Promote the reasonable valuation of assets and prevent the market risk of REITs

The arrival of public offering REITs can effectively solve the financial dilemma faced by the new round of infrastructure construction, and guide the infrastructure construction into a sustainable virtuous cycle with long-term capital. At the same time, market participants pay special attention to asset valuation and pricing logic. The guidelines for public offering of infrastructure securities investment funds (for Trial Implementation) issued on August 7, 2020 requires that fund managers should employ independent and well qualified evaluation institutions to evaluate the infrastructure projects they intend to hold at least once a year, which clearly defines the evaluation objects, qualification requirements of evaluation institutions, and evaluation methods of infrastructure public offering REITs Evaluate the frequency of work and other important issues. In addition, the guidelines for investment funds (for Trial Implementation) also regulate the details of the disclosure of the evaluation report, the validity period of the report, and the duration of the institution’s employment. The reasonable valuation of assets is an important means to prevent the market risk of REITs. Its valuation results have a very important impact on the investment decisions of investors and the management decisions of managers. It is also one of the important basis for the Pricing Reference of REITs. < / P > < p > the public REITs assets of China’s infrastructure for the first time mainly include warehousing and logistics, toll roads, airports and ports and other transportation facilities, municipal projects such as water, electricity and heat, pollution control projects such as urban sewage and garbage treatment, solid waste and hazardous waste treatment, as well as new infrastructure such as information network, high-tech industrial parks and characteristic industrial parks. < / P > < p > from the perspective of asset valuation, according to the different sources of income of infrastructure assets, it can be divided into two categories: infrastructure with rent (or operation outsourcing services) as the main source of income, such as warehousing and logistics, industrial park, data center, etc.; infrastructure with charge as the main source of income, such as water, electricity, thermal municipal engineering, expressway, etc. For the infrastructure with rent as the main source of income, the appraisers can refer to the industry standards such as the code for real estate appraisal (GB / t50291-2015) and the standard for basic terms of real estate appraisal (GB / t50899-2013) issued by the Ministry of housing and urban rural development. In addition, the Appraisers can also refer to the guidelines for real estate investment trust fund property appraisal (Trial) issued by China Society of real estate appraisers and real estate agents in September 2015 For the infrastructure with fees as the main source of income, the appraisal criteria referred by the appraisal professionals mainly include the basic criteria for asset appraisal issued by the Ministry of Finance and various asset appraisal criteria issued by the China Asset Appraisal Association, including but not limited to the code of professional ethics for asset appraisal and the code of Practice for asset appraisal – asset appraisal Methods of valuation, standards of practice for asset valuation – real estate, standards of practice for asset valuation – intangible assets, etc. < / P > < p > by combing the Prospectuses of REITs issued in Singapore and Hong Kong, it is not difficult to find that the two REITs fully adopt the DCF method and the direct capitalization method under the income method in the issuance process, and some products collect the block market prices of similar assets at the same time as auxiliary verification. At present, the business guide for public offering of infrastructure Securities Investment Funds – application conditions and audit concerns (Trial) (Exposure Draft) issued by the exchange requires that in principle, the income method should be used as the main evaluation method for infrastructure projects. < / P > < p > when using the income method to evaluate the value of infrastructure, the future income and the value of discount rate will have a direct impact on the valuation results. The valuer should objectively and prudently predict the net income of the assets in the future years and select a reasonable discount rate for valuation. When using the income method to calculate the asset valuation, the discount rate should reflect the time value of the fund, and should also reflect the risk related to the income type and the future operation of the evaluation object, and match the income type and caliber selected. In practice, the capital asset pricing model (CAPM), weighted average cost of capital (WACC) and risk accumulation method can be used to calculate the discount rate of infrastructure assets, such as toll roads, hydropower and gas heating, urban sewage treatment, solid waste and hazardous waste treatment, etc., whose main income source is toll. For infrastructure assets such as warehousing and logistics, data center and Industrial Park, which are mainly derived from rent, market extraction method, accumulation method and investment return ranking inversion method are generally adopted. < / P > < p > for the infrastructure with rent as the main source of income, the capitalization rate can be used as the “anchor” to objectively measure the valuation level. In the real estate investment market, capitalization rate is widely used because it can truly reflect the relationship between property operating income and value. Therefore, it is of great significance to refer to capitalization rate to judge the real estate value of REITs. < / P > < p > limited by the number of transaction cases, there is no industry recognized system and specific parameters to verify the rationality of the evaluation results for toll roads, hydropower and gas heating, urban sewage treatment, solid waste and hazardous waste treatment and other infrastructure with toll as the main source of income in China. As the return of such assets is generally relatively stable or shows a certain trend or periodic change, the rationality of the valuation can be verified from two aspects: the future income forecast and the discount rate. Whether the future income forecast is reasonable or not can be judged by referring to the historical annual income situation and trend, and combining with the development trend of the factors that may affect the asset income, such as the economy and population of the region. Whether the discount rate is reasonable or not can be judged according to the different cash flow models selected, with reference to the selection of parameters in the pricing process of similar infrastructure assets transactions in the open market, the mutual confirmation between the return on assets and return on net assets of Listed Companies in the same industry, and the financial benchmark rate of return of construction projects regularly announced by relevant national departments. < / P > < p > Disclaimer: the purpose of this article reprinted by CNFC is to convey more information, and it does not represent the opinions and positions of CNFC. The content of this article is for reference only, and does not constitute an investment proposal. 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