Financial Risk Analysis of China's Huaxia Highway Rail Based Real Estate Investment Trust: Model FCFF

Lili Liu; I. A. Mayburov

Authors

Lili Liu Ural Humanitarian Institute, Ural Federal University named after the first President of Russia B.N. Yeltsin
I. A. Mayburov Institute of Economics and Management, Ural Federal University named after the first President of Russia B.N. Yeltsin

Keywords:

highway, infrastructure project, model of free cash flow to the firm, real estate investment trust, risk

Abstract

The article considers the current problem of financial risk analysis of real estate investment trusts (REITs), which are used in China to create large investment projects. The authors consider the Chinese real estate investment trust of the Huaxia high-speed highway and conduct a financial risk analysis using the free cash flow to the firm (FCFF) model to provide an economic and analytical basis for other investment projects in the infrastructure sector of China. The authors developed a free cash flow model for the firm. The underlying asset of the investment fund of this highway is the JiaTong Highway. The article uses a quantitative approach to assessing the risk of this underlying asset. At the same time, it was found that the underlying asset of this investment fund has a small credit risk. It is shown that the Chinese investment fund invests more than 80% of its assets in low-risk infrastructure projects with a concentrated source of income, while the rate of return in relation to risk is higher. In order to improve the financing of the country's infrastructure development, companies operating in the form of real estate investment trusts are recommended to focus on increasing the operating income of underlying assets, choosing investment objects with well-predictable sources of income, avoiding excessive concentration of income. Russian companies operating or planning to use real estate investment funds to finance large investment projects should also take these findings into account.

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Author Biographies

Lili Liu, Ural Humanitarian Institute, Ural Federal University named after the first President of Russia B.N. Yeltsin

research engineer
I. A. Mayburov, Institute of Economics and Management, Ural Federal University named after the first President of Russia B.N. Yeltsin

Doctor of Economic Sciences, Professor

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