GIFT 2020 Media Release

News Release

Embargo till 14 October 2020, 5.16 pm Singapore/HK time

NetLink NBN Trust retains number 1 spot in Governance Index for Trusts (GIFT) 2020; overall average score drops partly due to raising of standards

SINGAPORE, 14 October 2020 – NetLink NBN Trust, which debuted at the top of the Governance Index for Trusts (GIFT) last year, has retained its top ranking this year.

This year, the governance and business risk of 45 out of the 50 real estate investment trusts (REITs) and business trusts (BTs) listed on SGX were assessed. Eagle Hospitality Trust (EHT) was not included because it is suspended and its annual report was only issued after the cut-off date.

Two trusts are new to GIFT in the 2020 edition, Prime US REIT and ARA US Hospitality Trust, which debut at joint 10^th and 24^th place respectively.

The top-ranked trusts n GIFT 2020 are Netlink NBN Trust, Keppel DC REIT, AIMS APAC REIT, CapitaLand Commercial Trust, Manulife US REIT and Mapletree North Asia Commercial Trust (the latter three trusts in joint fourth place).

At the other end, the six lowest-ranked trusts are Asian Pay Television Trust, First REIT (joint fifth last), Lippo Malls Indonesia Retail Trust, Accordia Golf Trust, Dasin Retail Trust and Hutchison Port Holdings Trust, with the lowest score of 39 obtained by Hutchison Port Holdings Trust.

This year, we used annual reports published between October 2019 and August 2020. The cut-off date for the data collection was extended to 31 August 2020. However, the AGMs covered were held from October 2019 to September 2020.

One change in GIFT 2020 is that we have used the latest available quarterly/half-yearly results to assess business risks to make GIFT even more timely. All but one of the trusts were assessed based on the June 2020 results or operational/financial update. The only exception was a REIT that published its third quarter results that ended on 31 May 2020.

In 2018, we started providing an opportunity for trusts to submit a self-assessment which we take into account in our assessment. This year, trusts were able to do this online and we are pleased that 35 out of 45 trusts, or 78%, participated in the self-assessment. This is the highest participation rate so far. We would like to thank those who responded and look forward to their continuing engagement.

This year, we decided to focus even more on substance and recognise trusts going beyond the bare minimum, rather than mere disclosure and practices which trusts would be expected to have anyway, such as the existence of a website.

Some new merit and demerit items were introduced. We also made adjustments to the scorecard take into account changes in regulation and the impact of COVID-19 on meetings.

Given all the changes made, the scores for this year are not directly comparable to those in previous years.

The raising of the bar contributed to the average combined governance and business risk score falling from 68 in 2019 to 64.3 this year.

Prof Mak said: “With the sector having matured, increasing consolidation, more trusts venturing overseas and the debacle involving Eagle Hositality Trust, it is important that corporate governance standards be raised and changing risks be adequately recognised so that the good work done by MAS and SGX in building up the sector in the past decade is not undone. While there are some areas of improvement, we feel that overall, standards have somewhat stagnated, regressed or not met expectations.”

Mr Chew Yi Hong, who co-produced the GIFT ranking, said, “Investors need to be more discerning and examine the track record of the managers/trustee-managers in creating value for unitholders. The incentives for the managers may not be aligned with the interests of unitholders although REIT managers and their directors have a legal obligation to act in the best interests of unitholders and prioritise unitholders’ interests over those of the REIT manager and its shareholders.”

The key areas where trusts excelled or improved:

posting of AGM minutes although this was mostly due to COVID-19 measures introduced by ACRA, MAS and SGX which require issuers holding meetings under these measures to do so
disclosure of exact remuneration of non-executive directors
disclosure of performance measures used to determine the remuneration of the CEO, with often more details, and more trusts stating that they use key performance indicators that better aligned management’s interest to unitholders’ interest
having a remuneration framework that includes a long-term remuneration component
providing longer notice period for their meetings following guidance provided by the regulators
in the business risk section, REITs promptly disclosing their interest coverage ratio (ICR) as required by MAS, with generally healthy ICRs
on average, REITs and BTs are still well financed

Areas where trusts can do better or pay more attention to include:

allowing unitholders to endorse the appointment of directors, or even better, allow them to elect or propose directors
giving more weight to perception of independence of directors by avoiding minimum compliance with the letter of the rules
improving competencies of the board and management to ensure that they add value, including as trusts expand overseas, and also on key board committees such as audit committees where there are chairs who do not appear to have the requisite experience or expertise in accounting or financial management
improving diversity of boards in terms of gender, ethnicity and age
having nominating and remuneration committees, or a combined one
continuing with quarterly reporting or at least informative quarterly updates
disclosure of remuneration of executive directors, CEOs and key management personnel
improving alignment of interest in areas such as remuneration policy and fees paid to manager
avoiding holding meetings on peak days of the AGM season
although on average, trusts are still well financed, there is a need to pay more attention to business risks relating to areas such as leverage, interest coverage, foreign currency, interest rate changes, lease expiry and use of hybrid securities, as the sector moves from a focus on stability and income/cash generation to a focus on growth

The report this year also includes an overall review of the sector which trusts and investors may be interested in. This review highlights some specific issues, often applicable only to a few trusts, but which may nevertheless impact the sector over time.

The full report and scoring guidelines are available at www.governanceforstakeholders.com.

Governance Index For Trusts – October 2020

Ranking	REIT/BT	Governance risk Score	Business risk Score	GIFT 2020
1	NetLink NBN Trust	71	19	90
2	Keppel DC REIT	57	18.5	75.5
3	AIMS APAC REIT	53	22	75
4	CapitaLand Commercial Trust	52	22	74
	Manulife US REIT	54	20	74
	Mapletree North Asia Commercial Trust	56.5	17.5	74
7	CapitaLand Mall Trust	52.5	21	73.5
	Far East Hospitality Trust	56.5	17	73.5
	Parkway Life REIT	52.5	21	73.5
10	Cromwell European REIT	55	18	73
	Keppel Pacific Oak US REIT	51	22	73
	Prime US REIT	51	22	73
13	Mapletree Industrial Trust	48	24	72
14	Mapletree Commercial Trust	48	23	71
15	Keppel REIT	58	12.5	70.5
16	Soilbuild Business Space REIT	56	13.5	69.5
17	Ascendas REIT	51.5	17	68.5
	Frasers Centrepoint Trust	48.5	20	68.5
19	IREIT Global	49	19	68
20	Frasers Logistics & Commercial Trust	46.5	20.5	67
21	Mapletree Logistics Trust	47.5	19	66.5
22	Ascendas India Trust	47.5	18.5	66
	BHG Retail REIT	51	15	66
24	ARA US Hospitality Trust	48.5	15	63.5
	CDL Hospitality Trusts	45	18.5	63.5
26	First Ship Lease Trust	49.5	13	62.5
	Keppel Infrastructure Trust	50.5	12	62.5
28	CapitaLand Retail China Trust	45.5	16	61.5
	ESR-REIT	44.5	17	61.5
30	Starhill Global REIT	42	19	61
	SPH REIT	47.5	13.5	61
32	Frasers Hospitality Trust	43	17.5	60.5
	Sabana REIT	45.5	15	60.5
34	Sasseur REIT	43.5	16.5	60
35	Ascott Residence Trust	43	16.5	59.5
36	ARA LOGOS Logistics Trust	44	12.5	56.5
37	EC World REIT	43.5	12	55.5
	Suntec REIT	43.5	12	55.5
39	OUE Commercial REIT	42	12.5	54.5
40	Asian Pay Television Trust	41	9.5	50.5
	First REIT	37	13.5	50.5
42	Lippo Malls Indonesia Retail Trust	46	1.5	47.5
43	Accordia Golf Trust	32	13.5	45.5
44	Dasin Retail Trust	34	11	45
45	Hutchison Port Holdings Trust	34	5	39