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* The following is an excerpt, excerpted from the Related platform2023 Annual Report on China's Public REITs Market
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Foreword
As an important foundation for promoting Chinese-style modernization and promoting economic and social development, the development of the REITs market will effectively connect the real economy and the capital market, and help form a virtuous cycle of existing assets and new investment. In the future, China's REITs market will continue to improve its quality and expand its scope to serve the construction of a multi-level capital market and a high level of opening up.
UBP Platform Value Institute.
Basic information of REITs projects
Since the listing of the first batch of 9 public REITs in June 2021, as of February 5, 2024, there are 30 public infrastructure REITs in the whole market, with a total issuance size of 9850.4 billion yuan, if you add the expansion, the total scale of issuance will reach 10356.8 billion yuan, with a total market value of 8000.8 billion yuan. The types of REITs products are also constantly enriched.
REITs primary market
As of February 5, 2024, a total of 30 public REITs products have been issued and listed, all of which adopt the transaction structure of "public offering**+ABS". The total issuance size reached 9850.4 billion yuan (excluding expansion), the share raised reached 18.6 billion, and the weighted average issuance** was 739 yuan. Among them, the top three REITs in terms of issuance size are CICC Anhui Communications Holdings REIT, Huaxia China Communications Construction REIT and Ping An Guangzhou Guanghe REIT, with a scale of 108 respectively8 billion yuan, 939.9 billion and 91$1.4 billion. The strategic placement ratio is relatively high, except for Huaan Zhangjiang Everbright REIT, which has a strategic placement ratio of less than 60%, and other REITs are all above 60%.
Secondary market for REITs
In 2023, REITs will show a leading trend as a whole. From January to February, the new crown epidemic dissipated after the Spring Festival, and REITs** generally rose; Later, due to the less-than-expected leasing and renewal of leases in some industrial parks and warehousing and logistics, as well as the lack of liquidity, the trend of REITs** was sluggish and the turnover rate weakened; From July to August, some FOF** included public REITs in the investment scope, boosting market confidence, REITs** strengthened, and the average turnover rate rose to 094%；After that, due to the relatively slow progress of the actual investment of FOF**, the liquidity problem has not improved, and the first batch of expansion projects in December was lifted in a centralized manner, REITS** weakened again, and the average turnover rate from September to November fell to 065%。
Correlation analysis
REITs show a weak correlation with the ** market, bond market and commodity market, but relatively strong correlation with the ** market.
Investor structure
REITs projects are dominated by institutional investors, with individual investors accounting for less than 25%. Eco-friendly REITs account for the largest proportion of individual investors (between 20% and 25%). Among the institutional investors, most of them are strategic investors who hold non-tradable shares.
REITs operating performance
Thanks to the resumption of production and life after the new crown epidemic, the traffic volume and toll income of the underlying assets of the expressway REITs project have shown positive growth, and the various operating performance indicators of expressway REITs have been completed well.
The industry in which eco-friendly REITs are located is more cyclical resistant and less affected by economic fluctuations. Wells Fargo's Capital Water REIT's operating performance indicators, excluding the amount available for allocation, all achieved year-on-year growth. The production and operation of AVIC Shougang Green Energy REIT project was affected by heavy rain and generator failure, and the operating income decreased slightly year-on-year.
Driven by the pace of domestic green transformation and development, the operating performance indicators of gas and wind and solar energy infrastructure REITs have met or even exceeded expectations.
The operation of warehousing and logistics REITs is relatively stable, and most of the operating performance indicators have achieved year-on-year growth or basically reached or even exceeded the expected value, except for a few indicators. The development and growth of manufacturing, retail and e-commerce have driven the demand for warehousing and logistics, and the trend of short supply in the industry continues.
Due to the continued sluggish performance of the overall leasing market in Beijing Industrial Park and the lack of new demand, CCB Zhongguancun REIT's operating income, net profit, EBITDA and distributable amount all showed negative year-on-year growth, and the vacancy rate in the area where its project is located reached 32%, and the average rent continued to decline to 143 yuan per square meter per month. The operating performance indicators of REITs in other industrial parks achieved positive year-on-year growth or reached the expected value.
The rental housing project is operating steadily, and the tenant structure, occupancy rate and rent level of the project remain stable, so the rental housing REITs have achieved the annual operating performance indicators well.
REITs dividends
In 2023, 24 REITs will announce dividends, with dividend ratios ranging from 15% to 98%. Except for ChinaAMC Communications Construction REIT, CCB Zhongguancun REIT, and CICC Hubei Science and Technology Investment Optics Valley REIT, the cumulative distribution ratio of other REITs is greater than 4%, which can meet the requirement of 4% net cash flow distribution rate. The cumulative distribution ratio of franchise REITs is significantly higher than that of equity REITs, mainly due to the zeroing of the maturity value of franchise REITs, stable cash flow and high dividend rate, while at the same time, property rights REITs pay more attention to the future appreciation of the underlying assets, so the dividend rate is lower.
REITs Valuation
We use IRR to value REITs. For franchise REITs, we take the issuance and listing of REITs to the maturity date of the franchise as the calculation cycle, and use the amount available for distribution in the year following the listing of the REITs as the base number to estimate the IRR of the average annual growth rate of the amount available for distribution of REITs at % and 5%, respectively. Through the calculation results, we find that the IRR of energy infrastructure REITs is higher than that of ecological and environmental REITs and highway REITs.
Pursue long-term sustainable value creation
As an important type of asset that focuses on long-term investment returns, public REITs are more in line with the comprehensive environmental and social values emphasized in the ESG sustainable development system. Since the launch of the pilot project of public REITs in April 2020, the state has successively issued policy documents such as the Opinions on Further Improving the Policy Environment and Increasing Efforts to Support the Development of Private Investment (Fagai Investment No. 2022 1652), the General Outline for the Preparation of the Feasibility Study Report on Investment Projects (2023 Edition), and the Reference Outline for the Preparation of the Feasibility Study Report on Enterprise Investment Projects (2023 Edition) to guide the high-quality development of investment projects. These policy documents clarify that REITs are a possible path to revitalize existing assets and exit after the completion of the project, and also emphasize that the project needs to conduct ecological environmental impact analysis, resource and energy utilization effect analysis, carbon peak and carbon neutrality analysis, social impact analysis and economic impact analysis, as an important reference standard for project investment and financing decisions.
At present, some REITs are disclosing ESG information and publishing environmental-social-corporate governance reports.
Future outlook for the public REITs market
Broaden asset classes. On March 24, 2023, the National Development and Reform Commission issued the Notice of the National Development and Reform Commission on Standardizing and Efficiently Doing a Good Job in the Application and Recommendation of Real Estate Investment Trusts (REITs) Projects in the Infrastructure Field (Fagai Investment 2023 No. 236, hereinafter referred to as "Document No. 236"), which aims to implement the requirements for promoting consumption put forward by the ** Economic Work Conference at the end of 2022 and respond to the implementation of the national strategy of expanding domestic demand. The consumer infrastructure sector has great potential for REITs issuance.
Actively expand the investor base and attract long-term capital into the market. On August 29, 2023, the Shanghai Stock Exchange and the Shenzhen Stock Exchange issued the Notice on Optimizing the Working Arrangements for the Issuance and Trading Mechanism of Publicly Offered Infrastructure Investment (REITs). On December 6, 2023, the Ministry of Finance and the Ministry of Human Resources and Social Security jointly issued the Measures for the Administration of Domestic Investment in the National Social Security ** (Draft for Comments). The entry of long-term institutional investors such as social security** will further boost market confidence and promote the healthy and stable operation of the REITs market.
REITs empower the development of the housing rental market. The issuance and listing of rental housing REITs is conducive to helping construction enterprises solve the problem of low turnover rate in the asset-heavy industry, opening up the closed loop of "fundraising, investment, construction and management" of rental housing, and jointly accelerating the progress of project construction, expanding the supply of high-quality housing, and solving the housing difficulties of new citizens and young people by absorbing various social funds. Through REITs, we will cultivate market-oriented housing leasing entities, so as to help the construction of "three major projects" such as affordable housing, better realize "simultaneous rental and sales", "housing for living and not speculation", and promote the transformation of the development model of the real estate market.
REITs market serves the construction of the "Belt and Road". Chinese enterprises have accumulated a large number of infrastructure stock assets along the "Belt and Road", which provides sufficient underlying asset reserves for the future issuance of Chinese offshore REITs. Through the issuance of infrastructure REITs, these assets can be revitalized, and the recovered funds can be used for the construction of new infrastructure projects to make up for shortcomings, thus forming a good investment cycle.
UBP platform REITs and asset-based services
UBP has a professional and technical appraisal team with many years of rich experience, and has provided issuance and annual asset appraisal services for Ping An Guangzhou Guanghe REIT, CICC Anhui Traffic Control REIT, and is providing annual asset appraisal services for Zhejiang Shanghai-Hangzhou-Ningbo REIT, and the REITs projects in the process involve highways, industrial parks, logistics and warehousing, scenic spots, hydropower stations, municipal facilities, environmental protection, new energy and IDC and other infrastructure. We are committed to providing high-quality services for the issuance, listing and annual evaluation of REITs.
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