American Hotel Income Properties REIT LP Reports Second Quarter 2020 Results

American Hotel Income Properties REIT LP announced its financial results for the three and six months ended June 30, 2020. 

“During the second quarter we successfully navigated what was likely the most severe hotel sector downturn in modern history, but we’re cautiously optimistic that the worst impacts of COVID-19 are now behind us,” said John O’Neill, CEO.  “All of our 79 hotels are now open, our hotel occupancy has consistently improved since the lows experienced in April, and in July we recorded 55.3% average occupancy – enabling us to achieve our first cash flow positive month since the pandemic began.” 

Mr. O’Neill continued: “While lingering negative impacts of COVID-19 are expected to continue for the foreseeable future, and business levels continue to be pressured relative to a normalized environment, we are pleased that our revenues have now improved enough alongside our expense reduction initiatives to enable us to generate positive cash flows once again.  This is a fairly unique position to be in, as many publicly traded US hotel REITs continue operations with closed hotels and with negative cash flow.  We believe our strategic focus on select-service, premium branded hotels in secondary markets – not gateway cities, has provided us with the advantage of a more durable business model.  We also remain vigilant in appropriately balancing our previously implemented cost containment measures with increasing hotel occupancy, to ensure we drive margin expansion and stay well positioned within this dynamic and evolving market environment.”

Mr. O’Neill added: “We are pleased to be welcoming guests to our hotels with increased health and safety measures in place.  We continue to see the strongest performance from our 24 extended stay properties, which averaged 54.1% occupancy during the second quarter, and 64.6% in the month of July, with our Residence Inn by Marriott branded properties performing particularly well relative to the U.S. hotel industry.  Leisure travelers, government agency and essential service groups continue to drive this occupancy recovery.” 

Mr. Azim Lalani, CFO, added: “Our enhanced liquidity, previously announced debt covenant waivers and long- term loan maturity schedule provide us with a solid foundation to sustain our operations as we navigate lingering COVID-19 challenges.  As we have started to generate positive cash flow, our focus is shifting to paying down debt and further enhancing our liquidity.”

THREE MONTHS ENDED JUNE 30, 2020 FINANCIAL HIGHLIGHTS

• Revenues for the quarter decreased 69.7% to $27.3 million (Q2 2019 – $90.0 million) as a result of lower demand due to the significant impact of COVID-19 and portfolio changes between periods.
• Average Daily Rate (“ADR”) decreased 4.3% compared to Q2 2019, to $95.13 (Q2 2019 – $99.39).
• Occupancy during the second quarter decreased 43.6 percentage points to 34.7% (Q2 2019 – 78.3%). Average occupancy in April was 21.8%, when the worst impacts from COVID-19 were experienced. Average occupancy in May improved to 33.3%. Average occupancy in June improved to 49.0%.
• Revenue per Available Room (“RevPAR”) decreased 57.6% compared to the same quarter last year, to $33.01 (Q2 2019 – $77.82) due to significantly reduced demand related to COVID-19. The STR RevPAR index, which compares the performance of AHIP owned hotels to their competitive set in each region, indicated even though the hotel sector faced RevPAR pressure, AHIP’s 79 Premium Branded hotels have, in aggregate, significantly outperformed their identified direct competition with an average index rating of 136.0 during the quarter (Q2 2019 – 118.0) – with 100.0 representing a ‘fair share’ of the market.
• Net Operating Income (“NOI”) decreased by 86.7% to $4.3 million (Q2 2019 – $32.4 million) due to lower revenues, partially offset by expense reduction initiatives.
• NOI Margins decreased to 15.8% (Q2 2019 – 36.0%) as a result of lower revenue.
• Loss and comprehensive loss for the second quarter was $20.8 million, compared to net income and comprehensive income of $5.8 million in Q2 2019, as a result of lower revenues and NOI, fair value changes on interest rate swap contracts, and $3.7 million of impairment charges on three hotels during the period.
• Diluted loss per Unit for the quarter was $0.26 compared to a diluted income per Unit of $0.07 in Q2 2019.
• Funds from operations (“FFO”) in Q2 2020 decreased to $(9.1) million (Q2 2019 – $18.1 million) and adjusted funds from operations (“AFFO”) decreased to $(8.7) million (Q2 2019 – $16.6 million), due to the impact of COVID-19.
• Q2 2020 diluted FFO per Unit was $(0.12) (Q2 2019 – $0.23) and diluted AFFO per Unit was $(0.11) (Q2 2019 – $0.21).

Same-Property Results

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 second quarter decreased 68.9% to $22.3 million (Q2 2019 – $71.7 million) due to the impact of COVID-19.
• Same-property ADR decreased 20.3% to $92.47 (Q2 2019 – $116.09).
• Same-property RevPAR decreased 67.1% from Q2 last year to $31.07 (Q2 2019 – $94.50).
• Same-property occupancy decreased 47.8 percentage points to 33.6% (Q2 2019 – 81.4%).
• Same-property NOI was $2.8 million (Q2 2019 – $26.6 million) and the NOI margin was 12.5% (Q2 2019 – 37.2%). NOI declines were due to lower revenues as a result of COVID-19 impacts, which were partially offset by expense reduction initiatives.

SIX MONTHS ENDED JUNE 30, 2020 FINANCIAL HIGHLIGHTS

• Revenues for the first six months of 2020 decreased 47.7% to $89.1 million (2019 – $170.6 million) as a result of lower demand due to the significant impacts from COVID-19 beginning mid-March and portfolio changes between periods.
• Average Daily Rate (“ADR”) increased 8.9% compared to the first six months of 2019, to $107.17 (2019 – $98.40) due to portfolio changes between periods, partially offset by the impacts from COVID-19.
• Occupancy during the first six months of 2020 decreased 26.9 percentage points to 48.4% (2019 – 75.3%) as a result of lower demand due to the significant impacts from COVID-19 beginning mid-March.
• Revenue per Available Room (“RevPAR”) decreased 30.0% compared to the first six months of last year, to $51.87 (2019 – $74.10).
• Net Operating Income (“NOI”) decreased by 61.9% to $22.2 million (2019 – $58.2 million) due to lower revenues, and partially offset by expense reduction initiatives.
• NOI Margins decreased to 24.9% (2019 – 34.1%) as a result of lower revenue.
• Loss and comprehensive loss for the first six months of 2020 was $33.4 million, compared to net income and comprehensive income of $5.4 million in 2019, as a result of lower revenues and NOI, fair value changes on interest rate swaps, and $5.5 million of impairment charges on certain hotels during the period.
• Diluted loss per Unit for the first six months was $0.43 compared to a diluted income per Unit of $0.07 in the first six months of 2019.
• Funds from operations (“FFO”) in the first six months of 2020 decreased to $(4.4) million (2019 – $29.5 million) and adjusted funds from operations (“AFFO”) decreased to $(5.1) million (Q2 2019 – $26.6 million), due to the impact of COVID-19.
• Diluted FFO per Unit in the first half of 2020 was $(0.06) (2019 – $0.37) and diluted AFFO per Unit was $(0.06) (2019 – $0.33).

CAPITAL METRICS AND LIQUIDITY

• As at June 30, 2020, AHIP had an unrestricted cash balance of $27.1 million (December 31, 2019 – $17.8 million), a restricted cash balance of $28.8 million and available revolver capacity of $11.4 million.
• AHIP was compliant with all of its loan agreements at June 30, 2020 and is current on all of its debt payments.
• As at June 30, 2020, AHIP’s debt had a weighted average remaining term of 5.0 years (Q2 2019 – 5.9 years) and a weighted average interest rate of 4.54% (Q2 2019 – 4.64%), with no significant debt maturities until June 2022.
• AHIP’s debt-to-gross book value as at June 30, 2020 was 58.7% (June 30, 2019 – 53.9%).

SECOND QUARTER DEVELOPMENTS

• During the second quarter, AHIP embarked on a company-wide strategy to reduce costs, maximize liquidity and achieve break-even cash flows as quickly as possible.  These strategies reduced AHIP’s cash outflows by approximately $14 million a month, or approximately $42 million in total, during Q2 2020 and included, among other things:
• Reducing hotel staffing levels by approximately 70% at its peak;
• Reducing senior management compensation by 15% and CEO compensation by 50%;
• Temporarily consolidating hotel operations at 16 properties to neighboring AHIP owned properties and temporarily closing six hotel properties to improve hotel efficiencies, all of which have since resumed regular operations;
• Deferring renovation projects from 2020 to 2021 in consultation with AHIP’s hotel brand partners; and,
• The temporary suspension of the monthly cash distribution.
• 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.  AHIP expects a portion of these loans will be forgivable based on qualifying expenses provided other specific criteria are met.
• On June 15, 2020, AHIP amended its credit agreement with its lending syndicate to obtain an additional $11 million of revolver capacity and covenant waivers through Q1 2021.  In addition, AHIP successfully negotiated agreements with its CMBS loan servicers for 12 CMBS loans covering 41 hotels, which allow AHIP to utilize certain restricted cash reserves to fund debt service and deferral of FF&E reserve contributions for 90 days.  Subsequent to quarter end, AHIP expects to complete agreements for similar relief with its CMBS loan servicers on the remaining eight CMBS loans covering 20 hotels.
• On June 17, 2020, AHIP announced that at its annual and special meeting of unitholders held that day, all directors nominated as listed in the information circular dated May 15, 2020 were directed to be elected as directors of American Hotel Income Properties REIT (GP) Inc. for the ensuing year. The proposed amendments to AHIP’s Amended and Restated Limited Partnership Agreement, as described in the information circular, were also approved by unitholders at this meeting.

SUBSEQUENT EVENTS

• On July 6, 2020, AHIP entered into an agreement to sell its Wingate Tampa hotel property for gross proceeds of $7.5 million. The sale is expected to close by August 31, 2020.
• Average hotel occupancy for the month of July 2020 was 55.3%.

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, 2020, which are available on AHIP’s website at www.ahipreit.com and on SEDAR at www.sedar.com.

Q2 2020 FINANCIAL RESULTS CONFERENCE CALL

Management will host a conference call at 1:00 p.m. Eastern time / 10:00 a.m. Pacific time on Friday, August 7, 2020 to review the financial results for the three months ended June 30, 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’ Q2 2020 Analyst Call.

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 4:00 p.m. Eastern time / 1:00 p.m. Pacific time on August 7, 2020 until August 28, 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 8185616 followed by the # key.

NON-IFRS MEASURES

Certain non-IFRS financial measures are included in this news release, which include NOI, NOI Margin 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, NOI Margin 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, NOI Margin, FFO, diluted FFO per Unit, AFFO, diluted AFFO per Unit and debt-to-gross book value, 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, 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 August 6, 2020, which is available on SEDAR at www.sedar.com and on AHIP’s website at www.ahipreit.com.