PRELIMINARY independent valuations have pointed to an overall decline in the value of Dasin Retail Trust : CEDU 0%’s portfolio as at end-December 2022.

On Monday (Apr 24) the China-focused real estate investment trust’s (Reit) trustee-manager said its portfolio valuation fell 14 per cent in renminbi terms when compared to the seven properties’ aggregate value as at end-June, 2022. This translates to a steeper 23 per cent decline in Singapore-dollar terms.

The fall in valuation was attributed to factors such as a general decline in market performance and rental rates, lower passing rent, and a lower projected growth rate in rent.

There were also negative reversion rental rates from some leases contracted in 2022 along with higher vacancy rates, noted the trustee-manager.

Due to the lower valuation of its properties and the weakening of the renminbi against the Singapore dollar, US dollar and Hong Kong dollar – in which the trust’s offshore loans are denominated – Dasin Retail Trust also faces a breach of its gearing, loan-to-valuation and interest coverage ratio obligations under its offshore facilities.

The trustee-manager said it intends to seek a waiver from lenders of any breach of financial covenants, as part of ongoing discussions with its lenders to restructure and reschedule the group’s debt obligations.

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Recent checks have also revealed several litigation and equity matters faced by the trust’s sponsor.

In a separate update on Monday, the trustee-manager said its litigation searches on the trust’s sponsor, Zhongshan Dasin Real Estate, since 2020 revealed there were at least a total of 113 cases involving the sponsor.

The sponsor was a plaintiff in another 12 cases, the defendant in 94 cases, and “was involved in some other capacity” in seven cases.

Most of the disputes appeared to mainly involve contract disputes over commercial housing reservation, construction projects, labour remuneration, sales, financial loans, decoration, advertising, and services. 

The amounts claimed were only traced for 49 cases in which the sponsor was a defendant, with claims totalling some 1.8 billion yuan (S$344.2 million).

Among other revelations, the trustee-manager has also flagged at least nine existing freeze orders against Zhongshan Dasin Real Estate’s equity interests in some of its subsidiaries. These were mainly on the basis of loan disputes and construction project contract disputes, it said.

Another seven cases of equity freezes have since been lifted.

Referring to the litigation and equity freeze searches, the trustee-manager emphasised that information on confidential cases, and cases still in progress, are unavailable to the public.

It is also likely that China’s Supreme People’s Court’s database may not be fully updated due to a time lag between local courts and their submission of judgements.

Dasin Retail Trust’s trustee-manager said the sponsor is not subject to any winding-up proceedings at present.

Its board is also of the view that these matters have not materially affected the trust’s day-to-day operations thus far. However, it is “difficult to say for certain” if these matters could create negative perceptions of the trust, which could have an adverse effect on the trust’s financial condition and operations.

“It is possible that the freezing orders and other enforcement action against the sponsor in China may be interpreted to mean that the sponsor, and by the trust’s close association with the sponsor, the trust as well, are facing financial challenges, whether real or perceived, and may also possibly have impacted how the lenders deal with the trust and its refinancing efforts. However, there is no clear evidence of this at this juncture,” said the trustee-manager.

Units of Dasin Retail Trust were trading S$0.002 or 1.4 per cent lower at S$0.142 as at 1.42pm on Monday, after both announcements were made.