The objective of this module is to clarify the calculation and disclosure of the INREV fee and expense metrics: the Total Expense Ratio (“TER”) and the Real Estate Expense Ratio (“REER”). These form part of the standard measures included in the regular reporting of overall performance to investors in a vehicle. When analysed in the context of vehicle style, investment strategy and underlying risks, these fee and expense metrics will help those involved in the non-listed real estate market – both institutional investors and managers – to compare fee and cost structures between different non-listed vehicles and with other investment structures.
INREV aims to improve consistency in the presentation and categorisation of fees and costs when comparing vehicles from different domiciles. While it may not be possible to achieve complete consistency in breaking down expenses, the aim is to provide the greatest possible comparability while also maximising the availability of relevant information in fee and expense metrics. INREV fee and expense metrics have been designed to be straightforward, easy to understand and compatible with the vehicle’s normal reporting cycle.
Fee and expense metrics should reflect the nature of the expenses concerned, in line with the various types of services for which managers charge fees, and the basis on which they charge them.
It is important to analyse and explain the INREV metrics in their correct context. For instance, the TER for different vehicles should be compared taking account of historical and forecasted return.
At vehicle launch, investors have a particular interest in understanding its forward-looking or projected operating expenses compared to the amount of invested capital, as well as the potential impact of the cost structure on the overall investment return. Accordingly, INREV supports the principle of including forward-looking expenses in the vehicle’s launch documentation.
The principles and guidelines for reporting fee and expense metrics are listed below. Where appropriate, further explanation is provided to enhance the reader’s understanding. In addition, the Tools and Examples section includes a typical calculation of INREV fee and expense metrics.