Real estate securitization (REITs) brings about the "three new" trends

On November 7th, at the sub forum of the 3rd Green Finance Forum in 2024, Jiuzhou Tong, a leading pharmaceutical circulation enterprise, shared the "three new" trends brought by real estate securitization (REITs).

What are the 'three new'? According to Su Xiling, Deputy General Manager of Jiuzhou Tong Pharmaceutical Group Co., Ltd. and Head of Jiuzhou Production and Investment, firstly, there is a new financing model. REITs, as innovative, non stock, non debt equity financing, provide new financing channels for enterprises, which is conducive to building new production and financing platforms and providing new investment products for the capital market; Secondly, there is a new driving force for development. After the successful issuance of Kyushu Tong's public REITs, about 80% of the raised funds will be used for infrastructure construction in areas such as pharmaceutical warehousing; The third is the new corporate responsibility, such as IPO being the listing of a company, issuing public REITs being the listing of assets, and Jiuzhou Tong not only being responsible to public investors, but also assuming the responsibility of a leading enterprise, making new contributions in information disclosure, industry leadership, social responsibility, and other aspects.

On September 23 this year, Jiuzhou Tong released a progress announcement on the application and issuance of public REITs for pharmaceutical warehousing and logistics infrastructure. According to the announcement, after the successful issuance of Jiuzhou Tong's public REITs project, it will become the first REITs in the domestic pharmaceutical industry, the first REITs in domestic pharmaceutical logistics and warehousing facilities, and the first REITs for private enterprises in Hubei Province. It is expected to increase the net profit of listed companies by no more than 700 million yuan, achieving a synergistic win-win situation between Jiuzhou Tong and the public REITs' "dual listing" platform. At the same time, Jiuzhou Tong has also launched the Pre REITs project, building a multi-level real estate equity capital operation platform of "public REITs+Pre REITs".

The first public REITs for domestic pharmaceutical logistics and warehousing facilities

Jiuzhou Tong is the largest private pharmaceutical commercial enterprise in China. In recent years, Jiuzhou Tong has formulated the "New Products, New Retail, New Healthcare, Digitization, and Real Estate Securitization (REITs)" (referred to as the "Three New and Two Modernizations") strategy, among which the Real Estate Securitization (REITs) strategy is an important pillar to achieve light asset operation and further enhance Jiuzhou Tong's shareholder returns.

The real estate securitization strategy mainly relies on the high-quality pharmaceutical logistics warehousing assets and supporting facilities owned by Jiuzhou Tong (including its subsidiaries) as underlying assets. The assets of Jiuzhou Tong's public REITs in the pool are pharmaceutical logistics and warehousing assets in Dongxihu District, Wuhan City, with a total construction area of approximately 172000 square meters and a valuation of 1.17 billion yuan (subject to the final issuance results). The initial pre REITs assets of the company are planned to be three pharmaceutical logistics and warehousing assets and supporting facilities located in Shanghai, Hangzhou, and Chongqing held by the company's subsidiaries, with a total construction area of approximately 240000 square meters. The expected fundraising scale is not more than 1.8 billion yuan (subject to the final issuance results).

What are the highlights of Jiuzhou Tong Public REITs?

The core highlights of Jiuzhou Tong's public REITs project can be summarized as the "four excellences".

The first is a good track. Firstly, the supply and demand relationship in the pharmaceutical warehousing and logistics industry is healthy. From the demand side, the strong consumer demand for pharmaceutical products drives further growth in pharmaceutical warehousing and logistics, and is concentrated in top enterprises; From the supply side, it is difficult to switch from high standard warehouses, but the overall supply remains stable. Secondly, the industry has high barriers to entry. The National Medical Products Administration has strict management of medical devices, which are highly specialized, safe, and efficient. Jiuzhou Tong's accumulated customer and operational experience in the industry has brought competitive advantages, making it difficult for newcomers to enter.

The second is a good enterprise. Jiuzhou Tong Group is the largest private pharmaceutical commercial enterprise in China, ranking 55th on the 2024 Top 500 Private Enterprises list. It has 141 pharmaceutical warehouse facilities nationwide, with 2.9 million square meters of warehouse facilities meeting GSP standards. The original equity holder and operational management implementing agency of the REITs project, Jiuzhou Tong Logistics, is a subsidiary of Jiuzhou Tong Group and the first enterprise in the pharmaceutical industry to obtain a 5A rating. It covers 96% of the national pharmaceutical distribution network platform and undertakes digital logistics supply chain projects for more than 100 enterprises across the country, such as Maotai, Yunnan Baiyao, and Tongrentang.

The third is good assets. The assets included in this pool are pharmaceutical logistics and warehousing assets in Dongxihu District, Wuhan City. It is the national central warehouse of Jiuzhou Tong Group and has been rated as one of the top ten "National Intelligent Warehousing and Logistics Demonstration Bases" by the National Development and Reform Commission, the Ministry of Commerce, and China IoT. This asset is located near a transportation hub and has abundant medical resources in the surrounding area. It can quickly respond to the medical logistics supply needs of the six central provinces and even the whole country, and its business scope radiates throughout the country.

The fourth is good products. In the product design of public REITs, both stability and growth are taken into account. Unlike traditional high standard warehouses, the modern pharmaceutical warehousing and logistics industry distributes excess profits based on actual pallet usage, achieving a higher upper limit of returns. At the level of related parties, set a minimum pallet usage that is stable and continuously increasing, and implement strict penalty clauses for lease termination to ensure stable income for the bottom tier. In order to ensure the future growth of the product, a dual management organization has been established to strengthen the service and investment attraction during the existence period.

The investment prospects of public REITs

Publicly offered REITs are an important innovative practice in China's capital market. With the release of the "Notice on Fully Promoting the Normalization of Real Estate Investment Trusts (REITs) Projects in the Infrastructure Sector" by the National Development and Reform Commission in July this year, the issuance of public REITs has entered a stage of normalized development, which is expected to inject new vitality into the capital market and provide investors with more investment opportunities.

China has approximately 400 trillion yuan in stock assets, a large amount of which are underutilized real estate. Through the public REITs market, it is possible to effectively activate existing assets, improve capital efficiency, and promote stable economic growth. Against the backdrop of increasing uncertainty in the global capital market, the Chinese public REITs market has shown strong growth momentum.

At the product level, the success of public REITs is closely related to the industries they invest in, and high-quality projects are often closely integrated with essential industries. For example, the energy and affordable housing REITs issued in recent years, as well as the first REITs planned to be issued by Jiuzhou Tong in the pharmaceutical industry, closely follow rigid demand and demonstrate their investment stability, sustainability, and moderate growth potential.

Specifically, the characteristics of the rigid demand industry determine the stability of its income sources, which can maintain a stable level of returns in economic fluctuations. Secondly, with the increasing demand for infrastructure and public services in society, the long-term development prospects of these industries are optimistic and sustainable. Finally, high-quality REITs projects can achieve moderate asset appreciation while ensuring stable returns, meeting investors' demand for income growth.

The REITs market in the United States is highly developed, with approximately 120 million people directly or indirectly investing in REITs products to adequately prepare for their lifelong financial management and retirement. Publicly offered REITs products will fill the gap in China's capital market for medium - and long-term stable income projects. Investors can participate in high-quality real estate projects through REITs, enjoy relatively stable returns in the medium to long term, and achieve capital gains through asset appreciation, which is particularly important for individual and institutional investors seeking long-term investment.

Overall, the investment prospects of Chinese public REITs are optimistic. With policy support, market maturity, and increasing investor demand, public REITs will become an important investment tool, providing investors with stable returns and sustainable growth opportunities. In the complex and ever-changing global economic environment, public REITs not only provide a safe haven for funds, but also make important contributions to promoting high-quality development of the Chinese economy.