REG - Macau Prop Opp Fund - Annual results for the year ended 30 June 2022
06/10/2022 07:00
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RNS Number : 9545B Macau Property Opportunities Fund 06 October 2022
6 October 2022
Macau Property Opportunities Fund Limited
("MPO" or the "Company")
Annual results for the year ended 30 June 2022
Macau Property Opportunities Fund Limited announces its results for the year
ended 30 June 2022. The Company, which is managed by Sniper Capital Limited,
holds strategic property investments in Macau.
FINANCIAL HIGHLIGHTS
Fund performance
· MPO's portfolio value(1) declined 8.3% over the year to US$242
million.
· Adjusted NAV was US$103.4 million, which translates to US$1.67
(138 pence(2)) per share, a 19.7% decrease year-on-year (YoY).
· IFRS NAV was US$77.6 million or US$1.25 (104 pence(2)) per share,
a 20.8% decrease YoY.
Capital management
· As at 30 June 2022, MPO's balance sheet held assets worth a total
of US$220million, against combined liabilities of US$142.5 million.
· The Company ended the financial year with a consolidated cash
balance (including deposits with lenders) of US$3.8 million.
· As at 30 June 2022, gross borrowing stood at US$131 million,
which translates to a loan-to-value ratio of 53.3%.
(1) Calculation was adjusted to reflect like-for-like comparisons to 30 June
2022 due to the divestment of properties during the year.
(2) Based on the Dollar/Sterling exchange rate of 1.212 on 30 June 2022.
PORTFOLIO HIGHLIGHTS
· The Waterside
- The divestment strategy for The Waterside was pivoted in H1 2022 with the
commencement of strata sales to a select range of motivated buyers.
- This strategy led to the successful initial sale of four targeted units -
one simplex and three standard apartments - in Q2 2022. The combined
transaction value of US$14.4 million represented an overall discount of 6.8%
to a valuation of the units conducted by Savills as at 30 June 2022, with the
proceeds earmarked primarily for debt reduction.
- Subsequently, a further contracted sale of an apartment at The Waterside
has been secured, with completion scheduled for November 2022.
- Occupancy maintained at 30% as a year ago, despite an extremely shallow
leasing market. The average rental was US$2.2 per square foot per month, down
4% YoY. Leasing decisions are carefully balanced against strata sales targets.
· The Fountainside
- During the financial year, the two duplexes at the property have been
reconfigured as three smaller units and two car-parking spaces, for which
on-site works were completed in Q3. Occupancy permits are expected by the end
of 2022, clearing the way for sales.
- For the four villas, sales efforts remain hindered by Macau's entry
controls and COVID quarantine requirements, which have limited the number of
in-person site visits.
· Penha Heights
- The Company continues with the sales and marketing push with specialist
property agents from Q4 2020.
- Despite weak market sentiment, six viewings have been conducted since the
beginning of 2022, with several parties progressing to various stages of due
diligence.
Mark Huntley, Chairman of Macau Property Opportunities Fund, said:
"The financial year can best be described as one of exceptional challenges
associated primarily with Macau's continued response to COVID-19 which was in
lockstep with that in China. Border restrictions, together with a major
lockdown in June, have severely affected our planned divestments of assets
compounded by a worsening economic environment in Macau."
"The successful implementation of a strata sales programme for The Waterside,
which delivered the sale of four of 59 units and a further contacted sale of
another unit due to complete in November 2022, is therefore a notable
achievement in difficult conditions."
"The outlook in the near term remains challenging with COVID-19 policies
continuing to impact the economy in Macau and investors' sentiment and their
willingness to make substantial investments such as property purchases. The
Manager continues to work actively on delivery of further sales of each of our
assets. Marketing has now actively recommenced following the end of the
lockdown in Macau and we continue to vigorously implement our divestment
strategy against this difficult backdrop."
For more information, please visit www.mpofund.com (http://www.mpofund.com)
for the Company's full Annual Report 2022.
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 (mailto:celine.jiang@snipercapital.com) .
- End -
About Macau Property Opportunities Fund
Premium listed on the London Stock Exchange, Macau Property Opportunities Fund
Limited (http://mpofund.com) is a closed-end investment company registered in
Guernsey and is the only quoted property fund dedicated to investing in Macau,
the world's largest gaming market and the only city in China where gaming is
legal.
Launched in 2006, the Company targets strategic property investment and
development opportunities in Macau. Its current portfolio comprises prime
residential property assets.
The Company is managed by Sniper Capital Limited (http://snipercapital.com/) ,
an Asia-based property investment manager with an established track record in
fund management and investment advisory.
Stock Code
London Stock Exchange: MPO
LEI213800NOAO11OWIMLR72
For further information:
Manager
Sniper Capital Limited
Group Communications
Tel: +853 28705151
Email: info@snipercapital.com (mailto:info@snipercapital.com)
Corporate Broker
Liberum Capital
Darren Vickers / Owen Matthews
Tel: +44 20 3100 2000
Company Secretary & Administrator
Ocorian Administration (Guernsey) Limited
Kevin Smith
Tel: +44 14 8174 2742
MACAU PROPERTY OPPORTUNITIES FUND LIMITED
ANNUAL RESULTS & ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2022
CORPORATE INTRODUCTION
Macau Property Opportunities Fund Limited, a closed-end investment company,
was incorporated and registered in Guernsey under the Companies (Guernsey)
Law, 2008 (as amended) on 18 May 2006, under registration number 44813. The
Company is an authorised entity under the Authorised Closed-Ended Investment
Schemes Rules 2008. The Company is premium listed on the London Stock
Exchange.
Sniper Capital Limited, the Manager for Macau Property Opportunities Fund, is
responsible for the day-to-day management of the Company's property portfolio
and the identification and execution of divestment opportunities.
The Company is managed with the objective of realising the value of all
remaining assets in its portfolio, individually, in aggregate or in any other
combination of disposals or transaction structures, in a prudent manner. The
overriding aim is to deliver cost-effective and timely divestment of the three
remaining properties, to enable further returns of capital to the
shareholders. The Company has ceased to make any new investments and will not
undertake additional borrowings other than to refinance existing loans or for
short-term working capital purposes.
The Board provides a diversity of ethnicity, of investment company and real
estate experience and geographical perspective, coupled with an essential
understanding of the unique features of Macau, its property market and the
Company's portfolio. The Board has assessed that it has the capacity to fulfil
its obligations in the context of the latest corporate governance guidelines,
taking full account of the late phase divestment stage that the Company is in
and its clearly defined business objectives.
Pursuant to resolutions passed at MPO's Annual General Meeting (AGM) in 2016,
the Company is subject to annual continuation votes. The first, second, third
and fourth Continuation Resolutions were passed at General Meetings held on 5
July 2018, 29 November 2019, 30 November 2020 and 31 December 2021,
respectively. The next Continuation Resolution will be put to shareholders no
later than 31 December 2022. The Board will be recommending the continuation
of the Company at the AGM, which is expected to be held in December. A Notice
and Agenda of meeting will be issued in November 2022 together with an update
on any developments.
Currently 100% of Macau Property Opportunities Fund's investment portfolio is
allocated to residential property investments in Macau.
KEY FACTS
Exchange
London Stock Exchange
Main Market
Symbol
MPO
Lookup
Reuters - MPO.L
Bloomberg - MPO:LN
Domicile
Guernsey
Shares In Issue
61,835,733
Shares Held in Treasury
Nil
Share Denomination
Pound Sterling, Reporting currency US Dollars
Fee Structure
A realisation focussed fee structure which incentivises the Manager to realise
assets
Inception Date
5 June 2006
Amount Returned to Shareholders
US$173 million
Distributions US$97.4 M; Share buybacks US$75.3M
ADVISERS & SERVICE PROVIDERS
Company Secretary and Administrator
Ocorian Administration (Guernsey) Limited
Corporate Broker
Liberum Capital Limited
External Auditor
Deloitte LLP
CHAIRMAN'S MESSAGE
Ipresent my report for the financial year ended 30 June 2022, together with
our perspective on the way forward for the Company.
The financial year is best described as one of exceptional challenges and
frustrating developments associated primarily with Macau's continued response
to COVID-19, which was in lock-step with that of China. It severely affected
our planned divestments of assets, and has been compounded by a worsening
economic environment in the territory.
Against this difficult backdrop, and in the context of prevailing market
dynamics, the commencement of The Waterside strata sales programme and the
completed sale of an initial four of 59 units at the development represent a
notable achievement and an important step in our divestment strategy. The
resulting reduced debt levels and improved loan-to-value (LTV) ratio were
welcome, as was the release of working capital. Subsequently a further
contracted sale of an apartment at The Waterside has been secured, with
completion scheduled for November 2022.
Shortly after the first sales at The Waterside, and with negotiations related
to other assets taking place, a major outbreak of COVID-19 in June 2022 saw
Macau enter a period of lock-down and mass-testing which dampened sales
momentum. Although sales and marketing have now recommenced in earnest, the
timeline for delivering results will be extended. The divestment timeframe is
influenced by sentiment regarding Macau's outlook and concerns over
potentially intensified border restrictions in the near-term. Such matters are
beyond the Company's control or influence.
To complement sales processes driven by the Manager, Hodes Weill, a seasoned
global advisory firm, was appointed to market the portfolio to a carefully
selected group of prospective investors. Although a number of prospects have
carried out detailed due diligence, changing circumstances in Macau and the
challenges around whole portfolio pricing have meant this process has yet to
offer up any meaningful prospects. We continue to explore multiple avenues to
achieve our divestment objectives. Further sales success represents one means
by which we can advance towards the possibility of a full portfolio sale.
Although Macau's high-end real estate segment remained stagnant, sentiment in
the broader marketplace was buoyed by increased clarity over the renewal of
gaming licences, a lack of which had created a climate of uncertainty and
speculation that has been largely dispelled. However, a sweeping clampdown by
the Chinese authorities on junket operators in the gaming sector, and the
impact of that move on VIP gaming revenues, had an adverse effect on the
luxury property segment.
Much lower visitor numbers and reduced gaming activity translated into a
downturn in the economy in Q4 2021 and well into 2022. Arrests of individuals
associated with junket operations and the abrupt closure of high-profile
operators such as Sun City prompted some unwelcome distressed property sales,
which misrepresented the base-level in the luxury property market.
Macau and the COVID-19 response
At the start of the last financial year, we outlined developments that
encouraged us towards the view that Macau could slowly emerge from the effects
of COVID-19 restrictions. Developments signaling more relaxed COVID measures
included reductions in quarantine periods, the opening of borders subject to
health checks, and the reopening of Macau to certain categories of overseas
visitors and workers. However, outbreaks of the more transmissible Omicron
variant of the virus in mainland China and Hong Kong saw major Chinese cities
locked down and stopped a gradual move to a pan-China and SAR travel bubble in
its tracks. Visitor numbers remained erratic as outbreaks and related
restrictions continued.
The emerging "dynamic zero" policy mandated by the Chinese government, which
was also applied to Macau and, until recently, Hong Kong, severely reduced the
essential visitor traffic required to rebuild the economy and bolster external
investor confidence in the real estate market. Instead, we saw a series of
restrictions that included lockdowns and changing quarantine restrictions that
were difficult to predict. The dynamic zero policy protected Macau's
population from infection, but at the cost of damaging the economy and
investor confidence. A major COVID outbreak in Macau in June 2022 eclipsed
previous infection clusters by some margin and claimed a small number of
fatalities among elderly residents.
The lack of a quarantine-free travel bubble beyond the existing arrangement
between Macau and certain parts of China resulted in a downturn in Macau's
economy from Q4 2021 onwards. As it continued into 2022, it was further
amplified by the June lockdown and the consequences of the collapse of junket
gaming revenues.
Some of the leadership that we had hoped for in terms of a policy direction by
the Macau government has not yet materialised. For Macau's luxury property
market to move forward, a pan-China SAR travel bubble including Hong Kong
would be a key positive change, reigniting the prospect of sales to an
expanded pool of international and regional investors. However, even though
opening up to the wider world would come as a welcome development, it is not
seen as essential. With property valuations at comparably low levels, the
nascent demand seen in the local market could very quickly translate into a
re-rating of valuations and an increase in sales activity for what remains a
very attractive, well-maintained portfolio of assets.
The negative impact of the dynamic zero COVID-19 policy on the mainland
Chinese economy cannot be overlooked. Recent policy shift suggests that
Chinese authorities are concerned about the outlook for the country's economy.
The lowering of bank lending rates with a particular focus on the mortgage
market suggests that the reported distress in the Chinese property sector is a
growing concern and, by extension, the potential impact on the banking sector.
It is important to understand the perspective of the Chinese authorities and
to respect the specific challenges posed by the pandemic, particularly those
in relation to rural China, for instance where access to medical facilities
is limited. The more recently emergent Omicron COVID variants which are
proving less damaging to health than earlier incarnations of the virus, may
lead to a gradual change in policy, although this is not expected in the near
term, as evidenced by recent lockdowns of the cities of Chengdu and Shenzhen.
The latter saw a population of 17.5 million subjected to lockdown measured
based on fewer than 50 reported cases. In a Western context, this action would
be difficult to comprehend.
In response to these changing circumstances, banks have been applying more
stringent terms and conditions to loans. The company's relationship with its
lenders remains strong, however during such challenging times cash flow comes
naturally into focus. In this context, dialogue with our lenders is ongoing,
however the key to navigating the coming months will be making continued
progress on the Company's sales strategy. This will facilitate debt repayment
and the availability of sufficient working capital.
There are, however, some noteworthy positive signs in Macau in the form of new
casino developments, most of which are planned to be unveiled this year and
next, supported by continued government investment in transportation
infrastructure. Yet our own future relies more on the impact of nearer-term
developments, around which increased clarity over gaming concessions and
diversification into leisure offerings with broader appeal bodes well for us
in terms of laying improved foundations for future growth post-COVID.
We have seen staggering levels of recovery in tourism in other destinations
around the world that have emerged from COVID restrictions. The potential
effects of resurgent tourism and gaming activity in Macau should not be
overlooked, especially if international traveling remains restricted for
Chinese citizens. It is also worth noting that when the Macau government
recently announced that resumption of package tours and eVisas for mainland
Chinese visitors to Macau from November 2022, shares of gaming operators
immediately leapt more than 10% amid optimism that the move signalled a path
towards normalcy for the territory.
Financial Performance
Our financial performance reflects the ongoing headwinds that the Company
faced during the last financial year. Macau's COVID outbreak and consequent
lockdown in June saw lower cash reserves at year-end, affecting some debt
repayment scheduling. The situation was reversed, however, once sales were
completed and pending debt repayments were made.
The Company's Adjusted Net Asset Value (NAV) was US$103.4 million as of 30
June 2022. This is equivalent to US$1.67 (138 pence) per share and represents
a decline of 19.7% (8.2% in sterling terms) compared to the year ended 30 June
2021. The Net Asset Value at the year-end was US$1.25 per share, down 20.8%
from the previous year. The Company remained in compliance with its debt
covenants. The valuation of the portfolio fell by 8.3% from 30 June 2021,
reflecting market conditions, specifically much muted transaction activity in
our segment of Macau's property market.
In the near term, further sales remain impeded by sluggish buyer sentiment and
travel restrictions imposed by Macau's government on regional investors from
Hong Kong and abroad. The Company's share price closed at 38.2 pence for the
reporting period. Following the year-end date, however, it rebounded to 57
pence in mid-September, reflecting a more positive investor outlook and the
recent weakness in Pound Sterling.
The Portfolio
With the exception of the sale of four among the 59 units at The Waterside,
the portfolio remained unchanged. The reconfiguration of two duplex units into
three smaller, more marketable units at The Fountainside has been largely
completed and the new residences are awaiting the final government approvals
before they can be offered to prospective investors. Active marketing of the
larger units has generated a degree of interest that the Manager is continuing
to pursue.
The Waterside remains a premier development both in the context of the other
six towers at One Central Residences and Macau's high-end property sector more
broadly. This status requires effective and attentive management of the
apartments, alongside selective refurbishment, clearly directed towards sales
and leasing which have maintained tenancy levels and delivered improved tenant
quality in a move away from the junket sector. Leasing decisions must be
carefully balanced with strata sales targets, and coordinated between The
Waterside's Manager and Managing Agent. A renegotiation for reduced service
charges at One Central Residences by the Property Manager has come as welcome
support for cost control and tenant retention. Appropriate consideration of
environmental impacts is also an area of focus, including air conditioning and
domestic appliances.
Penha Heights is being maintained to enhance opportunities to sell the
property to a very select number of prospects. No further construction
development is envisaged at this stage.
Debt Management
The Manager has maintained an active dialogue with our bank lenders, which
have had to accommodate a sales delay of a further year due to market
conditions. The worsening situation in the Chinese economy, and particularly
the real estate sector, has led to a stiffening of terms for loan renewals.
Our Waterside lender has agreed in principle to extend a new tranche of US$6.4
million to partially refinance debt repayment due in September 2022. Repayment
and reduction of debt remains a core near-term objective, together with
maintaining working capital at levels to support the cost of operating the
Company, with a plan for lower operating costs having been executed while the
portfolio remains unsold.
As of 30 June 2022, the Company's total gross bank borrowings stood at US$131
million, translating to a LTV ratio of 53.3%. Following the completion of
sales of units at The Waterside in August, the Company utilised US$11.9
million from the sales proceeds for loan repayments and earmarked the balance
for working capital. The loan repayments reduced total bank borrowings to
US$119 million, resulting in the overall portfolio LTV ratio improving to 51%.
Please refer to Note 8 for further details.
Environmental, Social and Governance (ESG) considerations
ESG continued to be a core priority in our operations during the year. In
terms of governance, I am pleased to report the appointment of Carmen Ling to
the Board. Carmen has brought continuity of knowledge of the region and also a
deep insight into key matters affecting the Company, especially debt
management, and she has supported the Manager in our regional engagement with
lenders at a critical time.
COVID-related travel restrictions have constrained how meetings have been
conducted, but increased physical attendance, including by the Manager, was
achieved once UK and Guernsey lockdowns and quarantine restrictions ceased.
This greatly assisted our approach to very challenging circumstances, ensuring
that dialogue remained constructive and focused on our objectives.
The Company is at a late stage of its life, and having carefully assessed our
board composition, we arrived at the view that continuity is important and
further changes to the Board would not be helpful at this point in the process
of divestment. The need to understand the specifics of each property and the
detailed aspects of the implementation of our strategy requires in-depth
knowledge of the properties. With travel to Macau still heavily restricted, we
remain of the view that retention of that operating knowledge among board
members is important. In this regard, Alan Clifton, whilst exceeding the
normal tenure, remains fully independent in his approach, and we greatly value
his continued contribution. Moreover, we know from a process conducted in 2021
that finding directors willing to act for a short period in difficult market
circumstances is not easy. For this reason, we will be proposing that
Mr.Clifton continue as a director of the Company.
Our approach to environmental and recruitment considerations, including
contractors and appointed service providers, continued in compliance with our
previously stated policies. ESG remains an important consideration in
executing our plans where our primary focus is to reduce our debt levels,
achieve sales at optimal levels taking into account prevailing conditions, and
work towards an early return of capital.
Outlook
The Macau government's swift and decisive action under its zero-COVID policy
has kept COVID-19 infections under control in the territory and has been
complemented by an impressively high vaccination rate across the whole
population. However, that same policy has also created considerable
uncertainty regarding Macau's economic position and outlook. Fundamental to
Macau's COVID response is the need to remains in lock-step with mainland
China's approach to COVID, in order to keep its borders open to mainland
visitors who remain the lifeblood of its economy. The outlook in the near-term
remains challenging, as the policy continues to affect investor sentiment and
potential buyers' propensity to make substantial investments such as property
purchases. The Manager continues to work actively on delivering further sales
of each of our assets in these demanding circumstances.
Looking beyond the immediate circumstances, we remain cautiously optimistic
about Macau's prospects, particularly given the post COVID rebounds
experienced elsewhere in the world. The territory retains its unique position
as the only legal gaming destination within Greater China, and the development
pipeline of 34 hotel projects planned or under construction, demonstrates the
long-term commitment and belief of investors in Macau's future. Once travel
restrictions between Macau, mainland China and Hong Kong are lifted, the
territory's economy will likely experience a substantial boost. The subsequent
recovery of the city's luxury residential segment, where supply continues to
be limited, should only be a matter of time.
Extension of Life
Pursuant to resolutions passed at MPO's Annual General Meeting in 2016, the
Company is subject to annual continuation votes. The first, second, third and
fourth Continuation Resolutions were passed at General Meetings held on 5 July
2018, 29 November 2019, 30 November 2020 and 31 December 2021, respectively.
The next Continuation Resolution will be put to shareholders no later than 31
December 2022. As detailed in the Director's Report and Note 1, although the
Financial Statements are prepared on a going concern basis, material
uncertainty exists in relation to the Company's continued status as a going
concern.
A forced sale of assets, particularly under current market conditions and
levels of gearing, would realise significantly lower returns than a continued,
measured disposal of our remaining assets. The Board will be recommending the
continuation of the Company at the next Annual General Meeting.
MARK HUNTLEY
CHAIRMAN
MACAU PROPERTY OPPORTUNITIES FUND LIMITED
5 October 2022
BOARD OF DIRECTORS
MARK HUNTLEY
Chairman
Mark Huntley has over 40 years' experience in the fund and fiduciary sectors.
His involvement in the fund and private asset sectors has spanned real estate,
private equity and emerging markets investments. He has served on boards of
listed and private investment funds and management/general partner entities.
He holds board appointments at Stirling Mortimer No.8 Fund UK Limited and
Stirling Mortimer No.9 Fund UK Limited. Mr Huntley is a resident of Guernsey.
ALAN CLIFTON
Non-executive Director
Chairman of Audit 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 plc, the UK's largest insurance group. He is currently a Director of
Canada Life Asset Management and several other investment companies. Mr
Clifton is a UK resident.
CARMEN LING
Non-executive Director
Carmen Ling has over 25 years' banking experience. She was Managing Director
for Citigroup and Standard Chartered Bank. She has extensive experience across
client coverage, real estate, transaction banking and network strategy. Her
role as global head of RMB Internationalisation/Belt & Road for Standard
Chartered Bank added unique knowledge and experience to her as an
international banker. Prior to banking, she worked in the hospitality industry
for hotel project developments for North Asia, including China and Japan. Ms
Ling is a resident of Hong Kong.
Financial Review
2018 2019 2020 2021 2022
NAV (IFRS) (US$ million) 212.8 131.1 100.6 97.9 77.6
NAV per share (IFRS; US$) 2.78 2.12 1.63 1.58 1.25
Adjusted NAV (US$ million) (a) 260.6 174.9(c) 136.5 128.8 103.4
Adjusted NAV per share (US$) (a) 3.41 2.83 2.21 2.08 1.67
Adjusted NAV per share (pence)(1, a) 258 223 179 150 138
Share price (pence) 194.0 146.0 61.75 67.5 38.2
Portfolio valuation (US$ million) (b) 338.4 311.1 275.6 265.4 242.0
Loan-to-value ratio (%) 34.7 43.5 49.6 49.3 53.3
(1) Based on the following US dollar/sterling exchange rates on 30 June -
2018: 1.321; 2019: 1.270; 2020: 1.231; 2021: 1.386; 2022: 1.212
(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
During the financial year, Macau's economy deteriorated further as mainland
China's zero-COVID measures, which stand in stark contrast to those in other
parts in the world, dealt a severe blow to the city's twin economic engines -
tourism and gaming. Visitor arrivals and gross gaming revenue (GGR) fell to
new lows, and the impact of the territory's economic woes affected various
sectors, including the luxury property market.
Amid fragile local sentiment, the Manager launched the Company's strata sales
programme with the carefully orchestrated divestment of four units at The
Waterside. Although the sales of the units may signal a return of affluent
buyers targeting the city's luxury residential segment for the first time in
several years, further sales will remain heavily dependent on the government's
ongoing COVID policies and their ultimate effect on buyer sentiment. The sales
and marketing programme for the assets has resumed following COVID outbreak in
June, although the overall market sentiment remains hesitant.
Financial Results
Ongoing economic difficulties, coupled with tighter capital controls and
tougher lending restrictions, had an adverse effect on the Company's financial
results. MPO's portfolio, comprising three main assets, was valued at US$242
million as at 30 June 2022, an 8.3% decline year on year (YoY). The lower
valuations reflected a continued decline in transaction prices over the past
year, especially at the luxury end of the residential segment, which was
adversely affected by low transaction activity and a limited number of
distressed sales.
MPO's Adjusted NAV was US$103.4 million, which translates to US$1.67 (138
pence) per share, a 19.7% decrease YoY. IFRS NAV, which records inventory at
cost rather than market value, was US$77.6 million, or US$1.25 (104 pence) per
share, a 20.8% drop over the one-year period.
Capital Management
As at 30 June 2022, the Company held total assets of US$220 million, with
total liabilities of US$142.5 million, including a loan tranche of US$18.3
million relating to The Waterside debt facility due for repayment in September
2022. The lender of The Waterside has agreed in principle to extend a new
tranche of US$6.4 million to partially refinance this debt repayment, with the
remaining US$11.9 million having been repaid from the sales proceeds generated
by the Company's recent divestments.
As of year-end, the Company's consolidated cash balance, including deposits
pledged for banking facilities, was US$3.8 million, of which US$1.6 million
represented a six-month interest reserve, pledged and classified as a
non-current asset. Usage of the balance of US$1.9 million is subject to the
prior consent of the lender. Total gross bank borrowings stood at US$131
million, translating to an LTV ratio of 53.3%.
Approximately 90% of the net sale proceeds derived from the divestment of the
four units at The Waterside have been utilised for loan repayments, with the
balance earmarked as working capital for the Company. Following these loan
repayments, the Company's total bank borrowings were reduced to US$119
million, resulting in its overall portfolio LTV falling to 51%.
PORTFOLIO OVERVIEW
Property Sector Commitment Acquisition cost Project development cost Market valuation Changes Portfolio composition
(US$ million)
(US$ million)
(US$ million)
(US$ million)
(based on market value)
(based on market value)
Over Since
the year
acquisition
The Waterside Luxury residential 100.7 86.8 13.9 181.5 -9.1% 109% 75.0%
Tower Six at One
Central Residences*
The Fountainside** Low-density residential 6.2 2.0 4.2 18.3 -7.1% 815% 7.6%
Penha Heights Luxury residential 28.4 26.7 1.7 42.2 -5.3% 58% 17.4%
Total 135.3 115.5 19.8 242.0 -8.3% 110% 100%
* One Central is a trademark registered in Macau SAR under the name of
Basecity Investments Limited. Sniper Capital Limited, Macau Property
Opportunities Fund Limited, MPOF Macau (Site 5) Limited, Bela Vista Property
Services Limited and The Waterside are not associated with Basecity
Investments Limited, Shun Tak Holdings Limited or Hongkong Land Holdings
Limited.
** Information listed refers to the remaining units and parking spaces
available for sale.
PORTFOLIO UPDATES
The Waterside
The Waterside, a premium luxury residential apartment development, is MPO's
flagship asset, located in the prime Macau Peninsula area.
Stringent zero-COVID policies adopted by Macau and mainland China have
severely impacted the territory's economy and posed challenges to the
Company's preferred en-bloc exit strategy for The Waterside. The pressure on
the luxury segment was compounded by a crackdown on junket operators in late
2021 that led to several distressed property sales, albeit in less prominent
luxury developments.
With these factors in mind, the divestment strategy for The Waterside was
pivoted in H1 2022 with the commencement of strata sales to a select range of
motivated buyers.
The Manager leveraged its well-established local network to pursue a targeted
marketing campaign that focused intently on promoting The Waterside's
exceptional location and unit quality. This strategy led to the successful
sale of all four targeted units - one simplex and three standard apartments -
in Q2 2022, with all transactions completed in full following the Company's
year-end. The combined transaction value of US$14.4 million represented an
overall discount of 6.8% to a valuation of the units conducted by Savills as
at 30 June 2022, with the proceeds earmarked primarily for debt reduction. The
timing of the sales was fortuitous, considering the severe hit to local
sentiment that occurred in July as a result of a COVID outbreak in Macau the
previous month.
Under its leasing programme, The Waterside's occupancy level remained largely
unchanged from the previous year, at 30%, despite an extremely shallow leasing
market - a testament to the efforts of the leasing team, which has
successfully engineered a more sustainable tenant mix with reduced dependence
on the volatile junket segment. The proportion of non-gaming tenants,
comprising entrepreneurs, businesspeople and banking executives, rose to
approximately 70% of the overall tenant profile. Rents have held steady at an
average monthly rental of US$2.20 per square foot. Until the ease of travel is
fully restored to pre-pandemic levels, the pool of potential new tenants will
remain limited, and the overall strategy is now shifting towards achieving
further unit sales.
The Fountainside
The Fountainside is a low-density, freehold residential development in Macau's
Penha Hill district. Among its 42 units, all 36 standard units have been sold,
leaving four villas and two duplexes, which have been reconfigured into three
smaller apartments and two car-parking spaces for sale.
Investor interest in high-end residential properties such as The Fountainside
has remained subdued due to continued restrictive mortgage policies, Macau's
faltering economy, and pandemic measures that have deterred potential
purchasers. As market demand among small families and young individuals for
affordable units remains strong, the two duplexes at the property have been
reconfigured as three smaller units, in which on-site works were completed in
Q3. Occupancy permits from the Land, Public Works and Transport Bureau for the
three smaller units are expected by the end of 2022, clearing the way for
sales.
Although the Manager has identified several potential regional buyers for the
four villas, sales efforts remain hindered by Macau's entry controls and COVID
quarantine requirements, which have limited the number of in-person site
visits.
Penha Heights
Penha Heights is a prestigious, five-storey, colonial-style villa covering an
area of more than 12,000 square feet, nestled amid lush greenery atop Penha
Hill, an exclusive and highly desirable residential enclave. The property has
been enhanced through works undertaken during the pandemic to take advantage
of the lull in the property market.
Although the Manager has deployed carefully targeted marketing efforts and
various strategies to divest the asset, including a refreshed sales and
marketing push with specialist property agents, Macau's pandemic control
measures have severely disrupted the process, weighed on investor sentiment,
and weakened potential buyers' appetites for such a trophy home in the
territory.
Nevertheless, since the beginning of 2022, six viewings have been conducted,
with several parties progressing to various stages of due diligence.
Divestment Background
Since its inception, the Company has returned US$97.4 million to shareholders,
with the most recent distribution of US$50.5 million being made following the
divestment of its retail redevelopment site Senado Square in 2018. In
addition, total share repurchases valued at US$75 million - equivalent to 41%
of the Company's original outstanding share capital - have been undertaken.
The sale of Senado Square left the Company's portfolio focused primarily on
Macau's premium luxury residential segment, which - due to a multitude of
factors, including restrictive mortgage limits, a special stamp duty of up to
20%, and the reduced market presence of junket operators - has suffered from
decreasing levels of liquidity. Although further divestments of US$30.3
million were achieved from mid-2019 onwards, the protracted nature of the
pandemic and the severe impact of China's zero-COVID policy inevitably
resulted in multiple setbacks for the Company's divestment programme. Since
2020, liquidity in the luxury segment has fallen to new lows, making further
divestments in the segment even more challenging.
Despite the economic turmoil suffered by Macau, its residents generally remain
cash-rich with low levels of personal debt compared to other cities in the
region. Current valuations indicate that Macau residential property is at its
lowest prices in a decade both in absolute terms and on a relative basis
compared to neighbouring Hong Kong and Guangdong. According to Savills Macau,
the value proposition is especially compelling for properties of more than
1,600 square feet, as prices have dropped almost 30% cumulatively over the
past five years. Standard apartments at The Waterside have an average gross
floor area of 2,300 square feet, and with prices having fallen to a
competitive range, the units are becoming more appealing to affluent local
investors.
For more prestigious properties, including Penha Heights and the four villas
at The Fountainside, we will continue to orchestrate a carefully designed
marketing campaign with specialist property agents targeting high net worth
families across Asia-Pacific. The supply of trophy homes in Macau remains
extremely scarce.
Realtor JLL Macau, however, forecasts that Macau's property market will remain
under pressure in the absence of favourable factors such as quarantine-free
travel between the territory and Hong Kong, and to foreign destinations. It
also predicts that further potential for interest rate increases will
contribute to downward pressure on the market. Macau's local property market
is priced in Hong Kong dollars, a currency tied to the US dollar, and
therefore to US interest rates. All of these factors will likely prolong the
divestment timeline.
Our recent divestments at The Waterside marked an important first step towards
orderly strata sales of all remaining 55 apartments at the development, and
may indicate rising demand for ultra-high-quality homes in the city, which
remain in very short supply. The Manager will aim to build on this small but
important milestone to advance the strata sales programme in the medium term,
although further sales will remain heavily dependent on local market
conditions and the government's approach towards COVID control.
To complement the Manager's sale and marketing efforts, the Company has
enhanced its outreach to a wider audience of potential buyers by appointing
Hodes Weill, a global advisory firm with a strong track record of real estate
capital market. Hodes Weill has worked closely with the Manager to launch a
sales campaign for the Company's assets designed to target a select group of
prospective purchasers within the firm's network. This process is ongoing.
Company Life
At the Company's last Annual General Meeting, shareholders passed a resolution
to extend its life for a further year until 31 December 2022. At present, the
Macau government's zero-COVID policy is likely to remain in lockstep with that
imposed by China. There are currently no indications of a return to
pre-pandemic ease of travel, such as the reopening of international borders
and the restoration of quarantine-free travel for foreigners, despite some
measures to allow certain categories of foreigners to enter Macau.
These uncertainties are likely to impact the timely completion of the
Company's divestment programme. Although the Manager will deploy all possible
strategies to achieve further sales, based on our current assessment, it is
probable that a further proposal for an extension of the Company's life until
the end of 2023 will be required to enable its divestment programme to
continue in an orderly manner. The Company envisages that the current
management terms agreed with the Manager will apply to the extended period of
its life.
MACROECONOMIC OUTLOOK
Zero-COVID policies cripple Macau's economy
In contrast to most of the world, and at a huge cost to the economy, Macau has
maintained a strict dynamic zero-COVID stance, in line with that of China.
Historically, mainland Chinese travellers account for more than 70% of Macau's
visitors and contribute the bulk of its Gross Gaming Revenue (GGR). Because
only travellers from mainland China are permitted to travel quarantine-free to
Macau, the territory is now even more reliant on them in the short term to
power the twin drivers of its economy - gaming and tourism. As such, Macau has
acted in accordance with Beijing in deploying strict dynamic zero-COVID
measures, including travel restrictions, lockdowns, closures of non-essential
businesses, city-wide COVID testing, the isolation of confirmed cases, and the
quarantine of close contacts.
The caution embodied by Macau's zero-COVID measures was demonstrated when the
territory's most severe COVID-19 outbreak to date was detected in mid-June.
Fuelled by the highly contagious Omicron BA.5.1 variant, the territory's total
COVID case numbers surged from 83 to more than 1,800. The government responded
swiftly in an effort to identify sources of infection and curb the further
spread of the virus, enacting more than 11 rounds of city-wide testing and a
12-day lockdown in July, during which non-essential businesses and services,
including casinos, were closed. The city returned to normalcy after a
month-and-a-half of various COVID related restrictions.
At the end of June, more than 90% of Macau's population of 677,300 had been
fully inoculated against the virus, with only six COVID fatalities to date,
all of whom were in the most vulnerable over-80 age group. On a positive note,
border controls for travellers coming from Hong Kong and abroad were relaxed
during the reporting period - from three weeks of required hotel quarantine to
one week. As of September, visitors entering mainland China from Macau are
required to show proof of a negative COVID test within the previous 48 hours,
relaxed from 24 hours.
Nascent economic recovery quickly reversed
In Q3 2021, travel restrictions imposed in response to COVID flare-ups across
mainland China saw a downturn begin, hampering an anticipated strong rebound
in Macau's gaming industry and GDP. Macau's FY2021 GDP grew 18% YoY,
significantly lower than an earlier 61% forecast by the International Monetary
Fund.
The economy remained affected in Q1 2022 as lockdowns and travel restrictions
impacting an increasing number of COVID hotspots in mainland China continued
to weigh on Macau's gaming and tourism sectors, which account for most of the
territory's GDP. Macau's GDP for the first half of the year shrunk 24.5% YoY
as its economy was hit by zero-COVID measures.
Since Macau's June COVID outbreak, analysts have cut their forecasts for the
territory's FY2022 GDP, with the Economist Intelligence Unit predicting a
contraction of 30% YoY for FY2022, in stark contrast with the International
Monetary Fund's April 2022 projection of 16% YoY growth for the full year.
Tourism on a path towards normalcy
Macau's tourist arrivals grew 31% YoY in 2021 to 7.7 million, approximately
20% of pre-pandemic 2019 numbers. Mainland Chinese accounted for 91% of
visitors, with those from neighbouring Guangdong Province making up 62% of the
total. By comparison, in H1 2022, tourist arrivals fell 12% YoY to less than
3.5 million, approximately 17% of the pre-pandemic peak of 20.3 million during
the same period in 2019.
The fluctuation in tourist numbers reflects Macau's heavy dependence on a
stable COVID situation both locally and in mainland China as tightened travel
restrictions and quarantines for travellers remain key tools in the zero-COVID
arsenal. As zero-COVID measures took effect, Macau's visitor numbers in June
declined 28% YoY, while July's numbers were lower by 99% YoY.
A more positive development was the Macau government's announcement in late
September of the resumption in package tours and Individual Visit Scheme's
eVisas for mainland Chinese visitors to Macau, which will likely bring a
significant boost to both tourism and gaming. After a hiatus of almost three
years, the first phase will commence in November, involving the city of
Shanghai and four provinces including neighbouring Guangdong Province with a
population of over 120 million people. In addition, overseas visitors from 41
countries were permitted to enter Macau from September 2022, albeit subject to
seven days quarantine.
Conversely, in Hong Kong, the government has recently abolished hotel
quarantine for international arrivals, requiring instead three days of
restricted access to public spaces upon arrival. The long-awaited move follows
intense pressure from the business community to restore Hong Kong's standing
as a global financial and aviation hub. Macau's government, however, has
unequivocally stated that it will not follow in Hong Kong's footsteps in the
immediate future, given its dependence on maintaining an open border with
mainland China to keep its economy running. In addition to mainland Chinese
tourists, a significant proportion of Macau's workforce crosses into the
territory daily from the neighbouring city of Zhuhai.
Clarity on new gaming laws despite a series of shocks
Macau's gaming operators have endured an immensely difficult operating
environment since the start of the pandemic. Towards the end of 2021, clarity
finally emerged regarding the new gaming regime, when the government unveiled
the main features of new licensing arrangements, which include a maximum of
six gaming concessions for 10 years, down from 20 years previously, with the
potential to extend for a further three years. The new gaming law was passed
by the Legislative Assembly on 21 June 2022 and the new concessions are
expected to take effect from the beginning of 2023. On 14 September, seven
companies submitted bids for Macau gaming concessions, including surprise
contender Genting Malaysia.
The Chinese government's efforts to clamp down on capital flight escalated in
2021. The chief executives of Macau's top two junket operators were arrested
and junket operators were ordered to stop providing credit to customers. The
subsequent closure of junket operations resulted in a sharp drop in VIP gaming
revenues, with a spill over into the luxury property market as demand for
luxury accommodation for VIP gaming executives and their customers contracted.
In H1 2022, the continued impact of Macau's zero-COVID measures was
demonstrated by a sharp decline in GGR, with six-month GGR down 46% compared
to the same period the previous year and 82% lower than in 2019.
GGR plummeted by 95% YoY in July 2022 amid a 12-day closure of casinos at the
height of Macau's zero-COVID measures. July's GGR, at MOP398 million (US$49.2
million), was its lowest since 2003, when the territory had only 11 casinos
under a single operator. Analysts estimate that for H1 2022, Macau's 41
casinos suffered combined losses of US$2 billion due to COVID-19 restrictions
and that the sector is unlikely to see a robust recovery until later in 2023.
PROPERTY MARKET OVERVIEW
Luxury residential transactions decline
The luxury end of the real estate market declined as pandemic measures and the
consequent economic downturn continued to weigh on market sentiment. Although
sales volumes and prices remained stagnant in FY 2021, from H1 2022 onward,
the number of transactions in the segment more than halved, dropping 53% YoY
to 173, while the average price per square foot, measured in gross floor area,
fell by 13% YoY to HKD7,406 (US$944). The luxury residential segment accounted
for 11% of overall residential property transactions in Macau in H1 2022.
The decline in luxury residential transactions was driven by several factors.
Firstly, bearish market sentiment as a result of Macau's economic downturn led
cash-rich investors to adopt a "wait and see" attitude and delay property
investments. Secondly, second and subsequent property purchases still
attracted stamp duties of 5-10%, adding to transaction costs while deterring
speculation. Thirdly, constant changes to border control measures also
discouraged potential cross-border buyers from entering the property market.
The situation was compounded by multiple distressed sales due to closure of
junket operations and several satellite casinos from the end of 2021 onwards.
These sales intensified downward pressure on the prices of luxury properties,
since junket operators held expansive real estate portfolios that included
office space and luxury residences.
Regional property agency Centaline predicts that the average price and sale
transaction of residential properties will continue to face downward pressure
in H2 2022, despite the near-term sentiment boost from the recovery prospects
of Macau's tourism industry. The potential for further interest rate hikes,
plummeting stock prices and potential massive layoffs due to economic downturn
are listed as the major reasons contributing to the drop. On the supply side,
there are currently more than 9,800 residential units either at the design
stage, under construction, or completed, indicating that the residential
supply has plummeted a cumulative 69% since Q2 2017. New-builds are mainly
smaller units, with just 5% designed as apartments with three or more
bedrooms. Savills Macau forecasts that the supply of private residential
property will remain limited as many private sites for potential development
saw permissions revoked by Macau's government under the New Land Law.
Hong Kong luxury home values fall from peaks
Hong Kong home prices hit a two-year record high in H2 2021, but since then,
growth has slowed for a number of reasons. The potential for further interest
rate hikes and Hong Kong stock market turbulence have affected the investor
appetite for luxury residential properties, and lockdowns of major cities in
China have crimped mainland Chinese buyers' ability to invest in the city. As
a result, Hong Kong's luxury home prices had fallen by Q2 2022, with luxury
apartment prices declining 2.9% quarter on quarter (QoQ) and townhouse prices
dropping 4.1% QoQ, although prices in the super-luxury segment were less
affected, according to Savills Hong Kong.
China's real estate slump impacts its economic recovery
China's property sector is struggling amid the fallout of the debt default by
real estate giant Evergrande and other firms in the industry. Adding to the
sector's woes is an escalating mortgage boycott by buyers refusing to make
mortgage payments for unfinished projects as property developers struggle to
complete projects amid a liquidity crunch and COVID lockdowns. Banks continue
to limit their exposure to China's property sector by imposing lending
restrictions, with an increase of overdue loans of 50% YoY at China's biggest
four banks, even in the supposedly low-risk mortgage lending market.
Escalating geopolitical concerns affect sentiment
Investors have also been expressing increasing concerns over sabre-rattling
related to Taiwan following US House Speaker Nancy Pelosi's visit to Taipei in
August. China staged an unprecedented number of military drills to protest the
visit, resulting in a dramatic spike in incursions into Taiwan's air defence
identification zone. The escalating tensions may be weighing on investor
sentiment towards China and delaying investment decisions.
LOOKING AHEAD
COVID policy clouds outlook
Any sustained recovery in Macau's luxury property market remains reliant on
factors ranging from a more relaxed COVID policy to a substantial recovery of
the economy and the knock-on effect this would have on local businesses and
employment. While investors have welcomed the rollback of COVID measures such
as resuming electronic eVisas application for mainland Chinese visitors to
Macau, the positive impact of these initiatives can be easily reversed by any
major COVID outbreak in either mainland China or Macau. It must therefore be
assumed that a high level of uncertainty as a result of continued zero-COVID
measures is likely to prevail for the foreseeable future.
China's stringent maintenance of its zero-COVID policy appears firmly
entrenched, with 33 cities and an estimated 65 million people remaining under
varying levels of lockdown restrictions as at mid-September. Although some
commentators have suggested that China may relax its zero-COVID stance
following the Communist Party's national congress in October, this is more
likely to occur gradually once a Chinese-developed mRNA vaccine succeeds in
obtaining regulatory approval, allowing a nationwide rollout to occur. By the
end of September, some cities previously in lockdown, such as Chengdu with a
population of 21 million, have gradually returned to normalcy.
Macau's long-term value proposition, stemming from its unique position as the
only jurisdiction on Chinese soil that offers licensed gaming, remains
unchallenged. Nevertheless, the immediate outlook for the territory's luxury
property segment is likely to remain uncertain, complicating the Manager's
efforts to secure further divestments in the near term.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT
1 About This Report
This Environmental, Social and Governance Report (the "ESG Report") has been
prepared with reference to The Ten Principles of United Nations Global Compact
("UNGC"). The ESG Report elaborates the environmental and social
responsibility measures and performances of Macau Property Opportunities Fund
Limited (the "Company").
1.1 Core Business of the Group
The Company is in the process of an orderly and managed divestment of the
three remaining portfolio properties. No further new construction or
development activities will be undertaken save for the limited reconfiguration
at The Fountainside.
The Company is solely focused on and exposed to the high-end residential
property market in Macau. It has never had any exposure to any property or
other investment in the gaming or associated hospitality sectors and each
investment is in full compliance with the parameters set out in the Company's
Prospectus.
1.2 Report Boundary
The ESG Report focuses on the environmental and social responsibility
performances of the Company's core business of investment in properties in
Macau, as listed below:
• The Waterside
• The Fountainside
• 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 overall ESG approach
is aimed at creating profit for shareholders in a responsible manner, while
taking into consideration environmental and social responsibility and supply
chain management.
The Company's ESG approach is developed based on The Ten Principles of UNGC.
UNGC is a voluntary multi stakeholder platform which convenes multinational
companies to align against The Ten Principles covering human rights, labour,
environment and anti-corruption standards. The Board is committed to reflect
the basic concepts of fairness, honesty and respect for people and the
environment in its business actions.
2 Environment
2.1 Commitment Principle
The Company strives to adopt environmental-friendly practices during our
business operations so as to minimise the negative impacts on the environment
and natural resources. It complies strictly with all the applicable
environmental laws and regulations in Macau. Different environmental
protection measures have been implemented at the key stages of property
development, along with the incorporation of green building designs and the
implementation of responsible construction practices at work sites. The
Company also upholds the principles of recycle and reuse at its properties.
2.2 Initiatives and Performances
Property Design
The Company follows local green building requirements, which take into
consideration green design elements such as building materials, indoor air
quality, site selection and energy considerations. Examples of green building
designs and features are provided as follows:
- Preserve and retain the cultural heritage façade of the historical
building;
- Incorporation of passive building designs to improve ventilation and
optimise sunlight exposure;
- Use of water-efficient fixtures; and
- Greening of rooftops.
Indoor air quality is improved through the introduction of the air purifying
equipment. Measures capable of monitoring temperature and humidity in
residential units and thus enhance the living conditions for residents have
been implemented at One Central and The Fountainside.
Property Management
Various green measures have been adopted in our properties to improve the
overall environmental performance. For example,
- Energy efficiency: energy consumption has been reduced by (i) replacing
lighting fixtures with LEDs, (ii) reducing the amount of lighting used in
common areas; and (iii) installing air-conditioning systems with energy
efficiency labelling in accordance with local requirements.
- Tenants' engagement: tenants are encouraged to minimise their resource
consumption (electricity, water and material use) and are provided with
recycling facilities to reduce waste.
- Rechargeable battery recycling: public collection points for
rechargeable battery recycling have been provided and tenants are encouraged
to use these facilities for battery disposal. Certain materials in
rechargeable batteries, such as cadmium, are hazardous to human health and the
environment.
An effective environmental management system has been implemented. Some of the
Company's main environmental objectives regarding property management are as
follows:
- Use of pesticides and cleansing agents in accordance to relevant
regulations, aiming for zero incidents regarding their use and storage; and
- Manage community wastewater, waste and noise according to local
standards.
Regulatory Compliance
The Company is not aware of any non-compliance with environmental regulatory
requirements that may significantly impact the Company's business.
3 Social Responsibility and Supply Chain Management
The Company strongly believes that quality property is a gateway to quality
living. The Company strives to provide a quality property experience through
innovation and sensitivity, as well as operating with integrity. Through such
efforts, the aim is to improve the living quality of tenants and become their
trusted partners.
3.1 Supply Chain Management
During the process of property construction and redevelopment, the Company
carefully appoints external contractors by taking into consideration various
factors such as human rights protection, non-discrimination of employment and
occupation, environmental protection, construction safety and product safety.
While selecting contractors for property construction, those who are familiar
with the environmental, social and safety requirements and are in line with
concerns over the abolition of child labour and anti-corruption are sought.
Close contacts with the contractors on all constructions and sourcing affairs
are established. Regular meetings to facilitate two-way communications take
place. In addition, regular assessments of contractors, based on environmental
and social risks, are performed.
3.2 Quality Services
To ensure the consistently high quality in its property management services,
the Company aims to:
- Develop quality properties that embrace innovation and enhance the
neighbourhood;
- Provide sincere service and ongoing improvement of its property
management;
- Strive for high standards by building scientific and standardised
property management, and achieve customer satisfaction; and
- Provide a tasteful living environment for residents.
3.3 Protection of Privacy
To ensure the well-being of tenants, there is regular communication with them
through satisfaction surveys which help to identify potential areas for
improvement. Customers' information is kept confidential and access is
restricted.
Regulatory Compliance
The Company is not aware of any non-compliance with supply chain management
that may significantly impact the Group's business.
GLOSSARY OF SOURCES
IMF INTERNATIONAL MONETARY FUND
DSEC THE STATISTICS AND CENSUS SERVICE (MACAU)
DICJ THE GAMING INSPECTION AND COORDINATION BUREAU (MACAU)
DSF FINANCIAL SERVICES BUREAU (MACAU)
MANAGER AND ADVISER
Sniper Capital
Manager Investment Adviser Sniper Capital
Sniper Capital Limited (Macau) Limited
Research & Transaction Project Development Asset Management Corporate Communications Finance & Administration
· Macro & micro analysis · Consultant appointment & coordination · Property & estate management · Investor & media relations · Administration & accounting
· Forecasting & modelling · Project monitoring & reporting · Sales & leasing · Marketing & product positioning · Compliance & reporting
· Sourcing · Project delivery & handover · Facilities management · Statutory & regulatory · Cash management & treasury
· Due diligence · Asset value enhancement communication
· Divestment
Manager
The day-to-day responsibility for the management of the Macau Property
Opportunities Fund's ("MPOF", "Company" or "Group") portfolio rests with
Sniper Capital Limited.
Founded in 2004, Sniper Capital Limited focuses on capital growth from
carefully selected investment, development and redevelopment opportunities in
niche and undervalued property markets.
Sniper Capital Limited is focused on the identification, acquisition and
development of properties chosen for their location, current and potential
value, or for the sustainable demand for the accommodation or facilities they
offer.
Sniper Capital Limited's team of over 30 professionals covers all the required
investment and development disciplines, including research, site acquisition,
project development, asset management, divestment, investor relations and
finance.
Working closely with Headland Developments Limited and Bela Vista Property
Services Limited, Sniper Capital Limited ensures that all necessary project
management skills and services are provided in a way that will deliver each
MPOF project to the right standards and on budget.
With its 29 August 2022 holding of 11.88 million shares or 19.22% of the
Company's issued share capital, Sniper Investments Limited - an investment
vehicle associated with Sniper Capital Limited - is the largest shareholder in
MPOF, which bears witness to Sniper Capital Limited's belief in the Company.
The Manager is committed to the full disposal of the Company's Portfolio at
the earliest possible time 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's brief is to source, analyse and recommend potential
divestment opportunities, whilst providing the Board with property investment
and management advisory services in relation to the Company's real estate
assets.
For more information, please visit www.snipercapital.com
Investment Policy
The Company is managed with the objective of realising the value of all
remaining assets in the portfolio, individually, in aggregate or in any other
combination of disposals or transaction structures, in a prudent manner
consistent with the principles of sound investment management with a view to
making an orderly return of capital to shareholders over time.
The Company may sell or otherwise realise its investments (including
individually, or in aggregate or other combinations) to such persons as it
chooses, but in all cases with the objective of achieving the best exit values
reasonably available within 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, which
shall be at such intervals as the Board considers appropriate.
The Company's Articles of Incorporation do not contain any restriction on
borrowings.
DIRECTORS' REPORT
The Directors present their report and audited financial statements of the
Group for the year ended 30 June 2022. This Directors' report should be read
together with Corporate Governance Report.
Principal activities
Macau Property Opportunities Fund Limited (the "Company") is a
Guernsey-registered closed-ended investment fund traded on the London Stock
Exchange (the "LSE"). Following the passing of all resolutions at the
Extraordinary General Meeting held on 28 June 2010, the Company's shares
obtained a Premium Listing on the LSE Main Market on 30 June 2010.
The Company is an authorised entity under the Authorised Closed-Ended
Investment Schemes Rules 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 31 October 2023. 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 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 31 October 2023
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 31 October 2023
As at 30 June 2022, the Group had major debt obligations to settle during the
going concern period being:
i) principal repayment for The Waterside loan facility of approximately
US$18.3 million due for settlement in September 2022;
ii) principal repayment for The Waterside loan facility of approximately
US$5.1 million due for settlement in March 2023;
iii) principal repayment for The Waterside and the Fountainside loan
facilities of approximately US$9.5 million due for settlement in September
2023;
iv) principal repayment for the Penha Heights Tai Fung Bank loan facility
of approximately US$1.6 million due for settlement in quarterly instalments of
US$318,600 commencing in September 2022; and
v) principal repayment for the Penha Heights BCM loan facility of
approximately US$1.3 million due for settlement in 3 quarterly payments of
US$446,045 each in March, June and September 2023.
The lender of The Waterside loan facility has agreed in principle to extend a
new tranche of US$6.4 million to partially refinance the US$18.3 million
repayment that was due for settlement in September 2022, with the remaining
US$11.9 million having been repaid from the sales proceeds of the Group's
recent divestments. 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.
The Manager is responsible for the relationship with the Group's lenders for
monitoring compliance with loan terms and covenants and reporting to the Board
on matters arising. Throughout the year ended 30 June 2022 and up to the date
of issue of the financial statements, the Group has continued to be in
compliance with covenant terms and has maintained ongoing dialogue with all
lenders who indicated their continued support for the Group and the underlying
properties.
Given the largest instalment of the debt obligations that will become due for
settlement over the going concern period has already been settled in September
2022, and the fact that all banking facilities of the Group have all been
successfully renewed previously, with the loan-to-value (LTV) ratios of the
facilities maintained within the covenants required under the respective loan
agreements, as well as successful post year end unit sales, the Board is
confident that the Group would be able to arrange refinancing for debt
obligations that exceed funding available from divestments.
Notwithstanding the above, given that the refinancing of debt obligations that
will become due for settlement over the going concern period has not been
formally agreed or that proceeds from sales expected to settle these
obligations are not committed at the date of issue of the financial
statements, the Directors consider that there is a material uncertainty that
may cast significant doubt over the Group's and Company's ability to continue
as a going concern.
2. Extension of life of the Company
After the Ordinary Resolution was passed at the Annual General Meeting of the
Company on 22 December 2021 to extend the Fund's life until 31 December 2022,
the Directors assessed the impact of the continuation vote on the Fund's
ability to continue as a going concern. The Directors have also considered the
going concern assumption outside the primary going concern horizon.
In line with Article 38 of the Articles of Incorporation, the Company will put
forward a resolution for its continuation at the next annual general meeting
(intended to be held in December 2022). If any continuation resolution is not
passed, the Directors are required to formulate proposals to be put to Members
to reorganise, unitise, reconstruct or wind up the Company.
The Directors expect to receive continuation support from major shareholders
and note that 50% of shareholder support is required to ensure continuation.
The Board have ongoing communication with shareholders and the feedback
regarding the continuation vote is broadly positive. It is likely that returns
from the sale of properties would be significantly lower if the Fund was
forced to sell as a result of a failed continuation vote and it is therefore
commercially sensible for the Fund to continue in business.
Given that the continuation vote has not taken place at the date of issue of
the financial statements, the Directors consider that there is a material
uncertainty that may cast significant doubt over the Company's ability to
continue as a going concern.
Going Concern Conclusion
After careful consideration and based on the reasons outlined above, including
the ongoing dialogue with lenders and shareholders, whilst there is material
uncertainty related to going concern, the Board have a reasonable expectation
that the Company will continue in existence as a going concern for 12 months
from the date of signing the Annual report. They are therefore satisfied that
it is appropriate to adopt the going concern basis in preparing the financial
statements.
Viability Statement
The Board has carried out a robust assessment of the principal risks facing
the Company, including those that would threaten its business model, future
performance, solvency and liquidity. The Directors consider each of the
Company's principal risks and uncertainties, during the quarterly Board
meetings. The Directors also considered the Company's policy for monitoring,
managing and mitigating its exposure to these risks. This assessment involved
an evaluation of the potential impact on the Company of these risks occurring.
Where appropriate, the Company's financial model was subject to a sensitivity
analysis involving flexing a number of key assumptions in the underlying
financial forecasts in order to analyse the effect on the Company's net cash
flows and other key financial ratios. A base case and adverse scenario where
projections calculated based upon flexing these key assumptions had both
resulted in positive cash held balances throughout the two-year projection
period with ending cash balances of over US$10 million under both scenarios.
The Board expects the loan facilities which mature within the next 12 months
will be repaid or refinanced, that COVID-19 will not result in the LTV
breaching loan covenants and that the Company's life will be further extended
at the 2022 Annual General Meeting. The Board noted that the LTV covenants
were not breached as the 30 June 2022 market valuations already reflected the
impact of COVID-19 and it is not anticipated that they will reduce further to
the extent that the covenants will be impacted.
In accordance with provision 31 of the 2018 revision of the UK Code, the
Directors have assessed the prospects of the Company over a longer period than
the 12 months required by the going concern provision. During the year, the
Board conducted a review for a period covering 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 remained the same timeframe as the prior year due to the delay in
divestment as a result of the dynamic zero policy for COVID-19 which has
continued to be adopted in Macau and China with restrictions that hindered
economic and business recovery. Based on an assessment of the principal risks
facing the Company and the stress testing based assessment of the Company's
prospects, the Directors have a reasonable expectation that the Company will
be able to continue in operation (subject to continuation votes) and meet its
liabilities as they fall due over the 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 (2021:
US$ nil).
Authority to purchase own shares
Following the authority first granted in the Extraordinary General Meeting on
28 June 2010 and subsequently renewed at each Annual General Meeting, the
Board has publicly stated its commitment to undertake share buybacks at
attractive levels of discount of the share price to Adjusted NAV. The Board
intends to renew this authority at the 2022 Annual General Meeting. No shares
have been repurchased in the current or prior financial years.
Significant shareholdings
As at 29 August 2022, a total of 8 shareholders each held more than 3% of the
issued ordinary shares of the Company, accounting for a total of 45,871,129
shares (20 August 2021: 43,717,181) or 74.19% (20 August 2021: 70.72%) of the
issued share capital. Significant shareholdings as at 31 August 2022 are
detailed below:
Name of shareholder No. of shares %
Sniper Investments Limited 11,881,904 19.22
Lazard Asset Management LLC 9,603,221 15.53
Universities Superannuation Scheme 8,494,683 13.74
Fidelity International 4,765,895 7.71
Apollo Multi Asset Management 3,687,861 5.96
Premier Miton Investors 3,233,643 5.23
Banque de Luxembourg (PB) 2,288,485 3.70
Hargreaves Lansdown, stockbrokers (EO) 1,915,437 3.10
Subtotal 45,871,129 74.19
Other 15,964,604 25.81
Total 61,835,733 100.00
Directors
Biographies of the Directors who served during the year are detailed above.
Name Function Date of Date of
appointment resignation
Mark Huntley Chairman, Chairman of the Management Engagement Committee and 3 October 2018 -
the Chairman of the Disclosure and Communications Committee
Alan Clifton Director, Chairman of the Audit and Risk Committee and 18 May 2006 -
the Nomination and Remuneration Committee
Carmen Ling Director 24 February 2022 -
Wilfred Woo Director 3 January 2012 22 December 2021
Directors' interests
Directors who held office during the year and had interests in the shares of
the Company as at 30 June 2022 were:
Ordinary Shares of US$0.01
Held at Held at
30 June 2022 30 June 2021
Mark Huntley 200,000 200,000
Alan Clifton 80,902 80,902
Carmen Ling - -
Wilfred Woo N/A -
There have been no changes to the aforementioned interests since 30 June 2022.
Non-mainstream pooled investments
The Board notes the changes to the Financial Conduct Authority (FCA) rules
("UK Listing Rules") relating to the restrictions on the retail distribution
of unregulated collective investments schemes and close substitutes which came
into effect on 1 January 2014.
Following the receipt of legal advice, the Board confirms that it has
conducted the Company's affairs in such a manner that the Company would have
qualified for approval as an investment trust if it was resident in the United
Kingdom, and that it is the Board's intention that the Company will continue
to conduct its affairs in such a manner. Thus, the Company is, and the Board
expects it will continue to be, outside the scope of the new restrictions and
Independent Financial Advisors (IFAs) should therefore be able to recommend
ordinary shares in the Company to retail investors in accordance with the FCA
requirements relating to non-mainstream investment products.
AIFM directive
The Directors have considered the impact of the EU Alternative Investment Fund
Managers Directive (no. 2011/61/EU) ("AIFM Directive"), which was transposed
into United Kingdom law on 22 July 2013 with the transitional period having
ended in June 2014, on the Company and its operations.
The Company is a non-EU domiciled Alternative Investment Fund which does not
currently intend to market its shares within Europe. The Directors, therefore,
consider that neither authorisation nor registration is required.
Directors' remuneration
Directors of the Company are all non-executive and, by way of remuneration,
receive an annual fee. During the year, the Directors received the following
emoluments in the form of Directors' fees from the Company. These amounts
remain unchanged since 2017 in Sterling terms.
2022 2021
US$ US$
Mark Huntley 74,865 81,205
Alan Clifton 56,149 60,904
Carmen Ling 15,432 N/A
Wilfred Woo 23,218 50,753
Total 169,664 192,862
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 are 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 undertake 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
The Manager and Board have achieved a substantial operating cost reduction.
In the financial year the Company issued:
- 4 NAV updates by way of RNS
- 2 half yearly updates.
The Company directly and through the Manager interacts with major
shareholders. These meetings have been virtual during the period. Such
interaction provides mutual understanding of the Company's prospects and
outlook for divestment.
LTV ratios confirm that none of the Company's properties are impaired or
considered to be at risk of loss.
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 no
provides regular reports to the banks and has an open line of communication in unrectifiable issues or concerns have been raised by the banks.
respect of the ongoing operation and maintenance of the facilities.
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.
quality property management services are provided at The Waterside to help
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 Annual General Meeting of the Company will be held in December 2022 at
Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey. A notice of
Meeting and Agenda will be in November 2022.
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 2022. 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 Carmen Ling
Chairman of the Board Non-executive Director
5 October 2022
CORPORATE GOVERNANCE REPORT
The Board has put in place a framework for corporate governance which it
believes is appropriate for an investment company. Paragraph 9.8.6R of the UK
Listing Rules obliges Boards to report upon their corporate governance
arrangements against the UK Code issued by the Financial Reporting Council
(the "FRC"). The Company is a member of the Association of Investment
Companies (the "AIC") and the Board has considered the principles and
recommendations of the 2019 AIC's Code of Corporate Governance ("AIC Code").
The Board considers that reporting against the principles and recommendations
of the AIC Code provides better information to shareholders. The FRC has
provided the AIC with an endorsement letter to cover the latest edition of the
AIC Code. The endorsement confirms that by following the AIC Code, investment
company boards should fully meet their obligations in relation to the UK Code
and paragraph 9.8.6R of the UK Listing Rules.
The AIC Code is available on the AIC's website, www.theaic.co.uk. The UK Code
is available on the FRC's website, www.frc.org.uk.
Throughout the accounting period, the Company has complied with the
recommendations of the AIC Code and thus the relevant provisions of Section 1
of the UK Code, except as set out below.
The UK Code includes provisions relating to:
• the role of the chief executive;
• executive directors' remuneration;
• the need for an internal audit function;
• appointment of a senior independent director; and
• whistleblowing policy.
The Board considers that the above provisions, where practical, have been
fully adhered to but many are not currently relevant to the position of the
Company, being an internally managed investment company, which delegates most
day-to-day functions to third parties. There are areas of governance codes
which present genuine practical challenges for a company that is both in the
late stage of life, with a clearly defined but narrow strategic objective and
where we are investing in a jurisdiction which we cannot currently visit. All
Directors are non-executive and independent of the Investment Adviser and
therefore the Directors consider the Company has no requirement for a Chief
Executive or a Senior Independent Director and the Board is satisfied that any
relevant issues can be properly considered by the Board. The absence of an
internal audit function is discussed in the Report of the Audit and Risk
Committee.
The GFSC Finance Sector Code of Corporate Governance (the "GFSC Code") came
into force in Guernsey on 1 January 2012 and was amended in February 2016,
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. During the
current year Carmen Ling was appointed on 24 February 2022 and Wilfred Woo
resigned on 22 December 2021.
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 existing officers; however, the Board
believes that any decisions regarding tenure should consider the need for
continuity and maintenance of knowledge and experience and to balance this
against the need to periodically refresh board's composition, with the limited
expected life of the Company in mind.
The Company has benefitted greatly from the knowledge, expertise and skill mix
of the Board as 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 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. Since the easing of
the COVID-19 pandemic all board meetings have been held in Guernsey.
To fulfil the recommendation of AIC Code Provision 15 and to give sufficient
attention to strategy, the Board discusses strategy at each of its regular
scheduled meetings, but holds a separate session annually devoted to this.
Between meetings, there is regular contact with the Manager and the
Administrator, and the Board requires to be supplied in a timely manner with
information by the Manager, the Company Secretary and other advisers in a form
and of a quality to enable it to discharge its duties.
The terms and conditions of appointment of non-executive directors are
available for inspection from the Company's registered office.
Performance and evaluation
Pursuant to Principle J of the AIC Code which requires a formal and rigorous
annual evaluation of its performance, the Board formally reviews its
performance annually through an internal process. Internal evaluation of the
Board, the Audit and Risk Committee, the Nomination and Remuneration
Committee, the Management Engagement Committee, the Disclosure and
Communications Committee and individual Directors has taken the form of
self-appraisal questionnaires and discussions to determine effectiveness and
performance in various areas, as well as the Directors' continued
independence. Given the 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 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 Other Audit and Risk Committee Meeting Nomination and Remuneration Committee Meeting Management Engagement Committee Meeting Other
Board Meeting (max 4)
Board Meeting (max 1)
(max 3)
(max 3)
(max 3)
Committee Meeting
(max 2)
Mark Huntley 4 1 3 3 3 2
Alan Clifton 4 1 3 3 3 1
Carmen Ling 2 - 2 1 1 -
Wilfred Woo 2 1 1 2 2 1
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. 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 Company has delegated the provision of all services to external service
providers whose work is overseen by the Management Engagement Committee at its
regular scheduled meetings. Each year, a detailed review of performance
pursuant to their terms of engagement is undertaken by the Management
Engagement Committee.
In accordance with Listing Rule 15.6.2(2)R and having formally appraised the
performance and resources of the Manager, in the opinion of the Directors, the
continuing appointment of the Manager, on the terms agreed, is in the
interests of shareholders as a whole.
Relations with shareholders
The Company welcomes the views of shareholders and places great importance on
communication with its shareholders. Senior members of the Manager are
available at all reasonable times to meet with principal shareholders and key
sector analysts. The Manager, Chairman and other Directors are not only
available to meet with shareholders, but have actively done so.
Reports on the views of shareholders are provided to the Board on a regular
basis. The Board is also kept fully informed of all relevant market commentary
on the Company by the Manager and the Corporate Broker.
All shareholders can address their individual concerns to the Company in
writing at its registered address. The Annual General Meeting of the Company
provides a forum for shareholders to meet and discuss issues with the
Directors and the Manager. The Manager and Board also engage with shareholders
on an ongoing basis. In addition, the Company maintains a website
(www.mpofund.com) which contains comprehensive information, including company
notifications, share information, financial reports, investment objectives and
policy, investor contacts and information on the Board and corporate
governance.
Whistleblowing
The Board has considered the AIC Code recommendations in respect of
arrangements by which staff of the Administrator 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.
Principal risks and uncertainties
The Group's assets consist of residential property investments in Macau. Its
principal risks are therefore related to the residential property market in
general, but also the particular circumstances of the properties in which they
are invested and where relevant, their tenants. The Manager seeks to mitigate
these risks through active asset management initiatives and carrying out due
diligence work on potential tenants before entering into any new lease
agreements. All the properties in the portfolio are insured.
Each Director is aware of the risks inherent in the Group's business and
understands the importance of identifying and evaluating these risks. The
Board has adopted procedures and controls that enable it to manage these risks
within acceptable limits and to meet all its legal and regulatory obligations.
For each material risk, the likelihood and consequence are identified,
management controls and frequency of monitoring are confirmed and results are
reported and discussed at board meetings.
The Company's principal risk factors are fully discussed in the Company's
prospectus, are available on the Company's website and should be reviewed by
shareholders. Note 2 further describes the Group's risk management processes.
The principal risks and uncertainties faced by the Group are set out below:
• The global COVID-19 pandemic and the resulting uncertainty on Macau's real
estate market, the valuation of the underlying assets and whether this could
prevent the Group from being able to realise its assets. The Manager provides
the Board with regular reports and updates on key local developments. Working
capital requirements and an analysis of loan to value covenants are reported
to the Board for monitoring. Stress testing using various disposal scenarios
will be incorporated into this analysis and investors will be kept updated as
to the impact of the pandemic. The Manager and Administrator each have their
own business continuity plans, which are tested and effective to prevent
business disruptions.
• There can be no guarantee that Macau will remain the only centre in China
where gambling is legal. Changes in policies of the government or changes in
laws and regulations may result in the legalisation of gambling in other parts
of China. This, in turn, may have an adverse effect on Macau's economy and
property market and the favourable treatment of gambling in Macau. This is an
inherent risk of investing in the Macau region and therefore cannot be
mitigated or managed by the Board.
• The Group's loan refinancing may not be available in the future due to
reduced lending appetite from banks and a change in market sentiment. The
Board, through the Manager, has an ongoing dialogue with all external lenders
and closely monitors the loan covenants of all facilities.
• New legislation or regulations, or different or more stringent
interpretation or enforcement of existing laws or regulations, in any
jurisdiction in which the Group operates, may have a material adverse effect
on the Group's financial performance and returns to shareholders. The Manager
provides the Board with updates on any 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 development 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 development 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
including the short and medium term effects of COVID-19;
• changes in policies of the government or changes in laws and regulations
(including the revocation or modification by the Chinese Government of Macau's
SAR status and high autonomy levels), or the interpretation of laws and
regulations;
• changes in foreign exchange rates or regulations;
• measures that may be introduced to control inflation, such as interest
rate increases;
• changes in the rate or method of taxation;
• title and/or legal disputes with neighbouring land owners and legal
disputes with architects, project managers and suppliers; and
• changes to restrictions on or regulations concerning repatriation of
funds.
Emerging risks
Emerging risks have been identified by the Board through a process of
evaluating which of the principal risks or any previously unidentified risks
have increased materially through the year and/or are expected to
significantly grow and such evaluation is completed at regular Board meetings.
Any such emerging risks are likely to cause disruption to the Group's
business. If ignored, there could be significant impact on the Group's
financial situation and future operating performance but, if recognised, they
could provide opportunities for transformation. In the current year, the
following two significant emerging risks have been identified:
• Inability to achieve the Group's strategic objectives, linked to a
widening of the discount between share price and Adjusted NAV and the
continuation vote in the Annual General Meeting in December 2022, where a
concentrated shareholder base exists, the Board, the Manager and the Company
maintain good relationship with investors through periodic contact, investor
updates, addressing influences of the share price and through provision of
factual information to support any resolutions requiring shareholders'
approval; and
• Economic changes such as high inflation, interest rate hike and their
potential impact on Macau economy and in particular, the luxury property
market. The Manager provides quarterly updates and ad-hoc analysis about such
economic related impact to the Board, to facilitate their informed decisions
making process.
There is a process for identifying, evaluating and managing the principal and
emerging risks faced by the Group. This process (which accords with the FRC's
"Guidance on Risk Management, Internal Control and Related Financial and
Business Reporting") has been regularly reviewed and has been in place
throughout the financial year and up to the date of approval of these annual
accounts.
The above principal and emerging risks are mitigated and managed by the Board
through continual review, policy setting and annual updating of the Group's
risk matrix to ensure that procedures are in place with the intention of
minimising the impact of the above mentioned risks should they crystalise. The
Board relies on reports periodically provided by the Administrator and the
Manager regarding risks that the Group faces. When required, experts are
employed to gather information, including tax advisers, legal advisers and
planning advisers. Some risks are, however, beyond the Board or Managers'
ability to mitigate.
The Board relies on the Manager's close relationship with legal professionals
in Macau, Hong Kong and China to keep abreast of any potential changes to the
law and any possible impact on the Group. The Board also regularly monitors
the investment environment and the management of the Group's property
portfolio, and applies the principles detailed in the internal control
guidance issued by the FRC. Details of the Group's internal controls are
described in more detail above.
The Group's financial risks and uncertainties are further discussed in Note 2
to the consolidated financial statements.
On behalf of the Board
Mark Huntley
Chairman of the Board
5 October 2022
NOMINATION AND REMUNERATION COMMITTEE REPORT
Summary of the role of the Nomination and Remuneration Committee
The Nomination and Remuneration Committee regularly reviews the structure,
size and composition (including the skills, knowledge, gender, experience and
diversity) of the Board and makes recommendations to the Board with regard to
any changes and also considers the appropriate levels of the Board's
remuneration. The Board monitors the developments in corporate governance to
ensure the Board remains aligned with best practice. The Board acknowledges
the importance of diversity of experience, approach and gender, for the
effective functioning of a board and commits to supporting diversity in the
boardroom. The Board also values diversity of business skills and experience
because directors with diverse skills sets, capabilities and experience gained
from different geographical backgrounds enhance the Board by bringing a wide
range of perspectives to the Company. The Board is satisfied with the current
composition and functioning of its members. It is the Company's policy to give
careful consideration to issues of the Board's balance, 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 needs to take 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
has 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.
During the year, Mr Wilfred Woo retired from the Board, as foreshadowed in
last year's Annual Report. After a widespread international search and the
consideration of numerous potential candidates, Ms Carman Ling was appointed a
Director of the Company on 24 February 2022. She is available for election to
be reappointed at December's Annual General Meeting.
Meetings
The Nomination and Remuneration Committee shall meet at least once a year and
otherwise as required. Meetings of the Nomination and Remuneration Committee
shall be called by the Company Secretary at the request of the Committee
Chairman. Unless otherwise agreed, notice of each meeting confirming the
venue, time and date, together with an agenda of items to be discussed, shall
be forwarded to each member of the Nomination and Remuneration Committee, any
other person required to attend and all other non-executive directors, no
later than five working days before the date of the meeting. Supporting papers
shall be sent to the Nomination and Remuneration Committee and to other
attendees as appropriate, at the same time. Any non-executive director who is
not considered independent will not take part in the Nomination and
Remuneration Committee's deliberations regarding remuneration levels.
Consideration of Directors for re-election
All Directors will retire annually in accordance with the AIC Code. A retiring
director shall be eligible for reappointment. No director shall be required to
vacate his office at any time by reason of the fact that he has attained any
specific age.
The Nomination and Remuneration Committee will consider the use of external
consultants to assist with the appointment of future directors.
Overview
The Nomination and Remuneration Committee met three times in the year ended 30
June 2022. 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
5 October 2022
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 2022 in reflection of the delays to the realisation of assets
arising as a consequence of the coronavirus pandemic.
Composition of the Management Engagement Committee
The members of the Management Engagement Committee are listed on 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 and all other non-executive directors, no later than five working
days before the date of the meeting. Supporting papers shall be sent to the
Management Engagement Committee and to other attendees as appropriate, at the
same time.
Performance of the Manager
Following discussion, it is the opinion of the Management Engagement Committee
that the performance of the Manager for the year ended 30 June 2022 was
satisfactory and the continuing appointment of the Manager on the terms agreed
is in the interests of the shareholders as a whole.
Performance of key service providers
Following discussion, it is the opinion of the Management Engagement Committee
that the performance of key service providers (as detailed in Appendix 1 of
the Terms of Reference of the Committee) for the year ended 30 June 2022 was
satisfactory.
Overview
The Management Engagement Committee met three times during the year and as a
result of its work, the Management Engagement Committee has concluded that it
has acted in accordance with its terms of reference.
On behalf of the Management Engagement Committee
Mark Huntley
Chairman of the Management Engagement Committee
5 October 2022
AUDIT AND RISK COMMITTEE REPORT
Summary of the role of the Audit and Risk Committee
The Audit and Risk Committee is appointed by the Board from the non-executive
directors of the Company. The Audit and Risk Committee's terms of reference
include all matters indicated by Disclosure Guidance and Transparency Rule 7.1
and the UK Code. The terms of reference are considered annually by the Audit
and Risk Committee and are then referred to the Board for approval and are
available on the Company's website.
The Audit and Risk Committee is responsible for:
• reviewing and monitoring the integrity of the Annual Report and Audited
Consolidated Financial Statements, the Interim Report and Interim Condensed
Consolidated Financial Statements of the Group, and any formal announcements
relating to the Group's financial performance, and reviewing significant
financial reporting judgements contained therein;
• reporting to the Board on the appropriateness of the accounting policies
and practices including critical accounting policies and practices;
• advising the Board that the annual report and accounts, taken as a whole,
is fair, balanced and understandable and provides the information necessary
for shareholders to assess the Company's performance, business model and
strategy;
• reviewing the Group's internal financial controls and, unless expressly
addressed by the Board itself, the Group's internal controls and principal
risks;
• making recommendations to the Board for a resolution to be put to the
shareholders, for their approval in general meetings, on the appointment of
the external auditor and the approval of the remuneration and terms of
engagement of the external auditor;
• reviewing and monitoring the external auditor's independence and
objectivity and the effectiveness of the audit process, taking into
consideration relevant UK professional and regulatory requirements;
• developing and implementing a policy on the engagement of the external
auditor to supply non-audit services, taking into account relevant guidance
regarding the provision of non-audit services by the external audit firm;
• reviewing the valuations of the Company's investments prepared by the
Investment Adviser, and make a recommendation to the Board on the valuation of
the Company's investments;
• meeting the external auditor to review their proposed audit programme of
work and the subsequent audit report and to assess the effectiveness of the
audit process and the levels of fees paid in respect of both audit and
non-audit work;
• considering annually whether there is a need for the Company to have its
own internal audit function; and
• reviewing and considering the UK Code, the AIC Code and the Stewardship
Code.
The Audit and Risk Committee is required to report its findings to the Board,
identifying any matters on which it considers that action or improvement is
needed, and to make recommendations on the steps to be taken.
The Audit and Risk Committee is also required to report to the Board,
identifying how it has discharged its responsibilities during the current
year.
The Board has taken note of the requirement that at least one member of the
Audit and Risk Committee should have recent and relevant financial experience
and is satisfied that the Audit and Risk Committee is properly constituted in
that respect, with all members having relevant sector experience.
The Audit and Risk Committee reviews the information contained in the other
sections of the Annual Report including the Directors' Report, Chairman's
Message and the Manager's Report.
The Audit and Risk Committee is the formal forum through which the external
auditor reports to the Board. The external auditor is invited to attend the
Audit and Risk Committee meetings at which the Annual Report and Audited
Consolidated Financial Statements, and at which they have the opportunity to
meet with the Audit and Risk Committee without representatives of the
Investment Adviser being present at least once per year.
Composition of the Audit and Risk Committee
The members of the Audit and Risk Committee are:
Date of Date of
appointment resignation
Alan Clifton (Chairman) 23 May 2006 -
Mark Huntley 12 November 2018 -
Carmen Ling 24 February 2022 -
Wilfred Woo 27 February 2012 22 December 2021
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 16 years. However, the Board and Audit and Risk Committee have satisfied
themselves that Alan Clifton continues to remain independent. The Board are
satisfied that Alan Clifton remains completely independent of the Investment
Manager and provides consistency and continuity in the current realisation
phase of the Company, so have previously resolved to extend his appointment to
the Audit and Risk Committee for a further year. The Board has also considered
the inclusion of the Chairman within the Audit Committee and having taken into
account that the Chairman is independent and non-executive, believes it
appropriate for the Chairman to be a member. It is the intention to maintain
the majority board independence within the meaning of the AIC Code.
Financial Reporting
The primary role of the Audit and Risk Committee in relation to the financial
reporting is to review with the Administrator, Investment Adviser and the
external auditor on the appropriateness of the Annual Report and Audited
Consolidated Financial Statements and Interim Report, concentrating on, among
other matters:
• the quality and acceptability of accounting policies and practices;
• the clarity of the disclosures and compliance with financial reporting
standards and relevant financial and governance reporting requirements;
• material areas in which significant judgement have been applied or there
has been discussion with the external auditor;
• whether the Annual Report and Audited Consolidated Financial Statements,
taken as a whole, is fair, balanced and understandable and provides the
information necessary for the shareholders to assess the Company's
performance, business model and strategy; and
• any correspondence from regulators in relation to Company's financial
reporting.
To aid its review, the Audit and Risk Committee considers reports from the
Administrator, Manager and Investment Adviser and also reports from the
external auditor on the outcomes of their annual audit. The Audit and Risk
Committee supports Deloitte LLP in displaying the necessary professional
scepticism their role requires.
Significant issues considered in relation to the financial statements
The Audit and Risk Committee has had regular contact with the Investment
Adviser and the external auditor during the year end audit process. The
Committee's discussions have been broad ranging, including the consideration
of the Company's going concern status and key areas of judgement.
The Audit and Risk Committee is satisfied, having received advice from
professional advisers which include valuers, tax advisers and lawyers, that
these sensitivities have been appropriately reflected and disclosed in the
financial statements.
During its review of the Group's financial statements for the year ended 30
June 2022, the Audit and Risk Committee considered the following significant
issues:
• impact of the COVID-19 pandemic;
• going concern and viability in relation to the continuation vote in
December 2022 and availability of loan refinancing;
• valuation of investment properties and inventories;
• existence and ownership of investments properties and inventories;
• accounting treatment for taxes incurred in multiple jurisdictions; and
• income recognition for rental income.
The risk relating to going concern and viability is mitigated through
communications with major shareholders, ongoing management of cash resources,
regular monitoring of compliance with loan covenants and re-negotiation with
lender banks prior to loan maturities.
The risk relating to the valuation of investment properties and inventories is
mitigated through use of a professionally qualified independent valuer to
conduct the valuations in accordance with current Royal Institution of
Chartered Surveyors Appraisal and Valuation Standards.
The valuation is overseen by the Investment Adviser to ensure that the values
are comparable to current market values of similar properties. The valuation
process and methodology are discussed with the Investment Adviser regularly
during the year and with the external auditor as part of the year-end audit
planning. These valuations are reviewed, challenged and ultimately agreed by
the Board, who possesses knowledge and understanding of the markets where the
properties are situated. The Board ordinarily meets with the valuer at least
once a year. This took place virtually during the past 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 SPV Administrator on a quarterly basis. Property searches showing
ownership of each of the assets are conducted to ascertain that there are no
changes in ownership.
The risk relating to taxation is mitigated through the setup of the Group
structure. When taxation queries arise, an independent taxation adviser is
employed to advise the Board on such issues. The factors that affect the
Group's taxation position are further discussed in Note 9.
Meetings
The Audit and Risk Committee meets not less than twice a year and at such
other times as the Chairman requires. Any member of the Audit and Risk
Committee may request that a meeting be convened by the Company Secretary. The
external auditor may request that a meeting be convened if they deem it
necessary. Other Directors and third parties may be invited by the Audit and
Risk Committee to attend meetings as and when appropriate.
Annual General Meeting
The Audit and Risk Committee Chairman, or other members of the Audit and Risk
Committee appointed for the purpose, shall attend each Annual General Meeting
of the Company, prepared to respond to shareholders' questions on the Audit
and Risk Committee's activities.
Risk management
The Company's risk assessment process and the way in which significant
business risks are managed is a key area of focus for the Audit and Risk
Committee. The work of the Audit and Risk Committee was driven primarily by
the Company's assessment of its principal risks and uncertainties as set out
in the Corporate Governance Report. The Audit and Risk Committee receives
reports from the Investment Adviser and Administrator on the Company's risk
evaluation process and reviews changes to the principal risks identified,
including emerging risks.
Primary Area of Judgement
The Audit and Risk Committee determined that the key risk of misstatement of
the Company's financial statements is the fair value of the investment
property held by the Group in the context of the high degree of judgement
involved in the assumptions and estimates underlying the discounted cash flow
calculations 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 2022 was US$181,520,000 (2021:
US$199,629,000). 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 2022 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 2022 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
2022 has been determined by the Board based upon the information provided by
the Investment Adviser.
Internal audit
The Audit and Risk Committee considers at least once a year whether or not
there is a need for an internal audit function. Currently, the Audit and Risk
Committee does not consider there to be a need for an internal audit function,
given that there are no employees in the Group and all outsourced functions
are with parties/administrators who have their own internal controls and
procedures. During the year, an ISAE 3402 report was produced for the
Administrator, Ocorian Administration (Guernsey) Limited. The Audit and Risk
Committee also considers the review of controls of the service organisations.
External audit
Deloitte LLP have been appointed as external auditor for the year to 30 June
2022 following an earlier audit tender process carried out in accordance with
FRC guidance applicable to UK Incorporated London Stock Exchange Listed
companies. The external auditor is required to rotate the audit partner every
five years. The current Deloitte LLP lead audit partner, David Becker, started
his tenure for the 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 June 2022 Audit
and Risk Committee meeting, the Committee discussed and approved the external
auditor's Group plan in which they identified the Group's going concern
assumption, valuation of the investment property, carrying value of
inventories and revenue recognition as the key areas of risk of misstatement
in the Group's financial statements.
The Audit and Risk Committee discussed these issues at the June 2022 meeting
to ensure that appropriate arrangements are in place to mitigate these risks.
To fulfil its responsibility regarding the independence of the external
auditor, the Audit and Risk Committee will consider:
• discussions with or reports from the external auditor describing its
arrangements to identify, report and manage any conflicts of interest; and
• the extent of non-audit services provided by the external auditor.
To assess the effectiveness of the external auditor, the Audit and Risk
Committee will review:
• the external auditor's fulfilment of the agreed audit plan and variations
from it;
• discussions or reports highlighting the major issues that arose during the
course of the audit;
• feedback from other service providers evaluating the performance of the
audit team;
• arrangements for ensuring independence and objectivity;
• the robustness of the external auditor in handling key accounting and
audit judgements; especially with regard to the external auditor's review of
the following areas:
o Valuation of investment property: the external auditor identified this as
the main focus area of the audit and challenged the underlying assumptions
used to prepare the valuation of the investment property by independent and
professionally-qualified valuer Savills using their regional market
specialists in Hong Kong and performed recalculations of assumptions to ensure
within their parameters.
o The going concern assumption: the external auditor noted shareholder
feedback in addition to rigorous testing of management's cash flow forecasts
and 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.
o Revenue recognition: The external auditor tested the rental receipts from
the Waterside against the external rental agreements and performed analytical
review procedures to ensure that rental receipts were within their
expectations.
The Audit and Risk Committee also held private meetings with the external
auditor during 2022 and the Audit and Risk Committee Chairman also maintained
regular contact with the audit partner throughout the year. These meetings
provide an opportunity for open dialogue with the external auditor without
management being present.
The Audit and Risk Committee is satisfied with Deloitte LLP's effectiveness
and independence as the external auditor having considered the degree of
diligence and professional scepticism demonstrated by them. Having carried out
the review described above and having satisfied itself that the external
auditor remains independent and effective, the Audit and Operational Risk
Committee has concluded that the external auditor implemented sufficiently
robust processes to deliver a high quality audit. Accordingly, the Committee
recommended to the Board that Deloitte LLP be reappointed as external auditor
for the year ending 30 June 2023.
The Audit and Risk Committee has provided the Board with its recommendation to
the shareholders on the re-appointment of Deloitte LLP as external auditor
which will be put to shareholders at the Annual General Meeting in December
2022.
Non-audit services
To safeguard the objectivity and independence of the external auditor from
becoming compromised, the Audit and Risk Committee has a formal policy
governing the engagement of the external auditor to provide non-audit
services. This precludes Deloitte LLP from providing certain services, such as
valuation work or the provision of accounting services, and also sets a
presumption that Deloitte LLP should only be engaged for non-audit services
where Deloitte LLP is best placed to provide the non-audit service, for
example, the interim review service. Please see Note 23 for details of
services provided by Deloitte LLP.
Overview
The Audit and Risk Committee met three times in the year ended 30 June 2022.
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 2021 Annual Report and Audited Consolidated Financial
Statements for the year ended 30 June 2021;
• review of the 2021 Interim Report and unaudited Interim Condensed
Consolidated Financial Statements for the 6 months ended 31 December 2021;
• review of the quarterly results announcement issued in May 2022;
• review of the audit plan and timetable for the preparation of the 2022
Annual Report and Audited Consolidated Financial Statements;
• challenge of the 2022 Annual Report and Audited Consolidated Financial
Statements for the year ended 30 June 2022;
• 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
5 October 2022
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the annual report and accounts in
accordance with applicable laws and regulations. The Companies (Guernsey) Law,
2008 requires the Directors to prepare financial statements for each financial
year. The Directors prepare the Group's financial statements in accordance
with International Financial Reporting Standards as adopted by the European
Union ("IFRS"). Under Company Law, the Directors must not approve the accounts
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and of the financial performance and cash flows of the
Group for that period. In preparing these Group's financial statements, the
Directors are required to:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
• provide additional disclosures when compliance with the specific
requirements in 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
the responsibility of the Directors. The work carried out by the external
auditor does not involve consideration of these matters and, accordingly, the
external auditor accepts no responsibility for any changes that may have
occurred to the financial statements since they were initially presented on
the website.
Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
All companies with a Premium Listing of equity shares in the UK are required
under the Listing Rules to report on how they have applied the UK Code in
their annual report and financial statements.
Responsibility Statement of the Directors in respect of the Annual Report and
Accounts
Each of the Directors, whose names are set out in the Board of Directors
section of the Annual Report, confirms that, to the best of their knowledge
and belief that:
Directors' statement under the Disclosure and Transparency Rules
• The Group's financial statements, prepared in accordance with IFRS, give a
true and fair view of the assets, liabilities, financial position and profit
or loss of the Company and the undertakings included in the consolidation
taken as a whole.
• The management report, which is incorporated into the Directors' Report,
Manager's Report and Chairman's Message contained in the Annual Report,
includes a fair review of the development and performance of the business and
of the position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the principal
risks and uncertainties they face.
Directors' statement under the UK Corporate Governance Code
• The Directors are responsible for preparing the Annual Report and Group's
financial statements in accordance with applicable law and regulations. Having
taken advice from the Audit and Risk Committee, the Directors consider the
Annual Report and Group's Financial Statements, taken as a whole, as fair,
balanced and understandable and that it provides the information necessary for
shareholders to assess the Group's performance, business model and strategy.
So far as each Director is aware, there is no relevant audit information of
which the Company's external auditor is unaware, and each Director has taken
all the steps that he ought to have taken as a Director in order to make
himself aware of any relevant audit information and to establish that the
Company's external auditor is aware of that information. This confirmation is
given and should be interpreted in accordance with the provisions of section
249 of the Companies (Guernsey) Law, 2008 (as amended).
On behalf of the Board
Mark Huntley
Chairman of the Board
5 October 2022
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' or 'Fund') and its subsidiaries (the 'Group'):
• give a true and fair view of the state of the Group's affairs as at 30
June 2022 and of its loss for the year then ended;
• have been properly prepared in accordance with International Financial
Reporting Standards (IFRSs) as issued by the International Accounting
Standards Board (IASB);
• have been prepared in accordance with the requirements of the Companies
(Guernsey) Law, 2008.
We have audited the financial statements which comprise:
• the consolidated statement of financial position;
• the consolidated statement of comprehensive income;
• the consolidated statement of changes in equity;
• the consolidated statement of cash flows; and
• the related notes 1 to 25.
The financial reporting framework that has been applied in their preparation
is applicable law and IFRSs as issued by the IASB.
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the auditor's responsibilities for the
audit of the financial statements section of our report.
We are independent of the Group in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK,
including the Financial Reporting Council's (the 'FRC's') Ethical Standard as
applied to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We confirm that 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
2022 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:
- Evaluated management's assessment of the potential issues that may give rise
to a material uncertainty, including mitigating actions identified by the
Directors;
- Considered the financial covenants currently in place and whether sufficient
headroom exists, particularly in the context of independent valuation of
properties as a result of the impact arising from covid-19;
- Evaluated the likelihood of renewal of external financing arrangements at
expiry, including consideration of history of renewal of such arrangements;
- Evaluated the assumption made by the Directors related to passing of the
upcoming continuation vote for the extension of the life of the Company, along
with consideration of discussions with certain shareholders;
- Performed sensitivity analysis on the key assumptions and inputs applied in
the going concern assessment and cashflow model, including the ability to sale
the remaining properties given the ongoing uncertainty arising from impact
covid-19;
- We challenged the key assumptions in the cashflow model and obtained
supporting documentation from management;
- Evaluated 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;
- the directors' identification in the financial statements of the material
uncertainty related to the Group's ability to continue as a going concern over
a period of at least twelve months from the date of approval of the financial
statements.
Our responsibilities and the responsibilities of the directors with respect to
going concern 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:
• Key judgements in the valuation of investment property
• Carrying value of inventory
• Going Concern (see material uncertainty related to going concern
section)
Materiality The materiality that we used for the Group financial statements in the current
year was $776k 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.
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified. These matters
included those which had the greatest effect on the overall audit strategy,
the allocation of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In addition to the matter
described in the material uncertainty related to going concern section, we
have determined the matters below to be the key audit matters to be
communicated in our report.
5.1. Key judgements in the valuation of investment property
Key audit matter description The Group owns a high-end residential investment property in Macau, as
disclosed in note 6, that is valued at $181.5m as at 30 June 2022 (2021:
$199.6m).
The property is valued by an independent, professionally qualified valuer
using the 'income capitalisation' method of valuation.
Management is required to make a number of significant assumptions and
judgements in determining the fair value and therefore we have identified this
as a potential fraud risk.
The key inputs into the fair value model which are subject to significant
management estimates include future cash flows from assets, such as lettings,
as well as applicable discount rates. Unreasonable assumptions could give rise
to a material misstatement.
The value of investment property declined by 9% as at 30 June 2022 in
comparison to prior year due to impact of covid-19 (zero covid-19 policy) and
other local market conditions as at valuation date. As detailed in note 6, the
valuer applied the Royal Institution of Chartered Surveyors (RICS) Valuation
Global Standards. Consistent with the market conditions observed in the prior
year, we note there continued to be a higher level of judgement associated
with certain asset valuations, including high-end residential properties. The
valuation of investment property is disclosed as one of the key sources of
estimation uncertainty in note 3 of the financial statements.
How the scope of our audit responded to the key audit matter To respond to the key audit matter, we have performed the following audit
procedures:
- Obtained and documented an understanding of relevant controls in relation
to the valuation process;
- Performed tests over the completeness and accuracy of the year end data
provided to the valuers including reconciling the information included in the
valuation report to supporting documentation such as lease agreements;
- 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 including covid-19
considerations;
- Considered 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 note that the comparable term yields as determined by the valuer are within
the range noted in our independent research, albeit on the higher end of the
range. We also note that the market rent assumed by the valuer is within the
acceptable range. We have concluded that the assumptions applied by
management, in arriving at fair value were appropriate, and that the resulting
valuations were within a reasonable range.
5.2. Carrying value of inventory
Key audit matter description The Group owns high-end residential properties held as inventory in Macau, as
disclosed in note 7, whose carrying values are $34.6m as at 30 June 2022
(2021: $34.9m).
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 $58.7m at 30
June 2022 (2021: $65.1m).
Management is required to make a number of significant assumptions and
judgements in determining the NRV such as comparable recent sales
transactions, which is 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
management estimates include the weighted unit rate per square foot.
The valuation of inventory is disclosed as one of the key sources of
estimation uncertainty in note 3 of the financial statements.
How the scope of our audit responded to the key audit matter To respond to the key audit matter, we have performed the following audit
procedures:
- Obtained and documented an understanding of relevant controls in relation
to the valuation process;
- Performed substantive tests of detail over the completeness and accuracy
of the year end data provided to the valuers including reconciling the
information included in the valuation report to supporting documentation;
- 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) and assumptions with the valuer and
management with reference to independent market data including Covid-19
considerations;
- Assessed whether the valuers are independent of the Group and considered
the competence, capabilities and objectivity 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 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 were appropriate,
and that the resulting valuations were within a reasonable range.
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial
statements that makes it probable that the economic decisions of a reasonably
knowledgeable person would be changed or influenced. We use materiality both
in planning the scope of our audit work and in evaluating the results of our
work.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Group Materiality $776k (2021: $979k)
Basis for determining materiality 1% of net asset value ("NAV") (2021: 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 2022 audit
(2021: 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 covid-19 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 $38k (2021: $49k), 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. In assessing the control
environment, we also considered the control environments of the key service
providers, including the administrators, to whom the board have delegated
certain functions for the Company and its subsidiaries. Audit work to respond
to the risks of material misstatement was performed directly by the Group
audit team and all work was performed to Group materiality.
7.2 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 potential impacts of
environmental, social and governance ("ESG") related risks as outlined in the
Environmental, Social and Governance Report. 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 potential impact of
environmental related risks on the Group's account balances and classes of
transactions.
8. Other information
The other information comprises the information included in the annual report,
other than the financial statements and our auditor's report thereon. The
directors are responsible for the other information contained within the
annual report.
Our opinion on the financial statements does not cover the other information
and we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or otherwise
appears to be materially misstated.
If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the
work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors' responsibilities statement, the
directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the Group's ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the Group or to
cease operations, or have no realistic alternative but to do so.
10. Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial
statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor's report.
11. Extent to which the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
11.1. Identifying and assessing potential risks related to
irregularities
In identifying and assessing risks of material misstatement in respect of
irregularities, including fraud and non-compliance with laws and regulations,
we considered the following:
• the nature of the industry and sector, control environment and business
performance including the design of the Group's remuneration policies, key
drivers for directors' remuneration, bonus levels and performance targets;
• the Group's own assessment of the risks that irregularities may occur
either as a result of fraud or error that will be approved by the board on 5
October 2022;
• results of our enquiries of management and the audit committee about their
own identification and assessment of the risks of irregularities;
• any matters we identified having obtained and reviewed the Group's
documentation of their policies and procedures relating to:
o identifying, evaluating and complying with laws and regulations and whether
they were aware of any instances of non-compliance;
o detecting and responding to the risks of fraud and whether they have
knowledge of any actual, suspected or alleged fraud;
o the internal controls established to mitigate risks of fraud or
non-compliance with laws and regulations;
• the matters discussed among the audit engagement team and relevant
internal specialists, including tax and valuation specialists regarding how
and where fraud might occur in the financial statements and any potential
indicators of fraud.
As a result of these procedures, we considered the opportunities and
incentives that may exist within the organisation for fraud and identified the
greatest potential for fraud in the following areas:
- Key judgements in the valuation of investment property;
- Carrying value of inventory; and
- Revenue recognition.
In common with all audits under ISAs (UK), we are also required to perform
specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory framework that
the Group operates in, focusing on provisions of those laws and regulations
that had a direct effect on the determination of material amounts and
disclosures in the financial statements. The key laws and regulations we
considered in this context included the Companies (Guernsey) Law, 2008, the
Listing Rules and relevant tax legislation.
In addition, we considered provisions of other laws and regulations that do
not have a direct effect on the financial statements but compliance with which
may be fundamental to the Group's ability to operate or to avoid a material
penalty. These included the Company's regulatory licences under The Protection
of Investors (Bailiwick of Guernsey) Law, 2020.
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 and revenue
recognition 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;
· The valuation of the properties is determined using inputs or
assumptions which require significant judgements to be made and could be
subject to management bias. In addressing the risk of fraud in valuation of
properties, alongside our valuation specialists, we challenged the key inputs
and assumptions, comparing these to independent sources of information;
• performing analytical procedures to identify any unusual or unexpected
relationships that may indicate risks of material misstatement due to fraud;
• reading minutes of meetings of those charged with governance and reviewing
correspondence with Guernsey Financial Services Commission;
• In addressing the risk of fraud in revenue recognition, we performed
detailed substantive analytical procedures on rental and the timing of its
recognition. We also agreed rental terms and rent-free periods to tenancy
agreements;
• in addressing the risk of fraud through management override of controls,
testing the appropriateness of journal entries and other adjustments;
assessing whether the judgements made in making accounting estimates are
indicative of a potential bias; and evaluating the business rationale of any
significant transactions that are unusual or outside the normal course of
business.
We also communicated relevant identified laws and regulations and potential
fraud risks to all engagement team members including internal specialists, and
remained alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit.
Report on other legal and regulatory requirements
12. Corporate Governance Statement
The Listing Rules require us to review the directors' statement in relation to
going concern, longer-term viability and that part of the Corporate Governance
Statement relating to the Company's compliance with the provisions of the UK
Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each
of the following elements of the Corporate Governance Statement is materially
consistent with the financial statements and our knowledge obtained during the
audit:
• the directors' statement with regards to the appropriateness of adopting
the going concern basis of accounting and any material uncertainties
identified set out above;
• the directors' explanation as to its assessment of the Company's
prospects, the period this assessment covers and why the period is appropriate
set out above;
• the directors' statement on fair, balanced and understandable set out
above;
• the board's confirmation that it has carried out a robust assessment of
the emerging and principal risks set out above;
• the section of the annual report that describes the review of
effectiveness of risk management and internal control systems set out above;
and
• the section describing the work of the audit committee set out above.
13. Matters on which we are required to report by exception
13.1. Adequacy of explanations received and accounting records
Under the Companies (Guernsey) Law, 2008 we are required to report to you if,
in our opinion:
• we have not received all the information and explanations we require for
our audit; or
• proper accounting records have not been kept by the parent Company; or
• the financial statements are not in agreement with the accounting records.
We have nothing to report in respect of these matters.
14. Use of our report
This report is made solely to the Company's members, as a body, in accordance
with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has
been undertaken so that we might state to the Company's members those matters
we are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's members as a
body, for our audit work, for this report, or for the opinions we have formed.
David Becker (Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Recognised Auditor
St Peter Port, Guernsey
5 October 2022
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2022
2022 2021
Note US$'000 US$'000
ASSETS
Non-current assets
Investment property 6 181,520 199,629
Deposits with lenders 21 1,561 6,657
Trade and other receivables 16 111
183,097 206,397
Current assets
Inventories 7 34,635 34,924
Trade and other receivables 10 53 503
Deposits with lenders 21 1,895 175
Cash and cash equivalents 25 355 5,003
36,938 40,605
Total assets 220,035 247,002
EQUITY
Capital and reserves attributable to the Company's equity holders
Share capital 12 618 618
Retained earnings 62,349 81,440
Distributable reserves 15,791 15,791
Foreign currency translation reserve (1,182) 56
Total equity 77,576 97,905
LIABILITIES
Non-current liabilities
Deferred taxation provision 9 9,706 11,786
Taxation provision 9 579 705
Interest-bearing loans 8 104,852 114,624
115,137 127,115
Current liabilities
Trade and other payables 11 2,019 1,176
Interest-bearing loans 8 25,303 20,806
27,322 21,982
Total liabilities 142,459 149,097
Total equity and liabilities 220,035 247,002
Net Asset Value per share (US$) 18 1.25 1.58
Adjusted Net Asset Value per share (US$) 18 1.67 2.08
The accompanying notes are an integral part of these consolidated financial
statements.
The consolidated financial statements were approved by the Board of Directors
and authorised for issue on 5 October 2022.
Mark Huntley Carmen Ling
Director Director
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Year ended 30 June 2022
2022 2021
Note US$'000 US$'000
Income
Income on sales of inventories 7 1,511 9,863
Rental income 6 1,082 1,231
Other income 129 -
2,722 11,094
Expenses
Net loss from fair value adjustment on investment property 6 16,380 245
Cost of sales of inventories 7 521 4,787
Management fee 20 1,199 1,336
Realisation fee 20 23 217
Non-Executive Directors' fees 19 170 196
Auditors' remuneration: audit fees 23 131 134
Auditors' remuneration: other professional services 23 9 8
Property operating expenses 15 1,372 1,577
Sales and marketing expenses 16 115 717
General and administration expenses 13 615 552
Gain on foreign currency translation (298) (18)
(20,237) (9,751)
Operating (loss)/profit for the year (17,515) 1,343
Finance income and expenses
Bank loan interest 8 (2,985) (3,230)
Other financing costs 14 (431) (367)
(3,416) (3,597)
Loss for the year before tax (20,931) (2,254)
Taxation 9 1,840 (222)
Loss for the year after tax (19,091) (2,476)
Other Comprehensive Income
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations (1,238) (195)
Total comprehensive loss for the year (20,329) (2,671)
Loss attributable to:
Equity holders of the Company (19,091) (2,476)
Total comprehensive loss attributable to:
Equity holders of the Company (20,329) (2,671)
2022 2021
US$ US$
Basic and diluted loss per ordinary share attributable to the equity holders 18 (0.3087) (0.0400)
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 2022
Share Retained Distributable Foreign Total
capital earnings reserves currency
translation
reserve
Note US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought forward at 1 July 2021 12 618 81,440 15,791 56 97,905
Loss for the year - (19,091) - - (19,091)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations - - - (1,238) (1,238)
Total comprehensive loss for the year - (19,091) - (1,238) (20,329)
Balance carried forward at 30 June 2022 12 618 62,349 15,791 (1,182) 77,576
Share Retained Distributable Foreign Total
capital earnings reserves currency
translation
reserve
Note US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought forward at 1 July 2020 12 618 83,916 15,791 251 100,576
Loss for the year - (2,476) - - (2,476)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations - - - (195) (195)
Total comprehensive loss for the year - (2,476) - (195) (2,671)
Balance carried forward at 30 June 2021 12 618 81,440 15,791 56 97,905
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 30 June 2022
2022 2021
Note US$'000 US$'000
Net cash (used in)/generated from operating activities 17 (402) 5,952
Cash flows from investing activities
Capital expenditure on investment property 6 (288) (245)
Movement in pledged bank balances 21 3,376 (2,379)
Net cash generated from/(used in) investing activities 3,088 (2,624)
Cash flows from financing activities
Proceeds from bank borrowings 9,457 101,747
Repayment of bank borrowings (13,673) (111,699)
Interest and bank charges paid (3,013) (4,419)
Net cash used in financing activities (7,229) (14,371)
Net movement in cash and cash equivalents (4,543) (11,043)
Cash and cash equivalents at beginning of year 5,003 16,078
Effect of foreign exchange rate changes (105) (32)
Cash and cash equivalents at end of year 355 5,003
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 2022 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 5 October 2022.
1. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below. These policies have been
consistently applied to all years presented, unless otherwise stated.
Statement of compliance
The financial statements have been prepared in accordance with the IFRS, which
comprise standards and interpretations approved by the International
Accounting Standards Board, together with applicable legal and regulatory
requirements of Guernsey Law and the GFSC.
Basis of preparation
The consolidated financial statements have been prepared in accordance with
IFRS; applicable legal and regulatory requirements of Guernsey Law and under
the historical cost basis, except for financial assets and liabilities held at
fair value through profit or loss ("FVPL") and investment properties that have
been measured at fair value. All other assets and liabilities are carried at
amortised cost.
The preparation of financial statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group's accounting
policies. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the financial
statements, are disclosed in Note 3. The consolidated financial statements are
presented in US Dollars and all values are rounded to the nearest thousand
($'000), except where otherwise indicated.
Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position, are set out in the Manager's
Report. The financial position of the Group, its cash flows and its liquidity
position are described in the Capital Management section of the Manager's
Report.
The financial risk management objectives and policies of the Group and the
exposure of the Group to credit risk, market risk and liquidity risk are
discussed in Note 2 to the consolidated financial statements.
In accordance with provision 30 of the 2018 revision of the UK Corporate
Governance Code, (the "UK Code"), and as a fundamental principle of the
preparation of financial statements in accordance with IFRS, the Directors
have assessed as to whether the Company will continue in existence as a going
concern for a period of at least 12 months from signing of the financial
statements, which contemplates continuity of operations and the realisation of
assets and settlement of liabilities occurring in the ordinary course of
business.
The financial statements have been prepared on a going concern basis for the
reasons set out below and as the Directors, with recommendation from the Audit
and Risk Committee, have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the 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 31 October 2023. This period
represents the required period of 12 months from the date of signing of the
Annual Report.
As part of their assessment the Audit Committee highlighted the following key
considerations:
1. Whether the Group can refinance its loan facilities to discharge its
liabilities over the period to 31 October 2023
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 31 October 2023
As at 30 June 2022, the Group had major debt obligations to settle during the
going concern period being:
i) principal repayment for the Waterside loan facility of
approximately US$18.3 million due for settlement in September 2022;
ii) principal repayment for the Waterside loan facility of approximately
US$5.1 million due for settlement in March 2023;
iii) principal repayment for the Waterside and the Fountainside loan
facilities of approximately US$9.5 million due for settlement in September
2023;
iv) principal repayment for the Penha Heights Tai Fung Bank loan
facility of approximately US$1.6 million due for settlement in quarterly
instalments of US$318,600 commencing in September 2022; and
v) principal repayment for the Penha Heights BCM loan facility of
approximately US$1.3 million due for settlement in 3 quarterly payments of
US$446,045 each in March, June and September 2023.
The lender of the Waterside loan facility has agreed in principle to extend a
new tranche of US$6.4 million to partially refinance the US$18.3 million
repayment that was due for settlement in September 2022, with the remaining
US$11.9 million having been repaid from the sales proceeds of the Group's
recent divestments. 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.
The Manager is responsible for the relationship with the Group's lenders for
monitoring compliance with loan terms and covenants and reporting to the Board
on matters arising. Throughout the year ended 30 June 2022 and up to the date
of issue of the financial statements, the Group has continued to be in
compliance with covenant terms and has maintained ongoing dialogue with all
lenders who indicated their continued supports for the Group and the
underlying properties.
Given the largest instalment of the debt obligations that will become due for
settlement over the going concern period has already been settled in September
2022, and the fact that all banking facilities of the Group have all been
successfully renewed previously, with the loan-to-value (LTV) ratios of the
facilities maintained within the covenants required under the respective loan
agreements, as well as successful post year end unit sales, the Board is
confident that the Group would be able to arrange refinancing for debt
obligations that exceed funding available from divestments.
Notwithstanding the above, given that the refinancing of debt obligations that
will become due for settlement over the going concern period has not been
formally agreed or that proceeds from sales expected to settle these
obligations are not committed at the date of issue of the financial
statements, the Directors consider that there is a material uncertainty that
may cast significant doubt over the Group's and Company's ability to continue
as a going concern.
2. Extension of life of the Company
After the Ordinary Resolution was passed at the Annual General Meeting of the
Company on 22 December 2021 to extend the Fund's life until 31 December 2022,
the Directors assessed the impact of the continuation vote on the Fund's
ability to continue as a going concern. The Directors have also considered the
going concern assumption outside the primary going concern horizon.
In line with Article 38 of the Articles of Incorporation, the Company will put
forward a resolution for its continuation at the next annual general meeting
(intended to be held in December 2022). If any continuation resolution is not
passed, the Directors are required to formulate proposals to be put to Members
to reorganise, unitise, reconstruct or wind up the Company.
The Directors expect to receive continuation support from major shareholders
and note that 50% of shareholder support is required to ensure continuation.
The Board have ongoing communication with shareholders and the feedback
regarding the continuation vote is broadly positive. It is likely that returns
from the sale of properties would be significantly lower if the Fund was
forced to sell as a result of a failed continuation vote and it is therefore
commercially sensible for the Fund to continue in business.
Given that the continuation vote has not taken place at the date of issue of
the financial statements, the Directors consider that there is a material
uncertainty that may cast significant doubt over the Company's ability to
continue as a going concern.
Going Concern Conclusion
After careful consideration and based on the reasons outlined above, including
the ongoing dialogue with lenders and shareholders, whilst there is material
uncertainty related to going concern, the Board have a reasonable expectation
that the Company will continue in existence as a going concern for 12 months
from the date of signing the Annual report. They are therefore satisfied that
it is appropriate to adopt the going concern basis in preparing the financial
statements.
New and amended standards and interpretations applied
The following amendments to existing standards and interpretations were
effective for the year ended 30 June 2022 and therefore were applied in the
current year but they did not have a material impact on the Group:
- Amendments to IFRS 4, IFRS 7, IFRS 9, IFRS 16 and IAS 39 - IBOR reforms
- Amendments to IFRS 16 - COVID-19 rent concessions
New and amended standard and interpretation not applied
The following new and amended standards and interpretations in issue are
applicable to the Group but are not yet effective or have not been adopted by
the European Union and therefore, have not been adopted by the Group:
- Annual Improvements to IFRSs 2018-2020 (effective 1 January 2022)
- Amendment to IAS 37: Onerous Contracts: Cost of fulfilling a Contract
(effective 1 January 2022)
- IFRS 17: Insurance Contracts (effective 1 January 2023)
- Amendments to IAS 1: Classification of Liabilities as Current or
Non-current (effective 1 January 2023)
IFRS 17 Insurance Contracts
IFRS 17 establishes the principles for the recognition, measurement,
presentation and disclosure of insurance contracts within the scope of the
standard. The objective of IFRS 17 is to ensure that an entity provide
relevant information that faithfully represents those contracts. This
information gives a basis for users of financial statements to assess the
effect that insurance contracts have on the entity's financial position,
financial performance and cash flows.
The Group has considered the IFRS standard that has been issued, but is not
yet effective. This standard will not have a material effect on the Group as
the Group does not have any material insurance contracts or write any
insurance contracts.
Consolidation
The consolidated financial statements incorporate the financial statements of
the Company and all SPVs controlled by the Company and its subsidiaries.
Control is achieved when the Group is exposed, or has rights, to variable
returns from its involvement with the investee and has the ability to affect
those returns through its power over the investee. The financial statements of
subsidiaries are included in the consolidated financial statements from the
date control commences until the date control ceases. Certain of the Company's
subsidiaries have non-coterminous year-ends. These companies are consolidated
on the basis of actual transactions occurring within the financial year.
All intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Segment reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns different from
those of other business segments. A geographical segment is engaged in
providing products or services within a particular economic environment that
are subject to risks and returns different from those segments operating in
other economic environments.
The Directors are of the opinion that the Group is engaged in a single segment
of business, being property investment and related business. This segment
includes residential properties in Macau. Please refer to Note 5 for segment
reporting.
Foreign currency translation
a) Presentation currency
The consolidated financial statements are shown in US Dollars ("US$") which is
the Group's presentation currency.
b) Transactions and balances
Foreign currency transactions are recorded in the respective functional
currencies of group entities, Macanese Patacas and Hong Kong Dollars (the
"functional currencies"), using the exchange rates prevailing at the date of
the transaction. Foreign exchange gains and losses - resulting from the
settlement of such transactions and from the translation at year-end exchange
rates of monetary assets and liabilities denominated in foreign currencies are
recognised in the Consolidated Statement of Comprehensive Income.
Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates at the date of the initial
transaction. Non-monetary items measured at fair value in a foreign currency
are translated using the exchange rates at the date when the fair value is
determined. The gain or loss arising on translation of non-monetary items
measured at fair value is treated in line with the recognition of gain or loss
on change in fair value of the item (i.e. translation differences on items
whose fair value gain or loss is recognised in other comprehensive income or
profit or loss are also recognised in other comprehensive income or profit or
loss).
c) Group companies
The results and financial position of all the Group entities that have a
functional currency different from the presentation currency are translated
into the presentation currency as follows:
i) assets and liabilities for each statement of financial position are
translated at the closing rate at the date of that statement of financial
position;
ii) income and expenses for each statement of comprehensive income are
translated at average exchange rates;
iii) all resulting exchange differences are recognised as a separate component
of other comprehensive income; and
iv) on disposal of a foreign operation, the component of other comprehensive
income relating to that particular foreign operation is recognised in profit
or loss.
Foreign currency translation reserve
Foreign currency differences arising on translation of foreign operations into
the Group's presentation currency are recognised in other comprehensive income
and presented in the foreign currency translation reserve in equity.
Investment property
Property that is held for long-term rental yields or for capital appreciation
or both, and that is not occupied by companies in the consolidated Group, is
classified as investment property. Investment property also includes property
that is being constructed or developed for future use as investment property.
Investment property is measured initially at its cost, including related
transaction costs.
Subsequent expenditure is capitalised to the asset's carrying amount only when
it is probable that future economic benefits associated with the item will
flow to the Group and the cost of the item can be measured reliably. All other
repairs and maintenance costs are charged to the Consolidated Statement of
Comprehensive Income during the financial period in which they are incurred.
After initial recognition, investment property is carried at fair value.
The Group must be able to access the principal or the most advantageous market
at the measurement date. The fair value of an asset or a liability is measured
using the assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their economic
best interest.
There are no contractual obligations to purchase, construct or develop
investment property for repairs, maintenance or enhancements.
Fair value measurements
The Group measures certain financial instruments, and non-financial assets
such as investment property, at fair value at the end of each reporting
period.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. The fair value measurement is based on the presumption
that the transaction to sell the asset or transfer the liability takes place
either:
• in the principal market for the asset or liability; or
• in the absence of a principal market, in the most advantageous market
for the asset or liability.
A fair value measurement of a non-financial asset takes into account a market
participant's ability to generate economic benefits by using the asset in its
highest and best use, or by selling it to another market participant that
would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data are available to measure fair value, maximising
the use of relevant observable inputs and minimising the use of unobservable
inputs significant to the fair value measurement as a whole:
Level 1 - inputs that reflect unadjusted quoted prices in active markets
for identical assets or liabilities that the Group has the ability to access
at the measurement date;
Level 2 - inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly (that is, prices) or
indirectly (that is, derived from prices); and
Level 3 - inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs).
For assets and liabilities that are recognised in the financial statements on
a recurring basis, the Group determines whether transfers have occurred
between levels in the hierarchy by re-assessing categorisation (based on the
lowest level input that is significant to the fair value measurement as a
whole) at the end of each reporting period.
Fair value of investment property
Fair value is based on active market prices, adjusted, if necessary, for any
difference in the nature, location or condition of the specific investment
property. If this information is not available, the Group uses alternative
valuation methods such as recent prices on less active markets or discounted
cash flow projections. Valuations are prepared semi-annually by Savills
(Macau) Limited ("Savills"), whose valuers hold recognised and relevant
professional qualifications and have recent experience in the location and
category of the investment properties being valued. Investment property that
is being redeveloped for continuing use as investment property continues to be
measured at fair value, if the fair value is considered to be reliably
measurable. Changes in fair values are recorded in the Consolidated Statement
of Comprehensive Income.
Inventories
Properties and land that are being held or developed for future sale are
classified as inventories. In the opinion of the Board, inventories are held
with a view to short term sale in the ordinary course of business. They are
individually carried at the lower of cost and net realisable value ("NRV").
NRV is the estimated selling price in the ordinary course of business less
costs to complete redevelopment and selling expenses. Cost is the acquisition
cost together with subsequent capital expenditure incurred, including
capitalised interest where relevant.
Disposals
Disposals are recognised when the risks and rewards of ownership of an asset
transfer to the purchaser.
Borrowing costs
Borrowing costs incurred for the purpose of acquiring, constructing or
producing a qualifying asset, such as investment property or inventory, are
capitalised as part of the cost. Borrowing costs are capitalised while the
acquisition or construction is actively underway, and cease once the asset is
substantially complete, or suspended if the development is suspended. All
other borrowing costs are expensed in the period in which they occur.
Borrowing costs consist of interest and other costs that an entity incurs in
connection with the borrowing of funds. The interest capitalised is calculated
using the Group's weighted average cost of borrowing after adjusting for
borrowing associated with specific developments. Where borrowings are
associated with specific developments, the amount capitalised is the gross
interest incurred on those borrowings less any investment income arising from
their temporary investment.
Impairment
Financial assets
The Group holds only trade and other receivables with no financing component
and which have maturities of less than 12 months at amortised cost and
deposits with lenders which represent restricted cash in relation to
borrowing. The liquidity of this deposit with lenders follow the maturity of
the borrowings. As such, the Group has chosen to apply an approach similar to
the simplified approach for Expected Credit Losses (ECL) under IFRS 9 to all
its trade and other receivables. Therefore, the Group does not track changes
in credit risk, but instead, recognises a loss allowance based on lifetime
ECLs at each reporting date.
The Group's approach to ECLs reflects a probability-weighted outcome, the time
value of money and reasonable and supportable information that is available
without undue cost or effort at the reporting date about past events, current
conditions and forecasts of future economic conditions.
The Group uses the provision matrix as a practical expedient to measuring ECLs
on trade and other receivables and deposits with lenders, based on days past
due for groupings of receivables with similar loss patterns. Receivables are
grouped based on their nature. The provision matrix is based on historical
observed loss rates over the expected life of the receivables and is adjusted
for forward-looking estimates.
Non-financial assets
The carrying amounts of the Group's non-financial assets, other than
investment property are reviewed at each reporting date to determine whether
there is any indication of impairment. If any such indication exists, then the
asset's recoverable amount is estimated. The recoverable amount of an asset or
cash-generating unit is the greater of its value in use and its fair value
less costs to sell.
Leases
Leases in which the Group does not transfer substantially all the risks and
benefits of ownership to a lessee are classified as operating leases. Initial
direct costs incurred in negotiating an operating lease are added to the
carrying amount of the leased asset and recognised over the term of the lease
on the same basis as rental income. Contingent rents are recognised as revenue
in the period in which they are earned. The Group regularly reviews and
assesses the risk associated with the leases of the underlying assets.
Financial instruments
i) Classification
Financial assets
The Group classifies its financial assets as subsequently measured at
amortised cost or measured at fair value through profit or loss on the basis
of both:
• The entity's business model for managing the financial assets
• The contractual cash flow characteristics of the financial assets
Financial assets measured at amortised cost
Deposits with lenders and trade and other receivables are measured at
amortised cost if it is held within a business model whose objective is to
hold financial assets in order to collect contractual cash flows and its
contractual terms give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
Financial liabilities
Financial liabilities measured at amortised cost
This category includes all financial liabilities, other than those measured at
FVPL. The Group includes in this category interest-bearing loans and trade and
other payables.
ii) Recognition
The Group recognises a financial asset or a financial liability when it
becomes a party to the contractual provisions of the instrument.
Purchases or sales of financial assets that require deliver of assets within
the time frame generally established by regulation or convention in the market
place (regular way trades) are recognised on the trade date, i.e., the date
that the Group commits to purchase or sell the assets.
iii) Initial measurement
Financial assets and liabilities (other than those classified as at FVPL) are
measured initially at their fair value plus any directly attributable
incremental costs of acquisition or issue.
iv) Subsequent measurement
After initial measurement, the Company's deposits with lenders and trade and
other receivables are measured at amortised cost using the effective interest
method less any allowance for impairment. Gains and losses are recognised in
profit or loss when the deposits with lenders and trade and other receivables
are derecognised or impaired, as well as through the amortisation process.
Financial liabilities, other than those classified as at FVPL, are measured at
amortised cost using the effective interest method. Gains and losses are
recognised in profit or loss when the liabilities are derecognised, as well as
through the amortisation process.
The effective interest method is a method of calculating the amortised cost of
a financial asset or a financial liability and of allocating and recognising
the interest income or interest expense in profit or loss over the relevant
period. The effective interest rate is the rate that exactly discounts
estimated future cash payments or receipts through the expected life of the
financial asset or financial liability to the gross carrying amount of the
financial asset or to the amortised cost of the financial liability. When
calculating the effective interest rate, the Group estimates cash flows
considering all contractual terms of the financial instruments, but does not
consider ECL. The calculation includes all fees paid or received between
parties to the contract that are an integral part of the effective interest
rate, transaction costs and all other premiums or discounts.
Deposits with lenders
Deposits with lenders comprise cash held at bank that is pledged for loan
covenants and are recognised as current and non-current assets.
Cash and cash equivalents
Cash and cash equivalents in the Consolidated Statement of Financial Position
comprise cash at bank and on hand and demand deposits with an original
maturity of three months or less and other short-term, highly-liquid
investments that are readily convertible to a known amount of cash and are
subject to an insignificant risk of changes in value. For the purpose of the
Consolidated Statement of Cash Flows, cash and cash equivalents consist of
cash and cash equivalents as defined above. Deposits with lenders are excluded
and not considered cash and cash equivalents.
Provisions
Provisions are recognised when the Group has a present legal or constructive
obligation as a result of past events, it is probable that an outflow of
resources will be required to settle the obligation, and the amount can be
reliably estimated.
Share capital
Shares are classified as equity when there is no obligation to transfer cash
or other assets. Shares issued by the Company are recorded based upon the
proceeds received, net of incremental costs directly attributable to the issue
of new shares.
Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable, and includes rental income and income from property trading.
Revenue from sales of completed properties and properties under development is
within the scope of IFRS 15 and revenue from rental income is within the scope
of IFRS 16. There are no assumptions or judgements involved in revenue
recognition.
The Group earns revenue from acting as lessor in operating leases which do not
transfer substantially all of the risks and rewards incidental to ownership of
an investment property. No subleases are currently held.
Rental income
Rental income from operating leases is recognised as income on a straight-line
basis over the lease term. When the Group provides incentives to its
customers, the cost of incentives is recognised over the lease term, on a
straight-line basis, as a reduction of rental income.
For investment property held primarily to earn rental income, the Group enters
as a lessor into lease agreements that fall within scope of IFRS 16.
Sale of completed property
Revenue from sale of completed properties is recognised when effective control
of ownership of the properties is transferred to the buyer, which is on
unconditional exchange of contracts and change of title on the property. Where
the sales contract stipulates payments that cross over reporting period,
revenue is recognised over the period of the contract by reference to the
progress towards complete satisfaction of each performance obligation. This is
determined based on the actual cost incurred to date to estimated total cost
for each contract. The proceeds from disposal are recognised in income and net
assets disposed of are recognised in cost of sales in expenses.
Sale of property under development
Where property is under development and an agreement has been reached to sell
such property when construction is complete, and where the Directors determine
the pre-sale to constitute the sale of a completed property, revenue is
recognised when the significant risks and rewards of ownership of the real
estate have been transferred to the buyer, which is on the unconditional
exchange of contracts and change of title on the property. Where the sales
contract stipulates payments that cross over reporting periods, revenue is
recognised as the satisfaction of performance obligations is completed.
Sale of subsidiary
Revenue from the sale of a subsidiary is recognised when effective control of
ownership of the subsidiary is transferred to the buyer. The sale of the
subsidiary is regarded as a loss of control under IFRS 10 with all assets and
liabilities of the subsidiary derecognised at the date control is lost, the
fair value of the consideration received from the transaction compared to the
net assets of the subsidiary and the resulting net income or expense of the
transaction recorded in the income statement.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs of
the loan to the extent that it is probable that some or all of the facility
will be drawn down and are subsequently measured at amortised cost using the
effective interest method.
Borrowings are classified as current liabilities, unless the Group has an
unconditional right to defer settlement of the liability for at least 12
months after the date of the Consolidated Statement of Financial Position.
Offsetting
Financial assets and financial liabilities are offset and the net amount is
reported in the statement of financial position if there is a currently
enforceable legal right to offset the recognised amounts and there is an
intention to settle on a net basis, to realise the assets and to settle the
liabilities simultaneously.
Finance income and expenses
Interest income is recognised using the effective interest rate method in the
Consolidated Statement of Comprehensive Income.
Finance costs comprise interest expense on borrowings. Interest expense is
recognised using the effective interest rate method in the Consolidated
Statement of Comprehensive Income.
Distributable reserves
Distributable reserves may be legally paid out in the form of a dividend.
Payments to shareholders from reserves can be seen as a distribution of
accumulated profit.
Taxes
Current income tax
Current income tax assets and liabilities are measured at the amount expected
to be recovered from or paid to taxation authorities. The tax rates and tax
laws used to compute the amount are those that are enacted or substantively
enacted by the reporting date. Current income tax relating to items recognised
directly in equity is recognised in equity and not in the Consolidated
Statement of Comprehensive Income. Management periodically evaluates positions
taken in tax returns with respect to situations in which applicable tax
regulations are subject to interpretation and establishes provisions where
appropriate.
Deferred income tax
Deferred income tax is provided using the liability method on all temporary
differences at the reporting date between the tax basis of assets and
liabilities and their carrying amounts for financial reporting purposes,
except where the timing of the reversal of the temporary differences can be
controlled by the Group and it is probable that the temporary differences will
not reverse in the foreseeable future.
Deferred income tax assets are recognised only to the extent that it is
probable that taxable profit will be available against which deductible
temporary differences, carried forward tax credits or tax losses can be
utilised.
Deferred income tax assets and liabilities are measured at the tax rates that
are expected to apply to the year when the asset is realised or the liability
is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the reporting date. Deferred income tax relating to
items recognised directly in equity is recognised in equity and not in the
Consolidated Statement of Comprehensive Income.
As a result of the discussion of the IFRS Interpretations Committee in its
July 2014 meeting relating to deferred taxation for a single asset held by a
corporate wrapper, the Group has recognised the deferred tax liability for the
taxable temporary timing difference relating to the investment property
carried at fair value.
2. Financial risk management, policies and objectives
The Group's activities expose it to a variety of financial risks: market risk
(including foreign exchange risk, cash flow and fair value interest rate
risk), credit risk and liquidity risk.
The Board of Directors provides written principles for overall risk
management, as well as written policies covering specific areas, such as
foreign exchange risk, interest rate risk and liquidity risk.
Market risk
Market risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate as a result of changes in market prices,
whether caused by factors specific to an individual financial instrument or
all factors affecting all financial instruments traded in the market including
foreign exchange risk, equity price risk and cash flow and fair value interest
rate risk as detailed below.
The Group's market risk is managed by the Manager in accordance with policies
and procedures in place. The Group's overall market position is monitored on a
quarterly basis by the Board of Directors.
Sensitivities to market risks included below are based on a change in one
factor while holding all other factors constant. In practice, this is unlikely
to occur and changes in some of the factors may be correlated, for example,
changes in interest rates and changes in foreign currency rates.
a) Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk
arising from various currency exposures. Foreign exchange risk arises from
future commercial transactions, recognised monetary assets and liabilities and
net investments in foreign operations. The Group's policy is not to enter into
any currency hedging transactions. The tables below summarise the Group's
exposure to foreign currency risk as at 30 June 2022 and 30 June 2021. The
Group's financial assets and liabilities are included in the table,
categorised by their currency at their carrying amount in US$'000. In the
current economic climate, management's assessment of a reasonable possible
change in foreign exchange rates would be up to a 1% increase/decrease for
Hong Kong Dollar ("HK$")/US$, due to the HK$ being pegged to the US$, and up
to a 10% increase/decrease for all other currencies.
The table below presents financial assets and liabilities denominated in
foreign currencies held by the Group as at 30 June 2022 and 30 June 2021, and
can be used to monitor foreign currency risk as at that date.
At 30 June 2022, if Sterling weakened/strengthened by 10% against US$ with all
other variables held constant, the loss for the year would have been US$21,000
lower/higher (2021: US$19,000 lower/higher). The HK$ 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$7.85 per dollar so no downward risk while the currency
peg remains in place. The foreign exchange risk is considered minimal and as
such the Company does not actively manage against this risk. If the HK$
weakened/strengthened by 1% against the US$ with all other variables held
constant, the net assets and movement in foreign currency translation reserve
would have been US$1,282,000 higher/lower (2021: US$1,252,000 higher/lower).
Any movement would have no other effect on the remaining equity components of
the Group. There are no material transactions that would have effect on the
profit/loss for the year.
The Macanese Patacas ("MOP") is fixed to the HK$ 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 Total
currencies
As at 30 June 2022 US$'000 US$'000 US$'000 US$'000 US$'000
Trade and other receivables (excluding prepayments) - - - 16 16
Cash and cash equivalents - 17 333 5 355
Deposits with lenders - - 3,456 - 3,456
Total financial assets - 17 3,789 21 3,827
Trade and other payables 121 228 1,004 666 2,019
Interest-bearing loans - - 130,992 - 130,992
Total financial liabilities 121 228 131,996 666 133,011
Net financial position (121) (211) (128,207) (645) (129,184)
US$ £ HK$ Other Total
currencies
As at 30 June 2021 US$'000 US$'000 US$'000 US$'000 US$'000
Trade and other receivables (excluding prepayments) - - - 111 111
Cash and cash equivalents - 35 4,825 143 5,003
Deposits with lenders - - 6,832 - 6,832
Total financial assets - 35 11,657 254 11,946
Trade and other payables 48 229 243 656 1,176
Interest-bearing loans - - 136,642 - 136,642
Total financial liabilities 48 229 136,885 656 137,818
Net financial position (48) (194) (125,228) (402) (125,872)
b) Cash flow and fair value interest rate risk
The Group's interest rate risk is managed by the Manager, in accordance with
policies and procedures in place and can be mitigated through the use of
interest rate swaps. The Manager has assessed the interest rate risk as not
significant and therefore there were no interest rate swaps held during the
current or prior years. The Group's overall positions and exposures are
monitored on a quarterly basis by the Board of Directors.
If interest rates had been 1% higher/lower and all other variables were held
constant, the Group's loss for the year would have increased/decreased by
US$1,272,000 (2021: loss for the year increased/decreased by US$1,248,000)
(based on the interest bearing net financial liability per the table below).
This is mainly due to the Group's exposure to interest-bearing loans. There
was no significant movement of interest rates between 2021 and 2022 so a 1%
movement is reasonable.
The following table details the Group's exposure to interest rate risks:
As at 30 June 2022 Interest Non-interest Total
bearing bearing
US$'000 US$'000 US$'000
Trade and other receivables (excluding prepayments) - 16 16
Cash and cash equivalents 355 - 355
Deposits with lenders 3,456 - 3,456
Total financial assets 3,811 16 3,827
Trade and other payables - 2,019 2,019
Interest-bearing loans 130,992 - 130,992
Total financial liabilities 130,992 2,019 133,011
As at 30 June 2021 Interest Non-interest Total
bearing bearing
US$'000 US$'000 US$'000
Trade and other receivables (excluding prepayments) - 111 111
Cash and cash equivalents 5,003 - 5,003
Deposits with lenders 6,832 - 6,832
Total financial assets 11,835 111 11,946
Trade and other payables - 1,176 1,176
Interest-bearing loans 136,642 - 136,642
Total financial liabilities 136,642 1,176 137,818
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will
fail to discharge an obligation or commitment that it has entered into with
the Group. The Group is exposed to credit risks from both its leasing
activities and financing activities, including deposits with banks and
financial institutions.
The Group's main exposure to credit risk is its cash balances with banks. This
risk is mitigated through using banks with a high credit rating. The Group's
cash and cash equivalents and deposits with lenders are all held with
investment grade banks and the majority are held with a bank with a credit
rating of A or higher.
The Group's cash and cash equivalents have the following ratings from Fitch
and Moody's Ratings:
2022 2021
Credit Rating US$'000 US$'000
AA- 218 1,120
A+ 2 3,333
A 110 520
A- - 16
BBB+ 25 14
355 5,003
The Group's deposits with lenders with the following ratings from Fitch and
Moody's Ratings:
2022 2021
Credit Rating US$'000 US$'000
AA- 3,329 6,657
A - 175
BBB+ 127 -
3,456 6,832
The Group is exposed to loss of rental income and increase in costs, such as
legal fees, if tenants fail to meet their payment obligations under their
leases. The Group seeks to mitigate default risk by diversifying its tenant
base and requiring deposits or guarantees from banks or parent companies,
where there is a perceived credit risk or in accordance with prevailing market
practice.
All of the Group's major tenants have met their rental requirements within the
terms of arrangement and no material receivables which are past due have been
impaired.
The maximum exposure to credit risk at the reporting date is the carrying
value of each class of financial asset.
The Group's financial assets subject to the ECL model within IFRS 9 are cash
and cash equivalents, deposits with lenders and trade and other receivables.
There is not considered to be any concentration of credit risk within these
assets. The amount of ECL on cash and cash equivalents and deposit with
lenders are considered to be US$nil considering the credit quality as
indicated on the credit risk tables.
None of the Group's financial assets are past their due date as at the current
or prior year end.
Liquidity risk
The Group adopts a prudent approach to liquidity management and maintains
sufficient cash reserves and borrowings to meet its obligations. The Group is
able to obtain funding through credit facilities to meet its current
liabilities and property development expenditure in addition to cash currently
held.
The lender of the Waterside loan facility has agreed in principle to extend a
new tranche of US$6.4 million to partially refinance the US$18.3 million
repayment that was due for settlement in September 2022, with the remaining
US$11.9 million having been repaid from the sales proceeds of the Group's
recent divestments. 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.
The Manager is responsible for the relationship with the Group's lenders for
monitoring compliance with loan terms and covenants and reporting to the Board
on matters arising. Throughout the year ended 30 June 2022 and up to the date
of issue of the financial statements, the Group has continued to be in
compliance with covenant terms and has maintained ongoing dialogue with all
lenders who indicated their continued supports for the Group and the
underlying properties.
Given the largest instalment of the debt obligations that will become due for
settlement over the going concern period has already been settled in September
2022, and 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 arrange
refinancing for debt obligations that exceed funding available from
divestments.
Deposits amounting to US$3,456,000 (2021: US$6,832,000) have been pledged to
secure banking facilities, of which US$1,561,000 (2021: US$6,657,000) relates
to long-term banking facilities, and are, therefore, classified as non-current
assets. Pledged bank balances represent deposits pledged to the banks to
secure the banking facilities granted to the Group.
As at 30 June 2022, the Group has term loan facilities with Hang Seng Bank,
Banco Tai Fung and Banco Comercial de Macau, S. A. ("BCM Bank") for its
investments in The Waterside, The Fountainside, and Penha Heights. The Group's
liquidity position is monitored by the Manager and is reviewed quarterly by
the Board. Please refer to Note 8 for details of the facilities.
The table below analyses the Group's financial assets and liabilities into
relevant maturity profiles based on the remaining period at the Consolidated
Statement of Financial Position date to the contractual maturity date. The
amounts disclosed in the table are the contractual undiscounted cash flows
(including interest payable).
As at 30 June 2022 On Less than 3 months 3 to 12 months 1 to 2 years 2 to 5 years Over 5 years Total
demand
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Trade and other receivables (excluding prepayments) - - - 16 - - 16
Cash and cash equivalents 355 - - - - - 355
Deposits with lenders - 1,895 - 127 1,434 - 3,456
Total financial assets 355 1,895 - 143 1,434 - 3,827
Trade and other payables - 2,019 - - - - 2,019
Interest-bearing loans - 19,502 9,052 34,239 72,823 2,635 138,251
Total financial liabilities - 21,521 9,052 34,239 72,823 2,635 140,270
Net financial position 355 (19,626) (9,052) (34,096) (71,389) (2,635) (136,443)
As at 30 June 2021 On Less than 3 months 3 to 12 months 1 to 2 years 2 to 5 years Over 5 years Total
demand
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Trade and other receivables - - - 111 - - 111
(excluding prepayments)
Cash and cash equivalents 5,003 - - - - - 5,003
Deposits with lenders - - 175 - 6,657 - 6,832
Total financial assets 5,003 - 175 111 6,657 - 11,946
Trade and other payables - 1,176 - - - - 1,176
Interest-bearing loans - 1,143 22,927 27,179 92,802 - 144,051
Total financial liabilities - 2,319 22,927 27,179 92,802 - 145,227
Net financial position 5,003 (2,319) (22,752) (27,068) (86,145) - (133,281)
The table below analyses the Group's changes in financial liabilities arising
from financing activities.
1 July Cashflows Foreign Other Profit 30 June
2021 Exchange and Loss 2022
Movement
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Current interest-bearing loans 21,225 (21,001) (224) 25,616 - 25,616
Non-current interest-bearing loans 115,417 16,785 (1,210) (25,616) - 105,376
Loan arrangement fees (1,212) (51) - - 426 (837)
Net interest-bearing loans 135,430 (4,267) (1,434) - 426 130,155
Interest payable 56 (2,962) - - 2,990 84
Total 135,486 (7,229) (1,434) - 3,416 130,239
1 July 2020 Cashflows Foreign Other Profit and 30 June 2021
Exchange Loss
Movement
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Current interest-bearing loans 80,157 (60,823) (143) 2,034 - 21,225
Non-current interest-bearing loans 66,700 50,871 (120) (2,034) - 115,417
Loan arrangement fees (461) (1,115) - - 364 (1,212)
Net interest-bearing loans 146,396 (11,067) (263) - 364 135,430
Interest payable 127 (3,304) - - 3,233 56
Total 146,523 (14,371) (263) - 3,597 135,486
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 2022, there were no borrowings other than the
Group's loan facilities in place which are classified as interest bearing
loans in the Consolidated Statement of Financial Position.
Discount management policy
The Board closely monitors the discount to Adjusted Net Asset Value (adjusted
NAV) at which the Company's shares trade and has sought shareholders' approval
of powers to buy shares in the market to moderate the volatility of the
discount. These powers will be sought again at the forthcoming Annual General
Meeting. The Board is also very mindful of the working capital operating needs
of the Company when considering buying back its shares in the market.
During the year ended 30 June 2022, the Company did not purchase any ordinary
shares under the discount management policy.
Shares which are bought back by the Company may either be cancelled or held in
treasury and subsequently re-issued. Pursuant to the Companies (Guernsey) Law,
the number of shares of any class held as treasury shares must not, at any
time, exceed 10% of the total number of issued shares of that class at that
time. The authority to buy back up to 14.99% per annum of shares in issue is
renewed at each Annual General Meeting of the Company by special resolution.
The Board remains committed to an active discount management policy.
3. Critical accounting estimates, assumptions and judgements
The Directors' and Investment Adviser (the "management") make estimates and
assumptions concerning the future. The resulting accounting estimates will, by
definition, seldom equal the actual results. 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 discount rates applicable to these
estimates. The valuation has been made on the assumption that the owner sells
the properties in the open market without a deferred term contract, leaseback,
joint venture, management agreement or any similar arrangement, which could
serve to affect the value of the properties. The Board and management have
reviewed the valuations and are in agreement with the valuer's judgement. This
is an accounting estimate and assumption.
b) Inventory is stated at the lower of cost and NRV. NRV for completed
inventory property is assessed with reference to market conditions and prices
existing at the reporting date, and is determined by the Group, having taken
suitable external advice and in the light of recent market transactions. NRV
in respect of inventory property under construction (see Note 7), is assessed
with reference to market prices at the reporting date for similar completed
property, less estimated costs to complete construction and less an estimate
of the time value of money to the date of completion. This is an accounting
estimate.
c) Significant management judgement is required to determine the amount of
deferred tax liabilities that can be recognised, based upon the likely timing
and the level of future taxable temporary differences, together with future
tax planning strategies. This is an accounting judgement.
The Group did not make any critical accounting judgements, other than as
described above, in the year ended 30 June 2022 or the year ended 30 June
2021.
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 2022 and 30
June 2021 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(2) 100% Macau Gorey Hills International Limited(1) 100% BVI
The Fountainside Company Limited(2) 100% Macau Hillsleigh Holdings Limited(1) 100% BVI
Castelo Branco Companhia Limitada(2) 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
Bream 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$1,082,000 for the year ended 30 June 2022 (2021: US$1,231,000).
6. Investment property
2022 2021
US$'000 US$'000
At the beginning of the year 199,629 199,988
Capital expenditure on property 288 245
Fair value adjustment (16,380) (245)
Exchange difference (2,017) (359)
Balance at end of the year 181,520 199,629
Valuation losses (fair value adjustment) from investment property are
recognised in profit and loss for the year. These are attributable to changes
in unrealised losses relating to completed investment properties held at the
end of the reporting period.
The valuation process is initiated by the Investment Adviser who appoints a
suitably qualified valuer to conduct the valuation of the investment property.
The results are overseen by the Investment Adviser. Once satisfied with the
valuations based on their expectations, the Investment Adviser reports the
results to the Board. The Board reviews the latest valuations based on its
knowledge of the property market and compares these to previous valuations.
The Group's investment properties were revalued at 30 June 2022 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.
Capital expenditure on property during the year relates to fit-out costs for
The Waterside.
Rental income arising from The Waterside of US$1,079,000 (2021: US$1,230,000)
was received during the year. Direct operating expenses of US$866,000 (2021:
US$956,000) arising from rented units were incurred during the year. Direct
operating expenses during the year arising from vacant units totalled
US$369,000 (2021: US$395,000).
There are no disposals of investment property during the year.
The following tables show the most appropriate presentation of the inputs used
in valuing the investment property which is classified as Level 3 in the fair
value hierarchy:
Property Carrying amount/fair value as at 30 Jun 2022 Valuation Input Unobservable Other key
information US$'000 technique and observable information
inputs used in
determination
of fair values
Name The Waterside 181,520 Term and Reversion Analysis Term rent (inclusive of management fee and furniture) HK$17.5 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$13.16 psf
Reversionary 1.55%
yield
Property Carrying amount/ Valuation Input Unobservable Other key
information fair value as at 30 Jun 2021 technique and observable information
US$'000 inputs used in
determination
of fair values
Name The Waterside 199,629 Term and Term rent HK$17.8 psf Age of building
Reversion (inclusive of management fee
and furniture)
Analysis
Type Residential/Completed apartments Term yield 1.4%-2.2% Remaining useful
(exclusive of management fee life of building
and furniture)
Location One Central Reversionary rent (exclusive of management fee HK$15.6 psf
Tower 6 Macau and furniture)
Reversionary 1.7%
yield
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$8.3 million (2021: increase or decrease by US$10 million).
If the term or revisionary yield increased/decreased by 5% (and all other
assumptions remained the same), the fair value of The Waterside would decrease
by US$7.9 million or increase by US$8.8 million (2021: decrease or increase by
US$10 million).
The Waterside is currently valued at its highest and best use. There is no
extra evidence available to suggest that it has an alternative use that would
provide a greater fair value measurement.
There have been no transfers between levels during the period or a change in
valuation technique since the last period.
7. Inventories
2022 2021
US$'000 US$'000
Cost
Balance brought forward 34,924 39,631
Additions 595 146
Disposals (518) (4,782)
Exchange difference (366) (71)
Balance carried forward 34,635 34,924
One residential unit of The Fountainside (2021: Four residential units and one
car parking space of The Fountainside and one individual unit of One Central
Residences) was sold during the year for a total consideration of US$1.5
million (HK$11.8 million) (2021: US$9.9 million (HK$76.5 million)) against a
total cost of US$0.6 million (HK$4.4 million) (2021: US$4.8 million (HK$37.1
million)) which resulted in a net profit of US$0.9 million (HK$7.4 million)
(2021: US$5.1 million (HK$39.4 million)) after all associated fees and
transaction costs.
Additions include capital expenditure, development costs and capitalisation of
financing costs.
Under IFRS, inventories are valued at the lower of cost and net realisable
value ("NRV"). The carrying amounts for inventories as at 30 June 2022 amounts
to US$34,635,000 (2021: US$34,924,000). The market value as at 30 June 2022 as
determined by the independent, professionally-qualified valuer, Savills, was
US$60,479,000 (2021: US$65,772,000). The NRV as at 30 June 2022 was
US$58,661,000 (2021: US$65,114,000).
If the estimated unit rate increased/decreased by 5% (and all other
assumptions remained the same), the fair value of the properties would
increase by US$3.0 million or decrease by US$2.8 million (2021: increase by
US$3.1 million or decrease by US$3.2 million).
8. Interest-bearing loans
2022 2021
US$'000 US$'000
Bank loans - Secured
- Current portion 25,303 20,806
- Non-current portion 104,852 114,624
130,155 135,430
There are interest-bearing loans with three banks:
Hang Seng Bank
The Group has a term loan facility with Hang Seng Bank for The Waterside.
In September 2020, the Group executed a HK$540 million (US$69.7 million)
five-year term loan facility (Tranche 7) to refinance previous tranches which
were due for settlement in September 2020. In March 2021, the Group executed a
HK$250 million (US$32.2 million) four-year term facility (Tranche 8) to
refinance previous tranches which were due for settlement in March 2021.
As at 30 June 2022, three tranches remained outstanding. Tranche 6 had an
outstanding balance of HK$108 million (US$13.8 million) (2021: HK$108 million
(US$13.9 million)); Tranche 7 had an outstanding balance of HK$512 million
(US$65.2 million) (2021: HK$515 million (US$66.4 million)); Tranche 8 had an
outstanding balance of HK$225 million (US$28.7 million) (2021: HK$250 million
(US$32.2 million)).
The interest rates applicable to Tranche 6 of the term loan is 1.9% per annum
over the 1-, 2- or 3-month HIBOR rate. The interest rates applicable to
Tranche 7 and Tranche 8 is 1.8% per annum over the 1-, 2-or 3-month HIBOR
rate. The choice of rate is at the Group's discretion. Tranche 6 matures in
September 2022 and the principal is to be repaid in half-yearly installments
commencing from September 2020, with 25.23% of the principal due upon
maturity. Tranche 7 matures in September 2025 and the principal is to be
repaid in nine instalments commencing from December 2020 with 57.59% of the
principal due upon maturity. Tranche 8 matures in March 2025 and the principal
is to be repaid in seven instalments commencing from December 2021 with 34% of
the principal due upon maturity. The loan-to-value covenant is 60%. As at 30
June 2022, the loan-to-value ratio for the Hang Seng One Central facility was
59.33% (2021: 56.34%). The facility is secured by means of a first registered
legal mortgage over The Waterside and The Fountainside, 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 repayment due in September 2022 of US$18.3 million has been
settled subsequent to the year end. Please refer to note 25 for details.
The Group has a loan facility with Hang Seng Bank for The Fountainside:
The Facility amount is HK$96 million (US$12.2 million) divided into 2
tranches, with a tenor of 4 years to mature in March 2024. Tranche A is a
facility for an amount of HK$89 million (US$11.3 million). Tranche B is a
facility for an amount of HK$7 million (US$0.9 million) for financing the
alteration costs of The Fountainside. The facility of Tranche A was fully
drawn down in March 2020, while the facility for Tranche B in the amount of
HK$3 million (US$0.4 million) and HK$1 million (US$0.1 million) was drawn down
in October 2021 and February 2022 respectively. The interest rates applicable
to Tranche A and Tranche B are 2.8% per annum and 3.3% per annum respectively
over the 1-, 2- or 3-month HIBOR rate. The choice of rate is at the Group's
discretion. The principal of Tranche A is to be repaid half-yearly with
remaining instalments commencing in September 2023 with 26.93% of the
principal due upon maturity while repayment for Tranche B is due in full at
maturity. The loan-to-value covenant is 55%. The facility is secured by means
of a first registered legal mortgage over all unsold units and car parking
spaces of The Fountainside as at the loan facility date as well as a pledge of
all income from the units and the car parking spaces. The Company is the
guarantor for the credit facility. In addition, the Group is required to
maintain a cash reserve equals to six months' interest with the lender.
As at 30 June 2022, the facility had an outstanding balance of HK$43 million
(US$5.5 million) (2021: HK$39 million (US$5.0 million)) and the loan-to-value
ratio was 29.86% (2021: 23.47%).
The Group has two loan facilities for Penha Heights:
Banco Tai Fung
The loan facility with Banco Tai Fung originally had a term of two years and
the facility amount was HK$70 million (US$8.9 million) which expired in June
2022 and was subsequently renewed for another term of seven years. Interest
was Prime Rate minus 2.25% per annum. The principal is to be repaid in 28
quarterly instalments of HK$2.5 million (US$318,471) each, commencing in
September 2022 with the first instalment having been paid. As at 30 June 2022,
the facility had an outstanding balance of HK$70 million (US$8.9 million)
(2021: HK$70 million (US$9.0 million)). This facility is secured by a first
legal mortgage over the property as well as a pledge of all income from the
property. The Company is the guarantor for this term loan. Interest is paid
quarterly for the first six month and monthly thereafter on this loan
facility. As at 30 June 2022, the loan-to-value ratio was 46.36% (2021:
44.30%).
There is no loan-to-value covenant for this loan.
BCM Bank
During the year, the Group executed a loan facility with BCM Bank to refinance
the credit facility with the Industrial and Commercial Bank of China (Macau)
Limited in relation to Penha Heights. The facility amount is HK$70 million
(US$8.9 million) with a tenor of 2 years to mature in December 2023. The
interest rate is 2.55% per annum over the 3-month HIBOR rate. The principal is
to be repaid in quarterly instalments commencing in March 2023 with 85% of the
principal due upon maturity. As at 30 June 2022, the facility had an
outstanding balance of HK$70 million (US$8.9 million) (2021: HK$79 million
(US$10.2 million)). This facility is secured by a first legal mortgage over
the property as well as a pledge of all income from the property. The Company
is the guarantor for this term loan. In addition, the Group is required to
maintain a cash reserve equal to six months' interest with the lender.
Interest is paid monthly on this loan facility. The loan-to-value covenant is
50%. As at 30 June 2022, the loan-to-value ratio for this facility was 38.89%
(2021: 42.02%).
Bank Loan Interest
Bank loan interest incurred during the year was US$2,985,000 (2021:
US$3,230,000), including US$nil (2021: 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 2022, the fair value of the
interest-bearing loans was US$462,000 lower than the carrying value of the
financial liabilities (2021: the fair value of the interest-bearing loans was
US$72,000 higher than the carrying value of the financial liabilities).
The Group's interest-bearing loans have been classified within Level 2, as
they have observable inputs from similar loans. There have been no transfers
between levels during the period or a change in valuation technique since 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 £1,200 (US$1,469) (2021: £1,200 (US$1,677)).
The Group would only be exposed to Hong Kong profits tax if it is:
(i) not exempted under the Revenue (Profits Tax Exemption for Offshore
Funds) Ordinance 2006 (the "Ordinance"); and
(ii) treated as carrying on a trade or business in Hong Kong either on its
own account or through any person as an agent.
No accrual has been made for Hong Kong profits tax, as the Board believes that
no such tax exposure exists at the end of the reporting year (2021: US$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% (2021: 8%) of
any rent received for rental properties or 6% (2021: 6%) of the official
ratable rentable value for self-use properties. Newly built residential
buildings or commercial buildings were exempted from Property Tax for four
years and six years, respectively (such time running from the month after the
occupancy permit is issued) for properties located in Macau peninsula and
outlying islands. Macau Complementary Taxes ("MCT") are generally levied on
income and profits arising in or derived from commercial and/or industrial
activities carried on in Macau. There is no distinction made between a
"revenue profit" and "capital profit" under the MCT regulations. Accordingly,
income in accordance with MCT regulations booked by a Macau corporate
taxpayer, including gains on sale of investment/immovable property, will be
subject to MCT. Under prevailing practice, gains on the disposal of shares in
a Macau company (such as an SPV of the Company) by a non-Macau entity should
generally not attract MCT.
The Board closely monitors and assesses the level of provisions for Macanese
tax taking into consideration factors such as the Group's structure.
As at the year-end, the following amounts are the outstanding tax provisions.
2022 2021
US$'000 US$'000
Non-current liabilities
Deferred taxation 9,706 11,786
Provisions for Macanese taxations 579 705
10,285 12,491
Deferred taxation
The Group has recognised a deferred tax liability for the taxable temporary
difference relating to the investment property carried at fair value and has
been calculated at a rate of 12% as relates to Macau taxation.
Provisions for Macanese taxations
The Group has made provisions for property tax and complementary tax arising
from its Macau business operations.
Major components of taxation
2022 2021
US$'000 US$'000
Provision to property tax (note 15) (291) (316)
Movement in deferred taxation provision 1,965 29
Provision for MCT (125) (251)
The differences between the taxation charge for the year and the movement in
taxation provisions are due to the foreign exchange rate movements and
Macanese taxation paid during the year.
10. Trade and other receivables
Current assets 2022 2021
US$'000 US$'000
Prepayments 53 503
11. Trade and other payables
Current liabilities 2022 2021
US$'000 US$'000
Accruals 370 322
Other payables 1,649 854
2,019 1,176
Other payables principally comprise outstanding amounts for operating
expenses.
12. Share capital
Ordinary shares 2022 2021
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 (2021: 61.8 million) ordinary shares of US$0.01 each 618 618
The Company has one class of ordinary shares which carries no rights to fixed
income.
The Board has publicly stated its commitment to undertake share buybacks at
attractive levels of discount of the share price to Adjusted NAV. In order to
continue this strategy, the Board intends to renew this authority at the 2022
Annual General Meeting.
No redemption of shares was made during the current or prior year.
There are no restrictions on the distribution of dividends and repayment of
capital.
13. General and administration expenses
2022 2021
General and administration expenses US$'000 US$'000
Legal and professional 200 84
Holding Company administration 127 140
Guernsey SPV administration 63 70
BVI, Hong Kong, & Macanese SPV administration 52 58
Insurance costs 15 15
Listing fees 19 19
Printing & postage 22 12
Other operating expenses 117 154
615 552
14. Other financing costs
2022 2021
Financing costs US$'000 US$'000
Bank charges 5 3
Loan arrangement fees 426 364
431 367
As at 30 June 2022, unamortised loan arrangement fees were US$837,000 (2021:
US$1,212,000). These have been netted off against the interest bearing loans
and also split between current and non-current.
15. Property operating expenses
2022 2021
Property operating expenses US$'000 US$'000
Property management fee (note 20) 951 1,017
Property taxes 291 316
Utilities 10 14
Other property expenses 120 230
1,372 1,577
16. Sales and marketing expenses
2022 2021
Sales and marketing expenses US$'000 US$'000
Agent commission 115 411
Marketing - 306
115 717
17. Cash flows from operating activities
2022 2021
US$'000 US$'000
Cash flows from operating activities
Loss for the year before tax (20,931) (2,254)
Adjustments for:
Net loss from fair value adjustment on investment property 16,380 245
Net finance costs 3,416 3,597
Operating cash flows before movements in working capital (1,135) 1,588
Effects of foreign exchange rate changes (298) (18)
Movement in trade and other receivables 545 (137)
Movement in trade and other payables 775 (96)
Movement in inventories (77) 4,636
Net change in working capital 1,243 4,403
Taxation paid (212) (21)
Net cash (used in)/generated from operating activities (402) 5,952
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$19,091,000 (2021: loss of
US$2,476,000) and on the 61,835,733 (2021: 61,835,733) weighted average number
of ordinary shares in issue during the year.
30 June 2022 30 June 2021
Loss Attributable Weighted Average No. of Shares Loss Per Share Loss Attributable Weighted Average No. of Shares Loss Per Share
US$'000 '000s US$ US$'000 '000s US$
Basic and diluted (19,091) 61,836 (0.3087) (2,476) 61,836 (0.0400)
Net asset value reconciliation 2022 2021
US$'000 US$'000
Net assets attributable to ordinary shareholders 77,576 97,905
Uplift of inventories held at cost to market value 25,844 30,848
Adjusted NAV 103,420 128,753
Number of ordinary shares outstanding ('000) 61,836 61,836
NAV per share (IFRS) (US$) 1.25 1.58
Adjusted NAV per share (US$) 1.67 2.08
Adjusted NAV per share (£)* 1.38 1.50
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$:GBP rate as at 30 June 2022 is 1.212 (2021: 1.386).
19. Related party transactions
Directors of the Company are all non-executive and by way of remuneration,
receive only an annual fee which is denominated in Sterling.
2022 2021
US$'000 US$'000
Directors' fees 170 196
Directors' fees include fees paid to Timothy Henderson, a former Director of
the Company and Director of certain SPVs until resigning in the year to 30
June 2021, of US$nil (2021: US$5,000). The Directors are considered to be the
key management personnel (as defined under IAS 24) of the Company. Directors'
fees outstanding as at 30 June 2022 were US$41,000 (2021: US$47,000).
Sniper Capital Limited is the Manager to the Group and received fees during
the year, as detailed in the Consolidated Statement of Comprehensive Income
and on the basis described in Note 20.
Management fees paid for the year totalled US$1,199,000 (2021: US$1,336,000).
No management fees are outstanding or prepaid as at 30 June 2022 (2021:
US$nil) (see Note 20).
Realisation fees paid for the year totalled US$23,000 (2021: US$217,000) with
US$nil outstanding as at 30 June 2022 (2021: US$nil).
20. Material contracts
Management fee
Under the terms of an appointment made by the Board of Directors of the
Company on 23 May 2006, Sniper Capital Limited was appointed as Manager to the
Group. The original Management fee was calculated at 2.0% of the net asset
value, as adjusted to reflect the Property Investment Valuation Basis, payable
quarterly in advance. The Property Investment Valuation Basis is the basis on
which the properties will be valued by an independent valuer being an open
market basis in accordance with RICS property valuation practice and
guidelines. It was 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. A management fee of US$1,199,000 will be payable for 2022 with US$99,000
paid in January 2022 followed by monthly payments of US$100,000. Management
fees paid for the year totalled US$1,199,000 (2021: US$1,336,000) with US$nil
outstanding as at 30 June 2022 (2021: US$nil).
Realisation fee
A realisation fee was payable on deals originated and secured by the Manager
in 2020 which was linked to the sales price achieved. The realisation fee is
currently active until 31 December 2022. The realisation fee is payable upon
the sale of individual properties and becomes payable 10 business days after
completion. Where the sale price of the asset was 90 per cent. or more of the
of the value of the relevant asset as at 30 September 2019 (the "Carrying
Value") a fee of 2.5 per cent. of net proceeds (net of debt, costs and taxes)
("Net Proceeds") was payable; where the sale price of an asset was more than
80 per cent. but less than 90 per cent. of the Carrying Value of the relevant
asset, a realisation fee of 1.5 per cent. of Net Proceeds was payable; and
where the sale price of an asset is less than 80 per cent. of the Carrying
Value, no realisation fee was payable. In no circumstances will the aggregate
of the 2022 management fee and realisation fee exceed US$1,780,000. 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 payable for the year totalled US$23,000 (2021: US$217,000) with US$nil
outstanding as at 30 June 2022 (2021: US$nil).
Extra Incentive fee
Additionally, in the event that divestments of all of the assets were secured
by the Manager (either in one transaction or multiple transactions) prior to
31 December 2020, an extra incentive fee equal to 1 per cent. of the Net
Proceeds of the assets was payable (the "Extra Incentive Fee"), subject to the
aggregate sale price of those assets exceeding 80 per cent. of the Carrying
Values of the relevant assets in aggregate. In no circumstances would the 2020
Realisation fee and Incentive Fee exceed in aggregate US$5 million. The 2021
Realisation fee, active until 31 December 2021, (together with Incentive Fee
(if any) during such period) would not exceed in aggregate US$3.8 million. The
Extra Incentive Fee is no longer applicable for 2022 under the new agreement.
Incentive fees payable for the year totalled US$nil (2021: US$nil).
Performance fee
The Manager's appointment is terminable by the Manager or the Company on not
less than 6 months' notice. 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.
Development Management Services Agreement
A Development Management Services Agreement dated 1 June 2010 was entered into
between the Group and Headland, under which Headland provides development
management services to the Group in respect of the Group's properties that
require development. Headland is paid a development management fee based on
the hourly rates of its personnel and the actual time spent on each project
for the Group. Such hourly rates will be reviewed annually by the Board.
Budgeted development management fees are submitted to the Board for approval
and are used to monitor against actual fees charged to the Group. Under
certain circumstances, a fixed percentage fee cap based on construction value
of the project may apply, should the Board deem necessary.
The Group also agrees to reimburse Headland for any reimbursable expenses
reasonably incurred in the performance of its duties under the agreement.
Headland agrees to exercise all the reasonable skill, care and diligence to be
expected of a prudent and competent development manager experienced in the
provision of development management services for projects of a similar size,
scope, nature and complexity as the projects on which it will be engaged by
the Group.
During the year, no development management services fees were capitalised in
investment property and inventories (2021: nil) and none were outstanding
(2020: nil).
Agency Services Agreement
The Group and Bela Vista entered into an Agency Services Agreement, under
which Bela Vista provides agency services to the Group in respect of the sales
of residential units and car and motorbike parking spaces of The Fountainside
as well as the individual unit in One Central Residences. Bela Vista is paid
an agency services fee based on a percentage of the total sales
considerations. Such percentage will be reviewed annually by the Board.
During the year, agency services fees of US$30,000 (HK$236,000) (2021:
US$81,000 (HK$628,000)) were paid. As at 30 June 2022, US$nil (2021: US$nil)
was outstanding.
Leasing and Tenancy Management and Property Management Services Agreement
On 23 January 2020, the Group and Bela Vista entered into a Leasing and
Tenancy Management and Property Management Services Agreement, under which
Bela Vista provides property services to the Group in respect of asset
management, tenant management and leasing at The Waterside. Bela Vista is paid
a leasing and tenancy management fee based on a percentage of the monthly
rental receivable by The Waterside and fixed fees for property management
services and the staff costs and overhead incurred.
During the year, the leasing and tenancy management and property management
services fees of US$350,000 (HK$2,729,000) (2021: US$360,000 (HK$2,792,000))
were paid. As at 30 June 2022, US$22,000 (2021: US$nil) was outstanding.
21. Deposits with lenders
Pledged bank balances represent deposits pledged to the banks to secure the
banking facilities granted to the Group. Deposits amounting to US$1.6 million
(2021: US$6.7 million) have been pledged to secure long-term banking
facilities and are, therefore, classified as non-current assets. There are no
other significant terms and conditions associated with these pledged bank
balances.
2022 2021
US$'000 US$'000
Non-current 1,561 6,657
Current 1,895 175
Pledged for loan covenants 3,456 6,832
22. Commitments and contingencies
As at 30 June 2022, the Group had agreed consultancy contracts with
architectural firms, an engineering firm, an electrical firm and a quality
surveying consultant and are consequently committed to future capital
expenditure in respect of inventories of US$281,000 (2021: US$126,000).
23. Auditors' remuneration
All fees payable to the external auditor relate to audit services except for
US$9,000 that was payable to Ernst & Young Macau in relation to non-audit
services.
Auditors' remuneration was broken down as follows:
2022 2021
US$'000 US$'000
Audit fees 131 134
Other professional services 9 8
140 142
24. Operating leases - Group as lessor
The Group has entered into leases on its property portfolio.
Future minimum rentals receivable under non-cancellable operating leases as at
30 June 2022 are as follows:
2022 2021
US$'000 US$'000
Residential
Within 1 year 625 632
After 1 year, but not more than 5 years - -
Total future rental income 625 632
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 2022, lease incentives on which the Group was lessor amounted to
US$48,000 (2021: US$44,000) with rent free liabilities of US$30,000 (2021:
US$23,000).
25. Subsequent events
At the Annual General Meeting in December 2022, the Company will hold a
continuation vote on which the shareholders will vote on whether to extend the
lifecycle of the Company.
During the year, the Group entered into sales and purchase agreements to
dispose of four units at The Waterside at a total consideration of US$14.5
million. Subsequent to the year end, the sales of the four units at The
Waterside have been completed with total Net Proceeds of US$5.3 million. The
sales of these units will incur realisation fees of US$40,203 of which 50%
will be retained until all units at The Waterside have been sold.
Subsequent to the year end, the lender of The Waterside loan facility has
agreed in principle to extend a new tranche of US$6.4 million to partially
refinance the US$18.3 million repayment that was due for settlement in
September 2022, with the remaining US$11.9 million having been repaid from the
sales proceeds of the Group's recent divestments.
A sale has been agreed for a further unit at The Waterside which is scheduled
to complete in November 2022.
DIRECTORS AND COMPANY INFORMATION
Directors
Mark Huntley (Chairman)
Alan Clifton
Carmen Ling (appointed 24 February 2022)
Wilfred Woo (resigned 22 December 2021)
Audit and Risk Committee
Alan Clifton (Chairman)
Mark Huntley
Carmen Ling (appointed 24 February 2022)
Wilfred Woo (resigned 22 December 2021)
Management Engagement Committee
Mark Huntley (Chairman)
Alan Clifton
Carmen Ling (appointed 24 February 2022)
Wilfred Woo (resigned 22 December 2021)
Nomination and Remuneration Committee
Alan Clifton (Chairman)
Mark Huntley
Carmen Ling (appointed 24 February 2022)
Wilfred Woo (resigned 22 December 2021)
Disclosure and Communications Committee
Mark Huntley (Chairman)
Alan Clifton
Manager
Sniper Capital Limited
Vistra Corporate Services Centre
Wickhams Cay II
Road Town, Tortola
VG1110
British Virgin Islands
Investment Adviser
Sniper Capital (Macau) Limited
Largo da Ponte,
Nos. 51 e 57, Taipa
Macau
Solicitors to the Group as to English Law
Norton Rose Fulbright LLP
3 More London Riverside
London SE1 2AQ
Advocates to the Group as to Guernsey Law
Carey Olsen
Carey House
Les Banques
St Peter Port
Guernsey GY1 4BZ
Corporate Broker
Liberum Capital Limited
Ropemaker Place, Level 12
25 Ropemaker Street
London EC2Y 9LY
Independent 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
Cautionary Statement (unaudited)
The Chairman's Statement, the Manager's Report and the Report of the Directors
have been prepared solely to provide additional information for shareholders
to assess the Company's strategies and the potential for those strategies to
succeed. These should not be relied on by any other party or for any other
purpose.
The Chairman's Statement, Manager's Report and the Report of the Directors may
include statements that are, or may be deemed to be, "forward-looking
statements". These forward-looking statements can be identified by the use of
forward-looking terminology, including the terms "believes", "estimates",
"anticipates", "expects", "intends", "may", "will" or "should" or, in each
case, their negative or other variations or comparable terminology.
These forward-looking statements include all matters that are not historical
facts. They appear in a number of places throughout this document and include
statements regarding the intentions, beliefs or current expectations of the
Directors and the Manager, concerning, amongst other things, the investment
objectives and investment policy, financing strategies, investment
performance, results of operations, financial condition, liquidity, prospects,
and distribution policy of the Company and the markets in which it invests. By
their nature, forward-looking statements involve risks and uncertainties
because they relate to events and depend on circumstances that may or may not
occur in the future. Forward-looking statements are not guarantees of future
performance.
The Company's actual investment performance, results of operations, financial
condition, liquidity, distribution policy and the development of its financing
strategies may differ materially from the impression created by the
forward-looking statements contained in this document. Subject to their legal
and regulatory obligations, the Directors and the Manager expressly disclaim
any obligations to update or revise any forward-looking statement contained
herein to reflect any change in expectations with regard thereto or any change
in events, conditions or circumstances on which any statement is based.
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