Forterra Trust (formerly: Treasury China Trust)

[chialc88]

Interestingly, Ascendas India Trust is in a totally different league all together. (vested)

This one I had a lot.
very funny stock indeed.
Everytime share price drop after xd.
many reasons why I brought.
i think the trends (drop after xd) might be reversing.
I have to monitor 1-2 xd before deciding my next actions

(vested)

LC



my life is powered by ValueBuddies dot com!!!

[Boon]

NF has paid a high price for the previous management's stake and control of FT. If NF does not have the intention of monetising its asset via FT, what is the logic behind the price NF paid?

NF had paid SGD 2.98 per share for the controlling stake in FT.

Was it high price or low price? It is all RELATIVE.

Relative to the share price of around SGD 1.70 at that time, it was HIGH.

Relative to the NAV (SGD 4.68 per share) + DTL (SGD 1.55 per share), it was LOW or cheap.

It is anybody’s guess on NF’s real intention – but the possibilities are many – please refer to earlier discussions/postings.

Of course, monetizing assets via FT could be a possibility of their intention – but as I have mentioned earlier it is not going to work – due to the high cost structure/high management fees structure of FT relative to Reit platforms, it would not be a cost efficient vehicle or platform through which stabilized assts could be monetized or re-cycled - again, please refer to earlier discussions/postings – especially discussion between me and Nick..

Do let me know if you need further clarifications
(vested)

I did read thro' the earlier posts.

I am inferring from NF's actions of
(a) paying $2.98 for the management stake of FT, vs that the traded price of $1.70 (as you put)
(b) not extending any takeover offer to minority investors

(a) + (b) imply that NF's $2.98 includes a premium for the control of FT. If NF felt that $2.98 is attractive relative to NAV, it will extend the same offer to minority investors.

Then, why wld NF want to have control of FT but not 100% ownership of FT, I wonder?

One possibility is to have the possibility of monetizing assets via FT. While FT structure is not as efficient compared to reits now, this does not rule out that FT cannot be a vehicle for monetizing assets. NF can re-structure FT, can't it? Or NF can make the asset injection more feasible (e.g. rental guarantee for a few yrs etc).

Another possibility -- If NF really finds FT attractive and want to 100% own FT but at a better price, NF can perhaps offer a slight premium to current market price to takeover FT in the future. (This may also have been mentioned in earlier posts.)

The other possibility of just stabilising FT assets (aka your B2) is less likely to me, as it does not really justify the high price of 2.98 paid. Of course, this is possible if the market conditions are not good for asset monetization via FT or NF does not have the funds to do a takeover or NF decides to focus elsewhere.

Of course, if NF could re-structure FT into a lean business trust platform with low operating costs (including reducing the present high trustee management fees and high administrative expenses) and low financing costs - then FT would be a feasible platform through which NF could monetize its assets with optimal price – if this is NF’s intention.

Monetization of assets means NF is converting its assets into money through FT.

NF injects or sells its asset into FT.

FT raises cash by selling new FT shares to existing and/or new investors – Cash raised would be used to pay NF for its assets injection into FT.

That said, bear in mind that NF’s stake in FT is currently at 29.98%, the process of asset monetization by injecting assets into FT and selling more new FT shares to new investors would have an diluting effects on existing shareholdings - NF would risk losing its Trustee Management control if its stakes in FT falls below 25%.

In another word, there is limit or constraint on what NF could do with FT as an asset monetization machine.

Interestingly, PAG currently holds 18.19% and APG holds 8.66% in FT (combined stake of 26.85%)

Going over 30% would trigger a GO - Falling below 25% would risk losing Trustee Management control – This is the position NF has got themselves into – “Range Bound”.

(vested)

[Boon]

Rating Action: Moody's assigns Baa3 to Nan Fung's USD MTN drawdown

Global Credit Research - 22 May 2014

Hong Kong, May 22, 2014 -- Moody's Investors Service has assigned a Baa3 rating to the 10-year USD senior unsecured notes to be issued by Nan Fung Treasury Limited under its USD2 billion medium-term note program, rated (P)Baa3. The notes will be guaranteed by Nan Fung International Holdings Limited (NFIH).

The rating outlook is stable.

RATINGS RATIONALE

"The new issue will provide NFIH with funding for its business activities, extend its debt maturity profile and further strengthen its already solid liquidity," says Franco Leung, a Moody's Assistant Vice President and Analyst.

Moody's notes that NFIH has a strong balance sheet, with a cash balance of HKD9.6 billion and low adjusted debt/capitalization of around 23.3% at end-September 2013.

While the new bonds will moderately increase the company's debt leverage, Moody's estimates that NFIH's adjusted debt/capitalization will stay at around 20%-25% over the next 12 months.

Also, Moody's expects NFIH's adjusted EBITDA to interest coverage ratio will be maintained at above 5.5x, a level that supports its current rating.

The Baa3 ratings continue to reflect NFIH's strengths, namely its: (1) established track record in Hong Kong's property market and the diversity of its products; (2) strong balance sheet liquidity, which is supported by its cash holdings and its investment portfolio; (3) ability to shield itself from down cycles; and (4) low level of debt leverage compared with its Asian peers rated at investment grade.

On the other hand, the ratings incorporate the risks associated with NFIH's exposure to joint ventures, over which it does not have full management control. But this is partially offset by the sound industry experience of its well-established joint-venture partners.

In addition, NFIH's ratings are constrained by the lumpiness of its property sales due to the small scale of its operations and land bank, and its increasing exposure to the more volatile Chinese property market and a moderate slowdown in property sales in Hong Kong.

Such volatility is partially mitigated by the interest and dividend income streams from its investment portfolio.

Downward rating pressure could emerge if: (1) NFIH speeds up its pace of development by investing in new projects that either reduce its cash balance materially or increase its debt leverage; (2) its debt profile deteriorates such that it becomes more reliant on short-term debt, either for funding its short-term property projects or for gearing up its investment portfolio; or (3) its ownership structure and management control change materially.

The credit metrics that would indicate downgrade pressure are: debt leverage, as measured by adjusted debt/total capitalization, above 30%-35% and EBITDA/interest below 5.0x-5.5x.

On the other hand, upward rating pressure could emerge if NFIH: (1) reduces the lumpiness in its property sales; (2) increases the EBITDA contribution from its majority controlled projects; and (3) generates larger recurring revenue from its investment property portfolio.

The credit metrics we would consider for an upgrade are: stable EBITDA/interest of above 8x and adjusted debt/total capitalization below 30% on a sustained basis.

The principal methodology used in this rating was the Global Homebuilding Industry published in March 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Nan Fung International Holdings Limited (NFIH) is an established developer based in Hong Kong, with property projects in Hong Kong and China. It has developed property projects on its own and through joint ventures with major developers in Hong Kong. It is also the second-largest shareholder of Sino-Ocean Land Holdings Limited (unrated), a PRC property development and investment company listed in Hong Kong. NFIH has a sizable financial investment portfolio which provides the group with a good liquidity buffer.

https://www.moodys.com/research/Moodys-a...-PR_300103

(vested)

[Boon]

We have moved past the mid-point of 2014 and entered into 2H.

Barring any further delay, 2H should be an exciting period in which unit-holders could look forward to the total completion and launch of The Place – Phase 1 in 3Q and Phase 2 & 3 in 4Q – which certainly would increase rental income/OCF of FT significantly.

Other happenings in 2H2014 ( with my comments in brackets):
1) Announcement of 2Q2014 results: (Results should not be bad as it would include net cash inflow of about SGD 48 million from sale proceeds of BLP.)
2) Maturity of USD 42 million floating rate term loan on 11-July-2014: (It would be interesting to see NF’s decision – refinance or pay off - should have enough cash to pay off the loan if the management decides to do so – have to wait for 3Q 2014 result to know this)
3) Maturity of RMB 46 million floating rate term loan on 11-July-2014: (same as 2 above)
4) 21-July-2014 will mark the passing of exactly 6 months since NF exercised the put/call options to acquire 7,185,057 of FT shares on 21-Jan-2014. (Opportunity for NF to make a GO at SGD????)
5) Forum CB due on 17-Sep-2014 (not in the money for conversion – redemption would be the outcome – one big expensive “loan” item would be out of the way.)

Go or no Go - Better times lie ahead – I guess.

(vested)

[touzi]

1) Announcement of 2Q2014 results: (Results should not be bad as it would include net cash inflow of about SGD 48 million from sale proceeds of BLP.)
2) Maturity of USD 42 million floating rate term loan on 11-July-2014: (It would be interesting to see NF’s decision – refinance or pay off - should have enough cash to pay off the loan if the management decides to do so – have to wait for 3Q 2014 result to know this)
3) Maturity of RMB 46 million floating rate term loan on 11-July-2014: (same as 2 above)
4) 21-July-2014 will mark the passing of exactly 6 months since NF exercised the put/call options to acquire 7,185,057 of FT shares on 21-Jan-2014. (Opportunity for NF to make a GO at SGD????)
5) Forum CB due on 17-Sep-2014 (not in the money for conversion – redemption would be the outcome – one big expensive “loan” item would be out of the way.)

The CB is S$81 Mil ? Together with (2) and (3) isn't that a lot that needs to be paid soon?

[Boon]

1) Announcement of 2Q2014 results: (Results should not be bad as it would include net cash inflow of about SGD 48 million from sale proceeds of BLP.)
2) Maturity of USD 42 million floating rate term loan on 11-July-2014: (It would be interesting to see NF’s decision – refinance or pay off - should have enough cash to pay off the loan if the management decides to do so – have to wait for 3Q 2014 result to know this)
3) Maturity of RMB 46 million floating rate term loan on 11-July-2014: (same as 2 above)
4) 21-July-2014 will mark the passing of exactly 6 months since NF exercised the put/call options to acquire 7,185,057 of FT shares on 21-Jan-2014. (Opportunity for NF to make a GO at SGD????)
5) Forum CB due on 17-Sep-2014 (not in the money for conversion – redemption would be the outcome – one big expensive “loan” item would be out of the way.)

The CB is S$81 Mil ? Together with (2) and (3) isn't that a lot that needs to be paid soon?

Loan repayment amount in 3Q = CB + loan 2 & 3 = SGD (82.8 + 42 x 1.25 + 46/5) = SGD 144.5

Cash as at 31-March-2014 + net cash from sale of BLP = SGD (78.7 + 44.9) = SGD 123.6

Assuming OCF in 2Q & 3Q = 0
Assuming cash flow in investing (construction cost of The Place) is supported by drawing down of current loan facility
Assuming financing cost = SGD 10 million per quarter (2Q & 3Q)

So, there would be about SGD (144.5 + 10 + 10 – 123.6) = SGD 40.9 million SHORT

If they could launch Phase 1 of The Place in 3Q, there could be some cash inflow in 3Q as rental deposit – down payment.

That’s why I say it would be interesting to see how NF would handle this “tight” situation.

(vested)

[freedom]

A write-down of its properties has started finally. More could come?

Finally, the company realizes that it is not reasonable to expect that kind of return from its investment properties.

[Boon]

Comments on 1H2014 results:

1) Loss of 148.6 million (1H2014) – mainly due to change in fair value of investment properties
2) Positive Net OCF (1H2014) = 2.390 million
3) Net cash generated from investing activities (1H2014) = 13.19 million
4) Net cash used in financing activities (1H2014) = - 2.179 million
5) Cash & cash equivalent = 121.279 million (enough to redeem Forum CB in September).
6) Administrative Expenses (AE) has been reduced by 44.1% from 7.876 million (1H2013) to 4.401 million (1H2014) – there was a big improvement.
7) The HHM (Huai Hai Mall) loan has been refinanced with increased borrowing (additional RMB 56 million and USD 17.6 million) at about 5.5% interest rate (compare to 4.35% of old loans)
8) The launch date of TP (The Place) is AGAIN delayed
9) TP1 (80% pre-commitment) and TP2 (86% pre-commitment) would now be launched in December 2014.
10) TP3 (37% pre-commitment) would be launched in mid-2015.
11) According to the Management: “The Place’s rental revenue contribution, upon its opening and stabilisation, is expected to significantly improve the cash flow and financial position of the Trust, and lay a solid foundation for the Trust’s financial operations and future development. Nonetheless, a lot has changed in the China as well as Shanghai’s retail and office market conditions since 28 February 2012, when the Trust first announced its expected development plans for The Place. In addition, in view of these market conditions and challenges, management has adopted a more prudent and realistic approach in its overall development and operational assumptions for The Place. As a result, on a stabilised basis, The Place is expected to realise an annualised gross revenue in excess of RMB500 million” - (RMB 1.97 per share)
12) NAV = SGD 3.72 per share
13) DTL = SGD 1.27 per share
14) NAV write down means reduced AUM.
15) Reduced AUM means reduced Trustee Manager’s Fees – which has started to come down in 2Q2014.
16) All in all – I think NF has adopted a prudent & conservative approach.
17) With reduction in AE & Trustee Manager’s fee + reduction in financing cost (upon redemption of Forum CB) + stabilization of TP – FT’s CF & financial position would be improved significantly.

(vested)

[PekingDuck]

Boon, thanks for the summary. You manage to highlight the few positives in what was a pretty disappointing set of results: no progress with CEO, massive write-down on property values, delayed launch date and revenues from TP, lower guidance on gross rental revenues fro TP when finished (down from RMB700m previously?), acknowledged threats from online retailing (getting excuses in early?) and overall, a much more downbeat outlook for their assets.

Given the sharp fall in NAV in the last 12 months, could be argued that NF operpaid for their stake at S$2.98 and the Irish got away with a great deal..raises questions about the valuation of the assets at the time and the fees earned from an inflated AUM?

Agree that the cost controls/reduced fees and more conservative approach to valuation is a big improvement. But very disappointing to see further delays to our main asset.

One question, in the P&L there is a line in Income Tax of Deferred Tax Benefits S$60,275, a positive write-back. Can you explain what might have caused this (reduced NAV value implying less provision for tax on gains..?)

I have a conference call with several of the management team on thursday, happy to share their comments after and ask any specific questions you might have.

Still looks like a very long road ahead, with less upside than previously thought. Resumption of distributions can't come soon enough but don't expect anything until this time 2015 at earliest.

(vested)

[thefarside]

A write-down of its properties has started finally. More could come?

Finally, the company realizes that it is not reasonable to expect that kind of return from its investment properties.

I suppose they only do these (revaluations) once a year. So more would be... next year?

It looks like they are struggling to line up tenants for their flagship property, or get the rate they want. If filling tenancy up is an issue, then it is better to launch later with a proper set of tenants than now with a half-filled mall.

Also worth noting that the last time the gross revenue number was quoted either in this thread or by the management, it was somewhere about 700 mil RMB. Now it is "in excess of 500 mil RMB".