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DBS: China REIT Sector

Posted on October 5, 2022October 5, 2022 By alanyeo No Comments on DBS: China REIT Sector
News Alert: Asset injections to kick off
  • Five CREITs have announced asset injection plans, which are pending final approval from regulators
  • Watch out for asset quality of proposed assets by some REITs, as the location of targeted assets for injection is generally inferior to those of corresponding REITs’ IPO assets
  • Room for DPU accretion should be decent if the assets are sizeable enough vs the original assets size
  • We believe the upcoming unit placements will be hot given the potential pricing discount to secondary market and the polarised liquidity profile between onshore and offshore markets; while upsides on the secondary market could be limited along with the increasing supply of C-REITs on the primary market 
What’s new

Five CREITs have announced asset injection plans, which are pending final approval from regulators.

Who have announced plans? One Environment REIT, two Industrial Park REITs and two Logistics REITs have disclosed their plans – Capital Water (508006 CH), CMSK IndPark REIT (180101 CH), Zhangjiang Everbright Park REIT (508000 CH), Yantian Port Logistics REIT (180301 CH) and GLP Logistics REIT (508056 CH).

Who are the sponsors of the planned assets for injection? No change in sponsors and all properties will be managed by existing property managers, as per the announcements. 

Source of funding? Funding for the proposed acquisitions would mainly come from share placement.

Our view

Watch out for asset quality. The location of targeted assets for injection is generally inferior to those of corresponding REITs’ IPO assets. In our view, only Zhangjiang Everbright Park REIT and Yantian Port Logistics REIT’s targeted assets have similar locations with their existing portfolio. 

Asset size also matters. Based on our understanding, the required yield return for those assets to be injected needs to be above 4%, the same as IPO yield requirements. Room for DPU accretion should be decent if the assets are sizeable enough vs the original assets size, in our view.  

Accelerating primary market likely to divert fund flow away from the secondary market. We believe the upcoming unit placements will be hot given the potential pricing discount to secondary market. Also, due to polarised liquidity profiles between onshore and offshore REIT markets, it is also likely for C-REITs’ price to go up further, despite the weak sentiment for the offshore REIT market. Yet, the supply of C-REITs on the primary market (incl. IPO and unit placement for asset injection) is speeding up, which might limit further upside on the secondary market.

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Research - Equities Tags:SF Real Estate Investment Trust, Yuexiu REIT

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