REG - Macau Prop Opp Fund - Interim Report to 31 December 2021
28/02/2022 07:00
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RNS Number : 9316C Macau Property Opportunities Fund 28 February 2022
28 February 2022
Macau Property Opportunities Fund Limited
("MPO" or "the Company")
Interim results for the six-month period ended 31 December 2021
Macau Property Opportunities Fund Limited announces its results for the period
ended 31 December 2021. The Company, which is managed by Sniper Capital
Limited, holds strategic property investments in Macau.
FINANCIAL HIGHLIGHTS
Fund performance
· MPO's portfolio value(1) was US$259.4 million as at 31 December
2021, a decline of 1.7% over the six-month period.
· Adjusted Net Asset Value (NAV) was US$121.5 million, which
translates to US$1.96 (145 pence(2)) per share, a decline of 5.7% over the
period.
· IFRS NAV was US$93.2 million as of the period end, equating to
US$1.51 (112 pence(2)) per share, a drop of 4.8%.
Capital management
· The aggregated cash and deposit balances were US$6.9 million, of
which US$2.9 million was pledged as collateral for credit facilities.
· Gross borrowing stood at US$133.3 million, equating to a
loan-to-value ratio of 50.0%.
· A debt repayment of US$3.2 million was achieved.
Extension of Company Life
· At the Company's Annual General Meeting in December, shareholders
agreed to a further extension of the Company's life until 31 December 2022.
1 Calculation was adjusted to reflect like-for-like comparisons to 31
December 2021 due to the divestment of properties during the period.
(2) Based on the US Dollar/Sterling exchange rate of 1.350 on 31 December
2021.
PORTFOLIO HIGHLIGHTS
· The Waterside
- As of the end of 2021, around 30% of The Waterside's apartments were
occupied and the average rent stood at US$2.3 per square foot per month.
- Market conditions have challenged efforts to secure the sale of this
asset. There remains active investor interest, however, aided by the fact that
each apartment has a separate strata title.
· The Fountainside
- The sale of the last remaining standard-type unit was completed for
HK$11.8 million (US$1.5 million, in line with its latest valuation) in August
2021, bringing to an end the divestment of all 36 standard units at the
property.
- Reconfiguration work on the two duplex units to create three smaller
apartments and two car parks has commenced and is now expected to be largely
complete in Q1 2022. Marketing of the units is expected to commence in April.
· Penha Heights
- A series of enhancement works to refresh the property's external and
internal features was undertaken during the pandemic-induced quiet period.
Positive feedback regarding these works has been received.
- Ongoing viewings are taking place and we will continue to work with
specialist agents to explore all possible channels for an optimal exit from
the asset.
Mark Huntley, Chairman of Macau Property Opportunities Fund, said:
"The difficulties arising from COVID-19-driven restrictions continued
seriously to affect Macau's recovery. The Company's financial performance
reflects the headwinds we faced during the first half of our financial year.
"Amid a very challenging environment to execute our divestment programme, the
Manager has steadfastly pursued a variety of exit tactics. With continued
prudent capital management and the hard work of our team, we believe the
Company can weather the conditions that have disrupted our divestment plans.
We remain dedicated to achieving our asset disposal objectives, albeit over a
longer time frame than we had originally anticipated."
For more information, please visit www.mpofund.com (http://www.mpofund.com)
for the Company's full Interim Report 2022.
The Manager will be available to speak to analysts and the media. If you would
like to arrange a call, please contact Sniper Capital Limited at
info@snipercapital.com (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
legalised.
Launched in 2006, the Company targets strategic property investment and
development opportunities in Macau. Its current portfolio comprises prime
residential property assets.
The Company is managed by Sniper Capital Limited (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
LEI
213800NOAO11OWIMLR72
For further information:
Manager
Sniper Capital Limited
Group Communications
Tel: +852 2292 6789
Email: info@snipercapital.com (mailto:info@snipercapital.com)
Corporate Broker
Liberum Capital
Darren Vickers / Owen Matthews
Tel: +44 20 3100 2234
Company Secretary & Administrator
Ocorian Administration (Guernsey) Limited
Kevin Smith
Tel: +44 14 8174 2742
MACAU PROPERTY OPPORTUNITIES FUND LIMITED
INTERIM REPORT FOR THE SIX-MONTH PERIOD ENDED 31 DECEMBER 2021
CHAIRMAN'S MESSAGE
I present my report for the first six months of our financial year and the
second half of the calendar year ended 31 December 2021.
During this period, the challenges of COVID-19-driven restrictions following
outbreaks in mainland Chinese cities and in Macau, including lockdowns,
continued to seriously affect Macau's recovery. Adding to uncertainty around
travel, questions over renewals of casino licences and a subsequent clampdown
on VIP and junket gaming also weighed heavily on sentiment. Recent
announcements have calmed those concerns, although the mainland Chinese
government's targeting of junket operations and VIP gaming will impact gross
gaming revenue and the Macau government's tax receipts. The Company has no
direct links to gaming, but the critical role that gaming plays in Macau's
economy affects our operating environment and investor sentiment.
Against this backdrop, the improvement in Macau's economy during 2021 is
mildly encouraging, although it remains a long way from its pre-pandemic
performance. Macau continues to follow a "dynamic zero" strategy to control
COVID, like mainland China and Hong Kong. Unlike those jurisdictions, however,
whose economies are more diversified, Macau's economy is heavily reliant on
two key industries - gaming and tourism - so the dynamic zero policy has not
only reduced government revenues, but has also affected most aspects of the
wider marketplace, including the luxury property sector, to which we are
exposed.
Although the territory's public health achievements are noteworthy, the delays
have hampered the pace of economic recovery. China remains Macau's only travel
bubble, accompanied by vigorous controls. Broader travel bubbles would provide
a welcome boost to sentiment and investor confidence. These two markets are
critical to Macau's continued recovery, and particularly important when it
comes to restoring some momentum at the upper end of the property market.
Macau's real estate market remains subdued compared to markets in mainland
Chinese cities and Hong Kong, as well as markets further afield, which have
delivered growth and higher levels of activity. This is largely due to the
limited diversity of Macau's economy.
A loosening of travel restrictions has appeared to be imminent on several
occasions, but the recent surge in COVID cases in Hong Kong, and the
imposition of strict public health measures in that city, will result in a
further delay. In contrast to Macau, once strict "COVID-zero" countries such
as Singapore, Australia and New Zealand are now moving to policies of "living
with COVID". In the absence of a clear exit strategy from the mainland
China-led dynamic zero model, we expect that the completion of our divestment
programme will require more time than we had anticipated at the beginning of
2021.
Any relaxation of travel restrictions would be an welcome development.
Although the property market in Macau continues to function, most transactions
are still within the first-time-buyer segment of the market. Sales activity in
the luxury segment has remained muted, however, which has fed into our
property valuations.
Amid these circumstances, there are some signs of improvement, with higher
inbound visitor numbers over the Christmas and New Year period. Many of the
gaming concession proposals that had unsettled sentiment in the industry
appear to have been abandoned, and the 10-year concession duration of each
licence will provide a measure of confidence for casino operators. Moreover, a
shift to mass-market gaming and a broadening of the tourism base will support
Macau's longer-term future and help to cement its key position in the Greater
Bay Area initiative, which is of major importance to the mainland Chinese
government. This transition could nevertheless be challenging in the near
term.
Financial performance
Our financial performance reflects the challenges we faced during the first
half of our financial year.
The Company's unaudited adjusted net asset value (NAV) was US$121.5 million as
at 31 December 2021. This is equivalent to US$1.96 (145 pence*) per share, and
represents a decline of 5.7 % (3.2% in Sterling term) from the year end.
* Based on the following US Dollar/Sterling exchange rates 1.350 on 31
December 2021 and 1.386 on 30 June 2021.
As at 31 December 2021, MPO's share price was 47.3 pence, representing a 67%
discount to its adjusted NAV per share.
Our results reflect the profitable sale of a unit at The Fountainside and a
reduction in debt of more than US$3.2 million. Debt service is our most
significant operating cost, and reducing debt through sales is a key element
of our near-term strategy.
The Company's aggregated cash and deposit balances were US$6.9 million as at
31 December 2021, of which US$2.9 million, representing a six-month interest
reserve, was pledged as collateral for credit facilities. Cash resources of
approximately US$4 million were available for the payment of operating costs,
although this includes a US$3.5 million deposit from which any withdrawal for
such purposes is subject to consent from the lender.
Outcome of the 2021 Annual General Meeting
At our AGM in December, the Board and the Manager expressed their great
appreciation for the overwhelming support of Shareholders for continuing the
life of the Company to allow the completion of the ongoing divestment process
on more favourable terms.
Divestment update
Amid a very challenging environment, the Manager has steadfastly pursued a
variety of exit tactics, and has carefully coordinated marketing and sales
processes within the constraints outlined in detail in its report. This
management activity has included property visits and support for extensive due
diligence requests among prospective buyers of our assets.
These efforts have yet to translate into tangible outcomes, but a clear
strategy is being followed through that will include the sale of further
individual units at The Fountainside. More significantly, any move to strata
sales of units at The Waterside could have a positive effect on our results.
In the meantime, however, a modest recovery in leasing at The Waterside
towards the end of 2021 was a positive development and an achievement for the
leasing team. The Waterside retains its status as a premier property thanks to
the quality of construction by the original Hong Kong-based developer, a high
standard of management, and ongoing upgrades and improvements led by the
Manager and its leasing team. In this context, there is a continued focus on
the environmental impact and efficiency of new air conditioning units and
kitchen appliances. These are solid examples of such attention to detail that
we believe will translate into stronger leasing activity and more attractive
sales options.
The redevelopment of units at The Fountainside is nearing completion, with
reconfigured smaller apartments targeted at a more active segment of the
property market. The creation of two additional car-parking spaces should also
create readily saleable assets. The four larger units at The Fountainside will
continue to be marketed, although current mortgage limits remain a challenge
for prospective buyers.
Penha Heights is an attractive asset that has drawn several viewings, but
prevailing "wait and see" sentiment among prospective investors has deterred
any from making a purchase. Ongoing travel restrictions mean that more time
may be required to achieve a sale. When sentiment improves, this asset may
become very much in demand, especially if planning conditions are improved or
simplified to broaden its appeal to developers.
Corporate governance and appointment of director
Corporate governance has remained high on our agenda, with physical meetings
resuming in Guernsey. I am also pleased to report that our extensive search
for a new Director has been concluded, with the appointment of Carmen Ling to
the Board. The recruitment process required an extended duration due to the
travel challenges involved.
Ms Ling is a Hong Kong resident, and brings a diverse set of financial skills
and experience to the Board, including a background in banking and real
estate, and a deep understanding of the Chinese market. This knowledge is
important, as travel by other members of the Board remains subject to
restrictions. Ms Ling will be joining our Board for a shorter duration than
other, equivalent appointments, and we appreciate her commitment in these
extraordinary circumstances.
We look forward to working with our new colleague, who has already spent time
with the Manager's team in Hong Kong.
I should also like to take this opportunity to express my personal thanks to
Wilfred Woo for his many years of service and considerable contribution to our
Board functions. His diligent approach and perspective have been most
valuable, especially during the past two years, as travel has been so
restricted.
Manager's fees
As prefaced in our earlier reports, we continue to drive down costs where
possible. We have also previously outlined our intention to agree a revised
fee payable to the Manager in 2022, contributing to its operating costs and to
continue to provide incentives for an early disposal of our assets. Full
details are set out in Note 11 of these accounts.
A properly resourced Manager is essential to see the Company through the
current challenges and conclude an optimal divestment of our remaining assets.
The Manager has worked with the Board and taken all appropriate steps to slim
down its operations while retaining the necessary capacity to deliver a wide
range of functions for as long as we retain our current assets.
Similarly, managing our debt and debt-servicing costs is critical, as this is
our single largest expense. The Manager's success in restructuring our debt is
commendable, and a key component of our ability to navigate through the
near-term challenges. More details on our current loan facilities can be found
in Note 7 of these accounts.
Summary
In conclusion, with continued prudent capital management and the hard work of
our team, we believe the Company can weather the conditions that have
temporarily disrupted our divestment plans. We remain dedicated to achieving
our asset disposal objectives, albeit over a longer time frame than we had
originally anticipated.
MARK HUNTLEY
CHAIRMAN
MACAU PROPERTY OPPORTUNITIES FUND
25 February 2022
MANAGER'S REPORT
FINANCIAL OVERVIEW
31 December 2021 30 June 2021
NAV (IFRS) (US$ million) 93.2 97.9
NAV per share (IFRS) (US$) 1.51 1.58
Adjusted NAV (US$ million) 121.5 128.8
Adjusted NAV per share (US$) 1.96 2.08
Adjusted NAV per share (pence)(1) 145 150
Share price (pence) 47.3 67.5
Share price discount to Adjusted NAV per share (%) 67% 55%
Portfolio valuation (US$ million) 259.4 265.4
Loan-to-value ratio (%) 50.0% 49.3%
(1) Based on the following US Dollar/Sterling exchange rates 1.350 on 31
December 2021 and 1.386 on 30 June 2021.
Financial Review
For 2021, Macau's economy closed the year in a better position compared to
2020, with gaming and tourism gaining some lost ground. However, the
territory's economic engines were operating at about 20% of their pre-pandemic
levels.
H2 2021 opened with a series of new challenges arising from the pandemic as
highly transmissible variants such as Delta and Omicron posed threats to
Macau's public health system. The challenges were compounded by the pursuit of
a zero-COVID strategy in Macau, mainland China and Hong Kong which saw the
authorities taking drastic measures such as tightening border controls,
instituting mass testing and locking down cities. Together, these have
introduced additional uncertainty and instability in Macau's economy, which
has made investors continue hesitating over large investments, thus delaying
and disrupting MPO's divestment plans.
The absence of any concrete plans on "living with COVID" and a clear exit
strategy from the zero-COVID policy are also of concern as it is unclear how
long the harsh measures will continue in place.
Half-Year Financial Results
The value of MPO's portfolio, which now comprises three main assets, was
US$259.4 million as at 31 December 2021. On a like-for-like comparison, the
valuation slightly declined by 1.7% over the six-month period.
Adjusted Net Asset Value (NAV) was US$121.5 million, which translates to
US$1.96 (145 pence) per share, a decline of 5.7% over the period. IFRS NAV was
US$93.2 million as of the period's end, equating to US$1.51 (112 pence) per
share, a decline of 4.8%.
As at 31 December 2021, MPO's share price was 47.3 pence, representing a 67%
discount to its Adjusted NAV per share.
Capital Management
As at 31 December 2021, MPO had total assets worth US$238.2 million,
offsetting combined liabilities of US$145.0 million. The Company's aggregated
cash and deposit balances were US$6.9 million, of which US$2.9 million,
representing a six-month interest reserve, was pledged as collateral for
credit facilities. Furthermore, a US$3.5 million deposit has restrictions on
its use with any withdrawal for the payment of operating costs requiring
consent from the lender. Gross borrowing stood at US$133.3 million, equating
to a loan-to-value ratio of 50.0%.
As the Company endeavours to execute its divestment plan, we will remain
focused on capital management to maintain a healthy balance sheet and
operating cash flow. We also remain heavily focused on containing costs, with
debt facilities reviewed and refinanced where appropriate to obtain the most
cost-efficient terms.
Company Life Extended, Fee Structure
Macau's pursuit of a zero-COVID strategy throughout 2021 has resulted in
COVID-19 travel restrictions which have severely curtailed the Manager's
efforts to divest the portfolio properties, and as a result a shareholder
resolution was proposed and subsequently passed at the Company's Annual
General Meeting in December 2021, to extend the life of the Company for a
further year to facilitate the orderly divestment of the portfolio. The
Manager thanks all shareholders for their recognition of the current
challenges and their continued support.
The divestment of all remaining assets continues to be the highest priority of
the Company. Although the zero-COVID environment in Macau continues to delay
and disrupt divestment plans, the Manager is seeking all possible ways to
divest the assets for the benefit of shareholders.
The Board and the Manager also reached agreement over variations to the
management fees and other fees payable to the Manager in February 2022. The
key elements of the new arrangements are a flat management fee of $100,000 per
month from February 2022 (following an interim payment of $99,000 in January
2022). Realisation fees will continue to be payable on the same terms as in
2021 (using the 30 September 2019 valuation basis for calculating any fees
due) with all fees payable subject to an overall cap of $1.78 million. The
extra incentive payment of 1 per cent. if all assets are sold in the year
falls away and the Manager is also subject to a revised six month notice
period.
Portfolio Updates
PORTFOLIO OVERVIEW AS AT 31 DECEMBER 2021
Sector No. of Units Costs Market Valuation Changes in Composition
Market Value
(Based on
(US$ million) (US$ million)
market value)
Since 30 June 2021
The Waterside Luxury residential 59 101.2 196.4 -1.6% 75.7%
Tower Six of One
Central Residences*
The Low-density residential 6 6.1 19.1 -3.0% 7.4%
Fountainside**
Penha Heights Luxury residential - 28.6 43.9 -1.6% 16.9%
Total 135.9 259.4 -1.7% 100%
* One Central is a trademark registered in Macau SAR under the name of
Basecity Investments Limited. Sniper Capital Limited, Macau Property
Opportunities Fund Limited, MPOF Macau (Site 5) Limited, Bela Vista Property
Services Limited and The Waterside are not associated with Basecity
Investments Limited, Shun Tak Holdings Limited or Hongkong Land Holdings
Limited.
** Calculation is based on adjusted figures made to 30 June 2021 to reflect
like-for-like comparisons to 31 December 2021 due to property sales during the
period.
The Waterside
The Waterside is MPO's landmark development in downtown Macau, comprising 59
luxury residential apartments for lease. As of the end of 2021, around 30% of
The Waterside's units were occupied, and the average rent stood at US$2.3 per
square foot per month.
Leasing demand for luxury property in Macau remains subdued due to ongoing
travel restrictions. COVID-19 outbreaks and three rounds of city-wide COVID
testing in H2 2021 have also affected sentiment towards the territory's
economy. Market conditions have challenged efforts to secure the sale of this
asset. There remains active investor interest, however, aided by the fact that
each apartment has a separate strata title.
The Fountainside
The Fountainside is a low-density, freehold residential development originally
comprising 42 homes and 30 car-parking spaces in Macau's popular Penha Hill
district.
The sale of the last remaining standard-type unit was completed for HK$11.8
million (US$1.5 million, in line with its latest valuation) in August 2021,
bringing to an end the divestment of all 36 standard units at the property.
There are six remaining units. Reconfiguration work on the two duplex units
has commenced and is now expected to be largely complete in Q1 2022. In this
regard, there have been additional unexpected requests from the authorities
which resulted in a longer than planned work schedule. Once completed, three
new smaller, more marketable units and two new parking spaces will be
available for sale, with sales activity expected to commence in April. We are
also continuing to market the property's four villas.
Penha Heights
Penha Heights is a prestigious, colonial-style villa with a gross floor area
of approximately 12,000 sq ft perched above the exclusive residential enclave
of Penha Hill and surrounded by lush greenery.
A series of enhancement works to refresh the property's external and internal
features was undertaken during the pandemic-induced quiet period. The Manager
has also completed additional enhancements including roof-tiling,
waterproofing, paint work, as well as upgrading the electric front gates for
added privacy and aesthetics. Positive feedback regarding these works has been
received.
Despite increased sales and marketing efforts, the potential pool of buyers
currently remains limited, a situation that will persist as long as travel
restrictions continue to inhibit viewings of the property by potential
investors from outside Macau. Nevertheless, ongoing viewings are taking place
and we will continue to work with specialist agents to explore all possible
channels for an optimal exit from the asset.
MACROECONOMIC OUTLOOK
Macau manages threat posed by new COVID-19 variants
In H2 2021, many countries across the globe grappled with the COVID-19
challenges posed by the highly transmissible Delta and Omicron variants,
facing record-breaking cases and deaths which threatened to overwhelm
healthcare systems. Nevertheless, the successful deployment of COVID vaccines
and boosters have emboldened many countries to begin shifting towards the new
normal of "living with COVID".
In stark contrast, since the beginning of the pandemic, Macau has recorded a
total of 79 COVID-19 cases and no deaths. As of the end of 2021, around 75% of
Macau's population had been fully vaccinated against the virus, and around 80%
had received at least one vaccine dose. Booster shots have been available
since early November.
Zero-COVID strategy
Macau's remarkable COVID numbers are the result of its zero-COVID strategy
which mirrors that of mainland China and Hong Kong, where the authorities are
determined to control outbreaks by deploying all tools available in the public
health arsenal including strict travel restrictions, mass testing and
lockdowns. This approach has been decried by critics as being futile against
highly transmissible variants like Omicron. Furthermore the draconian measures
have caused economic disruptions and uncertainty, labour shortages, as well as
mental health issues among the wider population.
Macau authorities had on three occasions during this reporting period
instituted city-wide mass testing and closed non-gaming entertainment outlets
in response to local clusters, which were contained. Quarantine-free travel
requirements for mainland Chinese visitors from COVID hotspots were also
periodically tightened to manage risks. Notably, the Golden Week in October, a
peak travel period, was impacted by such restrictions. In January 2022, all
incoming flights to Macau were halted for 14 days, except for those from
mainland China after several travellers tested positive for COVID-19 while
undergoing hotel quarantine in the territory.
In mainland China, efforts to contain the virus were ramped up ahead of the
Beijing Winter Olympics in February. Among the drastic steps taken were
locking down cities such as Xian, Tianjin, Dalian, Shenzhen and Ningbo. Such
measures inevitably impacted and may continue to affect visitor numbers to
Macau.
The proposed travel bubble involving mainland China, Macau and Hong Kong is
also a casualty of the zero-COVID strategy as it has been postponed several
times as Hong Kong struggled to manage its COVID cases. The latest
postponement at the end of 2021 was particularly disappointing for Macau
businesses as advanced preparations for its launch were in progress, including
a new health code to facilitate travel by Hong Kong residents to mainland
China and Macau.
The absence of an exit strategy from zero-COVID and plans on "living with
COVID" in Macau and mainland China is concerning as Macau's economic engines -
gaming and tourism - can only approach pre-pandemic levels when cross-border
travel within Greater China is fully restored. There is speculation that the
strategy may continue beyond the Winter Olympics until the Chinese Communist
Party's 20th National Party Congress which is scheduled for the autumn of
2022.
Economy hit by zero-COVID
The return of mainland Chinese tourists since Q3 2020 has driven a gradual
recovery of the territory's economy, but this has been subject to setbacks
throughout H2 2021 as ongoing COVID flare ups in mainland China and Hong Kong
affected the ease of travel to Macau. While gross domestic product (GDP) is
forecast by Fitch Ratings to grow by 25% for FY 2021, GDP remains well below
pre-pandemic levels.
Policy Address continues to emphasise integration into the Greater Bay Area
Macau Chief Executive, Ho Iat Seng, delivered his annual Policy Address in
November. He emphasised the policies of mainland China, including the
diversification of Macau's economy to integrate with the Greater Bay Area. He
also highlighted the priority placed on managing the pandemic and stabilising
Macau's economic recovery. These themes also featured prominently in his New
Year address.
A turbulent period for gaming
Macau's gross gaming revenue (GGR) grew 43.7% YoY for FY2021 to MOP86.86
billion (US$10.82 billion). However, this was approximately 20% of
pre-pandemic GGR in 2019.
The industry faced several challenges in H2 2021. There were disruptions as
the Macau authorities tightened their border control measures in response to
COVID-19 outbreaks in mainland China.
In addition, the industry was rocked by the arrest of the CEO of Suncity,
Macau's largest junket operator, in November. It was particularly concerning
as the allegations of illegality were centred on activities considered to be
in the ordinary course of business for junket operators. This was followed by
a regulatory ban on junkets extending credit to clients, which led to the
closure of junket operations throughout Macau's casinos. Although VIP gaming
had been in decline for several years, its abrupt end will see a loss of
approximately 30% of GGR for the industry.
The public consultation on the new gaming laws for Macau caused a stir as the
government put forward several proposals, including appointing government
delegates to the boards of concessionaires. This would have required casino
operators to obtain prior government approval before paying dividends. Gaming
tax increases were also proposed. Nevertheless, industry concerns were
addressed as the government published the results of the public consultation
and its responses, which indicated that the three contentious proposals would
be dropped from the draft bill. It also suggested that there is likely to be a
maximum of six concessions available for tender for a period of ten years,
with possible extensions for a further three years. Industry players had
commented positively on the transparency of the public consultation and
clarification provided by the government.
Tourism began to recover following the relaxation in travel and visa
restrictions for mainland Chinese
Despite the disruptions caused by the prevailing zero-COVID strategy in Macau,
and mainland China being its main source of in-bound tourists, Macau's tourist
arrivals grew 31% YoY in 2021 to 7.7 million, which is approximately 20% of
pre-pandemic 2019 numbers.
Mainland Chinese accounted for 7 million visitors, with 4.1 million arriving
from the nine main cities in the Greater Bay Area. The visitors from the
Greater Bay Area had leapt 60% YoY in 2021.
The average length of stay increased by 0.2 of a day YoY to 1.6 days, with
overnight visitors recording longer stays of 3.2 days, up by an average of 0.4
of a day compared to 2020. There were nearly 3.7 million overnight visitors, a
31% YoY increase, accounting for 48% of total visitors.
The pipeline of new resorts continues to expand with Melco Resorts and
Entertainment Ltd's plans to open Macau's first W Hotel on Cotai as part of
its expansion of its Studio City property. Targeting a December 2022 launch,
the hotel will offer premium facilities including 557 guest rooms and 11,840
square feet of event and meeting space.
PROPERTY MARKET OVERVIEW
Impacted by renewed concerns over COVID created by the outbreaks and mass
testing, Macau's residential property market remained relatively quiet in Q4
2021, with a total of 1,173 transactions - a decline of 26% YoY and the luxury
end of the market remained stagnant affected by external factors and muted by
current sentiment. For the full year, a total of 5,970 residential units were
transacted, down 7% YoY. Overall, prices remained largely stable at US$1,170
per square foot. First-time buyers accounted for 83% of all transactions,
second time buyers accounted for 14%, and the remaining 3% were buyers
purchasing residential properties for at least the third time.
Within the Greater Bay Area, luxury home sales in Hong Kong were unabated amid
the pandemic and achieved a few record highs in 2021. The value of
transactions involving properties worth more than HK$100 million (US$12.8
million) in the first 11 months of the year reached HK$46.4 billion (US$5.95
billion), 60% higher than the value for full-year 2020. This is remarkable
against a backdrop of closed borders and global economic uncertainties. Such
demand is largely underpinned by founders and senior executives of Chinese
companies in the "new economies" segment recently listed on Hong Kong's stock
exchange.
Given Macau's track record on public health, alongside infrastructure and
connectivity improvements, investors may look to the territory's luxury
property market, prices of which are at a five-year low, as they return to the
Greater Bay Area and economic activity in the region resumes more fully.
Looking Ahead
Macau, Hong Kong and mainland China are maintaining stringent zero-COVID
policies that are expected to remain in place for some time. Macau's economy
will remain vulnerable to disruption by COVID outbreaks on the Chinese
mainland and locally, as seen in H2 2021, and more recently in January 2022,
with the 14-day ban on international flights to Macau to curb the spread of
the Omicron variant.
On the overall economy, as noted by the Economist Intelligence Unit, beneath
Macau's current growth rates lies economic fragility as COVID-19 has decimated
its two main economic activities - inbound tourism and gaming - and as such,
Macau's economy will not be able to return to pre-COVID levels until 2023 at
the earliest. It has nonetheless forecast that Macau's GDP will expand by 21%
YoY in 2022.
In terms of gaming, Fitch Ratings expects Macau's GGR to pick up in 2022,
particularly if the travel bubble with Hong Kong goes into operation. This
would boost the gaming and tourism industry and contribute to a potential
spill-over into the retail and the property sectors. Morgan Stanley's forecast
for GGR in 2022 and 2023 are, respectively, 42% and 70% of 2019's pre-pandemic
numbers. These numbers are lower than previous forecasts, with 2022 numbers
cut by 30% and 2023 cut by 20% based on a recovery described as "choppy".
Tourism is also set to grow incrementally, with the Macau Government Tourism
Office forecasting 10 million arrivals in 2022. However, the underlying
assumptions - the launch of a travel bubble with Hong Kong and the resumption
of the e-visa programme for mainland Chinese visitors - are likely to take a
backseat in the coming months given the current escalation of COVID-19
outbreaks in both Hong Kong and mainland China.
Nevertheless, the Macau government has warned that the economic conditions are
expected to remain challenging in 2022 and a recovery from the pandemic will
take time. It has consistently also outlined specific plans for Macau's role
within the Greater Bay Area to diversify its economy away from gaming and turn
the territory into the area's technology and tourism hub. Although the plan is
still in its early stages, the potential for the property market to gain from
such measures is clear.
Restrictions on travellers from other countries will, however, limit the
number of potential buyers of the Company's properties and continue to disrupt
the Company's divestment plan in the near term. We will continue to pursue a
variety of strategies for divestment of the remaining assets on acceptable
terms and within current market conditions. A reduction of debt followed by a
return of capital to Shareholders in the shortest possible timeframe remains
the primary objective.
INTERIM FINANCIAL STATEMENTS
Directors' Statement of Responsibilities
The Directors are responsible for preparing this half-yearly financial report
in accordance with applicable law and regulations.
The Directors confirm that to the best of their knowledge:
• the interim condensed consolidated financial statements have been
prepared in accordance with IAS 34 Interim Financial Reporting as adopted by
the European Union; and
• the Chairman's Message and Manager's Report meet the requirements of
an interim management report, and include a fair review of the information
required by:
a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication
of important events that have occurred during the first six months of the
financial year and their impact on the interim condensed consolidated
financial statements; and a description of the principal risks and
uncertainties for the year to date and the remaining six months of the year;
and
b. DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the related
party transactions described in the last annual report that could do so.
On behalf of the Board
Mark Huntley
Chairman
25 February 2022
Interim Condensed Consolidated Statement of Financial Position (Unaudited)
As at 31 December 2021
Unaudited Unaudited Audited
31 Dec 2021 31 Dec 2020 30 Jun 2021
Note US$'000 US$'000 US$'000
ASSETS
Non-current assets
Investment property 3 196,450 199,944 199,629
Deposits with lenders 4 6,416 6,668 6,657
Trade and other receivables 16 111 111
202,882 206,723 206,397
Current assets
Inventories 6 34,725 35,592 34,924
Trade and other receivables 124 454 503
Deposits with lenders 4 - 175 175
Cash and cash equivalents 5 531 8,409 5,003
35,380 44,630 40,605
Total assets 238,262 251,353 247,002
EQUITY
Capital and reserves attributable to the Company's
equity holders
Share capital 13 618 618 618
Retained earnings 77,182 83,636 81,440
Distributable reserves 15,791 15,791 15,791
Foreign currency translation reserve (364) 222 56
Total equity 93,227 100,267 97,905
LIABILITIES
Non-current liabilities
Deferred taxation provision 12 11,431 11,819 11,786
Taxation provision 12 418 578 705
Interest-bearing loans 7 103,165 97,404 114,624
115,014 109,801 127,115
Current liabilities
Trade and other payables 955 1,335 1,176
Interest-bearing loans 7 29,066 39,950 20,806
30,021 41,285 21,982
Total liabilities 145,035 151,086 149,097
Total equity and liabilities 238,262 251,353 247,002
Net Asset Value per share (US$) 9 1.51 1.62 1.58
Adjusted Net Asset Value per share (US$) 9 1.96 2.14 2.08
The interim condensed consolidated financial statements were approved by the
Board of Directors and authorised for issue on 25 February 2022.
The notes form part of these interim condensed consolidated financial
statements.
Interim Condensed Consolidated Statement of Comprehensive Income (Unaudited)
For the six-month period from 1 July 2021 to 31 December 2021
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 2021 31 Dec 2020 30 Jun 2021
Note US$'000 US$'000 US$'000
Income
Income on sale of inventories 6 1,515 8,241 9,863
Rental income 567 670 1,231
2,082 8,911 11,094
Expenses
Net loss from fair value adjustment on investment property 3 2,530 122 245
Cost of sales of inventories 6 522 4,160 4,787
Management fee 11 600 736 1,336
Realisation fee 11 23 217 217
Non-executive directors' fees 11 92 94 196
Auditors' remuneration: audit fees 70 58 134
Auditors' remuneration: non-audit fees - - 8
Property operating expenses 705 766 1,577
Sales and marketing expenses 85 607 717
General and administration expenses 313 296 552
Loss/(Gain) on foreign currency translation 4 (8) (18)
(4,944) (7,048) (9,751)
Operating (loss)/profit for the period/year (2,862) 1,863 1,343
Finance income and expenses
Bank loan interest 7 (1,404) (1,737) (3,230)
Other financing costs (212) (169) (367)
(1,616) (1,906) (3,597)
Loss for the period/year before tax (4,478) (43) (2,254)
Taxation 12 220 (237) (222)
Loss for the period/year after tax (4,258) (280) (2,476)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations (420) (29) (195)
Total comprehensive loss for the period/year (4,678) (309) (2,671)
Loss attributable to:
Equity holders of the Company (4,258) (280) (2,476)
Total comprehensive loss attributable to:
Equity holders of the Company (4,678) (309) (2,671)
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$ US$ US$
Basic and diluted loss per Ordinary Share attributable to the equity holders 8 (0.0689) (0.0045) (0.0400)
of the Company during the period/year
All items in the above statement are derived from continuing operations.
The notes form part of these interim condensed consolidated financial
statements.
Interim Condensed Consolidated Statement of Changes in Equity (Unaudited)
Movement for the six-month period from 1 July 2021 to 31 December 2021
(unaudited)
Share Retained Distributable Foreign Total
capital earnings reserves currency
translation
reserve
US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought forward at 1 July 2021 618 81,440 15,791 56 97,905
Loss for the period - (4,258) - - (4,258)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations - - - (420) (420)
Total comprehensive loss for the period - (4,258) - (420) (4,678)
Balance carried forward at 31 December 2021 618 77,182 15,791 (364) 93,227
Movement for the six-month period from 1 July 2020 to 31 December 2020
(unaudited)
Share Retained Distributable Foreign Total
capital earnings reserves currency
translation
reserve
US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought forward at 1 July 2020 618 83,916 15,791 251 100,576
Loss for the period - (280) - - (280)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations - - - (29) (29)
Total comprehensive loss for the period - (280) - (29) (309)
Balance carried forward at 31 December 2020 618 83,636 15,791 222 100,267
Movement for the year from 1 July 2020 to 30 June 2021 (audited)
Share Retained Distributable Foreign Total
capital earnings reserves currency
translation
reserve
US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought forward at 1 July 2020 618 83,916 15,791 251 100,576
Loss for the year - (2,476) - - (2,476)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations - - - (195) (195)
Total comprehensive loss for the year - (2,476) - (195) (2,671)
Balance carried forward at 30 June 2021 618 81,440 15,791 56 97,905
The notes form part of these interim condensed consolidated financial
statements.
Interim Condensed Consolidated Statement of Cash Flows (Unaudited)
For the six-month period from 1 July 2021 to 31 December 2021
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 2021 31 Dec 2020 30 Jun 2021
Note US$'000 US$'000 US$'000
Net cash (used in)/generated from operating activities 10 (424) 5,804 5,952
Cash flows from investing activities
Capital expenditure on investment property 3 (218) (122) (245)
Movement in pledged bank balances 416 (2,390) (2,379)
Net cash generated from/(used in) investing activities 198 (2,512) (2,624)
Cash flows from financing activities
Proceeds from bank borrowings 9,383 69,658 101,747
Repayment of bank borrowings (12,155) (78,045) (111,699)
Interest and bank charges paid (1,425) (2,570) (4,419)
Net cash used in financing activities (4,197) (10,957) (14,371)
Net movement in cash and cash equivalents (4,423) (7,665) (11,043)
Cash and cash equivalents at beginning of period/year 5,003 16,078 16,078
Effect of foreign exchange rate changes (49) (4) (32)
Cash and cash equivalents at end of period/year 531 8,409 5,003
The notes form part of these interim condensed consolidated financial
statements.
Notes to the Interim Condensed Consolidated Financial Statements (Unaudited)
For the six-month period from 1 July 2021 to 31 December 2021
General information
Macau Property Opportunities Fund Limited (the "Company") is a Company
incorporated and registered in Guernsey under The Companies (Guernsey) Law,
1994. This law was replaced by the Companies (Guernsey) Law, 2008 on 1 July
2008. The Company is an authorised entity under the Authorised Closed-Ended
Investment Schemes Rules 2008 and is regulated by the Guernsey Financial
Services Commission. The address of the registered office is given in the
Directors and Company Information section.
The interim condensed consolidated financial statements for the six months
ended 31 December 2021 comprise the interim financial statements of the
Company and its subsidiaries (together referred to as the "Group"). The Group
invests in residential property in Macau.
There have been no changes to the Group's principal risks and uncertainties in
the six-month period to 31 December 2021 and the Board of Directors does not
anticipate any changes to the principal risks and uncertainties in the second
half of the year. Principal risks and uncertainties are further discussed in
the Manager's Report.
The interim condensed consolidated financial statements are presented in US
Dollars ("US$") and are rounded to the nearest thousand ($'000).
These interim condensed consolidated financial statements have been approved
for issue by the Board of Directors on 25 February 2022.
1 Significant accounting policies
Basis of accounting
The annual consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards ("IFRS"), as adopted by the
European Union; applicable legal and regulatory requirements of Guernsey Law
and under the historical cost basis, except for financial assets and
liabilities held at fair value through profit or loss ("FVPL") and investment
properties that have been measured at fair value. The accounting policies and
valuation principles adopted are consistent with those of the previous
financial year.
The interim condensed consolidated financial statements have been prepared in
accordance with International Accounting Standard ("IAS") 34, Interim
Financial Reporting. The same accounting policies and methods of computation
are followed in the interim financial statements as compared with the annual
financial statements. The interim condensed consolidated financial statements
do not include all information and disclosures required in the annual
financial statements and should be read in conjunction with the Group's annual
financial statements as of 30 June 2021.
New and amended standards and interpretations applied
The following amendments to existing standards and interpretations are
effective for the year ended 30 June 2022 and therefore were applied in the
current period but did not have a material impact on the Group:
• Amendments to IFRS 4, IFRS 7, IFRS 9, IFRS 16 and IAS 39- IBOR reform
• Amendments to IFRS 16 - COVID-19 rent concessions
Going concern
The Group continues to meet its capital requirements and day-to-day liquidity
needs through the Group's cash resources. As part of their assessment of the
going concern of the Group as at 31 December 2021, the Directors have reviewed
the comprehensive cash flow forecasts prepared by management which make
assumptions based upon current and expected future market conditions,
including predicted future sales of properties taking into consideration
current market circumstances. It is the Directors' belief that, based upon
these forecasts and their assessment of the Group's committed banking
facilities, it is appropriate to prepare the financial statements of the Group
on a going concern basis.
The Directors, after the continuation resolution was passed at the Annual
General Meeting of the Company on 22 December 2021 extending the Fund's life
until 22 December 2022, assessed whether the continuation vote before the end
of 2022 gives rise to a material uncertainty that might cast significant doubt
on the Fund's ability to continue as a going concern. The Directors have also
considered the going concern assumption outside the primary going concern
horizon. The Directors currently expect to receive continuation support from
major shareholders and over 50% of shareholder support is required in December
2022 to ensure continuation; it is likely that returns from the sale of
properties could well be significantly lower if the Fund was forced to sell as
a result of discontinuation and it is therefore commercially rational for the
Fund to continue in business. Therefore, the Directors believe it is
appropriate to prepare the financial statements of the Group on the going
concern basis based upon existing cash resources, the forecasts described
above, the extension of the life of the Company until December 2022 agreed at
the Annual General Meeting on 22 December 2021 and the Directors' assessment
of the Group's committed banking facilities and expected continuing compliance
with related covenants.
The continuing impact of the COVID-19 pandemic has had a negative effect on
the valuation of the Group's investment portfolio. A sale transaction
completed in the current period. The pandemic has not had a significant impact
on the loan covenants held by the Group. The overall uncertainty brought about
by COVID-19 and its impact on the Group is continuing to be closely monitored
by the Board.
2. Segment reporting
The Chief Operating Decision Maker (the "CODM") in relation to Macau Property
Opportunities Fund Limited is deemed to be the Board itself. The factors used
to identify the Group's reportable segments are centred on asset class,
differences in geographical area and differences in regulatory environment.
Furthermore, foreign exchange and political risk are identified, as these also
determine where resources are allocated.
Based on the above and a review of information provided to the Board, it has
been concluded that the Group is currently organised into one reportable
segment based on the single geographical sector, Macau.
This segment refers principally to residential properties. Furthermore, there
are multiple individual properties that are held within each property type.
However, the CODM considers, on a regular basis, the operating results and
resource allocation of the aggregated position of all property types as a
whole, as part of their on-going performance review. This is supported by a
further breakdown of individual property groups only to help support their
review and investment appraisal objectives.
3. Investment property
Unaudited Unaudited Audited
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
At beginning of the period/year 199,629 199,988 199,988
Capital expenditure on property 218 122 245
Fair value adjustment (2,530) (122) (245)
Exchange difference (867) (44) (359)
Balance at end of the period/year 196,450 199,944 199,629
Valuation losses (fair value adjustment) from investment property are
recognised in profit and loss for the period and are attributable to changes
in unrealised losses relating to investment property held at the end of the
reporting period.
The valuation process is initiated by the Investment Adviser with the Board
consent and approval, who appoints a suitably qualified valuer to conduct the
valuation of the investment property. The results are overseen by the
Investment Adviser. Once satisfied with the valuations based on their
expectations, the Investment Adviser reports the results to the Board. The
Board ordinarily meets with the valuer and reviews the latest valuations based
on their knowledge of the property market and compare these to previous
valuations. These meetings have been suspended since 2019.
The Group's investment properties were revalued at 31 December 2021 by an
independent, professionally-qualified valuer: Savills (Macau) Limited
("Savills"). The valuation has been carried out in accordance with the current
Royal Institution of Chartered Surveyors (RICS) Appraisal and Valuation
Standards to calculate the market value of the investment properties in their
existing state and physical condition, with the assumptions that:
• The owner sells the property in the open market without any
arrangement, which could serve to affect the value of the property.
• The property is held for investment purposes.
• The property is free from encumbrances, restrictions and outgoings of
any onerous nature which could affect its value.
The fair value of investment property is independently determined by Savills,
using recognised valuation techniques. The technique deployed was the income
capitalisation method. The determination of the fair value of investment
property requires the use of estimates such as future cash flows from assets
(such as lettings, tenants' profiles, future revenue streams, capital values
of fixtures and fittings, plant and machinery, any environmental matters and
the overall repair and condition of the property) and discount rates
applicable to those assets. These estimates are based on local market
conditions existing at the reporting date.
See Note 12 in relation to deferred tax liabilities on investment property.
Capital expenditure on property during the period relates to fit-out costs for
The Waterside.
Rental income arising from The Waterside of US$566,000 (6 months ended 31
December 2020: US$670,000, 12 months ended 30 June 2021: US$1,230,000) was
received during the period. Direct operating expenses of US$451,000 (6 months
ended 31 December 2020: US$481,000, 12 months ended 30 June 2021: US$956,000)
arising from rented units were incurred during the six-month period. Direct
operating expenses during the period arising from vacant units totalled
US$200,000 (6 months ended 31 December 2020: US$197,000, 12 months ended 30
June 2021: US$395,000).
The table below shows the assumptions used in valuing the investment
properties which are classified as Level 3 in the fair value hierarchy:
Property information Carrying amount/ Valuation technique Input Unobservable and Other key
fair value as at observable inputs used information
31 December 2021: in determination of
US$'000 fair values
Name The Waterside 196,450 Term and Reversion Analysis Term rent (inclusive of management fee and furniture) HK$17.6 psf Age of building
(30 June 2021:
HK$17.8 psf)
Type Residential/Completed apartments Term yield (exclusive of management fee and furniture) 1.4%-2.2% Remaining useful life of building
(30 June 2021:
1.4%-2.2%)
Location One Central Tower 6 Macau Reversionary rent (exclusive of management fee and furniture) HK$14.07 psf
(30 June 2021:
HK$15.6 psf)
Reversionary yield 1.55%
(30 June 2021: 1.7%)
The fair value of The Waterside is determined using the income approach, more
specifically a term and reversion analysis, where a property's fair value is
estimated based on the rent receivable and normalised net operating income
generated by the property, which is divided by the capitalisation (discount)
rate. The difference between gross and net rental income includes the same
expense categories as those for the discounted cash flow method with the
exception that certain expenses are not measured over time, but included on
the basis of a time weighted average, such as the average lease up costs.
Under the income capitalisation method, over and under-rent situations are
separately capitalised (discounted).
If the estimated reversionary rent increased/decreased by 5%, (and all other
assumptions remained the same), the fair value of The Waterside would increase
by US$10 million (6 months ended 31 December 2020: US$10 million, 12 months
ended 30 June 2021: US$10 million) or decrease by US$10 million (6 months
ended 31 December 2020: US$10 million, 12 months ended 30 June 2021: US$10
million).
If the term and reversionary yield or discount rate increased/decreased by 5%,
(and all other assumptions remained the same), the fair value of The Waterside
would decrease by US$9 million (6 months ended 31 December 2020: US$10
million, 12 months ended 30 June 2021: US$10 million) or increase by US$10
million (6 months ended 31 December 2020: US$11 million, 12 months ended 30
June 2021: US$10 million).
The same valuation method was deployed in June 2021 and December 2021.
The Waterside is currently valued at its highest and best use. There is no
extra evidence available to suggest that it has an alternative use that would
provide a greater fair value measurement.
There have been no transfers between levels during the period or any change in
valuation technique since the last period.
4. Deposits with lenders
Deposits with lenders represent deposits that are restricted as to usage
pursuant to the terms of the banking facilities granted to the Group. Deposits
amounting to US$6.4 million (31 December 2020: US$6.7 million, 30 June 2021:
US$6.8 million) were associated with long-term banking facilities and
classified as non-current assets, of which US$2.9 million (31 December 2020:
US$1.4 million, 30 June 2021: $1.4 million) represented a six-month interest
reserve pledged as collateral for credit facilities. The remainder of the
balance represents a deposit from which any withdrawal for payment of
operating costs is subject to consent from the lender. There are no other
significant terms and conditions associated with these pledged bank balances.
Unaudited Unaudited Audited
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Non-current 6,416 6,668 6,657
Current - 175 175
6,416 6,843 6,832
5. Cash and cash equivalents
In addition to cash and cash equivalent balances of US$531,000, additional
deposits with lenders of US$3.5 million are available to meet operating costs,
subject to lender approval (see Note 4).
6. Inventories
Unaudited Unaudited Audited
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Cost
Balance brought forward 34,924 39,631 39,631
Additions 475 128 146
Disposals (522) (4,159) (4,782)
Exchange difference (152) (8) (71)
Balance carried forward 34,725 35,592 34,924
Additions include capital expenditure, development costs and capitalisation of
financing costs.
Under IFRS, inventories are valued at the lower of cost and net realisable
value. The carrying amounts for inventories as at 31 December 2021 amounts to
US$34,725,000 (6 months ended 31 December 2020: US$35,592,000, 12 months ended
30 June 2021: US$34,924,000). Net realisable value as at 31 December 2021 as
determined by the independent, professionally-qualified valuer, Savills, was
US$62,319,000 (6 months ended 31 December 2020: US$66,848,000, 12 months ended
30 June 2021: US$65,114,000).
During the period ended 31 December 2021, one residential unit of The
Fountainside was sold for a total consideration of US$1.5 million (HK$11.8
million) against a total cost of US$0.5 million (HK$4.1 million) which
resulted in a net profit of US$1.0 million (HK$7.7 million) after all
associated fees and transaction costs.
During the year ended 30 June 2021, four residential units and one car parking
space of The Fountainside and one individual unit of One Central Residences
were sold for a total consideration of US$9.9 million (HK$76.5 million)
against a total cost of US$4.8 million (HK$37.1 million) which resulted in a
net profit of US$5.1 million (HK$39.4 million) after all associated fees and
transaction costs.
During the period ended 31 December 2020, three residential units and one car
parking space of The Fountainside and one individual unit of One Central
Residences were sold for a total consideration of US$8.2 million (HK$63.9
million) against a total cost of US$4.1 million (HK$32.3 million) which
resulted in a net profit of US$4.1 million (HK$31.6 million) after all
associated fees and transaction costs.
7. Interest-bearing loans
Unaudited Unaudited Audited
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Bank loans - Secured
- Current portion 29,066 39,950 20,806
- Non-current portion 103,165 97,404 114,624
132,231 137,354 135,430
There are interest-bearing loans with three banks:
Hang Seng Bank
The Group has a term loan facility with Hang Seng Bank for The Waterside.
In September 2020, the Group executed a HK$540 million (US$69.7 million)
five-year term loan facility (Tranche 7) to refinance previous tranches which
were due for settlement in September 2020. In March 2021, the Group executed a
HK$250 million (US$32.2 million) four-year term facility (Tranche 8) to
refinance previous tranches which were due for settlement in March 2021.
As at 31 December 2021, three tranches remained outstanding. Tranche 6 had an
outstanding balance of HK$108 million (US$13.8 million) (31 December 2020:
HK$358 million (US$46.2 million), 30 June 2021: HK$108 million (US$13.9
million)); Tranche 7 had an outstanding balance of HK$512 million (US$65.7
million) (31 December 2020: HK$515 million (US$66.5 million), 30 June 2021:
HK$515 million (US$66.4 million)); and Tranche 8 had an outstanding balance of
HK$238 million (US$30.5 million) (31 December 2020: HK$nil (US$nil), 30 June
2021: HK$250 million (US$32.2 million)).
The interest rates applicable to Tranche 6 of the term loan is 1.9% per annum
over the 1-, 2- or 3-month HIBOR rate. The interest rates applicable to
Tranche 7 and Tranche 8 is 1.8% per annum over the 1-, 2-or 3-month HIBOR
rate. The choice of rate is at the Group's discretion. Tranche 3, Tranche 4
and Tranche 5 were fully repaid in September 2020. Tranche 6 matures in
September 2022 and the principal is to be repaid in half-yearly instalments
commencing from September 2020, with 25% of the principal due upon maturity.
Tranche 7 matures in September 2025 and the principal is to be repaid in nine
instalments commencing from December 2020 with 58% of the principal due upon
maturity. Tranche 8 matures in March 2025 and the principal is to be repaid in
seven instalments commencing from December 2021 with 34% of the principal due
upon maturity. The loan-to-value covenant is 60%. As at 31 December 2021, the
loan-to-value ratio for the Hang Seng One Central facility was 55.97%. The
facility is secured by means of a first registered legal mortgage over The
Waterside as well as a pledge of all income from the units. The Company is
the guarantor for the credit facility. In addition, the Group is required to
maintain a cash reserve equal to six months' interest with the lender.
The Group has a loan facility for The Fountainside.
The Group has executed a loan facility with Hang Seng Bank to refinance the
credit facility with the Industrial and Commercial Bank of China (Macau)
Limited in relation to The Fountainside. The Facility amount is HK$96 million
(US$12.3 million) divided into 2 tranches, with a tenor of 4 years to mature
in March 2024. Tranche A is a facility for an amount of HK$89 million (US$11.4
million) for refinancing the loan facility with ICBC, which expired in March
2020. Tranche B is a facility for an amount of HK$7 million (US$0.9 million)
for financing the alteration costs of The Fountainside. The facility of
Tranche A was fully drawdown in March 2020 to repay the ICBC facility, while
the facility of Tranche B in the amount of HK$3 million (US$0.4 million) was
drawn down in October 2021. The interest rates applicable to Tranche A and
Tranche B are 2.8% per annum and 3.3% per annum respectively over the 1-, 2-
or 3-month HIBOR rate. The choice of rate is at the Group's discretion. The
principal of Tranche A is to be repaid half-yearly with remaining instalments
commencing in September 2023 with 27% of the principal due upon maturity while
repayment for Tranche B is due in full at maturity in June 2022. The
loan-to-value covenant is 55%. The facility is secured by means of a first
registered legal mortgage over all unsold units and car parking spaces of The
Fountainside as at the loan facility date as well as a pledge of all income
from the units and the car parking spaces. The Company is the guarantor for
the credit facility. In addition, the Group is required to maintain a cash
reserve equal to six months' interest with the lender.
As at 31 December 2021, the facility had an outstanding balance of HK$42
million (US$5.4 million) (31 December 2020: HK$50.9 million (US$6.6 million),
30 June 2021: HK$39 million (US$5.0 million)). As at 31 December 2021, the
loan-to-value ratio for this facility was 28.09%.
The Group has two loan facilities for Estrãda da Penha:
Banco Tai Fung
The loan facility with Banco Tai Fung originally had a term of two years and
the facility amount was HK$70 million which expired in June 2021 and was
subsequently renewed for another term of one year. Interest was revised to
Prime Rate minus 2.25% per annum in June 2021. Repayment is due in full at
maturity in June 2022. As at 31 December 2021, the facility had an outstanding
balance of HK$70 million (US$9.0 million) (31 December 2020: HK$70 million
(US$9.0 million), 30 June 2021: HK$70 million (US$9.0 million)). This facility
is secured by a first legal mortgage over the property as well as a pledge of
all income from the property. The Company is the guarantor for this term loan.
Interest is paid monthly on this loan facility. As at 31 December 2021, the
loan-to-value ratio for this facility was 44.87%. There is no loan-to-value
covenant for this loan.
Banco Comercial de Macau, S. A. ("BCM Bank")
During the period, the Group has executed a loan facility with BCM Bank to
refinance the credit facility with the Industrial and Commercial Bank of China
(Macau) Limited in relation to Estrãda da Penha. The facility amount is HK$70
million with a tenor of 2 years to mature in December 2023. The interest rate
is 2.55% per annum over the 3-month HIBOR rate and repayment is due in full at
maturity in December 2023. As at 31 December 2021, the facility had an
outstanding balance of HK$70 million (US$9.0 million) (31 December 2020: HK$79
million (US$10.2 million), 30 June 2021: HK$79 million (US$10.2 million)).
This facility is secured by a first legal mortgage over the property as well
as a pledge of all income from the property. The Company is the guarantor for
this term loan. In addition, the Group is required to maintain a cash reserve
equal to six months' interest with the lender. Interest is paid monthly on
this loan facility. The loan-to-value covenant is 50%. As at 31 December 2021,
the loan-to-value ratio for this facility was 37.63%.
Bank Loan Interest
Bank loan interest paid during the period was US$1,404,000 (6 months ended 31
December 2020: US$1,737,000, 12 months ended 30 June 2021: US$3,230,000). As
at 31 December 2021, the carrying amount of interest-bearing loans included
unamortised prepaid loan arrangement fee of US$1,043,000 (31 December 2020:
US$1,084,000, 30 June 2021: US$1,212,000).
Fair Value
Interest-bearing loans are carried at amortised cost. The fair value of fixed
rate financial assets and liabilities carried at amortised cost are estimated
by comparing market interest rates when they were first recognised with
current market rates for similar financial instruments.
The estimated fair value of fixed interest bearing loans is based on
discounted cash flows using prevailing market interest rates for debts with
similar credit risk and maturity. As at 31 December 2021, the fair value of
the financial liabilities was US$79,000 lower than the carrying value of the
financial liabilities (31 December 2020: US$184,000 lower than the carrying
value of the financial liabilities, 30 June 2021: US$72,000 higher than the
carrying value of the financial liabilities).
The Group's interest-bearing loans have been classified within Level 2 as they
have observable inputs from similar loans. There have been no transfers
between levels during the period or a change in valuation technique since last
period.
8. Basic and diluted loss per Ordinary Share
Basic and diluted loss per equivalent Ordinary Share is based on the following
data:
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 2021 31 Dec 2020 30 Jun 2021
Loss for the period/year (US$'000) (4,258) (280) (2,476)
Weighted average number of Ordinary Shares ('000) 61,836 61,836 61,836
Basic and diluted loss per share (US$) (0.0689) (0.0045) (0.0400)
9. Net asset value reconciliation
Unaudited Unaudited Audited
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Net assets attributable to ordinary shareholders 93,227 100,267 97,905
Uplift of inventories held at cost to market value 28,224 31,931 30,848
Adjusted Net Asset Value 121,451 132,198 128,753
Number of Ordinary Shares Outstanding ('000) 61,836 61,836 61,836
NAV per share (IFRS) (US$) 1.51 1.62 1.58
Adjusted NAV per share (US$) 1.96 2.14 2.08
Adjusted NAV per share (£)* 1.45 1.57 1.50
* US$:GBP rates as at relevant period/year end
The NAV per share is arrived at by dividing the net assets as at the date of
the consolidated statement of financial position, by the number of Ordinary
Shares in issue at that date.
Under IFRS, inventories are carried at the lower of cost and net realisable
value. The Adjusted NAV includes the uplift of inventories to their market
values before any tax consequences or adjustments.
The Adjusted NAV per share is derived by dividing the Adjusted NAV as at the
date of the consolidated statement of financial position, by the number of
Ordinary Shares in issue at that date.
There are no potentially dilutive instruments in issue.
10. Cash flows from operating activities
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Cash flows from operating activities
Loss for the period/year before tax (4,478) (43) (2,254)
Adjustments for:
Net loss from fair value adjustment on investment property 2,530 122 245
Net finance costs 1,616 1,906 3,597
Operating cash flows before movements in working capital (332) 1,985 1,588
Effect of foreign exchange rate changes 1 (8) (18)
Movement in trade and other receivables 474 (88) (137)
Movement in trade and other payables (400) (95) (96)
Movement in inventories 47 4,031 4,636
Net change in working capital 121 3,848 4,403
Taxation paid (214) (21) (21)
Net cash (used in)/generated from operating activities (424) 5,804 5,952
Cash and cash equivalents (which are presented as a single class of assets on
the face of the interim condensed consolidated statement of financial
position) comprise cash at bank and other short-term, highly-liquid
investments with a maturity of three months or less.
11. Related party transactions
Directors of the Company are all Non-Executive and by way of remuneration,
receive only an annual fee which is denominated in Sterling.
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Directors' fees 92 94 196
The Directors are considered to be the key management personnel (as defined
under IAS 24) of the Company. Directors' fees outstanding as at 31 December
2021 were US$46,000 (31 December 2020: US$41,000, 30 June 2021: US$47,000).
Sniper Capital Limited is the Manager to the Group and received management
fees during the period as detailed in the Interim Condensed Consolidated
Statement of Comprehensive Income. Management fees are paid quarterly in
advance and amounted to US$600,000 (6 months ended 31 December 2020:
US$736,000, 12 months ended 30 June 2021: US$1,336,000) at a quarterly fixed
rate of US$300,000 per annum (fee of 1.0% per annum of the Net Asset Value
until 31 December 2020, as adjusted to reflect the Property Investment
Valuation Basis).
A realisation fee shall be payable on deals originated and secured by the
Manager in 2020 and 2021 which shall be linked to the sales price achieved.
Where the sale price of the asset is 90 per cent. or more of the value of the
relevant asset as at 30 September 2019 (the "Carrying Value") a fee of 2.5 per
cent. of net proceeds (net of debt, costs and taxes) ("Net Proceeds") shall be
payable; where the sale price of an asset is more than 80 per cent. but less
than 90 per cent. of the Carrying Value of the relevant asset, a realisation
fee of 1.5 per cent. of Net Proceeds shall be payable; and where the sale
price of an asset is less than 80 per cent. of the Carrying Value, no
realisation fee shall be payable. Realisation fees for the period totalled
US$23,000 (6 months ended 31 December 2020: US$217,000, 12 months ended 30
June 2021: US$217,000). For the calendar year 2022, a realisation fee of 1.5
per cent. shall be payable on sales of assets above 80 per cent. of the
Carrying Values and a management fee of US$300,000 per quarter shall be
payable.
Additionally, in the event that divestments of all of the assets were secured
by the Manager (either in one transaction or multiple transactions) prior to
31 December 2020, an extra incentive fee equal to 1 per cent. of the Net
Proceeds of the assets was payable (the "Extra Incentive Fee"), subject to the
aggregate sale price of those assets exceeding 80 per cent. of the Carrying
Values of the relevant assets in aggregate. The time period for securing the
realisation of all assets in order for the Manager to qualify for the Extra
Incentive Fee may be extended for a further six month period subject to the
satisfaction of certain conditions. In no circumstances will the 2020
Realisation fee and Incentive Fee exceed in aggregate US$5 million. The 2021
Realisation fee, active until 31 December 2021, (together with Incentive Fee
(if any) during such period) shall not exceed in aggregate US$3.8 million.
Incentive fees payable for the period totalled US$nil (6 months ended 31
December 2020: US$nil, 12 months ended 30 June 2021: US$nil).
A new agreement with the Manager was entered into with effect from 1 January
2022. A management fee of US$1,199,000 will be payable for 2022 with US$99,000
paid in January 2022 followed by monthly payments of US$100,000. A realisation
fee shall be payable on the same terms as in 2021. In no circumstances will
the aggregate of the 2022 management fee and realisation fee exceed
US$1,780,000. Any realisation fees achieved on strata sales of units at The
Waterside will be subject to the retention of 50% until all units have been
sold. The Extra Incentive Fee is no longer applicable under the new agreement.
Each aspect of these changes has been subject to a fair and reasonable
assessment by Liberum. Any management fee proposals that may apply for 2023
will be included in resolutions to be put forward in the 2022 AGM.
All intercompany loans and related interest are eliminated on consolidation.
12. Taxation provision
As at period-end, the following amounts are the outstanding tax provisions.
Unaudited Unaudited Audited
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Non-current liabilities
Deferred taxation 11,431 11,819 11,786
Provisions for Macanese taxations 418 578 705
11,849 12,397 12,491
Deferred taxation
The Group has recognised the deferred tax liability for the taxable temporary
difference relating to the investment property carried at fair value and has
been calculated at a rate of 12%.
Provision for Macanese taxations
The Group has made provisions for property tax and complementary tax arising
from its Macau business operations.
Tax Reconciliation
Unaudited Unaudited Audited
1 Jul 2021- 1 Jul 2020- 1 Jul 2020-
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Accounting loss before tax (4,478) (43) (2,254)
Exempt from income tax in Guernsey - - -
Movement in deferred tax provision 304 15 29
Movement in provision for Macanese taxations (84) (252) (251)
At the effective income tax rate of (4.9)% 220 (237) (222)
(31 Dec 2020: 551.2%, 30 Jun 2021: 9.8%)
The differences between the taxation for the period and the movement in
taxation provisions are due to the foreign exchange movements and Macanese
taxation paid during the period.
13. Share capital
Ordinary shares
Unaudited Unaudited Audited
31 Dec 2021 31 Dec 2020 30 Jun 2021
US$'000 US$'000 US$'000
Authorised:
300 million ordinary shares of US$0.01 each 3,000 3,000 3,000
Issued and fully paid:
61.8 million (31 December 2020: 61.8 million; 30 June 2021: 618 618 618
61.8 million) ordinary shares of US$0.01 each
The Company has one class of ordinary shares which carries no rights to fixed
income.
The Board has publicly stated its commitment to undertake share buybacks at
attractive levels of discount of the share price to Adjusted NAV. In order to
continue this strategy, the Board has renewed this authority at the 2021
Annual General Meeting.
14. Subsequent events
Carmen Ling was appointed as a Director on 24 February 2022.
DIRECTORS AND COMPANY INFORMATION
Directors Corporate Broker
Mark Huntley (Chairman) Liberum Capital Limited
Alan Clifton Ropemaker Place, Level 12
Carmen Ling (appointed 24 February 2022) 25 Ropemaker Street
Wilfred Woo (resigned 22 December 2021) London EC2Y 9LY
Audit and Risk Committee Independent Auditor
Alan Clifton (Chairman) Deloitte LLP
Mark Huntley Regency Court
Carmen Ling (appointed 24 February 2022) Glategny Esplanade
Wilfred Woo (resigned 22 December 2021) St Peter Port
Guernsey GY1 3HW
Management Engagement Committee
Mark Huntley (Chairman) Property Valuers
Alan Clifton Savills (Macau) Limited
Carmen Ling (appointed 24 February 2022) Suite 1309-10
Wilfred Woo (resigned 22 December 2021) 13/F Macau Landmark
555 Avenida da Amizade
Nomination and Remuneration Committee Macau
Alan Clifton (Chairman)
Mark Huntley Administrator & Company Secretary
Carmen Ling (appointed 24 February 2022) Ocorian Administration (Guernsey) Limited
Wilfred Woo (resigned 22 December 2021) PO Box 286
Floor 2, Trafalgar Court
Disclosure and Communication Committee Les Banques
Mark Huntley (Chairman) St Peter Port, Guernsey
Alan Clifton Channel Islands GY1 4LY
Manager Macau and Hong Kong Administrator
Sniper Capital Limited Adept Capital Partners Services Limited
Vistra Corporate Services Centre Unit B1, 25/F, MG Tower
Wickhams Cay II 133 Hoi Bun Road
Road Town, Tortola Kwun Tong, Kowloon
VG1110 Hong Kong
British Virgin Islands
Registered Office
Investment Adviser PO Box 286
Sniper Capital (Macau) Limited Floor 2, Trafalgar Court
Largo da Ponte, Les Banques
Nos. 51 e 57, Taipa St Peter Port, Guernsey
Macau Channel Islands, GY1 4LY
Solicitors to the Group as to English Law
Norton Rose Fulbright LLP
3 More London Riverside
London SE1 2AQ
Advocates to the Group as to Guernsey Law
Carey Olsen
Carey House
Les Banques
St Peter Port
Guernsey GY1 4BZ
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