------- -------
Adjusted Net Asset Value per share (US$) 18 2.08 2.21
---- ------- -------
The accompanying notes are an integral part of these
consolidated financial statements.
The consolidated financial statements were approved by the Board
of Directors and authorised for issue on 8 October 2021.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 30 June 2021
2021 2020
Note US$'000 US$'000
---- -------- --------
Income
---- -------- --------
Income on sale of inventories 7 9,863 4,620
---- -------- --------
Rental income 1,231 2,606
---- -------- --------
11,094 7,226
---- -------- --------
Expenses
---- -------- --------
Net loss from fair value adjustment on investment
property 6 245 27,924
---- -------- --------
Cost of sales of inventories 7 4,787 2,692
---- -------- --------
Management fee 20 1,336 2,668
---- -------- --------
Realisation fee 20 217 -
---- -------- --------
Non-Executive Directors' fees 19 196 177
---- -------- --------
Auditors' remuneration: audit fees 23 134 100
---- -------- --------
Auditors' remuneration: other professional services 23 8 8
---- -------- --------
Property operating expenses 15 1,577 1,388
---- -------- --------
Sales and marketing expenses 16 717 517
---- -------- --------
General and administration expenses 13 552 681
---- -------- --------
(Gain)/loss on foreign currency translation (18) 159
---- -------- --------
(9,751) (36,314)
---- -------- --------
Operating profit/(loss) for the year 1,343 (29,088)
---- -------- --------
Finance income and expenses
---- -------- --------
Bank loan interest 8 (3,230) (5,690)
---- -------- --------
Other financing costs 14 (367) (328)
---- -------- --------
Bank and other interest - 26
---- -------- --------
(3,597) (5,992)
---- -------- --------
Loss for the year before tax (2,254) (35,080)
---- -------- --------
Taxation 9 (222) 3,558
---- -------- --------
Loss for the year after tax (2,476) (31,522)
---- -------- --------
Items that may be reclassified subsequently to
profit or loss
---- -------- --------
Exchange difference on translating foreign operations (195) 1,039
---- -------- --------
Total comprehensive loss for the year (2,671) (30,483)
---- -------- --------
Loss attributable to:
---- -------- --------
Equity holders of the Company (2,476) (31,522)
---- -------- --------
Total comprehensive loss attributable to:
---- -------- --------
Equity holders of the Company (2,671) (30,483)
---- -------- --------
2021 2020
---- -------- --------
US$ US$
---- -------- --------
Basic and diluted loss per ordinary share attributable
to the equity holders of the Company during the
year 18 (0.0400) (0.5098)
---- -------- --------
The accompanying notes are an integral part of these
consolidated financial statements.
All items in the above statement are derived from continuing
operations.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 30 June 2021
Foreign
currency
Share Retained Distributable translation
capital earnings reserves reserve Total
Note US$'000 US$'000 US$'000 US$'000 US$'000
---- -------- --------- ------------- ------------ -------
Balance brought forward at 1 July
2020 12 618 83,916 15,791 251 100,576
---- -------- --------- ------------- ------------ -------
Loss for the year - (2,476) - - (2,476)
---- -------- --------- ------------- ------------ -------
Items that may be reclassified
subsequently to profit or loss
---- -------- --------- ------------- ------------ -------
Exchange difference on translating
foreign operations - - - (195) (195)
---- -------- --------- ------------- ------------ -------
Total comprehensive loss for the
year - (2,476) - (195) (2,671)
---- -------- --------- ------------- ------------ -------
Balance carried forward at 30 June
2021 12 618 81,440 15,791 56 97,905
---- -------- --------- ------------- ------------ -------
Foreign
currency
Share Retained Distributable translation
capital earnings reserves reserve Total
Note US$'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
---- -------- --------- ------------- ------------ --------
The accompanying notes are an integral part of these
consolidated financial statements.
Director Director
Consolidated Statement of Cash Flows
Year ended 30 June 2021
2021 2020
Note US$'000 US$'000
---- --------- --------
Net cash generated from operating activities 17 5,952 768
---- --------- --------
Cash flows from investing activities
---- --------- --------
Capital expenditure on investment property 6 (245) (340)
---- --------- --------
Movement in pledged bank balances 21 (2,379) (2,610)
---- --------- --------
Net cash used in investing activities (2,624) (2,950)
---- --------- --------
Cash flows from financing activities
---- --------- --------
Proceeds from bank borrowings 2 101,747 11,478
---- --------- --------
Repayment of bank borrowings 2 (111,699) (13,679)
---- --------- --------
Interest and bank charges paid 2 (4,419) (6,686)
---- --------- --------
Net cash used in financing activities (14,371) (8,887)
---- --------- --------
Net movement in cash and cash equivalents (11,043) (11,069)
---- --------- --------
Cash and cash equivalents at beginning of year 16,078 26,980
---- --------- --------
Effect of foreign exchange rate changes (32) 167
---- --------- --------
Cash and cash equivalents at end of year 5,003 16,078
---- --------- --------
The accompanying notes are an integral part of these
consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at 30 June 2021
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 in the Directors and Company Information
section.
The consolidated financial statements for the year ended 30 June
2021 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 8 October 2021.
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 IFRS, 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. All other assets and liabilities are carried at
amortised cost.
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 Group's business activities, together with the factors
likely to affect its future development, performance and position,
are set out in the Manager's Report.
The financial position of the Group, its cash flows and its
liquidity position are described in the Capital Management section
of the Manager's Report.
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.
In accordance with provision 30 of the 2018 revision of the UK
Corporate Governance Code, (the "UK Code"), and as 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 2022.
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 2022?
2. 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 2022?
The Group has major debt obligations to settle during the going
concern period being:
i) refinance ICBC Macau US$9 million loan facility due for
settlement at the end of October 2021;
ii) full repayment of Banco Tai Fung US$9 million loan facility
due for settlement in June 2022; and
iii)instalment to repay principal of the loan facility with Hang
Seng Bank of approximately US$19 million due for settlement in
September 2022.
It is anticipated that the Group will be able to refinance these
loan facilities that are due for settlement over the going concern
period. The Board is confident that the facilities will be
refinanced and has ongoing dialogue, through the Manager, with all
banks and the early indications being that they would be willing to
refinance. The loans have all been successfully renewed previously,
the loan-to-value ratios of the facilities are well below the
covenants required under the respective loan agreements.
The Manager is responsible for the relationship with the Group's
lenders for monitoring compliance with loan terms and covenants and
reporting to the Board on matters arising. Throughout the year
ended 30 June 2021 and up to the date of issue of the financial
statements, the Group has continued to be in compliance with
covenant terms and has made all scheduled interest payments on
time.
Given that the refinancing arrangement of the debt obligations
that become due for settlements in June 2022 and September 2022
have not been formally agreed at the date of issue of the financial
statements, the Directors consider that there is a material
uncertainty that may cast significant doubt over the Group's and
Company's ability to continue as a going concern.
2. Extension of life of the Company
After the Ordinary Resolution was passed at the Annual General
Meeting of the Company on 30 November 2020 to extend the Fund's
life until 31 December 2021, the Directors assessed the impact of
the continuation vote on the Fund's ability to continue as a going
concern. The Directors have also considered the going concern
assumption outside the primary going concern horizon.
In line with Article 38 of the Articles of Incorporation, the
Company will put forward a resolution for its continuation at the
next annual general meeting (intended to be held in December 2021).
If any continuation resolution is not passed, the Directors are
required to formulate proposals to be put to Members to reorganise,
unitise, reconstruct or wind up the Company.
The Directors expect to receive continuation support from major
shareholders and note that 50% of shareholder support is required
to ensure continuation. The Board have ongoing communication with
shareholders and the feedback regarding the continuation vote is
broadly positive. It is likely that returns from the sale of
properties would be significantly lower if the Fund was forced to
sell as a result of a failed continuation vote and it is therefore
commercially sensible for the Fund to continue in business.
Given that the continuation vote has not taken place at the date
of issue of the financial statements, the Directors consider that
there is a material uncertainty that may cast significant doubt
over the Company's ability to continue as a going concern.
Going Concern Conclusion
After careful consideration and based on the reasons outlined
above, including the ongoing dialogue with lenders and
shareholders, whilst there is material uncertainty related to going
concern, the Board have a reasonable expectation that the Company
will continue in existence as a going concern for 12 months from
the date of signing the Annual report. They are therefore satisfied
that it is appropriate to adopt the going concern basis in
preparing the financial statements.
New and amended standards and interpretations applied
The following amendments to existing standards and
interpretations were effective for the year ended 30 June 2021 and
therefore were applied in the current year but they did not have a
material impact on the Group:
- IAS 1: Presentation of Financial Statements and the
Materiality Practice Statement
- IAS 8: Accounting Policies, Changes in Accounting Estimates
and Errors amendment
- IAS 39: Financial Instruments: Recognition and Measurement
amendment
- Interest Rate Benchmark Reform - Phase 2 - Amendments to IFRS
9, IAS 39, IFRS 7
New and amended standard and interpretation not applied
The following new and amended standards and interpretations in
issue are applicable to the Group but are not yet effective or have
not been adopted by the European Union and therefore, have not been
adopted by the Group:
- Annual Improvements to IFRSs 2018-2020 (effective 1 January
2022)
- Amendment to IAS 37: Onerous Contracts: Cost of fulfilling a
Contract (effective 1 January 2022)
- IFRS 17: Insurance Contracts (effective 1 January 2023)
- Amendments to IAS 1: Classification of Liabilities as Current
or Non-current (effective 1 January 2023)
IFRS 17 Insurance Contracts
IFRS 17 establishes the principles for the recognition,
measurement, presentation and disclosure of insurance contracts
within the scope of the standard. The objective of IFRS 17 is to
ensure that an entity provide relevant information that faithfully
represents those contracts. This information gives a basis for
users of financial statements to assess the effect that insurance
contracts have on the entity's financial position, financial
performance and cash flows.
The Group has considered the IFRS standard that has been issued,
but is not yet effective. This standard will not have a material
effect on the Group as the Group does not have any material
insurance contracts or write any insurance contracts.
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 and Hong
Kong Dollars (the "functional currencies"), 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 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 deposits with lenders which represent
restricted cash in relation to borrowing. The liquidity of this
deposit with lenders follow 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.
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 and deposits with
lenders, 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.
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 a 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 and
revenue from rental income is within the scope of IFRS 16. There
are no assumptions or judgements involved in revenue
recognition.
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.
Sale of completed property
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. Where the sales contract
stipulates payments that cross over reporting period, revenue is
recognised over the period of the contract by reference to the
progress towards complete satisfaction of each performance
obligation. This is determined based on the actual cost incurred to
date to estimated total cost for each contract. 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. Where the sales
contract stipulates payments that cross over reporting periods,
revenue is recognised as the satisfaction of performance
obligations is completed.
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 tables below summarise the
Group's exposure to foreign currency risk as at 30 June 2021 and 30
June 2020. 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$, and up
to a 10% increase/decrease for all other currencies.
The table below presents financial assets and liabilities
denominated in foreign currencies held by the Group as at 30 June
2021 and 30 June 2020, and can be used to monitor foreign currency
risk as at that date.
At 30 June 2021, if Sterling weakened/strengthened by 10%
against US$ with all other variables held constant, the loss for
the year would have been US$19,000 lower/higher (2020: US$16,000
lower/higher). The HK$ 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$7.76 per dollar so no downward
risk while the currency peg remains in place. The foreign exchange
risk is considered minimal and as such the Company does not
actively manage against this risk. If the HK$ 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$1,252,000 higher/lower (2020: US$1,267,000
higher/lower). Any movement would have no other effect on the
remaining equity components of the Group. There are no material
transactions that would have effect on the profit/loss for the
year.
The Macanese Patacas ("MOP") is fixed to the HK$ 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.
Other
US$ GBP HK$ currencies Total
As at 30 June 2021 US$'000 US$'000 US$'000 US$'000 US$'000
------- ------- --------- ----------- ---------
Trade and other receivables (excluding prepayments) - - - 111 111
------- ------- --------- ----------- ---------
Cash and cash equivalents - 35 4,825 143 5,003
------- ------- --------- ----------- ---------
Deposits with lenders - - 6,832 - 6,832
------- ------- --------- ----------- ---------
Total financial assets - 35 11,657 254 11,946
------- ------- --------- ----------- ---------
Trade and other payables 48 229 243 656 1,176
------- ------- --------- ----------- ---------
Interest-bearing loans - - 136,642 - 136,642
------- ------- --------- ----------- ---------
Total financial liabilities 48 229 136,885 656 137,818
------- ------- --------- ----------- ---------
Net financial position (48) (194) (125,228) (402) (125,872)
------- ------- --------- ----------- ---------
Other
US$ 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)
------- ------- --------- ----------- ---------
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 Manager has
assessed the interest rate risk as not significant and therefore
there were no interest rate swaps held during the current or prior
years. 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$1,248,000 (2020: loss for the year
increased/decreased by US$1,263,000) (based on the interest bearing
net financial liability per the table below). This is mainly due to
the Group's exposure to interest-bearing loans. There was no
significant movement of interest rates between 2020 and 2021 so a
1% movement is reasonable.
The following table details the Group's exposure to interest
rate risks:
Interest Non-interest
As at 30 June 2021 bearing bearing Total
US$'000 US$'000 US$'000
-------- ------------ -------
Trade and other receivables (excluding prepayments) - 111 111
-------- ------------ -------
Cash and cash equivalents 5,003 - 5,003
-------- ------------ -------
Deposits with lenders 6,832 - 6,832
-------- ------------ -------
Total financial assets 11,835 111 11,946
-------- ------------ -------
Trade and other payables - 1,176 1,176
-------- ------------ -------
Interest-bearing loans 136,642 - 136,642
-------- ------------ -------
Total financial liabilities 136,642 1,176 137,818
-------- ------------ -------
Interest Non-interest
As at 30 June 2020 bearing bearing Total
US$'000 US$'000 US$'000
-------- ------------ -------
Trade and other receivables (excluding prepayments) - 113 113
-------- ------------ -------
Cash and cash equivalents 16,078 - 16,078
-------- ------------ -------
Deposits with lenders 4,453 - 4,453
-------- ------------ -------
Total financial assets 20,531 113 20,644
-------- ------------ -------
Trade and other payables - 1,285 1,285
-------- ------------ -------
Interest-bearing loans 146,857 - 146,857
-------- ------------ -------
Total financial liabilities 146,857 1,285 148,142
-------- ------------ -------
Credit risk
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Group. The Group is exposed to credit
risks from both its leasing activities and financing activities,
including deposits with banks and financial institutions.
The Group's main exposure to credit risk is its cash balances
with banks. This risk is mitigated through using banks with a high
credit rating. The Group's cash and cash equivalents and deposits
with lenders are all held with investment grade banks and the
majority are held with a bank with a credit rating of A or
higher.
The Group's cash and cash equivalents have the following ratings
from Fitch and Moody's Ratings:
2021 2020
Credit Rating US$'000 US$'000
------- -------
AA - 14,744
------- -------
AA- 1,120 274
------- -------
A+ 3,333 812
------- -------
A 520 -
------- -------
A- 16 16
------- -------
BBB+ 14 229
------- -------
BBB - 3
------- -------
5,003 16,078
------- -------
The Group's deposits with lenders with the following ratings
from Fitch and Moody's Ratings:
2021 2020
Credit Rating US$'000 US$'000
------- -------
AA - 4,278
------- -------
AA- 6,657 -
------- -------
A+ - 175
------- -------
A 175 -
------- -------
6,832 4,453
------- -------
The Group is exposed to loss of rental income and increase in
costs, such as legal fees, if tenants fail to meet their payment
obligations under their leases. The Group seeks to mitigate default
risk by diversifying its tenant base and requiring deposits or
guarantees from banks or parent companies, where there is a
perceived credit risk or in accordance with prevailing market
practice.
All of the Group's major tenants have met their rental
requirements within the terms of arrangement and no material
receivables which are past due have been impaired.
The maximum exposure to credit risk at the reporting date is the
carrying value of each class of financial asset.
The Group's financial assets subject to the ECL model within
IFRS 9 are cash and cash equivalents, deposits with lenders and
trade and other receivables. There is not considered to be any
concentration of credit risk within these assets. The amount of ECL
on cash and cash equivalents and deposit with lenders are
considered to be US$nil 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.
Deposits amounting to US$6,832,000 (2020: US$4,453,000) have
been pledged to secure banking facilities, of which US$6,657,000
(2020: US$4,278,000) relates to long-term banking facilities, and
are, therefore, classified as non-current assets. Pledged bank
balances represent deposits pledged to the banks to secure the
banking facilities granted to the Group.
As at 30 June 2021, the Group has term loan facilities with Hang
Seng Bank, Industrial and Commercial Bank of China (Macau) Limited,
and Banco Tai Fung for its investments in The Waterside, The
Fountainside, and Estrãda da Penha. The Group's liquidity position
is monitored by the Manager and is reviewed quarterly by the Board.
Please refer to Note 8 for details of the facilities.
The table below analyses the Group's financial assets and
liabilities into relevant maturity profiles based on the remaining
period at the Consolidated Statement of Financial Position date to
the contractual maturity date. The amounts disclosed in the table
are the contractual undiscounted cash flows (including interest
payable).
On Less than 3 to 12 1 to 2 to
As at 30 June 2021 demand 3 months months 2 years 5 years Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------- --------- -------- -------- -------- ---------
Trade and other receivables
(excluding prepayments) - - - 111 - 111
------- --------- -------- -------- -------- ---------
Cash and cash equivalents 5,003 - - - - 5,003
------- --------- -------- -------- -------- ---------
Deposits with lenders - - 175 - 6,657 6,832
------- --------- -------- -------- -------- ---------
Total financial assets 5,003 - 175 111 6,657 11,946
------- --------- -------- -------- -------- ---------
Trade and other payables - 1,176 - - - 1,176
------- --------- -------- -------- -------- ---------
Interest-bearing loans - 1,143 22,927 27,179 92,802 144,051
------- --------- -------- -------- -------- ---------
Total financial liabilities - 2,319 22,927 27,179 92,802 145,227
------- --------- -------- -------- -------- ---------
Net financial position 5,003 (2,319) (22,752) (27,068) (86,145) (133,281)
------- --------- -------- -------- -------- ---------
On Less than 3 to 12 1 to 2 2 to
As at 30 June 2020 demand 3 months months years 5 years Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------- --------- -------- -------- -------- ---------
Trade and other receivables
(excluding prepayments) - 2 - 111 - 113
------- --------- -------- -------- -------- ---------
Cash and cash equivalents 16,078 - - - - 16,078
------- --------- -------- -------- -------- ---------
Deposits with lenders - - 175 - 4,278 4,453
------- --------- -------- -------- -------- ---------
Total financial assets 16,078 2 175 111 4,278 20,644
------- --------- -------- -------- -------- ---------
Trade and other payables - 1,285 - - - 1,285
------- --------- -------- -------- -------- ---------
Interest-bearing loans - 71,028 31,370 25,694 23,250 151,342
------- --------- -------- -------- -------- ---------
Total financial liabilities - 72,313 31,370 25,694 23,250 152,627
------- --------- -------- -------- -------- ---------
Net financial position 16,078 (72,311) (31,195) (25,583) (18,972) (131,983)
------- --------- -------- -------- -------- ---------
The table below analyses the Group's changes in financial
liabilities arising from financing activities.
Foreign Profit
1 July Exchange and 30 June
2020 Cashflows Movement Other Loss 2021
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------- --------- --------- ------- ------- -------
Current interest-bearing
loans 80,157 (60,823) (143) 2,034 - 21,225
------- --------- --------- ------- ------- -------
Non-current interest-bearing
loans 66,700 50,871 (120) (2,034) - 115,417
------- --------- --------- ------- ------- -------
Loan arrangement fees (461) (1,115) - - 364 (1,212)
------- --------- --------- ------- ------- -------
Net interest-bearing loans 146,396 (11,067) (263) - 364 135,430
------- --------- --------- ------- ------- -------
Interest payable 127 (3,304) - - 3,233 56
------- --------- --------- ------- ------- -------
Total 146,523 (14,371) (263) - 3,597 135,486
------- --------- --------- ------- ------- -------
Foreign Profit
1 July Exchange and 30 June
2019 Cashflows Movement Other Loss 2020
US$'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
------- --------- --------- -------- ------- -------
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, derived from the disposal of its remaining
real estate assets. The timing and amount of rental or other income
cannot be predicted.
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 2021, 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 2021, 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.
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 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. The Board and management have reviewed the valuations
and are in agreement with the valuer's judgement. This is an
accounting estimate and assumption.
The valuation report received from the independent valuer
includes a 'Material Valuation Uncertainty' paragraph in relation
to the market risks linked to COVID-19. The pandemic has caused
extensive disruptions to businesses and economic activities and the
uncertainties created have increased the estimation uncertainty
over the fair value of the investment property at the year end
date. Valuers therefore recommend that a higher degree of caution
should be attached to the valuation compared to valuations carried
out under normal circumstances.
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.
The Group did not make any critical accounting judgements, other
than as described above, in the year ended 30 June 2021 or the year
ended 30 June 2020.
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 2021 and 30 June 2020 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(1) 100% Macau Cannonball Limited(1) 100% Guernsey
--------- --------------- ------------------------- --------- ---------------
MPOF Macau (Site
5) Limited(1) 100% Macau Civet Limited(1) 100% Guernsey
--------- --------------- ------------------------- --------- ---------------
The Waterside Company Gorey Hills International
Limited(2) 100% Macau Limited(1) 100% BVI
--------- --------------- ------------------------- --------- ---------------
The Fountainside Hillsleigh Holdings
Company Limited(2) 100% Macau Limited(1) 100% BVI
--------- --------------- ------------------------- --------- ---------------
Castelo Branco Companhia Mega League Investments
Limitada(2) 100% Macau Limited(1) 100% BVI
--------- --------------- ------------------------- --------- ---------------
Smooth Run Group
MPOF (Jose) Limited(1) 100% Guernsey Limited(1) 100% BVI
--------- --------------- ------------------------- --------- ---------------
East Base Properties
MPOF (Sun) Limited(1) 100% Guernsey Limited(2) 100% Hong Kong
--------- --------------- ------------------------- --------- ---------------
Eastway Properties
MPOF (Guia) Limited(1) 100% Guernsey Limited(2) 100% Hong Kong
--------- --------------- ------------------------- --------- ---------------
Weltex Properties
MPOF (Antonio) Limited(1) 100% Guernsey Limited(2) 100% Hong Kong
--------- --------------- ------------------------- --------- ---------------
Bream Limited(1) 100% Guernsey
--------- --------------- ------------------------- --------- ---------------
1 Company is a holding company.
2 Company is an investment company.
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
its ongoing 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$1,231,000 for the year ended 30 June 2021
(2020: US$2,606,000).
6. Investment property
2021 2020
US$'000 US$'000
------- --------
At the beginning of the year 199,988 225,885
------- --------
Capital expenditure on property 245 340
------- --------
Fair value adjustment (245) (27,924)
------- --------
Exchange difference (359) 1,687
------- --------
Balance at end of the year 199,629 199,988
------- --------
Valuation losses (fair value adjustment) from investment
property are recognised in profit and loss for the year. These are
attributable to changes in unrealised losses relating to completed
investment properties 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 valuations based on its
knowledge of the property market and compares these to previous
valuations. The Group's investment properties were revalued at 30
June 2021 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 is 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.
The valuation report received from the independent valuer
includes a 'Material Valuation Uncertainty' paragraph in relation
to the market risks linked to COVID-19. The pandemic has caused
extensive disruptions to businesses and economic activities and the
uncertainties created have increased the estimation uncertainty
over the fair value of the investment property at the year end
date. Valuers therefore recommend that a higher degree of caution
should be attached to the valuation compared to valuations carried
out under normal circumstances.
Capital expenditure on property during the year relates to
fit-out costs for The Waterside.
Rental income arising from The Waterside of US$1,230,000 (2020:
US$2,606,000) was received during the year. Direct operating
expenses of US$956,000 (2020: US$956,000) arising from rented units
were incurred during the year. Direct operating expenses during the
year arising from vacant units totalled US$395,000 (2020:
US$255,000).
There are no disposals of investment property during the
year.
The following tables show the most appropriate presentation of
the inputs used in valuing the investment property which is
classified as Level 3 in the fair value hierarchy:
Unobservable
Carrying and observable
amount/ inputs used
fair value in
as at determination
Property 30 Jun 2021 Valuation of Other key
information US$'000 technique Input fair values information
Name The Waterside 199,629 Term and Term rent HK$17.8 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 life
of management of building
fee and furniture)
---------------------- ------------- ----------- -------------------- --------------- ---------------
Location One Central Reversionary HK$15.6 psf
Tower 6 Macau rent (exclusive
of management
fee and furniture)
---------------------- ------------- ----------- -------------------- --------------- ---------------
Reversionary
yield 1.7%
------------------------------------------------------------------------------- --------------- ---------------
Carrying
amount/fair Unobservable
value as and observable
at inputs used
Property 30 Jun 2020 Valuation in determination Other key
information US$'000 technique Input of 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 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$15.6 psf
Tower 6 Macau rent (exclusive
of management
fee and
furniture)
---------------------- ------------- ----------- ----------------- ----------------- -----------------
Reversionary
yield 1.7%
---------------------------------------------------------------------------- ----------------- -----------------
There have not been any transfers in the fair value hierarchy
during the current and prior years.
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 (2020:
increase or decrease by US$10 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 (2020:
decrease or increase by US$10 million).
The Waterside is currently valued at its highest and best use.
There is no extra evidence available to suggest that it has an
alternative use that would provide a greater fair value
measurement.
There have been no transfers between levels during the period or
a change in valuation technique since the last period.
7. Inventories
2021 2020
US$'000 US$'000
------- -------
Cost
------- -------
Balance brought forward 39,631 41,453
------- -------
Additions 146 546
------- -------
Disposals (4,782) (2,707)
------- -------
Exchange difference (71) 339
------- -------
Balance carried forward 34,924 39,631
------- -------
Four residential units and one car parking space of The
Fountainside and one individual unit of One Central Residences
(2020: One residential unit, two car parking spaces and five
motorcycle spaces of The Fountainside, and one individual unit of
One Central Residences) were sold during the year for a total
consideration of US$9.9 million (HK$76.5 million) (2020: US$4.6
million (HK$36.0 million)) against a total cost of US$4.8 million
(HK$37.1 million) (2020: US$2.7 million (HK$21.0 million)) which
resulted in a net profit of US$5.1 million (HK$39.4 million) (2020:
US$1.9 million (HK$15.0 million)) after all associated fees and
transaction costs.
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 2021 amounts to
US$34,924,000 (2020: US$39,631,000). The market value as at 30 June
2021 as determined by the independent, professionally-qualified
valuer, Savills, was US$65,772,000 (2020: US$75,585,000). The NRV
as at 30 June 2021 was US$65,114,000 (2020: US$74,829,000).
The valuation report received from the independent valuer
includes a 'Material Valuation Uncertainty' paragraph in relation
to the market risks linked to COVID-19. The pandemic has caused
extensive disruptions to businesses and economic activities and the
uncertainties created have increased the estimation uncertainty
over the fair value of the investment property at the year end
date. Valuers therefore recommend that a higher degree of caution
should be attached to the valuation compared to valuations carried
out under normal circumstances.
If the estimated unit rate increased/decreased by 5% (and all
other assumptions remained the same), the fair value of the
properties would increase by US$3.1 million or decrease by US$3.2
million (2020: increase by US$3.6 million or decrease by US$3.7
million).
8. Interest-bearing loans
2021 2020
US$'000 US$'000
------- -------
Bank loans - Secured
------- -------
* Current portion 20,806 99,294
------- -------
* Non-current portion 114,624 47,102
------- -------
135,430 146,396
------- -------
There are interest-bearing loans with three banks:
The Group has a loan facility for The Waterside:
Hang Seng Bank
The Group has a term loan facility with Hang Seng Bank for The
Waterside.
In September 2020, the Group executed a HK$540 million (US$69.7
million) five-year term loan facility (Tranche 7) to refinance
previous tranches which were due for settlement in September 2020.
In March 2021, the Group executed a HK$250 million (US$32.2
million) four-year term facility (Tranche 8) to refinance previous
tranches which were due for settlement in March 2021.
As at 30 June 2021, three tranches remained outstanding. Tranche
6 had an outstanding balance of HK$108 million (US$13.9 million)
(2020: HK$428 million (US$55.2 million)); Tranche 7 had an
outstanding balance of HK$515 million (US$66.4 million) (2020:
n/a)); Tranche 8 had an outstanding balance of HK$250 million
(US$32.2 million) (2020: n/a)); Tranche 3 had an outstanding
balance of HK$nil (US$nil) (2020: HK$300 million (US$38.7
million)); Tranche 4 had an outstanding balance of HK$nil (US$nil)
(2020: HK$40 million (US$5.2 million)) and Tranche 5 had an
outstanding balance of HK$nil (US$nil) (2020: HK$132 million
(US$17.1 million));.
The interest rates applicable to Tranche 6 of the term loan is
1.9% per annum over the 1-, 2- or 3-month HIBOR rate. The interest
rates applicable to Tranche 7 and Tranche 8 is 1.8% per annum over
the 1-, 2- or 3-month HIBOR rate. The choice of rate is at the
Group's discretion. Tranche 3, Tranche 4 and Tranche 5 were fully
repaid in September 2020. Tranche 6 matures in September 2022 and
the principal is to be repaid in half-yearly instalments commencing
from September 2020, with 25% of the principal due upon maturity.
Tranche 7 matures in September 2025 and the principal is to be
repaid in nine instalments commencing from December 2020 with 58%
of the principal due upon maturity. Tranche 8 matures in March 2025
and the principal is to be repaid in seven instalments commencing
from December 2021 with 34% of the principal due upon maturity. The
loan-to-value covenant is 60%. As at 30 June 2021, the
loan-to-value ratio for the Hang Seng One Central facility was
56.34% (2020: 57.20%). The facility is secured by means of a first
registered legal mortgage over The Waterside 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.
The Group has a loan facility for The Fountainside:
The Group has 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 2
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 drawn down in March 2020 to
repay the ICBC facility while Tranche B is undrawn. 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
2023 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 equals to six
months' interest with the lender. The carrying value of The
Fountainside as at 30 June 2021 is US$6,220,000.
As at 30 June 2021, the facility had an outstanding balance of
HK$39 million (US$5.0 million) (2020: HK$89 million (US$11.5
million)). As at 30 June 2021, sales proceeds of US$nil (2020:
US$nil) were pledged with the lender. As at 30 June 2021, the
loan-to-value ratio for The Fountainside facility was 23.47% (2020:
41.19%).
The carrying value of Estrãda da Penha as at 30 June 2021 is
US$28,704,000. The Group has two loan facilities for Estrãda 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 (US$9.0
million) which expired in June 2021 and was subsequently renewed
for another term of one year. Interest was revised to Prime Rate
minus 2.25% per annum in June 2021. Repayment is due in full at
maturity in June 2022. As at 30 June 2021, the facility had an
outstanding balance of HK$70 million (US$9.0 million) (2020: 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 2021,
the loan-to-value ratio was 44.30% (2020: 44.30%).
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 is due in
full at maturity by the end of October 2021 and the Company is in
advanced stage to conclude the refinancing arrangement. As at 30
June 2021, the facility had an outstanding balance of HK$79 million
(US$10.2 million) (2020: HK$79 million (US$10.2 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 2021, the
loan-to-value ratio for this facility was 42.02% (2020:
42.02%).
Bank Loan Interest
Bank loan interest incurred during the year was US$3,230,000
(2020: US$5,690,000), including US$nil (2020: US$nil) capitalised
during the year (see Note 7).
Amortised loan arrangement fees for the year are disclosed in
Note 14.
Fair Value
Interest-bearing loans are carried at amortised cost. 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 2021, the fair value of the interest-bearing loans was
US$72,000 higher than the carrying value of the financial
liabilities (2020: the fair value of the interest-bearing loans was
US$332,000 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$1,677) (2020: GBP1,200 (US$1,577)).
The Group would only be exposed to Hong Kong profits tax if it
is:
(i) not exempted under the Revenue (Profits Tax Exemption for
Offshore Funds) Ordinance 2006 (the "Ordinance"); and
(ii) treated as carrying on a trade or business in Hong Kong
either on its own account or through any person as an agent.
No accrual has been made for Hong Kong profits tax, as the Board
believes that no such tax exposure exists at the end of the
reporting year (2020: US$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 8%
(2020: 8%) of any rent received for rental properties or 6% (2020:
6%) of the official ratable rentable value for self-use properties.
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 ("MCT") 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 MCT regulations. Accordingly, income in accordance with
MCT regulations booked by a Macau corporate taxpayer, including
gains on sale of investment/immovable property, will be subject to
MCT. Under prevailing practice, gains on the disposal of
shares in a Macau company (such as an SPV of the Company) by a
non-Macau entity should generally not attract MCT.
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.
2021 2020
US$'000 US$'000
------- -------
Non-current liabilities
------- -------
Deferred taxation 11,786 11,837
------- -------
Provisions for Macanese taxations 705 533
------- -------
12,491 12,370
------- -------
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
2021 2020
US$'000 US$'000
------- --------
Loss for the year before tax (2,254) (35,080)
------- --------
Movement in deferred tax charge provision 29 3,351
------- --------
Movement in provision for Macanese taxation (251) 207
------- --------
At the effective income tax rate of (9.8%) (2020:
10.1%) (222) 3,558
------- --------
The differences between the taxation charge 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 2021 2020
US$'000 US$'000
------- -------
Trade receivables - 2
------- -------
Prepayments 503 364
------- -------
503 366
------- -------
11. Trade and other payables
Current liabilities 2021 2020
US$'000 US$'000
------- -------
Accruals 322 256
------- -------
Other payables 854 1,029
------- -------
1,176 1,285
------- -------
Other payables principally comprise outstanding amounts for
operating expenses.
12. Share capital
Ordinary shares 2021 2020
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 (2020: 61.8 million) ordinary shares
of US$0.01 each 618 618
------- -------
The Company has one class of ordinary shares which carries no
rights to fixed income.
The Board has publicly stated its commitment to undertake share
buybacks at attractive levels of discount of the share price to
Adjusted NAV. In order to continue this strategy, the Board intends
to renew this authority at the 2021 Annual General Meeting.
No redemption of shares was made during the current or prior
year.
There are no restrictions on the distribution of dividends and
repayment of capital.
13. General and administration expenses
2021 2020
General and administration expenses US$'000 US$'000
------- -------
Legal and professional 84 105
------- -------
Holding Company administration 140 199
------- -------
Guernsey SPV administration 70 100
------- -------
BVI, Hong Kong, & Macanese SPV administration 58 58
------- -------
Insurance costs 15 12
------- -------
Listing fees 19 14
------- -------
Printing & postage 12 19
------- -------
Other operating expenses 154 174
------- -------
552 681
------- -------
14. Other financing costs
2021 2020
Financing costs US$'000 US$'000
------- -------
Bank charges 3 5
------- -------
Loan arrangement fees 364 323
------- -------
367 328
------- -------
As at 30 June 2021, unamortised loan arrangement fees were
US$1,212,000 (2020: US$461,000). These have been netted off against
the interest bearing loans and also split between current and
non-current.
15. Property operating expenses
2021 2020
Property operating expenses US$'000 US$'000
------- -------
Property management fee 1,017 902
------- -------
Property taxes 316 306
------- -------
Utilities 14 14
------- -------
Other property expenses 230 166
------- -------
1,577 1,388
------- -------
16. Sales and marketing expenses
2021 2020
Sales and marketing expenses US$'000 US$'000
------- -------
Agent commission 411 254
------- -------
Sales incentive - 257
------- -------
Marketing 306 6
------- -------
717 517
------- -------
17. Cash flows from operating activities
2021 2020
US$'000 US$'000
------- --------
Cash flows from operating activities
------- --------
Loss for the year before tax (2,254) (35,080)
------- --------
Adjustments for:
------- --------
Net loss from fair value adjustment on investment
property 245 27,924
------- --------
Net finance costs 3,597 5,992
------- --------
Operating cash flows before movements in working
capital 1,588 (1,164)
------- --------
Effects of foreign exchange rate changes (18) 159
------- --------
Movement in trade and other receivables (137) (175)
------- --------
Movement in trade and other payables (96) (190)
------- --------
Movement in inventories 4,636 2,161
------- --------
Net change in working capital 4,403 1,796
------- --------
Taxation paid (21) (23)
------- --------
Net cash generated from operating activities 5,952 768
------- --------
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$2,476,000 (2020: loss of US$31,522,000) and on the 61,835,733
(2020: 61,835,733) weighted average number of ordinary shares in
issue during the year.
30 June 2021 30 June 2020
Weighted Weighted
Average Average
No. of Loss Per No. of Loss Per
Loss Attributable Shares Share Loss Attributable Shares Share
----------------- -------- -------- ----------------- -------- --------
US$'000 '000s US$ US$'000 '000s US$
----------------- -------- -------- ----------------- -------- --------
Basic and diluted (2,476) 61,836 (0.0400) (31,522) 61,836 (0.5098)
----------------- -------- -------- ----------------- -------- --------
Net asset value reconciliation 2021 2020
US$'000 US$'000
------- -------
Net assets attributable to ordinary shareholders 97,905 100,576
------- -------
Uplift of inventories held at cost to market value 30,848 35,954
------- -------
Adjusted NAV 128,753 136,530
------- -------
Number of ordinary shares outstanding ('000) 61,836 61,836
------- -------
NAV per share (IFRS) (US$) 1.58 1.63
------- -------
Adjusted NAV per share (US$) 2.08 2.21
------- -------
Adjusted NAV per share (GBP)* 1.50 1.79
------- -------
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
(see Note 3 and Note 7). The NRV is determined by Savills and is
subject to significant estimation uncertainty. 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$:GBP rate as at 30 June 2021 is 1.386 (2020: 1.231).
19. Related party transactions
Directors of the Company are all non-executive and by way of
remuneration, receive only an annual fee which is denominated in
Sterling.
2021 2020
US$'000 US$'000
------- -------
Directors' fees 196 177
------- -------
Directors' fees include fees paid to Timothy Henderson, a former
Director of the Company and Director of certain SPVs until
resigning in the year to 30 June 2021, of US$5,000 (2020:
US$6,000). 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 2021 were US$47,000 (2020:
US$37,000).
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$1,336,000 (2020:
US$2,668,000). No management fees are outstanding or prepaid as at
30 June 2021 (2020: US$nil) (see Note 20).
Realisation fees paid for the year totalled US$217,000 (2020:
US$nil) with US$nil outstanding as at 30 June 2021 (2020:
US$nil).
No performance fee was accrued at the year end (2020: US$nil).
No performance fee was paid during the year (2020: US$nil).
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 original Management fee was calculated
at 2.0% of the net asset value, as adjusted to reflect the Property
Investment Valuation Basis, payable quarterly in advance. The
Property Investment Valuation Basis is the basis on which the
properties will be valued by an independent valuer being an open
market basis in accordance with RICS property valuation practice
and guidelines. It was then reduced to 1.0% of the net asset value,
as adjusted to reflect the Property Investment Valuation Basis from
the start of 2020 and further reduced to a quarterly fixed fee of
US$300,000 for the calendar year 2021. 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$1,336,000
(2020: US$2,668,000) with US$nil outstanding as at 30 June 2021
(2020: US$nil).
Realisation fee
A realisation fee was payable on deals originated and secured by
the Manager in 2020 which was linked to the sales price achieved.
The realisation fee is currently active until 31 December 2021. The
realisation fee is payable upon the sale of individual properties
and becomes payable 10 business days after completion. Where the
sale price of the asset was 90 per cent. or more of the 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") was payable; where the sale price of an
asset was 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 was payable; and where the sale price of an
asset is less than 80 per cent. of the Carrying Value, no
realisation fee was payable. Realisation fees payable for the year
totalled US$217,000 (2020: US$ nil) with US$nil outstanding at 30
June 2021 (30 June 2020: US$ nil).
Extra Incentive fee
Additionally, in the event that divestments of all of the assets
were 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 was 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, active
until 31 December 2021, (together with Incentive Fee (if any)
during such period) shall not exceed in aggregate US$3.8 million.
Incentive fees payable for the year totalled US$nil (2020:
US$nil).
Performance fee
Prior to 1 January 2020, the Manager was entitled to a
performance fee in certain circumstances. This fee is payable by
reference to the increase in Adjusted NAV per ordinary share over
the course of each calculation period. The first calculation period
ended on 30 June 2007; each subsequent performance period was a
period of one financial year.
Payment of the performance fee was subject to:
(i) the achievement of a performance hurdle condition: Adjusted
NAV per ordinary share at the end of the relevant performance
period must exceed an amount equal to the US Dollar equivalent of
the Placing Price increased at a rate of 10% per annum on a
compounding basis up to the end of the relevant performance period
(the "performance hurdle");
(ii) the achievement of a 'high water mark': Adjusted NAV per
ordinary share at the end of the relevant performance period must
be higher than the highest previously reported Adjusted NAV per
ordinary share at the end of a performance period in relation to
which a performance fee, if any, was last earned; and
(iii) the accumulated distributions per ordinary share to
shareholders exceed the high water mark.
If the basic performance hurdle was met, and the high water mark
exceeded, the performance fee will be an amount equal to 20% of the
excess of the Adjusted NAV per ordinary share at the end of the
relevant performance period over the higher of (i) the basic
performance hurdle; (ii) the Adjusted NAV per ordinary share at the
start of the relevant performance period; and (iii) the high water
mark (in each case on a per share basis), multiplied by the time
weighted average of the number of ordinary shares in issue in the
performance period (or since Admission in the first performance
period) (together, if applicable, with an amount equal to the VAT
thereon).
In the year ended 30 June 2021, no performance fee was accrued
(2020: US$nil) by the Group. During the year ended 30 June 2021, a
performance fee of US$nil was paid (2020: US$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.
Development Management Services Agreement
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) (2020: US$nil (HK$nil)) were capitalised in investment
property and US$nil (HK$nil) (2020: US$nil (HK$nil)) were
capitalised in inventories. As at 30 June 2021, US$15,000 (2020:
US$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) (2020: US$nil (HK$nil)) were capitalised in investment
property. As at 30 June 2021, US$nil (2020: US$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$81,000 (HK$628,000)
(2020: US$20,000 (HK$157,000)) were paid. As at 30 June 2021,
US$nil (2020: 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$360,000 (HK$2,792,000) (2020:
US$226,000 (HK$1,751,000)) were paid. As at 30 June 2021, US$nil
(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$6.7 million (2020: US$4.3 million) have been
pledged to secure long-term banking facilities and are, therefore,
classified as non-current assets. There are no other significant
terms and conditions associated with these pledged bank
balances.
2021 2020
US$'000 US$'000
------- -------
Non-current 6,657 4,278
------- -------
Current 175 175
------- -------
Pledged for loan covenants 6,832 4,453
------- -------
22. Commitments and contingencies
As at 30 June 2021, the Group had agreed consultancy contracts
with architectural firms, an engineering firm, an electrical firm
and a quality surveying consultant and are consequently committed
to future capital expenditure in respect of inventories of
US$126,000 (2020: US$63,000).
23. Auditors' remuneration
All fees payable to the external auditor relate to audit
services except for US$8,000 that was payable to Ernst & Young
Macau in relation to taxation work.
Auditors' remuneration was broken down as follows:
2021 2020
US$'000 US$'000
------- -------
Audit fees 134 100
------- -------
Other professional services 8 8
------- -------
142 108
------- -------
24. Operating leases - Group as lessor
The Group has entered into leases on its property portfolio.
Future minimum rentals receivable under non-cancellable
operating leases as at 30 June 2021 are as follows:
2021 2020
US$'000 US$'000
------- -------
Residential
------- -------
Within 1 year 632 804
------- -------
After 1 year, but not more than 5 years - -
------- -------
Total future rental income 632 804
------- -------
The majority of leases involve tenancy agreements with a term of
12 months. The Group has assessed the risks as minimal as the
leases held are all operating leases relating to the rental of
apartments in The Waterside to which the Group acts as lessor.
As at 30 June 2021, lease incentives on which the Group was
lessor amounted to US$44,000 (2020: US$47,000) with rent free
liabilities of US$23,000 (2020: US$13,000).
25. Subsequent events
At the Annual General Meeting in December 2021, the Company will
hold a continuation vote on which the shareholders will vote on
whether to extend the lifecycle of the Company.
Directors and Company Information
Directors
Mark Huntley (Chairman)
Alan Clifton
Wilfred Woo
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
Disclosure and Communications Committee
Mark Huntley (Chairman)
Alan Clifton
Manager
Sniper Capital Limited
Vistra Corporate Services Centre
Wickhams Cay II
Road Town, Tortola
VG1110
British Virgin Islands
Investment Adviser
Sniper Capital (Macau) Limited
Largo da Ponte,
Nos. 51 e 57, 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 Auditor
Deloitte LLP
P.O Box 137
Regency Court
Glategny Esplanade
St Peter Port
Guernsey, GY1 3HW
Property Valuers
Savills (Macau) Limited
Suite 1309-10
13/F Macau Landmark
555 Avenida da Amizade
Macau
Administrator & Company Secretary
Ocorian Administration (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
Cautionary Statement (unaudited)
The Chairman's Statement, the Manager's Report and the Report of
the Directors have been prepared solely to provide additional
information for shareholders to assess the Company's strategies and
the potential for those strategies to succeed. These should not be
relied on by any other party or for any other purpose.
The Chairman's Statement, Manager's Report and the Report of the
Directors may include statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements can
be identified by the use of forward-looking terminology, including
the terms "believes", "estimates", "anticipates", "expects",
"intends", "may", "will" or "should" or, in each case, their
negative or other variations or comparable terminology.
These forward-looking statements include all matters that are
not historical facts. They appear in a number of places throughout
this document and include statements regarding the intentions,
beliefs or current expectations of the Directors and the Manager,
concerning, amongst other things, the investment objectives and
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The Company's actual investment performance, results of
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from the impression created by the forward-looking statements
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contained herein to reflect any change in expectations with regard
thereto or any change in events, conditions or circumstances on
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END
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(END) Dow Jones Newswires
October 11, 2021 02:00 ET (06:00 GMT)
Macau Property Opportuni... (AQSE:MPO.GB)
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