American Hotel Income Properties REIT LP Reports Third Quarter 2018 Results
- Renovation activity at three larger Premium Branded hotels temporarily impacting performance
- Same-Property NOI grew 1.2% from Q3 2017; Same-Property NOI margin increased to 35.3%
- Economy Lodging segment RevPAR increased 6.3%
(All numbers are in U.S. dollars unless otherwise indicated)
VANCOUVER, Nov. 7, 2018 /CNW/ - American Hotel Income Properties REIT LP ("AHIP", the "company") (TSX: HOT.UN, TSX: HOT.U, TSX: HOT.DB.U), which has 113 select-service hotels located across the United States, announced today its financial results for the three months ended September 30, 2018.
"During the third quarter we saw improvement in our Economy Lodging segment, which was bolstered by both increased rail crew and commercial guest occupancy. Similarly, we saw positive same-property NOI growth primarily due to cost containment initiatives," said John O'Neill, CEO. "As announced in prior quarters, AHIP is proactively investing in upgrading several of our largest hotels in an effort to better position these properties over the long-term. This includes three Embassy Suites properties we own, located in Dallas, Cincinnati and Columbus, where we have invested, or allocated, approximately $10.4 million in pre-funded capital in 2018. This significant renovation activity resulted in temporary guestroom displacement and lower room rates while construction was underway. We believe these renovations will drive better operating performance at these hotels during 2019 and reduce our AFFO dilution, as this undeployed capital has been on our balance sheet since 2017."
Mr. O'Neill continued: "Our priorities for the next several quarters are on efficiently deploying our reserve capital towards additional hotel upgrades to deliver better performance, evaluating our portfolio of properties to ensure we have the right assortment of hotels for continued long-term cash flow growth, and driving operating efficiencies through our new external hotel manager."
THREE MONTHS ENDED SEPTEMBER 30, 2018 FINANCIAL HIGHLIGHTS
- Total revenues for the quarter decreased 2.5% to $88.0 million (Q3 2017 - $90.3 million) primarily due to significant displacement caused by renovations at the three Embassy Suites hotels, which negatively impacted revenue by approximately $2.2 million. Revenues in Florida declined by approximately $0.7 million as a result of the demand growth last year caused by Hurricane Irma.
- Net income for the third quarter was $4.2 million, compared to net income of $8.8 million in Q3 2017, as a result of lower hotel income. Diluted net income per Unit for the quarter was $0.05 compared to $0.11 in the same quarter of last year.
- Total portfolio revenue per available room ("RevPAR") declined 1.6% from the same quarter last year, as a result of a 1.9% decrease in average daily rate ("ADR") and a 0.3% increase in occupancy rate, reflecting the impact of lower room rates at hotels that were undergoing significant renovations during the quarter.
- RevPAR for Premium Branded Hotels was affected by hotel renovations during the third quarter, and as a result, declined 3.5% to $91.71 (Q3 2017 - $95.01). ADR for Premium Branded hotels declined 0.5% to $116.38 (Q3 2017 - $117.01), while occupancy declined by 240 basis points to 78.8% (Q3 2017 - 81.2%). The three large Embassy Suites under renovation during the quarter experienced RevPAR declines between 11.2% and 21.1% as hotels lowered rates to maintain market share during renovation activity. Excluding hotels under renovation, RevPAR for Premium Branded hotels declined 1.7% to $90.28, due mostly to comparisons to the stronger Hurricane-related demand in Florida during the third quarter last year. The STR RevPAR index, which compares the performance of AHIP owned hotels to their competitive set in each region, indicates AHIP hotels generally outperform their identified direct competition with AHIP having an average index rating of 116.6 during the quarter – with 100.0 representing a 'fair share' of the market.
- RevPAR for Economy Lodging Hotels increased 6.3% to $45.00 (Q3 2017 - $42.34), due to a 7.3% increase in occupancy, to 76.8% (Q3 2017 - 71.6%), related to increased rail crew and transient (non-rail crew) guest occupancy reflecting higher rail car volumes as the U.S. economy continues to grow. AHIP's strategy to rebrand Economy Lodging hotels to Wyndham brands continues to support transient guest revenue growth.
- Net operating income excluding IFRIC 21 adjustments ("NOI") decreased 4.3% to $30.8 million, with NOI from Premium Branded hotels declining 7.7% to $24.0 million and NOI from Economy Lodging hotels growing 9.7% to $6.9 million. The impacts from hotel renovations and hurricane related activity in Q3 last year resulted in lower NOI in the Premium Branded portfolio relative to last year. Stronger occupancy and lower property taxes and insurance premiums contributed to the growth in NOI in the Economy Lodging portfolio.
- Funds from operations ("FFO") decreased 15.3% to $16.4 million, and adjusted funds from operations ("AFFO") decreased 14.6% to $15.0 million primarily as a result of lower NOI from hotels under renovation, weaker comparative results from Florida and a non-recurring foreign exchange gain of approximately $0.5 million realized in Q3 2017. Q3 2018 Diluted FFO per Unit was $0.21, and Diluted AFFO per Unit was $0.19.
- The AFFO payout ratio for Q3 2018 was 84.6% (Q3 2017 - 72.3%) reflective of the lower income during the quarter. The hotel business is seasonal in nature, and this can cause quarterly fluctuations in revenues, expenses and cash flows. Renovation activity at several of AHIP's largest hotels has taken longer than originally anticipated, primarily due to permitting delays and a tight labour market. This longer renovation timeline has resulted in more displacement and discounted room rates during the third quarter than expected. AHIP currently expects its AFFO payout ratio for 2018 to be close to 100%, and expects the payout ratio will improve in 2019 primarily due to positive contributions from the company's recently renovated properties.
Same-Property Metrics:
- Same-property metrics represent the performance of only 87 hotels (or 77.0%) of AHIP's total hotel portfolio during Q3 2018, meaning 26 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 44 hotels (or 65.7%) of AHIP's Premium Branded Hotels were included in AHIP's Premium Branded same-property hotel metrics.
- Total portfolio same-property revenues for the third quarter decreased 1.0% to $50.0 million (Q3 2017 - $50.5 million).
- Same-property RevPAR for Premium Branded Hotels decreased 2.4% from Q3 last year to $78.90, as a result of a 3.0% decrease occupancy – largely related to difficult comps in the Florida region due to Hurricane Irma. This was partially offset by a 0.6% increase in ADR. Excluding Florida, same property RevPAR for Premium Branded Hotels declined 0.5% with North Carolina RevPAR increasing by 6.9% offset by supply related RevPAR declines in Virginia and Oklahoma City.
- Same-property RevPAR for Economy Lodging Hotels increased 1.7% relative to Q3 2017 to $44.80, driven by a 2.8% increase in occupancy and partially offset by a 1.1% 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 increased 1.2% to $17.7 million (Q3 2017 - $17.4 million), primarily due to lower property taxes and insurance premiums and continued efforts to contain operating costs.
- Total portfolio same-property NOI margin for the second quarter improved 80 basis points to 35.3% from 34.5% in Q3 last year.
- As at September 30, 2018, AHIP's debt had a weighted average remaining term of 6.7 years (Q3 2017 - 7.8 years) and a weighted average interest rate of 4.64% (Q3 2017 - 4.61%). Approximately 97% of AHIP's term loans have fixed interest rates.
- As at September 30, 2018, AHIP had an unrestricted cash balance of $14.0 million and $39.6 million available through revolving credit facilities, of which $8.7 million was utilized. The company also had a restricted cash balance of $44.5 million, including $25.4 million on deposit for upcoming property improvement plans ("PIPs").
- AHIP's debt-to-gross book value as at September 30, 2018 was 53.4% (September 30, 2017 - 53.7%), which is within AHIP's target range of 50% to 55%.
NINE MONTHS ENDED SEPTEMBER 30, 2018 FINANCIAL HIGHLIGHTS
- Total revenues for the first nine months of 2018 increased 16.9% to $259.0 million (2017 - $221.5 million) primarily due to the acquisition of new hotels in June 2017 that had higher occupancy and higher ADR.
- Net income for the first nine months of 2018 was $14.5 million, compared to net income of $5.7 million in the comparable period last year. Diluted net income per Unit was $0.18 compared to $0.09 in the same period last year.
- Total portfolio RevPAR grew 3.6% from the same period last year, led by ADR increases of 1.7% and occupancy increases of 1.9% from the new hotel acquisitions in 2017.
- FFO for the first nine months of 2018 increased 0.8% to $45.8 million (2017 - $45.4 million), while AFFO increased 2.4% to $41.7 million (2017 - $40.7 million).
- For the first nine months of 2018, Diluted FFO per Unit was $0.57 (2017 - $0.68) and Diluted AFFO per Unit was $0.52 (2017 - $0.61).
THIRD QUARTER DEVELOPMENTS
- On July 31, 2018, AHIP announced it had completed approximately $1 million in renovations at its Hilton Garden Inn White Marsh hotel in Baltimore, Maryland.
- On August 9, 2018, AHIP announced that it had completed approximately $5.2 million of renovations at its Embassy Suites DFW South, near the Dallas/Fort Worth airport in Irving, Texas.
- On September 12, 2018, AHIP announced that John O'Neill was appointed CEO, beginning October 1, 2018. Since his appointment, John has purchased an additional 154,400 units in the market, increasing the total number of units he owns or shares control over to 971,465 units, representing 1.24% of the company's outstanding float. In addition, John has also requested to receive 100% of his compensation in units, to continue growing his ownership in AHIP and strongly align his interests with other unitholders.
SUBSEQUENT EVENTS
- On November 1, 2018, AHIP announced that it had completed $2.3 million of guestroom and atrium lobby renovations at its Embassy Suites Cincinnati hotel, located across the river from downtown Cincinnati in Covington, Kentucky.
The information in this news release should be read in conjunction with AHIP's unaudited condensed interim consolidated financial statements and management's discussion and analysis ("MD&A") for the three and nine months ended September 30, 2018, which are available on AHIP's website at www.ahipreit.com and on SEDAR at www.sedar.com.
Q3 2018 FINANCIAL RESULTS CONFERENCE CALL
Management will host a conference call at 5:30 p.m. (Eastern), 2:30 p.m. (Pacific) on Wednesday, November 7, 2018 to review the financial results for the three months ended September 30, 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' Q3 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. You will be able to dial in and listen to the conference call replay two hours after the call end time, and the replay will be available until December 7, 2018. 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 6393087 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 November 6, 2018, 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: management's expectation that it will see the impact of AHIP's renovations, branding strategy and new hotel manager in the next several quarters; the expected cost and timing of PIP renovations to be completed in 2018 and the expected impacts thereof on the applicable hotels including on occupancy levels and revenues and AHIP's operating results; AHIP management's expectation that the seasonal nature of the hotel business will cause quarterly fluctuations in revenues, expenses and cash flows; AHIP's objective to build on its proven track record of successful investment, deliver reliable and consistent U.S. dollar denominated distributions to unitholders while maintaining a conservative annual AFFO Payout Ratio, and generate value through the continued growth of its diversified hotel portfolio; AHIP's expectation that the annual AFFO payout ratio will be close to 100% for 2018 on a full year basis; and AHIP's expectation that the AFFO payout ratio will improve in 2019.
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; the rebranding of AHIP's Economy Lodging Hotels achieving its intended results; the cost, timing and impact of PIP renovations for 2018 being consistent with management's expectations and AHIP will realize the expected benefits of such renovations; and AHIP will realize the expected benefits of Aimbridge assuming management responsibilities for AHIP's hotels. 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 not realizing any or all of the expected benefits of Aimbridge assuming management responsibilities for AHIP's hotels; AHIP not realizing the expected benefits of the rebranding of its Economy Lodging Hotels under Wyndham brands; AHIP not realizing the expected benefits of renovations to be completed in 2018 and that such renovations are not completed in accordance with expected timing or budgets; 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 November 6, 2018 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.
ADDITIONAL INFORMATION
Additional information relating to AHIP, including AHIP's unaudited condensed consolidated interim financial statements for the three and nine months ended September 30, 2018 and 2017, AHIP's MD&A dated November 6, 2018, 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 113 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.
THIRD QUARTER HIGHLIGHTS AND KEY PERFORMANCE INDICATORS
(US$000s unless noted and except Units |
Three months September 30, |
Three months September 30, |
Nine months ended September 30, |
Nine months ended September 30, |
||||
Number of rooms (1) |
11,549 |
11,570 |
11,549 |
11,570 |
||||
Number of properties (1) |
113 |
113 |
113 |
113 |
||||
Number of restaurants (1) |
40 |
41 |
40 |
41 |
||||
Occupancy rate |
78.1% |
77.9% |
76.8% |
75.4% |
||||
Average daily room rate |
$ |
97.28 |
$ |
99.16 |
$ |
97.21 |
$ |
95.54 |
Revenue per available room |
$ |
75.98 |
$ |
77.25 |
$ |
74.66 |
$ |
72.04 |
Revenues |
$ |
88,029 |
$ |
90,311 |
$ |
259,006 |
$ |
221,488 |
Net operating income (excluding IFRIC 21) |
$ |
30,848 |
$ |
32,230 |
$ |
89,665 |
$ |
78,356 |
Net income and comprehensive income |
$ |
4,232 |
$ |
8,816 |
$ |
14,462 |
$ |
5,702 |
Diluted net income per Unit |
$ |
0.05 |
$ |
0.11 |
$ |
0.18 |
$ |
0.09 |
EBITDA |
$ |
26,131 |
$ |
28,311 |
$ |
74,498 |
$ |
67,078 |
EBITDA Margin % |
29.7% |
31.3% |
28.8% |
30.3% |
||||
Funds from operations (FFO) |
$ |
16,355 |
$ |
19,306 |
$ |
45,782 |
$ |
45,429 |
Diluted FFO per Unit (2) |
$ |
0.21 |
$ |
0.25 |
$ |
0.57 |
$ |
0.68 |
Adjusted funds from operations (AFFO) |
$ |
14,954 |
$ |
17,512 |
$ |
41,739 |
$ |
40,744 |
Diluted AFFO per Unit (2) |
$ |
0.19 |
$ |
0.22 |
$ |
0.52 |
$ |
0.61 |
Distributions declared |
$ |
12,645 |
$ |
12,669 |
$ |
37,977 |
$ |
32,759 |
AFFO Payout Ratio |
84.6% |
72.3% |
91.0% |
80.4% |
||||
Debt-to-Gross Book Value (1) |
53.4% |
53.7% |
53.4% |
53.7% |
||||
Debt-to-EBITDA (trailing twelve month basis) |
7.8x |
9.4x |
7.8x |
9.4x |
||||
Interest Coverage Ratio |
2.9x |
3.3x |
2.8x |
3.3x |
||||
Weighted average Debt face interest rate (1) |
4.64% |
4.61% |
4.64% |
4.61% |
||||
Weighted average Debt term to maturity (1) |
6.7 years |
7.8 years |
6.7 years |
7.8 years |
||||
Number of Units outstanding (1) |
78,062,194 |
78,033,606 |
78,062,194 |
78,033,606 |
||||
Diluted weighted average number of Units outstanding – IFRS (3) |
78,273,324 |
78,253,220 |
78,226,651 |
66,853,148 |
||||
Same property Occupancy rate |
76.5% |
76.8% |
75.6% |
75.2% |
||||
Same property Average daily room rate |
$ |
82.20 |
$ |
82.79 |
$ |
84.06 |
$ |
84.21 |
Same property RevPAR |
$ |
62.88 |
$ |
63.58 |
$ |
63.55 |
$ |
63.33 |
Same property Revenues |
$ |
49,953 |
$ |
50,478 |
$ |
149,097 |
$ |
148,586 |
Same property Net operating income (4) |
$ |
17,650 |
$ |
17,438 |
$ |
53,269 |
$ |
52,756 |
Same property NOI Margin % |
35.3% |
34.5% |
35.7% |
35.5% |
||||
(1) |
At period end. |
(2) |
The Debentures were dilutive for FFO and AFFO for the three and nine months ended September 30, 2018. Therefore, Debenture finance costs of $788 and $1,745 were added back to FFO and AFFO for the three and nine months ended September 30, 2018, respectively, and 5,283,783 Units issuable on conversion of the Debentures were added to the diluted weighted average number of Units outstanding for the same periods. |
(3) |
Diluted weighted average number of Units calculated in accordance with IFRS included the 211,130 unvested Restricted Stock Units as at September 30, 2018. |
(4) |
Not adjusted for IFRIC 21 property taxes. |
SOURCE American Hotel Income Properties REIT LP
Jamie Kokoska, Director, Investor Relations, Phone: 604-670-6242, Email: [email protected]
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