16th Feb 2007 07:01
Macau Property Opportunities Fund16 February 2007 Macau Property Opportunities Fund Limited ("MPOF" or the "Company") Interim Results for the period ended 31 December 2006 Macau Property Opportunities Fund Limited, managed by Sniper Capital Limited, ispleased to announce its maiden results for the period ended 31 December 2006. Highlights * The Company was admitted to AIM in June 2006 with the issue of 105 million shares raising a total of USD196.5 million (£105 million) of new capital. * The Company is the first listed investment fund focusing on property investments in Macau and the surrounding region of China. * In the period to 31 December 2006, the Company completed the acquisition of three investments, committing a total of USD148.22m. * The Company has identified a strong pipeline of further potential investment opportunities with eight sites totalling USD220m currently under negotiation. * A valuation produced by Savills as at 31 December 2006 indicated an increase in the property portfolio value of 21% since acquisition and an Adjusted NAV uplift of 13.8% since admission to AIM. For further information: Public RelationsHogarth Partnership LimitedNo. 1 London BridgeLondon SE1 9BG Andrew Jaques/James Longfield/Sarah RichardsonTel: +44 20 7357 9477 Investment ManagerSniper Capital LimitedInvestor ContactTel: +852 2292 6700Email: [email protected] Website: www.mpofund.com Stock Codes: Bloomberg: MPO LN Reuters: MPO.L Chairman's Statement This is my first opportunity to report to shareholders on the performance ofMacau Property Opportunities Fund Limited ("MPOF" or "the Company") since theCompany's shares were admitted to trading on AIM on 5 June 2006. The reportcovers the period ended 31 December 2006. I am pleased to be able to inform shareholders that MPOF has made encouragingprogress in the execution of its investment strategy. The Company currently hascommitted investments amounting to US$148 million in three high-qualitydevelopment projects in strategic locations across Macau, of which US$43 millionhad been paid in cash as at 31 December 2006. These commitments now represent 80% of the capital raised in the June 2006 AIMlisting on a pre-gearing basis, well within the expected 18-month investmentperiod. In line with one of the Company's target investment segments, the threetransactions were for residential sites. All of these are located on MacauPeninsula and each brings unique and valuable attributes to the Company'sportfolio. MPOF's Accounting Net Asset Value per share ("Accounting NAV") as at 31 December2006 stood at US$1.8247, whereas the Adjusted Net Asset Value per share** ("Adjusted NAV") as at that date stood at US$2.0491. The Adjusted NAV represents a13.8% increase over the NAV per share of US$1.8001 at admission to AIM. Thisincrease, achieved in the first six months of operation, demonstrates MPOF'scommitment to the acquisition of niche and undervalued assets, which can quicklycontribute to shareholder value. The difference between the Adjusted NAV and theAccounting NAV is predominantly the result of the increase in value of theproperties over the price paid by the Company. The independent valuers havevalued the properties 21% higher than the Company's cost of acquisition. Consistent with its niche investment approach, the Company looks to acquireassets with distinctive characteristics and sustainability of future demand,despite the longer and more complex negotiations often involved. To date, theManager has assessed over 50 potential acquisitions in wider Macau and a further12 in neighbouring Zhuhai, with a combined value of over US$1.3 billion. Goingforward, the Company continues to review and assess a steady flow of veryinteresting projects both in Macau and Zhuhai, a number of which are undergoingactive financial and legal due diligence by the Investment Manager. I am pleased with the quality and consistency of investment proposals which theInvestment Manager is presenting to the Board, and I am confident that a numberof these opportunities will lead to further acquisitions in the near future. The strong economic growth being experienced in the region and the developmentof the "New" Macau as its gaming industry emerges onto the world stage, arelikely to create an attractive environment in the years ahead for MPOF to pursueits investment strategy of focusing on quality, location and positioning in itstarget market sectors. In line with MPOF's stated objective of delivering an attractive total returnprimarily from capital appreciation, the Board has not recommendedthe payment of a dividend. David HindeChairmanMacau Property Opportunities Fund Limited ** NAV per share & Adjusted NAV per share as at 31 December 2006. Adjusted NAVper share 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. Investment Manager's Report Macau Property Opportunities Fund Limited is the first listed property companyfocusing exclusively on property investment opportunities in Macau and thesurrounding Pearl River Delta Region. The Company's investment policy is toprovide shareholders with an attractive total return, primarily from capitalgrowth but with the potential for dividends over the medium to longer term. The Company's core strategy is to capitalise on the rapid development of thegaming, tourism and Meetings, Incentives, Conventions and Exhibitions (MICE)industries in Macau, and the attendant growth in such areas as employment, localdisposable incomes, visitor arrivals, working population and infrastructurespending being generated by these developments. The Company actively takes advantage of niche and undervalued propertyinvestment opportunities that are clearly differentiated by both location andsustainability of end user demand, and which are geared into the growth sectorsin Macau, and are often overlooked by larger developers or investors. TheCompany believes it is these focused investments, sourced through the Manager'sextensive network of local contacts, where the opportunity exists to createvalue for investors through well-planned and executed acquisition anddevelopment strategies. Review of MPOF's Current Portfolio Since admission to AIM on 5 June 2006, the Company has made three significantproperty acquisitions in Macau amounting to a total commitment (includingestimated development costs) of US$148 million, and has made good progress insourcing a strong and varied pipeline of investment opportunities. The Company'sstrong transaction flow has been achieved primarily via the Manager'swell-established local network, but also through an expanding range ofrelationships with local developers, financial institutions and agents. 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 Acquisition Open Market CapitalProperty Sector Type Positioning Status Cost Valuation Commitment+ 1 Residential Redevelopment Local Residents Planning US$8.60m US$13.21m US$15.68m 2 Residential Development Premium Luxury Construction US$86.58m US$101.28m US$86.58m 3 Residential Redevelopment Entry Level Consolidating US$20.57m US$25.64m US$45.96mTotal US$115.75m US$140.13m US$148.22m + Includes acquisition & expected redevelopment costs. Property 1 Property 1 was acquired by the Company in October 2006 and is a 100% interest ina prime residential redevelopment project, located in a very well-establishedand popular 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 initial architectural design and planning processes for thissite are currently under way and, subject to planning approval, construction isplanned to commence in 2008. It is the Company's current intention to sell allof the residential units in this project either on a pre-sale basis or oncompletion. Acquisition Date 17-Oct-06Sector 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 Apartment block with car parkingEstimated Completion Date End 2009 Property 2 Property 2 was acquired by the Company in November 2006 and comprises an entireluxury residential tower (Tower Six), forming part of a high-end, mixed-usewaterfront project, 'One Central', currently under construction in the heart ofMacau (on-site work is currently under way on the foundations). This prestigiousproject is being jointly developed by two of the region's top developers:Hongkong Land and Shun Tak Holdings, and includes a 400,000 square foot premiershopping complex, a 210-room, 6-star Mandarin Oriental Hotel and a 50,000 squarefoot clubhouse and infinity pool for the exclusive use of residents. 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. It is the Company's current intention toretain ownership of Tower Six until completion of the project. Acquisition Date 13-Nov-06Sector 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 tower in prime mixed-use projectEstimated Completion Date Mid-2009 Property 3 Property 3 was acquired by the Company in November 2006 and is a 100% interestin a redevelopment 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. MPOF intends to develop the siteinto a multi-storey residential project designed to cater for this rapidlygrowing market segment of entry-level purchasers. The Company is currently inactive negotiations to acquire additional parcels of land in the area toconsolidate its holdings in this promising location, after which planning andarchitectural design processes will be initiated. Acquisition Date 13-Nov-06Sector 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 Additional Acquisition Pipeline The potential for attractive investment opportunities in the Company's targetareas and sectors remains very strong. The Manager has assembled an attractiveand sizeable deal pipeline for the Company across a variety of sectors and primelocations on which detailed assessment and due diligence is currently beingcarried out. In line with the Company's investment strategy, the investmentfocus remains on the target sectors in Macau, however, the Manager is alsoselectively assessing investment opportunities across the border in Zhuhai andthe surrounding Pearl River Delta area. In addition to the completed transactions, 65 sites with a combined acquisitionvalue of US$1.3 billion have been reviewed and assessed by the Manager. Ofthese, eight sites with a combined value in excess of US$220 million are atvarious stages of assessment, negotiation of terms and due diligence. Thesesites include industrial, retail, residential, hotel and mixed-use projects bothin Macau and across the border in neighbouring Zhuhai. Two of these sites arefrom the potential investment opportunities presented in the Company's Admissiondocument, where the acquisition process has been lengthened by complex titleissues. The Manager remains cautious of the middle-market residential sector acrossMacau, continuing to focus on its core 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 Market Overview The residential property market picked up significantly in the fourth quarter of2006, with activity driven largely by the launch of several key residentialprojects. The highest profile of these launches was the premium luxurydevelopment 'One Central Residences', being developed jointly by Hongkong Landand Shun Tak Holdings, where the public sales surpassed all expectations. Allunits released to the public are reported to have been sold out within 10 daysof the public launch, despite an anticipated two-year sales programme. Sincethen, several secondary transactions are reported to have taken place at prices10-15% higher, further reinforcing the impact these new projects are having onoverall market demand and sentiment. The public sale of One Central did not include any units in Tower Six, which wasacquired in full by the Company. It is the Company's current intention to retainthis asset until completion of the project in 2009. Investor demand appears to be continuing apace in Macau, both from thoseinvestors in search of Macau residency as well as financial investors fromacross Asia. Buying sentiment was also boosted by a 25 basis point drop inlending rates in November and continued double-digit growth in household incomefor the year. In the residential leasing market, expatriate numbers continue toswell in the Territory, putting upward pressure on rentals, and graduallyrestoring yields to more realistic levels as achieved rents catch up withcapital values. The Manager believes that future property prices and sentiment will be heavilyinfluenced by 'milestone' events in the ongoing creation of the new Macau. Thesuccessful launch of One Central is one of the first of many such milestones.The opening of the much anticipated Venetian Macau and the first largeconventions due to be staged at the new Venetian Convention Centre, bothscheduled for the second half of 2007, will likely be the next high-profileevents to receive significant international coverage. In addition, theannouncements of new projects such as the recent US$3 billion Virgin Casinoproject will continue to bring attention and profile to the dramaticdevelopments under way in the Macau market. In the retail sector, Las Vegas Sands Corp. continues to surprise the market,with over 400 retailers reportedly now committed to The Venetian Macau shoppingmall, representing 80% of the 1.2 million square feet of space available. Theinflux of top international retailers in this and other projects is set todramatically change Macau's retailing landscape and will drive the stronganticipated growth in the Territory's non-gaming revenues. The other sectorexpected to have a very significant impact on the Territory's non-gamingrevenues is the MICE industry, which is anticipated to grow dramatically from avery low base once the Venetian Macau conference and convention centre opens forbusiness in the third quarter of 2007. It is unofficially reported that theresponse from organisers for this new state-of-the-art facility has already beenvery strong. As anticipated, the office sector in Macau remains sluggish, with demand showingfew signs of absorbing existing supply or driving rental expectations upwards,except in prime locations. As a result, this is a sector that the Company stillviews with caution. On the political front, the recent investigations into the activities of someMacanese government officials is viewed as a long-term positive by the Companysince it is likely to ensure transparency, fairness and efficiency in theplanning and regulatory processes. In the short term, however, the uncertaintycreated by such investigations may slow down certain approval processes withingovernment, although the Company has not experienced any such delays to date. Announcements of new integrated resort projects across Macau continue unabated.Recent news included the confirmation, by Wynn Macau, of a second hotel blockfollowing the success of its initial phase. Furthermore, the Galaxy StarWorldcasino and hotel opened on the Macau Peninsula to much acclaim and initialsuccess. More recently, Macau Studio City announced a US$4 billion, six millionsquare foot development project adjacent to The Venetian on the Cotai Strip.This project will include a leisure resort alongside facilities for televisionand cinema production, retail outlets, gaming, various types of entertainmentand hotels. During January 2007, there have been two more significant developmentsannounced: firstly, the Genting/Star Cruises/SJM casino to be developed oppositeWynn Macau on the Macau Peninsula; and, secondly, Richard Branson's announcementof a proposed US$3 billion Virgin Casino being planned for construction on theCotai Strip, although the exact location of this project is as yet unconfirmed. Infrastructure Macau infrastructure projects continue apace in order to keep up with the rapiddevelopment in the gaming and tourism sectors. The proposed Macau-Taipa tunnelhas secured approval for construction, which is due to commence in October 2007,and work has also reached completion on a new border crossing with China. Theinitial proposed plans for the Macau light rail project were recently releasedand it is understood that the final routing should soon be announced following aconsultation process. The Manager believes this project is an important part ofthe overall public infrastructure plan and will contribute greatly towardseasing current and future traffic congestion, as well as creating value in newlocations as the system approaches operation. Economic Overview The Macau economy continues to benefit from the booming gaming and tourismindustries. Real GDP grew by 17.1% in Q3 2006, mainly driven by exports of gaming servicesand tourism receipts. Gaming receipts and fixed capital formation remained asthe key drivers, with gaming receipts increasing by 22% YoY in Q4 2006. Grossfixed capital formation grew by 39.2% YoY to 3Q 2006. The employment situation remained favourable on the back of the buoyant economyand the unemployment rate fell to 3.5% in Q4 2006. The continued strong demandfor labour has resulted in sizeable pay rises across the job market. The medianmonthly employment income in Q3 2006 rose by 16.3% compared with the samequarter in 2005, further improving the already high housing affordability levelsof the local population. In addition, the arrival of expatriate workerscontinued apace, increasing 64% YoY to 64,673 at the end of 2006. Key Economic Statistics Period Figure YoY % ChangeUnemployment Rate Q4 2006 3.50% -0.50%CPI 2006 108.42 5.15%Visitor Arrivals 2006 21,998,122 17.60%Gaming Receipts 2006 US$6.96 billion 22.00%Median Monthly Employment Income Q3 2006 US$871 16.30%Real GDP Q3 2006 US$3.44 billion 17.06%GDP Per Capita (estimate) 2006 US$26,100 7.30%Retail Sales Value Q3 2006 US$332 million 21.20%Population Q3 2006 508,500 5.40% Source: DSEC, Macau Financial Review The Company's interim financial statements as at 31 December 2006 have beenprepared in accordance with International Financial Reporting Standards (IFRS),and as such, the three properties acquired by the Company to date have beenvalued at the lower of cost and net realisable value. This treatment results inan Accounting NAV per share for the Company of US$1.8247 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 held by the Company. The three properties acquired to date were revalued by international valuers asat 31 December 2006 and the open market valuation of these properties is statedin the Portfolio Summary of this interim report. The Adjusted NAV resulting fromthis valuation is US$2.0491. This represents an uplift of 13.8% to the NAV pershare on admission to AIM, and reflects the Company's ability to executeaccording to its investment strategy and acquire niche sites at very attractiveprices. The actual expenses of Admission and the Placing payable by the Company were£3.98 million, which was less than the anticipated £4.1 million as stated in theListing documents. US$ £NAV per Share at Admission# 1.8001 0.9621NAV per Share## 1.8247 0.9324Adjusted NAV per Share## 2.0491 1.0471Adjusted NAV Uplift 12.30% 12.30%Adjusted NAV Uplift Since Admission 13.80% 8.80% # Using US$/£ exchange rate of 1.871. ## Using US$/£ exchange rate of 1.957 as of 31 December 2006. Valuation A valuation of all the Company's property holdings was carried out as at 31December 2006 by Savills (Macau) Limited. Savills is one of the leadinginternational property advisers, with over 140 offices and associates across theUK, Continental Europe, Asia Pacific, and Africa and with a strong presence inHong Kong 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 Adjusted NAV of the Company. The valuation has been carried outin accordance with the current Royal Institution of Chartered Surveyors (RICS)Appraisal and Valuation Standards to calculate the market value of theproperties in their existing state and physical condition. Outlook Since admission to trading on AIM, MPOF has capitalized on its first moveradvantage to secure its position as a leading investor in the Macau propertymarket. Looking ahead, the Company continues to identify a strong flow of attractiveinvestment opportunities which should further contribute to NAV growth and buildon the Company's initial success. Tom Ashworth / Martin TaconPrincipalsSniper Capital Limited Consolidated Balance Sheet (Unaudited)At 31 December 2006 2006Assets Notes US$'000 Non-current assets - - Current assetsInventories 3 56,376Trade and other receivables 4 575Prepayments 30Cash and cash equivalents 148,706 205,687 Total assets 205,687EQUITYCapital and reserves attributableto the Company's equity-holdersShare capital 6 1,050Distributable reserves 187,960Revaluation reserves -Retained earnings 8 2,584 Total equity 191,594 LIABILITIESCurrent liabilitiesTrade and other payables 5 14,093 Total liabilities 14,093 Total equity and liabilities 205,687 The financial statements were approved by the Board of Directors and authorisedfor issue on 15 February 2007. Consolidated Income Statement (Unaudited)Period ended 31 December 2006 2006 Notes US$'000 Revenue - -ExpensesInvestment Manager's fee 12 -2,142Professional fees -25Non-Executive Directors' fees -139Directors' expenses -20Insurance costs -22Audit fees -11Administrative expenses -200Other operating expenses -188 Operating loss -2,747Bank and other interest 5,290Gains/(Losses) on foreign currency exchange 41 Profit before tax 2,584Tax - Profit for the period 2,584Attributable to:Equity-holders of the Company 2,584 2,584 2006 Notes US$Basic and diluted earnings per sharefor profit attributable to the equity-holders of the Company during the period 10 0.0246 Consolidated Statement of Changes in Equity (Unaudited)Period ended 31 December 2006 Share Share Revenue Distributable Foreign capital premium reserve reserve exchange TotalMovements during the period US$'000 US$'000 US$'000 US$'000 US$'000 US$'000Share premium on issue 1,050 195,410 - - - 196,460Cancellation of share premium (see Note 7) - -195,410 - 195,410 - -Placing fees and formation costs - - - -7,450 - -7,450Net profit - - 2,543 - 41 2,584 Balance carried forwardat 31 December 2006 1,050 - 2,543 187,960 41 191,594 Consolidated Cash Flow Statement (Unaudited)Period ended 31 December 2006 2006 Notes US$'000 Net cash generated from operating activities 9 -2,546 Cash flows from investing activitiesExpenditure on inventories -42,522Interest received 4,723 Net cash used in investing activities -37,799 Financing activitiesDividends paid -Proceeds on issue of shares 189,010 Net cash used in financing activities 189,010 Net increase/(decrease) in cash and cash equivalents 148,665Cash and cash equivalents at beginning of period -Effect of foreign exchange rate changes 41 Cash and cash equivalents at end of period 148,706 Notes to the Consolidated Financial Statements (Unaudited)Period ended 31 December 2006 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 Polygon Hall, PO Box 225,Le Marchant Street, St Peter Port, Guernsey. 1. Significant accounting policies Basis of Accounting The financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS). The financial statements have beenprepared on the historical cost basis. 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. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Inventories Properties that are being held or developed for future sale are classified asinventories at their deemed cost. They are carried at the lower of cost and netrealisable value. Net realisable value is the estimated selling price in theordinary course of business less cost to complete redevelopment and sellingexpenses. Foreign Currency Translation a. Functional and presentation currency Items included in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates ("the functional currency"). The consolidated financialstatements are presented in US Dollar, which is the Company's functional andpresentational currency. b. Transactions and balances Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at year-end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement. Segmental Reporting 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. 2. Subsidiaries All special-purpose vehicles are owned 100% by Macau Property Opportunities FundLimited. The following subsidiaries have a year end of 31 December to coincidewith the Macanese tax year: MPOF Macau (Site 1) LimitedMPOF Macau (Site 2) LimitedMPOF Macau (Site 3) LimitedMPOF Macau (Site 4) LimitedMPOF Macau (Site 5) LimitedMPOF Macau (Site 6) LimitedMPOF Macau (Site 7) LimitedMPOF Macau (Site 8) LimitedMPOF Macau (Site 9) LimitedMPOF Macau (Site 10) Limited 3. Inventories 2006 US$'000 Cost of properties 56,376 56,376 Cost of properties includes payments due on Tower Six of One Central Residencesin the next 12 months totalling HK$101,008,000 (US$12,988,000). 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$73,596,000), ofwhich HK$101,008,000 (US$12,988,000) is due within the next 12 months, and thebalance is due on completion of the property development. 4. Trade and other receivables 2006 US$'000 Trade debtors 8Interest receivable 567 575 Other receivables do not carry any interest and are short term in nature, andare accordingly stated at their nominal value. 5. Trade and other payables 2006 US$'000 Payments due for acquired property 13,854Trade and other payables 239 14,093 The trade payable for acquired property represents contractual instalments ofHK$101,008,000 (US$12,988,000) that are due within the next 12 months on thepurchase of Tower Six of One Central Residences, as well as agent's commissionsof HK$6,734,000 (US$866,000) that are due on the acquisition of this property. Other payables principally comprise amounts outstanding for ongoing costs. TheDirectors consider that the carrying amount of trade and other payablesapproximates to their fair value. 6. Share capital 2006 US$'000Authorised:300 million ordinary shares of US$0.01 each 3,000Issued and fully paid:105 million ordinary shares of US$0.01 each 1,050 The Company has one class of ordinary shares which carry no right to fixedincome. 7. Share premium In accordance with the Listing prospectus and under Guernsey Statute, anapplication was made to the Royal Court of Guernsey to have the share premiumcancelled and re-designated as a distributable reserve. 8. Retained earnings US$'000 Balance at beginning of period -Dividends paid -Net profit for the period 2,584 Balance at 31 December 2006 2,584 9. Notes to the cash flow statement 2006 US$'000 Operating loss from continuing operations -2,747Adjustments for:Increase/(Decrease) in provisions - -2,747Operating cash flows before movements in working capitalDecrease/(Increase) in receivables -38Increase/(Decrease) in payables 239 Cash generated by operations -2,546Interest paid - Net cash from operating activities -2,546 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,highly liquid investments with a maturity of three months or less. 10. Basic and diluted earnings per ordinary share The basic and diluted profit per equivalent ordinary share is based on theprofit attributable to equity-holders for the period of US$2,584,000 and on105,000,000 weighted average number of ordinary shares in issue during theperiod. 11. Related party transactions Transactions between the Company and its subsidiaries, which are relatedparties, have been eliminated on consolidation and are not disclosed in thisNote. 12. Material contracts Under the terms of an appointment made by the Board on 23 May 2006, SniperCapital Limited ("SCL") was appointed as Investment Manager to the Company. TheInvestment Manager is paid a fee of 2.0% of the Net Asset Value, as adjusted toreflect the Property Investment Valuation Basis payable quarterly in advance. Inaddition, SCL is entitled to receive a Performance Fee of 20% of any returnabove the Basic Performance Hurdle as stated in the prospectus. A further 15%Super Performance Fee is payable if the Super Performance Hurdle is met, asstated in the prospectus. The first calculation period ends on 30 June 2007 and no accrual is made in thefinancial statements for the Performance Fee or Super Performance Fee. 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