This printed article is located at http://starhillglobalreit.listedcompany.com/corporate_governance.html

Corporate Governance

Manager Of Starhill Global Reit

YTL Starhill Global REIT Management Limited was appointed the Manager of Starhill Global REIT in accordance with the terms of the Starhill Global REIT Trust Deed dated 8 August 2005 (as amended) (“Trust Deed”).

The Manager of Starhill Global REIT has general power of management over the assets of Starhill Global REIT. The primary role of the Manager is to set the strategic direction of Starhill Global REIT and to make recommendations to HSBC Institutional Trust Services (Singapore) Limited, as trustee of Starhill Global REIT (“Trustee”) on acquisitions, divestments and enhancement of the assets of Starhill Global REIT, in accordance with its stated business strategy and the terms of the Trust Deed. Other important functions and responsibilities of the Manager include:

  1. using its best endeavours to ensure that the business of Starhill Global REIT is carried out and conducted in a proper and efficient manner and to conduct all transactions with, or for Starhill Global REIT, at arm’s length;
  2. preparing property business plans on a regular basis, which may contain proposals and forecasts on net income, capital expenditure, sales and valuations, explanations of major variances to previous forecasts, written commentary on key issues and underlying assumptions on rental rates, occupancy costs and any other relevant assumptions. The purpose of these plans is to manage the performance of Starhill Global REIT’s assets;
  3. ensuring compliance with applicable laws and regulations, and the Trust Deed;
  4. attending to all communications with Unitholders; and
  5. supervising the property managers in performing the day-to-day property management functions (such as leasing, marketing, maintenance, promotion and accounting) for the properties, pursuant to the property management agreements.

Starhill Global REIT, which is constituted as a trust, has no direct staff of its own (other than the staff of its China subsidiary). It is externally managed by the Manager, who appoints experienced and well qualified management staff to run its operations. All Directors and employees of the Manager are remunerated by the Manager, and not by Starhill Global REIT.

The Trust Deed provides inter alia for the removal of the Manager in certain situations, including by way of resolution passed by a simple majority of Unitholders present and voting at a general meeting duly convened, with no Unitholder being disenfranchised.

On 16 September 2010, the Manager obtained a capital markets services licence from the MAS to conduct REIT management activities under the Securities and Futures Act, Chapter 289 of Singapore (“SFA”).

Corporate governance culture

The Manager believes that strong and effective corporate governance is essential in protecting the interests of the Unitholders of Starhill Global REIT and is critical to the success of its performance as the Manager.

The Manager is committed to the highest standards of corporate governance and transparency in the management of Starhill Global REIT and operates in the spirit of the Code of Corporate Governance 2012 (“Code”) in the discharge of its responsibilities as Manager.

The following sections describe the Manager’s primary corporate governance policies and practices with specific references to the Code, which incorporate measures for avoiding conflicts of interest, including prioritising the interests of Unitholders over those of the Manager. Where there are differences from the principles and guidelines of the Code, an explanation has been provided in this section. These policies and practices also ensure that applicable laws and regulations including the listing rules of the Singapore Exchange Securities Trading Limited (“SGX-ST”), the Code of Collective Investment Schemes (“CIS Code”) (including the Property Funds Appendix) issued by the MAS, the SFA and the tax ruling dated 20 May 2005 issued by the Inland Revenue Authority of Singapore are complied with, and that the Manager’s obligations in the Trust Deed are honoured.

(A) 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 success of the company. The Board works with Management to achieve this and Management remains accountable to the Board.

The Board of Directors of the Manager (“Board”) is responsible for the overall management and corporate governance of the Manager and Starhill Global REIT, including establishing performance objectives for the management team of the Manager (“Management”) and monitoring the achievement of these objectives. All Board members participate in matters relating to corporate governance, business operations and risk management, and financial performance.

Each Director must act honestly, with due care and diligence, and in the best interest of Unitholders. This obligation ties in with the Manager’s prime responsibility in managing the assets and liabilities of Starhill Global REIT for the benefit of Unitholders. Decisions are taken objectively in the interests of Starhill Global REIT. The Manager has adopted guidelines, details of which are set out on pages 85 to 86 of Starhill Global REIT's FY2016/17 Annual Report for related party transactions and dealing with conflicts of interests.

Board meetings are scheduled and held at least once every quarter. Four Board meetings were held in FY 2016/17. The Constitution of the Manager permits Board meetings to be held by way of teleconference and videoconference. Directors meet to discuss and review the strategies and policies of Starhill Global REIT, including any significant matters pertaining to acquisitions and disposals, the annual budget, and the financial performance of Starhill Global REIT measured against a previously approved budget. The Board also reviews and approves the release of Starhill Global REIT’s quarterly and annual results. The Board will generally review matters which have an impact on the business risks and management of liability of Starhill Global REIT, and acts on comments and recommendations from the auditors of Starhill Global REIT.

The Board has considered and reviewed sustainability issues in the environment, social and governance aspects of our business. More information on the material sustainability issues of Starhill Global REIT are set out from pages 60 to 75 of Starhill Global REIT's FY2016/17 Annual Report.

In the discharge of its functions, the Board is supported by an Audit Committee that provides independent oversight of Management and which also serves to ensure that there are appropriate checks and balances. The Board has established a system of internal controls and an enterprise risk management framework. The application of the policies and protocol under the framework is further described in the section “Risk Management” on page 58 of Starhill Global REIT's FY2016/17 Annual Report. The Board has adopted a set of internal controls with approval limits for capital expenditure, investments and divestments, bank borrowings and cheque signatories, amongst others. Apart from matters that specifically require Board approval, such as the issue of new units, income distributions and other returns to Unitholders, the Board approves transactions exceeding certain threshold limits, while delegating authority for matters below those limits to Management to facilitate operational efficiency.

Changes to regulations, policies and accounting standards are monitored closely. Where the changes have significant impact on Starhill Global REIT and its obligations of continuing disclosure, the Directors will be briefed during Board meetings or by circulation of Board papers. Further, Directors have access to programmes, courses or seminars organised by the Singapore Institute of Directors (“SID”). During FY 2016/17, the Manager arranged for Mr Ching Yew Chye, who is based in Malaysia, to attend courses organised by the SID which covered the statutory and regulatory compliance obligations of listed companies and risk management essentials. The costs of training are borne by the Manager. The Board has reviewed the current training and professional development programmes in place for the Directors.

Newly appointed directors are briefed on their roles and responsibilities as Directors of the Manager, and of the business activities and strategic directions of Starhill Global REIT. Upon appointment, a formal letter setting out the director’s duties, obligations and responsibilities, together with the Trust Deed and latest annual report will be given to the director. The Manager has in place an orientation programme aimed at familiarising new Directors with the business activities and strategic directions of Starhill Global REIT, the corporate governance and risk management structure and practices, as well as their disclosure obligations as Directors. The Manager conducted an orientation programme for the two Independent Non-Executive Directors of the Manager appointed during FY 2016/17, Mr Lim Kok Hoong and Mr Ching Yew Chye. An orientation programme will be conducted for Mr Tan Woon Hum, who was recently appointed as an Independent Non-Executive Director of the Manager on 1 August 2017. Appropriate training will also be provided to first-time directors.

Board composition

Principle 2:
There should be a strong and independent element on the Board, which is able to exercise objective judgment on corporate affairs independently, in particular, from Management and 10% shareholders. No individual or small group of individuals should be allowed to dominate the Board’s decision-making.

The Board comprises six members, three of whom are Independent Non-Executive Directors. As such, there is a strong and independent element on the Board. A Director who has no relationship with the Manager, its shareholders who hold 10% or more of the voting shares in the Manager, Unitholders who hold 10% or more of the units in issue of Starhill Global REIT, its related corporation or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of the Director’s independent business judgment in the best interests of Starhill Global REIT is considered to be independent. The assessment of a Director’s independence also takes into account the enhanced independence requirements and the definition of “independent director” as set out in the draft amendments to the Securities and Futures (Licensing and Conduct of Business) Regulations (“Draft SF(LCB)R”). Under the enhanced independence requirements set out in the Draft SF(LCB)R, an independent director is one who: (i) is independent from any management and business relationship with the Manager and Starhill Global REIT, (ii) is independent from any substantial shareholder of the Manager and any substantial unitholder of Starhill Global REIT, and (iii) has not served on the Board for a continuous period of 9 years or longer.

Mr Ching Yew Chye has disclosed that he is the independent nonexecutive Chairman of AIA Berhad, a subsidiary of AIA Group Limited, a substantial unitholder of Starhill Global REIT. Despite the foregoing, the Board has assessed Mr Ching’s independence and has taken the view that his independent judgment and ability to act in the interests of all unitholders as a whole will not be impeded, given that Mr Ching is not an executive but an independent director of AIA Berhad and is not appointed on the Board as a nominee of any AIA entities. He is also not a director of any substantial unitholder or controlling unitholder of Starhill Global REIT, and the businesses of Starhill Global REIT and AIA Berhad or AIA Group Limited are distinctly different and there are therefore unlikely to be any competing interests.

In addition, Mr Tan Woon Hum has disclosed that he is a partner of M/s Shook Lin & Bok LLP (“SLB”), which provides services to the Trustee from time to time. As the amount of legal fees paid to SLB by Starhill Global REIT in FY 2016/17 and FY 2015/16 is insubstantial in relation to the revenue of SLB, and Mr Tan will not be personally involved in legal services to be provided by SLB for Starhill Global REIT, the Board has assessed Mr Tan’s independence and has taken the view that his independent judgment and ability to act in the interests of all unitholders as a whole will not be impeded.

None of the Independent Directors have any relationships which are likely to affect his independent judgment and ability to act in the interests of all unitholders as a whole. The independence of the Independent Directors is assessed by the Board on an annual basis. As and when any relationship which is likely to affect an Independent Director’s judgment and ability to act in the interests of all unitholders as a whole arises, the affected Director is expected to disclose such relationship to the Board.

The Board notes that Dr Michael Hwang had served on the Board for more than nine years from the date of his appointment and the Board subjected his independence to rigorous review. The Board (excluding Dr Hwang) considered that Dr Hwang has remained independent of character and judgment. He had continued to express independent, impartial and autonomous viewpoints, debate issues objectively, scrutinise and challenge Management on important issues and sought clarification and amplification when deemed necessary. Notwithstanding the Board’s assessment that Dr Hwang has remained independent of character and judgment, Dr Hwang has stepped down from the Board, and Mr Tan Woon Hum has succeeded him with effect from 1 August 2017, in line with the requirements under the Draft SF(LCB)R which provide that independent directors should not serve for a period of nine years or longer. Thereafter, Independent Directors will not serve more than nine years from their date of appointment on the Board.

The composition of the Board as at 30 June 2017 is as follows:

Tan Sri Dato' (Dr) Francis Yeoh Sock Ping
Non-Executive Chairman (Non-independent)

Mr Ho Sing
Executive Director & Chief Executive Officer (Non-independent)

Dato' Yeoh Seok Kian
Non-Executive Director (Non-independent)

Mr Lim Kok Hoong
Lead Independent Director (Non-executive) (Independent)

Dr Michael Hwang
(succeeded by Mr Tan Woon Hum with effect from 1 August 2017)
Non-Executive Director (Independent)

Mr Ching Yew Chye
Non-Executive Director (Independent)

As Lead Independent Director, Mr Lim Kok Hoong has the discretion to hold meetings with the Independent Directors (without the presence of Management) as he deems appropriate or necessary, and he will provide feedback to the Non-Executive Chairman, where appropriate. The Lead Independent Director is available to unitholders where they have concerns and for which contact through the normal channels of the Chief Executive Officer (“CEO”) or the Chief Financial Officer (“CFO”) has failed to resolve or is inappropriate. The Non-Executive Directors participate in setting and developing strategies and goals for Management, and reviewing and assessing Management’s performance. This enables Management to benefit from their external and objective perspective of issues that are brought before the Board. It also enables the Board to interact and work with Management through a healthy exchange of ideas and views to help shape the strategic process.

The size of the Board and core competencies of its members in various fields of accounting, finance, business management and legal, together with their relevant industry knowledge and strategic planning experience, effectively serve Starhill Global REIT and the Manager. Management is able to benefit from their diverse and objective perspectives on issues that are brought before the Board with a healthy exchange of ideas and views between the Board and Management.

The Board is of the view that its current composition comprises persons who, as a group, provide the necessary core competencies and that the current Board size is appropriate, taking into consideration the nature and scope of Starhill Global REIT’s operations.

When the Board decides to appoint new directors, it will consider suitable candidates without regard to gender, as the ultimate choice should primarily be based on merit.

The profiles of the Directors are set out on pages 20 and 21 of Starhill Global REIT's FY2016/17 Annual Report.

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 positions of Chairman and CEO are held by two separate persons in order to maintain effective segregation of duties. There is a clear separation of the roles and responsibilities between the Chairman and the CEO. The Chairman, Tan Sri Dato’ (Dr) Francis Yeoh Sock Ping, and the CEO, Mr Ho Sing, are not related.

The Chairman facilitates active Board discussion on matters concerning the business of Starhill Global REIT, and ensures that the Board satisfactorily oversees and evaluates the implementation of Starhill Global REIT’s strategy, policies, business plans and Board decisions. In addition, the Chairman ensures that the members of the Board receive complete, adequate and timely information, facilitates the effective contribution of the Non-Executive Directors, encourages constructive relations within the Board and between the Board and Management, ensures effective communication with Unitholders and promotes a high standard of corporate governance.

The CEO works with the Chairman and the Board in formulating strategies for Starhill Global REIT and is responsible for implementing Starhill Global REIT’s strategies and its day-to-day operations.

Board Membership

Principle 4:
There should be a formal and transparent process for the appointment and re-appointment of directors to the Board.

The Manager has not established a nominating committee as the Board undertakes the function of a nominating committee, including assessing the independence of the Independent Directors on an annual basis. The Manager, taking into account the capacity of the Board to undertake the responsibilities of a nominating committee in light of the activities and scale of the business of Starhill Global REIT, the fact that independent directors constitute half of the Board of the Manager and that the nomination policy is required to be approved by the Board, including by at least a majority of Independent Directors, does not consider it necessary for the Board to establish a nominating committee. The Independent Directors constitute half the Board and therefore play a substantial role and assures the objectivity and independence of the decision-making process.

Directors of the Manager are not subject to periodic retirement by rotation, nor re-appointment through voting by unitholders, as the Manager is a wholly-owned subsidiary of YTL Corporation Berhad and Independent Directors comprise a minimum of one-half of the Board.

The composition of the Board is reviewed regularly to ensure that it has the appropriate mix of expertise and experience. The composition of the Board (including the selection of candidates for new appointments as part of the Board’s renewal process) is determined in accordance with the following principles:

  1. The Board should comprise directors with a broad range of commercial experience including expertise in fund management and experience in all facets of the property or real estate industry; and
  2. At least half of the Board should comprise independent directors.

A director with multiple board representation is expected to ensure sufficient attention is given to the affairs of the Manager and Starhill Global REIT. The Manager believes that putting a maximum limit on the number of directorships a Director can hold is arbitrary, given that time requirements and complexity for each vary, and thus should not be prescriptive. A sufficient safeguard is requiring each Director to confirm his ability to devote sufficient time and attention to the affairs of the Manager and Starhill Global REIT, having regard to all his other listed company board representations and other principal commitments.

No alternate directors were appointed during FY 2016/17.

Any Director may source for and nominate new Directors to be appointed by the Board of Directors, through their extensive networks and contacts. If necessary, the Board may seek advice from the Singapore Institute of Directors or external search consultants. During FY 2016/17, new potential directors of both genders were sourced through contacts and recommendations, including recommendations from the Singapore Institute of Directors, contacts from Directors, and recommendations from relevant industry professionals.

Selections and nominations are made based on the following guidelines:

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.

The Manager believes that the performance of the Manager, and the Board, is reflected in the long-term success of Starhill Global REIT.

Reviews of Board performance are conducted once a year. Directors are required to complete a questionnaire evaluating the Board and the Audit Committee. The questionnaire covers areas such as Board composition, access to information, Board processes, risk management, Board training and development, understanding of the business, strategic planning and any specific areas where improvements may be made. The Board will evaluate and discuss the results of the annual Board performance review with a view towards improving the effectiveness of the Board. Pursuant to the Board evaluation process, the Board is satisfied that it has achieved its performance objectives for FY 2016/17.

In cases where the Director(s) have multiple listed board representations, the Board conducts an annual review to ensure that they are able to and have been devoting sufficient time to discharge their responsibilities adequately. Each Director confirmed his ability to devote sufficient time and attention to the affairs of the Manager and Starhill Global REIT, having regard to all his other listed company board representations and other principal commitments. Notwithstanding that some of the Directors have multiple board representations, the Board is satisfied that each Director is able to and has been adequately carrying out his duties as a Director of the Manager.

The Manager believes that contributions from each Director go beyond his attendance at Board and committee meetings. Contributions by an individual Board member take other forms, which includes providing objective perspectives of issues, facilitating business opportunities and strategic relationships, and accessibility to Management outside of a formal environment of Board and/or Audit Committee meetings. A Director of the Manager would have been appointed on the principles outlined earlier in this statement, and on his/her ability to contribute to the proper guidance of the Manager in its management of Starhill Global REIT.

The number of Board and Audit Committee meetings held and attended by each Board member in FY 2016/17 is as follows:

Board
No. of meetings held in
FY 2016/17: 4
Attended
Audit Committee
No. of meetings held in
FY 2016/17: 4
Attended
Tan Sri Dato' (Dr) Francis Yeoh Sock Ping 4 NA
Mr Ho Sing 4 NA
Dato' Yeoh Seok Kian 4 NA
Mr Lim Kok Hoong
(appointed w.e.f. 1 January 2017)
2 2
Mr Ching Yew Chye
(appointed w.e.f. 1 November 2016)
2 2
Dr Michael Hwang
(resigned w.e.f. 1 August 2017)
4 4
Mr Keith Tay Ah Kee
(resigned w.e.f. 1 November 2016)
2 2
Dr Hong Hai
(resigned w.e.f. 1 February 2017)
2 2

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 regular updates on financial results, market and business developments, and business and operational information. Board papers and agenda are provided to each Director in advance of Board meetings so that Directors can review and consider the matters being tabled beforehand. Management provides the Board with management accounts of Starhill Global REIT on a quarterly basis to enable the Board to keep abreast of Starhill Global REIT’s financial performance. In addition, as and when any significant matter arises, Management promptly brings these matters to the Board’s attention and provides the Board with the relevant financial information.

Where necessary, senior members of Management participate in Board meetings to provide additional insights and to respond to any queries from Directors. The Board has unfettered access to senior members of Management and the company secretary at all times. The Board also has access to independent professional advice (legal, financial or otherwise) where appropriate or necessary, with the cost borne by the Manager or Starhill Global REIT, as appropriate. The company secretary of the Manager will render necessary assistance to the Board and will ensure that the Board procedures are followed and that applicable laws and regulations are complied with. Under the direction of the Chairman, the company secretary’s responsibilities include ensuring good information flow between the Board and its committees and between Management and Non-Executive Directors and advising the Board on all governance matters. The company secretary attends all Board and Audit Committee meetings of the Manager to take minutes. The appointment and removal of the company secretary is a Board reserved matter.

(B) Remuneration Matters

Procedures for Developing Remuneration Policies

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.

Level and Mix of 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.

Disclosure on Remuneration

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.

Directors Remuneration
The remuneration of Directors and staff of the Manager is paid by the Manager from the fees it receives from Starhill Global REIT, and not by Starhill Global REIT itself.

The Manager has not established a remuneration committee as the Board undertakes the function of a remuneration committee. The Manager, taking into account the capacity of the Board to undertake the responsibilities of a remuneration committee in light of the activities and scale of business of Starhill Global REIT, the fact that independent directors constitute half of the Board of the Manager and that the remuneration policy is required to be approved by the Board, including by at least a majority of Independent Directors, does not consider it necessary for the Board to establish a remuneration committee. The Independent Directors constitute half the Board and therefore play a substantial role and assures the objectivity and independence of the decision-making process.

The Board approves the remuneration policy of the Manager, Directors’ fees for Non-Executive Directors, remuneration packages for the CEO and CFO, the total variable bonus amount payable to all employees and the corporate performance targets for payment of variable bonus. Such matters will also require approval by at least a majority of Independent Directors.

The Board of Directors seeks expert advice on remuneration and governance matters from external consultants, where necessary. The Board will ensure that existing relationships between the group and its appointed remuneration consultants, if any, will not affect the independence and objectivity of the external remuneration consultants. For FY 2016/17, Aon Hewitt Singapore Pte Ltd (“Aon”) and Carrots Consulting Pte Ltd (“Carrots”) were engaged to provide advice to the Board on salary benchmarking for the CEO, CFO and certain senior executives. Each of Aon and Carrots did not have any relationships with the Manager, its controlling shareholder or related entities that would affect their independence.

Directors Remuneration

The remuneration of the Non-Executive Directors for FY 2016/17 comprises entirely of Directors’ fees payable in cash. Directors’ fees are subject to approval by the Board of Directors and the shareholders of the Manager. Each Director abstains from voting in respect of the fees payable to their respective selves. The Directors’ fees take into account industry practices and norms on remuneration. Each Director is paid a basic fee and the Chairman and the Chairman of the Audit Committee are paid a higher fee in view of the greater responsibility carried by that office. The CEO does not receive Directors’ fees as he receives employee remuneration from the Manager. Each Director will be remunerated based on their level of responsibilities on the Board and the Audit Committee, in accordance with the following framework:

Fee Structure   Fees (per annum)
Board of Directors Non-Executive Chairman S$100,000
Non-Executive Director S$63,000
Audit Committee Chairman and Lead Independent Director S$10,000
Member S$5,000

The total amount of Directors’ fees (gross before net of withholding tax) paid to the Non-Executive Directors for FY 2016/17 are as follows:

Non-executive Directors’ Fees
Name of Director
FY 2016/17
Tan Sri Dato' (Dr) Francis Yeoh Sock Ping S$100,000
Dato' Yeoh Seok Kian S$63,000
Mr Lim Kok Hoong S$36,083(1)
Dr Michael Hwang S$68,000
Mr Ching Yew Chye S$45,333(2)
Mr Keith Tay Ah Kee S$24,333(3)
Dr Hong Hai S$40,917(4)

Note:

  1. Mr Lim Kok Hoong was appointed as Independent Non-Executive Director of the Board and member of the Audit Committee with effect from 1 January 2017 and as Lead Independent Non-Executive Director and Chairman of the Audit Committee with effect from 1 February 2017.
  2. Mr Ching Yew Chye was appointed as Independent Non-Executive Director of the Board and member of the Audit Committee with effect from 1 November 2016.
  3. Mr Keith Tay Ah Kee resigned as Lead Independent Non-Executive Director of the Board and Chairman of the Audit Committee with effect from 1 November 2016.
  4. Dr Hong Hai was re-designated as Lead Independent Non-Executive Director and Chairman of the Audit Committee with effect from 1 November 2016, and resigned as Lead Independent Non-Executive Director and Chairman of the Audit Committee with effect from 1 February 2017.

Employee Remuneration
To support the business growth and aspirations, the Manager is committed to strengthen its leadership capability and organisational effectiveness through talent management. As such, the Manager adopts a remuneration philosophy that is directed towards the attraction, retention and motivation of competent employees and key talents to ensure the long-term success of Starhill Global REIT.

It emphasises on performance based remuneration by linking total compensation directly to the achievement of organisational and individual performance goals, and gives consideration to the equitability and market competitiveness of its remuneration practices.

In determining the mix of different forms of remuneration for executive officers, the Board seeks to ensure that the level and mix of remuneration is competitive, relevant and appropriate in finding a balance between fixed and performance related components.

Total remuneration comprises the following components:

No share/unit option schemes or share/unit schemes have been implemented. The Manager ensures that performance-related remuneration is aligned with the interests of the Unitholders and will promote the long-term success of the Manager. The Board has reviewed the remuneration components above and is satisfied that there is reasonable mitigation of any potential misalignment of interests, taking into account (i) the Board’s discretion (including the requirement for approval by not less than a majority of Independent Directors) to determine whether the remuneration payable is in line with the remuneration policy; (ii) the substantial emphasis placed on the performance of Starhill Global REIT; and (iii) the absence of any remuneration payment in the form or shares or interest in the controlling unitholder of Starhill Global REIT or its related entities.

The Manager is cognisant of the requirement to disclose (i) the remuneration of the CEO and each individual Director on a named basis, (ii) the remuneration of at least the top five executive officers (who shall not include the CEO and Directors), on a named basis, in bands of S$250,000 and (iii) the aggregate total remuneration paid to the top five executive officers. The Board has assessed and decided against the disclosure of the remuneration of the CEO and executive officers on a named basis, whether in exact quantum or in bands of S$250,000 and of the aggregate total remuneration paid to the top five executive officers because it is not in the Manager’s best interest to do so, taking into account, inter alia, the commercial sensitivity and confidential nature of remuneration matters, the presence of highly competitive conditions for talent in the industry, which is relatively small, the importance of ensuring stability and continuity of business operations of Starhill Global REIT with a competent and experienced management team in place and the negative impact which such disclosure may have on the Manager in attracting and retaining talent on a long-term basis. The non-disclosure will not be prejudicial to the interests of Unitholders as sufficient information is provided on the Manager’s remuneration policy to enable Unitholders to understand the link between the remuneration paid to the CEO and executive officers and performance.

There were no employees of the Manager who were immediate family members of a Director or the CEO and whose remuneration exceeds S$50,000 during FY 2016/17. “Immediate family member” refers to the spouse, child, adopted child, step-child, sibling or parent of the individual.

(C) Accountability And Audit

Accountability

Principle 10:
The Board should present a balanced and understandable assessment of the company’s performance, position and prospects.

The Manager provides Unitholders with quarterly and annual financial statements. The Board, with the support of Management, is responsible for providing a balanced and informed assessment of Starhill Global REIT’s performance, position and prospects, including interim and other price sensitive public reports, and reports to regulators (if required). Management provides the Board with management accounts on a quarterly basis and as the Board may require from time to time to enable the Board to make a balanced and informed assessment. Financial reports and other material information are disseminated to Unitholders through announcements to SGX-ST via SGXNET, Starhill Global REIT’s website and where applicable, press releases, of the performance, position and prospects of Starhill Global REIT.

Risk Management and Internal Controls

Principle 11:
The Board is responsible for the governance of risk. The Board should ensure that the Management maintains a sound system of risk management and internal controls to safeguard 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.

Effective risk management is a fundamental part of Starhill Global REIT’s business strategy. Recognising and managing risk is central to the business and to protecting Unitholders’ interests and value. The Manager has in place an enterprise risk management (“ERM”) framework and policies, which have been approved by the Board that provide a structured approach to identifying and managing the material risks that could arise in the course of managing Starhill Global REIT. The ERM framework and policies are monitored and reviewed by the Board as and when appropriate, and major developments and significant revisions to the ERM framework or policies will be submitted to the Board for approval. An independent consultant also reviews the ERM framework and the identified risks and control activities, and provides a report to the Board once every two years. Material risks at both the Manager and Starhill Global REIT levels are managed through this ERM framework.

The Audit Committee has also been tasked by the Board to include risk management within its oversight role. This includes the review of material risks identified by Management with respect to the business operations of the Manager, Starhill Global REIT and the assets of Starhill Global REIT.

Application of the policies and protocol under the ERM framework in respect of Starhill Global REIT assets and operations is further described in the section “Risk Management” on page 58 of Starhill Global REIT's FY2016/17 Annual Report.

The Manager has put in place a system of internal controls, compliance procedures and processes to safeguard Starhill Global REIT’s assets and Unitholders’ interests, manage risks and ensure compliance with high standards of corporate governance. Financial risk management is exercised in accordance with a robust policy. During FY 2016/17, the Audit Committee and the Board, with the assistance of the internal and external auditors, has reviewed the adequacy and effectiveness of Starhill Global REIT’s system of risk management and internal controls that address material risks, including material financial, operational, compliance and information technology risks. No significant weaknesses were noted from the auditors’ respective reviews. The findings were discussed, followed up and where appropriate, rectifications were made by Management.

The Board has also received assurance from the CEO and CFO of the Manager that:

  1. The financial records of Starhill Global REIT have been properly maintained and the consolidated financial statements give a true and fair view of Starhill Global REIT’s operations and finances; and
  2. Starhill Global REIT’s system of risk management and internal controls in place within the Group were adequate and effective as at 30 June 2017 in addressing the material risks in the Group, including material financial, operational, compliance and information technology risks.

Based on the system of risk management and internal controls established and maintained by the Manager, work performed by the internal and external auditors, reviews performed by Management, and the assurance from the CEO and CFO of the Manager, the Board with the concurrence of the Audit Committee is of the opinion that Starhill Global REIT’s system of risk management and internal controls in place within the Group were adequate and effective as at 30 June 2017 in addressing the material risks in the Group, including material financial, operational, compliance and information technology risks. The CEO and the CFO of the Manager have obtained similar assurances from the function heads of the Manager.

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

Audit Committee

Principle 12:
The Board should establish an Audit Committee with written terms of reference which clearly set out its authority and duties.

The Audit Committee is established by the Board from amongst the Directors of the Manager and currently comprises three members, all of whom are Independent Non-Executive Directors. The members of the Audit Committee as at 30 June 2017 are Mr Lim Kok Hoong (Chairman), Dr Michael Hwang and Mr Ching Yew Chye. Dr Michael Hwang has since been succeeded on the Audit Committee by Mr Tan Woon Hum with effect from 1 August 2017. The members of the Audit Committee, collectively, have relevant accounting and financial management expertise or experience and are qualified to discharge the Audit Committee’s responsibilities. No former partner or director of the Manager’s existing auditing firm or audit corporation is a member of the Audit Committee within a period of 12 months commencing on the date of his ceasing to be a partner of the auditing firm or director of the auditing corporation, or for as long as he has any financial interest in the auditing firm or auditing corporation.

The Audit Committee assists the Board in overseeing the ERM framework and any matters of significance affecting financial reporting and internal controls of Starhill Global REIT.

The terms of reference for the Audit Committee include:

  1. reviewing audit reports to ensure that where deficiencies in internal controls have been identified, appropriate and prompt remedial action is taken by Management;
  2. monitoring the procedures in place to ensure compliance with applicable legislation, the listing manual of the SGX-ST and the Property Funds Appendix;
  3. reviewing and making recommendations to the Board in relation to the financial statements and the audit report;
  4. monitoring the procedures established to regulate Related Party Transactions (as defined below), including ensuring compliance with the provisions of the relevant regulations;
  5. making recommendations to the Board on the appointment, reappointment and removal of the external auditors, and approving the remuneration and terms of engagement of such auditors; and
  6. ensuring that the internal audit function is adequately resourced through outsourcing the appointment to a reputable accounting firm where appropriate and approving their appointment, removal and remuneration.

During FY 2016/17, the Audit Committee performed independent reviews of the financial statements of Starhill Global REIT before the announcement of Starhill Global REIT’s quarterly and full-year results, including key areas of management judgment.

The Audit Committee also reviewed and approved both the internal auditor’s and the external auditor’s audit plans of Starhill Global REIT for FY 2016/17. The audit findings and recommendations put up by the internal auditor and the external auditor were reported and discussed at the Audit Committee meetings.

The Audit Committee is responsible for the nomination of external auditors and internal auditors, and reviewing the adequacy and effectiveness of existing audits in respect of cost, scope and performance. The Audit Committee meets with the internal auditor at least once a year and with the external auditor at least once every quarter without the presence of Management, to discuss any matters which the Audit Committee or the auditors believe should be discussed privately without the presence of Management.

The Audit Committee is authorised to investigate any matters within its terms of reference. It has unfettered access to and cooperation from Management and to reasonable resources to enable it to discharge its functions. The Audit Committee has also reviewed all non-audit services provided by the external auditor and is satisfied that the nature and extent of such services will not prejudice the independence and objectivity of the external auditor. The aggregate amount of fees paid and payable to the external auditor for FY 2016/17 and the breakdown into audit fees and non-audit fees are set out on page 124 of Starhill Global REIT's FY2016/17 Annual Report. Pursuant to Rule 1207(6)(c) of the listing manual of the SGX-ST, the Manager confirms that Starhill Global REIT has complied with Rules 712 and 715 of the listing manual in relation to the appointment of the external auditor.

The Audit Committee has reviewed the procedures in place to ensure that employees of the Manager and any other persons are provided with well-defined and accessible channels to report on potential or actual improprieties in financial or other operational matters, in confidence, and for the independent investigation of any reports by employees and any other persons and appropriate follow up action. Reports may be made to the compliance officer and to the Chairman of the Audit Committee via email at whistleblowing@ytlstarhill.com.

The Audit Committee meets at least once every quarter.

As part of its oversight role over financial reporting, the Audit Committee has reviewed the following key audit matter identified by the external auditor:

Significant Matter How The Audit Committee Reviewed The Matter And What Decisions Were Made
Valuation of investment properties

The Audit Committee reviewed the outcomes of the annual external valuation process and discussed the details of the valuation of Starhill Global REIT’s investment properties with the Management and the external auditor.

The Audit Committee had a robust discussion with Management and the professional valuers to review the methodology, bases and assumptions used in arriving at the valuation of the Singapore, Australia and Malaysia investment properties (the “key investment properties”). The work performed by the external auditor was considered by the Audit Committee, including their assessment of the appropriateness of the valuation methodologies and assumptions applied in the valuation of the key investment properties.

No significant matter came to the attention of the Audit Committee in the course of the review.

Internal Audit

Principle 13:
The company should establish an effective internal audit function that is adequately resourced and independent of the activities it audits.

The Audit Committee has appointed PricewaterhouseCoopers LLP to perform the internal audit functions. The internal auditor subscribes to, and is guided by the Standards for the Professional Practice of Internal Auditing developed by the Institute of Internal Auditors, Inc (“IIA”) and has incorporated these standards into its audit practices and meets with the standards set by the IIA. To ensure that the internal audits are performed effectively, the internal auditor recruits and employs suitably qualified professional staff with the requisite skill sets and experience. For FY 2016/17, the Audit Committee has reviewed the adequacy and effectiveness of the internal audit function and was satisfied that the internal audit function was adequately resourced and has appropriate standing within Starhill Global REIT and the Manager.

The internal auditor provides risk assessment services and controls assurance in order to ensure internal controls are aligned to business objectives and address related risks, and reports directly to the Audit Committee. Management is responsible for addressing issues identified by the internal auditor. The internal auditor will also audit and report on the appropriateness and effectiveness of processes for the management of Related Party Transactions at least once a year. In addition, the Trustee also has a right to review the internal audit reports so as to ascertain that the Property Funds Appendix has been complied with. The internal auditor has unrestricted access to the Audit Committee, and access to the Manager’s and Starhill Global REIT’s documents, records, properties and personnel, where relevant to their work.

(D) Unitholder Rights and Responsibilities

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 15:
Companies should actively engage their shareholders and put in place an investor relations policy to promote regular, effective and fair communication with shareholders.

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.

The Manager upholds a strong culture of continuous disclosure and transparent communication with Unitholders and the investing community. The Manager has in place a dedicated team performing the investor relations function and has developed a communications policy, the cornerstone of which is delivery of timely and full disclosure of all material information relating to Starhill Global REIT by way of announcements via SGXNET in the first instance and then including the announcements on Starhill Global REIT’s website at www.starhillglobalreit.com. Where there is inadvertent disclosure of material information made to a select group, the Company will make the same disclosure publicly to all others as promptly as possible, where appropriate or necessary. More details on the Manager’s investor relations activities and efforts are set out on page 59 of Starhill Global REIT's FY2016/17 Annual Report.

Starhill Global REIT’s website contains recent announcements, press releases, presentations, and past and current reports to Unitholders. The website also provides visitors with the option of signing up for a free email alert service on public materials released by the Manager in relation to Starhill Global REIT.

The Manager also participates in investor conferences locally and overseas as part of its efforts to cultivate and maintain regular contact with investors and analysts and to build interest in and strengthen the branding of Starhill Global REIT.

All Unitholders are sent a copy of the Starhill Global REIT Annual Report prior to an Annual General Meeting. As and when an Extraordinary General Meeting of the Unitholders is to be held, each Unitholder is sent a copy of a circular to Unitholders which contains details of the matters to be proposed for Unitholders’ consideration and approval.

Unitholders are invited to attend these meetings to put forward any questions they may have on the matters on the agenda. Proxy forms containing voting rules and procedures are provided to Unitholders. During the meeting, Unitholders are also briefed on the detailed voting procedures and to ensure transparency, the Manager conducts electronic poll voting and all votes cast for or against and their respective percentages will be displayed “live” immediately at the meeting after the conduct of each poll and detailed results showing the number of votes cast for and against each resolution and the respective percentages are announced on SGXNET.

Notices for the general meetings of Unitholders setting out all items of business to be transacted at the general meetings are also announced on SGXNET. Members of the Board, representatives of the Trustee, the Manager’s senior management and the external auditor of Starhill Global REIT are in attendance at such general meetings, and Unitholders are given the opportunity to air their views and ask questions regarding the matters to be tabled at the general meetings. Resolutions put to the general meeting are separate unless they are interdependent and linked, and the reasons and material implications are explained. Minutes of general meetings will be made available to Unitholders at their request.

The Manager is in full support of unitholder participation at AGMs. A Unitholder is allowed to appoint one or two proxies to attend and vote at the general meetings in his/ her stead. Where a Unitholder is a relevant intermediary (including but not limited to, a nominee company, a custodian bank or a CPF agent bank), such Unitholder may appoint more than two proxies 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 it.

The Manager is not implementing absentia voting methods such as voting via mail, e-mail or fax until security, integrity and other pertinent issues are satisfactorily resolved.

Starhill Global REIT’s distribution policy is to distribute at least 90% of its taxable income.

(E) Additional Information

Dealing with Related Party Transactions

Review Procedures for Related Party Transactions
The Manager has established internal control procedures to ensure that transactions involving the Trustee, as trustee for Starhill Global REIT, and any Interested Person or Interested Party as defined in the listing manual of the SGX-ST and the Property Funds Appendix respectively (“Related Party Transactions”) are undertaken on normal commercial terms and will not be prejudicial to the interests of Starhill Global REIT or the Unitholders. As a general rule, the Manager would have to demonstrate to the Audit Committee that such transactions satisfy the foregoing criteria, which may entail obtaining (where practicable) quotations from parties unrelated to the Manager, or obtaining valuations from independent professional valuers (in accordance with the Property Funds Appendix).

In addition, the following procedures are followed:

  1. 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) below 3.0% of Starhill Global REIT’s latest audited net tangible assets will be subject to review by the Audit Committee;
  2. 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 Starhill Global REIT’s latest audited net tangible assets will be subject to the review and prior approval of the Audit Committee. Such approval shall only be given if the transactions are on normal commercial terms and consistent with similar types of transactions made by the Trustee, as trustee for Starhill Global REIT, with third parties which are unrelated to the Manager; and
  3. 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 Starhill Global REIT’s latest audited net tangible assets will be subject to review and prior approval of the Audit Committee which may, as it deems fit, request advice on the transaction from independent sources or advisers, including obtaining valuations from professional valuers. Further, under the listing manual of the SGX-ST and the Property Funds Appendix, such transactions would have to be approved by Unitholders at a meeting of Unitholders.

Where matters concerning Starhill Global REIT relate to transactions entered into or to be entered into by the Trustee for and on behalf of Starhill Global REIT with a related party of the Manager or Starhill Global REIT, the Trustee is required to satisfy itself that such transactions are conducted on normal commercial terms and are not prejudicial to the interests of Starhill Global REIT or Unitholders and are in accordance with all applicable requirements of the Property Funds Appendix and/or the listing manual of the SGX-ST 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 Starhill Global REIT. If the Trustee is to sign any contract with a related party of the Manager or Starhill Global REIT, the Trustee will review the contract to ensure that it complies with the requirements relating to interested party transactions in the Property Funds Appendix and the provisions of the listing manual of the SGX-ST relating to interested person transactions as well as such other guidelines as may from time to time be prescribed by the MAS and the SGX-ST or other relevant authority to apply to real estate investment trusts.

Internal Control Procedures
The Manager’s internal control procedures are intended to ensure that Related Party Transactions are conducted on normal commercial terms and are not prejudicial to Unitholders. The Manager maintains a register to record all Related Party Transactions (and the basis, including, where practicable, the quotations obtained to support such basis, on which they are entered into) which are entered into by Starhill Global REIT. The Manager has incorporated into its internal audit plan a review of all Related Party Transactions entered into by Starhill Global REIT.

The Audit Committee reviews the internal audit reports to ascertain that the guidelines and procedures established to monitor Related Party Transactions have been complied with. The Audit Committee periodically reviews all Related Party Transactions to ensure compliance with the internal control procedures and with the relevant provisions of the listing manual of the SGX-ST and the Property Funds Appendix. The review includes the examination of the nature of the transaction and its supporting documents or such other data deemed necessary by the Audit Committee. If a member of the Audit Committee or any Director has an interest in a transaction, he is to abstain from participating in the review and approval process in relation to that transaction. The Manager discloses in Starhill Global REIT’s Annual Report the aggregate value of Related Party Transactions (equal to or exceeding S$100,000 each in value) entered into during the relevant financial year.

Dealing with Conflicts of Interest
The Manager has instituted the following procedures to deal with potential conflicts of interest issues which may arise in managing Starhill Global REIT:

  1. The Manager will not manage any other real estate investment trust which invests in the same type of properties as Starhill Global REIT;
  2. All executive officers will be employed by the Manager;
  3. All resolutions in writing of the Directors of the Manager in relation to matters concerning Starhill Global REIT must be approved by a majority of the Directors, including at least one independent Director;
  4. At least half of the Board shall comprise independent Directors;
  5. All Related Party Transactions must be reviewed by the Audit Committee and/or approved by a majority of the Audit Committee in accordance with the materiality thresholds and procedures outlined above. If a member of the Audit Committee has an interest in a transaction, he will abstain from voting;
  6. In respect of matters in which a Director of the Manager or his Associates (as defined in the listing manual of the SGX-ST) have an interest, direct or indirect, such interested Director will abstain from voting. In such matters, the quorum must comprise a majority of the Directors of the Manager and must exclude such interested Director; and
  7. The Manager and its Associates are prohibited from being counted in a quorum for or voting at any meeting of Unitholders convened to approve any matter in which the Manager or any of its Associates have a material interest.

The Directors of the Manager are under a fiduciary duty to Starhill Global REIT to act in its best interests in relation to decisions affecting Starhill Global REIT when they are voting as a member of the Board. In addition, the Directors and executive officers of the Manager are expected to act with integrity at all times. 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 Starhill Global REIT with a related party of the Manager, the Manager shall be obliged to consult with a reputable law firm (acceptable to the Trustee) 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 of the Manager (including its independent Directors) 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 Starhill Global REIT with a related party of the Manager and the Trustee may take such action as it deems necessary to protect the rights of Unitholders and/or which is in the interests 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.

Dealing in Starhill Global REIT Units

Each Director of the Manager is required to give notice to the Manager of his acquisition of units or of changes in the number of units which he holds or in which he has an interest, within two business days after such acquisition or changes in interest. All dealings in units by Directors of the Manager are announced via SGXNET.

The Directors of the Manager are encouraged, as a matter of internal policy, to hold units but are prohibited from dealing in the units during the following periods:

  1. a one-month period preceding the announcement of annual financial results;
  2. a two-week period preceding the announcement of quarterly financial results; or
  3. any period when there exists any matter which constitutes non-public price-sensitive information in relation to the securities of Starhill Global REIT.

Manager are advised not to deal in the units on short-term considerations. In addition, the Manager will announce via SGXNET 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 to MAS that it will not deal in the units during the period commencing one month before the public announcement of Starhill Global REIT’s annual and half-year financial results and two weeks before the public announcement of Starhill Global REIT’s quarterly financial results, and ending on the date of announcement of the relevant results.

Fees Payable to the Manager

The Manager is entitled to the following fees:

(i) Base Fee
The Base Fee covers the operational and administrative expenses incurred by the Manager in executing its responsibilities to manage Starhill Global REIT’s portfolio.

The Manager is entitled to receive a base fee of 0.5% per annum of the Value of Trust Property as defined on pages 101 and 102 of Starhill Global REIT's FY2016/17 Annual Report (excluding GST) (“Base Fee”) or such higher percentage as may be fixed by an Extraordinary Resolution of a meeting of Unitholders.

The Manager may opt to receive the Base Fee in respect of its properties in cash or units or a combination of cash and units (as it may determine).

The portion of the Base Fee payable in cash shall be payable monthly in arrears and the portion of the Base Fee payable in the form of units shall be payable quarterly in arrears. If a trigger event occurs, resulting in the Manager being removed, the Manager is entitled to be paid the Base Fee up to the day on which the trigger event occurs.

During FY 2016/17, the Manager has elected to receive 100% of the Base Fee in cash. In accordance with clause 15.1.1 of the Trust Deed, this shall be payable monthly in arrears.

(ii) Performance Fee
The Manager is entitled to a performance fee (“Performance Fee”) where the accumulated return (comprising capital gains and accumulated distributions and assuming all distributions are reinvested in the Trust) of the units (expressed as the “Trust Index”) in any Financial Year exceeds the accumulated return (comprising capital gains and accumulated distributions and assuming reinvestment of all distributions) of a benchmark index (“Benchmark Index”).

The Performance Fee is calculated in two tiers as follows:

The Performance Fee, whether payable in any combination of cash and units or solely in cash or units will be payable annually in arrears within 30 days after the last day of each financial year. Please refer to page 102 of Starhill Global REIT's FY2016/17 Annual Report for further details on the Performance Fee.

The Performance Fee is based on accumulated return (comprising capital gains and accumulated distributions and assuming all distributions are re-invested in the Trust) of the units, such that where the accumulated return for the Trust Index exceeds the total return of the Benchmark Index, the Manager will be paid a Performance Fee. The interests of the Manager are therefore aligned with the interests of the Unitholders as the Performance Fee would be commensurated with the value that the Manager delivers to Unitholders in the form of such accumulated return. In addition, the Manager has to ensure that the Trust Index outperforms the Benchmark Index. This motivates and incentivises the Manager to grow the accumulated return to Unitholders and outperform the Benchmark Index on a long-term and sustainable basis through proactive asset management strategies, asset enhancement initiatives, disciplined investments and prudent capital and risk management. By pegging performance fee to accumulated return, the Manager will not take on excessive short-term risks that will affect returns to Unitholders.

(iii) Acquisition Fee
The Manager is entitled to an Acquisition Fee as set out in clause 15.2 of the Trust Deed. This is earned by the Manager upon completion of an acquisition. The fee seeks to motivate and compensate the Manager for the time and effort spent in sourcing, evaluating and executing acquisitions that meet Starhill Global REIT’s investment criteria and increase long-term returns for Unitholders. Additional resources and costs incurred by the Manager in the course of seeking out new acquisition opportunities include, but are not limited to, due diligence efforts and man hours spent in evaluating the transactions. 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 Starhill Global REIT.

The Acquisition Fee is calculated at 1% of the value of the real estate acquired and subject to the Property Funds Appendix, shall be paid to the Manager in the form of cash and/ or Units (as the Manager shall elect). The Acquisition Fee is payable to the Manager 14 days after the completion of the relevant acquisition. Please refer to page 103 of Starhill Global REIT's FY2016/17 Annual Report for further details on the Acquisition Fee.

As required by the Property Funds Appendix, where an acquisition constitutes an “interested party transaction”, the Acquisition Fee payable to the Manager will be in the form of units which shall not be sold within one year from the date of issuance. This motivates the Manager to ensure that any acquisitions from interested parties perform and contribute to Unitholders’ returns.

(iv) Divestment Fee
The Manager is entitled to a Divestment Fee as set out in clause 15.3 of the Trust Deed. This is earned by the Manager upon completion of a divestment. This fee seeks to motivate and compensate the Manager for its efforts in maximising value for Unitholders by selectively divesting properties that have reached a stage which offers limited scope for further income growth and recycle capital and optimise Starhill Global REIT’s portfolio. The fee covers additional costs and resources incurred by the Manager, including but not limited to, sourcing for buyers, due diligence efforts and man hours spent in the course of the transactions.

In accordance to clause 15.3 of the Trust Deed, the Divestment Fee is calculated at 0.5% of the value of the real estate divested and subject to the Property Funds Appendix, shall be paid to the Manager in the form of cash and/or units (as the Manager may elect). The Divestment Fee is payable as soon as practicable after the completion of the relevant divestment. Please refer to page 103 of Starhill Global REIT's FY2016/17 Annual Report for further details on the Divestment Fee.

As required by the Property Funds Appendix, where a divestment constitutes an “interested party transaction”, the Divestment Fee payable to the Manager shall be in the form of units, which shall not be sold within one year from the date of issuance.

The Divestment Fee is lower than the Acquisition Fee because the sourcing, evaluating and executing of potential acquisition opportunities generally require more resources, effort and time on the part of the Manager as compared to divestments.