American Hotel Income Properties REIT LP ("AHIP") (TSX: HOT.UN; OTCQX: AHOTF) announced last week its financial results for the three and nine months ended September 30, 2015. All amounts are expressed in U.S. dollars unless otherwise noted.
THIRD QUARTER 2015 FINANCIAL HIGHLIGHTS
- Funds from operations ("FFO") for the current quarter increased by 65% to $8.9 million (2014 - $5.4 million), and adjusted funds from operations ("AFFO") for the current quarter was up 61% to $7.9 million (2014 - $4.9 million) reflecting the addition of 31 hotels comprising over 2,800 guestrooms in both the Branded Hotel and Rail Hotel portfolios.
- For the current quarter, Diluted FFO per Unit – As Reported was $0.27 (2014 - $0.28) and Diluted Core FFO per Unit was $0.29. For the current quarter, Diluted AFFO per Unit – As Reported was $0.24 (2014 - $0.25) and Diluted Core AFFO per Unit was $0.26.
- The portfolio generated RevPAR gains of 4.8% to $64.24 (2014 - $61.31) driven by higher average daily rates ("ADR") for the quarter, which were up 13.3% to $81.63 (2014 - $72.04). This was offset by lower occupancy for the current quarter of 78.7% (2014 - 85.1%), reflecting the change in the portfolio mix between the two reporting periods, a decrease in non-rail revenues at certain Oak Tree Inn hotels, a slowdown in Oklahoma due to impacts of weakness in the oil and gas industry, softness in Pittsburgh with the introduction of new hotel supply and displacement in Virginia due to extensive renovations at one hotel undertaken during the quarter.
- Pro-forma RevPAR at certain Branded Hotels, which includes operating results for periods prior to their ownership by AHIP, continued to remain strong and in line with estimates by STR, Inc. ("STR") of forecasted national RevPAR increases of 6.8%. Specifically, for the current quarter, the NC/GA Portfolio was up 14.1%, the NC/FL Portfolio was up 10.0% and the Texas Portfolio was up 4.4%. For the nine month period ended September 30, 2015, the NC/FL Portfolio was up 12.3%, the Florida Portfolio (as defined below) was up 8.0%, and the Virginia Portfolio was up 5.7%, despite room displacement due to a large hotel undergoing renovations. In addition, the Texas, Midwestern and NC/GA Portfolios all reported RevPAR growth in excess of 5.0%.
- Revenues for the quarter increased by 58% to $40.3 million (2014 - $25.5 million).
- EBITDA for the quarter was up 68% to $12.8 million (2014 - $7.6 million) and EBITDA margin for the quarter increased by 1.8% to 31.7% (2014 - 29.9%).
- AHIP's debt-to-gross book value at September 30, 2015 was 50.1% (2014 – 47.9%) and the interest coverage ratio for the current quarter remained unchanged at 3.9x compared to the prior year.
- AHIP's weighted average face interest rate improved during the quarter to 4.65% (2014 – 4.92%) and its weighted average loan term to maturity increased to 7.6 years (2014 – 6.6 years).
- AHIP continued to pay its regular monthly distribution of Cdn$0.075 and the payout ratio dropped to 72.9% (2014 – 81.8%) as AHIP completed its seasonally strong third quarter and the strengthening U.S. dollar provided a tailwind to the Canadian dollar denominated distributions.
- In August 2015, AHIP completed an approximately Cdn$42.9 million bought deal Unit issuance ("August 2015 Offering") to partially fund the acquisition of a strategic rail crew portfolio of five hotels comprising 586 guestrooms with rail crew contracts with one of the largest freight railway companies in the United States. The rail crew lodging contracts have occupancy guarantees of approximately 80% and average contract terms of nine years. The transaction was completed on September 16, 2015 and was partially financed with proceeds from the August 2015 Offering as well as a new, 10-year term, $20 million mortgage with a fixed interest rate of 4.25% for the first five years. The loan is interest only for the first year.
- On August 6, 2015, AHIP completed the acquisition of three Marriott-branded, select-service hotels located in Ocala, Florida("Florida Portfolio") for approximately $30.8 million. The acquisition was partially funded with cash on hand and a new $19.0 million CMBS mortgage with a 10 year term and a fixed interest rate of 4.21%. The loan is interest only for 10 years and has a 24 month FF&E reserve waiver.
- On July 2, 2015, AHIP announced an agreement with SunOne Developments Inc. ("SunOne") to begin construction on a 24-room expansion at the 50-room Oak Tree Inn hotel in Glendive, Montana at a cost of $2.8 million. The expansion of the hotel was due to an increased daily room commitment from the railway customer from 40 rooms to 55 rooms.
- On October 27, 2015, AHIP completed the renewal of 15 rail crew lodging contracts (the "Contract Renewal") with its largest railway customer for a term of five years, effective November 1, 2015. The Contract Renewal encompasses 15 Oak Tree Inn hotels located in 13 states covering 1,363 guestrooms, or approximately 40% of AHIP's total rail crew hotel guestrooms, and guarantees minimum occupancy at 2015 levels over the term of the agreement. The Contract Renewal will increase the weighted average remaining term of AHIP's rail crew contracts to 5.2 years. As part of the Contract Renewal, AHIP will spend approximately $2.0 million to refurbish these 15 Oak Tree Inn hotels.
- On October 30, 2015, AHIP acquired from SunOne the newly constructed 24-room expansion at the existing Oak Tree Inn hotel located in Dexter, Missouri for a total cost of $2.3 million. AHIP funded the expansion with cash on hand and the issuance of $300,000 (or 39,032 Units) in Units from treasury. The Units were issued at a price of Cdn$10.12, which represents the five-day volume-weighted average trading price of the AHIP Units for the five trading days immediately prior to the date of issuance.
- On November 2, 2015, AHIP announced three new, 24-room expansions at existing high occupancy Oak Tree Inn hotels located in North Platte, Nebraska, Hermiston, Oregon, and Hearne, Texas (collectively, the "Expansions"). The Expansions are being constructed by SunOne and will be acquired for an aggregate cost of US$6.4 million. The Expansions will be completed during the first half of 2016 and will be funded with cash on hand, mortgage debt and the issuance of AHIP Units.
- On November 10, 2015, AHIP completed the acquisition of a 70-room rail crew hotel in Fort Scott, Kansas for an aggregate purchase price of approximately $3.3 million including capital expenditures and excluding closing and post-acquisition adjustments. The acquisition was funded with cash on hand. AHIP intends to obtain mortgage financing on this property before year end.
The U.S. hotel industry just completed its 67th consecutive month of RevPAR growth and reported positive results for the third quarter of 2015 compared to the prior year. STR reported that occupancy was up 1.4% to 71.3%, ADR increased by 4.5% to $122.66 and RevPAR rose 5.9% to $87.47. In addition, demand was up 2.5% in the third quarter, while supply growth was limited to 1.2%. STR expects that positive lodging fundamentals will continue during 2015 with RevPAR growth of 6.8%. STR further expects 2016 RevPAR to grow by 6.0%, driven primarily by higher ADR.
For the Rail Hotel portfolio, the percentage of rail crew rooms currently guaranteed has increased to approximately 76% of the 3,561 available rail crew guest rooms.
AHIP continues to review its existing debt maturities in an effort to extend the term and reduce refinancing risk during the current low interest rate environment.
Certain non-IFRS financial measures are included in this news release which include ADR, RevPAR, Pro-forma RevPAR, NOI, EBITDA, EBITDA margin, FFO, FFO per Unit, Core FFO per Unit, AFFO, AFFO per Unit, Core AFFO per Unit, payout ratio, weighted average face interest rate, weighted average loan term to maturity 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, EBITDA, FFO, FFO per Unit, Core FFO per Unit, AFFO, AFFO per Unit, Core AFFO per Unit and 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, EBITDA, FFO, FFO per Unit, Core FFO per Unit, AFFO, AFFO per Unit, Core AFFO per Unit 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, FFO per Unit, Core FFO per Unit, AFFO, AFFO per Unit, Core AFFO per Unit, payout ratio, debt and 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 Management's Discussion and Analysis ("MD&A") dated November 12, 2015, which is available on SEDAR at www.sedar.com and on AHIP's website at www.ahipreit.com.
Management believes that the computation of FFO per Unit – As Reported and Core AFFO per Unit – As Reported includes certain items that are not indicative of the results provided by AHIP's operating portfolio and affect the comparability of AHIP's period-over-period performance. Therefore, in addition to FFO per Unit – As Reported and AFFO per Unit – As Reported, management uses Core FFO per Unit and Core AFFO per Unit to exclude such items. Management believes that Core FFO per Unit and Core AFFO per Unit are useful supplemental measures; however, this may not be comparable to the adjusted or modified FFOs and AFFOs per unit of other issuers.
ABOUT AMERICAN HOTEL INCOME PROPERTIES REIT LP
AHIP's diversified and well-balanced property portfolio is comprised of 79 hotels located in 27 states, representing 6,891 available guestrooms. The Rail Hotel segment, serving the U.S. freight railway industry, consists of 43 hotels comprising 3,561 guestrooms and 27 Penny's Diner restaurants. The Branded Hotel segment consists of 35 hotels comprising 3,330 guestrooms and is affiliated with leading hotel brands including Marriott, IHG and Hilton.
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 the railway employee accommodation, transportation and branded, select service lodging sectors.
AHIP's long-term objectives are to: (i) generate stable and growing cash distributions from hotel properties substantially in the U.S.; (ii) enhance the value of its assets and maximize the long-term value of the hotel properties through active management; and (iii) expand its asset base and increase its AFFO per unit through an accretive acquisition program, participation in strategic development opportunities and improvements to its properties through targeted value-added capital expenditure programs.
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