Corporate Governance

First Reit

First Real Estate Investment Trust ("First REIT"), constituted as a real estate investment trust, is externally managed by Bowsprit Capital Corporation Limited (in its capacity as manager of First REIT) (the "Manager") and accordingly, has no personnel of its own. The Manager has the responsibility of managing the business conducted by First REIT and is dedicated to maintaining the highest standard of corporate governance.

The Board of Directors of the Manager sets out in this report, the corporate governance practices and policies with reference to regulatory requirements and the Code of Corporate Governance 2012 (the "Code"). Other than the deviations which are explained in this report, the Manager has complied with the principles of the Code. The Manager has taken steps to align its governance framework with the recommendations of the Code, where they are applicable, relevant and practicable to the Group.


THE MANAGER OF FIRST REIT

The Manager has general powers of management over the assets of First REIT. The Manager's main responsibility is to manage the assets and liabilities of First REIT in the best interests of First REIT's unitholders (the "Unitholders").

The primary role of the Manager is to set the strategic direction of First REIT. This includes making recommendations to HSBC Institutional Trust Services (Singapore) Limited, as trustee of First REIT (the "Trustee") on acquisition, divestment or enhancement of assets of First REIT. The research, analysis and evaluation required for this purpose are co-ordinated and carried out by the Manager. The Manager is also responsible for the risk management of First REIT.

Other functions and responsibilities of the Manager include:

  1. 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 First REIT, at arm’s length and on normal commercial terms;
  2. Preparing property plans on a regular basis which may contain proposals and forecasts on net income, capital expenditure, sales and valuations, explanation of major variances to approved budgets, written commentary on key issues and any other relevant assumptions. The purpose of these plans is to explain the performance of First REIT’s properties;
  3. Ensuring compliance with the applicable provisions of the Securities and Futures Act, Chapter 289 ("SFA") and all other relevant legislation, the listing manual of the Singapore Exchange Securities Trading Limited ("SGX-ST") (the "Listing Manual"), the Code on Collective Investment Schemes issued by the Monetary Authority of Singapore ("MAS") (the "CIS Code") including Property Fund Guidelines in Part II Appendix 6 of the CIS Code (the "Property Funds Guidelines"), the Manager's obligations under the Trust Deed, Singapore Financial Reporting Standards, any tax ruling and all relevant contracts; and
  4. Attending to all regular communication with Unitholders.

The Manager has been granted a capital markets services ("CMS") licence by the MAS and its officers are authorised representatives under the SFA. The Manager appoints an experienced and well-qualified management personnel to handle the day-to-day operations of the Manager.


BOARD OF DIRECTORS OF THE MANAGER

Role of the Board

The Board of Directors of the Manager (the "Board") is entrusted with the responsibility of overall management of the Manager. The Board is responsible for the overall corporate governance of the Manager, including establishing goals for management and monitoring the achievement of these goals. The Manager is responsible for the strategic business direction and risk management of First REIT. The Board has adopted an internal guide whereby certain key matters are specifically reserved for the Board's approval, such as business strategy and planning, acquisition of properties, material financial commitments, loan facilities and distribution to Unitholders. The Board has established a framework for the management of the Manager and First REIT, including a system of internal controls and risk management process.

The Board meets to review the Manager's key activities. Board meetings are held quarterly (or more often if necessary) to discuss and review the strategies and policies of First REIT, including any significant acquisitions and disposals, the annual budget, the financial performance of First REIT against 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 First REIT, and acts judiciously upon any comments from the auditors of First REIT. Management provides the Board with complete and adequate information in a timely manner, including board papers, budget, forecasts and management accounts. The Board reviews management reports and feasibility studies on individual development projects prior to approving major transactions. When necessary, additional Board meetings are held to address significant transactions or issues. The Constitution of the Manager provides for Board meetings to be held by way of telephone conference and videoconference. If required, time is set aside for discussions amongst the non-executive members of the Board without the presence of management, in line with the guidelines of the Code.

The Board is reviewing sustainability issues as part of its strategic formulation and in preparation of the annual sustainability reporting in line with the requirements of the Listing Manual.

The Board is supported by the Audit Committee ("AC") and Nominating & Remuneration Committee ("NRC") in discharging its responsibilities. The Board has delegated specific responsibilities to these Board Committees and their composition and duties are described in this report. While these Board Committees have the authority to examine particular issues in their respective areas, the Board Committees report to the Board with their decisions and/or recommendations as the ultimate responsibility on all matters lies with the entire Board.

The Board has adopted a set of internal controls, which sets out approval limits on capital expenditure, investments, divestments and bank borrowings. The Board believes that the internal controls system adopted is adequate and appropriate delegations of authority have been provided to management to facilitate operational efficiency.

Changes to regulations, policies and accounting standards are monitored closely. Where the changes affect First REIT's business or have an important bearing on the Manager's or Directors' disclosure obligations, the Directors will be briefed either during Board meetings or at specially convened sessions involving relevant professionals. New and existing directors receive regular training, particularly on relevant new laws, regulations and changing commercial risks including training sponsored by SGX-ST, the Accounting and Corporate Regulatory Authority, Singapore Institute of Directors, Singapore Business Federation and by audit firms. During the financial year 2016, the Directors received or attended several trainings/conferences on accounting issues, corporate governance and other related matters. Directors are also encouraged to participate in industry conferences, seminars and training programmes and have access to professionals for consultation as and when they deem necessary, funded by the Manager. Management provides the Board with complete and adequate information in a timely manner through regular updates on financial results, market trends and business developments. Site visits to properties located overseas are organised to familiarise Directors with First REIT's properties and to facilitate better understanding of the Group's operations.

Newly appointed Directors are briefed by management on the industry, business activities and strategic directions of First REIT and all relevant provisions that they need to comply with. Induction, orientation and training is given to new directors to ensure they are familiar with the Manager's business and governance practices.

The number of Board, AC and NRC meetings held in FY2016 and the attendance of Directors at these meetings are set out below:

Name of Directors Board
Meetings
Audit Committee
Meetings
Nominating
& Remuneration
Committee Meetings
Attendance/
No. of meetings held
Attendance/
No. of meetings held
Attendance/
No. of meetings held
Albert Saychuan Cheok 4/4 5/5 1/1
Dr Ronnie Tan Keh Poo 4/4 NA NA
Goh Tiam Lock 4/4 4/4 NA
Wong Gang 4/4 4/4 1/1
Ketut Budi Wijaya 3/4 NA 1/1

Board Compostion And Balance

The Board presently comprises five Directors and the Board considers this number to be appropriate for the current scope of First REIT’s operations. The Directors of the Board are:

Mr Albert Saychuan Cheok (Chairman) (Independent Director)
Dr Ronnie Tan Keh Poo (Executive Director and Chief Executive Officer ("CEO"))
Mr Goh Tiam Lock (Independent Director)
Mr Wong Gang (Independent Director)
Mr Ketut Budi Wijaya (Non-Executive Director)

No Alternate Director had been appointed to the Board.

The Board comprises business leaders and professionals with healthcare, property, banking, legal and finance backgrounds. The profiles of the Directors are set out on pages 13 and 14 of this Annual Report.

The composition of the Board is determined using the following principles:

  • The Chairman of the Board can be an Independent Director or a Non-Independent Director, provided that where the Chairman is a Non-Independent Director, a Lead Independent Director will also be appointed in line with the Code;
  • The Board should comprise Directors with a broad range of commercial experience, including expertise in fund management, healthcare, legal and the property industry; and
  • At least half of the Board should comprise Independent Directors.

The majority of the Directors are independent of management. This enables management to benefit from their external, diverse and objective perspectives on issues that are brought before the Board. It also enables the Board to work with management through the robust exchange of ideas and views to help shape the strategic process. This, together with a clear separation of the roles between the Chairman and CEO, provides a healthy professional relationship between the Board and management, with clarity of roles and robust oversight as they deliberate on the business activities of First REIT and the Manager.

The Board has separate and independent access to senior management and the company secretary at all times and vice versa. The Board will also be furnished with board papers at least a week prior to Board meetings in order to give them ample time to prepare for the Board meetings. The company secretary (and in his absence, his designated officer) attends to corporate secretarial administration matters and attends all Board and Board Committee meetings. The appointment and removal of the company secretary is a matter for the Board as a whole. The Board also has access to independent professional advice where appropriate, at the Manager's expense.


CHAIRMAN AND CHIEF EXECUTIVE OFFICER

The positions of Chairman of the Board and CEO are held by separate individuals. The Chairman, Mr Albert Saychuan Cheok, is an Independent Director while the CEO, Dr Ronnie Tan Keh Poo, is an Executive Director. Their roles and responsibilities are clearly defined. The Chairman and the CEO are not related to each other. The Chairman is also not part of the management team. Accordingly, in FY2016 the Manager is not required to appoint a Lead Independent Director as stipulated in the Code.

In the case where the Chairman is not an Independent Director, or under any of the scenarios under Guideline 3.3 of the Code, the Board will appoint an Independent Director to be the Lead Independent Director.

The Chairman is responsible for the overall management of the Board as well as ensuring that members of the Board work together with management in a constructive manner to address strategies, business operations and enterprise issues. The CEO has full executive responsibilities over the business directions and operational decisions concerning the management of First REIT. He works closely with the Board to implement the policies set by the Board to realise the Manager's vision.


AUDIT COMMITTEE

The AC is appointed by the Board from among the Directors of the Manager and comprises the following three members, all of whom (including the Chairman of the AC) are Independent Directors:

Mr Albert Saychuan Cheok (Chairman) (Independent Director)
Mr Goh Tiam Lock (Independent Director)
Mr Wong Gang (Independent Director)

The members of the AC are appropriately qualified to discharge their responsibilities and have relevant accounting and related financial management experience and expertise. None of the AC members were previous partners or directors of, or hold any financial interest in, the Manager's current auditing firm.

The role of the AC is to monitor and evaluate the effectiveness of the Manager's internal controls. The AC reviews the quality and reliability of information prepared for inclusion in financial reports, and is responsible for the nomination of external auditors and reviewing the adequacy of external audits in respect of cost, scope and performance. The AC also assesses changes in accounting standards and accounting issues that may impact First REIT.

The AC is guided by its terms of reference endorsed by the Board and its principal duties include

  • reviewing and approving Related Party Transactions including ensuring compliance with the provisions of the Listing Manual relating to "interested person transactions" (as defined therein) and the provisions of the Property Funds Guidelines relating to "interested party transactions" (as defined therein) (both such types of transactions constituting "Related Party Transactions");
  • reviewing external and internal audit reports to ensure that where deficiencies in internal controls have been identified, appropriate and prompt remedial action is taken by management, including that the guidelines and procedures established to monitor Related Party Transactions have been complied with;
  • ensuring that the internal audit function is effective, adequately resourced and has appropriate standing within the Manager;
  • monitoring the procedures in place to ensure compliance with applicable legislation, the Listing Manual and the CIS Code, including the Property Funds Guidelines;
  • reviewing, on an annual basis, the independence and objectivity of the external auditors, and the nature and extent of non-audit services performed by the external auditors;
  • making recommendations to the Board on the appointment, re-appointment and removal of external auditors, including approving their remuneration and terms of engagement;
  • reviewing the adequacy and effectiveness of internal controls including financial, operational, compliance and information technology controls;
  • reviewing the financial statements and the audit report, as well as any announcements relating to the financial results of First REIT;
  • investigating any matters within the AC’s terms of reference, whenever it deems necessary;
  • reporting to the Board on material matters, findings and recommendations; and
  • the whistle blowing policy

The AC meets at least 4 times a year and has full access to and co-operation from management and enjoys full discretion to invite any Director and executive officer of the Manager to attend its meetings. The AC has full access to reasonable resources to enable it to discharge its functions properly. The AC is kept abreast of changes to the financial reporting standards and regulatory updates, through briefings by professionals during the quarterly meetings, or as and when appropriate.

The AC meets with the internal and external auditors, without the presence of management, at least once a year.

Attendance at the AC meetings in FY2016 is set out on page 31 of this Annual Report.

In FY2016, the AC:

  • held four meetings during the year;
  • reviewed and approved the Internal and External Audit Plans, including the nature and scope of work before commencement of these audits;
  • reviewed and approved the Enterprise Risk Assessment Report;
  • met with the internal and external auditors without the presence of management, to discuss their findings as set out in their respective reports to the AC. Both the internal and external auditors had confirmed that they had received the full co-operation of management and no restrictions were placed on the scope of audits;
  • reviewed and recommended to the Board, the quarterly and full-year financial statements and audit report;
  • reviewed all services provided by the external auditors and were satisfied that the provision of such services did not affect their independence. The external auditors had also affirmed their independence in their report to the AC;
  • reviewed related party/interested person transactions on a quarterly basis;
  • reviewed and determined the adequacy and effectiveness of risk management and internal control systems, including financial, operational, compliance and information technology controls and made the requisite recommendation to the Board; and
  • received the Manager’s compliance report for FY2016.

In the review of the financial statements for FY2016, the AC had discussed with management the accounting principles that were applied and AC's judgement of matters that might have impact on the financial statements. The following significant matters were discussed with management and the external auditors and reviewed by the AC:

Key Audit Matters How the AC reviewed these matters and what decisions were made
Valuation of investment properties The AC had considered the methodology and approach applied by the independent professional valuers in assessing the valuation of investment properties.
The AC had reviewed and discussed with management the reasonableness of key assumptions and judgements used in the valuation models, namely, future rental income, discount rates and terminal rates.

The AC is satisfied that the accounting policies and treatments are appropriate and in line with the Singapore Financial Reporting Standards and Recommended Accounting Practice 7 "Reporting Framework for Units Trusts" ("RAP 7").

The valuation of investment properties was an area of focus for the external auditors. The external auditors had included this item as a key audit matter in its audit report for FY2016. Please refer to page 49 to 50 of this Annual Report.
Revenue recognition of rental income The AC had reviewed and ensured that the computation of the increment of annual rental for the investment properties is in accordance with the terms of the master lease agreements.

The AC is satisfied that the revenue recognition is appropriate and in line with the Singapore Financial Reporting Standards and RAP 7.

The revenue recognition of rental income was also an area of focus for the external auditors. The external auditors had included this item as a key audit matter in its audit report for FY2016. Please refer to page 50 of this Annual Report.

The AC had conducted a review of all non-audit services provided by the external auditors and is satisfied that the extent of such services will not prejudice the independence and objectivity of the external auditors. The aggregate amount of fees paid/payable to external auditors was S$339,640, of which audit and non-audit services fees amounted to S$260,500 and S$59,140 respectively for the financial year under review.

RSM Chio Lim LLP audited First REIT and the Singapore subsidiaries. Member firms of RSM International of which RSM Chio Lim LLP is a member, audited the foreign subsidiaries. First REIT is in compliance with Rules 712 and 715 of the Listing Manual.

The AC, with the concurrence of the Board, had recommended the re-appointment of RSM Chio Lim LLP as the external auditors by Unitholders at the forthcoming Annual General Meeting ("AGM") of First REIT.


INTERNAL AUDIT

The Manager has put in place a system of internal controls of procedures and processes to safeguard First REIT's assets, Unitholders' interest as well as to manage risk.

The internal audit function of the Manager is outsourced to Baker Tilly Consultancy (S) Pte Ltd, a member firm of Baker Tilly International. The AC approves the hiring, removal and evaluation of the internal auditors. The internal auditors report directly to the AC on audit matters and to the management on administrative matters. The AC is of the view that the internal auditors are adequately resourced, qualified to perform their function, have appropriate standing within the Group and have maintained their independence from the activities that they audit.

The internal auditors' activities are guided by the International Standards for the Professional Practice of Internal Auditing set by The Institute of Internal Auditors.

During the year, the internal auditors conducted audit reviews based on the Internal Audit Plan approved by the AC and had unfettered access to all the documents, records, properties and personnel of the Manager, including access to the AC. Upon completion of each audit assignment, the internal auditors report their findings and recommendations to management who would respond on the actions to be taken. The internal auditors submit the internal audit reports to the AC for deliberation and also validate the follow up actions taken by management on the audit findings.


INTERNAL CONTROLS

The Board recognises the importance of maintaining a sound system of internal controls to safeguard the interests of Unitholders and the assets of First REIT. The Board also notes that the system of internal controls is designed to manage rather than to eliminate risk of failure to achieve business objectives, as no system of internal controls will preclude all errors and irregularities. The Board believes that the present system of internal controls provides reasonable and adequate safeguard, and is effective against material financial misstatements or losses. The Board performs regular reviews to ensure that the system of internal controls continue to be reasonable, adequate and effective.

Non-compliance and internal control weaknesses are noted by the internal auditors and their recommendations will be reported to the AC. To date, there has been no identified non-compliance or internal control weakness of a material nature.

For the financial year under review, the CEO and the Chief Financial Officer had provided assurance to the Board that the financial records of First REIT have been properly maintained and the financial statements give a true and fair view of the operations and finances and that an effective risk management and internal control system has been put in place.

For FY2016, based on the work performed by the internal auditors, information furnished by management and observations made, the Board with the concurrence of the AC, is of the view that the present risk management systems and internal controls are adequate and effective in addressing financial, operational, compliance and information technology risks. The Manager has complied with Rule 1207(10) of the Listing Manual.


MANAGEMENT OF BUSINESS RISK

Effective risk management is a fundamental part of First REIT's business strategy. Recognising and managing risk is central to the business and to protecting Unitholders' interests. First REIT operates within overall guidelines and specific parameters set by the Board. Each transaction is comprehensively analysed to understand the risks involved. Responsibility of managing risk lies initially with the business unit concerned, working within the overall strategy outlined by the Board.

The Board reviews the financial performance of the Manager and First REIT against a previously approved budget. The Board will also review the business risks of First REIT, examine liability management and will act upon any comments from the auditors of First REIT. In assessing business risk, the Board considers the economic environment and risk relevant to the property industry. The Board reviews management reports and feasibility studies on individual development projects prior to approving major transactions. Management meets regularly to review the operations of the Manager and First REIT and discuss any disclosure issues.

A risk register is maintained by the Manager to track and monitor risks faced by First REIT in the areas of strategic, operational, financial, compliance and information technology. The risk register is updated on a periodic basis and top-tier risks, as well as risk mitigation measures for top-tier risks, are reported to the AC and the Board for review.


NOMINATING & REMUNERATION COMMITTEE

The NRC, which was established on 15 February 2016, comprises three members, a majority of whom (including the Chairman of the NRC) are Independent Directors and all of whom are Non-Executive Directors.

Mr Wong Gang (Chairman) (Independent Director)
Mr Albert Saychuan Cheok (Independent Director)
Mr Ketut Budi Wijaya (Non-Executive Director)

The NRC meets at least once a year. One NRC meeting was held in FY2016.

The NRC is guided by its terms of reference which sets out its responsibilities, including:

  • making recommendations to the Board on all Board appointments, including making recommendations on the composition and size of the Board generally and the balance between Executive and Non-Executive Directors and between Independent and Non-Independent Directors appointed to the Board;
  • reviewing and making plans for succession for Directors, in particular for the Chairman of the Board and CEO;
  • determining annually, and as and when required, if a Director is independent;
  • assessing the performance and effectiveness of the Board as a whole and the Board Committees and the contribution of each Director to the effectiveness of the Board;
  • deciding how the Board’s performance will be evaluated and proposing objective performance criteria for the Board’s approval;
  • reviewing the training and professional development of the Board; and
  • recommending to the Board a framework of remuneration covering all aspects of remuneration including but not limited to Directors’ fees, salaries, allowances, bonuses, options, unit-based incentives and awards and benefits-in-kind for each member of the Board and key management personnel.

As part of the search and nomination process for new Directors, the NRC will identify the relevant or desired skills and experience which candidates should possess and may engage independent search companies if necessary, as well as leverage on business and other contacts.

The Manager believes that Board performance is ultimately reflected in the long-term performance of First REIT. The Board has in place a process for evaluating the performance of the Board as a whole. A collective assessment is conducted annually by means of a questionnaire individually completed by each Director. The results of this assessment is collated and discussed by the NRC and the Board. Based on feedback from the Directors in the questionnaire, recommendations are implemented to further enhance the effectiveness of the Board, where appropriate. The Board believes that collective Board performance and that of individual Board members are reflected in their proper guidance, diligence oversight and leadership which the Board provides to management and the long-term performance of First REIT. The Board is also able to assess the Board Committees through their regular reports to the Board on their activities.

As part of the assessment of performance and composition of the Board for FY2016, the Board, after taking into account the NRC's views, is satisfied that it has the appropriate size and mix of expertise and experience, taking into account the skills, experience, knowledge and contribution of the Directors in the financial year, including the level of attendance and participation at Board meetings.

The NRC has determined that a Director may hold a maximum of ten listed company board representations. Notwithstanding the Directors have multiple listed company board representations and/or other principal commitments, the NRC has assessed the individual Directors on their continuous contribution and commitment to the role and considered factors including but not limited to the full attendance of each Director at all the Board meetings in FY2016. Accordingly, it is satisfied that each Director has devoted sufficient time and attention and is able to and has adequately carried out his duties as a Director of the Manager.

Director Independence

The independence of each Independent Director is reviewed annually by the NRC based on the criteria as set out in the Code. The Independent Directors are required to declare their independence annually and disclose any relationships or appointments which would impair their independence to the Board.

The Code states that the independence of any Director who has served on the Board beyond nine years from the date of his first appointment should be subject to particularly rigorous review. Both Mr Albert Saychuan Cheok and Mr Goh Tiam Lock were first appointed to the Board on 17 May 2006 and have served more than nine years on the Board.

The NRC and the Board are of the view that Mr Cheok and Mr Goh had contributed significantly to the discussions and demonstrated independent judgement in the discharge of their duties at Board and Board Committee meetings. Mr Cheok and Mr Goh both expressed individual points of view and objectively reviewed and scrutinised management's proposals. The NRC and the Board are not aware of any factors that would impair Mr Cheok and Mr Goh's independence and concluded that both Mr Cheok and Mr Goh be considered independent.

For FY2016, on the basis of the declarations of independence provided by the Independent Directors and the review of the NRC, the Board has determined that Mr Albert Saychuan Cheok, Mr Goh Tiam Lock and Mr Wong Gang are Independent Directors as contemplated by the Code.

The criteria of the definition of "Independent Director" under the amended Securities and Futures (Licensing and Conduct of Business) Regulations ("Regulations") will be applicable to the Manager after the forthcoming AGM of First REIT. The Manager will be adopting the criteria of the definition of "Independent Director" as contemplated by the Regulations.

Remuneration Matters

The Manager, not First REIT, remunerates all Directors and employees of the Manager. The NRC sets the remuneration framework of the Manager, taking into account industry practices, responsibilities and contributions and other conditions within the industry in relation to the Directors' remuneration.

Remuneration of Non-Executive Directors

The remuneration for each Non-Executive Director takes into account the relevant Directors' contribution and responsibilities, including attendance and time spent at Board and Board Committee meetings. The following are the components of the fee structure for Non-Executive Directors:

  1. Base fee for membership of the Board
  2. Fee for chairing the Board
  3. Base fee for membership of the Board Committee
  4. Fee for chairing the Board Committee
  5. Attendance fees for meeting and offsite meeting

Remuneration of Non-Executive Directors for FY2016

  Directors Fees
(S$)
Mr Albert Saychuan Cheok 123,000
Mr Goh Tiam Lock 72,500
Mr Wong Gang 77,500
Mr Ketut Budi Wijaya 63,000

The NRC had recommended to the Board a total amount of S$336,000 as Directors' fees for the financial year ending 31 December 2017, to be paid quarterly in arrears. This recommendation had been endorsed by the Board and will be tabled for approval at the Manager's forthcoming AGM for shareholder approval.

Remuneration of Executive Director/CEO

The Manager advocates a performance-based remuneration package for the CEO. The CEO has a service agreement with the Manager and his remuneration and terms of appointment were negotiated and recommended by the NRC and is endorsed by the Board. The remuneration of the CEO comprises fixed salary, performance bonus and other benefits (such as transport allowance and car benefit).

The CEO's performance bonus and increment are based on an annual appraisal exercise. The annual appraisal takes into consideration the contribution of the CEO towards the long-term strategic goals of First REIT and the Manager, including key factors such as:

  1. Unit price performance and distribution per unit yield;
  2. Containment of corporate and operation costs;
  3. Effective capital management, including competitive cost of funds and fund raising fees;
  4. Efforts to improve and maximize profit at Manager and REIT levels; and
  5. Effectiveness and productivity of acquisitions from Sponsor/Group and third parties.

For the avoidance of doubt, Dr Ronnie Tan Keh Poo was not involved in the decision of the Board on his own remuneration. A breakdown in percentage of the aggregate remuneration of Dr Ronnie Tan Keh Poo is set out below:

Remuneration of CEO for FY2016

  Salary Bonus Allowances
and Benefits
Total
Between S$750,000 to S$1,000,000
Dr Ronnie Tan Keh Poo 58.2% 39.2% 2.6% 100%

The Manager is aware of the Code's requirement to disclose the exact quantum of the remuneration of the CEO. The Board has assessed and decided against the disclosure of the exact quantum of the CEO and has instead disclosed the remuneration of the CEO in bands of S$250,000. The Manager believes that such disclosure is sufficient for providing transparency to Unitholders without prejudicing the interests of Unitholders. In view of the highly competitive REIT management industry, the Manager believes that opting not to disclose the exact quantum of the remuneration of the CEO will minimise the risk of potential staff movements and loss of key personnel which would cause undue disruptions to the management of First REIT and which would not be in the interests of Unitholders.

Remuneration of Key Management Personnel

The remuneration of key management personnel comprises fixed salary, performance bonus and other benefits (such as transport allowance).

The remuneration of key management personnel (excluding the CEO) is also based on the annual appraisal of each individual's performance and his/her contribution towards the long-term strategic goals of First REIT and the Manager. In particular, the performance bonus is linked to the performance of the REIT and the Manager. It is assessed based on the improvement in the net property income, distributable amount and distribution per unit of First REIT over the preceding year and as such, it is aligned with the interests of Unitholders.

Remuneration of Key Management Personnel for FY2016:

  Salary Bonus Allowances
and Benefits
Total
Between S$250,000 to S$500,000
Tan Kok Mian Victor 69.7% 23.3% 7.0% 100%
Chan Seng Leong Jacky 71.5% 23.9% 4.6% 100%

The Code also encourages the disclosure of the remuneration of the top five key management personnel (who are not directors or the CEO) on a named basis in bands of S$250,000; as well as the aggregate remuneration paid to the said key management personnel. The Board has identified only two key management personnel because only these two executives have the authority and responsibility to assist the CEO in planning, directing and controlling the activities of the Manager. Due to the wage disparities in the highly competitive REIT management industry and the likely competitive pressures, the Board has decided against the disclosure of the aggregate remuneration paid to the key management personnel. The Board is of the view that the disadvantage of such disclosure in terms of risk of potential staff movement and loss of key personnel will outweigh the benefits to Unitholders.

There is no existing service agreement entered into by the Directors or key management personnel with the Manager that provides for benefits upon termination of appointment or post-employment. The Manager has also not set aside nor accrued any amounts to provide for pension, retirement or similar benefits for the Directors and key management personnel.

The Manager currently does not have any unit/share option scheme or unit/share plan. The remuneration of the Directors, the CEO and the key management personnel is in cash.

No Director or executive is involved in the deliberation and decision in respect of his own individual fees/remuneration.

No remuneration consultants were engaged in FY2016. The NRC may seek expert advice from remuneration consultants on remuneration matters, as and when necessary.

There were no employees of the Manager and its subsidiaries who were immediate family members of a Director or the CEO in FY2016. "Immediate family member" refers to the spouse, child, adopted child, step-child, sibling or parent.


DEALINGS IN FIRST REIT UNITS

The Manager has adopted a Code of Best Practices on Units Transactions, which provides guidance to its Directors and employees with regard to the dealing of Units in First REIT ("Unit"). In general, the Directors and employees of the Manager are encouraged, as a matter of internal policy, to hold Units but are prohibited from dealing in such Units:

  • on short-term considerations;
  • during the period commencing one month before the public announcement of First REIT’s full year results and (where applicable) property valuation and two weeks before the public announcement of First REIT’s quarterly results, and ending on the date of announcement of the relevant results or, as the case may be, property valuation; and
  • at any time while in possession of price sensitive information.

In addition, as part of its undertaking to the MAS, the Manager has undertaken that it will not deal in Units during the period commencing one month before the public announcement of First REIT's full year results and (where applicable) property valuation and two weeks before the public announcement of First REIT's quarterly results, and ending on the date of announcement of the relevant results or, as the case may be, property valuation.

The Manager has complied with Rule 1207(19) of the Listing Manual.


DEALING WITH CONFLICT OF INTEREST

The Manager has instituted the following procedures to deal with potential conflicts of interest issues, which the Manager may encounter, in managing First REIT:

  • The Manager will not manage any other real estate investment trust which invests in the same type of properties as First REIT;
  • All executive officers will be employed by the Manager;
  • All resolutions in writing of the Directors in relation to matters concerning First REIT must be approved by a majority of the Directors, including at least one Independent Director;
  • At least half of the Board shall comprise Independent Directors; and
  • In respect of matters in which the Sponsor and/or its subsidiaries have an interest, direct or indirect, any nominees appointed by the Sponsor and/or its subsidiaries to the Board to represent its/their interest will abstain from participating in any discussion or voting. In such matters, the quorum must comprise a majority of the Independent Directors and must exclude the nominee Directors of the Sponsor and/or its subsidiaries.

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 any breach of any agreement entered into by the Trustee for and on behalf of First REIT with a related party of the Manager, the Manager shall be obliged to consult a reputable law firm (acceptable to the Trustee) which shall provide legal advice on the matter. If the said law firm is of the opinion that the Trustee has a prima facie case against the party allegedly in breach under such agreement, the Manager shall be obliged to take appropriate action in relation to such agreement. The Directors 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 First REIT with a related party of the Manager and the Trustee may take any action it deems necessary to protect the right of Unitholders and/or which is in the interest of Unitholders. Any decision by the Manager not to take action against a related party of the Manager shall not constitute a waiver of the Trustee's right to take such action as it deems fit against such related party.


WHISTLE BLOWING POLICY

The AC has put in place procedures to provide employees of the Manager and any other person with well defined and accessible channels to report on suspected fraud, corruption, dishonest practices or other similar matters relating to First REIT or the Manager, and for the independent investigation of any reports and appropriate follow up action. The aim of the whistle blowing policy is to encourage the reporting of such matters in good faith, with the confidence that the person making such reports will be treated fairly, and to the extent possible, be protected from reprisal.


RELATED PARTY TRANSACTIONS

The Manager has established procedures to ensure that all Related Party Transactions are undertaken on normal commercial terms and not prejudicial to the interests of First REIT and the Unitholders. As a general rule, the Manager must demonstrate to its AC that such transactions satisfy the foregoing criteria, which may entail obtaining (where practicable) quotations from parties unrelated to the Manager, or obtaining one or more valuations from independent professional valuers (in accordance with the Property Funds Guidelines).

In addition, the following procedures will be undertaken:

  • transactions (either individually or as part of a series or if aggregated with other transactions involving the same related party during the same financial year) equal to or exceeding S$100,000.00 in value but below 3.0% of the value of First REIT’s net tangible assets will be subject to review by the AC at regular intervals;
  • transactions (either individually or as part of a series or if aggregated with other transactions involving the same related party during the same financial year) equal to or exceeding 3.0% but below 5.0% of the value of First REIT’s net tangible assets will be subject to review and prior approval of the AC. Such approval shall only be given if the transactions are on normal commercial terms and are consistent with similar types of transactions made by the Trustee 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 related party during the same financial year) equal to or exceeding 5.0% of the value of First REIT’s net tangible assets will be reviewed and approved prior to such transactions being entered into, on the basis described in the preceding paragraph, by the AC which may, as it deems fit, request advice on the transactions from independent sources or advisers, including obtaining valuations from independent professional valuers. Further, under the Listing Manual and the Property Funds Guidelines, such transactions would have to be approved by the Unitholders at a meeting of Unitholders.

Where matters concerning First REIT relate to transactions entered into or to be entered into by the Trustee for and on behalf of First REIT with a related party of the Manager or First REIT, the Trustee is required to consider the terms of such transactions to satisfy itself that such transactions are conducted on normal commercial terms and are not prejudicial to the interests of First REIT and the Unitholders, and in accordance with all applicable requirements of the Property Funds Guidelines and/or the Listing Manual relating to the transaction in question. Further, the Trustee 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 or First REIT. If the Trustee is to sign any contract with a related party of the Manager or First REIT, the Trustee will review the contract to ensure that it complies with the requirements relating to interested party transactions in the Property Funds Guidelines (as may be amended from time to time) as well as such other guidelines as may be from time to time prescribed by the MAS or SGX-ST to apply to real estate investment trusts.

Role of the Audit Committee for Related Party Transactions

All Related Party Transactions will be subject to regular periodic reviews by the AC. The Manager's internal control procedures are intended to ensure that Related Party Transactions are conducted on arm's length basis and on normal commercial terms and are not prejudicial to the interests of First REIT and the Unitholders.

The Manager maintains a register to record all Related Party Transactions (and the bases, including any quotations from unrelated third parties and independent valuations obtained to support such bases, on which they are entered into) which are entered into by First REIT. The Manager incorporates into its internal audit plan a review of all Related Party Transactions entered into by First REIT. The AC reviews the internal audit reports to ascertain that the guidelines and procedures established to monitor Related Party Transactions have been complied with. In addition, the Trustee will also have the right to review such audit reports to ascertain that the Property Funds Guidelines have been complied with. The AC periodically reviews all Related Party Transactions to ensure compliance with the Manager's internal control procedures and with the relevant provisions of the Property Funds Guidelines and/or the Listing Manual. The review includes the examination of the nature of the transactions and its supporting documents or such other data deemed necessary by the AC.

If a member of the AC has an interest in a transaction, he is required to abstain from participating in the review and approval process in relation to that transaction.

The Manager discloses in First REIT's annual report the aggregate value of Related Party Transactions entered into during the relevant financial year


COMMUNICATION WITH UNITHOLDERS

The Listing Manual requires that a listed entity discloses to the market matters that would likely have a material effect on the price of the entity's securities. The Manager strives to uphold a strong culture of timely 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 First REIT by way of public releases or announcements through the SGX-ST via SGXNET at first instance and then including the release on First REIT's website at www.first-reit.com.

The Manager maintains an active dialogue with Unitholders and also conducts regular briefings for analysts and media representatives, which generally coincide with the release of First REIT's results. During these briefings, management will review First REIT's most recent performance as well as discuss the business outlook for First REIT. The Manager assesses feedback from Unitholders and implements suggestions where feasible. One such implementation is the Distribution Reinvestment Plan ("DRP") which gives Unitholders the option to acquire fully paid units in First REIT without incurring additional transactional costs, in lieu of cash amount of any distribution that the DRP applies.

In line with the Manager's objective of transparent communication, briefing materials are released through SGX-ST via SGXNET and also made available on First REIT's website at www.first-reit.com.

Unitholders are accorded the opportunity to raise relevant questions on First REIT's business activities, financial performance and other business related matters and to communicate their views at the general meetings. The Directors, Chairmen of the Board Committees, representative(s) from the Trustee, external auditors, company secretary and other professionals attend the annual general meetings to address Unitholders' queries. Unitholders are encouraged to participate in the question and answer sessions, whereby minutes of the proceedings, including any substantial queries raised by Unitholders in relation to the agenda and the accompanying responses from the Board and management, are subsequently prepared.

Registered Unitholders who are unable to attend general meetings can appoint up to 2 proxies to attend, participate and vote in general meetings on his/her behalf. Corporations providing nominee and custodial services can appoint more than 2 proxies to attend, participate and vote in general meetings on behalf of Unitholders who hold Units through such corporations.

As recommended by the Code, all resolutions at general meetings are voted on by way of poll. This allows all Unitholders present or represented at the meetings to vote on a one-Unit-one-vote basis. At general meetings, Unitholders are briefed on the voting procedures and the results of all votes cast for or against each resolution with the respective percentages are announced at the meeting and on the SGXNET after the meeting. All polls are conducted in the presence of independent scrutineers.

Name of Director Directorships in Listed Companies/
Principal Commitments
Appointment
Albert Saychuan Cheok Bowsprit Capital Corporation Limited
(as Manager of First REIT)
Chairman and Independent
Non-Executive Director
LMIRT Management Ltd
(as manager of Lippo Malls Indonesia Retail Trust ("LMIR Trust"))
Chairman and Independent
Non-Executive Director
HongKong Chinese Limited Non-Executive Director
Malaysian Institute of Corporate Governance Member, Board of Governance
Amplefield Limited Chairman and Independent
Non-Executive Director
Auric Pacific Group Limited Chairman and Independent
Non-Executive Director
International Standard Resources Holdings Limited Chairman and Independent
Non-Executive Director
Adavale Resources Limited Non-Executive Director
China Aircraft Leasing Group Holdings Limited Non-Executive Director
Goh Tiam Lock Bowsprit Capital Corporation Limited
(as Manager of First REIT)
Independent Non-Executive Director
LMIRT Management Ltd
(as manager of LMIR Trust)
Independent Non-Executive Director
Lock Property Consultants Pte Ltd Managing Director
Strata Titles Boards Member
Dr Ronnie Tan Keh Poo Bowsprit Capital Corporation Limited
(as Manager of First REIT)
Chief Executive Officer
Wong Gang Bowsprit Capital Corporation Limited
(as Manager of First REIT)
Independent Non-Executive Director
JEP Holdings Limited Independent Non-Executive Director
Renewable Energy Asia Group Limited Independent Non-Executive Director
Shook Lin & Bok LLP Partner
Ketut Budi Wijaya Bowsprit Capital Corporation Limited
(as Manager of First REIT)
Non-Executive Director
LMIRT Management Ltd
(as manager of LMIR Trust)
Non-Executive Director
Peninsula Investment Limited Non-Executive Director
PT Lippo Karawaci Tbk President Director
PT Lippo Cikarang Tbk Vice President Commissioner
PT Gowa Makassar Tourism Development Tbk President Commissioner
PT Jababeka Tbk Commissioner

Past Directorships held over the preceding 3 years:
Mr Albert Saychuan Cheok – Metal Reclamation Bhd, Macau Chinese Bank Limited and AcrossAsia Limited; Dr Ronnie Tan
Keh Poo – Auric Pacific Group Limited; and Ketut Budi Wijaya – PT Siloam International Hospitals Tbk.


ADDITIONAL INFORMATION

Manager’s Management Fees

Pursuant to clauses 14.1.1 and 14.1.2 of the Trust Deed, the Manager is entitled to (i) a base fee of 0.4% per annum of the value of all the assets for the time being of the Trust or deemed to be held upon the Trust constituted under the Trust Deed ("Deposited Property"), and (ii) an annual performance fee of 5.0% per annum of the Net Property Income (as defined in the Trust Deed) (which is to be calculated before accounting for this additional fee in that financial year) of the Trust or (as the case may be) the Net Property Income of the relevant Special Purpose Vehicles (as defined in the Trust Deed) for each financial year.

Pursuant to clauses 14.1.1 and 14.1.2 of the Trust Deed, the management fees will be paid in the form of cash and/ or Units (as the Manager may elect). The management fees payable in Units will be issued at the volume weighted average price for a Unit for all trades on the SGX-ST in the ordinary course of trading on the SGX-ST for the period of 10 Business Days (as defined in the Trust Deed) immediately preceding the relevant Business Day.

Pursuant to clause 14.1.4 of the Trust Deed, the Manager's management fees are payable quarterly in arrears.

For FY2016, breakdown of the management fees was as follows:

  Group and Trust
  2016
S$’000
2016
S$’000
Base fees 5,292 4,917
Performance fees 5,292 4,964
  10,584 9,881

With effect from 1 January 2016, under the Property Funds Appendix of the CIS Code, crystallisation of the annual performance fee has been revised to be no frequent than once a year. Accordingly, from 1 January 2016 onwards, the Manager's performance fee is payable once a year after completion of the audited financial statements for the relevant financial year in arrears.

Pursuant to clause 14.2 of the Trust Deed, the Manager is also entitled to receive an acquisition fee at the rate of 1.0% of acquisition price and a divestment fee of 0.5% of sale price on all acquisitions or disposals of properties respectively.

Justification of Fees Payable to the Manager

  1. Base fee
    The Manager receives a base fee of 0.4% per annum of the value of all the assets for the time being of the Trust or deemed to be held upon the Trust constituted under the Trust Deed, representing the remuneration to the Manager for executing its core responsibility. The base fee compensates the Manager for the costs incurred in managing First REIT, which includes day-to-day operational costs, compliance costs and costs incurred in managing and monitoring the portfolio. The base fee is calculated at a fixed percentage of asset value as the scope of the Manager's duties is commensurate with the size of First REIT's asset portfolio.

    Since First REIT's listing on 11 December 2006, the Manager has taken active steps to keep its portfolio relevant and adaptable to the changing economic and environmental landscapes.

    As at 31 December 2016, First REIT's existing portfolio comprises eighteen properties comprising fourteen located in Indonesia, three in Singapore and one in South Korea, and has a combined gross floor area of 314,311 square metres and valuation of S$1.27 billion.

  2. Performance fee
    The Manager receives an annual performance fee of 5.0% per annum on the Net Property Income of the Trust or (as the case may be) the Net Property Income of the relevant Special Purpose Vehicles (as defined in the Trust Deed) for each financial year.

    The performance fee, which is based on Net Property Income, aligns the interests of the Manager with Unitholders as the Manager is motivated and incentivised to achieve income stability by ensuring the long-term sustainability of the assets through proactive asset management strategies and asset enhancement initiatives. Therefore, to achieve sustainability in First REIT's Net Property Income, the Manager is dis-incentivised from taking on excessive short-term risks, and will strive to manage First REIT in a balanced manner.

  3. Acquisition and divestment fees
    In line with the Manager's key objective of managing First REIT for the benefit of Unitholders, the Manager regularly reviews its portfolio of properties and considers the acquisition and/or recycling of assets, where appropriate, to optimise its portfolio. This involves a thorough review of the exposures, risks and returns as well as the overall value-add of acquisitions or divestments to First REIT's existing portfolio and future growth expectations.

    In undertaking a proposed acquisition, the Manager is expected to spend time and effort in conducting due diligence, structuring the acquisition, negotiating transaction documentation with the vendor, liaising with the valuers and working with the professional advisers and regulatory authorities to seek the necessary approvals from the regulators and/or Unitholders (where required). Similarly, in undertaking a proposed divestment, the Manager is expected to spend time and effort in negotiating with the prospective purchaser, structuring the divestment, liaising with the valuers and working with the professional advisers and regulatory authorities to seek the necessary approvals from regulators and/or the Unitholders (where required).

    The Manager receives an acquisition fee of 1.0% on the acquisition price upon the completion of an acquisition, and a divestment fee of 0.5% on the sale price upon the completion of a divestment. The acquisition fee is higher than the divestment fee because there is additional work required to be undertaken in terms of sourcing, evaluating and conducting due diligence for an acquisition, as compared to a divestment.

    The acquisition fees and divestment fees seek to motivate and compensate the Manager for the time, cost and effort spent (in the case of an acquisition) in sourcing, evaluating and executing potential opportunities to acquire new properties to further grow First REIT's asset portfolio or, (in the case of a divestment) in rebalancing and unlocking the underlying value of the existing properties. The Manager provides these services over and above the provision of ongoing management services with the aim of enhancing long-term returns, income sustainability and achieving the investment objectives of First REIT.

    As required by the Property Funds Appendix, where acquisition fees or divestment fees are to be paid to the Manager for the acquisition of assets from, or divestment of assets to, an interested party, the acquisition fees or divestment fees are to be paid in the form of units in First REIT issued at the prevailing market price, which should not be sold for a period of one year from their date of issuance. This additional requirement for interested party acquisitions and divestments further aligns the Manager's interests with Unitholders.