This week’s topic
On January 29, the Ministry of Finance and the State Administration of Taxation jointly issued the announcement on the pilot tax policy of real estate investment trusts (REITs) in the field of infrastructure, which optimized the tax links in the asset restructuring and issuance stage of public REITs. This week, we combed the public offering REITs policy and project income of China’s infrastructure.
Core view
Public REITs are expected to help accelerate the expansion of the market by welcoming the tax benefits again
By the end of 2021, a total of 11 public REITs projects had been issued and listed, covering key areas such as industrial parks, highways, sewage treatment, warehousing and logistics, waste incineration power generation and so on. A total of 36.4 billion yuan of funds had been sold, including about 16 billion yuan of net recovered funds for new investment and more than 190 billion yuan of total investment in new projects. At the same time, according to the statistics of the national development and Reform Commission, there are nearly 100 projects in the country that are substantially promoting the preparation for the issuance of infrastructure REITs.
The introduction of public REITs tax policy is expected to lower the issuance cost and further improve the enthusiasm of project declaration. The tax policy is optimized for the tax links in the asset restructuring and issuance stage of public REITs: ① the original equity holders are exempted from income tax in the asset restructuring stage, so as to solve the cash flow pressure of the original equity holders and smoothly promote the implementation of the project; ② The self owned part of the enterprise does not need to pay income tax, and it needs to be paid only when it is transferred abroad after the lifting of the ban; ③ The tax policy has been implemented since January 2021, that is, the listed pilot projects also enjoy the new tax policy. The underlying asset performance of public REITs is stable, and the net value of the fund has increased by more than 17% since the beginning of 2022
The income of public REITs is mainly divided into two parts: dividend income and the value growth of fund units. Therefore, its profitability can be observed from two aspects: the amount available for distribution and the increase of fund net value.
Public REITs have excellent assets and stable performance. Among the first nine public offering REITs, the distributable amount of six projects including Ping An Guangzhou Guanghe REIT achieved month on month growth in 2021q4, of which Hua’an Zhangjiang Everbright REIT ranked first, with a month on month growth rate of 31.48%. The three projects of Zhejiang merchants, Shanghai Hangzhou Ningbo REIT and Fuguo’s first water REIT were affected by the repeated regional epidemic and business attributes, resulting in a decline in the amount available for distribution in 2021q4.
The scarcity of assets promotes the premium, and the yield of eco-environmental protection targets is the best. The correlation coefficient between REITs and other investment instruments is low, and the asset allocation value is significant. There are only 11 public REITs in China. The scarcity further promotes the premium and drives the net value of public REITs to continue to grow. Comparing the REITs returns of different underlying assets, the net value of public REITs funds of ecological environmental protection, warehousing and logistics, industrial parks and highways has increased by 67%, 56%, 53% and 22% respectively since listing.
Investment advice
The introduction of public offering policies is expected to significantly improve the enthusiasm of public offering projects. With the successive implementation of public offering REITs policies and the continuous improvement of the system, some stock assets in the field of public environmental protection are expected to be revitalized through REITs. In terms of specific targets, the suggestions for sewage treatment targets focus on [capital shares], [ Bohai Water Industry Co.Ltd(000605) ], and the suggestions for power generation targets focus on [ Shenzhen Energy Group Co.Ltd(000027) ].
Risk tips: macroeconomic risk, policy and tax risk, basic assets and financial risk, initiator risk, covid-19 epidemic recurrence risk, liquidity risk, etc.
