As investors of S-REITs, possibly the singular focus should remain on Distribution Per Unit (DPU) growth, not the headline increase in total distribution figures reported by the reits. The reason is simple: when S-REITs utilise equity fundraising to expand their portfolio, the issuance of new units may inflate the total cash distributed by the REITs, but it simultaneously dilutes the DPU, potentially leaving the individual investor no better off.
This focus on sustainable DPU requires nuance. A decline in DPU is not a concern when it results from non-value events like a stock split or a bonus units issuance, as the investor’s overall entitlement (total cash received) remains unchanged. Conversely, a DPU increase engineered through a reverse unit split provides no genuine growth and should not be celebrated as fundamental improvement.
Another metric of success is the S-REITs manager’s ability to grow the DPU for the existing unit base.
We recognised that REITs management fees may not be merely just a cost, but possibly an investment in the expertise required to source, acquire, and operate property assets on behalf of investors. It is a necessary expense for professional oversight and long-term asset stewardship.
However, the critical question remains: Are the fees paid to the S-REITs management, yielding the maximum possible return for investors?
Understanding how DPU from Operations (another importance why we should be using DPU from Operations instead from DPU) compares to the fees charged by the REIT management provides an essential, additional perspective on how efficiently the REIT manager is creating value for investors.
This analysis looks at the relationship between S-REITs management fees and DPU from Operations over the past 10 years, moves beyond simply tracking management fees to focus on the value-creation ratio.
Please note that this post is for informational purposes only and does not constitute a recommendation or opinion on specific S-REITs. All data is compiled on a best-effort basis, without guarantees of accuracy or reliability.
To objectively assess this data, we will use the DPU from Operations divided over the Management Fees, which we refer to as the Management Efficiency Index (MEI). This metric ensures we compare the management cost against the most sustainable form of income which is DPU from Operations, removing the influence of non-recurring, ad-hoc items that can distort headline figures.
The MEI standardises performance by comparing the each reported period's of DPU from Operations and Management Fee structure against a consistent historical base period (4Q 2015 to 3Q 2016 in this data set).
Data Notes & Framework
Data Notes:
Interpreting the Management Efficiency Index (MEI)
| Index Value | Interpretation (Relative to Base Period) | Possible Scenarios | Investor Insight |
|---|---|---|---|
| MEI > 1.0 | DPU from Operations has grown faster than Management Fees. |
|
High Value Creation: Management is demonstrably efficient at growing returns relative to the management fee. |
| MEI = 1.0 | DPU from Operations growth has kept pace with Management Fees growth. |
|
Value Maintenance: Fees are proportionally justified by the growth of core income. |
| MEI < 1.0 | DPU from Operations growth has lagged the growth in Management Fees. |
|
Value Dilution Risk: Growth in management cost is outpacing core DPU from Operations growth, indicating a possible lower return on fee investment. |
The following charts show the MEI trend over time for each S-REIT within its sector, offering a visual history of value creation efficiency. 1.0 is the key reference point for proportional growth between DPU from Operations and Management Fees.
Management Efficiency Index (MEI) is formed as metric for assessing management quality. When a manager takes fees in units, it signals an alignment of interest—they are literally investing alongside the investors. However, data shows that alignment alone is insufficient: the aligned interest must be directed toward value creation.
While DPU can occasionally be influenced by one-off factors, the sustained focus on the DPU from Operations provides the clearest lens on a S-REIT's fundamental health and the justification for its management fees. Ideally, the growth of a management fee should mirror or be outpaced by the improvement in DPU from Operations, ensuring that the cost of management directly contributes to investors returns.
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