Dear Shareholders,

Full-year gross domestic product is forecast to have grown 13.4% year-on-year in 2017, driven by gaming revenue – the mainstay of Macau’s economy – which rebounded by almost 20% in the same period. A further increase of 7% in GDP is expected in 2018.

Against this backdrop, and despite continuing government anti-speculation measures, a further recovery in Macau property values is anticipated.

This should present a more opportune environment in which to divest our assets than that experienced in the last few years.

Financial Performance

The Company enjoyed a continuing recovery, albeit gradual, in asset values over the six months under review.

Over the 6-month period, MPO’s portfolio rose by 3.4% to US$435.1 million as at 31 December 2017. Adjusted NAV was US$258.6 million, an increase of 3.7% and equivalent to US$3.38 (250 pence) per share.

IFRS NAV increased by 4.4% from 30 June 2017 to US$134.5 million.

Total debt at the end of the period was US$172.3 million, equating to a loan-to-value ratio of 38.3%.

Portfolio Realisation

We remain wholly committed to our divestment strategy and are taking full advantage of the long-awaited recovery in sentiment to market our assets to targeted investor groups.

While we have had some success in disposing of smaller assets in the last 12 months, the divestment of higher-value assets has proven more challenging.

However, since the period end, we have announced a conditional agreement to dispose of our retail redevelopment site, Senado Square, at a c. 14% premium to its latest valuation. The transaction is subject to receiving shareholder approval at an Extraordinary General Meeting to be held on 19 March 2018.

The conditional sale of Senado Square, along with the recovery in both MPO’s net asset value and share price, supports the position the Board took a year ago to reject a bid for the entire portfolio at a large discount to end-December 2016 asset values. That said, we are working hard to achieve further divestments at attractive prices.

Demand from mainland Chinese investors – previously key participants in the Macau market – has been subdued, largely due to tight scrutiny by China’s central government of capital outflows and outbound property investment. Macau’s own anti-speculation policies have also curbed investors’ purchasing power, particularly in the higher-value residential segment to which our portfolio is now skewed.

Asset Management

While intensive marketing activities continue for our properties, we are also ensuring that they continue to be maintained and managed to the very highest standards.

Leasing at our most significant asset, The Waterside, continues to benefit from a strong rebound in the VIP gaming segment and an asset enhancement programme that began during the downturn from which Macau is now recovering.

Sales at The Fountainside remain hindered by tighter mortgage loan curbs that came into effect in 2017, but buyer interest remains steady and we are working towards securing more transactions. We are also examining the potential that a reconfiguration of the larger units into a mix of smaller apartments might offer.

Meanwhile, we continue to market Estrada da Penha to an exclusive group of potential buyers.

Continuation Vote

Following the AGM in November 2016, the Company adopted new Articles of Association. These require the Board to put an ordinary resolution to shareholders each year to extend the life of the Company for a period of one year. The first continuation resolution is due to be proposed at the Company’s next AGM in November 2018 when shareholders will be presented with full updated information.

Looking Ahead

Macau’s long-term prospects remain compelling.

Improved connectivity and significant economic benefits are promised by the territory’s involvement in large-scale development plans such as China’s ambitious “Belt and Road” initiative and the Guangdong-Hong Kong-Macau Greater Bay Area project. The latter will bring together a population of 70 million people and achieve a potential GDP of US$4.6 trillion by 2030. Macau will be integrated even further into the area when the Hong Kong-Zhuhai-Macau Bridge opens later this year, encouraging more frequent visits and longer stays.

We remain confident in the quality of our assets and the appeal they hold to investors seeking prime properties in a long-term growth market. We are, however, also mindful that Macau’s property market is still in the relatively early stages of a recovery, which is likely to take further time to gather solid momentum.

Chris Russell

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