REG - Macau Prop Opp Fund - Interim Report to 31 December 2022
23/02/2023 07:01
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RNS Number : 7634Q Macau Property Opportunities Fund 23 February 2023
23 February 2023
Macau Property Opportunities Fund Limited
("MPO" or "the Company")
Interim results for the six-month period ended 31 December 2022
Macau Property Opportunities Fund Limited announces its results for the period
ended 31 December 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) was US$224.9 million as at 31 December 2022,
an increase of 1.4% over the six-month period.
· Adjusted Net Asset Value (NAV) was US$99.5million, which translates
to US$1.61 (133 pence(2)) per share, a decline of 3.8% over the period.
· IFRS NAV was US$73.6 million as at the period end, equating
to US$1.19 (98 pence(2)) per share, a drop of 5.1%.
Capital management
· The aggregated cash and deposit balances were US$2.3 million, of
which US$1.9 million was pledged as collateral for credit facilities.
· Gross borrowings stood at US$117.2 million, equating to a
loan-to-value ratio of 51.6%.
· Debt repayment of US$14 million was achieved during the period.
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 2023.
( 1 ) Calculation was adjusted to reflect like-for-like comparisons to 31
December 2022 due to the divestment of properties during the period.
( 2 ) Based on the US Dollar/Sterling exchange rate of 1.210 on 31 December
2022.
PORTFOLIO HIGHLIGHTS
· The Waterside
- Challenging market conditions hindered the Company's strata sales
programme, with the sale of only one unit completed during the six month
period.
- Since the period end, MPO has entered into contracts for the sale of six
further units for a combined consideration of US$14.6 million. This brings the
total units sold to date in The Waterside to eleven.
- Two of these six latest transactions have now completed in full and
security deposits have been received for the remaining four properties, with
completions due over the next three months.
- As of the end of 2022, around 32% of The Waterside's apartments were
occupied and the average rent stood at US$2.2 per square foot per month. The
occupancy rate has subsequently risen to 37% as of the date of this release.
· The Fountainside
- No further sales were secured during the period. The Manager is
maintaining a flexible marketing strategy for The Fountainside's four villas,
targeting both individual unit and en bloc sales.
- Reconfiguration of the two duplex units to create three smaller
apartments and two car parks has been completed with government inspections
conducted in January 2023. Government approval is expected in Q2 2023.
· Penha Heights
- Marketing this trophy home has been challenging as in-person viewings were
made difficult by travel restrictions until the new year.
- Ongoing viewings are taking place and the manager 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:
"Throughout the period, our divestment process continued against a very
difficult backdrop, with a consistent focus on marketing more units at The
Waterside. We have maintained a pragmatic, measured approach to market
conditions, balancing our need for debt reduction and working capital with the
market's emerging upside potential.
"The dramatic effects of the easing of COVID-related restrictions can only
benefit the outlook for Macau, leading to a more supportive environment for
the Company as it pursues its divestment strategy."
For more information, please visit www.mpofund.com (http://www.mpofund.com/)
for the Company's full Interim Report 2023.
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 leading 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: +853 2870 5151
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 2022
CHAIRMAN'S MESSAGE
I present my report for the first six months of our current financial year and
the second half of the calendar year 2022.
The period ended with an unexpected and broadly welcome development: the
removal of all travel restrictions to Macau and within the region following a
decision by Chinese authorities to end their dynamic-zero approach to COVID
control.
This rapid change of circumstances had not been foreseen. Indeed, Macau was
still slowly recovering from the effects of a major COVID outbreak in July
that prompted citywide lockdowns and multiple rounds of mass-testing. Although
the lifting of COVID control measures resulted in an "exit wave" of COVID
infections across the territory, which affected the Company's operations, it
has ultimately led to several very positive developments.
The border with mainland China - Macau's primary source of tourists - has
fully reopened, daily ferry services to Hong Kong have recommenced, travel on
the Hong Kong-Zhuhai-Macau Bridge has resumed and quarantine-free entry to the
territory has been restored for visitors from foreign countries. Macau's
gaming revenues have reflected this surge in visitors, notably Hong Kong
residents who had been prevented from travelling freely to the territory.
In contrast to the difficult situation that persisted for much of the period,
this dramatic and much-hoped-for change will enable us to make renewed
progress on our divestment strategy. However, these changes occurred so
recently that a solid timeframe for divestment is difficult to anticipate.
Conditions in Macau were challenging in the lead-up to these changes, with low
visitor numbers and a poor economic performance in gaming and other
tourism-related revenues that saw the economy depressed further by travel
restrictions and a lockdown in the third quarter. This had a huge impact on
confidence, and the ongoing difficulties involved in visiting the territory
hampered efforts to achieve divestment of our property portfolio.
In the high-end property segment, to which we are exposed, transaction volumes
remained low. Just one unit at The Waterside was sold during the period, in
addition to four previously reported sales. These disposals came amid the
continuing negative effect of COVID restrictions and property market
anti-speculation measures that affected both sentiment and pricing. It will be
interesting to see whether recent events spark a rekindling of investor
interest and an end to the "wait and see" approach that has become established
in the market.
The recent marked rebound in visitor numbers, gross gaming revenue and the
hospitality trade, which has included a significant increase in hotel
occupancy, are all encouraging. However, any sense of optimism must be
tempered by an awareness that the route out of any prolonged lockdown has been
shown in other jurisdictions to be painful both socially and economically.
Throughout the period, our divestment process continued against this difficult
backdrop, with a consistent focus on marketing more units at The Waterside. We
have maintained a pragmatic, measured approach to market conditions, balancing
our need for debt reduction and working capital with the market's emerging
upside potential.
It is pleasing to report that since the calendar year-end, the improved market
sentiment has allowed the Manager to accelerate the strata sales programme at
The Waterside, with the divestment of a further six apartments. Of these, two
transactions have completed in full and security deposits have been received
for the remaining four properties, with completions due over the next three
months. This will bring the total number of units sold to 11, which represents
19% of The Waterside's gross floor area.
Careful management of sales has ensured ongoing upside potential for the
remaining units in terms of both valuations and investor interest, driven in
part by the units' size, layouts and floor height. Most sales have been on the
mid- and lower levels of the tower, leaving the more valuable higher floor
apartments available and the Company well placed to benefit from any market
upswing and price strengthening. It is important to note, however, that a
recovery in economic conditions may take time to percolate through to our
segment of the property market.
Occupancy at The Waterside had improved to a level of 32% at the end of the
period, and some long-term tenants may also have an interest in purchasing
units.
There have been delays to approvals for the reconfigured units at The
Fountainside, partly due to the impact of Macau's COVID exit wave. A
long-awaited inspection has now been completed, but pre-sale initiatives will
commence only once the final permits are successfully confirmed. The
Fountainside's larger villas remain an ongoing sales focus, but the likely
improvement in the economy will need to prove robust to deliver satisfactory
divestments.
For Penha Heights, the restored ability of overseas buyers to visit Macau
improves the prospects of divestment, but further lead time will be required.
Financial Performance
As at 31 December 2022, the Company's unaudited adjusted net Asset Value (NAV)
was US$99.5 million. This is equivalent to US$1.61 (133 pence*) per share and
represents a decline of 3.8% over the period.
* Based on the following US Dollar/Sterling exchange rates 1.210 on 31
December 2022 and 1.212 on 30 June 2022.
MPO's share price recovered by 37% since 30 June 2022 to 52.25 pence at the
end of 2022, which represents a 61% discount to its adjusted NAV per share.
Cash management and debt reduction remain a key priority of the Company, with
rising interest rates increasing what was already our largest expense. As more
fully explained in Note 6 of the financial statements, the Company repaid
US$14 million of bank loans during the period. This reduced gross borrowings
to US$117.2 million and lowered the overall loan-to-value ratio from 53.3% to
51.6% as at 31 December 2022. This is estimated to fall further to 50.2%
following the completion of the Company's latest six divestments.
The Company's consolidated cash balance, including deposits pledged for
banking facilities, was US$2.3 million, of which US$1.9 million represented a
6 month interest reserve, pledged and classified as a non-current asset. The
majority of the balance of US$0.4 million represents deposits on contracted
sales and usage of which remains subject to the prior consent of the lender.
MPO's free cash situation has improved since the period end as a result of
further sales which will generate incremental cash proceeds of US$14.6m.
Outcome of Annual General Meeting
At our Annual General Meeting (AGM) in December, shareholders approved an
extension to the life of the Company for a further year until 31 December
2023. The Board and the Manager greatly appreciate the overwhelming support
shown for allowing the Company to continue with the orderly liquidation of its
remaining assets.
As a consequence of the approval, and as prefaced in the update that
accompanied the notice of the AGM, the management agreement between the
Company and Sniper Capital has been extended for a further year on terms
similar to those that applied in 2022. In all respects the fees remain
consistent with the arrangements of the previous year, and aim to contribute
towards the Manager's operating costs. This is an essential step in terms of
accelerating the pace of our divestment programme after an exceedingly
challenging 2022.
Corporate Governance
The Board continued to function well during the period, with increased
interaction required between scheduled board meetings to ensure oversight and
control of the sales process and ongoing management of our loan facilities. We
remained vigilant in respect of our environmental, social and governance
through this difficult period, and it remains an important component of the
many challenges we must work through in the current circumstances.
Outlook
In presenting this report, it is difficult to avoid communicating anything but
a more optimistic view for the second half of our financial year.
While inflationary pressures, including labour and other shortages, are
already mounting - albeit from a muted level when compared to other
jurisdictions - the dramatic effects of the easing of COVID-related
restrictions can only benefit the outlook for Macau, leading to a more
supportive environment for the Company. Maintaining caution seems sensible in
the circumstances, but amid further sales and an improved operating
environment, writing this report has been a much more encouraging experience
than in recent years.
As stated, we will continue to do all that is practically possible to achieve
further sales and to reduce debt levels related to our assets. This will lower
our operating costs as we work towards delivering the upside potential we see
in our remaining properties.
MARK HUNTLEY
CHAIRMAN
MACAU PROPERTY OPPORTUNITIES FUND LIMITED
22 February 2023
MANAGER'S REPORT
FINANCIAL OVERVIEW
31 December 2022 30 June 2022
NAV (IFRS) (US$ million) 73.6 77.6
NAV per share (IFRS) (US$) 1.19 1.25
Adjusted NAV (US$ million) 99.5 103.4
Adjusted NAV per share (US$) 1.61 1.67
Adjusted NAV per share (pence)(1) 133 138
Share price (pence) 52.25 38.2
Share price discount to Adjusted NAV per share (%) 60.7% 72.3%
Portfolio valuation (US$ million) 224.9 242.0
Loan-to-value ratio (%) 51.6% 53.3%
1 Based on the following US Dollar/Sterling exchange rates 1.210 on 31
December 2022 and 1.212 on 30 June 2022.
Financial Review
Macau's economy came under severe pressure in the second half of 2022 as the
territory waged a dynamic zero-COVID war against the highly transmissible
Omicron variant of the virus. A large-scale summer outbreak - the first since
the start of the pandemic - brought the city to a standstill as almost all
non-essential activity, including gaming, was shut down.
Macau's twin economic engines - gaming and tourism - bore the brunt of these
measures as potential visitors were deterred by travel restrictions and the
fear of being unexpectedly locked down. The already weak property sector
suffered further headwinds as the territory recorded one of the worst periods
of economic turbulence in its history.
Under these challenging conditions, the Company's strata sales programme at
The Waterside made slow progress in the second half of 2022, with the sale of
only one unit in addition to the four already reported, while marketing
efforts for The Fountainside and Penha Heights remained hampered by fragile
sentiment and restricted access to Macau for most of the period.
However, in tandem with mainland China, Macau dramatically and swiftly
announced a complete reversal of its almost three-year-long zero-COVID
strategy in December. The rapid and complete reopening led to an immediate
increase in enquiries into real estate in the territory, resulting in the
agreed sale post the period end, of a further six units at The Waterside for a
combined USD14.6m. While encouraging, achieving further near-term asset
disposals will remain heavily dependent on a sustained rebound in Macau's
vulnerable, tourism-dependent, economy.
Half-year financial results
The value of MPO's portfolio, which comprises three main assets, was US$224.9
million as at 31 December 2022. On a like-for-like comparison, taking account
of disposals, the valuation has increased by 1.4% over the six-month period.
Adjusted Net Asset Value (NAV) was US$99.5million, which translates to
US$1.61(133 pence) per share, a drop of 3.8% over the period. IFRS NAV was
US$73.6 million as of the period's end, equating to US$1.19 (98 pence) per
share, a decline of 5.1%. The cost of debt servicing was a primary factor
behind the decline.
As at 31 December 2022, MPO's share price was 52.25 pence, representing a
60.7% discount to its Adjusted NAV per share.
Capital management
As at 31 December 2022, MPO had total assets worth US$201.4 million,
offsetting combined liabilities of US$127.7 million. The Company's
consolidated cash balance was US$2.3 million, of which US$1.9 million was
pledged as collateral for credit facilities. Gross borrowing stood at US$117.2
million, equating to a loan-to-value (LTV) ratio of 51.6 %
Subsequent to the period end, the Company secured sales of six units located
at The Waterside which generated US$14.6 million in total sales proceeds.
Approximately US$11 million of this amount (75%) has been designated for loan
repayments as per the terms of the facility agreement; and will fully cover
the two upcoming repayment tranches on 19 March and 19 June 2023.
The above-mentioned loan repayments will result in the Company's total bank
borrowings falling to US$106.3 million, leading to an improved LTV of 50.2%.
As the Company endeavours to advance its divestment plan, we will remain
focused on cash and capital management to strengthen the balance sheet and
operating cash flow. We remain concentrated on containing costs, with debt
facilities reviewed and refinanced where appropriate to obtain the most
cost-efficient terms.
Company life extended and management fees extended
Macau pursued a zero-COVID strategy throughout most of 2022, and the ensuing
lockdowns and travel restrictions severely constrained the Manager's efforts
to divest the portfolio properties. A shareholder resolution was therefore
proposed, and subsequently passed, at the Company's Annual General Meeting in
December to further extend the life of the Company for a year to facilitate
the orderly divestment of the portfolio. The Company thanks all Shareholders
for their continued support in this regard.
In connection to the extension of the Company's life, the Board and the
Manager have also agreed to extend the management and other fees payable to
the Manager. Full details are set out in Note 10.
Portfolio Updates
PORTFOLIO OVERVIEW AS AT 31 DECEMBER 2022
Sector No. of Units Costs Market Valuation (US$ million) Changes in Market Value Composition (Based on market value)
(US$ million)
Since 30 June 2022
The Waterside Luxury residential 54 91.4 164.1 1.7%** 73.0%
Tower Six of One
Central Residences*
The Fountainside** Low-density residential 7 6.3 18.4 0.5% 8.2%
Penha Heights Luxury residential - 28.5 42.4 0.4% 18.8%
Total 126.2 224.9 1.4%** 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 2022 to reflect
like-for-like comparisons to 31 December 2022 due to property sales during the
period.
Throughout most of the second half of 2022, the divestment of the portfolio
remained severely hindered by Macau's pursuit of its zero-COVID policy.
Although the Company adjusted its strategy to capture pockets of investor
interest, market sentiment and restricted access to Macau saw the sale of only
one additional unit at The Waterside during the period. The Manager was unable
to progress beyond enquiries relating to the other two portfolio properties as
investor appetite for in-person viewings diminished while travel restrictions
remained in place.
Post the end of 2022, however, as zero-COVID was abandoned and Macau opened
up, the Manager took advantage of an rise in enquiries to negotiate USD14.6
million of incremental sales at The Waterside.
The Waterside
The Waterside is the Company's landmark asset in downtown Macau, now
comprising 48 of an original 59 luxury residential apartments available for
lease and sale.
Following the agreed sale of four units in the Company's first strata sales
campaign in the first half, conditions in the second half proved extremely
challenging, and despite attractive pricing, only one additional apartment was
sold. This situation reversed rapidly at the end of the year as zero-COVID
ended and investor interest in luxury properties showed early signs of
reviving.
MPO secured the sale of six units subsequent to the Company's period end. The
total consideration of the six units was US$14.6 million - an overall average
discount of 10% to their end-2022 valuations. Two of these sales have now
completed in full generating gross proceeds of US$5.0 million, with the
remaining four due to complete over the next several months. Upon completion
of the six sales, the Company will utilise approximately US$11 million (75%)
of the proceeds for loan repayments, with the balance earmarked for working
capital.
As of the end of 2022, 32% of the Company's units were leased at an average
rent of US$2.18 per square foot per month.
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. Three smaller units created by reconfiguring two duplexes have been
awaiting final government approval, which is now expected in Q2 2023, before
the sales process can begin. Several price enquiries from existing
Fountainside residents have already been received.
The Company is maintaining a flexible sales approach for The Fountainside's
four villas, and will entertain both individual and en bloc offers.
Penha Heights
Penha Heights is a prestigious, colonial-style villa with a gross floor area
of approximately 12,000 square feet, located in the exclusive residential
enclave of Penha Hill and surrounded by lush greenery.
Marketing this trophy home has been challenging as in-person viewings were
made difficult by travel restrictions until the new year. With the lifting of
restrictions, we expect to facilitate a larger number of viewings by Hong Kong
and overseas investors.
MACROECONOMIC OUTLOOK
Macau's economy took a severe hit in the second half of 2022 due to ongoing
zero-COVID measures in the territory and across mainland China. With the flow
of mainland Chinese tourists largely halted by lockdowns and travel
restrictions, Macau's economic engines of gaming and tourism, were operating
far below their pre-pandemic levels.
Recognising the economic impact of containing COVID, Macau's government had
begun rolling back travel restrictions during the second half, albeit
cautiously, while working with the mainland Chinese government to restore
pre-pandemic easing of travel to the territory. In December, following
mainland China's lead in reversing zero-COVID policies, Macau moved at
lightning speed to remove zero-COVID measures, and by 8 January 2023 had
largely discarded measures that had previously restricted travel to the
territory.
Zero-COVID: A pendulum swing
Two major COVID outbreaks bookended the second half in Macau, but the ways in
which the outbreaks were managed contrasted starkly. In July, with
approximately 2,000 reported cases, dynamic zero-COVID measures saw Macau
almost locked down, multiple rounds of city-wide mass testing conducted, and
schools and non-essential businesses closed - including casinos, which shut
for 12 days. In December, with zero-COVID abandoned, despite rapid, widespread
community transmission, Macau dismantled its mass-testing sites and pressed
ahead with reopening its borders.
Between the two outbreaks, cautious steps were taken from November onwards to
enable overseas visitors to travel more easily to Macau, including the
reduction and finally lifting of the hugely prohibitive hotel quarantine
period. The restoration of the Individual Visit Scheme and e-Visas for
mainland Chinese visitors in November was also a key boost to Macau's economy.
These tentative steps were followed by an abrupt about-turn in the management
of COVID-19 in the territory following the sudden reversal of zero-COVID
policies in mainland China. In a series of rapid-fire announcements, Macau
simultaneously removed containment measures - including the testing of
high-risk groups - and restored pre-pandemic ease of travel. In addition to
abolishing most COVID-related health requirements for tourists and health
codes for entry to public places and facilities, the government also restored
ferry and bus services to Hong Kong and scheduled international flights.
Although Macau's business sector welcomed these developments with great
enthusiasm, there was grave concern over the potential impact of a zero-COVID
"exit wave", a phenomenon observed across the globe as COVID restrictions have
been lifted. By mid-January 2023, health officials estimated that at least 70%
of Macau's population had been infected by COVID in the month following the
end of zero-COVID. This resulted in labour shortages across the territory that
led to temporary closures of outlets in the gaming and tourism sectors, while
the healthcare sector struggled with a concurrent outpouring in patients
seeking treatment and COVID infections among frontline health workers.
Nevertheless, Macau is likely to weather its exit wave far better than
mainland China. The territory's 94% COVID vaccination rate and the
availability of mRNA vaccines free of charge is better protecting its
residents from serious illness and death compared to mainland China, allowing
a quicker recovery from the surge. The government has also distributed antigen
test kits and basic medication to Macau residents to enable them to manage
their symptoms at home.
Despite the short-term disruptions, the reopening of Macau's borders and the
restoration of ease of travel has seen a surge of visitors at all entry
points, particularly from January 2023 and mostly from mainland China and Hong
Kong. Tourist arrivals during the Chinese New Year holiday outperformed
expectations, exceeding 64,000 daily arrivals, an upsurge of 300% year on year
(YoY). This bodes well for Macau's economy, with the tourism and gaming
sectors being the immediate beneficiaries, with spillover gains in other
sectors such as the property market in the medium and longer term.
Economic activity in 2022
Macau's economic performance in 2022 reflects the disruptive impact of
zero-COVID measures on its twin drivers of growth, and also lends credence to
the government's policy of reducing the territory's reliance on gaming. Gross
domestic product plummeted 33% YoY in Q3 2022 amid a drop of 28% for the first
nine months of the year. For full-year 2022, the territory is expected to
register a YoY GDP decline of 17%. Unemployment among local residents rose as
high as 4.7% in the second half of 2022, compared to an average of 2%
pre-pandemic. Inflation was relatively benign at 1% during the same period.
Macau's credit score has not been revised since early 2022, when Fitch Ratings
affirmed the territory's long-term rating at "AA" with a stable outlook. Fitch
has since said that Macau's GDP may rebound 46% YoY in 2023, although that
observation preceded recent reopening measures.
Gaming: Light at the end of the tunnel
Macau's gaming sector went through a dismal period in 2022, with gross gaming
revenue (GGR) declining 51% YoY over the full year to its weakest annual
revenue since 2004, at US$5.3 billion, just 14% of 2019's pre-pandemic level.
The VIP gaming segment, which prior to the commencement of China's corruption
clampdown in 2014 accounted for almost 70% of GGR in Macau, declined further
over the year to a new low and now accounts for only c.24% of GGR. This is
ultimately a positive factor for Macau's gaming operators due the higher
profitability generated by mass market gaming.
Macau's six incumbent licence holders were awarded fresh 10-year operating
licences
The highlight of the period was confirmation that the six incumbent licence
holders had been awarded fresh 10-year operating licences under the
territory's new gaming laws. In line with Macau's emphasis on diversification,
the six gaming operators have announced a combined investment of US$15 billion
in new projects, more than 90% of which has been earmarked for exploring
customer markets other than mainland China and developing non-gaming tourism,
such as the convention and exhibition business, entertainment and
performances, sports events, culture, art, healthcare and theme parks. The
gaming operators will be required to make further non-gaming investments for
every year that GGR exceeds an annual threshold of US$22.4 billion.
Following the reopening of the border in early January, Macau recorded a surge
in January GGR to US$1.43 billion, up 83% YoY and 47% of the pre-pandemic
level.
Tourism: Recovering amid easier travel
Tourist arrivals in Macau in FY2022 fell 26% YoY. Although the October Golden
Week saw the second-highest number of daily visitors of the year, at
approximately 37,000, visitor numbers around other traditional peak periods
such as the Macau Grand Prix and the year-end holidays were disappointing.
Hotel occupancy also weakened by 12% YoY to 38% for FY2022, with average room
rates of MOP750 (US$94).
From mid-January 2023, there was a steady rise in visitor numbers, with daily
averages of 52,000, and the territory registered more than 64,000 daily
visitors over the Chinese New Year period.
The upturn comes following measures to restore ease of travel to Macau,
particularly for travellers from mainland China, Hong Kong and Taiwan, who
were not required to present negative COVID test results for entry to Macau
from 8 January. The resumption of international flights to Macau, and of bus
and ferry services between Hong Kong and Macau, will also facilitate travel to
Macau, with operators expected to increase frequencies to pre-pandemic levels
over the next few months.
Hotel bookings soared during Chinese New Year, a traditional peak travel
period. Hotel occupancy of 86% was recorded for the seven-day holiday period,
with hotel room prices doubling and even tripling from 2022 levels. With
arrivals of tour groups to Macau officially resuming in February, the number
of visitors is expected to multiply, underpinning the territory's economic
recovery.
PROPERTY MARKET OVERVIEW
Macau's property market remained under pressure in the second half of 2022, in
tandem with other parts of the economy. Transactions in residential units for
H2 2022 declined 51% YoY to 1,318 units and prices declined further, with the
average price per square feet measured in gross floor area dropping by 4% YoY
to approximately HKD6,200 (US$790).
In 2022, unit transaction volumes fell by half YoY to a total of 2,950 units,
marking the territory's worst year for residential sales in four decades.
Based on our analysis, the luxury residential segment, to which the Company is
exposed, saw transactions fall by 35% YoY in 2022, with the sector accounting
for 17% of all residential property transactions in Macau during the period.
Realtor Centaline believes that prices in Macau's residential property market
have bottomed out and are unlikely to deteriorate further. Property agents
expect the market to recover from Q2 2023 onwards as Macau's economy benefits
from a sustained revival in tourism and gaming.
However, in tandem with USD interest rates, there have been eight consecutive
interest rate hikes in Macau since March 2022, taking the city's Prime Lending
Rate to a 15-year high of c.5%. With potential purchasers facing higher
borrowing costs, this could dent demand. Furthermore, higher interest rates
may lead to existing property owners being unable to service their mortgage
repayments which could trigger sales.
The poor performance of Macau's property market has prompted calls for the
government to ease measures it has put in place over the past decade to curb
speculation. Citing credit easing and other measures recently introduced in
mainland China to throw a lifeline to the country's troubled property sector,
Macau property players have urged the government to consider similar measures
to strike a better balance in matching housing supply and pricing with demand.
Current measures in Macau to curb real estate speculation include additional
ad valorem stamp duty of up to 20% if a property is resold within two years of
purchase, buyer's stamp duty of 10% for properties purchased by companies or
non-residents, and an additional stamp duty of up to 10% for those owning more
than one residential property. The residential mortgage lending ratio for
buyers was tightened in 2018, resulting in maximum financing levels of only
40%-50% of purchase prices for properties valued in excess of MOP8 million
(approximately US$1 million).
According to the Land and Urban Construction Bureau of the Macau, only 500
residential units received occupancy permits in 2022, a drop of 80% YoY
reflecting constrained supply. At the end of 2022, there were a total of 9,285
units in the pipeline, but 76% of these units were at the design stage, 22%
were under construction, and fewer than 2% had been completed. Furthermore,
the vast majority of developers' new units are in the affordable segment and
include properties such as one-bedroom homes or studios aimed at first-time
buyers and, as such, are not competing with the Company's portfolio
properties.
Looking Ahead
Investor sentiment towards Macau has become significantly more buoyant in the
last month, but we remain cautious in the near term, since the economy is
likely to grapple with labour shortages and public health issues as it begins
to recover from its sharpest declines in almost two decades.
Analysts' estimates for GGR growth suggest that 2023 will be a transitionary
year, and that in 2024, GGR will rebound to US$27 billion, with net revenue at
77% of 2019 levels.
The recovery of Macau's gaming and tourism sectors, with the attendant
improvement in GGR and tourist spending, is expected to set the economy on a
long-awaited road to revival. However, a sustained return in investor
sentiment will be required for the Company's divestment programme to continue
to make meaningful progress in terms of achieving further timely sales and
lowering debt levels.
Directors' statement of Responsibilities
The Directors are responsible for preparing this half-yearly financial report
in accordance with applicable law and regulations.
The Directors confirm that to the best of their knowledge:
• the interim condensed consolidated financial statements have been
prepared in accordance with IAS 34 Interim Financial Reporting; and
• the Chairman's Message and Manager's Report meet the requirements of
an interim management report, and include a fair review of the information
required by:
a. DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication
of important events that have occurred during the first six months of the
financial year and their impact on the interim condensed consolidated
financial statements; and a description of the principal risks and
uncertainties for the year to date and the remaining six months of the year;
and
b. DTR 4.2.8R of the Disclosure and Transparency Rules, being related party
transactions that have taken place in the first six months of the current
financial year and that have materially affected the financial position or
performance of the entity during that period; and any changes in the related
party transactions described in the last annual report that could do so.
On behalf of the Board
Mark Huntley
Chairman
22 February 2023
Interim Condensed Consolidated Statement of Financial Position (Unaudited)
As at 31 December 2022
Unaudited Unaudited Audited
31 Dec 2022 31 Dec 2021 30 Jun 2022
Note US$'000 US$'000 US$'000
ASSETS
Non-current assets
Investment property 3 164,100 196,450 181,520
Deposits with lenders 4 1,878 6,416 1,561
Trade and other receivables 16 16 16
165,994 202,882 183,097
Current assets
Inventories 5 34,872 34,725 34,635
Trade and other receivables 92 124 53
Deposits with lenders 4 384 - 1,895
Cash and cash equivalents 13 23 531 355
35,371 35,380 36,938
Total assets 201,365 238,262 220,035
EQUITY
Capital and reserves attributable to the Company's equity holders
Share capital 12 618 618 618
Retained earnings 57,975 77,182 62,349
Distributable reserves 15,791 15,791 15,791
Foreign currency translation reserve (746) (364) (1,182)
Total equity 73,638 93,227 77,576
LIABILITIES
Non-current liabilities
Deferred taxation provision 11 8,720 11,431 9,706
Taxation provision 11 279 418 579
Interest-bearing loans 6 87,319 103,165 104,852
96,318 115,014 115,137
Current liabilities
Trade and other payables 2,176 955 2,019
Interest-bearing loans 6 29,233 29,066 25,303
31,409 30,021 27,322
Total liabilities 127,727 145,035 142,459
Total equity and liabilities 201,365 238,262 220,035
Net Asset Value per share (US$) 8 1.19 1.51 1.25
Adjusted Net Asset Value per share (US$) 8 1.61 1.96 1.67
The interim condensed consolidated financial statements were approved by the
Board of Directors and authorised for issue on 22 February 2023.
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 2022 to 31 December 2022
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2022- 1 Jul 2021- 1 Jul 2021-
31 Dec 2022 31 Dec 2021 30 Jun 2022
Note US$'000 US$'000 US$'000
Income
Income on sale of investment property 3 17,254 - -
Income on sale of inventories 5 - 1,515 1,511
Rental income 543 567 1,082
Other income - - 129
17,797 2,082 2,722
Expenses
Net loss from fair value adjustment on investment property 3 8,541 2,530 16,380
Cost of sales of investment property 3 9,602 - -
Cost of sales of inventories 5 - 522 521
Management fee 10 600 600 1,199
Realisation fee 10 27 23 23
Non-executive directors' fees 10 79 92 170
Auditors' remuneration: audit fees 52 70 131
Auditors' remuneration: other professional services - - 9
Property operating expenses 624 705 1,372
Sales and marketing expenses 616 85 115
General and administration expenses 207 313 615
Loss/(Gain) on foreign currency translation 116 4 (298)
(20,464) (4,944) (20,237)
Operating loss for the period/year (2,667) (2,862) (17,515)
Finance income and expenses
Bank loan interest 6 (2,555) (1,404) (2,985)
Other financing costs (179) (212) (431)
Bank and other interest 2 - -
(2,732) (1,616) (3,416)
Loss for the period/year before tax (5,399) (4,478) (20,931)
Taxation 11 1,025 220 1,840
Loss for the period/year after tax (4,374) (4,258) (19,091)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations 436 (420) (1,238)
Total comprehensive loss for the period/year (3,938) (4,678) (20,329)
Loss attributable to:
Equity holders of the Company (4,374) (4,258) (19,091)
Total comprehensive loss attributable to:
Equity holders of the Company (3,938) (4,678) (20,329)
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2022- 1 Jul 2021- 1 Jul 2021-
31 Dec 2022 31 Dec 2021 30 Jun 2022
Note US$ US$ US$
Basic and diluted loss per Ordinary Share attributable to the equity holders 7 (0.0707) (0.0689) (0.3087)
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 2022 to 31 December 2022
(unaudited)
Share capital Retained earnings Distributable reserves Foreign currency translation reserve Total
US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought forward at 1 July 2022 618 62,349 15,791 (1,182) 77,576
Loss for the period - (4,374) - - (4,374)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations - - - 436 436
Total comprehensive loss for the period - (4,374) - 436 (3,938)
Balance carried forward at 31 December 2022 618 57,975 15,791 (746) 73,638
Movement for the six-month period from 1 July 2021 to 31 December 2021
(unaudited)
Share capital Retained earnings Distributable reserves Foreign currency translation reserve Total
US$'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 year from 1 July 2021 to 30 June 2022 (audited)
Share capital Retained earnings Distributable reserves Foreign currency translation reserve Total
US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought forward at 1 July 2021 618 81,440 15,791 56 97,905
Loss for the year - (19,091) - - (19,091)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations - - - (1,238) (1,238)
Total comprehensive loss for the year - (19,091) - (1,238) (20,329)
Balance carried forward at 30 June 2022 618 62,349 15,791 (1,182) 77,576
The notes form part of these interim condensed consolidated financial
statements.
Interim Condensed Consolidated Statement of Cash Flows (Unaudited)
For the six-month period from 1 July 2022 to 31 December 2022
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2022- 1 Jul 2021- 1 Jul 2021-
31 Dec 2022 31 Dec 2021 30 Jun 2022
Note US$'000 US$'000 US$'000
Net cash used in operating activities 9 (2,200) (424) (402)
Cash flows from investing activities
Capital expenditure on investment property 3 - (218) (288)
Proceeds from disposal of investment property 17,254 - -
Movement in pledged bank balances 1,194 416 3,376
Net cash generated from investing activities 18,448 198 3,088
Cash flows from financing activities
Proceeds from bank borrowings 6,532 9,383 9,457
Repayment of bank borrowings (20,845) (12,155) (13,673)
Interest and bank charges paid (2,317) (1,425) (3,013)
Net cash used in financing activities (16,630) (4,197) (7,229)
Net movement in cash and cash equivalents (382) (4,423) (4,543)
Cash and cash equivalents at beginning of period/year 355 5,003 5,003
Effect of foreign exchange rate changes 50 (49) (105)
Cash and cash equivalents at end of period/year 13 23 531 355
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 2022 to 31 December 2022
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 below.
The interim condensed consolidated financial statements for the six months
ended 31 December 2022 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 2022 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 Annual Report on page 55.
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 were approved for
issue by the Board of Directors on 22 February 2023.
1. Significant accounting policies
Basis of accounting
The annual consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards ("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. 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 2022.
New and amended standards and interpretations applied
The following amendments to existing standards and interpretations are
effective for the year ended 30 June 2023 and therefore were applied in the
current period but did not have a material impact on 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)
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 2022, 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 2022 extending the Fund's life
until the 2023 Annual General Meeting, assessed whether the continuation vote
before the end of 2023 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 2023 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 the
2023 Annual General Meeting agreed at the Annual General Meeting on 13
December 2022 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 not prevented a number of
sale transactions in the current period and 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.
Seasonal and cyclical variations
The Group does not operate in an industry where significant or cyclical
variations as a result of seasonal activity are experienced during the
financial year.
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 2022- 1 Jul 2021- 1 Jul 2021-
31 Dec 2022 31 Dec 2021 30 Jun 2022
US$'000 US$'000 US$'000
At beginning of the period/year 181,520 199,629 199,629
Capital expenditure on property - 218 288
Disposal of property (9,602) - -
Fair value adjustment (8,541) (2,530) (16,380)
Exchange difference 723 (867) (2,017)
Balance at end of the period/year 164,100 196,450 181,520
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 periodically meets with the valuer and reviews the latest valuations
based on their knowledge of the property market and compare these to previous
valuations.
The Group's investment properties were revalued at 31 December 2022 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 11 in relation to deferred tax liabilities on investment property.
During the current period, five residential units of The Waterside were sold
for a total consideration of US$17.3 million against a total cost of US$10.2
million which resulted in a net profit of US$7.1 million after all associated
fees and transaction costs but before financing and other related holding
costs.
Capital expenditure on property during the prior period relates to fit-out
costs for The Waterside.
Rental income arising from The Waterside of US$539,000 (6 months ended 31
December 2021: US$566,000, 12 months ended 30 June 2022: US$1,079,000) was
received during the period. Direct operating expenses of US$389,000 (6 months
ended 31 December 2021: US$451,000, 12 months ended 30 June 2022: US$866,000)
arising from rented units were incurred during the six-month period. Direct
operating expenses during the period arising from vacant units totalled
US$134,000 (6 months ended 31 December 2021: US$200,000, 12 months ended 30
June 2022: US$369,000).
The table below shows the assumptions used in valuing the investment
properties which are classified as Level 3 in the fair value hierarchy:
Property information Carrying amount/fair value as at 31 December 2022: US$'000 Valuation Input Unobservable and observable inputs used in determination of Other key information
technique fair values
Name The Waterside 164,100 Term and Reversion Analysis Term rent (inclusive of management fee and furniture) HK$17.2 psf (30 June 2022: HK$17.5 psf) Age of building
Type Residential/Completed apartments Term yield (exclusive of management fee and furniture) 1.4%-2.2% (30 June 2022: 1.4%-2.2%) Remaining useful life of building
Location One Central Tower 6 Macau Reversionary rent (exclusive of management fee and furniture) HK$13.1 psf (30 June 2022: HK$13.16 psf)
Reversionary yield 1.55%
(30 June 2022: 1.55%)
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$7.8 million (6 months ended 31 December 2021: US$10 million, 12 months
ended 30 June 2022: US$8.3 million) or decrease by US$7.8 million (6 months
ended 31 December 2021: US$10 million, 12 months ended 30 June 2022: US$8.3
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$7.6 million (6 months ended 31 December 2021: US$9
million, 12 months ended 30 June 2022: US$7.9 million) or increase by US$8.2
million (6 months ended 31 December 2021: US$10 million, 12 months ended 30
June 2022: US$8.8 million).
The same valuation method was deployed in June 2022 and December 2022.
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
Pledged bank balances represent cash deposits pledged to the banks to secure
the banking facilities granted to the Group. Deposits amounting to US$1.9
million (31 December 2021: US$6.4 million, 30 June 2022: US$1.6 million) have
been pledged to secure long-term banking facilities and are, therefore,
classified as non-current assets. There are no other significant terms and
conditions associated with these pledged bank balances.
Unaudited Unaudited Audited
31 Dec 2022 31 Dec 2021 30 Jun 2022
US$'000 US$'000 US$'000
Non-current 1,878 6,416 1,561
Current 384 - 1,895
2,262 6,416 3,456
5. Inventories
Unaudited Unaudited Audited
1 Jul 2022- 1 Jul 2021- 1 Jul 2021-
31 Dec 2022 31 Dec 2021 30 Jun 2022
US$'000 US$'000 US$'000
Cost
Balance brought forward 34,635 34,924 34,924
Additions 88 475 595
Disposals - (522) (518)
Exchange difference 149 (152) (366)
Balance carried forward 34,872 34,725 34,635
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 2022 amounts to
US$34,872,000 (6 months ended 31 December 2021: US$34,725,000, 12 months ended
30 June 2022: US$34,635,000). Net realisable value as at 31 December 2022 as
determined by the independent, professionally-qualified valuer, Savills, was
US$58,932,000 (6 months ended 31 December 2021: US$62,319,000, 12 months ended
30 June 2022: US$58,661,000).
During the six month period to 31 December 2022, no units of The Fountainside
were sold.
During the year ended 30 June 2022, 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$0.6 million (HK$4.4 million) which resulted in a net profit
of US$0.9 million (HK$7.4 million) after all associated fees and transaction
costs.
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$7.7 million) after all
associated fees and transaction costs.
6. Interest-bearing loans
Unaudited Unaudited Audited
31 Dec 2022 31 Dec 2021 30 Jun 2022
US$'000 US$'000 US$'000
Bank loans - Secured
- Current portion 29,233 29,066 25,303
- Non-current portion 87,319 103,165 104,852
116,552 132,231 130,155
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. In
September 2022, the Group executed a HK$50 million (US$6.4 million) nine month
term facility (Tranche 9) to partially refinance previous tranches which were
due for settlement in September 2022.
As at 31 December 2022, three tranches remained outstanding. Tranche 6 matured
on 19 September 2022 and was fully repaid (31 December 2021: HK$108 million
(US$13.8 million), 30 June 2022: HK$108 million (US$13.8 million)). Tranche 7
had an outstanding balance of HK$476 million (US$60.9 million) (31 December
2021: HK$512 million (US$65.7 million), 30 June 2022: HK$512 million (US$65.2
million)); Tranche 8 had an outstanding balance of HK$225 million (US$28.8
million) (31 December 2021: HK$238 million (US$30.5 million), 30 June 2022:
HK$225 million (US$28.7 million)); Tranche 9 had an outstanding balance of
HK$33.6 million (US$4.3 million) (31 December 2021: HK$nil (US$nil), 30 June
2022: HK$nil (US$nil)).
The interest rates applicable to Tranche 7 and Tranche 8 are 1.8% per annum
over the 1-, 2-or 3-month HIBOR rate. The interest rate applicable to Tranche
9 is 2.2% per annum over the 1-, 2-or 3-month HIBOR rate. The choice of rate
is at the Group's discretion. 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. Tranche 9 matures
in June 2023 and the principal is to be repaid in two instalments commencing
in March 2023 with 60% of the principal due upon maturity. The loan-to-value
covenant is 60%. As at 31 December 2022, the loan-to-value ratio for the Hang
Seng One Central facility was 57.30%. The facility is secured by means of a
first registered legal mortgage over all unsold units at 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 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). 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 has an
outstanding balance of HK$38.7 million (US$5.0 million) and the facility for
Tranche B has an outstanding balance of HK$5.2 million (US$0.7 million). The
interest rates applicable to Tranche A and Tranche B are 2.8% per annum and
3.3% per annum, respectively, over the 1-, 2- or 3-month HIBOR rate. The
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 31 December 2022, the facility had an outstanding balance of HK$43.9
million (US$5.6 million) (31 December 2021: HK$42 million (US$5.4 million), 30
June 2022: HK$43 million (US$5.5 million)). As at 31 December 2022, the
loan-to-value ratio for this facility was 30.55%.
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, 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$319,969) each, commencing in September 2022.
As at 31 December 2022, the facility had an outstanding balance of HK$67.5
million (US$8.6 million) (31 December 2021: HK$70 million (US$9.0 million), 30
June 2022: HK$70 million (US$8.9 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 31 December 2022, the loan-to-value ratio for this facility
was 44.70%. There is no loan-to-value covenant for this loan.
Banco Comercial de Macau, S.A. ("BCM Bank")
During the prior 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$9.0 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 31 December 2022, the
facility had an outstanding balance of HK$70 million (US$9.0 million) (31
December 2021: HK$70 million (US$9.0 million), 30 June 2022: HK$70 million
(US$8.9 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 2022, the loan-to-value ratio for this facility was
38.89%.
Bank Loan Interest
Bank loan interest paid during the period was US$2,555,000 (6 months ended 31
December 2021: US$1,404,000, 12 months ended 30 June 2022: US$2,985,000). As
at 31 December 2022, the carrying amount of interest-bearing loans included
unamortised prepaid loan arrangement fee of US$688,000 (31 December 2021:
US$1,043,000, 30 June 2022: US$837,000).
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 2022, the fair value of
the financial liabilities was US$727,000 higher than the carrying value of the
financial liabilities (31 December 2021: US$79,000 lower than the carrying
value of the financial liabilities, 30 June 2022: US$462,000 lower than the
carrying value of the financial liabilities).
The Group's interest-bearing loans have been classified within Level 2 as they
have observable inputs from similar loans. There have been no transfers
between levels during the period or a change in valuation technique since last
period.
7. Basic and diluted loss per Ordinary Share
Basic and diluted loss per equivalent Ordinary Share is based on the following
data:
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2022- 1 Jul 2021- 1 Jul 2021-
31 Dec 2022 31 Dec 2021 30 Jun 2022
Loss for the period/year (US$'000) (4,374) (4,258) (19,091)
Weighted average number of Ordinary Shares ('000) 61,836 61,836 61,836
Basic and diluted loss per share (US$) (0.0707) (0.0689) (0.3087)
8. Net asset value reconciliation
Unaudited Unaudited Audited
31 Dec 2022 31 Dec 2021 30 Jun 2022
US$'000 US$'000 US$'000
Net assets attributable to ordinary shareholders 73,638 93,227 77,576
Uplift of inventories held at cost to market value 25,883 28,224 25,844
Adjusted Net Asset Value 99,521 121,451 103,420
Number of Ordinary Shares Outstanding ('000) 61,836 61,836 61,836
NAV per share (IFRS) (US$) 1.19 1.51 1.25
Adjusted NAV per share (US$) 1.61 1.96 1.67
Adjusted NAV per share (£)* 1.33 1.45 1.38
* US$:GBP rates as at relevant period/year end
The NAV per share is arrived at by dividing the net assets as at the date of
the consolidated statement of financial position, by the number of Ordinary
Shares in issue at that date.
Under IFRS, inventories are carried at the lower of cost and net realisable
value. The Adjusted NAV includes the uplift of inventories to their market
values before any tax consequences or adjustments.
The Adjusted NAV per share is derived by dividing the Adjusted NAV as at the
date of the consolidated statement of financial position, by the number of
Ordinary Shares in issue at that date.
There are no potentially dilutive instruments in issue.
9. Cash flows from operating activities
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2022- 1 Jul 2021- 1 Jul 2021-
31 Dec 2022 31 Dec 2021 30 Jun 2022
US$'000 US$'000 US$'000
Cash flows from operating activities
Loss for the period/year before tax (5,399) (4,478) (20,931)
Adjustments for:
Net loss from fair value adjustment on investment property 8,541 2,530 16,380
Fair value gain on disposal of investment property (7,652) - -
Net finance costs 2,732 1,616 3,416
Operating cash flows before movements in working capital (1,778) (332) (1,135)
Effect of foreign exchange rate changes 116 1 (298)
Movement in trade and other receivables (39) 474 545
Movement in trade and other payables (249) (400) 775
Movement in inventories (88) 47 (77)
Net change in working capital (376) 121 1,243
Taxation paid (162) (214) (212)
Net cash used in operating activities (2,200) (424) (402)
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.
10. 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 2022- 1 Jul 2021- 1 Jul 2021-
31 Dec 2022 31 Dec 2021 30 Jun 2022
US$'000 US$'000 US$'000
Directors' fees 79 92 170
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
2022 were US$41,000 (31 December 2021: US$46,000, 30 June 2022: US$41,000).
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 2021:
US$600,000, 12 months ended 30 June 2022: US$1,199,000) at a quarterly fixed
rate of US$300,000 per annum. Management fees outstanding as at 31 December
2022 were US$300,000 (31 December 2021: US$nil, 30 June 2022: US$nil).
A realisation fee shall be payable on deals originated and secured by the
Manager which shall be linked to the sales price achieved. The realisation fee
is currently active until 31 December 2023. 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 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. 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 for the period totalled US$27,000 (6 months ended 31 December 2021:
US$23,000, 12 months ended 30 June 2022: US$23,000). For the calendar year
2023, 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 2021, 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 2021 Realisation fee, active
until 31 December 2021, (together with Incentive Fee (if any) during such
period) shall not exceed in aggregate US$3.8 million. The Extra Incentive Fee
is no longer applicable for 2022 under the updated agreement. Extra Incentive
fees payable for the period totalled US$nil (6 months ended 31 December 2021:
US$nil, 12 months ended 30 June 2022 US$nil).
No performance fee was accrued at period end (31 December 2021: US$nil, 30
June 2022: US$nil). No performance fee was paid during the period (6 months
ended 31 December 2021: US$nil, 12 months ended 30 June 2022: US$nil).
All intercompany loans and related interest are eliminated on consolidation.
11. Taxation provision
As at period-end, the following amounts are the outstanding tax provisions.
Unaudited Unaudited Audited
31 Dec 2022 31 Dec 2021 30 Jun 2022
US$'000 US$'000 US$'000
Non-current liabilities
Deferred taxation 8,720 11,431 9,706
Provisions for Macanese taxations 279 418 579
8,999 11,849 10,285
Deferred taxation
The Group has recognised the deferred tax liability for the taxable temporary
difference relating to the investment property carried at fair value and has
been calculated at a rate of 12%.
Provision for Macanese taxations
The Group has made provisions for property tax and complementary tax arising
from its Macau business operations.
Tax Reconciliation
Unaudited Unaudited Audited
1 Jul 2022- 1 Jul 2021- 1 Jul 2021-
31 Dec 2022 31 Dec 2021 30 Jun 2022
US$'000 US$'000 US$'000
Accounting loss before tax (5,399) (4,478) (20,931)
Exempt from income tax in Guernsey - - -
Movement in deferred tax provision 1,025 304 1,965
Movement in provision for Macanese taxations - (84) (125)
At the effective income tax rate of (19.0)% 1,025 220 1,840
(31 Dec 2021: (4.9)%, 30 Jun 2022: (8.8)%)
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.
12. Share capital
Ordinary shares
Unaudited Unaudited Audited
31 Dec 2022 31 Dec 2021 30 Jun 2022
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 2021: 61.8 million; 618 618 618
30 June 2022: 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 renewed this authority at the 2022 Annual
General Meeting.
13. Subsequent events
The Company secured the sale of six units at The Waterside subsequent to
period end. The total consideration of the six units is US$14.6 million
(HKD114.3 million) which are at an overall average discount of 10% to the 31
December 2022 valuations. Two of the sales have completed in full with the
remaining four due to complete over the next three months.
DIRECTORS AND COMPANY INFORMATION
Directors Advocates to the Group as to Guernsey Law
Mark Huntley (Chairman) Carey Olsen
Alan Clifton Carey House
Carmen Ling Les Banques
St Peter Port
Audit and Risk Committee Guernsey GY1 4BZ
Alan Clifton (Chairman)
Mark Huntley Corporate Broker
Carmen Ling Liberum Capital Limited
Ropemaker Place, Level 12
Management Engagement Committee 25 Ropemaker Street
Mark Huntley (Chairman) London EC2Y 9LY
Alan Clifton
Carmen Ling Independent Auditor
Deloitte LLP
Nomination and Remuneration Committee Regency Court
Alan Clifton (Chairman) Glategny Esplanade
Mark Huntley St Peter Port
Carmen Ling Guernsey GY1 3HW
Disclosure and Communication Committee Property Valuers
Mark Huntley (Chairman) Savills (Macau) Limited
Alan Clifton Suite 1309-10
13/F Macau Landmark
Manager 555 Avenida da Amizade
Sniper Capital Limited Macau
Vistra Corporate Services Centre
Wickhams Cay II Administrator & Company Secretary
Road Town, Tortola Ocorian Administration (Guernsey) Limited
VG1110 PO Box 286
British Virgin Islands Floor 2, Trafalgar Court
Les Banques
Investment Adviser St Peter Port, Guernsey
Sniper Capital (Macau) Limited Channel Islands GY1 4LY
Largo da Ponte,
Nos. 51 e 57, Taipa Macau and Hong Kong Administrator
Macau Adept Capital Partners Services Limited
Unit B1, 25/F, MG Tower
Solicitors to the Group as to English Law 133 Hoi Bun Road
Norton Rose Fulbright LLP Kwun Tong, Kowloon
3 More London Riverside Hong Kong
London SE1 2AQ
Registered Office
PO Box 286
Floor 2, Trafalgar Court
Les Banques
St Peter Port, Guernsey
Channel Islands, GY1 4LY
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