Forterra Trust (formerly: Treasury China Trust)

[Boon]

Personally I think the biggest risk to Forterra is refinancing and interest rates.. If China were to experience a financial crisis, there is a good chance a rights issue would have to be undertaken to shore up the balance sheet.. not to mention asset value impairment..

Nan Fung has the ability to refinance the loans

May I pick your brains fellow value investors? I like Forterra Trust a lot, it has new talented and experienced core holders with Nan Fung and Pacific Alliance, it benefits from a clear margin of safety (cash, current NAV) and also upside potential ceteris paribus; as the HQ is completed/refurbished/let/ its NAV should gradually show an increase towards S$5.50 (lets assume S$1 impact) So even if the current discount does not reduce,within 12 months we should see a increase in the share price.

To Maximise returns to ALL unit-holders, I guess the quickest and most effective way is to liquidate the Trust by selling all remaining assets "Off shore" in similar way to Central Plaza - could pocket the Defferd Tax Liability of SGD 1.55 per unit.

(Vested)

[Boon]

31-Dec-2013:

Capital Value, million (value based on independent valuation report)
The HQ = RMB 8,134 = SGD 1,699.2 = (73.2%)
Central Park Mall = RMB 1,102 = SGD 418.4 = (9.9%)
Huai Hai Mall = RMB 816 = SGD 170.5 = (7.3%)
Forterra House = RMB 720 = SGD 150.4 (6.5%)
BLP = 338 (3.0%) = SGD 70.6 = (3%)
Total Value = RMB 11,110 million = SGD 2,509 million (100%)
Total Value (excluding HQ) = RMB 2,977 million = SGD 810 million = (26.8 %)

Debt:
Total Borrowing (including Forum Bond) = SGD 823 million

Cash = SGD 108 million

Gross Revenue Estimate of stabilised HQ previously done by the previous management = RMB 700 million per annum

Comments:
1) IMO, there are many possibilities, with different time scale required, in which Forterra Trust could be “transformed” from its current state.
2) Surprisingly, potential payoffs/returns to unit-holders vary widely between various possibilities
3) My MOST preferred outcome is the liquidation of the Trust by selling all remaining assets ”offshore” as the case of Central Plaza – potential return could be as high as SGD 5.00 plus (inclusive of saving in DTL)
4) One other possibility, one of my least favourite but seems to be favoured by many “Reits-Die-Hard-Fans” is to transform Forterra into an entity that “Earn” like a Reit and “Pay” like a “Reit”.
5) Let’s explore this possibility – a Debt Free Forterra which pay out all its FCF from rental income.
6) Looking at the above figures, by keeping the HQ, which forms 73.2% of the Portfolio, and selling away all other assets (assuming they all could be disposed of at current valuation) to retire all debts, Forterra would be Debt Free – and unit-holders could enjoy all the FCF from rental income generated by the HQ.
7) The projected Gross Revenue estimated for the stabilised HQ is RMB 700 million per annum
8) Assuming a FCF conversion rate of 30% of Gross Revenue, this works out to be RMB 210 million (SGD 42 miilion) or SGD 16.5 cents per unit.

(vested)

[Boon]

Nan Fung denies new chief Antony Leung hired to gear up for relisting
UPDATED : Thursday, 13 March, 2014, 12:40am

Privately owned developer denies that hiring former financial secretary Anthony Leung as chief executive is part of strategy for public listing

Nan Fung Development managing director Donald Choi Wun-hing has poured cold water on rising speculation that the firm is preparing the city's first major real estate share listing since 2012.

Market talk has swirled about a possible HK$100 billion listing for Nan Fung since it was revealed in November that former financial secretary, Antony Leung Kam-chung, had been hired as chief executive of the privately led property developer.

"We don't have a schedule for a public offering. We don't need to go public, as we have no funding pressure," Choi told the South China Morning Post.

Leung's appointment had fuelled expectations of an imminent listing given that he had left his previous role as Greater China chairman for United States-based private equity giant Blackstone to join Nan Fung.

But Choi dismissed that the decision to appoint Leung was all about devising a listing strategy.

"He is going to help our chairman [Vivien Chen Wai-wai] to lead Nan Fung into another stage," Choi said.

The firm's financials have been getting closer scrutiny since it bought a 29.98 per cent stake in a Singapore-listed property trust, Forterra Trust in August last year. Documents that formed part of the roadshow material circulated by Nan Fung put the company's net asset value at HK$94.39 billion in March 2013.

If Nan Fung went public at that price, it would be the fifth largest listed developer after Cheung Kong, Sun Hung Kai Properties, Swire Properties and Henderson Land. Its scale would be similar to Henderson Land, worth about HK$112 billion.

Swire Properties was the last Hong Kong developer to list in 2012.

Nan Fung Development has become one of the largest developers in the city and has expanded to mainland and other businesses.

In December 2010, Yang Foo-oi, former wife of the late Chen Din-hwa, Nan Fung's founder, sued younger daughter Vivien Chen, then Nan Fung's chairman and managing director, alleging Yang had been misled into transferring assets.

"I believe the lawsuits between Nan Fung's Chen family members would also affect their intention to go public," said Eric Yuen Chi-fung, head of research at brokerage GuocoCapital.

"It may be good for them to stay as a private company. They can maintain their flexibility in property sales without the pressure of chasing profit," he said.

Lee Wee Liat, head of property research at BNP Paribas Securities, said: "The two major objectives for a public offering are raising funds or financing large projects. But it seems that Nan Fung Development will maintain its existing growth pace. There is no urgent need for it to go public."

But Choi did leave the door ajar for the listing rumour mill. "Everything is possible," he said.
.

This article appeared in the South China Morning Post print edition as Nan Fung says it feels no 'funding pressure'

http://www.scmp.com/property/hong-kong-c...-relisting

(vested)

[cif5000]

On 14 March 2011, Forterra issued a convertible bond (“Forum CB”) with a principal amount of S$59.7 million to finance the Group’s acquisition of Huai Hai Mall and Central Park Mall.

On 31 January 2013, the bondholder completed the transfer of three principal amounts of S$10.0 million each to three different transferees while retaining the principal balance of S$29.7 million.

1. Forum gave Forterra the investment $$ only in Jan 2013, more than a year after the bond was issued.
2. Only $30m out of the $59.7m was transferred to Forterra. Is Forum still retaining the $29.7m presently?
3. Before they gave the $30m, there was a concern where Forum would require Forterra to redeem the bond. Had that happened, does it mean Forterra had to pay interest on money which had never been borrowed?

I'm totally confused.

The entire convertible bond was issued to Forum in 2011. In 2013, Forum on-sold $30mm (in three lots of $10mm) to other investors.

Thank you very much.

++++++++++++

Another thing which confused me.

Trust Deed Covenants
Minimum payout of Distributable Income of 50%

Distribution
The board has determined that it is prudent, with regard to the Trust’s revenue budget, operations and strategy, to devote all resources of the Trust to the completion of The HQ and that accordingly there will not be a distribution declared for the six months ended 31 December 2013.

1. Any distributable income for FY13?
2. If yes, can the board override the trust deed by recommending not to distribute any $$$?

[Boon]

Ha-ha!

Just as when many of us are hoping that Nanfung would make a GO on Forterra, PCRT in which Nanfung is deemed to have a 11.8% stake, has now become a takeover target - St. James Holdings is making a pre-condition Voluntary Offer to acquire PCRT.

(vested)

[Boon]

Hi

Anyone know if the convertible bond holders choose to convert into shares, will they lose the all accrued interest on the bond? Or will they lose just the interest for the remainder period? Currently it pays 6% in cash interest p.a. with the remainder (working to an annualised 16.75% p.a.) to be made up at the redemption deadline in Sep-14.

Or if someone could point to the debt documentation it would be very helpful.

Many thanks!

I don't think the previous Management has ever disclose the actual debt document.

At expiry in Sept - 2014, the accrued interest is estimated to be about SGD 22.5 million.

If the bondholders have to forgo the accrued interest to do the conversion - this would raise the "equivalent conversion price" to about SGD 2.89 a unit.

(vested)

[GreedandFear]

Hi

Anyone know if the convertible bond holders choose to convert into shares, will they lose the all accrued interest on the bond? Or will they lose just the interest for the remainder period? Currently it pays 6% in cash interest p.a. with the remainder (working to an annualised 16.75% p.a.) to be made up at the redemption deadline in Sep-14.

Or if someone could point to the debt documentation it would be very helpful.

Many thanks!

I don't think the previous Management has ever disclose the actual debt document.

At expiry in Sept - 2014, the accrued interest is estimated to be about SGD 22.5 million.

If the bondholders have to forgo the accrued interest to do the conversion - this would raise the "equivalent conversion price" to about SGD 2.89 a unit.

(vested)

I don't have the prospectus for the CB but the convention in the CB market is that you have to choose. Either you convert into shares or you put the CB to the issuer at the premium redemption amount. The net effect of this is that the cost of conversion (to the CB holder) increases over time as his alternative to converting the CB is to put the bond. Hence the share price needs to keep increasing over time for the CB holder to be incentivised to choose conversion instead of premium redemption

[Boon]

Interesting figures/ratios :

All 3 entities are China pure-play property counters, but the ratio of (DFL / Capital Value of properties) seems to vary a great deal among them – What are the potential explanations and implications?

SGD million
( Deferred Tax Liability / Capital Value of Properties Owned ) Ratio :
Forterra = 393.6 / 2,438 =16.1%
CRCT = 159.6 / 2,058 = 7.8%
PCRT = 41.6 / 1,501 = 2.8%

(vested)

[freedom]

So far, I haven't seen your valuation model, or you don't have one?

But it should be obvious to any value investor that Forterra can't earn any meaningful profit from its property owning business. However, if you are betting that the property will be sold at or above or slightly below valuation, I wish you best of luck because you are going to need it as there is no other way to earn.

Even, let's assume the valuation on the book is right(which I doubt). One thing the book does not reflect is other operating cost such as administrative expense and trust management expense in the case of Forterra Trust. The financial cost is reflected on the book as the debt. If anyone tries to apply DCF on administrative expense and trust management expense and reflect it on the book, the book value would be very different. What the book shows now is that the trust can operate without any additional cost but financial cost.

[HitandRun]

Interesting figures/ratios :

All 3 entities are China pure-play property counters, but the ratio of (DFL / Capital Value of properties) seems to vary a great deal among them – What are the potential explanations and implications?

SGD million
( Deferred Tax Liability / Capital Value of Properties Owned ) Ratio :
Forterra = 393.6 / 2,438 =16.1%
CRCT = 159.6 / 2,058 = 7.8%
PCRT = 41.6 / 1,501 = 2.8%

(vested)

Boon-san

As I understand it, the deferred tax liability just tracks the difference in tax cost base of each property Vs the valuation, i.e. a bigger revaluation surplus will result is a bigger deferred tax. Other than the fact that it is valuable (i.e. can and will be written back upon a sale), I think that your comparison will not yield much information.

If your intention is to show the relative success of each management in enhancing the value of the properties under their care, a straight comparison of their asset revaluation surpluses might be more easily understood.