ANNOUNCEMENT
30 September 2024
MPO Announces 2024 Annual
Results
Macau Property Opportunities Fund
Limited announces its results for the year ended 30 June 2024. The
Company, which is managed by Sniper Capital Limited, holds
strategic property investments in Macau.
FINANCIAL HIGHLIGHTS
Fund performance
• MPO's portfolio
value1 declined 8% over the year to US$152.7 million.
• Adjusted NAV was
US$ 66.1 million, which translates to US$1.07 (85 pence2) per
share, a 26.9% decrease year-on-year (YoY).
• IFRS NAV was
US$46.4 million or US$0.75 (59 pence2) per share, a 29.4% decrease
YoY.
Capital management
• As at 30 June
2024, MPO's balance sheet held assets worth a total of US$137.9
million, against combined liabilities of US$91.5
million.
• The Company ended
the financial year with a consolidated cash balance (including
deposits with lenders) of US$4.8 million.
• As at 30 June
2024, gross borrowings stood at US$82.8million, which translates to
a loan-to-value ratio of 52.9%.
1 Calculation was adjusted to reflect
like-for-like comparisons to 30 June 2024 due to the divestment of
properties during the year.
2 Based on the Dollar/Sterling
exchange rate of 1.265 on 30 June 2024.
PORTFOLIO HIGHLIGHTS
• The
Waterside
- 13 units were
sold during the financial year comprising 11 standard units, one
simplex unit and one duplex unit. A further 3 units were sold
subsequent to the financial year end, leaving 29 units available
for sale as at end of September.
- Since the launch
of The Waterside strata sales program in Q2 2022, the Company has
achieved total divestments of US$77.7 million (HK$607million)
through the sale of 27 units as at end June.
- Tenant occupancy
increased from 46% to 71% YoY as of year end, albeit with a lower
base of number of available units for leasing.
• The
Fountainside
- Two duplexes at
the property have been reconfigured into three smaller units and
two car-parking spaces. Occupancy permits are expected by the end
of 2024 to early 2025, clearing the way for sales in Q1
2025.
- For the four
villas, marketing efforts continue with increased investor interest
albeit pricing pressure remains.
• Penha
Heights
- Since Macau's
zero-COVID measures were lifted in early 2023, marketing activity
for the property has been stepped up.
- Events targeting
high net worth individuals were hosted at the villa to showcase its
potential.
Mark Huntley, Chairman of Macau
Property Opportunities Fund, said:
"The sales achieved during the year
enabled the Company's gross borrowings with banks to be reduced
from US$105.6 million to US$82.8 million. With further sales
completed after year-end, the Company's borrowings have fallen to
US$68.9 million. The repayment of loans and the reduction of
associated debt service levels has been a key objective during the
year.
"We are mindful that sales velocity
has been slower than we anticipated, but would stress that working
within, rather than against, the market is the only means by which
we can maximize returns in this environment.
"The effects of easing restrictions
and reduced property taxes, lower interest rates and signs of
further economic stimulus measures provide a more encouraging
medium term outlook and a basis for market confidence and sentiment
to improve. We will navigate through the near-term market
challenges and continue looking for every opportunity to achieve
our divestment objectives to repay debt and distribute capital back
to our shareholders."
For more information, please visit
http://www.mpofund.comfor the Company's full Annual Report
2024.
The Manager will be available to
speak to analysts and the media. If you would like to arrange a
call, please contact Investor Relations of Sniper Capital Limited
at info@snipercapital.com.
The Annual Report has been submitted
to the National Storage Mechanism and will shortly be available for
inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
About Macau Property Opportunities
Fund
Macau Property Opportunities Fund
(MPO) is a closed-end investment fund and the only listed company
dedicated to investing in real estate in Macau, the world's largest
gaming market and the only city in China in which gaming is
permitted.
As a member of the Equity Shares in
Commercial Companies (ESCC) segment of the London Stock Exchange,
the Company has historically held multi-segment property assets in
Macau and Zhuhai, China. Its current portfolio comprises prime
residential assets fair valued at US$200.5 million, which are being
progressively divested with the objective of distributing the
remaining liquidity to shareholders.
MPO is managed by Sniper Capital
Limited, an Asia-based property investment manager.
Stock Code
London Stock Exchange: MPO
LEI
213800NOAO11OWIMLR72
For further information, please
contact:
Manager
Sniper Capital Limited
Group Communications
Tel: +853 2870 5151
Email:
info@snipercapital.com
Corporate Broker
Panmure Liberum Limited
Darren Vickers / Owen
Matthews
Tel: +44 20 3100 2000
Company Secretary &
Administrator
Ocorian Administration (Guernsey)
Limited
Kevin Smith
Tel: +44 14 8174 2742
MACAU PROPERTY OPPORTUNITIES FUND LIMITED
ANNUAL RESULTS & ACCOUNTS FOR THE YEAR ENDED 30 JUNE
2024
Corporate Introduction
Macau
Property Opportunities Fund Limited, a closed-end investment
company, was incorporated and registered in Guernsey under the
Companies (Guernsey) Law, 2008 (as amended) on 18 May 2006, under
registration number 44813. The Company is an authorised entity
under the Authorised Closed-Ended Investment Schemes Rules 2008.
The Company is a member of the Equity Shares in Commercial
Companies ("ESCC") segment of the London Stock Exchange which
replaced the previous premium and standard segments on 29 July
2024.
Sniper Capital Limited, the Manager
for MPO, is responsible for the day-to-day management of the
Company's property portfolio and the identification and execution
of divestment opportunities.
The Company's entire remaining
investment portfolio is allocated to residential property
investments in Macau. The Company is managed with the objective of
realising the value of all remaining assets in its portfolio,
individually, in aggregate or in any other combination of disposals
or transaction structures, in a prudent manner, consistent with the
principles of good investment management with a view to making an
orderly return of capital to shareholders. Its overriding aim is to
deliver cost-effective and timely divestments of the three
remaining properties, to enable further returns of capital to the
shareholders. The Company has ceased to make any new investments
and will not undertake additional borrowings other than to
refinance existing loans or for short-term working capital
purposes.
The Board reflects a diversity of
ethnicity, gender and relevant experience from a corporate,
sectoral and geographical perspective, coupled with a deep
understanding of the unique features of Macau, its property market
and the Company's portfolio. The Board has assessed that it has the
capacity to fulfil its obligations in the context of the latest
corporate governance guidelines, taking full account of the
Company's late-stage divestment and its clearly defined business
objectives.
Pursuant to its Articles of
Incorporation, MPO is subject to annual continuation votes. At the
annual general meeting (AGM) held on 21 December 2023, Shareholders
voted in favour of a Continuation Resolution to extend the life of
the Company for a further year until the next continuation vote on
or before 31 December 2024. The Board will be
recommending the continuation of the Company at the AGM, which is
expected to be held in December.
Key
Facts
Exchange
London Stock Exchange
Main Market
Symbol
MPO
Lookup
Reuters - MPO.L
Bloomberg - MPO:LN
Domicile
Guernsey
Shares in Issue
61,835,733
Shares Held in Treasury
Nil
Share Denomination
Pounds sterling; Reporting currency:
US Dollars
Fee
Structure
Realisation-focused fee structure
that incentivises the Manager to divest assets at realistic
prices
Inception Date
5 June 2006
Amount Returned to Shareholders Since
Inception
US$173 million (distribution US$97.4
million;
share buyback US$75.3
million)
Net
IPO Proceeds
GBP101 million (US$189
million)
ADVISERS & SERVICE PROVIDERS
Company Secretary and Administrator
Ocorian Administration (Guernsey)
Limited
Corporate Broker
Liberum Capital Limited
External Auditor
Deloitte LLP
Chairman's Message
Our overriding priority remains
optimising ways
to deliver a return of
capital.
I present my
Chairman's Statement for the financial year ended 30 June 2024, and
also outline my views on the way forward for the
Company.
The current financial year has seen
the Company make further progress in delivering our divestment
programme through successful sales of 13 units at The Waterside, with three additional units sold
following year-end. Sales have been delivered against the backdrop
of ongoing market challenges, very thin demand for luxury property
- the market segment to which we are exposed - and, more recently,
from heavily discounted sales by developers under pressure to meet
bank loan repayments. These conditions have hurt our returns and
impacted our year-end property valuations.
The sales achieved during the year
enabled the Company's gross borrowings with banks to be reduced
from US$105.6
million to US$82.8
million. With further sales completed after year-end, the Company's
borrowings have fallen to US$68.9 million. The repayment of loans
and the reduction of associated debt service levels has been a key
objective during the year. We have been consistent in our targeted
approach, and have remained pragmatic in our pricing to deliver
divestments in a very tight market. We are mindful that sales
velocity has been slower than we anticipated, but would stress that
working within, rather than against, the market is the only means
by which we can maximise returns in this environment.
Market sentiment remains cautious
with buyers generally being opportunistic in nature with demand
coming principally from local Macau residents and Macau resident
card holders. The economic difficulties faced by China - especially
in relation to the real estate sector - together with a mixed
economic recovery in Macau, have further weighed on sentiment and
impacted banks' risk appetite for property lending. This has
affected both existing property-related debt and also borrowing by
prospective property purchasers. The Manager has continued to work
closely with the Company's lenders, who remain supportive of our
investment strategy and understand our considered approach in the
current market circumstances.
As previously announced, during the
final quarter of our financial year, we saw a significant step by
Macau's government in relaxing or removing many property ownership
restrictions and property-related taxes. These measures were long
overdue, and very welcome. These policy changes reflect the
lacklustre condition of the property market, especially amid the
post-COVID recovery. Paradoxically, in the near term, these changes
have distorted the market, as primary property developers with
significant inventories have come under selling pressure due to
their debt levels. This has seen a significant increase in
post-announcement sales volumes compared with very low numbers
earlier, but at enforced lower prices, which has fed into near-term
valuations. It also had a short-term impact on our loan-to-value
ratio, which we expect to improve following year-end, when further
property sales complete.
The Manager's advice to the Board is
that, in contrast to Hong Kong, where a similar relaxation of
property market measures took place, the supply pipeline of
high-end property in Macau is extremely limited. Moreover, there
have been significantly fewer new developments in recent years,
which has had the effect of reducing the overall inventory of
available property when compared to Hong Kong. This can be seen
reflected in transaction volumes, with secondary property
transactions in the luxury sector numbering below 20 units in Q4
2023.
Fundamentally, therefore, we see
greater scope for improvement in property values and higher numbers
of transactions in Macau, and hence there is reason to sense some
optimism. Any further measures to support or stimulate the market
would be welcome. Throughout the past financial year, debt service
has been a high cost that the Board is determined to reduce, aided
by the welcome easing of interest rates by the United States that
is feeding through into rates in Macau.
Navigating external factors and the
changing market dynamics in Macau has required flexibility and
agility. The Manager has achieved sales against a challenging
backdrop and continues to keep the Board fully informed on a
regular basis so that sensible, pragmatic, timely decisions can be
made on pricing and sales. This is important when seen in the
context of wholesale disposals that some primary developers have
been forced to make. Hong Kong's experience suggests that a return
to more normal sales volumes will materialise over time. Clearly,
any measures aimed at steadying and stabilising Macau's property
market would be welcome, and would help to build confidence, which
is the key to moving forward with an increased pace of
sales.
A key assessment for the Board in
respect of the Annual Report and Accounts has been to carefully
consider our Going Concern Statement, which is set out in detail on
in the Directors' Report. The methodology adopted is similar to
that of previous years but takes account of the reduced levels of
debt and the ongoing sales that have been achieved including post
year-end sales. We recognise market difficulties but, in our
judgement, the record of our Manager in delivering sales amid
challenging circumstances is an important consideration. We have
also identified market risks and have factored these into our
medium-term tactics for delivering our debt reduction and
divestment programme.
We have additionally considered the
effect of market dynamics, which lead us to believe that we are
unlikely to achieve a full disposal of the entire portfolio in
2024. It remains our view that the interests of the Company are
best served by continuing our carefully managed divestment
programme through a further one-year extension of the life of the
Company. The dramatic effect of bank-enforced sales by developers
and the associated near-term erosion of valuations reinforces our
view that triggering a wholesale disposal of our remaining
portfolio would have a detrimental effect on shareholder value.
Quite simply, the market does not have the capacity to absorb a
higher volume of transactions at anything like the price levels
that we would need to apply, and it is not clear whether such a
sudden disposal would deliver a return of capital to shareholders.
Accordingly, at our Annual General Meeting in December 2024, the
Board will be seeking approval to extend the Company's life for a
further year.
As prefaced in our Interim Report and
separately announced on 26 June 2024 the Board and the Manager have
agreed a revised fee basis for the Manager's compensation. This
agreement now runs for the remaining life of the Company and
continues the flat fee of US$100,000 per month. It allows for a
reduction in the base fees payable from calendar year 2025 onwards,
based on performance, a revised basis for any incentive fees, and
is capped in any event at 5% of market capitalisation. Full details
are set out in the Directors' Report. We believe that providing
certainty and suitable incentives is key to managing our remaining
assets and debt to return the maximum amount of capital to
shareholders.
Detailed updates on our portfolio are
contained in the Manager's Report. However, in summary form, the
following should be noted:
The Waterside
The Waterside retains a distinctive position within the high-end residential
market segment, as demonstrated by the sales and prices that have
been achieved compared with rival developments. 29 units remain
available for sale, including many on higher floors that have
greater intrinsic valuations.
We have agreed that the Manager
should terminate the active leasing of units as we prepare the
remaining properties for sale. However, a number of attractive
leasing opportunities continue to present themselves with terms
that are carefully managed. The level of leasing is marginally
higher - just above 70% occupancy and it remains an important
contribution to debt servicing.
The Fountainside
Negotiations continue on potential
sales of Fountainside units, although transactions have yet to be
achieved. The four available villas are large in the context of the
market and are challenged by the current environment, particularly
in respect of mortgages for prospective purchasers.
The smaller remaining units have been
prepared for sale. A series of frustrating procedural obstacles and
steps have been imposed by government departments, delaying the
release of the units onto the market. We remain of the view that
once the required approvals have been achieved, sales will follow
quickly, because there is clear and evident demand for units of
their size and in their location.
Penha Heights
Challenges associated with selling
this very special property remain. We believe the market will need
to see a further recovery and increased confidence, even though the
Manager has been engaged in innovative marketing of the property.
It is to be hoped that its higher profile among a wider market of
ultra-high net worth individuals will support the enhanced
marketing that is to follow.
Macau and China
Macau's economy has continued to
recover, with double-digit growth. A return to its pre-COVID size
is forecast for 2025, and although this is encouraging, it is later
than previous economic forecasts. However, it may represent a more
realistic and sustainable level of growth.
Confidence is the key component, from
our perspective, and in this context, improving gaming and visitor
numbers are important. Nevertheless, an evident slowdown in the
non-gaming sector, which we have noted in earlier reports, remains
a concern. It is a matter that requires government attention,
notwithstanding that unemployment has been significantly reduced in
the past year and further stimulus measures are being
seen.
China's economic data has remained
poor and significant stimulus measures have recently been
announced, although it is too soon to fully understand the effects;
however, we note that equity markets have reacted positively.
External confidence in China is now lower than during the immediate
post-COVID era. The sector most relevant to our Company is, of
course, real estate, and measures to stimulate the Chinese market
have had only a limited effect. There has been a knock-on impact on
lending institutions - especially amid continued signs of stress at
some of the bigger property developers - that has played a part in
the way banks have handled their loan portfolios, including in
Macau.
Debt Management
Interest rates remained unhelpfully
high throughout the reporting period. Debt service remains our
highest cost, and a reduction of debt levels through sales remains
a key near-term focus.
Banks have remained cautious and
generally risk-averse as economic conditions and the real estate
sector have worsened in China. We have benefited from open,
constructive engagement between our lenders and the Manager, in
which support for our considered, market-sensitive approach -
including phased debt repayments to coincide with sales - has been
helpful. This stands in marked contrast to the sell-off dynamic
affecting primary developers in Macau.
There are signs that interest rates
are finally easing, having potentially peaked amid developments in
the United States. This will not only provide welcome relief to the
Company, but it may also further improve market confidence, which
will aid our divestment programme.
Financial Performance
Amid a credit squeeze in the property
lending market that has dampened investment sentiment and
transaction volume, our portfolio's valuation declined 8% from 30
June 2023. The Company's adjusted net asset value (NAV) was
US$66.1 million as
of 30 June 2024. This is equivalent to US$1.07 (85 pence) per share and
represents a decline of 26.9% (27.1% in sterling terms) compared to
the previous year. NAV, which records inventory at cost rather than
market value, was US$0.75 per share (59 pence), down 29.4% from the previous
year.
The Company has remained in
compliance with its debt covenants. Its shares closed at 35.6 pence
at the end of the reporting period, a decrease of 39.1% over the
year. The share price discount to adjusted NAV increased to 58% as
of 30 June 2024, up from 50% the previous year, detailed
information about adjusted NAV is shown in Note 18. The recent
weakness in the share price, which may be driven partly by broader
market sentiment, has been noted, together with trading volumes,
which remain very low.
Environmental Social and
Governance
Our approach to the very limited but
necessary maintenance and minor works across the property portfolio
has focused mainly on end-of-lease remediation at The Waterside and continues to comply with our detailed
ESG policy.
Governance remains at the core of how
we approach our responsibilities, and our three-person Board has
the necessary mix of diverse skillsets, gender and ethnicity. We
continue to hold the view that in this very late stage of the
Company's life, changes to the Board would be
counterproductive.
Non-executive Director Alan Clifton
has exceeded the normal tenure guidance set out in external
corporate governance codes. He continues to demonstrate
independence through action, and his experience is important in the
context of our broad functions. This, coupled with the challenges
of finding a suitable director for what will be a comparatively
short tenure amid such challenging market circumstances, is why we
are proposing that Mr Clifton continues to serve as a
director.
Our strategy is clearly defined: our
objectives are to deliver a reduction and then elimination of debt
followed by a return of capital at the earliest practicable
opportunity, a strategy that will be delivered in the context of
prevailing market dynamics.
Outlook
Looking beyond the near term factors
that have affected the property market in Macau, the impact of
easing restrictions and reduced property taxes, lower interest
rates and signs of further economic stimulus measures provide a
more encouraging medium term outlook and a basis for market
confidence and sentiment to improve.
We will navigate through the
near-term market challenges and continue looking for every
opportunity to achieve our divestment objectives to repay debt and
distribute capital back to our shareholders. This will continue to
require a tactical approach to the market and to the sale of what
remain high quality assets. This is especially the case for
The Waterside where the
reducing number of units available makes for a scarcity which we
will look to exploit.
We believe that Macau will continue
its post COVID recovery and see further economic growth with a
return to historic levels of prosperity which will, in turn,
support our strategy.
MARK HUNTLEY
CHAIRMAN
MACAU PROPERTY OPPORTUNITIES FUND
LIMITED
27 September 2024
Board of Directors
MARK
HUNTLEY
Chairman
Mark Huntley has more than 40 years
of experience of fund management, administration and fiduciary
operations. His involvement in funds and private assets has spanned
real estate, private equity and emerging market investment. He has
served on the boards of listed and private investment funds and of
management/general partner entities. Mr Huntley is a resident of
Guernsey.
ALAN CLIFTON
Non-executive Director
Chairman of Audit and Risk
Committee
Alan Clifton began his career at
stockbroker Kitcat & Aitken, first as an analyst, thereafter
becoming a Partner and then a Managing Partner, prior to the firm's
acquisition by the Royal Bank of Canada. He was subsequently
invited to take up the role of Managing Director of the asset
management arm of Aviva, the UK's largest insurance group. He has
had a long non-executive career as an Independent Director of
numerous investment and finance sector companies. Mr Clifton is a
UK resident.
CARMEN LING
Non-executive Director
Carmen Ling has more than 25 years of
banking experience. She has served as a Managing Director at
Citigroup and Standard Chartered Bank, and she has extensive
experience of client coverage, real estate, transaction banking and
network strategies. Her role as global head of RMB
Internationalisation/Belt & Road at Standard Chartered Bank
added to her unique knowledge and experience as an international
banker. Before beginning her banking career, Ms Ling worked in the
hospitality industry for hotel project developments in North Asia,
including China and Japan. She is a resident of Hong
Kong.
Manager's Report
Introduction
The financial year under review was
characterised by countervailing forces in Macau's economy: a robust
post-pandemic recovery on the one hand, and the property market's
most difficult year in four decades on the other.
This led to successful lobbying by
industry players that saw Macau's government dismantle its
decade-old policies aimed at curbing property speculation in April.
Although the move was relatively recent and likely has yet to feed
through into the market, there have been some early signs of
renewed interest in property investments in the territory, albeit
primarily in the lower, "affordable" end of the property
market.
There has been a slight increase in
confidence as a result of the recent interest rate cut by the
United States Federal Reserve, and Macau's reduction of its base
rate in response. This will be a key influence on the luxury end of
the property market, in which investors are more focused on
investment returns.
Despite these challenges, the Manager
continued to expand its strata sales programme at The Waterside, with the divestment of 13 units during
the financial year, bringing total divestments at the property to
27 units for a combined US$77.7 million. During the financial
year, 11 units were completed with net proceeds of US$28.5 million
received, including one prior financial
year divestment completed in this financial year. The
remaining 3 units sold during the financial year completed the
sales process post year-end.
Financial Review
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2019
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2020
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2021
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2022
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2023
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2024
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NAV
per share (IFRS; US$)
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Adjusted NAV (US$ million)a
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Adjusted NAV per share (US$)a
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Adjusted NAV per share (pence)1,
a
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Portfolio valuation (US$ million)b
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1 Based on the following US dollar/sterling exchange
rates on 30 June: 2019: 1.270; 2020: 1.231; 2021: 1.386; 2022:
1.212; 2023: 1.261; 2024: 1.265
a Refer to Note 18 for calculation of Adjusted NAV and
Adjusted NAV per share
b Refer to Notes 6 & 7 for independent valuations of
the Group's portfolio including investment property and
inventories
c MPO returned US$50.5 million (50p per share) to
shareholders in 2018
Financial Results
Valuation
Against the backdrop of the economic
difficulties brought on by Macau's strict zero-COVID policies in H2
2022, coupled with higher interest rates, the Company's portfolio,
comprising three main assets, was fair valued by its valuers,
Savills (Macau) Limited at US$152.7 million as at 30 June 2024. On
a like-for-like comparison, excluding units at The
Waterside that had been sold, the portfolio depreciated by
8% from the previous year, continuing the decline that set in
during the height of the pandemic.
Savills attributed the decline to
poor market sentiment, for which there are several
reasons.
First, the establishment of Macau's
Credit Data Platform at the beginning of 2023 has enabled banks and
other credit providers in the territory to share customers'
personal credit information, which has resulted in individual
mortgage loan applications undergoing more rigorous
assessment.
Secondly, a credit squeeze in the
property loan market has prompted some borrowers to execute quick
sales at below-market prices to repay or reduce their outstanding
loans.
Thirdly, banks' appetite for
financing new property loans has diminished, putting pressure on
both property buyers and sellers. As a result, market sentiment has
taken a hit, dragging down the number of property transactions and
prices, particularly affecting the luxury real estate market, in
which valuations are highly sensitive to investor
sentiment.
As a consequence of the decline in
the value of the portfolio and the high interest rate environment,
MPO's adjusted net asset value (NAV) was US$66.1 million, which translates to
US$1.07 (85 pence)
per share, a 26.9% decrease year on year (YoY). The Company's IFRS
NAV, which records inventory at cost rather than market value (and
which includes two of the Company's main property assets), was
US$46.4 million, or
US$0.75 (59 pence)
per share, a 29.4% drop over the one-year period.
Capital Management
Capital management continues to be a
key priority for the Company. As at 30 June 2024, total assets on
the Company's balance sheet, two of which were carried at cost,
were valued at US$137.9 million, while aggregate liabilities were
US$91.5
million.
Nevertheless, with new sales achieved
during the financial year, the Company's debt position has
continued to improve. As at 30 June 2024, its gross borrowings had
dropped to US$82.8
million from US$105.6 million at the end of the previous financial year. Yet
despite the reduction in gross borrowings, its loan-to-value ratio
stood at 52.5%, a slight increase from 50.9% at the end of the
previous financial year due to the overall decline in its portfolio
valuation.
Following the year end, the Company's
debt position has improved further as three transactions at
The Waterside have been completed over the
course of September. A substantial portion of the sales proceeds
have been applied to further pay down the Company's debt. As a
result, the Company's gross borrowings fell to
US$68.9 million,
resulting in a loan-to-value ratio of 49.6%.
Cash Management
The Company ended the financial year
with a consolidated cash balance (including deposits with lenders)
of US$4.8 million,
of which US$0.2 million free cash and US$4.6 million remains pledged with
lenders. This sum comprises largely the sales proceeds from the
disposal of The Waterside units and the
interest reserve during the financial year. As of 27 September
2024, the Company's free cash balance increased from
US$0.2 million to
US$1.3 million following completions of sales occurring post year
end and September 2024 loan repayments.
The Monetary Authority of Macao's
last interest rate increase in July 2023, its 11th since July 2022,
pushed the base rate up to 5.75%, a 15-year high for the territory.
This further increased the Company's financing costs. As a result,
the Company has continued to implement several debt management
measures. As a prudential measure, interest reserves have been
carefully monitored through cost control and cash management
processes. 75% of the sales proceeds from The
Waterside has also been earmarked for repayment of the
principal sums of outstanding credit facility and the remainder 25%
for operating capital. Finally, the Company continues to explore
refinancing options with other lenders to reduce its financing
costs. Although Macau and Hong Kong have followed the recent United
States Federal Reserve's rate cut and Macau banks has reduced its
prime rate by 25 basis points, the impact on the property market
has not yet been seen.
Portfolio Overview
As of 30 Jun 2024
|
Property
|
Segment
|
No.
of
units
|
Total Cost
(US$ million)
|
Acquisition
cost
(US$ million)
|
Project
development
cost
(US$ million)
|
Market
valuation
(US$ million)
|
Changes
(based on market value)
|
Project composition
(based on market value)
|
|
|
|
|
|
|
|
|
Over
the
year
|
Since
acquisition
|
|
|
The
Waterside
|
|
|
|
|
|
|
|
|
|
|
Tower Six at One Central
Residences*/**
|
Luxury residential
|
35
|
59.8
|
51.5
|
8.3
|
98
|
-8.1%
|
90%
|
64.2%
|
|
The
Fountainside***
|
Low-density residential
|
7
|
6.4
|
2.0
|
4.4
|
16.3
|
-8.2%
|
713%
|
10.7%
|
|
Penha Heights
|
Luxury residential
|
N.A.
|
28.6
|
26.9
|
1.7
|
38.4
|
-7.9%
|
43%
|
25.1%
|
|
Total
|
|
|
94.8
|
80.4
|
14.4
|
152.7
|
-8.0%
|
90%
|
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.
** 3 Waterside units have been
divested with completion occurred after year end, bringing the
number of units available for sale to 32.
*** Information listed refers to the
remaining units and parking spaces available for sale.
Portfolio Updates
Divestment Performance
Undeterred by the impact of the
pandemic on economic activity, and attracted by the current pricing
levels, a number of investors and owner/occupiers in Macau are
still seeking to upgrade their residences. The Manager's marketing
strategy has been to seek out cash-rich buyers who intend to retain
apartments for their own long-term use, typically as primary
residences either for themselves or their adult children or as
holiday homes. Most purchasers intend to "buy and hold" and fall
within the working adult demographic, aged 20-60 years.
Among the reasons they cite for
selecting The Waterside are its attractive,
central location on the Macau Peninsula, its premium design, which
offers the exclusivity of a maximum of two units on each floor, and
the availability of spacious, three-bedroom layouts of more than
2,200 square feet. In addition, the apartments may be sold on a
fully furnished basis, complete with new electrical appliances,
offering purchasers the convenience of moving in immediately upon
completion with only their suitcases. Thanks to its unique
characteristics, The Waterside stood out as
one of the few luxury residential buildings with spacious,
three-bedroom units in Macau that saw multiple sales over the
financial year.
In the face of competitive offerings
of first-hand properties by other developers, the Manager utilised
a flexible sales approach that enabled investors to purchase
apartments with or without an existing lease. Transacted prices
also reflect a discretionary discount within a competitive
range.
The Waterside
The
Waterside is the Company's flagship asset,
a 59-unit luxury apartment block in the prime Macau Peninsula area.
The strata sales programme at the property commenced in H1 2022 to
H2 2024 resulted in the sale of 27 units with a combined value of
HK$607 million
(approximately US$77.7 million). 32 units remained at the period end.
Subsequently a further three units have been sold, leaving 29 units
available for sale as at end of September.
13 units were sold during the
financial year comprised 11 standard units, one simplex unit and
one duplex unit. The average price of the units transacted was
HK$8,493 per square
foot, which translates to a 13% discount to the valuation closest
to their transaction dates. In the course of the financial year, 10
of the 13 unit sold at The Waterside have
completed the full sales process, with the remaining units
completed post year-end.
The Company is winding down the
leasing programme at The Waterside to
enable it to focus firmly on divestment. Among the remaining 32
units at The Waterside at end-June 2024, 22
units were leased out, with 9 new leases signed and 13 leases
renewed during the financial year. This has resulted in an
occupancy rate of 71% of the remaining units available for sale by
gross floor area. Rents at The Waterside
have increased by 13%, at an average monthly rate of
HK$19.25 per square
foot.
The Fountainside
The
Fountainside is a low-density, 42-unit
freehold residential development in Macau's Penha Hill district.
All 36 standard units from its original configuration have been
sold, leaving four villas, three reconfigured apartments and two
car-parking spaces available for sale.
The three apartments were
reconfigured from the development's original two duplexes to meet
market demand for more affordable units among small families and
young individuals. Although the reconfiguration was completed in Q3
2022, there have been protracted delays in the issuance of
occupancy permits by the Land and Urban Construction Bureau due to
administrative backlogs and late requests for alterations by the
authorities. This has in turn delayed the commencement of the sales
and marketing campaign. We now expect the occupancy permits to be
issued in late Q4 2024 to early Q1 2025.
The Manager launched open-house
events for the villas, to target existing residents in the
neighbourhood who are looking to relocate to a newer development.
There have been viewings by potential buyers, whose interest has
mainly involved individual villas rather than an en-bloc
transaction.
Penha Heights
Penha
Heights is a prestigious, five-storey,
colonial-style villa covering more than 12,000 square feet. Nestled
amid lush greenery atop Penha Hill, an exclusive and highly
desirable residential enclave, the trophy home offers sweeping bay
views. The Company has immaculately maintained and enhanced the
property, preserving its exceptional charm and appeal.
In addition to existing marketing
channels, the Company also enabled high-net worth individuals to
experience the villa first hand by partnering with an international
luxury brand to host an event on the premises in May. The high-end
luxury gourmet event consisted of two dinners and one lunch over
the course of two days, with high-net worth individuals from around
Asia in attendance. The event showcased the villa's potential as an
elegant residence both for living and entertaining.
Macroeconomic Update
Economic indicators suggest a
sustained recovery
During both H2 2023 and H1 2024,
Macau enjoyed a robust economic recovery as its twin economic
engines - tourism and gaming - powered ahead to make up for ground
lost during the pandemic. In 2023, the territory recorded gross
domestic product growth of 81% YoY as the economy reached
approximately 80% of its 2019 pre-pandemic size. First-quarter 2024
GDP growth was approximately 26% YoY, while GDP for H1 2024 is
expected to reach 18% YoY as the economy grows to around 88% of its
pre-COVID size.
Tourism and gaming continue to lead
the economic recovery
Macau's visitor arrivals hit 28
million in 2023, approximately 72% of 2019's pre-pandemic number.
The vast majority of visitors - some 94% - came from mainland China
and Hong Kong, accounting for 68% and 26% of all visitors,
respectively, while international visitors comprised 5% of the
total. Comparing 2023's numbers with 2019's, visitor arrivals from
Hong Kong recovered to 98% of pre-pandemic levels, but mainland
Chinese visitor arrivals were around 68% of 2019's level and
international visitor arrivals were roughly 48%.
The territory's government has
targeted 33 million visitors for 2024, approximately 84% of 2019's
number. This includes a target of 2 million overseas visitors. H1
2024 visitor numbers indicate that the territory is on course to
reach these targets. Visitor arrivals for the period were close to
17 million, representing an increase of 44% YoY, or around 83% of
2019's level, while overseas visitors accounted for just over 1
million of the total.
Macau's hotel occupancy rate in H1
2024 was 84%, an improvement of 6.1 percentage points YoY, while
average room rates surged 11% to MPO1,403 (US$175) per night, indicating stronger
demand.
Macau regained the top spot among
global gaming hubs
Last year appeared to herald a new
dawn for Macau's gaming operators, with the current gaming
framework coming into effect at the beginning of 2023. As Macau's
zero-COVID policies ended abruptly in January that year, gaming
operators moved rapidly to recover ground lost during the pandemic.
By the end of 2023, the sector had turned the corner, with Macau
regaining its status from Las Vegas as the world's top gaming
hub.
The territory's gross gaming revenue
(GGR) grew 334% YoY during full-year 2023, reaching 62% of 2019's
pre-pandemic level. As full-year GGR exceeded MOP180 billion
(US$22.4 billion),
the six gaming operators in the territory were obligated to
increase their non-gaming spending by 20%, in line with the
provisions of the new gaming framework. Examples of non-gaming
spending include investments to promote the conventions and
exhibitions business, entertainment and performances, sports
events, culture, art, healthcare and theme parks.
In the post-pandemic "new normal",
with the demise of the junket business, the premium mass-market and
mass-market segments dominated Macau's gaming business. As these
segments were more profitable, gaming operators also saw their
EBITDA margins expand to 29% in 2023, up from the industry's
previous peak of 24%.
In H1 2024, GGR grew 42% YoY to
around 76% of 2019's level. It is expected to expand by some 14%
YoY in the second half of 2024 to reach 82% of 2019's
level.
Government policies to boost
struggling property sector
Despite Macau's robust post-pandemic
economic recovery, the real estate market continued to be subdued,
resulting in 2023 being touted by industry players as "the lowest
point and the most difficult year for the development of the real
estate market in 40 years". The real estate sector had faced
several challenges - the unfolding real estate crisis in China and
resulting economic slowdown, a 15-year high in interest rates and
the dampening impact of decade-long measures to curb property
speculation. The cumulative effect of these pain points was
especially evident in the luxury real estate sector where the
Company operates, leading to decreased transaction volume and lower
valuations.
At the urging of industry players,
Macau's government made a series of unprecedented policy moves in
April that effectively removed all anti-speculation measures
relating to the property sector. These measures mirrored a similar
move by the Hong Kong government two months earlier. In particular,
the following matters were addressed:
• Removal of special
stamp duties, namely:
o Stamp duty levied on
properties resold within 24 months after being purchased
o An extra 10% duty
imposed on foreign buyers
o A 5% extra duty on
additional ownership
• An increase in the
maximum mortgage loan-to-value ratio ceiling for foreign buyers to
70% from around 40% previously
The removal of these constraints is
positive for investor interest in residential properties. The
market is behaving generally in the same manner as the market in
Hong Kong, which introduced similar measures ahead of Macau, and
where the immediate reaction was for developers to offload
first-hand properties at steep discounts to repay debt, while
buyers took advantage of the opportunity to transact at attractive
prices of up to 25% below their peak. Transactions are therefore
largely concentrated on first-hand properties and smaller units
with lower prices. The secondary market, which is where our
portfolio sits, will benefit in the medium term once the initial
sell-down is over.
The Macau General Association of Real
Estate has lobbied the government to provide an additional boost to
home purchases by increasing the maximum loan-to-value ratio for
local homebuyers to 85% from the current 70%, which would
effectively halve the size of downpayments required from mortgage
applicants. The association's call came after the property market
showed only modest signs of recovery following the lifting of the
anti-speculation measures.
Residential property recovering from
40-year low point
Following the introduction of the
above policy measures, Macau's residential real estate sector saw a
19% increase in sales volume, driven mainly by a surge in
transactions in Taipa, where developer inventory was located and
where residential sales soared 196% between May and June. However,
the Macau Peninsula saw a drop in sales of 48% and sales in Coloane
slumped 57%.
Although average property prices
increased by 8% during the same period, prices in the Macau
Peninsula and Coloane saw upticks, while conversely, prices in
Taipa declined slightly.
Market reports indicate that the
increase in transaction volume is due to developers offloading
properties at the affordable end of the primary market, taking
advantage of the willingness of buyers to transact in favourable
market conditions. Even though industry players have been upbeat
about the lifting of the anti-speculation measures ushering in a
turnaround in Macau's residential property market, there has been
some caution over whether the market's upward trajectory can be
sustained over the longer term. This is due to continued weakness
in the mainland China market as well as parallels drawn from Hong
Kong's property market, which has remained quiet after the
territory's government lifted similar curbs in February.
Luxury residential segment still
faces uphill battle
In the luxury residential segment,
106 sales of units above 150 square metres were recorded in H1
2024, an increase of 25% YoY, primarily attributed to a surge in
transactions during Q2 2024 following the policy change. In Q2
2024, prices for units above 150 square metres increased 2% YoY.
Although there are early signs of a recovery of transaction volumes
and prices in the luxury market due to the lifting of the
anti-speculation policies, the Manager remains cautious about the
sustainability of the uptrend. In Hong Kong, where similar measures
were introduced, the market has shown signs of weakness after an
initial boost.
Among the chief constraints is the
prevailing high interest rate environment, which has deterred real
estate investors. In July 2023, the Monetary Authority of Macao
announced its 11th increase in the prime lending rate since 2022,
pushing the base rate up to 5.75%. Its decision was made to keep in
lockstep with the Hong Kong Monetary Authority and the United
States Federal Reserve, despite relatively low inflation in
Macau.
Interest rates have remained stable
throughout the financial year, with Macau's base rate reaching a
15-year high. However, recent policy statements from the Federal
Reserve indicate that inflation in the United States has improved
significantly, creating a favourable environment for a shift
towards easing monetary policy in the latter half of 2024. On
September 19, the Federal Reserve implemented a half-point rate
cut, signalling the beginning of a new era of monetary
easing.
We expect these interest rate cuts to
be welcomed by the property sector as a whole, and in particular,
the luxury residential segment, in which potential investors place
greater importance on expected yields when considering and
comparing investment opportunities or seek price reductions to
compensate for lower expected returns.
China's economic challenges weigh on
investor sentiment
Mainland China's slowing economic
growth and its continued property downturn have had a spillover
effect on Macau. In December 2023, Moody's downgraded its outlook
for Chinese sovereign bonds to negative, pointing to risks arising
from the country's slowing economy and property crisis. The
downgrade, mainland China's first since 2017, also reflected
concerns over local and municipal government debt levels and the
indebtedness of state-owned enterprises. Despite Macau's robust
economic recovery, Moody's also cut the territory's credit outlook
from "stable" to "negative", based on the tight institutional,
economic and financial linkages between the SAR and mainland
China.
In addition, although mainland
China's GDP grew 5.2% in 2023 and 5.3% in Q1 2024, it expanded at a
lower rate of 4.7% in Q2 2024, the slowest pace since the first
quarter of 2023 and missing analysts' expectations of around 5%.
The country's consumer sector saw retail sales slow to an 18-month
low, with a resulting fall in retail prices across the board.
Analysts see this as the cumulative impact of falling property and
stock prices, coupled with low wage growth, which has eroded
consumer confidence and reined in spending as people reduce
consumption and focus on basic "eat, drink and play" expenditure
while postponing big-ticket purchases.
To address the problems in the
property market, the mainland Chinese government in May 2024
announced its most significant policy measures to date to boost the
ailing sector and deal with an estimated US$3.9 trillion worth of unsold
properties. The measures include a 300 billion yuan facility made
available by the central bank for relending for affordable housing,
an easing of mortgage rules, and moves to encourage local
governments and state-owned enterprises to buy up unsold
units.
Recently, on September 24, 2024, the
People's Bank of China (PBOC) unveiled an extensive stimulus
package to further support the economy. Key components of this
package include a reduction in the reserve requirement ratio by 50
basis points, which is expected to inject approximately 1 trillion
yuan (US$142 billion) into the financial market. Additionally, the
PBOC lowered the seven-day repo rate from 1.7% to 1.5%,signalling a
potential cut in the loan prime rate (LPR) that affects both
corporate and household loans, including mortgages. Moreover, the
minimum down payment for mortgages will be unified, reducing the
down payment for second homes from 25% to 15%.
It is believed that China's stimulus
package can boost Macau's gaming revenues and bring in more
tourists through increased household disposable income, and provide
drivers to bolster the Macau economy.
Extension of Company Life and Fee
Revision
Although Macau's economy has
continued its growth momentum after the government's lifting of
strict COVID-19 restrictions in January 2023, there has been no
immediate spillover effect on the property market, especially the
higher-end luxury segment. Therefore, in 2023, while the Company's
divestment programme made progress, it was clear that there was no
quick fix, and the Company's shareholders approved a resolution to
extend its life to 31 December 2024.
We thank our shareholders for
supporting the continuation vote at the Company's Annual General
Meeting in December 2023 and approving the resolution to extend its
life until 31 December 2024. This has given the Company further
opportunities to advance its divestment programme, in line with
increased interest in Macau properties, and potentially capitalise
on measures introduced by Macau's government to boost the property
sector.
A new Management Agreement has been
negotiated between the Board and the Manager which includes a fee
structure designed to continue to incentivise the Manager to
achieve substantial sales. Among the main points in the new
arrangements is the option for the Board to reduce management fees,
recalculate realisation fees, and reduce the notice period for the
termination of the management agreement. A full description of the
variation of the investment management fee arrangements can be
found in the Director's Report.
In addition, as the changes to the
fee arrangements constituted a related-party transaction under the
London Stock Exchange's UK Listing Rules, the Company obtained
written confirmation from its Sponsor that the terms are fair and
reasonable insofar as the Company's shareholders are
concerned.
In view of the current market
conditions as outlined in this report, the timely completion of the
Company's divestment programme is likely to require additional time
in order to maximise valuations in sales transactions. Therefore,
even though the Manager will deploy all possible strategies to
secure further sales, it is likely that another proposal for an
extension of the Company's life, to the end of 2025, will be
necessary to enable the divestment programme to progress in an
orderly manner and maximise value for shareholders.
With the uplift of Government
restrictions, improvement in Macau's economy driven by increased
tourist inflows and gaming revenues, and the recent interest rate
cut, there is optimism that the property market may see further
improvement. Against this backdrop we have confidence that, in due
course, the orderly disposal of the Fund's assets can be achieved
and deliver the best outcome for our shareholders.
Outlook
Macau's economic recovery is on track
for 14-17% growth in 2024, reaching approximately 95% of its
pre-pandemic size. Visitor arrivals are projected to reach 84% of
pre-pandemic levels, while GGR is expected to grow to 82%,
signalling significant progress toward full economic
recovery.
However, this growth remains
concentrated in the tourism and gaming sectors. The property
market, in contrast, faces distinct challenges, including high
interest rates and economic slowdown in mainland China. While the
recent rate cut and the Chinese stimulus package have generated a
sense of optimism, it is still too early to assess their full
impact. The decade-long policies curbing property speculation, only
lifted in April, previously dampened investor interest, especially
in luxury real estate. As a result, the luxury residential segment,
in which the Company operates, remains a tough sell to
investors.
We will continue to manage the
portfolio divestment programme to achieve timely sales and reduce
debt levels. The Manager will actively seek investor interest
spurred by recent policy changes and potential opportunities
arising from recent interest rate cuts. While sustained improvement
in investor sentiment is crucial to fully realizing the portfolio's
value, we will pursue all available sales opportunities.
Environmental, Social and Governance Report
1 About this report
This ESG report has been prepared
with reference to the Ten Principles of the United Nations Global
Compact (UNGC). The report elaborates the environmental and social
responsibility measures and the related performance of Macau
Property Opportunities Fund Limited.
1.1 Company core business
The Company is in the process of an
orderly and managed divestment of its three remaining portfolio
properties. No new construction or development activities will be
undertaken aside from a limited reconfiguration at The Fountainside.
The Company is focused on and
exposed solely to the high-end residential property market in
Macau. It has never had any exposure to any property or other
investments in the gaming or associated hospitality sectors, and
each investment is in full compliance with the parameters set out
in the Company's prospectus.
1.2 Report boundary
The ESG report focuses on the
environmental and social responsibility performance of the
Company's core business of investment in properties in Macau, as
listed below:
• The
Waterside
• The
Fountainside
• Penha
Heights
1.3 Overall ESG approach
The Board understands the
significance of ESG and has incorporated ESG-related risks into the
Company's risk management processes. The Company's overall ESG
approach is aimed at generating returns for shareholders in a
responsible manner while taking into consideration environmental
and social responsibility and supply chain management.
The Company's ESG approach has been
developed based on the Ten Principles of UNGC. The UNGC is a
voluntary, multi-stakeholder platform that convenes multinational
companies to align with The Ten Principles relating to human
rights, labour, the environment and anti-corruption standards. The
Board is committed to the basic concepts of fairness, honesty and
respect for people and the environment in its business
activities.
2 Environment
2.1 Commitment principle
The Company aims at all times to
adopt environment-friendly practices in its business operations to
minimise any potential negative impacts on the environment and
natural resources. It complies strictly with all applicable
environmental laws and regulations in Macau. Different
environmental protection measures have been implemented at key
stages of property development, alongside the incorporation of
green building designs and the implementation of responsible
construction practices at work sites. The Company also upholds the
principles of recycling and reuse at its properties.
2.2 Initiatives and
performance
Property design
The Company follows local green
building requirements that take into consideration green design
principles relating to project elements such as building materials,
indoor air quality, site selection and energy use. Examples of
green building designs and features are as follows:
- preservation and
retention of cultural heritage such as façades of historic
buildings;
- incorporation of
passive building designs to improve ventilation and optimise
natural light;
- use of water-efficient
fixtures; and
- greening of
rooftops.
Indoor air quality is improved
through the introduction of air purifying equipment. Measures for
monitoring temperature and humidity in residential units and thus
enhancing living conditions for residents have been implemented at
One Central and The
Fountainside.
Property management
Various green measures have been
adopted at our properties to improve overall environmental
performance, for example:
- Energy efficiency:
Energy consumption has been reduced by (i) replacing incandescent,
halogen and fluorescent lighting with LED lighting, (ii) reducing
the amount of lighting used in common areas, and (iii) installing
air-conditioning systems with energy-efficiency labelling, in
accordance with local requirements.
- Resident engagement:
Residents are encouraged to minimise their consumption of
electricity, water and materials, and are provided with recycling
facilities to reduce waste.
- Rechargeable battery
recycling: Collection points for rechargeable battery recycling
have been provided, and tenants are encouraged to use these
facilities for battery disposal. Certain materials in rechargeable
batteries, such as cadmium, are hazardous to human health and the
environment.
An effective environmental
management system has been implemented. Some of the Company's main
environmental objectives in its property management activities are
as follows:
- using pesticides and
cleansing agents in accordance with relevant regulations, and
aiming for zero adverse incidents involving their use and storage;
and
- managing community
wastewater, waste and noise according to local
standards.
Regulatory compliance
The Company is not aware of any
non-compliance with environmental regulatory requirements that may
significantly impact its business.
2.3 Climate risk
We have considered climate risk and
concluded that there is no material impact on the Annual
Report.
3 Social responsibility and supply chain
management
The Company strongly believes that
quality property is a pathway to quality living. It strives to
provide a quality property experience through innovation and
sensitivity, and by operating with integrity. Through such efforts,
its aim is to enhance residents' quality of life and become their
trusted partner.
3.1 Supply chain
management
During the process of property
construction and redevelopment, the Company carefully appoints
external contractors by taking into consideration factors such as
human rights protection, non-discrimination in employment and
occupation, environmental protection, construction safety and
product safety. When selecting contractors for property
construction, the Company seeks contractors that are familiar with
environmental, social and safety requirements, and which are
committed to the abolition of child labour and corruption. The
Company maintains close relations with contractors relating to all
construction and sourcing activities, holding regular meetings to
facilitate two-way communication. It also performs regular
assessments of contractors based on environmental and social risk
considerations.
3.2 Quality services
To ensure consistently high quality
in its property management services, the Company aims
to:
- develop quality
properties that embrace innovation and enhance their
locales;
- provide committed
service and improve its property management offering on an ongoing
basis;
- achieve high standards
by thorough rigorous property management practices to maximise
customer satisfaction; and
- provide a tasteful
living environment for residents.
3.3 Protection of privacy
To ensure residents' wellbeing,
regular communication is maintained through satisfaction surveys
that help to identify potential areas for improvement. Residents'
identities are kept confidential and access to information gathered
is restricted.
Regulatory Compliance
The Company is not aware of any
non-compliance with supply chain management regulations that may
significantly impact its business.
4 Human rights and
labour
The Company strongly believes that
businesses should support and respect the protection of
internationally recognised human rights.
4.1 Gender Equality and
Diversity
To ensure that we have an equitable
platform to perform, the Company aims to:
- ensure the hiring
process is performance-based despite gender;
- ensure there is
diverse gender representation at all levels of the Company. (as of
June 2024, one of our three board members is female);
and
- ensure our service
providers embrace diversity in their workforces.
Abbreviations and acronyms
|
IMF
|
INTERNATIONAL MONETARY
FUND
|
|
|
|
|
DSEC
|
STATISTICS AND CENSUS SERVICE
(MACAU)
|
|
|
|
|
DICJ
|
GAMING INSPECTION AND COORDINATION
BUREAU (MACAU)
|
|
|
|
|
DSF
|
FINANCIAL SERVICES BUREAU
(MACAU)
|
Manager and Adviser
|
Sniper Capital
|
|
Manager
Sniper Capital Limited
|
Investment Adviser
Sniper Capital (Macau)
Limited
|
|
Research & Transaction
· Macro
& micro analysis
·
Forecasting & modelling
· Sourcing
· Due
diligence
· Divestment
|
Project Development
· Consultant appointment & coordination
· Project monitoring & reporting
· Project delivery & handover
|
Asset Management
· Property & estate management
· Sales
& leasing
· Facilities management
· Asset
value enhancement
|
Corporate Communications
· Investor & media relations
· Marketing & product positioning
· Statutory & regulatory communication
|
Finance &
Administration
·
Administration & accounting
· Compliance & reporting
· Cash
management & treasury
|
|
|
|
|
|
| |
Manager
The day-to-day responsibility for the
management of the Macau Property Opportunities Fund's ("MPO",
"Company" or "Group") portfolio rests with Sniper Capital
Limited.
Founded in 2004, Sniper Capital
Limited focuses on capital growth from carefully selected
investment, development and redevelopment opportunities in niche
and undervalued property markets.
Sniper Capital Limited's team of over
25 professionals covers all the required investment and development
disciplines, including research, site acquisition, project
development, asset management, divestment, investor relations and
finance.
Working closely with Headland
Developments Limited and Bela Vista Property Services Limited,
Sniper Capital Limited ensures that all necessary project
management skills and services are provided in a way that will
enable divestment of properties in an orderly and optimal
manner.
With its 29 August 2024 holding of
12.08 million shares or 19.54% of the Company's issued share
capital, Sniper Investments Limited - an investment vehicle
associated with Sniper Capital Limited - is the largest shareholder
in MPO, which bears witness to Sniper Capital Limited's belief in
the Company.
The Manager is committed to dispose
of the Company's Portfolio in full while striving to return maximum
possible values to shareholders.
Adviser
The Company's Board of Directors and
Manager are advised by Sniper Capital (Macau) Limited, which has a
highly developed network of contacts and associates spanning
Macau's financial and business community.
The Investment Adviser provides
professional services to the Company including sourcing, analysing
and recommending potential divestment opportunities, whilst also
providing the Board with property investment and management
advisory services in relation to the Company's real estate
assets.
For more information, please visit
www.snipercapital.com
Investment Policy
The Company is managed with the
objective of realising the value of all remaining assets in the
portfolio, individually, in aggregate or in any other combination
of disposals or transaction structures, in a prudent manner
consistent with the principles of sound investment management with
a view to making an orderly return of capital to shareholders at
the earliest opportunity.
The Company may sell or otherwise
realise its investments (including individually, or in aggregate or
other combinations) to such persons as it chooses, but in all cases
with the objective of achieving the best exit values reasonably
available within shortest acceptable time scales.
The Company has ceased to make any
new investments and will not undertake additional borrowing other
than to refinance existing borrowing or for short-term working
capital purposes.
Any net cash received by the Company
after discharging any relevant loans as part of the realisation
process will be held by the Company as cash on deposit and/or as
cash equivalents prior to its distribution to
shareholders.
The Company's Articles of
Incorporation do not contain any restriction on borrowings
externally.
Directors' Report
The Directors present their report
and audited financial statements of the Group for the year ended 30
June 2024. This Directors' report should be read together with
Corporate Governance Report.
Principal activities
Macau Property Opportunities Fund
Limited (the "Company") is a company incorporated in Guernsey on 18
May 2006 and is a registered closed-ended investment fund traded on
the London Stock Exchange (the "LSE"). Following the passing of all
resolutions at the Extraordinary General Meeting held on 28 June
2010, the Company's shares obtained a Premium Listing on the LSE
Main Market on 30 June 2010. On 29 July 2024 the UK Listing Rules
were updated and as a result, the Company is now a member of the
Equity Shares in Commercial Companies ("ESCC") Category and
maintains its status as a closed-ended investment fund.
The Company is an authorised entity
under the Authorised Closed-Ended Investment Schemes Rules and
Guidance, 2021 and is regulated by the Guernsey Financial Services
Commission ("GFSC"). During the year, the principal activities of
the Company and its subsidiaries as listed in Note 4 to the
Consolidated Financial Statements (together referred to as the
"Group") were property investment in Macau.
Business review
A review of the business during the
year, together with likely future developments, is contained in the
Chairman's Message and in the Manager's Report.
Going concern
The Group's business activities,
together with the factors likely to affect its future development,
performance and position, are set out in the Manager's Report. The
financial position of the Group, its cash flows and its liquidity
position are described in the Capital Management section of the
Manager's Report.
The financial risk management
objectives and policies of the Group and the exposure of the Group
to credit risk, market risk and liquidity risk are discussed in
Note 2 to the Consolidated Financial Statements.
In accordance with provision 30 of
the 2018 revision of the UK Corporate Governance Code, (the "UK
Code"), and as a fundamental principle of the preparation of
financial statements in accordance with IFRS, the Directors have
assessed as to whether the Company will continue in existence as a
going concern for a period of at least 12 months from signing of
the financial statements, which contemplates continuity of
operations and the realisation of assets and settlement of
liabilities occurring in the ordinary course of
business.
The financial statements have been
prepared on a going concern basis for the reasons set out below and
as the Directors, with recommendation from the Audit and Risk
Committee, have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
next twelve months after date of approval of the Annual
Report.
In reaching its conclusion, the Board
have considered the risks that could impact the Group's liquidity
over the period to 30 September 2025. This period represents the
period of at least 12 months from the date of signing of the Annual
Report.
As part of their assessment the Audit
and Risk Committee highlighted the following key
considerations:
1. Whether the Group can repay or
refinance its loan facilities to discharge its liabilities over the
period to 30 September 2025
2. Extension of life of the
Company
1. Whether the Group can repay
or refinance its loan facilities to discharge its liabilities over
the period to 30 September 2025
As at 30 June 2024, the Group has
major debt obligations to settle during the going concern period
being:
i) principal repayments
for The Waterside loan facility of
US$11.5 million,
US$16.0 million and
US$39.8 million due
for settlement in September 2024, March 2025 and September 2025,
respectively;
ii) principal repayments for
The Fountainside
loan facility of US$0.7 million due for settlement in December 2024;
iii) principal repayments for the
Penha Heights Tai Fung Bank loan facility
of US$2.2 million
due for settlement in two instalments of US$0.65 million each in September 2024
and December 2024 and three instalments of US$0.3 million each thereafter in March
2025, June 2025 and September 2025, respectively; and
iv) principal repayments for
the Penha Heights BCM loan facility of
US$0.4 million,
US$0.4 million and
US$6.9 million due
for settlement in March 2025, June 2025 and September 2025,
respectively.
The Waterside and The
Fountainside
Given that the Macau Special
Administrative Region Government have now revoked all the property
cooling measures which had been in place for 3 years and the
current staggered Macau economic recovery, it is assumed that MPO
can achieve a rate of 2 Waterside unit disposals per month
from August 2024 to September 2025. This would generate
US$79.5 million of
revenue referenced to current valuations and pricing strategy which
would be sufficient to cover the instalments for both the Waterside and Fountainside facilities due for
repayment in the upcoming twelve months period as well as MPO's
operating expenses.
Loan repayments to Hang Seng Bank
for the Waterside facilities in September
2024 of US$11.5
million, was settled through disposal proceeds from the Waterside units. In addition, an
advance payment of US$1.7 million loan amount has also been prepaid
to Hang Seng Bank in September 2024.
Penha Heights
The loan repayments for the two
Penha Heights facilities that would become
due over the going concern period total US$9.9 million. It is anticipated that
this would be settled from sales proceeds of Waterside and Fountainside units, in the event that
Penha Heights is not
disposed of during the period.
Penha Heights loan repayment of
US$0.65 million has been settled in accordance to loan repayment
term in September 2024.
Relationship with Lenders
The Manager is responsible for
maintaining relationship with the Group's lenders, for monitoring
compliance with loan terms and covenants and reporting to the Board
on matters arising. Throughout the year ended 30 June 2024 and up
to the date of issue of the financial statements, the Group has
continued to be in compliance with loan covenants and the Manager
has maintained frequent ongoing dialogue with all lenders who have
demonstrated strong support for the Group and its measured
divestment strategy over the years.
Given the debt obligations that will
become due for settlement over the going concern period are
expected to be covered by proceeds from selling Waterside units at a conservative
modest rate and potential sales of Fountainside units. The fact that all
banking facilities of the Group have all been successfully renewed
previously, with the loan-to-value ratios of the facilities
maintained within the covenants required under the respective loan
agreements, the Board is confident that the Group would be able to
meet its debt obligations during the going concern
period.
Notwithstanding the above, given
that it remains uncertain that adequate proceeds could be generated
from sales of properties to settle payment obligations over the
going concern period, and given that any necessary refinancing of
debt obligations would still be subjected to lenders' approval, the
Directors consider that there is a material uncertainty related to
events or conditions that may cast significant doubt over the
Group's and Company's ability to continue as a going concern and
therefore it may be unable to realise its assets and discharge its
liabilities in the normal course of business.
2. Extension of life of the
Company
After the Ordinary Resolution was
passed at the Annual General Meeting ("AGM") of the Company in its
2023 AGM to extend the Fund's life until the 2024 AGM (expected to
be held by December 2024), the Directors assessed the impact of the
continuation vote on the Fund's ability to continue as a going
concern. The Directors have also considered the going concern
assumption outside the primary going concern horizon. In line with
Article 38 of the Articles of Incorporation, the Company will put
forward a resolution for its continuation at the next AGM (to be
held by December 2024). If any continuation resolution is not
passed, the Directors are required to formulate proposals to be put
to Members to reorganise, unitise, reconstruct or wind up the
Company. The Directors expect to receive continuation support from
major shareholders based upon ongoing communications and note that
50% of shareholder support is required to ensure continuation. It
is likely that returns from the sale of properties would be
significantly lower, as endorsed by the recent forced sales imposed
on developers, if the Fund was forced to sell as a result of a
failed continuation vote from shareholders and it is therefore
commercially sensible for the Fund to continue in business. Given
that the continuation vote has not taken place at the date of issue
of the financial statements, the Directors consider that there is a
material uncertainty that may cast significant doubt over the
Company's ability to continue as a going concern and therefore it
may be unable to realise its assets and discharge its liabilities
in the normal course of business.
Going Concern Conclusion
After careful consideration and based
on the reasons outlined above, including the Manager's continuing
dialogue with lenders and shareholders, whilst there are material
uncertainties related to going concern, the Board have a reasonable
expectation that the Company will continue in existence as a going
concern for 12 months from the date of signing the Annual report.
They are therefore satisfied that it is appropriate to adopt the
going concern basis in preparing the financial
statements.
Viability Statement
The Board has carried out a robust
assessment of the principal risks facing the Company, including
those that would threaten its business model, future performance,
solvency and liquidity. The Directors consider each of the
Company's principal risks and uncertainties, during the quarterly
Board meetings, supported by the twice monthly reporting from the
Manager. The Directors also considered the Company's policy for
monitoring, managing and mitigating its exposure to these risks and
the impact on the Company's operations. This assessment involved an
evaluation of the potential impact on the Company of these risks
occurring. Where appropriate, the Company's financial modelling was
subject to a sensitivity analysis involving flexing a number of key
assumptions in the underlying financial forecasts in order to
analyse the effect on the Company's net cash flows and other key
financial ratios. A base case and adverse scenario where
projections calculated based upon flexing these key assumptions had
both resulted in positive cash held balances throughout the
two-year projection period with ending cash balances of over
US$2 million under
both scenarios with proceeds generated from disposal of assets
sufficient to cover all liabilities. The Board expects the payments
obligation of the loan facilities which will be due within the next
12 months will be repaid while the Company continues to comply with
the loan covenants and that the Company's life will be further
extended at the 2024 AGM.
In accordance with provision 31 of
the 2018 revision of the UK Code, the Directors have assessed the
prospects of the Company over a longer period than the 12 months
required by the going concern provision. During the year, the Board
conducted a review for a period covering two years, including a
review of a comprehensive cash flow projection, together with
adverse scenarios to stress test the cash positions of the Company.
The Board considered two years to be an appropriate time horizon
for its divestment plan, being the period over which the majority
of the Company's properties should have been disposed of. This has
rolled forward for another 6-9 months from last year due to the
high interest rate environment and the near term impact of the post
easing of restrictions triggering sales by developers which has
caused the slow economic and business recovery and weakened
sentiment. Were circumstances to allow, the Company would look to
make early repayments of debt, subject to any penalty for doing so,
if sales velocity can be accelerated. Based on an assessment of the
principal risks facing the Company and the stress testing based
assessment of the Company's prospects, the Directors have a
reasonable expectation that the Company will be able to continue in
operation (subject to the Continuation Vote and projected sales)
and meet its liabilities as they fall due over the two-year period
of their assessment. It is expected that the timeframe for the
disposal of the majority of the assets will be within the remaining
two-year period.
Share capital
Ordinary Shares
The Company has one class of ordinary
shares, which carries no rights to fixed income. On a show of
hands, each member - present in person or by proxy - has the right
to one vote at general meetings. On a poll, each member is entitled
to one vote for every share held.
The Company's Memorandum and Articles
of Incorporation contain details relating to the rules that the
Company has regarding the appointment and removal of Directors or
amendment to the Company's Articles of Incorporation.
Results and dividends
The results for the year are set out
in the Consolidated Financial Statements. There are no dividends
proposed or declared for the current year end (2023:
US$ nil).
Management fee revision
During the course of 2023 as Macau
transitioned away from the strict COVID-19 restrictions imposed by
the Chinese government, the economy gained momentum, driven by
strong gaming revenues and increased visitor numbers. Despite this
broadly positive backdrop, the property market - especially the
higher-end luxury segment - was slower to respond as favourably as
other areas of the economy, as a degree of caution remained.
Accordingly, while progress with disposals was made during the year
the Board deemed it necessary to extend the management arrangements
whilst repositioning the fees payable to incentivise the Manager to
achieve substantial sales during 2024. The Board's view remains
unchanged that the Manager's knowledge of the Company's portfolio
of assets and the Macau market is key to the successful delivery of
the divestment strategy.
The Board has agreed to amend the
terms of the Investment Management Agreement with the Manager, with
effect (retrospectively) from 1 January 2024 as follows:
• From 1 January 2024 and continuing
during the remainder of calendar year 2024, a management fee of
US$100,000 per
month will continue to be payable to the Manager, with the
realisation fee continuing on the same terms as in 2023 and using
the 30 September 2019 valuation basis for determining the
realisation fee hurdle.
• Fees continue to be subject to an
overall cap per annum set at 4.99% of the lower of market
capitalisation and net asset value (the "Cap"). This is based on
the market capitalisation on the day immediately prior to signing
the amendment agreement in respect of calendar year 2024 and will
be reset for any following year based on the market capitalisation
or net asset value (as applicable) at close of business on the last
business day of the previous calendar year. The Cap for 2024 is
accordingly set at US$1,439,816.
• At the option of the Board, the
monthly management fee may be reduced to US$80,000 per month in respect of any
monthly period beginning on or after 1 January 2025, with one
month's advance notice given to the Manager.
• For calendar year 2025 and
thereafter, the realisation fee hurdle will be rebased by reference
to the carrying value of the Company's portfolio of assets as at 31
December 2024, but subject to divestment hurdles being reached in
2024, in line with an agreed divestment plan.
• For calendar year 2025 and
thereafter, the realisation fee will be 2.5% of the net realisation
proceeds if the sale price achieved is greater than 90% of the
carrying value, with the removal of the 80%-90% performance hurdle
band.
The Investment Management Agreement
(as amended) will continue throughout the divestment period, but
with effect from 1 January 2025, the notice period to terminate the
Agreement by each party will be reduced to 3 months.
The Board considers the arrangements
to be fair given the context of the continued challenging property
market and they are intended to ensure that the Manager is able to
continue to operate and remains incentivised to deliver
realisations on behalf of the Company and its shareholders. The
changes to the fee arrangements constitute a smaller related party
transaction under the Listing Rules, and the Company has obtained
written confirmation from its Sponsor that the terms are fair and
reasonable insofar as the Company's shareholders are
concerned.
Authority to purchase own
shares
Following the authority first granted
in the Extraordinary General Meeting on 28 June 2010 and
subsequently renewed at each AGM, the Board has publicly stated its
commitment to undertake share buybacks at attractive levels of
discount of the share price to Adjusted NAV. The Board intends to
renew this authority at the 2024 AGM. No shares have been
repurchased in the current or prior financial year.
Significant shareholdings
As at 29 August 2024, a total of 10
shareholders each held more than 3% of the issued ordinary shares
of the Company, accounting for a total of 49,850,654 shares (29
August 2023: 45,484,753) or 80.62% (29 August 2023: 73.56%) of the
issued share capital. Significant
shareholdings as at 29 August 2024 are detailed below:
|
Name of shareholder
|
No. of shares
|
%
|
|
Sniper Investments
Limited
|
12,081,904
|
19.54
|
|
Universities Superannuation
Scheme
|
8,494,683
|
13.74
|
|
Lazard Asset Management
LLC
|
8,179,347
|
13.23
|
|
Fidelity International
|
5,075,233
|
8.21
|
|
Apollo Multi Asset
Management
|
3,687,861
|
5.96
|
|
Asset Value Investors
|
3,574,820
|
5.78
|
|
Progressive Capital
Partners
|
2,568,986
|
4.15
|
|
Banque de Luxembourg (PB)
|
2,288,485
|
3.70
|
|
UBS Wealth Management
|
1,978,565
|
3.20
|
|
Hargreaves Lansdown, stockbrokers
(EO)
|
1,920,770
|
3.11
|
|
Subtotal
|
49,850,654
|
80.62
|
|
Other
|
11,985,079
|
19.38
|
|
Total
|
61,835,733
|
100.00
|
Directors
Biographies of the Directors who
served during the year and up to the date of this report are
detailed above.
|
Name
|
Function
|
Date of
appointment
|
|
Mark Huntley
|
Chairman, Chairman of the Management
Engagement Committee and the Chairman of the Disclosure and
Communications Committee
|
3 October 2018
|
|
Alan Clifton
|
Director, Chairman of the Audit and
Risk Committee and the Nomination and Remuneration
Committee
|
18 May 2006
|
|
Carmen Ling
|
Director
|
24 February 2022
|
Directors' interests
Directors who held office during the
year and had interests in the shares of the Company as at 30 June
2024 were:
|
|
Ordinary Shares of US$0.01
|
|
|
Held at
30 June 2024
|
Held at
30 June 2023
|
|
Mark Huntley
|
200,000
|
200,000
|
|
Alan Clifton
|
80,902
|
80,902
|
|
Carmen Ling
|
50,000
|
50,000
|
There have been no changes to the
aforementioned interests since 30 June 2024.
Non-mainstream pooled investments
The Board notes the changes to the
Financial Conduct Authority (FCA) rules ("UK Listing Rules")
relating to the restrictions on the retail distribution of
unregulated collective investments schemes and close substitutes
which came into effect on 1 January 2014.
Following the receipt of legal
advice, the Board confirms that it has conducted the Company's
affairs in such a manner that the Company would have qualified for
approval as an investment trust if it was resident in the United
Kingdom, and that it is the Board's intention that the Company will
continue to conduct its affairs in such a manner. Thus, the Company
is, and the Board expects it will continue to be, outside the scope
of the new restrictions and Independent Financial Advisors (IFAs)
should therefore be able to recommend ordinary shares in the
Company to retail investors in accordance with the FCA requirements
relating to non-mainstream investment products.
Directors' remuneration
Directors of the Company are all
non-executive and, by way of remuneration, receive an annual fee
set in Sterling. During the year, the Directors received the
following emoluments in the form of Directors' fees from the
Company. There has been no change in director remuneration since
2017 with any annual differences the result of foreign exchange
fluctuations.
|
|
2024
|
2023
|
|
|
US$
|
US$
|
|
Mark Huntley
|
72,310
|
69,949
|
|
Alan Clifton
|
54,232
|
53,507
|
|
Carmen Ling
|
45,194
|
43,063
|
|
Total
|
171,736
|
166,519
|
Directors' Responsibilities to Stakeholders
Section 172 of the UK Companies Act
2006 applies directly to UK domiciled companies. Nonetheless the
AIC Code requires that the matters set out in section 172 are
reported on by all companies, irrespective of domicile.
Section 172 recognises that directors
are responsible for acting in a way that they consider, in good
faith, is the most likely to promote the success of the Company for
the benefit of its stakeholders as a whole. In doing so, they are
also required to consider the broader implications of their
decisions and operations on other key stakeholders and their impact
on the wider community and the environment. Key decisions are those
that are either material to the Company or are significant to any
of the Company's key stakeholders. The Company's engagement with
key stakeholders and the key decisions that were made or approved
by the Directors during the year are described below.
|
Stakeholder Group
|
Methods of Engagement
|
Benefits of Engagements
|
|
Shareholders
|
|
|
|
The major investors in the Company's
shares are set out above
Continued shareholder support is
vital to the Company's divestment objectives, and therefore, in
line with its objectives, the Company seeks to maintain shareholder
satisfaction through:
- Net asset value
preservation
- Divestment of remaining
properties, and
- Operating cost
reduction
|
The Company engages with its
shareholders through the issue of periodic portfolio updates in the
form of Regulatory News Service ("RNS") announcements and half
yearly updates.
The Company provides in depth
commentary on the investment portfolio and corporate outlook in its
semi-annual financial statements.
In addition, the Company directly
and, through its Manager undertakes periodic roadshows to meet with
existing and prospective investors to solicit their feedback and
understand any areas of concern.
In the financial year the Company
issued:
- 4 NAV updates by way of
RNS
- 2 half yearly updates
- Macau property market update by
way of RNS
- Investment Management fee
renegotiation by way of RNS
The Company directly and through the
Manager interacts with major shareholders. Such interaction
provides mutual understanding of the Company's prospects and
outlook for divestment.
|
Shareholders are aware of any
developments and issues and through engagement can be actively
engaged in the process of divestment.
|
|
Service Providers
|
|
|
|
The Company does not have any direct
employees; however it works closely with a number of service
providers (the Manager, the Investment Adviser, Administrators,
Company Secretary, Brokers and other professional advisers) whose
interests are aligned to the success of the Company.
The quality and timeliness of their
service provision is critical to the success of the
Company.
|
The Company's Management Engagement
Committee has identified its key service providers. On an annual
basis it undertakes a review of performance based on a
questionnaire through which it also seeks feedback.
Furthermore, the Board and its
sub-committees engage regularly with its service providers on a
formal and informal basis.
The Management Engagement Committee
will also regularly review all material contracts for service
quality and value.
|
The Feedback given by the service
providers is used to review the Company's policies and procedures
to ensure open lines of communication, operational efficiency and
appropriate pricing for services provided.
|
|
Lenders
|
|
|
|
The Group has interest-bearing loans
with three banks.
These facilities provides the Group
with the resources which can be used to finance capital expenditure
or working capital and therefore their availability is a key
component of the Company's ability to operate.
|
The Group's engagement with its
bankers is primarily through its Manager who provides regular
reports to the banks and has an open line of communication in
respect of the ongoing operation and maintenance of the
facilities.
|
The facilities have continued to
operate throughout the year, and based on the performance and
delivery of the divestment programme, no issues or concerns have
been raised by the banks.
|
|
Tenants
|
|
|
|
The Group has rental paying tenants
in The Waterside.
|
Formal lease agreements are executed
to safeguard the interests of the landlord, The
Waterside, and tenants. In addition, top-class facilities
and quality property management services are provided at
The Waterside to help ensure comfortable
occupancy.
|
Positive feedback is received from
residents at The Waterside as well as from
the local market. Occupancy levels have increased in real terms and
rental levels have been in line with market trends.
|
|
Community &
Environment
|
|
|
|
As an Investment Company whose
purpose is the investment in real estate in Macau, the Company's
direct engagement with the local community and the environment is
limited.
|
As discussed above the Board actively
engages with the Company's service providers on a regular
basis.
|
The ESG report provides further
information on the Manager's approach to this important
subject.
|
Change of control
There are no agreements that the
Company considers significant and to which the Company is party,
that would take effect, alter or terminate upon change of control
of the Company, following a takeover bid.
Annual General Meeting
The AGM of the Company will be held
in December 2024 at Floor 2, Trafalgar Court, Les Banques, St Peter
Port, Guernsey. A notice of Meeting and Agenda will be released
before December 2024 AGM.
Independent auditors
The Audit and Risk Committee reviews
the appointment of the external auditor, its effectiveness and its
relationship with the Group, which includes monitoring the use of
the external auditor for non-audit services and the balance of
audit and non-audit fees paid. Deloitte LLP have been appointed as
external auditor for the year to 30 June 2024. Each Director
believes that there is no relevant information of which the
external auditor is unaware. Each has taken all steps necessary, as
a director, to be aware of any relevant audit information and to
establish that Deloitte LLP is made aware of any pertinent
information. This confirmation is given and should be interpreted
in accordance with the provisions of Section 249 of the Companies
(Guernsey) Law, 2008.
Subsequent events
Significant subsequent events have
been disclosed in Note 25.
Financial risk management policies and
objectives
Financial risk management policies
and objectives are disclosed in Note 2.
Principal risks and uncertainties
Principal risks and uncertainties are
discussed in the Corporate Governance Report.
On behalf of the Board
Mark Huntley
Chairman of the Board
27 September 2024
Corporate Governance Report
The Board has put in place a
framework for corporate governance which it believes is appropriate
for an investment company. Paragraph 6.6.6R of the UK Listing Rules
obliges Boards to report upon their corporate governance
arrangements against the UK Code issued by the Financial Reporting
Council (the "FRC"). The Company is a member of the Association of
Investment Companies (the "AIC") and the Board has considered the
principles and recommendations of the 2019 AIC's Code of Corporate
Governance ("AIC Code"). The Board considers that reporting against
the principles and recommendations of the AIC Code provides better
information to shareholders. The FRC has provided the AIC with an
endorsement letter to cover the latest edition of the AIC Code. The
endorsement confirms that by following the AIC Code, investment
company boards should fully meet their obligations in relation to
the UK Code and paragraph 6.6.6R of the UK Listing
Rules.
The AIC Code is available on the
AIC's website, www.theaic.co.uk. The UK Code is available on the
FRC's website, www.frc.org.uk.
Throughout the accounting period, the
Company has complied with the recommendations of the AIC Code and
thus the relevant provisions of Section 1 of the UK Code, except as
set out below.
The UK Code includes provisions
relating to:
• the role of the chief
executive;
• executive directors'
remuneration;
• the need for an internal audit
function;
• appointment of a senior
independent director; and
• whistleblowing policy.
The Board considers that the above
provisions, where practical, have been fully adhered to but many
are not currently relevant to the position of the Company which
delegates most day-to-day functions to third parties. There are
areas of governance codes which present genuine practical
challenges for a company that is in the late stage of life, with a
clearly defined but narrow strategic objective. All Directors are
non-executive and independent of the Investment Adviser and
therefore the Directors consider the Company has no requirement for
a Chief Executive or a Senior Independent Director and the Board is
satisfied that any relevant issues can be properly considered by
the Board. The absence of an internal audit function is discussed
in the Report of the Audit and Risk Committee.
The GFSC Finance Sector Code of
Corporate Governance (the "GFSC Code") came into force in Guernsey
on 1 January 2012 and was amended in February 2016, June 2021 and
November 2021. The Company is deemed to satisfy the GFSC Code
provided that it continues to conduct its governance in accordance
with the requirements of the AIC Code.
Except as disclosed below, the
Company complied throughout the year with the recommendations of
the AIC Code and the relevant provisions of the UK Code.
The
Board
The Board consists of three
non-executive directors, all of whom are independent of the
Company's Manager and Investment Adviser.
Directors' details are listed above
which set out the range of investment, financial and business
skills and experience represented. Provision 14 of the AIC Code
states that a Board should consider appointing one independent
non-executive director to be the senior independent director. The
Board, having taken into account its small size and that all
directors are each similarly independent and non-executive,
considers it unnecessary to appoint a senior independent
director.
All Directors will retire annually in
accordance with the AIC Code. A retiring director shall be eligible
for reappointment. No director shall be required to vacate his
office at any time by reason of the fact that they have attained
any specific age.
The Board has considered the need for
a policy regarding tenure of office and a succession plan for the
retirement of Directors; however, the Board believes that any
decisions regarding tenure should consider the need for continuity
and maintenance of knowledge and experience and to balance this
against the need to periodically refresh Board's composition, with
the limited expected life of the Company in mind. Alan Clifton has
been a member of the Board for 18 years. However, the Board have
satisfied themselves that Alan Clifton continues to be independent
in approach and judgement. The Board are satisfied that Alan
Clifton remains completely independent of the Investment Manager
and provides consistency and continuity in the current realisation
phase of the Company.
The Company has benefitted greatly
from the knowledge, expertise and skill mix of the Board as it has
had to navigate through the difficulties of the current situation.
Whilst there are no concerns about either stale behaviour or lack
of vigour to deliver the Company's strategy, any appointment of a
director requires a sound understanding and knowledge of the market
in Macau as well as broader experience of the real estate market:
to the contrary, the Board and Manager dynamics have been most
constructive and measured in the face of an unprecedented
challenges.
The majority of the Board is
independent within the meaning of the AIC Code.
The Board meets at least four times a
year for regular scheduled meetings and, should the nature of the
activity of the Company require it, additional meetings may be
held, some at short notice. At each meeting, the Board follows a
formal agenda that covers the business to be discussed.
To fulfil the recommendation of AIC
Code Provision 15 and to give sufficient attention to strategy, the
Board discusses strategy at each of its regular scheduled meetings,
but holds a separate session annually devoted to this.
Between meetings, there is regular
contact with the Manager and the Administrator, and the Board
requires to be supplied in a timely manner with information by the
Manager, the Company Secretary and other advisers in a form and of
a quality to enable it to discharge its duties.
The terms and conditions of
appointment of non-executive directors are available for inspection
from the Company's registered office.
Performance and evaluation
Pursuant to Principle J of the AIC
Code, which requires a formal and rigorous annual evaluation of its
performance, the Board formally reviews its performance annually
through an internal process. Internal evaluation of the Board, the
Audit and Risk Committee, the Nomination and Remuneration
Committee, the Management Engagement Committee, the Disclosure and
Communications Committee and individual Directors has taken the
form of self-appraisal questionnaires and detailed discussions to
determine effectiveness and performance in various areas, as well
as the Directors' continued independence. Given the late stage of
life of the Company, the Board considered it sufficient to
undertake its own evaluation rather than appointing, at cost, an
external facilitator.
During the year, a formal board
performance appraisal was carried out by the Nomination and
Remuneration Committee. Following review and collation of the
results, the Board considered that the overall performance of the
Board during the year had been satisfactory and that the Board is
confident in its ability to continue effectively to lead the
Company and oversee its affairs. The Board believes that the
current mix of skills, experience, knowledge and location of the
Directors is appropriate to the requirements of the
Company.
Any new directors, were they to be
appointed, would receive an induction from the Manager as part of
the familiarisation process of candidates following appointment.
All directors receive other relevant training as
necessary.
Duties and responsibilities
The Board is responsible to
shareholders for the overall management of the Company. The Board
has adopted a Schedule of Matters Reserved for the Board which sets
out the particular duties of the Board. Such reserved powers
include decisions relating to the determination of investment
policy and approval of investments, strategy, capital raising,
statutory obligations and public disclosure, financial reporting
and entering into any material contracts by the Company.
The Directors have access to the
advice and services of the Company Secretary and Administrator, who
are responsible to the Board for ensuring that Board procedures are
followed and that it complies with Guernsey Law and applicable
rules and regulations of the GFSC and the LSE. Where necessary, in
carrying out their duties, the Directors may seek independent
professional advice at the expense of the Company. The Company
maintains appropriate Directors' and Officers' liability insurance
in respect of legal action against its Directors on an on-going
basis.
The Board has responsibility for
ensuring that the Company keeps proper accounting records, which
disclose with reasonable accuracy at any time the financial
position of the Company, and which enable it to ensure that the
financial statements comply with the Companies (Guernsey) Law,
2008.
The Board has responsibility for
ensuring that the Annual Report presents a fair, balanced and
understandable assessment of the Company's position and prospects.
This responsibility extends to interim and other price-sensitive
public reports.
Committees of the Board
Nomination and Remuneration
Committee
The Nomination and Remuneration
Committee Report is below.
Management Engagement
Committee
The Management Engagement Committee
Report is below .
Audit and Risk Committee
The Audit and Risk Committee Report
is below .
Meeting Attendance
|
Name
|
Scheduled
Board Meeting
(max 4)
|
Audit and Risk Committee
Meeting
(max 4)
|
Nomination and Remuneration
Committee Meeting
(max 2)
|
Management Engagement Committee
Meeting
(max 2)
|
|
Mark Huntley
|
4
|
4
|
-
|
-
|
|
Alan Clifton
|
4
|
4
|
-
|
-
|
|
Carmen Ling
|
4
|
3
|
-
|
-
|
Internal control and financial reporting
The Board is responsible for the
Group's system of internal control and for reviewing its
effectiveness, and the Board has, therefore, established a process
designed to meet the particular needs of the Group in managing the
risks to which it is exposed.
The process takes a risk-based
approach to internal control through a matrix which identifies the
key functions carried out by the Manager and other key service
providers, the various activities undertaken within those
functions, the risks associated with each activity and the controls
employed to minimise those risks. A residual risk rating is then
applied. Regular reports are provided to the Board, highlighting
material changes to risk ratings and a formal review of these
procedures is carried out by the Audit and Risk Committee and
reported to the Board on an annual basis and has been completed
during the financial year. By their nature, these procedures
provide a reasonable, but not absolute, assurance against material
misstatement or loss.
At each board meeting, the Board also
monitors the Group's investment performance and activities since
the last board meeting to ensure that the Manager adheres to the
agreed investment policy and approved investment guidelines.
Furthermore, at each board meeting, the Board receives reports from
the Company Secretary and Administrator in respect of compliance
matters and duties performed on behalf of the Company.
The Board considers that an internal
audit function specific to the Group is unnecessary and that the
systems and procedures employed by the Administrator and Manager,
including their own internal control functions, provide sufficient
assurance that a sound system of internal control, which safeguards
the Group's assets, is maintained. The Administrator issues a SOC 1
report annually, setting out a description of controls and detailed
external testing of the controls over a year. The serving auditor
concluded in the most recent report that control objectives were
suitably designed and achieved during the period. Investment
advisory services are provided to the Group by Sniper Capital
(Macau) Limited. The Board is responsible for setting the overall
investment policy and monitors the action of the Manager at regular
board meetings. The Board has also delegated administration and
company secretarial services to Ocorian Administration (Guernsey)
Limited but retains accountability for all functions it
delegates.
Management agreement
The Company has entered into an
agreement with the Manager. This sets out the Manager's key
responsibilities, which include proposing the property investment
strategy to the Board and identifying property investments to
recommend for divestment. The Manager is also responsible to the
Board for all issues relating to property asset management. The
management agreement is aimed at delivering a complete divestment
of the remaining properties held and the return of capital to
shareholders.
The Company has delegated the
provision of all services to external service providers whose work
is overseen by the Management Engagement Committee at its regular
scheduled meetings. Each calendar year, a detailed review of
performance pursuant to their terms of engagement is undertaken by
the Management Engagement Committee.
In accordance with Listing Rule
11.7.2.(2)R and having formally appraised the performance and
resources of the Manager, in the opinion of the Directors, the
continuing appointment of the Manager, on the terms agreed, is in
the interests of shareholders as a whole.
Relations with shareholders
The Company welcomes the views of
shareholders and places great importance on communication with its
shareholders. Senior members of the Manager are available at all
reasonable times to meet with principal shareholders and key sector
analysts. The Manager, Chairman and other Directors are not only
available to meet with shareholders, but have actively done
so.
Reports on the views of shareholders
are provided to the Board on a regular basis. The Board is also
kept fully informed of all relevant market commentary on the
Company by the Manager and the Corporate Broker.
All shareholders can address their
individual concerns to the Company in writing at its registered
address. The AGM of the Company provides a forum for shareholders
to meet and discuss issues with the Directors and the Manager. The
Manager and Board also engage with shareholders on an ongoing
basis. In addition, the Company maintains a website
(www.mpofund.com) which contains comprehensive information,
including company notifications, share information, financial
reports, investment objectives and policy, investor contacts and
information on the Board and corporate governance.
Whistleblowing
The Board has considered the AIC Code
recommendations in respect of arrangements by which staff of the
Administrator and Investment Manager may, in confidence, raise
concerns within their respective organisations about possible
improprieties in matters of financial reporting or other
matters.
It has concluded that adequate
arrangements are in place for the proportionate and independent
investigation of such matters and, where necessary, for appropriate
follow-up action to be taken within their organisation.
GDPR
The Board confirmed that the Company
has considered GDPR and taken measures itself and with its service
providers to meet the requirements of GDPR and the equivalent
Guernsey law.
Cyber-security
The Board recognises the increased
incidence of cyber-security threats and regularly reviews its
policies, procedures and defences to mitigate associated risks, and
receives confirmation on such matters such as quarterly compliance
reports, from the key service providers.
Principal risks and uncertainties
The Group's assets consist of
residential property investments in Macau. Its principal risks are
therefore related to the residential property market in general,
but also the particular circumstances of the properties in which
they are invested and where relevant, their tenants. The Manager
seeks to mitigate these risks through active asset management
initiatives and carrying out due diligence work on potential
tenants before entering into any new lease agreements. All the
properties in the portfolio are insured.
Each Director is aware of the risks
inherent in the Group's business and understands the importance of
identifying and evaluating these risks. The Board has adopted
procedures and controls that enable it to manage these risks within
acceptable limits and to meet all its legal and regulatory
obligations.
For each material risk, the
likelihood and consequence are identified, management controls and
frequency of monitoring are confirmed and results are reported and
discussed at board meetings.
The Company's principal risk factors
are fully discussed in the Company's prospectus, are available on
the Company's website and should be reviewed by shareholders. Note
2 further describes the Group's risk management
processes.
The principal risks and uncertainties
faced by the Group are set out below:
• The ongoing cash flow and
financing issues which are faced by the Group. The Manager
undertakes ongoing discussions with lenders to enable relief of the
stress on cash flow. The Manager provides the Board with
fortnightly updates with divestments progress and payable status
reporting, bringing up-to-date information to the Board. Working
capital requirements, cashflows scenarios and an analysis of loan
to value covenants are reported to the Board for
monitoring.
• Economic changes that have
occurred since 2023 such as high global inflation, interest rate
increases and their impact on the Macau economy and in particular,
the luxury property market. The Manager provides regular and timely
updates on developments and ad-hoc analysis about such economic
related impact to the Board, to facilitate their informed decision
making process and allow sales strategy to be pivoted as
required;
• There can be no guarantee that
Macau will remain the only centre in China where gambling is legal.
Other centres are unlikely to be created, however, in the expected
remaining life of the Company. Changes in policies of the
government or changes in laws and regulations may result in the
legalisation of gambling in other parts of China in the longer
term. Other regional centres may also provide increased competition
to Macau. These, in turn, may have an adverse effect on Macau's
economy and property market and the favourable treatment of
gambling in Macau. There is an inherent risk in investing in the
Macau region which cannot be mitigated or managed by the
Board.
• The Group's loan refinancing may
not be available in the future due to reduced lending appetite from
banks and a change in market sentiment. The Board, through the
Manager, has an ongoing dialogue with all external lenders and
closely monitors the loan covenants of all facilities.
• Inability to achieve the Group's
strategic objectives, linked to a widening of the discount between
share price and Adjusted NAV. The Continuation Vote in the AGM in
December 2024, given the concentrated shareholder base which
exists, represents an uncertainty. The Board, the Manager and the
Company maintain good relationships with investors through periodic
contact, investor updates, and addressing influences on the share
price and through provision of factual information to support any
resolutions requiring shareholders' approval.
• New legislation or regulations, or
different or more stringent interpretation or enforcement of
existing laws or regulations, in any jurisdiction in which the
Group operates, may have a material adverse effect on the Group's
financial performance and returns to shareholders. The Manager
provides the Board with updates on any relevant development on a
regular basis.
• Macau law governs the majority of
the Group's agreements which relate to property investments,
property ownership rights and securities. It cannot be guaranteed
that the Group will be able to enforce any such agreements or that
remedies will be available outside of Macau. The Manager provides
the Board with updates on any concerning developments on a regular
basis.
• The Group's return on its
investments and prospects are subject to economic, legal, political
and social developments in Macau and China, and the Asia Pacific
region in general. The Manager provides the Board with updates on
any concerning developments on a regular basis. In particular, the
Group's return on its investments may be adversely affected
by:
• changes in Macau's and China's
political, economic and social conditions;
• changes in policies of the
government or changes in laws and regulations (including the
revocation or modification by the Chinese Government of Macau's SAR
status and high autonomy levels), or the interpretation of laws and
regulations;
• changes in foreign exchange rates
or regulations;
• measures that may be introduced to
control inflation, such as interest rate increases;
• changes in the rate or method of
taxation;
• title and/or legal disputes with
neighbouring land owners and legal disputes with architects,
project managers and suppliers;
• changes to restrictions on or
regulations concerning repatriation of funds; and
• pressure to sell on
developers.
Emerging risks
Emerging risks have been identified
by the Board through a process of evaluating which of the principal
risks or any previously unidentified risks have increased
materially through the year and/or are expected to grow
significantly and such evaluation is completed at regular Board
meetings. Any such emerging risks are likely to cause disruption to
the Group's business. If ignored, there could be significant impact
on the Group's financial situation and future operating performance
but, if recognised, they could provide opportunities for
transformation. In the current year no further emerging risks have
been identified.
There is a process for identifying,
evaluating and managing the principal and emerging risks faced by
the Group. This process (which accords with the FRC's "Guidance on
Risk Management, Internal Control and Related Financial and
Business Reporting") has been regularly reviewed and has been in
place throughout the financial year and up to the date of approval
of these annual accounts.
The above principal risks are
mitigated and managed by the Board through continual review, policy
setting and annual updating of the Group's risk matrix to ensure
that procedures are in place with the intention of minimising the
impact of the above-mentioned risks should they crystallise. The
Board relies on reports periodically provided by the Administrator
and the Manager regarding risks that the Group faces. When
required, experts are employed to gather information, including tax
advisers, legal advisers and planning advisers. Some risks are,
however, beyond the Board or Managers' ability to
mitigate.
The Board relies on the Manager's
close relationship with legal and other professionals in Macau,
Hong Kong and China to keep abreast of any potential changes to the
law and any possible impact on the Group. The Board also regularly
monitors the investment environment and the management of the
Group's property portfolio, and applies the principles detailed in
the internal control guidance issued by the FRC. Details of the
Group's internal controls are described in more detail
above.
The Group's financial risks and
uncertainties are further discussed in Note 2 to the Consolidated
Financial Statements.
On behalf of the Board
Mark Huntley
Chairman of the Board
27 September 2024
Nomination and Remuneration Committee Report
Summary of the role of the Nomination and Remuneration
Committee
The Nomination and Remuneration
Committee regularly reviews the structure, size and composition
(including the skills, knowledge, gender, experience and diversity)
of the Board and makes recommendations to the Board with regard to
any required changes and also considers the appropriate levels of
the Board's remuneration. The Board monitors the developments in
corporate governance to ensure the Board remains aligned with best
practice. The Board acknowledges the importance of diversity of
experience, approach and gender for the effective functioning of a
board and commits to supporting diversity in the boardroom. The
Board also values diversity of business skills and experience
because directors with diverse skills sets, capabilities and
experience gained from different geographical backgrounds enhance
the Board by bringing a wide range of perspectives to the Company.
The Board is satisfied with the current composition and functioning
of its members. It is the Company's policy to give careful
consideration to issues of the Board's balance, including gender
and ethnic diversity, when appointing board members, but its
priority is to appoint based on merit, notwithstanding a strong
desire to maintain the Board's diversity. The Board's current
ethnic diversity ratio is 33.33% and current gender diversity ratio
is 33.33%. The terms of reference are considered annually by the
Nomination and Remuneration Committee and are then referred to the
Board for approval and are available on the Company's website. The
Board's approach to succession takes into account of the fact that
the Company is in the final phase of its life.
Remuneration
The Nomination and Remuneration
Committee determines and agrees with the Board the remuneration of
the Company's Chairman, and non-executive directors. No director
shall be involved in any decisions as to their own remuneration. In
determining such remuneration, the Nomination and Remuneration
Committee takes into account all factors which it deems necessary
including any relevant legal requirements, the provisions and
recommendations in the AIC Code of Corporate Governance and the UK
Listing Authority's Listing Rules and associated guidance. The
Nomination and Remuneration Committee also obtains reliable,
up-to-date information about remuneration in other comparable
companies. There have been no changes to annual director
remuneration since 2017.
Composition of the Nomination and Remuneration
Committee
The members of the Nomination and
Remuneration Committee are listed below.
Meetings
The Nomination and Remuneration
Committee meets at least once a calendar year and otherwise as
required. Meetings of the Nomination and Remuneration Committee
shall be called by the Company Secretary at the request of the
Committee Chairman. Unless otherwise agreed, notice of each meeting
confirming the venue, time and date, together with an agenda of
items to be discussed, shall be forwarded to each member of the
Nomination and Remuneration Committee, any other person required to
attend and all other non-executive directors, no later than five
working days before the date of the meeting. Supporting papers
shall be sent to the Nomination and Remuneration Committee and to
other attendees as appropriate, at the same time. Any non-executive
director who is not considered independent will not take part in
the Nomination and Remuneration Committee's deliberations regarding
remuneration levels.
Consideration of Directors for re-election
All Directors will retire annually in
accordance with the AIC Code. A retiring director shall be eligible
for reappointment. No director shall be required to vacate his
office at any time by reason of the fact that he has attained any
specific age.
The Nomination and Remuneration
Committee will consider the use of external consultants to assist
with the appointment of future directors.
Overview
The Nomination and Remuneration
Committee did not meet during the year ended 30 June 2024, however,
it has met subsequent to the year end. Matters considered at the
meeting included but were not limited to:
• the structure, size and
composition (including the balance of skills, knowledge, experience
and diversity) of the Board and Audit and Risk Committee and the
need periodically to refresh membership;
• to note guidance set out in the
AIC Code;
• to consider key outcomes from the
Board's evaluation process;
• to consider Board's tenure and
succession planning;
• consideration of Directors for
re-election
• consideration of Directors'
remuneration; and
• consideration of the effectiveness
of new Directors.
As a result of its work during the
year, the Nomination and Remuneration Committee has concluded that
it has acted in accordance with its terms of reference.
On behalf of the Nomination and
Remuneration Committee
Alan Clifton
Chairman of the Nomination and
Remuneration Committee
27 September 2024
Management Engagement Committee Report
Summary of the role of the Management Engagement
Committee
The Management Engagement Committee
annually reviews the terms of the Investment Management Agreement
between the Company and the Manager and reviews the performance and
terms of engagement of any other key service providers to the
Company, as detailed in Appendix 1 of the Terms of Reference of the
Committee. The terms of reference are considered annually by the
Management Engagement Committee and are then referred to the Board
for approval and are available on the Company's website. During the
year the Management Agreement was amended to extend the Manager's
entitlement to earn fees into 2024 in reflection of the delays to
the realisation of assets arising as a consequence of the
coronavirus pandemic and the challenging subsequent trading
conditions. The maximum fee that could be paid to the Manager in
all circumstances is US$1,439,816.
Composition of the Management Engagement
Committee
The members of the Management
Engagement Committee are listed below.
Meetings
The Management Engagement Committee
meets at least once a calendar year and otherwise as required.
Meetings of the Management Engagement Committee shall be called by
the Company Secretary at the request of the Committee Chairman.
Unless otherwise agreed, notice of each meeting confirming the
venue, time and date, together with an agenda of items to be
discussed, shall be forwarded to each member of the Management
Engagement Committee, any other person required to attend, no later
than five working days before the date of the meeting. Supporting
papers shall be sent to the Management Engagement Committee and to
other attendees, as appropriate, at the same time.
Performance of the Manager
Following discussion, it is the
opinion of the Management Engagement Committee that the performance
of the Manager for the year ended 30 June 2024 was satisfactory and
the continuing appointment of the Manager on the terms as currently
agreed and, following negotiation and an affirmative Continuation
Vote, any future ongoing extension is in the interests of the
shareholders as a whole.
Performance of key service providers
Following discussion, it is the
opinion of the Management Engagement Committee that the performance
of the key service providers (as detailed in Appendix 1 of the
Terms of Reference of the Committee) for the year ended 30 June
2024 was satisfactory.
Overview
The Management Engagement Committee
did not meet during the year ended 30 June 2024; however it has met
subsequent to the year end and as a result of its work, the
Management Engagement Committee has concluded that it has acted in
accordance with its terms of reference.
On behalf of the Management
Engagement Committee
Mark Huntley
Chairman of the Management Engagement
Committee
27 September 2024
Audit and Risk Committee Report
Summary of the role of the Audit and Risk
Committee
The Audit and Risk Committee is
appointed by the Board from the non-executive directors of the
Company. The Audit and Risk Committee's terms of reference include
all matters indicated by Disclosure Guidance and Transparency Rule
7.1 and the UK Code. The terms of reference are considered annually
by the Audit and Risk Committee and are then referred to the Board
for approval and are available on the Company's website.
The Audit and Risk Committee is
responsible for:
• reviewing and monitoring the
integrity of the Annual Report and Audited Consolidated Financial
Statements, the Interim Report and Interim Condensed Consolidated
Financial Statements of the Group, and any formal announcements
relating to the Group's financial performance, and reviewing
significant financial reporting judgements contained
therein;
• reporting to the Board on the
appropriateness of the accounting policies and practices including
critical accounting policies and practices;
• advising the Board that the annual
report and accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's performance, business model
and strategy;
• reviewing the Group's internal
financial controls and, unless expressly addressed by the Board
itself, the Group's internal controls and principal
risks;
• making recommendations to the
Board for a resolution to be put to the shareholders, for their
approval in general meetings, on the appointment of the external
auditor and the approval of the remuneration and terms of
engagement of the external auditor;
• reviewing and monitoring the
external auditor's independence and objectivity and the
effectiveness of the audit process, taking into consideration
relevant UK professional and regulatory requirements;
• developing and implementing a
policy on the engagement of the external auditor to supply
non-audit services, taking into account relevant guidance regarding
the provision of any non-audit services by the external audit
firm;
• reviewing the valuations of the
Company's investments prepared by the Investment Adviser, and
providing a recommendation to the Board on the valuation of the
Company's investments;
• meeting the external auditor to
review their proposed audit programme of work and the subsequent
audit report and to assess the effectiveness of the audit process
and the levels of fees paid in respect of both audit and any
non-audit work;
• considering annually whether there
is a need for the Company to have its own internal audit function;
and
• reviewing and considering the UK
Code, the AIC Code and the Stewardship Code.
The Audit and Risk Committee is
required to report its findings to the Board, identifying any
matters on which it considers that action or improvement is needed,
and to make recommendations on the steps to be taken.
The Audit and Risk Committee is also
required to report to the Board, identifying how it has discharged
its responsibilities during the current year.
The Board has taken note of the
requirement that at least one member of the Audit and Risk
Committee should have recent and relevant financial experience and
is satisfied that the Audit and Risk Committee is properly
constituted in that respect, with all members having relevant
sector experience.
The Audit and Risk Committee reviews
the information contained in the other sections of the Annual
Report including the Directors' Report, Chairman's Message and the
Manager's Report.
The Audit and Risk Committee is the
formal forum through which the external auditor reports to the
Board. The external auditor is invited to attend the Audit and Risk
Committee meetings at which the Annual Report and Audited
Consolidated Financial Statements, and at which they have the
opportunity to meet with the Audit and Risk Committee without
representatives of the Investment Adviser being present at least
once per year.
Composition of the Audit and Risk Committee
The members of the Audit and Risk
Committee are:
|
|
Date of appointment
|
|
|
Alan Clifton (Chairman)
|
23 May 2006
|
-
|
|
Mark Huntley
|
12 November 2018
|
-
|
|
Carmen Ling
|
24 February 2022
|
-
|
Appointments to the Audit and Risk
Committee will be for a period of up to three years, which is
extendable, depending upon members continuing to be independent.
Alan Clifton has been a member of the Audit and Risk Committee for
18 years. However, the Board and Audit and Risk Committee have
satisfied themselves that Alan Clifton continues to be independent
in approach and judgement. The Board are satisfied that Alan
Clifton remains completely independent of the Investment Manager
and provides consistency and continuity in the current realisation
phase of the Company. Accordingly, it has resolved to extend his
appointment to the Audit and Risk Committee for a further year. The
Board has also considered the inclusion of the Chairman within the
Audit and Risk Committee and, having taken into account that the
Chairman is independent and non-executive, believes it appropriate
for the Chairman to be a member. It is the intention to maintain
the majority board independence within the meaning of the AIC
Code.
Financial Reporting
The primary role of the Audit and
Risk Committee in relation to the financial reporting is to review
with the Administrator, Investment Adviser and the external auditor
on the appropriateness of the Annual Report and Audited
Consolidated Financial Statements and Interim Report, concentrating
on, among other matters:
• the quality and acceptability of
accounting policies and practices;
• the clarity of the disclosures and
compliance with financial reporting standards and relevant
financial and governance reporting requirements;
• material areas in which
significant judgement have been applied or there has been
discussion with the external auditor;
• whether the Annual Report and
Audited Consolidated Financial Statements, taken as a whole, are
fair, balanced and understandable and provide the information
necessary for the shareholders to assess the Company's performance,
business model and strategy; and
• any
correspondence from regulators in relation to Company's financial
reporting.
To aid its review, the Audit and Risk
Committee considers reports from the Administrator, Manager and
Investment Adviser and also reports from the external auditor on
the outcomes of their annual audit. The Audit and Risk Committee
supports Deloitte LLP in displaying the necessary professional
scepticism their role requires.
Significant issues considered in relation to the financial
statements
The Audit and Risk Committee has had
regular contact with the Investment Adviser and the external
auditor during the year end audit process. The Committee's
discussions have been broad ranging, including the consideration of
the Company's going concern status and key areas of
judgement.
The Audit and Risk Committee is
satisfied, having received advice from professional advisers which
include external valuers, tax advisers and lawyers, that these
sensitivities have been appropriately reflected and disclosed in
the financial statements.
During its review of the Group's
financial statements for the year ended 30 June 2024, the Audit and
Risk Committee considered the following significant
issues:
• going concern and viability in
relation to the Continuation Vote in December 2024 and availability
of loan refinancing;
• valuation of investment properties
and inventories;
• existence and ownership of
investment properties and inventories;
• accounting treatment for taxes
incurred in multiple jurisdictions;
• interest rates and
inflation;
• income recognition for rental
income; and
• progress on divestment.
The risks relating to going concern
and viability are mitigated through ongoing management of cash
resources, regular monitoring of compliance with loan covenants and
re-negotiation with lender banks prior to loan maturities.
Communications with major shareholders lend support to the
Company's continuation.
The risk relating to the valuation of
investment properties and inventories is mitigated through use of a
professionally qualified independent valuer to conduct the
valuations in accordance with current Royal Institution of
Chartered Surveyors Appraisal and Valuation Standards.
The valuation is overseen by the
Investment Adviser to ensure that the values are comparable to
current market values of similar properties. The valuation process
and methodology are discussed with the Investment Adviser regularly
during the year and with the external auditor as part of the
year-end audit planning. These valuations are reviewed, challenged
and ultimately agreed by the Board, who possesses knowledge and
understanding of the markets where the properties are situated. The
Board ordinarily meets with the valuer at least once a year. The
factors that affect the value and ownership of the investment
property and inventory are further discussed in Notes 3, 6 and
7.
The risk relating to the ownership
and existence of investment properties and inventories is mitigated
through ensuring proper title deeds for the properties are held.
Asset reconciliations are performed by the Administrator with the
special purpose vehicle ("SPV") Administrator on a quarterly basis.
Property searches showing ownership of each of the assets are
conducted to ascertain that there are no changes in
ownership.
The risk relating to taxation is
mitigated through the setup of the Group structure. When taxation
queries arise, an independent taxation adviser is employed to
advise the Board on such issues. The factors that affect the
Group's taxation position are further discussed in Note
9.
Meetings
The Audit and Risk Committee meets
not less than twice a year and at such other times as the Chairman
requires. Any member of the Audit and Risk Committee may request
that a meeting be convened by the Company Secretary. The external
auditor may request that a meeting be convened if they deem it
necessary. Other Directors and third parties may be invited by the
Audit and Risk Committee to attend meetings as and when
appropriate.
Annual General Meeting
The Audit and Risk Committee
Chairman, or other members of the Audit and Risk Committee
appointed for the purpose, shall attend each AGM of the Company,
prepared to respond to shareholders' questions on the Audit and
Risk Committee's activities.
Risk management
The Company's risk assessment process
and the way in which significant business risks are managed is a
key area of focus for the Audit and Risk Committee. The work of the
Audit and Risk Committee was driven primarily by the Company's
assessment of its principal risks and uncertainties as set out in
the Corporate Governance Report. The Audit and Risk Committee
receives reports from the Investment Adviser and Administrator on
the Company's risk evaluation process and reviews changes to the
principal risks identified, including emerging risks.
Primary Area of Judgement
The Audit and Risk Committee
determined that the key risk of misstatement of the Company's
financial statements is the fair value of the investment property
held by the Group in the context of the high degree of judgement
involved in the assumptions and estimates underlying the discounted
cash flow calculations and any resulting impairment.
As outlined in Note 6 of the
financial statements, the fair value of the Group's investment
property as at 30 June 2024 was US$97,970,000 (2023:
US$141,045,000).
The valuation process is initiated by the Investment Adviser who
appoints a suitably qualified valuer to conduct the valuation of
the investment property. The results are overseen by the Investment
Adviser. Once satisfied with the valuations based on their
expectations, the Investment Adviser reports the results to the
Board. The Board reviews the latest valuation based on their
knowledge of the property market and compares these to previous
valuations. The Group's investment properties were revalued at 30
June 2024 by an independent, professionally-qualified valuer,
Savills.
Savills is required to make
assumptions on establishing the current market valuation. The most
significant assumptions (as described further in Note 6), relate to
future income streams and discount rates applicable to these
estimates. The principal technique deployed was the income
capitalisation method and these estimates are based on the local
market conditions existing at the reporting date.
The valuation of the Group's
investment property as at 30 June 2024 has been determined by the
Board based upon the information provided by the Investment
Adviser.
The properties accounted for as
inventory under IFRS are recorded at the lower of cost and net
realisable value. The Company also discloses an Adjusted NAV
reporting what the Company's net asset value would be if the
inventory were recognised at fair value (see Note 18) using the
valuation prepared by Savills. As detailed above, Savills is
required to make assumptions on establishing the current market
valuation. The valuation of the Group's inventories at fair value
for the purpose of the Adjusted NAV as at 30 June 2024 has been
determined by the Board based upon the information provided by the
Investment Adviser.
Internal audit
The Audit and Risk Committee
considers at least once a year whether or not there is a need for
an internal audit function. Currently, the Audit and Risk Committee
does not consider there to be a need for an internal audit
function, given that there are no employees in the Group and all
outsourced functions are with parties/administrators who have their
own internal controls and procedures. During the year, a SOC 1
report was produced for the Administrator, Ocorian Administration
(Guernsey) Limited. The Audit and Risk Committee also considers the
review of controls of the service organisations.
External audit
Deloitte LLP have been appointed as
external auditor for the year to 30 June 2024. The external auditor
is required to rotate the audit partner every five years. The
current Deloitte LLP lead audit partner, David Becker, started his
tenure for the financial year ended 30 June 2021. The GFSC have
indicated that no audit rotation requirements are applicable to a
Guernsey company. Accordingly, paragraph 3.9 of the FCA guidance
which cross refers to the requirement included in UK legislation,
is not relevant for a Guernsey incorporated company.
During the year, the Audit and Risk
Committee discussed the planning, conduct and conclusions of the
external audit as it proceeded. At the May 2024 Audit and Risk
Committee meeting, the Committee discussed and approved the
external auditor's Group plan in which they identified the Group's
going concern assumption, valuation of the investment property and
carrying value of inventories as the key areas of risk of
misstatement in the Group's financial statements.
The Audit and Risk Committee
discussed these issues at the May 2024 meeting to ensure that
appropriate arrangements are in place to mitigate these
risks.
To fulfil its responsibility
regarding the independence of the external auditor, the Audit and
Risk Committee will consider:
• discussions with or reports from
the external auditor describing its arrangements to identify,
report and manage any conflicts of interest; and
• the extent of any non-audit
services provided by the external auditor.
To assess the effectiveness of the
external auditor, the Audit and Risk Committee will
review:
• the external auditor's fulfilment
of the agreed audit plan and variations from it;
• discussions or reports
highlighting the major issues that arose during the course of the
audit;
• feedback from other service
providers evaluating the performance of the audit team;
• arrangements for ensuring
independence and objectivity;
• the robustness of the external
auditor in handling key accounting and audit judgements; especially
with regard to the external auditor's review of the following
areas:
o Valuation of investment property:
the external auditor identified this as a key focus area of the
audit and challenged the underlying assumptions used to prepare the
valuation of the investment property by independent and
professionally-qualified valuer, Savills, using their regional
market specialists in Hong Kong and performed recalculations of
assumptions to ensure they sat within their parameters.
o The going concern assumption: the
external auditor held discussions with the Corporate Broker to
understand any negative sentiment from investors around the
upcoming continuation vote. In addition, the external auditor
performed rigorous testing of management's cash flow forecasts and
two-year viability period to obtain comfort over the going concern
assumption. A material uncertainty paragraph has been included in
the audit opinion in relation to going concern.
o Carrying value of inventory:
Deloitte LLP performed an analysis of the cost of the properties
classified as inventory against the valuation prepared by Savills
and challenged the underlying assumptions that were used to prepare
the valuations to ensure that these were appropriate.
The Audit and Risk Committee also
held private meetings with the external auditor during 2024 and the
Audit and Risk Committee Chairman also maintained regular contact
with the audit partner throughout the year. These meetings provide
an opportunity for open dialogue with the external auditor without
management being present.
The Audit and Risk Committee is
satisfied with Deloitte LLP's effectiveness and independence as the
external auditor having considered the degree of diligence and
professional scepticism demonstrated by them. Having carried out
the review described above and having satisfied itself that the
external auditor remains independent and effective, the Audit and
Risk Committee has concluded that the external auditor implemented
sufficiently robust processes to deliver a high quality audit.
Accordingly, the Committee recommended to the Board that Deloitte
LLP be reappointed as external auditor for the year ending 30 June
2025.
The Audit and Risk Committee has
provided the Board with its recommendation to the shareholders on
the re-appointment of Deloitte LLP as external auditor which will
be put to shareholders at the AGM in December 2024.
Non-audit services
To safeguard the objectivity and
independence of the external auditor from becoming compromised, the
Audit and Risk Committee has a formal policy governing the
engagement of the external auditor to provide non-audit services.
This precludes Deloitte LLP from providing certain services, such
as valuation work or the provision of accounting services, and also
sets a presumption that Deloitte LLP should only be engaged for
non-audit services where Deloitte LLP is best placed to provide the
non-audit service. Please see Note 23 for details of services
provided by Deloitte LLP.
Overview
The Audit and Risk Committee met four
times in the year ended 30 June 2024. Matters considered at these
meetings included but were not limited to:
• consideration and agreement of the
terms of reference of the Audit and Risk Committee for approval by
the Board;
• review of the accounting policies
and format of the financial statements;
• review of the valuations of the
properties held;
• review of the 2023 Annual Report
and Audited Consolidated Financial Statements for the year ended 30
June 2023;
• review of the 2023 Interim Report
and unaudited Interim Condensed Consolidated Financial Statements
for the 6 months ended 31 December 2023;
• review of the quarterly results
announcements issued in November 2023 and May 2024;
• review of the audit plan and
timetable for the preparation of the 2024 Annual Report and Audited
Consolidated Financial Statements;
• challenge of the 2024 Annual
Report and Audited Consolidated Financial Statements for the year
ended 30 June 2024;
• discussions and recommendation
regarding the appointment of the external auditor;
• discussions and approval of the
fee for the external audit;
• assessment of the effectiveness of
the external audit process as described above; and
• review of the Company's principal
risks, emerging risks and internal controls.
As a result of its work during the
year, the Audit and Risk Committee has concluded that it has acted
in accordance with its terms of reference and has ensured the
independence and objectivity of the external auditor. The Audit and
Risk Committee has recommended to the Board that the Annual Report
and Financial Statements are considered to be fair, balanced and
understandable. The Audit and Risk Committee has recommended to the
Board that the external auditor is re-appointed.
On behalf of the Audit and Risk
Committee
Alan Clifton
Chairman of the Audit and Risk
Committee
27 September 2024
Statement of Directors' Responsibilities
The Directors are responsible for
preparing the annual report and accounts in accordance with
applicable laws and regulations. The Companies (Guernsey) Law, 2008
requires the Directors to prepare financial statements for each
financial year. The Directors prepare the Group's financial
statements in accordance with International Financial Reporting
Standards as approved by the International Accounting Standards
Board ("IFRS"). Under Company Law, the Directors must not approve
the accounts unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and of the financial
performance and cash flows of the Group for that period. In
preparing these Group's financial statements, the Directors are
required to:
• properly select and apply
accounting policies;
• present information, including
accounting policies, in a manner that provides relevant, reliable,
comparable and understandable information;
• provide additional disclosures
when compliance with the specific requirements in IFRS are
insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the entity's financial
position and financial performance; and
• make an assessment of the
Company's ability to continue as a going concern.
The Directors confirm that they have
complied with the above requirements in preparing the Group's
financial statements.
The Directors are responsible for
keeping adequate accounting records that are sufficient to show and
explain the Group's transactions and disclose with reasonable
accuracy, at any time, the financial position of the Group and
which enable them to ensure that the financial statements comply
with the Companies (Guernsey) Law, 2008. They are also responsible
for safeguarding the assets of the Group and, hence, for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The maintenance and integrity of the
Company's website (www.mpofund.com) is delegated to the Manager but
is ultimately the responsibility of the Directors. The work carried
out by the external auditor does not involve consideration of these
matters and, accordingly, the external auditor accepts no
responsibility for any changes that may have occurred to the
financial statements since they were initially presented on the
website.
Legislation in Guernsey governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
All companies who are a part of the
Equity Shares in Commercial Companies ("ESCC") category in the UK
are required under the UK Listing Rules to report on how they have
applied the UK Code in their annual report and financial
statements.
Responsibility Statement of the Directors in respect of the
Annual Report and Accounts
Each of the Directors, whose names
are set out above, confirms that, to the best of their knowledge
and belief that:
Directors' statement under the
Disclosure, Guidance and Transparency Rules
• The Group's financial statements,
prepared in accordance with IFRS, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation taken as
a whole.
• The management report, which is
incorporated into the Directors' Report, Manager's Report and
Chairman's Message contained in the Annual Report, includes a fair
review of the development and performance of the business and of
the position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties they face.
Directors' statement under the UK
Corporate Governance Code
• The Directors are responsible for
preparing the Annual Report and Group's financial statements in
accordance with applicable law and regulations. Having taken advice
from the Audit and Risk Committee, the Directors consider the
Annual Report and Group's Financial Statements, taken as a whole,
as fair, balanced and understandable and that it provides the
information necessary for shareholders to assess the Group's
performance, business model and strategy.
So far as each Director is aware,
there is no relevant audit information of which the Company's
external auditor is unaware, and each Director has taken all the
steps that he ought to have taken as a Director in order to make
himself aware of any relevant audit information and to establish
that the Company's external auditor is aware of that information.
This confirmation is given and should be interpreted in accordance
with the provisions of section 249 of the Companies (Guernsey) Law,
2008 (as amended).
On behalf of the Board
Mark Huntley
Chairman of the Board
27 September 2024
Independent Auditor's Report to the Members
of
Macau Property Opportunities Fund Limited
Report on the audit of the financial
statements
1. Opinion
In our opinion the financial
statements of Macau Property Opportunities Fund Limited (the
"Company"/"Fund") and its subsidiaries (the "Group"):
• give a true and fair view of the
state of the Group's affairs as at 30 June 2024 and of its loss for
the year then ended;
• have been properly prepared in
accordance with IFRS Accounting Standards as issued by the
International Accounting Standards Board (IASB);
• have been prepared in accordance
with the requirements of the Companies (Guernsey) Law,
2008.
We have audited the financial
statements which comprise:
• the consolidated statement of
financial position;
• the consolidated statement of
comprehensive income;
• the consolidated statement of
changes in equity;
• the consolidated cash flow
statement; and
• the related notes 1 to
25
The financial reporting framework
that has been applied in their preparation is applicable law and
IFRS Accounting Standards as issued by the IASB.
2. Basis for opinion
We conducted our audit in accordance
with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are
further described in the auditor's responsibilities for the audit
of the financial statements section of our report.
We are independent of the Group in
accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the
Financial Reporting Council's (the "FRC's") Ethical Standard as
applied to listed public interest entities, and we have fulfilled
our other ethical responsibilities in accordance with these
requirements. We confirm that we have not provided any non-audit
services prohibited by the FRC's Ethical Standard to the
Group.
We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis
for our opinion.
3. Material uncertainty related
to going concern
We draw attention to note 1 in the
financial statements which indicates that the Group has major debt
obligations that fall due within 12 months of the date of approval
of the financial statements, for which refinancing has not yet been
formally agreed. Also, the Fund's life is due to expire in December
2024 and whilst the Company will put forward a resolution for its
continuation at the next annual general meeting, the continuation
vote has not been passed at the date of approval of the financial
statements. As stated in note 1, these events or conditions, along
with the other matters as set forth in note 1 indicate that a
material uncertainty exists that may cast significant doubt on the
Group's and Company's ability to continue as a going concern. Our
opinion is not modified in respect of this matter.
In auditing the financial
statements, we have concluded that the directors' use of the going
concern basis of accounting in the preparation of the financial
statements is appropriate.
Our evaluation of the directors'
assessment of the Group's and Company's ability to continue to
adopt the going concern basis of accounting included:
• Evaluating management's assessment
of the potential issues that may give rise to a material
uncertainty, including mitigating actions identified by the
directors;
• Considering the financial
covenants currently in place and whether sufficient headroom
exists, particularly in the context of decreased property
valuations and the impact of the current macro-economic environment
including high interest rates;
• Evaluating the likelihood of
renewal of external financing arrangements at expiry, including
consideration of history of renewal of such
arrangements;
• Evaluating the assumption made by
the directors related to passing of the upcoming continuation vote
for the extension of the life of the Company;
• Performing sensitivity analysis on
the key assumptions and inputs applied in the going concern
assessment and cashflow model, including the ability to sell the
remaining properties given the slow recovery of real estate market
sector;
• Assessing the reasonability of key
assumptions in the cashflow model and obtaining supporting
documentation from management; and
• Evaluating the appropriateness of
the disclosures in the financial statements.
In relation to the reporting on how
the Group has applied the UK Corporate Governance Code, we have
nothing material to add or draw attention to in relation to the
directors' statement in the financial statements about whether the
directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the
responsibilities of the directors with respect to going concern are
described in the relevant sections of this report.
4. Summary of our audit
approach
|
Key audit matters
|
The key audit matters that we
identified in the current year were:
• Going concern (see material
uncertainty related to going concern section)
• Key judgements in the valuation of
investment property
• Carrying value of
inventory
|
|
Materiality
|
The materiality that we used for the
Group financial statements in the current year was
$464k which was determined
on the basis of 1% of net asset value.
|
|
Scoping
|
The response to the risks of material
misstatement was performed directly by the Group audit engagement
team.
|
|
Significant changes in our
approach
|
No significant changes in our
approach compared with the prior year.
|
5. Key audit matters
Key audit matters are those matters
that, in our professional judgement, were of most significance in
our audit of the financial statements of the current period and
include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the audit;
and directing the efforts of the engagement team.
These matters were addressed in the
context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate
opinion on these matters.
In addition to the matter described
in the material uncertainty related to going concern section, we
have determined the matters described below to be the key audit
matters to be communicated in our report.
5.1 Key judgements in the
valuation of investment property
|
Key audit matter
description
|
The Group owns a high-end residential
investment property in Macau, China, as disclosed in note 6, that
is valued at $98.0m
as at 30 June 2024 (2023: $141.0m).
The property is valued by an
independent, professionally qualified valuer using the "income
capitalisation" method of valuation.
Directors are required to make a
number of significant assumptions and judgements in determining the
fair value and therefore we have identified this as a potential
fraud risk.
The key inputs into the fair value
model which are subject to significant estimates include future
cash flows from assets, such as lettings, as well as applicable
comparable term yields and market rent. Unreasonable assumptions
could give rise to a material misstatement.
The value of investment property
declined by 44% as at 30 June 2024 in comparison to prior year due
to realisations of investment property units during the year which
reduced the overall investment property portfolio. Consistent with
the market conditions observed in the prior year, there continued
to be a higher level of judgement associated with high-end
residential properties. The valuation of investment property is
disclosed as one of the key sources of estimation uncertainty in
note 3 of the financial statements. The Audit and Risk committee
also considered this as a significant matter as discussed in the
Audit and Risk Committee Report.
|
|
How the scope of our audit responded
to
the key audit matter
|
To respond to the key audit matter,
we have performed the following audit procedures:
• Tested relevant controls in
relation to the valuation process;
• Tested the completeness and
accuracy of the year end data provided to the valuers including
reconciling the information included in the valuation report to
supporting documentation such as lease agreements;
• With involvement of our valuation
specialists, discussed and challenged the appropriateness of the
valuation methodology and the key inputs and assumptions (such as
comparable term yields and market rent) with the valuers and
management with reference to independent market data;
• Evaluated the competence,
objectivity and capabilities of the valuer; and
• Assessed whether the disclosures
in the financial statements are appropriate regarding the critical
accounting judgements and key sources of estimation
uncertainty.
|
|
Key observations
|
We have concluded that the
assumptions applied by management, in arriving at fair value, and
the resulting valuations of investment property are
appropriate.
|
5.2. Carrying value of
inventory
|
Key audit matter
description
|
The Group owns high-end residential
properties held as inventory in Macau, as disclosed in note 7, with
carrying value of $35.0m as at 30 June 2024 (2023: $34.7m).
Properties held as inventory are
carried at the lower of cost or net realisable value ("NRV"). In
order to determine the NRV, the properties are valued by an
independent, professionally qualified valuer using the 'sales
comparison' method of valuation. The value indication is derived by
comparing the property being appraised to similar properties that
have been sold recently, then applying appropriate units of
comparison and making adjustments to the sale prices of the
comparable properties based on the elements of comparison. As
disclosed in note 7, the NRV has been estimated as
$53.1m at 30 June 2024
(2023: $57.7m).
Directors are required to make a
number of significant assumptions and judgements in determining the
NRV such as comparable recent sales transactions, which are
necessary to assess the appropriate carrying value in the financial
statements. As disclosed in note 18, the adjusted NAV includes the
uplift of inventories to their market value which is utilised to
calculate NAV based fees and therefore we have identified this as a
potential fraud risk.
The key inputs into the fair value
model which are subject to significant estimates include the
weighted unit rate per square foot and comparable sales
transactions.
The valuation of inventory is
disclosed as one of the key sources of estimation uncertainty in
note 3 of the financial statements. The Audit and Risk committee
also considered this as a significant matter as discussed in the
Audit and Risk Committee Report.
|
|
How the scope of our audit responded
to
the key audit matter
|
To respond to the key audit matter,
we have performed the following audit procedures:
• Tested relevant controls in
relation to the valuation process;
• Tested the completeness and
accuracy of the year end data provided to the valuers including
reconciling the information included in the valuation report to
supporting documentation;
• With involvement of our valuation
specialists, discussed and challenged the appropriateness of the
valuation methodology and the key inputs (such as weighted unit
rate per square foot, comparable sales transactions) and
assumptions with the valuer and management with reference to
independent market data;
• Evaluated the competence,
objectivity and capabilities of the valuer;
• Compared NRV and cost to determine
the carrying value of the property; and
• Assessed whether the disclosures
in the financial statements are appropriate regarding the critical
accounting judgements and key sources of estimation
uncertainty.
|
|
Key observations
|
We note that the weighted unit rate
per square foot determined by the independent valuer is within the
range noted in our independent market research, albeit at the
higher end of the range. However, we have concluded that the
assumptions applied by management, in arriving at the NRV of
inventory are appropriate, and that the resulting carrying value of
inventory is appropriate.
|
6. Our application of
materiality
6.1. Materiality
We define materiality as the
magnitude of misstatement in the financial statements that makes it
probable that the economic decisions of a reasonably knowledgeable
person would be changed or influenced. We use materiality both in
planning the scope of our audit work and in evaluating the results
of our work.
Based on our professional judgement,
we determined materiality for the financial statements as a whole
as follows:
|
Group materiality
|
$464k
(2023: $652k)
|
|
Basis for determining
materiality
|
1% of net asset value ("NAV") (2023:
1% of NAV)
|
|
Rationale for the benchmark
applied
|
In determining the materiality, we
considered what the most important balances on which the users of
the financial statements would judge the performance of the Group.
We consider the NAV of the Group to be an appropriate benchmark as
this is a key performance indicator for shareholders.
|
6.2. Performance
materiality
We set performance materiality at a
level lower than materiality to reduce the probability that, in
aggregate, uncorrected and undetected misstatements exceed the
materiality for the financial statements as a whole. Group
performance materiality was set at 70% of Group materiality for the
2024 audit (2023: 70%). In determining performance materiality, we
considered the following factors:
• Our risk assessment, including our
assessment of the quality of the control environment including that
present at the administrator, Ocorian Administration (Guernsey)
Limited;
• Our past experience of the audit,
which has indicated a low number of corrected and uncorrected
misstatements identified in prior period;
• The continued impact of macro -
economic factors in Macau on the Group's performance in the current
year.
6.3 Error reporting
threshold
We agreed with the Audit Committee
that we would report to the Committee all audit differences in
excess of $23k
(2023: $32k), as
well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. We also report to the
Audit Committee on disclosure matters that we identified when
assessing the overall presentation of the financial
statements.
7. An overview of the scope of
our audit
7.1. Scoping
Our audit was scoped by obtaining an
understanding of the Group and its environment, including internal
control, and assessing the risks of material misstatement for the
Company and its subsidiaries. Audit work to respond to the risks of
material misstatement was performed directly by the Group audit
team and all work was performed to Group materiality.
7.2. Our consideration of the control
environment
We obtained an understanding of the
IT systems in place.
In assessing the control
environment, we also considered the control environments of the key
service providers, including the administrators, to whom the board
have delegated certain functions for the Company and its
subsidiaries. As part of our audit, we obtained an understanding of
relevant controls established at the key service providers
including obtaining the ISAE 3402 report.
We tested relevant controls over
investment properties and inventory valuation.
7.3. Our consideration of
climate-related risks
In planning our audit, we have
considered the potential impact of environmental related risks on
the Group's business and its financial statements.
The Group continues to develop its
assessment of the impacts of environmental, social and governance
("ESG") related risks as outlined above. The Group evaluated the
impact arising from climate change on the financial statements and
concluded that there is no material effect.
As a part of our audit, we have
obtained management's ESG policy and held discussions with
management to understand the process of identifying ESG related
risks, the determination of mitigating actions and the impact on
the Group's financial statements. We performed our own qualitative
risk assessment of the climate impact and concur with management
assessment. We also considered the consistency of the ESG
disclosure set up above with the financial statements and our
knowledge from our audit.
8. Other information
The other information comprises the
information included in the annual report, other than the financial
statements and our auditor's report thereon. The directors are
responsible for the other information contained within the annual
report.
Our opinion on the financial
statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
Our responsibility is to read the
other information and, in doing so, consider whether the other
information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or
otherwise appears to be materially misstated.
If we identify such material
inconsistencies or apparent material misstatements, we are required
to determine whether this gives rise to a material misstatement in
the financial statements themselves. If, based on the work we have
performed, we conclude that there is a material misstatement of
this other information, we are required to report that
fact.
We have nothing to report in this
regard.
9. Responsibilities of
directors
As explained more fully in the
directors' responsibilities statement, the directors are
responsible for the preparation of the financial statements and for
being satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial
statements, the directors are responsible for assessing the Group's
ability to continue as a going concern, disclosing as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
Group or to cease operations, or have no realistic alternative but
to do so.
10. Auditor's responsibilities for
the audit of the financial statements
Our objectives are to obtain
reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or
error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of
these financial statements.
A further description of our
responsibilities for the audit of the financial statements is
located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor's report.
11. Extent to which the audit was
considered capable of detecting irregularities, including
fraud
Irregularities, including fraud, are
instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to
detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud is detailed
below.
11.1.
Identifying and assessing potential risks related to
irregularities
In identifying and assessing risks
of material misstatement in respect of irregularities, including
fraud and non-compliance with laws and regulations, we considered
the following:
• the nature of the industry and
sector, control environment and business performance including the
design of the Group's remuneration policies, key drivers for
directors' remuneration, bonus levels and performance
targets;
• results of our enquiries of
management, the directors and the Audit Committee about their own
identification and assessment of the risks of irregularities
including those that are specific to the Group's sector;
• any matters we identified having
obtained and reviewed the Group's documentation of their policies
and procedures relating to:
o identifying, evaluating and
complying with laws and regulations and whether they were aware of
any instances of non-compliance;
o detecting and responding to the
risks of fraud and whether they have knowledge of any actual,
suspected or alleged fraud;
o the internal controls established
to mitigate risks of fraud or non-compliance with laws and
regulations;
• the matters discussed among the
audit engagement team and relevant internal specialists, including
valuation specialists regarding how and where fraud might occur in
the financial statements and any potential indicators of
fraud.
As a result of these procedures, we
considered the opportunities and incentives that may exist within
the organisation for fraud and identified the greatest potential
for fraud in the following areas:
• Key judgements in the valuation of
investment property; and
• Carrying value of
inventory
In common with all audits under ISAs
(UK), we are also required to perform specific procedures to
respond to the risk of management override.
We also obtained an understanding of
the legal and regulatory framework that the Group operates in,
focusing on provisions of those laws and regulations that had a
direct effect on the determination of material amounts and
disclosures in the financial statements. The key laws and
regulations we considered in this context included the Companies
(Guernsey) Law, 2008, the Listing Rules and relevant tax
legislation.
In addition, we considered
provisions of other laws and regulations that do not have a direct
effect on the financial statements but compliance with which may be
fundamental to the Group's ability to operate or to avoid a
material penalty.
11.2. Audit
response to risks identified
As a result of performing the above,
we identified the key judgements in the valuation of investment
property and carrying value of inventory as key audit matters
related to the potential risk of fraud. The key audit matters
section of our report explains the matters in more detail and also
describes the specific procedures we performed in response to those
key audit matters.
In addition to the above, our
procedures to respond to risks identified included the
following:
• reviewing the financial statement
disclosures and testing to supporting documentation to assess
compliance with provisions of relevant laws and regulations
described as having a direct effect on the financial
statements;
• enquiring of management and the
Audit Committee concerning actual and potential litigation and
claims;
• performing analytical procedures
to identify any unusual or unexpected relationships that may
indicate risks of material misstatement due to fraud;
• reading minutes of meetings of
those charged with governance, reviewing internal audit reports and
reviewing correspondence with the Guernsey Financial Services
Commission; and
• in addressing the risk of fraud
through management override of controls, testing the
appropriateness of journal entries and other adjustments; assessing
whether the judgements made in making accounting estimates are
indicative of a potential bias; and evaluating the business
rationale of any significant transactions that are unusual or
outside the normal course of business.
We also communicated relevant
identified laws and regulations and potential fraud risks to all
engagement team members including internal specialists, and
remained alert to any indications of fraud or non-compliance with
laws and regulations throughout the audit.
Report on other legal and regulatory
requirements
12. Corporate Governance
Statement
The Listing Rules require us to
review the directors' statement in relation to going concern,
longer-term viability and that part of the Corporate Governance
Statement relating to the Group's compliance with the provisions of
the UK Corporate Governance Code specified for our
review.
Based on the work undertaken as part
of our audit, we have concluded that each of the following elements
of the Corporate Governance Statement is materially consistent with
the financial statements and our knowledge obtained during the
audit:
• the directors' statement with
regards to the appropriateness of adopting the going concern basis
of accounting and any material uncertainties identified;
• the directors' explanation as to
its assessment of the Group's prospects, the period this assessment
covers and why the period is appropriate;
• the directors' statement on fair,
balanced and understandable;
• the board's confirmation that it
has carried out a robust assessment of the emerging and principal
risks;
• the section of the annual report
that describes the review of effectiveness of risk management and
internal control systems; and
• the section describing the work of
the audit committee.
13. Matters on which we are required
to report by exception
13.1.
Adequacy of explanations received and accounting records
Under the Companies (Guernsey) Law,
2008 we are required to report to you if, in our
opinion:
• we have not received all the
information and explanations we require for our audit;
or
• proper accounting records have not
been kept [by the parent company]; or
• the financial statements are not
in agreement with the accounting records.
We have nothing to report in respect
of these matters.
14. Other matters which we are
required to address
14.1. Auditor tenure
Following the recommendation of the
audit committee, we were appointed by the Audit Committee to audit
the financial statements for the year ending 30 June 2021 and
subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the
firm is 4 years, covering the years ending 30 June 2021 to 30 June
2024.
14.2. Consistency of the audit report
with the additional report to the audit committee
Our audit opinion is consistent with
the additional report to the audit committee we are required to
provide in accordance with ISAs (UK).
15. Use of our report
This report is made solely to the
Company's members, as a body, in accordance with Section 262 of the
Companies (Guernsey) Law, 2008. Our audit work has been undertaken
so that we might state to the Company's members those matters we
are required to state to them in an auditor's report and for no
other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company
and the company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
As required by the Financial Conduct
Authority (FCA) Disclosure Guidance and Transparency Rule (DTR)
4.1.15R - DTR 4.1.18R, these financial statements will form part of
the Electronic Format Annual Financial Report filed on the National
Storage Mechanism of the FCA in accordance with DTR 4.1.15R - DTR
4.1.18R. This auditor's report provides no assurance over whether
the Electronic Format Annual Financial Report has been prepared in
compliance with DTR 4.1.15R - DTR 4.1.18R.
David Becker (Senior Statutory
Auditor)
For and on behalf of Deloitte
LLP
Recognised Auditor
St Peter Port, Guernsey
28 September 2024
Consolidated Statement of Financial Position
As at 30 June 2024
|
|
|
2024
|
2023
|
|
|
Note
|
US$'000
|
US$'000
|
|
ASSETS
|
|
|
|
|
Non-current assets
|
|
|
|
|
Investment property
|
6
|
97,970
|
141,045
|
|
Deposits with lenders
|
21
|
320
|
1,170
|
|
Other receivables
|
|
14
|
16
|
|
|
|
98,304
|
142,231
|
|
Current assets
|
|
|
|
|
Inventories
|
7
|
35,017
|
34,775
|
|
Other receivables
|
10
|
72
|
66
|
|
Deposits with lenders
|
21
|
4,295
|
4,438
|
|
Cash and cash equivalents
|
|
243
|
1,118
|
|
|
|
39,627
|
40,397
|
|
Total assets
|
|
137,931
|
182,628
|
|
EQUITY
|
|
|
|
|
Capital and reserves attributable to
the Company's equity holders
|
|
|
|
|
Share capital
|
12
|
618
|
618
|
|
Retained earnings
|
|
30,722
|
50,342
|
|
Distributable reserves
|
|
15,791
|
15,791
|
|
Foreign currency translation
reserve
|
|
(740)
|
(1,067)
|
|
Total equity
|
|
46,391
|
65,684
|
|
LIABILITIES
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
Deferred taxation
provision
|
9
|
4,580
|
7,498
|
|
Taxation provision
|
9
|
-
|
1,158
|
|
Interest-bearing loans
|
8
|
51,816
|
81,913
|
|
|
|
56,396
|
90,569
|
|
Current liabilities
|
|
|
|
|
Taxation provision
|
9
|
316
|
-
|
|
Trade and other payables
|
11
|
4,163
|
3,181
|
|
Interest-bearing loans
|
8
|
30,665
|
23,194
|
|
|
|
35,144
|
26,375
|
|
Total liabilities
|
|
91,540
|
116,944
|
|
Total equity and
liabilities
|
|
137,931
|
182,628
|
|
Net Asset Value per share
(US$)
|
18
|
0.75
|
1.06
|
|
Adjusted Net Asset Value per share
(US$)
|
18
|
1.07
|
1.46
|
The accompanying notes are an
integral part of these Consolidated Financial
Statements.
The Consolidated Financial Statements
were approved by the Board of Directors and authorised for issue on
27 September 2024.
|
Mark Huntley
Chairman of the Board
27 September 2024
|
Alan Clifton
Chairman of the Audit and Risk
Committee
27 September 2024
|
Consolidated Statement of Comprehensive
Income
Year ended 30 June 2024
|
|
|
2024
|
2023
|
|
|
Note
|
US$'000
|
US$'000
|
|
Income
|
|
|
|
|
Rental income
|
|
1,494
|
1,122
|
|
Other income
|
|
134
|
-
|
|
|
|
1,628
|
1,122
|
|
Expenses
|
|
|
|
|
Net loss on disposal of investment
property
|
6
|
2,398
|
1,909
|
|
Net loss from fair value adjustment
on investment property
|
6
|
12,657
|
3,412
|
|
Management fee
|
20
|
1,200
|
1,200
|
|
Realisation fees
|
20
|
(7)
|
98
|
|
Non-Executive Directors'
fees
|
19
|
172
|
167
|
|
Auditors' remuneration
|
23
|
161
|
162
|
|
Property operating
expenses
|
15
|
1,169
|
1,277
|
|
Sales and marketing
expenses
|
16
|
95
|
76
|
|
General and administration
expenses
|
13
|
480
|
459
|
|
Loss on foreign currency
translation
|
|
106
|
34
|
|
|
|
(18,431)
|
(8,794)
|
|
Operating loss for the
year
|
|
(16,803)
|
(7,672)
|
|
Finance income and
expenses
|
|
|
|
|
Bank loan interest
|
8
|
(6,283)
|
(5,440)
|
|
Other financing costs
|
14
|
(291)
|
(346)
|
|
Bank interest received
|
|
38
|
8
|
|
|
|
(6,536)
|
(5,778)
|
|
Loss for the year before
tax
|
|
(23,339)
|
(13,450)
|
|
Taxation
|
9
|
3,719
|
1,443
|
|
Loss for the year after
tax
|
|
(19,620)
|
(12,007)
|
|
Other Comprehensive
Income
|
|
|
|
|
Items that may be reclassified
subsequently to profit or loss
|
|
|
|
|
Exchange difference on translating
foreign operations
|
|
327
|
115
|
|
Total comprehensive loss for the
year
|
|
(19,293)
|
(11,892)
|
|
Loss attributable to:
|
|
|
|
|
Equity holders of the
Company
|
|
(19,620)
|
(12,007)
|
|
Total comprehensive loss
attributable to:
|
|
|
|
|
Equity holders of the
Company
|
|
(19,293)
|
(11,892)
|
|
|
|
|
|
|
|
|
2024
|
2023
|
|
|
|
US$
|
US$
|
|
Basic and diluted loss per ordinary
share attributable to the equity holders of the Company during the
year
|
18
|
(0.3173)
|
(0.1942)
|
The accompanying notes are an
integral part of these Consolidated Financial
Statements.
All items in the above statement are
derived from continuing operations.
Consolidated Statement of Changes in Equity
Year ended 30 June 2024
|
|
|
Share
capital
|
Retained earnings
|
Distributable reserves
|
Foreign currency translation
reserve
|
Total
|
|
|
Note
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
|
Balance brought forward at 1 July
2023
|
12
|
618
|
50,342
|
15,791
|
(1,067)
|
65,684
|
|
Loss for the year
|
|
-
|
(19,620)
|
-
|
-
|
(19,620)
|
|
Items that may be reclassified
subsequently to profit or loss
|
|
|
|
|
|
|
|
Exchange difference on translating
foreign operations
|
|
-
|
-
|
-
|
327
|
327
|
|
Total comprehensive loss for the
year
|
|
-
|
(19,620)
|
-
|
327
|
(19,293)
|
|
Balance carried forward at 30 June
2024
|
12
|
618
|
30,722
|
15,791
|
(740)
|
46,391
|
|
|
|
Share
capital
|
Retained earnings
|
Distributable reserves
|
Foreign currency translation
reserve
|
Total
|
|
|
Note
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
|
Balance brought forward at 1 July
2022
|
12
|
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
|
12
|
618
|
50,342
|
15,791
|
(1,067)
|
65,684
|
The accompanying notes are an
integral part of these Consolidated Financial
Statements.
Consolidated Statement of Cash Flows
Year ended 30 June 2024
|
|
|
2024
|
2023
|
|
|
Note
|
US$'000
|
US$'000
|
|
Net cash used in operating
activities
|
17
|
(679)
|
(2,341)
|
|
Cash flows from investing
activities
|
|
|
|
|
Capital expenditure on investment
property
|
6
|
-
|
(27)
|
|
Movement in pledged bank
balances
|
21
|
993
|
(2,152)
|
|
Net sales proceeds from disposal of
investment property
|
6
|
28,480
|
35,384
|
|
Net cash generated from investing
activities
|
|
29,473
|
33,205
|
|
Cash flows from financing
activities
|
|
|
|
|
Proceeds from bank
borrowings
|
|
-
|
6,512
|
|
Repayment of bank
borrowings
|
|
(23,263)
|
(32,025)
|
|
Interest and bank charges
paid
|
|
(6,457)
|
(4,590)
|
|
Net cash used in financing
activities
|
|
(29,720)
|
(30,103)
|
|
Net movement in cash and cash
equivalents
|
|
(926)
|
761
|
|
Cash and cash equivalents at
beginning of year
|
|
1,118
|
355
|
|
Effect of foreign exchange rate
changes
|
|
51
|
2
|
|
Cash and cash equivalents at end of
year
|
|
243
|
1,118
|
The accompanying notes are an
integral part of these Consolidated Financial
Statements.
Notes to the Consolidated Financial
Statements
General information
Macau Property Opportunities Fund
Limited (the "Company") is a Company incorporated and registered in
Guernsey under The Companies (Guernsey) Law, 1994. This law was
replaced by the Companies (Guernsey) Law, 2008 on 1 July 2008. The
Company is an authorised entity under the Authorised Closed-Ended
Investment Schemes Rules and Guidance, 2021 and is regulated by the
GFSC. The address of the registered office is given
below.
The Consolidated Financial Statements
for the year ended 30 June 2024 comprise the financial statements
of the Company and its subsidiaries (together referred to as the
"Group"). The Group has investments in residential property in
Macau.
These Consolidated Financial
Statements have been approved for issue by the Board of Directors
on 27 September 2024.
1 Summary of significant accounting
policies
The principal accounting policies
applied in the preparation of these Consolidated Financial
Statements are set out below. These policies have been consistently
applied to all years presented, unless otherwise stated.
Statement of compliance
The financial statements have been
prepared in accordance with the International Financial Reporting
Standards ("IFRS"), which comprise standards and interpretations
approved by the International Accounting Standards Board, together
with applicable legal and regulatory requirements of Guernsey Law
and the GFSC.
Basis of preparation
The Consolidated Financial Statements
have been prepared in accordance with IFRS; applicable legal and
regulatory requirements of Guernsey Law and under the historical
cost basis, except for investment properties that have been
measured at fair value. All other assets and liabilities are
carried at amortised cost.
The preparation of financial
statements in conformity with IFRS requires the use of certain
critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group's
accounting policies. The areas involving a higher degree of
judgement or complexity, or areas where assumptions and estimates
are significant to the financial statements, are disclosed in Note
3. The Consolidated Financial Statements are presented in US
Dollars and all values are rounded to the nearest thousand
($'000), except
where otherwise indicated.
Going concern
The Group's business activities,
together with the factors likely to affect its future development,
performance and position, are set out in the Manager's Report. The
financial position of the Group, its cash flows and its liquidity
position are described in the Capital Management section of the
Manager's Report.
The financial risk management
objectives and policies of the Group and the exposure of the Group
to credit risk, market risk and liquidity risk are discussed in
Note 2 to the Consolidated Financial Statements.
In accordance with provision 30 of
the 2018 revision of the UK Corporate Governance Code, (the "UK
Code"), and as a fundamental principle of the preparation of
financial statements in accordance with IFRS, the Directors have
assessed as to whether the Company will continue in existence as a
going concern for a period of at least 12 months from signing of
the financial statements, which contemplates continuity of
operations and the realisation of assets and settlement of
liabilities occurring in the ordinary course of
business.
The financial statements have been
prepared on a going concern basis for the reasons set out below and
as the Directors, with recommendation from the Audit and Risk
Committee, have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
next twelve months after date of approval of the Annual
Report.
In reaching its conclusion, the Board
have considered the risks that could impact the Group's liquidity
over the period to 30 September 2025. This period represents the
period of at least 12 months from the date of signing of the Annual
Report.
As part of their assessment the Audit
and Risk Committee highlighted the following key
considerations:
1. Whether the Group can repay or
refinance its loan facilities to discharge its liabilities over the
period to 30 September 2025
2. Extension of life of the
Company
1. Whether the Group can
repay or refinance its loan facilities to discharge its liabilities
over the period to 30 September 2025
As at 30 June 2024, the Group has
major debt obligations to settle during the going concern period
being:
i) principal repayments
for The Waterside loan facility of
US$11.5 million,
US$16.0 million and
US$39.8 million due
for settlement in September 2024, March 2025 and September 2025,
respectively;
ii) principal repayments
for The Fountainside loan facility of
US$0.7 million due
for settlement in December 2024;
iii) principal repayments for
the Penha Heights Tai Fung Bank loan
facility of US$2.2
million due for settlement in two instalments of
US$0.65 million
each in September 2024 and December 2024 and three instalments of
US$0.3 million each
thereafter in March 2025, June 2025 and September 2025,
respectively; and
iv) principal repayments
for the Penha Heights BCM loan facility of
US$0.4 million,
US$0.4 million and
US$6.9 million due
for settlement in March 2025, June 2025 and September 2025,
respectively.
The Waterside and The
Fountainside
Given that the Macau Special
Administrative Region Government have now revoked all the property
cooling measures which had been in place for 3 years and the
current staggered Macau economic recovery, it is assumed that MPO
can achieve a rate of 2 Waterside unit disposals per month
from August 2024 to September 2025. This would generate
US$79.5 million of
revenue referenced to current valuations and pricing strategy which
would be sufficient to cover the instalments for both the Waterside and Fountainside facilities due for
repayment in the upcoming twelve months period as well as MPO's
operating expenses.
Loan repayments to Hang Seng Bank
for the Waterside facilities in September
2024 of US$11.5
million, was settled through disposal proceeds from the Waterside units. In addition, an
advance payment of US$1.7 million loan amount has also been prepaid
to Hang Seng Bank in September 2024.
Penha Heights
The loan repayments for the two
Penha Heights facilities that would become
due over the going concern period total US$9.9 million. It is anticipated that
this would be settled from sales proceeds of Waterside and Fountainside units, in the event that
Penha Heights is not
disposed of during the period.
Penha Heights loan repayment of
US$0.65 million has been settled in accordance to loan repayment
term in September 2024.
Relationship with Lenders
The Manager is responsible for
maintaining relationship with the Group's lenders, for monitoring
compliance with loan terms and covenants and reporting to the Board
on matters arising. Throughout the year ended 30 June 2024 and up
to the date of issue of the financial statements, the Group has
continued to be in compliance with loan covenants and the Manager
has maintained frequent ongoing dialogue with all lenders who have
demonstrated strong support for the Group and its measured
divestment strategy over the years.
Given the debt obligations that will
become due for settlement over the going concern period are
expected to be covered by proceeds from selling Waterside units at a conservative
modest rate and potential sales of Fountainside units. The fact that all
banking facilities of the Group have all been successfully renewed
previously, with the loan-to-value ratios of the facilities
maintained within the covenants required under the respective loan
agreements, the Board is confident that the Group would be able to
meet its debt obligations during the going concern
period.
Notwithstanding the above, given that
it remains uncertain that adequate proceeds could be generated from
sales of properties to settle payment obligations over the going
concern period, and given that any necessary refinancing of debt
obligations would still be subjected to lenders' approval, the
Directors consider that there is a material uncertainty related to
events or conditions that may cast significant doubt over the
Group's and Company's ability to continue as a going concern and
therefore it may be unable to realise its assets and discharge its
liabilities in the normal course of business.
2. Extension of life of
the Company
After the Ordinary Resolution was
passed at the Annual General Meeting ("AGM") of the Company in its
2023 AGM to extend the Fund's life until the 2024 AGM (expected to
be held by December 2024), the Directors assessed the impact of the
continuation vote on the Fund's ability to continue as a going
concern. The Directors have also considered the going concern
assumption outside the primary going concern horizon. In line with
Article 38 of the Articles of Incorporation, the Company will put
forward a resolution for its continuation at the next AGM (to be
held by December 2024). If any continuation resolution is not
passed, the Directors are required to formulate proposals to be put
to Members to reorganise, unitise, reconstruct or wind up the
Company. The Directors expect to receive continuation support from
major shareholders based upon ongoing communications and note that
50% of shareholder support is required to ensure continuation. It
is likely that returns from the sale of properties would be
significantly lower, as endorsed by the recent forced sales imposed
on developers, if the Fund was forced to sell as a result of a
failed continuation vote from shareholders and it is therefore
commercially sensible for the Fund to continue in business. Given
that the continuation vote has not taken place at the date of issue
of the financial statements, the Directors consider that there is a
material uncertainty that may cast significant doubt over the
Company's ability to continue as a going concern and therefore it
may be unable to realise its assets and discharge its liabilities
in the normal course of business.
Going Concern Conclusion
After careful consideration and based
on the reasons outlined above, including the Manager's continuing
dialogue with lenders and shareholders, whilst there are material
uncertainties related to going concern, the Board have a reasonable
expectation that the Company will continue in existence as a going
concern for 12 months from the date of signing the Annual report.
They are therefore satisfied that it is appropriate to adopt the
going concern basis in preparing the financial
statements.
New and amended standards and
interpretations applied
The following amendments to existing
standards and interpretations were effective for the year ended 30
June 2024 and therefore were applied in the current year but they
did not have a material impact on the Group:
- IFRS 17:
Insurance Contracts
- Amendments to
IFRS 17: Insurance Contracts
- Amendments to
IAS 8: Accounting Policies, Changes in Accounting Estimates and
Errors
- Amendments to
IAS 12: Income Taxes
- Amendments to
IAS 1: Presentation of Financial Statements
New and amended standard and
interpretation not applied
The following new and amended
standards and interpretations in issue are applicable to the Group
but are not yet effective and have not been adopted by the
Group:
- Amendments to
IFRS 7: Financial Instruments: Disclosures (effective 1 January
2024)
- Amendments to
IAS 1: Classification of Liabilities as Current or Non-current
(effective 1 January 2024)
- Amendments to
IAS 1: Classification of debt with covenants (effective 1 January
2024)
- Amendments to
IFRS 16: Leases (effective 1 January 2024)
- Amendments to
IAS 7: Statement of Cash Flows (effective 1 January
2024)
Consolidation
The Consolidated Financial Statements
incorporate the financial statements of the Company and all SPVs
controlled by the Company and its subsidiaries. Control is achieved
when the Group is exposed, or has rights, to variable returns from
its involvement with the investee and has the ability to affect
those returns through its power over the investee. The financial
statements of subsidiaries are included in the Consolidated
Financial Statements from the date control commences until the date
control ceases. Certain of the Company's subsidiaries have
non-coterminous year-ends. These companies are consolidated on the
basis of actual transactions occurring within the financial
year.
All intra-group transactions,
balances, income and expenses are eliminated on
consolidation.
Segment reporting
A business segment is a group of
assets and operations engaged in providing products or services
that are subject to risks and returns different from those of other
business segments. A geographical segment is engaged in providing
products or services within a particular economic environment that
are subject to risks and returns different from those segments
operating in other economic environments.
The Directors are of the opinion that
the Group is engaged in a single segment of business, being
property investment and related business. This segment includes
residential properties in Macau. Please refer to Note 5 for segment
reporting.
Foreign currency
translation
a) Presentation and
functional currency
The Consolidated Financial
Statements are shown in US Dollars ("US$") which is the Group's presentation
currency. The Group's functional currency is Hong Kong Dollars
("HKD").
b) Transactions and
balances
Foreign currency transactions are
recorded in the respective functional currencies of group entities,
Macanese Patacas and Hong Kong Dollars (the "functional
currencies"), using the exchange rates prevailing at the date of
the transaction. Foreign exchange gains and losses - resulting from
the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the
Consolidated Statement of Comprehensive Income.
Non-monetary items that are measured
in terms of historical cost in a foreign currency are translated
using the exchange rates at the date of the initial transaction.
Non-monetary items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value
is determined. The gain or loss arising on translation of
non-monetary items measured at fair value is treated in line with
the recognition of gain or loss on change in fair value of the item
(i.e. translation differences on items whose fair value gain or
loss is recognised in other comprehensive income or profit or loss
are also recognised in other comprehensive income or profit or
loss).
c) Group
companies
The results and financial position
of all the Group entities that have a functional currency different
from the presentation currency are translated into the presentation
currency as follows:
i) assets and
liabilities for each statement of financial position are translated
at the closing rate at the date of that statement of financial
position;
ii) income and expenses for
each statement of comprehensive income are translated at average
exchange rates;
iii) all resulting exchange
differences are recognised as a separate component of other
comprehensive income; and
iv) on disposal of a foreign
operation, the component of other comprehensive income relating to
that particular foreign operation is recognised in profit or
loss.
Foreign currency translation
reserve
Foreign currency differences arising
on translation of foreign operations into the Group's presentation
currency are recognised in other comprehensive income and presented
in the foreign currency translation reserve in equity.
Investment property
Property that is held for long-term
rental yields or for capital appreciation or both, and that is not
occupied by companies in the consolidated Group, is classified as
investment property. Investment property also includes property
that is being constructed or developed for future use as investment
property.
Investment property is measured
initially at its cost, including related transaction
costs.
Subsequent expenditure is capitalised
to the asset's carrying amount only when it is probable that future
economic benefits associated with the item will flow to the Group
and the cost of the item can be measured reliably. All other
repairs and maintenance costs are charged to the Consolidated
Statement of Comprehensive Income during the financial period in
which they are incurred. After initial recognition, investment
property is carried at fair value.
The Group must be able to access the
principal or the most advantageous market at the measurement date.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest.
There are no contractual obligations
to purchase, construct or develop investment property for repairs,
maintenance or enhancements.
An investment property is
derecognised upon disposal or when the investment property is
permanently withdrawn from use and no future economic benefits are
expected from the disposal. Any gain or loss arising on
derecognition of the property (calculated as the difference between
the net disposal proceeds and the carrying amount of the asset) is
included in profit or loss in the period in which the property is
derecognised.
Fair value measurements
The Group measures certain financial
instruments, and non-financial assets such as investment property,
at fair value at the end of each reporting period.
Fair value is the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date. The fair value measurement is based on the presumption that
the transaction to sell the asset or transfer the liability takes
place either:
• in the principal market for the
asset or liability; or
• in the absence of a principal
market, in the most advantageous market for the asset or
liability.
A fair value measurement of a
non-financial asset takes into account a market participant's
ability to generate economic benefits by using the asset in its
highest and best use, or by selling it to another market
participant that would use the asset in its highest and best
use.
The Group uses valuation techniques
that are appropriate in the circumstances and for which sufficient
data are available to measure fair value, maximising the use of
relevant observable inputs and minimising the use of unobservable
inputs significant to the fair value measurement as a
whole:
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Level 1
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inputs that reflect unadjusted quoted
prices in active markets for identical assets or liabilities that
the Group has the ability to access at the measurement
date;
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Level 2
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inputs other than quoted prices
included in Level 1 that are observable for the asset or liability,
either directly (that is, prices) or indirectly (that is, derived
from prices); and
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Level 3
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inputs for the asset or liability
that are not based on observable market data (that is, unobservable
inputs).
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For assets and liabilities that are
recognised in the financial statements on a recurring basis, the
Group determines whether transfers have occurred between levels in
the hierarchy by re-assessing categorisation (based on the lowest
level input that is significant to the fair value measurement as a
whole) at the end of each reporting period.
Fair value of investment
property
Fair value is based on active market
prices, adjusted, if necessary, for any difference in the nature,
location or condition of the specific investment property. If this
information is not available, the Group uses alternative valuation
methods such as recent prices on less active markets or discounted
cash flow projections. Valuations are prepared semi-annually by
Savills (Macau) Limited ("Savills"), whose valuers hold recognised
and relevant professional qualifications and have recent experience
in the location and category of the investment properties being
valued. Investment property that is being redeveloped for
continuing use as investment property continues to be measured at
fair value, if the fair value is considered to be reliably
measurable. Changes in fair values are recorded in the Consolidated
Statement of Comprehensive Income.
Inventories
Properties and land that are being
held or developed for future sale are classified as inventories. In
the opinion of the Board, inventories are held with a view to short
term sale in the ordinary course of business. They are individually
carried at the lower of cost and net realisable value ("NRV"). NRV
is the estimated selling price in the ordinary course of business
less costs to complete redevelopment and selling expenses. Cost is
the acquisition cost together with subsequent capital expenditure
incurred, including capitalised interest where relevant.
Disposals
Disposals are recognised when the
risks and rewards of ownership of an asset transfer to the
purchaser.
Borrowing costs
Borrowing costs incurred for the
purpose of acquiring, constructing or producing a qualifying asset,
such as investment property or inventory, are capitalised as part
of the cost. Borrowing costs are capitalised while the acquisition
or construction is actively underway, and cease once the asset is
substantially complete, or suspended if the development is
suspended. All other borrowing costs are expensed in the period in
which they occur. Borrowing costs consist of interest and other
costs that an entity incurs in connection with the borrowing of
funds. The interest capitalised is calculated using the Group's
weighted average cost of borrowing after adjusting for borrowing
associated with specific developments. Where borrowings are
associated with specific developments, the amount capitalised is
the gross interest incurred on those borrowings less any investment
income arising from their temporary investment.
Impairment
Financial assets
The Group holds only other
receivables with no financing component and which have maturities
of less than 12 months at amortised cost and deposits with lenders
which represent restricted cash in relation to borrowing. The
liquidity of this deposit with lenders follow the maturity of the
borrowings. As such, the Group has chosen to apply an approach
similar to the simplified approach for Expected Credit Losses (ECL)
under IFRS 9 to all its other receivables. Therefore, the Group
does not track changes in credit risk, but instead, recognises a
loss allowance based on lifetime ECLs at each reporting
date.
The Group's approach to ECLs reflects
a probability-weighted outcome, the time value of money and
reasonable and supportable information that is available without
undue cost or effort at the reporting date about past events,
current conditions and forecasts of future economic
conditions.
The Group uses the provision matrix
as a practical expedient to measuring ECLs on other receivables and
deposits with lenders, based on days past due for groupings of
receivables with similar loss patterns. Receivables are grouped
based on their nature. The provision matrix is based on historical
observed loss rates over the expected life of the receivables and
is adjusted for forward-looking estimates.
Non-financial assets
The carrying amounts of the Group's
non-financial assets, other than investment property are reviewed
at each reporting date to determine whether there is any indication
of impairment. If any such indication exists, then the asset's
recoverable amount is estimated. The recoverable amount of an asset
or cash-generating unit is the greater of its value in use and its
fair value less costs to sell.
Leases
Leases in which the Group does not
transfer substantially all the risks and benefits of ownership to a
lessee are classified as operating leases. Initial direct costs
incurred in negotiating an operating lease are added to the
carrying amount of the leased asset and recognised over the term of
the lease on the same basis as rental income. Contingent rents are
recognised as revenue in the period in which they are earned. The
Group regularly reviews and assesses the risk associated with the
leases of the underlying assets.
Financial instruments
i)
Classification
Financial assets
The Group classifies its financial
assets as subsequently measured at amortised cost or measured at
fair value through profit or loss on the basis of both:
• The entity's business model for
managing the financial assets
• The contractual cash flow
characteristics of the financial assets
Financial assets measured at
amortised cost
Deposits with lenders and other
receivables are measured at amortised cost if it is held within a
business model whose objective is to hold financial assets in order
to collect contractual cash flows and its contractual terms give
rise on specified dates to cash flows that are solely payments of
principal and interest on the principal amount
outstanding.
Financial liabilities
Financial liabilities measured at
amortised cost
This category includes all financial
liabilities, other than those measured at FVPL. The Group includes
in this category interest-bearing loans and trade and other
payables.
ii) Recognition
The Group recognises a financial
asset or a financial liability when it becomes a party to the
contractual provisions of the instrument.
Purchases or sales of financial
assets that require delivery of assets within the time frame
generally established by regulation or convention in the market
place (regular way trades) are recognised on the trade date, i.e.,
the date that the Group commits to purchase or sell the
assets.
iii) Initial measurement
Financial assets and liabilities
(other than those classified as at FVPL) are measured initially at
their fair value plus any directly attributable incremental costs
of acquisition or issue.
iv) Subsequent
measurement
After initial measurement, the
Company's deposits with lenders and other receivables are measured
at amortised cost using the effective interest method less any
allowance for impairment. There has been no impairment in either
the current or prior year. Gains and losses are recognised in
profit or loss when the deposits with lenders and other receivables
are derecognised or impaired, as well as through the amortisation
process.
Financial liabilities, other than
those classified as at FVPL, are measured at amortised cost using
the effective interest method. Gains and losses are recognised in
profit or loss when the liabilities are derecognised, as well as
through the amortisation process.
The effective interest method is a
method of calculating the amortised cost of a financial asset or a
financial liability and of allocating and recognising the interest
income or interest expense in profit or loss over the relevant
period. The effective interest rate is the rate that exactly
discounts estimated future cash payments or receipts through the
expected life of the financial asset or financial liability to the
gross carrying amount of the financial asset or to the amortised
cost of the financial liability. When calculating the effective
interest rate, the Group estimates cash flows considering all
contractual terms of the financial instruments, but does not
consider ECL. The calculation includes all fees paid or received
between parties to the contract that are an integral part of the
effective interest rate, transaction costs and all other premiums
or discounts.
Deposits with lenders
Deposits with lenders comprise cash
held at bank that is pledged for loan covenants and are recognised
as current and non-current assets.
Cash and cash equivalents
Cash and cash equivalents in the
Consolidated Statement of Financial Position comprise cash at bank
and on hand and demand deposits with an original maturity of three
months or less and other short-term, highly-liquid investments that
are readily convertible to a known amount of cash and are subject
to an insignificant risk of changes in value. For the purpose of
the Consolidated Statement of Cash Flows, cash and cash equivalents
consist of cash and cash equivalents as defined above. Deposits
with lenders are excluded and not considered cash and cash
equivalents.
Share capital
Shares are classified as equity when
there is no obligation to transfer cash or other assets. Shares
issued by the Company are recorded based upon the proceeds
received, net of incremental costs directly attributable to the
issue of new shares.
Revenue recognition
Revenue is measured based on the
consideration to which the Group expects to be entitled in a
contract with the customers, and includes rental income and income
from property trading. Revenue from sales of completed properties
and properties under development is within the scope of IFRS 15 and
revenue from rental income is within the scope of IFRS 16. There
are no significant assumptions or judgements involved in revenue
recognition.
The Group earns revenue from acting
as lessor in operating leases which do not transfer substantially
all of the risks and rewards incidental to ownership of an
investment property. No subleases are currently held.
Rental income
Rental income from operating leases
is recognised as income on a straight-line basis over the lease
term. When the Group provides incentives to its customers, the cost
of incentives is recognised over the lease term, on a straight-line
basis, as a reduction of rental income.
For investment property held
primarily to earn rental income, the Group enters as a lessor into
lease agreements that fall within scope of IFRS 16.
Sale of completed property
Revenue from sale of completed
properties is recognised when effective control of ownership of the
properties is transferred to the buyer, which is on unconditional
exchange of contracts and change of title on the property. Where
the sales contract stipulates payments that cross over reporting
period, revenue is recognised over the period of the contract by
reference to the progress towards complete satisfaction of each
performance obligation. This is determined based on the actual cost
incurred to date to estimated total cost for each contract. The
proceeds from disposal are recognised in income and net assets
disposed of are recognised in cost of sales in expenses.
Sale of property under
development
Where property is under development
and an agreement has been reached to sell such property when
construction is complete, and where the Directors determine the
pre-sale to constitute the sale of a completed property, revenue is
recognised when the significant risks and rewards of ownership of
the real estate have been transferred to the buyer, which is on the
unconditional exchange of contracts and change of title on the
property. Where the sales contract stipulates payments that cross
over reporting periods, revenue is recognised as the satisfaction
of performance obligations is completed.
Sale of subsidiary
Revenue from the sale of a subsidiary
is recognised when effective control of ownership of the subsidiary
is transferred to the buyer. The sale of the subsidiary is regarded
as a loss of control under IFRS 10 with all assets and liabilities
of the subsidiary derecognised at the date control is lost, the
fair value of the consideration received from the transaction
compared to the net assets of the subsidiary and the resulting net
income or expense of the transaction recorded in the income
statement.
Borrowings
Borrowings are recognised initially
at fair value, net of transaction costs of the loan to the extent
that it is probable that some or all of the facility will be drawn
down and are subsequently measured at amortised cost using the
effective interest method.
Borrowings are classified as current
liabilities, unless the Group has an unconditional right to defer
settlement of the liability for at least 12 months after the date
of the Consolidated Statement of Financial Position.
Offsetting
Financial assets and financial
liabilities are offset and the net amount is reported in the
statement of financial position if there is a currently enforceable
legal right to offset the recognised amounts and there is an
intention to settle on a net basis, to realise the assets and to
settle the liabilities simultaneously.
Finance income and
expenses
Interest income is recognised using
the effective interest rate method in the Consolidated Statement of
Comprehensive Income.
Finance costs comprise interest
expense on borrowings. Interest expense is recognised using the
effective interest rate method in the Consolidated Statement of
Comprehensive Income.
Distributable reserves
Distributable reserves may be legally
paid out in the form of a dividend. Payments to shareholders from
reserves can be seen as a distribution of accumulated profit. In
accordance with the Listing Prospectus and under Guernsey law, on 7
June 2006 an application was made to the Royal Court of Guernsey to
have the share premium cancelled and re-designated as a
distributable reserve.
Foreign currency translation
reserve
The foreign currency translation
reserve comprises all foreign exchange differences arising from the
translation of the financial statements of foreign
operations.
Taxes
Current income tax
Current income tax assets and
liabilities are measured at the amount expected to be recovered
from or paid to taxation authorities. The tax rates and tax laws
used to compute the amount are those that are enacted or
substantively enacted by the reporting date. Current income tax
relating to items recognised directly in equity is recognised in
equity and not in the Consolidated Statement of Comprehensive
Income. Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax
regulations are subject to interpretation and establishes
provisions where appropriate.
Deferred income tax
Deferred income tax is provided using
the liability method on all temporary differences at the reporting
date between the tax basis of assets and liabilities and their
carrying amounts for financial reporting purposes, except where the
timing of the reversal of the temporary differences can be
controlled by the Group and it is probable that the temporary
differences will not reverse in the foreseeable future.
Deferred income tax assets are
recognised only to the extent that it is probable that taxable
profit will be available against which deductible temporary
differences, carried forward tax credits or tax losses can be
utilised.
Deferred income tax assets and
liabilities are measured at the tax rates that are expected to
apply to the year when the asset is realised or the liability is
settled, based on tax rates (and tax laws) that have been enacted
or substantively enacted at the reporting date. Deferred income tax
relating to items recognised directly in equity is recognised in
equity and not in the Consolidated Statement of Comprehensive
Income.
As a result of the discussion of the
IFRS Interpretations Committee in its July 2014 meeting relating to
deferred taxation for a single asset held by a corporate wrapper,
the Group has recognised the deferred tax liability for the taxable
temporary timing difference relating to the investment property
carried at fair value.
2. Financial risk management, policies and
objectives
The Group's activities expose it to a
variety of financial risks: market risk (including foreign exchange
risk, cash flow and fair value interest rate risk), credit risk and
liquidity risk.
The Board of Directors provides
written principles for overall risk management, as well as written
policies covering specific areas, such as foreign exchange risk,
interest rate risk and liquidity risk.
Market risk
Market risk is the risk that the fair
value of future cash flows of a financial instrument will fluctuate
as a result of changes in market prices, whether caused by factors
specific to an individual financial instrument or all factors
affecting all financial instruments traded in the market including
foreign exchange risk, equity price risk and cash flow and fair
value interest rate risk as detailed below.
The Group's market risk is managed by
the Manager in accordance with policies and procedures in place.
The Group's overall market position is monitored on a quarterly
basis by the Board of Directors.
Sensitivities to market risks
included below are based on a change in one factor while holding
all other factors constant. In practice, this is unlikely to occur
and changes in some of the factors may be correlated, for example,
changes in interest rates and changes in foreign currency
rates.
a) Foreign exchange
risk
The Group operates internationally
and is exposed to foreign exchange risk arising from various
currency exposures. Foreign exchange risk arises from future
commercial transactions, recognised monetary assets and liabilities
and net investments in foreign operations. The Group's policy is
not to enter into any currency hedging transactions. The tables
below summarise the Group's exposure to foreign currency risk as at
30 June 2024 and 30 June 2023. The Group's financial assets and
liabilities are included in the table, categorised by their
currency at their carrying amount in US$'000. In the current economic
climate, management's assessment of a reasonable possible change in
foreign exchange rates would be up to a 1% increase/decrease for
Hong Kong Dollar ("HK$")/US$, due to
the HK$ being
pegged to the US$,
and up to a 10% increase/decrease for all other
currencies.
The following table presents
financial assets and liabilities denominated in foreign currencies
held by the Group as at 30 June 2024 and 30 June 2023, and can be
used to monitor foreign currency risk as at that date.
At 30 June 2024, if Sterling
weakened/strengthened by 10% against US$ with all other variables held
constant, the loss for the year would have been
US$26,000
lower/higher (2023: US$27,000 lower/higher). The HK$
is pegged to the US$ with the Hong Kong Monetary
Authority pledging to keep the exchange rate within a trading band
of 5 Hong Kong cents either side of HK$7.80 per dollar. At present the rate
is HK$7.81 per
dollar so no downward risk while the currency peg remains in place.
The foreign exchange risk is considered minimal and as such the
Company does not actively manage against this risk. If the
HK$ weakened/strengthened by 1% against the US$ with all other variables held
constant, the net assets and movement in foreign currency
translation reserve would have been US$809,000 higher/lower (2023:
US$1,009,000
higher/lower). Any movement would have no other effect on the
remaining equity components of the Group. There are no material
transactions that would have effect on the profit/loss for the
year.
The Macanese Patacas ("MOP") is
fixed to the HK$ at
a rate of MOP:HK$ of 1.03. Due to the low level of assets held in this currency,
a 10% change in rate would not have a significant effect on the
Consolidated Financial Statements.
As the HK$ is pegged to the
US$ and the MOP is
fixed to the US$ the foreign exchange risk of these currencies is considered
minimal as under the normal course of business the Group has minor
exposure to other currencies.
Movements in other currencies would
not have a significant impact on the Consolidated Financial
Statements.
|
|
US$
|
£
|
HK$
|
Other currencies
|
Total
|
|
As at 30 June 2024
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
|
|
|
|
|
|
|
|
Other receivables (excluding
prepayments)
|
-
|
-
|
-
|
18
|
18
|
|
Cash and cash equivalents
|
1
|
1
|
235
|
6
|
243
|
|
Deposits with lenders
|
-
|
-
|
4,615
|
-
|
4,615
|
|
Total financial assets
|
1
|
1
|
4,850
|
24
|
4,876
|
|
|
|
|
|
|
|
|
Trade and other payables
|
575
|
265
|
3,034
|
289
|
4,163
|
|
Interest-bearing loans
|
-
|
-
|
82,762
|
-
|
82,762
|
|
Total financial
liabilities
|
575
|
265
|
85,796
|
289
|
86,925
|
|
Net financial position
|
(574)
|
(264)
|
(80,946)
|
(265)
|
(82,049)
|
|
|
US$
|
£
|
HK$
|
Other currencies
|
Total
|
|
As at 30 June 2023
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
|
|
|
|
|
|
|
|
Other receivables (excluding
prepayments)
|
-
|
-
|
-
|
16
|
16
|
|
Cash and cash equivalents
|
1
|
1
|
1,108
|
8
|
1,118
|
|
Deposits with lenders
|
-
|
-
|
5,608
|
-
|
5,608
|
|
Total financial assets
|
1
|
1
|
6,716
|
24
|
6,742
|
|
|
|
|
|
|
|
|
Trade and other payables
|
275
|
268
|
1,976
|
662
|
3,181
|
|
Interest-bearing loans
|
-
|
-
|
105,632
|
-
|
105,632
|
|
Total financial
liabilities
|
275
|
268
|
107,608
|
662
|
108,813
|
|
Net financial position
|
(274)
|
(267)
|
(102,892)
|
(638)
|
(102,071)
|
b) Cash flow and fair
value interest rate risk
The Group's interest rate risk is
managed by the Manager, in accordance with policies and procedures
in place, and can be mitigated through the use of interest rate
swaps. The Group only has exposure to floating interest rates as at
30 June 2024. The Manager has assessed the interest rate risk as
not being significant enough to warrant management through the use
of interest rate swaps during either the current or prior years.
The Group's overall positions and exposures are monitored on a
quarterly basis by the Board of Directors.
If interest rates had been 500 bps
higher/lower and all other variables were held constant, the
Group's loss for the year would have increased/decreased by
US$3,895,000 (2023:
loss for the year increased/decreased by US$4,945,000 (based on the interest
bearing net financial liability per the table below). This is
mainly due to the Group's exposure to interest-bearing
loans.
The following table details the
Group's exposure to floating interest rates:
|
As at 30 June 2024
|
Interest bearing
|
Non-interest bearing
|
Total
|
|
|
US$'000
|
US$'000
|
US$'000
|
|
|
|
|
|
|
Other receivables (excluding
prepayments)
|
-
|
18
|
18
|
|
Cash and cash equivalents
|
243
|
-
|
243
|
|
Deposits with lenders
|
4,615
|
-
|
4,615
|
|
Total financial assets
|
4,858
|
18
|
4,876
|
|
|
|
|
|
|
Trade and other payables
|
-
|
4,163
|
4,163
|
|
Interest-bearing loans
|
82,762
|
-
|
82,762
|
|
Total financial
liabilities
|
82,762
|
4,163
|
86,925
|
|
As at 30 June 2023
|
Interest bearing
|
Non-interest bearing
|
Total
|
|
|
US$'000
|
US$'000
|
US$'000
|
|
|
|
|
|
|
Other receivables (excluding
prepayments)
|
-
|
16
|
16
|
|
Cash and cash equivalents
|
1,118
|
-
|
1,118
|
|
Deposits with lenders
|
5,608
|
-
|
5,608
|
|
Total financial assets
|
6,726
|
16
|
6,742
|
|
|
|
|
|
|
Trade and other payables
|
-
|
3,181
|
3,181
|
|
Interest-bearing loans
|
105,632
|
-
|
105,632
|
|
Total financial
liabilities
|
105,632
|
3,181
|
108,813
|
The Group has no exposure to fixed
interest rates.
Credit risk
Credit risk is the risk that a
counterparty to a financial instrument will fail to discharge an
obligation or commitment that it has entered into with the Group.
The Group is exposed to credit risks from both its leasing
activities and financing activities, including deposits with banks
and financial institutions.
The Group's main exposure to credit
risk is its cash balances with banks. This risk is mitigated
through using banks with a high credit rating. The Group's cash and
cash equivalents and deposits with lenders are all held with
investment grade banks and the majority are held with a bank with a
credit rating of A or higher.
The Group's cash and cash equivalents
have the following ratings from Fitch and Moody's
Ratings:
|
|
2024
|
2023
|
|
Credit Rating
|
US$'000
|
US$'000
|
|
|
|
|
|
AA-
|
226
|
1,102
|
|
A+
|
2
|
2
|
|
A
|
9
|
13
|
|
BBB+
|
6
|
1
|
|
|
243
|
1,118
|
The Group's deposits with lenders
with the following ratings from Fitch and Moody's
Ratings:
|
|
2024
|
2023
|
|
Credit Rating
|
US$'000
|
US$'000
|
|
|
|
|
|
AA-
|
4,295
|
5,480
|
|
BBB+
|
320
|
128
|
|
|
4,615
|
5,608
|
The Group is exposed to loss of
rental income and increase in costs, such as legal fees, if tenants
fail to meet their payment obligations under their leases. The
Group seeks to mitigate default risk by diversifying its tenant
base and requiring deposits or guarantees from banks or parent
companies, where there is a perceived credit risk or in accordance
with prevailing market practice.
All of the Group's major tenants have
met their rental requirements within the terms of arrangement and
no material receivables which are past due have been
impaired.
The maximum exposure to credit risk
at the reporting date is the carrying value of each class of
financial asset.
The Group's financial assets subject
to the ECL model within IFRS 9 are cash and cash equivalents,
deposits with lenders and other receivables. There is not
considered to be any concentration of credit risk within these
assets. The amount of ECL on cash and cash equivalents and deposit
with lenders are considered to be US$nil considering the credit quality as
indicated on the credit risk tables. Other receivables are
receivables from counterparties of minimal credit default risk and
ECL is expected to be US$nil.
None of the Group's financial assets
are past their due date as at the current or prior year
end.
Liquidity risk
The Group adopts a prudent approach
to liquidity management and maintains sufficient cash reserves and
borrowings to meet its obligations. The Group is managing property
development expenditure through cash currently held.
It is anticipated that the remaining
debt obligations that are due over the going concern period will be
settled from sales proceeds that are to be generated from the
ongoing divestments or the Group will need to arrange refinancing,
if necessary, see the Going Concern section in Note 1.
The Manager is responsible for the
relationship with the Group's lenders for monitoring compliance
with loan terms and covenants and reporting to the Board on a
regular basis all key matters arising. The Manager also maintains
good relationships with other banks and explores refinancing
options as part of its market function and contingency planning.
Throughout the year ended 30 June 2024, and up to the date of issue
of the financial statements, the Group has continued to be in
compliance with loan covenants and has maintained frequent ongoing
dialogue with all lenders who have demonstrated strong support for
the Group over the years. Their indications are that this support
will continue for the Group and in respect of the loans on the
underlying properties.
Given the fact that all banking
facilities of the Group have been successfully renewed previously,
with the loan-to-value ratios of the facilities maintained within
the covenants required under the respective loan agreements, the
Board in current and envisioned circumstances is confident that the
Group would be able to arrange refinancing for debt obligations
that exceed funding available from divestments.
Deposits amounting to
US$4,615,000 (2023:
US$5,608,000) have
been pledged to secure banking facilities, of which
US$320,000 (2023:
US$1,170,000)
relates to long-term banking facilities and are, therefore,
classified as non-current assets. Pledged bank balances represent
deposits pledged to the banks to secure the banking facilities
granted to the Group.
As at 30 June 2024, the Group has
term loan facilities with Hang Seng Bank, Banco Tai Fung and Banco
Comercial de Macau, S. A. ("BCM Bank") for its investments in
The Waterside,
The Fountainside, and
Penha Heights
respectively. The Group's liquidity position is monitored by the
Manager and is reviewed quarterly by the Board. Please refer to
Note 8 for details of the facilities.
The following tables analyse the
Group's financial assets and liabilities into relevant maturity
profiles based on the remaining period at the Consolidated
Statement of Financial Position date to the contractual maturity
date. The amounts disclosed in the table are the contractual
undiscounted cash flows (including interest payable).
|
|
On
demand
|
Less than
3 months
|
3 to 12 months
|
1 to 2
years
|
2 to 5
years
|
Over
5 years
|
Total
|
|
As at 30 June 2024
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
|
|
|
|
|
|
|
|
|
|
Other receivables (excluding
prepayments)
|
-
|
4
|
-
|
14
|
-
|
-
|
18
|
|
Cash and cash equivalents
|
243
|
-
|
-
|
-
|
-
|
-
|
243
|
|
Deposits with lenders
|
-
|
4,295
|
-
|
320
|
-
|
-
|
4,615
|
|
Total financial assets
|
243
|
4,299
|
-
|
334
|
-
|
-
|
4,876
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
-
|
4,163
|
-
|
-
|
-
|
-
|
4,163
|
|
Interest-bearing loans
|
-
|
13,443
|
21,354
|
49,114
|
4,081
|
-
|
87,992
|
|
Total financial
liabilities
|
-
|
17,606
|
21,354
|
49,114
|
4,081
|
-
|
92,155
|
|
Net financial position
|
243
|
(13,307)
|
(21,354)
|
(48,780)
|
(4,081)
|
-
|
(87,279)
|
|
As at 30 June 2023
|
On
demand
|
Less than
3 months
|
3 to 12 months
|
1 to 2
years
|
2 to 5
years
|
Over
5 years
|
Total
|
|
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
|
|
|
|
|
|
|
|
|
|
Other receivables (excluding
prepayments)
|
-
|
-
|
-
|
16
|
-
|
-
|
16
|
|
Cash and cash equivalents
|
1,118
|
-
|
-
|
-
|
-
|
-
|
1,118
|
|
Deposits with lenders
|
-
|
4,363
|
75
|
128
|
1,042
|
-
|
5,608
|
|
Total financial assets
|
1,118
|
4,363
|
75
|
144
|
1,042
|
-
|
6,742
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
-
|
3,181
|
-
|
-
|
-
|
-
|
3,181
|
|
Interest-bearing loans
|
-
|
11,083
|
18,465
|
41,465
|
44,556
|
1,305
|
116,874
|
|
Total financial
liabilities
|
-
|
14,264
|
18,465
|
41,465
|
44,556
|
1,305
|
120,055
|
|
Net financial position
|
1,118
|
(9,901)
|
(18,390)
|
(41,321)
|
(43,514)
|
(1,305)
|
(113,313)
|
The table below analyses the Group's
changes in financial liabilities arising from financing
activities.
|
|
1 July
2023
|
Cashflows
|
Foreign Exchange
Movement
|
Other
|
Profit and Loss
|
30 June
2024
|
|
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
|
|
|
|
|
|
|
|
|
Current interest-bearing
loans
|
23,463
|
(22,879)
|
87
|
30,224
|
-
|
30,895
|
|
Non-current interest-bearing
loans
|
82,168
|
(384)
|
307
|
(30,224)
|
-
|
51,867
|
|
Loan arrangement fees
|
(524)
|
(42)
|
-
|
-
|
285
|
(281)
|
|
Net interest-bearing
loans
|
105,107
|
(23,305)
|
394
|
-
|
285
|
82,481
|
|
Interest payable
|
967
|
(6,415)
|
-
|
-
|
6,289
|
841
|
|
Total
|
106,074
|
(29,720)
|
394
|
-
|
6,574
|
83,322
|
|
|
1 July
2022
|
Cashflows
|
Foreign Exchange Movement
|
Other
|
Profit and Loss
|
30 June
2023
|
|
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
|
|
|
|
|
|
|
|
|
Current interest-bearing
loans
|
25,616
|
(25,513)
|
35
|
23,325
|
-
|
23,463
|
|
Non-current interest-bearing
loans
|
105,376
|
-
|
117
|
(23,325)
|
-
|
82,168
|
|
Loan arrangement fees
|
(837)
|
(26)
|
-
|
-
|
339
|
(524)
|
|
Net interest-bearing
loans
|
130,155
|
(25,539)
|
152
|
-
|
339
|
105,107
|
|
Interest payable
|
84
|
(4,564)
|
-
|
-
|
5,447
|
967
|
|
Total
|
130,239
|
(30,103)
|
152
|
-
|
5,786
|
106,074
|
The 'Other' column includes the
effect of reclassification of non-current portion of
interest-bearing loans to current due to the passage of time. The
Group classifies interest paid as cash flows from financing
activities.
Fair value hierarchy
Financial investments measured at
fair value
IFRS 13 requires disclosure of fair
value measurements by level as discussed in Note 1.
For all financial instruments, other
than those recognised at fair value or whose fair value is
disclosed within these financial statements, carrying value of the
financial asset/liability is an approximation of their fair
value.
Capital risk management
The Group's objectives, when managing
capital, are to safeguard the Group's ability to continue as a
going concern in order to provide returns for shareholders and
benefits for other stakeholders, and to maintain an optimal capital
structure to reduce the cost of capital.
In order to maintain or adjust the
capital structure, the Group may adjust the amount of dividends
paid to shareholders, return capital to shareholders, issue new
shares or sell assets to reduce debt.
The Group's objective is to provide
shareholders with an attractive total return, derived from the
disposal of its remaining real estate assets. The timing and amount
of rental or other income cannot be predicted.
Any cash received by the Company as
part of the realisation process will be held by the Company as cash
on deposit and/or as cash equivalents prior to its distribution to
shareholders, which shall be at such intervals as the Board
considers appropriate.
During the year ended 30 June 2024,
there were no borrowings other than the Group's loan facilities in
place which are classified as interest bearing loans in the
Consolidated Statement of Financial Position. There are no
externally imposed capital requirements.
Discount management policy
The Board closely monitors the
discount to Adjusted Net Asset Value (adjusted NAV) at which the
Company's shares trade and has sought shareholders' approval of
powers to buy shares in the market to moderate the volatility of
the discount. These powers will be sought again at the forthcoming
AGM. The Board is also very mindful of the working capital
operating needs of the Company when considering buying back its
shares in the market.
During the year ended 30 June 2024,
the Company did not purchase any ordinary shares under the discount
management policy. Proceeds from divestment were allocated to debt
repayment and working capital.
Shares which are bought back by the
Company may either be cancelled or held in treasury and
subsequently re-issued. Pursuant to the Companies (Guernsey) Law,
the number of shares of any class held as treasury shares must not,
at any time, exceed 10% of the total number of issued shares of
that class at that time. The authority to buy back up to 14.99% per
annum of shares in issue is renewed at each AGM of the Company by
special resolution.
The Board remains committed to its
discount management policy subject to available capital.
3. Critical accounting estimates, assumptions and
judgements
The Directors' and Investment Adviser
(the "management") make estimates and assumptions concerning the
future. The resulting accounting estimates will, by definition,
seldom equal the actual results. Accounting estimates are monetary
amounts that are subject to measurement uncertainty. The estimates
and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within
the next financial year are outlined below:
a) Fair value of the investment
property, NRV and Adjusted NAV are based on the current market
valuation provided by Savills, an independent valuer. Savills is
required to make assumptions on establishing the current market
valuation. The most significant assumptions (as described further
in Note 6), relate to future income streams and the discount rates
applicable to these estimates. The valuation has been made on the
assumption that the owner sells the properties in the open market
without a deferred term contract, leaseback, joint venture,
management agreement or any similar arrangement, which could serve
to affect the value of the properties. The Board and management
have reviewed the valuations and are in agreement with the valuer's
judgement. Some properties have been sold at a discount in the
current year but there were particular reasons for this, such as
these either being cash sales or the existence of a relationship
with the buyer. As these discounts are only offered in limited
circumstances it is not indicative of a lower fair value. This is
an accounting estimate and assumption.
b) Inventory is stated at the lower
of cost and NRV. NRV for completed inventory property is assessed
with reference to market conditions and prices existing at the
reporting date and is determined by the Group, having taken
suitable external advice and in the light of recent market
transactions. NRV in respect of inventory property under
construction (see Note 7) is assessed with reference to market
prices at the reporting date for similar completed property, less
estimated costs to complete construction and less an estimate of
the time value of money to the date of completion. This is an
accounting estimate.
c) The property at The Waterside is classified as
Investment Property under IAS 40 and is measured at fair value. The
Board have considered that IFRS 5 - Non-current Assets Held for
Sale and Discontinued Operations does not apply as the property are
not expected to be sold within one year from the statement of
financial position date. This is a critical judgement.
d) The Board have a reasonable
expectation that the Group will continue in existence as a going
concern for 12 months from the date of signing the Annual Report
and mitigation actions in place are sufficient to make going
concern assumption appropriate (see Going concern section in Note
1). This is a critical judgement.
The Group did not make any critical
accounting judgements, other than as described above, in the year
ended 30 June 2024.
4. Subsidiaries
All SPVs are owned 100% by the
Company. There are no significant restrictions on the ability to
access or use the assets to settle the liabilities of the Group.
The following subsidiaries, active for both the 30 June 2024 and 30
June 2023 year ends, have a year end of 31 December to coincide
with the Macanese tax year and are the only subsidiaries which do
not have the same year end as the Company:
|
• MPOF Macau (Site 2)
Limited
|
• The Fountainside Company
Limited
|
|
|
|
|
• MPOF Macau (Site 5)
Limited
|
• The Waterside Company
Limited
|
|
|
|
|
• Castelo Branco Companhia
Limitada
|
|
The Consolidated Financial Statements
include the financial statements of the Company and the
subsidiaries listed below:
|
|
Ownership
|
Incorporation
|
|
Ownership
|
Incorporation
|
|
MPOF Macau (Site 2)
Limited2
|
100%
|
Macau
|
Cannonball
Limited1
|
100%
|
Guernsey
|
|
MPOF Macau (Site 5)
Limited2
|
100%
|
Macau
|
Civet Limited1
|
100%
|
Guernsey
|
|
The Waterside Company
Limited
|
100%
|
Macau
|
Gorey Hills International
Limited1
|
100%
|
British Virgin Islands
("BVI")
|
|
The Fountainside Company
Limited
|
100%
|
Macau
|
Hillsleigh Holdings
Limited1
|
100%
|
BVI
|
|
Castelo Branco Companhia
Limitada
|
100%
|
Macau
|
East Base Properties
Limited2
|
100%
|
Hong Kong
|
|
MPOF (Jose)
Limited1
|
100%
|
Guernsey
|
Eastway Properties
Limited2
|
100%
|
Hong Kong
|
|
MPOF (Sun)
Limited1
|
100%
|
Guernsey
|
|
|
|
|
MPOF (Guia)
Limited1
|
100%
|
Guernsey
|
|
|
|
|
MPOF (Antonio)
Limited1
|
100%
|
Guernsey
|
|
|
|
1 Company is a holding
company.
2 Company is an investment
holding company.
5. Segment reporting
The Chief Operating Decision Maker
(the "CODM") in relation to the Company is deemed to be the Board
itself. The factors used to identify the Group's reportable
segments are centred on asset class and differences in both
geographical area and regulatory environment. Furthermore, foreign
exchange and political risks are identified, as these also
determine where resources are allocated.
Based on the above and a review of
information provided to the Board, it has been concluded that the
Group is currently organised into one reportable segment based on
the geographical area, Macau.
This segment refers principally to
residential properties. Furthermore, there are multiple individual
properties that are held within each property type. However, the
CODM considers, on a regular basis, the operating results and
resource allocation of the aggregated position of all property
types as a whole, as part of its ongoing performance review. This
is supported by a further breakdown of individual property groups
only to help support their review and investment appraisal
objectives.
Information about major
customers
The Group does not have any customers
or rental agreements which represent more than 10% of Group's
revenues. Revenues represented by rental income were
US$1,494,000 for
the year ended 30 June 2024 (2023: US$1,122,000).
6. Investment property
|
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
At the beginning of the
year
|
141,045
|
181,520
|
|
Capital expenditure on
property
|
-
|
27
|
|
Net sales proceeds from
disposals
|
(28,480)
|
(35,384)
|
|
Loss on disposal of investment
property
|
(2,398)
|
(1,909)
|
|
Fair value adjustment
|
(12,657)
|
(3,412)
|
|
Exchange difference
|
460
|
203
|
|
Balance at end of the year
|
97,970
|
141,045
|
Valuation gains/(losses) (fair value
adjustment) from investment property are recognised in profit and
loss for the year. These are attributable to changes in unrealised
gains/losses relating to completed investment properties held at
the end of the reporting period.
The valuation process is initiated by
the Investment Adviser who appoints a suitably qualified valuer to
conduct the valuation of the investment property. The results are
overseen by the Investment Adviser. Once satisfied with the
valuations based on their expectations, the Investment Adviser
reports the results to the Board. The Board reviews the latest
valuations based on its knowledge of the property market and
compares these to previous valuations. The Group's investment
properties were revalued at 30 June 2024 by an independent,
professionally-qualified valuer, Savills. The valuation has been
carried out in accordance with the current Royal Institution of
Chartered Surveyors (RICS) Appraisal and Valuation Standards to
calculate the market value of the investment properties in their
existing state and physical condition, with the assumptions
that:
• The owner sells the property in
the open market without any arrangement, which could serve to
affect the value of the property.
• The property is held for
investment purposes.
• The property is free from
encumbrances, restrictions and outgoings of any onerous nature
which could affect its value.
The fair value of investment property
is determined by Savills, using recognised valuation techniques.
The principal technique deployed is the income capitalisation
method. The determination of the fair value of investment property
requires the use of estimates such as future cash flows from assets
(such as lettings, tenants' profiles, future revenue streams,
capital values of fixtures and fittings, any environmental matters
and the overall repair and condition of the property) and discount
rates applicable to those assets. These estimates are based on the
local market conditions existing at the reporting date.
No capital expenditure on property
was incurred during the year.
During the year ended 30 June 2024,
11 units were sold at The Waterside with
net losses on disposal of investment properties of
US$2,398,000
recognised.
During the year ended 30 June 2023,
13 units were sold at The Waterside with
net losses on disposal of investment properties of
US$1,909,000
recognised.
The market value as at 30 June 2024
as determined by the independent, professionally-qualified valuer,
Savills, was US$97,970,000 (2023: US$141,045,000).
Rental income arising from
The Waterside of US$1,485,000 (2023:
US$1,114,000) was
received during the year. Direct operating expenses of
US$611,000 (2023:
US$772,000) arising
from rented units were incurred during the year. Direct operating
expenses during the year arising from vacant units totalled
US$156,000 (2023:
US$279,000).
The following tables show the most
appropriate presentation of the inputs used in valuing the
investment property which is classified as Level 3 in the fair
value hierarchy:
|
|
Property information
|
Carrying amount/
fair value as at
30 Jun 2024
US$'000
|
Valuation technique
|
Input
|
Unobservable and observable inputs
used in determination of fair values
|
Other key information
|
|
|
|
|
|
|
|
|
|
Name
|
The Waterside
|
97,970
|
Term and Reversion
Analysis
|
Term rent (inclusive of management
fee and furniture)
|
HK$18.1 psf
|
Age of building
|
|
|
|
|
|
|
|
|
|
Type
|
Residential/Completed
apartments
|
|
|
Term yield (exclusive of management
fee and furniture)
|
1.4% -2.2%
|
Remaining useful life of
building
|
|
|
|
|
|
|
|
|
|
Location
|
One Central Tower 6 Macau
|
|
|
Reversionary rent (exclusive of
management fee and furniture)
|
HK$11.99 psf
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversionary yield
|
1.55%
|
|
|
|
|
|
|
|
|
|
|
|
Property information
|
Carrying amount/fair value as at
30 Jun 2023
US$'000
|
Valuation technique
|
Input
|
Unobservable and observable inputs
used in determination of fair values
|
Other key information
|
|
|
|
|
|
|
|
|
|
Name
|
The Waterside
|
141,045
|
Term and
Reversion
Analysis
|
Term rent
(inclusive of management
fee
and furniture)
|
HK$17.0 psf
|
Age of building
|
|
|
|
|
|
|
|
|
|
Type
|
Residential/Completed
apartments
|
|
|
Term yield
(exclusive of management
fee
and furniture)
|
1.55% -2.2%
|
Remaining useful
life of building
|
|
|
|
|
|
|
|
|
|
Location
|
One Central Tower 6 Macau
|
|
|
Reversionary
rent (exclusive of
management fee
and furniture)
|
HK$13.04 psf
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversionary yield
|
1.55%
|
|
There have not been any transfers in
the fair value hierarchy during the current and prior
years.
The fair value of The Waterside is determined using the income approach,
more specifically a term and reversion analysis, where a property's
fair value is estimated based on the rent receivable and normalised
net operating income generated by the property, which is divided by
the capitalisation (discount) rate. The difference between gross
and net rental income includes the same expense categories as those
for the discounted cash flow method with the exception that certain
expenses are not measured over time, but included on the basis of a
time weighted average, such as the average lease up costs. Under
the income capitalisation method, over-and under-rent situations
are separately capitalised (discounted).
If the estimated reversionary rent
increased/decreased by 5% (and all other assumptions remained the
same), the fair value of The Waterside
would increase or decrease by US$4.4 million (2023: increase or
decrease by US$6.9
million).
If the term or revisionary yield
increased/decreased by 5% (and all other assumptions remained the
same), the fair value of The
Waterside would decrease by US$4.6 million or increase by
US$5.3 million
(2023: decrease by US$6.5 million or increase by US$7.3 million).
An increase/decrease by 5% in either
the estimated reversionary rent or the term or revisionary yield is
considered in the reasonably possible range by the
Manager.
The Waterside is currently valued at its highest and best use. There is no
extra evidence available to suggest that it has an alternative use
that would provide a greater fair value measurement.
There have been no transfers between
levels during the period or a change in valuation technique since
the last period.
7. Inventories
|
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
Cost
|
|
|
|
Balance brought forward
|
34,775
|
34,635
|
|
Additions
|
113
|
100
|
|
Exchange difference
|
129
|
40
|
|
Balance carried forward
|
35,017
|
34,775
|
Additions include capital
expenditure.
Under IFRS, inventories are valued at
the lower of cost and NRV. The carrying amounts for inventories as
at 30 June 2024 amounts to US$35,017,000 (2023:
US$34,775,000). The
market value as at 30 June 2024 as determined by the independent,
professionally-qualified valuer, Savills, was US$54,747,000 (2023:
US$59,503,000). The
NRV as at 30 June 2024 was US$53,104,000 (2023:
US$57,718,000).
If the estimated unit rate
increased/decreased by 5% (and all other assumptions remained the
same), the fair value of the properties would increase or decrease
by US$2.6 million
(2023: increase by US$2.9 million or decrease by US$2.8 million).
8. Interest-bearing loans
|
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
Bank loans - Secured
|
|
|
|
- Current portion
|
30,665
|
23,194
|
|
- Non-current portion
|
51,816
|
81,913
|
|
|
82,481
|
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 30 June 2024, the outstanding
loan balance was HK$526 million (US$67.4 million) (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 is 60%, which is assessed on an aggregate
basis to include The Fountainside facility.
As at 30 June 2024, the combined loan-to-value ratio was 57.2%
(2023: 54.1%). 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$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. Subsequent to the year end, the Group has settled
the September 2024 instalments, and further accelerated an early
repayment of HK$13.2 million (US$1.7 million) for March 2025
instalment.
The Group has a loan facility with
Hang Seng Bank for The
Fountainside:
The facility consists of a term loan
("Tranche A") and a revolving facility ("Tranche B"). As at 30 June
2024, outstanding loan balance was HK$5.2 million (US$0.7 million) (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 30 June
2024, the loan-to-value ratio was 4.12%. 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.
Properties pledged under loan
facilities for The
Waterside and The
Fountainside cross-collateralised both
facilities.
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
(US$8.9 million).
Interest was Prime Rate minus 2.25% per annum, with applicable
interest rate of Prime minus 1.75% during the period from September
2023 to December 2024. The principal is to be repaid in 28
quarterly instalments of HK$2.5 million (US$318,975) each, commencing in
September 2022, with September and December 2023 instalments being
deferred to September and December 2024 respectively. As at 30 June
2024, the facility had an outstanding balance of
HK$55.0 million
(US$7.0 million)
(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 30 June 2024, the loan-to-value ratio was
40.15%% (2023: 40.27%). There is no loan-to-value covenant for this
loan.
Subsequent to the year end, the Group
has settled the September 2024 instalments of HK$5 million (US$0.65
million).
BCM Bank
During the year, 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 30 June 2024, the facility had an outstanding
balance of HK$60.0
million (US$7.7
million) (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 30
June 2024, the loan-to-value ratio for this facility was 36.81%
(2023: 35.39%).
Bank Loan Interest
Bank loan interest incurred during
the year was US$6,283,000 (2023: US$5,440,000), including
US$nil (2023:
US$nil) capitalised
during the year (see Note 7).
Amortised loan arrangement fees for
the year are disclosed in Note 14.
Fair Value
Interest-bearing loans are carried at
amortised cost. The fair value of fixed rate financial assets and
liabilities carried at amortised cost are estimated by comparing
market interest rates when they were first recognised with current
market rates for similar financial instruments.
The estimated fair value of fixed
interest bearing loans is based on discounted cash flows using
prevailing market interest rates for debts with similar credit risk
and maturity. As at 30 June 2024, the fair value of the
interest-bearing loans was US$204,000 lower than the carrying value
of the financial liabilities (2023: the fair value of the
interest-bearing loans was 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 the last
period.
9. Taxation
The Company is exempt from taxation
in Guernsey under the provisions of The Income Tax (Exempt Bodies)
(Guernsey) Ordinances, 1989 to 1992, and is charged an annual
exemption fee of £1,600 (US$2,032) (2023: £1,200
(US$1,492)).
The Group would only be exposed to
Hong Kong profits tax if it is:
(i) not exempted under
the Revenue (Profits Tax Exemption for Offshore Funds) Ordinance
2006 (the "Ordinance"); and
(ii) treated as carrying on a
trade or business in Hong Kong either on its own account or through
any person as an agent.
No accrual has been made for Hong
Kong profits tax, as the Board believes that no such tax exposure
exists at the end of the reporting year (2023:
US$nil).
The Group is not subject to any
income, withholding or capital gains taxes in the BVI. No capital
or stamp duties are levied in the BVI on the issue, transfer or
redemption of shares. As a result, no provision for BVI taxes has
been made in the Consolidated Financial Statements.
The Macanese SPVs are liable to Macau
Property Tax in respect of their ownership of Macau properties.
Taxation will be charged at 8% (2023: 8%) of any rent received for
rental properties or 6% (2023: 6%) of the official ratable value
for self-use properties. Newly built residential buildings or
commercial buildings were exempted from Property Tax for four years
and six years, respectively (such time running from the month after
the occupancy permit is issued) for properties located in Macau
peninsula and outlying islands. Macau Complementary Taxes ("MCT")
are generally levied on income and profits arising in or derived
from commercial and/or industrial activities carried on in Macau.
There is no distinction made between a "revenue profit" and
"capital profit" under the MCT regulations. Accordingly, income
booked by a Macau corporate taxpayer, including gains on sale of
investment/immovable property, will be subject to MCT in accordance
with MCT regulations. Under prevailing practice, gains on the
disposal of shares in a Macau company (such as an SPV of the
Company) by a non-Macau entity should generally not attract
MCT.
The Board closely monitors and
assesses the level of provisions for Macanese tax taking into
consideration factors such as the Group's structure.
As at the year-end, the following
amounts are the outstanding tax provisions.
|
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
Deferred taxation
|
4,580
|
7,498
|
|
Provision for Macanese
taxations
|
-
|
1,158
|
|
|
4,580
|
8,656
|
|
Current liabilities
|
|
|
|
Provisions for Macanese
taxations
|
316
|
-
|
Deferred taxation
The Group has recognised a deferred
tax liability for the taxable temporary difference relating to the
investment property carried at fair value and has been calculated
at a rate of 12% as relates to Macau taxation as
applicable.
Provisions for Macanese
taxations
The Group has made provisions for
property tax and complementary tax arising from its Macau business
operations where applicable.
Major components of
taxation
|
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
Provision to property tax (note
15)
|
(208)
|
(262)
|
|
|
|
|
|
Movement in deferred taxation
provision
|
2,941
|
2,219
|
|
Provision for MCT
|
778
|
(776)
|
|
|
3,719
|
1,443
|
The differences between the taxation
charge for the year and the movement in taxation provisions are due
to the disposal of investment property during the year.
10.
Other receivables
|
Current assets
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
Prepayments
|
68
|
66
|
|
Other receivables
|
4
|
-
|
|
|
72
|
66
|
11.
Trade and other payables
|
Current liabilities
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
Accruals
|
809
|
626
|
|
Other payables
|
3,354
|
2,555
|
|
|
4,163
|
3,181
|
Other payables principally comprise
outstanding amounts for operating expenses.
12.
Share capital
|
Ordinary shares
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
Authorised:
|
|
|
|
300 million ordinary shares of
US$0.01 each
|
3,000
|
3,000
|
|
Issued and fully paid:
|
|
|
|
61.8 million (2023: 61.8 million)
ordinary shares of US$0.01 each
|
618
|
618
|
The Company has one class of ordinary
shares which carries no rights to fixed income.
The Board has publicly stated its
commitment, in principle, to undertake share buybacks at attractive
levels of discount of the share price to Adjusted NAV. In order to
continue this strategy, the Board intends to renew this authority
at the 2024 AGM.
No redemption of shares was made
during the current or prior year.
There are no restrictions on the
distribution of dividends and repayment of capital.
13.
General and administration expenses
|
General and administration
expenses
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
Legal and professional
|
54
|
50
|
|
Holding Company
administration
|
125
|
111
|
|
Guernsey SPV
administration
|
63
|
56
|
|
BVI, Hong Kong, & Macanese SPV
administration
|
46
|
46
|
|
Insurance costs
|
14
|
14
|
|
Listing fees
|
21
|
19
|
|
Printing & postage
|
25
|
28
|
|
Other operating expenses
|
132
|
135
|
|
|
480
|
459
|
14.
Other financing costs
|
Financing costs
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
Bank charges
|
6
|
7
|
|
Loan arrangement fees
|
285
|
339
|
|
|
291
|
346
|
As at 30 June 2024, unamortised loan
arrangement fees were US$281,000 (2023: US$524,000). These have been netted off
against the interest bearing loans and also split between current
and non-current.
15.
Property operating expenses
|
Property operating
expenses
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
Property management fees
|
408
|
502
|
|
Leasing and property management
service fee (Note 20)
|
380
|
351
|
|
Property taxes
|
208
|
262
|
|
Utilities
|
8
|
5
|
|
Other property expenses
|
165
|
157
|
|
|
1,169
|
1,277
|
16.
Sales and marketing expenses
|
Sales and marketing
expenses
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
Agent commission
|
95
|
76
|
17.
Cash flows from operating activities
|
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
Cash flows from operating
activities
|
|
|
|
Loss for the year before
tax
|
(23,339)
|
(13,450)
|
|
Adjustments for:
|
|
|
|
Loss on disposal of investment
property
|
2,398
|
1,909
|
|
Net loss from fair value adjustment
on investment property
|
12,657
|
3,412
|
|
Net finance costs
|
6,574
|
5,786
|
|
Operating cash flows before movements
in working capital
|
(1,710)
|
(2,343)
|
|
Effects of foreign exchange rate
changes
|
106
|
34
|
|
Movement in other
receivables
|
(4)
|
(13)
|
|
Movement in trade and other
payables
|
1,042
|
243
|
|
Movement in inventories
|
(113)
|
(100)
|
|
Net change in working
capital
|
925
|
130
|
|
Taxation paid
|
-
|
(162)
|
|
Net cash used in operating
activities
|
(679)
|
(2,341)
|
Cash and cash equivalents (which are
presented as a single class of assets on the face of the
Consolidated Statement of Financial Position) comprise cash at bank
and other short-term, highly-liquid investments with a maturity of
three months or less. For both year ends, there are no cash
equivalents held by the Group.
18.
Basic and diluted loss per ordinary share and net asset value per
share
The basic and diluted loss per
equivalent ordinary share is based on the loss attributable to
equity holders for the year of US$19,620,000 (2023: loss of
US$12,007,000) and
on the 61,835,733 (2023: 61,835,733) weighted average number of
ordinary shares in issue during the year.
|
|
30 June 2024
|
30 June 2023
|
|
|
Loss Attributable
|
Weighted Average
No. of Shares
|
Loss
Per Share
|
Loss Attributable
|
Weighted Average
No. of Shares
|
Loss
Per Share
|
|
|
US$'000
|
'000s
|
US$
|
US$'000
|
'000s
|
US$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
(19,620)
|
61,836
|
(0.3173)
|
(12,007)
|
61,836
|
(0.1942)
|
|
Net asset value
reconciliation
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
Net assets attributable to ordinary
shareholders
|
46,391
|
65,684
|
|
Uplift of inventories held at cost to
market value
|
19,730
|
24,728
|
|
Adjusted NAV
|
66,121
|
90,412
|
|
|
|
|
|
Number of ordinary shares outstanding
('000)
|
61,836
|
61,836
|
|
|
|
|
|
NAV per share (IFRS) (US$)
|
0.75
|
1.06
|
|
Adjusted NAV per share
(US$)
|
1.07
|
1.46
|
|
Adjusted NAV per share
(£)*
|
0.85
|
1.16
|
The NAV per share is arrived at by
dividing the net assets as at the date of the Consolidated
Statement of Financial Position, by the number of ordinary shares
in issue at that date.
Under IFRS, inventories are carried
at the lower of cost and NRV (see Note 3 and Note 7). The NRV is
determined by Savills and is subject to significant estimation
uncertainty. The Adjusted NAV includes the uplift of inventories to
their market values before any tax consequences or
adjustments.
The Adjusted NAV per share is arrived
at by dividing the Adjusted NAV as at the date of the Consolidated
Statement of Financial Position, by the number of ordinary shares
in issue at that date.
There are no potentially dilutive
shares in issue.
* US$:GBP rate as at 30 June 2024 is 1.265
(2023: 1.261).
19.
Related party transactions
Directors of the Company are all
non-executive and by way of remuneration, receive only an annual
fee which is denominated in Sterling.
|
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
Directors' fees
|
172
|
167
|
The Directors are considered to be
the key management personnel (as defined under IAS 24) of the
Company. Directors' fees outstanding as at 30 June 2024 were
US$43,000 (2023:
US$43,000).
20.
Material contracts
Management fee
Under the terms of an appointment
made by the Board of Directors of the Company on 23 May 2006,
Sniper Capital Limited was appointed as Manager to the Group. The
original Management fee was calculated at 2.0% of the net asset
value, as adjusted to reflect the Property Investment Valuation
Basis, payable quarterly in advance. The Property Investment
Valuation Basis is the basis on which the properties will be valued
by an independent valuer being an open market basis in accordance
with RICS property valuation practice and guidelines. It was
reduced to 1.0% of the net asset value, as adjusted to reflect the
Property Investment Valuation Basis, from the start of 2020 and
further reduced to a quarterly fixed fee of US$300,000 for the calendar year 2021
onwards. At the option of the Board, from 1 January 2025 the
management fee may be reduced to US$80,000 per month with one month's
notice given to the Manager. A management fee of
US$1,200,000 will
be payable for 2024. Management fees for the year totalled
US$1,200,000 (2023:
US$1,200,000) with
US$500,000
outstanding as at 30 June 2024 (2023: US$200,000).
Realisation fee
A realisation fee was payable on
deals originated and secured by the Manager in 2020 which was
linked to the sales price achieved. The realisation fee is
currently active until 31 December 2025. The realisation fee is
payable upon the sale of individual properties and becomes payable
10 business days after completion. Where the sale price of the
asset was 90% or more of the value of the relevant asset as at 30
September 2019 (the "Carrying Value") a fee of 2.5% of net proceeds
(net of debt, costs and taxes) ("Net Proceeds") was payable; where
the sale price of an asset was more than 80% but less than 90% of
the Carrying Value of the relevant asset, a realisation fee of 1.5%
of Net Proceeds was payable; and where the sale price of an asset
is less than 80% of the Carrying Value, no realisation fee was
payable. In no circumstances will the aggregate of the 2024
management fee and realisation fee exceed US$1,439,816. In the event the Company
is extended into 2025, where the sale price of the listed asset is
90% or more of the value of the relevant asset as at 31 December
2024 (the "Amended Carrying Value") a fee of 2.5% of Net Proceeds
is payable subject to net realisation proceeds for the 2024
calendar year exceeding US$100,000,000. Where the sale price is
less than 90% of the Amended Carrying Value no realisation fee will
be payable. The aggregate amount of the Management fees and
Realisation fees for each calendar year from 2024 onwards shall not
exceed the amount which is equal to 4.99% of the lower of the
Group's market capitalisation and net asset value calculated on an
annual basis. The fee cap for 2025 onwards will be reset on 1
January of the relevant calendar year based on the market
capitalisation or net asset value (as applicable) at close of
business on the last business day of the previous calendar year.
Any realisation fee achieved on strata sales of units at
The Waterside will be subject to the
retention of 50% until all units have been sold. Realisation fees
for the year totalled US$nil with a reverse
of prior year overprovision of US$7,000
(2023: US$98,000)
with US$91,000
outstanding as at 30 June 2024 (2023: US$98,000), of which
US$46,000 (2023:
US$49,000) was
deferred until sale of all units at The Waterside.
The Manager's appointment is
terminable by the Manager or the Company on not less than 6 months'
notice which will be reduced to 3 months' notice from 1 January
2025. The Company may terminate the Management Agreement with
immediate effect, if either or both of the Principals are removed
from their position of full-time employment with the Manager or
ceases to be available for any reason beyond the Manager's
reasonable control and the Manager fails, within three months (or
six months in the case of one only) of such event, to cause to be
made available the services of a competent replacement(s) of
equivalent skill and experience. The Management Agreement may also
be terminated with immediate effect by either the Manager or the
Company if the other party has gone into liquidation,
administration or receivership or has committed a material breach
of the Management Agreement.
Leasing and Tenancy Management and
Property Management Services Agreement
The Group and Bela Vista entered into
a Leasing and Tenancy Management and Property Management Services
Agreement, under which Bela Vista provides property services to the
Group in respect of asset management, tenant management and leasing
at The Waterside. Bela
Vista is paid a leasing and tenancy management fee based on a
percentage of the monthly rental receivable by The Waterside and fixed fees for
property management services and the staff costs and overhead
incurred.
During the year, leasing and tenancy
management and property management services fees of
US$380,000
(HK$2,969,000)
(2023: US$351,000
(HK$2,752,000))
were paid. As at 30 June 2024, US$Nil (2023: US$30,000) was outstanding.
21. Deposits with lenders
Pledged bank balances represent
deposits pledged to the banks to secure the banking facilities
granted to the Group. Deposits amounting to US$0.3 million (2023:
US$1.2 million)
have been pledged to secure long-term banking facilities and are,
therefore, classified as non-current assets. There are no other
significant terms and conditions associated with these pledged bank
balances.
|
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
Non-current
|
320
|
1,170
|
|
Current
|
4,295
|
4,438
|
|
Pledged for loan covenants
|
4,615
|
5,608
|
22.
Commitments and contingencies
As at 30 June 2024, the Group had
agreed consultancy contracts with an architectural firm, an
engineering firm, an electrical engineering firm and a quantity
surveying consultancy firm and are consequently committed to future
capital expenditure in respect of inventories of
US$107,000 (2023:
US$132,000).
23.
Auditors' remuneration
All fees payable to the external
auditor relate to audit services.
Auditors' remuneration was broken
down as follows:
|
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
Audit fees
|
161
|
162
|
|
|
161
|
162
|
24.
Operating leases - Group as lessor
The Group has entered into leases on
its property portfolio.
Future minimum rentals receivable
under non-cancellable operating leases as at 30 June 2024 are as
follows:
|
|
2024
|
2023
|
|
|
US$'000
|
US$'000
|
|
|
|
|
|
Residential
|
|
|
|
Within 1 year
|
658
|
733
|
|
After 1 year, but not more than 5
years
|
-
|
-
|
|
Total future rental income
|
658
|
733
|
The majority of leases involve
tenancy agreements with a term of 12 months. The Group has assessed
the risks as minimal as the leases held are all operating leases
relating to the rental of apartments in The
Waterside to which the Group acts as lessor.
As at 30 June 2024, lease incentives
on which the Group was lessor amounted to US$71,000 (2023: US$51,000) with rent free liabilities of
US$2,000 (2023:
US$36,000).
25.
Subsequent events
During the year, the Group entered
into sales and purchase agreements to dispose of units at
The Waterside,3 of which
have been completed after year end with proceeds of US$9.4 million
received.
Subsequent to the year end, a further
3 units at The Waterside
have been sold with total sales proceeds of US$6.8 million received
and part of the proceeds applied to cover loan balances due in
September 2024.
As disclosed in note 8 above,
September 2024 loan instalments of US$11.5 million in relation to
The Waterside and US$0.65
million in relation to Penha
Heights have been settled in full. In addition, The Waterside loan facilities with
Hang Seng Bank of US$1.7 million have been repaid early,
accelerating part of its March 2025 instalment.
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 Communications
Committee
Mark Huntley (Chairman)
Alan Clifton
Manager
Sniper Capital Limited
Vistra Corporate Services
Centre
Wickhams Cay II
Road Town, Tortola
VG1110
British Virgin Islands
Investment Adviser
Sniper Capital (Macau)
Limited
Largo da Ponte,
Nos. 51 e 57, Taipa
Macau
Solicitors to the Group as to English
Law
Norton Rose Fulbright LLP
3 More London Riverside
London SE1 2AQ
Advocates to the Group as to Guernsey
Law
Carey Olsen
Carey House
Les Banques
St Peter Port
Guernsey GY1 4BZ
Corporate Broker
Panmure Liberum Limited
Ropemaker Place, Level 12
25 Ropemaker Street
London EC2Y 9LY
Independent Auditors
Deloitte LLP
Regency Court
Glategny Esplanade
St Peter Port
Guernsey GY1 3HW
Property Valuers
Savills (Macau) Limited
Suite 1309-10
13/F Macau Landmark
555 Avenida da Amizade
Macau
Administrator & Company
Secretary
Ocorian Administration
(Guernsey) Limited
PO Box 286
Floor 2, Trafalgar Court
Les Banques
St Peter Port, Guernsey
Channel Islands GY1 4LY
Macau and Hong Kong
Administrator
Adept Capital Partners Services
Limited
Unit B1, 25/F, MG Tower
133 Hoi Bun Road
Kwun Tong, Kowloon,
Hong Kong
Registered Office
PO Box 286
Floor 2, Trafalgar Court
Les Banques
St Peter Port, Guernsey
Channel Islands GY1 4LY
