American Hotel Income Properties Results

American Hotel Income Properties REIT LP Reports Second Quarter 2019 Results

  • Total Portfolio Average Daily Rate ("ADR") grew 0.7% from comparable quarter
  • Excluding hotels under renovation, Premium Branded hotels achieved 1.0% growth in RevPAR,

    3.0% growth in revenue and 2.7% growth in Net Operating Income

  • Q2 2019 FFO of $0.23 per diluted unit; Q2 2019 AFFO of $0.21 per diluted unit
  • AHIP announced sale of its 45 Economy Lodging hotels, with strategy to focus solely on a growing portfolio of Premium Branded hotels

(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 six months ended June 30, 2019. 

"Our second quarter results were in line with expectations, and captured both the improved performance from hotels that were renovated in the last year, but also the impacts of the seven hotels that were undergoing renovations during this quarter," said John O'Neill, CEO.  "It generally takes several months for a hotel to reach its improved performance potential following a major renovation.  We're pleased with the results we're seeing so far.  During the second quarter, the four hotels that were under renovation in the same quarter last year collectively saw average RevPAR growth of 11.7%, supported by increases in both ADR and occupancy, and NOI growth of 20.9%.  In addition, the restaurant and bar enhancements at these hotels have helped to drive more than $480,000 of incremental revenue compared to the food and beverage revenues at these properties in Q2 last year.  We expect these properties to continue capturing a greater share of their respective markets, as guests discover the new amenities, décor and restaurant options available. Conversely, the renovation activity at seven of our hotels during Q2 2019 negatively impacted FFO per diluted unit by approximately 1.4 cents.  We're pleased that four of these properties have already completed their remodeling and are now operating as usual, with nearly brand-new guestrooms and hotel facilities."

Mr. O'Neill continued: "Just last week we announced a transformational agreement to sell the 45 hotels in our Economy Lodging portfolio to Vukota Capital Management for $215.5 million, as part of our previously discussed capital recycling strategy.  This initiative also completes our long-term objective of moving away from Economy Lodging properties in tertiary markets and towards more modern, higher-quality properties in secondary metropolitan U.S. cities.  We believe this strategy will both enhance our growth profile and provide greater opportunities to capture value-add returns.  The sale of the Economy Lodging portfolio is expected to close no later than the end of September 2019, and will provide us with the opportunity to focus solely on growing our Premium Branded hotel portfolio in the next few quarters.  We are already well underway in reviewing higher-quality hotels that we believe would be strong, complementary additions to our existing Premium Branded portfolio. I look forward to updating you on these future hotel acquisitions as they crystalize. As we intend to redeploy the net proceeds from the sale into new, income-generating investments, based on our current estimates of go-forward cash flow for the Premium Branded portfolio and the strength of our balance sheet, we expect to maintain AHIP's current monthly cash distribution of US$0.054 per unit following the completion of the transaction."

THREE MONTHS ENDED JUNE 30, 2019 FINANCIAL HIGHLIGHTS

  • Total revenues for the quarter increased 0.2% to $90.0 million (Q2 2018 – $89.9 million) primarily due to higher food and beverage revenues and new parking revenue, offset by renovation related impacts and new supply at certain properties.  
  • Total portfolio average daily rate ("ADR") increased 0.7% from the same quarter last year to $99.39. Occupancy declined 0.4 p.p. from Q2 2018, to 78.3% due mostly to seven hotels undergoing renovations during the quarter. Revenue per available room ("RevPAR") increased slightly from the same quarter last year to $77.82.
    • Total revenues for hotels not under renovation increased by approximately $1.7 million (or 2.1%) as a result of improved operating results from larger hotels that were under renovation last year. RevPAR for hotels not under renovation increased by 2.0% to $76.62 (2018 – $75.09) led by ADR increases of 1.2% to $97.20 (2018 – $96.03) and occupancy increased by 0.6 p.p. to 78.8% (2018 – 78.2%).
    • Seven properties were under renovation for portions of the second quarter: the Fairfield Inn & Suites Jacksonville, the Residence Inn Chattanooga, the Homewood Suites Allentown, the Homewood Suites Bethlehem, the Homewood Suites Dover, the Embassy Suites Phoenix Tempe and the Embassy Suites Independence (Cleveland). RevPAR at these properties saw an average decline of 13.9% due to lower occupancy as rooms were taken out of inventory for renovations. In total, over 20,000 guestroom nights were out of order during Q2 2019, compared to almost 15,000 during Q2 2018, due to renovation activity.
    • ADR for Premium Branded hotels decreased 0.8% to $116.09, due mostly to hotels under renovation. The lower rates helped to minimize occupancy declines due to renovations at affected properties during the quarter, and resulted in just a 0.2 p.p. decline in occupancy within the portfolio. As a result, RevPAR for Premium Branded Hotels declined 1.0% to $94.50 (Q2 2018 – $95.53). The STR RevPAR index, which compares the performance of AHIP owned hotels to their competitive set in each region, indicated AHIP's Premium Branded hotels generally outperformed their identified direct competition with AHIP having an average index rating of 121.9 during the quarter – with 100.0 representing a 'fair share' of the market.
    • RevPAR for the 60 Premium Branded hotels not under renovation, grew 1.0% to $95.19, while revenue increased by $1.8 million (or 3.0%).
    • RevPAR for Economy Lodging hotels increased 3.5% to $44.39 (Q2 2018 – $42.87), due primarily to a 5.0% increase in ADR to $61.65 (Q2 2018 – $58.72) as a result of increased rail crew revenue guarantees coupled with higher Wyndham-generated occupancies.
    • Net Operating Income ("NOI") for the total portfolio declined 2.3% to $32.4 million during the quarter (Q2 2018 – $33.2 million); however, NOI for hotels not under renovation increased by 1.2% to $29.8 million. For the Premium Branded portfolio, excluding hotels under renovation, NOI increased by 2.7% to $24.0 million.
  • Net income for the second quarter was $5.8 million, compared to net income of $8.9 million in Q2 2018, as a result of higher depreciation expenses and an unrealized loss on the fair value of interest rate swap contracts, partially offset by lower corporate and administrative expenses. Diluted net income per Unit for the quarter was $0.07 compared to a diluted net income per Unit of $0.11 in the same quarter of last year.
  • Funds from operations ("FFO") decreased 0.1% to $18.1 million, and adjusted funds from operations ("AFFO") decreased 2.4% to $16.6 million as a result of higher actual maintenance capital expenditures in the current period.
  • Q2 2019 Diluted FFO per Unit was unchanged from the same quarter last year, at $0.23 and Diluted AFFO per Unit was unchanged from the same quarter last year, at $0.21.

Same Property Operating Metrics:

  • For the current and comparable periods presented, AHIP had no changes to its Premium Branded portfolio, and as a result, no same property metrics were presented for the second quarter of 2019.
  • In AHIP's Economy Lodging portfolio, three hotels totaling 185 guestrooms were sold during 2018 that had no meaningful impact on total NOI. Same property RevPAR increased by 1.2% to $44.39 (Q2 2018 – $43.86) as a result of fewer occupied rail crew rooms and increased guaranteed revenues, supported by a 4.7% increase in ADR, but offset by a 2.5 p.p. decrease in occupancy compared to the same period last year.

Capital Metrics:

  • As at June 30, 2019, AHIP's debt had a weighted average remaining term of 5.9 years (Q2 2018 – 6.9 years) and a weighted average interest rate of 4.64% (Q2 2018 – 4.64%). Approximately 97% of AHIP's term loans have fixed interest rates.
  • As at June 30, 2019, AHIP had an unrestricted cash balance of $11.8 million. The Company also had a restricted cash balance of approximately $32.6 million, including approximately $13.8 million on deposit for upcoming property improvement plans.
  • AHIP's debt-to-gross book value as at June 30, 2019 was 53.9% (June 30, 2018 – 53.7%), which is within AHIP's target range of 50% to 55%.
  • AHIP paid U.S. dollar monthly distributions of $0.054 per Unit during the quarter, which is equivalent to $0.648 per Unit on an annualized basis. AHIP's business is seasonal in nature and generates lower FFO in Q1 and Q4 and higher FFO in Q2 and Q3. Therefore, it is strongly advised that investors review the payout ratios on a 12 months trailing basis. On a trailing 12-month basis, the FFO Payout Ratio at the end of Q2 2019 was 90.8% (Q2 2018 – 82.0%). Similarly, on a trailing 12-month basis, the AFFO payout ratio at the end of Q2 2019 was 99.5% (Q2 2018 – 89.9%). Following the completion of AHIP's renovation program, the Company's target annual run-rate AFFO payout ratio is expected to be approximately 85.0%.

SIX MONTHS ENDED JUNE 30, 2019 FINANCIAL HIGHLIGHTS

  • Total revenues for the first half of 2019 declined 0.2% to $170.6 million (H1 2018 – $171.0 million) compared to the first half of 2018, primarily due to greater impacts from hotels under renovation and the government shutdown in January 2019.
  • Total portfolio average daily rate ("ADR") increased 1.3% from the first half of 2018, to $98.40. Occupancy declined 0.8 p.p. from H1 2018, to 75.3% due mostly to nine hotels undergoing renovations during the first six months of 2019, compared to four hotels under renovation in the first half of 2018. Revenue per available room ("RevPAR") increased 0.2% to $74.10.
  • ADR for Premium Branded hotels of $115.20 remained relatively flat with ADR in the first half of 2018. Occupancy declined 1.5 p.p. to 77.8%, due mostly to hotels under renovation. As a result, RevPAR for Premium Branded hotels declined 1.7%, to $89.63 for H1 2019 (H1 2018 – $91.14).
  • The net income for the first half of 2019 was $5.4 million, compared to $10.2 million in H1 2018, as a result of higher depreciation expenses and an unrealized loss on the fair value of interest rate swap contracts, partially offset by lower corporate and administrative expenses. Diluted net income per Unit for H1 2019 was $0.07 compared to $0.13 in the same period last year.
  • FFO for the first six months of 2019 increased slightly to $29.5 million, and AFFO decreased 1.0% to $26.6 million due to higher actual maintenance capital expenditures. H1 2019 Diluted FFO per Unit was $0.37 (H1 2018 – $0.37) and Diluted AFFO per Unit was $0.33 (H1 2018 – $0.34).

SECOND QUARTER DEVELOPMENTS

  • On April 2, 2019, AHIP announced the purchase of land associated with its Fairfield Inn & Suites White Marsh hotel in Baltimore, Maryland.
  • On April 29, 2019, AHIP announced the appointment of Bruce Pittet as new Senior Vice President, Asset Management & Chief Operating Officer.
  • On May 8, 2019, AHIP announced the election of all eight nominated directors: W. Michael Murphy, Charles van der Lee, Minaz B. Abji, Stephen J. Evans, Richard Frank, Tamara L. Lawson, Robert F. O'Neill, and Elizabeth Walters.

SUBSEQUENT EVENTS

  • On July 15, 2019, AHIP announced the completion of $5.0 million of renovations at three hotels: the Fairfield Inn & Suites by Marriott Jacksonville (Florida), the Homewood Suites by Hilton Allentown (Pennsylvania), and the Homewood Suites by Hilton Bethlehem (Pennsylvania).
  • On July 29, 2019, AHIP announced an agreement to sell its Economy Lodging portfolio of 45 hotels for $215.5 million to Vukota Capital Management. The transaction is expected to close no later than September 30, 2019.
  • On August 1, 2019, AHIP announced the completion of $4.2 million of renovations at the Embassy Suites by Hilton Phoenix Tempe (Arizona).

SECOND QUARTER HIGHLIGHTS AND KEY PERFORMANCE INDICATORS

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

Three months

ended

June 30,

2019

Three months

ended

June 30,

2018

%

change

TOTAL PORTFOLIO INFORMATION

Number of rooms (1)

11,524

11,591

n.m.

Number of properties (1)

112

114

n.m.

Number of restaurants (1)

40

41

n.m.

Occupancy rate

78.3%

78.7%

-0.4 pp

Average daily room rate

$

99.39

$

98.66

0.7%

Revenue per available room

$

77.82

$

77.65

0.2%

Revenues

$

90,047

$

89,911

0.2%

Net operating income (NOI) (2)

$

32,390

$

33,166

-2.3%

NOI Margin %

36.0%

36.9%

-0.9 pp

Net income and comprehensive income

$

5,840

$

8,854

-34.0%

Basic and diluted net income per Unit

$

0.07

$

0.11

n.m.

EBITDA (2)

$

27,667

$

27,706

-0.1%

EBITDA Margin %

30.7%

30.8%

-0.1 pp

FUNDS FROM OPERATIONS (FFO)

Funds from operations

$

18,050

$

18,074

-0.1%

Diluted FFO per Unit (3)(4)

$

0.23

$

0.23

n.c.

FFO Payout Ratio - rolling four quarters

90.8%

82.0%

8.8 pp

ADJUSTED FUNDS FROM OPERATIONS (AFFO)

Adjusted funds from operations

$

16,649

$

17,054

-2.4%

Diluted AFFO per Unit (3)(4)

$

0.21

$

0.21

n.c.

AFFO Payout Ratio - rolling four quarters

99.5%

89.9%

9.6 pp

Distributions

$

12,677

$

12,667

0.1%

Quarterly distributions per unit

$

0.162

$

0.162

n.c.

CAPITALIZATION AND LEVERAGE

Debt-to-Gross Book Value (1)

53.9%

53.7%

0.2 pp

Debt-to-EBITDA (trailing twelve month basis)

8.2x

7.6x

n.m.

Interest Coverage Ratio

3.1x

3.1x

n.c.

Weighted average Debt face interest rate (1)

4.64%

4.64%

n.c.

Weighted average Debt term to maturity (1)

5.9 years

6.9 years

n.m.

Number of Units outstanding (1)

78,119,336

78,062,194

0.1%

Diluted weighted average number of Units outstanding (3)

78,192,415

78,247,893

-0.1%

(1)

At period end.

(2)

Not adjusted for IFRIC 21 property taxes.

(3)

Diluted weighted average number of Units calculated in accordance with IFRS included the 73,079 and 228,664 unvested Restricted

Stock Units as at June 30, 2019 and June 30, 2018, respectively

(4)

The Debentures were dilutive for FFO and AFFO for the three months ended June 30, 2019 and 2018. Therefore, Debenture finance

costs of $795 and $611 were added back to FFO and AFFO for the three months ended June 30, 2019 (three months ended June 30,

2018 - $784 and $611). 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 periods presented.

SOURCE American Hotel Income Properties REIT LP



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