Guotai Junan: REITs market overall recovery, sector differentiation pattern continues.

Guotai Junan released a research report stating that based on the third quarter reports of REITs, there is differentiation in the performance of underlying asset operations among different sectors, with some projects experiencing fluctuations in operations due to negative influences. It is necessary to pay attention to the sustainability of these impacts. The energy sector has experienced high operational fluctuations in the short term due to weather conditions, and it is recommended to take a relatively long-term view. Sectors such as warehousing and logistics, industrial parks, and highways continue to be under pressure due to economic fundamentals, while the consumption sector's operational data continues to steadily increase month-on-month. Guotai Junan's main points are as follows: From the perspective of supply and demand, although new supply may remain high in 2025, the valuation of REITs is expected to maintain or rise in the context of a broad asset shortage. Horizontally comparing, REITs have high relative allocation value. Firstly, REITs have strong dividend-like asset properties. When there is a pullback in the equity market or marginal downward trend in mid- to small-cap stocks, REITs may see an alternative allocation rise. Secondly, as bond market continues to break new lows and absolute highs imply risk, REITs inherently have fixed income-like properties compared to other assets. Lastly, with the economic work conference setting the tone, policies will continue to be refined and implemented, and some underlying assets, especially cyclical ones, may experience elastic changes, potentially bringing excess returns. Looking at the secondary market of REITs, there may be hidden opportunities in the following three categories: 1. As risk-free interest rates continue to decline and profit space in the bond market decreases, investors leaning towards fixed income investments may favor REITs products in weak cycle sectors such as affordable housing. 2. Some projects may have lower-than-expected performance in underlying assets, potentially offering room for stock price appreciation. Investors can position themselves early and wait for valuation reversion or potential opportunities from performance reversal. 3. Since 2024, some newly issued REITs projects have income distribution adjustment mechanisms that can be explored for strong cyclical projects. Combining short-term performance security with long-term performance reversal strategies may lead to relatively stable returns. In 2024, the domestic issuance of REITs surged, with 25 new REITs listed by December 16, raising a total of 54.1 billion yuan, all reaching historical highs. In terms of variety, new listings include hydroelectric energy infrastructure, onshore wind energy infrastructure, consumer infrastructure, and water conservancy infrastructure. Among them, consumer infrastructure had the largest scale with 7 listings and a total issuance of 19.8 billion yuan, making it the largest REITs category in terms of newly added scale in 2024. The overall performance of the REITs secondary market in 2024 has been good, but there is significant differentiation among specific sectors. Specifically, as of December 16, the China Securities REITs Total Return Index has risen by 12.75% since 2024, with property and franchise-based REITs rising by 15.52% and 14.76% respectively. In terms of underlying assets, the increase is as follows, from high to low: water conservancy (37.45%), affordable housing (37.18%), energy (25.00%), environmental protection (21.54%), consumption (16.87%), industrial parks (13.51%), transportation (8.44%), warehousing (1.42%). While the overall REITs market has seen a recovery, the differentiation between sectors continues. Based on the third quarter reports of REITs, there is differentiation in the performance of underlying asset operations among different sectors, with some projects experiencing fluctuations in operations due to negative influences. It is necessary to pay attention to the sustainability of these impacts. The energy sector has experienced high operational fluctuations in the short term due to weather conditions, and it is recommended to take a relatively long-term view. Sectors such as warehousing and logistics, industrial parks, and highways continue to be under pressure due to economic fundamentals, while the consumption sector's operational data continues to steadily increase month-on-month. Risk warning: Unexpected REITs policy releases, deterioration in the operation of underlying assets.