The linkage of the primary and secondary markets will result in different REITs systems
High premium rate inevitably brings high risk!This is the basic consensus in traditional stock and bond markets.Infrastructure along with our country real estate investment trusts (REITs) pilot launch and continuous follow up and improve the policy, the current offering of 11 public offering of REITs products in the secondary market premium rate reached a new height again, as of February 1, 2022, the highest premium rate of rich pioneering water REIT has more than 70%,Now the biggest concern for market participants is how risky is such a high premium?Is there going to be a big discount?First of all, let’s take a look at the valuation: in order to evaluate the actual operating capacity of REITs more truly, P/FFo is generally used to evaluate REITs internationally. P is the price (market value) of REITs.FFO is a valuation method proposed by NAREIT in 1991, namely Funds From Operations. FFO can be defined as adding asset depreciation and amortization on the basis of Net Income.And subtract asset disposal gains, gains and losses due to changes in control rights, impairment and write-downs due to asset depreciation, namely: net income + amortization + depreciation – capital gain from real estate sales.From the perspective of the American market, the average P/FFO of American REITs in the past 5 years (2016-2020) is 26.4 times. Although the first water REITs of Rich Countries are slightly higher than the international average compared with other products, the EBITDA/ revenue of first water REITs of Rich Countries is the highest in the fourth quarter, which is 125%, according to the data disclosed so far.Combined with the particularity of water supply, asset scarcity and low liquidity factors, the valuation of China’s REITs is still reasonable.Secondly we look at the influence factors: the first is the scarcity of assets, rich pioneering water reits issue of the underlying asset in hefei and shenzhen two population density and development potential is relatively well area, project including shenzhen fuyong, matsuoka, hai water quality purification plant BOT franchise projects and ten five river sewage treatment plant in hefei PPP project is the project 2.The main source of income of the project is sewage treatment fee, and the main costs include electricity fee and pharmaceutical fee. The water infrastructure assets have the unique investment attributes of franchise, stable cash flow, high gross profit rate and strong anti-cyclical property.Is a rare high-quality assets, long-term investment and as a part of asset allocation is a rare rare target.The second is the maturity of the business. For the Shenzhen project, the guaranteed water amount is 95%, and the actual treated water amount is 100% of the designed water amount at present.In addition, shenzhen projects are relatively old sewage plants, operating time is more than 10 years, water quantity is guaranteed, sewage plants can basically reach full load (even overload) operation.And completed the sewage treatment upgrade project, stable charges.In Hefei project, the total scale of phase I, II, III and IV is equivalent to 60% of the guaranteed water amount.The actual capacity utilization rate was about 66.7%.In the future, there will be the possibility of water quality standards will be raised, and the cost will be increased accordingly, providing a good expectation for the expansion of revenue.The prospectus discloses that from 2018 to 2020, Shenzhen Capital’s operating income is 96 million yuan, 120 million yuan and 176 million yuan respectively.The gross profit of main business was 0.23 million yuan, 0.40 million yuan, 0.68 million yuan, and the gross profit margin was 23.44%, 33.43%, 38.86%, respectively.The operating income of Hefei Capital is 12 million yuan, 79 million yuan and 96 million yuan respectively.The gross profit of main business is 0.05 million yuan, 0.25 million yuan and 30 million yuan respectively, and the gross profit rate is 40.74%, 31.23% and 34.70% respectively. The overall profitability is strong.The first water REIT in Rich Countries has a clear business model and a sewage treatment franchise with high industry barriers.The company’s sewage treatment industry gross margin is high, profitability is basically stable;The company’s sewage treatment in principle belongs to the user pay, the payment cycle is relatively stable, cash flow is sufficient;Able to fully disclose information, good governance, excellent operation capacity.The third is the urgent need of long-term interest rates low for categories of asset allocation, at present our country state-owned bank deposit rate for the highest 3.35%, moreover is the minimum threshold of 200000 three-year certificates, and in the joint-stock Banks, interest rates are basically consistent with the state-owned Banks, perhaps some will have to rise, but the gap is not big.In addition, the interest rate of local commercial banks for three-year products is limited to + 75BP, that is, 0.75% in the case of benchmark interest rate 2.75%, and the maximum limit is 3.5%. The minimum dividend ratio of public REITs is 4%, which is obviously higher than fixed income products in the existing market and has obvious advantages.It is a large amount of long-term capital urgently needed configuration products.The fourth is the scarcity of chips. Currently, the premium rate is the highest for Wells Fargo Capital Water REIT. In the primary market, the original shareholder of Wells Fargo Capital holds most of the shares of Shenzhen Capital and Hefei Capital through Wells Fargo Capital Fund, which is a holding company holding 51% of the shares.External strategic investors in the strategic allotment allocated share of 25%, the external strategic investors including the capital, shougang funds, everbright securities information, rich countries fund information, icbc credit suisse investment, mediator fund, galaxy securities, China fortune securities, wealth capital tube, across industry, insurance capital, securities proprietary, information technology products, kinds of investors.Both original interests and strategic placement have certain lock-in period requirements. In the secondary market, some strategic investment institutions that have not acquired enough chips in the primary market and investors with long-term asset allocation needs will snap up circulating chips in the secondary market, so there are even fewer circulating chips in the secondary market.In general, with the excellent performance of the secondary market and stable dividend returns, public REITs will be an essential financial instrument for long-term asset allocation in the future, and public REITs that are listed in the ipo will be an excellent investment target, and their value will be reshaped and their long-term development trend will be good.The performance of the secondary market of China’s public REITs is relatively excellent compared with that of the countries that have issued REITs products in the world during the same period. There are many influencing factors such as market demand, asset allocation demand, policy support and economic environment.For participants, China’s public REITs after more than ten years of market breeding and resource precipitation, huge assets need to be transformed into new and old driving forces, the orderly development of public REITs in the primary and secondary markets will play a good role in setting a good example for the following REITs products.The linkage development and mutual promotion will form the unique REITs development system in China.It is also necessary to remind investors that the market is risky and investment should be cautious, especially for investors who do not understand the properties and operation rules of public REITs, it is recommended to read the relevant issuance manuals to understand the operation rules.Risk note: Most of the assets of public REITs fund are invested in specific types of infrastructure projects, with equity attributes.Affected by the economic environment, operation management, accounting policies and other factors, the market value of infrastructure projects may decline, resulting in the decline of the net value of the fund, thus affecting the downward fluctuation of the fund price, and even there is a risk that the extreme events of infrastructure projects may cause a large loss, which may have a serious impact on the value of the fund assets.