Long-term funds boost public REITs; market capacity, project allocation dip.

Long-term capital represented by insurance and public mutual funds of funds (FoFs) is gradually increasing its allocation to public real estate investment trusts (REITs).

According to data from CICC's mid-2024 report, insurance asset management, as one of the main pricing funds in the public REITs market, has reached a market value of holdings of 4.401 billion yuan, accounting for 35% of the top ten holders' market value.

In addition, securities firms and industrial capital each account for 26% of the top ten holders' market value.

At the same time, private and public funds are gradually entering the market to increase their holdings.

According to Wind statistics, as of the end of the second quarter of this year, there are still three REITs that are heavily held by public FoFs.

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On September 11th, the State Council issued "Several Opinions on Strengthening Regulation, Guarding Against Risks, and Promoting High-Quality Development of the Insurance Industry" (hereinafter referred to as "Several Opinions"), proposing to actively develop the third pillar of pension insurance and encouraging long-term funds such as insurance to invest in pension-type REITs.

Industry insiders analyzed that as the scale of domestic public REITs breaks through one hundred billion, the scope of investable assets is gradually expanding, which is in line with the risk diversification and stable return operation goals of long-term funds such as insurance.

It is expected that "long money" will further increase its investment in REITs, providing investors with more diversified asset allocation options.

According to CICC research statistics, the proportion of institutional investors in public REITs has further increased, and environmental protection and energy projects are welcomed by the market.

As of the first half of 2024, institutions have increased their holdings of REITs with high cash flow certainty in environmental protection and energy projects.

Statistics show that the proportion of public REITs held by institutional investors in the market has reached an average of 94.9%, an increase of 1.5 percentage points from the end of 2023.

The proportion of institutional investors in environmental protection and energy, affordable housing, highways, and industrial park projects has increased by 3.2, 1.2, 1, and 0.6 percentage points respectively, while the proportion of institutional investors in the logistics and warehousing sector has decreased by 0.6 percentage points.

According to First Financial's Wind statistics, as of the first half of 2024, insurance funds appeared among the top ten holders of the six energy REITs.

Specifically, among the top ten holders of Huaxia Tebian Electric & Power New Energy REIT, there are four insurance funds, namely Harvest Fund - Caixin Jixiang Life Insurance Co., Ltd. - Traditional Product - Harvest Fund Bao Rui No.

2 Single Asset Management Plan, Huaxia Fund - National Pension Insurance Co., Ltd. - Dividend Insurance - Huaxia Fund National Pension No.

5 Single Asset Management Plan, China Life Capital Investment Co., Ltd. - China Life Rui Chi (Tianjin) Infrastructure Investment Fund Partnership (Limited Partnership), and New China Life Insurance Co., Ltd. - New China Life Excellence Selection Exclusive Commercial Pension Insurance (Steady Return Type), holding a total share of the fund's shareholdings of 5.37%.

Among the top ten holders of Penghua Shenzhen Energy REIT, there are three insurance funds, including Huajin Securities - Hengqin Life Insurance Co., Ltd. - Huajin Securities Hengqin Life Infrastructure Strategy No.

2 FoF Single Asset, Tongfang Global Life Insurance Co., Ltd., and China Life Investment Insurance Asset Management Co., Ltd. - Self-owned Funds, holding a total share of the fund's shareholdings of 7.34%.

Among the top ten holders of CITIC Construction Investment National Electric Power Investment New Energy REIT, there are also two insurance funds, namely China Life Asset Management - Guangfa Bank - China Life Asset - Dingrui Green Investment No.

1 Asset Management Product and Taikang Insurance Group Co., Ltd. - Self-owned Funds, holding a total share of the fund's shareholdings of 3.5%.

In addition, the public FoF, known as the "fund buyer", also increased its allocation to REITs in the second quarter, mainly focusing on real estate projects.

According to the second quarter report, Red Soil Innovation Shenzhen Anju REIT, Huaxia Beijing Affordable Housing REIT, and Penghua Qianhai Vanke REITs (similar to REITs) all appeared on the FoF fund's heavy holdings list.

The underlying assets of the above three REITs are all real estate types.

Among them, Penghua Qianhai REITs were heavily held by Xingquan Antai Active Pension Target Five Years and Jianxin Tianfu Youxiang Stable Pension Target One Year, with a total holding of 55.7 million yuan; Red Soil Innovation Shenzhen Anju REIT and Huaxia Beijing Affordable Housing REIT were heavily held by Tianhong Ruixiang 3 Months Holding A, with a total holding of 224,000 yuan.

The market expansion is accelerating, and the project's distributable capacity is declining.

This year, the REITs market expansion has accelerated.

According to Wind statistics, so far, there have been 46 public REITs listed for trading, with a total issuance scale of more than 135.5 billion yuan.

In the new issuance market, 16 public REITs have been listed this year, with a total issuance scale of 29.2 billion yuan, both in number and scale exceeding last year's total level.

In terms of public investors, the enthusiasm for subscription is also high.

According to preliminary statistics, among the public REITs listed this year, at least 14 products have ended the public offering part in advance and conducted proportional distribution, with many products being sold out in one day.

In terms of market performance, 33 REITs have positive returns this year, accounting for more than 80%.

Among them, CICC Xiamen Anju REIT has increased by more than 29% this year, Huaxia Beijing Affordable Housing REIT has increased by 32.69% this year, and there are also 6 products such as Bosera Shekou Industrial Park REIT and Harvest China Electric Power Clean Energy REIT with returns exceeding 20% this year.

However, looking at the distributable capacity of the projects, as of the first half of 2024, the unit distributable amount of most REITs projects on the market has declined significantly year-on-year.

CICC analysis shows that due to the disturbance of the project's fundamentals and the increase in cash reserves, the logistics and storage projects of property rights REITs are affected by the fundamentals; the distributable capacity of industrial park projects shows a differentiated trend, with the first-line commercial office park projects and some second-line commercial office projects that were under pressure in the early stage gradually stabilizing, while other projects are affected by the reduction of cash supplements and fluctuations in fundamentals; although the profitability of affordable housing projects remains stable overall, the fluctuation in distribution capacity mainly comes from the adjustment of cash items.

In terms of operating rights REITs, the decline in highway projects is more consistent with the trend of traffic volume changes, with a range of decline from -2.5% to -28.3%; energy and environmental protection projects are mainly affected by the pace of receivables collection and reserved expenditures.

Industry insiders believe that overall, the rapid expansion of the public REITs market provides investors with more choices and opportunities, but it is also necessary to pay attention to the fluctuations in the distributable capacity of the projects, as well as the market and operational risks that may be reflected behind them.