Three questions to help you understand infrastructure REITs.

Introduction to this book:? This paper introduces the frontier theory and international experience of REITs, and explains in detail the key elements and practical operation process of implementing REITs project under the macro environment of China. It is a systematic and pragmatic REITs product operation manual.

About the author: Hua Lin, Chartered Financial Analyst, American Certified Public Accountant and Certified Risk Manager. He is currently the president of China Asset Securitization Research Institute, the invited expert of PPP warehousing of National Development and Reform Commission and Ministry of Finance, and the expert consultant of Asset Management Association of China Asset Securitization Professional Committee. He is the author of New Financial Pattern: Breakthrough and Innovation of Asset Securitization, China Asset Securitization Operation Manual, PPP and Asset Securitization, etc.

On April 24th, 2020, China Securities Regulatory Commission and National Development and Reform Commission jointly issued the Notice on Promoting the Pilot Work of Real Estate Investment Trust Funds (REITs) in Infrastructure (Jian Zheng Fa [2020] No.40). On April 30th, the CSRC publicly solicited opinions on the Guidelines for Public Offering of Infrastructure Securities Investment Funds (Trial) (draft for comments).

Based on the above two provisions, combined with this book, I will share with you three key questions: first, what is ReiTs；; Second, why did China launch infrastructure REITs? Third, the classification of infrastructure REITs. So as to help you quickly understand the purpose and significance of the national implementation of infrastructure REITs.

1. What is remuneration?

REITs: Real means "real" in Chinese; Estate means "real estate" and "real estate right" in Chinese; Investment means "investment" in Chinese; Trust means trust in Chinese.

REITs is a real estate investment trust fund: it refers to a financial investment product that publicly raises the funds of a specific majority of investors by issuing beneficiary certificates, hands them over to a special investment institution for investment management, and distributes the comprehensive investment income to investors in proportion.

What is infrastructure REITs?

Before introducing this concept, it is necessary to introduce the concept of "asset securitization business"

Asset securitization refers to the activity of issuing asset-backed securities as repayment support and credit enhancement through structure on the basis of cash flow generated by basic assets.

What are the underlying assets?

Basic assets refer to property rights or properties that comply with laws and regulations, have clear ownership, can generate independent and predictable cash flow, and can be used for specified purposes. The basic assets can be a single property right or property, or a combination of multiple property rights or properties.

What are the underlying assets?

Including enterprise accounts receivable, lease creditor's rights, credit assets, trust income and other property rights. Infrastructure, commercial property and other real estate or real estate income rights, as well as other property or property rights recognized by the China Securities Regulatory Commission.

The above definition is quoted from the Provisions on the Administration of Asset Securitization Business of Subsidiaries of Securities Companies and Fund Management Companies (CSRC Announcement [2065438+04] No.49).

The so-called infrastructure REITs refer to the special infrastructure asset support plan issued according to AnnouncementNo. [2065 438+04]49 of CSRC. Infrastructure includes transportation facilities such as warehousing and logistics, toll roads, airports and ports, municipal facilities such as water, electricity and heat, industrial parks and other infrastructure, excluding residential and commercial real estate.

This definition is quoted from the Guidelines for Public Offering of Infrastructure Securities Investment Funds (Trial) (draft for comments).

Second, why did China launch infrastructure REITs?

Cemetery REITs, that is, real estate investment trusts, have been issued in more than 40 countries (regions) since they were launched in the United States in the 1960s. Their investment fields have expanded from the initial real estate to hotel warehousing, industrial real estate, infrastructure and so on, and they have become mature financial products specializing in real estate investment.

At present, there is no real cemetery REITs in China. In order to effectively revitalize the infrastructure stock assets, improve the quality and efficiency of the capital market in serving the real economy, and enrich the investment and financing tools of the capital market, infrastructure REITs are introduced.

How did the infrastructure REITs in the United States develop?

1929 the great depression led to a sharp decline in the American and global economies. In order to revive the economy, President Roosevelt signed the National Industrial Recovery Act in 1933, one of which is the government's investment in public projects. In 1950s, President Eisenhower introduced private capital into infrastructure, which not only made the total public investment account for 7· of GDP; The historical high; Federal government debt is also falling.

After the financial crisis in 2008, President Obama promulgated the American Recovery and Reinvestment Act of 2009, proposing to stimulate economic growth by investing in infrastructure.

The same is true of President Trump's "Long-term Infrastructure Investment Plan".

By the end of 20 16, 1 1, there were 167 publicly offered REITs in the composite index of equity REITs of American Real Estate Investment Association, including 5 infrastructure REITs with a total market value of 76.4 billion US dollars, accounting for 8.35% of the total market value of all publicly offered REITs.

What should individual investors pay attention to when investing in REITs? (Refer to the news interpretation of "Sitou Society")

This kind of fund is different from the investment direction of Public Offering of Fund that we usually understand.

For example, if you usually buy a Public Offering of Fund, the investment direction may be: stocks/bonds/money funds, and the investment scope is relatively narrow.

When you invest in infrastructure REITs, you don't need to invest in infrastructure directly in essence. Just buying REITs is equivalent to getting one thousandth or one thousandth of a project in infrastructure and investing in infrastructure in this way.

If you want to enter the field of infrastructure investment, you must have considerable financial strength. This ReiTs tool is equivalent to lowering the investment threshold of infrastructure.

But you must know that infrastructure REITs are real estate other than commercial real estate and residence.

In essence, infrastructure REITs lower the investment threshold in this field, thus guiding more funds into this field, which reflects a policy orientation. For example: logistics industry/toll road/water and electricity heating, etc.

If you buy REITs, it's similar to holding one-tenth or one-tenth of the rights and interests of a logistics project, a charging company and a water, electricity and heat supply.

What are the specific rights and interests?

The toll of toll roads is used as dividends, and the cash flow of warehousing and logistics is used as dividends.

What is the specific rate of return?

About 5%, it is impossible to reach double digits.

How big is the investment risk?

Mainly the risk of retracement. For example, the extreme ReiTs in Hong Kong have suffered three consecutive killings: the first one is the turbulence of the market itself, that is, tourism has caused great damage to the rental income of local real estate. The second killing is the overall infection of the epidemic. "Three kills" is a global decline, falling into depression and recession.

Third, the types of infrastructure REITs.

According to asset composition and investment income sources, infrastructure REITs can be divided into equity type, mortgage type and mixed type. In practice, different forms of real estate investment trust funds play different roles. Compared with commercial property REITs, infrastructure REITs can have diversified basic assets and investment forms.

Infrastructure REITs rarely adopt mortgage loan model similar to commercial property because it involves the transfer of basic assets. Mature infrastructure assets enter a stable operation period, which is more suitable for the development of equity REITs.

However, during the construction period, infrastructure REITs are more suitable for issuing development loans in the form of mortgage REITs because it is difficult to form leased property and there is almost no project income.

When it comes to infrastructure REITs, you can't help but talk about PPP.

What is PPP mode?

It is a public-private partnership, that is, the cooperation between the government and social capital, and it is a project operation mode in public infrastructure.

Infrastructure REITs and PPP promote and complement each other.

On the one hand, PPP model provides a large number of high-quality basic assets for infrastructure REITs; On the other hand, infrastructure REITs provide a feasible exit channel for early investors in PPP projects.

Since the return and withdrawal mechanism of capital are important considerations for social capital to participate in PPP projects, the introduction of infrastructure REITs, combined with preferential tax policies, will significantly change the investment of social capital in current PPP projects.

According to the characteristics of organizational form and transaction structure, infrastructure REITs can be divided into three categories: corporate REITs, contractual REITs and partnership REITs.

Corporate real estate investment trusts (Corporate REITs) are profit-making joint-stock investment companies that are composed of investors with the same investment philosophy and invest in specific objects according to law. The company raises funds by issuing stocks, and it is an economic entity with independent legal personality, similar to a joint stock limited company.

Contractual real estate investment trust fund refers to the investment trust fund established by investors signing trust deed with investment companies or real estate investment trust fund managers, and the latter signing trust deed with the trustee of real estate investment trust fund by issuing beneficiary certificates.

REITs manager is the initiator of REITs, raising funds by issuing beneficiary certificates to form trust assets and making investments according to trust deed; REITs custodians handle securities, cash management and related agency business according to the trust assets kept by trust deed, which are generally held by banks.

In Australia, Canadian, Malaysian, Singaporean, China, Hongkong, Taiwan Province and other countries and regions, the typical structure of REITs is contractual.

The partnership real estate investment trust fund consists of limited partners and general partners. Limited partner (LP) invests in REITs and shares the benefits of REITs, but does not participate in the affairs management of REITs, and only assumes limited responsibility for REITs with its investment. General Partner (GP) manages REITs affairs and assumes unlimited joint liability for REITs.

The following figure shows the main differences among corporate real estate investment trusts, contractual real estate investment trusts and partnership real estate investment trusts.

According to the characteristics of fund raising and circulation, infrastructure REITs can be divided into two categories: public offering and private offering.

Public offering of real estate investment trust funds refers to the real estate investment trust funds raised from public investors by public offering. The number of investors is generally not limited, and the minimum investment of each investor is generally not limited. Public offering of REITs is the mainstream form of real estate financial investment products in the international capital market, and its liquidity is equivalent to that of stocks.

Private equity REITs refer to REITs that raise funds from specific investors in a non-public way. The sponsors of REITs directly recommend REITs to some institutional investors or well-funded people by telephone, letter, interview, etc. to raise funds for REITs.

Private equity REITs have higher requirements for investors' risk tolerance and relatively loose supervision. In the United States, its market share is less than 5%. 20 13 "special plan+advance loan", a special product form, began to appear in China. It is a debt financing tool and is developing rapidly at present.

? The following figure shows the main differences between public and private REITs.

Today I will share with you three key questions: First, what are ReiTs；; Second, why did China launch infrastructure REITs? Third, the classification of infrastructure REITs. I hope you can quickly solve the purpose and significance of national infrastructure REITs.