Delivering results for unitholders

Source : Business Time - 13 Oct 2008

A-Reit’s focus on investors makes corporate governance a natural priority

BELIEVING that a culture of corporate governance is critical to its performance, and acting on that belief, has led Ascendas Real Estate Investment Trust (A-Reit) to emerge joint winner of SIAS’ Most Transparent Company Award in the Reits category this year.

This is no novelty to A-Reit which, including this year’s win, has picked up the award four times in the last five years - thrice as runner-up and once as joint winner.

The mainboard-listed business space and industrial Reit owns a diversified portfolio of properties in Singapore, including business and science parks, high-tech industrial spaces, light industrial factories, logistics and distributions centres and warehouse retail facilities. These properties house over 790 international and local tenants from a wide range of industries.

According to its annual report for 2007/2008, since its listing in 2002, A-Reit has grown its portfolio from eight properties to 84 and from $636 million to $4.2 billion.

It also posted strong results for the first quarter ended June 30, 2008, with a net distributable income of $51.8 million, 15.9 per cent up from the previous year.

That translated into a distribution per unit (DPU) of 3.89 cents, 15.4 per cent up from the corresponding quarter a year back, an annualised yield of 7 per cent based on its closing price per unit on June 30.

The strong performance delivered to unitholders is reflective of what A-Reit says of its focus. ‘We believe in focusing on our unitholders. All decisions are made in their best interests,’ says Tan Ser Ping, chief executive of Ascendas Funds Management Limited, which is the manager of A-Reit.

This focus on unitholders makes corporate governance a natural priority and translates into several management practices at A-Reit.

Its initiatives to promote a culture of corporate governance can be painted in two broad strokes.

First, measures are taken to address the potential for conflicts of interest between the Reit and the shareholders of the Reit manager.

Says Mr Tan: ‘A-Reit is one of the very few Reits in Singapore that link performance fees for its manager to the growth in DPU for unitholders.’

The composition of its board of directors also ensures an element of checks and balances. Its board of directors is independent and separate from parent company Ascendas, and the majority of board members are non-executive and independent.

Of his own role, Mr Tan says: ‘As CEO, my role is to manage the Reit effectively and I do not ‘double hat’ with the business of the Ascendas Group.’

The second broad stroke of measures highlights what Mr Tan terms the ‘hallmark of good corporate governance at A-Reit’ - transparency and timely information disclosure to the market.

This means ensuring that key information gets out to its shareholders clearly, in sufficient detail, and in a way that anticipates and addresses their potential queries.

Effort is also made to ensure equal dissemination of information to all unitholders.

Mr Tan adds: ‘We go an extra step beyond usual corporate governance practices by holding annual general meetings with unitholders, even though it is not mandatory for Reits to do so.’

This is done so that unitholders have an additional avenue to interact with the management and make their voices heard.

Indeed, A-Reit reaches out beyond its current investors to potential ones in the general public and the financial community too. Roadshow materials and presentations to institutional investors are posted on A-Reit’s website and e-mail blasts are sent to all subscribers to keep them updated.

With these structures and management practices in place, A-Reit’s daily operations adhere to clearly articulated growth strategies for the long haul.

Over the past couple of years this has meant, in practical terms, resisting market pressure to pursue acquisitions for the sake of ramping up its assets.

‘It also meant resisting overseas expansion where we could not find justifiable risk-adjusted returns on investment to venture beyond Singapore,’ says Mr Tan.

Such an emphasis on long-term growth, rather than short-term gain, should resonate with many given the current financial climate.

The bleak global economic outlook changes nothing corporate governance-wise, however. In fact, Mr Tan stresses the increased saliency of corporate governance in tumultuous times such as these.

‘In these times of uncertainty, the investing community seeks reassurance that companies are in control of their operations and maintaining investor confidence should be a focus for all management teams,’ he says.