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Extracted from Annual Report 2014

A Review Of Hotel Performance

A host of factors including the regulation on outbound travel in China, regional currency dynamics, aviation mishaps, and geopolitical events negatively affected the visitor arrivals into Singapore, which fell 3.1% year-on-year in 2014. This decline in visitorship to Singapore coupled with an increase in supply of hotel rooms had placed competitive pressure on both the average occupancy and average daily rate of Far East H-Trust's hotel portfolio.

For the full year ended 31 December 2014 ("FY 2014"), the average occupancy of the hotel portfolio was 83.3%, compared to 86.4% in the previous year. The ADR was S$187, a year-on-year decrease of 2.5%. As a result, RevPAR decreased 6.0% year-on-year to S$155 in FY 2014.

Amidst the uncertain economic environment, the Singapore hospitality sector continued to experience softness in the demand for corporate travel in 2014. As such, corporate bookings made up 42.5% of the total hotel revenue in FY 2014, compared to 48.3% a year ago. Far East H-Trust remains committed to maintaining a balanced mix between corporate and leisure guests to ensure healthy room occupancies during the peak and off-peak travel seasons.

Bookings from Southeast Asia and North Asia were the two largest contributors to revenue, comprising 26.4% and 21.2% of Far East H-Trust's hotel revenue in 2014 respectively. Proportionately, revenue from Southeast Asia fell year-onyear from 31.8% to 26.4% as the strength of the Singapore Dollar against some regional currencies made travel to Singapore less attractive. North Asia grew from 17.4% to 21.2% despite the decline in arrivals from China, as other source markets such as Japan and South Korea showed year-on-year growth.

A Review Of Serviced Residence Performance

The average occupancy of the serviced residence portfolio was 87.5% in FY 2014, compared to 89.0% a year ago. In line with the uncertain economic environment, the demand from the corporate segment, in particular project groups, fell. This led to a 1.4% year-on-year decrease in ADR to S$251 as the softer demand resulted in a greater dependence on individual stays. Consequently, RevPAU decreased 3.1% year-on-year to S$219 in FY 2014.

For FY 2014, corporate bookings comprised 78.0% of the serviced residence portfolio revenue, a decrease compared to 80.1% in the preceding year. By sector, the source of bookings for the serviced residence portfolio remained generally unchanged. The Services and Banking & Finance sectors continued to be the two largest contributors to revenue, making up 28.7% and 24.4% of the serviced residence revenue in FY 2014 respectively.

A Review Of Excluded Commercial Premises Performance

Far East H-Trust has a total of 276 units of retail, office and serviced office commercial spaces, housed in 9 out of the 12 properties in the portfolio. The average occupancy of the retail and office units in FY 2014 was 95% and 96% respectively, with leases ranging from 1 to 3 years. As at 31 December 2014, there were 169 tenants within the retail and office portfolio.

Revenue from the excluded commercial premises (i.e. retail and office spaces) rose 17.4% year-on-year to S$23.2 million in FY 2014, contributing 19.1% of Far East H-Trust's gross revenue. The better performance of the excluded commercial premises cushioned the softer contribution from the hotels and serviced residences.

Asset Enhancement Initiatives

Far East H-Trust consistently works to add value to the portfolio through asset enhancement strategies. Upon acquisition of Rendezvous Hotel Singapore, refurbishment was carried out at the reception area, lobby bar and club rooms, to reposition the hotel as an art-inspired hotel.

In June 2014, 136 superior and deluxe rooms at Village Hotel Albert Court were also renovated to revitalise the property, while 303 rooms at Village Hotel Changi underwent a soft refurbishment.

41 studio apartments at Regency House were refurbished. The REIT Manager plans to refurbish the remaining two and three-bedroom units at Regency House.

Other asset enhancement works planned for 2015 include the extension of the outdoor refreshment area at Village Residence Robertson Quay and the soft refurbishment of club and suite rooms and meeting areas at Village Hotel Changi. In February 2015, Village Hotel Changi completed the upgrading of its aircon chiller system by replacing it with a more energy efficient one.

Capital Management

Far East H-Trust endeavours to maintain a strong balance sheet, employ an appropriate mix of debt and equity in financing acquisitions of properties, secure diversified funding sources by accessing both financial institutions and capital markets, and optimise its cost of debt financing. In order to reduce exposure to market volatility, interest rate hedging strategies are implemented, where appropriate.

On 22 September 2014, Far East H-REIT entered into a joint venture agreement with Far East Organization Centre Pte Ltd, to participate in a hotel development in Sentosa. Far East H-Trust injected S$15.6 million into Fontaine Investment Pte Ltd (the "JVCo") for its 30% equity stake in the JVCo. The injection was fully funded by drawing down on a revolving credit facility ("RCF").

As at 31 December 2014, Far East H-Trust had total borrowings of S$797.8 million. Rated Baa2 with a stable outlook by Moody's Investors Service, Far East H-Trust's aggregate leverage of 31.4% is well within the limit set by the Property Fund Appendix.

Cognisant of the imminent rise in interest rates, Far East H-Trust has entered into interest rate swaps to fix the interest rates of some of its borrowings. As at 31 December 2014, Far East H-Trust's financial position remained stable with 60% of the debt portfolio secured at fixed interest rates.

As part of its proactive and prudent capital management, Far East H-Trust has refinanced S$200 million of borrowings ahead of the maturity in August 2015, extending the weighted average debt to maturity to 3.5 years. Management has also commenced negotiations for the remaining S$100 million that is expiring in August 2015. As at 31 December 2014, the average cost of debt is approximately 2.2% per annum.

Stapled Security Price Performance

Global equity markets tumbled at the beginning of 2014, as the Federal Reserve continued to reduce the pace of its bond buying programme. Stocks rebounded in the second quarter, supported by more accommodative monetary policy from central banks and a more encouraging outlook for the US economy.

The relief did not prove to be sustainable, however, as geopolitical tensions in the Middle East weighed on investor sentiment in the third quarter of 2014. Data from China and Europe, which pointed to faltering economic growth, also contributed to a sideways market. In the fourth quarter, the dovish stance of the Federal Reserve lifted markets as the Federal Reserve indicated that interest rates would be held steady for a considerable time.

On the back of the uncertain macroenvironment, companies were cautious with their business travel expenditure. The strength of the Singapore Dollar relative to the regional currencies also contributed to a softer hospitality market.

In 2014, leisure travel demand was affected as arrivals from China, Singapore's second largest visitor market, was affected by the Chinese government-imposed restriction on "zero-fare" shopping trips, and from a decline in demand for Singapore- Malaysia-Thailand tour packages following the disappearance of Malaysian Airlines flight MH370.

Far East H-Trust's Stapled Security price closed at S$0.82 on 31 December 2014. A total of 238,596,000 Stapled Securities were traded, or an average of 944,099 a day.

Stapled Security price
Closing price as at 31 December 2013 S$0.84
Low S$0.76
High S$0.91
Average S$0.84
Closing price as at 31 December 2014 S$0.82
Total trading volume for 2014 238,596,000
Average daily trading volume 944,099
Net asset value (NAV) per Stapled Security
NAV per Stapled Security as at 31 December 2013 S$0.98
NAV per Stapled Security as at 31 December 2014 S$0.97