Should you be betting on Daisin Retail Trust's 8% yield?

Dasin Retail Trust (Dasin) is a SGX-listed REIT that invests in retail malls that are located in the Greater Bay Area (GBA) of China. As of 22 Dec 2019, Dasin is valued at $543.4 million in market capitalisation. In this article, I'll highlight on its business model, financial results, and valuation figures. Thus, here are 10 key things to know about Dasin before you invest:

INITIAL PORTFOLIO 

Dasin was listed on 20 Jan 2017 with three retail malls valued at $944.6 million in its initial portfolio. They are Xiaolan Metro Mall, Ocean Metro Mall, and Dasin E-Color and they are all located at Zhongshan.

In Q3 2019, they are collectively valued at $846.8 million and accounted for 46.2 per cent of Dasin's total portfolio valuation. The malls have reported a decline in valuation since its IPO in 2017.

ACQUISITION 1: SHIQI METRO MALL (SHIQI)

On 19 June 2017, Dasin had completed the acquisition of Shiqi for RMB 1.22 billion (S$240 million), which is a discount from RMB 3.00 billion in valuation as at 30 June 2017. Shiqi is the first retail mall in Zhongshan and is enjoying a 98.0 per cent occupancy rate in Q3 2019 with major tenants namely, RT Mart, Superior City Department Store, Jane Eyre Furniture Mall, Watsons and KFC.

In Q3 2019, Shiqi is worth RMB 2.99 billion and thus, accounted for 31.6 per cent of Dasin's total portfolio valuation.

ACQUISITION 2: DOUMEN METRO MALL (DOUMEN)

On 13 Sept 2019, Dasin had completed its purchase for Doumen at a price of RMB 1.37 billion. It is a eight-storey shopping mall situated at Zhuhai that was acquired at a discount from its valuation of RMB 2.1 billion and thus, accounted for 22.2 per cent of Dasin's total portfolio valuation. It enjoys 99.7 per cent in occupancy ratio with key tenants such as Uniqlo, Starbucks, McDonald's, MI, and Watsons.

PORTFOLIO COMPOSITION

Here is a breakdown of Dasin's property portfolio in Q3 2019:

FINANCIAL RESULTS 

Since its acquisition of Shiqi in Q2 2017, Dasin had generated $16 - 18 million in group revenue and $5 - 6 million in distributable income on a quarterly basis.

Dasin's Distribution Per Unit (DPU) figures are computed differently for it includes a distribution waiver. Its major unitholders have structured a distribution waiver where they would be excluded from receiving DPUs from distributable income for the last 5 years. The number of units that will not be entitled to DPUs are given as follows:

This also means, overtime, Dasin's major unitholders would start to get their DPUs as more of their units would be entitled for DPUs.

This caused a fall in DPUs to around 1.70 cents per quarter for the past three quarters (Q1 2019 - Q3 2019) from its highest of 2.23 cents in Q3 2017.

However, if distribution waiver is not applied, Dasin would be declaring a steady DPU of $0.90 - $1.00 per quarter.

BALANCE SHEET STRENGTH 

In Q3 2019, Dasin has $717.2 million in total borrowings, thus having a gearing ratio of 36.4 per cent.

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MAJOR UNITHOLDER

Zhang ZhenCheng is the largest unitholder of Dasin with 66.2 per cent interest held within Aqua Wealth Holdings Ltd and Bounty Way Investments Ltd as at 15 March 2019. Zhang ZhenCheng is the Chairman of Dasin.

His nephew, Zhang ZhongMing who is the Managing Director of Dasin is also a substantial shareholder of Dasin's sponsor, Zhongshan Dasin Real Estate Co. Ltd. (Zhongshan Dasin).

GROWTH POTENTIAL 1: ROFR PROPERTIES

Zhongshan Dasin has granted Dasin a ROFR pipeline of 18 properties at Zhongshan, Shunde, and Macao of the GBA. Presently, 12 of these real estate have been completed and the remaining 6 assets are still under construction.

GROWTH POTENTIAL 2: PROPOSED ACQUISITION OF 2 RETAIL MALLS 

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On 13 Nov 2019, Dasin has announced its proposed acquisitions of two malls namely, Shunde Metro Mall and Tanbei Metro Mall for $375 million, which is around 25 per cent discount from their valuation.

Shunde Metro Mall is a 9-storey retail mall valued at $487.5 million at present. It enjoys a 99.3 per cent occupancy rate with key tenants namely, Jinyi Cinemas, AEON, Suning, Haidilao, and Starbucks.

Tanbei Metro Mall is a 4-storey retail mall valued at $14.6 million that enjoys 92.3 per cent occupancy rate with major tenants such as Dasin Shinwa Supermarket and Xin Garden.

Upon completion of these acquisitions, Dasin would further expand its property portfolio to $2.21 billion from its current of $1.83 billion.

VALUATION FIGURES

As of 22 Dec 2019, Dasin is trading at $0.84 a unit. Thus, based on DPU of 1.70 cents a quarter, its gross distribution yield is 8.10 per cent per annum presently. In Q3 2019, Dasin has net assets of $1.37 a unit and thus, having a current P/B Ratio of 0.61. 

VIA's VERDICT

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So, the question is: 'Should I invest in Dasin at $0.84 a unit today as it offers a dividend yield of 8+ per cent and is trading at a discount from its book value?' 

First, Dasin is positioned to capitalise on the GBA Master Plan where the area is intended to be developed into a vibrant world-class city cluster, focusing on key areas such as finance, technology & innovation. It has 18 ROFR properties that are based in Zhongshan which is located at the heart of GBA and offering Dasin opportunities for acquisition growth in the future. 

Second, it is worth taking note that Dasin's properties have experienced a fall in valuation since its IPO. This is due to a fall in valuation fall in RMB terms and as well as depreciation of the RMB against the SGD, which had caused a fall in the REIT's net asset value and DPU figures since IPO. 

So, there are both pros and cons to Dasin. It is best to weigh the two carefully before making an investment decision. 

This article was first published in Value Invest Asia. All content is displayed for general information purposes only and does not constitute professional financial advice.