The Trustee and the REIT Manager are independent of each other.

The Trustee is responsible under the Trust Deed for the safe custody of the assets of China Merchants Commercial REIT on behalf of Unitholders and for overseeing the activities of the REIT Manager for compliance with the relevant constitutive documents of, and regulatory requirements applicable to China Merchants Commercial REIT.

The REIT Manager’s role is to manage China Merchants Commercial REIT and its assets in accordance with the Trust Deed and to ensure that the financial and economic aspects of China Merchants Commercial REIT’s assets are professionally managed in the sole interests of the Unitholders.

The Board oversees the management of the REIT Manager’s affairs and the conduct of its business and is responsible for the overall governance of the REIT Manager.

The Board currently comprises seven members including 1 executive director, 3 non-executive directors and 3 independent non-executive directors.

The Board composition will be reviewed regularly to ensure that the Board has the appropriate mix of expertise and experience and that the directors being appointed have the relevant expertise and experience in discharging their duties.

The composition of the Board is determined using the following principles:

1. The Chairman of the Board should be a non-executive director;
2. the Board should have a balance of skill, experience and diversity of perspectives appropriate for the requirements of the China Merchants Commercial REIT’s business and should ensure that changes to its composition can be managed without undue disruption;
3. the Board should have a balanced composition of executive, non-executive and independent non-executive directors so that there is a strong independent element on the Board which can effectively exercise independent judgement;
4. the Board should have a policy concerning diversity of the board members which is appropriate for the requirements of China Merchants Commercial REIT’s business and shall disclose the policy on diversity or a summary of the policy in the corporate governance report;
5. at least one-third of the Board and a minimum of three members of the Board should be independent non-executive directors and at least one independent non-executive director must have appropriate professional qualifications or accounting or related financial management expertise; and
6. the re-election and further appointment of any independent non-executive director serving on the Board for nine years shall be subject to a separate Unitholders’ resolution.

Roles of Key Board Members

The positions of Chairman and the executive director are held by separate persons in order to maintain an effective segregation of duties.

The Chairman leads the Board discussions and deliberations and is responsible for setting the meeting agenda of Board meetings. He ensures that Board meetings are held when necessary. He promotes high standards of corporate governance and maintenance of effective communications with Unitholders.

The Executive Director is responsible for the day-to-day management of the REIT Manager and China Merchants Commercial REIT. The Executive Director executes the strategic plans set out by the Board and ensures that the directors are kept updated and informed of China Merchants Commercial REIT’s business through management reports.

Board Diversity Policy

The board diversity policy of the REIT Manager ensures that a balance of skill, experience and diversity of the Board is maintained. Selection is based on a number of factors including but not limited to age, cultural and educational background, gender, knowledge, length of service and professional experience or skills. The ultimate decision will be based on merit and contribution that the selected candidates will bring to the Board.

Board Meetings

Board meetings will normally be held at least four times a year at approximately quarterly intervals. To ensure that directors will be given sufficient time to consider the issues to be tabled at the various Board meetings, details of the venue, time and agenda of the meeting are required to be given at least 10 clear days in advance of the meeting (except if there are exceptional circumstances or if the majority of directors agree to a shorter period of notice). No Board meeting or any adjourned Board meeting will be quorate unless a simple majority of directors are present at the time when the relevant business is transacted.

If a director who, whether directly or indirectly, has a material interest in a contract or proposed contract with the REIT Manager which is of significance to the REIT Manager’s business, he must declare the nature of his interest during the Board meeting or by giving a general notice to the Board, whichever is earlier before the question of entering into the contract is taken into consideration on behalf of the REIT Manager. A director who is prohibited from voting by reason of a conflict of interest or that the REIT Manager has excluded from voting will not be counted for the purposes of establishing the necessary quorum for the meeting.

Board Committees

The Board has the power to delegate to committees consisting of such numbers of its body as it thinks fit. Four committees have been established to assist the Board in discharging its responsibilities. The committees of the Board have been set up with clear terms of reference to review specific issues or items and then to submit their findings and recommendations to the full Board for consideration and endorsement. Unless the decision making power has been vested in the relevant committee by the Board, the ultimate responsibility for making final decisions rests with the full Board and not the committees. The committees of the Board are currently as follows:

Investment Committee

The Investment Committee comprises, the Chief Investment and Asset Management Officer and two directors one of whom shall be an independent non-executive director. The members of the Investment Committee are Mr. Yu Zhiliang, Mr. Guo Jin and Mr. Lin Hua. Mr. YU Zhiliang is the current chairman of the committee. The Investment Committee is responsible for, among other matters, evaluating and making recommendations on proposed acquisitions and disposals of assets, approving budgets and reviewing actual expenses on all key expenditures and reviewing quarterly financial performance, forecasts and annual financial plans of the REIT Manager and China Merchants Commercial REIT. The Investment Committee also reviews and recommends changes to delegated authority, policies or procedures in areas such as accounting, taxes, treasury, distribution payout, investment appraisal, management and statutory reporting.

Audit Committee

The Audit Committee comprises at least three members appointed by the Board from among the non-executive directors and independent non-executive directors. A majority of the members of the Audit Committee shall be independent nonexecutive directors and at least one of them shall have appropriate professional qualifications or accounting or related financial management expertise. The Audit Committee must be chaired by an independent non-executive director. The members of the Audit Committee are Mr. Lin Hua, Mr. Lin Chen and Ms. Liu Ning. Mr. Lin Hua, is the current chairman of the committee.

The Audit Committee is responsible for establishing and maintaining an adequate internal control structure, effective financial reporting and risk management systems and ensuring the quality and integrity of financial statements. The Audit Committee is also responsible for the nomination of independent external auditors and reviewing the adequacy of external audits in respect of cost, scope and performance. The Audit Committee also ensures the existence and working of an effective system of internal control and risk management, in respect of both the REIT Manager and China Merchants Commercial REIT.

The Audit Committee’s responsibilities also include:

1. reviewing dealings of the REIT Manager and the directors on a half-yearly basis;
2. reviewing all financial statements and all external audit reports and developing and implementing a policy on the engagement of external auditors to supply non-audit services;
3. ensuring the internal audit function is adequately resourced and guiding the management to take appropriate actions to remedy any faults or deficiencies in internal controls which may be identified;
4. assisting the Board in its monitoring of the entity’s overall risk management profile and setting guidelines and policies to govern risk assessment and risk management;
5. periodically reviewing and monitoring all connected party transactions and related party transactions; and • reviewing the REIT Manager and The Trust’s compliance with legal and regulatory requirements on a regular basis.

Nomination and Remuneration Committee

The Nomination and Remuneration Committee is appointed by the Board from among the directors. A majority of the members of the Nomination and Remuneration Committee shall be independent non-executive directors. The chairman of the Nomination and Remuneration Committee shall be the Chairman or an independent non-executive director. The members of the Nomination and Remuneration Committee are Mr. Huang Junlong, Mr. Lin Chen and Ms. Wong Yuan Chin Tzena. Mr. Huang Junlong is the current chairman of the committee.

The Nomination and Remuneration Committee’s responsibilities include, among other things:

1. reviewing the structure, size and composition (including skills, knowledge and experience) of the Board and its committees at least annually and making recommendations on any proposed changes to the Board to complement the REIT Manager’s corporate strategy;
2. developing the criteria for identifying and assessing the qualifications of and evaluating candidates for directorship;
3. identifying individuals who are qualified/suitable to become a member of the Board and selecting or making recommendations to the Board on the selection of individuals nominated for directorships;
4. reviewing the terms and conditions of employment of all staff and directors and recommend the manpower deployment plan (including the succession plan for the management and the Board), remuneration and retirement policies and packages;
5. assessing the independence of independent non-executive directors to determine their eligibility;
6. reviewing, monitoring and reporting on the REIT Manager’s board diversity policy;
7. making recommendations to the Board on the appointment, re-appointment or removal of directors and succession planning for directors; and
8. making recommendations to the Board on the remuneration and retirement policies and packages for directors and ensuring that no director is involved in deciding his own remuneration.

Disclosures Committee

The Disclosures Committee is appointed by the Board from among the directors. The Disclosures Committee consists of three directors, one of whom shall be an independent nonexecutive director. The members of the Disclosures Committee are Ms. Liu Ning, Mr. Guo Jin and Ms. Wong Yuan Chin Tzena. Ms. Liu Ning is the current chairman of the committee. The role of the Disclosures Committee includes reviewing matters relating to the disclosure of information to Unitholders and public announcements. The Disclosures Committee also works with the management of the REIT Manager to ensure that the disclosure of information is accurate, complete and not misleading. The Disclosures Committee’s responsibilities include:

1. regularly reviewing and making recommendations to the Board on matters of corporate disclosure issues and announcements regarding (without limitation) financial reporting, connected party transactions, and potential areas of conflicts of interest;
2. overseeing compliance with applicable legal requirements and the continuity, accuracy, clarity, completeness and currency of information disseminated by or on behalf of The Trust to the public and applicable regulatory agencies;
3. reviewing and approving all material non-public information and all public regulatory filings of or on behalf of The Trust prior to such information being disseminated to the public or filed with applicable regulatory agencies, as applicable;
4. reviewing periodic and current reports, proxy statements, information statements, registration statements and any other information filed with regulatory bodies;
5. reviewing press releases containing financial information, information about material acquisitions or dispositions or other information material to the Unitholders; and
6. reviewing correspondence containing financial information disseminated to the Unitholders.

As a Type 9 licensed corporation and investment manager of trust fund, the REIT Manager has three persons who are approved as Responsible Officers pursuant to the requirements of section 125 of the SFO and paragraph 5.4 of the REIT Code, one of whom is an executive director responsible for supervising the licensed business of regulated activity.

There are four core function officers responsible for overall management and supervision. As senior management, they are responsible for instructing and supervising the effective management of the daily comprehensive operations of the Manager.

The Board has the overall responsibility for overseeing the risk management and internal control systems of the Trust and ensuring that these systems are effectively maintained. Various risk areas relevant to real estate investment trusts will be analysed regularly and monitored by the REIT Manager, including tenant concentration risk, property damage risk, currency risk, interest rate risk, debt refinancing risk, regulatory risk, litigation risk and operational risk. The Board will meet semi-annually to review the risks to the assets and business of The Trust and discuss the implementation of risk mitigations measures.

The internal auditor of the REIT Manager (the “Internal Auditor”) conducts independent reviews to ensure the adequacy, effectiveness and efficiency of operational processes and internal controls. The Board will consider and, if appropriate, act upon any recommendations from the Internal Auditor. Based on a three-year strategic audit plan approved by the Audit Committee, the Internal Auditor conducts financial, operations and compliance reviews, recurring and ad-hoc audits, fraud investigation and process efficiency reviews. A summary report with key findings, improvement recommendations and implementation status is provided to the Audit Committee on a quarterly basis. As China Merchants Commercial REIT was listed on the Stock Exchange on 10 December 2019, the Board has not conducted a review of the risk management and internal control of the REIT Manager during the Reporting Period.

The REIT Manager has adopted a Compliance Manual which sets out corporate governance policies as well as the responsibilities and functions of each key officer. The Compliance Manual also clearly defines reporting channels, workflows, and specifies procedures and forms designed to facilitate the compliance of the REIT Manager with various provisions of the Trust Deed, the SFO, the REIT Code and other relevant rules and regulations.

During the period under review, the REIT Manager has in material terms complied with the provisions of the Compliance Manual.

All conflicts of interest shall be managed by the Board in accordance with the articles of association of the REIT Manager and applicable laws, rules and regulations. The REIT Manager shall ensure that all conflicts of interest relating to China Merchants Commercial REIT shall be managed and avoided. The following measures are taken in that regard:

1. the REIT Manager will be a dedicated manager to China Merchants Commercial REIT and, unless with the approval of the SFC, the REIT Manager will not manage any REIT other than China Merchants Commercial REIT nor manage other real estate assets other than those in which The Trust has an ownership interest or investment;
2. the REIT Manager will ensure that it will be able to function independently from its shareholders and all senior executives and officers will be employed by the REIT Manager or the Onshore Manager Subsidiary on a full-time basis and solely be dedicated to the operations of China Merchants Commercial REIT;
3. the REIT Manager has established procedures to deal with conflicts of interest under its compliance manual;
4. the REIT Manager has established internal control systems to ensure that connected party transactions between China Merchants Commercial REIT and its connected persons are monitored and undertaken according to procedures and/or on terms in compliance with the REIT Code (or where applicable, in compliance with the waiver conditions imposed by the SFC) and that other potential conflicts of interest that may arise are monitored;
5. all conflicts of interest involving a Significant Unitholder or a director, or a connected person through such entities, will be managed by a physical Board meeting rather than through a written resolution and all independent non-executive directors who, and whose associates, have no material interest in the matter should be present at such Board meeting; and
6. a director who has material interests in a matter which is the subject of a resolution proposed at a Board meeting of the REIT Manager shall abstain from voting on the resolution concerned.

The REIT Manager has established an internal control system intended to ensure that connected party transactions between China Merchants Commercial REIT and its connected persons are monitored and are undertaken on terms in compliance with the REIT Code. All connected party transactions must be:

carried out at arm’s length, on normal commercial terms and in an open and transparent manner; valued, in relation to a property transaction, by an independent property valuer; consistent with China Merchants Commercial REIT ’s investment objectives and strategy; in the best interests of Unitholders; properly disclosed to Unitholders; and approved by the independent non-executive directors of the REIT Manager (or a committee thereof) and, where the prior approval of Unitholders is required, the independent non-executive directors of the REIT Manager (or a committee thereof) shall confirm, in a letter set out in the circular to Unitholders, whether the terms and conditions of the transaction are fair and reasonable and in the best interests of Unitholders and whether Unitholders should vote in favour of the resolution. The REIT Manager must demonstrate to the independent non-executive directors and the Audit Committee that all connected party transactions satisfy the foregoing criteria, which may entail (where practicable) obtaining quotations from independent third parties, or obtaining one or more valuation letters from independent professional valuers.

Prior approval of Unitholders is required for connected party transactions where the value of the transaction is 5.0% or more of the latest NAV of China Merchants Commercial REIT, subject to any waivers granted by the SFC. Save for the appointment or removal of the manager of China Merchants Commercial REIT, a Unitholder is prohibited from voting its Units at, or being part of a quorum for, any meeting of Unitholders convened to approve any matter in which the Unitholder has a material interest in the business to be conducted and that interest is different from the interest of other Unitholders.

To monitor and supervise any dealings of Units, the REIT Manager has adopted a code containing rules on dealings by the directors and the REIT Manager equivalent to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules.

The provisions of Part XV of the SFO with respect to disclosure of interests are deemed to apply to the REIT Manager, the directors of the REIT Manager and each Unitholder and all persons claiming through or under him.

Management Persons who are aware of or privy to any negotiations or agreements related to intended acquisitions or disposals which are notifiable transactions under Chapter 14 of the Listing Rules as if applicable to The Trust or any connected party transactions under the REIT Code or any inside information must refrain from dealing in the Units as soon as they become aware of them or privy to them until proper disclosure of the information in accordance all applicable rules and regulations. Management Persons who are privy to relevant negotiations or agreements or any inside information should caution those Management Persons who are not so privy that there may be inside information and that they must not deal in China Merchants Commercial REIT’s securities for a similar period.

In addition, a Management Person must not make any unauthorised disclosure of confidential information or make any use of such information for the advantage of himself/herself or others.

The REIT Manager has also adopted procedures for the monitoring of disclosure of interests by directors of the REIT Manager and the REIT Manager. Unitholders with a holding of 5% or more of the Units in issue or Management Person and the directors of the REIT Manager with an interest in the Units will have a notifiable interest and will be required to notify the Hong Kong Stock Exchange and the REIT Manager of their holdings and changes in China Merchants Commercial REIT.

China Merchants Commercial REIT will in each calendar year hold an annual general meeting in addition to any other general meetings in that year. The Trustee or the REIT Manager may at any time convene a meeting of Unitholders. The REIT Manager will also convene a meeting of Unitholders if requested in writing by not less than two Unitholders registered as holding together not less than 10.0% of the Units in issue. Notice of at least 21 days will be given to Unitholders for an annual general meeting or where a Special Resolution is proposed for consideration at such meeting and notice of 14 days or 10 clear business days (whichever is longer) at the least will be given to Unitholders for other meetings and such notice will specify the time and place of the meeting and the terms of any resolutions to be proposed.

Two or more Unitholders present in person or by proxy registered as holding together not less than 10% of the Units for the time being in issue and outstanding will form a quorum for the transaction of all business except for the purpose of passing a Special Resolution. The quorum for passing a Special Resolution will be two or more Unitholders present in person or by proxy registered as holding together not less than 25.0% of the Units in issue and outstanding. The quorum for an adjourned meeting shall be such number of Unitholders who are present in person or by proxy regardless of the number of Units held by them.

Matters to be decided by Unitholders by Special Resolution

Pursuant to the Trust Deed, decisions with respect to certain matters require specific prior approval of Unitholders by way of Special Resolution. Such matters include:

1. changes in the REIT Manager’s investment policies or strategies for The Trust; disposal of any real estate investments, which have been held for less than two years;
2. any increase in the rate above the permitted limit or change in structure of the REIT Manager’s or Trustee’s fees;
3. certain modifications of the Trust Deed;
4. termination or merger of China Merchants Commercial REIT

Unitholders may also, by way of a Special Resolution, remove the Trustee or appoint new auditors in place of the existing auditors.

China Merchants Commercial REIT will prepare its accounts in accordance with IFRS with a financial year end of 31 December and a financial half-year end of 30 June. In accordance with the REIT Code, the annual report and accounts for China Merchants Commercial REIT will be published and sent to the Unitholders and filed with the SFC no later than four months following each financial year-end of China Merchants Commercial REIT. Semi-annual reports will be published and sent to the Unitholders and filed with the SFC no later than two months following the end of each financial half-year.

The REIT Manager shall ensure that a full valuation of each of the Trust’s properties shall be conducted by the principal valuer appointed in accordance with the Trust Deed at least once a year and may require the principal valuer to carry out additional valuations or inspections in any other circumstances prescribed by the REIT Code and at such occasions as the REIT Manager may determine is necessary.

Under the Trust Deed, at least one distribution shall be made in respect of each financial year and paid no later than five months after the distribution calculation date for the relevant distribution period. China Merchants Commercial REIT’s present distribution policy is to make two distributions in respect of each year, being distributions with respect to the six-month periods ending 30 June and 31 December. Distributions to the Unitholders will be declared and paid in Hong Kong dollars. In accordance with the REIT Code, the REIT Manager’s will distribute to the Unitholders an amount of no less than 90% of the Trust’s Annual Distributable Income for each financial year.

The REIT Manager has the discretion to direct the Trustee to make distributions over and above the minimum 90% of Annual Distributable Income if and to the extent The Trust, in the opinion of the REIT Manager, has funds surplus to its business requirements. The present policy is to distribute 100% of the Annual Distributable Income.