American Hotel Income Properties REIT LP Reports Fourth Quarter and Annual 2018 Results

• 2018 annual revenues increased 11.5%; total portfolio RevPAR increased 2.9% from prior year
• Major renovations at six hotels substantially completed during 2018
• Q4 2018 RevPAR for Economy Lodging Hotels increased 8.4%
• Q4 2018 revenues declined 3.2% due to hotel renovation activity and strong demand in Florida during Q4 2017 related to Hurricane Irma
• Appointment of new Chief Investment Officer to help formalize a capital recycling strategy

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

VANCOUVER, March 6, 2019  American Hotel Income Properties REIT LP ("AHIP", or the "Company") (TSX: HOT.UN, TSX: HOT.U, TSX: HOT.DB.U), which has 112 select-service hotels located across the United States, announced today its financial results for the three months and year ended December 31, 2018. 

"2018 was a year of many milestones for AHIP," said John O'Neill, CEO.  "We completed the rebranding of our legacy Economy Lodging hotels to Wyndham brands, transitioned to a new third-party hotel manager – Aimbridge Hospitality, began our hotel renovation strategy – with six hotels now completed, and had several executive changes – including my appointment as CEO in October.  Since joining AHIP, my team and I have focused on crystalizing a formal capital recycling strategy, to ensure we have the right assets for our long-term growth.  In addition, we are continuing to execute on our hotel renovation program, deploying another $25 million of reserve capital towards these important projects in 2019.  I'm pleased to say this will better position another eleven hotels amongst their competitive sets, and will also enhance our returns by putting this pre-funded reserve cash to work.  These activities, coupled with ongoing collaboration with Aimbridge to improve the efficiency of our hotel operations and technology, make us very excited about the year ahead." 

"During the seasonally weaker fourth quarter we continued with renovations at four hotel properties – including two of our largest hotels.  The temporary impact of these renovations and the associated guestroom displacement reduced fourth quarter AFFO by approximately one cent per unit," continued Mr. O'Neill.  "As anticipated and previously discussed last quarter, our 2018 AFFO payout ratio was just under 100% due to renovation activity; however, we expect it will improve during 2019 as fewer hotel rooms will be affected during renovations, and recently updated hotels begin making stronger contributions to our performance."

THREE MONTHS ENDED DECEMBER 31, 2018 FINANCIAL HIGHLIGHTS

• Total revenues for the quarter decreased 3.2% to $79.6 million (Q4 2017 - $82.2 million) primarily due to displacement from renovations at four hotels during the quarter, including two large Embassy Suites hotels (the 227-room Embassy Suites Cincinnati and the 284-room Embassy Suites Columbus), as well as lower revenues from Florida as a result of heightened demand last year from Hurricane Irma.  Hotel renovations are estimated to have negatively impacted revenue by approximately $1.5 million, while revenues from Florida declined by approximately $1.4 million.
• The net loss for the seasonally weaker fourth quarter was $6.1 million, compared to a net loss of $5.6 million in Q4 2017.  Diluted net loss per Unit for the quarter was $0.08 compared to a diluted net loss per Unit of $0.07 in the same quarter of last year.
• Total portfolio revenue per available room ("RevPAR") declined 1.2% from the same quarter last year, as a result of a 0.8% decrease in average daily rate ("ADR") and a 0.4% decrease in occupancy rate.
• RevPAR for Premium Branded Hotels was affected by hotel renovations during the fourth quarter, and as a result, declined 4.1% to $80.83 (Q4 2017 - $84.31) with occupancy down 4.3% and ADR marginally lower. Four properties were under renovation during the quarter, including two of AHIP's larger Embassy Suites hotels.  RevPAR at these hotels declined between 4.1% and 26.0% as these hotels lowered rates to maintain market share during renovation activity. Excluding hotels under renovation, RevPAR for Premium Branded hotels declined 2.7% to $81.68, as ADR increased 0.4% but occupancy declined 3.1% due mostly to comparisons to the stronger Hurricane-related demand in Florida during the fourth quarter last year.  The STR RevPAR index, which compares the performance of AHIP owned hotels to their competitive set in each region, indicates AHIP's Premium Branded hotels generally outperformed their identified direct competition with AHIP having an average index rating of 121.5 during the quarter – with 100.0 representing a 'fair share' of the market.
• RevPAR for Economy Lodging Hotels increased 8.4% to $42.60 (Q4 2017 - $39.30), due to an 8.1% increase in occupancy to 72.1% (Q4 2017 – 66.7%), due to higher rail crew and Wyndham-generated occupancies. This represents a healthy advance towards an inflection point when rail crew occupancies will eventually exceed their current contract guarantees, and should result in higher revenues. 
• Funds from operations ("FFO") decreased 25.0% to $9.9 million, and adjusted funds from operations ("AFFO") decreased 23.1% to $9.2 million primarily as a result of lower NOI from hotels under renovation, and weaker comparative results from Florida, but also due to a $0.8 million dollar increase in property tax expense related to 2017 hotel acquisitions in Ohio and Maryland.
• Q4 2018 Diluted FFO per Unit was $0.13 (Q4 2017 – $0.17) and Diluted AFFO per Unit was $0.12 (Q4 2017 - $0.15).  

Same-Property Metrics:

• Same-property metrics represent the performance of only 85 hotels (or 66.6% of guestrooms) of AHIP's total hotel portfolio during Q4 2018, meaning 27 hotel properties were excluded in total portfolio same-property metrics as they were not owned during both full comparable periods or were under renovation.  Similarly, only 43 hotels (or 53.2% of guestrooms) of AHIP's Premium Branded Hotels were included in AHIP's Premium Branded same-property hotel metrics.
• Total portfolio same-property revenues for the fourth quarter decreased 1.8% to $45.3 million (Q4 2017 - $46.1 million).
• Same-property RevPAR for Premium Branded Hotels decreased 4.3% from Q4 last year to $73.21, as a result of a 4.6% decrease occupancy – largely related to non-recurring hurricane related demand in the Florida region last year and RevPAR declines in the Oklahoma region.  This was partially offset by a 0.3% increase in ADR. Positive RevPAR growth was experienced in North Carolina, New Jersey, Tennessee and Virginia with RevPAR growth rates of 12.3%, 5.0%, 4.9% and 3.2%, respectively. Excluding Florida and the Oklahoma region, total same property RevPAR for AHIP's Premium Branded Hotels grew 3.5%.
• Same-property RevPAR for Economy Lodging Hotels increased 4.1% relative to Q4 2017 to $42.55, driven by a 4.2% increase in occupancy and partially offset by a 0.1% decrease in ADR primarily due to fewer rooms sold to transient guests as a result of increasing rail crew utilization.
• Total portfolio same-property NOI decreased 8.6% to $14.7 million (Q4 2017 - $16.0 million) as a result of lower revenues in Florida coupled with higher labor costs and property taxes.
• As at December 31, 2018, AHIP's debt had a weighted average remaining term of 6.4 years (Q4 2017 – 7.6 years) and a weighted average interest rate of 4.65% (Q4 2017 – 4.61%).  Approximately 97% of AHIP's term loans have fixed interest rates.
• As at December 31, 2018, AHIP had an unrestricted cash balance of $16.6 million and $30.4 million available through revolving credit facilities.  The Company also had a restricted cash balance of $36.5 million, including $20.6 million on deposit for upcoming property improvement plans ("PIPs").
• AHIP's debt-to-gross book value as at December 31, 2018 was 53.6% (December 31, 2017 - 53.9%), 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 higher payout ratios in Q1 and Q4 and lower payout ratios in Q2 and Q3.  Therefore, it is strongly advised that investors review the payout ratio on a 12 months trailing basis.  On a full year basis, the AFFO Payout Ratio for 2018 was 99.7%, in line with management's guidance for the year given the temporary impacts of hotel renovation activity and related guestroom displacement.  For the seasonally weaker Q4 2018, AHIP's AFFO Payout Ratio was 137.2%.  Following the completion of AHIP's renovation program, the Company's target annual run-rate payout ratio is approximately 85.0%.

YEAR ENDED DECEMBER 31, 2018 FINANCIAL HIGHLIGHTS

• 2018 annual revenues increased 11.5% to $338.6 million (2017 - $303.7 million) primarily due to the acquisition of new hotels in June 2017 that had higher occupancy and higher ADR. 
• Net income for 2018 was $8.4 million, compared to net income of $89,000 in the comparable period last year.  Diluted net income per Unit was $0.11 compared to $0.00 last year.
• Total portfolio RevPAR increased 2.9% in 2018 to $73.29 (2017 - $71.20), led by ADR increases of 1.2% and occupancy increases of 1.7%.
• Premium Branded hotel RevPAR decreased 0.8% in 2018 to $88.71 (2017 - $89.47), with occupancy decreasing 1.4% and ADR increasing 0.6%.  Occupancy declines were largely related to hotel renovations.
• Economy Lodging hotel RevPAR increased 6.6% to $42.81 during 2018 (2017 – $40.16), with occupancy increasing 7.4% and ADR decreasing 0.7%.  Occupancy increases were due to higher transient guests from the Wyndham rebranding of these hotels, as well as higher rail crew contract utilization.
• Total portfolio same-property revenues for 2018 were $190.6 million, in line with revenues in 2017.
• Total portfolio same-property RevPAR increased 0.1% to $62.33 (2017 – $62.27), with occupancy increasing 0.4% and ADR decreasing 0.3%.
• FFO for 2018 decreased 5.0% to $55.6 million (2017 – $58.6 million), while AFFO deceased 2.4% to $51.5 million (2017 – $52.8 million).
• For 2018, Diluted FFO per Unit was $0.70 (2017 – $0.82) and Diluted AFFO per Unit was $0.65 (2017 – $0.76).

FOURTH QUARTER DEVELOPMENTS

• On October 1, 2018, John O'Neill joined AHIP as Chief Executive Officer, following the retirement of AHIP's former CEO.
• On November 1, 2018, AHIP announced the completion of $2.3 million of renovations at its 227-room Embassy Suites Cincinnati hotel (located across the river from downtown Cincinnati, in Covington, Kentucky).
• From the time of his appointment as CEO on October 1, 2018 until the end of the fourth quarter, John O'Neill acquired 479,400 additional Units in the Company, increasing the number of Units he owns and has control over to 1.3 million units.  In addition, other AHIP insiders acquired 658,688 units and $149,200 worth of Debentures through open market purchases during the fourth quarter.

SUBSEQUENT EVENTS

• On January 16, 2019, AHIP announced the completion of $3.0 million of renovations at its 284-room Embassy Suites Columbus hotel (in Dublin, Ohio).
• On January 28, 2019, AHIP announced the resignation of Ian McAuley, President.
• On February 1, 2019, AHIP announced that it had completed $4.2 million of renovations at its 100-room Staybridge Suites Tampa East hotel (in Tampa, Florida) and its 131-room Residence Inn Baltimore White Marsh hotel (in Baltimore, Maryland).
• On February 11, 2019, AHIP announced the appointment of Chris Cameron as its new Chief Investment Officer. 
• The Company is pleased to confirm that for 2018, based on AHIP's calculation of taxable income, 68.01% of AHIP's distributions were considered return of capital and 31.99% were considered taxable.  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.

The information in this news release should be read in conjunction with AHIP's audited consolidated financial statements and management's discussion and analysis ("MD&A") for the three months and year ended December 31, 2018, which are available on AHIP's website at www.ahipreit.com and on SEDAR at www.sedar.com.

Q4 2018 FINANCIAL RESULTS CONFERENCE CALL

Management will host a conference call at 5:30 p.m. (Eastern), 2:30 p.m. (Pacific) on Wednesday, March 6, 2019 to review the financial results for the three months and year ended December 31, 2018.

To participate in this conference call, please dial one of the following numbers at least five minutes prior to the commencement of the call and ask to join the American Hotel Income Properties' Q4 2018 Analyst Call.

Dial in numbers:	North America Toll free:	1-877-291-4570
	International or local Toronto:	1-647-788-4919

The conference call will also be webcast live (in listen-only mode).   The link to the webcast can be found on the Events tab of the following webpage:  https://www.ahipreit.com/news-and-events/

CONFERENCE CALL REPLAY

A replay of the conference call will be available by dialing one of the following replay numbers. The replay will be available after 5:30 pm Pacific time / 8:30 pm Eastern time on March 6, 2019 until April 4, 2019. The webcast recording of this conference call will also be available at www.ahipreit.com on the Events and Presentation page.

Please enter replay PIN number 8399076 followed by the # key.

Replay dial in numbers:	North America Toll free:	1-800-585-8367
	International or local Toronto:	1-416-621-4642

NON-IFRS MEASURES

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

Debt-to-gross book value, NOI, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, and AFFO Payout Ratio 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, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, AFFO Payout Ratio and debt-to-gross book value may differ from other issuers' methods and accordingly may not be comparable to measures used by other issuers. For further information, including reconciliations of certain of these non-IFRS financial measures to the closest comparable IFRS measure, please refer to AHIP's MD&A dated March 5, 2019, which is available on SEDAR at www.sedar.com and on AHIP's website at www.ahipreit.com.

FORWARD-LOOKING INFORMATION

Certain statements in this news release may constitute "forward-looking information" within the meaning of applicable securities laws (also known as forward-looking statements). Forward looking information involves known and unknown risks, uncertainties and other factors, and it may cause actual results, performance or achievements or industry results, to be materially different from any future results, performance or achievements or industry results expressed or implied by such forward-looking information. Forward-looking information generally can be identified by the use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "feel", "intend", "may", "plan", "predict", "project", "subject to", "will", "would", and similar terms and phrases, including references to assumptions. Some of the specific forward-looking statements in this news release include, but are not limited to, statements with respect to: the formulization of AHIP's capital recycling strategy in order to ensure AHIP has the right assets for long-term growth; the continued execution of AHIP's renovation program in 2019 and the expected costs and benefits thereof, including better positioning the renovated hotels within their competitive sets and enhanced returns through the deployment of pre-funded cash reserves; ongoing collaboration with Aimbridge to improve the efficiency of AHIP's hotel operations and technology; AHIP's expectation that the AFFO Payout Ratio will be lower in 2019 than in 2018; AHIP's target run-rate AFFO Payout Ratio; and AHIP's objective to build on its proven track record of successful investment, deliver reliable and consistent U.S. dollar denominated distributions to unitholders, and generate value through the continued growth of its diversified hotel portfolio.

Forward-looking information is based on a number of key expectations and assumptions made by AHIP, including, without limitation: a reasonably stable North American economy and stock market; the continued strength of the U.S. lodging industry; AHIP will be able to successfully integrate properties acquired into its portfolio; capital markets will provide AHIP with readily available access to equity and/or debt financing on terms acceptable to AHIP; the accuracy of third party reports with respect to lodging industry data; the value of the U.S. dollar; renovations will be completed in accordance with the timing currently expected and on budget; AHIP will realize the expected benefits of such renovations; renovations carried out in 2019 will be less disruptive than renovations carried out in 2018; AHIP will be successful in carrying out its capital recycling strategy and such strategy will have its intended benefits; and the AFFO Payout Ratio will be lower in 2019 than in 2018. Although the forward-looking information contained in this news release is based on what AHIP's management believes to be reasonable assumptions, AHIP cannot assure investors that actual results will be consistent with such information.

Forward-looking statements are provided for the purpose of presenting information about management's current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other purposes. Forward-looking statements involve significant risks and uncertainties and should not be read as guarantees of future performance or results as actual results may differ materially from those expressed or implied in such forward-looking statements. Those risks and uncertainties include, among other things, risks related to: AHIP may not realize the expected benefits of renovations completed in 2018 and to be completed 2019 and that such renovations may not be completed in accordance with expected timing or budgets; renovations completed in 2019 may be more disruptive than expected; AHIP's capital recycling strategy may not be successful and AHIP may not be able to accretively redeploy any proceeds generated therefrom; the AFFO Payout Ratio may not be lower in 2019 than in 2018; distributions are not guaranteed and may be reduced or suspended at any time at the discretion of AHIP's board of directors; general economic conditions; future growth potential; Unit prices; liquidity; tax risk; tax laws currently in effect remaining unchanged; ability to access capital markets; competition for real property investments; environmental matters; the value of the U.S. dollar; and changes in legislation or regulations. Management believes that the expectations reflected in forward-looking statements are based upon reasonable assumptions and information currently available; however, management can give no assurance that actual results will be consistent with these forward-looking statements. Additional information about risks and uncertainties is contained in AHIP's MD&A dated March 5, 2019 and annual information form for the year ended December 31, 2017, copies of which are available on SEDAR at www.sedar.com.

The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement. Forward-looking information reflects management's current beliefs and is based on information currently available to AHIP. The forward-looking information is made as of the date of this news release and AHIP assumes no obligation to update or revise such information to reflect new events or circumstances, except as may be required by applicable law.

THIRD PARTY INFORMATION

This news release includes market information and industry data from independent industry publications, market research and analyst reports, surveys and other publicly available sources. Although AHIP management believes these sources to be generally reliable, market and industry data is subject to interpretation and cannot be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey. Accordingly, the accuracy and completeness of this data are not guaranteed. AHIP has not independently verified any of the data from third party sources referred to in this news release nor ascertained the underlying assumptions relied upon by such sources.

ADDITIONAL INFORMATION

Additional information relating to AHIP, including AHIP's audited consolidated financial statements for the year ended December 31, 2018, AHIP's MD&A dated March 5, 2019, and other public filings are available on SEDAR at www.sedar.com.

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 located substantially in the United States. AHIP currently has 112 hotels, and is engaged in growing its portfolio of premium branded, select-service hotels in larger secondary markets that have diverse and stable demand. AHIP hotels operate under brands affiliated with Marriott, Hilton, IHG, Wyndham and Choice Hotels through license agreements.  The company's long-term objectives are to build on its proven track record of successful investment, deliver reliable and consistent U.S. dollar denominated distributions to unitholders, and generate value through the continued growth of its diversified hotel portfolio.  More information is available at www.ahipreit.com.

FOURTH QUARTER HIGHLIGHTS AND KEY PERFORMANCE INDICATORS

(US$000s unless noted and except Units and per Unit amounts)		Three months ended December 31, 2018		Three months ended December 31, 2017		Twelve months ended December 31, 2018		Twelve months  ended December 31, 2017
Number of rooms^(1)		11,523		11,708		11,523		11,708
Number of properties^(1)		112		115		112		115
Number of restaurants^(1)		40		41		40		41
Occupancy rate		72.5%		72.8%		76.0%		74.7%
Average daily room rate	$	93.96	$	94.74	$	96.43	$	95.32
Revenue per available room	$	68.12	$	68.97	$	73.29	$	71.20
Revenues	$	79,555	$	82,222	$	338,561	$	303,710
Net operating income (NOI) ^(4)	$	23,948	$	27,396	$	113,613	$	105,752
NOI Margin %		30.1%		33.3%		33.6%		34.8%
Net income (loss) and comprehensive  income (loss)	$	(6,109)	$	(5,613)	$	8,353	$	89
Diluted net income (loss) per Unit	$	(0.08)	$	(0.07)	$	0.11	$	0.00
Funds from operations (FFO)	$	9,866	$	13,150	$	55,648	$	58,597
Diluted FFO per Unit ^(2)(3)	$	0.13	$	0.17	$	0.70	$	0.82
Adjusted funds from operations (AFFO)	$	9,220	$	11,988	$	51,483	$	52,750
Diluted AFFO per Unit ^(2)(3)	$	0.12	$	0.15	$	0.65	$	0.76
Distributions declared	$	12,646	$	12,732	$	50,623	$	45,491
AFFO Payout Ratio		137.2%		106.2%		99.7%		86.2%
Debt-to-Gross Book Value^(1)		53.6%		53.9%		53.6%		53.9%
Debt-to-EBITDA (trailing twelve month basis)		8.0x		8.4x		8.0x		8.4x
Interest Coverage Ratio		2.2x		2.5x		2.6x		3.1x
Weighted average Debt face interest rate^(1)		4.65%		4.61%		4.65%		4.61%
Weighted average Debt term to maturity^(1)		6.4 years		7.6 years		6.4 years		7.6 years
Number of Units outstanding^(1)		78,070,805		78,047,806		78,070,805		78,047,806
Diluted weighted average number of Units     outstanding – IFRS ^(3)		78,236,880		78,195,537		78,202,939		69,686,567
Same property occupancy rate		72.1%		72.6%		74.6%		74.3%
Same property average daily room rate	$	81.62	$	82.39	$	83.55	$	83.81
Same property RevPAR	$	58.85	$	59.82	$	62.33	$	62.27
Same property revenues	$	45,294	$	46,130	$	190,566	$	190,636
Same property net operating income ^(4)	$	14,654	$	16,029	$	66,929	$	67,468
Same property NOI Margin %		32.4%		34.7%		35.1%		35.4%

(1)	At period end.
(2)	The Debentures were not dilutive for FFO and AFFO for the three months ended December 31, 2018 and dilutive for the year ended December 31, 2018. Therefore, Debenture finance costs of $3,146 and $2,444 were added back to FFO and AFFO for the year ended December 31, 2018, respectively. The Debentures were dilutive for the three months and year ended December 31, 2017. Therefore, Debenture finance costs of $760 and $1,698, respectively, were added back to FFO; and $611 and $1,365, respectively, were added back to AFFO. 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.
(3)	Diluted weighted average number of Units calculated in accordance with IFRS included the 173,001 and 159,307 unvested Restricted Stock Units as at December 31, 2018 and December 31, 2017, respectively.
(4)	Not adjusted for IFRIC 21 property taxes.

SOURCE American Hotel Income Properties REIT LP

Jamie Kokoska, Director, Investor Relations, Phone: [phone], Email: [email protected]

Related Links

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