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CORPORATE INFORMATION
CORPORATE OVERVIEW
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 Property Portfolio  Organisation and Reporting Structure  Profile of Directors  Profile of Management CORPORATE REVIEW
 Financial Highlights
 Message from Chairman and Managing Director  Message from Chief Executive Officer  Manager Report CORPORATE GOVERNANCE
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 Audit Committee Report FINANCIAL
STATEMENTS
UNITHOLDING STATISTICS
NOTICE OF FOURTH ANNUAL GENERAL MEETING
PROXY FORM
ANNUAL REPORT 2015
FY 2015 Forecast 2015
FP 2014* Forecast 2014*
Statement of Comprehensive Income
IGB REIT Management Sdn Bhd (908168-A) Chartwell ITAC International Sdn Bhd (52312-H) Level 32, The Gardens South Tower Suite A-6-3, Level 6, Block A Mid Valley City, Lingkaran Syed Putra Putra Majestik, Jalan Kasipillay Net Property Income ("NPI") 59200 Kuala Lumpur, Malaysia Batu 2½, Off Jalan Ipoh Telephone : +603 - 2289 8989 51200 Kuala Lumpur, Malaysia Distributable Income : +603 - 2289 8802 Telephone : 603 - 4043 3998 Earnings per Unit (realised) ("EPU") (sen) : www.igbreit.com : 603 - 4043 9388 Distribution per Unit ("DPU") (sen) BOARD OF DIRECTORS ("BOARD")
Annualised DPU (sen) Tan Sri Dato' Dr. Lin See Yan
PricewaterhouseCoopers (AF 1146) Annualised Distribution Yield (%) Chairman and Independent Non-Executive Director Level 10, 1 Sentral, Jalan Rakyat Kuala Lumpur Sentral From 20 September 2012 to 31 December 2012 Dato' Seri Robert Tan Chung Meng
50706 Kuala Lumpur, Malaysia FY Financial year ended 31 December Managing Director and Non-Independent Executive Director Telephone : 603 - 2173 1188 FP Financial period ended 31 December : 603 - 2173 1288 Halim bin Haji Din
Independent Non-Executive Director
Statement of Financial Position
Le Ching Tai @ Lee Chen Chong
Investment Properties (RM'000) Independent Non-Executive Director Tricor Investor & Issuing House Services Sdn Bhd (11342-H)Unit 32-01, Level 32, Tower A, Vertical Business Suite Total Asset Value (RM'000) Tan Boon Lee
Avenue 3, Bangsar South, No. 8, Jalan Kerinchi Total Liabilities (RM'000) Non-Independent Executive Director 59200 Kuala Lumpur, Malaysia Net Asset Value ("NAV") (RM'000) Telephone : 603 - 2783 9299 Daniel Yong Chen-I
: 603 - 2783 9222 NAV per Unit (RM) Non-Independent Executive Director Elizabeth Tan Hui Ning
NAV PER UNIT PERFORMANCE (RM)
Non-Independent Executive Director Hong Leong Bank Berhad (97141-X) Tan Lei Cheng
Level 5, Wisma Hong Leong18 Jalan Perak Non-Independent Non-Executive Director 50450 Kuala Lumpur, Malaysia Telephone : 603 - 2773 0280/0289 Tan Yee Seng
: 603 - 2715 8697 Non-Independent Non-Executive Director Public Bank Berhad (6463-H) Head Office, Manara Public Bank CHIEF EXECUTIVE OFFICER
50450 Kuala Lumpur, Malaysia Antony Patrick Barragry
Telephone : 603 - 2176 6000 : 603 - 2163 9917 STOCK EXCHANGE LISTING
Tina Chan Lai Yin
Main Market of Bursa Malaysia Securities Berhad Stock Name : IGBREIT Stock Code : 5227 AmTrustee Berhad (163032-V) Level 22, Bangunan AmBank Group 55 Jalan Raja Chulan 1Q 1st Quarter 50200 Kuala Lumpur, Malaysia 2Q 2nd Quarter Telephone : 603 - 2036 2633 3Q 3rd Quarter : 603 - 2032 1914 4Q 4th Quarter ANNUAL REPORT 2015
IGB Corporation Berhad of Unitholders Trustee Fee Management Fee Ownership of (vested in Trustee) • Mid Valley Megamall ("MVM") • The Gardens Mall ("TGM") ANNUAL REPORT 2015
Fund Name
Real estate investment trust Fund Type
Income stability and growth IGB REIT shall terminate on the earlier of: • the occurrence of any of events listed in Clause 26.2 of the deed of trust dated 18 July • the date 999 years after 25 July 2012 i.e. the date of establishment of IGB REIT; or • the date on which IGB REIT is terminated by the Manager under Clause 26.1(b) of the Approved Fund Size
3,550,000,000 Units Real estate, unlisted single-purpose companies, real estate-related assets, non- real estate-related assets, cash, deposits, money market instruments and any other investments not specified above but specified as a permissible investment in the Securities Commission's ("SC") Guidelines on Real Estate Investment Trusts ("REIT Guidelines") or as otherwise permitted by SC Authorised Investment Limits
The investments of IGB REIT are subject to the following investment limits imposed by • at least 50.0% of IGB REIT's total asset value ("TAV") must be invested in real estate assets at all times; and • not more than 25.0% of IGB REIT's TAV may be invested in non-real estate-related assets and/or cash, deposits and money market instruments, provided that investments in both real estate-related assets and non-real estate-related assets are limited as follows: • the value of IGB REIT's investments in securities issued by any single issuer must not exceed 5.0% of IGB REIT's TAV; • the value of IGB REIT's investments in securities issued by any group of companies must not exceed 10.0% of IGB REIT's TAV; and • IGB REIT's investment in any class of securities must not exceed 10.0% of the securities issued by any single issuer, or such other limits and investments as may be permitted by SC or REIT Guidelines At least 90% of IGB REIT's distributable income, on semi-annual basis for each six-month period ending 30 June and 31 December of each year (or such other intervals as the Manager may determine at its absolute discretion) Borrowing Limitations
Up to 50.0% of IGB REIT's TAV at the time the borrowing is incurred or such higher and Gearing Policy
amount with the prior approval of unitholders or such other limit permitted by REIT Guidelines from time to time At least once every three years based on an independent professional valuation pursuant to REIT Guidelines or such other shorter interval as the Manager deems Manager Fee
The Manager may elect to receive its fee in cash or units or a combination of cash and units (as it may in its sole discretion determine). The Manager is entitled under the Deed to the following fees (exclusive of service tax/goods and services tax ("GST"), if any): • Base Fee: up to 1.0% per annum of IGB REIT's TAV (excluding cash and bank balances which are held in non-interest bearing account) (FY2015: RM15,303,000) • Performance Fee: 5.0% per annum of IGB REIT's net property income ("NPI") in the relevant financial year (FY2015: RM17,127,000) • Acquisition Fee: 1.0% of the total purchase consideration of any Authorised Investments directly or indirectly acquired by Trustee on behalf of IGB REIT • Divestment Fee: 0.5% of the total sale consideration of any Authorised Investments directly or indirectly sold or divested by Trustee on behalf of IGB REIT 1 January to 31 December 2015 100 units per board lot ANNUAL REPORT 2015
Land area of master title (sq ft) 99-year leasehold expiring on 6 June 2103 PN 37075, Lot 80 Seksyen 95A, Bandar Kuala PN 37073, Lot 79 Seksyen 95A, Bandar Kuala Lumpur, Daerah Kuala Lumpur, Wilayah Lumpur, Daerah Kuala Lumpur, Wilayah Persekutuan Kuala Lumpur Persekutuan Kuala Lumpur Encumbrances/material • Private caveat lodged by AEON Co. (M) Bhd • Private caveat lodged by Mid Valley City limitations in master title vide Presentation No. 13931/2012 dated 15 Gardens Sdn Bhd vide Presentation No. 5949/2005 dated 17 May 2005 • Trustee caveat lodged by AmTrustee on • Private caveat lodged by AmTrustee on behalf of IGB REIT vide Presentation Nos. behalf of IGB REIT vide Presentation No. 15448/2012 and 16050/2012, both dated 12690/2012 on 26 July 2012 26 September 2012 • Trust caveat lodged by AmTrustee on behalf of IGB REIT vide Presentation No. 14472/2012 on 30 August 2012 • Trust caveat lodged by AmTrustee on behalf of IGB REIT vide Presentation No. 16049/2012 on 26 September 2012 Restrictions in interest in master * This land shall not be transferred, leased, secured or charged except with the consent of the Federal Territory Land Executive Committee Secretariat (Tanah ini tidak boleh dipindahmilik, dipajak, dicagar atau digadai melainkan dengan kebenaran Jawatankuasa Kerja Tanah Wilayah Persekutuan Kuala Lumpur) Express conditions in master This land shall be used for commercial building only (Tanah ini hendaklah hanya untuk bangunan perdagangan sahaja) Appraised Value as at 31 December 2015 (RM'000) Purchase consideration Net Lettable Area ("NLA") as at 31 December 2015 (sq ft) Gross Floor Area as at 31 December 2015 (sq ft) Number of tenancies as at Occupancy rate as at 31 December 2015 (%) Number of car park bays as at * The extended deadline set by the State Authority for the transfer of MVM and TGM in favour of AmTrustee is 18 October 2016. ANNUAL REPORT 2015
Organisation and Reporting Structure
DIRECTOR
Dato' Seri Robert Joint Chief
Joint COO and
Chief Financial
Head of Operations/
Daniel Yong Chen-I Elizabeth Tan Hui Ning ANNUAL REPORT 2015
Profile of Directors
TAN SRI DATO' DR. LIN SEE YAN
DATO' SERI ROBERT TAN CHUNG MENG
Chairman, Independent Non-Executive Director ("INED") Tan Sri Dato' Dr. Lin See Yan, aged 76, is Chairman of Manager. Dato' Seri Robert Tan Chung Meng, aged 63, is MD of Manager. Tan Sri Dato' Dr. Lin was appointed to the Board on 27 April Dato' Seri Robert Tan was appointed to the Board on 21 March 2012. He is also the Chairman of NC and RC, and a member of 2012 and a member of RC.
Dato' Seri Robert Tan has vast experience in property Tan Sri Dato' Dr. Lin is an independent strategic and financial development, hotel construction, retail design and development consultant. Prior to 1998, he was Chairman/President and as well as corporate management with more than 30 years' Chief Executive Officer of Pacific Bank Group and for 14 years experience in the property and hotel industries. After studying previously, Deputy Governor of Bank Negara Malaysia (the Business Administration in the United Kingdom, he was Central Bank), having been a central banker for 34 years. Tan attached to a Chartered Surveyor's firm for a year. He had also Sri Dato' Dr. Lin continues to serve the public interest, including developed a housing project in Central London before returning Member, Prime Minister's Economic Council Working Group, to Malaysia. His stint in the property industry began with DIRECTOR
as well as a member of a number of key National Committees IGB in 1995 when he was IGB's Joint Managing Director and on Higher Education; Economic Advisor, Associated Chinese subsequently becoming its Group Managing Director in 2001, a Chambers of Commerce & Industry of Malaysia; Board Director, position he currently holds today. Dato' Seri Robert Monash University Malaysia Sdn Bhd and Sunway University Sdn Bhd; and Governor, Asian Institute of Management, Manila. In Dato' Seri Robert Tan was involved in various development addition, Tan Sri Dato' Dr. Lin sits on the boards of several listed projects carried out by IGB group, in particular Mid Valley City. issuers in Malaysia, including Ancom Berhad, Genting Berhad, From inception to the realisation of MVM and TGM, he was Sunway Berhad and Wah Seong Corporation Berhad ("WSCB"), actively involved in every stage of their developments. He is and a number of business enterprises in Malaysia, Singapore instrumental to the development and success of MVM and and Indonesia engaged in petroleum related products, property TGM, and more importantly, in retaining their positions as prime development, software and private equity. Tan Sri Dato' Dr. Lin retail players amidst increasingly competitive retail landscape. is a Member of Harvard University's Graduate School Alumni Through his management and leadership, MVM and TGM are Association Council in Cambridge (USA) as well as President, now two of the most popular malls in the Klang Valley, enjoying Harvard Club of Malaysia. He is also Research Professor, an almost full occupancy rate for the past few years.
Sunway University; and Professor of Economics (Adjunct), Universiti Utara Malaysia; and a Trustee of the Tun Ismail Ali Dato' Seri Robert Tan is also Non-Executive Chairman of WSCB; Foundation (PNB), Harvard Club of Malaysia Foundation, an Executive Director of Goldis Berhad ("Goldis"); and a Director Malaysian Economic Association Foundation and Jeffrey Cheah of Tan & Tan Developments Berhad ("Tan & Tan"), the property Professionally qualified in the United Kingdom as a Chartered Statistician, Tan Sri Dato' Dr. Lin is also banker, economist and TAN BOON LEE
venture entrepreneur, having received three post-graduate Executive Director ("ED") degrees from Harvard University (including a PhD in Economics) where he was a Mason Fellow and Ford Scholar. He is a British Chartered Scientist. Tan Sri Dato' Dr. Lin is an Eisenhower Mr Tan Boon Lee, aged 52, was appointed to the Board of Fellow and a Fellow of the IMF Institute (Washington DC), Manager on 27 April 2012.
Royal Statistical Society (London), Malaysian Institute of Bankers, Malaysian Insurance Institute, Malaysian Institute Mr Tan holds a Bachelor of Economics from Monash University, Joint Chief
Joint COO and
Chief Financial
of Management and Malaysian Economic Association. He is Australia and a Master in Business Administration from Cranfield Head of Operations/
also a Distinguished Fellow of the Institute of Strategic and School of Management, United Kingdom. International Studies in Malaysia.
Mr Tan has vast experience in the property and hotel industries, Daniel Yong Chen-I Elizabeth Tan Hui Ning providing management and technical assistance to hotel and hospitality projects in Malaysia and Asia. He was President of Malaysian Association of Hotel Owners (MAHO) from 2002 to 2004. He spearheaded IGB group's growth into emerging economies of Myanmar and Cambodia in 1990's via the group's Mr Tan is presently an Executive Director of IGB and Goldis, a Director of Dato' Tan Chin Nam Foundation; and SW Homeowners Berhad, and Chief Executive Officer of Tan & Tan.
ANNUAL REPORT 2015
Profile of Directors
HALIM BIN HAJI DIN
DANIEL YONG CHEN-I
Encik Halim bin Haji Din, aged 69, joined the Board of Manager Mr Daniel Yong Chen-I, aged 44, was appointed to the Board of on 27 April 2012, and was appointed AC Chairman. He is also a Manager on 27 April 2012. He is Joint COO (MVM).
member of NC and RC. Mr Daniel Yong is a law graduate from University of Bristol, Encik Halim is a Chartered Accountant who spent more than 30 England. He joined Mid Valley City Sdn Bhd ("MVC") in 1999 years working for multinational corporations and international as a member of the pre-opening retail development team. He consulting firms. He accumulated 18 years of experience was appointed Executive Director of MVC in 2003 and has been working in the Oil and Gas Industry – 6 years of which as a responsible for overseeing the management and operation of Board member of Caltex/Chevron, responsible for financial MVM since. He was also involved in the design and pre-opening management before engaging in the consulting business. Prior of TGM from 2004 to 2007. His prior work experience includes to his appointment as a Board member of Caltex Malaysia, Encik the development of bespoke systems with BYG Systems Ltd Halim served as Regional Financial Advisor for Caltex Petroleum in England and Operational Management with Wah Seong Corporation Dallas, Texas, overseeing investment viability of the Engineering Sdn Bhd, the distributor and manufacturer for corporation's Asian subsidiaries.
Toshiba Elevator and Escalators in Malaysia. Encik Halim also had an extensive experience in corporate Mr Daniel Yong is also an Executive Director of Goldis, and the recovery when he worked for Ernst & Whinney, London, United alternate Director to Pauline Tan Suat Ming on the board of IGB.
Kingdom in mid-1980's. He was appointed as Managing Partner of the consulting division of Ernst & Young Malaysia from 1995. He later became the Country Advisor of Cap Gemini Ernst & ELIzABETH TAN HUI NING
Young Consulting Malaysia when Cap Gemini of France merged with Ernst & Young Consulting. In 2003, he with two partners took over the consulting business of Cap Gemini Ernst & Young Malaysia through a management buyout and rebranded it as Ms Elizabeth Tan Hui Ning, aged 32, was appointed to the Board Innovation Associates, currently known as IA Group, where he is of Manager on 27 April 2012. She is Joint COO and Head of currently Chairman of the group.
Operations/Leasing (TGM). Encik Halim was Council Member of The Malaysian Institute of Ms Elizabeth Tan graduated with First Class Honours from Cardiff Certified Public Accountants from 1994 to 2003. He has also University, Wales, United Kingdom with a degree in Business served as a Board member of Employees Provident Fund from Administration (BSc) in June 2004. She joined Mid Valley City April 2009 to May 2013. Gardens Sdn Bhd ("MVCG") in August 2004 and subsequently Encik Halim is also a Director of WSCB and BNP Paribas Malaysia assumed her present role as Director of Leasing of MVCG. She is responsible for the conceptualisation and strategy of the tenant mix of TGM as well as overseeing the leasing, retail development and customer service departments. LE CHING TAI @ LEE CHEN CHONG
TAN LEI CHENG
Mr Lee Chen Chong, aged 74, was appointed to the Board of Manager on 27 April 2012. He is a member of AC, NC and RC.
Ms Tan Lei Cheng, aged 59, was appointed to the Board of Mr Lee is a Fellow of the Chartered Institute of Bankers (FCIB), Manager on 27 April 2012, and a member of AC and NC.
London, United Kingdom and spent a total of 34 years in commercial and international banking with local as well as Ms Tan holds a Bachelor of Commerce from University of banks overseas. From 1972 to 1984, he was Chief Executive Melbourne, Australia, and a Bachelor of Law from King's College, Officer of an overseas bank in the City of London. In 1985, London (LLB Hons.), England. She is also a member of Lincoln's he returned to Malaysia and joined a Malaysia-French joint- Inn and was admitted to the English Bar in 1983. venture bank in Kuala Lumpur as Executive Director. Mr Lee was subsequently appointed Managing Director until he Ms Tan has more than 30 years of experience in the property relinquished the post in end 1993. The next four years saw him industry and the corporate sector. She was Chief Executive spend time overseas as Chief Executive Officer and Director of Officer of Tan & Tan from March 1995, a property development international banks in the Czech Republic, Hungary and Malta. company that was listed on Bursa Securities until Goldis took He was associated with Multi-Purpose group of companies from over its listing on 8 May 2002, following the completion of the 1989 until his retirement as Executive Director in end 2000. He merger between IGB, Tan & Tan and Goldis. She is presently was also Executive Director of Ipmuda Berhad from December Executive Chairman and Chief Executive Officer of Goldis.
2001 until retiring in January 2008.
Ms Tan also sits on the boards of IGB, Tan & Tan and Dato' Tan Mr Lee is presently Chairman of Koyo International Limited, Chin Nam Foundation. She is a member of the World Presidents' which is listed on Singapore Exchange Securities Trading limited. Organisation, Malaysia Chapter.
ANNUAL REPORT 2015
Profile of Directors
TAN YEE SENG
Mr Tan Yee Seng, aged 35, was appointed to the Board of Manager on 27 April 2012.
Mr Tan holds a professional Diploma of Architecture (Royal Institute of British Architects, Part 2) from University of East London, United Kingdom. Mr Tan joined IGB in 2010 as Senior General Manager (Architectural and Property Development). His prior work experience includes being part of the pre-opening team member of G Tower which is owned by Goldis, where he oversaw the coordination of base building, fit out and operations. He was also extensively involved in the aesthetic realisation of TGM while working at Ensignia Construction Sdn Bhd, the construction arm of IGB, where he worked as a design architect. There he used his training to create and fine tune the facades and key elements of TGM and MVM. He has also been a design architect at Eric Kuhne Associates in London where he worked on several large mixed-use proposals.
Mr Tan is the alternate Director to Tan Boon Seng on the board of IGB and a Director of Tan & Tan.
All Directors are Malaysian. Save for Dato' Seri Robert Tan Chung Meng, Tan Boon Lee, Tan Lei Cheng, Daniel Yong Chen-I, Elizabeth Tan Hui Ning and Tan Yee Seng, the Directors have no family relationship with any Director of Manager and/or major unitholder of IGB Save for the Directors' interests in IGB REIT (as disclosed under the heading "Unitholding Statistics") and the transactions with companies related to Manager (as disclosed in Notes to the Financial Statements), no conflict of interest has arisen during FY2015. All Directors have not been convicted of any offence. ANNUAL REPORT 2015
Profile of Management
ANTONY PATRICK BARRAGRY
CHAI LAI SIM
Antony Patrick Barragry, aged 64, a British but a permanent Chai Lai Sim has over 30 years of experience in audit, corporate resident of Malaysia, was appointed CEO of Manager on 1 finance, capital management strategy including treasury, financial accounting and taxation in property development, commercial and retail property investment and hospitality industries. She He is a qualified architect with 40 years of international experience began her career as an articled student with Coopers & Lybrand in the design, development and operations of major mixed-use (now known as PriceWaterhouseCoopers) before joining Tan & Tan as Group Financial Control er in 1993. Fol owing the completion of the merger between Tan & Tan and IGB in 2002, she was appointed Senior Group General Manager (Group Finance) and His prior work experience includes Jebel Ali Hotel development subsequently assumed the present role of Group CFO of IGB.
in Dubai, Putra World Trade Centre in Kuala Lumpur and Kempinski Ciragan Palace Hotel in Istanbul. His career with She is a member of the Malaysian Institute of Accountants (MIA) IGB group commenced with Renaissance Kuala Lumpur Hotel and Malaysian Institute of Certified Public Accountants (MICPA).
in 1993. Subsequently, he was appointed Project Director in the construction of Phase 1 of Mid Valley City, including MVM. Appointed as Executive Director of MVC in 2002, he spearheaded TINA CHAN LAI YIN
the development of more than 6 million square feet of commercial Head of Compliance and Company Secretary space in Mid Valley City's Phase 2 ("TGM and The Gardens Hotel & Residences"), Phase 3 ("Southpoint", which is under construction) and Phase 4 ("Northpoint"). He was also Project Director for the Tina Chan has a broad knowledge and skill-base in corporate design and construction of St Giles Heathrow, London and the secretarial work, having dealt with a wide range of corporate upgrading of IGB's Pangkor Island Beach Resort, a 100-acre beach- exercises in the course of her 26 years working experience. She front property on Pangkor Island. He was Chief Executive Officer is also presently the Company Secretary of IGB group, a position of MVCG from January 2008 until he relinquished the post in which she has held since 1997. She heads the corporate secretarial division and is responsible for the efficient administration of IGB group, particularly with regard to ensuring compliance with He holds a Diploma in Architecture from the University of Sheffield statutory and regulatory requirements including key areas relating to governance and compliance structures which are implemented and a member of the International Council of Shopping Centres throughout the group. She has started her career with a legal firm and The International Real-Estate Federation (FIABCI).
where she was the Company Secretary, and was later attached to Tan & Tan, her last position there being Joint Company Secretary He has no family relationship with any Director of Manager and/ where she had been significantly involved in the floatation of Tan or major unitholder of IGB REIT, has no conflict of interest with IGB & Tan in 1993 (the listing status of which was assumed by Goldis REIT, and has not been convicted of any offence.
following the completion of the merger between Tan & Tan and IGB in 2002).
DANIEL YONG CHEN-I
She is a Fellow of The Institute of Chartered Secretaries and Joint COO (MVM) His profile is outlined under the heading "Profile of Directors".
CHOW YENG KEET
Head of Investment
ELIzABETH TAN HUI NING
Joint COO and Head of Operations/Leasing (TGM) Chow Yeng Keet is presently the General Manager, Corporate Finance of IGB and Director of Finance of MVC. He has experience in corporate finance and advisory covering mergers and Her profile is outlined under the heading "Profile of Directors".
acquisitions, equity and debt fund raising, capital management and restructuring, valuations as well as take-over offers.
He started his career as Corporate Finance Executive with the then Sime Merchant Bankers Berhad in 1997. Thereafter, he was with Commerce International Merchant Bankers Berhad (now known as CIMB Investment Bank Berhad) for 5 years where his last position was Corporate Finance Manager prior to joining IGB in 2004. He holds a Bachelor of Economics (First Class Honours) from University of Malaya and a Fel ow of the Association of Chartered ANNUAL REPORT 2015
Profile of Management
RENNIE LEE
Head of Operations/Leasing (MVM) Rennie Lee joined MVC in 1995. She has more than 20 years of work experience in leasing and operations within the retail industry. She is credited with being part of the founding team in the marketing of Mid Valley City. Her previous work experience includes leasing and marketing of Mahkota Parade in Malacca, Subang Parade and IOI Shopping centres in Kuala Lumpur. She was a key member of MVM pre-opening team. She is also General Manager of MVC.
KO CHAI HUAT
Head of Marketing (MVM)
Ko Chai Huat joined MVC in 1999. He has 27 years of work experience in visual merchandising as well as advertising and promotions. He was formerly Visual Merchandising Manager at Atria Shopping Centre in Petaling Jaya. He directs, conceptualise and leads all design set ups for promotional activities and events in MVM. He was a key member of MVM pre-opening team. He holds a Diploma in Fine Arts. He is also Director of Design of MVC.
GABRIELLE TAN HUI CHWEEN
Head of Marketing (TGM) Gabrielle Tan holds a Bachelor of Arts in Business Economics from the University of Exeter, United Kingdom and a Bachelor of Fine Arts in fashion design and marketing from American Intercontinental University, London, United Kingdom. She joined MVCG as Head of Marketing in 2008 and subsequently assumed the role of Director of Marketing. She oversees the advertising and promotions activities as well as the public relations initiatives at TGM. She is also Director of Marketing of MVCG.
ANNUAL REPORT 2015
Statement of Comprehensive Income
Gross Revenue (RM'000) Net Property Income ("NPI") (RM'000) Distributable Income (RM'000) Earnings per Unit ("EPU") (realised) (sen) Distribution per Unit ("DPU") (sen) Annualised DPU (sen) Annualised Distribution Yield (%) Management expenses ratio (%) Statement of Financial Position
Investment Properties (RM'000) Total Liabilities (RM'000) Net Asset Value ("NAV") (RM'000) NAV per Unit (RM) From 20 September to 31 December 2012 Financial year ended 31 December Financial period ended 31 December ANNUAL REPORT 2015
NAV PER UNIT PERFORMANCE (RM)
UNIT PRICE PERFORMANCE
Month End Closing Price for 2015 (RM) Closing price as at 31 December (RM) Highest traded price (RM) Lowest traded price (RM) Issued units (‘000) Market capitalisation as at 31 December (RM'000) ANNUAL REPORT 2015
Message from Chairman and Managing Director
Globally, economic performance in 2015 was mixed. Some SUSTAINED FINANCIAL & OPERATING PERFORMANCE
economies strengthened while others continued to be squeezed by plummeting commodity prices and tightened financial This year, we continued our strategy and focus on implementing conditions. In Malaysia, the year proved to be a challenging one asset enhancement initiatives ("AEI") and expanding our tenant as our economy continued to be impacted by falling commodity mix to support continued growth for our stakeholders. Our prices, a slowdown in the Chinese economy, and a ringgit that efforts have helped us deliver sustained performance which was posted the worst annual performance since the Asian Financial also boosted by higher rental income and lower utility expenses. Crisis. Consumers saw the cost of living increase as a result of In FY2015, we posted gross revenue of RM489.2 million and a myriad of factors including the introduction of GST, further NPI of RM342.8 million, reflecting a 5.9% and 9.7% year-on-year adjustments in subsidies and controlled prices, and the higher cost of imported goods as a result of a weakening ringgit. By the end of the year, consumer sentiment was at an all-time low. Distributions to our unitholders also increased in the year. DPU was 8.19 sen, which is 5.1% higher than the DPU of 7.79 sen Despite this, IGB REIT enjoyed continued growth, for FY2014. NAV for IGB REIT as at 31 December 2015 reflecting our strong position in the market as a after income distribution was RM3.666 billion, key shopping destination in the Klang Valley, compared with RM3.664 billion the year and the efforts undertaken by our team to keep our malls contemporary and relevant for today's consumers.
Our performance continues to be bolstered by the strategic location which has enabled continuous A BUSINESS TO LAST FOR
visitor footfall, that allowed us GENERATIONS TO COME
to continue to enjoy almost On behalf of the Board of
100% occupancy in both our The Manager's management IGB REIT Management Sdn
malls, as well as command team remains committed strong rentals. We believe to building a sustainable Bhd ("Manager"), we are
our performance to-date is business that not only caters testimony to the sustained pleased to present the
to consumers of today but strength of our business. that is able to meet the needs Annual Report FY2015 of
of generations to come. To IGB REIT.
achieve this, the team has a clear strategy for long term growth, and works to ensure that the highest MVM enjoyed a healthy growth in standards of corporate governance tenant sales and welcomed an exciting are upheld to safeguard the interests of range of new stores including Le Creuset, all our stakeholders. Jo Malone London, DIOR, Bath & Body Works, Under Armour, Victoria's Secret, YEAST, An effective enterprise risk management system Vapebrothers, Fitflop, Party Wonderland, Mikey's New York is in place to ensure that we have the necessary checks and Pizza, and Sports Direct.
balances to help support growth. We adhere strictly to an ethics and code of conduct in business that addresses issues The 40,000 sq ft of net lettable space which was added this year such as confidentiality, conduct, and workplace discipline and has also been well received, contributing to an increased footfall. conflict; and do not tolerate any form of bribery and corruption. With the space enjoying a mix of food and beverage, leisure and This extends to all third party service providers, suppliers and entertainment, and retail tenants, it has done well to contribute vendors that we engage. to a fresh and contemporary ambience for the mall.
Additionally, we remain committed to being an employer of We also continued to upgrade our facilities for the convenience choice and work hard to ensure that all our employees have and comfort of our customers. This year, in addition to equal access to development and training based on their needs upgrading our washrooms, we completed the installation of and strengths, are treated fairly and with respect, and are new LED lighting and epoxy flooring in the car parks, as well as rewarded based on their ability, performance and contribution the installation of an individual bay car park guidance system to to our business. enhance the overall ambiance and ease of use. We also continue to be a responsible member of our community, and work to engage and give back to our local communities throughout the year. ANNUAL REPORT 2015
Message from Chairman and Managing Director
TGM continued to see positive growth in tenant sales this year. We would like to express our appreciation to the members of In line with its positioning as a luxury mall, TGM welcomed new the Board and the management team for their service and hard luxury brands such as Balenciaga, Diane Von Furstenberg, Bell work in delivering another positive year for IGB REIT, particularly & Ross, designer furniture brand Flexform, and a multi-brand in these challenging times. We would also like to take this children's boutique called Kids Around, amongst others. In opportunity to express our gratitude to our unitholders, tenants, addition, the Hermes and Longchamp boutiques expanded their business partners and customers for their continued confidence retail spaces in the mall.
in us and ongoing support.
We believe that our careful selection of luxury brands continue to cement our position in the retail market as a key destination for luxury retail experiences and have been responsible for driving increased footfall and sales in the year. TAN SRI DATO' DR. LIN SEE YAN
Chairman
A new Point of Sales system was also introduced at TGM this year for The Gardens Club members. The system allows us to better understand what our customers are interested in and where DATO' SERI ROBERT TAN CHUNG MENG
they spend their time while at TGM. This information then allows Managing Director us to develop reward programmes that are better suited to our customer demographics, thus helping to drive greater customer loyalty in the long run. 2016 is set to be a challenging year for Malaysia with the outlook continuing to remain uncertain as the ringgit and commodity prices remain at an all-time low. With the announcements of further subsidy adjustments, an increase in tolls and transportation costs, and a softening employment market, consumer sentiment will undoubtedly take a hit.
Despite this, IGB REIT will continue to enhance its assets, and remain relevant and contemporary by keeping its tenant mix fresh and vibrant. New names to look forward to in 2016 include Naughty Nuri's and Stride Rite in MVM, and Bulgari and new-to-market Rebecca Minkoff in TGM. The newly refurbished Golden Screen Cinemas ("GSC") in MVM will also be adding another 4 screens by the second quarter of 2016, making it the largest GSC in Malaysia with 2,800 seats.
We will also strengthen our efforts to connect with customers through experiential marketing and activation based campaigns. Through the years, MVM and TGM have proven to be strong players in the retail industry, and have a track record that demonstrates our ability to maintain sustainable growth even in challenging times. We are therefore confident that we are well positioned to continue to drive sustainable growth, delivering competitive results and creating value for our unitholders.
ANNUAL REPORT 2015
Message from Chief Executive Officer
STEADY PERFORMANCE AMID GROWING HEADWINDS
Our Local Community
We entered the year on the back of declining commodity prices Our festive celebrations this year saw us continue to reach out to and a weakening ringgit, both of which continued to fall as the the less fortunate through working with charitable organisations year progressed. The second quarter saw the introduction of such as Rumah Kasih Sayang, Red Crescent Society Malaysia, and GST, which contributed to an overall rising cost of living, and a Grace Community Services.
slowdown in retail sales across Malaysia. Earlier on in the year, we also did our part to help the flood Despite this, IGB REIT continued to enjoy positive growth in 2015 victims in East Malaysia. Working through the Taiwan Buddhist as we kept our focus on pushing through with AEI, and ensuring Tzu Chi Foundation Malaysia, we helped affected families that both MVM and TGM remained fresh and contemporary. through providing basic necessities and assisting in cleaning homes. We also invited representatives from the Taiwan Buddhist Tzu Chi Foundation to our malls to provide shoppers with SUPPORTING OUR COMMUNITIES AND SUSTAINING GROWTH
updates on the situation in East Malaysia as well as provide them with information on how they could help. Through the social Our People
media platform Instagram, additional funds were also raised to help the flood victims. The success of our business depends very much on the people who support us - our employees, tenants, customers, and Following the success of our inaugural Mid Valley City Charity business partners. This year, we were especially cognisant of Run, we partnered with HSBC Bank Malaysia Berhad again to the need to support and engage with them so that we had organise the second run in March this year. More than 1,300 a constant ear to the ground and understood the changing people took part, raising RM65,000 which was donated to the St business and retail landscape. Additional resources were John Ambulance of Malaysia. therefore expended on advertising and promotional campaigns to help drive footfall and stimulate spending. We also continued During the Christmas period, we also raised more than RM30,000 to enhance the overall customer experience in both our malls so in funds for the Yayasan Sunbeams Home and Agathians Shelter that visitors came away with positive experiences, thus driving (Pertubuhan Kebajikan Agathians Malaysia). The funds were customer loyalty. raised through our annual Santa Meet and Greet sessions as well as through participating merchants who donated a percentage Efforts to engage our customers through social media were also of their sales during the period to the two non-profit charity stepped up as the platform has proven to be popular with an increasingly tech-savvy population. We have found it particularly useful in helping us communicate with and receive feedback from our customers in a timely manner.
As part of our continuing efforts to enhance the shopping Notable for the year, was the addition of 40,000 sq ft of net experience for our customers, security remained a priority, and lettable space in MVM which injected a fresh ambience to the we continued to improve the ambience of both our malls. Works mall. The space has so far been successful in attracting a young to upgrade our car parks were completed, allowing visitors to customer segment and we are confident that it will continue to benefit from a cleaner and brighter environment; and further attract both new and returning customers. works to upgrade other facilities such as our washrooms were also undertaken. We remain committed to cultivating an inclusive and collaborative workplace that not only operates with the utmost Additionally, we reconfigured retail spaces to improve the level of professionalism but also supports the continued growth efficiency with which we use space in our malls, allowing for a of our employees. We therefore continued to invest in training greater variety of shops, including more speciality stores. across all business units and take a firm stand against any form of discrimination or harassment. Following the success of our "Beautiful Earth" campaign in 2013, and "Beautiful Ocean" campaign in 2014, 2015 saw us work with WWF-Malaysia to roll out the "Malayan Tiger Campaign 2015". The campaign sought to raise awareness around the endangered status of these tigers and educate the public about the importance of tiger conservation. Booths were set up to disseminate information about efforts undertaken to help save these tigers including how members of the public can play their part. Merchandise was also sold to help raise funds for the cause. ANNUAL REPORT 2015
Message from Chief Executive Officer
THE YEAR AHEAD
2016 looks set to continue to be challenging as a recovery in the ringgit and commodity prices are not expected in the coming months. Despite a tapering off of the GST effect, inflationary pressures are expected to be sustained and as such, we are expecting retail spending to remain cautious. Additionally, we continue to face increasing competition from new malls as well as online shopping portals.
Having said that, we remain confident that IGB REIT is well- positioned to sustain its performance through different economic cycles as a result of a business built on the strength and experience of our management team, the vibrant tenant mix that we offer, as well as a clear strategy that has so far allowed us to grow our business and establish both MVM and TGM as key shopping destinations in the Klang Valley. Our continued strength would not be possible without the support and commitment of our management team, unitholders, business partners, tenants, and customers. As we reflect on the year gone by and prepare to tackle the year ahead, I would like to extend my sincere appreciation to all of our stakeholders and thank them for their continued and unwavering support. Additionally, I would like to take this opportunity to thank our Trustee and members of the Board for their invaluable guidance through the years. ANTONY PATRICK BARRAGRY
Chief Executive Officer ANNUAL REPORT 2015
The Manager is pleased to submit their report and audited financial statements FY2015 to unitholders of IGB REIT.
PRINCIPAL ACTIVITY AND INVESTMENT OBJECTIVES
IGB REIT is a Malaysia-domiciled real estate investment trust ("REIT") established on 25 July 2012 pursuant to the Deed between the Manager and AmTrustee Berhad ("Trustee") and listed on Main Market of Bursa Malaysia Securities Berhad ("Bursa Securities") on 21 September 2012. The Deed is regulated by the Securities Commission Act 1993, REIT Guidelines, Main Market Listing Requirements ("MMLR"), Rules of Bursa Malaysia Depository ("Depository") and taxation laws and rulings. IGB REIT will continue its operations until such time as determined by the Manager and the Trustee as provided under the provisions of Clause 26 of the Deed. The principal investment policy of IGB REIT is to invest, directly and indirectly, in a diversified portfolio of income producing real estate used primarily for retail purposes in Malaysia and overseas as well as real estate related assets. Real estate used primarily for retail purposes would include retail properties and mixed used development with a retail component.
The primary objective of IGB REIT is to provide unitholders with regular and stable distributions, sustainable long term unit price, distributable income and capital growth, while maintaining an appropriate capital structure. The Manager intends to increase the income and consequently the value of the assets, through the following strategies: Active asset management strategy ensure continued high shopper traffic at the malls; continual improvement of rental rates while maintaining high occupancy rates; deliver quality services to tenants and maintain strong tenant relationship; – improve operational efficiency and reduce operating cost without compromising on quality of services to tenants and increase NLA via AEI.
Acquisition growth strategy – explore acquisition opportunities if such opportunities fit within the investment criteria and investment objectives of IGB – focus on acquisitions that are immediately yield accretive, but shall also consider those that are not immediately yield accretive that will still add value to unitholders over the long term.
Capital and risk management strategy adopt and maintain an appropriate gearing level and active interest rate management strategy; diversify sources of debt funding to the extent appropriate; maintain a reasonable level of debt service capability; secure favourable terms of funding; manage its financial obligations; and manage the exposure arising from adverse market interest rates, such as through fixed rate borrowings to optimise the cost of capital.
IGB REIT has achieved its investment objective for FY2015 and there is no change in the strategies as disclosed in IGB REIT initial public offering prospectus.
There are no significant changes in the state of affairs of the fund during FY2015 and up to the date of this report other than those disclosed in the Financial Statements.
The audited profit after tax ("PAT") for FY2015 was RM254.0 million.
ANNUAL REPORT 2015
MALAYSIA RETAIL INDUSTRY REVIEW AND OUTLOOK
Malaysia Retailers Association ("MRA") have lowered the projected retail sales growth rate in 2015 for the third time from 4.9% to 4.0% as consumers hold back their spending due to higher cost of living, a weak ringgit and higher cost of doing business. In its Malaysia Retail Industry Report ("MRIR"), MRA said consumers had been holding back on spending since end of 2014 ahead of GST, which was imposed on 1 April 2015.
Retailers have been hard hit by the implementation of GST, especially discretionary businesses and those catering for the mass-market segment. Retail Group Malaysia ("RGM") said that in April 2015, sales for all retail subsectors (grocery, fashion and fashion accessories, electrical, food and beverage, and overseas travel) have dropped by as much as 50%. The cost of living has risen since 1 April 2015 and has reduced the spending power of consumers. They were holding back on purchases and observing the price movements of goods and services. In January, RGM revised downwards its 2015 retail sales growth forecast to 5.5% from 6%. For retailers in the mass-market segment, the impact of GST has been more profound. They were absorbing the higher costs which affect the profit margins, and raising prices which lower sales. The Malaysian Institute of Economic Research's Consumer Sentiment Index has plummeted to a six-year low of 72.6 points, a level not seen since the global economic slowdown in 2008/09. According to RGM, traffic in shopping malls has dropped in April 2015. Retailers who buy the bulk of their imported goods from third parties could be worse off due to the weaker ringgit.
According to CIMB Research, while highly discretionary items, such as high-end watches, handbags and jewellery have generally experienced weak sales pre and post-GST. Grocers saw strong sales before the implementation of GST, but sales softened post-GST as consumers had already stocked up on their necessities.
(Source: The Star & The Edge, 2015) A weak outlook on oil price, rising interest rates in the United States, capital outflow and pressure on ringgit in addition to inflation impact on consumer purchasing power and high household debt create a challenging outlook for the retail sector. Retailers' performance could be hit by lower discretionary spending, weakened consumer sentiment and stiff competition. Despite the satisfactory financial performance in FY2015, IGB REIT is cautious about the challenging business volatility and economic headwinds may impact the financial performance for 2016.
Notwithstanding the above, IGB REIT would continue focus on AEI and proactive asset management in order to remain resilient and sustain the distribution yield. The Manager is not aware of any material litigation since the date of statement of financial position as at 31 December 2015 up to the date of this report.
CIRCUMSTANCES THAT MATERIALLY AFFECT THE INTERESTS OF UNITHOLDERS
There are no circumstances which materially affect the interests of the unitholders.
ANNUAL REPORT 2015
IGB REIT was established on 25 July 2012 and listed on the Main Market of Bursa Securities on 21 September 2012 with two investment properties under its portfolio, namely MVM and TGM.
IGB REIT is a collective investment scheme constituted as a unit trust and regulated by SC pursuant to the provisions of REIT Guidelines and Capital Markets and Services Act 2007 ("CMSA") as well as MMLR.
IGB REIT Management Sdn Bhd was appointed Manager of IGB REIT pursuant to the Deed entered into between Manager and AmTrustee ("Trustee") on 18 July 2012. Manager and Trustee are independent of each other. Trustee is responsible for the safe custody of the assets of IGB REIT on behalf of unitholders, whereas Manager has general powers of management over the assets of IGB REIT with a focus on generating rental income and enhancing asset value over time so as to maximise the returns from the investments, and ultimately the distributions and total returns to unitholders. The Board and management of Manager recognise that well-defined corporate governance processes are essential in enhancing corporate accountability and long-term sustainability, and remain committed to ensuring good governance practices in its overall management of IGB REIT to protect and enhance unitholder value. In developing its system of corporate governance, the Board is guided by the measures set out in REIT Guidelines, CMSA, MMLR and Malaysian Code on Corporate Governance 2012 ("MCCG"). The policies and practices of Manager, supported by existing internal control processes, are regularly reviewed and refined on the basis of new regulatory requirements and best practices, as well as the needs and circumstances of Manager and IGB REIT. This report outlines Manager's governance principles which sets out the role of the Board, its processes and its relationship with management as well as describes the work of the Board and its Committees during FY2015. Except where specifically identified in this report, the Board believes that Manager has complied substantially with the best practices of MCCG and the provisions in MMLR as well as the obligations under Deed in discharging its responsibilities as Manager.
I. MANAGER
IGB REIT, constituted as a trust, has no personnel of its own. It is externally managed and administered by Manager, which is led by an effective Board and is headed by Tan Sri Dato' Dr. Lin See Yan. He is joined on the Board by Halim bin Haji Din, Le Ching Tai @ Lee Chen Chong, Dato' Seri Robert Tan Chung Meng, Tan Boon Lee, Daniel Yong Chen-I, Elizabeth Tan Hui Ning, Tan Lei Cheng and Tan Yee Seng. Manager has also appointed a team of experienced and well-qualified management to handle the day-to-day operations of Manager and IGB REIT. The management team comprises CEO, Joint COO (MVM), Joint COO and Head of Operations/Leasing (TGM), CFO, Head of Compliance/Company Secretary, Head of Investment, Head of Operations/Leasing (MVM), Head of Marketing (MVM) and Head of Marketing (TGM). Apart from the day-to-day interactions, the management team, chaired by CEO, meets regularly for operation updates and sharing among the team members. Biographical details of Directors and management are set out in Annual Report 2015 under the respective headings "Profile of Directors" and "Profile of Management". Manager also manages and supervises the property manager (including its service providers) who provides property management services including leasing and marketing functions in respect of MVM and TGM.
Manager's main responsibility is to manage activities in relation to IGB REIT. Manager shall, in managing IGB REIT, undertake primary management activities including but not limited to overall strategy, risk management strategy, new acquisition and disposal analysis, marketing and communications, individual asset performance and business planning, market performance analysis and other activities as provided under Deed, and in accordance with acceptable and efficacious business practices in the REIT industry in Malaysia.
Manager has a Capital Markets Services Licence issued by SC to carry on the regulated activity of fund management in relation to asset management. Manager's licensed representatives are Antony Patrick Barragry and Elizabeth Tan Hui Ning. During FY2015, the representatives have attended and completed the continuing professional education as required by SC for each calendar year. II. BOARD
Directors' Code of Business Conduct and Ethics ("Code"), Board Charter and Operations Manual
Code provides a clear approach of how Manager expects all Board members to conduct themselves. The principles on which Code relies are those that concern transparency, integrity and accountability. It provides clear direction on conducting business, guidance on disclosure of conflict of interest situations, maintaining confidentiality and disclosure of information, good practices and internal control, and the duty to report where there is a breach against Code. Code is reviewed from time to time to ensure new facts and circumstances and evolving governance issues are addressed and best practices are incorporated.
ANNUAL REPORT 2015
Board Charter is aimed at ensuring that Directors acting on behalf of Manager are aware of their duties and responsibilities as Board members and the various legislations and regulations affecting their conduct and that the principles and practices of good governance are applied in their dealings in respect, and on behalf of Manager and IGB REIT. Board Charter comprises, among others, well-defined terms of reference ("ToR") as well as the authority limits for the Board and its Committees, and the various relevant internal process. Board Charter is to be updated from time to time to reflect changes to the Board's policies, procedures and processes as well as amended relevant rules and regulations to ensure it remains consistent with the Board's objectives, current law and best practice.
Code and Board Charter are available on IGB REIT's website (www.igbreit.com) for easy access by unitholders of IGB REIT and the public alike.
Manager also has an Operations Manual which sets out detailed compliance procedures in connection with IGB REIT's operations, objectives and investments as well as governance policies and practices. The manual acts as a guide for management in daily operational activities of IGB REIT, and reference to new Director or senior management to familiarise with IGB REIT's business and governance process. (b) Board Responsibility
The Board has the overall responsibility for managing and governing Manager and IGB REIT in the best interests of unitholders and stakeholders. The Board provides leadership to Manager, sets the strategic directions and oversees the management of IGB REIT. The Board assumes, among others, the following key responsibilities: Set objectives, goals and strategic plans for Manager and IGB REIT with a view of maximising unitholders' value.
Formulate policies and oversee the proper conduct of Manager and IGB REIT (including budgeting approval and all other financial matters).
(iii) Oversee the conduct of properties under IGB REIT's portfolio to evaluate whether they are properly managed.
(iv) Consider management's recommendations on key issues including acquisitions, divestments, funding and significant capital expenditure.
Oversee the risk management processes, internal compliance controls and integrity of management information systems of Manager and IGB REIT.
(vi) Monitor compliance with all relevant laws, legislative and regulatory requirements (including continuous (vii) Determine and approve the distribution amounts to unitholders.
Other than specifically reserved for the Board's decision as set out in Board Charter and Operations Manual, the responsibility of managing activities and affairs of Manager and IGB REIT is delegated to MD and CEO who operate in accordance with the Board approved policies and delegated limits of authority. Appropriate delegations of authority and approval sub-limits are also provided at management level to facilitate operational efficiency.
Board Composition and Diversity
With the aim of creating a Board structure that is both effective and balanced, the size of the Board has been set to provide for a minimum of two Directors and a maximum of ten Directors. The Board currently comprises nine members, with five Non-Executive Directors ("NEDs") (including three independent Directors) and four Executive Directors ("Executive Board"). The Directors with property investment and commercial experience with diverse academic backgrounds provide a collective range of skills and expertise which is vital to effectively lead Manager and IGB REIT. Executive Board and NEDs are equal members of the Board, both having fiduciary duties to unitholders and collectively responsible for the direction and performance of Manager and IGB REIT.
ANNUAL REPORT 2015
Board Chairman, MD and CEO are not related to each other. Their roles are kept separate to ensure a clear division of responsibilities, increased accountability and a greater capacity of the Board for independent decision-making. Board Chairman, who is an independent NED ("INED"), leads and ensures effective and comprehensive Board discussion on matters brought to the Board including strategic issues as well as business planning. Board Chairman also takes a leading role in promoting high standards of corporate governance with the full support of Directors and management. MD as a representative of the Board, together with CEO, is accountable to the Board and responsible over the business direction and the strategy implementation of Manager and IGB REIT. CEO has the overall responsibility for the day-to-day operational management of Manager and IGB REIT, including execution of the agreed business policies and directions set by the Board and of all operational decisions in managing Manager and IGB REIT, as well as provides close oversight, guidance, advice and leadership to management. The current Board fulfils the requirement under REIT Guidelines which requires one-third of the Board to be independent. INEDs must be individuals who fulfil the independence criteria set out in Board Charter that are not less exacting than those set out in MMLR for assessing the independence of INEDs. INEDs, all of whom are persons of high calibre and integrity, play important roles by exercising independent judgement and objective participation in the proceedings and decision-making processes of the Board. The presence of INEDs fulfils a pivotal role in corporate accountability to ensure that the interests of minority unitholders are properly safeguarded. Non-INEDs ("NINEDs") also bring with them a wide range of essential business and financial experience relevant to Manager and IGB REIT.
Manager does not practice any form of gender, ethnicity and age bias as the Board believes that both genders are to be given fair and equal treatment, and any new appointments to the Board shall be based on merit and measured against objective criteria. Harnessing strengths from a variety of backgrounds, experiences and perspectives allows the Board to add greater diversity to their deliberation. Currently, there are two female Directors on the Board. The structure, size and composition of the Board are reviewed annually to ensure that it has the appropriate mix of expertise and experience. A Director with multiple board representations is expected to ensure that sufficient attention is given to the affairs of Manager and IGB REIT. NC is mandated to review the structure, size and composition to the Board annually with a view of determining the impact of the number upon effectiveness and recommending on what it considers an appropriate size and composition for the Board. NC had at its meeting in January 2016 reviewed the Board structure, size and composition appropriate to the efficient governance and management of Manager and IGB REIT. Considerations that factor into the assessment process included, among others, the nature and scope of the operations of IGB REIT and Manager, the current Board's skillset, and the number of Directors needed to discharge the duties of the Board and its Committees. NC (with the Board's concurrence) was satisfied that the Board as presently constituted was of sufficient size and diversity with the appropriate mix of expertise, experience, competencies and skills to carry out its responsibilities. The Board is of the view that it is not necessary to appoint a senior INED as Board Chairman promotes an open environment for deliberation and ensure that Board meetings are conducted in a manner that allows NEDs to participate in meaningful and active discussions.
(d) Board and Board Committee Meetings
Directors are expected to prepare for, attend, and contribute meaningfully in all Board and applicable Board Committee meetings in order to discharge their obligations. To facilitate participation of Directors' attendance at Board and Board Committee meetings as well as general unitholders meeting, schedule of meetings for each calendar year is planned in advance, and tele-conference and video-conference are allowed under Manager's Articles of Association ("Articles"). Meeting materials for Board and Board Committees are uploaded onto personal electronic tablets to enable Directors to access the documents in a timely manner. As a general rule, meeting materials are disseminated to Directors and members at least three days prior to the meetings to provide sufficient time to review and consider matters at hand so that discussions at the meetings can be focused on Directors' and members' questions arising from these matters. In order to maintain confidentiality, documents on issues that are deemed to be price-sensitive may be handed out to Directors and members during the meetings. Where necessary or prudent, presentations and briefings by external consultants and legal advisors are on hand to provide further information and respond directly to Directors' and members' queries. Consistent with their fiduciary duties, Directors are expected to maintain the confidentiality of the deliberations of the Board and Committees. Directors are also fully apprised of the need to disclose potential or actual conflict of interest which may arise in relation to transactions or matters which come before the Board or Committee.
ANNUAL REPORT 2015
The Board meets four times a year at approximately quarterly intervals and as warranted by particular circumstances. Board meetings are also supplemented by resolutions (limited to non-significant transactions) circulated to Directors for decision between the scheduled meetings. Manager's Articles provide for decision being taken by absolute majority of the votes. However, the decisions have always been taken by consensus of Board members present. A record of the Board's deliberation of the issues discussed and conclusions reached in discharging its duties and responsibilities is captured in the minutes of each meeting. Minutes of each Board meeting are circulated to each Director for their comment prior to confirmation of the minutes in the next meeting.
Board and Board Committee meetings and general unitholders meeting for 2015 were pre-arranged in April 2014, and communicated to Directors to ensure their time commitments. Directors and officers were also notified in advance of the closed periods for dealings in IGB REIT securities based on the targeted announcement dates of IGB REIT's quarterly results. Four meetings were held during FY2015 which were attended by all Directors except Tan Sri Dato' Dr Lin See Yan and Elizabeth Tan Hui Ning who attended three out of four meetings. CEO, CFO, Head of Investment and Head of Compliance were permanent invitees to Board meetings to present reports on matters relating to their areas of responsibility, and to provide insight into reports or recommendations submitted to the Board. The business discussed, considered, deliberated and approved by the Board in FY2015, among others, operating highlights of IGB REIT's business and performance; annual budget and mid-year review of plan and budget; quarterly and full year results; semi-annual distributions; risk and controls environment including other risk management and governance initiatives; and Manager's financial performance and its administration.
To assist the Board in the efficient discharge of its responsibilities and provide independent oversight of management, the Board has entrusted specific responsibilities to certain Board Committees, which operate within defined ToR. The powers and responsibilities of each Committee are established in Board Charter. Topics of discussion and frequency of meetings will vary depending on each Committee's charter and the portfolio's complexity. The chairman of the respective Board Committees reports to the Board on any salient matters noted by Committees and which require the Board's notice, direction or approval. Committee meeting minutes are included as part of Directors' meeting materials to keep Directors updated on each Committee's activities. In common with the Board, each Committee has access to independent advice and counsel as required. The composition of Board Committees and their ToR are as follows: AC comprises three INEDs and one NINED. AC chairman is Halim bin Haji Din and the members are Tan Sri Dato' Dr. Lin See Yan, Le Ching Tai @ Lee Chen Chong and Tan Lei Cheng. With an independent component of 75% and comprised of NEDs, the composition of AC is fully compliant with MMLR. AC as a whole has an appropriate and experienced blend of commercial, financial and audit expertise to assess the issues it is required to address. AC supports the Board in its supervision of financial controls through the direct link to external and internal auditors. AC's main duties include, among others, review the integrity of IGB REIT's quarterly and year-end financial results; assess the effectiveness and efficiency of the internal controls, risk management and governance processes of IGB REIT and Manager; and oversee the adequacy of external and internal audits in respect of cost, scope and performance.
AC met 4 times in 2015 which were attended by all members except Tan Sri Dato' Dr. Lin See Yan who attended three out of four meetings. AC also met twice in 2015 with external auditor independently of Executive Board and management, and discussed with them the financial statements and other financial issues as deemed appropriate. Briefings on developments in accounting and governance standards were also presented by external auditor at AC's meetings.
More information on the role and the responsibilities of AC such as its functioning and activities carried out during FY2015 is set out in Annual Report 2015 under the heading "Audit Committee Report".
NC comprises three INEDs and one NINED. NC chairman is Tan Sri Dato' Dr. Lin See Yan and the members are Halim bin Haji Din, Le Ching Tai @ Lee Chen Chong and Tan Lei Cheng. ANNUAL REPORT 2015
NC recommends suitable candidates for appointments to the Board, including Committees of the Board; conducts annual review of the structure, size and composition of the Board (including skills, knowledge, experience and gender diversity), the performance of the Board, the Committees, each individual Director and those Directors who are due for re-election and re-appointment at Manager's annual general meeting ("AGM"); assesses the independence of INEDs based on the criteria for independence as defined in MMLR and presents its assessment to the Board for final determination; and oversees the long-term succession planning of the Board.
NC met once in 2015 which was attended by all members. NC had carried out a performance evaluation of the Board, the Committees and each Director, assessment of INEDs and those Directors due for re-election and re-appointment at Manager's AGM, and made recommendations to the Board as appropriate. This process had also been undertaken in January 2016 as outlined in the sections under "Board Appointment and Re-election" and "Board Performance Evaluation". RC comprises three INEDs and MD. RC chairman is Tan Sri Dato' Dr. Lin See Yan and the members are Halim bin Haji Din, Le Ching Tai @ Lee Chen Chong and Dato' Seri Robert Tan Chung Meng.
RC reviews and recommends to the Board for endorsement the policy framework on terms of employment and on all elements of the remuneration of Executive Board, CEO and senior management, as well as the remuneration framework for NEDs' annual fee and meeting allowance; and reviews and approves the annual salary increment and bonus of Executive Board, CEO and senior management. In its deliberation, RC will take into consideration industry practices and norms in addition to Manager's relative performance to the industry and performance of the individual Directors and senior management in determining a fair overall assessment. No Directors will be involved in deciding his or her own remuneration.
RC met twice in 2015 which were attended by all members except Tan Sri Dato' Dr. Lin See Yan who attended one out of two meetings. RC had considered the extension of MD's service contract, the quantum of NEDs' remuneration, and the level of pay increases and annual bonus for Executive Board, CEO and senior management. RC, having regard to MD's significant contributions and deliverables over the years, with his vast experience and insight of the property investment and commercial industry, as well as the need for him to lead and oversee the strategic business direction of IGB REIT and Manager, had recommended the renewal of MD's service contract for a term of 3 years at a remuneration comparable to companies of similar size in the same industry, of which the Board had approved. The Board had also endorsed RC's recommendation to maintain status quo on the annual fee FY2015 and meeting allowance in year 2016 for NEDs. RC, in consultation with MD on matters relating to the financial and operating performance of IGB REIT and Manager, including consideration of the economic environment, as well as the individual performance (quantitative and qualitative objectives) of Executive Board, CEO and senior management, had applied its judgement in determining a balanced fair outcomes for pay increases and bonus of Executive Board, CEO and senior management. RMC, comprises of management team, is chaired by CEO, Antony Patrick Barragry, and its other members are Daniel Yong Chen-I (Joint COO - MVM), Elizabeth Tan Hui Ning (Joint COO and Head of Operations/Leasing - TGM), Chow Yeng Keet (HOI) and Rennie Lee Chai Tin (Head of Operations/Leasing – MVM). RMC is tasked with the responsibilities to oversee the risk management for IGB REIT. The responsibilities of RMC for risk oversight include, among others, reviewing IGB REIT's risk profile and ensuring the implementation of appropriate systems to manage and mitigate the identified risks. RMC meets quarterly or more often if necessary, to appraise the adequacy and effectiveness of IGB REIT's risk management plans, systems, processes and procedures, as well as its risk portfolios, risk levels and risk mitigation and strategies. In FY2015, four meetings were held by RMC which were attended by all members except Elizabeth Tan Hui Ning who attended three out of four meetings.
ANNUAL REPORT 2015
IWG, comprises Executive Board and CEO, is tasked with the responsibilities to review, assess and consider investment and divestment strategies of IGB REIT, with an aim to grow IGB REIT and improve distribution yields. IGB REIT did not enter into any real estate sales and purchases during FY2015. Board Appointment and Re-election
Appointments to the Board are the responsibility of the full Board on the recommendation of NC. There are formal, considered and transparent procedure for appointment of new Directors which is made on merit and against objective criteria and with due regard for the benefits of diversity on the Board. There were no new appointments to the Board during FY2015.
Manager's Articles require a third of its Directors except MD to retire and stand for re-election each year (1/3-rotation rule). In addition, all newly appointed Directors are to submit themselves for re-election at the AGM immediately following their appointment, and thereafter these Directors are subject to 1/3-rotation rule. Directors over 70 years of age are also statutorily required to seek for re-appointment at each AGM in compliance with Section 129(6) of the Companies Act 1965 ("Act").
Board Charter does not impose a term of limitation on tenure of a Director considering that the Board has established a process for assessing performance of individual Directors to be carried out by NC annually. To ensure the balance of skills, qualities and competencies, the Board believes that the experience brought through long service is invaluable. The Board do not feel that identifying rigid maximum terms of office of members is conducive to ensuring the correct balance of skills and experience and having a strong cohesive Board.
NC had at its meeting in January 2016 assessed those Directors retiring under Manager's Articles or Act, and had recommended that the four Directors namely Tan Sri Dato' Dr. Lin See Yan, Le Ching Tai @ Lee Chen Chong, Elizabeth Tan Hui Ning and Tan Yee Seng be re-appointed/re-elected to continue their offices having regard to the individual Director's contribution and performance (such as attendance, preparedness, participation and candour) with reference to the results of the assessment of the performance of the individual Director, whereupon the Board (without participation by the related Directors) had endorsed NC's recommendation. Each member of the Board holds not more than five listed issuer seats.
(g) Board Performance Evaluation
The Board under the guidance of NC reviews and evaluates its own performance and that of its Committees and individual Directors on an annual basis against both measurable and quantitative indicators, thus ensuring Manager is under the oversight and guidance of an accountable and competent Board. The review allows each Director to individually express his or her personal assessment of the Board's overall effectiveness in accomplishing its goals and discharging its responsibilities. It provides insight into the functioning of the Board, while identifying areas that might need strengthening and development. To provide feedback to aid in these assessments, each Director is required to complete a self-evaluation checklist. The checklist covers topic which include, among others, the responsibilities of the Board in relation to strategies and direction, accountability and oversight, risk management, performance management, compliance and corporate governance. Other areas being assessed include Board structure, Board decision-making and meeting processes. The members and chairmen of each Board Committee are also required to complete an assessment checklist on the effectiveness of Board Committees on which they serve, in terms of composition and governance, meeting administration and conduct, and skills and competencies. Upon completion of the evaluation process, NC chairman briefs the Board on the overall results of the evaluation conducted and improvements recommended where appropriate. The independence of each INED is also assessed annually, with each INED required to complete an independence checklist drawn up based on the criteria for independence as defined in MMLR and other governance standards as appropriate. Thereafter, NC reviews the completed checklists, assesses the independence of INEDs and presents its assessment to the Board for final determination. NC had at its meeting in January 2016 conducted the process, and concluded that the Board as a whole and its Committees have performed well with the individual's creditability to add value to the Board's and Board Committees' deliberations and exercise objective judgement in decision-making processes, and each Director has given sufficient time and attention to the affairs of IGB REIT and Manager. In reviewing the independence of INEDs, NC had determined that they remained objective and independent of management and free of any business or relationship with Manager and IGB REIT, and that they had and would continue to provide check and balance to the Board in discharging their responsibilities in an independent manner. ANNUAL REPORT 2015
The Board had considered NC's views, and concurred that each Director has continued to perform effectively and demonstrated commitments to his or her role, including commitment of time to the Board and Board Committees. The Board (without participation by related INEDs) had also established that Tan Sri Dato' Dr. Lin See Yan, Halim bin Haji Din and Le Ching Tai @ Lee Chen Chong, the three INEDs of Manager since 2012, have demonstrated complete independence in character and judgement both as Board members and their designated roles in the respective Board Committees, and their in-depth knowledge of IGB REIT's business and their extensive experience would continue to provide invaluable contribution to the Board, and as such, the Board had deemed it appropriate that they continue to act as Independent Directors.
(h) Dealings in Units by Directors and Officers
Directors and officers are notified of any corporate announcement released to Bursa Securities and the impending restriction in dealing with IGB REIT securities prior to the announcement of financial results. Directors and officers are also expected to observe insider trading laws at all times even when dealing with IGB REIT securities within the permitted trading period. In addition, Directors and officers must not make any unauthorised disclosures of confidential information or make any use of such information for the advantage of himself or herself or others. Each Director or officer is required to give notice to Manager of his or her acquisition of units or of changes in the number of units which he or she holds or in which he or she has an interest, within three market days after such acquisition or changes in interest. All dealings in IGB REIT securities by Directors and officers are announced to Bursa Securities.
Continuing Professional Development
The Board firmly believes in the continuing education of individual Directors for maintaining a current and effective Board. Accordingly, the Board encourages Directors to participate in ongoing education as well as participation in accredited director education programmes. All Directors had undergone training programmes during FY2015. Directors had attended/participated in one or more of the following training programmes, conferences and workshops which they have individually or collectively considered as relevant and useful in contributing to the effective discharge of their duties as Directors: Asean Strategy and Leadership Institute (ASLI): Special luncheon address by Menteri Besar of Selangor – "‘The 17th Malaysia strategic outlook" conference Asian Institute of Management, Manila: "Wangdao business leadership and transformation" forum featuring Mr Stan Banking and Digital Economy Summit 2015 by Silverlake Axis Ltd: Tan Sri Dato' Dr. Lin See Yan as speaker – "World economic outlook – as it affects ASEAN" BNP Paribas/Financial Institutions Directors' Education (FIDE) Forum: Industry Consultation session BNP Paribas/FIDE: Directors' Remuneration Report 2015 launched by Deputy Governor of Bank Negara Malaysia Edelman Public Relations Worldwide Sdn Bhd: "Mid Valley crisis preparedness and crisis handling toolkit development; and Executive spokesperson media training and reputation building" FIDE Forum: A dialogue with Tan Sri Dato' Dr. Lin See Yan – "Financial services in turbulent times" Financial Planning Association of Malaysia: Company Analysis – "The strategic position" Financial Psychology Sdn Bhd: "Investors' behaviour for financial services" Goldis Board Session: Introduction to Functional Medicine – "Learn how you can improve your health" Harvard Kennedy School, USA: Wiener Conference Call with Carmen Reinhart – "The sovereign debt crisis in Greece, Harvard University Asia Center and Jeffrey Cheah Institute for Southeast Asia studies co-sponsored: Tan Sri Dato' Dr Lin See Yan as conference speaker – "Southeast Asia explores sustainable development" IGB Board Session: "PricewaterhouseCoopers Budget Seminar" Khazanah Megatrends Forum 2015: Tan Sri Dato' Dr Lin See Yan as speaker on Macro and Markets – "From mountain high to river deep – will emerging markets become ‘submerging markets'?" Kinokuniya: Tan Sri Dato' Dr Lin See Yan as speaker on his own book – "The global economy in turbulent times" MARDI-BSN Intellectual Discourse 2015 Forum: Tan Sri Dato' Dr Lin See Yan as speaker – "Transformation of Malaysia's economy through innovation and technology" MIA International Accountants Conference 2015 Malaysia Shopping Malls Association: "2015 Priceless Gems of Creativity V.3" Malaysian Gas Association Kuala Lumpur: Tan Sri Dato' Dr Lin See Yan as keynote speaker – "Global economic developments and strategic challenges for Malaysia" Malaysian Reinsurance Berhad (MNRB) Board Session: Malaysian Financial Reporting Standard 9 and International Financial Reporting Standard ("IFRS") 4 Phase II on industry overview and developments in Takaful business MNRB: Yayasan Tun Ismail Mohamed Ali Berdaftar (YTI) Public Lecture Series 3/2015 – "The shaking foundations of ANNUAL REPORT 2015
Ministry of Higher Education Leadership Academy: Dialogue by Professor Roger Goodman – "How Oxford University restructured for the twenty-first century" Perdana Leadership Foundation: Closed-door dialogue by Tun Dr. Mahathir Mohamad – "Will Malaysia survive the next global financial crisis" Tecity Group Singapore: Luncheon discussion – "Interest rate scenarios and investment implications and REIT investing in a rising interest rate environment" The Asian Oceanian Computing Industry Organisation Annual Summit: Tan Sri Dato' Dr Lin See Yan as keynote speaker – "The new digital economy" The Institute for Democracy and Economic Affairs: Tan Sri Dato' Dr Lin See Yan as speaker – "Prolonged period of low oil price – managing expectation" The Twenty First Century Studies: Closed-door dialogue by James Rickards – "Global currency warfare, its impact on Malaysia" As part of training and professional development for the Board, Manager ensures that Directors are briefed from time to time on changes to regulations, guidelines and accounting standards, as well as other relevant trends or issues in REIT industry. These are done either during Board meetings or at specially convened sessions, including sponsored training sessions and seminars conducted by external professionals. Articles and reports relevant to IGB REIT's businesses are also circulated to Directors for information. Access to Information and Independent Professional Advice
Directors have full and unrestricted access to all information and records of Manager and IGB REIT as well as the advice and services of MD, CEO and management in furtherance of their duties. Directors may seek external legal or independent professional advice on any matter concerned with the discharge of their responsibilities as they may deem necessary and appropriate.
REMUNERATION DISCLOSURE
Manager Fee
According to the Deed, Manager shall be entitled to a base fee of a maximum of 1% per annum of IGB REIT's TAV and a performance fee of a maximum of 5% per annum of IGB REIT's NPI, in the form of cash, new units or combination thereof at the election of Manager.
In FY2015, Manager has elected to receive its fee in the form of units. The total fee for the twelve-month FY2015 was RM32,430,138.56 or 24,434,414 units.
SC had in its letter dated 18 July 2012 approved a limit of up to 150,000,000 new units of IGB REIT to be issued to Manager ("Threshold Limit") and Bursa Securities had also in its letter dated 3 August 2012 approved the listing and quotation of the Threshold Limit. Unitholders' approval is therefore not required for the payment of Manager's fee in units provided that the aggregated units issued or to be issued to Manager is within the Threshold Limit.
(b) Directors' and Senior Management's Remuneration
The remuneration of Directors and senior management is paid by Manager from the fees it receives from IGB REIT.
The remuneration of the Board members is set to attract and retain highly qualified individuals to serve on the Board, and for senior management, the calibre needed to manage the operations of Manager and IGB REIT efficiently. Executive Board and senior management have entered into service agreements with Manager. In the case of Executive Board and senior management, the components of their remuneration are structured on the basis of linking rewards to corporate and individual performance. Performance is measured against profits and other targets set from Manager's annual budget and plans. NEDs' remuneration reflects the time and effort required from the members in fulfiling their Board and Committee responsibilities. With the exception of Executive Board, each member of the Board receives annual fee and meeting allowance for attending each Board or Committee meeting. Directors do not participate in decision regarding their own remuneration.
Evaluation of the remuneration of Directors and senior management is performed once a year, and this process has been conducted by RC in FY2015 as mentioned hereinabove under "RC" section, and whereupon recommendations were submitted and approved by the Board.
As IGB REIT does not bear the remuneration of Manager's Board, CEO and senior management, Manager does not consider it necessary to include information on remuneration of its Directors, CEO and senior management in this report.
ANNUAL REPORT 2015
INVESTOR RELATIONS AND UNITHOLDERS COMMUNICATION
The Board acknowledges the need for unitholders and investors to be informed of all material business matters affecting IGB REIT. To ensure efficient communication, all corporate communications of IGB REIT, including but not limited to annual reports, quarterly and annual results, notices of meetings, circulars, announcements, press release and other relevant information, are available on IGB REIT's website. All information reported to the market via the regulatory information service appears as soon as practicable on the corporate website to promote accessibility of information to all market participants.
IGB REIT will in each year hold a general meeting as its annual unitholders meeting. The annual unitholders meeting of IGB REIT provides the principal forum for dialogue and interaction between the Board and unitholders. The participation of unitholders, both individuals and institutional, at unitholders' meetings on clarification of pertinent and relevant information is encouraged. In April 2015, all Directors attended the third annual unitholders' meeting ("3rd AGM") except Tan Lei Cheng. External auditor was also present at the meeting to answer unitholders' questions in respect of the statutory audit for the year ended 31 December 2014 ("FS2014"). Unitholders were given opportunities to raise concerns and issues, and sought clarifications which were attended and addressed by Board Chairman, MD and management. Minutes of 3rd AGM were also posted on IGB REIT's website.
Management of Manager also conducts regular dialogues, briefings and meetings with fund managers, financial analysts and media to provide updates and new developments about IGB REIT based on permissible disclosures. These meetings focus either on recently announced financial results, recent corporate activity or the longer term strategy of IGB REIT. Information that is price-sensitive or that may be regarded as undisclosed material information about IGB REIT is not disclosed in these sessions until after the prescribed announcement to Bursa Securities has been made. Whilst Manager aims to provide sufficient information to unitholders and investors about IGB REIT, it also recognises that unitholders and investors may have specific queries and require additional information. Any enquiries on investor related matters may be directed to this email address: [email protected]. To better serve stakeholders of IGB REIT, a feedback page on the website provides an avenue for stakeholders to suggest improvements via email address: [email protected].
In accordance with Deed, IGB REIT shall distribute to unitholders as dividends each year an amount of not less than 90% of its total income on a half-yearly basis for each consecutive six months period on and ending 30 June and 31 December. Distribution of distributable income must be made no later than 2 months from the end of 30 June and 31 December. In FY2015, IGB REIT made two distributions to unitholders totalling RM284,177,000 (8.19 sen in total distribution per unit) in relation to the period 1 January to 30 June 2015, and 1 July to 31 December 2015, representing 6.11% yield and 97.7% payout of its distributable income.
VI. NUMBER OF ISSUED UNITS AND PUBLIC FLOAT
As at 31 December 2015, the total number of issued units of IGB REIT was 3,471,789,003 (FY2014: 3,447,327,655). As compared with the position of 31 December 2014, a total of 24,434,414 new units were issued to Manager as fee during FY2015.
As at the date of this report, IGB REIT has maintained a sufficient public float with more than 25% of the issued units of IGB REIT being held by public. VII. ACCOUNTABILITY AND AUDIT
The Board is committed to providing a balanced, clear and comprehensive assessment of the financial performance and prospects of IGB REIT in all disclosures made to stakeholders and regulatory authorities.
The Board, assisted by AC, oversees the financial reporting process and the quality of the financial reporting of Manager and IGB REIT. AC reviews the integrity of IGB REIT's quarterly and year-end results, focusing on, inter alia, quality, accuracy and adequacy of financial disclosure; changes in accounting policies and practices and implementation of such changes; significant and unusual events; on-going concern assumption; and compliance with applicable approved accounting standards and regulatory requirements, before recommending for the Board's approval and public release.
ANNUAL REPORT 2015
For the financial year under review, the Board has been assured by MD and CFO that financial records have been properly maintained, and that the Financial Statements FY2015 ("FS2015") of IGB REIT complied with the relevant provisions of Act and IFRS, and fairly present the results of the operations, cash flow and financial position of IGB REIT. On this basis, the Board confirms that to the best of its knowledge, nothing had come to its attention which would render IGB REIT's FS2015 false or misleading. The Statement by Manager in respect of the preparation of IGB REIT's FS2015 is set out in Annual Report 2015.
(b) Internal Controls
The Board is entrusted with the overall responsibility for maintaining sound and effective internal control systems to safeguard the assets of IGB REIT and ensure the smooth running of the business operations. The systems are designed to provide reasonable assurance against material misstatement or loss, and to mitigate risk of failure to meet the business objectives. Manager has an internal audit function in place to provide an independent assessment of Manager's internal control systems. Manager's internal audit function is undertaken by Group Internal Audit ("GIA") division of its parent company, IGB. Internal auditor subscribes to, and is guided by International Standards for the Professional Practice of Internal Auditing ("Standards") developed by The Institute of Internal Auditors, and has incorporated these Standards into its audit practices. The internal auditor provides risk assessment services and controls assurance in order to ensure internal controls are aligned to business objectives and address related risks, and reports directly to AC. Management is responsible for addressing issues identified by internal auditor. During the year, AC, with the assistance of internal and external auditors, has reviewed the adequacy of Manager's and IGB REIT's internal controls that address critical and compliance nature. No significant weaknesses were noted from internal and external auditors' respective scope of reviews. The findings were discussed, followed up and where appropriate, rectifications were made by management. On this basis, the Board (with the concurrence of AC) is of the opinion that the internal control systems of Manager and IGB REIT are effective and adequate.
Relationship with External Auditor
The appointment of external auditor, who may be nominated by Manager, must be approved by Trustee. The external auditor appointed must be independent of Manager and Trustee. The remuneration of external auditor must be approved by Trustee.
IGB REIT appoints PricewaterhouseCoopers ("PwC") as its independent external auditor. The Board maintains, via AC, an active, transparent and professional relationship with PwC. PwC reports their findings to AC as part of the audit process on the statutory financial statements of IGB REIT. Key features underlying the relationship of AC with PwC are disclosed in Annual Report 2015 under the heading "Audit Committee Report". The statement on PwC's responsibilities on IGB REIT's FS2015 is set out in Annual Report 2015 under the heading "Independent Auditor's Report". During FY2015, the fees payable to PwC amounted to RM104,000 for audit and audit related services, and RM7,500 for non-audit services related to tax compliance and consultancy. AC had at its meeting in January 2016 assessed the effectiveness of the work of PwC, based on their understanding of IGB REIT's business, control, accounting and reporting issues, together with the way in which matters significant in the statutory accounts were identified and resolved, and was satisfied with PwC's technical competency and performance. (d) Compliance Officer
Head of Compliance reports to the Board and CEO, and assists the Board on IGB REIT's compliance with all legislations, rules and guidelines issued by SC and Bursa Securities as well as Deed, and disclosure requirements of various regulatory authorities.
VIII. CONFLICTS OF INTEREST AND RELATED PARTY TRANSACTIONS ("RPT")
Deed provides that Manager, Trustee and any delegate of either of them shall avoid conflicts of interest arising or, if conflicts arise, shall ensure that IGB REIT is not disadvantaged by the transaction concerned. Manager must not make improper use of its position in managing IGB REIT to gain, directly or indirectly, an advantage for itself or for any other person or to cause detriment to the interest of unitholders.
ANNUAL REPORT 2015
In dealing with any conflict-of-interest situations that may arise, Manager's procedures are that all transactions carried out for or on behalf of IGB REIT are to be executed on terms that are best available to IGB REIT and which are no less favourable than arm's-length transactions between independent parties, and Board members to refrain from any and all deliberation or decision which concerns their personal, commercial or professional interests. For RPT, Manager has established procedures to ensure that transactions involving, among others, Trustee, Manager, Directors, CEO, major unitholders and persons connected with them, are conducted at arm's length and on normal commercial terms, which are generally no more favourable than those extended to unrelated third parties, and in accordance with all applicable requirements of REIT Guidelines and MMLR relating to the transaction in question. If a member of the Board and/or AC has an interest in a transaction, the Director concerned is to abstain from participating in the review and recommendation process in relation to that transaction. Manager shall adhere strictly to Deed which prohibits Manager and its related parties from voting with their units at, or being part of a quorum for, any meeting of unitholders convened to approve any matter in which Manager and its related parties have interest in the outcome of the transaction unless an exemption is obtained from SC. Manager has in place adequate procedures and processes to monitor, track and identify RPT. Manager also maintains a register to record all RPT (and the basis, including, where applicable, the quotations obtained to support such basis, on which they are entered into) which are entered into by IGB REIT. All RPT are reviewed by AC on a quarterly basis to ensure compliance with internal control procedures and with the provisions of REIT Guidelines and MMLR. Internal auditor audits and reports on the appropriateness and effectiveness of processes for the management of RPT on an annual basis. During FY2015, all RPT transacted were in the ordinary and usual course of business of IGB REIT, and were conducted at arm's length and on terms no less favourable to IGB REIT than terms available to or from (as appropriate) independent third parties. Quarterly announcements on RPT between IGB REIT and related parties vis-à-vis nature of transactions and aggregate value transacted for the reporting quarter, as well as aggregate value estimated for the next quarter were made to Bursa Securities.
Information on RPT entered into by IGB REIT during FY2015 is disclosed in Annual Report 2015 under the heading "Notes to the Financial Statements." IX. CORPORATE SOCIAL RESPONSIBILITY ("CSR")
IGB REIT's CSR activities are disclosed in the "Message from Chief Executive Officer" of this Annual Report. ANNUAL REPORT 2015
Audit Committee Report
AC is pleased to present its FY2015 report.
AC, formed on 7 May 2012, is to assist the Board in fulfilling its oversight responsibilities for the financial reporting process, the management of risk and system of internal controls, and the audit process of IGB REIT and Manager as well as Manager's process for monitoring compliance with laws and regulatory requirements. AC has authority to investigate any matter within its ToR, full access to and co-operation by management of Manager and full discretion to invite any Director or executive officer to attend its meetings, and reasonable resources to enable it to discharge its functions properly.
AC comprises four members, all of whom are NEDs, three (including AC Chairman) being independent Directors. AC Chairman is Halim Bin Haji Din and the members are Tan Sri Dato' Dr. Lin See Yan, Le Ching Tai @ Lee Chen Chong and Tan Lei Cheng. All AC members have accounting or related financial management expertise or experience.
The annual review of the composition and performance of AC, including members' tenure, performance and effectiveness as well as their accountability and responsibilities, was duly assessed via the annual board committee assessment. Based on the evaluation 2015, the Board was satisfied that AC has continued to show strong performance over the years, and AC members, as indicated in their profiles, have sound judgement, objectivity, independent attitude, management experience, integrity, knowledge of the industry, and financially literate. With balanced diversity of skills and experience, they have discharged their functions, duties and responsibilities, supporting the Board in ensuring that IGB REIT and Manager uphold appropriate corporate governance standards. The Board has agreed to maintain the composition of AC.
SUMMARY OF ToR
ToR establishes the powers, duties and responsibilities of AC, and is incorporated in Board Charter. The key duties, responsibilities and functions of AC are summarised as follows: Overseeing the financial reporting of IGB REIT and Manager to ensure that they present a true and fair view of the financial position and performance of IGB REIT and Manager and comply with applicable financial reporting standards and regulatory requirements.
Assessing the control environment of IGB REIT and Manager which includes ensuring the implementation of policies and adequacy of controls in place, and reviewing the integrity of internal control systems and management information systems.
Considering and recommending distribution amounts to unitholders for the Board's approval.
Reviewing external auditor's audit plan vis-à-vis the system of internal control of IGB REIT, and the extent of assistance rendered by management of Manager, property manager or its service providers; and external auditor's report in connection with the preparation of the annual financial statements of IGB REIT.
Reviewing and recommending audit fee and any questions of resignation, dismissal or reappointment of external auditor including terms of engagement.
Reviewing and approving internal auditor's charter which defines the independent purpose, authority, scope and responsibility of internal audit functions, internal audit plan of work programme and results of internal audit processes including recommendations and actions taken; assessing the scope, functions, competence and resources of internal audit function; and ensuring independence and impartiality of internal auditor.
Reviewing and recommending disclosures on AC Report for inclusion in the annual report for the Board's approval.
Reviewing conflict-of-interest situations and RPT proposed to be entered into by IGB REIT, and monitoring the procedures established to regulate RPT, including ensuring compliance with provisions of REIT Guidelines and MMLR.
ANNUAL REPORT 2015
Audit Committee Report
Ensuring the availability of a whistle-blowing avenue for concerns about possible improprieties in matters of financial reporting, financial control or other business and commercial related matters to be raised and independently investigated, and for appropriate follow up action to be taken. 10. Reporting breaches and non-compliance of MMLR to Bursa Securities if such matters are not satisfactorily resolved by the MEETINGS AND ATTENDANCE
AC meetings for 2015 were pre-arranged in April 2014 and communicated to the members early to ensure their time commitments. The schedule of business considered by AC covered the key areas within its remit and is supported by information provided by management of Manager, external and internal auditors.
Four meetings were held during FY2015 which were attended by all members except Tan Sri Dato' Dr. Lin See Yan who attended three out of four meetings. MD attended all meetings as requested by AC to facilitate direct communication and to seek clarification on audit issues as well as to solicit information in relation to the operations of IGB REIT and Manager. In addition, CFO, Head of Investment, Head of Compliance, internal auditor and external auditor (upon invitation) were permanent invitees to AC meetings to present their respective reports. AC also had two private sessions with external auditor without the presence of management where AC enquired about management's co-operation with external auditor and their sharing of information as well as discussed any issues of concern arising from financial audits. AC Chairman also permitted external and internal auditors to contact him at any time that they became aware of incidents or matters in the course of their audits or reviews that needed his attention or that of AC or the Board. Matters of significant concern raised by external and internal auditors noted by AC requiring the Board's notice, direction and approval were highlighted and reported by AC Chairman at Board meetings. Minutes of AC meetings were included in Directors' materials for meetings. SUMMARY OF AC'S ACTIVITIES FY2015
In line with ToR of AC, the following activities were carried out by AC during FY2015 in conducting its affairs and discharging its responsibilities: The following matters were reviewed by AC before being recommended to the Board for approvals: IGB REIT's unaudited results for the financial quarters of Q4FY2014, Q1FY2015, Q2FY2015 and Q3FY2015, which were announced via the regulatory information service immediately after the Board's approvals, respectively on 27 January 2015, 28 April 2015, 28 July 2015 and 27 October 2015, and FS2014 which was submitted via the regulatory information service on 27 February 2015. AC concluded that the quarterly financial results and FS2014 presented a true and fair view of the state of affairs of IGB REIT and complied with regulatory requirements. Manager's FS2014, and AC concluded that FS2014 presented a true and fair view of Manager's financial performance for the year. A copy of Manager's FS2014 was submitted to SC on 23 March 2015.
IGB REIT's 100% distributable income for the second half of 2014 of 3.90 sen per unit @ 3.82 sen taxable and 0.08 sen non-taxable, and the first half of 2015 of 4.47 sen per unit @ 4.40 sen taxable and 0.07 sen non-taxable, which were paid to unitholders respectively on 27 February 2015 and 28 August 2015.
Subsequent to FY2015, AC had at its meeting in January 2016, considered and reviewed the financial reporting checklist FY2015 completed by CFO and assessed by MD, and obtained their assurance, in making its recommendation to the Board, that adequate processes and controls were in place for an effective and efficient process in the preparation of the FS2015 and, in all material respects, the FS2015 complied with the relevant provisions of Act and IFRS, and fairly present the results of the operations, cash flow and financial position of IGB REIT.
ANNUAL REPORT 2015
Audit Committee Report
IGB REIT's independent external auditor is PwC.
Reviewed PwC's report on the conduct of FS2014 audit, the findings on significant financial accounting and reporting issues together with the findings on internal control system as well as overview of issues found during the interim audit.
Reviewed PwC's audit plan 2015 for IGB REIT, encompassing the proposed work blueprint, nature and scope for the year's audit and other examination including the evaluation of internal control systems and risk management processes, to the extent performed as part of the external audit.
Reviewed, in consultation with management, the terms of engagement of PwC for the statutory audit FY2015 of IGB REIT in respect of cost, scope and performance, and the appropriateness of retaining PwC as external auditor, upon confirmation of its independence and objectivity including non-audit services related to tax consultancy and compliance review. Held bi-annual meetings with PwC without management's presence on two separate occasions, on 27 January 2015 and 27 October 2015. These sessions were held to enable an open discussion with AC and ensure PwC was not restricted in their scope of audit.
Subsequent to FY2015, AC carried out the following duties at its meeting in January 2016: Reviewed with PwC, the report of their audit FS2015 of IGB REIT, and the accompanying management letter and response.
Reviewed PwC's performance and effectiveness, quality of communication and interaction and its independence and objectivity, on the basis of AC meetings and a checklist internal review. Based on the assessment, AC was satisfied with PwC's technical competency in terms of their skills, independence, execution of audit plan, reporting and overall performance, and the reasonableness of their audit fees. Internal Audit
The internal audit function is outsourced and undertaken by Manager's parent company's IGB GIA division. The role of internal auditor is to assist AC to ensure IGB REIT and Manager maintain a sound system of internal control by reviewing the key controls and procedures and ensuring their effectiveness, undertaking investigations as directed by AC, and conducting regular in-depth audits of high risk areas. In FY2015, a Quality Assurance Review ("QAR") on GIA function, required to be performed at least once every five years, had been carried out by IGB. QAR was performed by an external qualified independent assessor, and the results affirmed that GIA activity generally conformed to the Standards.
Internal auditor reports to AC on its activities based on the approved annual audit plan. The following is a summary of internal auditor's work reviewed and/or approved by AC during the year under review: (a) Internal auditor's reports on the effectiveness and adequacy of internal controls, risk management, operational, compliance and governance processes of IGB REIT and Manager, and management's response and implementation of audit recommendations were being properly addressed and corrected. A total of 17 audit reports (including special reviews and follow-up audits) were issued by internal auditor for the assignments conducted on IGB REIT and Manager, and all findings were rated satisfactory.
(b) Internal auditor's audit plan 2016 to ensure adequate scope and coverage of the financial, operational, compliance and internal controls of IGB REIT and Manager. In planning for the audit of IGB REIT and Manager, a risk based auditing approach taking into account the Standards and global best practices, was adopted. The approach emphasised on effective planning and scoping of audits to suit the size and activities of functional areas, and to concentrate audit resources on areas that expose the operations to the greater degree of risk.
Internal auditor's charter was enhanced to reflect its roles in facilitating the risk management reporting process and handling of feedback processes of IGB REIT which was also approved by the Board.
ANNUAL REPORT 2015
Audit Committee Report
(d) The performance, competency and resources of the internal audit function to ensure that, collectively, internal auditor has the required expertise and professionalism to discharge its duties independently with impartiality. AC was satisfied that the internal audit team was adequately resourced to perform its functions, and in general, has added value by improving, sustaining and strengthening the internal control environment of IGB REIT and Manager.
The costs incurred by IGB REIT for internal audit function in FY2015 were RM95,000.
The Board has assigned oversight of IGB REIT's risk management function to RMC. AC also assists the Board in examining the adequacy and effectiveness of IGB REIT's risk management system to ensure that a robust risk management system is maintained. Based on the periodic reports/minutes of RMC and the half-yearly reports presented by internal auditor on the areas of risks, likelihood, impact and management action on IGB REIT's operating business, AC was thus able to keep under review the adequacy and effectiveness of IGB REIT's risk management system as well as its risk portfolio, risk levels and risk mitigation strategies. Reviewed the quarterly RPT reports, and ensured that proper disclosures were made in accordance with REIT Guidelines and MMLR. AC was satisfied that all transactions were in the best interest of IGB REIT, whereby the terms concluded were fair, reasonable and based on commercial viability, and were therefore not deemed to be detrimental to the interests of minority unitholders, and the monitoring procedures to regulate such transactions were appropriate and sufficient.
Reviewed the disclosures on AC Report FY2014 for inclusion in Annual Report 2014 and recommended its adoption by the Board. AC had also at its meeting in January 2016, approved AC Report FY2015.
AC'S CONTINUING EDUCATION
During the year, AC members attended various conferences, seminars and training programmes to enhance their knowledge to efficiently discharge their duties as Directors of Manager as well as to keep themselves abreast with the changes and updates on technical competencies in their respective fields of expertise. Details of the training that they attended during FY2015 are set out in the Governance Report under the heading "Continuing Professional Development".
Statement by the Manager Statement of Financial Position A 31 D Statement of Comprehensive Income
Statement of Changes in Net Asset Value Notes to the Financial Statements FINANCIAL ST
ANNUAL REPORT 2015
The Manager of IGB REIT, IGB REIT Management Sdn Bhd ("Manager"), is pleased to submit their report and audited financial statements to unitholders of IGB REIT for the financial year ended 31 December 2015.
IGB REIT is a Malaysia-domiciled real estate investment trust ("REIT") established on 25 July 2012 pursuant to the deed of trust dated 18 July 2012 ("Deed") between the Manager and AmTrustee Berhad ("Trustee") and listed on Main Market of Bursa Malaysia Securities Berhad ("Bursa Securities") on 21 September 2012. The Deed is regulated by the Securities Commission Act 1993, the Securities Commission's Guidelines on Real Estate Investment Trusts ("REIT Guidelines"), the Listing Requirements of Bursa Securities, the Rules of Bursa Malaysia Depository ("Depository") and taxation laws and rulings. IGB REIT will continue its operations until such time as determined by the Manager and the Trustee as provided under the provisions of Clause 26 of the Deed. The principal investment policy of IGB REIT is to invest, directly and indirectly, in a diversified portfolio of income producing real estate used primarily for retail purposes in Malaysia and overseas as well as real estate related assets. Real estate used primarily for retail purposes would include retail properties and mixed used development with a retail component.
Distribution of incoMe
IGB REIT had declared distributions in the financial year as follows:- 4.47 sen per unit (@ 4.40 sen taxable and 0.07 sen non-taxable) for the period from 1 January 2015 to 30 June 2015, which was paid on 28 August 2015; and 3.72 sen per unit (@ 3.60 sen taxable and 0.12 sen non-taxable) for the period from 1 July 2015 to 31 December 2015, which is payable on 29 February 2016.
reserves anD Provisions
All material transfers to or from reserves and provisions during the financial year are shown in the financial statements.
The Directors who have served on the Board of the Manager, since the date of the last Report of IGB REIT are as follows:- Tan Sri Dato' Dr Lin See Yan Dato' Seri Robert Tan Chung Meng Halim bin Haji Din Le Ching Tai @ Lee Chen Chong Daniel Yong Chen-I Elizabeth Tan Hui Ning Since the end of the financial year, no arrangement subsisted to which the Manager is a party, with the object or objects of enabling the Directors of the Manager to acquire benefits by means of the acquisition of units in or debentures of IGB REIT or any other body corporate, other than as disclosed in Directors' interest.
For the financial year ended 31 December 2015, no Director has received or become entitled to receive a benefit (other than certain directors receive remuneration as a result of their employment with related corporations).
ANNUAL REPORT 2015
The following Directors of the Manager who held office at the end of the financial year had, according to the register of unitholdings in IGB REIT, interests in the units of IGB REIT as follows:- number of units of rM1.00 each
balance at
balance at
Dato' Seri Robert Tan Chung Meng Daniel Yong Chen-I Elizabeth Tan Hui Ning Other than as disclosed above, the other Directors who held office at the end of the financial year did not have interests in the units of otHer inforMation on tHe financial stateMents
Before the financial statements of IGB REIT were made out, the Manager took reasonable steps:- (a) to ascertain that proper action had been taken in relation to the writing off of bad debts and the making of allowance for doubtful debts and satisfied themselves that all known bad debts had been written off and that adequate allowance had been made for doubtful debts; and (b) to ensure that any current assets, other than debts, which were unlikely to realise in the ordinary course of business their values as shown in the accounting records of IGB REIT had been written down to an amount which they might be expected so to realise.
At the date of this report, the Manager is not aware of any circumstances:- (a) which would render the amounts written off for bad debts or the amount of the allowance for doubtful debts in the financial statements of IGB REIT inadequate to any substantial extent; (b) which would render the values attributed to current assets in the financial statements of IGB REIT misleading; or (c) which have arisen which render adherence to the existing method of valuation of assets or liabilities of IGB REIT misleading or No contingent or other liability has become enforceable or is likely to become enforceable within the period of twelve (12) months after the end of the financial year which, in the opinion of the Manager, will or may affect the ability of IGB REIT to meet its obligations when they fall due.
ANNUAL REPORT 2015
otHer inforMation on tHe financial stateMents (continued)
At the date of this report, there does not exist:- (a) any charge on the assets of IGB REIT which has arisen since the end of the financial year which secures the liability of any other (b) any contingent liability of IGB REIT which has arisen since the end of the financial year.
At the date of this report, the Manager is not aware of any circumstances not otherwise dealt with in this report or the financial statements which would render any amount stated in the financial statements misleading.
In the opinion of the Manager:- (a) the results of IGB REIT's operations during the financial year were not substantially affected by any item, transaction or event of a material and unusual nature; and (b) there has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely to affect substantially the results of the operations of IGB REIT for the financial year in which this report is made.
iMMeDiate anD ultiMate HolDinG coMPany
The Manager regards IGB Corporation Berhad and Goldis Berhad, both incorporated in Malaysia and listed on the Main Market of Bursa Securities, as the immediate and ultimate holding company respectively.
The auditors, PricewaterhouseCoopers, have expressed their willingness to continue in office.
Signed on behalf of the Board of the Manager in accordance with a resolution of the Directors of the Manager dated 23 February Dato' seri robert tan cHunG MenG
HaliM bin HaJi Din
MANAGING DIRECTOR ANNUAL REPORT 2015
statement by the Manager
In the opinion of the Directors of the Manager, the financial statements set out on pages 42 to 75 are drawn up in accordance with the provisions of the Deed, the REIT Guidelines, applicable securities laws and Malaysian Financial Reporting Standards and International Financial Reporting Standards so as to give a true and fair view of the financial position of IGB REIT as at 31 December 2015 and of its financial performance and cash flows for the year ended 31 December 2015.
Signed on behalf of the Board of the Manager in accordance with a resolution of the Directors of the Manager dated 23 February Dato' seri robert tan cHunG MenG
MANAGING DIRECTOR HaliM bin HaJi Din
I, Chai Lai Sim, the Chief Financial Officer of the Manager primarily responsible for the financial management of IGB REIT, do solemnly and sincerely declare that the financial statements set out in pages 42 to 75, are, to the best of my knowledge and belief, correct and I make this solemn declaration conscientiously believing the same to be true, and by virtue of the provisions of the Statutory Declarations Act, 1960.
cHai lai siM
Subscribed and solemnly declared by the abovenamed at Kuala Lumpur on 23 February 2016.
Commissioner for Oaths ANNUAL REPORT 2015
to the Unitholders of IGB REIT (Established in Malaysia) We have acted as Trustee of IGB REIT for the financial year ended 31 December 2015. In our opinion and to the best of our knowledge, the Manager has managed IGB REIT in accordance with the limitations imposed on the investment powers of the Manager and the Trustee under the Deed, the REIT Guidelines, applicable securities laws and other applicable laws during the financial year then ended.
We have ensured the procedures and processes employed by the Manager to value and price the units of IGB REIT are adequate and that such valuation/pricing is carried out in accordance with the Deed and other regulatory requirements.
We also confirm the income distributions declared during the financial year ended 31 December 2015 are in line with and are reflective of the objectives of IGB REIT. Income distributions have been declared for the financial year ended 31 December 2015 as 4.47 sen per unit (@ 4.40 sen taxable and 0.07 sen non-taxable) for the period from 1 January 2015 to 30 June 2015, which was paid on 28 August 2015; and 3.72 sen per unit (@ 3.60 sen taxable and 0.12 sen non-taxable) for the period from 1 July 2015 to 31 December 2015, which is payable on 29 February 2016.
For and on behalf of the Trustee, tan KoK cHeenG
CHIEF EXECUTIVE OFFICER Date: 23 February 2016 ANNUAL REPORT 2015
independent Auditors' Report
to the Unitholders of IGB REIT (Established in Malaysia) rePort on tHe financial stateMents
We have audited the financial statements of IGB REIT, on pages 42 to 74, which comprise the statement of financial position as at 31 December 2015, and the statements of comprehensive income, changes in net asset value and cash flows for the year ended 31 December 2015, and a summary of significant accounting policies and other explanatory information, as set out in notes 1 to 26.
Directors of the Manager's responsibility for the financial statements The Directors of the Manager are responsible for the preparation of financial statements so as to give a true and fair view in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards. The Directors are also responsible for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors' responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Manager's preparation and fair presentation of the financial statement that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Manager's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Manager, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
In our opinion, the financial statements give a true and fair view of the financial position of IGB REIT as of 31 December 2015 and of its financial performance and cash flows for the year ended 31 December 2015 in accordance with Malaysian Financial Reporting Standards and International Financial Reporting Standards.
otHer rePortinG resPonsibilities
The supplementary information set out in Note 27 on page 75 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad and is not part of the financial statements. The Directors of the Manager are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad dated 20 December 2011 ("Bursa Directive"). In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad.
This report is made solely to the unitholders of IGB REIT and for no other purpose. We do not assume responsibility to any other person for the content of this report.
nG yee linG
(No. AF:1146) (No. 3032/01/17 (J)) Chartered Accountants Chartered Accountant Date: 23 February 2016 ANNUAL REPORT 2015
statement of Financial Position
As at 31 December 2015 non-current assets
Plant and equipment
Investment properties total non-current assets
current assets
Trade and other receivables
Cash and bank balances total current assets
total assets
financed by
unitholders' fund
Unitholders' capital
Accumulated losses total unitholders' fund
Payables and accruals total non-current liabilities
current liabilities
Borrowings
Payables and accruals total current liabilities
total unitholders' fund and liabilities
net asset value ("nav")
- before income distribution
- after income distribution number of units in circulation ('000 units)
nav per unit (rM)
- before income distribution
- after income distribution The accompanying notes form an integral part of the financial statements. ANNUAL REPORT 2015
statement of Comprehensive Income
For the Financial Year Ended 31 December 2015 Gross rental income Utilities expenses Maintenance expenses Quit rent and assessment Reimbursement costs Other operating expenses Property operating expenses
net property income
Changes in fair value on investment properties net investment income
Manager's management fees Other trust expenses Profit before taxation
Profit after taxation
Other comprehensive income, net of tax total comprehensive income attributable to unitholders
Profit after taxation is made up as follows:
Realised
basic earnings per unit (sen)
Diluted earnings per unit (sen)
Total comprehensive income Distribution adjustments Distributable income Distribution per unit (sen)
The accompanying notes form an integral part of the financial statements. ANNUAL REPORT 2015
statement of Changes in Net Asset Value
For the Financial Year Ended 31 December 2015 accumulated
as at 1 January 2015
Total comprehensive income for the year attributable to unitholders Distribution to unitholders Net total comprehensive income for the year attributable to unitholders' transactions
Issue of new Units
- Manager's management fees paid in Units
Increase in net assets resulting from unitholders' transactions as at 31 December 2015
as at 1 January 2014
Total comprehensive income for the year attributable to unitholders Distribution to unitholders Net total comprehensive income for the year attributable to unitholders' transactions
Issue of new Units
- Manager's management fees paid in Units
Increase in net assets resulting from unitholders' transactions as at 31 December 2014
IGB REIT adopted predecessor accounting as its accounting policy to account for business combinations under common control on 21 September 2012. In accordance with this policy, the difference between the fair value of the Units issued as consideration and the aggregate carrying amounts of the assets and liabilities acquired as of the date of the business combination is included in equity as The accompanying notes form an integral part of the financial statements. ANNUAL REPORT 2015
statement of Cash Flows
For the Financial Year Ended 31 December 2015 cash flows from operating activities
Profit before taxation
Adjustments for:Changes in fair value on investment properties Manager's management fee payable in Units Amortisation of fit-out incentives (Reversal of )/Allowance for impairment of trade receivables Depreciation of plant and equipment Plant and equipment written-off Loss/(Gain) on disposal of plant and equipment Operating income before changes in working capital Net change in trade and other receivables Net change in payables and accruals net cash generated from operating activities
cash flows from investing activities
Purchase of plant and equipment
Proceeds from disposal of plant and equipment Interest received net cash generated from investing activities
cash flows from financing activities
Interest paid
Income distribution paid to unitholders Cash held under trustee net cash used in financing activities
net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year cash and cash equivalents at end of year
The accompanying notes form an integral part of the financial statements. ANNUAL REPORT 2015
notes to the Financial Statements
1 General
IGB REIT is a Malaysia-domiciled real estate investment trust established on 25 July 2012 pursuant to the Deed between the Manager and the Trustee and listed on Main Market of Bursa Securities on 21 September 2012. The Deed is regulated by the Securities Commission Act 1993, the REIT Guidelines, the Listing Requirements of Bursa Securities, the Rules of the Depository and taxation laws and rulings. IGB REIT will continue its operations until such time as determined by the Manager and the Trustee as provided under the provisions of Clause 26 of the Deed. The addresses of the Manager's registered office and principal place of business are as follows:- Principal place of business
Level 32, The Gardens South Tower Mid Valley Megamall and The Gardens Mall Lingkaran Syed Putra Lingkaran Syed Putra 59200 Kuala Lumpur 59200 Kuala Lumpur The principal investment policy of IGB REIT is to invest, directly and indirectly, in a diversified portfolio of income producing real estate used primarily for retail purposes in Malaysia and overseas as well as real estate related assets. Real estate used primarily for retail purposes would include retail properties and mixed used development with a retail The Manager's key objective is to provide unitholders with regular and stable distributions, sustainable long term Unit price and distributable income and capital growth, while maintaining appropriate capital structure.
The immediate and ultimate holding companies of the Manager are IGB Corporation Berhad and Goldis Berhad respectively, both incorporated in Malaysia and listed on the Main Market of Bursa Securities.
The financial statements for the financial year ended 31 December 2015 were authorised for issue in accordance with a resolution by the Directors of the Manager on 23 February 2016.
(b) fee structure
IGB REIT has entered into service agreements in relation to the management of IGB REIT and its property operations. The fee structures are as follows:- (a) Property management fees
The property manager, Chartwell ITAC International Sdn Bhd, is entitled to property management fee of RM20,000 per month (excluding goods and services tax). In addition, the property manager is also entitled to full disbursement of costs and expenses properly incurred in the operation, maintenance, management and marketing of the properties held by IGB REIT ("Permitted Expenses") as well as fees and reimbursements for Permitted Expenses payable to its service providers.
(b) Manager's management fees
Pursuant to the Deed, the Manager is entitled to receive the following fees from IGB REIT:- i) a base fee ("Base Fee") of up to 1.0% per annum of the total asset value of IGB REIT (excluding cash and bank balances which are held in non-interest bearing accounts).
ii) a performance fee ("Performance Fee") of up to 5.0% per annum of net property income in the relevant financial iii) 1.0% of the transaction value (being total purchase consideration) of any real estate and real estate-related assets directly and indirectly acquired from time to time by the Trustee or one or more special purpose vehicle ("SPV") on behalf of IGB REIT pro-rated, if applicable, to the proportion of IGB REIT's interest.
In the case of acquisition of SPVs or holding entities which holds real estate, 1.0% of the underlying value (as determined by an independent valuer appointed by the Trustee) of any Real Estate (which are directly or indirectly held through one or more SPVs of IGB REIT) pro-rated, if applicable, to the proportion of IGB REIT's interest.
ANNUAL REPORT 2015
Notes to the Financial Statements
1 General (continued)
(b) fee structure (continued)
(b) Manager's management fees (continued)
iii) Any payment to third party agents or brokers in connection with the acquisition of any real estate and real estate- related assets for IGB REIT shall not be paid by the Manager out of the acquisition fee received or to be received by the Manager (but shall be borne by IGB REIT).
For the avoidance of doubt, no acquisition fee is payable with respect to acquisition of the subject properties in connection with the listing of IGB REIT but acquisition fee is payable with respect to all other transactions (which includes related party and non-related party transactions), including acquisitions from the sponsor.
iv) 0.5% of the transaction value (being total sale consideration) of any real estate and real estate-related assets directly or indirectly sold or divested from time to time by the Trustee or one or more SPVs on behalf of IGB REIT pro-rated, if applicable, to the proportion of IGB REIT's interest.
In the case of divestment of SPVs or holding entities which holds real estate, 0.5% of the underlying value (as determined by an independent valuer appointed by the Trustee) of any real estate (which are directly or indirectly held through one or more SPVs of IGB REIT) pro-rated, if applicable, to the proportion of IGB REIT's interest.
Any payment to third party agents or brokers in connection with the sale or divestment of any real estate and real estate-related assets for IGB REIT shall not be paid by the Manager out of the divestment fee received or to be received by the Manager (but shall be borne by IGB REIT).
For the avoidance of doubt, the Divestment Fee is payable with respect to all transaction (which includes related party and non-related party transaction), including divestments to the sponsor, as well as for compulsory The payment of the Manager's management fee in the form of new Units will be in accordance with the following New Units to be issued as payment of the Manager's management fee Manager's management fee For this purpose, "Market Price" means the volume weighted average market price of the Units for the last 5 market days preceding the following events:- (i) in respect of the Base Fee and Performance Fee, the announcement of the relevant quarterly financial reports; or (ii) in respect of the acquisition fee and divestment fee, the completion of the relevant acquisition/divestment, With reference to any book closing date, where the Trigger Event is before but the issuance of the new Units relating to such Trigger Event is after the said book closing date, the Market Price will be further adjusted for the entitlement relating to such book closing date.
The Manager will make an immediate announcement to Bursa Securities disclosing the number of new Units to be issued and the issue price of the new Units when new Units are issued as payment for management fee. Payment of the management fees in Units shall also be subject to IGB REIT complying with the public spread requirements stated in the Listing Requirements of Bursa Securities and there being no adverse implications under Malaysian Code on Take-Overs and Mergers 2010.
trustee's
In accordance to the Deed, an annual trustee fee of up to 0.03% per annum of NAV of IGB REIT is to be paid to Trustee.
ANNUAL REPORT 2015
Notes to the Financial Statements
2 basis of PreParation
(a) statement of compliance
The financial statements of IGB REIT have been prepared in accordance with the provisions of the Deed, Malaysian Financial Reporting Standard ("MFRS") and International Financial Reporting Standards.
The financial statements have been prepared under the historical cost convention except as disclosed in the summary of significant accounting policies.
The preparation of financial statements in conformity with MFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reported period. It also requires Directors of the Manager to exercise their judgment in the process of applying IGB REIT's accounting policies. Although these estimates and judgment are based on the Directors of the Manager's best knowledge of current events and actions, actual results could differ. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4.
(b) standards, amendments to published standards and interpretations that are applicable and are effective
The new accounting standards, amendments and improvements to published standards and interpretations that are applicable and are effective for IGB REIT's financial year beginning on 1 January 2015 are as follows:- Annual Improvements to MFRSs 2010 – 2012 Cycle; Annual Improvements to MFRSs 2011 – 2013 Cycle; and Amendments to MFRS 119 ‘Defined Benefit Plans: Employees Contributions'.
The adoption of the above accounting standards, amendments and improvements to published standards and interpretations did not result in a significant change to the accounting policies and did not have a material impact on the financial statements. (c) standards, amendments to published standards and interpretations to existing standards that are applicable to iGb
reit but not yet effective
IGB REIT will apply the new standards, amendments to standards and interpretations to existing standards in the following (i) Financial year beginning on/after 1 January 2018 l MFRS 9 ‘Financial Instruments' (effective from 1 January 2018) will replace MFRS 139 "Financial Instruments: Recognition and Measurement". The complete version of MFRS 9 was issued in November 2014. MFRS 9 retains but simplifies the mixed measurement model in MFRS 139 and establishes three primary measurement categories for financial assets: amortised cost, fair value through profit or loss and fair value through other comprehensive income ("OCI"). The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are always measured at fair value through profit or loss with a irrevocable option at inception to present changes in fair value in OCI (provided the instrument is not held for trading). A debt instrument is measured at amortised cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest.
For liabilities, the standard retains most of the MFRS 139 requirements. These include amortised cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity's own credit risk is recorded in other comprehensive income rather than the statement of comprehensive income, unless this creates an accounting mismatch.
There is an expected credit losses model on impairment for all financial assets that replaces the incurred loss impairment model used in MFRS 139. The expected credit losses model is forward-looking and eliminates the need for a trigger event to have occurred before credit losses are recognised.
ANNUAL REPORT 2015
Notes to the Financial Statements
2 basis of PreParation (continued)
(c) standards, amendments to published standards and interpretations to existing standards that are applicable to iGb
reit but not yet effective (continued)
(i) Financial year beginning on/after 1 January 2018 (continued) MFRS 15 ‘Revenue from contracts with customers' (effective from 1 January 2018) deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces MFRS 118 ‘Revenue' and MFRS 111 ‘Construction contracts' and related interpretations. IGB REIT is in the process of assessing the impact of MFRS 9 and MFRS 15 on the financial statements and expects this process to be completed prior to the effective dates of these standards.
3 suMMary of siGnificant accountinG Policies
The accounting policies set out below have been applied consistently to the period presented in these financial statements by (a) business combination under common control
IGB REIT applies predecessor accounting to account for business combinations under common control i.e. combination involving entities or businesses under common control. Under the predecessor accounting, assets and liabilities acquired are not restated to their respective fair values but at the carrying amounts from the consolidated financial statements of the holding company. The difference between any consideration given and the aggregate carrying amounts of the assets and liabilities (at the date of the transaction) of the acquired business is recorded as an adjustment to retained earnings. No additional goodwill is recognised. Acquisition-related costs are expensed as incurred. The acquired business' results and the related balance sheet items are recognised prospectively from the date on which the business combination between entities under common control occurred.
(b) investment properties
Investment properties are held for long term rental yields or for capital appreciation or both, and are not substantially occupied by IGB REIT. Investment properties are measured initially at cost, including related transaction costs and borrowing costs if the investment property meets the definition of qualifying asset. After initial recognition, investment properties are carried at fair value. Fair value is based on valuation using an income approach, where cash flows projections are capitalised using a capitalisation rate, which takes into account the unexpired period, yield and sinking fund, where applicable. Change in fair values is recognised in profit or loss for the period in which it arises.
The fair value of the investment property reflects the market conditions at the reporting date. It reflects, among others, rental income from current leases and reasonable and supportable assumptions that represent what knowledgeable, willing parties would assume about rental income from future leases in the light of current conditions. It also reflects, on a similar basis, any cash outflows that could be expected in respect of the property. Some of those outflows are reflected in liability whereas others relate to outflows that are not recognised in the financial statements until a later date.
Valuations are performed as of the financial position date by professional valuers who hold recognised and relevant professional qualifications and have recent experience in the location and category of the investment property being valued.
Subsequent expenditure is capitalised to the asset's carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to IGB REIT and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognised.
ANNUAL REPORT 2015
Notes to the Financial Statements
3 suMMary of siGnificant accountinG Policies (continued)
(b) investment properties (continued)
Investment properties are derecognised when they have been disposed. Where IGB REIT disposes of a property at fair value in an arm's length transaction, the carrying value immediately prior to the sale is adjusted to the transaction price, and the adjustment is recorded within net gain from fair value adjustment on investment property.
(c) Plant and equipment
Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items and where applicable borrowing costs (Note 3(j)).
Cost of plant and equipment includes purchase price and any direct attributable costs. Cost includes the cost of replacing part of an existing plant and equipment at the time that cost is incurred if the recognition criteria are met and excludes the costs of day-to-day servicing of the plant and equipment.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to IGB REIT and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the statement of comprehensive income during the period in which they are incurred.
Depreciation on capital work-in-progress commences when the assets are ready for their intended use. Plant and equipment are depreciated on a straight line basis to write-off the cost of the assets to their expected residual values over their estimated useful lives, summarised as follows:- Furniture and fittings Information technology equipment Plant and machinery Residual values and useful lives of assets are reviewed, and adjusted if appropriate, at each reporting date. The assessment of expected residual values and estimated useful lives of assets is carried out on an annual basis. At each reporting date, IGB REIT assesses whether there is any indication of impairment. If such indications exist, an analysis is performed to assess whether the carrying amount of the asset is fully recoverable. A write-down is made if the carrying amount exceeds the recoverable amount. Please refer to accounting policy on impairment of non-financial assets (Note 3(f)).
Gains and losses on disposals are determined by comparing net disposal proceeds with carrying amount and are included in net property income in the statement of comprehensive income.
(d) financial assets
A financial asset is any asset that is cash, a contractual right to receive cash or another financial asset from another enterprise, a contractual right to exchange financial instruments with another enterprise under conditions that are potentially favourable, or an equity instrument of another enterprise.
Financial assets are recognised in the statement of financial position when, and only when, IGB REIT becomes a party to the contractual provisions of the financial instrument. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss is initially recognised at fair value, and transaction costs are expensed in statement of comprehensive income.
IGB REIT classifies its financial assets as loans and receivables. The classification depends on the purpose for which the financial assets were acquired. IGB REIT determines the classification of its financial assets at initial recognition.
ANNUAL REPORT 2015
Notes to the Financial Statements
3 suMMary of siGnificant accountinG Policies (continued)
(d) financial assets (continued)
Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for amounts not expected to be realised within twelve (12) months after the end of the reporting period which shall be classified as non-current assets. IGB REIT's loans and receivables comprise ‘trade and other receivables' and ‘cash and bank balances' in the statement of financial position (Notes 7 and 8).
Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method.
Loans and receivables are derecognised if IGB REIT's contractual rights to the cash flows from the financial assets expire or if IGB REIT transfers the financial asset to another party without retaining control or transfer substantially all the risks and rewards of the asset.
Gains and losses upon derecognition, impairment losses, and the amortisation of loans and receivables are recognised in statement of comprehensive income.
(e) impairment of financial assets
IGB REIT assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired.
Assets carried at amortised cost A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset ("Loss Event") and that Loss Event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
The criteria that IGB REIT uses to determine that there is objective evidence of an impairment loss include, amongst others, Significant financial difficulty of the obligor; A breach of contract, such as a default or delinquency in payments; IGB REIT, for economic or legal reasons relating to the obligor's financial difficulty, granting to the obligor a concession that IGB REIT would not otherwise consider; It becomes probable that the obligor will enter bankruptcy or other financial destress; Disappearance of an active market for that financial asset because of financial difficulties; or Observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including: (i) adverse changes in the payment status of obligors in the portfolio; or (ii) national or local economic conditions that correlate with defaults on the assets in the portfolio. If any such evidence exists, the amount of impairment loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate. The impairment loss is recognised in statement of comprehensive income during the period in which it is incurred. The carrying amount of the financial assets is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable becomes uncollectible, it is written off against the allowance account. In a subsequent period, if the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that the carrying amount of the asset does not exceed its amortised cost at the reversal date. The amount of reversal is recognised in statement of comprehensive income during the period in which such reversal is evidenced.
ANNUAL REPORT 2015
Notes to the Financial Statements
3 suMMary of siGnificant accountinG Policies (continued)
(f) impairment of non-financial assets
Plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
The impairment loss is charged to the statement of comprehensive income during the period in which they are incurred and any subsequent increase in recoverable amount is recognised in the statement of comprehensive income during the period in which they are incurred.
(g) cash and cash equivalents
For the purpose of the statements of cash flows, cash and cash equivalents consist of cash in hand, deposits held at call with licensed financial institutions, other short term and highly liquid investments with original maturities of three (3) months or less. Bank overdrafts, if any, are included in within borrowings in current liabilities in the statement of financial position. (h) Payables and accruals
Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers or vendors. Trade payables are classified as current liabilities if payment is due within one (1) year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables, deposits received from tenants and other payables are recognised initially at fair value, with the amount of GST included and subsequently measured at amortised cost using the effective interest method.
(i) unitholders' capital
Unitholders' contributions are classified as equity when there is no obligation to transfer cash or other assets, nor they are redeemable at the unitholders' option. Any consideration received or distributions paid is added or deducted directly from equity. Incremental external costs directly attributable to the issue of new Units are shown in equity as a deduction, net of tax, from the proceeds.
(j) borrowings and borrowing costs
Borrowings are recognised initially at fair value, net of transaction costs incurred. In subsequent periods, borrowings are stated at amortised cost using the effective yield method; any difference between proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of borrowings. Borrowings are classified as current liabilities unless IGB REIT has an unconditional right to defer settlement of the liability for at least twelve (12) months after the reporting date.
Borrowings costs directly attributable to the acquisition, construction or production of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.
All other borrowing costs are recognised in statement of comprehensive income in the period in which they are incurred.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn-down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn-down, the fee is capitalised as a prepayment for liquidity and amortised over the period of the facility to which it relates.
ANNUAL REPORT 2015
Notes to the Financial Statements
3 suMMary of siGnificant accountinG Policies (continued)
(k) revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of services in the ordinary course of IGB REIT's activities. Revenue is shown net of rebates and discounts.
Revenue includes base rent, turnover or percentage rent, service and promotional charges from tenants.
Base rent from operating leases is recognised on a straight-line basis over the lease term. Turnover or percentage rent is recognised based on sales reported by tenants. When IGB REIT provides incentives to its tenants, the cost of incentives is recognised over the lease term, on a straight-line basis, as a reduction of rental income. Other rent related and car park income are recognised in the accounting period in which the services being rendered.
Interest income is recognised using the effective interest method.
(l) Manager's management fees
Manager's management fees are recognised in statement of comprehensive income in the period in which they are incurred. If, the payment of the Manager's management fees is in the form of new Units, such payment is determined by reference to the fair value of the Units.
(m) income tax
Tax is recognised in statement of comprehensive income, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period.
Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities. This liability is measured using the single best estimate of the most likely outcome.
The carrying value of IGB REIT's investment properties is assumed to be realised through continuous use.
(n) operating lease
Leases of assets where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on the straight line basis during the lease period in which they are incurred.
Properties leased out under operating leases are included as investment properties. (o) functional and presentation currency
Items included in the financial statements of IGB REIT are measured using the currency of the primary economic environment in which IGB REIT operates ("functional and presentation currency"). The financial statements are presented in Ringgit Malaysia, which is IGB REIT's functional and presentation currency.
(p) earnings per unit
IGB REIT's earnings per Unit ("EPU") are presented on basic and diluted format.
Basic EPU is calculated by dividing the profit or loss attributable to unitholders of IGB REIT by the weighted average number of Units outstanding during the period.
Diluted EPU is determined by adjusting the profit or loss attributable to unitholders against the weighted average number of Units outstanding adjusted for the effects of all dilutive potential Units.
ANNUAL REPORT 2015
Notes to the Financial Statements
3 suMMary of siGnificant accountinG Policies (continued)
(q) segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker.
The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Manager, that makes strategic decisions.
(r) net asset value
NAV is the value of IGB REIT's assets less the value of IGB REIT's liabilities.
(s) Distribution of income
Distribution of income should only be made from realised gains or realised income in accordance with Section 15.10 of the REIT Guidelines.
Distribution of income should be made after the Manager has taken into consideration the total returns for the period, income for the period, cash flow for distribution, stability and sustainability of income and the investment objective and distribution policy of IGB REIT.
Distribution adjustments are disclosed in Note 18.
(t) realised and unrealised profit or loss
A charge or a credit to the profit or loss is deemed as realised when it is resulted from the consumption of resource of all types and form, regardless of whether it is consumed in the ordinary course of business or otherwise. A resource may be consumed through sale or use. Where a credit or a charge to the profit or loss upon initial recognition or subsequent measurement of an asset or a liability is not attributed to consumption of resource, such credit or charge should be deemed as unrealised until the consumption of resource could be demonstrated. Unrealised profit or loss comprises mainly the changes in fair value on investment 4 critical accountinG estiMates anD JuDGeMents
Estimates and judgements are continually evaluated by the Directors of the Manager and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
IGB REIT makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, rarely equal the related actual results. To enhance the information content of the estimates, certain key variables that are anticipated to have material impact to the IGB REIT's results and financial position are tested for sensitivity to changes in the underlying parameters. The estimates and assumptions that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below.
Principal assumptions for estimation of fair value of investment properties The principal assumptions underlying estimation of fair value of investment properties are those related to term rental, reversionary rental, other income, outgoings, capitalisation rate and asset enhancement initiatives as well as allowance for void. Investment properties are stated at fair value based on valuations performed by independent professional valuer who holds a recognised relevant professional qualification and has recent experience in the locations and categories of the investment properties valued, Henry Butcher Malaysia Sdn Bhd ("Henry Butcher"). The valuations are compared with actual market yield data, actual transactions and those reported by the market, when available. Assumptions used are mainly based on market conditions existing at each reporting date. Sensitivity analysis on fair value of investment properties as valued by Henry Butcher is disclosed in Note 6.
ANNUAL REPORT 2015
Notes to the Financial Statements
5 Plant anD eQuiPMent
furniture
information
Plant and
cost
As at 1 January 2015
As at 31 December 2015 accumulated
As at 1 January 2015 Depreciation charge for the financial year As at 31 December 2015 carrying amounts
As at 31 December 2015
furniture
information
Plant and
cost
As at 1 January 2014
As at 31 December 2014 accumulated
As at 1 January 2014 Depreciation charge for the financial year As at 31 December 2014 carrying amounts
As at 31 December 2014
Amount below RM1,000. ANNUAL REPORT 2015
Notes to the Financial Statements
6 investMent ProPerties
Net fair value gain recognised in statement of comprehensive income As at 31 December On 20 September 2012, IGB REIT acquired the investment properties of which the consideration was settled in cash for RM1,200 million and issuance of 3,400 million units in IGB REIT. The purchase considerations are as follows:- Mid Valley Megamall The title deeds to the investment properties' land are currently being held in trust by related companies.
One of the investment properties is charged as a security for bank borrowings as disclosed in Note 10.
Investment properties are stated at fair value based on valuations performed by independent professional valuer, Henry Butcher, who holds a recognised relevant professional qualification and has recent experience in the locations and categories of the investment properties valued. Valuations are performed by Henry Butcher once every quarter and a full valuation has been conducted at every year end. The valuation updates will be reviewed by the management and approved during the meetings of the Audit Committee and Board of Directors of the Manager every quarter.
Based on the valuation reports dated 7 January 2016 issued by Henry Butcher, the fair value of the Mid Valley Megamall and The Gardens Mall as at 31 December 2015 was RM3.610 billion (2014: RM3.610 billion) and RM1.280 billion (2014: RM1.280 billion) respectively. The investment properties are leasehold properties with lease expiry year in 2103.
Fair value is determined primarily based on income approach method using Level 3 inputs (defined as unobservable inputs for asset or liability) in the fair value hierarchy of MFRS 13 ‘Fair Value Measurement'. Under the income approach, the fair value of the investment properties is derived from an estimate of the market rental which the investment properties can reasonably be let for. Rental evidence may be obtained from actual passing rents commanded by the investment properties if they are tenanted. Outgoings, such as quit rent and assessment, utilities costs, reimbursable manpower costs, repair and maintenance, insurance premium, asset enhancement initiatives as well as management expenses, are then deducted from the annual rental income. Thereafter, the net annual rental income is capitalised at an appropriate current market yield to arrive at its fair value. Changes in fair value are recognised in the statement of comprehensive income during the period in which they are reviewed.
The Level 3 inputs or unobservable inputs include:- the expected rental that the investment properties are expected to achieve and is derived from the current passing rental, including revision upon renewal of tenancies during the year; Reversionary rental the expected rental that the investment properties are expected to achieve upon expiry of term including percentage rent, car park income, advertising income and others; including quit rent and assessment, utilities costs, reimbursable manpower costs, repair and maintenance, insurance premium, asset enhancement initiatives as well as management expenses; Capitalisation rate based on actual location, size and condition of the investment properties and taking into account market data at the valuation date; Allowance for void refers to allowance provided for vacancy periods. ANNUAL REPORT 2015
Notes to the Financial Statements
sis on ts*
y 100 basis p y 100 basis p car par inc
car par inc
d on existing unexpir d on existing unexpir oach metho oach metho es used in the inc es used in the inc apitalisation and r apitalisation and r ANNUAL REPORT 2015
Notes to the Financial Statements
tage of alue t 2 *
fair v na 31.12.2015
o rates as a 31.12.2015
o rates as a 31.12.2014
te of tion
te of tion
ears expiring on 6 June 2103. ome distribution. erio fter inc The lease has a p Based on NA ANNUAL REPORT 2015
Notes to the Financial Statements
7 traDe anD otHer receivables
Trade receivables Less: Allowance for impairment of trade receivables Trade receivables – net Other receivables Amount owing by immediate holding company Amounts owing by related companies Total trade and other receivables The carrying amounts of trade and other receivables as at 31 December 2015 and 31 December 2014 approximated their fair The credit terms of trade receivables were seven (7) days (2014: seven (7) days).
The amount owing by immediate holding company is unsecured, interest free (2014: interest free) and repayable on demand.
The amounts owing by related companies are unsecured, interest free (2014: interest free) and repayable on demand.
As at 31 December 2015, trade receivables of RM2,871,000 (2014: RM1,467,000) were past due but not impaired. Such trade receivables are due from tenants in Mid Valley Megamall and The Gardens Mall who have paid security deposits for the tenancy and with no known recent history of default. In addition, the historical experience in collection of trade receivables falls within the recorded allowance.
The ageing analysis of these trade receivables is as follows:- Individually impaired Less: Allowance for impairment of trade receivables ANNUAL REPORT 2015
Notes to the Financial Statements
7 traDe anD otHer receivables (continued)
Movement of allowance for impairment of trade receivables is as follows:- (Reversal of)/Impairment charge for the financial year As at 31 December The other classes within trade and other receivables do not contain impaired assets.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables.
8 casH anD casH eQuivalents
Deposits placed with licensed banks Cash and bank balances Less: Restricted cash Cash and cash equivalents Bank balances are deposits held at call with banks and earns no interest.
The weighted average effective interest rate of deposits with licensed banks that was effective at the reporting date was 3.66% per annum (2014: 3.42% per annum).
Deposits with licensed banks have an average maturity of 78 days (2014: 76 days).
Included in the deposits placed with licensed banks is an amount of RM29.2 million (2014: RM28.1 million) which is maintained in a Debt Service Reserve Account with the facility agent to cover a minimum of six (6) months interest for syndicated financing facilities granted to IGB REIT (Note 10).
ANNUAL REPORT 2015
Notes to the Financial Statements
9 unitHolDers' caPital
approved fund size:
As at 1 January/31 December
issued and fully paid up:
At 1 January
Creation of units Issue of new Units, at fair value As at 31 December current (secured) :
Syndicated financing facilities
non-current (secured) :
Syndicated financing facilities
Less: Unamortised transaction costs The Trustee, on behalf of IGB REIT, as borrower, has obtained the syndicated financing facilities ("SFF") comprising the following:- (a) A fixed rate term loan facility ("FRTL") of up to RM1,200 million; and (b) A standby revolving credit facility ("SBRC") of up to RM20 million.
ANNUAL REPORT 2015
Notes to the Financial Statements
10 borroWinGs (continued)
The maturity profile of the SFF is as follows:- <1 year
1 to 2 years
2 to 3 years
>3 years
as at 31 December 2015
frtl
As at 31 December 2014FRTL The weighted average effective interest rates as at the reporting date were as follows:- % per annum
% per annum
Proceeds drawn from the FRTL were utilised by IGB REIT to part finance the acquisitions of Mid Valley Megamall and The Gardens Mall together with related assets ("Acquisitions") and the proceeds drawn from the SBRC were utilised by IGB REIT to part finance the Acquisitions and to finance its capital expenditure requirements.
The FRTL has a tenure of five (5) years from the date of first drawdown with an option to extend the same for a further two (2) years exercisable by the Trustee ("Option"). For the first five (5) years, the FRTL bears a fixed interest rate of 4.4% per annum. In the event the FRTL is extended, the interest rates for the sixth and the seventh years shall be stepped up to 5.0% per annum.
The SBRC has a tenure of seven (7) years from the date of fulfillment of all conditions precedent. The SBRC bears a floating interest rate of the aggregate effective costs of funds and a margin of 0.7% per annum.
The SFF are secured against, among others, the following:- (i) a first party assignment by the Trustee of its rights, titles, interests and benefits in Mid Valley Megamall and under the sale and purchase agreement in relation to Mid Valley Megamall pursuant to the Acquisition and all other documents evidencing the Trustee's interest in Mid Valley Megamall. In the event the subdivision of master title is completed and a separate strata title is issued for Mid Valley Megamall ("Megamall Strata Title"), a first party first legal charge shall be created by the Trustee on the Megamall Strata Title for the benefit of the SFF lenders; (ii) an undertaking from the Trustee and the Manager:- (a) to deposit all cash flows generated from Mid Valley Megamall into the revenue account; and (b) that it shall not declare or make any dividends or distributions out of the cashflow derived from Mid Valley Megamall to the Unitholders if an event of default has occurred under the terms of the SFF, and is continuing and has not been ANNUAL REPORT 2015
Notes to the Financial Statements
10 borroWinGs (continued)
(iii) a first party legal assignment and charge by the Trustee over all rights, titles, interests and benefits relating to the following designated accounts: (a) the revenue account into which the Trustee shall credit, among others, all income and insurance proceeds derived from or in relation to Mid Valley Megamall; (b) the operating account which is to capture funds transferred from the revenue account for the purpose of managing the operating expenditure of Mid Valley Megamall; and (c) the debt service reserve account which is to capture funds transferred from the revenue account for purposes of meeting the debt service requirement; (iv) a first party legal assignment by the Trustee of all the proceeds under the tenancy/lease agreements in relation to Mid Valley (v) a first party legal assignment over all of the Trustee's rights, titles, interests and benefits and all the insurance policies in relation to Mid Valley Megamall and the security agent (acting for and on behalf of the SFF lenders) being named as the loss payee and beneficiary of the insurance policies.
11 Payables anD accruals
Tenants' deposits Other payables and accrued expenses Amounts due to related companies Distribution payable to unitholders Total current payables and accruals Total payables and accruals (a) Tenants' deposits are in respect of refundable deposits received from tenants for tenancy related agreements. Tenancy tenures are generally for a period of one (1) to three (3) years.
(b) Credit terms for trade payables range from 30 days to 90 days (2014: 30 days to 90 days).
(c) Amounts due to related companies are unsecured, interest-free (2014: interest free) and repayable on demand.
ANNUAL REPORT 2015
Notes to the Financial Statements
12 otHer incoMe
Advertising and promotional income Utilities recoverable Kiosk rent and other leasing income 13 reiMburseMent costs
Included in reimbursement costs are the following expenses:- Marketing expenses Administration expenses Management expenses Insurance premium 14 ManaGer's ManaGeMent fees
For the financial year ended 31 December 2015, 100% of the total Manager's management fees has been payable in Units (2014: 15 borroWinG costs
Amortisation of transaction costs ANNUAL REPORT 2015
Notes to the Financial Statements
16 taXation
reconciliation of tax expense
Profit before taxation
Income tax using Malaysian tax rate of 25% Non-deductible expenses Effect of income exempted from tax Pursuant to Section 61A of the Malaysian Income Tax Act, 1967 ("Act"), income of IGB REIT will be exempted from tax provided that at least 90% of its total taxable income (as defined in the Act) is distributed to the investors in the basis period of IGB REIT for that year of assessment within two (2) months after the close of the financial year. If the 90% distribution condition is not complied with or the 90% distribution is not made within two (2) months after the close of IGB REIT financial year which forms the basis period for a year of assessment, IGB REIT will be subject to income tax at the prevailing rate on its total income. Income which has been taxed at the IGB REIT level will have tax credits attached when subsequently distributed to unitholders.
As IGB REIT declared approximately 97.7% (2014: 100%) of its distributable income to unitholders for the financial year ended 31 December 2015, no provision for income taxation has been made for the current year and prior year.
17 earninGs Per unit ("ePu") – basic anD DiluteD
The calculation of EPU is based on total comprehensive income attributable to unitholders for the year of RM253,998,000 (2014: RM317,617,000) divided by the weighted average number of Units during the same year of 3,466,033,000 (2014: 3,441,576,000).
total comprehensive income
- Realised
Weighted average number of units ('000)
Weighted average number of Units in issue
Adjustment for Manager's management fees payable in Units * Weighted average number of Units for diluted EPU basic/Diluted ePu (sen)
- Realised
ANNUAL REPORT 2015
Notes to the Financial Statements
17 earninGs Per unit ("ePu") – basic anD DiluteD (continued)
Manager's management fees payable in Units- from 1 October 2015 to 31 December 2015 at - from 1 October 2014 to 31 December 2014 at 18 Distribution to unitHolDers
Distribution to unitholders is from the following sources:- Total comprehensive income Distribution adjustments Distributable income Distribution per unit (sen)- for the period from 1 January 2015 to 30 June 2015 - for the period from 1 July 2015 to 31 December 2015 - for the period from 1 January 2014 to 30 June 2014 - for the period from 1 July 2014 to 31 December 2014 Income distributionDistributable income Income distribution of 4.47 sen per unit (@ 4.40 sen taxable and 0.07 sen non-taxable) for the period from 1 January 2015 to 30 June 2015 Proposed for income distribution of 3.72 sen per unit (@ 3.60 sen taxable and 0.12 sen non-taxable) for the period from 1 July 2015 to 31 December 2015 Income distribution of 3.89 sen per unit (@ 3.81 sen taxable and 0.08 sen non-taxable) for the period from 1 January 2014 to 30 June 2014 Income distribution of 3.90 sen per unit (@ 3.82 sen taxable and 0.08 sen non-taxable) for the period from 1 July 2014 to 31 December 2014 Income distributed Balance undistributed Note ADistribution adjustments comprise:-Changes in fair value on investment properties Manager's management fee payable in Units Amortisation of fit-out incentives Amortisation of capitalised borrowing costs Depreciation of plant and equipment ANNUAL REPORT 2015
Notes to the Financial Statements
18 Distribution to unitHolDers (continued)
Withholding tax will be deducted for distributions made to the following categories of unitholders:- Withholding tax rate
Resident corporate Resident non-corporate Non-resident individual Non-resident corporate * to tax at prevailing rate 24% from Year of Assessment 2016 onwards 19 Portfolio turnover ratio
Portfolio Turnover Ratio ("PTR") (times) The calculation of PTR is based on the average value of total acquisitions and disposals of investments in IGB REIT for the financial year to the average NAV during the financial year.
PTR is nil for IGB REIT as there were no acquisitions and disposals of investments in IGB REIT for the financial year ended 31 December 2015.
Since the basis of calculating PTR can vary among REITs, there is no consistent or coherent basis for providing an accurate comparison of IGB REIT's PTR against other REITs.
20 ManaGeMent eXPense ratio
Management expense ratio ("MER") (%) The calculation of the MER is based on the total fund operating fees of IGB REIT incurred for the financial year ended 31 December 2015, including the Manager's management fees, trustees' fees and other trust expenses, to the NAV (after income distribution) as at 31 December 2015.
Since the basis of calculating MER can vary among REITs, there is no consistent or coherent basis for providing an accurate comparison of IGB REIT's MER against other REITs.
21 seGMent rePortinG
The segmental financial information by business or geographical segments is not presented as there is only one (1) business activity within investment properties portfolio of IGB REIT, which comprised of Mid Valley Megamall and The Gardens Mall and its entire business is conducted in Kuala Lumpur.
The Manager assesses the financial performance of the operating segments based on, including but not limited to, net property income ("NPI"). The NPI enables financial performance benchmarking as such basis eliminates the effect of financing and investment decisions which may not be made at operating level. ANNUAL REPORT 2015
Notes to the Financial Statements
22 financial instruMents by cateGory
Loans and receivables at amortised costAssets as per statement of financial position:- Trade and other receivables excluding prepayments - Cash and bank balances Total financial assets Other financial liabilities at amortised costLiabilities as per statement of financial position:- Borrowings - Payables and accruals Total financial liabilities 23 financial risK ManaGeMent obJectives anD Policies
23.1 financial risk factors
IGB REIT's activities expose it to a variety of financial risks: market risk (including cash flow interest rate risk), credit risk, liquidity and cash flow risk. IGB REIT's overall financial risk management objective is to ensure that it creates value for its unitholders. IGB REIT focuses on the unpredictability of financial markets and seeks to mitigate potential adverse effects on the financial performance of IGB REIT. Financial risk management is carried out through risk reviews, internal control systems and insurance programmes. The Manager regularly reviews the risk profile and ensure adherence to the IGB REIT's financial risk management policies.
Cash flow interest rate risk The interest rate risk arises from FRTL and SBRC. IGB REIT's income and cash flows are substantially independent of changes in market interest rates. This is due to a significant portion of the SFF is made up of FRTL which locks in the interest rate against any fluctuation. Hence, IGB REIT has no significant exposure to cash flow interest rate risk.
Sensitivity analysis for interest rate fluctuation is unrepresentative as IGB REIT does not use variable rates in managing its interest rate risk.
Credit risk arises from credit exposures to outstanding receivables from the tenants, as well as cash, cash equivalents and deposits with banks and financial institutions.
Credit risks arising from outstanding receivables from the tenants are mitigated and monitored by strict selection of tenants and/or business associates with high creditworthiness. Trade receivables are monitored on an on-going basis via the Manager's standard operating and reporting procedures. Other than anchor tenants, namely Aeon BIG, Aeon, Metrojaya, Isetan, Robinsons and GSC Signature, which contribute 13.2% (2014: 14.5%) of the rental income, investment properties of IGB REIT do not have any significant exposure to any individual or group of tenants or counterparties nor any major concentration of credit risk in relation to any financial instruments. Credit risk with respect to trade receivables is limited due to the nature of business which is predominately rental related and cash-based. The historical experience in collection of trade receivables falls within the recorded allowances. Furthermore, the tenants have placed security deposits which act as collateral. In view of the above, no additional credit risk beyond amounts allowed for collection losses is inherent in IGB REIT's trade receivables.
The deposits are placed with licensed financial institutions with high credit ratings assigned by credit rating agencies. Hence, the risk of material loss in the event of non-performance by a financial counterparty could be considered to be ANNUAL REPORT 2015
Notes to the Financial Statements
23 financial risK ManaGeMent obJectives anD Policies (continued)
23.1 financial risk factors (continued)
(c) Liquidity and cash flow risk The rolling forecasts of liquidity requirements are monitored to ensure there is sufficient cash to meet operational needs while maintaining sufficient headroom on the committed borrowing facilities (Note 10).
Adequate cash, cash equivalents and bank facilities are maintained and monitored to finance the operations, to distribute income to unitholders, and to mitigate the effects of fluctuations in cash flows. In addition, the Manager also monitors and observes the REIT Guidelines concerning limits on total borrowings of the investment trust.
Cash and bank balances as at 31 December 2015 of RM246.65 million (2014: RM231.90 million) are expected to generate cash inflows for liquidity risk management.
The analysis of the non-derivative financial liabilities into relevant maturity groupings based on the remaining period at the reporting date to the contractual maturity date are as follows. The amounts disclosed are the contractual undiscounted cash flows. <1 year
1 to 2 years
2 to 3 years
>3 years
at 31 December 2015
borrowings
Payables and accruals
At 31 December 2014Borrowings Payables and accruals 23.2 capital risk management
Capital is the unitholders' capital, retained earnings and borrowings.
The overall capital management objectives are to safeguard the ability to continue as a going concern in order to provide returns for unitholders and other stakeholders as well as to maintain a more efficient capital structure. The Manager's on-going capital management strategy involves maintaining an appropriate gearing level and adopting an active interest rate management strategy to manage the risks associated with refinancing and changes in interest rates. The Manager intends to implement this strategy by (i) diversifying sources of debt funding to the extent appropriate, (ii) maintaining a reasonable level of debt service capability, (iii) securing favourable terms of funding, (iv) managing its financial obligations and (v) where appropriate, managing the exposures arising from adverse market interest rates, such as through fixed rate borrowings, to optimise the cost of capital.
The total borrowings to total assets ratio is as follows:- Borrowings to total assets ratio (%) The total borrowings should not exceed 50% of the total assets at the time the borrowings are incurred in accordance with the REIT Guidelines. IGB REIT complied with the borrowing limit requirement during the financial year.
ANNUAL REPORT 2015
Notes to the Financial Statements
23 financial risK ManaGeMent obJectives anD Policies (continued)
23.2 capital risk management (continued)
The Deed provides that the Manager shall, with the approval of the Trustee, for each distribution period, distribute all (or such other percentage as determined by the Manager at its absolute discretion) of IGB REIT's distributable income. It is the intention of the Manager to distribute at least 90.0% of IGB REIT's distributable income on a half-yearly basis (or such other interval as determined by the Manager at its absolute discretion). For the financial year ended 31 December 2015, IGB REIT distributes approximately 97.7% of its distributable income.
Based on the prospectus in respect of the initial public offer of IGB REIT dated 26 August 2012, the Manager will distribute 100% of IGB REIT's distributable income for the period from date of establishment to 31 December 2014. The actual proportion of distributable income distributed to unitholders beyond 31 December 2014 shall be at the absolute discretion of the Manager, may be greater than 90.0% of IGB REIT's distributable income to the extent that the Manager believes it is appropriate, having regard to IGB REIT's funding requirements, total return, cash flow for distribution as well as sustainability and stability of the income. Distribution, when made, will be in Ringgit Malaysia.
23.3 fair value
The assets and liabilities measured at fair value and classified by level of the fair value measurement hierarchy are as (a) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); (b) inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (Level 2); and (c) inputs for the asset or liability that are not based on observable market data i.e. unobservable inputs (Level 3).
Recurring fair value measurements:Investment properties Level 3 fair values of the investment properties have been derived from the income approach method based on valuations performed by independent professional valuer, Henry Butcher, who holds a recognised relevant professional qualification and has recent experience in the locations and categories of the investment properties valued. The valuation techniques, significant parameters and movement in fair values are as disclosed in Note 6. Assets and liabilities not carried at fair value Save as disclosed below, the carrying amounts of financial assets and liabilities as at reporting date approximated their fair IGB REIT's borrowings are not measured at fair value as at reporting date. The fair value of such borrowings is disclosed within the fair value hierarchy as follows:- carrying
fair value
fair value
ANNUAL REPORT 2015
Notes to the Financial Statements
23 financial risK ManaGeMent obJectives anD Policies (continued)
23.3 fair value (continued)
The fair values of assets and liabilities in the statement of financial position are based on the following bases and (a) Trade receivables, other receivables and payables and accruals Trade receivables, other receivables and payables and accruals are assumed to approximate their fair values as these items are not materially sensitive to the shift in market interest rates.
Cash and bank balances Cash and bank balances with maturities less than one (1) year, the carrying amount is a reasonable estimate of fair The fair value of the borrowings is estimated based on discounted cash flows using prevailing market rates for borrowings with similar risk profile.
24 oPeratinG leases
IGB REIT leases out the investment properties (Note 6) under operating leases. The future minimum lease receivables under non- cancellable lease are as follows:- Less than one (1) year Between one (1) and five (5) years 25 caPital coMMitMents
The capital expenditure which has not been provided for in the financial statements is as follows:- Plant and equipment Authorised by Directors but not contracted ANNUAL REPORT 2015
Notes to the Financial Statements
26 siGnificant relateD Party transactions
The significant related party transactions are carried out in the normal course of business on terms and conditions negotiated between the contracting parties.
IGB Corporation Berhad ("IGB") Major unitholder, the sponsor of IGB REIT and immediate holding company Ensignia Construction Sdn Bhd A subsidiary of IGB IGB Properties Sdn Bhd A subsidiary of IGB IGB REIT Management Sdn Bhd The Manager of IGB REIT Mid Valley City Developments Sdn Bhd A subsidiary of IGB Mid Valley City Energy Sdn Bhd A subsidiary of IGB Mid Valley City Enterprise Sdn Bhd A subsidiary of IGB Mid Valley City Hotels Sdn Bhd A subsidiary of IGB Mid Valley City North Tower Sdn Bhd A subsidiary of IGB Mid Valley City South Tower Sdn Bhd A subsidiary of IGB MVC Centrepoint North Sdn Bhd A subsidiary of IGB MVC Centrepoint South Sdn Bhd A subsidiary of IGB MVC CyberManager Sdn Bhd A subsidiary of IGB MVEC Exhibition and Event Services Sdn Bhd A subsidiary of IGB Tanah Permata Sdn Bhd A subsidiary of IGB Technoltic Engineering Sdn Bhd An associate of IGB Wah Seong (Malaya) Trading Co. Sdn Bhd Major unitholder of IGB REIT Strass Media Sdn Bhd A subsidiary of Wah Seong (Malaya) Trading Co. Sdn Bhd JVP Venture Sdn Bhd A person connected to a director of the Manager significant related party transactions for the financial year:
Sales of services
1) Utilities charges
- IGB Properties Sdn Bhd - Mid Valley City Enterprise Sdn Bhd - MVC Centrepoint South Sdn Bhd - MVC Centrepoint North Sdn Bhd - Mid Valley City Hotels Sdn Bhd - Tanah Permata Sdn Bhd - Mid Valley City South Tower Sdn Bhd - Mid Valley City North Tower Sdn Bhd - Mid Valley City Energy Sdn Bhd - Mid Valley City Developments Sdn Bhd - Ensignia Construction Sdn Bhd ANNUAL REPORT 2015
Notes to the Financial Statements
26 siGnificant relateD Party transactions (continued)
significant related party transactions for the financial year:
2) Rental of premises - MVEC Exhibition and Event Services Sdn Bhd - MVC CyberManager Sdn Bhd - JVP Venture Sdn Bhd 3) Rental of light box - Strass Media Sdn Bhd 4) Rental of car park - IGB Corporation Berhad - MVC Centrepoint North Sdn Bhd - Mid Valley City Hotels Sdn Bhd - Tanah Permata Sdn Bhd Purchases of services
1) Utilities charges
- Mid Valley City Energy Sdn Bhd - Tanah Permata Sdn Bhd 2) Manager's management fee - IGB REIT Management Sdn Bhd 3) Repair and maintenance - Technoltic Engineering Sdn Bhd - Ensignia Construction Sdn Bhd - Wah Seong (Malaya) Trading Co. Sdn Bhd 4) Hotel facilities and services - Tanah Permata Sdn Bhd ANNUAL REPORT 2015
Notes to the Financial Statements
26 siGnificant relateD Party transactions (continued)
significant related party balances as at reporting date:
Deposits placed with
Mid Valley City Energy Sdn Bhd
Amount owing to
IGB REIT Management Sdn Bhd (Manager's management fee)
ANNUAL REPORT 2015
Notes to the Financial Statements
27 DeterMination of realiseD anD unrealiseD Profits or losses in tHe conteXt of Disclosure Pursuant
to listinG reQuireMent of bursa Malaysia securities berHaD
The analysis of the accumulated losses of IGB REIT as at 31 December 2015, into realised and unrealised portions, pursuant to Main Market Listing Requirements of Bursa Securities, are as follows:- Total accumulated losses - realised The disclosure of realised and unrealised accumulated losses is based on the Guidance of Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosures Pursuant to Listing Requirements of Bursa Securities, issued by the Malaysian Institute of Accountants.
ANNUAL REPORT 2015
as at 12 February 2016 aPProveD funD siZe
3,550,000,000 Units issueD anD fully PaiD units
3,477,667,783 Units (voting right : 1 vote per Unit) As at 12 February 2016, the public unitholding spread of IGB REIT was 45.78% Distribution of unitHolDinGs
range of unitholdings
issued units
issued units
10,001 – 100,000 100,001 to less than 5% of Issued Units 5% and above of Issued Units substantial unitHolDers (5% anD above)
issued units
issued units
issued units
issued units
IGB Corporation Berhad Dato' Seri Robert Tan Chung Meng Pauline Tan Suat Ming Tony Tan @ Choon Keat Tan Chin Nam Sendirian Berhad Tan Kim Yeow Sendirian Berhad Wah Seong (M) Trading Co. Sdn. Bhd.
Employees Provident Fund Board Kumpulan Wang Persaraan (Diperbadankan) unitHolDinGs of Directors anD ceo
issued units
issued units
issued units
issued units
Dato' Seri Robert Tan Chung Meng Daniel Yong Chen-I Elizabeth Tan Hui Ning Antony Patrick Barragry Deemed interests held by other corporations by virtue of Section 6A(4) of the Companies Act 1965 ANNUAL REPORT 2015
as at 12 February 2016 toP 30 unitHolDers
no. name of unitholder
issued units
issued units
IGB Corporation Berhad Kumpulan Wang Persaraan (Diperbadankan) Citigroup Nominees (Tempatan) Sdn Bhd Employees Provident Fund Board DB (Malaysia) Nominee (Asing) Sdn Bhd BNYM SA/NV for Newton Asian Income Fund IGB REIT Management Sdn Bhd Maybank Nominees (Tempatan) Sdn Bhd Maybank Trustees Berhad for Public Regular Savings Fund (N14011940100) Cartaban Nominees (Tempatan) Sdn Bhd Exempt AN for Eastspring Investments Berhad Malaysia Nominees (Tempatan) Sendirian Berhad Great Eastern Life Assurance (Malaysia) Berhad (PAR 1) Citigroup Nominees (Tempatan) Sdn Bhd Exempt AN for AIA Bhd.
HSBC Nominees (Asing) Sdn Bhd Exempt AN for The Hongkong and Shanghai Banking Corporation Limited Amanahraya Trustees Berhad Public Smallcap Fund Amanahraya Trustees Berhad Public Dividend Select Fund Amanahraya Trustees Berhad Public Savings Fund Pertubuhan Keselamatan Sosial Wah Seong (Malaya) Trading Co. Sdn Bhd Citigroup Nominees (Tempatan) Sdn Bhd Employees Provident Fund Board (Affin-Hwg) CIMB Commerce Trustee Berhad Public Focus Select Fund Cartaban Nominees (Asing) Sdn Bhd GIC Private Limited for Government of Singapore (C) Amanahraya Trustees Berhad Public Equity Fund HSBC Nominees (Tempatan) Sdn Bhd HSBC (M) Trustees Berhad for Affin Hwang Select Opportunity Fund (3969) Malaysia Nominees (Tempatan) Sendirian Berhad Great Eastern Life Assurance (Malaysia) Berhad (LSF) HSBC Nominees (Asing) Sdn Bhd Exempt AN for Credit Suisse (SG BR-TST-Asing) HSBC Nominees (Asing) Sdn Bhd Exempt AN for The Hongkong and Shanghai Banking Corporation Berhad Tan Chin Nam Sendirian Berhad DB (Malaysia) Nominee (Asing) Sdn Bhd SSBT Fund KGHQ for Invesco Global Real Estate Fund Citigroup Nominees (Tempatan) Sdn Bhd Employees Provident Fund Board (Amundi) UOBM Nominees (Asing) Sdn Bhd Pledged securities account for Montego Assets Limited (PCB) Tokio Marine Life Insurance Malaysia Bhd As beneficial owner (PF) Amanahraya Trustees Berhad Public Far-East Property & Resorts Fund Amanahraya Trustees Berhad Public Sector Select Fund
total
notice of Fourth Annual General Meeting
notice is Hereby Given of the Fourth Annual General Meeting ("4th AGM") of IGB Real Estate Investment Trust ("IGB REIT") to be
held at Bintang Ballroom, Level 5, Cititel Mid Valley, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur, Malaysia on Tuesday, 26 April 2016 at 2.30 p.m. to transact the following business: To receive the Financial Statements of IGB REIT for the year ended 31 December 2015 together with the reports issued by the Trustee, the Manager and the Auditors.
By Order of the Board IGB REIT MANAGEMENT SDN BHD (908168-A) as Manager of IGB REIT Company Secretary (1) Appointment of proxy
(a) A unitholder is entitled to appoint one or two proxies (none of whom need be a unitholder of IGB REIT). (b) A unitholder, who is an authorised nominee, may appoint not more than two proxies in respect of each securities account held; whereas, an exempt authorised nominee may appoint multiple proxies in respect of each securities account held. (c) A member who appoints a proxy must execute Proxy Form, and if two proxies are appointed, specify the percentage and number of units each proxy is appointed to exercise. (d) A corporate member who appoints a proxy must execute Proxy Form under seal or the hand of its officer or attorney duly (e) Only unitholders registered in the Record of Depositors as at 19 April 2016 shall be eligible to attend and vote at 4th AGM or appoint a proxy to attend and vote on his behalf. (f) The executed Proxy Form must be deposited at Manager's Registered Office, not later than 2.30 p.m. on 24 April 2016 (being 48 hours before the commencement of 4th AGM). (g) IGB REIT shall have the right to reject Proxy Form which is incomplete, improperly completed or illegible or where the true intentions of the appointer are not ascertainable from the instructions of the appointer specified on Proxy Form. (h) Annual Report 2015 and Proxy Form are available on IGB REIT's website www.igbreit.com, which unitholders can view or download at their convenience. (2) Registration of unitholders/proxies
(a) Registration will start at 12.30 p.m. on the day of 4th AGM. (b) Unitholders/proxies are required to produce identification documents for registration, and parking tickets for validation (only applicable for parking at Mid Valley Megamall and The Gardens Mall; no reimbursement parking charges at anywhere else). (c) Unitholders/proxies will be given wrist tags upon registration. No person will be allowed to enter the meeting room without the wrist tag. There will be no replacement in the event unitholders/proxies lose or misplace the wrist tags. (d) The registration counters will only handle verification of identities and registration. Other queries/clarification, please proceed to Help Desk counter. For enquiry regarding 4th AGM, please contact the following persons during office hours: (a) Unitholders' enquiries: Tina Chan, Head of Compliance/Company Secretary - 603-2289 8989/[email protected]; Lim Lay Kiow, Senior Manager - 603-2783 9232/[email protected] (b) Investor relations: Chai Lai Sim, Chief Financial Officer; Chow Yeng Keet, Head of Investment - 603-2289 8838/8689/ (c) CD-ROM assistance: Ching Kar Heng, IGB IT General Manager; Chai Voon Chung, IGB IT Senior Executive - 603-2289 8910/8884 ProXy forM
cDs account number
**cDs account number of
number of units Held
*I/We (name as per Identification/Certificate of Incorporation) Identification/Company Number being a unitholder of IGB REIT, hereby appoint: first ProXy
full name
Proportion of unitholdings represented
number of units
seconD ProXy
full name
Proportion of unitholdings represented
number of units
or, both of whom failing, *the Chairman of 4th AGM, as *my/our proxy at 4th AGM of IGB REIT to be held at Bintang Ballroom, Level 5, Cititel Mid Valley, Mid Valley City, Lingkaran Syed Putra, 59200 Kuala Lumpur, Malaysia on Tuesday, 26 April 2016 at 2.30 p.m. and at any adjournment thereof. Dated this day of Signature/Common Seal of Unitholder * Delete as appropriate ** Applicable to units through a nominee account Notes:(a) A unitholder is entitled to appoint one or two proxies (none of whom need be a unitholder of IGB REIT). (b) A unitholder, who is an authorised nominee, may appoint not more than two proxies in respect of each securities account held; whereas, an exempt authorised nominee may appoint multiple proxies in respect of each securities account held. (c) A member who appoints a proxy must execute Proxy Form, and if two proxies are appointed, specify the percentage and number of units each proxy is appointed to exercise. (d) A corporate member who appoints a proxy must execute Proxy Form under seal or the hand of its officer or attorney duly authorised. (e) Only unitholders registered in the Record of Depositors as at 19 April 2016 shall be eligible to attend and vote at 4th AGM or appoint a proxy to attend and vote on his behalf. (f) The executed Proxy Form must be deposited at Manager's Registered Office, not later than 2.30 p.m. on 24 April 2016 (being 48 hours before the commencement of 4th AGM). (g) IGB REIT shall have the right to reject Proxy Form which is incomplete, improperly completed or illegible or where the true intentions of the appointer are not ascertainable from the instructions of the appointer specified on Proxy Form. (h) Annual Report 2015 and Proxy Form are available on IGB REIT's website www.igbreit.com, which unitholders can view or download at their convenience. Fold this flap for sealing Fold along this line (2) PROXY FORM
The Company Secretary
iGb reit Management sdn bhd (908168-A)
(Manager of IGB Real Estate Investment Trust)Level 32, The Gardens South Tower Lingkaran Syed Putra 59200 Kuala Lumpur Fold along this line (1) Mid Valley Megamall IGB REIT MANAGEMENT SDN BHD (908168-A)Level 32, The Gardens South Tower,Mid Valley City, Lingkaran Syed Putra,59200 Kuala Lumpur, MalaysiaTel: +603 2289 8989 Fax: +603 2289 8802

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