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.
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."
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.
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