Red flags! Why I avoided DASIN RETAIL TRUST?

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.
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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!

Reference:
How to invest in REITs?

Lost Hundreds of Thousands of Dollars! My experience!

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.
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I read my older blogs from time to time.

There are lessons to be learnt from history and I often find things I said in the past to be useful reminders.

This is inspired by a blog I published in 2011.

Back then, there was a bit of controversy surrounding a business trust called "CitySpring Infrastructure Trust".

It was the catalyst for the blog in which I shared my losses, and how I recovered from losses to do better over time as an investor.

"When I finally fully divested from "CitySpring" which I no longer liked as an investment for income, I did not lose money.

"I was also spared the subsequent rights issue."

So, the lesson was not to throw good money after the bad.

At the time, I said the business trusts which I counted as heavy losses were MPSF and FSL Trust. Back then, I also said I would consider any 5-figure loss as a heavy loss.



What about now?

Since then, I have added another black feather to my cap and that's the $100,000 loss in Marco Polo Marine. 

To be exact, it isn't that much since the company is still in business and my paper loss is closer to 90% now which means a $90,000 loss.

It still stings.

That was a few years ago.

I have been more cautious since then.

Also, these days, I am able to stomach low to mid 5 figure losses once or maybe twice a year without going into a depression as my balance sheet is much stronger than before.

What have I been doing since then to have a stronger balance sheet?

Staying invested mostly in bona fide income producing assets while remaining financially prudent.

Sounds boring? 

To many people, it probably is.

I also speculated in some stocks along the way but never in a big way and, most certainly without using any financial leverage.



Now, with much pessimism surrounding REITs due to higher interest rates, I also found something I said in that blog from 12 years ago a useful reminder.

I said that all real estate investment trusts I was vested in were back in the black. Many, like AIMS AMP Capital Industrial, were in the red but I used the price weakness in the crisis to add aggressively to my investments.

Now, we call that the Global Financial Crisis.

Those decisions to add to my investments in real estate investment trusts were rewarding back then.

This is a good reminder.

If we invest in real estate investment trusts which are genuinely undervalued and have strong balance sheets, if Mr. Market should sink into a depression, as investors for income, it would be an opportunity to increase exposure.

Doing what I did back then, the value of my stocks investment portfolio practically doubled as the world emerged from the Global Financial Crisis.

I remember one of my favorite investments made during the crisis was Hyflux Water Trust, but it was privatized later. 

So, it was a forced divestment but at a premium of 150% to my purchase price, I couldn't complain.

Many of my better investments were privatized over the years.



I also shared that I made some money trading stocks over the years.

However, from 2010 to 2011, all the gains to my portfolio of stocks were from the hefty dividends received. 

Honestly, I booked some paper losses trying to trade stocks while the market was turbulent. Fortunately, the decision to focus more on investing for income paid off.

Dr. Marc Faber said that the Global Financial Crisis was a once in a lifetime opportunity to make a lot of money in the stock market. Is it likely to be repeated in the near future? 

I do not know and, hence, my current strategy of not being fully invested in stocks.

There are many ways to achieve financial freedom, and my way is only one of the ways.

It is the toughest at the beginning.

However, experience tells me it should get easier with time if we are doing the right things.

So, do not lose heart.

Remember, there is no free lunch and if it sounds too good to be true, it probably is.

There is no short cut but do not cut short our journey towards financial freedom.

If AK can do it, so can you!

Further reading:

Passive income as much as earned income. Get rich slow.