TIDMMPO
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 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 .
- End -
About Macau Property Opportunities Fund
Premium listed on the London Stock Exchange, Macau Property
Opportunities Fund Limited 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 , 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
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 PERIODED 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 30 June
2022 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$106.3 million, leading to an
improved LTV of 50.2%.
As the Company endeavours to advance its divestment plan, we
will remain focused on cash and capital management to strengthen
the balance sheet and operating cash flow. We remain concentrated
on containing costs, with debt facilities reviewed and refinanced
where appropriate to obtain the most cost-efficient terms.
Company life extended and management fees extended
Macau pursued a zero-COVID strategy throughout most of 2022, and
the ensuing lockdowns and travel restrictions severely constrained
the Manager's efforts to divest the portfolio properties. A
shareholder resolution was therefore proposed, and subsequently
passed, at the Company's Annual General Meeting in December to
further extend the life of the Company for a year to facilitate the
orderly divestment of the portfolio. The Company thanks all
Shareholders for their continued support in this regard.
In connection to the extension of the Company's life, the Board
and the Manager have also agreed to extend the management and other
fees payable to the Manager. Full details are set out in Note
10.
Portfolio Updates
PORTFOLIO OVERVIEW AS AT 31 DECEMBER 2022
Sector No. of Units Costs Market Changes Composition
(US$ million) Valuation in Market (Based on
(US$ million) Value market value)
Since 30
June 2022
The Waterside
Tower Six of
One
Central Luxury
Residences* residential 54 91.4 164.1 1.7%** 73.0%
The Low-density
Fountainside** residential 7 6.3 18.4 0.5% 8.2%
Luxury
Penha Heights 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.
T hroughout 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
T he 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
T he 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
P enha 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 of
the Company during the period/year 7 (0.0707) (0.0689) (0.3087)
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 Distributable Foreign Total
earnings reserves currency
translation
reserve
US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought forward
at 1 July 2022 618 62,349 15,791 (1,182) 77,576
Loss for the period - (4,374) - - (4,374)
Items that may be reclassified
subsequently to profit
or loss
Exchange difference
on translating foreign
operations - - - 436 436
Total comprehensive
loss for the period - (4,374) - 436 (3,938)
Balance carried forward
at 31 December 2022 618 57,975 15,791 (746) 73,638
Movement for the six-month period from 1 July 2021 to 31
December 2021 (unaudited)
Share capital Retained Distributable Foreign Total
earnings reserves currency
translation
reserve
US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought forward
at 1 July 2021 618 81,440 15,791 56 97,905
Loss for the period - (4,258) - - (4,258)
Items that may be reclassified
subsequently to profit
or loss
Exchange difference
on translating foreign
operations - - - (420) (420)
Total comprehensive
loss for the period - (4,258) - (420) (4,678)
Balance carried forward
at 31 December 2021 618 77,182 15,791 (364) 93,227
Movement for the year from 1 July 2021 to 30 June 2022
(audited)
Share capital Retained Distributable Foreign Total
earnings reserves currency
translation
reserve
US$'000 US$'000 US$'000 US$'000 US$'000
Balance brought forward
at 1 July 2021 618 81,440 15,791 56 97,905
Loss for the year - (19,091) - - (19,091)
Items that may be reclassified
subsequently to profit
or loss
Exchange difference
on translating foreign
operations - - - (1,238) (1,238)
Total comprehensive
loss for the year - (19,091) - (1,238) (20,329)
Balance carried forward
at 30 June 2022 618 62,349 15,791 (1,182) 77,576
The notes form part of these interim condensed consolidated
financial statements.
Interim Condensed Consolidated Statement of Cash Flows
(Unaudited)
For the six-month period from 1 July 2022 to 31 December
2022
Unaudited Unaudited Audited
6 months 6 months 12 months
1 Jul 2022- 1 Jul 2021- 1 Jul 2021-
31 Dec 2022 31 Dec 2021 30 Jun 2022
Note US$'000 US$'000 US$'000
Net cash used in operating ( 2,200
activities 9 ) (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 (3 82 ) (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$369,000).
The table below shows the assumptions used in valuing the
investment properties which are classified as Level 3 in the fair
value hierarchy:
Property Carrying Valuation Input Unobservable Other key
information amount/fair technique and observable information
value as inputs used
at 31 December in determination
2022: US$'000 of
fair values
Name The Waterside 164,100 Term and Term rent HK$17.2 Age of building
Reversion (inclusive psf (30
Analysis of management June 2022:
fee and HK$17.5
furniture) psf)
Type Residential/Completed Term yield 1.4%-2.2% Remaining
apartments (exclusive (30 June useful life
of management 2022: 1.4%-2.2%) of building
fee and
furniture)
Location One Central Reversionary HK$13.1
Tower 6 rent (exclusive psf (30
Macau of management June 2022:
fee and HK$13.16
furniture) psf)
Reversionary 1.55%
yield
(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 (GBP)* 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)%
(31 Dec 2021: (4.9)%, 30 Jun
2022: (8.8)%) 1,025 220 1,840
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.
1 2 . 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;
30 June 2022: 61.8 million)
ordinary shares of US$0.01
each 618 618 618
The Company has one class of ordinary shares which carries no
rights to fixed income.
The Board has publicly stated its commitment to undertake share
buybacks at attractive levels of discount of the share price to
Adjusted NAV. In order to continue this strategy, the Board 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 Regency Court
Committee
Alan Clifton (Chairman) Glategny Esplanade
Mark Huntley St Peter Port
Carmen Ling Guernsey GY1 3HW
Disclosure and Communication Property Valuers
Committee
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 133 Hoi Bun Road
to English Law
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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