Corporate governance is more than just the forms of standard best practices and structures, internal checks and balances, transparency, etc. It must be anchored in the heart and soul of the leadership team. Good corporate governance must be ingrained and become an integral part of corporate culture.
Ascendas Funds Management (S) Limited, in its capacity as the Manager of A-REIT believes that an effective corporate governance culture is critical to the performance of the Manager and consequently, the success of A-REIT, which it manages. As a result, the Manager has adopted a comprehensive corporate governance framework which conforms to the prevailing best practice principles. In particular, the Manager has an obligation to act honestly, with due care and diligence, and in the best interests of Unitholders.
The following sections describe the Manager's main corporate governance policies and practices. They encompass proactive measures for avoiding situations of conflict and potential conflicts of interest among Unitholders, related parties, and the Manager. The interests of Unitholders are always above the Manager's. They also ensure that applicable laws and regulations such as the listing rules of the SGX-ST, the CIS code and the Capital Markets Services Licence for REIT Management both issued by the MAS and the Securities and Futures Act ("SFA"), are complied with, and that the Manager's obligations under A-REIT's Trust Deed are properly and efficiently carried out.
THE MANAGER OF A-REIT
BOARD OF DIRECTORS
ACCESS TO INFORMATION
TRADING OF A-REIT'S UNITS
ASSESSMENT AND MANAGEMENT OF BUSINESS RISKS
DEALINGS WITH CONFLICTS OF INTEREST
DEALING WITH INTERESTED PARTY TRANSACTIONS
COMMUNICATION WITH UNITHOLDERS
Ascendas Funds Management (S) Limited was appointed as manager of A-REIT in accordance with the terms of the Trust Deed. The Trust Deed outlines certain circumstances under which the Manager can be retired in favour of another corporation approved by the Trustee or be removed by notice given in writing from the Trustee upon the occurrence of certain events, including by a resolution proposed and passed by a majority being greater than 50.0% of the total number of votes cast at a meeting of Unitholders duly convened in accordance with the provisions of the Trust Deed (with no Unitholder being disenfranchised).
The Manager has general power of management over the assets of A-REIT. The Manager's main responsibility is to manage A-REIT's assets and liabilities for the benefit of Unitholders.
The primary role of the Manager is to set the strategic business direction of A-REIT and make recommendations to the Trustee on acquisitions, divestments and enhancement of the assets of A-REIT in accordance with its stated business strategy. The Manager is also responsible for the capital and risk management of A-REIT. Other main functions and responsibilities of the Manager are
- Using its best endeavours to carry on and conduct its business in a proper and efficient manner and to conduct all transactions with or on behalf of A-REIT at arm's length.
- Oversee the preparation of property business plans on an annual basis by the ASPL for review by the Directors of the Manager, which may contain proposals and forecasts on net income, capital expenditures, sales and valuations, explanations of major variances to previous forecasts, written commentary on key issues and underlying assumptions on rental rates, occupancy, costs and any other relevant assumptions. The purpose of these plans is to manage the performance of A-REIT's assets.
- Ensuring compliance with the applicable provisions of the SFA and all other relevant legislation, such as the listing rules of the SGX-ST and the CIS Code, the Trust Deed, the tax rulings issued by IRAS and all relevant contracts.
- Attending to all regular communications with Unitholders.
- Supervising the execution of works by the Property Manager, who provides property management, lease management, marketing and leasing and project management services, pursuant to the property management agreement.
A-REIT is externally managed by the Manager and accordingly, it has no direct-hire employees. The Manager appoints experienced and well-qualified management to handle its day-to-day operations. All directors and employees of the Manager are remunerated by the Manager, not A-REIT.
On 1 August 2008, a new licensing regime for REIT managers was put in place. A person conducting real estate investment trust management activities is now required to hold a capital markets services ("CMS") licence pursuant to the SFA and to comply with the conditions of such licence. On 17 December 2008, the Manager obtained a CMS licence from the MAS to conduct REIT management activities.
The Board of Directors of the Manager (the "Board'') oversees the management (the "Management") and the corporate governance of the Manager including establishing goals for management and monitoring the achievement of these goals. The Board decides on matters relating to corporate governance, business operations and risks, financial performance and the nomination and appointment of directors. The Board has established an oversight framework for the Manager and A-REIT, including a system of internal controls which enables risk to be assessed and managed.
The Board meets regularly, at least once every quarter, to discuss and review the strategies and policies of A-REIT, including any significant acquisitions and disposals, the annual budget, the financial performance of the Manager and A-REIT against a previously approved budget and to approve the release of the quarterly and full year results. The Board also reviews the risks to the assets of A-REIT, examines liabilities management and comments from the auditors of A-REIT. When necessary, additional Board meetings are held to approve transactions or address issues.
The Board has adopted a set of internal controls which sets out approval limits for capital expenditure, investments and divestments, conduct of bank transactions and cheque signatories, amongst others. Appropriate authorities have been delegated to the Management to facilitate operational efficiency.
Changes to regulations, policies and financial reporting standards are monitored closely. Where the changes have significant impact on A-REIT and its disclosure obligations, the Board is briefed either during Board meetings, or via circulation of Board papers.
Composition of the Board
The Board presently consists of eight members, six of whom are independent directors as at 06 May 2011. The Chairman and Deputy Chairman of the Board are Mr David Wong Cheong Fook and Ms Chong Siak Ching respectively. The composition of the
- the Chairman of the Board should be a non-executive director;
- the Board should comprise directors with a broad range of commercial experience including in the areas of accounting and finance, legal, strategic planning, funds management and property industry; and
- at least one-third of the Board members should be independent directors.
The composition of the Board is reviewed annually. The Board annually examines its size and decides on what it considers an appropriate size for the Board, which facilities effective decision making. The Board takes into account the scope and nature of the operations of A-REIT and the Manager when determining the appropriate size.
Chairman and Chief Executive Officer
The positions of Chairman and Chief Executive Officer are held by two separate persons in order to maintain effective segregation of duties.
The Chairman ensures that the members of the Board work together with Management in a constructive manner to address strategies, business operations and enterprise issues.
The Chief Executive Officer has full executive responsibilities over the business direction and operational decisions of managing A-REIT.
The Manager has a policy that at least one-third of the Board should be independent directors. This enables management to benefit from their external and objective perspective of issues that are brought before the Board. A healthy exchange of ideas and views between the Board and Management through regular meetings and updates will enhance the management of A-REIT. This, together with a clear separation of roles between the Chairman and Chief Executive Officer, provides a healthy and professional relationship between the Board and Management.
Each director of the Manager has the right to seek independent professional advice on matters relating to A-REIT at the Manager's expense. However, prior approval of the Chairman is required, which may not be unreasonably withheld.
Board Membership
The Board has established a Nominating Committee ("NC") in October 2009, which comprises Mr David Wong as Chairman, Ms Chong Siak Ching and Mr Chia Kim Huat. New Directors are appointed by way of a Board resolution after the NC recommends their appointment to the Board for approval. The search for candidates to be appointed as new directors is conducted through contacts and recommendations. Suitable candidates are carefully evaluated by the NC. It is a practice of the Manager that upon their appointment to the Board, the directors are given a formal letter setting out the director's duties, obligations and responsibilities.
Board Performance
An annual review of the Board's performance was undertaken in 2010 to assess the effectiveness of the Board as a whole and the contribution by each Director to the effectiveness of the Board. The review allowed each individual Director to express his/ her personal and confidential assessment of the Board's overall effectiveness in accomplishing its goals and discharging its responsibilities. It provides insights into the functioning of the Board, whilst identifying areas that might need strengthening and development. The review of the Board's performance includes the Board size, composition, independence, access to information, processes, accountability and oversight, and standards of conduct. Each Director is required to complete a Board Performance Evaluation Questionnaire. Based on the Questionnaire returned by each Director, a consolidated report is prepared and presented to the Board.
The review of individual Director's performance is base on the attendance, knowledge and contributions by each individual Director.
Management provides the Board with complete and detailed information on the business and its operations on a quarterly basis at board meetings. Information provided includes background or explanatory information on financial results, business updates, property information, etc.
In addition, the Board has separate and independent access to Management, the company secretary, internal and external auditors at all times. Where necessary, the Board will request for independent professional advice, to enable them to discharge their duties.
The company secretary administers, attends and prepares minutes of Board and proceedings of all Board committees. She assists the Chairman of the Board and the Board Committees to ensure that proper procedures are followed and that the Company's Memorandum and Articles of Association and relevant rules, regulations, best practices and internal policies, including applicable provisions of the Property Fund Appendix are complied with. Under the direction of the Chairman and the Board Committees, she is responsible for ensuring information flows within and among the Board, the Board Committees and the Management. She also works with the Management to ensure that Board and Board committee papers are provided to each Director ahead of meetings.
Board Remuneration
The remuneration of Directors is paid by the Manager, and not A-REIT.
Board Committees
The Board has established various committees to assist it in discharging its responsibilities. These committees are listed below.
- Audit Committee
- Executive Committee
- Human Resource & Compensation Committee
- Nominating Committee
Members of the respective committees
| Board members | Audit committee |
Executive committee |
HR and
compensation committee |
Nominating
Committee |
|---|---|---|---|---|
| Mr David Wong Cheong Fook | C |
C |
||
| Ms Chong Siak Ching | C |
M |
M |
|
| Mr Joseph Chen Seow Chan | C |
M |
||
| Mr Chia Kim Huat | M |
M |
M |
|
| Mr Koh Soo Keong | M |
M |
||
| Mr Henry Tan Song Kok | M |
|||
| Ms Monica Villegas Tomlin | M |
|||
| Mr Tan Ser Ping | M |
Denotes C - Chairman; M - Member
Audit Committee
The Audit Committee is appointed by the Board from among the directors of the Board, all of whom (including the Chairman of the Audit Committee) are independent directors. The members of the Audit Committee are Mr Joseph Chen (Chairman), Mr Chia Kim Huat, Mr Koh Soo Keong and Mr Henry Tan.
The core function of the Audit Committee is to oversee the integrity of the financial statements and related disclosures, review the internal and external auditors' findings on internal controls, make recommendations to the Board (on the appointment, reappointment of the external auditor, and approve the remuneration of the external auditor The Audit Committee also reviews the quality and reliability of information prepared for inclusion in financial reports. The Audit Committee is responsible for the nomination of external auditors and reviewing the adequacy of existing audits in respect of cost, scope and performance.
The Audit Committee's responsibilities also include:
- Reviewing audit reports to ensure that where deficiencies in internal controls have been identified, appropriate and prompt
remedial action is taken by Management;
- Ensuring the procedures are in place to comply with applicable legislation and regulations, including the Listing Manual and the
Property Funds Appendix
- Reviewing and recommending to the Board to approve the release of the financial statements;
- Ensuring procedures are established to regulate transactions involving, among others, the Trustee, as the trustee for A-REIT, and a related party of the Manager ("Interested Person Transactions").
- Undertaking other responsibilities that may be directed or delegated to the Audit Committee by the Board.
The Audit Committee has also conducted a review of all non-audit services provided by the external auditors and is satisfied that the nature and extent of such services will not prejudice the independence and objectivity of the external auditors.
Audit Committee meetings are generally held after the end of every quarter before the official announcement of results in relation to that quarter.
The Audit Committee meets with the external auditors, without the presence of Management, at least once a year.
Executive Committee
The Executive Committee operates under delegated authority from the Board and is comprised of independent and non-independent directors. The members of the Executive Committee are Ms Chong Siak Ching (Chairman), Mr Chia K im H uat, Ms Monica Villegas Tomlin and Mr Tan Ser Ping.
The responsibilities of the Executive Committee include:
- Evaluating, approving or making recommendations to the Board on investments, divestments, operational issues with the
Property Manager, financing offers and banking facilities;
- Recommending changes to the financial limits for investments, etc,
- Reporting to the Board on decisions made by the Executive Committee; and
- Undertaking other responsibilities that may be directed or delegated to the Executive Committee by the Board
HR & Compensation Committee ("HRCC")
The HRCC's functions include reviewing the benefits and compensation packages for executive officers of the Manager and identifying the CEO's successor. The members of the HRCC are Mr David Wong (Chairman), Ms Chong Siak Ching, Mr Joseph Chen and Mr Koh Soo Keong.
Nominating Committee
The Nominating Committee was set up in October 2009 to make recommendations to the Board in the appointment of Directors to the Board and its committees for the approval of the shareholder of AFM. The members of the Nominating Committee are Mr David Wong (Chairman), Ms Chong Siak Ching and Mr Chia Kim Huat.
Meeting Attendance
The attendance at the Board, Audit Committee and Executive Committee meetings for FY10/11is set out below.
Board
|
Audit Committee
|
Executive Committee
|
Human Resource
and Compensation
Committee
|
|
|---|---|---|---|---|
No. of meetings held: 9 |
No. of meetings held: 5 |
No. of meetings held: 2 |
No. of meetings held: 1 |
|
Attended |
Attended | Attended | Attended | |
| Mr David Wong Cheong Fook | 9 |
-
|
-
|
1
|
| Ms Chong Siak Ching | 8 |
-
|
2 |
1 |
| Mr Joseph Chen Seow Chan | 8 |
5 |
- |
1 |
| Mr Chia Kim Huat | 9 |
5
|
2 |
- |
| Mr Koh Soo Keong | 9 |
5 |
- |
1 |
| Mr Henry Tan Song Kok | 9 |
5 |
- |
- |
| Ms Monica Villegas Tomlin | 9 |
-
|
2
|
- |
| Mr Tan Ser Ping | 9 |
5*
|
2 |
- |
* Attended in capacity as CEO
Internal Controls
In April 2010, BDO Consultants Pte Ltd ("BDO") was appointed by the AC to provide internal audit services.
The role of the internal auditors is to assist the AC to ensure that Management maintains a sound system of internal controls by regular monitoring of key controls and procedures and ensuring their effectiveness. BDO's scope of work include risk assessments and compliance audits in order to ensure internal controls are aligned to business objectives and in place to address related risks.
BDO has unrestricted access to the AC. BDO reports to the Chairman of the AC and is guided by the Standards for the Professional Practice of Internal Auditing. These standards comprise attribute, performance and implementation standards.
During the year, BDO adopted a risk-based auditing approach covering financial, operational and compliance controls. Internal audit reports are submitted to the AC for review and the summary of findings and recommendations are discussed at the AC meetings.
The Manager encourages the directors and employees to hold Units but prohibits them from trading in the Units:
- During the period commencing two weeks before the public announcement of A-REIT's financial statements for each quarter of
its financial year, or one month before the full year results, as the case may be, and ending on the date of announcement of the
relevant results. This is in line with the best practices set out in the Listing Manual; and
- At any time whilst in possession of price sensitive information that is not available in the market.
The Directors and officers are advised not to deal in the Units on short term considerations.
In addition, the Manager has given an undertaking to the MAS that it will announce to the SGX-ST the particulars of its holdings in the Units and any changes thereto within two days after the date on which it acquires or disposes any Units, as the case may be The Manager has also undertaken that it will not deal in the Units during the period commencing two weeks before the public announcement of A-REIT's quarterly results or one month before the full year results, and if applicable, property valuation, and ending on the date of announcement of the relevant results.
Effective risk management is a fundamental part of A-REIT's business operations. Recognising and managing risk is central to the business and to protecting Unitholders' interests and value. A-REIT operates within guidelines and specific parameters set by the Board. Each major transaction is analysed to understand the risk involved. Responsibility for managing risk lies with the business unit concerned, working within the overall strategy outlined by the Board.
The Manager recognises that there is a significant amount of risk inherent in making property investment decisions. Accordingly, the Manager has set out procedures to be followed when making such decisions. In accordance with this policy, the Manager ensures comprehensive due diligence is carried out in relation to each proposed investment and a suitable determination is made as to whether the anticipated return on investment is appropriate having regard to the level of risk of that investment.
In assessing business risks, the Board considers the economic environment and the property industry risk. The Board, at times by the Executive Committee, reviews and approves all investment decisions. Management meets regularly to review the operations of the Manager and A-REIT and to ensure timely disclosure in compliance with the regulations.
The Manager has established a whistle-blower policy which reflects the Manager's commitment to conduct its business within a framework that fosters the highest ethical and legal standards. In line with this commitment and A-REIT's commitment to open communication, the whistle-blower policy aims to provide an avenue for employees of the Manager and of the Property Manager to raise concerns and reassurance that they will be protected from reprisals or victimisation for whistle-blowing in good faith. Serious concerns relating to financial reporting, unethical or illegal conduct will be reported to the AC Chairman or CEO of the Manager.
The Manager has established the following procedures to address potential conflicts of interest which it (including its directors, executive officers and employees) may encounter in managing A-REIT:
- The Manager will be a dedicated manager to A-REIT and will not manage any other REIT or be involved in any other real estate
or property business.
- All Executive Officers are employed by the Manager.
- The entry into any Interested Person Transaction must be reviewed and recommended by the AC to the Board who may approve
with a majority vote of the directors, including the votes of at least two independent directors.
- In respect of matters in which JTC and/or its subsidiaries (which includes the Ascendas Group) has a direct or indirect interest,
any nominees appointed by JTC or any of its subsidiaries to the Board shall abstain from voting. In such matters, the quorum
must comprise a majority of the independent directors of the Manager and must exclude the representatives or nominees of JTC
and/or its subsidiaries.
The directors of the Manager are under a fiduciary duty to A-REIT to act in the best interests of A-REIT, in relation to decisions affecting A-REIT when they are voting as a member of the Board. In addition, the directors and executive officers of the Manager are expected to act with integrity at all times. The Manager has established a conflict of interest policy for its employees and major service providers to ensure that any conflicts of interest or potential conflicts of interest are disclosed and approvals are sought where required.
It is also provided in the Trust Deed that if the Manager is required to decide whether or not to take any action against any person in relation to a breach of any agreement entered into by the Trustee for and on behalf of A-REIT with an affiliate of the Manager, the Manager shall be obliged to consult a reputable law firm (acceptable to the Trustee) who shall provide legal advice on the matter. If the said law firm is of the opinion that the Trustee, on behalf of A-REIT, has a prima facie evidence against the party allegedly in breach of such agreements, the Manager shall be obliged to take appropriate action with reference to such agreements. The directors of the Manager will have a duty to ensure that the Manager so complies.
Notwithstanding the foregoing, the Manager shall inform the Trustee as soon as it becomes aware of any breach of any agreement entered into by the Trustee for and on behalf of A-REIT with an affiliate of the Manager. The Trustee may then take such action as it deems necessary to protect the rights of Unitholders and/or which is in the interests of Unitholders. Any decision by the Manager not to take action against an affiliate of the Manager shall not constitute a waiver of the Trustee's right to take such action as it deems fit against such affiliate of the Manager.
Under the Trust Deed, the Manager and its Associates (as defined in the Trust Deed) are prohibited from voting with their Units at, or being part of a quorum for, any meeting of Unitholders convened to approve any matter in which the Manager or any of its Associates has a material interest in the business to be conducted (save for a resolution to remove the Manager as provided in the Trust Deed).
Review Procedures for Interested Party Transaction
In general, the Manager has established internal control procedures to ensure that all future Interested Party Transactions are undertaken on an arm's length basis and on normal commercial terms, which are generally no more favourable than those extended to unrelated third parties. In respect of such transactions, the Manager would have to demonstrate to the Audit Committee that the transactions would be undertaken on normal commercial terms, which may include obtaining (where practicable) quotations from parties unrelated to the Manager, or obtaining a valuation from an independent valuer (in accordance with the Property Funds Appendix).
In addition, the following procedures have been undertaken:
- Transactions (either individually or as part of a series or if aggregated with other transactions involving the same interested party during the same financial year) equal to or exceeding $100,000 in value but below 1.0 per cent. of A-REIT's net tangible assets
or $15 million (whichever is the lower) will be subject to review by the Audit Committee at regular intervals;
- Transactions (either individually or as part of a series or if aggregated with other transactions involving the same interested party
during the same financial year) equal to or exceeding 1.0 per cent. of A-REIT's net tangible assets or $15 million (whichever is the
lower) but below 3.0 per cent. of A-REIT's net tangible assets or $45 million (whichever is the lower) will be subject to the review
and approval of the Audit Committee. Such approval shall only be given if the transactions are on arm's length commercial terms
and consistent with similar types of transactions made by the Trustee, as trustee for A-REIT, with third parties which are unrelated
to the Manager; and
- Transactions (either individually or as part of a series or if aggregated with other transactions involving the same interested party
during the same financial year) equal to or exceeding 3.0 per cent. of A-REIT's net tangible assets or $45 million (whichever is
lower) but below 5.0 per cent. of A-REIT's net tangible assets - will be reviewed and approved by the Audit Committee which
may, as it deems fit, request advice on the transaction from independent sources or advisers, including obtaining valuations from
professional valuers. An announcement will be made on SGXNet in accordance with the Listing Manual requirements.
- Transactions (either individually or as part of a series or if aggregated with other transactions involving the same interested party
during the same financial year) equal to or exceeding 5.0 per cent. of A-REIT's net tangible assets will be reviewed and approved
by the Audit Committee which may, as it deems fit, request advice on the transaction from independent sources or advisers,
including obtaining valuations from professional valuers. Further, under the Listing Manual and the Property Funds Appendix,
such transactions would require approval by A-REIT Unitholders. An announcement will also be made on SGXNet in accordance
with the Listing Manual requirements.
Where matters concerning A-REIT relate to transactions entered into or to be entered into by the Trustee for and on behalf of A-REIT with a related party of the Manager, the Trustee is required to ensure that such transactions are conducted at arm's length in accordance with all applicable requirements of the Property Funds Appendix and/or the Listing Manual relating to the transaction in question. Further, the Trustee, as trustee for A-REIT, has the ultimate discretion under the Trust Deed to decide whether or not to enter into a transaction involving a related party of the Manager. If the Trustee is to sign any contract with a related party of the Trustee or the Manager, the Trustee will review the contract to ensure that it complies with the requirements relating to Interested Party Transactions in the Property Funds Appendix (as may be amended from time to time) and the provisions of the Listing Manual relating to interested person transactions (as may be amended from time to time) as well as such other guidelines as may from time to time be prescribed by the MAS and the SGX-ST to apply to REITS.
Role of the Audit Committee for Interested Party Transactions and Internal Control Procedures
All Interested Party Transactions will be subject to regular reviews by the Audit Committee.
The Manager's internal control procedures are intended to ensure that Interested Party Transactions are conducted at arm's length and on normal commercial terms and are not prejudicial to Unitholders. The Manager maintains a register to record all Interested Party Transactions (and the basis, including, where practicable, the quotations obtained to support such basis, on which they are entered into) which are entered into by A-REIT. The Manager incorporates into its internal audit plan a review of all Interested Party Transactions entered into by A-REIT. The Audit Committee reviews the internal audit reports to ascertain that the guidelines and procedures established to monitor Interested Party Transactions have been complied with. In addition, the Trustee will also review such audit reports to ascertain that the Property Funds Appendix have been complied with.
The Manager discloses in A-REIT's annual report the aggregate value of Interested Party Transactions conducted during the relevant financial year.
Confirmations were obtained from the SGX-ST that Rules 905 and 906 are not applicable to A-REIT's interested party transactions if these are made on the basis of, and in accordance with, the terms and conditions set out in the A-REIT prospectus dated 5 November 2002 and in relation to development management fees, in accordance with the Circular to Unitholders dated 8 June 2007 for which approval was obtained in the Extraordinary General Meeting on 28 June 2007. These transactions, which also include trustee fees, management fees, acquisition fees, property management fees, lease management fees, marketing fees, project management fees, site staff costs, common services fees and land rental payments, do not require Audit Committee approval.
The listing rules of the SGX-ST require that a listed entity discloses to the market matters that could or might be expected to have a material effect on the price of the entity's securities. The Manager upholds a strong culture of continuous disclosure and transparent communication with Unitholders and the investing community. The Manager's disclosure policy requires timely and full disclosure of all material information relating to A-REIT by way of public releases or announcements through the SGX-ST via SGXNET at first instance and then including the release on A-REIT's website at www.a-reit.com.
The Manager also conducts regular half-yearly briefings for analysts and media representatives, which will generally coincide with the release of A-REIT's results. During these briefings, the Manager will review A-REIT's most recent performance as well as discuss the business outlook for A-REIT. In line with the Manager's objective of transparent communication, briefing materials are released to the SGX-ST and also made available on A-REIT's website.
During the year under review, the Manager also met or teleconferenced with institutional investors in Singapore, Hong Kong, Japan, United Kingdom, Europe and United States of America. In addition, the Manager pursues opportunities to educate and keep retail investors informed of the REIT industry through seminars organised by the SGX-ST or other public associations. The annual general meeting was also held for the Manager to engage with investors, particularly retail investors, allowing them direct access to the Manager and for the Manager to respond to any queries the investors might have.