REG - Macau Prop Opp Fund - Interim Report to 31 December 2023
04/03/2024 07:00
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RNS Number : 3501F Macau Property Opportunities Fund 04 March 2024
4 March 2024
Macau Property Opportunities Fund Limited
("MPO" or "the Company")
Interim results for the six-month period ended 31 December 2023
Macau Property Opportunities Fund Limited announces its results for the period
ended 31 December 2023. The Company, which is managed by Sniper Capital
Limited, holds strategic property investments in Macau.
The Interim Report has been submitted to the National Storage Mechanism and
will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)
FINANCIAL HIGHLIGHTS
Fund performance
· MPO's portfolio value(1) was US$183.5 million as at 31
December 2023, a decrease of 2.1% over the six-month period.
· Adjusted Net Asset Value (NAV) was US$81.7 million, which
translates to US$1.32 (104 pence(2)) per share, a decline of 10.5% over the
period.
· IFRS NAV was US$58 million as at the period end, equating
to US$0.94 (74 pence(2)) per share, a drop of 12.5%.
Capital management
· The aggregated cash and deposit balances were US$4.8 million, of
which US$4.6 million was pledged as collateral for credit facilities.
· Gross borrowings stood at US$96.5 million, equating to a
loan-to-value ratio of 51.2%.
Extension of Company life
· At the Company's Annual General Meeting in December, shareholders
agreed to a further extension of the Company's life until December 2024.
(1) Calculation was adjusted to reflect like-for-like comparisons to 31
December 2023 due to the divestment of properties during the period.
(2) Based on the US Dollar/Sterling exchange rate of 1.274 on 31 December
2023.
PORTFOLIO HIGHLIGHTS
· The Waterside
- During the second half of 2023, the Company signed agreements for the
sale of a further seven apartments - all standard units located primarily on
mid-to low floors.
- The asset originally comprised 59 units for lease and sale. To-date, 22
units, or 37.3% had been sold, with 37 units (62.7%) remaining available for
sale. Gross proceeds in total amount to US$ 56.9m. Debt was reduced by US$
9.6m in the period and further scheduled repayments will take place in Q1
2024.
- As of the end of 2023, around 50% of The Waterside's remaining apartments
were occupied. Since the period end, this figure has increased to 60% and
rental rates are improving.
· The Fountainside
- Over 40 viewings took place, however no further sales were secured during
the period. The Manager is maintaining a flexible and active 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 final government
inspections scheduled for the coming weeks.
· Penha Heights
- Interest in the property picked up in 2023 after Macau's pandemic-related
travel restrictions were lifted.
- It will nevertheless take time to identify a buyer for the property,
given its value and unique status as one of very few large, detached houses in
Macau.
Mark Huntley, Chairman of Macau Property Opportunities Fund, said:
"Further disposals of units in The Waterside underscores our continued
divestment of assets through a carefully managed process in market conditions
which remain challenging. Debt levels are being reduced accordingly."
"For the first time in four years the Board was able to hold a meeting in
Macau at the end of 2023. We saw at first-hand the territory's recovery
through vibrant, dynamic gaming and hospitality sectors that we have reported
previously. Despite this broadly positive backdrop, the property market -
especially the higher-end luxury segment - has yet to respond as favourably as
other areas of the Macau economy, as a degree of investor caution remains.
Improved leasing of units in The Waterside may just be an earlier pointer to a
strengthening market."
"The twin factors of a sluggish Chinese economy clearly experiencing major
issues, including in its own real estate sector, coupled with higher interest
rates, continue to affect investor appetite for high-end real estate and have
also increased our ongoing debt service costs."
"In a welcome development, Macau's government announced a series of measures
to provide relief to the property sector that came into effect in January
2024. These are fully explained in the Manager's Report and constitute a
much-needed sign of support for the real estate market. It remains to be seen
whether Macau will follow Hong Kong and introduce still further measures to
support the property sector".
For more information, please visit www.mpofund.com (http://www.mpofund.com/)
for the Company's full Interim Report 2024.
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) .
MACAU PROPERTY OPPORTUNITIES FUND LIMITED
INTERIM REPORT FOR THE SIX-MONTH PERIOD ENDED 31 DECEMBER 2023
CHAIRMAN'S MESSAGE
I present my report for the first six months of our financial year and the
second half of the calendar year to 31 December 2023.
We witnessed continued progress during the period, as Macau transitioned out
of COVID-19 restrictions. The territory's economy gained significant momentum
compared to the COVID period, driven by strong gaming revenues and increased
visitor numbers. Although its economic indicators have not yet returned to
pre-COVID levels, the final six months of 2023 suggest that a stronger
performance is likely in the current period.
Despite this broadly positive backdrop, the property market - especially the
higher-end luxury segment - has yet to respond as favourably as other areas of
the economy, as a degree of caution remains. The twin factors of a sluggish
Chinese economy clearly experiencing major issues, including in its own real
estate sector, coupled with higher interest rates, continue to affect investor
appetite for high-end real estate and have also increased our on-going debt
service costs.
Despite these challenging circumstances, we have made further divestment
progress at The Waterside, where more than one-third of units have now been
sold or contracted for sale. Momentum is also building in the form of
increased interest in The Fountainside and, to an extent, Penha Heights, which
remains a unique opportunity as one of the very few prime detached properties
for sale in Macau.
During H2 2023, seven units at The Waterside were sold during the six month
period ended 31st December 2023. Sale prices reflected a discount to
valuation, demonstrating our pragmatic approach to delivering continued
divestment by pricing to maximise necessary sales amid changing demand
patterns and challenging market dynamics. More valuable higher-level units are
being prepared for sale in what we believe will be an improving market. Sale
proceeds continued to be applied to reducing our current levels of debt, with
the balance deployed to support working capital.
In a welcome development, Macau's government announced a series of measures to
provide relief to the property sector that came into effect in January 2024.
These are fully explained in the Manager's Report and constitute a much-needed
sign of support for the real estate market. We have also seen continued
stimulus applied by mainland Chinese authorities to address the economic
situation in China. It remains to be seen whether further targeted stimulus
measures will follow in Macau. Such measures would provide long-sought support
after many years of difficulty in the property sector and anti-speculation
real estate market measures that are no longer required. In the meantime, the
Lunar New Year period has slowed sales activity, making it too early to assess
the near-term effects of the changes. Nevertheless, they can be seen only as
helpful following years of stifling restrictions.
For the first time in four years the Board was able to hold a meeting in
Macau. We saw at first-hand the territory's vibrant, dynamic gaming and
hospitality sectors, which is now perhaps even more vibrant and dynamic than
it was pre-COVID. It was helpful to hear commentary directly from our valuers
and other experts, and to witness the significant growth that has taken place
in the casino and hotel sectors. Investment in infrastructure continues within
the region, where it has become clear that fast rail travel will be widely
available and increasingly important, alongside improvements to facilitate
border crossings. The bridge between Zhuhai, Hong Kong and Macau is clearly
driving visitor numbers, and the expansion of Macau's light rail system will
bring improved transportation in the territory. We spent time with the
management team, whose resilience after the hardships of the COVID period is
commendable, as is their continuing commitment to delivering our divestment
plan.
The Waterside retains a superior position relative to both other towers in One
Central and to other luxury developments. This has maintained a relative
premium pricing differential that is helpful amid market conditions in which
very low transaction volumes persist. Leased units now represent 50% of
available space at the development, and our leasing strategy aims to ensure
higher rental levels. We plan to scale back leasing to make units available
for sale as we progress through 2024.
Sales enquiries relating to The Fountainside have increased as a result of
broader marketing strategies explained in the Manager's report. It is expected
that the development's converted small units, valued at lower lump sums, will
be available for sale after the approval of additional alterations.
Penha Heights has attracted an increased numbers of viewings, but it is clear
that sale opportunities will improve as and when more confidence and momentum
appears in the Chinese economy. This unique detached property is likely to
require more time and careful continued marketing to find a buyer.
As our portfolio consolidates and our debt level is reduced, we remain alert
to opportunities whereby we might achieve a whole-portfolio sale, although
market conditions are not currently offering any such prospects.
Macau's economy continued to show signs of a very positive recovery from the
low ebb seen at the end of the territory's COVID restrictions, with the key
gaming and tourism sectors driving robust year-on-year expansion. During our
visit, we were able to witness first-hand the increased activity reported in
both gaming and tourism. The phenomenon of "revenge tourism" was much in
evidence, with the mood among visitors appearing cheerful and retail outlets
solidly supported, which bodes well for further progress.
The economy still has some way to go before it recovers to pre-COVID levels,
but the direction seems clear and broadly positive. Unemployment has declined,
although some parts of the economy remain subdued, affected in part by easier
cross-border travel that has allowed local consumers to access goods and
services in mainland China at lower prices than at home. Whether this prompts
Macau's government to introduce further stimulus and support remains to be
seen.
Mainland China is Macau's key market, and the performance of the country's
economy remains lacklustre. China's economic woes have prompted authorities
there to continue to apply stimulus measures, including moves to support both
the finance and real estate sectors. Recent statistics suggest that Chinese
manufacturing has also continued to expand, albeit at a slower-than-normal
pace, and the services sector has also shown improvement. The significant
rebound expected following the end of COVID restrictions did not materialise,
and China's overall recovery has been somewhat subdued.
In China's real estate sector, measures introduced to impose de-leveraging on
property developers have translated into a full-scale down cycle. Real estate
constitutes an important component of the Chinese economy and it has a wealth
effect across the population. The key concern is that the longer consumer
sentiment is affected, the more sluggish China's economy will remain. However,
it should be remembered that Macau occupies a unique position as the only
Chinese territory in which gaming is legal, and with such a large population
to target, the impact of current and growing visitor numbers on Macau's
economy should continue to be positive, especially given the significant
investment in connectivity and infrastructure that is taking place.
An improvement in the Chinese property market is regarded as the potential
first stage of any turnaround, and it may already be under way because new
developments are not breaking ground at the pace seen previously. It will take
years for China to absorb its current real estate inventory, and direct and
indirect measures are being applied to provide support, including official
government-led encouragement of relocation. There appears to be an official
willingness to support the stock market and property sector, and any
improvement in confidence will aid similar sentiment in Macau.
As at 31 December 2023, the Company's unaudited adjusted net Asset Value (NAV)
was US$81.7 million, equivalent to US$1.32 (104 pence*) per share, which
represents a decline of 10.5% over the period.
The Company's shares closed at 40.6 pence at the end of the reporting period,
decline of 31% over the six-month period. The share price discount to Adjusted
NAV had increased to 60.9% as of 31 December 2023, from 49.5% over the
six-month period.
Our share price is monitored daily, and its recent decline follows a broader
issue experienced across the entire investment fund sector that has affected
real estate funds in particular. Both the Board and the Manager recognise that
delivering a distribution of capital is key to closing the current discount
between the Company's share price and its adjusted NAV. This remains our core
focus for 2024, although in the near term, repaying and reducing our debt
levels and debt service costs is critical. With demands on available cash
focused on debt repayment, any measures to buy back shares cannot be
implemented at this time.
The Board appreciated the overwhelming support for extending the life of the
Company provided by the vote at the Annual General Meeting. We remain
convinced that a managed, orderly divestment of assets will achieve the best
return for Shareholders.
Revised remuneration has been agreed in principle with the Manager that will
cover the remaining term of the engagement. The monthly management fee remains
unchanged, but starting in 2025, the Board retains the right to reduce the
management fee to US$80,000 per month by providing one month's advance notice
to the Manager. This would be subject to an affirmative vote to continue the
life of the Company, and it recognises the clear intention to deliver
meaningful progress on divestment in 2024.
The Board has also agreed with the Manager to amend the thresholds for the
realisation fee, subject to divestment hurdles being met in 2024. Further
details on the Manager remuneration will be announced in due course. The Board
believes that the terms are firmly aligned with the Company's stated
divestment objective of ensuring a complete portfolio sale is achieved with
the associated return of capital to Shareholders.
Both the management fee and realisation fee are subject to an overall cap of
4.99% of the Company's market capitalisation. If the Company's life is
extended into 2025, the notice period for termination of the management
engagement will be reduced to three months.
The economic recovery we have witnessed in Macau is both encouraging and
significant in the context of our divestment strategy. However, the robust
nature of the growth in gaming and tourism has yet to translate into a
meaningful improvement in our segment of the real estate market, which remains
challenged by very low transaction volumes.
Continued careful management is required as we move ahead with the divestment
of our remaining assets following two extremely difficult years; 2022 was
Macau's worst year for real estate transactions in 40 years, while 2023 was
only a little better.
The relaxation of stifling and largely unnecessary constraints on property
market activity has yet to translate into increased demand. Property
developers continue to lobby for further measures to stimulate and support the
higher-end market segment. Such measures might include a "golden visa"
programme linked to property purchases above a certain value threshold, which
would mirror a similar incentive in operation in Hong Kong that is designed to
revive the territory's status as a financial centre and boost its revenue. The
removal of the foreign investor property purchase stamp duty of 10%, which
acts as a disincentive to overseas investment in Macau's property sector,
would be another helpful measure. Hong Kong has just announced the removal of
such extra stamp duties on all residential transactions.
Were such improvements to be implemented they would undoubtedly aid market
sentiment. However, we must be mindful of the need to manage the company
within current constraints. This is how we must continue to operate in order
to achieve the disposal of our portfolio, to reduce and repay our debt
obligations, whilst maintaining our core objective of delivering the earliest
possible return of capital to our Shareholders.
MANAGER'S REPORT
INTRODUCTION
In the second half of 2023, Macau witnessed a remarkable economic resurgence,
powered by its two economic engines - tourism and gaming. For much of the
world, the COVID-19 pandemic was fading into memory, whereas Macau was barely
six months into its recovery after three years of almost complete isolation
under China's strict zero-COVID policies. That isolation reduced Macau's
economy to less than half of its pre-pandemic size.
During the first three quarters of 2023, Macau's economy grew 78% year on year
(YoY), and analysts expect full-year 2023 growth of 75% YoY. Gross gaming
revenue (GGR) for 2023 stood at MOP183 billion (approximately US$23 billion),
an increase of more than 300% YoY. These numbers imply a rebound in gross
domestic product (GDP) to 77% of its pre-pandemic level and a recovery to 62%
of pre-pandemic GGR.
Nonetheless, despite the encouraging headline economic data, Macau's recovery
has been uneven across the economy, and 2023 is best regarded as a period of
recovery and transition. More sustainable, balanced growth in 2024 and beyond
should follow.
FINANCIAL OVERVIEW
31 December 2023 30 June 2023
NAV (IFRS) (US$ million) 58 65.7
NAV per share (IFRS) (US$) 0.94 1.06
Adjusted NAV (US$ million) 81.7 90.4
Adjusted NAV per share (US$) 1.32 1.46
Adjusted NAV per share (pence)(1) 104 116
Share price (pence) 40.6 58.5
Share price discount to Adjusted NAV per share (%) 60.9% 49.5%
Portfolio valuation (US$ million) 183.5 200.5
Loan-to-value ratio (%) 51.2% 50.9%
1 Based on the following US dollar/sterling exchange rates: 1.274 on 31
December 2023 and 1.261 on 30 June 2023.
Financial Review
Half-year financial results
The value of the Company's portfolio, which comprises three main assets, was
US$183.5 million as at 31 December 2023. On a like-for-like comparison,
adjusting for units sold during the six-month period, its valuation declined
by 2.1% over the period.
The Company's adjusted NAV was US$81.7 million, which translates to US$1.32
(104 pence) per share, a decline of 10.5% over the period. Its IFRS NAV was
US$58 million as of the period's end, equating to US$0.94 (74 pence) per
share, a drop of 12.5%.
As at 31 December 2023, the Company's share price was 40.6 pence, representing
a 60.9% discount to its Adjusted NAV per share.
Capital management
As at 31 December 2023, the Company had total assets worth US$164.8 million
and liabilities totalled US$106.8 million. Gross borrowing stood at US$96.5
million, equating to a loan-to-value (LTV) ratio of 51.2%.
The Company's consolidated cash balance was approximately US$4.8 million, of
which US$4.6 million was pledged as collateral for credit facilities, while
the balance of some US$0.2 million represented free cash.
The Manager continues to focus on securing further asset sales to meet all the
Company's financial obligations. Discussions are ongoing with the Company's
lenders to agree on better aligning repayment schedules with the completion of
future sales.
As the Company continues to execute its divestment strategy, its focus remains
firmly on cash and capital management to strengthen its balance sheet and
bolster its operating cash flow. Disposal proceeds have been used to reduce
debt facilities, and existing facilities are consistently reviewed or
refinanced to secure the most cost-efficient and beneficial terms.
Company life extended
Macau's economic recovery has been uneven and the Manager is continuing to
navigate market challenges to optimise the divestment of the Company's
portfolio, reduce its debt, and return capital to Shareholders within the
earliest possible timeframe. A Shareholder resolution was therefore proposed,
and subsequently passed, at the Company's Annual General Meeting in December
2023, extending the life of the Company for a year to facilitate the orderly
divestment of its portfolio. The Company thanks all Shareholders for their
continued support in this regard.
Revised remuneration has been agreed with the Manager that will cover the
remaining term of the engagement. The monthly management fee remains
unchanged, but the Board retains the right to reduce the management fee to
US$80,000 per month by providing one month's advance notice to the Manager,
effective from 1 January 2025.
The Board has also agreed with the Manager to amend thresholds for the
realisation fee, subject to divestment hurdles being met in 2024. Further
details on the Manager remuneration will be announced in due course. Both fees
are subject to an overall cap of 4.99% of the Company's market capitalisation.
Portfolio Updates
PORTFOLIO OVERVIEW AS AT 31 DECEMBER 2023
Sector No. of Units Cost Market Valuation Change in Composition
(US$ million)
(US$ million)
Market Value
(based on
market value)
Since 30 June 2023
The Waterside Luxury residential 41 70.9 125 -2.4%** 68%
Tower Six at One Central Residences*
The Fountainside Low-density residential 7 6.4 17.3 -2.4% 9.5%
Penha Heights Luxury residential - 28.6 41.2 -1.2% 22.5%
Total 105.9 183.5 -2.1%** 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 2023 to
reflect like-for-like comparisons to 31 December 2023 due to property sales
during the period.
Despite a very positive recovery in Macau's gaming and tourism sectors, the
territory's property market faced headwinds linked to weak sentiment in
mainland China's property market, in tandem with a series of interest rate
hikes that brought rates to their highest levels in 16 years, dampening
investor sentiment across much of the real estate sector.
Despite the challenging operating environment, we continued to make progress
on the divestment of the portfolio and, since the commencement of apartment
sales at The Waterside began approximately 20 months ago, the Company has sold
more than one-third of the units at the landmark development. It has walked a
tightrope, striking a delicate balance between closing sales and maintaining
price levels that will protect the value of the portfolio and maximise returns
to Shareholders.
The Waterside
The Waterside is the Company's landmark luxury residential apartment
development in central Macau. The asset originally comprised 59 units for
lease and sale, but at the time of this report's publication, 22 units, or
37.3% had been sold, with 37 units (62.7%) remaining available for sale.
During the second half of 2023, the Company signed agreements for the sale of
a further seven apartments - all standard units located primarily on mid-to
low floors. The seven units were sold at an average value of 51% above cost,
or approximately HK$8,299 (US$1,061) per square foot of gross floor area, an
average discount of 11% to their latest average valuations.
To date, of the 22 sale transactions, 18 have been completed, with the Company
receiving total gross proceeds of HK$395 million (US$49.3 million). Deploying
the sales proceeds, the Company reduced its debt by HK$75 million (c. US$9.6
million) during the second half of 2023, and the remaining will be used for
interest payment and working capital to cover the Company's operating cost.
At the end of 2023, the occupancy rate at The Waterside was 50%, based on the
gross floor area of the unsold units. This reflects the Manager's more
selective leasing approach to maximise the sales potential of the units, based
on purchasers' indicated preferences for vacant units.
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. All 36 standard units have been sold, but seven homes - four villas
and three smaller reconfigured units converted from two duplexes - and two car
parking spaces remain available for sale.
The sale process for the three smaller units was delayed due to additional
alterations requested by the Macau authorities at a very late stage when the
issuance of occupancy permits had been anticipated. Nevertheless, once the
construction permits were obtained in November 2023, alteration works began
immediately and are now completed. The next stage of approval will be subject
to further government inspection. Thereafter, sales and marketing efforts will
commence.
The Company is maintaining a flexible sales approach for the 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. The Company is
exploring a variety of new marketing opportunities for this trophy home as
interest in the property picked up in 2023 after Macau's pandemic-related
travel restrictions were lifted.
Although the number of inquiries and viewings has increased, it will
nevertheless take time to identify a buyer for the property, given its value
and unique status as one of very few large, detached houses in Macau.
MACROECONOMIC OUTLOOK
Economy: Recovering to double-and triple-digit growth
Macau's economy continued its robust growth in the second half of 2023, with
GDP expanding 116.1% YoY in Q3 2023. During the first three quarters of 2023,
the territory's GDP grew 78% YoY, and full-year 2023 growth is expected to be
75% YoY.
Driving these impressive growth numbers is the rapid recovery of the
territory's twin economic engines - tourism and gaming - which roared back to
life aided by post-pandemic "revenge travel" in the Greater China region.
However, Macau's economic recovery has been uneven, with other businesses -
such as small and medium-sized enterprises and local retail businesses -
adversely affected by changes in spending patterns among local residents. As
the Macau-China border becomes increasingly easy to cross, Macau residents can
travel more readily and frequently between the territory and neighbouring
cities in China, and many have taken to making regular trips to buy consumer
goods at significantly lower prices in Zhuhai and other mainland Chinese
cities.
Despite the rebound in growth seen during 2023, Macau still needs more time to
reach the economic performance it enjoyed before the pandemic. The territory's
GDP is currently at approximately 77% of its 2019 level, and although its per
capita GDP ranks fifth globally, at approximately US$125,000, it is still 30%
below its 2019 level. Key economic indicators, such as visitor arrivals and
GGR, which have also registered strong growth, are still lagging pre-pandemic
levels, with visitor arrivals at 70% of their 2019 level and GGR at 62%.
Macau's unemployment rate has continued to improve, with full-year 2023
general unemployment falling to 2.6%, a 1% decline YoY. As airline traffic and
other means of travel return to pre-COVID capacity, Macau's government has
estimated a target of 33 million visitor arrivals for 2024, a 17% increase on
arrivals in 2023 and 84% of 2019's peak levels.
Ratings agency Moody's downgraded Macau's credit outlook from "stable" to
"negative" in December 2023, in tandem with its downgrade of mainland China's
credit outlook, based on the tight institutional, economic and financial
linkages between the territory and the mainland. This assessment appears to be
at variance with Macau's overall pace of economic recovery. Fitch Ratings'
assessment remains unchanged at "AA" with a stable outlook.
Gaming: FY2023 performance was stronger than expected
Macau's 2023 GGR stood at MOP183 billion (around US$23 billion), an increase
of 333.8% YoY. The sum is significant as it exceeds the MOP180 billion
threshold set by Macau's government that obliges gaming concessionaires to
make additional commitments of up to 20% to non-gaming and overseas marketing
spend over and above their total commitment of MOP109 billion (approximately
US$13 billion).
Following the near-20-year lows of 2022, when GGR amounted to US$5.3 billion,
a paltry 14% of 2019's pre-pandemic level, the remarkable recovery in GGR
demonstrates the strong demand for Macau's tourism and gaming offerings,
particularly among visitors from mainland China and Hong Kong. For
perspective, Macau's GGR in 2023 amounted to approximately 62% of 2019's
pre-pandemic level, and Morgan Stanley predicts that in 2024, GGR will grow a
further 24% YoY to approximately US$28 billion - 80% of 2019's level.
Tourism: Recovery to 70% of peak arrivals
Macau welcomed more than 28 million visitors in 2023, in stark contrast to
2022, when the total number fell short of 6 million. Visitor arrivals in 2023
were 70% of 2019's pre-pandemic peak of more than 39 million.
Most visitors to Macau in 2023 originated from mainland China and Hong Kong,
accounting for 68% and 26% of total arrivals, respectively. International
visitors comprised only 5% of the total. Compared to 2019 levels, visitor
arrivals from Hong Kong recovered to 98% of 2019's level, but the number of
mainland Chinese and international visitors hovered at 68% and 48% of 2019's
level, respectively.
Overnight visitors and day trippers were roughly equal in number, and the
average length of stay shortened YoY by 0.2 days to 1.3 days.
PROPERTY MARKET OVERVIEW
Economic recovery has yet to flow into the property sector
Macau's residential property market improved marginally in 2023. In terms of
sales activity, 2,879 transactions were recorded during the year, an increase
of 2% YoY on the same period in 2022, when market activity hit a 40-year low.
Prices held steady at around HK$5,800 per square foot in 2023, less than 1%
lower than prices in 2022.
In the luxury residential segment, of which the Company's assets are a part,
only 136 transactions were recorded involving homes with usable floor areas of
more than 150 square metres during 2023, a decrease of 2% YoY by volume.
Luxury residential sales accounted for only 5% of all sales transactions in
the residential market. Average prices in the luxury residential segment
increased by 3% YoY in 2023. The increase was mainly driven by new
developments in Taipa and Coloane, which generally have a smaller size in
comparison to the units in the Waterside.
According to Macau's Land and Urban Construction Bureau, at the end of Q4
2023, a total of 9,023 units were in the development pipeline, 71% of which
were at the design stage, 25% of which were under construction, and around 4%
of which had been completed. 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.
A potential boost from policy initiatives
The poor performance of Macau's property market prompted calls for the
government to ease measures put in place over the past decade to curb
speculation. Citing policy initiatives introduced in mainland China to boost
the country's troubled property sector, Macau property players urged the
government to consider similar measures.
In a boost to the sector, Macau's government announced a package of measures
to rekindle investor interest in property, taking effect from January 2024.
Two of the measures are particularly relevant to the Company's portfolio
properties: the removal of stamp duty for second home ownership and an
increase in the maximum LTV ratio to 70% for residential properties valued
above MOP8 million (around US$1 million).
Before the policy changes, measures to curb real estate speculation in Macau
included the imposition of additional ad valorem stamp duty of up to 20% if a
property was 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 above MOP8 million.
These policy revisions are the first such moves to roll back years of measures
to curb speculation, and may provide a much-needed and timely boost to market
sentiment in the luxury segment in 2024. They follow a similar relaxation of
policies seen in Hong Kong which have just been further augmented.
Higher interest rates dampened investor interest
In July 2023, the Monetary Authority of Macau raised interest rates by 25
basis points to 5.75%, in tandem with interest rate hikes by the US Federal
Reserve and the Hong Kong Monetary Authority. It was the 11th rate increase
since March 2022, despite inflation in Macau holding steady at 0.94% in 2023
and 1.04% in 2022. The resulting increase in borrowing costs contributed to a
dampening of investor interest in Macau property.
Although elevated US inflation remains a concern, a general consensus exists
that the Federal Reserve will hold rates steady for a period while it
considers lowering them during the course of 2024. Stable or lower interest
rates should provide an additional boost for Macau's property sector.
China's property sector woes affected regional markets
China's property market, which accounts for about one-third of the country's
economy, has been engulfed by a severe debt crisis. The government's efforts
to deleverage the sector, which began in 2020, coupled with the economic
impact of zero-COVID measures, resulted in the sector as a whole and some of
its largest developers struggling to cope with the challenging operating
environment. This led to several headline events in H2 2023, including
bankruptcy filings and debt defaults by some of China's biggest property
companies.
As a result of the turmoil in China's property sector, home sales growth and
home prices have remained sluggish. There is a risk of the crisis spilling
over into the banking sector, as approximately 40% of all bank loans in the
country are linked to property. Coupled with a pronouncement by the country's
National Administration of Financial Regulation that approximately RMB3.2
trillion in loans held by commercial banks in China are underperforming, these
issues have adversely impacted investors' views of, and sentiment towards,
Macau's real estate market.
To address the adverse impact of the property sector on China's economy, the
People's Bank of China (PBOC), the country's central bank, has announced
easing measures. The PBOC cut its reserve requirement ratio by 50 basis points
from February 2024 onwards to allow banks to hold smaller cash reserves,
potentially releasing RMB1 trillion (approximately US$140 billion) in
long-term capital into the market. This move is regarded as a significant
shift towards more proactive policy support for the country's flagging
economy. On the same day, the PBOC and the National Administration of
Financial Regulation announced measures to encourage banks to lend to
qualified developers, further signalling the government's commitment to
revitalising its real estate market.
Despite these efforts, concerns persist about mainland China's sluggish
economy and the need for fundamental reforms. New reports suggest that the
government is considering a further RMB2 trillion (US$278 billion) stimulus
package as part of its ongoing efforts to address the country's economic
challenges.
In February 2024, Beijing announced further policy initiatives to boost the
property sector in the Greater Bay Area, including allowing Hong Kong and
Macau residents to bypass daily remittance limits for funds to purchase
property in the region. Removing that pain point associated with property
investment in mainland China puts properties in the Greater Bay Area on the
radar of investors in Hong Kong and Macau seeking to take advantage of their
weak prices. This added competition may negatively impact Macau's property
sector as investors from the Hong Kong and Macau special administrative
regions now have a wider range of options to consider.
Looking Ahead
Macau's economic outlook became more buoyant during the course of 2023 as
confidence grew that the territory's recovery was sustainable and represented
a genuine transition from the pandemic era to a period of more diversified and
sustainable economic growth in 2024 and beyond.
The Economic Intelligence Unit has revised its outlook for Macau's economy,
suggesting that the territory is on track to reach 2019's pre-pandemic level
of economic performance by late 2024, and it forecasts that gaming revenues
will hit 2019 levels by the middle of the year. Macau's government has
announced a target of 33 million visitor arrivals for 2024, a 17% increase to
reach 84% of 2019's figure.
These are positive indicators for the overall health of Macau's economy. They
will help to improve investor sentiment towards the territory as a whole and
rekindle investor interest in making long-term investments. Coupled with the
new policy initiatives to reignite interest in Macau property and a more
stable interest rate environment, these developments should aid the Company's
divestment programme by expediting further sales, lowering debt, and returning
capital to Shareholders.
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
1 March 2024
Interim Condensed Consolidated Statement of Financial Position (Unaudited)
As at 31 December 2023
Unaudited Unaudited Audited
31 Dec 2023 31 Dec 2022 30 Jun 2023
Note US$'000 US$'000 US$'000
ASSETS
Non-current assets
Investment property 3 124,956 164,100 141,045
Deposits with lenders 4 320 1,878 1,170
Trade and other receivables 16 16 16
125,292 165,994 142,231
Current assets
Inventories 5 34,933 34,872 34,775
Trade and other receivables 63 92 66
Deposits with lenders 4 4,245 384 4,438
Cash and cash equivalents 282 23 1,118
39,523 35,371 40,397
Total assets 164,815 201,365 182,628
EQUITY
Capital and reserves attributable to the Company's equity holders
Share capital 12 618 618 618
Retained earnings 42,365 57,975 50,342
Distributable reserves 15,791 15,791 15,791
Foreign currency translation reserve (738) (746) (1,067)
Total equity 58,036 73,638 65,684
LIABILITIES
Non-current liabilities
Deferred taxation provision 11 6,482 8,720 7,498
Taxation provision 11 240 279 1,158
Interest-bearing loans 6 69,124 87,319 81,913
75,846 96,318 90,569
Current liabilities
Trade and other payables 4,021 2,176 3,181
Interest-bearing loans 6 26,912 29,233 23,194
30,933 31,409 26,375
Total liabilities 106,779 127,727 116,944
Total equity and liabilities 164,815 201,365 182,628
Net Asset Value per share (US$) 8 0.94 1.19 1.06
Adjusted Net Asset Value per share (US$) 8 1.32 1.61 1.46
The interim condensed consolidated financial statements were approved by the
Board of Directors and authorised for issue on 1 March 2024.
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 2023 to 31 December 2023
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2023- 1 Jul 2022- 1 Jul 2022-
31 Dec 2023 31 Dec 2022 30 Jun 2023
Note US$'000 US$'000 US$'000
Income
Income on sale of investment property 3 - 17,254 -
Rental income 714 543 1,122
714 17,797 1,122
Expenses
Net loss from fair value adjustment on investment property 3 3,569 8,541 3,412
Net loss on disposal of investment property 3 1,616 - 1,909
Cost of sales of investment property 3 - 9,602 -
Management fee 10 600 600 1,200
Realisation fee 10 39 27 98
Non-executive directors' fees 10 86 79 167
Auditors' remuneration: audit fees 92 52 162
Auditors' remuneration: other professional services - - 9
Property operating expenses 605 624 1,277
Sales and marketing expenses 39 616 76
General and administration expenses 246 207 450
Loss on foreign currency translation 102 116 34
(6,994) (20,464) (8,794)
Operating loss for the period/year (6,280) (2,667) (7,672)
Finance income and expenses
Bank loan interest 6 (3,373) (2,555) (5,440)
Other financing costs (155) (179) (346)
Bank and other interest 12 2 8
(3,516) (2,732) (5,778)
Loss for the period/year before tax (9,796) (5,399) (13,450)
Taxation 11 1,819 1,025 1,443
Loss for the period/year after tax (7,977) (4,374) (12,007)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations 329 436 115
Total comprehensive loss for the period/year (7,648) (3,938) (11,892)
Loss attributable to:
Equity holders of the Company (7,977) (4,374) (12,007)
Total comprehensive loss attributable to:
Equity holders of the Company (7,648) (3,938) (11,892)
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2023- 1 Jul 2022- 1 Jul 2022-
31 Dec 2023 31 Dec 2022 30 Jun 2023
Note US$ US$ US$
Basic and diluted loss per Ordinary Share attributable to the equity holders 7 (0.1290) (0.0707) (0.1942)
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 2023 to 31 December 2023
(unaudited)
Share Retained earnings Distributable reserves Foreign currency translation reserve Total
capital
US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought forward at 1 July 2023 618 50,342 15,791 (1,067) 65,684
Loss for the period - (7,977) - - (7,977)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations - - - 329 329
Total comprehensive loss for the period - (7,977) - 329 (7,648)
Balance carried forward at 31 December 2023 618 42,365 15,791 (738) 58,036
Movement for the six-month period from 1 July 2022 to 31 December 2022
(unaudited)
Share Retained earnings Distributable reserves Foreign currency translation reserve Total
capital
US$'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 year from 1 July 2022 to 30 June 2023 (audited)
Share Retained earnings Distributable reserves Foreign currency translation reserve Total
capital
US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought forward at 1 July 2022 618 62,349 15,791 (1,182) 77,576
Loss for the year - (12,007) - - (12,007)
Items that may be reclassified subsequently to profit or loss
Exchange difference on translating foreign operations - - - 115 115
Total comprehensive loss for the year - (12,007) - 115 (11,892)
Balance carried forward at 30 June 2023 618 50,342 15,791 (1,067) 65,684
The notes form part of these interim condensed consolidated financial
statements.
Interim Condensed Consolidated Statement of Cash Flows (Unaudited)
For the six-month period from 1 July 2023 to 31 December 2023
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2023- 1 Jul 2022 - 1 Jul 2022-
31 Dec 2023 31 Dec 2022 30 Jun 2023
Note US$'000 US$'000 US$'000
Net cash used in operating activities 9 (30) (2,200) (2,341)
Cash flows from investing activities
Capital expenditure on investment property 3 - - (27)
Proceeds from disposal of investment property 11,392 17,254 35,384
Movement in pledged bank balances 1,043 1,194 (2,152)
Net cash generated from investing activities 12,435 18,448 33,205
Cash flows from financing activities
Proceeds from bank borrowings - 6,532 6,512
Repayment of bank borrowings (9,565) (20,845) (32,025)
Interest and bank charges paid (3,701) (2,317) (4,590)
Net cash used in financing activities (13,266) (16,630) (30,103)
Net movement in cash and cash equivalents (861) (382) 761
Cash and cash equivalents at beginning of period/year 1,118 355 355
Effect of foreign exchange rate changes 25 50 2
Cash and cash equivalents at end of period/year 282 23 1,118
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 2023 to 31 December 2023
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 2023 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 has been a change to one of the Group's principal risks and
uncertainties in the six-month period to 31 December 2023. The Board note
that, while the impact of COVID-19 on Macau's real estate market has now
receded, the Group faces a significant risk in realising its assets at
appropriate values to meet debt repayment due dates and to reduce its current
liabilities. The Manager provides the Board with regular reports and updates
on key local developments and on divestment updates. Detailed working capital
requirements and analysis of loan to value covenants are regularly reported to
the Board for monitoring. Principal risks and uncertainties are further
discussed in the Annual 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 were approved for
issue by the Board of Directors on 1 March 2024.
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 2023.
New and amended standards and interpretations applied
The following amendments to existing standards and interpretations are
effective for the year ended 30 June 2024 and therefore were applied in the
current period but did not have a material impact on the Group:
• Amendment to IFRS 17: Insurance Contracts (effective 1 January 2023)
• Amendment to IAS 1: Presentation of Financial Statements (effective 1
January 2023)
• Amendment to IAS 8: Accounting Policies, Changes in Accounting
Estimates and Errors (effective 1 January 2023)
• Amendment to IAS 12: Income Taxes (effective 1 January 2023)
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 2023, 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 21 December 2023 extending the Fund's life
until the 2024 Annual General Meeting, assessed whether the continuation vote
before the end of 2024 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 2024 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
2024 Annual General Meeting agreed at the Annual General Meeting on 21
December 2023 and the Directors' assessment of the Group's committed banking
facilities and expected continuing compliance with related covenants.
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 2023- 1 Jul 2022- 1 Jul 2022-
31 Dec 2023 31 Dec 2022 30 Jun 2023
US$'000 US$'000 US$'000
At beginning of the period/year 141,045 181,520 181,520
Capital expenditure on property - - 27
Disposal of property (13,008) (9,602) (37,293)
Fair value adjustment (3,569) (8,541) (3,412)
Exchange difference 488 723 203
Balance at end of the period/year 124,956 164,100 141,045
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 2023 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, 5 residential units of The Waterside were sold with
net losses on disposal against 30 June 2023 valuations of US$1,616,000
recognised. During the year ended 30 June 2023, 13 units were sold at The
Waterside with net losses on disposal of investment properties against 30 June
2022 valuations of US$1,909,000 recognised. During the period ended 31
December 2022, 5 residential units at 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 relates to fit-out costs for The Waterside.
Rental income arising from The Waterside of US$709,000 (6 months ended 31
December 2022: US$539,000, 12 months ended 30 June 2023: US$1,114,000) was
received during the period. Direct operating expenses of US$354,000 (6 months
ended 31 December 2022: US$389,000, 12 months ended 30 June 2023: US$772,000)
arising from rented units were incurred during the six-month period. Direct
operating expenses during the period arising from vacant units totalled
US$93,000 (6 months ended 31 December 2022: US$134,000, 12 months ended 30
June 2023: US$279,000).
The table below shows the assumptions used in valuing the investment
properties which are classified as Level 3 in the fair value hierarchy:
Property information Carrying amount/fair value as at 31 December 2023: US$'000 Valuation Input Unobservable and observable inputs used in determination Other key information
technique
of fair values
Name The Waterside 124,956 Term and Reversion Analysis Term rent HK$18.3 psf Age of building
(inclusive of
(30 June 2023:
management fee
HK$17.0 psf)
and furniture)
Type Residential/Completed apartments Term yield 1.4%-2.2% Remaining useful life of building
(exclusive of management fee
(30 June 2023: 1.55%-2.2%)
and furniture)
Location One Central Tower 6 Macau Reversionary rent (exclusive of management fee HK$12.8 psf
and furniture)
(30 June 2023: HK$13.04 psf)
1.55%
(30 June 2023:
1.55%)
Reversionary yield
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$6.3 million (6 months ended 31 December 2022: US$7.8 million, 12 months
ended 30 June 2023: US$6.9 million) or decrease by US$6.3 million (6 months
ended 31 December 2022: US$7.8 million, 12 months ended 30 June 2023: US$6.9
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$6 million (6 months ended 31 December 2022: US$7.6
million, 12 months ended 30 June 2023: US$6.5 million) or increase by US$6.5
million (6 months ended 31 December 2022: US$8.2 million, 12 months ended 30
June 2023: US$7.3 million).
The same valuation method was deployed in June 2023 and December 2023.
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$0.3
million (31 December 2022: US$1.9 million, 30 June 2023: US$1.2 million) have
been pledged to secure long-term banking facilities and are, therefore,
classified as non-current assets. There are no other significant terms and
conditions associated with these pledged bank balances.
Unaudited Unaudited Audited
31 Dec 2023 31 Dec 2022 30 Jun 2023
US$'000 US$'000 US$'000
Non-current 320 1,878 1,170
Current 4,245 384 4,438
4,565 2,262 5,608
5. Inventories
Unaudited Unaudited Audited
1 Jul 2023- 1 Jul 2022- 1 Jul 2022-
31 Dec 2023 31 Dec 2022 30 Jun 2023
US$'000 US$'000 US$'000
Cost
Balance brought forward 34,775 34,635 34,635
Additions 32 88 100
Exchange difference 126 149 40
Balance carried forward 34,933 34,872 34,775
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 2023 amounts to
US$34,933,000 (6 months ended 31 December 2022: US$34,872,000, 12 months ended
30 June 2023: US$34,775,000). Net realisable value as at 31 December 2023 as
determined by the independent, professionally-qualified valuer, Savills, was
US$56,829,000 (6 months ended 31 December 2022: US$58,932,000, 12 months ended
30 June 2023: US$57,718,000).
During the period ended 31 December 2023, no units of The Fountainside were
sold.
During the year ended 30 June 2023 and the period ended 31 December 2022, no
units of The Fountainside were sold.
6. Interest-bearing loans
Unaudited Unaudited Audited
31 Dec 2023 31 Dec 2022 30 Jun 2023
US$'000 US$'000 US$'000
Bank loans - Secured
- Current portion 26,912 29,233 23,194
- Non-current portion 69,124 87,319 81,913
96,036 116,552 105,107
There are interest-bearing loans with three banks:
Hang Seng Bank
The Group has a term loan facility with Hang Seng Bank for The Waterside.
As at 31 December 2023, outstanding loan balance was HK$601 million (US$77.0
million) (31 December 2022: HK$734.6 million (US$94.0 million); 30 June 2023:
HK$661 million (US$84.3 million)). The interest rate is 1.8% per annum over
the
1-, 2-or 3-month HIBOR rate. The Manager determines the interest period upon
assessing funding and market conditions prevailing at each interest rate
fixing date. The loan-to-value covenant for The Waterside facility is 60%,
which is assessed on aggregate basis to include The Fountainside facility. As
at 31 December 2023, the loan-to-value ratio for The Waterside was 58.7% and
the aggregated loan-to-value ratio including The Fountainside was 54.4%. The
facility is secured by means of a first registered legal mortgage over all
unsold units of The Waterside as well as a pledge of all income from the
units. The Company is the guarantor for the credit facility. In addition, the
Group is required to maintain a cash reserve equal to six months'interest with
the lender. The principal is to be repaid in half yearly instalments with
HK$75 million (US$9.6 million) due in March 2024; HK$90 million (US$11.5
million) due in September 2024; HK$125 million (US$16.0 million) due in March
2025; and the remaining HK$311 million (US$39.8 million) due upon maturity in
September 2025.
The Group has a loan facility with Hang Seng Bank for The Fountainside.
The facility consists of a term loan maturing in March 2024 ("Tranche A") and
a HK$7 million (US$0.9 million) revolving facility ("Tranche B"). As at 31
December 2023, outstanding loan balance was HK$29.2 million (US$3.7 million)
(31 December 2022: HK$43.9 million (US$5.6 million); 30 June 2023: HK$43.9
million (US$5.6 million)). The interest rates applicable to Tranche A and
Tranche B are 2.8% per annum and 3.3% per annum, respectively over the 1-, 2-
or 3-month
HIBOR rate. The Manager determines the interest period upon assessing funding
and market conditions prevailing at each interest rate fixing date. The
loan-to-value covenant is 55%. As at 31 December 2023, the loan-to-value ratio
was 21.55%. The facility is secured by means of a first registered legal
mortgage over all unsold units and car parking spaces of The Fountainside as
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. The outstanding loan balance of HK$24 million (US$3.1 million) for
Tranche A is due in full at maturity whereas loan balance of HK$5.2 million
(US$0.6 million) for Tranche B is subject to annual renewal.
The Group has two loan facilities for Penha Heights:
Banco Tai Fung
The loan facility with Banco Tai Fung has a term of seven years and the
facility amount is HK$70 million. 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$320,133) each, commencing in September 2022. As at 31 December
2023, the facility had an outstanding balance of HK$60.0 million (US$7.7
million) (31 December 2022: HK$67.5 million (US$8.6 million), 30 June 2023:
HK$60 million (US$7.7 million)). This facility is secured by a first legal
mortgage over the property as well as a pledge of all income from the
property. The Company is the guarantor for this term loan. Interest is paid
quarterly for the first six month and monthly thereafter on this loan
facility. As at 31 December 2023, the loan-to-value ratio for this facility
was 40.82%. There is no loan-to-value covenant for this loan.
Banco Comercial de Macau, S.A. ("BCM Bank")
During the period, BCM Bank renewed the loan facility of HK$63 million (US$8.1
million) for another term of two years until September 2025. Interest was
revised from 2.55% to 2.75% per annum over 3-month HIBOR rate. The principal
of HK$3 million is to be repaid in January 2024, March 2025 and June 2025
respectively, with the rest due upon maturity. As at 31 December 2023, the
facility had an outstanding balance of HK$63 million (US$8.1 million) (31
December 2022: HK$70 million (US$9.0 million), 30 June 2023: HK$63 million
(US$8 million)). This facility is secured by a first legal mortgage over the
property as well as a pledge of all income from the property. The Company is
the guarantor for this term loan. In addition, the Group is required to
maintain a cash reserve equal to six months' interest with the lender.
Interest is paid monthly on this loan facility. The loan-to-value covenant is
45%. As at 31 December 2023, the loan-to-value ratio for this facility was
36.00%.
Bank Loan Interest
Bank loan interest paid during the period was US$3,373,000 (6 months ended 31
December 2022: US$2,555,000, 12 months ended 30 June 2023: US$5,440,000). As
at 31 December 2023, the carrying amount of interest-bearing loans included
unamortised prepaid loan arrangement fee of US$415,000 (31 December 2022:
US$688,000, 30 June 2023: US$524,000).
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 2023, the fair value of
the financial liabilities was US$222,000 higher than the carrying value of the
financial liabilities (31 December 2022: US$727,000 higher than the carrying
value of the financial liabilities, 30 June 2023: US$100,000 higher than the
carrying value of the financial liabilities).
The Group's interest-bearing loans have been classified within Level 2 as they
have observable inputs from similar loans. There have been no transfers
between levels during the period or a change in valuation technique since last
period.
7. Basic and diluted loss per Ordinary Share
Basic and diluted loss per equivalent Ordinary Share is based on the following
data:
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2023- 1 Jul 2022- 1 Jul 2022-
31 Dec 2023 31 Dec 2022 30 Jun 2023
Loss for the period/year (US$'000) (7,977) (4,374) (12,007)
Weighted average number of Ordinary Shares ('000) 61,836 61,836 61,836
Basic and diluted loss per share (US$) (0.1290) (0.0707) (0.1942)
8. Net asset value reconciliation
Unaudited Unaudited Audited
31 Dec 2023 31 Dec 2022 30 Jun 2023
US$'000 US$'000 US$'000
Net assets attributable to ordinary shareholders 58,036 73,638 65,684
Uplift of inventories held at cost to market value 23,655 25,883 24,728
Adjusted Net Asset Value 81,691 99,521 90,412
Number of Ordinary Shares Outstanding ('000) 61,836 61,836 61,836
NAV per share (IFRS) (US$) 0.94 1.19 1.06
Adjusted NAV per share (US$) 1.32 1.61 1.46
Adjusted NAV per share (£)* 1.04 1.33 1.16
* US$:GBP rates as at relevant period/year end
The NAV per share is arrived at by dividing the net assets as at the date of
the consolidated statement of financial position, by the number of Ordinary
Shares in issue at that date.
Under IFRS, inventories are carried at the lower of cost and net realisable
value. The Adjusted NAV includes the uplift of inventories to their market
values before any tax consequences or adjustments.
The Adjusted NAV per share is derived by dividing the Adjusted NAV as at the
date of the consolidated statement of financial position, by the number of
Ordinary Shares in issue at that date.
There are no potentially dilutive instruments in issue.
9. Cash flows from operating activities
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2023- 1 Jul 2022- 1 Jul 2022-
31 Dec 2023 31 Dec 2022 30 Jun 2023
US$'000 US$'000 US$'000
Cash flows from operating activities
Loss for the period/year before tax (9,796) (5,399) (13,450)
Adjustments for:
Net loss from fair value adjustment on investment property 3,569 8,541 3,412
Fair value gain on disposal of investment property 1,616 (7,652) 1,909
Net finance costs 3,516 2,732 5,786
Operating cash flows before movements in working capital (1,095) (1,778) (2,343)
Effect of foreign exchange rate changes 102 116 34
Movement in trade and other receivables 3 (39) (13)
Movement in trade and other payables 992 (249) 243
Movement in inventories (32) (88) (100)
Net change in working capital 963 (376) 130
Taxation paid - (162) (162)
Net cash used in operating activities (30) (2,200) (2,341)
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 2023- 1 Jul 2022- 1 Jul 2022-
31 Dec 2023 31 Dec 2022 30 Jun 2023
US$'000 US$'000 US$'000
Directors' fees 86 79 167
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
2023 were US$44,000 (31 December 2022: US$41,000, 30 June 2023: US$43,000).
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 2022:
US$600,000, 12 months ended 30 June 2023: US$1,200,000) at a quarterly fixed
rate of US$300,000 per annum. Management fees outstanding as at 31 December
2023 were US$500,000 (31 December 2022: US$300,000, 30 June 2023: US$200,000).
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 2023 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$39,000 (6 months ended 31 December 2022:
US$27,000, 12 months ended 30 June 2023: US$98,000).
For the calendar year 2024, a realisation fee of 2.5 per cent shall be payable
on sales of assets above 90 per cent of the Carrying Values, while a
realisation fee of 1.5 per cent shall be payable on assets above 80 per cent
but less than 90 per cent of the Carrying Value. A management fee of
US$300,000 per quarter shall be payable.
All intercompany loans and related interest are eliminated on consolidation.
11. Taxation provision
As at period-end, the following amounts are the outstanding tax provisions.
Unaudited Unaudited Audited
31 Dec 2023 31 Dec 2022 30 Jun 2023
US$'000 US$'000 US$'000
Non-current liabilities
Deferred taxation 6,482 8,720 7,498
Provisions for Macanese taxations 240 279 1,158
6,722 8,999 8,656
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 2023- 1 Jul 2022- 1 Jul 2022-
31 Dec 2023 31 Dec 2022 30 Jun 2023
US$'000 US$'000 US$'000
Accounting loss before taxation (9,796) (5,399) (13,450)
Exempt from income tax in Guernsey - - -
Movement in deferred tax provision 1,042 1,025 2,219
Movement in provision for Macanese taxation 777 - (776)
At the effective income tax rate of (18.6)% (31 Dec 2022: (19.0)%, 30 Jun 1,819 1,025 1,443
2023: (10.7)%)
The differences between the taxation for the period and the movement in
taxation provisions are due to the foreign exchange movements and Macanese
taxation paid during the period.
12. Share capital
Ordinary shares
Unaudited Unaudited Audited
31 Dec 2023 31 Dec 2022 30 Jun 2023
US$'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 2022: 61.8 million; 30 June 2023: 61.8 million) 618 618 618
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 2023 Annual
General Meeting.
Currently cash reserves are applied to meet and repay debt obligations.
13. Subsequent events
Subsequent to the period end, the Company secured one further sale of unit at
The Waterside at a consideration of HK$20.2 million (US$2.6 million), which is
scheduled to complete in April 2024.
DIRECTORS AND COMPANY INFORMATION
Directors
Mark Huntley (Chairman)
Alan Clifton
Carmen Ling
Audit and Risk Committee
Alan Clifton (Chairman)
Mark Huntley
Carmen Ling
Management Engagement Committee
Mark Huntley (Chairman)
Alan Clifton
Carmen Ling
Nomination and Remuneration Committee
Alan Clifton (Chairman)
Mark Huntley
Carmen Ling
Disclosure and Communication Committee
Mark Huntley (Chairman)
Alan Clifton
Manager
Sniper Capital Limited
Vistra Corporate Services Centre
Wickhams Cay II
Road Town, Tortola
VG1110
British Virgin Islands
Investment Adviser
Sniper Capital (Macau) Limited
Largo da Ponte,
Nos. 51 e 57, Taipa
Macau
Solicitors to the Group as to English Law
Norton Rose Fulbright LLP
3 More London Riverside
London SE1 2AQ
Advocates to the Group as to Guernsey Law
Carey Olsen
Carey House
Les Banques
St Peter Port
Guernsey GY1 4BZ
Corporate Broker
Liberum Capital Limited
Ropemaker Place, Level 12
25 Ropemaker Street
London EC2Y 9LY
Independent Auditor
Deloitte LLP
Regency Court
Glategny Esplanade
St Peter Port
Guernsey GY1 3HW
Property Valuers
Savills (Macau) Limited
Suite 1309-10
13/F Macau Landmark
555 Avenida da Amizade
Macau
Administrator & Company Secretary
Ocorian Administration (Guernsey) Limited
PO Box 286
Floor 2, Trafalgar Court
Les Banques
St Peter Port, Guernsey
Channel Islands GY1 4LY
Macau and Hong Kong Administrator
Adept Capital Partners Services Limited
Unit B1, 25/F, MG Tower
133 Hoi Bun Road
Kwun Tong, Kowloon
Hong Kong
Registered Office
PO Box 286
Floor 2, Trafalgar Court
Les Banques
St Peter Port, Guernsey
Channel Islands GY1 4LY
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