24th Mar 2010 07:00
24 March 2010
Speymill Macau Property Company plc
("Speymill Macau" or the "Company")
Annual Results for the Year Ended 31 December 2009
Speymill Macau Property Company plc (MCAU.L), the Macau focused property investment company listed on AIM, announces preliminary results for the year ended 31 December 2009.
Highlights of the year
|
Balance sheet |
31 Dec 2009 |
31 Dec 2008 |
|
Net assets (US$'000) |
142,704 |
127,448 |
|
Net assets per share (US$) |
1.22 |
1.09 |
|
Headline* net assets (US$'000) |
143,828 |
127,448 |
|
Headline* net assets per share (US$) |
1.23 |
1.09 |
|
Total assets (US$'000) |
328,057 |
328,498 |
|
Property assets (US$'000) |
282,104 |
288,455 |
*Excluding provision for deferred income tax, goodwill and accrual of Manager's performance fees.
|
Income statement |
31 Dec 2009 |
31 Dec 2008 |
|
Gross rental income (US$'000) |
8,641 |
2,550 |
|
Valuation gains/(losses) (US$'000) |
22,219 |
(43,348) |
|
Profit/(loss) after tax (US$'000) |
15,251 |
(46,327) |
|
Basic earnings/(losses) per share (US cents per share) |
13.05 |
(37.45) |
|
Diluted earnings/(losses) per share (US cents per share) |
13.05 |
(37.45) |
Business highlights
·; 8.7% increase in property valuation from a year earlier, on a like-for-like basis
·; NAV of US$1.22 per share as of 31 December 2009, up 11.9% from the previous year
·; Profit after tax of US$15.3m; earnings per share of US$0.13 per share, compared to a loss of US$46.5m (US$0.375 per share) for the previous year;
·; Overall LTV of 49%, excluding cash. AIA Tower, the only property with a covenant on its debt, reporting an LTV of 50%, well within the 70% covenant
·; Increased rents at AIA Tower in 2009 despite slight reduction in occupancy rate
·; Implied leverage of 61%, including the Riviera development and its associated payable but excluding cash
·; Option to obtain a 6-month payment extension secured on the Riviera payable
·; Nam Van Peninsula now fully divested, with net proceeds, after all costs, of US$8.2m
For more information, please visit www.speymillmacau.com or contact:
|
Speymill Property Group Limited |
Speymill Property Group (Far East) Limited |
|
(Manager) |
(Investment Adviser) |
|
Nigel Caine, CFO Funds |
Floris van Dijkum |
|
Nick Harris, Manager |
+852 2514 6104 |
|
+44 1624 640 860 |
|
|
|
|
|
Smith & Williamson Corporate Finance Limited |
Fairfax I.S. PLC |
|
(Nominated Adviser) |
(Brokers) |
|
Azhic Basirov |
James King |
|
Siobhan Sergeant |
Andrew Cox |
|
+44 20 7131 4000 |
+44 20 7598 5368 |
|
|
|
|
Tavistock Communications Limited |
|
|
(Media & Investor Relations) |
|
|
Jeremy Carey |
|
|
Simon Hudson |
|
|
Gemma Bradley |
|
|
+44 20 7920 3150 |
|
Notes to Editors:
Speymill Macau Property Company plc ("Speymill Macau" or the "Company")
·; Speymill Macau was incorporated and registered in the Isle of Man on 31 October 2006 and is a closed-end investment company registered in the Isle of Man and traded on AIM, a market of the London Stock Exchange.
·; The Company was established to invest primarily in the Macau property market. This includes pursuing selective commercial property investments to capture expected ancillary Macau service sector growth. The Company was admitted to AIM on 17 November 2006 raising US$ 80 million in a placing on admission. A second fundraising of US$ 70 million was completed in May 2007. The Company's objective is to provide shareholders with an attractive overall return to be achieved primarily through long-term capital growth.
·; Macau is one of only two Special Economic Regions, a semi-autonomous administrative area, in China, and has enjoyed explosive economic growth, in part due to its establishment as an important gambling centre which has led to high historical and forecast GDP growth, driven by rising incomes and low unemployment levels. Coupled with the limited availability of land, developers are now struggling to meet a stronger than anticipated demand for higher quality housing. The Company intends to exploit these favourable market dynamics with the aim of generating attractive overall returns for shareholders.
·; Speymill Property Group Limited ("SPG") is the Manager of the Company and the Investment Adviser is Speymill Property Group (Far East) Limited, a wholly owned subsidiary of SPG.
Chairman's statement
Worldwide Opportunities Fund (Cayman) Ltd ("Worldwide"), a substantial shareholder in Speymill Macau Property Company plc ("the Company"), requisitioned an Extraordinary General Meeting of the Company, which was duly held on 21 July 2009. At that meeting, Worldwide received the support of the Company's key shareholders and resolutions were passed to remove the then directors of the Company and to replace them with Worldwide representatives - Yarden Mariuma, Filip Montfort and myself. Following this, I assumed the role of interim non-executive Chairman and consequently this is my first full year report to shareholders.
I am pleased to welcome the appointment of Harald Wengust who joined the Board as a non-executive director on 7th September 2009.
The year ended 31 December 2009 was a year of two halves, both for the wider economic climate, and for your Company. During the first half of the year, the negative economic and investment environment led to downward pressure on asset values across the board in our geographic area of focus. As a result, the Company adopted a more defensive strategy in order to preserve capital and ensure a prudent level of liquidity. Coupled with the upturn in markets and sentiment in the second half, this led to the Company emerging from the year in a strong position with positive cash flow and a significant gain on its portfolio for the year as a whole.
Macau continues to demonstrate strong long-term fundamentals and the real estate market remains attractive. The Board and I believe the Company is well placed for the year ahead.
Results
As at 31 December 2009, the Company's NAV per share was US$1.22, representing an 11.9% increase year-on-year (31 December 2008: US$1.09). The increase has predominantly been achieved through increased valuations of the portfolio, active asset management of the AIA tower where rental values increased despite a small decrease in occupancy, and the divestment of the Nam Van Peninsula properties. The property portfolio increased in value to US$282.1m, an 8.7% increase on a like-for-like basis.
The Company is reporting a profit of US$15.3m (US$0.13 per share) for the year to 31 December 2009, which .compares to a loss of US$46.5m (US$0.375 per share) for the previous year.
These are commendable results in light of the challenging conditions that the Company faced at the start of the year and proof that the defensive approach employed by the Company was the correct response to the market environment. The top end of the residential market was somewhat uncertain in 2009 due to minimal transaction volumes; however, the office market performed well and remained relatively stable during the year. The performance of the Company's portfolio during the period is addressed in more detail in the Report of the Manager and the Investment Adviser.
The Company continued to de-lever its balance sheet throughout 2009 and since the year-end has made an amortisation payment of HK$20m (US$2.6m) in March 2010 on AIA Tower. Cash balances at the year-end were US$36.6m (2008: US$30.5m). The Company's overall loan to value (LTV) ratio was 49% with the AIA Tower at 50%, well within its LTV covenant. The Company has no current loan maturities but one of its wholly owned holding subsidiaries has a significant current payable in relation to the Company's investment in the 'Riviera' residential development. The Board's objective is to preserve the non-recourse nature of the Company's property financing arrangements.
Our debt structure is carefully monitored and the Company as a whole has exposure to only one financial covenant, which is on the financing obtained for the purchase of the AIA Tower. This asset shows a loan to value of 50% as at 31 December 2009, comfortably within the covenant levels. All mortgage debt is structured as non-recourse to the Company with no cross-default provisions. There are no further financial covenants on the remaining debt. The Company also has no exposure to any hedging instruments or other derivatives.
Portfolio and investment update
In the period under review, the Company successfully disposed of all of its units at Nam Van Peninsula and the Rafael joint-venture purchased two residential penthouse units. Detailed information on the portfolio and the current status of each of the investments is contained in the report of the Manager and Investment Adviser set out below. We have also identified several areas where we believe further value could be extracted from the individual properties or where we need to consider a revised approach given the current economic climate. These proposals have been presented to the Investment Adviser and we will provide the market with updates in due course.
In the last week, we have commenced, with the developer, a joint marketing programme for the sale of certain units within the Riviera development (formerly known as "Lorcha"). The Board expects to be in a position to provide a further update to shareholders on the progress of this shortly after the release of this report.
Dividend
The Board has decided not to declare a dividend this year. This is in accordance with the policy set out in the Company's Admission Document, which stated that the directors would achieve an appropriate balance between reinvesting capital for future growth in accordance with our investment strategy and paying dividends to shareholders.
In line with the prudent policies adopted by the Board of retaining capital and ensuring adequate liquidity within the Company, this dividend policy will be reviewed periodically. The Company still has the share buy back facility in place and we will make use of this facility when the Board believes that the Company's share price is at a level where purchases will be value accretive to shareholders and the funds are not required for purposes of maintaining appropriate LTV valuations.
Outlook
The Board has no current intention of changing the existing strategy or direction of the Company and we are working with the Manager and the Investment Adviser to determine how to optimise the investment portfolio. Any new investments will need to reflect the prevailing market conditions, particularly the availability of suitable debt financing, as well as making the best use of the resources available to the Company. We will continue to focus these investments on building a well diversified portfolio of assets with the aim of strengthening our position as a successful Macau focused property investor.
Macau continues to exhibit strong long-term fundamentals. I believe that the real estate market remains attractive and will support the growth of the Company in the medium to long-term. The pipeline of key infrastructure projects will continue to create demand while affordability of mid-market residential properties remains attractive when compared to similar assets in Hong Kong.
Following the release of these final results, just as we did following the half-year results, the Board once again intends to take the opportunity to meet with key shareholders in order to seek their input regarding the future direction of the Company. However, as previously stressed, the opinions of all shareholders are important to us and if you, as a fellow shareholder, wish to share your thoughts on the Company with the Board, please contact the Board via an e-mail or call to Galileo Fund Services Limited at [email protected] or +44 (0)1624 692 600.
I look forward to hearing from shareholders.
Howard I. Golden
Temporary Chairman
23 March 2010
Report of the Manager and the Investment Adviser
GENERAL MARKET OVERVIEW:
Macroeconomic climate
During 2009 equity markets across the globe recovered, major industrialised nations emerged from recession and real estate prices stabilised in general. However, while the equity markets have recovered in anticipation of an economic recovery, the fundamentals continue to tell a different story. Unemployment levels continue to be high, short-term credit remains scarce and the 'stabilisation' in real estate prices are only backed by minimal transaction volume.
While Asia Pacific has not been immune from the global economic slowdown, it has been less affected than Europe and the US. China remains the driving force in the region as it surpassed Germany as the world's largest exporter in 2009 and is expected to surpass Japan as the world's second largest economy before the end of 2010. According to the World Bank, approximately 80% of China's GDP growth in 2010 will be generated by public and private sector construction projects financed by bank and state borrowing. This is good news for the Asia Pacific region, which relies on Chinese purchases of regional components and commodities. However, there are also significant drawbacks. Firstly, China may be experiencing a new growth bubble that will have to be dealt with later, and secondly, China is unlikely to be a new driver of organic global economic growth in the near to medium-term.
The China story
China's GDP grew by 8.7% in 2009, according to the National Bureau of Statistics, surpassing its official target of 8.0%. China's economy expanded at an annualised 10.7% in the fourth quarter of 2009, as the government's unprecedented 4 trillion Yuan (US$586 billion) stimulus package and a record 9.6 trillion Yuan (US$1.4 trillion) of new loans issued by Chinese banks fuelled the fastest growth in two years. About 20% of the stimulus package found its way into the stock and property markets, according to an unofficial estimate by one of China's finance officers.
The influx of 'hot money' explains the remarkable resilience of the Shanghai Composite Index at the start of 2009 while other major stock indexes crashed. As markets across the globe began to rally in March 2009, Shanghai and Hong Kong market indexes far outpaced the rest of the world.
The dramatic growth in money supply and low interest rates resulted in a dramatic rebound in demand for real estate across China. As a result, property prices rallied strongly in mainland China and Hong Kong in 2009. Shanghai experienced a 68% increase in property prices whilst Hong Kong underwent a 27% increase in prices, according to the China Daily. Overall, property prices across the 70 largest cities in mainland China increased by an average 24% in 2009 according to the same source. This remarkable recovery has led many to believe that China could now be experiencing a real estate bubble.
China tightens credit supply
In a bid to rein in the property market, China introduced several measures to curb speculative investments in property for 2010. Chief amongst these are the tightening of money supply, with a target of 7.5 trillion Yuan (US$1.1 trillion) of new loan issuance for 2010, a 22% reduction over 2009. However, 1.45 trillion Yuan (US$212.4 billion) of new loans were issued by Chinese banks in the first 20 days of 2010, a pace well above the loan target set by the Chinese government, prompting Beijing to increase the reserve ratio of banks by 50 basis points. The minimum down-payment ratio for second homes was increased to 40% from 30% previously and a 5.5% sales tax on homes sold within 5 years of their purchase was reinstated, each aimed at reducing speculative buying in China. Furthermore, the 30% interest rate subsidy on home mortgages was withdrawn.
The Chinese government has said it will continue to step up guidance on property lending and seek to counter speculative capital to tackle "overly-rapid" price gains in some cities. China's banks are required to price loans for second homes 10% above the benchmark lending rate. According to Bloomberg, Beijing has also asked that banks increase interest rates on third mortgages by a "broad margin" and reject loan applications from people buying homes for "investment and speculation" purposes.
According to research by BNP Paribas, sales volume in 2010 will be 10% down on 2009 levels as a result of these measures.
MACAU - A STORY OF FUNDAMENTALS
Macau overview 2009
Unlike mainland China and Hong Kong, Macau's real estate market did not undergo a recovery of the same magnitude. Residential property prices increased by about 10% in 2009, mainly in the low to mid-end mass market as a result of the interest rate subsidy and deposit guarantee scheme aimed at such properties. The high-end residential market has been somewhat more uncertain in 2009 due to minimal transaction volumes. Macau's office market has remained flat in 2009.
While Macau property has "underperformed" relative to Hong Kong and China, its gaming market set new records in 2009. According to Macau's Statistics and Census Services ("DSEC"), gaming represents the majority of Macau's economic activity.
The gaming sector started slowly for Macau in 2009 as the turmoil of the financial meltdown during the latter parts of 2008 continued to deter individuals from gambling. As a result, gaming revenues in 1Q09 and 2Q09 were down by 12.7% and 12.2% over the same period in 2008, respectively. However, as the recovery in the local equity markets persisted strongly, gaming revenues began to pick up significantly in the latter half of 2009, with a 22.2% and 49.1% year-on-year increase in 3Q09 and 4Q09, respectively, setting two new records for monthly gaming revenue in the process. Overall, gaming revenue for the entire year in 2009 was MOP$120 billion (US$12.2 billion), a 10% increase over the 2008 figure and a new record. This compares to Las Vegas and Atlantic City, which saw gaming revenues of US$5.3 billion and US$3.9 billion, a decline of 15% and 12%, respectively, according to the Center for Gaming Research. Gaming currently accounts for 70% of Macau's public revenues, according to Xinhua News.
Infrastructure investments key
Construction work on the Hong Kong - Macau - Zhuhai Bridge began in December 2009 and is expected to be completed in 2016. The project is estimated to cost approximately US$10.7 billion and is being jointly constructed by the three jurisdictions. Upon completion, travel time between Hong Kong and Macau will be cut to just 20 minutes, while a trip to Zhuhai will add an additional 10 minutes. The bridge will span some 50km, of which about 35km will be built over sea, making it the world's largest cross-sea bridge.
Las Vegas Sands announced that it will restart construction on the Cotai Strip in Macau sometime in 2Q10, with the first two phases of the project due for completion by the end of 2011. Similarly, Galaxy Entertainment has stated that it will restart work on its Cotai Strip project in mid-2010 with a targeted completion for phase one of the project sometime in early 2011. The announced Cotai developments, that are estimated to cost US$5 billion in total, are expected to be completed within five years.
The Macanese government has announced that construction of the Light Rail Transport ("LRT") system will begin in 2010 with completion of the first phase expected in 2014. Once fully completed, the LRT system will connect the Macau Peninsula with Taipa Island and the Cotai Strip. The system will also extend to Hengqin Island, an area destined to become a major educational base for Macau, and neighbouring Zhuhai. There are also plans to eventually link the LRT system to the Hong Kong - Macau - Zhuhai Bridge.
These large infrastructure projects should create demand for both office and residential properties as companies and workers come to Macau to support these projects.
New Macau Chief Executive
Macau's new Chief Executive, Fernando Chui Sai On, was sworn into office on 20 December 2009 for a five-year term by the Chinese president, Hu Jintao, during the 10th anniversary celebration of Macau's return to mainland China. Fernando Chui's inauguration marks closer ties between Macau and Beijing; he was nominated to the role of Chief Executive by 286 members of the 300-member election committee, most with direct ties to Beijing.
In his opening address, he echoed much of Beijing's sentiment, promising to diversify Macau's economy to achieve a balance between the gaming and non-gaming sectors. General sentiment is that, with Beijing's support, the new Chief Executive will be able to improve the legislative environment and bring to an end the current impasse that began in 2007, when Ao Man Long, then Secretary for Transport and Public Works, was found guilty of corruption and money laundering.
The possibility of an easing of the visa restrictions on mainland visitors to Macau and the re-introduction of the investment residency scheme in the medium-term are further catalysts for growth in Macau.
Local banks affected but still positive
With China tightening the supply of credit, the key local banks in Macau, including Bank of China, Weng Hang Bank and Bank of Communications, will be likely to feel the strain as restrictions on loan growth kick in throughout the year. However, local banks in Macau have generally remained positive on market fundamentals, as the property market in Macau did not undergo the significant repricing witnessed in neighbouring Hong Kong and mainland China.
PROPERTY MARKET OVERVIEW
The Macau real estate market improved in 2009, though the recovery lagged those seen across mainland China and Hong Kong. Macau residential real estate pricing improved in 2009 on the back of the interest rate subsidy and deposit guarantee scheme introduced as part of the Macanese government's stimulus package for 2009. As a result, the mass market has seen a big pick up in transaction volume, which has had a positive effect, not only on the pricing of mass market properties, but also on the high-end market. It should be noted however, that transaction volumes in the high-end market in 2009 were minimal. According to DSEC, a total of 11,307 residential units were sold in 2009, of which only 9% of units cost more than MOP 4m (US$407k).
The rental market for mass-market residential properties improved slightly in 2009 but the high-end residential market performed badly for the second year in a row, with rents falling approximately 10% according to JLL. High-end properties have traditionally targeted the expatriate community in Macau, with these units tending to be significantly larger than the average Macanese housing unit and have historically commanded higher rents. However, a large portion of the expatriate community left Macau in 2008 as gaming and construction work halted. As the market began to improve in 2009, the expatriate community remained absent as the government focused on reducing unemployment rates among local Macanese and the issuance of work visas came to a standstill. Whilst in the medium-term, a return of the expatriate community to Macau is expected, high-end rents will remain under pressure in 2010 due to an absence of any meaningful demand for these relatively large and expensive units.
The Grade-A office market remained relatively stable in 2009 while second-tier offices recovered dramatically, according to DSEC, after undergoing a rapid downward revision in 2H08. According to Jones Lang LaSalle, the office market should improve in 2010 as construction on the Hong Kong - Macau - Zhuhai Bridge begins in earnest and the suspended Cotai Strip projects reactivate, creating a growing demand for office space. The pace of demand growth is not expected to be large in this initial stage of economic recovery, but the tight office supply in Macau, particularly of Grade-A space, remains one of the strongest supports for office rents.
BUSINESS OVERVIEW - Positive results, not out of the woods yet
During the year ended 31 December 2009, the Company's NAV per share increased by 11.9% to US$1.22 from US$1.09 the previous year. This has been achieved through active asset management of the AIA Tower to maximise its desirability in the market, and hence its valuations, the continued progress on the Riviera development (formerly known as "Lorcha"), and the divestment of the Nam Van Peninsula properties.
The Company was cash flow positive in the period and reported a profit of US$15.3m, or US$0.13 per share, for the year-ended 31 December 2009, a significant result compared to a loss of US$46.3m (US$0.375 per share) for the same period in the previous year.
The Company has continued to delever its balance sheet throughout 2009 and beyond, including an amortisation payment of HK$20m (US$2.6m) in March 2010 on AIA Tower. The Company's portfolio has an overall LTV of 49%, excluding cash, as at the year-end. Including the forward-funded Riviera payable of US$93m (including acquisition costs), the Company has an implied leverage of 61%, excluding cash. As at the year end, the Company had available cash of US$36.6m.
All of Speymill Macau's debt is secured non-recourse to the Company. The Company has only one covenant, a 70% LTV covenant on AIA Tower. As at the year-end, AIA Tower had an LTV of 50%, well within the covenant level.
Valuation
The Company's portfolio was valued at US$282.1m as of 31 December 2009. On a like-for-like basis, the Company's portfolio increased in value by 8.7% in 2009. This is a good result and is commendable in light of the difficult environment during the first half of the year, reflecting the diversified and relatively defensive nature of the property portfolio.
|
Investment properties |
Sector |
Type |
Strategy |
Status |
Valuation as of 31 Dec 081 (US$m) |
Valuation as of 31 Dec 091 (US$m) |
Valuation increase / (reduction) |
|
AIA Tower |
Office / retail |
Grade A |
Hold and let |
Operating |
148.39 |
154.74 |
4.3% |
|
Riviera |
Residential |
High end |
Forward funding agreement |
Under construction |
106.59 |
121.70 |
14.2% |
|
"Pink Palace" |
Commercial / residential |
Mid market |
Refurbish and let |
Operating |
1.75 |
1.87 |
6.9% |
|
Houston Court |
Commercial / residential |
Mid market |
Refurbish and let |
Marketing |
1.94 |
2.84 |
46.4% |
|
"Ribas 5B" |
Residential |
Entry market |
Hold and let |
Marketing |
0.15 |
0.18 |
20.0% |
|
Sub-total |
|
|
|
|
258.82 |
281.33 |
8.70% |
|
Investment properties acquired or divested in the period |
Sector |
Type |
Strategy |
Status |
Valuation as of 31 Dec 08 (US$m) |
Valuation as of 31 Dec 09 (US$m) |
Valuation increase / (reduction) |
|
Nam Van Peninsula |
Residential |
High end |
Refurbish and sale |
Sold |
29.68 |
- |
N/A |
|
"Wan Keng" |
Residential |
Entry market |
Refurbish and let |
Marketing |
- |
0.77 |
N/A |
|
Sub-total |
|
|
|
|
29.68 |
0.77 |
N/A |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
288.50 |
282.10 |
N/A |
|
|
|
|
|
|
|
|
|
|
1 Independent valuation by Jones Lang LaSalle |
|
|
|
|
|
|
|
During the course of 2009, the Nam Van Peninsula property was fully divested and the Rafael JV purchased two residential penthouse units on the 14th floor of Wan Keng, a 15-storey residential building located in the Central Business District. More details can be found later on in this report.
All of the Company's properties are independently valued by Jones Lang LaSalle in accordance with the standards published by the Hong Kong Institute of Surveyors and the Royal Institute of Chartered Surveyors in the United Kingdom. The properties were last valued as at 31 December 2009 and the fair value adjustments of these properties are stated on page 44 (note 13) of the annual report.
AIA Tower
As of 31 December 2009, the overall economic occupancy rate of the building stood at 81% compared to 86% in 2008. This increase in vacancy is primarily the result of the expiration of a rental guarantee for a large tenant, provided by the previous owners when the Company acquired the AIA Tower.
However, despite the decrease in occupancy, the overall rental income of AIA Tower increased in 2009 as a result of active asset management throughout the year. Since acquisition in September 2008, a total of 11 new leases encompassing 6.2% of the total space have been signed. To date, management has renewed and reviewed an additional 19 leases totalling 105,819 sq ft, or 28% of space, at an average headline rent reversion of 32%.
Key tenants at the AIA Tower include AIA, Bank of Communications, The Executive Centre, Starbucks, Toni&Guy and Circle K. Management has focused on trying to create a good and diversified mix of tenants in the building in order to increase the AIA Tower's desirability and reputation in the Macau office market. Currently, the insurance sector occupies 21% of tenanted space and is the largest tenant type at the AIA Tower. The consultancy and services industry occupies 18% of tenanted space whilst the trading and manufacturing industry occupies 16% of space. The finance and banking sector occupies 11% of space whilst the food and beverage sector occupies 10% of space.
A number of ongoing asset management and property management initiatives have been carried out in 2009 with regards to certain licensing processed for retailers, upgrades to the elevators, improvements to the chiller system and general improvement works on the building. Management has also focused on enhancing operational efficiencies, including energy savings, with the ultimate goal of positioning AIA Tower as the first "green" building in Macau.
The Company obtained a HK$600m (US$77m), 30-month term loan facility with Banco Weng Hang for the purchase of AIA Tower. The debt matures in the first quarter of 2011. In addition, the Company has amortised HK$20m (US$2.6m) of debt in March 2010. The existing facility has an annual interest rate of 1.85% over the 3-month HIBOR rate and is subject to a 70% loan to value covenant. As of 31 December 2009, the AIA Tower had an LTV of 50%, comfortably within the covenant level.
Riviera
The Riviera development - formerly referred to as "Lorcha" - is a forward funding arrangement to acquire 259 aspirational, high-end residential units in two 45-storey towers. Riviera overlooks the Inner Harbour, Zhuhai, Penha Hill, Nam Van Lake and downtown Macau and is adjacent to a planned Light Rail Transport station. Unlike typical high-end residential projects in Macau where unit sizes tend to be large, the unit sizes at Riviera range from approximately 800 sq ft to 1,200 sq ft, hence keeping the total price of units relatively low. By providing a high standard of finishing and choice of materials in line with other high-end developments, but with unit sizes in line with typical Macanese housing units, Riviera is ideally positioned for local end-users and investors.
On 29 July 2009, the official gazetting was obtained by the developer. The final outstanding process to obtaining the occupation permit involves registering the individual strata title for each saleable residential unit. The occupation permit for Riviera is expected to be achieved in 2Q10. According to the forward funding agreement between the Company and the developer, the outstanding payable of approximately US$93m (including acquisition costs) in relation to the development would be due 45 days after achieving the occupational permit.
In light of the tightening in credit supply, the Company sought to extend the US$92m final stage commitment. On 1 February 2010, the Company announced that it had signed an agreement with the developer of Riviera which grants the Company a six-month extension option to the final stage commitment in relation to Riviera. In consideration for exercising the extension, the Company has agreed to pay the developer 4.8% interest on any outstanding amounts payable, plus associated arrangement fees. Under the agreed terms of the extension option, all proceeds of sales of apartment units completed prior to the final payment date will be paid to the developer of Riviera and 95% of such proceeds will be used to reduce the outstanding amounts payable. The remaining 5% will be returned to the Company at the end of each month.
Management is in active communication with local banks to negotiate terms of financing and has also received interest from these banks wanting to finance the buyers of the Riviera units. The Riviera development will undergo a sales programme with our units sold in conjunction with those of the developer.
Nam Van Peninsula
In March 2007, the Company entered into an agreement to purchase 24 residential units and 10 car parking spaces in shell condition at the Nam Van Peninsula development. The development is located in a prime location overlooking the Nam Van Lake on the Macau Peninsula. The Company launched a soft marketing campaign in May 2009 along with attractive commissions on offer to agents in order to stimulate sales momentum for all 24 units and 10 car parking spaces.
The Nam Van Peninsula investment is fully divested as of 31 December 2009. The 24 residential units were sold at an average price of HK$2,839 psf (US$366 psf), while the 10 car parking spaces were sold at an average price of HK$405,000 per unit (US$52,224 per unit). Overall achieved sales price was HK$207.2m (US$26.8m) and net proceeds from the sales were HK$63.4m (US$8.2m).
Rafael
The Company has an 87% stake in Rafael (Macau) Limitada following agreement with a Macau-based boutique property advisory and asset management firm. The enterprise was formed with the aim of acquiring and repositioning existing residential and commercial properties in the older, historical parts of Macau, allowing the Company to gain exposure to the more affordable end of the markets. The venture has currently four assets; Pink Palace, Houston Court, Ribas and Wan Keng.
Pink Palace is a 2-storey residential building located in the old historic part of Macau. There are four units in the building and three of the units are currently leased at a combined HK$27,500 per month (US$3,546 per unit). Ribas is an apartment unit located close to the famous Ruins of St. Pauls, a UNESCO World Heritage site. Ribas is currently being marketed for rental purposes, after being leased during the first half of the year.
Houston Court is a 3-storey mixed-use building located in a secluded area of Coloane village. The building has commercial space on the ground floor and 6 residential units in the two upper floors. Houston Court sits on freehold land, which was also bought by Rafael when it acquired the building, and is unique in Macau. The building is now fully renovated having had extensive works carried out on both the interior and exterior of the property. Houston Court is currently being marketed to lease out the newly available units.
Rafael purchased two residential penthouse units in February 2009 on the 14th floor of Wan Keng, a 15-storey residential building located in the Central Business District of Macau near the AIA Tower. The units and a portion of the rooftops are currently being redeveloped into three lettable units. New walls are being constructed as part of the new layout plans along with electrical and plumbing works. Additionally, the installation of windows and flooring and a new internal staircase are all part of the works currently being carried out.
Strategic objectives
The Company will continue to focus on investing in a well diversified portfolio of high quality assets. In the short-term, management will focus on de-risking the Riviera investment through a successful marketing and sales programme. Management will continue to monitor investment opportunities and seek to capitalise on market dislocations while actively managing the existing portfolio and ensuring a comfortable level of liquidity. Realisations could be redeployed into new attractive high-return investments, continuing to grow the Company into the pre-eminent Macau focused property investor.
Outlook
Macau continues to exhibit strong long-term fundamentals. The real estate market supply and demand balance in Macau remains biased toward demand and should support the future growth of the Company in the medium to long-term. Affordability remains attractive in Macau, with median monthly wages on the rise and a declining unemployment rate. Furthermore, interest rates remain historically low and mortgage spreads are shrinking. With the construction of the Hong Kong - Macau - Zhuhai bridge now underway, the restarting of construction on the Cotai Strip, and the commencement of construction of the Light Rail Transport network due later in 2010, demand for both office and residential properties should grow as companies and workers come to Macau to support these projects.
The appointment of a new Chief Executive with close ties to Beijing should be able to improve the legislative environment and help steer Macau's economy towards a more diversified and sustainable model.
In the short-term, the tightening credit environment caused by rising property prices in China and Hong Kong could dampen the investment sentiment for real estate in Macau. However, local Macau-based banks are remaining positive on market fundamentals for now. In the medium-term, a reintroduction of the Investment Residency Scheme could provide further support to the residential market as would the completion of the Hong Kong - Macau - Zhuhai Bridge. Continued investment by both the Macanese and Chinese governments should improve the infrastructure and integration of Macau within the Pearl River Delta.
Summary
Macau remains an attractive market with secure fundamentals for robust future growth. The real estate price correction witnessed in late 2008 and early 2009 in Macau has given way to a recovery, particularly in the residential mass market. Unemployment is declining once again and median wages, though low by Hong Kong standards, are rising. Furthermore, interest rates remain at historically low levels, which should make real estate an attractive investment. The large infrastructure projects announced by Macau's government and the diversification of Macau's economy should close the gap in capital values of commercial real estate between Hong Kong and Macau and should provide further support for future capital growth in residential properties. Macau's economic recovery and growth in gaming revenues are expected to continue through 2010. In the medium to long-term, Macau real estate appears to offer a desirable combination of capital growth potential and established legal structure.
Nigel Caine
For the Manager
Speymill Property Group Limited
Floris van Dijkum
For the Investment Adviser
Speymill Property Group (Far East) Limited
23 March 2010
Consolidated income statement
|
|
|
For the year ended 31 December 2009 |
For the year ended 31 December 2008 |
|
|
|
|
US$'000 |
US$'000 |
|
|
Rent and related income Direct expenses |
|
8,641 (3,457) |
2,550 (995) |
|
|
Net rent and related income |
|
5,184 |
1,555 |
|
|
|
|
|
|
|
|
Valuation gains/(losses) on investment property |
|
22,219 |
(43,348) |
|
|
Loss on disposal of investment property |
|
(3,611) |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manager's fees |
|
(2,599) |
(3,668) |
|
|
Audit and professional fees |
|
(569) |
(464) |
|
|
Impairment of goodwill |
|
- |
(1,599) |
|
|
Other expenses |
|
(1,259) |
(1,201) |
|
|
Administrative and other expenses |
|
(4,427) |
(6,932) |
|
|
Net operating profit/(loss) before net financing (expense)/income |
|
19,364 |
(48,725) |
|
|
|
|
|
|
|
|
Finance income |
|
94 |
1,879 |
|
|
Finance cost |
|
(2,506) |
(1,143) |
|
|
Net finance (cost)/income |
|
(2,412) |
736 |
|
|
|
|
|
|
|
|
Profit/(loss) before tax |
|
16,952 |
(47,989) |
|
|
|
|
|
|
|
|
Taxation |
|
(1,636) |
1,482 |
|
|
|
|
|
|
|
|
Profit/(loss) for the year |
|
15,316 |
(46,507) |
|
|
|
|
|||
|
Owners of the Company |
|
15,251 |
(46,327) |
|
|
Non-controlling interest |
|
65 |
(180) |
|
|
|
|
15,316 |
(46,507) |
|
|
Basic earnings/(loss) per share (cents per share) for loss attributable to the owners of the Company during the year |
|
13.05 |
(37.45) |
|
|
Diluted earnings/(loss) per share (cents per share) for loss attributable to the owners of the Company during the year |
|
13.05 |
(37.45) |
|
The accompanying notes form an integral part of these consolidated financial statements.
Consolidated statement of comprehensive income
|
|
|
For the year ended 31 December 2009 |
For the year ended 31 December 2008 |
|
|
|
US$'000 |
US$'000 |
|
Profit/(loss) for the year |
|
15,316 |
(46,507) |
|
Other comprehensive income |
|
|
|
|
Currency translation differences |
|
5 |
225 |
|
Other comprehensive income for the year (net of tax) |
|
5 |
225 |
|
Total comprehensive income/(loss) for the year |
|
15,321 |
(46,282) |
|
Total comprehensive income/(loss) attributable to: |
|
|
|
|
Owners of the company |
|
15,256 |
(46,102) |
|
Non-controlling interest |
|
65 |
(180) |
|
Total comprehensive income/(loss) for the year |
|
15,321 |
(46,282) |
The accompanying notes form an integral part of these consolidated financial statements.
Consolidated balance sheet
|
|
|
31 December 2009 |
31December 2008 |
|
|
|
US$'000 |
US$'000 |
|
Intangible assets |
|
6,451 |
6,451 |
|
Investment property |
|
282,104 |
288,455 |
|
Plant and equipment |
|
1,277 |
877 |
|
Total non-current assets |
|
289,832 |
295,783 |
|
Trade and other receivables |
|
1,627 |
2,258 |
|
Cash and cash equivalents |
|
36,598 |
30,457 |
|
Total current assets |
|
38,225 |
32,715 |
|
Total assets |
|
328,057 |
328,498 |
|
Issued share capital |
|
11,682 |
11,682 |
|
Share premium |
|
62,356 |
62,356 |
|
Retained earnings |
|
66,904 |
51,653 |
|
Other reserves |
|
1,654 |
1,654 |
|
Foreign currency translation reserve |
|
108 |
103 |
|
Equity attributable to owners of the parent |
|
142,704 |
127,448 |
|
Non-controlling interest |
|
1,227 |
1,162 |
|
Total equity |
|
143,931 |
128,610 |
|
Interest-bearing loans and borrowings |
|
76,249 |
91,936 |
|
Deferred income tax |
|
7,575 |
6,451 |
|
Trade and other payables |
|
- |
92,260 |
|
Total non-current liabilities |
|
83,824 |
190,647 |
|
Interest-bearing loans and borrowings |
|
2,880 |
3,387 |
|
Trade and other payables |
|
97,422 |
5,854 |
|
Total current liabilities |
|
100,302 |
9,241 |
|
Total liabilities |
|
184,126 |
199,888 |
|
Total equity & liabilities |
|
328,057 |
328,498 |
|
Net asset value per parent company share |
|
1.22 |
1.09 |
The accompanying notes form an integral part of these consolidated financial statements.
Company balance sheet
|
|
|
31 December 2009 |
31 December 2008 |
|
|
|
US$'000 |
US$'000 |
|
Trade and other receivables |
|
45 |
119 |
|
Cash and cash equivalents |
|
12,707 |
16,908 |
|
Intercompany balances |
|
130,386 |
110,935 |
|
Total current assets |
|
143,138 |
127,962 |
|
Total assets |
|
143,138 |
127,962 |
|
Issued share capital |
|
11,682 |
11,682 |
|
Share premium |
|
62,356 |
62,356 |
|
Retained earnings |
|
67,012 |
51,756 |
|
Other reserves |
|
1,654 |
1,654 |
|
Total equity |
|
142,704 |
127,448 |
|
Trade and other payables |
|
434 |
514 |
|
Total current liabilities |
|
434 |
514 |
|
Total liabilities |
|
434 |
514 |
|
Total equity & liabilities |
|
143,138 |
127,962 |
|
Net asset value per parent company share |
|
1.22 |
1.09 |
The profit made by the Company for the year ended 31 December 2009 was US$15,256,000 (year ended 31 December 2008, loss: US$42,006,000).
The accompanying notes form an integral part of these consolidated financial statements.
Consolidated statement of changes in equity
|
|
Share capital |
Share premium |
Retained earnings |
Share option reserves |
Capital redemption reserve |
Foreign currency translation reserves |
Total parent equity |
Non-controlling Interest |
Total equity 31 December |
|
|
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
|
Balance at 1 January 2008 |
13,000 |
62,356 |
108,023 |
336 |
- |
(122) |
183,593 |
- |
183,593 |
|
Loss for the year |
- |
- |
(46,327) |
- |
- |
- |
(46,327) |
(180) |
(46,507) |
|
Other comprehensive income |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Foreign exchange translation differences |
- |
- |
- |
- |
- |
225 |
225 |
- |
225 |
|
Total comprehensive loss for the year |
- |
- |
(46,327) |
- |
- |
225 |
(46,102) |
(180) |
(46,282) |
|
Contributions by and distributions to owners |
|
|
|
|
|
|
|
|
|
|
Contribution from minority partner |
- |
- |
- |
- |
- |
- |
- |
1,342 |
1,342 |
|
Shares cancelled following market purchases/ transfer to capital redemption reserve |
(1,318) |
- |
(10,043) |
- |
1,318 |
- |
(10,043) |
- |
(10,043) |
|
Total transactions with owners |
(1,318) |
- |
(10,043) |
- |
1,318 |
- |
(10,043) |
1,342 |
(8,701) |
|
Balance at 31 December 2008 |
11,682 |
62,356 |
51,653 |
336 |
1,318 |
103 |
127,448 |
1,162 |
128,610 |
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
- |
- |
15,251 |
- |
- |
- |
15,251 |
65 |
15,316 |
|
Other comprehensive income |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Foreign exchange translation differences |
- |
- |
- |
- |
- |
5 |
5 |
- |
5 |
|
Total comprehensive income for the year |
- |
- |
15,251 |
- |
- |
5 |
15,256 |
65 |
15,321 |
|
Balance at 31 December 2009 |
11,682 |
62,356 |
66,904 |
336 |
1,318 |
108 |
142,704 |
1,227 |
143,931 |
The accompanying notes form an integral part of these consolidated financial statements.
Company statement of changes in equity
|
|
Share capital |
Share premium |
Retained earnings |
Share option reserves |
Capital redemption reserve |
Total equity 31 December |
|
|
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
|
Balance at 1 January 2008 |
13,000 |
62,356 |
103,805 |
336 |
- |
179,497 |
|
Loss for the year |
- |
- |
(42,006) |
- |
- |
(42,006) |
|
Total comprehensive loss for the year |
- |
- |
(42,006) |
- |
- |
(42,006) |
|
Contributions by and distributions to owners |
|
|
|
|
|
|
|
Shares cancelled following market purchases/transfer to capital redemption reserve |
(1,318) |
- |
(10,043) |
- |
1,318 |
(10,043) |
|
Total transactions with owners |
(1,318) |
- |
(10,043) |
- |
1,318 |
(10,043) |
|
Balance at 31 December 2008 |
11,682 |
62,356 |
51,756 |
336 |
1,318 |
127,448 |
|
Profit for the year |
- |
- |
15,256 |
- |
- |
15,256 |
|
Total comprehensive income for the year |
- |
- |
15,256 |
- |
- |
15,256 |
|
Balance at 31 December 2009 |
11,682 |
62,356 |
67,012 |
336 |
1,318 |
142,704 |
The accompanying notes form an integral part of these consolidated financial statements.
Consolidated statement of cash flows
|
|
For the year ended 31 December 2009 |
For the year ended 31December 2008 |
|
|
US$'000 |
US$'000 |
|
Operating activities |
|
|
|
Group profit/(loss) before tax |
16,952 |
(47,989) |
|
Adjustments for: |
|
|
|
Revaluation of investment property |
(22,219) |
43,348 |
|
Loss on disposal of investment property |
3,611 |
- |
|
Impairment of goodwill |
- |
1,599 |
|
Depreciation |
515 |
141 |
|
Interest income |
(94) |
(1,879) |
|
Interest expense |
2,473 |
1,040 |
|
Operating income/(loss) before changes in working capital |
1,238 |
(3,740) |
|
Decrease/(increase) in trade and other receivables |
631 |
(429) |
|
Decrease in trade and other payables |
(692) |
(5,114) |
|
Cash generated from/(used in) operations |
1,177 |
(9,283) |
|
Interest received |
94 |
1,879 |
|
Interest paid |
(2,376) |
(1,040) |
|
Income tax paid |
(521) |
(257) |
|
Cash flows used in operating activities |
(1,626) |
(8,701) |
|
|
|
|
|
Investing activities |
|
|
|
Acquisition of investment property |
(1,214) |
(141,489) |
|
Sale of investment property |
26,085 |
78,116 |
|
Acquisition of subsidiary |
- |
(74,690) |
|
Creditor for acquisition of investment property |
- |
92,260 |
|
Purchase of fixed assets |
(918) |
(32) |
|
Return of deposit for property purchase |
- |
57,051 |
|
Cash flows used in investing activities |
23,953 |
11,216 |
|
|
|
|
|
Financing activities |
|
|
|
Cost of Ordinary Shares purchased |
- |
(10,043) |
|
Non-controlling interest contribution to investment property |
- |
1,342 |
|
New secured bank loans |
1,985 |
- |
|
Repayments of secured bank loans |
(18,179) |
(543) |
|
Cash flows used in financing activities |
(16,194) |
(9,244) |
|
Net increase/(decrease) in cash and cash equivalents |
6,133 |
(6,729) |
|
Cash and cash equivalents at beginning of year |
30,457 |
36,770 |
|
Difference on foreign exchange |
8 |
416 |
|
Cash and cash equivalents at end of year |
36,598 |
30,457 |
The accompanying notes form an integral part of these consolidated financial statements.
Notes to the consolidated financial statements
1 The Company
Speymill Macau Property Company plc (the "Company") was incorporated and registered in the Isle of Man under the Isle of Man Companies Acts 1931 to 2004 on 31 October 2006 as a public company with registered number 118202C.
The annual report of the Company as at and for the year ended 31 December 2009 comprises the Company and its subsidiaries (together referred to as the "Group").
The principal activity of the Group is investment in the high quality residential and commercial property market in Macau. The Company's agents and the Manager perform all significant functions. Accordingly, the Company itself has no employees.
2 Segment reporting
The Group has one segment focusing on achieving capital growth through investing in the property market in Macau. No additional disclosure is included in relation to segment reporting as the Group's activities are limited to one business and geographic segment.
3 Net financing income
|
|
31 December 2009 |
31 December 2008 |
|
|
US$'000 |
US$'000 |
|
Interest income on bank balances |
94 |
1,879 |
|
Finance income |
94 |
1,879 |
|
Interest expense on bank loans |
(2,313) |
(1,040) |
|
Bank charges |
(33) |
(40) |
|
Amortised financial charges |
(160) |
(63) |
|
Finance cost |
(2,506) |
(1,143) |
|
Net finance (cost)/income |
(2,412) |
736 |
4 Net asset value per share
The net asset value per share as at 31 December 2009 is US$1.22 based on 116,821,581 Ordinary Shares in issue as at that date (2008: US$1.09 based on 116,821,581 shares).
5 Related party transactions
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.
Parties are considered to be related if one party has the ability to control the other party or to exercise significant influence over the party making financial or operational decisions.
No director had any interest during the year in any material contract for the provision of services which was significant to the business of the Group.
The Manager held 1,055,118 Ordinary Shares in the Company as at 31 December 2009 (2008: 1,055,118 Ordinary Shares). The shares were acquired in order to satisfy the terms of the Investment Management Agreement following payment of the performance fee for the year ended 31 December 2007. In addition, key personnel of the Manager and closely related companies held 4,133,118 Ordinary Shares in the Company as at 31 December 2009 (2008: 1,838,300 Ordinary Shares).
The Investment Manager, Investment Adviser and Property Adviser are considered to be related parties - see note 11 in the annual report regarding fees payable to these companies.
6 Charges and fees
6.1 Nominated adviser fees
As nominated adviser to the Company for the purposes of the AIM rules, the Nominated Adviser is entitled to receive an annual fee of £30,000 payable quarterly in advance.
The Nominated Adviser received additional fees during 2009 in respect of special projects amounting to US$113,344 (2008: US$Nil). Total advisory fees payable to the Nominated Adviser for the year ended 31 December 2009 amounted to US$175,518 (2008: US$75,366).
6.2 Placing agent and broker fees
In accordance with the terms of the original placing, the Placing Agent was entitled to receive from the Company commission equal to 4% of the aggregate value of funds raised. In addition, the Placing Agent was entitled to receive from the Company commission of between 2.5% and 3.0% of the aggregate value of funds raised.
Under the terms of an option agreement dated 13 November 2006 and in consideration of the broker agreeing to act as broker and provide services under the Placing Agreement, the broker was granted an option to acquire 1,600,000 shares at an option price of US$1.00 per share. The option exercise period is a period from the date of the option agreement to the fifth anniversary of admission to trading on AIM.
The option has been independently valued using a Black-Scholes model giving a fair value of US$336,000 which has been charged to Share Premium as a share issue expense.
As broker to the Company, the Broker is entitled to receive an annual fee of £50,000, payable semi-annually in advance.
Broker fees payable for the year ended 31 December 2009 amounted to US$93,289 (year ended 31 December 2008: US$117,755).
6.3 Manager's fees
Annual fees
The Manager receives a management fee of 2% per annum of the net asset value of the Company from Admission, payable monthly in arrears.
Management fees payable for the year ended 31 December 2009 amounted to US$2,598,768 (31 December 2008: US$3,668,063).
40% of the management fee is paid directly to the Property Adviser. The Manager is also responsible for the payment of fees to the Investment Adviser.
Performance fee
The Manager is entitled to a performance fee from the Company of an amount equal to 20% of the excess of the Net Asset Value per Ordinary Share (with dividends and other distributions added back and ignoring any accrued performance fee) as at the end of each performance fee period of the Company over the benchmark multiplied by the time weighted average number of Ordinary Shares in issue during that period. Such performance fee shall accrue on a Net Asset Value per Ordinary Share basis but shall only be paid out of realised profits.
For these purposes, the benchmark shall be equal to the Placing Price increased at a compound rate of 10% per annum or, where a performance fee has been paid, the Net Asset Value per Ordinary Share (ignoring the effect of the relevant performance fee paid) which gave rise to the payment of the most recent performance fee increased at a rate of 10% per annum compound. On payment of the performance fee for the period ended 31 December 2007 the benchmark was reset to the Net Asset Value per Ordinary Share of US$1.41 at the commencement of the new period.
The first performance fee period commenced on the 17 November 2006 (the date on which the Ordinary Shares were admitted to trading on AIM) and terminated on 31 December 2007. Each subsequent performance fee period commenced on 1 January and terminated on 31 December in the same calendar year.
If the Manager is entitled to a performance fee in respect of a performance fee period, the Company shall only be required to settle such liability to the Manager in respect of any performance fee accrued to the extent that, and only when and if, the Company has realised profit(s) from any investment(s) available for such payment. Any such fees shall be paid within 14 days of such realised profits becoming available.
Performance fees accrued for the year ended 31 December 2009 amounted to US$Nil (31 December 2008: US$Nil).
6.4 Custodian fee
The Custodian is entitled to receive a fee calculated as 3 basis points per annum of the value of the non-real estate assets held on behalf of the Company, subject to a minimum monthly fee of £750, payable quarterly in arrears together with other agreed transaction settlement charges.
The Custodian fee payable for the year ended 31 December 2009 amounted to US$16,820, (31 December 2008: US$30,000).
6.5 Administrator and Registrar fees
The Administrator is entitled to receive a fee of 10 basis points per annum of the net assets of the Company between £0 and £100m and 7.5 basis points of the net asset value of the Company in excess of £100m, subject to a minimum monthly fee of £4,000, and a maximum monthly fee of £11,250 payable quarterly in arrears.
The Administrator assists in the preparation of the financial statements of the Company for which it receives a fee of £1,750 per set and provides general secretarial services to the Company for which it receives a minimum annual fee of £5,000.
Administration fees payable for the year ended 31 December 2009 amounted to US$151,620, (31 December 2008: US$207,987), secretarial fees US$9,534 (2008: US$10,664), financial statement preparation fees US$15,268 (2008: US$17,162), and Crest fees US$8,878 (2008: US$3,318).
6.6 Audit and professional fees
Audit fees for the year ended 31 December 2009 amounted to US$106,379, (31 December 2008: US$230,332), with US$31,826 still due at 31 December 2009 (2008: US$83,578).
Professional fees for the year ended 31 December 2009 amounted to US$463,063 (31 December 2008: US$233,375).
7 Intangible assets
The Group's intangible assets as at 31 December 2009 comprise goodwill arising from the acquisition of 100% of the ordinary share capital of Turbo Ventures Ltd, which with its wholly owned subsidiary, Speymill Property I (Macau) Limitada, comprise an investment property group, which owns the AIA Tower building in Macau.
|
|
Goodwill |
Total |
|
|
US$'000 |
US$'000 |
|
|
|
|
|
Cost |
|
|
|
|
|
|
|
Balance at 1 January 2008 |
- |
- |
|
Acquisitions through business combination |
8,050 |
8,050 |
|
Balance at 31 December 2008 |
8,050 |
8,050 |
|
|
|
|
|
Balance at 1 January 2009 |
8,050 |
8,050 |
|
Balance at 31 December 2009 |
8,050 |
8,050 |
|
|
|
|
|
Amortisation and impairment loss |
|
|
|
|
|
|
|
Balance at 1 January 2008 |
- |
- |
|
Impairment loss |
1,599 |
1,599 |
|
Balance at 31 December 2008 |
1,599 |
1,599 |
|
|
|
|
|
Balance at 1 January 2009 |
1,599 |
1,599 |
|
Balance at 31 December 2009 |
1,599 |
1,599 |
|
|
|
|
|
Carrying amounts |
|
|
|
31 December 2008 |
6,451 |
6,451 |
|
31 December 2009 |
6,451 |
6,451 |
The goodwill is attributable to the property group owning the AIA Tower building and is reviewed for impairment at least annually. The Group assessed the recoverable amount of goodwill at 31 December 2009. As a result of the impairment test, it was determined that no impairment charge arose.
The recoverable amount of the goodwill was reviewed by reference to the property's fair value less costs to sell at 31 December 2009. The fair value of the building was assessed based on reports by external valuers (see note 8). The carrying amount of the AIA Tower property at the end of the reporting period was US$154.7m (HK$ 1.2bn) after recognising a fair value gain of US$6.4m (HK$ 50.0m). However, under IAS 36, an impairment loss recognised for goodwill is not reversed in a subsequent period.
8 Investment property
|
Group |
Nam Van Peninsula |
Riviera (formerly known as Lorcha)
|
AIA Tower |
Other |
31 December 2009 |
31 December 2008 |
|
|
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
|
At beginning of year |
29,677 |
106,546 |
148,387 |
3,845 |
288,455 |
114,584 |
|
Additions |
18 |
10 |
- |
1,186 |
1,214 |
295,335 |
|
Disposal |
(29,695) |
- |
- |
- |
(29,695) |
(78,116) |
|
Fair value adjustment |
- |
15,148 |
6,441 |
630 |
22,219 |
(43,348) |
|
Exchange difference |
- |
- |
(89) |
- |
(89) |
- |
|
Balance at end of year |
- |
121,704 |
154,739 |
5,661 |
282,104 |
288,455 |
The Group's investment properties as at 31 December 2009 were revalued by independent professionally qualified valuers Jones Lang LaSalle, based on current prices in an active market.
During 2008, the Group made a payment of 30% of the final purchase price in order to acquire the Riviera investment (previously known as Lorcha). The payment made is equivalent to US$39.5m (HK$308m) or US$41.0m (HK$324m), including acquisition costs. The value of this investment at 31 December 2009 is US$121.7m (HK$964m) (31 December 2008: US$106.5m/HK$825m). The Group will pay a final stage payment plus estimated costs equivalent to US$93.0m (HK$735m) (31 December 2008: US$93.0m/HK$721m) following completion of the project. This amount has been recorded as a current liability. The final stage payment was expected to be due in the first quarter of 2010, however the Group has signed an agreement with the developer which grants the Group a six-month extension to the final stage payment.
On 26 February 2009, the Group acquired 100% of the ordinary share capital of Golden Jade Investments Limitada, an unlisted company based in Macau involved in property investment and management business, for a total consideration of US$0.7m (HK$5.4m). The sole asset of Golden Jade Investments Limitada was a property located at Wan Keng valued at US$0.8m (HK$6.0m) at 31 December 2009.
During the year, the Group sold all the properties in the Nam Van Peninsula holding resulting in a loss on disposal of US$3.6m (HK$27.9m). The outstanding bank finance of US$17.9m (HK$138.8m) secured on the properties has been repaid to Seng Heng Bank Limited in Macau.
9 Trade and other receivables
|
|
Group |
Company |
Group |
Company |
|
|
31 December 2009 |
31 December 2009 |
31 December 2008 |
31 December 2008 |
|
|
US$'000 |
US$'000 |
US$'000 |
US$'000 |
|
Prepayments and other receivables |
1,627 |
45 |
2,258 |
119 |
|
Total |
1,627 |
45 |
2,258 |
119 |
10 Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and deposits held at call with banks. All cash and bank balances are available for operational use in the Group.
11 Basic and diluted earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to owners of the Company by the weighted-average number of Ordinary Shares in issue during the year.
|
|
31 December 2009 |
31 December 2008 |
|
Gain/(loss) attributable to owners of the Company (US$'000) |
15,251 |
(46,327) |
|
Weighted average number of Ordinary Shares in issue (thousands) |
116,822 |
123,709 |
|
Basic earnings/(loss) per share (cents per share) |
13.05 |
(37.45) |
|
Diluted earnings/(loss) per share (cents per share) |
13.05 |
(37.45) |
There is no difference between the basic and diluted loss per share for the current and preceding year as the exercise of options would be anti-dilutive.
12 Interest-bearing loans and borrowings
This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings.
|
|
31 December 2009 |
31 December 2008 |
|
|
US$'000 |
US$'000 |
|
Non-current liabilities |
|
|
|
Secured bank loans |
76,249 |
91,936 |
|
Current liabilities |
|
|
|
Secured bank loans |
2,880 |
3,387 |
The Group has a term loan facility of US$77.4m (HK$600m) with Banco Weng Hang SA which is secured by way of a first legal mortgage against the AIA Tower property in Macau. Under the terms of the financing agreement, following the audit of the annual accounts, any surplus cash is swept up to the lender. The remaining loan will be repayable at final maturity in March 2011. The loan bears 1.85% interest per annum over the 3 month Hong Kong Inter Bank Offered Rate (HIBOR). On 5 March 2010, the Company repaid US$2.6m (HK$20m) of the loan principal under the terms of the cash sweep facility.
The Group has a term loan facility of US$0.8m (HK$6.5m) (initially US$0.9m (HK$ 7.2m)) with Citic Ka Wah Bank Limited in Macau which is secured by way of a first legal mortgage against the Houston Court property in Macau. The loan is repayable by instalments with a final payment of US$0.5m (HK$4.0m) payable in October 2011. The loan bears 2.6% interest per annum over the 3 month Hong Kong Inter Bank Offered Rate (HIBOR).
The Group has a term loan facility of US$0.5m (HK$4.0m (initially US$0.6m (HK$ 4.5m)) with Banco Weng Hang S.A in Macau which is secured by way of a first legal mortgage against the Pink Palace property in Macau. The loan is repayable by instalments with a final payment of US$0.2m (HK$1.4m) payable in September 2013. The loan bears 2.5% interest per annum over the 1 month Hong Kong Inter Bank Offered Rate (HIBOR).
The Group has a term loan facility of US$0.4m (HK$ 3.2m) (initially US$0.5m (HK$ 3.7m)) with China Construction Bank in Macau which is secured by way of a first legal mortgage against the Wan Keng property in Macau. The loan will be repaid by instalments with the final instalment payable in September 2022. The loan bears 0.7% interest per annum over the 1 month Hong Kong Inter Bank Offered Rate (HIBOR).
During the year, the Group repaid its term loan facility of US$17.9m (HK$138.8m) with Seng Heng Bank Limited in Macau, in relation to the Nam Van Peninsula property.
13 Trade and other payables
|
|
Group 31 December 2009 |
Company 31 December 2009 |
Group 31 December 2008 |
Company 31 December 2008 |
|
|
US$'000 |
US$'000 |
US$'000 |
US$'000 |
|
Non-current liabilities |
|
|
|
|
|
Payable on acquisition of investment property |
- |
- |
92,260 |
- |
|
Current liabilities |
|
|
|
|
|
Payable on acquisition of investment property |
92,260 |
- |
- |
- |
|
Property taxes payable |
668 |
- |
672 |
- |
|
Sundry creditors and accruals |
4,494 |
434 |
5,182 |
514 |
|
Total |
97,422 |
434 |
5,854 |
514 |
14 Directors' remuneration
The maximum amount of remuneration payable to the Directors permitted under the Articles of Association is £200,000 per annum (2008: £200,000). The Directors are entitled to receive reimbursement of any expenses in relation to their appointment. Total fees and expenses payable to the Directors for the year ended 31 December 2009 amounted to fees of US$166,629 and expenses of US$149,344 (year ended 31 December 2008: fees of US$240,480 and expenses of US$31,260).
15 Acquisition of subsidiaries
On 26 February 2009 the Group acquired 100% of the ordinary share capital of Golden Jade Investments Limitada, an unlisted company based in Macau involved in property investment and management business, for a total consideration of US$0.7m (HK$5.4m). The sole asset of Golden Jade Investments Limitada was a property located at Wan Keng valued at US$0.7m (HK$5.4m) at the acquisition date.
16 Financial instruments
The Group's activities expose it to a variety of financial risks: market price risk, foreign exchange risk, credit risk, liquidity risk and cash flow interest rate risk.
All financial instruments are considered to be stated at amounts which approximate their fair value.
Market price risk
The Group's strategy on the management of market price risk is driven by the Group's investment objective. The Group has been established to invest primarily in the high quality commercial residential real estate market of Macau. The main objective of the Group is to provide shareholders with an attractive overall return to be achieved primarily through long-term capital growth. The Group's market price risk is monitored by the Investment Adviser on a day to day basis and by the Directors at Board meetings.
The Group is exposed to property price and property rental risk. The Group is not exposed to the market risk with respect to financial instruments as it does not hold any equity securities.
Foreign exchange risk
The Group's operations are conducted in jurisdictions which generate revenue, expenses, assets and liabilities in currencies other than the Hong Kong Dollar (the Functional Currency). As a result, the Group is subject to the effects of exchange rate fluctuations with respect to these currencies. The currency giving rise to this risk is primarily the US Dollar. The Hong Kong Monetary Authority operates a linked exchange rate system for the Hong Kong Dollar : US Dollar exchange rate and as a result the Group considers currency risk to be minimal.
The Group's policy is not to enter into any currency hedging transactions. At the reporting date the Group had the following exposure:
|
Currency |
|
31 December 2009 |
31 December 2008 |
|
|
|
% of Net Assets |
% of Net Assets |
|
Hong Kong Dollar |
|
100.00 |
100.00 |
|
US Dollar |
|
0.00 |
0.00 |
The following table sets out the Group's total exposure to foreign currency risk and the net exposure to foreign currencies of the monetary assets and liabilities:
|
31 December 2009 |
Monetary Assets US$'000 |
Monetary Liabilities US$'000 |
Net Exposure US$'000 |
|
Hong Kong Dollar |
38,213 |
(176,117) |
(137,904) |
|
US Dollar |
12 |
(434) |
(422) |
|
|
38,225 |
(176,551) |
(138,326) |
|
31 December 2008 |
|
|
|
|
Hong Kong Dollar |
32,244 |
(192,923) |
(160,679) |
|
US Dollar |
471 |
(514) |
(43) |
|
|
32,715 |
(193,437) |
(160,722) |
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 carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date. This relates also to financial assets carried at amortised cost, as they have a short term maturity.
At the reporting date, the Group's financial assets exposed to credit risk amounted to the following:
|
|
31 December 2009 |
31 December 2008 |
|
|
US$'000 |
US$'000 |
|
Trade and other receivables |
1,627 |
2,258 |
|
Cash at bank |
36,598 |
30,457 |
|
|
38,225 |
32,715 |
The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.
The Group manages its credit risk by monitoring the creditworthiness of counterparties regularly. Cash transactions and balances are limited to high-credit-quality financial institutions. Trade and other receivables relate mostly to rental and related income and this is monitored by the active management of the properties. The Investment Manager and the Board of Directors do not expect any losses from non-performance by these counterparties.
Liquidity risk
The Group manages its liquidity risk by maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. The Group's liquidity position is monitored by the Manager and the Board of Directors. Residual undiscounted contractual maturities of financial liabilities at the reporting dates were:
|
|
Less than 1 month |
1-3 months |
3 months to 1 year |
1-5 years |
No stated maturity |
|
Financial liabilities |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
|
2009 |
|
|
|
|
|
|
Trade and other payables |
5,162 |
- |
92,260 |
- |
- |
|
Deferred income tax |
- |
- |
- |
- |
7,575 |
|
Bank loan |
- |
2,656 |
224 |
76,249 |
- |
|
|
5,162 |
2,656 |
92,484 |
76,249 |
7,575 |
|
|
|
|
|
|
|
|
2008 |
|
|
|
|
|
|
Trade and other payables |
5,854 |
- |
- |
92,260 |
- |
|
Deferred income tax |
- |
- |
- |
- |
6,451 |
|
Bank loan |
- |
1,453 |
1,934 |
91,936 |
- |
|
|
5,854 |
1,453 |
1,934 |
184,196 |
6,451 |
The Company is currently in discussions with various banks with a view to financing the amount of US$92m due to be paid out in the third quarter of 2010 in relation to the Riviera property. Pre-sales of units commenced in March 2010 in order to reduce the amount financed.
Interest rate risk
Cash held by the Group is invested at short-term market interest rates. The Group has four interest-bearing loans, with interest at variable rates. As a result, the Company is not exposed to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates. However, it is exposed to interest rate cash flow risk.
The table below summarises the Group's exposure to interest rate risks at 31 December 2009. It includes the Group's financial assets and liabilities at the earlier of contractual re-pricing or maturity date, measured by the carrying values of assets and liabilities:
|
|
Less than 1 month |
1-3 months |
3 months to 1 year |
1-5 years |
Non-interest bearing |
Total |
|
|
|
|
|
|
|
|
|
31 December 2009 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
|
Financial assets |
|
|
|
|
|
|
|
Trade and other receivables |
- |
- |
- |
- |
1,627 |
1,627 |
|
Cash |
- |
- |
- |
- |
36,598 |
36,598 |
|
Total financial assets |
- |
- |
- |
- |
38,225 |
38,225 |
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
Trade and other payables |
- |
- |
- |
- |
(97,422) |
(97,422) |
|
Deferred income tax |
- |
- |
- |
- |
(7,575) |
(7,575) |
|
Bank loan |
- |
(2,656) |
(224) |
(76,249) |
- |
(79,129) |
|
Total financial liabilities |
- |
(2,656) |
(224) |
(76,249) |
(104,997) |
(184,126) |
|
|
|
|
|
|
|
|
|
Total interest rate sensitivity gap |
- |
(2,656) |
(224) |
(76,249) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31 December 2008 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
US$'000 |
|
Financial assets |
|
|
|
|
|
|
|
Trade and other receivables |
- |
- |
- |
- |
2,258 |
2,258 |
|
Cash |
30,457 |
- |
- |
- |
- |
30,457 |
|
Total financial assets |
30,457 |
- |
- |
- |
2,258 |
32,715 |
|
|
|
|
|
|
|
|
|
Financial liabilities |
|
|
|
|
|
|
|
Trade and other payables |
- |
- |
- |
- |
(98,114) |
(98,114) |
|
Deferred income tax |
- |
- |
- |
- |
(6,451) |
(6,451) |
|
Bank loan |
- |
(1,453) |
(1,934) |
(91,936) |
- |
(95,323) |
|
Total financial liabilities |
- |
(1,453) |
(1,934) |
(91,936) |
(104,565) |
(199,888) |
|
|
|
|
|
|
|
|
|
Total interest rate sensitivity gap |
30,457 |
(1,453) |
(1,934) |
(91,936) |
|
|
At 31 December 2009, should the interest rates have increased/decreased by 100 basis points with all other variables remaining constant, the increase/decrease in interest (paid)/received for the year would amount to approximately (US$872,000)/ US$335,000 (2008:(US$438,000)/US$462,000).
Fair Values
All financial assets and liabilities at 31 December 2008 and 31 December 2009 are considered to be stated at their fair values.
17 Post balance sheet events
The Company has signed an agreement with the developer of Riviera which grants the Company a six-month extension option to the final stage commitment of approximately US$93m (including acquisition costs) in relation to that development. This final stage commitment had originally been expected during the first quarter of 2010.
Riviera, located at Rua Do Almirante Sergio No. 94 - 100, Macau, is a forward funding arrangement to acquire 259 high-end residential units in two towers (out of a total of 581 units).
In consideration for the extension, the Company has agreed to pay the developer 4.8% interest on any outstanding amounts payable, plus associated arrangement fees, an extension fee of US$52,000 (HK$400,000) and a security deposit of US$645,000 (HK$5m). Under the agreed extension, all proceeds of sales of apartments completed prior to the final payment date will be paid to the developer of Riviera and 95% of such proceeds will be used to reduce the outstanding amounts payable, with 5% returned to the Company at the end of each month.
In the last week, the Company has commenced, with the developer, a joint marketing programme for the sale of certain units within the Riviera development (formerly known as "Lorcha"). The Board expects to be in a position to provide a further update to shareholders on the progress of this shortly after the release of this report.
18 Capital commitments
The Company is committed to a final stage payment on the Riviera property of US$93m (HK$735m) that includes provision for acquisition costs. This amount, which is expected to be payable in the third quarter of 2010, has been included in current liabilities. The Board's objective is to preserve the non-recourse nature of the Company's property financing arrangements.
19 Copies of the Annual Report
The above financial information does not constitute statutory accounts and the figures included above are based upon the audited accounts for the period ended 31 December 2009. The full audited accounts for the period ended 31 December 2009 will be sent to shareholders and will be available on the Company's website www.speymillmacau.com or from the Company's registered office at Third Floor, Britannia House, St George's Street, Douglas, Isle of Man IM1 1JE.
Related Shares:
TCA.L