ABOUT ASCOTT RESIDENCE TRUST

Transcription

1 THE ART EDGE Ascott Residence Trust Annual Report 2006

2 ABOUT ASCOTT RESIDENCE TRUST Ascott Residence Trust (ART) is the world s first Pan-Asian serviced residence real estate investment trust, and was established with the objective of investing 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. ART is the world s first Pan-Asian real estate investment trust focused purely on a new asset class serviced residences. What makes ART a compelling investment proposition can be captured in three key words: Stability, Diversity and Growth. Comprising an initial asset portfolio of 12 strategically located properties in seven Pan-Asian cities, ART was listed with an asset size of about S$856 million. ART s asset portfolio has since expanded to S$927 million [1], comprising 14 properties with 2,304 units in nine cities in Singapore, China, Indonesia, Japan, The Philippines and Vietnam. Launched in March 2006, ART is managed by the Ascott Residence Trust Management Limited, a wholly-owned subsidiary of The Ascott Group Limited (Ascott). Listed on the mainboard of the Singapore Exchange, Ascott is the largest international serviced residence owner-operator outside the United States, with about 19,000 serviced residence units in key cities of Asia Pacific, Europe and the Gulf region. Ascott boasts a 23-year industry track record and serviced residence brands that enjoy recognition worldwide. [1] As at 31 December OUR VISION To be a premier serviced residence real estate investment trust with a quality portfolio in key Pan-Asian cities. OUR MISSION To deliver sustainable and growing total returns to unitholders. CONTENTS About Ascott Residence Trust Our Vision, Our Mission 01 Introduction/Contents 02 Stability 04 Diversity 06 Growth 08 Pan-Asian Portfolio 10 Letter to Unitholders 14 Financial Highlights 16 Milestones 17 Residents Corner 18 Value Creation 22 The Trust Structure 23 Corporate Governance 30 Board of Directors 33 The Manager 36 Human Capital 37 Portfolio Focus Portfolio Overview Operations Review 47 Financial Review 49 Investor Relations 51 Directory Listing 53 Financial Statements 98 Additional Information Corporate Information THE ART EDGE 1

3 STABILITY Long-stay guests form the majority of ART s client base, giving it the compelling competitive advantage of income stability. 2 THE ART EDGE 3

4 DIVERSITY ART s presence in key gateway cities of Singapore, China, Indonesia, Japan, The Philippines and Vietnam enables investors to enjoy the benefits of geographical diversification across emerging and stable markets. 4 THE ART EDGE 5

5 GROWTH ART s multi-pronged growth strategy is supported by a strong acquisition growth pipeline. Eight acquisitions have already been announced since listing. 6 THE ART EDGE 7

6 BEIJING TIANJIN TOKYO SHANGHAI HANOI HO CHI MINH CITY MANILA SINGAPORE JAKARTA Total portfolio value: S$1.2 billion Number of serviced residence units: 2,904 Number of properties: 18 Presence: 10 Pan-Asian cities in 7 countries MELBOURNE PAN-ASIAN PORTFOLIO As at 31 December 2006, ART s portfolio comprised 2,304 serviced residence units in 14 properties, strategically located in nine Pan-Asian cities in six countries. Its portfolio value stood at S$927 million. In the last quarter of 2006 and early 2007, ART announced additional acquisitions in Australia, Japan, The Philippines and Vietnam, bringing the total number of serviced residence units to 2,904 in 18 properties. These acquisitions will be completed within the first half of Somerset Grand Cairnhill, Singapore 2 Somerset Liang Court Property, Singapore 3 Somerset Gordon Heights, Melbourne* 4 Ascott Beijing 5 Somerset Grand Fortune Garden Property, Beijing 6 Somerset Xu Hui, Shanghai 7 Somerset Olympic Tower Property, Tianjin 8 Ascott Jakarta 9 Somerset Grand Citra, Jakarta 10 Country Woods, Jakarta 11 Somerset Azabu East, Tokyo* 12 Somerset Roppongi, Tokyo # 13 Ascott Makati* 14 Somerset Millennium, Makati 15 Somerset Salcedo Property, Makati 16 Somerset Grand Hanoi 17 Somerset Chancellor Court, Ho Chi Minh City # 18 Somerset Ho Chi Minh City * The acquisition of these properties will be completed by the first half of # The acquisition of the remaining 60 percent and 40.2 percent effective interests in Somerset Roppongi, Tokyo and Somerset Chancellor Court, Ho Chi Minh City respectively will be completed by the first half of As at 22 February THE ART EDGE 9

7 LETTER TO UNITHOLDERS DEAR UNITHOLDERS We are proud to have launched Ascott Residence Trust (ART) on the main board of the Singapore Exchange on 31 March As the world s first and only Pan-Asian serviced residence real estate investment trust, our intent is to offer unitholders a unique asset class which provides growing and sustainable distributions as well as geographical diversification across stable and high-growth markets. Our first year was a resounding success as we expanded our asset portfolio value with two new properties to S$927 million and increased our market capitalisation by 158 percent within nine months to reach S$798 million at the close of the financial period. STRONG FINANCIAL PERFORMANCE Our strong performance during our first year of listing has enabled us to deliver an annualised distribution per unit (DPU) of 6.37 cents, four percent above the forecast of 6.11 cents. We have achieved our objective of delivering stable and growing distributions in order to provide our unitholders with a competitive rate of return for their investment. Our portfolio has performed well during the year, achieving an overall Revenue Per Available Unit (RevPAU) of S$121 in From left: Lim Jit Poh, Chairman and Chong Kee Hiong, Chief Executive Officer. 2006, a growth of five percent compared to pro forma RevPAU growth was driven mainly by an increase in average daily rates and supported by high occupancies across most markets. The performance of our Singapore and Philippine properties was the strongest, with double-digit RevPAU growth for both countries. Our Vietnam properties also performed well with eight percent RevPAU growth. The robust 25 percent RevPAU growth in The Philippines was driven by healthy increases in both occupancies and average daily rates at our properties in Makati City s central business district. Revenue was boosted by demand for longstays from new corporate accounts, as well as demand for short-stays from business travellers. An increase in Meetings, Incentive Travel, Conventions and Exhibitions (M.I.C.E.) travel and a limited supply of good quality accommodation in Singapore enabled us to maximise RevPAU through responsive yield management. Our two Singapore properties performed well, with RevPAU growth of 18 percent over pro forma 2005 mainly driven by high occupancies above 85 percent and increases in average daily rates. RevPAU for Vietnam also improved, with eight percent growth over pro forma Favourable market conditions and high occupancies in Vietnam allowed us to increase average daily rates at our two properties in Hanoi and Ho Chi Minh City upon renewal of leases by long-stay tenants. In China, there was a slight dip in overall RevPAU, due mainly to a change in the business mix for the Beijing properties. In the last quarter of 2006, we embarked on reconfiguration work to increase the number of onebedroom apartments in Ascott Beijing to cater to high demand for such apartments. The dip in revenue for our initial China properties was partially offset by record-high revenue at Somerset Olympic Tower Property, Tianjin, which was acquired in October RevPAU for the Indonesia properties fell slightly, as occupancy at Ascott Jakarta was affected by a major road closure as a result of massive construction work carried out by the local government. However, traffic flow is expected to improve from 2007 when these works are completed. The overall performance of the Indonesia properties was balanced by healthy occupancies and average daily rates at Somerset Grand Citra, Jakarta. Japan, a new addition to our portfolio in October 2006, performed well with an increase in RevPAU compared to pro forma ACQUISITION GROWTH STRATEGY We were listed with an initial portfolio value of S$856 million, comprising 12 serviced residences with 2,068 units strategically located in seven key gateway cities in five countries, namely Singapore, China, Indonesia, The Philippines and Vietnam. Since then, we have been on an acquisition trail. In late 2006, we completed the acquisitions of Somerset Olympic Tower Property, Tianjin in China and an effective 40 percent interest in Somerset Roppongi, Tokyo. These grew our portfolio to 2,304 units in 14 properties, with a presence in nine cities and six countries, and an asset size of S$927 million (as at 31 December 2006). Another six acquisitions in Australia, Japan, The Philippines and Vietnam were announced in the last quarter of 2006 and early Upon completion within the first half of 2007, they will increase our portfolio to 2,904 units in 18 properties, with a presence in ten cities and seven countries, and an asset size of about S$1.2 billion (please see table below for details of the transactions). These acquisitions clearly demonstrate our strategy of aggressively growing our portfolio through the purchase of quality, yield-accretive serviced residence properties across ART S ACQUISITIONS No. of Appraised Effective Property Name Units Value (S$m) Interest (%) Announced Completion Acquired From Somerset Olympic Tower July 2006 October 2006 Realand Pte Ltd and Consco Property, Tianjin (Tianjin) Investment Ltd 10.0 July 2006 February 2007 Faithful Properties Co. Ltd and Tianjin International Engineering Co. Somerset Roppongi, Tokyo September 2006 October 2006 The Ascott Holdings Limited 60.0 January 2007 April 2007 Mitsubishi Estate Co., Ltd and MEC Roppongi Funding Corporation Oakwood Premier Ayala Center November 2006 March 2007 Ayala Hotels Inc. and (to be re-branded Ascott Makati) Ocmador Philippines, B.V. Shoan Heights Serviced Apartment, December 2006 April 2007 Tiow Hoe Goh, Kooi Lean Goh Melbourne (to be re-branded and Chew Por Chan Somerset Gordon Heights, Melbourne) Somerset Chancellor Court, December 2006 January 2007 Coral Holdings Limited and Ho Chi Minh City Sparkle Limited 40.2 January 2007 April 2007 The Ascott Holdings Limited Somerset Azabu East, Tokyo January 2007 April 2007 Mitsubishi Estate Co., Ltd Acquisitions completed in 2006 Acquisitions to be completed in THE ART EDGE 11

8 LETTER TO UNITHOLDERS (Cont d) the Pan-Asian region. They underscore our ability to execute the expansion growth strategies articulated at the time of listing, namely buying assets owned by The Ascott Group (Ascott), assets managed but not owned by Ascott, as well as assets managed and owned by third parties. Our potential for strong growth through the established pipeline of serviced residence assets from Ascott is clearly shown with our purchase of Ascott s effective 40 percent interest in Somerset Roppongi, Tokyo and its effective 40.2 percent interest in Somerset Chancellor Court, Ho Chi Minh City. We also tapped on our relationship with Ascott to acquire properties managed by Ascott but owned by third parties, namely Somerset Olympic Tower Property, Tianjin in China, an effective 26.8 percent interest in Somerset Chancellor Court, Ho Chi Minh City in Vietnam, as well as Somerset Azabu East, Tokyo and the remaining effective 60 percent interest in Somerset Roppongi, Tokyo in Japan. Our acquisition pipeline of serviced residence assets is not limited to properties which are owned or managed by Ascott. We have secured attractive and yield-accretive properties from unrelated third-party owners in the open market. This comprised the acquisition of Oakwood Premier Ayala Center a 306-unit prime serviced residence owned by Ayala Hotels Inc. and Ocmador Philippines BV and currently managed by Oakwood which will be re-branded Ascott Makati in March The other acquisition is Shoan Heights Serviced Apartment, Melbourne, a 43-unit freehold serviced residence managed and owned by unrelated third parties. The latter marks our entry into an established serviced residence market and creates a platform for us to develop a larger presence in Australia. With serviced residences spanning 10 Pan-Asian cities in seven countries, our presence in both stable and emerging markets allows us to diversify our revenue across geographical and economic cycles. ACTIVE ASSET MANAGEMENT To maximise the financial performance of ART s property portfolio, we have embarked on asset enhancement programmes at some of our properties. In September 2006, we completed the renovation and reconfiguration of 15,000 square feet (sqf) of space in the clubhouse in Somerset Xu Hui, Shanghai to create an additional 9,600 sqf of commercial space which has been leased out. We also reconfigured some larger apartments into smaller higher-yielding one-bedroom apartments so as to improve rental yields and to cater to the increasing demand for smaller apartments in certain cities. At Ascott Beijing, work to reconfigure 35 of the larger apartments to 70 smaller apartments started in the last quarter of 2006 and is expected to complete by mid We also started reconfiguration work on 10 penthouse duplex units in Somerset Olympic Tower Property, Tianjin in early Such reconfiguration works will enable us to improve the rental yields at these properties. CAPITAL AND RISK MANAGEMENT STRATEGY We employ appropriate capital financing and hedging strategies to manage interest rates and foreign exchange risks. As far as possible, we adopt a natural hedge strategy by borrowing in the same currency as the underlying asset. A combination of debt and equity is used to fund future acquisitions and asset enhancement projects. INCREASING UNITHOLDERS VALUE The first group of ART units were offered exclusively to existing shareholders of Ascott through a preferential offering in March The price of S$0.68 per unit offered Ascott s shareholders an attractive annualised distribution yield of 9 percent. On our debut on 31 March 2006, ART units closed at S$1.15 a unit, 69 percent higher than the preferential offering sale price. Since then, our unit price has performed extremely well, appreciating 135 percent from listing to close at S$1.60 on 29 December 2006 (the last trading day in 2006). Our market capitalisation has also grown significantly in 2006 to reach S$798 million, an increase of 158 percent from the preferential offering sale price of S$0.68. For the period 31 March 2006 (the date of listing) to 31 December 2006, our net distributable income of S$22.7 million was eight percent higher than forecast. Our annualised distribution per unit (DPU) of 6.37 cents exceeded the forecast DPU of 6.11 cents set out in our Prospectus by four percent. Unitholders who held ART units from initial listing would have enjoyed a strong total return of 139 percent in 2006, comprising capital appreciation of 135 percent and a distribution yield of four percent. INCREASED FREE FLOAT AND BROADER INVESTOR BASE To increase ART s free float, we issued 44 million new units at S$1.10 per unit via an accelerated private placement on 25 September 2006 in our first equity fund raising exercise. The S$48.4 million raised was used to fund the acquisitions of Somerset Olympic Tower Property, Tianjin and the effective 40 percent interest in Somerset Roppongi, Tokyo. The accelerated placement was received positively, demonstrating investors confidence in our ability to execute a strategy of increasing portfolio size and geographical diversification. The new units were allocated to more than 15 institutional investors from Asia, Australia and Europe. This allowed us to broaden our investor base to include more quality institutional investors and improved the free float of the trust from 23 percent to 30 percent. On 30 January 2007, we announced that we would be seeking unitholders approval at an Extraordinary General Meeting to be held on 23 February for the proposed issue of new units in ART to existing unitholders and new investors. This will raise gross proceeds of about S$199.0 million to part finance and re-finance the acquisition of five properties in Australia, Japan, The Philippines and Vietnam. The proposed equity fund raising will increase ART s free float from the current 30 percent to an estimated 38 percent, and will broaden our investor base to include more retail and institutional investors. POSITIVE OUTLOOK OF THE PAN-ASIAN SERVICED RESIDENCE MARKET The outlook of the Pan-Asian serviced residence market remains positive, driven by a limited supply of and strong demand for good quality and well-managed serviced residences in the region. Demand for serviced residences will continue to grow as the increasing levels of inward foreign direct investment into Asia will bring more business travellers, who have a preference for comfortable home-style serviced accommodation, into the region. Major events and conventions will continue to boost demand for good quality serviced residences. In Singapore and Manila, an influx of business travellers is expected due to the boom of the M.I.C.E. business in these cities. Vietnam is also fast becoming a popular host of major international conferences, such as the 14th Asia-Pacific Economic Cooperation (APEC) Economic Leaders Meeting which was held in Hanoi in November Demand in Melbourne, the latest city to be added to our portfolio and widely regarded as Australia s sporting capital, is also consistently high due to the numerous sporting events held there. FURTHER GROWTH We are constantly on the lookout for opportunities to expand our portfolio with yield-accretive acquisitions of quality serviced residences. Going forward, we will continue to execute our growth strategy of investing in quality yieldaccretive assets with growth potential in the Pan-Asian region. Our focus will be on locations where Ascott has an established presence, and in countries that ART already has a presence, such as China, Japan and Vietnam. However, we will also explore investment opportunities in other countries in the Pan-Asian region, such as South Korea and Malaysia. Our target is to reach a portfolio value of S$2 billion by the end of ACKNOWLEDGEMENTS It has been a strong first year for ART. We would like to thank our serviced residence guests, unitholders, business partners, staff and Board of Directors for their support and contributions to our performance and look forward to a continued strong performance in Lim Jit Poh Chairman 22 February 2007 Chong Kee Hiong Chief Executive Officer 12 THE ART EDGE 13

9 Actual Pro forma Financial Ratios as at 31 December Net Asset Value Per Unit S$1.33 S$1.31 Borrowings to Total Assets 27.2% 27.9% Interest Cover (5) 5.2 times 4.0 times Management Expense Ratio (6) 0.6% 0.5% Others as at 31 December 2006 Market Capitalisation S$797.8m (7) No. of Units in Issue 498.6m (5) Refers to EBITDA (earnings before net interest expense, tax, depreciation and amortisation) over net interest expense for the period from 1 March 2006 to 31 December (6) Refers to the expenses of ART (excluding direct expenses, unrealised foreign exchange loss, net interest expense, change in fair value of financial derivative and serviced residence properties, income tax expense) for the period from 1 March 2006 to 31 December 2006 over net assets. (7) Based on the closing unit price of S$1.60 on 29 December FINANCIAL HIGHLIGHTS Actual Pro forma to to (1) (2) Variance ART Unit Price (Daily Closing) Since Listing (31 March 2006 to 31 December 2006) Unit Price ($) Gross Revenue S$89.8m S$84.3m 7% Gross Profit S$42.6m S$39.0m 9% Unitholders Distribution S$24.6m S$22.4m 10% For the Financial Period 31 March 2006 to 31 December 2006 Actual Forecast (3) Variance Gross Revenue S$81.4m S$78.9m 3% Gross Profit S$38.5m S$36.1m 7% Unitholders Distribution S$22.7m S$21.0m 8% Distribution Per Unit (DPU) % Annualised DPU % Annualised Distribution Yield (4) 3.98% 3.82% 4% Actual Pro forma Balance Sheet as at 31 December Total Assets S$1,077.7m S$959.9m Unitholders Funds S$661.8m S$593.7m Total Borrowings S$293.5m S$267.4m (1) ART was established on 19 January 2006 but the acquisition of the real properties was completed on 1 March Hence the income recorded relate only to the 10-month period from 1 March 2006 to 31 December ART had no income from 19 January 2006 to 28 February (2) The comparative numbers for 2005 were extracted from the pro forma financial information which was disclosed in the Prospectus and pro-rated equally for 10 months to correspond to the period from 1 March 2005 to 31 December Trustee s pro forma fee was pro-rated from 19 January 2005 to 31 December (3) The forecast was extracted from the prospectus and was based on assumptions set out in the prospectus. As the forecast stated was from 1 January 2006 to 31 December 2006, the Manager had used its best estimate to present the pro-rated forecast for the period 31 March 2006 to 31 December (4) Based on the closing unit price of S$1.60 on 29 December < Preferential offering at S$ MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Source: Bloomberg Comparative Price Trends (31 March 2006 to 31 December 2006) % Change in Unit Price Rebased to MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Source: Bloomberg ART FTSE MACQUARIE S-REIT INDEX STRAITS TIMES INDEX 14 THE ART EDGE 15

10 Unit price appreciated 135 percent since listing Market capitalisation rose 158 percent to S$798 million Portfolio value increased from S$856 million to S$927 million Number of properties increased from 12 to 14 Number of serviced residence units grew from 2,068 to 2,304 MILESTONES RESIDENTS CORNER 20 JANUARY 1 The Ascott Group (Ascott) announced the establishment of ART, the first Pan-Asian serviced residence real estate investment trust, with an initial portfolio of S$856 million comprising 12 serviced residences strategically located in the key gateway cities of Asia. 9 MARCH Preferential offering of ART units to Ascott shareholders was launched at an issue price of S$0.68 per unit with an attractive distribution yield of 9 percent. 31 MARCH 2 ART made its debut listing on the mainboard of the Singapore Exchange (SGX). A First Day of Trading Ceremony was held at the SGX with Ms Ho Ching, Executive Director & CEO of Temasek Holdings, as the guest of honour. ART s unit price closed at S$1.15, 69 percent above its issue price. 24 JULY ART announced its first acquisition, the 172-unit Somerset Olympic Tower Property, Tianjin, for US$47.25 million (S$75.6 million). 4 SEPTEMBER ART announced its second acquisition of an effective 40 percent interest in the 64-unit Somerset Roppongi, Tokyo for 1.48 billion (S$20.7 million). With this acquisition, ART became the first Singapore REIT to invest in Japan. 25 SEPTEMBER ART s first private placement of 44 million new units at an issue price of S$1.10 per unit was 1.5 times subscribed, raising its free float from 23 percent to 30 percent. The new units were allocated to over 15 institutional investors from Asia, Australia and Europe. The proceeds raised were used to fund its acquisitions in Tianjin and Tokyo. 23 NOVEMBER 3 ART announced its acquisition of the 306-unit Oakwood Premier Ayala Center in The Philippines for US$53.0 million (S$84.4 million). The property will be re-branded as Ascott Makati upon completion of the acquisition in March DECEMBER ART entered the Australian market with the acquisition of Shoan Heights Serviced Apartment, Melbourne for A$11.6 million (S$13.9 million). The 43-unit property will be re-branded as Somerset Gordon Heights, Melbourne upon completion of the acquisition in April DECEMBER 4 ART expanded its portfolio in Vietnam with the acquisition of an effective 26.8 percent interest in the 172-unit Somerset Chancellor Court, Ho Chi Minh City for US$12.1 million (S$18.6 million). The acquisition was completed in January ART s properties are managed by The Ascott Group s (Ascott) serviced residence management companies. Leveraging on Ascott s strong service culture as well as its emphasis on going the extra mile and providing service from the heart, our properties have delivered the promise of a memorable stay experience for our guests. Here is the feedback from some satisfied guests. My family and I experienced the best service during our stay at Somerset Millennium, Makati. The staff were friendly and helpful and we were definitely spoilt by them. I will certainly be recommending your property to my family and friends. Thank you for making our vacation in The Philippines one of the best. Mr Audie Ilejay from the United States I had a very pleasant two-week stay at the Somerset Millennium, Makati. The staff were really friendly. As I would be back in Manila every three months, I would definitely return to stay in the Somerset Millennium, Makati again. Mr Phil Moran from the United States Arriving in a cold and wet Shanghai had put a damper on our trip. But checking into the cosy Somerset Xu Hui, Shanghai made our trip very enjoyable and comfortable. The staff were friendly and efficient. They were prompt in answering to our requests even in the wee hours of the morning and attended to our needs personally. When we checked out, we were concerned that the taxi could not accommodate our luggage. One of the staff was quick to respond by helping us pack all our luggage into the vehicle. The most pleasant part of our stay was getting to read our local newspaper at breakfast every morning while we were in a foreign country. Mrs Angi Gan from Singapore I would like to thank the residence manager of Somerset Grand Fortune Garden Property, Beijing for delivering excellent service. He offered me his laptop as I had forgotten to bring mine for the trip and helped set up the Internet connection as well. After this experience, I will definitely make Somerset Grand Fortune Garden Property, Beijing my choice of stay for future trips to Beijing. Dr Angelia Chua from Singapore 16 THE ART EDGE 17

11 VALUE CREATION ART s principal investment strategy is to invest primarily in real estate and real estate related assets which are incomeproducing and which are used, or predominantly used, as serviced residences or rental housing properties in the Pan-Asian region. Our investment strategy is regional in scope and will be adhered to for at least three years from listing. Any investments 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 Residence Management Companies (SRMCs) to develop corresponding 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. ART 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 ART s portfolio depends primarily on the maximisation of RevPAU. Yield management 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 revenue growth opportunities; and determining the appropriate balance between higher yielding short-stays 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 Ascott Group s (Ascott) larger network so as to improve ART s revenue and profitability. To strengthen brand equity and increase brand recognition and loyalty, the SRMCs have introduced several marketing initiatives such as 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 crossselling 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 without compromising our quality of services, we have, together with the SRMCs, identified several areas for cost management. These include: direct marketing of serviced residences, retail and office spaces to prospective 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 Ascott s portfolio to achieve economies of scale. Continually maintain quality of portfolio We strive to enhance our assets through upgrading, refurbishment and reconfiguration of our properties to achieve a higher level of guest satisfaction as well as to improve our properties performance and competitiveness. We may also reposition our properties by adjusting marketing strategies and pricing to better match the demand characteristics of particular market segments. GROWTH BY ACQUISITION ART will explore investment opportunities in the Pan-Asian region, driven by a limited supply of and strong demand for good quality and well-managed serviced residences in the region. Demand for serviced residences 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 accommodation, into the region. We have developed a multi-pronged acquisition strategy to aggressively grow our portfolio size and maintain geographical diversification. Acquisition of Pan-Asian assets owned wholly or in part by Ascott We have in place a right of first refusal granted to ART by Ascott over future sale of properties by any of its entities that are used, or predominantly used, as serviced residences or as rental housing properties in the Pan-Asian region. As our Sponsor, Ascott will support ART in our acquisition strategy. For assets with good long-term income and growth potential but which are currently unavailable for acquisition by ART for reasons such as timing, regulatory or contractual limitations, Ascott has the capacity to consider acquiring (the remaining interest that it does not currently own), incubating and enhancing such assets itself with the view of subsequently offering the assets to ART at the appropriate time. Acquisition of Ascott s properties to be developed in future Ascott has a stable of Pan-Asian properties currently under development. When completed, they would form the pipeline for potential acquisition by ART as serviced residences or rental housing properties. Acquisition of serviced residence assets currently managed and/or leased but not owned by Ascott In addition to managing ART s portfolio, Ascott also operates and/or manages properties owned by third parties. These assets are complementary to ART s current portfolio and where appropriate opportunities arise, we will leverage on its knowledge and network of relationships to acquire these assets and offer the owners an exit mechanism to monetise their asset holdings. 18 THE ART EDGE 19

12 VALUE CREATION (Cont d) Acquisition of suitable properties from third parties ART will also pursue acquisitions of attractive, yield-accretive assets from third parties. These opportunities are available due to: the rapid growth in demand for extended-stay accommodation in the Pan-Asian region, particularly in rapidly growing markets such as China and Vietnam; our ability and experience to identify and adapt welllocated residential buildings into serviced residences and rental housing properties. The barriers to entry in the serviced residence sector predominantly come through expertise in identifying suitable properties, efficient management systems and more importantly, brand equity a key criteria which the SRMCs possess; and 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 ART. In evaluating acquisition opportunities, ART 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 and public transportation. Local market characteristics We will acquire properties in markets with strong economic growth and expanding cross-border business investments and trade. Key considerations are the levels of inward foreign direct investment, business travel (including intrabusiness travel) 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 renovations or other enhancements 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 must achieve stable operating statistics and cash flows before we would consider acquiring such 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 investment in other properties that meet ART 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 Funds 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 ratio; secure diversified funding sources from both financial institutions and capital markets 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 ratio We aim to maintain gearing comfortably within borrowing limits allowed under the Property Funds 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 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. The public debt market could also be accessed for refinancing existing bank loans as it enables us to secure longer term funding options in a more cost efficient manner. 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 ART s ongoing cost of debt remains competitive. To reduce ART s exposure to interest rate volatility, we have locked in the interest rates at a fixed rate basis for five years of ART s initial indebtedness. For future borrowings to finance acquisitions and capital expenditure, we will adopt an appropriate fixed versus floating interest rate profile. Manage exposure to foreign exchange As most of ART 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. 20 THE ART EDGE 21

13 THE TRUST STRUCTURE CORPORATE GOVERNANCE Holding of units Unitholders Distributions As the Manager of ART, Ascott Residence Trust Management Limited (Manager) is committed to the highest standard of corporate governance. The Manager believes that strong and effective corporate governance is essential to protect the best interests of the unitholders of ART (unitholders) as well as being critical to the performance of the Manager. The Manager has put in place a corporate governance structure with clear internal control systems, reporting and responsibility lines, and procedures in line with the revised Code of Governance 2005 (Code) which took effect on 1 January The composition of the Board is determined using the following principles:- (a) the Chairman of the Board should be a non-executive Director of the Manager; (b) the Board should comprise directors with a broad range of commercial experience including expertise in fund management and the property industry; (c) at least one-third of the Board should comprise independent directors; and Manager (Ascott Residence Trust Management Limited) Somerset Liang Court Property, Singapore Serviced Residence Management Services Management services Management fees Net profit Somerset Grand Cairnhill, Singapore Serviced Residence Management Fees Ownership of assets ART Ownership of shares Acts on behalf of unitholders Trustee s fees Dividends Serviced Residence Management Services Property Holding Companies/ Property Companies Serviced Residence Management Companies Trustee (DBS Trustee Limited for unitholders) Serviced Residence Management Fees The Manager also ensures that applicable laws and regulations within the Listing Manual of Singapore Exchange Securities Trading Limited (SGX-ST), the Property Funds Guidelines of the Code of Collective Investment Scheme issued by the Monetary Authority of Singapore (Property Funds Guidelines) and other relevant laws and regulatory requirements are complied with, and that the Manager s obligations under the trust deed entered into by and between DBS Trustee Limited (as Trustee of ART) and the Manager on 19 January 2006 (Trust Deed) are properly and efficiently carried out. The following outlines the main corporate governance practices of the Manager for the financial period ended 31 December 2006:- BOARD OF DIRECTORS The Board of Directors of the Manager (the Board) is responsible for the overall corporate governance, including establishing goals for management and monitoring the achievement of these goals. All Board members participate in matters relating to corporate governance, business operations and risks, and financial performance and the nomination and review of Directors. The Board has established a framework for the management of the Manager, including a system of internal controls and a business risk management process. The Board consists of seven members, three of whom are independent directors and four of whom, being the nominees of The Ascott Group Limited (Ascott), are considered non-independent directors. No Director of the Manager has entered into any service contract directly with ART. (d) the composition will be reviewed regularly to ensure that the Board has the appropriate mix of expertise and experience. To assist in the execution of its responsibilities, the Board has established the Executive Committee, the Audit Committee and the Corporate Disclosure Committee. The Board meets regularly to discuss and review the Manager s key activities, including its business strategies and policies for ART. The Board will also meet 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 ART, significant acquisitions and disposals, financial performance and budget, and announcements of quarterly results. The Board also reviews related party transactions, the risks to the assets of ART and acts upon comments from the auditors. Since ART s listing on the mainboard of the SGX-ST on 31 March 2006, the Board met thrice in A schedule of Board and Board Committees meetings for the year is found on page 29. The positions of Chairman and the Chief Executive Officer of the Manager are held by two individuals to maintain an effective oversight and to ensure a clear division of responsibilities and duties between Chairman and the Chief Executive Officer. 22 THE ART EDGE 23

14 CORPORATE GOVERNANCE (Cont d) Newly appointed Directors of the Manager are given briefings by management on the business activities of ART and its strategic directions. There is also a Getting to Know The Ascott Group programme for all newly appointed Directors. 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 about a week in advance of each meeting to Directors. Additionally, analysts reports on ART are forwarded to the Board from time to time to keep Directors apprised of analysts views on ART s performance. The Board will seek independent professional advice where it deems necessary for the proper and efficient discharge of its duties and responsibilities. The Company Secretary of the Manager will render the necessary assistance to the Board and will ensure that the Board procedures are followed and that applicable laws and regulations are complied with. The Company Secretary attends all Board meetings of the Manager. EXECUTIVE COMMITTEE The Executive Committee operates under delegated authority from the Board. The members of the Executive Committee are: Mr Liew Mun Leong (Chairman) Mr Ong Ah Luan Cameron Mr S Chandra Das 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 ART; (ii) reviewing, endorsing and approving strategic directions and management policies of the Manager in respect of ART; (iii) overseeing operational, procurement, investment and divestment matters within the approved financial limits; and (iv) performing such other functions as varied or delegated by the Board. During the year, one formal Executive Committee meeting was held during the year. In addition, the guidance and views of the Executive Committee were 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. 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 required to be independent directors. The members of the Audit Committee are: Mr Paul Ma Kah Woh (Chairman) Mr S Chandra Das Mr David Schaefer The members of the Audit Committee, collectively, have expertise or experience in financial management and are qualified to discharge the Audit Committee s responsibilities. The Audit Committee has adopted terms of reference to define its scope of authority which include:- (a) reviewing audit reports to ensure that where deficiencies in internal controls have been identified, appropriate and prompt remedial action is taken by the management; (b) monitoring the procedures in place to ensure compliance with applicable legislation, the Listing Manual and the Property Funds Guidelines; (c) reviewing the financial statements and the internal audit reports; (d) reviewing the scope and the results of the audit and its cost effectiveness, and the independence and objectivity of the external auditors at least annually; (e) recommending the appointment and re-appointment of external auditors, and reviewing the adequacy of external audits in respect of cost, scope and performance; and (f) reviewing and/or approving all related party transactions and monitoring the procedures established to regulate related party transactions, including ensuring compliance with the provisions of the Listing Manual relating to interested person transactions (as defined therein) and the provisions of the Property Funds Guidelines relating to interested party transactions (as defined therein) (both such types of transactions constituting Related Party Transactions ). The Manager, being an unlisted, directly wholly owned subsidiary of Ascott, has opted to come under the ambit of Ascott s Whistle Blowing Policy. The Audit Committee of the Manager will however, maintain its independence in making decisions on matters that impact ART such as in situations where allegations are received from complainants affecting ART properties. Such allegations will be referred by Ascott s Audit Committee to (i) the Manager s Audit Committee; and/or (ii) a joint investigation committee comprising members of Ascott s Audit Committee and the Manager s Audit Committee to conduct investigations and implement appropriate courses of action. CORPORATE DISCLOSURE COMMITTEE The Corporate Disclosure Committee operates under the delegated authority of the Board. The members of the Corporate Disclosure Committee are: Mr Lim Jit Poh (Chairman) Mr Ong Ah Luan Cameron Mr S Chandra Das 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 ART (i) complies with all applicable legal and regulatory requirements; and (ii) discloses all appropriate information in a timely manner. The Corporate Disclosure Committee also reviews and approves releases or statements to the public, material information relating to ART and/or the Manager as may be necessary to avoid the establishment of a false market in ART units or which would likely to materially affect the price of ART units. DEALING WITH CONFLICTS OF INTEREST The Manager has instituted the following procedures to deal with conflicts of interest issues:- (a) It will not manage any other real estate investment trust which invests in the same type of properties as ART. (b) All directors and executive officers are employed and remunerated by the Manager, and not by ART. (c) All resolutions in writing of its Directors in relation to matters concerning ART must be approved by a majority of the Directors, including at least one independent Director. (d) At least one-third of the Board shall comprise independent Directors. (e) In respect of matters in which Ascott and/or its subsidiaries have an interest, direct or indirect, any nominees appointed by Ascott and/or its subsidiaries to the Board represent its/their interests will 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 Ascott and/or its subsidiaries. (f) In respect of matters in which a Director of the Manager or his associates have an interest, direct or indirect, such interested director may abstain from voting. In such matters, the quorum must comprise a majority of the Directors of the Manager and shall exclude such interested Directors. (g) The Manager and its associates are entitled to receive notice of, attend at any such meeting and vote or be counted in a quorum thereof at any meeting of unitholders convened to approve any 24 THE ART EDGE 25

15 CORPORATE GOVERNANCE (Cont d) matter in which the Manager or any of its associates has a material interest. (h) If the Manager is required to decide whether or not to take any action against any person in relation to any breach of any agreement entered into by the Trustee for and on behalf of ART with a related party of the Manager, it shall be obliged to consult with a reputable law firm (acceptable to the Trustee) which shall provide legal advice on the matter. If the said law firm is of the opinion that the Trustee, on behalf of ART, has a prima facie case against the party allegedly in breach under such agreement, the Manager shall be obliged to take appropriate action in relation to such agreement. The Directors of the Manager (including the independent Directors) will have a duty to ensure that the Manager so complies. Notwithstanding the foregoing, the Manager shall inform the Trustee as soon as it becomes aware of any breach of any agreement entered into by the Trustee for and on behalf of ART with a related party of the Manager and the Trustee may take such action as it deems necessary to protect the rights of unitholders and/or which is in the interests of unitholders. Any decision by the Manager not to take action against a related party of the Manager shall not constitute a waiver of the Trustee s right to take such action as it deems fit against such related party. The Chief Executive Officer of the Manager, Mr Chong Kee Hiong, also holds a concurrent appointment with Ascott as its Deputy Chief Executive Officer (Finance and Investment), overseeing its finance, strategic planning, asset management, business development, legal and corporate secretarial and investor relations functions. Although Mr Chong oversees the business development teams of the Manager and Ascott, each business development team is distinct and functions separately and independently from the other and acts in the best interests of ART and Ascott respectively. ART s initial 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 yield accretive. Ascott owns and manages serviced residences and rental housing properties in Europe, the Pan-Asian region and the Gulf region. Potential conflicts of interest between Ascott and ART may arise in respect of the serviced residence industry in the Pan-Asian region, where ART s initial properties are located and where ART s regional investment strategy is to acquire serviced residences or rental housing properties located therein. In order to mitigate any conflict of interest between Ascott and ART in the Pan-Asian region, ART has been granted the right of first refusal by Ascott over future sale of properties by any Ascott entity which are either wholly or partly owned by Ascott or any of its subsidiaries (Ascott entity) that are used, or predominantly used, as serviced residences or rental housing properties in the Pan-Asian region (including those under Ascott, 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 ART and Ascott and/or any of its related corporations remains a unitholder. Where an Ascott 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 Ascott entity, Ascott shall, grant to the Trustee the first right to purchase the Relevant Asset for the benefit of ART. Where a property has not generated revenue, Ascott will develop such property until it generates revenue and may then offer the property to ART pursuant to the right of first refusal as described above if the property is yield accretive to the portfolio of ART. Furthermore, the interests of Ascott are aligned with that of ART as it will hold not less than 25.0% of the issued units in ART. DEALING WITH RELATED PARTIES The Manager has established internal control procedures to ensure that all transactions involving DBS Trustee Limited, as the Trustee of ART, 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 Funds 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 Funds 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): (i) equal to or exceeding S$100,000 in value, but below 3 percent of ART s net tangible assets, are subject to review by the Audit Committee at regular intervals; (ii) equal to or exceeding 3 percent but below 5 percent of ART s net tangible assets, are subject to the review and prior approval of the Audit Committee; (iii) equal to or exceeding 5 percent of ART 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 Funds Guidelines, such transactions also require the approval of the unitholders at a specially convened general meeting. If a member of the Audit Committee has an interest in a transaction, he abstains from participating in the review and approval process in relation to that transaction. Further, the Trustee of ART has the ultimate discretion under the Trust Deed to decide whether or not to enter into a Related Party Transaction. If the Trustee is to sign any contract with a related party of the Trustee or the Manager, the Trustee will review the contract to ensure that it complies with the requirements relating to interested party transactions in the Property Funds 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 MAS and the SGX-ST to apply to real estate investment trusts. Details of all Related Party Transactions (equal to or exceeding S$100,000 each in value) entered during the financial year are disclosed on page 100 of this Annual Report. DEALING IN UNITS The Directors and employees of the Manager are prohibited from dealing in ART units:- (a) during the period commencing one month before the public announcement of ART s annual financial results and (where applicable) property valuations, and two weeks before the announcement of ART s first three quarters 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; and (b) at any time while in possession of price sensitive information. 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 ART units, as the case may be. The Manager has also undertaken that it will not deal in the ART units during the period commencing one month before the public announcement of ART 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 ART s first and third quarters results, the Manager has undertaken that it will not deal in the units of ART during the two-week period before the public announcement of ART s first and third quarters 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. 26 THE ART EDGE 27

16 CORPORATE GOVERNANCE (Cont d) BOARD & BOARD COMMITTEES MEETINGS ATTENDANCE Corporate Executive Audit Disclosure Board Members Committee Committee Committee Lim Jit Poh Liew Mun Leong C C All dealings in ART units by Directors of the Manager will be announced via SGXNET. INTERNAL CONTROLS The Manager has put in place a system of internal controls of procedures and processes to safeguard the assets of ART, interests of unitholders, as well as to manage risk. The internal audit function of the Manager is carried out by CapitaLand s Internal Audit Department (CLIA). CLIA plans its internal audit programmes in consultation with, but independent of management. Its internal audit programmes are submitted to the Audit Committee for approval at the beginning of the year. The Board is satisfied that the Manager s internal controls are adequate based on reports from the CLIA team and external auditors. RISK ASSESSMENT AND MANAGEMENT Effective risk management is a fundamental part of ART s business strategy. ART operates within 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 ART will most likely arise when making property investment decisions. Accordingly, the Manager has established procedures to be followed when making such decisions. In accordance with this policy, the Board requires 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 requires that each major proposal submitted to the Board for decision is accompanied by a comprehensive 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 ART against a previously approved budget. The Board will also review the business risks of ART, examine liability management and will act upon any comments from the auditors of ART. The Manager has appointed experienced and well-qualified management personnel to handle its day-to-day operations as well as those of ART. 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 ART and discuss any disclosure issues. COMMUNICATIONS WITH UNITHOLDERS In line with the disclosure obligations of ART under the Listing Manual, it is the Board s policy to inform unitholders of all major developments that impact ART. ART believes that it should engage in regular, effective, unbiased and transparent communication with its Unitholders. Communication channels with the unitholders are made accessible via: (i) Annual Reports; (ii) Press Releases on major developments of ART; (iii) Notices of, and explanatory memoranda for extraordinary general meetings; (iv) Disclosures to SGX-ST; (v) Other announcements, as appropriate; and (vi) ART s website at In accordance with applicable law and the provisions of the Trust Deed, ART will not hold any meetings for unitholders unless the Trustee or the Manager convenes a meeting or unless not less than 50 unitholders or one-tenth in number of unitholders (whichever is the lesser) requests in writing for a meeting to be convened. In the absence of any meeting of unitholders, the unitholders can contact the Manager s Investor Relations department if they have queries or wish to seek clarification. Ong Ah Luan Cameron M M S Chandra Das M M M Paul Ma Kah Woh David Schaefer Ku Moon Lun C Chairman M Member MEETING ATTENDANCE C M Executive Audit Board Committee Committee Meetings* Meetings Meetings No. of No. of No. of meetings meetings meetings Board members held: 3 held: 1 held: 2 Lim Jit Poh 3 N.A. N.A. Liew Mun Leong 2 1 N.A. Ong Ah Luan Cameron 3 1 N.A. S Chandra Das Paul Ma Kah Woh 3 N.A. 2 David Schaefer 3 N.A. 2 Ku Moon Lun 3 N.A. N.A. * includes one Board verification meeting REMUNERATION OF DIRECTORS FOR THE PERIOD ENDED 31 DECEMBER 2006 Name $ Remark Lim Jit Poh 43,124 Liew Mun Leong 35,850 Payable to CapitaLand Limited Ong Ah Luan Cameron S Chandra Das 37,410 Paul Ma Kah Woh 38,178 David Schaefer 36,139 Ku Moon Lun 23,579 Total $214,280 Note: The remuneration of Directors is paid by the Manager, and not by ART. 28 THE ART EDGE 29

17 BOARD OF DIRECTORS TOP ROW LEFT TO RIGHT: Mr Lim Jit Poh Mr Liew Mun Leong Mr Ong Ah Luan Cameron Mr S Chandra Das BOTTOM ROW LEFT TO RIGHT: Mr Paul Ma Kah Woh Mr David Schaefer Mr Ku Moon Lun MR LIM JIT POH Non-Executive Chairman Mr Lim is the Group Chairman of ComfortDelGro Corporation Limited, the world s second largest land transport group, and the Independent Chairman of China Aviation Oil (Singapore) Corporation Ltd. He is a director of The Ascott Group Limited and several other public listed companies as well as a director of several unlisted companies under the ownerships of Temasek Holdings Pte Ltd and the Singapore Labour Foundation. Mr Lim is a trustee of the Singapore National Employers Federation. He has been recognised with several awards from the Government of Singapore and National Trades Union Congress. A former top civil servant and Fulbright scholar, Mr Lim holds a Bachelor of Science with honours in Physics from the University of Singapore, and a Master of Education degree from the University of Oregon, United States. MR LIEW MUN LEONG Non-Executive Deputy Chairman Mr Liew Mun Leong is President and CEO of CapitaLand Group. He joined the CapitaLand Board as Director on 1 January 1997 and was last re-elected as Director at CapitaLand s Annual General Meeting on 29 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 Limited, CapitaLand Commercial and Integrated Development Limited and CapitaLand Retail Limited. He is Deputy Chairman of CapitaLand Financial Limited, The Ascott Group Limited, a subsidiary of CapitaLand listed on the SGX-ST, as well as the Deputy Chairman for CapitaMall Trust Management Limited (the manager of CapitaMall Trust, the first listed real estate investment trust in Singapore), CapitaCommercial Trust Management Limited (the manager of CapitaCommercial Trust) and CapitaRetail China Trust Management Limited (the manager of CapitaRetail China Trust). He is also a Director of CapitaLand Hope Foundation, the Group s philanthropic entity. Mr Liew has more than 30 years of experience in construction and real estate in Singapore and overseas. He has participated in a number of public sector infrastructural development projects in Singapore, including the development and construction of Changi International Airport. For five years, he was CEO of Singapore Institute of Standards and Industrial Research (SISIR), a statutory board responsible for national standards and industrial research and development to support the manufacturing industry in Singapore. Later, he headed a regional public listed engineering and construction company, headquartered in Singapore. Mr Liew was elected the President of International Organisation for Standardisation (ISO) from 1997 to In 2006, he was named Outstanding CEO of the Year in the Singapore Business Awards. He currently chairs the Civil Aviation Authority of Singapore (CAAS). Mr Liew is a graduate of the University of Singapore with a Civil Engineering degree and is a registered professional civil engineer. MR ONG AH LUAN CAMERON Non-Executive Director Mr Ong is the Managing Director & Chief Executive Officer of The Ascott Group Limited (Ascott), a position he has held since August He leads Ascott s 4,000 over employees in more than 40 cities in 21 countries to further grow the Group s presence and build its reputation globally. Mr Ong has been with Ascott for more than 10 years and was the Deputy CEO from April 2003 to July Mr Ong is an honorary foreign consultant to the Beijing International Investment Promotion Council. He sits on the executive committee of the Philippines-Singapore Business Council and the Singapore Tourism Hotel and Accommodation Services (THAS) Industry Skills and Training Council. He is also a Director of Singapore Hotel & Tourism Education Centre Pte Ltd (SHATEC). Mr Ong has more than 28 years of international experience in hospitality. He has been presented with several distinctions, including Hospitality Excellence Award at the China Hotel Investment Summit, Shanghai (April 2005), Outstanding Contribution to Tourism in Beijing from the Mayor of Beijing Municipal Government (1991) and Best Expatriate Award by Beijing Tourism Board (1990). Mr Ong is a hotel administrator certified by the Educational Institute of American Hotel and Lodging Association. He has also attended senior management programmes at the International Institute of Management Development at Lausanne, Switzerland, Tsinghua University in Beijing, China, and INSEAD in France. MR S CHANDRA DAS Non-Executive Director Mr Das is the Chairman of Nera Telecommunications Ltd and Nera Electronics Ltd. He is a Non-Executive Director of The Ascott Group Limited and a director of several other public 30 THE ART EDGE 31

18 BOARD OF DIRECTORS (Cont d) listed companies, and private companies involved in trading and manufacturing. A former Member of Parliament, Mr Das has been conferred numerous awards, such as the President s Medal by the Singapore Australian Business Council in 2000, with the latest being the Distinguished Service (Star) Award by National Trades Union Congress in He is an Economics honours graduate from the University of Singapore. estate and hotel transactions in the Asia-Pacific region for over 15 years as both a principal and investment banker. Prior to joining Citigroup in February 2005, he was formerly Executive Director and Head of Property-Asia for the Macquarie Bank Group, and Chairman of Macquarie Asia Property Advisers, the senior advisor to the Schroder Asian Properties L.P. real estate fund. MR PAUL MA KAH WOH Independent Director 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, Mapletree Logistics Trust Management Limited, Hwa Hong Corporation Limited, SMRT Corporation Limited and Golden Harvest Entertainment (Holdings) Limited. Mapletree Investment Pte Ltd is a Temasek-owned holding company involved in real estate development and management, development and management of real estate investment products, and provision of assets, property, lease and development management and property-related capital management services; Mapletree Logistics Trust Management Limited is the manager of the Mapletree Logistics Trust, a logistics REIT listed in Singapore; Hwa Hong Corporation Limited is a listed company which is principally involved in investment holding and general insurance; SMRT Corporation Limited is a listed company which is principally involved in rapid transit services and bus and taxi operations in Singapore; and Golden Harvest Entertainment (Holdings) Limited is a company listed in Hong Kong principally involved in film exhibition and distribution in Hong Kong, Malaysia, Singapore, Taiwan and Mainland China. 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. MR DAVID SCHAEFER Independent Director Mr Schaefer is the Managing Director, Head-Asia/Pacific of Citigroup Property Investors. He has been active in real 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. From 2002 to 2004, Mr Schaefer was a Director of The Ascott Group Limited. Mr Schaefer holds a Bachelor of Arts degree and Master of Business Administration from Cornell University, United States. MR KU MOON LUN Independent Director Mr Ku is the Region Adviser (Asia) to Trust Company Australia Limited. He is an Independent Non-Executive Director of Lai Fung Holdings Limited, a company listed on the Stock Exchange of Hong Kong and a Member of the Hospital Governing Committee of Tuen Mun Hospital, Hong Kong Hospital Authority. Mr Ku was the Executive Director of Davis Langdon & Seah International (DLS), a property consultant firm where he was responsible for implementing policies and steering the direction of the DLS group of companies. Mr Ku joined Davis Langdon & Seah Hong Kong Limited, where he was the Chairman of the Board of Directors from 1995 to 2004, in 1971 and has more than 35 years experience in the real estate industry in Hong Kong. He was previously also the Chairman of Premas Hong Kong Limited, a facilities management company, from 2000 to 2002 and the Chairman of Icfox International, an information technology company, from 2000 to Mr Ku is a Fellow of the Hong Kong Institute of Surveyors, an Associate of the Chartered Institute of Arbitrators, and a Member of the Association of Cost Engineers. THE MANAGER Ascott Residence Trust Management Limited MR CHONG KEE HIONG Chief Executive Officer Mr Chong is the Chief Executive Officer of Ascott Residence Trust Management Limited (ARTML), the Manager of Ascott Residence Trust (ART). He is responsible for charting the business, investment and operational strategies for ART. Mr Chong is concurrently the Deputy Chief Executive Officer (Finance and Investment) of The Ascott Group Limited (Ascott), a position he has held since September As Deputy CEO of Ascott, he oversees its strategic planning, asset management, business development, finance, legal and corporate secretarial as well as investor relations functions. Prior to joining Ascott, Mr Chong was the Chief Financial Officer of Raffles Holdings Limited. He was also a member of its management committee, responsible for charting Raffles growth and development strategies. Before joining Raffles, he held senior positions in information technology (IT) and property-related companies between 1995 and Mr Chong began his career with KPMG Peat Marwick in 1990, upon graduating from the National University of Singapore with a Bachelor of Accountancy degree, and is a member of the Institute of Certified Public Accountants 1) Mr Chong Kee Hiong, 2) Ms Magdeline Loke Yuen Pheng, 3) Ms Ng Ee San, 4) Ms Kang Siew Fong, 5) Mr Chua Chi Boon 6) Ms Koh Mei Yin, 7) Mr Chua Hsien Yang, 8) Ms Sonia Meyer 9) Mr Gerald Yong Choon Miao. Ms Goh Lilian (not in picture) of Singapore. He serves as a member of the Government Parliamentary Committee for Finance and Trade and Industry Resource Panel, as well as the Finance and IT Committee of Sentosa Development Corporation. He is also the Chairman of the Audit Committee and Treasurer of The Orchid Country Club. MR GERALD YONG CHOON MIAO Vice President, Business Development and Asset Management Mr Yong assists the Chief Executive Officer with the operations of ARTML in relation to investment strategies and strategic planning. Prior to joining ARTML, Mr Yong was Vice President, Business Development and Asset Management at Ascott, where he led the team in investment, divestment and asset management functions. He spearheaded the conclusion of various acquisition and divestment deals in Singapore, China and the United Kingdom with deal size totalling over S$800 million. These included the divestment of the Liang Court Shopping Centre in Singapore and Ascott London Mayfair. From 2001 to 2004, Mr Yong was with SembCorp Environmental Management Pte Ltd, holding the position of Vice THE ART EDGE 33

19 THE MANAGER Ascott Residence Trust Management Limited (Cont d) President, Business Development and Strategic Planning, where he was responsible for the overall business development and strategic planning of the company. He led its successful market entry into Shanghai, India and Bahrain through acquisitions worth over S$200 million. From 1995 to 2000, Mr Yong held various positions at the Civil Aviation Authority of Singapore, SembCorp Utilities Pte Ltd and SembCorp Marine Ltd where he took on roles spanning corporate planning and business development, and worked as a project manager for construction and engineering projects. Mr Yong has a Master of Business Administration (Distinction) degree, majoring in Corporate Finance and Financial Markets, from the Imperial College London Tanaka Business School, and an Honours degree in Mechanical Engineering from the National University of Singapore. He was a recipient of the Raffles-Chevening scholarship award by the British Foreign Commonwealth office and the SembCorp Industries undergraduate scholarship award. MR CHUA CHI BOON Senior Manager, Business Development and Asset Management Mr Chua is responsible for sourcing new investments in Vietnam, Indonesia and Thailand and is involved in the asset management of existing properties in these countries. Prior to joining ARTML, Mr Chua was Senior Manager (Business Development and Property Management) in Amara Holdings Limited for six years. He was responsible for sourcing new business ventures for hotel, commercial and residential developments as well as developing areas of growth for the company, both locally and overseas. Mr Chua graduated from Nanyang Technological University with a Bachelor of Business (Banking and Finance) degree, and obtained a Master of Science (Real Estate) degree from the National University of Singapore. MS MAGDELINE LOKE YUEN PHENG Senior Manager, Business Development and Asset Management Ms Loke is responsible for sourcing new investments in South China (including Guangzhou, Shenzhen and Hong Kong), The Philippines and South Korea as well as asset management of existing properties in these countries. Ms Loke has more than 10 years of experience in investment and corporate banking. Prior to joining ARTML, Ms Loke was Senior Manager, Business Development and Asset Management at Ascott and was part of the team responsible for investments, divestments and asset management of Ascott s global portfolio. Ms Loke is a Chartered Financial Analyst and holds a degree in Business (Financial Analysis) from Nanyang Technological University. MR CHUA HSIEN YANG Manager, Business Development and Asset Management Mr Chua is responsible for sourcing new investments in Australia and North, East and Central China as well as asset management of existing properties in these countries. Prior to joining ARTML, Mr Chua was Assistant Vice President of Asset Management in Hotel Plaza Limited for five years. He was responsible for asset management of the hotels in China and Australia as well as investments and divestments for the company. Mr Chua graduated from University of Canterbury, New Zealand with a Bachelor of Engineering (Civil) degree, and obtained a Master of Business Administration degree from University of Western Australia, Perth, Australia. MS KOH MEI YIN Manager, Business Development and Asset Management Ms Koh is responsible for sourcing new investments and asset management of existing properties in Singapore and Japan. Prior to joining ARTML, Ms Koh was an Assistant Manager in Ascott s Strategic Planning and Business Development team which was directly involved in the launch of ART. Before joining Ascott, she was a Senior Accountant in Raffles Holdings Limited and was responsible for group consolidation and reporting. Ms Koh holds a Bachelor of Accountancy (Honours) degree from Nanyang Technological University. MS KANG SIEW FONG Vice President, Finance Ms Kang has more than 17 years experience in the finance profession and is responsible for the performance management and reporting functions of ART. Prior to joining ARTML, Ms Kang was with Ascott for more than 12 years where she held various positions including Vice President, Finance and Vice President, Business Development and Planning. As Vice President, Finance of Ascott, she was responsible for all aspects of its financial management and accounting which included preparing the group consolidated accounts and quarterly reporting of financial results to SGX, co-ordinating with external auditors, and ensuring compliance with statutory reporting requirements and financial reporting standards. She was also involved in the mergers and acquisitions activities of Ascott as well as formulation and implementation of its financial policies and practices, budgeting and internal controls. Prior to joining Ascott, Ms Kang was with KPMG Peat Marwick. Ms Kang holds a Bachelor of Accountancy degree from the National University of Singapore. MS NG EE SAN Manager, Finance Ms Ng is responsible for managing the group s accounts consolidation process, and supervising the budgeting, forecasting, financial analysis and management reporting activities. Ms Ng is also involved in supervising and coordinating with external auditors and managing audit requirements. Prior to joining ARTML, Ms Ng was an Accountant with Wing Tai Asia and was responsible for managing the group accounts. Ms Ng holds a Bachelor of Accountancy degree from Nanyang Technological University. MS GOH LILIAN Director, Investor Relations and Communications Ms Goh is responsible for building and maintaining relations with unitholders, potential investors, analysts and the media. Prior to joining ARTML, Ms Goh was Ascott s Investor Relations Manager. Ms Goh was previously with International Copper Association (Asia) as its Regional Manager (Asia) for Communications. International Copper Association (Asia) is the Asian headquarters of International Copper Association Ltd, an international non-profit organisation responsible for guiding policy, strategy and funding of international initiatives relating to the use of copper. As part of her portfolio, Ms Goh was responsible for leading the branding and communication initiatives of the organisation as well as the preparation of marketing communications and management of relations with stakeholders (including government authorities, industry players and end-users) and members. Ms Goh holds a Master of Business Administration degree and an Honours degree in Communication Studies, both from Nanyang Technological University. MS SONIA MEYER Assistant Manager, Investor Relations and Communications Ms Meyer is responsible for facilitating communications and liaisons with unitholders, prospective investors, analysts and the media through regular communications, events and roadshows. Prior to joining ARTML, Ms Meyer held the position of Assistant Manager (Media Relations) with the Land Transport Authority (LTA). She was involved in formulating and implementing media publicity programmes to effectively communicate land transport policies and schemes to the media, stakeholders and the public. Ms Meyer obtained a Bachelor of Science (Honours) degree in Economics from University of Warwick in the United Kingdom. She was a recipient of the LTA undergraduate scholarship award. 34 THE ART EDGE 35

20 PORTFOLIO FOCUS PORTFOLIO OVERVIEW HUMAN CAPITAL COMPETITIVE STRENGTHS OF OUR PROPERTIES ART s properties are conveniently located within or in close proximity to the local prime business districts in their respective markets and enjoy high levels of connectivity via public transportation. Each property is easily accessible and is well-served by public transportation. Of the 14 serviced residences that ART owns, two are under the Ascott brand, 11 are under the Somerset brand and one is unbranded. All of our properties are managed by The Ascott Group (Ascott). Ascott has a 23-year industry track record and serviced residence brands that enjoy recognition worldwide. Due to this strong branding, our serviced residences are recognised globally and are a desired choice of accommodation for corporate executives and travellers seeking accommodation for extended stays. Our flexible business model provides short to long-term accommodation, with the longer lease profile of serviced residences providing certainty and stability to our properties revenue while the shorter licences providing higher operating margins. Our guest base comprises expatriate families, business travellers, corporate clients and government bodies which provides relative stability to the revenue of our properties by limiting reliance on any particular group of clients. Additionally, our properties are located in six different countries within the Pan-Asian region, thereby reducing the dependence of ART s revenue on any particular market. KEY STATISTICS OF OUR PORTFOLIO (As at 31 December 2006) Portfolio Occupancy: 82% Portfolio Average Daily Rates: S$148 Portfolio Revenue Per Available Unit: S$121 As ART continues to expand its presence in the Pan-Asian region, developing a pool of competent managers and committed staff is vital. Leveraging on The Ascott Training Institute s (TATI) training curriculum, Ascott Residence Trust Management Limited (ARTML), the Manager of ART, together with Ascott International Management (AIM), the serviced residence management arm of the Ascott Group (Ascott), aim to develop the technical competencies of our staff and groom our future leaders. We believe in attracting, developing and retaining high calibre employees in every city we operate in. As such, we continuously provide our staff with development opportunities, as well as international exposure and assignments. As part of the continuous commitment to develop human capital, two percent of the payroll of ART s property-based and corporate staff have been set aside for staff training which includes a myriad of general and functional training programmes that help our employees achieve their personal development targets. These programmes, organised by TATI, include the Regionalisation Training Scheme and Ascott Executive Development Programme. In 2006, two of our employees participated in the Regionalisation Training Scheme, an on-the-job training programme for non-executives to improve their work performance through skills development. They were trained an average of 30 hours in various disciplines, including financial management, project management, on-the-job attachments and work project presentation. As part of the Ascott Executive Development Programme, five of our employees underwent financial management training in The programme also provided the employees a deeper insight to property management, security operations and management, lodging operations, housekeeping operations and management, as well as front office operations and management. Through these programmes, which are aligned to the strategic and tactical needs of the organisation, we aim to develop our employees to be core leaders who can effectively operate, manage and lead our serviced residences around the world. Going forward, as we continue to expand our presence in the Pan-Asian region, ARTML and AIM will work closely with TATI to develop our staff s technical competencies and skills. For Financial Period ended 31 December 2006 Gross Rental Income RevPAU Property S$ 000 S$ Somerset Grand Cairnhill, Singapore 9, Somerset Liang Court Property, Singapore 8, Ascott Beijing 14, Somerset Grand Fortune Garden Property, Beijing 3, Somerset Xu Hui, Shanghai 5, Somerset Olympic Tower Property, Tianjin 2, Ascott Jakarta 5, Somerset Grand Citra, Jakarta 7, Country Woods, Jakarta 3, Somerset Millennium, Makati 3, Somerset Salcedo Property, Makati (1) Somerset Grand Hanoi 10, Somerset Ho Chi Minh City 6, Total 82,332 (2) 121 (1) This property is leased to Somerset Salcedo Makati, Inc., a subsidiary of The Ascott Group, on a fixed rental basis. (2) Total gross rental income excludes Somerset Roppongi, Tokyo s contribution as it is held through an associate of the Group. 36 THE ART EDGE 37

21 Portfolio Apartment Rental Income by Length of Stay (1) 22% Less than 1 month 20% 1 6 months 23% 6 12 months 35% More than 12 months Portfolio Apartment Rental Income by Industry (1) 22% Industrial 15% Real estate/lodging 11% Manufacturing 7% Financial institutions 6% Government and NGOs 6% Media and telecom 5% Healthcare 4% Consumers 4% Information technology 3% Energy and utilities 17% Others Portfolio Apartment Rental Income by Market Segments (1) 27% Business trip 18% Project 42% Relocation 4% Family/Leisure 9% Others (1) For the 12 months ended 31 December Includes ART s initial portfolio of 12 properties, Somerset Olympic Tower Property, Tianjin and Somerset Roppongi, Tokyo. Assumes acquisitions of Somerset Olympic Tower Property, Tianjin and Somerset Roppongi, Tokyo took place on 1 January ART s properties, strategically located in key gateway cities of Singapore, China, Indonesia, Japan, The Philippines and Vietnam, performed well in The organic growth of ART s portfolio was underpinned by strong occupancies and rates increases across most markets, with Revenue Per Available Unit (RevPAU) for the entire portfolio growing by five percent for the year. PORTFOLIO FOCUS OPERATIONS REVIEW Top 10 Corporate Clients of ART (by Apartment Rental Income) for the 12 months ended 31 December 2006 Percentage of Total Corporate Client Industry Apartment Rental Income 1 Embassy of an OECD country Government and NGOs 3.9% 2 Toyota Motor Corporation Consumers 3.6% 3 Samsung Group Consumers 2.9% 4 Bayer Group Healthcare 1.5% 5 Zachry Caddell Joint Venture Industrial 1.4% 6 Standard Chartered Bank Financial 1.3% 7 British International School Government and NGOs 0.9% 8 Petroliam Nasional Berhad Energy and Utilities 0.9% 9 Japan Gas Corporation PT Brown and Root Indonesia Energy and Utilities 0.7% 10 SK Corporation Energy and Utilities 0.7% Total 17.8% None of these corporate clients accounted for more than 5% of ART s Total Apartment Rental Income for the 12 months ended 31 December SINGAPORE 2006 Review The 144-unit Somerset Grand Cairnhill, Singapore is located in the heart of Orchard Road, Singapore s prime shopping and entertainment belt, and is within walking distance to major shopping centres like The Paragon, Ngee Ann City and The Heeren, as well as the Somerset MRT Station. Somerset Liang Court Property, Singapore features 193 units in a 26-storey tower adjoining the Liang Court Shopping Centre and is conveniently located next to Clarke Quay, a bustling world-class dining and entertainment hub with numerous restaurants, bars, clubs and retail outlets. 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 2006, enjoying high occupancies above 85 percent and double-digit RevPAU growth of 17 percent to S$159. The majority of guests at both properties continued to be long-stay guests, and they stayed for periods exceeding one month. The performance of the Singapore properties was underpinned by Singapore s strong economy and growing inward foreign direct investment (FDI), as well as the overall boom in the hospitality sector. Economic growth for 2006 was 7.7 percent, led by the manufacturing, and the wholesale and retail sectors. Inward FDI into Singapore also grew an estimated eight percent to reach about US$21.7 billion in Strong government support for the establishment of multinational corporations (MNCs) has reaped positive results as more MNCs took advantage of Singapore s position as a gateway to Asia to set up their regional or international headquarters in the city state. Due to the strong demand for serviced residences from corporate clients, both Singapore properties were able to revise rates for existing corporate accounts to keep in tandem with the overall rates increase in the hospitality industry. They also focused on securing new corporate accounts to broaden the customer base. The Singapore properties have also benefited from the booming Meetings, Incentive Travel, Conventions and Exhibitions (M.I.C.E.) industry in Singapore. For example, in the lead-up to and during the International Monetary Fund (IMF)/ World Bank Conferences held in Singapore in September, both properties enjoyed occupancies of more than 90 percent as the entire industry benefited from the influx of conference delegates and support staff for such events. Outlook The Singapore economy is expected to continue growing at a healthy pace. The Economist Intelligence Unit (EIU) forecasts Singapore s 2007 economic growth to be about 4.5 percent. The 38 THE ART EDGE 39

22 OPERATIONS REVIEW (Cont d) manufacturing sector continues to be a key economic focus, with the Economic and Development Board targeting to double Singapore s total manufacturing output to S$300 billion by Inward FDI into Singapore is expected to remain strong, estimated by the EIU to be about US$21.8 billion in The Singapore Tourism Board has set a target of 17 million visitors by 2015, and looks to be well on its way to achieving this. The Marina Bay and Sentosa Integrated Resorts, as well as the Business and Financial Centre are set to open in 2009, attracting a continual influx of business and leisure travellers, as well as expatriates working on these projects. This is anticipated to drive up demand for serviced residences in the coming years. Demand for accommodation will also be supported by the numerous conferences held in Singapore in 2007, such as the ASEAN Tourism Forum (January), Global Security Asia 2007 (March), World Gourmet Summit 2007 (April), CommunicAsia2007 (June) and Asia Health 2007 (November). CHINA 2006 Review At listing, ART had three properties in China Ascott Beijing, Somerset Grand Fortune Garden Property, Beijing and Somerset Xu Hui, Shanghai. The 272-unit Ascott Beijing is centrally located in the heart of Beijing s prime business, residential and retail districts. Situated in the prime Chaoyang District, the property is diagonally opposite the China World Trade Centre and is close to Wang Fu Jing Da Jie, the renowned shopping belt in Beijing as well as the Financial Street. Also located in the prime Chaoyang district, Somerset Grand Fortune Garden Property, Beijing features 221 units, of which ART owns 81 units, and is close to the 3rd Embassy District. It is also easily accessible to Lufthansa Shopping Centre, Woman Street and International Exhibition Centre. In Shanghai, the 167-unit Somerset Xu Hui, Shanghai is located in the prime Xu Hui residential district, within close proximity to the business areas of Huaihaizhong Road, a commercial and shopping street in Shanghai. In October 2006, ART completed the acquisition of Somerset Olympic Tower Property, Tianjin and hence further diversified our China portfolio to three Chinese cities. Set in the heart of Tianjin s prime commercial and entertainment Heping District, the 172-unit Somerset Olympic Tower Property, Tianjin stands at the junction of Chengdu, Kunming and Guizhou Roads. Within close proximity are international institutions, an upmarket shopping area and the Tianjin railway station. Our China properties achieved a RevPAU of S$149, which was a dip of seven percent compared to pro forma This was mainly due to the change in business mix for the Beijing properties which resulted in a lower demand for bigger apartment units at our residences, and the expiry of a few key accounts due to completion of projects. In view of this, greater sales and marketing efforts were placed on increasing the number of new accounts to build up the number of long-stay residents and also to boost the shortstay segment. Reconfiguration work has also begun at Ascott Beijing to convert 35 of the larger three-bedroom apartments into 70 smaller one-bedroom apartments. This will increase the number of one-bedroom apartments in Ascott Beijing to cater to the high demand for such apartments. At Somerset Xu Hui, Shanghai, renovation and reconfiguration of the clubhouse with 15,000 sqf of net lettable area (NLA) began in mid-2006 and was completed in September In total, 9,600 sqf of net leasable commercial space was created for lease. Somerset Olympic Tower Property, Tianjin performed well in 2006, ending the year with record-high revenue since the property opened in This was mainly due to the positive business conditions in Tianjin, with good inflow of FDIs into the city. The property will be reconfiguring 10 penthouse duplex units into 20 smaller two-bedroom units so as to cater to the high demand for such apartments. Outlook The reconfiguration of larger apartment units into smaller units at Ascott Beijing and the penthouse duplex units in Somerset Olympic Tower Property, Tianjin are expected to be completed by mid The increase in the number of smaller apartments will allow us to better meet the demand for such units, and improve the yield for the two properties. Our properties are conveniently located within or in close proximity to the local prime business districts in their respective markets and enjoy high levels of connectivity via public transportation. 40 THE ART EDGE 41

23 With home-style environments including spacious living areas, fully-equipped kitchens and separate dining areas, our residents can work, entertain and relax within the privacy of their own living space. As we move towards the 2008 Beijing Olympics, an increase in the supply of hotels and serviced residences has been observed. However, with an established brand name in the China market and good location of our serviced residences, we expect to see an increase in demand for our Beijing residences from 2007 for the lead up to the Olympic Games. Shanghai is expected to continue to perform well in the lead up to the World Expo in Year Higher FDI inflows have been observed and growth momentum is expected to continue for the next few years. Officially earmarked by the central government to become the gateway to northern China, Tianjin is expected to continue enjoying strong growth in FDI and business travel, which will in turn boost demand for quality home-style extended stay accommodation. China s GDP is expected to grow by 9.5 percent in 2007 while inward FDI is forecast to remain high at more than US$80 billion. INDONESIA 2006 Review In 2006, ART s three Indonesia properties Ascott Jakarta, Somerset Grand Citra, Jakarta and Country Woods, Jakarta performed close to forecast despite an adverse operating environment. The 198-unit Ascott Jakarta and the 203-unit Somerset Grand Citra, Jakarta are both centrally located in Central Jakarta s Golden Triangle business district, and are minutes away from the Jakarta Convention Centre, Plaza Indonesia shopping complex and various embassies. Country Woods, Jakarta comprises 137 serviced residences units, 36 townhouses and 78 bungalows in the heart of South Jakarta. The property offers convenient access to expressways, international schools like the British International School and German International School and retail facilities such as Bintaro Plaza and Pondok Indah Mall. The Pondok Indah Hospital and the Bintaro International Hospital are also easily accessible from the property. The dip in the performance of the Indonesia properties was affected by the slight slowdown in the Indonesian economy and FDI in 2006, which had a knock-on effect on the number of business travellers in Indonesia. Economic growth in 2006 was 5.5 percent, compared to 5.6 percent growth the previous year. Overall, inward FDI into the country also dipped 29 percent to US$3.7 billion for Besides the Ascott-managed Somerset Berlian, Jakarta, which opened in the second half of the year, no other new supply of serviced residences was added to Jakarta in Jones Lang LaSalle Hotels observed that demand for serviced residences has grown slightly in recent years, in line with the increase in the number of expatriates working in Jakarta. Industry-wide occupancy rates in Jakarta remain significantly higher compared to other Indonesian provinces including Bali. Operations at Ascott Jakarta were affected by the closure of a major road by the local government and massive construction activities, which commenced in January Traffic flow into and around the area is expected to improve once the road works are completed in Healthy occupancies and average daily rates at Somerset Grand Citra, Jakarta strengthened the overall performance of the Indonesia properties. Gross revenue remained satisfactory through the charging of competitive average daily rates and tapping on bulk business from major corporate clients to secure stable occupancies. Full-year gross profit rose slightly to S$8.1 million from the previous year s pro forma gross profit of S$8.0 million. This was brought about by exercising cost controls such as energy conservation measures. Higher revenues were also extracted from other sources such as the business centre, laundry facilities, and other service and maintenance fees. Outlook The EIU expects the Indonesian economy to improve in 2007, estimating economic growth of 6.0 percent supported by a rebound in domestic demand and an increase in investments. The overall investment climate in Indonesia looks to be positive in view of President Susilo Bambang Yudhoyono s drive to woo foreign investors and improve the country s infrastructure and business environment. The Asian Development Bank has committed over US$50 million in loans and grants to develop infrastructure and improve the financial sector. Such assistance 42 THE ART EDGE 43

24 OPERATIONS REVIEW (Cont d) will encourage more inward FDI, which the EIU estimates to grow a robust 34 percent in 2007, hitting US$5.0 billion. JAPAN 2006 Review Somerset Roppongi, Tokyo is a 64-unit serviced residence set in the bustling Roppongi district in the heart of Minato-ku, in the central business district of Tokyo. The property is located within a five-minute walk from the Roppongi subway station and Roppongi I-chome station. With a wide variety of foreign business and commerce located in this area, Roppongi is known for its prominent entertainment area with an international variety of restaurants, nightclubs and entertainment lining the streets. Acquired by ART in October 2006, Somerset Roppongi, Tokyo is ART s first acquisition in Japan. The property is an established serviced residence which gives us an important foothold in the Japanese market and allows us to tap into Tokyo s growing demand for serviced residences by both expatriates and affluent locals. Somerset Roppongi, Tokyo performed well, seeing an increase in occupancy by short-stay and long-stay residents. The commitment by the Japanese government to attract more FDI into the country will attract an increased number of foreign investors to establish their businesses in one of the largest economies in the world. This in turn will spur the growth in demand for quality short and long term accommodation in Tokyo and other major cities in Japan. Outlook Going forward, Merrill Lynch estimated that Japan s economy will be steady and strong in 2007, despite worries of a US economic slowdown affecting global growth. There are three key areas of strength for the Japanese economy high productivity growth, increasing capital expenditure, and pragmatism in monetary and fiscal policymaking. According to EIU forecasts, Japan s economy will grow by 1.8 percent in 2007, whilst inward FDI will increase 37 percent to US$4.8 billion. THE PHILIPPINES 2006 Review Conveniently located in the shopping and business district of bustling Makati City in Manila, our properties the 138- unit Somerset Millennium, Makati and the 71-unit Somerset Salcedo, Makati are within walking distance to Metro Rail Transit (MRT) stations (Ayala and Buendia stations) and are also easily accessible via other public transportation. Both properties have apartment units in studio, one- to threebedroom and penthouse layouts. In 2006, RevPAU for our Philippine properties was S$69, 25 percent higher than pro forma The phenomenal growth was driven by healthy increases in both occupancies and average daily rates. The Philippine economy recovered steadily during the year with 5.6 percent growth in real gross domestic product. This was supported by strong growth in the manufacturing sector as well as higher exports from the electronics and business process outsourcing sectors. Inward FDI rose to US$2.0 billion with significant investment pledges seen in the manufacturing sector. The higher occupancies achieved by our properties was underpinned by the successful procurement of new corporate accounts for long-stays as well as the strong demand from short-stay guests on business trips. The increase in M.I.C.E. travel into Manila, which had been promoted as a meetings destination in a government-backed campaign dubbed Meetings Make Manila, also buoyed demand for serviced residences in the Makati City area and contributed to our ability to increase rates due to high demand. On 23 November 2006, ART announced that it was acquiring the 306-unit Oakwood Premier Ayala Center, a top serviced residence in Makati City, Manila, for US$53 million at a property yield of about 11 percent. The serviced residence is expected to be re-branded Ascott Makati when the acquisition is completed in late March With the addition of Ascott Makati, our presence in Manila will increase to 515 units, further cementing our leading position in Manila s serviced residence market. Outlook Going forward, the Philippine economy is poised to achieve sustainable growth as rating agencies have upgraded their outlook for the country, which has paid down a large portion of its IMF/World Bank debt early. Social, cultural and lifestyle programmes are organised at our properties to facilitate networking and create a sense of community amongst our residents. These programmes also help new residents understand their environment and settle in quickly. 44 THE ART EDGE 45