TCA.L Regulatory News (TCA)

19 Mar 2008 07:01

Speymill Macau Property Company PLC19 March 2008 Speymill Macau Property Company plc ("MCAU" or "the Company") Preliminary results for the period ended 31 December 2007 Speymill Macau Property Company plc (AIM: MCAU), the Macau focused property investment company, is pleased to announce its preliminary results for the period 31 October 2006 to 31 December 2007. Highlights • Net asset value growth of 28.7% on net placing proceeds • Headline net asset value of US$1.46 per share excluding provisions for deferred taxation and Manager's performance fees, US$1.41 per share including these items (adjusted net asset value, excluding deferred taxation provision, of US$1.42 per share) • Successful investment into US$197m of gross asset value • Growth in underlying property values of more than 35% since launch • Sale of the Company's purchase rights in the Lot U development following the year end is expected to realise proceeds of US$78m, resulting in a gross return of 125% on invested capital • Termination of Bel-Lago (C9) forward funding arrangements due to delays in the planning process and a subsequent failure on the part of the developer to meet contractual deadlines • Uplift on Nam Van investment of US$5.1m or 16.1% on cost • Further attractive investment opportunities have been identified that meet the return objectives of the Company Larry Kearns, Chairman of the Company, commented: "During its first year of operation the Company has delivered solid performanceto its shareholders, with significant valuation uplifts in its investmentportfolio and the profitable realisation of one of its major investmentsfollowing the year end. The Company has identified further excellent investmentopportunities and we remain very optimistic about our continuing ability togenerate superior shareholder value." Thomas Sipos, Head of Real Estate Investments for Asia Pacific for theInvestment Adviser, Speymill Property Group, added: "Official population statistics for Macau recorded growth of 5% during 2007.Once this increase is combined with projections for household formation andupgrading, analysts estimate that there is a natural demand for more than 6,000residential units a year in Macau. On top of this, it is estimated that between2008 and 2010, some 90,000 - 100,000 expats will be required to fill thepositions generated by the casino and hotel industry alone. We are now well-positioned to take advantage of larger-scale investmentopportunities and have identified further projects that fit with the Company'sestablished strategy and return objectives. We have established key strategicrelationships with specialist partners such as architects, engineers,contractors and developers and this has greatly increased our ability to accessinvestment opportunities and to ensure proper and diligent execution of deals inMacau." For further information please visit www.mcau.co.im or contact: Speymill Property Group (Investment Advisers) Thomas Sipos, Head of Real Estate Investments for Asia Pacific+852 2514 6104 Floris van Dijkum, Global Chief Investment Officer+44 20 7659 0763 Paul Smith, CFO Funds+44 1624 640864 Smith & Williamson Corporate Finance Limited (Nomad) Azhic BasirovJoanne du Plessis+44 20 7131 4000 Fairfax I.S. PLC (Brokers) James King+44 20 7598 5368 Tavistock Communications Jeremy CareySimon HudsonGemma Bradley+44 20 7920 3150 Chairman's Statement 2007 has been a year of considerable achievement for the Company. Speymill MacauProperty Company PLC was created to take advantage of anticipated economicgrowth in Macau. The Company targets real estate investment opportunities with apotential to deliver returns in excess of 20% on invested capital, which ispossible due to the differential between weak supply and strong demand forhigher-end residential properties. During its first year of operation theCompany has delivered solid performance to its shareholders, with significantvaluation uplifts in its investment portfolio and the profitable realisation ofone of its major investments following the year end. Results During the period from 31 October 2006 (the Company's date of incorporation) to31 December 2007, the Company made a profit after tax of US$40.675m,representing basic earnings per share of 37.45c. The fair value gain oninvestment was US$46.912m, administrative expenses were US$1.571m, excludingmanager's and accrued incentive fees. The Company recently announced that it had agreed terms for the sale of itsinterest in the development property known as Lot U. This sale will generate agross profit of HK$343.6m (US$44.0m) and a gross return on the Company'sinvested equity of 125%. The transaction secures an excellent return for ourshareholders and demonstrates the ability of San You Development, ourdevelopment partner in Lot U, to create value through the creation of desirableand well-positioned residential products. The cancellation of the forward funding arrangement for Lot C9 in the Nam Vanreclamation area came as the planning process for certain high-profile areas,including that in which the development was situated, became unforeseeablyprotracted. The effect of this delay adversely affected the agreed timeframe forthe project. The original agreement for Lot C9 was conditional upon thedeveloper meeting certain milestones within an agreed timescale. As thesepre-conditions were not met, the agreement was cancelled, enabling the Companyto pursue other opportunities. The Company has no remaining liabilities relatingto the cancellation of the Lot C9 forward funding arrangement. The sale of Lot U and the cancellation of the Lot C9 arrangement place theCompany in a strong position to pursue other investment opportunities in-linewith its established strategy. Significant Net Asset Value Growth The Company registered a 35% increase in the fair value of its propertyportfolio relative to its original acquisition price. This compares favourablyto the overall performance of the Macau residential property market during thesame period. It further demonstrates the effectiveness of the Company's strategyof making investments in well positioned properties with attractive purchaseprices and the ability of this strategy to outperform the market in the medium-to long-term. As a result of the increase in the fair value of investment properties, the yearend NAV per share was US$1.41, a 22.6% increase relative to the average placingprice of the shares of US$1.15 or a 28.7% increase relative to the value of thenet placing proceeds. Dividend The Board has decided not to declare a dividend this year. This is in accordancewith the policy set out in the Company's admission document which stated thatthe directors would achieve an appropriate balance between reinvesting capitalfor future growth in accordance with the Company's investment strategy andpaying dividends to shareholders. The Board is confident in its ability tosecure full investment of current liquid proceeds in order to achieve the bestpossible returns for shareholders. Outlook Macau's economy continued to perform strongly in 2007 underpinned by thecompletion of new casinos, increased visitor numbers and gaming revenues as wellas a strong labour market. GDP recorded a 30% real growth for the period andMacau has now surpassed Las Vegas as the world's largest gaming city by revenue. The opening of new casinos included The Venetian, Las Vegas Sands new US$2.4bnmega casino, Grand Lisboa, MGM Grand and Crown Macau. In addition, high profilecommitments to Macau were made by Permira's US$840m purchase of a 20% stake incasino operator Galaxy Entertainment and Harrah's acquisition of the 175 acreMacau Orient Golf Course in Cotai. On the back of this strong economic growth the residential market was veryactive in 2007 and is expected to continue to perform well during 2008.Population growth, household formation and upgrading as well as significantimmigration will continue to fuel demand for finished residential products ingood locations. It should be noted, however, that the investment climate is becoming morecompetitive as investors become aware of the attractive fundamentals in Macau.The recent Macau Planning Board scandal has effectively held up the developmentpipeline by at least 6 to 12 months and this may have an impact in bothtightening the supply situation and lengthening the time frame to secureinvestments. The Company has, however, identified further excellent investmentopportunities and we remain very optimistic about our continuing ability togenerate superior shareholder value. Larry KearnsChairman18 March 2008 Report of the Investment AdviserFinancial Summary Balance Sheet as at 31 December 2007 31 December 2007 Net assets (US$'000) 183,593 Net assets per share 1.41(US$) Adjusted net assets 1.42per share (excludingprovision fordeferred taxation) (US$) The value of the Group's net assets as at the year end represent an increase of22.4% on the value of the placing proceeds of US$150m or 28.7% on the value ofthe net placing proceeds of US$142,704,000. Income Statement for the period ended 31 December 2007 31 December 2007 Valuation gains 46,912(US$'000) Profit after tax 40,675(US$'000) Basic earnings per 37.45share (US cents per share)Diluted earnings per 37.31share (US cents per share) Business Highlights • Net asset value growth of 28.7% on net placing proceeds • Successful investment into US$197m of gross asset value • Growth in underlying property values of more than 35% since launch • Sale of the Company's purchase rights in the Lot U development following the year end is expected to realise proceeds of US$78m, resulting in a gross return of 125% on invested capital • Termination of Bel-Lago (C9) forward funding arrangements due to delays in the planning process and a subsequent failure on the part of the developer to meet contractual deadlines • Uplift on Nam Van investment of US$5.1m or 16.1% on cost • Further attractive investment opportunities have been identified that meet the return objectives of the Company Market Overview Economy As in 2006, the Macau economy grew strongly in 2007 as a direct result of thecontinued expansion of the gaming and tourism industries. Real GDP growth was30% for the year driven mainly by a huge increase in gross gambling revenuesthat totalled US$10.4bn for 2007, up 45.7% on the previous year. Macau has nowtaken the lead as the world's largest gambling destination in terms of revenue.As at 31 December 2007, there were 28 casinos with 4,375 gaming tables and13,267 slot machines in the city. The opening of MGM Grand Macau in December2007 means that there are now six gaming licenses in the region. The number of tourists who visited Macau during 2007 increased by a massive22.8% on the prior year figure to 27 million. More tourists visited Macau thanHong Kong during the same period. Visitors from the Chinese mainland stillaccount for the majority (approximately 55%) of tourists. Macau's meetings, conventions and exhibitions industry saw significantexpansion, underpinned by the opening of the Venetian Macau in August 2007 withover 1.2 million square feet of gross function space. The total number of hotelguests hit 5.7 million in 2007, up 22.6% on the previous year. The average hoteloccupancy rate increased by 5 percentage points from 2006 to 77.2% in 2007 andthe average length of stay of hotel guests rose by 0.15 nights over 2006 to 1.36nights. The revenue diversification for Macau's casino operators has still along way to go. Currently more than 95% of revenue comes from gaming, comparedwith around 50% for operators on the Las Vegas Strip. The labour market prospered with the opening of new casinos and hotels,strengthening the confidence of in-home purchasing and consumer spending.Unemployment stood at 2.9% at the end of 2007 and average personal incomeincreased by 16% during the course of the year. The economic outlook of Macau in 2008 will continue to be positive withsustainable growth in employment and government revenue as well as foreigninvestment. Residential Property Market Residential unit transactions for 2007 rose by 25.9% to 21,628 units whereas thetransaction value experienced a spectacular increase of 120.3% over the sameperiod. The sale of two government-owned residential sites located in Fai Chi Keigenerated a lot of interest at the beginning of 2008, and has become aninteresting paradigm of the current market. The sale was only the Macaugovernment's second disposal of land by public tender since handover in 1999.The two plots of land sold for almost nine times the opening bid and the priceachieved demonstrates the continuing strength and market appetite for primesites. The final price paid was in the region of HK$2,000 per square foot ofgross buildable floor area. The city's luxury residential sector also continues to perform well despite therecent volatility in global financial markets. As a result of the Macaugovernment's attempts to regulate the luxury residential market, some projectshave experienced delays in obtaining the necessary planning permissions andconstruction permits. Supply in this specific market is therefore particularlytight. Official population statistics for Macau recorded growth of 5% during 2007. Oncethis increase is combined with projections for household formation andupgrading, analysts estimate that there is a natural demand for more than 6,000residential units a year in Macau. On top of this, it is estimated that between2008 and 2010, some 90,000 - 100,000 expats will be required to fill thepositions generated by the casino and hotel industry alone. Figures released byJones Lang LaSalle predict a demand for 25,000 flats between 2008 and 2010 witha supply of only approximately 19,000 residential units during the same period. The continuing strong growth of the Macau economy has also led to an increasingdemand for commercial space, mainly from the construction, wholesale, retail,real estate and business service sectors. A total of 2,652 new business entitieswere incorporated in Macau in the first three quarters of 2007, up 14.7% on theprior year. In particular, there is a growing demand for grade A leased officespace by the banking, finance, accounting, legal, telecommunications and ITsectors. In the short- to medium-term the performance of the Macau property market shouldbe supported by the following factors: • Continuing strong growth in the Macau economy • The low quality of existing housing stock coupled with high average household size that will stimulate demand through upgrade and increased household formation • Further demand caused by indigenous population growth and immigration • Increased regional integration of Macau after completion of the Hong Kong-Zhuhai-Macau Bridge • A negative real interest rate makes property a hedge asset against uptrend inflation Business Overview In the period since incorporation the Company successfully invested in propertywith a total market value of US$197m as at 31 December 2007. The combinedvaluation uplift relative to purchase price of the underlying property assets is35% and this demonstrates the ability of the Company's investment strategy todeliver returns that outperform the market. 31-Dec Acquisition 07 Cost Valuation ValuationProperty Sector Type Strategy Tenure Units Status (US$m) (US$m) UpliftLot U Residential Luxury Forward Long-leasehold 243 Realised 116 160 38% funding arrangementNam Van Residential Luxury Refurbishment Long-leasehold 24 Under 29 37 27%Peninsula refurbishment TOTAL 267 145 197 35% The Company is well positioned in the local market place and will continue topromote its strategy of providing institutional capital to local developers andoperators who require strategic finance. In addition, the Company willselectively acquire existing small-to medium-size properties where value can beadded through active redevelopment and asset management. Lot U On 4 February 2008, the Company announced that it had agreed terms for the saleof its contractual interest in Lot U, which it acquired in December 2006. Thegross sale value of US$78m will generate a gross profit of US$44m and a grossreturn on the Company's invested equity of 125%. Through the forward funding arrangement with the developer of Lot U thecontracted acquisition price after completion was US$116.5m made up of aninitial funding deposit of US$36m with the balance to be paid in stage payments.As at the date of disposal only the deposit element had been paid by the Companyand, following the sale, the Company has no further obligation to make futurefundings. The Company never acquired any direct property rights in Lot U, whichis in line with the original intention to monetise its forward fundingarrangement prior to completion. However in determining the sale proceeds the asset value attributed to theunderlying property was US$160m representing an increase relative to contractedacquisition price of 38%, which compares favourably to the overall performanceof the Macau residential property market since investment. The sale will realisea net IRR of 80% (2.2x capital multiple) on the Company's invested capital basedon a holding period of 17 months. The sale of its purchase rights in the Lot U development enables the Company torealise a substantial return for its shareholders at a minimal cost. It furtherenables the Company to roll-over its investment into a new development with thepotential to create even greater value. Nam Van In March 2007, the Company entered into an agreement to purchase 24 residentialunits in shell condition, ranging in size from approximately 2,600 and 3,200square feet, plus 10 car parking spaces, in a recently completed residentialdevelopment. The development is in a prime location overlooking Nam Van Lake atBaia da Praia Grande on the Macau Peninsula. The units will be repositioned and fitted out to a very high standard for rentalor resale purposes. The Company will create a very high specification product interms of design and fit out that has proven to be very popular in Hong Kong butwhich has yet to be offered in Macau. The Company has used the renowned HongKong architects KplusK for the design and the experienced local contractor IBIfor the redevelopment and fit-out works. The Company completed the acquisition of the Nam Van Peninsula units on 15June 2007. The total acquisition price was US$28.8m. To finance the acquisition,the Company has put in place a US$19.2m term loan with Hang Seng Bankrepresenting 67% of the purchase price. Pipeline Projects The Company is now well-positioned to take advantage of larger-scale investmentopportunities. We have identified further projects that fit with the Company'sestablished strategy and return objectives. Potential investment opportunities with an aggregate value of more than US$2bnwere reviewed during 2007 and the majority rejected on the grounds ofincompatibility with the Company's strategy, return requirements or capitalbase. The Company has now established key strategic relationships with specialistpartners such as architects, engineers, contractors and developers and this hasgreatly increased our ability to access investment opportunities and to ensureproper and diligent execution of deals in Macau. Valuation An independent property valuation of the Company's two properties as at 31December 2007 was carried out by CB Richard Ellis in accordance with thestandards published by the Hong Kong Institute of Surveyors and the RoyalInstitute of Chartered Surveyors in the United Kingdom. As a result of theagreement to sell Lot U the independent valuation has been substituted with theagreed disposal price, at a premium to the independent valuation. CB Richard Ellis Group, Inc. (NYSE: CBG), an S&P 500 company headquartered inLos Angeles, is the world's largest commercial real estate services firm. Withover 24,000 employees, the company serves real estate owners, investors andoccupiers through more than 300 offices worldwide (excluding affiliate andpartner offices). Speymill Property Group (Far East) LimitedInvestment Adviser18 March 2008 Consolidated Income Statement For the period from 31 October 2006 (date of incorporation) to 31 December 2007 US$'000 Valuation gains on investment property 46,912 ------Manager's fees 3,013Incentive fees 5,011Audit and professional fees 116Other expenses 1,455 ------Administrative expenses 9,595 ------Net operating profit before net financing income 37,317 ------Financial income 3,966Financial expenses - ------Net financing income 3,966 ------Profit before tax 41,283 Deferred tax expenses (608) ------Profit for the period 40,675 ------Basic earnings per shares (cents per share) 37.45 ------Diluted earnings per share (cents per share) 37.31 ------ Consolidated and Company Balance Sheet Group Company At 31 December 2007 At 31 December 2007 US$'000 US$'000 Investment property 114,584 77,955 ------- -------Total non-current assets 114,584 77,955 ------- -------Trade and other receivables 57,695 45Cash and cash equivalents 36,770 35,259Intercompany balances - 71,762 ------- -------Total current assets 94,465 107,066 ------- -------Total assets 209,049 185,021 ------- -------Issued share capital 13,000 13,000Share premium 62,356 62,356Retained earnings 108,023 103,805Other reserves 336 336Foreign currency translation reserve (122) - ------- -------Total equity 183,593 179,497 ------- -------Interest-bearing loans and borrowings 15,385 -Deferred income tax 608 - ------- -------Total non-current liabilities 15,993 - ------- ------- Interest-bearing loans and borrowings 3,846 -Trade and other payables 5,617 5,524 ------- -------Total current liabilities 9,463 5,524 ------- -------Total liabilities 25,456 5,524 ------- -------Total equity & liabilities 209,049 185,021 ------- -------Net Asset Value per share 1.41 1.26 ------- ------- The profit earned by the Company for the period ended 31 December 2007 wasUS$36,457,244. Consolidated Statement of Changes in Equity Share Share Retained Other Foreign Total capital premium earnings reserves currency translation reserves US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Balance at - - - - - - 31 October 2006 Shares issued in 13,000 137,000 - - - 150,000the period Foreign exchange - - - - (122) (122)translationdifferences Share issue - (7,296) - 336 - (6,960)expenses Cancellation - (67,348) 67,348 - - -of share premiumreserve Retained earnings - - 40,675 - - 40,675for the period ----------------------------------------------------------Balance at 13,000 62,356 108,023 336 (122) 183,59331 December 2007 ---------------------------------------------------------- Other reserves represent the fair value of options granted to the broker onadmission to trading on AIM. On 8 October 2007, the share premium arising from the original placing of shareswas cancelled and the amount of the share premium account transferred todistributable reserves. Consolidated Cash Flow Statement For the period from 31 October 2006 (date of incorporation) to 31 December 2007 US$'000 Operating activitiesGroup profit before tax 41,283 Adjustments for:Valuation gains on investment property (46,913)Financial income (3,966) --------Operating loss before changes in working capital (9,596) (Increase) in trade and other receivables (644)Increase in trade and other payables 5,617 --------Cash used in operations (4,623) Interest received 3,966 --------Cash flows used in operating activities (657) --------Investing activitiesAcquisition of investment properties (67,793)Deposit for property purchase (57,051) ---------Cash flows used in investing activities (124,844) ---------Financing activities Proceeds from the issue of ordinary share capital 150,000Share issue expenses (6,960)Secured bank loan 19,231 ---------Cash flows generated from financing activities 162,271 ---------Net increase in cash and cash equivalents 36,770Cash and cash equivalents at beginning of period - ---------Cash and cash equivalents at end of period 36,770 ---------Notes 1 The Company Speymill Macau Property Company PLC (the "Company") was incorporated andregistered in the Isle of Man under the Isle of Man Companies Acts 1931 to 2004on 31 October 2006 as a public company with registered number 118202C. Pursuant to an admission document dated 14 November 2006, there was an originalplacing of up to 80,000,000 Ordinary Shares at a price of US$1.00 per share.Following the close of the placing, 80,000,000 Shares were issued. The Shares ofthe Company were admitted to trading on AIM, a market of the London StockExchange on 17 November 2006. On 9 May 2007, an announcement was made of a second placing of 50,000,000 sharesat a price of US$1.40 per share Following the close of the placing a further50,000,000 shares were issued at a placing price of US$1.40 per share. TheseShares were admitted to trading on AIM on the 11 May 2007. On 8 October 2007, the share premium arising from the original placing of shareswas cancelled and the amount of the share premium account transferred todistributable reserves. The Company's agents and the Manager perform all significant functions.Accordingly, the Company itself has no employees. The financial year end of the Company is 31 December each year. The Company haschosen to prepare its first set of financial statements for the period fromincorporation on 31 October 2006 to 31 December 2007. 2 Segment Reporting The Group has one segment focusing on achieving capital growth through investingin the property market in Macau, and at the discretion of the Board in the PearlRiver Delta region in China. No additional disclosure is included in relation tosegment reporting, as the Group's activities are limited to one business andgeographic segment. 3 Net financing income 31 December 2007 US$'000 Interest income on bank balances 3,966Interest expense - -----Net financing income 3,966 ----- 4 Net Asset Value per Share The net asset value per share as at 31 December 2007 is US$1.41 based on130,000,000 ordinary shares in issue as at that date. The adjusted net assetvalue per share as at 31 December 2007, that excludes the provision for deferredtaxation, is US$1.42. 5 Investment Property Group 31 December 2007 US$'000 At beginning of period -Additions through:direct acquisitions of property 67,672Fair value adjustment 46,912 ------- Balance at end of period 114,584 -------The Group's investment properties as at 31 December 2007 comprise twoproperties: "Nam Van Peninsular" and Lot U". Nam Van Peninsular were revalued at31 December 2007 by independent professionally qualified valuers CB RichardEllis, based on current prices in an active market. Lot U was sold shortly afterthe year end and is stated at sales price. The Lot U property is held by the Company. 6 Trade and Other Receivables Group Company 31 December 2007 31 December 2007 US$'000 US$'000 Prepayments and other receivables 644 45Deposits for purchase of property 57,051 - ------ -----Total 57,695 45 ------ ----- The amount of US$57.051m included within deposits for purchase of propertyrelates to cash held on a lawyer's escrow account that related to the cancelledLot C9 forward funding arrangement. The cash was returned after the year end. 7 Basic and Diluted Earnings per Share Basic earnings per share is calculated by dividing the profit attributable toequity holders of the Group by the weighted-average number of ordinary shares inissue during the period. 31 December 2007 Profit attributable to equity holders of the Group (US$'000) 40,675Weighted average number of ordinary shares in issue 108,606(thousands) ------- Basic earnings per share (cent per share) 37.45 ------- The difference between basic and diluted weighted-average shares results fromthe assumption that dilutive share options were exercised. 31 December 2007 Profit attributable to equity holders of the Group (US$'000) 40,675Weighted average number of ordinary shares in issue 108,606(thousands) Adjustment for Share options 418 -------- Weighted-average number ordinary shares for diluted earnings 109,024per share -------- Diluted earnings per share (cent per share) 37.31 --------8 Interest-Bearing Loans and Borrowings This note provides information about the contractual terms of the Group'sinterest-bearing loans and borrowings. 31 December 2007 US$'000Non-Current LiabilitiesSecured bank loan 15,385 ------Current LiabilitiesSecured bank loan 3,846 ------ The Group has a term loan facility of HKD 150,000,000 with Seng Heng BankLimited in Macau which is secured by way of a first legal mortgage against theNam Van Peninsular property in Macau. The loan is to be repaid in 5 half-yearlyinstalments commencing in July 2008. The loan bears 2% interest per annum overthe 3 month Hong Kong Inter Bank Offered Rate (HIBOR). 9 Post Balance Sheet Events On 7 February 2008, the Company entered into a Sale and Purchase Agreement (the"SPA") in order to dispose of its interest in Lot U. The book value of theCompany's investment at that date was HK$271,952,679 (US$34,865,729). The totaldisposal proceeds receivable under the SPA amounted to HK$615,555,750(US$78,917,404), resulting in a net profit on disposal, after transaction costsof HK$332,361,605 (US$42,610,462) and a net return of 122%. The board agreed that since the investment adviser, Speymill Property Group (FarEast) Limited, had arranged the sale of Lot U and effectively saved the Companybrokerage costs in the region of 1% of the sales proceeds, it would receive aone-off fee equal to 0.5% of the sales proceeds. The fee has been accrued as atransaction cost associated with the sale of Lot U. 10 Copies of the Annual Report The above financial information does not constitute statutory accounts and thefigures included above are based upon the audited accounts for the period ended31 December 2007. The full audited accounts for the period ended 31 December2007 will be sent to shareholders and will be available from the Company'sregistered office at Third Floor, Britannia House, St George's Street, Douglas,Isle of Man IM1 1JE. This information is provided by RNS The company news service from the London Stock Exchange