Recently, the China Securities Regulatory Commission (CSRC) issued the Guidelines for the Application of Regulatory Rules - Accounting No. 4 (hereinafter referred to as the "New Regulations"), which pointed out that the shares held by other parties of the REITs should be reported as equity at the level of consolidated financial statements if the relevant conditions are met. In terms of the accounting treatment of other investors in REITs, the shares held by them are equity instrument investments in nature. In this regard, Liu Jian, general manager of AVIC**, said that the equity attributes of REITs in the accounting treatment have been clarified, which has had a great impact on all participants of REITs. In the long run, this will be of great benefit to guiding the market to return to the logic of long-term value investment and improving the overall market ecology.
Promote the accelerated expansion of the REITs market.
From the perspective of financing, Liu Jian believes that the implementation of the new regulations may promote the accelerated expansion of China's REITs market. Prior to the issuance of the new regulations, there was no clear legal basis for the original shareholders of the consolidated statement to report the shares held by other parties of the REITs as equity at the level of consolidated financial statements. After the promulgation of the new regulations, the differences between the original equity holders on the accounting treatment of REITs can be eliminated, and the clear presentation as equity can effectively reduce the asset-liability ratio of the original equity holders and increase the enthusiasm of the original equity holders to issue public REITs.
He said that in the past three years of operation of China's public REITs market, the total scale of initial offering and expansion has exceeded 100 billion yuan, and compared with the scale of China's infrastructure construction, there is huge room for market improvement. The introduction of the new regulations is expected to further encourage private enterprises to broaden their financing channels and participate in the issuance of public REITs.
From the perspective of investment, the implementation of the new regulations will make the long-term allocation value of REITs more prominent. Liu Jian said that the accounting treatment of REITs as equity instrument investments satisfies the prerequisites for its designation as FVOCI, which may benefit long-term investors in REITs. Accounting Standard for Business Enterprises No. 22 - Recognition and Measurement of Financial Instruments stipulates that at the time of initial recognition, an enterprise may designate an investment in non-trading equity instruments as a financial asset measured at fair value through other comprehensive income (FVOCI). It can be seen that REITs designated as FVOCI must meet two conditions: "equity instrument" and "non-tradable". The determination of "transactional" in the standard mainly considers the purpose of holding and profit model, which indicates that REITs investors whose main purpose is to obtain dividend returns for long-term holding can designate REITs as FVOCI in subsequent investments.
Enhance the asset allocation value of REITs.
Specifically, Liu Jian said that the impact of the implementation of the new regulations is: first, to stabilize the investment logic of the REITs market and enhance the value of asset allocation. In the past period, the REITs market has experienced great fluctuations, and many investors' income statements have been impacted and passive trading behaviors have been triggered, and the logic of long-term value investment has been affected. The clarification of the equity attributes of REITs will improve investors' tolerance for short-term product fluctuations and guide investors to develop in the direction of long-term holding. At the same time, long-term investors will play the role of ballast in the capital market, play an active role in stabilizing the secondary market of REITs**, and enhance the allocation value of REITs assets.
The second is to attract more potential investors to enter the market and inject liquidity into the market. The clarification of equity attributes is not only based on the accounting treatment, but also the regulatory level to re-clarify the characteristics of REITs, which are defined as special equity products. Before the issuance of the new regulations, there was controversy in the market about the positioning of REITs products, believing that they have the characteristics of both debt assets and equity assets. After the release of the new rules, it may enhance the attractiveness of REITs to investors who prefer equity products.
The third is to improve the investor structure of the REITs market and promote the stability and improvement of the market. The introduction of new regulations can slow down the performance fluctuations of long-term capital holding periods, which is beneficial to non-trading investors who pursue long-term stable value such as industrial investment, insurance, social security**, and brokerage proprietary trading.
At the same time, Liu Jian believes that considering that it takes time for all kinds of investors to interpret the new regulations and adjust the internal investment structure, investors should remain rational in this round of the REITs market, pay more attention to the operation of the underlying assets and the performance of REITs products, and avoid short-term speculation that deviates from the value such as chasing up and down. Managers of public REITs should speed up the construction of the investment and research system, do a good job in cultivating and guiding investors, and jointly explore the reasonable investment value of the market. It is believed that the regulator will also pay close attention to the implementation of the new regulations and give guidance on the method of dividend splitting in a timely manner. At the same time, managers should also continuously improve the quality of information disclosure, attach importance to investor relations, and work with all parties involved to promote the healthy and orderly development of China's REITs market.