In the first half of this year, rental housing REITs rose by 16.56%, ranking first among all public REITs, far surpassing the second industrial park REITs (9.58%) and the third warehousing and logistics REITs (2.76%), mainly due to the stable yield of affordable rental housing and the ability to resist economic cycles. Among them, Huaxia Beijing Affordable Housing REIT and CICC Xiamen Anju REIT both rose by nearly 20%, performing well. In addition, three rental housing REITs, namely ChinaAMC Beijing Affordable Housing REIT, Hongtu Innovation Shenzhen Anju REIT, and China Resources Youchao REIT, have successively announced their expansion and launch, further confirming the long-term and growth of the rental housing market.
In summary, the characteristics of the rental housing REITs market in the second quarter are as follows:
Feature 1
Leasing revenue increased slightly year-on-year in Q2 2023
Table 5: Comparison of income of rental housing REIT funds
Data source: REIT quarterly announcements, compiled by ICCRA
From the perspective of the operating income of the project company, the overall rental housing REIT increased year-on-year in the second quarter. Specifically, the operating income of China Resources Youchao REIT, Shenzhen Anju REIT and Xiamen Anju REIT all increased to varying degrees from the previous quarter and the second quarter of 2023 year-on-year, on the one hand, thanks to the stable rental fundamentals of the cities where they are located, and on the other hand, based on the fact that the projects have entered a mature and stable operation period. The operating income of Huaxia Beijing Affordable Housing REIT decreased significantly on a month-on-month and year-on-year basis, with the quarter-on-quarter decline mainly due to a large decline in rental levels and a year-on-year decrease attributable to the decline in occupancy levels. Compared with the second quarter of 2023, the average increase in operating income of rental housing REITs was 0.6%.
Feature 2
Affected by the fundamentals of the city,
The occupancy rate of most rental housing REITs decreased year-on-year
In terms of occupancy rate, except for the year-on-year increase in the occupancy rate of Chengtou Kuanting REIT (mainly due to the fact that the project is still in the ramp-up period in the second quarter of 2023 and the occupancy rate level is at a low level), the occupancy rate of the remaining REITs has shown a slight year-on-year decline, but on the whole, these REITs are better than the average level of the cities where they are located.
Table 5: Occupancy rate of rental housing REITs (2023Q1-2024Q2)
数据来源：REIT各季度公告，Leading Data by ICCRA
Note: 1) The above occupancy rates are the occupancy rates at the end of the period; 2) Based on the availability of data, the overall occupancy rate and rental level of China Resources Youchao REIT are calculated based on the disclosed number of all rental rooms and rental area
数据来源：REIT各季度公告，Leading Data by ICCRA
After more than a year of quarterly monitoring (2023Q1-2024Q2), ICCRA further used the statistical concept of standard deviation to analyze the stability of several rental housing REITs in terms of occupancy rates. Standard deviation is a measure of how far data is dispersed, reflecting how far each data point deviates from its mean. The analysis results show that, except for China Resources Youchao REIT and Chengtou Kuanting REIT, which have slightly higher standard deviations of occupancy rates, the standard deviations of the occupancy rates of several other REITs are less than 1%, which indicates that these REITs have shown high stability in terms of occupancy rates, highlighting their reliability in the market and the effectiveness of their management teams in maintaining high occupancy rates.
Table 5: Standard deviation analysis of the occupancy rate of rental housing REITs
Source: ICCRA calculations
Feature 3:
Demonstrated effective rent and yield management capabilities
In terms of rental level, in the second quarter of 2024, except for the Chengtou Kuanting REIT, which decreased slightly year-on-year, the rest of the REITs all rose to varying degrees year-on-year. On the one hand, the rent level of the five rental housing REITs reflects the changes in the average rent level of the city where they are located, such as the steady increase in the overall rent level in Beijing (year-on-year in 2023Q2), and the year-on-year decline in the rent level in Shanghai (mainly due to the excessive supply, which can only sacrifice the rent level under the goal of relatively anchoring the occupancy rate), especially in the area where the two underlying assets of the Chengtou Kuanting REIT are located, the average rent level has decreased significantly.
Table 5: Rental Level of Rental Housing REIT (2023Q1-2024Q2)
数据来源：REIT各季度公告，Leading Data by ICCRA
数据来源：REIT各季度公告，Leading Data by ICCRA
Feature 4
Profitability at the project company level fluctuates
EBITDA (earnings before interest, taxes, depreciation and amortization) is an important indicator to evaluate the operating efficiency of REIT project companies. High EBITDA means that REIT project companies are making more profit on their core business. Judging from the data of the second quarter of 2024, the performance of several REITs varied, with Xiamen Anju REIT and Beijing affordable housing REIT showing significant sequential fluctuations, while the remaining REITs performed steadily in maintaining and increasing their EBITDA. In addition, except for China Resources Youchao REIT, the company-level EBITDA of the remaining rental housing REITs all decreased or remained flat year-on-year in the first quarter of 2023, with an average decline of -0.1%.
Data source: REIT quarterly announcements, compiled by ICCRA
Note: The net profit before interest, taxes, depreciation and amortization mentioned in the above table is at the project company level
Feature 5
The proportion of corporate tenants is decreasing,
Tenant diversity helps to enhance the stability of REIT returns
The stability of the tenant structure is one of the key indicators of the health of the rental housing market. In addition to Shenzhen Anju REIT, the proportion of individual tenants of several other rental housing REITs further increased in the second quarter, highlighting the importance of tenant diversity to the stability of REITs.
Data source: REIT quarterly announcements, compiled by ICCRA
Note: The data of China Resources Youchao REIT is for the second quarter of 2023
Feature 6
The rental collection rate continued to grow steadily
The rental collection rate is one of the key indicators to measure the operational efficiency of REITs, which reflects the stability and predictability of cash flow. Overall, these five REITs all showed a high rental collection rate and stability, with a slight increase in the first quarter of the year, such as the rent collection rate of China Resources Youchao REIT, which increased by 1.3 percentage points year-on-year. In general, if the leasing strategy, market environment and tenant structure remain stable, the rent collection rate can be increased through effective tenant management and an optimized collection process.
Data source: REIT quarterly announcements, compiled by ICCRA
Feature 7
The use of net recovered funds is clear
Judging from the use of net recovered funds of the five REITs, the commercial closed-loop model of fund recovery and reinvestment in the construction of rental housing has been realized.
■ China Resources Youchao REIT: As of June 30, 2024, the net recovered funds of the original equity holders were RMB598 million, and the total amount of net recovered funds used by the Shanghai Maqiao Project, Nanjing Jiangxinzhou Project and Shenzhen Longgang Project was RMB62.47 million, accounting for 10% of the net recovered funds. In the future, we will continue to use the net recovery funds to invest in the Shanghai Maqiao Project, the Beijing Yinghai Project, the Ningbo Fuming Road Project, the Nanjing Jiangxinzhou Project and the Shenzhen Longgang Project (or other approved rental housing projects).
■ Hongtu Shenzhen Anju REIT: The net recovery funds have been used up, and all of them will be used for investment in the Huafu North Shed Renovation Project in Futian District.
■ Xiamen Anju REIT: 64.4% of the net recovered funds were used, all of which were used for the investment of Linbian Apartment, Hujia Apartment, Longqiu Apartment, Hongmao Residential Area Phase I, Longquan Apartment (Phase I), Longquan Apartment (Phase II), Gudishi Apartment and Meifeng Apartment.
■ Beijing Affordable Housing REIT: All net recovered funds of 724.6259 million yuan have been fully used for the construction of the housing project of the remaining plots of the coking plant.
■ Chengtou Kuanting REIT: More than 60% (inclusive) of the net recovered funds will be used for the construction of Jiuxing Community Project, Zhangjiang Community (South Block) Project, Xinbei Road Community Project or other approved rental housing projects; No more than 30% of the net recovery funds will be used for the equity acquisition of external shareholders of the Jiuxing Community Project or other approved projects to revitalize the stock assets, and no more than 10% of the net recovery funds will be used to supplement the working capital of the original equity holders.