City Spring Management Fee

Date: May 22, 2007

City Spring CEO, Mr Fai Au Yeung, CFO Mr Tong Yew Heng, and their Investor Relations Advisor, Mr Ivan Tan, met with SIAS President/CEO, Mr David Gerald, members of SIAS Corporate Governance committee Mr Ang Hao Yao, Mr Kenneth Pang and Mr Denis Distant, this morning at SIAS office.

City Spring called for the meeting with SIAS to address the concerns of the retail unit holders arising from the recent announcement of the management fee of $63.4 million of which $62.5million was due to performance fees triggered by a sharp increase in the share price in the 7 weeks from its listing in February 2007 resulting in a net loss of $56.1 million to the trust.

The City Spring officials expressed their concern for the current sentiments of the retail unit holders and hence the meeting with SIAS. However, they emphasized that the institutional investors have had no issues in their meetings with them. They have fully disclosed the fee structure before and during the IPO and had asked for a feedback from potential investors before the IPO. City Spring said that they had received no objections to the fee structure proposed in the prospectus. The officials also said that the fee was similar to industry practice. They had deliberately designed their fee structure to depend on both the performance of the MSCI Asia Pacific Utilities Index and City Spring’s share price rather than purely on revenue or profit figures as these do not correlate perfectly with share price performance. The fee structure they maintained is very similar to other listed funds in Australia and Singapore. The meeting generally considered the pros and cons of the fee structure.

SIAS pointed out to City Spring officials that the current situation does not do enough to “aligning the interest of the trustee-manager with that of unit holders…” as prescribed in page 174 in the prospectus dated 30 January 2007. Further, SIAS pointed out, that the fact that there was disclosure of the fee structure and they had received no objections from institutional investors does not make the basis of the fee structure acceptable especially in view of what had happened now. An extraordinary and mind-boggling management fee has arisen from the current basis of fee structure. SIAS also has concern for the possible reoccurrence of such an unfair situation. To SIAS it is not logical that a management company should be rewarded with a fee of $63mil after barely being in business for only 48 days.

SIAS also queried City Spring officials as to why they used the MSCI Asia Pacific and not the STI until such time their business is closer to the components of the MSCI Asia Pacific. City Spring’s reply was that their mandate is to be Asia Pacific and eventually it will be closer to MSCI Asia Pacific.

SIAS strongly recommends that:

  1. All trusts and funds in Singapore, not just City Spring, seriously consider reviewing their fee structures to introduce a cap on the management fee as a safeguard to avoid such a similar situation occurring again. A cap on how much the share price out perform the index would be more equitable. SIAS strongly encourages that this becomes a new industry practice as it will serve the interests of unit holders.
  2. A time frame of at least six (6) months be allowed for a half-yearly measurement of performance before performance fee can be derived.
  3. Going forward, any new trust should highlight this occurrence in their prospectus as a risk factor for potential investors.
  4. That the unitholders should study the prospectus of trusts carefully to examine the risk factors, if any, before committing on the investment.

City Spring officials assured SIAS that they are committed to deliver long term value to unit holders through providing better yield on their investments through capital growth. They emphasized that the cashflow remains robust and that distributions for this financial year have been reaffirmed. The management says that it is committed to delivering growth through acquisitions. They say they have taken majority of the management fee in units so as to align their interest with that of the unit holders and only $450K in cash to meet with expenses.

City Spring officials have agreed with SIAS to meet with the unit holders should they request for a dialogue session under the auspices of SIAS to address the concerns of the retail unit holders. They have also agreed to work with SIAS on investor education seminar on this instrument so that it can be better understood by the retail investors.

David Gerald

For Management Committee