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Unaudited Financial Statements Announcement For the Third Quarter and Nine Months ended 30 September 2018

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. The 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 swap contracts entered to hedge against the interest rate exposure of Far East H-REIT. This is a non-tax chargeable / deductible item and has no impact on the taxable income and distributable income to the Stapled Securityholders.

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

    Notes:

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

  4. For YTD Sep 2018, the rollover adjustment 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 2016.

Balance Sheets as at 30 June 2018 of Far East H-REIT and Far East H-Trust

Notes:

  1. The increase in investment properties was mainly attributable to the acquisition of Oasia Hotel Downtown of S$219.1 million (including related transaction costs) which was completed on 2 April 2018 and asset enhancement works carried out at Orchard Rendezvous Hotel and Village Hotel Bugis.

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

  3. This includes a shareholders' loan and accrued interest due from FIPL of S$26.7 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 swap contracts entered to hedge against interest rate risk exposure of Far East H-REIT.

  5. The net movement in borrowings was mainly due to the drawdown of term loan facility of $195.7 million and revolving credit facility ("RCF") of S$21.0 million during the year to partially fund the acquisition of Oasia Hotel Downtown. The current borrowings relate to two term loans of S$100.0 million each due to mature in December 2018 and August 2019 respectively, as well as RCF of S$48.5 million which is payable on demand. The REIT Manager is finalising the loan documentation to refinance the term loan of S$100 million ahead of its maturity in December 2018. For the term loan due to mature in August 2019, the REIT Manager is working with its lenders to assess refinancing options for the term loan.

Review of the performance of third quarter and nine months ended 30 September 2018

3Q 2018 vs 3Q 2017

Gross revenue grew 11.1% to S$30.5 million in 3Q 2018 as compared to S$27.5 million in 3Q 2017, due to an increase in master lease rental from the hotels, and further augmented by the addition of Oasia Hotel Downtown to the portfolio.

The hotels showed a year-on-year improvement in performance in 3Q 2018. Revenue per available room ("RevPAR") of the hotel portfolio grew 6.6% year-on-year to S$152 in 3Q 2018 with ADR growing by 5.1% and occupancy by 1.3pp. In addition to the positive impact of adding Oasia Hotel Downtown to the portfolio and the improvement in performance by the recently renovated and rebranded Orchard Rendezvous Hotel (formerly known as Orchard Parade Hotel), there has been an uptick in overall market demand on the broader front.

While the serviced residences ("SRs") portfolio continued to face downward pressure on ADR, the occupancy gap that impacted trading in the first two quarters was narrowed in 3Q 2018. The average occupancy and ADR in 3Q 2018 were 1.8pp and 3.4% lower year-on-year respectively. As a result, revenue per available unit ("RevPAU") of the SR portfolio declined 5.4% to S$186 in 3Q 2018.

A snapshot of the hotel and SR performance in 3Q 2018 is set out below.

Revenue from the retail and office spaces was relatively stable year-on-year for 3Q 2018, with a marginal decline of 0.8% to $5.5 million.

Net property income was higher by 11.8% at S$27.7 million. Finance costs had increased to S$7.2 million mainly due to the additional loan drawn down to fund the acquisition of Oasia Hotel Downtown, and higher short term interest rates.

Income available for distribution was S$20.1 million or 4.8% higher year-on-year. Distribution per Stapled Security was 1.9% higher at 1.05 Singapore cents.

YTD Sep 2018 vs YTD Sep 2017

Gross revenue for the first nine months of 2018 was S$84.8 million, an increase of 8.5% year-on-year, due to an increase in master lease rental from the hotels, and further augmented by the addition of Oasia Hotel Downtown to the portfolio.

The hotels showed a year-on-year improvement in performance as at YTD September 2018. Revenue per available room ("RevPAR") of the hotel portfolio grew 5.8% to S$145 for YTD September 2018 due to an increase in average occupancy and average daily rate ("ADR") of 1.8pp and 3.7% respectively.

While there has been an improvement in the performance of the SRs quarter-on-quarter, the portfolio continued to be challenged by the softness in corporate demand. The average occupancy of the SRs improved 3.4pp yearon-year for YTD September 2018 while the ADR was 5.2% lower. Correspondingly, RevPAU of the SR portfolio declined 1.2% year-on-year to S$176 for YTD September 2018.

A snapshot of the hotel and SR performance for YTD September 2018 is set out below.

Revenue from the retail and office spaces declined 2.9% year-on-year to S$16.6 million for YTD September 2018.

Net property income was higher by 9.1% at S$76.4 million. Finance costs had increased to S$18.7 million mainly due to the additional loan drawn down to fund the acquisition of Oasia Hotel Downtown, and higher short term interest rates.

Income available for distribution was S$56.7 million or 4.9% higher year-on-year. Distribution per Stapled Security was 2.4% higher at 3.00 Singapore cents.

Commentary On Current Year Prospects

The operating environment for hotels in Singapore continues to trend in a positive direction. With visitor arrivals growing by 7.5% year-on-year in the first eight months of 20181, and a more moderate increase in new hotel room supply of 1.1% this year2, the dynamics in the sector have become more positive. Nonetheless, corporate travel demand is subject to wider global and economic factors.

The outlook for Far East H-Trust's serviced residences remains subdued as the long-stay market continues to be impacted by room rate pressure from corporate accounts, a tight foreign labour policy and a greater availability of home-sharing options.

With the improvement in the tourism sector, the REIT Manager continues to proactively explore opportunities for growth, whilst still focused on enhancing the existing properties to strengthen the portfolio's competitiveness.



1 Singapore Tourism Board, Visitor Arrivals Statistics
2 Far East H-Trust's compilation