This Singapore dividend stock is yielding 17% today.
Sustainable?
What’s interesting is this business owns properties in one of China’s fastest growing regions — The Greater Bay Area. What’s more, the entire region is going to hit 100 million people over the 15 years. A massive 43% growth rate.
And that’s the size of Japan.
If you count The Greater Bay Area as a standalone economy, it’s the 11th biggest economies in the world, just behind Canada. It’s ambitious, China has approved a huge railway plan that will build 13 intercity railways and five hub projects stretching 775 km. This links the entire area within a “one-hour traffic circle.”
Finally, big dividend yield for Singapore investors?
And Dasin Retail Trust (SGX: CEDU) — a S$234 million market cap property trust — is riding on the tailwind of this big regional growth. This property trust owns seven retail properties in the Greater Bay Area. Dasin Retail Trust was listed in 2017.
A property trust is almost the same as a REIT, except a property trust is not capped by MAS’s 50% gearing limit. And you can inject assets other than properties. And develop properties.
In its latest financial results 2021, this “pure-play” China retail property trust grew their revenues by 16% to S$101 million. And their net property income (NPI) hit S$78 million —– that soared 11% compared to a year ago. Their Sunde Metro Mall and Tanbei Metro Mall were the largest growth driver (see below).
What’s more impressive, Dasin Retail Trust grew their distribution per unit (DPU) from 3.94 cents to 5.22 cents.
Unlike other Singapore REITs, at today’s share price, that’s a 17% dividend yield.
Source: Dasin Retail Trust Financial Information
But here’s what many people might not know.
Despite their impressive results, Dasin Retail Trust shares got pummeled to S$0.29 per share.
Source: ShareInvestor Webpro
REITs and property trusts rely on borrowing debt to run their business. This is because they pay out most of their income as dividends in order to qualify for reduced taxes.
Typically, they can easily refinance their debt with fresh loans. Banks are happy to lend them money so long these REITs and property trusts own high-quality assets that produce steady rental income.
I find the problem here is Dasin Retail Trust struggles to refinance S$758 million of debt. All coming due this year.
It’s unusual.
They say the devil is always in the detail.
Source: Dasin Retail Trust Presentation Slide 2021
So why like that?
This artificially boosts dividend yield
Actually, Dasin Retail Trust was already facing big issues when it got listed five years ago.
You see, Dasin Retail Trust has a weird way of enhancing their distribution yield (see below) for retail shareholders. Instead of major shareholders receiving their share of dividends, Dasin Retail Trust management decided to “waive their own distribution” and give their portion of dividends to shareholders.
That’s how Dasin Retail Trust can achieve a high distribution yield at IPO.
Source: Dasin Retail IPO Prospectus
That’s why, their dividend yield is so high right from the start.
And over time, as Dasin Retail Trust expects their rental income to grow, their major shareholders will then start receiving their shares of dividends.
Source: Dasin Retail Trust IPO Prospectus
Simply put, it’s management saying: “Let me give you my share of dividends first because my retail malls have yet to hit ‘full potential’. When my malls are at capacity, I’ll start to collect my share of the the dividends.”
The thing is, both their most popular malls — Ocean Metro Mall and Dasin E-Colour have yet to realize their full rental income potential. Perhaps they have not fully locked in all their leases. Or rent collection is not good.
Who knows?
With this distribution waiver, it kind of tells me two things here. First, Dasin Retail Trust’s properties probably are facing some challenges despite being in one of the fastest growing regions. Second, and more importantly, is this distribution waiver overstates what the actual dividend yield should be.
If the company has no way to grow their rent, or gets hit by exogenous events like COVID, dividends is going to drop like a stone.
What’s odd was their IPO was 7.6 times oversubscribed! It was a wildly popular IPO back then.
Since listing, their property value is bleeding.
It got worse over the last two years because China locked down their cities due to COVID. Tenants can’t pay rent. Income falls. Property value falls. Distribution drops.
Source: Dasin Retail Trust Annual Report 2021
I suspect the massive fall in valuations got so bad banks aren’t willing to lend them money to refinance their loans because of falling property valuations.
Can Dasin’s properties pay dividends?
Another big reason why Dasin Retail Trust faces refinance problems is because of China’s aggressive debt clampdown in the property sector. China wants to flush out the weak property players.
And Dasin Retail Trust is right smack in the middle of this anti-growth policy.
According to the IMF, “Concurrently, the de-leveraging of the real estate industry has led to a slowdown in investments and adverse impact on the overall bond market, thereby depressing financing activities in the economy.”
And it doesn’t help that the trust’s sponsor is a China property developer — Zhongshan Dasin Real Estate. Zhongshan Dasin Real Estate is only mid-sized China developer. And it could very well be shaken by the debt clampdown.
Dasin Retail Trust properties can still pay dividends.
But it’s tough to grow it.
Are dividends sustainable?
At this stage, it’s hard to promise dividends can sustain at such high yield.
Even if Dasin Retail Trust manages to refinance their loans, or get a big investor in, it doesn’t solve the problem of a poor property asset. Interest cost will go up. And Dasin Retail Trust ends up forking out more interest costs from their revenues.
Over the last few years, Dasin Retail Trust has paid most of their distributions as dividends.
But dividends have started to drop.
That’s why their shares plunged.
Here’s another thing. This is a property trust, not a REIT. It means Dasin Retail Trust doesn’t have to limit their gearing ratio to 50%. They could leverage up even more at higher rates so they can pay their existing debt.
If you ask me the one dividend question, is it safe?
You know it’s hard to believe otherwise. It could be due to COVID, or simply bad location. Who knows?
But I suspect Dasin Retail Trust properties will take much longer to get their rental income in full capacity. In the meantime, I won’t be surprised if this property trust has to sell off assets to pay down their debt.
That’s going to reduce dividends for its shareholders.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
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