American Hotel Income Properties REIT LP Reports Third Quarter 2020 Results

  • All hotels currently open, with Q3 2020 occupancy of 57.1%, representing a 22.4 percentage point increase over Q2 2020 occupancy of 34.7%
  • One of the few U.S. hotel REITs reporting positive FFO and cash flow during the third quarter
  • AHIP’s hotels outperformed their competitive sets with a RevPAR Index of 122.6 during Q3
  • Total revenues of $46.3 million and NOI of $14.6 million during the third quarter
  • Continued focus on capital preservation, liquidity and cost containment
  • CMBS loan relief now obtained for all of AHIP’s CMBS loans, totalling $578 million

(All numbers are in U.S. dollars unless otherwise indicated)

American Hotel Income Properties REIT LP (TSX: HOT.UN, TSX: HOT.U, TSX: HOT.DB.U) announced today its financial results for the three and nine months ended September 30, 2020. 

“While AHIP’s third quarter was impacted by the ongoing pandemic, we were pleased to see continued occupancy and RevPAR improvement across our portfolio of 78 Premium Branded hotels – all of which have been open since mid-June,” said Jonathan Korol, CEO.  “Our team’s operational emphasis on cost containment has yielded impressive results with higher Q3 NOI margins of 31.5% compared to 15.8% in Q2. We have also successfully negotiated loan relief for all of our loans, and remain focused on our balance sheet to further enhance our liquidity position.”

Mr. Korol continued: “While we expect the trend of sequential occupancy and RevPAR improvement to moderate as we enter the seasonally slower winter months, our strategically well-positioned suite-focused hotels, primarily in drive-to secondary markets, should continue to see higher demand, compared to hotels in more urban environments and hotels that are more reliant on group and corporate customers.”

THREE MONTHS ENDED SEPTEMBER 30, 2020 FINANCIAL HIGHLIGHTS

  • Revenues for the quarter decreased 47.7% to $46.3 million (Q3 2019 – $88.5 million) as a result of lower demand due to the significant impact of COVID-19 and portfolio changes between periods. On a sequential basis, revenue for the quarter increased 69.8% from Q2 2020. All of AHIP’s hotels segments experienced material revenue growth compared to Q2 2020, including AHIP’s extended-stay, select-service and Embassy Suites properties.
  • Average Daily Rate (“ADR”) for the quarter decreased 3.7% compared to Q3 2019, to $96.53 (Q3 2019 – $100.19) due to the impact of COVID-19 and portfolio changes between periods. On a sequential basis, ADR increased 1.5% from Q2 2020.
  • Occupancy during the third quarter decreased 19.4 percentage points to 57.1% (Q3 2019 – 76.5%). Average occupancy in July was 55.3%. Average occupancy in August was 58.3%. Average occupancy in September was 57.7%. On a sequential basis, third quarter occupancy increased 22.4 percentage points compared to Q2 2020 occupancy of 34.7%. AHIP’s 24 extended-stay properties continued to see strong occupancy during the third quarter, recording 70.6% average occupancy.
  • Revenue per Available Room (“RevPAR”) for the quarter decreased 28.1% to $55.12 (Q3 2019 – $76.65) due to significantly reduced demand related to COVID-19. On a sequential basis, RevPAR increased 67.0% from Q2 2020.
  • The STR RevPAR index, which compares the performance of AHIP-owned hotels to their competitive set in each region, indicated AHIP’s 78 Premium Branded hotels have, in aggregate, significantly outperformed their identified direct competition with an average index rating of 122.6 during the quarter (Q3 2019 – 118.3) – with 100.0 representing a ‘fair share’ of the market.
  • Net Operating Income (“NOI”) decreased by 50.8% to $14.6 million (Q3 2019 – $29.7 million) due to lower revenues, partially offset by expense reduction initiatives. On a sequential basis, NOI increased 239% from Q2 2020.
  • NOI Margins decreased to 31.5% (Q3 2019 – 33.5%) as a result of lower revenue.
  • Loss and comprehensive loss for the third quarter was ($12.1) million, compared to net income and comprehensive income of $2.1 million in Q3 2019, as a result of lower NOI, higher interest expenses, and $2.5 of non-cash impairment charges related to three hotels.
  • Diluted loss per Unit for the quarter was ($0.15) compared to a diluted income per Unit of $0.03 in Q3 2019.
  • Funds from operations (“FFO”) in Q3 2020 decreased to $0.1 million (Q3 2019 – $15.6 million) and adjusted funds from operations (“AFFO”) decreased to $0.2 million (Q3 2019 – $14.1 million), due to the impact of COVID-19.
  • Q3 2020 diluted FFO per Unit was $0.00 (Q3 2019 – $0.20) and diluted AFFO per Unit was $0.00 (Q3 2019 – $0.18).

Same-Property Results

Same-property metrics represent the performance of the 66 Premium Branded hotels owned in both the current and comparative period, or 85% of AHIP’s total current hotel portfolio based on number of hotels.

  • Same-property revenues for the second quarter decreased 42.4% to $39.3 million (Q3 2019 – $68.3 million) due to lower demand as a result of the impact of COVID-19.
  • Same-property ADR decreased 18.2% to $95.54 (Q3 2019 – $116.86).
  • Same-property RevPAR decreased 41.0% to $54.46 (Q3 2019 – $92.32).
  • Same-property occupancy decreased 22.0 percentage points to 57.0% (Q3 2019 – 79.0%).
  • Same-property NOI was $12.3 million (Q3 2019 – $23.2 million) and the NOI margin was 31.4% (Q3 2019 – 34.1%). NOI declines were due to lower revenues caused by lower demand as a result of the impact of COVID-19, which were partially offset by expense reduction initiatives.

NINE MONTHS ENDED SEPTEMBER 30, 2020 FINANCIAL HIGHLIGHTS

  • Revenues for the first nine months of 2020 decreased 47.7% to $135.4 million (2019 – $259.1 million) as a result of lower demand due to the significant impacts from COVID-19 and portfolio changes between periods.
  • Average Daily Rate (“ADR”) increased 4.2% compared to the first nine months of 2019, to $103.21 (2019 – $99.01) due to portfolio changes between periods, partially offset by the impacts from COVID-19.
  • Occupancy during the first nine months of 2020 decreased 24.4 percentage points to 51.3% (2019 – 75.7%) as a result of lower demand due to the significant impacts from COVID-19.
  • Revenue per Available Room (“RevPAR”) decreased 29.4% compared to the first nine months of last year, to $52.95 (2019 – $74.95).
  • Net Operating Income (“NOI”) decreased by 58.2% to $36.8 million (2019 – $87.9 million) due to lower revenues, and partially offset by expense reduction initiatives.
  • NOI Margins decreased to 27.1% (2019 – 33.9%) as a result of lower revenue.
  • Loss and comprehensive loss for the first nine months of 2020 was ($45.5) million, compared to net income and comprehensive income of $7.5 million in 2019, as a result of lower NOI, fair value changes on interest rate swaps, impairment charges related to certain hotels, and increased interest expense.
  • Diluted loss per Unit for the first nine months was ($0.58) compared to a diluted income per Unit of $0.10 in the first nine months of 2019.
  • Funds from operations (“FFO”) in the first nine months of 2020 decreased to ($4.3) million (2019 – $45.1 million) and adjusted funds from operations (“AFFO”) decreased to ($4.8) million (2019 – $40.7 million), due to the impact of COVID-19.
  • Diluted FFO per Unit in the first nine months of 2020 was ($0.06) (2019 – $0.57) and diluted AFFO per Unit was ($0.06) (2019 – $0.51).

Capital Metrics and Liquidity

  • As at September 30, 2020, AHIP had an unrestricted cash balance of $26.9 million (December 31, 2019$17.8 million), a restricted cash balance of $25.7 million and available revolver capacity of $13.3 million.
  • AHIP is current on all of its loan payments and has successfully obtained loan relief under all of its loan agreements, including all of its CMBS loans totaling approximately $578 million. The relief provisions under AHIP’s CMBS loans allow for the use of restricted cash reserves to fund debt service and/or provide waivers of the requirement to fund FF&E reserves for periods of up to 90 days. These relief initiatives provide additional flexibility for AHIP as the Company continues to recover from the impact of COVID-19 on the hotel sector.
  • As at September 30, 2020, AHIP’s debt had a weighted average remaining term of 4.8 years (Q3 2019 – 5.7 years) and a weighted average interest rate of 4.55% (Q3 2019 – 4.64%), with no significant debt maturities until June 2022.
  • AHIP’s debt-to-gross book value as at September 30, 2020 was 58.2% (September 30, 2019 – 53.6%).

THIRD QUARTER DEVELOPMENTS

  • On August 31, 2020, AHIP completed the sale of its 86-room Wingate Tampa hotel property for gross purchase price of $7.5 million.

SUBSEQUENT EVENTS

  • On October 7, 2020, Jonathan Korol joined AHIP as Chief Executive Officer, and has agreed to receive half of his salary in units through 2021 to further align his interests with unitholders.
  • On October 30, 2020, the purchaser of AHIP’s former Economy Lodging Portfolio repaid a $2.4 million short term loan including accrued interest.
  • Average hotel occupancy for the month of October 2020 was 58.3%.
  • On November 6, 2020, AHIP entered into an agreement to extend the time for payment of the remaining deferred purchase price of $17.1 million for the acquisition of 12 Premium Branded properties that completed December 3, 2019 from December 31, 2020 to periodic payments ending December 31, 2021.

ABOUT AMERICAN HOTEL INCOME PROPERTIES REIT LP

American Hotel Income Properties REIT LP (TSX: HOT.UN, TSX: HOT.U, TSX: HOT.DB.U), or AHIP, is a limited partnership formed to invest in hotel real estate properties across the United States. AHIP’s 78 premium branded, select-service hotels are located in secondary metropolitan markets that benefit from diverse and stable demand. AHIP hotels operate under brands affiliated with Marriott, Hilton, IHG and Choice Hotels through license agreements.  The Company’s long-term objectives are to build on its proven track record of successful investment, deliver monthly U.S. dollar denominated distributions to unitholders, and generate value through the continued growth of its diversified hotel portfolio.

THIRD QUARTER HIGHLIGHTS AND KEY PERFORMANCE INDICATORS

(US$000s unless noted and except Units and per Unit amounts)

Three months

ended

September 30,

2020

Three months

ended

September 30,

2019

Change

TOTAL PORTFOLIO INFORMATION (1)

Number of rooms (2)

8,801

11,524

(23.6%)

Number of properties (2)

78

112

(30.4%)

Number of restaurants (2)

16

40

(60.0%)

Occupancy rate

57.1%

76.5%

-19.4 pp

Average daily room rate

$

96.53

$

100.19

(3.7%)

Revenue per available room

$

55.12

$

76.65

(28.1%)

Revenues

$

46,320

$

88,519

(47.7%)

Net operating income (3)

$

14,605

$

29,668

(50.8%)

NOI Margin %

31.5%

33.5%

-2.0 pp

Net income (loss) and comprehensive income (loss)

$

(12,070)

$

2,143

nm

Diluted income (loss) per Unit

$

(0.15)

$

0.03

nm

EBITDA (3)

$

11,067

$

25,273

(56.2%)

EBITDA Margin %

23.9%

28.6%

-4.7 pp

FUNDS FROM OPERATIONS (FFO) (1)

Funds from operations

$

120

$

15,620

(99.2%)

Diluted FFO per Unit (4)(5)

$

0.00

$

0.20

nm

FFO Payout Ratio – rolling four quarters

404.9%

92.0%

312.9 pp

ADJUSTED FUNDS FROM OPERATIONS (AFFO) (1)

Adjusted funds from operations

$

218

$

14,073

(98.5%)

Diluted AFFO per Unit (4)(5)

$

0.00

$

0.18

nm

Distributions declared

$

$

12,698

(100%)

Distributions declared per Unit

$

$

0.162

(100%)

CAPITALIZATION AND LEVERAGE

Debt-to-Gross Book Value (2)

58.2%

53.6%

4.6 pp

Debt-to-EBITDA (trailing twelve-month basis)

17.6x

8.3x

9.3x

Interest Coverage Ratio

1.1x

2.8x

-1.7x

Weighted average Debt face interest rate (2)

4.55%

4.64%

-0.09 pp

Weighted average Debt term to maturity (2)

4.8 years

5.7 years

-0.9 years

Number of Units outstanding (2)

78,232,926

78,122,528

110,398

Diluted weighted average number of Units

outstanding (4)

78,827,204

78,206,063

621,141

(1)

Refers to combined continuing and discontinued operations.

(2)

At period end.

(3)

Not adjusted for IFRIC 21 property taxes.

(4)

Diluted weighted average number of Units calculated in accordance with IFRS included the 639,076 unvested Restricted Stock Units and 300,000 Options as at September 30, 2020 and 100,649 unvested Restricted Stock Units as at September 30, 2019.

(5)

The Debentures were not dilutive for FFO and AFFO for the three months ended September 30, 2020. The Debentures were dilutive for FFO and AFFO for the three months ended September 30, 2019. Therefore, Debenture finance costs of $802 and $611 were added back to FFO and AFFO for the three months ended September 30, 2019. As a result, 5,283,783 units issuable on conversion of the Debentures were added to the diluted weighted average number of Units outstanding for the three months ended September 30, 2019.

FIRST NINE MONTHS HIGHLIGHTS AND KEY PERFORMANCE INDICATORS

(US$000s unless noted and except Units and per Unit amounts)

Nine months

ended

September 30,

2020

Nine months

ended

September 30,

2019

Change

TOTAL PORTFOLIO INFORMATION (1)

Number of rooms (2)

8,801

11,524

(23.6%)

Number of properties (2)

78

112

(30.4%)

Number of restaurants (2)

16

40

(60.0%)

Occupancy rate

51.3%

75.7%

-24.4 pp

Average daily room rate

$

103.21

$

99.01

4.2%

Revenue per available room

$

52.95

$

74.95

(29.4%)

Revenues

$

135,449

$

259,097

(47.7%)

Net operating income (3)

$

36,772

$

87,879

(58.2%)

NOI Margin %

27.1%

33.9%

-6.8 pp

Net income (loss) and comprehensive income (loss)

$

(45,483)

$

7,527

nm

Diluted income (loss) per Unit

$

(0.58)

$

0.10

nm

EBITDA (3)

$

26,156

$

73,829

(64.6%)

EBITDA Margin %

19.3%

28.5%

-9.2 pp

FUNDS FROM OPERATIONS (FFO) (1)

Funds from operations

$

(4,287)

$

45,071

nm

Diluted FFO per Unit (4)(5)

$

(0.06)

$

0.57

nm

FFO Payout Ratio – rolling four quarters

404.9%

92.0%

312.9 pp

ADJUSTED FUNDS FROM OPERATIONS (AFFO) (1)

Adjusted funds from operations

$

(4,846)

$

40,669

nm

Diluted AFFO per Unit (4)(5)

$

(0.06)

$

0.51

nm

Distributions declared

$

11,405

$

37,923

(69.9%)

Distributions declared per Unit

$

0.146

$

0.486

(70.0%)

CAPITALIZATION AND LEVERAGE

Debt-to-Gross Book Value (2)

58.2%

53.6%

4.6 pp

Debt-to-EBITDA (trailing twelve-month basis)

17.6x

8.3x

9.3x

Interest Coverage Ratio

0.9x

2.7x

-1.8x

Weighted average Debt face interest rate (2)

4.55%

4.64%

-0.09 pp

Weighted average Debt term to maturity (2)

4.8 years

5.7 years

-0.9 years

Number of Units outstanding (2)

78,232,926

78,122,528

110,398

Diluted weighted average number of Units

outstanding (4)

78,576,761

78,159,903

416,858

(1)

Refers to combined continuing and discontinued operations.

(2)

At period end.

(3)

Not adjusted for IFRIC 21 property taxes.

(4)

Diluted weighted average number of Units calculated in accordance with IFRS included the 639,076 unvested Restricted Stock Units and 300,000 Options as at September 30, 2020 and 100,649 unvested Restricted Stock Units as at September 30, 2019.

(5)

The Debentures were not dilutive for FFO and AFFO for the nine months ended September 30, 2020. The Debentures were dilutive for FFO and AFFO for the nine months ended September 30, 2019. Therefore, Debenture finance costs of $2,392 and $1,833 were added back to FFO and AFFO for the nine months ended September 30, 2019. As a result, 5,283,783 units issuable on conversion of the Debentures were added to the diluted weighted average number of Units outstanding for the nine months ended September 30, 2019.

SOURCE American Hotel Income Properties REIT LP