Forterra Trust (formerly: Treasury China Trust)

- From a MTN last year

Vincent CHEUNG Sai Sing, aged 32, is an Executive Director of Nan Fung Development Limited and
is responsible for the daily operation and the proposition, consultation, and approval of new company
investments of Nan Fung Development Limited and its affiliated companies. Mr. Cheung joined Nan
Fung Development Limited in 2009 and has extensive experience in the financial sector. Before
joining Nan Fung Development Limited, Mr. Cheung was Vice President of the Interest Rates
Structuring Group at Barclays Capital Asia Limited from 2008 to 2009, and Vice President of the
Interest Rates Structuring and Medium Term Notes Trading at Citigroup Global Markets Asia Limited
— 131 —from 2004 to 2008. Mr. Cheung is the son of Vivien Chen and graduated from the University of
California, Berkeley, graduating with honours in Molecular and Cell Biology in 2003. Mr. Cheung has
been a member of The National Committee of the Chinese People’s Political Consultation Conference
for Shanghai City (中國人民政治協商會議上海市委員) since 2012, a Committee Member of the
All-China Youth Federation and a Council Member of the Hong Kong United Youth Association since
2010. Mr. Cheung is also a Non-executive Director of SOL.

This report was updated by Edison Research on 20-Feb-2014 before the release of FY2013 result on 28-Feb-2014

http://media.corporate-ir.net/media_file...Delays.pdf

(Vested)

Key points from the FY2013 results:

1) The Trust registered gross revenue of S$77.28 million for the 12 months ended 31 December 2013, a decrease of 22.0% year-on-year ("YoY") resulting mainly from the sale of Central Plaza in May 2013 and nil occupancy of the retail podium at The HQ as a consequence of the on-going refurbishment work.
2) Net Property Income (“NPI”) for FY2013 declined to SGD 48.87 million from SGD 58.83 in FY2012
3) The new management has performed an extensive development and operational review of the HQ to optimize the overall positioning, tenant mix and launch of The HQ, with particular consideration given to changing opportunities in market conditions. As such there has been delay in the development timeline of The HQ which is now expected for The HQ 1 to be launched in Q3 2014, and The HQ 2 and The HQ 3 in Q4 2014.
4) The successful completion and opening of The HQ project in a timely manner remains the management’s top focus in near term and consequently, there are no plans for additional balance sheet growth via asset acquisition until the development of The HQ is complete.
5) Net Asset Value (“NAV”) of SGD4.68 per unit as at 31 December 2013 (SGD 4.44 per unit as at 31 Dec 2012)
6) Deferred tax liabilities as at 31 December 2013 = SGD 393.6 million ( or SGD 1.55 per unit )
7) Amount from realised gains available for distribution to Unitholders at the end of the period (31-Dec-2013) = SGD 37.88 million ( = SGD 0.149 per unit)
8) As at 31 December 2013, the Trust had total cash holdings equivalent to SGD 112.94 million, of which 29.3% was held onshore in China in RMB.
9) The Board has determined that in light of the ongoing development program of The HQ and the planned refurbishment of Huai Hai Mall to commence in 2014, that there would not be a distribution declared for the six months ended 31 December 2013.

Events after 31-Dec-2013:

a) On 14 January 2014, pursuant to a put/call option agreement (the “Put/Call Option Agreement”) with Ronan dated 22 July 2013, Nan Fung exercised the options at SGD 2.98 per unit and completed the acquisition of a further 7,815,057 units, equivalent to 3.08% of the units of the Trust. Nan Fung’s interests in the Trust remains at 29.98%.
b) On 11 Feb 2014, Pacific Alliance Group (PAG), the second largest unit-holder, increased its stake in the Trust from 17.98% to 18.00%.
c) The stake of third largest unit-holder, APG Algemene Pensioen Groep N.V. remains unchanged at 8.66%.

Comments:
1) It is interesting to note that Nan Fung had opted to pay SGD 2.98 a share by exercising put/call options to acquire the 3.08% stake from Ronan. It could had opted not to exercise the options and instead perform open market at lower price, but it did not.
2) Share price has reverted back to SGD 1.80 per share; NAV is at SGD 4.68 per share ; Deferred Tax Liabilities = SGD 1.55 per share, which potentially could be “avoided”
3) There are certainly a lot of values to be unlocked from this counter which I believe the New Owner see it.
4) If they see it, the next question would be “Do they have the intention to act on it?
5) If they have the intention to act on it, the next question is “When?”
6) These are questions which unit-holders should put to the new management during the coming AGM

(Vested)

(07-03-2014, 11:57 AM)Boon Wrote: Key points from the FY2013 results:

1) The Trust registered gross revenue of S$77.28 million for the 12 months ended 31 December 2013, a decrease of 22.0% year-on-year ("YoY") resulting mainly from the sale of Central Plaza in May 2013 and nil occupancy of the retail podium at The HQ as a consequence of the on-going refurbishment work.
2) Net Property Income (“NPI”) for FY2013 declined to SGD 48.87 million from SGD 58.83 in FY2012
3) The new management has performed an extensive development and operational review of the HQ to optimize the overall positioning, tenant mix and launch of The HQ, with particular consideration given to changing opportunities in market conditions. As such there has been delay in the development timeline of The HQ which is now expected for The HQ 1 to be launched in Q3 2014, and The HQ 2 and The HQ 3 in Q4 2014.
4) The successful completion and opening of The HQ project in a timely manner remains the management’s top focus in near term and consequently, there are no plans for additional balance sheet growth via asset acquisition until the development of The HQ is complete.
5) Net Asset Value (“NAV”) of SGD4.68 per unit as at 31 December 2013 (SGD 4.44 per unit as at 31 Dec 2012)
6) Deferred tax liabilities as at 31 December 2013 = SGD 393.6 million ( or SGD 1.55 per unit )
7) Amount from realised gains available for distribution to Unitholders at the end of the period (31-Dec-2013) = SGD 37.88 million ( = SGD 0.149 per unit)
8) As at 31 December 2013, the Trust had total cash holdings equivalent to SGD 112.94 million, of which 29.3% was held onshore in China in RMB.
9) The Board has determined that in light of the ongoing development program of The HQ and the planned refurbishment of Huai Hai Mall to commence in 2014, that there would not be a distribution declared for the six months ended 31 December 2013.

Events after 31-Dec-2013:

a) On 14 January 2014, pursuant to a put/call option agreement (the “Put/Call Option Agreement”) with Ronan dated 22 July 2013, Nan Fung exercised the options at SGD 2.98 per unit and completed the acquisition of a further 7,815,057 units, equivalent to 3.08% of the units of the Trust. Nan Fung’s interests in the Trust remains at 29.98%.
b) On 11 Feb 2014, Pacific Alliance Group (PAG), the second largest unit-holder, increased its stake in the Trust from 17.98% to 18.00%.
c) The stake of third largest unit-holder, APG Algemene Pensioen Groep N.V. remains unchanged at 8.66%.

Comments:
1) It is interesting to note that Nan Fung had opted to pay SGD 2.98 a share by exercising put/call options to acquire the 3.08% stake from Ronan. It could had opted not to exercise the options and instead perform open market at lower price, but it did not.
2) Share price has reverted back to SGD 1.80 per share; NAV is at SGD 4.68 per share ; Deferred Tax Liabilities = SGD 1.55 per share, which potentially could be “avoided”
3) There are certainly a lot of values to be unlocked from this counter which I believe the New Owner see it.
4) If they see it, the next question would be “Do they have the intention to act on it?
5) If they have the intention to act on it, the next question is “When?”
6) These are questions which unit-holders should put to the new management during the coming AGM

(Vested)

Hi Boon.

I think your Comment #1 misinterprets the nature of the agreement between Nan Fung and Ronan. It is a "put/call option". ie Nan Fung owns a call option but Ronan owns a put option. Hence, if Nan Fung did not exercise the call option, Ronan would exercise the put option. Therefore, unfortunately, I don't think we can read too much into why they exercised the call option as opposed to purchasing cheaper shares from the market.

(Vested)

(07-03-2014, 12:41 PM)GreedandFear Wrote: Hi Boon.

I think your Comment #1 misinterprets the nature of the agreement between Nan Fung and Ronan. It is a "put/call option". ie Nan Fung owns a call option but Ronan owns a put option. Hence, if Nan Fung did not exercise the call option, Ronan would exercise the put option. Therefore, unfortunately, I don't think we can read too much into why they exercised the call option as opposed to purchasing cheaper shares from the market.

(Vested)

Hi GreedandFear,

"A put and call option agreement (the "Put/Call Option Agreement") has been granted by Mr John Ronan in favour of New Precise over 7,815,057 units (the "Option Units") equivalent to 3.08% of the units in issue as at the date of this announcement. The exercise price is S$2.98 per unit for a total consideration of approximately S$23,288,870. Should the Put/Call Option Agreement be exercised, the completion of the purchase of the Option Units will occur no earlier than 2 January 2014 and no later than 31 January 2014. During the term of the Put/Call Option Agreement, New Precise shall control all voting rights in respect of the Option Units."

I think you are right. Thanks for the correction.

Boon-san

Is it coincidence or is it my evil mind?

The delay in HQ's launch appears to dovetail nicely with the "window of opportunity" from end Sep 2014 (maturity of convertible bond) and end June 2015 (expiry of 3 million plus Forterra Unit Option Scheme held by Nan Fung). In other words, if HQ is wildly successful, would it not raise the GO price (IF there is a GO)?

(09-03-2014, 04:30 PM)HitandRun Wrote: Boon-san

Is it coincidence or is it my evil mind?

The delay in HQ's launch appears to dovetail nicely with the "window of opportunity" from end Sep 2014 (maturity of convertible bond) and end June 2015 (expiry of 3 million plus Forterra Unit Option Scheme held by Nan Fung). In other words, if HQ is wildly successful, would it not raise the GO price (IF there is a GO)?

Hi HitandRun,

You got some interesting observations there. I would definitely hope so – GO at a premium.

The bondholders of convertible Forum Bonds would unlikely to opt for conversion at SGD 2.10 a share at expiry (in September 2014) if the share price remains below the conversion price level from now till expiry.

Full conversion of the Forum Bonds would dilute shareholdings of Nanfung in the Trust from 29.8% to 26.96% (still above the 25% safe level).

If there were no conversion of any Forum Bonds at expiry – the exercise of ALL 3.050,000 option units under the UOS in June 2015, would bring shareholdings of Nanfung in the trust to 30.81% ( vs 27.74% had there been FULL conversion of Forum Bond)

Have to wait and see how things would unfold.

(vested)

Boon-san

IMHO, conversion of the bonds is almost impossible at this share price. As you are aware of, there is an imputed 16.75% p.a. return on them. As such, unless the share price trade way above 3+ ($2.10 annualised at 16.75% p.a. for 3.5 years less 6% p.a. interest paid), there is absolutely no monetary incentive for them to convert.

(09-03-2014, 11:38 PM)Boon Wrote:

(09-03-2014, 04:30 PM)HitandRun Wrote: Boon-san

Is it coincidence or is it my evil mind?

The delay in HQ's launch appears to dovetail nicely with the "window of opportunity" from end Sep 2014 (maturity of convertible bond) and end June 2015 (expiry of 3 million plus Forterra Unit Option Scheme held by Nan Fung). In other words, if HQ is wildly successful, would it not raise the GO price (IF there is a GO)?

Hi HitandRun,

You got some interesting observations there. I would definitely hope so – GO at a premium.

The bondholders of convertible Forum Bonds would unlikely to opt for conversion at SGD 2.10 a share at expiry (in September 2014) if the share price remains below the conversion price level from now till expiry.

Full conversion of the Forum Bonds would dilute shareholdings of Nanfung in the Trust from 29.8% to 26.96% (still above the 25% safe level).

If there were no conversion of any Forum Bonds at expiry – the exercise of ALL 3.050,000 option units under the UOS in June 2015, would bring shareholdings of Nanfung in the trust to 30.81% ( vs 27.74% had there been FULL conversion of Forum Bond)

Have to wait and see how things would unfold.

(vested)

Why dont let UOS options expire in June 2015? Is it dumb for Nan Fung to increase potential takeover price to $2.98 (by additional 65% from $1.80)for just 3.05m shares (Options are right, but not the obligation)

The last purchase price for NF is $2.98 at 14 Jan 2014 via put/call option exercise. No choice coz Ronan can always put to NF.

IF NF cross 30%, it will be a mandatory offer, which require highest price paid ($2.98) in past 6 months by law.

So the date for NF to bid lower than $2.98 is 14 July 2014.

(10-03-2014, 10:04 AM)opmi Wrote: Why dont let UOS options expire in June 2015? Is it dumb for Nan Fung to increase potential takeover price to $2.98 (by additional 65% from $1.80)for just 3.05m shares (Options are right, but not the obligation)

So your point is that Nan Fung paid approx 8 million for the UOS and get them extended for a year or so for the sake of letting them expire worthless? You could be right you know. After all, all billionaires are eccentric people.