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Unaudited Financial Statements Announcement For the fourth quarter and year ended 31 December 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. 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. The fair value change in investment properties of S$41.5 million arose from the revaluation of 8 Hotels and 4 SRs as at 31 December 2017. The independent valuations of the investment properties were carried out by Colliers International Consultancy & Valuation (Singapore) Pte Ltd and Savills Valuation And Professional Services (S) Pte Ltd. This is a non-tax chargeable / deductible item and has no impact on the taxable income and distributable income to the Stapled Securityholders.
  4. Included in the net tax adjustments are the following:

  5. Notes:

    NM - Not Meaningful

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

  6. The rollover adjustment for FY 2016 related 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 and 2015.
  7. This relates to taxable income that were undistributed in 1Q2017 to 3Q2017 due to rounding.

Balance Sheets as at 31 December 2017 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 31 December 2017 of S$3.9 million was S$11.5 million lower compared to balances as at 31 December 2016 mainly due to the repayment of revolving credit facility ("RCF") of S$25.0 million, and partially offset by the cash retained from the 1Q 2017 and 2Q 2017 distribution reinvestment plan ("DRP").
  3. This includes a shareholders' loan and accrued interest due from FIPL of S$26.2 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 due to the repayment of revolving credit facility of S$25.0 million during the year. The current borrowings relate to term loans of S$232.2 million due to mature in August and December 2018 and RCF of S$17.0 million which is payable on demand. To date, Far East H-REIT received commitment to refinance the term loans of S$132.2 million due in August 2018 with a new five-year term loan of S$65.0 million and seven-year term loan of S$67.2 million. For the term loan due to mature in December 2018, the REIT Manager is working with its lenders to assess refinancing options for the term loan.

Review of the performance of fourth quarter and year ended 31 December 2017

4Q 2017 vs 4Q 2016

Gross revenue decreased 6.6% to $25.7 million in 4Q 2017 as a result of a decline in master lease rental from the hotels and SRs and lower revenue from the retail and office spaces.

The average occupancy of the hotels remained healthy at 85.4% in 4Q 2017, decreasing marginally by 1.1pp. The average daily rate ("ADR") was 1.1% lower year-on-year, partly due to a higher contribution from the leisure segment. As a result, revenue per available room ("RevPAR") for the hotel portfolio decreased 2.4% to S$132.

The SRs continued to be challenged in 4Q 2017, although showing an improvement over the first half of 2017. Demand from the corporate segment remained lukewarm, although there was growth from some industries. The average occupancy was 1.6pp lower at 78.2%, and the ADR was a decrease of 3.5%. Correspondingly, revenue per available unit ("RevPAU") of the SR portfolio declined 5.5% year-on-year to S$166 in 4Q 2017.

A snapshot of the hotel and SR performance in 4Q 2017 is set out below.

Revenue from the retail and office spaces declined 1.9% year-on-year to S$5.6 million in 4Q 2017 due to slightly lower occupancy and rental rates.

Net property income was 7.0% lower than last year, at S$23.1 million.

Finance costs were S$5.0 million in 4Q 2017, 4.4% higher than the preceding year as the short term interest rates moved up during the quarter.

The income available for distribution was S$18.2 million or 9.7% lower year-on-year. The distribution per Stapled Security was 13.4% lower at 0.97 Singapore cents.

FY 2017 vs FY 2016

Gross revenue for FY 2017 was S$103.8 million, a decrease of 4.8% year-on-year, due to lower master lease rental from the hotels and SRs, and a decrease in revenue from the retail and office spaces.

Demand for hotel accommodation, particularly from the corporate segment, was generally soft in FY 2017. In addition, the supply of new hotels put downward pressure on rates. While the average occupancy of the hotels was 0.5pp higher year-on-year at 87.5%, the ADR of the hotel portfolio decreased 2.5%. As a result, RevPAR was lower by 1.9% at S$136.

The SRs were challenged in FY 2017, primarily due to a lack of demand from corporate accounts and project groups. Although there was some pick-up in leisure bookings, the average occupancy of the SRs was 5.0pp lower than the preceding year at 80.0%. ADR and RevPAU were 1.3% and 7.1% lower respectively.

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

Revenue from the retail and office spaces was 1.6% lower at S$22.7 million in FY 2017 due to a slight decrease in rental rates.

Net property income was 5.3% lower at S$93.2 million. Finance costs were relatively stable year-on-year.

The income available for distribution was S$72.0 million or 7.8% lower year-on-year. The distribution per Stapled Security for FY 2017 was 3.90 Singapore cents or 9.9% lower year-on-year.

Commentary On Current Year Prospects

The operating environment for hotels is expected to stabilise with major MICE and biennial events providing some uplift in 2018.

On the supply front, about 750 new rooms are projected to be added to the market in 2018, representing an increase of 1.1% over the previous year1. The hotel industry is likely to remain competitive over the next few quarters, as the new hotels seek to gain a foothold.

The outlook for the serviced residences remains subdued. The performance of Far East H-Trust's serviced residences, driven mainly by the corporate segment, is expected to remain soft.

With the expected improvement in the tourism sector, the REIT Manager continues to pursue opportunities for future income and capital growth. The refurbishment of the guest rooms and club lounge at Orchard Parade Hotel is on track and due to complete by 2Q 2018. In addition, the REIT has also entered into a conditional sale and purchase agreement for the proposed acquisition of Oasia Hotel Downtown. The proposed acquisition is conditional on the approval of Stapled Securityholders at the Extraordinary General Meeting, and is expected to complete on 2 April 2018.



1CBRE report issued as at February 2018 and Far East H-Trust's compilation