The Capital Water REITs Valuation And Risk Research

Since 2008,along with the rapid growth of China’s economy,the amount of investment in infrastructure construction projects across the country has been gradually increasing.Currently,China’s infrastructure sector has ushered in an era of stockpiling,with a large amount of quality infrastructure in stock.As a result of the new crown pneumonia epidemic,the short-term macroeconomic downward pressure has increased.In this context,China has launched public infrastructure REITs(Real Estate Investment Trusts)at the right time.The most innovative financing tool,which breaks through the limitations of the traditional financing model,revitalizes a large amount of high-quality stock assets,and provides a brand new financing channel for infrastructure construction,will help reduce the financial leverage of enterprises and alleviate the debt burden of local governments.China’s public infrastructure REITs are launched on the basis of the previous development of REITs,fully borrowing and absorbing the development experience of mature foreign REITs market and combining with the actual situation in China.It gives full play to the factor allocation function of the financial market,making finance more effective in serving the entity and promoting better development of China’s infrastructure construction sector.The first public infrastructure REITs are listed on the Shanghai and Shenzhen exchanges in 2021,and the valuation and risk research on them is important for their underlying asset management and risk prevention and control of project operations.This thesis focuses on the valuation and risk study of the first REITs in the water industry-First Water REITs.Firstly,we introduce the concept of REITs,and sort out the theories related to the valuation and risk of REITs.Then,we introduce the basic situation of the first water REITs from the project level and the underlying asset level,so as to prepare the theoretical and practical situation for the following analysis.In terms of value assessment,based on the characteristics of public infrastructure REITs,the FFO(discounted cash flow from operations)model is selected to value them based on the income approach.A Monte Carlo simulation method was introduced to forecast the amount available for distribution,and the sewerage service charge and sewerage treatment volume as well as the discount rate were set as key variables,and their distribution was reasonably assumed for 10,000 simulations.The final valuation range is(166,543.1,207,211.8)million RMB,and the fluctuations in value can be attributed to reasons at the operational level of the project and at the operational level of the underlying assets.When considering the better and worse case scenarios for the project and underlying assets respectively,the valuation of the First Water REITs is RMB 207,218,000 and RMB 166,543,000,respectively.However,when considered together,the average of the valuation results of the First Water REITs is around RMB 1.838 billion under the general level of operational risk,which is a slight decrease compared to the initial amount raised of RMB 1.85 billion,and the degree of decrease is in line with the changes in the value of its water plant concessions,providing some reference to the intrinsic value of the First Water REITs.It also shows that the FFO discount model based on the income approach can be used for the value assessment of public infrastructure REITs,providing some reference for the valuation of subsequent related products.In terms of risk analysis,the risks are firstly analyzed qualitatively at the project level and the underlying assets level,and then a GARCH-Va R model is constructed to analyze the risks quantitatively.The closing prices of the first water REITs for 295 trading days from June 21,2021 to September 5,2022 are selected to construct its log-day return series,and descriptive statistics,ADF(smoothness)test and ARCH(conditional heteroskedasticity)test are performed.Also,the series is smooth and has ARCH effect.Therefore,the GARCH-tVa R model is selected for the measurement of the first water REITs in this thesis.The ARMA(autoregressive sliding average)model is first established,and the lag order of the GARCH model is determined by comparing the AIC,SIC and HQ values.The GARCH(1,1)model is finally selected to calculate the Va R values of the First Water REITs at 95% and 99% confidence levels,and the results show that the maximum value is about 1.4%.In the validity test,the GARCH model model is valid up to 96.3% at 99%confidence level.In the study of scholars on Va R measures of REITs in various industries on global exchanges,the lowest value is 2.48% for the industrial storage category.Based on this,this thesis concludes that the risk level of First Water REITs is low.Moreover,the GARCH-t-Va R model has a good fit and predictive power in studying the risk of public infrastructure REITs products.In summary,this thesis conducts a valuation and risk study of the first water REITs.On the one hand,it better assesses the current intrinsic value of the first water REITs and the risk level of the products,and provides some reference for their investment.On the other hand,it broadens the methods and paths of valuation and risk analysis of public infrastructure REITs,and provides some reference for the study of related REITs issued in the subsequent years.