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Q1 2020 diluted FFO per Unit of $0.06; Q1 2020 diluted AFFO per Unit of $0.05
Net operating income (NOI) during first two months of Q1 2020 grew 3.6% compared to the same period last year; Same-Property NOI grew 9.8% in first two months of Q1 2020
Significant impact of COVID-19 experienced in last half of March
Aggressive cost cutting and credit initiatives taken by management to provide liquidity
63 of AHIP's 79 hotels open and accepting reservations; 16 hotels have temporarily
suspended reservations or consolidated with nearby properties
Occupancy levels across AHIP's hotels have stabilized and are now rising
Well positioned for the expected economic recovery: hotels near major interstate freeways are expected to benefit from a shift towards vehicle travel
AHIP's 24 extended stay hotel properties continue to be the best performing in the portfolio
(All numbers are in U.S. dollars unless otherwise indicated)
VANCOUVER, May 13, 2020 /PRNewswire/ - 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 months ended March 31, 2020.
"These are clearly unique and unprecedented times, for the world, and for the hotel industry. AHIP has taken prompt action and all necessary steps to protect our valuable hotel business and assets, at the same time with a maximum focus on ensuring the health and safety of our guests and employees. We are successfully navigating our business through this period of disruption and reduced travel, while working to ensure we are well prepared for the expected economic recovery once the pandemic subsides, and travel patterns start to return to normal," said John O'Neill, CEO. "Our first quarter was marked by two distinct periods – January and February, when our higher-quality hotel portfolio generated strong performance and 3.6% net operating income growth, and March – when we saw an abrupt impact from COVID-19 measures starting mid-month. The measures taken by governments, businesses and customers to limit travel had a significant and immediate impact on the U.S. hotel industry. We took quick actions to counteract some of the impacts of COVID-19 on our hotel operations and business levels, including significant hotel and corporate staff reductions, the deferment of planned capital projects, the suspension of our monthly distribution, and discussions with our lenders to enhance liquidity. These initiatives are expected to preserve more than $8 million of monthly cashflow (more than $100 million annualized), and combined with other measures, have provided us with the ability to weather this period of uncertainty."
Mr. O'Neill continued: "We are already seeing some early signs that occupancy rates have stabilized and are starting to improve. The 63 hotels we currently have open for reservations recorded 38% average occupancy so far this month, up 16 percentage points or 73% from the occupancy lows experienced in mid-April, and continue to achieve higher occupancy rates than many other hotels have recently reported. In fact, our 24 extended-stay oriented properties are currently achieving above 50% average occupancy. We believe this is an indication that our hotels are benefitting from both their locations near major interstate freeways and in secondary markets (rather than in large gateway cities), and our brand mix, with our extended stay and suite-oriented properties continuing to be our best performing. While we expect that significant impacts of COVID-19 on our sector and the U.S. economy will continue for at least several more months, we are cautiously optimistic that as the United States gradually re-opens, the business levels at our hotels will continue to improve overall."
THREE MONTHS ENDED MARCH 31, 2020 FINANCIAL HIGHLIGHTS
Revenues for the quarter decreased 23.2% to $61.9 million (Q1 2019 – $80.5 million) due to COVID-19 impacts in March 2020.
Average Daily Rate ("ADR") increased 17.0% compared to Q1 2019, to $113.88, due mostly to the higher quality hotels in AHIP's portfolio in Q1 2020 compared to the same quarter last year.
Revenue per Available Room ("RevPAR") increased 0.5% compared to the same quarter last year, to $70.83. The STR RevPAR index, which compares the performance of AHIP owned hotels to their competitive set in each region, indicated AHIP's 79 Premium Branded hotels generally outperformed their identified direct competition with AHIP having an average index rating of 122.4 during the quarter (Q1 2019 – 121.4) – with 100.0 representing a 'fair share' of the market. AHIP's recently acquired 12 Premium Branded hotels achieved an STR RevPAR index of 131.5, demonstrating their strong market position during the quarter.
The occupancy rate during the first quarter decreased 10.2 percentage points to 62.2% (Q1 2019 – 72.4%). There was a marked difference in occupancy during January and February 2020, compared to March 2020, when COVID-19 impacts had a significant and immediate effect in the second half of that month. Average occupancy in January and February was 69.7% – in line with the same period last year, while average occupancy in March was 47.6%.
Net Operating Income ("NOI") decreased by 30.8% to $17.9 million (Q1 2019 – $25.8 million) due to lower revenues. Net operating income for January and February 2020 grew 3.6% compared to the same period last year.
NOI Margins decreased by 320 basis points to 28.9% (Q1 2019 – 32.1%) as a result of lower revenue.
Loss and comprehensive loss for the seasonally slow first quarter was $12.6 million, compared to loss and comprehensive loss of $0.5 million in Q1 2019, as a result of lower revenues, a $5.8 million loss on the fair value of interest rate swaps due to falling interest rates, and a $1.9 million impairment charge on four hotels.
Diluted loss per Unit for the quarter was $0.16 compared to a diluted loss per Unit of $0.01 in Q1 2019.
Funds from operations ("FFO") decreased 59.0% from Q1 2019 to $4.7 million and adjusted funds from operations ("AFFO") decreased 63.9% to $3.6 million, primarily as a result of the impact of COVID-19.
Q1 2020 Diluted FFO per Unit was $0.06 (Q1 2019 – $0.15) and Diluted AFFO per Unit was $0.05 (Q1 2019 – $0.13).
Same-property metrics represent the performance of the 67 Premium Branded hotels owned in both the current and comparative period, or 85% of AHIP's total current hotel portfolio based on number of hotels.
Same-property revenues for the first quarter decreased 15.9% to $53.5 million (Q1 2019 – $63.5 million) due to COVID-19 impacts in March 2020. During January and February 2020, total same-property revenues increased by $1.3 million (or 3.4%).
Same-property ADR decreased 1.0% to $113.08 (Q1 2019 – $114.21).
Same-property RevPAR decreased 17.1% from Q1 last year to $70.34 (Q1 2019 – $84.86).
Same-property occupancy decreased 12.1 percentage points to 62.2% (Q1 2019 – 74.3%). Average occupancy in January and February was 69.6%, while occupancy in March declined to 47.7% due to the impact of COVID-19.
Same-property NOI was $15.2 million (Q1 2019 – $21.0 million) and the NOI margin was 28.5% (Q1 2019 – 33.0%). NOI declines were due to COVID-19 impacts in March 2020. Same-property NOI for January and February 2020 increased by $1.1 million (or 9.8%) to $12.3 million as a result of higher revenues and lower operating expenses with NOI margins increasing by 180 basis points to 30.9%.
Capital Metrics and Liquidity
As at March 31, 2020, AHIP had an unrestricted cash balance of $19.8 million ($29.9 million as at April 30, 2020) and a restricted cash balance of $29.9 million, consisting of $19.0 million in FF&E and PIP reserves and $10.9 million in property tax and insurance reserves.
Based on current hotel occupancy levels, AHIP estimates the net monthly cash burn rate (covering all expenses including all monthly debt service payments) to be approximately $3.8 million per month after taking into account the initiatives in place to limit costs. If overall occupancy returns to a 50% level, AHIP anticipates that its current cost containment measures would enable it to operate at an overall breakeven level with no net monthly cash burn.
AHIP is currently in active discussions with its CMBS loan servicers about applying some of the CMBS reserves for upcoming debt service payments and temporary suspension of FF&E reserve contributions to further enhance AHIP's liquidity. AHIP has already received such approvals from certain CMBS loan servicers and discussions are ongoing with the remainder of its CMBS loan servicers.
AHIP is in active discussions with its lending syndicate to obtain covenant waivers through Q1 2021 and access to additional revolver capacity.
AHIP was compliant with all of its loan agreements at March 31, 2020 and is current on all of its debt payments.
Through its various initiatives with its lenders, AHIP expects to generate approximately $20 million of additional liquidity.
As at March 31, 2020, AHIP's debt had a weighted average remaining term of 5.3 years (Q1 2019 – 6.2 years) and a weighted average interest rate of 4.36% (Q1 2019 – 4.64%), with no significant debt maturities until June 2022.
AHIP's debt-to-gross book value as at March 31, 2020 was 58.5% (March 31, 2019 – 53.8%).
AHIP paid U.S. dollar monthly distributions in January and February, and deferred the March distribution originally payable in April to a later date to be determined by AHIP's board of directors. AHIP has temporarily suspended its monthly distribution to preserve liquidity.
FIRST QUARTER DEVELOPMENTS
On March 10, 2020, AHIP's board of directors approved a 29.6% reduction of the Company's U.S. dollar monthly cash distribution. As a result, unitholders of record as of the close of business on March 31, 2020 will receive a distribution of US$0.038 cents per Unit for March 2020, the payment of which has been deferred to a later date to be determined by AHIP's board of directors.
On March 20, 2020, AHIP announced that its board of directors temporarily suspended AHIP's monthly distributions beginning in April 2020, until economic conditions and the performance of AHIP's hotels improve sufficiently. While economic uncertainty continues due to COVID-19, AHIP's board and management believe cash preservation is of upmost importance and the suspension of the monthly distribution is a prudent measure to ensure the long-term health of the business. AHIP's board of directors will continue to regularly review the Company's financial performance and position in order to determine an appropriate time for reinstatement of monthly distributions.
On April 8, 2020, AHIP announced that it had undertaken significant cost reduction and cash preservation measures, which are expected to provide the Company with more than $8 million of monthly cash flow savings (more than $100 million annualized) to help offset the negative impacts of COVID-19 on hotel business levels. These measures included:
In mid-April, AHIP applied for, and subsequently received, U.S. government-guaranteed loans intended to mitigate the impact of COVID-19 and support hotel operations.
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 months ended March 31, 2020, which are available on AHIP's website at www.ahipreit.com and on SEDAR at www.sedar.com.
Q1 2020 FINANCIAL RESULTS CONFERENCE CALL
Management will host a conference call at 5:30 p.m. Eastern time / 2:30 p.m. Pacific time on Wednesday, May 13, 2020 to review the financial results for the three months ended March 31, 2020.
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' Q1 2020 Analyst Call.
Dial in numbers:
North America Toll free:
International or local Toronto:
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 8:30 p.m. Eastern time / 5:30 p.m. Pacific time on May 13, 2020 until June 3, 2020. 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 4476906 followed by the # key.
Replay dial in numbers:
North America Toll free:
International or local Toronto:
Certain non-IFRS financial measures are included in this news release, which include NOI, FFO, Diluted FFO per Unit, AFFO, Diluted AFFO per Unit, 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, and Diluted AFFO per Unit 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, and Diluted AFFO per Unit, 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, 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 May 12, 2020, 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" or "financial outlook" within the meaning of applicable securities laws (also known as forward-looking statements). Forward looking information and financial outlook involve known and unknown risks, uncertainties and other factors, and 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 and financial outlook. Forward-looking information and financial outlook 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 and financial outlook in this news release includes, but are not limited to, statements with respect to: AHIP's belief that its portfolio is well positioned for the expected economic recovery, with hotels near major interstate freeways expected to benefit from a shift towards vehicle travel; AHIP's expectation that significant impacts of COVID-19 on the U.S. hotel sector and the U.S. economy will continue for at least several more months, AHIP is cautiously optimistic that as the United States gradually re-opens, the business levels at its hotels will continue to improve overall; AHIP's cost reduction, cash preservation and liquidity strategies, and the specific elements and intended outcomes thereof, including estimated monthly and annualized cash flow savings and estimated additional liquidity; AHIP's estimated net monthly cash burn rate and estimated occupancy level required to operate at an overall breakeven level with no net monthly cash burn; AHIP actively discussing covenant waivers through Q1 2021 and access to additional revolver capacity with its credit facility syndicate; AHIP's active discussions with its CMBS loan servicers about applying some of the CMBS reserves for upcoming debt service payments and temporary suspension of FF&E reserve contributions to further enhance AHIP's liquidity; AHIP's expectation that it will generate approximately $20 million of additional liquidity through its various initiatives with its lenders; the temporary suspension of AHIP's monthly distribution and the reasons for such suspension; AHIP's Board of Directors will continue to regularly review AHIP's financial performance and position in order to determine the appropriate time for reinstatement of monthly distributions; the deferral of the distribution in respect of the month of March 2020 to a later date; Aimbridge reducing some direct and third party service fees until at least June 30, 2020; and AHIP's stated long-term objectives.
Forward-looking information and "financial outlook" are 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 63 hotels currently in operation during the COVID-19 pandemic; 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 cost reduction, cash conservation and liquidity strategies will achieve their stated objectives and AHIP will continue to have sufficient funds to meet its financial obligations; AHIP will receive all necessary covenant waivers from its syndicate of lenders under its credit facility; AHIP will receive all necessary approvals from its CMBS loan servicers to use certain reserves to fund upcoming debt payments and to temporarily cease funding certain reserve contributions; AHIP's portfolio is better positioned for the expected economic recovery due to the location of its hotels near major interstate freeways and in secondary markets; and there will be a meaningful economic recovery in the U.S. and within the U.S. hotel industry along with a shift towards vehicle travel. Although the forward-looking information and financial outlook 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 and financial outlook 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 information and financial outlook 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 information and financial outlook. 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 have negatively impacted, and are expected to continue 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 or manner 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 cost reduction and cash conservation initiatives may not achieve their stated objectives, and cash savings may be less than anticipated; AHIP's liquidity initiatives may not achieve their stated objectives, and liquidity generated may be less than anticipated; AHIP may not receive covenant waivers from its lending syndicate and may not be granted access to additional revolver capacity, on terms acceptable to AHIP, or at all; AHIP may not receive necessary approvals from certain of its CMBS loan servicers to use certain reserves to fund upcoming debt payments and to temporarily cease funding certain reserves, and such approvals if received may not be on terms acceptable to AHIP; AHIP may require additional debt or equity capital in order to replenish any reserve funds drawn in accordance with the timing required by its CMBS loan servicers, and such funds may not be available to AHIP on reasonable terms, or at all; AHIP's portfolio may not benefit from the expected economic recovery to the extent anticipated; the expected shift towards vehicle travel may not be as significant as expected and be for a shorter duration than expected; the impacts of COVID-19 on AHIP's anticipated revenue levels and the recoverable amount of its hotel properties could lead to impairment charges on hotel properties in future periods; 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 information and financial outlook are based upon reasonable assumptions and information currently available; however, management can give no assurance that actual results will be consistent with this forward-looking information and financial outlook. Additional information about risks and uncertainties is contained in AHIP's MD&A dated May 12, 2020 and annual information form for the year ended December 31, 2019, copies of which are available on SEDAR at www.sedar.com.
To the extent any forward-looking information or statements in this news release constitute a "financial outlook" within the meaning of applicable securities laws, such information is being provided to assist investors in better understanding the potential financial impact of AHIP's cost reduction, cash preservation and liquidity strategies and measures.
The forward-looking information and financial outlook contained herein are expressly qualified in their entirety by this cautionary statement. Forward-looking information and financial outlook reflect management's current beliefs and is based on information currently available to AHIP. The forward-looking information and financial outlook are 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 relating to AHIP, including AHIP's unaudited condensed consolidated interim financial statements for the three months ended March 31, 2020, AHIP's MD&A dated May 12, 2020, 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 across the United States. AHIP's 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.
FIRST QUARTER HIGHLIGHTS AND KEY PERFORMANCE INDICATORS
(US$000s unless noted and except Units and per Unit amounts)
TOTAL PORTFOLIO INFORMATION (1)
Number of rooms (2)
Number of properties (2)
Number of restaurants (2)
Average daily room rate
Revenue per available room
Net operating income (3)
NOI Margin %
Loss and comprehensive loss
Diluted loss per Unit
EBITDA Margin %
FUNDS FROM OPERATIONS (FFO) (1)
Funds from operations
Diluted FFO per Unit (4)(5)
FFO Payout Ratio - rolling four quarters
ADJUSTED FUNDS FROM OPERATIONS (AFFO) (1)
Adjusted funds from operations
Diluted AFFO per Unit (4)(5)
Distributions declared per unit
CAPITALIZATION AND LEVERAGE
Debt-to-Gross Book Value (2)
Debt-to-EBITDA (trailing twelve-month basis)
Interest Coverage Ratio
Weighted average Debt face interest rate (2)
Weighted average Debt term to maturity (2)
Number of Units outstanding (2)
Diluted weighted average number of Units
Refers to combined continuing and discontinued operations
At period end
Not adjusted for IFRIC 21 property taxes
Diluted weighted average number of Units calculated in accordance with IFRS included the 529,298 and 90,724 unvested Restricted Stock Units as at March 31, 2020 and March 31, 2019, respectively
The Debentures were not dilutive for FFO and AFFO for the three months ended March 31, 2020 and not dilutive for FFO for the three months ended March 31, 2019. The Debentures were dilutive for AFFO for the three months ended March 31, 2019. Therefore, Debenture finance costs of $611 were added back to AFFO for the three months ended March 31, 2019. 5,283,783 Units issuable on conversion of the Debentures were added to the diluted weighted average number of Units outstanding for the applicable periods presented
SOURCE American Hotel Income Properties REIT LP