- AHIP announces that it has undertaken significant steps to mitigate the operational and financial impacts of the COVID-19 pandemic
- 60 of AHIP's 79 hotels are currently open for business, generating revenue and serving guests in compliance with government health guidelines
- Occupancy rates stabilizing at reduced levels, with extended stay properties remaining the best performing
- Hotel staffing levels reduced by 65%; will save more than $40 million in annualized operating cost savings
- Senior management compensation reduced alongside corporate office staff reductions
- Previously announced March 2020 distribution payment will be deferred
All financial figures are presented in US dollars, unless otherwise noted.
VANCOUVER, April 8, 2020 /PRNewswire/ - American Hotel Income Properties REIT LP ("AHIP" or "the Company") (TSX: HOT.UN, HOT.U, and HOT.DB.U) today provided the following business update regarding the continually evolving COVID-19 situation and government initiated measures.
"These continue to be unprecedented circumstances, and like all businesses, we are actively navigating the resulting challenges," said John O'Neill, CEO. "After evaluating the market viability of certain properties during this pandemic, we have made the decision to temporarily suspend guest operations at four hotels, and consolidate operations at 15 properties with other adjacent AHIP hotels. In conjunction with our hotel manager, we have also significantly reduced staffing levels to preserve cash flow. To date, more than 1,600 hotel staff have been laid off or furloughed, which represents 65% of our total hotel workforce. These decisions are always difficult, but we have ensured key roles remain in order to maintain the properties and be well positioned for a rapid recovery when regular travel patterns resume."
"We continue working to ensure we have sufficient liquidity to meet the challenges this pandemic has presented. Our 60 hotels that remain open for business – and are often catering to government, military, medical and logistics sector guests – are contributing to our revenue and are, in aggregate, providing positive cash flow to support our overall business during this period of uncertainty."
60 of AHIP's 79 hotels (76%) are currently open for business, generating revenue and serving guests in compliance with government health guidelines. Business levels at these properties continue to positively contribute, in aggregate, to AHIP's cash flow. The Company has made the decision to temporarily suspend guest operations at four properties and consolidate operations from 15 hotels into other adjacent AHIP hotels, due to reduced occupancy levels in those regions and to gain operating efficiencies. While these properties will remain staffed with minimal employees to ensure their maintenance and security, they will not be accepting guest reservations for at least the next 30 days. These hotels are well equipped to reopen quickly when regular travel patterns resume.
Occupancy levels at the 60 hotels that continue to operate have stabilized at reduced levels and are primarily benefiting from lodging contracts from government, military, medical and logistical sector organizations. AHIP is continually evaluating each property to ensure the most efficient use of resources. The Company's 24 extended stay hotel properties continue to operate at higher occupancy levels than other properties in the portfolio.
AHIP's hotel manager is working diligently to effectively cater to these changing occupancy levels by sharing staff resources among several AHIP properties, wherever possible, and reducing staffing levels where appropriate. To date, the total hotel employee count across AHIP's 79 hotels has been reduced by 65% – from approximately 2,500 employees to approximately 875, which will generate more than $3.5 million in monthly cost and cash flow savings. AHIP's hotel manager, Aimbridge Hospitality, has also provided fee reductions for hotel management services until at least June 30, 2020, which are expected to result in approximately $0.7 million in cash savings during the second quarter.
AHIP's hotel brand partners – primarily Marriott, Hilton, and IHG – have been accommodating in these circumstances by adjusting brand standards to meet current business levels, while still maintaining positive guest experiences. In addition, franchisors have deferred capital projects into 2021 and have approved the use of capital reserves to fund operating expenses. This, together with the potential temporary elimination of FF&E reserve funding, is expected to enhance AHIP's liquidity during the coming weeks.
As a result of the current economic environment, AHIP has also reduced its corporate staffing levels by approximately 27% and all senior management has taken an immediate 15% salary reduction for the remainder of 2020. John O'Neill, CEO, has agreed to an immediate 50% salary reduction for the remainder of 2020 and will continue to receive all of his compensation in units (equity). In addition, AHIP's board of directors has agreed to receive 100% of their 2020 retainer fees in units, rather than cash. Collectively, these actions will reduce 2020 corporate cash expenses by approximately CAD$1.5 million.
AHIP is taking all prudent measures necessary to reduce its expenses and conserve cash during this period of economic uncertainty. More than $100 million of annualized cash flow savings have already been identified through the following initiatives:
- $40.0 million of annualized cash flow savings from reduced hotel staffing levels
- $36.0 million of annualized cash flow savings from the suspension of distributions on AHIP's units
- $15.0 million of 2020 cash flow savings from deferred capital expenditures to future years
- $12.0 million of potential annualized cash flow savings if AHIP temporarily stops funding FF&E reserves
- CAD$1.5 million of annualized cash flow savings from reduced corporate staffing and salaries
AHIP has also already submitted formal applications for the Payroll Protection Program through the U.S. Small Business Administration, as part of the announced U.S. CARES Act, which may provide added financial support for hotel operations and employees. AHIP is current on all of its debt payments and remains onside with all debt covenants.
March 2020 Distribution Payment Deferment:
In light of the recent reduction in business levels due to COVID-19 impacts and AHIP's strategic focus on cash conservation during this period of uncertainty, the Company will be deferring until a later date the payment of its March 2020 distribution previously declared to be payable on April 15, 2020 to unitholders of record on March 31, 2020. The payment will occur when business levels improve and AHIP's board of directors, in consultation with management, determines it is appropriate to pay. AHIP will update unitholders who are on record to receive this distribution of the new payment date via news release, when the payment date is determined.
In the past three weeks, AHIP executives and board members have collectively purchased over 500,000 units through open market transactions, representing their belief in the long-term value of the Company. These insider purchases have been disclosed through regulatory filings.
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 information in this news release include, but are not limited to, statements with respect to: the estimated cash savings from hotel staffing reductions, senior management compensation reductions, corporate office staff reductions, AHIP's board agreement to receive their 2020 retainer fees in units; suspension of distributions on AHIP's units, deferred capital expenditures, and potential temporary cessation of FF&E reserve funding; AHIP having ensured key roles remain in order to maintain its properties and position AHIP for rapid recovery when regular travel patterns resume; AHIP continuing to work to ensure it has sufficient liquidity; 60 of AHIP's hotels remaining open for business and continuing to positively contribute, in aggregate, to AHIP's cash flow; AHIP not accepting guest reservations for at least the next 30 days in respect of 19 of its hotels to gain operating efficiencies; such hotels being minimally staffed to ensure their maintenance and security, and AHIP's belief that such hotels are well equipped to reopen quickly when regular travel patterns resume; AHIP continually evaluating each property to ensure the most efficient use of resources; AHIP's 24 extended stay properties continuing to operate at higher occupancy levels than other properties in the portfolio; fee reductions for hotel management services from Aimbridge Hospitality until June 30, 2020 and the expected cash savings therefrom; franchisors deferring capital projects into 2021 and approving the use of capital reserves to fund operating expenses; potential temporary elimination of FF&E reserve funding is expected to enhance AHIP's liquidity during the coming weeks; potential for additional financial support to AHIP under the U.S. CARES Act; the deferral of the payment date for the distribution previously declared to be payable on April 15, 2020 to unitholders of record on March 31, 2020, until business levels improve and AHIP's board of directors, in consultation with management, determines it is appropriate to pay, and the reasons for such deferral; AHIP's statement that it will issue a news release to advise of the new payment date for such distribution when the payment date is determined; the belief of AHIP executives and board members in the long-term value of AHIP; and AHIP's stated long-term objectives.
Forward-looking information is based on a number of key expectations and assumptions made by AHIP, including, without limitation: the COVID-19 pandemic will continue to negatively impact the U.S. economy, U.S. hotel industry and AHIP's business, and the extent and duration of such impact; AHIP's occupancy levels will not materially deteriorate from current levels; AHIP will be able to continue to operate the majority its 60 hotels currently in operation during the COVID-19 pandemic, and such properties will continue to generate positive cash flow, in aggregate, for AHIP; AHIP will not cease guest operations at a material number of additional properties as a result of government regulations, lack of sufficient guest bookings or other reasons; AHIP will be able to recommence guest operations on a timely basis at those properties where guest operations have temporarily been suspended or consolidated with adjacent AHIP properties; AHIP's cash conservation strategies will achieve their stated objectives and AHIP will continue to have sufficient funds to meet its financial obligations; AHIP will receive all necessary approvals to use capital reserves to fund operating expenses and to temporarily cease funding FF&E reserves; and AHIP will receive financial support under the U.S. CARES Act. 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 information is provided for the purpose of presenting information about management's current expectations and plans relating to the future and readers are cautioned that such information may not be appropriate for other purposes. Forward-looking information involves 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 information. Those risks and uncertainties include, among other things, risks related to: the impacts of the COVID-19 pandemic on the U.S. economy, the hotel industry, the willingness of the general public to travel, the level of consumer confidence in the safety of travel and AHIP's business, all of which are expected to negatively impact AHIP and may materially adversely affect AHIP's investments, results of operations, financial condition and AHIP's ability to obtain additional equity or debt financing, or re-finance existing debt, or make interest and principal payments to its lenders and to holders of AHIP's debentures, and otherwise satisfy its financial obligations and may cause AHIP to be in non-compliance with one or more of the financial covenants under its existing credit facilities and cause a default thereunder; there is no guarantee that monthly distributions will be reinstated, and if reinstated, as to the timing thereof or what the amount of the monthly distribution will be; there is no guarantee as to the timing of the payment of the deferred March 2020 distribution; the pace of recovery following the COVID-19 pandemic cannot be accurately predicated and may be slow; AHIP's cash conservation initiatives may not achieve their stated objectives, and cash savings may be less than anticipated; occupancy may further decline and AHIP may suspend or consolidate guest operations at additional hotels; further government restrictions on travel, additional mandated social distancing and other health related regulations related to the COVID-19 pandemic may also cause AHIP to suspend or consolidate guest operations at additional hotels and delay the recommencement of guest operations at hotels where such operations have already been suspended or consolidated; when regular travel patterns resume, or otherwise, it may take longer than expected to recommence operations at hotels where guest operations have been temporarily suspended or consolidated; one or more of the 60 hotels currently in operation may from time to time operate at levels which result in negative cash flows to AHIP; AHIP may not receive necessary approvals from to use capital reserves to fund operating expenses and to temporarily cease funding FF&E reserves; and AHIP may not receive any financial support under the U.S. CARES Act. Management believes that the expectations reflected in the forward-looking information contained herein are based upon reasonable assumptions and information currently available; however, management can give no assurance that actual results will be consistent with such forward-looking information. Additional information about risks and uncertainties is contained in AHIP's MD&A dated March 10, 2020 and annual information form for the year ended December 31, 2019, 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
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 across the United States. AHIP's portfolio of 79 premium branded, select-service hotels are located in secondary metropolitan markets that benefit from 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 monthly 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.
SOURCE American Hotel Income Properties REIT LP