American Hotel Income Properties REIT LP Reports Fourth Quarter and Full Year 2020 Results

  • New CEO, Jonathan Korol, started on October 7, 2020
  • Q4 2020 occupancy of 51.4%, RevPAR of $47.25, and revenues of $39.4 million
  • Q4 2020 diluted FFO per unit of ($0.07)
  • Occupancy levels improved significantly in February, to 59.9%; Upward trend in Occupancy has continued into March
  • $50 million strategic Preferred Equity investment, closed January 28, 2021, reduced leverage and enhanced liquidity
  • Amended credit facility provides waiver of covenants through December 31, 2021

American Hotel Income Properties REIT LP (TSX: HOT.UN, TSX: HOT.U, TSX: HOT.DB.U) announced yesterday its financial results for the three months and year ended December 31, 2020. 

“2020 was an extraordinarily difficult year for our industry.  Our Company responded to the challenges caused by the COVID-19 pandemic through measures to rationalize our costs, protect our liquidity, and strengthen our balance sheet,” said Jonathan Korol, CEO.  “As we enter a new year and an improving operating environment, AHIP is well-positioned, with the addition of strategic investment partners through our recent $50 million preferred equity private placement. We are focused on driving revenue growth alongside sustained margin enhancement, as well as improving our debt profile and balance sheet.  With a strong platform and an improving sector outlook, we are optimistic about the opportunities ahead.”

Mr. Korol continued: “Our fourth quarter performance reflected the seasonality of our portfolio, with expected occupancy and rate pressures in December. In 2021 we are beginning to see a clearer path to improved sector performance, with COVID-19 vaccinations underway across the U.S. bringing growing leisure travel demand – demonstrated at AHIP by the stronger occupancy figures we have seen the last several weeks. We are witnessing meaningful occupancy improvements, led by strong performance at our Florida and Texas hotels.  February portfolio occupancy was 59.9% and many of our Florida properties were 100% full the last several weekends, demonstrating the rapidly improving leisure travel dynamics underway.  Our properties have been able to generate positive hotel EBITDA since May 2020 as a result of rising occupancies, despite continuing challenges in maintaining rate growth.  We expect this pattern to continue in the near term until broad based market demand is re-established.”

THREE MONTHS ENDED DECEMBER 31, 2020 FINANCIAL HIGHLIGHTS

  • Revenues for the fourth quarter decreased 48.2% to $39.4 million (Q4 2019 – $76.1 million), as a result of lower demand levels resulting from the ongoing impact of COVID-19 and from portfolio changes between periods.
  • Revenue per Available Room (“RevPAR”) for the quarter decreased 34.6% from Q4 last year to $47.25, due to occupancy decreasing 19.1 points to 51.4% and Average Daily Rate (“ADR”) decreasing 10.3% to $91.92 due to lower demand caused by the impacts of COVID-19.
    • Overall U.S. hotel RevPAR declined by 50.6% with occupancy declining by 19.8 points and ADR declining 27.2%. AHIP’s ADR decline was less pronounced due to portfolio changes last year following the strategic decision to sell the lower ADR-generating Economy Lodging Portfolio and acquiring newer, premium branded hotels with higher ADR.
  • 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 120.5 during the quarter (Q4 2019 – 122.6) – with 100.0 representing a ‘fair share’ of the market.
  • Net Operating Income (“NOI”) decreased by 59.0% to $9.8 million (Q4 2019 – $23.9 million) due to lower revenues, partially offset by expense reduction initiatives. NOI Margins decreased to 24.9% (Q4 2019 – 31.4%) as a result of lower revenue.
  • Loss and comprehensive loss for the seasonally slow fourth quarter was $20.9 million, compared to the loss and comprehensive loss of $14.5 million in Q4 2019, due to lower NOI, impairment charges at certain hotels, higher interest expense and corporate charges.
  • Diluted loss per Unit for the quarter was $0.27 compared to a diluted loss per Unit of $0.19 in Q4 2019.
  • Funds from operations (“FFO”) for Q4 2020 was ($5.2) million (Q4 2019 – $10.2 million) and adjusted funds from operations (“AFFO”) was ($4.1) million (Q4 2019 – $9.2 million), primarily due to the impacts of COVID-19.
  • Q4 2020 Diluted FFO per Unit was ($0.07) (Q4 2019 – $0.13) and Diluted AFFO per Unit was ($0.05) (Q4 2019 – $0.12).

Premium Branded Hotels  
In November 2019, AHIP sold its Economy Lodging Portfolio and in December 2019, acquired 12 additional Premium Branded hotels.  The following metrics represent the performance of all Premium Branded hotels at the end of Q4 2020 compared to all Premium Branded hotels owned at the end of Q4 2019. 

  • Premium Branded total revenues decreased 39.4% in Q4 2020 to $39.4 million (Q4 2019 – $65.1 million), due to reduced demand caused by COVID-19, partially offset by full period performance from the 12 additional Premium Branded hotels acquired in December 2019.
  • Premium branded RevPAR decreased by 41.7% to $47.25 (Q4 2019 – $80.98), with occupancy declining 20.9 points to 51.4% and ADR declining 17.9% to $91.92.
    • AHIP’s 24 extended stay hotels continued to be the best performing segment of the portfolio, with average occupancy of 62.4% and RevPAR declines of only 31.6% during Q4.
    • RevPAR declines were less pronounced at certain AHIP properties located in Tennessee and New Jersey, which saw RevPAR declines of 23.5% and 34.1%, respectively, led by demand from leisure customers, contract business and government agencies.
    • RevPAR declines were most significant in Kentucky and Ohio, with RevPAR declines of 65.9% and 68.0%, respectively – reflecting lower demand at AHIP’s larger Embassy Suites hotels, which are located in these regions.

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 total revenues for the fourth quarter decreased 45.6% to $33.8 million (Q4 2019 – $62.1 million).
  • Same-property RevPAR decreased 42.7% from Q4 last year to $46.85, due to occupancy decreasing 21.3 points to 51.5% and ADR decreasing 19.0% to $90.98 as a result of lower demand arising from the impacts of COVID-19.
  • Same-property NOI was $8.3 million (Q4 2019 – $18.5 million) and the NOI margin was 24.4% (Q4 2019 – 29.8%). Declines were due to lower revenues. Taxes and insurance expenses also increased as a result of higher property tax refunds received in 2019.

Capital Metrics (as at December 31, 2020)

  • As at December 31, 2020, AHIP’s debt had a weighted average remaining term of 4.5 years (2019 – 5.5 years) and a weighted average interest rate of 4.55% (2019 – 4.41%).
  • As at December 31, 2020, AHIP had an unrestricted cash balance of $20.1 million, restricted cash balances of $26.1 million, and available revolver capacity of approximately $15.7 million. Following the preferred equity private placement completed on January 28, 2021, AHIP had an unrestricted cash balance of approximately $38.2 million, revolver capacity of approximately $24.3 million and minimum unrestricted liquidity of approximately $62.5 million.
  • AHIP’s debt-to-gross book value as at December 31, 2020 was 58.3% (December 31, 2019 – 55.7%). Following the preferred equity private placement completed on January 28, 2021, AHIP’s pro-forma debt-to-gross book value was 55.6%.

YEAR ENDED DECEMBER 31, 2020 FINANCIAL HIGHLIGHTS

  • 2020 revenues declined 47.8% to $174.9 million (2019 – $335.2 million) primarily due to COVID-19 related impacts and portfolio changes between periods.
  • RevPAR for 2020 decreased 30.7% from 2019 to $51.49, due to occupancy decreasing 23.2 points to 51.3%. ADR increased by 0.6% to $100.38 due to portfolio changes compared to 2019, including the addition of higher quality hotels.
  • NOI for 2020 decreased by 58.3% to $46.6 million (Q4 2019 – $111.8 million) due to lower revenues, partially offset by expense reduction initiatives. NOI Margin decreased to 26.6% (2019 – 33.4%) as a result of lower revenue.
  • Loss and comprehensive loss for 2020 was $66.4 million, compared to net loss of $7.0 million in 2019, as a result of lower NOI, fair value changes on interest rate swaps, impairment charges related to certain hotels, increased interest expense and higher corporate expenses. Diluted loss per Unit was $0.85 in 2020, compared to diluted loss per Unit of $0.09 in 2019.
  • FFO for 2020 decreased to ($9.5) million (2019 – $55.3 million), while AFFO decreased to ($9.0) million (2019 – $49.9 million) primarily due to the impacts of COVID-19.
  • For 2020, diluted FFO per Unit was ($0.12) (2019 – $0.70) and Diluted AFFO per Unit was ($0.11) (2019 – $0.63).
  • Same-property revenues for 2020 were $148.1 million, a 44.1% decrease from $264.8 million in 2019.
  • Same-property RevPAR for 2020 declined 42.6% to $50.72 (2019 – $88.37). ADR decreased 13.8% to $99.25 (2019 – $115.07) and occupancy declined 25.7 points to 51.1% (2019 – 76.8%).
  • Same-property NOI for 2020 declined to $38.5 million (2019 – $89.2 million) and Same-property NOI margin declined to 26.0% (2019 – 33.7%).

FOURTH QUARTER DEVELOPMENTS

  • On October 7, 2020, Jonathan Korol joined the Company as Chief Executive Officer.
  • On October 13, 2020, AHIP completed loan relief negotiations on four CMBS loans totaling approximately $57 million. The relief provisions include the waiver of the requirement to fund FF&E reserves for six months, along with covenant waivers. In total, during 2020, AHIP was able to obtain temporary relief on all 20 of its CMBS loans.
  • On October 30, 2020, the purchaser of AHIP’s former Economy Lodging Portfolio repaid a $2.4 million short term loan including accrued interest. The net proceeds were applied towards paying down AHIP’s credit facility revolver.
  • On November 6, 2020, AHIP entered into an agreement to extend the time for payment of the remaining deferred purchase price (currently $16.1 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.
  • On December 4, 2020, AHIP notified its loan servicers on two single-property, non-recourse loans totaling approximately $18.4 million of an imminent change in circumstances and requested the loans be transferred to the special loan servicer to renegotiate modified loan terms. The loans involve two non-core assets located in Pittsburgh that had impairment charges recorded during the fourth quarter. One of the loans is currently under cash management and the lender has used funds from operations to continue making required loan payments. For the second loan, following the notice to the servicers, AHIP did not make the required loan payments on December 4, 2020, January 6, 2021, February 5, 2021, and March 5, 2021 and as a result, AHIP received a notice from the special loan servicer of the occurrence of an event of default. AHIP has commenced negotiations to modify the terms of both loans, which are non-recourse and do not trigger any cross-default provisions with any other loans.

SUBSEQUENT EVENTS

  • On January 28, 2021, HCI-BGO Victoria JV LP (the “Investor“), a joint venture limited partnership formed by BentallGreenOak Real Estate Advisors LP and Highgate Capital Investments, LP, made an aggregate $50 million strategic investment in AHIP and its direct subsidiary American Hotel Income Properties REIT Inc. (“US REIT“), on a private placement basis, through the issuance of 50,000 newly-created shares of Series C preferred stock of the US REIT (the “Series C Preferred Stock“) and 19,608,755 warrants to acquire Units of AHIP (the “Warrants“), which warrants may only be exercised on a cashless basis (the “Investment“). In connection with the Investment, the Investor entered into an investor rights agreement with AHIP and US REIT providing for, among other things, the right to nominate two directors to AHIP’s board of directors, customary registration rights, participation rights, and certain standstill and transfer restriction rights including a 24-month lockup on both the Series C Preferred Stock and the Warrants. Mr. Mark Van Zandt, Managing Partner of BentallGreenOak, and Mr. Mahmood Khimji, Co-Founder and Managing Principal of Highgate, were appointed to the Board of Directors on closing of the Investment.
  • On January 28, 2021, AHIP amended its $225 million corporate credit facility with its lending syndicate. These amendments include:
    • Waiver of key financial covenants through December 31, 2021 and modified covenants through December 31, 2022;
    • Availability under the Facility was fixed at approximately $159 million through December 31, 2021; and,
    • Borrowings not subject to swap agreements will remain at LIBOR + 300 basis points with a minimum LIBOR balance of 0.25%.
  • During February 2021, various AHIP subsidiaries obtained government-guaranteed loans totaling approximately $5.0 million. The loans carry an interest rate of 1.00% per annum, and are repayable over five years. Under the terms of these loans, all or a portion of the loans may be forgiven if the loan proceeds are used for qualifying expenses and if other specific criteria are met.

TAXATION OF 2020 DISTRIBUTIONS

  • For 2020, 100% of AHIP’s paid distributions were considered return of capital. Unitholders should consult their own tax advisors for advice with respect to the tax consequences of their investment in Units based on their particular circumstances.

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 typically 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 U.S. dollar denominated distributions to unitholders, and generate value through the continued growth of its diversified hotel portfolio.

FOURTH QUARTER HIGHLIGHTS AND KEY PERFORMANCE INDICATORS

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

Three months

ended

December 31,

2020

Three months

ended

December 31,

2019

Change

TOTAL PORTFOLIO INFORMATION (1)

Number of rooms (2)

8,801

8,887

(1.0%)

Number of properties (2)

78

79

(1.3%)

Occupancy rate

51.4%

70.5%

(19.1 pts)

Average daily room rate

$

91.92

$

102.52

(10.3%)

Revenue per available room

$

47.25

$

72.28

(34.6%)

Revenues

$

39,406

$

76,091

(48.2%)

Net operating income (3)

$

9,814

$

23,913

(59.0%)

NOI Margin %

24.9%

31.4%

(6.5 pts)

Loss and comprehensive loss

$

(20,945)

$

(14,519)

nm

Diluted loss per Unit

$

(0.27)

$

(0.19)

nm

Hotel EBITDA

$

8,599

$

21,541

(60.1%)

Hotel EBITDA margin %

21.8%

28.3%

(6.5 pts)

EBITDA (3)

$

5,701

$

19,913

(71.4%)

EBITDA Margin %

14.5%

26.2%

(11.7 pts)

FUNDS FROM OPERATIONS (FFO) (1)

Funds from operations

$

(5,220)

$

10,236

nm

Diluted FFO per Unit (4)(5)

$

(0.07)

$

0.13

nm

FFO Payout Ratio – rolling four quarters

nm 

91.5%

nm

ADJUSTED FUNDS FROM OPERATIONS (AFFO) (1)

Adjusted funds from operations

$

(4,105)

$

9,236

nm

Diluted AFFO per Unit (4)(5)

$

(0.05)

$

0.12

nm

Distributions

$

$

12,657

(100.0%)

Distributions per unit

$

$

0.162

(100.0%)

CAPITALIZATION AND LEVERAGE

Debt-to-Gross Book Value (2)

58.3%

55.7%

2.6 pts

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

25.4x

8.3x

17.1x

Interest Coverage Ratio

0.6x

2.2x

(1.6x)

Weighted average Debt face interest rate (2)

4.55%

4.41%

0.14 pts

Weighted average Debt term to maturity (6)

4.5 years

5.5 years

-1.0 year

Number of Units outstanding (2)

78,484,068

78,127,410

356,658

Diluted weighted average number of Units

outstanding (4)

78,735,260

78,215,578

519,682

(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 383,500 unvested Restricted Stock Units December 31, 2020 and 92,042 unvested Restricted Stock Units as at December 31, 2019.

(5)

The Debentures were not dilutive for FFO and AFFO for the three months ended December 31, 2020. The Debentures were not dilutive for FFO and dilutive for AFFO for the three months ended December 31, 2019. Therefore, Debenture finance costs of $611 were added back to AFFO for the three months ended December 31, 2019.

(6)

At period end based on stated maturity date.

(7)

nm = not meaningful

 2020 ANNUAL HIGHLIGHTS AND KEY PERFORMANCE INDICATORS

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

Twelve months

ended

December 31,

2020

Twelve months

ended

December 31,

2019

Change

TOTAL PORTFOLIO INFORMATION (1)

Number of rooms (2)

8,801

8,887

(1.0%)

Number of properties (2)

78

79

(1.3%)

Occupancy rate

51.3%

74.5%

23.2 pts

Average daily room rate

$

100.38

$

99.79

0.6%

Revenue per available room

$

51.49

$

74.34

(30.7%)

Revenues

$

174,855

$

335,188

(47.8%)

Net operating income (3)

$

46,586

$

111,792

(58.3%)

NOI Margin %

26.6%

33.4%

(6.8 pts)

Loss and comprehensive loss

$

(66,428)

$

(6,992)

nm

Diluted loss per Unit

$

(0.85)

$

(0.09)

nm

Hotel EBITDA

$

41,299

$

100,415

(58.9%)

Hotel EBITDA Margin %

23.6%

30.0%

(6.4 pts)

EBITDA (3)

$

31,857

$

93,742

(66.0%)

EBITDA Margin %

18.2%

28.0%

(9.8 pts)

FUNDS FROM OPERATIONS (FFO) (1)

Funds from operations

$

(9,507)

$

55,307

nm

Diluted FFO per Unit (4)(5)

$

(0.12)

$

0.70

nm

FFO Payout Ratio – rolling four quarters

nm

91.5%

nm

ADJUSTED FUNDS FROM OPERATIONS (AFFO) (1)

Adjusted funds from operations

$

(8,951)

$

49,905

nm

Diluted AFFO per Unit (4)(5)

$

(0.11)

$

0.63

nm

Distributions

$

11,405

$

50,580

(77.5%)

Distributions per unit

$

0.146

$

0.648

(77.5%)

CAPITALIZATION AND LEVERAGE

Debt-to-Gross Book Value (2)

58.3%

55.7%

2.6 pts

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

25.4x

8.3x

17.1x

Interest Coverage Ratio

0.8x

2.6x

(1.8x)

Weighted average Debt face interest rate (2)

4.55%

4.41%

-0.14 pts

Weighted average Debt term to maturity (6)

4.5 years

5.5 years

-1.0 years

Number of Units outstanding (2)

78,484,068

78,127,410

356,658

Diluted weighted average number of Units

outstanding (4)

78,504,228

78,211,378

292,850

(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 383,500 unvested Restricted Stock Units December 31, 2020 and 92,042 unvested Restricted Stock Units as at December 31, 2019.

(5)

The Debentures were not dilutive for FFO and AFFO for the twelve months ended December 31, 2020. The Debentures were dilutive for FFO and AFFO for the twelve months ended December 31, 2019. Therefore, Debenture finance costs of $3,194 and $2,444 were added back to FFO and AFFO, respectively, for the twelve months ended December 31, 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 applicable periods presented.

(6)

At period end based on stated maturity date.

(7)

nm = not meaningful

SOURCE American Hotel Income Properties REIT LP