REITs drive economic growth and revitalize development

An aerial view of a train traveling along the 11 railway line in Shanghai in August 2020. Local governments in the Yangtze River Delta region have taken advantage of infrastructure-related FPI products when researching new routes to revitalize their existing assets. [Photo/XINHUA]

Infrastructure real estate investment trusts (REITs), which have been deployed in China for over a year, are receiving increasing attention from mature investors and local governments, facilitating the country’s high-quality economic growth. , officials and experts said.

REITs offer another way to invest in income-producing real estate. Similar to mutual funds, REITs allow investors to earn dividends on real estate investments in projects such as offices, industrial parks or highways without having to buy or manage the project.

Institutional investors have shown a lot of interest in placing a strategic investment in REITs, with the new economy-themed REIT issued by Guotai Junan Securities Asset Management on September 20 as one of the best examples. With a plan to issue 500 million shares at a price of 3.035 yuan ($0.422) each to raise a total of 15.18 billion yuan, the product received nearly 12.4 billion shares of subscriptions. In other words, investors make a bid with a total of 37.5 billion yuan to get a fair share of the REIT.

The underlying assets of Guotai Junan’s new REIT – an industrial park in Shanghai’s Jinshan district and three others in Kunshan, Wuxi and Changzhou in Jiangsu province – are the main reasons for investor lawsuits, Zhang Zheng said. , deputy director of the Guanghua School of Management. at Peking University.

As Zhang further explained, the weighted average lease term of the four industrial parks is between 6.47 and 7.37 years, according to public information. Rents are estimated to be rising 3-5% a year, showing strong resilience in long-term growth, he added.

Shanghai-based infrastructure solutions provider DNE Group manages the operation of the four industrial parks. According to DNE Chairman and CEO Sun Dongping, most of the parks’ tenants are “new economy companies” specializing in precision instruments, automotive equipment, information technology, new materials, environmental protection equipment and biomedicine, whose main activities are fully in line with Chinese policy. development strategies.

Additionally, all four industrial parks had all space leased as of June 30. No tenant terminated the lease earlier this year when a resurgence of COVID-19 cases hit parts of the country, Sun said.

As Zhang from Peking University further explained, smart or high-end manufacturers in DNE’s four industrial parks usually invest heavily in facilities and equipment before getting started. In addition, they are more dependent on neighboring logistics networks and supply chains, which means that these companies tend to be more stable in terms of lease renewals, which can translate into stable earnings for investment REITs. resulting infrastructure, he added.

The DNE REIT product was introduced at a time when local governments in the Yangtze River Delta region are looking for new avenues to revitalize existing assets in the region to ensure high-quality development.

According to the second batch of policies jointly issued by the local governments of Jiangsu and Zhejiang and Shanghai provinces in mid-September to advance the integrated development of the Yangtze River Delta region, REIT products should be deployed in infrastructure sectors including transport, water conservation, environmental protection, logistics, industrial parks and subsidized rental housing.

“The capital market should serve as an important link for cross-regional project management models to be nurtured,” said Hua Yuan, deputy secretary general of the Shanghai municipal government.

Sun of DNE said local government support is crucial for the successful release of REITs, as they require concerted efforts from government departments spanning tax services, natural resources, land registration and more.

The first batch of nine Chinese REITs began trading on the Shanghai and Shenzhen stock exchanges on June 21, 2021.

Public data shows that a total of 17 REITs had been listed on the Shanghai and Shenzhen stock exchanges by the end of August, raising nearly 58 billion yuan. While these REITs covered the logistics, warehouse and clean energy sectors, among others, highways and industrial parks account for the majority of the underlying assets, accounting for 51.4% and 17.2% respectively. of REITs issued in terms of total financing.

Li Chao, vice chairman of the China Securities Regulatory Commission (CSRC), said Aug. 31 that REITs are an integral part of the capital market. The maturity of REITs will help complement the country’s overall investment and financing mechanisms and deepen supply-side reform in the financial sector, he said.

The CSRC, the country’s top securities watchdog, together with the National Development and Reform Commission, issued a total of 10 measures in late August to ensure “standardized issuance” of REITs, including giving the green light for REITs based on projects by private companies. and promoting REIT legislation.

According to experts from professional services provider Deloitte, REIT trading has helped build a complete value chain linking initial investment, construction, operation, capital exit and reinvestment. The liquidity of an infrastructure project is significantly enhanced once it is included in REIT transactions, they said.

Zhang Yu, chief real estate analyst at China International Capital Corp Ltd, said trading REITs in the secondary market will help provide an additional channel to trade assets, increase market transparency, lead to rational pricing and stabilize the functioning of the market.

Lu Dabiao, executive vice president of the Shanghai Stock Exchange, said at the Tsinghua PBCSF 2022 Global Finance Forum in mid-April that the governance mechanism, market-making mechanism and information disclosure for REITs should be further optimized to promote operational efficiency of REITs. .

To facilitate the sustainable development of REITs in China, Mo Yifan, a fund manager of China Asset Management, suggested that social security funds, annuities and personal pension plan should be considered as participating in the REIT business, because long-term and valuable investments are beliefs shared by all.

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