The six months to 31 December 2018 was a particularly challenging period for our Company. A weak Chinese stock market and increasingly stringent cross border capital controls, coupled with concerns over the pace of US interest rate rises and the US-China trade war, weighed heavily on Macau’s luxury property sector. The fourth quarter was especially difficult. The result was a marked drop-off in the number and size of transactions involving higher-priced properties, with anti-speculation mortgage restrictions affecting purchasing behaviour more significantly. In the near term, there are no signs that Macau’s government will relax those restrictions. Investors’ fears at the end of 2018 may, however, prove to be overblown. Recently, there have been signs of policy adjustments that may slow increases in US interest rates. Trade talks between the US and China are continuing, and any positive developments could have a beneficial impact on sentiment. In the past week, China’s central government issued its long term development plan for the Greater Bay Area, commencing an exciting new phase of economic integration for the Pearl River Delta region.

Asset enhancement and divestment approach

Against this backdrop, the Company is wellpositioned to execute the divestment of its three remaining properties. Our approach is resultsfocused, ensuring that the appeal of each property to
prospective investors is maximised, while adopting a very prudent approach towards such expenditure.

At The Waterside, modest but necessary refurbishments to some apartments are ongoing. Enhancements at Estrada da Penha have made a marked improvement to the appearance of the property. Reconfiguring the larger
units at The Fountainside to meet the current demands of the market will also prove to be a sensible course of action.

Our Manager, Sniper Capital, is focused on the necessary steps to achieve successful sales to both Macau-based buyers and a broader international market. It is important that we exercise a measure of patience as we work through the current volatility, supported by our strong capital base. During this time, focus remains on containing all manageable costs.

By 31 December 2018, the value of our property portfolio had fallen for a second quarter to US$320 million, an accumulated 5.2% decrease over the sixmonth period. A major factor influencing valuations was a decline in the number of comparable transactions in the market.

Our target remains an orderly but well-timed disposal of each asset. The Manager has demonstrated a strong track record in that regard, as reflected in the 85% of initial invested capital distributed since inception.

Corporate governance

Since my appointment as Chairman, we have carried out a review of the Company. We have made minor changes to the structure of our committees. We have also engaged with our service providers following the changes to our investment objectives agreed in 2018.

Our overriding aim is to deliver cost-effective and timely divestments of our remaining properties, including further returns of capital to our shareholders.

Our Board provides a diversity of experience and geographical perspective, coupled with an essential understanding of the unique features of Macau and its property market. We have assessed that we have the capacity to fulfil our obligations in the context of the latest corporate governance guidelines, taking full account of the phase that the Company is in and its clearly defined business objectives.

We have also assessed our environmental, social and governance (ESG) obligations. Within the context of our clear strategic aims, we are satisfied that the Company, the Manager and our service providers have clear policies and procedures in place to operate the business in accordance with relevant ESG principles. It is also important to note that comprehensive anti-money laundering policies have always been in place and are regularly reviewed and updated where appropriate.

Conclusion

Much has been written about the growth of Macau and its enviable economic performance. It is important to consider the current headwinds in the context of how Macau, the only legal gaming jurisdiction on Chinese soil, has developed during the life of the Company. Measures including visa restrictions for Chinese visitors and anti-graft controls have had an impact in the past, and yet longer-term growth has continued.

The Greater Bay Area’s development as a world-class city cluster will have a powerful cascading effect on the wider Pearl River Delta region, including Macau. Ambitious infrastructure projects – which form a strategic component of the plan – have always been a key factor influencing the Manager’s approach to the timing of divestments. The Hong Kong-ZhuhaiMacau bridge was opened by Chinese President Xi Jinping in October. Although its full benefits have yet to flow through to Macau’s economy, we believe the relative ease, speed and comparably low cost of crossing the bridge will provide long-term support for Macau’s growth.

We remain confident of the quality of our portfolio and believe it is well-positioned to capitalise on an improvement in sentiment among prospective investors. Our approach is designed to ensure that we enhance our assets, while continuing to maximise opportunities for divestment.

Finally, I would like to thank MPO’s former Chairman, Chris Russell, who stepped down in November. Under his stewardship, MPO emerged strengthened from a turbulent period for Macau’s economy. I join with the rest of the Board and the executive management in wishing him the very best for the future.

Mark Huntley
Chairman

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