Corporate Governance - Investor Info

The management of Hektar REIT is governed by a Trust Deed executed on 5 October 2006 and as amended by a Supplemental Trust Deed dated 20 March 2012 between the Manager and the Trustee ("the Deed"). The Deed, inter alia, details out the roles, duties, obligations and powers of the Manager and the Trustee. Essentially, the Trustee and the Manager play countervailing roles against each other to ensure that the REIT is managed with efficiency and integrity.

The Board of the Manager views corporate governance in accordance to four key concepts:

good performance
accountability
transparency
integrity

The Board has the responsibility to ensure that the abovementioned concepts were rigorously observed throughout the year ended 31 December 2012. To this end, the Manager applied the principles and best practices as set out in Parts 1 and 2 respectively of the Malaysian Code of Corporate Governance ("the Code") and Bursa Malaysia's Listing Requirements. ("LR").

In November 2012, Bursa Malaysia had amended its LR in line with the recommendations made under the Corporate Governance Blueprint 2011 ("CG Blueprint"), as well as the Malaysian Code on Corporate Governance 2012 ("MCCG 2012") issued by the Securities Commission ("SC"). The Board and the Management of Hektar REIT is currently taking the necessary steps to enhance its practices, in accordance to the latest LR changes and the recommendations made under CG Blueprint and MCCG 2012.

Changes to Hektar REIT's corporate governance practices will be updated on our website www.hektarreit.com.

The board of directors

The Board of the Manager is responsible for the overall corporate governance of Hektar REIT, including its strategic direction, establishing goals for management and monitoring the achievement of these goals. The role and function of the Board, as well as the differing roles of the Executive Directors and Non-Executive Directors, are clearly documented in the Operations Manual.

Board of directors

The Board has the overall responsibility for corporate governance, reviewing the adequacy and integrity of the system of internal control, reviewing and adopting the strategic direction of the Fund and overseeing the investment of the Fund.

Executive committee

An Executive Committee is delegated by the Board to, among other things :

make decisions in relation to investments to be made or expenditure to be incurred by Hektar REIT;
make decision in relation to operations and management of Hektar REIT; and
carry out and undertake such other functions as may be determined by the Board by unanimous resolution and to act in accordance with the instructions of the Board

The committee comprises three directors, namely, Dato' Jaafar bin Abdul Hamid as Chairman, Puan Zalila binti Mohd Toon and Dr Chew Tuan Chiong.

Audit committee

An Audit Committee, comprising the Independent Directors Dato' Syed Md Amin Aljeffri as Chairman, Dato' Robert Lim Git Hooi and Mr. Philip Eng Heng Nee, is delegated by the Board to review the following and report the same to the Board :

the audit plan with the auditor
the system of internal controls with the external auditor
the financial audit report with the external auditor
the assistance given by the employees of the Manager to the external auditor
the adequacy of the scope, functions and resources of the internal audit functions and that it has the necessary authority to carry out its work
the internal audit programme, processes, the results of the internal audit programme, processes or investigation undertaken or whether or not appropriate action is taken on the recommendations of the internal audit function
the quarterly results and year end financial statements, prior to the approval by the Board of Directors, focusing particularly on :-
1. changes in or implementation of major accounting policy changes;
2. significant and unusual events; and
3. compliance with accounting standards and other legal requirements
any related party transaction and conflict or interest situation that may arise within HEKTAR REIT and the Manager any transaction, procedure or course of conduct that rises questions of management quality
any letter of resignation from the external auditors of HEKTAR REIT; and
whether there is reason (supported by grounds) to believe that HEKTAR REIT's external auditor is suitable for re-appointment

Nomination Committee

The Board has yet to set up its Nomination Committee at the time of print. In the absence of the Committee, the Board holds full responsibility of the nomination function.

Duties for this function have been set out in the Operations Manual as per the following :-

To review regularly the Board structure, size and composition and make any adjustments that are deemed necessary
The CEO will identify and recommend new nominees to the Board and all decisions and appointments are made by the Board after considering the recommendation.
The Board will review regularly its required mix of skills and experience and other qualities which Non-Executive Directors should bring to the Board.

Board balance

As at the date of this statement, the Board consists of eight (8) members, comprising one (1) Executive Chairman, one (1) Executive Director, three (3) Non-Executive, Non-Independent Directors and three (3) Independent Non- Executive Directors. More than 37% of Directors are considered independent which complies and exceeds the directors' independence requirements set out under paragraph 15.02 of Bursa Malaysia's LR which requires that at least one-third of the Board to be Independent Directors. A brief profile of each Director is presented in the Board of Directors section of this annual report.

The concept of independence adopted by the Board is in tandem with the definition of an Independent Director in Section 1.01 of Bursa Malaysia's LR.

The Directors, with their varied backgrounds and areas of expertise, collectively bring with them a wide range of experience and expertise in areas such as strategy, finance, corporate affairs, legal, marketing and operations. The Executive Directors are responsible for implementing policies and decisions of the Board, overseeing operations as well as coordinating the development and implementation of business and corporate strategies. The Independent Directors bring objective and independent judgment to the decision making of the Board and provide a review and challenge on the performance of management. As such, there is proper balance in the Board because of the presence of Independent Directors of the caliber necessary to carry sufficient weight in Board decisions.

The roles of Board Chairman and Chief Executive Officer are helmed by Dato' Jaafar bin Abdul Hamid, who is an Executive Director. This is a departure from Recommendation 3.4 of the Malaysian Code on Corporate Governance 2012 which states that the positions of Chairman and CEO should be held by different individuals, and the Chairman must be a non-executive member of the Board. The Board believes that the interests of unit holders/shareholders are best served by an experienced CEO and a Chairman who are sanctioned by the Board and who will act in the best interest of unit holders/shareholders. As the Chairman has a significant relevant interest in the Company and Hektar REIT as well as the extensive pertinent experience he brings in running the business, he is well placed to act on behalf of the unit holders/shareholders and in their best interests.

Board meetings

The Board ordinarily meets at least once a financial quarter with additional meetings convened when urgent and important decisions need to be taken between the scheduled meetings. For the year ended 31 December 2012, the Board met on 4 occasions, where it deliberated upon and considered a variety of matters including Hektar REIT's financial results and strategic and major investment decisions.

The Board receives documents on matters requiring its consideration prior to and in advance of each meeting. The Board papers are comprehensive and encompass both qualitative and quantitative factors so that informed decisions can be made. All proceedings from the Board meetings are minuted.

Below are the directors' attendance for the board and audit committee meetings held in the financial year 2012 :-

	Board Meeting	Audit Committee Meeting^*
Dato' Jaafar Bin Abdul Hamid	3/4	N/A
Zalila Binti Mohd Toon	4/4	N/A
Dr Chew Tuan Chiong	3/4	N/A
Christopher Tang Kok Kai	3/4	N/A
Shahril Bin Kassim	4/4	N/A
Dato' Syed Amin Aljeffri	3/4	3/3
Dato' Robert Lim Git Hooi	4/4	3/3
Philip Eng Heng Nee	3/4	3/3
Jack Lam Juck Ngai (Alternate Director to Christopher Tang)	1/4	N/A

¹ N/A denotes that the director is not a member of this committee.

Directors training

During the financial period under review, the Directors attended various conferences / programmes to enhance their knowledge and expertise, and to keep up to date with the relevant changes in law, regulations and the business environment. The training programmes, conferences and seminars attended by the Directors during the year under review covered areas such as corporate governance, leadership, professional development, financial and tax matters amongst others.

In the financial year 2012, Dr Chew Tuan Chiong attended "SGX-SID Effective Board Leadership (EBL) Programme – Module 3 : Enterprise Risk Management" and "SGX-SID Listed Company Director (LCD) Programme – Module 3 : Risk Management Essentials", whilst Zalila Mohd Toon attended the "22nd National Real Estate Convention", the "11th Annual Real Estate Investment World Asia 2012" and "Women Directors Onboarding Training Programme". Dato' Lim Git Hooi has also attended "MFRS/IFRS Guide for Audit Committee and Internal Auditors" during the financial year.

Our Independent Director, Dato' Syed Amin Aljeffri has diligently attended various courses during the financial year, amongst which include the World Bank Talk "Malaysia : Recent Developments and Economic Outlook & Modern Jobs for the High Income Economy", "Sustainability & Corporate Responsibility : Investor demand for Environmental, Social and Governance (ESG)", "Finance for Non Finance Managers", "National Tax Seminar 2013", "Talk for College of Business Topic : Performance Management", etc.

Financial reporting

It is the Board's commitment to provide a balanced and meaningful assessment of Hektar REIT's financial performance and prospects at the end of the financial year, primarily through annual financial statements, quarterly and half yearly announcements of results to unitholders.

Directors' responsibility statement in respect of the preparation of the audited financial statements

The Board is responsible for ensuring that the financial statements give a true and fair view of the state of affairs of Hektar REIT as at the end of the accounting period and of their profit & loss and cash flows for the period ended. In preparing the financial statements, the Directors endeavour to ensure that applicable approved accounting standards issued by the Malaysian Accounting Standards Board and the provisions of the Companies Act, 1965 are applied.

In preparing the financial statements, the Directors endeavour to select and apply consistently suitable accounting policies and make reasonable and prudent judgments and estimates. The Directors also have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of Hektar REIT and to prevent and detect fraud and other irregularities.

Statement on Internal Control and Risk Management

The Board acknowledges its responsibilities for maintaining sound internal control systems to safeguard unitholders' interest and Hektar REIT's assets and for reviewing the adequacy and integrity of these systems. Due to the limitations that are inherent in any system of internal control, the system currently employed is designed to manage, rather than eliminate, the risk of failure to achieve corporate objectives. Accordingly, it can only provide reasonable but not absolute assurance against material misstatement or loss.

The Board has put in place an organizational structure with formally defined lines of responsibility and delegation of authority. A process of hierarchical reporting has been established which provide for a documented and auditable trail of accountability. The procedures include the establishment of limits of authority coupled with the publication of an Employees Handbook. There are also established procedures for planning, capital expenditure and for monitoring Hektar REIT's business and performance.

These procedures provide for continuous assurance to be given at increasingly higher levels of management, and finally, the Board.

The Chairman/Chief Executive Officer reports to the Board on significant changes in the business and external environment. The Chief Financial Officer provides the Board with quarterly financial information, which includes key financial indicators. This includes, among others, the monitoring of results against budget, with variances being followed up and management action taken, where necessary.

Supply of information

The Board recognizes that the decision making process is highly dependent on the quality of information furnished. As such, all Directors have full and unrestricted access to any information pertaining to Hektar REIT.

The Chairman plays a key role in ensuring that all Directors have full and timely access to information relevant to matters that will be deliberated at the Board meeting. The agenda and set of Board papers are circulated in advance of the Board meetings. A comprehensive balance of financial and non-financial information is encapsulated in the papers covering strategic, operational, financial, regulatory and marketing issues.

All Directors have access to the advice and services of the Company Secretary, who ensures that the Board receives appropriate and timely information for its decision-making, that Board procedures are followed and the statutory and regulatory requirements are met. The Secretary also assists the Chairman in ensuring that all Directors are properly briefed on issues arising at Board meetings. The Board believes that the current Company Secretary is capable of carrying out the appropriate duties to ensure the effective functioning of the Board while the terms of appointment permit the removal and appointment by the Board as a whole.

Directors, whether acting as a full board or in their individual capacity, may obtain independent professional advice in the furtherance of their duties, at the Company's expense.

Unitholders

The Manager recognizes the importance of being accountable to investors of Hektar REIT and as such maintained an active and constructive communication policy that enables the Board and Management to communicate effectively with Hektar REIT's investors, stakeholders and public generally. This is achieved principally through quarterly reports, interim reports and annual reports.

The Manager also holds periodic briefings for fund managers, analysts and institutional investors. Press conferences are held when required, to brief members of the media on Hektar REIT's strategic direction, performance and key events.

While the Manager endeavours to provide as much information possible to Hektar REIT's unitholders, it is mindful of the legal and regulatory frameworks governing the release of material and price-sensitive information.