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Keppel DC Reit clinched the number one spot in the recently launched Governance Index For Trusts (GIFT), reported The Business Times.
The first data centre Reit listed in Asia scored 76.5 points among 43 Reits and BTs evaluated this year. Those that had not posted an annual report or were suspended were not included in the index.
Soilbuild Business Space Reit and Parkway Life Reit were tied at second place, with Capital Industrial Reit and Starhill Global Reit completing the top five.
GIFT, which was introduced on Thursday (29 June), is a new set corporate governance rankings for real estate investment trusts (Reits) and business trusts (BTs). It represents the first comprehensive ranking system in Singapore for such entities.
With the support of accounting body CPA Australia, the index was jointly developed by active investor Chew Yi and corporate governance advocate Mak Yuen Teen, who crafted the Governance Evaluation for Mid- and Small-Caps (GEMS) and the Governance and Transparency Index (GTI).
According to Mak, a professor at the National University of Singapore Business School, the index was specifically created for Singapore-listed Reits and BTs.
“Existing governance indices in the Singapore landscape exclude this important group of issuers because their governance structures and practices, and applicable rules and regulations, are different from companies.”
For instance, all current Reits and BTs listed in Singapore, except for Croesus Retail Trust, are overseen by a manager or trustee-manager, while their board of directors are appointed by the manager’s stockholders rather than the Reits’ unitholders.
Basically, Mak and Chew awarded points for factors like board matters, internal and external audit, alignment of incentives and interests, and communication with unitholders, as well as compensation of directors and key management positions. There are also corresponding points for business risk, which is evaluated based on debt and other factors like lease expiry and income-support contracts.
Overall, the duo noted that Reits and BTs in Singapore communicated well with unitholders. Apart from appointing reputable external auditors and not revising audit opinions, at least half of the board members are composed of independent directors.
However, they scored lower in the areas of remuneration, board independence and competencies, as well as alignment of incentives and interests with unitholders. Additionally, performance fees of managers for many trusts are still linked with net property income rather than distribution per unit (DPU).
Furthermore, Mak pointed out that all Singapore-listed Reits or BTs have not adopted the practice of putting the manager up for appointment periodically to enhance their accountability to shareholders. This is because these entities are entrenched to some extent based on the stake owned by the sponsor or controlling unitholder.
“Perhaps giving unitholders a right to endorse the re-appointment periodically — effectively an advisory rather than a binding vote — would be a good way to gauge the satisfaction of unitholders with the performance of the manager or trustee-manager.”
This article was edited by Denise Djong.
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