This latest edition of GIFT emphasizes substance over form. I am heartened to see this as we at SGX RegCo have long advocated embracing the spirit rather than just observing the letter of the rules. That GIFT 2020 has taken this new approach affirms how crucial such a culture is to the sustainability of the REITs and Business Trust sector. 

Changes have been made in the GIFT 2020 scoring to reflect this new emphasis. Adjustments also had to be made to take into account the impact of COVID-19. The scores are therefore not directly comparable to the previous years’. Average scores are naturally lower against this higher standard but should not be of concern at this nascent stage.

In the area of business risk, the sector remains strong despite the challenging environment.  Half the trusts still have healthy weighted average debt maturity of more than three years and more than three quarters have less than a quarter of debt maturing in the next 12 months.

Improvement was noted in areas such as the posting of detailed minutes of AGMs, and disclosure of the actual remuneration of each individual non-executive director on a named basis. More trusts also reported, and in greater detail, the performance measures used to determine the remuneration of the CEO.

Also new in GIFT 2020 is the focus on the remuneration framework of trusts. It is noteworthy that two-thirds of trusts have in place a long-term component in their frameworks to better align the interests of management and unitholders. The report also noted that trusts provided longer notice periods for general meetings (at least 21 days for meetings with no special resolution and at least 28 days for meetings with special resolution) compared with last year.

Some of the concerns highlighted in GIFT 2020 about independent directors are inherent in an externally managed trust, which is the preferred model in the sector for commercial reasons. It is notable that some trusts have chosen to go beyond what is strictly required by the rules and allowed unitholders to endorse the directors of the manager at the AGM.

The success of the sector has not gone unnoticed. Other international markets are beginning to offer their own REITs and Business Trusts. To maintain our edge, we must continue to improve the sector, both in terms of the diversity of our listings and the quality of our governance.

GIFT 2020 also highlighted that the use of hybrid securities such as perpetual securities is growing. We must continue to educate and inform investors to ensure that they understand what this means to the financials of the trust, including its cash-flow and risk profile.

We are guided by GIFT in prioritizing our regulatory efforts. This year, we will focus our energies on how the management of the trust, the board of its manager and its auditors make disclosures, particularly following the transition to half-yearly financial reporting.

At the same time, we strongly urge trusts to consider areas which have drawn public scrutiny, including undertaking a rigorous assessment to determine if directors are independent and alignment of interest between managers and unitholders. In the final analysis, investors will scrutinize directors’ judgement on these and other substantive matters and not merely that the trusts had followed a checklist of requirements.