February 13 marked a significant milestone for Jiuzhoutong Pharmaceutical Group Co., Ltd., as the company announced its capital raising achievement through the issuance of its REIT, the Huaitianfu Jiuzhoutong Pharmaceutical REITThis particular investment vehicle successfully garnered funds amounting to 4 billion shares at a price of 2.895 yuan per share, culminating in a total fundraising amount of approximately 11.58 billion yuanNotably, public investors showed robust interest, securing 300 million shares, which accounted for 7.5% of the total offeringThe oversubscription ratio was staggering, hitting 1,192 times, setting a remarkable precedent in the realm of public REITs.

This REIT holds the distinction of being the first public pharmaceutical warehouse and logistics REIT in the nation, thereby not only expanding the asset types available in the public REITs market but also surpassing the previous high of 813.44 times public subscription achieved by Guotai Junan's Jinan Energy Heating REIT on January 9. Such figures paint a promising picture for the ongoing evolution of the REIT market in China.

As of 2024, indicators suggest a continuous broadening of the project scope within public REITs, as well as an increasing issuance scale that is triggering intensified market interestAccording to data from Wind, by February 17, the CSI REITs Total Return Index has risen by 9.28% since the beginning of the year, showcasing a compelling performance compared to other major asset categories.

The driving forces behind this vigorous growth within the public REITs realm can largely be attributed to factors such as declining interest rates following key meetings in early December and improvements in market expectations alongside better underlying asset qualityAmong the various types of REITs, those categorized as property rights REITs have seen particularly notable performance.

An insider from a major brokerage firm specializing in ABS and REITs disclosed to the 21st Century Business Herald that the current prevailing sentiment within the industry is that public REITs exhibit potent stock-like characteristics

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The prevailing market dynamics suggest a landscape of ‘buying expectations and selling realities.' The rise from last year's end to now indicates that the valuations have reached levels that warrant caution.

The current market conditions have transformed public REITs into a sought-after asset class, especially in times characterized by an “asset drought.” Their compelling intersection of stock and bond characteristics presents them as high-yield assets that are increasingly becoming impossible to overlook.

According to Wu Jinhui, a seasoned researcher and head of the macro and REITs research group at Zhongzheng Pengyuan, the public REITs briskly shot to popularity at the start of the year, achieving an impressive streak of 11 consecutive days of index gains post-Chinese New Year, culminating in a total return index increase of 9.3%. Some representatives within this asset category have notably appreciated over 30% in value, with listings such as the Jinan Heating REIT drawing considerable investment, exceeding 2 billion yuan in capital.

The downward trajectory of risk-free interest rates has consequently amplified the allure of high-dividend public REITsThere’s a palpable demand surge, as funds sensitive to interest rate fluctuations are keen to allocate to high-yield assets, which in turn propels the REITs market to new heights.

The focus of market participants has gradually shifted from the “debt aspect” to the “equity aspect.” This shift was notably catalyzed by the sweeping expansion of the REITs market drive, most prominently in February 2024 when regulatory guidelines were issued, affirming infrastructure REITs as equity-like productsThis affirmation drew forth long-term investment from more stable capital sources, cementing the REITs market's position for a 'strong comeback.'

What sets REITs apart as highly coveted assets among institutional investors is their propensity for consistent and robust dividends, with investments primarily yielding cash distributions

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As traditional fixed-income assets, like bank deposits and bonds, see diminishing returns, certain energy-focused REITs are projecting distribution rates exceeding 8%.

With insurance and fund managers actively seeking high-yield opportunities, there’s been a noteworthy influx of institutional investors into the public REITs space, which is increasingly becoming a hotbed for capital seeking attractive returns.

However, some recent entrants in the market have pointed out a notable drawback—the liquidity of the public REITs market is still subparExperts in the field emphasize that REITs are intended for long-term holdings rather than short-term speculative trading, primarily due to their low transaction volumes.

"If the aim is to enjoy dividends, holding them long-term is generally fineHowever, for short-term trades, one must be wary of the risks associated with downward market fluctuations," remarked one insider.

In terms of monetary policy tools, the notification issued on October 18 of last year, regarding swap facilities (SFISF), indicated that REITs could be utilized as collateral alongside bonds and equity ETFsFinancial institutions holding public REITs can leverage them as pledges for liquidity during downturns, fostering some stability albeit still leaving liquidity issues in the market.

Concurrently, various favorable policies at national and regional levels have emerged, aimed at diversifying the public REITs project landscape and bolstering innovation in asset types while enhancing the stability of underlying asset operations.

On February 7, a directive outlining financial support for key projects across emerging sectors, including artificial intelligence and smart cities, called for the initiation of REITs in these fieldsFurther, there’s an ongoing exploration of launching asset-backed securities and REITs focusing on retirement facilities as foundational assets.

Back on January 3, during a news conference detailing the achievements of China’s high-quality economic development, officials reaffirmed their support for the expansion of the infrastructure REITs market, emphasizing increased backing for critical projects.

As noted by various analysts, the property rights REITs focusing on affordable rental housing are witnessing heightened interest due to their stable demand for leases and predictable cash flow, which underpin the operational dependability of their foundational assets.

Diving into the segmentation of products, affordable rental housing schemes are proving beneficial when interlinked with special bonds for land acquisition, while quality underlying assets—such as energy projects or crucial housing in core areas—are enhancing the long-term investment appeal of REITs, evidenced by industrial park REITs experiencing substantial increases in rental rates and stabilized lease arrangements, leading to their superior performance since early 2025.

Wu Jinhui indicates that REITs straddle the line between stock and debt investments, making them particularly appealing to insurance funds, which thrive on steady, long-term capital investment

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As institutional contributors to the market, these players are likely to augment their investments, acting as stabilizing elements in the marketplace.

Prospects for the REITs investment landscape seem promisingIn fact, funds are being deployed in affordable housing REITs despite valuation concerns since the average distribution rate hovers near 3%—very much lower than the historical average when contrasted with the 10-year treasury yields.

Consequently, while special bonds integrating affordable housing initiatives threaten to induce supply pressures in the sector, the immediate implications on currently listed affordable housing REITs remain marginal due to their high-quality nature and government-regulated rent structures.

As for the investment value trajectory moving forward, China Merchants Fund anticipates that the trajectory of policies will remain a prime influence on the REITs landscape in 2025. Emphasis is placed on identifying structural opportunities arising from favorable policies and declining interest rates, particularly in sectors comprising consumer-focused REITs and innovations in renewables and industrial parks.

Regarding the dual characteristic of REITs as both stock and bond assets, Guotai Junan's fixed income team underscores the importance of paying heed to cash distribution rates while appreciating the fund’s market value in relation to its fair pricing.

From an asset allocation perspective, a “barbell strategy” is advisable, concentrating on traffic infrastructure and industrial parks that currently show high relative valuation on a discount basisFor long-term dividend returns, attention should be allocated towards sectors like affordable housing that show low sensitivity to economic cycles.

Finally, Wu Jinhui envisions that the REITs market will reflect a robust trajectory into 2025 with expectations of surpassing the 1,100-point markThe market is likely to invite additional capital, with daily trading volumes potentially exceeding 500 million yuan as fixed income plus funds continue to aggregate in REITs

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