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Unaudited Financial Statements Announcement For the second quarter and six months ended 30 June 2017

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

Footnotes:

NM denotes 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 net change in fair value of interest rate swaps entered to hedge against the interest rate exposure of Far East H-REIT.

  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 rating fees, non-tax deductible professional fee, finance cost for investment in FIPL, deferred income and amortization of rental deposits.

    3. Moody's corporate credit rating has been withdrawn in April-17 following the amendments to Appendix 6 of the Code on Collective Investment Schemes where a single-tier aggregate leverage limit of 45% is adopted for REIT regardless of its credit rating.

  4. In 1H 2016, the amount relates to the difference between the taxable income previously distributed and the quantum finally agreed with the Inland Revenue Authority of Singapore ("IRAS") for the Year of Assessment 2014.

Balance Sheets as at 30 June 2017 of Far East H-REIT and Far East H-Trust

Notes:

  1. This relates to the 30% joint venture interest in FIPL.

  2. Cash and cash equivalents as at 30 June 2017 of $21.8 million was $6.4 million higher compared to balances as at 31 December 2016 mainly due to the cash retained as stapled securityholders participated in 1Q 2017 distribution reinvestment plan ("DRP").

  3. This includes shareholders' loan to FIPL and interest accrued of S$26.0 million. The amount is used to finance the development of a new hotel site located at Artillery Avenue, Sentosa.

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

  5. Movements in borrowings were due to reclassification of S$250 million term loans from current liabilities to noncurrent liabilities as these term loans have been refinanced in March 2017.

Review of the performance of second quarter and six months ended 30 June 2017

2Q 2017 vs 2Q 2016

Gross revenue of S$25.9 million in 2Q 2017 was a decrease of 1.0% compared to S$26.1 million in 2Q 2016, due to lower master lease rental from the hotels and serviced residences ("SRs").

Demand for hotel accommodation was firmer in 2Q 2017 compared to the previous quarter, although the increased supply of hotel rooms and soft corporate demand continued to put downward pressure on room rates. To offset this market-wide trend, there was a shift towards the leisure segment, which increased the average occupancy of the hotel portfolio by 1.9pp but resulted in a 3.4% decrease in the average daily rate ("ADR"). Correspondingly, revenue per available room ("RevPAR") for the hotel portfolio decreased 1.3% to S$134.

The SR portfolio continued to be impacted by the slowdown in corporate demand, particularly from project groups. The average occupancy and ADR in 2Q 2017 were 4.5pp and 0.6% lower year-on-year respectively. As a result, revenue per available unit ("RevPAU") of the SR portfolio declined 5.7% year-on-year to S$177 in 2Q 2017.

A snapshot of the hotel and SR performance in 2Q 2017 is set out below.

Revenue from the retail and office spaces was marginally higher by 0.5% at S$5.8 million.

Net property income was S$23.2 million or 1.4% lower than the corresponding quarter last year.

Finance costs of S$4.8 million in 2Q 2017 was a 3.4% decline compared with 2Q 2016 mainly due to the lower interest margin for the $250 million term loan refinanced in March 2017.

Income available for distribution was S$17.9 million, or 1.9% lower than the corresponding quarter last year. Distribution per Stapled Security for 2Q 2017 was 0.97 cents.

1H 2017 vs 1H 2016

Gross revenue of S$50.7 million in 1H 2017 was 5.3% lower than the S$53.5 million recorded in the corresponding period last year.

Unlike last year, where hotels in Singapore benefited from major events such as the Singapore Airshow and Food & Hotel Asia, there were no major city-wide events in 1H 2017. While occupancy remained healthy in 1H 2017, room rates declined as corporates continued to take a conservative view on extraneous spending and as market competition heightened due to the larger inventory of hotels in the market. For 1H 2017, average occupancy increased 1.0pp against a 4.1% decline in ADR. As a result, RevPAR was down 3.0% at S$134 against 1H 2016.

While there was an improvement in the performance of the SRs quarter-on-quarter, the portfolio continued to be challenged by the overall softness in corporate demand, particularly from project groups. The average occupancy was 8.7pp lower in 1H 2017, and ADR grew fractionally by 0.5% year-on-year. As a result, RevPAU declined 9.8% year-on-year to S$169 in 1H 2017.

A snapshot of the Hotels and SR performance in 1H 2017 is set out below.

Revenue from the retail and office spaces was flat year-on-year at S$11.5 million.

Net property income was S$45.3 million or 6.0% lower than the corresponding period last year.

Finance costs were 2.8% lower in 1H 2017 mainly due to the lower interest margin for the $250 million term loan refinanced in March 2017 and the lower average short term interest rate year-on-year.

Income available for distribution was S$34.9 million, or 7.6% lower than the corresponding period last year. Distribution per Stapled Security for 1H 2017 was 1.90 cents.

Commentary On Prospects For The Next Reporting Period And Next 12 Months

The operating environment is expected to remain competitive in the next few quarters as demand for accommodation from the corporate segment continues to be soft. Far East H-Trust's serviced residences, which mainly serve corporations, are expected to be impacted to a larger extent compared to the hotels.

The increase in hotel supply (projected at 2,850 new rooms1, or an increase of 4.5%) is set to outpace demand in 2017. The REIT Manager expects the demand-supply dynamics to improve in 2018, as the supply of new hotel rooms tapers off. Since 2014, no new sites for hotel development have been introduced in the Government Land Sales programmes.

To ensure its portfolio's competitiveness, the REIT Manager continues to drive the performance of the assets and selectively upgrade its existing properties. The refurbishment of the guest rooms and club lounge at Orchard Parade Hotel is currently underway.

Far East H-Trust should also benefit from developments in the tourism industry and expansion of airport infrastructure to grow Singapore's status as an air hub.



1CBRE report issued as at January 2017 and Far East H-Trust’s compilation