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Annual Report 2016/2017 Governance, Disclosures Link Real Estate Investment Trust Annual Report 2016/2017 Link Real Estate Investment Trust and Financial Statements Link Real Estate Investment Trust Stock code: 823 Governance, Disclosures and Financial Statements We Link People to a Link Real Estate Investment Trust Linkreit.com Brighter Future About Link Link Real Estate Investment Trust is the first REIT listed on the Stock Exchange and is a constituent of the Hang Seng Index. We are Asia’s largest REIT and also one of the world’s largest retail focused REITs in terms of market capitalisation. With a diversified portfolio that consists of retail facilities, car parks and offices across Hong Kong, Beijing, Shanghai and Guangzhou, we aim to deliver sustainable growth and create long-term value for our Unitholders. About this Report Complete 2016/2017 Reports We produce this standalone Governance, Disclosures and Presentations and Financial Statements report in order to improve Our complete suite of reports and presentations can be reporting transparency by making information easily and accessed and downloaded from our corporate website at readily accessible to interested parties. This report Linkreit.com complements our 2016/2017 Strategic Report which highlights our corporate performance and value creation STRATEGIC REPORT over the past year. Our Strategic Report, compiled according to the International Integrated Reporting Council’s <IR> Framework, presents a comprehensive, but concise, overview of how we create value for different stakeholders and the progress we have made on our strategic priorities. GOVERNANCE, DISCLOSURES AND FINANCIAL STATEMENTS This report provides our detailed governance, disclosures and financial statements. Governance and disclosures sections are prepared in accordance with the REIT Code, applicable provisions of the Listing Rules, and other relevant laws and regulations while the consolidated financial statements have been prepared in accordance with the Hong Kong Financial Reporting Standards, the requirements of the Trust Deed and the relevant disclosure requirements of the REIT Code and audited by PricewaterhouseCoopers. VALUATION REPORT This report summarises the market value of Link’s individual properties as valued by Jones Lang LaSalle Limited. SUSTAINABILITY WEBSITE Up until 2013/2014, Link prepared separate annual sustainability reports which are on our corporate sustainability website. Since then we update our corporate sustainability performance on our website and incorporate the information in the Strategic Report. This can be accessed at Linkreit.com/sustainability Access our corporate website for further information Contents Introduction Inside front Governance Corporate Governance Report 2 Reports of Board Committees Report of the Audit and Risk Management Committee 22 Report of the Nomination Committee 25 Report of the Finance and Investment Committee 27 Report of the Remuneration Committee 29 Regulatory & Compliance 31 Disclosures Biographical Details of Directors and Management Team 39 Disclosure of Interests 46 Long-term Incentive Plan 49 Connected Party Transactions 54 Link Together Initiatives 59 Trustee’s Report 64 Independent Auditor’s Report 65 Consolidated Financial Statements Consolidated Income Statement 70 Consolidated Statement of Comprehensive Income 71 Consolidated Statement of Distributions 72 Consolidated Statement of Financial Position 73 Consolidated Statement of Changes in Equity and Net Assets Attributable to Unitholders 74 Consolidated Statement of Cash Flows 75 Notes to the Consolidated Financial Statements 76 Valuation Report 117 HKQAA Assurance Statement 158 GRI G4 Content Index – Comprehensive 159 Stock Exchange’s Environmental, Social and Governance Reporting Guide Index 169 United Nations Global Compact Index 172 Five Year Performance Summary 173 Investor Information 176 Definitions and Glossary 178 Corporate Information Inside back Governance Corporate Governance Report Corporate Governance Report Link is a collective investment scheme and a constituent of the Hang Seng Index. It is managed by Link Asset Management Limited under the Trustee’s and the SFC’s oversights. Link believes responsible governance should transcend mere fulfilling of regulatory requirements to becoming a value that is shared and upheld within Link. Good corporate governance is the cornerstone for long term success. This report explains how the components of our governance framework relate to each other and contribute to the effective process of governance. • 2016/2017 Board Performance Evaluation See page 3 Highlights for the year • Board Strategic Review under review See page 11 Our Board Key governance highlights High Independence • INEDs – 77% • Board and all Board Committees are chaired by INEDs Higher Diversity • Gender – Female 31% • Diversity on range of expertise Strong Time • Number of Board/Board Committee meetings during the year – total 26 Commitment • Average duration per meeting – approximately 3 hours (excluding off-site Board Strategy meeting) Strong Board • Yearly strategic review Process • Regular Board performance evaluation • Vigourous induction, training, and support for all Directors • Private session of INEDs and NED without EDs Strategic Oversight The Board sets strategy and risk appetite, leads and provides insight to management, monitors business progress against agreed business targets, and approves recommendation of Board Committees on matters delegated to them. To strike for a balance of accountability, certain matters are specifically reserved for the Board which can be found in the “Corporate Governance” homepage on Link’s corporate website at Linkreit.com. Currently, there are 13 Board members comprising 2 Executive Directors (“EDs”) who are the CEO and the CFO, 1 Non-Executive Director (“NED”) and 10 Independent Non-Executive Directors (“INEDs”). 2 Link Real Estate Investment Trust Annual Report 2016/2017 Governance Corporate Governance Report Relationships among the Board, Board Committees and Management In the course of discharging its duties, the Board is assisted by the Audit and Risk Management Committee, the Finance and Investment Committee, the Remuneration Committee and the Nomination Committee, with each operating under specific terms of reference as approved and reviewed from time to time by the Board. These updated terms of reference are posted on Link’s corporate website (Linkreit.com). The reports of the Audit and Risk Management Committee, the Nomination Committee, the Remuneration Committee, and the Finance and Investment Committee for the year under review are set out on pages 22 to 30 of this Governance, Disclosures and Financial Statements report. REMUNERATION AUDIT AND RISK COMMITTEE MANAGEMENT COMMITTEE Key duties Key duties BOARD • Approval of human resources • Review of financial report policies • Strategic directions and risk appetite and oversight of financial • Approval of remuneration of • Providing insight to and monitoring of statements’ integrity senior management and management • Risk management and recommending remuneration • Approval of annual budget and compliance monitoring of Directors for Board approval key corporate actions • Internal controls • Administering grant of awards • Approval of asset disposals and under the long-term incentive acquisitions plan of Link • Corporate governance review and monitoring • Oversight of relationships with NOMINATION Government and external bodies COMMITTEE FINANCE AND INVESTMENT Key duties COMMITTEE • Board performance evaluation Key duties • Board and Board Committees • structure and process review Capital management and Management – CEO and CFO treasury policies • Directors’ succession planning (as assisted by management team • Approval and monitoring of comprising members of the executive capital expenditure committee) • Financing decisions and Key duties review of asset disposals • Day-to-day operations and acquisitions • Formulating all business, financing and investment proposals • External interactions with investors and all other stakeholders • Human resources management and planning • Budget preparation 2016/2017 Board Performance Evaluation Board performance is evaluated on an on-going basis by the Nomination Committee which reports its findings to the Board. The Board has set the practice of carrying out a formal evaluation of its performance through the facilitation of external consultant every three years. In between reviews by external consultants, Board evaluation will be conducted internally by the chairman of the Nomination Committee (who is also the Board Chairman). Governance, Disclosures and Financial Statements 3 Governance Corporate Governance Report In year 2016/2017, the Board carried out a formal Board performance evaluation (“2017 Board Evaluation”) through Russell Reynolds Associates (“RRA”) after the previous formal evaluation in the year 2013/2014. It involved structured electronic survey and tailor-made one-on-one interview with each Director and members of the senior management. Strategic alignment and oversight One-on-one Analysis of structured survey results Board & Board Committees Assess effectiveness interviews with all structure and process of Board, its approach Directors and senior to strategy, process, management Overall Board culture structure and operating culture Assessment of Development of Progress on individual Director’s Acknowledge Electronic insight and 2015/2016 strength strength and identify surveys of all recommendations