American Hotel Income Properties Results

American Hotel Income Properties REIT Q4 2016 Same Property NOI Up 10.3%

American Hotel Income Properties REIT LP Reports Fourth Quarter and Year End 2016 Financial Results

American Hotel Income Properties

American Hotel Income Properties REIT LP (AHIP) (TSX: HOT.UN) (OTCQX: AHOTF) announced today its financial results for the three months and year ended December 31, 2016.

"Our diversified portfolio of high quality, select-service hotels performed exceptionally well during the fourth quarter while achieving an all-time high same-property NOI growth rate of more than 10%," said Rob O'Neill, the Company's CEO. "While growing the portfolio room count by more than 14% during the quarter, our same-property Branded Hotel portfolio outperformed STR's U.S. industry RevPAR growth rate by 110 basis points. These outstanding results demonstrate AHIP's ability to both selectively grow and asset-manage our portfolio, while continuing to drive unitholder value." Mr. O'Neill continued, "The Canadian capital markets continue to support our growth strategy with the recently completed Cdn$115.1 million bought deal offering. We invested the majority of those funds with strategic hotel acquisitions in January. Given ongoing volatility in the currency markets, we are pleased to provide our unitholders with long-term, sustainable, and consistent U.S. dollar distributions with investments in U.S. hotel assets."

FOURTH QUARTER 2016 FINANCIAL HIGHLIGHTS

  • Net income for the quarter more than tripled to $3.4 million (2015 - $0.9 million) and diluted net income per Unit more than doubled to $0.07 (2015 - $0.03) as a result of new hotels being added to the portfolio and same-store NOI growth.
  • Total revenues for the quarter increased by 11.5% to $44.3 million compared to $39.8 million for the same quarter last year as a result of additions to the hotel portfolio between reporting periods.
  • Funds from operations ("FFO") was up 23.8% to $8.9 million (2015 - $7.2 million) and adjusted funds from operations ("AFFO") was up 24.2% to $7.7 million (2015 - $6.2 million) as a result of an increase in the number of hotels in AHIP's portfolio combined with same-store NOI growth.
  • For the current quarter, Diluted FFO per Unit was $0.19 (2015 - $0.21) and Diluted AFFO per Unit was $0.17 (2015 - $0.18) with results being affected by the temporary cash dilution from the July 2016 and December 2016 Offerings (each defined below).
  • Same-property revenue per available room ("RevPAR") for the Branded Hotels was up 4.3% led by Florida, Texas and North Carolina properties with significant RevPAR increases of between 8% and 17%. This was offset by weakness in Pittsburgh and Oklahoma properties which saw RevPAR declines of between 2% and 5%. According to STR, Inc., fourth quarter 2016 RevPAR for the U.S. hotel industry increased by 3.2%.
  • Total portfolio same-property revenues for the quarter were up by 3.0% to $31.7 million compared to the same period last year, led by Branded Hotel same-property revenue growth of 4.6%.
  • Total portfolio same-property net operating income ("NOI") increased by 10.3% to $11.1 million (2015 - $10.0 million) led by the Branded Hotels' NOI growth rate of 16.5% reflecting revenue growth and cost containment. The Rail Hotels' same-property NOI was up by 3.2% as a result of consistent contributions from the guaranteed revenue contracts with AHIP's railway customers.
  • EBITDA for the quarter was up 16.0% to $12.1 million compared to $10.4 million in the same period last year and EBITDA margin improved by 100 basis points to 27.2% (2015 - 26.2%).
  • The payout ratio increased during the quarter to 103.5% (2015 - 95.5%) reflecting the issuance of Units from the December 2016 Offering, the net proceeds of which were not fully invested by year end.
  • AHIP's interest coverage ratio for the current quarter was unchanged at 3.0x.
  • AHIP paid its monthly distributions of $0.054 per Unit, which is equivalent to $0.648 per Unit on an annualized basis.
  • As at December 31, 2016, AHIP had unrestricted cash balances of $81.1 million, a restricted cash balance of $18.4 million and an unutilized revolving line of credit of $10.0 million.

FOURTH QUARTER DEVELOPMENTS

  • On October 27, 2016, AHIP completed the acquisition of the four-property, Marriott-branded hotel portfolio located in Florida and Tennessee (the "Florida/Tennessee Portfolio"). The properties included a 109-room Residence Inn, in Chattanooga, two 89-room Fairfield Inn & Suites in Jacksonville and Lake City and an 87-room TownePlace Suites in Chattanooga. The Florida/Tennessee Portfolio was acquired for an aggregate purchase price of approximately $47.0 million before customary closing and post-acquisition adjustments and excluding approximately $2.8 million in brand required property improvement plans ("PIPs"). The acquisition was funded using cash from AHIP's July 2016 Offering and a new $27.5 million CMBS (as defined below) loan secured by three of the four hotel properties. The loan has a 10 year term and has a fixed interest rate of 4.43%.
  • On November 29, 2016, AHIP completed the acquisition of a six-property, branded hotel portfolio in Florida (the "Florida 6 Portfolio"). The properties included a 111-room Holiday Inn Express & Suites hotel in Fort Myers; a 101-room Holiday Inn Express & Suites hotel in Sarasota; a 100-room Staybridge Suites hotel in Tampa; an 86-room Wingate by Wyndham hotel in Tampa; an 81-room Courtyard by Marriott hotel in Tampa; and an 80-room Fairfield Inn & Suites hotel in Orlando. The Florida 6 Portfolio was acquired for an aggregate purchase price of approximately $61.0 million before customary closing and post-acquisition adjustments and excluding approximately $10.6 million in brand required PIPs. The acquisition was funded using a combination of cash from AHIP's July 2016 Offering and a new $37.0 million CMBS loan secured by five of the six hotel properties. The new mortgage has a 10 year term with a fixed interest rate of 4.99%.
  • On December 1, 2016, AHIP completed the acquisition of a 104-room rail crew hotel located in Nashville, Tennessee for an aggregate purchase price of approximately $7.8 million excluding approximately $950,000 for planned capital expenditures, closing and post-acquisition adjustments. The hotel underwent renovations in December and January to convert the property into an Oak Tree Inn hotel and began accepting rail crew customers in February 2017. The property features a multi-year rail crew lodging contract with an existing railway customer with a guarantee of 58 guestrooms per night. The acquisition was funded by cash proceeds from AHIP's July 2016 Offering and a new five-year, $4.5 million variable rate mortgage (the "Nashville Term Loan"). AHIP also entered into an interest rate swap agreement at a fixed interest rate of 4.80% effective January 1, 2017.
  • On December 5, 2016, AHIP announced the renewal of six rail crew lodging contracts (the "Contract Renewal") with one of its railway customers for a term of six years, effective December 1, 2016. The Contract Renewal encompassed three contracts maturing in 2016 and three contracts maturing in 2017, which covered six Oak Tree Inn hotels with a total of 432 guestrooms. The term of the renewed contracts commenced on December 1, 2016 and will expire on November 30, 2022. The Contract Renewal increased the weighted average remaining term of AHIP's rail crew lodging agreements by 18% from 3.9 years to 4.6 years. The renewed contracts provide for increased daily rates coupled with annual cost of living rate escalators and enhanced diner and transportation subsidies.
  • On December 16, 2016, AHIP announced that it had agreed to acquire a strategic portfolio of three Embassy Suites by Hilton branded hotels totaling 782 guestrooms located in proximity to Columbus, Cleveland, and Cincinnati, Ohio (the "Midwestern 3 Embassy Suites Portfolio"). The Midwestern 3 Embassy Suites Portfolio included the 284-room Embassy Suites Columbus Dublin hotel located in Dublin, Ohio, the 271-room Embassy Suites Cleveland Rockside hotel located in Independence, Ohio, and the 227-room Embassy Suites Cincinnati Rivercenter hotel located in Covington, Kentucky. The acquisition was completed on January 19, 2017 as further described in the Subsequent Events section of the MD&A.
  • On December 22, 2016, AHIP completed a public offering of 11,281,500 Units, on a bought deal basis, at a price of Cdn$10.20 per Unit, for total gross proceeds of Cdn$115.1 million (the "December 2016 Offering"). Included in the closing were 1,471,500 Units (Cdn$15.0 million) from the full exercise of the over-allotment option. As described in the short form prospectus dated December 16, 2016, AHIP intended to use the net proceeds of the December 2016 Offering to: (i) partially fund the acquisition of the Midwestern 3 Embassy Suites Portfolio; and (ii) the balance, if any, to fund working capital and for general corporate purposes.

Ian McAuley, President of AHIP, commented, "According to STR, Inc. the U.S. hotel industry remains healthy and reported positive quarterly year-over-year results in both occupancy and ADR resulting in national RevPAR growing by 3.2%, and is expected to grow by approximately 2.5% during 2017. Despite continued weakness in the Pittsburgh and Oklahoma markets and lower railroad carload volumes experienced during the quarter and the year, our external hotel manager has grown RevPAR and NOI which highlights, not only the unique balance and diversity of our Branded and Rail portfolios, but also the sustainability and security of the distributions to unitholders. As our railway customers remain optimistic that the current trend of positive rail carload volume growth will continue, combined with a growing U.S. hotel industry, we expect the continued solid operating results from our existing portfolio will be enhanced with the absorption of the recent additions to our growing high quality portfolio."

FULL YEAR 2016 FINANCIAL REVIEW

  • Net income for the year increased by 62.9% to $9.3 million (2015 - $5.7 million) and diluted net income per Unit increased by 21.1% to $0.23 (2015 - $0.19) as a result of new hotels being added to the portfolio and same-store NOI growth.
  • Total revenues for the year increased by 20.7% to $173.5 million compared to $143.8 million for the prior year as a result of changes within the hotel portfolio between reporting periods.
  • Funds from operations ("FFO") was up 30.3% to $36.5 million (2015 - $28.0 million) and adjusted funds from operations ("AFFO") was up 31.2% to $31.9 million (2015 - $24.4 million) as a result of an increase in the number of hotels in AHIP's portfolio combined with same-property NOI growth.
  • For the year, Diluted FFO per Unit was $0.92 (2015 - $0.93) and Diluted AFFO per Unit was $0.80 (2015 - $0.81) with results being affected by the temporary cash dilution from the July 2016 Offering, as the net proceeds were not immediately deployed, and the December 2016 Offering, the net proceeds of which were not fully invested by year end.
  • Same-property revenue per available room ("RevPAR") for the Branded Hotels was up 4.5%, led by the North Carolina, Virginia, and Florida properties which had significant RevPAR gains of between 11% and 13%. This was offset by RevPAR declines in Pittsburgh and Oklahoma properties of between 4% and 5%. According to STR, Inc., full year 2016 RevPAR for the U.S. hotel industry increased by 3.2%.
  • Total portfolio same-property revenues for the year were up by 2.3% to $131.3 million compared to last year, led by Branded Hotel same-property revenue growth of 5.0% to $71.9 million (2015 - $68.4 million).
  • Total portfolio same-property net operating income ("NOI") increased by 5.3% to $47.2 million (2015 - $44.9 million) led by the Branded Hotels' NOI growth rate of 6.2% reflecting revenue growth and cost containment. The Rail Hotels' same-property NOI was up by 4.0% as a result of consistent contributions from the guaranteed revenue contracts with AHIP's railway customers.
  • EBITDA for the year was up 27.2% to $52.4 million compared to $41.2 million in the same period last year and EBITDA margin improved by 160 basis points to 30.2% (2015 - 28.6%).
  • The payout ratio for the year decreased to 83.4% (2015 - 89.2%) despite the dilution from the July 2016 and December 2016 Offerings.
  • During the year, AHIP acquired 12 properties totaling 1,170 guestrooms including Rail Hotels in Lincoln, NE and Nashville, TN and Branded Hotels including the Florida/Tennessee Portfolio and the Florida 6 Portfolio.
  • AHIP's debt-to-gross book value at December 31, 2016 decreased to 44.0% (December 31, 2015 - 49.6%) reflecting the undeployed net proceeds from the December 2016 Offering.
  • AHIP's Debt-to-EBITDA ratio decreased to 7.2x (2015 - 7.4x).
  • AHIP's weighted average stated interest rate at December 31, 2016 was 4.59% (December 31, 2015 - 4.59%) and the weighted average loan term to maturity at December 31, 2016 was 7.7 years (December 31, 2015 - 8.3 years).

SUBSEQUENT EVENTS

  • On January 6, 2017, AHIP completed the acquisition of the 305-room Embassy Suites by Hilton Dallas DFW Airport South (the "Dallas Hotel") and the 224-room Embassy Suites by Hilton Phoenix-Tempe (the "Tempe Hotel"; and together with the Dallas Hotel, the "Sunstone Embassy Suites Portfolio"). The Sunstone Embassy Suites Portfolio was acquired for an aggregate purchase price of approximately $57.6 million before customary closing and post-acquisition adjustments and excluding $5.7 million in brand required PIPs. The acquisition was funded using a combination of cash from AHIP's July 2016 bought deal offering of 10,400,000 Units at a price of Cdn$10.35 per Unit (the "July 2016 Offering") and the December 2016 Offering, the assumption of an existing commercial mortgage backed securities ("CMBS") loan of $19.0 million on the Dallas Hotel, a new CMBS loan on the Tempe Hotel of $13.5 million, and the issuance of approximately $17.4 million in new Units from treasury. AHIP issued 2,242,761 Units at a price of Cdn$10.3099, which was the 10-day volume weighted average trading price of the Units on the TSX prior to the transaction closing date. In addition, the Units are subject to a four-month hold period. The Dallas loan is interest-only until November 2019, will then be amortized over a 30-year term, has a fixed interest rate of 5.25% and is scheduled to mature in October 2024. The Tempe loan has a 10-year term, matures in January 2027 and has a fixed interest rate of 5.14%. The Tempe loan is interest only for the first three years and will then be amortized over a 30-year term. In conjunction with the completion of this transaction, the vendor repaid the approximately $10.2 million bridge loan on the Tempe Hotel.
  • On January 19, 2017, AHIP completed the acquisition of the 782-room Midwestern 3 Embassy Suites Portfolio for an aggregate purchase price of approximately $124.0 million including the expected cost of capital work on acquisition and brand required PIPs. The acquisition was funded by cash on hand from the December 2016 Offering and a new $65.0 million CMBS loan. The loan has a 10-year term and a fixed interest rate of 4.72%. The loan is interest-only for the first three years and will then be amortized over a 30-year term.?
  • On February 16, 2017 AHIP filed, and received receipt for, a final short form base shelf prospectus (the "Base Shelf Prospectus"). The Base Shelf Prospectus was filed with the securities regulatory authorities in each of the Provinces of Canada. The Base Shelf Prospectus was filed to provide AHIP with financial flexibility and efficient access to Canadian capital markets. The Base Shelf Prospectus is valid for a 25-month period during which time AHIP may, from time to time, issue limited partnership units, warrants, debt securities or subscription receipts (collectively, the "Securities"), or any combination thereof, having an aggregate offering price up to $500 million (or the equivalent in Canadian dollars or any other currencies). AHIP intends to use the net proceeds of any sales of Securities for, among other things, the direct or indirect financing of future growth opportunities, including acquisitions and capital expenditures and/or repayment of indebtedness.
  • On March 3, 2017, AHIP entered into an agreement to sell a non-core branded hotel for gross proceeds of $4.5 million. The transaction is expected to be completed on or about March 15, 2017. No material gain or loss is expected upon the completion of this transaction.

NON-IFRS MEASURES

Certain non-IFRS financial measures are included in this news release, which include NOI, EBITDA, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, interest coverage ratio, payout ratio, debt-to-gross book value and debt-to-EBITDA. These terms are not measures recognized under International Financial Reporting Standards ("IFRS") and do not have standardized meanings prescribed by IFRS. Real estate investment trusts often refer to NOI, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, and payout ratio as supplemental measures of performance and interest coverage ratio, debt-to-gross book value and debt-to-EBITDA as a supplemental measure of financial condition.

Debt-to-gross book value, NOI, EBITDA, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, interest coverage ratio, payout ratio and debt-to-EBITDA should not be construed as alternatives to measurements determined in accordance with IFRS as indicators of AHIP's performance or financial condition. AHIP's method of calculating NOI, EBITDA, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, interest coverage ratio, payout ratio, debt-to-gross book value and debt-to-EBITDA may differ from other issuers' methods and accordingly may not be comparable to measures used by other issuers. For further information, please refer to AHIP's Management's Discussion and Analysis ("MD&A") dated March 6, 2017, which is available on SEDAR at www.sedar.com and on AHIP's website at www.ahipreit.com.

ABOUT AMERICAN HOTEL INCOME PROPERTIES REIT LP

AHIP is a limited partnership formed under the Limited Partnerships Act (Ontario) to invest in hotel real estate properties located substantially in the United States and engaged primarily in the transportation-oriented, branded, select service lodging and rail crew accommodation sectors.

AHIP's long-term objectives are to: (i) generate stable and growing cash distributions from hotel properties substantially in the U.S.; (ii) enhance the value of its assets and maximize the long-term value of the hotel properties through active asset management; and (iii) expand its asset base and increase its AFFO per Unit through an accretive acquisition program, participation in strategic development opportunities and improvements to its properties through targeted value-added capital expenditure programs.



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