(06-05-2014, 12:05 PM)Boon Wrote: [ -> ] (05-05-2014, 10:45 PM)greengiraffe Wrote: [ -> ]I understand that many here are vested in Forterra. However, I would like to play devils advocate here. Given that NF is a substantial holder in Forterra, little will go wrong going forward. However, how to close the valuation gap between the mkt price and book value of Forterra remains to be seen.
I will based my analysis of NF's strategy towards Chinese properties via my experience with Metro over the last decade. Metro has several fruitful participation in NF led Chinese projects over the decade. Metro has made a lot of $ in these ventures.
However, apart from the NF led Tesco projects, they have little JVs left.
Given the well publicised Chinese economic slowdown, I think the era of substantial capital gains via developing and selling Chinese real estates could well be over. However, well located viable projects will generate improved yields as the restructuring of Chinese economy towards domestic consumption will underpin such a transition.
With its portfolio of largely matured assets, NF is probably looking for a REIT platform to monetise their assets over time. As we all know, REIT will only acquire assets from their parent/sponsor usually on an accretive basis and it is not uncommon for financial engineering to be involved before injection or post injection for such acquisitions to be viable.
Forterra in this instance may not have a good bargaining position given its poor historical track record. There is no doubt that Forterra is cleaning up the historical mess with the help of NF experience in China but Forterra has to be restore to a reasonable health and make substantial progress with their yet to be completed projects before any of the intended accretive acquisitions can materialise and hence it is my view that the restructuring todate are corporate moves that are necessary for a cleaner slates.
The ongoing restructuring and completion of projects under NF guidance will take time and until these projects stablise, I personally do not think NF can count on any of their contributions to help Forterra acquire.
If we draw a further experience of CRCT, a darling right after its IPO pre the GFC, it has taken the last 7 - 8 years for yield of its portfolio to stabilise and start achieving REIT style of organic growth. With all due respects to NF, if they can shorten the restructuring cycle for Forterra to less than 3 years of their strategic entry, it will by no means be a huge success given the tough China market that is not help by the current deceleration in economic growth.
Not Vested
GG
In the NF/HSBC(Infrared)/Tesco/Metro deals, to my knowledge, NF did not actually play the lead role. NF was the LP and HSBC(Infrared) was the GP, it was the GP that played the lead role.
FT was formerly TCT
TCT was formerly CREO
CREO was launched in 2007 by the former controlling unitholders
CREO was transferred from London AIM exchange to SGX in 2010
It has been 7 years since CREO was launched
It will take a long long time for FT to stabilize ALL of its assets – but once The Place is stabilized, 82% of its total asset would be generating recurring income. And we are talking about end of 2014 (launch) + another 6 to 12 months the most to stabilize.
_________________________________________________________________
Forterra House (FH)
Carrying Value = SGD 146 million = 7%
= Stabilized
The Place (TP)
Carrying Value = SGD 1,654 million = 75%
Phase I (Office Portion) = Stabilized
Phase I (Retail Portion) = Transitional
Phase II (Retail) = Transitional
Phase III (Office and Retail) = Development
TP (all phases) should be completed and launched by end of 2014
Huai Hai Mall (HHM)
Carrying Value = SGD 165 million = 8%
= Transitional
Central Park Mall (CPM) =55% ownership
Carrying Value = SGD 406 million (100% ownership)
Carrying Value = SGD 223 million ( 55% ownership) = 10%
Phase I = Transitional (66,160 m2)
Phase II to IV = Development (250,774 m2)
% of Stabilized Assets (Projected Time Frame to Stabilization)
FH = 7% (Now)
FH + TP = 82% (2015)
FH + TP + HHM = 90% (2015 or 2016)
FH + TP + HHM + CPM = 100% ( Long time to develop 250,774 m2)
_________________________________________________________________
As to how to close the valuation gap between share price and NAV per unit, it depends on which of the following routes would NF lead FT into?
Route A : Delisting Route:
1) Liquidate all assets like MIIF
2) Privatize – NF make a GO
Route B : Listing Route : Maintain Listing Platform of FT
1) With Expansion
2) Without Expansion
Enough have been said on route A
Route B is an interesting one to explore – will leave it for another day.
(vested)
Let’s explore on route B-1 (Maintaining listing platform of FT with expansion)
Expansion means growing FT’s balance sheet by acquiring more assets
Firstly, to expand FT, more “equity” would be needed which could be raised via:
a) Private Placement of shares to NF
b) Private Placement of shares to third parties
c) Right Issues
For a) Private Placement of shares to NF - it would trigger a GO for which NF could seek “whitewash waiver” from unit-holders – New share issuing price is an issue.
For b) Private Placement of shares to third parties - it would have dilution effect on existing shareholdings – NF would risk losing its Trustee Management control if its stakes in FT falls below 25%.
For c) Right Issues - it would trigger a GO if non-controlling unit-holders’ rights are not fully subscribed – again, NF would need to seek “whitewash waiver”.
It seems like, if non-controlling unit-holders are not willing to come up with more equity and not willing to grant “whitewash waiver” for NF to acquire more equity in FT “cheaply”, there is little NF could do to expand on FT.
Assuming “whitewash Waiver” could be obtained and enough “equity at fair price” could be placed to NF, how could NF then possibly expand and add value to FT in order to close the valuation gap between share price and NAV ?
d) By acquiring from third-parties or injecting its own assets (Stabilized or Development assets) into FT.
For Stabilized assets, given the high cost structure/high management fees structure of FT as compared to Reits - this would be an unlikely workable business model – unless NF is willing to “sell” its assets cheaply into FT or being able to source assets from third-parties at bargain values, otherwise, it would be hard justifying putting such deals to FT on “accretive” basis.
If NF has the ability to source for stabilized assets at bargain values, wouldn't it better off for NF to acquire these assets and keep them under its private stable – why share it with FT’s non-controlling unit-holders – unless this is NF’s genuine intention - afterall, NF has an overall strategy of growing its assets in China.
Besides, FT would not be an ideal or efficient vehicle or platform through which NF could “monetize” or recycle its stabilized assets – simply due to the high cost and high management fee structure of FT - if NF ever has this intention in mind.
For injection of development assets into FT, through acquisition from third parties or NF, assuming this is a workable value accretive model, due to the long gestation period of development projects coupled with the fact that FT still has about 250,000m2 of greenfield development project at hands to be digested– this is not going to be a viable proposition on immediate to medium term basis..
In summary, I don’t see how NF could, on short to medium term basis, close the gap between share price of FT and its NAV, by embarking FT on an expansion mode – unless NF is willing to play Santa Claus – by acquiring more equity in FT at “fair price” and able to inject into or source for FT, stabilized assets on “accretive” basis.
(vested)