NTT DC REIT has made one of the more unitholder-friendly proposals in Singapore’s REIT market. Its manager wants to replace the current performance fee of 3.5% of NPI with one linked to year-on-year DPU growth. The change is subject to unitholder approval and would take effect from FY2026/27.
The hurdle is clear. No fee is payable at DPU growth of 3.0% or below; growth above 3.0% earns 0.1% p.a. of deposited property, and growth of 5.0% or more earns 0.2%. The manager will also waive its FY2026/27 fee if DPU falls short of the 7.80 US cents IPO forecast, and fee units will be issued at NAV when the market price is at or below it, limiting dilution. No DPU growth, no performance fee.
Sharp Contrast to Singapore REIT Managers
Singapore REIT managers like capitaland and Keppel rarely put unitholders interest at a high priority, Hence they are unlikely to follow. Sponsor-backed REITs carry a structural conflict; the sponsor sells, and the REIT its subsidiary buys. Critics argue these REIT managers like to encash proprties at high valautions to their child REIT, while asset growth lifts fees even when per-unit returns lag. A DPU hurdle removes that cushion.
CapitaLand and Keppel, with sponsor-linked pipelines, hence are unlikely to volunteer one, as they want to keep profits for themselves and have little interest to the Singapore investing community holding their REITs. Their current performance fee is tied to asset size and net property income growth and not to the overall dividend. This structure requires the child REIT to constantly acquire without care to the valuation bought from their sponsor.
Taking NTT DC REIT new payment structure, for the past 5 years, both capitaland and Keppel will receive no performance fee with Capitaland only successfully taking one year of fee. Below is how their track record would compare against NTT's REIT structure.
- CICT: 10.40, 10.58, 10.75, 10.88, 11.58 cents. Annual growth is +1.7%, +1.6%, +1.2%, +6.4%;
- Keppel REIT: 5.82, 5.92, 5.80, 5.60, 5.23 cents. Annual growth is +1.7%, −2.0%, −3.4%, −6.6%;
