(All amounts expressed in U.S. dollars unless otherwise indicated)
VANCOUVER, B.C. (August 9, 2017) – American Hotel Income Properties REIT LP (“AHIP”) (TSX: HOT.UN; TSX: HOT.DB.U; OTCQX: AHOTF) announced today its financial results for the three and six months ended June 30, 2017. The following comments 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, 2017 which are available on AHIP’s website at www.ahipreit.com and on SEDAR at www.sedar.com.
Q2 2017 EXECUTIVE SUMMARY
During the second quarter, AHIP continued its disciplined investment strategy through the acquisition of premium branded, select-service hotels located within larger secondary U.S. markets with diverse and stable demand from both corporate and transient travelers. AHIP completed a transformative acquisition with the purchase of 18 Marriott and Hilton branded, select-service hotels totaling 2,187 guestrooms located in high-barrier to entry secondary metropolitan markets located along the Eastern Seaboard of the United States.
“In the second quarter, AHIP executed on our pragmatic acquisition strategy to diversify the portfolio geographically with strong, demand focused hotels that deliver higher margins with lower volatility, and our results reflect that growth. As a result, year-over-year, AHIP’s hotel portfolio has grown by 41% to 113 hotels with premium branded, select-service hotels making up over 66% of total guestrooms and over 75% of total revenues,” said Rob O’Neill, CEO of AHIP. He continued, “With such rapid growth also come the challenges of professionally integrating the 23 newly acquired hotels into the operations systems of our exclusive Hotel Manager, and the opportunities to deploy the approximately $64 million of cash which remains available for both investment in capital improvements and further accretive acquisitions.”
In Q2 2017, revenues increased by 56.0% to $69.5 million, EBITDA rose by 47.7% to $22.3 million, funds from operations (“FFO”) increased by 38.4% to $14.5 million, while adjusted funds from operations (“AFFO”) rose 34.0% to $12.5 million, in each case, as a result of the addition of new hotels.
THREE MONTHS ENDED JUNE 30, 2017 FINANCIAL HIGHLIGHTS
- Total revenues for the quarter increased by 56.0% to $69.5 million compared to $44.5 million for the same quarter last year as a result of the acquisition of new hotels between reporting periods.
- Total portfolio revenue per available room (“RevPAR”) growth for the quarter was 12.8% led by occupancy increases of 2.6% and average daily rate (“ADR”) increases of 10.0%. Notable pro-forma RevPAR gains were achieved in Ohio, Tennessee and Florida with growth rates of 10.5%, 9.9% and 5.2%, respectively. This was offset by pro-forma RevPAR declines of 5.0% at the DFW property caused by new supply. Pro-forma RevPAR includes operating results for periods prior to their ownership by AHIP.
- Net loss for the quarter was $5.5 million as a result of a partial write-down in the value of an Oak Tree Inn located in Nebraska. When excluding the write-down, AHIP would have generated net income of $1.9 million compared to net income of $3.5 million in the prior quarter. Diluted net loss per Unit was $0.06 compared to a diluted net income per Unit of $0.10 in the prior year.
- For the quarter, FFO was up 38.4% to $14.5 million (2016 – $10.5 million) and AFFO was up 34.0% to $12.5 million (2016 – $9.3 million) as a result of the net addition of 33 hotels over the past three quarters.
- For the quarter, Diluted FFO per Unit was $0.23 (2016 – $0.30) and Diluted AFFO per Unit was $0.20 (2016 – $0.27).
- Same-property revenue RevPAR for Branded Hotels was down 1.6% with strong performance in Florida which saw RevPAR increases of 6.5% offset by weakness in Pittsburgh and Amarillo, which saw RevPAR declines of 8.1% and 10.0%, respectively. When excluding these two weaker regions, AHIP’s Branded Hotels would have generated RevPAR increases of 0.8%.
- Total portfolio same-property revenues for the quarter were $42.2 million (2016 - $43.6 million) with Rail Hotel revenues decreasing due to lower guaranteed revenues from recent rail crew contract renewals and Branded Hotel revenues impacted by the entrance of new supply in certain markets and displacement occurring at certain properties undergoing mandatory PIP renovations. Total portfolio same-property NOI was $14.8 million (2016 - $16.9 million) lower as a result of higher labor costs and lower revenues.
- EBITDA for the quarter was up 47.7% to $22.3 million compared to $15.1 million in the same period last year and EBITDA margin declined to 32.2% (2016 – 34.0%).
- The AFFO payout ratio during the quarter was 84.8% (2016 – 61.0%) reflecting the issuance of Units from the June 2017 Offering, the net proceeds of which were partially invested late in the quarter.
- AHIP’s interest coverage ratio for the second quarter was 3.7x (2016 – 4.3x).
- AHIP’s mortgages have an average term of 8.0 years (2016 – 7.7 years) and a fixed weighted average interest rate of 4.60% (2016 – 4.56%).
- AHIP paid monthly distributions of $0.054 per Unit during the quarter, which is equivalent to $0.648 per Unit on an annualized basis.
- As at June 30, 2017, AHIP had an unrestricted cash balance of $28.1 million, a restricted cash balance of $50.7 million and an unutilized revolving line of credit of $10.0 million.
- AHIP’s debt-to-gross book value as at June 30, 2017 was 53.9% within AHIP’s target range of 50% to 55%.
SECOND QUARTER DEVELOPMENTS
- On June 9, 2017, AHIP completed a public offering, on a bought deal basis, of: (i) 19,410,000 Units at a price of Cdn$10.35 ($7.6935) per Unit, for total gross proceeds of approximately Cdn$200.9 million ($149.3 million); and (ii) approximately $48.9 million aggregate principal amount of 5.00% convertible unsecured subordinated debentures due on June 30, 2022 (the “Debentures”) at a price of $1,000 per Debenture (collectively the “June 2017 Offering”). The gross proceeds included the issuance of 1,050,000 Units from the partial exercise of the Unit over-allotment option and approximately $6.4 million aggregate principal amount of Debentures from the full exercise of the Debenture over-allotment option.
- On June 22, 2017, AHIP completed the acquisition of 18 premium branded Marriott and Hilton select-service hotels located in Maryland, New Jersey, Pennsylvania, New York and Connecticut for a total purchase price of $395.0 million (or $186,000 per key) excluding $12.4 million in mandatory change of ownership PIPs. This acquisition was partially funded by proceeds from the June 2017 Offering and $236.2 million in long term, fixed rate mortgage financing with terms of 5 to 10 years, interest rates of 4.46% to 4.53% and significant interest-only periods.
SIX MONTHS ENDED JUNE 30, 2017 FINANCIAL HIGHLIGHTS
- Total revenues for the period increased by 54.9% to $131.2 million compared to $84.7 million for the same period last year as a result of the acquisition of new hotels between reporting periods.
- Total portfolio RevPAR growth for the period was 14.8% led by occupancy increases of 3.2% and ADR increases of 11.3%. Notable gains were achieved in Ohio, Tennessee and Florida with pro-forma RevPAR gains of 10.9%, 6.6% and 4.2%, respectively. Pro-forma RevPAR includes operating results for periods prior to their ownership by AHIP.
- Same-property RevPAR for Branded Hotels was flat with strong performance in Florida which saw RevPAR increases of 6.9% offset by weakness in Pittsburgh and Amarillo, which saw RevPAR declines of 8.3% and 3.8%, respectively. When excluding these two weaker regions, AHIP’s Branded Hotels would have generated RevPAR increases of 2.3%.
- Net loss for the period was $3.1 million as a result of a partial write-down in the value of an Oak Tree Inn located in Nebraska. When excluding this write-down, AHIP would have generated net income of $4.2 million compared to net income of $2.0 million in the prior period. Diluted net loss per Unit was $0.05 compared to a diluted net income per Unit of $0.06 in the prior year.
- For the period, FFO was up 47.7% to $26.1 million (2016 – $17.7 million) and AFFO was up 44.7% to $22.3 million (2016 – $15.4 million) as a result of the 34 new hotels added over the past three quarters.
- EBITDA for the period was up 51.9% to $39.2 million compared to $25.8 million in the same period last year and EBITDA margin declined slightly to 29.9% (2016 – 30.5%).
- The AFFO payout ratio for the period was 90.0% (2016 – 73.9%) reflecting the issuance of Units from the June 2017 Offering, the net proceeds of which were partially invested during the period.
Ian McAuley, President of AHIP commented, “Our Hotel Manager’s expertise in sales, revenue and yield management contributed to our Branded Hotels portfolio outperforming its competitive set, despite headwinds at certain properties that are expected to persist.” Mr. McAuley continued, “In addition, AHIP invested $5.4 million in capital expenditures including mandatory PIP renovations at our hotels which resulted in some guest displacement, and partially impacted our operating results, though the guest experience improvements are expected to generate positive returns in the coming months. Our asset management strategy is expected to result in greater cash flows and provide AHIP investors with consistent annual yields of approximately 8.0%, while significantly improving the quality of our hotel portfolio through accretive acquisitions and value-added capital expenditures.”
Q2 2017 FINANCIAL RESULTS CONFERENCE CALL
Management will host a conference call at 4:00 p.m. (Eastern), 1:00 p.m. (Pacific) on Thursday, August 10, 2017 to review the financial results and corporate results for the three and six months ended June 30, 2017.
To participate in this conference call, please dial one of the following numbers approximately 10 minutes prior to the commencement of the call, and ask to join the AHIP conference call.
|Dial in numbers:||North America Toll free:||1-877-291-4570|
|International or local Toronto:||1-647-788-4919|
CONFERENCE CALL REPLAY
If you cannot participate on Thursday August 10, 2017, 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 Thursday August 17, 2017. An audio recording of this conference call will also be available at www.ahipreit.com under the “Investor Info/Presentations & Calls” tab.
Please enter replay PIN number 53624988 followed by the # key.
|Replay dial in numbers:||North America Toll free:||1-800-585-8367|
|International or local Toronto:||1-416-621-4642|
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, 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 investment trusts often refer to NOI, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, and AFFO payout ratio as supplemental measures of performance and interest coverage ratio and debt-to-gross book value as supplemental measures of financial condition.
Debt-to-gross book value, NOI, EBITDA, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, interest coverage ratio and 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, EBITDA, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, interest coverage ratio, 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, please refer to AHIP’s MD&A dated August 8, 2017, which is available on SEDAR at www.sedar.com and on AHIP’s website at www.ahipreit.com.
Certain statements in this news release may constitute “forward-looking” information that 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 sustainability and nature of AHIP’s distributions; management’s acquisition strategies for the growth of AHIP; and AHIP’s long-term objectives.
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; and the value of the U.S. dollar. 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. Those risks and uncertainties include, among other things, risks related to: 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 and annual information form for the year ended December 31, 2016, 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.
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 growing a portfolio of premium branded, select-service hotels in larger secondary markets with diverse and stable demand generators as well as long standing contractual railway customers.
AHIP’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 add value through ongoing growth of its diversified hotel portfolio.
Additional information relating to AHIP, including AHIP's unaudited condensed consolidated interim financial statements for the three and six months ended June 30, 2017, AHIP’s MD&A dated August 8, 2017, and other public filings are available on SEDAR at www.sedar.com.
For further information, please contact:
Andrew Greig, Investor Relations
American Hotel Income Properties REIT LP
Suite 1660 – 401 West Georgia Street, Vancouver, B.C. V6B 5A1
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