Overview of SGX listed Business Trusts

[Boon]

To start off, there is nothing fundamentally wrong when it comes to having a business trust model. In a nutshell, it offers some features which may be beneficial to various stakeholders. It is all about trade-offs and meeting of minds to create a win-win situation for all stakeholders. Some advantages include:

1) Tax transparency

To my knowledge, IRAS has accorded "tax transparency" treatment to S-Reits, but not business trusts - taxation for a BT is similar to that for a company.

What I like about BT is dividends can be paid out of cash profits instead of accounting profits.

What I dislike about BT is 75% majority of unitholders vote is required to remove the trustee manager - IMO, it should be a simple majority. Other than this, I do agree with you that fundamentally, there is nothing wrong with the BT structure.

If the majority stakeholders/the controlling stakeholders do have a win-win mindset to align their interests with that of minority/non-controllling stakeholders/unitholders in order to create shareholders value for all stakeholders - it doesn't really matter to me if it is a reit, BT or a company.

Vested in BT - Forterra Trust

[jim_city]

I feel the roles of Trustee and Manager are conflicting in my opinion. The trustee is supposed to act in the interest of the unitholders and while the manager runs the operations of the trust. When you combine these 2, there really is a conflict of duties...

At least for REITS, these roles are separated. For example, if the REIT Manager tries to acquire poor quality properties as they make a fee through acquisitions, the trustee would prevent this from happening - in an ideal world.

But for now, I wanna take a look at Forterra... =)

[minimax]

Hi All,

this is a really high quality thread and kudos to user mobo for highlighting the 3 deadly sins of a bad Business Trust (BT).

I'd just like to add that for BT, the most important metric to look at is free cashflow(FCF) and not operating cashflow(OCF). FCF would determine whether a given DPU is sustainable or not.

As OCF does not include maintenance capex, paying DPU out of OCF is a big no-no as without maintenance capex, the BT's asset base would actually be shrinking over time. In effect, what you are getting is a self-liquidating BT. In addition, the BT's yield would be overstated as the DPU contains a return of capital component.

This why generally for BT based on movable properties (for eg: ships, planes, oil rigs, taxi fleet, rental car fleet, offshore support vessels), if the BT is paying DPU out of OCF, it is generally a bad idea to invest in them.

[CityFarmer]

Might not directly related to the topic. For those interested to know more on business trust and reit, on its ownership, management and governance, you can refer to MoneySense link below. MoneySense provides good source of basic info on investment topics.

Enjoy.

http://www.moneysense.gov.sg/~/media/Mon...ss%20Trust