On May 30, 2022, the State Council issued the "Opinions on Further Revitalizing Stock Assets and Expanding Effective Investment", proposing to further revitalize stock assets and encouraging more REITs projects to be issued and listed.

Encourage more REITs to issue and list

The General Office of the State Council issued the "Opinions on Further Revitalizing Existing Assets and Expanding Effective Investment" (Guo Ban Fa [2022] No. 19, referred to as "Guo Ban Document No. 19"), proposing to further improve the efficiency of recommendation and review, and encourage more qualified applicants Infrastructure REITs projects are issued and listed; at the same time, relevant policies to support infrastructure REITs are implemented in detail.

The State Office No. 19 document first clarified the key areas for revitalizing stock assets. The first is to focus on revitalizing infrastructure project assets with large stock scale, good current income or large growth potential, including transportation, water conservancy, clean energy, affordable rental housing, water, electricity and heat and other municipal facilities, ecological and environmental protection, industrial parks, Warehousing and logistics, tourism, new infrastructure, etc. The second is to coordinate the revitalization of existing project assets and the organic combination of reconstruction and expansion, including the reconstruction of comprehensive transportation hubs, and the retreat of industrial enterprises into parks. The third is to orderly revitalize project assets that have been idle for a long time but have great development and utilization value, including old factories, cultural and sports venues, and idle land, as well as non-main business assets such as hotels, restaurants, and nursing homes run by state-owned enterprises.

Article 4 of the State Office Document No. 19 pointed out, “Further improve the efficiency of recommendation and review, and encourage the issuance and listing of more eligible infrastructure real estate investment trust fund (hereinafter referred to as infrastructure REITs) projects. For projects that play an important role in stabilizing and strengthening people's livelihood security, under the premise of meeting issuance requirements, meeting market expectations, and ensuring that risks are controllable, etc., requirements such as operating years and income concentration can be further flexibly and reasonably determined. Establish and improve the fundraising mechanism, Explore the establishment of a multi-level infrastructure REITs market. If the issuance of infrastructure REITs by state-owned enterprises involves the non-public agreement transfer of state-owned property rights, it shall be reported to the state-owned assets supervision and administration agency at the same level for approval. Research and promote REITs-related legislative work.”

Article 14 of State Office No. 19 clarifies: “For key projects that meet the conditions for revitalizing existing assets and have a relatively large tax payment, tax authorities at all levels shall provide services and publicity to guide enterprises to pay taxes in accordance with laws and regulations. Under the policy framework, it will help to revitalize the stock assets.”

Article 18 of State Office Document No. 19 clearly states: "All projects to issue infrastructure REITs shall comply with the relevant requirements of major national strategies, development plans, industrial policies, investment management regulations, etc., to ensure project quality and prevent market risks."

Article 20 of the State Council Document No. 19 mentioned: “Ensure that the investor can introduce or set up an operation and management institution with strong capabilities and rich experience after taking over, and maintain the stable operation of infrastructure” and “promote infrastructure REITs fund managers to cooperate with each other.” The operation management institution shall improve the operation mechanism and better play the professional role of the original stakeholder in the project operation and management."

Infrastructure REITs issuance expected to enter the fast lane

The reporter noticed that the pilot project of infrastructure REITs has been progressing efficiently. It took less than 8 months from the application of the first batch of 48 pilot projects to the public listing of 9 products. At present, 16 projects have been recommended by the National Development and Reform Commission to the China Securities Regulatory Commission, 12 projects have been listed on the two exchanges and are operating steadily, and many projects are in the process of application and evaluation.

A REITS industry insider said that the State Council's heavy launch of the "Opinions on Further Revitalizing Stock Assets and Expanding Effective Investment" is not only an affirmation and summary of my country's infrastructure REITs pilot work in recent years, but also new requirements and hopes for the future. This is following the April 2020 "Notice on Promoting the Pilot Project of Infrastructure REITs", and the March 2021 "Infrastructure Real Estate Investment Trust (REITs)" development officially included in the "Fourteen Five-Year Plan Outline". After the national strategic level, the third milestone document on the development of infrastructure REITs is the first time at the State Council level to make clear and specific arrangements and requirements for the development of REITs, which is of great significance to inherit the past and usher in the future.

"The State Council Document No. 19 emphasizes further encouraging the issuance and listing of more eligible infrastructure REITs projects, and the issuance of infrastructure REITs is expected to enter the fast lane in the future." The above-mentioned REITS industry insiders mentioned.

An administrative person in charge of the public infrastructure and real estate investment department said that this policy links the revitalization of stock assets with the expansion of effective investment work, which fully demonstrates the importance of the current stock revitalization work. Moreover, the policy also clarified the key direction to focus on revitalizing stock assets. From the perspective of policy expectations, REITs, which have been widely used in many infrastructure fields, are of great significance for effectively revitalizing existing assets, forming a virtuous cycle of existing assets and new investment, broadening social investment channels and reducing corporate debt levels.

Taking the REITs project as an example, the Guanghua School of Management of Peking University released the "Research on the Innovation and Development of China's Infrastructure REITs" and estimated that the scale of China's infrastructure stock exceeds 100 trillion yuan. If only 1% is securitized, it can support 10,000 yuan. billion-scale infrastructure REITs market.

The largest increase of nearly 40% since the first batch of publicly offered REITs went public

A REITs fund manager said that the popularity of the public REITs market has also attracted more and more government departments, original rights holders, and financial institutions to participate, hoping that more high-quality projects will be issued and listed. "State Council Document No. 19" fully reflects the enthusiasm and voice of the market, and also puts forward higher requirements for pilot project recommendation and review efficiency.

The reporter noticed that since the first batch of 9 products were approved on May 17, 2021, it has been one year since the pilot of public REITs was launched. With the steady development of public REITs, the number of products of the same type has now been expanded to 12. At present, 12 public REITs under 11 fund companies have been listed one after another, and the fundraising scale has reached 45.812 billion yuan. Among them, China Communications Construction REIT, which will be launched in 2022, has attracted more than 150 billion yuan of funds. Among them, the scale of issuance to public investors set a new record for the first public offering of funds with a placement ratio of 0.84%.

In terms of performance, under the circumstance of a substantial market adjustment in 2022, the performance of publicly offered REITs since their listing is also remarkable. According to the data, as of May 25, the first batch of 9 publicly offered REITs had an average increase of 18.91% since their listing. Among them, Fuguo Capital Water REIT temporarily ranked first with an increase of 37.60%. In addition, AVIC Shougang Green Energy REIT, Hongtu Yantian Port REIT, and CICC ProLogis REIT have increased by 26.61%, 26.02%, and 21.99% respectively since their listing.

CCB Fund stated that since 2022, the secondary market price of my country's publicly offered REITs has fluctuated greatly, the characteristics of "shares" are more obvious, and some projects have risen sharply. According to CCB Fund, the source of income of publicly offered REITs is divided into two parts, namely the annual dividend distribution and capital gains at the secondary market price. The value of the dividend-paying part in the comprehensive income of publicly offered REITs can only be fully demonstrated under the premise of long-term holding to give full play to the gain; Short-term volatility is high. At the same time, when public REITs increase too much in the secondary market, the cash flow distribution rate of the products will also be significantly reduced, and the expected price fluctuations will also increase.

It is worth noting that public REITs are still expanding, and there are currently 4 projects that are expected to relay the issuance of public REITs. According to the website of the Shanghai Stock Exchange, there are 2 expressway REITs, namely "Huatai Zijin Jiangsu Traffic Control Expressway Closed Infrastructure Securities Investment Fund" and "Guojin Railway Construction Chongqing Yusui Expressway Closed Infrastructure Securities Investment Fund". "Accepted" and "Feedback". The Shenzhen Stock Exchange website shows that there is one power generation project, which is "Penghua Shenzhen Energy (Clean Energy Closed Infrastructure Securities Investment Fund", and the project status is "inquired".

Wang Qiaochu, REIT fund manager of Bosera China Merchants Shekou Industrial Park, said that public REITs are popular. On the one hand, the regulatory policies are continuously favorable. In the beginning of 2022, the Ministry of Finance and the State Administration of Taxation have released pilot tax policies, and Beijing has released REITs pilot policies and declaration guidance. Handbook, followed by National Development and Reform and National Energy to promote clean and low-carbon energy to promote the pilot of public offering REITs, etc., investors are more confident in the future development of REITs, a new product, on the other hand, because the first and second batch of assets are very high-quality , but the circulation share is small, and the market is in short supply. In addition, the A-share market has continued to adjust recently, and investors are more inclined to allocate some products with relatively stable returns. Editor / Xu Shengpeng