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Forterra Trust Unable To Turn A Profit In First Quarter

forterra logoForterra Trust (SGX: LG2U) is a business trust that focused in investing in real estate in China. The trust currently owns 6 properties in Shanghai, Qingdao and Beijing. The trust announced its first quarter result on 5th May 2014.

Operating Profit

Forterra Trust faced a 38.6% drop in gross revenue year on year, mainly due to its divestment of Central Plaza in May 2013. Central Plaza has been its second largest revenue contributor in the past. Excluding the revenue from Central Plaza, gross revenue still dropped 19.8% year on year. This is mainly due to lower revenue from The Place Existing, Central Park Mall and Huai Hai Mall. The trust did not disclose the reason why there is a huge drop in revenue for the three properties.

The trust ended the quarter with a 45% reduction in its net property income, recording S$ 8.5 million. The net profit attributable to unitholders for the quarter is a loss of S$ 10.4million, which is a 36.6% improvement from last year. Based on earnings per share, the trust recorded an EPS of –4.1 cents per share.

In terms of balance sheet, the trust has a net debt ratio of 55.8% which has worsened from last quarter ratio of 51.4%. The debt ratio is considered high for a business trust focusing in real estate. Furthermore, from its cash flow, the trust is barely cash generative from its operations. It seems that the debt ratio might still be under pressure to increase in the near future. Forterra Trust ended the quarter with a net asset value of S$ 4.44 per share.

Forterra Trust closed at S$ 1.79 per share on 5 th May 2014. It is currently trading at 0.37 times book value and do not have any dividend yield as the cash flow available for distribution is still negative at this point.