Ⅰ Definition of Publicly Offered Infrastructure REITs

The publicly offered infrastructure securities investment funds (hereinafter as publicly offered infrastructure REITs) refer to standardized financial products that are publicly raised from investors to form fund assets in accordance with the law, and hold infrastructure projects through special purpose vehicles such as infrastructure asset-backed securities, whose fund managers actively manage the above-mentioned infrastructure projects and distribute most of the income generated to investors. According to regulations, the publicly offered infrastructure REITs are listed and traded on the stock exchange.

Infrastructure asset-backed securities refer to those issued to investors representing infrastructure property or a share of property rights and interests that use the cash flow generated by infrastructure projects as the source of reimbursement and the infrastructure asset-backed special plans as the carrier according to the Regulations on the Asset Securitization Business of Subsidiaries of Securities Companies and Fund Management Companies and other relevant regulations. Infrastructure projects mainly include warehousing and logistics, transportation facilities such as toll roads, airports and ports, municipal facilities such as water, electricity and heat, pollution control, information networks, industrial parks and other infrastructure.

Ⅱ Significance of Publicly Offered Infrastructure REITs

Publicly offered infrastructure REITs are internationally accepted assets. They have the characteristics of high liquidity, relatively stable returns, and strong security. They can effectively revitalize existing assets, fill the gaps in current financial products, broaden social capital investment channels, and increase the proportion of direct financing, hence enhancing the quality and efficiency of capital market services for the real economy. In the short term, it helps extensively raise project capital and reduce debt risks as an effective policy tool to stabilize investment and make up for shortcomings; in the long term, it facilitates the conversion from savings into investment and deleveraging of the real economy, and promotes the healthy development of infrastructure investment financing towards a market-based and standardized direction.

Ⅲ Structure Features of Publicly Offered REITs

First, over 80% of the fund’s assets are invested in infrastructure asset-backed securities and hold all of its shares; the fund holds all the equity of the infrastructure project company through infrastructure asset-backed securities;

Second, the fund obtains full ownership or operating rights of infrastructure projects through special purpose vehicles such as asset-backed securities and project companies;

Third, fund managers take the initiative to operate and manage infrastructure projects, with the main purpose of obtaining stable cash flows such as rent and fees for infrastructure projects;

Fourth, closed-end operation is adopted and the income distribution ratio shall not be less than 90% of the annual distributable amount of the combined fund.

Structure of Publicly Offered Infrastructure REITs

Ⅳ Product Features of Publicly Offered Infrastructure REITs

Publicly offered infrastructure REITs can be classified as a kind of securities that go in tandem with stocks, bonds, funds, and derivatives. The products have the following characteristics:

First, publicly offered REITs can revitalize existing assets with increased valuation and a liquidity premium. At the same time, the product can provide incremental investment funds and improve debt levels through deleveraging, and help companies transform to "asset-light" operating models. In this way, the capital market can better serve the real economy;

Second, publicly offered REITs products use 90% of the fund’s annual distributable profits for distribution, with a high proportion of dividends. And because of the clear ownership of infrastructure projects, the cash flow is continuous and stable, making a satisfactory return on investment, filling the gap among existing financial products. The investment varieties are diversified and investors can easily invest in infrastructure projects with poor liquidity;

Third, the rules for publicly offered REITs products are transparent and sound. A listing review system has been established in accordance with the requirements for public offerings of securities, and complete specific business rules for sale, listing, transaction, acquisition, information disclosure, and delisting have been formulated. Infrastructure projects can use the open and transparent mechanism of the capital market to guide financial funds to participate in the construction of physical projects through capital market financing to achieve high-quality development.

Ⅴ Practice of Private REITs on the Shanghai Stock Exchange

The Shanghai Stock Exchange has actively explored and practiced, and has initially established a diverse and stable private REITs market. By the end of 2020, the SSE private REITs products have covered a variety of real estate types such as highways, warehousing and logistics, industrial parks, rental housing, commercial properties, etc. And the first infrastructure private REIT has been launched, which leads rounds of innovation in shelf-type and expandable products in the domestic market, accumulating rich practical experience for pilot publicly offered REITs.

In addition, the size of the Shanghai Stock Exchange's fund market accounts for more than 70% of the exchange market, whose underlying products cover multiple asset classes such as stocks, bonds, gold, currencies, etc., connecting exchange and OTC markets, domestic and overseas markets. The asset types of the ABSs cover all major basic assets such as accounts receivable, financial leasing, consumer finance, and infrastructure. The issuance scale exceeds 3 trillion yuan, and the market size accounts for about 70% of the exchange market.