Public REITs, listed companies, performance commitments, risk mitigation
For the first time, Jia Jiamei Consumer REIT introduced a performance commitment mechanism. Listed in March 2024, Jiajin Beauty Consumer REIT introduced a performance commitment mechanism, promising that if the fund fails to reach the expected amount available for distribution in the first five years of listing, the original owner and its related parties will give up the dividends of the corresponding shares, and give priority to protecting other investors, considering that the total share holding ratio of the original owner and its affiliates in the previous five years is 51%, only when the actual amount available for distribution is lower than the expected 51% of the extremely unlikely event occurs, it will damage the expected dividends of other investors. Therefore, this performance commitment is highly achievable, and it has become the first and only public REITs in the public REITs market to have a performance commitment mechanism. Considering that the performance commitment mechanism of listed companies in mainland China is relatively mature, this paper mainly provides guidance for the future development of the performance commitment mechanism of public REITs through the study of the performance commitment mechanism of listed companies.
The performance commitment mechanism is a common risk mitigation method in the mainland capital market and has been widely used in listed companies. In 2008, listed companies in mainland China introduced a performance commitment mechanism, and the policy encourages the establishment of a performance commitment mechanism in major asset restructurings, especially related asset restructurings. The performance commitment mechanism shall comply with the relevant information disclosure requirements. From an empirical point of view, the performance commitment mechanism has a positive incentive effect on the operation of the acquired company and helps to increase the stock price in the secondary market, but the excessive performance commitment in high-premium mergers and acquisitions is often difficult to achieve and the effect is not good. From 2017 to 2018, the number of listed companies that did not meet their performance commitments accounted for 30.8% and 33.2% of the number of listed companies involved in performance commitments in the same period.
From the perspective of short-term data, the operating data of Jia's physical beauty consumer REIT and the secondary market after listing are better than other consumer infrastructure REITs, which may reflect that the performance commitment mechanism has played a certain effect, but the medium and long-term effects remain to be seen. The occupancy rate, revenue, profit and distributable amount completion rate of Jia Physical Beauty Consumer REIT are all higher than those of the other two consumer infrastructure REITs, and it has achieved a positive yield of 6% since its listing, which is better than that of the other three consumer infrastructure REITs.
It is difficult to fully apply the performance commitment mechanism of public REITs in the short term, and individual cases will still occur. Unlike regulatory documents requiring listed companies to set up a performance commitment mechanism in major asset restructurings, the regulator has not yet issued a formal document requiring public REITs to set up a performance commitment mechanism, and the performance commitment mechanism, as a strong constraint on the original equity holders, may not be fully applied in the short term. The performance commitment mechanism of Jiajia physical beauty consumer REIT provides a certain reference for the subsequent listing and issuance of public REITs, especially for property rights REITs whose performance is vulnerable to emergencies, and the subsequent public REITs with performance commitment mechanism will refer to Jiajia physical beauty consumer REIT to a certain extent, combined with the characteristics of REITs and specific infrastructure projects, but investors need to pay attention to the realizability of performance commitments and avoid the trap of high performance and high premium.
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