Please use this identifier to cite or link to this item: https://scholarbank.nus.edu.sg/handle/10635/221682
Title: REIT MANAGEMENT FEES: IN CASH OR IN KIND?
Authors: TEO JIA LER CHARLES
Keywords: Real Estate
RE
Sing Tien Foo
2019/2020 RE
Issue Date: 5-May-2020
Citation: TEO JIA LER CHARLES (2020-05-05). REIT MANAGEMENT FEES: IN CASH OR IN KIND?. ScholarBank@NUS Repository.
Abstract: Jensen and Meckling (1976) proposed that agency problems can be mitigated by paying managers in kind so that managers’ interests are aligned with shareholders. This paper examines management fees paid in units to external REIT managers and test effects of the payment of fees in units on stock performance using REITs listed on Singapore’s Stock Exchange. The ratio of management fees paid in units to the total management fees paid, also called the unit payout ratio (UPR), is decided by the manager each year and varies across REITs and time. The median UPR across all REIT-years is estimated at 0.53; while the modal UPR is 1. Between S-REITs, the median and the mode of expected UPR of S-REITs are estimated at 0.72 and 1 respectively. The multivariate OLS panel regression with lagged independent variables is used to establish the determinants for UPR. In the year fixed effects model, DPU growth is a significant determinant that is negatively related to UPR in the following year, implying that payment of management fees in kind is strategic and possibly a financial engineering tactic. This paper finds strong evidence for UPR in the preceding year to be inversely related to the subsequent REIT performance proxied by price change and total return. Investors should therefore be wary of S-REITs with high UPRs. While DPU may increase in the short term, total returns to investors may fall in the long term.
URI: https://scholarbank.nus.edu.sg/handle/10635/221682
Appears in Collections:Bachelor's Theses

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