Industrial park public offering REITs are officially listed, how long will it take to expand to real estate?

Public REITs are counter-cyclical tools, and state-owned assets currently occupy the mainstream position

Since public REITs (Real Estate Investment Trusts) were launched in the United States in the 1960s, more than 40 countries (regions) have issued such products, and their investment fields have expanded from the initial real estate to hotel shopping malls. , Industrial real estate, infrastructure, etc., have become mature financial products that specialize in real estate investment.

Public offering REITs are simply an IPO of assets. Since 2020, the National Development and Reform Commission, the China Securities Regulatory Commission and the Shanghai and Shenzhen Stock Exchange have successively issued regulatory guidance documents and business implementation rules, officially launching the pilot work of publicly offered REITs. The pilot public offering REITs focus on the field of infrastructure, with high-quality project assets as the investment target, which can transform the most valuable and stable investment return stock assets in the domestic market into financial products with low investment thresholds, convenient investment transactions, and open information disclosure. Provide investors with reasonable and stable long-term returns.

On June 21, 2021, China’s first batch of 9 infrastructure public offering REITs were officially listed on the Shanghai and Shenzhen Stock Exchanges, which means that the era has been cut-the incremental era has passed, and the stock era has officially arrived and is heading towards a high point.

According to the “Research on the Innovation and Development of China’s Infrastructure REITs” by the Guanghua School of Management, Peking University, the scale of China’s infrastructure stock exceeds 100 trillion. If only 1% is securitized, it can support a 1 trillion-scale infrastructure REITs market.

This article will analyze public REITs from the macro, meso, and micro perspectives, and make judgments on the market prospects of public REITs.

01

Public offering REITs are countercyclical tools

2020 is called the first year of my country’s public offering REITs. In fact, we have been exploring long-distance running for 13 years before officially kicking off.

2007-2008: Regulatory authorities began to promote REITs pilot projects

In January, April, and August 2007, the REITs research groups of the People’s Bank of China, the China Securities Regulatory Commission and the China Banking Regulatory Commission were established respectively, and the various regulatory authorities started the promotion of the construction of China’s REITs market;

In March 2008, the China Banking Regulatory Commission clearly “encourage real estate investment trust funds to conduct business”;

In December 2008, the General Office of the State Council successively issued documents No. 126 and No. 131 concerning the promotion of financial development and the healthy development of the real estate market, clearly proposing to carry out REITs pilot projects.

2009-2011: REITs product launch and market construction entered a stage of rapid advancement

March 2009, the People’s Bank in conjunction with the relevant ministries to report “on the State Department to open exhibition room asked the pilot estate investment trust fund.” In April of the same year, the “Real Estate Investment Trust Fund Pilot Working Group” was formally established. Zhou Xiaochuan, Governor of the People’s Bank of China, served as the team leader, leading 11 ministries and commissions to promote;

In March 2010, the Executive Council of the People’s Bank of China reviewed and approved the pilot management measures for inter-bank REITs. The People’s Bank of China submitted the pilot management measures and the project briefings for the three pilot cities of Beijing, Tianjin and Shanghai to the State Council.

From 2012 to 2019: Policies promoted a substantial acceleration, and pilot projects were issued one after another

In 2012, the original Tianjin low-rent housing REITs project was restarted, and it was successfully issued on August 24 of that year in the form of asset-backed notes;

On January 14, 2015, the Ministry of Housing and Urban-Rural Development issued the “Guiding Opinions on Accelerating the Cultivation and Development of the Housing Rental Market” to actively promote (REITs) pilot projects;

On April 25, 2018, the China Securities Regulatory Commission and the Ministry of Housing and Urban-Rural Development issued the “Notice on Promoting the Securitization of Housing Rental Assets” to promote the securitization of housing rental assets and promote the development of the housing rental market;

In March 2019, the joint research team of the National Development and Reform Commission and the China Securities Regulatory Commission successively investigated and solicited opinions in Haikou, Shanghai, Guangzhou, Hangzhou, and Beijing.

2020-present: public offering REITs landed

Table: Timetable for the implementation of public REITs from 2020 to now

Industrial park public offering REITs are officially listed, how long will it take to expand to real estate?

Data source: public information

As an important measure for the capital market to serve the national strategy and the development of the real economy, the pilot infrastructure public offering REITs was launched on April 30, 2020, and will be officially listed on June 21, 2021. The progress is very fast. From a macro perspective, the rapid implementation of publicly offered REITs is not only a necessity for social and economic development, but also a certain accident.

Inevitably, my country’s railway operating mileage has reached 140,000 kilometers, ranking second in the world; high-speed rail is 36,000 kilometers, ranking first in the world; the national highway mileage exceeds 5 million kilometers, ranking first in the world; urban rail operating mileage exceeds 6,700 kilometers, A huge infrastructure stock market has been formed.

Occasionally, publicly offered REITs themselves are a counter-cyclical tool. When the economy is good, it is generally driven by consumption and exports. When the economy is bad, it needs more investment drive. When investment is needed, funds need to be introduced. In 2020, affected by the epidemic, global economic growth will be weak. REITs are not only an innovation to open up investment and financing mechanisms, but also an important starting point for expanding domestic demand and developing a “dual cycle” pattern. They will promote the revitalization of the infrastructure market and expand infrastructure construction projects. Sources of funds, optimizing the debt structure of market entities, will ultimately serve the real economy.

02

Project state-owned assets occupy the mainstream position

The first batch of 5 publicly offered REITs projects on the Shanghai Stock Exchange cover four major infrastructure types including toll roads, industrial parks, warehousing logistics and sewage treatment, covering key areas such as Beijing-Tianjin-Hebei, the Yangtze River Economic Belt, Guangdong-Hong Kong-Macao Greater Bay Area, and the Yangtze River Delta.

The first batch of 4 publicly-funded infrastructure REITs on the Shenzhen Stock Exchange are Shougang Green Energy , Shekou Industrial Park, Guangzhou Guanghe and Yangang REIT. The underlying infrastructure projects are located in the two key integrated development areas of Beijing-Tianjin-Hebei and Guangdong-Hong Kong-Macao, covering waste treatment and Four major infrastructure areas such as biomass power generation, industrial parks, toll roads and warehousing and logistics.

Table: Status of the first batch of publicly offered REITs

Industrial park public offering REITs are officially listed, how long will it take to expand to real estate?

Data source: public information

From the perspective of the nature of the business. China Merchants Shekou , Zhangjiang Hi-Tech, Suzhou Industrial Park, including Lingang Group and Donghu Hi-tech, etc., which were officially listed for trading, are almost all state-owned enterprises. This is not surprising. According to the requirements of the local Development and Reform Commission, companies issuing public REITs need to have room for expansion, and the funds raised must also promise to return 100% of the funds to the local area. It is difficult for private enterprises and purely market-oriented companies to accept or have conditions. To fulfill this point, only local state-owned enterprises have this ability and willingness.

According to the requirements of the National Development and Reform Commission, infrastructure public offering REITs mainly consider projects located in the Beijing-Tianjin-Hebei, Xiongan New Area, the Yangtze River Economic Belt, the Guangdong-Hong Kong-Macao Greater Bay Area, the Yangtze River Delta, Hainan and other major national strategic areas, or located in the approved establishment of the State Council Projects within the scope of national-level new districts and national-level economic and technological development zones. The “China Development Zone Audit Announcement Catalogue (2018 Edition)” includes 2543 development zones, including 552 national development zones and 1991 provincial development zones; in addition, the National Development and Reform Commission’s “Regarding Accelerating the Construction of Strategic Emerging Industrial Clusters” There are still 66 national-level strategic emerging industry clusters announced in the “Notice of Work”.

Table: Name and quantity of important industrial parks

Industrial park public offering REITs are officially listed, how long will it take to expand to real estate?

Data source: public information

As long as they meet the operating conditions of REITs assets (such as maintaining overall profitability or positive operating net cash flow in the past 3 years), the specific business types in these specific development zones or industrial clusters may be listed in the future.

03

Profitability becomes the decisive factor

The first batch of 9 publicly offered REITs includes 3 industrial parks, 2 toll roads, 2 warehousing and logistics, 1 municipal facilities, and 1 pollution treatment. The following focuses on the analysis of the underlying assets of 3 industrial parks.

Bosera China Merchants Shekou Industrial Park

The China Merchants Shekou Industrial Park project is located in Shekou Wanggu Industrial Park, Shekou Industrial Zone, Shenzhen. Wanggu Industrial Park is the flagship product of China Merchants Shekou Industrial Park. It is located in Shenzhen, Jiangsu, Nanjing, Shandong Qingdao, Hubei Wuhan and other core cities. Shekou Wanggu, located in Nanshan District, Shenzhen, is particularly high-quality. The predecessor of Shenzhen Shekou Net Valley, Shekou Industrial Zone, is China’s first export-oriented economic development zone and industrial park. Shekou Net Valley has achieved industrial upgrading and promoted unit area by transforming the original industrial plant into a base for scientific research and development, innovation and entrepreneurship. A substantial increase in output value. The scale of Shekou Wanggu increased from the initial 30,000 square meters to the current 420,000 square meters, and the output value per square meter increased from 2,000 yuan to 100,000 yuan, and the total annual output value reached 40 billion yuan; it introduced about 450 customers and absorbed the employed population. More than 30,000 people. The Shekou Net Valley industry has achieved remarkable results. It has successively cultivated 17 listed companies and NEEQ companies ( Guanghetong, Chipsea Technology , Kemai, etc.).

Table: Specific Projects of Shekou Industrial Park

Industrial park public offering REITs are officially listed, how long will it take to expand to real estate?

Data source: prospectus

Zhangjiang Everbright Park

Zhangjiang Everbright Park is located in Lane 500, Shengxia Road, China (Shanghai) Pilot Free Trade Zone, in the core area of ​​Zhangjiang High-tech Park, a national high-tech industrial park. The land used for the project is industrial M1. With good regional advantages, industrial supporting facilities and convenient transportation, it attracts integrated circuits, advanced manufacturing, online economy, financial technology and industrial service supporting facilities, which are in line with major national strategies, macro-control and industrial policies, High-quality enterprises in the industry with development plans settled in. The average occupancy rate of Zhangjiang Everbright Park at the end of 2017 was 96.29%, and the average occupancy rate at the end of 2018 was 74.13% (the occupancy rate decreased slightly due to the active adjustment of the tenant structure that year), and the average occupancy rate at the end of 2019 was 97.39%. As of the end of 2020, Zhangjiang The occupancy rate of Everbright Park remained stable at around 99.51%.

Table: Specific Projects of Zhangjiang Everbright Industrial Park

Industrial park public offering REITs are officially listed, how long will it take to expand to real estate?

Data source: prospectus

Soochow Suzhou Industrial Park Industrial Park

Area B of Phase V of International Science Park and Phase I and Phase II of 2.5 Industrial Park are located in Suzhou Industrial Park, Suzhou City. Suzhou Industrial Park is located in the hinterland of the Yangtze River Delta, at the intersection of the Yangtze River Economic Development Zone in China’s coastal economic open area. As the country’s first development zone for Sino-foreign central government-level cooperation, it has a significant brand effect and is well-received by China, Singapore and Jiangsu Province. With the special support of Suzhou municipal governments at all levels, many special preferential policies have been awarded. The park has gradually formed a “2+3” characteristic industrial system with “electronic information and machinery manufacturing” as the two leading industries, and “biomedicine, artificial intelligence, and nanotechnology applications” as the three strategic emerging industries. As an endogenous part of economic development and regional construction, it lies in characteristic advantages.

Table: Specific Projects of Soochow Suzhou Industrial Park

Industrial park public offering REITs are officially listed, how long will it take to expand to real estate?

Data source: prospectus

In accordance with the requirements of the National Development and Reform Commission, the underlying asset formats of publicly-raised REITs in the park are R&D, innovative design and pilot test platforms, industrial plants, business incubators and industrial accelerators, industrial development service platforms and other park infrastructures, and shall not include industrial projects and commercial real estate projects. However, judging from the format of the first batch of publicly-raised REITs in industrial parks, almost all of them are low-density office buildings, with relatively insufficient production attributes and industrial attributes.

The successful listing and trading of publicly offered REITs in 3 single industrial parks is mainly due to the good profitability of the underlying assets. Take Shekou Industrial Park as an example. From 2018 to 2020, the operating income of Wanrong Building and Wanhai Building will be 133,275,400 yuan, 131,822,700 yuan, and 114,932,700 respectively, and after-tax net profits will be 61,374,200 yuan, 65,360,900 yuan, and 5,352.66 yuan respectively. Ten thousand yuan. In 2020, due to the new crown epidemic, rent reductions and exemptions for tenants, revenue and profits have declined, and overall revenue and profits have remained stable. On the contrary, last year Donghu High-tech planned to use Wuhan Software New City to apply for the first batch of public offering RETTs, but it was not approved in the end, or the profitability of Wuhan Software New City was worrying. The financial report shows that Wuhan Software New City’s operating income in 2019 reached 276 million yuan, and the net profit reached 271 million yuan. Among them, the investment income from the disposal of long-term equity investments contributed up to 354 million yuan in profits. From January to July 2020, Wuhan Software New City’s revenue reached 26.32 million yuan, and the net loss was about 32.68 million yuan.

The launch of public REITs funds is to broaden financing channels, enrich financing methods, and hope to reduce debt risks through the capital market, and mobilize funds from the whole society to serve economic construction.

From a macro perspective, among the three major investments in 2020, infrastructure investment will increase by 0.9% year-on-year, manufacturing investment will fall by 2.2% year-on-year, and real estate development investment will increase by 7.0% year-on-year. Real estate development investment has become the main force driving investment;

From a meso level, of the total national tax revenue in 2020, state-owned holding companies will contribute 24.3%, foreign-related companies will contribute 16%, and all private companies will contribute 59.7%. Private companies are the largest contributor and a huge driving force for investment;

From a micro level, some commercial real estate and rental housing also have good profitability. According to global experience, REITs were first concentrated in commercial real estate and have always maintained a relatively high share. The establishment of a long-term mechanism for my country’s real estate market has become a national Strategically, the development of rental housing has become the main direction, and holding real estate REITs based on rental housing and commercial real estate will also have a larger space for development.

At present, the public offering of infrastructure REITs has begun. How far will the underlying assets of public offering REITs expand to real estate in the future?

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