Business Trusts

What are Business Trusts?

Business Trusts are business enterprises set up as trusts, instead of companies. They are

hybrid structures with elements of both companies and trusts. Like a company, a business trust

operates and runs a business enterprise. But unlike a company, a business trust is not a

separate legal entity in that the trustee of the business trust is regarded as the legal owner of

the assets in the trust. Whereas companies are restricted to paying dividends out of accounting

profits, trusts do not face such restrictions.

Therefore, business trusts can pay distributions to investors out of operating cash flows and is

suited to businesses involving high initial capital expenditures with stable operating cash flows

such as infrastructure and utilities businesses, vehicle leases and charters, etc.

Units of Business Trusts are bought and sold like other securities listed on SGX at market driven

prices.

Why invest in Business Trusts?

Access to Cash Generating Assets: Business Trusts offer investors a new way to invest in cash-

generating assets, including infrastructure, utilities and transportation assets. The structure

unitises big ticket assets into liquid and affordable units which are traded on the SGX.

Income Distribution: Business Trusts can distribute cash flows in excess of accounting profits.

What are the differences between a REIT and a Business Trust?

Regulatory Regime: Business Trusts are governed by the Business Trusts Act under a different

regime.

Responsible Entity: Business Trusts are premised on a single responsible entity – the Trustee-

Manager, whereas in the case of REITs, while the assets are legally owned by the Trustee, they

are managed by a separate Asset Manager. As such, the Trustee-Manager of Business Trusts

has dual responsibility of safeguarding the interests of unitholders and managing the Business

Trusts.

Taxation: While REITs with Singapore assets are tax-transparent investment structure focused

on real estate assets, Business Trusts are like corporates, subject to the Income Tax Act.

What are the risks to consider?

The risks of investing in Business Trusts will largely depend on the kind of assets and

investment focus that the Business Trust has. For example, the value of the units may fluctuate

and the projected distributions may not be achieved. Other risks associated with stock investing

(e.g. price risk, volatility and liquidity risks) also apply.

Investors should study the specific Business Trust prospectus to understand its investment

objective and details of the assets before making an investment decision.