A Look At A REIT’s Fees

I recently came across some information on the breakdown of the management fees for REITs listed in Singapore. Interestingly, I noticed that there is a wide difference between the managers on how they structured their fees.

Here are a few interesting findings.

Four main type of fees

Generally, there are four main type of fees that the managers would be entitled to.

There is a base fee that unit-holders have to pay the managers regardless of the performance of the REIT. This ranges from 0.1% to 0.5% of the total asset of each REIT.

Then, there is a performance fee where the managers are rewarded based on meeting certain targets. However, there is no standard structure for the performance fee and each REIT has its own version of performance fee.

Lastly, there are acquisition fees and divestment fees for the managers every time a property is bought or sold. This ranges from 0.5% to 1.5% of the transacted amount.

All these fees might add up to the cost of owning a REIT for unitholders. In fact, data from The Edge Singapore shows that unitholders paid about 4.32% to 21.06% of the REITs revenue to its unitholders as fees.

The best and worst of each class

From looking at the base fee structures for the REITs in Singapore, it seems that CapitaCommercial Trust (SGX: C61U) has one of the lowest fees, with only a 0.1% base fee. Most REITs such as Keppel REIT (SGX: K71U) and Ascendas Real Estate Investment Trust (SGX: A17U) have a base fee of 0.5% of the total asset of the REIT.

Performance fee is harder to compare between REITs as the details of how they are calculated differs from REIT to REIT. However, we can get a sense of whether the performance fee are designed with unit-holders in mind. For example, investors who invest in REITs are typically interested in the high distribution yield that the trust provides. Therefore, the distribution per unit (DPU) is an important factor of consideration. REITs such as Mapletree Greater China Commercial Trust (SGX: RW0U) and OUE Commercial Real Estate Investment TR (SGX: TS0U) set its performance fee to the increase in DPU from year to year, motivating the managers to focus on growing the DPU for its unit-holders.

Foolish Takeaway

While having the lowest fees does not necessary mean that a particular REIT or manager is the best, investors need to be wary of REITs that are paying its managers excessively or having fee structures that are not aligned to unit-holders’ interests.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim does not own any company mentioned above