Dasin Retail Trust share price at $0.81: Is this a buy?

Dasin Retail Trust is a property trust with a share price (technically known as unit price for REIT s and property trusts) of $0.81 at the time of writing.

At that unit price, Dasin Retail Trust is valued at a price-to-book (PB) ratio of 0.6x and has a distribution yield of around 7 per cent.

Does the property trust attract me as a long-term investor?

Let’s explore using my 10-step guide to pick the best Singapore REITs.

As a summary, here are the 10 steps I use to pick the best Singapore REITs:

1. Growth in gross revenue and net property income
2. Growth in distribution per unit
3. Property yield of between 5 per cent and 9 per cent
4. Gearing ratio of below 40 per cent
5. Interest coverage ratio of above 5x
6. Healthy portfolio occupancy rate
7. Positive rental reversions
8. Presence of growth prospects
9. Acceptable price-to-book ratio
10. Distribution yield of above 5 per cent

Business background

Dasin Retail Trust, which was listed on January 20,  2017, is the only public China retail property trust in Singapore providing direct exposure to the Guangdong-Hong Kong-Macau Greater Bay Area.

The trust’s portfolio consists of real estate-related assets used mainly for retail purposes.

As of December 31, 2019, Dasin Retail Trust’s portfolio had five shopping malls located in Zhongshan and Zhuhai cities of Guangdong, China, with a valuation of around RMB9.5 billion (S$1.9 billion).

The properties have a tenant base of more than 500 local and international retailers.

The sponsor of Dasin Retail Trust is Zhongshan Dasin Real Estate Co Ltd, one of the leading real estate developers in Zhongshan, Guangdong.

1. Gross revenue and net property income (NPI) check

Check for: Increasing gross revenue and NPI

Dasin Retail Trust has a financial year that ends on December 31 each year. Let’s check how the property trust has performed financially since its listing:

Dasin Retail Trust’s gross revenue and NPI have grown from 2017 to 2019.

However, for the first quarter of 2020, Dasin Retail Trust’s gross revenue and NPI (in Singapore dollar terms) tumbled by 21 per cent and 30 per cent, respectively, as compared to 2019’s first quarter mainly due to the impact from Covid-19.

Verdict: Pass

2. Distribution per unit (DPU) check

Check for: Increasing DPU

Next, let’s look at Dasin Retail Trust’s DPU over the past three years.

The trust’s DPU (with distribution waiver) has been falling from 2017 to 2019.

For its 2020 first-quarter, on the back of lower gross revenue and NPI, DPU (with distribution waiver) tumbled 58 per cent year-on-year to 0.71 Singapore cent.

An important thing to note about Dasin Retail Trust’s DPU is that its major unitholders, Aqua Wealth Holdings Limited and Bounty Way Investments Limited, have agreed to waive a portion of their entitlement to the trust’s distributions for the benefit of other unitholders until some of the properties in Dasin Retail Trust’s portfolio stabilise.

This distribution waiver is for around five years, commencing from Dasin Retail Trust’s listing date to December 31, 2021.

As the rental levels for the portfolio are expected to increase to a level that is comparable to the market rate over time, the percentages and number of units held by the major unitholders which will not be entitled to distributions will decrease over time as shown below:

This is how the distribution waiver schedule looks like in pictorial format:

If Dasin Retail Trust’s properties do not stabilise by the end of 2021, we could see a huge fall in DPU since the distribution waiver would have expired.

Verdict: Fail

3. Property yield check

Check for: Property yield of between 5 per cent and 9 per cent

For 2019, Dasin Retail Trust had an NPI of $60.0 million and a portfolio value of $1.83 billion. This translates to a property yield of just 3.3 per cent.

Dasin Retail Trust fails this criterion as well.

Verdict: Fail

4. Gearing ratio check

Check for: Gearing ratio below 40 per cent

Dasin Retail Trust had a healthy gearing ratio of 36.2 per cent (as of March 31, 2020), which is well within my threshold.

Another plus point is that Dasin Retail Trust doesn’t have any significant refinancing requirements until 2021.

Verdict: Pass

5. Interest coverage ratio check

Check for: Interest coverage ratio above 5 times

At the end of 2019, Dasin Retail Trust had an interest cover of just 2.9 times, which is below my threshold of 5 times.

Verdict: Fail

6. Portfolio occupancy rate check

Check for: Healthy portfolio occupancy rate

Dasin Retail Trust’s portfolio as a whole was around 97 per cent occupied, as of March 31, 2020, which is healthy.

Verdict: Pass

7. Rental reversion check

Check for: Positive rental reversions

Dasin Retail Trust passes the rental reversion check as the majority of its gross rental income is from fixed rent with built-in rental escalations.

Verdict: Pass

8. Growth prospects check

On top growth via organic means as discussed above, Dasin Retail Trust can also grow through inorganic means, or through acquisitions.

With over 10 properties that can be acquired from its sponsor, Zhongshan Dasin Real Estate, under the right of first refusal (ROFR) agreement, Dasin Retail Trust sure has a long runway for growth in China.

The ROFR arrangement ensures that Zhongshan Dasin Real Estate offers the properties to Dasin Retail Trust for purchase consideration first before any other company.

Another growth avenue is from Doumen Metro Mall, which was acquired by Dasin Retail Trust on September 12, 2019.

Since the property has only contributed to around three months of rental income in 2019, Dasin Retail Trust’s 2020 gross revenue should increase.

Unitholders of Dasin Retail Trust have approved the acquisition of  Shunde Metro Mall and Tanbei Metro Mall at an extraordinary general meeting held in December 2019.

Once the properties have been purchased and injected into the trust, Dasin Retail Trust’s gross revenue, NPI, and DPU could get a boost as well.

Verdict: Pass

9. Price-to-book ratio check

Check for: Acceptable price-to-book ratio

At Dasin Retail Trust’s unit price of $0.81, it is valued at a PB ratio of 0.59x, which is below 1x and could mean it’s undervalued.

We are unable to compare its current PB ratio with its historical five-year average since the REIT was listed only in 2017.

Verdict: Pass

10. Distribution yield check

Check for: Distribution yield to be above 5 per cent

At Dasin Retail Trust’s unit price of $0.81, it has a trailing distribution yield of 7.2 per cent, which is more than 5 per cent.

Verdict: Pass

The final verdict

Dasin Retail Trust has a final score of 7/10.

Even though the property trust looks undervalued with its low PB ratio and high distribution yield, I’m not comfortable investing in it due to its falling DPU over the last three years, even with distribution waiver.

Also, when the distribution waiver expires next year, the downside risk to DPU could be high if Dasin Retail Trust’s certain properties don’t stabilise by then.

Therefore, I’d place Dasin Retail Trust on my watchlist.