Introduction: embrace the historic opportunity of infrastructure public offering REITs. Public equity REITs for infrastructure construction is a very important reform of investment and financing mechanism, and its impact and Reform on the construction industry (and other related industries) will surpass PPP in that year.
REITs and PPP: the macro background is similar, and the policies follow the same rhythm.
REITs and PPP are both important investment and financing mechanism reforms, which were born in the economic downturn cycle; At the same time, “steady growth” is constrained by financial factors such as the decline of fiscal revenue and the risk of local debt, which makes it difficult to expand credit. The plan of PPP is to introduce social capital participation; REITs is to revitalize the stock assets and return the funds for reinvestment.
2022 will be the year of accelerated release of REITs. Referring to PPP experience, it usually takes about two years from the introduction of landmark policies to the pilot of small batch projects and then to the launch of large batch projects. During this period, it will be observed that: 1) project standards change from tight to loose; 2) The enthusiasm of local / enterprise declaration has been improved. Since the introduction of REITs landmark document in 2020, the above trends have been observed: 1) the requirements of the industry and region of the project are relaxed, the requirements on whether the cash flow of the project includes government subsidies are relaxed, and the requirements on whether the project is profitable at this stage are relaxed; 2) Various localities have issued REITs supporting policies, and the national development and Reform Commission said that nearly 100 projects are in the stage of substantive promotion.
REITs and PPP: different financing mechanisms determine different outcomes.
PPP took only three years from the introduction of the landmark document in 2014 to the tightening of policies in 2017. It can start from the local PPP policy and can also be summarized as the “local PPP policy”; The main reason is that PPP only transfers leverage rather than eliminates debt. Through the way of “off balance sheet”, social capital makes its business expansion break through the constraint of debt ratio. In fact, it amplifies the macro debt risk, which is contrary to the original intention of the policy.
REITs are equity financing instruments, which raise equity funds through the secondary market, sell the stock assets in a market-oriented manner, and replace the project stock debt with equity funds; As REITs reduce the risk of government debt, its probability will not face the risk similar to the shift of PPP policy. On the other hand, REITs raise equity funds in the market. If the market gives a more obvious discount to the asset, it may affect the subsequent development of REITs market.
Will the release of REITs be cold in 2022? This concern should be analyzed under the framework of “asset shortage”: as of February 11, 2022, the cumulative average increase of 11 listed REITs since listing has reached 48%, mainly due to: 1) in the period of economic downturn, although liquidity remains abundant, it is difficult to expand credit; 2) The default risk of the original “high-yield and low-risk” assets is gradually exposed, and REITs effectively isolates the main risk of the original equity holders; 3) In terms of mechanism design, it emphasizes the high transparency of decision-making and finance, and forces a high dividend proportion, so as to effectively reduce the risk premium.
REITs have a significant impact on infrastructure investment and listed enterprises.
REITs will be an important variable of capital source of infrastructure investment and an important starting point of “wide credit”. With reference to 11 listed projects, the assessed price is about 71% higher than the book price; If all the recovered funds are used for reinvestment, REITs will leverage the infrastructure investment to be about 2.25 times of its fund-raising amount. Considering that nearly 100 REITs projects are in the stage of substantive promotion, we are confident in the acceleration of infrastructure investment throughout the year.
REITs for listed companies with huge operating assets will bring: 1) one-time revaluation of the book value of operating assets; The sale of the project can bring investment income; 2) For some construction enterprises, the marginal improvement of roe and FCFF can be observed; 3) Financing was improved, debt ratio constraints were reduced, and high growth was resumed.
Investment suggestion: with the intensive issuance of projects, it may bring 1) the expected upward revision of medium-term infrastructure investment growth; 2) The improvement of the statements of construction enterprises (thickening the income statement, improving asset turnover efficiency and improving cash flow) and subsequent expansion will break through the limitation of asset liability ratio. Attention: 1) the proportion of intangible assets in the statement is relatively high, which will directly benefit from China Communications Construction Company Limited(601800) , China Railway Construction Corporation Limited(601186) , Power Construction Corporation Of China Ltd(Powerchina Ltd)(601669) and China’s energy construction promoted by infrastructure REITs; 2) With the help of infrastructure REITs, subsequent expansion can break through China Railway Group Limited(601390) , China State Construction Engineering Corporation Limited(601668) , Metallurgical Corporation Of China Ltd(601618) , China National Chemical Engineering Co.Ltd(601117) limited by asset liability ratio.
Risk analysis: the operating performance of REITs project is lower than the expected risk, the market liquidity tightening risk, the market performance of REITs is lower than the expected risk, and the reserve / issuance of REITs project is lower than the expected risk.
