REIT Management Fees & Distributions - Are REIT Managers Worth Their Salt?

Over the years, REITs have faced criticism for being a suboptimal investment instrument, largely due to the perceived conflicts of interest among REIT managers. Concerns often stem from the belief that managers prioritize their own remuneration over the performance and long-term value of the REIT.

In this report, we’ll examine the relationship between REITs' total management fees (MF) and distributions from operations per unit (DPU) across all the REITs listed on the Singapore Exchange.

Our aim is twofold: to assess whether this perception holds true and to explore whether this correlation can serve as a reliable indicator of management quality, helping investors identify well-managed REITs.

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Summary Of Findings

The myth that REIT managers often prioritize their remuneration over the performance and long-term value of the REIT is busted as a high proportion of the REITs listed in Singapore often have a positive correlation between the management fees and distribution from operations.

As an indicator, the correlation between management fees and distribution from operations is not as useful as many investors would deem it to be. This is because the results are often misleading given the limitation of the study and the many factors that may affect the distribution outside of the management fees alone.

While it is not a useful indicator to draw conclusions of the management quality, having a negative correlation does help inform an investor to pay closer attention to such REITs and examine further if there are deeper issues with the management or the REIT itself.

A surface examination of the total management fee behaviour might not paint the full picture of whether the interests of the managers and investors are aligned. Investors should supplement their findings with an understanding of the management fee structure (% between base and variable) to see any potential red flags.

Regarding Correlations:

21 REITs have displayed a positive correlation as the management fees changed accordingly to the changes in the the DPU performances.
6 REITs have displayed a negative correlation as the management fees continued to increase while DPU continued to deteriorate. (IREIT Global, Keppel, Suntec, AIMS, CLIT & ESR Logos)
4 REITs have displayed low to no correlation as the management fees continued to increase regardless of the DPU performances. (CLAS, Paragon, CLCT & CLAR)
2 REITs have displayed low to no correlation as the management fees decreased while DPU remained relatively unchanged. In their case, the management fees appear to be driven more by share price changes due to industry headwinds and other factors. (Cromwell EU & Elite UK REIT)
5 REITs have displayed no meaningful insights from the behaviour between management fees and DPU due to the limitation of data points or the fact that the REITs are operating on a loss.

Continue Reading...

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