Ping An View:
Driven by liquidity, market sentiment, policy support and relevant sectors, the performance of the first batch of public offering REITs is getting better. After the first nine REITs were listed, they were first restrained and then increased. By the end of 2021, the total market value had increased by 17% compared with the issuance scale, significantly outperforming A-Shares in the same period, especially environmental protection and warehousing and logistics REITs. REITs performed better mainly due to: 1) the central bank’s RRR reduction in July brought improved liquidity; 2) the market’s risk aversion improved in September and October, and the stable income value of REITs was highlighted; 3) the policy continued to support. In November, it was clear that venture capital invested in REITs and boosted market confidence; 4) the A-share logistics and transportation sectors showed better performance.
The performance of the first batch is better, the supply of the second batch is limited and the assets are better, which promotes the hot issuance of the second batch of REITs. The second batch of REITs is hot, and the subscription multiple and subsequent share price increase are better than those of the first batch, mainly because: 1) the first batch of REITs have performed well after listing; 2) The types of participating institutions are more diverse, and the proportion of insurance in the second batch of placement is significantly higher than that in the first batch; 3) In the second batch, only two products were issued and the supply was limited; 4) The second batch of REITs is also of high quality. Among them, Beijing Beijing Centergate Technologies (Holding) Co.Ltd(000931) where the REIT of CCB Beijing Centergate Technologies (Holding) Co.Ltd(000931) Industrial Park is located is a high-quality industrial park in China, with strong headquarters economy and technology industry strength, the rental rate of underlying assets remains above 90%, and the expected distribution rate is also higher than that of the first batch of industrial parks REITs; Hanxiao expressway, the bottom asset of REIT of Huaxia Yuexiu expressway, is an important traffic line of Wuhan, the “thoroughfare of nine provinces”. Under the impact of the epidemic, the traffic volume continues to grow, and the expected distribution rate is higher than that of Guangzhou Guanghe REIT.
The applicable valuation methods of property rights REITs and management rights REITs are different, and the cash distribution rate is lower than that of Hong Kong stock REITs. REITs valuation methods include absolute valuation method (cash flow discount, IRR) and relative valuation method (cash distribution rate, P / FFO). The influencing factors of valuation include risk-free interest rate, market risk preference, underlying asset quality, etc. there are differences in asset concerns in different industries. Different from property rights, absolute valuation method and relative valuation method can be adopted. Franchising rights are more suitable for absolute valuation method because there is a clear income period and the service life of each asset is different, especially when there is a horizontal comparison between REITs. Assuming an average annual growth of 3% in the amount available for distribution in the future and an increase in the value of assets due to property rights of 0, based on the market value at the end of 2021, the average IRR of 6 property rights REITs is 4.87% (of which Soochow Suyuan industrial REIT and Boshi Shekou Industrial Park REIT are the best), and the average IRR of 5 franchise rights REITs is 2.24% (of which AVIC Shougang lvneng REIT is the best). However, from the perspective of relative valuation method, the average cash distribution rates of property rights REITs in 2021 and 2022 are 3.45% and 3.43% respectively, while the average cash distribution rates of seven Hong Kong stocks in 2019 and 2020 are 4.9% and 6.1% respectively, and the distribution rate of Hong Kong stocks is higher.
Investment suggestion: with the launch of the pilot work of public infrastructure REITs, a total of 11 REITs in two batches were successfully issued. With high-quality underlying assets and considerable expected rate of return, REITs was sought after by investors, superimposed with loose liquidity and policy support, and the stock price performance of REITs became better after listing. Although the current rate of return of REITs is slightly less attractive than the overseas market, and China has not issued relevant tax incentives, in the long run, REITs has prominent value in accelerating the construction of China’s infrastructure, reducing the leverage of the real economy and meeting the investment needs of social capital. The general trend of future development is that we are optimistic about the follow-up development of public infrastructure REITs, It is recommended to pay active attention.
Risk tips: 1) due to the economic downturn or the lack of manager’s ability, the operation of basic asset projects is not enough
