CITIC Securities has won regulatory approval for China’s first real estate investment trust (REIT).
The firm, the largest of the CITIC Group conglomerate of companies, has revealed plans to list a RMB5.2 billion (€600 million; $836 million) vehicle on the Shenzhen stock exchange within three years.
After about a month of road shows, CITIC Securities has won endorsement from about half the domestic institutional investors it has spoken to, mostly large organizations and businesses, according to Xinhua News Agency. Last month the firm was reported to have collected RMB35 million for the fund, but PERE understands that CITIC has at this point hauled in its entire RMB5.2 billion target.
Chinese authorities have been debating the possibility of setting up domestic REITs in the country for approximately a decade, but so far different government bodies have not been able to agree on the regulatory framework. As such, CITIC’s prototype is considered a milestone by many market observers.
“The CITIC prototype REIT is considered China’s first equity stock REIT product in the precise sense of the term,” Xiaosu Meng, director general of non-profit organization China Real Estate Development Group, said. “If in the future it can carry out its public placement and not be liable to taxation, the essential characteristics of REITs will be even more complete.”
For now, CITIC is raising the capital for this vehicle as a private fund with a 5-year lifespan. Although China has had private open-ended vehicles structured like REITs in the past, a CITIC spokesman told PERE that this new vehicle is different because the firm has built the capability of listing on the Shenzhen stock exchange into the fund’s structure.
“Although it is being raised outside the public markets… the fund possesses particular characteristics that are in accordance with public market requirements,” he continued, “so it has a fairly clear distinction from previous trust products that were completely non-public.”
The money raised will be invested in two large assets in Beijing and Shenzhen: the CITIC Securities Tower Shenzhen and the CITIC Securities Tower Beijing, both of which have 100 percent occupancy. The vehicle’s investors are expected to be paid dividends from rents in the two buildings. Although Chinese investors “still lack basic and impartial understanding of REITs,” chief executive of subsidiary CITIC Goldstone Qian Zhou, one of the officers in charge of the REIT’s road show, insisted that CITIC’s fundraising success points to a listing not far off.
“Based on the judgment of the market and marketization, we believe that a public listing [of this REIT] in three years is a rational and even expected goal,” Zhou added.
Considered mainland China's largest brokerage, CITIC Securities functions as a $14 billion investment bank. Most recently, the firm bought the remaining 80.1 percent that it did not already own in Asia-focused brokerage and investment firm CLSA for $842 million, a move that is expected to help CITIC Securities “spearhead its global, ex-China, sell side agency businesses”.