CORPORATE GOVERNANCE. Introduction. The Board s Conduct of Affairs

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1 Introduction Cache Logistics Trust ( Cache ) is a real estate investment trust ( REIT ) listed on the Mainboard of the Singapore Exchange Securities Trading Limited ( SGX-ST ) since 12 April Cache is externally managed by ARA-CWT Trust Management (Cache) Limited (the Manager or Management ), which is a joint venture REIT management company between ARA Asset Management Limited ( ARA ) and CWT Limited ( CWT ). Cache was constituted by a deed of trust (as amended) (the Trust Deed ) entered into between the Manager, and HSBC Institutional Trust Services (Singapore) Limited, as trustee of Cache (the Trustee ). The Trustee and the Manager are independent of each other. The Trustee is responsible under the Trust Deed for the safe custody of the assets on behalf of unitholders of Cache (the Unitholders ). The Manager s main responsibility is to manage the assets and liabilities of Cache in accordance with the Trust Deed and in the best interest of Unitholders. The Manager is committed to upholding high standards of corporate governance and business integrity, and believes that effective corporate governance is the foundation for the long-term success of Cache. The Manager sets the strategic direction of Cache and makes recommendations to the Trustee on the acquisition, divestment and/or enhancement of assets of Cache in accordance with its business strategy. Other functions and responsibilities of the Manager include: 1) ensuring compliance with the applicable provisions of the Securities and Futures Act, Chapter 289 of Singapore (the SFA ) and all other relevant legislation, the Listing Manual of the SGX-ST (the Listing Manual ), Appendix 6 to the Code on Collective Investment Schemes (the Property Funds Appendix ) issued by the Monetary Authority of Singapore (the MAS ), the Capital Markets Services Licence and Representatives Licence issued by the MAS, the Singapore Code on Take-overs and Mergers, the Trust Deed, the tax ruling issued by the Inland Revenue Authority of Singapore and all relevant contracts; 2) using its best endeavours to carry on and conduct its business and operations in a proper and efficient manner and to conduct all transactions with or for Cache at arm s length; 3) preparing reports 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 any relevant assumptions. The purpose of these reports is to manage the performance of Cache s assets; 4) managing the finances of Cache, including accounts preparation, capital and risk management, coordination of the budget process, forecast modelling and corporate treasury functions; 5) establishing a framework of prudent and effective controls which enables financial, operational and compliance risks to be managed; 6) managing communications with its Unitholders; and 7) supervising the Property Manager, which performs the day-to-day property management functions including property management, lease management, marketing, promotion, accounting, budget, maintenance and administration in relation to Cache s properties, pursuant to the respective property management agreements. As Cache is externally managed by the Manager, it has no directly hired employees. The Manager hires experienced and well-qualified professionals to handle the day-to-day operations. All directors and employees of the Manager are remunerated by the Manager and not Cache. The Manager has also received the Capital Markets Services licence to carry out REIT Management activities regulated by the MAS. The MAS issued a revised Code of Corporate Governance on 2 May 2012 (the Code ) which takes effect in respect of the annual report of Cache for the financial year commencing 1 January The following sections describe the Manager s corporate governance policies and practices in the financial year ended 2013 ( FY2013 ). The Manager confirms that it has adhered to the principles and guidelines of the Code as set out below, and has also explained any areas of non-compliance where applicable. 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 and Management remains accountable to the Board. Cache Logistics Trust ANNUAL REPORT

2 The composition of the Board of Directors of the Manager (the Board ) as at 31 December 2013 is as follows: Mr Lim How Teck Mr Lim Hwee Chiang John Mr Liao Chung Lik Mr Jimmy Yim Wing Kuen Mr Lim Ah Doo Ms Stefanie Yuen Thio Mr Moses Song Chairman, Non-Executive (Non-Independent) Non-Executive (Non-Independent) Non-Executive (Non-Independent) Non-Executive (Non-Independent) Non-Executive (Independent) Non-Executive (Independent) Alternate Director to Mr Lim Hwee Chiang The Board is responsible for the overall corporate governance and management of the Manager and Cache. The Board provides oversight, strategic direction and entrepreneurial leadership to the Manager, and determines the business values and corporate governance standards of Cache. It also works closely with Management, and has oversight of and reviews Management s performance. It also establishes a framework of prudent and effective internal controls to assess and manage risks, with the ultimate objective of safeguarding the interests of Unitholders and achieving long-term sustainable growth for Cache. The Board is also responsible for identifying key stakeholder groups such as Unitholders, tenants, end-users, bank lenders and the regulatory authorities, and how to meet its obligations to these stakeholders. When formulating its business strategy, the Board adopts a multi-disciplinary approach and strives to integrate social considerations into its business decision making to achieve a positive and sustainable outcome for the business and community at large. The Board has adopted internal guidelines which set out the requisite levels of authorisation. Matters requiring the Board s approval include significant acquisitions and disposals, annual budget, funding strategy and hedging activities and review of the quarterly, half year and full year financial results. Management, on the other hand, is responsible for the day-to-day operations of Cache. Appropriate delegation of authority has been provided to Management to facilitate operational efficiency. Apart from matters that specifically require approval from the Board, the Board approves transactions exceeding certain threshold limits, while delegating authority for transactions below those limits to the Board committee and Management respectively. The Audit Committee was established to assist the Board in the discharge of its corporate governance and risk management responsibilities and operates under delegated authority from the Board. Information on the Audit Committee can be found in the section Audit Committee below. The Manager issues formal letters to new Directors upon their appointment setting out various information including their duties, obligations and responsibilities as Directors, together with the Trust Deed, the Memorandum and Articles of Association of the Manager, an introductory profile on current Board members and the annual reports of past years. Newly appointed Directors are briefed under a comprehensive orientation programme on the business activities of Cache, its business plan, the applicable laws and regulations, corporate governance practices and their statutory duties and responsibilities as Directors. Training is provided for first-time Directors in areas such as accounting, legal and industry-specific knowledge where appropriate. The Manager regularly provides the Board with complete, timely and adequate information to keep the Directors updated on the operational and financial performance of Cache. Directors are kept abreast of changes in relevant financial reporting standards, laws and regulations, industry developments, business initiatives and challenges. In FY2013, as part of the training for the Directors, the Manager also conducted a site visit to Cache s properties in Singapore. The Board was also updated regularly on key changes in regulatory requirements and reporting standards such as amendments to the Financial Reporting Standards ( FRS ) and its impact on Cache. In addition, the Company Secretary provided the Board with regulatory updates on changes in the SGX listing manual and the Code of Corporate Governance. The cost of arranging and funding the training of the Directors is borne by Cache. The Board meets regularly, at least once every quarter, to review key business activities, strategies and other significant management matters. The Board also assesses the adequacy of internal controls of the Manager and the financial performance of Cache. The schedule of all Board and Board Committee meetings is planned well in advance. 24 Cache Logistics Trust ANNUAL REPORT 2013

3 In the event that Directors are unable to physically attend Board meetings, the Manager s Articles of Association provide for Directors participation in meetings by way of tele-conference or video conference. As and when necessary, Board meetings are also supplemented with resolutions circulated to the Directors for approval. The participation of each Director, as well as the number of Board and Audit Committee meetings held during the period 1 January 2013 to 31 December 2013, is disclosed below: MEETING ATTENDANCE Board Meetings Audit Committee Meetings Mr Lim How Teck 4/4 4/4 Mr Lim Hwee Chiang John 4/4 NA (Alternate Mr Moses Song) Mr Liao Chung Lik 4/4 NA Mr Jimmy Yim Wing Kuen 3/4 NA Mr Lim Ah Doo 4/4 4/4 Ms Stefanie Yuen Thio 4/4 4/4 NA: Not applicable Board Composition and Guidance 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 presently comprises six members, who are non-executive. Two Board members are independent. The Chairman of the Board is Mr Lim How Teck. The current composition of the Board includes a diverse breadth of industry expertise and experience in areas such as accounting, finance, legal, strategic planning and business management. In formulating the business strategy, the Board also constructively challenges the proposals and considers objectively at all times the interest of Cache and its Unitholders. The Board is of the view that its current composition of persons, who as a group provides the necessary core competencies, is adequate and that the current Board size is appropriate, taking into consideration the nature and scope of the business operations of Cache. As an added measure of oversight, MAS must provide prior approval for any change in the Chief Executive Officer or of any Board member. At least one-third of the Board comprises Independent Directors. The Independent Directors are Mr Lim Ah Doo and Ms Stefanie Yuen Thio. The definition of independence had been revised to align with the Code, and is reviewed upon appointment and annually. In furtherance to the rigorous review of independence of Independent Directors, the assessment criteria were enhanced to include factors such as familial connections, voting arrangements at Unitholders /directors meetings, financial dependency on directors fees and the level of objectivity demonstrated at Board meetings. The rigorous review was applied equally to all Independent Directors and not just those who have served on the Board for more than nine years. The Board has received annual written confirmations from Mr Lim Ah Doo and Ms Stefanie Yuen Thio, who have each served three years and nine months on the Board, stating that they are free from the relationships defined in Guideline 2.3 of the Code that would otherwise deem a director not to be independent. The Board has determined that Mr Lim Ah Doo and Ms Stefanie Yuen Thio are independent in character and judgment under the Code and that there are no relationships or circumstances which are likely to affect, or could appear to affect, their judgment. Cache Logistics Trust ANNUAL REPORT

4 Both Independent Directors exercise independent judgement on the business activities of Cache. They do not have any relationship with the Manager, its related corporations, 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 Cache ( Units ) or its officers that could interfere, or be reasonably perceived to interfere, with the exercise of his or her independent business judgment in the best interests of Cache. The appointment of the Non-Executive Directors further strengthens the Board s capability and diversity in the breadth of industry expertise, knowledge and experience. The Non-Executive Directors also contribute to the Board process by monitoring and viewing Management s performance. This enables the Board to interact and work with Management through a robust exchange of ideas and views. This, together with a clear separation of roles between the Chairman and Chief Executive Officer, facilitates a healthy and professional relationship between the Board and Management. The Board is of the view that there are sufficient safeguards and checks in place to ensure that the decision-making process of the Board is independent and based on the collective decision of the Directors without any concentration of power or influence residing in any individual. Key information regarding the Directors, such as academic and professional qualifications, shareholding in Cache and its related corporations, Board committees served on, date of first appointment and last re-election as a Director, directorships or chairmanships both present and those held over the last three years in other listed companies, and other principal commitments, is disclosed on pages 13 to 17 and page 37 of this 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 Chief Executive Officer are held by separate individuals to maintain an effective segregation of duties and to ensure an appropriate balance of power, increased accountability and greater capacity of the Board for independent decision-making. The Chairman of the Board is Mr Lim How Teck, a Non-Executive Director, while the Chief Executive Officer is Mr Daniel Cerf. The Chairman and the Chief Executive Officer are not immediate family members. The Chairman is responsible for the overall leadership and management of the Board and exercises control over the quality and timeliness of information flow between the Board and Management. The Chairman leads the Board meetings to have constructive discussions with Management, promotes high standards of corporate governance and provides good oversight, guidance and advice to the CEO and Management. The Chairman also ensures effective communication with Unitholders. The Chief Executive Officer works with the Board to formulate strategic plans and is responsible for the day-to-day management of the Manager and Cache. The Chief Executive Officer has full executive responsibilities over the business operations and executes the plans set out by the Board and ensures that the Board is kept informed regularly. In line with Guideline 3.3 of the Code, the Board appointed Mr Lim Ah Doo, an Independent Director and Chairman of the Audit Committee, as the Lead Independent Director on 24 April He serves as an alternative channel of communication for Unitholders in the event the standard channels via Management are not appropriate. As Lead Independent Director, Mr Lim can facilitate meetings with the other Independent Director on board matters in the absence of the other directors, when necessary, and provide his 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. 26 Cache Logistics Trust ANNUAL REPORT 2013

5 Board Performance Principle 5 There should be a formal annual 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. As the Manager is not itself a listed entity, the Manager does not consider it necessary for the Board to establish a Nominating Committee. The Board performs functions that a Nominating Committee would perform, namely, tabling nominations to the Board, reviewing the structure, size and composition of the Board and reviewing the independence of Board members. In recommending the appointment of new Directors, the Board takes into consideration the current Board size and mix, the suitability of the candidate based on key attributes such as integrity, commitment and competencies, as well as the candidate s ability to carry out his/her duties as a Director (in particular, when the Director holds multiple directorships) and to contribute to the proper guidance of the Manager in its management of Cache. The Manager believes that contributions from each Director extend beyond his or her attendance at Board and Board Committee meetings. The search for candidates to be appointed as new Directors is conducted through a broad network of contacts. All candidates are carefully evaluated by the Board to ensure that the recommendations are objective and well supported, taking into account the criteria under the Guidelines on Fit and Proper Criteria issued by the MAS for such appointments. The review of Board members performance is informal where renewal or replacement of a member does not necessarily reflect his/her contributions to date, but may be driven by the need to position and shape the Board in line with the needs of Cache and its business going forward. Although the Directors have other listed company board representations and principal commitments, the Board has determined, during the informal assessment of the Board s performance, that the individual Directors have devoted sufficient time and attention to discharge their duties and responsibilities as Directors and to the affairs of the Manager and Cache. 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 that a Director may hold. 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 approval. All Directors are also provided with ongoing reports relating to the operational and financial performance of Cache and its subsidiaries (the Group ) to enable them to exercise effective oversight over Cache s operational and financial performance. The annual calendar of Board activities is scheduled in advance to facilitate Directors individual administrative arrangements in respect of ongoing commitments. Board papers are generally circulated at least three days in advance of each meeting and include background explanatory information to enable the Directors to make informed decisions. The information provided may also be in the form of briefings to the Directors or formal presentations by senior executives in attendance at Board meetings, or by external professionals. The Chief Executive Officer keeps Board members informed of key developments affecting Cache as well as material transactions so that the Board is kept fully aware of the affairs of Cache. All Directors have separate and independent access to Management, the Company Secretary, internal and external auditors at all times. The Directors are entitled to request from Management and be provided with such additional information as needed to make informed decisions. The Manager has procedures in place to enable Directors, whether as a group or individually, to obtain independent professional advice as and when necessary, in furtherance of their duties, at the Manager s expense. The appointment of such independent professional advisors is subject to approval by the Board. Cache Logistics Trust ANNUAL REPORT

6 The Company Secretary or her designated representative (collectively referred to as the Company Secretary ) attends all Board and Audit Committee meetings and assists in ensuring that board procedures are followed and that rules and regulations applicable to the Manager are complied with, in addition to preparing the minutes. The Company Secretary works with the Chairman to ensure good information flows within the Board and the Audit Committee and between senior management and the Non-Executive Directors and to advise the Board on all governance matters. The Company Secretary also assists with professional development and training for Directors when required to do so. 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. 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. Cache, as a trust, is externally managed by the Manager which has experienced and well-qualified management personnel to manage the operational matters of the Manager and Cache. All fees and remuneration of the Directors and employees of the Manager are paid directly by the Manager from the fees it receives, and are not paid out of the trust property of Cache. The Manager adopts the remuneration policies and practices of its holding company, ARA Asset Management Limited, which has a Remuneration Committee that determines and makes recommendations to the Board as to the remuneration framework of the Directors and of key management personnel. In addition, the Remuneration Committee annually reviews the succession planning regime of senior management positions within the Manager. The suitability of internal successors is assessed by the Remuneration Committee and is benchmarked against external prospects. As part of the talent management process, the succession planning regime identifies and develops talented employees in the preparation of assuming senior positions when they become available, and motivates and retains high-performing staff with potential. Accountability Principle 10 The Board should present a balanced and understandable assessment of the company s performance, position and prospects. 28 Cache Logistics Trust ANNUAL REPORT 2013

7 The Board seeks to keep Unitholders updated on Cache s financial performance, business operations and strategy through quarterly and annual financial reports as well as timely announcements on developments in the business. Quarterly results are released to Unitholders within 45 days of the reporting period while the full year results are released to Unitholders within 60 days of the financial year end. In presenting the financial reports, the Board aims to provide a balanced and understandable presentation of Cache. Financial statements of Cache are prepared in accordance with the recommendations of the Statement of Recommended Accounting Practice 7 Reporting Framework for Unit Trusts. Management provides all members of the Board with management accounts and other information on a quarterly basis and as and when the Board may require from time to time, enabling the Board to make a balanced and informed assessment of the performance, position and prospects of Cache. Risk Management and Internal Controls 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 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. The Manager has put in place a system of internal controls, procedures and processes to manage risks, provide reasonable assurance against misstatement of loss, maintain reliable and proper accounting records, comply with relevant regulations as well as safeguard Cache s assets and Unitholders interests. Risk management is a fundamental part of Cache s ongoing operations. Management has identified the key risks faced by Cache and set out appropriate mitigating actions as well as monitoring mechanisms in its risk management register. There are also standard operating procedures in place that cover financial reporting, new investments, investment due diligence, project evaluation, asset valuation, equity fund raising, bank borrowings, compliance, business continuity and other risk management issues. Key risks, process owners, risk factors, mitigating actions and risk indicators are continually identified, assessed and monitored by Management as part of Cache s enterprise-wide risk management framework approved by the Board and is administered by the Cache Risk Management Committee ( RMC ). The RMC comprises the CEO, Director of Operations, Senior Finance Manager, and Head of ARA s Group Risk Management and Internal Audit. The Audit Committee reviews the risk profiles of Cache and the Manager, on a quarterly basis, and ensures that robust risk management processes and internal controls are in place. The risk profiles highlight changes in the risk assessment, quantitative and qualitative factors affecting inherent risk levels and effectiveness of mitigating controls supporting the residual risks as within the approved risk appetite. In addition, the Internal Auditors perform a review of the risk profiles as part of the internal audit plan approved by the Audit Committee. Any material non-compliance or improvements to the risk profiles is reported to the Audit Committee. Some of the key risks include: Investment Risks All investment proposals are subject to a disciplined and thorough evaluation process according to an extensive set of investment criteria including, but not limited to, asset quality, location, yield accretion, expected returns, tenant s credit standing, growth potential and performance sustainability. The investment appraisal process includes comprehensive due diligence, sensitivity analysis and risk evaluation to mitigate potential investment risks. In addition, Cache is subject to real estate market risks such rental rates and occupancies in response to changes in the demand and supply of industrial land. The Manager is regularly updated on industrial sector industry dynamics and macroeconomic data to keep abreast of leading indicators of change in the demand and supply of industrial land. Emerging trends are closely monitored for risk assessment and follow-up risk mitigation actions. Cache Logistics Trust ANNUAL REPORT

8 All findings are included in the Investment Proposal submitted to the Board for approval, upon which they are then submitted to the Trustee, who is the final approving authority for all investment decisions. The Trustee also reviews the Manager s compliance with restrictions and requirements of all applicable laws and regulations. Operational Risks The Manager has established operating and reporting policies and procedures to manage day-to-day operational activities, which are encapsulated in the Standard Operating Procedures ( SOPs ). The SOPs are reviewed periodically to ensure relevance and effectiveness. In addition, compliance is reinforced by staff training and regular checks by the internal auditor. The holding company, ARA Asset Management Limited, has established a Business Continuity Plan ( BCP ) to mitigate the business continuity risk of interruptions or catastrophic loss to its operations. One of the BCP components includes an Information Technology Disaster Recovery Plan which focuses on the continuation of technology infrastructure. The Manager, along with its holding company, also carries out an annual exercise to simulate a disaster scenario where participants are relocated to an offsite facility with access to IT systems. Cache s properties are also properly insured in accordance with current industry practices. 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. It also adheres closely to the covenants in the loan agreements and the Property Funds Appendix. In addition, the Manager monitors closely Cache s cash flow position and requirements to meet any operational needs and short-term financing obligation. Financing Risk To mitigate financing risk, the Manager employs a well-diversified funding base with varying loan tenures, thus spreading out the debt maturity profile and lengthening the debt weighted term to maturity. The Manager is continually building strong working relationships with lending banks and investors from the debt and equity capital markets, which would ensure capital is available for strategic investments when the opportunities arise. Interest Rate Risk The Manager regularly monitors interest rate risk to limit Cache s net interest exposure to adverse movements in interest rates. For a majority portion of Cache s outstanding borrowings, the Manager hedges its exposure to interest rate volatility arising from its floating rate loans through interest rate swaps. As at 31 December 2013, 70% of Cache s debts were hedged. Credit Risk Credit risks are mitigated at the onset by conducting tenant credit assessment during the investment feasibility phase prior to acquisition. For new leases, credit evaluation is performed by the Property Manager before leases are entered into with the tenants. On an ongoing basis, tenant credit and arrears are closely monitored by the Manager s Asset Management and Finance teams. Credit risks are further mitigated through the collection of security deposits amounting to 3 to 12 months rental in the form of banker s guarantee or cash from prospective tenants prior to lease commencement. Based on the internal controls established and maintained by the Manager and the work performed by the internal and external auditors, the Board, with the concurrence of the Audit Committee, is of the opinion that Cache s internal controls addressing financial, operational, compliance and information technology controls and risk management systems are adequate in compliance with Rule 1207(10) of the SGX-ST Listing Manual. The Board has also received assurance from the Chief Executive Officer and Senior Finance Manager of the Manager of the following: that the financial records have been properly maintained and that the financial statements give a true and fair view of the company s operations and finances; and the risk management and internal control systems have been adequate and remain effective. 30 Cache Logistics Trust ANNUAL REPORT 2013

9 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 Board has established an Audit Committee to assist in fulfilling its fiduciary responsibilities relating to corporate governance and interested person transactions. The Audit Committee comprises three non-executive Directors, Mr Lim Ah Doo, Mr Lim How Teck and Ms Stefanie Yuen Thio. Two-thirds of the Audit Committee is made up of Independent Directors. Mr Lim Ah Doo, an Independent Director, is the Chairman of the Audit Committee. The Audit Committee meets at least four times in a year and any decision made by the Audit Committee is passed upon majority vote whereby each member has an equal vote. The core function of the Audit Committee is to oversee the integrity of all financial statements and related disclosures, and to review, monitor and report to the Board on the effectiveness of the Manager s system of internal controls, including financial, operational, compliance and information technology controls and risk management processes. The Audit Committee also reviews the quality and reliability of information prepared for inclusion in financial reports, and is also responsible for the appointment/re-appointment of external auditors and reviewing the adequacy of external audits in respect of the cost effectiveness, scope of work and performance. The Audit Committee meets with the internal and external auditors, without the presence of the Management, at least once a year. Members of the Audit Committee bring with them invaluable experience and professional expertise in the accounting, finance and legal domains. The Board is of the view that the Chairman and these members are appropriately qualified to discharge their responsibilities. The Audit Committee s responsibilities include: reviewing the system of internal controls including financial, operational, compliance controls and risk management processes; reviewing the financial statements and auditors report for recommendation to the Board for approval; monitoring procedures in place to ensure compliance with applicable legislation, the Listing Manual and the Property Funds Appendix; reviewing with the external auditors, the audit plans, audit reports and their evaluation of the systems of internal controls; monitoring procedures established to regulate Related Party Transactions (as defined below), including ensuring compliance with the provisions of the Listing Manual relating to transactions between the Trustee and an interested person, and the provisions of the Property Funds Appendix relating to transactions between the Trustee and an interested party (both such types of transactions constituting Related Party Transactions ); making recommendation to the Board on the appointment/re-appointment of the external auditors, taking into consideration the scope, results of the audit as well as the cost effectiveness and the independence and objectivity of the external auditors; and reviewing the adequacy and effectiveness of the internal audit function, including resources, audit plans, scope and effectiveness. The Audit Committee is authorised to investigate any matters within its terms of reference. It is entitled to full access to and co-operation by Management and has full discretion to invite any Director or executive officer of the Manager to attend its meetings. The Audit Committee is provided with materials on changes to salient laws and regulations applicable to its terms of reference. Furthermore, the Audit Committee has full access to updated resources to enable it to keep abreast of changes to relevant accounting standards and regulatory issues which have a direct impact on financial statements and to enable it to discharge its functions fully. For FY2013, the Audit Committee has: (i) held four meetings; (ii) reviewed the internal and external audit plans including the nature and scope of work before commencement of these audits; Cache Logistics Trust ANNUAL REPORT

10 (iii) met with the internal and external auditors without the presence of Management to discuss their findings set out in their respective reports to the Audit Committee. Both the internal and external auditors have confirmed that they had access to and received full cooperation and assistance from Management and no restrictions were placed on the scope of audits; (iv) received and approved the financial statements, consolidated accounts and profit and loss accounts and auditors report of Cache; (v) conducted a review of all non-audit services provided by the external auditors and is satisfied that the nature and extent of such services will not prejudice the independence and objectivity of the external auditors as well as cost effectiveness of the audit before confirming their re-nomination; (vi) recommended the re-appointment of KPMG LLP, Certified Public Accountants, as the auditors based on their performance and quality of their audit and confirmed compliance with Rule 712 of the Listing Manual in that KPMG LLP is registered with the Accounting and Corporate Regulatory Authority. The Audit Committee was satisfied that the resources and experience of KPMG LLP, the audit engagement partner and her team assigned to the audit were adequate to meet its audit obligations given the size and complexity of Cache; (vii) reviewed the updated quarterly risk profiles and related documents presented by the RMC Management team; and (viii) confirmed that the Manager had complied with Rule 715 of the Listing Manual in relation to the appointment of the same auditing firm based in Singapore to audit its accounts, its Singapore-incorporated subsidiaries and significant associated companies, its foreign-incorporated subsidiaries and associated companies. The Group s subsidiaries and associated companies are disclosed under Note 6 of the Notes to the Financial Statements on page 113 of this Annual Report. The aggregate amount of the audit fees paid and payable by Cache to the external auditors for FY2013 was S$307,000, of which audit and non-audit fees amounted to S$197,000 and S$110,000 respectively. The external auditors have also confirmed their independence in this respect. The Board has put in place a Whistle Blowing policy for Cache whereby staff may, in confidence, raise their concerns about possible improprieties in matters of financial reporting or such other matters since This policy was revised in 2012 to be in line with the Code. The objective of the Whistle Blowing programme is to ensure that arrangements are in place for the independent investigation of such concerns and for appropriate follow-up action to be undertaken. Complaints can be made in person, or in writing, to any member of the Audit Committee or the Designated Officers (CEO and/or Director of Operations). In addition, external parties may refer to the Whistle Blowing policy which is available on the corporate website at The website also provides an address, cache-feedback@ara.com.hk, for any complainant to report possible improprieties. The will be routed directly to the addresses of the Audit Committee members and the Designated Officers to allow independent investigation of the matters raised and appropriate follow-up action to be undertaken. There were no reports of whistle blowing received for the financial year ended 31 December 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 internal audit function of the Manager is out-sourced to Ernst & Young Advisory Pte. Ltd. ( Internal Auditor ), an independent party. The Internal Auditor is independent of Management and reports directly to the Audit Committee on audit matters and to the Board on administrative matters. The Internal Auditor s activities are guided by the International Standards for the Professional Practice of Internal Auditing set by The Institute of Internal Auditors. The Internal Auditor conducts audit reviews based on the internal audit plan approved by the Audit Committee. Upon completion of each audit assignment, the Internal Auditor reports its findings and recommendations to Management who would respond on the actions to be taken. The Internal Auditor submits internal audit reports, at least twice yearly, to the Audit Committee on the audit findings and actions taken by Management on the findings. 32 Cache Logistics Trust ANNUAL REPORT 2013

11 The Audit Committee is of the view that the Internal Auditor has adequate resources to perform its functions and has, to the best of its ability, maintained its independence from the activities that it audits. The Internal Auditor also performs detailed work to assist the Audit Committee in the evaluation of financial, operational and compliance controls, and risk management processes. The Audit Committee also reviews the effectiveness of actions taken by the Manager on the recommendations made by the Internal Auditor in this respect. Any material non-compliance and internal control weakness, together with the internal and external auditors recommendations to address them, are reported to the Audit Committee. 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. The Listing Manual requires a listed entity to disclose to the market matters that are likely to have a material effect on the price of the entity s securities. The Manager upholds a strong culture of timely disclosure and transparent communication with Unitholders and the investing community. The Manager s disclosure policy requires timely and full disclosure of all material information relating to Cache, on a non-selective basis, by way of public releases or announcements through the SGX-ST via SGXNET at the first instance and subsequently, on its corporate website. Unitholders are able to participate effectively in and vote at general meetings of Cache, and are informed of the rules and procedures that govern the meetings. All Unitholders are entitled to receive the annual report at least 14 days prior to the Annual General Meeting ( AGM ) which encloses the notice of AGM and a proxy form with instructions on the appointment of proxies. This is also published via SGXNET. 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 Manager upholds the principles of accuracy, timeliness, transparency, fairness and effectiveness in its communications with Unitholders. It strives to provide timely and effective information relating to Cache s performance and its developments to its Unitholders and the investment community via announcements and press releases through the SGX-ST via SGXNET and its corporate website. The Manager also has a dedicated Investor Relations Manager to facilitate communication between Cache, its Unitholders and the investment community. The Manager regularly communicates with Unitholders. In 2013, the Manager met with local and international investors in group and one-on-one meetings and investor conferences in Singapore and overseas. It also participated in seminars organised by the Securities Investors Association (Singapore) and the SGX-ST to meet with retail investors and attend to their queries. Investors may also subscribe to the alerts for all announcements issued by Cache. The Manager also conducts half-yearly briefings for analysts and media representatives, which coincide with the release of Cache s financial results. During these briefings, the Manager s senior management team reviews Cache s financial performance and discusses the business outlook for Cache. In line with the Manager s objective of transparent communication, webcasts of such briefings are made publicly available on Cache s corporate website. In recognition of the Manager s efforts in investor relations, Cache received the Silver award in Best Investor Relations (REITs & Business Trusts category) at the Singapore Corporate Awards More details on the Manager s investor relations activities are found on pages 85 to 87 of this Annual Report. Cache s distribution policy is to distribute at least 90% of its distributable income, where such distributions are paid on a quarterly basis. In FY2013, the Manager paid out 100% of its distributable income within 60 days after the end of the distribution period. Cache has been paying out 100% of its distributable income since its initial public offering in Cache Logistics Trust ANNUAL REPORT

12 Conduct of Unitholder Meetings 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. When a general meeting is convened, all Unitholders will receive a circular enclosing a proxy form with instructions on the appointment of proxies, similar to that for the AGM. Prior to voting at the AGM or any general meeting, the voting procedures will be explained to Unitholders to facilitate the exercise of their votes. All resolutions at the AGM and any other general meeting are put to vote by poll. The Manager will make an announcement of the detailed results showing the number of votes cast for and against each resolution and their percentages on SGXNET. The Manager will also prepare minutes of general meetings. Cache will hold its AGM on 16 April The notice of the AGM can be found on page 135 to 137 of this Annual Report. If any Unitholder is unable to attend the AGM, he or she is allowed to appoint up to two proxies to vote on his or her behalf at the meeting through proxy forms sent in advance. The Board, Chairman of the Audit Committee and the external auditors will be in attendance at the AGM to answer questions from Unitholders. Unitholders are encouraged to attend the AGM to raise relevant queries and communicate their views. Additional Information Dealings in Units The Board has adopted an internal compliance code of conduct to provide guidance to its officers in respect of dealings in Units. In general, the Manager s policy ( the Trading of Units Policy ) encourages Directors and employees of the Manager to hold Units and not to deal in such Units for short-term consideration and also prohibits them from dealing in such Units: 1. during the period commencing one month before the public announcement of Cache s annual and quarterly results and (where applicable) any property valuations, and ending on the date of announcement of the relevant results or property valuations; and 2. at any time whilst in possession of price-sensitive information. The Directors and employees of the Manager are also prohibited from communicating price-sensitive information to any person. The Directors and officers are advised to observe the following at all times: to act in the best interests of Cache s Unitholders; to avoid, and be seen to avoid, actual or potential conflict between personal interest and duty to Unitholders; and comply with the prohibition on trading in Units as outlined in the internal compliance code of conduct with respect to the Trading of Units Policy. The Manager has also provided an undertaking to the MAS that it will not deal in Units during the period commencing one month before the public announcement of Cache s annual and quarterly results and (where applicable) any property valuations, and ending on the date of announcement of such information. Dealing with Conflicts of Interest The Manager has also instituted the following procedures to deal with potential conflicts of interest issues: 1. the Manager will not manage any other real estate investment trust which invests in the same type of properties as Cache; 34 Cache Logistics Trust ANNUAL REPORT 2013

13 2. all management personnel will work exclusively for the Manager and will not hold other executive positions in other firms; 3. all resolutions in writing of the Directors of the Manager in relation to matters concerning Cache must be approved by a majority of the Directors of the Manager, including at least one Independent Director; 4. at least one-third of the Board shall comprise Independent Directors; 5. in respect of matters in which the Sponsor and/or its subsidiaries have an interest, direct or indirect, any nominees appointed by the Sponsor and/or its subsidiaries to the Board to represent their interests will abstain from voting. In such matters, the quorum must comprise a majority of the Independent Directors and must exclude nominee Directors of the Sponsor and/or its subsidiaries; 6. in respect of matters in which ARA and/or its subsidiaries have an interest, direct or indirect, any nominees appointed by ARA and/or its subsidiaries to the Board to represent their interests will abstain from voting. In such matters, the quorum must comprise a majority of the Independent Directors and must exclude nominee Directors of ARA and/or its subsidiaries; and 7. 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 with a related party of the Manager, the Manager shall be obliged to consult with a reputable law firm (acceptable to the Trustee) which shall provide legal advice on the matter. If the said law firm is of the opinion that the Trustee has a prima facie case against the party allegedly in breach under such agreement, the Manager shall be obliged to take appropriate action in relation to such agreement. The Directors of the Manager will have a duty to ensure that the Manager so complies. Notwithstanding the foregoing, the Manager shall inform the Trustee as soon as it becomes aware of any breach of any agreement entered into by the Trustee 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. The Directors of the Manager owe a fiduciary duty to Cache to act in the best interests of Cache, in relation to decisions affecting Cache 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. The Manager has established a conflicts of interest policy for its employees and major service providers to ensure that any conflicts of interest or potential conflicts of interest are disclosed and approvals are sought where required. Interested Person/Related Party Transactions The Manager has established an internal control system to ensure that all Related Party Transactions will be undertaken on normal commercial terms and will not be prejudicial to the interests of Cache and its Unitholders. As a general rule, the Manager must demonstrate to its Audit Committee that such transactions satisfy the foregoing criteria. This may entail obtaining (where practicable) quotations from parties unrelated to the Manager, or obtaining two or more valuations from independent professional valuers (in accordance with the Property Funds Appendix). The following procedures will be undertaken: 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) equal to or exceeding S$100,000 in value but below 3.0% of the value of Cache s net tangible assets will be subject to review by the Audit Committee at regular intervals; 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 the value of Cache s 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 not prejudicial to the interests of Cache and its Unitholders, and are consistent with similar types of transactions made by the Trustee with third parties which are unrelated to the Manager; and Cache Logistics Trust ANNUAL REPORT