The launch of C-REITs has long been anticipated as a game changer for the Chinese real estate markets. On one hand, they allow private capital to relieve a heavy financial burden on local governments for developing infrastructure projects. On the other, they provide a substantial exit option for private investors.
The introduction of REITs in China is the culmination of 18 years of work. In 2003, the government introduced the Auchan Tianjin No.1 Store Capital Trust Scheme – a quasi-REIT similar to a commercial mortgage-backed security. Various incarnations of REITs followed, but it was not until mid-2020 that the National Development and Reform Commission and the China Securities Regulatory Commission announced a pilot scheme for what international investors would recognize to be a genuine REIT.
Since then, nine REITS had been approved by the Shanghai Stock Exchange or Shenzhen Stock Exchange. They include two highway REITs, three industrial park REITs, two warehouse and logistics REITs and two so-called green REITs.
Singaporean logistics giant GLP has joined the fray, listing on the Shanghai Stock Exchange this week. Notably, the CICC GLP Logistics Closed-end Infrastructure Securities Investment Fund is the first non-state-owned sponsored C-REIT to launch.
GLP’s success creates a precedent for private managers to participate in market, where the first movers were each state-owned enterprises. As long as a manager has assets that appeal to retail capital, further private launches are evidently welcomed.
GLP has demonstrated that international managers are able to raise Chinese capital in a comfortable and familiar investment vehicle. That will intrigue scores more managers keen to tap China’s growth potential but previously too afraid to try.
Most encouragement should stem from how all nine existing C-REITs were oversubscribed, raising an aggregate total of $5.3 billion. GLP raised more than $910 million with the institutional tranche of its listing, approximately 6.7 times oversubscribed. The retail tranche was oversubscribed by almost 10 times.
These pioneering factors will prove alluring for a vehicle type already proven globally. They provide managers options to hold assets perpetually. Exit costs for investors are lower than their private counterparts, too.
Time will have to tell as to the viability of international retail money participating in C-REITs; currently they accommodate Chinese money only. That might, arguably should, change, however. And if C-REITs see repatriation costs prove more attractive than those of private vehicles, that should precipitate greater international capital interest. GLPs successful C-REITs is a step in the right direction on these points.
Of course, one swan does not a summer make. GLP has broken a mold established by China’s state-owned companies. That was a necessary step to encourage other international managers. But if one was to pick an international manager to carry favor with Chinese and international investors alike, it would likely be GLP given its history of doing business in the country and its centering in logistics property. The bigger litmus test comes when Western managers attempt C-REITs of their own.
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