Vehicle documentation should include a statement of the level of compliance with this module and of the fee and expense metrics that are expected to be disclosed to investors by the manager.
Fees and costs should be measured in line with the principles defined under INREV NAV and INREV GAV.
Fees describe charges borne by the vehicle for services provided by the manager and costs describe charges to a vehicle by external service providers. Fees charged by the manager directly to their investors are not taken into account, with the exception of fees charged for services rendered to the vehicle.
Where a single fee is charged to cover a variety of activities, the constituent elements will need to be identified, allocated to the appropriate cost category and disclosed appropriately.
Historic Total Global Expense Ratio
A historic TGER, based on the time-weighted average INREV GAV of the vehicle over twelve months, should be provided annually.
This approach removes the effect of leverage and provides a more relevant comparison between investment vehicles with different capital structures. Depending on the investor needs, investment managers may also provide a historic NAV TGER based on the time-weighted average INREV NAV.
If considered meaningful, managers may compute and disclose TGER on a quarterly basis (annualised), since inception, or on rolling multiple period averages. The approach should be consistent with the fee and cost allocation and computation methodology on an annual basis.
For the calculation methodology, daily weighting of cash flows is recommended. If not feasible, at a minimum, quarterly figures should be used to calculate the time weighted average INREV GAV and INREV NAV.
The components of the numerator include the vehicle fees and costs for the reporting period, as defined below.
Certain fees and costs, such as property-level costs charged by the manager, should not be included when calculating the TGER; they do however form part of the REER (see below). If the manager charges a single fee covering both property and vehicle management activities, it should be split into its constituent elements.
The formulae for TGER are:
The TGER is an historic or ‘actual’ figure, based on data published annually. Consequently, newly launched vehicles cannot have an historic TGER.
Historic Real Estate Expense Ratio
An historic REER, based on the time-weighted average INREV GAV of the vehicle over twelve months, should be disclosed annually.
While the TGER relates to the operating costs borne by the vehicle, the REER captures only those costs that relate to the management of the real estate assets. The REER includes the property-specific costs described below.
The numerator should include the fees and costs associated with managing the properties, while the denominator should be the time-weighted average INREV GAV.
The formula for REER is:
Forward-looking ratios and metrics are useful items in the vehicle documentation. However, they are ‘theoretical’, in that they are based on estimated costs, anticipated numbers of assets, and assumptions such as growth rate, vehicle life and tax structuring. Requirements for forward-looking fee and expense metrics at the vehicle launch stage are described below. Once the vehicle has commenced operations, there should be no further requirement for forward-looking metrics as historic metrics based on historic data should then be available.
Forward-looking Total Global Expense Ratio
A forward-looking TGER, based on the time-weighted average INREV GAV for the first year when the vehicle is expected to be stabilised, should be provided in the vehicle documentation. A forward-looking NAV TGER based on the time-weighted average INREV NAV may also be provided. These measures should be calculated following the same methodology as for a historic TGER and for NAV TGER, although they will be based on estimates.
The forward-looking TGER and NAV TGER should be accompanied by disclosure of the estimates used to calculate this metric.
Forward-looking real estate expense ratio
A forward-looking REER, based on the time-weighted average INREV GAV of the vehicle for the first year when the vehicle is expected to be stabilised, should be provided in the documentation. This should be calculated following the same methodology as for an historic REER, although it will be based on estimates.
The forward-looking REER should be accompanied by a disclosure of the estimates used to calculate this metric.
Expense ratio cost classification
Fees and costs should be classified consistently for the purpose of calculating the INREV fee and expense metrics. Fees and costs included in TGER are categorised according to the respective nature of the underlying services. To the extent that the fee is charged for a service provided by the manager in lieu of a service provided by a third party, and is charged in addition to the fund management fee, or is otherwise disclosed separately from the fund management fee, it should be classified according to the nature of the service rather than whether the service is provided by the investment management or third party.
Vehicle fees included in the TGER comprise of:
A. Ongoing management fees and transaction-based management fees:
- Asset management fees;
- Fund management fees;
- Wind-up fees;
- Debt arrangement fees;
- Commitment fees;
- Subscriptions fees;
- Redemption fees;
- Property acquisition fees amortization of the year;
- Property disposition fees;
- Project management fees.
Where a single fee is charged to cover a variety of activities, the constituent elements will need to be identified, allocated to their appropriate category and disclosed appropriately.
B. Performance fees:
- Performance fees;
- Incentives and promotes;
- Carried interest;
- Other performance fees.
Fee reductions, fee waivers, and transaction offsets recognised in the financial statements of the vehicle, should be disclosed as part of the ongoing investor reporting, and included in TGER. Existence of fee rebates should be disclosed if permitted under the provisions of the vehicle documents. Fee reductions, fee waivers, and transaction offsets not recognised in the financial statements of the vehicle are excluded from the TGER and may be disclosed if permitted.
- Audit costs;
- Bank charges;
- Custodian costs;
- Dead deal costs;
- Debt arrangement costs;
- Other/miscellaneous vehicle costs;
- Professional service costs (incl. valuation costs and vehicle formation costs (amortisation for the period));
- Placement agent costs;
- Staff costs (if applicable);
- Transfer agent costs;
- Vehicle administration costs;
The costs incurred by Special Purpose Vehicles (“SPVs”), which sit above the acquisition structure in the holding structure, are included in vehicle expenses. Costs of this nature that are charged to the acquisition vehicle should also be included in this category.
Property fees included in the REER are directly attributable to the management and the maintenance of specific properties. These fees comprise:
- Asset management fees (certain services not included in the TGER);
- Internal leasing commissions;
- Property management fees;
- Development fees.
Property costs included in the REER are directly attributable to the management and the maintenance of specific properties. These costs comprise:
- External leasing commissions;
- Property acquisition costs (amortisation for the period);
- Other/miscellaneous/sundry costs;
- Property insurance costs;
- Property management costs;
- Repairs and maintenance costs;
- Taxes on property-related activities;
- Utilities costs (non-rechargeable portion).
Fees and costs excluded from the TGER and REER comprise:
- Deferred taxes on property-related activities
- Development costs;
- Disposition costs;
- Fair value adjustments;
- Gain/loss on currency exchange rates;
- Gain/loss on investment disposition;
- Goodwill write-off;
- Impairment of goodwill;
- Losses on disposal of subsidiaries;
- Payments related to financial derivatives;
- Provisions and allowances;
- Receivables write-off costs;
- Rent free/discounts;
- Securities handling charges;
- Share of losses of associates and joint ventures;
- Taxes on real estate transactions;
- Unwinding of discounts and effect of changes in discount rate on provisions.
The constituent elements of the metrics calculations should be disclosed annually.
|Disclosure table||Current year/ period||Prior year/period|
|NAV TGER (recommended)|
The following notes clarify the components of each fee and expense metric and should also be read in conjunction with the classifications shown in the fees and costs matrix.
|Constituent elements||Current Year/Period (Amount & Currency)||Prior Year/Period (Amount & Currency)|
Ongoing management fees
Transaction-based management fees
Time-weighted average GAV (required)
Time-weighted average NAV (recommended)
There should also be a clear disclosure of all the fees charged by the manager and the activity to which they relate. A disclosure table should be presented annually providing an analysis of all components of the fees (including any element of performance fee) earned by the manager or by any other affiliate or related party of the manager, for the management of the vehicle.
|Fees earned by the investment manager||Current Year / Period (Amount & Currency)||Prior Year / Period (Amount & Currency)|
|Asset management fees|
|Fund management fees|
|Debt arrangement fees|
|Property acquisition fees|
|Property disposition fees|
|Project management fees|
|Fees earned by the manager incl. in TGER|
|Other fees earned by the manager excl.from TGER|
The fees included in this table should be accounted for in the financial statements for the financial reporting period concerned, in accordance with accounting conventions used by the vehicle.