TIDMMPO
RNS Number : 9316C
Macau Property Opportunities Fund
28 February 2022
28 February 2022
Macau Property Opportunities Fund Limited
("MPO" or "the Company")
Interim results for the six-month period ended 31 December
2021
Macau Property Opportunities Fund Limited announces its results
for the period ended 31 December 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) was US$259.4 million as at 31
December 2021, a decline of 1.7% over the six-month period.
-- Adjusted Net Asset Value (NAV) was US$121.5 million, which
translates to US$1.96 (145 pence(2) ) per share, a decline of 5.7%
over the period.
-- IFRS NAV was US$93.2 million as of the period end, equating
to US$1.51 (112 pence(2) ) per share, a drop of 4.8%.
Capital management
-- The aggregated cash and deposit balances were US$6.9 million,
of which US$2.9 million was pledged as collateral for credit
facilities.
-- Gross borrowing stood at US$133.3 million, equating to a loan-to-value ratio of 50.0%.
-- A debt repayment of US$3.2 million was achieved.
Extension of Company Life
-- At the Company's Annual General Meeting in December,
shareholders agreed to a further extension of the Company's life
until 31 December 2022.
[1] Calculation was adjusted to reflect like-for-like
comparisons to 31 December 2021 due to the divestment of properties
during the period.
(2) Based on the US Dollar/Sterling exchange rate of 1.350 on 31
December 2021.
PORTFOLIO HIGHLIGHTS
-- The Waterside
- As of the end of 2021, around 30% of The Waterside's
apartments were occupied and the average rent stood at US$2.3 per
square foot per month.
- Market conditions have challenged efforts to secure the sale
of this asset. There remains active investor interest, however,
aided by the fact that each apartment has a separate strata
title.
-- The Fountainside
- The sale of the last remaining standard-type unit was
completed for HK$11.8 million (US$1.5 million, in line with its
latest valuation) in August 2021, bringing to an end the divestment
of all 36 standard units at the property.
- Reconfiguration work on the two duplex units to create three
smaller apartments and two car parks has commenced and is now
expected to be largely complete in Q1 2022. Marketing of the units
is expected to commence in April.
-- Penha Heights
- A series of enhancement works to refresh the property's
external and internal features was undertaken during the
pandemic-induced quiet period. Positive feedback regarding these
works has been received.
- Ongoing viewings are taking place and we will continue to work
with specialist agents to explore all possible channels for an
optimal exit from the asset.
Mark Huntley, Chairman of Macau Property Opportunities Fund,
said:
"The difficulties arising from COVID-19-driven restrictions
continued seriously to affect Macau's recovery. The Company's
financial performance reflects the headwinds we faced during the
first half of our financial year.
"Amid a very challenging environment to execute our divestment
programme, the Manager has steadfastly pursued a variety of exit
tactics. With continued prudent capital management and the hard
work of our team, we believe the Company can weather the conditions
that have disrupted our divestment plans. We remain dedicated to
achieving our asset disposal objectives, albeit over a longer time
frame than we had originally anticipated."
For more information, please visit www.mpofund.com for the
Company's full Interim Report 2022.
The Manager will be available to speak to analysts and the
media. If you would like to arrange a call, please contact 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 2234
Company Secretary & Administrator
Ocorian Administration (Guernsey) Limited
Kevin Smith
Tel: +44 14 8174 2742
MACAU PROPERTY OPPORTUNITIES FUND LIMITED
INTERIM REPORT FOR THE SIX-MONTH PERIODED 31 DECEMBER 2021
CHAIRMAN'S MESSAGE
I present my report for the first six months of our financial
year and the second half of the calendar year ended 31 December
2021.
During this period, the challenges of COVID-19-driven
restrictions following outbreaks in mainland Chinese cities and in
Macau, including lockdowns, continued to seriously affect Macau's
recovery. Adding to uncertainty around travel, questions over
renewals of casino licences and a subsequent clampdown on VIP and
junket gaming also weighed heavily on sentiment. Recent
announcements have calmed those concerns, although the mainland
Chinese government's targeting of junket operations and VIP gaming
will impact gross gaming revenue and the Macau government's tax
receipts. The Company has no direct links to gaming, but the
critical role that gaming plays in Macau's economy affects our
operating environment and investor sentiment.
Against this backdrop, the improvement in Macau's economy during
2021 is mildly encouraging, although it remains a long way from its
pre-pandemic performance. Macau continues to follow a "dynamic
zero" strategy to control COVID, like mainland China and Hong Kong.
Unlike those jurisdictions, however, whose economies are more
diversified, Macau's economy is heavily reliant on two key
industries - gaming and tourism - so the dynamic zero policy has
not only reduced government revenues, but has also affected most
aspects of the wider marketplace, including the luxury property
sector, to which we are exposed.
Although the territory's public health achievements are
noteworthy, the delays have hampered the pace of economic recovery.
China remains Macau's only travel bubble, accompanied by vigorous
controls. Broader travel bubbles would provide a welcome boost to
sentiment and investor confidence. These two markets are critical
to Macau's continued recovery, and particularly important when it
comes to restoring some momentum at the upper end of the property
market. Macau's real estate market remains subdued compared to
markets in mainland Chinese cities and Hong Kong, as well as
markets further afield, which have delivered growth and higher
levels of activity. This is largely due to the limited diversity of
Macau's economy.
A loosening of travel restrictions has appeared to be imminent
on several occasions, but the recent surge in COVID cases in Hong
Kong, and the imposition of strict public health measures in that
city, will result in a further delay. In contrast to Macau, once
strict "COVID-zero" countries such as Singapore, Australia and New
Zealand are now moving to policies of "living with COVID". In the
absence of a clear exit strategy from the mainland China-led
dynamic zero model, we expect that the completion of our divestment
programme will require more time than we had anticipated at the
beginning of 2021.
Any relaxation of travel restrictions would be an welcome
development. Although the property market in Macau continues to
function, most transactions are still within the first-time-buyer
segment of the market. Sales activity in the luxury segment has
remained muted, however, which has fed into our property
valuations.
Amid these circumstances, there are some signs of improvement,
with higher inbound visitor numbers over the Christmas and New Year
period. Many of the gaming concession proposals that had unsettled
sentiment in the industry appear to have been abandoned, and the
10-year concession duration of each licence will provide a measure
of confidence for casino operators. Moreover, a shift to
mass-market gaming and a broadening of the tourism base will
support Macau's longer-term future and help to cement its key
position in the Greater Bay Area initiative, which is of major
importance to the mainland Chinese government. This transition
could nevertheless be challenging in the near term.
Financial performance
Our financial performance reflects the challenges we faced
during the first half of our financial year.
The Company's unaudited adjusted net asset value (NAV) was
US$121.5 million as at 31 December 2021. This is equivalent to
US$1.96 (145 pence*) per share, and represents a decline of 5.7 %
(3.2% in Sterling term) from the year end.
* Based on the following US Dollar/Sterling exchange rates 1.350
on 31 December 2021 and 1.386 on 30 June 2021.
As at 31 December 2021, MPO's share price was 47.3 pence,
representing a 67% discount to its adjusted NAV per share.
Our results reflect the profitable sale of a unit at The
Fountainside and a reduction in debt of more than US$3.2 million.
Debt service is our most significant operating cost, and reducing
debt through sales is a key element of our near-term strategy.
The Company's aggregated cash and deposit balances were US$6.9
million as at 31 December 2021, of which US$2.9 million,
representing a six-month interest reserve, was pledged as
collateral for credit facilities. Cash resources of approximately
US$4 million were available for the payment of operating costs,
although this includes a US$3.5 million deposit from which any
withdrawal for such purposes is subject to consent from the
lender.
Outcome of the 2021 Annual General Meeting
At our AGM in December, the Board and the Manager expressed
their great appreciation for the overwhelming support of
Shareholders for continuing the life of the Company to allow the
completion of the ongoing divestment process on more favourable
terms.
Divestment update
Amid a very challenging environment, the Manager has steadfastly
pursued a variety of exit tactics, and has carefully coordinated
marketing and sales processes within the constraints outlined in
detail in its report. This management activity has included
property visits and support for extensive due diligence requests
among prospective buyers of our assets.
These efforts have yet to translate into tangible outcomes, but
a clear strategy is being followed through that will include the
sale of further individual units at The Fountainside. More
significantly, any move to strata sales of units at The Waterside
could have a positive effect on our results.
In the meantime, however, a modest recovery in leasing at The
Waterside towards the end of 2021 was a positive development and an
achievement for the leasing team. The Waterside retains its status
as a premier property thanks to the quality of construction by the
original Hong Kong-based developer, a high standard of management,
and ongoing upgrades and improvements led by the Manager and its
leasing team. In this context, there is a continued focus on the
environmental impact and efficiency of new air conditioning units
and kitchen appliances. These are solid examples of such attention
to detail that we believe will translate into stronger leasing
activity and more attractive sales options.
The redevelopment of units at The Fountainside is nearing
completion, with reconfigured smaller apartments targeted at a more
active segment of the property market. The creation of two
additional car-parking spaces should also create readily saleable
assets. The four larger units at The Fountainside will continue to
be marketed, although current mortgage limits remain a challenge
for prospective buyers.
Penha Heights is an attractive asset that has drawn several
viewings, but prevailing "wait and see" sentiment among prospective
investors has deterred any from making a purchase. Ongoing travel
restrictions mean that more time may be required to achieve a sale.
When sentiment improves, this asset may become very much in demand,
especially if planning conditions are improved or simplified to
broaden its appeal to developers.
Corporate governance and appointment of director
Corporate governance has remained high on our agenda, with
physical meetings resuming in Guernsey. I am also pleased to report
that our extensive search for a new Director has been concluded,
with the appointment of Carmen Ling to the Board. The recruitment
process required an extended duration due to the travel challenges
involved.
Ms Ling is a Hong Kong resident, and brings a diverse set of
financial skills and experience to the Board, including a
background in banking and real estate, and a deep understanding of
the Chinese market. This knowledge is important, as travel by other
members of the Board remains subject to restrictions. Ms Ling will
be joining our Board for a shorter duration than other, equivalent
appointments, and we appreciate her commitment in these
extraordinary circumstances.
We look forward to working with our new colleague, who has
already spent time with the Manager's team in Hong Kong.
I should also like to take this opportunity to express my
personal thanks to Wilfred Woo for his many years of service and
considerable contribution to our Board functions. His diligent
approach and perspective have been most valuable, especially during
the past two years, as travel has been so restricted.
Manager's fees
As prefaced in our earlier reports, we continue to drive down
costs where possible. We have also previously outlined our
intention to agree a revised fee payable to the Manager in 2022,
contributing to its operating costs and to continue to provide
incentives for an early disposal of our assets. Full details are
set out in Note 11 of these accounts.
A properly resourced Manager is essential to see the Company
through the current challenges and conclude an optimal divestment
of our remaining assets. The Manager has worked with the Board and
taken all appropriate steps to slim down its operations while
retaining the necessary capacity to deliver a wide range of
functions for as long as we retain our current assets.
Similarly, managing our debt and debt-servicing costs is
critical, as this is our single largest expense. The Manager's
success in restructuring our debt is commendable, and a key
component of our ability to navigate through the near-term
challenges. More details on our current loan facilities can be
found in Note 7 of these accounts.
Summary
In conclusion, with continued prudent capital management and the
hard work of our team, we believe the Company can weather the
conditions that have temporarily disrupted our divestment plans. We
remain dedicated to achieving our asset disposal objectives, albeit
over a longer time frame than we had originally anticipated.
MARK HUNTLEY
CHAIRMAN
MACAU PROPERTY OPPORTUNITIES FUND
25 February 2022
MANAGER'S REPORT
FINANCIAL OVERVIEW
31 December
2021 30 June 2021
NAV (IFRS) (US$ million) 93.2 97.9
NAV per share (IFRS) (US$) 1.51 1.58
Adjusted NAV (US$ million) 121.5 128.8
Adjusted NAV per share (US$) 1.96 2.08
Adjusted NAV per share (pence)(1) 145 150
Share price (pence) 47.3 67.5
Share price discount to Adjusted
NAV per share (%) 67% 55%
Portfolio valuation (US$
million) 259.4 265.4
Loan-to-value ratio (%) 50.0% 49.3%
(1) Based on the following US Dollar/Sterling exchange rates
1.350 on 31 December 2021 and 1.386 on 30 June 2021.
Financial Review
For 2021, Macau's economy closed the year in a better position
compared to 2020, with gaming and tourism gaining some lost ground.
However, the territory's economic engines were operating at about
20% of their pre-pandemic levels.
H2 2021 opened with a series of new challenges arising from the
pandemic as highly transmissible variants such as Delta and Omicron
posed threats to Macau's public health system. The challenges were
compounded by the pursuit of a zero-COVID strategy in Macau,
mainland China and Hong Kong which saw the authorities taking
drastic measures such as tightening border controls, instituting
mass testing and locking down cities. Together, these have
introduced additional uncertainty and instability in Macau's
economy, which has made investors continue hesitating over large
investments, thus delaying and disrupting MPO's divestment
plans.
The absence of any concrete plans on "living with COVID" and a
clear exit strategy from the zero-COVID policy are also of concern
as it is unclear how long the harsh measures will continue in
place.
Half-Year Financial Results
The value of MPO's portfolio, which now comprises three main
assets, was US$259.4 million as at 31 December 2021. On a
like-for-like comparison, the valuation slightly declined by 1.7%
over the six-month period.
Adjusted Net Asset Value (NAV) was US$121.5 million, which
translates to US$1.96 (145 pence) per share, a decline of 5.7% over
the period. IFRS NAV was US$93.2 million as of the period's end,
equating to US$1.51 (112 pence) per share, a decline of 4.8%.
As at 31 December 2021, MPO's share price was 47.3 pence,
representing a 67% discount to its Adjusted NAV per share.
Capital Management
As at 31 December 2021, MPO had total assets worth US$238.2
million, offsetting combined liabilities of US$145.0 million. The
Company's aggregated cash and deposit balances were US$6.9 million,
of which US$2.9 million, representing a six-month interest reserve,
was pledged as collateral for credit facilities. Furthermore, a
US$3.5 million deposit has restrictions on its use with any
withdrawal for the payment of operating costs requiring consent
from the lender. Gross borrowing stood at US$133.3 million,
equating to a loan-to-value ratio of 50.0%.
As the Company endeavours to execute its divestment plan, we
will remain focused on capital management to maintain a healthy
balance sheet and operating cash flow. We also remain heavily
focused on containing costs, with debt facilities reviewed and
refinanced where appropriate to obtain the most cost-efficient
terms.
Company Life Extended, Fee Structure
Macau's pursuit of a zero-COVID strategy throughout 2021 has
resulted in COVID-19 travel restrictions which have severely
curtailed the Manager's efforts to divest the portfolio properties,
and as a result a shareholder resolution was proposed and
subsequently passed at the Company's Annual General Meeting in
December 2021, to extend the life of the Company for a further year
to facilitate the orderly divestment of the portfolio. The Manager
thanks all shareholders for their recognition of the current
challenges and their continued support.
The divestment of all remaining assets continues to be the
highest priority of the Company. Although the zero-COVID
environment in Macau continues to delay and disrupt divestment
plans, the Manager is seeking all possible ways to divest the
assets for the benefit of shareholders.
The Board and the Manager also reached agreement over variations
to the management fees and other fees payable to the Manager in
February 2022. The key elements of the new arrangements are a flat
management fee of $100,000 per month from February 2022 (following
an interim payment of $99,000 in January 2022). Realisation fees
will continue to be payable on the same terms as in 2021 (using the
30 September 2019 valuation basis for calculating any fees due)
with all fees payable subject to an overall cap of $1.78 million.
The extra incentive payment of 1 per cent. if all assets are sold
in the year falls away and the Manager is also subject to a revised
six month notice period.
Portfolio Updates
PORTFOLIO OVERVIEW AS AT 31 DECEMBER 2021
Sector No. of Units Costs Market Valuation Changes in Composition
(US$ million) (US$ million) Market Value (Based on
market value)
Since 30 June
2021
The Waterside
Tower Six of One
Central
Residences* Luxury residential 59 101.2 196.4 -1.6% 75.7%
The Low-density
Fountainside** residential 6 6.1 19.1 -3.0% 7.4%
Penha Heights Luxury residential - 28.6 43.9 -1.6% 16.9%
Total 135.9 259.4 -1.7% 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.
** Calculation is based on adjusted figures made to 30 June 2021
to reflect like-for-like comparisons to 31 December 2021 due to
property sales during the period.
The Waterside
The Waterside is MPO's landmark development in downtown Macau,
comprising 59 luxury residential apartments for lease. As of the
end of 2021, around 30% of The Waterside's units were occupied, and
the average rent stood at US$2.3 per square foot per month.
Leasing demand for luxury property in Macau remains subdued due
to ongoing travel restrictions. COVID-19 outbreaks and three rounds
of city-wide COVID testing in H2 2021 have also affected sentiment
towards the territory's economy. Market conditions have challenged
efforts to secure the sale of this asset. There remains active
investor interest, however, aided by the fact that each apartment
has a separate strata title.
The Fountainside
The Fountainside is a low-density, freehold residential
development originally comprising 42 homes and 30 car-parking
spaces in Macau's popular Penha Hill district.
The sale of the last remaining standard-type unit was completed
for HK$11.8 million (US$1.5 million, in line with its latest
valuation) in August 2021, bringing to an end the divestment of all
36 standard units at the property.
There are six remaining units. Reconfiguration work on the two
duplex units has commenced and is now expected to be largely
complete in Q1 2022. In this regard, there have been additional
unexpected requests from the authorities which resulted in a longer
than planned work schedule. Once completed, three new smaller, more
marketable units and two new parking spaces will be available for
sale, with sales activity expected to commence in April. We are
also continuing to market the property's four villas.
Penha Heights
Penha Heights is a prestigious, colonial-style villa with a
gross floor area of approximately 12,000 sq ft perched above the
exclusive residential enclave of Penha Hill and surrounded by lush
greenery.
A series of enhancement works to refresh the property's external
and internal features was undertaken during the pandemic-induced
quiet period. The Manager has also completed additional
enhancements including roof-tiling, waterproofing, paint work, as
well as upgrading the electric front gates for added privacy and
aesthetics. Positive feedback regarding these works has been
received.
Despite increased sales and marketing efforts, the potential
pool of buyers currently remains limited, a situation that will
persist as long as travel restrictions continue to inhibit viewings
of the property by potential investors from outside Macau.
Nevertheless, ongoing viewings are taking place and we will
continue to work with specialist agents to explore all possible
channels for an optimal exit from the asset.
MACROECONOMIC OUTLOOK
Macau manages threat posed by new COVID-19 variants
In H2 2021, many countries across the globe grappled with the
COVID-19 challenges posed by the highly transmissible Delta and
Omicron variants, facing record-breaking cases and deaths which
threatened to overwhelm healthcare systems. Nevertheless, the
successful deployment of COVID vaccines and boosters have
emboldened many countries to begin shifting towards the new normal
of "living with COVID".
In stark contrast, since the beginning of the pandemic, Macau
has recorded a total of 79 COVID-19 cases and no deaths. As of the
end of 2021, around 75% of Macau's population had been fully
vaccinated against the virus, and around 80% had received at least
one vaccine dose. Booster shots have been available since early
November.
Zero-COVID strategy
Macau's remarkable COVID numbers are the result of its
zero-COVID strategy which mirrors that of mainland China and Hong
Kong, where the authorities are determined to control outbreaks by
deploying all tools available in the public health arsenal
including strict travel restrictions, mass testing and lockdowns.
This approach has been decried by critics as being futile against
highly transmissible variants like Omicron. Furthermore the
draconian measures have caused economic disruptions and
uncertainty, labour shortages, as well as mental health issues
among the wider population.
Macau authorities had on three occasions during this reporting
period instituted city-wide mass testing and closed non-gaming
entertainment outlets in response to local clusters, which were
contained. Quarantine-free travel requirements for mainland Chinese
visitors from COVID hotspots were also periodically tightened to
manage risks. Notably, the Golden Week in October, a peak travel
period, was impacted by such restrictions. In January 2022, all
incoming flights to Macau were halted for 14 days, except for those
from mainland China after several travellers tested positive for
COVID-19 while undergoing hotel quarantine in the territory.
In mainland China, efforts to contain the virus were ramped up
ahead of the Beijing Winter Olympics in February. Among the drastic
steps taken were locking down cities such as Xian, Tianjin, Dalian,
Shenzhen and Ningbo. Such measures inevitably impacted and may
continue to affect visitor numbers to Macau.
The proposed travel bubble involving mainland China, Macau and
Hong Kong is also a casualty of the zero-COVID strategy as it has
been postponed several times as Hong Kong struggled to manage its
COVID cases. The latest postponement at the end of 2021 was
particularly disappointing for Macau businesses as advanced
preparations for its launch were in progress, including a new
health code to facilitate travel by Hong Kong residents to mainland
China and Macau.
The absence of an exit strategy from zero-COVID and plans on
"living with COVID" in Macau and mainland China is concerning as
Macau's economic engines - gaming and tourism - can only approach
pre-pandemic levels when cross-border travel within Greater China
is fully restored. There is speculation that the strategy may
continue beyond the Winter Olympics until the Chinese Communist
Party's 20th National Party Congress which is scheduled for the
autumn of 2022.
Economy hit by zero-COVID
The return of mainland Chinese tourists since Q3 2020 has driven
a gradual recovery of the territory's economy, but this has been
subject to setbacks throughout H2 2021 as ongoing COVID flare ups
in mainland China and Hong Kong affected the ease of travel to
Macau. While gross domestic product (GDP) is forecast by Fitch
Ratings to grow by 25% for FY 2021, GDP remains well below
pre-pandemic levels.
Policy Address continues to emphasise integration into the
Greater Bay Area
Macau Chief Executive, Ho Iat Seng, delivered his annual Policy
Address in November. He emphasised the policies of mainland China,
including the diversification of Macau's economy to integrate with
the Greater Bay Area. He also highlighted the priority placed on
managing the pandemic and stabilising Macau's economic recovery.
These themes also featured prominently in his New Year address.
A turbulent period for gaming
Macau's gross gaming revenue (GGR) grew 43.7% YoY for FY2021 to
MOP86.86 billion (US$10.82 billion). However, this was
approximately 20% of pre-pandemic GGR in 2019.
The industry faced several challenges in H2 2021. There were
disruptions as the Macau authorities tightened their border control
measures in response to COVID-19 outbreaks in mainland China.
In addition, the industry was rocked by the arrest of the CEO of
Suncity, Macau's largest junket operator, in November. It was
particularly concerning as the allegations of illegality were
centred on activities considered to be in the ordinary course of
business for junket operators. This was followed by a regulatory
ban on junkets extending credit to clients, which led to the
closure of junket operations throughout Macau's casinos. Although
VIP gaming had been in decline for several years, its abrupt end
will see a loss of approximately 30% of GGR for the industry.
The public consultation on the new gaming laws for Macau caused
a stir as the government put forward several proposals, including
appointing government delegates to the boards of concessionaires.
This would have required casino operators to obtain prior
government approval before paying dividends. Gaming tax increases
were also proposed. Nevertheless, industry concerns were addressed
as the government published the results of the public consultation
and its responses, which indicated that the three contentious
proposals would be dropped from the draft bill. It also suggested
that there is likely to be a maximum of six concessions available
for tender for a period of ten years, with possible extensions for
a further three years. Industry players had commented positively on
the transparency of the public consultation and clarification
provided by the government.
Tourism began to recover following the relaxation in travel and
visa restrictions for mainland Chinese
Despite the disruptions caused by the prevailing zero-COVID
strategy in Macau, and mainland China being its main source of
in-bound tourists, Macau's tourist arrivals grew 31% YoY in 2021 to
7.7 million, which is approximately 20% of pre-pandemic 2019
numbers.
Mainland Chinese accounted for 7 million visitors, with 4.1
million arriving from the nine main cities in the Greater Bay Area.
The visitors from the Greater Bay Area had leapt 60% YoY in
2021.
The average length of stay increased by 0.2 of a day YoY to 1.6
days, with overnight visitors recording longer stays of 3.2 days,
up by an average of 0.4 of a day compared to 2020. There were
nearly 3.7 million overnight visitors, a 31% YoY increase,
accounting for 48% of total visitors.
The pipeline of new resorts continues to expand with Melco
Resorts and Entertainment Ltd's plans to open Macau's first W Hotel
on Cotai as part of its expansion of its Studio City property.
Targeting a December 2022 launch, the hotel will offer premium
facilities including 557 guest rooms and 11,840 square feet of
event and meeting space.
PROPERTY MARKET OVERVIEW
Impacted by renewed concerns over COVID created by the outbreaks
and mass testing, Macau's residential property market remained
relatively quiet in Q4 2021, with a total of 1,173 transactions - a
decline of 26% YoY and the luxury end of the market remained
stagnant affected by external factors and muted by current
sentiment. For the full year, a total of 5,970 residential units
were transacted, down 7% YoY. Overall, prices remained largely
stable at US$1,170 per square foot. First-time buyers accounted for
83% of all transactions, second time buyers accounted for 14%, and
the remaining 3% were buyers purchasing residential properties for
at least the third time.
Within the Greater Bay Area, luxury home sales in Hong Kong were
unabated amid the pandemic and achieved a few record highs in 2021.
The value of transactions involving properties worth more than
HK$100 million (US$12.8 million) in the first 11 months of the year
reached HK$46.4 billion (US$5.95 billion), 60% higher than the
value for full-year 2020. This is remarkable against a backdrop of
closed borders and global economic uncertainties. Such demand is
largely underpinned by founders and senior executives of Chinese
companies in the "new economies" segment recently listed on Hong
Kong's stock exchange.
Given Macau's track record on public health, alongside
infrastructure and connectivity improvements, investors may look to
the territory's luxury property market, prices of which are at a
five-year low, as they return to the Greater Bay Area and economic
activity in the region resumes more fully.
Looking Ahead
Macau, Hong Kong and mainland China are maintaining stringent
zero-COVID policies that are expected to remain in place for some
time. Macau's economy will remain vulnerable to disruption by COVID
outbreaks on the Chinese mainland and locally, as seen in H2 2021,
and more recently in January 2022, with the 14-day ban on
international flights to Macau to curb the spread of the Omicron
variant.
On the overall economy, as noted by the Economist Intelligence
Unit, beneath Macau's current growth rates lies economic fragility
as COVID-19 has decimated its two main economic activities -
inbound tourism and gaming - and as such, Macau's economy will not
be able to return to pre-COVID levels until 2023 at the earliest.
It has nonetheless forecast that Macau's GDP will expand by 21% YoY
in 2022.
In terms of gaming, Fitch Ratings expects Macau's GGR to pick up
in 2022, particularly if the travel bubble with Hong Kong goes into
operation. This would boost the gaming and tourism industry and
contribute to a potential spill-over into the retail and the
property sectors. Morgan Stanley's forecast for GGR in 2022 and
2023 are, respectively, 42% and 70% of 2019's pre-pandemic numbers.
These numbers are lower than previous forecasts, with 2022 numbers
cut by 30% and 2023 cut by 20% based on a recovery described as
"choppy".
Tourism is also set to grow incrementally, with the Macau
Government Tourism Office forecasting 10 million arrivals in 2022.
However, the underlying assumptions - the launch of a travel bubble
with Hong Kong and the resumption of the e-visa programme for
mainland Chinese visitors - are likely to take a backseat in the
coming months given the current escalation of COVID-19 outbreaks in
both Hong Kong and mainland China.
Nevertheless, the Macau government has warned that the economic
conditions are expected to remain challenging in 2022 and a
recovery from the pandemic will take time. It has consistently also
outlined specific plans for Macau's role within the Greater Bay
Area to diversify its economy away from gaming and turn the
territory into the area's technology and tourism hub. Although the
plan is still in its early stages, the potential for the property
market to gain from such measures is clear.
Restrictions on travellers from other countries will, however,
limit the number of potential buyers of the Company's properties
and continue to disrupt the Company's divestment plan in the near
term. We will continue to pursue a variety of strategies for
divestment of the remaining assets on acceptable terms and within
current market conditions. A reduction of debt followed by a return
of capital to Shareholders in the shortest possible timeframe
remains the primary objective.
INTERIM FINANCIAL STATEMENTS
Directors' Statement of Responsibilities
The Directors are responsible for preparing this half-yearly
financial report in accordance with applicable law and
regulations.
The Directors confirm that to the best of their knowledge:
-- the interim condensed consolidated financial statements have
been prepared in accordance with IAS 34 Interim Financial Reporting
as adopted by the European Union; and
-- the Chairman's Message and Manager's Report meet the
requirements of an interim management report, and include a fair
review of the information required by:
a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an
indication of important events that have occurred during the first
six months of the financial year and their impact on the interim
condensed consolidated financial statements; and a description of
the principal risks and uncertainties for the year to date and the
remaining six months of the year; and
b. DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the entity during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
On behalf of the Board
Mark Huntley
Chairman
25 February 2022
Interim Condensed Consolidated Statement of Financial Position
(Unaudited)
As at 31 December 2021
Unaudited Unaudited Audited
31 Dec 31 Dec 30 Jun
2021 2020 2021
Note US$'000 US$'000 US$'000
ASSETS
Non-current assets
Investment property 3 196,450 199,944 199,629
Deposits with lenders 4 6,416 6,668 6,657
Trade and other receivables 16 111 111
--------- --------- -------
202,882 206,723 206,397
--------- --------- -------
Current assets
Inventories 6 34,725 35,592 34,924
Trade and other receivables 124 454 503
Deposits with lenders 4 - 175 175
Cash and cash equivalents 5 531 8,409 5,003
--------- --------- -------
35,380 44,630 40,605
--------- --------- -------
Total assets 238,262 251,353 247,002
--------- --------- -------
EQUITY
Capital and reserves attributable
to the Company's
equity holders
Share capital 13 618 618 618
Retained earnings 77,182 83,636 81,440
Distributable reserves 15,791 15,791 15,791
Foreign currency translation
reserve (364) 222 56
--------- --------- -------
Total equity 93,227 100,267 97,905
LIABILITIES
Non-current liabilities
Deferred taxation provision 12 11,431 11,819 11,786
Taxation provision 12 418 578 705
Interest-bearing loans 7 103,165 97,404 114,624
--------- --------- -------
115,014 109,801 127,115
Current liabilities
Trade and other payables 955 1,335 1,176
Interest-bearing loans 7 29,066 39,950 20,806
--------- --------- -------
30,021 41,285 21,982
Total liabilities 145,035 151,086 149,097
Total equity and liabilities 238,262 251,353 247,002
Net Asset Value per share
(US$) 9 1.51 1.62 1.58
Adjusted Net Asset Value
per share (US$) 9 1.96 2.14 2.08
The interim condensed consolidated financial statements were
approved by the Board of Directors and authorised for issue on 25
February 2022.
The notes form part of these interim condensed consolidated
financial statements.
Interim Condensed Consolidated Statement of Comprehensive Income
(Unaudited)
For the six-month period from 1 July 2021 to 31 December
2021
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 31 Dec 30 Jun
2021 2020 2021
Note US$'000 US$'000 US$'000
Income
Income on sale of inventories 6 1,515 8,241 9,863
Rental income 567 670 1,231
------------ ------------ ------------
2,082 8,911 11,094
Expenses
Net loss from fair value
adjustment on investment
property 3 2,530 122 245
Cost of sales of inventories 6 522 4,160 4,787
Management fee 11 600 736 1,336
Realisation fee 11 23 217 217
Non-executive directors'
fees 11 92 94 196
Auditors' remuneration: audit
fees 70 58 134
Auditors' remuneration: non-audit
fees - - 8
Property operating expenses 705 766 1,577
Sales and marketing expenses 85 607 717
General and administration
expenses 313 296 552
Loss/(Gain) on foreign currency
translation 4 (8) (18)
------------ ------------ ------------
(4,944) (7,048) (9,751)
------------ ------------ ------------
Operating (loss)/profit for
the period/year (2,862) 1,863 1,343
------------ ------------ ------------
Finance income and expenses
Bank loan interest 7 (1,404) (1,737) (3,230)
Other financing costs (212) (169) (367)
------------ ------------ ------------
(1,616) (1,906) (3,597)
------------ ------------ ------------
Loss for the period/year
before tax (4,478) (43) (2,254)
Taxation 12 220 (237) (222)
Loss for the period/year
after tax (4,258) (280) (2,476)
------------ ------------ ------------
Items that may be reclassified
subsequently to profit or
loss
Exchange difference on translating
foreign operations (420) (29) (195)
------------ ------------ ------------
Total comprehensive loss
for the period/year (4,678) (309) (2,671)
------------ ------------ ------------
Loss attributable to:
Equity holders of the Company (4,258) (280) (2,476)
------------ ------------ ------------
Total comprehensive loss
attributable to:
Equity holders of the Company (4,678) (309) (2,671)
------------ ------------ ------------
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 31 Dec 30 Jun
2021 2020 2021
US$ US$ US$
Basic and diluted loss per
Ordinary Share attributable
to the equity holders of
the Company during the period/year 8(0.0689) (0.0045) (0.0400)
All items in the above statement are derived from continuing
operations.
The notes form part of these interim condensed consolidated
financial statements.
Interim Condensed Consolidated Statement of Changes in Equity
(Unaudited)
Movement for the six-month period from 1 July 2021 to 31
December 2021 (unaudited)
Share Retained Distributable Foreign Total
capital earnings reserves currency
translation
reserve
US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought
forward at
1 July 2021 618 81,440 15,791 56 97,905
Loss for the
period - (4,258) - - (4,258)
Items that
may be reclassified
subsequently
to profit
or loss
Exchange difference
on translating
foreign operations - - - (420) (420)
-------- --------- ------------- ------------ -------
Total comprehensive
loss for the
period - (4,258) - (420) (4,678)
-------- --------- ------------- ------------ -------
Balance carried
forward at
31 December
2021 618 77,182 15,791 (364) 93,227
-------- --------- ------------- ------------ -------
Movement for the six-month period from 1 July 2020 to 31
December 2020 (unaudited)
Share Retained Distributable Foreign Total
capital earnings reserves currency
translation
reserve
US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought
forward at
1 July 2020 618 83,916 15,791 251 100,576
Loss for the
period - (280) - - (280)
Items that
may be reclassified
subsequently
to profit
or loss
Exchange difference
on translating
foreign operations - - - (29) (29)
-------- --------- ------------- ------------ -------
Total comprehensive
loss for the
period - (280) - (29) (309)
-------- --------- ------------- ------------ -------
Balance carried
forward at
31 December
2020 618 83,636 15,791 222 100,267
-------- --------- ------------- ------------ -------
Movement for the year from 1 July 2020 to 30 June 2021
(audited)
Share Retained Distributable Foreign Total
capital earnings reserves currency
translation
reserve
US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought
forward at
1 July 2020 618 83,916 15,791 251 100,576
Loss for the
year - (2,476) - - (2,476)
Items that
may be reclassified
subsequently
to profit
or loss
Exchange difference
on translating
foreign operations - - - (195) (195)
-------- --------- ------------- ------------ -------
Total comprehensive
loss for the
year - (2,476) - (195) (2,671)
-------- --------- ------------- ------------ -------
Balance carried
forward at
30 June 2021 618 81,440 15,791 56 97,905
-------- --------- ------------- ------------ -------
The notes form part of these interim condensed consolidated
financial statements.
Interim Condensed Consolidated Statement of Cash Flows
(Unaudited)
For the six-month period from 1 July 2021 to 31 December
2021
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 2021 31 Dec 2020 30 Jun 2021
Note US$'000 US$'000 US$'000
Net cash (used in)/generated
from operating activities 10 (424) 5,804 5,952
------------ ------------ ------------
Cash flows from investing
activities
Capital expenditure on investment
property 3 (218) (122) (245)
Movement in pledged bank
balances 416 (2,390) (2,379)
------------ ------------ ------------
Net cash generated from/(used
in) investing activities 198 (2,512) (2,624)
------------ ------------ ------------
Cash flows from financing
activities
Proceeds from bank borrowings 9,383 69,658 101,747
Repayment of bank borrowings (12,155) (78,045) (111,699)
Interest and bank charges
paid (1,425) (2,570) (4,419)
------------ ------------ ------------
Net cash used in financing
activities (4,197) (10,957) (14,371)
------------ ------------ ------------
Net movement in cash and
cash equivalents (4,423) (7,665) (11,043)
Cash and cash equivalents
at beginning of period/year 5,003 16,078 16,078
Effect of foreign exchange
rate changes (49) (4) (32)
------------ ------------ ------------
Cash and cash equivalents
at end of period/year 531 8,409 5,003
------------ ------------ ------------
The notes form part of these interim condensed consolidated
financial statements.
Notes to the Interim Condensed Consolidated Financial Statements
(Unaudited)
For the six-month period from 1 July 2021 to 31 December
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 Guernsey Financial Services
Commission. The address of the registered office is given in the
Directors and Company Information section.
The interim condensed consolidated financial statements for the
six months ended 31 December 2021 comprise the interim financial
statements of the Company and its subsidiaries (together referred
to as the "Group"). The Group invests in residential property in
Macau.
There have been no changes to the Group's principal risks and
uncertainties in the six-month period to 31 December 2021 and the
Board of Directors does not anticipate any changes to the principal
risks and uncertainties in the second half of the year. Principal
risks and uncertainties are further discussed in the Manager's
Report.
The interim condensed consolidated financial statements are
presented in US Dollars ("US$") and are rounded to the nearest
thousand ($'000).
These interim condensed consolidated financial statements have
been approved for issue by the Board of Directors on 25 February
2022.
1 Significant accounting policies
Basis of accounting
The annual consolidated financial statements have been prepared
in accordance with International Financial Reporting Standards
("IFRS"), as adopted by the European Union; applicable legal and
regulatory requirements of Guernsey Law and under the historical
cost basis, except for financial assets and liabilities held at
fair value through profit or loss ("FVPL") and investment
properties that have been measured at fair value. The accounting
policies and valuation principles adopted are consistent with those
of the previous financial year.
The interim condensed consolidated financial statements have
been prepared in accordance with International Accounting Standard
("IAS") 34, Interim Financial Reporting. The same accounting
policies and methods of computation are followed in the interim
financial statements as compared with the annual financial
statements. The interim condensed consolidated financial statements
do not include all information and disclosures required in the
annual financial statements and should be read in conjunction with
the Group's annual financial statements as of 30 June 2021.
New and amended standards and interpretations applied
The following amendments to existing standards and
interpretations are effective for the year ended 30 June 2022 and
therefore were applied in the current period but did not have a
material impact on the Group:
-- Amendments to IFRS 4, IFRS 7, IFRS 9, IFRS 16 and IAS 39- IBOR reform
-- Amendments to IFRS 16 - COVID-19 rent concessions
Going concern
The Group continues to meet its capital requirements and
day-to-day liquidity needs through the Group's cash resources. As
part of their assessment of the going concern of the Group as at 31
December 2021, the Directors have reviewed the comprehensive cash
flow forecasts prepared by management which make assumptions based
upon current and expected future market conditions, including
predicted future sales of properties taking into consideration
current market circumstances. It is the Directors' belief that,
based upon these forecasts and their assessment of the Group's
committed banking facilities, it is appropriate to prepare the
financial statements of the Group on a going concern basis.
The Directors, after the continuation resolution was passed at
the Annual General Meeting of the Company on 22 December 2021
extending the Fund's life until 22 December 2022, assessed whether
the continuation vote before the end of 2022 gives rise to a
material uncertainty that might cast significant doubt 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. The Directors currently expect to receive
continuation support from major shareholders and over 50% of
shareholder support is required in December 2022 to ensure
continuation; it is likely that returns from the sale of properties
could well be significantly lower if the Fund was forced to sell as
a result of discontinuation and it is therefore commercially
rational for the Fund to continue in business. Therefore, the
Directors believe it is appropriate to prepare the financial
statements of the Group on the going concern basis based upon
existing cash resources, the forecasts described above, the
extension of the life of the Company until December 2022 agreed at
the Annual General Meeting on 22 December 2021 and the Directors'
assessment of the Group's committed banking facilities and expected
continuing compliance with related covenants.
The continuing impact of the COVID-19 pandemic has had a
negative effect on the valuation of the Group's investment
portfolio. A sale transaction completed in the current period. The
pandemic has not had a significant impact on the loan covenants
held by the Group. The overall uncertainty brought about by
COVID-19 and its impact on the Group is continuing to be closely
monitored by the Board.
2. Segment reporting
The Chief Operating Decision Maker (the "CODM") in relation to
Macau Property Opportunities Fund Limited is deemed to be the Board
itself. The factors used to identify the Group's reportable
segments are centred on asset class, differences in geographical
area and differences in regulatory environment. Furthermore,
foreign exchange and political risk 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 single geographical
sector, Macau.
This segment refers principally to residential properties.
Furthermore, there are multiple individual properties that are held
within each property type. However, the CODM considers, on a
regular basis, the operating results and resource allocation of the
aggregated position of all property types as a whole, as part of
their on-going performance review. This is supported by a further
breakdown of individual property groups only to help support their
review and investment appraisal objectives.
3. Investment property
Unaudited Unaudited Audited
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
At beginning of the period/year 199,629 199,988 199,988
Capital expenditure on property 218 122 245
Fair value adjustment (2,530) (122) (245)
Exchange difference (867) (44) (359)
------------ ------------ ------------
Balance at end of the period/year 196,450 199,944 199,629
------------ ------------ ------------
Valuation losses (fair value adjustment) from investment
property are recognised in profit and loss for the period and are
attributable to changes in unrealised losses relating to investment
property held at the end of the reporting period.
The valuation process is initiated by the Investment Adviser
with the Board consent and approval, 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
ordinarily meets with the valuer and reviews the latest valuations
based on their knowledge of the property market and compare these
to previous valuations. These meetings have been suspended since
2019.
The Group's investment properties were revalued at 31 December
2021 by an independent, professionally-qualified valuer: Savills
(Macau) Limited ("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 independently
determined by Savills, using recognised valuation techniques. The
technique deployed was the income capitalisation method. The
determination of the fair value of investment property requires the
use of estimates such as future cash flows from assets (such as
lettings, tenants' profiles, future revenue streams, capital values
of fixtures and fittings, plant and machinery, any environmental
matters and the overall repair and condition of the property) and
discount rates applicable to those assets. These estimates are
based on local market conditions existing at the reporting
date.
See Note 12 in relation to deferred tax liabilities on
investment property.
Capital expenditure on property during the period relates to
fit-out costs for The Waterside.
Rental income arising from The Waterside of US$566,000 (6 months
ended 31 December 2020: US$670,000, 12 months ended 30 June 2021:
US$1,230,000) was received during the period. Direct operating
expenses of US$451,000 (6 months ended 31 December 2020:
US$481,000, 12 months ended 30 June 2021: US$956,000) arising from
rented units were incurred during the six-month period. Direct
operating expenses during the period arising from vacant units
totalled US$200,000 (6 months ended 31 December 2020: US$197,000,
12 months ended 30 June 2021: US$395,000).
The table below shows the assumptions used in valuing the
investment properties which are classified as Level 3 in the fair
value hierarchy:
Carrying Unobservable
amount/ and
fair value observable
as at inputs used
31 December in determination
Property 2021: Valuation of Other key
information US$'000 technique Input fair values information
Name The Waterside 196,450 Term and Term rent HK$17.6 Age of building
Reversion (inclusive psf
Analysis of management (30 June
fee and 2021:
furniture) HK$17.8
psf)
Type Residential/Completed Term yield 1.4%-2.2% Remaining
apartments (exclusive useful life
of management of building
fee and
furniture)
(30 June
2021:
1.4%-2.2%)
Location One Central Reversionary HK$14.07
Tower 6 rent (exclusive psf
Macau of management (30 June
fee and 2021:
furniture) HK$15.6
psf)
Reversionary 1.55%
yield
(30 June
2021: 1.7%)
The fair value of The Waterside is determined using the income
approach, more specifically a term and reversion analysis, where a
property's fair value is estimated based on the rent receivable and
normalised net operating income generated by the property, which is
divided by the capitalisation (discount) rate. The difference
between gross and net rental income includes the same expense
categories as those for the discounted cash flow method with the
exception that certain expenses are not measured over time, but
included on the basis of a time weighted average, such as the
average lease up costs. Under the income capitalisation method,
over and under-rent situations are separately capitalised
(discounted).
If the estimated reversionary rent increased/decreased by 5%,
(and all other assumptions remained the same), the fair value of
The Waterside would increase by US$10 million (6 months ended 31
December 2020: US$10 million, 12 months ended 30 June 2021: US$10
million) or decrease by US$10 million (6 months ended 31 December
2020: US$10 million, 12 months ended 30 June 2021: US$10
million).
If the term and reversionary yield or discount rate
increased/decreased by 5%, (and all other assumptions remained the
same), the fair value of The Waterside would decrease by US$9
million (6 months ended 31 December 2020: US$10 million, 12 months
ended 30 June 2021: US$10 million) or increase by US$10 million (6
months ended 31 December 2020: US$11 million, 12 months ended 30
June 2021: US$10 million).
The same valuation method was deployed in June 2021 and December
2021.
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
any change in valuation technique since the last period.
4. Deposits with lenders
Deposits with lenders represent deposits that are restricted as
to usage pursuant to the terms of the banking facilities granted to
the Group. Deposits amounting to US$6.4 million (31 December 2020:
US$6.7 million, 30 June 2021: US$6.8 million) were associated with
long-term banking facilities and classified as non-current assets,
of which US$2.9 million (31 December 2020: US$1.4 million, 30 June
2021: $1.4 million) represented a six-month interest reserve
pledged as collateral for credit facilities. The remainder of the
balance represents a deposit from which any withdrawal for payment
of operating costs is subject to consent from the lender. There are
no other significant terms and conditions associated with these
pledged bank balances.
Unaudited Unaudited Audited
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Non-current 6,416 6,668 6,657
Current - 175 175
------------ ------------ ------------
6,416 6,843 6,832
------------ ------------ ------------
5. Cash and cash equivalents
In addition to cash and cash equivalent balances of US$531,000,
additional deposits with lenders of US$3.5 million are available to
meet operating costs, subject to lender approval (see Note 4).
6. Inventories
Unaudited Unaudited Audited
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Cost
Balance brought forward 34,924 39,631 39,631
Additions 475 128 146
Disposals (522) (4,159) (4,782)
Exchange difference (152) (8) (71)
------------ ------------ ------------
Balance carried forward 34,725 35,592 34,924
------------ ------------ ------------
Additions include capital expenditure, development costs and
capitalisation of financing costs.
Under IFRS, inventories are valued at the lower of cost and net
realisable value. The carrying amounts for inventories as at 31
December 2021 amounts to US$34,725,000 (6 months ended 31 December
2020: US$35,592,000, 12 months ended 30 June 2021: US$34,924,000).
Net realisable value as at 31 December 2021 as determined by the
independent, professionally-qualified valuer, Savills, was
US$62,319,000 (6 months ended 31 December 2020: US$66,848,000, 12
months ended 30 June 2021: US$65,114,000).
During the period ended 31 December 2021, one residential unit
of The Fountainside was sold for a total consideration of US$1.5
million (HK$11.8 million) against a total cost of US$0.5 million
(HK$4.1 million) which resulted in a net profit of US$1.0 million
(HK$7.7 million) after all associated fees and transaction
costs.
During the year ended 30 June 2021, four residential units and
one car parking space of The Fountainside and one individual unit
of One Central Residences were sold for a total consideration of
US$9.9 million (HK$76.5 million) against a total cost of US$4.8
million (HK$37.1 million) which resulted in a net profit of US$5.1
million (HK$39.4 million) after all associated fees and transaction
costs.
During the period ended 31 December 2020, three residential
units and one car parking space of The Fountainside and one
individual unit of One Central Residences were sold for a total
consideration of US$8.2 million (HK$63.9 million) against a total
cost of US$4.1 million (HK$32.3 million) which resulted in a net
profit of US$4.1 million (HK$31.6 million) after all associated
fees and transaction costs.
7. Interest-bearing loans
Unaudited Unaudited Audited
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Bank loans - Secured
- Current portion 29,066 39,950 20,806
- Non-current portion 103,165 97,404 114,624
----------- ----------- -----------
132,231 137,354 135,430
----------- ----------- -----------
There are interest-bearing loans with three banks:
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 31 December 2021, three tranches remained outstanding.
Tranche 6 had an outstanding balance of HK$108 million (US$13.8
million) (31 December 2020: HK$358 million (US$46.2 million), 30
June 2021: HK$108 million (US$13.9 million)); Tranche 7 had an
outstanding balance of HK$512 million (US$65.7 million) (31
December 2020: HK$515 million (US$66.5 million), 30 June 2021:
HK$515 million (US$66.4 million)); and Tranche 8 had an outstanding
balance of HK$238 million (US$30.5 million) (31 December 2020:
HK$nil (US$nil), 30 June 2021: HK$250 million (US$32.2
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 31 December 2021, the
loan-to-value ratio for the Hang Seng One Central facility was
55.97%. 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$12.3 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$11.4 million)
for refinancing the loan facility with ICBC, which expired in March
2020. Tranche B is a facility for an amount of HK$7 million (US$0.9
million) for financing the alteration costs of The Fountainside.
The facility of Tranche A was fully drawdown in March 2020 to repay
the ICBC facility, while the facility of Tranche B in the amount of
HK$3 million (US$0.4 million) was drawn down in October 2021. 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 of Tranche A is to be repaid half-yearly with remaining
instalments commencing in September 2023 with 27% of the principal
due upon maturity while repayment for Tranche B is due in full at
maturity in June 2022. The loan-to-value covenant is 55%. The
facility is secured by means of a first registered legal mortgage
over all unsold units and car parking spaces of The Fountainside as
at the loan facility date as well as a pledge of all income from
the units and the car parking spaces. The Company is the guarantor
for the credit facility. In addition, the Group is required to
maintain a cash reserve equal to six months' interest with the
lender.
As at 31 December 2021, the facility had an outstanding balance
of HK$42 million (US$5.4 million) (31 December 2020: HK$50.9
million (US$6.6 million), 30 June 2021: HK$39 million (US$5.0
million)). As at 31 December 2021, the loan-to-value ratio for this
facility was 28.09%.
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 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
31 December 2021, the facility had an outstanding balance of HK$70
million (US$9.0 million) (31 December 2020: HK$70 million (US$9.0
million), 30 June 2021: 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 31 December 2021, the loan-to-value ratio for
this facility was 44.87%. There is no loan-to-value covenant for
this loan.
Banco Comercial de Macau, S. A. ("BCM Bank")
During the period, the Group has executed a loan facility with
BCM Bank to refinance the credit facility with the Industrial and
Commercial Bank of China (Macau) Limited in relation to Estrãda da
Penha. The facility amount is HK$70 million with a tenor of 2 years
to mature in December 2023. The interest rate is 2.55% per annum
over the 3-month HIBOR rate and repayment is due in full at
maturity in December 2023. As at 31 December 2021, the facility had
an outstanding balance of HK$70 million (US$9.0 million) (31
December 2020: HK$79 million (US$10.2 million), 30 June 2021: 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 50%. As at 31
December 2021, the loan-to-value ratio for this facility was
37.63%.
Bank Loan Interest
Bank loan interest paid during the period was US$1,404,000 (6
months ended 31 December 2020: US$1,737,000, 12 months ended 30
June 2021: US$3,230,000). As at 31 December 2021, the carrying
amount of interest-bearing loans included unamortised prepaid loan
arrangement fee of US$1,043,000 (31 December 2020: US$1,084,000, 30
June 2021: US$1,212,000).
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 31
December 2021, the fair value of the financial liabilities was
US$79,000 lower than the carrying value of the financial
liabilities (31 December 2020: US$184,000 lower than the carrying
value of the financial liabilities, 30 June 2021: US$72,000 higher
than the carrying value of the financial liabilities).
The Group's interest-bearing loans have been classified within
Level 2 as they have observable inputs from similar loans. There
have been no transfers between levels during the period or a change
in valuation technique since last period.
8. Basic and diluted loss per Ordinary Share
Basic and diluted loss per equivalent Ordinary Share is based on
the following data:
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 2021 31 Dec 2020 30 Jun 2021
Loss for the period/year (US$'000) (4,258) (280) (2,476)
Weighted average number of
Ordinary Shares ('000) 61,836 61,836 61,836
Basic and diluted loss per
share (US$) (0.0689) (0.0045) (0.0400)
9. Net asset value reconciliation
Unaudited Unaudited Audited
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Net assets attributable to
ordinary shareholders 93,227 100,267 97,905
Uplift of inventories held
at cost to market value 28,224 31,931 30,848
----------- ----------- -----------
Adjusted Net Asset Value 121,451 132,198 128,753
----------- ----------- -----------
Number of Ordinary Shares Outstanding
('000) 61,836 61,836 61,836
NAV per share (IFRS) (US$) 1.51 1.62 1.58
Adjusted NAV per share (US$) 1.96 2.14 2.08
Adjusted NAV per share (GBP)* 1.45 1.57 1.50
* US$:GBP rates as at relevant period/year end
The NAV per share is arrived at by dividing the net assets as at
the date of the consolidated statement of financial position, by
the number of Ordinary Shares in issue at that date.
Under IFRS, inventories are carried at the lower of cost and net
realisable value. The Adjusted NAV includes the uplift of
inventories to their market values before any tax consequences or
adjustments.
The Adjusted NAV per share is derived by dividing the Adjusted
NAV as at the date of the consolidated statement of financial
position, by the number of Ordinary Shares in issue at that
date.
There are no potentially dilutive instruments in issue.
10. Cash flows from operating activities
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Cash flows from operating activities
Loss for the period/year before
tax (4,478) (43) (2,254)
Adjustments for:
Net loss from fair value adjustment
on investment property 2,530 122 245
Net finance costs 1,616 1,906 3,597
------------ ------------ ------------
Operating cash flows before
movements in working capital (332) 1,985 1,588
------------ ------------ ------------
Effect of foreign exchange
rate changes 1 (8) (18)
------------ ------------ ------------
Movement in trade and other
receivables 474 (88) (137)
Movement in trade and other
payables (400) (95) (96)
Movement in inventories 47 4,031 4,636
------------ ------------ ------------
Net change in working capital 121 3,848 4,403
------------ ------------ ------------
Taxation paid (214) (21) (21)
------------ ------------ ------------
Net cash (used in)/generated
from operating activities (424) 5,804 5,952
------------ ------------ ------------
Cash and cash equivalents (which are presented as a single class
of assets on the face of the interim condensed consolidated
statement of financial position) comprise cash at bank and other
short-term, highly-liquid investments with a maturity of three
months or less.
11. 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.
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Directors' fees 92 94 196
The Directors are considered to be the key management personnel
(as defined under IAS 24) of the Company. Directors' fees
outstanding as at 31 December 2021 were US$46,000 (31 December
2020: US$41,000, 30 June 2021: US$47,000).
Sniper Capital Limited is the Manager to the Group and received
management fees during the period as detailed in the Interim
Condensed Consolidated Statement of Comprehensive Income.
Management fees are paid quarterly in advance and amounted to
US$600,000 (6 months ended 31 December 2020: US$736,000, 12 months
ended 30 June 2021: US$1,336,000) at a quarterly fixed rate of
US$300,000 per annum (fee of 1.0% per annum of the Net Asset Value
until 31 December 2020, as adjusted to reflect the Property
Investment Valuation Basis).
A realisation fee shall be payable on deals originated and
secured by the Manager in 2020 and 2021 which shall be linked to
the sales price achieved. Where the sale price of the asset is 90
per cent. or more of the value of the relevant asset as at 30
September 2019 (the "Carrying Value") a fee of 2.5 per cent. of net
proceeds (net of debt, costs and taxes) ("Net Proceeds") shall be
payable; where the sale price of an asset is more than 80 per cent.
but less than 90 per cent. of the Carrying Value of the relevant
asset, a realisation fee of 1.5 per cent. of Net Proceeds shall be
payable; and where the sale price of an asset is less than 80 per
cent. of the Carrying Value, no realisation fee shall be payable.
Realisation fees for the period totalled US$23,000 (6 months ended
31 December 2020: US$217,000, 12 months ended 30 June 2021:
US$217,000). For the calendar year 2022, a realisation fee of 1.5
per cent. shall be payable on sales of assets above 80 per cent. of
the Carrying Values and a management fee of US$300,000 per quarter
shall be payable.
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$3.8 million.
Incentive fees payable for the period totalled US$nil (6 months
ended 31 December 2020: US$nil, 12 months ended 30 June 2021:
US$nil).
A new agreement with the Manager was entered into with effect
from 1 January 2022. A management fee of US$1,199,000 will be
payable for 2022 with US$99,000 paid in January 2022 followed by
monthly payments of US$100,000. A realisation fee shall be payable
on the same terms as in 2021. In no circumstances will the
aggregate of the 2022 management fee and realisation fee exceed
US$1,780,000. Any realisation fees achieved on strata sales of
units at The Waterside will be subject to the retention of 50%
until all units have been sold. The Extra Incentive Fee is no
longer applicable under the new agreement. Each aspect of these
changes has been subject to a fair and reasonable assessment by
Liberum. Any management fee proposals that may apply for 2023 will
be included in resolutions to be put forward in the 2022 AGM.
All intercompany loans and related interest are eliminated on
consolidation.
12. Taxation provision
As at period-end, the following amounts are the outstanding tax
provisions.
Unaudited Unaudited Audited
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Non-current liabilities
Deferred taxation 11,431 11,819 11,786
Provisions for Macanese taxations 418 578 705
----------- ----------- -----------
11,849 12,397 12,491
----------- ----------- -----------
Deferred taxation
The Group has recognised the 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%.
Provision for Macanese taxations
The Group has made provisions for property tax and complementary
tax arising from its Macau business operations.
Tax Reconciliation
Unaudited Unaudited Audited
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Accounting loss before tax (4,478) (43) (2,254)
------------ ------------ ------------
Exempt from income tax in Guernsey - - -
Movement in deferred tax provision 304 15 29
Movement in provision for Macanese
taxations (84) (252) (251)
------------ ------------ ------------
At the effective income tax
rate of (4.9)%
(31 Dec 2020: 551.2%, 30 Jun
2021: 9.8%) 220 (237) (222)
------------ ------------ ------------
The differences between the taxation for the period and the
movement in taxation provisions are due to the foreign exchange
movements and Macanese taxation paid during the period.
13. Share capital
Ordinary shares
Unaudited Unaudited Audited
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Authorised:
300 million ordinary shares
of US$0.01 each 3,000 3,000 3,000
Issued and fully paid:
61.8 million (31 December 2020:
61.8 million; 30 June 2021:
61.8 million) ordinary shares
of US$0.01 each 618 618 618
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 has
renewed this authority at the 2021 Annual General Meeting.
14. Subsequent events
Carmen Ling was appointed as a Director on 24 February 2022.
DIRECTORS AND COMPANY INFORMATION
Directors Corporate Broker
Mark Huntley (Chairman) Liberum Capital Limited
Alan Clifton Ropemaker Place, Level 12
Carmen Ling (appointed 24 25 Ropemaker Street
February 2022)
Wilfred Woo (resigned 22 London EC2Y 9LY
December 2021)
Audit and Risk Committee Independent Auditor
Alan Clifton (Chairman) Deloitte LLP
Mark Huntley Regency Court
Carmen Ling (appointed 24 Glategny Esplanade
February 2022)
Wilfred Woo (resigned 22 St Peter Port
December 2021)
Guernsey GY1 3HW
Management Engagement Committee
Mark Huntley (Chairman) Property Valuers
Alan Clifton Savills (Macau) Limited
Carmen Ling (appointed 24 Suite 1309-10
February 2022)
Wilfred Woo (resigned 22 13/F Macau Landmark
December 2021)
555 Avenida da Amizade
Nomination and Remuneration Macau
Committee
Alan Clifton (Chairman)
Mark Huntley Administrator & Company Secretary
Carmen Ling (appointed 24 Ocorian Administration (Guernsey)
February 2022) Limited
Wilfred Woo (resigned 22 PO Box 286
December 2021)
Floor 2, Trafalgar Court
Disclosure and Communication Les Banques
Committee
Mark Huntley (Chairman) St Peter Port, Guernsey
Alan Clifton Channel Islands GY1 4LY
Manager Macau and Hong Kong Administrator
Sniper Capital Limited Adept Capital Partners Services
Limited
Vistra Corporate Services Unit B1, 25/F, MG Tower
Centre
Wickhams Cay II 133 Hoi Bun Road
Road Town, Tortola Kwun Tong, Kowloon
VG1110 Hong Kong
British Virgin Islands
Registered Office
Investment Adviser PO Box 286
Sniper Capital (Macau) Limited Floor 2, Trafalgar Court
Largo da Ponte, Les Banques
Nos. 51 e 57, Taipa St Peter Port, Guernsey
Macau Channel Islands, GY1 4LY
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
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END
IR SESFWIEESEIE
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