Forterra Trust (formerly: Treasury China Trust)

Forterra Trust is a research client of Edison Investment Research Limited-

**The HQ, so attention should now turn to construction and pre-leasing progress ahead of its launch in early-2014. The shares remain 50% below FY12 NAV/share. That gap should close as The HQ approaches completion, with more visibility on revenues and timing of resumed dividends.**

**The shares are currently 50% below S$4.44 end-FY12 NAV/share. The investment case pivots on
successful completion of The HQ, by far the most significant component (58%) of the portfolio by
value (see Exhibit 2) and the source of a potentially material increase in group rental income from
FY14 onwards. The latter should stabilise group finances, reduce portfolio development weighting
(to 6%) and underpin commitment to resume dividend payments from FY15 at the latest. Basic
NAV/unit was S$4.44 (FY11: S$4.62), net of S$1.74/unit of deferred tax as at the end of FY12. The
fall relates mainly to foreign exchange: 6.2% S$/US$ and 5.1% S$/RMB appreciation.**

**Financials: Outlook stabilised by sales and The HQ launch
We set out in this note how we expect Forterra to cover The HQ development and meet its working
capital commitments, together with our assumptions. We expect the proceed from the Central Plaza
sale to effectively bridge the period until initial rental revenues flow from the retail element of The
HQ in early-FY14, with the first full-year contribution from the scheme as a whole in FY15. We have
not incorporated any proceeds from the sale of the Beijing Logistics Park in our forecasts, although
discussions with management suggest this is proceeding as planned.**

(01-09-2013, 10:33 PM)freedom Wrote: Much refreshing than a lot of other baseless claims.

Ha Ha. Of course cannot anyhow believe what this uncle (i.e. HitandRun) said about deferred tax, especially if one's knowledge about deferred tax liability on investment properties is not up to mark.

(01-09-2013, 10:33 PM)freedom Wrote: Notice "The PRC tax authority will examine the true nature of the indirect transfer, and if the PRC tax authority considers that the foreign investor has adopted an abusive arrangement without reasonable commercial purposes and in order to avoid PRC tax, the PRC tax authority may disregard the existence of the overseas holding company that is used for tax planning purposes and re-characterise the indirect transfer. "?

In a way, it still depends on China tax authority to clear the tax issue. If I am not wrong, tax remains audit-liable for years. And China tax authority is quite moody. Vodafone acquisition has been completed for years and India government went as far as establishing a new law and applying it backwards to punish Vodafone. Hope PRC government not that desperate.

http://www.ey.com/Publication/vwLUAssets...012002_en/$FILE/CTIN2012002(ENG).pdf

7 public cases of indirect transfer of equity via offshore "intermediate holding companies". Interestingly, in all cases, all the intermediate holding companies were found to be "lack of business substance" or "lack of commercial purposes" and therefore disregarded by the tax authorities - as a result, WHT (withholding tax) of 10% were levied on the capital gains.

Does it mean that if the offshore intermediate holding companies were found to have enough business substance and commercial purpose, then the 10% WHT would not be levied?

(vested)

This is an excellent publication from Deloitte which covers the tax issues, tax planning, holding structure, exit strategy, financing etc. for real estate investment in China. Most tax issues related to onshore asset disposal vs indirect equity disposal of offshore holding company were also covered.

China real estate investment handbook – the details that make the difference – 2013 edition – by Deloitte

http://www.deloitte.com/assets/Dcom-Chin...250713.pdf

Valuation of the HQ (Existing – Excluding the extension, HQ3) as at 30-June-2013 = RMB 6,191 million.
With a GFA (estimated) = 188,675 sqm, this translates into RMB 32,813 per sqm

SHKP (HK) paid RMB 37,264 per sqm for LAND ALONE a few days ago.

Bench marking against this, SGD 2.98 per share paid by Nanfung for 29.98% of Forterra appeared to be “a real bargain”
___________________________________________________________________________________________________________________________________________________

Sun Hung Kai Splurges on Shanghai Property
$3.57 Billion Bid Is One of the Highest Prices Ever for a Piece of Land in China
September 5, 2013
http://online.wsj.com/article/SB10001424...72650.html

SHKP has won a mega-sized commercial property site in Xujiahui, Shanghai for a consideration of RMB21.77 bn which is 24% higher than the starting bid.

This project, currently named "Xu Jia Hui Center" is zoned for office, retail and hotel use, and has a total gross floor area above ground of 584,203.6 square meters. This translates into unit land cost of RMB 37,264 per square meter per plot ratio.

_________________________________________________________________________________________________________________________________________________
Bullishness of HK property developers in Shanghai market

JP Morgan's comments on SHKP's Shanghai land acquisition

https://mm.jpmorgan.com/OpenPubServlet?a...on=9000024

Sun Hung Kai Properties Overweight
Acquisition of Shanghai site tieing up capital but will enhance recurring income in long-term
05 September 2013

Though the acquisition of a mega-sized commercial property site will tie up capital for SHKP, we think that the acquisition is positive as it will enhance the recurring income of the company in the long-run. We estimate total investment cost will be over RMB30 bn and will generate gross yield on cost of around 5 to 6%.
• Winning prime site in Shanghai: SHKP has won a mega-sized commercial property site in Xujiahui, Shanghai for a consideration of RMB21.77 bn or RMB37,264 psm, which is 24% higher than the starting bid. According to HKEJ, the other bidder was a consortium of Wharf and Henderson Land. The average land cost does not look expensive compared to current capital value of average Puxi office at around RMB78,000 psm and average prime Shanghai retail property at over RMB100K psm. But the total investment cost of the project is material and is more than 10% of the shareholders' funds of the company based on our estimates.
• Gearing level still comfortable: The site is located close to Hang Lung’s Grand Gateway in Shanghai, providing total GFA above ground of around 584,203.6 sqm. Assuming construction cost of RMB15,000 psm for developing quality commercial properties in Shanghai, we estimate total development cost would be over RMB30 bn; net gearing would increase to some 20%, assuming the land cost is funded by debt, still at a comfortable level.
• Estimated yield on cost between 5% and 6%: The tentative plan is to develop a mixed-use commercial project with 70% for offices and 30% for retail and hotel use. Assuming SHKP achieves similar rental level as Grand Gateway, say HK$130 psf for retail and HK$30 psf for office, we estimate the project will bring in rental income of about HK$2.1 to HK$2.5bn on completion, implying a gross yield on cost of around 5- 6%. The implied retail sales of the mall will be more than HK$6 bn if we assume a similar occupancy cost as Grand Gateway.
• Enhancing recurring income in the long-term: While we think the project is in a good location and we believe SHKP has the execution ability to develop and operate commercial properties in Shanghai, the huge amount of investment could limit SHKP’s flexibility to acquire other projects in the future. Taking Hong Kong as an example, Hongkong Land acquired the site for the development of Exchange Square in the 1980s and tied up a large amount of capital. Having said that, we think that the acquisition is positive for SHKP in the long-run as the project is expected to enhance current rental income by some 15%.

(vested)

http://infopub.sgx.com/FileOpen/Nan_Fung...eID=255753

(10-09-2013, 11:46 AM)kbl Wrote: http://infopub.sgx.com/FileOpen/Nan_Fung...eID=255753

Interestingly, from this "non-deal roadshow presentation", it looks like Nanfung is after the platform rather than the assets.

(vested)

(08-09-2013, 11:08 AM)Boon Wrote: Valuation of the HQ (Existing – Excluding the extension, HQ3) as at 30-June-2013 = RMB 6,191 million.
With a GFA (estimated) = 188,675 sqm, this translates into RMB 32,813 per sqm

SHKP (HK) paid RMB 37,264 per sqm for LAND ALONE a few days ago.

Bench marking against this, SGD 2.98 per share paid by Nanfung for 29.98% of Forterra appeared to be “a real bargain”
___________________________________________________________________________________________________________________________________________________

Sun Hung Kai Splurges on Shanghai Property
$3.57 Billion Bid Is One of the Highest Prices Ever for a Piece of Land in China
September 5, 2013
http://online.wsj.com/article/SB10001424...72650.html

SHKP has won a mega-sized commercial property site in Xujiahui, Shanghai for a consideration of RMB21.77 bn which is 24% higher than the starting bid.

This project, currently named "Xu Jia Hui Center" is zoned for office, retail and hotel use, and has a total gross floor area above ground of 584,203.6 square meters. This translates into unit land cost of RMB 37,264 per square meter per plot ratio.

_________________________________________________________________________________________________________________________________________________
Bullishness of HK property developers in Shanghai market

JP Morgan's comments on SHKP's Shanghai land acquisition

https://mm.jpmorgan.com/OpenPubServlet?a...on=9000024

Sun Hung Kai Properties Overweight
Acquisition of Shanghai site tieing up capital but will enhance recurring income in long-term
05 September 2013

Though the acquisition of a mega-sized commercial property site will tie up capital for SHKP, we think that the acquisition is positive as it will enhance the recurring income of the company in the long-run. We estimate total investment cost will be over RMB30 bn and will generate gross yield on cost of around 5 to 6%.
• Winning prime site in Shanghai: SHKP has won a mega-sized commercial property site in Xujiahui, Shanghai for a consideration of RMB21.77 bn or RMB37,264 psm, which is 24% higher than the starting bid. According to HKEJ, the other bidder was a consortium of Wharf and Henderson Land. The average land cost does not look expensive compared to current capital value of average Puxi office at around RMB78,000 psm and average prime Shanghai retail property at over RMB100K psm. But the total investment cost of the project is material and is more than 10% of the shareholders' funds of the company based on our estimates.
• Gearing level still comfortable: The site is located close to Hang Lung’s Grand Gateway in Shanghai, providing total GFA above ground of around 584,203.6 sqm. Assuming construction cost of RMB15,000 psm for developing quality commercial properties in Shanghai, we estimate total development cost would be over RMB30 bn; net gearing would increase to some 20%, assuming the land cost is funded by debt, still at a comfortable level.
• Estimated yield on cost between 5% and 6%: The tentative plan is to develop a mixed-use commercial project with 70% for offices and 30% for retail and hotel use. Assuming SHKP achieves similar rental level as Grand Gateway, say HK$130 psf for retail and HK$30 psf for office, we estimate the project will bring in rental income of about HK$2.1 to HK$2.5bn on completion, implying a gross yield on cost of around 5- 6%. The implied retail sales of the mall will be more than HK$6 bn if we assume a similar occupancy cost as Grand Gateway.
• Enhancing recurring income in the long-term: While we think the project is in a good location and we believe SHKP has the execution ability to develop and operate commercial properties in Shanghai, the huge amount of investment could limit SHKP’s flexibility to acquire other projects in the future. Taking Hong Kong as an example, Hongkong Land acquired the site for the development of Exchange Square in the 1980s and tied up a large amount of capital. Having said that, we think that the acquisition is positive for SHKP in the long-run as the project is expected to enhance current rental income by some 15%.

(vested)

The location where the HQ is located cannot be compared to SHKP's Xujiahui property. The former is more suburban , the latter in a prime shopping area.

(29-08-2013, 05:45 PM)KopiKat Wrote:

(29-08-2013, 05:19 PM)Boon Wrote: That said, there is no certainty that Nanfung will make a GO. Therefore one must be prepared for this eventuality.

NAV = SGD 4.81 per share as at 30-June-2013, share price is still trading at < 50% NAV

With the sale of Central Plaza completed, liquidity had improved a lot, as at 30-June-2013, the Trust had total cash holdings equating to SGD 193.87 million, of which 9.42% was held onshore in China in RMB – the rest was held offshore. IMO, there are in a position to make distribution to unitholders for FY2013 and beyond. DPU of SGD 5 cents equates to SGD 12.7 million. Wondering if new management would do so?

Good cash-flows are expected in 2H2014 and onwards with the completion of the HQ re-development project expected in 1H2014.

If there is no GO, I would be equally happy if the Trust could resume paying some decent dividends - the Trust could afford to do so IMO

(vested)

From latest Q213 financials, pg29 of 37, under "4(a) Amount Available for Distribution",

Realised gains available for distribution to Unitholders at the beginning of the period = $5,802,000
Add: Gain on sale of subsidiaries = $17,964,000
Add: Realised valuation gain on sale of subsidiaries = $24,349,000
Amount from realised gains available for distribution to Unitholders at the end of the period = $48,115,000

That translates to 19ct / unit. I suppose they can reinstate DPU payout if they so wishes. But, I noticed that for Q213, Finance Cost > NPI, so don't expect the whole 19ct.... maybe 5ct / half, like long time ago?

In this week's TheEdge, there's an article on Forterra. Their target is to resume DPU payout in 2015, after the completion of The HQ (when completed, will account for 65% of Forterra's assets).

Is that $48m really unencumbered cash? Maybe they need it to pay for the HQ completion.