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Unaudited Financial Statements Announcement For The First Quarter Ended 31 March 2017

Financials Archive

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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 into 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 annual rating fees, non-tax deductible professional fee, finance cost for Project Sentosa, deferred income and amortization of rental deposits.

  4. In 1Q 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 Years of Assessment 2014.

Balance Sheets as at 31 March 2017 Far East H-REIT and Far East H-Trust

Notes:

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

  2. This includes shareholders’ loan to FIPL of S$25.9 million and interest accrued to-date. 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 loans from current liabilities to non-current liabilities as these term loans have been refinanced in March 2017.

Review of the performance of first quarter ended 31 March 2017

1Q 2017 vs 1Q 2016

Gross revenue fell 9.5% year-on-year to S$24.8 million in 1Q 2017, mainly due to a decrease in master lease rental.

Our hotels continued to face pressure from companies exercising prudence in their business travel spending in 1Q 2017, but demand for hotel accommodation from leisure travellers remained healthy. Heightened competition as a result of the new hotel supply also put pressure on rates, which declined by 4.7%. Consequently, the revenue per available room (“RevPAR”) of the hotel portfolio decreased 4.6% to S$134 despite the average occupancy remaining stable at 88.1%.

Demand for serviced residences (“SRs”) was especially weak in 1Q 2017, as there were fewer project and training groups coming to Singapore given the slowdown in corporate activities. These groups typically provide the base for our business. As a result, the average occupancy of the SRs declined to 71.2% in 1Q 2017. Revenue per available unit (“RevPAU”) for 1Q 2017 fell 14.0% to S$162 as an increase in rates was not able to offset the fall in occupancy. Demand picked up towards the later part of 1Q 2017.

Revenue from the retail and office spaces was relatively stable at S$5.7 million.

A snapshot of the hotel and SR performance in 1Q 2017 is set out below.

Property expenses were 1.3% lower than the previous year, mainly due to lower property tax. Net property income for the quarter came in at S$22.1 million, or 10.4% lower.

Finance costs were lower by 2.3%. In 1Q 2017, S$250 million term loans expiring in August 2017 were refinanced ahead of maturity into four and seven-year term loans. Quarter-on-quarter, the average cost of debt remained unchanged at approximately 2.5%.

Income available for distribution for 1Q 2017 was S$16.9 million, 12.9% lower year-on-year. This translates into a distribution per Stapled Security of 0.93 S cents, compared to 1.08 S cents in the preceding year.

Commentary On Current Year Prospects

While international visitor arrivals to Singapore are forecasted to show flat to slight growth in 2017, demand from corporate travellers, a significant source of our revenue, is expected to remain soft.

Hotel supply is forecasted to outweigh demand in 2017, as another 3,200 new rooms1 (representing an increase of about 5.1%) are projected to open during the year. Supply is expected to even out in 2018. Since 2014, no new sites for hotel development have been introduced in the Government Land Sales programmes.

While the operating environment is expected to remain competitive in the near term, the REIT Manager is positive of the medium term outlook given the government’s plans and marketing initiatives to attract more tourists, as well as investment to improve air connectivity and airport capacity.

The REIT Manager will continue to enhance the quality of its portfolio and implement strategies to improve the performance of the properties. In 2017, the guest rooms and club lounge of Orchard Parade Hotel will be refurbished as part of the third phase of asset enhancement in this property. The public areas, including the reception, lobby, lobby bar, swimming pool and function rooms, were renovated in 2016.



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