REG - Macau Prop Opp Fund - Annual Financial Report Year Ended 30 June 2024
30/09/2024 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20240930:nRSd1345Ga&default-theme=true
RNS Number : 1345G Macau Property Opportunities Fund 30 September 2024
ANNOUNCEMENT
30 September 2024
MPO Announces 2024 Annual Results
Macau Property Opportunities Fund Limited announces its results for the year
ended 30 June 2024. The Company, which is managed by Sniper Capital Limited,
holds strategic property investments in Macau.
FINANCIAL HIGHLIGHTS
Fund performance
• MPO's portfolio value1 declined 8% over the year to US$152.7
million.
• Adjusted NAV was US$ 66.1 million, which translates to US$1.07 (85
pence2) per share, a 26.9% decrease year-on-year (YoY).
• IFRS NAV was US$46.4 million or US$0.75 (59 pence2) per share, a
29.4% decrease YoY.
Capital management
• As at 30 June 2024, MPO's balance sheet held assets worth a total of
US$137.9 million, against combined liabilities of US$91.5 million.
• The Company ended the financial year with a consolidated cash
balance (including deposits with lenders) of US$4.8 million.
• As at 30 June 2024, gross borrowings stood at US$82.8million, which
translates to a loan-to-value ratio of 52.9%.
1 Calculation was adjusted to reflect like-for-like comparisons to 30 June
2024 due to the divestment of properties during the year.
2 Based on the Dollar/Sterling exchange rate of 1.265 on 30 June 2024.
PORTFOLIO HIGHLIGHTS
• The Waterside
- 13 units were sold during the financial year comprising 11 standard
units, one simplex unit and one duplex unit. A further 3 units were sold
subsequent to the financial year end, leaving 29 units available for sale as
at end of September.
- Since the launch of The Waterside strata sales program in Q2 2022, the
Company has achieved total divestments of US$77.7 million (HK$607million)
through the sale of 27 units as at end June.
- Tenant occupancy increased from 46% to 71% YoY as of year end, albeit
with a lower base of number of available units for leasing.
• The Fountainside
- Two duplexes at the property have been reconfigured into three smaller
units and two car-parking spaces. Occupancy permits are expected by the end of
2024 to early 2025, clearing the way for sales in Q1 2025.
- For the four villas, marketing efforts continue with increased
investor interest albeit pricing pressure remains.
• Penha Heights
- Since Macau's zero-COVID measures were lifted in early 2023, marketing
activity for the property has been stepped up.
- Events targeting high net worth individuals were hosted at the villa
to showcase its potential.
Mark Huntley, Chairman of Macau Property Opportunities Fund, said:
"The sales achieved during the year enabled the Company's gross borrowings
with banks to be reduced from US$105.6 million to US$82.8 million. With
further sales completed after year-end, the Company's borrowings have fallen
to US$68.9 million. The repayment of loans and the reduction of associated
debt service levels has been a key objective during the year.
"We are mindful that sales velocity has been slower than we anticipated, but
would stress that working within, rather than against, the market is the only
means by which we can maximize returns in this environment.
"The effects of easing restrictions and reduced property taxes, lower interest
rates and signs of further economic stimulus measures provide a more
encouraging medium term outlook and a basis for market confidence and
sentiment to improve. We will navigate through the near-term market challenges
and continue looking for every opportunity to achieve our divestment
objectives to repay debt and distribute capital back to our shareholders."
For more information, please visit http://www.mpofund.comfor the Company's
full Annual Report 2024.
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.
The Annual Report has been submitted to the National Storage Mechanism and
will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
About Macau Property Opportunities Fund
Macau Property Opportunities Fund (MPO) is a closed-end investment fund and
the only listed company dedicated to investing in real estate in Macau, the
world's largest gaming market and the only city in China in which gaming is
permitted.
As a member of the Equity Shares in Commercial Companies (ESCC) segment of the
London Stock Exchange, the Company has historically held multi-segment
property assets in Macau and Zhuhai, China. Its current portfolio comprises
prime residential assets fair valued at US$200.5 million, which are being
progressively divested with the objective of distributing the remaining
liquidity to shareholders.
MPO is managed by Sniper Capital Limited, an Asia-based property investment
manager.
Stock Code
London Stock Exchange: MPO
LEI
213800NOAO11OWIMLR72
For further information, please contact:
Manager
Sniper Capital Limited
Group Communications
Tel: +853 2870 5151
Email: info@snipercapital.com
Corporate Broker
Panmure Liberum Limited
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 YEAR ENDED 30 JUNE 2024
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 a member of the Equity Shares in Commercial
Companies ("ESCC") segment of the London Stock Exchange which replaced the
previous premium and standard segments on 29 July 2024.
Sniper Capital Limited, the Manager for MPO, is responsible for the day-to-day
management of the Company's property portfolio and the identification and
execution of divestment opportunities.
The Company's entire remaining investment portfolio is allocated to
residential property investments in Macau. 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, consistent with the principles of
good investment management with a view to making an orderly return of capital
to shareholders. Its overriding aim is to deliver cost-effective and timely
divestments 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 reflects a diversity of ethnicity, gender and relevant experience
from a corporate, sectoral and geographical perspective, coupled with a deep
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 Company's late-stage divestment and its clearly
defined business objectives.
Pursuant to its Articles of Incorporation, MPO is subject to annual
continuation votes. At the annual general meeting (AGM) held on 21 December
2023, Shareholders voted in favour of a Continuation Resolution to extend the
life of the Company for a further year until the next continuation vote on or
before 31 December 2024. The Board will be recommending the continuation of
the Company at the AGM, which is expected to be held in December.
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
Pounds sterling; Reporting currency: US Dollars
Fee Structure
Realisation-focused fee structure that incentivises the Manager to divest
assets at realistic prices
Inception Date
5 June 2006
Amount Returned to Shareholders Since Inception
US$173 million (distribution US$97.4 million;
share buyback US$75.3 million)
Net IPO Proceeds
GBP101 million (US$189 million)
ADVISERS & SERVICE PROVIDERS
Company Secretary and Administrator
Ocorian Administration (Guernsey) Limited
Corporate Broker
Liberum Capital Limited
External Auditor
Deloitte LLP
Chairman's Message
Our overriding priority remains optimising ways
to deliver a return of capital.
I present my Chairman's Statement for the financial year ended 30 June 2024,
and also outline my views on the way forward for the Company.
The current financial year has seen the Company make further progress in
delivering our divestment programme through successful sales of 13 units at
The Waterside, with three additional units sold following year-end. Sales have
been delivered against the backdrop of ongoing market challenges, very thin
demand for luxury property - the market segment to which we are exposed - and,
more recently, from heavily discounted sales by developers under pressure to
meet bank loan repayments. These conditions have hurt our returns and impacted
our year-end property valuations.
The sales achieved during the year enabled the Company's gross borrowings with
banks to be reduced from US$105.6 million to US$82.8 million. With further
sales completed after year-end, the Company's borrowings have fallen to
US$68.9 million. The repayment of loans and the reduction of associated debt
service levels has been a key objective during the year. We have been
consistent in our targeted approach, and have remained pragmatic in our
pricing to deliver divestments in a very tight market. We are mindful that
sales velocity has been slower than we anticipated, but would stress that
working within, rather than against, the market is the only means by which we
can maximise returns in this environment.
Market sentiment remains cautious with buyers generally being opportunistic in
nature with demand coming principally from local Macau residents and Macau
resident card holders. The economic difficulties faced by China - especially
in relation to the real estate sector - together with a mixed economic
recovery in Macau, have further weighed on sentiment and impacted banks' risk
appetite for property lending. This has affected both existing
property-related debt and also borrowing by prospective property purchasers.
The Manager has continued to work closely with the Company's lenders, who
remain supportive of our investment strategy and understand our considered
approach in the current market circumstances.
As previously announced, during the final quarter of our financial year, we
saw a significant step by Macau's government in relaxing or removing many
property ownership restrictions and property-related taxes. These measures
were long overdue, and very welcome. These policy changes reflect the
lacklustre condition of the property market, especially amid the post-COVID
recovery. Paradoxically, in the near term, these changes have distorted the
market, as primary property developers with significant inventories have come
under selling pressure due to their debt levels. This has seen a significant
increase in post-announcement sales volumes compared with very low numbers
earlier, but at enforced lower prices, which has fed into near-term
valuations. It also had a short-term impact on our loan-to-value ratio, which
we expect to improve following year-end, when further property sales complete.
The Manager's advice to the Board is that, in contrast to Hong Kong, where a
similar relaxation of property market measures took place, the supply pipeline
of high-end property in Macau is extremely limited. Moreover, there have been
significantly fewer new developments in recent years, which has had the effect
of reducing the overall inventory of available property when compared to Hong
Kong. This can be seen reflected in transaction volumes, with secondary
property transactions in the luxury sector numbering below 20 units in Q4
2023.
Fundamentally, therefore, we see greater scope for improvement in property
values and higher numbers of transactions in Macau, and hence there is reason
to sense some optimism. Any further measures to support or stimulate the
market would be welcome. Throughout the past financial year, debt service has
been a high cost that the Board is determined to reduce, aided by the welcome
easing of interest rates by the United States that is feeding through into
rates in Macau.
Navigating external factors and the changing market dynamics in Macau has
required flexibility and agility. The Manager has achieved sales against a
challenging backdrop and continues to keep the Board fully informed on a
regular basis so that sensible, pragmatic, timely decisions can be made on
pricing and sales. This is important when seen in the context of wholesale
disposals that some primary developers have been forced to make. Hong Kong's
experience suggests that a return to more normal sales volumes will
materialise over time. Clearly, any measures aimed at steadying and
stabilising Macau's property market would be welcome, and would help to build
confidence, which is the key to moving forward with an increased pace of
sales.
A key assessment for the Board in respect of the Annual Report and Accounts
has been to carefully consider our Going Concern Statement, which is set out
in detail on in the Directors' Report. The methodology adopted is similar to
that of previous years but takes account of the reduced levels of debt and the
ongoing sales that have been achieved including post year-end sales. We
recognise market difficulties but, in our judgement, the record of our Manager
in delivering sales amid challenging circumstances is an important
consideration. We have also identified market risks and have factored these
into our medium-term tactics for delivering our debt reduction and divestment
programme.
We have additionally considered the effect of market dynamics, which lead us
to believe that we are unlikely to achieve a full disposal of the entire
portfolio in 2024. It remains our view that the interests of the Company are
best served by continuing our carefully managed divestment programme through
a further one-year extension of the life of the Company. The dramatic effect
of bank-enforced sales by developers and the associated near-term erosion of
valuations reinforces our view that triggering a wholesale disposal of our
remaining portfolio would have a detrimental effect on shareholder value.
Quite simply, the market does not have the capacity to absorb a higher volume
of transactions at anything like the price levels that we would need to apply,
and it is not clear whether such a sudden disposal would deliver a return of
capital to shareholders. Accordingly, at our Annual General Meeting in
December 2024, the Board will be seeking approval to extend the Company's life
for a further year.
As prefaced in our Interim Report and separately announced on 26 June 2024 the
Board and the Manager have agreed a revised fee basis for the Manager's
compensation. This agreement now runs for the remaining life of the Company
and continues the flat fee of US$100,000 per month. It allows for a reduction
in the base fees payable from calendar year 2025 onwards, based on
performance, a revised basis for any incentive fees, and is capped in any
event at 5% of market capitalisation. Full details are set out in the
Directors' Report. We believe that providing certainty and suitable incentives
is key to managing our remaining assets and debt to return the maximum amount
of capital to shareholders.
Detailed updates on our portfolio are contained in the Manager's Report.
However, in summary form, the following should be noted:
The Waterside
The Waterside retains a distinctive position within the high-end residential
market segment, as demonstrated by the sales and prices that have been
achieved compared with rival developments. 29 units remain available for sale,
including many on higher floors that have greater intrinsic valuations.
We have agreed that the Manager should terminate the active leasing of units
as we prepare the remaining properties for sale. However, a number of
attractive leasing opportunities continue to present themselves with terms
that are carefully managed. The level of leasing is marginally higher - just
above 70% occupancy and it remains an important contribution to debt
servicing.
The Fountainside
Negotiations continue on potential sales of Fountainside units, although
transactions have yet to be achieved. The four available villas are large in
the context of the market and are challenged by the current environment,
particularly in respect of mortgages for prospective purchasers.
The smaller remaining units have been prepared for sale. A series of
frustrating procedural obstacles and steps have been imposed by government
departments, delaying the release of the units onto the market. We remain of
the view that once the required approvals have been achieved, sales will
follow quickly, because there is clear and evident demand for units of their
size and in their location.
Penha Heights
Challenges associated with selling this very special property remain. We
believe the market will need to see a further recovery and increased
confidence, even though the Manager has been engaged in innovative marketing
of the property. It is to be hoped that its higher profile among a wider
market of ultra-high net worth individuals will support the enhanced marketing
that is to follow.
Macau and China
Macau's economy has continued to recover, with double-digit growth. A return
to its pre-COVID size is forecast for 2025, and although this is encouraging,
it is later than previous economic forecasts. However, it may represent a more
realistic and sustainable level of growth.
Confidence is the key component, from our perspective, and in this context,
improving gaming and visitor numbers are important. Nevertheless, an evident
slowdown in the non-gaming sector, which we have noted in earlier reports,
remains a concern. It is a matter that requires government attention,
notwithstanding that unemployment has been significantly reduced in the past
year and further stimulus measures are being seen.
China's economic data has remained poor and significant stimulus measures have
recently been announced, although it is too soon to fully understand the
effects; however, we note that equity markets have reacted positively.
External confidence in China is now lower than during the immediate post-COVID
era. The sector most relevant to our Company is, of course, real estate, and
measures to stimulate the Chinese market have had only a limited effect. There
has been a knock-on impact on lending institutions - especially amid continued
signs of stress at some of the bigger property developers - that has played a
part in the way banks have handled their loan portfolios, including in Macau.
Debt Management
Interest rates remained unhelpfully high throughout the reporting period. Debt
service remains our highest cost, and a reduction of debt levels through sales
remains a key near-term focus.
Banks have remained cautious and generally risk-averse as economic conditions
and the real estate sector have worsened in China. We have benefited from
open, constructive engagement between our lenders and the Manager, in which
support for our considered, market-sensitive approach - including phased debt
repayments to coincide with sales - has been helpful. This stands in marked
contrast to the sell-off dynamic affecting primary developers in Macau.
There are signs that interest rates are finally easing, having potentially
peaked amid developments in the United States. This will not only provide
welcome relief to the Company, but it may also further improve market
confidence, which will aid our divestment programme.
Financial Performance
Amid a credit squeeze in the property lending market that has dampened
investment sentiment and transaction volume, our portfolio's valuation
declined 8% from 30 June 2023. The Company's adjusted net asset value (NAV)
was US$66.1 million as of 30 June 2024. This is equivalent to US$1.07 (85
pence) per share and represents a decline of 26.9% (27.1% in sterling terms)
compared to the previous year. NAV, which records inventory at cost rather
than market value, was US$0.75 per share (59 pence), down 29.4% from the
previous year.
The Company has remained in compliance with its debt covenants. Its shares
closed at 35.6 pence at the end of the reporting period, a decrease of 39.1%
over the year. The share price discount to adjusted NAV increased to 58% as of
30 June 2024, up from 50% the previous year, detailed information about
adjusted NAV is shown in Note 18. The recent weakness in the share price,
which may be driven partly by broader market sentiment, has been noted,
together with trading volumes, which remain very low.
Environmental Social and Governance
Our approach to the very limited but necessary maintenance and minor works
across the property portfolio has focused mainly on end-of-lease remediation
at The Waterside and continues to comply with our detailed ESG policy.
Governance remains at the core of how we approach our responsibilities, and
our three-person Board has the necessary mix of diverse skillsets, gender and
ethnicity. We continue to hold the view that in this very late stage of the
Company's life, changes to the Board would be counterproductive.
Non-executive Director Alan Clifton has exceeded the normal tenure guidance
set out in external corporate governance codes. He continues to demonstrate
independence through action, and his experience is important in the context of
our broad functions. This, coupled with the challenges of finding a suitable
director for what will be a comparatively short tenure amid such challenging
market circumstances, is why we are proposing that Mr Clifton continues to
serve as a director.
Our strategy is clearly defined: our objectives are to deliver a reduction and
then elimination of debt followed by a return of capital at the earliest
practicable opportunity, a strategy that will be delivered in the context of
prevailing market dynamics.
Outlook
Looking beyond the near term factors that have affected the property market in
Macau, the impact of easing restrictions and reduced property taxes, lower
interest rates and signs of further economic stimulus measures provide a more
encouraging medium term outlook and a basis for market confidence and
sentiment to improve.
We will navigate through the near-term market challenges and continue looking
for every opportunity to achieve our divestment objectives to repay debt and
distribute capital back to our shareholders. This will continue to require a
tactical approach to the market and to the sale of what remain high quality
assets. This is especially the case for The Waterside where the reducing
number of units available makes for a scarcity which we will look to exploit.
We believe that Macau will continue its post COVID recovery and see further
economic growth with a return to historic levels of prosperity which will, in
turn, support our strategy.
MARK HUNTLEY
CHAIRMAN
MACAU PROPERTY OPPORTUNITIES FUND LIMITED
27 September 2024
Board of Directors
MARK HUNTLEY
Chairman
Mark Huntley has more than 40 years of experience of fund management,
administration and fiduciary operations. His involvement in funds and private
assets has spanned real estate, private equity and emerging market investment.
He has served on the boards of listed and private investment funds and of
management/general partner entities. Mr Huntley is a resident of Guernsey.
ALAN CLIFTON
Non-executive Director
Chairman of Audit and Risk Committee
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, the UK's largest insurance group. He has had a long non-executive
career as an Independent Director of numerous investment and finance sector
companies. Mr Clifton is a UK resident.
CARMEN LING
Non-executive Director
Carmen Ling has more than 25 years of banking experience. She has served as a
Managing Director at Citigroup and Standard Chartered Bank, and she has
extensive experience of client coverage, real estate, transaction banking and
network strategies. Her role as global head of RMB Internationalisation/Belt
& Road at Standard Chartered Bank added to her unique knowledge and
experience as an international banker. Before beginning her banking career, Ms
Ling worked in the hospitality industry for hotel project developments in
North Asia, including China and Japan. She is a resident of Hong Kong.
Manager's Report
Introduction
The financial year under review was characterised by countervailing forces in
Macau's economy: a robust post-pandemic recovery on the one hand, and the
property market's most difficult year in four decades on the other.
This led to successful lobbying by industry players that saw Macau's
government dismantle its decade-old policies aimed at curbing property
speculation in April. Although the move was relatively recent and likely has
yet to feed through into the market, there have been some early signs of
renewed interest in property investments in the territory, albeit primarily in
the lower, "affordable" end of the property market.
There has been a slight increase in confidence as a result of the recent
interest rate cut by the United States Federal Reserve, and Macau's reduction
of its base rate in response. This will be a key influence on the luxury end
of the property market, in which investors are more focused on investment
returns.
Despite these challenges, the Manager continued to expand its strata sales
programme at The Waterside, with the divestment of 13 units during the
financial year, bringing total divestments at the property to 27 units for a
combined US$77.7 million. During the financial year, 11 units were completed
with net proceeds of US$28.5 million received, including one prior financial
year divestment completed in this financial year. The remaining 3 units sold
during the financial year completed the sales process post year-end.
Financial Review
2019 2020 2021 2022 2023 2024
NAV (IFRS) (US$ million) 131.1 100.6 97.9 77.6 65.7 46.4
NAV per share (IFRS; US$) 2.12 1.63 1.58 1.25 1.06 0.75
Adjusted NAV (US$ million)(a) 174.9(c) 136.5 128.8 103.4 90.4 66.1
Adjusted NAV per share (US$)(a) 2.83 2.21 2.08 1.67 1.46 1.07
Adjusted NAV per share (pence)(1, a) 223 179 150 138 116 85
Share price (pence) 146.0 61.75 67.5 38.2 58.5 35.6
Portfolio valuation (US$ million)(b) 311.1 275.6 265.4 242.0 200.5 152.7
Loan-to-value ratio (%) 43.5 49.6 49.3 53.3 50.9 52.5
(1) Based on the following US dollar/sterling exchange rates on 30 June:
2019: 1.270; 2020: 1.231; 2021: 1.386; 2022: 1.212; 2023: 1.261; 2024: 1.265
(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
(c) MPO returned US$50.5 million (50p per share) to shareholders in 2018
Financial Results
Valuation
Against the backdrop of the economic difficulties brought on by Macau's strict
zero-COVID policies in H2 2022, coupled with higher interest rates, the
Company's portfolio, comprising three main assets, was fair valued by its
valuers, Savills (Macau) Limited at US$152.7 million as at 30 June 2024. On a
like-for-like comparison, excluding units at The Waterside that had been sold,
the portfolio depreciated by 8% from the previous year, continuing the decline
that set in during the height of the pandemic.
Savills attributed the decline to poor market sentiment, for which there are
several reasons.
First, the establishment of Macau's Credit Data Platform at the beginning of
2023 has enabled banks and other credit providers in the territory to share
customers' personal credit information, which has resulted in individual
mortgage loan applications undergoing more rigorous assessment.
Secondly, a credit squeeze in the property loan market has prompted some
borrowers to execute quick sales at below-market prices to repay or reduce
their outstanding loans.
Thirdly, banks' appetite for financing new property loans has diminished,
putting pressure on both property buyers and sellers. As a result, market
sentiment has taken a hit, dragging down the number of property transactions
and prices, particularly affecting the luxury real estate market, in which
valuations are highly sensitive to investor sentiment.
As a consequence of the decline in the value of the portfolio and the high
interest rate environment, MPO's adjusted net asset value (NAV) was US$66.1
million, which translates to US$1.07 (85 pence) per share, a 26.9% decrease
year on year (YoY). The Company's IFRS NAV, which records inventory at cost
rather than market value (and which includes two of the Company's main
property assets), was US$46.4 million, or US$0.75 (59 pence) per share, a
29.4% drop over the one-year period.
Capital Management
Capital management continues to be a key priority for the Company. As at 30
June 2024, total assets on the Company's balance sheet, two of which were
carried at cost, were valued at US$137.9 million, while aggregate liabilities
were US$91.5 million.
Nevertheless, with new sales achieved during the financial year, the Company's
debt position has continued to improve. As at 30 June 2024, its gross
borrowings had dropped to US$82.8 million from US$105.6 million at the end of
the previous financial year. Yet despite the reduction in gross borrowings,
its loan-to-value ratio stood at 52.5%, a slight increase from 50.9% at the
end of the previous financial year due to the overall decline in its portfolio
valuation.
Following the year end, the Company's debt position has improved further as
three transactions at The Waterside have been completed over the course of
September. A substantial portion of the sales proceeds have been applied to
further pay down the Company's debt. As a result, the Company's gross
borrowings fell to US$68.9 million, resulting in a loan-to-value ratio of
49.6%.
Cash Management
The Company ended the financial year with a consolidated cash balance
(including deposits with lenders) of US$4.8 million, of which US$0.2 million
free cash and US$4.6 million remains pledged with lenders. This sum comprises
largely the sales proceeds from the disposal of The Waterside units and the
interest reserve during the financial year. As of 27 September 2024, the
Company's free cash balance increased from US$0.2 million to US$1.3 million
following completions of sales occurring post year end and September 2024 loan
repayments.
The Monetary Authority of Macao's last interest rate increase in July 2023,
its 11th since July 2022, pushed the base rate up to 5.75%, a 15-year high for
the territory. This further increased the Company's financing costs. As a
result, the Company has continued to implement several debt management
measures. As a prudential measure, interest reserves have been carefully
monitored through cost control and cash management processes. 75% of the sales
proceeds from The Waterside has also been earmarked for repayment of the
principal sums of outstanding credit facility and the remainder 25% for
operating capital. Finally, the Company continues to explore refinancing
options with other lenders to reduce its financing costs. Although Macau and
Hong Kong have followed the recent United States Federal Reserve's rate cut
and Macau banks has reduced its prime rate by 25 basis points, the impact on
the property market has not yet been seen.
Portfolio Overview
As of 30 Jun 2024
Property Segment No. of Total Cost Acquisition Project Market Changes Project composition
units (US$ million) cost development valuation (based on market value) (based on market value)
(US$ million) cost (US$ million)
(US$ million)
Over Since
the year acquisition
The Waterside
Tower Six at One Central Residences*/** Luxury residential 35 59.8 51.5 8.3 98 -8.1% 90% 64.2%
The Fountainside*** Low-density residential 7 6.4 2.0 4.4 16.3 -8.2% 713% 10.7%
Penha Heights Luxury residential N.A. 28.6 26.9 1.7 38.4 -7.9% 43% 25.1%
Total 94.8 80.4 14.4 152.7 -8.0% 90% 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.
** 3 Waterside units have been divested with completion occurred after year
end, bringing the number of units available for sale to 32.
*** Information listed refers to the remaining units and parking spaces
available for sale.
Portfolio Updates
Divestment Performance
Undeterred by the impact of the pandemic on economic activity, and attracted
by the current pricing levels, a number of investors and owner/occupiers in
Macau are still seeking to upgrade their residences. The Manager's marketing
strategy has been to seek out cash-rich buyers who intend to retain apartments
for their own long-term use, typically as primary residences either for
themselves or their adult children or as holiday homes. Most purchasers intend
to "buy and hold" and fall within the working adult demographic, aged 20-60
years.
Among the reasons they cite for selecting The Waterside are its attractive,
central location on the Macau Peninsula, its premium design, which offers the
exclusivity of a maximum of two units on each floor, and the availability of
spacious, three-bedroom layouts of more than 2,200 square feet. In addition,
the apartments may be sold on a fully furnished basis, complete with new
electrical appliances, offering purchasers the convenience of moving in
immediately upon completion with only their suitcases. Thanks to its unique
characteristics, The Waterside stood out as one of the few luxury residential
buildings with spacious, three-bedroom units in Macau that saw multiple sales
over the financial year.
In the face of competitive offerings of first-hand properties by other
developers, the Manager utilised a flexible sales approach that enabled
investors to purchase apartments with or without an existing lease. Transacted
prices also reflect a discretionary discount within a competitive range.
The Waterside
The Waterside is the Company's flagship asset, a 59-unit luxury apartment
block in the prime Macau Peninsula area. The strata sales programme at the
property commenced in H1 2022 to H2 2024 resulted in the sale of 27 units with
a combined value of HK$607 million (approximately US$77.7 million). 32 units
remained at the period end. Subsequently a further three units have been sold,
leaving 29 units available for sale as at end of September.
13 units were sold during the financial year comprised 11 standard units, one
simplex unit and one duplex unit. The average price of the units transacted
was HK$8,493 per square foot, which translates to a 13% discount to the
valuation closest to their transaction dates. In the course of the financial
year, 10 of the 13 unit sold at The Waterside have completed the full sales
process, with the remaining units completed post year-end.
The Company is winding down the leasing programme at The Waterside to enable
it to focus firmly on divestment. Among the remaining 32 units at The
Waterside at end-June 2024, 22 units were leased out, with 9 new leases signed
and 13 leases renewed during the financial year. This has resulted in an
occupancy rate of 71% of the remaining units available for sale by gross floor
area. Rents at The Waterside have increased by 13%, at an average monthly rate
of HK$19.25 per square foot.
The Fountainside
The Fountainside is a low-density, 42-unit freehold residential development in
Macau's Penha Hill district. All 36 standard units from its original
configuration have been sold, leaving four villas, three reconfigured
apartments and two car-parking spaces available for sale.
The three apartments were reconfigured from the development's original two
duplexes to meet market demand for more affordable units among small families
and young individuals. Although the reconfiguration was completed in Q3 2022,
there have been protracted delays in the issuance of occupancy permits by the
Land and Urban Construction Bureau due to administrative backlogs and late
requests for alterations by the authorities. This has in turn delayed the
commencement of the sales and marketing campaign. We now expect the occupancy
permits to be issued in late Q4 2024 to early Q1 2025.
The Manager launched open-house events for the villas, to target existing
residents in the neighbourhood who are looking to relocate to a newer
development. There have been viewings by potential buyers, whose interest has
mainly involved individual villas rather than an en-bloc transaction.
Penha Heights
Penha Heights is a prestigious, five-storey, colonial-style villa covering
more than 12,000 square feet. Nestled amid lush greenery atop Penha Hill, an
exclusive and highly desirable residential enclave, the trophy home offers
sweeping bay views. The Company has immaculately maintained and enhanced the
property, preserving its exceptional charm and appeal.
In addition to existing marketing channels, the Company also enabled high-net
worth individuals to experience the villa first hand by partnering with an
international luxury brand to host an event on the premises in May. The
high-end luxury gourmet event consisted of two dinners and one lunch over the
course of two days, with high-net worth individuals from around Asia in
attendance. The event showcased the villa's potential as an elegant residence
both for living and entertaining.
Macroeconomic Update
Economic indicators suggest a sustained recovery
During both H2 2023 and H1 2024, Macau enjoyed a robust economic recovery as
its twin economic engines - tourism and gaming - powered ahead to make up for
ground lost during the pandemic. In 2023, the territory recorded gross
domestic product growth of 81% YoY as the economy reached approximately 80% of
its 2019 pre-pandemic size. First-quarter 2024 GDP growth was approximately
26% YoY, while GDP for H1 2024 is expected to reach 18% YoY as the economy
grows to around 88% of its pre-COVID size.
Tourism and gaming continue to lead the economic recovery
Macau's visitor arrivals hit 28 million in 2023, approximately 72% of 2019's
pre-pandemic number. The vast majority of visitors - some 94% - came from
mainland China and Hong Kong, accounting for 68% and 26% of all visitors,
respectively, while international visitors comprised 5% of the total.
Comparing 2023's numbers with 2019's, visitor arrivals from Hong Kong
recovered to 98% of pre-pandemic levels, but mainland Chinese visitor arrivals
were around 68% of 2019's level and international visitor arrivals were
roughly 48%.
The territory's government has targeted 33 million visitors for 2024,
approximately 84% of 2019's number. This includes a target of 2 million
overseas visitors. H1 2024 visitor numbers indicate that the territory is on
course to reach these targets. Visitor arrivals for the period were close to
17 million, representing an increase of 44% YoY, or around 83% of 2019's
level, while overseas visitors accounted for just over 1 million of the total.
Macau's hotel occupancy rate in H1 2024 was 84%, an improvement of 6.1
percentage points YoY, while average room rates surged 11% to MPO1,403
(US$175) per night, indicating stronger demand.
Macau regained the top spot among global gaming hubs
Last year appeared to herald a new dawn for Macau's gaming operators, with the
current gaming framework coming into effect at the beginning of 2023. As
Macau's zero-COVID policies ended abruptly in January that year, gaming
operators moved rapidly to recover ground lost during the pandemic. By the end
of 2023, the sector had turned the corner, with Macau regaining its status
from Las Vegas as the world's top gaming hub.
The territory's gross gaming revenue (GGR) grew 334% YoY during full-year
2023, reaching 62% of 2019's pre-pandemic level. As full-year GGR exceeded
MOP180 billion (US$22.4 billion), the six gaming operators in the territory
were obligated to increase their non-gaming spending by 20%, in line with the
provisions of the new gaming framework. Examples of non-gaming spending
include investments to promote the conventions and exhibitions business,
entertainment and performances, sports events, culture, art, healthcare and
theme parks.
In the post-pandemic "new normal", with the demise of the junket business, the
premium mass-market and mass-market segments dominated Macau's gaming
business. As these segments were more profitable, gaming operators also saw
their EBITDA margins expand to 29% in 2023, up from the industry's previous
peak of 24%.
In H1 2024, GGR grew 42% YoY to around 76% of 2019's level. It is expected to
expand by some 14% YoY in the second half of 2024 to reach 82% of 2019's
level.
Government policies to boost struggling property sector
Despite Macau's robust post-pandemic economic recovery, the real estate market
continued to be subdued, resulting in 2023 being touted by industry players as
"the lowest point and the most difficult year for the development of the real
estate market in 40 years". The real estate sector had faced several
challenges - the unfolding real estate crisis in China and resulting economic
slowdown, a 15-year high in interest rates and the dampening impact of
decade-long measures to curb property speculation. The cumulative effect of
these pain points was especially evident in the luxury real estate sector
where the Company operates, leading to decreased transaction volume and lower
valuations.
At the urging of industry players, Macau's government made a series of
unprecedented policy moves in April that effectively removed all
anti-speculation measures relating to the property sector. These measures
mirrored a similar move by the Hong Kong government two months earlier. In
particular, the following matters were addressed:
• Removal of special stamp duties, namely:
o Stamp duty levied on properties resold within 24 months after being
purchased
o An extra 10% duty imposed on foreign buyers
o A 5% extra duty on additional ownership
• An increase in the maximum mortgage loan-to-value ratio ceiling for
foreign buyers to 70% from around 40% previously
The removal of these constraints is positive for investor interest in
residential properties. The market is behaving generally in the same manner as
the market in Hong Kong, which introduced similar measures ahead of Macau, and
where the immediate reaction was for developers to offload first-hand
properties at steep discounts to repay debt, while buyers took advantage of
the opportunity to transact at attractive prices of up to 25% below their
peak. Transactions are therefore largely concentrated on first-hand properties
and smaller units with lower prices. The secondary market, which is where our
portfolio sits, will benefit in the medium term once the initial sell-down is
over.
The Macau General Association of Real Estate has lobbied the government to
provide an additional boost to home purchases by increasing the maximum
loan-to-value ratio for local homebuyers to 85% from the current 70%, which
would effectively halve the size of downpayments required from mortgage
applicants. The association's call came after the property market showed only
modest signs of recovery following the lifting of the anti-speculation
measures.
Residential property recovering from 40-year low point
Following the introduction of the above policy measures, Macau's residential
real estate sector saw a 19% increase in sales volume, driven mainly by a
surge in transactions in Taipa, where developer inventory was located and
where residential sales soared 196% between May and June. However, the Macau
Peninsula saw a drop in sales of 48% and sales in Coloane slumped 57%.
Although average property prices increased by 8% during the same period,
prices in the Macau Peninsula and Coloane saw upticks, while conversely,
prices in Taipa declined slightly.
Market reports indicate that the increase in transaction volume is due to
developers offloading properties at the affordable end of the primary market,
taking advantage of the willingness of buyers to transact in favourable market
conditions. Even though industry players have been upbeat about the lifting of
the anti-speculation measures ushering in a turnaround in Macau's residential
property market, there has been some caution over whether the market's upward
trajectory can be sustained over the longer term. This is due to continued
weakness in the mainland China market as well as parallels drawn from Hong
Kong's property market, which has remained quiet after the territory's
government lifted similar curbs in February.
Luxury residential segment still faces uphill battle
In the luxury residential segment, 106 sales of units above 150 square metres
were recorded in H1 2024, an increase of 25% YoY, primarily attributed to a
surge in transactions during Q2 2024 following the policy change. In Q2 2024,
prices for units above 150 square metres increased 2% YoY. Although there are
early signs of a recovery of transaction volumes and prices in the luxury
market due to the lifting of the anti-speculation policies, the Manager
remains cautious about the sustainability of the uptrend. In Hong Kong, where
similar measures were introduced, the market has shown signs of weakness after
an initial boost.
Among the chief constraints is the prevailing high interest rate environment,
which has deterred real estate investors. In July 2023, the Monetary Authority
of Macao announced its 11th increase in the prime lending rate since 2022,
pushing the base rate up to 5.75%. Its decision was made to keep in lockstep
with the Hong Kong Monetary Authority and the United States Federal Reserve,
despite relatively low inflation in Macau.
Interest rates have remained stable throughout the financial year, with
Macau's base rate reaching a 15-year high. However, recent policy statements
from the Federal Reserve indicate that inflation in the United States has
improved significantly, creating a favourable environment for a shift towards
easing monetary policy in the latter half of 2024. On September 19, the
Federal Reserve implemented a half-point rate cut, signalling the beginning of
a new era of monetary easing.
We expect these interest rate cuts to be welcomed by the property sector as a
whole, and in particular, the luxury residential segment, in which potential
investors place greater importance on expected yields when considering and
comparing investment opportunities or seek price reductions to compensate for
lower expected returns.
China's economic challenges weigh on investor sentiment
Mainland China's slowing economic growth and its continued property downturn
have had a spillover effect on Macau. In December 2023, Moody's downgraded its
outlook for Chinese sovereign bonds to negative, pointing to risks arising
from the country's slowing economy and property crisis. The downgrade,
mainland China's first since 2017, also reflected concerns over local and
municipal government debt levels and the indebtedness of state-owned
enterprises. Despite Macau's robust economic recovery, Moody's also cut the
territory's credit outlook from "stable" to "negative", based on the tight
institutional, economic and financial linkages between the SAR and mainland
China.
In addition, although mainland China's GDP grew 5.2% in 2023 and 5.3% in Q1
2024, it expanded at a lower rate of 4.7% in Q2 2024, the slowest pace since
the first quarter of 2023 and missing analysts' expectations of around 5%. The
country's consumer sector saw retail sales slow to an 18-month low, with a
resulting fall in retail prices across the board. Analysts see this as the
cumulative impact of falling property and stock prices, coupled with low wage
growth, which has eroded consumer confidence and reined in spending as people
reduce consumption and focus on basic "eat, drink and play" expenditure while
postponing big-ticket purchases.
To address the problems in the property market, the mainland Chinese
government in May 2024 announced its most significant policy measures to date
to boost the ailing sector and deal with an estimated US$3.9 trillion worth of
unsold properties. The measures include a 300 billion yuan facility made
available by the central bank for relending for affordable housing, an easing
of mortgage rules, and moves to encourage local governments and state-owned
enterprises to buy up unsold units.
Recently, on September 24, 2024, the People's Bank of China (PBOC) unveiled an
extensive stimulus package to further support the economy. Key components of
this package include a reduction in the reserve requirement ratio by 50 basis
points, which is expected to inject approximately 1 trillion yuan (US$142
billion) into the financial market. Additionally, the PBOC lowered the
seven-day repo rate from 1.7% to 1.5%,signalling a potential cut in the loan
prime rate (LPR) that affects both corporate and household loans, including
mortgages. Moreover, the minimum down payment for mortgages will be unified,
reducing the down payment for second homes from 25% to 15%.
It is believed that China's stimulus package can boost Macau's gaming revenues
and bring in more tourists through increased household disposable income, and
provide drivers to bolster the Macau economy.
Extension of Company Life and Fee Revision
Although Macau's economy has continued its growth momentum after the
government's lifting of strict COVID-19 restrictions in January 2023, there
has been no immediate spillover effect on the property market, especially the
higher-end luxury segment. Therefore, in 2023, while the Company's divestment
programme made progress, it was clear that there was no quick fix, and the
Company's shareholders approved a resolution to extend its life to 31 December
2024.
We thank our shareholders for supporting the continuation vote at the
Company's Annual General Meeting in December 2023 and approving the resolution
to extend its life until 31 December 2024. This has given the Company further
opportunities to advance its divestment programme, in line with increased
interest in Macau properties, and potentially capitalise on measures
introduced by Macau's government to boost the property sector.
A new Management Agreement has been negotiated between the Board and the
Manager which includes a fee structure designed to continue to incentivise the
Manager to achieve substantial sales. Among the main points in the new
arrangements is the option for the Board to reduce management fees,
recalculate realisation fees, and reduce the notice period for the termination
of the management agreement. A full description of the variation of the
investment management fee arrangements can be found in the Director's Report.
In addition, as the changes to the fee arrangements constituted a
related-party transaction under the London Stock Exchange's UK Listing Rules,
the Company obtained written confirmation from its Sponsor that the terms are
fair and reasonable insofar as the Company's shareholders are concerned.
In view of the current market conditions as outlined in this report, the
timely completion of the Company's divestment programme is likely to require
additional time in order to maximise valuations in sales transactions.
Therefore, even though the Manager will deploy all possible strategies to
secure further sales, it is likely that another proposal for an extension of
the Company's life, to the end of 2025, will be necessary to enable the
divestment programme to progress in an orderly manner and maximise value for
shareholders.
With the uplift of Government restrictions, improvement in Macau's economy
driven by increased tourist inflows and gaming revenues, and the recent
interest rate cut, there is optimism that the property market may see further
improvement. Against this backdrop we have confidence that, in due course, the
orderly disposal of the Fund's assets can be achieved and deliver the best
outcome for our shareholders.
Outlook
Macau's economic recovery is on track for 14-17% growth in 2024, reaching
approximately 95% of its pre-pandemic size. Visitor arrivals are projected to
reach 84% of pre-pandemic levels, while GGR is expected to grow to 82%,
signalling significant progress toward full economic recovery.
However, this growth remains concentrated in the tourism and gaming sectors.
The property market, in contrast, faces distinct challenges, including high
interest rates and economic slowdown in mainland China. While the recent rate
cut and the Chinese stimulus package have generated a sense of optimism, it is
still too early to assess their full impact. The decade-long policies curbing
property speculation, only lifted in April, previously dampened investor
interest, especially in luxury real estate. As a result, the luxury
residential segment, in which the Company operates, remains a tough sell to
investors.
We will continue to manage the portfolio divestment programme to achieve
timely sales and reduce debt levels. The Manager will actively seek investor
interest spurred by recent policy changes and potential opportunities arising
from recent interest rate cuts. While sustained improvement in investor
sentiment is crucial to fully realizing the portfolio's value, we will pursue
all available sales opportunities.
Environmental, Social and Governance Report
1 About this report
This ESG report has been prepared with reference to the Ten Principles of the
United Nations Global Compact (UNGC). The report elaborates the environmental
and social responsibility measures and the related performance of Macau
Property Opportunities Fund Limited.
1.1 Company core business
The Company is in the process of an orderly and managed divestment of its
three remaining portfolio properties. No new construction or development
activities will be undertaken aside from a limited reconfiguration at The
Fountainside.
The Company is focused on and exposed solely to the high-end residential
property market in Macau. It has never had any exposure to any property or
other investments 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
performance of the Company's core business of investment in properties in
Macau, as listed below:
• The Waterside
• The Fountainside
• Penha Heights
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 Company's overall ESG
approach is aimed at generating returns for shareholders in a responsible
manner while taking into consideration environmental and social responsibility
and supply chain management.
The Company's ESG approach has been developed based on the Ten Principles of
UNGC. The UNGC is a voluntary, multi-stakeholder platform that convenes
multinational companies to align with The Ten Principles relating to human
rights, labour, the environment and anti-corruption standards. The Board is
committed to the basic concepts of fairness, honesty and respect for people
and the environment in its business activities.
2 Environment
2.1 Commitment principle
The Company aims at all times to adopt environment-friendly practices in its
business operations to minimise any potential negative impacts on the
environment and natural resources. It complies strictly with all applicable
environmental laws and regulations in Macau. Different environmental
protection measures have been implemented at key stages of property
development, alongside the incorporation of green building designs and the
implementation of responsible construction practices at work sites. The
Company also upholds the principles of recycling and reuse at its properties.
2.2 Initiatives and performance
Property design
The Company follows local green building requirements that take into
consideration green design principles relating to project elements such as
building materials, indoor air quality, site selection and energy use.
Examples of green building designs and features are as follows:
- preservation and retention of cultural heritage such as façades of
historic buildings;
- incorporation of passive building designs to improve ventilation and
optimise natural light;
- use of water-efficient fixtures; and
- greening of rooftops.
Indoor air quality is improved through the introduction of air purifying
equipment. Measures for monitoring temperature and humidity in residential
units and thus enhancing living conditions for residents have been implemented
at One Central and The Fountainside.
Property management
Various green measures have been adopted at our properties to improve overall
environmental performance, for example:
- Energy efficiency: Energy consumption has been reduced by (i) replacing
incandescent, halogen and fluorescent lighting with LED lighting, (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.
- Resident engagement: Residents are encouraged to minimise their
consumption of electricity, water and materials, and are provided with
recycling facilities to reduce waste.
- Rechargeable battery recycling: 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 in its property management activities
are as follows:
- using pesticides and cleansing agents in accordance with relevant
regulations, and aiming for zero adverse incidents involving their use and
storage; and
- managing 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 its business.
2.3 Climate risk
We have considered climate risk and concluded that there is no material impact
on the Annual Report.
3 Social responsibility and supply chain management
The Company strongly believes that quality property is a pathway to quality
living. It strives to provide a quality property experience through innovation
and sensitivity, and by operating with integrity. Through such efforts, its
aim is to enhance residents' quality of life and become their trusted partner.
3.1 Supply chain management
During the process of property construction and redevelopment, the Company
carefully appoints external contractors by taking into consideration factors
such as human rights protection, non-discrimination in employment and
occupation, environmental protection, construction safety and product safety.
When selecting contractors for property construction, the Company seeks
contractors that are familiar with environmental, social and safety
requirements, and which are committed to the abolition of child labour and
corruption. The Company maintains close relations with contractors relating to
all construction and sourcing activities, holding regular meetings to
facilitate two-way communication. It also performs regular assessments of
contractors based on environmental and social risk considerations.
3.2 Quality services
To ensure consistently high quality in its property management services, the
Company aims to:
- develop quality properties that embrace innovation and enhance their
locales;
- provide committed service and improve its property management offering
on an ongoing basis;
- achieve high standards by thorough rigorous property management
practices to maximise customer satisfaction; and
- provide a tasteful living environment for residents.
3.3 Protection of privacy
To ensure residents' wellbeing, regular communication is maintained through
satisfaction surveys that help to identify potential areas for improvement.
Residents' identities are kept confidential and access to information gathered
is restricted.
Regulatory Compliance
The Company is not aware of any non-compliance with supply chain management
regulations that may significantly impact its business.
4 Human rights and labour
The Company strongly believes that businesses should support and respect the
protection of internationally recognised human rights.
4.1 Gender Equality and Diversity
To ensure that we have an equitable platform to perform, the Company aims to:
- ensure the hiring process is performance-based despite gender;
- ensure there is diverse gender representation at all levels of the
Company. (as of June 2024, one of our three board members is female); and
- ensure our service providers embrace diversity in their workforces.
Abbreviations and acronyms
IMF INTERNATIONAL MONETARY FUND
DSEC STATISTICS AND CENSUS SERVICE (MACAU)
DICJ GAMING INSPECTION AND COORDINATION BUREAU (MACAU)
DSF FINANCIAL SERVICES BUREAU (MACAU)
Manager and Adviser
Sniper Capital
Manager Investment Adviser
Sniper Capital Limited Sniper Capital (Macau) Limited
Research & Transaction Project Development Asset Management Corporate Communications Finance & Administration
· Macro & micro analysis · Consultant appointment & coordination · Property & estate management · Investor & media relations · Administration & accounting
· Forecasting & modelling · Project monitoring & reporting · Sales & leasing · Marketing & product positioning · Compliance & reporting
· Sourcing · Project delivery & handover · Facilities management · Statutory & regulatory communication · Cash management & treasury
· Due diligence · Asset value enhancement
· Divestment
Manager
The day-to-day responsibility for the management of the Macau Property
Opportunities Fund's ("MPO", "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's team of over 25 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 enable
divestment of properties in an orderly and optimal manner.
With its 29 August 2024 holding of 12.08 million shares or 19.54% of the
Company's issued share capital, Sniper Investments Limited - an investment
vehicle associated with Sniper Capital Limited - is the largest shareholder in
MPO, which bears witness to Sniper Capital Limited's belief in the Company.
The Manager is committed to dispose of the Company's Portfolio in full while
striving to return maximum possible values to shareholders.
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 provides professional services to the Company including
sourcing, analysing and recommending potential divestment opportunities,
whilst also 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 at the earliest
opportunity.
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 shortest 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.
The Company's Articles of Incorporation do not contain any restriction on
borrowings externally.
Directors' Report
The Directors present their report and audited financial statements of the
Group for the year ended 30 June 2024. This Directors' report should be read
together with Corporate Governance Report.
Principal activities
Macau Property Opportunities Fund Limited (the "Company") is a company
incorporated in Guernsey on 18 May 2006 and is a 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. On 29 July 2024 the UK Listing Rules were updated and
as a result, the Company is now a member of the Equity Shares in Commercial
Companies ("ESCC") Category and maintains its status as a closed-ended
investment fund.
The Company is an authorised entity under the Authorised Closed-Ended
Investment Schemes Rules and Guidance, 2021 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 next twelve months
after date of approval of the Annual Report.
In reaching its conclusion, the Board have considered the risks that could
impact the Group's liquidity over the period to 30 September 2025. This period
represents the period of at least 12 months from the date of signing of the
Annual Report.
As part of their assessment the Audit and Risk Committee highlighted the
following key considerations:
1. Whether the Group can repay or refinance its loan facilities to discharge
its liabilities over the period to 30 September 2025
2. Extension of life of the Company
1. Whether the Group can repay or refinance its loan facilities to discharge
its liabilities over the period to 30 September 2025
As at 30 June 2024, the Group has major debt obligations to settle during the
going concern period being:
i) principal repayments for The Waterside loan facility of US$11.5
million, US$16.0 million and US$39.8 million due for settlement in September
2024, March 2025 and September 2025, respectively;
ii) principal repayments for The Fountainside loan facility of US$0.7
million due for settlement in December 2024;
iii) principal repayments for the Penha Heights Tai Fung Bank loan facility of
US$2.2 million due for settlement in two instalments of US$0.65 million each
in September 2024 and December 2024 and three instalments of US$0.3 million
each thereafter in March 2025, June 2025 and September 2025, respectively; and
iv) principal repayments for the Penha Heights BCM loan facility of US$0.4
million, US$0.4 million and US$6.9 million due for settlement in March 2025,
June 2025 and September 2025, respectively.
The Waterside and The Fountainside
Given that the Macau Special Administrative Region Government have now revoked
all the property cooling measures which had been in place for 3 years and the
current staggered Macau economic recovery, it is assumed that MPO can achieve
a rate of 2 Waterside unit disposals per month from August 2024 to September
2025. This would generate US$79.5 million of revenue referenced to current
valuations and pricing strategy which would be sufficient to cover the
instalments for both the Waterside and Fountainside facilities due for
repayment in the upcoming twelve months period as well as MPO's operating
expenses.
Loan repayments to Hang Seng Bank for the Waterside facilities in September
2024 of US$11.5 million, was settled through disposal proceeds from the
Waterside units. In addition, an advance payment of US$1.7 million loan amount
has also been prepaid to Hang Seng Bank in September 2024.
Penha Heights
The loan repayments for the two Penha Heights facilities that would become due
over the going concern period total US$9.9 million. It is anticipated that
this would be settled from sales proceeds of Waterside and Fountainside units,
in the event that Penha Heights is not disposed of during the period.
Penha Heights loan repayment of US$0.65 million has been settled in accordance
to loan repayment term in September 2024.
Relationship with Lenders
The Manager is responsible for maintaining 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 2024 and up
to the date of issue of the financial statements, the Group has continued to
be in compliance with loan covenants and the Manager has maintained frequent
ongoing dialogue with all lenders who have demonstrated strong support for the
Group and its measured divestment strategy over the years.
Given the debt obligations that will become due for settlement over the going
concern period are expected to be covered by proceeds from selling Waterside
units at a conservative modest rate and potential sales of Fountainside units.
The fact that all banking facilities of the Group have all been successfully
renewed previously, with the loan-to-value ratios of the facilities maintained
within the covenants required under the respective loan agreements, the Board
is confident that the Group would be able to meet its debt obligations during
the going concern period.
Notwithstanding the above, given that it remains uncertain that adequate
proceeds could be generated from sales of properties to settle payment
obligations over the going concern period, and given that any necessary
refinancing of debt obligations would still be subjected to lenders' approval,
the Directors consider that there is a material uncertainty related to events
or conditions that may cast significant doubt over the Group's and Company's
ability to continue as a going concern and therefore it may be unable to
realise its assets and discharge its liabilities in the normal course of
business.
2. Extension of life of the Company
After the Ordinary Resolution was passed at the Annual General Meeting ("AGM")
of the Company in its 2023 AGM to extend the Fund's life until the 2024 AGM
(expected to be held by December 2024), 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 AGM (to be held by December 2024). 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 based
upon ongoing communications and note that 50% of shareholder support is
required to ensure continuation. It is likely that returns from the sale of
properties would be significantly lower, as endorsed by the recent forced
sales imposed on developers, if the Fund was forced to sell as a result of a
failed continuation vote from shareholders 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
and therefore it may be unable to realise its assets and discharge its
liabilities in the normal course of business.
Going Concern Conclusion
After careful consideration and based on the reasons outlined above, including
the Manager's continuing dialogue with lenders and shareholders, whilst there
are material uncertainties 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, supported by the twice monthly reporting from the Manager. The
Directors also considered the Company's policy for monitoring, managing and
mitigating its exposure to these risks and the impact on the Company's
operations. This assessment involved an evaluation of the potential impact on
the Company of these risks occurring. Where appropriate, the Company's
financial modelling 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 two-year projection period with ending cash balances
of over US$2 million under both scenarios with proceeds generated from
disposal of assets sufficient to cover all liabilities. The Board expects the
payments obligation of the loan facilities which will be due within the next
12 months will be repaid while the Company continues to comply with the loan
covenants and that the Company's life will be further extended at the 2024
AGM.
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 two years, including a review
of a comprehensive cash flow projection, together with adverse scenarios to
stress test the cash positions of the Company. The Board considered two years
to be an appropriate time horizon for its divestment plan, being the period
over which the majority of the Company's properties should have been disposed
of. This has rolled forward for another 6-9 months from last year due to the
high interest rate environment and the near term impact of the post easing of
restrictions triggering sales by developers which has caused the slow economic
and business recovery and weakened sentiment. Were circumstances to allow, the
Company would look to make early repayments of debt, subject to any penalty
for doing so, if sales velocity can be accelerated. 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 the Continuation
Vote and projected sales) and meet its liabilities as they fall due over the
two-year period of their assessment. It is expected that the timeframe for the
disposal of the majority of the 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 (2023:
US$ nil).
Management fee revision
During the course of 2023 as Macau transitioned away from the strict COVID-19
restrictions imposed by the Chinese government, the economy gained momentum,
driven by strong gaming revenues and increased visitor numbers. Despite this
broadly positive backdrop, the property market - especially the higher-end
luxury segment - was slower to respond as favourably as other areas of the
economy, as a degree of caution remained. Accordingly, while progress with
disposals was made during the year the Board deemed it necessary to extend the
management arrangements whilst repositioning the fees payable to incentivise
the Manager to achieve substantial sales during 2024. The Board's view remains
unchanged that the Manager's knowledge of the Company's portfolio of assets
and the Macau market is key to the successful delivery of the divestment
strategy.
The Board has agreed to amend the terms of the Investment Management Agreement
with the Manager, with effect (retrospectively) from 1 January 2024 as
follows:
• From 1 January 2024 and continuing during the remainder of calendar year
2024, a management fee of US$100,000 per month will continue to be payable to
the Manager, with the realisation fee continuing on the same terms as in 2023
and using the 30 September 2019 valuation basis for determining the
realisation fee hurdle.
• Fees continue to be subject to an overall cap per annum set at 4.99% of
the lower of market capitalisation and net asset value (the "Cap"). This is
based on the market capitalisation on the day immediately prior to signing the
amendment agreement in respect of calendar year 2024 and will be reset for any
following year based on the market capitalisation or net asset value (as
applicable) at close of business on the last business day of the previous
calendar year. The Cap for 2024 is accordingly set at US$1,439,816.
• At the option of the Board, the monthly management fee may be reduced to
US$80,000 per month in respect of any monthly period beginning on or after 1
January 2025, with one month's advance notice given to the Manager.
• For calendar year 2025 and thereafter, the realisation fee hurdle will be
rebased by reference to the carrying value of the Company's portfolio of
assets as at 31 December 2024, but subject to divestment hurdles being reached
in 2024, in line with an agreed divestment plan.
• For calendar year 2025 and thereafter, the realisation fee will be 2.5% of
the net realisation proceeds if the sale price achieved is greater than 90% of
the carrying value, with the removal of the 80%-90% performance hurdle band.
The Investment Management Agreement (as amended) will continue throughout the
divestment period, but with effect from 1 January 2025, the notice period to
terminate the Agreement by each party will be reduced to 3 months.
The Board considers the arrangements to be fair given the context of the
continued challenging property market and they are intended to ensure that the
Manager is able to continue to operate and remains incentivised to deliver
realisations on behalf of the Company and its shareholders. The changes to the
fee arrangements constitute a smaller related party transaction under the
Listing Rules, and the Company has obtained written confirmation from its
Sponsor that the terms are fair and reasonable insofar as the Company's
shareholders are concerned.
Authority to purchase own shares
Following the authority first granted in the Extraordinary General Meeting on
28 June 2010 and subsequently renewed at each AGM, 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 2024 AGM. No shares have been repurchased in the current or
prior financial year.
Significant shareholdings
As at 29 August 2024, a total of 10 shareholders each held more than 3% of the
issued ordinary shares of the Company, accounting for a total of 49,850,654
shares (29 August 2023: 45,484,753) or 80.62% (29 August 2023: 73.56%) of the
issued share capital. Significant shareholdings as at 29 August 2024 are
detailed below:
Name of shareholder No. of shares %
Sniper Investments Limited 12,081,904 19.54
Universities Superannuation Scheme 8,494,683 13.74
Lazard Asset Management LLC 8,179,347 13.23
Fidelity International 5,075,233 8.21
Apollo Multi Asset Management 3,687,861 5.96
Asset Value Investors 3,574,820 5.78
Progressive Capital Partners 2,568,986 4.15
Banque de Luxembourg (PB) 2,288,485 3.70
UBS Wealth Management 1,978,565 3.20
Hargreaves Lansdown, stockbrokers (EO) 1,920,770 3.11
Subtotal 49,850,654 80.62
Other 11,985,079 19.38
Total 61,835,733 100.00
Directors
Biographies of the Directors who served during the year and up to the date of
this report are detailed above.
Name Function Date of
appointment
Mark Huntley Chairman, Chairman of the Management Engagement Committee and the Chairman of 3 October 2018
the Disclosure and Communications Committee
Alan Clifton Director, Chairman of the Audit and Risk Committee and the Nomination and 18 May 2006
Remuneration Committee
Carmen Ling Director 24 February 2022
Directors' interests
Directors who held office during the year and had interests in the shares of
the Company as at 30 June 2024 were:
Ordinary Shares of US$0.01
Held at Held at
30 June 2024 30 June 2023
Mark Huntley 200,000 200,000
Alan Clifton 80,902 80,902
Carmen Ling 50,000 50,000
There have been no changes to the aforementioned interests since 30 June 2024.
Non-mainstream pooled investments
The Board notes the changes to the Financial Conduct Authority (FCA) rules
("UK Listing Rules") relating to the restrictions on the retail distribution
of unregulated collective investments schemes and close substitutes which came
into effect on 1 January 2014.
Following the receipt of legal advice, the Board confirms that it has
conducted the Company's affairs in such a manner that the Company would have
qualified for approval as an investment trust if it was resident in the United
Kingdom, and that it is the Board's intention that the Company will continue
to conduct its affairs in such a manner. Thus, the Company is, and the Board
expects it will continue to be, outside the scope of the new restrictions and
Independent Financial Advisors (IFAs) should therefore be able to recommend
ordinary shares in the Company to retail investors in accordance with the FCA
requirements relating to non-mainstream investment products.
Directors' remuneration
Directors of the Company are all non-executive and, by way of remuneration,
receive an annual fee set in Sterling. During the year, the Directors received
the following emoluments in the form of Directors' fees from the Company.
There has been no change in director remuneration since 2017 with any annual
differences the result of foreign exchange fluctuations.
2024 2023
US$ US$
Mark Huntley 72,310 69,949
Alan Clifton 54,232 53,507
Carmen Ling 45,194 43,063
Total 171,736 166,519
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's shares are set out above The Company engages with its shareholders through the issue of periodic Shareholders are aware of any developments and issues and through engagement
portfolio updates in the form of Regulatory News Service ("RNS") announcements can be actively engaged in the process of divestment.
and half yearly updates.
Continued shareholder support is vital to the Company's divestment objectives,
and therefore, in line with its objectives, the Company seeks to maintain
shareholder satisfaction through: The Company provides in depth commentary on the investment portfolio and
corporate outlook in its semi-annual financial statements.
- Net asset value preservation
In addition, the Company directly and, through its Manager undertakes periodic
- Divestment of remaining properties, and roadshows to meet with existing and prospective investors to solicit their
feedback and understand any areas of concern.
- Operating cost reduction
In the financial year the Company issued:
- 4 NAV updates by way of RNS
- 2 half yearly updates
- Macau property market update by way of RNS
- Investment Management fee renegotiation by way of RNS
The Company directly and through the Manager interacts with major
shareholders. Such interaction provides mutual understanding of the Company's
prospects and outlook for divestment.
Service Providers
The Company does not have any direct employees; however it works closely with The Company's Management Engagement Committee has identified its key service The Feedback given by the service providers is used to review the Company's
a number of service providers (the Manager, the Investment Adviser, providers. On an annual basis it undertakes a review of performance based on a policies and procedures to ensure open lines of communication, operational
Administrators, Company Secretary, Brokers and other professional advisers) questionnaire through which it also seeks feedback. efficiency and appropriate pricing for services provided.
whose interests are aligned to the success of the Company.
Furthermore, the Board and its sub-committees engage regularly with its
The quality and timeliness of their service provision is critical to the service providers on a formal and informal basis.
success 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 loans with three banks. The Group's engagement with its bankers is primarily through its Manager who The facilities have continued to operate throughout the year, and based on the
provides regular reports to the banks and has an open line of communication in performance and delivery of the divestment programme, no issues or concerns
respect of the ongoing operation and maintenance of the facilities. have been raised by the banks.
These facilities provides the Group with the resources which can be used to
finance capital expenditure or working capital and therefore their
availability is a key component of the Company's ability to operate.
Tenants
The Group has rental paying tenants in The Waterside. Formal lease agreements are executed to safeguard the interests of the Positive feedback is received from residents at The Waterside as well as from
landlord, The Waterside, and tenants. In addition, top-class facilities and the local market. Occupancy levels have increased in real terms and rental
quality property management services are provided at The Waterside to help levels have been in line with market trends.
ensure comfortable occupancy.
Community & Environment
As an Investment Company whose purpose is the investment in real estate in As discussed above the Board actively engages with the Company's service The ESG report provides further information on the Manager's approach to this
Macau, the Company's direct engagement with the local community and the providers on a regular basis. important subject.
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 AGM of the Company will be held in December 2024 at Floor 2, Trafalgar
Court, Les Banques, St Peter Port, Guernsey. A notice of Meeting and Agenda
will be released before December 2024 AGM.
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 2024. 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
27 September 2024
Corporate Governance Report
The Board has put in place a framework for corporate governance which it
believes is appropriate for an investment company. Paragraph 6.6.6R 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 6.6.6R 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 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 in the late stage of life, with a clearly defined but narrow
strategic objective. 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,
June 2021 and November 2021. 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 above 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 they have 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 Directors; 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. Alan Clifton has been a member of the Board for
18 years. However, the Board have satisfied themselves that Alan Clifton
continues to be independent in approach and judgement. 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.
The Company has benefitted greatly from the knowledge, expertise and skill mix
of the Board as it has 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, any appointment of a director
requires a sound understanding and knowledge 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.
The majority of the Board is independent within the meaning of the AIC Code.
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.
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 detailed discussions to determine
effectiveness and performance in various areas, as well as the Directors'
continued independence. Given the late 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, were they to be appointed, would receive an induction from
the Manager as part of the familiarisation process of candidates following
appointment. All directors receive other relevant training as necessary.
Duties and responsibilities
The Board is responsible to shareholders for the overall management of the
Company. The Board has adopted a Schedule of Matters Reserved for the Board
which sets out the particular duties of the Board. Such reserved powers
include decisions relating to the determination of investment policy and
approval of investments, strategy, capital raising, statutory obligations and
public disclosure, financial reporting and entering into any material
contracts by the Company.
The Directors have access to the advice and services of the Company Secretary
and Administrator, who are responsible to the Board for ensuring that Board
procedures are followed and that it complies with Guernsey Law and applicable
rules and regulations of the GFSC and the LSE. Where necessary, in carrying
out their duties, the Directors may seek independent professional advice at
the expense of the Company. The Company maintains appropriate Directors' and
Officers' liability insurance in respect of legal action against its Directors
on an on-going basis.
The Board has responsibility for ensuring that the Company keeps proper
accounting records, which disclose with reasonable accuracy at any time the
financial position of the Company, and which enable it to ensure that the
financial statements comply with the Companies (Guernsey) Law, 2008.
The Board has responsibility for ensuring that the Annual Report presents a
fair, balanced and understandable assessment of the Company's position and
prospects. This responsibility extends to interim and other price-sensitive
public reports.
Committees of the Board
Nomination and Remuneration Committee
The Nomination and Remuneration Committee Report is below.
Management Engagement Committee
The Management Engagement Committee Report is below .
Audit and Risk Committee
The Audit and Risk Committee Report is below .
Meeting Attendance
Name Scheduled Audit and Risk Committee Meeting Nomination and Remuneration Committee Meeting Management Engagement Committee Meeting
Board Meeting
(max 4) (max 2) (max 2)
(max 4)
Mark Huntley 4 4 - -
Alan Clifton 4 4 - -
Carmen Ling 4 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 internal control functions, provide
sufficient assurance that a sound system of internal control, which safeguards
the Group's assets, is maintained. The Administrator issues a SOC 1 report
annually, setting out a description of controls and detailed external testing
of the controls over a year. The serving auditor concluded in the most recent
report that control objectives were suitably designed and achieved during the
period. 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 and identifying property investments to
recommend for divestment. The Manager is also responsible to the Board for all
issues relating to property asset management. The management agreement is
aimed at delivering a complete divestment of the remaining properties held and
the return of capital to shareholders.
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 calendar year, a detailed review of
performance pursuant to their terms of engagement is undertaken by the
Management Engagement Committee.
In accordance with Listing Rule 11.7.2.(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 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 AGM 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 and Investment Manager 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.
Cyber-security
The Board recognises the increased incidence of cyber-security threats and
regularly reviews its policies, procedures and defences to mitigate associated
risks, and receives confirmation on such matters such as quarterly compliance
reports, from the key service providers.
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 ongoing cash flow and financing issues which are faced by the Group.
The Manager undertakes ongoing discussions with lenders to enable relief of
the stress on cash flow. The Manager provides the Board with fortnightly
updates with divestments progress and payable status reporting, bringing
up-to-date information to the Board. Working capital requirements, cashflows
scenarios and an analysis of loan to value covenants are reported to the Board
for monitoring.
• Economic changes that have occurred since 2023 such as high global
inflation, interest rate increases and their impact on the Macau economy and
in particular, the luxury property market. The Manager provides regular and
timely updates on developments and ad-hoc analysis about such economic related
impact to the Board, to facilitate their informed decision making process and
allow sales strategy to be pivoted as required;
• There can be no guarantee that Macau will remain the only centre in China
where gambling is legal. Other centres are unlikely to be created, however, in
the expected remaining life of the Company. Changes in policies of the
government or changes in laws and regulations may result in the legalisation
of gambling in other parts of China in the longer term. Other regional centres
may also provide increased competition to Macau. These, in turn, may have an
adverse effect on Macau's economy and property market and the favourable
treatment of gambling in Macau. There is an inherent risk in investing in the
Macau region which 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 monitors the loan covenants of all facilities.
• Inability to achieve the Group's strategic objectives, linked to a
widening of the discount between share price and Adjusted NAV. The
Continuation Vote in the AGM in December 2024, given the concentrated
shareholder base which exists, represents an uncertainty. The Board, the
Manager and the Company maintain good relationships with investors through
periodic contact, investor updates, and addressing influences on the share
price and through provision of factual information to support any resolutions
requiring shareholders' approval.
• 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. The Manager
provides the Board with updates on any relevant development on a regular
basis.
• 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 Manager provides the Board
with updates on any concerning developments on a regular basis.
• 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. The Manager provides the Board with updates on
any concerning developments on a regular basis. 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;
• 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;
• changes to restrictions on or regulations concerning repatriation of
funds; and
• pressure to sell on developers.
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 grow
significantly 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 no further emerging
risks have been identified.
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 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 should they crystallise. 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 and other
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
27 September 2024
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 required changes and also considers the appropriate levels of the Board's
remuneration. The Board monitors the developments in corporate governance to
ensure the Board remains aligned with best practice. The Board acknowledges
the importance of diversity of experience, approach and gender for the
effective functioning of a board and commits to supporting diversity in the
boardroom. The Board also values diversity of business skills and experience
because directors with diverse skills sets, capabilities and experience gained
from different geographical backgrounds enhance the Board by bringing a wide
range of perspectives to the Company. The Board is satisfied with the current
composition and functioning of its members. It is the Company's policy to give
careful consideration to issues of the Board's balance, 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 33.33%. 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 takes into account of the fact that the
Company is in the final phase of its life.
Remuneration
The Nomination and Remuneration Committee determines and agrees with the Board
the remuneration of the Company's Chairman, and non-executive directors. No
director shall be involved in any decisions as to their own remuneration. In
determining such remuneration, the Nomination and Remuneration Committee takes
into account all factors which it deems necessary including any relevant legal
requirements, the provisions and recommendations in the AIC Code of Corporate
Governance and the UK Listing Authority's Listing Rules and associated
guidance. The Nomination and Remuneration Committee also obtains reliable,
up-to-date information about remuneration in other comparable companies. There
have been no changes to annual director remuneration since 2017.
Composition of the Nomination and Remuneration Committee
The members of the Nomination and Remuneration Committee are listed below.
Meetings
The Nomination and Remuneration Committee meets at least once a calendar 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 did not meet during the year ended
30 June 2024, however, it has met subsequent to the year end. 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
• consideration of Directors' remuneration; and
• consideration of the effectiveness of new Directors.
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
27 September 2024
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
reviews 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 2024 in reflection of the delays to the realisation of assets
arising as a consequence of the coronavirus pandemic and the challenging
subsequent trading conditions. The maximum fee that could be paid to the
Manager in all circumstances is US$1,439,816.
Composition of the Management Engagement Committee
The members of the Management Engagement Committee are listed below.
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, 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 2024 was
satisfactory and the continuing appointment of the Manager on the terms as
currently agreed and, following negotiation and an affirmative Continuation
Vote, any future ongoing extension 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 the key service providers (as detailed in Appendix 1
of the Terms of Reference of the Committee) for the year ended 30 June 2024
was satisfactory.
Overview
The Management Engagement Committee did not meet during the year ended 30 June
2024; however it has met subsequent to the year end 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
27 September 2024
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 any non-audit services by the external audit firm;
• reviewing the valuations of the Company's investments prepared by the
Investment Adviser, and providing 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 any
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.
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 appointment
Alan Clifton (Chairman) 23 May 2006 -
Mark Huntley 12 November 2018 -
Carmen Ling 24 February 2022 -
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 18 years. However, the Board and Audit and Risk Committee have satisfied
themselves that Alan Clifton continues to be independent in approach and
judgement. 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. Accordingly, it has 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
and Risk 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.
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, are fair, balanced and understandable and provide 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 external 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 2024, the Audit and Risk Committee considered the following significant
issues:
• going concern and viability in relation to the Continuation Vote in
December 2024 and availability of loan refinancing;
• valuation of investment properties and inventories;
• existence and ownership of investment properties and inventories;
• accounting treatment for taxes incurred in multiple jurisdictions;
• interest rates and inflation;
• income recognition for rental income; and
• progress on divestment.
The risks relating to going concern and viability are mitigated through
ongoing management of cash resources, regular monitoring of compliance with
loan covenants and re-negotiation with lender banks prior to loan maturities.
Communications with major shareholders lend support to the Company's
continuation.
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. 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 special purpose vehicle ("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 AGM 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 and any resulting impairment.
As outlined in Note 6 of the financial statements, the fair value of the
Group's investment property as at 30 June 2024 was US$97,970,000 (2023:
US$141,045,000). 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 2024 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 2024 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 the lower
of cost and net realisable value. The Company also discloses an Adjusted NAV
reporting what the Company's net asset value would be if the inventory were
recognised at fair value (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
2024 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, a SOC 1 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
2024. 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 financial year ended 30 June 2021. 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 2024 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 and carrying value of
inventories 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 2024 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 any 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 a
key 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
they sat within their parameters.
o The going concern assumption: the external auditor held discussions with the
Corporate Broker to understand any negative sentiment from investors around
the upcoming continuation vote. In addition, the external auditor performed
rigorous testing of management's cash flow forecasts and two-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.
The Audit and Risk Committee also held private meetings with the external
auditor during 2024 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 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 external auditor for the year ending
30 June 2025.
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 AGM in December 2024.
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. 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 2024.
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 valuations of the properties held;
• review of the 2023 Annual Report and Audited Consolidated Financial
Statements for the year ended 30 June 2023;
• review of the 2023 Interim Report and unaudited Interim Condensed
Consolidated Financial Statements for the 6 months ended 31 December 2023;
• review of the quarterly results announcements issued in November 2023 and
May 2024;
• review of the audit plan and timetable for the preparation of the 2024
Annual Report and Audited Consolidated Financial Statements;
• challenge of the 2024 Annual Report and Audited Consolidated Financial
Statements for the year ended 30 June 2024;
• 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
27 September 2024
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 approved by the
International Accounting Standards Board ("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 IFRS 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
delegated to the Manager but is ultimately 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 who are a part of the Equity Shares in Commercial Companies
("ESCC") category in the UK are required under the UK 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 above, confirms that, to the
best of their knowledge and belief that:
Directors' statement under the Disclosure, Guidance 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
27 September 2024
Independent 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 Fund
Limited (the "Company"/"Fund") and its subsidiaries (the "Group"):
• give a true and fair view of the state of the Group's affairs as at 30
June 2024 and of its loss for the year then ended;
• have been properly prepared in accordance with IFRS Accounting Standards
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 cash flow statement; and
• the related notes 1 to 25
The financial reporting framework that has been applied in their preparation
is applicable law and IFRS Accounting Standards 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 public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements. We confirm
that we have not provided any non-audit services prohibited by the FRC's
Ethical Standard 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 in December
2024 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 Group's and 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 Group's and Company's
ability to continue to adopt the going concern basis of accounting included:
• Evaluating management's assessment of the potential issues that may give
rise to a material uncertainty, including mitigating actions identified by the
directors;
• Considering the financial covenants currently in place and whether
sufficient headroom exists, particularly in the context of decreased property
valuations and the impact of the current macro-economic environment including
high interest rates;
• Evaluating the likelihood of renewal of external financing arrangements at
expiry, including consideration of history of renewal of such arrangements;
• Evaluating the assumption made by the directors related to passing of the
upcoming continuation vote for the extension of the life of the Company;
• Performing sensitivity analysis on the key assumptions and inputs applied
in the going concern assessment and cashflow model, including the ability to
sell the remaining properties given the slow recovery of real estate market
sector;
• Assessing the reasonability of key assumptions in the cashflow model and
obtaining supporting documentation from management; and
• Evaluating the appropriateness of the disclosures in the financial
statements.
In relation to the reporting on how the Group 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.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
4. Summary of our audit approach
Key audit matters The key audit matters that we identified in the current year were:
• Going concern (see material uncertainty related to going concern section)
• Key judgements in the valuation of investment property
• Carrying value of inventory
Materiality The materiality that we used for the Group financial statements in the current
year was $464k 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 our approach No significant changes in our approach compared with the prior year.
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 described 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, China, as
disclosed in note 6, that is valued at $98.0m as at 30 June 2024 (2023:
$141.0m).
The property is valued by an independent, professionally qualified valuer
using the "income capitalisation" method of valuation.
Directors are 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
estimates include future cash flows from assets, such as lettings, as well as
applicable comparable term yields and market rent. Unreasonable assumptions
could give rise to a material misstatement.
The value of investment property declined by 44% as at 30 June 2024 in
comparison to prior year due to realisations of investment property units
during the year which reduced the overall investment property portfolio.
Consistent with the market conditions observed in the prior year, there
continued to be a higher level of judgement associated with 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. The Audit and Risk committee also considered this as a significant
matter as discussed in the Audit and Risk Committee Report.
How the scope of our audit responded to To respond to the key audit matter, we have performed the following audit
the key audit matter procedures:
• Tested relevant controls in relation to the valuation process;
• Tested 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;
• With involvement of our valuation specialists, discussed and challenged
the appropriateness of the valuation methodology and the key inputs and
assumptions (such as comparable term yields and market rent) with the valuers
and management with reference to independent market data;
• Evaluated the competence, objectivity and capabilities of the valuer; 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 have concluded that the assumptions applied by management, in arriving at
fair value, and the resulting valuations of investment property are
appropriate.
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, with carrying value of $35.0m as at 30 June 2024 (2023:
$34.7m).
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 $53.1m at 30
June 2024 (2023: $57.7m).
Directors are required to make a number of significant assumptions and
judgements in determining the NRV such as comparable recent sales
transactions, which are necessary to assess the appropriate carrying value in
the financial statements. As disclosed 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
estimates include the weighted unit rate per square foot and comparable sales
transactions.
The valuation of inventory is disclosed as one of the key sources of
estimation uncertainty in note 3 of the financial statements. The Audit and
Risk committee also considered this as a significant matter as discussed in
the Audit and Risk Committee Report.
How the scope of our audit responded to To respond to the key audit matter, we have performed the following audit
the key audit matter procedures:
• Tested relevant controls in relation to the valuation process;
• Tested 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;
• With involvement of our valuation specialists, discussed and challenged
the appropriateness of the valuation methodology and the key inputs (such as
weighted unit rate per square foot, comparable sales transactions) and
assumptions with the valuer and management with reference to independent
market data;
• Evaluated the competence, objectivity and capabilities of the valuer;
• 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 weighted unit rate per square foot determined by the
independent valuer is within the range noted in our independent market
research, albeit at the higher end of the range. However, we have concluded
that the assumptions applied by management, in arriving at the NRV of
inventory are appropriate, and that the resulting carrying value of inventory
is appropriate.
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 $464k (2023: $652k)
Basis for determining materiality 1% of net asset value ("NAV") (2023: 1% of NAV)
Rationale for the benchmark applied In determining the materiality, we considered 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 2024 audit
(2023: 70%). 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;
• Our past experience of the audit, which has indicated a low number of
corrected and uncorrected misstatements identified in prior period;
• The continued impact of macro - economic factors in Macau on the Group's
performance in the current year.
6.3 Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all
audit differences in excess of $23k (2023: $32k), 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
7.1. Scoping
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. 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.
7.2. Our consideration of the control environment
We obtained an understanding of the IT systems in place.
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. As part of our audit, we obtained an understanding of relevant
controls established at the key service providers including obtaining the ISAE
3402 report.
We tested relevant controls over investment properties and inventory
valuation.
7.3. Our consideration of climate-related risks
In planning our audit, we have considered the potential impact of
environmental related risks on the Group's business and its financial
statements.
The Group continues to develop its assessment of the impacts of environmental,
social and governance ("ESG") related risks as outlined above. The Group
evaluated the impact arising from climate change on the financial statements
and concluded that there is no material effect.
As a part of our audit, we have obtained management's ESG policy and held
discussions with management to understand the process of identifying ESG
related risks, the determination of mitigating actions and the impact on the
Group's financial statements. We performed our own qualitative risk assessment
of the climate impact and concur with management assessment. We also
considered the consistency of the ESG disclosure set up above with the
financial statements and our knowledge from our audit.
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;
• results of our enquiries of management, the directors and the Audit
Committee about their own identification and assessment of the risks of
irregularities including those that are specific to the Group's sector;
• 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 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; and
• Carrying value of inventory
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.
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, reviewing
internal audit reports and reviewing correspondence with the Guernsey
Financial Services Commission; and
• 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 Group'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;
• the directors' explanation as to its assessment of the Group's prospects,
the period this assessment covers and why the period is appropriate;
• the directors' statement on fair, balanced and understandable;
• the board's confirmation that it has carried out a robust assessment of
the emerging and principal risks;
• the section of the annual report that describes the review of
effectiveness of risk management and internal control systems; and
• the section describing the work of the audit committee.
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. Other matters which we are required to address
14.1. Auditor tenure
Following the recommendation of the audit committee, we were appointed by the
Audit Committee to audit the financial statements for the year ending 30 June
2021 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is 4
years, covering the years ending 30 June 2021 to 30 June 2024.
14.2. Consistency of the audit report with the additional report to the audit
committee
Our audit opinion is consistent with the additional report to the audit
committee we are required to provide in accordance with ISAs (UK).
15. 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.
As required by the Financial Conduct Authority (FCA) Disclosure Guidance and
Transparency Rule (DTR) 4.1.15R - DTR 4.1.18R, these financial statements will
form part of the Electronic Format Annual Financial Report filed on the
National Storage Mechanism of the FCA in accordance with DTR 4.1.15R - DTR
4.1.18R. This auditor's report provides no assurance over whether the
Electronic Format Annual Financial Report has been prepared in compliance with
DTR 4.1.15R - DTR 4.1.18R.
David Becker (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Recognised Auditor
St Peter Port, Guernsey
28 September 2024
Consolidated Statement of Financial Position
As at 30 June 2024
2024 2023
Note US$'000 US$'000
ASSETS
Non-current assets
Investment property 6 97,970 141,045
Deposits with lenders 21 320 1,170
Other receivables 14 16
98,304 142,231
Current assets
Inventories 7 35,017 34,775
Other receivables 10 72 66
Deposits with lenders 21 4,295 4,438
Cash and cash equivalents 243 1,118
39,627 40,397
Total assets 137,931 182,628
EQUITY
Capital and reserves attributable to the Company's equity holders
Share capital 12 618 618
Retained earnings 30,722 50,342
Distributable reserves 15,791 15,791
Foreign currency translation reserve (740) (1,067)
Total equity 46,391 65,684
LIABILITIES
Non-current liabilities
Deferred taxation provision 9 4,580 7,498
Taxation provision 9 - 1,158
Interest-bearing loans 8 51,816 81,913
56,396 90,569
Current liabilities
Taxation provision 9 316 -
Trade and other payables 11 4,163 3,181
Interest-bearing loans 8 30,665 23,194
35,144 26,375
Total liabilities 91,540 116,944
Total equity and liabilities 137,931 182,628
Net Asset Value per share (US$) 18 0.75 1.06
Adjusted Net Asset Value per share (US$) 18 1.07 1.46
The accompanying notes are an integral part of these Consolidated Financial
Statements.
The Consolidated Financial Statements were approved by the Board of Directors
and authorised for issue on 27 September 2024.
Mark Huntley
Chairman of the Board Alan Clifton
27 September 2024 Chairman of the Audit and Risk Committee
27 September 2024
Consolidated Statement of Comprehensive Income
Year ended 30 June 2024
2024 2023
Note US$'000 US$'000
Income
Rental income 1,494 1,122
Other income 134 -
1,628 1,122
Expenses
Net loss on disposal of investment property 6 2,398 1,909
Net loss from fair value adjustment on investment property 6 12,657 3,412
Management fee 20 1,200 1,200
Realisation fees 20 (7) 98
Non-Executive Directors' fees 19 172 167
Auditors' remuneration 23 161 162
Property operating expenses 15 1,169 1,277
Sales and marketing expenses 16 95 76
General and administration expenses 13 480 459
Loss on foreign currency translation 106 34
(18,431) (8,794)
Operating loss for the year (16,803) (7,672)
Finance income and expenses
Bank loan interest 8 (6,283) (5,440)
Other financing costs 14 (291) (346)
Bank interest received 38 8
(6,536) (5,778)
Loss for the year before tax (23,339) (13,450)
Taxation 9 3,719 1,443
Loss for the year after tax (19,620) (12,007)
Other Comprehensive Income
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations 327 115
Total comprehensive loss for the year (19,293) (11,892)
Loss attributable to:
Equity holders of the Company (19,620) (12,007)
Total comprehensive loss attributable to:
Equity holders of the Company (19,293) (11,892)
2024 2023
US$ US$
Basic and diluted loss per ordinary share attributable to the equity holders 18 (0.3173) (0.1942)
of the Company during the year
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 2024
Share Retained earnings Distributable reserves Foreign currency translation reserve Total
capital
Note US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought forward at 1 July 2023 12 618 50,342 15,791 (1,067) 65,684
Loss for the year - (19,620) - - (19,620)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations - - - 327 327
Total comprehensive loss for the year - (19,620) - 327 (19,293)
Balance carried forward at 30 June 2024 12 618 30,722 15,791 (740) 46,391
Share Retained earnings Distributable reserves Foreign currency translation reserve Total
capital
Note US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought forward at 1 July 2022 12 618 62,349 15,791 (1,182) 77,576
Loss for the year - (12,007) - - (12,007)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations - - - 115 115
Total comprehensive loss for the year - (12,007) - 115 (11,892)
Balance carried forward at 30 June 2023 12 618 50,342 15,791 (1,067) 65,684
The accompanying notes are an integral part of these Consolidated Financial
Statements.
Consolidated Statement of Cash Flows
Year ended 30 June 2024
2024 2023
Note US$'000 US$'000
Net cash used in operating activities 17 (679) (2,341)
Cash flows from investing activities
Capital expenditure on investment property 6 - (27)
Movement in pledged bank balances 21 993 (2,152)
Net sales proceeds from disposal of investment property 6 28,480 35,384
Net cash generated from investing activities 29,473 33,205
Cash flows from financing activities
Proceeds from bank borrowings - 6,512
Repayment of bank borrowings (23,263) (32,025)
Interest and bank charges paid (6,457) (4,590)
Net cash used in financing activities (29,720) (30,103)
Net movement in cash and cash equivalents (926) 761
Cash and cash equivalents at beginning of year 1,118 355
Effect of foreign exchange rate changes 51 2
Cash and cash equivalents at end of year 243 1,118
The accompanying notes are an integral part of these Consolidated Financial
Statements.
Notes to the Consolidated Financial Statements
General information
Macau Property Opportunities Fund Limited (the "Company") is a Company
incorporated and registered in Guernsey under The Companies (Guernsey) Law,
1994. This law was replaced by the Companies (Guernsey) Law, 2008 on 1 July
2008. The Company is an authorised entity under the Authorised Closed-Ended
Investment Schemes Rules and Guidance, 2021 and is regulated by the GFSC. The
address of the registered office is given below.
The Consolidated Financial Statements for the year ended 30 June 2024 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 27 September 2024.
1 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
Consolidated Financial Statements are set out below. These policies have been
consistently applied to all years presented, unless otherwise stated.
Statement of compliance
The financial statements have been prepared in accordance with the
International Financial Reporting Standards ("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 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 next twelve months
after date of approval of the Annual Report.
In reaching its conclusion, the Board have considered the risks that could
impact the Group's liquidity over the period to 30 September 2025. This period
represents the period of at least 12 months from the date of signing of the
Annual Report.
As part of their assessment the Audit and Risk Committee highlighted the
following key considerations:
1. Whether the Group can repay or refinance its loan facilities to discharge
its liabilities over the period to 30 September 2025
2. Extension of life of the Company
1. Whether the Group can repay or refinance its loan facilities to
discharge its liabilities over the period to 30 September 2025
As at 30 June 2024, the Group has major debt obligations to settle during the
going concern period being:
i) principal repayments for The Waterside loan facility of US$11.5
million, US$16.0 million and US$39.8 million due for settlement in September
2024, March 2025 and September 2025, respectively;
ii) principal repayments for The Fountainside loan facility of US$0.7
million due for settlement in December 2024;
iii) principal repayments for the Penha Heights Tai Fung Bank loan facility
of US$2.2 million due for settlement in two instalments of US$0.65 million
each in September 2024 and December 2024 and three instalments of US$0.3
million each thereafter in March 2025, June 2025 and September 2025,
respectively; and
iv) principal repayments for the Penha Heights BCM loan facility of US$0.4
million, US$0.4 million and US$6.9 million due for settlement in March 2025,
June 2025 and September 2025, respectively.
The Waterside and The Fountainside
Given that the Macau Special Administrative Region Government have now revoked
all the property cooling measures which had been in place for 3 years and the
current staggered Macau economic recovery, it is assumed that MPO can achieve
a rate of 2 Waterside unit disposals per month from August 2024 to September
2025. This would generate US$79.5 million of revenue referenced to current
valuations and pricing strategy which would be sufficient to cover the
instalments for both the Waterside and Fountainside facilities due for
repayment in the upcoming twelve months period as well as MPO's operating
expenses.
Loan repayments to Hang Seng Bank for the Waterside facilities in September
2024 of US$11.5 million, was settled through disposal proceeds from the
Waterside units. In addition, an advance payment of US$1.7 million loan amount
has also been prepaid to Hang Seng Bank in September 2024.
Penha Heights
The loan repayments for the two Penha Heights facilities that would become due
over the going concern period total US$9.9 million. It is anticipated that
this would be settled from sales proceeds of Waterside and Fountainside units,
in the event that Penha Heights is not disposed of during the period.
Penha Heights loan repayment of US$0.65 million has been settled in accordance
to loan repayment term in September 2024.
Relationship with Lenders
The Manager is responsible for maintaining 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 2024 and up
to the date of issue of the financial statements, the Group has continued to
be in compliance with loan covenants and the Manager has maintained frequent
ongoing dialogue with all lenders who have demonstrated strong support for the
Group and its measured divestment strategy over the years.
Given the debt obligations that will become due for settlement over the going
concern period are expected to be covered by proceeds from selling Waterside
units at a conservative modest rate and potential sales of Fountainside units.
The fact that all banking facilities of the Group have all been successfully
renewed previously, with the loan-to-value ratios of the facilities maintained
within the covenants required under the respective loan agreements, the Board
is confident that the Group would be able to meet its debt obligations during
the going concern period.
Notwithstanding the above, given that it remains uncertain that adequate
proceeds could be generated from sales of properties to settle payment
obligations over the going concern period, and given that any necessary
refinancing of debt obligations would still be subjected to lenders' approval,
the Directors consider that there is a material uncertainty related to events
or conditions that may cast significant doubt over the Group's and Company's
ability to continue as a going concern and therefore it may be unable to
realise its assets and discharge its liabilities in the normal course of
business.
2. Extension of life of the Company
After the Ordinary Resolution was passed at the Annual General Meeting ("AGM")
of the Company in its 2023 AGM to extend the Fund's life until the 2024 AGM
(expected to be held by December 2024), 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 AGM (to be held by December 2024). 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 based
upon ongoing communications and note that 50% of shareholder support is
required to ensure continuation. It is likely that returns from the sale of
properties would be significantly lower, as endorsed by the recent forced
sales imposed on developers, if the Fund was forced to sell as a result of a
failed continuation vote from shareholders 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
and therefore it may be unable to realise its assets and discharge its
liabilities in the normal course of business.
Going Concern Conclusion
After careful consideration and based on the reasons outlined above, including
the Manager's continuing dialogue with lenders and shareholders, whilst there
are material uncertainties 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 2024 and therefore were applied in the
current year but they did not have a material impact on the Group:
- IFRS 17: Insurance Contracts
- Amendments to IFRS 17: Insurance Contracts
- Amendments to IAS 8: Accounting Policies, Changes in Accounting
Estimates and Errors
- Amendments to IAS 12: Income Taxes
- Amendments to IAS 1: Presentation of Financial Statements
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 and have not been adopted by
the Group:
- Amendments to IFRS 7: Financial Instruments: Disclosures (effective 1
January 2024)
- Amendments to IAS 1: Classification of Liabilities as Current or
Non-current (effective 1 January 2024)
- Amendments to IAS 1: Classification of debt with covenants (effective
1 January 2024)
- Amendments to IFRS 16: Leases (effective 1 January 2024)
- Amendments to IAS 7: Statement of Cash Flows (effective 1 January
2024)
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 and functional currency
The Consolidated Financial Statements are shown in US Dollars ("US$") which is
the Group's presentation currency. The Group's functional currency is Hong
Kong Dollars ("HKD").
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.
An investment property is derecognised upon disposal or when the investment
property is permanently withdrawn from use and no future economic benefits are
expected from the disposal. Any gain or loss arising on derecognition of the
property (calculated as the difference between the net disposal proceeds and
the carrying amount of the asset) is included in profit or loss in the period
in which the property is derecognised.
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 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 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 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 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 delivery 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 other
receivables are measured at amortised cost using the effective interest method
less any allowance for impairment. There has been no impairment in either the
current or prior year. Gains and losses are recognised in profit or loss when
the deposits with lenders 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.
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 based on the consideration to which the Group expects to
be entitled in a contract with the customers, 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 significant
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. In accordance with the Listing Prospectus and under
Guernsey law, on 7 June 2006 an application was made to the Royal Court of
Guernsey to have the share premium cancelled and re-designated as a
distributable reserve.
Foreign currency translation reserve
The foreign currency translation reserve comprises all foreign exchange
differences arising from the translation of the financial statements of
foreign operations.
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 2024 and 30 June 2023. The
Group's financial assets and liabilities are included in the table,
categorised by their currency at their carrying amount in US$'000. In the
current economic climate, management's assessment of a reasonable possible
change in foreign exchange rates would be up to a 1% increase/decrease for
Hong Kong Dollar ("HK$")/US$, due to the HK$ being pegged to the US$, and up
to a 10% increase/decrease for all other currencies.
The following table presents financial assets and liabilities denominated in
foreign currencies held by the Group as at 30 June 2024 and 30 June 2023, and
can be used to monitor foreign currency risk as at that date.
At 30 June 2024, if Sterling weakened/strengthened by 10% against US$ with all
other variables held constant, the loss for the year would have been US$26,000
lower/higher (2023: US$27,000 lower/higher). The HK$ 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$7.81 per dollar so no downward risk while the currency
peg remains in place. The foreign exchange risk is considered minimal and as
such the Company does not actively manage against this risk. If the HK$
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$809,000 higher/lower (2023: US$1,009,000 higher/lower). Any
movement would have no other effect on the remaining equity components of the
Group. There are no material transactions that would have effect on the
profit/loss for the year.
The Macanese Patacas ("MOP") is fixed to the HK$ 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.
US$ £ HK$ Other currencies Total
As at 30 June 2024 US$'000 US$'000 US$'000 US$'000 US$'000
Other receivables (excluding prepayments) - - - 18 18
Cash and cash equivalents 1 1 235 6 243
Deposits with lenders - - 4,615 - 4,615
Total financial assets 1 1 4,850 24 4,876
Trade and other payables 575 265 3,034 289 4,163
Interest-bearing loans - - 82,762 - 82,762
Total financial liabilities 575 265 85,796 289 86,925
Net financial position (574) (264) (80,946) (265) (82,049)
US$ £ HK$ Other currencies Total
As at 30 June 2023 US$'000 US$'000 US$'000 US$'000 US$'000
Other receivables (excluding prepayments) - - - 16 16
Cash and cash equivalents 1 1 1,108 8 1,118
Deposits with lenders - - 5,608 - 5,608
Total financial assets 1 1 6,716 24 6,742
Trade and other payables 275 268 1,976 662 3,181
Interest-bearing loans - - 105,632 - 105,632
Total financial liabilities 275 268 107,608 662 108,813
Net financial position (274) (267) (102,892) (638) (102,071)
b) Cash flow and fair value interest rate risk
The Group's interest rate risk is managed by the Manager, in accordance with
policies and procedures in place, and can be mitigated through the use of
interest rate swaps. The Group only has exposure to floating interest rates as
at 30 June 2024. The Manager has assessed the interest rate risk as not being
significant enough to warrant management through the use of interest rate
swaps during either 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 500 bps higher/lower and all other variables were
held constant, the Group's loss for the year would have increased/decreased by
US$3,895,000 (2023: loss for the year increased/decreased by US$4,945,000
(based on the interest bearing net financial liability per the table below).
This is mainly due to the Group's exposure to interest-bearing loans.
The following table details the Group's exposure to floating interest rates:
As at 30 June 2024 Interest bearing Non-interest bearing Total
US$'000 US$'000 US$'000
Other receivables (excluding prepayments) - 18 18
Cash and cash equivalents 243 - 243
Deposits with lenders 4,615 - 4,615
Total financial assets 4,858 18 4,876
Trade and other payables - 4,163 4,163
Interest-bearing loans 82,762 - 82,762
Total financial liabilities 82,762 4,163 86,925
As at 30 June 2023 Interest bearing Non-interest bearing Total
US$'000 US$'000 US$'000
Other receivables (excluding prepayments) - 16 16
Cash and cash equivalents 1,118 - 1,118
Deposits with lenders 5,608 - 5,608
Total financial assets 6,726 16 6,742
Trade and other payables - 3,181 3,181
Interest-bearing loans 105,632 - 105,632
Total financial liabilities 105,632 3,181 108,813
The Group has no exposure to fixed interest rates.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered into with
the Group. The Group is exposed to credit risks from both its leasing
activities and financing activities, including deposits with banks and
financial institutions.
The Group's main exposure to credit risk is its cash balances with banks. This
risk is mitigated through using banks with a high credit rating. The Group's
cash and cash equivalents and deposits with lenders are all held with
investment grade banks and the majority are held with a bank with a credit
rating of A or higher.
The Group's cash and cash equivalents have the following ratings from Fitch
and Moody's Ratings:
2024 2023
Credit Rating US$'000 US$'000
AA- 226 1,102
A+ 2 2
A 9 13
BBB+ 6 1
243 1,118
The Group's deposits with lenders with the following ratings from Fitch and
Moody's Ratings:
2024 2023
Credit Rating US$'000 US$'000
AA- 4,295 5,480
BBB+ 320 128
4,615 5,608
The Group is exposed to loss of rental income and increase in costs, such as
legal fees, if tenants fail to meet their payment obligations under their
leases. The Group seeks to mitigate default risk by diversifying its tenant
base and requiring deposits or guarantees from banks or parent companies,
where there is a perceived credit risk or in accordance with prevailing market
practice.
All of the Group's major tenants have met their rental requirements within the
terms of arrangement and no material receivables which are past due have been
impaired.
The maximum exposure to credit risk at the reporting date is the carrying
value of each class of financial asset.
The Group's financial assets subject to the ECL model within IFRS 9 are cash
and cash equivalents, deposits with lenders and other receivables. There is
not considered to be any concentration of credit risk within these assets. The
amount of ECL on cash and cash equivalents and deposit with lenders are
considered to be US$nil considering the credit quality as indicated on the
credit risk tables. Other receivables are receivables from counterparties of
minimal credit default risk and ECL is expected to be US$nil.
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
managing property development expenditure through cash currently held.
It is anticipated that the remaining debt obligations that are due over the
going concern period will be settled from sales proceeds that are to be
generated from the ongoing divestments or the Group will need to arrange
refinancing, if necessary, see the Going Concern section in Note 1.
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 a regular basis all key matters arising. The Manager also maintains good
relationships with other banks and explores refinancing options as part of its
market function and contingency planning. Throughout the year ended 30 June
2024, and up to the date of issue of the financial statements, the Group has
continued to be in compliance with loan covenants and has maintained frequent
ongoing dialogue with all lenders who have demonstrated strong support for the
Group over the years. Their indications are that this support will continue
for the Group and in respect of the loans on the underlying properties.
Given the fact that all banking facilities of the Group have been successfully
renewed previously, with the loan-to-value ratios of the facilities maintained
within the covenants required under the respective loan agreements, the Board
in current and envisioned circumstances is confident that the Group would be
able to arrange refinancing for debt obligations that exceed funding available
from divestments.
Deposits amounting to US$4,615,000 (2023: US$5,608,000) have been pledged to
secure banking facilities, of which US$320,000 (2023: US$1,170,000) relates to
long-term banking facilities and are, therefore, classified as non-current
assets. Pledged bank balances represent deposits pledged to the banks to
secure the banking facilities granted to the Group.
As at 30 June 2024, the Group has term loan facilities with Hang Seng Bank,
Banco Tai Fung and Banco Comercial de Macau, S. A. ("BCM Bank") for its
investments in The Waterside, The Fountainside, and Penha Heights
respectively. The Group's liquidity position is monitored by the Manager and
is reviewed quarterly by the Board. Please refer to Note 8 for details of the
facilities.
The following tables analyse the Group's financial assets and liabilities into
relevant maturity profiles based on the remaining period at the Consolidated
Statement of Financial Position date to the contractual maturity date. The
amounts disclosed in the table are the contractual undiscounted cash flows
(including interest payable).
On Less than 3 to 12 months 1 to 2 2 to 5 Over Total
demand
3 months
years
years
5 years
As at 30 June 2024 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Other receivables (excluding prepayments) - 4 - 14 - - 18
Cash and cash equivalents 243 - - - - - 243
Deposits with lenders - 4,295 - 320 - - 4,615
Total financial assets 243 4,299 - 334 - - 4,876
Trade and other payables - 4,163 - - - - 4,163
Interest-bearing loans - 13,443 21,354 49,114 4,081 - 87,992
Total financial liabilities - 17,606 21,354 49,114 4,081 - 92,155
Net financial position 243 (13,307) (21,354) (48,780) (4,081) - (87,279)
As at 30 June 2023 On Less than 3 to 12 months 1 to 2 2 to 5 Over Total
demand
3 months
years
years
5 years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Other receivables (excluding prepayments) - - - 16 - - 16
Cash and cash equivalents 1,118 - - - - - 1,118
Deposits with lenders - 4,363 75 128 1,042 - 5,608
Total financial assets 1,118 4,363 75 144 1,042 - 6,742
Trade and other payables - 3,181 - - - - 3,181
Interest-bearing loans - 11,083 18,465 41,465 44,556 1,305 116,874
Total financial liabilities - 14,264 18,465 41,465 44,556 1,305 120,055
Net financial position 1,118 (9,901) (18,390) (41,321) (43,514) (1,305) (113,313)
The table below analyses the Group's changes in financial liabilities arising
from financing activities.
1 July Cashflows Foreign Exchange Movement Other Profit and Loss 30 June
2023 2024
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Current interest-bearing loans 23,463 (22,879) 87 30,224 - 30,895
Non-current interest-bearing loans 82,168 (384) 307 (30,224) - 51,867
Loan arrangement fees (524) (42) - - 285 (281)
Net interest-bearing loans 105,107 (23,305) 394 - 285 82,481
Interest payable 967 (6,415) - - 6,289 841
Total 106,074 (29,720) 394 - 6,574 83,322
1 July Cashflows Foreign Exchange Movement Other Profit and Loss 30 June
2022 2023
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Current interest-bearing loans 25,616 (25,513) 35 23,325 - 23,463
Non-current interest-bearing loans 105,376 - 117 (23,325) - 82,168
Loan arrangement fees (837) (26) - - 339 (524)
Net interest-bearing loans 130,155 (25,539) 152 - 339 105,107
Interest payable 84 (4,564) - - 5,447 967
Total 130,239 (30,103) 152 - 5,786 106,074
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 2024, 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. There are no
externally imposed capital requirements.
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 AGM. 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 2024, the Company did not purchase any ordinary
shares under the discount management policy. Proceeds from divestment were
allocated to debt repayment and working capital.
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 AGM of the Company by special resolution.
The Board remains committed to its discount management policy subject to
available capital.
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. Accounting estimates are monetary
amounts that are subject to measurement uncertainty. 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 the 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. Some
properties have been sold at a discount in the current year but there were
particular reasons for this, such as these either being cash sales or the
existence of a relationship with the buyer. As these discounts are only
offered in limited circumstances it is not indicative of a lower fair value.
This is an accounting estimate and assumption.
b) Inventory is stated at the lower of cost and NRV. NRV for completed
inventory property is assessed with reference to market conditions and prices
existing at the reporting date and is determined by the Group, having taken
suitable external advice and in the light of recent market transactions. NRV
in respect of inventory property under construction (see Note 7) is assessed
with reference to market prices at the reporting date for similar completed
property, less estimated costs to complete construction and less an estimate
of the time value of money to the date of completion. This is an accounting
estimate.
c) The property at The Waterside is classified as Investment Property under
IAS 40 and is measured at fair value. The Board have considered that IFRS 5 -
Non-current Assets Held for Sale and Discontinued Operations does not apply as
the property are not expected to be sold within one year from the statement of
financial position date. This is a critical judgement.
d) The Board have a reasonable expectation that the Group will continue in
existence as a going concern for 12 months from the date of signing the Annual
Report and mitigation actions in place are sufficient to make going concern
assumption appropriate (see Going concern section in Note 1). This is a
critical judgement.
The Group did not make any critical accounting judgements, other than as
described above, in the year ended 30 June 2024.
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 2024 and 30
June 2023 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
• MPOF Macau (Site 5) Limited • The Waterside Company 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(2) 100% Macau Cannonball Limited(1) 100% Guernsey
MPOF Macau (Site 5) Limited(2) 100% Macau Civet Limited(1) 100% Guernsey
The Waterside Company Limited 100% Macau Gorey Hills International Limited(1) 100% British Virgin Islands ("BVI")
The Fountainside Company Limited 100% Macau Hillsleigh Holdings Limited(1) 100% BVI
Castelo Branco Companhia Limitada 100% Macau East Base Properties Limited(2) 100% Hong Kong
MPOF (Jose) Limited(1) 100% Guernsey Eastway Properties Limited(2) 100% Hong Kong
MPOF (Sun) Limited(1) 100% Guernsey
MPOF (Guia) Limited(1) 100% Guernsey
MPOF (Antonio) Limited(1) 100% Guernsey
1 Company is a holding company.
2 Company is an investment holding 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$1,494,000 for the year ended 30 June 2024 (2023: US$1,122,000).
6. Investment property
2024 2023
US$'000 US$'000
At the beginning of the year 141,045 181,520
Capital expenditure on property - 27
Net sales proceeds from disposals (28,480) (35,384)
Loss on disposal of investment property (2,398) (1,909)
Fair value adjustment (12,657) (3,412)
Exchange difference 460 203
Balance at end of the year 97,970 141,045
Valuation gains/(losses) (fair value adjustment) from investment property are
recognised in profit and loss for the year. These are attributable to changes
in unrealised gains/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 2024 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, 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.
No capital expenditure on property was incurred during the year.
During the year ended 30 June 2024, 11 units were sold at The Waterside with
net losses on disposal of investment properties of US$2,398,000 recognised.
During the year ended 30 June 2023, 13 units were sold at The Waterside with
net losses on disposal of investment properties of US$1,909,000 recognised.
The market value as at 30 June 2024 as determined by the independent,
professionally-qualified valuer, Savills, was US$97,970,000 (2023:
US$141,045,000).
Rental income arising from The Waterside of US$1,485,000 (2023: US$1,114,000)
was received during the year. Direct operating expenses of US$611,000 (2023:
US$772,000) arising from rented units were incurred during the year. Direct
operating expenses during the year arising from vacant units totalled
US$156,000 (2023: US$279,000).
The following tables show the most appropriate presentation of the inputs used
in valuing the investment property which is classified as Level 3 in the fair
value hierarchy:
Property information Carrying amount/ Valuation technique Input Unobservable and observable inputs used in determination of fair values Other key information
fair value as at
30 Jun 2024
US$'000
Name The Waterside 97,970 Term and Reversion Analysis Term rent (inclusive of management fee and furniture) HK$18.1 psf Age of building
Type Residential/Completed apartments Term yield (exclusive of management fee and furniture) 1.4% -2.2% Remaining useful life of building
Location One Central Tower 6 Macau Reversionary rent (exclusive of management fee and furniture) HK$11.99 psf
Reversionary yield 1.55%
Property information Carrying amount/fair value as at Valuation technique Input Unobservable and observable inputs used in determination of fair values Other key information
30 Jun 2023
US$'000
Name The Waterside 141,045 Term and Term rent HK$17.0 psf Age of building
Reversion (inclusive of management fee
Analysis and furniture)
Type Residential/Completed apartments Term yield 1.55% -2.2% Remaining useful
(exclusive of management fee life of building
and furniture)
Location One Central Tower 6 Macau Reversionary HK$13.04 psf
rent (exclusive of
management fee
and furniture)
Reversionary yield 1.55%
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$4.4 million (2023: increase or decrease by US$6.9 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
by US$4.6 million or increase by US$5.3 million (2023: decrease by US$6.5
million or increase by US$7.3 million).
An increase/decrease by 5% in either the estimated reversionary rent or the
term or revisionary yield is considered in the reasonably possible range by
the Manager.
The Waterside is currently valued at its highest and best use. There is no
extra evidence available to suggest that it has an alternative use that would
provide a greater fair value measurement.
There have been no transfers between levels during the period or a change in
valuation technique since the last period.
7. Inventories
2024 2023
US$'000 US$'000
Cost
Balance brought forward 34,775 34,635
Additions 113 100
Exchange difference 129 40
Balance carried forward 35,017 34,775
Additions include capital expenditure.
Under IFRS, inventories are valued at the lower of cost and NRV. The carrying
amounts for inventories as at 30 June 2024 amounts to US$35,017,000 (2023:
US$34,775,000). The market value as at 30 June 2024 as determined by the
independent, professionally-qualified valuer, Savills, was US$54,747,000
(2023: US$59,503,000). The NRV as at 30 June 2024 was US$53,104,000 (2023:
US$57,718,000).
If the estimated unit rate increased/decreased by 5% (and all other
assumptions remained the same), the fair value of the properties would
increase or decrease by US$2.6 million (2023: increase by US$2.9 million or
decrease by US$2.8 million).
8. Interest-bearing loans
2024 2023
US$'000 US$'000
Bank loans - Secured
- Current portion 30,665 23,194
- Non-current portion 51,816 81,913
82,481 105,107
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.
As at 30 June 2024, the outstanding loan balance was HK$526 million (US$67.4
million) (2023: HK$661 million (US$84.3 million)). The interest rate is 1.8%
per annum over the 1-, 2-or 3-month HIBOR rate. The Manager determines the
interest period upon assessing funding and market conditions prevailing at
each interest rate fixing date. The loan-to-value covenant is 60%, which is
assessed on an aggregate basis to include The Fountainside facility. As at 30
June 2024, the combined loan-to-value ratio was 57.2% (2023: 54.1%). The
facility is secured by means of a first registered legal mortgage over all
unsold units of 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 principal is to be repaid in half yearly instalments with
HK$90 million (US$11.5 million) due in September 2024; HK$125 million (US$16.0
million) due in March 2025; and the remaining HK$311 million (US$39.8 million)
due upon maturity in September 2025. Subsequent to the year end, the Group has
settled the September 2024 instalments, and further accelerated an early
repayment of HK$13.2 million (US$1.7 million) for March 2025 instalment.
The Group has a loan facility with Hang Seng Bank for The Fountainside:
The facility consists of a term loan ("Tranche A") and a revolving facility
("Tranche B"). As at 30 June 2024, outstanding loan balance was HK$5.2 million
(US$0.7 million) (2023: HK$43.9 million (US$5.6 million)). 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 Manager determines the
interest period upon assessing funding and market conditions prevailing at
each interest rate fixing date. The loan-to-value covenant is 55%. As at 30
June 2024, the loan-to-value ratio was 4.12%. The facility is secured by means
of a first registered legal mortgage over all unsold units and car parking
spaces of The Fountainside 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.
Properties pledged under loan facilities for The Waterside and The
Fountainside cross-collateralised both facilities.
The Group has two loan facilities for Penha Heights:
Banco Tai Fung
The loan facility with Banco Tai Fung has a term of seven years and the
facility amount is HK$70 million (US$8.9 million). Interest was Prime Rate
minus 2.25% per annum, with applicable interest rate of Prime minus 1.75%
during the period from September 2023 to December 2024. The principal is to be
repaid in 28 quarterly instalments of HK$2.5 million (US$318,975) each,
commencing in September 2022, with September and December 2023 instalments
being deferred to September and December 2024 respectively. As at 30 June
2024, the facility had an outstanding balance of HK$55.0 million (US$7.0
million) (2023: HK$60 million (US$7.7 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 quarterly for the first six month and monthly thereafter on this loan
facility. As at 30 June 2024, the loan-to-value ratio was 40.15%% (2023:
40.27%). There is no loan-to-value covenant for this loan.
Subsequent to the year end, the Group has settled the September 2024
instalments of HK$5 million (US$0.65 million).
BCM Bank
During the year, BCM Bank renewed the loan facility of HK$63 million (US$8.1
million) for another term of two years until September 2025. Interest was
revised from 2.55% to 2.75% per annum over 3-month HIBOR rate. The principal
of HK$3 million is to be repaid in January 2024, March 2025 and June 2025,
respectively, with the rest due upon maturity. As at 30 June 2024, the
facility had an outstanding balance of HK$60.0 million (US$7.7 million) (2023:
HK$63 million (US$8 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 45%. As at 30 June 2024, the loan-to-value ratio for
this facility was 36.81% (2023: 35.39%).
Bank Loan Interest
Bank loan interest incurred during the year was US$6,283,000 (2023:
US$5,440,000), including US$nil (2023: 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 2024, the fair value of the
interest-bearing loans was US$204,000 lower than the carrying value of the
financial liabilities (2023: the fair value of the interest-bearing loans was
US$100,000 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 £1,600 (US$2,032) (2023: £1,200 (US$1,492)).
The Group would only be exposed to Hong Kong profits tax if it is:
(i) not exempted under the Revenue (Profits Tax Exemption for Offshore
Funds) Ordinance 2006 (the "Ordinance"); and
(ii) treated as carrying on a trade or business in Hong Kong either on its
own account or through any person as an agent.
No accrual has been made for Hong Kong profits tax, as the Board believes that
no such tax exposure exists at the end of the reporting year (2023: US$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% (2023: 8%) of
any rent received for rental properties or 6% (2023: 6%) of the official
ratable 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 booked by
a Macau corporate taxpayer, including gains on sale of investment/immovable
property, will be subject to MCT in accordance with MCT regulations. 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.
2024 2023
US$'000 US$'000
Non-current liabilities
Deferred taxation 4,580 7,498
Provision for Macanese taxations - 1,158
4,580 8,656
Current liabilities
Provisions for Macanese taxations 316 -
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 as applicable.
Provisions for Macanese taxations
The Group has made provisions for property tax and complementary tax arising
from its Macau business operations where applicable.
Major components of taxation
2024 2023
US$'000 US$'000
Provision to property tax (note 15) (208) (262)
Movement in deferred taxation provision 2,941 2,219
Provision for MCT 778 (776)
3,719 1,443
The differences between the taxation charge for the year and the movement in
taxation provisions are due to the disposal of investment property during the
year.
10. Other receivables
Current assets 2024 2023
US$'000 US$'000
Prepayments 68 66
Other receivables 4 -
72 66
11. Trade and other payables
Current liabilities 2024 2023
US$'000 US$'000
Accruals 809 626
Other payables 3,354 2,555
4,163 3,181
Other payables principally comprise outstanding amounts for operating
expenses.
12. Share capital
Ordinary shares 2024 2023
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 (2023: 61.8 million) ordinary shares of US$0.01 each 618 618
The Company has one class of ordinary shares which carries no rights to fixed
income.
The Board has publicly stated its commitment, in principle, to undertake share
buybacks at attractive levels of discount of the share price to Adjusted NAV.
In order to continue this strategy, the Board intends to renew this authority
at the 2024 AGM.
No redemption of shares was made during the current or prior year.
There are no restrictions on the distribution of dividends and repayment of
capital.
13. General and administration expenses
General and administration expenses 2024 2023
US$'000 US$'000
Legal and professional 54 50
Holding Company administration 125 111
Guernsey SPV administration 63 56
BVI, Hong Kong, & Macanese SPV administration 46 46
Insurance costs 14 14
Listing fees 21 19
Printing & postage 25 28
Other operating expenses 132 135
480 459
14. Other financing costs
Financing costs 2024 2023
US$'000 US$'000
Bank charges 6 7
Loan arrangement fees 285 339
291 346
As at 30 June 2024, unamortised loan arrangement fees were US$281,000 (2023:
US$524,000). These have been netted off against the interest bearing loans and
also split between current and non-current.
15. Property operating expenses
Property operating expenses 2024 2023
US$'000 US$'000
Property management fees 408 502
Leasing and property management service fee (Note 20) 380 351
Property taxes 208 262
Utilities 8 5
Other property expenses 165 157
1,169 1,277
16. Sales and marketing expenses
Sales and marketing expenses 2024 2023
US$'000 US$'000
Agent commission 95 76
17. Cash flows from operating activities
2024 2023
US$'000 US$'000
Cash flows from operating activities
Loss for the year before tax (23,339) (13,450)
Adjustments for:
Loss on disposal of investment property 2,398 1,909
Net loss from fair value adjustment on investment property 12,657 3,412
Net finance costs 6,574 5,786
Operating cash flows before movements in working capital (1,710) (2,343)
Effects of foreign exchange rate changes 106 34
Movement in other receivables (4) (13)
Movement in trade and other payables 1,042 243
Movement in inventories (113) (100)
Net change in working capital 925 130
Taxation paid - (162)
Net cash used in operating activities (679) (2,341)
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$19,620,000 (2023: loss of
US$12,007,000) and on the 61,835,733 (2023: 61,835,733) weighted average
number of ordinary shares in issue during the year.
30 June 2024 30 June 2023
Loss Attributable Weighted Average Loss Loss Attributable Weighted Average Loss
No. of Shares
Per Share
No. of Shares
Per Share
US$'000 '000s US$ US$'000 '000s US$
Basic and diluted (19,620) 61,836 (0.3173) (12,007) 61,836 (0.1942)
Net asset value reconciliation 2024 2023
US$'000 US$'000
Net assets attributable to ordinary shareholders 46,391 65,684
Uplift of inventories held at cost to market value 19,730 24,728
Adjusted NAV 66,121 90,412
Number of ordinary shares outstanding ('000) 61,836 61,836
NAV per share (IFRS) (US$) 0.75 1.06
Adjusted NAV per share (US$) 1.07 1.46
Adjusted NAV per share (£)* 0.85 1.16
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$:GBP rate as at 30 June 2024 is 1.265 (2023: 1.261).
19. Related party transactions
Directors of the Company are all non-executive and by way of remuneration,
receive only an annual fee which is denominated in Sterling.
2024 2023
US$'000 US$'000
Directors' fees 172 167
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 2024
were US$43,000 (2023: US$43,000).
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 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 onwards. At the option of the Board, from 1 January 2025 the management
fee may be reduced to US$80,000 per month with one month's notice given to the
Manager. A management fee of US$1,200,000 will be payable for 2024. Management
fees for the year totalled US$1,200,000 (2023: US$1,200,000) with US$500,000
outstanding as at 30 June 2024 (2023: US$200,000).
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 2025. 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% or more of the value of
the relevant asset as at 30 September 2019 (the "Carrying Value") a fee of
2.5% of net proceeds (net of debt, costs and taxes) ("Net Proceeds") was
payable; where the sale price of an asset was more than 80% but less than 90%
of the Carrying Value of the relevant asset, a realisation fee of 1.5% of Net
Proceeds was payable; and where the sale price of an asset is less than 80% of
the Carrying Value, no realisation fee was payable. In no circumstances will
the aggregate of the 2024 management fee and realisation fee exceed
US$1,439,816. In the event the Company is extended into 2025, where the sale
price of the listed asset is 90% or more of the value of the relevant asset as
at 31 December 2024 (the "Amended Carrying Value") a fee of 2.5% of Net
Proceeds is payable subject to net realisation proceeds for the 2024 calendar
year exceeding US$100,000,000. Where the sale price is less than 90% of the
Amended Carrying Value no realisation fee will be payable. The aggregate
amount of the Management fees and Realisation fees for each calendar year from
2024 onwards shall not exceed the amount which is equal to 4.99% of the lower
of the Group's market capitalisation and net asset value calculated on an
annual basis. The fee cap for 2025 onwards will be reset on 1 January of the
relevant calendar year based on the market capitalisation or net asset value
(as applicable) at close of business on the last business day of the previous
calendar year. Any realisation fee achieved on strata sales of units at The
Waterside will be subject to the retention of 50% until all units have been
sold. Realisation fees for the year totalled US$nil with a reverse of prior
year overprovision of US$7,000 (2023: US$98,000) with US$91,000 outstanding as
at 30 June 2024 (2023: US$98,000), of which US$46,000 (2023: US$49,000) was
deferred until sale of all units at The Waterside.
The Manager's appointment is terminable by the Manager or the Company on not
less than 6 months' notice which will be reduced to 3 months' notice from 1
January 2025. The Company may terminate the Management Agreement with
immediate effect, if either or both of the Principals are 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.
Leasing and Tenancy Management and Property Management Services Agreement
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, leasing and tenancy management and property management
services fees of US$380,000 (HK$2,969,000) (2023: US$351,000 (HK$2,752,000))
were paid. As at 30 June 2024, US$Nil (2023: US$30,000) 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$0.3 million
(2023: US$1.2 million) have been pledged to secure long-term banking
facilities and are, therefore, classified as non-current assets. There are no
other significant terms and conditions associated with these pledged bank
balances.
2024 2023
US$'000 US$'000
Non-current 320 1,170
Current 4,295 4,438
Pledged for loan covenants 4,615 5,608
22. Commitments and contingencies
As at 30 June 2024, the Group had agreed consultancy contracts with an
architectural firm, an engineering firm, an electrical engineering firm and a
quantity surveying consultancy firm and are consequently committed to future
capital expenditure in respect of inventories of US$107,000 (2023:
US$132,000).
23. Auditors' remuneration
All fees payable to the external auditor relate to audit services.
Auditors' remuneration was broken down as follows:
2024 2023
US$'000 US$'000
Audit fees 161 162
161 162
24. Operating leases - Group as lessor
The Group has entered into leases on its property portfolio.
Future minimum rentals receivable under non-cancellable operating leases as at
30 June 2024 are as follows:
2024 2023
US$'000 US$'000
Residential
Within 1 year 658 733
After 1 year, but not more than 5 years - -
Total future rental income 658 733
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 2024, lease incentives on which the Group was lessor amounted to
US$71,000 (2023: US$51,000) with rent free liabilities of US$2,000 (2023:
US$36,000).
25. Subsequent events
During the year, the Group entered into sales and purchase agreements to
dispose of units at The Waterside,3 of which have been completed after year
end with proceeds of US$9.4 million received.
Subsequent to the year end, a further 3 units at The Waterside have been sold
with total sales proceeds of US$6.8 million received and part of the proceeds
applied to cover loan balances due in September 2024.
As disclosed in note 8 above, September 2024 loan instalments of US$11.5
million in relation to The Waterside and US$0.65 million in relation to Penha
Heights have been settled in full. In addition, The Waterside loan facilities
with Hang Seng Bank of US$1.7 million have been repaid early, accelerating
part of its March 2025 instalment.
Directors and Company Information
Directors
Mark Huntley (Chairman)
Alan Clifton
Carmen Ling
Audit and Risk Committee
Alan Clifton (Chairman)
Mark Huntley
Carmen Ling
Management Engagement Committee
Mark Huntley (Chairman)
Alan Clifton
Carmen Ling
Nomination and Remuneration Committee
Alan Clifton (Chairman)
Mark Huntley
Carmen Ling
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
Panmure Liberum Limited
Ropemaker Place, Level 12
25 Ropemaker Street
London EC2Y 9LY
Independent Auditors
Deloitte LLP
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
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR BIGDCGXDDGSCRecent news on Macau Property Opportunities Fund
See all newsREG - Macau Prop Opp Fund - Interim Report to 31 December 2024
AnnouncementREG - Macau Prop Opp Fund - Quarterly Net Asset Value Update
AnnouncementREG - Macau Prop Opp Fund - Investor Update H2 2024
AnnouncementREG - Macau Prop Opp Fund - Result of AGM
AnnouncementREG - Macau Prop Opp Fund - Quarterly Net Asset Value Update
Announcement