Corporate Governance


Role of the Manager

AIMS AMP Capital Industrial REIT ("AA REIT" or "Trust") is a real estate investment trust listed on the Main Board of the Singapore Exchange Securities Trading Limited ("SGX-ST"). AA REIT is externally managed by AIMS AMP Capital Industrial REIT Management Limited ("Manager").

The primary role of the Manager is to set the strategic direction in AA REIT and carry on and conduct the business in AA REIT in a proper and efficient manner on behalf of HSBC Institutional Trust Services (Singapore) Limited in its capacity as trustee of AA REIT ("Trustee"), particularly in relation to the acquisition, divestment and enhancement of the assets of AA REIT in accordance with its stated investment strategy.

The Manager has general powers of management over the assets of AA REIT and our main responsibility is to manage the assets and liabilities of AA REIT in the best interests of the unitholders of AA REIT ("Unitholders"). We do this with a focus on generating rental income and, where appropriate, increasing the value of AA REIT's assets over time so as to enhance the returns from the investments, and ultimately distributions and the total return to the Unitholders.

The Manager has covenanted in the trust deed constituting AA REIT dated 5 December 2006 (as amended, varied or supplemented from time to time) ("Trust Deed") to use its best endeavours to ensure that the business of AA REIT is carried out and conducted in a proper and efficient manner and to conduct all transactions with or for AA REIT at arm's length and on normal commercial terms.

Other main functions and responsibilities of the Manager include:

  • ensuring compliance with relevant laws and regulations, including the Listing Manual issued by the SGX-ST ("Listing Manual"), the applicable provisions of the Securities and Futures Act (Chapter 289) ("SFA"), the Code on Collective Investment Schemes (including Appendix 6 thereto on property funds ("Property Funds Appendix")), written directions, notices, codes and other guidelines that may be issued by the Monetary Authority of Singapore ("MAS") from time to time, the Trust Deed and the tax rulings issued by the Inland Revenue Authority of Singapore on the taxation of AA REIT and its Unitholders;

  • preparing annual business plans for review by the Board of Directors of the Manager (each, a "Director" or collectively, "Directors" or "Board"), including forecasts on revenue, net property income, capital expenditure, explanation of major variances to previous plan(s), commentary on key issues and relevant assumptions. These plans explain the performance of AA REIT's assets;

  • managing the finances of AA REIT, including accounts preparation, capital management, coordination of the budget process, forecast modelling and corporate treasury functions;

  • attending to all regular communications with the Unitholders; and

  • supervising the property manager, AIMS AMP Capital Property Management Pte. Ltd. ("Property Manager") which performs the day-to-day property management functions (including lease management, property management, maintenance and administration) pursuant to the property management agreements.


AA REIT, constituted as a trust, is externally managed by the Manager and accordingly, has no personnel of its own. The Manager appoints experienced and qualified personnel to run the day-to-day operations of the Manager and AA REIT. The Manager holds a capital markets services licence issued by MAS to conduct real estate investment management activities. All Directors and employees of the Manager are remunerated by the Manager and not by AA REIT.

The Trust Deed outlines certain circumstances under which the Manager can be removed by notice in writing given by the Trustee, in favour of a corporation appointed by the Trustee upon the occurrence of certain events, including by a resolution passed by a simple majority of the Unitholders present and voting at a meeting of the Unitholders duly convened and held in accordance with the provision of the Trust Deed.

Our corporate governance culture

We are committed to uphold high standards of corporate governance in our management of AA REIT and operate in keeping with the spirit of the Code of Corporate Governance issued by MAS on 2 May 2012 ("2012 Code") when discharging our responsibilities as the Manager in our dealings with Unitholders and other stakeholders. We believe that strong and effective corporate governance is imperative for the long-term success of AA REIT.

This report describes the corporate governance practices and structures that were in place during the financial year ended 31 March 2016 ("FY2016") with specific reference to the principles and guidelines of the Code of Corporate Governance, and where applicable, the Listing Manual and the Companies Act (Chapter 50 of Singapore) ("Companies Act").

The following paragraphs describe our corporate governance policies and practices in FY2016 as the Manager with specific references to the 2012 Code. Any deviations from the 2012 Code are also explained.

Board matters

The Board's conduct of affairs

Principle 1:

Every company should be headed by an effective Board to lead and control the company. The Board is collectively responsible for the long-term success of the company. The Board works with management to achieve this objective and the management remains accountable to the Board.

The Board is responsible for the overall management and corporate governance of the Manager and AA REIT. It provides entrepreneurial leadership to the Manager, sets strategic directions and ensures that the necessary financial and human resources are in place for AA REIT to meet its objectives. The Board oversees the competent management of AA REIT by setting standards and goals for the management team of the Manager (“Management”), monitors the achievement of the targets set and Management's performance. It also establishes a framework of prudent and effective controls which enables risks to be assessed and managed, including safeguarding of Unitholders' interests and the assets of AA REIT.

The Board is also responsible for identifying key stakeholder groups and recognises that their perceptions affect AA REIT's reputation.

The Board comprises members with a breadth of expertise in real estate, accounting or finance, legal, business and management. The current Board members are:

Mr George WangChairman, Non-ExecutiveNon-Independent
Mr Tan Kai SengNon-ExecutiveLead Independent
Mr Norman Ip Ka CheungNon-ExecutiveIndependent
Mr Eugene Paul Lai Chin LookNon-ExecutiveIndependent
Mr Nicholas Paul McGrathNon-ExecutiveNon-Independent
Mr Koh Wee LihExecutive Director and Chief Executive OfficerNon-Independent

The profiles of the Directors and other relevant information are set out in the "Board of Directors" section of this website.

Each Director must act honestly, with due care and diligence and in the best interests of AA REIT. This obligation ties in with the Manager's prime responsibility in managing the assets and liabilities of AA REIT for the benefit of the Unitholders. Decisions are taken objectively in the interests of AA REIT. The Manager has adopted guidelines for dealings with conflict of interests and interested party transactions, details of which are set out in the "Interested Person/interested party transactions section of this website.

The Board meets regularly, at least once every quarter and as warranted by particular circumstances, to discuss and review the strategies and policies of AA REIT, including any significant acquisition and/or disposal, the annual budget, the financial performance of AA REIT against a previously approved budget and to approve the release of the quarter and full year results. The Board also reviews the risks to the assets of AA REIT and acts upon recommendations from both the internal and external auditors of AA REIT.

In the discharge of its functions, the Board is supported by special board committees ("Board Committees") which also serve to ensure that there are appropriate checks and balances. These Board Committees are the Audit, Risk and Compliance Committee ("ARCC") and a newly established Nominating and Remuneration Committee ("NRC") which was formed on 1 June 2016.

Each of these Board Committees operates under delegated authority from the Board. However, the Board retains overall responsibility for any decisions made by the Board Committees. Other Board Committees may be formed as dictated by business imperatives and/or to promote operational efficiency.

Information on the ARCC can be found in the "Audit, Risk and Compliance Committee" section of this website. Information on the NRC can be found in the "Board membership", "Board performance" and "Remuneration matters" sections of this website.

The Board is also assisted by the Property Investment Committee ("PIC"), which comprises the Chief Executive Officer and Head of Finance of the Manager, and one management representative each from AIMS Financial Group and AMP Capital ("Sponsors") to manage the assets of AA REIT. The PIC has adopted terms of reference to define its scope of authority and responsibilities in relation to AA REIT, which include:

  • considering the appropriateness of the potential purchase and sale of:
  •  

direct property assets; and

  •  

other Permissible Investments (as defined in the Property Funds Appendix);
and recommending the same to the Board for approval;

  • considering the appropriateness of potential asset enhancement and/or development projects to be undertaken by AA REIT;

  • overseeing the asset management strategy of the investment property portfolio of AA REIT; and
  • overseeing the valuation process of the assets within AA REIT.

Decisions taken and minutes of meetings of the PIC are circulated to the Board for information so that Directors are aware of and kept updated as to the proceedings and matters discussed during such meetings.

The Manager has adopted a set of internal guidelines which sets out the limits of its financial authority. The Board's approval is required for material transactions, including but not limited to the acquisition, redevelopment and/or divestment of investment properties, valuation of properties, annual budget for operating/capital expenditure, bank borrowings and hedging strategies as well as arrangements in relation to cheque signatories. Appropriate delegations of authority and approval sub-limits are also provided at Management level to facilitate operational efficiency.

The number of Board and ARCC meetings held during the financial year, as well as the attendance of each Director at these meetings are set out in the table below:

Board meetingsARCC meetings
Number of meetings held in FY201644
Board members
Mr George Wang4n/a
Mr Tan Kai Seng44
Mr Norman Ip Ka Cheung44
Mr Eugene Paul Lai Chin Look143 of 3
Mr Simon Laurence Vinson21 of 11 of 1
Mr Nicholas Paul McGrath4n/a
Ms Moni XinYe An31 of 1n/a
Mr Koh Wee Lih 444

n/a means not applicable as Director is not a member of the ARCC.

1  Mr Eugene Paul Lai Chin Look was appointed as a member of the ARCC on 31 July 2015 to replace Mr Simon Laurence Vinson who resigned on the same day.

2  Mr Simon Laurence Vinson resigned as a Director on 31 July 2015.

3  Ms Moni XinYe An resigned as a Director on 31 July 2015.

4  Mr Koh Wee Lih, being the Chief Executive Officer, attends all ARCC meetings by invitation although he is not a member of the ARCC.

As the NRC was established recently on 1 June 2016, the NRC has yet to hold any meetings.

The Manager's Articles of Association permit Board meetings to be held by way of telephone conference or any other electronic means of communication by which all persons participating in the meeting are able contemporaneously, to hear and be heard by all other participants. If a Director is unable to attend a Board meeting or Board Committee meeting, he or she will still receive all the Board papers for discussion at that meeting. The Director will review the Board papers and will advise the Chairman or Board Committee if he or she has any views and comments on the matters to be discussed so that they can be conveyed and tabled at the meeting for discussion.

The Manager issues formal letters to new Directors upon appointment. Newly appointed Directors are briefed on their roles and responsibilities as directors of the Manager, business activities of AA REIT and its strategic directions and the contribution they would be expected to make, including the time commitment and any participation in Board Committees. For a Director who has no prior experience as a director of a listed company, he or she will be encouraged to also attend the Listed Company Director ("LCD") Programme conducted by the Singapore Institute of Directors in order to acquire relevant knowledge of what is expected of a listed company director. The LCD Programme focuses on comprehensive training of directors on compliance, regulatory and corporate governance matters which should allow first time directors to have a broad understanding of the roles and responsibilities of a director of a listed company under the requirements of the Companies Act, the Listing Manual and the 2012 Code.

The Board is regularly updated either during Board Meetings or at specially convened meetings involving the relevant professional advisors, auditors and Management in areas that may affect AA REIT's business such as relevant legislation and regulations, corporate governance practices, changes in risk management, financial reporting standards and other industry-related matters. Management also provides the Board with information in a timely manner through regular updates on financial results, market trends and business developments. Directors are also encouraged to participate in industry conferences, seminars and training programmes in connection with their duties.

Board composition and guidance

Principle 2:

There should be a strong and independent element on the Board, which is able to exercise objective judgement on corporate affairs independently, in particular, from management and ten per cent shareholders. No individual or small group of individuals should be allowed to dominate the Board's decision making.

The size and composition of the Board is reviewed regularly to ensure the Board is of an appropriate size and comprises persons who as a group provide the necessary core competencies, balance and diversity of skills, experience and knowledge of AA REIT, taking into consideration the nature and scope of AA REIT's operations and that the Board has a strong independent element.

Guideline 2.2 of the 2012 Code recommends independent directors to make up at least half of the Board in certain specified circumstances, including where the Chairman is not an independent director. Mr George Wang, Chairman of the Board, is the founder and Chief Executive Officer of AIMS Financial Group and is not an Independent Director. Guideline 2.2 of the 2012 Code takes effect following the end of the financial year commencing on or after 1 May 2016.

In addition, MAS proposes for at least half of the Board to comprise independent directors, where the Unitholders of AA REIT do not appoint the directors of the REIT Manager. The proposed requirement will take effect from the first Annual General Meeting ("AGM") relating to the financial years ending on or after 31 December 2016.

In view of these upcoming requirements, the Board has restructured its composition and now consists of six members, of whom half are Independent Directors. The majority of the Board members are Non-Executive Directors with the Chief Executive Officer as the only Executive Director.

Non-Executive Directors actively participate in setting and developing strategies and goals for Management as well as reviewing and assessing Management's performance. This enables Management to benefit from the external, diverse and objective perspectives of Independent and Non-Executive Directors on issues that are brought before the Board. It also enables the Board to interact and work with Management through a robust exchange of ideas and views to help shape the strategic process.

None of the Independent Directors have any relationship with the Manager, its related companies, its ten per cent unitholders or its officers and the ten per cent Unitholders of AA REIT that could interfere, or be reasonably perceived to interfere, with the exercise of the Director's independent business judgement with a view to the best interests of AA REIT.

Mr Tan Kai Seng, the Lead Independent Director, has served on the Board for more than nine years from the date of his first appointment. In subjecting the independence of Mr Tan to a particularly rigorous review, the Board has reviewed and determined that he has demonstrated independent judgement, integrity, professionalism and objectivity in the discharge of his duties. The Board has noted that during his tenure as an Independent Director, Mr Tan has been forthcoming in expressing his own viewpoints, active in debates over issues concerning AA REIT and objective in his challenge and scrutiny of Management's decisions and recommendations. He has actively sought clarification from Management on issues he deems necessary through direct access to the Management. It is noted that Mr Tan is able to exercise objective judgement on corporate matters independently, notwithstanding his long tenure as an Independent Director. The Board is of the view that he continues to be independent in character and judgement and he has made significant positive and objective contributions to Board discussions.

The Board is of the view that all its Independent Directors are independent in character and judgement and there are no relationships or circumstances which are likely to affect or could appear to affect the Directors' independent business judgement.

Chairman and Chief Executive Officer

Principle 3:

There should be a clear division of responsibilities between the leadership of the Board and the executives responsible for managing the company's business. No one individual should represent a considerable concentration of power.

The roles of Chairman and Chief Executive Officer are separate and the positions are held by two separate persons in order to maintain effective segregation of duties, appropriate balance of power, increased accountability and greater capacity of the Board for independent decision making.

The Chairman is responsible for the overall leadership and management of the Board to ensure its effectiveness on all aspects of its role. This includes setting the agenda of the Board in consultation with the Chief Executive Officer and ensuring that adequate time is available for open discussion and robust debate of all agenda items, in particular strategic issues. The Chairman also ensures that the Directors receive complete, adequate, clear and timely information. In addition, the Chairman facilitates the contribution of Non-Executive Directors, encourages constructive relations between the Executive Director, Non-Executive Directors and Management, ensures effective communication with Unitholders and promotes a high standard of corporate governance. The Chairman also ensures that the Board works together with integrity and competency and that the Board engages Management in constructive debate on strategy, business operations, enterprise risk and other plans.

The Chief Executive Officer has full executive responsibilities over the business directions and operational decisions in the day-to-day management of the Manager and AA REIT.

The Chairman and the Chief Executive Officer are not related to each other. The division of responsibilities between the Chairman and the Chief Executive Officer and the clarity of their roles allows for a robust and professional relationship between the Board and Management which facilitates effective oversight.

Guideline 3.3 of the 2012 Code recommends every company to appoint an independent director to be the lead independent director in certain specified circumstances including where the Chairman is not an independent director. Mr Tan Kai Seng is the Lead Independent Director in accordance with Guideline 3.3 of the 2012 Code. He is also the Chairman of the ARCC. Mr Tan as the Lead Independent Director has the discretion to hold meetings with the Independent Directors without the presence of the non-independent Directors and Management as he deems appropriate or necessary and to provide feedback to the Chairman after such meetings.

Board membership

Principle 4:

There should be a formal and transparent process for the appointment and re-appointment of directors to the Board.

During and up to the end of FY2016, the Board undertook the functions of a nominating committee, namely, administering nominations to the Board, reviewing the structure, size and composition of the Board and reviewing the performance and independence of the Directors. In addition, as part of regulatory requirements, MAS also provides prior approval for any change of the Chief Executive Officer or of any appointment of director. Directors of the Manager are not subject to periodic retirement by rotation.

During the year, the composition of the Board, including the selection of candidates for new appointment to the Board as part of the Board's renewal process, is determined using the following principles:

(a) the Board should comprise directors with a broad range of commercial experience, including expertise in funds management, the property industry, and legal and financial management; and

(b) at least half of the Board should comprise Independent Directors.

The selection of candidates is evaluated taking into account various factors, including the current and mid-term needs and goals of AA REIT, and hence, the Manager, as well as the relevant expertise of the candidates and their potential contributions. Candidates may be put forward or sought through contacts and recommendations.

The Board recently performed a review to establish a NRC in accordance with the 2012 Code and a NRC was established on 1 June 2016.

From FY2017 onwards, the NRC, in performing the functions of a nominating committee, will support the Board in nominating matters relating to the Manager in accordance with the NRC's written terms of reference.

The NRC comprises of at least five Directors, the majority of whom, including NRC Chairman, are independent directors. The members of the NRC are as follows:

Mr Norman Ip Ka CheungNRC Chairman
Mr Tan Kai SengNRC Member
Mr Eugene Lai Chin LookNRC Member
Mr George WangNRC Member
Mr Nicholas Paul McGrathNRC Member

The NRC has written terms of reference setting out its scope and authority in performing the functions of the nominating committee, which include assisting the Board in matters relating to:

  • reviewing the composition of the Board at regular intervals, and when a Director gives notice of his intention to retire or resign. This is to ensure that the Board is of an appropriate size and comprises of directors who as a group provide the necessary core competencies, balance and diversity of skills, experience and knowledge to AA REIT, taking into consideration the nature and scope of AA REIT's operations, and that the Board has a strong independent element;

  • making recommendations to the Board for the appointment of new directors, including reviewing the suitability of any candidate put forward by any Director for appointment, with regard to the current and mid-term needs and goals of AA REIT and the Manager, the relevant expertise of the candidates and their potential contributions, whether the candidate has sufficient time to commit to his or her responsibilities as a Director, and whether he or she is a fit and proper person for the office in accordance with the Guidelines on Fit and Proper Criteria issued by the MAS (which require the candidate to be, among other things, competent, honest, to have integrity and be financially sound);

  • reviewing the performance of the Board and each Director annually and proactively addressing any issues identified in the Board and Director performance evaluation;

  • annual review of the independence of each Director; and

  • reviewing of training and professional development programmes for the Board.


As the Unitholders of AA REIT do not appoint the Directors of the Manager, at least half of the Board comprises Independent Directors.

The 2012 Code recommends that the Board considers providing guidelines on the maximum number of listed company representations which each director of the company may hold in order to address competing time commitments faced by directors serving on multiple boards. Although some of the Directors have other listed company board representations and commitments, the Board has determined through informal assessment of the Board's performance that each individual Director has devoted sufficient time and attention to his role as a Director and to the affairs of the Manager. For FY2016, the Board is of the view that such appointments do not hinder the Directors from carrying out their duties as Directors of the Manager and therefore believes that it would not be necessary to prescribe a maximum number of listed company board representations a Director may hold. The Board does not wish to exclude from consideration suitable individuals who, despite the demands on their time, have the capacity to participate and contribute as members of the Board.

Board performance

Principle 5:

There should be a formal assessment of the effectiveness of the Board as a whole and its Board Committees and the contribution by each director to the effectiveness of the Board.

For FY2016, the Directors have assessed the performance of the Board as a whole, the Board Committees, the contribution of the Chairman and of each individual Director to the effectiveness of the Board taking into consideration factors such as Directors' attendance, commitments and contributions during Board meetings and/or Board Committee meetings.

Contributions by an individual Director may also take other forms, including providing objective perspectives on issues, facilitating business opportunities and strategic relationships with external parties and being accessible to Management outside of formal Board and/or Board Committee meetings.

The Manager believes that the Board's performance and that of each individual Director is reflected in and evidenced by its or his proper guidance, diligent oversight and able leadership and the level of support it or he has provided to Management in steering AA REIT in the appropriate direction as well as the long-term performance of AA REIT through both favourable and challenging market conditions.

Prior to the establishment of the NRC, the review of Board members' performance was on an informal basis, where renewal or replacement of a member did not necessarily reflect his contributions to-date but was driven by the need to position and shape the Board in line with the needs of AA REIT and its business going forward. As at 31 March 2016, the Board is of the view that the contributions made by each Director and performances of the Board and Board Committees as a whole was satisfactory.

The formal assessment of the review of the Board's performance in FY2017 will be undertaken by the newly established NRC.

Access to information

Principle 6:

In order to fulfil their responsibilities, directors should be provided with complete, adequate and timely information prior to board meetings and on an on going basis so as to enable them to make informed decisions to discharge their duties and responsibilities.

Management provides the Board with complete, timely and adequate information on Board matters and issues requiring the Board's deliberation. All Directors are also provided with ongoing reports relating to the operational and financial performance of the Trust to enable them to exercise effective oversight over AA REIT. Directors are briefed by the Management during Board meetings, at specially convened sessions or via circulation of Board papers. Information provided to the Board includes an explanatory background relating to the matters to be brought before the Board. Additionally, reports by independent external analysts on AA REIT are forwarded to the Board from time to time to keep Directors apprised of analysts' views on AA REIT's performance.

Proposals to the Board and/or Board Committees for decisions or mandates sought by Management are in the form of Board papers and/or Board Committee papers that provide facts, analysis, resources needed, conclusions and recommendations.

The Company Secretary of the Manager ("Secretary") works with the Chairman and the Chief Executive Officer to ensure that Board papers and the agenda are provided to each Director in advance of the Board meetings so that they can familiarise themselves with the matters prior to the Board meetings. Senior executives who can provide additional insights into matters to be discussed are also requested to attend the Board meetings so as to be at hand to answer questions. AA REIT's auditors who can provide additional insight into the matters for discussion are also invited from time to time to attend such meetings.

The Board has separate and independent access to Management and the Secretary as well as to all statutory records of the Manager. The Secretary or its designated representative attends all Board meetings and Board Committee meetings to record the minutes of the meeting. The Secretary renders assistance to the Board as may be necessary and helps to ensure that applicable rules and regulations are complied with. The appointment and removal of the Secretary is a Board reserved matter.

The Directors, either individually or as a group, may at the Manager's expense seek independent professional advice where necessary to discharge his or their duties effectively.

Remuneration matters

Principle 7:

There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his own remuneration.

Principle 8:

The level and structure of remuneration should be aligned with the long-term interest and risk policies of the company, and should be appropriate to attract, retain and motivate (a) the directors to provide good stewardship of the company, and (b) key management personnel to successfully manage the company. However, companies should avoid paying more than is necessary for this purpose.

Principle 9:

Every company should provide clear disclosure of its remuneration policies, level and mix of remuneration, and the procedure for setting remuneration in the company's Annual Report. It should provide disclosure in relation to its remuneration policies to enable investors to understand the link between remuneration paid to directors and key management personnel and performance.

AA REIT, constituted as a trust, is externally managed by the Manager and accordingly, it has no personnel of its own. The Manager appoints experienced and qualified personnel to manage the day-to-day operations of the Manager and AA REIT.

The Board recently performed a review following the issuance of new MAS directions and guidelines for REIT Managers to establish a NRC in accordance with the 2012 Code and a NRC was established on 1 June 2016. From FY2017 onwards, the NRC, in performing the functions of a remuneration committee, will support the Board in the remuneration matters of the Manager in accordance with the NRC's written terms of reference.

The NRC has written terms of reference setting out the scope and authority in performing the functions of a remuneration committee, which include assisting the Board in matters relating to:

  • reviewing and recommending a general framework of remuneration for Directors and key management personnel of the Manager;

  • reviewing and recommending the specific remuneration packages for each Director and key management personnel; and

  • reviewing the Manager's obligations arising in the event of the termination of a director's or executive officer's contract of service and ensure that that such contract of service contains fair and reasonable termination clauses which are not overly generous.


No member of the NRC will be involved in any decision relating to his own remuneration.

As the NRC was established recently on 1 June 2016, for FY2016, the Manager took reference from the remuneration policy adopted by the Sponsors in determining the remuneration of the Board and key executives. The Sponsors participated in the determination of the remuneration of directors and executive officers and reviewed the remuneration policies to ensure that remuneration payable is in line with the objectives of the remuneration policy. The Manager also performed a remuneration survey through an independent advisor, McLagan/AON Hewitt, to assess the competitiveness of the employees' remuneration compared to the market.

The remuneration policy adopted by the Manager enables the Manager to attract, motivate, reward and retain quality employees. Key management personnel remuneration comprises a fixed component and a variable component. The fixed component comprises the base salary and compulsory employer's contribution to the employees' Central Provident Fund. The variable component is in the form of short-term and long-term bonuses. There are no unit-based incentives or awards in place to reward employees as part of the remuneration package.

The compensation structure for the variable component is directly linked to corporate and individual performance, both in terms of financial, non-financial performance as well as the performance of AA REIT through the incorporation of appropriate key performance indicators that are specific, measurable, result-orientated and time-bound. In determining the actual quantum of the variable component of the remuneration to be paid, the Manager would take into account the extent to which the key performance indicators have been met. Some of the key performance indicators of the Manager include distribution growth of AA REIT, occupancy rate of AA REIT's property portfolio and the unit price performance of AA REIT compared to its immediate peers. This will allow alignment of employees' interests with those of AA REIT's Unitholders.

The Chief Executive Officer and Non-Executive Non-Independent Directors are not paid directors' fees by the Manager. Independent Directors are paid fixed basic fees for their Board and Board Committee memberships by the Manager. In determining the quantum of the fees, the Manager took into account factors such as time spent and responsibilities of the Directors. Directors' fees are reviewed periodically to benchmark such fees against the amounts paid by other listed real estate investment trusts. No Director decides on his own fees. There are no unit-based incentives or awards in place to reward directors as part of the remuneration package.

Directors' fees are paid by the Manager. As at 31 March 2016, the directors' fees paid in cash were as follows:

Directors' feesFY2016FY2015
Board members
Mr George Wang--
Mr Tan Kai SengS$68,214S$63,525
Mr Norman Ip Ka CheungS$64,512S$57,750
Mr Eugene Paul Lai Chin LookS$62,012S$60,250
Mr Simon Laurence Vinson1--
Mr Nicholas Paul McGrath--
Mr Moni XinYe An2--
Mr Koh Wee Lih--

1   Mr Simon Laurence Vinson resigned as Director on 31 July 2015.

2   Ms Moni XinYe An resigned as Director on 31 July 2015.

The Board is cognisant of the requirements under Principle 9, Guideline 9.1, Guideline 9.2, Guideline 9.3 and Guideline 9.6 of the 2012 Code for listed issuers to make certain remuneration disclosures, inter alia, a breakdown (in percentage or dollar terms) of the Chief Executive Officer's and top five key management personnel's remuneration (in bands of S$250,000) earned through base/fixed salary, variable or performance-related income/bonuses, benefits in kind, stock options granted, share-based incentives and awards, and other long-term incentives as well as to fully disclose the remuneration of the Chief Executive Officer and the aggregate total remuneration paid to the top five key personnel (who are not directors or the Chief Executive Officer).

However, the Board of the Manager has reviewed, assessed and decided against such disclosures for the following reasons:

  • the remuneration of the Directors and employees of the Manager are not paid out of the deposited property of AA REIT (listed issuer). Instead, they are remunerated directly by the Manager, which is a private company. The fees that the Manager receives from AA REIT have been disclosed under the “Interested person/interested party transactions” section of this website;

  • there is no misalignment between the remuneration of the Directors and the key management personnel of the Manager, and the interests of the Unitholders given that their remuneration is not linked to the gross revenue of AA REIT and is paid out of the assets of the Manager and not out of AA REIT; and

  • given the confidentiality and sensitivity of remuneration matters, the Board firmly believes that the disclosure of the remuneration of the Chief Executive Officer and the top five key management personnel of the Manager (whether in exact quantum or in bands of S$250,000) would be prejudicial to the interests of AA REIT and its Unitholders. The majority of the current management team has been serving the Manager and AA REIT for a considerable period of time and it is a stable and effective team. It is important for the Manager to retain such talent for the long-term interests of AA REIT and its Unitholders and to ensure the stability and continuity of the business operations with a competent and experienced management team at the helm. In view of the competitive conditions and the specialised skill sets required in the Singapore real estate and Singapore REIT industry, such disclosure of remuneration may potentially result in staff movement. Therefore, the Board believes that not disclosing the remuneration will be in the best interests of AA REIT and the Unitholders and the interests of AA REIT and the Unitholders will not be prejudiced as a result of such non-disclosure.


There were no employees of the Manager who were immediate family members of a Director or the Chief Executive Officer in FY2016 and whose remuneration exceeded S$50,000 during the financial year ended 31 March 2016.

Accountability and Audit

Accountability

Principle 10:

The Board should present a balanced and understandable assessment of the company's performance, position and prospects.

Management provides the Board with periodic financial reports and such explanation and information as the Board may require in order to make a balanced and informed assessment of AA REIT's performance, position and prospects.

The Board strives to present a balanced and understandable assessment of AA REIT's performance, position and prospects through quarterly and annual financial reports as well as timely announcements through SGXNET announcements and media releases.

Risk management, internal controls and audit

Principle 11:

The Board is responsible for the governance of risk. The Board should ensure that management maintains a sound system of risk management and internal controls to safeguard the shareholders' interests and the company's assets and should determine the nature and extent of the significant risks which the Board is willing to take in achieving its strategic objectives.

Principle 13:

The company should establish an effective internal audit function that is adequately resourced and independent of the activities it audits.

The Board recognises the importance of sound internal controls and effective risk management practices to good corporate governance. As such, the Manager has put in place a system of internal controls comprising procedures and processes to safeguard AA REIT's assets, Unitholders' interests and to manage risks.

BDO LLP (“BDO”) has been re-appointed by the ARCC to provide internal audit services to review and assess the adequacy of AA REIT's internal control systems, including financial, operational, compliance and information technology controls over a three-year internal audit plan period. The internal auditor is independent of Management and reports directly to the ARCC on audit matters and to the Board on administrative matters. BDO has unrestricted access to the ARCC. The internal auditor's activities are guided by the International Standards for Professional Practice of Internal Auditing set by The Institute of Internal Auditors.

BDO's role as the internal auditor is to assist the ARCC to reasonably ensure that Management maintains a sound system of internal controls by regular monitoring of the effectiveness of key controls and procedures. BDO's scope of work includes risk assessments and compliance audits in order to check that internal controls are aligned to business objectives and in place to address related risks.

In FY2016, BDO conducted audit reviews on the internal audit plan approved by the ARCC covering financial, operational, compliance and information technology controls using a risk-based auditing approach. Upon completion of each audit assignment, BDO reported their audit findings and recommendations to Management who responded on the actions to be taken. BDO also submitted internal audit reports, at least twice yearly, to the ARCC on the audit findings and follow-up actions taken by Management based on the recommendations.

In addition, Management has also established a risk identification and management framework development with BDO's assistance and has implemented new risk management policies and processes to ensure that AA REIT maintains a sound system of risk management and internal controls to safeguard Unitholders' interests and AA REIT's assets. The framework strengthens AA REIT's capability to recognise and capitalise on new challenges and opportunities so as to value-add to Management's decision-making, business planning and operational management and as a protection for investors.

A Chief Risk Officer (“CRO”) has been appointed to provide oversight and co-ordination of risk management to the Manager and AA REIT.

Information on risk management can be found in the “Risk management report” section of this website.

The Board has received assurance from the Chief Executive Officer and Head of Finance of the Manager that: (a) the financial statements of AA REIT and its wholly-owned subsidiaries (“Group”) and the Trust are drawn up so as to present fairly, in all material respects, the financial position of the Group and of the Trust as at 31 March 2016, and the total return, distributable income and movements in Unitholders' funds of the Group and of the Trust and cash flows of the Group for the year then ended in accordance with the recommendations of Statement of Recommended Accounting Practice 7 “Reporting Framework for Unit Trusts” issued by the Institute of Singapore Chartered Accountants and the provisions of the Trust Deed; and (b) based on management oversight and applicable reports submitted by independent auditors (for financial and non-financial reviews), the risk management and internal control systems to the extent they address the financial, operational, compliance and information technology risks faced by the Group in its current business environment have been effectively designed, are operating effectively in all material aspects and were adequate as at 31 March 2016.

Based on the enterprise risk management framework established, work performed by the internal and external auditors, and reviews conducted by Management and various Board Committees, the Board, with the concurrence of the ARCC, is of the opinion that the system of risk management and internal controls was adequate to address material financial, operational and compliance risks, which the Board considers relevant and material to its current business environment as at 31 March 2016.

The Board notes that the system of risk management and internal controls established provides reasonable but not absolute assurance that AA REIT will not be adversely affected by any event that could be reasonably foreseen as it strives to achieve its business objectives. In this regard, the Board also notes that no system can provide absolute assurance against the occurrence of material errors, poor judgment in decision making, human error, fraud or other irregularities

Audit, Risk and Compliance Committee

Principle 12:

The Board should establish an audit committee with written terms of reference which clearly set out its authority and duties.

The ARCC is appointed by the Board. The ARCC is comprised entirely of Non-Executive Independent Directors. The members of the ARCC as at 31 March 2016 are:

Mr Tan Kai SengARCC Chairman
Mr Norman Ip Ka CheungARCC Member
Mr Eugene Lai Chin LookARCC Member

Members of the ARCC are appropriately qualified to discharge their responsibilities as they possess the requisite relevant accounting or related financial management expertise and experience.

The ARCC is governed by written terms of reference with explicit authority to investigate any matter within its terms of reference, has full access to and cooperation by Management and the CRO, has full discretion to invite any Director or senior executive to attend its meetings and reasonable resources to enable it to discharge its functions properly.

The roles of the ARCC include:

  • reviewing significant financial reporting issues and judgements so as to ensure the integrity of the financial statements of AA REIT and any announcements relating to its financial performance;

  • reviewing and reporting to the Board at least annually the adequacy and effectiveness of the Manager's internal controls, including financial, operational, compliance and information technology controls as well as risk management processes;

  • reviewing the effectiveness of the Manager's internal audit function;

  • reviewing the scope and results of the internal and external audit work performed and assessing the independence and objectivity of the internal and external auditors;

  • making recommendations to the Board on the proposals to the Unitholders on the appointment, re-appointment and removal of the external auditors and approving the remuneration and terms of engagement of the external auditors; and

  • meeting with the internal and external auditors without the presence of Management, at least once a year.


During FY2016, the ARCC's activities included the following:

  • The ARCC performed independent reviews of AA REIT's quarterly and full year financial results before their submission to the Board. In conducting its review of the audited financial statements of AA REIT for FY2016, the ARCC had discussed with Management and the external auditors the accounting principles that were applied. Based on the review and discussions with Management and the external auditors, the ARCC is of the view that the financial statements are fairly presented and conform to generally accepted accounting principles in all material aspects.

  • In performing its duties, the ARCC had met the external auditors without the presence of Management once during the year and confirmed that they had full access to and received full co-operation and support of the Management.

  • The ARCC reviewed and approved the audit plan and scope of the external auditors on the audit of the full year financial statements.

  • The ARCC also reviewed the nature and extent of the non-audit services provided to AA REIT by the external auditors for the financial year and was satisfied that the nature and extent of such services would not prejudice the independence and objectivity of the external auditors.

  • The aggregate amount of audit fees paid and payable by the Group to the external auditors for FY2016 was approximately S$256,000, of which audit fees amounted to approximately S$201,000 and non-audit fees amounted to approximately S$55,000.The non-audit fees paid/payable to the external auditors related to general tax compliance services.

  • The ARCC is satisfied with the independence and objectivity of the external auditors and has recommended to the Board the re-appointment of KPMG LLP as the external auditors of AA REIT at the forthcoming annual general meeting.

  • The Board, on behalf of AA REIT, has complied with the requirements of Rules 712 and 715 of the Listing Manual in respect of the suitability of the auditing firm for AA REIT.

  • The ARCC reviewed and approved the internal audit plan and scope of the internal auditor's work and its audit programme. It reviewed the findings during the year and Management's responses thereto and it satisfied itself as to the adequacy of the internal audit function. The ARCC also met the internal auditors without the presence of Management once during the year and confirmed that they had full access to and received full co-operation and support of the Management.

  • The ARCC reviewed the enterprise risk management framework established by BDO and the policies and procedures put in place by Management to ensure that AA REIT's risk management and internal control systems are adequate and effective.

  • The ARCC reviewed interested person/interested party transactions to ensure compliance with the Listing Manual and the Property Funds Appendix.


A Whistle Blowing Policy has been put in place to provide a channel through which employees may report in good faith and in confidence any concerns in financial and other matters and arrangements are in place for independent investigation with appropriate follow-up action. Under the Whistle Blowing Policy, all employees can notify in writing of any reportable conduct to the Whistleblower Protection Officer or the Chairman of the ARCC. The email address of the Whistleblower Protection Officer is compliance@aimsampcapital.com.

The ARCC ensures that independent investigations and any appropriate follow-up actions are carried out.

The ARCC members are kept updated of changes to accounting standards and issues which may have a direct impact on the financial statements of AA REIT.

The number of ARCC meetings held and corresponding attendance for the financial year are set out in the section "The Board's conduct of affairs" of this website.

Unitholders' rights and responsibilities

Communication with Unitholders

Principle 15:

Companies should actively engage their shareholders and put in place an investor relations policy to promote regular, effective and fair communication with shareholders.

The Listing Manual requires a listed entity to disclose to the market matters that could or might reasonably 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 AA REIT by way of public releases or announcements through the SGX-ST via SGXNET and on its corporate website at www.aimsampcapital.com.

In order to provide regular updates to Unitholders, the Manager also conducts regular briefings and conference calls for analysts, institutional investors and media representatives which generally coincide with the release of AA REIT's results or disclosure of material transactions. During these briefings, the Manager reviews AA REIT's most recent performance or explains the transaction (where applicable), discusses the business outlook and solicits to understand views of Unitholders and to address Unitholders' concerns.

Guideline 15.5 of the 2012 Code encourages companies to have a policy on payment of dividends. The Manager's policy is to distribute at least 90.0 per cent of AA REIT's taxable income, comprising substantially its income from the letting of its properties, after deduction of allowable expenses. The actual level of distribution will be determined at the Manager's discretion taking into account the needs of the Trust for capital expenditure, working capital requirement and the liquidity position of AA REIT. Since AA REIT's listing in 2007, the Trust has distributed 100.0 per cent of its taxable income to Unitholders.

Unitholders' rights and conduct of Unitholders' meetings

Principle 14:

Companies should treat all shareholders fairly and equitably and should recognise, protect and facilitate the exercise of shareholders' rights and continually review and update such governance arrangements.

Principle 16:

Companies should encourage greater shareholder participation at general meetings of shareholders, and allow shareholders the opportunity to communicate their views on various matters affecting the company.

An AGM of Unitholders is held after the close of each financial year. The Notice of AGM setting out all items of business to be transacted at the AGM is published on SGXNET and AA REIT's website. A copy of AA REIT's Annual Report is sent to all Unitholders. As and when an extraordinary general meeting is to be held, Unitholders will receive a copy of the circular, containing details of the matters to be proposed, for Unitholders' consideration and approval. Notices of all general meetings are issued via SGXNET.

Board members, senior management of the Manager and the external auditors of AA REIT are in attendance at general meetings and Unitholders are given the opportunity to raise questions and clarify any issues they may have relating to the resolutions to be passed. Any Unitholder who is unable to attend a general meeting is allowed to appoint up to two proxies to attend and vote on the Unitholder's behalf. A Unitholder who is a relevant intermediary (including but not limited to nominee companies, custodian banks or Central Provident Fund Board's agent banks), is entitled to appoint more than one proxy to vote on its behalf at the meeting through proxy forms sent in advance, provided that each proxy must be appointed to exercise the rights attached to a different Unit or Units held by such Unitholder, where the number of Units shall be specified.

A separate resolution is proposed for each substantially separate issue at general meetings, to safeguard Unitholders' interests and rights. The Manager conducts poll voting for the Unitholders and/or proxies present at the general meeting for the resolutions proposed at the general meeting, to ensure transparency in the voting process and to better reflect the interests of Unitholders. The total number of votes for or against such resolutions and the respective percentages are announced following the general meetings via SGXNET. Minutes of the general meeting are taken and are available to Unitholders for inspection upon request.

Additional information

Dealings in AA REIT Units

In line with Rule 1207(19) of the Listing Manual on Dealings in Securities, a quarterly memorandum is issued to the Directors, officers and employees of the Manager on restrictions on dealings in the Units in AA REIT:

(a) during the period one month before the public announcement of the Group's annual results and two weeks before the public announcement of the Group's quarterly results, and ending on the date of announcement of the relevant results; and

(b) at any time while in possession of unpublished material or price sensitive information.

The Directors and employees of the Manager are also advised not to deal in the Units on short-term considerations.

Each Director is required to give notice to the Manager of his acquisition of Units or changes in the number of Units which he holds or in which he has an interest within two business days after such acquisition or the occurrence of the event giving rise to changes in the number of Units which he holds or in which he has an interest.

In addition, the Manager is required to announce to the SGX-ST the particulars of its holdings in the Units and any changes thereto within one business day after the date on which it acquires or disposes of any Units, as the case may be. The Manager has also undertaken that it will not deal in the Units one month before the public announcement of the Group's annual results and two weeks before the public announcement of the Group's quarterly results and ending on the date of announcement of the relevant results.

Dealings with conflict of interests

The following main procedures have been established to address potential conflict of interests which may arise in managing AA REIT:

(a) the Manager is dedicated to managing AA REIT and will not directly or indirectly manage other real estate investment trusts;

(b) all executive officers of the Manager are employed by the Manager;

(c) all resolutions in writing of the Directors of the Manager in relation to matters concerning AA REIT must be approved by a majority of the Directors, including at least one Independent Director;

(d) Independent Directors constitute at least one third of the Board;

(e) in respect of matters in which the Sponsors and/or their subsidiaries have an interest, direct or indirect, any Directors appointed by the Sponsors and representing their interests shall abstain from voting on such matters. In such matters, the quorum must comprise a majority of the Independent Directors of the Manager and shall exclude such Directors of the Sponsors and/or their subsidiaries; and

(f) in respect of matters in which a Director or his associate have interest, direct or indirect, such interested Director is required to disclose his interest in any proposed transaction with AA REIT and is required to abstain from voting on resolutions approving the transaction.

Interested party transactions

The Manager has established an internal control system to ensure that all transactions with Interested Parties (as defined in the Property Funds Appendix) (“Interested Party Transactions”) are undertaken on an arm's length basis and on normal commercial terms and will not be prejudicial to the interests of AA REIT and the Unitholders. As a general rule, the Manager must demonstrate to the ARCC that such transactions satisfy the foregoing criteria which may include 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 Appendix).

The Manager maintains a register to record all Interested Party Transactions which are entered into by AA REIT and the bases, including any quotations from unrelated parties and independent valuations obtained to support such bases, on which they are entered into. Further, the following procedures will be adhered to:

(a) 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 S$100,000 in value but below three per cent of the Group's net tangible assets will be subject to review by the ARCC;

(b) 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 three per cent but below five per cent of the Group's net tangible assets will be subject to the review and prior approval of the ARCC;

(c) 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 five per cent of the Group'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 ARCC which may, as it deems fit, request advice on the transaction from independent sources or advisors, including the obtaining of valuations from independent professional valuers. Furthermore, under the Listing Manual and the Property Funds Appendix, such transactions would have to be approved by the Unitholders at a meeting of Unitholders; and

(d) the ARCC's approval shall only be given if the transactions are on arm's length and on normal commercial terms and consistent with similar types of transactions with third parties which are not Interested Parties.

Where matters concerning AA REIT relate to transactions entered into or to be entered into by the Trustee for and on behalf of AA REIT with an Interested Party (which would include relevant associates thereof), the Trustee is required to ensure that such transactions are conducted on normal commercial terms, are not prejudicial to the interests of AA REIT and the Unitholders and are in accordance with all applicable requirements of the Property Funds Appendix and/or the Listing Manual relating to the transaction in question. Furthermore, the Trustee has the ultimate discretion under the Trust Deed to decide whether or not to enter into a transaction involving an Interested Party. If the Trustee is to sign any contract with an Interested Party, 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 other guidelines as may from time to time be prescribed by the MAS and the SGX-ST to apply to real estate investment trusts.

AA REIT will, in compliance with Rule 905 of the Listing Manual, announce any interested person transactions if such transaction, by itself or when aggregated with other interested person transactions entered into with the same interested person during the same financial year, is three per cent or more of the Group's latest audited net tangible assets.

Fees payable to the Manager

The revised Code on Collective Investment Schemes which took effect on 1 January 2016 requires the Manager to disclose the following matters in relation to the Manager's fees payable out of the deposited property of AA REIT:

(a) the methodology for the computation of the fees; and

(b)       the justification of how such methodology takes into account the Unitholders' long term interests.

The management fees are earned by the Manager for the management of AA REIT’s portfolio of properties. The various fees earned by the Manager are further elaborated below:

Base fee

The Manager is responsible for the ongoing management of the assets and liabilities of the Trust for the benefit of the Unitholders. Accordingly, the Manager should be fairly compensated for its efforts in the overall management of AA REIT and it should enable the Manager to cover its operational, administrative and compliance overheads incurred in the management of the portfolio. The base management fee is calculated as a percentage of the Deposited Property (defined in the Trust Deed) of AA REIT as it provides an appropriate metric to determine the resources required for managing the assets. As AA REIT grows its portfolio size, the complexity of management increases and the Manager is expected to expend greater effort in fulfilling its responsibilities.

Performance fee

The performance fee is only payable when the Manager has achieved certain levels of growth in the Distribution per Unit ("DPU") in the current financial year relative to the previous financial year. As the year-on-year growth of the DPU is in line with the interest of the Unitholders, the performance fee will spur the Manager to seek growth opportunities or embark on cost savings initiatives to improve the performance of the Trust. The performance fee is calculated as a percentage of the Deposited Property (as defined in the Trust Deed) of AA REIT as it provides an appropriate metric to determine the resources required for such efforts taken to achieve the growth in DPU and it aligns the interests of the Manager with Unitholders as the Manager is motivated and driven to achieve DPU growth by ensuring the long-term sustainability of the assets through proactive asset management strategies and asset enhancement initiatives. The performance fee is paid annually, in compliance with the Property Funds Appendix.

Acquisition fee and Divestment fee

These fees are essential to incentivise the Manager to continue to deliver long-term sustainable income to Unitholders, source for growth opportunities and yield-accretive acquisitions for the Trust and to efficiently recycle through the divestment of under-performing or non-core assets of the Trust. The Manager would have to carry out additional work as well as incur additional resources and time to source for various opportunities before a potential acquisition or divestment opportunity materialises into an eventuality. As such, the Manager should be fairly compensated for the efforts expended, costs incurred as well as time taken for such transactions.

Risk management report

Enterprise Risk Management ("ERM") framework

Risk management is a fundamental part of AA REIT's business strategy to ensure Unitholders' interests are protected.

The Board of Directors is responsible for the governance of risk. It is assisted by the ARCC to provide an overview of risk management at the Board level. The ARCC meets on a quarterly basis or more frequently, if required and these meetings are attended by the Chief Executive Officer as well as other key management staff. The ARCC is assisted by the CRO and a team of risk leaders on risk management issues. In addition, BDO was commissioned by the ARCC to provide ERM implementation services to AA REIT.

The Management has adopted the ERM framework to create a robust and rigorous corporate governance structure. This approach systematically identifies major risks that confront AA REIT, estimates the significance of those risks in business processes and addresses the risks in a consistent and structured manner. Key risks, mitigating measures and management actions are continually identified, reviewed and monitored by management as part of the ERM framework.

A robust internal control system and an effective independent audit review process make up the ERM framework, which addresses financial, operational, compliance and information technology risks to safeguard Unitholders' interests and the AA REIT's assets and also to manage risks. The Manager is responsible for the design and implementation of effective internal controls. The internal auditor carries out independent reviews to test the design and implementation to provide reasonable assurance to the ARCC on the adequacy and effectiveness of the internal control system.

Key risks in FY2016

AA REIT reviews and updates risk management systems and methodology yearly so as to manage risks in accordance with its current business conditions, preserve capital and enhance Unitholders' value. The key risks that were identified in FY2016 include the following but are not limited to:

Market risk

AA REIT faces real estate market risks such as the volatility in rental rates and occupancy rates due to strong competition and soft demand for industrial premises which have an adverse effect on property yields. In order to mitigate such risks, the Manager has established a diversified tenant base, reduced its tenant concentration risk and has in place proactive tenant management strategies. Regular feedback is also obtained from tenants to foster close landlord-tenant relationships. Where the opportunity arises, the Manager also embarks on asset enhancement activities to improve the value, performance and competitiveness of the properties in AA REIT’s portfolio.

Investment risk

All investment proposals (such as redevelopment or asset enhancement initiatives of existing properties or acquisitions of new properties/investments) are subject to rigorous and disciplined assessment by Management. In addition, the investment proposals are further robustly reviewed and discussed in the PIC. The PIC will then consider the appropriateness of the potential transaction before making a recommendation the Board. The role of the PIC is set out in the section titled “The Board’s conduct of affairs” of this website. Risk assessment is an important aspect of the evaluation process. Each investment proposal submitted to the Board for approval is accompanied by an assessment of risk factors and risk mitigation strategies.

Project management risk

The construction and redevelopment of investment properties usually take two or three years to complete, depending on the project size and complexity of the development. There is potential risk that such redevelopment and construction projects may not be completed within the anticipated time frame and budget. A Project Control Group at project level, and a Development Control Group at AA REIT/Sponsor level, respectively, are formed for each construction or redevelopment project. These groups meet regularly to monitor and ensure that the project is progressing within the timeline and budget.

Operational risk

All operations are aligned to AA REIT's focus on generating rental income to deliver secure and stable distributions and provide long-term capital growth to Unitholders. Measures include prompt lease renewals to reduce vacancies, prudent control of property expenses and an annual maintenance programme to maintain and enhance AA REIT's properties. The Manager has also established operating and reporting policies and procedures to manage day-to-day operational activities, which are reviewed and updated periodically to ensure relevance and effectiveness as well as compliance with latest legislations and regulations.

Guidelines are put in place to minimise any potential impact from business interruptions, in the event of emergencies such as haze and pandemics. The Manager also practises risk transfer by procuring relevant insurance policies to mitigate certain financial losses.

Credit risk

Tenant credit evaluations are performed by the Manager at the investment stage prior to the acquisition of an asset. For new leases, credit risk assessments are performed by the Property Manager prior to signing lease agreements. The finance and asset management teams monitor the amounts owed by tenants on an ongoing basis. Credit risk is further mitigated by security deposits either in the form of cash or bankers' guarantees issued by financial institutions with sound credit ratings.

Cash and fixed deposits are placed with financial institutions which are regulated by MAS. Transactions involving derivative financial instruments are allowed only with counterparties who have sound credit ratings.

Liquidity risk

The Manager maintains an efficient use of cash and debt facilities in order to balance the cost of borrowing and ensuring sufficient availability of credit facilities to meet its financial obligations, working capital and committed capital expenditure requirements. In addition, the Manager also monitors AA REIT's cash flow position and requirements to meet any operational needs and short-term financing obligation as well as compliance with the Property Funds Appendix in relation to limits on total borrowings. AA REIT's ability to raise funds from both banks and capital markets has enabled the Trust to diversify its sources of funding to avoid over-reliance on any single source of funding.

Interest rate risk

The Manager adopts a proactive interest rate management approach in managing the risk associated with adverse movement in interest rates on interest bearing borrowings which carry floating interest rates. The Manager also monitors regularly interest rate risk to limit AA REIT's net interest exposure to adverse movements in interest rate. As part of risk management, the Manager enters into hedging transactions to partially mitigate the risk of such interest rate fluctuations through the use of interest rate swaps and/or fixed rate borrowings. As at 31 March 2016, 92.2 per cent of AA REIT's total debt was on fixed rates taking into account interest rate swaps entered into and fixed rates medium term notes issued.

Foreign exchange risk

AA REIT is exposed to fluctuation of the Australian dollar against the Singapore dollar. The Manager’s strategy is to achieve a natural hedge through the use of Australian dollar denominated borrowings to fund the Group’s interest in the Australian joint venture, thereby mitigating the foreign exchange risk. As at 31 March 2016, the Group’s investment in its Australian joint venture was funded with Australian dollar denominated borrowings. The level of foreign currency denominated borrowings also effectively hedges more than half of the foreign currency income from Optus Centre.

Regulatory and compliance risks

The Manager, being a capital markets services licence holder, is required to comply with the applicable laws and regulations governing the Trust and the Manager, including the Securities and Futures Act (Chapter 289 of Singapore), Listing Manual, Property Funds Appendix, Trust Deed, conditions of the capital markets services licence for real estate investment trust management issued by MAS as well as tax rulings issued by Inland Revenue of Authority of Singapore on taxation of AA REIT and its Unitholders. Any changes in these regulations may affect AA REIT’s operations and results.

The employees of the Manager keep abreast of changes in legislation and regulations through training and attending talks and briefings. Various internal procedures have been put in place to facilitate staff awareness and ensure compliance to the applicable laws and regulations.