GOING PLACES ASCOTT REIT. with. Ascott Residence Trust. Annual Report

Transcription

1 GOING PLACES with ASCOTT REIT 08 Report

2 3 1 ( Reit) continues to stay focused on going places as the most geographically diversified REIT listed on the Singapore Stock Exchange. ( Reit) is the first Pan-Asian serviced residence real estate investment trust established with the objective of investing primarily in real estate and real estaterelated assets which are income-producing and which are used or predominantly used, as serviced residences or rental housing properties in the Pan-Asian region. Comprising an initial asset portfolio of 12 strategically located properties in seven Pan- Asian cities, Reit was listed with an asset size of about S$856 million in March Reit s portfolio has since expanded to S$1.51 billion, comprising 37 properties with 3,552 units in 11 cities across seven countries. Reit is managed by Management Limited, an indirect wholly-owned subsidiary of CapitaLand, one of Asia s largest real estate companies. Our Vision To be the premier serviced residence real estate investment trust with quality assets in key Pan- Asian cities. Our Mission To deliver stable and sustainable returns to unitholders. contents 2 Pan-Asian 10 Letter to 18 Financial 19 Portfolio Unitholders Highlights 28 Corporate 21 Residents 23 Social Responsibility The Structure The Manager 72 Financial Review 29 Corporate Governance Directory Listing Investor Relations Value 24 Corner Creation 41 Human Capital 42 Board of Directors Portfolio 50 Operations 54 Overview Review 81 Financial Statements

3 2 3 Pan - Asian Portfolio Japan Tokyo S$1.51 billion Reit s Share of Property Values China Beijing Shanghai Tianjin 3,552 Apartment Units Philippines Vietnam Singapore Manila Hanoi Ho Chi Minh City Singapore 37 Properties 11 Pan-Asian Cities Indonesia Australia Jakarta Melbourne Perth 7 Pan-Asian Countries

4 4 5 Going Places... 11cities 7in countries Reit, with serviced residences and rental housing properties spanning 11 Pan-Asian cities in seven countries, is the most geographically diversified Singapore-listed Real Estate Investment (REIT). Leveraging on its presence in both stable economies such as Australia, Japan and Singapore, and emerging markets such as China, Indonesia, Philippines and Vietnam, Reit offers unitholders exposure to Asia s growth for sustainable returns. Reit s Share of Property Values as at 31 December 2008 China 26% Australia 3% Emerging Markets 50% Indonesia 5% Japan 21% Stable Economies 50% Philippines 8% Singapore 26% Geographical Diversification Vietnam 11% Note: Emerging markets include China, Indonesia, Philippines and Vietnam. Stable economies include Australia, Japan and Singapore

5 6 7 Going Places... 3,552 apartment units Reit s serviced residences and rental housing properties enjoy prime locations in key Pan-Asian gateway cities. To customers, the convenient locations enhance their lifestyle. To investors, the quality locations bolster their confidence in the enduring value of the assets. 37properties Quality Assets ASCOTT REIT S PROPERTIES ARE MANAGED BY THE ASCOTT GROUP Limited (ASCOTT) ASCOTT IS THE WORLD S LARGEST INTERNATIONAL SERVICED RESIDENCE OWNER-OPERATOR IT HAS 18,000 OPERATING UNITS IN KEY CITIES OF ASIA PACIFIC, EUROPE AND THE GULF REGION ASCOTT PIONEERED ASIA PACIFIC S FIRST BRANDED LUXURY SERVICED RESIDENCE AND BOASTS A 25-YEAR INDUSTRY TRACK RECORD

6 8 9 Going Places... S$1.51 billion portfolio value Growing Portfolio ON Reit continued to demonstrate its ability to grow its portfolio in 2008 through active asset management, strategic acquisitions and prudent financial management. In 2008, Reit acquired a new property, Somerset St Georges Terrace, Perth and achieved revenue growth of 24 percent despite the challenging operating environment. A healthy balance sheet as a result of proactive but conservative financial management since listing supports the continued growth of Reit. 5 NOV, 2008, ASCOTT REIT ANNOUNCED THE ACQUISITION OF SOMERSET WEST LAKE, HANOI IN VIETNAM THE ACQUISITION IS YIELD-ACCRETIVE TO ASCOTT REIT AT A PROPERTY YIELD OF 10.2 PERCENT and fully funded by bank borrowings ASCOTT REIT S PORTFOLIO IN VIETNAM EXPANDS TO 612 UNITS IN FOUR PROPERTIES IN HANOI AND HO CHI MINH CITY

7 10 11 Letter to Unitholders Reit s Share of Property Values China 26% Indonesia 5% Philippines 8% Vietnam 11% Australia 3% Japan 21% Singapore 26% Dear Unitholders, ( Reit) again delivered a strong performance in Our overall revenue increased by 24 percent to S$192.4 million in 2008 compared to S$154.8 million in Gross profit also grew to S$95.5 million, a 37 percent increase compared to Reit s unitholders distribution in 2008 was S$53.7 million, 19 percent more than last year. Distribution per unit (DPU) of 8.78 cents in 2008 was 14 percent more than 2007 s DPU of 7.70 cents. The improved performance was due to both organic growth across the portfolio and contributions from newly acquired properties. Benefits of Portfolio Diversification and Resilience of Extended Stay Business Model In 2008, Reit added a new city, Perth to the portfolio, through the acquisition of Somerset St Georges Terrace, expanding our geographical coverage to 37 properties in 11 cities in 7 countries. Total apartment units increased to 3,552 units with a property value of S$1,510 million as at 31 December Our geographical diversification and extended stay business model have enabled us to mitigate the impact of softening demand in some cities particularly in the fourth quarter of We achieved an overall 2008 Revenue Per Available Unit (RevPAU) of S$145, a 10 percent increase over 2007 whilst enjoying high portfolio average occupancy of 80 percent as we continued to benefit from the healthy demand for serviced residences in Singapore, Hanoi, Ho Chi Minh City, Melbourne and Perth, although demand was softening in Tokyo and Manila. We were also able to capitalise on the increased demand for quality accommodation in Beijing for the 2008 Olympics held in the city. Our overall revenue increased by 24 percent to S$192.4 million in 2008 compared to S$154.8 million in Gross profit also grew to S$95.5 million, a 37 percent increase compared to Delivering Yield Accretive Acquisitions In June 2008, Reit completed the acquisition of Somerset St Georges Terrace, Perth in Australia for S$36.1 million. This 84-unit freehold property which enjoys prime location in the heart of Perth s central business district gives investors an exposure to the expanding Perth economy driven by the mining industry. In November 2008, Reit announced the acquisition of The Limited s () 70 percent interest in the 90-unit Somerset Westlake, Hanoi in Vietnam for S$22.9 million. This was an attractive acquisition opportunity as quality assets in prime city locations such as Somerset West Lake, Hanoi are hard to come by in Vietnam. In addition, serviced residences in Vietnam enjoy consistently high occupancy rates and an extended stay profile. The acquisition of Somerset West Lake will increase Reit s portfolio in Vietnam to 612 units in four properties in Hanoi and Ho Chi Minh City, enabling us to benefit from the continued growth in demand for quality accommodation as the economy continues to enjoy one of the highest growth rates in Asia. Prudent Capital and Risk Management Our key source of funding since listing has been bank borrowings which remain available even in difficult times. In 2008, we successfully refinanced S$202 million of bank borrowings, following which more than 80 percent of Reit s debts will only mature in 2011 and beyond. We have maintained a low gearing level of 38.3 percent as at 31 December This is well within the Monetary Authority of Singapore s Property Fund Guidelines cap of 60 percent. Reit s average borrowing cost is 3.5 percent per annum with 74 percent of its debts at fixed interest rates. Reit s interest cover is at a healthy 4.5 times. This strong balance sheet is a result of the prudent capital and risk management practices we have put in place since our listing in March Reit has held a Baa2 corporate family investment grade rating assigned by Moody s Investors Service since February 2007.

8 12 13 Letter to Unitholders (continued) Reit s Quality Properties Garnered Several Industry Awards in 2008 In 2008, Reit s properties won the following awards: Country Property Award Australia Somerset Gordon Heights, Melbourne New Tourism Development Accommodation, from Hotel, Motel & Accommodation Association of Victoria Awards of Excellence 2008 China Beijing Best International Apartment Type Hotel, from China Hotel Starlight Awards 2007 Somerset Grand Fortune Garden, Beijing Best Apartment Hotel Brand, from Asia Hotel Leaders Summit 2008 Vietnam Somerset Grand Hanoi Guide Award for Excellent Performance in Hospitality for , from the Guide Magazine Somerset Ho Chi Minh City Somerset Chancellor Court, Ho Chi Minh City Guide Award for Excellent Performance in Hospitality for , from the Guide Magazine Guide Award for Excellent Performance in Hospitality for , from the Guide Magazine Saigon Times Top 40 FDI Award 2008 for its excellent achievements in business with an ongoing commitment to protecting the environment and supporting the community, from the Saigon Times Weekly and The Saigon Times Daily As we move into a challenging 2009, we are heartened by the continued support of our serviced residence guests, unitholders and business partners. On Dec 29, 2008, Somerset Chancellor Court in Ho Chi Minh, Vietnam was awarded the prestigious Saigon Times Top 40 FDI Award for its excellent achievements in business with an ongoing commitment to protecting the environment and supporting the community. The accolade was given out by two leading travel and business publications The Saigon Times Weekly and The Saigon Times Daily, in cooperation with the Departments of Planning and Investment of four southern cities and provinces Ho Chi Minh City, Ba Ria- VungTau, Binh Duong and Dong Nai. While we conduct our business in a sustainable and environmentally-conscious manner, Reit is also very committed to uplifting the communities around us. Our active corporate social citizenship gives staff an opportunity to grow with the company in a more holistic manner and allows guests to integrate more deeply with a community and culture that may be new to them. Looking Ahead The current challenges facing the hospitality industry are unprecedented. Although our extended stay business model, geographical diversification and strong brand recognition will help to mitigate the impact, they will not fully insulate Reit from the fast deteriorating market conditions. Despite the adverse environment, Reit will continue to explore for acquisitions that will enhance its portfolio. We will continue to apply cost containment measures in our serviced residence operations as well as control our discretionary capital expenditure to maximise asset yield. We will also continue to be prudent in managing our balance sheet and apply a proactive but conservative approach to capital management. As we move into a challenging 2009, we are heartened by the continued support of our serviced residence guests, unitholders and business partners. We would like to express our gratitude to them. We would also like to thank the staff and Board of Directors for their dedication to Reit s sustained growth and performance since listing. These awards are testament to Reit s strategy of investing in quality assets in key Asia Pacific gateway cities, and through active asset management, generate stable and sustainable returns for unitholders. Corporate Social Responsibility At Reit, we believe in making a positive difference to the community and environment where we have operations. Our main objectives are to improve the lives of children who are less fortunate, and to adopt and promote environmentally-friendly practices. In 2008, staff and guests from our properties across Australia, China, Indonesia, Philippines, and Vietnam continued to actively participate in and initiate fund raising activities for the benefit of children s organisations and charities. Examples of the community activities which our properties undertook in 2008 included working with the Shanghai School for Blind Children, and improving the facilities of a school which was in dire need of clean water and school supplies for 390 children in Vietnam. As part of our commitment to environmentally sustainable practices, Reit s corporate office in Singapore obtained ISO certification in These efforts have been cascaded to property level and as at December 2008, our properties in Vietnam have also attained ISO certification. Lim Jit Poh Chairman 27 February, 2009 Chong Kee Hiong Chief Executive Officer

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11 18 19 Financial Highlights Year Ended 31 / 12 / 08 Year Ended 31 / 12 / 07 Better / (Worse) + / Gross Revenue S$192.4m S$154.8m +24% Gross Profit S$95.5m S$69.7m +37% Unitholders Distribution S$53.7m S$45.1m +19% Distribution Per Unit (DPU) % Distribution Yield % 5.31% +185% Balance Sheet as at 31 December Year 2008 Year 2007 Total Assets S$1,687.6m S$1,689.1m Unitholders Funds S$899.0m S$972.9m Total Borrowings S$624.4m S$541.7m Investor Relations ( Reit) maintains regular and transparent communication with its stakeholders, namely unitholders, prospective investors, analysts and the media. Regular information is provided through face-to-face meetings with management, in addition to conference calls, s, roadshows, results briefings and the corporate website. Financial results, legal announcements, press releases and presentation slides are posted on SGXNet, and are also available to unitholders, prospective retail and institutional investors, analysts and the media via Reit s website ( In addition, information on Reit s Board of Directors, Management and its property portfolio is available on the corporate website. Reit holds semi-annual financial results briefings for analysts and the media. In January 2008, it held a briefing to announce its full-year 2007 financial results and in July 2008, it held a briefing to announce its halfyear 2008 financial results. During the briefings, Reit s management presented on the REIT s financial results and outlook and fielded questions posed by analysts and the media. In 2008, Reit increased communications with retail investors in Singapore through participating in InvestFair 08 held on 16 & 17 August and holding lunch hour presentations to the remisiers and clients of the brokerage houses of CIMB and UOB KayHian. Reit met more than 160 fund managers and analysts in 2008 through one-on-one meeting requests and at the following events: Financial Ratios as at 31 December Year 2008 Year 2007 Net Asset Value (NAV) Per Unit S$1.47 S$1.60 Aggregate Leverage 38.3% 33.1% Interest Cover Ratio times 5.0 times Management Expense Ratio 3 1.3% 0.8% Derivative Financial Liabilities as a Percentage of NAV 1.7% 1.4% Event Location Date Citi Asia Pacific Property Conference Singapore 28 & 29 April CapitaLand CEO Forum organised by JP Morgan Singapore 30 April Citi Asean Mini Conference Tokyo 30 May Morgan Stanley Regional Corporate Property Days Hong Kong & Singapore 09 & 10 July CIMB Corporate Day Singapore 19 August Daiwa Corporate Day Tokyo 25 August Macquarie Emerging Leaders Conference London & New York 17 to 21 November Others as at 31 December Year 2008 Year 2007 Property visits to Reit s serviced residences were also conducted for analysts and institutional investors upon request. Through a programme of proactive engagement with stakeholders, management has been able to raise awareness and understanding of Reit s strategy, business developments and financial performance. Reit was awarded a Certificate of Excellence at the IR Magazine Awards IR Magazine Awards recognize the top IR practitioners among a wide variety of categories and regions. Winners are determined by a far-reaching, independent survey of analysts and investors, who give their opinions on who really stood out for the year. The companies named in the survey are matched against a points system based on the number of times they are mentioned, and a winner is determined. Certificates of Excellence are awarded to those companies meeting a designated threshold of significant number of mentions in the survey. The certificate recognises the significant efforts IR teams have made throughout the year. Market Capitalisation 1 S$354.3m S$879.0m Number of Units in Issue 610.8m 606.2m 1 Based on the closing unit price of S$0.58 and S$1.45 on 31 December 2008 and 31 December 2007 respectively. 2 Refers to EBITDA (earnings before net interest expenses, tax, depreciation and amortisation) before changes in fair value of financial derivative and serviced residence properties, and unrealised foreign exchange differences over net interest expenses for the period 1 January 2008 to 31 December Refers to the expenses of Reit (excluding direct expenses, unrealised foreign exchange loss, net interest expense, change in fair value of financial derivative and serviced residence properties, renovation cost written off, income tax expense) for the period 1 January 2008 to 31 December 2008 over net assets.

12 20 21 Investor Relations (continued) Financial Calendar Activity Release of full year results 23 January 23 January Corporate Social Responsibility Payment of distribution to unitholders 27 February 28 February Release of first quarter results April 23 April Release of half year results July 23 July Payment of distribution to unitholders Unit Price Performance August 28 August Release of third quarter results October 22 October Closing Price High S$1.44 (2 Jan) S$2.14 (22 Mar) Low S$0.41 (29 Oct) S$1.40 (19 Dec) Average S$1.01 S$1.79 Last Done S$0.58 (31 Dec) S$1.45 (31 Dec) Trading Volume Number of Units Average daily trading volume 1,057,242 1,623,390 Total trading volume 266,400, ,224,000 At ( Reit), we believe that we can make a positive difference to the community and environment where we have operations. Performance by students from the Shanghai School for Blind Children At ( Reit), we believe that we can make a positive difference to the community and environment where we have operations. As a demonstration of our commitment, staff are given three days of paid volunteer leave per annum to participate in community service activities. Community We encourage our staff, as part of The Limited s () commitment to Corporate Social Responsibility (CSR), to actively engage in activities that better the lives of the community, especially needy children and youth. And our commitment to these groups of underprivileged extends across borders. Children We believe that education is the key to a better future. In Ho Chi Minh City, Vietnam, we made a significant difference to the education of children in the Soc Trang area of the Mekong district by improving the studying environment for the town s school and bring it up to reasonable standards for the 390 students there. The contributions include a water filtration system to bring much needed clean water to the school and the setting up of a library complete with more than 3,000 books, a television set and DVD player for the students. In the Philippines, we continued to partner with World Vision in 2008 to pursue the accomplishment of community development solutions for the Filipino children in Zambales (a province of the Philippines located in the Central Luzon region) through education. Our staff also participated actively in the extended programme which entails monitoring of the students progress, facilities development and medical missions. Additionally, we provide direct financial assistance to needy children and support their basic needs. In Indonesia, our colleagues have committed to make monthly donations for a year, from July 2008 to June 2009, to Yayasan Rumah Kita a shelter home for street kids. In November 2008, they also joined the CapitaLand Volunteer Expedition to Yogyakarta, Indonesia as volunteers to build homes for the needy children and their families there. Our Shanghai colleagues in China also did their part by assisting the Shanghai School for Blind Children in setting up a music performance room for the students who perform regularly for parents as well as external parties including residents of our Shanghai serviced residence.

13 22 23 Corporate Social Responsibility (continued) Youth Our belief that the youth are our future leaders is reflected in our dedicated support to the Open Family Australia charity, an organisation which provides outreach support and services to some of Australia s most marginalised youth. This charity helps to link these young people to the services they require (e.g. housing, education, employment, wellbeing programmes, legal assistance and counselling) and assists them to reconnect to their family and community. Environment Adopting environmentally-friendly practices is part and parcel of the conduct of daily business at our serviced residences. Recycling, waste reduction, water and electricity conservation are commonly practiced and encouraged amongst our staff and guests. Residents Corner As part of our commitment to green initiatives in 2008, our properties in Vietnam have also implemented an environmental management system according to the ISO environmental standards and practices, following the full accreditation of our corporate office in Singapore in Our serviced residences in Ho Chi Minh City (HCMC) have also launched a Green Campaign to encourage guests to be environmentally friendly. As part of the campaign, university professors from Singapore have been invited to run courses on environmental protection for employees and guests. There is also a collaboration with the HCMC Department of Natural Resources and Environment to embark on tree planting projects to add greenery to the city. On Dec 29, 2008, Somerset Chancellor Court in Ho Chi Minh City, Vietnam was awarded the prestigious Saigon Times Top 40 FDI Award. This award recognises companies for their excellent achievements in business with an ongoing commitment to protecting the environment and supporting the community. The accolade was given out by two leading travel and business publications The Saigon Times Weekly and The Saigon Times Daily, in cooperation with the Departments of Planning and Investment of four southern cities and provinces Ho Chi Minh City, Ba Ria-VungTau, Binh Duong and Dong Nai. In an effort to continue engaging our guests to support our green initiatives, innovative staff members from the Manila team in the Philippines have not only been actively promoting different ways of conserving resources in their daily routines but have roped in guests at the serviced residences to raise money for the Save the La Mesa Watershed project. Management and staff involved in this project also conducted a clean up of the topical areas of the La Mesa Watershed facility. Reit will continue to support meaningful CSR initiatives at our properties with the objective of making a positive difference to the communities we operate in across the 11 cities, 7 countries where we have a presence. What our residents say... We have been staying at the Somerset Roppongi serviced apartment for the past 10 months and have really enjoyed our time here. The quality of the room and range of facilities offered make our stay so comfortable. The location of the Somerset apartment is convenient for us, both for work and for ease of living. The staff here has been exceptionally friendly and helpful to us by going out of their way to deal with our queries and requests. They have also helped us get acquainted with and accustomed to life in Tokyo. Eamonn & Julie Dunphy stayed at Somerset Roppongi, Tokyo, Japan. Your staff has always made me feel at home, something I have not found yet in other apartment hotels in Jakarta. As soon as I entered Jakarta s doors, I was warmly greeted by everyone. Great to see those familiar faces again. Helen A. Cruz stayed at Jakarta, Indonesia. Somerset is an outstanding serviced residence. It was the first night of our honeymoon and though we stayed for a short time, my husband and I had a comfortable, hassle-free stay. The friendly and accommodating staff made us feel pampered and well taken care of. To share an experience, on the day we were checking out we requested for a bell-hop to assist us. Though he was supposed to come by later, he arrived much earlier, and though I mentioned he could wait in the living area while we packed, he opted to be discreet and stayed outside, waiting patiently for us. That was very professional. After we left, we stayed at other hotels for the rest of our honeymoon, but with each hotel, we set our standards based on Somerset residences. Mary Anne Aguirre and husband stayed at Somerset Millennium, Makati, Philippines. Volunteer expedition to Yogyakarta, Indonesia

14 24 25 Value Creation Reit s principal investment strategy is to invest primarily in real estate and real estate-related assets which are income-producing and which are used, or predominantly used, as serviced residences or rental housing properties in the Pan-Asian region. Any investment made must be yield-accretive after taking into account other relevant factors such as regulatory, commercial and political factors. Investments may be by way of direct property ownership or through the ownership of legal entities that own these properties. We aim to deliver stable and growing distributions to unitholders through the following strategies: Active asset management Growth by acquisition Capital and risk management Active Asset Management We will maximise the overall financial performance of our property portfolio by focusing on the performance of each property. To create a focused, profit-oriented approach to the operations of each property, we monitor its operating results of each year against comparable industry benchmarks as well as against its prior year s results and planned budgets. We also conduct detailed diagnostic reviews of properties that are not achieving their targets, and work closely with the Serviced Management Companies (SRMCs) to develop relevant action plans tailored to improve the operating performance of each of these properties. We have in place a programme that enables us to actively manage each of our properties to generate organic growth and enhance existing strong relationships with key customers. Reit will, through the SRMCs, seek to achieve the optimal occupancy levels and average daily rates, and maximise Revenue Per Available Unit (RevPAU). Develop yield management and marketing strategies to maximise RevPAU Profit enhancement of Reit s portfolio depends primarily on the maximisation of RevPAU. Yield management and marketing strategies designed to maximise RevPAU include: assessing and adjusting apartment rental rates based on occupancy levels and demand to achieve optimal occupancy rates for each property and create revenue growth opportunities; and determining the appropriate balance between higher yielding short-stay guests and stability of revenue from long-stay guests. We work closely with the SRMCs to continue establishing and developing relationships with global key accounts through The Limited s () larger network so as to improve Reit s revenue and profitability. To strengthen brand equity and increase brand recognition and loyalty, the SRMCs have introduced several marketing initiatives. These include collaborating with key partners in global promotional campaigns, including Citibank World Privileges and Singapore Airlines Krisflyer programme, and launching an enhanced Customer Relationship Management system and a global cross-selling platform that enable us to pursue sales leads and negotiate sales across regions through the Internet. Improve operating efficiencies and economies of scale To minimise direct expenses and further increase gross profit margin without compromising our quality of services, we have, together with the SRMCs, identified several areas for cost management. These include: direct marketing to tenants to reduce commission expenses; and bulk purchases of supplies and centralisation of key functions such as finance and procurement for those properties located within the same city or region by leveraging on s portfolio to achieve economies of scale. Continually maintain quality of portfolio We strive to enhance our assets through urading, refurbishment and reconfiguration of our properties to achieve a higher level of guest satisfaction as well as to improve our properties performance and competitiveness. GROWTH BY ACQUISITION Reit will explore investment opportunities in the Pan-Asian region, driven by a limited supply of and healthy demand for good quality and well-managed serviced residences and rental housing properties in the region. Demand for serviced residences and rental housing properties will continue to grow as the increasing levels of inward foreign direct investments will bring more business travellers, who have a preference for comfortable home-styled extended-stay accommodation, into the region. Our main focus will continue to be serviced residences to tap on the demand for such accommodation. Rental housing is also an integral part of the extendedstay accommodation market, particularly in more stable economies. It provides greater income stability as well as potential for organic growth. By offering a combination of serviced residence and rental housing units, Reit is also able to cater to a wide range of budgets and customer needs. We have developed a multi-pronged acquisition strategy to grow our portfolio value and maintain geographical diversification in rapidly growing emerging markets as well as stable economies. Acquisition of Pan-Asian assets owned wholly or in part by We have in place a right of first refusal granted to Reit by over future sale of properties by any of its entities that are used, or predominantly used, as serviced residences or rental housing properties in the Pan- Asian region. As our Sponsor, will support Reit s acquisition strategy. For assets with good long-term income and growth potential but which are currently unavailable for acquisition by Reit for reasons such as timing, regulatory or contractual limitations, has the capacity to consider acquiring, incubating and enhancing such assets, with the view of subsequently offering the assets to Reit at the appropriate time. Acquisition of s properties under development has a stable of Pan-Asian properties currently under development. When completed, they would form the pipeline for potential acquisition by Reit as serviced residences or rental housing properties. Acquisition of assets currently managed and/or leased but not owned by In addition to managing Reit s portfolio, also operates and/or manages serviced residences and rental housing properties owned by third parties. These assets are complementary to Reit s current portfolio and where appropriate opportunities arise, we will leverage on s knowledge and network of relationships to acquire these assets and offer the owners an exit mechanism to monetise their asset holdings.

15 26 27 Value Creation (continued) Acquisition of suitable assets from third party owners Reit will also pursue acquisitions of quality, yield-accretive assets from third party owners. These opportunities are available due to: the healthy demand for extended-stay accommodation in the Pan-Asian region; our ability and experience to identify and adapt well-located, attractive properties into serviced residences and rental housing properties. The barriers to entry in the serviced residence sector predominantly come from expertise in identifying suitable properties, efficient property management systems and more importantly, brand equity a key criteria which the SRMCs possess; and relatively limited competition from international operators in the serviced residence sector in Asia. Furthermore, we can leverage on the strategic relationship with our major unitholder, CapitaLand, which is one of the largest listed real estate companies in Asia. We can tap on CapitaLand s expertise, experience and knowledge in real estate investments to source for potential acquisitions for injection into Reit. In evaluating acquisition opportunities, Reit adopts the following criteria: Yield thresholds We will acquire properties or make investments with yields that are currently, or have the potential to be, above their cost of capital and which are expected to maintain or enhance returns to unitholders. Location We will assess properties in terms of their micro-market locations as well as convenient access to major roads, public transportation and proximity to amenities such as entertainment and food and beverage outlets. Local market characteristics We will acquire properties in markets with positive macroeconomic indicators such as strong economic growth and expanding crossborder business investments and trade. Key considerations are the levels of inward foreign direct investment, business travel (including intra-country business travel), expatriate population and the resulting demand for serviced residences or rental housing properties. Value-creation opportunities We will acquire properties with potential for increase in occupancy rates and/ or average daily rates. The potential for adding value through selective asset enhancements such as urading, refurbishment and reconfiguration will also be assessed. Building and facilities specifications including management of serviced residences We will acquire properties with due consideration to building specifications, compliance with legal and zoning regulations as well as the size and age of the buildings. Any serviced residence or rental housing property must achieve stable operating statistics and cash flows or must have good potential of achieving stable cash flows before we would consider acquiring such a property. We generally hold our assets on a long-term basis but in consideration of the possibility that a property in our asset portfolio has reached a stage that offers limited scope for growth, we may divest the property and use the proceeds for re-investment in other properties that meet Reit s acquisition criteria. CAPITAL AND RISK MANAGEMENT We aim to optimise our capital structure and cost of capital within the borrowing limits set out in the Property Fund Guidelines. We intend to use a combination of debt and equity to fund future acquisitions and asset enhancement projects. Our objectives in relation to capital and risk management are to: maintain a strong balance sheet by adopting and maintaining a target gearing range; secure diversified funding sources from both financial institutions and capital markets when opportunities arise as we continually evaluate regional expansion and acquisition opportunities; adopt a proactive interest rate management strategy to manage risks related to interest rate fluctuations; and manage the foreign exchange exposure through hedging, where appropriate. By doing so, we will be able to maximise unitholders returns while maintaining flexibility for future capital expenditure or acquisitions. The key aspects of capital and risk management are as follows: Maintain strong balance sheet by adopting and maintaining a target gearing range We aim to maintain gearing at a range which is comfortably within borrowing limits allowed under the Property Fund Guidelines. By achieving the right combination of debt and equity, we will be able to minimise cost of capital and maximise returns to unitholders. Secure diversified funding sources from both financial institutions and capital markets when opportunities arise To finance future acquisitions and refurbishments of properties, we will consider, in addition to bank borrowings, accessing the public debt market through the issuance of bonds and notes to diversify funding sources. We will also capitalise on opportunities to raise additional equity capital through the issue of units, if there is an appropriate use for such proceeds. Adopt proactive interest rate management strategy We will adopt a proactive interest rate management policy to manage the risk associated with changes in interest rates on the loan facilities while also seeking to ensure that Reit s ongoing cost of debt remains competitive. To manage Reit s exposure to interest rate volatility, we will adopt an appropriate fixed versus floating interest rate profile. Manage exposure to foreign exchange As most of Reit s properties are in Pan-Asian countries outside Singapore, the cash flows generated by these assets as well as their capital values are subject to foreign exchange movements. In managing the currency risks associated with the cash flows generated by these assets, we will actively monitor the exchange rates close to each distribution date when the cash flows are more definitive, and enter into hedges, if appropriate. In managing the currency risks associated with the capital values of the overseas assets, we will, as far as possible, adopt a natural hedge strategy by borrowing in the same currency as the underlying asset.

16 28 29 The Structure Unitholders Corporate Governance Our Role ( Reit) is externally managed by Management Limited (Manager). The Manager is appointed as manager of Reit in accordance with the terms of the trust deed entered into by and between DBS ee Limited, as ee of Reit and the Manager on 19 January 2006 (as amended) ( Deed). The Manager appoints experienced and well-qualified personnel to run its day-to-day operations. Distributions Our primary role as Manager is to set the strategic direction of Reit and give recommendations to DBS ee Limited, in its capacity as trustee of Reit (the ee), on acquisition, divestment or enhancement of the assets of Reit in accordance with its stated investment strategy. As the Manager, we have general powers of management over the assets of Reit. Our main responsibility is to manage the assets and liabilities of Reit for the benefit of the unitholders. We do this with a focus on generating income and, where appropriate, increasing Reit s assets over time so as to enhance the returns from the investments, and ultimately the distributions and total return to unitholders. Our other functions and responsibilities as Manager include: Using our best endeavors to carry on and conduct its business in a proper and efficient manner and to conduct all transactions with or for Reit at arm s length. Preparing property plans on an annual basis for review by our Directors, including proposals and forecasts on net income, capital expenditure, sales and valuations, explanation of major variances to previous forecasts, written commentary on key issues and relevant assumptions. These plans explain the performance of Reit s assets. Preparing the accounts of Reit. Ensuring compliance with relevant laws and regulations, including the applicable provisions of the Securities and Futures Act (SFA), the Listing Manual of Singapore Exchange Securities Trading Limited (SGX-ST) (the Listing Manual), the Property Fund Guidelines of the Code of Collective Investment Scheme issued by the Monetary Authority of Singapore (Property Fund Guidelines), and the Deed. Attending to all regular communications with unitholders. Holding of Units Manager ( Management Limited) Management Services Management fees Net Profit Acts on behalf of unitholders ee s fees Dividends ee (DBS ee Limited - for unitholders) Somerset Liang Court Property, Singapore Somerset Grand Cairnhill, Singapore Serviced residence management services Ownership of assets Ownership of shares Property Holding Companies / Property Companies Serviced residence management services The Manager can be removed, under certain circumstances outlined in the Deed, by notice in writing given by the ee, in favour of a corporation appointed by the ee upon the occurrence of certain events, including by a resolution passed by simple majority of unitholders present and voting at a meeting of unitholders duly convened and held in accordance with the provision of the Deed. Our Corporate Governance Culture We are committed to the highest standard of corporate governance and transparency in our management of Reit, and operate in the spirit of the revised Code of Corporate Governance 2005 (Code) in the discharge of our responsibilities as Manager. We believe that strong and effective corporate governance is essential for the success of Reit and to protect the best interests of the unitholders. Serviced residence management fees Serviced residence management fees We have in place clear internal control systems, reporting and responsibility lines, and procedures in line with the Code. The following paragraphs describe our corporate governance policies and practices in 2008 as the Manager, with specific references to the Code. Serviced Management Companies

17 30 Corporate Governance (continued) (A) Board Matters Principle 1 : The Board s Conduct of Affairs The Board of Directors of the Manager (the Board) is responsible for the overall management and corporate governance of the Manager and Reit. It provides leadership to the Manager, sets strategic directions and oversees competent management of Reit. The Board has established a framework for the management of the Manager, including a system of internal controls and a business risk management process. It also sets the disclosure and transparency standards for Reit and ensures that obligations to unitholders and other stakeholders are understood and met. 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 Reit for the benefit of unitholders. Decisions are taken objectively in the interests of Reit. The Manager has adopted guidelines, details of which are set out on pages for related party transactions and dealing with conflicts of interests. The Board meets regularly and as and when warranted by particular circumstances as deemed appropriate by the Board members. Board meetings are scheduled in advance and are held at least once quarterly, to review and deliberate on strategic policies of Reit, significant acquisitions and disposals, financial performance and budget, and announcements of quarterly results. The Board also reviews the risks to the assets of Reit and acts upon comments from the auditors. A total of four Board meetings were held in In the discharge of its functions, the Board is supported by special Board committees that provide independent oversight of Management, and which also serve to ensure that there are appropriate checks and balances. These Board committees are the Audit Committee, Executive Committee and Corporate Disclosure Committee. Each of these Board Committees operates under delegated authority from the Board. Other committees may be formed as dictated by business imperatives and/or to promote operational efficiency. Information on the Audit Committee can be found in the section Audit Committee on pages The Executive Committee has adopted terms of reference to define its scope of authority and responsibilities which include (i) overseeing the day-to-day activities of the Manager on behalf of the Board (except in relation to those matters that specifically require action or decision by the Board pursuant to law or any other regulations for the time being of the Manager) in respect of the governing of the affairs of the Manager and/or Reit; (ii) reviewing, endorsing and approving strategic directions and management policies of the Manager in respect of Reit; (iii) overseeing operational, investment and divestment matters within the approved financial limits; and (iv) performing such other functions as varied or delegated by the Board. The guidance and views of the Executive Committee are constantly sought both within and outside the formal environment of the Executive Committee meeting. Minutes of the Executive Committee meetings, decisions taken and resolutions passed are circulated to the Board for information. The Corporate Disclosure Committee s main role is to review corporate disclosure issues and announcements made to the SGX-ST and the public, as well as to ensure the adoption of good corporate governance and best practices in providing transparency to unitholders, the investing community and other stakeholders. It also ensures that Reit (i) complies with all applicable legal and regulatory disclosure requirements; and (ii) discloses all appropriate information in a timely manner. The Board has adopted a set of internal controls which sets out approval limits for among others, capital expenditure, new investments and divestments, as well as bank borrowings at Board level. Apart from matters that specifically require the Board s approval such as issue of new Units, income distributions and 31 other returns to unitholders the Board approves transactions exceeding certain threshold limits, while delegating authority for transactions below those limits to the Executive Committee. Appropriate delegation of authority and approval sub-limits are also provided at the Management level to facilitate operational efficiency. Principle 2 : Board Composition and Guidance Currently, the Board consists of nine Directors, all are non-executive, of whom four are Independent non-executive Directors. A Director is considered independent if he has no relationship with the Manager 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 Reit. Mr Paul Ma Kah Woh, Mr David Schaefer, Mr Ku Moon Lun and Mr Giam Chin Toon are considered to be Independent Directors. More than one-third of the Board is independent. The non-executive Directors actively 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 Board is of the view that its current composition comprises persons who, as a group, provides the necessary core competencies and that the current Board size is appropriate, taking into consideration the nature and scope of Reit s operations. The profiles of the Directors are set out on pages of this Report. Principle 3 : Chairman and Chief Executive Officer The positions of the Chairman and the Chief Executive Officer (CEO) of the Manager are held by two individuals to maintain an effective oversight and to ensure a clear division of responsibilities and duties between them. This is also to ensure an appropriate balance of power, increased accountability and greater capacity of the Board for independent decision making. The Chairman and the CEO are not related to each other. The Chairman leads the Board to ensure its effectiveness on all aspects of its role and sets its agenda. He ensures that the members of the Board receive accurate, clear and timely information, facilitates the contribution of the nonexecutive Directors, encourages constructive relations between non-executive Directors and Management, ensures effective communication with unitholders and promotes a high standard of corporate governance. The Chairman also ensures that the Board works together with Management with integrity, competency and moral authority, and engages Management in constructive debate on strategy, business operations and enterprise risks. The CEO has full executive responsibilities over the business directions and operational decisions of managing Reit. Principle 4 : Board Membership Principle 5 : Board Performance As the Manager is not itself a listed entity, the Manager does not consider it necessary for the Board to establish a nominating committee as it believes that the performance of the Manager, and hence, its Board, is reflected in the long term success of Reit. Thus, the Board performs the functions that such a committee would otherwise perform, namely, it administers nominations to the Board, reviews the structure, size and composition of the Board, and reviews the independence of Board members. Directors of the Manager are not subject to periodic retirement by rotation. The composition of the Board is reviewed regularly to ensure that the Board has the appropriate size and mix of expertise and experience. In particular, the Manager strives to ensure that the Board as a whole has the requisite blend of background, experience and knowledge in business, finance and management

18 32 Corporate Governance (continued) skills critical to Reit s businesses, and that each Director with his special contribution brings to the Board an independent and objective perspective to enable balanced and well-considered decisions to be made. A Director with multiple board representations is expected to ensure that sufficient attention is given to the affairs of the Manager and Reit. The composition of the Board, including the selection of candidates for new appointments to the Board as part of the Board s renewal process, is determined using the following principles: the Chairman of the Board should be a non-executive Director of the Manager. the Board should comprise directors with a broad range of commercial experience, including expertise in funds management, the property industry and in the banking and legal fields. at least one-third of the Board should comprise Independent Directors. Newly appointed Directors of the Manager are given briefings by management on the business activities of Reit and its strategic directions, the Manager s corporate governance practices, and their statutory and other duties and responsibilities as Directors. Directors are also encouraged to participate in industry conferences, seminars or any training programme in connection with their duties. The independence of each Director is reviewed upon appointment, and thereafter annually, by the Board. Reviews of Board performance as appropriate are informal. Board performance and that of individual Board member is reflected in, and evidenced by, proper guidance, diligent oversight and able leadership, and the support that it lends to Management in steering Reit in the appropriate direction, and the long term performance of Reit whether under favorable or challenging market conditions. This is ultimately reflected in safeguarding the interests of Reit and maximising unitholder value. Contributions by an individual Board member can also take other forms, including providing objective perspectives of issues, facilitating business opportunities and strategic relationships, and accessibility to Management outside of a formal environment of Board and/or Board Committee meetings. The Directors make significant contributions and give guidance to management regularly outside of the Board and Board Committee meetings via and telephone discussions. The matrix of the Board members participation in various Board Committees and attendance record at meetings of the Board and Audit Committee during the financial year is set as below: Board & Board Committees Board Members Lim Jit Poh (Chairman) Liew Mun Leong (Deputy Chairman) Executive Committee C Audit Committee Corporate Disclosure Committee C Jennie Chua M M S Chandra Das M M M Paul Ma Kah Woh David Schaefer Ku Moon Lun Giam Chin Jeremy Giam Lui Chong Chee M M C M C: Chairman M: Member Meeting Attendance Board Members Board No of Meetings Held: 4 33 Audit Committee No of Meetings Held: 4 Lim Jit Poh (Chairman) 4 N.A. Liew Mun Leong (Deputy Chairman) 2 N.A. Jennie Chua 4 N.A. S Chandra Das 4 4 Paul Ma Kah Woh 4 4 David Schaefer 4 3 Ku Moon Lun 4 N.A. Giam Chin Jeremy Giam 4 N.A. Lui Chong Chee 1 2 N.A. 1 Mr Lui Chong Chee was appointed as Director on 1 June Principle 6 : Access to Information Principle 10 : Accountability Management provides the Board with complete and adequate information in a timely manner. This is done through regular updates on financial results, market trends and business developments. Changes to regulations, policies and accounting standards are also monitored closely. To keep pace with regulatory changes, where these changes have an important and significant bearing on Reit and its disclosure obligations, the Directors are briefed by Management during Board meetings, at specially convened sessions or via circulation of Board papers. Information provided to the Board includes explanatory background relating to matters to be brought before the Board, budgets, forecasts and management accounts. In relation to budgets, any material variance between projections and actual results are disclosed and explained. The Manager also provides the Directors with management accounts on a monthly basis to enable Directors to keep abreast of Reit s financial performance, position and prospects. Additionally, analysts reports on Reit are forwarded to the Board from time to time to keep Directors apprised of analysts views on Reit s performance. Proposals to the Board and/or Board Committee for decision or mandate sought by Management are in the form of board papers and/or Board committee papers that provide facts, analyses, resources needed, conclusions and recommendations. The Board and Board committee papers are distributed to Directors in advance of each meeting. Senior executives who can provide additional insights into matters to be discussed are requested to also attend the Board meetings so as to be at hand to answer questions. Board meetings include presentations by senior executives, external consultants and experts on strategic issues relating to specific business areas. The Board has separate and independent access to the Manager s senior management and the Company Secretary of the Manager, and vice versa. 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 Secretary s responsibilities include ensuring good information flow between the Board and its committees and between senior management and non-executive Directors. The Company Secretary attends all Board and Board committee meetings of the Manager to take minutes. The appointment and removal of the Secretary is a Board reserved matter. Where necessary, the Manager will, upon the request of the Directors (whether as a group or individually), provide them with independent professional advice, at the Manager s expense, to enable them to discharge their duties. The Secretary assists the Directors in obtaining such advice.

19 34 Corporate Governance (continued) (B) Remuneration Matters Principle 7 : Procedures for Developing Remuneration Policies Principle 8 : Level and Mix of Remuneration Principle 9 : Disclosure on Remuneration The remuneration of the Board and the employees of the Manager are paid by the Manager, and not Reit. The Manager adopts the remuneration policies and practices of its holding company, CapitaLand Limited (CL), which has a remuneration committee that determines and recommends to the CL board of directors, the framework of remuneration, terms of engagement, compensation and benefits for senior executives of the CL, which include the CEO of the Manager and members of its senior management team. The remuneration of Directors for the year ended 31 December 2008 is shown in the table below. No directors fees for senior executives of CL on the Board of the Manager are payable to CL from 29 April 2008, when the Manager became a wholly-owned subsidiary of CL. Non-executive directors have no service contracts with the Manager. They receive a basic fee, an additional fee for serving on any of the committees and an attendance fee for participation in meetings of the Board and any of the committees, project meetings and verification meetings. In determining the quantum of such fees, factors such as frequency of meetings, time spent and responsibilities of Directors are taken into account. Fees payable to the Chairman and members of the Audit Committee are higher compared to other Committees to take into account the nature of their responsibilities and the greater frequency of meetings. Directors Fees Board Members FY 2008 (S$) FY 2007 (S$) Lim Jit Poh 89,000 90,500 Liew Mun Leong 1 23,934 72,000 Jennie Chua N.A. N.A. S Chandra Das 80,500 79,000 Paul Ma Kah Woh 75,000 76,500 David Schaefer 70,250 73,000 Ku Moon Lun 57,750 55,750 Giam Chin Jeremy Giam 50,000 34,500 2 Lui Chong Chee 3 N.A. 1 Total 446, ,250 1 Directors fees are payable to CapitaLand Limited (CL). No directors fees for senior executives of CL on the Board of the Manager are payable to CL from 29 April 2008, when the Manager became a whollyowned subsidiary of CL. 2 Mr Giam Chin Jeremy Giam was appointed as Director and member of the Executive Committee on 23 March Mr Lui Chong Chee was appointed as Director on 1 June (C) Audit and Internal Control Principle 11 : Audit Committee The Audit Committee is appointed by the Board from among its non-executive Directors and comprises three members, a majority of whom (including the Chairman of the Audit Committee) are Independent Directors. The members of the Audit Committee, collectively, have expertise or experience in financial management and are qualified to discharge the Audit Committee s responsibilities. 35 The Audit Committee has adopted a set of terms of reference to define its scope of authority which include: evaluating the effectiveness of the internal control systems (including financial control, operational and compliance controls and risk management systems) established by management by reviewing written reports from the internal auditor and external auditor, and management s responses and actions to correct the deficiencies; monitoring the integrity of the financial information provided by the Manager, in particular by reviewing the relevance and consistency of the accounting standards used for the financial reports of Reit (i.e. entity level) and its group (i.e. consolidation level) and the Manager; reviewing the effectiveness of the internal audit function; reviewing and monitoring the procedure established to regulate Interested Person Transactions (as defined in Chapter 9 of the Listing Manual) and Interested-party Transactions (as defined in the Property Fund Guidelines), including ensuring compliance with the provisions of the Listing Manual relating to Interested Person Transactions and the provisions of the Property Fund Guidelines relating to such transactions; assessing the suitability of the accounting firm as external auditors and recommending to the Board their appointment or re-appointment as external auditors for the coming year at the compensation as negotiated by management and reviewing and recommending to the Board for approval of their discharge; reviewing the adequacy of external auditor in terms of cost, scope and performance and also assess the cost effectiveness, the independence and objectivity of the external auditor; and reviewing the procedures in place to ensure compliance with applicable legislation (such as the Companies Act, Cap. 50 and the Securities & Futures Act, Cap. 289, and their subsidiary legislations), the Listing Manual and the Code on Collective Investment Schemes issued by the Monetary Authority of Singapore. A total of four Audit Committee meetings were held in The Audit Committee also held separate meetings with external auditors and internal auditors without management presence. The Audit Committee is authorised to investigate any matter within its terms of reference. The Audit Committee has full access to and co-operation of the Management and the internal auditors and has full discretion to invite any nonexecutive Director or officer to attend its meetings. The internal auditors and Reit s external auditors, have unrestricted access to the Audit Committee. Reasonable resources have been made available to the Audit Committee to enable it to discharge its duties. In its review of the audited financial statements for the financial year ended 2008, the Audit Committee discussed with Management and external auditors the accounting principles that were applied. Based on the review and discussions with Management and external auditors, the Audit Committee is of the view that the financial statements are fairly presented, and conform to generally accepted accounting principles in all material aspects. The Audit Committee has also conducted a review of all non-audit services provided by the external auditors during the financial year and is satisfied that the nature and extent of such services will not prejudice the independence and objectivity of the external auditors.

20 36 Corporate Governance (continued) Principle 12 : Internal Controls Principle 13 : Internal Audit The Manager has put in place a system of internal controls of procedures and processes to safeguard the assets of Reit, interests of unitholders, as well as to manage risk. Reit s external auditors carry out, in the course of their annual audit, a review of the effectiveness of the Manager s material internal controls, including financial, operational and compliance controls, and risk management to the extent of the scope of the audit as laid out in their audit plan. Material non-compliance and internal control weakness noted during the audit, and the auditors recommendations to address such non-compliance and weakness are reported to the Audit Committee. Management follows up and implements Reit s external auditors recommendations. The internal audit function of the Manager is carried out by CapitaLand s Internal Audit Department (CLIA). To complement and supplement the functions of CLIA, suitably qualified external professionals may be engaged to conduct independent audits of some of the activities of Reit. The Board is satisfied that the Manager s internal controls are adequate based on reports from the CLIA and external auditors. CLIA s primary line of reporting is to the Audit Committee. CLIA has unfettered access to the Audit Committee and all audit findings are communicated to the Audit Committee as well as Management. CLIA 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. A majority of the CLIA staff are members of the Singapore branch of IIA, which has its headquarters in the USA. The standards set by IIA cover requirements in respect of the following: Independence; Professional Proficiency; Scope of work; Performance of audit work; and Management of the Internal Audit Department To ensure that the internal audits are performed by competent professionals, CLIA recruits and employs suitably qualified staff. In order to ensure that their technical knowledge remains current and relevant, CLIA identifies and provides training and development opportunities to their staff. CLIA is headed by a senior manager, who reports directly to the Audit Committee on audit matters. The Audit Committee reviews the internal audit reports and activities on an on-going basis. The Audit Committee also reviews and approves the annual internal audit plan with respect to Reit. The Audit Committee is of the view that the internal audit department is adequately resourced to perform its functions and has, to the best of its ability, maintained its independence from the activities that it audits. (D) Communication with Unitholders Principle 14 : Communication with Unitholders Principle 15 : Greater Unitholder Participation In line with the disclosure obligations of Reit under the Listing Manual, it is the Board s policy to inform unitholders of all major developments that impact Reit. Reit believes that it should engage in regular, effective, unbiased and transparent communication with its unitholders. Communication channels with unitholders include: 37 Media and analysts briefings; Local/overseas roadshows and conferences; Reports; Press Releases on major developments of Reit; Notices of, and explanatory memorandum for extraordinary general meetings; Disclosures to SGX-ST; Other announcements, as appropriate; and Reit s website at The Manager has implemented quarterly financial reporting for Reit since inception. Financial results and other price sensitive public announcements are presented in a balanced and understandable assessment of Reit s performance, position and prospects. As and when Extraordinary General Meetings (EGMs) of the unitholders are 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. The notice of EGM which sets out all items of business to be transacted at the EGM, is also announced on SGXNet and advertised in the newspapers. Members of the Board, the Manager s senior management and the external auditors of Reit are in attendance at EGMs, and unitholders are given the opportunity to air their views and ask questions regarding the matters to be tabled at the EGM. Resolutions put to the EGMs are separate unless they are interdependent and linked, and the reasons and material implications are explained. A unitholder is allowed to appoint one or two proxies to attend and vote at EGMs in his/her stead. (E) Additional Information Dealings with Related Parties The Manager has established internal control procedures to ensure that all transactions involving the ee and a related party of the Manager (Related Party Transactions) are undertaken on an arm s length basis and on normal commercial terms, which are generally no more favourable than those extended to unrelated third parties, in accordance with all applicable requirements of the Property Fund Guidelines and/or the Listing Manual of SGX-ST relating to the transaction in question. In respect of Related Party Transactions, the Manager would have to demonstrate to the Audit Committee that the transactions would be undertaken on normal commercial terms which may include obtaining (where practicable) quotations from parties unrelated to the Manager, or obtaining valuations from two independent valuers in accordance with the Property Fund Guidelines. In addition, Related Party Transactions (either individually or as part of a series or if aggregated with other transactions involving the same interested party during the same financial year): equal to or exceeding S$100,000 in value, but below 3 percent of Reit s net tangible assets (S$27 million as at 31 December 2008), are subject to review by the Audit Committee at regular intervals; equal to or exceeding 3 percent but below 5 percent of Reit s net tangible assets (S$45 million as at 31 December 2008), are subject to the review and prior approval of the Audit Committee; equal to or exceeding 5 percent of Reit s net tangible assets, are reviewed and approved prior to such transactions being entered into, by the Audit Committee who may, if it deems appropriate, request for advice on the transaction from independent sources or advisers, including the obtaining of valuations from professional valuers. Further, under the Listing Manual and the Property Fund Guidelines, such transactions also require the approval of the unitholders at a specially convened general meeting.

21 38 Corporate Governance (continued) If a member of the Audit Committee has an interest in a transaction, he shall abstain from participating in the review and approval process in relation to that transaction. Further, the ee has the ultimate discretion under the Deed to decide whether or not to enter into a Related Party Transaction. If the ee is to sign any contract with a related party, the ee will review the contract to ensure that it complies with the requirements relating to interested party transactions in the Property Fund Guidelines (as may be amended from time to time) and the provisions of the Listing Manual of SGX-ST relating to interested person transactions (as may be amended from time to time) as well as such other guidelines as may from time to time be prescribed by the Monetary Authority of Singapore and the SGX-ST to apply to real estate investment trusts. The Manager maintains a register to record all Related Party Transactions which are entered into by Reit (and the basis, including the quotations obtained to support such basis, on which they are entered into). The Manager also incorporates into its internal audit plan a review of all Related Party Transactions entered into by 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. Details of Interested Person (as defined in the Listing Manual) and Interested Party (as defined in the Property Fund Guidelines) Transactions (equal to or exceeding S$100,000 each in value) entered during the financial year are disclosed on page 157 of this Report. Dealings with Conflict of Interest The Manager has instituted the following procedures to deal with conflicts of interest issues: It will not manage any other real estate investment trust which invests in the same type of properties as Reit. All resolutions in writing of its Directors in relation to matters concerning Reit must be approved by majority of the Directors, including at least one Independent Director. At least one-third of the Board shall comprise Independent Directors. In respect of matters in which The Limited () and/ or its subsidiaries have an interest, direct or indirect, any nominees appointed by and/or its subsidiaries to the Board representing its/their interests shall abstain from voting. In such matters, the quorum must comprise a majority of the Independent Directors of the Manager and shall exclude such nominee directors of and/or its subsidiaries. In respect of matters in which a Director of the Manager or his associates have an interest, direct or indirect, such interested director will abstain from voting. In such matters, the quorum must comprise majority of the Directors of the Manager and shall exclude such interested Directors. The Manager and its associates are entitled to receive notice of, attend and vote or be counted in a quorum thereof at any meeting of unitholders convened to approve any matter in which the Manager or any of its associates has a material interest. 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 ee for and on behalf of Reit with a related party of the Manager, it shall be obliged to consult with a reputable law firm (acceptable to the ee) which shall provide legal advice on the matter. If the said firm is of the opinion that the ee, on behalf of Reit, has a prima facie case against the party allegedly in breach under such agreement, the Manager shall be obliged to take appropriate 39 action in relation to such agreement. The Directors of the Manager (including the Independent Directors) will have a duty to ensure that the Manager so complies. Notwithstanding the foregoing, the Manager shall inform the ee as soon as it becomes aware of any breach of any agreement entered into by the ee for and on behalf of Reit with a related party of the Manager and the ee may take such action as it deem 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 ee s right to take such action as it deems fit against such related party. Reit s properties are located in the Pan-Asian region and its strategy is to acquire serviced residences or rental housing properties located in the Pan- Asian region that are generating revenue and are yield accretive. owns and manages serviced residences and rental housing properties in Europe, the Pan-Asian region and the Gulf region. Potential conflicts of interest between and Reit may arise in respect of the serviced residence industry in the Pan-Asian region, where Reit s properties are located and where Reit s regional investment strategy is to acquire serviced residences or rental housing properties located therein. In addition, the CEO of the Manager, Mr Chong Kee Hiong, also holds a concurrent appointment with as their Chief Executive Officer, Real Estate, overseeing its asset management and business development functions. In order to mitigate any conflict of interest between and Reit in the Pan-Asian region, Reit has been granted the right of first refusal by over future sale of properties by or any of its wholly-owned subsidiaries ( entity) that are used, or predominantly used, as serviced residences or rental housing properties in the Pan-Asian region (including those under, Somerset and Citadines brands), and if applicable, the shares or equity interests in single purpose corporations which hold such properties (the Relevant Asset), for so long as the Manager remains the Manager of Reit and and/or any of its related corporations remains a shareholder of the Manager. Where an entity proposes to sell a Relevant Asset to an unrelated third party; or a proposed offer for sale of a Relevant Asset is made to an entity, shall, grant to the ee the first right to purchase the Relevant Asset for the benefit of Reit. Furthermore, the interests of are aligned with that of Reit as it and its related corporation hold approximately 47 percent of the issued units in Reit. Risk Assessment and Management Effective risk management is a fundamental part of Reit s business strategy. Reit operates within the overall guidelines and specific parameters set by the Board. Each transaction is comprehensively analysed to understand the risk involved. The Manager has determined that significant risk for Reit will most likely arise when making property investment decisions. Accordingly, the Manager has established procedures to be followed when making decisions. In accordance with this policy, the Board required comprehensive due diligence to be carried out in relation to the proposed investment, and a suitable determination is made as to whether the anticipated return on investment is appropriate, having regard to the level of risk. In addition, the Board required that each major proposal submitted to the Board for decision is accompanied by a risk assessment and, where required, management s proposed mitigation strategies. The Board will meet quarterly (or more often, if necessary) and will review the financial performance of the Manager and Reit against a previously

22 40 41 Corporate Governance approved budget. The Board will also review the business risks of Reit, examine liability management and will act upon any comments from the auditors of Reit. The Manager has appointed experienced and well-qualified management personnel to handle its day-to-day operations as well as those of Reit. In assessing business risks, the Board will consider the economic environment and risks relevant to the property industry. It reviews management reports and feasibility studies on individual development projects prior to approving major transactions. The management meets regularly to review the operations of Reit and discuss any disclosure issues. Dealings in Securities The Manager has voluntarily issued guidelines to its Directors and employees as well as some executives of which prohibit them from dealing in Reit units while in possession of material unpublished price-sensitive information and during the two weeks before and up to (and including) the time of the announcement of Reit s quarterly results and one month before and up to (and including) the time of the announcement of Reit s full year results. Under these guidelines, Directors and employees as well as some executives of have been directed to refrain from dealing in Reit units on shortterm considerations. They are also made aware of the applicability of the insider trading laws at all times. In addition, the Manager has given an undertaking to the Monetary Authority of Singapore that it will announce to the SGX-ST the particulars of its holdings in the units and any changes thereto within two business days after the date on which it acquires or disposes of any Reit units, as the case may be. The Manager has also undertaken that it will not deal in the Reit units during the period commencing one month before the public announcement of Reit s annual and semi-annual results and (where applicable) property valuations and ending on the date of announcement of the relevant results or, as the case may be, property valuations, to SGX-ST. As for Reit s first and third quarter s results, the Manager has undertaken that it will not deal in the units of Reit during the two-week period before the public announcement of Reit s first and third quarter s results, and where applicable, property valuations and ending on the date of announcement of the relevant results or, as the case may be, property valuations to SGX-ST. All dealings in Reit units by Directors of the Manager will be announced via SGXNet. Whistle-Blowing The Audit Committee has reviewed the procedures in place to ensure that employees of the Manager and Reit are provided with well defined and accessible channels to report on suspected fraud, corruption, dishonest practices or other similar matters relating to Reit and the Manager, and for the independent investigation of any reports by employees and appropriate follow up action. The aim of the whistle-blowing policy is to encourage the reporting of such matters in good faith, with the confidence that employees making such reports will be treated fairly, and to the extent possible, be protected from reprisal. Human Capital (continued) At Reit, we are committed to creating an environment that nurtures the talents of our people to achieve their full potential through avenues of growth. At Reit, we are committed to creating an environment that nurtures the talents of our people to achieve their full potential through avenues of growth. Management Limited (ARTML), the manager of Reit, as well as International Management (AIM), the serviced residence management arm of The Limited (), have benefited greatly from tapping on s in-house hospitality training centre Centre for Excellence (ACE), which was officially opened on 20 June The opening was officiated by Dr Ng Eng Hen, Minister for Education and Second Minister for Defence. ACE has about 50 full-time and part-time trainers in 22 countries across Asia Pacific, Europe and the Gulf region. Of these trainers, about 30 are based overseas. ACE s facilities in Singapore cover about 12,000 square metres of indoor and outdoor learning space. There are 15 training rooms including seminar rooms, computer training lab, breakout rooms, videoconferencing room, resource room as well as open space for interactive and outdoor learning. To illustrate our commitment to develop our staff, Reit had set aside 3 percent of payroll for staff training and development in ACE offers a wide range of courses and more than 650 staff from Reit s properties underwent special development courses organized by ACE in 2008, ranging from safety, customer relations and housekeeping operational courses such as Occupational First Aid, Service Recovery and Housekeeping Inspection courses to supervisory and team bonding courses such as The Supervisor and Team Building courses. These programmes not only aim to equip our staff with basic operational skills to deliver superior services, but also to arm them with management and leadership skills and competencies which will remain relevant for their future. Through these programmes, Reit strives to groom our employees to be future leaders to lead and manage our serviced residences in the Pan-Asian region. Moving forward, ARTML and AIM will continue to work closely with ACE to develop our human capital further.

23 42 43 Board of Directors Mr Lim Jit Poh Non-Executive Chairman (since 20 January 2006) Mr Lim is the Chairman of ComfortDelGro Corporation Limited, the world s second largest land transport group, the lead independent director of Kim Eng Holdings Limited and several other public-listed companies, as well as director of several unlisted companies under the ownerships of Temasek Holdings Pte Ltd and the Singapore Labour Foundation. Over the preceding three years, Mr Lim was previously on the boards of China Aviation Oil (Singapore) Corporation Ltd, Sky China Petroleum Services Ltd, The Limited (), China Sun Bio-chem Technology Company Ltd, SHC Capital Limited, International Factors (Singapore) Ltd, KS Energy Services Limited and Inchem Holdings International Limited. In addition, he is also a trustee of the Singapore National Employers Federation. Mr Lim has been recognised with several awards from the Government of Singapore and the National Trades Union Congress. In 2006, he was also one of the recipients of the Distinguished Science Alumni Award from the National University of Singapore. A former top civil servant and Fulbright scholar, Mr Lim holds a Bachelor of Science degree with honours in Physics from the University of Singapore, and a Master of Education degree from the University of Oregon, United States. 2. Mr Liew Mun Leong Non-Executive Deputy Chairman (since 20 January 2006) Mr Liew is President and CEO of CapitaLand. He joined the Pidemco Land Board as Director on 1 January Pidemco Land merged with DBS Land to form CapitaLand in November Mr Liew continued to serve on the CapitaLand Board and was last re-elected as Director at CapitaLand s General Meeting on 27 April He also serves on CapitaLand s Investment Committee, Nominating Committee, Corporate Disclosure Committee and Finance and Budget Committee. Mr Liew is Chairman of CapitaLand Residential Singapore Pte Ltd, CapitaLand China Holdings Pte Ltd, CapitaLand Commercial Limited, CapitaLand Retail Limited, CapitaLand Financial Limited and CapitaLand ILEC Pte. Ltd. He is Deputy Chairman of The Limited () as well as the Deputy Chairman of CapitaMall Management Limited (the manager of CapitaMall listed on SGX-ST), CapitaCommercial Management Limited (the manager of CapitaCommercial listed on the SGX-ST) and CapitaRetail China Management Limited (the manager of CapitaRetail China listed on the SGX-ST). He is a Director of CapitaLand Hope Foundation, the s philanthropic arm. Mr Liew also chairs the Civil Aviation Authority of Singapore. In 2006, Mr Liew was named Outstanding CEO of the Year in the Singapore Business Awards. In 2007, he was conferred the CEO of the Year award (for firms with market value of S$500 million or more) in The Business Times Singapore Corporate Awards. In 2008, Mr Liew was named Asia s Best Executive of 2008 (Singapore) by Asiamoney and Best CEO in Asia (Property) by Institutional Investor. Mr Liew graduated from the University of Singapore with a Civil Engineering degree and is a registered professional civil engineer.

24 Ms Jennie Chua Non-Executive Director (since 2 July 2007) Ms Chua is President & CEO of The Limited (). She joined the Board of on 16 January Ms Chua is a Director of China Fund, the first private equity fund dedicated to investing in serviced residence or rental housing properties across China. Currently, she is a Director of several companies and Boards and serves on Government and Community Services Boards and Committees, both locally and internationally. Ms Chua is Chairman of Sentosa Cove, Raffles Hotel, Old Parliament House, Community Chest, Singapore Film Commission, Khoo Teck Puat Hospital, the International Advisory Council for Tourism, and the Tourism Industry Skills and Training Council. She is 1 st Deputy Chairman of the Singapore International Chamber of Commerce and the Deputy Chairman of CapitaLand ILEC, Temasek Foundation and the Singapore Workforce Development Agency. She sits on the boards of CapitaLand Financial Limited, NYU Tisch School of the Arts Asia and MOH (Ministry of Health) Holdings. She is a member of the Temasek Advisory Panel and the Pro-Enterprise Panel. Ms Chua is on the Board of ees of Nanyang Technological University, Singapore. Ms Chua is a Justice of Peace and Singapore s Non-Resident Ambassador to the Slovak Republic. She has been honoured with three Singapore National Day awards (1984, 2004 and 2008), 25 Stars of Asia 2003, Person of the Year Asia Pacific (Hotel) 2002, National Productivity 2002, Pacific Area Travel Writers Association Hall of Fame 2000, Hotelier of the Year 1999, Woman of the Year 1999, Champion of the Arts 1999 and Independent Hotelier of the World Ms Chua is a graduate from the School of Hotel Administration, Cornell University, New York, USA with a Bachelor of Science degree. 4. Mr S Chandra Das Non-Executive Director (since 20 January 2006) Mr Das is the Managing Director of NUR Investment & Trading Pte Ltd and Singapore s Non-Resident Ambassador to Turkey. He has over 36 years of experience primarily in companies involved in the trading and manufacturing industries. Mr Das served as the Singapore Trade Representative to the USSR from 1970 to 1971, Chairman of the Trade Development Board from 1983 to 1986 and Chairman of NTUC Fairprice Co-operative Ltd from 1993 to Currently, Mr Das holds Directorships in various private and public listed companies. He also serves as Pro-Chancellor of Nanyang Technological University. Mr Das received his Bachelor of Arts degree (with honours) from the University of Singapore in He served as a Member of Parliament in Singapore from 1980 to Mr Das has been conferred numerous awards, such as the President s Medal by the Singapore Australian Business Council in 2000, and the Distinguished Service (Star) Award by National Trades Union Congress in Mr Lui Chong Chee Non-Executive Director (since 1 June 2008) Mr Lui is a Non-Executive Director of the Board. He is the CEO of CapitaLand Financial Limited. He is Chairman of Australand Holdings Limited and a Non-Executive Director of CapitaCommercial Management Limited, CapitaMall Management Limited and CapitaRetail China Management Limited. Mr Lui previously held various positions within the CapitaLand, including Chief Financial Officer of CapitaLand Limited and Chief Executive Officer of CapitaLand Residential Limited. Prior to joining CapitaLand, Mr Lui was the Managing Director of Citigroup Investment Bank (Singapore) Limited. Mr Lui holds a Master of Business Administration in Finance and International Economics as well as a Bachelor of Science in Business Administration (Magna Cum Laude) from New York University, United States. 6. Mr Paul Ma Kah Woh Independent Director (since 20 January 2006) Mr Ma was a Senior Partner of KPMG Singapore, where he was in charge of the Audit & Risk Advisory Practice and Risk Management function for many years until his retirement in September Mr Ma sits on the boards and audit committees of several companies, including Mapletree Investment Pte Ltd, a Temasek-owned holding company involved in real estate development and management, real estate investment products, and provision of assets, property, lease and development management and property-related capital management services; Mapletree Logistics Management Limited, the manager of the Mapletree Logistics, a logistics REIT listed in Singapore; Hwa Hong Corporation Limited, a listed company which is principally involved in investment holding and general insurance; and SMRT Corporation Limited, a listed company which is principally involved in rapid transit services and bus and taxi operations in Singapore. Mr Ma is a Fellow of the Institute of Chartered Accountants in England and Wales, and a Member of the Institute of Certified Public Accountants of Singapore. He has worked in England, the United States and Singapore. 7. Mr David Schaefer Independent Director (since 20 January 2006) Mr Schaefer is the Managing Director, Head-Asia/ Pacific of Citi Property Investors. He has been active in real estate and hotel transactions in the Asia Pacific region for over 19 years as both a principal and investment banker. Prior to joining Citi in February 2005, he was formerly Executive Director and Head of Property- Asia for the Macquarie Bank, and Chairman of Macquarie Asia Property Advisers, the senior advisor to the Schroder Asian Properties L.P. real estate fund. Mr Schaefer was formerly a Director of the Macquarie Central Office CR-REIT, listed on the Korean Stock Exchange. Prior to joining Macquarie, he was a Partner and Executive Chairman of the Southeast Asian affiliate of Choice Hotels International in Singapore, and a Partner and Chief Executive of Quality Hotels (New Zealand) Limited. Mr Schaefer was a Director of The Limited () from 2002 to Mr Schaefer holds a Bachelor of Arts degree and Master of Business Administration from Cornell University, United States. He is currently a member of the Advisory Board of the Program in Real Estate at Cornell University. 8. Mr Ku Moon Lun Independent Director (since 20 January 2006) Mr Ku has more than 35 years of experience in the real estate industry. He was the Executive Director of Davis Langdon and Seah International, a property consultant firm, until end of 2005 where he was responsible for formulating the policies and steering the direction of the DLS group of companies. He was also the Chairman of the board of directors of Davis Langdon and Seah Hong Kong Limited from 1995 to Mr Ku was previously the Chairman of Premas Hong Kong Limited, a facilities management company, from 2000 to He was also the Chairman of icfox International, an information technology company, from 2000 to Currently, Mr Ku is an Independent Non-Executive Director of Lai Fung Holdings Limited and Kerry Properties Limited, both of which are listed on the Stock Exchange of Hong Kong. He is a member of the Hospital Governing Committee of Tuen Mun Hospital, Hong Kong Hospital Authority. Mr Ku is a fellow of the Hong Kong Institute of Surveyors. 9. Mr Giam Chin Jeremy Giam Independent Director (since 23 March 2007) Mr Giam is a Senior Partner of the law firm of Wee Swee Teow & Co. He joined the Singapore legal service in 1967 and was appointed magistrate (1967 to 1970). He was a former President of the Law Society of Singapore (1987 to 1989). Mr Giam was appointed Senior Counsel in He has served as arbitrator and counsel in many arbitral and court proceedings and is active in the commercial field holding directorships and appointments in various private and public listed companies and institutions. Mr Giam is Singapore s Ambassador (Non- Resident) to Peru and High Commissioner (Non- Resident) to Ghana.

25 46 47 The Manager MR CHONG KEE HIONG Chief Executive Officer Mr Chong is the Chief Executive Officer of Management Limited (ARTML), the manager of ( Reit). He is responsible for spearheading the overall strategic planning, business, investment and operational strategies for Reit. Mr Chong was a key driver in the successful listing of Reit on the Mainboard of the Singapore Exchange Securities Trading Limited (SGX-ST) in March 2006 and has been leading the management of Reit since. Mr Chong is concurrently Chief Executive Officer of Real Estate at The Limited (). Prior to this, he was the Chief Financial Officer of Raffles Holdings Limited, a member of the CapitaLand. Mr Chong holds a Bachelor of Accountancy from the National University of Singapore and is a member of the Institute of Certified Public Accountants of Singapore. Mr Chong serves as a member of the Government Parliamentary Committee for Finance and Trade and Industry Resource Panel. He is a member of the Audit Committee of Sentosa Development Corporation and also the Treasurer and General Committee member of The Orchid Country Club. 2. MS NG LAI LENG Deputy Chief Executive Officer Ms Ng was appointed Deputy Chief Executive Officer at ARTML in April As Deputy Chief Executive Officer, she assists the Chief Executive Officer to oversee the affairs of Reit, including business development, asset management and finance. Ms Ng is concurrently the Chief Corporate Officer of. Ms Ng s career spans more than 20 years in the area of finance, audit, human resources, business development and corporate secretariat. Prior to joining, Ms Ng was the Chief Financial Officer and Company Secretary of Raffles Holdings Limited, a public listed company whose principal activities were in the ownership, development and management of hotels and resorts. Ms Ng holds a Bachelor of Accountancy (Honours) from National University of Singapore. She is a Fellow of the Institute of Certified Public Accountants of Singapore as well as Fellow of the Certified Public Accountants Australia. 3. MS KANG SIEW FONG Vice President, Finance Ms Kang heads the finance team at ARTML and is responsible for its performance management and reporting functions. Ms Kang has more than 18 years experience in the finance profession. Prior to joining ARTML, Ms Kang was with for more than 12 years, holding various positions including Vice President, Finance and Vice President, Business Development and Planning. She was responsible for all aspects of s financial management and accounting, including preparation of the group consolidated accounts and quarterly reporting of financial results to SGX-ST, co-ordinating with external auditors, and ensuring compliance with statutory reporting requirements and financial reporting standards. Ms Kang was involved in mergers and acquisitions activities at, and the formulation and implementation of its financial policies and practices, budgeting and internal controls. She was also a member of the team responsible for the listing of Reit. Ms Kang graduated from the National University of Singapore with a Bachelor of Accountancy degree. 4. MR WONG PENG YEONG Vice President, Business Development and Asset Management Mr Wong joined ARTML in January 2009 and heads the business development and asset management team. Prior to joining ARTML, Mr Wong was the Vice President for Business Development and Asset Management for the China Fund (ACF) based in Shanghai. He was responsible for the implementation of the expansion plan and sourcing of new investment deals for the Fund. ACF is a US$500 million closed-end private equity fund set up in 2007 with the objective of investing in serviced residence projects in China. Mr Wong began his career in the real estate industry, where he spent more than 10 years in various senior positions in business development. Prior to joining, Mr Wong was with International Enterprise Singapore as the Centre Director for South China based in Guangzhou and later, the Centre Director of GCC Regions based in Dubai. Mr Wong graduated from the National University of Singapore with a Bachelor of Science (Building) Honours degree. 5. MS GOH LILIAN Director, Investor Relations Ms Goh heads the investor relations function at ARTML, and is responsible for building and maintaining relations with Reit s unitholders, potential investors and analysts. Prior to joining ARTML, Ms Goh was s Investor Relations Manager. She was a member of the team which was responsible for the listing of Reit on the SGX-ST. She managed the investor and media communications programme to educate and inform shareholders about the preferential offering for Reit units. Ms Goh holds a Master of Business Administration degree and an Honours degree in Communication Studies, both from Singapore s Nanyang Technological University.

26 Ng Ee San Manager, Finance 2. Goh Yung Chin Manager, Finance 3. Daphne Lim Manager, Investor Relations 4. Magdeline Loke Assistant Vice President, Business Development and Asset Management 5. Florian Linder Manager, Business Development and Asset Management 6. Su Chen Executive, Administration 7. David Leow Director, Business Development and Asset Management 8. Chia Yee Sin Accountant, Finance 9. Tan Shu Xiang Executive, Business Development and Asset Management 10. Amy Ng Assistant Manager, Finance 11. Chua Chi Boon Director, Business Development and Asset Management 12. Koo Shian Associate Accountant, Finance 13. Ng Kai Wee Director, Business Development and Asset Management (Not in picture)

27 50 51 Portfolio Overview Overall, our portfolio provides income stability as there is limited reliance on any particular market or group of clients. Competitive Strengths of Our Properties Reit s 18 serviced residences and 19 rental housing properties are conveniently located within or in close proximity to central business districts in 11 cities across Australia, China, Indonesia, Japan, The Philippines, Singapore and Vietnam. Every property is well-served by public transportation and is within walking distance to amenities such as restaurants and supermarkets. Three serviced residences are managed under the brand while 15 are managed under the Somerset brand. Of the 19 rental housing properties that Reit owns, 18 in Japan are managed under a mixture of four local rental housing brands (namely Asyl Court, Gala, Joy City and Zesty), and one in Indonesia is unbranded. In November 2008, Reit announced the acquisition of the 90-unit Somerset West Lake, Hanoi in Vietnam. Following the completion of this acquisition, Reit s portfolio will expand to 3,642 apartment units in 38 properties. All serviced residences and rental housing properties are managed by The Limited s () serviced residence management companies. is the largest international serviced residence owner-operator and has a 25-year industry track record and brands that enjoy recognition worldwide. Due to this strong branding, our properties are recognised globally and are a desired choice of accommodation for business travellers seeking accommodation for extended stays. Properties in Reit s portfolio which won awards in 2008 include Somerset Gordon Heights in Melbourne, Australia which was named the winner in the New Tourism Development Accommodation category at the Hotel, Motel & Accommodation Association (HMAA) of Victoria Awards for Excellence. In China, Beijing won the 2007 China Hotel Starlight Awards in The Best International Apartment Type Hotel of China and Somerset Grand Fortune Garden, Beijing was awarded Best Apartment Hotel Brand at the inaugural 2008 Asia Hotel Leaders Summit. In Vietnam, Somerset Grand Hanoi, Somerset Ho Chi Minh City and Somerset Chancellor Court, Ho Chi Minh City received the Guide Award for excellent performance in hospitality for Our flexible business model provides short to long-term accommodation; guests stay in an Reit property for an average of seven months. Longer-term stays, particularly in rental housing properties which have average leases of two years, provide greater income stability to the portfolio. Conversely, shorter-term stays give potential for organic growth and provide higher operating margins. By offering a combination of serviced residence and rental housing units, Reit is also able to cater to a wide range of budgets and customer needs. Various apartment sizes are available to guests as the portfolio comprises studio, one- to three-bedroom and penthouse apartment units. Our guest base comprises mainly corporate travellers relocating to a city (including expatriate families), or visiting the city on a business trip or for a project. With serviced residences and rental housing properties located in seven Pan-Asian countries, Reit is the most geographicallydiversified Singapore-listed REIT. Overall, our portfolio provides income stability as there is limited reliance on any particular market or group of clients. Key Statistics of Our Portfolio* Portfolio Occupancy % Portfolio Average Daily Rates 2007 S$160 Portfolio Revenue Per Available Unit 2007 S$ % 2008 S$ S$ % +10% * Portfolio Occupancy, Portfolio Average Daily Rates and Portfolio Revenue Per Available Unit information do not include statistics of the 18 rental housing properties in Tokyo.

28 52 53 Number of Apartment Units Portfolio Apartment Rental Income for 2008 by Length of Stay ,552 2,792 79% % Serviced Rental Housing Less than 1 month 30% 1 to 6 months 23% 6 to 12 months 14% More than 12 months 33% ,461 2,701 78% % Portfolio Apartment Rental Income for 2008 by Market Segment Business Trips 43% Top 10 Corporate Clients of Reit By Apartment Rental Income for the year ended 31 December 2008 Corporate Client Industry Embassy of an OECD country Government and NGOs 5.9% Toyota Motor Corporation Consumers 2.3% Percentage of Total Apartment Rental Income Project 15% Relocation 29% Family / Leisure 8% Others 5% Conoco Phillips Energy and Utilities 2.3% Accenture Financial Institutions 2.2% Standard Chartered Bank Financial Institutions 1.3% Samsung Consumers 1.2% Shell Energy and Utilities 0.8% Chevron Energy and Utilities 0.8% PETRONAS Energy and Utilities 0.6% Schlumberger Energy and Utilities 0.6% Total 18.0% Portfolio Apartment Rental Income for 2008 by Industry Industrial 13% Energy and Utilities 12% Financial Institutions 10% Consumers 7% Government and NGOs 7% IT 6% Manufacturing 5% Media and Telecomms 4% Real estate / Lodging 3% Healthcare 1% Others 32%

29 54 55 Operations Review Singapore S$403.5m Reit s share of property values (Including Fixed Assets) 2 properties 341 Apartment Units S$36.7m Total Revenue (2008) S$19.7m Total Gross Profit (2008) 2008 Review Reit owns a total of 341 units in two serviced residences in Singapore, both of which were acquired when the REIT was listed in March The 146-unit Somerset Grand Cairnhill is along Cairnhill Road, in the heart of Singapore s prime shopping and entertainment belt. The 32-storey leasehold property comprises 24 storeys of serviced residences and an 8-storey podium with 830 car park lots, and retail and commercial outlets. Recreational facilities include a swimming pool, jacuzzi, barbeque area, squash court, tennis court and fully-equipped gymnasium. Both Singapore properties performed well in 2008 despite the global economic slowdown, enjoying high occupancies of about 90 percent and RevPAU growth of 24 percent to S$249. The property is easily accessible to numerous facilities and services, and is within walking distance to major shopping centres like Paragon Shopping Centre, Ngee Ann City and The Heeren, as well as the Somerset Mass Rapid Transit (MRT) Station. Somerset Liang Court is on River Valley Road, next to the bustling Clarke Quay dining and entertainment hub. The 26-storey leasehold property, which adjoins the Liang Court Shopping Centre, has 195 serviced residence units ranging from one- to four-bedroom apartments and a penthouse. Guests are able to use recreational facilities like a swimming pool, gymnasium, sauna and steam room, jacuzzi and a residents lounge. The property is a five-minute walk to the Clarke Quay MRT Station, and is easily accessible to Orchard Road and the Central Business District. Both Singapore properties performed well in 2008 despite the global economic slowdown, enjoying high occupancies and RevPAU growth of 24 percent to S$249. Most guests staying at the two Singapore properties are long-stay guests, staying for periods exceeding one month. Singapore s economy remained resilient in the first half of 2008, despite the slowdown in major external economies and concerns with inflation. However as the downturn worsened in the second half of 2008, with several countries already in recession, consumer and business confidence indicators across major economies weakened. The contraction in global demand has hit Singapore s trade volumes, including visitor arrivals. According to the Ministry of Trade & Industry (MTI), 2008 real GDP growth is 1.1 percent. Outlook Business Travel and MICE (BTMICE) remain the key drivers of foreign arrivals in Singapore. In the immediate term, companies are expected to trim discretionary expenditure, which will see scaling back in the corporate travel and meeting segments, while attendance building at exhibitions and conferences will become more challenging. However, beyond the immediate horizon, the prospects are more sanguine. Singapore Tourism Board and its industry partners still see good potential in the bidding for future business events scheduled to be held in 2010 and beyond. The completion of the two integrated resorts in Singapore by 2010 is expected to enhance Singapore s appeal as a BTMICE hub in the region. Singapore continues to be a preferred destination for foreign investments as the World Bank again named Singapore the easiest place in the world to do business. This is the third consecutive year which Singapore has won this recognition, beating 181 other countries. According to MTI, the Singapore economy is expected to contract by 2 to 5 percent in Gross Rental Income S$ 000 FY 2008 FY 2007 Somerset Grand Cairnhill, Singapore 16,746 14,208 Somerset Liang Court, Singapore 16,680 13,088 Revenue Per Available Unit (S$) FY 2008 FY 2007 Somerset Grand Cairnhill, Singapore Somerset Liang Court, Singapore

30 56 57 Operations Review Australia 2 properties 127 Apartment Units Gross Rental Income S$ 000 FY 2008 FY 2007 Somerset Gordon Heights, Melbourne 2,377 1,148 Somerset St Georges Terrace, Perth 2,842 - S$40.6m Reit s share of property values (Including Fixed Assets) S$6.5m Total Revenue (2008) S$1.9m Total Gross Profit (2008) Revenue Per Available Unit (S$) FY 2008 FY 2007 Somerset Gordon Heights, Melbourne Somerset St Georges Terrace, Perth 166 N.A Review In June 2008, Reit acquired an 84-unit serviced residence property in Perth for a total purchase price of S$36.1 million. The property, purchased from third party owners, was re-branded Somerset St Georges Terrace, following the acquisition. The nine-storey freehold building is located along the prime St Georges Terrace in the heart of Perth s central business district. The property is a short five-minute walk from the Perth Convention and Exhibition Centre and the well-known Hay Street and Murray Street pedestrian shopping malls and is near Subiaco Oval, the largest stadium in the state of Western Australia. The Perth Railway Station is a 15-minute walk away while the Perth domestic and international airports are a 20-minute drive away. In Melbourne, Reit owns Somerset Gordon Heights, a five-storey freehold property comprising 43 fully-furnished studio, one and two bedroom apartments. Located along Little Bourke Street in Melbourne s city centre, the serviced residence is a short five-minute walk from the Bourke Street tram stop and is surrounded by theatres, numerous restaurants, cafés, sporting venues, galleries, department stores, parks and government buildings such as the State Houses of Parliament. Our Australia properties achieved a RevPAU of S$153 in 2008, compared to S$116 in 2007 due to better operating performance of Somerset Gordon Heights and contribution from Somerset St Georges Terrace. Guests at Somerset Gordon Heights enjoy the use of facilities at Somerset Gordon Place, a serviced residence managed by The Limited (), which is located just a stone s throw away. These facilities include a gymnasium, outdoor heated swimming pool, restaurant and café. Our Australia properties achieved a RevPAU of S$153 in 2008, compared to S$116 in 2007 due to better operating performance of Somerset Gordon Heights and contribution from Somerset St Georges Terrace. Most guests staying at both Somerset Gordon Heights and Somerset St Georges Terrace are on short business trips. For Somerset Gordon Heights, business travelers are attracted to Melbourne s popularity as a Meetings, Incentive Travel, Conventions and Exhibitions (MICE) destination while for Somerset St Georges Terrace, business travelers are mainly from the energy and mining companies active in Western Australia. Outlook Chinese and Indian demand for raw materials will continue to drive interest in Australia s mining sector in Jones Lang LaSalle expects Perth s industrial sector to remain buoyant into Melbourne is well-positioned to continue attracting MICE and leisure travelers as it continues to host major sporting events like the Australian Open Tennis Championships and the Formula One Australian Grand Prix. This will be enhanced when the new 5,000-seat Melbourne Convention Centre opens in Being fully integrated with the existing Melbourne Exhibition Centre, it will be Australia s largest combined convention and exhibition facility. The EIU expects a combination of weaker domestic demand and problems in the global economy to lead to a slowdown in Australian real GDP growth to 0.5 percent in 2009.

31 58 59 Operations Review China S$389.8m Reit s share of property values (Including Fixed Assets) 4 properties 743 Apartment Units S$47.4m Total Revenue (2008) S$21.9m Total Gross Profit (2008) 2008 Review Reit owns four serviced residences with a total of 743 units in China across Beijing, Shanghai and Tianjin. Beijing and Somerset Grand Fortune Garden, Beijing are centrally located in Beijing s prime Chaoyang District, in the heart of the business, residential and retail areas. The Beijing The 310-unit Beijing is within walking distance to the China World Trade Centre, the well-known New Silk Street Complex (Xiushuijie) and Guo Mao subway station. Beijing benefited from the Beijing Olympics held in August According to official figures, Beijing recorded 6.52 million tourist arrivals, including 382,000 from abroad, during the Olympic Games. As a result of the boost in demand, Beijing enjoyed occupancy of above 80 percent with average daily rates reaching more than three times the usual rates during the Olympic Games period. Somerset Grand Fortune Garden Somerset Grand Fortune Garden, Beijing is close to embassies, international schools as well as the Dong Zhi Men subway station, and is an ideal choice for travelers accompanied by their families. Reit owns 81 units of the 221- unit serviced residence while the remaining units are owned by individual third party owners. Guests at Somerset Grand Fortune Garden are mainly long stay customers, thus contributing to the stable performance of the property. Somerset Xu Hui The 167-unit, Somerset Xu Hui, Shanghai is located in the exclusive Xu Hui residential district and is within walking distance to the business area of Huaihaizhong Road and the Shan Xi Nan Road subway station. The restriction of VISA approvals to China in the lead up to the Beijing Olympics had a negative impact on the occupancy of Somerset Xu Hui as the property has a higher proportion of short stay business than other properties in China. However, occupancy levels picked up in the last quarter following the lifting of the VISA restrictions. Somerset Olympic ToweR Somerset Olympic Tower, Tianjin is located in the heart of Heping District, Tianjin s prime commercial, entertainment and residential area. The 30 storey mixed development has achieved a reputation as a premium serviced residence in Tianjin and offers guest facilities like a gymnasium, residents lounge, indoor swimming pool and children s playroom. Majority of our guests staying in the property are on relocation basis, with most of them staying for more than six months, contributing to the income stability of this property. The second phase of reconfiguring six two-bedroom units into nine onebedroom units was completed in February and total inventory increased by three units to 185 units. This completes the asset enhancement works at Somerset Olympic Tower. The first phase was completed in October 2007 when 20 new two-bedroom units were created from reconfiguring 10 duplex units. Tianjin, a city which the Chinese Central government has earmarked as the country s next growth engine, continued to buzz with activity as a result of greater connectivity with Beijing and increased international exposure. The opening of the high-speed railway line to Beijing reduced traveling time to a mere 30 minutes. Airbus commenced operations in the city in September, with target delivery of the first aircraft from its new plant in Tianjin by the summer of The Sino-Singapore Eco City project also kicked off its first phase in September. Overall Revenue from the four China properties increased by 17 percent in 2008 compared to 2007, mainly due to higher rates achieved for the Olympics for Beijing. Overall RevPAU achieved was S$161, a 11 percent increase compared to In October, Somerset Grand Fortune Garden, Beijing received the Best Apartment Hotel Brand and Best Foreign Hotel Manager awards at the 2008 Asia Hotel Leaders Summit Awards ceremony. At the 2007 China Hotel Starlight Awards held in March 2008, Beijing was voted The Best International Apartment Type Hotel of China.

32 60 61 Operations Review Revenue from the four China properties increased by 17 percent in 2008 compared to 2007, mainly due to higher rates achieved for the Olympics for Beijing. Gross Rental Income S$ 000 FY 2008 FY 2007 Outlook The outlook for China in 2009 is less rosy compared to 2008 whose economic growth ended at 9.9 percent, after growth slowed in the fourth quarter EIU also expects that real GDP growth will slow to 6 percent in China unveiled a fiscal-stimulus package worth US$586 billion to fund a wide range of social welfare and infrastructure projects through 2009 to end-2010 which is expected to offset lower demand from overseas markets. Nevertheless, China overtook Germany to become the world s third largest economy in 2008 and by 2011, it is expected to replace Japan as second largest, according to EIU forecasts. Therefore, China s role as a formidable player and one of the world s fastest growing economies cannot be underestimated. China attracted US$85 billion of inward foreign direct investment in The EIU projects that the flow of inward foreign direct investment will remain strong at US$87.6 billion in Beijing 24,717 17,904 Somerset Grand Fortune Garden, Beijing 4,988 4,875 Somerset Xu Hui, Shanghai 6,616 6,494 Somerset Olympic Tower, Tianjin 9,869 10,064 Revenue Per Available Unit (S$) FY 2008 FY 2007 Beijing Somerset Grand Fortune Garden, Beijing Somerset Xu Hui, Shanghai Somerset Olympic Tower, Tianjin

33 62 63 Operations Review Indonesia S$81.0m Reit s share of property values (Including Fixed Assets) 3 properties 652 Apartment Units S$20.1m Total Revenue (2008) S$7.1m Total Gross Profit (2008) 2008 Review Reit owns a total of 652 units in three properties in Indonesia, namely Jakarta, Somerset Grand Citra, Jakarta and Country Woods, Jakarta. The 198-unit Jakarta and the 203-unit Somerset Grand Citra are serviced residences located in Central Jakarta s Golden Triangle business district, and are a stone s throw away from the World Trade Centre, the Jakarta Convention Centre and various embassies. In 2008, RevPAU for our Indonesian properties was S$74, a 3 percent increase against S$72 for Country Woods, is a 20-hectare rental housing property in the heart of South Jakarta which offers 137 apartment units, 36 townhouses and 78 bungalows. The property is close to international schools like the British International School and German International School, as well as shopping complexes like the Bintaro Plaza and Pondok Indah Mall. In 2008, RevPAU for our Indonesian properties was S$74, a 3 percent increase against S$72 for Despite the launch of several new branded serviced residences in Jakarta in 2008, and Somerset Grand Citra being affected by construction activities on an adjacent site, Reit s two serviced residences managed to maintain healthy average occupancy rates. Jakarta and Somerset Grand Citra cater mainly to long stay clients from the oil and banking sectors, non-government organisations (NGOs) and embassies. Outlook The EIU projects that Indonesia s economy will slow down in The EIU has cut its 2009 real GDP growth forecast to 5.7 percent. The Indonesia Investment Coordinating Board expects investors to delay their investment realisations which were approved in In response to the weakening global demand, the Indonesian government is preparing special incentives to maintain the country s export growth. Knight Frank expects further increases to the total rental apartment stock in Jakarta with the completion of condominiums offered as serviced apartments into the rental market. Meanwhile, demand is projected to remain flat and anticipated to give further downward pressure on the overall occupancy and rental rates. Gross Rental Income S$ 000 FY 2008 FY 2007 Jakarta 7,142 6,403 Somerset Grand Citra, Jakarta 7,091 7,568 Country Woods, Jakarta 3,856 3,736 Revenue Per Available Unit (S$) FY 2008 FY 2007 Jakarta Somerset Grand Citra, Jakarta Country Woods, Jakarta 43 41

34 64 65 Operations Review Japan S$316.4m Reit s share of property values (Including Fixed Assets) 20 properties 652 Apartment Units S$17.1m Total Revenue (2008) S$10.3m Total Gross Profit (2008) 2008 Review Reit s portfolio has grown steadily since it first established presence in Japan in October With 20 properties totaling 652 apartments, including two serviced residences and 18 rental housing properties, 2008 represents the first full year of contributions from all 20 properties. The two serviced residences command superb locations in Minato ward, central Tokyo, which is well-known as a prime business and embassy district, popular with expatriates. Somerset Roppongi is situated in the lively Roppongi district, a short five-minute stroll from Roppongi and Roppongi I-chome subway stations. It features 64 fully furnished studio, one and two-bedroom apartments, complete with a fitness centre. A 24-hour convenience store and café are located just next to the residence. Somerset Azabu East is located in Despite the challenging environment posed by the financial market turmoil which has resulted in lower occupancy levels, our serviced residence portfolio achieved a RevPAU of S$150 in the up-market Azabu district, with easy access to Akabanebashi, Kamiyacho and Shibakoen subway stations. Made up of 79 fully furnished studio and one-bedroom apartments, it also offers an indoor swimming pool, roof top barbeque terrace and fitness centre. The 18 rental housing properties, totaling 509 apartments, comprise studio and one-bedroom apartments. Managed under the local rental housing brands of Asyl Court, Gala, Joy City and Zesty, these properties are centrally located in eight wards in Tokyo, namely Bunkyo, Meguro, Nakano, Nerima, Setagaya, Shinjuku, Suginami, and Taito. Offering convenient access to subway stations, supermarkets, restaurants and other amenities, they tap into the market of Japanese singles and couples for extended stay accommodation. Despite the challenging environment posed by the financial market turmoil which has resulted in lower occupancy levels, our serviced residence portfolio achieved a RevPAU of S$150 in The shorter stay profile of the serviced residence properties is balanced by our rental housing portfolio which enjoys average lease tenures of two years and an average occupancy of 90 percent across the 18 properties, boosting the income stability of the Japan portfolio. The rental housing portfolio has also increased the profitability of the Japan portfolio attributable to the high gross operating profit margins of the 18 properties. Outlook Japan has not been immune from the global financial turmoil and outlook remains uncertain. Based on EIU s estimates, real GDP growth is forecast to be -3.8 percent and -0.1 percent in 2009 and 2010 respectively. Inward foreign direct investment is expected to moderate to US$8.9 billion in Outlook for export growth in 2009 will likely continue to trend lower, as key markets in the US, EU and China falter. To bolster the economy, fiscal stimulus packages totaling JPY 57.7 trillion (US$ 638 billion) were unveiled in 2008, including measures such as ensuring adequate financing for small and medium businesses and tax relief for households. On 1 October 2008, Japan Tourism Agency was formed with the goal of attracting 10 million inbound visitors by 2010, and developing Japan into a major international conventions centre.

35 66 67 Gross Rental Income S$ 000 FY 2008 FY 2007 Somerset Azabu East, Tokyo 4,484 3,212 Somerset Roppongi, Tokyo 3,725 2,977 Asyl Court Nakano Sakaue, Tokyo 1,114 N.A. Gala Hachimanyama I, Tokyo 1,136 N.A. Gala Hachimanyama II, Tokyo 217 N.A. Joy City Koishikawa Shokubutsuen, Tokyo 553 N.A. Joy City Kuramae, Tokyo 1,028 N.A. Zesty Akebonobashi, Tokyo 268 N.A. Zesty Gotokuji, Tokyo 241 N.A. Zesty Higashi Shinjuku, Tokyo 327 N.A. Zesty Kagurazaka I, Tokyo 339 N.A. Zesty Kagurazaka II, Tokyo 348 N.A. Zesty Kasugacho, Tokyo 411 N.A. Zesty Koishikawa, Tokyo 215 N.A. Zesty Komazawa Daigaku II, Tokyo 609 N.A. Zesty Nishi Shinjuku III, Tokyo 599 N.A. Zesty Sakura Shinmachi, Tokyo 298 N.A. Zesty Shin Ekoda, Tokyo 256 N.A. Zesty Shoin Jinja, Tokyo 253 N.A. Zesty Shoin Jinja II, Tokyo 327 N.A. Revenue Per Available Unit (S$) FY 2008 FY 2007 Somerset Azabu East, Tokyo Somerset Roppongi, Tokyo Rental Per Square Metre (S$) FY 2008 FY 2007 Asyl Court Nakano Sakaue, Tokyo 57 N.A. Gala Hachimanyama I, Tokyo 45 N.A. Gala Hachimanyama II, Tokyo 45 N.A. Joy City Koishikawa Shokubutsuen, Tokyo 43 N.A. Joy City Kuramae, Tokyo 48 N.A. Zesty Akebonobashi, Tokyo 64 N.A. Zesty Gotokuji, Tokyo 53 N.A. Zesty Higashi Shinjuku, Tokyo 56 N.A. Zesty Kagurazaka I, Tokyo 58 N.A. Zesty Kagurazaka II, Tokyo 58 N.A. Zesty Kasugacho, Tokyo 41 N.A. Zesty Koishikawa, Tokyo 50 N.A. Zesty Komazawa Daigaku II, Tokyo 48 N.A. Zesty Nishi Shinjuku III, Tokyo 52 N.A. Zesty Sakura Shinmachi, Tokyo 41 N.A. Zesty Shin Ekoda, Tokyo 42 N.A. Zesty Shoin Jinja, Tokyo 47 N.A. Zesty Shoin Jinja II, Tokyo 48 N.A.

36 68 69 Philippines S$120.4m Reit s share of property values (Including Fixed Assets) 3 properties 515 Apartment Units S$28.3m Total Revenue (2008) S$11.8m Total Gross Profit (2008) 2008 Review Reit has three properties in The Philippines, all of which are in Makati City s central business district. Makati is a 21-storey serviced residence comprising 306 studios, and one- to three-bedroom apartments, offering spacious living, designer fittings, fully-equipped kitchens, home entertainment systems and high speed broadband internet access. Located in Glorietta 4, the serviced residence is directly linked to the entertainment facilities, shops and restaurants in the premier Ayala Center shopping mall and is close to the headquarters of numerous multinational corporations and financial institutions. Somerset Millennium, Makati is a 31-storey serviced residence with two basement levels, a penthouse and roof-top helipad. Reit owns 69 units of the 138-unit property whilst the remaining 69 units are leased from unrelated third parties. Somerset Salcedo, Makati is a 30-storey serviced residence with 180 car park lots, and offers guests facilities such as a business centre, fully-equipped fitness centre and an indoor heated swimming pool. 71 out of 150 units in the property are owned by Reit while the remaining units are owned by unrelated third parties. Both freehold properties are within walking distance to Metro Rail Transit (MRT) stations, and comprise studio, one and twobedroom apartments. The Philippine properties achieved a RevPAU of S$134 in 2008, which is 4 percent higher as compared to In 2008, Makati s 306 apartments gymnasium and residence lounge were refurbished with new furnishings such as carpets, lightings, beds, sofas and LCD TVs. Renovation works were also done on its business office units. Enhancement and urading works will be carried out on public areas such as the corridors and lobbies in 1 st quarter Philippines achieved a GDP growth of 4.5 percent in Remittances from Filipinos overseas and the Offshore and Outsourcing (O&O) industry continued to be the significant contributors to the country s economic growth. According to Everest Research Institute, Philippines has become the world s second largest destination geography, outside North America, for O&O services. Investment advisory research firm Tholons identified Makati as one of the best cities in terms of global outsourcing. The Philippine properties achieved a RevPAU of S$134 in 2008, which is higher by 4 percent compared to Outlook According to EIU, the pace of economic growth for Philippines is expected to shrink by 0.5 percent in Falling global food and oil prices, together with sluggish domestic demand, will see inflation slow from 9.3 percent in 2008 to 1.4 percent in The government will continue to focus on the programmes for fiscal stabilisation to improve the government debt to GDP ratio, which is forecast to fall from 55.8 percent in 2008 to 45.5 percent by In addition, large remittances from Filipinos working overseas should ensure that the current account remains in surplus for These inflows, together with the progress on the fiscal front, provide support for the peso. In a report by Jones Lang LaSalle on the competitiveness of the Philippine O&O industry, it is mentioned that with the current economic climate in the US, demand for outsourcing services in India has weakened and more companies are looking into migrating part of their work to the Philippines and other competitors, thereby presenting more opportunities. The Philippines Business Processing Association remains committed to the goal of achieving ten percent global market share by Philippines advantages in securing business from the still expanding O&O industry will continue to contribute to rental accommodation demand. Gross Rental Income S$ 000 FY 2008 FY 2007 Makati 18,541 15,775 Somerset Millennium, Makati 5,791 5,522 Somerset Salcedo, Makati 1 1, Revenue Per Available Unit (S$) FY 2008 FY 2007 Makati Somerset Millennium, Makati Somerset Salcedo, Makati This property is leased to Somerset Salcedo Makati, Inc a subsidiary of the on a fixed rental basis

37 70 71 Vietnam S$158.5m Reit s share of property values (Including Fixed Assets) 3 properties 522 Apartment Units S$36.3m Total Revenue (2008) S$22.8m Total Gross Profit (2008) 2008 Review Reit owns three properties in Vietnam with a total of 522 units one in Hanoi and two in Ho Chi Minh City. The 185-unit Somerset Grand Hanoi is located in the heart of Hanoi s central business district and is one of the tallest serviced residences in Hanoi, offering panoramic views of the city. The property offers oneto three-bedroom apartments in one tower, office space in another tower, and houses a convention centre and a shopping mall in the podium on its lower floor. Both properties in Ho Chi Minh City are strategically located in District 1, the prime commercial, diplomatic and major shopping district, and are therefore within walking distance to many business centres, consulates, shopping malls, supermarkets, international schools and attractions. The first of the two Somerset Ho Chi Minh City, is situated along Nguyen Binh Khiem Street and offers a resort-style retreat in the city centre with 165 fully-furnished two- to four- bedroom apartments in three 12-storey buildings. The second property, Somerset Chancellor Court has 172 fully-furnished studios, one- to three-bedroom apartments with an open kitchen concept, contemporary western style décor and large balcony. The property also has an annex with retail and office space. In July 2008, The Guide Magazine, a leading travel and hospitality magazine in Vietnam, conferred the Guide Award to Reit s Vietnam properties for excellent performance in hospitality for For 2008, the properties averaged a RevPAU growth of 7 percent to reach S$144. A limited supply in good quality serviced residences in both cities enabled us to maintain high average occupancies at all three properties. Despite double-digit inflation which led to a higher interest rate in 2008, inward foreign direct investment still reached US$ 6.5 billion for the whole year, which was 6.6 percent higher than that in This sustained foreign interest in Vietnam, together with a limitation of good quality serviced residences, continued to drive demand for Reit s serviced residences in Hanoi and Ho Chi Minh City. Corporate clients continued to make up the majority proportion of business. On 5 November 2008, Reit announced the acquisition of the 90-unit Somerset Westlake. The property is centrally located in Hanoi s scenic West Lake area, and is close to international schools, and the shopping and entertainment districts. The property is also only a short walk to majestic pagodas and palaces such as the One Pillar Pagoda, Ho Chi Minh Museum and Bach Thao Park. For 2008, the properties averaged a RevPAU growth of 7 percent to reach S$144. Outlook According to Vietnam s Ministry of Planning and Investment, GDP growth target for 2009 is about 6.5%. In view of the slowdown in the developed world, most notably in the US, which is an important trading partner, Vietnam s export growth will also moderate in To encourage sustained economic growth, the government has pledged to lower interest rates in 2009 to free up credit but without allowing inflation to flare up. Economic stimulus package amounting to US$1 billion will also be used to fund various measures aimed at preventing an economic slowdown. Economic growth will continue to be driven by the industrial sector. There will be a deepening of the industrial base, with the country becoming less reliant on the textile and garment sector. GDP expansion will also be fuelled by services growth, particularly in the tourism-related and financial service sectors. Vietnam s membership of the World Trade Organisation (WTO) will continue to help improve the business operating environment. Even though foreign direct investments will most likely decrease in , foreign investors are still confident about Vietnam s long term prospects. Gross Rental Income S$ 000 FY 2008 FY 2007 Somerset Grand Hanoi 14,499 13,688 Somerset Chancellor Court, Ho Chi Minh City 11,127 7,402 Somerset Ho Chi Minh City 8,673 8,387 Revenue Per Available Unit (S$) FY 2008 FY 2007 Somerset Grand Hanoi Somerset Chancellor Court, Ho Chi Minh City Somerset Ho Chi Minh City