In the design of the infrastructure public REITs system, as far as the scope of investors is concerned, there are not only institutional investors such as banks, trusts, brokerages and funds, but also public investors. According to the regulations, of the total size of the issued infrastructure public REITs funds, less the proportion of not less than 20% to be held by the issuer itself (or held by related parties), the remaining portion will be offered to not less than 70% to institutional investors and about 30% to public investors. It also stipulates that the fund must have no less than 1,000 investors. Thus, it seems that the regulators are hoping that individual investors will participate in public REITs investment and share the dividends of national development. So is it worth investing in infrastructure public REITs for individuals?

  I. What are infrastructure public REITs for the general public?

  For individuals, to invest in something, they must first figure out what they are investing in. In terms of personal investment varieties, the broad asset classes that the public is familiar with are bank wealth management, funds, stocks and real estate. These four assets are known to the general public for their characteristics and meanings (public funds are also known to an increasing number of the public because of their outstanding performance in the past year or two, and were not previously known to the public). What type of assets do infrastructure public REITs belong to?

  There is a clear definition of infrastructure public REITs, which is not easily understood by the public due to the professionalism of its definition formulation. We now summarize it and transform it into a definition that the public can understand as follows

  Infrastructure public REITs are a kind of public fund that is publicly issued by a fund company to raise investors’ funds to invest in infrastructure projects, and the fund manager actively manages the infrastructure projects and distributes the stable income obtained from the project rents and fees to the investors on a regular basis.

  Combining the requirements and regulations of the system for REITs, we can summarize the characteristics of public offering REITs for infrastructure as

  (i) The form of public REITs is a fund

  That is to say, the way for individuals to invest in public REITs is to purchase fund products issued by fund companies, and REITs are a kind of public fund.

  (2) The type of assets invested in public REITs funds is infrastructure-type projects

  Before public REITs, individuals bought funds, which were divided into bond funds (mainly invested in bonds), equity funds (mainly invested in stocks) and hybrid funds (invested in bonds + stocks). Public REITs, however, do not invest in bonds or stocks, but in infrastructure projects. What is an infrastructure project? It is the highway, sewage and garbage treatment plant, water, electricity, gas and heat projects that we can see in our life. In addition, infrastructure projects do not include real estate projects, and public REITs funds cannot raise funds to buy commercial real estate.

  (iii) Active management of projects by fund managers

  The purpose of an individual buying a traditional fund is to hand over funds to a professional fund manager to invest in stocks and bonds in order to obtain a certain amount of income. To buy public REITs funds is to hand over the funds to professional fund managers to invest in infrastructure projects, with the fund managers actively managing the projects in order to obtain returns.

  (iv) The main source of investors’ income is the income generated from infrastructure projects

  Infrastructure public REITs invest in transportation and municipal engineering projects. The characteristics of such projects are that they involve people’s livelihood and can generate stable cash income. For example, a highway that collects highway tolls based on tolling rights; water, electricity and gas supply companies collect fees based on providing water, electricity and gas to the people. The fund manager will acquire the income generated by the infrastructure project and distribute it to the investors on a regular basis.

  To sum up, an individual investing in public REITs is actually buying a special type of fund, which invests in purchasing infrastructure-type projects such as highways, water, electricity, gas and heat, and distributes the income obtained from the projects to the investors.

Second, are infrastructure public REITs worth investing in for individuals?

  To study whether something is worthy of personal investment, we should look at it from the following two perspectives: first, whether it has value; second, whether it is suitable for personal investment.

  (i) Analysis on the value of infrastructure public REITs

  Investing in infrastructure public REITs is, to put it in perspective, investing in infrastructure projects. What is the value of these projects?

  1. The industry in which the project is located determines that it can generate stable income

  When it comes to investment projects, we must first understand what kind of project the project is and what industry it belongs to. The underlying project of infrastructure public REITs investment belongs to the infrastructure industry, from Baidu we can look up the definition of infrastructure “infrastructure (infrastructure), refers to the social production and residents to provide public services of physical engineering facilities, is used to ensure that the normal socio-economic activities of the country or region Public service system.” From the definition we can see that infrastructure has public attributes, is the general material conditions for the survival and development of society, and is the basis for the development of the national economy. Projects in this industry, such as rail transportation, water, electricity, gas and heat, are closely related to the basic life of the general public. Simply put, wherever there are modern people living, infrastructure is needed. This characteristic determines that infrastructure can generate stable revenue. How stable are its returns? Even during an epidemic in 2020, when socio-economic activities are basically halted, infrastructure-type projects can still generate cash inflows.

  1. The area where the project is located is a core development area in the country   Since infrastructure projects are the basis of socio-economic activities, the more people there are, the stronger the demand for infrastructure and the better the revenue generated. A waste incineration plant in a city with a population greater than 10 million will generally generate more revenue than a small county. So although infrastructure-type projects have the characteristics of generating stable income, but the projects in different regions, the differences are relatively large, investment or to look at the region, depending on the specifics of the project.   3. Projects with stable dividends   REITs are a financial investment tool that has been developed in developed countries around the world, such as the U.S., U.K., Japan, Australia, Singapore, etc. An important feature of REITs is that they pay stable dividends. There are two reasons for this feature: first, the investment project is real estate, which can collect rents and fees every year, generating stable income; second, the system requires mandatory dividends, that is, the money earned to be distributed to investors, and can not be kept for other investments. 2010, the U.S. REITs products dividend rate is stable at around 4%, while the overall dividend rate in the Asia-Pacific region is higher, taking Singapore as an example. The Singapore REITs Index (S-REITs) has paid an average dividend rate of 5.8% since 2010. The dividend rate here is not the rate of return, but the actual cash received by the investor. For example, if the dividend rate is 5% for a $100 investment in REITs, then at the end of the year, you will get $5 in dividends. In the design of China’s REIT system, there is also a mandatory dividend requirement, according to which “infrastructure funds adopt closed-ended operation, and the proportion of income distribution shall not be less than 90% of the annual amount available for distribution from the consolidated fund.” Since infrastructure projects are likely to generate stable income and there is a mandatory dividend requirement, investors will receive a stable dividend every year.   4. The project has room for future appreciation   As an investor in REITs, you will not only receive dividend income, but also enjoy the appreciation of the underlying assets. The value-added of infrastructure projects is mainly reflected in the following aspects.   (1) The income generated by the project has a certain degree of growth. For example, a highway, because of the economic development of the region where it is located, the traffic flow increases and the highway tolls collected will also increase, leading to an increase in revenue for the entire project.   (2) Improved project management and reduced expenditure costs. Due to historical reasons, many infrastructure projects are not market-based operations, resulting in large operating costs and squeezing operating profits.   (3) Rapid market development brings value-added projects. For example, with the rapid development of e-commerce and express industry, the current demand for logistics warehousing is increasing day by day, and the rent of logistics warehouses is growing faster and the value-added of the project is larger. Especially in first- and second-tier cities with large population bases and inflows, warehouse and logistics projects are adding value more quickly.   To sum up, public REITs projects are infrastructure-type projects in core areas, which can generate stable income and at the same time have room for appreciation, and are high-quality assets with investment value.

(ii) Suitability for personal investment

  Some assets have value, but it does not mean that it is suitable for the general public to invest. For example, antiques and cultural relics have value, but they are not suitable for ordinary people to invest because they require strong professionalism; corporate bonds have value, but they are not suitable for the general public to invest because their scale is often hundreds of millions of dollars. Are public REITs for infrastructure suitable for personal investment? From the history of the development of REITs in various countries, one of the original intentions of launching REITs was to allow the general public to participate in real estate investment and share the dividends of real estate appreciation. The experience of the United States, Japan, Singapore and other countries also shows that RETIs are a popular investment by the general public.

  1. The general public can understand

  There is a saying in the capital market that “make money within your own knowledge”. For the general public, if they do not have certain professional knowledge and experience, and do not understand the investment logic of stocks, it is difficult to make money in the stock market, because stocks are beyond the cognitive scope of many people. For infrastructure REITs projects, the general public can understand them because they are inherently related to people’s livelihood. For example, if an airport toll highway is brought to REITs, it is believed that residents, people on business and travel, will be able to conduct project due diligence on the highway and also judge the operation of the road based on the level of traffic congestion, road condition information, etc. The projects invested in infrastructure REITs are basically projects that the general public can understand.

  2. Investment income can resist inflation

  In order not to depreciate the value of the wealth held in their hands, the public choose to make investments, one of the important demands is to beat inflation. Infrastructure projects, the source of income is stable, but not unchanging. For example, in the logistics and warehousing industry, even if the industry is not growing rapidly, the rents of logistics warehouses are periodically adjusted in a balanced supply and demand situation, based on the existence of inflation, where the landlord transfers the cost of inflation to the tenant. REITs projects, have the ability to pass on rising operating costs downstream, allowing their revenues to keep up with price increases in times of inflation, albeit with some lag. As investors in REITs, they will naturally receive inflation-adjusted dividend income, which is inflation-proof.

  3. Stable cash flow can “carry the cycle”

  Among the major investment categories, real estate is popular among the people because, in addition to being understandable, one of the important reasons is that real estate can generate rent, and if the owner does not live in the house, he can rent out the house to get rent during the holding period. If an asset can generate a stable cash flow during the holding period, then the asset has a characteristic that it can “carry the cycle”. In other words, even if the asset has price fluctuations due to changes in the economic cycle, investors can hold on to it for a long time when the economy is bad and prices are low, because the asset has cash flow income at the trough. Obviously, the basic implementation of public REITs projects can generate stable cash flow, and under the mandatory dividend arrangement, investors can get a good dividend income, so even if there are price fluctuations, individual investors have the courage to hold for a long time to achieve “carry the cycle”.

  4. Strict regulatory requirements

  Comparing the financial products in the market, we find that the regulators have the strictest requirements for public funds. This is mainly reflected in: prior approval and filing, cash receipts and expenditures are regulated, investment investment direction is required, and information disclosure must be timely, etc. The choice of “public fund” as the vehicle for infrastructure public REITs is also a kind of protection for investors. Comparing the information disclosure requirements during the operation of infrastructure public REITs, we find that they are as strict as, or even stricter than, those of listed companies in some aspects, such as the requirement to revalue the project once a year.

III. Several issues to note when investing in infrastructure public REITs

  In the process of choosing to invest in infrastructure public REITs, individuals should also pay attention to the following issues.

  (i) REITs are suitable for investment groups with moderate risk appetite

  The most important feature of infrastructure public REITs is that they have stable dividends and moderate risk. Investors can receive a certain amount of dividends each year and also share in the project’s value-added income. Therefore, they are suitable for investors who are not satisfied with the return level of bank wealth management and want to get a higher return, but do not want to bear the volatility and high risk like stocks. This group of investors is in between the risk averse type with low returns and the risk appetite type with high returns.

  (2) REITs are not capital preservation financial products

  Although the projects of infrastructure public REITs are in the core area, with stable operation and can generate stable cash flow, and are relatively high-quality assets, it does not mean that REITs products are capital-protected financial products, unlike time deposits, which are backed by banks to guarantee the return of principal and interest in the agreed period. After the issuance of infrastructure public REITs funds, the price is still subject to fluctuations and there is no rigid principal and interest repayment arrangement, and the investment risk needs to be borne by investors.

  (iii) Infrastructure public REITs are closed-end funds

  According to the RETIs system documents, the infrastructure public REITs funds issued by fund companies are closed-end funds in type, and investors cannot make subscriptions and redemptions at any time after purchase, like open-end funds. Investors who want to exit have to trade in the secondary market, just like buying and selling stocks. In order to improve the liquidity of REITs, regulators have arranged a market maker system, and also set up arrangements such as competitive bidding and block trading to meet the needs of investors’ transactions.

  In summary, we can see that the launch of infrastructure public RETIs provides a broad asset class to enhance residents’ property income, provides a channel for the general public to make asset allocations other than bank wealth management, stocks and properties, and allows the public to share the dividends of infrastructure construction and development, reflecting the inclusive nature of finance.