REITs Management Fees vs DPU: What the Numbers Reveal

For REIT investors, a key metric to focus on is DPU (Distribution Per Unit) growth, rather than growth in total distribution figures. Why is that? Often, REITs expand their portfolios through equity fundraising, issuing new shares to fund acquisitions. While this increases total distributions, it doesn’t always translate to DPU growth.

That said, a DPU decline isn’t concerning in cases like stock splits or bonus share issuances, as unitholders are proportionally entitled, leaving the total dividend received unchanged. Conversely, a DPU increase resulting from a reverse stock split isn’t necessarily worth celebrating, as it doesn’t reflect actual growth.

Another key consideration is the manager's management fees. While DPU growth is critical, understanding how it compares to the fees charged by the REIT manager provides an additional perspective on how efficiently the REIT manager creates value for unitholders.

Generated by Leonardo.AI

This post looks at the relationship between management fees, DPU, and DPU from operations over the past 10 years. Please note that this post is for informational purposes only and does not constitute a recommendation or opinion on specific REITs.

Data Notes:

1. Performance fees, trustee-manager fees (for hospitality trusts), and overseas asset management fees (if disclosed) are included.
2. Advanced distributions are excluded.
3. Indicative DPUs from business updates (which may be manually calculated) are included.
4. Only full-year data is used. For REITs listed for less than 10 years, partial-year data is excluded (e.g., if listed for 4.5 years, only the 4 latest full years are plotted).
5. Maiden DPU figures are adjusted to 3-month or 6-month bases, depending on DPU reporting frequency.
6. DPU adjustments for reverse stock splits (Cromwell European REIT) and bonus share issuances (Prime US REIT) are applied.
7. Management fees for 3Q 2024 (calendar) are estimated for REITs with DPU but without management fees figures presented in business updates.
8. All data is compiled on a best-effort basis, without guarantees of accuracy or reliability.

Chart Breakdown:

1. Management Fees vs DPU and DPU from Operations: This chart illustrates how management fees compare to DPU metrics. For more details about DPU from operations, refer to my previous post: Understanding REIT Distribution Components and DPU from Operations.
2. DPU & DPU from Operations / Manager's Management Fees Index. These indices divide DPU and DPU from Operations by the management fees, with the initial year set as a base of 1.00.
• If DPU grows in proportion to fees, the index stays at 1.
• If DPU decreases while fees stay the same, the index declines, and vice versa.
• Similarly, if DPU stays flat while fees increase, the index decreases, and vice versa.

Examples of Interpreting the Charts

1. Declining Index: REIT A’s DPU/Fees Index starts at 1.0 but drops to 0.5 over 10 years. Initially, you received 1 cent in DPU for every dollar of fees charged by the manager. Now, you only receive 0.5 cents per dollar. This could result from:
• DPU increasing, but fees increasing more
• DPU decreasing, but fees decreasing less or staying the same
• DPU staying constant, but fees increasing
2. Rising Index: REIT B’s DPU/Fees Index rises from 1.0 to 1.2. You used to receive 1 cent per dollar of fees but now receive 1.2 cents. This could result from:
• DPU increasing, but fees increasing less or staying the same
• DPU decreasing, but fees decreasing more
• DPU staying constant, but fees decreasing
3. Stable Index: REIT C’s DPU/Fees Index remains at 1.0 throughout 10 years. This indicates:
• DPU and fees both remained constant
• DPU and fees increased proportionally
• DPU and fees decreased proportionally

These examples aim to provide clarity on interpreting the charts. Now, let’s dive into the charts! This post includes 39 charts, including one business trust: CapitaLand India Trust.

If you’ve made it this far, congratulations—you’ve worked through all the data-heavy charts! Some REITs have undergone mergers, which may render index comparisons to the initial year less precise. Nonetheless, these charts provide useful trends over time. Note that this post is not about whether the fees peg to AUM, distributable income or etc. It is more towards value creation part from the perspective of DPU. 

CAGR for DPU/Fees Indices:

Next, let's look at the CAGR for these indices, though CAGR might not be appropriate here due to negative values for most REITs.

Observations:

• 4 REITs have a CAGR of -100% due to DPU being halted over the past year.
• 4 REITs have less than 5 years of data available: Daiwa House Logistics Trust, Digital Core REIT, Elite Commercial Trust, and United Hampshire US REIT.
• 6 REITs underwent mergers in the past decade: CapitaLand Ascott Trust, CapitaLand Integrated Commercial Trust, ESR-REIT, Frasers Logistics & Commercial Trust, Mapletree Pan Asia Commercial Trust, and OUE REIT.
• Acrophyte Hospitality Trust has a high CAGR - DPU from Ops/Fees index due to its low DPU from Ops as a base reference in the first full year (4Q 2019 to 3Q 2020).

Now, let’s summarize both indices' highest and lowest CAGR:

Final Thought:

Of the 2 indices, I favor the DPU from Operations/Fees Index. While DPU can occasionally be inflated by one-off factors, focusing on the operational component provides a clearer perspective on a REIT's performance. With the management fees growing disproportionately relative to DPU, it could indicate less favorable value creation. Ideally, management fee growth should align with DPU improvements to ensure fees remain justifiable. However, it is also not meaningful when both DPU and management fees decrease simultaneously.    

While the primary objective of REIT investing is often dividend income, we shouldn’t overlook the capital component of returns. Just as stagnant EPS can cap price appreciation for a typical stock, stagnant or declining DPU can similarly limit REIT unit price growth. Of course, NAV per unit also plays a role in this dynamic.

In short, DPU growth—rather than absolute distribution figures—is one of the key drivers of both income and share price appreciation. After all, REITs are traded based on "unit price", not "market cap".

For more information, check out:

SREITs Dashboard - Detailed information on individual Singapore REIT

SREITs Data - Overview and details of Singapore REIT

REIT Review - List of previous REIT review posts

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*Disclaimer: The information presented on this blog is for educational and informational purposes only. The materials, including research and opinions, are based solely on my findings and should not be considered professional financial advice or a definitive statement of fact. I cannot guarantee the accuracy, completeness, or reliability of the information provided. I shall not be held liable for any errors, omissions, or losses that may occur as a result of using the information presented on this blog. It should be noted that the information presented on this blog does not constitute a buy, sell, or hold recommendation for any security. It is crucial to conduct your own thorough research and due diligence before making any investment decisions.