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Red flags! Why I avoided DASIN RETAIL TRUST?

Monday, May 29, 2023

For readers who who are not subscribed to my YouTube channel or who simply prefer reading blogs to watching videos, this is the transcript of another recent video I produced.
This is my third video on spotting red flags in real estate investment trusts.

In my first video, I used the example of EC World REIT while in my second video, I used the example of Eagle Hospitality Trust.

In this video, I will explain why I avoided investing in Dasin Retail Trust so many years ago.

Dasin Retail Trust had its initial public offer on 18 January 2017.

The portfolio had a handful of properties which were all located in Zhong Shan City in Guang Dong China.

The main reason for avoiding Dasin Retail Trust was the hefty financial engineering it employed. 

It was done in order to make the initial public offer much more attractive than it would have been.

The sponsor of the trust waived a large portion of its distribution entitlement which resulted in a distribution yield of 8.5% in 2017 and 9% in 2018.

Without the waiver of distribution by the sponsor, the distribution yield would have been much lower at 3.8% in 2017 and 4.7% in 2018.

That would have been some dramatic reduction.

Anyone considering investing in the Trust should be realistic enough to make the following assumption.

That the waiver of distribution would have to end at some point.

It would have been a reasonable assumption which was also necessary.

That was the first and biggest red flag.

The second red flag was the quality of the assets injected into the trust.

The sponsor seemed rather desperate to monetize its assets as it injected assets which have yet to mature as well.

Of course, the sponsor could tout the potential of such assets but there was no guarantee that such assets would live up to expectations, and investors would have to bet on them doing better in the future.

Without a good track record, these assets could turn out to be mediocre.

So, although the trust was offered to investors at a discount to its book value, savvy investors would question the reliability of its valuation.

The third red flag was concentration risk as all assets were located in Zhong Shan City China.

To be honest, it wasn't the biggest concern to me, and the first two red flags were already enough to drive me away.

Still, if anything untoward were to happen to Zhong Shan City, then, the entire ship would sink.

The fourth red flag is worth a mention as it was a concern to me back in the day, but it isn't as important these days.

That was the issue of land leases.

Dasin Retail Trust had assets with land leases which would expire between 2041 to 2046.

So, its shortest land lease was 24 years.

It was a big concern to me back in the day because I had been invested in Croesus Retail Trust which had freehold malls in Japan.

So, putting the two side by side, the difference was really stark.

Of course, Croesus Retail Trust won hands down.

Sadly, I was forced to let go of Croesus Retail Trust as it was privatized.

I would have been quite happy to hold on to Croesus Retail Trust to continue receiving passive income.

Anyway, back to Dasin Retail Trust.

I have learnt in recent years that it is relatively easy and less expensive to renew leases in China and Hong Kong as long as they do not have any other use for the land.

So, having shorter land leases isn't as big a concern when compared to Singapore. However, it doesn't mean that it is not a concern.

Good reminders to myself.

If AK can talk to himself, so can you!

How to invest in REITs?


JT said...

What does it mean by "assets which have yet to mature"?

AK71 said...

Hi JT,

These are assets which are still under development or if developed, are under rented.

So, the sponsor could use some of the IPO proceeds to provide support or waive their rights to income distributions to bump up income distributions.

AK71 said...

Hi Capricon,

The prospectus is a must read if we are interested in an IPO for whatever reason.

It was many years ago but if I remember correctly, the expected distribution yield with or without waiver of distribution by the sponsor had to be clearly stated.

Even without clearly stating, we can make a rough rough calculation as the prospectus will say how much of an interest the sponsor will retain.

As for annual reports, we can always go for the financial highlights which would likely be just one or two pages. ;)

VT said...

Hi AK,
There is a big movement for AIMS (ur favorite reit?) ;)
Looks like the private placement is going to dip into the stock price.

AK71 said...

Hi VT,

It is probably in response to the rights issue.

Anyone interested in increasing investment in the REIT should apply for more excess rights.

Chance! :D

The Dreamzola Traveller said... I missed Croesus Retail Trust.
Didn't manage to buy many before it disappeared from my portfolio.
Hard to find such pretty product.

AK71 said...


I miss Saizen REIT more than I miss Croesus Retail Trust.

Still, I was fortunate enough to count both as two of my largest investments in the past.

I agree that it seems hard to find similar investments now.

Keeping fingers crossed. ;)

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