17th Sep 2007 09:00
Macau Property Opportunities Fund17 September 2007 Macau Property Opportunities Fund Limited ("MPO" or the "Company") Final results for the period ended 30 June 2007 Macau Property Opportunities Fund Limited is pleased to announce its finalresults for the period ended 30 June 2007. The Company, which is managed bySniper Capital Limited, develops and invests in property opportunities primarilyin Macau and also in the Western Pearl River Delta region of Southern China. Highlights • The Company was admitted to AIM in June 2006 following the placing of 105 million shares raising US$196.5 million (£105 million) • Three strategic acquisitions made in the period, committing US$148 million, representing 78% of the Company's total equity • 38% uplift in property portfolio valuation and 25.2% uplift in Adjusted NAV per share since admission • Strong pipeline of potential investment opportunities with 9 sites (value of c.US$500 million) currently under negotiation • Substantial ongoing foreign investment in hotels, casinos and integrated resorts underpinning all segments of the Macau market. David Hinde, Chairman, said: "We believe these results demonstrate the success of Sniper Capital's strategyof targeting niche and strategically positioned assets in the region and theirstringent acquisition criteria. The Company has a strong pipeline of investmentopportunities and I am confident that the Company will continue to generatesignificant value for shareholders in the years ahead." For further information: Public Relations Hogarth Partnership Limited No. 1 London Bridge London SE1 9BG Andrew Jaques/Sarah Richardson Tel: +44 20 7357 9477 Nominated Adviser & Broker Collins Stewart Europe Limited 9th Floor, 88 Wood Street London EC2V 7QR Hugh Field/Jonny Sloan Tel: +44-7523 8350 Manager Sniper Capital Limited Tel: +852 2292 6700 Email: [email protected] www.snipercapital.com Website: www.mpofund.com Stock Codes: Bloomberg: MPO LN Reuters: MPO.L Macau Property Opportunities Fund Limited is a closed-end investment fundregistered in Guernsey and traded on the Alternative Investment Market of theLondon Stock Exchange. The Company's investment policy is to provide shareholders with an attractivetotal return through investing in property opportunities in one of the world'sfastest growing and most dynamic regions - Macau and the Western Pearl RiverDelta of Southern China. The Fund is managed by Sniper Capital Limited, an independent investment managerthat specialises in property investment opportunities in niche, undervalued anddeveloping markets. Chairman's Statement It gives me great pleasure to present to shareholders the maiden annual resultsof Macau Property Opportunities Fund Limited ('MPO' or 'the Company') for theperiod ended 30 June 2007. During its first full year of operation, MPOdemonstrated encouraging progress in the execution of its investment strategyand firmly established itself as a leading investor in the Macau market. Since admission, the Company has made three strategic acquisitions out of atotal of 93 sites assessed, each bringing with it unique and valuable attributesto the Company's portfolio. This high degree of selectivity clearly illustratesthe Company's adherence to its stringent and disciplined investment process ofacquiring well-positioned assets within targeted market segments. The combinedacquisition and estimated development costs of these three projects takes MPO'stotal commitments to-date to US$148 million, or approximately 78% of theCompany's total equity, of which US$47 million had been paid in cash as at 30June 2007 out of anet US$189 million raised on admission to trading on AIM. The Adjusted NAV per share* as at 30 June 2007 was US$2.2534 (112.6p), a 25.2%increase over the Company's NAV per share of US$1.8001 (96.21p) on admission.These results demonstrate the ability of the Manager, Sniper Capital, togenerate attractive total returns for the Company's shareholders through theacquisition of niche and strategically positioned assets in its target marketsof Macau and the Western Pearl River Delta region of Southern China. I ampleased to note that this has been reflected in strong outperformance of theCompany's stock price versus the overseas property fund sector since admissionand that MPO remains one of the top performing AIM-listed overseas propertyfunds this year. Looking ahead, MPO continues to identify a strong flow of exciting investmentopportunities, with nine sites having a combined value of approximately US$500million currently under negotiation. I remain satisfied with the quality andtype of investment proposals being presented to the Board and am encouraged bythe Manager's steadfast pursuit of our core investment principles. With the compelling macro, micro and demographic trends in Macau and thesurrounding Western Pearl River Delta combined with the focused and disciplinedexecution skills of Sniper Capital, I am confident that the Company has positiveand exciting prospects and will continue to generate significant value forshareholders in the years ahead. David Hinde Chairman Macau Property Opportunities Fund Limited * NAV per share & Adjusted NAV per share as at 30 June 2007. Adjusted NAV pershare is calculated by taking the NAV per share calculated under IFRS andadjusting inter alia to include the properties owned by the Company at netrealisable value rather than at the lower of cost or net realisable value. Manager's Report The Company's first full year of operation proved to be productive, with thesuccessful completion of three acquisitions totalling US$148 million incommitment value, or approximately 78% of the Company's total equity. Sincethen, the Manager has continued negotiations on a number of interestingopportunities, whilst adhering to its disciplined approach of seeking to acquirestrategically well-positioned assets in its stated market segments. With nine sites totalling approximately US$500 million in combined acquisitionvalue currently at advanced stages of review or negotiation, the Company is oncourse to be substantially invested by year-end. Macau remains a small and difficult market in which to operate, with lengthynegotiation times going hand-in-hand with the most lucrative and best-positionedopportunities. Conversion of deals often requires overcoming multiple ownershipstructures, complex title issues and extended due diligence processes. Despite the economic buoyancy being experienced in the Hong Kong and Macaulabour markets, the Manager has successfully recruited a number of high qualityindividuals in the areas of research, finance, project management andoperations. This has more than doubled the size of its team to 16 people sinceadmission, and will further assist with the sourcing, development, marketing andmanagement of the Company's properties. With an expanding local presence andgrowing reputation as one of the few key international operators in Macau,Sniper Capital is well-positioned to continue to expand and strengthen itsresources over the coming year. Sniper Capital's on-the-ground presence, strong reputation and well-establishedlocal network continue to generate a consistent stream of interesting and variedopportunities. The combination of its strong international relationships andlocal market presence is proving invaluable in allowing the Manager to maximiseinvestor returns through combining international levels of quality in design,development and finishing with its local knowledge, partners and access toprojects. The Company's public profile has grown significantly during the year, assistedby our strategic investor relations efforts, the continued growth ininternational media coverage of Macau and a number of articles about MPO in highquality publications. With the recent launch of the Venetian Macao in August anda number of other high-profile casino/resort openings imminent, theinternational focus on Macau is set to escalate further. Current investments & pipeline In its maiden year, the Company has made three significant property acquisitionsin Macau amounting to a total commitment (including estimated development costs)of US$148 million. The Company's transaction flow has been achieved primarily bymeans of the Manager's well-established local network and to a lesser extentthrough an expanding range of relationships with local developers, financialinstitutions and agents. The Company's three portfolio properties remain at various stages of developmentas indicated in the portfolio summary below. We are pleased with the quality and positioning of these properties and havebeen in ongoing negotiations on a number of similarly interesting opportunitiesthroughout the year. Sniper Capital continues to adhere to its disciplinedapproach of seeking to acquire strategically well positioned assets in itstarget market segments and continues to reject assets which are believed to bein less desirable locations or in sub-optimal market segments. Steady progress is being made on a number of attractive investment opportunitiesand we remain optimistic that this should lead to further acquisitionannouncements in the near future. Currently nine sites with a combinedacquisition value of approximately US$500 million are at advanced stages ofnegotiation. Despite the small, niche market in which Sniper Capital isoperating, there has been no reduction in the flow of interesting sites assessedover the last year, indicating the strength of our private local sourcingnetwork. We remain cautious of the middle-market residential sector across Macau,continuing to focus on our core target areas: • residential projects in well-established neighbourhoods • super-luxury residential projects in prime locations • entry-level residential projects • retail projects in well-established neighbourhoods • leisure/commercial projects in strategic locations • affordable hotel and serviced apartment projects in key locations The Manager believes that the Company has sufficient capital at the present timefor the completion of the current owned and targeted acquisitions and, inaddition, is in discussions with a number of institutions for the arrangement ofdebt financing for the development and redevelopment of all such projects. Property Portfolio The Company's three acquisitions to date have been on Macau Peninsula, allwithin the residential sector, but targeted at very different areas of thismarket segment. Portfolio Summary Sector Type Positioning Current status Acquisition Expected Total capital cost redevelopment commitment* cost (US$m) (US$m) (US$m) 1 Residential Redevelopment Local Residents Planning 8.6 7.08 15.68 2 Residential Development Premium Luxury Construction 86.58 N/A 86.58 3 Residential Redevelopment Entry Level Consolidating 20.57 25.39 45.96 Total 115.75 32.47 148.22 * Includes acquisition & expected redevelopment costs. Property 1 Property 1 was acquired in October 2006 and is a 100% interest in a primeresidential redevelopment project, located in a very well-established andpopular residential neighbourhood. The site is currently unoccupied and isideally suited for a mid-rise residential development targeted towards localresidents seeking to upgrade the quality of their existing accommodation andfacilities. The planning and design process for this site continues to progresswell, with initial concepts having been received from prequalified architectsand with construction expected to commence in the first half of 2008. In themeantime, continued price escalation and income growth in the vicinity bodeswell for the ultimate selling price of the units. It is the Company's currentintention to sell all of the residential units in this project either on apre-sale basis or on completion. Acquisition date 17 October 2006Sector ResidentialLocation South-Western Macau PeninsulaCurrent status PlanningTitle FreeholdClassification Residential/CommercialLand area 13,000 ft(2)/1,200 m(2)Acquisition cost US$8.6 millionProjected development cost US$7.08 millionTotal commitment US$15.68 millionPositioning Local middle-income residentsProposed development Apartments with car parkingEstimated completion date End 2009 Property 2 Property 2 was acquired in November 2006 and comprises an entire luxuryresidential tower (Tower Six), forming part of a high-end, mixed-use waterfrontproject, 'One Central', currently under construction in the heart of Macau. Thisprestigious project is being jointly developed by two of the region's topdevelopers, Hongkong Land and Shun Tak Holdings, and includes a 400,000 squarefoot premier shopping complex, a 210-room, 6-star Mandarin Oriental Hotel and a50,000 square foot clubhouse and infinity pool for the exclusive use ofresidents. The residential portion of the project, 'One Central Residences', comprisesseven residential towers, two of which have been sold en bloc by the developerand the remainder released and reportedly sold out to the public. Due forcompletion in 2009, 'One Central' is a development of unprecedented quality andpositioning, setting new standards of design, finishing and luxury which givethe Company immediate participation in one of its core target segments, thepremium luxury residential market. Development is on schedule, with foundationwork now completed and construction of the podium area well advanced. Thesurrounding area continues to be transformed, with the scheduled opening of theadjacent MGM Macau later this year and the announcement by Wynn Macau of asecond hotel tower due for completion in 2010. It is the Company's currentintention to retain ownership of Tower Six until completion of the project. Acquisition date 13 November 2006Sector ResidentialLocation Central Macau PeninsulaCurrent status Under constructionTitle LeaseholdClassification Mixed useGross floor area 148,000 ft(2)/13,750 m(2)Acquisition cost US$86.58 millionTotal commitment US$86.58 millionPositioning Premium luxuryProposed development High rise apartment towerEstimated completion date Mid 2009 Property 3 Property 3 was acquired in November 2006 and is a 100% interest in aredevelopment site located in an up-and-coming area for entry-level buyerssituated close to the China border in the northern part of Macau. Thesurrounding area is now undergoing widespread regeneration and urban renewal, asdemand for entry-level residential property increases and as available land inestablished areas becomes increasingly scarce. MPO intends to develop the siteinto a multi-storey residential project designed to cater for this rapidlygrowing market segment of entry-level purchasers. The Company remains in activenegotiations to acquire additional parcels of land in the area to consolidateits holdings in this promising location, after which planning and architecturaldesign processes will be initiated. Acquisition date 13 November 2006Sector ResidentialLocation Northern Macau PeninsulaCurrent status ConsolidatingTitle LeaseholdClassification Residential/retailLand area 20,000 ft(2)/1,860 m(2)Acquisition cost US$20.57 millionProjected development cost US$25.39 millionTotal commitment US$45.96 millionPositioning Entry-levelProposed development High-rise apartment blockEstimated completion date End 2009 Property market The Macau property market performed strongly during the year, with most sectorscharacterised by rapidly developing supply and demand dynamics and a range ofvery significant external and internal developments. The single largest driverremains the substantial ongoing foreign investment in hotels, casinos andintegrated resorts. With the large number of projects planned and underconstruction by both foreign and domestic companies, this situation looks set tocontinue in the coming years. Domestically, a number of issues have arisenduring the year which had significant and varying impact on different sectors ofthe Macau property market, including: • government policy changes on residency scheme entitlements • changes to visitor visa application regulations • infrastructure spending • reviews of development approvals and land policy • increased regulation of foreign investment across the border in Mainland China Although these domestic issues have caused some short-term uncertainty in themarkets, we believe that over the longer term these issues should result in astronger, better regulated and better structured market across Macau. Residential In the residential market the demand drivers remained robust throughout theyear, with transactions in 1Q07 increasing by 115% YoY to 10,324. Secondarytransactions rose 77% during this period while primary transactions surged by254%. These numbers moderated slightly in 2Q07, but total transactions werestill up 90% YoY for 1H07, with analysts forecasting continued significantgrowth in demand for local housing going forward. Demand has been driven by thestrong population influx, rising household incomes and rapid householdformation, with rental growth supported by imported labour for both theconstruction and operation of the new hotels, casinos and integrated resorts. The effect of rising incomes can be seen most dramatically on residentialproperty affordability, where overall affordability across the sector hasimproved despite the growth seen in property prices since 2005. Looking ahead, some analysts are expecting household income to increase at 10%per annum for the next few years, but for residential property prices toaccelerate to a 20% compound annual growth rate. This would have the effect ofreducing overall affordability but still keeping it within 'comfortable' levelsand well within current Hong Kong levels. As experienced in other markets across Asia, however, declining levels ofoverall market affordability can have significant implications for developers ofresidential property, whether targeted at investors or the local population. TheCompany is therefore monitoring these developments carefully in order to fullycapitalise on the opportunities such changes will inevitably present. The strength of demand has created a positive year for Macau's residentialproperty market, resulting in an impressive 90% sales record for the 10residential projects launched for sale in the last 12 months. The rapid growthin employment from the new casino developments has driven down unemploymentrates to historic lows of 3.0% and increased the population of Macau by 11% overthe past 24 months. Imported labour at the end of 2Q07 was up 20.3% YoY. Withfurther developments scheduled to reach completion every year for the next fiveyears, there is currently no sign of this job growth situation changing. This islikely to continue to have substantial and positive effects on residentialdemand growth for the years ahead. Goldman Sachs estimates that an average of 10,000 new households per year willbe created from 2007 to 2010, representing a 13% growth in Macau's totalpopulation over the same period. This level of growth will far exceed the 24,000households formed in the last 5 years, and far outstrips the current forecastsof residential property completions. At the same time, the continued competition for labour from the new hotels andcasinos has resulted in rapid growth in earnings and household income for Macauresidents. This earnings growth has outstripped the growth seen in propertyprices since 2005, and looking ahead there seems little reason to see itmoderate. Hong Kong residential property prices are often used as a benchmark for Macau'sresidential rents and values, particularly in the luxury sector. Luxuryresidential prices in Hong Kong have been setting records during the last year,with new high-rise residential projects across Hong Kong and the New Territoriesincreasingly commanding substantial premiums ranging from HK$20,000 - HK$40,000per square feet. Against this backdrop, the current luxury residential pricesbeing achieved in Macau for new super luxury high-rise projects of HK$5,000 -HK$7,000 per square feet should continue to be very attractive to Hong Konginvestment capital, and leave considerable opportunity for price increases asthey catch up with their Hong Kong equivalents. Casinos and hotels Gaming receipts are the principal measure of success for the casino industry.For the six months to June 2007 these rose by 46.3% YoY to US$4.8bn. This stronggrowth came on the back of visitor arrival growth for the six months to June2007 of 21.3% YoY, bringing the cumulative number of visitors to 12.6 millionfor the 1H07. The much awaited growth in hotel nights in Macau is beginning tomake itself felt, albeit slowly, with a YoY growth of 38.6% in June 2007, andwith average hotel occupancy rate increasing by 3.3 percentage points to 73.7%,with 4-star hotels leading the way at 80.7%. The average length of stay of hotelguests increased by 0.11 nights to 1.26 nights, despite the number of hotelrooms increasing by 12.5% from 11,748 in June 2006 to 13,222 currently. Themajority of hotel guests originated from Mainland China (45.3%) and Hong Kong(31.5%). In May 2007, the Crown Macau in Taipa was opened by the US-listed Melco-PBLjoint venture, adding to the market 222 gaming tables and 550 slot machines aswell as VIP rooms, over five floors. The Crown presents itself as a 6-starcontemporary hotel and casino primarily devoted to the high-end gaming market. The latest milestone event for Macau was the August opening of the Las VegasSands' Macau flagship, the US$2.3 billion, 3,000-room Venetian Macao resort.With a reported US$25 million marketing budget, this will continue to makeheadlines over the coming months and is likely to kick-start the 'IntegratedResort' experience being developed on the Cotai Strip. The hotel, the casino,the arena and meetings/convention space were all fully operational on theopening date. Announcements of new or expanded projects across Macau continue to be releasedand include: • a second hotel block at the Wynn Macau following the success of itsinitial phase • Macau Studio City's US$4 billion, 6 million square feet project onthe Cotai Strip which will include a Ritz-Carlton hotel, Marriott hotel and aPlayboy club • a proposed casino to be developed by Genting/Star Cruises oppositethe Wynn Macau on the Macau Peninsula • a proposed US$3 billion Virgin Casino being planned on the CotaiStrip by Richard Branson of Virgin Group. The Macau Gaming Bureau forecasts 35 casinos to be operating by 2010 (versus 27today), which will ensure the continued growth in the development of the casinoand hotel sector in Macau. Infrastructure Macau infrastructure projects continue apace in order to keep up with the rapiddevelopment in the gaming and tourism sectors. Approval has been secured for theconstruction of the proposed Macau-Taipa tunnel, which is due to commence inOctober 2007, and work has also reached completion on a new border crossing withChina. The initial proposed plans for the Macau light rail project were recentlyreleased and it is understood that the final routing should soon be announcedfollowing a public consultation process. We believe that this project is animportant part of Macau's overall public infrastructure plan and will contributegreatly towards easing current and future traffic congestion, as well ascreating value in new locations as the system approaches operation. Retail The retail sector can be divided into two very distinct sectors: casino retail,and the non-casino, or local retail sector. The casino retail sector iscurrently undergoing something of a renaissance, with the new casinos andresorts providing an estimated 4 million square feet of new casino retail spaceplanned or under construction over the next few years. At the forefront of thisrenaissance is Las Vegas Sands Corporation's Venetian Macao, where over 400retailers are reportedly now committed, representing 80% of the 1.2 millionsquare feet of new retail space available. The influx of top internationalretailers is set to change Macau's retailing landscape dramatically and willlikely drive the strong anticipated growth in the Territory's non-gamingrevenues. The non-casino, or local retail sector, is driven by different dynamics;however, this sector is also performing strongly with retail sales up 21.3% YoY.This growth is largely due to the rising disposable incomes and increased jobsecurity of local households as well as the growing influx of new workers andexpatriates and the corresponding demand from local, Hong Kong and someinternational retailers wishing to cater to this demand. MICE The development of the Meeting, Incentive, Conference and Exhibition (MICE)industry is expected to have a significant impact on the Territory's non-gamingrevenues over the next few years. It is anticipated that the MICE industry will grow dramatically from a very lowbase once the Venetian Macao convention and exhibition centre makes its presencefully felt during the rest of 2007 and into 2008. It is unofficially reportedthat the response from organisers for this new state-of-the-art facility hasalready been very strong and some estimates forecast this industry could attractan additional 1.12 million business travellers to Macau every year. Office The grade A office sector in Macau remains limited in terms of both supply anddemand. However, there has recently been an increase in demand for grade Boffice space from the peripheral and support industries such astelecommunications, financial and other professional services, advertisingagencies and logistics companies. As a result of this growth in demand, theoffice sector recorded the highest growth in the number and value oftransactions in 1Q07, with increases of 266% and 458% YoY respectively. Again,this growth is off a relatively low base and is therefore likely to become moremuted in the months and years ahead. Economic overview In the first half of 2007, Macau's economy grew by 31.4% in real terms and 39.4%in nominal terms, mainly driven by private investment and exports of services. Overall visitor spending increased on the back of the flourishing gaming andtourism sector, while exports of goods dropped. Exports of gaming services inthe first half of 2007 grew by 46.2% and visitor arrivals continued to rise, up21.3% YoY to 1H07, while per-capita spending of visitors increased by 0.8% YoYto US$184. Visitors from Mainland China who make up 54% of the visitors had anaverage per-capita spending of US$356. The domestic employment situation continued to improve and median employmentearnings registered a significant increase which both contributed to a strongincrease in private consumption expenditure. Overall median monthly employmentearnings rose by 19.3% to US$957 in 2Q07. Amongst the various economicactivities, employment earning in the 'real estate business' logged the highestgrowth at 30.9%. As a result of the continued demand for labour, theunemployment rate dropped by 0.8% to 3.0% during 2Q07, and private consumptionexpenditure recorded real growth of 13.1%. The total value of retail sales grewby 5.4% over the first quarter of 2007 to US$406 million in 2Q07, representing astrong 27.1% growth YoY. Overall investment managed to sustain a strong growth rate, driven by theon-going construction of the large-scale gaming, integrated resort andentertainment facilities. As a result, investment in construction in the privatesector surged by 42.4%, and by 77.4% in the public sector. Key economic statistics Period Figure YoY% Unemployment rate Jun 07 3% -0.8%CPI Jun 07 114.7 +5.3%Visitor arrivals Jan-Jun 07 12.64m +21.3%Gaming receipts Jan-Jun 07 US$4.79bn +46.3%Retail sales 2Q07 US$400m +28.9%Median monthly income 2Q07 US$963 +19.3%Real GDP 2Q07 US$4.73bn +31.4%Population Jun 07 520,000 +5.87% Government policy The most immediate and dramatic policy issue to affect the Macau property marketis the government's review of land policy. In particular the government islooking to introduce greater transparency to the government land disposalprocess, potentially through the introduction of a land auction system. Theshort-term impact of this is that applications for land swaps, land-useconversions and increased plot ratios have all been suspended or delayed pendingthe introduction of the new system. Some analysts predict that this delay couldlead to a 30% drop in medium-term residential supply from 4,300 units per yearto 3,100 units per year over the next four years. The longer-term impact of thisland policy review is positive for the overall market as it will lead to a morelevel playing field for all market participants, better urban planning, moresustainable long-term growth and could provide an additional boost to propertyprices by allowing more international participants to enter the market. Another policy which is likely to be mildly positive for the residentialinvestment market in Macau is the recent tightening of China's foreigninvestment rules, making it more difficult and more expensive for foreigners toinvest profitably in the property markets of mainland China. Retail investorslooking to gain exposure to China's economic growth in a more investor-friendlyand tax-efficient jurisdiction will therefore look at Macau as an attractive wayof securing such exposure. Policies which have had a more negative impact on the Macau market include thesuspension of the investment residency scheme in April 2007, and the recentrestrictions by central government on multiple visa applications. The former isa scheme whereby foreign nationals investing US$130,000 could apply for Macauresidency. At the time, we suggested this was only a short-term measure andwould have little or no lasting impact on the market, and indeed it seems thescheme is now set to be reintroduced with higher and more realistic investmentthresholds. The initial impact was a knee-jerk drop in low-end local housing prices, andeven this has since recovered. The second policy could be more damaging in theshort term to the growth of the gaming market in Macau by reducing the number ofrepeat visits by regular gamblers. In the longer term, however, we believe thatit is a reflection of Central Government's desire to control problem gamblingand to achieve a long-term and sustainable growth of the Macau gaming andconvention market. In general, government policy towards the development of the gaming, conventionand integrated resort business in Macau is extremely positive both from thelocal government and China's central government. The ultimate goal of theauthorities appears to be to ensure the long-term stable growth of theseindustries in Macau while at the same time balancing the needs of the localpopulation and ensuring that the necessary infrastructure is put in place tofacilitate and accommodate the pace of growth being generated. Financial Review Since its admission to AIM on 5 June 2006, Macau Property Opportunities Fund hasrecorded a strong set of financial results, reflecting its ability to executeaccording to its investment strategy and acquire niche sites at attractiveprices. As at the financial year-end 30 June 2007, the Company has spent US$47million on three property acquisitions with a combined total commitment,including estimated redevelopment costs, of US$148 million, out of converted netequity raised of US$189 million. The first site acquired is a prime residential redevelopment project, located ina very well-established neighbourhood on Macau Peninsula. The second sitecomprises an entire luxury residential tower, forming part of a high-end,mixed-use waterfront project on Macau Peninsula, 'One Central'. The third siteis a redevelopment site located in an up-and-coming area for entry-level buyerson Macau Peninsula. These properties have been valued as at 30 June 2007 bySavills, resulting in an uplift in Adjusted NAV of US$45 million (equivalent toan overall 38% increase above the cost of the three properties), which equatesto an increase in the value of the Company of 23.2%. When these property revaluations are combined with the operating profit/loss forthe period, the Adjusted NAV of the Company has increased in US dollar terms by25.2%, leading to the calculation of a performance fee accrual over and abovethe Basic Performance Hurdle of 10% per annum on a compounding basis. The final audited results are summarised below: Date US$ £ NAV per share at admission # 05.06.06 1.8001 0.9621NAV per share ## 30.06.07 1.8290 0.9140NAV per share (after performance fee) ## 30.06.07 1.7928 0.8960Adjusted NAV per share ## 30.06.07 2.2534 1.1260Adjusted NAV per share (after performance fee) ## 30.06.07 2.2172 1.1080Adjusted NAV uplift since Admission 25.2% 17.0% # Using US$/£ exchange rate of 1.871. ## Using US$/£ exchange rate of 2.001. The net proceeds from the placing were £101.02 million after deducting expensesof Admission and Placing of £3.98 million. These net proceeds were convertedinto US dollars following the placing at an average exchange rate of US$1.871/£,resulting in converted net proceeds from the placing of US$189.01 million. The Company's audited financial statements as at 30 June 2007 have been preparedin accordance with International Financial Reporting Standards (IFRS), and thethree properties acquired by the Company to date have, therefore, been valued atthe lower of cost and net realisable value. This treatment results in anAccounting NAV per share for the Company of US$1.8290 compared to an NAV pershare on admission to AIM of US$1.8001. The main contributor to this increase isthe interest income earned on cash balances that have been maintained by theCompany during the period (primarily earned on cash balances that have beenmaintained with the Royal Bank of Scotland International in Guernsey). Valuation A valuation of all the Company's property holdings was carried out as at 30 June2007 by Savills (Macau) Limited. Savills is one of the leading internationalproperty advisers, with over 140 offices and associates across the UK,Continental Europe, Asia Pacific and Africa, and with a strong presence in HongKong and Macau. Savills' valuation has been used in the determination of the fair market valueof the Company's property interests and, hence, has been used in the calculationof the NAV and the Adjusted NAV of the Company. The valuation has been carriedout in accordance with the current Royal Institution of Chartered Surveyors(RICS) Appraisal and Valuation Standards to calculate the Market Value (which isalso defined by the Hong Kong Institute of Surveyors (HKIS)) of the propertiesin their existing state and physical condition. The Market Value of theseproperties is stated on page 9 of this document. The Adjusted NAV per shareresulting from this uplift is US$2.2534, representing an uplift of 25.2% to theNAV per share on admission to AIM. Financing The Company used cash that it held to purchase its first and third properties(as stated on page 26 of the Manager's Report). It is expected that bankfinancing will be obtained to pay for the redevelopment cost of theseproperties, and indicative terms have already been obtained from a number ofinternational financial institutions who have expressed strong interest inproviding financing for the redevelopment of these two properties. The Company has taken advantage of the payment terms provided on the purchase ofTower 6 of 'One Central Residences', which has resulted in only 20% of the totalacquisition cost being paid to the seller as of 30 June 2007. A further 10% ofthe total acquisition cost is due within 12 months of the financial year-end ofthe Company, with the 70% balance being payable on the handover of the propertywhich is expected to occur during 2009. The Company expects to obtain bankfinancing to fully fund the payment of the 70% acquisition cost balance. The Company will not breach its stated maximum level of gearing of 60% of theoverall value of the Company. Trading of shares The Company's shares were listed at an offer price of £1.00 as of 5 June 2006.The highest share price since admission was £1.3625 on 8 May 2007, and the shareprice as of 7 September 2007 is £1.155 per share, representing a 2.6% premiumabove the Adjusted NAV per share as of 30 June 2007. The Company's shares haveseen a steady increase in daily traded volumes since listing, with the averagedaily trading volume since admission now at approximately 300,000 shares perday. The highest daily volume traded was 8.96 million shares on 20 June 2007. Significant shareholdings* Name of shareholder Number of shares % Amvescap (Invesco & Aim) 26,675,786 25.40%GLG Partners 16,900,000 16.10%Universities Superannuation Scheme 10,500,000 10.00%Insight Investment Management 6,800,000 6.50%JP Morgan Fleming Asset Management 5,048,481 4.80%MPC Investors 4,465,604 4.20%Midas Capital Partners 3,880,000 3.70% 74,269,871 70.70%Other 30,730,129 29.30%Total 105,000,000 100.00% * As of 30 June 2007 Outlook 2007 is proving to be the most significant year yet in the transformation ofMacau into a world-class gaming and leisure destination, culminating with therecent opening of the Venetian Macao in August. With a stream of new casino/resorts opening over the next few years and continued strength in all economicindicators, the outlook for the Macau property market continues to lookpositive. The principal drivers of the residential and commercial property markets inMacau remain solidly intact, and the long-anticipated surge in the workingpopulation, combined with rapidly rising local disposable incomes and continuedinvestor interest, all bode well for demand and price appreciation across thelocal residential and commercial property markets in Macau. As the new generation of international quality construction projects begins toreach completion across the territory, the polarisation between the new andolder properties will become ever more apparent and will almost certainlyprovide further impetus to the performance of new properties, particular thoseat the top end of the market. This phenomenon, combined with the rapid growth inexpatriate rental demand, will add further fuel to investor interest in Macauand is positive for the performance of the Company's portfolio of high-endproperties. The Company's key focus remains on acquiring attractively valued andwell-positioned assets and development projects, which exhibit cleardifferentiation against other projects as well as sustainability of futuredemand. With a strong pipeline of sites under review, the Company remains ontrack to be substantially invested by year-end. Since admission to trading on AIM, MPO has capitalised on its early moveradvantage to secure its position as a leading investor in the Macau propertymarket. Looking ahead, the Company continues to identify a strong flow ofinvestment opportunities which should further contribute to NAV growth and buildon the Company's initial success in this market. Tom Ashworth/Martin Tacon Principals Sniper Capital Limited Directors' Report The Directors present their report and audited financial statements of theCompany for the period from incorporation on 18 May 2006 to 30 June 2007. Principal activities The Company is a Guernsey-registered closed-end investment fund traded on AIM,the market of that name operated by the London Stock Exchange. During the periodits principal activities were property development and investment in Macau andGreater China. Business review A review of the business during the period, together with likely futuredevelopments, is contained in the Chairman's statement on pages 6 to 7 and inthe Manager's report on pages 8 to 29. Results and dividend The results for the period are set out in the financial statements on pages 35to 49. The Directors have not recommended the payment of a dividend in respect of theperiod to 30 June 2007. Directors Biographies of the Directors who served during the period are detailed on page30. At the first Annual General Meeting of the Company all the Directors shallretire from office, and at each Annual General Meeting thereafter one third bynumber of the Directors shall retire from office in accordance with the Articlesof Association. A retiring Director shall be eligible for reappointment. No Director shall berequired to vacate his office at any time by reason of the fact that he hasattained any specific age. Directors' interests Directors who held office during the period and had interests in the shares ofthe Company as at 30 June 2007 were: ORDINARY SHARES OF US$0.01 Held at Held at 30-Jun-07 5-Jun-06 David Hinde 30,000 20,000Thomas Ashworth 750,000 525,000Richard Barnes 25,000 25,000Alan Clifton 50,000 50,000Timothy Henderson 25,000 25,000 Significant shareholdings As at 30 June 2007, a total of seven shareholders held more than 3% each of theissued ordinary shares of the Company, accounting for a total amount of74,269,871 shares or 70.7% of the issued shared capital. Full details areavailable on page 27 of the Manager's report. Directors' remuneration During the period the Directors received the following emoluments in the form ofDirectors' fees from the Company: US$ David Hinde 85,848Thomas Ashworth -Richard Barnes 53,655Alan Clifton 64,360Timothy Henderson 53,655*Total 257,518 * as disclosed in note 13 on page 49, Tim Henderson also received Director'sfees of US$13,000 from subsidiaries. Statement of Directors' responsibilities The Directors are responsible for preparing financial statements for eachfinancial period which give a true and fair view of the state of affairs of theCompany and of the profit or loss of the Company for that period and are inaccordance with applicable laws. In preparing those financial statements theDirectors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and estimates that are reasonable and prudent; • state whether applicable accounting standards have been followedsubject to any material departures disclosed and explained in the financialstatements; • prepare the financial statements on a going concern basis unless itis inappropriate to presume that the Company will continue in business. The Directors confirm that they have complied with the above requirements inpreparing the financial statements. The Directors are responsible for keeping proper accounting records whichdisclose with reasonable accuracy at any time the financial position of theCompany and which enable them to ensure that the financial statements complywith the Companies (Guernsey) Law, 1994. They are also responsible forsafeguarding the assets of the Company and hence for taking reasonable steps forthe prevention and detection of fraud and other irregularities. Independent Auditors PricewaterhouseCoopers CI LLP have agreed to offer themselves for reappointmentas Auditors of the Company and a resolution proposing their reappointment andauthorising the Directors to determine their remuneration will be presented atthe Annual General Meeting. Annual General Meeting The Annual General Meeting of the Company shall be held at 2.30 pm on 2 November2007 at the Registered Office of the Company, Polygon Hall, Le Marchant Street,St Peter Port, Guernsey. Corporate governance Guernsey does not have its own corporate governance regime and as an AIM-listedGuernsey-registered company, the Company is not required to comply with theCombined Code on Corporate Governance ('the Code'). However, the Directors ofthe Company support best practice in Corporate Governance and its practicalapplication to the Company's structure and decision-making processes as isappropriate to its size and current stage of development. The Board of Directors The Company is led and controlled by a Board comprising fivenon-executive Directors. The role of Chairman is held by David Hinde. The Board determines the overall strategic direction of the Company and isresponsible for the following: 1) reviewing objectives for the Company and setting the Company's strategy forfulfilling those objectives; 2) reviewing and approving investments, disposals and significant capitalexpenditure made by the Company; 3) reviewing the capital structure of the Company and ensuring necessaryresources are in place for the Company to meet its objectives; 4) reviewing and monitoring the performance of the Manager, Administrator andother service providers to the Company; 5) reviewing key elements of the Company's performance. Board meetings The Board meets at least quarterly and as required from time to time to considerspecific issues including all potential acquisitions and disposals. The Board receives regular reports and papers prior to each board meeting toallow it to perform its duties. Prior to each of its quarterly meetings theBoard receives reports from the Manager covering activities during the period,performance of relevant property markets, performance of the Company's assets,financing, compliance matters, working capital position and other areas ofrelevance to the Board. The Board also considers reports provided from time totime by the Administrator and other service providers. The table opposite shows the attendance of Directors at quarterly Board meetingsduring the period to 30 June 2007: Maximum possible Actual attendance attendance David Hinde 3 3Thomas Ashworth 3 3Richard Barnes 3 3Alan Clifton 3 3Timothy Henderson 3 3 In addition to its regular quarterly meetings, the Board has also met on anumber of occasions during the period to approve property acquisitions and forvarious other matters. Audit Committee The Board has operated an Audit Committee throughout the period under review.The Audit Committee is chaired by Mr Alan Clifton and meets not less than twicea year and is responsible for reviewing the interim and annual financialstatements and reviewing with the auditors the results and effectiveness of theaudit before their submission to the Board. Management agreement The Company has entered into an agreement with the Manager. This sets out theManager's key responsibilities, which include proposing the property investmentstrategy to the Board, identifying property investments to recommend foracquisition and arranging appropriate financing to facilitate the transaction.The Manager is also responsible to the Board for all issues relating to propertyasset management. Shareholder relations Shareholder communications are a high priority of the Board. Management andstaff of the Manager make themselves available at all reasonable times to meetwith key shareholders and analysts. Feedback is provided by the Manager toDirectors at quarterly Board meetings. In addition, the Board is also kept fully appraised of all market commentary onthe Company by the Manager and other professional advisors. Through this process the Board seeks to monitor investor relations and to ensurethat the Company's investor communication programme is effective. Risk management Each Director is aware of the risks inherent in the Company's business andunderstands the importance of identifying and evaluating these risks. The Boardhas adopted procedures and controls that enable it to manage these risks withinacceptable limits and to meet all its legal and regulatory obligations. On behalf of the Board David Hinde 14 September 2007 Independent Auditors' Report to the Members of Macau Property Opportunities Fund Limited We have audited the consolidated financial statements of Macau PropertyOpportunities Fund Limited for the period ended 30 June 2007 which comprise theconsolidated and company balance sheets, consolidated and company incomestatements, consolidated and company statements of changes in equity,consolidated and company cash flow statements and the related notes. Thesefinancial statements have been prepared under the accounting policies set outtherein. Respective responsibilities of Directors and Auditors The Directors' responsibilities for preparing the financial statements inaccordance with applicable Guernsey law and International Financial ReportingStandards are set out in the Statement of Directors' Responsibilities. Our responsibility is to audit the financial statements in accordance withrelevant legal and regulatory requirements and International Standards onAuditing (UK and Ireland). This report, including the opinion, has been preparedfor and only for the Company's members as a body in accordance with Section 64of The Companies (Guernsey) Law, 1994 and for no other purpose. We do not, ingiving this opinion, accept or assume responsibility for any other purpose or toany other person to whom this report is shown or into whose hands it may come,save where expressly agreed by our prior consent in writing. We report to you our opinion as to whether the financial statements give a trueand fair view and are properly prepared in accordance with The Companies(Guernsey) Law, 1994. We also report to you whether in our opinion theinformation given in the Directors' Report is consistent with the financialstatements. In addition we report to you if, in our opinion, the Company has not kept properaccounting records or if we have not received all the information andexplanations we require for our audit. We read the other information contained in the Annual Report and consider theimplications for our report if we become aware of any apparent misstatements ormaterial inconsistencies with the financial statements. The other informationcomprises only the Chairman's Statement, the Manager's Report, the Directors'Report and the Directors and Company information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing(UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the financial statements. It also includes an assessment of thesignificant estimates and judgements made by the Directors in the preparation ofthe financial statements, and of whether the accounting policies are appropriateto the Company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the financial statementsare free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion, we also evaluated the overalladequacy of the presentation of information in the financial statements. Opinion In our opinion: • the financial statements give a true and fair view, in accordancewith International Financial Reporting Standards, of the state of the Company'saffairs as at 30 June 2007 and of its loss and cash flows for the period thenended; • the financial statements have been properly prepared in accordancewith The Companies (Guernsey) Law, 1994; and • the information given in the Directors' Report is consistent with thefinancial statements. PricewaterhouseCoopers CI LLP Chartered Accountants Guernsey, Channel Islands 14 September 2007 Consolidated Balance Sheet As at 30 June 2007 2007 Notes US$'000 ASSETSCurrent assetsInventories 5 56,084Trade and other receivables 6 458Prepayments 54Cash and cash equivalents 144,297 200,893Total assets 200,893 EQUITYCapital and reserves attributable to the Company's equity-holdersShare capital 8 1,050Distributable reserves 187,960Revaluation reserves -Retained earnings/(accumulated losses) -524Foreign exchange on consolidation -247Total equity 188,239 LIABILITIESCurrent liabilitiesTrade and other payables 7 12,654Total liabilities 12,654Total equity and liabilities 200,893 The financial statements were approved by the Board of Directors and authorisedfor issue on 14 September 2007. The notes on pages 43 to 49 are an integral part of these consolidated financialstatements. Company Balance Sheet As at 30 June 2007 2007 Notes US$'000 ASSETSNon-current assetsInvestment in subsidiaries -256Loans to subsidiaries 54,455 54,199 Current assetsTrade and other receivables 6 455Prepayments 54Cash and cash equivalents 137,790 138,299Total assets 192,498 EQUITYCapital and reserves attributable to the Company's equity-holdersShare capital 8 1,050Distributable reserves 187,960Revaluation reserves -256Retained earnings/(accumulated losses) -237Total equity 188,517 LIABILITIESCurrent liabilitiesTrade and other payables 7 3,981Total liabilities 3,981Total equity and liabilities 192,498 The financial statements were approved by the Board of Directors and authorisedfor issue on 14 September 2007. The notes on pages 43 to 49 are an integral part of these consolidated financialstatements. Consolidated Income Statement Period ended 30 June 2007 18 May 06-30 June 07 Notes US$'000 RevenueBank and other interest 8,876Gains on foreign currency exchange 18 8,894 ExpensesManagement fee 4,319Performance fee 3,807Non-Executive Directors' fees 338Auditors' remuneration 52General and administration expenses 10 902 -9,418 Loss before tax -524Tax -Loss for the period -524 Attributable to:Equity-holders of the Company -524 -524 18 May 06-30 June 07 US$Basic and diluted loss per share for loss attributable to the equity-holders of the Company during the period 12 -0.005 The notes on pages 43 to 49 are an integral part of these consolidated financialstatements. Company Income Statement Period ended 30 June 2007 18 May 06- 30 June 07 Notes US$'000 RevenueBank and other interest 8,815Gains on foreign currency exchange 16 8,831 ExpensesManagement fee 4,319Performance fee 3,807Non-Executive Directors' fees 258Auditors' remuneration 52General and administration expenses 10 632 -9,068 Loss before tax -237Tax -Loss for the period -237 Attributable to:Equity-holders of the Company -237 -237 The notes on pages 43 to 49 are an integral part of these consolidated financialstatements. Consolidated Statement of Changes in Equity Period ended 30 June 2007 Retained earnings/ Foreign Share Share (accumulated Distributable exchange on capital premium losses) reserves consolidation TotalMovements during the Notes US$'000 US$'000 US$'000 US$'000 US$'000 US$'000period Issue of shares 1,050 195,410 - - - 196,460Cancellation of share 9 - -195,410 - 195,410 - -premiumPlacing fees and - - - -7,450 - -7,450formation costsForeign exchange on - - - - -247 -247consolidationLoss for the period - - -524 - - -524Balance carried forward 1,050 - -524 187,960 -247 188,239at 30 June 2007 The notes on pages 43 to 49 are an integral part of these consolidated financialstatements. Company Statement of Changes in Equity Period ended 30 June 2007 Retained earnings/ Share Share (accumulated Distributable Revaluation capital premium losses) reserves reserves TotalMovements during the Notes US$'000 US$'000 US$'000 US$'000 US$'000 US$'000period Issue of shares 1,050 195,410 - - - 196,460Cancellation of share 9 - -195,410 - 195,410 - -premiumPlacing fees and - - - -7,450 - -7,450formation costsLoss on investment in - - - - -256 -256subsidiariesLoss for the period - - -237 - - -237Balance carried forward 1,050 - -237 187,960 -256 188,517at 30 June 2007 The notes on pages 43 to 49 are an integral part of these consolidated financialstatements. Consolidated Cash Flow Statement Period ended 30 June 2007 18 May 06- 30 June 07 Notes US$'000 Net cash used in operating activities 11 -5,434 Cash flows from investing activitiesExpenditure on inventories -47,468Interest received 8,418Net cash used in investing activities -39,050 Cash flows from financing activitiesProceeds on issue of shares 196,460Placing fees and formation costs -7,450Net cash generated from financing activities 189,010 Net increase in cash and cash equivalents 144,526Cash and cash equivalents at beginning of period -Effect of foreign exchange rate changes -229Cash and cash equivalents at end of period 144,297 The notes on pages 43 to 49 are an integral part of these consolidated financialstatements. Company Cash Flow Statement Period ended 30 June 2007 18 May 06- 30 June 07 Notes US$'000 Net cash used in operating activities 11 -5,141 Cash flows from investing activitiesLoans to subsidiaries -54,455Interest received 8,360Net cash used in investing activities -46,095 Cash flows from financing activitiesProceeds on issue of shares 196,460Placing fees and formation costs -7,450Net cash generated from financing activities 189,010 Net increase in cash and cash equivalents 137,774Cash and cash equivalents at beginning of period -Effect of foreign exchange rate changes 16Cash and cash equivalents at end of period 137,790 The notes on pages 43 to 49 are an integral part of these consolidated financialstatements. Notes to the Consolidated Financial Statements Period ended 30 June 2007 General information Macau Property Opportunities Fund Limited is a company incorporated andregistered in Guernsey under the Companies (Guernsey) Law, 1994 (as amended) on18 May 2006. The address of the registered office is given on the inside backcover. The consolidated financial statements for the period ended 30 June 2007comprise the financial statements of Macau Property Opportunities Fund Limitedand its subsidiaries (together referred to as the 'Group'). The Group invests incommercial property and property-related ventures primarily in Macau andpotentially in the Western Pearl River Delta region. These consolidatedfinancial statements have been approved for issue by the Board of Directors on14 September 2007. 1. Significant accounting policies The principal accounting policies applied in the preparation of theseconsolidated financial statements are set out below. These policies have beenconsistently applied throughout the current period, unless otherwise stated. Basis of accounting These financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS). The financial statements have beenprepared on the historical cost basis. IFRS requires management to make judgements, estimates and assumptions thataffect the application of the reported amounts in these financial statements.Complex areas involving a higher degree of judgement, or areas where assumptionsand estimates are significant to the consolidated financial statements, aredisclosed in Note 3. The Directors have opted for the early adoption of IFRS7 - FinancialInstruments: Disclosures, and the complementary Amendment to IAS1, Presentationof Financial Statements - Capital Disclosures which is in issue for companieswith an accounting period beginning on or after 1 January 2007. Consolidation The consolidated financial statements incorporate the financial statements ofthe Company and special-purpose entities controlled by the Company (itssubsidiaries). Control is achieved where the Company has the power to govern thefinancial and operating policies of a special-purpose entity so as to obtainbenefits from its activities. The financial statements of subsidiaries areincluded in the consolidated financial statements from the date controlcommences until the date control ceases. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Segmental reporting A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. A geographical segment is engaged inproviding products or services within a particular economic environment that aresubject to risks and returns that are different from those segments operating inother economic environments. The Directors are of the opinion that the Group is engaged in a single segmentof business, being property investment and related business. The Group investsin commercial property and property-related ventures primarily in Macau andpotentially in the Western Pearl River Delta region. Foreign currency translation a) Functional and presentation currency Items included in the financial statements of each of the Group entities aremeasured using the currency of the primary economic environment in which theentity operates ('the functional currency'). The financial statements arepresented in US Dollars, which is the Company's functional and presentationalcurrency. b) Transactions and balances Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the date of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at period end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement. c) Group companies The results and financial position of all the Group entities that have afunctional currency different from the presentation currency are translated intothe presentation currency as follows: i) Assets and liabilities for each balance sheet are presented at the closingrate at the date of that balance sheet; ii) Income and expenses for each income statement are translated at averageexchange rates; and iii) All resulting exchange differences are recognised as a separate componentof equity. On consolidation, exchange differences arising from the translation of the netinvestment in foreign entities are taken to shareholders' equity. Inventories Properties and land that are being held or developed for future sale areclassified as inventories at their deemed cost. They are carried at the lower ofcost and net realisable value. Net realisable value is the estimated sellingprice in the ordinary course of business less cost to complete redevelopment andselling expenses. Deemed cost is the acquisition cost together with subsequentcapital expenditure incurred, including capitalised interest where relevant. Trade receivables Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interest method, less provisionfor impairment. A provision for impairment of trade receivables is establishedwhen there is objective evidence that the Group will not collect all amounts dueaccording to the original terms of the receivables. Significant financialdifficulties of the debtor, probability that the debtor will enter bankruptcy orfinancial reorganisation, and default or delinquency in payments (more than 30days overdue) are considered indicators that the trade receivable is impaired.The amount of the provision is the difference between the asset's carryingamount and the present value of estimated future cash flows, discounted at theoriginal effective interest rate. The carrying amount of the asset is reducedthrough the use of an allowance account, and the amount of the loss isrecognised in the income statement. When a trade receivable is uncollectable, itis written off against the allowance account for trade receivables. Subsequentrecoveries of amounts previously written off are credited in the incomestatement. Cash and cash equivalents Cash and cash equivalents in the balance sheets comprise cash at banks and onhand and demand deposits and other short-term highly liquid investments that arereadily convertible to a known amount of cash and are subject to aninsignificant risk of changes in value, with an original maturity of threemonths or less. For the purpose of the cash flow statements, cash and cashequivalents consist of cash and cash equivalents as defined above. Provisions Provisions for legal claims are recognised when the Group has a present legal orconstructive obligation as a result of past events, it is probable that anoutflow of resources will be required to settle the obligation, and the amountcan be reliably estimated. Share capital Shares are classified as equity when there is no obligation to transfer cash orother assets. Shares issued by the Company are recorded at the amount of theproceeds received, net of incremental costs directly attributable to the issueof new shares. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and includes income from property trading. Financial asset interest income is accrued on a time basis, by reference to theprincipal outstanding and at the effective interest rate applicable, which isthe rate that exactly discounts estimated future cash receipts through theexpected life of the financial asset to that asset's net carrying amount. Expenses Property and contract expenditure, including bid costs, incurred prior to theexchange of a contract is expensed as incurred, with the exception ofexpenditure on long-term development contracts. 2. Financial risk management The Group's activities expose it to a variety of financial risks: market risk(including foreign exchange risk, price risk and cash flow and fair valueinterest rate risk), credit risk and liquidity risk. The Board of Directors provide written principles for overall risk management,as well as written policies covering specific areas, such as foreign exchangerisk, interest rate risk and liquidity risk. Market risk a) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange riskarising from various currency exposures, primarily with respect to the US Dollarand the HK Dollar. Foreign exchange risk arises from future commercialtransactions, recognised monetary assets and liabilities and net investments inforeign operations. The Group's policy is not to enter into any currency hedging transactions. The table below summarises the Group's exposure to foreign currency risk as at30 June 2007. The Group's assets and liabilities at carrying amounts areincluded in the table, categorised by the currency at their carrying amount. As at 30 June 2007 US$'000 £'000 HK$'000 Total Inventories - - 56,084 56,084Trade and other receivables 458 - - 458Prepayments - 54 - 54Cash and cash equivalents 123,570 192 20,535 144,297Total assets 124,028 246 76,619 200,893Trade and other payables 3,841 197 8,616 12,654Total liabilities 3,841 197 8,616 12,654Net assets 120,187 49 68,003 188,239 The table above presents financial assets and liabilities denominated in foreigncurrencies held by the Group as at 30 June 2007 and can be used to monitorforeign currency risk as at that date. If the US Dollar weakened/strengthened by10% against the HK Dollar with all other variables held constant, the post-taxloss for the period would have been US$6,800,000 higher/lower. If the US Dollarweakened/strengthened by 10% against Sterling with all other variables heldconstant, the post-tax loss for the period would have been US$5,000 higher/lower. The above sensitivity analysis does not take into consideration the effect ofexchange rate movements on the shareholder equity if measured in Sterling. b) Price risk The Group is exposed to property price risk. The Group is not exposed to marketrisk with regard to financial instruments as it does not hold equityinstruments. c) Cash flow and fair value interest rate risk The Group has significant interest-bearing assets in the form of bank deposits.Its income and operating cash flows are substantially independent of marketinterest rates. Credit risk The Group is not exposed to significant credit risk, as the income of the Groupis derived from bank deposits only through the use of high credit qualityfinancial institutions. Liquidity risk The Group adopts a prudent approach to liquidity management and maintainssufficient cash reserves to meet its obligations. The Group maintains sufficientcash reserves to meet its current property development liabilities. 2007 US$'000 Financial liabilities - currentTrade and other payables - maturity within one year 12,654 12,654 Capital risk management The Group's objectives when managing capital are to safeguard the Group'sability to continue as a going concern in order to provide returns forshareholders and benefits for other stakeholders and to maintain an optimalcapital structure to reduce the cost of capital. 3. Critical accounting estimates and assumptions Management makes estimates and assumptions concerning the future. The resultingaccounting estimates will, by definition, seldom equal the related actualresults. The estimates and assumptions that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within thenext financial year are outlined as follows: Net realisable value is based on the current market valuation provided bySavills (Macau) Limited, an independent valuer. Savills are required to makeassumptions on establishing the current market valuation. 4. Subsidiaries All special-purpose vehicles are owned 100% by Macau Property Opportunities FundLimited. The following subsidiaries have a year end of31 December to coincide with the Macanese tax year: MPOF Macau (Site 1) Limited MPOF Macau (Site 2) Limited MPOF Macau (Site 3) LimitedMPOF Macau (Site 4) Limited MPOF Macau (Site 5) Limited MPOF Macau (Site 6) LimitedMPOF Macau (Site 7) Limited MPOF Macau (Site 8) Limited MPOF Macau (Site 9) LimitedMPOF Macau (Site 10) Limited The consolidated financial statements include the financial statements of MacauProperty Opportunities Fund Limited and the subsidiaries listed in the followingtable: Ownership Incorporation MPOF Macau (Site 1) Limited 100% MacauMPOF Macau (Site 2) Limited 100% MacauMPOF Macau (Site 3) Limited 100% MacauMPOF Macau (Site 4) Limited 100% MacauMPOF Macau (Site 5) Limited 100% MacauMPOF Macau (Site 6) Limited 100% MacauMPOF Macau (Site 7) Limited 100% MacauMPOF Macau (Site 8) Limited 100% MacauMPOF Macau (Site 9) Limited 100% MacauMPOF Macau (Site 10) Limited 100% MacauMPOF (Penha) Limited 100% GuernseyMPOF (Taipa) Limited 100% GuernseyMPOF (Jose) Limited 100% GuernseyMPOF (Sun) Limited 100% GuernseyMPOF (Senado) Limited 100% GuernseyMPOF (Domingos) Limited 100% GuernseyMPOF (Monte) Limited 100% GuernseyMPOF (Paulo) Limited 100% GuernseyMPOF (Guia) Limited 100% GuernseyMPOF (Antonio) Limited 100% GuernseyMPOF (6A) Limited 100% GuernseyMPOF (6B) Limited 100% GuernseyMPOF (7A) Limited 100% GuernseyMPOF (7B) Limited 100% GuernseyMPOF (8A) Limited 100% GuernseyMPOF (8B) Limited 100% GuernseyMPOF (9A) Limited 100% GuernseyMPOF (9B) Limited 100% GuernseyMPOF (10A) Limited 100% GuernseyMPOF (10B) Limited 100% GuernseyMPOF Mainland Company 1 Limited 100% Barbados 5. Inventories 2007 US$'000 Cost of properties 56,084 56,084 Cost of properties includes payments due on Tower Six of One Central Residencesin the next 12 months totalling HK$67,339,000 (US$8,616,000). Macau PropertyOpportunities Fund Limited is guarantor for its subsidiary company in respect ofthis property. The total of the guarantee is HK$572,379,000 (US$73,233,000), ofwhich HK$67,339,000 (US$8,616,000) is due within the next 12 months, and thebalance is due on completion of the property development. As at 30 June 2007,HK$33,669,500 (US$4,308,000) is due to subsidiaries from the Company. 6. Trade and other receivables 2007 2007 US$'000 US$'000 Company Group Interest receivable 455 458 455 458 Other receivables do not carry any interest and are short-term in nature, andare accordingly stated at their nominal value. 7. Trade and other payables 2007 2007 US$'000 US$'000 Company Group Payments due for acquired property - 8,616Payable to the Manager 3,801 3,801Trade and other payables 180 237 3,981 12,654 The trade payable for acquired property represents contractual instalments ofHK$67,339,000 (US$8,616,000) that are due within the next 12 months on thepurchase of Tower Six of One Central Residences. Other payables principally comprise amounts outstanding for ongoing costs. TheDirectors consider that the carrying amount of trade and other payablesapproximates to their fair value. 8. Share capital 2007 2007 US$'000 US$'000 Company Group Authorised:300 million Ordinary Shares of US$0.01 each 3,000 3,000Issued and fully paid:105 million Ordinary Shares of US$0.01 each 1,050 1,050 The Company has one class of Ordinary Shares which carry no right to fixedincome. 9. Share premium In accordance with the Listing prospectus and under Guernsey Statute, on 7 June2006 an application was made to the Royal Court of Guernsey to have the sharepremium cancelled and re-designated as a distributable reserve. As such theshare premium account was reduced by US$195.41 million and a distributablereserve created for this amount. 10. General and administration expenses 18 May 06- 30 18 May 06- 30 June 07 June 07 US$'000 US$'000 Company Group Legal and professional 225 237Holding Company administration 208 208Guernsey SPV administration - 99Macau SPV administration - 42Insurance costs 40 40Other operating expenses 159 276General and administration expenses 632 902 11. Net cash used in operating activities 18 May 06- 30 18 May 06- 30 June 07 June 07 US$'000 US$'000 Company Group Operating loss from continuing operations -9,068 -9,418Adjustments for:Increase/(decrease) in provisions - - -9,068 -9,418 Operating cash flows before movements in working capital(Increase) in receivables -54 -54Increase in payables 3,981 4,038 Cash used in operations -5,141 -5,434Interest paid - -Net cash used in operating activities -5,141 -5,434 Cash and cash equivalents (which are presented as a single class of assets onthe face of the balance sheet) comprise cash at bank and other short-term highlyliquid investments with a maturity of three months or less. 12. Basic and diluted loss per Ordinary Share The basic and diluted loss per equivalent Ordinary Share is based on the lossattributable to equity-holders for the period of US$(524,000) and on the105,000,000 weighted average number of Ordinary Shares in issue during theperiod. Loss attributable US$'000 Weighted average no. of EPS US$ shares '000s Basic -524 105,000 -0.0050Diluted -524 105,000 -0.0050 13. Related party transactions Transactions between the Company and its subsidiaries, which are relatedparties, have been eliminated on consolidation and are not disclosed in thisnote. On 8 March 2007 Tim Henderson was appointed as a Director of all of the Guernseyincorporated subsidiaries of Macau Property Opportunities Fund Limited. In theperiod to 30 June 2007 Directors' fees of US$80,000 were paid by the Guernseyincorporated subsidiaries, of which Mr Henderson received US$13,000. 18 May 06- 30 June 07 18 May 06- 30 June 07 US$'000 US$'000 Company Group Directors' fees 258 258Subsidiary Directors' fees - 80 258 338 Tom Ashworth received no Directors' fees from the Company. Tom Ashworth is a shareholder and Director of Sniper Capital Limited. SniperCapital Limited is the Manager to the Company and received fees in the period asdetailed in the Income Statement. Tom Ashworth is a shareholder and Director of Adept Capital Services Limited.Adept Capital Services Limited provides administrative services to the MacaneseSPVs and received fees in the period as detailed in Note 10. 14. Material contracts Under the terms of an appointment made by the Board of Directors of MacauProperty Opportunities Fund Limited on 23 May 2006, Sniper Capital Limited wasappointed as Manager to the Company. The Manager is paid quarterly in advance afee of 2.0% of the Net Asset Value, as adjusted to reflect the PropertyInvestment Valuation Basis. In addition, Sniper Capital Limited is entitled toreceive a Performance Fee of 20% of any return above the Basic PerformanceHurdle as stated in the prospectus. A further 15% Super Performance Fee ispayable if the Super Performance Hurdle is met, as stated in the Prospectus. The first calculation period ends on 30 June 2007 and the amounts accrued in thefinancial statements are as follows: US$ Performance Fee 3,807,300Super Performance Fee Nil This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Macau Property