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Governance Index to Rank REITS and Business Trusts

Recently, I read in the news that two of the REITs in my stock portfolio ranked second place in a governance ranking. The two REITs are Parkway Life REIT and Soilbuild Business Space REIT. Keppel DC REIT ranked first place in the governance ranking.

The name of this ranking is called “GIFT” in short. The full name is called “Governance Index For Trusts“. There are a total of 43 trusts including six stapled securities being assessed using Governance Index For Trusts.

Who Developed Governance Index For Trusts (“GIFT”)?

Governance Index For Trusts (“GIFT”) was developed by Associate Professor Mak Yuen Teen of NUS Business School, a corporate governance advocate and Mr. Chew Yi Hong, an MBA graduate from London Business School and active investor.

What Does Governance Index For Trusts (“GIFT”) Assess?

GIFT assesses REITs and business trusts based on their corporate governance and business risks. Governance encompasses board matters, remuneration of directors and key management personnel, alignment of incentives and interests, internal and external audit, communication with unit holders and other governance matters. Business risks include assessment of each entity’s overall leverage, debt maturity, percentage of fixed rate borrowings and factors relating to development limit, lease expiry and income support arrangements. – Extracted from Soilbuild Business Space REIT 29th June 2017 General Announcement

2017 GIFT Ranking

Based on my understanding, points are awarded for each assessment criteria mentioned above. The total points will make up the main score. Merit and demerit points are then awarded to derive the total score.

Rank Name of REIT Main Score Total Score
1 Keppel DC Reit 74.5 76.5
2 Parkway Life Reit 71.5 74.5
2 Soilbuild Business Space Reit 76.5 74.5
4 AIMS AMP Capital Industrial Reit 75.0 73.0
5 Starhill Global Reit 69.5 72.5
6 Cambridge Industrial Trust 74.5 71.5
7 Keppel Infrastructure Trust 70.0 71.0
8 CapitaLand Commercial Trust 68.5 70.5
9 IReit Global 71.0 70.0
10 Ascendas India Trust 70.5 69.5

Personal Thoughts

Personally, I think while “GIFT” provides investors some sort of ranking in terms of governance, it should not be used to decide a buy or sell decision. In my REIT analysis, I often look at increasing Distribution Per Unit (“DPU”)  and dividend yield as a deciding factor. I also like REITs with 100% unencumbered assets.

The “GIFT” provides some sort of confirmation to my REIT analysis as one of the business risks it evaluates is the debt maturity and borrowings.

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