Property/REITs – Singapore - UOB Kay Hian 2017-04-11: REIT Manager Fees Bang For Your Buck?

Property/REITs – Singapore - UOB Kay Hian 2017-04-11: REIT Manager Fees: Bang For Your Buck? Singapore REITs REIT Manager Fees ASCENDAS REAL ESTATE INV TRUST A17U.SI CAPITALAND COMMERCIAL TRUST C61U.SI FRASERS LOGISTICS & IND TRUST BUOU.SI

Property/REITs – Singapore - REIT Manager Fees: Bang For Your Buck?

  • We examine the value-add REIT managers bring to the table after charging unitholders base and performance fees for managing assets held. 
  • Fortune REIT, MCT, Frasers Commercial Trust, FCT, CRCT and CCT offer unitholders the best value proposition for fees charged, ranking among the lowest in terms of average fee per assets under management over average DPU and NAV growth. 
  • Maintain OVERWEIGHT.



WHAT’S NEW

  • REIT managers have been in the limelight since the start of the year, ranging from unitholders’ outrage at Sabana REIT’s controversial proposed acquisitions to raised eyebrows over Keppel REIT’s rental reversion methodology restatement. 
  • The Sabana REIT saga continues unabated, with fresh queries from the SGX regarding the recent resignation of a non-executive director. This prompted us to examine how much valueadd REIT managers bring to the table after charging unitholders base and performance fees for managing assets held.


ACTION


Best value for fees charged. 

  • Fortune REIT, MCT, Frasers Commercial Trust, FCT, CRCT and CCT offer unitholders the best value proposition for fees charged, ranking among the lowest in terms of average fee per assets under management (AUM) over average DPU and NAV growth. 
  • We have an OVERWEIGHT stance on Singapore REITs.


ESSENTIALS


Sample group. 

  • We sifted through the S-REIT universe, excluding REITs with shorter listing backgrounds (IPO in the last three years).

Calculating fees charged as % of AUM. 

  • We measured the average management fee quantum charged by REIT managers (base fee + performance fee) since listing, normalised against their respective average AUM since IPO. 
  • CCT, Fortune REIT, MCT, CMT and ART offer unitholders the best value proposition for fees charged, ranking among the lowest in terms of average fee per AUM.

Average* (Base fee + Performance fee) / Average* (Assets Under Management) * Last 5 years
*Last 5 Years


Pegged to DPU and NAV growth. 

  • We divided the results of the above equation over the average DPU growth and NAV growth displayed by REIT managers in the last five years.
  • We believe it is appropriate to consider both DPU and NAV growth. If it is only linked to DPU growth, there could be a tendency for excessive debt usage to boost DPU growth, but adding in the NAV growth component would keep the leverage under control. FRT, MCT, FCOT, FCT and MINT have the highest average annual DPU and NAV growth.

Average* fees charged as % of AUM / Average* (DPU and NAV Growth) 
* Last 5 years


Best value for fees charged. 





Potential set-up for failure by over aligning interests. 

  • In our view, setting the bar too high in aligning unitholders’ and REIT manager’s interests, in terms of performance fees, may not always yield the intended results. Rather, we argue that this could incentivise REIT managers to rely heavily on acquisition and divestment fees, particularly as sector headwinds or operational difficulty diminish the likelihood of reaching the high standards set to obtain performance-driven fees.
  • Sabana REIT, for instance, has one of the most unitholder-friendly policies, with performances fees payable should DPU growth hit 10% yoy for the year. Unfortunately, its DPU growth over the last five years has averaged -9% (negative DPU growth for three out of five years).






REIT MANAGER FEE COMPARISON


REIT  Base Fee  Performance Fee  Acquisition Fee  Divestment Fee 
AIMSAMPIReit  0.5% of property value  0.1% pa of the property value if DPU growth >2.5% pa; and additional 0.1% per annum of the Deposited Property, if DPU growth >5% pa. REIT Manager may elect to receive performance fee in cash and/or units.  1.0% of acquisition price  0.5% of sale price 
Ascendas-hTrust  0.3% of property value  Annual performance fee of 4.0% pa of NPI  1.0% of acquisition price  0.5% of sale price 
Ascendasreit  0.5% per annum of the Deposited Property  0.1% pa of the property value if DPU growth >2.5% pa; and additional 0.1% per annum of the Deposited Property, if DPU growth >5% pa. REIT Manager may elect to receive performance fee in cash and/or units.  1% of acquisition price  0.5% of sale price 
AscottREIT  0.3% of property value  Basic performance fee of 4.0% pa of ART's share of gross profit for the year. If ART's gross profit rises >6.0% annually, Outperformance fee of 1.0% of the amount that ART's gross profit exceeds 106% of the previous yearÕs gross profit.  1% of Enterprise value  0.5% of the Enterprise Value 
CACHE  0.5% pa of property value  1.5% pa of the net property income  1% of acquisition price  0.5% of sale price 
Cambridge  0.5% of property value  25% of DPU growth (excess DPU for the year over highest DPU achieved by Trust in previous years where performance fee was paid)  1.0% of acquisition price  0.5% of sale price 
CapitaLand Comm Trust  0.10% pa of Deposited Property value. For RCS Trust 0.25% of deposited property  5.25% pa of net income of the Trust for each financial year. For RCS Trust, 4% of NPI  1% of acquisition price  0.5% of sale price 
CapitaLand Mall Trust  0.25% of property value. For RCS Trust, 0.25% of deposited property  4.25% pa of net property income. 0.5% per annum of the investment value of all other Authorised Investments, unless REIT/fund by CapitaLand, in which case no asset management fee is payable. RCS Trust: 4% NPI  1% of acquisition price  0.5% of sale price 
CapitaLand Retail China  0.25% of property value  Annual performance fee of 4.0% pa of NPI  Up to 1.5% of acquisition price if purchase below $200m,1.0% of acquisition price if purchase exceeds S$200m  0.5% of sale price 
CDL Htrust  0.25% of property value  5.0% p.a of H-REITÕs net property income. FY16 management fees were satisfied in the form of 80% Stapled Securities and 20% cash.  1% of acquisition price  0.5% of sale price 
First REIT  0.4% of property value  Annual performance fee of 5.0% pa of NPI, of the trust or any SPV  1.0% of acquisition price  0.5% of sale price 
Fortune Reit HK$  0.3% of property value  Annual performance fee of 3.0% pa of NPI in cash  1.0% of acquisition price  0.5% if not 3rd party, otherwise 1.0% of sale price 
Frasers Comm  0.5% of property value  Annual performance fee of 3.5% pa of NPI less base fee  1.0% of acquisition price  0.5% of sale price 
Frasers Logistics  0.4% p.a. of gross asset value  5.0% of Distributable Income  0.5% for acquisition from related parties and 1.0% for all other cases  0.5% of sale price 
FrasersCT  0.3% of Deposted Property  5.0% pa of H-REITÕs net property income.  1% of acquisition price  0.5% of sale price 
Frasers Hospitality  0.3% of gross asset value of FHT  5.5% p.a of distributable income  0.5% for acquisition from related parties and 1% for all other cases  0.5% of sale price 
KepREIT  0.5% of property value  3.0% pa of NPI, after deducting all applicable taxes payable.  1.0% of acquisition price  0.5% of sale price on all acquisitions or disposals of properties respectively. 
Keppel DC REIT  0.5% of property value  3.5% pa of NPI  1.0% of acquisition price  0.5% of sale price 
LippoMalls  0.25% of property value  Annual performance fee of 4.0% pa of NPI  1.0% of acquisition price  0.5% of sale price 
MapletreeCom  0.25% of property value  Annual performance fee of 4.0% pa of NPI in cash  1.0% of acquisition price  0.5% of sale price 
MapletreeInd  0.5% of property value  3.6% pa of NPI, after deducting all applicable taxes payable.  1.0% of acquisition price  0.5% of sale price 
MapletreeLog  0.5% of property value  3.6% pa of NPI, after deducting all applicable taxes payable.  1.0% of acquisition price  0.5% of sale price 
PlifeREIT  0.3% of property value  Annual performance fee of 4.5% pa of NPI, after deducting all applicable taxes payable.  1% of Enterprise value  0.5% of Enterprise value 
Sabana REIT  0.5% of property value  0.5% pa payable only if Sabana REIT generates annual DPU growth of 10% yoy  1.0% of acquisition price  0.5% of sale price 
Starhill Gbl  0.5% of property value  Tier 1 Performance Fee equal to 5.0% of the excess returns over the Benchmark Index (multiplied by market cap of Starhill).
Tier 2 Performance Fee, applicable only if StarhillÕs returns exceeds 2.0% pa over the accumulated return of the Benchmark Index. This tier of the fee is calculated at 15.0% of the amount by which the accumulated return of the Trust Index is in excess of 2.0% p.a above the accumulated return of the Benchmark Index, market cap weighted 
1.0% of acquisition price  0.5% of sale price 
SuntecREIT  0.3% of property value  Annual performance fee of 4.5% pa of NPI, of the trust or any SPV  1.0% of acquisition price  0.5% of sale price on all acquisitions or disposals of properties respectively. 
Source: Respective companies, UOB Kay Hian




Vikrant Pandey UOB Kay Hian | Derek Chang UOB Kay Hian | http://research.uobkayhian.com/ 2017-04-11
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 2.710 Same 2.710
BUY Maintain BUY 1.750 Same 1.750
BUY Maintain BUY 1.110 Same 1.110



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