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Unaudited Financial Statements Announcement For The Fourth Quarter And Year Ended 31 December 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 fourth quarter and year ended 31 December 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. This relates to independent valuations of the 8 Hotels and 4 Serviced Residences undertaken by Colliers International Consultancy & Valuation (Singapore) Pte Ltd and Savills Valuation and Professional Services (S) Pte Ltd respectively on 31 December 2016. The fair value change in investment properties of S$29.5 million which has been recognised in the Statement of Total Return of Far East H-REIT has no impact on the income available for distribution to holders of Stapled Securities.

  4. 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, deferred income and amortization of rental deposits.

  5. 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 and 2015 for FY 2016 and Year of Assessment 2013 for FY 2015.

Balance Sheets as at 31 December 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 fourth quarter and twelve months ended 31 December 2016

4Q 2016 vs 4Q 2015

Gross revenue of S$27.5 million in 4Q 2016 was a decrease of 4.6% compared to S$28.9 million in 4Q 2015, due to reduced revenue contribution from the hotels and serviced residences ("SRs") and marginally softer performance of the retail and office spaces.

Revenue contribution from the hotels in 4Q was lower year-on-year due mainly to the continued softness in corporate travel demand amidst the global economic uncertainties. The increase in the hotel supply further heightened the competition, which led to a compression in room rates. Due to the confluence of factors, the hotel portfolio's average daily rate ("ADR") declined by 8.6% year-on-year, while average occupancy increased 1.2pp. Consequently, the hotel portfolio's revenue per available room ("RevPAR") was a decrease of 7.3% year-on-year to S$136.

For the SRs, although Regency House enjoyed an increase in revenue from the corporate segment after its renovation, demand from the corporate segment remained soft for the SR portfolio as a whole. The ADR of the SR portfolio increased 1.2% year-on-year to S$220 in 4Q 2016 while the average occupancy was 2.9pp lower year-on-year. As a result, the revenue per available unit ("RevPAU") of the SR portfolio declined 2.3% year-on-year to S$176 in 4Q 2016.

A snapshot of the hotel and SR performance in 4Q 2016 is set out below.

Revenue from the retail and office spaces at S$5.7 million in 4Q 2016 was 0.8% lower year-on-year due to lower occupancy and a marginal increase in rental rates.

The net property income for 4Q2016 was S$24.9 million, a decrease of 5.4% year-on-year.

Finance costs of S$4.8 million in 4Q 2016 was 8.4% lower year-on-year as the short term interest rates had declined in 4Q 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 in 4Q 2016 was S$20.2 million, or 2.3% lower year-on-year. The distribution per stapled security for 4Q 2016 was 1.12 cents or 4.3% lower year-on-year.

FY 2016 vs FY 2015

Gross revenue for the full year of 2016 was S$109.1 million, a decrease of 4.9% year-on-year due to the reduced revenue contribution from the hotels and serviced residences and the commercial spaces.

The weak and uncertain economic climate and the new supply of hotel rooms impacted the operating performance of the hotel portfolio. This was despite the uplift from biennial events such as the Singapore Airshow and Food & Hotel Asia and a stronger events calendar during the year. RevPAR for the hotel portfolio decreased 5.3% year-on-year to S$139.

Regency House delivered improved operating performance after the completion of the asset enhancement initiative. However, demand for SR accommodation in general remained soft, with a drop in project groups and lower corporate travel budgets. Consequently, RevPAU declined by 5.8% year-on-year to S$189.

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

Revenue from the retail and office spaces declined by 2.5% to S$23.1 million due to a decrease in the average occupancy, although the portfolio's enjoyed a marginal growth in rental rate during the year.

The net property income was S$98.3 million or 5.1% lower year-on-year due to the reduced gross revenue recorded during the reporting period. Property expenses were 2.4% lower year-on-year due to a large part to the reduced property tax expense.

The income available for distribution was S$78.1 million, or 5.0% lower year-on-year. The distribution per stapled security for FY 2016 was 4.33 cents or 5.9% lower year-on-year.

Commentary On Current Year Prospects

The Ministry of Trade and Industry expects the Singapore economy to grow at a modest pace of 1% to 3% in 2017.

Growth in international visitor arrivals into Singapore slowed in the second half of 2016 despite a strong increase in the first half. Visitor days showed a similar decline in the latter part of the year. Growth in tourism is expected to remain subdued in 2017. The Singapore Tourism Board forecasts international visitor arrivals to be in the range of 16.4-16.7 million (0 to +2% year-on-year).

Competition in the hospitality sector remains keen, as demand from the corporate segment continues to be soft amidst the uncertain economy. The addition of 3,200 new hotel rooms in 2017 will put pressure on room rates. The REIT Manager will continue to implement measures to improve the competitiveness of its portfolio.

The REIT Manager plans to refurbish the guest rooms at Orchard Parade Hotel this year, as part of the property's third phase of renovation. Orchard Parade Hotel's reception, lobby, lobby bar, swimming pool, pool deck, gym and function rooms were renovated in 2016.