In recent weeks, the Chinese market has witnessed an extraordinary surge in public offerings of Real Estate Investment Trusts (REITs), culminating in a stunning record for public subscription multiples. The event has not only attracted the attention of institutional investors but has also sparked interest among retail investors, indicating a robust and growing market in this sector.
On February 12, the Huitianfu Jiuzhoutong Pharmaceutical REIT announced its subscription results, revealing a staggering effective subscription multiple of 1192 times from the public, breaking the previous record established by the Guotai Junan Asset Management Jinan Energy Heating REIT, which had a multiple of 813.44 times. Such remarkable figures highlight the heightened appetite for REIT investments in recent months.
The success is reflective of a broader trend, where the issuance market is thriving, and the secondary market is equally buoyant. According to financial data provider Wind, the CSI REITs Total Return Index has seen an impressive rise of 8.86% so far this year, with some specific products experiencing increases of over 20%. This growth reflects the increasing acceptance and understanding of REITs among investors in China.
The details surrounding the Jiuzhoutong Pharmaceutical REIT are fascinating. As the first pharmaceutical logistics REIT in China, it has benefitted from a combination of strategic pre-allocations, offline placements, and public offerings, which contributed to its successful capital raising of approximately 1.158 billion yuan, sold at a unit price of 2.895 yuan each. The demand was so high that the initial selling period was concluded a day early, as investors rushed to secure their shares.
The success in fundraising was segmented into various categories: strategic placement accounted for 75% of the total shares, while offline and public sales accounted for 70% and 30% of the remaining shares, respectively. This strategic allocation ensured substantial leverage from institutional investors, which is vital in establishing confidence around such financial instruments.
Before the Jiuzhoutong REIT, the previous record was held by the Guotai Junan asset management REIT, which reported a public subscription multiple of 813.44 times, a record that stood for only a brief period. Industry experts attribute the popularity of public REIT offerings partly to their scarcity and the potential for new investment gains. According to analyst Jin Yi from Guohai Securities, the recent boom in REIT sales may weaken as the market stabilizes and investors develop a more rational understanding of the availability and value of public REITs.
In discussing the recent surge in subscriptions, many experts point to the characteristics of the underlying assets in the REITs, particularly in the health and logistics sectors. The Jiuzhoutong Pharmaceutical REIT represents a vital aspect of the distribution of pharmaceuticals in China, which has witnessed exponential growth due to aging demographics and rising consumer demand for healthcare products. The Jiuzhoutong Group, as the largest private pharmaceutical enterprise in the country, is well-positioned to capitalize on these trends, boasting a robust supply chain logistics framework that covers over 96% of China’s regions.
The project's chosen asset, the Dongxihu Modern Pharmaceutical Warehouse Logistics Center, not only serves as a testament to the growth potential of the pharmaceutical logistics industry but also highlights the strategic vision behind selecting high-quality underlying assets. Fund manager Li Xinning emphasized three primary reasons for this selection: the promising future of the pharmaceutical logistics sector amidst China's aging population, the high entry thresholds and strict regulatory framework governing the industry, and the established market position of Jiuzhoutong with its loyal customer base.
Li noted, “The past three years of operational performance at the warehouse reflect a solid net operating income growth of over 6%, indicating a strong upward trend in rental rates and occupancy.” This long-term upward trajectory is vital for sustainability and instills confidence in investors looking for steady returns.
Moreover, the positive performance of public REITs is evidenced not only by the high subscription multiples but also reflected in their secondary market performance. Following the launch of the Jiuzhoutong REIT, several other funds also demonstrated substantial year-to-date increases, further emphasizing the trend. The China Jianyin Investment REIT, for instance, saw an impressive rise of over 22% this year, indicating the robustness of this investment vehicle.
Looking at the broader picture, the positive policy environment facilitating the growth of public REITs is also notable. Recent regulations have aimed at enhancing the quality and expansion of REITs to better serve the real economy. Guidelines introduced earlier this month explicitly support new types of infrastructure projects, such as AI, data centers, and smart city initiatives, for REIT fundraising, showcasing a forward-thinking approach to promoting holistic economic growth while maximizing the benefits of capital markets.
In conclusion, the record-breaking subscription rates and strong performance of REITs in China signify a promising future for this investment vehicle. As understanding and acceptance of REITs continue to grow among investors, the market appears set for a further surge, driven by solid underlying assets and rigorous regulatory support. For retail and institutional investors alike, the REIT sector represents an exciting opportunity to participate in a dynamic and expanding area of the financial landscape.