Together We Grow
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Annual Report 2018/2019 Governance, Disclosures and Financial Statements Link Real Estate Investment Trust Stock code: 823 VISION 2025 we excel TOGETHER we innovate WE GROW 手共創未來 we deliver P we grow About Link Link Real Estate Investment Trust is the first REIT listed on the Hong Kong 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 REITs (with focus on retail properties) in terms of market capitalisation. With a diversified portfolio that consists of retail facilities, car parks and offices across Hong Kong, Beijing, Shanghai, Shenzhen and Guangzhou, we aim to deliver sustainable growth and create long-term value for our Unitholders. About this Report Complete 2018/2019 Reports We produce this standalone Governance, Disclosures and and Presentations Financial Statements report in order to improve reporting Our complete suite of reports and supporting compliance transparency by making information easily and readily documentation can be accessed and downloaded from our accessible to interested parties. This report complements our corporate website at: Linkreit.com 2018/2019 Strategic Report which highlights our corporate performance and values created over the year under review. STRATEGIC REPORT 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, the relevant disclosure requirements of the REIT Code and the Listing Rules, 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 solely on our website. This can be accessed at Linkreit.com/sustainability ESG COMPLIANCE DOCUMENTATION • Environmental, Social and Governance Reporting Guide (ESG Reporting Guide) of The Stock Exchange of Hong Kong Limited • Global Reporting Initiative Sustainability Reporting Standards (GRI Standards) – Comprehensive Option • United Nations Global Compact Access our corporate website for further information Contents INTRODUCTION Inside front GOVERNANCE A Well-Governed Business 2 Reports of Board Committees Report of the Audit and Risk Management Committee 31 Report of the Finance and Investment Committee 34 Report of the Nomination Committee 36 Report of the Remuneration Committee 38 Regulatory and Compliance 40 DISCLOSURES Biographical Details of Directors and Management Team 50 Disclosure of Interests 58 Long-term Incentive Schemes 62 Connected Party Transactions 68 LINK TOGETHER INITIATIVES 73 TRUSTEE’S REPORT 80 FINANCIAL STATEMENTS Independent Auditor’s Report 81 Consolidated Financial Statements Consolidated Income Statement 86 Consolidated Statement of Comprehensive Income 87 Consolidated Statement of Distributions 88 Consolidated Statement of Financial Position 89 Consolidated Statement of Changes in Equity and Net Assets Attributable to Unitholders 90 Consolidated Statement of Cash Flows 91 Notes to the Consolidated Financial Statements 92 VALUATION REPORT 136 ESG COMPLIANCE HKQAA Assurance Statement 172 GRI Standards Content Index – Comprehensive 173 SEHK’s ESG Reporting Guide Index 182 United Nations Global Compact Index 187 FIVE YEAR PERFORMANCE SUMMARY 188 INVESTOR INFORMATION 191 DEFINITIONS AND GLOSSARY 193 CORPORATE INFORMATION Inside back A Well-Governed Business OUR CORPORATE GOVERNANCE FRAMEWORK Link believes responsible governance should transcend mere fulfilling of regulatory requirements to become a value that is embedded within Link for long-term success. Our corporate governance framework identifies the participants and the various elements which interact to ensure management runs the business of Link in the interest of our Unitholders and meets the expectation of other stakeholders. • Vigorous investor relations program to keep • Consistently high level of independence Unitholders abreast of developments • Diversity in skill, experience, gender and ethnicity • Periodic reporting and corporate communications in full compliance with REIT Code and Listing Rules • Strong Board process • Periodic evaluation of • Vigorous sustainability initiatives UJWKTWRFSHJJϫJHYN[JSJXX • Link Together Initiatives for people • Programme of succession and living in the community nomination • Government and community UNITHOLDERS BOARD relations AND OTHER AND BOARD STAKEHOLDERS COMMITTEES REGULATORY • Vision, Mission and Value, • SFC oversight through REIT MANAGEMENT AND OTHER embedded as Link culture OVERSIGHTS Code and SFO compliance and inspection • Clear delegation of authority between Board and management • Trustee oversight through Trust Deed and periodic inspections • Regular updates to Board • External audit and review • Risk management framework and internal controls • Stringent internal audit system • Whistle-blowing policy 2 Link Real Estate Investment Trust Annual Report 2018/2019 A Well-Governed Business THE BOARD The Board is pivotal to Link’s corporate governance framework. It ensures all the corporate governance elements interplay in the best way to promote Link’s long-term success and deliver sustainable value to Unitholders and other stakeholders. Currently, there are 12 Board members comprising 2 EDs who are the CEO and the COO, 1 NED and 9 INEDs. The 2 EDs are full-time employees of Link, while the NED and the INEDs are not. Biographies of our Directors as at the date of this report appear on pages 50 to 54. Each of our current NED and INEDs is appointed for a specific term of three years, subject to curtailment upon retirement by rotation and re-election by Unitholders at annual general meetings. The term can be renewed upon expiry and up to a maximum of nine years in the case of INED. NED is not subject to the maximum nine-year term but is subject to the same requirements of retirement by rotation and re-election by Unitholders at annual general meetings as the INEDs. The term, duties and obligations of each NED and INED are set out in a formal letter of appointment entered into with the Manager. The 2 EDs have employment contracts with the Manager but are not on specific tenure. They are not subject to retirement by rotation at annual general meetings. Led by the Chairman, the Board sets strategy and risk appetite, leads and provides insights to management, and monitors business progress against agreed business targets. This is achieved through: • strong independence of the Board and Board Committees • clear delegation of duties between the Board and the Board Committees • a clear division of responsibility between the Board and management • diversified skills, experience, expertise, gender and ethnicity among Board members • strong and transparent Board process Strong Independence Our INEDs and the NED bring constructive analysis and critical judgement on management proposals, scrutinise business performance against goals, and monitor risks and compliance. KEY INDEPENDENCE FEATURES • 9 out of 12 Directors are INEDs (75%) and 1 is a NED • The Board and all the Board Committees are chaired by INEDs • High majority of INEDs at the Nomination Committee (75%) and majority at the Finance and Investment Committee (58%) • The Audit and Risk Management Committee and the Remuneration Committee are not only chaired by but are both comprised of INEDs only Governance, Disclosures and Financial Statements 3 A Well-Governed Business Our assessment of independence of an INED is based on the independence criteria set out in the Link Corporate Governance Policy which is modelled on (and, in some aspects, exceeds) the independence guidelines of the Listing Rules. We reference from time to time major proxy advisors’ voting recommendations and guidelines in approaching the issue of INED’s independence. The Manager lived up to the independence requirements of the Link Corporate Governance Policy throughout the year under review. ADDITIONAL INDEPENDENCE REQUIREMENTS IN LINK CORPORATE GOVERNANCE POLICY OVER REQUIREMENTS UNDER THE LISTING RULES • The Audit and Risk Management Committee and the Remuneration Committee can only consist of INEDs • Members of the Finance and Investment Committee cannot sit on the Audit and Risk Management Committee • Upon expiry of nine years’ service on the Board, INED can only re-join the Board as such three years after last stepping down • INED cannot serve on the Board beyond nine years Independence Weighting Board Audit and Risk Nomination Remuneration Finance and Management Committee Committee Investment 17% Committee Committee 14% 15% 25% 8% 12% 8% 25% 14% 12% 77% 12% 100% 75% 100% 64% 14% 75% 100% 75% 100% 58% 2019(1) INED NED ED Senior Management(2) 2018(1) INED NED ED Senior Management(2) (1) 12 members as of 3 June 2019 against 13 members as of 6 June