【Editor's note】At the beginning of the year, Rise Real Estate Finance Institute will review the various seminars organized in the past year in the form of a series of articles, and sort out the views of participating institutions on the current situation and future trends of the industry. This is the second installment of this issue, focusing on transportation infrastructure.
Circular 958 "subdivides transportation infrastructure into toll roads, railways, airports, and port projects, and the transportation infrastructure REITs that have been issued so far are all expressway assets." In terms of amount, expressways are currently the largest category of China's REITs market, accounting for about 40% of the total market capitalization, and the scale of a single REIT is generally large, and fluctuations can easily affect the market.
Meet the Highway REITsinvestment value
Asset quality
The general experience of the highway industry is that the earlier it is built, the better the benefits; Projects that were completed and opened to traffic before 2010 are generally very profitable; The total mileage of the project completed and opened to traffic before 2005 is 370,000 kilometers, the average cost is only 30 million yuan, and the toll income of a single kilometer is 6 million yuan; During the "Eleventh Five-Year Plan" period (2006-2010), it was completed and opened to traffic 330,000 kilometers, with an average cost of 50 million yuan per kilometer, and a single kilometer toll of about 4.2 million yuan per year; "Twelfth Five-Year Plan" period 460,000 kilometers are opened to traffic, the average cost is 72 million yuan, and the single kilometer fee is about 2.7 million yuan per year. The general trend is that the unit cost is increasing, and the unit fee is decreasing.
At present, these expressway projects that are used to do public REITs are mature projects that were opened to traffic in the early days, and the assets themselves have a certain scarcity, and the profitability has been tested by the market and time.
Market reaction
The decline in performance caused by the epidemic is phased, and the data for the second quarter of 2023 has shown recovery and **, and the fundamentals are steadily improving, but these improvements have not been reflected in the secondary market in a timely manner, and the reasons may be many.
First, there is still the issue of investor structure. Investors have a high degree of homogeneity, and it is easy to converge in investment preferences and trading choices, and the negative news will be amplified, and in the illiquid market, the small selling behavior of some institutions may lead to a large increase; A large proportion of superimposed investors are fixed income investors, whose stop-loss line settings are more conservative than equity investors, and triggering the stop loss will trigger a larger **, which leads to a double stampede of trading and emotions. In this process, there are few active investors who dare to trade on the left, and market makers do not play the expected role. In addition to the original equity holders, there are also strategic investors who value the value of assets and platforms, and the original intention is to hold them for a long time, but passively bear floating losses or stop loss exit. These institutions that have been investing in REITs since the early stage should be the most optimistic about REITs and the most willing to innovate in the market, and their willingness to invest will be reduced, which will lead to the deterioration of the market ecology, which needs to be solved urgently.
Second, investors on highway REITsThere is a lack of buy-in and confidence in the valuation pricing. Due to the small scale of the REITs market, most investment institutions do not set up a special investment research team from the perspective of cost performance, but mainly work part-time, and the various human, financial and material resources that can be invested are relatively limited. In contrast, the expressway industry itself is more complex, there are many parameters used in valuation, and the data of the transportation industry is generally difficult to obtain, even if only the value of the full-cycle IRR is calculated, many parameter assumptions for future long-term scenarios are still used, and the adjustment of one parameter assumption may lead to a large change in the IRR. As a result of the above contradictions, investors generally believe that highway REITs lack a market-recognized pricing anchor, and have doubts about the pre-issuance valuation and the pricing of subsequent transactions, but there is still no consensus on how to create this anchor.
Shaping highway REITsHigh-dividend stock positioning
In March 2023, the Rise Research Institute raised the issue of the divergence between the trend of expressway REITs and expressway listed companies, that is, after the fourth quarter of 2022, expressway REITs**, but the stock prices of comparable expressway listed companies in the same period were generally **, indicating that REITs** cannot be simply attributed to factors such as the epidemic and toll reduction. In addition to the lack of liquidity of REITs, it is also necessary to dig deeper into the differences between listed companies and REITs, which will provide more inspiration for the construction of the REITs market
First, the asset portfolio of expressway listed companies is multiple projects, which are more regionally dispersed and even more diversified in terms of business formats. The multi-asset portfolio weakens investors' concerns about issues such as the expiration of the operating rights of a single project, and also dilutes the impact of performance fluctuations of a single project on the overall value, which highlights the necessity and urgency of accelerating the expansion of REITs.
Second, highway listed companies have successfully established a large-scale, liquid, defensive, anti-inflation, high-dividend stock product positioning in the ** market. This positioning has been recognized by many equity investors, especially long-term funds, and has also been allocated to real gold. Although the dividend amount of highway REITs may be higher, it has not been fully allocated by long-term equity investors, which is in line with the above-mentioned information on the structure of investors, and the bottom layer is still the accounting method, risk factor provision, insufficient liquidity and other problems, which restricts investors' investment allocation of REITs and needs to be improved urgently.
Third, the valuation level of expressway REITs is generally higher than that of expressway listed companies, especially compared with high-speed companies listed on Hong Kong stocks, so REITs are theoretically more attractive to the original equity holders and are a good tool to enhance asset value discovery; Now that the secondary market continues to be in a state of overfall, the valuation level is lower than the cost of the original equity holder's M&A project in the primary market, and even lower than the development and construction cost.
Fully mobilize the enthusiasm of the original rights holders
Asset quality
Transportation companies generally attach more importance to REITs platforms and are also motivated. Many companies already have listed companies in A-shares or Hong Kong stocks, but they are still actively promoting the REITs platform, hoping to form a healthy multi-level capital tool, interact efficiently and collaboratively with the existing platform, enhance value discovery, and better serve the high-quality development of enterprises. The assets taken out are carefully selected, and the quality is generally excellent.
Expansion issues
The highway industry is more difficult to find assets that meet the issuance conditions, and the "Toll Road Regulations" have not been promulgated, resulting in the new project being difficult to recover costs within 25 years, and the old project with good returns has a reluctance to sell the mentality, and now the issuance is required to require the remaining life of the project and can not be less than 1 3, which may lead to the return rate of the new project can not meet the requirements of the issuance, and the good project life can not meet the requirements of the issuance, which comprehensively leads to the expansion of high-speed REITs is not as expected. If the term is allowed to be extended, the assets can be expanded**. It is recommended to promote the policy and market resources to favor public REITs with excellent market performance, encourage them to quickly load more high-quality assets, become bigger and stronger, and facilitate the attraction and undertaking of large-scale capital participation.
Positivity
It is suggested that consideration should be given to giving the original equity holders more substantive roles, further relaxing the use of funds, creating convenience for the smooth issuance of various capital instruments such as private equity and public REITs, making it easier to realize the linkage between the primary and secondary markets and the closed loop of capital, improving the enthusiasm of the original equity holders to participate in the market, and promoting more high-quality assets to enter the public REITs market.
Faucets with pricing
Accelerating the formation of leaders in different segments of REITs will help drive the overall improvement of the industry level, and can also be used as the main reference for the pricing of REITs in the same industry.
Allocate high-speed REITs for investorsCreate more convenience
Bookkeeping
Because the single scale of highway REITs is generally large, and the holding scale of investors is relatively large, such investors are more affected by stock price fluctuations, and the need for adjustment of bookkeeping methods is also more urgent. With the introduction of the latest accounting guidance No. 4 of the China Securities Regulatory Commission in February this year, while clarifying the equity attributes of REITs, investors are also given the right to choose the bookkeeping method according to the specific situation. However, unlike the "cost method valuation" that some institutions originally hoped for, the new guidelines still use fair value measurement, whether this fair value can be realized with ** net value or CSI China Bond valuation, etc., and how to split and recognize distributions as principal and dividends are all practical issues that the industry is more concerned about, and it is recommended to continue to pay attention to them.
Valuation methodology
Unlike property rights projects, which generally have large transactions in the primary market and capitalization rates as references, there is no active primary market for management rights projects, and the valuation depends more on the calculation of the IRR of the project's full cycle internal rate of return. Involving many parameter assumptions, due to the general difficulty in obtaining industry data, the future growth rate and other assumptions are not fully disclosed, and the disclosed business indicators are of different calibers, resulting in the inability of general investment institutions to calculate valuations, and lack of trust in the valuations given by other parties. It is recommended to promote market participants to form a valuation logical framework recognized by the industry, the frequency and scope of information disclosure can be increased but not excessive, and it is recommended to give priority to promoting the unification of the caliber of various business indicators in information disclosure, so as to facilitate investors to make horizontal comparisons between different REITs.
Industry construction
In addition to the above-mentioned bookkeeping methods and risk repayment factors, it is also recommended to strengthen the team and capacity building of various institutional investors in alternative investment, and guide institutional investors to evaluate the investment performance of long-term products in a longer period. In addition, the industry is encouraged to increase the tilt of investment and research resources for REITs, which will help reduce information asymmetry, so that investors can enhance their understanding and expectations of market changes and avoid overreaction.
Diversification of investors
Encourage the introduction of long-term funds, in enhancing market stability at the same time may reduce liquidity, it is recommended not to completely abandon the first funds, but to promote the diversification of the investor structure, focusing on the introduction of different risk appetite, different investment strategies of the type of funds, such as relative return and absolute return, institutional investors and natural person investors, domestic and foreign capital, trading and allocation, etc., so that REITs assets in different trends, different ** have more potential investors, Avoid insufficient liquidity caused by the convergence of a single transaction of investment institutions.
The above views are mainly based on the following activities:
From March to July 2023, Rise Research Institute held a variety of activities through various forms such as independently organizing closed-door seminars, cooperating with industry associations such as the China Highway and Transportation Society, and assisting regulatory authorities in holding symposiums, both for expressway enterprises and various investors, for valuation methods and for the secondary market, aiming to promote industry exchanges, find common problems, and promote solutions.
In 2023, Rise Research Institute organized a number of seminars, and successively invited representatives of REITs such as Shanghai-Hangzhou-Ningbo, China Railway Construction, Guanghe, Yuexiu, Anhui Traffic Control, and Jiangsu Traffic Control, and everyone put forward a lot of opinions and suggestions from the perspective of the original rights holders.
In June 2023, when the trend of the secondary market was the most turbulent, Rise Research Institute launched a special group of papers, inviting Professor Zhang Zheng of Guanghua School of Management of Peking University, Huajin ** Zhou Lei team, Taikang Asset Management Zhang Yucai and Ouyang Zhipeng, China Merchants ** trillion, Deloitte China Shi Xiao team and many other industry experts to write articles on the secondary market, especially high-speed REITs, and the investment value.
In January 2024, at the 2023 year-end summary meeting of infrastructure REITS hosted by Rise Research Institute, Pan Yongqiang, executive director and deputy general manager of Yuexiu Transportation, shared his experience as a representative of the original equity holder of REITs with outstanding comprehensive performance in the past five years.