Core Viewpoint - The article discusses the limitations of the current public REITs pricing model in China and proposes a two-stage pricing model that incorporates renewal and expansion factors to better assess the long-term value of REITs [1][2]. Current Public REITs Pricing Model and Its Limitations - The existing public REITs pricing model relies heavily on a finite-life discounted cash flow (DCF) model, which has shown systematic biases as the market matures [5]. - Key assumptions in the current model include fundamentals, discount rates, project duration, and terminal value, which may not fully capture the active management and long-term value of assets [4][6]. - The model typically assumes a terminal value of zero, which may undervalue the economic lifespan and usage value of property assets [6][8]. Two-Stage REITs Pricing Model - The proposed two-stage pricing model considers both renewal and expansion factors, particularly for property REITs [11]. - The first stage focuses on explicit growth during the initial years, while the second stage addresses terminal value based on long-term growth rates [18][19]. - The model aims to provide a more accurate valuation by incorporating the costs associated with land renewal and the potential for expansion [20]. Renewal Factor Pricing - The renewal of land use rights is a critical parameter in property project pricing, with significant implications as the expiration date approaches [12]. - Current policies regarding land renewal in China are not fully established, leading to uncertainties in the renewal process [13]. - Different countries have varying renewal policies, which can influence the financial costs and valuation of assets [13]. Expansion Factor Pricing - Expansion is a key avenue for REITs to achieve scale and enhance per-share earnings, relying on the manager's ability to leverage market valuation premiums for low-cost financing [18]. - Successful acquisitions that yield higher distribution rates than the current REITs level can create incremental value [18]. Long-Term Development of Public REITs - The article posits that the equity attributes of public REITs may contribute to the sustained development of the market, shifting focus from current cash flows to long-term intrinsic value and management growth capabilities [26][27]. - Strengthening the equity nature of public REITs is essential for correcting short-term pricing distortions and guiding the financialization of real estate in China [27][28]. Governance Mechanisms and Market Dynamics - The equity nature of REITs can stimulate the alignment of incentives between management and investors, enhancing the overall market efficiency [28][29]. - A shift towards a more diversified pricing system can help avoid "value traps" and promote a healthier market environment, allowing for better capital allocation to high-quality infrastructure and commercial real estate [28][30].

1. Report Industry Investment Rating No relevant content provided. 2. Core Viewpoints of the Report - Despite a significant correction in the secondary market for REITs since July 2025, the primary - market subscription enthusiasm remains high. The pricing of newly issued REITs is becoming more challenging due to the widening of the inquiry price range. The report focuses on consumer REITs, using recent issues like CapitaLand Commercial REIT and China Overseas Commercial REIT as samples to build and predict pricing models [1][9]. - The key to pricing is to obtain a reasonable and accurate distributable cash - flow. Income - based valuation is the starting point, and the distributable amount is calculated by converting the operating net income (NOI) [13][16]. - When calculating the operating net income NOI, attention should be paid to the rationality of volume and price assumptions, including various income sources and cost items [21]. - The actual pricing needs to consider the trading sentiment in the primary and secondary markets. Based on the listing performance of similar REITs and industry valuations, the price range of individual bonds can be estimated [44]. - Continuous tracking of project operations is necessary to ensure pricing rationality and to note potential future growth [4]. 3. Summaries According to Relevant Catalogs 3.1 Pricing Key: Obtain Reasonable and Accurate Distributable Cash - flow - **Income - based valuation is the starting point**: China requires income - based valuation as the main method for infrastructure public REITs. The operating net income NOI obtained from this valuation is a key data for REITs pricing. The discount rate is usually calculated by the cumulative method, and the income period is determined by the shorter of the land use right and the remaining economic useful life [13]. - **Convert operating net income to distributable amount by proportion**: Refer to the distributable conversion rate in the "Distributable Amount Calculation Report" to convert the operating net income of subsequent years into the current distributable amount, and consider the situation of external borrowing for pricing [16][17]. 3.2 Operating Net Income NOI: Focus on the Rationality of Volume and Price Assumptions - **Rental income: The largest income source of consumer REITs**: Rental income accounts for about 60 - 70% of the total income. It is divided into fixed rental income and commission rental income for separate assumptions. Factors such as fixed rental unit price, rental growth rate, occupancy rate, rent - free period, and collection rate need to be considered [21][22]. - **Property management income: Accounting for about 15 - 20% of consumer REITs income**: Consumer REITs charge property management fees based on the leased area. The property management fee standard for specialty stores is generally between 50 - 90 yuan/square meter/month, and the growth rate of property management income during the forecast period is usually between 2 - 4% [32]. - **Other income: A beneficial supplement to project profitability**: Other income includes promotion fees, multi - business and advertising income, etc. It generally follows the growth rate assumption of fixed rental income [35]. - **Cost side of NOI: Mainly following income assumptions**: The cost side mainly includes operating costs, taxes and surcharges, and capital expenditures. The repayment of external loans will occupy the distributable amount [37][42]. 3.3 Combine Market Sentiment to Estimate the Price Range of Individual Bonds - **Actual pricing needs to consider the trading sentiment in the primary and secondary markets**: The stronger the new - issue sentiment in the primary market, the higher the first - day listing increase of REITs. The weaker the trading sentiment in the secondary market, the smaller the upward space for new bonds [44]. - **Estimate the price of individual bonds based on the listing performance of similar REITs and industry valuations**: By comparing the subscription multiples, the ratio of the issue price to the upper limit of the inquiry price range, and the first - day increase of similar listed REITs, the first - day increase of new bonds can be estimated. For example, the first - day increase of China Overseas Commercial REIT is estimated to be about 13 - 27%, corresponding to a closing price of 5.968 - 6.707 yuan/share on the first - day of listing. After the new - issue effect fades, the average pricing center of China Overseas Commercial REIT is 5.43 yuan/share [52][56]. 3.4 Continuously Track Project Operations and Note Future Growth Potential - **China Overseas Commercial REIT**: Pay attention to the stability of new - energy vehicle tenants [4]. - **CapitaLand Commercial REIT**: Note the adjustment of the main store area in projects in Changsha and Guangzhou [4].