Not since Eagle Hospitality Trust in the closing months of FY2019 has a property trust fallen so sharply in such a short time. Dasin Retail Trust — styled as a business trust rather than a REIT — is down 16.7% since June 16, 2020. At its last done price of 60 cents, the trust is trading at just 0.42 times its latest reported net asset value of $1.41.
A quick glance through Dasin’s business updates for 1QFY2021 dated May 17 shows a recovery from the Covid-19 slump a year ago. Gearing at a reasonable 37.2%, weighted average lease expiry (WALE) is 5.9 years by net lettable area, shorter based on gross rental income, 1Q2021 revenue is up 87% y-o-y, and is at 94% of 1QFY2019 pre-pandemic levels.
So what is wrong? On April 28, Zhang Zhencheng — owner of Dasin Retail Trust’s trustee-manager and the trust’s major unitholder — and a unit of ARA Asset Management announced that ARA would take a 50% stake in the manager, and acquire approximately 5% of Dasin units from Zhang. For the Dasin units, ARA would acquire a 2.5% stake first, followed by the remaining units to make its stake up to 5%. A business update by Dasin on May 17 said the sale of shares of the manager and the initial stake in the trust is expected to complete in May this year. There has to-date been no announcement of the completion of this transaction. In addition, the units in Dasin held by Zhang rose from 53.56% to 53.7% because of fees paid to the trustee-manager in units.
Separately, as at May 4, the trustee-manager has announced that Aqua-Wealth Holdings, owned by Zhang, has pledged 38 million Dasin Retail Trust units, or 4.87% at that date, to CGS-CIMB. The units are pledged for the financing of Aqua Wealth’s trades in securities with or through CGS-CIMB.
Unrelated to the pledged shares, almost $500 million of debt comes due on July 18. Of this, $419.5 million is offshore debt, and $80.1 million is onshore debt.
The market grapevine is suggesting that China Merchants Bank pulled out of the syndicated loan for an unknown reason. Bank of China is likely to step in to ensure that the loans are renewed and disbursed. ARA could also be stepping in as part of the syndicated deal. The Edge Singapore has approached the trustee-manager for updates on Dasin’s refinancing progress and the completion of the transaction with ARA.
On April 28, in answers to queries from the Singapore Exchange (SGX), the trustee manager affirmed that the trust was in a negative working capital position with net current liabilities of $406.7 million as at Dec 31 last year. The negative working capital position was mainly due to re-classification of $419.5 million offshore syndicated term loan equivalent and RMB386 million ($78.14 million) onshore syndicated term loan from non-current liabilities to current liabilities, as these term loans are due and payable in July.
The trustee manager asserted that Dasin’s business fundamentals remained reasonably sound throughout the Covid-19 pandemic, and that it generated $59.3 million in net positive cash flows from operating activities in FY2020.
While both REITs and business trusts are constituted by trust deed, a REIT manager may be removed by a simple majority while 75% of votes are needed to remove a business trust’s trustee-manager. Business trusts are not required to distribute a certain percentage of their income, unlike REITs, nor do they need to adhere to the regulatory cap on gearing of 50% for REITs.
Elsewhere, investors are deciding that banks should be an integral part of their portfolios. This is not just because DBS Group Holdings’ share price has more than tripled in the past decade, but also because of its regular and generous dividends, regulations permitting. If at almost $30 per share, DBS is too high a price to pay, retail investors can turn to Oversea-Chinese Banking Corporation (OCBC). It pays regular dividends, has ample capital, and is in the stable markets of Hong Kong and Singapore, and growth markets such as Indonesia and the Greater Bay Area.
The Straits Times Index (STI) has fluctuated somewhat during these four trading sessions. It eased all the way to 3,089 on June 29, a tad below the 100-day moving average at 3,104 before rebounding to 3,124 on July 1. This has caused short-term indicators to turn up from relatively low levels, but not from the bottom of their range. Hence, the current rebound may run into resistance as it approaches its 50-day moving average at 3,154. Direction movement indicators are mildly negative because the average directional index (ADX) has turned up and the directional indicators are negatively placed. Quarterly momentum is relatively neutral. The STI needs to break above 3,158 to regain up-momentum. Support, meanwhile, has been established at 3,090
