Abstract

On June 21, 2021, the first batch of infrastructure REITs will be officially listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange respectively. Taking history as a mirror, we focus on Hong Kong REITs, to analyze its initial performance, discount, distribution rate of return and liquidity, so as to provide reference for domestic infrastructure REITs.

The price of REITs listed on the stock market rose on the first day in 2005, and the number of breakings has increased since then.The three REITs, listed in 2005 had the first batch of effects, investors chased after new investment varieties, and the effective subscription ratio was higher, thus driving up the price on the first day of listing.At the initial stage of listing, prices mostly go up first and then fall.Most REITs showed an upward trend one week or one month after listing, and prices fell three months after listing.

From the perspective of price-to-book ratio, Hong Kong REITs is mostly in a state of discount, that is, the price-to-book ratio is less than 1. The price-to-book ratio can be used as a reference factor for buying timing. Under the premise that the asset dividend remains good, the greater the range in which the price-to-book ratio is lower than the center, the better the opportunity to enter.

Distribution income is an important source of income for REITs holders. As the distribution rate of return is also affected by the market price of REITs, the simple distribution rate of return can not represent the comprehensive return of a REITs, but also need to consider the scale and growth of dividends per share and the change of market price.The leading real estate fund with the highest comprehensive return has the highest dividend per share and continues to grow, but due to the high market price, the distribution yield is at a low level, only 3.5% and 4.5%. The distribution returns of hotel tycoon industrial trust (01881) and Kaiyuan industrial trust (01275) are higher, but their dividends per share and market price are lower.

Looking forward to the listing of domestic Infrastructure REITsThe enthusiasm of investors is very high. The effective subscription ratio of Shougang Green Energy and Fuguo's first water service is more than 60 times, and the lowest Soochow Suyuan is also more than 10 times.Therefore, the probability of breaking on the first day of listing may be relatively small.There may be some products that increase by more than 10% or even 20% on the first day.For a period of time after listing, infrastructure REITs prices may also be similar to the initial performance of Hong Kong REITs listing, showing a rise and then decline, do not rule out the situation where the market capitalization is lower than the asset valuation.

As the net value of infrastructure REITs funds is measured by the cost method, judging the discount and buying time is no longer the price-to-book ratio, but the comparison of market value and asset valuation.The net value of the fund is not affected by the valuation of the underlying assets, and the reference value to the secondary market price is weak. The valuation of basic assets reflects the changes in the fair value of basic assets and affects the transaction price in the secondary market to a certain extent.

At the initial stage of listing, due to the small circulation, price fluctuations may be magnified.In the long run, REITs income is relatively stable and high dividend, which is different from the growth logic of listed companies, and the space for speculation is limited. Compared with real estate REITs, the debt of REITs is stronger, and its price elasticity may be smaller.After a period of ups and downs and turnover, the proportion of investors with long-term allocation demand is likely to rise, after which the turnover rate of REITs will fall to a lower level.

Risk tips.The future operating income and cash flow of infrastructure projects are lower than expected.

1 what is the performance of Hong Kong REITs after listing

On June 21, 2021, the first batch of infrastructure REITs will be officially listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange respectively. Taking history as a mirror, we focus on Hong Kong REITs, to analyze its initial performance, discount, distribution rate of return and liquidity, so as to provide reference and inspiration for domestic infrastructure REITs.

As of June 18, 2021, there are 13 REITs in Hong Kong, with a total market capitalization of HK $265.2 billion. Among them, the highest market value is the leading real estate fund (HK $162.8 billion), which accounts for 61% of the total market value of Hong Kong's REITs, while the lowest market capitalization is Kaiyuan Industrial Trust, which is only HK $1.986 billion.

In terms of listing time, lead Real Estate Fund (00823) was listed on the Hong Kong Stock Exchange on November 25, 2005, becoming the first REITs listed in Hong Kong in REITs,2005-2013, with a total of 11 REITs listed on the Hong Kong Stock Exchange. since then, the listing of REITs has experienced a period of stagnation until the listing of one in 2019 (one listed in 01503)), in 2021 (Shunfeng Fantou (2019)). From the perspective of property types, Hong Kong REITs is mainly a comprehensive category, that is, the property portfolio includes retail, office, hotel and so on, while the property trust belongs to the retail category, and the tycoon industrial trust and Kaiyuan industrial trust belong to the hotel category.

Ruifu Real Estate Fund (00625) is suspected of rent fraud. In April 2010, Ruifu Real Estate Fund sold its only asset (Beijing Jiacheng Plaza), stopped fund trading and proposed to cancel its listing status. Therefore, the following analysis of price-to-book ratio, distribution rate and turnover rate does not include Ruifu real estate fund.

(1) the price of REITs listed on the stock market rose on the first day in 2005, and the number of breakings has increased since then.

The three REITs listed in 2005 (lead Real Estate Fund, Hongfu Industrial Trust (00808) and Yuexiu Real Estate Trust (00405)),) closed higher than the IPO price on the first day of listing, by 14.56%, 20.37% and 13.82%, respectively. Since then, the listed REITs, break has become the norm. On the one hand, REITs, which was listed in 2005, has the first effect, and investors chase new investment varieties, which can be seen from the higher effective subscription ratio, which promotes the price rise on the first day of listing. On the other hand, compared with the domestic market, the situation of listed companies on the Hong Kong Stock Exchange is more common. With the decline of the popularity of REITs, the listing of REITs is also similar to the listing of companies, and the situation of breakage is increasing.

(2) prices rise first and then fall at the initial stage of listing

Further observe the price performance of Hong Kong REITs at the initial stage of listing, showing different forms. Among them, the performance of the leading real estate fund is the most eye-catching, rising continuously and rising sharply at the initial stage of listing, and did not fall until about 6 months. Most other REITs rose first and then fell, rising one week or one month after listing and falling prices three months after listing. Some REITs, prices fell in the first week after listing, and the decline has widened since then.

(3) judging the discount level and entry opportunity by price-to-book ratio

From the perspective of price-to-book ratio, Hong Kong REITs is mostly in a state of discount.REITs discount premium refers to the relative relationship between the share price of its subscription and the value of unit net assets. We use the price-to-book ratio index to measure, that is, the ratio of the market price per unit of REITs to the net asset value of each unit. A price-to-book ratio greater than 1 is a premium and less than 1 is a discount. The price-to-book ratio of most REITs in Hong Kong is less than 1, only the performance of the leading real estate fund is better, the premium state of the leading real estate fund has lasted for a long time since its listing, and the discount degree at the discount is not high, and the price-to-book ratio is basically maintained at about 1. On the other hand, the price-to-book ratio of Regal Industrial Trust and Guanjun Industrial Trust (02778) is lower than 0.5 in 2019 and 2020, and the discount level is higher.

REITs discount is affected by the type of property assets, asset location and other factors. Generally speaking, the discount degree of shopping malls, office buildings and hotels increases successively, mainly because the income stability of hotels is relatively weak and the liquidity in the real estate trading market is also weak. Compared with the property assets in the non-core areas, the discount degree of the property assets located in the core area of the core city is lower.

The price-to-book ratio can be used as a reference factor for buying timing. Under the premise that the asset dividend remains good, the greater the range in which the price-to-book ratio is lower than the center, the better the opportunity to enter.We observe that the price-to-book ratio of Hong Kong REITs basically follows the characteristics of mean regression. Take the leading real estate fund as an example, since 2016, the price-to-book ratio center has been around 0.9. If the price-to-book ratio is significantly lower than 0.9, it means that the price of the leading real estate fund is undervalued and may have better room for growth in the future.

Distribution income is an important source of income for REITs holders. The distribution yield is the ratio of the annual dividend per share to the closing price at the end of each year.As the distribution rate of return is also affected by the market price of REITs, the simple distribution rate of return can not represent the comprehensive return of a REITs, but also need to comprehensively consider the scale and growth of dividends per share and the change of market price.The leading real estate fund with the highest comprehensive return has the highest dividend per share and continues to grow, but due to the high market price, the distribution yield is at a low level, only 3.5% and 4.5%. On the other hand, the distribution returns of hotel tycoon industrial trust and Kaiyuan industrial trust are higher, but their dividends per share and market price are lower.

From the point of view of the lengthening cycle, the steady growth of dividend per share reflects the stability of asset income and the strong operating ability of managers. Moreover, the performance of the dividend per share will also affect the market price change, if the dividend per share reported in the annual report falls, the REITs price tends to fall.

(5) the liquidity of REITs in Hong Kong is mostly weak.

The average daily turnover rate of REITs in Hong Kong is mostly less than 0.2 per cent.Generally speaking, the liquidity of REITs is weaker than that of stocks, there are two main reasons: one is the high dividend characteristics of REITs, which is favored by institutions with long-term allocation needs; the other is that the growth of REITs is usually weaker than stocks, and the space for speculation is relatively limited.From the average daily turnover rate of Hong Kong REITs, the liquidity of REITs is strong at the initial stage of listing, and the turnover rate decreases significantly after one month, and tends to normal after half a year.The turnover rate of Hong Kong REITs is also quite different. The leading real estate fund with high long-term growth has the best liquidity, with an average daily turnover rate of 0.25%, while hotel tycoon industrial trust and Kaiyuan industrial trust have an average daily turnover rate of only 0.02%.

2 prospects for the listing of domestic infrastructure REITs

(1) judging from the pre-subscription heat, the probability of listing breakage may be relatively small.

With reference to the first day of REITs issuance in Hong Kong, investors' subscription heat affects the performance of REITs on the first day of listing to a great extent. REITs, with lower subscription ratio has a higher probability of breaking. As the first batch of domestic public infrastructure REITs,9 single products are highly enthusiastic by investors, Shougang Green Energy, rich countries first water of the public effective subscription ratio of more than 60 times, the lowest Soochow Suyuan is also more than 10 times, therefore, the probability of infrastructure REITs on the first day of listing may be relatively small. In addition, compared with the Hong Kong REITs launched in 2005, there may be some products with an increase of more than 10 per cent or even 20 per cent on the first day of listing, compared with the Hong Kong REITs issued in 2005.

For a period of time after listing, based on the experience of weak liquidity of closed-end funds and widespread discount trading, infrastructure REITs prices may also be similar to the performance of Hong Kong REITs at the initial stage of listing, showing a rise and then a decline, and the situation in which the market capitalization is lower than the asset valuation cannot be ruled out.

(2) judging the discount and buying time is no longer the price-to-book ratio, but the comparison between the market value and the asset valuation.

During the period of existence, the infrastructure REITs has three values, namely, the net value of the fund, the valuation of the underlying assets and the market capitalization of the secondary market.Unlike the net value of Hong Kong REITs, which is denominated at fair value, the net value of infrastructure REITs funds is measured by the cost method.Taking the asset value on the date of purchase as the original book value, depreciation, amortization and impairment are calculated every year. Therefore, theoretically, the net value of the fund will decrease year by year. The valuation of basic assets is based on the evaluation report of infrastructure projects issued by a third-party evaluation company, which is valued by the income method and is evaluated once a year, which is disclosed in the annual report of the Fund. The market capitalization of the secondary market is based on the price actually traded by the investors in the secondary market.

The fund net value of the first batch of infrastructure REITs is measured by the cost method, which may be considered in two aspects. on the one hand, the closed-end fund has the discount risk, and the discount premium is generally judged by the ratio of the market price to the fund net value, and the fund net value adopts the cost method, which reduces the discount risk to a certain extent. On the other hand, for the consideration of fund liquidation, if the fund net value is measured by fair value, and the final fund liquidation value is lower than the fund net value, it is easy to be criticized by investors; for the fund net value using the cost method, the possibility that the fund liquidation value is higher than the fund net value is higher.

The relationship between the three values:The net value of the fund is not affected by the valuation of the underlying assets, and the reference value to the secondary market price is weak. The valuation of basic assets reflects the changes in the fair value of basic assets and affects the transaction price in the secondary market to a certain extent.Therefore, to judge the level of infrastructure REITs discount and the timing of buying, we no longer use the price-to-book ratio, but the comparison of market capitalization and asset valuation.

(3) the circulation at the initial stage of listing is relatively small, and the price fluctuation may be magnified.

The proportion of strategic placement of the first batch of infrastructure REITs, is relatively high, mostly around 60% and 75%. Because 20% of the original rights holders and related parties need to be locked in for five years, and other strategic investors need to lock in for one year, the scale of free circulation at the initial stage of listing is relatively limited. The placement proportion of the most liquid public investors is relatively low, the highest is Hua'an Zhangjiang Everbright (13.4%), and the lowest is Zhejiang Merchant Hangzhou Emblem (only 3.86%).

A further look at the investor structure of offline sales shows that the highest proportion is institutional proprietary investment accounts, with the exception of CICC GLP, the rest of REITs accounts for more than 50 per cent of institutional proprietary investment accounts. Institutional self-investment account is mainly self-operated by securities firms, on the one hand, because its investment is more flexible, on the other hand, it is the demand of market makers to build positions. The second is the insurance fund investment account, which may be mainly due to the need for long-term allocation. Funds, bank wealth management and private equity funds also account for a certain proportion, in which there are a large number of private equity funds and the amount of individual subscription is not high, which may be mainly for the purpose of arbitrage.

At the initial stage of listing, due to the small circulation, price fluctuations may be magnified. In the long run, REITs income is relatively stable and high dividend, which is different from the logic of the growth of listed companies, and the space for speculation is limited. Moreover, compared with the real estate REITs, income rights REITs, the debt nature is stronger, and its price elasticity may be smaller. After listing, after a period of ups and downs and changes of hands, the proportion of investors with long-term allocation needs may rise, after which the turnover rate of REITs will fall to a lower level.

The future operating income and cash flow of infrastructure projects are lower than expected.

This article is edited from the official account "Yuyan Bond Market" of Wechat. The authors: Liu Yu, Jiang Dan, Huang Jia.Miao; Zhitong financial editor: Chu Yunwei.