Forterra Trust (formerly: Treasury China Trust)

[Boon]

“As a result of the above, on completion of the UPA, the Unit Sellers will have disposed of 100% of their respective interests in Forterra, except for TAIL which will retain 1,439,056 units (the "Residual Units"), representing 0.57% of the units in issue as at the date of this announcement, which falls below the 5.0% substantial unit holder threshold. TAIL has further confirmed that it will be disposing of the Residual Units on the open market within 6 months of the completion of the UPA.”


Thanks Kopikat,

Well, the above statement “misled” me into believing that Ronan has no more interests/shares in Forterra, on completion of UPA, which is not true. I did a check on AR2012 for TAIL but not for Ronan.

The question remains: should one use the “enlarged share base” as denominator?

[KopiKat]

Forterra : Q2 Results

Presentations
Financials

[Boon]

“Under the UPA, each of Mr Richard Barrett and Mr Rory Williams has also agreed to assign to New Precise 2,675,000 and 375,000 existing unit options, respectively, which are currently held by them under the Forterra Unit Option Scheme (the “UOS”) at an agreed price per unit option of S$2.98 less the relevant exercise price of the relevant unit option of S$0.34816 (the "Unit Option Assignment"). In conjunction with the above, the Unit Option Scheme Committee (comprising four independent Directors of the Board, and who are not parties to the Sale Transaction or the Settlement) has also approved (contingent upon the completion of the Sale Transaction) the said assignment, the extension of the exercise periods of the unit options which are the subject of the said assignment (i.e. to 30 June 2015), and the extension of the exercise periods of all other unit options under the UOS currently in issue by a year.”

From the above statement, the assignment of option under UOS would be carried out after the Sale Transaction (SHARE PURCHASE AGREEMENT FOR 100% OF ISSUED EQUITY OF OMS + UNIT PURCHASE AGREEMENT FOR 26.90% OF UNITS IN FORTERRA + PUT/CALL OPTION AGREEMENT FOR 3.08% OF UNITS IN FORTERRA)

On completion of the “Sale Transaction”, Nanfung owns 29.98%. Therefore, technically speaking, one could argue that in order to avoid crossing the 30% threshold of MGO under the revised Takeover Code (2012) whereby options are regarded as “acquired shares”, the timing of the completion of Unit Option Assignment (not exercise of the option but the completion of transferring “Unit Option” from Barrett/Williams to “New Precise”) is critical, and should be at

1) Not earlier than 31-Jan-2014,
2) After 31-Jan-2014, if Call/Put Option were not exercised
3) Not to be completed at all, if Call/Put Option had been exercised.

Also, IMO, the following origin statement (which is incorrect) should be amended with the insertion of sentence in BOLD.

The original statement:
“As a result of the above, on completion of the UPA, the Unit Sellers will have disposed of 100% of their respective interests in Forterra, except for TAIL which will retain 1,439,056 units (the "Residual Units"), representing 0.57% of the units in issue as at the date of this announcement, which falls below the 5.0% substantial unit holder threshold. TAIL has further confirmed that it will be disposing of the Residual Units on the open market within 6 months of the completion of the UPA”.

The amended statement:
“As a result of the above, on completion of the UPA, the Unit Sellers will have disposed of 100% of their respective interests in Forterra, except for: (a) Mr. John Ronan who will still be holding 7,815,057 units (the “Option Units” under the “Call/Put Option Agreement”), representing 3.08% of the units in issue as at the date of this announcement; and (b) TAIL which will retain 1,439,056 units (the "Residual Units"), representing 0.57% of the units in issue as at the date of this announcement, which falls below the 5.0% substantial unit holder threshold. TAIL has further confirmed that it will be disposing of the Residual Units on the open market within 6 months of the completion of the UPA”.

(Vested)

[KopiKat]

On the Forum Bond

Fm that Nan Fung SGX Annc,

Forum Bonds
The Board also advises that further to the announcement dated 7 August 2012 advising that in accordance with Rule 704 (31) that under the terms of the Amended and Restated Bond Purchase Agreement dated 14 March 2011 governing the issuance of Senior Convertible Bonds (the "Bonds") to Forum Asian Realty Income III, L.P. ("Forum"), the consummation of the sale of FRE to Lucky Token will constitute a “Change of Control” under that agreement and will give the holder of each Bond the right, at the holder’s option, to require FRE to redeem the Bond in whole but not in part. The Board currently estimates the aggregate redemption price for the Bonds to be S$79.0 million. The Board confirms that it is in discussions with Forum regarding whether it intends to exercise this redemption right but in any event FRE has sufficient cash resources to meet a full bond redemption.


From latest financials,

Forum convertible bond
.
The Forum CB is convertible by the bondholders into Units at a conversion price of S$2.10 at any time on or after 40 days following 14 March 2011 up to seven business days prior to 17 September 2014 (subject to the satisfaction of certain conditions), or if the Forum CB have been called for redemption before 17 September 2014, then up to seven business days prior to the date fixed for redemption thereof. Based on the conversion price of S$2.10 and the issue value of S$59.7 million, 28,428,571 conversion units may be allotted and issued by the Trustee-Manager in the event of the full conversion of the Forum CB.

Unless previously redeemed (following the exercise of a Delisting/Change of Control Put Right), converted or purchased and cancelled, the Trustee-Manager will redeem the Forum CB on 17 September 2014.

The Forum CB bears cash interest on the outstanding principal amount of the bond at the rate of 6.0% per annum. The principal amount of a bond plus an additional amount necessary to result in a yield of 16.75% per annum, compounded semi-annually (less all cash interest paid), shall be payable upon redemption on 17 September 2014.


I suppose if this whole deal goes thro' and Forterra share prices stays significantly above $2.10, there'll also be a high possibility of the Forum Bonds being converted, rather than redeemed, resulting in a dilution of other shareholders ie. Nan Fung holding will be further below the 30% level.

Just an estimate (accrued interest will grow higher by the day), from latest financials,
Aggregate principal amount and accreted interest outstanding = $74,229,000
Divided that over 28,428,571 conversion units = $2.611
ie. Better incentive to convert rather than redeem if significantly above this price.

[Boon]

1) PCRT (Perennial China Retail Trust) and Forterra Trust are the only two SGX listed PRC focused real estate business trusts.
2) Nanfung is a substantial shareholder of PCRT and currently owns about 12% stake in PCRT.
3) According to PCRT, Nanfung is one of its strategic partners :
“The Sponsor has also formed a strategic alliance with the Nan Fung Group which is expected to bring PCRT potential joint venture opportunities in the retail component of existing and future projects owned or sourced by the Nan Fung Group in the PRC. These strategic collaborations are expected to provide PCRT with access to a significant pipeline of attractive acquisition opportunities”. http://www.perennialchinaretailtrust.com...tners.html
4) PCRT currently has no Shanghai asset in its portfolio.
5) Forterra has about 86% of its assets (by value) in Shanghai
6) Nanfung is a privately held group of companies
7) In 1989, Nan Fung Textiles Consolidated Limited, was privatized and returned to Nan Fung Group. According to the company website, this privatization contributed greatly to the Group’s future success and increased flexibility and autonomy to tap into new business sectors”. Never seem to be at the helm of running a listed company since then.
8) Like her founding father, it seems like the “New Boss” would also prefer them to stay as a privately owned group of companies.
9) In 2006, Nanfung teamed up with HSBC (InfraRed Capital Partners) to set up the HSBC NF China Real Estate Fund to develop property projects on the mainland. I guess this private equity real estate platform still exist today ?
10) In 2010, after becoming Sino-Ocean’s second-biggest shareholder, it partnered Sino-Ocean Land to acquire sites on the mainland. Some of the JV projects include CBD Plot Z6 in Beijing’s Chaoyang District (20% stake) and Ocean Diamond Bay in Dalian (10% stake). AR2012 of Sino-Ocean shows that , it has very little exposure in the Shanghai real estate market (less than 2%).
11) Nanfung currently has two projects in Shanghai: (a) 19,307sqm, 97 luxury apartment JV project with Wing Tai. The project is run by Wing Tai ; (b) a JV office project with a local developer and run by the local developer.
.
My take on Nanfung’s ultimate intention in Forterra:
a) Nanfung is not interested in the “listed platform”. It doesn’t fit their style and profile.
b) Nanfung and its strategic partners (PCRT and Sino-Oean-Land) all seem under-exposed to the Shanghai real estate market.
c) Therefore, I inclined to think that Nanfung is more interested in the assets rather than the "listed platform" of Forterra. All assets in Forterra's portfolio are well located, of good quality and under-valued - which at SGD 2.98 per share still looks attractive to Nanfung.
d) Doing it alone, or with its listed strategic partners and/or unlisted private equity partners, ultimately, the likelihood of Nanfung taking Forterra “private” seems pretty high to me.

I could be completely wrong on this ! ha-ha !

(vested)

[opmi]

Boon, you are extrapolating what PCRT annc into Forterra situation. May not be relevant.

See what Nan Fung itself has said.

The ball is now in Nan Fung's court. Extracts from Nan Fung Group website on their previous PR release dated 30-Jul, on this Forterra stake acquisition,

The Company views its investment in Forterra Trust as an attractive platform to expand its investments into the PRC commercial property market, especially in the first tier cities like Shanghai, where majority of Forterra Trust’s asset is located.

From their website, their projects in Singapore are SportsHub & South Beach (Hotel + Mall + Residential) as part of consortium.

Also, this AM's SGX Annc on the Irish Court judgement which 'Boon' had posted before that.

[GreedandFear]

Boon, you are extrapolating what PCRT annc into Forterra situation. May not be relevant.

See what Nan Fung itself has said.

The ball is now in Nan Fung's court. Extracts from Nan Fung Group website on their previous PR release dated 30-Jul, on this Forterra stake acquisition,

The Company views its investment in Forterra Trust as an attractive platform to expand its investments into the PRC commercial property market, especially in the first tier cities like Shanghai, where majority of Forterra Trust’s asset is located.

From their website, their projects in Singapore are SportsHub & South Beach (Hotel + Mall + Residential) as part of consortium.

Also, this AM's SGX Annc on the Irish Court judgement which 'Boon' had posted before that.

Maybe we are all trying to read too much into words.....but if you re-read NF's announcement, it talks about its investment in Forterra Trust and separately the investment in the manager (Oriental Management Services Ltd) but only talks about the Forterra Trust investment as an attractive investment. See below

"The Company views its investment in Forterra Trust as an attractive platform to expand its investments into the PRC commercial property market, especially in the first tier cities like Shanghai, where majority of Forterra Trust’s asset is located."

It could be an oversight or Boon could also be correct ....

[KopiKat]

From the PCRT IPO Prospectus,

PG238 : Nan Fung’s current investments in real estate in China comprise mainly residential and commercial real estate and it is keen to increase its exposure to the China retail real estate industry.

Nan Fung plans to eventually increase its profits from China to 50.0% of the group’s net assets. At present, its investments in China account for approximately 20.0% of Nan Fung’s net assets.

Nan Fung in turn believes that with the skill sets and experience of the Sponsor in the retail real estate industry, both Nan Fung and PCRT can co-invest in mixed-used projects where PCRT can be responsible for the retail component while Nan Fung can be responsible for the residential component.

PG239 : Nan Fung will not be represented on the management of the Trustee-Manager and will not be involved in the operations and management of PCRT.


My take is different from 'Boon'. From above, Nan Fung have the stated ambition to increase their business presence in China. Perhaps due to their initial non-familiarity and inexperience in China market, they had started with partnership with HSBC plus a minority stake in Sino Ocean Land, followed by the PCRT stake. To me, it looks like they'd been putting themselves on the Learning Curve and Forterra looks like an opportunistic next step for them to be now in the driver seat....

[opmi]

Having own capital recycling vehicle is better than using third party ones.

Maybe NF assets in PRC tier 1 cities (BJ, SH, SZ, GZ) inject into Forterra.
Those in tier 2 cities pass to PCRT.

[Boon]

From the PCRT IPO Prospectus,

PG238 : Nan Fung’s current investments in real estate in China comprise mainly residential and commercial real estate and it is keen to increase its exposure to the China retail real estate industry.

Nan Fung plans to eventually increase its profits from China to 50.0% of the group’s net assets. At present, its investments in China account for approximately 20.0% of Nan Fung’s net assets.

Nan Fung in turn believes that with the skill sets and experience of the Sponsor in the retail real estate industry, both Nan Fung and PCRT can co-invest in mixed-used projects where PCRT can be responsible for the retail component while Nan Fung can be responsible for the residential component.

PG239 : Nan Fung will not be represented on the management of the Trustee-Manager and will not be involved in the operations and management of PCRT.


My take is different from 'Boon'. From above, Nan Fung have the stated ambition to increase their business presence in China. Perhaps due to their initial non-familiarity and inexperience in China market, they had started with partnership with HSBC plus a minority stake in Sino Ocean Land, followed by the PCRT stake. To me, it looks like they'd been putting themselves on the Learning Curve and Forterra looks like an opportunistic next step for them to be now in the driver seat....

Thanks KopiKat, it is always good to have diversity of views.

1) Nanfung is lacking experience in China retail real estate development sector. PCRT has the experience and expertise. Forterra’s HQ redevelopment has a huge retail component. The remaining development projects in its portfolio are in Shanghai (Huai Hai Mall) and Qingdao (Central Park Mall) both are 100% retail development projects.
2) It appears to me that Nanfung has never embarked on a China real estate development project on its own – always on JV basis – and never in the driver seat or lead role. (Note: I could be wrong on this)
3) Besides, Nanfung has no experience in the running of a public or listed entity. It doesn’t fit their style and profile – not to their liking, I believe.

“no experience in China retail real estate development sector” + “no leading role experience in the running of China project independently”
+ “no experience in the running of a listed entity” = Disaster, potentially

I don’t think they would like to put themselves in such a position. But if the deal was a good opportunistic buy – why not, grab first and sort it out later.

Whether they like running a listed entity or not - it is anybody’s guess - regardless, I think PCRT, because of its experience and expertise in the retail development sector, would have a role to play - but in what capacity ? Keep exploring !

(vested)