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        Faculty & Research


        Questions Posed:

        ● How to improve investment efficiency in infrastructure, public service system and real estate?

        ● How to liquidise remnant assets and find an “anchor” for asset pricing?

        ● Will REITs push up housing and real estate prices?

        ● What should the appropriate cap rate for commercial real estate be?

        ● How should the potential in China’s REIT market by analysed? What is the significance to the structural reform of the financial supply side and impact to high-quality growth of China’s economy?

        ● What can China learn from overseas real estate securitisation?

        The China REITs Forum Annual Conference 2019 was held on June 27, where many current issues and concerns regarding individual investment, financial reform and China’s economic development were discussed. Nearly twenty government officials, economists and business leaders in real estate and finance from PRC, Hong Kong SAR, the United States, Singapore, Japan and other countries gathered to share their opinions on “China’s REIT Market and Global REITs Investment.” A total of 450 guests were present.

                                                               Conference Venue

        Among the speakers were Xiao Gang, member of the 13th CPPCC National Committee and former chairman of the China Securities Regulatory Commission (CSRC) and Han Zhifeng, Deputy Director General of the National Development and Reform Commission’s (NDRC) Investment Department. Scholars present included representatives of the conference sponsor—Wang Yanglin, Vice-President of Peking University (PKU), Honorary Dean Li Yining, Dean Liu Qiao, and Party Committee Secretary Ma Huaxiang of PKU Guanghua School of Management. The Conference was hosted by Jian Ling, presenter at Guangdong Radio and Television. The event was attended and reported by a number of domestic and overseas media outlets such as Xinhua News, China Media Group, China Securities Journal, Reuters and the South China Morning Post.

                                                              Group photo of guests

                                                                    Group photo of guests

                                                                         Forum attendees

        The Conference had two sessions. The morning session focused on “Construction and Development of REITs Market” and the afternoon session on “International REITs Market and Investment” and “Practice and prospects of China’s REITs”. Starting with the significance of REITs to the real estate market and the structural reform of the financial supply side, the speakers presented an analysis of the construction and development of the global REITs market.

        Based on a global prospective involving the development experience of overseas REITs and exploration and practice of domestic market, the Forum was centered on the high-quality development of China’s economy and tried to explore the prospects and paths of China’s REITs. The CRF China’s REITs Index: Cap Rate Index of Commercial Real Estate was officially released at the conference, providing a rational pricing basis for underlying real estate assets for the forthcoming publicly offered REITs in China.

        Professor Wang Yanglin, standing committee member of the CPC PKU Committee and PKU vice president, and Professor Li Yining, economist and honorary dean of PKU’s Guanghua School of Management gave the opening remarks respectively.

        Wang Yanglin: Contribute Guanghua’s Ideas to China’s Real Estate Market

        Wang Yanglin, standing committee member of the CPC PKU Committee and PKU Vice-President

        Professor Wang first extended welcome and thanks to guests in his speech on behalf of Peking University. He fully recognized the significance of the China REITs Forum and put forward his expectations on both faculty and students at the Guanghua School of Management that they should remain true to their original aspiration and keep their mission firmly in mind, so as to cultivate a strong sense of responsibility and contribute to the sound development of China’s REITs market.

        Li Yining: Lay Equal Stress on Aggregate Adjustment and Structural Adjustment of Monetary Policy

        Li Yining, honorary dean of PKU’s Guanghua School of Management

        Professor Li Yining presented his opinions on China’s monetary policy. He believes that the balance between aggregate demand and aggregate supply on the level of macro-economy must be and has always been the top concern in government adjustment. A monetary policy only emphasising macroscopic adjustment has its limitations, and equal emphasis should be laid on both macro and micro adjustments, along with a combination of aggregate adjustment and structural adjustment of monetary policy.

        According to Professor Li, the limitations of aggregate adjustment of monetary policy mainly include four aspects: first, adjusting monetary aggregates from the macro-prospective while neglecting the micro-economy as the foundation of the macro-economy may fall into the trap of “one size fits all”; second, aggregate adjustment of monetary policy leads to expanding or compressing aggregate demand while having little impact on aggregate supply; third, China’s economy remains unbalanced today, and the aggregate adjustment of monetary policy cannot play its role like in a completely market-oriented economy; fourth, aggregate adjustment of monetary policy will be helpless in the face of stagflation. In concluding, he expressed the view that “though the aggregate adjustment of monetary policy is useful, we must combine it with structural adjustment and lay equal stress on both of them.”

        Xiao Gang: It Is an Imperative to Develop Publicly Offered REITs

        Xiao Gang, member of the CPPCC National Committee and former chairman of the China Securities Regulatory Commission

        According to Xiao Gang, member of the CPPCC National Committee and former chairman of the CSRC, REITs focus on investment properties such as infrastructure, office, business and hotel assets that generate stable rental income. REITs have the function as a “price stabilizer” and “value discovery” for the real estate secondary market, and is thus of great significance to the structural reform of the financial supply side and can provide a new driving force for sustainable economic development. Meanwhile, overseas market experience and data have indicated that REITs can help to smoothen volatility in the real estate market preventing irrationally pushing up housing prices.

        Mr. Xiao said that it is imperative to develop publicly offered REITs. However, China should also strengthen risk prevention based on its national conditions since REITs are a new financial product with potentially unknown knock-on effects. He offered several suggestions: First, make REIT-related laws along with a regulation system; second, establish and normalise internal governance requirements of REITs and improve the incentive and constraint mechanism of REIT managers; third, strengthen REITs dividend system and leverage ratio constraint; fourth, establish an expansion mechanism to specify REIT corporate governance standards and form strict market-oriented constraints; fifth, improve investor education to help them understand the characteristics of REITs better.

        Li Keping: REITs Will Play Its Role in Asset Allocation as a New Type of Financial Tool

        Li Keping, an outstanding professor of management practice at PKU’s Guanghua School of Management

        Li Keping, an outstanding professor of management practice at PKU’s Guanghua School of Management and former Vice-Chairman and former General Manager of China Investment Corporation, shared his opinions on the role of REITs in investment portfolio from the perspective of an institutional investor. Mr. Li said that asset allocation plays a key role in long-term performance of an investment portfolio, and the limitations of traditional assets in asset allocation lead to the emergence and development of alternative assets. Alternative assets have the characteristics of a long investment horizon and low liquidity, which can be burdensome to investors. Therefore, some forms in alternative assets may enter the publicly offered products. Many forms of securitization products like ABS are through public offer, among which REITs is a quite distinctive category.

        According to his analysis, REITs can turn real estate into alternative assets that are liquid and indivisible and turn them into standard products. Such creation makes it possible for REITs to become a good financial tool and play its role in asset allocation. And we should learn from others’ successful experience to create a successful and suitable market of our own as well as new types of financial tools needed by investors.

        Liu Qiao: Find an “Anchor” for Pricing to Guide Effective Allocation of Resources

        Liu Qiao, dean of PKU’s Guanghua School of Management

        Liu Qiao, dean of PKU’s Guanghua School of Management, interpreted the development prospects of China’s REITs market through the long-term opportunities and challenges in China’s economic development. According to Professor Liu, offering land and real estate as a guarantee has greatly expanded social credit. However, it has also caused high leverage in cases of low investment allocation. The inefficiency of resource allocation is also reflected in the extrusion of consumption and the inefficient use of urban public facilities. China’s economy is faced with accelerated urbanisation, an aging population and a bottleneck in consumption rate growth. Accurate price signals are of great significance to improve investment efficiency in real estate, infrastructure and public service system. There should be an “anchor” for pricing in capital market, real estate market, infrastructure investment and financing market and credit market and it is necessary to give play to the function of price discovery to guide effective allocation of resources.

        Professor Liu also mentioned that the release of REITs with infrastructure as the underlying assets can help to find a market-oriented pricing mechanism for local public credit. He shared that the research team at the Guanghua School of Management has been working on it by evaluating the balance sheet of a local government.

        Han Zhifeng: Promote the Development of REITs in China’s Infrastructure Field

        Han Zhifeng, deputy director general of Investment Department, NDRC

        Han Zhifeng, Deputy Director General of the Investment Department of the NDRC forecasted the development prospects of REITs in China’s infrastructure field, by considering the current status of construction and development of China’s infrastructure field. He pointed out that China’s infrastructure has entered an era of consolidation and revitalisation. The implementation of infrastructure REITs is an important approach to revitalise a large number of stock assets. Compared with other approaches, REITs are characterised by “equity, public offering and standardisation”. Infrastructure REITs are conducive to mitigate debt risks and reducing corporate leverage; implementing deployment of the central government and promoting implementation of major strategies; increasing the proportion of equity financing and facilitating China’s capital market development; and are able to introduce professional institutions and improve overall efficiency.

        Mr. Han also gave some advice on the project characteristics and key areas suitable for issuing infrastructure REITs and on how to promote the sustainable and sound development of China’s infrastructure REITs. He hoped that China’s REITs will take its first step in the field of infrastructure.

        Mao Zhirong: Application of International Experiences in China’s REITs Market

        Mao Zhirong, Head of Mainland Development, Management Committee Member of HKEX

        Mao Zhirong, Head of Mainland Development, Management Committee Member of HKEX, delivered a speech on the “Application of International Experiences in China’s REITs Market”. He said that the core of the REITs market includes two major elements: “First, you must have cash flow from the underlying assets; second, you need to distribute most of the money you receive.”

        Mao pointed out that to develop REITs market, China needs to facilitate system construction in five aspects: first, carriers: corresponding regulations need to be established on whether the carrier of REITs is corporate type or trust model; second, tax affairs: avoid double taxation; third, subject property: the type of subject matter that can increase rental income or the income generated by assets through management capability, and make it market-oriented wherever possible for the sake of cash flow property; fourth, managers: management capability is required, and management responsibility can prevent conflict of interest; fifth, issuing and trading: by IPO or by selling fund units. He stressed that to build a complete, effective and promising REITs market, these five questions must be answered.

        Simon Lim: Important Factors for the Rapid Development of Singapore’s REITs

        Simon Lim, SGX Senior Vice-President

        Simon Lim, Senior Vice-President of the Singapore Stock Exchange (SGX) described Singapore’s journey in becoming a global REITs hub. He pointed out that 44 REITs have been listed in Singapore over the past 17 years, with aggregate market value exceeding S$100 billion, accounting for nearly 10% of the market value in Singapore’s securities market, with the aggregate size of the REIT market second only to Japan in Asia. In addition, more than 80% of REITs listed in Singapore Exchange hold assets outside of Singapore.

        Mr. Lim said that the issuing of REITs in Singapore is supported by many local developers because REITs can help them reduce leverage. This is one of the reasons for the rapid development of REITs in Singapore. In the initial stage of building REITs market, the Singapore Government offered efficient supervision and clear guidance, and high transparency in taxation also provided a good external environment for the development of REITs.

        Zhou Qian: How to Establish a Skill and Capability System for REITs Managers

        Zhou Qian, Partner and Chairman, GSUM Capital

        Zhou Qian, Partner and Chiarman of GSUM Capital opined that global market experience shows that managers play an important role in a REIT market, with market leaders clearly specialised. Knowing how to establish a skill competency and capability system for REIT Managers is an important topic when considering the REIT market. A competent manager should have the ability to manage financial capital, assets and industry stakeholders, make expertise complementary and stabilise the internal team system, and also have industry experience. The ability to set up a system for REIT Managers will become an important cornerstone for the future sound development of the REITs market and ensure stable growth in distributable income for investors. However, building a system requires a stable triangular structure, which is to clarify and define the boundaries between REITs and debt asset securitisation and the technical requirements, draw on international experience in jurisdictions such as Singapore and Hong Kong so as not to regard managers only as a channel or let them exist in name only, and practically assess the ability of the management team to perform their duties. Building a skill competency and capability system with professionalism is vital to ensure management responsibilities are met.

        International REIT Markets and Investment

        Ko Oshima, senior vice president of the Listing Department of the Tokyo Stock Exchange, introduced the development history of REIT in Japan (J-REITs) which started in 2001. Currently, the size of the market is the highest in Asia and the second globally, behind the United States. In the 1980s and 1990s, the asset bubble collapsed, and the Japanese Government revived the economy through asset securitisation. One of the biggest innovations was the introduction of J-REITs. J-REITs enjoy certain preferential tax treatment under Japan’s tax laws; the introduction of some investor protection measures has made it more attractive; at the same time, the Tokyo Stock Exchange issued a report to disclose products related to J-REITs, making real estate transactions more transparent in Japan. Therefore, J-REITs play a very important role in Japan’s business environment in promoting the sustainable development of the entire market.

        Ms. Sigrid Zialcita, CEO of the Asia Pacific Real Estate Association (APREA), said that if REITs are to be launched in China, China will obviously become a REIT market with the highest market value in Asia and may even the world, surpassing that of the United States (about 1 trillion USD). Singapore, Australia and many other cases show that the real estate industry in the Asia-Pacific region is very active in the global acquisition of assets, and the real estate REIT market significantly exceeds the performance of the stock market and the bond market. This has been the case in the past decade, and with relatively low volatility. She also said that despite challenges such as the China-US trade friction, global economic slowdown and real estate bubble, there are still some new opportunities for REITs in the Asia-Pacific region, as the Asia-Pacific region still has the strongest economic growth in the world.

        Sam Chandan, Associate Dean of the Schack Institute of Real Estate, New York University (NYU), described the current status of REITs around the world and the development trend in the coming years. He recalled that during the past decade of the global economic downturn and slowing of investments, REITs played a very important role in supporting the market. Dr. Chandan said that in the United States, REIT indices surpass S&P 500 Index and have strong invesment potential. From the perspective of investment assets, the growth of REITs have expanded to infrastructure, forestry, industrial real estate and other fields. Technology-driven REITs, such as cellphone base stations or data centers, are an important new trend. In addition, working space has changed fundamentally, for example, the impact of the emergence of shared offices on traditional office buildings is a long-term challenge for REITs. He believes that we need to look at these issues in a forward-looking manner, and also help investors better participate in REITs through some capital support methods.

        Round-table dialogue: Mr. Chen Zhen, Ms. Sigrid Zialcita, Dr. Sam Chandan and Ms. Chang Ruihua (from left to right)

        In the first round-table dialogue on “Recent Development of Overseas REITs and Experience”, Mr. Chen Zhen, the round-table host and General Manager of GSUM-Titanland Capital, presented a topic for discussion concerning the experience of Asia and North America, the fields that REITs can enter, and how to improve performance and liquidity. Chang Ruihua, head of Capital Markets & Corporate Finance and Corporate Planning, CapitaLand China, Sam Chandan, associate dean of the Schack Institute of Real Estate of New York University, and Sigrid Zialcita, CEO of the Asia Pacific Real Estate Association (APREA) also took part in the discussion.

         Practice and Prospects of China’s REITs

        Speaking about the practice of Yuexiu REIT, Li Feng, chief capital officer of Yuexiu Group, expressed the view that the introduction of REITs in China can facilitate financial supply-side structural reform and promote high-quality economic development. On the one hand, taking high-quality properties that continue to generate stable income or other assets as the basic assets, REITs create a sound governance mechanism in which a professional team is entrusted to carry out management work. The mechanism provides the market with an investment product with moderate risk, stable income and high liquidity, thereby increasing the proportion of direct financing and reducing financial risks. On the other hand, REITs connect large and small merchants and all walks of life, and are an effective tool serving the real economy; the objective that “housing is for living in, not for speculation” is realised through an valuation estimation of discounted cash flow, and REITs become a price stabiliser, and a long-term mechanism of the real estate industry is established. This product is also applicable to other fields such as infrastructure. Ultimately, financial resources are allocated reasonably and efficiently, and China’s economy is developed in a high-quality manner. This requires asset managers in REITs to be competent at managing assets, which is reflected in its commercial and financial attributes. Finally, China’s REITs need to resolve two technical issues: higher-level law and tax issues. With the efforts of all parties, a transitional solution can be found. Therefore, the key is to build consensus and synergy to implement the solution.

        Based on the experience of Lingang D&J Company in issuing the first industrial plant REITs on the Shenzhen Stock Exchange, Zhu Weiqiang, Vice-President of Lingang Group, discussed the practice issue of developing REITs under the current policy environment, and gave some advice to solve the issue. Mr. Zhu said that Lingang Group has undertaken the responsibility of urban development and construction and industry introduction, and the company needs to operate through market-oriented methods. For state-owned enterprises, REITs are a necessary choice to revitalise stock assets, continue to leverage the operating experience of the park, optimise the financial situation of the Group, and achieve sustainable economic development of the city and the park. To further drive and participate in the REITs market, three problems need to be solved: first, restrictions on the transfer of infrastructure assets; second, tax burden; third, issuing price and cultivation of investors. Accordingly, he suggested improving the situation from three aspects: first, under the framework of conforming to the current legal system, relax restrictions on the transfer of infrastructure assets from the top-level design, and make clear the handling standards for related matters; second, reduce tax burden of reorganization and operation; third, guide the pricing and cultivation market with pilot products.

        Zheng Haining, CFO of the Ground Network of Cainiao Network, said that Cainiao launched the first expandable new retail warehousing infrastructure REITs product on the Shanghai Stock Exchange in March this year, which has three characteristics: new retail, expandable, and no credit enhancement of main body. Cainiao’s quasi-REITs were launched by GSUM Capital and innovatively introduce the mechanism of expansion, and are the first expandable REITs product in Chinese Mainland, which can achieve continuous injection of new assets under the same REITs. This is a big step for the mainland REITs to move towards seasoned public offering, and the first attempt by Cainiao in the field of REITs, which helps explore the asset securitisation of China’s logistics and warehousing. He said that the construction of logistics infrastructure requires a lot of capital investment. Through this case, Cainiao connects development, operation and exit strategies of logistics infrastructure, and revitalise the stock assets of logistics; expand traditional financing methods, and change the method from indirect financing to direct financing in open market. Mr. Zheng said that Cainiao’s quasi-REIT represents an initial attempt by the market to issue expandable funds, and is one step closer to make REITs more mature and standard financial products. He expressed hope that in the future, China’s REIT market can have and generate professional REITs managers just like in Singapore and other developed markets, to enable more mature investors to participate in the cultivation and development of the REIT market.

        Round-table dialogue participants: Bian Chao, Li Feng, Zhu Weiqiang and Zheng Haining (from left to right)

        As the guests of the second round-table dialogue, Li Feng, chief capital officer of Yuexiu Group, Zhu Weiqiang, vice president of Lingang Group, and Zheng Haining, CFO of the Ground Network of Cainiao Network, shared their practical experience of REITs in China. Bian Chao, Head of Securitisation Products of Shenzhen Stock Exchange was the host of this dialogue.

        Zhang Zheng: Release of the CRF China’s REITs Index: Cap Rate Index of Commercial Real Estate

        Zhang Zheng, professor of the Department of Finance, Guanghua School of Management, Peking University, executive director of PKU Guanghua’s China REITs Research Center  

        Zhang Zheng, professor of the Department of Finance, Guanghua School of Management, Peking University and executive director of PKU Guanghua’s China REITs Research Center, officially released the CRF China’s REITs Index: Cap Rate Index of Commercial Real Estate at the annual conference.

        Professor Zhang said that in the block trading market of commercial real estate, the cap rate can truly reflect the relationship between property operating income and value, and is widely concerned by both parties of the transaction. Therefore, studying the capitalisation rate of block trading cases is of great significance to pricing of REITs real estate assets.

        With the support of research and data provided by PKU Guanghua’s China REITs Research Center, GSUM Capital and Cushman & Wakefield, the China REITs Forum (CRF) launched an “Investigation on China’s REITs Index: Cap Rate of Commercial Real Estate”, which aims to provide a reasonable benchmark index for the construction of the pricing system of China REITs real estate assets by analysing the professional judgments of domestic commercial real estate market participants on properties of various types in different cities in the block trading market.

        The capitalisation rate (net property income/property transaction consideration) index in the block trading market of commercial real estate published at the annual conference provides a reasonable pricing basis of the underlying property assets for the upcoming Chinese public offering REITs.

        Professor Zhang conducted an awarding ceremony for Cushman & Wakefield, and announced to regard “CRF ▏REITs Research” as the official designated information publishing platform of China REITs Forum.

         China REITs Forum

        Professor Li Yining said, “There will be no future for economics if we do not consider China’s reality.” Economics is a subject that governs and benefits the people. We cannot study it only for the sake of study. Instead, we should study it in order to solve the practical problem in China’s economy.

        In June last year, Guanghua School of Management, PKU and GSUM Capital jointly launched the “China REITs Forum”. The Forum is committed to researches, exchanges and promotion of the REITs field, and is designed to promote the construction and development of China’s REITs market through academic, policy and industry researches at the highest standard, and become a professional provider for market infrastructure of China’s REITs.

        From July 2017 to January this year, Guanghua professors and other industry experts have worked at PKU Guanghua’s China REITs Research Center to participate in the research. Referring to the case studies and analyses provided by GSUM Capital, and maintaining close communication with the government and relevant regulators, the Research Centre has published nine white papers to date. Summarily, the reports describe the construction of China’s REITs system, forecasts the scale of China’s REITs market, and gives a detailed and in-depth study on the management pattern and innovative development of China’s REITs.

        At the inaugural China REIT Forum last year (Topic: Construction of China’s REIT Market), experts, scholars and industry professionals discussed how to promote the introduction of relevant laws and regulations and the development of industry standards, implement industry best practices, and create a communication platform for regulatory, industry bodies and academic institutions. This augurs well for the establishment of a Chinese REIT market in the very near future.

        (Guest opinions are given in the order of their speech deliveries)

        ? 2019 Guanghua School of Management Peking University

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