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)
VANCOUVER, Aug. 8, 2019 /CNW/ - American Hotel Income Properties REIT LP ("AHIP", or the "Company") (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).
The information in this news release should be read in conjunction with AHIP's unaudited condensed consolidated interim financial statements and management's discussion and analysis ("MD&A") for the three and six months ended June 30, 2019, which are available on AHIP's website at www.ahipreit.com and on SEDAR at www.sedar.com.
Q2 2019 FINANCIAL RESULTS CONFERENCE CALL
Management will host a conference call at 5:30 p.m. (Eastern), 2:30 p.m. (Pacific) on Thursday, August 8, 2019 to review the financial results for the three and six months ended June 30, 2019.
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' Q2 2019 Conference 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 August 8, 2019 until September 6, 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 2762686 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, NOI Margin, EBITDA, EBITDA Margin, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, FFO Payout Ratio, AFFO Payout Ratio, debt-to-gross book value, debt-to-EBITDA and Interest Coverage Ratio. 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, NOI Margin, EBITDA, EBITDA Margin, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, FFO Payout Ratio, AFFO Payout Ratio as supplemental measures of performance and debt-to-gross book value, debt-to-EBITDA and Interest Coverage Ratio as a supplemental measure of financial condition.
NOI, NOI Margin, EBITDA, EBITDA Margin, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, FFO Payout Ratio, AFFO Payout Ratio, debt-to-gross book value, debt-to-EBITDA and Interest Coverage 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, NOI Margin, EBITDA, EBITDA Margin, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, FFO Payout Ratio, AFFO Payout Ratio, debt-to-gross book value, debt-to-EBITDA and Interest Coverage Ratio 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 August 7, 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, which 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: AHIP's expectation that renovated properties will continue to capture a greater share of their respective markets; the sale of the Economy Lodging portfolio, and the expected timing thereof; the expected strategic impacts of the sale of the Economy Lodging portfolio, including enhancing AHIP's growth profile and providing greater opportunities to capture value-add returns; the expectation that the sale of the Economy Lodging portfolio will provide AHIP with the opportunity to focus solely on growing its Premium Branded hotel portfolio in the next few quarters; AHIP's intention to provide an update on future hotel acquisitions as they crystalize; AHIP's expectation that it will maintain its currently monthly distribution following completion of the sale of the Economy Lodging portfolio given AHIP intends to redeploy the net proceeds from the sale into new, income-generating investments; AHIP's target run-rate AFFO Payout Ratio following the completion of its renovation program; 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; AHIP will complete the sale of the Economy Lodging portfolio on the terms and in accordance with the timing currently contemplated and will be successful in redeploying the net proceeds therefrom on an accretive basis; AHIP will realize the intended benefits and strategic outcomes of the sale of the Economy Lodging portfolio; there will be no adverse changes to taxation laws applicable to AHIP's distributions. 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 to be completed in 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; the sale of the Economy Lodging portfolio may not be completed in accordance with the terms or timing currently contemplated, or at all; AHIP may not be successful in redeploying the net proceeds from the sale of the Economy Lodging portfolio in a manner that is accretive to its securityholders; AHIP may not realize the intended benefits and strategic outcomes of the sale of the Economy Lodging portfolio; AHIP's capital recycling strategy may not be successful and AHIP may not be able to accretively redeploy any proceeds generated therefrom; AHIP may not achieve its target annual run-rate AFFO payout ratio; 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 August 7, 2019 and annual information form for the year ended December 31, 2018, 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 unaudited condensed consolidated interim financial statements for the three and six months ended June 30, 2019, AHIP's MD&A dated August 7, 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 in the United States. AHIP 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.
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 |
% |
||
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 |
(4) |
The Debentures were dilutive for FFO and AFFO for the three months ended June 30, 2019 and 2018. Therefore, Debenture finance |
SOURCE American Hotel Income Properties REIT LP
Jamie Kokoska, Director, Investor Relations, Phone: 604-670-6242, Email: [email protected]
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