DNE establishes Pre-REIT fund for the second time, planning another expansion

DNE is accelerating preparations for the expansion of DNE New Economy REIT.

After disclosing the first expansion plan in March, DNE recently jointly established a 500 million yuan Pre-REIT fund with Shenwan Hongyuan to cultivate high-quality intelligent manufacturing industrial parks and continuously provide project reserves for the expansion of DNE New Economy REIT.

It is understood that the fund is officially named "DNE Shenwan Hongyuan Intelligent Manufacturing Infrastructure Industrial Park Fund" and plans to invest in projects located in Shanghai's core industrial areas and the Yangtze River Delta region. DNE will act as the manager of the joint venture platform, providing a series of asset management services including investment, development, and operational management.

This is the second Pre-REIT fund established by DNE, and it is possible that more Pre-REIT funds will be launched in the future to promote the expansion of REITs projects.

The Expansion Path of DNE New Economy REIT

Bringing more industrial parks into the public REITs market has become a key focus for DNE.

Currently, DNE manages over 130 projects with a total construction area exceeding 14 million square meters and an asset management scale of over 110 billion yuan, covering various new economy product types such as warehousing and logistics, biopharmaceuticals, and industrial parks. These projects are all considered potential expansion assets.

However, infrastructure projects, as the underlying assets of public REITs, typically require a long period of cultivation and operation to achieve stable and continuous cash flow and profitability. Before reaching this stage, infrastructure assets are difficult to qualify as eligible assets for public REITs. The funding for industrial park assets has been the biggest challenge DNE has faced.

To facilitate asset cultivation, even before the successful issuance of DNE New Economy REIT, DNE collaborated with institutions such as AVIC Trust, China Merchants Bank, Shanghai Lingang, and Beijing Electronics City to issue industrial funds to address investment and operational challenges in industrial parks.

After the listing of DNE New Economy REIT, to more quickly cultivate related assets for future expansion, DNE partnered with China Life to launch a 3 billion yuan Pre-REIT fund, also preparing for expansion, with investment targets in intelligent manufacturing industrial parks in the Yangtze River Delta region.

As is well known, Pre-REITs primarily target assets with the potential to issue public REITs. Investors intervene early in the construction, operation, and cultivation of these assets and, when the time is ripe, prioritize exiting through public REITs. Projects can also use Pre-REITs as an equity financing method to reduce corporate debt levels.

For new projects, Pre-REITs can be tailored for public REITs, with targeted evaluation and design starting from the site selection phase. Funds raised can be used for project construction and even land acquisition. For acquired projects, minimal costs can be incurred for renovation and enhancement to meet the high requirements of public REITs for project maturity and yield.

As of now, DNE has not disclosed the cultivation progress of the 3 billion yuan Pre-REIT fund in collaboration with China Life. However, judging from DNE's expansion progress, the cultivation of related assets appears to be proceeding smoothly.

According to previous announcements, DNE New Economy REIT's first expansion will select three industrial park projects in Nantong and Chongqing, officially taking the first step in expansion. It is understood that these projects are already operational.

If successful, DNE New Economy REIT will become the first public REITs project to expand by acquiring standard factory assets, increasing the number of underlying asset projects from the original four to seven, thereby further enhancing the fund's overall asset scale and returns.

Normalization of "Initial Issuance + Expansion"

To date, the public REITs market has developed for three years, with 36 products listed and the overall market issuance scale exceeding the 100 billion yuan mark. Projects cover various asset types such as toll roads, industrial parks, water utilities, warehousing and logistics, clean energy, affordable rental housing, and consumer infrastructure.

Among them, four REITs products have achieved expansion, namely Bosera Shekou Industrial Park REIT, Red Soil Innovation Yantian Port REIT, Hua'an Zhangjiang REIT, and CICC PGL REIT, with a total fundraising amount exceeding 5 billion yuan.

At the same time, more public REITs products are accelerating their expansion efforts. In addition to DNE New Economy REIT, Fullgoal Capital's 首创水务 expansion is in the feedback stage, and AVIC Jinneng Photovoltaic's expansion has been accepted. Among them, AVIC Jinneng Photovoltaic REIT is also the industry's first mixed-asset expansion project, pushing the public REITs market from single-asset expansion into the 2.0 era of mixed-asset expansion.

The market believes that in the future, the "initial issuance + expansion" dual-driven issuance of public REITs will become normalized, thereby further promoting the growth and development of REITs business.

Guotai Junan Asset Management has pointed out that the core of REITs growth lies in expansion, which can help build brands and enhance secondary market performance. From the experience of mature overseas markets, the REITs market mainly relies on expansion to achieve scale growth and sustainable development.

Taking the U.S. market as an example, as of the end of September 2023, the total market value of U.S. REITs was approximately $1.2 trillion, but there were only about 200 REITs. In recent years, the annual expansion scale of U.S. REITs has been between $30 billion and $50 billion, with expansion making a significant contribution.

Guotai Junan Asset Management further noted that market-oriented mergers and acquisitions will become an inevitable trend in future expansion development; expansion capability will become an important evaluation criterion for REITs vitality; and expansion can optimize asset portfolios and enhance management levels.

In addition, the increase in fund size and the introduction of new investors brought by expansion will help improve the secondary market liquidity of funds. For investors, expansion also helps further diversify geographic risks in asset portfolios, improve the efficiency of underlying asset management, and continuously create stable returns and enhance investment performance.