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Unaudited Financial Statements Announcement For the quarter and nine months ended 30 September 2016

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Statements of Total Return of Far East H-REIT and Far East H-Trust

Unaudited Financial Statements Announcement for the third quarter and nine months ended 30 September 2016

Notes:

NM - Not Meaningful

  1. Share of results of joint venture relates to the equity accounting of Fontaine Investment Pte Ltd's ("FIPL") results.

  2. This relates to unrealised differences arising from the change in fair value of interest rate swaps.

  3. Included in the net tax adjustments are the following:

    Notes:

    NM - Not Meaningful

    1. This represents 90% of REIT Manager's fees paid/payable in Stapled Securities.

    2. This mainly relates to Moody's annual rating fees, non-tax deductible professional fee, finance cost for Project Sentosa, deferred income and amortization of rental deposits.

  4. This is the difference between the taxable income previously distributed and the quantum finally agreed with the Inland Revenue Authority of Singapore ("IRAS") for the Years of Assessment 2014 for 9M 2016 and Year of Assessment 2013 for 9M 2015.

Balance Sheets as at 30 September 2016 Far East H-REIT and Far East H-Trust

Notes:

  1. This relates to the 30% joint venture interest in FIPL. In July 2016, Far East H-REIT subscribed for its share of the additional S$1.1 million paid-up capital in FIPL by way of capitalising the shareholders' loan.

  2. This includes shareholders' loan to FIPL of S$25.6 million. The amount is used to finance the development of a new hotel site located at Artillery Avenue, Sentosa.

  3. This relates to the fair value of interest rate swaps used to hedge interest rate risk.

  4. Movements in borrowings were due to reclassification of S$250 million term loan from non-current liabilities to current liabilities as the maturity date of these term loans were less than one year. An additional S$5.1 million loan was drawn from the revolving credit facility to finance the shareholders' loan to FIPL.

Review of the performance of third quarter and nine months ended 30 September 2016

3Q 2016 vs 3Q 2015

Gross revenue of S$28.0 million in 3Q 2016 was a decrease of 5.5% compared to S$29.7 million in 3Q 2015, due to reduced revenue contribution from the hotels and serviced residences (SRs) and softer performance of the retail and office spaces

The operating environment for the hotels remained competitive amidst the softness in corporate travel demand, as a result of the uncertain global economic climate. The increase of about 2,500 new hotel rooms in 2016 also put pressure on rates. As a result, the hotel portfolio's average daily rate ("ADR") declined by 6.9% year-on-year despite registering an increase of 1.0pp in average occupancy. Consequently, the hotel portfolio's revenue per available room ("RevPAR") recorded a year-on-year decrease of 5.8% to S$142.

For the SRs, the demand from the corporate segment remained soft as a whole. Regency House, however, was able to increase its revenue and contribution from the corporate segment as the renovation had helped to better position the property. As a portfolio, the average occupancy of the SRs continued to be healthy at 90.0% while the ADR declined 2.5% to S$226. The revenue per available unit ("RevPAU") of the SR portfolio declined 2.7% year-on-year to S$203 in 3Q 2016.

A snapshot of the hotel and SR performance in 3Q 2016 is set out below.

Revenue from the retail and office spaces declined 4.0% year-on-year to S$5.8 million in 3Q 2016 due to lower occupancy and a marginal decrease in rental rates.

The net property income for 3Q2016 was S$25.3 million, a decrease of 5.8% year-on-year, as the decrease in property expenses was not able to offset the lower gross revenue.

Finance costs of S$4.8 million in 3Q 2016 was 6.5% lower year-on-year as the short term interest rates had declined considerably in 3Q 2016. 71% of Far East H-REIT's debt portfolio was secured at fixed interest rates with the remaining 29% on floating interest rates.

The income available for distribution was $20.3 million, or 6.0% lower year-on-year. The distribution per Stapled Security for 3Q 2016 was 1.12 cents or 6.7% lower year-on-year.

9M 2016 vs 9M 2015

Gross revenue for the first nine months of 2016 was S$81.5 million, a decrease of 4.9% over the corresponding period last year due to the reduced revenue contribution from the hotels and serviced residences and the commercial spaces.

The weak economic climate, which had led to softness in corporate travel demand, as well as competitive pressure from the new supply of hotel rooms in the market had continued to impact the operating performance of the hotel portfolio. This was despite the uplift from biennial events such as the Singapore Airshow and Food & Hotel Asia during the nine month period. Orchard Parade Hotel was also undergoing some asset enhancement during the reporting period. As a result, RevPAR for the hotel portfolio decreased 4.6% year-on-year to S$140 for the first nine months of 2016.

Post asset enhancement works, Regency House had recorded better operating performance as the property was able to achieve higher revenue contribution from the corporate segment. However, demand for SR accommodation remained soft primarily due to a drop in project groups and lower corporate travel budgets. Consequently, RevPAU for the SR portfolio for the first nine months of 2016 declined by 6.7% year-on-year to S$193.

A snapshot of the Hotels and SR performance in 9M 2016 is set out below.

Revenue from the retail and office spaces declined by 3.1% to S$17.3 million due to a decrease in the average occupancy, while the portfolio's enjoyed a marginal growth in rental rate during the first nine months of 2016.

The net property income was S$73.5 million or 5.0% lower year-on-year due to the reduced gross revenue recorded during the reporting period. Property expenses had declined 4.4% year-on-year due to lower property tax expense.

The income available for distribution was S$58.0 million, or 5.8% lower year-on-year. The distribution per Stapled Security for 9M 2016 was 3.21 cents or 6.4% lower year-on-year.

Commentary On Current Year Prospects

While international visitor arrivals into Singapore grew in the first eight months of 2016, the increase was largely led by the demand from leisure travellers. Uncertainties in the macro environment weighed on the demand for corporate travel, impacting room rates across most hotel segments.

Going forward, demand from the leisure segment will continue to drive tourism in Singapore as companies remain prudent in their business travel spend. Coupled with the addition of about 2,500 new hotel rooms this year1, the hospitality sector is expected to remain competitive.

The REIT Manager will continue to drive the performance of its existing portfolio, with a focus on the recently renovated properties.



1 CBRE report issued as at December 2015 and Far East H-Trust's compilation