Monday, January 31, 2022

Can we use how Reit Manager Fees are structured to determine the Reit Perfomance?

Some investors look at how the Reit managers are compensated to determine whether there is an alignment of interest. 

The logic is, if the interest is aligned, then the long run performance of the Reit should be better than if it wasn't. 

This makes sense.

If investors feel the pain when their Reit's lose money, at the very least, the Reit managers should, rightly, also share in the misery. 

The opposite is also true, if investors make money, Reit manager should be rewarded. 

The management fees of Reit managers come in two components:
  • Base fee
  • Performance fee
Acquisition and disposal fees are largely similar across the Reits, 1%  of acquired property value and 0.5% of disposed property value.

Base Fee

Performance Fee

In my previous article, i found that the growth of DPU over time is the single most important metric to judge a Reit's performance as a growing DPU would naturally result in a growing Reit price too.

This makes sense as people buy Reits for their distributions. 

All the financial chicanery will over time be laid bare in the DPU.

Do you think the structure of the Reit Manager fees affect the DPU over time?

3 Reits stood out for me.
  • Lippo Mall Trust
  • Keppel Reit
  • Ara Logistic Trust
If you look at their DPU trend over time, they have been trending down. 

Yet, they have been paid for performance by way of performance fees.

Lippo Mall Trust

Lippo Mall Trust

And to put things in perspective, its performance fee is nearly as much as it's base fee for Lippo in cash.

Keppel Reit

Ara Logistic Trust

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