A-REIT's performance fee structure could stunt future growth

Possibly limited to between 2-8% growth.

"Although Ascendas REIT (A-REIT) continues to own one of the best industry REIT portfolios in Singapore, its ability to grow further is hindered by the structure of its performance fees," according to CIMB in a note after A-REIT released its 2QFY14 results, which were pretty much in line with the research firm's expectations.

"According to our estimate, DPU is poised to grow yoy by c.4% in FY14 and c.12% in FY15. However, AREIT’s growth will be limited to 2% and 8% in the respective years if performance fees kicks in (0.1% of AUM if DPU grows by more than 2.5% and 0.2% of AUM if growth exceeds 5%)," CIMB added.

This led CIMB to also downgrade A-REIT from Outperform to Neutral with a slightly lower target price as the research firm factored the performance fees into its estimates.