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Business trusts were introduced in Singapore as a new form of business structure in October 2004 when the Business Trusts Act (Chapter 31A of Singapore) came into force.

The introduction of this new asset class – essentially businesses structured as trusts – was intended to add greater depth and breadth to Singapore’s equity markets. This follows the successful introduction of real estate investment trusts (“REITS”) in 2002.

While a business trust is similar to a company as both run and operate business enterprises, the difference is that a business trust, unlike a company, is not a separate legal entity. As a business trust is established under a trust deed, the Trustee-Manager has legal ownership of the underlying assets in the trust and holds such assets on trust for the unitholders of the trust. The Trustee-Manager is also responsible for managing the assets for the beneficial owners of the trust.

In Singapore, the Business Trusts Act has been formulated with the twin objectives of protecting the interests of unitholders (i.e. the investors) in the business trust and to establish the duties and accountability of the Trustee-Manager of a business trust and its directors.

Business trusts that raise funds through the offering of units to the retail public must be registered with the Monetary Authority of Singapore.

Business trusts are allowed to pay distributions to investors out of operating cash flow. This is unlike companies, which can only pay dividends out of accounting profits.

As such, infrastructure businesses are seen to be suitable candidates for the creation of business trusts. This is due mainly to the nature of their businesses, which generally require high initial capital expenditure with significant non-cash depreciation expense in the operating life of the infrastructure asset and which offer stable operating cash flow.

The Trustee-Manager of a business trust is entitled to fees in return for its services to the business trust. In the case of CitySpring Infrastructure Trust (“CitySpring”), its Trustee-Manager receives management fees comprising a base fee and a performance fee that is based on performance relative to a market-based index. The fee is structured to ensure that any underperformance of the Trustee-Manager is taken into account in future periods of outperformance.