As at June 30, Dasin Retail Trust’s net asset value (NAV) stood at $1.46. DPU for the 1HFY2021 ended June of 2.98 cents would give an annualised DPU yield of more than 11% on the trust’s current price of around 50 cents.
In July, New Harvest Investment, an affiliate of Sino-Ocean Capital, acquired a 70% stake in Dasin Retail Trust’s manager for $8.3 million. Dasin’s management fee in 1HFY2021 was $3.4 million. New Harvest has been granted a one-year call option to purchase, the lower of the total units owned by Aqua Wealth, and 26% of the total units. Another affiliate of Sino-Ocean, Glory Class Ventures, owns 6.36% of Dasin Retail Trust’s units. The presence of Sino-Ocean Capital, a blue-chip Mainland name which is listed in Hong Kong, should instil confidence in investors.
Zhang Zhencheng is Dasin’s current sponsor and largest unitholder. He owned the manager and still holds around a 53% stake in Dasin through Aqua Wealth Holdings. In June 2020, Dasin Retail Trust did a placement of 120 million units at 78 cents apiece. In July 2020, Aqua Wealth Holdings took 38 million units of the placement at 78 cents taking its stake to 55% or 429.5 million units. Harvest Private Wealth Thematic Fund, which is not related to New Harvest Investment, became a substantial unitholder with 8.25% in July 2020 when it took around 31.7 million units of the placement. Glory Class Ventures did not subscribe for the placement units.
In May, Dasin’s manager announced that Zhang’s and Aqua Wealth’s 38 million units from the placement were pledged to CGSCIMB on April 29 for margin facilities for financing Aqua Wealth’s trades in securities through CGS-CIMB.
The first hint of trouble appeared when the Singapore Exchange queried Dasin on its working capital in April and more recently on Dasin’s current ratio on Aug 16. Dasin had $422.7 million of offshore debt and $79.2 million of onshore debt that matured in July. These facilities had to be classified as current liabilities as at Dec 31, 2020. As a result, current liabilities ballooned in relation to current assets.
With the appearance of Sino-Ocean on the horizon, Dasin Retail Trust’s manager was able to extend the debt maturities to Dec 19. Hence, on Dasin’s balance sheet, as at June 30, the debt is still classified as current liabilities and this elicited a second query by SGX. But the issue is similar to April. Dasin’s current ratio of current assets to current liabilities obviously looks terrible.
Are the banks reluctant?
Investors are concerned about the reasons why the consortium of banks renewed the loans only till Dec 19 and did not extend them for three to five years as is normal with REITs. Indeed, according to market talk, a Chinese bank pulled out of the syndicated loan earlier this year, which spooked the other banks.
The lenders were so concerned about extending the loans that they sent personnel and officials to visit Dasin’s malls. The banks’ representatives found the malls packed and doing extremely well.
The performance of the malls is evidenced by a 31% rise in revenue y-o-y, in 1HFY2021, excluding contributions from the two newly acquired shopping centres, Shunde Metro Mall and Tanbei Metro Mall. Including these two malls, revenue is up by 62.7%. Occupancy is on average above 90%. One mall has occupancy below 90% but this is due to extensive asset enhancement initiatives. The DPU if annualised is 0.87 times pre-Covid levels, pointing to a recovery.
Moreover, Dasin’s seven malls are in the Greater Bay Area, in Zhuhai, in and around Zhongshan, and Shunde, which is near Foshan. Among the Chinese government’s 14th five-year plan is the development of a financial hub in GBA, and increasing the population of the GBA by 43% to 100 million, as the GBA becomes a magnet for inbound investment, technology and innovation. The GBA is the Chinese government’s plan to link the cities of Hong Kong, Macau, Guangzhou, Shenzhen, Zhuhai, Foshan, Zhongshan, Dongguan, Huizhou, Jiangmen and Zhaoqing into an integrated economic and business hub. These are all positives, hence it is a mystery to investors why Dasin is trading at such a hefty discount, and why the banks extended the loans to just Dec and not further out.
Far removed from Eagle
References to Eagle Hospitality Trust (EHT) are unfair, as are attempts to tar Dasin with the S-chip brush. On Aug 8, the Long Beach Post, in an investigative report, said that Urban Commons, EHT’s sponsor, had problems with investors, suppliers and the Queen Mary Long Beach at least a year before Covid hit, suggesting that the IPO in May 2019 may have needed further due diligence. EHT never paid a distribution but Urban Commons took some US$568 million of monies from investors.
Dasin is different. Its malls appear to be operationally sound. They are crowded and occupancies are healthy. Its manager has paid out DPU since its IPO in 2017. In 2017, it paid out 7.16 cents, DPU in 2018 and 2019 were 7.22 cents and 6.82 cents respectively. However, DPU fell to 3.94 cents last year, because of Covid.
Unfortunately, the sponsor had signed an agreement with ARA Asset Management in April, where the latter would acquire 50% in the manager and a token stake in the trust. As the year progressed and ARA’s shareholders attempted to divest ARA to a third party, it was clear that an acquirer such as ESR Cayman had limited interest in non-logistics assets that may have included malls, offices and hotels. Dasin owns seven malls. That may have suited ARA which, as a property manager, is focused on growing AUM. ESR Cayman also wants to grow AUM but is obviously more selective and sector-specific.
Still, not fulfilling the agreement with ARA and pivoting to a swift agreement with Sino-Ocean Capital — a strong, safe pair of hands — has not set aside concerns. This probably revolves around regular SGX announcements on the sale of units because of margin calls by CGS-CIMB. On Aug 18, an SGX filing showed that Zhang and Aqua Wealth had divested 118,500 units in Dasin on Aug 16, taking his stake to 53% from more than 55% in July 2020.
As part of the SGX filing, it turns out that DBS Trustee holds the entire issued share capital of Aqua Wealth Holdings as the trustee of a family trust that is known as the Zhang Family Settlement of which Zhang is the settlor, and the beneficiaries are his son, nephews and sister-in-law.
In reply to queries from the SGX, Dasin’s manager said that the trust has sufficient cash and expects adequate cash flow will be generated from its operations to meet working capital needs. “The group’s business fundamentals are reasonably sound throughout the Covid-19 pandemic,” adds the manager.
Investors are awaiting for the sound business fundamentals to filter through to Dasin’s valuations.
