SINGAPORE (Aug 1): Real estate investment trusts (REITs) and business trusts (BTs) on the whole have continued to show improvements in corporate governance, according to the Governance Index for Trusts (GIFT) 2019 report.
GIFT, which is an annual assessment used to gauge the governance and business risk of REITs and BTs, saw the average combined governance and business risk score rise to 68.0 points. This compares to 65.6 points in 2018 and 62.2 points in 2017.
“This sector is well-regulated, and many of the trusts have good governance practices and have been improving over the years,” says Mak Yuen Teen, associate professor of accounting at the NUS Business School, National University of Singapore, and co-author of the GIFT report, which is supported by the Singapore Exchange.
This year, NetLink NBN Trust, which owns and operates a passive fibre network infrastructure in Singapore, has emerged top of GIFT 2019.
It beat 46 REITs and BTs that are listed on the Singapore Exchange, including three other new entrants: Cromwell European REIT, Keppel-KBS US REIT and Sasseur REIT.
The trust, which was included in the GIFT assessment for the first time, recorded an overall score of 90 points out of a total 100 points.
This was higher than second-placed Mapletree Commercial Trust and third-placed Keppel DC REIT, which registered an overall score of 81 points and 80.5 points, respectively.
“[Netlink NBN Trust’s] overall score of 90 put it well ahead of all the other trusts,” say Mak and co-author Chew Yi Hong, an active investor and observer of corporate governance.
“It has adopted most of the practices that we consider to be best practice in the governance area, including allowing unitholders to endorse the directors of the trustee-manager before they get re-appointed at the AGM of the trustee-manager,” they add.
Meanwhile, Far East Hospitality Trust has shown one the greatest improvement by leapfrogging to sixth place this year from 29th last year.
FEHT gained 15 points to record an overall score of 78.5 points.
Its improvement came on the back of appointing independent directors with relevant experience to replace non-executive directors who retired from the board, as well as its promptness in releasing its financial results and minutes of its AGM.
Nevertheless, the report highlighted some concerns and issues, such as the assessment of the independence of directors and the fact that independent directors are being appointed to related trusts after reaching nine years of tenure.
Other concerns include the changes in risk profiles of trusts with more foreign listings and local players expanding overseas; consolidations and mergers in the sector; and the use of hybrid securities to mitigate leverage limits.
“There is no room for complacency as confidence in the sector can be quickly eroded if momentum is not sustained,” says Mak. “As the risks of trusts increase and they venture overseas, they must ensure that their governance practices keep pace.”
