American Hotel Income Properties REIT LP Reports Second Quarter 2021 Results

  • Q2 2021 diluted FFO per unit of $0.14; increasing from ($0.03) per unit in Q1 2021
  • Q2 2021 Occupancy of 70.0% vs 60.2% in Q1 2021; Q2 2021 RevPAR of $76.53 vs $57.01 in Q1 2021
  • Portfolio recovery highlighted by sequential monthly gains in top-line measures; June ADR & Occupancy of $115.33 and 73.1%, each at 0.96x and 0.88x June 2019 levels
  • Operating efficiency gains contributed to Q2 Hotel EBITDA margin of 38.6%
  • Revenues increased to $63.6 million in Q2 2021 compared to $27.3 million in Q2 2020
  • Total available liquidity at June 30, 2021 was $40.2 million

(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 yesterday its financial results for the three and six months ended June 30, 2021.

“The second quarter brought three sequential months of improving revenue and operating margins, a trend that began in January and has continued through July. Accelerating demand from the domestic leisure traveler resulted in rate increases that have narrowed the gap to 2019 pre-COVID levels,” said Jonathan Korol, CEO. “The monthly improvements to average daily rate across our portfolio drove hotel EBITDA margins of 38.6% in Q2, surpassing most industry comparables. While our properties have yet to achieve pre-COVID revenues, they are close to 2019 same period cash flow levels due to the improved operating margins.”

“June 2021 was our best revenue-generating month since the pandemic began, only to be eclipsed by our recent performance in July. We are encouraged by the sequential monthly rate-driven RevPAR increases that have accompanied higher leisure traffic at our properties.” Mr. Korol added: “While we see signals of improving business travel through improving lead volumes and small group activity, the leisure traveler continues to drive hotel demand. As the business traveler returns, we anticipate further improvements to a recovery in weekday demand. Following the completion of our strategic equity financing with BentallGreenOak Real Estate Advisors LP and Highgate Capital Investments, LP Bentall and concurrent amendments to our credit facility completed in Q1, we are confident that AHIP is well positioned to navigate any negative impacts to our business that could result from the ongoing market uncertainty resulting from COVID-19.”

“In Q2 we were very pleased to welcome Travis Beatty to our executive team as Chief Financial Officer.” Mr. Korol continued: “Travis brings both experience and recognition within the broader investment community and is an important member of a talented team that will be positioning AHIP to grow its portfolio of premium-branded select service hotel properties across the U.S.”

THREE MONTHS ENDED JUNE 30, 2021 FINANCIAL HIGHLIGHTS

  • AHIP’s portfolio Average Daily Rate (“ADR”) and Revenue per Available Room (“RevPAR”) improved each month during the quarter, contributing to revenues of $63.6 million, an increase of 133.1% from Q2 2020 ($27.3 million), reflecting the recovery from significantly lower demand experienced in the prior year due to the initial onset of COVID-19.
  • RevPAR increased 131.8% to $76.53 (2020 – $33.01) caused by ADR increases of 14.9% to $109.31 (2019 – $95.13) and occupancy increase of 101.7% to 70.0% (2020 – 34.7%).
  • Net income and comprehensive income for the quarter was $0.5 million (2020 – loss of $20.8 million) primarily as a result of higher revenue and NOI and lack of impairment charges in the current period partially offset by the increase in corporate and administrative costs and the change in fair value of warrants.
  • Funds from operations (“FFO”) for Q2 2021 increased to $11.5 million (2020: ($9.1) million) and adjusted funds from operations (“AFFO”) increased to $10.9 million (2020: ($8.7) million), as a result of higher revenue and NOI.
  • Q2 2021 Diluted FFO per Unit was $0.14 (Q2 2020: ($0.12)) and Diluted AFFO per Unit was $0.13 (Q2 2020: ($0.11)).
  • Strong performance continued through July, with Occupancy of 73.2%, ADR of $119.71 and RevPAR of $87.62, each at 0.90x, 1.00x and 0.90x of July 2019 levels, respectively.

SIX MONTHS ENDED JUNE 30, 2021 FINANCIAL HIGHLIGHTS

  • For Premium Branded hotels only and using prior ownership’s financial information for the 12 Premium Branded hotels acquired in December 2019, AHIP’s portfolio has meaningfully narrowed the previously sizeable gap between 2021 and 2019 demand levels, while exceeding 2019 net operating income (“NOI”) Margin levels:

Metric

Jan-21

Feb-21

Mar-21

Apr-21

May-21

Jun-21

Q1-21

Q2-21

Occupancy (%)

51.2%

59.9%

69.4%

68.6%

68.4%

73.1%

60.2%

70.0%

Recovery (vs. 2019)

0.77x

0.81x

0.86x

0.85x

0.85x

0.88x

0.82x

0.86x

ADR (US$)

$90.81

$93.87

$98.22

$103.16

$109.06

$115.33

$94.70

$109.31

Recovery (vs. 2019)

0.81x

0.81x

0.82x

0.88x

0.92x

0.96x

0.82x

0.92x

RevPAR (US$)

$46.52

$56.24

$68.13

$70.79

$74.60

$84.28

$56.99

$76.53

Recovery (vs. 2019)

0.63x

0.66x

0.70x

0.75x

0.78x

0.85x

0.67x

0.80x

NOI Margin (%)

25.3%

27.7%

39.9%

38.9%

40.7%

44.3%

32.1%

41.5%

Recovery (vs. 2019)

0.85x

0.90x

0.99x

1.08x

1.08x

1.18x

0.93x

1.12x

  • RevPAR at AHIP’s 24 extended stay properties represent approximately 30% of its portfolio on a per key basis and was its strongest performing segment with recovery of RevPAR to 0.84x of 2019 levels.
  • FFO increased to $9.5 million (2020 – ($4.4) million) as a result of higher NOI and AFFO increased to $9.3 million (2020 – ($5.1) million).
  • Diluted FFO per Unit in the first half of 2021 was $0.12 (2020: ($0.06)) and Diluted AFFO per Unit was $0.12 (2020: ($0.06)).
  • 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, outperformed their identified direct competition with an average index rating of 115.3 during the quarter (Q2 2020: 135.4), with 100.0 representing a fair share of the market.
  • NOI for the first half of 2021 increased to $41.4 million (2020: $22.2 million) due to higher revenues and expense reduction initiatives. NOI Margins increased to 37.5% (2020: 24.9%) attributable to extensive cost saving measures and relaxed brand standards which reduced operating expenses during this period compared to the prior period.
  • Loss and comprehensive loss was $13.4 million, compared to the loss and comprehensive loss of $33.4 million in 2020, as a result of higher NOI, fair value changes on interest rate swaps, and lack of impairment charges, partially offset by higher corporate and administrative costs and the change in fair value of warrants.
  • As part of effective asset management of the portfolio, AHIP deferred a number of capital projects in 2020 to preserve cash during the height of the pandemic. AHIP is currently in discussions with Brand partners on these Property Improvement Plans (“PIPs”) and expects to restart two small renovations in late 2021.

LEVERAGE AND LIQUIDITY

  • On January 28, 2021, AHIP successfully amended its $225 million corporate credit facility with its lending syndicate. These amendments provide flexibility from cash flow covenants and provide increased certainty of the borrowing base calculation. The amendments included:
    • Waiver of debt service ratio covenants through December 31, 2021 and relaxed covenant measures 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%.
  • As at June 30, 2021, AHIP had an unrestricted cash balance of $11.1 million and available revolver capacity of approximately $29.1 million, therefore a total available liquidity of $40.2 million plus restricted cash of $34.6 million.
  • AHIP’s debt-to-gross book value as at June 30, 2021 was 55.4% (June 30, 2020: 58.7%). This improvement between periods was attributable to the strategic preferred equity raise completed in Q1 2021, paydown of debt and improved operating results.
  • As at June 30, 2021, AHIP’s debt had a weighted average remaining term of 4.1 years (2020: 5.0 years) and a weighted average interest rate of 4.56% (2020: 4.54% including continuing and discontinued operations).

SECOND QUARTER DEVELOPMENTS

  • On June 1, 2021, AHIP announced the appointment of Travis Beatty as Chief Financial Officer. Mr. Beatty was previously the Chief Financial Officer of Northview Apartment REIT (“Northview”) from 2016 to 2020. Northview was a Canadian public REIT focused on owning and managing a multi-billion dollar portfolio of residential units across Canada. Mr. Beatty is a strong organizational leader with a proven track record in the public REIT space as well as within the broader Canadian financial community.
  • On April 1, 2021, AHIP paid the remaining $16.1 million plus accrued interest of deferred purchase price in respect of the acquisition of 12 Premium Branded hotel properties that completed in December 2019, which amount was included in accounts payable on AHIP’s consolidated statements of financial position as at March 31, 2021, thereby fully discharging the liability.

DISTRIBUTIONS

In January 2021, AHIP completed amendments under its revolving credit facility that included a restriction on payment of distributions to unitholders during the covenant waiver period, which extends until the end of 2021. AHIP’s Board of Directors, in consultation with management, will continue to regularly assess the timing of the re-introduction of AHIP’s distribution by monitoring hotel performance, capital needs, acquisitions and dispositions and distributions required for AHIP to maintain its REIT status for federal income tax purposes. Based on the expectation that hotel EBITDA will continue to improve, management is currently targeting to re-establish a distribution in 2022 at a level that will be sustainable in the long term.

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’s 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.

SECOND QUARTER HIGHLIGHTS AND KEY PERFORMANCE INDICATORS

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

Three months
ended
June 30,
2021

Three months
ended
June 30,
2020

Change

TOTAL PORTFOLIO INFORMATION (1)

Number of rooms (1)

8,801

8,887

(1.0%)

Number of properties (1)

78

79

(1.3%)

Number of restaurants (1)

16

16

0.0%

Occupancy rate

70.0%

34.7%

35.3 pp

Average daily room rate

$

109.31

$

95.13

14.9%

Revenue per available room

$

76.53

$

33.01

131.8%

Revenues

$

63,589

$

27,274

133.1%

Net operating income (2)

$

26,373

4,306

512.5%

NOI Margin %

41.5%

15.8%

25.7 pp

Net income (loss) and comprehensive income (loss)

$

526

$

(20,806)

nm

Diluted income (loss) per Unit

$

0.01

$

(0.26)

nm

Hotel EBITDA (2)

$

24,569

$

3,385

625.8%

Hotel EBITDA Margin %

38.6%

12.4%

26.2 pp

EBITDA (2)

$

22,003

$

924

2,281.3%

EBITDA Margin %

34.6%

3.4%

31.2 pp

FUNDS FROM OPERATIONS (FFO) (3)

Funds from operations

$

11,465

$

(9,088)

nm

Diluted FFO per Unit (4)(5)

$

0.14

$

(0.12)

nm

FFO Payout Ratio – trailing twelve-month basis (6)

nm

171.4%

nm

ADJUSTED FUNDS FROM OPERATIONS (AFFO) (3)

Adjusted funds from operations

$

10,924

$

(8,658)

nm

Diluted AFFO per Unit (4)(5)

$

0.13

$

(0.11)

nm

AFFO Payout Ratio – trailing twelve-month basis (6)

nm

201.5%

nm

Distributions declared

$

$

nm

Distributions declared per Unit

$

$

nm

CAPITALIZATION AND LEVERAGE

Debt-to-Gross Book Value (1)

55.4%

58.7%

(3.3 pp)

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

15.8x

13.6x

2.2x

Interest Coverage Ratio

1.2x

1.6x

(0.4x)

Weighted average Debt face interest rate (1)

4.56%

4.54%

0.02 pp

Weighted average Debt term to maturity (7)

4.1 years

5 years

(0.9 years)

Number of Units outstanding (1)

78,635,554

78,138,537

497,017

Diluted weighted average number of Units

outstanding (4)

80,283,739

78,703,450

1,580,289

(1)

At period end

(2)

Not adjusted for IFRIC 21 property taxes.

(3)

Refers to combined continuing and discontinued operations

(4)

Diluted weighted average number of Units calculated in accordance with IFRS included the 191,144 unvested Restricted Stock Units and 1,569,509 Units issuable on conversion of the Warrants as at June 30, 2021. As at June 30, 2020, there were 743,465 unvested Restricted Stock Units.

(5)

The Debentures were not dilutive for FFO but dilutive for AFFO for the three months ended June 30, 2021. Therefore, Debenture finance costs of $611 were added back to AFFO and 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 June 30, 2021. The Debentures were not dilutive for FFO and AFFO for the six months ended June 30, 2021 and not dilutive for the three and six months ended June 30, 2020.

(6)

nm = not meaningful

(7)

At period end based on stated maturity date

SECOND QUARTER HIGHLIGHTS AND KEY PERFORMANCE INDICATORS

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

Six months
ended
June 30,
2021

Six months
ended
June 30,
2020

Change

TOTAL PORTFOLIO INFORMATION (1)

Number of rooms (1)

8,801

8,887

(1.0%)

Number of properties (1)

78

79

(1.3%)

Number of restaurants (1)

16

16

0.0%

Occupancy rate

65.1%

48.4%

16.7 pp

Average daily room rate

$

102.60

$

107.17

(4.3%)

Revenue per available room

$

66.82

$

51.87

28.8%

Revenues

$

110,303

$

89,129

23.8%

Net operating income (2)

$

41,350

22,167

86.5%

NOI Margin %

37.5%

24.9%

12.6 pp

Loss and comprehensive loss

$

(13,444)

$

(33,413)

nm

Diluted loss per Unit

$

(0.17)

$

(0.43)

nm

Hotel EBITDA (2)

$

38,151

$

19,478

95.9%

Hotel EBITDA Margin %

34.6%

21.9%

12.7 pp

EBITDA (2)

$

31,909

$

15,089

111.5%

EBITDA Margin %

28.9%

16.9%

12.0 pp

FUNDS FROM OPERATIONS (FFO) (3)

Funds from operations

$

9,479

$

(4,414)

nm

Diluted FFO per Unit (4)(5)

$

0.12

$

(0.06)

nm

FFO Payout Ratio – trailing twelve-month basis (6)

nm

171.4%

nm

ADJUSTED FUNDS FROM OPERATIONS (AFFO) (3)

Adjusted funds from operations

$

9,324

$

(5,071)

nm

Diluted AFFO per Unit (4)(5)

$

0.12

$

(0.06)

nm

AFFO Payout Ratio – trailing twelve-month basis(6)

nm

201.5%

nm

Distributions declared

$

$

11,405

nm

Distributions declared per Unit

$

$

0.146

nm

CAPITALIZATION AND LEVERAGE

Debt-to-Gross Book Value (1)

55.4%

58.7%

(3.3 pp)

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

15.8x

13.6x

2.2x

Interest Coverage Ratio

1.2x

1.6x

(0.4x)

Weighted average Debt face interest rate (1)

4.56%

4.54%

0.02 pp

Weighted average Debt term to maturity (7)

4.1 years

5 years

(0.9 years)

Number of Units outstanding (1)

78,635,554

78,138,537

497,017

Diluted weighted average number of Units

outstanding (4)

78,657,287

78,456,893

200,394

(1)

At period end

(2)

Not adjusted for IFRIC 21 property taxes.

(3)

Refers to combined continuing and discontinued operations

(4)

Diluted weighted average number of Units calculated in accordance with IFRS included the 191,144 unvested Restricted Stock Units and 1,569,509 Units issuable on conversion of the Warrants as at June 30, 2021. As at June 30, 2020, there were 743,465 unvested Restricted Stock Units.

(5)

The Debentures were not dilutive for FFO but dilutive for AFFO for the three months ended June 30, 2021. Therefore, Debenture finance costs of $611 were added back to AFFO and 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 June 30, 2021. The Debentures were not dilutive for FFO and AFFO for the six months ended June 30, 2021 and not dilutive for the three and six months ended June 30, 2020.

(6)

nm = not meaningful

(7)

At period end based on stated maturity date

SOURCE American Hotel Income Properties REIT LP